SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended September 30, 1993 Commission File Number 1-3034
Northern States Power Company
(Exact name of registrant as specified in its charter)
Minnesota 41-0448030
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 Nicollet Mall, Minneapolis, Minnesota 55401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 330-5500
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 shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
_____ _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1993
Common Stock, $2.50 par value 66,745,494 shares
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Northern States Power Company (Minnesota) and Subsidiaries
Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1993 1992 1993 1992
(Thousands of Dollars) (Thousands of Dollars)
Operating revenues
Electric................................................... $557,289 $490,659 $1,501,948 $1,377,655
Gas........................................................ 44,635 32,993 286,045 210,564
Total.................................................... 601,924 523,652 1,787,993 1,588,219
Operating expenses
Fuel for electric generation............................... 82,212 75,814 238,000 222,725
Purchased and interchange power............................ 70,517 43,820 153,962 114,233
Gas purchased for resale................................... 33,955 29,368 192,823 139,930
Other operation............................................ 70,913 69,770 227,576 227,469
Maintenance................................................ 37,636 40,391 119,337 128,447
Administrative and general................................. 42,239 42,698 137,743 136,131
Conservation and energy management......................... 7,808 3,484 21,877 13,610
Depreciation and amortization.............................. 67,139 59,365 198,232 180,773
Taxes: Property and general................................ 57,890 50,523 169,912 152,029
Current income tax expense.......................... 42,394 30,045 97,731 67,980
Deferred income tax expense......................... 1,314 3,690 6,659 13,752
Investment tax credit adjustments - net............. (2,169) (2,154) (6,527) (6,578)
Total 511,848 446,814 1,557,325 1,390,501
Operating income............................................ 90,076 76,838 230,668 197,718
Other income
Allowance for funds used during construction - equity...... 2,188 2,073 4,819 7,637
Other income and deductions - net.......................... 2,379 2,181 2,413 2,001
Total other income........................................ 4,567 4,254 7,232 9,638
Income before interest charges.............................. 94,643 81,092 237,900 207,356
Interest charges
Interest on long-term debt................................. 25,985 25,480 77,898 76,888
Other interest and amortization............................ 2,604 1,910 6,337 4,365
Allowance for funds used during construction - debt........ (1,601) (1,996) (4,363) (4,942)
Total.................................................... 26,988 25,394 79,872 76,311
Income before accounting change............................. 67,655 55,698 158,028 131,045
Accounting change
Cumulative effect on prior years of change in accounting
principle - unbilled revenues (net of tax of $30,594).... 0 0 0 45,512
Net income.................................................. 67,655 55,698 158,028 176,557
Preferred dividend requirements............................. 3,743 3,881 11,287 12,389
Earnings available for common stock......................... $63,912 $51,817 $146,741 $164,168
Average number of common and equivalent
shares outstanding (000's)................................ 66,505 62,661 64,664 62,631
Earnings per average common share:
Income before accounting change........................... $0.96 $0.83 $2.27 $1.89
Cumulative effect of unbilled revenue accounting change... 0.00 0.00 0.00 0.73
Total.................................................. $0.96 $0.83 $2.27 $2.62
Common dividends declared per share......................... $0.645 $0.630 $1.920 $1.865
Statements of Retained Earnings (Unaudited)
Balance at beginning of period.............................. $1,100,176 $1,100,838 $1,099,896 $1,066,559
Net income for period....................................... 67,655 55,698 158,028 176,557
Capital stock expense....................................... 0 0 0 (822)
Dividends declared:
Cumulative preferred stock................................. (3,743) (3,881) (11,287) (12,389)
Common stock............................................... (42,928) (39,422) (125,477) (116,672)
Balance at end of period.................................... $1,121,160 $1,113,233 $1,121,160 $1,113,233
The Notes to Financial Statements are an integral part of the Statements of Income and Retained Earnings
Northern States Power Company (Minnesota) and Subsidiaries
Balance Sheets (Unaudited)
September 30, December 31,
1993 1992
(Thousands of dollars)
ASSETS
UTILITY PLANT
Electric.............................................................. $6,104,443 $5,956,865
Gas................................................................... 609,069 481,157
Other................................................................. 222,536 199,912
Total............................................................. 6,936,048 6,637,934
Accumulated provision for depreciation.............................. (2,837,459) (2,593,213)
Nuclear fuel.......................................................... 736,293 711,517
Accumulated provision for amortization ............................. (663,376) (630,548)
Net utility plant................................................. 4,171,506 4,125,690
CURRENT ASSETS
Cash and cash equivalents............................................. 24,722 15,752
Short-term investments - at cost which approximates market............ 100,027 88
Accounts receivable - net............................................. 237,217 224,618
Accrued utility revenues.............................................. 82,975 100,172
Federal income tax refund receivable.................................. 20,927 24,525
Materials and supplies - at average cost
Fuel................................................................ 49,196 53,826
Other............................................................... 107,275 105,041
Current deferred income taxes ........................................ 13,404 10,712
Prepayments and other................................................. 19,921 23,161
Total current assets.............................................. 655,664 557,895
OTHER ASSETS
Nonutility property - net of accumulated depreciation
of $60,778 and $54,669, respectively................................. 157,605 94,305
Deferred debits....................................................... 177,904 96,113
Investments and other assets.......................................... 188,716 108,867
Total other assets................................................ 524,225 299,285
TOTAL......................................................... $5,351,395 $4,982,870
LIABILITIES
CAPITALIZATION
Common stock - authorized 160,000,000 shares of $2.50 par value,
issued shares: 1993, 66,553,989; 1992, 62,598,360................... $166,385 $156,496
Premium on common stock............................................... 531,367 370,819
Retained earnings..................................................... 1,121,160 1,099,896
Employee Stock Ownership Plan (ESOP) shares purchased with debt -
