ML20205H056
| ML20205H056 | |
| Person / Time | |
|---|---|
| Site: | Monticello, Prairie Island  |
| Issue date: | 12/31/1998 |
| From: | Voth M NORTHERN STATES POWER CO. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| RTR-REGGD-10.001 NUDOCS 9904080043 | |
| Download: ML20205H056 (59) | |
Text
4 Northern States Power Company 4"
Monticello Nuclear Generat'ma Plant 2807 West County Road 70 Monticello, MN 55362 l
March 25,1999 10 CFR 50.71(b)
U. E Nuclear Regulatory Commission Attention: Document Control Desk Washington, DC 20555 MONTICELLO NUCLEAR GENERATING PLANT Docket No. 50-263 License No. DPR-22 PRAIRIE ISLAND NUCLEAR GENERATING PLANT Docket No.
50-282 License No.
DPR-40 50-306 DPR-60 Submittal of 1998 Annual Report including the Certified Financial Statements i
in accordance with 10 CFR 50.71(b) and item No. 70 in Regulatory Guide 10.1, enclosed are ten (10) copies of our 1998 Annual Report, including the certified financial statements.
If you have any questions with regard to this information, please call Scott L. Weatherby at (612)-
l 330-7643 or Sam Shirey at (612)-295-1449.
Sincerely,
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Marcus H. Voth Project Manager of Ucensing Monticello Nuclear Generating Plant
/f Idolf c: w/ enclosure Regional Administrator-Ill, NRC Monticello NRR Project Manager, NRC Monticello Resident inspector, NRC Prairie Island NRR Project Manager, NRC Prairie Island Resident inspector, NRC c: w/o enclosure State of Minnesota, Attn: Steve Minn J E Silberg S L Weatherby q
9904080043 981231
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PDR 3/22/99 $15 Ji\\ LICENSE \\Teriodic Reports \\ 9 BAN _RPT.I.TR. doc
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(NORTHERN STATES POWER COMPANY (NSP)
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,L A major U.S. electric and natural gas utility headquartered in Minneapolis, V
Minnesota 3SP-and-ittwholfpVME6 subsidiary NSP-smission and distribution facilities providing electricity to about 1.5 million customers in Minnesota, Wisconsin, North Dakota, South Dakota and Michigan.
I The two companies distribute natural gas to about 475,000 customers in
' Minnesota, Wisconsin, North Dakota, South Dakota, Michigan and Arizona.
NRG ENERGY,INC.
Operates and has ownership ieterests in nonregulated energy businesses around the world, with major projects in the United States, Germany and Australia Reddy Kilowatt became the VIKING GAS TRANSMISSION COMPANY exclusive property of NSP !n Owns and operates a 500-mile interstate natural gas pipeline 1998. Widely used by NSP and otiier utilities in the 1940s, EL0lGNE COMPANY
'50s and '60s, Reddy is back Finances affordable housing developments, primarily in NSP's service territory to showcase NSP's products and services in a competitive ENERGi MASTERS INTERNATIONAL, INC.
environment. We also created Offers energy services such as upgrading facilities for greater energy efficiency a new symbol, ?.Hdy Flame, to represent NSP Gas.
SEREN INNOVATIONS, INC.
Delivers high-speed Internet access, telephone service, cable TV and video-on-demand ULTRA POWER TECHNOLOGIES, INC.
Markets diagnostic power cable testing technology ReMiadae4...
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$29.125 (4.7)%
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$7144.1 3.5%
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? JAMES JfHOWARD!
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NSP entered a new era in'1998 With your board of directors' approval, we launched
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- a 10-pomt game plan that positions your company to succeed in a competitive
. environment and will_ lead.to unlocking value for you, our shareholders, as the
- electric industry restructures. 0ur plan opens new gmwth avenues for your invest-ment, while ensuring reliable, competitively priced energy for our customers and offering meaningful opportunities for our employees.
? We initiated our game plan because of dramatic changes occurring in the electric industry. NSP exists today as an integrated electric utility, which means -
our generation, transmission and distribution businesses are consolidated into one company. The federa, government as well as individual states have intro-duced and, in some bases, implemented legislation mak'ing it impossible for an integrated electric utility to survive in a competitive environment.
The Clinton administration has a plan before Congress encouraging
. competition for retail customers by 2003, which means individual home1wners would be able to choose their energy suppliers. At least 19 states have either 2_
- mandated or endorsed competition in the retail electric market. Some states have
. gone as far as to requira utilities to divest assets. To foster competition in the wholesale electric market, federal regulators ruled that the transmission portion m
of a utility's business must be separate from the utility's generating facilities.
s The state of Wisconsin requires us to choose a separate transmission operating structure byJune 30;2000.-
' Our game plan envishns eventually separating NSP's integrated businesses to maximize iheir value in tnose competitive markets. In many ways, we are ahead of 1
the game because we already have created individual busine;s units. Our 10-point Q
game plar is a contemporary extension of that effort.-
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JAMES J. H0 WARD C4% dd(Pl6dd[dMd/
Chairman of the Board, NSP entered a new era in 1998. With your board of directors' approval, we launched President and Chief a 10-pom. t game plan that positions your company to succeed m. a competitive Executive Officer e d a d W wiHle @ M ig d e W M d h &
electric industry restructures. Our plan opens new growth avenues for your invest-ment, while ensuring reliable, competitively priced energy for our customers and offering meaningful opportunities for our employees.
We initiated our game plan because of dramatic changes occurring in the electric industry. NSP exists today as an integrated electric utility, which means our generation, transmission and distribution businesses are consolidated into one company. The federal government as well as individual states have intro-duced and, in some cases, implemented legislation making it impossible for an integrated electric utility to survive in a competitive environment.
The Clinton administration has a plan before Congress encouraging competition for retail customers by 2003, which means individual homeowners would be able to choose their energy suppliers. At least 19 states have either mandated or endorsed competition in the retail electric market. Some states have gone as far as to require utilities to divest assets. To foster competition in the
. wholesale electric market, federal regulators ruled that the transmission portion of a utility's business must be separate from the utility's generating facilities.
. The state of Wisconsin requires us to choose a separate transmission operating structure byJune 30,2000.
Our game plan envisions eventually separating NSP's integrated businesses to maximize their value in those competitive markets. in many ways, we are ahead of the game because we already have created individual business units. 0er 10-point game plan is a contemporary extension of that effort.
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N To put it simply, we have a vision for the future and a game plan to achieve that
\\ vision. The foundation of the game plan is to unlock substantial value for our shaleholders m ever)rway we can,ancluding using some innovative methods.
For example' we're proposing a nuclear generating company as well as an independent transniission company for which there are no modeEWe are blazing the trail, a familiar position'for us
's We adopted nuclear power eaIfy on,-for example, and made it work. We
'N used low-sulfur coal and added emission contIojs to our power plants long before N h
environmental regulations required it. We have a solid ' record of actions and successfully executing them, often before it is standard actice s Our game plan follows that pattern. While there are challenges, I am confident 'N l
that we have the ability, passion and focus to achieve our goals.
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N From a financial perspective, we performed very well in 1998, despite the
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impact of damaging storms and a warm winter NSP eamings per share increased to $1.84 in 1998, up from $1.61 in 1997, due primarily to strong electric sales and e
j an outstanding n rformance by our nonregulated subsidiary NRG Energy.Without
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unusual werSer throughout the year, our 1998 earnings would have been $2 per share and our five-year average annual growth At $0.26 per share, our nonregulated earnings more than doubled in 1998, compared with $0.11 per share in 1997. NRG's earnings per share increased' 75 percent compared with 1997 results.
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We were disappointed that our strong financial performance was,not adequately reflected in our stock price, which closed the year at $2JJ5, down 4.7 percent from 1997. A major reason for the drop was a concerrf that we may iose the ability to recover the costs of helping our customers conserve energy, As you consider our stock price, keep in mind that over the'iast five years, the '
total return from your NSP investment has been ll. percent, which is very strong. As we work diligently to unlock value for youin the future, we expect our
~ tock price to reflect those efforts.
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g Our list of 1998 accomplishments isimpressive. We completed a June 1 stock split. We became the exclusive owners of Reddy Kilowatt, a world-renowned symbol, to represent our electric expertise,afid we created Reddy Flame, who will represent our gas utility.We commemoratId the installation of Phase ll of our wind power com-mitment in a ceremony atIhe wind farm near I.ake Benton, Minnesota.
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l We expanded our industry-leadMg automated meter reading system to include gas l.
and electric customers in St. Paul, Minnesota. Our NRG Energy subsidiary not only l
made a substantial contribution to earnings, but continued its rapid growth, more.
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than doubling its owned megawatt capacity by early 1999, and became a major j
player in the California power market. 0ur Seren innovations subsidiary is building a state-of-the-art digital network that promises to revolutionize the way customers p-
~ communicate,-access information and find entertainment.
7 Our employees and retifees pledged Jnore than $1 million to the (Jnited Way.
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They also were recognized by the Meals on WheeTs organization for delivering a quarter million meals over the last 10 years. Once again, we wYcommended by X the Minneapolis Chamber of Commerce's Minnesota Keystone ProgrMa fok
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tributing 2 percent of our pretax income to charitable organizations' i
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in January 1999, Ed Watzl, NSP executive vice presid6nt, retired after more l
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than 31 years of service. Ed was most recently responsible for establishing the -
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nuclear management company His leade'rship and expertise were invaluable.
We wish him an enjoyable.retirfment.
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'N'N Allan L Schtiftian, president and chief executive officer of Ecolab inc.,
joined outboaN of directors in early 1999. An individual with extensive interna-N tionalf$siness experience, Allan has served on the Ecolab board since 1991 and
'N'x',/is a board member of a variety of Twin Cities-area com You can read more about our 10-point game plan in the following section.
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We will continue to execute and refine our plan as market opportunities develop
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'in our rapidly changing industry. We're excited about the future. Reddy, Set, Grow, -
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ourlheme for this annual report, reflects the opportunities awaiting us and sums i
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up our visi6neWe're focused on finding growth and unlocking value. And while we f
navigate the newly competitive marketplace, Reddy Kilowatt and Reddy Flame '
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will shine on as symbols'bf our expertise.
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As an NSP shareholder, yotihave the best of both worlds. You're reaping the benefits today of strong, well-managed, Integrated businesses. And you stand to gain even more in the future as we open new aYenueQ growth and greater value. I'm confident we have the management team and employees in i
place to carry out our plan. We appreciate the trust you have placehn us and are 5
delighted that you are ready to grow with us.
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James J. Howard Chairman of the Board President and Chief Executive Officer February 1,1999 agi.
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. Created to take advantage of the independent power producer (IPP) market, yi p
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ij By early 1999, NRG had more than doubled its owned megawatt capacity, repeating M'
l the growth it achieved in 1997. TodayJRG is thrlarg6ttlPP in AustrWa'th j7 j/
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-- second largestpoducerofielusederived fuel in the United States and a major p['s j//
1 ayerin1he new California power market. The' company is aiming for a top three y( p, s/
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. position in each of its core markets: North America, Europe and Asia Pacific.
In North America, NRG added three major, power plants and 17 combustion L
turbines to its existing California portfolio of 19 facilities in operation or under a
from Niagara Mohawk with a total capacity of 1,360 megawatts. Combined with its
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newly purchlised 229-megawatt Somerset Station in Massachusetts, NRG has a
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turns landfill gas into electricity, continued to excaed its targets.
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in Europe, NRG owns 25 percent of the Enfield Energy Center, a 396-megawatf, n RfhWf'*y natural gas-fired plant near London, which should begin commerci3}ibperations1n third@ ' 7%Ihy quarter 1999. In the Czech Republic, NRG is expanding the ECK Genera $in'gproject,f dd$:,
having added a natural gas-fired unit in 1998 and planning a goaffired unit ~in 19'99x Yht
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in the Asia Pacific market, NRG's Collinsville Power Sfation, a 189-megawatt, N
' ydf coal-fired generating plant in Queensland, tralfa', began commercial opera-pjpgdy R
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- tions. Loy Yang, a 2,000-megawatt, coal-fire electric generating plant in Victoria,
' Australia, performed wellin 1995cwilfIa 98 percent availability rating and low marginal cost. NRG owns 25Tercent of Loy_ Yang. Because Australian pric ng has
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been much lowerMn originally forecast, however, the plant turned in disappointing N
financial results. We will continue to see that this plant remains competitive while N
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,AxeIning our options in the Australian market.
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fosdocep-teswsuafue for several years, we've been preparing our conventional generating facilities to operate as a stand-alone business in a competitive market. We consider those n
plants, which include all generating facilities but nuclear, to be a future profit center, particularly as more electric markets open for competition.
Because we've been able to lower the overall cost of producing power at our
' conventional plants, we're operating them more today than ever before. We continue T
' to make careful investments in them to keep them reliable, efficient and competi- -
tive. In 1993, for example, we completed the largest maintenance outage ever at our
- DID YOU KNOW:
- Shetco coal-fired plant, resurfacing the unit 1 boiler and replacing the control lNSP's peaking plants,.
system. We Also overhauled the high-pressure turbine at our King coal-fired plant.
. which run during periods;>
- As a result of strategic reinvestment, even our older plants are operating of high electric demand,'..
- at a competitive level. A good example is our Riverside coal-fired plant. Built 4were called on'to operate.
in~1911', Riverside has been revitalized. In 1998, the plant's avaihbility was
,,1substantially more than 89.63 percent, the best of our coal-fired facilities.
we'd originally anticipated '
- In addition, we work hard to maintain the delicate balance of producing r
for 1998. In all cases, they-electricity and protecting the environment. For the past 25 years, we've invested L,
met customer demand..
extensively in advanced pollution control equipment to reduce emissions while
' increasing fossil fuel generation.
In 1998, we began installing wet electrostatic precipitators on units 1 and 2
. of our Sherdo coal-fired plant to further redtse particulate emissions. We also are a
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Our Monticello and Prairie i l'andfiuclear plantsWe~xtremely valuable assets, l
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= producing sa.fe, reliable, low-cost'an environmentally sound electricity. However,~
with inmasing regulation, federal bureaucracy and associated costs in the N
nuclear industry, we believe the best way to unlock the valueof our nuclear assets is to combine our plants with other well-run nuclear plants ir$t aireQnding nuclear generating company. The combination will enable us to maintain safe,sN reliable electricity while lowering costs.
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We achieved an important first step in that process in August when we l formed an alliance with three Midwestern utilities: Alliant Energy, based in Madison, Wisconsin; Wisconsin Electric Power Co., Milwaukee; and Wisconsin s.
j#;-n ~,,f,,O,j, Public Service Corp., Green Bay. The utilities operate seven nuclear plants at F
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' five sites with total generation exceeding 3,650 megawatts.
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have created new opportu' nities in theiholesale electric market. NSP, a long-time participant in that market, created NSP Energy Marketing to bbtter-profit from
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thosa opportunities and'to maximize the value of our generating assets 7N In 1998, NSP Energy Marketing purchased and sold more than 6,300 million
,e kilowatt hours of electricity, achieving a 35 percent increase in wholesale sales.
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We also led an effort to establish an electricity futures and options trading contract -
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at the Minneapolis Grain Exchange, which took effect in September.
Because electricity cannot be stored, it is by far the most volatile aergy com-4 tilD YOU KNOW; modity. While NSP has a comprehensive risk management program in place, the Lie trading unit size Minneapolis Grain Exchange contract provides us with a hedge'against price volatility.
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. foiTwin Cities electricity We ~will expand our energy marketing activities in 1999, focusing on meeting 2
- futures contracts is the needs of our retail and wholesale electric customers.
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Regulatory Commission requires the transmission portion of a utility's business
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b Wisc,onsirns uinng Wisconsin utilities,to choose a separate transmission L
j, operating structur.
' e 30,2000. While other alternatives exist, we believe the m~tbesthay to ensure a reliable, fficient, customer-responsive electric transmission i
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]._.J As d. market' orijnted and profit-driven corpora g lTC would offer a i wider array of services and bettei service quality for transmiss' customers. An j
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i in November, Alliant Energy of Madison, Wisconsin, joined forces with us to
__j develogthe lTC an,d.we continue to talk with other potential partners. Wiexpect to t
seek approval in 1999 from state and federal regulators to form the new company.
As part of the regulatory approval hrocess, we'also will file a tariff designed
<__ _to promote open and economical delivery of electric poweIthmugtidd t'he region.!
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Theitariff would be ayailable to both ITC and non ITC participants, and would.
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1 conipanies;and incur sevu hes to moye electricity acmss a region.
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Viking Gas Transmission Co. is a 500-mile natural gas pipeline extending from northwestern Minnesota to north central Wisconsin that transports 480,000 Mcf -
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ommunWes now receNe natural gas as a DID' YOU KNOW:
les ng Gas enansions oMe pasWeyears.
Customers transporting-In Septemoer 1998, Viking filed a request with the Federal Energy natural gas through the Regulatory Commission to once again expand its system in central and northwest Vikmg Gas system include he2 b 19993e ep@ miM Wie@ WM met d municipalities, industrial me exi@ Weg M wWig's # d Wiq peabhes d energy users, natural gas natural gas to the Upper Midwest while increasing reliability for all customers on distribution companies i
en WMis b Wi% N ea@ M med amah and energy marketing eued oWion Wo@M b # @ MWig
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safety record. Employees at both the Hallock, Minnesota, and Chippewa Falls, l
Wisconsin, compressor stations have worked 38 years without a lost work day incident; employees at the Perham, Minnesota, station have worked 31 years without a lost work dayincident.
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- 2, Ditae Ener9y 1&steu %eteueational ta gnobrao%
Although the market is promising for such services as retrofitting and upgrading -
facilities for greater energy efficiency, few energy services companies have found -
a winning formula for success in a changing industry. Energy Masters International T
(EMI), an NSP subsidiary, also has struggled to become profitable. However, a new management team is in place at EMI, and the company has narrowed its focus, f
winning several contracts against stiff competition.
The U.S. Department of Energy and the U.S. Department of Defense selected -
EMI as a qualified vendor to upgrade energy systems at federal facilities nationwide, ;
and EMI has landed individual federal contracts worth $4.4 million.The Chicago L
Public Schools awarded EMI a $15 million contract to renovate 11 elementary :.
and high school buildings, while Governors State University in University Park.
Illinois, selected EMI to complete similar upgrades. In November, EMI formed a -
partnership with a local energy company to deliver energy-saving services to, Barksdale Air Force Base near Shreveport,l.ouisiana.
The company also was selected by the Building Owners and Managers -
Association of Chicago (B0MA/ Chicago) to help reduce the nearly $200 million in;-
annual energy cosis paid by its members. EMI will provide energy management "DID YOU KNOW:
services and conservation programs to B0MA/ Chicago members, who own or K EMI specializes in designing manage more than 100 million square feet of commercial real estate.
- projrcts to help customers save Lenergy. Those projects include
f-(
- c Energy management' systems f
3Oghting upgrades, replacements I
l and controlinstallations T 4 HVAC improvements :
- 0 Heat recovery 2 o On-site generation.
E < a Power factor correction m
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aus come eteekte and natural pas dsuhtduttore dustaesses l
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While our game plan positions our generation and transmission asse'ts for long-term
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value, it also requires us to grow our core electric and natural gas distribution
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businesses. We believe the best way to achieve substantial growtii is to acquire or
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merge with other electric and natural gas businesses.
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Fortunately, the operational excellence of our core businesses puts us in a
'I, strong position as we seek acquisitions and mergers.
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!C. % ape our Gusinesses as a portf,ou4 As we move forward with our game plan, we will manage our collective businesses as a portfolio. Each business has its own management, performance measures
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and financial reports. Each business focuses on growth.
j While we recognize the value of the portfolio, we will consider divesting businesses or assets if it will increase value for you.
[ i dlD YOU KNOWr NSP has en impressive portfolio of assets with a market value that far exceeds
- its value on paper. Those assets include:
3 [%SP gekeutten ;
%Rg generation
, i Fossli, Oil and Gas 5,346 megawatts owned IPP 5,525 megawatts owned -
- Nuclear-.
1,545 megawatts owned
- Thermal 1.000 megawatts thermal l f :(:fienewable 300 mepwatts owned e
3
,7t4admh /an-
- ste 844inede
+
c* - Approxima,tely 6,500 riles -
Electric and natural gas customers -
Approximately 1.9 million customers b
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' Statrae Ene9s ')Maste<s %te<uttonat 500-mile pipeline' 3,285 affordable housing units -
Accredded by the National Association of L
Energy Service Companies (NAESCO)
N
- c!7tttu Pawer UlSerea %4wattend l
(. Broadband distribution netwerk Cable testing service 13
DID YOU KNOW:
- The May 30 storm alone affected 485,000 customers and 3,000 miles of power lines.
- NSP answereo ;?O.000 customer calls and coordinated a field force of 540 line j
workers,140 tree-trimming crews and 150 support personnel.
- 70 percent of affected customers had their electricity restored within eight hours.
- 85 percent of customers were back within one day.
- 100 percent of customers were restored within eight days.
l t
1998in review 1 TSP dattka the pnees bf natare Spring and summer storms caused more damage to the NSP system than ever
- before. A March tornado was followed by two storms in May that knocked out power to almost a million NSP customers in the Twin Cities metropolitan area, resulting in the largest resturation effort in our history. In June, another round of storms again disrupted service and caused more damage.
NSP employees wcrked quickly, safely and diligently to restore serv ce.
No one was hurt or killed by a downed power line. in total, we experienced about 1.9 million storm-related outages'in 1998, which is about three times the average number of storm-related customer outages in the past few years.
FOUR DIE IN ST. CLOUD EXPLOSION A natural gas explosion in downtown St. Cloud, Minnesota, on Dec 11 killed four people, including two NSP orkers who responded to a call reporting a gas leak.
NSP employees Bob Jacobs and Karl Klang were hailed as heroes by NSP Chairman, President and CEO Jim Howard for their response to the emergency.
'The gas leak that triggered the explosion occurred when a contractor hit a natural gas pipeline. The National Transportation Safety Board (NTSB)is investi-gating the incident and already has determined that the original gas locates were marked correctly. The NTSB will make its findings public. NSP is cooperating
. fully with authorities in the investigation.
