-----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, R9r0Ny35Km/Db5JSTBROYvj/NRmbXvDttHA6JlXB1kr+gJ1immtJqobzszuy1KeS 9UFPxrGqBqJOd4Sp2wMuag== 0000072909-96-000010.txt : 19961118 0000072909-96-000010.hdr.sgml : 19961118 ACCESSION NUMBER: 0000072909-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03140 FILM NUMBER: 96663546 BUSINESS ADDRESS: STREET 1: 100 N BARSTOW ST CITY: EAU CLAIRE STATE: WI ZIP: 54702 BUSINESS PHONE: 7158392621 MAIL ADDRESS: STREET 1: P O BOX 8 CITY: EAU CLAIRE STATE: WI ZIP: 54702-008 10-Q 1 United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark one) X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended SEPTEMBER 30, 1996 Commission File Number 10-3140 NORTHERN STATES POWER COMPANY, A WISCONSIN CORPORATION, MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) AND (2) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. Northern States Power Company (Exact name of registrant as specified in its charter) Wisconsin 39-0508315 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 100 North Barstow Street, Eau Claire, Wisconsin 54703 (Address of principal executive officers) (Zip Code) Registrant's telephone number, including area code (715) 839-2592 NONE Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 14, 1996 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. Northern States Power Company (Wisconsin) Statements of Income (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 (Thousands of dollars) Operating revenues Electric............................................ $91,459 $97,458 $279,960 $283,980 Gas................................................. 8,907 7,625 60,814 51,420 Total............................................. 100,366 105,083 340,774 335,400 Operating expenses Fuel for electric generation........................ 923 1,969 3,523 3,758 Purchased and interchange power..................... 42,375 43,985 133,357 132,788 Gas purchased for resale............................ 5,360 8,585 39,758 35,792 Other operation..................................... 13,482 14,320 41,442 40,294 Maintenance......................................... 4,439 5,140 14,434 14,425 Administrative and general.......................... 5,486 5,888 16,389 18,316 Depreciation and amortization....................... 9,034 8,253 26,547 24,568 Taxes: Property and general......................... 3,552 3,455 10,798 10,455 Current income tax expense................... 3,172 2,294 14,210 14,400 Net provision for deferred income taxes...... 1,391 1,353 2,375 2,275 Net investment tax credit adjustments........ (227) (234) (682) (702) Total............................................. 88,987 95,008 302,151 296,369 Operating income..................................... 11,379 10,075 38,623 39,031 Other income Other income and deductions - net................... 82 371 314 643 Allowance for funds used during construction - equity............................................ 65 119 276 242 Total other income ................................ 147 490 590 885 Income before interest charges....................... 11,526 10,565 39,213 39,916 Interest charges Interest on long-term debt.......................... 3,968 4,010 11,910 12,048 Other interest and amortization..................... 863 620 2,429 2,696 Allowance for funds used during construction - debt. (104) (112) (276) (296) Total............................................. 4,727 4,518 14,063 14,448 Net Income .......................................... $6,799 $6,047 $25,150 $25,468 Statements of Retained Earnings (Unaudited) Balance at beginning of period....................... $227,197 $220,048 $221,638 $218,833 Net income for period................................ 6,799 6,047 25,150 25,468 Net additions...................................... 6,799 6,047 25,150 25,468 Dividends paid....................................... 6,396 6,603 19,188 24,809 Balance at end of period............................. $227,600 $219,492 $227,600 $219,492 The Notes to Financial Statements are an integral part of the Statements of Income and Retained Earnings.
