SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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 June 30, 1994 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 July 31, 1994
Common Stock, $2.50 par value 66,898,508 shares
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Northern States Power Company (Minnesota) and Subsidiaries
Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(Thousands of dollars) (Thousands of dollars)
Utility operating revenues
Electric................................................. $513,350 $474,662 $1,007,382 $944,606
Gas...................................................... 68,613 70,601 258,044 241,409
Total.................................................. 581,963 545,263 1,265,426 1,186,015
Utility operating expenses
Fuel for electric generation............................. 84,720 74,856 160,724 155,789
Purchased and interchange power.......................... 67,576 53,217 124,043 83,445
Cost of gas purchased and transported.................... 41,826 43,940 163,631 158,867
Other operation.......................................... 74,094 74,260 150,874 156,663
Maintenance.............................................. 40,532 39,010 80,384 81,701
Administrative and general............................... 45,083 49,677 94,250 95,503
Conservation and energy management....................... 7,316 7,184 15,473 14,068
Depreciation and amortization............................ 68,366 65,890 135,711 131,040
Taxes: Property and general.............................. 58,447 55,546 118,376 112,022
Current income tax expense........................ 34,146 25,461 77,742 55,338
Deferred income tax expense....................... (3,531) (1,194) (1,591) 5,345
Deferred investment tax credits recognized ....... (2,138) (2,131) (5,513) (4,358)
Total.................................................. 516,437 485,716 1,114,104 1,045,423
Utility operating income.................................. 65,526 59,547 151,322 140,592
Other income and expense
Allowance for funds used during construction - equity.... 984 1,971 2,192 2,631
Equity in earnings of unconsolidated investees........... 12,864 792 12,757 764
Other income (expense) - net............................. (2,022) (229) 1,243 (731)
Total Other income...................................... 11,826 2,534 16,192 2,664
Income before interest charges............................ 77,352 62,081 167,514 143,256
Interest charges
Interest on long-term debt............................... 22,465 25,682 45,291 51,912
Other interest and amortization.......................... 4,329 1,756 7,407 3,733
Allowance for funds used during construction - debt...... (2,250) (1,249) (3,787) (2,762)
Total.................................................. 24,544 26,189 48,911 52,883
Net Income ............................................... 52,808 35,892 118,603 90,373
Preferred stock dividends ................................ 3,057 3,743 6,113 7,545
Earnings available for common stock....................... $49,751 $32,149 $112,490 $82,828
Average number of common and equivalent
shares outstanding (000's).............................. 66,788 64,585 66,765 63,728
Earnings per average common share......................... $0.74 $0.50 $1.68 $1.30
Common dividends declared per share....................... $0.660 $0.645 $1.305 $1.275
Statements of Retained Earnings (Unaudited)
Balance at beginning of period............................ $1,147,059 $1,110,948 $1,127,372 $1,099,896
Net income for period..................................... 52,808 35,892 118,603 90,373
Dividends declared:
Cumulative preferred stock............................... (3,057) (3,743) (6,113) (7,545)
Common stock............................................. (44,023) (42,921) (87,075) (82,548)
Balance at end of period.................................. $1,152,787 $1,100,176 $1,152,787 $1,100,176
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)
June 30, December 31,
1994 1993
(Thousands of dollars)
ASSETS
UTILITY PLANT
Electric............................................. $6,245,511 $6,167,670
Gas.................................................. 636,608 621,871
Other................................................ 250,087 237,293
Total............................................ 7,132,206 7,026,834
Accumulated provision for amortization............. (3,013,755) (2,888,144)
Nuclear fuel......................................... 776,238 749,078
Accumulated provision for amortization............. (696,564) (673,669)
Net utility plant................................ 4,198,125 4,214,099
CURRENT ASSETS
Cash and cash equivalents............................ 31,781 57,812
Short-term investments............................... 475 26
Accounts receivable - net............................ 268,342 266,531
Accrued utility revenues............................. 93,531 111,296
Federal income tax and interest receivable........... 20,927 20,927
Materials and supplies - at average cost............. 150,830 145,375
Prepayments and other................................ 40,630 40,885
Total current assets............................... 606,516 642,852
OTHER ASSETS
Regulatory assets.................................... 358,903 334,354
Non-regulated property - net......................... 157,321 157,615
Investments in non-regulated projects................ 141,159 45,772
External decommissioning fund and other investments.. 143,171 121,657
Federal income tax and interest receivable........... 57,436 0
Intangible assets and other.......................... 70,324 71,369
Total other assets................................ 928,314 730,767
TOTAL............................................ $5,732,955 $5,587,718
LIABILITIES
CAPITALIZATION
Common stock equity
Common stock and premium........................... $712,218 $710,969
Retained earnings.................................. 1,152,787 1,127,372
Leveraged common stock held by ESOP................ (6,895) (10,887)
