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 March 31, 1996
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 April 30, 1996
Common Stock, $2.50 par value 68,707,003 shares
Item 1. Financial Statements
Northern States Power Company (Minnesota) and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended
March 31
1996 1995
(Thousands of dollars)
Utility operating revenues
Electric................................................. $512,943 $497,314
Gas...................................................... 205,766 163,853
Total.................................................. 718,709 661,167
Utility operating expenses
Fuel for electric generation............................. 76,092 83,338
Purchased and interchange power.......................... 62,209 51,733
Cost of gas purchased and transported.................... 133,525 99,415
Other operation.......................................... 83,961 78,994
Maintenance.............................................. 47,068 37,767
Administrative and general............................... 34,941 43,749
Conservation and energy management....................... 16,190 7,770
Depreciation and amortization............................ 74,651 71,831
Taxes: Property and general.............................. 60,129 62,279
Current income tax expense........................ 54,827 40,122
Deferred income tax expense....................... (11,954) (1,290)
Investment tax credit adjustments - net........... (2,207) (2,239)
Total.................................................. 629,432 573,469
Utility operating income.................................. 89,277 87,698
Other income (expense)
Equity in earnings of unconsolidated affiliates.......... 5,989 8,838
Allowance for funds used during construction - equity.... 2,580 1,338
Other income (deductions) - net.......................... (3,426) 2,025
Income taxes on non-regulated operations
and non-operating items................................. 4,029 (934)
Total .................................................. 9,172 11,267
Income before interest charges............................ 98,449 98,965
Interest charges
Interest on utility long-term debt....................... 25,021 25,266
Other utility interest and amortization.................. 4,999 5,117
Non-regulated interest and amortization.................. 4,065 2,285
Allowance for funds used during construction - debt...... (2,846) (1,893)
Total.................................................. 31,239 30,775
Net Income ............................................... 67,210 68,190
Preferred stock dividends ................................ 3,061 3,201
Earnings available for common stock....................... $64,149 $64,989
Average number of common and equivalent
shares outstanding (000's).............................. 68,308 67,004
Earnings per average common share......................... $0.94 $0.97
Common dividends declared per share....................... $0.675 $0.660
Statements of Retained Earnings (Unaudited)
Balance at beginning of period............................ $1,266,026 $1,183,191
Net income for period..................................... 67,210 68,190
Dividends declared:
Cumulative preferred stock............................... (3,061) (3,201)
Common stock............................................. (45,659) (44,198)
Balance at end of period.................................. $1,284,516 $1,203,982
The Notes to Financial Statements are an integral part of the Statements of Income
and Retained Earnings.
Northern States Power Company (Minnesota) and Subsidiaries
Consolidated Balance Sheets (Unaudited)
March 31, December 31,
1996 1995
(Thousands of dollars)
ASSETS
Utility Plant
Electric................................................ $6,608,730 $6,553,383
Gas..................................................... 712,259 710,035
Common.................................................. 312,511 299,585
Total............................................... 7,633,500 7,563,003
Accumulated provision for depreciation................ (3,414,077) (3,343,760)
Nuclear fuel............................................ 864,404 843,919
Accumulated provision for amortization................ (762,397) (752,821)
Net utility plant................................... 4,321,430 4,310,341
Current Assets
Cash and cash equivalents............................... 94,740 28,794
Short-term investments.................................. 224 149
Customer accounts receivable - net...................... 279,347 281,584
Unbilled utility revenues............................... 123,262 112,650
Other receivables....................................... 71,846 78,993
Fossil fuel inventories - at average cost............... 26,482 43,941
Materials and supplies inventories - at average cost.... 103,050 100,607
Special deposits - non-regulated projects............... 97,989 9,773
Prepayments and other................................... 40,738 47,972
Total current assets.................................. 837,678 704,463
Other Assets
Regulatory assets....................................... 365,265 374,212
Equity investments in non-regulated projects
and other investments.................................. 299,892 289,495
External decommissioning fund investments............... 214,437 203,625
Non-regulated property - net............................ 176,684 177,598
Long-term receivables................................... 67,848 83,065
Intangible and other assets............................. 97,980 85,786
Total other assets................................... 1,222,106 1,213,781
TOTAL ASSETS........................................ $6,381,214 $6,228,585
LIABILITIES AND EQUITY
Capitalization
Common stock equity:
Common stock and premium - authorized 160,000,000
shares of $2.50 par value, issued shares:
1996, 68,499,928; 1995, 68,175,934.................. $786,067 $769,534
Retained earnings..................................... 1,284,516 1,266,026
Leveraged common stock held by ESOP................... (9,033) (10,657)
Currency translation adjustments - net................ 4,717 2,488
