-----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, IRD8qxzyyoHfOEE9jkeLrzy3eNuSTVS1QBTcZIKKVchJROQWDtzedGLRe6RmXtWh zsyTnWH9udN0kz6iusDgyg== 0000072909-99-000009.txt : 19991109 0000072909-99-000009.hdr.sgml : 19991109 ACCESSION NUMBER: 0000072909-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991108 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: 99743406 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 Sept. 30, 1999 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) 1414 W. Hamilton Ave, Eau Claire, Wisconsin 54701 - ------------------------------------------------- ------ (Address of principal executive officers) (Zip Code) Registrant's telephone number, including area code (715) 839-1382 --------------- 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 Nov. 5, 1999 -------------------------- --------------------------- 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 Nine Months Ended September 30 September 30 ------------ ------------ 1999 1998 1999 1998 ---- ---- ---- ---- (Thousands of dollars) OPERATING REVENUES Electric $109,344 $104,348 $309,149 $298,085 Gas 8,634 9,447 54,872 52,861 ------- ------- ------- ------- Total 117,978 113,795 364,021 350,946 OPERATING EXPENSES Purchased and interchange power 53,191 49,314 148,772 145,694 fuel for electric generation 3,985 4,002 8,362 9,704 Gas purchased for resale 5,138 6,172 35,803 35,277 Other operation 13,104 12,238 38,995 35,547 Maintenance 5,930 5,311 16,736 16,054 Administrative and general 5,056 4,353 14,469 14,160 Conservation and demand side management 1,280 2,079 3,841 6,547 Depreciation and amortization 10,485 9,856 31,396 28,904 Taxes: Property and general 3,759 3,630 11,258 10,935 Current income tax 4,647 4,750 16,664 12,747 Deferred income tax 461 374 713 1,409 Investment tax credits recognized (210) (215) (629) (644) ------- ------- ------- ------- Total 106,826 101,864 326,380 316,334 ------- ------- ------- ------- OPERATING INCOME 11,152 11,931 37,641 34,612 OTHER INCOME (EXPENSE) Allowance for funds used during construction - equity 95 115 195 258 Other income and deductions - net of applicable income taxes 189 499 224 580 --- --- --- --- Total other income (expense) net 284 614 419 838 --- --- --- --- INCOME BEFORE INTEREST CHARGES 11,436 12,545 38,060 35,450 INTEREST CHARGES Interest on long-term debt 4,046 4,046 12,139 12,163 Other interest and amortization 840 757 2,237 2,034 Allowance for funds used during construction - debt (314) (143) (684) (298) ----- ----- ------ ------ Total interest charges 4,572 4,660 13,692 13,899 ----- ----- ------ ------ NET INCOME $6,864 $7,885 $24,368 $21,551 ====== ====== ======= ======= STATEMENTS OF RETAINED EARNINGS (UNAUDITED) ------------------------------------------- Balance at beginning of period $254,895 $244,735 $250,890 $244,171 Net income for period 6,864 7,885 24,368 21,551 Dividends paid to parent (6,749) (6,552) (20,248) (19,654) Merger with Natural Gas, Inc 0 730 0 730 - --- - --- Balance at end of period $255,010 $246,798 $255,010 $246,798 ======== ======== ======== ======== The Notes to Financial Statements are an integral part of the Statements of Income and Retained Earnings.
1 NORTHERN STATES POWER COMPANY (WISCONSIN) STATEMENTS OF CASH FLOWS (UNAUDITED) ------------------------------------ Nine Months Ended Sept. 30 -------- 1999 1998 ---- ---- (Thousands of dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $24,368 $21,551 Adjustments to reconcile net income to cash from operating activities: Depreciation and amortization 32,086 29,600 Deferred income taxes 702 1,401 Deferred investment tax credits recognized (629) (644) Allowance for funds used during construction - equity (195) (258) Undistributed equity in subsidiary company earnings (223) (398) Cash provided by changes in working capital 21,698 11,886 Cash provided by changes in other assets and liabilities 559 6,380 ------ ------ Net cash provided by operating activities 78,366 69,518 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (58,949) (44,236) Decrease in construction payables (575) (729) Allowance for funds used during construction - equity 195 258 Other (985) 630 -------- -------- Net cash used for investing activities (60,314) (44,077) CASH FLOWS FROM FINANCING ACTIVITIES: Issuances (repayment) of notes payable to parent - net 2,900 (5,400) Repayment of other notes payable - net 0 (200) Repayment of long term debt 0 (167) Dividends paid to parent (20,248) (19,654) -------- -------- Net cash used for financing activities (17,348) (25,421) -------- -------- Net increase in cash and cash equivalents 704 20 Cash and cash equivalents at beginning of period 51 31 -- -- Cash and cash equivalents at end of period $755 $51 ==== === The Notes to Financial Statements are an integral part of the Statements of Cash Flows. 2
