ML20062H084
| ML20062H084 | |
| Person / Time | |
|---|---|
| Site: | 05000484 |
| Issue date: | 03/12/1979 |
| From: | Austin K LAKE SUPERIOR DISTRICT POWER CO. |
| To: | |
| Shared Package | |
| ML20062H083 | List: |
| References | |
| NUDOCS 7904200249 | |
| Download: ML20062H084 (23) | |
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1 FINANCIAL HIGHLIGHTS
% increase i 1978 1977 (Decrease)
Operating Revenues . S31 635 000 $29 623 000 6.8 Operating Expenses . S27 733 000 $25 878 000 7.2 Earnings on Common Stock S 2 032 000 S 1 875 000 8.4 Earnings per Share of Common Stock . $1.58 S1.49 6.0 Dividends per Share of Common Stock . $1.04 $1.03 1.0 Total Utility Plant . $87 255 000 $81260 000 7.4 Electric Sales (Kilowatt hours). 672 339 000 667 337 000 0.7 Gas Sales (Thousand cubic feet). 2 863 000 2 928 000 (2.2)
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.... t' t' LAKE SUPERIOR DISTRICT POWER COMPANY
, ,.g O an investor. owned electric. natural gas. and water utility
- 7 O headquartered in Ashland. Wisconsin with three division offices and threc
.e district offices O provides utility service to thirteen northern Wisconsin coun' ties and two 7, ; .,.cc,.yg, .
counties in Michigan's Upper Peninsula totaling some 8.600 square miles
- f i,.f O provides electric service to more than 39,000 customers of which almost 8.900
<-% J, d'- also receive natural gas service. and water service is also provided to the City of Bayfield, Wisconsin O employs 309 men and women throughout the system
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CONTENTS 1
l Letter to Stockholders. . . . . ... . . . . 3 Financial . . . . .. .. .. 4 System Operations . . . .. . . .. . . ... 4 Customer Service . .. . ... . . . . .. .. . . 6 Administrative . . . . . . . .. 7 Financial Statements . . . .. . . .. . . 8 ,
! Auditors' Report .. . . . . 13 l Notes to Financial Statements . . . . 14 Market and Dividend Information. .. . .. . . 18 Management's Discussion. . . . . .. ... . 18 l Summary of Earnings . . . .. . .. . . ... 20 Operating Statistics. . .. .. Back Inside Cover 79042002%
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i DIRECTORS OFFICERS INFORMATION K. S. AUSTIN (59) K. S. AUSTIN (59; 33)
Lake Supersor thstrict Power Company President and Churf Esecutser officer ANNUAL MEETING Ashland. Wisconsin V. E. HEACOM (49; 13) The annual meeting of stockholders G. M. IIASil ARA
- Vsce Pressdent, will be held on Tuesday, April 24, Lake Supersor District Power Company Commercsal and Useision Operations 1979 at 1:30 p.m. at the Company's Ashland, Wisconsin G. M. BASIIARA. Office in Ashland at 100 West V. E. HEACOM (49) Vice President-Pinance. Second Street.
Lake Superior Dustrset Pouer Company and Treasurer Ashland, Wisconsm E D. MAKl" (40; 14) GENERAL OFFICES A. W. CllERNE (55)" Voce President, President Power Supply and Engineering 101 West Second Street Cherne Contracting Corporation Ashland, Wisconsin 54806 Afinneapolis. Afinnesota W. C. TROY"* (40; 8) Telephone: Area Code 715/682-4511 Secretary and Controller C. E. GUSTAFSON (70) J. C. IIALL (43; 8)
Pr,,id,n, Gustafson Ice Cream & Dairy Co. ^**i*"' S "'*'Y GENERAL COUNSEL ^
Ladysmsth. Wismnsin D. M. POCERNICli (31; 9) Bell, Metzner, and Seibold, S.C.
- Assistant Treasurer Madison, Wisconsin W. D. M AKI (40)
Lake Superior District Pouer Company Ashland, Wismnain TRANSFER AGENT MALCOLM McLEAN (51) Illinois Stock Transfer Company President Chicago, Illinois Northland College Ashland. Wismnsin P. A. RISHERG (61).. REGISTRAR Realtor & Attorney First National Bank of Chicago liayward. Wisconssn Chicago, Illinois ALFRED WRIGilT (62)"
3fanager American Cablevision fronwood, 3!ichigan
( ) Denotes Age ( ) (Age; years of service) This report is prepared primarily for th>
- Ikparted the Company
- Departed the Company information of stockholders of the Company Ikcember 31,1978 December 31,1978 and is not transmitted in connection with
" Audit Commsttre Stember " Elected to Vice President. Finance, the sale of any security or offer to sell Planning and Treasurer effective or offer to buy any security.
January I,1979
- " Elected to Office of Secretary Copies of this report and,the financial October 27,1978 statements meluded herem are available generally to all security holders of the Company, and a copy will be mailed upon request to any secunty holder or other interested party.
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TO OUR STOCKHOLDERS The financial condition of your Company continues to be good.The per share earnings were $1.58 in 1978, and dividends paid per common share totaled 31.04.
As you know, the affiliation of Lake Superior as a wholly owned subsidiary of Northern States Power Company did not occur in 1978 as expected.The companies are currently awaiting the decision by the Securities and Exchange Comnussion (SEC) on whether hearings will be required before an exchange offer may be made to Lake Superior common stockholders by Northern States. Upon receipt of a satisfactory decision by the SEC, the exchange offer will be made bopefully by mid 19~9.
The conditions which prompted the Company to seek affiliation with a larger utility still exist. Even though our earnings picture for the short term looks satisfactory, 4 long term projections of high financing and operating costs for providing necessary large amounts of new generating capacity still exist. To support these costs, electric
,! rates substantially higher than rates of neighboring utilities would be required. There
-l ,., is serious doubt that regulatory commissions would grant these higher rate levels if a i more satisfactory solution could be found.
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Northern States Power and your Company are continuing to actively pursue affiliation.
! The agreement, whereby Northern States would offer each of the Company's common I
stockholders .48 of a share of common stock of Northern States for each one share of the Company's common stock, which was due to expire December 31,1978, was extended by the Board of Directors of the Company through April 27,1979.
The Company is participating with three other utilities in the development of an 1,100 megawatt nuclear fueled generating station known as Tyrone, of which the Company proposes to own 2% On March 6,1979, the Public Service Commission of Wisconsin issued an order denying the application by participating utilities to construct Tyrone.
I am surprised and truly disappointed in the Commission's action and cannot predict, at this time, what the co-owners will do regarding this action. I call your attention to the Auditors' Report and Note 3 to the financial statements which discuss this matter in more detail.
The Company has geared operations to conform with the Federal Wage and Price
, Commission guidelines established October 24, 1978. Recent utility rate increase
, _ requests by the Company and employee wage and benefit packages have complied
! i with the recommended guidelines.
, C i The Company's operating, maintenance, and service employees voted by a small majority - 96 to 87 - to be represented by the International Brotherhood of Electrical Workers Local 953 of Eau Claire, Wisconsin in a rerun election held February 8,1979.
The Company will enter into negotiations in 1979 to secure a labor contract for the 60%
of our employees in the bargaining unit. Company employees have previously rejebted union representation at elections held in 1949,1950,1957,1971, and 1973.
Clarence E. Gustafson, a member of the Board of Directors, will be retiring after 28 years of service with the Company as of April 24,1979, the date of the Annual Stock-holders Meeting.
We will keep you informed of future developments regarding the affiliation and I encourage you to real .he remainder of this report which reviews our 1978 operations.