Total common stock equity........................... 2,066,267 2,027,391
Cumulative preferred stock and premium - authorized
7,000,000 shares of $100 par value; outstanding
shares: 1996 and 1995, 2,400,000
without mandatory redemption.......................... 240,469 240,469
Long-term debt.......................................... 1,667,951 1,542,286
Total capitalization................................ 3,974,687 3,810,146
Current Liabilities
Long-term debt due within one year...................... 15,089 25,760
Other long-term debt potentially due within one year.... 141,600 141,600
Short-term debt - primarily commercial paper............ 169,077 216,194
Accounts payable........................................ 230,393 246,051
Taxes accrued........................................... 277,421 202,777
Interest accrued........................................ 33,984 31,806
Dividends payable on common and preferred stocks........ 48,721 48,875
Accrued payroll, vacation and other..................... 82,169 78,310
Total current liabilities........................... 998,454 991,373
Other Liabilities
Deferred income taxes................................... 818,216 841,153
Deferred investment tax credits......................... 159,196 161,513
Regulatory liabilities.................................. 245,083 242,787
Pension and other benefit obligations................... 120,610 115,797
Other long-term obligations and deferred income......... 64,968 65,816
Total other liabilities............................. 1,408,073 1,427,066
Commitments and Contingent Liabilities (See Note 4)
TOTAL LIABILITIES AND EQUITY...................... $6,381,214 $6,228,585
The Notes to Financial Statements are an integral part of the Balance Sheets.
Northern States Power Company (Minnesota) and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31,
1996 1995
(Thousands of dollars)
Cash Flows from Operating Activities:
Net Income................................................. $67,210 $68,190
Adjustments to reconcile net income to cash from
operating activities:
Depreciation and amortization............................ 81,643 79,517
Nuclear fuel amortization................................ 9,576 12,817
Deferred income taxes.................................... (13,494) (780)
Deferred investment tax credits recognized............... (2,284) (2,349)
Allowance for funds used during construction - equity.... (2,580) (1,338)
Undistributed equity in earnings of unconsolidated
affiliate operations.................................... (4,761) (6,241)
Cash provided by changes in certain working
capital items........................................... 79,077 68,532
Conservation program expenditures - net of amortization.. (403) (3,953)
Cash provided by changes in other assets and liabilities. 4,821 17,483
Net cash provided by operating activities................... 218,805 231,878
Cash Flows from Investing Activities:
Capital expenditures ...................................... (98,571) (77,989)
Decrease in construction payables.......................... (5,485) (14,724)
Allowance for funds used during construction - equity...... 2,580 1,338
Purchase of short-term investments - net................... (75) (1,000)
Investment in external decommissioning fund................ (10,036) (6,981)
Equity investments in and deposits for non-regulated
projects and other........................................ (75,933) (7,096)
Net cash used for investing activities...................... (187,520) (106,452)
Cash Flows from Financing Activities:
Change in short-term debt - net issuances (repayments)..... (47,117) (80,791)
Proceeds from issuance of long-term debt - net............. 125,333 3,171
Loan to ESOP............................................... 0 (15,000)
Repayment of long-term debt, including reacquisition
premium................................................... (11,017) (5,656)
Proceeds from issuance of common stock - net............... 16,337 15,400
Dividends paid............................................. (48,875) (47,080)
Net cash provided by (used for) financing activities........ 34,661 (129,956)
Net increase (decrease) in cash and cash equivalents.......... 65,946 (4,530)
Cash and cash equivalents at beginning of period.............. 28,794 41,055
Cash and cash equivalents at end of period.................... $94,740 $36,525
The Notes to Financial Statements are an integral part of the Statements of Cash Flows.
Northern States Power Company (Minnesota) and Subsidiaries
NOTES TO CONSOLIDATED 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 March 31, 1996 and December 31, 1995,
the results of its operations for the three months ended March
31, 1996 and 1995, and its cash flows for the three months ended
March 31, 1996 and 1995. 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 NSP's Annual Report on
Form 10-K for the year ended December 31, 1995 (1995 Form 10-K).
The following notes should be read in conjunction with such
policies and other disclosures in the 1995 Form 10-K.
Certain reclassifications have been made to 1995 financial
information to conform with the 1996 presentation. These
reclassifications had no effect on net income or earnings per
share as previously reported.
1. Summary of Significant Accounting Policies
1996 Accounting Change - Wisconsin Gas Costs - While fixed
costs (demand charges) from gas suppliers and transporters are
incurred fairly evenly throughout the year, such costs are
recovered in customer rates on a per unit basis (using average
annual costs per unit), primarily in the winter heating season
when sales volumes are highest. Also, the energy price of gas
purchased (excluding demand charges) can vary from estimated
levels included in customer rates. As a result, gas costs for
both demand and energy charges are incurred throughout the year
at a different time than when such costs are recovered from
customers. The purchased gas adjustment (PGA) clause allows
customer rates to be adjusted periodically to ensure full
recovery of all gas costs incurred.