14
p:
NUCLEAR STORAGE HAS UPS AND DOWNS N
in June 1998, NSP filed a lawsuit against the U.S. Department of Energy (DOE) to s
dc'over more than $1 billion in damages caused by the DOE's breach of obligation to accept anDisposegpent nuclear fuel. Earlier in the year, the DOE failed to meet its court-affirmed, unconditional obligation to begin accepting the waste by Jan. 31,1998. In addition, Congresifailed to complete work on the Nuclear Waste Policy Act in 1998, but the bill was introduc'ed in the 1999 session.
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Meanwhile, NSP continues to work on a private, tbmporaryJtorage solution-
~~~
as part of a group of eight nuclear utilities called PrlsteTu~el Storage LLC. The e
group proposes to build a private;TnteIm facility on land owned by tlEe Skull
/, store spei5t nuclear fuel until a federal long available. Currently tqder review by the Nuclear Regulatory Commiss.an, the project is on schedule to begin operating by the end of 2002.
NSP NUCLEAR COMPLETES TURBINE MODERNIZATION
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NSP completed an upgrade of the turbine on Prairie Island unit 2 in 1998, and
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increased power at our Monticello nuclear plant, a procedure known as an uprate.
gg pyg Prairie Island's turbine upgrade will yield approximately 12 additional megawatts, J*y gp.%
fhM[;N(M NNk while Monticello's uprate will boost output by about 40 megawatts. Those actions
& 7 and 1997's upgrade of the turbine on Prairie Island unit 1 ensures our nuclear
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NSP GAS KEEPS GR041NG STRONG i
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b NSP Gas has added more than 10,000 new customers each year for the last five y
fQ years. Since 1994, the company's growth in gas throughput has averaged 3 percent N~
L, h'
N per year. In 1998, the company added two natural gas utilities to its operations:
N Natural Gas, Incorporated, of New Richmond. Wisconsin, and Black Mountain Gas /
of Cave' Creek, Ar.izona. Both are located in rapidly growing areas of the country.'
DID YOU KNOW:
In other 1998 highlight NSP Gas won a major contract aga' t stiff We commemorated the competition to serve an 18-hole mpionshg. golf course arjd stirroundm.g eh M PW H h 750-home site residential community in Blaine, Mmnesota~'N wmd power commitment in
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September with a celebra-NSP IS READY FOR Y2K CHALLENGE /
tion at the w. d farm r.te m
NSP will complete its Yearj!000 snorts in 1999. At the end of 1998, we had 1
near Lake Benton.m south-accomplished thpecessary remediation and testing of 70 percent of all I
p mission-criticIsystems affected by the Year 2000 problem. We are on track includes 143 wind turbines Adth final remediation and testing of our remaining mission-critical items, which with a capacity of 107 will be complete by June 1999' megawatts. Our goal is
[
to have 425 megawatts l
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installed or under contract by the end of 2002.
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i 4 ECON 0 IC DEVELOPMENT EFFORTS CollTINUE TO MAKE A DIFFERENCE j NF i Thsnks in ' rt to NSP's economic development efforts, Renewal by Anderser,,
b M ( [a subAidiary of dde'rsen Windows, selectid a 30-acre site in Cottage Grae, M dMinnesota,tocon a 225,000-squars-foot facility; The $13 million project will h ' ' ' provide 225 new jobs $lilastimated.annu'ai electric and ' gas revenues of $415,000.
N ? ' IBssinesses in downtowQand Forks, North Daksta,'are up and running
?i
, PaftN 199fs devaistating fl600 and the and benefitiiig from a special NSP electric (rate. NSP proposed the rate, which allows % bout a 25
' n of a e N b0sinessinontiily elestric bill, to encourage Exis ~ ' businesses to stayin the C
'. area and attract now businesses'downtownf J
.l In Ashland, Wisconsin, NSP worked with business and city lea o attracti o
Jnew bu' inesses 50 thN area afi ilarge paper company closed operations '
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c February, putting 220 ' people out of irk.' With NSP's help, three new comp.anies _.
s N : hand ltwo' expansions have_ replaced' all' thi jobs lost.
y tilSP REdOSlll'ZE0 FOR WORK WITH YOUNG PEOPLE "
~
' (NSP's efforts to help prepare young people for post-secondariducat' ion and.
s careers' won an Edison Electric Institute Conimon Goals Award. NSP received "
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$the top award given in the Education Partnerships category for supporting the l
C j Academy of Manufacturing Engineering Technoiogy at Mim,ieapolis North Community)
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' i High School land the Prepare Saint Paul career choices initiative, sponsored by; L gi]Wf ~ g$
- the Saint Paul Area Chamber of Commerce.
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>IPrairie islasd retained excellekperformance ratings in 1998 from the' World :
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j Associat'on of Nuclear Operiths and the Institute of Nuclear Power Operations i,
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[ $g: :;(INPO)[mading the seventh consecuti.ve time that the' plant y
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( %( j i 7 No.l1 rsting. INP0'also cited training programs at both the Prairie Island and -
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- M6nticello nuclear plants as outstanding. 3 Jg' 7
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< < m - g gggg D ' fCOMMITNElliTO EMPLOYEES AN'D COMMUlllTY REMAllIS STR0lIG
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+> ( No matter how'm~uch NSP ' changes in the next few years, we will remain committed
%[hl[h%dd 4 J$to'our employees and to the communities iwe serve. In 1998,'our diversity effort
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' T 3,285 h6u' sing units across our service territ'ory.-
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f"M!8 Selected Financial Data i
(Ar h V 4.v. w. w 4,i A w 4.as) 1998 1997 1996 1995 1994 j
Utdaty operating revenues
$2 819
$2 734
$2 654
$2 569
$2 487 l
l Utility operating expenses
$2455
$2 372
$2 288
$2 223
$2178 Net income -
$282
$237
$275
$276
$243 Earnings available for common stock
$277
$226
$262
$263
'$231 Average number of common shares outstanding (000's) 150 502 140 594 137 121 134 646 -
133 550 Average number of common and potentially dilutive shares outstanding (000's) 150 743 140 870 137 358 134 832
- 133 689 l
Earnings per average common share:
Basic
$1.84
$1.61
$1.91
$1.96
$1.73 Diluted
$1.84
$1.61
$1.91
$1.95
$1.73 Dividends declared per share
$1.425
$1.403
$1.373
$1.343
$1.313 Total assets
$7 396
$7144
$6 637
$6229
$5950 Long-term debt
$1851
$1879
$1593
$1542
$1463 Ratio of earnings to fixed charges 3.0 -
2.9 3.8 3.9 4.0 l
l Financial Statistics 1998 1997 1996 1995 1994 Return on average common equity:(1) 11.4 %
10l %
12.5 %
13.4 %
12.3 %
Dividends as percent of earnings 77.7 %
89.4 %
71.5 %
68.5 %
75.8 %
Dividends as percent of book value 9.0%
9.1%
9.3%
9.5%
9.7%
Capital expenditures, excluding business acquisitions (millions)
$456
$433
$412
$401
$409 Percent of capital expenditures that could l
be financed by internally generated funds (excluding AFC and after dividends) 99.7% -
104.0 %
74.6 %
85.0 %
69.3 %
Cash dividend coverage 3.2 3.3 2.8 3.1 2.8 AFC as percent of earnings per share 5.7%
7.3%
7.2%
6.5%
5.4%
Effective tax rate 27.1%
29.0 %
34.8% -
35.6 %
34.7 %
Benefit employees (at Dec.31) 6 945 6 718 6 470 6 829 '
7032 Capitalization:(2)
Common equity 47.3%
46.7 %
46.5%
48.4 %
47.5%
Preferred equity 5.8%
7.9%
5.2%
5.7%
6.0%'
Debt 46.9%
45.4 %
48.3 %
45.9%
46.5 %
Total 100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
Average cost of long-term utility debt 6.68 %
6.83 %
6.80 %
6.88 %
7.36 %
Average utility plant investment per dollar of revenue
$3.28
$3.26
$3.23
$3.22
$3.19 Accumulated depreciation as a percent of depreciable plant 49.6%
47.8%
46.7 %
45.2%
43.3 %
Depreciation expense as a percent of average depreciable utility plant 3.77 %
3.78 %
3.68 %
3.64 %
3.55 %
AFC - Allowance for funds Used During Construction (1) 13-m,, nth average (2) includes short-term notes payable, current portion of long-term debt and preferred secunties i
I I'
l 19 Northern states Powet company. Ennesota and Subsidianes l
j
4 O ! M M e d i M tt M d k m & d f4 Northern States Power Company, a Mmnesota corporation (NSP-Mmnesota), has Business Strategies too significant subsidiaries: Northern States Power Company, a Wisconsin P)h MM gM Wim mih%im%
corporation (NSP-Wisconsm), and NRG Energy, Inc., a Delaware corporation g
g gg (NRG). NSP-Minnesota also has several other subsidiaries, including Viking Gas H
H le tWe a @@ W Transmission Company (Viking), Energy Masters International, Inc. (EMI),
g Eloigne Company (Eloigne), Seren Innovations, Inc. (Seren) and Ultra Power and shareholders and significant growth opportunities for our company. During Technologies, Inc. (Ultra Power). NSP-Mmnesota and its subsidiaries collectively 1998, NSP developed the follow 1g 10-Point Game Plan to achieve this mission:
are referred to as NSP.
Grow NRG NSP expects NRG to provide 20 percent of NSP earnings in 1999, one All financialinformation pertaining to per share amounts and number of gar aheaM scWe. In ahn, Es goaWecae a top m@ndent common shares outstanding has been adjusted to reflect a two-for-one stock cu in ea@ d h cm mah Wmesa, Euw a@.a-split that occurred on June 1,1998,
)
Pacific. NRG expects to achieve these goals by profitably growing existing businesses and adding new businesses.
Financial Objectives and Results Position NSP's Generation Business for Long-term Value NSP's conventional WSPk Aw &%eu f(u.-
plants mclude coal-fired, hydro, refuse-derived fuel, natural gas and oil-fired To achieve a return on equity in the top one-fourth of the utility industry facilities. To ensure these assets remain valuable. NSP will make careful based on a three-year average.
irvestments in these facilities to keep them reliable, efficient and competitive.
- NSP's average return on common equity for tiie three years ending in NSP is preparing to operate its generation facilities as a stand-alone business 1998 was 11.4 percent, which places NSP below the top quarter of the in a competitive market.
industry, which vias approximately 12.75 percent, and above the median g
g gg, us amagnf aWma%Wed Frairie Island nuclear plants are extremely valuable assets. With increasing
- The total return to investors (measured by dividends plus stock price appre-regulation and associated costs in the nuclear industry, NSP believes the best ciation) on NSP common stock for the last five years averaged 11.2 percent way to enhance NSP's nuclear assets is to combine our plants with other well-run per year, matching the total average return for the electric industry.
nuclear plants and create a free-standing nuclear generating company.
- NSP's stock price feu 4.7 percent in 1998, while the Standard & Poor's (S&P)
Expand Energy Marketing To enhance NSP's position in the increasingly electric utihties group increased in price by 10.2 percent.
competitive electric market, NSP expanded its wholesale energy marketing To increase dividends on a regular basis and maintain a long-term average s b e ayng Ngpadem &n Menuaw Mnen unt Mg a edt is mspnsMe Mneehng Megsernenh Ns mtaH payout ratio of 65 to T5 percent. NSP has increased its dividend for 24 consec-anWsale elecMc chWdo+cd engWupWnsg ma5ns utive years. In June 1998, NSP's annualized common dividend rate was increased ab um by 2 cents per share, or 1.4 percent, from $1.41 to $1.43. The dividend payout ratio was 77.7 percent in 1998, shghtly outside the long-term obiective range.
Create an independent Transmission Company To foster competition in the esa e maM, h Wal EnupgdaWWubn M To maintain long-term average annual earnings per share growth of n a u@, Mnen b MncknaHy "O
8"** ",5 Emabon facMeshtamsconsn also 5 percent. NSP's earnings per share have grown by an average annual rate of s@ ara a eu y 4.0 percent since 1993.
calls for a separate transmission operating structure. NSP believes the best way To provide at least 20 percent of NSP earnings from NRG by the year 2000.
to ensure a reliable, efficient, customer-focuseo and investor-responsive electric NRG provided:
transmission network is to create a for-profit, independent transmission company.
an N m c anHas msMn BusnMugankcm t,
business, NSP will actively seek to acquire and merge with other energy companies j
To maintain continued financial strength with a AA rating for utility bonds.
n en as nd inne telecemunkaWns bunnen, d NSP-Mmnesota's first mortgage bonds were rated:
plans to deliver high-speed laternet access, video-on-demand, telephone service
- AA by Fitch Investors Serdis Inc.
and cable TV. Seren is currently constructing a broadband network in St. Cloud, 3gp Man. Further expansion and development is anticipated.
- Aa3 by Moody's investors Services (Foody's)
- AA by Duff & Phelps,Inc.
Grow Viking NSP's goal is to continue the growth of Viking through pipehne
'#8" These ratings reflect the views of rating agencies, which can provide en explanation of the significance of the ratings. A security rating is not a recommendation to buy, sell or hold securities and is subject to revision or enthdrawal at any time by the rating agency first mortgage bonds issued by NSP-Wisconsin carry comparable ratings.
horthern states Power company. Mmnescia and sesidianes 20
]
l E DerMed!" & h*&d!d l
Drive EMI to Profitability EMIis moving toward profitability by reducing costs Ryw Weettair d)pisting Re4ntt4 and narrowing its focus to concentrate on retrofitting and upgrading customer facilities for greater energy efficiency. As part of its effort to concentrate on R e M M h mid Wi$ e d @
fedcral facilities, EMI has been selected as a qualified vendor by the ().S.
electric revenue changes during the past two years:
Department of Energy and Department of Defense.
(Wh v ut.w/
1998 vs.1997 1997 vs.1996 e a salu gM
- Manage llSP's Entire Busine',s as a Portfolio NSP will manage its collective 8 mah u, npad
$63
$U businesses as a portfolio of asats with a focus on growth. NSP will acquire or ac amer divcst businesses and assets if it eill increase shareholder value.
3 (23)
Fin:ncial Review Salu fa msale 42 8
i Conservation cost recovery 11 10 The following discussion and analysis by management focuses on those factors fuelcost recovery 19 31 that had a material effect on N!P's financial condition and results of operations Transmission and other 6
18 during 1998 and 1997, or are expected to have a material impact in the future.
Total Revenue increase
$144
$ 91 it should be read in conjunction with the accompanying financial Statements and Notes.
Electric sales growth for 1998 and 1997 is listed in the table below on both an acW and mahonnakd ban m mahnonnaMon Except for the historical statements contained in this report, the matters p cusrunpu u man u.npachn sala demmaWe vanaWns discussed in the following discussion and analysis are forward-looking m
cal amage.
statements that are subject to certain risks, uncertainties and assumptions.
Such forward-looking statements are intended to be identified in this document
(&tu p=d/
1998 vs.1997 1997 vs.1996 by the words " anticipate," " estimate," " expect," " objective," "possible,"
weather.
Weather-
" potential" and similar expressions. Actual results may vary materially. Factors Actual Normalized Actual Normalized that could cause actual results to d(ffer materially include, but are not limited to:
Residential 3.4%
3.7%
(0.6)%
1.7%
- general economic conditions, including their impact on capital expenditures Commercial and industrial 3.3%
3.1%
2.3%
2.9%
- business conditions in the energy industry Total retail 3.3%
3.3%
1.5%
2.6%
-competitive factors Sales for resale 35.3 %
na (5.5)%
na
-unusual weather Total Electric Sales 7.1%
7.0%
0.6%
1.6%
~ changes in federal or state legislation na = not applicable
- regulation
-issues relating to Year 2000 remediation efforts Retail electric sales accounted for 91 percent of NSP's electric revenue in 1998
-the higher risk associated with NSP's nonregulated businesses as and 93 percent in 1997. Retail electric sales growth for 1999 is estimated to be compared with NSP's regulated business 2.4 percent over 1998, or 1.9 parcent on a weather-adjusted basis.
-the items described under " factors Affecting Results of Operations.
-the other risk factors lisied from time to time by NSP in reports filed with Electric retail sales growth increased in 1998 due to strong economic conditions the Secunties and Exchange Commission (SEC), including Exhibit 99.01 in NSP's service territory. Electric retail sales growth increased in 1997 due to to NSP's 1998 report on form 10-K '
economic conditions, partially offset by unfavorable average temperatures compared with favorable average temperatures in 1996.
Results of Operations Sales for resale volumes and revenues increased in 1998 due to the expansion
/fff d6wAewd mad /997 and /996 of NSP's energy marketing operations. Sales for resale volumes decreased in
'E" '"
NSP's earnigs per shat for the past three years were as follows:
storms. Revenues from sales to other utikties increased in 1997 due to higher Earnings per $'aare - Diluted 1998 1997 1996 market prices.
egulateN4 opawns Electric Margin As shown in the table below, electric margin equals electric
"f'"""'
No e d peratons 2
Subtotalexcluding merger costs
$1.84
$1.73
$1.91 Write-off of mergercosts (0.12)
(Wh y utaw) 1998 1997 1996
)
Total
$1.84
$1.61
$1.91 Electnc revenue
$2 362
$2218
$2127
)
fuel for electric generation (311)
(310)
(301)
Revenue and expense items affecting earnings in these periods are discusstd Purchased and interchange power (378)
(286)
(244) later. in addition, average common shares outstanding increased due to stock Electric Margin
$1673
$1622
$1582 issuances, mainly a public offering in September 1997. In comparison with average share levels in the prior year, dilution from increased average shares I
decreased earnings per share by approximately 13 cents in 1998.
21 Northam states Power company Mmnesota and subsidianes
4 DMMed!M nMd kMnl9teld Electric production expenses tend to vary with changing retail and wholesale Firm gas sales in 1999 are estimated to be 23.1 percent higher than 1998 sales requirements and unit cost changes in fuel and purchased power. However, sales, or 2.1 percent higher on a weather-adjusted basis.
due to fuel clause cost recovery mechanisms for retail customers and the ability The 1998 firm sales decrease was due to more unfavorable weather in 1998, to vary wholesale prices with changing market conditions, most fluctuations in M d 199 I
roCl@e@l%
production expenses do not affect electric margin, as shown below. The table g g g 3ggg g,
below summarizes the principal reasons for electnc margin changes during the E88"*U I'8*
1998 interruptible sales decrease also was due to the ability of customers to (W-V ahl 1998 vs.1997 1997 vs. W96 switch to transportation-only service.
Retail sales growth Nh b h & b 1997 m m MW 5ts M (excluding weather impact)
$51
$34 f avorable weather in 1996 and unf avorable weather in 1997, partially off set by Estimated impact of weather TW W@M& M m WWWhW on retail sales volume 3
(19) gas sales as a result of flooding in the Grand Forks area. Interruptible sales Sales for resale 11 (5) increased in 1997 because favorable gas prices, compared with alternate fuels, ca n u een nws purc ase rnwe na ural gas.
ransn sion and (8)
Demand expenses (17' (4)
Gas Margin As shown in the table below, gas margin equals gas revenue less Total Electric Margin increase
$51
$40 the cost of gas sold.
(3rsh-V Nh) 1998 1997 1996 Gas Revenues The table below summarizes the prmcipa'
.Jr the gas e
W M
M revenue changes during the past two years:
Cost of gas purchased V uh) 1998 vs.1997 1997 vs.1996 g
(excluding weather impact)
$7
$ 13 oM @M @B hN 2 gimM M M d Estimated impact of weather gas urchases. However, due to purchased gas cost recovery r e banisms for on firm sales volume (46)
(41) retail customers, nearly all fluctuations in the cost of gas have no Oct on gas Purchased gas adjustment margin, as shown below. The table below summarizes the principal reasons for gas margin etianges during the past two years:
and conservation cost recovery 9
(1)
/3evh-V ah) 1998 vs.1997 1997 vs.1996 Black Mountain Ga$ Company Retail and transportation sales growth acquisition 6
(excluding weatherimpact)
$7
$6 Transportation and other 6
(11)
Estimated impact of weather Total Revenue Decrease
$(58)
$(12) on firm sales volume (16)
(12)
Rate changes 9
(1)
Gas sales growth for 1998 and 1997 is hsted in the tables below on both an Black Mountain Gas Company actual and weather-normahzed basis. The majority of NSP's retail gas sales acquisition 4
are categorized as firm (primarily heating customers) and interruptible Other 2
(commercial / industrial customers with an alternate energy supply).
Total Gas Margin increase (Decrease)
$6
$(7)
/Sats p - d) 1998 vs.1997 1997 vs.1996 OpWiWe TM WWepWW$4 energy purchases and the cost of gas, increased by $82.9 million in 1998 Actual Norma Actual No mal e cunpam
,a m nn cmard we N Totalfirm (13.1)%
2.9%
(10.8)%
2.2%
E' '
E'S Interruptible (10.4)%
na 11.6 %
na a e, gh accounM83 n@cn o% Mncmase an@
Total retail (12.4)%
(0.6)%
(6.1)%
4.1%
million of the 1991 increase. In addition, variations in income taxes are primarily and other 33.4 %
na (33.3)%
na VikNg (ex^ernal sales) 2.8%
na 4.8%
na Other Operation, Maintenance and Administrative and General Expenses Total Gas Sales increased in 1998 by $48.3 million, or 7,2 percent, compared with 1997. The and Delivery (1.5)%
2.4%
(2.0)%
1.9%
higher costs in 1998 are primarily due to increased expenses associated with plant outages, nuclear regulatory costs, system reconstruction due to extensive na = not apphcable storm damage, Year 2000 remediation, energy marketing activities, customer growth, an insurance refund in 1997 and Black Mountain Gas Compa ny, which was acquired in 1998.
Nethem States Power Company. Mmnesota and subsdaries 22
r E DMMee!M 4Md h&d!d i
l in 1997, the total of these expenses increased by $37.4 million, or 5.9 percent.
Contribution to NSP's Earnings per Share 1998 1997 1996 f
compared with 1996. The higher 1997 costs were primarily due to increased NRG
$0.28
$0.16
$0.15 l
cxpenses associated with business interruptions, customer service, network EMI (0.05)
(0.08)
(0.06) integration transmission service (NTS), scheduled plant maintenance outagesi Eloigne 0.04 0.03 0.02 and technology improvements. Business interruptions in 1997 included flooding Seren (0.02)
(0.01) 0.00 l
in NSP's service area, an unscheduled baseload nuclear plant outage and storm Other 0.01 0.01 0.01 damage to transmission lines. Technology improvements included development Total
$0.26
$0.11
$0.12 l
of customer information, automated meter reading and other systems, including l
Year 2000 remediation. Cost increases were partially offset by a $6.9 million NRG NRG's earnings increased in 1998, compared with 1997, primarity due to j
decrease in administrative and general expenses, reflecting decreases in income from new projects, including: El Segundo, Long Beach, certain Pacific insurance and employee benefit costs.