Currency translation adjustments - net............. 748 0
Total common stock equity........................ 1,858,858 1,827,454
Cumulative preferred stock and premium............... 240,469 240,469
Long-term debt....................................... 1,314,036 1,291,867
Total capitalization............................. 3,413,363 3,359,790
CURRENT LIABILITIES
Long-term debt due within one year................... 15,566 90,618
Redeemable long-term debt............................ 141,600 141,600
Short-term debt - commercial paper................... 301,516 106,200
Accounts payable..................................... 190,671 210,654
Taxes accrued........................................ 153,574 177,853
Interest accrued..................................... 16,113 24,110
Dividends declared on common and preferred stocks.... 47,110 46,195
Rate refunds to customers............................ 0 12,235
Accrued payroll, vacation and other.................. 64,479 61,557
Total current liabilities........................ 930,629 871,022
OTHER LIABILITIES
Accumulated deferred income taxes.................... 815,325 788,378
Accumulated deferred investment tax credits.......... 181,530 187,466
Regulatory liabilities............................... 242,408 243,880
Pension and other benefit obligations................ 79,693 64,224
Other long-term obligations and deferred income...... 70,007 72,958
Total other liabilities.......................... 1,388,963 1,356,906
TOTAL.......................................... $5,732,955 $5,587,718
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)
Six Months Ended
June 30
1994 1993
(Thousands of dollars)
Cash Flows from Operating Activities:
Net Income............................................................. $118,603 $90,373
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization........................................ 149,471 140,084
Nuclear fuel amortization............................................ 22,895 20,720
Deferred income taxes................................................ (602) (2,856)
Deferred investment tax credits recognized........................... (5,668) (4,510)
Allowance for funds used during construction - equity................ (2,192) (2,631)
Equity in income from partnerships and unconsolidated subsidiaries... (12,757) (764)
Cash (used for) provided by changes in certain working capital items. (53,774) 2,775
Conservation program expenditures - net of amortization.............. (10,044) (4,539)
Cash (used for) provided by changes in other assets and liabilities.. (24,426) 5,787
Net cash provided by operating activities 181,506 244,439
Cash Flows from Investing Activities:
Capital expenditures .................................................. (150,660) (160,078)
Decrease in construction payables...................................... (6,140) (5,774)
Allowance for funds used during construction - equity.................. 2,192 2,631
Purchase of short-term investments - net............................... (449) (206)
Investment in external decommissioning fund............................ (15,840) (15,694)
Investments in non-regulated projects and other........................ (83,041) (2,655)
Acquisition of Viking Gas.............................................. 0 (45,000)
Net cash used for investing activities (253,938) (226,776)
Cash Flows from Financing Activities:
Change in short-term debt - net issuances (repayments)................. 195,316 (87,761)
Proceeds from issuance of long-term debt - net......................... 208,184 186,202
Repayment of long-term debt (including reacquisition premium).......... (265,317) (184,480)
Proceeds from issuance of common stock - net........................... 491 155,678
Dividends paid......................................................... (92,273) (86,857)
Net cash provided by (used for) financing activities 46,401 (17,218)
Net (decrease) increase in cash and cash equivalents...................... (26,031) 445
Cash and cash equivalents at beginning of period.......................... 57,812 15,752
Cash and cash equivalents at end of period................................ $31,781 $16,197
The Notes to Financial Statements are an integral part of the Statements of Cash Flows.
Northern States Power Company (Minnesota) and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
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 June 30, 1994 and December 31, 1993 and
the results of its operations for the three and six months ended June 30, 1994
and 1993 and its cash flows for the six 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 1993 Form 10-K. The following notes should be
read in conjunction with such policies and other disclosures in the Form 10-K.
Certain reclassifications have been made to 1993 financial information
to conform with the 1994 presentation. These reclassifications had no effect
on net income or earnings per share.
1. Accounting Changes
Postemployment Benefits
Effective January 1, 1994 NSP adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 112 - Accounting for Postemployment
Benefits. This standard required the accrual of certain postemployment costs
(such as injury compensation and severance) that are payable in future time
periods. The annual expense for costs accrued under SFAS No. 112 is not
materially different than amounts recognized under NSP's prior accounting
method. NSP has recorded its full liability related to such costs in 1994 but
has deferred the pre-1994 portion chargeable to operating expense
(approximately $9 million) based on the Company's current plan to request
amortization and rate recovery over future periods. The Minnesota Public
Utilities Commission (MPUC) is expected to rule on the ratemaking deferral of
these costs for another Minnesota utility late in 1994, therefore the ultimate
rate treatment of pre-1994 costs accrued under SFAS No. 112 is not
determinable at this time.