Effective Jan. 1, 1996, NSP's subsidiary, Northern States
Power Company, a Wisconsin corporation (the Wisconsin Company)
changed its method of accounting for the regulatory effects of
costs recovered through the PGA rate adjustment clause.
Previously, the Wisconsin Company expensed gas costs as
incurred. Beginning in 1996, the cost of gas expensed is
adjusted to equal the level of cost recovery in customer rates,
with such adjustments being reflected as regulatory deferrals on
the balance sheet. This accounting change results in a better
matching of revenues and expenses, and conforms to the cost
recognition method used by the Company.
This change affects the timing of expense recognition
within the year but will not change total annual gas expense for
1996 or any prior years. The effect of the change on first
quarter 1996 results was an increase in gas costs recognized and
a decrease in pretax operating income of approximately $6.5
million, and a decrease in net income of $3.9 million (six cents
per share). Consistent with accounting requirements, prior year
quarterly results have not been restated for this change. Had
the change been implemented as of Jan. 1, 1995, the effect of
the change on first quarter 1995 results would have been an
increase in gas costs and a decrease in pretax operating income
of $3.7 million, and a decrease in net income of $2.2 million
(three cents per share).
2. Proposed Business Combination
On April 28, 1995 NSP and Wisconsin Energy Corporation
(WEC) entered into an Agreement and Plan of Merger, which
provides for a strategic business combination involving NSP and
WEC in a "merger-of-equals" transaction to form Primergy
Corporation (Primergy). See further discussion of the proposed
business combination in the 1995 Form 10-K and Part II, Item 5-
Other Information of this report. On April 5, 1996, NSP and WEC
submitted the initial filing to the Securities and Exchange
Commission to facilitate registration of Primergy under the
Public Utility Holding Company Act of 1935, as amended. On
April 10, 1996, the Michigan Public Service Commission approved
the merger application, through a settlement agreement
containing terms consistent with the merger application. This
is the first of four states to act where approval of the merger
is required. The merger filings with each state included a
request for deferred accounting treatment and rate recovery of
costs incurred associated with the proposed merger. At March
31, 1996, $16.3 million of costs associated with the proposed
merger and incurred by NSP had been deferred as a component of
Intangible Assets and Other.
3. Business Developments
Non-regulated Acquisitions - On April 30, 1996, NSP's
wholly owned non-regulated subsidiary, NRG Energy, Inc. (NRG),
closed its acquisition of a 41.86-percent interest in O'Brien
Environmental Energy, Inc. (O'Brien) from bankruptcy. O'Brien
has been renamed NRG Generating (U.S.) Inc., and the former
shareholders of O'Brien own the remaining 58.14 percent of NRG
Generating, which will be publicly traded. As a result of the
purchase, approximately $107.3 million was made available to
O'Brien and its creditors by NRG consisting of the following:
(i) a $30.8 million equity investment by NRG for its 41.86
percent interest in O'Brien; (ii) a $7.5 million investment by
NEO Corporation, a wholly owned subsidiary of NRG, for all of
O'Brien's interest in certain biogas projects; and (iii) loans
totaling $69 million from NRG to O'Brien. Approximately $87
million of these investments in and loans to O'Brien were
reflected as Special Deposits - Non-regulated Projects in
current assets on the consolidated balance sheet at March 31,
1996. In connection with the closing on its O'Brien
acquisition, NRG was released from its $100 million letter of
credit obtained in January 1996 to secure its obligation to
complete its proposed investment in O'Brien. O'Brien has
interests in eight domestic operating power generation
facilities with aggregate capacity of approximately 230
megawatts, and in one 150-megawatt facility in the contract
stage of development.
4. Commitments and Contingent Liabilities
Nuclear Insurance - The circumstances set forth in Note 15
to NSP's financial statements contained in the 1995 Form 10-K
appropriately represent the current status of commitments and
contingent liabilities regarding public liability for claims
resulting from any nuclear incident.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
On April 28, 1995, the Company and WEC entered into an
Agreement and Plan of Merger which provides for a strategic
business combination involving the two companies in a "merger-
of-equals" transaction. Further information concerning this
agreement and proposed transaction and pro forma financial
information with respect thereto is included in the 1995 Form
10-K and Part II of this report. The following discussion and
analysis is based on the financial condition and operations of
NSP and does not reflect the potential effects of its
combination with WEC.