Generation Company (PGC) operations, an increase in NRG's holdings in Energy Depreciation and Amortization Costs increased $12.3 million in 1998 and EWamWan pant In aMon, Es mu m
a an gas su aW, enW W@s m W and Mat am
$19.4 million in 1997 primarily due to higher levels of depreciable plant, including ameh Incmanhasngs wue pagah g a ng nu neo information systems and equipment with relatively short useful lives.
offset by higher mterest costs due to the $250 million senior notes issued m p
q %,4gggra gaf4ma,-.
mid-1997, interest on NRG's revolving line of credit and new debt obtained for Utility Financing Costs Interest costs recognized for NSP's utikty businesses, ce ain E p5ech anm purchan oWu, Es urnsgs in M8 were adversely affected by declines in the value of the Australian dollar and l
including amounts capitalized to reflect the fmancing costs of construction activities, were $115.8 million in 1998, $120.3 million in 1997 and $123.1 million German deutsche mark m relation to the U.S. dollar. lt exchange rates throughout 1998 had stayed the same as the beginning of the year, NRG's in 1996. In addition to interest expense, beginning in 1997, financing costs of NSP's utikty businesses include distributions on redeemable preferred secunties, urn ngs we hahu apenately I cut pu daHgM chich cere $15.8 million in 1998 and $14.4 million in 1997.
In December 1998, NRG sold one-half of its 50 percent interest in Enfield nu en e an aMahWam WmahnaN a@a%
The 1998 decrease is largely due to lower average short-term debt levels, partially 2 mHon, mshg in an aMax gain W d apsniately M6 mHon.
offset by increased long-term debt levels. (For more information see the Statement of Capitalization.) The 1997 decrease is due primarily to lower average s gain incrused M8 nrnsgs b apsnag cuMa sham un n a 5 pued Wut in mz in WW mcW a shost-term borrowing levels, and the retirement of $100 million of first mortgage arge of apmstnately $22 mHHon M2 mHHon anedado wrMown d.s tonds in October 1997. The average short-term debt balance for utility operations invnhnuun a negawan, coaMd pww stahn Wegon, Mava, j
cas $53.9 million in 1998, $208.3 million in 1997 and $265.4 million in 1996.
due to the political and economic instabihty in Indonesia. This write-down Merger Costs in May 1997, NSP and Wisconsin Ei ergy Corporation (WEC) reduced 1998 earnings by approximately 10 cents per share.
mutually terminated their plans to merge. NSP's ea 7ings for 1997 include a NRG's 1997 earnings increased compared with 1996 largely due to income from pretax charge to nonoperating expense of $29 million, c M tents per share' new projects, including tax credits from NEO. New projects contributing to to crite off its cumulative merger-related costs incurred.
NRG's earnings include: Bolivian Power Company Ltd. (COBEE), PGC, Schkopau Preferred Dividends Dividends paid to preferred shareholders declined by and Loy Yang. NRG's earnings also included gains on the sale of equity interests
$5.5 million in 1998 and $1.2 million in 1997 due to the redemption of several in two projects late in 1997, offset by a write-down of NRG's Sunnyside project.
series of preferred stock during those years.
NRG's increased earnings in 1997 were partially offset by increased interest costs and declines in the value of the Australian dollar and German deutsche a
g mark in relation to the U.S. dollar. If exchange rates throughout 1997 stayed the NSP cnticipates that the earnings from nonregulated operations will experience same as the beginning of the year, NRG's 1997 earnings would have been more variability than regulated utility businesses, due to the nature of these approximately 2 cents per share higher.
nonregulated businesses. A descrirtion of NSP's primary nonregulated businesses In the past, NSP has reported gains from divestitures of NRG projects and losses and their earnings contribution is summarized below.
from write-downs of NRG projects as nonrecurring items. Since its inception,
- NRG is primarily involved m edependent power production, commercial NRG's investment in nonregulated energy projects has grown substantially. NRG and industrial heating and cochng, and energy-related refuse-derived fuel manages these projects as a portfolio and evaluates earnings enhancement production. NRG's business strategy includes holding a portfolio of nonreg-o portunities and risks from unsuccessful ventures on an ongoing basis. As such, ufated energy projects on both a wholly owned and joint venture basis. The NSP expects gains and losses to occur periodically. Therefore, while NSP will divestitures of partial or entire interests in pmjects when the economics continue to disclose significant NRG gains and losses, we will no longer report maximize shareholder value is a continuing part of NRG s strategy.
these transactions as nonrecurring events.
- EMI is primarily an energy services company.
- Eloigne invests in affordable housing.
Further information on NRG's fmancial results may be obtained from NRG's
-Seren provides broadband communication services.
annual report on Form 10-K filed with the SEC.
I r
l 23 Northern states Power Company, Mmnesota and subsdanes
OMMW4 OC'M%14ddet etMd /$Neth eld f
EMI EMI's losses for 1998 were lower than 1997, due to increased margins and to ehminate such regulatory assets and habihties from its balance sheet.
1997 losses incurred by Enerval, a joint venture previously held by EMI. In Such changes could have a matenal adverse effect on NSP's results of opera-June 1998, EMI sold its interest m Enerval. EMrs investment in Enerval was tions in the period the wnte-off is recorded. At Dec. 31,1998, NSP reported on written down in the fourth quarter of 1997 and, as a result, the transaction its balance sheet regulatory assets of approximately $210 million and regulatory had no matenal impact on 1998 earnings.
liabilities of approximately $149 mdlion that would need to be recognized in the ncone stahnt in W abence M mgdaWn. IncW in Bese regda%
EMI s losses for 1997 were higher than 1996 losses, pnmarily due to losses a
a n
n awn emnhes hat am enecM b h mcurred by EMI's gas marketmg jomt venture, Enerval; the partial write-down mcove e yeaN in ahn to a poMal wMed oNgulatory j
of EMrs investment in Enerval; and increased expenses related to combining asse an a s,
g ahn and emWu may mhecogn%n M operations with Energy Solutions International, Inc. and Energy Masters e n anmo# nd mcmahnhaM @
mmenW Corporation, both purchased by EMI in July 1997. These increased losses were wn en e a an&ds unkss ad unW partially offset by increased operating margins, primarily due to the curtailment aM #e Wdanp uMed M han ah maM #e of gas trading activity in the second quarter of 1996 which negatively affected leve es and Me MandaWatemenh & Medscusssn]
operating margins during the first half of 1996.
In June 1998, the Mmnesota Department of Public Service recommended the Other Eloigne's earnings grew in 1997 and 1998, due to new investments.in Minnesota Public Utikties Commission (MPUC) discontinue recovery of lost affordable housing projects. Seren is experiencing losses as it develops its margins, load management discounts and performance incentives from conser-broadband communication services network in St. Cloud, Mmn.
M SP em MiMlih h November 1998, the MPUC approved continued recovery of lost margins, discounts g
g ggg and performance bonuses for 1998. However, the MPUC put Mmnesota 'itilities on NSP's results of operations during 1998,1997 and 1996 primarily were notice that there may be significant changes, including ehmination of rate dependent on its electric and gas utility businesses. NSP's utikty revenues recovery, pending the outcome of a 1999 study A commission round table will depend on customer usage, which varies with weather conditions, general study the issue and report its fmdings by May 1,1999. In 1998 NSP-Mmnesota business conditions and the cost of energy services. Various regulatory recorded approximately $33 million, primarily in electric revenue, from the agencies approve the prices for electric and gas service within their respective conservation incentives under review by the MPUC.
jurisdictions. In addit:on, NSP's nonregulated businesses are contributing t F
SP'mMM dhe N@ d NSP's earnings. The historical and future trends of NSP s operating results have been and are expected to be affected by the following f actors:
-In December 1997, NSP-Minnesota filed an annual natural gas rate Regulation NSP's utikty rates are approved by the federal Energy Regulatory increase request of approximately $18.5 million in Mmnesota. An interim Commission (FERC) and state regulatory commissions in Minnesota, North rate increase totaling $13.9 million on an annualized basis was Dakota, South Dakota, Wisconsin, Arizona and Michigan. Rates are designed to approved effective Feb.1,1998, subject to refund. On Dec.11,1998, the recover plant investment, operating costs and an allowed return on investment, MPUC issued its final order granting NSP-Minnesota a gas rate increase using an annual penod upon which rate case fihngs are based. NSP requests of $13.4 million, or 4.0 percent, on an annualized basis.
changes in rates for utikty services as needed through fihngs with the governing commissions. The rates charged to retail customers m Wisconsin are reviewed with the Public Service Commission of Wisconsin (PSCW), reauesting an and adjusted biennially. Because comprehensive rate changes are requested g
g infrequently in M nnesota, NSP's primary jurisdiction, changes in operatmg g
g g
costs can affect NSPs earnings, shareholders equrty and other financial retail gas rates. 0n Sept.15,1998, the PSCW issued an order granting results. Except for Wisconsin electric operations, NSP's retail rate schedules 3 ll 5 pd W a p provide for cost-of-energy and resource adjustments to bdlings and revenues g g g
for changes m the cost of fuel for electnc generation, purchased energy. purchased gas and,in Minnesota, conservation and energy management program costs.
-In February and March of 1998. NSP fded wholesale electric point-to-point for Wisconsin electric operations, where cost-of-energy adjustment clauses are and NTS rate cases with the FERC. The proposed point-to-point rates not used, the biennial retail rate review process and an interim fuel cost hearing would,if spproved, increase third party transmission service revenue by process p: mae the opportunity for rate recovery of changes in electnc fuel approximately $3 million and ancillary service revenues by $1 million, and purchased energy costs in heu of a cost-of-energy adjustment clause. In annually The NTS tariff change would,if approved, reduce NTS costs from addition to ct anges in operating costs, other factors affecting rate filings are 1997 levels. During April 1998, the FERC voted to allow the proposed sales growth, conservation and demand-side management efforts and the increases in point-to-point and ancillary service rates effective Oct.1, cost of capita!.
1998, subject to ref und, and to consolidate the cases. In late 1998, NSP Regulated public utihties are abwed to record as assets certain costs that ment is expected to be filed in the first quarter of 1999 and is subject to would be expensed by nonregulated enterprises and to record as liabikties FERC approval.
certain gams that would be recognized as income by nonregulated enterpnses.
If restructuring or other changes in the regulatory environment occur, NSP may no longer be ehgible to apply this accountmg treatment and may be required i
&;rthern stres Power Company, Mmnesota and Subsdanes 24
fuNfK$4 Od4Mdd!^W ttMd skK4$tf4/4
-In June 1998, Viking filed a rate case with the FERC, requesting a $3 million independent Transmission Company (lTC)in April 1998, NSP announced its annua' rate increase. In December 1998, % king arrived at a settlement intention to divest its electric transmission business to form an independent in principle with parties to the case. The final settlement will be filed in company unaffiliated with the rest of its utikty operations. Several developments the first quarter of 1999 and is subject to FERC approval.
have occurred since this commitment was made.
- In nn ecame an M inMu
-In December 1998, NSP-Mmnesota submitted a voluntaii cost separation n at 5& MMu a @c MWat ms filing with the MPUC, which outlines the method NSP proposes to use to 8
nn cMn Man @ cond oNannubn assign costs of its electric operations to business segments and state facEn k an m. @nknt sWem paw M w hsW @c jurisdictions. Because of changes and increased competition in the u
n n
ansm n ams b an,egnMansms electric industry, NSP wants to separate or "unbundle" its generation, 8"
transmission and distribution costs. This filing does not propose to change electric rates for any of NSP's customers in Minnesota. An 8"
administrative law judge has been assigned to convene a technical e
alue MMsednWansssn conference of interested parties to discuss the merits of NSP's cost asds was ap@na@8 rnMon.
separation proposal. A report is expected to be issued in the second quarter of 1999.
-In November 1998, NSP and Alliant Energy (Alliant) announced plans to e
an anstninion sesu We he@wnt Competition The Energy Policy Act of 1992 has been a catalyst for comprehen-as am hhng a Mahn@ @M N M sive and significant changes in the operation of electric utikties, including c ah an E, wM wmeasNranuninbn anets oNadease increased competition. The Act's reform of the Public Utility Holding Company
. in n a @cWaM a
na Act of 1935 (PUHCA) promoted creation of wholesale nonutikty power generators 8"
8" and authorized the FERC to require utihties to provide wholesale transmission e necenab wa mm ate and Wat mgWah in M, we i
services to third parties. The legislation allows utihties and nonregulated com-e umahalM psnigs to build, own and opera'e power plants nationally and internationally cithout being subject to restrictions that previously applied to utihties under
- In Novemb r 1998, the members of Mid-Continent Area Power Pool (MAPP) the PUHCA.
rejected r proposal to establish a MAPP ISO. In December 1998, Mmnesota in 1996, the FERC issued Orders No. 888 and 889 to foster competition in the a mn a e
,a h ng Ba N aW N Mn a sehnt agmenhhpakWm clattic utility industry. These orders give competing wholesale suppliers the abikty to transmit electricity through a utikty's transmission system. Order againsm MW ah wanWyanssubn an r8 e u are n as na sc n na 5mque E No. 888 grants nondiscriminatory access to transmission service. 0rder No. 889 seeks to ensure a fair market by imposing standardt of conduct on transmission ge na% anh* Us maM system owners, by requiring separation of the wholesale power supply-or l
merchant - function from the transmission system operation function, and by mandating the posting of transmission availability and pricing information on
- Due to the need for regulatory approval and other factors outside NSP's an electronic bulletm board. These new open access rules became effective in control, there is no guarantee that NSP will be successful in forming an 1996 and 1997. In 1997, the FERC issued clarifying final orders in response to ITC, or that if an ITC is formed it will include Aliiant. In the event that rehearing reomts by numerous market participants regarding Orders No. 888 NSP is successful in forming an ITC, NSP would ultimately divest its and 889. These FERC clarifying final orders are currently being appealed in electric transmission assets. At Dec. 31,1998, the net book value of federal court. NSP has made open access transmission tariff filings and NSP's transmission assets was approximately $647 million. If NSP is comphance filings with the FERC and believes it is taking the proper steps to not successful in forming an ITC, Act 204 currently would require the comply Cith the new rules as they become effective.
transfer of control of NSP-Wisconsin's transmission assets to an ISO, unku a was b gram Some states have begun to allow retail customers to choose their electncity suppligt, and many other states are considering retail access proposals. The Independent Nuclear Generating Company in April 1998, NSP announced its Mmnosota Legislature continues to study the issues, but has determined that intention to divest its nuclear generation business to form an independent further study is necessary before any action can be taken. The PSCW revised its company unaffiliated with the rest of its utikty operations.
restructuring plan, delaying the start of retail competition to 2002. The Michigan
- During 1998, in the first step toward this commitment, NSP, Alliant, WEC Public Sarvice Commission approved a plan to begin offering a choice of suppliers and Wisconsin Public Service Corp. agreed to form a cooperative nuclear to r; tail customers in selected markets in 1998. The timing of regulatory actions alliance to improve plant performance and reliabikty, strengthen regarding restructuring and their impact on NSP cannot be predicted at this operational efficiency, maintain high safety levels and reduce costs.
I time and may be significant.
Working teams are being organized to implement cooperative alliances in several areas, including: fuel management, Year 2000 initiatives, inventory management, information exchange and self-assessment programs. The four companies operate seven nuclear units at five sites with a total generation capacity exceeding 3,650 megawatts.
25 harthem states Power Company. Mmnesota and subsides
C9NCKW4 D MMJ4ddM GHd kK4hdle i
f
- NSP continues to work with regulators and potential business partners methodology consistent with state-of-the-art best practices and standards toward the divestiture of its nuclear generation business. At Dec. 31,1998, within the utility industry This seven-step process includes:
the net book value of NSP's nuclear assets (excludmg decommissioning
- Discovery of possible date-related logic in components, systems investments and obligations) was approximately $737 million.
and processes 2nergy Marketing in April 1998, NSP announced an imtiative to expand D>
s W Wh its wholesale energy marketing efforts by formally establishing an Energy
- Remediation to resolve the problem Marketing division within NSP's Generation business unit. During 1998,
- Testing to verify that the solutions are workable Energy Marketmg:
-Im lemer,tation of the solution into production
- Established a comprehensive risk management program. Since electricity
- Closure through retesting and documentation and review by a separate cannot be stored, there is potential for extreme price volatility. Strict risk nternal due diligence committee rnanagement is an mtegral element of Energy Marketing's business activity.
NSP's timetable for Y2K completion is:
- Led the development of the Minneapolis Grain Exchange (MGE) electricity
- As of Dec. 31,1998,70 percent of NSP's mission-critical systems and futures and option contracts. The MGE contracts provide NSP and the rocesses were Y2K ready.
region an opportunity to hedge against the price volatil ty inherent in the electric market.
- By March 31,1999, completion of all Y2K efforts on 90 percent of mission-c caby@ns and pesu.
- Obtained market-based rate approval from the FERC in June 1998. This enables Energy Marketing to sell energy at market prices in addition to
- By June 30,1999, completion of all Y2K efforts on mission-critical selling under traditional cost-based rates, systems and processes, completion of all nuclear plant remediation E"
- Expanded the scale of NSP's electric sales for resale, increasing sales finalization of all contingency planning.
volume by approximately 35 percent.
coWenda&n d apdy a@caMu, Used Nuclear Fuel Storage and Disposalin 1994, NSP received legislative "I "
authorization from the state of Minnesota for the use of 17 casks for temporary spent-fuel storage at NSP's Prairie Island nuclear generating facility. Through NSP is communicating with its key suppliers and business partners regarding the use of longer fuel cycles and utihzation of temporary storage racks in the thWr Y2K progress, particularly in software and embedded component areas, spent fuel pools, NSP has determined 17 casks will a!Iow operation of the to determine the areas in which NSP's operations may be vulnerable to those facihty until 2007. The first nine casks have been authorized by the Minnesota parties' failure to complete their remediation efforts. NSP is currently evaluating Environmental 0uahty Board (ME08). NSP had loaded seven of the casks as of and initiating follow-up actions regarding the responses from these parties as Dec. 31,1998. As a condition of the authorization, the Minnesota l.egislature appropriate. NSP is also working closely with the Electric Power Research estabhshed several resource commitments for NSP, including wind and biomass Institute, MAPP, the Nuclear Energy institute, the North American Electric generation sources as well as other requirements. NSP is complying with these Reliability Council (NERC) and other utihties to enhance coordination, system requirements. The ME08 has terminated an alternative siting process, which reliabihty and compliance with industry and regulatory requirements. In its had been one of the originallegislative requirements.
fourth quarter 1998 report, NERC stated, "fmdings continue to indicate that electric operations in North America.p a ans n g
ca au e
an rn malimpaen NSP and other utilities have an ongoing dispute with the (J.S. Department of Energy (DGE) regarung the DOE's statutory and contractual obligations to provide permanent storage and disposal facilities for nuclear fuel by Jan. 31,1998, as NSP has made significant progress implementing its Y2K plan. Based upon the required by the Nuclear Waste Policy Act of 1982. (See Notes 13 and 14 to the information currently known regarding its internal operations and assuming Financial Statements for more information.)
successful and timely completion of its remediation plan, NSP does not a
Enkad Mnen h@ns b h knal Wem M Year 2000 (Y2K) Readiness To the extent allowed, the information in the following
- E"*
section is designated as a " Year 2000 Readiness Disuosure." NSP is incurring some aspects of its activities, relating to information technology, operations significant costs to modify or replace existmg technology, includmg computer and administrative functions NSP is considering such potential occurrences software, for uninterrupted operation in the year 2000 and beyond. in 1996, NSP's in planning for its most reasonably likely worst case scenarios.
Board of Directors approved fundmg to address development and remediation efforta related to Y2K A committee made up of senior management is leading In addition, risk exists regarding the noncompliance of third parties with key NSP's imtiatwes to identify Y2K related issues and remediate business processes business or operational importance to NSP Y2K problems affecting key customers, as necessary.
interconnected utilities, fuel suppliers and transporters, telecommunications er anc alinMuku cd mM in W pem gn salu, NSP's Y2K program covers not only NSP's 2,000 computer applications, consisting of about 75,000 programs and totaling more than 30 million lines of code, but nn p
n wam d any also the thousands of hardware and embedded system components in use a
ua n; e, ocenncu
, seme, c an maMal throughout NSP. Embedded systems perform mi. 2n-critical functions in all ae a en e nn, e a&g mms odnancial conMon d parts of operations, including power generation, transmission, distribution, communications and business operations. NSP has implemented a Y2K megn can e n umaxe maNU h aMe to &nW and correct ah aspects of the Y2K problem that affect it in sufficient time, or that the costs of achieving Y2K readiness will not be material.
Northern states Power Company Minnesota and subsdanes 26
GCC E D i M 44564 & h d y2!!
NSP is cunently updating contingency plans for all material Y2K risk and is on
.3mpetition, operating risks, dependence on certain supK.ers and track to meet the contingency planning schedule set forth by NERC. Among the customers and domestic and foreign envimnmental and energy regulations; areas contingency 11anning will address are delays in completion of NSP's remediation plans, failure or mcomplete remediatiot, results and failure of key third party contacts to be Y2K compliant.
