-----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, RrOVZK8jLxPhru7HsPuviknAJ59jJaLwBUU8oCAWzFmKPM95mXsxTS+1ADGG2eG3 xnLMjr03tgeMskkVHJ/EQQ== 0000072909-00-000003.txt : 20000315 0000072909-00-000003.hdr.sgml : 20000315 ACCESSION NUMBER: 0000072909-00-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHERN STATES POWER CO /WI/ CENTRAL INDEX KEY: 0000072909 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 390508315 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-03140 FILM NUMBER: 568624 BUSINESS ADDRESS: STREET 1: 100 N BARSTOW ST CITY: EAU CLAIRE STATE: WI ZIP: 54702 BUSINESS PHONE: 7158392592 MAIL ADDRESS: STREET 1: P O BOX 8 CITY: EAU CLAIRE STATE: WI ZIP: 54702-008 10-K 1 UNITED STATES 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) or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (no fee required) For the fiscal year ended December 31, 1999 Commission file number: 10-3140 Northern States Power Company, a Wisconsin corporation, meets the conditions set forth in general instruction I (1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format. (In general instruction I(2)) NORTHERN STATES POWER COMPANY (Exact name of registrant as specified in its charter) Wisconsin 39-0508315 (State or other jurisdiction of (I.R.S. employer identification number) incorporation or organization) 1414 W. Hamilton Ave. 54701 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (715) 839-2621 Securities registered pursuant to Section 12(b) of the Act: - ------------------------------------------------------------------- None Securities registered pursuant to Section 12(g) of the Act: - ------------------------------------------------------------------- None 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 the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Class Outstanding at March 14, 2000 - ----- --------------------------------- Common Stock, $100 Par Value 862,000 Shares All outstanding common stock is owned beneficially and of record by Northern States Power Company, a Minnesota corporation. Documents Incorporated by Reference - -------------------------------------- None INDEX - ----- PART I Page No. - ------- -------- Item 1 Business 1 REGULATION AND RATES Utility Industry Restructuring Status 1 Construction Authorization 3 Ratemaking Principles in Wisconsin and Michigan 4 Fuel and Purchased Gas Adjustment Clauses 4 Rate Matters by Jurisdiction 5 ELECTRIC OPERATIONS Competition 7 NSP System 7 Capability and Demand 8 Demand Side Management 8 Intercompany Agreements 8 Fuel Supply 9 Electric Operating Statistics 9 GAS OPERATIONS 10 ENVIRONMENTAL MATTERS 11 CONSTRUCTION AND FINANCING 13 EMPLOYEES AND EMPLOYEE BENEFITS 14 Item 2 Properties 15 Item 3 Legal Proceedings 16 Item 4 Submission of Matters to a Vote of Security Holders 17 PART II - -------- Item 5 Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters 18 Item 6 Selected Financial Data 18 Item 7 Management's Discussion and Analysis 19 Item 7a Quantitative and Qualitative Disclosures about Market Risk 22 Item 8 Financial Statements and Supplementary Data 23 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 40 PART III - --------- Item 10 Directors and Executive Officers of the Registrant 40 Item 11 Executive Compensation 40 Item 12 Security Ownership of Certain Beneficial Owners and Management 40 Item 13 Certain Relationships and Related Transactions 40 PART IV - -------- Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 41 SIGNATURES 43 - ---------- EXHIBITS (EXCERPT) - ------------------- Statement pursuant to Private Securities Litigation Reform Act of 1995 44 PART I ITEM 1 - BUSINESS - -------------------- Northern States Power Company (NSP-Wisconsin), incorporated in 1901 under the laws of Wisconsin as the La Crosse Gas and Electric Company, is an operating public utility company with executive offices at 1414 West Hamilton Ave., Eau Claire, Wis. 54701 (Phone: (715) 839-2621). NSP-Wisconsin is a wholly owned subsidiary of Northern States Power Company, a Minnesota corporation (NSP-Minnesota). The term NSP refers to NSP-Wisconsin combined with NSP-Minnesota and its other subsidiaries. NSP-Wisconsin is engaged in the generation, transmission, and distribution of electricity to approximately 214,000 retail customers in an area of approximately 18,900 square miles in northwestern Wisconsin, to approximately 9,000 electric retail customers in an area of approximately 300 square miles in the western portion of the Upper Peninsula of Michigan, and to 10 wholesale customers in the same general area. NSP-Wisconsin is also engaged in the distribution and sale of natural gas in the same service territory to approximately 81,000 customers in Wisconsin and 5,000 customers in Michigan. In 1999, NSP-Wisconsin derived 83 percent of its total operating revenues from electric utility operations and 17 percent from gas utility operations. Except for the historical information contained herein, the matters discussed in this Form 10-K are forward-looking statements that are subject to certain risks, uncertainties and assumptions as discussed in Management's Discussion and Analysis under Item 7 and Exhibit 99.01 to this report on Form 10-K BUSINESS DEVELOPMENTS --------------------- Proposed Merger - ---------------- NSP and New Century Energies, Inc. (NCE), a utility based in Denver, Colo., have agreed to merge. It is expected that NSP-Wisconsin will continue to exist as an operating subsidiary of the merged company. REGULATION AND RATES -------------------- The Public Service Commission of Wisconsin (PSCW) and the Michigan Public Service Commission (MPSC) regulate the rates and service of NSP-Wisconsin with respect to retail sales within Wisconsin and Michigan, respectively, and various other aspects of NSP-Wisconsin's operations. The Federal Energy Regulatory Commission (FERC) regulates wholesale sales of electricity and gas and various other aspects of operations. Utility Industry Restructuring Status - ---------------------------------------- Some states have begun to allow retail customers to choose their electricity supplier, and many other states are considering retail access proposals. The PSCW and Wisconsin Legislature have focused on improving electric system reliability before they address retail access. The MPSC has approved voluntary plans that began offering retail customers a choice of suppliers in selected markets in 1998. The Michigan Legislature is considering legislation to allow all customers to choose their electricity supplier by 2002. WISCONSIN Electric Due to electrical reliability concerns in eastern Wisconsin during the summer of 1997, the PSCW turned its focus from restructuring the electric utility industry to developing the utility infrastructure necessary to assure reliable electric service. In 1998, reliability legislation introduced by Wisconsin Governor Thompson passed and the 1997 Wisconsin Act 204, "the Reliability Act", became law. The Reliability Act contains a number of steps necessary for industry restructuring, including streamlining and updating the regulatory process. The restructuring activities in Wisconsin in 1998 were mainly limited to compliance with provisions of the Reliability Act. During the summer of 1999, an electric reliability bill was passed as part of the Budget Bill. This "Reliability 2000" bill, as it is known, included further steps necessary to move towards a restructured industry. Major components included some relief from a restriction on the amount of nonutility assets that a Wisconsin utility holding company can own, a requirement that eastern Wisconsin utilities join an eastern Wisconsin transmission company, mandated public benefits encompassing low income energy assistance, conservation programs, and renewable and environmental research. The bill also includes a mandate for the production of electricity from renewable fuel sources, local impact fees for new transmission lines and protection from some effects of implementing new Nitrogen Oxide emission rules for utilities that are members of the Mid-Continent Area Power Pool (MAPP), a regional electric generation and transmission reliability council and power pool. The effects of the provisions that impact NSP are: - an increase in the amount of money that must be collected from NSP-Wisconsin's customers to fund low-income assistance and conservation programs, renewable and environmental research, and - partial protection from potential costs related to the proposed Nitrogen Oxide emission regulations (see "Environmental Matters" in this Item and "Environmental Contingencies " in Footnote 8 to the Financial Statements in Item 8). NSP-Wisconsin is not affected by the mandate for the production of electricity from renewable fuels since it already relies significantly on renewable sources of energy. Although activity has taken place at the legislature that will ultimately enable a competitive energy market, at this time a definitive timeline has not yet been established for the implementation of retail competition in Wisconsin. Natural Gas A number of years ago the PSCW reviewed four proposed models of restructuring the natural gas industry. The chosen model deregulates the gas purchasing and transportation functions by market segment as competition becomes effective and sustainable. The PSCW then separated natural gas restructuring into three phases. In Phase I, the PSCW ordered separation of gas purchasing activities associated with providing regulated services from those associated with providing unregulated services. Phase II developed standards of conduct governing opportunity sales of pipeline capacity and gas supply and imposed additional restrictions on transactions between a utility and its gas marketing affiliate. The restrictions are intended to ensure fair treatment of all market participants. Phase III focused on identifying regulatory or structural barriers that may prohibit competition; identifying standards to determine the level of competitiveness of the market and the level of necessary regulation, and identifying conditions to impose on marketers serving formerly regulated markets. In this phase it was also decided that consumer protection and customer service policy issues must be addressed before any markets are deregulated. An Essential Services workgroup submitted a report to the PSCW in the first quarter of 1999 addressing customer protection and customer services issues. At this time the PSCW has not taken action on that report. The PSCW is currently addressing the issue of essential use customers. It is anticipated that natural gas market restructuring activities will resume in the next year or two. MICHIGAN Electric In 1998 the MPSC reaffirmed its order to open Michigan's retail electricity market to competition. The initial order directed large Michigan utilities to open 2.5 percent of their electric load to competition each year from 1997 to 2001, and to allow Michigan electric customers access to a competitive market in 2002. The larger Michigan utilities challenged that order. The lower courts upheld the MPSC's authority to implement retail competition; however, the State Supreme Court ruled that the MPSC did not have the authority to order retail competition, but may allow it if utilities proceed voluntarily. The smaller Michigan utilities, including NSP-Wisconsin, have not elected to offer customer choice at this time. A coalition of businesses and a few utilities, working through the Michigan Chamber of Commerce, have introduced a bill to mandate customer choice by January 2002. The smaller utilities continue to work with the Chamber and legislators to include provisions that take into consideration the unique situation of the smaller utilities in terms of multi-state territory, implementation costs to customers and the effective date. Natural Gas Legislation allowing natural gas customers to choose their own gas supplier was introduced in late 1999 and it has the general support of the major natural gas providers in Michigan. The bills contain specific provisions for the smaller natural gas utilities in the state which allow an extended phase-in schedule. Under the smaller utility phase-in schedule, 10 percent of the utilities' gas customers would be allowed to choose their gas supplier in April 2004 and the program would expand until all customers are allowed to choose their gas supplier by April 2005. The MPSC would have the option of extending these dates if, upon review of the utilities' customer choice plans, the MPSC determines it to be in the public interest. The proposed bills call for MPSC approval of all plans before implementation, licensing of marketers, codes of conduct for affiliates and a safe haven for natural gas commodity service. The timing of regulatory actions regarding electric and gas restructuring and their impact on NSP-Wisconsin and the industry cannot be predicted at this time and may be significant. FEDERAL ENERGY REGULATORY COMMISSION (FERC) In 1996, the FERC issued Orders No. 888 and 889 to foster competition in the electric utility industry. These orders give competing wholesale suppliers the ability to transmit electricity through a utility's transmission system. Order No. 888 grants nondiscriminatory access to transmission service. Order No. 889 seeks to ensure a fair market by imposing standards of conduct on transmission system owners, by requiring separation of the wholesale power supply -- or merchant -- function from the transmission system operation function, and by mandating the posting of transmission availability and pricing information on an electronic bulletin board. NSP has made open access transmission tariff filings and compliance filings with the FERC and believes it is taking the proper steps to comply with these rules. Electric Transmission To foster competition in the wholesale electricity market, the FERC requires the transmission portion of a utility's business to be functionally separate from the utility's generation facilities. The Reliability Act also calls for a separate transmission operating structure. NSP has joined the Midwest Independent System Operator or MISO (an independent entity that will control the operation of the electric transmission systems of NSP and other utilities) because it is the most effective means available to enhance the competitive market for wholesale electricity. This election also supports accounting and regulatory considerations associated with our proposed merger. The MISO intends to commence operations in June 2001. The MISO will administer transmission service for most of the area extending east from NSP's service area to Pennsylvania and south through Illinois and Kentucky. NSP remains a member of MAPP. MAPP recently signed an agreement with the MISO, which may further broaden the scope of the MISO and regional markets for transmission service. NSP-Wisconsin has filed for PSCW approval of its request to transfer operating control of its transmission system to the MISO on March 1, 2000. It is expected that, during 2000, the PSCW will approve NSP-Wisconsin's request to transfer operating control to the MISO and certify that NSP-Wisconsin's joining of the MISO will satisfy the statutory requirement for a separate transmission operating structure. Construction Authorization - --------------------------- Before construction of a major electric project begins, NSP-Wisconsin must obtain various licenses and permits, including either a Certificate of Authority (CA) or a Certificate of Public Convenience and Necessity (CPCN), from the PSCW. The minimum project expenditure requiring a CA is $5 million. Transmission line projects involving equipment with a capacity less than 100 Kilovolts (kv), costing less than $5 million, and of a length greater than 10 miles on new right-of-way, are subject to a review by PSCW staff. That review may lead to the full review process if the PSCW deems it necessary. NSP-Wisconsin is required to file a CPCN application for: 1) transmission lines with a capacity greater than 200 kv and greater than 1 mile in length; 2) and transmission lines with a capacity greater than 100 kv, greater than one mile in length and on new right-of-way; and 3) generation projects with a capacity greater than 100 Mw. Before the passage of the Reliability Act, NSP-Wisconsin was required to file a CPCN application for all transmission line projects greater than 100 kv and greater than 1 mile in length and all generation projects with a capacity greater than 12 Mw. In 1996, NSP and Dairyland Power Cooperative of LaCrosse, Wis. proposed building an electric transmission system between NSP-Minnesota's Chisago substation in eastern Minnesota and Dairyland's Apple River substation in northwestern Wisconsin in response to a need for additional reliability and capacity in both regions. During 1999 the PSCW granted permission to build the system. Approval from Minnesota regulators is still needed. The Minnesota Department of Commerce recommended not building the line as it is proposed, although they did acknowledge the need for more transmission capacity. Its recommendation will be considered by the Minnesota Environmental Quality Board (MEQB), which has the authority to approve or deny the project. NSP and Dairyland have responded to additional data requests from the Department of Commerce to be used in the regulatory proceedings in Minnesota. At this time, the Administrative Law Judge is reviewing the case and parties are making their cases before him. A decision from the MEQB is expected in mid 2000. In eastern Wisconsin, which is not served by NSP-Wisconsin, the compound effect of simultaneous generating facility outages and a transmission system already near capacity raised the possibility of rolling blackouts and system instability in that area during 1997. The PSCW and the Governor's office have studied proposals to amend the requirements for new electric generation and transmission facilities to promote the production of more electricity and the movement of more electricity to the state. Currently there are several proposals before the PSCW to install additional generation in southeastern Wisconsin, and a proposal by some utilities to construct a new 345 kv transmission line from Duluth, Minn. to Wausau, Wis. Ratemaking Principles in Wisconsin and Michigan - ---------------------------------------------------- The PSCW and MPSC regulate the rates and service of NSP-Wisconsin with respect to retail sales within Wisconsin and Michigan, respectively, and various other aspects of NSP-Wisconsin's operations. The PSCW also exercises jurisdiction over the construction of certain electric and gas facilities and the issuance of new securities. NSP-Wisconsin is also subject to the jurisdiction of the FERC with respect to its sales to wholesale electric customers and certain other aspects of its operations, including the licensing and operation of hydroelectric projects and NSP-Wisconsin's Interchange Agreement (see Electric Operations-Interchange Agreement). Approximately 93 percent of NSP-Wisconsin's 1999 revenues from sales were subject to PSCW jurisdiction. Of the 93 percent, 75 percent was generated from retail electric revenues and the remaining 18 percent from retail gas revenues. NSP-Wisconsin's wholesale revenues from sales subject to FERC jurisdiction were approximately four percent of NSP-Wisconsin's 1999 revenues from sales with the remaining three percent of revenues from sales subject to MPSC jurisdiction. All three of the regulatory jurisdictions allow a "forward looking" test year corresponding to the time that rates are to be put into effect. The PSCW has a biennial filing requirement. By June 1 of each odd-numbered year, NSP-Wisconsin must submit filings for calendar test years beginning the following January 1. The filing procedure and subsequent review generally allow the PSCW sufficient time to issue an order effective with the start of the test year. The PSCW reviews each utility's cash position to determine if a current return on Construction Work in Progress (CWIP) will be allowed. The PSCW will allow either a current return on CWIP or capitalization of Allowance for Funds Used During Construction (AFC) at the adjusted overall cost of capital. NSP-Wisconsin currently capitalizes AFC on production and transmission CWIP at the FERC formula rate and on all other CWIP at the adjusted overall cost of capital. Fuel and Purchased Gas Adjustment Clauses - ---------------------------------------------- Wisconsin Wisconsin does not have an automatic retail electric fuel adjustment clause. Instead, it has a procedure which compares actual monthly and anticipated annual fuel costs with those costs that were included in the latest retail electric rates approved by the PSCW. If the comparison results in a difference outside a range of eight percent for any month and two percent for the year; or five percent for the first and second months and two percent for the year; or two percent cumulative year to date after the second month and two percent for the year, the PSCW may hold hearings limited to fuel costs and revise rates. The revised rates remain in effect until the next biennial rate case. Fuel and purchased power costs are monitored, including demand costs for sales and transmission wheeling expenses. Gas rate schedules include mechanisms to compensate for differences between the actual cost of gas that NSP-Wisconsin purchased for its customers and the price of purchased gas already included in base rates. The mechanism in use before March 1, 1999 was the Purchased Gas Adjustment Clause (PGA) and the mechanism in use since that time is the Gas Cost Recovery Mechanism (GCRM) The financial impact of the two is substantially the same. Approximately 70 percent of NSP-Wisconsin's gas revenues represent recovery of gas costs through the GCRM. NSP-Wisconsin's latest three year gas supply plan was approved by the PSCW in October 1999. PSCW approval is needed before gas supply costs can be recovered in the GCRM. The previous year's three year gas supply plan allowed NSP-Wisconsin to purchase additional pipeline capacity from NSP's subsidiary Viking Gas Transmission Company (Viking), but the PSCW's approval to purchase that capacity was contingent on the excluding from the GCRM the cost of an equivalent amount of capacity on the Northern Natural Gas (NNG) pipeline. NSP-Wisconsin had planned to recover the cost of the NNG capacity, since it could no longer recover the cost from NSP-Wisconsin gas customers, by selling the right to this capacity in the secondary market. However, in the 1999-2000 heating season, the value of NNG capacity in the secondary market declined and NSP-Wisconsin estimates that $400,000 of its NNG pipeline capacity expenses will not be recovered through either the GCRM or the secondary capacity release market. NSP-Wisconsin recorded a liability of $400,000 for this estimated loss. Due to the uncertainty of prices in the secondary market, it is possible that NSP-Wisconsin's ultimate loss might be greater. Michigan NSP-Wisconsin's Michigan retail gas and electric rate schedules include Gas Cost Recovery Factors and Power Supply Cost Recovery Factors, respectively, which are based on a twelve-month projection of costs. The MPSC requires formal filing and subsequent approval of the factors. After each twelve-month period is completed, a reconciliation is submitted and over-recoveries are refunded and any under-recoveries are collected, including interest. Wholesale Eight wholesale customers are on a FERC approved rate schedule which includes a fuel adjustment factor based on variations between estimated electric fuel and purchased power costs and actual fuel and purchased power costs. The remaining two wholesale customers have fixed rate contracts that do not include a fuel adjustment factor. Rate Matters by Jurisdiction - ------------------------------- Wisconsin 1998 Filing - ------------ During November 1997, NSP-Wisconsin filed retail electric and gas rate cases with the PSCW requesting an annual increase of approximately $12.7 million, or 4.3 percent, in retail electric rates and an annual decrease of $1.7 million, or 1.9 percent, in retail gas rates. On Sept. 15, 1998 the PSCW issued a rate order which authorized: - a $7.3 million, or 2.5 percent, increase in electric rates, - a $1.9 million, or 2.2 percent, decrease in gas rates, and - an 11.9 percent return on common stockholder's equity. In July 1997 NSP-Wisconsin received authorization from the PSCW to defer, rather than immediately expense, its share of Network Transmission Service (NTS) costs incurred after May 23, 1997. (NTS costs are the result of FERC Order No. 888 and relate to operating and maintaining the regional electric transmission network that NSP shares with other transmission system-owning entities.) NSP was in dispute with certain other parties over the amount to be paid for NTS, so it deferred estimated NTS costs in some cases. In its 1998 rate order, the PSCW authorized NSP-Wisconsin to recover these deferred NTS costs from its customers and NSP-Wisconsin has simultaneously expensed the regulatory asset for these deferred NTS costs. At Dec. 31, 1999 settlements had been reached with most parties and only an immaterial balance of deferred NTS costs remained. 