The following discussion and analysis contains forward-
looking statements. When used in this document, the words
"anticipate", "estimate", "expect", "objective" and similar
expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks, uncertainties and
assumptions, including those that are described in Exhibit 99.01
to this report.
Results of Operations
Northern States Power Company's earnings per share for the
first quarter ended March 31, 1996, were $.94, down $.03 from
the $.97 earned for the same period a year ago.
In addition to items noted in the 1995 Form 10-K, the
historical and future trends of NSP's operating results have
been and are expected to be affected by the following factors:
Non-regulated Business Results - Quarterly results include
earnings contributions from non-regulated businesses of $0.04
per share in 1996 and $0.13 per share in 1995. The following
summarizes the earnings contributions of NSP's non-regulated
businesses:
3 Mos. Ended
3/31/96 3/31/95
NRG $0.04 $0.11
Eloigne Company 0.01 0.01
Cenerprise, Inc.
(Cenerprise) (0.03) 0.00
Other 0.02 0.01
Total $0.04 $0.13
Due to the nature of these non-regulated businesses, NSP
anticipates that the earnings from non-regulated operations will
experience more variability than regulated utility businesses.
As discussed below, NSP's non-regulated earnings in the three-
month period ended March 31, 1996 are experiencing such
variability.
NRG - NRG's first quarter earnings were down from a year
ago due to a combination of higher business development
expenses, which increased overall operating expenses, and
lower equity in earnings of projects. NRG experienced an
increased level of business development costs in late 1995
and early in 1996 as it pursued several significant
international and domestic projects. Until there is
substantial assurance that a project in development will
come to financial closure, such costs are expensed. Equity
in earnings of projects decreased in 1996, as lower equity
in earnings from the MIBRAG and Gladstone projects were
only partially offset by higher earnings from Schkopau.
Equity in earnings from MIBRAG decreased due to an expected
decline in heating briquette and coal sales, while
Gladstone incurred higher labor costs. Partially
offsetting these decreases, one unit of the Schkopau power
generation facility began commercial operation in March
1996, with the second unit scheduled to come on line later
in 1996.
Cenerprise - Cenerprise's first quarter earnings were down
due largely to unusually high gas costs incurred to meet
customer demand requirements, and to losses incurred from
gas trading activities. With the extremely cold weather
experienced throughout the U.S. in the first quarter of
1996, several of Cenerprise's gas suppliers and
transporters curtailed product availability. Other, more
expensive sources of spot gas supply were needed to meet
sales commitments to Cenerprise's customers. Cenerprise is
investigating legal action against suppliers who may not
have met their contractual obligations to supply gas.
Also, Cenerprise has curtailed its gas trading activities
and will trade only to support its end-use customer sales
in the future.
Estimated Impact of Weather on Regulated Earnings - NSP
estimates sales levels under normal weather conditions and
analyzes the approximate effect of variations from historical
average temperatures on actual sales levels. The following
summarizes the estimated impact of weather on actual utility
operating results (in relation to sales under normal weather
conditions):
Increase (Decrease)
Actual Actual Actual
1996 vs Normal 1995 vs Normal 1996 vs 1995
Earnings per
Share for
Quarter Ended
March 31 $0.09 ($0.06) $0.15
The estimated impact of weather on the first quarter of
1996 considers only the impacts of variations from average
temperatures, including the extremely cold temperatures in late
January and early February of 1996. Although such cold weather
in this period would be expected to result in increased energy
sales, an ice storm immediately preceding the cold weather
resulted in as many as 200,000 customers being temporarily out
of service, and bitterly cold temperatures resulted in some
customers shutting down or curtailing their operations. Because
these secondary weather impacts are not reliably quantifiable,
their expected effects (an offset to the energy sales increase
from cold weather) have not been included in the estimated
impact of weather on 1996 operating results.
Competition - On April 24, 1996, the Federal Energy
Regulatory Commission (FERC) issued two final rules regarding an
earlier proposal (called the "Mega-NOPR") for electric utilities
to offer open access transmission service to wholesale
transmission users. The ruling, which will take effect later
this year, requires utilities and other transmission users to
abide by the same terms and conditions in transmitting power and
is intended to promote competition. A new proposed rule,
Capacity Reservation Open Access Transmission Tariffs, was also
issued. While NSP is still reviewing the provisions of these
new rules and is unable at this time to precisely determine
their impact on future operations, NSP continues to be generally
supportive of the FERC's efforts to increase competition.