@me s, ncWg uncedaMu MoMnallegal clos 4 Through 1998, NSP had spent approximately $13.1 million for Y2K efforts, which primarily is expensed as incurred. The additional development and remediation Most of NRG's cunent project investments (as listed in Note 10 to the Financial costs necessary for NSP to prepare for Y2K is estimated to be approximately Statements) consist of minority interests, and a substantial portion of future
$11.3 millin inestments may take the form of minority interests, which may hmit NRG's Environmental Matters NSP incurs several types of environmental costs, nanciay and a@unWe WnenM wahn @@ech na n,vgn can@sumaMeune%$chuMM including nuclear plant decommissioning, storage and ultimate disposal of a
ma a e aggmaMecWuda@s cmates h spent nuclear fuel, disposal of hazardous materials and wastes, remediation n
awn W negdaM cgnenWh negt of contaminated sites and monitoring of discharges into the environment.
ng,
a ng an utaM budneun Because of gieater environmental awareness and increasingly stringent may nobecusa@ndche chugahng ruuk regulation, NSP has experienced increasing environmental costs. This trend has caused, and may continue to cause, shghtly higher operating expenses and Use of Derivatives and Market Risk NSP uses derivative financialinstruments capital expenditures for environmental compliance.
to mitigate the impact of changes in: foreign currency enhange rates on NRG's n a na pMect casWws, nahrayas #n on Ms margins, eleMch In addition to nuclear decommissioning and spent nuclear fuel disposal expenses, pnceun ne ae ma@nund inkmsuateun h cost omnoWng.
costs charged to NSP's operating expenses for environmental monitoring and disposal of hazardous materials and wastes were appmximately:
The fair value of NRG's foreign currency contracts is sensitive to market risk as
-$32 million in 1998 a result of changes in foreign currency exchange rates. As of Dec. 31,1998, a
-$31 million in 1997 10 percent appreciation in foreign exchange rates from prevailing market rates
- $31 million in 1996 would decrease the market value of NRG's foreign cunency contracts by aWma@3 mWonAneseh, a M pent @eciabn in 2ne NSP expects to average approximately $34 million per year for the five-year cunent n mm e ma ng ma eMa n su nunse madet uke period 1999-2003. However, the precise timing and amount of enviropental a
nately W mMn costs, including triose for site remediation and disposal of hazardous materials, are cunently unknown.
EMlis exposed to market risk through changes in market prices of natural gas an urn un aMWet R R a M pendnunse h Capital expenditures on environmental improvements at its utility facihties, chich include the costs of constructing spent nuclear fuel storage casks, were al gas had anMms Men duuOn a gaiun pe cuads na apxsa% W mMn Gnes@, a @ced decmase m naNal gas approximately:
ad anNums pncu d rud in a bsun 2ne unkah aW
{
-$21 milhon in 1998 mateh M m%n hypoMalains anmsennatura gas had
- $1P milhon in 1997 an es un achuW WW@ gMnund bun on mun%ng
-$10 milhon in 1996 commodities being hedged.
NSP expccts to incur approximately $32 milhon in capital expenditures p.
for comphance with environmental regulstions in 1999 and approximately TWMWee@tm@@ is
$100 milkon for the five-ycar perioo 1999-2003.
(See Notes 13 and 14 to the Financial Statements for further discussion of eW miM d EP's iM @ W WW mlh these and other environmental cantingencies.)
g g
g, Ceather NSP's earnings can be significantly affected by unusual weather.
swap expired on Feb 1,1999. (See Nores 1 and 11 to the Financial Statements Very hot summers and very cold winters increase electric and gas sales.
fw lurther discussion of NSP's financial instruments and derivatives.)
Unseasonably mild weather reduces electric and gas sales. fhe following Accountmg Changes The Financial Accounting Standards Board (FASB) has summarizes the estimated impact on NSP's earnings due to temperature 11 d
"3
' '#'E nuclear plant decommissioning and certain other site exit obhgations. Material
- Weather m. 1998 decreased earnings by an estimated 11 cents per share SP's balance sheet would occur upon implementation el the
- Weather in 1997 decreased 9arnmgs by an estimated 6 cents per share SB's proposal, which does not cunently have a scheduled effective date.
-Weather in 1996 increased earnings by an estimated 8 cents per share However,ine effects of regulation are expected to minimize or eliminate any impact of lionregulated investmants A significant portion of NSP's earnings imnact on operating expenses and earnmgs from this future accour+ing comes from nonregulated operdtions. NSP expects to continue investing in change. (For further discussion of the expected impact of this change, see nonregulated pro.iects, including domestic and international power production Note 13 to the Financial Statements.)
pajects through NRG. The nonregulated projects in which NSP or its subsidiaries have inveded and may invest in the future carry a higher level of risk than NSP's traditional utility businesses due to a number of factors, including:
i 27 brttwro states Power company Mamesota and subsdanes
CHWMW4 NkMJd6M ctMd thcgbjJie in June 1998,the FASB.. sued Statement of Financia! Accountmg Standards
- External financing - NSP's short-term debt availabikty and usage is j
(SFAS) No.133 - Accountmg for Derivative Instruments and Hedging Activitias.
described in Note 2 to the Financial Statements. In general, short-term This statement requires that all derivatives be recognized at fair value in the borrowings are used to crovide temporary financing, mainly for NSP-balance sheet and all changes in fair value be recognized currently in earnings Mmnesota and NRG, for utihty capital expenditures, nonregulated projects or deferred as a component of other comprehensive income, depending on the and other short-term cash needs. NSPi long-term debt and capital intended use of the derivative,its resulting designation and its effectiveness.
stock activity are shown on the Statements of Capitalization and NSP is required to adopt this standard in 2000, but can elect to adopt it earlier.
Stockholders' Equity. These sources are used to provide permanent NSP has not determined the potential impact of implementing this statement or financing for both regulated and nonregulated business activities.
its expected adoption date.
in addition to funding current year capital needs, external financing ac on als s management d h canal McM inflation inflation at its current level is not expected to meterially affect NSP's "E
prices or returns to shareholders.
NSP's 1998 nonregulated construction expenditures and equity investments Liquidity and Capital Resources in r:anregulated projects were primarily financed through internally generated an une unng su a
c W an & g 1998 Financing Requirements NSP's need for capital funds primarily is related 1
to the construction of plant and equipraent to meet the needs of electric and gas utikty customers and to fund equity commitments or other investments in anhaas Mm Ws nonegulaWuyssu, mainW w
ec 1
e assam many Ms mn$aM indmet.is nd nonregulated businesses. In 1998:
c n
s alance sW because h eqW ndW anunbng is
- Total utikty capital expenditures (includmg AFC) were $411 million, 1
used for such mvestments. (See Note 10 to the Financial Statements ) Loans 1
- Of that amount, $332 milkon related to replacements and improvements made by NSP to nonregulated projects are reflecid separately on the balance of NSP's electric system and nuclear fuel, and $49 million involved sheet as Notes Receivable from Nonregulated Projects.
construction of natural gas facilities, including Viking, p
- NSP companies (mainly NRG and Eloigne) invested approximately expenditures will be $450 million in 1999 and $2.1 billion for the five-year
$279 milkon for equity interests in and loans to nonregulated projects, period 1999-2003. Of the 1999 amount, approximately $369 million is sched-for the acquisition of existmg businesses and for additions to nonreg-uled for electric utikty facikties and approximately $69 million for natural gas ulated property.
facilities, including Viking. In addition to utility capital expenditures,
"'" E I
1998 Financing Activity During 1998, NSP's sources of capital included internally a
ma n
nNenn anM pnncbal matuMn.
generated funds and extemalimancings. The allocation of imancing requirements betmen these capital resources is based on the relative cost of each resource, if NSP carries out its game plan to divest transmission and nuclear generation regulatory restrictians and NSP's long-range capital structure objectives. A capital assets, capital expenditures would be significantly lower. Another game plan structure consisting of 47.3 percent common equity at year-end 1998 contributes item, expansion of NSP's utikty distnbution, includes possible business combi-to NSP's fmancial flexibihty and strength.The following summanzes the financing nations that may require substantialissuance of capital.
sources used in 1998.
-Internal funds - Funds generated intemally from operating cash flows in Through its subsidiaries, NSP erpects to invest significant amounts % nonregu-W i
IM d 1998 remained sufficient to rneet workmg capital needs, debt service, dividend payout requirements and construction expenditures, as well as t iund a sigmficant portion of nonregulated mvestment commitments. NSP's ehmtl@ mihh PhMI $hmeWW stated goal for its pretax mterest coverage ratio for utility operations is nonregu'ated projects and property, which include acquisitions and project 3
ggg 3.5-5.0. The utility pretax interest coverage ratis, excludmg AFC, was 3.8 approximately $1.7 bilkon for the five-year period 1999-2003. The 1999 non-I m 1298,3.6 in 1997 and 4 4 in 1996, which f al!s within the range.
Internally generated funds from utility operations could have provided ama@e@menWecNs eW ac@ns NWng financing for more than 100 percent of NSP's utility capital expenditures generaNn facpu, incMngMur WsMaDe% yn% Nndey an n nal sign &canWon omne caMabahnients is expectedo for 1998 and approximati s : 3 percent of the $2.0 billion in utikty capital nanced Wnrmurse p%ect M expenditures incurred for the five-year period 1994-1998. The pretax interest coverage ratio, excluding AFC, for ail NSP operations was 2.9 in 1998,2.8 in 1997 and 3.7 in 1996.
1 i
b@ern States Power Ccmpany. Ennesota and sMmes 28
\\
r-1 quMCMb Of4M444tw 4Md /&h ile f
l NSP and its subsidiaiies contmue to evaluate opportunities to enhance shareholder
- Long-term debt - NSP Mnnesota's and NSP-Wisconsin's first mortgage retums and achieve long-term financial objectives through investments in projects indentures limit the amount of first mortgage bonds that may be issued. The er acquisitions of existing businesses. These investments could cause significant MPUC and the PSCW have jurisdiction over secunties issuance. At Dec. 31, changes to the capital requirement estimates for nonregulated projects and 1998, with an assumed interest rate of 6.25 percent, NSP-Mmnesota could property. Long-term financing may be required for such investments.
have issued about $2.4 bilhon of additional first mortgage bonds under its nn an se n n an d a W 2 W nda6 NSP also will have future fmancing requirements for the portion of nuclear na aEM udWnenWn WWW W plant decommissioning costs not funded ::xternally. Based on the most recent with the SEC a $400 million universal debt shelf registration. NSP currently decommissionmg study approved by regulators, these amounts are anticipated has $50 million of registered, but unissued, bonds remaining from its to be approximately $363 million and are expected to be paid during the years
$300 million first mortgage bond shelf registration, which was filed in o2022.
October 1995. Dependmg on market conditions, NSP expects to issue the Future Sources of Financing NSP expects to meet future financing require-bonds to raise additional capital for general corporate purposes or to ments by periodically issuing long-term dot, short-term debt, common stock redeem or retire outstandmg securities. In 1999, NRG anticipates issuing and preferred securitie., to maintain desir<, capitalization ratios. 0ver the larg approximately $300 million of corporate debt to fmance several acquisi-term, NSP's equity irvestments in and amuisitions of nonregulated projects are tions that are expected to close during the year.
j expcteo to be financed at the nonregulated subsidiary level from internally
- Common stock - NSP's Articles of incorporation authorize an additional generated funds or the issuance of subsidiary debt. Financing requirements for 197.3 million shares of comma stock in excess of shares issued at the nonregulated projects,in excess of equity contnbutions from partners, are Dec. 31,1998. In 1996, NSP filed a registration statement with the SEC expcted to be fulfilled through project or subsidiary debt. Decommissioning I
to provide for the sale of up to 1.6 million additional shares of new expenses not funded by an external trust are expected to be financed through a SP's Dividend Reinvestment and Stock Purchase combination of internrily gererated funds,long-term debt and common stock.
Program (DRSPP) and Executive long-term Incentive Award Stock Plan.
The extent of external fmancing to be required for nuclear decommissioning P q im a h a mW h n Wu W W costs is unknown at this time.
The following summarizes the financing sources expected to be available to NSP sion of stock awards outstanding.) NSP plans to issue new shares for in the near future:
its DRSPP, Employee Stock Dwnership Plan (ESOP) and Executive Long-
-Internal funds -Internally generated funds from utility operations are term Ircentive Award Stock Plans in 1999. Also, NSP may consider a expected to equal approximately 80 percent of anticipated utility capital general common stock offering in 1999, depending on corporate needs expenditures for 1999 and approximately 85 percent of the $2.1 billion in and opportunities.
anticipated utility capital expenditures for the five-year period 1999-2003.
_p 3
gg,
,g, g
Because NRG hat generally been reinvesting foreign cash flows in g
operations outside Me United States, the equity income from foreign NSP could have issued all $595 million of its remaining authorized, but mvestments is not fully available to provide operating cash flows for unissued, preferred stock at Dr 31,1998, and remained in comphance domestic cash requirements such as payment of NSP dividends, domest.ic with allinterest and dividend coverage requirements.
capital expenditures and domestic debt service. Through NRG, NSP is establishing a 6 verse portfoho of foreign energy project with varyin,
levels of cash flows, income and foreign taxabon to allow maximum flexibility of foreign cash flows in the future.
- Short-term debt - NSP's board of directors has approved shcrt-term borrowing levels up to 10 percent of capitalization. NSP has received regulatory approval for up to $604 million in short-term borrowing levels and plans to keep its cradit lines at or above its average level of commercial paper borrowings. NSP credit lines (as discussed in Note 2 to the F; 'ancel Statements) make short-term fmancing availatne in the form of bank loans, letters of credit and support for commercial paper for utihty operations.
I I
l l
I 29 fWthern states Power company Emesata and sobdiaries
hdWid$d
& HCANM tens S.ded 2%e.ata Sr (7A"./ 4,ttaw <=<<ptpe,44 w dateJ 1998 1997 1996 Utility Operating Revenues Electric: Retail
$2145 548
$2 052 288
$1985 923 Sales for resale and other 216 803 166 262 141 490 Gas 456 823 515 196 526 793 Total 2 819 174 2 733 746 2 654 206 Utility Operating Expenses fuel for electric generation 311 368 309 999 301 201 Purchased and interchange power 377 907 286 239 243 562 Cost of gas purchased and transported 267 050 331 296 335 453 Other operation 392 054 368 545 333 010 T*tenance 181 066 164 542 155 830 Administrative and generel 150 078 141 802 148 656 Conservation and energy management
'l 134 70 939 69 784 i
Depreciation and amortization 338 225 325 880 306 432 Property and general taxes 220 620 227 893 232 824 income taxes 145 383 144 855 161 410 Total 2 454 885 2 371 990 2 288 162 Utikty operating income 364 289 361 756 366 044 Other income (Expense)
Income from nonregulated businesses - before interest and taxes 51 171 12 078 18 543 Aliowance for funds used during construction - equity 8 509 6 401 7 595 Merger costs (29 005)
Other utikty income (deductions) - net (3 697)
(2 886)
(1 Sa4) income taxes on nonregulated operations and nonoperating items - benefit 40 588 48 145 14 600 70tal 96 571 34 733 39 194 income before financing costs 460 860 396 489 405 238 Financing costs interest on utilitylong-term debt 104 171 101 250 101 177 Other utikty interest and amortization 11 612 19 063 21 950 Nonregulated interest and amortization 54 261 34 627 18 834 Allowance for funds used during construction - debt (7 307)
(10 208)
(11 262)
Totalinterest charges 162 737 144 732 130 699 Distributions on redeemable preferred secunties of subsidiary trust 15 750 14 437 Total finascing costs 178 487 159 169 130 699 Net locome 282 373 237 320 274 539 Preferred stock dividends and redemption premiums 5 548 11 071 12 245 Earnings Available for Common Stock
$ 276825
$ 226 249
$ 262 294 Average number of common shares outstanding (000's) 150 502 140 594 137 121 Average number of common and potentially dilutive shares outstanding (000's) 150 743 140 870 137 358 Earnings per Average Common Share - Basic 1.84 1.61 1.91 Earnings per Average Common Share - Diluted 1.84 1.61 1.91 Common dividends declared per share
$ 1.4250
$ 1.4025
$ 1.3725 j 5,, % wt. %.er4tStar as p.p S6c. 50 Nathavn states Power company, Minnewta and subsdanes 30
e a.nw sm en taas Sad nee.nte,3/
(74e.wata e/ detta) 1998 1997 t996 Cash Flows from Operating Activities Net income
$282 373
$237320
$274 539 Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization 379 397 358 928 335 605 Nuclear fuel amortization 43 816 40 015 45 774 Deferred income taxes (1 017)
(5 902)
(30 561)
Deferred investment tsx credits recognized (9 432)
(10 061)
(9 352)
Allowance for funds used during construction - equity (8 509)
(6 401)
(7 595)
Undistributed equity in earnings of unconsolidated affiliates (22 753)
(5 364)
(25 976)
Wnte-off of prioryearmergercosts 25 289 Cash provided by (used for) changes in certain working capital items (see below)
(13 673) 36 117 (58 634)
Cash provided by changes in other assets and liabilities 51 863 19 844 20 664 Net Cash Provided by Operating Activities 702 065 689 785 544 464 Cash Flows from investing Activities Capital expenditures:
Utihty plant additions (including nuclear fuel)
(411 113)
(396 605)
(386 655)
Additions to nonregulated property (44 918)
(35 928)
(25 807) increase (decrease) in construction payables 5 270 2 563 (3 716)
Allowance for funds used during construction - equity 8 509 6 401 7 595 1
Investment in external decommissioning fund (41 360)
(41 261)
(40 497)
Equity investments, loans and deposits for nonregulated projects (234 214)
(395 CS)
(299 173)
Collection of loans made to nonregulated projects 109 530 87 128 116 126 Business acquisitions (159 600)
Other investments-net 1307 (15 692)
(15 873)
Not Cash Used for investing Activities (606 989)
(948 489)
(648 000)
Cash Flows from F nancing Activities Change in short-term debt - net issuances (repayments)
(20 522)
(108 023) 152 173 Proceeds from issuance of long-term debt - net 290 626 299 779 197 824 Repayment of long-term debt, including reacquisition premiums (135 183)
(141 681)
(67 628)
Proceeds from issuance of preferred securities - net 193 315 Proceeds from issuance of common stock - net 72 348 267 965 41 725 l
Redemption of preferred stock, including reacquisition premiums (95 000)
(41 278)
Dividends paid (219 746)
(207 726)
(198 234)
Not Cash Provided by (Used for) Financing Activities (107 477) 262 351 125 860 Not increase (Decrease) in Cash and Cash Equivalents (12 401) 3 647 22 324 Cash and cash equivalents at beginning of period 54 765 51 118 28 794 Cash and Cash Equivalents at End of Period
$ 42 364
$ 54 765
$ 51118 Cash Provided by (used for) Changes in Certain Working Capital items j
Customer accounts receivab% and unbilled utikty revenues
$ (1583)
$ 47 745
$ (31925)
Federal income tax and other ueivables (19 853) 133 (9 570)
Materials and supplies inventories (5 385)
(8 547)
(9 891)
Payables and accrued liabilities (excluding construction payab!es) 7 845 (7 342) 1179 Other 5 303 4 128 (8 427)
Not
$ (13 673)
$ 36117
$ (58 634)
Supplemental Disclosures of Cash Flow information Cash paid durirg the year for:
interest (net of amount capitalized)
$220424
$144 062
$121697 income taxes (net of refunds received)
$ 74 005
$113 009
$165146 See % eta em 7a aaeent State. nears e., papee 36 to SC 31 been statn Poner company Mmnesota and subsidianes
0;
%? m Steent numte, 31 (76--s f dettau) :
1998 1991 a
Assets '
l Utility Plant Electric -including construction work in progress: 1998, $120,095; 1997, $92,302
$7199 843
$6 964 888 Gas 884 182 821 119 Other 365 101 343 950 l
Total 8 449 126 8 129 957 l
Accumulated provision for depreciation
.(4 155 641)
(3 868 810)
Noclear fuel-including amounts in process: 1998, $16,744; 1997, $23,381 975 030 932 335 Accumulated provision for amortization (873 281)
(832 162)__
Net utikty plant 4 395 234 4 361 320 Current Assets Cash and cash equivalents 42 364 54 765 i
Customer accounts receivable-net of accumulated provisions for uncollectible accounts: 1998, $5,176; 1997, $10,406 253 559 269 455 l
Unbilled utility revenues 139 058 121 619 Notes receivable from nonregulated proiects 4 460 55 787 Other receivables 100 656 80 803 Materials and supplies inventorir - at average cost:
Fuel '
58 806 56 434 Other 110 267 107 254 Prepayments and other 44 855 55 674 Total current assets 754 065 801 791 Other Assets Equity investments in nonregulated projects 862 596 740 734 External decommissioning fund and other investments 479 402 400 290 Regulatory assets 331 940 340 122 Nonregulated property-net of accumulated depreciation: 1998, $122,445; 1997, $105,526 282 524 256 726 Notes receivable from nonregulated projects 106 427 77 639 Other long-term receivables 29 796 42 600 Long-term prepayments and deferred charges 58 398 30 015 Intangible assets-net of accumulated amortization 95 915 92 829 Totalother assets 2 246 998 1 980 955 Total
$7 396 297
$7144 066 Liabilities and Equity Capitalization (See pages 34-35)
Common stockholders' equity
$2481246
$2 371728 Preferred stockholders' equity 105 340 200 340 Mandatorily redeemable preferred securities of subsidiary trust 200 000 200 000 Long-term debt 1 851 146 1 878 875 Totalcapitalization 4 637 732 4 650 943 Current ljabilities Long-term debt due within one year 227 600 22 820 Other long-term debt potentially due within or e year 141 600 141 600 Short-term debt 239 830 260 352 Accounts payable 271 799 249813 Taxes accrued.
170 274 186 369
- Interest accrued 38 836 -
28 724 Dividends payable on common and preferred stocks 55 650 54 778
' Accrued payroll, vacation and other 86 673 89 562 Totalcurrent liabilities 1 232 262 1 034 018 l
Other Liabilities Deferred income taxes 814 983 792 569 l
Deferred investment tax credits 128 444 138 509 Regulatoryliabihties 372 239 305 765 Postretirement and other benefit obligations 129 514 135 612 Other lonpterm obligations and def; red income 81 123 86 650 Total other liabihties 1 526 303 1 459 105 l
Connaiements and Contingent Liabilities (See Notes 13 and 14)
Total
$7 396 297
$7144 066 ses % u s wat suumane, aa parao 36 u 50 hitham states Power fnmpany. Mmnesota and subs 6 anes 32
e~s+&x sm&-~n.; w staan' sgau, Accumulated
)
Other Total Retained Shares Held Comprehensive Stockholders' (7denamada e/ de&ial Par Value Premium Earnings by ESOP income Equity Balance at Dec.31,1995 (as previously reported)
$170440
$599 094
$1266 026
$(10 657)
$ 2 488
$2 027 391 Restatement forJune 1,1998 iwo-for-one stock split 170 440 (170 440)
Balance at Dec. 31,1995 (as restated)
$340 880
$428 654
$1266 026
$(10 657)
$ 2 488
$2 027 391 Net income 274 539 274 539 Currency translation adjustments 306 306 i
Comprehensive income for 1996 -
274 845 Dividends declared:
Cumulative preferred stock (12 245)
(12 245)
Common stock (187 521).