NORTHERN STATES POWER COMPANY (WISCONSIN) BALANCE SHEETS (UNAUDITED) -------------------------- September 30, December 31, 1999 1998 ---- ---- ASSETS (Thousands of dollars) UTILITY PLANT Electric $1,013,355 $972,442 Gas 117,113 113,574 Other 85,753 81,040 ------- ------- Total 1,216,221 1,167,056 Accumulated provision for depreciation (479,215) (457,272) ------- ------- Net utility plant 737,006 709,784 CURRENT ASSETS Cash 755 51 Accounts receivable - net 28,736 34,748 Unbilled utility revenues 11,642 21,011 Fuel inventories - at average cost 7,382 12,406 Other materials and supplies inventories -at average cost 6,825 6,609 Prepayments and other 10,478 13,472 ------- ------- Total current assets 65,818 88,297 OTHER ASSETS Regulatory assets 39,112 42,467 Other investments 9,371 7,823 Nonutility property-net of accumulated depreciation 2,767 2,803 Unamortized debt expense 1,598 1,668 Long-term prepayments and deferred charges 12,812 10,869 ------- ------- Total other assets 65,660 65,630 TOTAL ASSETS $868,484 $863,711 ======== ======== LIABILITIES AND EQUITY CAPITALIZATION Common stock-authorized 1,000,000 shares of $100 par value, issued shares: 1999 and 1998, 862,000 $86,200 $86,200 Premium on common stock 10,541 10,541 Retained earnings 255,010 250,890 ------- ------- Total common stock equity 351,751 347,631 Long-term debt 231,928 231,863 ------- ------- Total capitalization 583,679 579,494 CURRENT LIABILITIES Notes payable - parent company 58,800 55,900 Accounts payable 11,774 14,301 Payable to affiliate companies (principally parent) 19,325 16,596 Salaries, wages, and vacation pay accrued 5,799 5,910 Taxes accrued 0 3,418 Interest accrued 4,262 4,184 Other 5,903 4,310 ------- ------- Total current liabilities 105,863 104,619 OTHER LIABILITIES Accumulated deferred income taxes 111,390 110,831 Accumulated deferred investment tax credits 17,491 18,122 Regulatory liabilities 19,552 21,947 Customer advances 11,408 9,458 Benefit obligations and other 19,101 19,240 ------- ------- Total other liabilities 178,942 179,598 COMMITMENTS AND CONTINGENT LIABILITIES (SEE NOTE 3) TOTAL LIABILITIES AND EQUITY $868,484 $863,711 ======== ======== The Notes to Financial Statements are an integral part of the Balance Sheets.
3 NORTHERN STATES POWER COMPANY (WISCONSIN) NOTES TO FINANCIAL STATEMENTS -------------------------------- Northern States Power Company, a Wisconsin corporation (NSP-Wisconsin) is a wholly owned subsidiary of Northern States Power Company, a Minnesota corporation (NSP-Minnesota). The term NSP refers to NSP-Wisconsin combined with NSP-Minnesota and its other subsidiaries. In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the financial position of NSP-Wisconsin as of Sept. 30, 1999 and Dec. 31, 1998, the results of its operations for the three and nine months ended Sept. 30, 1999 and 1998 and its cash flows for the nine months ended Sept. 30, 1999 and 1998. Due to the seasonality of NSP-Wisconsin'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 NSP-Wisconsin are set forth in Note 1 to NSP-Wisconsin's financial statements in its Annual Report on Form 10-K for the year ended Dec. 31, 1998 (1998 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 - ------------------------------ PROPOSED MERGER - As reported in NSP-Wisconsin's 1998 Form 10-K, NSP and New Century Energies, Inc. (NCE), a utility based in Denver, Colo., have agreed to merge. It is expected that NSP-Wisconsin will continue to exist as an operating subsidiary of the merged company. LONG TERM DEBT - The board of directors of NSP-Wisconsin has authorized the issuance of up to $80 million of long-term debt in 1999 or 2000. In October 1999, NSP-Wisconsin received approval from the Public Service Commission of Wisconsin (PSCW) to issue up to $80 million of long term debt and to increase its short term borrowing limit to $100 million. NSP-Wisconsin plans to issue unsecured long term debt during the first quarter of 2000. The funds will be used primarily to reduce short term debt levels. LOSS OF LARGE CUSTOMER - One of NSP-Wisconsin's five largest combined retail electric and gas customers, Heileman Brewing of La Crosse, has been sold. Stroh's Brewery has sold the beer labels and decided to close its breweries, including the La Crosse brewery. Even though Heileman purchased approximately $2.8 million of utility services annually, NSP-Wisconsin's total electric and gas sales are expected to continue to grow. Platinum Holdings, a New York based investment company has purchased the brewery and will begin operating before the end of 1999. The brewery will initially employ 50 employees and has plans to have 300 employees by the end of 2000 producing some regional beers, juices and bottled water. The estimated annual revenue for gas and electric service for the first year of operation is $500,000 and is expected