2000 Filing - ------------ In May 1999 NSP-Wisconsin filed an application with the PSCW for recertification of certain plant depreciation rates and for approval of a change to the remaining life technique for the calculation of straight-line depreciation for production facilities. The PSCW issued its order in the third quarter of 1999, and revised depreciation rates were put into effect on Jan. 1, 2000. Annual depreciation expense is expected to decrease slightly in 2000 as a result of this change. In October 1999 the PSCW approved NSP-Wisconsin's application for authority to maintain base retail electric and natural gas service rates in Wisconsin at current levels through 2001. Current rates were placed in effect in September 1998. Fuel Cost Surcharges - ---------------------- NSP-Wisconsin's base electric rates include an amount to reimburse it for the cost of generating station fuel and purchases of electricity from others. When fuel and purchased power costs exceed that amount (as discussed earlier), NSP-Wisconsin can request that the PSCW authorize a temporary surcharge to rates. - In September 1997 the PSCW authorized a temporary surcharge of $0.00043 per kilowatt-hour (kwh) which produced about $574,000 of revenue in 1997 and $1.6 million of revenue in 1998. The surcharge was necessary because of unplanned and extended outages at NSP-Minnesota's nuclear generating stations and higher than projected costs to transmit electricity purchased from other utilities to NSP-Wisconsin's service territory. - In October 1999 the PSCW authorized a temporary surcharge of $0.00195 per kwh to electricity billed between Oct. 26 and Dec. 31, 1999. It generated approximately $1.8 million of revenue. Purchased power costs were substantially higher during the summer of 1999 due to extreme weather. - On Feb. 14, 2000, NSP-Wisconsin filed an application with the PSCW to increase electric rates for fuel costs. In its application NSP-Wisconsin noted that 2000 fuel costs are forecast to be $11.9 million above authorized levels, primarily due to higher purchased power costs. The application is currently pending before the PSCW, and a decision is expected in the second quarter of the year. The amount of cost recovery and the effective date of the potential surcharge will be determined upon completion of the regulatory process. If NSP-Wisconsin's application is approved, a surcharge would be added to customer bills for the remainder of 2000 and all of 2001. Michigan On Jan. 6, 1999 the MPSC approved a settlement agreement authorizing NSP-Wisconsin to restructure its Michigan retail electric rates. The settlement more closely aligns rates with the cost to provide service to various classes of customers. It will decrease rates for some customers and increase rates for others, but it will not change the total amount of revenue expected to be collected from all Michigan retail electric sales. An 11.9 percent return on equity was authorized. The new rates have been phased in over two years to minimize the impact on customers. The second phase was implemented in January 2000. FERC-Electric In response to changes in the wholesale electric market, NSP-Wisconsin is providing discounts and negotiated services to be competitive. All ten municipal wholesale customers have current power supply arrangements under which they will purchase most of their power supply requirements from NSP-Wisconsin. NSP offers two types of electric transmission service under its Open Access Transmission Tariff: point-to-point and network. In the first quarter of 1998, NSP filed point-to-point and network service rate cases with the FERC. In March 1999, NSP filed an offer of settlement that would resolve virtually all issues in the two cases. The offer of settlement provides an approximate two percent reduction in point-to-point rates which, combined with anticipated reductions in non-firm discounting, is expected to have little or no impact on annual revenue. In addition, the settlement calls for an annual increase of approximately $1 million in ancillary service revenues. Finally, the settlement places a cap on NSP's annual NTS payment liabilities to its five current NTS customers at $10 million per year, about 15 percent of which relates to NSP-Wisconsin. The point-to-point and ancillary rates would be effective Oct. 1, 1998. The offer also includes a three-year moratorium period on future transmission rate changes. All parties filed written comments generally recommending FERC approval of the offer. In December 1999 the FERC issued an order approving the settlement. In January 2000, NSP and the Southern Minnesota Municipal Power Agency reached a settlement resolving the remaining NTS liability for 1996 through 1998. The settlement does not materially affect 2000 NSP-Wisconsin earnings. NSP-Wisconsin expects final FERC approval in 2000. On Nov. 24, 1998, Wisconsin Electric Power Company (WE) filed a complaint against NSP with the FERC relating to transmission service curtailments. In March 1999 NSP and WE reached a settlement, and the settlement was approved by the FERC on May 19, 1999. The settlement provides that NSP is not liable to WE for transmission curtailments during 1998 and that NSP will bear certain disputed transmission mitigation costs for 1998 and 1999. The financial impact of the settlement is not material. In May 1999 a majority of MAPP members voted to approve a MAPP regional transmission service tariff. The MAPP tariff would prospectively supersede MAPP members' individual electric transmission service tariffs for most wholesale transactions. The proposed MAPP tariff was filed with the FERC in June 1999. MAPP proposed the new tariff be effective 90 days after a FERC order accepting the tariff for filing. When effective, MAPP's tariff could reduce NSP's earnings due to lower revenues and/or higher costs. The tariff is pending FERC action. While there is a small probability that the tariff could take effect as early as July 1, 2000, which would result in a $6 million pretax impact in 2000 (about 15 percent of which would relate to NSP-Wisconsin), NSP anticipates continued regulatory delay to tariff implementation resulting in minimal, if any, impact on NSP's 2000 pretax earnings. ELECTRIC OPERATIONS ------------------- Competition - ----------- NSP-Wisconsin's electric sales are subject to competition in some areas from municipally owned systems, electric cooperatives, other utilities and independent power producers. Electric service also increasingly competes with other forms of energy. Although NSP-Wisconsin cannot predict the extent to which its future business may be affected by supply, relative cost, or promotion of other electricity or energy suppliers, NSP-Wisconsin believes that it will be in a position to compete effectively. The Energy Policy Act of 1992 has been a catalyst for comprehensive and significant changes in the operation of electric utilities, including increased competition. The Act's reform of the Public Utility Holding Company Act of 1935 (PUHCA) promoted creation of wholesale nonutility power generators and authorized the FERC to require utilities to provide wholesale transmission services to third parties. The legislation allows utilities and nonregulated companies to build, own, and operate power plants nationally and internationally without being subject to restrictions that previously applied to utilities under the PUHCA. Many states are currently considering proposals to increase competition in the supply of electricity. As discussed previously, regulators and legislators in Wisconsin and Michigan are currently considering what actions they should take regarding electric industry competition, including restructuring. The timing of regulatory actions regarding restructuring and their impact on NSP-Wisconsin cannot be predicted at this time and may be significant. NSP System - ----------- NSP-Wisconsin's electric production and transmission systems are interconnected with the production and transmission system of NSP-Minnesota (the "NSP System"). The NSP System includes coal, nuclear, natural gas, waste wood, and refuse-derived fuel (RDF) steam generating plants, gas and oil fired combustion turbines, hydroelectric plants, an interconnection with the Manitoba Hydro-Electric Board for the purpose of exchanging power, and extra-high voltage transmission facilities for interconnection to Kansas City, Milwaukee and St. Louis to provide the necessary back-up for large power plants in those regions. NSP-Minnesota operates two nuclear generating plants: the single unit, 578 Mw Monticello Nuclear Generating Plant and the Prairie Island Nuclear Generating Plant with two units having a total summer capacity of 1,049 Mw. The Monticello Plant commenced operation in 1971 and is licensed to operate until 2010. Prairie Island Units 1 and 2 commenced operation in 1973 and 1974 and are licensed to operate until 2013 and 2014, respectively. The ability of these nuclear plants to continue operating until the end of the license periods is dependent upon the availability of storage facilities for used nuclear fuel. The Monticello plant has sufficient temporary storage for used fuel to operate until 2010. With the additional on-site dry cask fuel storage facilities approved by the Minnesota Legislature in 1994, the Prairie Island plant is expected to have sufficient temporary storage capacity to operate until 2007. The Nuclear Waste Policy Act required the DOE to begin accepting spent nuclear fuel no later than Jan. 31, 1998. In 1996, the DOE notified commercial spent fuel owners of an anticipated delay in accepting spent nuclear fuel by the required date, and conceded that a permanent storage or disposal facility will not be available until at least 2010. Accordingly, NSP has been providing, with regulatory and legislative approval, its own temporary on-site storage facilities at its Monticello and Prairie Island nuclear plants. NSP-Minnesota may have to rely on these on-site or contracted off-site facilities for storage of used fuel to continue operations of its nuclear plants until a DOE disposal or storage facility is ready. (See related legal proceedings under Item 3 - Legal Proceedings, herein.) During 1998 NSP announced its intention to form a nuclear management company (NMC). Recent developments are: - During 1999, NSP, WE, Wisconsin Public Service Corp. and Alliant Energy established a NMC that it expects will improve plant performance and reliability, strengthen operational efficiency, maintain high safety levels and reduce costs. The four companies operate seven nuclear units at five sites with a total generation capacity exceeding 3,650 Mw. - In late 1999, NMC member utilities filed an application with the Nuclear Regulatory Commission (NRC) to transfer plant operating licenses to the NMC. The four partners, including NSP, will retain ownership of their respective nuclear plant assets. License transfer would allow the NMC to become an operating company in 2000. During 1999, NSP's board of directors and the boards of the other utilities approved the transfer of the nuclear operating licenses for their respective companies to the NMC. The request to transfer operating licenses requires approval from state and federal regulators, including the NRC. Capability and Demand - ----------------------- NSP-Wisconsin's record peak demand of 1,259 Mw occurred on July 30, 1999. As a member of MAPP, NSP must own or contract for enough electric generating capacity to serve its own customers plus an additional "reserve requirement" to protect the system from failure in case of an unexpected generating station outage or demand due to severe weather. NSP's reserve requirement is determined jointly with the other parties to the MAPP Agreement. Currently, the minimum reserve requirement is 15 percent of the NSP System's maximum demand. (Also see Electric Power Pooling Agreements.) NSP-Wisconsin primarily relies on plants operated by NSP-Minnesota for base load generation. Historically, approximately 80 percent of the total kwh requirements of NSP-Wisconsin were provided by NSP-Minnesota generating facilities or purchases made by NSP-Minnesota for NSP system use. NSP-Wisconsin owns fourteen thermal electric generating units on four sites and nineteen hydroelectric plants. These plants are used as "peaking plants" - called into service during periods of high demand for electricity - or as "intermediate load" plants to supplement the output of NSP-Minnesota's base load plants. NSP-Wisconsin's electric generating units are described in Item 2 - Properties. Demand Side Management - ------------------------ NSP-Wisconsin continues to implement various Demand Side Management (DSM) programs designed to improve load factor and reduce NSP-Wisconsin's power production cost and system peak demands, thus reducing or delaying the need for additional investment in new generation and transmission facilities. NSP-Wisconsin currently offers a broad range of DSM programs to all customer sectors, including information programs, incentive programs, and rate incentive programs. These programs are designed to respond to customer needs and focus on increasing the value of service that will, over the long term, reduce NSP-Wisconsin's capital requirements and help its customer base become more stable, energy efficient and competitive. Since 1986, NSP-Wisconsin's retail DSM programs have achieved 245 Mw of summer peak demand reduction. This is equivalent to 19 percent of NSP-Wisconsin's 1999 summer peak demand. The passage of Act 9, the Reliability 2000 bill, developed a new Division of Energy and Public Benefits within the State Department of Administration (DOA) and authorized additional public benefit funding. This agency will be responsible for the administration of energy conservation programs, energy assistance programs for low income customers, and renewable and environmental research. The current utility spending on these activities will be transferred to the Division of Energy and Public Benefits over a three year period. The increase in money beyond current utility spending will be collected by utilities from their customers and sent to the DOA for disbursement. NSP-Wisconsin is currently working with the Division of Energy and Public Benefits, the PSCW and other stakeholders on the implementation and compliance with the legislation. At this time there are many unknowns surrounding the future implementation of energy efficiency services including NSP's future role in providing those services. Although a significant portion of the costs will be passed through from the customer to the DOA and thus will not affect NSP-Wisconsin, certain utility labor costs associated with providing those services are currently in question. Since 1996 NSP-Wisconsin has been allowed to immediately expense rather than defer and amortize certain DSM program expenditures. The remaining balance of deferred pre-1996 DSM program costs will be amortized in full by the end of 2002. Intercompany Agreements - ------------------------ NSP-Wisconsin and NSP-Minnesota share the electric production and transmission costs of the NSP System. The cost-sharing arrangement between the companies is referred to as the Interchange Agreement. It is a FERC-regulated agreement and has been accepted by the PSCW and the MPSC for determination of costs recoverable in rates by NSP-Wisconsin for charges from NSP-Minnesota in rate cases. Historically NSP-Wisconsin's share of the NSP System annual production and transmission costs has been between 15 to 16 percent. Revenues received from billings to NSP-Minnesota for its share of NSP-Wisconsin's production and transmission costs are recorded as electric operating revenues on NSP-Wisconsin's income statement. The portions of NSP-Minnesota's production and transmission costs that were charged to NSP-Wisconsin were recorded as purchased and interchange power expenses and other operation expenses, respectively, on NSP-Wisconsin's income statement. (See Note 6 to Financial Statements). Under the Interchange Agreement, NSP-Wisconsin could be charged a portion of the cost of an assessment made against NSP-Minnesota pursuant to the Price-Anderson liability provisions of the Atomic Energy Act of 1954. (See Note 8 to the Financial Statements). NSP filed an updated Administrative Services Agreement (NSP-Wisconsin and NSP-Minnesota share some administrative services and related costs) with the PSCW and Minnesota Public Utilities Commission (MPUC) in October 1998. The update does not fundamentally change the nature of the relationship between the parties, but rather refines the services that may be exchanged and addresses the cost allocation methods to be used. The updated Agreement requires a full cost allocation in place of the incremental cost method used in the previous agreement, and places an explicit restriction on sharing non-utility resources. The new Agreement was approved by the PSCW in January 1999, the MPUC in March 1999, and became effective Jan. 1, 1999. Fuel Supply - ------------ Coal and nuclear fuel will continue to be the dominant fuels for NSP System generating plants over the next several years and natural gas, oil, refuse derived fuel, waste materials, renewable sources, and wood will also continue to be used. The actual fuel mix for 1999, and the estimated fuel mix for 2000 and 2001, are as follows: Fuel Use on Btu Basis ------------------------- (Est.) (Est.) 1999 2000 2001 ---- ---- ---- Coal 57.5% 58.5% 58.7% Nuclear 38.4% 36.4% 36.7% Other 4.1% 5.1% 4.6%
Electric Operating Statistics - ------------------------------- The following table summarizes the revenues, sales and customers from NSP-Wisconsin's electric business, excluding sales to NSP-Minnesota and miscellaneous revenues: OPERATING STATISTICS - --------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ELECTRIC REVENUE (THOUSANDS) Residential $ 126 744 $ 121 178 $ 117 490 $ 118 557 $ 121 073 Commercial and industrial 190 904 184 137 175 438 169 189 169 416 ------- ------- ------- ------- ------- Total retail 317 648 305 315 292 928 287 746 290 489 Sales for resale 17 292 16 769 16 429 17 391 17 902 ------- -------- -------- -------- -------- Total $ 334 940 $ 322 084 $ 309 357 $ 305 137 $ 308 391 ========= ========= ========= ========= ========= SALES (MILLIONS OF KILOWATT-HOURS) Residential 1 731 1 706 1 681 1 706 1 718 Commercial and industrial 3 703 3 674 3 528 3 405 3 327 ----- ----- ----- ----- ----- Total retail 5 434 5 380 5 209 5 111 5 045 Sales for resale 471 462 455 458 456 ----- ----- ----- ----- ----- Total 5 905 5 842 5 664 5 569 5 501 ===== ===== ===== ===== ===== CUSTOMER ACCOUNTS (DECEMBER 31) Residential 190 926 187 977 184 921 183 036 181 151 Commercial and industrial 32 265 31 538 31 002 30 695 30 388 ------ ------ ------ ------ ------ Total retail 223 191 219 515 215 923 213 731 211 539 Sales for resale 10 10 10 10 10 ------- ------- ------- ------- ------- Total 223 201 219 525 215 933 213 741 211 549 ======= ======= ======= ======= =======
In early 1998, Fort James Corp. closed its Ashland, Wis. paper mill. It was one of NSP-Wisconsin's ten largest electric and gas customers, purchasing in excess of $2 million of utility services from NSP-Wisconsin annually. The financial effect of losing this customer was reflected in NSP-Wisconsin's 1998 Wisconsin rate filing. One of NSP-Wisconsin's five largest combined retail electric and gas customers, Heileman Brewing of La Crosse, was sold. Stroh's Brewery had sold the beer labels and decided to close its breweries, including the La Crosse brewery. Heileman purchased approximately $2.8 million of utility services annually. Platinum Holdings, a New York based investment company, purchased the brewery and began making beer in November 1999 as the City Brewery. The estimated annual revenue for gas and electric service for the first year of operation is $1 million and is expected to grow as they increase production and possibly convert some of the plant to produce ethanol. GAS OPERATIONS -------------- NSP-Wisconsin has a strategy of holding a diversified portfolio of natural gas supplies and transportation arrangements. It relies entirely on third party suppliers for its natural gas supply needs, and uses pipelines only for transportation and storage services. NSP-Wisconsin purchases natural gas from numerous suppliers, obtains contracts for transportation service on directly connected and upstream pipelines, and delivers the supplies to NSP-Wisconsin's gas service territory. In addition, NSP-Wisconsin has directly contracted for underground storage and owns and operates liquefied natural gas and propane-air peak shaving facilities. NSP-Wisconsin's diversified supply and transportation contracts, as well as underground storage and peak shaving facilities, provide NSP-Wisconsin with the ability to meet customer needs with reliable and economic natural gas supply. The PSCW is continuing to investigate the need to change natural gas regulation in Wisconsin as a result of changes in the structure of natural gas utility pipeline services provided to all gas utilities. The PSCW is advocating a market model in which gas costs will be deregulated by segment, where competition is effective. Distribution service will remain regulated. NSP-Wisconsin continues to hold annual and/or winter peaking transportation contracts with Northern Natural Gas Company, Great Lakes Transmission Limited Partnership, Northern Border Pipeline Company, Viking, and TransCanada Pipeline, LTD. In July 1998 NSP-Wisconsin completed the acquisition of Natural Gas, Inc. (NGI), a natural gas utility serving approximately 1,900 customers in the New Richmond, Wis. area. The transaction was a tax-free reorganization for tax purposes and was recorded as a 'pooling of interests' for accounting purposes. Financial statements for prior periods were not restated because the combination had only an immaterial effect on operating results and financial condition.