(187 521)
Issuances of common stock-net 4 438 37 037 41 475 Tax benefit from stock options exercised 369 369 Loan to ES0P to purchase shares *
(15 000)
(15 000)
Repayment of ESOP loan
- 6 566 6 566 Balance at Dec. 31,1996
$345 318
$466 060
$1340 799
$(19 091)
$ 2 794
$2135 880 4
Net income 237 320 237 320 Currency translation adjustments (65 681)
(65 681)
Comprehensive income for 1997 171 639 Dividends declared:
Cumulative preferred stock (9 923)
(9 923)
Common stock (202 173)
(202 173)
Premium on redeemed preferred stock (1 148)
(1 148)
Issuances uf common stock-net 27 774 240 112 267 886 Tax benefit from stock options exercised 1009 1009 i
Repayment of ESOP loan
- 8 558 8 558 Balance at Dec. 31,1997
$373 092
$707181
$1364 875
$(10 533)
$(62 887)
$2 371728 Net income 282 373 282 373 linrealized loss from marketable securities, net of income tax of $4,417 (6 416) 9416)
Currency translation adjustments (19 711)
(19 711)
Comprehensive income for 1998 256 246 Dividends declared:
Cumulative preferred stxk (5 548)
(5 548) j Common stock (215 069)
(215 069)
)
Issuances of common stock-net 8 650 66 294 74 944 Retained earnings of acquired businesse*
6 005 6 065 Tax bene; : m stock options exercised 850 850 Loan to LM o purchase shares *
(15 000)
(15 000)
Repayment of ESOP loan
- 7 030 7 030 Balance at Dec. 31,1998
$381742
$774 325
$1432 696
$(18 503)
$(89 014)
$2 481246
- Did not affect NSP cash flows See 'Meera o ?ineauet +*-~~ en paya 36 re 50 33 horthem states Power company. Mmnesota and subsdanes
P
&fdeed S>'aemets 4 &ptratty<sttm Dece.te, S/
(7 demands e/ dettaw) 1998 1997 1
Common Stockholders' Equity Common stock - authorized 350,000,000 shares of $2.50 par value; issued shares: 1998,152,696,971; 1997,149,236,764
$ 381742
$ 373 092 Premium on common stock 774 325 707 181 Retained earnings 1 432 696 1 364 875 Leveraged common stock :. eld by Employee Stock Ownership Plan (ESOP)-
shares at cost: 1998,641,884; 1997,460,506 (18 503)
(10 533)
Accumulated other comprehensive income (89 014)
(62 887)
Total Common Stockholders' Equity
$2 481246
$2 371728 Cumulative Preferred Stock-authorized 7,000,000 shares of $100 par value; outstandmg shares: 1998,1050,000; 1997,2,000,000 NSP-Minnesota
$3.60 series,275,000 shares
$ 27500
$ 27 500 4.08 series,150,000 shares 15 000 15 000 4.10 series,175,000 shares 17 500 17 500 4.11 series,200,000 shares 20 000 20 000
. 4.16 series,100,000 shares 10 000 10 000 4.56 series,150,000 shares 15 000 15 000
- Variable Rate series A,300,000 shares 30 00t, Variable Rate series B,650,000 shares 65 000 Total 105 000 200 000 Premium on preferred stock 340 340 l
Total Preferred Stockholders' Equity
$ 105 340
$ 200 340 l
Mandatorily Redeemable Preferred Securities of Subsidiary Trust-holding as its sole asset junior sub-ordinated deferrable debentures of NSP-Minnesota 7X% series,8,000.000 shares, due Jan. 31,2037 (See Note B)
$ 200 000
$ 200 000 Long-Term Debt l
First Mortgage Bonds - NSP-Minnesota Series due:
Feb.1,1999,5M%
$ 200000
$ 200 000 Dec.1,2000,5%%
100 000 100 000 Oct.1,2001,73%
150 000 150 000 March 1,2002,7%%
50 000 Feb.1,2003,7%%
50 000 April 1,2003,6%%
80 000 80 000 l
Dec.1,2005,6%%
70 000 70 000 Dec.1,1998-2006,6.68%
16 900 "
18 400**
March 1,2011, Variable Rate 13 700*
13 700*
l July 1,2025,7%%
250 000 250 000 April 1,2007,6.80%
60 000*
G0 000*
l March 1,2019, Varieble Rate 27 900*
27 900*
Sept.1,2019, Variable Rate 100 000*
100 000*
March 1,2003,5%%
100 000 l
March 1,2028]A%
150 000 l
Total 1 318 500 1 170 000 l
Less redeemable bonds classified as current (See Note 3)
(141 600)
(141 600)_
l Less current maturities -
(201 600)
(1 500)
Net
$ 975300
$1026 900
'
- Polluten control fmancing
- Resource recovery fmancing See %res en 7:naaetat '"'"-n om papes 36 en 30 Northern states Power Company Mmnesota arid Subs + anes 34
p-l f f' W !!A N W h ? N "'!" N-k h f!? Y ! fit $694 2% antes 3/
(7^~" eyett.w) 1998 1997 Long-Term Debt-continued first Mortgage Bonds - NSP-Wisconsin Series due:
Oct.1,2003,5%%
$ 40000
$ 40 000 March 1,2023,7 %%
110 000 110 000 Dec.1,2026,7%%
65 000 65 000 Total
$ 215 000
$ 215000 Guaranty Agreements - NSP-Minnesota Series due:
- Feb.1,1998-2003,5.41%
5 100*
5 300*
i May 1,1998-2003,5.70%
22 750*
23 250*
Feb.1,2003,7.40%
3 500*
3 500*
Total 31 350 32 050 Less current maturities (700)
(700)
Net
$ 30 650
$ 31 330 Other long-Term Debt City of Becker Pollution Control Revenue Bonds - Series due Dec.1,2005,7.2:i%
$ 9 000*
$ 9 000*
l Anoka County Resource Recovery Bond - Series due Dec.1,1998-2008,7.10%
20 600" 21 850 "
City of La Crosse Resource Recovery Bond-Series due Nov.1,2021,6%
18 600 "
18 600 "
l Viking Gas Transmission Company Senior Notes - Series due Oct. 31,2008,6.65%
20 978 23 111 Nov. 30,2011,7.1%
4 650 5 010 Sept. 30,2012,7.31%
12 833 13 767 l
NRG Energy. bc. Seniur Notes - Series due Feb.1,2006,7.625%
125 000 125 000 j
June 15,2007,7.5%
250 000 250 000 NRG Energy Center, Inc. (M nneapolis Energy Center)
Senior Secured Notes - Series due June 15,2013,7.31%
71 783 74 481
)
Pacific Generation Company debt due 2000-2007,4.7%-9.9%
28 586 33 424 Various NE0 Corporation debt due Oct. 30,2000,6.9%-9.4%
17 792 5 618 l
United Power & Land Notes due March 31,2000,7.62%
6 041 6 875 l
Black Mountain Gas industrial Development Bond due l
June 1,2004, May 1,2005,6%
3 000 l
Various Eloigne Compar.y Affordable Housing Project Notes due 1998 -2024,1.0 % -9.9 %
46 024 27 223 i
(
Employee Stxk Ownership Plan Bad Loans due i
1998-2005, Variable Rate 18 504 10 535 Miscellanicus 9 122 7 385 l
Total 662 513 631 879 Less current maturities (25 300)
(20 620)_
Net
$ 637 213
$ 611259 (7 017)
_ (5 634) l Unamortaec discount on long-term debt - net
$1851146
$1878 875 l
Total Long-Term Debt l
Total Capitalization
$4 637 732
$4 050 943
- Pollution controliinancing
" Resourcr recovery financing See % De fenenetal Stefansente en pepan 36 to SC 35 horthern States Pow compiiny. Minnesota and subsidianes
i
@) hMGMCA4b $4$uNCKf4
/ Sauw4ey s/ Sty-f-r r/ccamsp Petteted service rates. In addition to construc' ion-related amounts, AFC is also recorded re e wnm ca# useMnance conmaNn pmgrams.
]
System of Accounts NSP-M nnesota is pnmarily a pubhc utikty serving customers in Minnesota, North Dakota, South Dakota and, smce the merger with Black Depreciation NSP determines the depreciation of its plant by spreadmg the Mountain Cas, Arizona. NSP-Wisconsin serves utilitycustomers in Wisconsin and original cost equally over the plant's useful life. Every five years, NSP submits Michigan.% king operates a 500-mile interstate natural gas pipeline. All of the an average service hte filmg to the Minnesota Public Utilities Commission utihty compames' accountmg records conform to the federal Energy Regulatory (MPUC) for electnc and gas preperty. The most recent filmg occurred in 1997.
Commission (FERC) umform system of accounts or to systems required by various Depreciation expense as a percentage of the average utility plant in service state regulatory commissions, which are the sue in all material aspects.
was 3.77 percent in 1998,3.78 percent in 1997 and 3.68 percent in 1996.
Principles of Consolidation The following wholly owned subsidiaries of Decommissioning NSP accounts for the f uture cost of decommissiomng - or NSP-Minnesota are included in the cor,schdated financial statements. In this permanently retiring - its nuclear generating plants through annual deprecia-report, we refer to these compames collectively as NSP, tion accruals using an annuity approach designed to provide for full rate recovery
- NSP-Wisconsin of the future decommissioning costs. Our decommissioning calculation covers
- NRG Energtr,Inc. (NRG) all expenses, including decontaminatica and removal of radioactive material,
- % king Gas Transmission Co. (% king) and extends over the estimated hves of the plants. The calculation assumes that
- Energy Masters International, Inc. (EMI)
NSP will recover those costs through rates. (See Note 13 for more information on
- Eloigne Co. (Eloigne) decommissioning.)
E'" '
"E* " S*' *
- "E'"8 E"
U tra o e T ch logies Inc (Ultra Power)
NSP uses the equity method of accounting for its investments in partnerships,
- nuclear fuel used joint ventures and certain projects, mainly at NRG and Eloigne. We record our
-future nuclear fuel disposal, based on fees established by the U.S.
portion of earnings from internationalinvestments after subtractmg foreign Department of Energy (DOE) income taxes. In the consolidation process, we ehminate all sigmficant inter-
- NSP's portion of the cost of decommissioning or shutting down the company transactions and balances except for intercompany and intersegment DOE's fuel enrichment facility profits for sales among the electric and gas utihty businesses of NSP-Mmnesota, I
ew him el2 hn W e M NSP-Wisconsin and Viking, which are allowed in utikty rates.
NSP is liable for the costs and we can reasonably estimate the liability. We may Revenues hSP records utihty revenues based on a calendar month, but reads defer costs as a regulatory asset based on our expectation that we will recover meters and bills customers according to a cycle that doesrit necessarily corre-these costs from customers in future rates. 0therwise, we expense the costs.
spond with the calendar month's end. To compensate, we estimate and record g
gg unbilled revenues from the monthly meter-reading dates to the month s end.
eW@dm@W NSP-Mmnesota s rates include monthly adjustments for:
g g
-changes m the average cost of fuel,includmg electricity and gas that NSP purchases, from base levels approved in the most recent rate case
- conservation and energy mangement program costs in Mmnesota g
g, Because of a Public Service Commission of Wisconsin (PSCW) rule.
We regularly adjust the recorded co?s as we revise estimstes and as remediation NSP Wisconsin s rates include a cost-of-energy adjustment clause for pur-roceeds. lf we are one of several designated responsible parties, we estimate chased gas, but not for purchased electricity or electric fuel. We can recover and record only our share of the cost. We treat any future costs of restoring sites, those electric costs through the rate review process, which normally occurs where operation may extend indefinitely. as a capitalind cost of plant retirement.
every two years m Wisconsin, and an mterim fuel cost hearing process.
The depreciation expense levels we can recover in rates include a provision for Utility Plant and Retirements Utikty plant is stated at origmal cost. The cost of these estimated removal costs.
utikty plant includes direct labor and materials, contracted work, overhead costs Incan axe a&n Ma% meM, Meh inmaxed and applicable interest expense. The cost of utikty plant retired, plus net removal aMempma@hntes Wen Madnancial andaxaW inn ad cost, is charged to accumulated depreciation and amortization. Maintenance and n e adaMes d asted and haWes.
replacement of items determined to be less than units of property are charged to operatmg expenses.
We use the tax rates that are scladuled to be in effect when the temporary emnces a pec e wn amund, w rema Allowance for funds Used During Construction (AFC) AFC, a noncash item, represents the cost of capital used to finance utihty construction activity. AFC Due to the effects of past regulatory practices, when defened taxes were not is computed by applying a cnt,posite pretax rate to quahfied construction work required to be recorded, we account fur the reversal of some temporary differences in progress. The AFC rate was 8.0 percent in 1998,5.75 percent in 1997 and as current income tax expense. We defer investment tax credits and spread their 5.5 percent in 1996. The amount of AFC capitahzed as a construction cost is benefits over the estimated hves of the related property. Utikty rate regulation credited to other income (for equity capital) and interest charges (for debt capital).
also has created certain regulatory assets and aabikties related to income taxes, AFC amounts capitalized are included in NSP's rate base for establishing utihty which we summanze in Note 9. We discuss our income tax policy for international j
operations in Note 7.
wthan states eows compant umnesotund subsidianes 36
W &lL ftN4M/4$ $tZCHtCM&t-Foreign Currency Translation NSP's foreign operations generally use the local Use of Estimates in recording transactions and balances resulting from business currancy as their f unctional currency in translating international operating operations, NSP uses estimates based on the best information available We use results and balances to U.S. curreacy. Foreign currency denominated assets and estimates for such items as plant depreciable hves, tax provisions, uncollectible liabikties are translated at the exchange rates in effect at the end of a reportmg amounts, environmental costs, unbilled revenues and actuarially determined period. income, expense and cash flows are translated at weighted average benefit costs.
exchange rates for the period. We accumulate the resulting currency translation Mehe@w$mihmN a adjustments and report them as a separate component of stockholders' equity.
Whon we convert cash distributions made in one currency to another currency, we Each year, we also review the depreciable lives of certain plant assets and include those gains and losses in the results of operations as a component of revise them if appropriate.
income from nonregulated businesses before interest and taxes. We do the same for Cash Equivalents NSP considers investments in certain debt instruments - with foreign currency denvative arrangements that do not quahfy for hedge accounting.
Derivative Financiallnstruments To preserve the U.S. dollar value of projected equivalents. Those debt instruments are primanly commercial paper and money
{
foreign currency cash flows, NRG hedges - or protects - those cash flows if market funds.
l appropriate foreign hedging instruments are available. NRG hedges foreign Regulatory Deferrals As regulated entities, NSP-Mmnesota, NSP-Wisconsin currency transactions by using forwurd foreign currency exchange agreements ani Viking account for certain income a ;d expense items using Statement of cith terms of less than one to three years. The gains and losses on those F nancial Accounting Standards (SFAS) No. 71 - Accounting for the Effects of agreements offset the effect of exchange rate fluctuations on NRG's known R@M U& Mh R cnd anticipated cash flows. NRG defers gains on agreements that hedge firm commitments of cash flows, and accounts for them as part of the relevant ulatory assets based on our expected abihty to recover them in future rates foreign currency transaction when the transaction occurs. NRG defers losses on these agreements the same way. unless it appears that the deferral would
- we defer certam credits, which would otherwise be reflected as income, as result in recognizmg a loss later, regulatory habihties based on our expectation that they will be returned to While NRG is not hedging investments involving ioreign currency currently. NRG cill hedge such investments when it believes that preserving the U.S. dollar We base our estimates of recovering deferred costs and returning deferred credits value ;,, die inwestment is appropriate. NRG is not hedging currency translation on specific ratemaking decisions or precedent for each item. We amortize regulatory sdjustment, related to future operating results. NRG does not speculate in assets and liabilities consistent with the period of expected regulatory treatment, foreign currencies. Before July 1997, NRG hedged investments involving foreign Stork-Based Employee Compensation NSP has several stock-based currency as they were made to preserve their U.S. dn'lar value. Gau and losses compensation plans, which are described in Note 4. NSP accounts for those on those sgreements offset the effects of exchange rate fluctuations on the em vclue of the investments underlying the hedges. We reported hedging gains and for stock options because thcre is no difference between the market pnce and losses on those agreements, net of income tax effects, with other currency the purchase price at grant date.We do, however, record compensation expense translation adjustments as a separate component of stockholders' equity.
for restncted stock that NSP awards to certain employees, but holds until the Frem time to time NRG also uses interest rate hedging instruments to protect restrictions lapse or the stock is forfeited. We do not uce the optional accocntmg against increases in the cost of borrowing at both the corporate and project under SFAS No.123 - Accounting for Stock-Based Compensation. lf we hau level. NRG defers gains and losses on interest rate hedging instruments, which used the SfAS No. G3 method of accounting, the reduction of earnings for are included and reported as part of the underlying equity investments.
1998,1997 and 1996 would have been immaterial.
EMI uses natural gas future and forward contracts to manage the nsk of gas Development Costs As NRG develops projects, it expenses the development price fluctuations. The cost or benefit of natural gas futures contracts is costs it mcurs until a sales agreement or letter of intent is signed and the recorded when related sales commitments are fulfilled as a component of EMrs project has received NRG board approval. NRG capitahzes additional costs operating expenses. In February 1999. EMI transferred its gas supply and incurred at that pomt as part of equity investments in projects.When a project marSetmg function to NSP's Energy Marketing Division.
begins to operate, NRG amortizes the capitalized costs over either the hfe of the ects relaM assds ohenue connad pen &nh kss.
NSP's Energy Marketmg Division uses future and forward contracts to manage the risk of electric price fluctuations. The cost or beneSt af futures or forward Intangible Assets Goodwill results when NSP purchases an entity at a price contracts is recorded when related sales commitments are fulfilled as a com-higher than the underlying fair value of the net assets.We amortize the goodwill ponent of Energy Marketing's operating expenses. NSP does not speculate in and other intangible assets over perbds of up to 40 years. We periodically evaluate electnc or natural gas future; the recovery of goodwill based on an analysis of estimated undiscounted future cashsA k M, MMnta@e assets We@ ndon d A final derivative instrument used by NSP is interest rate si aps. The cost or gM, W aWaW arnWah benefit of the interest rate swap agreements is recorded as a component of interest expense. None of these derivative fmar'cial instruments are reflected intangible and other asset., also included deferred f mancing costs, net of on NSP's balance sheet. (For infomtion on derivatives see Note 11.)
amodization, of approximately $23 milhon at Dec. 31,1998. We are amc.tumg these financing costs over the remaining matunty penod of the related debt.
37 bthern States Power company Mmpesota and subsid: anes
WattefkMdd Reclassifications and Stock Split We reclassified certain items in the 1996 NSP-Minnesota's 2011 and 2019 series first mortgage bonds have variable and 1997 income stctements to conform to the 1998 presentation. These interest rates, which currently change at various penods up to 270 days, based reclassifications had no effect on net income or earnings per share. In addition, on prevailing rates for certain commercial paper secunties or similar issues.
all financial information pertaining to per share amounts and number of The interest rates applicable to these issues averaged 4.3 percent and 3.1 percent, j
common shares outstanding has been adjusted to reflect a two-for-one stock respectively, at Dec. 31,1998. The 2011 series bonds are redeemable upon seven split effective June 1,1998, for shareholders of record on May 18,1998.
days notice at the option of the bondholder. NSP-Minnesota also is potentially liable for repayment of he 2019 series when the bonds are tendered, which
- f. S4est-bs Geseedspa occurs each time the variable interest rates change. The principal amount of all Short-term debt outstanding at Dec. 31 consisted of:
esnanaNe rayonds ouMandng vesWs poMal sMtenn #ga-tions and therefore, is reported under current liabilities on the balaace sheet.
(Wdlead V ut4w) 1998 1997 Matur n.es and sinking-fund requirements on long-term debt are:
Commercial paper borrowings
$114
$138 Bank loans 126 122 000 $m rn@on 2003 $2733 nGon Total Short-Term Debt
$240
$260 Weighted average interest rate - Dec. 31 5.6%
67%
At the end of 1997 and 1998, NSP-Mmnesota had a $300 million revolving credit facihty under a commitment fee arrangement. This facility provides short-term NSP's Articles of incorporation and first mortgage indenture include certain fmancing in the form of bank loans, letters of credit and support for commercial restrictions on paying cash dividends on common stock. Even with these paper sales. NSP did not borrow or issue any letters of credit against this facihty restrictions, NSP could have paid more than $1.4 billion in additional cash in 1997 or 1998.
dividends on common stock at Dec. 31,1998.
In addition, banks provided lines of credit to NSP wholly owned subsidiaries, of NSP grants nonqualified stock options and restricted stock under our Executive
$318 million at Dec. 31,1998. The short-term bank loans listed previously reduced long-term Incentive Award Stock Plan. The awards granted in any year cannot the amounts available under these subsidiary credit lines. Also, $34 million of exceed 1 percent of the number of outstanding shares of NSP common stock at letters of subsidiary credit were outstanding at Dec. 31,1998 (as discussed in the end of the previous year.When options are exercised or when we grant Note 11), which further reduced amounts avCble under the lines.
restricted stock, we may either issue new shares or purchase market shares, The weighted average number of common and potentially dilutive shares out-y y
standing includes the dilutive effect of stock options and other stock awards Except for minor exclusions, all real and personal property of NSP-Mmnesota based on the treasury stock method. Stock options may be exercised after one and NSP-Wisconsin is subject to the liens of the first mortgage indentures, which year from the option's grant date and no later than 10 years after the grant are contracts between the companies and their bond holders. A lien on the date. Effective in January 1999, stock options granted to NSP officers vest at related real or personal property secures other debt securities, as we indicate a rate of one-third each year for three years, on the Consolidated Statements of Capitalization.
i g
The annual sinking-fund requirements of NSP-Mmnesota and NSP-Wisconsin's vesting term. If employment ends after the one year westing term, employees first mortgage indentures are the amounts necessary to redeem 1 percent of either forfeit their options or must redeem them within three to 36 months, the highest principal amount of each series of first mortgage bonds at any dependmg on their circumstances. lf an employee retires, all options granted in time outstanding, excluding:
1999 will vest immediately and can be exercised over their 10-year life. The exer-
- series issued for pollution control and resource recovery financings cise price of an option is the market price of NSP stock on the date of grant.
