-----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, Ejrf8syKe0k32g/UqBRZ0bG/fC3kbBrXMAIDZm5ECMeRFbVTla2jipJXERa5LrdJ O+EbGTj3TWBNHaM0iACe6w== 0000072909-98-000011.txt : 19980817 0000072909-98-000011.hdr.sgml : 19980817 ACCESSION NUMBER: 0000072909-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 001-03140 FILM NUMBER: 98690915 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-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 June 30, 1998 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 Identification No.) incorporation or organization) 100 North Barstow Street, Eau Claire, Wisconsin 54703 (Address of principal executive officers) (Zip Code) Registrant's telephone number, including area code (715)839-2578 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 August 14, 1998 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. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements
Northern States Power Company (Wisconsin) Statements of Income (Unaudited) Three Months Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 (Thousands of dollars) Operating revenues Electric..................................................... $95,432 $90,162 $193,738 $189,035 Gas.......................................................... 11,650 13,634 43,413 53,011 Total...................................................... 107,082 103,796 237,151 242,046 Operating expenses Purchased and interchange power.............................. 48,263 44,086 96,380 90,799 Fuel for electric generation................................. 3,521 1,667 5,701 3,917 Gas purchased for resale..................................... 7,359 8,420 29,105 36,212 Other operation.............................................. 12,266 11,781 23,308 24,228 Maintenance.................................................. 6,584 5,615 10,743 9,284 Administrative and general................................... 4,737 4,456 9,807 9,127 Conservation and demand side management...................... 2,234 2,234 4,467 4,467 Depreciation and amortization................................ 9,734 9,428 19,048 18,778 Taxes: Property and general.................................. 3,634 3,580 7,305 7,218 Current income tax................................ 1,340 2,867 7,998 10,366 Deferred income tax............................... 526 529 1,036 1,478 Investment tax credits recognized................. (215) (220) (429) (440) Total...................................................... 99,983 94,443 214,469 215,434 Operating income.............................................. 7,099 9,353 22,682 26,612 Other income (expense) Allowance for funds used during construction - equity........ 81 48 142 98 Other income and deductions - net of applicable income taxes. 95 302 81 314 Merger costs - net of applicable income taxes................ 0 (523) 0 (523) Total other income (expense) net............................ 176 (173) 223 (111) Income before interest charges................................ 7,275 9,180 22,905 26,501 Interest charges Interest on long-term debt................................... 4,046 4,078 8,117 8,158 Other interest and amortization.............................. 581 531 1,277 1,236 Allowance for funds used during construction - debt.......... (82) (74) (155) (146) Total interest charges..................................... 4,545 4,535 9,239 9,248 Net Income ................................................... $2,730 $4,645 $13,666 $17,253 Statements of Retained Earnings (Unaudited) Balance at beginning of period................................ $248,556 $240,360 $244,171 $234,751 Net income for period......................................... 2,730 4,645 13,666 17,253 Dividends paid to parent...................................... (6,551) (7,000) (13,102) (13,999) Balance at end of period...................................... $244,735 $238,005 $244,735 $238,005
The Notes to Financial Statements are an integral part of the Statements of Income and Retained Earnings.
Northern States Power Company (Wisconsin) Statements of Cash Flows (Unaudited) Six Months Ended June 30 1998 1997 (Thousands of dollars) Cash Flows from Operating Activities: Net Income... ............................................... . . . . . $13,666 $17,253 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization........................................ 19,513 19,373 Deferred income taxes................................................ 1,030 563 Deferred investment tax credits recognized........................... (430) (440) Allowance for funds used during construction - equity................ (143) (98) Cash provided by changes in certain working capital items.............. 18,914 21,839 Cash (used for) provided by changes in other assets and liabilities.... (1,187) 337 Net cash provided by operating activities............................... 51,363 58,827 Cash Flows from Investing Activities: Capital expenditures................................................... (24,803) (20,623) Increase (decrease) in construction payables........................... (212) 595 Allowance for funds used during construction - equity.................. 143 98 Other.................................................................. (144) (560) Net cash used for investing activities.................................. (25,016) (20,490) Cash Flows from Financing Activities: Repayment of notes payable to parent - net............................. (12,000) (23,400) Dividends paid to parent............................................... (13,102) (13,999) Net cash used for financing activities.................................. (25,102) (37,399) Net increase in cash and cash equivalents................................. 1,245 938 Cash and cash equivalents at beginning of period.......................... 31 208 Cash and cash equivalents at end of period................................ $1,276 $1,146
The Notes to Financial Statements are an integral part of the Statements of Cash Flows.