Fair Value Accounting for Certain Investments
Effective January 1, 1994 NSP adopted the provisions of SFAS No. 115 -
Accounting for Certain Investments in Debt and Equity Securities. This new
standard resulted in an increase of approximately $4.6 million to
decommissioning investments to present such investments at their market value
at June 30, 1994. This increase represents an unrealized gain on investments
which has been deferred as a regulatory liability. The Company anticipates
the offsetting of such gains against decommissioning costs in future ratemaking.
Accounting for Employee Stock Ownership Plans (ESOP)
Effective January 1, 1994 NSP adopted the American Institute of
Certified Public Accountants' Statement of Position (SOP) 93-6. This SOP
required the accrual of compensation expense for any market value increase in
uncommitted leveraged ESOP shares. It also required the reduction of average
common shares used to compute earnings per share by such uncommitted ESOP
shares. No compensation expense was required to be recorded by NSP upon
adoption of the SOP. The impact of the reduction in average common shares had
an immaterial impact on 1994 earnings per share (less than 1 cent). Of the
5.4 million shares of the Company's stock that NSP's ESOP currently holds, an
average of approximately 160,000 uncommitted leveraged ESOP shares were
excluded from earnings per share calculations for the first six months of
1994. The fair value of NSP's leveraged ESOP shares approximated cost at June
30, 1994.
Stock Compensation Expense
The Financial Accounting Standards Board (FASB) had previously issued
an Exposure Draft considering the accrual of compensation expense related to
certain stock awards beginning in 1997 with disclosure required beginning in
1994. On June 8, 1994, the FASB decided that there would be no disclosure
requirements for 1994.
2. International Investments
Through its subsidiaries, NRG Energy, Inc. (NRG), a wholly owned
subsidiary of the Company, has purchased equity interests in a number of non-
regulated energy projects. During the first six months of 1994 investments
were made by NRG in three significant international projects. NSP's net
income for the second quarter of 1994 includes earnings from equity interests
in international projects of $11.5 million before income taxes and $9.2
million net of foreign income taxes, or $0.14 per share.
Germany
In December 1993, a subsidiary of NRG agreed to acquire an ownership
interest in the German corporation MIBRAG. MIBRAG was formed by the German
government to operate coal mines, electric power plants, and other energy
related facilities. NRG's subsidiary and its two investor partners each
agreed to acquire a 33% interest in MIBRAG, while the German government
retained a 1% interest. The investor partners began operating MIBRAG
effective January 1, 1994. NSP's earnings for the first quarter of 1994 did
not include NRG's equity in the earnings of MIBRAG due to several unresolved
contingencies and lack of complete financial information. During the second
quarter 1994, essentially all of the contingencies were resolved.
Accordingly, in June 1994 NRG recorded its equity in earnings of the MIBRAG
project for the first six months of 1994. On the legal closing date of August
11, 1994, NRG invested approximately $10 million to acquire its 33% interest
in MIBRAG.
In January 1994, another subsidiary of NRG made an initial investment
of $7.5 million to purchase a 50% interest in a German corporation, Saale
Energie GmbH (Saale). Saale owns a 400-megawatt share of a 900-megawatt power
plant currently under construction near Schkopau, Germany.
Australia
Through June 1994, another subsidiary of NRG invested approximately $70
million in a joint venture which acquired a 1680-megawatt coal-fired power
plant in Gladstone, Queensland, Australia. NRG's investment represents a
37.5% ownership in the Australian plant.
Foreign Currency Transactions
The local currencies are generally the functional currency of NSP's
foreign operations. Assets and liabilities of international subsidiaries are
translated at end-of-period rates of exchange. Income, expense and cash flows
are translated at weighted-average rates of exchange for the period. The
resulting currency translation adjustments are accumulated and reported as a
separate component of shareholder's equity. Gains and losses that result from
translation of foreign currency transactions (i.e. converting a cash
transaction to a foreign currency at a translation rate different from that
which applied when the receivable or payable was accrued) will be included in
the results of operations. Through June 30, 1994, NRG had not experienced any
material translation gains or losses from foreign currency transactions which
have occurred since the respective investment dates.