shares at cost: 1993, 285,538; 1992, 143,217........................ (12,956) (5,113)
Total common stock equity......................................... 1,805,956 1,622,098
Cumulative preferred stock - authorized 7,000,000 shares of $100
par value; outstanding shares: 1993 and 1992, 2,750,000
without mandatory redemption........................................ 275,000 275,000
Premium on preferred stock.......................................... 493 493
Long-term debt
First mortgage bonds of utility companies........................... 1,037,612 1,150,500
Other pollution control and resource recovery financing............. 147,850 148,550
Subsidiary debt, ESOP loan and other................................ 90,059 4,020
Unamortized discount on long-term debt - net of premium............. (4,952) (3,220)
Total long-term debt.............................................. 1,270,569 1,299,850
Total capitalization............................................ 3,352,018 3,197,441
CURRENT LIABILITIES
Long-term debt due within one year.................................... 150,519 32,426
Redeemable long-term debt............................................. 141,600 41,600
Short-term debt - commercial paper.................................... 31,500 146,561
Accounts payable...................................................... 163,721 180,149
Salaries, wages, and vacation pay accrued............................. 43,637 31,393
Taxes accrued......................................................... 212,240 161,533
Interest accrued...................................................... 31,929 27,590
Dividends declared on common and preferred stocks..................... 46,670 43,220
Estimated refunds to customers........................................ 9,995 0
Other................................................................. 11,077 7,673
Total current liabilities......................................... 842,888 672,145
DEFERRED CREDITS AND OTHER LIABILITIES
Accumulated deferred income taxes..................................... 802,611 775,241
Accumulated deferred investment tax credits........................... 191,270 200,207
Net deferred regulatory liability - income taxes...................... 29,654 62,082
Other................................................................. 132,954 75,754
Total deferred credits and other liabilities...................... 1,156,489 1,113,284
TOTAL......................................................... $5,351,395 $4,982,870
The Notes to Financial Statements are an integral part of the Balance Sheets.
Northern States Power Company (Minnesota) and Subsidiaries
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
September 30
1993 1992
(Thousands of dollars)
Cash Flows from Operating Activities:
Net Income............................................................. $158,028 $176,557
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization........................................ 211,931 194,312
Nuclear fuel amortization............................................ 32,828 38,021
Deferred income taxes................................................ (9,091) 20,749
Investment tax credit adjustments.................................... (6,753) (6,827)
Allowance for funds used during construction - equity................ (4,819) (7,637)
Cumulative effect of unbilled revenue accounting change - net of tax. 0 (45,512)
Cash provided by (used for) changes in certain working capital items. 84,683 (10,198)
Conservation program expenditures - net of amortization.............. (9,032) (7,560)
Cash used for changes in other assets and liabilities................ (5,907) (2,605)
Net cash provided by operating activities 451,868 349,300
Cash Flows from Investing Activities:
Capital expenditures .................................................. (242,809) (290,196)
Decrease in construction payables...................................... (3,467) (4,875)
Allowance for funds used during construction - equity.................. 4,819 7,637
Temporary investment - pollution control bond refinancing proceeds..... (100,000) 0
Sale of other short-term investments - net............................. 61 820
Investment in external decommissioning fund............................ (23,562) (20,260)
Acquisition of Minneapolis Energy Center............................... (113,645) 0
Acquisition of Viking Gas.............................................. (45,000) 0
Investments in nonutility projects and other........................... (10,501) (85)
Net cash used for investing activities (534,104) (306,959)
Cash Flows from Financing Activities:
Net (repayments) proceeds from issuance of short-term debt............. (115,061) 126,675
Proceeds from issuance of long-term debt - net......................... 368,989 28,027
Repayment of long-term debt (including reacquisition premium).......... (199,856) (45,751)
Proceeds from issuance of common stock - net........................... 170,437 1,206
Redemption of preferred stock and premium.............................. 0 (25,838)
Dividends paid......................................................... (133,303) (128,051)
Net cash provided by (used for) financing activities 91,206 (43,732)
Net increase (decrease) in cash and cash equivalents...................... 8,970 (1,391)
Cash and cash equivalents at beginning of period.......................... 15,752 22,169
Cash and cash equivalents at end of period................................ $24,722 $20,778
The Notes to Financial Statements are an integral part of the Statement of Cash Flows.
Northern States Power Company (Minnesota) and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
As discussed in Note 1, the third quarter 1993 financial statements
presented have been restated to reflect the impact on the Company's revenues
and expenses of the final rate order for the Company's Minnesota electric
retail jurisdiction. The impact of the final rate order for the Minnesota
retail gas jurisdiction was not material and, therefore, was reflected in the
fourth quarter of 1993.
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 (Minnesota) (the Company) and its
subsidiaries (collectively, NSP) as of September 30, 1993 and December 31,
1992 and the results of its operations for the three and nine months ended
September 30, 1993 and 1992 and its cash flows for the nine months then
ended. Due to the seasonality of NSP's electric and gas sales, operating
results on a quarterly basis are not necessarily an appropriate base from
which to project annual results.
The accounting policies followed by NSP are set forth in Note 1 to NSP's
financial statements in the 1992 Form 10-K. Certain reclassifications have
been made to the 1992 financial information to conform with the current
presentation. These reclassifications had no effect on net income or
earnings per share.
1. Rate Matters - 1993 Rate Increases
Minnesota Jurisdiction
In November 1992, the Company filed applications for 1993 rate increases
with the Minnesota Public Utilities Commission (MPUC) totaling $119.1 million
and $14.9 million for its Minnesota retail electric and natural gas
customers, respectively. This represented annual increases of approximately
9% and 5.8%, respectively. In December 1992, the MPUC issued orders granting
interim increases (subject to refund) of $71.2 million (5.4%) for electric
service and $8.4 million (3.3%) for gas service, effective January 1, 1993.