Gas Operating Statistics - -------------------------- The following table summarizes the revenues, sales and customers from NSP-Wisconsin's gas business, excluding sales to NSP-Minnesota and miscellaneous revenues (including the PGA and GCRM): 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- REVENUES (THOUSANDS) Residential $37 732 $35 034 $39 989 $41 382 $37 251 Commercial & Industrial 44 453 43 620 49 459 47 033 43 189 ------ ------ ------ ------ ------ Total $82 185 $78 654 $89 448 $88 415 $80 440 ======= ======= ======= ======= ======= SALES (THOUSANDS OF MCF) Residential 5 744 5 168 5 848 6 457 5 873 Commercial & Industrial 13 251 12 784 13 132 13 557 13 078 ------ ------ ------ ------ ------ Total 18 995 17 952 18 980 20 014 18 951 ====== ====== ====== ====== ====== CUSTOMER ACCOUNTS (DECEMBER 31) Residential 75 224 72 673 68 631 65 868 63 176 Commercial & Industrial 10 503 10 277 8 809 8 657 8 377 ------ ------ ------ ------ ------ Total 85 727 82 950 77 440 74 525 71 553 ====== ====== ====== ====== ======
------ ENVIRONMENTAL MATTERS --------------------- NSP-Wisconsin monitors its operations to ensure the environment is not adversely affected and takes timely corrective actions if past practices have had a negative impact on the environment. Significant resources are dedicated to environmental training, monitoring and compliance. NSP-Wisconsin strives to maintain compliance with all applicable environmental laws. Air and Water Emissions - -------------------------- NSP-Wisconsin presently operates hydro, coal, natural gas, tire-derived fuel, railroad tie, oil-fired, wood and refuse-derived fuel/wood-fired generation equipment. - The Wisconsin Department of Natural Resources (WDNR) has been authorized by the United States Environmental Protection Agency (EPA) to administer the National Pollutant Discharge Elimination System Permits under the Federal Water Pollution Control Act Amendments of 1977. Such permits are required for the lawful discharge of any pollutant into navigable waters from any point source (e.g. power plants). Permits have been issued for all of NSP-Wisconsin's applicable plants and all plants are in compliance with permit requirements. - The WDNR has jurisdiction over emissions to the atmosphere from the operation of NSP-Wisconsin's power plants. The operation of NSP-Wisconsin's generating plants substantially conforms to federal and state limitations pertaining to discharges into the air. In 1994 the EPA proposed air emission guidelines for municipal waste combustors. NSP-Wisconsin's French Island electric generating plant, which uses refuse-derived fuel, will be subject to the EPA's small municipal waste combustor regulations. They have not yet been finalized but NSP-Wisconsin could have to install additional pollution control and monitoring equipment to comply. The Clean Air Act calls for reductions in emissions of sulfur dioxide and nitrogen oxides from electric generating plants. NSP has already invested significantly to reduce sulfur dioxide emissions at its plants. In 1997, the EPA revised the National Ambient Air Quality Standards for ozone and fine particulate matter. In 1999, these standards were remanded to the EPA for reconsideration. It is unknown if the EPA will simply try to re-adopt the 1997 standards or propose additional changes. It is anticipated, based on historical monitoring, that NSP will be in compliance with the 1997 standards. However, if the standards change or if an area is determined to not comply with the standards, reductions in emissions of sulfur dioxide and oxides of nitrogen could be required. The Clean Air Act requires the EPA to investigate the impact of air toxic emissions from utilities and, if appropriate, recommend regulations to control those emissions. The EPA delivered a report to Congress in early 1998 that recommended additional investigation of air toxics emissions. The report did not recommend any controls on utility boilers at that time. In 1999, the EPA issued an Information Collection Request which required utilities to analyze coal shipments for mercury and share the results with the EPA and a number of coal-fired generating units were randomly selected, including one of NSP-Wisconsin's Bay Front generating units, for mercury emissions stack tests. The EPA intends to use the data to make a regulatory determination on the need for mercury controls on coal-fired utility boilers by the end of 2000. In October 1998 the EPA published nitrogen oxide (NOx) emission regulations affecting 22 states, including Wisconsin. The goal of the new regulations is to reduce NOx emissions by 85 percent by May 1, 2003. Two of NSP-Wisconsin's boilers and eight of its combustion turbines could have been affected by this action. If the existing boilers and combustion turbines were made compliant using retrofit technology to control NOx emissions, it could have cost NSP-Wisconsin up to $62.3 million for capital improvements and add $13.6 million each year to operation and maintenance expenses. This was the estimated cost of the most expensive alternative to achieve compliance, which was not necessarily the compliance alternative of choice. If the rules had been finalized in their most stringent form, other alternatives for these older units may have been deemed more cost effective than retrofitting. NSP-Wisconsin joined with two other Wisconsin-based utilities as well as the Wisconsin Paper Council and Wisconsin Manufacturers and Commerce industrial organizations to request a judicial review of the EPA's final NOx rules. NSP-Wisconsin believed that the EPA improperly included Wisconsin in the scope of the regulatory action and it improperly calculated potential emissions of NOx, reducing the allowable emission limits for the state. In 1999 the EPA was ordered by a federal appeals panel (7th Circuit) to suspend implementation of the NOx rules pending further action on a lawsuit brought by another trade group. Subsequently, the 7th Circuit action commenced by NSP-Wisconsin and other parties was transferred to the DC Circuit and consolidated with a similar action pending in the DC Circuit. In March 2000 the Court ruled that the EPA unlawfully included Wisconsin in the scope of the NOx rules. That decision releases NSP-Wisconsin from the new NOx rules. Legislation has been introduced in Wisconsin that would require a reduction of the amount of mercury emitted by electric generating plants and other sources. As currently proposed, the legislation would require significant and costly reductions of mercury emissions, without the assurance of commensurate environmental benefits. NSP-Wisconsin is working with the Wisconsin Utilities Association and other organizations, seeking amendments to the proposed legislation. To comply with federal and state laws and state regulatory permit requirements, NSP has installed environmental monitoring systems at all coal and RDF ash landfills and coal stockpiles to assess and monitor the impact of these facilities on the quality of ground and surface waters. In 1994, the United Nations Framework Convention on Climate Change was established. In 1997 the Kyoto Protocol was drafted and adopted at the third Conference. This Protocol will become effective following ratification by 55 countries, provided those 55 countries account for at least 55 percent of the total carbon dioxide emissions for 1990. Since the Conference at Kyoto there have been several conferences in which significant progress has been made to turn the broad concepts of Kyoto into working realities, including the development of an action plan. The sixth Conference will meet in November 2000 to continue development of the plan. Although the U.S. has signed the Kyoto Protocol, it must be ratified by the U.S. Senate for the U.S. to become a party to the protocol. If the U.S. becomes a party, the Kyoto Protocol would impose, during the first commitment period of 2008-2012, a binding obligation on the U.S. to reduce Greenhouse Gas emissions by seven percent below 1990 levels. Until the details regarding the action plan are completed, the impact on NSP cannot be determined. Waste Disposal - --------------- NSP-Wisconsin is potentially liable for remediating waste disposal sites owned by others and for decommissioning and restoration of present and former plant sites. (See "Environmental Contingencies" in Footnote 8 to the Financial Statements in Item 8.) NSP has met or exceeded the state and federal removal and disposal requirements for polychlorinated biphenyl (PCB) equipment. NSP has removed nearly all known PCB capacitors from its distribution system, network transformers and equipment in power plants. NSP continues to dispose of PCB-contaminated mineral oil and equipment in accordance with regulations. PCB-contaminated mineral oil is detoxified and reused or burned for energy recovery at permitted facilities. The amount of any future cleanup or remediation costs associated with past PCB disposal practices is unknown at this time. NSP-Wisconsin had been named as one of three potentially responsible parties in connection with environmental contamination at a site in Ashland, Wis. (See "Environmental Contingencies" in Footnote 8 to the Financial Statements in Item 8.) NSP-Wisconsin was also investigating its responsibility to remediate contamination found at a former landfill site in Amery, Wis. NSP-Wisconsin reached a settlement with the owner of the landfill during the second quarter of 1999 that released NSP-Wisconsin from liability. Electromagnetic Fields (EMF) - ------------------------------ EMF surround electric wires and conductors of electricity such as electrical tools, household wiring, appliances, electric distribution lines, electric substations and high-voltage electric transmission lines. Extensive research has been conducted in the last three decades concerning the possibility that adverse health effects may result from exposure to power-frequency fields surrounding transmission and distribution lines and the electrical appliances and devices which are common in residences and workplaces. By 1995, it was generally concluded in the scientific community that there was no consistent evidence that exposure to EMF produced by power lines and electric devices causes cancer or produces other adverse effects on human health. Extensive research studies published since 1995 have reinforced this view. The nation's electric utilities, including NSP, continue to support research in an effort to determine whether or not exposure to EMF causes health effects. The interaction of humans with EMF is complicated and will continue to be an area of public concern. Contingencies - ------------- Both regulatory requirements and environmental technology change rapidly. NSP cannot estimate the extent to which it may be required by law, in the future, to make additional capital expenditures or incur additional operating expenses for environmental purposes. NSP also cannot predict whether future environmental regulations might result in significant reductions in generating capacity or efficiency or otherwise affect NSP's income, operations or facilities. CONSTRUCTION AND FINANCING -------------------------- During the five years ended Dec. 31, 1999, NSP-Wisconsin had gross additions to utility plant in service of approximately $277 million. Included in NSP-Wisconsin's gross additions is $30 million for electric production facilities, $171 million for other electric properties, $32 million for gas utility properties, and $44 million for other utility properties. Based on studies made by NSP-Wisconsin, the weighted average age of depreciable property was approximately 15 years at Dec. 31, 1999. Expenditures for NSP-Wisconsin's construction programs for the next five years are estimated to be as follows: Year Estimated Construction Expenditures ---- ------------------------------------- (millions of dollars) 2000 $89 2001 71 2002 90 2003 76 2004 63 ---- TOTAL $389 ==== The largest projects included in these estimates are to construct a new 230-kilovolt (kv) electric transmission line between Chisago County, Minn. and Amery, Wis. and a new 161 kv line between Stone Lake, Wis. and the Bay Front Generating Plant in Ashland, Wis., and to rebuild transmission lines between Baldwin and Abbotsford, Wis. These projects' estimated total cost is $77 million, of which about $29 million will be spent in 2000. The 2000 construction expenditures are estimated to include approximately $75 million for electric facilities, $8 million for gas facilities and $6 million for general plant and equipment. It is presently estimated that approximately 79 percent of the 2000-2004 construction expenditures will be provided by internally generated funds, with the remainder from the issue of common equity and short-term and long-term debt. At Dec. 31, 1999, NSP-Wisconsin's short-term borrowings payable to NSP-Minnesota were $80.8 million. The PSCW has authorized up to $100 million of short-term borrowing. In addition to short-term borrowings, NSP-Wisconsin currently projects the need to issue $30 million of common stock equity and $50 million in long-term debt in 2000, and $70 million of long-term debt in 2003 to finance the estimated construction expenditures for the 2000-2004 construction program. The foregoing estimates of future construction expenditures, internally generated funds and external financing requirements can be affected by many factors, including load growth, competition, inflation, changes in the tax laws, rate relief, earnings and regulatory actions. Major electric and gas utility projects in Wisconsin are currently subject to the jurisdiction of the PSCW and require its approval. Hence, the above estimated construction program and financing program could change from time to time due to variations in these other factors. Bond Ratings - ------------- Standard and Poor's and Fitch IBCA currently rate NSP-Wisconsin's first mortgage bonds AA. Moody's Investors Service rates NSP-Wisconsin's first mortgage bonds Aa3, and the unsecured resource recovery bonds guaranteed by NSP-Wisconsin A1. On Nov. 15, 1999, Standard and Poor's assigned a preliminary rating of AA- to NSP-Wisconsin's new $80 million shelf registration of unsecured debt securities. A final rating will be assigned after their review is complete. On Dec. 2, 1999, Fitch IBCA rated the same shelf registration AA- and affirmed its AA rating for NSP-Wisconsin's first mortgage bonds. These ratings are the opinions of the rating agency and an explanation of the significance of these ratings may be obtained from them. A security rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating agency. Long Term Debt - ---------------- During 1999 NSP-Wisconsin filed a shelf registration with the SEC to issue up to $80 million of unsecured long-term debt. The board of directors of NSP-Wisconsin had authorized the issuance of up to $80 million of long-term debt and, in October 1999, NSP-Wisconsin received approval from the PSCW to issue up to $80 million of long-term debt and to increase its short-term borrowing limit to $100 million. NSP-Wisconsin plans to issue unsecured long-term debt during the fourth quarter of 2000. The funds will be used primarily to reduce short-term debt levels. (See Notes 2 and 3 to the Financial Statements.) Common Stock Equity - --------------------- On March 3, 2000, NSP-Wisconsin filed an application with the PSCW for approval to issue up to $30 million of common stock to its parent, NSP-Minnesota. EMPLOYEES AND EMPLOYEE BENEFITS ------------------------------- At year-end 1999, NSP-Wisconsin had 997 full- and part-time employees. Approximately 410 of them are represented by one local union of the International Brotherhood of Electrical Workers. In 1999, NSP and the five IBEW local unions representing NSP employees reached agreement on a five-year extension of the collective bargaining agreement. The contract expires at the end of 2004. Recent changes to NSP-Wisconsin's employee and retiree benefits, which support a broad NSP goal of providing market-based benefits, include: WAGE INCREASES: In 1999 and 2000 nonbargaining employees received average wage increases of 3.4 percent and 4.4 percent, respectively. Bargaining employees received 2 percent per year wage increases in 1999 and 3.5 percent increases in 2000 under the new collective bargaining agreement. RETIREMENT PLAN CHANGES: NSP revised its retirement plans for nonbargaining employees (effective January 1999) and bargaining employees (effective January 2000) as follows: - The retiree medical plan was discontinued for nonbargaining employees retiring after Dec. 31, 1998 and for bargaining employees retiring after Dec. 31, 1999. - The qualified pension plan was enhanced to provide a Retirement Spending Account and an enhanced Social Security supplement which retirees can use for medical coverage or to supplement pension benefits. - The 401(k) plan was enhanced, increasing the amount of employee contributions matched by NSP. - ------ ITEM 2 - PROPERTIES - ---------------------- Electric Utility - ----------------- NSP-Wisconsin's electric generating facilities are: Year Summer Station and Units Fuel Installed Capability (Mw) ------------------- ---- --------- --------------- Combustion Turbine: Flambeau Station Gas/Oil 1969 12 Park Falls, WI (1 unit) Wheaton Gas/Oil 1973 346 Eau Claire, WI (6 units) French Island Oil 1974 154 La Crosse, WI (2 units) Steam: Bay Front Coal/Wood/ 1945-1960 73 Ashland, WI Gas (3 units) French Island Wood/RDF 1940-1948 29 La Crosse, WI (2 units) Hydro Plants: (19 plants) Various dates 251 --- TOTAL 865 === At Dec. 31, 1999, NSP-Wisconsin owned approximately 2,400 structure miles of electric transmission lines and 9,600 structure miles of electric distribution lines. Virtually all of the land and personal property owned by NSP-Wisconsin is pledged as collateral for its first mortgage bonds. Gas Utility - ------------ The gas properties of NSP-Wisconsin include approximately 1,811 miles of natural gas distribution mains. NSP-Wisconsin owns two liquefied natural gas (LNG) facilities with a combined storage capacity of 0.3 Billion Cubic Feet (bcf), and three propane-air plants with a storage capacity of 0.02 bcf, to supplement the supply of natural gas available during periods of high demand. The two LNG facilities are located in Eau Claire and LaCrosse, Wis. The