Northern States Power Company (Wisconsin) Balance Sheets (Unaudited)
September 30, December 31, 1996 1995 (Thousands of dollars) ASSETS Utility Plant Electric........................................................ $886,837 $864,514 Gas............................................................. 98,525 94,425 Other........................................................... 67,139 63,758 Total....................................................... 1,052,501 1,022,697 Accumulated provision for depreciation........................ (388,896) (370,634) Net utility plant........................................... 663,605 652,063 Other Property and Investments.................................... 9,286 9,218 Current Assets Cash............................................................ 326 247 Accounts receivable - net....................................... 32,397 43,134 Materials and supplies - at average cost Fuel........................................................ 9,065 6,689 Other....................................................... 5,903 5,561 Unbilled utility revenues....................................... 12,136 18,665 Prepayments and other........................................... 10,463 11,295 Total current assets.......................................... 70,290 85,591 Other Assets Regulatory assets............................................... 32,799 34,704 Federal income tax receivable................................... 3,307 3,307 Unamortized debt expense........................................ 2,666 2,780 Other........................................................... 3,132 3,235 Total other assets........................................... 41,904 44,026 TOTAL ASSETS................................................ $785,085 $790,898 LIABILITIES AND EQUITY Capitalization Common stock - authorized 870,000 shares of $100 par value, issued shares: 1996 and 1995, 862,000...................... $86,200 $86,200 Premium on common stock....................................... 10,461 10,461 Retained earnings............................................. 227,600 221,638 Total common stock equity................................... 324,261 318,299 Long-term debt.................................................. 211,571 213,235 Total capitalization........................................ 535,832 531,534 Current Liabilities Notes payable - parent company.................................. 49,800 50,900 Accounts payable................................................ 11,688 14,884 Payable to affiliate companies (principally parent)............. 15,330 13,457 Salaries, wages, and vacation pay accrued....................... 5,209 6,343 Taxes accrued................................................... 1,016 5,648 Interest accrued................................................ 5,066 5,300 Current deferred taxes.......................................... 1,725 1,963 Other........................................................... 4,301 4,177 Total current liabilities................................... 94,135 102,672 Other Liabilities Accumulated deferred income taxes............................... 102,457 100,227 Accumulated deferred investment tax credits..................... 20,310 21,205 Regulatory liabilities.......................................... 17,869 18,020 Customer advances............................................... 7,424 6,458 Benefit obligations and other................................... 7,058 10,782 Total other liabilities..................................... 155,118 156,692 TOTAL LIABILITIES AND EQUITY.............................. $785,085 $790,898 The Notes to Financial Statements are an integral part of the Balance Sheets.
Northern States Power Company (Wisconsin) Statements of Cash Flows (Unaudited)
Nine Months Ended September 30 1996 1995 (Thousands of dollars) Cash Flows from Operating Activities: Net Income.............................................. $25,150 $25,468 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization......................... 27,216 25,435 Deferred income taxes................................. 919 1,228 Deferred investment tax credits recognized............ (682) (702) Allowance for funds used during construction - equity. (276) (242) Decrease in insurance receivable...................... 0 2,996 Cash provided from changes in working capital........... 7,717 19,551 Cash provided from (used for) changes in other assets and liabilities................................ (2,091) 753 Net cash provided from operating activities 57,953 74,487 Cash Flows from Investing Activities: Capital expenditures.................................... (38,189) (35,737) Increase in construction related accounts payable....... 464 275 Allowance for funds used during construction - equity... 276 242 Other................................................... (137) (1,303) Net cash used for investing activities (37,586) (36,523) Cash Flows from Financing Activities: Repayment of short-term debt............................ (1,100) (9,700) Redemption of long-term debt, including reacquisition premiums.............................................. 0 (3,375) Dividends paid to parent................................ (19,188) (24,809) Net cash used for financing activities (20,288) (37,884) Net increase in cash and cash equivalents.................. 79 80 Cash and cash equivalents beginning of period.............. 247 61 Cash and cash equivalents end of period.................... $326 $141 The Notes to Financial Statements are an integral part of the Statements of Cash Flows.