First Quarter 1996 Compared with First Quarter 1995
Utility Operating Results
Electric revenues for the first quarter 1996 compared with
the first quarter 1995 increased $15.6 million or 3.1%. Retail
revenues increased approximately $31.9 million or 7.0% largely
due to a 4.1% increase in retail electric sales. The increase
in retail electric sales is due to colder-than-normal weather
(as discussed above) and sales growth. In addition, retail
prices increased 2.8% primarily due to increased recovery of
deferred conservation and energy management costs and fuel
expense recovery (as discussed below). Wholesale revenues were
impacted by the effects of expected contract terminations for
seven municipal customers in July 1995, resulting in a $5.4
million decrease. Revenues from sales to other utilities
decreased by $11.0 million mainly due to decreases in sales
volume. This decrease in sales to other utilities reflects
higher retail sales requirements and less plant availability due
to more major planned outages in 1996 (as discussed below).
Gas revenues for the first quarter 1996 increased $41.9
million or 25.6% compared with the first quarter of 1995. Gas
revenues increased due to a 18.8% increase in gas sales volume
and a 6.3% average price increase. The sales volume increase is
due primarily to weather impacts (as discussed previously) and
firm sales growth. The price increase is mainly due to rate
adjustments for increased purchased gas costs resulting from
changes in natural gas market conditions.
Fuel for electric generation and Purchased and interchange
power combined for a net increase of $3.2 million or 2.4% for
the first quarter of 1996 compared with the first quarter of
1995. Purchased and interchange power increased $10.5 million
due primarily to higher cost of purchases, reflecting market
conditions and higher purchases due to less plant availability
(as discussed previously). The increased purchased power cost
was partially offset by lower fuel expense of $7.2 million
mainly due to less nuclear output in 1996 because of a planned
nuclear maintenance outage, and lower average fossil fuel cost
due to a new coal transportation contract in July 1995.
Cost of gas purchased and transported for first quarter
1996 compared with first quarter 1995 increased $34.1 million or
34.3% due to higher gas sendout and higher per unit cost of
purchased gas. The higher gas sendout reflects increased gas
sales, while the higher cost of purchased gas reflects changes
in market conditions and gas cost adjustments. (See
Note 1 to the Financial Statements for discussion of the
accounting change for Wisconsin gas costs to more accurately
match cost recovery in revenues.)
Other operation, Maintenance and Administrative and general
expenses together increased $5.5 million or 3.4% compared with
the first quarter 1995. The higher costs are largely due to the
timing of scheduled plant maintenance outages and an ice storm,
partially offset by lower administrative and general costs.
Planned maintenance outages occurred at two major plants in the
first quarter of 1996 compared with only one major plant in the
first quarter of 1995. Of the $14.3 million increase in Other
operation and Maintenance expenses, $9.5 million is due to
additional costs related to the timing of planned outages at
generating plants. Due to an ice storm in late January 1996, an
additional $2 million in maintenance costs were incurred to
bring customers back into service and to repair other damage to
NSP's transmission and distribution system.
Conservation and energy management increased $8.4 million
in the three-month period ended March 31, 1996 compared to the
same period in the prior year due to higher amortization levels
and concurrent rate recovery of deferred electric and gas
conservation and energy management program costs. These higher
amortization levels are consistent with new retail electric and
gas rate adjustment clauses in the Company's Minnesota
jurisdiction effective May 1, 1995, and Nov. 1, 1995,
respectively. Higher amortization levels reflect higher costs
incurred due to increased participation in NSP's conservation
and energy management programs.
Depreciation and amortization increased $2.8 million or
3.9% compared with the first quarter of 1995. The increase is
mainly due to increased plant in service between the two
periods.
Property and general taxes for the first quarter 1996
compared with the first quarter of 1995 decreased $2.2 million
or 3.5% due primarily to property tax adjustments for 1995 which
are payable in 1996.
Utility income taxes for first quarter 1996 compared with
first quarter 1995 increased $4.1 million primarily due to
higher pretax operating income (after interest charges) between
the two periods.
Other income (deductions) - net decreased mainly due to
non-regulated items discussed below.
Allowance for funds used during construction (AFC)
increased $2.2 million to $5.4 million in 1996 largely due to
returns allowed on higher conservation and energy management
expenditures.
Non-regulated Business Results
NSP's non-regulated operations include many diversified
businesses, such as independent power production, gas marketing,
industrial heating and cooling, and energy-related refuse-
derived fuel production. NSP also has investments in affordable
housing projects and several income-producing properties. The
following discusses NSP's diversified business results in the
aggregate.
Operating Revenues and Expenses - The net results of non-
regulated businesses are reported in Other Income (Deductions)-
Net on the Consolidated Statements of Income. Non-regulated
operating revenues increased $38.7 million in 1996, to $121.3
million, largely due to increased gas marketing sales by
Cenerprise. Non-regulated operating expenses increased $46.7
million in 1996 to $127.7 million due to higher gas costs
corresponding with Cenerprise gas sales and increased NRG
project development costs being expensed on potential projects
in 1996, as discussed previously.