LaCrosse LNG facility is currently not in service. NSP-Wisconsin has propane-air facilities with a capacity of 153,000 gallons to further supplement its gas supply in the LaCrosse, Wis. area during peak periods. NSP-Wisconsin added a second propane-air plant with a capacity of 25,500 gallons in New Richmond, Wis., with the acquisition of NGI in 1998 and its third propane-air plant with the acquisition of the Fort McCoy gas properties near Sparta, Wis., in 1999. - ------ ITEM 3 - LEGAL PROCEEDINGS - ------------------------------ In the normal course of business, NSP-Wisconsin is a party to routine claims and litigation arising from prior and current operations. NSP-Wisconsin is actively defending these matters and has recorded an estimate of the probable cost of settlement or other disposition. In 1997, NSP was served with a summons and complaint on behalf of the owners of Schachtner Farms located in Deer Park, Wis. The complaint alleged that stray voltage from NSP's system harmed their dairy herd resulting in lost milk production, injury to the dairy herd, lost profits and increased veterinary expenses. On Nov. 23, 1999, the jury returned a verdict finding NSP negligent and awarding Schachtner Farms $850,000 for economic damages and $200,000 for inconvenience, annoyance and loss of use and enjoyment of their property plus costs and interest. The Court trebled the damages because the jury found that NSP was willful, wanton or reckless in its failure to provide adequate service to the farm. NSP has appealed the decision to the Court of Appeals, Third District, of the State of Wisconsin. NSP-Wisconsin anticipates that insurance will indemnify it for all damages and costs subject to applicable insurance policy deductibles. On Feb. 20, 1999 a person who was not an NSP employee was killed while working with a hydraulic press at NSP-Wisconsin's Western Avenue Service Center. The claim by the decedent's family was recently settled on a confidential basis. Because a portion of the settlement proceeds satisfies the claims of the decedent's minor children, the settlement is subject to court approval. Resolution of this claim should conclude all potential legal claims arising from this incident. On July 2, 1999, various insurers for Cenex Supply filed a complaint in the Circuit Court for Clark County, Wisconsin, alleging that fire damage to Cenex's property in October 1995 was caused by NSP's negligence. Damages of $600,000 are claimed. The lawsuit is in the early stages, however, NSP believes the claim is defensible. The City of St. Croix Falls, Wis., has filed suit in the U.S. District Court for the Western District of Wisconsin against NSP-Wisconsin alleging that, during the pendency of PSCW proceedings on NSP-Wisconsin's proposed Chisago to Apple River transmission line project, NSP-Wisconsin engaged in ex parte communications with PSCW Commissioners when it met with PSCW Commissioners for the purpose of discussing general transmission issues. The City alleges that the alleged ex parte communications deprived it of procedural due process. The City asks for recovery of the costs and attorneys' fees it incurred during its participation in the PSCW proceeding, punitive damages, and costs and attorneys' fees associated with the present action. NSP-Wisconsin denies that any improper subjects were discussed during its meetings with the PSCW Commissioners and denies that the City is entitled to the relief and damages requested. The DOE was required by statute and contract to accept spent nuclear fuel from NSP System nuclear generating facilities no later than Jan. 31, 1998. In 1996 the DOE notified commercial spent nuclear fuel owners that it could not accept their spent nuclear fuel by Jan. 31, 1998 and that a permanent storage or disposal facility would not be available until at least 2010. NSP and other affected parties have commenced lawsuits against the DOE to require it to meet its contractual obligations and to escrow payments that are being made to them for the permanent disposal program. NSP has also commenced an action to recover damages caused by the DOE's breach of its statutory and contractual obligation to accept spent nuclear fuel. The DOE's failure to fulfill its obligation has increased NSP's expenses for interim storage of spent nuclear fuel and related issues, may impact the length of time NSP System nuclear generating facilities can operate, and has led to concern over past payments to the DOE by utility customers to fund the permanent disposal program. NSP-Wisconsin was given a favorable ruling in a service dispute with Eau Claire Electric Cooperative (EC Co-op). EC Co-op had installed electric service to a new industrial park in Osseo, Wis., which is a NSP-Wisconsin franchise area. NSP-Wisconsin filed a complaint with the PSCW and requested that it be allowed to serve the park. On Oct. 29, 1998, the PSCW ruled in favor of NSP-Wisconsin. The ruling gave NSP-Wisconsin the exclusive right to serve the park, and it directed the EC Co-op to sell their facilities to NSP-Wisconsin or remove them within 30 days. The decision was sustained in an appeal to the Dane County circuit court and NSP-Wisconsin is now delivering electricity in the industrial park. On Nov. 24, 1998, Wisconsin Electric Power Co. (WE) filed a complaint against NSP with the FERC, relating to transmission service curtailments. In March 1999, NSP and WE reached a settlement agreement, which was approved by the FERC on May 19, 1999. The settlement provides that NSP would not be liable to WE for transmission curtailments during 1998 and NSP would bear certain disputed transmission mitigation costs for 1998 and 1999. The financial impact of the settlement is not material. For a discussion of environmental proceedings, see "Environmental Matters" under Item 1, incorporated by reference. For a discussion of proceedings involving NSP-Wisconsin's utility rates, see "Regulation and Rates" under Item 1, incorporated by reference. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------------------- None PART II ITEM 5 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS -------------------------------------------------- This is not applicable as NSP-Wisconsin is a wholly owned subsidiary. ITEM 6 - SELECTED FINANCIAL DATA - ------------------------------------- This is omitted per conditions set forth in general instructions I (1) (a) and (b) of Form 10-K for wholly owned subsidiaries (reduced disclosure format). ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------- Discussion of financial condition and liquidity is omitted per conditions set forth in general instructions I (1) (a) and (b) of Form 10-K for wholly owned subsidiaries. It is replaced with management's narrative analysis and the results of operations as set forth in general instructions I (2) (a) of Form 10 K for wholly owned subsidiaries (reduced disclosure format). The following discussion and analysis by management focuses on those factors that had a material effect on NSP-Wisconsin's financial condition and results of operations during 1999 and 1998, or are expected to have a material impact in the future. It should be read in conjunction with the accompanying Financial Statements and Notes. Except for the historical statements contained in this report, the matters discussed in the following discussion and analysis are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate", "estimate", "expect", "objective", "outlook", "possible", "potential" and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to: - general economic conditions, including their impact on capital expenditures; - business conditions in the energy industry; - competitive factors; - unusual weather; - changes in federal or state legislation; - regulation; - issues relating to Year 2000 remediation efforts; - the items set forth below under "Factors Affecting Results of Operations"; - and the other risk factors listed from time to time by NSP in reports filed with the Securities and Exchange Commission (SEC), including Exhibit 99.01 to NSP-Wisconsin's report on Form 10-K. RESULTS OF OPERATIONS On March 24, 1999, NSP and NCE agreed to merge. It is expected that NSP-Wisconsin will continue to exist as an operating subsidiary of the merged company. The following discussion and analysis is based on the financial condition and operations of NSP-Wisconsin and does not reflect the potential effects of the combination between NSP and NCE. FACTORS AFFECTING RESULTS OF OPERATIONS - ------------------------------------------- In addition to items noted in the Notes to the Financial Statements of this report, the historical and future trends of NSP's operating results are affected by the following factors: VARIATIONS IN WEATHER CONDITIONS - Both electric and gas sales levels are significantly affected by variations in weather conditions. NSP estimates sales levels under normal weather conditions and analyzes the approximate effect of variations from historical average temperatures on actual sales levels. The estimated impact of weather on operating revenues in relation to sales under normal weather conditions is shown in the discussion of electric revenues and gas revenues. SALES GROWTH - The following table summarizes NSP-Wisconsin's growth in actual electric and gas sales and growth on a weather normalized (W/N) basis for 1999 as compared with 1998. NSP-Wisconsin's weather normalization process removes the estimated impact on sales of temperature variations from historical averages. PERCENTAGE SALES GROWTH 1999 VS. 1998 ----------------------- ACTUAL W/N ------ --- Electric Residential 1.4 % -0.2 % Electric Industrial and Commercial 0.8 % 0.7 % ---------------------------------- -------- --------- Total Electric Retail 1.0 % 0.4 % Electric Resale 2.0 % 1.4 % --------------- -------- --------- TOTAL ELECTRIC SALES 1.1% 0.5 % ------------------------------ ------- --------- Gas Firm 11.5% 4.1% Gas Interruptible 4.4% NA Gas for generation -25.9% NA ------------------ ------ -- TOTAL GAS SALES 5.8% 1.6 % ------------------------- -------- --------- NA = not applicable 1999 COMPARED WITH 1998 - -------------------------- ELECTRIC REVENUES for 1999 increased $13.0 million, or 3.3 percent, compared with 1998. The following table summarizes the change in electric revenues. Power supply and transmission revenue relates to interchange agreement revenues received from NSP-Minnesota and reflect a net decrease in NSP-Wisconsin's fuel and transmission expenses. ELECTRIC REVENUES 1999 VS. 1998 ----------------- (MILLIONS OF DOLLARS) --------------------- $ CHANGE % CHANGE -------- -------- Sales growth (excluding weather impact) $ 1.5 0.5 % Weather impact 1.8 0.6 % Rate changes 9.4 2.9 % ----- ----- Total electric sales revenue $12.7 4.0 % Power supply revenue 0.0 0.1 % Transmission and other revenue 0.3 0.9 % ------- ----- Total Electric Revenue Increase $13.0 3.3 % ===== ===== ELECTRIC MARGIN equals electric revenues minus production expenses, consisting of purchased and interchange power and fuel for electric generation. The table below calculated electric margin for the years ended Dec. 31, 1999 and 1998. ELECTRIC MARGIN 1999 1998 --------------- (MILLIONS OF DOLLARS) --------------------- Electric revenues $ 411.5 $ 398.5 Fuel for electric generation (9.9) (11.4) Purchased and interchange power (192.5) (190.0) ---------- -------- Electric Margin $ 209.1 $ 197.1 ======= ======== Electric production expenses tend to vary with changing retail and wholesale sales requirements and unit cost changes in fuel and purchased power. The table below summarizes the principal reasons for electric margin changes from 1998 to 1999. CHANGE IN ELECTRIC MARGIN 1999 VS. 1998 ------------------------- (MILLIONS OF DOLLARS) --------------------- $ CHANGE -------- Sales growth (excluding weather impact) $ 1.0 Weather impact 1.3 Rate changes 9.4 Interchange and other revenues 0.3 ------- Total Electric Margin Increase $12.0 ===== GAS REVENUES for 1999 increased $3.5 million, or 4.5 percent, compared with 1998. The following table summarizes the change in gas revenues. Changes in per unit gas costs are reflected in customer rates through the gas cost recovery mechanism. GAS REVENUES 1999 VS. 1998 ------------ (MILLIONS OF DOLLARS) --------------------- $ CHANGE % CHANGE -------- -------- Sales growth (excluding weather impact) $ 1.2 1.6 % Weather impact 3.3 4.2 % Rate changes (1.0) (1.3 %) -------- ------ Total Gas Revenue Increase $ 3.5 4.5 % ======== ======= GAS MARGIN equals gas revenues minus the cost of gas sold. The table below calculated gas margin for the years ended Dec. 31, 1999 and 1998. GAS MARGIN 1999 1998 ---------- (MILLIONS OF DOLLARS) --------------------- Gas revenues $ 82.3 $ 78.8 Cost of gas purchased and transported (55.5) (53.0) --------- ------- Gas Margin $ 26.8 $ 25.8 ====== ====== The cost of gas tends to vary with changing sales requirements and unit cost of gas purchased. However, due to the gas cost recovery mechanism, nearly all fluctuations in the cost of gas have no effect on gas margin. The table below summarizes the principal reasons for gas margin changes from 1998 to 1999. CHANGE IN GAS MARGIN 1999 VS. 1998 -------------------- (MILLIONS OF DOLLARS) --------------------- $ CHANGE -------- Sales growth (excluding weather impact) $ 0.7 Weather impact 1.3 Rate changes ( 1.0) ------- Total Gas Margin Increase $ 1.0 ======= OTHER OPERATING, MAINTENANCE, CONSERVATION DEMAND SIDE MANAGEMENT (DSM), AND ADMINISTRATIVE AND GENERAL (A&G) expenses together increased $0.3 million, or 0.3 percent, in 1999 compared to 1998. The increase is due primarily to increased maintenance, customer service initiatives, and amortization of regulatory deferred network transmission service (NTS) fees offset by lower authorized DSM and employee benefits in 1999. DEPRECIATION AND AMORTIZATION expense increased $2.9 million, or 7.6 percent, in 1999 compared to 1998. The increase is due mainly to increases in plant in service and additional depreciation authorized by the PSCW in September 1998. TECHNOLOGY CHANGES FOR THE YEAR 2000 (Y2K) NSP's Y2K program covered not only NSP's 2,000 computer applications, consisting of about 75,000 programs and totaling more than 30 million lines of code, but also the thousands of hardware and embedded system components in use throughout NSP. Although it appears that NSP successfully transitioned into the year 2000 with no Y2K disruptions to customers or to internal operations, there are no guarantees that a Y2K-related problem will not surface at a later date. NSP is not presently aware of any such situations; however, occurrences of this type could adversely affect NSP's business, operating results, and financial condition. NSP has spent approximately $22 million for Y2K efforts from 1996 through 1999. This includes $9 million in 1999. These costs have been expensed as incurred, except for a portion deferred for approved rate recovery. NSP-Wisconsin's portion of NSP's Y2K project costs was $1.2 million, $375,000 of which was spent in 1999. ACCOUNTING CHANGE - In June 1998, the FASB issued Statement of Financial Accounting Standard (SFAS) Number 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires that all derivatives be recognized at fair value in the balance sheet and all changes in fair value be recognized currently in earnings or deferred as a component of other comprehensive income, depending on the intended use of the derivative, its resulting designation, and its effectiveness. NSP plans to adopt this standard in 2001, as required. NSP has not yet determined that potential impact of implementing this statement. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------------------- NSP-Wisconsin did not have any derivative financial instruments outstanding at the end of the latest fiscal year. Accordingly, the disclosures about market risk are not applicable. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------------- See Item 14(a)-1 in Part IV for financial statements included herein. See Note 10 to the financial statements for summarized quarterly financial data. ====== ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS ==================================== To The Shareholder of Northern States Power Company (Wisconsin): In our opinion, the accompanying balance sheets and the related statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of Northern States Power Company (NSP-Wisconsin), a Wisconsin corporation, at Dec. 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended Dec. 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of NSP-Wisconsin's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota Jan. 31, 2000 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAL - ------------------------------------------------------------ - ------
STATEMENTS OF INCOME AND RETAINED EARNINGS Year Ended December 31 ----------------------- (Thousands of dollars) 1999 1998 1997 Operating Revenues Electric $ 411 532 $ 398 497 $ 382 859 Gas 82 375 78 845 89 790 Total 493 907 477 342 472 649 Operating Expenses Purchased and interchange power 192 541 190 019 179 708 Fuel for electric generation 9 941 11 355 10 023 Gas purchased for resale 55 534 53 067 61 195 Other operation 54 437 48 009 45 534 Maintenance 22 599 21 437 19 734 Administrative and general 16 998 21 521 17 845 Conservation and demand side management 5 122 7 853 8 935 Depreciation and amortization 42 117 39 135 37 815 Property and general taxes 14 725 14 507 14 140 Income taxes 25 546 20 809 24 120 Total operating expenses 439 560 427 712 419 049 Operating Income 54 347 49 630 53 600 Other Income (Expense) Allowance for funds used during construction-equity 271 393 246 Other income and deductions-net of applicable income taxes 278 851 1 253 Total Other Income (Expense)-Net 549 1 244 1 499 Income Before Interest Charges 54 896 50 874 55 099 Interest Charges Interest on long-term debt 16 185 16 204 16 322 Other interest and amortization 3 442 2 985 1 688 Allowance for funds used during construction-debt (1 097) (510) (328) Total interest charges 18 530 18 679 17 682 Net Income 36 366 32 195 37 417 Retained Earnings, January 1 250 890 244 171 234 751 Retained Earnings of acquired business 729 Dividends on common stock paid to parent (26 997) (26 205) (27 997) Retained Earnings, December 31 $ 260 259 $ 250 890 $ 244 171 See Notes to Financial Statements.