To preserve the U.S. dollar value of its equity position in foreign
currency denominated investment assets, NRG enters into hedging transactions,
as investments are made, through the use of forward foreign currency exchange
agreements. Gains and losses on these contracts offset the effect of foreign
currency exchange rate fluctuations on the valuation of the investments
underlying the hedges. The net effect is reported with other currency
translation adjustments as a separate component of stockholders' equity.
NRG does not speculate in foreign currencies.
NRG has entered into two forward foreign currency exchange contracts
with Salomon Brothers Holding Company, Inc. (Salomon). Pursuant to these
contracts, transactions have been executed which are designed to protect the
economic value of NRG's equity investments that are denominated in Australian
dollars and German deutsche marks (DM). Management believes NRG's exposure
to credit risk due to nonperformance by the counterparty to its forward
exchange contracts is not significant based on the Investment Grade credit
rating of the counterparty.
NRG's forward foreign currency exchange contracts hedge approximately
$72 million of foreign currency denominated investments and $10 million of
foreign currency denominated investment commitments at June 30, 1994. These
forward foreign currency exchange contracts are not reflected in NSP's
balance sheet. The contracts terminate at the end of 10 years and require
foreign currency interest payments during each year of each contract's term.
If the contracts had been terminated at June 30, 1994 the hedge counterparty
would have had an obligation payable to NRG of approximately $1 million.
Income Tax Expense
It is the intention of NSP's management to indefinitely reinvest the
earnings of foreign operations. Accordingly, U.S. deferred income taxes and
foreign withholding taxes have not been provided on the earnings of foreign
subsidiary companies. The cumulative amount of undistributed earnings of
foreign subsidiaries upon which no U.S. deferred income taxes or foreign
withholding taxes have been provided is approximately $9.2 million at June 30,
1994. These earnings, however, reflect the full provision for foreign taxes.
The additional U.S. income tax on the unremitted foreign earnings, if
repatriated, would be offset in whole or in part by foreign tax credits, and
thus it is impracticable to estimate the amount of tax that might be payable.
Foreign withholding taxes of approximately $900,000 would be due upon
remittance of these earnings.
3. Investments Accounted for by the Equity Method
Project Investments - NSP has investments in various projects accounted
for by the equity method of accounting. Current investments include both
international and domestic energy projects and domestic affordable housing and
real estate projects. Prior to 1994 such investments had been limited to
immaterial domestic projects. The equity method is applied to investments in
which NSP does not have a majority interest and is not able to exercise a
controlling influence over operating and financial policies. A summary of the
significant investments is as follows:
Name Geographic Area Economic Placed in
Interest Service
Various Independent
Power Production
Facilities United States 45%-50% July 1991-June 1993
Affordable Housing-
Ltd. Partnerships United States 50%-99% April 1993-May 1994
Western Syncoal
Partnership United States 50% August 1993
MIBRAG Europe 33.0% January 1994
Gladstone Australia 37.5% March 1994
Saale Energie GmbH Europe 20.6% Under Construction
Summarized Financial Information of Unconsolidated Investees -
Summarized financial information as of and for the six-month period ended June
30, 1994 for all projects in which NSP owns an unconsolidated interest was:
Financial Position (Millions of dollars)
Current Assets $474.5
Other Assets 1,136.8
Total Assets $1,611.3
Current Liabilities $85.8
Other Liabilities 1,132.9
Equity 392.6
Total Liabilities and Equity $1,611.3
Results of Operations (Millions of dollars)
Operating Revenues $345.3
Operating Income $51.6
Net Income $51.8
4. Commitments and 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 15 to the Company's financial statements
contained in the Company's 1993 report on Form 10-K.
NRG is contractually committed to additional equity investments in
existing energy projects. Such commitments are for approximately DM 16.5
million in 1994, DM 36 million in 1995, and DM 35 million in 1996. The 1994
commitment has been hedged through a forward foreign currency exchange
contract for $10 million. The 1995 and 1996 commitments would be
approximately $23 million and $22 million, respectively, based on exchange
rates in effect at June 30, 1994.
5. Resolution of Operating Contingency
At present operating levels, the current onsite storage pool for spent
nuclear fuel at the Company's Prairie Island Nuclear Generating Plant (Prairie
Island) will be filled in 1994. The Company proposed construction of a
temporary onsite dry cask (container) storage facility for spent nuclear fuel
at Prairie Island. The Minnesota Legislature (Legislature) considered the dry
cask storage issue during its 1994 legislative session as required by a
Minnesota Court of Appeals ruling in June 1993.