Northern States Power Company (Wisconsin) Balance Sheets (Unaudited) June 30, December 31, 1998 1997 (Thousands of dollars) ASSETS Utility Plant Electric..................................................................... $945,926 $931,752 Gas.......................................................................... 107,530 105,362 Other........................................................................ 75,385 70,892 Total.................................................................... 1,128,841 1,108,006 Accumulated provision for depreciation..................................... (441,876) (426,723) Net utility plant........................................................ 686,965 681,283 Current Assets Cash......................................................................... 1,276 31 Accounts receivable - net.................................................... 28,797 38,102 Unbilled utility revenues.................................................... 10,151 16,376 Fuel inventories - at average cost........................................... 6,076 12,073 Other materials and supplies inventories - at average cost................... 6,466 5,604 Prepayments and other........................................................ 12,605 12,135 Total current assets....................................................... 65,371 84,321 Other Assets Regulatory assets............................................................ 35,756 35,634 Other investments............................................................ 8,528 8,166 Federal income tax receivable................................................ 3,307 3,307 Nonutility property - net of accumulated depreciation........................ 2,776 2,752 Unamortized debt expense..................................................... 1,715 1,761 Long-term prepayments and deferred charges................................... 9,749 7,411 Total other assets........................................................ 61,831 59,031 TOTAL ASSETS............................................................. $814,167 $824,635 LIABILITIES AND EQUITY Capitalization Common stock - authorized 1,000,000 shares of $100 par value, issued shares: 1998 and 1997, 862,000................................... $86,200 $86,200 Premium on common stock.................................................... 10,461 10,461 Retained earnings.......................................................... 244,735 244,171 Total common stock equity................................................ 341,396 340,832 Long-term debt............................................................... 231,819 231,775 Total capitalization..................................................... 573,215 572,607 Current Liabilities Notes payable - parent company............................................... 33,300 45,300 Accounts payable............................................................. 9,565 13,844 Payable to affiliate companies (principally parent).......................... 19,971 15,682 Salaries, wages, and vacation pay accrued.................................... 5,286 6,089 Taxes accrued................................................................ 0 1,775 Interest accrued............................................................. 4,094 4,187 Other........................................................................ 5,657 4,897 Total current liabilities................................................ 77,873 91,774 Other Liabilities Accumulated deferred income taxes............................................ 107,448 105,850 Accumulated deferred investment tax credits.................................. 18,539 18,970 Regulatory liabilities....................................................... 20,183 19,306 Customer advances............................................................ 8,701 8,192 Benefit obligations and other................................................ 8,208 7,936 Total other liabilities.................................................. 163,079 160,254 Commitments and Contingent Liabilities (see Note 3) TOTAL LIABILITIES AND EQUITY........................................... $814,167 $824,635
The Notes to Financial Statements are an integral part of the Balance Sheets. 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 June 30, 1998 and Dec. 31, 1997, the results of its operations for the three and six months ended June 30, 1998 and 1997 and its cash flows for the six months ended June 30, 1998 and 1997. 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 Dec. 31, 1997 (1997 Form 10-K). The following notes should be read in conjunction with such policies and other disclosures in the Form 10-K. 1. Business Developments Union Negotiations - Five locals of the International Brotherhood of Electrical Workers have accepted NSPM's and the Company's proposal to begin midterm contract negotiations to modify or create new work rules, practices and operations to improve work force productivity. If these midterm negotiations are successfully completed by Dec. 31, 1998, NSPM and the Company will then propose a three-year contract extension with changes to wages and benefits. If the contract extension is ratified, new terms and conditions will become effective Jan. 1, 2000. The existing agreements will stay in effect through Dec. 31, 1999 unless they are extended or modified in response to these negotiations. Increase in Common Stock Authorized - On May 6, 1998, the