to grow as they increase production and possibly convert some of the plant to produce ethanol. - ------ 2. REGULATION AND RATE MATTERS - -- ------------------------------ ELECTRIC TRANSMISSION - In April 1998, NSP announced its intention to form an Independent Transmission Company or ITC (an independent entity that would own and operate an electric transmission system) unaffiliated with the rest of its utility operations. As originally proposed, NSP anticipated divesting its transmission assets to an ITC. In light of the proposed merger with NCE, divestiture of transmission assets would appear to trigger adverse tax and accounting consequences. As an alternative to divestiture of its transmission assets, NSP has agreed to join and transfer control, but not ownership, of its transmission assets to the Midwest independent system operator or ISO (an independent nonprofit organization which will operate, but not own, an electric transmission system). The Midwest ISO expects to be operational by the middle of 2001. In April 1998, Wisconsin state legislators enacted a law which includes provisions that require the PSCW to order a public utility that owns transmission facilities in Wisconsin to transfer control of its transmission facilities to an ISO or divest its interest in its transmission facilities to an ITC if the public utility has not already transferred control to an ISO or divested to an ITC by June 30, 2000. NSP has agreed to join the Midwest ISO and will file for PSCW approval by March 2000. TRANSMISSION RATE CASE - As discussed in NSP's 1998 Form 10-K, in the first quarter of 1998 NSP filed wholesale electric point-to-point and network integration transmission service (NTS) rate cases with the Federal Energy Regulatory Commission (FERC). In March 1999, NSP filed an offer of settlement which would resolve virtually all issues in the two cases. The offer of settlement provides an approximate two percent reduction in point-to-point rates which, combined with anticipated reductions in non-firm discounting, is expected to have little or no impact on annual revenue. In addition, the settlement calls for an annual increase of approximately $1 million in ancillary service revenues. Finally, the settlement places a cap on NSP's annual NTS payment liabilities to its five current NTS customers at $10 million per year, about 15 percent of which relates to NSP-Wisconsin. The point-to-point and ancillary rates would be effective June 1, 1998. The offer also includes a three year moratorium period on future transmission rate changes. All parties filed written comments generally recommending FERC approval of the offer. NSP expects FERC approval later in 1999. MIDCONTINENT AREA POWER POOL (MAPP) TRANSMISSION TARIFF - In May 1999, MAPP members voted to approve a MAPP regional transmission service tariff which will supercede MAPP members' individual electric transmission service tariffs for most wholesale transactions. The proposed MAPP tariff was filed with the FERC in July 1999. MAPP proposed that the new tariff be effective 90 days after a FERC order accepting the tariff for filing. NSP estimates that the MAPP regional transmission service tariff will reduce NSP's year 2000 pretax earnings by between $5 million and $16 million, of which about 15 percent relates to NSP-Wisconsin. NSP and several other parties filed protests to the MAPP tariff, asking the FERC to modify and/or delay implementation of the new tariff. The tariff is pending FERC action, which is expected later in 1999. CONSTRUCTION AUTHORIZATION - In 1996, NSP and Dairyland Power Cooperative of LaCrosse, Wis. proposed building an electric transmission system between NSP-Minnesota's Chisago substation in eastern Minnesota and Dairyland's Apple River substation in northwestern Wisconsin in response to a need for additional reliability and capacity in both regions. During the second quarter of 1999, the PSCW granted permission to build the system. Approval from Minnesota regulators is still needed. The Minnesota Department of Public Service (DPS) recommended not building the line as it is proposed, although they did acknowledge the need for more transmission capacity. Its recommendation will be considered by the Minnesota Environmental Quality Board (MEQB), which has the authority to approve or deny the project. NSP is currently responding to additional data requests from the DPS to be used in the regulatory proceedings in Minnesota. A decision from the MEQB is expected in early 2000. 