On May 10, 1994, the Governor of the State of Minnesota (Governor)
signed into law a bill passed by the Legislature on May 6, 1994. The law
authorizes the Company to install 17 dry casks at Prairie Island if the
Company satisfies certain responsibilities. The Company executed an agreement
with the Governor concerning the renewable energy and alternative siting
commitments contained in the new law and is authorized the first increment of
five casks. The second increment of four casks would be available if the
Minnesota Environmental Quality Board finds that the Company has applied for
an alternative site license, used good faith in locating an alternative site
and has committed to build or purchase 100 megawatts of wind generation.
The final increment of eight casks would be available unless prior to June 1,
1999, the Legislature specifically revokes the authorization for the final
eight casks, which can only happen if an alternative storage site is not
operational or under construction, or the Company fails to meet certain
renewable energy commitments by December 31, 1998.
An updated nuclear decommissioning study and nuclear plant depreciation
capital recovery request was filed with the MPUC in July 1994 for the
Company's nuclear power plants. Although management expects to operate the
Prairie Island plant units through the end of their useful lives, the
requested capital recovery would allow for the plant to be fully depreciated,
including the accrual and recovery of decommissioning costs, about six years
earlier than the end of useful life. The proposed recovery period has been
reduced because of the risk and uncertainty regarding the spent fuel storage
situation. The study supports a decrease in cost estimates for
decommissioning. The combined impact of the request if approved as filed,
including the shorter depreciation period and lower decommissioning costs,
would be a decrease of about $500,000 in annual depreciation and
decommissioning expenses. There is no time deadline for MPUC action on the
Company's request. However, management is hopeful of MPUC action by the end
of 1994.
6. Rate Matters
NSP's 1993 Annual Report on Form 10-K discussed an appeal filed by
intervenors in the Company's 1993 Minnesota electric and gas rate cases. On
August 2, 1994, this appeal was addressed by the Minnesota Court of Appeals,
who affirmed the final rate orders issued in January 1994 for these rate
cases. As a result of this decision, no adjustments or changes are required
to rates charged to customers or to revenues recorded by the Company.
On August 9, 1994 the Company applied to the North Dakota Public Service
Commission (NDPSC) for a rate reduction of $3.6 million in annual electric
revenues. The reduction reflects a correction in cost allocations to the
North Dakota jurisdiction. The Company also requested authority to make
refunds to customers to effectively implement the reduction as of June 1,
1994. The NDPSC has not yet responded to the filing.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Results of Operations
Northern States Power Company's earnings per share for the second
quarter ended June 30, 1994, were $.74, up $.24 from the $.50 earned for the
same period a year ago. For the first six months of 1994, earnings per share
were $1.68, up $.38 from the $1.30 earned in the comparable period a year ago.
The number of average common and equivalent shares outstanding (considering
stock options and awards) during the second quarter and first six months of
1994 increased by approximately 2,203,000 shares and 3,037,000 shares,
respectively, in comparison to 1993 due mainly to a general stock offering
made in May 1993.
International Investments - Through June 1994, NRG subsidiaries have
provided a $9.2 million increase in net income due to investments in three
international energy projects. See Note 2 and 3 to the Financial Statements
for more information on these projects.
Prairie Island Nuclear Fuel Storage - In May 1994 the Minnesota
Legislature approved a plan for the temporary onsite storage of spent nuclear
fuel at the Company's Prairie Island Nuclear Generating Plant, if the Company
satisfied certain responsibilities. See Note 5 to the Financial Statements
for more information on this matter.
Labor Agreements - NSP's labor agreements with its five International
Brotherhood of Electrical Workers (IBEW) Local Unions expired on December 31,
1993. An interim agreement had been in effect since December 31, 1993. On
May 2, 1994 the IBEW members voted to ratify a three-year labor agreement
retroactive to January 1, 1994. Labor and employee benefit costs are not
expected to be materially affected by the terms of the new agreement.
Accounting Changes - Effective January 1, 1994, NSP adopted three new
accounting standards for postemployment benefits, fair value accounting for
certain investments and employee stock ownership plan transactions. These
accounting changes had an immaterial impact on earnings in the second quarter
of 1994 and are not expected to have a material impact on the full year 1994.
See Note 1 to the Financial Statements for more information on these
accounting changes.
North Dakota Rate Reduction - As discussed in Note 6 to the financial
statements, the Company has proposed a $3.6 million annual reduction in rates
charged to electric customers in North Dakota effective June 1, 1994.