In June 1993, the Company adjusted its proposed annual electric rate increase
to $112.3 million and updated its gas rate request to $12.4 million.
The Company received orders from the MPUC in September 1993 allowing an
annual retail electric rate increase of $54.3 million (4.1%) and an annual
retail gas rate increase of $8.3 million (3.3%). On November 10, 1993, the
MPUC reconsidered several issues common to both the electric and gas rate
cases. On December 2, 1993, the MPUC completed its reconsideration of
specific issues affecting the electric rate increase pursuant to requests by
the Company and certain intervenors. The Company received final rate orders
from the MPUC in December 1993 for the gas case and in January 1994 for the
electric case, allowing final annual retail rate increases of $72.2 million
(4.7%) for electric and $10.0 million (3.9%) for gas. The return on equity
granted in both cases was 11.47%. Electric rate refunds of interim rates
collected are required in the amount of $12.6 million and are expected to
be paid in April 1994. No refunds from interim gas rate levels are required.
Final rates for electric and gas are expected to be implemented in March
1994. The effects of reconsideration were initially recorded in the fourth
quarter 1993, when reconsideration occurred. However, the Company has
restated its third quarter 1993 earnings for the effects of reconsideration,
reporting earnings per share of $0.96 and $2.27, versus the previously
reported earnings per share of $0.84 and $2.15 for three months and nine
months ended Sept. 30, 1993, respectively. The effect of the final rate
orders on earnings per share for the first and second quarters was
immaterial and, therefore, has been reflected in the third quarter.
Other Retail Jurisdictions
The approved annual rate increases of Northern States Power Company, a
Wisconsin corporation (the Wisconsin Company), a wholly-owned subsidiary of
the Company, of $8.0 million (3.1%) for Wisconsin electric customers and $1.1
million (1.8%) for Wisconsin gas customers have been in effect since January
1993. The Company's approved annual rate increase of $4.8 million (5.3%) for
North Dakota electric customers was effective April 21, 1993. The Company's
approved annual rate increase of $4.2 million (6.5%) for South Dakota
electric customers has been in effect since May 1, 1993.
Federal Energy Regulatory Commission (FERC)
Increased annual wholesale electric rates of $0.9 million (3.6% overall
increase) were approved by the FERC for nine Company wholesale customers
effective September 21, 1993. Increased annual wholesale electric rates of
$0.6 million (3.7% overall increase) were approved by the FERC for the
Wisconsin Company's 10 wholesale municipal customers effective September 1,
1993.
2. Accounting Changes
In NSP's Form 10-Q for the quarter ended March 31, 1993, Note 2 to the
Financial Statements discussed two accounting changes made in 1993 and one
accounting change made in 1992. The following is an update of matters
discussed therein.
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, NSP adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. SFAS 106 requires the accrual
method of accounting for actuarially determined future costs of providing
postretirement benefits. Under the prescribed method, NSP's obligation for
postretirement health care and death benefits is to be fully accrued by the
date employees attain full eligibility for such benefits, which is generally
when they reach retirement age. This is a significant change from NSP's
prior policy of recognizing benefit costs on a cash basis after retirement.
In conjunction with the adoption of SFAS No. 106, NSP elected, for
financial reporting purposes, to amortize on a straight-line basis over 20
years the accumulated postretirement benefit obligation for current and
future retirees of approximately $215.6 million. This estimate considers
anticipated plan design changes under consideration which are expected to be
implemented in 1994, including Medicare integration, increased retiree cost
sharing, and managed indemnity measures.
In the past, NSP has funded benefit payments to retirees internally.
While NSP initially planned to continue using internal funding of benefits
paid and accrued, there will likely be significant external funding
requirements imposed by NSP's regulators, as discussed below, including the
use of tax advantaged trusts. No plan assets were held as of September 30,
1993.
NSP has obtained rate recovery of the increased costs associated with this
new accounting standard in all of its material regulated utility
jurisdictions. Of the $21 million in increased costs to be accrued in 1993
under SFAS 106, about $5 million is expected to be capitalized as a cost of
construction, $13 million is expected to be deferred until rate recovery
commences (in 1994 through 1996) and about $3 million is expected to be
expensed but essentially offset by rate increases. As of September 30, 1993,
SFAS 106 costs of approximately $10.0 million had been deferred, to be
amortized over the recovery period approved by regulators. Implementation
of SFAS No. 106 increased operating expenses (before taxes) for the three and
nine months ended September 30, 1993 by approximately $0.7 million and $2.6
million, respectively.
In the orders the Company received in September 1993, the MPUC allowed
full recovery of SFAS 106 costs in final 1993 rates and deferral of 1993
costs incurred prior to implementation of final rates. The MPUC has also
decided to require the Company to implement a tax deductible level of
external funding of SFAS 106 costs prior to the filing of the Company's next
general rate case. Regulators for retail rates in Wisconsin and North Dakota
have allowed full recovery of increased benefit costs under SFAS 106,
commencing January 1, 1993 and April 21, 1993, respectively. External
funding was required in Wisconsin to the extent funding is tax deductible.
The FERC issued a regulatory order in 1992 adopting the SFAS 106
methodology for wholesale electric ratemaking and allowing deferral of the
increased costs until recovery can commence in the next rate case. The FERC
has approved rate increases for Minnesota and Wisconsin wholesale customers
including recovery of accrued SFAS No. 106 benefits in new rates which took
effect in September 1993. Viking Gas Transmission Company (see Note 3) has
obtained recovery of SFAS 106 costs in rates from its wholesale customers
effective in July 1993. The FERC requires external funding for the wholesale
jurisdictional allocation of all benefits paid and accrued under SFAS 106
beginning in 1993.