2000 WISCONSIN RATE FILING - On October 28, 1999 the PSCW approved NSP-Wisconsin's application for authority to maintain base retail electric and natural gas service rates in Wisconsin at current levels through 2001. NSP-Wisconsin is required to make a biennial rate filing in odd-numbered years. Current rates were placed in effect in September 1998. TEMPORARY FUEL COST SURCHARGE - In October 1999 the PSCW authorized a temporary surcharge to retail electric rates of $0.00195 per kWh, to partially recover generating station fuel and purchased power costs in excess of those provided in base rates. Purchased power costs were substantially higher during the summer of 1999 due to extreme weather and its effect on market prices for purchased power. The surcharge will be applied to electricity billed between October 26 and December 31, 1999 and will generate about $2 million of revenue. PLANT DEPRECIATION - In May 1999 NSP-Wisconsin filed an application with the PSCW for recertification of certain plant depreciation rates and for approval of a change to the remaining life technique for the calculation of straight line depreciation for production facilities. The PSCW issued its order in the third quarter of 1999. NSP-Wisconsin expects to implement that decision at the same time as it implements the PSCW's decision on its rate filing in January 2000. Annual depreciation expense will decrease by about $340,000 effective Jan. 1, 2000. "RELIABILITY 2000" - In the third quarter of 1999, Wisconsin state lawmakers passed "Reliability 2000" legislation, meant to increase the reliability and reduce the cost of electric utility service in Wisconsin. Its provisions which affect NSP-Wisconsin are: - an increase in the amount of money that must be collected from NSP-Wisconsin's customers to fund low-income assistance and conservation programs, and - partial protection from potential costs related to the proposed Nitrogen Oxide emission regulations (as discussed in "Commitments and Contingent Liabilities" below). 3. COMMITMENTS AND CONTINGENT LIABILITIES - -- ----------------------------------------- LEGAL CONTINGENCIES - In the normal course of business, various lawsuits and claims have arisen against NSP. Management, after consultation with legal counsel, has recorded an estimate of the probable cost of settlement or other disposition of these matters. As discussed in Item 3 of the 1998 Form 10-K, on Feb. 20, 1999 a person who was not an NSP employee was killed while working with a hydraulic press at NSP-Wisconsin's Western Avenue Service Center. NSP-Wisconsin was recently notified of a claim on behalf of the decedent's family and is involved in discussions to resolve the claim. ENVIRONMENTAL CONTINGENCIES - As discussed in Note 8 to the Financial Statements in the 1998 Form 10-K, NSP-Wisconsin had been named as one of three potentially responsible parties in connection with environmental contamination at a site in Ashland, Wis. As discussed below, the Wisconsin Department of Natural Resources (WDNR) continues to evaluate proposed methods of remediating the contamination. The United States Environmental Protection Agency (EPA) has accepted a petition from a local environmental group to conduct a preliminary assessment of the Ashland site under Section 105(d) of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). A preliminary assessment is a limited scope investigation to evaluate the potential for hazardous substance releases from a site. If the preliminary assessment of the site concludes that further investigation is necessary, the site may proceed through several evaluative steps up to and including listing on the national priorities list. The preliminary assessment of the Ashland site must be completed by the spring of 2000. The WDNR will perform this preliminary assessment for the EPA and will also continue to serve as the lead regulatory agency for the site. As discussed in Note 8 to the Financial Statements in the 1998 Form 10-K, NSP-Wisconsin was also investigating its responsibility to remediate contamination found at a former landfill site in Amery, Wis. NSP-Wisconsin reached a settlement with the owner of the landfill during the second quarter of 1999 which released NSP-Wisconsin from liability. In September 1998 the EPA released nitrogen oxide (NOx) emission regulations affecting 22 states, including Wisconsin. The goal of the new regulations is to reduce NOx emissions by 85 percent by May 1, 2003. Two of NSP-Wisconsin's boilers and eight of its combustion turbines may be affected by this action. If the existing boilers and combustion turbines are made compliant using retrofit technology to control NOx emissions, it could require NSP-Wisconsin to incur up to $62.3 million for capital improvements and up to $13.6 million for additional annual operation and maintenance expenses. This is the highest compliance cost estimate and is not necessarily the compliance alternative of choice. If the rules are finalized in their most stringent form, other alternatives for these older units may be deemed more cost effective than retrofitting. How the WDNR will implement the new EPA NOx regulations and their