Sincerely,
/: b 0 K. S. Austin l March 12,1979 I
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FINANCIAL OPEltATING REVENUES and the increased costs of natural gas interest expense. Short term interest for resale which are both recoverable expense is down almost 5M, as a result Total operating revenues in 1978 were pensc3 under the Fuel Cost and of the long term financing acquired in
$31.6 million, up 6.8% or $,2 million from Purchase Gas Adjustment Clauses. 1977. Ilowever, increased short term 1977. Increases occurred in all utilities. interest rates during 1978 increased the Maintenaace expense also increased Electric revenues increased 5.4% or $1.3 approximatelv $261,0m to $1.7 million short term interest expense above the million to $25.8 million. Itevenues from due primarily'to maintenance at the gas utility were $5.8 million, up amount originally anticipated by the Flambeau Station, an electric Company.
13.3%. Water revenues mereased 12.2%
to $43,000. generation plant located at Park Falls, Wisconsin. Increases also occurred m. ESOP Electric revenues increased from other various expense categories.
The Employees, Stock Ownership Plan additional sales, new customers, and increases in revenues collected under (ESOP) has had more than 79,000 the electric Fuel Cost Adjustment NET INCOME shares of common stock issued to the Clause. Gas revenues increased from Net income available for common stock plan since its inception. This has ,,
additional sales to high priority was $2 million or $1.58 per share in 1978 resulted in almost a million dollars of '
residential and commercial customers compared to $1.9 million or $1.49 per additional equity capital to the and increases in rates through the share in 1977, an increase of 8.4%. This Company. Company employees, now operation of the Purchased Gas is the highest per share earnings the own more than 6% of the outstanding Adjustment Clause, which passes on Company has experienced. common stock of the Company, through higher gas costs from our pipeline Dividends paid per common share in "#' "
supplier, Northern Natural Gas 1978 totaled $1.04 compared to $1.03 in Company, Water revenues increased 1977. This renects the quarterly primarily from rate relief received STOCKIIOLDERS dividend increase from 25c per share to during the year. 26c per share which occurred with the At the close of 1978, there were 5,306 dividend paid on June 1,1977. holders of Common Stock and 1,502 OPERATING EXPENSES holders of Preferred Stock of the Company. Approximately 75% were Total operating cxpenses in 1978 were FINANCING residents of Wisconsin or Michigan
$27.7 million, up 7.2% or $1.9 million The Company did not require additional and about 25% resided in the Company's from 1977, serv ce area.
long term financing in 1978. However, Over $1 million of the increased increased interest expense occurred in The Annual Meeting of shareholders operat*ng expenses are increased costs 1978 for First Mortgage Bonds placed was held April 25,1978, and of the votes involving fuel for electric generation in June of 1977, redecting a full years entitled to be represented,82% were cast. '
SYSTEM OPERATIONS ELECTRIC SYSTEM SOURCE OF ELECTRIC Natural gas provided 15E of our electric REQUIREMENTS ENERGY requirements, with the majority,14%,
generated at Flambeau Station, a Electric energy requirements including The majority of the Company's electric turbine generator unit located in transmission and distribution losses energy requirements,62%, was Park Falls, Wisconsin.
totaled 742,334,892 kilowatt hours for generated from coal. Approximately 1978, an increase of apprmimately 1.9% three quarters of this coal Md Oil contributed less than 1% of our over the previous year. Growth in energy generation was furnished by Minnesota electric energy requirements, and was requirements over the last three years Power and Light Company under a used during periods of high electric has averaged 5.5% annually. The peak 50,000 kilowatt purchase agreement demands on the system, one hour electrical load on the system which will continue to November 1,' Hydro generation contributd M ' of was 129,068 kilowatts and occurred on 1980. The remaining one quarter of the our electric requirements, an increase December 28,1978, an increase of 4"2 coal fueled generation was produced at of approximately 31% overlast year and over 1977. The annual system load the Company's Bay Front Steam about 6% more than the normal average.
factor for 1978 was 63.7% which is Electric Generating Station located comparable to the last five year average. in Ashland, Wisconsin. Other purchased power accounted for f
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i i S-1 for 8% of our electric requirements in line, built on new right.of.way. was 1978 and was approximately one half placed in service during Alarch of 1978. 1979 CONSTRUCTION the amount purchased in 1977. The Total expenditures for the project were Construction expenditures for 1979 are Company purchases inwer and energy $2,145.000. This transmission line is estimated at $4,422.000 of which from othe Alid Continent Area Power built for operation at 161,000 volts but $4.294.000 is for the electric utility Pool (M A PP; members. will be operated at a lower voltage and $128.000 is for the gas utility.
initially. Included in the estimated electric utility EAINTENANCE construction work on a 12.5 mile construction expenditures is $531,000 transmission line between Sheldon and for the completion of the wood waste in 1978, the Company spent a total liolcombe, Wisconsin was delayed and system at Bay Front which is expected of $1,716.000 on maintenance. Electric did not begin until December of 1978. to be operational in the second quarter utility maintenance amounted t This transmission line will interconnect of 1979.
$1,553,000, gas utility maintenance
$65,000 and the remainder was spent with No-thern States Power Company's Completion of the Sheldon to llolcombe system md is being built for operation electric transmission line is scheduled on maintenance of general utility at 161,000 volts but will be operated at facilities and the water utility- '
- for March of 1979 at a cost of $688,000, a 1ower vo1tage initl'a11y. and conversion of the majority of the Rebuilding of the Ashland to Miners. electric transmission system from
' 4978 CONSTRUCTION ville, Wisconsin transmission line was 92,000 volts to 115,000 volts is estimated completed in August of 1978 and to be completed by April of 1979 at a cost Construction expenditures during 1978 required an expenditure of $286,000.The of $198,000.
totaled $5,643,000 of which $5,424,000 line was constructed for operation at was spent on th e electric utility, $215,000 " "
69,000 volts, but will be operated at *
- on the gas utility, and $4,000 on the 34'500 volt 8 * 'tiall -
water utility.
1 from 34,500 volts to 69,000 volts and During 1978, $692,000 was spent on the installation of a new 115,000 volt The Company spent $579.000 at Bay construction work necessary to convert to 69.000 volt substation at Lugerville, Front on the completion of the most of the Company's 92,000 volt Wisconsin is scheduled to be constructed conversion of boiler number 1 from oil electric transmission'sy"atem to 115,000 in 1979 at an estimated cost of $782,000.
to coal firing. The unit went back into vo1t operation. To accompIish this The Company had budgeted $415,000 conserston, additions must he made at to fund its 2% share of the proposed In,0ctober of 1978, the Company began existing transmission substations in the construction on wood burning and Tyrone Energy Park electric generating cities of Ashland, ironwood, Park Falls, facility in 1979. (See Note 3 to the nandling facihu,es at Hay Front which and the Company's Big Falls liydro will enable the Company to burn wood financial statements.)
Electric Generating Plant.
waste as boiler fuel. The project provides The remaining funds for the electric Expenditures associated with the utility will be used for other small
^ for utilizing about 40,000 tons of wood Company s futum pown supply plans transmission and distribution system s' waste annually which will be burned
" 3 ** "*""* hip on an with coal in boiler number 2. During *"" 5*ded intenst basis in large base improvements. The funds for the gas undivi 1978, $169,000 was spent on this project utility will be utilized primarily to which is scheduled for completion in the 3272,0 in 1978. T e fun s wer "" "'# " * * " * **
second quarter of 1979 at a total cost of applied to the Company's 2% share of souaca op sticTaic enov
$700,000. A wood waste supply has been the Tyrone Energy Park, a nuclear om secured from the Louisiana. Pacific fueled generating unit proposed to be Corporation a sawmill operation in constructed near Durand, Wisconsin. J' Ashland. Utilizmg wood waste as a fuel i M.k will reduce the Company's fuel costs at The remainder of expenditures for the Bay Front. electric utility were primarily for
, additions, improvements, and replace- "*'m The Company is continuing its program ments to the electric system. Gas utility -
s of upgrading and rebuilding its existing construction expenditures were w electric transmission system which is required to maintain reliable electric primarily for installation of services to connect new customers along existing
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service to its customers. "~ \
gas mains. . \
Construction cf a new transmission
- line between Park Falls, Wisconsin and om Ironwood, Michigan was completed during the year. The Mercer, Wisconsin to Ironwood, Michigan portion of the == me==
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f0 CUSTOMER SERVICE CUSTOM ER "**'I"f"rmati n di8 plays, direct mail, increased approximately 1.9% due to COMM UNICATIONS " "d "' " P * ***I" "*- "d d I*I "" I '""*"* *'" ( "* *I"I '"I
increased 4.5% in 1978 and is a result of Communicating the Company's - and 2mincre sein aver ge kilowatthour the utility mdustry s - story is more ENERGY CONSERVATION consumption and a 1.9% increase in new vital today than ever. All customers are The Company's customers have customers. Industrial sales were dawn being pressured by increasing energy responded to higher energy costs by 3.7%, primarily due to a reduction during costa, some with restrictions on supply, controlling their use of these services. the first three quarters of 1978 in crude and others with confusion on the future An average residential customer has oil pumping by Lakehead Pipe Lii.e availability of energy supply. held electric consumption almost Company at five electric powered Our customers need to understand c natant for the past seven years, and pumping stations served by the what's happening to the Company and has decreased natural gas consumption Company.
the utility industry - and why. by approximately 22% in this same period of time.