Company's sole shareholder approved an increase in the number of common shares authorized from 870,000 to one million. Loss of Customer - In early 1998, officials of the Fort James Corp. announced that its Ashland, Wis. paper mill would close on or about March 21, 1998. The mill was the third largest employer in Ashland County and was one of the Company's ten largest electric and gas customers. The mill purchased in excess of $2 million of utility services from the Company annually. The effect of losing this customer was incorporated into the Company's 1998 Wisconsin rate filing. Acquisition of Natural Gas, Inc. (NGI) - On July 1, 1998, the Company completed the acquisition of NGI, a natural gas utility serving approximately 1,900 customers in the New Richmond, Wis. area. 2. Regulation and Rate Matters 1997 Wisconsin Rate Filings - The Company continues to collect an interim surcharge of $0.00043 per kilowatt-hour (Kwh) from its Wisconsin customers for the recovery of certain fuel and purchased power costs. The surcharge was requested because fuel and purchased power costs had risen beyond the amount included in the Company's current base rates due to unplanned and extended outages at NSPM's nuclear generating stations and higher than projected wheeling costs associated with power purchases. The surcharge will continue in effect on an interim basis until the next rate order is issued and is subject to refund pending final Public Service Commission of Wisconsin (PSCW) review. In its order regarding the Company's 1997 rates, the PSCW denied current rate recovery of the federal government's assessment for the decommissioning and decontamination of federal uranium enrichment facilities based on a court decision involving another utility that these assessments were unlawful. The PSCW, however, did state that it would allow future rate recovery of these costs with interest if the courts ultimately decided the assessments must be paid. While the case was under appeal, the Company continued to pay the assessments and defer the cost as a regulatory asset. At June 30, 1998, $857,000 had been deferred. On May 6, 1997, the United States Court of Appeals reversed the lower court's earlier decision that these assessments were unlawful. Accordingly, the Company has requested recovery of current and deferred assessments in its 1998 retail electric rate filing as discussed below. 1998 Wisconsin Rate Filings - During November 1997, the Company 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. In April 1998, the PSCW staff filed testimony recommending an annual rate increase of $3.8 million in retail electric rates and an annual rate decrease of $2.5 million in retail gas rates based on a much lower recommended return on common equity of 11.25 percent. In a recent rate case decision by the PSCW for a large Wisconsin utility, a 12.2 percent return was found reasonable. Although the Company requested that the rates become effective in the second quarter of 1998, a final decision by the PSCW has not yet been received, which will delay the implementation of the new rates. The Company estimates that a final order will be received during the third quarter of 1998. Recovery of Network Transmission Service Costs (NTS) - In July 1997, the Company received authorization from the PSCW to defer its share of NTS costs incurred after May 23, 1997. Beginning in the third quarter of 1997, the Company began deferring these costs, including a retroactive adjustment to May 23, 1997. Through June 30, 1998, $2.9 million of NTS costs had been deferred. Recovery of deferred NTS costs was requested in the Company's 1998 retail electric rate case. Federal Energy Regulatory Commission (FERC) - On Feb. 17, 1998 NSP filed an application with the FERC to increase its rates for point-to-point transmission service. As filed, the proposed rates are expected to increase the Company's annual transmission revenues by approximately $600,000. FERC Order No. 888 requires utilities to offer, among other services, NTS to qualifying customers. Under NTS, NSP and other qualifying regional utilities share the costs of operating and maintaining the regional transmission network which NSP uses, net of related network revenues, based on each company's share of the total network load. Each FERC regulated utility files a transmission tariff containing cost information that is used as the basis for NTS rates. In March 1998 NSP filed a revision to update its NTS information with the FERC, which is expected to support reductions in NSP's NTS costs. In April 1998, the FERC voted to accept the rates, consolidate both the point- to-point and NTS transmission filings, and defer the effective date of the rate changes to Oct. 1, 1998. The proposed rate increases would be placed into effect subject to refund. An administrative law judge and a settlement judge were appointed to hear arguments and facilitate possible settlements in the case. As of early August 1998, the cases were in the initial hearing stage. On June 29, 1998 the FERC issued an order requiring NSP to curtail service to its own retail sales customers proportionally with curtailments of wholesale transmission-only customers taking service under NSP's Order 888 transmission tariff. The effect of FERC's order would require that, in a situation where NSP's transmission lines are constrained or about to become overloaded, NSP would reduce or curtail service to retail customers on a