STATEMENTS OF CASH FLOWS Year Ended December 31 ------------------------- (Thousands of dollars) 1999 1998 1997 - ------------------------ ---- ---- ---- Cash Flows from Operating Activities: Net Income $36 366 $32 195 $37 417 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 43 044 40 059 38 991 Deferred income taxes 3 695 5 405 4 372 Deferred investment tax credits recognized (838) (859) (880) Allowance for funds used during construction - equity (271) (393) (246) Undistributed equity in subsidiary company earnings (409) (3) (300) Cash provided by (used for) changes in certain working capital items 5 591 (1 768) (1 491) Cash provided by (used for) changes in other assets and liabilities (2 230) 6 724 (2 993) Net Cash Provided by Operating Activities 84 948 81 360 74 870 Cash Flows from Investing Activities: Capital expenditures (85 471) (66 646) (53 580) Increase in construction payables 2 963 538 899 Allowance for funds used during construction - equity 271 393 246 Other (614) 347 (615) Net Cash Used for Investing Activities (82 851) (65 368) (53 050) Cash Flows from Financing Activities: Issuances of short-term debt due to parent - net of repayments 24 900 10 400 6 000 Redemption of long-term debt (167) Dividends paid to parent (26 997) (26 205) (27 997) Net Cash Used for Financing Activities (2 097) (15 972) (21 997) Net increase (decrease) in cash and cash equivalents 0 20 (177) Cash and cash equivalents beginning of period 51 31 208 Cash and cash equivalents end of period $ 51 $ 51 $ 31 Cash provided by (used for) changes in certain working capital items: Accounts receivable and unbilled revenues $(3 329) $(1 188) $ 6 847 Materials and supplies inventories 4 482 (1 243) (3 980) Payables and accrued liabilities 6 631 268 (4 060) Income and other taxes accrued (2 589) 1 643 134 Other 396 (1 248) (432) Net $5 591 $(1 768) $(1 491) Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest (net of amount capitalized) $17 565 $ 17 345 $ 16 581 Income taxes (net of refunds received) $24 838 $ 10 824 $ 20 673 See Notes to Financial Statements.
BALANCE SHEETS December 31 (Thousands of dollars) 1999 1998 ASSETS Utility Plant Electric-including construction work in progress: 1999, $43,788; 1998, $22,770 $1 034 315 $ 972 442 Gas-including construction work in progress: 1999, $1,077; 1998, $1,606 118 279 113 574 Other-including construction work in progress: 1999, $5,310; 1998, $4,481 87 726 81 040 Total 1 240 320 1 167 056 Accumulated provision for depreciation (487 549) (457 272) Net utility plant 752 771 709 784 Current Assets Cash 51 51 Accounts receivable-net of accumulated provision for uncollectible accounts: 1999, $943, 1998, $825 37 320 34 748 Unbilled utility revenues 21 768 21 011 Materials and supplies inventories - at average cost Fuel 7 465 12 406 Other 7 068 6 609 Prepayments and other 13 076 13 472 Total current assets 86 748 88 297 Other Assets Regulatory assets 39 252 42 467 Other investments 9 295 7 823 Nonutility property - net of accumulated depreciation: 1999, $76; 1998, $75 2 768 2 803 Unamortized debt expense 1 575 1 668 Long-term prepayments and deferred charges 14 694 10 869 Total other assets 67 584 65 630 Total Assets $ 907 103 $ 863 711 See Notes to Financial Statements. BALANCE SHEETS December 31 (Thousands of dollars) 1999 1998 LIABILITIES AND EQUITY Capitalization Common stock-authorized 1,000,000 shares of $100 par value; issued shares: 1999 and 1998, 862,000 $ 86 200 $ 86 200 Premium on common stock 10 541 10 541 Retained earnings 260 259 250 890 Total common stock equity 357 000 347 631 Long-term debt-net of unamortized discount: 1999, $1,650; 1998, $1,737 231 950 231 863 Total capitalization 588 950 579 494 Current Liabilities Notes payable - parent company 80 800 55 900 Accounts payable 18 570 14 301 Payables to affiliated companies (principally parent) 21 404 16 596 Salaries, wages, and vacation pay accrued 5 656 5 910 Taxes accrued 829 3 418 Interest accrued 4 330 4 184 Other 5 950 4 310 Total current liabilities 137 539 104 619 Other Liabilities Accumulated deferred income taxes 111 772 110 831 Accumulated deferred investment tax credits 17 281 18 122 Regulatory liabilities 21 726 21 947 Customer advances 11 398 9 458 Benefit obligations and other 18 437 19 240 Total other liabilities 180 614 179 598 Commitments and Contingent Liabilities (see Note 8) Total Liabilities and Equity $ 907 103 $ 863 711 See Notes to Financial Statements.
NORTHERN STATES POWER COMPANY (WISCONSIN) NOTES TO FINANCIAL STATEMENTS 1. Summary of Accounting Policies System of Accounts Northern States Power Company (Wisconsin), (NSP-Wisconsin), a wholly owned subsidiary of Northern States Power Company, a Minnesota corporation (NSP-Minnesota), is primarily a public utility serving customers in Wisconsin and Michigan. Its accounting records conform to either the uniform system of accounts of the Federal Energy Regulatory Commission (FERC) or those of the Public Service Commission of Wisconsin (PSCW) and the Michigan Public Service Commission (MPSC), which systems are the same in all material respects. Investment in Subsidiaries NSP-Wisconsin carries its investment in its subsidiaries (Chippewa and Flambeau Improvement Company, 75.86 percent owned; NSP Lands, Incorporated, 100 percent owned; and Clearwater Investments, Incorporated, 100 percent owned) at cost plus equity in earnings since acquisition. The impact of consolidating these subsidiaries would be immaterial. Related Party Transactions NSP-Wisconsin's financial statements include intracompany transactions and balances related to sales among the electric and gas utility businesses of NSP-Wisconsin as well as intercompany transactions with NSP-Minnesota and Viking, including intercompany profits which are allowed in utility rates. See Note 6 for further discussion of intercompany transactions with NSP-Minnesota. Utility Plant and Retirements Utility plant is stated at original cost. The cost of additions to utility plant includes contracted work, direct labor and materials, allocable overheads and allowance for funds used during construction (AFC). The cost of units of property retired, plus net removal cost, is charged to the accumulated provision for depreciation and amortization. Maintenance and replacement of items determined to be less than units of property are charged to operating expenses. Depreciation For financial reporting purposes, depreciation is computed on the straight-line method based on the annual rates certified by the PSCW and MPSC for the various classes of property. Depreciation provisions, as a percentage of the average balance of depreciable property in service, were 3.66 percent in 1999, 3.57 percent in 1998, and 3.61 percent in 1997. Allowance for Funds Used during Construction (AFC) AFC, a non-cash item, is computed by applying a composite pretax rate, representing the cost of capital used to fund utility construction, to qualified construction work in progress (CWIP). NSP-Wisconsin uses the FERC calculation for production and transmission property and the PSCW calculation for other qualified CWIP. The rates used for the FERC calculation were 5.29 percent in 1999, 5.80 percent in 1998, and 5.68 percent in 1997. The rates used for the PSCW calculation were 10.17 percent in 1999 and 1998, and 10.00 percent in 1997. The amount of AFC capitalized as a construction cost in CWIP is credited to other income and interest charges. AFC amounts capitalized in CWIP are included in utility rate base for establishing utility service rates. Revenues Revenues are recognized based on sales to customers each month. Because utility customer meters are read and billed on a cycle basis, unbilled revenues are estimated and recorded for services provided from the monthly meter-reading dates to month-end. Regulatory Deferrals As a regulated utility, NSP-Wisconsin accounts for certain income and expense items under the provisions of Statement of Financial Accounting Standards (SFAS) No. 71 - Accounting for the Effects of Certain Types of Regulation. In doing so, certain costs which would otherwise be charged to expense are deferred as regulatory assets based on expected recovery from customers in future rates. Likewise, certain credits which would otherwise be reflected as income are deferred as regulatory liabilities based on the expectation that they will be returned to customers in the future. Management's expected recovery of deferred costs and expected flowback of deferred credits is generally based on specific ratemaking decisions or precedent for each item. Regulatory assets and liabilities are being amortized consistent with ratemaking treatment as established by regulators. Note 7 describes the components of regulatory assets and liabilities. Income Taxes Under the liability method used by NSP-Wisconsin, income taxes are deferred for all temporary differences between pretax financial and taxable income, and between the book and tax bases of assets and liabilities. Deferred taxes are recorded using the tax rates scheduled by tax law to be in effect when the temporary differences reverse. Due to the effects of regulation, current income tax expense is provided for the reversal of some temporary differences previously accounted for by the flow-through method. Also, regulation has created certain regulatory assets and liabilities related to income taxes, as summarized in Note 7. NSP-Wisconsin is included in the consolidated federal income tax return filed by NSP-Minnesota and files separate state returns for Wisconsin and Michigan. NSP-Wisconsin records current and deferred income taxes at the statutory rates as if it filed a separate return for federal income tax purposes. State income tax payments are made directly to the taxing authorities. Federal income tax payments are made to the Internal Revenue Service by NSP-Minnesota and charged back to NSP-Wisconsin. Investment tax credits were deferred and are being amortized over the estimated lives of the related property. Environmental Costs Accruals for environmental costs are recognized when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Costs are charged to expense (or deferred as a regulatory asset based on expected recovery from customers in future rates) if they relate to the remediation of conditions caused by past operations or if they are not expected to mitigate or prevent contamination from future operations. Where environmental expenditures relate to facilities currently in use (such as pollution control equipment), the costs may be capitalized and depreciated over the future service periods. Estimated remediation costs are recorded at undiscounted amounts, independent of any insurance or rate recovery, based on prior experience, assessments and current technology. Accrued obligations are regularly adjusted as environmental assessments and estimates are revised, and remediation efforts proceed. For sites where NSP-Wisconsin has been designated as one of several potentially responsible parties, the amount accrued represents NSP-Wisconsin's estimated share of the cost. NSP-Wisconsin intends to treat any future costs related to decommissioning and restoration of its power plants and substation sites, where operation may extend indefinitely, as a capitalized removal cost of retirement in utility plant. Depreciation expense levels currently recovered in rates include a provision for an estimate of removal costs. Use of Estimates In recording transactions and balances resulting from business operations, NSP-Wisconsin uses estimates based on the best information available. Estimates are used for such items as plant depreciable lives, tax provisions, uncollectible accounts, environmental loss contingencies, unbilled revenues and actuarially determined benefit costs. As better information becomes available (or actual amounts are determinable), the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates. Reclassifications Certain reclassifications have been made to the 1998 and 1997 financial statements to conform with the 1999 presentation. These reclassifications had no effect on net income. 2. Long-term Debt December 31 December 31 1999 1998 Long-term debt includes the following issues: (Thousands of dollars) First Mortgage Bonds - Series due: Oct. 1, 2003, 5 3/4% $ 40 000 $ 40 000 March 1, 2023, 7 1/4% 110 000 110 000 Dec. 1, 2026, 7 3/8% 65 000 65 000 Total First Mortgage Bonds 215 000 215 000 City of La Crosse Resource Recovery Revenue Bonds - Series due Nov. 1, 2021, 6% 18 600 18 600 Total long-term debt $ 233 600 $ 233 600 Except for minor exclusions, all real and personal property is subject to the lien of NSP-Wisconsin's first mortgage bonds. The Supplemental and Restated Trust Indenture dated March 1, 1991, and effective Oct. 1, 1993 permits an amount of established permanent additions to be deemed equivalent to the payment of cash necessary to redeem one percent of the highest principal amount of each series of first mortgage bonds (other than resource recovery financing) at any time outstanding. Fair Value of Debt The estimated fair value of NSP-Wisconsin's long term debt at December 31, 1999 and 1998 is $218.1 million and $247.2 million, respectively. This fair value is estimated based on the quoted market prices for the same or similar issues, or on the current rates offered to NSP-Wisconsin for debt of the same remaining maturities. Capital Lease Obligations Amounts due under capital lease obligations are $14,000 in 2000 and $0 thereafter. 3. Short-Term Borrowings NSP-Wisconsin had bank lines of credit aggregating $1 million at Dec. 31, 1999. Compensating balance arrangements in support of such lines of credit were not required. These credit lines make short-term financing available by providing bank loans. During 1999 and 1998 there were no bank loans outstanding as NSP-Wisconsin obtained short-term borrowings from NSP-Minnesota at NSP-Minnesota's average daily interest rate, including the cost of their compensating balance requirements. The PSCW has authorized NSP-Wisconsin to make short-term borrowings up to $100 million. At Dec. 31, 1999 and 1998, NSP-Wisconsin had $80.8 and $55.9 million, respectively, in short-term borrowings from NSP-Minnesota outstanding. The weighted average interest rates on all short-term borrowings as of Dec. 31, 1999 and 1998, were 5.99 percent and 5.80 percent, respectively. 4. Income Tax Expense The total income tax expense differs from the amount computed by applying the federal income tax statutory rate of 35 percent to net income before income tax expense. The reasons for the difference are as follows: 1999 1998 1997 Tax computed at statutory rate 35.0% 35.0% 35.0% Increases (decreases) in tax from: State income taxes, net of federal income tax benefit 5.3 4.9 3.7 Investment tax credits recognized (1.4) (1.6) (1.5) Other - net 2.1 0.6 1.2 Effective income tax rate 41.0% 38.9% 38.4% Income tax expense is comprised of the following: (Thousands of Dollars) Included in Utility operating expenses: Current federal tax expense $ 18 163 $ 13 249 $ 15 549 Current state tax expense 4 511 3 002 3 671 Deferred federal tax expense 3 103 4 381 4 688 Deferred state tax expense 607 1 036 1 092 Deferred investment tax credit adjustments (838) (859) (880) Total 25 546 20 809 24 120 Included in other income and deductions - net: Current federal tax expense (177) (233) 1 942 Current state tax expense (52) (96) (1 345) Deferred federal tax expense (15) (12) (1 408) Deferred state tax expense 0 0 0 Total income tax expense $ 25 302 $ 20 468 $ 23 309
The components of NSP-Wisconsin's net deferred tax liability at December 31 (including current and noncurrent amounts) were as follows: (Thousands of dollars) 1999 1998 Deferred tax liabilities: Differences between book and tax bases of property $ 112 461 $ 110 612 Tax benefit transfer leases 82 96 Regulatory assets 14 266 11 180 Other 9 906 6 002 Total deferred tax liabilities 136 715 127 890 Deferred tax assets: Deferred investment tax credits 6 927 7 262 Regulatory liabilities 7 286 7 942 Deferred compensation, accrued vacation and other reserves not currently deductible 3 941 494 Other 4 382 (31) Total deferred tax assets 22 536 15 667 Net deferred tax liability $ 114 179 $ 112 223 5. Benefit Plans and Other Postretirement Benefits NSP offers the following benefit plans to participating employees, including those of the NSP-Wisconsin. Approximately 45 percent of NSP-Wisconsin's benefit employees are represented by one local labor union under a collective-bargaining agreement, which expires in 2004. PENSION BENEFITS NSP has two noncontributory, defined benefit pension plans that cover almost all utility employees. Benefits are based on a combination of years of service, the employee's highest average pay and Social Security benefits. NSP's policy is to fully fund into an external trust the actuarially determined pension costs recognized for ratemaking and financial reporting purposes, subject to the limitations of applicable employee benefit and tax laws. Plan assets principally consist of the common stock of public companies, corporate bonds and U.S. government securities. Effective Jan. 1, 1998, NSP made two changes to its method of accounting for pension costs. First, actuarial gains and losses are now amortized over the longest period allowed to reduce the volatility of accrued pension costs and second, pension assets are now allocated based on subsidiaries' benefit obligations, to better match earnings on total plan assets with the corresponding subsidiary benefit obligations. The net effect of these changes was an increase in periodic pension costs (represented by a decrease in pension accrual credits) of $1.4 million in 1998, all related to periods prior to the change. The cumulative effects of these changes are not separately presented on the face of the statements of income because the impact is immaterial.
COMPONENTS OF NET PERIODIC BENEFIT COST (THOUSANDS OF DOLLARS) 1999 1998 1997 - ------------------------ ---- ---- ---- Service cost $4 280 $3 444 $3 062 Interest cost 10 494 9 400 8 926 Expected return on plan assets (17 948) (15 477) (13 725) Amortization of transition asset (10) (10) (10) Amortization of prior service cost 2 607 660 133 Recognized actuarial gain (2 783) (1 371) (4 156) Net periodic benefit cost under SFAS 87 $(3 360) $(3 354) $(5 770)
RECONCILIATION OF FUNDED STATUS TOTAL NSP PLAN NSP-WISCONSIN PORTION (THOUSANDS OF DOLLARS) 1999 1998 1999 1998 Benefit obligation at January 1 $ 1 143 464 $ 1 048 251 $ 136 264 $ 128 222 Service cost 36 421 31 643 4 280 3 444 Interest cost 86 429 78 839 10 494 9 400 Plan amendments 184 255 102 315 26 003 9 625 Actuarial (gain) loss (105 634) (41 635) (12 073) (3 846) Benefit payments (97 086) (75 949) (13 065) (10 581) Benefit obligation at December 31 $ 1 247 849 $ 1 143 464 $ 151 903 $ 136 264 Fair value of plan assets at January 1 $ 2 221 819 $ 1 978 538 $ 264 769 $ 234 304 Actual return on plan assets 293 904 319 230 42 721 41 046 Benefit payments (97 086) (75 949) (13 065) (10 581) Fair value of plan assets at December 31 $ 2 418 637 $ 2 221 819 $ 294 425 $ 264 769 Funded status at December 31 - excess of assets over obligations $ 1 170 788 $ 1 078 355 $ 142 522 $ 128 505 Unrecognized transition asset (311) (387) (37) (47) Unrecognized prior service cost 277 350 114 305 34 697 11 301 Unrecognized net gain (1 381 889) (1 167 340) (164 267) (130 204) Net amount recognized-prepaid benefit asset $ 65 938 $ 24 933 $ 12 915 $ 9 555 WEIGHTED AVERAGE ASSUMPTIONS USED IN PENSION BENEFIT CALCULATIONS WERE: 1999 1998 Discount rate at end of year 7.5% 6.5% Expected return on plan assets for year - before tax 8.5% 8.5% Rate of future compensation increase per year 4.5% 4.5%
The prepaid pension asset for NSP-Wisconsin is included in "Other Assets" on the Balance Sheet as a long-term prepayment. POSTRETIREMENT HEALTH CARE NSP has a contributory health and welfare benefit plan that provides health care and death benefits to almost all NSP retirees. The plan was terminated for nonbargaining employees retiring after 1998 and for bargaining employees after 1999. For covered retirees, the plan enables NSP and such retirees to share the costs of retiree health care. NSP nonbargaining retirees pay 40 percent of total health care costs. Cost-sharing for bargaining employees is governed by the terms of NSP's collective bargaining agreement. In conjunction with the 1993 adoption of SFAS No. 106-Employers' Accounting for Postretirement Benefits Other Than Pensions, NSP elected to amortize the unrecognized accumulated postretirement benefit obligation (APBO) on a straight-line basis over 20 years. Regulators for almost all of NSP's retail and wholesale customers have allowed full rate recovery of increased benefit costs under SFAS No. 106. Wisconsin retail regulators require external funding to the extent it is tax advantaged. Such funding began in 1993. For wholesale ratemaking, the FERC requires external funding for all benefits paid and accrued under SFAS No. 106. Plan assets held in external funding trusts principally consist of investments in equity mutual funds and cash equivalents.