The impact of adopting SFAS 106 on other utility jurisdictions and
nonregulated operations was not material.
Income Taxes
NSP adopted SFAS No. 109, Accounting for Income Taxes, effective January
1, 1993. This Statement supersedes SFAS No. 96, Accounting for Income Taxes,
which was adopted by NSP in 1988. There was no earnings effect of adopting
SFAS No. 109 on NSP's financial statements for the three and nine months
ended September 30, 1993 due to its similarity to SFAS No. 96 principles in
use by NSP since 1988.
Revenue Recognition
Effective January 1, 1992, the Company changed its revenue recognition
method to include the accrual of estimated unbilled revenues for electric and
gas usage for its Minnesota, North Dakota and South Dakota operations. The
adjustment to apply the new policy retroactively to periods prior to 1992 was
$45.5 million (net of income taxes of $30.6 million) and was included in
income in the first quarter of 1992. The Wisconsin Company has been
recording unbilled revenues since 1977.
3. Business Acquisitions
Viking Gas Transmission Company
On June 10, 1993, the Company acquired 100% of the stock of Viking Gas
Transmission Company (Viking) from Tenneco Gas, a unit of Tenneco Inc. in
Houston, Texas for $45 million in cash. Viking, which is now a wholly-owned
subsidiary of the Company, owns and operates a 496-mile natural gas pipeline
serving portions of Minnesota, Wisconsin and North Dakota with a capacity of
400 million cubic feet per day. The Viking pipeline currently serves 15% of
NSP's gas distribution system needs. Approximately 75% of NSP's gas
customers are located within 40 miles of the Viking pipeline. Under FERC
Order 636, Viking is an open access pipeline which makes no sales of gas; it
provides only contract carriage transportation service. Rates for Viking's
transportation services are regulated by FERC. The operating results of
Viking since its purchase by the Company included revenues of $4.0 million
and $4.7 million for the three months ended September 30, 1993 and the year-
to-date period since the acquisition, respectively, and net income of
$607,000 and $615,000 for the same periods, respectively.
Minneapolis Energy Center
On August 20, 1993, NRG Energy, Inc. (NRG) a wholly-owned subsidiary of
the Company, acquired the assets of the Minneapolis Energy Center (MEC), a
downtown district heating and cooling system located in Minneapolis,
Minnesota. The acquired system utilizes steam and chilled water generating
facilities to heat and cool buildings in downtown Minneapolis. The primary
assets include the main plant, three satellite plants, two standby plants,
six miles of steam lines and two miles of chilled water distribution lines.
MEC was purchased from Energy Center Partners, a limited partnership with
Dain Equity Partners, Inc., a wholly-owned subsidiary of Dain Bosworth,
Incorporated, serving as the general partner. The purchase price was $114
million, consisting of $84 million of debt secured by the assets acquired and
$30 million of cash. The purchase price included facilities, project
acquisition expenses, working capital and financing fees. The purchase price
also included intangible assets which are being amortized on a straight-line
basis over 30 years. Annual system revenues approximate $25 million and MEC
presently serves more than 80 downtown heating customers. The operating
results of MEC since its purchase by NRG include nonutility revenues of $2.3
million and net income of $116,000 for the period from August 20 to September
30, 1993.
Pro Forma Results
The following represents unaudited operating results presented on a pro
forma basis as if the acquisitions described above occurred on January 1,
1992. Actual results, including Viking since June 10, 1993 and MEC since
August 20, 1993, are shown for comparative purposes.
Three Months Ended Nine Months Ended
(Dollars in millions Sept. 30 Sept. 30
except EPS) 1993 1992 1993 1992
ACTUAL RESULTS:
Utility Operating Revenues * $601.9 $523.7 $1,788.0 $1,588.2
Net Income 67.7 55.7 158.0 176.6
Earnings Per Share 0.96 0.83 2.27 2.62
PRO FORMA AMOUNTS:
Utility Operating Revenues * $601.9 $530.3 $1,799.6 $1,607.4
Net Income 67.9 56.4 160.1 178.0
Earnings Per Share 0.96 0.84 2.30 2.64
* Excludes operating revenues for MEC which are reported as nonutility
revenues in other income and deductions.
Centran Corporation (Subsequent Event)
In October 1993, a nonregulated subsidiary of the Company, acquired
certain assets of Centran Corporation (Centran), a natural gas marketing
company. Centran, a national marketer of natural gas with approximately 25
employees and approximately 100 customers, was headquartered in Minneapolis,
Minnesota, and had additional offices in Houston and Corpus Christi, Texas;
Louisville, Kentucky; and Chesapeake, Virginia. Operations will continue in
all locations. The purchase price was $3.8 million. Assets purchased
included oil and gas reserves, office equipment, and a customer marketing
base. The impact of this purchase on NSP's 1993 results of operations and
financial condition is not expected to be material.
4. Environmental Costs
Deferred debits include an assessment from the U.S. Department of Energy
(DOE) for the Company's allocated share of decontamination and
decommissioning costs related to the DOE's uranium enrichment facility. The
total DOE assessment was made in 1993 in the amount of $46 million. The
long-term obligation for this assessment is recorded in other liabilities and
will be payable in annual installments (about $3 million in 1993) for up to
fifteen years. Future installments are subject to inflation adjustments
under DOE rules. The FERC has approved wholesale ratemaking recovery of
these assessments as paid through the cost-of-energy adjustment clause.
NSP's retail regulators generally conform to the FERC's cost-of-energy
adjustment clause procedures; therefore, management also expects recovery of
these DOE assessments in retail ratemaking as payments are made each year.