comparable basis with curtailment of wholesale transactions. On July 1, 1998, NSP filed an emergency request for clarification and rehearing on FERC's June 29 order and a motion to stay its effective date. On July 31, 1998, the FERC issued a second order, denying NSP's request. On Aug. 3, 1998, NSP filed an appeal of the FERC orders with the U.S. Court of Appeals, Eighth Circuit (Court). NSP believes FERC exceeded its legal authority because service to retail customers is subject to state regulation, not FERC regulation. In addition, NSP believes FERC has issued inconsistent orders which NSP cannot fully comply with and which places reliability of service to NSP's retail customers at risk. In its petition, NSP requested a court order delaying enforcement of the FERC orders and authorizing NSP to comply with the regional transmission service interruption procedures developed by the Mid- Continent Area Power Pool, pending a final Court decision. NSP also requested an expedited Court review and ultimate reversal of the FERC orders. On Aug. 6, 1998, the Court denied the motion for stay and expedited consideration. The underlying appeal will be considered by the Court using its normal procedures. NSP believes a final decision will be issued later in 1998. In April 1998 testimony before FERC, NSP proposed to form an Independent Transmission Company (ITC), as an alternative to an Independent System Operator (ISO). The ITC would own and operate transmission facilities independent from vertically integrated utilities and other market participants and satisfy the regulatory requirements for control of transmission facilities. The ITC would operate transmission facilities as a for-profit entity. NSP is currently in discussion with other utilities to form an ITC and is seeking to reach an agreement to proceed within the next several months. However there can be no assurance that such an agreement will be reached. In the event NSP is successful in forming an ITC, NSP anticipates at the present time that as part of such transaction, it would divest its electric transmission assets through a sale, spin-off or other means. At June 30, 1998, the net book value of the Company's transmission assets was approximately $147 million. Construction Authorization - On April 7, 1998, the PSCW approved the Company's request to construct a new 161 kilovolt electric transmission line between Stone Lake, Wis. and the Bay Front Generating Plant in Ashland, Wis. The new line is needed to maintain reliable electric service to northwestern Wisconsin. Construction is scheduled to begin in 1999 and the line is expected to be in service by 2001. The estimated cost is $37 million. On Sept. 21, 1996, the Company and Dairyland Power Cooperative (DPC) filed an application for approval to construct a 230 kilovolt electric transmission line between the Chisago County substation near North Branch, Minn., and the Apple River substation near Amery, Wis. with the Minnesota Environmental Quality Board and the PSCW. These two agencies are preparing environmental review documents which will be released during the third quarter of 1998 and hearings will occur in the fall of 1998. The total project cost is estimated to be approximately $50 million, part of which will be paid by DPC. Industry Restructuring - On April 28, 1998, 1997 Wisconsin Act 204 (Act 204) became law. Act 204 includes provisions which require the PSCW to order a public utility that owns transmission facilities to transfer control of its transmission facilities to an independent system operator (ISO), or divest the public utility's interest in its transmission facilities to an independent transmission owner (ITO) if the public utility has not already transferred control to an ISO, or divested to an ITO by June 30, 2000. Under certain circumstances the PSCW has authority to waive imposition of such an order on June 30, 2000. At Dec. 31, 1997, the Company owned approximately 2,390 miles of transmission lines with a book value of $87.9 million and transmission substations with a book value of $59.5 million. The Company may attempt to obtain a legislative amendment in 1999 of the mandatory transfer or divestiture requirements and is also considering whether to judicially challenge the trans- mission transfer or divestiture requirements of the new law. See the previous discussion under the heading "FERC" for more discussion of NSP's possible divestiture of its transmission assets through the formation of an ITC. In addition to the ISO / ITC provision in Act 204, there are also provisions which require the PSCW to promulgate rules on a number of topics including the owning, operating, and controlling of wholesale merchant plants in Wisconsin by Wisconsin investor owned utility affiliates; the cost treatment of electricity to customers that the utility does not have an obligation to serve including in- state wholesale contracts and out-of-state retail sales; the reporting requirements of utilities necessary for the commission to develop a strategic energy assessment and the setting of service standards for electric generation, transmission and distribution facilities. The PSCW has subsequently developed dockets for wholesale sales and wholesale merchant plants, and anticipates recommendations and decision on all topics by late 1999. Wisconsin Purchased Gas Adjustment Clause - In March 1996, the PSCW conducted a generic hearing to consider alternative incentive-based