Equity Income - NSP has a less-than-majority equity
interest in many non-regulated projects. Consequently, a
large portion of NSP's non-regulated earnings is reported as
Equity in Earnings of Unconsolidated Affiliates on the
Consolidated Statements of Income. Equity income decreased in
the first quarter of 1996 by $2.8 million primarily due to NRG
energy projects in Australia and Germany as discussed
previously, and to lower earnings from a domestic NRG
cogeneration project whose contracts were effectively terminated
in late February 1995.
Non-regulated interest and amortization increased $1.8
million to $4.1 million due to the issuance of $125 million of
long term debt by NRG in January 1996 and issuance of debt for
Eloigne Company projects.
Income Taxes - Income Taxes on Non-regulated Operations and
Non-operating Items reported on the Consolidated Statements of
Income includes income taxes related to non-regulated
businesses. Such income taxes for the first quarter of 1996
were a net benefit of $5.0 million, a $5.0 million decrease over
a net tax expense of $0 in the first quarter of 1995. The
decrease in 1996 is due mainly to lower income from NRG and
Cenerprise, as discussed previously, and to higher income tax
credits from Eloigne Company's affordable housing projects.
NSP's management intends to reinvest the earnings of
international operations indefinitely. Accordingly, U.S. income
taxes and foreign withholding taxes have not been provided on
the earnings of international projects.
Liquidity and Capital Resources
The Company had approximately $168 million in commercial
paper debt outstanding as of March 31, 1996. The Company plans
to keep credit lines of at least 85% of the highest anticipated
level of commercial paper borrowings. Commercial banks
currently provide credit lines of approximately $306 million to
the Company. 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 $445
million in short-term borrowing levels.
Commercial banks currently provide credit lines of $17
million to wholly owned subsidiaries of the Company. However,
$5.4 million in letters of credit were outstanding, which
reduced the available credit lines at March 31, 1996.
Approximately $11.6 million of those credit lines remained
available at March 31, 1996.
In January 1996, stock options for the purchase of 263,039
shares were awarded under the Company's Executive Long-Term
Incentive Award Stock Plan (the Plan). These options are not
exercisable for approximately twelve months after the award
date. As of March 31, 1996, a total of 1,149,326 stock options
were outstanding, which were considered as potential common
stock equivalents for earnings per share purposes. During the
first three months of 1996, the Company has issued 103,348 new
shares of common stock under the Plan pursuant to the exercise
of options and awards granted in prior years. Under NSP's
Dividend Reinvestment and Stock Purchase Plan, the Company has
issued 161,025 shares of common stock during the first three
months of 1996. During 1996, the Company has issued an
additional 59,621 shares of new common stock to the Employee
Stock Ownership Plan for dividends on Company shares held.
On January 29, 1996, NRG issued $125 million of 7.625
percent unsecured Senior Notes maturing in 2006 to support
equity requirements for projects currently under way and in
development. The Senior Notes were assigned ratings of BBB- by
Standard & Poor's Rating Group and Baa3 by Moody's Investors
Services. See discussion of NRG's recent project developments
at Note 3 to the Financial Statements.
The Wisconsin Company registered $65 million of first
mortgage bonds with the Securities and Exchange Commission in
May 1996. Depending on capital market conditions, the Wisconsin
Company may issue all or a portion of this debt in 1996, for
purchase or redemption of one or more series of outstanding
first mortgage bonds and repayment of outstanding short-term
borrowings incurred in connection with the Wisconsin Company's
continuing construction program. The remainder of the proceeds
would be added to the general funds of the Wisconsin Company.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Environmental Contingencies section of
Note 15 to the Company's financial statements in the 1995 Form
10-K, the Environmental Protection Agency or state environmental
agencies have designated the Company as a "potentially
responsible party" (PRP) at several waste disposal sites to
which the Company allegedly sent hazardous materials. In March
1996, the federal government filed suit in U.S. District Court
in Minneapolis seeking to collect at least $1.5 million that
federal agencies have spent investigating and cleaning up a
Brooklyn Park site. The Company is among a group of five
parties designated as a PRP in the suit. The Company has
recorded an estimate of its potential liability for the clean up
of this site.