-certain other series totaling $1 billion The plan previously granted other types of performance awards, some of which sna n an&nt WsWese @nnance awads wemalued in Mars, NSP-Mmnesota and NSP-Wisconsin may apply property additions in lieu of but paid in shares ba;ed on the market price at the time of payment. The fol-cash for sinking fund requirements on all series, as permitted by their first ng We inchansackndat havoccM unMnah bcen-mortgage indenture.
live stock programs, with the corresponding weighted average exercise price:
Stock Option and Performance Awards 1998 1997 1996 (76-4 g444m)
Shares Average Price Shares Average Price Shares Average Price Outstandmg Jan.1 2 206
$22.57 2 235
$21.99 1 980
$20.99 Options granted in January 572
$26 88 573
$23.72 526
$25.47 Options and awards exercised (346)
$22.39 (520)
$21.12 (210)
$20.59 Options and awards forfeited (34)
$26.48 (60)
$23.60 (54)
$23.85 Options and awarris expired (9)
$23.24 (22)
$25.47 (7)
$20.00 Outstanding at Dec. 31 2 389
$23.57 2 206
$22.57 2 235
$21.99 Exercisable at Dec. 31 1847
$23.34 1685
$22.21 1 740
$20.98 Nethern states Pows Company. Mmeseta and subsdanes 38
l l
W $D hM4Mfl4$
The following table summarizes information about stock options outstanding at Pension Benefits NSP has a noncontributory. defined benefit pension plan that Dec. 31,1998:
covers almost all employees. Benefits are based on a combination of years of service, the employee's highest average pay for 48 consecutive months and Range of Exercise Prices
$16.63-20.47 $21.10--22.75 $23.72-26.88 Social Security benefits' Options Outstandmg:*
NSP's policy is to fury fund into an external trust the actuarially determined l
Number outstanding pension costs recognized for ratemaking and financial reporting purposes, l
at Dec. 31,1998 290 396 721 942 1 361 838 subject to the limitations of applicable employee benefit and tax laws. Plan l
Weighted average remaining assets principally consist of the common stock of public companies, corporate l
contractuallife (years) 2.2 5.2 8.1 bonds and U.S. government securities.
Weighted average exercise price
$18.66
$21.96
$25A7 ns saMe?
Postretirement Health Care NSP has a contributory health and welfare benefit Number exercisable p an that provides health care and death benefits to almost all NSP retirees.
The plan, which will terminate for nonbargaining employees retinng after 1998, at Dec. 31,1998 290 396 721 942 819 904 enables NSP and retirees to share the costs of retiree health care for those Weighted average exercise price
$18.66
$21.96
$24.54 employees retiring prior to 1999. In 1994, NSP implemented a cost-sharing
- There were also 14,621 other awards outstanding at Dec. 31,1998-strategy, with 1997 and 1908 nonbargaining retirees paying 40 percent of total health care costs. Cost-sharing for bargainir.g employees i; governed by the in addition to granting stock options, NSP grants restricted stock based on a terms of NSP's collective bergaining agreement, dollar value of the award. We use the market price of the stock on the date it cas granted to determine the number of restricted shares to grant. NSP holds In conjunction with the 1993 adoption of SFAS No.106-Employers' Accounting tM steth until restrictions lapse: 50 percent of the stock vests one year from the f r Postretirement Benefits Other Than Pensions, NSP elected to amortize the date of the award and the other 50 percent vests two years from the date of the unrecognized accumulated postretirement benefit obligation (APB0) on a acard. To obtain additional shares, we reinvest dividends on the shares we hold straight-line basis over 20 years, chile restrictions are in place. Restrictions also apply to the addrtional shares.
NSP's regulators require shnificant levels of external funding for retiree benefits, a@anugWmsMan ase W M suMum Over the last three years, NSP has granted the following restricted stock awards:
n
.in @ mumnh anhaWaknh pnn @a n
inve
- 1996: 37,168 shares
- 1997: 52,688 shares Regulators for almost all of NSP's retail and wholesale customers have allowed
- 1998: 49,651 shares full recovery of increased benefit costs under SFAS No.106. Minnesota and Compensation expense related to these awards was immaterial.
Wisconsin retail regulators require external funding to the extent it is tax advantaged. Such funding began for Wisconsin in 1993 and for Minnesota in
- 5. 5lr.</a Wo.4 n,4 Mee AsaAsseeavear 5'ene/a4 1998. For w'.alesale ratemaking. FERC requires external fundmg for all benefits pa and accd dema E NSP offers the following banefit plans to its benefit employees. Approximately
]
33 percent of benefit employees are represented by five locallabor unions under a collective-bargaining a greement, which expires Dec. 31,1999.
ReconciHation of Funded Status Pension Benefits Other Postretirement Benefits (ha g/ 4h) 1998 1997 1998 1997 Benefit Obligation at Jan.1
$1048 251
$ 993 821
$279 230
$268 683 Sereice cost 31 643 27 680 3 247 5 095
)
Interest cost 78 839 72 651 15 896 18 872 Plan amendments 102 315 (51 456)
Actuarial (gain) loss (41 635) 30 431 (9 732) 2 164 Benefit payments (75 949) f76 332)
(17 423)
_15 584)
(
Benefit Obligation at Dec. 31 Il 143 464 c W.J 251
$219 762
$279 230_
Fair ealue of plan assets at Jan.1
$1978 538
$1634 696
$ 19 783
$ 15 514 Actuai return on plan assets 319 230 420 174 2 471 1461 Employer contributions 29 683 18 392
_ Benefit payments (75 949)
(76 332)
(17 423)
(15 CS4)
Fair Value of Plan Assets at Dec. 31
$2221819
$1978 538
$ 34 514
$ 19 783 Funded status at Dec. 31 - net asset (obligation)
$ 1078 355
$ 930287
$(185 248)
$(?59 447)
Unrecognized transition (asset) obligation (387)
(463) 104 482 161 700 Untccognized prior service cost 114 305 18 663 (2 399) i Unrecognized net (gain)1oss (1 167 340)
(953 825) 3 790 14 406
~ isiAmount Recognized - Asset (Llanility)
$ fi933
$ 15338)
TD9T75)
$T83 341) l 39 brthem states Poem company Mmnesota and subdianes
h &t (9 f5" " &*!
Amount Recognized in the Statement of Financia! Position Pension Benefits Other Postretirement Benefits j
ph 4a gtow) 1998 1997 1998 1997 Prepid benefit cost
$24 933 i
Accrued benefit liability
$f 5 338)
$(79 375)
$(83 841)
Net amount recognized - asset (liability)
$24 933
$(5 338)
$(79 375)
$(83 341)
Weighted Average Assumptions Used in Benefit Calculations Discount rate at end of year 6.5%
7.0%
6.5%
7.0%
Expected return on plan assets for year 8.5%
9.0%
8.0%
8.0%
Rate of future compensation increase per year 4.5%
5.0%
4.5%
5.0%
Rate of future health care cost increase per year:
Next succeeding year-age 65 and older 6.1%
6.8%
Next succeeding year-under age 65 8.1%
9.2%
Final rate of increase in 2004 5.0%
5.5%
l Effect of changes in the assumed health care cost trend rate for each year:
1 1% increase in APB0 components at Dec. 31,1998
$ 27199
$ 40 487 1% decrease in APB0 components at Dec. 31,1998 (22 551)
(35 359) 1% increase in service and interest costs components of the net periodic cost 2 652 3 692 1% decrease in service and interest costs components of the net periodic cost (2 158)
(3 199)
Components of Not Periodic Benefit Cost Pension Benefits Other Postretirement Benefits p h / # 4.unu) 1998 1997 1996 1998 i997 1996 Service cost
$ 31643
$ 27 680
$ 29 971
$ 3 247
$ 5 095
$ 6 380 Interest cost 78 839 72 651 70 863 15 896 18 872 19 283 Expected return on plan assets (129 263)
(115 359)
(102 473)
(1 582)
(1 242)
(927)
Amortization of transition (asset) obligation (76)
(76)
(76) 8 335 10 780 10 780 Amortization of prior service cost 6 673 1 071 1 071 (175)
Recognized actuarial (gain)
(27 727)
(20 762)
(24 018)
(4) 3 120 Net periodic benefit cost under SFAS 87 or 106 (39 911)
(34 795)
(24 662) 25 717 33 508 35 636 Costs recognized due to effects of ratemaking 35 545 30 862 23 572 4 033 Not Periodic Benefit Cost Recognized for Financial Reporting $ (4 366) $ (3 933) $ (1090)
$25 717
$33 508
$39 669 401(k)NSP has a contributory, defined contribution Retirement Savings Plan,
- 6. ?: r ; h 4 s y (!b ewtut(=
chich complies with section 4nl(k) of the internal Revenue Code and covers i
g g
gg substantially all employees. Since 1994, NSP has matched specified amounts of employee contributions to the plan. NSP's matching contributions were:
p w,,g,y g,a.,
$4.8 million in 1998, $4.4 million in 1997 and $4.3 million in 1996.
eueAt Ace.4.w --a) 1998 1997 1996 gabng a n m m2230 $223 m M3 ESDP NSP has a leveraged Employee Stock Ownership Plan (ESOP) that covers
.nWa arn ngs d substantia!!y all employees. NSP makes contributions to this noncentributory, defined contribution plan to the extc it we reahze a tax savings on our income 8 "I '"
P**"
statement from dividends paid on certain ESOP shares. Contributions to the n u ng @cMMans NW WE MM ESOP, which represent compensation expense, were: $4.3 million in 1998,
'"fn
$4.4 million in 1997 and $4.6 million m 1996.
d ng gains fro p ject sales 37 477 20 994 10 304 ESOP contnbutions have no material effect on NSP earnings because the income from nonregulated businesses contributions cre essentially offset by the tax savings provided by the dividends before interest and taxes 51 171 12 078 18 543 paid on ESOP shares. NSP allocates leveraged ESOP shares to participants Interest expense (54 261)
(34 627)
(18 834) when it repays ESOP loans with dividends on stock held by the ESOP.
Income tax benefit 41 791 38 032 16 576 Not income 01 $ M 483
$ 16 285 NSP's ESOP held:11.3 million shares of NSP common stock at the end of 1998, ornints Pomam
$ E26 $ M1
$ M2 11.2 million shares of NSP common stock at the end of 1997 and 11.8 million shares of NSP comn.on stock at the end of 1996.
NSP excluded the following uncommitted leveraged ESOP shares from earnings-per-share calculations: 0.6 milhon in 1998,0.6 million in 1997 and 0.4 million in 1955.
NortWn states Power company %nnesnta and subsid.am 40
7
% b V4tneemt Se e-ens n
' 7. %=., %.
Total income tax expense from operations differs from the amount computed by applying the statutory federal income tax rate to income before income tax expense.
The reasons for the difference are:
1998 1997 1996 federal statutory rate 35.0 %
35.0 %
35.0 %
increases (decreases)in tax from:
State income taxes, net of federal income tax t'enefit 4.7%
4.3%
5.2%
Tax credits recognized (8.9)%
(7.9)%
(4.1)%
Equity income from unconsolidated affiUates (3.8)%
(2.5)%
(2.6)%
Regulatory differences - utility plant items 0.7%
1.1%
0.9%
Other-net (0.6)%
(1.0)%
0.4%
Effective income Tax Rate 27.1%
29.0 %
!2%,
pt...- s 4 asu)
Income taxes are comprised of the following expense (benefit) items:
Included in utility operating expenses:
Current federal tax expense
$127 734
$125202
$15' 421 Current state tax expense 32 750 28 812 39 923 Deferred federaltax egense (6 625)
(88)
(19 933)
Deferred state tax expense 646 (23)
(3 958)
I Deferred investment tax credits (9 122)
(9 048)~ ~ ~ ~- (9 043)
Total ~
145 3*3
~'
161 410
~lncluded iriincome taiesinio^nr~ediafeTolieTalioiisiininondieiating it'emsE' - ~ ~ ~ ~' ~ ~
~
~ 144 855^ ~ ~ ~ ~ ~ ~ ~
Current federaltax expense (15 732)
(19 470)
(906)
Current state tax expense (6 744)
(5 804) 712 Current foreign tax expense 2 358 236 616 Current federaltax credits (25 122)
(17 006)
(8 044)
Deferred federaltax expense 11 132 (2 237)
(5 150)
Deferred state tax expense 1566 (662)
(1 520)
Deferred foreign tax expense (7 736)
(2 892)
Deferred investment tax credits (310)
(310)
(308)
Total (40 588)
(48 145)
(14 600)
L Totalincome Tax _ Expense
~~ ~ ~$104 795 ' ~ ~ ~ T $ _96 710 " ~ ~ ~ $146 81_0_
NRG intends to reinvest earnings from foreign operations in those operations
- f. Sw/eee<4 SecevaWu j
cxcep'. to the extent the earnings are subject to current U.S. income taxes.
At Dec. 31,1998, various preferred stock series were callable at prices per j
Accordingly, U.S. income taxes and foreign withholding taes have not been share ranging from $102.00 to $103.75, plus accrued dividends.
j provided on a cumulative amount of unremitted earnings of foreign subsidiaries of approximately $158 million and $112 million at Dec. 31,1993 and 1997.The in 1997, a wholly owned special purpose subsidiary trust of NSP issued additional u.S. income tax and foreign withholding tax on the unremitted foreign
$200 million ;' 7.875 percent preferred securities that mature in 2037.
earnings, if repatriated, would be offset in whole or in part by foreign tax credits.
Distributions paid by the subsidiary trust on the preferred securities are financed 1
Thus, it is not practicable to estimate the amount of tax thtt might be payable.
through interest payments on debentures issued by NSP-Mmnesota ar.d held by the subsidiary trust, which are 6liminated in NSP's consolidation. The preferred The components of NSP's net deferred tax liabilitv (current and noncurrent securities are redeemable at $25 per share beginning in 2002. Distributions and portions) at Dec. 31 were; redemption payments are guaranteed by NSP. A portion of the proceeds was used pe-- A y saw) 1998 1997 1996 to redeem NSP's $6.8 u nd $7.00 series of preferred stock in February 1997.
Deferred tax habikties:
Distributions paid to p:sferred security holders are reflected as a financing cost Differences between bock and in the Consolidated Statement of income along with interest expense.
l tax bases of property
$ 886 099 $ 867155 $ 850139 R;gulatory assets 103 640
, 100 564 121 2'2 l-Tax benefit trarsfer leases 27 170 31 614 43 481 Other 22 961 21 715 23 182 Total deferred tax liabilities
$1039 870~$1021048 $1038034 Def;rred tax assets:
Regulatory liabihties
$ 75774 $ 83 765 $ 90485 Deferred compensation, vacation and other accrued liabilities not currently deductible 67 539 70 765 65 690 Deferred investment tax credits 51 003 54 741 57 239 Other
~
29 565 26 557
~ 34 509
~ Totdtfeferied taxisids
$' 223 881~~$ 235828~^~ $ 247 923 Not Deferred Tax'LlabilitF $~815 989~ $ 785220 $ DQ 111
~
4t Northern states Power company Mmnesota and subsidianes
i W (9 fbM^*!!A! &A!!^^*!Mf4
@. P,p /% duere. sed h bh Summarized Financialinformatien of Une&solidated Affiliates Summarized nandal Wmahn Mne Nd,incMng Wuhwnd W and The following summarizes the individual components of unamortized regulatory pa%s, b as hs up enM k &
assets and liabihties shown on the Consolidated Balance Sheets at Dec. 31:
Remaining Results of Operations (74- - ^ g datmu)
Amortization Period 1998 1997 AFC recorded in plant (2r4. g gat u) 1998 199' 1996 Operating revenues
$1509
$1698
$ 958 on a net-of-tax basis
- Plant Lives
$121551 $128364 Operating income
$ 205
$ 93
$ 105 Cor'servation programs
- Primarily 2 Years 72 995 86 508 Net income
$ 143
$ 84
$ 89 Losses on NSP's equityin earnings of reacquired debt Term of Related Debt 56 242 59 353 unconsolidated affiliates
$ 80
$ 19
$ 31 Environmental costs Primarily 10 Years 50 158 45 849 Unrecovered gas costs 1-2 Years 16 259 8 020 Finaccial Position State commission (Mdtmu y datmu) 1998 1997 1996 accounting adjustments
- Plant Lives 7 370 7 286 Current assets
$ 714
$ 742
$ 681 Other Vanous 7 365 4 742 Other assets 8 071 7 853 3 525 Total Regulatory Assets
$331940 $340122 Total Assets
$8 785
$8 595
$4 206 Deferred income tax adjustments
$ 75 066 $ 88035 Current habikties
$ 537
$ 514
$ 397 investment tax credit deferrals 84 865 91 146 Other liabikties 5931 6 109 2 798 Unrealized Hains from Equity 2 317 1972 1 011 decommissioning investments 138 613 85 482 Total Liabilities and Equity
$8 785
$8 595
$4 206 Pension costs - regulatory differences 53 012 27 107 NSP's equityinvestment fuelcasts. refunds and other -
20 683 13 995 in unconsolidated affiliates
$ 863
$ 741
$ 410 Total Regulatory Liabilities
$372239 $305765 N' b" Yh#
- Earns a return on investment in the ratemaking pmcess fair Values The estimated Dec. 31 fair values of NSP's recorded financial
/O. b e e d 4 = - s d /es dy t h 8paray ') Wet 4 4 instruments are asiollows:
Through its nonregulated subsidiaries, NSP has investments in various (74 a.ydatnu) 1998 1997 international and domestic energy projects, and domestic affordable housing and Carrying Fair Carrying Fair real estate projects. We use the equity method of accounting for such investments Amount Value Amount Value m affiliates, which include joint ventures and partnerships. That's because the Cash, cash equivalents ownership structure prevents NSP from exercising a controlling influence over the and short-term projects' operating and fmancial policies. Under this method, NSP records its investments
$ 42 364 $ 42 364 $ 54 765 $ 54 765 portion of the earnings or losses of unconsolidated affikates as equity earnings.
Long-term t
A summary of NSP's significant equity method investments is listed below.
investments
$ 438 981 $ 438981 $ 344 491 $ 344491 Name Geographic Area Economic Interest E
Loy Yang Power Austraha 25.37 %
current portion
$2 220346 $2 313 468 $2 043 295 $2 079123 Pacnt Generation Company USA / Canada 3.70 % -100 %
~
Gladstone Power Station Austraha 37.50 %
for cash, cash equivalents and short-term investments, the carrymg amount COBEE South America 48.30 %
16 DRAG m"Jn Europe 33.33 %
gmximate fahaludecause of the short matunty of thow ms'.ruments.The fair values of NSP's long-term mvestments, mainly debt secunties in an external CogenerationCorp.of America USA 45.21 %
nuclear decommissioning fund, are estimated based on quoted market prices for Schkopau Power Station Europe 20.95 %
those or similar investments. The fair value of NSP's long-term debt is estimated Long Beach Generating USA 50.00 %
based on the quoted market prices for the same or similar issues, or the current ElSegundo Generatmg USA 50.00 %
rates for debt of the same remaining maturities and credit quakty.
Energy Development Limited Austraha 33.97 %
Scudder Latin American Trust Derivatives NRG has executed certain transactions designed to protect the for Independent Power economic value in U.S. dollars cf selected known and anticipated NRG cash 3
Energv Projects Latin Arnerica 25.00 %
flows denominated in Australian dol!ars.
Various independent power As of Dec. 31,1998, NRG had one contract with a notional value of $2.8 million to prt duction facilities USA 45 % -50 %
Vanous affordal,le housing M98 W m i M M E k W m W g limited partnerships USA 20 % -99 %
1999 i
WRG'ed MM due to nonperformance by the counterparties to its forward exchange contracts is insigmficant, based on the investment grade rating of the counterparties.
Northem States Fower company. Mmnesota and suosennes 42
W 67 fMMffd &??Pm'Mf4 EMI had natural gas forward and futures contracts in the national amount of 2 %edras R&
$6 mdhon at Dec. 31,1998. The original contract terms range from one month t Fuel Disposal NSP is responsible for temporarily storing used - or spent - nuclear two years. The contracts are mtended to hedge risk from fluctuations in the price g
g gp of natural gas that will be required to satisfy sales commitments for future g
3p deliveries to customers. EMI s futures contracts hedge $6.1 milhon in anticipated plants as well as from other U.S. nuclear plants. NSP has been funding its portion natural gas sales m 1999-2000. At Dec. 31,1998, EMI maintamed margin balances of $1.3 million on deposit with brokers for these contracts, which are of the DOE's permanent disposal program since 1981. NSP funded itr obligatica through an internal sinking fund until 1983, when the DOE began assessing fuel reprted as cash and cash equivalents on NSP s balance sheet.The counterpar-disposal fees based on a charge of 0.1 cent per kilowatt-hour sold to customers ties to the futures contracts are the New York Mercantile Exchange, mvestment from nuclear generation. Fuel expense includes DOE fuel disposal assessments of; banks and major gas pipeline operators. Management believes that the risk of
$10.8 million in 1998, $10.1 million in 1997 and $11.3 million in 1996.
nonperformance by these counterparties is not significant. lf the contracts had tun terminated at Dec. 31,1998, $0.8 million would have been payable by EMI In total, NSP had paid approximately $262 million to the DOE through Dec. 31, for natural gas price fluctuations to date.
1998. However, we cannot determine whether the amount and metiiod of the Energy Marketing uses energy futures contracts, along with physical supply, to E'
' E ** "'
hedge market risk. At Dec. 31,1998, the notional amount of electricity futures contracts was less than $1 milhon. In february 1999, EMI transferred its gas The Nuclear Waste Policy Act stipulated that the DOE execute contracts with supply and marketing function to NSP's Energy Marketing Division. Existmg sales utilities that require the DOE to begin accepting spent nuclear fuel no later than commitments and natural gas futures and forward contr: cts, currently in place, Jan. 31,1998. Accordingly, NSP has been providing, with regulatory and legisla-cill remain the contractual responsibility of EMI.
tive approval, its own temporary anaite stmage facihties at its Monticello and
'8" "**8" NSP had one interest rate swap agreement with a notional amount of $200 million.