Northern States Power Company (Wisconsin) NOTES TO FINANCIAL STATEMENTS The Company is a wholly owned subsidiary of Northern States Power Company, a Minnesota corporation (NSPM). In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the financial position of Northern States Power Company, a Wisconsin corporation (the Company), as of September 30, 1996 and December 31, 1995, the results of its operations for the three and nine months ended September 30, 1996 and 1995 and its cash flows for the nine months ended September 30, 1996 and 1995. Due to the seasonality of the Company's electric and gas sales, operating results on a quarterly and year-to-date basis are not necessarily an appropriate base from which to project annual results. The accounting policies followed by the Company are set forth in Note 1 to the Company's financial statements in its Annual Report on Form 10-K for the year ended December 31, 1995 (Form 10-K). The following notes should be read in conjunction with such policies and other disclosures in the Form 10-K. Certain reclassifications have been made to 1995 financial information to conform with the 1996 presentation. These reclassifications had no effect on net income as previously reported. 1. Accounting Change - Gas Costs While fixed costs (demand charges) from gas suppliers and transporters are incurred fairly evenly throughout the year, such costs are recovered in customer rates on a per unit basis (using average annual costs per unit), primarily in the winter heating season when sales volumes are highest. Also, the energy price of gas purchased (excluding demand charges) can vary from estimated levels included in customer rates. As a result, gas costs for both demand and energy charges are incurred throughout the year at a different time than when such costs are recovered from customers. The purchased gas adjustment (PGA) clause allows customer rates to be adjusted periodically to ensure full recovery of all gas costs incurred. Effective January 1, 1996, the Company changed its method of accounting for the regulatory effects of costs recovered through the PGA rate adjustment clause. Previously, the Company expensed gas costs as incurred. Beginning in 1996, the cost of gas expensed is adjusted to equal the level of cost recovery in customer rates, with such adjustments being reflected as regulatory deferrals on the balance sheet. This accounting change results in a better matching of revenues and expenses, and conforms to the cost recognition method used by NSPM. This change affects the timing of expense recognition within the year but will not change total annual gas expense for 1996 or any prior years. The effect of the change on third quarter 1996 results was a decrease in gas costs recognized and an increase in pretax operating income of approximately $3.7 million, and an increase in net income of $2.2 million. The effect of the change on the first nine months of 1996 results was a decrease in gas costs recognized and an increase in pretax operating income of approximately $0.3 million, and an increase in net income of $0.2 million. Consistent with accounting requirements, prior year quarterly results have not been restated for this change. Had the change been implemented as of January 1, 1995, the effect of the change on third quarter 1995 results would have been a decrease in gas costs recognized and an increase in pretax operating income of approximately $4.2 million, and an increase in net income of $2.5 million. The effect of the change on results for the first nine months of 1995 results would have been a decrease in gas costs recognized and an increase in pretax operating income of approximately $1.7 million, and an increase in net income of $1.0 million. 2. Proposed Business Combination On April 28, 1995, NSPM and Wisconsin Energy Corporation (WEC) entered into an Agreement and Plan of Merger (the Merger Agreement), which provides for a strategic business combination involving NSPM, WEC and the Company to form a registered utility holding company, which will be known as Primergy Corporation (Primergy). See further discussion of the proposed business combination in the 1995 Form 10-K and Part II, Item 5-Other Information of this report. The 1996 developments, related to merger filings made in 1995, are discussed below. The goal of NSPM, WEC and the Company was to receive approvals from all required regulatory authorities by the end of 1996. However, (as discussed below) it appears that all necessary regulatory approvals will not be obtained by the end of 1996, and as a result, the merger will not be completed during 1996. If this is the case, NSPM, WEC and the Company will continue to pursue regulatory approvals and completion of the merger as soon as possible in 1997. In July 1995, WEC and NSPM filed an application and supporting testimony with the Federal Energy Regulatory Commission (FERC) seeking approval of the Merger Agreement. On May 28, 1996, WEC and NSPM filed additional evidence with the FERC, providing a detailed analysis of generation "market power" and more specific information about the independent system operator (ISO) proposal included in earlier filings. This additional information was provided to the FERC in response to concerns raised by intervenors in the merger proceeding and by the FERC staff. The FERC administrative law judge (ALJ), in the merger proceeding, issued an initial decision on August 29, 1996 recommending approval of the merger application, subject to NSPM and WEC meeting eight conditions. A significant part of the ALJ's initial decision involves establishing an ISO. The ALJ's initial decision specifically rejected the need for divestiture of any generation or transmission facilities as a requirement for