In April 1996, the Company received a General Notice Letter
from the United States Environmental Protection Agency regarding
the Third Site Superfund Site in Zionsville, Indiana. The
letter alleges the Company is a PRP at the site. The Company is
among over 500 parties designated as a PRP. Management
anticipates that it is likely the Company will be considered de
minimis and qualify for a cash-out payment. The payment is not
expected to be material.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held
on April 24, 1996, for the purpose of voting on the matters
listed below. Proxies for the meeting were solicited pursuant
to Section 14(a) of the Securities Exchange Act of 1934, as
amended, and there was no solicitation in opposition to
management's solicitations. All of management's nominees for
directors as listed in the proxy statement were elected. The
matters before the meeting and the voting results were as
follows:
1. A proposal to elect four directors to Class I to serve until
the 1999 Annual Meeting of Shareholders and until their
successors are elected and have qualified;
Election Shares
of Directors Voted For Withheld Authority
W. John Driscoll 58,930,004 1,902,677
Dale L. Haakenstad 58,892,682 1,939,999
John E. Pearson 58,918,233 1,914,448
James J. Howard 58,762,373 2,070,307
2. A proposal to elect a director to Class II to serve until
the 1997 Annual Meeting of Shareholders and until a
successor is elected and has qualified;
Election Shares
of Directors Voted For Withheld Authority
G. M. Pieschel 58,973,759 1,858,922
3. A proposal to ratify the appointment of Price Waterhouse LLP
as independent accountants for NSP for 1996;
Shares
Voted For Voted Against Voted Abstain
59,853,138 488,236 491,307
4. A "Shareholder Resolution on Public Image"
Shares
Voted For Voted Against Voted Abstain
4,901,693 44,931,572 2,674,868
The number of broker non-votes on the Shareholder Resolution
was 8,324,547.
Item 5. Other Information
MERGER AGREEMENT WITH WISCONSIN ENERGY CORPORATION
As previously reported in the Company's Current Report on
Form 8-K, dated April 28, 1995 and filed on May 3, 1995, and the
1995 Form 10-K, NSP; WEC; Northern Power Wisconsin Corp., a
wholly owned subsidiary of NSP (New NSP); and WEC Sub Corp., a
Wisconsin corporation and a wholly owned subsidiary of WEC (WEC
Sub) have entered into an Agreement and Plan of Merger (the
"Merger Agreement"), which provides for a strategic business
combination involving NSP and WEC in a "merger-of-equals"
transaction (the Merger Transaction). The Merger Transaction,
which was approved by the shareholders of the constituent
companies at meetings held on September 13, 1995, is expected to
close shortly after all of the conditions to the consummation of
the Merger Transaction, including obtaining applicable regu-
latory approvals, are met or waived. Although the goal of NSP
and WEC is to receive approvals from the regulatory authorities
by the end of 1996, some regulatory authorities have not
established a timetable for their decision. Therefore, it is
possible that the approvals necessary to consummate the merger
may not be obtainable until after 1996.
In the Merger Transaction, as the holding company of the
combined enterprise, Primergy will be registered under the
Public Utility Holding Company Act of 1935, as amended and will
be the parent company of the operations of both NSP (which, for
regulatory reasons, will reincorporate in Wisconsin) and of
WEC's present principal utility subsidiary, Wisconsin Electric
Power Company (WEPCO) which will be renamed "Wisconsin Energy
Company." It is anticipated that, following the Merger
Transaction, the Wisconsin Company will be merged into Wisconsin
Energy Company and that NSP's other subsidiaries will become
subsidiaries of Primergy.
As noted above, pursuant to the Merger Transaction, NSP
will reincorporate in Wisconsin for regulatory reasons. This
reincorporation will be accomplished by the merger of NSP into
New NSP, with New NSP being the surviving corporation and
succeeding to the business of NSP as an operating public
utility. Following such merger, WEC Sub will be merged with and
into New NSP, with New NSP being the surviving corporation and
becoming a subsidiary of Primergy. Both New NSP and WEC Sub
were created to effect the Merger Transaction and will not have
any significant operations, assets or liabilities prior to such
mergers. Under the proposed business combination, current
common stockholders of NSP would receive 1.626 shares of
Primergy common stock for each share of NSP common stock owned,
and current bondholders and preferred stockholders of NSP will
become investors in New NSP.
SUMMARIZED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following summary of unaudited pro forma financial
information reflects the adjustment of the historical
consolidated balance sheets and statements of income of NSP and
WEC to give effect to the Merger Transaction to form Primergy
and a new subsidiary structure. The unaudited pro forma balance
sheet information gives effect to the Merger Transaction as if
it had occurred on that date. The unaudited pro forma income
statement information gives effect to the Merger Transaction as
if it had occurred at the beginning of the period presented.
This pro forma information was prepared from the historical
consolidated financial statements of NSP and WEC on the basis of
accounting for the Merger Transaction as a pooling of interests
and should be read in conjunction with such historical
consolidated financial statements and related notes thereto of
NSP and WEC.