E*E*"
U NSP entered into this swap in conjunction with first mortgage bonds (SW % Series a
,an n
au pnemagMspda@
due Feb.1,1999). This agreement effectively conv;rted the interest cost of the 8
debt from fixed to variable rates based on the six-month London Interbank Offered Rate, with the rates changing semiannually. The net effective interest cost at NSP and other utilities have commenced lawsuits against the DOE to recover Dec. 31,1998, was 4.91 percent. This swap expired on Feb.1,1999.
damages caused by the DOE's failure to meet its statutory and contractual oblig-ns as agdacMenW in Nde Me NRG has one interest rate swap agreement with a notional amount of an ng an au ufe guapa@
$17.5 million. This swap was entered into with an existmg variable rate debt
"#8 "
issue. The swap effectively converts the variable rate debt into fixed rate debt n eH H u ea an as age capac@ conununpera&nunM at 7.65 percent. lf the swap had been disconti1ued on Dec. 31,1998, NRG would agn aMWgp@n en& dam nd asW am hcVe had to pay the counterparty approximati ly $0.9 milhon. The swap expires
" I" on Sept' 30' 2002' storage until a DOE facihty is available, including pursuing the establishment of Letters of Credit NSP and its subsidiaries use k tiers of credit, generally with a private facility for interim storage of spent nuclear fuel as part of a consortium terms of one year, to provide financial guarantees Mr certain operating obligations, of electric utilities. If on-site temporary storage at NSP's nuclear p! ants reaches such as NSP-Minnesota workers' compensation benefits, ash disposal site costs approved capacity, NSP could seek interim storage at this or another contracted and EMI natural gas purchases.
privatefacility,if available.
In additin, NRG uses letters of credit for: nonregulated equity commitments, Naclear fuel expenses include payments to the DOE for the decommissioning - or collateral for credit agreements, fuel purchase and operating commitments and permanent retirement - and decontamination of the DOE's uranium enrichment bids on development projects.
facihties, in 1993, NSP recorded the DOE's initial assessment of $46 million, "I '
At Dec. 31,1998, there were $84 million in !etters of credit outstanding, Ins aHen e@ensun a mn 5 n m
ng ead including $33 million related to NRG commitments. The contract amounts of cen n aHan paw in M was W Mon;y these letters of credit approximate their f air value and are subject to fees paynen a
determined in the marketplace.
obtaining rate recovery of these DOE assessments through the cost-cf-energy adjustment clause as the assessments are amortized. Accordingly, we deferred the g
gg#
unamortized assessment of $35 million at Dec. 31,1998, as a regulatory asset.
NSP is part owner of an 860-megawatt. coal-fired electric generating unit called Sherco 3. NSP owns, and has financed,59 percent and Southern Mir.nesota Plant Decommissioning Decommissioning of NSP's nuclear facihties is planned Municipal Power Agency (SMMPA) owns, and has financed,41 percent of Sherco 3.
1or the years 2010-2022, using the prompt distnantlement method. NSP currently NSP is the operating agent under the joint ownership agreement. NSP's share of is following industry practice by ratably accruing ttle costs for decommissioning related expenses for Sherco 3 is included in Utility Operating Expenses. NSP's over the approved cost recovery period and including the accruals in Utikty share of the gross cost recorded in Utility Plant was approximately $604 mi'han at Plant - Ac.cumulatei Depreciation. Consequently, the total decommissioning year-end for both 1998 and 1997. The accumulated provisions for depreciation cost obhgation and correspondmg assets currently are not recorded in NSP's were $214 8 milhon in 1998 and $196.2 million in 1997.
financial state.'nents.
l l
43 Northem States hwee comnany Mmnesota and subsidianes
Notes 4lL 7/MWid The Financial Accounting Standards Board (FASB) hauroposed new accounting At Dec. 31,1998, NSP had recorded and recovered in rates cumulative standards, which,if approved, would require the ful'. wual of nuclear plant decommissioning accruals of $508 million.The following table summarizes decommissioning and certain other site exit obligations no sooner than 2000.
the funded status of NSP's decommissioning obligation at Dec. 31,1998:
Using Dec. 31,1998, estimates, NSP's adoption of the proposed accounting would (7
4 V mu/
1998 result in the recording of the total discounted decommissioning obligation of i
$811 million as a liability, with the corresponding costs capitalized as plant and from most recent approved study (1993 dollars)
$ 750824 other assets and depreciated over the operating hfe of the plant. The obhgation g
gg calculation methodology proposed by the FASB is slightly different than the i
ratemaking methodology that derives the decommissioning accruals currently g
being recovered m rates. NSP has not yet determmed the potential impact of the gg g FASB's proposed changes m the accounting for site exit obligations, such as costs of removal, other than nuclear decommissioning. However, the ultimate decom-M MW pd 909 m missioning and site exit costs to be accrued are the same under both methods' 5
The effects of regulation are expected to minimize or eliminate any impact on operating expenses end results of operations from this future accounting change.
interest rate)
(1 033 906)
Consistent with cost recovery in utikty customer ntes NSP records annual Discounted decommissioning cost obligation 810 879 decommissioning accruals based on periodic site-specrfic cost studies and a External trust fund assets at fair value 438 981 presumed level of dedicated funding. Cost studies quantify decommissioning Discounted Decommissioning Obligation in Excess costs in current dollars. Since the costs are expected to be paid in 2010-2022, of Assets Currently Held in External Trust
$ 371898 funding presumes that current costs will escalate in the future at a rate of 4.5 percent per year. The total estimated decommissioning costs that will Decommissioning expenses recognized include the following components:
ultimately be paid, net of income earned by external trust funds, is currently I (7 being accrued using an annuity approach over the approved plant re.overy 4 y m=/
1998 1997 1996 period. This annuity approach uses an assumed rate of return on funding, which is currently 6 percent, net of tax, for external funding and approximately 8 percent' F.xternally funded
$33178 $33178 $33178 net of tax,forinternalfunding.
The MPUC last approved NSP's nuclear decommissioning study and related (including interest costs) 1 477 1368 1268 nuclear plant depreciation capital recovery request in April 1997, using 1993 cost Interest cost on externally funded data. Although management expects to operate the Prairie Island units through decommissioning obhgation 6 960 7 690 5 246 the end of each unit's licensed hfe, the approved capital recovery would allow for Earnings from external trust funds (6 960) (7 690)
',6 294) the plant to be fully depreciated, including the accrual and recove'y of decommis-Not Decommissioning sioning costs, in 2008, about six years earher than the end of each unit's licensed Accruals Recorded
$34 655 $34 546 $33 398 hfe. The approved recovery period for Prairie Island has been reduced because of the uncertainty regarding used fuel storage. NSP believes future decommissioning Decommissioning and interest accruals are included with the accumulated cost accruals will contmue to be recovered in customer rates.
provision for depreciation on the balance sheet. Interest costs and trust earnings E "
The total obligation for decommissioning currently is expected to be funded approximately 82 percent by external funds and 18 percent by internal funds, as approved by the MPUC. Rate recovery of internaI funding began in 1971 through gg y
ggg depreciation rates for removal expense, and was changed to a sinking fund recovery in 1981. Contributions to the external fund started in 1990 and are Capital Commitments NSP estirrates utikty capital expenditures, including expected to continue until plant decommissioning begins. Costs not funded by purchases of nuclear fuel, will be $450 milhon in 1999 and $2.1 billion for
}
external trust assets, including accumulated earnings, Will be funded through 1999-2003. There also are contractual commitments for the disposal of spent internally generated funds and issuance of NSP debt or stock. The assets held nuclear fuel. (See Note 13.)
in trusts as of Dec. 31,1998, primarily consisted of investments in fixed income As of Dec. 31,1998, NftG is contractually committed to additional equity securities, such as tax-exempt municipal bonos and U.S. government securities investment; of approximately $1.3 billion in 1999 and approximately $1.3 billion that mature m one to 16 years, and common stock of public companies. NSP for 1999-2003 for various power generation projects. The 1999 capital com-plans to reinvest matured securities until decommissioning begms.
g g, g,
g including: Arthur Kill, Astoria, Somerset, Dunkirk, Huntley and Encina. A significant 1
portion of these capMal requirements is expected to be fmanced by nonrecourse project debt.
brthern states Power Company, Mmnesota and Subsidianes 44
1 W (D hM4Mdd$ AZCMMW&t Legislative Resource Commitmentsin 1994, the Minnesota Legislature Fuel Contracts NSP has contracts providing for the purchase and dehvery of a established several energy resource and other commitments for NSP to obtain significant portion of its current coal, nuclear fuel and natural gas require-the Prairie Island temporary nuchar fuel storpge facikty approvat The current ments. These contracts, which expire in various years between 1999 and 2013, status of these commitments can be met by building, purchasing or, in the case require minimum purchases and deliveries of fuel, lease payments for railcars j
of idomass, converting generation resources.
and additional payments for the nght to purchase coal in the future. In total, s umn e n
n a
apx ma% W mMon d in 1994, NSP received Minnesota legislative approval for additionni on-site a
rn n an m
na al gas aM Mad temporary stcrage facihties at NSP's Prairie Island plant, provided NSP satisfies E'#""
certain requirements. Seventeen dry cask containers were approved. In 1996, a
n, s 24 48y a nal arnNn n ng on achal the Mmnesota Environn ental 0uality Board (ME08) certified that NSP had met paGes sW uMe@se agmeh the requirements necessary to use the sixth throegh ninth casks at the Prairie Island nuclear generating facility. The fmal eight casks become available unless NSP has developed a mix of gas supply, transportation and storage contracts the resource commitments discussed below are not met and the Minnesota designed to meet its needs for retail gas sales. The contracts are with several Legislature revokes its approval before June 1,1999. As of Dec. 31,1998, NSP supp9ers and for various periods of time. Because NSP has other sources of fuel had loaded seven casks.
available and suppliers are expected to continue to provide reliable fuel sup-The 1994 legislation requires NSP to have 425 megawatts of wind resources
"'"" ""I' s n can na nMs m, in nn increased uns, fmm contracted by Dec. 31,2002. 0f t'* commitment, approximately 130 megawatts maM @ danges b M b m4aN bgm mMewgy a@ush remam to be contracted. The MPUC recently ordered an additional 400 megawatts en e ra ema m,
c es emen f nea%
to be contracted by 2012; however, this order is subject to further MPUC all fuel costs.
consideration.
geenWas mal agen% Wase eWc@m me During 1997 and 1998, NSP executed three separate power purchase agreements a
a Hy ec a
sunnan agents.is as Mows (PPA) for a total of 125 megawatts of biomass-fueled generation resources.
ThGse contracts meet the statutory requirements to contract for 125 megswatts Power Agreements Years Megawatts of biomass energy by Dec. 31,1998. However, all three contracts are currently Participation power purchase 1999-2005 500 tseir.] reviewed by the MPUC. The MPUC has tabled further consideration until Seasonal diversity exchanges:
at least March of 1999 to allow future consideration of the PPAs. Delayed MPUC Summer exchanges from MH 1999-2014 150 action on any of these contracts puts at risk having 50 megawatts of biomass 1999-2016 200 resources operational by Dec. 31,2001, and 75 megawatts of biomass resources Winter exchanges to MH 1999-2014 150 operational by Dec. 31,2002.
1999-2015 200 2015-2017 400 Other commitments established by the Legislature include a discount for 2018 200 low-income electric customers, required conservation improvement expenditums and various study and reporting requirements to a legislative electric energy task The cost of the 500-megawatt participation power purchase commitment is force. In 1995, the MPUC approved NSP's low-income discount programs in accor-based on 80 percent of the costs of owning and operatmg NSP's Sherco 3 gener-dance with the statute. NSP's capital commitments include the known effects of 993 h A h M W p % @
the 1994 Prairie Island legislation. The impact of the legislation on power purchase 500-megawatt MH agreement are estimated to be approximately $55 million.
commitments and other operating expenses is not yet determinable.
There are no capacity payments for the diversity exchanges. These commit-Guarantees in 1997 and 1996, NSP sold a portion of its other receivables, ments to MH represent about 17 percent of MH's system capability in 1999 and consisting of energy loans made to customers, to a third party. The portion of account for approximately 10 percent of NSP's 1999 electric system capabikty the receivables sold consisted of customer loans to local governmen' entities The risk of loss frorr aonperformance by MH is not considered significant, and for Gnergy efficiency improvements under various conservation programs the risk of loss frrm market price changes is rmtigated through cost-of-energy offered by NSP. Under the sale agreements, NSP is required to guarantee rate ad;ustments.
repayment to the third party of the remaimng loan balances. At Dec. 31,1998.
NSP has an agreement with Mmnkota Power Cooperative for the purchase of the outstanding balance of the loans was approximately $22 milhan. Based on summer season capacity and energy. From 1999 through 2001, NSP will buy prior collection experience of these loans, NSP believes that losses under the 150 megawatts of summer season capacrN for approximately $12 million annually.
loan guarantees, if any, would have an immaterial impact on the results From 2002 through 2015, NSP will purchase 100 megawatts of capacity for
$10 million annually Under the agreement, energy will be pnced at the cost of leases Rentels under operating leases were approximately $33 million, $32 million fuel consumed per megawatt-hour at the Coyote Generatmg Station in North and $29 million for 193d,1997 and 1996, respectively. Future commitments Dakota. NSP also has a seasonal (summer) purchase power agreement with under these leases generally dechne from current levels.
Minnesota Power for the purchase of 173 megawatts, including reserves, from 1999-2000. The annual cost of this capacity will be approximately $2 milla 45 Iwten states Power compary Mmnesota and subsidmes
& & fMeMde! Ne&M4 NSP has agreements with several nonregulated power producers to purchase
-The total remediation costs of the five unremediated sites is currently j
electric capacity and associated energy. The 1999 cost of these commitments estimated to be approximately $18 million. If additional remediation is is approximately $45 million for 363 megawatts of summer capacity. This com-necessary or unexpected costs are incurred, the amount could be higher.
mitment is exnected to range between $44 miHion and $55 million annually for NSP-Minnesota is not aware of the other parties' inability to pay, nor the years 2000 through 2021. These commitments are expected to decline to does it know if responsibikty for any of the sites is in dispute. For these approximately $27 milhon annually for the years 2022 through 2027, due to the five sites, neither the amount of remediation costs not the final method expiration of existing agreements.
of their allocation among all designated PRPs has been determined.
H er, un a as mm an dnaW apWmaW Nuclear insurance NSP's public liability for claims resulting from any nuclear am u 25 Se e nc ng incident is limited tc $9.8 bilhon under the 1988 Pnce-Anderson amendment to a n wec e adn N the Atomic Energy Act of 1954. NSP has secured $200 milhon of coverage for its pubhc liabihty exposure with a pool of insurance companies. The remaining While it is not feasible to determine the ultimate impact of PRP site remediation
$9.6 bilhon of exposure is funded by the Secondary financial Protection Program, at this time, the amounts accrued represent the best current estimate of available from assessments by the federal government in case of a nuclear NSP-Mmnesota's future liabihty. It is NSP-Mmnesota's practice to vigorously accident. NSP is subject to assessments of up to $88 million for each of its three pursue and, if necessary, litigate with insurers to recover incurred remediation licensed reactors to be applied for public liabihty arising from a nuclear incident costs whenever possible. Through htigation, NSP-Minnesota has recovered a at any licensed nuclear f acility in the United States. The maximum funding portion of the remediation costs paid to date. Management believes remediation requirement is $10 million per reactor during any one year.
costs incurred, but not recovered, from insurance carriers or other parties aHm m n u raWna% MMuesda Mnb NSP purchases insurance for property damage and site decontamination as a N, H n QuModcMWng w amanM any usts cleanup costs with coverage limits of $1.5 billion for each of NSP's two nuclear 8"
"8 plant sites from Nuclear Electric insurance limited (NEIL).
scen ma@nd@n N ckam ankmdakn awe NEll also provides business interruption insurance coverage, including the cost a
nal MednnMs a sM anHazahs wasMand sWng, of replacement power obta ned during certain p onged accidental outages of s
sons en a
psu azadas wades in nuclear generating units. Premiums billed to V em NEllare expensed over Uns an ng Mne ped in psMe fou@u Mes am adoca-the policy term. All companies insured with h e subject to retrospective meMnanufa u gas planh aManGahdadake premium adpstments if losses exceed accum%d reserve funds. Capital has an gwa aHs, rna c ag and unmdakn ush aW been accumulated in the reserve funds of NLIL t*e extent that NSP would ue, an, knq and Wppa Fah sb and ne eded d have no exposure for retrospective premium assessments in case of a single nn m ns
, any sa s am ndnan incident under the business interruption and the property damage insurance aWs kne, M am eWeMe knmatedal coverage. However, in each calendar year, NSP could be subject to n.aximum assessments of approximately $3.6 million for business interruption insurance The Wisconsin Department of Natural Resources (WDNR) named NSP-Wisconsin (generally five times the amount of its annual premium) and $14.7 million for as one of three PRPs for creosote and coal tar contamination at the Ashland property damage insurance (generally five tirnes the amount of its annual site. The Ashland site includes property owned by NSP-Wisconsin and two other premium)if losses exceed accumulated reserve funds.
prr perties, which include an adjacent city lakeshore park area and a small area Environmental Contingencies Other long-term liabilities include an accrual of ak %Ws Wmmen Bay pning NarGMmate usW a
aW me Mae n eccNe Mned W M
$40 million, and other current liabihties include an accrual of $5 million, at a erappaWu@anheh Dec. 31,1998, for estimated costs associattd with environmental remediation.
Approximately $28 million of the long-term liabihty and $4 million of the current in December 1998, the WDNR released the results of its consultant's feasibihty liability relate to a DOE assessment for decommissioning a federal uranium study (FS) for remedialmg the Ashland site. The options considered by the enrichment f acihty, as discussed in Note 13. 0ther estimates have been recorded WDNR's consultant ranged from no action to completely removing and treating for expected environmental costs associated with manufactured gas plant sites the contaminated soils, groundwater and lake sediments. The report describes formerly used by NSP, and cther waste disposal sites, as discussed below. These eight potential corrective strategies and associated costs, and it teores the environmental liabihties do not include accruals recorded and rollected from cus-effectiveness of each option in terms of meetmg state and federal cleanup tomers in rates for future nuclear fuel disposal costs or decommissioning costs standards and guidelines. The options described in the FS are estimated to cost related to NSP's nuclear generating plants. (See Note 13 for further discussion.)
between $4 milhon and $93 milhon, with four of the eight options within a range o
n n e wu n ah sm@e mosWe The Enwo,nental Protection Agency (EPA) or state environmental agencies have eun a am in n
gunMe ushangehde designated NSP-Mmnesota as a potentiaHy responsible party (PRP) for 17 waste mcentnenMnh NnN@ Whah any We uno disposal sites to which NSP-Minnesota allegedly sent hazardous materials.
al ac n, u eylun n ns avadaWe b mMane ManNe.
-Twelve of these 17 sites have been remediated and, consistent with settlemuts reached with the EPA and other PRPs, NSP-Mmnesota has Under a spill response order that NSP signed in 1998 NSP has until March 1,1999, paid $2.2 million for its share of the remediation costs. While these to develop its own f:, which would then be considered by the WDNR in its deci-remediated sites will continue to be monitored, NSP-Minnesota expects sion-making process. This FS is now being prepared by NSP's consultnt. NSP that future remediation costs,if any, will be immaterial Under applica-believes that reasonably effective remedial options exist for the Ashland site, ble law, NSP-Mmnesota, along witn each PRP, could be held jointly and which were not evaluated by the WDNR's consultant, that are estimated to cost severally liable for the total remediation costs of PRP sites.
between $6 rrdllion and $13 milkon. These other remedial options and their
%fthem states Poww company. Ennesota and subsidmnes 46 s.
W (6 90eaxchal Sctronexts l
t l
assc:iated costs will be updated and refmed in NSP's FS. NSP officials continue dioxide emission limits of the Clean Air Act. NSP is evaluatmg how best to to discuss remediation options available for the Ashiand site, and NSP Wisconsin's implement the nitrogen oxides standards. NSP-Mmnesota's capital expenditures leeel of responsibility, with the WDNR.
include some costs for ensunng compliance with the Clean Air Act's other emission u nen er a n ay ssan en Ensnmental Until the WDNR selects a remediation method and determines the level of E n gency Nnakabon Cemahng Mn. Because Es sM responsibikty of each potentially responsiole party, NSP is not able to estimate in peu eme 2 some phs oMan MR h &
l its share of the ultimate cost of remediating the Ashland site. NSP anticipates a nanciabnpad is unknown aWHune. Canal eedurn fu opa@ cw I
decision from the WDNR in the hrst half of 1999. In the interim, NSP-Wisconsin anu a n n caNalagnhe candnmn%scM ph4 has r; corded a liabihty for an estimate of its share of the cost of remediating wciaWn Mae canal coMs wW be suWo mgdaWemwg s the Ashland site based on information available to date. NSP-Wisconsin has ak p @ gt deferred as a regulatory asset the remediation costs accrued for the Ashland site because management expects that the PSCW will continue to allow in September 1998, the EPA issued nitrogen oxide regulation affecting 22 states, l
NSP-Wisconsm to recover payments for environmental remediation from its cus-including Wisconsin. NSP Wisconsin may be required to retrofit some of its l
tomers. The PSCW has consistently authorized recovery in NSP-Wisconsin rates electric generstmg plants by 2003 to comply with this regulation. NSP-Wisconsin l
of all remediation costs incurred at the Ashland site, and has authonzed recovery and other parties have petitioned for a judicial review of the regulation. The new of similar remediation costs for other utikties, regulation has not been finakzed by the WDNR, so NSP-Wisconsin cannot e
e a n na W M n h NSP-Minnesota also is continuing to investigate other properties that were furmerly sites of gas manufacturing, gas storage plants or gas pipelines. The Several of NSP's facihties have asbestos material, which can be a health hazard i
purpose of this investigation is to determine if waste materials are present,if to people who come in contact with it. Governmental regulations specify the l
they are an environmental or health risk,if NSP-Minnesota has any responsibil-timing and nature of disposci of asbestos materials. Under such requirement, l
ity for remedial action and if recovery under NSP-Minnesota's insurance policies asbestos not readily accessible to the environment need not be removed until the l
can contribute to any remediation costs, facihties containing the material are demokshed. Although the ultimate cost and I
- NSP Mmnesota has remediated three sites, which continue to be timing of asbestos removal is not yet known, it is estimated that removal under monitored. NSP-Mmnesota has paid $6.7 million to remediate these current regulations would cost $45 milkon in 1998 dollars. Dependmg on the sites and expects to incur in the future only immaterial monitoring timing of asbestos removal, such costs would be recorded as incurred as operatmg costs related to these remediated sites.
expenses for maintenance projects, capital expenditures for construction projects I
- Another 12 gas sites remain under investigation, and NSP-Mmnesota is I
takmg remedial action at four of the sites.