gas cost recovery mechanisms to replace the current purchased gas adjustment clause (PGA). In November 1996, the PSCW issued an order with general guidelines for incentive- based gas cost recovery mechanisms as well as "modified one-for-one" gas cost recovery mechanisms. All major gas utilities in Wisconsin were required to file a proposal to replace their current PGA. On Sept. 29, 1997 the Company filed its proposal with the PSCW. The PSCW has decided to review the Company's proposal in conjunction with its 1998 rate case. In the Company's proposal, allowable gas commodity cost recovery would be based on a benchmark index which is, in turn, based on the market price of gas. The allowable cost recovery of the remaining components of the cost of gas (for example, fixed pipeline transportation costs, supply reservation costs, and other costs approved by the FERC) would be based on actual costs incurred, as is the case with the Company's current PGA. The PSCW's decision on the Company's 1998 rate case, including the gas cost recovery mechanism, is expected in the third quarter of 1998. If the Company's proposal is approved, the financial impact of the new gas cost recovery mechanism will be substantially the same as with the current PGA. Approximately 70 percent of the Company's gas revenues represent recovery of gas costs through the PGA mechanism. Producer Refund - In September 1997, the FERC ruled that Kansas natural gas producers must refund improperly collected Kansas ad valorem tax collected from 1983 to 1988 plus interest to their customers. During this period, Northern Natural Gas (NNG) had bought gas from Kansas producers and resold it to the Company under terms that require NNG to pass any refund from the producers back to the Company. In December 1997, NNG received one $30 million refund and, in turn, refunded $538,000 to the Company. In March, 1998, NNG received an additional $4.2 million of which $69,000 was refunded to the Company. However, the Kansas producers are appealing the FERC order and are also pursuing federal legislation to overturn the FERC order. In February 1998, the FERC ruled that the Kansas producers could place disputed refunds in escrow and that pipelines such as NNG could recollect refunded amounts if final refunds are less than those already paid. Because regulators have not yet decided whether the refunds must be returned to the Kansas gas producers, the Company has not yet passed the refunds back to its customers. A regulatory liability of $607,000 has been recorded for the Company's responsibility to pay the refund either to its customers or NNG. 3. Commitments and Contingent Liabilities Environmental Contingencies - As discussed in Note 8 to the Financial Statements in the 1997 Form 10-K, the Company has been named as one of three potentially responsible parties in connection with environmental contamination at a site in Ashland, Wis. During the second quarter of 1998, the Company entered into a Spill Response Agreement with the Wisconsin Department of Natural Resources (WDNR) formalizing its commitment to participate in further investigation of the site. On July 6, 1998, the WDNR issued their report of the first of two risk assessments which will determine the scope of the remediation effort. During the last half of 1998, the Company expects that the second risk assessment will be completed and that the WDNR will then issue their report of remediation options. The Company may need to revise its estimate of future remediation costs after the remediation option report is issued. At June 30, 1998, the Company had recorded a regulatory asset of approximately $1,320,000 related to the estimated future remediation costs of the Ashland site, plus the amount actually paid to date for remediation at that site less the amount which the PSCW has allowed the Company to recover from its customers. The PSCW authorized recovery of amounts paid through 1995, $353,000, over a two year period beginning in 1997. In its 1998 rate case, the Company has asked to continue recovery of an additional $293,000 over a two year period. 4. Pension Costs Effective Jan. 1, 1998, the Company changed its method of recognizing actuarial gains and losses included in pension costs under SFAS No. 87. The new method was adopted to reduce the volatility of accrued pension costs by amortizing actuarial gains and losses related to pension asset performance over the longest period allowed by SFAS No. 87. The effect of this change is expected to be a decrease in pension costs (represented by an increase in pension accrual credits) of approximately $2.5 million for the full year 1998, including $1.8 million related to periods prior to the change. 