Cogeneration Project - On July 18, 1994, Michigan Cogeneration Partners
Limited Partnership (MCP), a joint venture between subsidiaries of NRG Energy,
Inc., a wholly owned subsidiary of the Company, and Cogentrix Energy, Inc.
reached an agreement with Consumers Power Company (Consumers), an electric
utility headquartered in Jackson, Michigan, to terminate a power sales
contract related to a 65 megawatt cogeneration facility being developed by MCP
in Parchment, Michigan. The MCP project would have provided electricity to
Consumers and steam to a James River Paper Company, Inc. facility. The
agreement to terminate the contract, among other terms, requires Consumers to
pay MCP $29,750,000. Since the contract was initiated in 1987, many factors
changed in Consumers' electric supply options, and other sources became more
attractive for its customers. NSP management expects the agreement will have
a positive financial impact on 1994 financial results, but the final impact
will not be known until all costs associated with the contract termination are
identified.
Second Quarter 1994 Compared with Second Quarter 1993
Electric revenues for second quarter 1994 compared with second quarter
1993 increased $38.7 million or 8.2%. Retail revenues increased approximately
$40.2 million or 9.4% largely due to a 4.7% increase in electric retail sales
and a 4.5% average retail price increase. The increase in sales levels is due
to more favorable weather and sales growth this year compared with the same
period a year ago. The retail price increase is due to fuel expense recovery
and recognition of the full impact of Minnesota electric retail rate increases
in 1994.
Gas revenues for the second quarter 1994 decreased $2.0 million or 2.8%
compared with the second quarter of 1993. Firm gas revenues decreased $8.0
million or 14.0% due to a 8.3% decrease in gas sales volume and a 6.3% average
retail price decrease. The price decrease is due to rate adjustments for
decreased purchased gas costs resulting from changed natural gas supply and
demand market conditions. Interruptible gas revenues decreased $2.0 million
or 18.4% due primarily to a decrease in sales volume. Revenues from Viking
Gas Transmission Company, which was acquired in June 1993, increased revenues
by $3.4 million. Other gas revenues increased $4.5 million due mainly to a
new revenue source, supplying gas to industrial customers not on NSP's system.
Fuel for electric generation and Purchased and interchange power
combined for a net increase of $24.2 million or 18.9% for the second quarter
of 1994 compared with the first quarter of 1993. Expenses for additional
power purchases, mostly from Manitoba Hydro-Electric Board (MH), were higher
in 1994 than in 1993 due primarily to the additional demand and energy
expenses associated with the power purchase contract with MH, which went into
effect in May 1993. Purchased power expenses were also higher due to warmer
weather and higher prices in 1994 compared with 1993. Market pricing of these
purchases was higher in 1994 due to favorable conditions existing in 1993
(cooler weather and more units available). Finally, fuel costs in the
second quarter increased from 1993 to 1994 mainly due to higher 1994 fossil
generation levels as a result of a scheduled nuclear plant outage. Fuel
expenses also increased due to higher average cost of nuclear fuel in 1994
compared with 1993 due to full utilization of nuclear plants in 1993.
Cost of gas purchased and transported for the second quarter 1994
compared with the second quarter 1993 decreased $2.1 million or 4.8% due to
lower sales volumes and lower cost per thousand cubic feet (Mcf) of purchased
gas, somewhat offset by the impact of supplying gas to industrial customers
not on NSP's system.
Other operation, Maintenance and Administrative and general expenses
together decreased $3.2 million or 2.0% compared with the second quarter 1993.
The decrease is due primarily to lower employee benefit costs in 1994 compared
with 1993.
Depreciation and amortization increased $2.5 million or 3.8% compared
with the second quarter 1993. The increase is mainly due to increased plant
in service between the two periods.
Property and general taxes for the second quarter 1994 compared with the
second quarter of 1993 increased $2.9 million or 5.2% due primarily to higher
property tax rates in the State of Minnesota and also due to higher gross
earnings taxes due to higher sales levels in 1994.
Income taxes for the second quarter 1994 compared with the second
quarter 1993 increased $6.3 million or 28.6% primarily due to higher pretax
operating income between the two periods. Also, the federal income tax rate
increased from 34 percent to 35 percent in August 1993, which also contributed
to the increase.
Equity in earnings of unconsolidated investees increased $12.1 million
in the second quarter 1994 compared with the same period a year ago, due
primarily to earnings contributions from NRG's international energy projects.
Other income (expense) - net decreased $1.8 million in the second
quarter 1994 compared with the same period a year ago primarily due to foreign
income taxes related to NRG's international energy projects.
First Six Months of 1994 Compared with First Six Months of 1993
Electric revenues for the six months of 1994 compared with the first six
months of 1993 increased $62.8 million or 6.6%. Retail revenues increased
approximately $61.1 million or 7.1% due to both higher sales levels and rate
increases. Retail electric sales increased 4.3% in 1994 due to sales growth
and warmer weather in 1994, while price per unit increased 2.7% due to fuel
expense recovery and recognition of the full impact of Minnesota electric
retail rate increases in 1994.