COMPONENTS OF NET PERIODIC BENEFIT COST (THOUSANDS OF DOLLARS) 1999 1998 1997 Service cost $ 27 $ 431 $ 644 Interest cost 1 558 2 509 2 694 Expected return on plan assets (920) (844) (663) Amortization of transition obligation 332 1 239 1 474 Recognized actuarial loss 56 Net periodic benefit cost under SFAS 106 $ 1 053 $ 3 335 $ 4 149
RECONCILIATION OF FUNDED STATUS TOTAL NSP PLAN NSP-WISCONSIN PORTION (THOUSANDS OF DOLLARS) 1999 1998 1999 1998 Benefit obligation at January 1 $ 219 762 $ 279 230 $ 36 092 $ 40 062 Service cost 196 3 247 27 431 Interest cost 9 184 15 896 1 558 2 509 Plan amendments (80 840) (51 456) (13 264) (4 697) Actuarial (gain) loss 8 269 (9 732) 2 349 336 Benefit payments (16 637) (17 423) (1 892) (2 549) Benefit obligation at December 31 $ 139 934 $ 219 762 $ 24 870 $ 36 092 Fair value of plan assets at January 1 $ 34 514 $ 19 783 $ 12 127 $ 10 553 Actual return on plan assets 3 982 2 471 1 644 1 386 Employer contributions 13 339 29 683 1 811 2 737 Benefit payments (16 637) (17 423) (1 892) (2 549) Fair value of plan assets at December 31 $ 35 198 $ 34 514 $ 13 690 $ 12 127 Funded status at December 31 - unfunded obligation $ 104 736 $ 185 248 $ 11 180 $ 23 965 Unrecognized transition obligation (22 073) (104 482) (2 580) (16 176) Unrecognized prior service cost 2 926 2 399 Unrecognized net loss (10 580) (3 790) (4 433) (2 865) Net amount recognized - accrued liability $ 75 009 $ 79 375 $ 4 167 $ 4 924 WEIGHTED AVERAGE ASSUMPTIONS USED IN POSTRETIREMENT BENEFIT CALCULATIONS WERE: 1999 1998 Discount rate at end of year 7.5% 6.5% Expected return on plan assets for year - before tax 8.0% 8.0% Rate of future health care cost increase per year: Next succeeding year-age 65 and older 6.1% 6.1% Next succeeding year-under age 65 8.1% 8.1% Final rate of increase in 2004 5.5% 5.0% Effect of changes in the assumed health care cost trend rate for each year on NSP-Wisconsin's portion: 1% increase in APBO components at December 31, 1999 $ 2 166 1% decrease in APBO components at December 31, 1999 (1 878) 1% increase in service and interest costs components of the net periodic cost 126 1% decrease in service and interest costs components of the net periodic cost (109)
The accrued postretirement liability for NSP-Wisconsin is included in "Other Liabilities" on the Balance Sheet as a benefit obligation. 401(K) NSP has a contributory, defined contribution Retirement Savings Plan, which complies with section 401(k) of the Internal Revenue Code and covers substantially all utility employees. NSP matches specified amounts of employee contributions to the plan. NSP-Wisconsin's matching contributions were: $0.8 million in 1999, $0.6 million in 1998 and $0.5 million in 1997. 6. Parent Company and Intercompany Agreements NSP-Wisconsin and NSP-Minnesota share the electric production and transmission costs of the NSP System. A FERC approved agreement (the Interchange Agreement) between NSP-Wisconsin and NSP-Minnesota provides for the sharing of all costs of electric generation and transmission facilities of the NSP System, including capital costs. Billings under the Interchange Agreement and an intercompany gas agreement which are included in the statement of income are as follows: Year Ended December 31 1999 1998 1997 (Thousands of dollars) Operating revenues: Electric $74 214 $73 674 $71 262 Gas $0 $45 $45 Operating expenses: Purchased and interchange power $192 541 $190 019 $179 708 Gas purchased for resale $192 $213 $231 Other operation $18 212 $15 066 $11 972 7. Regulatory Assets and Liabilities The following summarizes the individual components of unamortized regulatory assets and liabilities shown on the Balance Sheet at December 31: (Thousands of dollars) Amortization Period 1999 1998 AFC recorded in plant on a net-of-tax basis Plant Lives $ 9 726 $ 9 795 Losses on reacquired debt Term of Related Debt 11 248 11 887 Conservation and energy management programs 3 years 5 254 7 032 Environmental costs As allowed in rates 11 161 10 369 Pensions and other Mainly 10 years 1 863 3 384 Total Regulatory Assets $ 39 252 $ 42 467 Excess deferred income taxes collected from customers $ 6 390 $ 4 334 Investment tax credit deferrals 11 583 12 132 Other 3 753 5 481 Total Regulatory Liabilities $ 21 726 $ 21 947 Earns a return on investment in the ratemaking process.
8. Commitments and Contingent Liabilities COMMITMENTS NSP-Wisconsin presently estimates capital expenditures will be $89 million in 2000 and $389 million for 2000-2004. Rentals under operating leases were approximately $3.1 million in 1999 and 1998, and $3.3 million in 1997. Future commitments under these leases generally decline from current levels. PURCHASED GAS CONTRACTS NSP-Wisconsin has contracts for the purchase and delivery of a significant portion of its natural gas requirements. These contracts, which expire in various years between 2000 and 2010, require minimum contractual purchases and deliveries of natural gas. In total, NSP-Wisconsin is committed to the minimum purchase of approximately $93 million of natural gas and related transportation, or to make payments in lieu thereof, under these contracts. In addition, NSP-Wisconsin is required to pay additional amounts depending on actual quantities shipped under these agreements. NSP-Wisconsin has been very active in developing a mix of gas supply, transportation and storage contracts designed to meet its needs for retail gas sales. The contracts are with several suppliers and for various periods of time. Because NSP-Wisconsin has other sources of natural gas available and suppliers are expected to continue to provide reliable natural gas supplies, risk of loss from non-performance under these contracts is not considered significant. In addition, NSP-Wisconsin's risk of loss (in the form of increased costs) from market price changes in natural gas is mitigated through the cost-of-gas adjustment provision of the ratemaking process, which provides for recovery of prudently incurred natural gas costs. NUCLEAR CONTINGENCIES Although NSP-Wisconsin does not own a nuclear facility, any assessment made against NSP-Minnesota and under the Price-Anderson liability provisions of the Atomic Energy Act of 1954 would be a cost included under the Interchange Agreement (see Note 6) and NSP-Wisconsin would be charged its proportion of the assessment. NSP's public liability for claims resulting from any nuclear incident is limited to $9.5 billion under the 1988 Price-Anderson amendment to the Atomic Energy Act of 1954. NSP has secured $200 million of coverage for its public liability exposure with a pool of insurance companies. The remaining $9.3 billion of exposure is funded by the Secondary Financial Protection Program, available from assessments by the federal government in case of a nuclear accident. NSP is subject to assessments of up to $88 million for each of its three licensed reactors to be applied for public liability arising from a nuclear incident at any licensed nuclear facility in the United States. The maximum funding requirement is $10 million per reactor during any one year. NSP purchases insurance for property damage and site decontamination cleanup costs from Nuclear Electric Insurance Limited (NEIL). The coverage limits are $1.5 billion for each of NSP's two nuclear plant sites. NEIL also provides business interruption insurance coverage, including the cost of replacement power obtained during certain prolonged accidental outages of nuclear generating units. Premiums billed to NSP from NEIL are expensed over the policy term. All companies insured with NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. Capital has been accumulated in the reserve funds of NEIL to the extent that NSP would have no exposure for retroactive premium assessments in case of a single incident under the business interruption and the property damage insurance coverage. However, in each calendar year, NSP could be subject to maximum assessments of approximately $4 million for business interruption insurance and $15 million for property damage insurance if losses exceed accumulated reserve funds. ENVIRONMENTAL CONTINGENCIES NSP-Wisconsin may be involved in the cleanup and remediation at seven former disposal or manufactured gas plant sites. One site is a facility formerly used by a vendor to sort and store transformers that were disposed of by NSP and others. There are two projects to remove fuel tanks that are no longer used. The other four sites are at locations of former manufactured gas plants at Ashland, LaCrosse, Eau Claire and Chippewa Falls, Wis. NSP-Wisconsin is conducting supplemental investigations of the LaCrosse, Eau Claire, and Chippewa Falls sites as a result of ongoing monitoring and revisions to Wisconsin's groundwater standards. These sites were previously remediated in the 1980's based on the regulatory standards in place at that time. The Ashland site is described below. The ultimate cleanup and remediation costs at the LaCrosse, Eau Claire and Chippewa Falls sites are not known at this time, but are expected to be immaterial. NSP-Wisconsin had been named as one of three potentially responsible parties in connection with environmental contamination at a site in Ashland, Wis. As discussed below, the United States Environmental Protection Agency (EPA) and the Wisconsin Department of Natural Resources (WDNR) continue to evaluate proposed methods of remediating the contamination. Until the EPA and the WDNR select a remediation strategy for all operable units at the site and determine the level of responsibility of each potentially responsible party, NSP is not able to accurately estimate its share of the ultimate cost of remediating the Ashland site. NSP now anticipates a decision from the WDNR and the EPA in the second or third quarter of 2000. In the interim, NSP-Wisconsin has recorded a liability for an estimate of its share of the cost of remediating the Ashland site based on information available to date. NSP-Wisconsin has deferred as a regulatory asset the remediation costs accrued for the Ashland site because management expects that the PSCW will continue to allow NSP-Wisconsin to recover payments for environmental remediation from its customers. The PSCW has consistently authorized recovery in NSP-Wisconsin rates of all remediation costs incurred at the Ashland site, and has authorized recovery of similar remediation costs for other utilities. The EPA has accepted a petition from a local environmental group to conduct a preliminary assessment of the Ashland site under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). A preliminary assessment (PA) is a limited scope investigation to evaluate the potential for hazardous substance releases from a site and also to determine if the site is likely to score at a high enough level to be considered for inclusion on the National Priorities List. The PA was performed in the third and fourth quarters of 1999 and the results indicated a score sufficiently high enough to proceed to the next formal step of EPA scoring under the Hazardous Ranking System (HRS) under CERCLA. The HRS scoring process being performed by the EPA is now underway. NSP-Wisconsin anticipates that the WDNR will still act as lead agency on the site. The PA and HRS scoring process will result in a delay in the selection of a remedial strategy for the site until the second or third quarter of 2000. NSP has proposed, and the EPA and WDNR have conceptually approved, an interim action (a groundwater treatment system) for one operable unit at the site for which NSP-Wisconsin has accepted responsibility. This interim action is expected to be operational by the spring of 2000 at a capital cost of approximately $350,000 and is designed to be a first step in remediating one portion of the site. NSP-Wisconsin continues to work with the DNR to access state and federal funds to apply to ultimate remediation of the entire site. NSP-Wisconsin asserts that an "orphan share" component exists in which prior activities at the site, conducted by at least one other party which is no longer in existence, has contributed contamination to the site. The Company is working with outside consultants including the Institute of Gas Technology to quantitatively demonstrate that contamination exists at the site which is unrelated to MGP processes in order to facilitate accessing state and federal funding. It is probable that even with outside funding final remedial costs to be borne by NSP-Wisconsin will be material. The WDNR and NSP-Wisconsin have each developed several estimates of the ultimate cost to remediate the Ashland site. The estimates vary significantly, between $4 million and $93 million, because different methods of remediation and different results are assumed in each. The EPA and WDNR are expected to select the method of remediation to use at the site during 2000, after which a more accurate estimate of the cost can be developed. NSP-Wisconsin has already recorded a liability for the portion of the Ashland site that it owns, estimated using reasonably effective remedial methods. NSP-Wisconsin was also investigating its responsibility to remediate contamination found at a former landfill site in Amery, Wis. NSP-Wisconsin reached a settlement with the owner of the landfill during the second quarter of 1999 which released NSP-Wisconsin from liability. In October 1998 the EPA published nitrogen oxide (NOx) emission regulations affecting 22 states, including Wisconsin. The goal of the new regulations is to reduce NOx emissions by 85 percent by May 1, 2003. Two of NSP-Wisconsin's boilers and eight of its combustion turbines could have been affected by this action. If the existing boilers and combustion turbines were made compliant using retrofit technology to control NOx emissions, it could have cost NSP-Wisconsin up to $62.3 million for capital improvements and add $13.6 million each year to operation and maintenance expenses. This is the estimated cost of the most expensive alternative to achieve compliance, which was not necessarily the compliance alternative of choice. If the rules had been finalized in their most stringent form, other alternatives for these older units may be deemed more cost effective than retrofitting. NSP-Wisconsin joined with two other Wisconsin-based utilities as well as the Wisconsin Paper Council and Wisconsin Manufacturers and Commerce industrial organizations to request a judicial review of the EPA's final NOx rules. NSP-Wisconsin believed that the EPA improperly included Wisconsin in the scope of the regulatory action and it improperly calculated potential emissions of NOx, reducing the allowable emission limits for the state. In 1999 the EPA was ordered by a federal appeals panel (7th Circuit) to suspend implementation of the NOx rules pending further action on a lawsuit brought by another trade group. Subsequently, the 7th Circuit action commenced by NSP-Wisconsin and other parties was transferred to the DC Circuit and consolidated with a similar action pending in the DC Circuit. In March 2000 the Court ruled that the EPA unlawfully included Wisconsin in the scope of the NOx rules. That decision releases NSP-Wisconsin from the new NOx rules. LEGAL CLAIMS In the normal course of business, various lawsuits and claims have arisen against NSP-Wisconsin. Management, after consultation with legal counsel, has recorded an estimate of the probable cost of settlement or other disposition for such matters. 9. Segment Information NSP-Wisconsin has two reportable segments; its electric utility and gas utility. - NSP-Wisconsin's electric utility generates, transmits, and distributes electricity primarily in Wisconsin and Michigan. As part of the interconnected NSP System, it makes sales of electricity for resale and sells wholesale electricity transmission service. - NSP-Wisconsin's gas utility transports, stores, and distributes natural gas primarily in Wisconsin and Michigan. Financial information for the electric and gas segments is reported in various management reports, including reports to NSP-Wisconsin's board of directors. Assets by segment are not reported to management and are not included in the disclosures that follow. To report net income for the electric and gas utility segments, NSP-Wisconsin must assign or allocate all costs and certain other income. In general, costs are: - directly assigned wherever applicable, - allocated based on cost causation allocators wherever applicable, or - assigned to electric utility in the case of other income and expense items. Intersegment sales are priced at approved tariff rates and are immaterial.