ensuring open and equal access to the transmission system. In October 1996, in response to the FERC staff and intervenor opposition to the merger based on the claim that Primergy would be able to exercise transmission market power after the merger, NSPM and WEC filed a Unilateral Offer of Settlement (UOS) with the FERC. The UOS includes a transmission system control agreement and articles and bylaws for establishing an ISO. NSPM and WEC are hopeful that the FERC will simultaneously approve the UOS and the pending merger application in late 1996. On April 10, 1996, the Michigan Public Service Commission approved the merger application through a settlement agreement containing terms consistent with the merger application. On June 26, 1996, the North Dakota Public Service Commission approved the merger application. These state commission approvals represent two of the four states where approval of the merger is required. On July 24, 1996, the Public Service Commission of Wisconsin (PSCW) held a prehearing conference on the merger proceeding. At the prehearing conference the parties agreed upon an extensive issues list and a schedule for the hearing. The schedule originally required staff and intervenor case filings and applicants rebuttal filing in September 1996, and three weeks of hearings commencing on September 24, 1996. At its open meeting on August 8, 1996, the PSCW revised the schedule and set hearing dates to begin October 30, 1996. The resulting schedule should lead to a PSCW decision on the merger in early 1997 and a written order in the first quarter of 1997. In October 1996, the PSCW staff filed testimony with the PSCW proposing various conditions, including potential divestiture of certain transmission and generation assets and a larger reduction in electric rates. These recommendations differ materially from the merger terms and conditions included in the application which NSPM and WEC originally filed with the PSCW. In a related matter (as discussed below in Note 3, Regulation and Rate Matters), the PSCW in September 1996 issued an order that set minimum standards for creating an ISO that differs from NSPM's and WEC's proposal for an ISO. This order was issued as part of a generic electric utility restructuring process the PSCW started in 1995. Although the restructuring process is separate from the merger proceedings, the order is related because the PSCW staff, in its testimony filed in the merger proceeding (as discussed above), recommended establishing an ISO that meets the standards of the PSCW's order as a condition to approving the merger. In addition, in September 1996, the PSCW submitted its ISO order to the FERC with a request that the FERC require the establishment of an ISO satisfying the PSCW minimum standards as a condition to its approval of the NSPM/WEC merger application. In October 1996, NSPM and WEC filed with the PSCW, as supplemental testimony and exhibits in the merger proceeding, the same ISO proposal included with the UOS filed with the FERC (as discussed previously). In June 1996, the Minnesota Public Utilities Commission (MPUC) issued an order which established the procedural framework for the MPUC's consideration of the merger. The issues of merger-related savings, electric rate freeze characteristics, NSPM's pre-merger revenue requirements, Primergy's ability to control the transmission interface between the Mid-Continent Area Power Pool and the Wisconsin and upper Michigan area, and the impact of control of this interface on Minnesota utilities were set for contested case hearings. Administrative law judges have scheduled evidentiary hearing dates from November 20 through December 6, 1996. Unless the MPUC proceedings are settled, the MPUC's decision will not be obtained until early 1997. On April 5, 1996, NSPM and WEC submitted the initial filing to the Securities and Exchange Commission to facilitate registration of Primergy under the Public Utility Holding Company Act of 1935, as amended. Notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, will be filed prior to completion of the proposed merger. The merger filings, with each state, included a request for deferred accounting treatment and rate recovery of costs incurred associated with the proposed merger. At September 30, 1996, the Company had incurred approximately $593,000 of costs associated with the proposed merger which have been deferred as a component of Other Assets. Under the Merger Agreement, completion of the merger is conditioned upon the prior receipt of all necessary regulatory approvals without the imposition of materially adverse terms. 3. Regulation and Rate Matters 1997 Rate Cases - There have been no changes in any of the rates for any of the jurisdictions in which the Company operates, since the Form 10-K was filed. The technical hearings for the electric and gas stand alone rate cases, based on a 1997 pre-merger test year, were held before the PSCW on July 8, 1996. On October 10, 1996, at its open meeting, the PSCW made decisions on the issues in the Company's 1997 rate cases. Although a final order has not yet been issued by the PSCW, the PSCW made the following preliminary decisions. Overall, electric and gas rates will remain unchanged in 1997. However, certain classes of customers will experience small changes in rates, as a result of revisions in rate design. The Company had requested changes to electric rates for various classes of customers, which would have an offsetting effect on overall revenues. The Company had requested no changes to gas rates. The PSCW approved a capital structure composed of 45% debt and 55% common equity. The PSCW granted an 11.3% return on common equity. Based on the PSCW's interpretation of a recent court decision, the