The allocation between NSP and WEC and their customers of
the estimated cost savings, resulting from the Merger
Transaction, net of the costs incurred to achieve such savings,
will be subject to regulatory review and approval. None of the
estimated cost savings, the costs to achieve such savings or the
transaction costs have been reflected in the summarized pro
forma financial information. A $143 million pro forma
adjustment has been made to conform the presentations of
noncurrent deferred income taxes in the summarized pro forma
combined balance sheet information as a net liability. The pro
forma combined earnings per common share reflect pro forma
adjustments to average common shares outstanding in accordance
with the stock conversion provisions of the Merger Agreement.
The following information is not necessarily indicative of
the financial position or operating results that would have
occurred had the Merger Transaction been consummated on the
date, or at the beginning of the periods, for which the Merger
Transaction is being given effect nor is it necessarily
indicative of future operating results or financial position.
The summarized Primergy pro forma financial information reflects
the combination of the historical financial statements of NSP
and WEC after giving effect to the Merger Transaction to form
Primergy. The summarized New NSP pro forma financial
information reflects the adjustment of the historical financial
statements of NSP to give effect to the Merger Transaction,
including the reincorporation of NSP in Wisconsin, the merger of
the Wisconsin Company into Wisconsin Energy Company, and the
transfer of ownership of all of the current NSP subsidiaries to
Primergy.
Pro Forma
PRIMERGY CORP: NSP WEC Combined
(in millions, except per share amounts)
As of March 31, 1996:
Utility Plant-Net $4,321 $2,907 $7,228
Current Assets 838 502 1,340
Other Assets 1,222 1,129 2,208
Total Assets $6,381 $4,538 $10,776
Common Stockholders'
Equity $2,066 $1,893 $3,959
Preferred Stockholders'
Equity 241 30 271
Long-Term Debt 1,668 1,356 3,024
Total Capitalization 3,975 3,279 7,254
Current Liabilities 998 400 1,398
Other Liabilities 1,408 859 2,124
Total Equity &
Liabilities $6,381 $4,538 $10,776
For the Three Months Ended
March 31, 1996:
Utility Operating Revenues $719 $495 $1,214
Utility Operating Income $89 $85 $174
Net Income, after Preferred
Dividend Requirements $64 $63 $127
Earnings per Common Share:
As reported $.94 $.57 --
NSP Equivalent Shares -- -- $.93
Primergy Shares -- -- $.57
Merger
Divestitures Pro Forma
NEW NSP: NSP Net New NSP
(in millions)
As of March 31, 1996:
Utility Plant-Net $4,321 ($695) $3,626
Current Assets 838 (295) 543
Other Assets 1,222 (527) 695
Total Assets $6,381 ($1,517) $4,864
Common Stockholder's
Equity $2,066 ($722) $1,344
Preferred Stockholder's
Equity 241 -- 241
Long-Term Debt 1,668 (482) 1,186
Total Capitalization 3,975 (1,204) 2,771
Current Liabilities 998 (134) 864
Other Liabilities 1,408 (179) 1,229
Total Equity &
Liabilities $6,381 ($1,517) $4,864
For the Three Months Ended
March 31, 1996:
Utility Operating Revenues $719 ($72) $647
Utility Operating Income $89 ($19) $70
Net Income, after Preferred
Dividend Requirements $64 ($15) $49
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are filed with this report:
10.01 Mid-continent Area Power Pool (MAPP) Agreement,
dated March 31, 1972, with amendments in 1994 and
1996, between the local power suppliers in the North
Central States area.
27.01 Financial Data Schedule for the three months ended
March 31, 1996.
99.01 Statement pursuant to Private Securities Litigation
Reform Act of 1995.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed either during
the three months ended March 31, 1996, or between March 31, 1996
and the date of this report:
January 18, 1996 (Filed January 18, 1996) - Item 5. Other
Events. Release of 1995 financial results of NRG Energy,
Inc., a wholly owned subsidiary of the Company.
March 1, 1996 (Filed March 1, 1996)- Item 5. Other Events.
Disclosure of new reporting category for the Company's
electric commercial and industrial customers, and electric
and gas operating statistics for 1995.
April 16, 1996 (Filed April 18, 1996) - Item 5. Other
Events. Disclosure of suspension of negotiations with the
Mescalero Apache Tribe (the Tribe) by a consortium of
utilities, including the Company, for interim storage of
used nuclear fuel on the Tribe's reservation in New Mexico.
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: May 15, 1996
EXHIBIT INDEX
Method of Exhibit
Filing No. Description
DT 10.01 Mid-continent Area Power Pool
(MAPP) Agreement with
amendments
DT 27.01 Financial Data Schedule
DT 99.01 Statement pursuant to Private
Securities Litigation Reform
Act of 1995
DT = Filed electronically with this direct transmission.