Other liabilities also include estimated costs associated with other
environmental reclamation, restoration and cleanup activities. During the
third quarter 1993, the Company was notified that it has a $1.5 million
environmental clean-up liability at a former gas manufacturing site. The
Company's environmental liability recorded at September 30, 1993 includes an
accrual of $7.6 million for this and other estimated environmental costs
associated with manufactured gas plant sites and federal Superfund sites
formerly used by the Company.
Future decommissioning costs (which are collected from customers in
electric rates) related to the Company's nuclear generating plants are not
included in the environmental liabilities discussed above. These
decommissioning accruals are included in Utility Plant-Accumulated
Depreciation as discussed in Note 1 of NSP's 1992 report on Form 10-K. The
FERC is currently preparing to issue accounting and reporting guidelines for
decommissioning cost accruals. Until such time as FERC requires a different
presentation, NSP plans to continue its current reporting of nuclear
decommissioning obligations as accumulated depreciation.
5. Income Tax Rate Change
The Omnibus Budget Reconciliation Act of 1993 (Act) was signed into law
on August 10, 1993. The only provision of the Act that has a material impact
on NSP is the increase in the corporate tax rate from 34% to 35% retroactive
to January 1, 1993. Current year tax expense adjustments made in the third
quarter 1993 for the first six months of the year decreased earnings by $1.5
million (2 cents per share). The majority of the annual effect of this cost
increase is offset by rate recovery approved for the Company's Minnesota
retail jurisdiction in the final rate orders by the MPUC (See Note 1 to the
Financial Statements). Deferred tax liabilities were increased for the rate
change by $32.1 million. However, due to the effects of regulation, earnings
were impacted only by immaterial adjustments to deferred taxes for nonutility
operations.
6. Contingent Liabilities
The Company's public liability for claims resulting from any nuclear
incident, and insurance coverage thereon, have not changed significantly from
the circumstances set forth in Note 13 to NSP's financial statements
contained in NSP's 1992 report on Form 10-K.
7. Other Business Developments
In June 1992, the MPUC approved a Certificate of Need for an on-site dry
cask storage facility for spent nuclear fuel at the Company's Prairie Island
nuclear plant near Red Wing, Minnesota. In November 1992, the Minnesota
Court of Appeals received a joint petition from several parties seeking a
reversal of the MPUC's decision on the basis that state legislative approval
is necessary prior to storage. On June 8, 1993, the Minnesota Court of
Appeals, while acknowledging there are no safety related issues, overturned
the decision of the MPUC that state legislative approval is not necessary
prior to the storage of spent nuclear fuel in dry casks above ground. On
July 16, 1993, the Minnesota Supreme Court denied petitions of the Company,
the MPUC and the DPS requesting review of the Minnesota Court of Appeals
decision. On October 19, 1993, the Nuclear Regulatory Commission issued a
20-year license to safely store the spent nuclear fuel in dry casks at the
Prairie Island plant site, after an exhaustive three-year review, which
concluded that the proposed storage facility is safe to both plant employees
and the general public. The Company anticipates a final decision on the dry
cask storage facility by the Minnesota Legislature in the next legislative
session which begins in February 1994. Without the storage facility, the
plant would be able to operate at full capacity through approximately the end
of 1995. If the Company had to replace energy from the Prairie Island plant
with other sources at that time, significant cost increases could be
incurred. The Company would attempt to recover any increased costs from
customers through the fuel adjustment clause or general rate increases.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Results of Operations
NSP's earnings per share from income before accounting change for the
third quarter ended September 30, 1993, were $.96, up $.13 from the $.83
earned for the same period a year ago. For the first nine months of 1993,
earnings per share from income before accounting change were $2.27, up $.38
from the $1.89 earned in the comparable period a year ago. The number of
average common and equivalent shares outstanding during the third quarter and
first nine months of 1993 in comparison to 1992 increased by approximately
3,844,000 shares and 2,033,000 shares, respectively.
1993 Rate Increases - As discussed in Note 1 to the Financial Statements,
NSP has received final rate approvals for approximately $101.8 million of
annual rate increases for retail customers in Minnesota, Wisconsin, North
Dakota and South Dakota and wholesale customers in Minnesota and Wisconsin.
These rate changes increased revenues by approximately $61 million for the
first nine months of 1993. The results of reconsideration by the MPUC
increased the Minnesota electric and gas retail approved rate increases (See
Note 1 to the Financial Statements). Minnesota electric and gas interim rate
increases were approved and were being collected subject to refund. While
no refunds are required for the gas case, refunds are required for the
electric case. Implementation of final rates in Minnesota is expected to
occur in March 1994. See Notes 1, 2 and 5 to the Financial Statements for
more discussion of the financial impact of the 1993 Minnesota rate cases.
Accounting Changes - Effective January 1, 1993, NSP adopted two new
accounting standards for postretirement health care benefits and income
taxes. Neither of these accounting changes has had, or is expected to have,
a material impact on 1993 earnings due to approved rate recovery of
postretirement benefit cost increases and to the immaterial impact of the
income tax change. See Note 2 to the Financial Statements for further
information on these accounting changes and their potential financial impact.
Legislative Changes - See Note 5 to the Financial Statements for a
discussion of the impact of the Omnibus Budget Reconciliation Act of 1993
(Act) which was signed into law on August 10, 1993. For the full year 1993,
the higher tax rate is expected to reduce NSP's earnings by about 2 cents per
share, net of rate recovery in the Minnesota retail jurisdiction.
Acquisitions - NSP's 1993 and future results of operations will be
impacted by the acquisitions of Viking Gas Transmission Company, Minneapolis
Energy Center, and certain assets of Centran Corporation. Refer to Note 3
to the Financial Statements for discussion of these acquisitions including
pro forma results.
Nonutility Investments - As discussed in NSP's 1992 Form 10-K, NSP
expects to invest significant amounts in nonutility power production projects
over the next few years, which are expected to increase NSP's earnings.