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). The Company's net income for the quarter and six months ended June 30, 1998 was $2.7 million and $13.7 million, respectively, a decrease of $1.9 million and $3.6 million, respectively from the comparable periods a year ago. The following analysis summarizes the specific revenue and expense items impacting these results. Except for the historical statements contained herein, 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", "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; issues relating to year 2000 remediation efforts; and the other risk factors listed from time to time by the Company in reports filed with the SEC, including Exhibit 99.01 to this report on Form 10-Q for the quarter ended June 30, 1998. Second Quarter 1998 Compared with Second Quarter 1997 Electric revenues in total increased $5.3 million or 5.8 percent in the second quarter of 1998 compared with the second quarter of 1997. Electric revenues from sales to customers increased $3.2 million largely due to sales growth. On a weather-normalized basis, sales increased 4.0 percent in the second quarter of 1998 compared to the same period in 1997. The remaining $2.1 million increase in electric revenues relates to higher Interchange Agree- ment billings to NSPM in 1998, reflecting an increase in the Company's fuel and transmission expenses. Gas revenues decreased $2.0 million or 14.6 percent in the second quarter of 1998 compared with the second quarter of 1997 due to lower sales levels partially offset by natural gas related price increases. Total gas sales volumes decreased 15.5 percent in the second quarter of 1998 compared to the same period in 1997 due to less favorable weather and lower interruptible sales. Higher costs per unit of gas, as discussed below, are reflected in customer rates through the purchased gas adjustment clause mechanism. Purchased and Interchange Power and Fuel for Electric Generation together increased $6.0 million or 13.2 percent for second quarter 1998 compared to second quarter 1997 due to additional generation and power purchases to support increased sales levels and higher demand expenses billed from NSPM in 1998. Gas purchased for resale decreased $1.1 million or 12.6 percent in the second quarter 1998 compared to the second quarter 1997 due to lower sales volumes partially offset by higher costs per unit of gas charged by suppliers. Other Operation, Maintenance, and Administrative and General expenses together increased $1.7 million or 7.9 percent in the second quarter of 1998 compared to the same period in 1997 due to higher customer service expenses, fixed transmission expenses, distribution maintenance expenses including those related to storm damage, and employee benefit expenses in 1998. Partially offsetting these increased costs in second quarter 1998 were lower hydro regulatory and transmission operating expenses. Transmission operating expenses decreased in 1998 mainly due to $0.9 million in NTS costs incurred in the second quarter of 1997, before the PSCW approved deferral of such costs as discussed in Note 2. Depreciation and amortization increased $0.3 million or 3.2 percent in the second quarter of 1998 compared with the same period in 1997 due to increases in the Company's plant in service. Income tax decreased $1.5 million in the second quarter 1998 as compared to the second quarter 1997 reflecting lower pretax operating income in 1998. Other income (expense) - net income increased $0.3 million in the second quarter of 1998 as compared with the same quarter in 1997 largely due to an expense write-off in 1997 for $0.5 million in deferred merger costs offset partially by lower subsidiary company earnings in 1998. Interest expense was approximately the same for both periods. First Six Months of 1998 Compared with First Six Months of 1997 Electric revenues in total increased $4.7 million or 2.5 percent for the first six months of 1998 compared with the first six months of 1997. Electric revenues from sales to customers increased $3.2 million largely due to sales growth, partially offset by less favorable weather in 1998. On a weather- normalized basis, sales increased 3.8 percent in the first six months of 1998 compared with the first six months of 1997. The remaining $1.5 million increase in electric revenues relates to higher Interchange Agreement billings to NSPM in 1998, reflecting an increase in the Company's fuel and transmission expenses. Gas revenues for the first six months of 1998 decreased $9.6 million or 18.1 percent as compared with the first six months of 1997 due to lower sales levels, partially offset by natural gas related price increases. Total gas sales volumes decreased 14.8 percent in the first six months of 1998 compared to the same period in 1997 due to less favorable weather and lower interruptible sales. Higher costs per unit of purchased gas, as discussed below, are reflected in customer rates through the purchased gas adjustment clause mechanism. Purchased and Interchange Power and Fuel for Electric Generation together increased $7.4 million or 7.8 percent in the first six months of 1998 compared with the first six months of 1997 due to additional generation and power purchases to support increased sales levels in 1998 and higher demand expenses billed from NSPM in 1998. Gas purchased for resale decreased $7.1 million or 19.6 percent in the first six months of 1998 compared with the first six months of 1997 primarily due to lower sales volumes. Partially offsetting this decrease were higher costs per unit of gas charged by suppliers. Other Operation, Maintenance, and Administrative and General expenses together increased $1.2 million or 2.9 percent in the first six months of 1998 compared with the first six months of 1997. Higher customer service expenses, fixed transmission expenses, distribution maintenance expenses including those related to storm damage, and employee benefit expenses in 1998 were partially offset by lower generating and transmission operating expenses. Transmission operating expenses decreased in 1998 mainly due to $1.8 million in NTS costs incurred in the first six months of 1997, before