PSCW denied current rate recovery of the federal government's assessment against the Company for the decommissioning and decontamination of its uranium enrichment facilities. The Company's annual expense for this item is approximately $600,000. This cost disallowance was considered in the overall cost of service which, as approved by the PSCW, supported no change to overall electric and gas rates. The Company incurs this cost through the interchange agreement with NSPM. NSPM plans to continue paying the assessments to the federal government, and based on the PSCW's decision to allow future rate recovery with interest if the courts ultimately decide the assessments must be paid, the Company will record the assessments as a regulatory asset beginning in 1997. Industry Restructuring - Because of the increased focus on competition in the electric and natural gas utility industries, the PSCW is investigating changes in the structure and regulation of both industries. The Company has actively participated in these proceedings. To date, after reviewing a set of proposals developed by its working group, the PSCW has set a target date of 2001 for implementing competition in retail electric markets, established prerequisites for retail competition and defined a work plan for achieving the prerequisites. As a part of the electric restructuring process, on September 30, 1996 the PSCW issued an order setting out the minimum standards for an ISO. These guidelines will be used by the PSCW in the NSPM and WEC merger proceedings, and in developing further direction for an ISO for purposes of restructuring. In addition the PSCW proceedings are investigating unbundling the components of the integrated utility, setting service standards and establishing methods for the continued promotion of energy conservation and renewable resources. The PSCW is also examining similar issues for the gas industry. 4. Commitments and Contingent Liabilities As discussed in Note 8 to the Financial Statements in the 1995 Form 10-K, the Company has been named as a potentially responsible party in connection with environmental contamination at a site in Ashland, Wisconsin. With respect to developments since the 1995 Form 10-K was filed, the Wisconsin Department of Natural Resources (WDNR) completed a sediment contamination investigation of the impacted area of Chequamegon Bay portion of the Ashland site to determine the extent and nature of contamination. Contamination of the near shore area has been confirmed by the study. WDNR's consultant is now preparing a remedial option study for the entire site, which includes Kreher Park, the Bay and the Company's property. Until this study is completed and more information is known concerning the extent of the final remediation required by the WDNR, the remediation method selected, the related costs, the various parties involved, and the extent of the Company's responsibility, if any, for sharing the costs, the ultimate cost to the Company and timing of any payments related to the Ashland site is not determinable. At September 30, 1996, the Company had recorded an estimated liability of $900,000 for future remediation costs associated with the Company-owned portion of the site. To date the Company has incurred approximately $558,000 in actual expenditures, exclusive of the remediation costs. Based on a recent PSCW decision to allow recovery of incremental costs incurred for this site in rates, the Company has recorded a regulatory asset for the accrued and actual expenditures related to this site. On March 11, 1996, the Company received a Notice of Violation (NOV) from the WDNR stating that emissions from the Company's French Island facility had exceeded allowable levels for dioxin. The Company's initial investigation and response, including a re-test of Unit #1, resulted in the WDNR clearing the NOV on Unit #1 on September 25, 1996. On October 9, 1996 the Company received a letter from the WDNR reiterating the outstanding NOV on Unit #2 requesting a written response by November 15, 1996 setting forth what the Company has done thus far and what it plans to do to respond. The Company is currently evaluating alternative boiler control and operating solutions to reduce dioxin emissions and is planning to re-test Unit #2 later this year. At this time, based on the Company's response and continued efforts to resolve the issue, it does not expect any fines to be imposed by the WDNR. The Company does not believe any corrective actions will have a material adverse effect on the Company's financial condition or results of operations. Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Discussion of financial condition and liquidity is omitted per conditions set forth in general instructions H (1) and (2) of Form 10-Q for wholly-owned subsidiaries (reduced disclosure format). On April 28, 1995, NSPM and WEC entered into an Agreement and Plan of Merger which provides for a strategic business combination involving the two companies in a "merger-of-equals" transaction. See Note 2 to the Financial Statements and Part II of this report for more information. The Company's net income for the third quarter and nine months ended September 30, 1996 was $6.8 million and $25.1 million, respectively, an increase of $0.8 million and a decrease of $0.3 million, respectively, from the comparable periods a year ago. Except for the historical statements contained herein, the matters discussed in the following discussion and analysis, including the statements regarding the anticipated impact of the proposed merger, are forward looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate", "estimate", "expect", "objective", "possible", "potential" and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions, including