applicability to NSP-Wisconsin is still uncertain. NSP-Wisconsin has joined with two other Wisconsin-based utilities as well as the Wisconsin Paper Council and Wisconsin Manufacturers and Commerce industrial organizations to request a judicial review of the EPA's final NOx rules. NSP-Wisconsin believes that the EPA improperly included Wisconsin in the scope of the regulatory action and it improperly calculated potential emissions of NOx, reducing the allowable emission limits for the state. In the second quarter of 1999, the EPA was ordered by a federal appeals panel to suspend implementation of the NOx rules pending further action on a lawsuit brought by another trade group. It is possible that the State of Wisconsin will now either not be required to meet the more stringent NOx requirements or that their implementation will be delayed substantially. 4. SEGMENT INFORMATION - -- ---------------------- NSP-Wisconsin has two reportable segments: Electric Utility and Gas Utility. Segment information for the three- and nine-month periods ended Sept. 30, 1999 and 1998 is as follows: BUSINESS SEGMENTS Operating Revenues 3 MOS. ENDED 9/30/99 from External Intersegment Segment Net (Thousands of dollars) Customers Revenues Income/(Loss) - -------------------------------------------------------------------------------- Electric Utility $ 109 309 $ 35 $ 8 025 Gas Utility 7 424 1 210 (1 161) - -------------------------------------------------------------------------------- Consolidated Total $ 116 733 $ 1 245 $ 6 864 Operating Revenues 3 MOS. ENDED 9/30/98 from External Intersegment Segment Net (Thousands of dollars) Customers Revenues Income/(Loss) - -------------------------------------------------------------------------------- Electric Utility $ 104 314 $ 34 $ 9 096 Gas Utility 7 206 2 241 (1 211) - -------------------------------------------------------------------------------- Consolidated Total $ 111 520 $ 2 275 $ 7 885 Operating Revenues 9 MOS. ENDED 9/30/99 from External Intersegment Segment Net (Thousands of dollars) Customers Revenues Income/(Loss) - -------------------------------------------------------------------------------- Electric Utility $ 309 052 $ 97 $ 22 483 Gas Utility 52 495 2 377 1 885 - -------------------------------------------------------------------------------- Consolidated Total $ 361 547 $ 2 474 $ 24 368 Operating Revenues 9 MOS. ENDED 9/30/98 from External Intersegment Segment Net (Thousands of dollars) Customers Revenues Income/(Loss) - -------------------------------------------------------------------------------- Electric Utility $ 297 979 $ 106 $ 20 878 Gas Utility 48 904 3 957 673 - -------------------------------------------------------------------------------- Consolidated Total $ 346 883 $ 4 063 $ 21 551 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). Except for the historical statements contained in this report, the matters discussed in the following discussion and analysis are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate", "estimate", "expect", "objective", "possible", "potential" and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to: - - general economic conditions, including their impact on capital expenditures; - - business conditions in the energy industry; - - competitive factors; - - unusual weather; - - changes in federal or state legislation; - - regulation; - - issues relating to Year 2000 remediation efforts; - - the items set forth below under "Factors Affecting Results of Operations"; - - and the other risk factors listed from time to time by NSP in reports filed with the SEC, including Exhibit 99.01 to this report on Form 10-Q for the quarter ended Sept. 30, 1999. RESULTS OF OPERATIONS --------------------- On March 24, 1999, NSP and NCE agreed to merge. As stated in Note 1 to the Financial Statements of this report, it is expected that NSP-Wisconsin will continue to exist as an operating subsidiary of the merged company. The following discussion and analysis is based on the financial condition and operations of NSP-Wisconsin and does not reflect the potential effects of the combination between NSP and NCE. FACTORS AFFECTING RESULTS OF OPERATIONS - ------------------------------------------- In addition to items noted in the 1998 10-K and the Notes to the Financial Statements of this report, the historical and future trends of NSP's operating results are affected by the following factors: VARIATIONS IN WEATHER CONDITIONS - Both electric and gas sales levels are significantly affected by variations in weather conditions. NSP estimates sales levels under normal weather conditions and analyzes the approximate effect of variations from historical average temperatures on actual sales levels. The estimated impact of weather on operating revenues in relation to sales under normal weather conditions