the PSCW approved deferral of such costs as discussed in Note 2. Depreciation and amortization increased $0.3 million or 1.4 percent in the first six months of 1998 compared with the same period in 1997 due to increases in the Company's plant in service. Income tax decreased $2.8 million in the first six months of 1998 compared with the first six months of 1997 reflecting lower pretax operating income in 1998. Other income (expense) - net income increased $0.3 million in the first six months of 1998 compared with the same period in 1997 largely due to an expense write-off in 1997 for $0.5 million in deferred merger costs offset partially by lower subsidiary company earnings in 1998. Interest expense was approximately the same for both periods. Industry Restructure Efforts are continuing to bring more competition to the electric and gas industry. Wisconsin has enacted legislation requiring utilities to form an ISO or to divest its transmission assets to a ITO. NSP is separately considering the formation of an ITC. See Note 2 of the Financial Statements for a further discussion of these matters. Technology Changes for the Year 2000 NSPM and its subsidiaries (NSP) expects to incur significant costs to modify or replace existing technology, including computer software, for uninterrupted operation in the year 2000 and beyond. In 1996, NSP's Board of Directors approved funding to address development and remediation efforts related to the year 2000. A committee made up of senior management is leading NSP's initiatives to identify year 2000 related issues and remediate business processes as necessary in 1998. NSP's year 2000 program covers not only NSP's computer applications but also the thousands of hardware and embedded system components in use throughout NSP. Embedded systems perform mission-critical functions in all parts of operations including power generation, distribution, communications and business operations. NSP is on track to remediate critical applications and critical embedded components by the end of 1998 or during scheduled 1999 plant outages and to devote 1999 to remediating lower priority items, fine tuning and re- testing, and contingency planning. NSP is working with major suppliers to minimize business interruptions due to year 2000 issues in the suppliers' business processes. NSP is also working closely with the Electric Power Research Institute, the Mid-Continent Area Power Pool, the Nuclear Energy Institute, the North American Electric Reliability Council and other utilities to enhance coordination, system reliability and compliance with industry and regulatory requirements. Despite these efforts there can be no assurances that every year 2000 related issue will be identified and addressed before 2000. An unexpected failure regarding a year 2000 issue could result in an interruption in certain normal business activities or operations. However, NSP believes that with the completion of its year 2000 project, significant interruptions will not be encountered. Through June 30, 1998 the Company had spent approximately $430,000 for year 2000 remediation. The total estimate of development and remediation costs necessary for the Company to prepare for the year 2000 is estimated to be approximately $1.1 million. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are filed with this report: 27.01 Financial Data Schedule for the six months ended June 30, 1998. 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 (WISCONSIN) (Registrant) /s/ Roger D. Sandeen Treasurer and Controller (Principal Financial and Accounting Officer) Date: August 14, 1998 EXHIBIT INDEX Method of Exhibit Description Filing No. DT 27.01 Financial Data Schedule for the six months ended June 30, 1998 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 and Retained Earnings, Balance Sheets and Statements of Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1997 JUN-30-1998 PER-BOOK 686,965 11,304 65,371 50,527 0 814,167 86,200 10,461 244,735 341,396 0 0 231,819 33,300 0 0 0 0 0 0 207,652 814,167 237,151 8,605 205,864 214,469 22,682 223 22,905 9,239 13,666 0 13,666 13,102 8,117 51,363 15.85 15.85
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: o Economic conditions including inflation rates and monetary fluctuations; o Trade, monetary, fiscal, taxation, and environmental policies of governments, agencies and similar organizations in geographic areas where the Company has a financial interest; o Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services; o 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; o Availability or cost of capital such as changes in: interest rates; market perceptions of the utility industry, or the Company; or security ratings; o 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; o Employee work force factors including loss or retirement of key executives, collective bargaining agreements with union employees, or work stoppages; o 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; o 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; o Social attitudes regarding the utility and power industries; o Cost and other effects of legal and administrative proceedings, settlements, investigations and claims; o Technological developments that result in competitive disadvantages and create the potential for impairment of existing assets; o 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 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-----