Communication with " Opinion Leaders within the Company a The Company initiated a service area on matters facing the utility weatherization program for residential NATURAL GAS SALES i]
mdustry and the Company is mam. natural gas customers in 1978 to comply .
. Residential and commercial natural gas
( tained through a quarterly Newsletter. with conservation directives from the Public Service Commission of sales nereased 6.8% in 1978. The l The Company attempts to be responsive Wisconsin for natural gas utilities. increased sales to residential and DUma@
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- to customer needs. Once cach year, every Qualified Company personnel, upon customer receives a Customer Opinion request, perform energy audits of a " * **" ' '"' .'"
and Attitude Survey quentmnnaire customer's residence and recommend and the addition of new customers. The which can be answered and returned what energy conservation measures C mpany continues to connect with the payment of the utility bill. may be required, residential and small commercial Routine questions on quality of service, customers to its gas distribution system cost of service, etc. are asked, and with the addition of 409 residentials and customers are requested to indicate any 78 commercial customers in 1978.
other problems they would like ACQUISITIONS Industrial sales were down 18%
answered. All written comments or The Company purchased the Municipal primarily because of increased curtail-questions are given a personal response. Electric System from the City of ments of gas supply, conservation, and The Company is utilizing various Bessemer, Michigan in September of some fuel switching due to increased communication techniques to inform its 1978. A total of 967 new customers were gas costs.
customers in the wise, efficient and safe acquired, including 870 residential,92 The Company continued to receive gas --
use ofits services and the problems commercial, and 2 industrial customers. curtailments below its contract facing the utility industry today. entitlement during 1978. An interim Customers receive information through curtailment plan remains in effect by direct customer contact, print and ELECTRIC ENERGY SALES the Company's pipeline suppher, electronic media, bill enclosures, service Residential electric energy sales Northern Natural Gas Company. The AVERAGE NarVRAL GA8 RtSlotNTL&L CUSTORSER AVERAGE ELECTRIC RESIDENTIAL CUSTQtfER Coet we use Casi ve Use
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! 7 final curtailment plan was expected Company's service area. Electric energy m 1978, but was delayed when Congress AREA ECONOMIC ACTIVITY sales to mdustrial customers, excluding passed the National Energy Act(NEA) The Company continues to assist Lakehead Pipe Line Company, which mandated certain curtailment communities in its service area with continued at 1977 levels.
priorities. After passage of the NEA, industrial development activities aimed Tourism and recreation continue to the Federal Energy Regulatory at improving the economy of the area. grow within our service area. Visitors Commission ordered a six month Company field personnel actively enjoy a variety of outdoor activities cuspension of curtailment proceedings participate in community industrial including skiing, sailing, hunting,
- to align the proposed curtailment plan development groups. fishing, and camping,just to mention a with the NEA requirements. A fm' al Area economic activity remained fairly few. The Company provides service to curtailment order is expected in 1979. stable during 1978 within the many recreation orientated businesses.
l ADMINISTRATIVE Safety programs continue for all
,7ATES INSURANCE I
( employees. Weekly and monthly safety Applications were made to the Public meetings together with specialized The Company's cost of insurance has Service Commission of Wisconsin in training have assisted our employees increased substantially in four of the 1978 to increase rates for the electric, in maintaining safe work habits. The five major categories of coverage.
gas and water utilities. In October of Company experienced two lost time Increases range from 12.5% for 1978 the Commission authorized an accidents in 1978. However, the automotive coverage to 47% for boiler overall increase of 100% to all water Company's employee accident machinery coverage. Property customers, and in February of 1979 frequency rate was the lowest of all insurance costs are anticipated to authorivi an overall increase of 4% eleven utilities in the North Central increase primarily because of added for natural gas customers. Final Electric Association.The Company also values of about $2 million.
authorization to increase Wisconsin received this safety recognition in 1977.
electric rates is expected in mid 1979. Eye safety and hearing conservation PURCHASING Application to the Michigan Public programs aimed at employee health and Service Commission to increase natural well being continue with periodic testin g The Company exp-rienced higher costs gas rates was made m 1978 with the g g g ggg g and evaluation of all employees.
Comm,ssion authorizing an average i ,
g g g g increase of 8.2% to all Michigan gas Company experienced a continuation The International Brotherhood of of steadily rising prices, a situation
- ustomers effective n January of 1979. Electrical Workers (IBEW) attempted which has persisted the last several
- to organize the Company s operating, years.
PERSONNEL mamtenance, and service employees and an election was held in June of The Company experienced contract The Company employed 309 men and 1978. Company employees rejected, by increases, in western coal costs during women at the end of 1978, of which 274 a small majority, representation by the 1978. The cost of western coalincreased people were full time,11 part time, and IBEW at that election. However, the $.977 per ton during the year to $7.36 per 24 temporary. During the year 3 election was challenged and another ton and transportation costs by railroad employees retired and 4 joined the 25 election was ordered by the National increased $1.91 per ton during the year Year Club which is currently comprised Labor Relations Board. The rerun to $16.20. The total delivered price of of 50 active and 71 retired employees. election was held February 8,1979 and western coal from Montana to Ashland, Training programs for linemen, service. the employees participating in the Wisconsin increased to $23.56 or 14%.
Inen, and metermen continue along with election voted, by a small maiority, to Transportation expense comorises the addition of a Gas Distribution Street be represented by Local 953 of the approximately 70% of the delivered Mechanics Apprenticeship Program in International Brotherhood of Electrical cost of western coal to Ashland.
1978. Workers of Eau Claire, Wisconsin.
Contract negotiations between the Management training courses for all Company and the union will be held supervisory personnel continued during in 1979' -
the year. The program was conducted by a Management Consultant of the Division of Continuing Education from Northern Michigan University, i 1
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Lake Superior District Power Company STATEMENT OF INCOME and RETAINED EARNINGS l I
For the Years Ended December 31,1979 and December 31,1977 l l
l 1978 1977 OPERATING REVENUES (Note 1):
Electric . $25 780125 S24 457 872 Gas . 5 811 133 5 127 032 Water . 43 299 38 586
$31634 557 $29 623 490 OPEf;ATING EXPENSES:
Operating -
Fuel used for electric generation S 5 271 404 S 4 279 398 Power purchased and interchanged, net (Note 9) . 4 795 007 5 315 084 ^
Gas purchased fcr resale . 4 200 095 3 633 314 .