BUSINESS SEGMENTS 1999 Electric Gas Consolidated (Thousands of dollars) Utility Utility Total Operating revenues from external customers $411 391 $79 500 $490 891 Intersegment revenues 141 2 874 3 015 TOTAL REVENUES $411 532 $82 375 $493 907 Depreciation and amortization $35 964 $6 153 $42 117 Interest income 138 0 138 Interest expense 16 904 1 626 18 530 Income tax expense 22 733 2 569 25 302 Equity in earnings of unconsolidated affiliates 447 0 447 SEGMENT NET INCOME 32 959 3 408 36 366 1998 Electric Gas Consolidated (Thousands of dollars) Utility Utility Total Operating revenues from external customers $398 330 $74 274 $472 604 Intersegment revenues 167 4 571 4 738 TOTAL REVENUES $398 497 $78 845 $477 342 Depreciation and amortization $33 463 $5 672 $39 135 Interest income 233 0 233 Interest expense 17 089 1 590 18 679 Income tax expense 18 868 1 600 20 468 Equity in earnings of unconsolidated affiliates 969 0 969 SEGMENT NET INCOME 30 094 2 101 32 195 1997 Electric Gas Consolidated (Thousands of dollars) Utility Utility Total Operating revenues from external customers $382 682 $87 572 $470 254 Intersegment revenues 177 2 218 2 395 TOTAL REVENUES $382 859 $89 790 $472 649 Depreciation and amortization $32 510 $5 305 $37 815 Interest income 422 0 422 Interest expense 16 190 1 492 17 682 Income tax expense 19 958 3 352 23 310 Equity in earnings of unconsolidated affiliates 605 0 605 SEGMENT NET INCOME 33 076 4 341 37 417
The Consolidated Total amounts for income and expense items represent the sum of utility operating and nonoperating amounts. The depreciation and amortization amounts in the Statements of Cash Flows are different than reported in the Consolidated Total column due to the classification of certain depreciation and amortization amounts as other expense items in the Statements of Income. All operating revenues from external customers are from, and long-lived assets are located in, the United States. 10. Summarized Quarterly Financial Data (Unaudited) Quarter Ended -------------- March 31, June 30, Sept. 30, Dec. 31, 1999 1999 1999 1999 (Thousands of dollars) Operating revenues $137 576 $108 464 $117 978 $129 889 Operating income $ 18 343 $ 8 145 $ 11 152 $ 16 707 Net income $ 13 727 $ 3 777 $ 6 864 $ 11 998 Quarter Ended -------------- March 31, June 30, Sept. 30, Dec. 31, 1998 1998 1998 1998 (Thousands of dollars) Operating revenues $130 068 $107 083 $113 795 $126 396 Operating income $ 15 582 $ 7 100 $ 11 931 $ 15 017 Net income $ 10 936 $ 2 730 $ 7 885 $ 10 644
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------- During 1999 there were no disagreements with NSP-Wisconsin's independent certified public accountants on accounting procedures or accounting and financial disclosures. PART III Part III of Form 10-K has been omitted from this report in accordance with conditions set forth in general instructions I (1) (a) and (b) of Form 10-K for wholly-owned subsidiaries. ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ----------------------------------------------------------------------- ITEM 11 - EXECUTIVE COMPENSATION - ------------------------------------ ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ---------------------------------------------------------------------------- ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - --------------------------------------------------------------- PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --------------------------- (a) 1. Financial Statements Page --------------------- ---- Included in Part II of this report: Report of Independent Accountants for the years ended December 31, 1999, 1998, and 1997. 24 Statements of Income and Retained Earnings for the three years ended December 31, 1999. 25 Statements of Cash Flows for the three years ended December 31, 1999. 26 Balance Sheets, December 31, 1999 and 1998. 27 Notes to Financial Statements. 29 2. Financial Statement Schedules ------------------------------- Schedules are omitted because of the absence of the conditions under which they are required or because the information required is included in the financial statements or the notes. 3. Exhibits -------- * indicates incorporation by reference 3.01* Restated Articles of Incorporation as of December 23, 1987. (Filed as Exhibit 3.01 to Form 10-K Report 10-3140 for the year 1987) 3.02 Copy of the By-Laws of NSP-Wisconsin as amended February 2, 2000 4.01* Copy of Trust Indenture, dated April 1, 1947, From NSP-Wisconsin to Firstar Trust Company (formerly First Wisconsin Trust Company). (Filed as Exhibit 7.01 to Registration Statement 2-6982) 4.02* Copy of Supplemental Trust Indenture, dated March 1, 1949. (Filed as Exhibit 7.02 to Registration Statement 2-7825) 4.03* Copy of Supplemental Trust Indenture, dated June 1, 1957. (Filed as Exhibit 2.13 to Registration Statement 2-13463) 4.04* Copy of Supplemental Trust Indenture, dated August 1, 1964. (Filed as Exhibit 4.20 to Registration Statement 2-23726) 4.05* Copy of Supplemental Trust Indenture, dated December 1, 1969. (Filed as Exhibit 2.03E to Registration Statement 2-36693) 4.06* Copy of Supplemental Trust Indenture, dated September 1, 1973. (Filed as Exhibit 2.03F to Registration Statement 2-49757) 4.07* Copy of Supplemental Trust Indenture, dated February 1, 1982. (Filed as Exhibit 4.01G to Registration Statement 2-76146) 4.08* Copy of Supplemental Trust Indenture, dated March 1, 1982. (Filed as Exhibit 4.08 to form 10-K Report 10-3140 for the year 1982) 4.09* Copy of Supplemental Trust Indenture, dated June 1, 1986. (Filed as Exhibit 4.09 to Form 10-K Report 10-3140 for the year 1986) 4.10* Copy of Supplemental Trust Indenture, dated March 1, 1988. (Filed as Exhibit 4.10 to Form 10-K Report 10-3140 for the year 1988) 4.11* Copy of Supplemental and Restated Trust Indenture, dated March 1, 1991. (Filed as Exhibit 4.01K to Registration Statement 33-39831) 4.12* Copy of Supplemental Trust Indenture, dated April 1, 1991. (Filed as Exhibit 4.01 to Form 10-Q Report 10-3140 for the quarter ended March 31, 1991) 4.13* Copy of Supplemental Trust Indenture, dated March 1, 1993. (Filed as Exhibit to Form 8-K Report dated March 3, 1993) 4.14* Copy of Supplemental Trust Indenture, dated October 1, 1993. (Filed as Exhibit 4.01 to Form 8-K Report dated September 21, 1993) 4.15* Copy of Supplemental Trust Indenture, dated December 1, 1996. (Filed as Exhibit 4.01 to Form 8-K Report dated December 12, 1996) 10.01* Copy of Interchange Agreement dated September 17, 1984, and Settlement Agreement dated May 31, 1985, between NSP-Wisconsin, the Minnesota Company and LSDP. (Filed as Exhibit 10.10 to Form 10-K Report 10-3140 for the year 1985) 23.01 Consent of Independent Accountants - PricewaterhouseCoopers LLP, Minneapolis, Minn. 27.01 Financial Data Schedule 99.01 Statement pursuant to Private Securities Litigation Reform Act of 1995. (b) Reports on Form 8-K - The following report on Form 8-K was filed either ------------------- during the three months ended December 31, 1999, or between December 31, 1999 and the date of this report. None SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto authorized. NORTHERN STATES POWER COMPANY -------------------------------- March 14, 2000 /s/ --- Jerome L. Larsen President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ /s/ - --- --- Jerome L. Larsen Loren L. Taylor President and Chief Executive Officer Director (Principal Executive Officer) /s/ /s/ - --- --- Roger D. Sandeen P. M. Gelatt Vice President, Treasurer and Controller Director (Principal Financial and Accounting Officer) /s/ /s/ - --- --- Ray A. Larson, Jr. Larry G. Schnack Director Director EX-3 2 NORTHERN STATES POWER COMPANY (a Wisconsin corporation) BY-LAWS (as amended February 2, 2000) ARTICLE I. Meetings of the Shareholders ---------------------------- Section 1. Annual Meeting. The annual meeting of the shareholders of -------------- the Company shall be held at the office of the Company in Eau Claire, Wisconsin, at 10 o'clock in the forenoon on the first Wednesday after the first Tuesday in May in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding day not a legal holiday, for the purpose of electing Directors and for the transaction of such other business as may be brought before the meeting. If for any reason the annual meeting shall not be held at the time herein provided for, the same may be held at any time thereafter upon notice as hereinafter provided, or the business thereof may be transacted at any special meeting called for that purpose. Section 2. Special Meetings. Special meetings of the shareholders of ---------------- the Company may be called by the Chairman of the Board, the President or Vice President or by order of the Board of Directors whenever they deem it necessary. The corporation shall call a special meeting of shareholders if the holders of at least 10 percent of all of the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date and deliver to the corporation one or more written demands for the meeting describing one or more purposes for which it is to be held. The corporation shall give notice of such a special meeting within thirty (30) days after the date that the demand is delivered to the corporation. Such special meetings shall be held at the office of the Company in the City of Eau Claire, Wisconsin, or at any other lawful place within the State of Wisconsin, as may be stated in the notice of the meeting. Section 3. Notice of Meetings. Notice of the time and place of the ------------------ annual and of each special meeting of shareholders shall be given by the Secretary, at least ten days before such meeting, to each of the shareholders entitled to vote at such meeting, by posting the same m a postage-prepaid letter, addressed to each such 2 shareholder at the address left with the Secretary of the Company, or at his last known address, or by delivering the same personally. The notice of the special meeting shall also set forth the objects of the meeting. Any or all of the shareholders may waive notice of any annual or special meeting, and the presence of any shareholder in person or by proxy at any meeting shall be deemed a waiver of notice thereof by him. Meetings of the holders of stock may be held at any time and place and for any purpose without notice when all of the shareholders entitled to vote at such meeting are present in person or by proxy or shall waive notice and consent to the holding of such meeting. Section 4. Voting at Shareholders' Meetings. At all meetings of the -------------------------------- shareholders, each shareholder entitled to vote at each meeting shall be entitled to one vote for each share of stock standing registered in his name at the time of the closing of the transfer books for such meeting, or if such transfer books shall not have been closed, then for each share of stock standing registered in his name at the time of such meeting, which vote may be given personally or by proxy authorized in writing. Section 5. Quorum and Voting Requirements. Shares may take action on a ------------------------------ matter at a meeting only if a quorum of the shares exists. Except as otherwise provided in the Articles of Incorporation or the Wisconsin Business Corporation Law, a majority of the shares shall constitute a quorum. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast favoring the action exceed the votes cast opposing the action. Each director shall be elected by a plurality of the votes cast by the shares at a meeting at which a quorum is present. In any case, in the absence of a quorum, the shareholders attending or represented at the time and place at which a meeting shall have been called may adjourn such meeting from time to time and place to place until a quorum shall be present, and at any adjourned meeting at which a quorum shall be present any business may be transacted which might have been transacted by a quorum of the shareholders at the meeting as originally convened. Section 6. Presiding Officer and Secretary. The Chairman of the Board ------------------------------- shall preside at all meetings of the shareholders, and in his absence or disability or at his request the President shall preside, and in the absence or disability of both said officers a Vice President shall preside. The Secretary or Assistant Secretary of the Company shall act as Secretary at all meetings of the shareholders, but in their absence the shareholders or presiding officer may appoint any person to act as 3 Secretary of the meeting. ARTICLE II. Board of Directors ------------------ Section 1. Number, Qualification and Vacancies. -------------------------------------- Par. 1. The business and property of the Company shall be managed and controlled by a Board composed of three (3) Directors, which may be increased to such greater number, not exceeding seven (7), as may be determined by the Board of Directors or by the shareholders in accordance with the provisions of this Article. The number of directors shall be determined by the Board of Directors, and if the Board fails to make such determination then the number may be determined by the shareholders. Par. 2. A Director shall hold office until the next annual meeting of the shareholders and until his successor is elected and qualified. Par. 3. During the intervals between annual meetings the number of Directors may be increased, and may be decreased by the number of vacancies then existing, by the Board of Directors, within the limitations of Section 1, Par. 1, of this Article, and in case of any such increase the Board may fill the vacancies so created. Par. 4. Vacancies in the Board of Directors may be filled by the remaining members of the Board though less than a quorum. Section 2. Place of Meeting. Any meeting of the Board of Directors may ---------------- be held at the principal office of the Company in Eau Claire, Wisconsin, or at any office of the Company which is hereby established in the City of Chicago, Illinois, or at any other place within or without the State of Wisconsin which may be from time to time established by the By-Laws of the corporation or by resolution of the Board, or which may be agreed to in writing by all the Directors of the corporation. Section 3. Regular and Special Meetings. A regular annual meeting of ---------------------------- the Board of Directors shall be held at the office of the Company in the City of Eau 4 Claire, Wisconsin, immediately following the holding of the annual shareholders' meeting in each year, for the election of officers and the transaction of such other business as may come before the meeting. Other regular meetings of the Board may be held at such times and places, either within or without the State of Wisconsin as the Board of Directors may by resolution from time to time determine. Special meetings of the Board shall be held whenever called by the Chairman of the Board, President, Vice President, Secretary or any two Directors in writing. No notice of the annual meeting or of regular meetings of the Board need be given. Notice of each special meeting shall be delivered personally to each Director, or mailed to him or sent by telegraph to his residence or usual place of business at least two days before the meeting. Meetings of the Board may be held at any time and place either within or without the State of Wisconsin, and for any purpose, without notice, when all of the Directors are present at or shall waive notice and consent to the holding of such meeting. All or any of the Directors may waive notice of any meeting and the presence of a Director at any meeting of the Board shall be deemed a waiver of notice thereof by him. Section 4. Quorum. A majority of the Directors in office at a meeting ------ regularly called shall constitute a quorum. In the absence of a quorum the Directors present at the time and place at which a meeting shall have been duly called may adjourn the meeting from time to time and place to place until a quorum shall be present. Section 5. Compensation. The Board of Directors may by resolution ------------ establish a fixed fee and authorize payment of expenses for services as Director, with an additional fee and expenses for attendance at each special meeting. Nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor. Section 6. Members of the executive, special or standing committees may be allowed like compensation as for special meetings of the Board of Directors for attending committee meetings. Section 7. Indemnification. --------------- 5 Par. 1. Certain Definitions. All capitalized terms used in this Section 7 ------------------- and not otherwise hereinafter defined in this Par. 1 shall have the meaning set forth in Section 180.0850 of the Statute. The following capitalized terms (including any plural forms thereof) used in this Section 7 shall be defined as follows: (a) "Affiliate" shall include, without limitation, any corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Company. (b) "Authority" shall mean the entity selected by the Director or Officer to determine his or her right to indemnification pursuant to Par. 4. (c) "Board" shall mean the entire then elected and serving Board of Directors of the Company, including all members thereof who are Parties to the subject Proceeding or any related Proceeding. (d) "Breach of Duty" shall mean the Director or Officer breached or failed to perform his or her duties to the Company and his or her breach of or failure to perform those duties is determined, in accordance with Par. 4, to constitute misconduct under Section 180.0851(2) (a) 1, 2, 3, or 4 of the Statute. (e) "Company," as used herein and as defined in the Statute and incorporated by reference into the definitions of certain other capitalized terms used herein, shall mean Northern States Power Company, including, without limitation, any successor corporation or entity to Northern States Power Company by way of merger, share exchange, or acquisition of all or substantially all of the capital stock or assets of Northern States Power Company. (f) "Director or Officer" shall have the meaning set forth in the Statute; provided, that, for purposes of this Section 7, it shall be conclusively presumed that any Director or Officer serving as a director, officer, partner, trustee, member of any governing or decision-making 6 committee, employee, or agent of an Affiliate shall be so serving at the request of the Company. (g) "Disinterested Quorum" shall mean a quorum of the Board who are not Parties to the subject Proceeding or any related Proceeding. (h) "Party" shall have the meaning set forth in the Statute; provided, that, for purposes of this Section 7, the term 'Party" shall also include any Director or Officer who is or was a witness in a Proceeding at a time when he or she has not otherwise been formally named a Party thereto. (i) "Proceeding" shall have the meaning set forth in the Statute; provided, that, for purposes of this Section 7, the term "Proceeding" shall also include all Proceedings (i) brought under (in whole or in part) the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, their respective state counterparts, and/or any rule or regulation promulgated under any of the foregoing; (ii) brought before an Authority or otherwise to enforce rights hereunder; (iii) any appeal from a Proceeding; and (iv) any Proceeding in which the Director or Officer is a plaintiff or petitioner because he or she is a Director or Officer; provided, however, that any such Proceeding under subsection (iv) is authorized by a majority vote of a Disinterested Quorum. (j) "Statute" shall mean Sections 180.0850 through 180.0859, inclusive, of the Wisconsin Business Corporation Law, in effect, including any amendments thereto, but, in the case of any such amendment, only to the extent such amendment permits or requires the Company to provide broader indemnification rights than the Statute permitted or required the Company to provide prior to such amendment. Par. 2. Mandatory Indemnification. To the fullest extent permitted or -------------------------- required by the Statute, the Company shall indemnify a Director or Officer against all Liabilities incurred by or on behalf of such Director or Officer in connection with a Proceeding in which the Director or Officer is a Party because he or she is a Director or Officer. Par. 3. Procedural Requirements. ------------------------ 7 (a) A Director or Officer who seeks indemnification under Par. 2 shall make a written request therefor to the Company. Subject to Par. 3(b), within sixty (60) days of the Company's receipt of such request, the Company shall pay or reimburse the Director or Officer for the entire amount of Liabilities incurred by the Director or Officer in connection with the subject Proceeding (net of any Expenses previously advanced pursuant to Par. 5). (b) No indemnification shall be required to be paid by the Company pursuant to Par. 2 if, within such sixty (60) day period, (i) a Disinterested Quorum, by a majority vote thereof, determines that the Director or Officer requesting indemnification engaged in misconduct constituting a Breach of duty or (ii) a Disinterested Quorum cannot be obtained. (c) In either case of nonpayment pursuant to Par. 3(b), the Board shall immediately authorize by resolution that an Authority, as provided in Par. 4, determine whether the Director's or Officer's conduct constituted a Breach of Duty and, therefore, whether indemnification should be denied hereunder. (d) (i) If the Board does not authorize an Authority to determine the Director's or Officer's right to indemnification hereunder within such sixty (60) day period and/or (ii) if indemnification of the requested amount of Liabilities is paid by the Company, then it shall be conclusively presumed for all purposes that a Disinterested Quorum has affirmatively determined that the Director or Officer did not engage in misconduct constituting a Breach of Duty and, in the case of subsection (i) above (but not subsection (ii)), indemnification by the Company of the requested amount of Liabilities shall be paid to the Director or Officer immediately. Par. 4. Determination of Indemnification. ----------------- --------------- (a) If the Board authorizes an Authority to determine a Director's or Officer's right to indemnification pursuant to Par. 3, then the Director or Officer requesting indemnification shall have the absolute discretionary authority to select one of the following as such Authority. 