is shown in the discussion of electric revenues and gas revenues. SALES GROWTH - The following table summarizes NSP's growth in actual electric and gas sales and growth on a weather normalized (W/N) basis for the 9-month period ended September 30, 1999, as compared with the same period in 1998. NSP's weather normalization process removes the estimated impact on sales of temperature variations from historical averages. PERCENTAGE SALES GROWTH 9 MONTHS ENDED ----------------------- -------------- ACTUAL W/N ------ --- Electric Residential 2.6 % 0.8 % Electric Industrial and Commercial 1.1 % 1.0 % Total Electric Retail 1.5 % 0.9 % Electric Resale 2.0 % 1.4 % Firm Gas Sales 14.7 % 4.7 % FIRST NINE MONTHS 1999 VS. FIRST NINE MONTHS 1998 - --------------------------------------------------------- ELECTRIC REVENUES for the first nine months of 1999 increased $11.1 million, or 3.7 percent, compared with the first nine months of 1998. The following table summarizes the change in electric revenues. Power supply and transmission revenue relates to interchange agreement revenues received from NSP-Minnesota and reflect a net decrease in NSP-Wisconsin's fuel and transmission expenses. ELECTRIC REVENUES 1ST NINE MONTHS (MILLIONS OF DOLLARS) 1999 VS. 1998 --------------------- ------------- $ CHANGE % CHANGE -------- -------- Sales growth (excluding weather impact) $ 2.7 1.2 % Weather impact 1.5 0.6 % Rate changes 6.2 2.6 % ------ ------ Total electric sales revenue $10.4 4.4 % Power supply revenue 0.7 1.7 % ------ ------ Total electric revenue increase $11.1 3.7 % ====== ====== ELECTRIC MARGIN equals electric revenues minus production expenses, consisting of purchased and interchange power and fuel for electric generation. Electric margin increased $9.3 million, or 6.5% in the first nine months of 1999 compared with the first nine months of 1998. Production expenses increased $1.8 million, or 1.1 percent. Higher variable costs of energy purchased from NSP-Minnesota in 1999 were partially offset by lower fuel costs for electric generation and lower fixed demand expenses billed from NSP-Minnesota. GAS REVENUES for the first nine months of 1999 increased $2.0 million, or 3.8 percent, compared with the first nine months of 1998. The following table summarizes the change in gas revenues. Changes in per unit gas costs are reflected in customer rates through the purchased gas adjustment clause mechanism. GAS REVENUES 1ST NINE MONTHS (MILLIONS OF DOLLARS) 1999 VS. 1998 --------------------- ------------- $ CHANGE % CHANGE -------- -------- Sales growth (excluding weather impact) $ 2.0 3.8 % Weather impact 1.2 2.3 % Rate changes (1.2) (2.3 %) -------- --------- Total gas revenue increase $ 2.0 3.8 % ======== ========= GAS MARGIN equals gas revenues minus the cost of purchased gas. Electric margin increased $1.5 million or 8.4% in the first nine months of 1999 compared to the first nine months of 1998. Purchased gas expense increased $0.5 million or 1.5%. The cost of additional gas purchases to support 6.1% higher unit sales volumes was partially offset by lower per unit gas costs charged by suppliers. OTHER OPERATING, MAINTENANCE, CONSERVATION DEMAND SIDE MANAGEMENT (DSM), AND ADMINISTRATIVE AND GENERAL (A&G) expenses together increased $1.7 million, or 2.4 percent, in the first nine months of 1999 compared to the first nine months of 1998. The increase is due primarily to increased maintenance and amortization of regulatory deferred network transmission service (NTS) fees offset by lower authorized DSM in the first nine months of 1999. DEPRECIATION AND AMORTIZATION expense increased $2.5 million, or 8.6 percent, in the first nine months of 1999 compared with the same period of 1998. The increase is due mainly to normal increases in plant in service and additional depreciation authorized by the PSCW in September 1998. YEAR 2000 (Y2K) READINESS - This information is designated as a "Year 2000 Readiness Disclosure." NSP is incurring significant costs to modify or replace existing technology, including computer software, for uninterrupted operation in the Year 2000 and beyond as discussed in NSP's 1998 Form 10-K. NSP, including NSP-Wisconsin, is on schedule for completion of its Y2K project. - - On September 30, 1999, 99 percent of both NSP's mission-critical and non- critical systems and processes were Y2K Ready. - - On June 30, 1999, NSP completed its contingency plans as required by the North American Electric Reliability Council. NSP's contingency plans are comprehensive and include the following actions: the establishment of back-up or alternative data and voice communications, increasing generation reserves, coordination with government agencies, increased staffing levels during Y2K critical time periods, and conducting readiness drills. - - By December 31, 1999, NSP expects to have