Other. 5 370 014 5 203 992 Maintenance (Note 8) . . 1 716 394 1 455 145 Depreciation (Note 1) . 3 315 718 3 261 350 Tax es -
Current Federal income (Note 1) . . 969 000 925 600 l Investment tax credit deferred (Note 1) . 576 549 503 181 l
Investment tax credit restored (credit) (Note 1). (G4 000) (36 600)
Current state income (Note 1) . 264 000 50 000 Property, payroll and other 1 303 622 1 278 596 S27 732 803 $25 878 060 NET OPERATING INCOME . S 3 901 754 S 3 745 430 OTHER INCOME AND (DEDUCTIONS), NET 30 701 (62 318)
INCOME BEFORE INTEREST EXPENSE S 3 932 455 S 3 683 112 INTEREST EXPENSE:
First mortgage bonds . . .. . S 1 710 656 S 1 572 349 Other . 39 976 85 924 -
S 1 750 632 S 1 658 273 NET INCOME (Notes l and 3) $ 2181823 $ 2 024 839 DIVIDENDS ON PREFERRED STOCK . . .. 150 000 150 000 NET INCOME AVAILABLE FOR COMMON STOCK $ 2 031823 $ 1874 839 RETAINED EARNINGS BEGINNING OF YEAR 4 092 007 3 514 653 ADD Other . . 18 130 -
LESS Cash dividends on common stock
($1.04 and $1.03 per share, respectivety) 1 338 954 1 297 485 RETAINED EARNINGS END OF YEAR.
$1,707,422 restricted as to payment of cash dividends or repurchase of common or preferred stock (Note 2). S 4 803 006 S 4 092 007 EARNINGS PER SHARE OF COMMON STOCK, based on weighted average shares outstandina of 1,285,126 and 1,257,695 respectively (Notes 1 and 3) M8, $1.49 The accompanying notes to financial statements are an integral part of this statement.
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h Lake Superior District Power Company STATEMENT OF SOURCES OF FUNDS FOR UTILITY PLANT ADDITIONS For the Years Ended December 31,1978 and December 31.1977 1978 1977 FUNDS GENERATED INTERNALLY:
Net income . . S 2 181 823 $ 2 024 839 Depreciation . 3 315 718 3 261 350 investment tax credit deferred, net. 445 126 404 600 Other. . 165 621 132 031 Provided from operations. . . . S 6 108 288 $ 5 822 820 Less -
Cash dividends on preferred and common stock . (1 488 954) (1 447 485)
Bond sinking fund retirements (500 000) (355 000)
Net funds generated internally. S 4 119 334 S 4 020 335 FUNDS OBTAINED FROM OUTSIDE SOURCES:
Notes payable to banks and commercial paper -
Issues . . . S 1 500 000 $ 6 724 000 Repayments. . .. (300 000) (10 724 000)
Issuance of first mortgage bonds (Note 7) . .
4 000 000 Sale of common stock to Employee Stock Ownership Plan (Note 5) . . 415 517 315 986 Net funds obtained from outside sources S 1 615 517 $ 315 986 Transfer of first mortgage bonds to current liabilities (Note 7) . .. S(1 511 000) $ (705 000)
CHANGES IN OTHER NET CURRENT ASSETS AND LIABILITIES:
l Cash.. . . ... . . . S (133 916) S 805 581 Accounts receivable . . . .. . . . . (125 632) (57 713)
Unbilled revenue (Note 1) ... . . . (358 210) (1 496 014) income tax refund receivable . . . ... .. . . -
295 000 Materials and supplies . .. ... 240 452 157 143 First mortgage bonds due within one year (Note 7) 1 511 000 705 000 Accounts payable . . . . . 568 756 (163 746)
Accrued taxes . . . ... . (656 283) 1 005 194 Accrued pension costs . .. . . . 370 000 (70 000)
Other, net. . . . 112 238 238 373 S 1 528 405 S 1 418 818 UNAMORTIZED UNBILLED REVENUE (Note 1) . S (142 002) S 1 278 011 OTHER, NET . . . . . 32 653 321 744 UTILITY PLANT ADDITIONS . . .. S 5 642 907 $ 6 649 894_
The accompanying notes to financial statements are an integral part of this statement.
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Lake Superior District Power Company ,
BALANCE SHEET As of December 31,1978 and December 31,1977 ASSETS 19ZH. 1977 UTILITY PLANT, at original cost (Note 1):
In Service - __ _
Electric . . . . . . . .. . .. .. ... $78 354 614 $72 450 699 Gas . . . . .. . 5 917 401 5 726 347 Water . . . 261 649 258 095
$84 533 664 $78 435141
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Less. Accumulated depreciation . . . 41 837 464 38 016 718
$42 696 200 S40 418 423 Construction work in progress (Note 3) . .. 2 720 894 2 825 052 Net utility plant . .. . .. .. S45 417 094 $43 243 475 INVESTMENTS: at cost. principally capital stock of Chippewa and Flambeau Improvement Company ... . . S 145 572 S 145 622 NONOPERATING PHYSICAL PROPERTY, less depreciation of $17,100 and $49.018, respectively . .. . . . .. . S 68 804 S 63 451 CURRENT ASSETS: -
Cash (Note 4) . . . . . . .. . .... . .... . S 685 827 $ 551 911 Accounts receivable. less reserves of $60.565 and
$51,129, respectively . . . . . . 2 891 452 2 765 820
.. billed revenue (Note 1) . . . . 1 854 224 1 496 014 Materials and supplies -
Fuel, at last-in first-out cost . . 717 011 1 122 864 Other. at average cost . . . . .. 1 682 734 1 517 332 Prepayments . . . .. . . . . 411 119 362 043 S 8 242 367 S 7 815 984 DEFERRED CHAAGES . . . . . . .. . S 500 933 $ 414 199
$54 374 770 $51682 731 G
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. Lake Superior District Power Company i '
C APIT ALIZ ATION AND LI ABILITIES 1978 19ZZ i
CAPITALIZATION, per accompanying statement (Note 2): i Common stockholders
- investment . . . . . . $18 695 923 $17 569 407 Preferred stock . . . . . . 3 000 000 3 000 000 f] First mortgage bonds . . . . . . . 20 616 000 22 623 000 Total capitalization . . $42 311923 $43192 407 CURRENT LIABILITIES:
Maturing first mortgage bonds (Ncte 7) -
Series B. 3-1/8% due January 1.1979 . . . . . . . . S 705 000 $ 705 000 Series C. 2-3/4% due January 1.1980 . . . . . 1 511 000 - i Sinkirg fund requirements on first mortgage bonds (Note 7) . . . . . . . . . . . . . 320 000 324 000 Notes payable to banks, unsecured (Note 4) . . 1 200 000 -
Accounts payable . . . . . . . . . . . . . . . 2 227 902 1 659 146 Accrued -
Taxes . . . . . . . . . . . . . . . . . 646 455 1 302 738
] Interest . . . . . . . . . . . . 457 413 440 697 Pension costs (Note 5) . . . . . . . 420 000 50 000 Other . . . . . . ... .. . . . . . . . . . . . . 881 475 755 006 S 8 369 245 S 5 236 587 OTHER CREDITS:
Deferred investment tax credit (Note 1) . . . . . . . $ 1687 426 $ 1242 300 Unamortized unbilled revenue (Note 1) . . . . . 1 136 009 1 278 011 Contributions in aid of construction . . . . . . . . . . . 870 167 733 426 S 3 693 602 S 3 253 737 CONSTRUCTION COMMITMENTS (Note 3)
S54 374 770 $51682 731 The accompanying notes to financial statements are an integralpart of this balance sheet.
t-
l r
12 , .
l l
l Lake Superior District Power Company STATEMENT OF CAPITALIZATION As of December 31,1978 and December 31,1977 l
l l 1913, 1977 l
l COMMON STOCKHOLDERS
- INVESTMENT (Note 5):
i l . Common stock, $10 par value, 1,600,000 shares authorized, 1,303,720 and 1,269,166 shares outstanding, respectively . . ........ ........ $13 037 200 $12 691660 Premium on common stock . . . . . .. .. . . 855 717 785 740
! Retained earnings . . .... . .... . .... . .... 4 803 006 4 092 007
$18 695 923 44% $17 569 407 41% '.,
PREFERRED STOCK, cumulative, $100 par value, voting (two votes per share),45,000 shares author-ized, issuable in series:
5% series,35,000 shares authorized,30,000 shares outstanding (Note 6) . . S 3 000 000 7% $ 3 000 000 7%
FIRST MORTGAGE BONDS (Note 7):
Series B,31/8% due January 1,1979. . . ..... . S 705 000
" 000 Series C.2-3/4% due January 1,1980. . . . . . . . 1 511 000 '
00 .,
Series D,3-1/4% due March 1,1981 . . . . . . . . . . 1 415 000 1 toO 000 Series E,3-3/4% due March 1,1983 ............. 1 502 000 1 512 000 Series F,4 5/8% due February 1.1991. . . . . . .. 2 479 000 2 514 000 Series G,71/8% due August 1.1998 . . . . . . . . . . . . 3 000 000 3 000 000 l Series H,8% due September 1,2003 . ..... . .. 2 820 000 2 880 000 i Series I,10 3/4% due October 1,1995. . . . . . . . . .