their impact on capital expenditures; business conditions in the energy industry; competitive factors; unusual weather; regulatory decisions regarding the proposed combination of NSPM and WEC; and the other risk factors listed in Exhibit 99.01 to this report on Form 10-Q for the quarter ended September 30, 1996. Third Quarter 1996 Compared with Third Quarter 1995 Electric revenues for the third quarter 1996 decreased $6.0 million or 6.2% from the electric revenues for the third quarter 1995. Electric sales decreased 1.8% in 1996 from 1995, with the majority of the decrease due to favorable weather in 1995 and unfavorable weather in 1996. Electric revenues also reflect an electric rate reduction effective January 1, 1996 as discussed in the Rate Matters by Jurisdiction section of the 1995 Form 10-K. In addition, Interchange Agreement revenue from NSPM decreased due to lower production at plants located in Wisconsin. Gas revenues increased $1.3 million or 16.8% in third quarter 1996 compared to third quarter 1995. Gas sales for the third quarter of 1996 were 3.0% higher than those in the comparable quarter of 1995. Contributing to the increase were the impacts of cooler summer weather in 1996 relative to an unusually warm 1995, higher PGA recovery of purchased gas costs and the gas rate increase effective January 1, 1996, as discussed in the Rate Matters by Jurisdiction section of Part I of the 1995 Form 10-K. Fuel for electric generation and Purchased and interchange power combined for a net decrease of $2.7 million or 5.8% due in part to decreased generation to meet lower sales requirements and to lower operating costs charged to the Company by NSPM. Gas purchased for resale decreased $3.2 million, largely due to the effects of the change of accounting for gas costs as discussed in Note 1 of the Notes to the Financial Statements in this report. Other operation, Maintenance and Administrative and general expenses together decreased $1.9 million or 7.7% in third quarter 1996 compared to third quarter 1995. The decrease is due primarily as a result of lower production and distribution contract maintenance, reduced operating expenses in the distribution and production areas, and lower employee benefit expenses. Depreciation and amortization increased $0.8 million in the third quarter 1996 compared with the same quarter of 1995 due to increases in the Company's plant in service. Property and general taxes were approximately the same in both periods. Income tax expense for the third quarter 1996 is up $0.9 million as compared to the third quarter 1995 mainly due to a higher level of pre-tax income in the third quarter 1996. Other income and deductions decreased $0.3 million due to lower subsidiary company earnings in the third quarter 1996 compared to third quarter 1995. Interest expense increased $0.2 million mainly due to higher short term debt levels. First Nine Months of 1996 Compared with First Nine Months of 1995 Electric revenues for the first nine months of 1996 decreased $4.0 million or 1.4% from the electric revenues for the same period of 1995 due to price decreases net of higher sales levels. Less favorable weather in 1996, partially offset by customer and sales growth, produced an electric sales increase of 0.8%. These sales increases were more than offset by decreased revenues from a 1.7% electric rate reduction effective January 1, 1996 as discussed in the Rate Matters by Jurisdiction section of the 1995 Form 10-K. Gas revenues increased $9.4 million or 18.3% for the first nine months of 1996 compared to the same period of 1995. Gas sales increased 15.2% in 1996 from 1995 due to colder winter weather and sales growth. Also contributing to the increased revenues was the 3.4% gas rate increase effective January 1, 1996, as discussed in the Rate Matters by Jurisdiction section of the 1995 Form 10-K. Fuel for electric generation and Purchased and interchange power together increased $0.3 million or 0.2% for the first nine months of 1996 over the same period in 1995 primarily due to increased generation and interchange purchases from NSPM to meet higher Wisconsin sales requirements. Gas purchased for resale increased $4.0 million or 11.1% primarily due to additional gas purchases to support increased gas sales. Other operation, Maintenance and Administrative and general expenses together decreased $0.8 million or 1.1% in the first nine months of 1996 compared to the same period in 1995, primarily as a result of reduced employee benefit expenses, partially offset by an increase in customer service expenses during the period. Depreciation and amortization increased $2.0 million in 1996 over 1995 due to increases in the Company's plant in service. Property and general taxes increased $0.3 million or 3.3% in 1996 over 1995 primarily due to higher gross receipts tax from higher revenues in 1996. Income tax expense was approximately the same for both periods. Other income and deductions decreased $0.3 million due to lower subsidiary company earnings in the first nine months of 1996 compared to the same period in 1995. Interest expense decreased $0.4 million for the first nine months of 1996 compared to the same period in 1995 mainly due to a 1995 charge for interest on prior year income tax assessments. Part II. OTHER INFORMATION Item 5. Other Information MERGER AGREEMENT WITH WISCONSIN ENERGY CORPORATION As previously reported in the Company's Current Report on Form 8-K, dated May 8, 1995, and filed on May 8, 1995, and the 1995 Form 10-K, NSPM and WEC have entered into a Merger Agreement which provides for a strategic business combination involving NSPM and WEC in a "merger-of-equals" transaction (Transaction). In connection with the Transaction, the Company