completed the implementation and testing of all applications. Since the start of the Y2K project in 1996 through September 30, 1999, NSP-Wisconsin has spent approximately $1.2 million for Y2K remediation efforts, which has been expensed as incurred. The additional development and remediation costs necessary for NSP-Wisconsin to prepare for Y2K is estimated to be approximately $170,000. ACCOUNTING CHANGE - In June 1998, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires that all derivatives be recognized at fair value in the balance sheet and all changes in fair value be recognized currently in earnings or deferred as a component of other comprehensive income, depending on the intended use of the derivative, its resulting designation, and its effectiveness. NSP plans to adopt this standard in 2001, as required. NSP has not yet determined that potential impact of implementing this statement. Item 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 nine months ended Sept. 30, 1999. 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 Vice President, Treasurer and Controller (Principal Financial and Accounting Officer) Date: Nov. 8, 1999 -------------- 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 9-MOS DEC-31-1998 SEP-30-1999 PER-BOOK 737,006 12,138 65,818 53,522 0 868,484 86,200 10,541 255,010 351,751 0 0 231,928 58,800 0 0 0 0 0 0 226,005 868,484 364,021 16,748 309,632 326,380 37,641 419 38,060 13,692 24,368 0 24,368 20,248 12,139 78,366 28.27 28.27
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 (NSP-Wisconsin). Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in NSP-Wisconsin's documents or oral presentations, the words "anticipate", "estimate", "expect", "objective", "possible", "potential" and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause NSP-Wisconsin's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: - - Economic conditions including inflation rates and monetary fluctuations; - - Trade, monetary, fiscal, taxation, and environmental policies of governments, agencies and similar organizations in geographic areas where NSP-Wisconsin has a financial interest; - - Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services; - - Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Federal Energy Regulatory Commission and similar entities with regulatory oversight; - - Availability or cost of capital such as changes in: interest rates; market perceptions of the utility industry, or NSP-Wisconsin; or security ratings; - - Factors affecting operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, maintenance or repairs; unanticipated changes to fossil fuel or gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints; - - Employee work force factors including loss or retirement of key executives, collective bargaining agreements with union employees, or work stoppages; - - Increased competition in the utility industry, including: industry restructuring initiatives; transmission system operation and/or administration initiatives; recovery of investments made under traditional regulation; nature of competitors entering the industry; retail wheeling; a new pricing structure; and former customers entering the generation market; - - Rate-setting policies or procedures of regulatory entities, including environmental externalities, which are values established by regulators assigning environmental costs to each method of electricity generation when evaluating generation resource options; - - Social attitudes regarding the utility and power industries; - - Cost and other effects of legal and administrative proceedings, settlements, investigations and claims; - - Technological developments that result in competitive disadvantages and create the potential for impairment of existing assets; - - Other business or investment considerations that may be disclosed from time to time in NSP-Wisconsin's Securities and Exchange Commission filings or in other publicly disseminated written documents. - - Factors associated with Y2K compliance that might cause material differences from the expectations disclosed include, but are not limited to, the availability of key Y2K personnel, NSP's ability to locate and correct all relevant computer codes, the readiness of third parties, and NSP's ability to respond to unforeseen Y2K complications. Such material differences could result in, among other things, business disruptions, operational problems, financial loss, legal liability, and similar risks. - - Regulatory delays or conditions imposed by regulatory agencies in approving the proposed merger with NCE. NSP-Wisconsin undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review factors pursuant to the Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by NSP-Wisconsin prior to the effective date of the Act. -----END PRIVACY-ENHANCED MESSAGE-----