l 5 720 000 5 980 000
( Series J, 8.55% due June 1,1997 . . . . . . . .. 4 000 000 4 000 000 S23 152 000 $23 652 000 Less. Current sinking fund requirements and maturing bonds . ... ......... .. .. . 2 536 000 1 029 000
$20 616 000 49% S22 623 000 52%
Total capitalization . . ... . . S42 311 923 100% $43192 407 100%
The accompanying notes to financial statements are an integralpart of this statement.
I
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( i3 I
f AUDITORS' REPORT To the Stockholders and Board of Directors Lake Supenor District Power Company:
We have examined the balance sheet and statement of capitalization of LAKE SUPERIOR DISTRICT POWER COMPANY la Wisconsin corporatior.)
as of December 31,1978 and December 31,1977, and the related statements
' of income and retained earnings and sources of funds for utility plant additions for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests m
(* the accounting records and such other auditing procedures as we conside ed 3
necessary in the circumstances.
I As discussed further in Note 3 to the financial statements, on March 6,1979, the Public Service Commission of Wisconsin ("PSCW') issued an order denying the application for construction of the proposed Tyrone nuclear generating plant.
The Company and the other owners have not had an opportunity to properly evaluate the PSCWs order. The ultimate accounting treatment for the amounts expended by the Company [$1,048,000 as of Decembe. li,1978) and its share of potential contract cancellation penalties (estimated a6 approximately $613,000 as of December 31,1978) and the affect on the financial statements cannot be predicted at this time. In our report dated February 17,1978, our opinion on the financial statements was unqualified as to this matter; however,in view of the matters referred to above, our present opinion on the 1977 financial statements, as presented herein, is different from that expressed in our previous report.
, "') in our opinion, subject to the effect of the outcome of the matter referred to
- in the preceding paragraph, the financial statements referred to above present fairly the financ;al position of Lake Superior District Power Company as of December 31,1978 and December 31,1977, and the results of its operations and the sources of its funds for utility plant additions for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis suusequent to the change (with which we concur) made as of January 1,1977 in the method of accounting for revenues as described in Note 1 to the financial statements.
Arthur Andersen & Co.
Milwaukee, Wisconsin, February 23,1979 fexcept with resp',ct to the matters discussed in Note 3, as tr which the date is March 6,1979).
v.
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I l- 14 =
- NOTES TO FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies The financial statements reflect the application of certain accounting policies which are described in this note.
Change in Accounting For Unbilled Revenue--
Prior to 1977, the Company (for both accounting and ratemaking purposes) recognized electric revenues at the time monthly bills were rendered and gas revenues at the time meters were read. As a result, at the end of each accounting period, there was utility service rendered, the cost of which was charged to operating expenses, while the related revenues were not recorded until the following period. Because ofincreases in the cost of utility service in recent years, the disparity between costs incurred and revenues recorded as a result of this method of revenue recognition had increased. Accordingly, pursuant to a directive from the Public Service Commission of Wisconsin ("PSCW") issued in April,1977 the Company began, effective January 1,1977, recording the estimated amount of unbilled revenues related to utility service rendered at the end of each accounting period.
Also, pursuant to this directive, the amount of unbilled revenue as of January 1,1977, ($1,420,000 before f income taxes) was required to be recorded as a deferred credit to be amortized toincome over a ten-year period i.
beginning with 1977. Recognition of this directive in the determination of revenue requirements has been received in a subsequent ratemaking proceeding.
The effect of this change in accounting was to increase net income $29,000 or 2e per share for 1977.
Utility Plant-Utility plant is stated at the original cost of construction which includes indirect co ,ts consisting of payroll taxes, pensions and other fringe benefits, administrative and general costs, and an allowance for funds used during construction. The allowance for funds represents a portion of the costs of equity and borrowed funds used for construction purposes. The Company, under established regulatory rate practices,is entitled to earn a fair return on such costs.
Pursuant to rate orders of the PSCW, effective June 15,1976, such indirect costs are no longer capitalized, and, beginning with 1974, the allowance for funds used during construction is to be capitalized (at 7%) only on that portion of construction work in progress in excess of 10% of average annual net investment rate base for the then current calendar year. As a result, allowance for funds .ised during construction was not capitalized in 1978 or 1977. The annual revenue increases provided in tnese orders included compensation for the earnings reductions attributable to the implementation of these revised procedures. ;
Substantially all of the Company's utility plant is subject to a first mortgage lien. ,
f Depreciation -
Depreciation expense includes, in addition to provisions at straight-line rates, additional amounts equivalent to the estimated effect on Federal and state income taxes of the use ofliberalized depreciation, including the deduction of removal costs in the year incurred and other timing differences. The estimated reduction in Federal income taxes amounted to $809.000 and $844,000 and the estimated reduction in state income taxes amounted to $62,000 and $163,000 for the years 1978 and 1977, respectively.
Depreciation provisions, excluding such additional depreciation, were equivalent to annual composite rates for utility plant of 3.1% in 1978 and 3.0% in 1977. Such rates are based on the estimated lives of property.
The Company continually reviews the reasonableness of depreciation rates, and such rates have been accepted by the various regulatory commissions. Effective July 1,1978 the Company received approval from the PSCW to increase its gas depreciation rates resulting in an annual increase in such depreciation of approximately $89,000.
Income Taxes-(a) Depreciation for Fede.al and state income taxes reflects the use of liberalized depreciation as described in "Depreciatioa" above. (b) Investment tax credits are being deferred and applied as a reduction of Federal income tax expense over the estimated service lives of the related property. (c) Certain capitalized indirect costs explained under " Utility Plant" above have been deducted as incurred for Federal and state income tax purposes. The tax benefit of these items reduces income tax expense in the year the costs are incurred, (d) Total income tax ex pense, includin g net deferred investmen t credit and additional depreciation, produces
15 effective income tax rates of 55% in 1978 and 1977.These rates are computed by dividing total income tax expense by the sum of such expense and net income.
The follwing table reconciles these effective income tax rates to the statutory Federal income tax rate:
1978 1977 Effective income tax rate . . . . . . . . 55% 55%
! Current state income taxes and state additional
- depreciation (deferred income taxes). net of Federal income tax benefit . (4) (4)
Investment tax credit restored . I 1 Capitalized construction costs deducted currently 1 1 Book depreciation in excess of tax (4preciation for which additional depreciation (deferred income taxes) had not been provided . . . . . .. (6) (5)
Other, net , , . . . ... 1 -
Statutory Federal income tax rate . . . . . . .. . . 48% 48%
(2) Proposed Merger On January 3,1978, the Company entered inta a merger agreement with Northern States Power Company
("NSP") in which NSP agreed, subject to various specified conditions, to offer to exchange .48 of a share ofits common stock for each share of Company common stock outetanding, with cash to be paid in lieu of any
, fractional shares of NSP stock. Such agreement, which was to expire December 31,1978, has been extended s through April 27,1979. The exchange offer is to require the preparation of an " offering circular" and related j filing with the Securities and Exchange Commission and is to commence only after the satisfaction of various specified conditions set forth in the egreement, including the obtaining of requisite approvals of the applicable regulatory bodies and a favorable ruling from the Internal Revenue Service as to the offer being nontaxable for
' Federal income tax purposes. Prior to the commencement of the offer, the agreement may be terminated by
! either party under certain conditions. In view of the foregoing conditions precedent to the commencement of the offer, Company management cannot presently predict when or whether such offer will be made. In order for the proposed exchange offer to ultimately become effective, Company common stock representing not less than 80% of the outstanding voting power ofits outstanding securities (common and preferred shares) would be required to be tendered for exchange.