However, such projects, which may include investments in both domestic and
international projects, could present additional risk and uncertainty in the
long-term. Other assets includes $6.0 million of nonutility project
development costs which have been capitalized based on expected recovery from
future operating cash flows of such projects.
Environmental Matters - See Note 4 to the Financial Statements for an
update of the financial impact of environmental matters discussed in NSP's
1992 report on Form 10-K.
Power Supply Contract - In October 1993, NSP signed an agreement to
provide Michigan's Upper Peninsula Power Company (UPPCO) with electric supply
requirements. The agreement will provide UPPCO with up to 90 megawatts of
baseload service, peaking service options and load regulation service options
for 20 years beginning January 1, 1998. The rates, terms and conditions of
the agreement are subject to approval by the FERC. Also, the Michigan Public
Utilities Commission must approve the transaction.
Wind Generated Power Purchase - In October 1993, the Company signed a 25-
year energy purchase agreement for 25-Mw of wind-generated power in
Minnesota. The wind generation plant is expected to be fully operational by
May 1994. This contract is Phase I of the Company's commitment to obtain 100
Mw of wind generated electricity by 1997. The Company can obtain recovery
of the cost of wind power purchases through cost-of-energy adjustment clauses
in electric rates.
Operating Contingencies - See Note 7 to the Financial Statements
regarding the possible impact on operating results of potential spent fuel
storage limitations at the Company's Prairie Island plant.
Third Quarter 1993 Compared with Third Quarter 1992
Electric revenues for third quarter 1993 compared with third quarter 1992
increased $66.6 million or 13.6%. Retail revenues rose approximately $55.0
million or 12.3% due largely to a 8.6% increase in electric sales and also
to rate increases in most jurisdictions as discussed in Note 1 to the
Financial Statements. Increased sales reflect a cooler than normal summer
in 1993, in comparison to an unusually cool summer in 1992, and sales growth.
Revenues from sales to other utilities increased by $7.9 million or 32.3% due
mainly to a 20.1% increase in sales levels.
Gas revenues for third quarter 1993 increased $11.6 million or 35.3%
compared with third quarter 1992. Firm gas revenues rose $6.1 million
(24.4%) and interruptible gas revenues increased $1.0 million (16.0%), mainly
due to higher gas prices. The price increase reflects increased recovery of
purchased gas costs through the purchased gas adjustment clause, and 1993
rate increases as discussed in Note 1 to the Financial Statements. Gas
revenues in 1993 also include $4.0 million in transportation service revenues
from Viking.
Fuel for electric generation and Purchased and interchange power combined
for a net increase of $33.1 million or 27.7% for third quarter 1993 compared
with third quarter 1992. The increase was mainly due to higher cost of
purchased energy in 1993, in part due to increased demand expenses associated
with the Company's new contract with Manitoba Hydro, and to less availability
of lower priced purchased energy in 1993. The increase is also due to higher
output to meet higher energy requirements.
Gas purchased for resale for third quarter 1993 compared with third
quarter 1992 increased $4.6 million or 15.6%. This was due mainly to higher
cost per thousand cubic feet (Mcf) of purchased gas and also to higher
sendout volumes.
Other operation, Maintenance and Administrative and general expenses
together decreased $2.1 million or 1.4% compared with third quarter 1992.
The decrease is due to lower maintenance expenses (due to 1992 plant
maintenance outages) offset by increased 1993 costs due largely to
compensation and benefit increases.
Conservation and energy management increased $4.3 million compared to the
third quarter of 1992 due to regulator-approved higher expenditure levels for
conservation programs and demand-side management efforts.
Depreciation and amortization increased $7.8 million or 13.1% compared
to the three months ended September 1992. The increase is primarily due to
increased plant in service between the two periods and an increase in
depreciation rates as a result of the recent MPUC approval of a depreciation
study. The significant increases in depreciation rates occurred in
transmission and distribution property.
Property and general taxes for third quarter 1993 compared with third
quarter 1992 increased $7.4 million or 14.6% primarily due to higher 1993
property tax rates in the State of Minnesota. The increase is also due to
unusually low 1992 amounts resulting from an adjustment to 1992 property tax
accruals.
Income taxes for the third quarter 1993 compared with the third quarter
1992 increased $10.0 million or 31.5% due to higher pretax operating income
in 1993 and a year-to-date adjustment related to a higher effective tax rate,
including the retroactive 1% increase in the federal income tax rate
discussed in Note 5 to the Financial Statements.
First Nine Months of 1993 Compared to First Nine Months of 1992
Electric revenues for the nine months of 1993 compared with the first
nine months of 1992 increased $124.3 million or 9.0%. Retail revenues
increased approximately $109.9 million or 8.8% due to higher sales levels and
rate increases in most jurisdictions as discussed in Note 1 to the Financial
Statements. Retail electric sales rose 5.2% in 1993 due to sales growth and
a cooler than normal summer in 1993 compared to the unusually cool summer in
1992. Revenues from sales to other utilities increased by $8.7 million or
12.7% due to a 12.3% increase in sales.
Gas revenues increased $75.5 million or 35.8% compared to the first nine
months of 1992. Firm gas revenues rose $58.8 million or 33.0% due to a 19.2%
increase in gas sales volumes and an average price increase of 11.6%.
Interruptible gas revenues increased $11.2 million or 42.8%, due mainly to
a 30.0% increase in sales volumes. The increases in sales levels are due
primarily to nearly normal weather in the first quarter this year compared
with unusually mild weather in the first quarter of 1992. The price
increases reflect increased recovery of purchased gas costs through the
purchased gas adjustment clause and 1993 rate increases as discussed in Note
1 to the Financial Statements. Gas revenues in 1993 also include $4.7
million in transportation service revenues from Viking.