Gas revenues increased $16.6 million or 6.9% compared to the first six
months of 1993. Firm gas revenues increased $1.2 million or 0.6% due to a
0.3% increase in gas sales volumes and an average price increase of 0.3%.
Interruptible gas revenues decreased $1.7 million or 5.6% compared to the
first six months of 1993 due mainly to lower sales volumes. Revenues from
Viking Gas Transmission Company, which was acquired in June 1993, increased
revenues by $7.5 million. Other gas revenues increased $8.8 million, mainly
due to a new revenue source, supplying gas to industrial customers not on
NSP's system.
Fuel for electric generation and Purchased and interchange power
together increased $45.5 million or 19.0% over the six months ended June 1993.
The increase was due mainly to higher cost of purchased power, in part due to
increased demand expenses associated with the new MH contract effective in May
1993. Market pricing of these purchases was higher in 1994 compared to more
favorable market pricing conditions in 1993. In addition, expenses for
additional power purchases were higher in 1994 than 1993 due to increased
native energy requirements. The increase in fuel for electric generation is
due to slightly higher costs of nuclear and fossil fuel.
Cost of gas purchased and transported for the first six months of 1994
compared with the first six months of 1993 increased $4.8 million or 3.0%.
This is mainly due to higher sendout volumes somewhat offset by lower cost of
purchased gas due to market conditions. The higher sendout volumes are due
to supplying gas to industrial customers not on NSP's system.
Other operation, Maintenance and Administrative and general expenses
together decreased $8.4 million or 2.5%. The decrease is due mainly to higher
maintenance expenses in 1993 related to scheduled plant maintenance outages
and also due to lower employee benefit costs in 1994 compared with 1993.
Conservation and energy management increased $1.4 million due to
regulator-approved higher recovery levels for conservation and demand-side
management efforts.
Depreciation and amortization increased $4.7 million or 3.6% compared
to the six months ended June 1993. The increase is due primarily to increased
plant in service between the two periods.
Property and general taxes increased $6.4 million or 5.7% compared with
the first six months of 1993. The increase is due mainly to higher property
tax rates in the State of Minnesota and also due to higher gross earnings
taxes due to higher sales levels in 1994.
Income taxes for the first six months of 1994 compared with the first
six months of 1993 increased $14.3 million or 25.4%. The increase is due
primarily to higher pretax operating income between the two periods and also
to a 1% increase in the federal tax rate effective in August 1993.
Equity in earnings of unconsolidated investees increased $12.0 million
in the first six months of 1994 compared with the same period a year ago, due
primarily to earnings contributions from NRG's international projects.
Other income (expense) - net increased $2.0 million compared with the
first six months of 1993 due to higher income from non-regulated operations,
somewhat offset by foreign income taxes related to NRG's international energy
projects.
Interest charges have decreased $2.9 million or 5.3% compared with the
first six months of 1993 due to refinancings, retirements of long-term debt,
and increased use of lower-cost short-term commercial paper borrowings,
partially offset by new debt incurred in connection with businesses acquired
in 1993.
Liquidity and Capital Resources
The Company had $301.5 million in commercial paper debt outstanding as
of June 30, 1994. The Company plans to keep credit lines of at least 85% of
the maximum level of commercial paper borrowings. Commercial banks currently
provide credit lines of approximately $299 million. These credit lines make
short-term financing available in the form of bank loans and support for
commercial paper sales. The Company has regulatory approval for up to $350
million in short-term borrowing levels.
In January 1994, stock options for the purchase of 290,138 shares were
awarded. As of June 30, 1994, a total of 788,676 stock options were
outstanding, which were considered as potential common stock equivalents for
earnings per share purposes.
As of June 30, the Company has issued 17,014 new shares of common stock
in 1994. All of these new shares were issued under the Executive Long-Term
Incentive Award Stock Plan.
On February 10, 1994 the Company issued $200,000,000 of first mortgage
bonds due February 1, 1999 with an interest rate of 5 1/2%. The proceeds from
these bonds were used to redeem $30,000,000 in principal amount of its 6 1/8%
First Mortgage Bonds, due June 1, 1995 at a redemption price of 100.29%, to
redeem $45,000,000 in principal amount of its 5 7/8% First Mortgage Bonds due
August 1, 1996 at a redemption price of 100.51%, to redeem $30,000,000 in
principal amount of its 6 1/2% First Mortgage Bonds due October 1, 1997 at a
redemption price of 100.75%, and to redeem $45,000,000 in principal amount of
its 6 3/4% First Mortgage Bonds due May 1, 1998 at a redemption price of
100.93%. The remaining proceeds were added to the general funds of the
Company and used to repay short-term borrowings.