The agreement further requires, among other terms, that until the exchange offer is effective, the Company will not, without prior written consent of NSP:(a) make any change in its authorized capital stock,(b) issue any stock options, warrants, or other rights calling for the issue, transfer, sale or delivery ofits capital stock or other securities. (c) pay any stock dividend or make any reclassification in respect ofits outstanding shares of capital stock, (d) issue, sell, exchange or deliver any shares of its capital stock (or securities convertible into or which may be exchanged for such capital stock), except under its Employee Stock Ownership Plan, (e) purchase or otherwise acquire any outstanding shares ofits capital stock,(f) declnre or pay any dividends or distributions in respect of its capital stock, except at the regular quarterly rate of 26c per share of common hv stock and $1.25 per share of preferred stock,(g) amend or alter any ofits employee benefit or welfare plans or (h) issue any first mortgage bonds, debentures or any debt security with a term of more than 360 days.
I l (3) Tyrone Nuclear Project and Construction Program Construction work in progress as of December 31,1978 and 1977 included $1,048,000 and $776,000, respectively, representing the Company's share (2%) of a proposed 1,100 megawatt nuclear generating plant ("Tyrone")
to be jointly owned with other utilities, including NSP (Wisconsin), a 67.6% participant and designated as the constructing company. Tyrone is to provide the Company with an additional 22 megawatts of capacity.
The construction of the plant is subject to the approval of various regulatory authorities. Expenditures to date consist primarily of engineering design and site costs; no construction has begun.The Company's share of the cost of construction is estimated to total $22 million, which is to be provided by its own financing.
In February,1978, the PSCW indicated that it could not wusider further the pending application before it for authority to construct Tyrone and ordered the Company to suspend project expenditures since a portion of the plant was to be o'.vned by a corporation other than a Wisconsin corporation. As a result,in March,1978, the joint owners altered the ownership and construction arrangements, and the PSCW subsequently lifted the suspension of project expenditures.
( In August,1978, the PSCW issued an order regarding the long-range advance plan submission for electric power generation and transtnission in Wisconsin. The order stated, among other terms, that the Tyrone facility would be considered in further PSCW proceedings, while requiring a demonstration regarding the need for (or need for and direct economic or environmental benefit from) the facility. (In September,1978, the application of the joint owners for a certificate of authority to construct Tyrone was formally accepted by the PSCW.) Hearings were subsequently held before the PSCW regarding the foregoing required demon-i
l 16 l strations for Tyrone. On March 6,1979, the PSCW issued an order which, among other terms. (a) denied the Tyrone application because in the PSCW's view there had not been a sufficient demonstration of need for,
, or economic benefit from, the facility, (b) prohibited further expenditures for Tyrone, and (c) directed the joint owners to apply for the construction of a smaller coal fired plant. The Company and the other owners have not had an opportunity to properly evaluate the PSCW's order.
In addition 10 nmounts incurred ($1,048.000), the Company's share of contract cancellation penalties should
, Tyrone be terminated is presently estimated at approximately $613,000. The PSCW has not ir. %ated the disposition of such costs. Should these costs not be recoverable in a future rate making procs . ng, the estimated potential loss would be $866,000, net ofincome tax benefits of $795.000 and salvage effects.This would be equivalent to 66 cents per common share outstanding.
In view of the foregoing developments, the ultimate accounting treatment and impact on the financial state-ments of the amounts incurred and potential contract cancellation penalties cannot be predicted at this time.
The Company's estimated 1979 construction expenditures are $4,422,000 including originally planned expenditures for Tyrone of $415,000. Substantial commitments have been incurred in connection with the 1979 construction program.
(4) Notes Payable to Banks, Commercial Paper and Lines of Credit i The Company borrows funds on a short term basis as needed in connection with its construction program.
These funds are borrowed at the current prime or commercial paper rate. In connection with loan arrange-ments and associated bank lines of credit, the Company is generally required to maintain average bank deposits amounting to 10% of the lines of credit available to the Company plus 10% of loans outstanding thereunder. There are no legal restrictions as to withdrawal of these funds. In accordance with banking ,
practice, these lines are normally reviewed annually and may be withdrawn at the discretion of the lenders. 1 The Company has been authorized by the PSCW to incur total short term borrowings up to $4,000,000 #
in 1979.
The following information relates to commercial paper, notes payable to banks and hnes of credit for the years indicated:
1978 1977 As of end of year -
cm Interest rate on outstanding notes payable . .. . .., 11%% -
Unused lines of credit . ... . . . . . . , $1,800.000 S3,000.000 For the year ended December 31 -
Maximum amount of month-end borrowings . S1,200.000 $4,000,000 Average month-end amount of borrowings . . . S 258,000 S1,244,000 Weighted average interest rate on borrowings . 11% 6%
(5) Employee Benefit Plans Pension Plan-The Company has a noncontributory pension plan covering substantially all ofits employees. Total pension costs were $420,000 in 1978 and $350,000 in 1977, The Company's policy is to fund pension costs accrued.
, Unfunded prior service costs are being amortized over a 20 year period. Under the aggregate cost method adopted for 1977 and subsequent years, the unfunded prior service cost is not separately identified; the effect of this change in actuarial cost method was not material. As of January 1,1978, the date of the latest actuarial report, plan assets exceeded the actuarially computed value of vested benefits. See Note 2.
Employee Stock Ownership Plan-Under this Plan, the Company makes annual contributions to a Trust for the benefit of eligible employees.
The amount of the Company's annual contribution is to be equal to the additional 1% investment tax credit available to reduce Federalincome taxes payable by reason of establishing the Plan plus an amount equal to 20% of the employees' monthly contribution up to a maximum of 6% of their salaries. Employees are permitted to contribute to the Plan in amounts ranging from 2% to 12% of their salaries. Beginning in 1977 and continuing through 1980, the Company is also to contribute an amount equal to an additional 1/2%
investment tax credit up to the extent that eligible employees make additionel matching cash contributions to the Plan. The Company's contributions may be in the form of either cash or common shares of the Company. Substantially all of the assets of the Trust will consist of common shares of the Company. The Company's contributions, including amounts available from investment tax credits, were $111.000 and
$103,000 for 1978 and 1977, respectively. In 1978 and 1977,34,554 and 25,472 new shares, respectively, were issued to the Plan. The par value of the new shares ($345.540 and $254,720 for 1978 and 1977, respectively) )
was added to the common stock account, and the balance ($67,750 and $59,569 for 1978 and 1977, respective-ly) of the defined values as of the respective dates of issuance was added to the premium on common stock j account. Further,1,051 additional shares were purchased and issued to the Plan in 1977. In 1978 and 1977, l
$2,227 and $5,371, respectively, was amortized from premium on common stock and charged to other l
l l
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17 deductions representing Employee Stock Ownership Plan share issuance expenses, and in 1977 $3,674 of l such expenses were charged to premium on common stock. There were no other changes in common stock or premium on common stock during these years.
In July,1978 the Company, with the required prior approval of NSP, amended the Employee Stock Ownership Plan agreement to facilitate the combining of the Company's Plan into NSP's Employee Stock Ownership Plan when and if the merger referred to in Note 2 above takes place. The amendments had no effect on the j employee or Company contributions to the Plan. A new " determination letter" has been requested from the Internal Revenue Service regarding the tax exempt status of the Plan.
(6) Preferred Stock All or part of the shares of outstanding preferred stock are redeemable at the option of the Company upon thirty days' notice at a price of $107 per share plus unpaid accrued dividends.
(7) First Mortgage Honds In June,1977, the Company issued $4,000,000 of First Mortgage Bonds, Series J, at 8.55% due on June 1,1977.