Fuel for electric generation and Purchased and interchange power together
increased $55.0 million or 16.3% over the nine months ended September 1992.
The increase was due mainly to the higher cost of purchased energy, in part
due to increased demand expenses associated with a new contract with Manitoba
Hydro. The increase is also due to higher output to meet higher energy
requirements.
Gas purchased for resale for the first nine months of 1993 compared with
the first nine months of 1992 increased $52.9 million or 37.8%. This is
mainly due to higher sendout volumes, higher cost per Mcf of purchased gas,
and gas cost adjustments related to purchased gas adjustment clause recovery.
The higher sendout in 1993 is consistent with higher sales levels.
Other operation, Maintenance and Administrative and general expenses
together decreased $7.4 million or 1.5%. Decreases from lower maintenance
expenses (due to 1992 plant maintenance outages) were partially offset by
compensation and benefit increases.
Conservation and energy management increased $8.3 million due to
regulator-approved higher expenditure levels for conservation programs and
demand-side management efforts.
Depreciation and amortization increased $17.5 million or 9.7% compared
to the nine months ended September 1992. The increase is due primarily to
increased plant in service between the two periods and an increase in
depreciation rates as a result of the recent MPUC approval of a depreciation
study. The significant increases in depreciation rates occurred in
transmission and distribution property.
Property and general taxes increased $17.9 million or 11.8% compared with
the first nine months of 1992. The increase is due to higher property tax
rates in the State of Minnesota and to unusually low 1992 amounts resulting
from an adjustment to final 1991 property tax accruals recorded in the second
quarter of 1992.
Income taxes for the first nine months of 1993 compared with the first
nine months of 1992 increased $22.7 million or 30.2%. The increase is due
primarily to higher pretax operating income between the two periods and also
to a higher effective tax rate, including the 1% increase in the federal
income tax rate discussed in Note 5 to the Financial Statements.
Allowance for funds used during construction (AFC) decreased $3.4 million
compared with the first nine months of 1992 due to increased use of short-
term borrowings to finance construction activity in 1993.
Interest Charges before AFC, increased $3.0 million due to higher debt
levels and refinancing costs, partially offset by interest reductions from
1993 refinancings. Debt levels increased from a $100 million bond issue in
late 1992 and from financing related to the MEC acquisition. Refinancing
costs include amortization of reacquisition premiums from early retirements
of debt.
Liquidity and Capital Resources
NSP's 1993 utility capital investments, including the acquisition of
Viking (see Note 3 to the Financial Statements) are still expected to
approximate the utility capital expenditure estimates discussed in the 1992
Form 10-K. NSP's nonutility capital requirements for 1993 may exceed the
estimates discussed in the 1992 Form 10-K due to changes in expected
involvement in power production projects under consideration. Such
nonutility capital requirements are now estimated to range from $180 million
to $230 million.
The Company had approximately $31.5 million in commercial paper debt
outstanding as of September 30, 1993, which is supported by credit lines of
approximately $206 million provided by commercial banks. These credit lines
make short-term financing available in the form of bank loans.
In 1993, stock options for 196,913 additional common shares were awarded.
As of September 30, 1993, options for a total of 539,764 shares were
outstanding, which were considered as potential common stock equivalents for
earnings per share purposes.
As of September 30, 1993, the Company has issued 3,955,629 new shares of
common stock in 1993. Of these new shares, 2.6 million were sold to a group
of underwriters on May 20, 1993. The offering price to the public was
$43.625 per share, with net proceeds to the Company of $110,305,000. Of the
remaining new shares, 697,253 shares were issued under the Dividend
Reinvestment and Stock Purchase Plan, 159,567 shares were issued under the
Executive Long-Term Incentive Award Stock Plan, and 498,809 shares were
issued to the Employee Stock Ownership Plan.
In March 1993, the Wisconsin Company issued $110,000,000 of First
Mortgage Bonds due March 1, 2023 with an interest rate of 7 1/4%. The
proceeds from these bonds were used to redeem $47,500,000 of 9 1/4% First
Mortgage Bonds due July 1, 2016 at a redemption price of 105.78%, to redeem
$38,400,000 of 9 3/4% First Mortgage Bonds due March 1, 2018 at a redemption
price of 107.31%, and to repay outstanding short-term borrowings, including
short-term borrowings incurred to redeem, on January 20, 1993, $7,800,000 of
9 1/4% First Mortgage Bonds due December 1, 1999 at a redemption price of
102.2%.
The Wisconsin Company entered into an interest rate swap agreement with
the underwriters of this bond issue, which effectively converted the interest
cost of $20,000,000 of this debt from fixed rate to variable rate, with the
variable rate changing on March 1 and September 1 of each year until March
1, 1998. The net interest rate at issuance for the entire $110 million of
debt was approximately 6.9%.
In April 1993, the Company issued $80,000,000 of First Mortgage Bonds due
April 1, 2003 with an interest rate of 6 3/8%. The proceeds from these bonds
were added to the general funds of the Company and applied to the May 1993
redemption of $79,200,000 of the Company's 9 1/2% First Mortgage Bonds due
May 1, 2005 at a redemption price of 103.42%.
In April 1993, the Company borrowed $15,000,000 in unsecured debt for the
financing of Employee Stock Ownership Plan (ESOP) stock purchases. The
interest rate on the debt (3.7% at September 30, 1993) is variable and
adjusted quarterly, based on 40 basis points over a base rate. The
approximate term of the loan is 2 1/2 years, to be repaid in quarterly
installments. The Company lent the debt issuance proceeds to the ESOP, which
in turn purchased 330,578 newly issued shares of Company common stock.