8 (i) An independent legal counsel; provided, that such counsel shall be mutually selected by such Director or Officer and by a majority vote of a Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a majority vote of the Board; (ii) A panel of three (3) arbitrators selected from the panels of arbitrators of the American Arbitration Association in Eau Claire, Wisconsin; provided, that (A) one arbitrator shall be selected by such Director or Officer, the second arbitrator shall be selected by a majority vote of the Board, and the third arbitrator shall be selected by the two (2) previously selected arbitrators, and (B) in all other respects, such panel shall be governed by the American Arbitration Association's then existing Commercial Arbitration Rules; or (iii) A court pursuant to and in accordance with Section 180.0854 of the Statute. (b) In any such determination by the selected Authority there shall exist a rebuttable presumption that the Director's or Officer's conduct did not constitute a Breach of Duty and that indemnification against the requested amount of Liabilities is required. The burden of rebutting such a presumption by clear and convincing evidence shall be on the Company or such other party asserting that such indemnification should not be allowed. (c) The Authority shall make its determination within sixty (60) days of being selected and shall submit a written opinion of its conclusion simultaneously to both the Company and the Director or Officer. (d) If the Authority determines that indemnification is required hereunder, the Company shall pay the entire requested amount of Liabilities (net of any Expenses previously advanced pursuant to Par. 5), including interest thereon at a reasonable rate, as determined by the Authority, within ten (10) days of receipt of the Authority's opinion; provided, that, if it is determined by the Authority that a Director or Officer is entitled to indemnification as to some claims, issues, or matters, but not as to other claims, issues, or matters, involved in the subject Proceeding, the Company shall be required to pay (as 9 set forth above) only the amount of such requested Liabilities as the Authority shall deem appropriate in light of all of the circumstances of such Proceeding. (e) The determination by the Authority that indemnification is required hereunder shall be binding upon the company regardless of any prior determination that the Director or Officer engaged in a Breach of Duty. (f) All Expenses incurred in the determination process under this Par. 4 by either the Company or the Director or Officer, including, without limitation, all Expenses of the selected Authority, shall be paid by the Company. Par. 5. Mandatory Allowance of Expenses. ---------------------------------- (a) The Company shall pay or reimburse, within ten (10) days after the receipt of the Director's or Officer's written request therefor, the reasonable Expenses of the Director or Officer as such Expenses are incurred; provided the following conditions are satisfied: (i) The Director or Officer furnishes to the Company an executed written certificate affirming his or her good faith belief that he or she has not engaged in misconduct which constitutes a Breach of Duty; and (ii) The Director or Officer furnishes to the Company an unsecured executed written agreement to repay any advances made under this Par. 5, if it is ultimately determined by an Authority that he or she is not entitled to be indemnified by the Company for such Expenses pursuant to Par. 4. (b) If the Director or Officer must repay any previously advanced Expenses pursuant to this Par. 5, such Director or Officer shall not be required to pay interest on such amounts. Par. 6. Indemnification and Allowance of Expenses of Employees and Agents. ------------------------------------------------------------------ - ------ 10 (a) The Company shall indemnify an employee of the Company who is not a Director or Officer, to the extent that he or she has been successful on the merits or otherwise in defense of a Proceeding, for all reasonable Expenses incurred in the Proceeding if the employee was a Party because he or she was an employee of the Company. (b) The Company shall indemnify any person who was or is a Party or is threatened. to be made a Party to any threatened, pending, or completed Proceeding, other than an action by or in the right of the Company, by reason of the fact that he or she is or was an employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against Liabilities and Expenses actually and reasonably incurred by him or her in connection with the Proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interest of the Company, and, with respect to any criminal Proceeding, had reasonable cause to believe that his or her conduct was unlawful. (c) The Company shall indemnify any person who was or is a Party or is threatened to be made a Party to any threatened, pending, or completed Proceeding, by or in the right of the Company to procure a judgment in its favor by reason of the fact that he or she is or was an employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against Expenses actually and reasonably incurred by him or her in connection with the defense or settlement of the Proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interest of the Company, except that no indemnification shall be made in respect to any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the 11 Company, unless and only to the extent that the court in which such Proceeding was brought shall determine upon application, that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such Expenses which such court shall deem proper. (d) Any action taken or omitted to be taken by an employee or agent of the Company in good faith and in compliance with or pursuant to any order, determination, approval, or permission made or given by a commission, Board, official, or other agency of the United States or of any state or other governmental authority with respect to the property or affairs of the Company over which such commission, board, official, or agency has jurisdiction or authority or purports to have jurisdiction or authority shall be deemed prima facie to be in compliance with the applicable standard of conduct set forth in Par. 6(b) or 6(c), whether or not it may thereafter be determined that such order, determination, approval, or permission was unauthorized, erroneous, unlawful, or otherwise improper. (e) In addition to the indemnification required by Par. 6(a) through 6(d), the Board may, in its sole and absolute discretion as it deems appropriate, pursuant to a majority vote thereof, indemnify against Liabilities incurred by, and/or provide for the allowance of reasonable Expenses of, an employee or authorized agent of the Company acting within the scope of his or her duties as such and who is not otherwise a Director or Officer. Par. 7. Insurance. The Company may purchase and maintain insurance on ---------- behalf of a Director or Officer or any individual who is or was an employee or authorized agent of the Company against any Liability asserted against or incurred by such individual in his or her capacity as such or arising from his or her status as such, regardless of whether the Company is required or permitted to indemnify against any such Liability under this Section 7. Par. 8. Notice to the Company. A Director or Officer shall promptly --------------------- notify the Company in writing when he or she has actual knowledge of a Proceeding which may result in a claim of indemnification against Liabilities or allowance of Expenses hereunder, but the failure to do so shall not relieve the Company of any liability to the Director or Officer hereunder unless the 12 company shall have been irreparably prejudiced by such failure (as determined by an Authority selected pursuant to Par. 4(a)). Par. 9. Severability. If any provision of this Section shall be ------------- deemed invalid or inoperative, or if a court of competent jurisdiction determines that any of the provisions of this Section 7 contravene public policy, this Section 7 shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such provisions which are invalid or inoperative or which contravene public policy shall be deemed, without further action or deed by or on behalf of the Company, to be modified, amended, and/or limited, but only to the extent necessary to render the same valid and enforceable. Par. 10. Nonexclusivity of Section 7. The rights of a Director or ---------------------------- Officer (or any other person) granted under this Section 7 shall not be deemed exclusive of any other rights to indemnification against Liabilities or allowance of Expenses which the Director or Officer (or such other person) may be entitled to under any written agreement, Board resolution, vote of shareholders of the Company or otherwise, including, without limitation, under the Statute. Nothing contained in his Section 7 shall be deemed to limit the Company's obligations to indemnify against Liabilities or allow Expenses to a Director of Officer under the Statute. Par. 11. Contractual Nature of Section 7; Repeal or Limitation of Rights. --------------------------------------------------------------- This Section 7 shall be deemed to be a contract between the Company and each Director and Officer and any repeal or other limitation of this Section 7 or any repeal or limitation of the Statute or any other applicable law shall not limit any rights of indemnification against Liabilities or allowance of Expenses then existing or arising out of events, acts or omissions occurring prior to such repeal or limitation, including, without limitation, the right to indemnification against Liabilities or allowance of Expenses for Proceedings commenced after such repeal or limitation to enforce this Section 7 with regard to acts, omissions or events arising prior to such repeal or limitation. Par. 12. Continuation of Indemnification. The indemnification provided ------------------------------- by this Section 7 shall continue as to a person who has ceased to be a Director, 13 Officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. Section 8. Telephonic Meetings. Only as herein provided, members of ------------------- the Board of Directors (and any committees thereof) may participate in regular or special meetings by, or through the use of, any means of communication by which all participants may simultaneously hear each other, such as by conference telephone. If a meeting is conducted by such means, then at the commencement of such meeting the Chairman of the Board (or chairman of the committee) shall inform the participating Directors that a meeting is taking place at which official business may be transacted. Any participant in a meeting by such means shall be deemed present in person at such meeting. ARTICLE III. Committees ---------- Section 1. Creation and Powers. The Board of Directors by --------------------- resolution adopted by the affirmative vote of a majority of all of the directors then in office may create one or more committees, appoint members of the Board of Directors to serve on the committees and designate other members of the Board of Directors to serve as alternates. Each committee shall have two or more members who shall, unless otherwise provided by the Board of Directors, serve at the pleasure of the Board of Directors. A committee may be authorized to exercise the authority of the Board of Directors, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareholders action that the Wisconsin Business Corporation Law requires to be approved by shareholders; (c) fill vacancies on the Board of Directors or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) approve a plan of merger not requiring shareholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Unless otherwise provided by the Board 14 of Directors in creating the committee, a committee may employ counsel, accountants and other consultants to assist it in the exercise of its authority. Section 2. Meetings and Quorum. A committee meeting shall be held ------------------- at such time and place as the committee shall fix or whenever called by order of the Chairman of the Board, the President, or a majority of the committee. A majority of the members of a committee shall constitute a quorum. A committee shall cause to be kept a full and accurate record of all of its acts and proceedings. ARTICLE IV. Officers -------- Section 1. Designation, Term and Vacancies. The general officers of ------------------------------- the corporation shall be a Chairman of the Board, a President, and one or more Vice Presidents any of whom may have such additional designation as the Board of Directors may provide, a Secretary and one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers, a Controller and such ------------- subordinate officers as may from time to time be elected by the Board of Directors. The filling of the office of Chairman of the Board shall be discretionary with the Board of Directors. If such office be vacant, the functions thereof shall be performed by the office of the President. Any two or more of the offices may be held by the same person, except the offices of President and Secretary, and the offices of President and Vice President. Vacancies occurring among the officers of the corporation shall be filled by the Board of Directors. All officers elected by the Board shall hold office until the next annual meeting of the Directors and until their successors are elected and qualified, provided, however, that any officer may be removed at any time by the affirmative vote of a majority of the whole Board. All other officers, agents and employees shall hold office during the pleasure of the Board. Section 2. Chief Executive Officer. The Board of Directors shall ------------------------ designate the Chief Executive Officer of the Company. Section 3. Duties of Chairman of the Board. The Chairman of the Board ------------------------------- shall preside at all meetings of the Board of Directors; he shall be ex officio a member 15 of all standing committees, and shall have such other powers and perform such other duties as may be prescribed by the Board. Section 4. President. The President shall have general supervision and ---------- direction of the affairs of the company and shall have all the powers and duties appurtenant to the office of President of a corporation. He shall preside at meetings of the Board of Directors in the absence or disability of the Chairman of the Board. He shall be ex officio a member of all standing committees. He shall have power to appoint and discharge, subject to the approval of the Directors, employees or agents of the Company and fix their compensation; make and sign agreements in the name and behalf of the Company; he shall report to the Board all matters within his knowledge which the interest of the Company may require to be brought to their notice; he shall make such other reports to the shareholders and the Board as may be required of him; and shall perform all such other duties as are properly required of him by the Board. Section 5. Vice President. Each Vice President shall be vested with -------------- all the powers and shall perform all the duties of the President in the absence or disability of the latter, unless or until the Directors shall otherwise determine. He shall have such other powers and perform such other duties as shall be prescribed by the Directors. Section 6. Secretary. The Secretary shall give, or cause to be given, --------- notice of all meetings of shareholders and Directors and all other notices required by law or the By-Laws of the Company and in case of his absence or refusal or neglect so to do, any such notices may be given by any person thereunto directed by the President or by the Directors and shareholders, upon whose requisition the meeting is called as provided in the By-Laws. He shall record all proceedings of the meetings of the shareholders and the Directors and any committees of the corporation in the book or books to be kept for that purpose, and shall perform such other duties as may be assigned to him by the Directors or by the President. Section 7. Assistant Secretary. Each Assistant Secretary shall be ------------------- vested with all the powers and shall perform all the duties of the Secretary in the absence or disability of the latter and he shall perform such duties as may be prescribed by the Board of Directors. 16 Section 8 Treasurer. The Treasurer shall have the custody of all --------- funds, securities, evidences of indebtedness, and other valuable documents of the Company, and shall deposit all money and other valuable effects in the name and to the credit of the Company, and in such depositories as may be designated by the Board of Directors. He shall give, or cause to be given, receipts and acquittances for moneys paid in on account of the Company. He shall disburse the funds of the Company as may be ordered by the Board or the President, taking proper vouchers for such disbursements. He shall enter, or cause to be entered, in the books of the Company to be kept for that purpose, full and accurate accounts of all moneys received and paid out on account of the Company, and whenever required by the President or Directors, he shall render a statement of his cash accounts. He shall keep or cause to be kept, such other books as will show a true record of the expenses, losses, assets, gains and liabilities of the Company. He shall perform all such other duties as the Board of Directors may from time to time prescribe or require. Section 9. Assistant Treasurer. Each Assistant Treasurer shall be ------------------- vested with all the powers and shall perform all the duties of the Treasurer in the absence or disability of the latter, and shall perform such other duties as may be prescribed by the Board of Directors. Section 10 Controller. The Controller shall establish and enforce ---------- accounting policies and procedures, and establish and implement internal accounting control practices and systems to preserve the integrity and accuracy of the Company's books of accounts. The Controller shall also be responsible for preparing the corporate operating and capital budgets and providing timely reports of budget deviations and financial performance. The Controller shall perform such other duties as the Board of Directors may from time to time prescribe or require. 17 Section 11. Execution of Cheques, etc. Cheques, drafts, acceptances, ------------------------- bills of exchange and promissory notes of the Company shall be signed in such manner as may from time to time be directed by resolution of the Board. Section 12. Bonds of Officers and Employees. Any executive officer of ------------------------------- the Company may be required by resolution of the Board to give a bond for the faithful discharge of his duties in such amount and wish such sureties and containing such conditions as the Board of Directors may approve. Any other employee of the Company may be required by resolution of the Board or by direction of the President to give a bond in such sum and with such sureties and containing such conditions as the Board of Directors may approve. Any bond so required of any officer or employee of the Company may be the undertaking of a surety company and the premium therefor may be paid by the Company. ARTICLE V. Shares of Stock. ---------------- Section 1. Certificates of Stock. All certificates for shares of the --------------------- capital stock of the Company shall be in such form not inconsistent with the Articles of Incorporation of the Company as shall be approved by the Board of Directors, and shall be signed by the President or Vice President and by the Secretary or Assistant Secretary, and shall not be valid unless so signed. All certificates shall be consecutively numbered, and the name of the person owning the shares represented thereby, with the number of such shares and the date of issuance, shall be entered on the Company's books. All certificates surrendered shall be canceled, and no new certificate issued until the former certificate for the same number of shares shall have been surrendered and canceled, except in cases provided for in Section 4 of this Article. Section 2. Transfer of Shares. Shares of stock of the corporation ------------------ shall be transferable in person or by attorney by the endorsement and delivery of the stock certificate and the registry of such transfer on the books of the corporation. The transfer books of the corporation may be closed for such period as the Board of Directors shall direct previous to and on the day of the annual or any special meeting of the shareholders, and may also be closed by the Board for such time as may be 18 deemed advisable for dividend purposes, and during such time no stock shall be transferable. Section 3. Addresses of Shareholders. Every shareholder shall furnish ------------------------- the Secretary with an address to which notices of meetings and all other notices may be served upon or mailed to him, and in default thereof notices may be addressed to him at his last known address. Section 4. Lost and Destroyed Certificates. The Board of Directors may ------------------------------- direct that a new certificate or certificates may be issued in place of any certificate or certificates theretofore issued by the Company, alleged to have been lost or destroyed, and the Board of Directors, when authorizing the issuance of such new certificate or certificates, may in their discretion and as a condition precedent thereto, require the owner of such lost or destroyed certificate or certificates, or his legal representatives, to give to the Company a bond in such sum as they may direct as indemnity against any claim that may be made against the Company. Section 5. Regulations. The Board of Directors shall have power and ----------- authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Company. ARTICLE VI. Dividends. ---------- The Board of Directors may declare dividends from the surplus or net profits of the corporation as they may m their discretion from time to time determine. Such dividends may be declared by the Board at any meeting, either regular or special, at which a quorum is present. Any dividends declared upon the stock shall be payable upon such dates as may be from time to time fixed by the Board. 19 ARTICLE VII. Seal. ----- The Common corporate seal is, and until otherwise ordered and directed by the Board of Directors shall be, an impression upon paper of wax bearing the words: "NORTHERN STATES POWER COMPANY, CORPORATE SEAL, WISCONSIN." One or more duplicate dies for impressing such seal may be kept and used. ARTICLE VIII. Amendment of By-Laws. -------------------- These By-Laws may be altered, amended or repealed by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat at any regular or special meeting of the shareholders of the Company if notice of the proposed alteration or amendment or repeal be contained in the notice of such meeting, or by the affirmative vote of a majority of the Board of Directors of the Company at any regular or special meeting of the Board. EX-23 3 CONSENT OF INDEPENDENT ACCOUNTANTS ================================== We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-85267) of Northern States Power Company (Wisconsin) of our report dated January 31, 2000 relating to the financial statements, which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota March 14, 2000 EX-27 4
UT This schedule contains summary financial information extracted from the Statements of Income and Retained Earnings, Balance Sheets and Statements of Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1999 DEC-31-1999 PER-BOOK 752,771 12,063 86,748 55,521 0 907,103 86,200 10,541 260,259 357,000 0 0 231,950 0 80,800 0 0 0 0 0 237,353 907,103 493,907 25,546 414,014 439,560 54,347 549 54,896 18,530 36,366 0 36,366 26,997 16,185 84,948 42.19 42.19
EX-99 5 EXHIBIT 99.01 - -------------- Northern States Power Company Cautionary Factors The Private Securities Litigation Reform Act of 1995 (the Act) provides a new "safe harbor" for forward-looking statements to encourage such disclosures without the threat of litigation providing those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward-looking statements have been and will be made in written documents and oral presentations of Northern States Power Company, a Wisconsin Corporation (NSP-Wisconsin). Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in NSP-Wisconsin's documents or oral presentations, the words "anticipate", "estimate", "expect", "objective", "outlook," "possible", "potential" and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause NSP-Wisconsin's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: - Economic conditions including inflation rates and monetary fluctuations; - Trade, monetary, fiscal, taxation, and environmental policies of governments, agencies and similar organizations in geographic areas where NSP-Wisconsin has a financial interest; - Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services; - Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Federal Energy Regulatory Commission and similar entities with regulatory oversight; - Availability or cost of capital such as changes in: interest rates; market perceptions of the utility industry, or NSP-Wisconsin; or security ratings; - Factors affecting operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, maintenance or repairs; unanticipated changes to fossil fuel or gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints; - Employee workforce factors including loss or retirement of key executives, collective bargaining agreements with union employees, or work stoppages; - Increased competition in the utility industry, including: industry restructuring initiatives; transmission system operation and/or administration initiatives; recovery of investments made under traditional regulation; nature of competitors entering the industry; retail wheeling; a new pricing structure; and former customers entering the generation market; - Rate-setting policies or procedures of regulatory entities, including environmental externalities, which are values established by regulators assigning environmental costs to each method of electricity generation when evaluating generation resource options; - Social attitudes regarding the utility and power industries; - Cost and other effects of legal and administrative proceedings, settlements, investigations and claims; - Technological developments that result in competitive disadvantages and create the potential for impairment of existing assets; - Other business or investment considerations that may be disclosed from time to time in NSP-Wisconsin's Securities and Exchange Commission filings or in other publicly disseminated written documents. - Factors associated with Y2K compliance and remediation that might cause material Y2K-related problems to surface at a later date, even though NSP experienced a smooth transition into the year 2000. Such material problems could result in, among other things, business disruptions, operational problems, financial loss, legal liability, and similar risks. - Regulatory delays or conditions imposed by regulatory agencies in approving the proposed merger with NCE. NSP-Wisconsin undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors pursuant to the Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by NSP-Wisconsin prior to the effective date of the Act. -----END PRIVACY-ENHANCED MESSAGE-----