A portion of net proceeds from the sale of the Bonds of Series J was used by the Company to retire short-term bank loans incurred to finance construction expenditures. The balance of the net proceeds was invested in temporary cash investments until required by the Company's construction program.
Sinking fund requirements on First Mortgage Bonds may be satisfied by the deposit with the Trustee of cash or reacquired bonds. For certain series, the requirements may be satisfied by the application of net expendi.
tures for bondable property.
Sinking fund requirements during the next five years on issues outstanding as of December 31,1978,less i
p v
amounts which have been satisfied, are as follows: $320.000, $490,000, $500,000, $540,000 and $540,000, respectively, in the years 1979 to 1983. In addition, $705,000 in 1979, $1,511,000 in 1980, $1,415,000 in 1981 and $1,502.000 in 1983 of First Mortgage Bonds will mature. The $705,000 of Series B, First Mortgage Bonds due in 1979 was redeemed in January,1979.
(8) Quarterly Financial Data The following is a summary of certain quarterly financial data (unaudited):
Net Net income Earnings Quarter Operating Operating Net Available for per Share of Ended Revenues income income Common Stock Common Stock (in Thousands Except For Per Share Data)
- 1978 -
March 31 $8,856 S1,217 $786 S749 S.59 June 30 7,100 723 311 273 .21 September 30 6.985 908 482 445 .35 December 31 8,693 1,054 603 565 .43
% 1977 -
g March 31 $8,719 $1,180 $711 $674 S.54 Juns 30 6,329 587 205 167 .13 September 30 6,559 863 437 400 .32 December 31 8.017 1,115 672 634 .50 The 1977 quarters have been restated for the effect of a fourth quarter adjustment to reflect additional depreci.
ation (tax benefit normalization) of $328,000. The effect of this restatement is to decrease net income by
$82,000 for each of the first three quarters of1977,($.07 per share for the first and second quarters and $.06 per share for the third quarter) and to increase net income by $246,000 and earnings per share by $.20 for the fourth quarter of 1977, Accordingly, this restatement did not affect total 1977 previously reported not income and earnings per share.
During July,1977, the Company's service territory experienced a severe windstorm which left widespread damage throughout its system and surrounding area. The Company incurred approximately $170,000 of related maintenance costs and had proposed to the PSCW the amortization of such costs over a 60. month period; however, pursuant to a directive of the PSCW these costs were charged to maintenance expense dunng the fmal quaner of l977.
Because of seasonal factors which affect the utility business, the quarterly results within a year are not comparable.
(9) Capacity Arrangement The Company has an arrangement (expirinr; November 1,1980), with Minnesota Power and Light Company
("MP&L") to annually purchase 50,000 knowatts of capacity from MP&L*s Boswell Number 3,350 megawatt
18 coal fired unit. In 1978 and 1977 the Company purchased approximately 44% of its total electric system requirements under this agreement.
! Under the terms of the agreement the Company pays a semi-annual capacity charge of $500,000 plus a defined l rate per kilowatt hour supplied to the Company. The total such payments to MP&L(84,424.088 and $3,817.371 for 1978 and 1977, respectively), are reflected as " Power purchased and interchanged. net" in the Statement l of Income and Retained Earnings.
l The Company has been informed that MP&L will not extend this agreement.
(10) segments of Business The following table presents information regarding the Company's operations as required by Statement of Financial Accounting Standards No.14; however, the Company is a regulated public utility, and such information does not fully reflect the rate-making treatment afforded by the various regulatory bodies.
The foregoing " Notes to Financia; Statements" are an integral part of this footnote.
Year Ended December 31,1978 (in Thousands)
Electric Gas Water Total Operating revenues (a) . . . .. .. . .. . $25 780 $5 811 S 43 S31 634 Operating expenses:
Operation and mantenance . . . . . 16 100 5 200 53 21 353 Depreciation. excluding additional depreciation (a). 2 242 198 5 2 445 Other taxes . . . . . .. .. .. . 1140 161 ~7 1 308 l Operating expenses before income taxes 19 482 5 559 65 25 106 l Operating income (loss) before income taxes. . . . 6 298 252 (22) 6 528 l Income taxes: .]
Current Federal and state income taxes, net investment tax credit, deferred.
and additional depreciation . . . . . 2 605 38 (17) 2 626 Net operating income (loss) . . . .... S 3 693 S 214 S (5) $ 3 902 Identifiable assets at December 31,1978 (b) . . . S44 919 $5 008 $239 S50 166 Assets not allocated (c) . .. .. . .
4 209 Total assets at Deember 31.1978 . S54 375
. Utility plant additions . . .. .. . . . S 5 424 S 215 S 4 S 5 643 Year Ended December 31,1977 (in Thousands)
Electric Gas Water Total Operating revenues (a) .. . .... . .. .... . $24 458 $5127 $ 38 ' S29 623 Operating expenses:
Operation and maintenance . . .
q
.. ... .. 15 329 4 512 46 19 887 N/
Depreciation. excluding additional depreciation (a). . 2 100 149 5 2 254 O ther tax es . . . . . . . . . . . . . . . . . . . . . . .... 1124 149 6 1 279 Operating expenses before income taxes . .. 18 553 4 810 57 23 420 Operating income (loss) before income taxes .. ,. 5905 317 (19) 6 203 Income taxes:
Current Federal and state income taxes, net investment tax credit, deferred, and additional depreciation . . .. . .. 2 407 64 (13) 2 458 Net operating income (loss) . . . ... .. .. . S 3 498 $ 253 S (6) S 3 745 Identifiable assets at December 31,1977 (b) . . . S42 655 S4 909 $242 S47 806 Assets not allocated (c) . ...... . .. .. . 3 877 Total assets at December 31,1977 . ... . . $51683 1
- 1 Utility plant additions . . . . . . ..... .... .. .. S 6 445 S 175 $ 30 $ 6 650 (a) See Note 1 for information regarding a change in accounting for unbilled revenue and regarding amounts recorded as additional depreciation representing the estimated reduction in income taxes due to various liberalized depreciation allowances for income tax purposes.
(b) Includes docated general plant and is net of the respective accumulated depreciation.
(c) Primarily includes investments, cash. accounts receivable, prepayments and deferred charges.
!- is l MARKET and DIVIDEND INFORMATION COMMON STOCK The Company's common stock is traded in the Over The-Counter Alarket and quotations are supplied by the National Association of Securities Dealers (NASDAQ Symbol LAKE).
Daily quotations can be found in the Wall Street Journal and other daily newspapers under the heading "Over The-Counter 51arkets". The quarterly range of bid and asked quotations and dividends paid during the past two years follows:
High Price Low Price Dividend
- Bid - - Asked 8id - - Asked Paid 1978 First Quarter 12 7/8 13-3/8 11 3/8 11 7/8 26d Second Quarter 12-1/4 12-3/4 11-5/8 12-1/8 26d Third Quarter 12-1/4 12 3/4 11 3/8 11 7/8 264 Fourth Quarter 11 5/8 12 1/8 10-1/4 10-3/4 26d b-s 1977 First Quarter 12 1/4 12-3/4 11 1/4 11 3/4 25d Second Quarter 12-1/4 12-3/4 11 1/2 12 26d Third Quarter 13-1/2 14 12 12 1/2 26d Fourth Quarter 12 7/8 13-3/8 12-1/2 13 26d PREFERRED STOCK The preferred stock outstanding which is a 5% series is not quoted on any organized securities market. Accurate price information is not available but we believe that during 1978 the stock traded at an approximate per share high of $57 and a low of $48. Dividends of
$1.25 per share were paid in each quarter.