On June 30, 1993, a Company subsidiary, Viking, priced $32 million of
6.4% long-term senior notes due November 30, 2008 which are expected to be
issued later in 1993. The notes will be a private placement and will be
secured by the Viking pipeline's 19 existing firm transportation contracts.
On August 20, 1993, a subsidiary of NRG issued $84 million of secured
notes due June 15, 2015 with an interest rate of 7.31% to finance the
acquisition of the Minneapolis Energy Center. These notes are secured by the
assets acquired.
On September 23, 1993, the Company entered into a loan agreement with the
City of Becker, Minnesota for the issuance of $100,000,000 of variable rate
pollution control revenue bonds associated with the Company's Sherburne
County Generation Station Unit 3. Proceeds from the issuance will be used
on December 1, 1993 to refund a like amount of pollution control revenue
bonds previously issued by the City. The new bonds were initially issued as
money market securities, and will bear interest at commercial paper rates
(2.6% at September 30, 1993). Because these bonds are redeemable by the
holder upon seven days notice, they have been classified as a current
liability.
On October 5, 1993, the Wisconsin Company issued $40,000,000 of First
Mortgage Bonds due October 1, 2003, with an interest rate of 5 3/4%. The
proceeds from these bonds were used to repay outstanding short-term
borrowings, including short-term borrowings incurred to redeem $24,300,000
of 7 3/4% First Mortgage Bonds due October 1, 2003, at a redemption price of
102.49%, and to redeem $10,800,000 of 4 1/2% First Mortgage Bonds due August
1, 1994 at a redemption price of 100%. The proceeds will also be used to
finance a portion of the Wisconsin Company's construction program.
On October 30, 1993, the Company redeemed all 350,000 shares of its $7.84
series Cumulative Preferred Stock at a price of $103.12 per share, plus
accrued dividends through October 31, 1993.
NSP continues to evaluate the early redemption of higher rate securities.
While short-term borrowing facilities may initially be used to fund such
redemptions, these higher rate issues would likely be ultimately refinanced
with lower rate long-term debt. In addition, depending on capital market
conditions, the Company is also considering the issuance of new debt in 1994.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 to the Financial Statements for a discussion of environmental
assessments made in the third quarter 1993, and an update of environmental
matters as discussed in the 1992 Form 10-K.
See Note 7 to the Financial Statements regarding the status of legal
proceedings concerning the approval of an on-site storage facility for spent
nuclear fuel at the Company's Prairie Island nuclear plant.
On July 14, 1993, the Company filed a lawsuit against Westinghouse
Electric Corp., the manufacturer of the steam generators at the Company's
Prairie Island nuclear plant, in Federal District Court. The suit alleges
Westinghouse breached its contract and warranties in its provision of these
generators and committed fraud and misrepresentation in the design,
manufacture and sale of the steam generators. In addition, the suit alleges
serious defects in design, material and workmanship. The suit seeks damages
for the costs of extraordinary inspections and maintenance, which the Company
has undertaken and will continue to undertake on the steam generators.
Safety has not been, nor will be, compromised in any way because the plant
has been and continues to be well-maintained. The scheduling order requires
discovery be completed by October 1, 1995. The Company and Westinghouse must
be ready for trial by February 1, 1996.
In July 1992, the U.S. District Court granted the Company's pretrial
motion for summary judgement on all claims and dismissed the Sailor vs. NSP
et al. class action lawsuit. The suit commenced in August 1991, with
plaintiff's claim that in 1990 the Company failed to make public disclosure
of material information concerning progress of its Minnesota electric rate
case which was denied by the MPUC on August 6, 1990. Plaintiff argued that
the Company's failure to disclose this information artificially inflated its
common stock price and persons who acquired the Company's stock between
January 1, 1990 and August 7, 1990 were injured by the decline in the price
of the stock after the MPUC's denial. In dismissing the claim, the court
stated two basic reasons: (i) The Company had no duty to disclose facts
about the rate case because such facts were already public or readily
available and (ii) the facts about the risks of the regulatory process were
not material to investment decisions (predictions about the outcome of the
case were speculative). Related claims brought under state securities,
consumer fraud and common law were also dismissed for similar reasons. With
regard to the fraud claim, the court found that plaintiffs had pointed to
nothing that suggested that defendants had acted with any degree of
culpability either with negligence, recklessness, or bad intentions. On
August 6, 1992, plaintiffs filed an appeal to the 8th Circuit Court of
Appeals. In September 1993, the 8th Circuit Court of Appeals affirmed the
U.S. District Court's dismissal of this class action lawsuit. Although the
time period for appeal to the U.S. Supreme Court has not expired, in
management's opinion there is a low probability that this decision would be
overturned.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K. The following reports on Form 8-K were filed
either during the three months ended September 30, 1993, or between
September 30, 1993 and the date of this report:
July 16, 1993 (Filed July 19, 1993) - Item 5. Other Events. Re:
Disclosure of the Minnesota Supreme Court denial of petitions of the
Company, the Minnesota Public Utilities Commission and the Minnesota
Department of Public Service requesting review of the Minnesota Court
of Appeals decision requiring legislative approval of the dry cask
storage facility at the Prairie Island Nuclear Generating Plant.
August 20, 1993 (Filed August 27, 1993) - Item 5. Other Events. Re:
Disclosure of the purchase of the assets of the Minneapolis Energy
Center by NRG Energy, Inc., a wholly-owned subsidiary of the Company.
October 1, 1993 (Filed October 8, 1993) - Item 5. Other Events. Re:
Disclosure of the purchase of certain assets of Centran Corporation,
a natural gas marketing company, by a nonregulated subsidiary of the
Company.
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)
(Roger D. Sandeen)
Roger D. Sandeen
Vice President, Controller and
Chief Information Officer
(Edward J. McIntyre)
Edward J. McIntyre
Vice President and Chief Financial
Officer
Date: January 25, 1994