The Company has entered into an interest rate swap agreement with
Kidder, Peabody Global Capital Corporation, which effectively converted the
interest cost of the 5 1/2% first mortgage bonds issued on February 10, 1994
from fixed rate to variable rate. The variable rate is set six months in
arrears with the rate changing on February 1 and August 1 of each year until
final maturity. The estimated net interest rate used to accrue interest
through June 30, 1994 was approximately 3.3%. Subsequent to June 30, 1994 the
actual net interest rate charged for the six months ended August 1, 1994 was
approximately 4.6%.
On February 25, 1994 the Company repurchased $10,000,000 of 9 3/8% First
Mortgage Bonds due June 1, 2020 at a price of 112.75%. On April 12, 1994 the
Company repurchased another $20,000,000 of these 9 3/8% bonds at a price of
110.24%.
The Company is currently evaluating the issuance of $150,000,000 of
first mortgage bonds in one or multiple increments. Due to the current
instability in long-term interest rates, the Company elected to delay the
planned issuance of this debt. In the interim, the Company has increased bank
credit lines to $300 million to support increased commercial paper borrowings.
Any proceeds from these borrowings would be added to the general funds of the
Company and used to repay short-term borrowings. In addition, the Company
continues to evaluate the early redemption of higher rate securities and,
depending on capital market conditions, would refinance these with lower rate
long-term debt.
During the first quarter of 1994, the Company was placed on "credit
watch" by Moody's Investors Service and Duff & Phelps Credit Rating Co. (D&P)
due to the prior uncertainty regarding Prairie Island. D&P removed the
Company from credit watch on May 9, 1994, following passage of the law
regarding Prairie Island, and reaffirmed the previous bond ratings. On May
20, 1994, Moody's Investors Service downgraded the credit ratings of the
Company and Northern States Power Company (Wisconsin), a wholly owned
subsidiary of the Company. The new ratings are as follows: first mortgage
bonds and secured pollution control bonds to A1 from Aa2; shelf registration
of senior secured debt to (P) A1 from (P) Aa2; unsecured pollution control
bonds to A2 from Aa3; preferred stock to "a2" from "aa3"; and shelf
registration for preferred stock to (P) "a2" from (P) "aa3". The commercial
paper rating of the Company remains unchanged at P-1.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On May 27, 1994, the Company was notified by the United States
Environmental Protection Agency (USEPA) that it is a potentially responsible
party (PRP) at the Union Scrap Iron & Metal III Superfund site in Minneapolis,
Minnesota, which is in addition to the sites identified in NSP's 1993 Annual
Report on Form 10-K. The USEPA states that total costs incurred to
investigate and remediate the site were approximately $1,000,000. If NSP is
determined to be a responsible party, it is jointly and severally liable for
the costs of investigation and remediation. Two other parties have been named
as PRPs. The Company is reviewing its records and conducting an investigation
to determine if the site was used by the Company.
For a discussion of proceedings involving NSP's utility rates, see Note
6 to the Financial Statements.
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 June 30, 1994, or between June
30, 1994 and the date of this report:
April 4, 1994 - Item 5. Other Events. Re: Disclosure that the
Company and its unions reached a tentative agreement for contracts to
be effective from January 1, 1994 through December 31, 1996 and that
the membership would vote on the contract on May 2, 1994. Also, the
interim agreement was extended through May 31, 1994.
May 2, 1994 (Filed May 5, 1994) - Item 5. Other Events. Re:
Disclosure that the Company's union membership voted to ratify a
three-year labor agreement retroactive to January 1, 1994.
May 6, 1994 (Filed May 9, 1994) - Item 5. Other Events. Re:
Disclosure concerning approval of a law by the Minnesota Legislature
for a plan to store spent nuclear fuel from the Company's Prairie
Island Nuclear Generating Plant in temporary onsite storage.
May 20, 1994 (Filed May 26, 1994) - Item 5. Other Events. Re:
Disclosure concerning the downgrading of credit ratings of the
Company and the Company's wholly owned subsidiary, Northern States
Power Company (Wisconsin) by Moody's Investors Service.
July 18, 1994 (Filed August 3, 1994) - Item 5. Other Events. Re:
Disclosure of termination of a cogeneration project by Michigan
Cogeneration Partners (an investee of the Company's wholly owned
subsidiary, NRG Energy, Inc.) and Consumers Power 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: August 12, 1994