MANAGEMENT'S DISCUSSION
- ~ )
The Company experienced increases in operating Other expense categories also increased, the majority revenues of 6.8% in 1978 as compared to 28.4% in of which were related to wage adjustments and general 1977. The increase in electric and gas revenues was price increases of materials and supplies.
due primarily to increased sales and the operation of the applicable fuel adjustment clause. The 1977 The increase in Federal income taxes for both 1978 and 1977 resulted from changes in taxable income.
increase in electric revenues was due primarily to rate Wisconsin state income tax increased from $27,000 increases. Increased water revenues in 1978 reflect a in 1977 to $228,000 in 1978 due to full utilization in rate increase received in October of 1978. prior years of the amortization of the difference be-tween federal and state tax basis.
Increases in operating expenses for 1978 include a net increase of 5% in the cost of fuel and purchased and Other income varied in both years because ofinereases interchanged energy. The cost of generation neces- and decreases in gains on bonds reacquired, interest sary to meet system requirements varied between income and net losses and net gains on the sale of years resulting in this net increase. Although the certam property.
quantities of natural gas purchased for resale Interest on first mortgage bonds in 1978 reflects a full essentially remained unchanged during the periods, year's interest on bonds issued in June of 1977. Other the gas cost from our pipeline supplier, Northern interest expense decreased in 1978 as a result of less Natural Gas Company, increased 16%. Slaintenance short-term notes outstanding; however, the notes expenses in 1978 increased 18% over 1977 primarily outstanding during the year were at an average rate due to extensive repairs of the gas turbine at Flambeau of 11% as compared to an average interest rate of 6%
Generating Station. in 1977.
1 i
I 1 30 I
SUMMARY
OF EARNINGS (Unaudeted)
(IN THOUSANDS) 1978 E 1976 1975 1974 OPERATING REVENUES:
Electric $25 780 $24 458 S18 801 $16 551 515 529 Gas 5 811 5 127 4 236 3 693 3 248 kvater . 44 38 38 36 37 Total 31 635 29 623 23 075 20 280 18 814 OPERATING EXPENSES:
Operations -
Fuel used for electric generation 5271 4 280 3 070 3 011 2 866 Power purchased and interchanged, net. 4 795 5 315 3 814 1800 1 913
')>
Gas purchased for resale . 4 200 3 633 2 659 2 277 1 845 Other 5 370 5 204 4 774 4 243 3 949 Maintenance . 1716 1 455 1 246 1 202 947 Depreciation (Note) . 3 316 3 261 3 082 2 840 2 818 Taxes other than Federal income taxes 1 573 1 338 1 278 1230 1 290 Federal income taxes . 1 492 1 392 269 619 350 Total . 27 733 25 878 20 192 17 222 15 978 OPE RATING INCOME . . 3 902 3 745 2 883 3 058 2 836 OTHER INCOME:
Allowance for funds used during construction . . - - - - -
Other, net. 31 f62) 64 79 42 Total 31 (62) 64 79 42 INCOME BEFORE INTEREST EXPENSE . 3 933 3 683 2 947 3 137 2 878 INTEREST:
First mortgage bonds . . 1711 1 572 1 436 1 018 877 Other interest 40 86 110 386 458 Total . . . . 1 751 1 658 1 546 1 404 1 335 NET INCOME . . 2 182 2 025 1 401 1 733 1 543 DIVIDENDS ON PREFERRED STOCK . 150 150 150 150 150 NET INCOME AVAILABLE FOR COMMON STOCK . $ 2 032 $ 1875 $ 1251 S 1 583 S 1 393 EARNINGS PER SHARE OF COMMON STOCK . $ 1.58 S 1.49 3 1.02 $ 1.29 $ 1.14 DIVIDENDS PER SHARE $ 1.04 5 1.03 S .99 S .92 $ .88 NOTES (amounts in thousands)
Depreciation expense includes deferred income taxes classified as depreciation expense of $871, $1,007,$966, $787 and $842.
for the years 1978.1977,1976,1955 and 1974 respectively.
Operstmg revenues for the years 1978 and 1977 reflect the change in method of accounting to record unbilled revenues as discussed in Note 1 to the financial statements
- - _ . . - - . ~ . ~ . . .. --....-.; . - ~ - - - - . . - - , - _ _ .
6 i
i f
E
- OPERATING STATISTICS 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 Revenue (thousands)
ELECTRIC Residential $ 9 020 $ 8 761 $ 7 455 $ 6 534 $ 5 618 $ 4 903 $ 4 765 $ 4164 $ 3 882 $ 3 702
, Commerciat . 6 013 5 744 4 731 3 990 3 544 3 270 3 054 2 632 2 379 2 253 Industrial 7 655 7 837 4 913 4 121 4 128 3 640 2 927 2 460 2 476 2 491
- Other 3 092 2 116 1 702 1 906 2 239 2 084 2 023 1 875 1 765 1 531 Totat . $25 780 $24 458 $18 801 $16 551 $15 529 $13 897 $12 769 $11131 $10 502 $ 9 977
{ GAS Residential $ 2 339 $ 1901 $ 1770 $ 1517 $ 1290 $ 1 117 $ 1245 $ 956 $ 718 $ 609 Commercial 1 832 1 566 1 356 1 205 1 045 876 918 727 539 391 Industrial and Other . 1640 1 660 1 110 971 913 785 700 598 398 193 Total $ 5 811 $ 5127 $ 4 236 $ 3 693 $ 3 248 $ 2 778 $ 2 863 $ 2 281 $ 1655 $ 1193 l Sales (thousands)
E LECTRIC . KWH Residential 207 856 204 001 202 141 194 621 189 660 182 268 179 758 169 043 160 390 153 006 Commercial . 133 873 128 090 122 936 113 819 107 663 107 511 100 136 90 266 82 113 77 850 Industriai 248 629 258 182 191 413 177 291 207 686 210 686 161 619 140 497 151 724 156 133 Other. 81 976 77 064 73 190 90 268 124 967 114 943 108 707 102 537 96 847 88 490 Total KWH . 672 339 667 337 589 680 575 999 629 976 615 408 550 220 502 343 491 074 475 479 GAS MCF Residential 1 042 941 1 047 946 903 792 904 722 576 493 Commercial 947 921 973 966 973 890 924 751 578 390 Industrial and Other . 874 1 066 1 071 1 172 1 353 1 463 1 331 1 132 921 421 Total MCF 2 863 2 928 3 091 3 084 3 229 3 145 3 159 2 605 2 075 1 304 Customers Served at Year.End:
ELECTRIC Residential 33 903 32 236 31 511 31 000 30 188 29 297 28 512 27 909 27 355 26 786
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Commercial . 5 292 5194 5 270 5 301 5 239 5 234 5 140 5 142 5 134 5 026 Industrial 58 59 52 60 60 57 62 56 56 55 Other 165 145 136 134 147 143 134 133 130 122 Total . 39 418 37 634 36 969 36 495 35 634 34 731 33 848 33 240 32 675 31 989 GAS Residentiat 7 485 7 076 6 739 6 385 6 005 5 396 5 000 4 657 4 039 3 137 Commercial 1 379 1 301 1 229 1 166 1 103 1 023 935 860 699 483 Industrial 31 34 30 20 21 20 20 18 12 7 Total 8 895 8 411 7 998 7 571 7 129 6 439 5 955 5 535 4 750 3 627 Residential Averages per Customer ELECTRIC Annual KWH. 6 318 6 394 6 470 6 351 6 365 6 287 6 367 6 121 5 940 5810 Annual revenue . $274.18 $274 63 $233.63 $213.22 $188.55 $169.11 $168.77 $150.79 $143.76 $140.56 Revenue per KWH , A344 4.294 3.69c 3.36d 2.964 2.69e 2.654 2.464 2.42c 2.42d GAS Annual MCF . 144 137 160 153 160 154 188 166 171 171 Annual revenue $322.34 $276.25 $270.97 $245.77 $228.42 $216.47 $259.36 $220.39 $213.01 $211.E 5 I Revenue per MCF . $ 2.25 $ 2.02 $ 1.69 $ 1.60 $ 1.43 $ 1.41 $ 1.38 $ 1.32 $ 1.25 $ 1.24 DOD/YR 9319 8720 9266 8953 8992 8314 9950 9147 9295 8338
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