will be merged into WEC's principal utility subsidiary, Wisconsin Electric Power Company (WE), which will be renamed "Wisconsin Energy Company." Prior to the merger of the Company into Wisconsin Energy Company, a new successor company to NSPM, Northern Power Wisconsin Corp. (New NSP), will acquire from the Company certain gas utility properties and operations in LaCrosse and Hudson, Wisconsin with a net historical cost at September 30, 1996 of approximately $22.7 million. This transfer is for purposes of complying with the Wisconsin Public Utility Holding Company Act. Detailed information with respect to the Merger Agreement and the proposed Transaction is contained in the 1995 Annual Reports on Form 10-K of NSPM and the Company and in the Joint Proxy Statement/Prospectus dated August 7, 1995 relating to the meetings of the stockholders of WEC and NSPM to vote on the Merger Agreement and related matters. SUMMARIZED PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The following summary of unaudited pro forma financial information combines historical balance sheet and income statement information of WEC and NSPM, and of WE and the Company, to give effect to the Transaction to form Primergy and Wisconsin Energy Company, respectively. The unaudited pro forma balance sheet information gives effect to the Transaction as if it had occurred at September 30, 1996. The unaudited pro forma income statement information gives effect to the Transaction as if it had occurred at January 1, 1996. This pro forma information was prepared from the historical financial statements of NSPM, WEC and WE and the Company on the basis of accounting for the Transaction as a pooling of interests and should be read in conjunction with such historical financial statements and related notes thereto. The allocation between Wisconsin Energy Company and New NSP and their customers of the estimated cost savings resulting from the Transaction, net of the costs incurred to achieve such estimated cost savings, will be subject to regulatory review and approval. None of the estimated cost savings, the costs to achieve such savings, nor transaction costs are reflected in the summarized unaudited pro forma income statement information. With the exception of certain non-current deferred tax balance sheet reclassifications described below, all other financial statement presentation and accounting policy differences are immaterial and have not been adjusted in the unaudited pro forma financial information. The following information is not necessarily indicative of the financial position or operating results that would have occurred had the Transaction been consummated on the date or at the beginning of the period for which the Transaction is being given effect nor is it necessarily indicative of future operating results or financial position. Primergy Information The following summarized Primergy unaudited pro forma financial information reflects the combination of the historical financial statements of WEC and NSPM after giving effect to the Transaction to form Primergy. A pro forma adjustment has been made to conform the presentations of non-current deferred income taxes in the summarized unaudited pro forma combined balance sheet information as a net liability. The unaudited pro forma combined earnings per common share reflect pro forma adjustments to average NSPM common shares outstanding in accordance with the provisions of the Merger Agreement, whereby each outstanding share of NSPM common stock will be converted into 1.626 shares of Primergy common stock. In the Transaction, each outstanding share of WEC common stock will remain outstanding as a share of Primergy common stock. Unaudited Pro Forma PRIMERGY CORP: NSPM WEC Combined (in millions, except per share amounts) As of September 30, 1996: Utility Plant-Net $4,344 $2,971 $7,315 Current Assets 717 466 1,183 Other Assets * 1,334 1,169 2,363 Total Assets $6,395 $4,606 $10,861 Common Stockholders' Equity $2,106 $1,917 $4,023 Preferred Stockholders' Equity 240 30 270 Long-Term Debt 1,673 1,331 3,004 Total Capitalization 4,019 3,278 7,297 Current Liabilities 946 441 1,387 Other Liabilities * 1,430 887 2,177 Total Equity & Liabilities $6,395 $4,606 $10,861 For the Nine Months Ended September 30, 1996: Utility Operating Revenues $1,944 $1,296 $3,240 Utility Operating Income $266 $230 $496 Net Income, after Preferred Dividend Requirements $186 $162 $348 Earnings per Common Share: As reported $2.70 $1.46 -- NSPM Equivalent Shares -- -- $2.54 Primergy Shares -- -- $1.56 * Includes a $140 million pro forma adjustment to conform the presentation of non-current deferred taxes as a net liability. Wisconsin Energy Company Information The following summarized Wisconsin Energy Company unaudited pro forma financial information combines historical balance sheet and income statement information of WE and the Company to give effect to the Transaction, including the transfer of certain gas utility properties from the Company to New NSP. The unaudited pro forma income statement information does not reflect adjustments for 1996 year-to-date revenues of $24.2 million and related expenses associated with the transfer of certain gas utility properties and operations from the Company to New NSP. A pro forma adjustment has been made to conform the presentation of non-current deferred income taxes in the summarized unaudited pro forma combined balance sheet information as a net liability. Wisconsin Energy Company: * Unaudited The Pro Forma WE Company Combined (as Reported)(as Reported) ** (Millions of Dollars) As of September 30, 1996: Utility Plant-Net $2,971 $664 $3,615 Current Assets 455 70 543 Other Assets *** 917 51 832 Total Assets $4,343 $785 $4,990 Common Stockholder's Equity $1,730 $324 $2,054 Preferred Stockholder's Equity 30 -- 30 Long-Term Debt 1,289 212 1,501 Total Capitalization $3,049 $536 $3,585 Current Liabilities 420 94 514 Other Liabilities *** 874 155 891 Total Equity & Liabilities $4,343 $785 $4,990 For the Nine Months Ended September 30, 1996: Utility Operating Revenues $1,296 $341 $1,637 Utility Operating Income $230 $39 $269 Net Income, after Preferred Dividend Requirements $159 $25 $184 * In connection with the Merger Agreement, WE will be renamed Wisconsin Energy Company. ** Balance Sheet data includes pro forma adjustments for the transfer of certain gas properties from the Company to New NSP. *** Includes a $136 million pro forma adjustment to conform the presentation of non-current deferred taxes as a net liability. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibit is filed with this report: 27.01 Financial Data Schedule for the nine months ended September 30, 1996. 99.01 Statement pursuant to Private Securities Litigation Reform Act of 1995. (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTHERN STATES POWER COMPANY (Registrant) /s/ David E. Ripka Controller (Principal Accounting Officer) /s/ Neal Siikarla Treasurer (Principal Financial Officer) Date: November 14, 1996 EXHIBIT INDEX Method of Exhibit Description Filing No. DT 27.01 Financial Data Schedule DT 99.01 Statement pursuant to Private Securities Litigation Reform Act of 1995 DT = Filed electronically with this direct transmission. EX-27 2
UT EXHIBIT 27.01 This schedule contains summary financial information extracted from the Statements of Income, Balance Sheets and Statements of Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1995 SEP-30-1996 PER-BOOK 663,605 9,286 70,290 41,904 0 785,085 86,200 10,461 227,600 324,261 0 0 211,571 49,800 0 0 0 0 0 0 199,453 785,085 340,774 15,903 286,248 302,151 38,623 590 39,213 14,063 25,150 0 25,150 19,188 11,910 57,953 $29.18 $29.18
EX-99 3 EXHIBIT 99.01 Northern States Power Company Cautionary Factors The Private Securities Litigation Reform Act of 1995 (the Act) provides a new "safe harbor" for forward-looking statements to encourage such disclosures without the threat of litigation providing those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward-looking statements have been and will be made in written documents and oral presentations of Northern States Power Company, a Wisconsin Corporation (the Company). Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in the Company's documents or oral presentations, the words "anticipate", "estimate", "expect", "objective", "possible", "potential" and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause the Company's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: - - Economic conditions including inflation rates and monetary fluctuations; - - Trade, monetary, fiscal, taxation, and environmental policies of governments, agencies and similar organizations in geographic areas where the Company has a financial interest; - - Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services; - - Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Federal Energy Regulatory Commission and similar entities with regulatory oversight; - - Availability or cost of capital such as changes in: interest rates; market perceptions of the utility industry, or the Company; or security ratings; - - Factors affecting operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, maintenance or repairs; unanticipated changes to fossil fuel or gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints; - - Employee 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; - - Numerous matters associated with the proposed combination of Northern States Power Company, a Minnesota corporation (NSPM) and Wisconsin Energy Corporation to form Primergy Corporation (Primergy), including: - Regulatory authorities' decisions regarding business combination issues including the approval of the business combination as proposed, the rate structure of utility operating companies after the merger, transmission system operation and administration, or divestiture of gas utility or non-regulated portions of NSPM's business; - Qualification of the transaction as a pooling of interests; - Factors affecting the anticipated cost savings including national and regional economic conditions, national and regional competitive conditions, inflation rates, weather conditions, financial market conditions, and synergies resulting from the business combination; - Allocation of benefits of cost savings between shareholders and customers, which will depend, among other things, upon the results of regulatory proceedings in various jurisdictions; - Regulation of Primergy as a registered public utility holding company and other different or additional federal and state regulatory requirements or restrictions to which Primergy and its subsidiaries may be subject as a result of the business combination (including conditions which may be imposed in connection with obtaining the regulatory approvals necessary to consummate the business combination, such as the possible requirement to divest gas utility and possibly certain non-regulated operations); - Factors affecting dividend policy including results of operations and financial condition of Primergy and its subsidiaries and such other business considerations as the Primergy Board of Directors considers relevant. - - Other business or investment considerations that may be disclosed from time to time in the Company's Securities and Exchange Commission filings or in other publicly disseminated written documents. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors pursuant to the Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Act. -----END PRIVACY-ENHANCED MESSAGE-----