Environmentalliabihties are subject to considerable uncertainties that affect s aWo admate h shaWe smak coMs d mmedakn and pb
- As of Dec. 31.1998, NSP-Minnesota had paid $4.2 million for the four n n e uncedaW NM Me nah and edent d de active sites and had recorded an estimated liability of apptcximately annakn, W ent d mqd clean Ms, vaW cds d
$1.5 milhon for future costs at these sites, with payment expected over abak dann meM ad Muun conWMnoWes, dange in the next 10 years. This estimate is based on prior experience and n
al mmdaNn aM Wmn conW mqhenW @Wal includes investigation, remediation and htigation costs, l
effect of technologicalimprovements, the number and financial strength of
~
- As for the eight inactive sites, no habikty has been recorded for mmediation other potentially responsible parties at multi-party sites and the identification or investigation becnse the present land use at each of these sites does of new environmental cleanup sites. NSP has recorded and/or disclosed its not warrant a response action.
best estirr. ate of expected future environmental costs and obligations.
While it is not feasible to determine at this time the ultimate cost of gas site Legal Claims In the normal course of business. NSP is a party to routme claims remediation, the amounts accrued represent the best current estimate of and litigation ansing from prior and current operations. NSP is actively defendmg NSP-Minnesota's future liabihty for any required cleanup or remedial actions these matters and has recorded an estimate of the probable cost of settlement or at these former gas operating sites. Environmental remediation costs may be other disposition.
recovered from insurance carriers, third parties or in future rates. The MPUC in April 1997, a fire damaged several buildings in downtown Grand forks, N.D.,
allowed NSP-Mmnesota to defer certam remediation costs of four active sites in during the histolic floods m that city. On July 23,1998, the St. Paul Mercury 1994. In September 1998, the MPUC allowed the recovery of these gas site insurance Co., which msured the first Natinnal Corp. and its three buildings in remediatior, costs in gas rates, with a portion assigned to NSP s electric opera-downtawn Grand Forks, commenced a lawsuit against NSP for damages in tions for two sites formerly used by NSP generating facihties. Accordmgly, g
g NSP-M nnesota has recorded an environmental regulatory asset for these costs.
Dh DWW Meu MW EP's W d NSP-Mmnesota may request recovery of costs to remedy other activated sites directors, is chairman and chief executive officer of St. Paul Companies Inc.,
feilacing the completion of prehminary investigations.
the parent of St. Paul Men:ury Insurance Co. W. John Driscott, a member of NSP's The Clean Air Act,includir!g the Amendments of 1990, calls for reductions in board of directors, is also a director of St. Paul Companies Inc. The insurance emissions of sulfur dioxide and mtrogen oxides from electric generating plants.
company alleges that the fire was electrical in ongin and that NSP was legally These reductions, which will be phased in, began in 1995. NSP has invested responsible for the fire because it failed to shut off electrical power to downtown significantly over the years to reduce sulfur dioxide emissions at its plants.
Grand forks dunng the flood and pnar to the fire. In December 1998, a second No additional capttal expenditures are anticipated to comply with the sulfur lawsuit related to the fire was commenced by two partnerships that owned 47 harthern states fuer Company. Mmnesota and subs 6 anes
W 65 f W de! &??P'"Mk property damaged by the fire and Protection MutualInsurance Co., which insured
/S. E; " and Rdated '7.p=~m the Grand Forks Herald buildmg damaged by the fire. It is NSP's position that it is Effective Dec. 31,1998, NSP adopted SFAS No.131 - Disclosures About Segments not legally responsible for this unforeseeable event. At no time prior to the fire of an Enterprise and Related Information. NSP has four reported segments:
cas NSP instructed to shut off power to downtown Grand forks by any government g
gg g
officials, mcluding representatives from the fire department. Moreover. people in wholly owned subsidiaries, NRG and EMI.
doantown Grand Forks were relying on electricity before and after the fire p,
cccurred. NSP has a self-msured retention deductible of $2 million, with general i
i DMdM liabikty insurance coverage limits of $150 million. The ultimate cost to NSP,if Dakota. it also makes sales for resale and provides wholesale transmission any. is unknown at this time.
3 On Nov. 24,1998, Wisconsin Electric Power Company (WEPCO) filed a complaint p,s gas utihty transmits, transports, stores and distributes natural cgainst NSP with the FERC. WEPC0 alleges that it suffered 21 firm transmissi gas and propane primarily in Minnesota, Wisconsin, North Dakota, service curtailments from May 1998 to August 1998 and that these curtailments Michigan and, beginning in 1998, Arizona.
violated NSP's obligation under FERC Order No. 888 electric transmission service tariff. WEPC0 is seeking: a refund of an unspedfied amount, a ruling that
- NRG develops, builds, acquires, owns and operates several nonregulated certain mitigation charges WEPC0 agreed to pay violais Order No. 888 and other energy-related businesses, including independent power production, miscellaneous relief. On Dec. 24,1998, NSP filed an answer demonstrating the commercial and industrial heating and cooling, and energy-related refuse-21 curtailments were implemented lawfully under NSP's contracts with WEPC0, derived fuel production, both domestically and outside the United States.
TERC Order No. 888 and the NSP transmission tariff, as clarified by the FERC.
n an esgy mee cgany, pnanWWng and upg NSP ased the FERC to promptly dismiss the complaint. There is no deadline for gmam esgy ebeng,larg@n W UnN Me.
FERC action on the complaint.
in general, as segnes paws as eeer mgulaM w nonegdaM On Dec.11,1998, a gas explosion in downtown St. Cloud, Mmn., killed four nM M EdaWusnusu am Waraheen eMnc and people, including two NSP employees, injured approximately 14 people and gas; anknmgdaWnusa am separa@ cgany Wa@aen damaged several buildings. The accident occurred as a crew of four employees an se H e nc a gas busness amad Mnnada, from Cable Constructors Inc. (CCl) was installing fiber optic cable. CCI was sc ns anMng cgans and am mM abah MsMon performing this work for Seren as part of its broadband communications project an an a&n aggegaM aWahgrnenh amey in St. Cloud and surrounding communities. The accident is under investigation a aggmga% Wng Ms Boa &%cMse% segW am not by the National Transportation Safety Board (NTSB). Although this investigation managsnent ad am ndncluMn Msclown BaHoh
!s expected to take several months, the NTSB investigator in charge has stated put,iicly that "the location of the gas line and a gas main that runs parallel had The measure of profit or loss for electric and gas reported in the various been peperly marked by NSP before the drilling." NSP and Seren have been management reports vanes, but the largest component, NSP-Mmnesota, reports notified of potential property and personal injury claims related to this explosion.
net income and earnings per share on a basis consistent with consolidated net Both compames deny any liability for this accident. NSP has a self-insured income and earnings per share, exce;'t that allocations are needed for some retention deductible of $2 million with generalliability coverage limits of items, as described later. Intercompany and intersegment sales are priced at
$105 milhon. Seren's primary insurance coverage is $1 million and its secondary approved tariff rates and are immaterial. in addition, since NRG and EMI are insurance coverage is $185 million. The ultimata cost to NSP and Seren, if any, separate companies, their net income and earnings per share are the measure of is presently unknown.
profit or loss for both internal management reporting and consolidated external NSP reporting.
To report net income for electric and gas utikty segments, NSP-Minnesota and NSP-Wisconsin must assign or allocate all costs and certain other income.
In general, costs are:
- directly assigned wherever applicable
- allocated based on cost causation allocators wherever applicable
- allocated based on a general allocator for all other costs not assigned by the above two methods The "all other" category includes segments that measure below the quantitative threshold for separafe disclosure and consists primarily of nonregulated com-panies, including Eloigne, an affordable housing investment company; Seren, a l
communications and data services company; Ultra Power, a power-cable testing company; and several other small companies and businessei Northem siates Power compan$nesota and s@sidiar es 48
f;
%tes t's 9enedet.9Wmene i
Business Segments 1998 Electric Gas AH Reconciling Consolidated 64ewends e/ dagsw)
Utility Utility NRG EMI Other Ehminations Total (a)
Operating revenues from external customers (b) $2 361536
$456 710
$ 98 688
$ $4 254
$29288
$3 000476 Intersegment revenues 815 9 292 1 737
$(10 916) 928 I
Total Revenues
$2 362 351
$466 002
$100 425
$ 54 254
$29 288
$(10916) $3 001404 Depreciation and amortization 308 415 31 864 16 320 2 129 3 779 362 507 Interest income 9 103 1 403 8 052 184
?76 (608) 18 910 Financing costs, mainly interest expense 109 192 15 485 50 313 108 3 997 (608) 178 487
(
income tax expense (credit) 135 914 10 672 (25 654)
(4 214)
(11 923) 104 795 Equity in earnings 00sses) of unconsolidated affiliates 969 81 706 300 (2 122) 80 853 Segment Not income (Less)
$ 226351
$ 17 321
$ 41732
$ (7 659)
$ 4 628
$ 282373 1997 Electric Gas All Reconciling Consolidated 64 nam.4s e/ dagsw)
Utility Utility NRG EMI Other Eliminations Total (a)
Operating revenues from external customers (b) $2 217 542
$515162
$102 791
$ 94375
$26 405
$2 956 275 Intersegment revenues
_ 1008 6 113 92_6
$ (7 005)
_1 042 Total Revenues
$2218 550
$521275
$103 717
$ 94 375
$26405
$ (7 005) $2 957 317 Depreciation and amortization 299 325 28 609 D310 1768 3 069 343 081 Interest income 1 696 331 10 806 604 774 (482) 13 729 Financing costs, mainly interest expense 111 595 13 429 30 729 272 3 626 (482) 159 169 Merger cost write-off 29 005 29 005 Income tax expense (credit 122 655 12 087 (23 680)
(5 921)
(8 431) 96 710 Equity in earnings 00sses) of unconsohdated affiliates 605 26 003 (5 144)
(2 259) 19 205
_$_egment Not income (Loss)
$ 199 553
$ 22284
$ 21982
$ (10 841)
$ 4 342
$ 237320 1996 Electric Gas Alt Reconciling Consolidated 64see4 44 m/ dagsw/
Utility Utility NRG EMI Other Eliminations Total (a)
Operstmg revenues from external customers (b) $2126 364
$526 640
$ 70104
$207 939
$25 860
$2 956907 Intrsegment revenues 1049 3 363 1545
$ (4 755) 1202 Te % dayenues
$2127 413
$530 003
$ 71649
$207 939
$25 860
$ (4 755) $2 958109 Depreciation and amortization 279 459 29 027 8 666 1192 2 842 321 186 Interest income 4 593 696 9 443 295 680 (326) 15 381 Financing costs, mainly interest expense 100 406 11 785 15 354 301 3 179 (326) 130 699 4
Income tax exper.se (credit) 145 514 17 872 (5 655)
(4 591)
(6 330) 146 810 Equity in earnings 00sses) of unconsolidated affiliates 358 34 674 (1 461)
(2 545) 31 026
)
Segment Not income (Lass)
$ 230602
$ 27 652
$ 19 978
$ (8 526)
$ 4 833
$ 274 539 j
-w.,.
\\
(a) The Consolidated Total amounts for income and expense items represent the sum of utikty amounts (includmg some nonoperstmg items) from the Statement of income and the nonregulated amounts from Note 6. The depreciation and amortization amounts in the Statement of Cash flows are ditterent than reported in the Consolidated Tval column due to classification of certain depreciation and amortization amounts as other expense items in the Statement of income.
(b) All operating revenues are from external customers located in the Umted Statis. However, NRG has sigmficant equity investments for nonregulated projects outside of tlm United States. Equity in earnmgs of unconsolidated affiliates, primarily independent power protects. includes $29.3 million in 1998, $27.1 milhon in 1957 and $29.5 conan in 1996 from nonregulated projects located outside of the United States. NRG's equity investments in projects outside of tiie United States were $591 million in 1998,
$517 million in 1997 and $295 million in 1996.
I i
49 Northem states Power campany, Mmnesota an'! Subsidianes
$$ fM?MYY LW$4 n F - za w 7..
w % (p..nu) 64-- - >= s/ dettaw, Quarter Ended userpe Au r4J March 31,1998 June 30,1998 Sept. 30,1998(a)
Dec.31,199R'h)
Utility operating revenues
$701402
$638 601
$766 448
$712 723,
Utility operating income 79 050 65 054 134 985 85 200 Net income 57 117 35 034 101 694 88 528 Earnings available for common stock 54 750 33 974 100 634 87 467 Earnings per average common share:
Basic
$0.37
$0.23
$0.67
$0.58 Diluted
$0.37
$0.23
$0.67
$0.58 Dividends declared per common share
$0.3525
$0.3575
$0.3575
$0.3575 Stoc.> prices-high
$29%
$30
$29
$30%
-low
$26H
$27%
$25%
$26 pt-- -- ' af dettaa, Quarter Ended wp Aw.mf March 31,1997 June 30,1997(c)
Sept. 30,1997 Dec.31,1997 _
Utility operating revenues
$742496
$594 323
$697 443
$69948 Utility operating income 88 456 65 586 118 540 89 17*
Net income 65 773 18 253 87 912 65 382 Earnings available for common stock 61 816 15 882 85 541 63 010 Earnings per average common share:
Basic
$0.45
$0.12
$0.62
$0.42 Diluted
$0.45
$0.12
$0.61
$0.42 Dividends oeclared percommon share
$0.3450
$0.3525
$0.3525
$0.3525 Stock prices-high
$24%
$26
$26%
$29A
-low
$22%
$22x
$24
$244 (a) 1998 results include a $22 million pretax charge, which reduced third quarter earnings by 10 cents per share, for the wnte-down of NRG projects.
(b) 1998 results include a $26 milhon pretax gain, which increased fourth quarter earnings by 11 cents per share, for an NRG project sell down.
(c) 1997 results include a $29 million pretax charge, which reduced second quarter earnings by 12 cents per share, for the write-off of merger costs.
[
l hurthem states Power Company Menesota and Subsidsanes 50
(
Seep,a et ma9emeae aad 9adepadeae kne l
Report of Management Report of Independent Accountants Management is responsible for the preparation and integrity of NSP's financial To the Shareholders of Northern States Power Company:
statements.The financial statements have been prepared in accordance with g;
generally accepted accounting principles and necessarily include some g
amounts that are based on management's estimates and judgment.
g anc al poshn oMohn Mates Pown Cwnpany R a Ennada To fulfill its responsibility, management maintains a strong internal control ceahn, and h suWann adec3, M and E anm ruuns d structure, supported by formal policies and procedures that are communicated opua ns adW casHows fu eacWe bre yead Be W l
throughout NSP. Management also maintains a staff of internel auditors who m
gemaHy acc$ed accoW.g pnnc@u.
en
,in c n I
etatuate the adequacy of and investigate the adherence to these controls, I
policies and procedures.
e nancial Matemed are WuponsMp p managem4 m responsibility is to express an opinion on these fmancial statements based on Our independent public accountants have audited the financial statements and our audits. We conducted our audits of these statements in accordace with f
have rendered an opinion as to the statements' fairness of presentation, in all generally accepted auditing standards, which require that we plan and perform material respects, in conformity with generally accepted accounting principles.
the audit to obtain reasonable assurance about whether the finz,ncial statements During the audit, they obtained an understanding of NSP's internal control are free of material misstatement. An audit includes examining, on a test basis, structure, and performed tests and other procedures to the extent required by evidence supporting the amounts and disclosures in the financial statements, i
l generally accepted auditing standards.
assessing the accounting principles used and significant estimates made by Inanagenent, anhalua&g me maHnancial statenent presentaWn.
The Board of Directors pursues its oversight role with respect to NSP's financial e eve a w aues prde a rusonaW buk fu W opnsn statements through the Audit Committee, which is comprised solely of nonman-agament directors. The Committee meets periodically with the independent public accountants, internal auditors and management to assure that all are properly discharging their responsibilities. The Committee approves the scope of the annual audit and reviews the recommendations the independent public Q
t.t.f accountants have for improving the internal control structure. The Board of Directors, on the recommendation of the Audit Committee, engages the pg p
mdependent public accountants, subject to shareholder approval.
i Both the independent public accountants and the internal auditors have Feb.1,1999 I
unrestricted access to the Audit Committee.
i James 1 Howard Chairman of the Board, President and Chief Executive Officer f/
Edcard1 McIntyre Vice President and Chief Fmancial 0fficer Northern States Power Company Minneapolis, Minnesota Feb.1,1999 51 Northern States Power Company Mmnesota and subs inanes
h tCtdflMq N ie(46i
/
Regulated Electric Operations 1998 1997 1996 1995 1994 Retail Revenues (ed u.4.)
1 Residential
$ 774 803
$ 739684
$ 727145
$ 735743
$ 683 783 Small commercial and industrial 389 "
379 848 376 797 362 521 351 287 Medium commercial and industrial 46, 32 433 526 401 137 399 259 Large commercial and industrial 483 595 468 404 450 811 448 226 824 195 Streetlighting and other 31 054 30 826 30 033 29 162 28 936 Total retail 2 145 548 -
2 052 288 1 985 923 1 974 911 1 888 201 Sales for resale 149 707 107 464 98 961 133 961 146 239 Transmission and other 67 096 58 798 42 529 33 898 32 204 Total
$2 362 351
$2 218 550
$2127 413
$2142 770
$2 066 644 Retail Sales ( <tts 4 eif 4et=.ur-4 w)
Residential 10 127 9 791 9 847 9 956 9 303 Small commercial and industr;al 5 999 5 907 6 091 5 763 5 585 Medium commercial and industrial 8 801 8 263 7 470 7 511 Large commercial and industrial 11 277 11 059 11 089 10 941 17 874 Streetlighting and other 327 335 336 329 334 Total retail 36 531 35 355 34 833 34 500 33 096 Sales for resale 6 304 4 658 4 929 6 500 6 733 TWul 42 835 40 013 39 762 41 000 39 829 Customer Accounts (as Dre. S/)**
Residential 1 287 080 1 273 161 1 252 476 1 238 576 1 222 628 Small commercial and industrial 155 536 150 103 149 134 144 774 142 858 Mediur9 commercial and industrial 9 510 9 142 7 962 7 906 Large commercial and industrial 727 695 669 652 8 172 Streetlighting and other 6 243 6 276 5 030 4 883 4 836 Totalretail 1 459 096 1 439 377 1 415 271 1 396 791 1 378494 Sales for resale 78 59 54 67 70 TMal 1 459 174 1 439 436 1 415 325 1 396 858 1 378 564 Average Revenue per Kilowatt-Hour Residential 7.658 7.55t 7.388 7.396 7.35t Small commercial and industrial 6.50 6.43 6.19 6.29 6.29 Medium commercial and industrit:
5.30 5.25 5.37 5.32 l
Large commercial and industrial 4.29 4.24 4.07 4.10 4.61 Total Retail 5.87t 5.80s 5.70#
5.728 5.718 Kilowatt-Hour Output (=</te
)
Thermal 32 902 31 896 32 657 33 802 32 710 Hydro 696 1 015 1194 1 049 922 Purchased and interchange 12 529 10 661 9 065 9 189
'9 054 Total 46 127 43 572 42 916 44 040 42 686 1
Capability at Time of Maximum Demand ( <f -m)
Company owned 7 149 7 117 7 109 7 100 6 859 Purchased and sales - net (with reserve) 1871 1 706 1698 1910 1860 Total 9 020 8 823 8 807 9 010 8 719 Maximum demand (,p= er4) 7 660 7 353 7 487 7 519 7 101 Date of maximum demand July 14 July 16 Aug.6 July 13 June 14
- Beginmng in 1995, the commercial and industrial customer class was segmented irf t,JI dess than 100 hw in demand per year), medium (100 kn up to 1,000 kw) and large (1,000 kw or more).The medium group, which in Siaate, was reported as large A u na 1995.
- Customer accounts for 1996,1997 and 1998 m., u be fully comparable to pnor years oue to differences in meter accumulation m a new billing system implemented in 1996.
Northern States Pour company. Mmnesota and subsidianes 52
3 h Widf0tf $????2?!M
/
Regulated Gas Operations 1998 1997 1996 1995 1994 Retail Revenues (d u.4)
Residential
$226 936
$253 065
$267130
$215 543
$207 506 Commercial and industrial Firm 124 099 144 539 146 145 119 863 120 912 Interruptible 61 050 79 135 63 585 48 646 49 384 Wher 114 34 153 1 686' 3 688 Total retail 412 199 476 773 477 013 385 738 381 490 Interstate transmission (Viking) 23 375 19 809 17 553 16 328 16 307 Agency, transportation and off-system sales 23 792 21 287 34 662 26 122 24 338 Elimination of Viking sales to NSP (2 543)
(2 673)
(2 435)
(2 374)
(2 232)
Total
$456 823
$515196
$526 793
$425 814
$419 903 Retail Sales (d 4 4 / nu.h)
Residential 37 522 42 428 48 149 42 294 38 750 Commercial and industrial Firm 24 410 28 880 31 748 28 275 27 342 Interruptible 23 201 25 898 23 210 22 408 19 373
_0ther 48 33 394 772 212 Total Retail 85 181 97 239 103 501 93 749 85 677 Other Gas Delivered (d-4 /==h)
Interstate transmission (Viking) 168 187 166 588 161 972 152 952 147 919 Agency, transportation and off-system sales 15 609 11 701 17 535 19 679 13 466 Elimination of Viking sales to NSP (14 563)
(17 145)
(19 311)
(20 440)
(16 845)
Total Other Gas Delivered 169 233 161 144 160 196 152 191 144 540 _
Customer Accounts (nr %. S/)*
i Residential 430 240 410 773 398 723 386 007 370 734 Commercial and industrial 44 523 41 905 40 244 38 575 37 140 Total retai!
474 763 452 678 438 967 424 582 407 874 Other gas deliveted 58 36 30 62 18 Tomi 474 821 452 714 438 997 424 644 407 892 Average Revenue per mmttu R;sidential
$6.05
$5.96
$5.55
$5.10
$5.35 Firm commercial and industrial 5.08 5.00 4.60 4.24 4.42 Interruptible commercial and industrial 2.63 3.06 2.74 2.17 2.55 Total Retail
$4.84
$4.90
$4.61
$4.11
$4.45 l
Gas Purchased for Resale to Utility Customers Totalcost(d u.4)"
$250661
$317 646
$312 943
$236 714
$245939 Cost recognized per mmBtu sold"
$2.78
$3.20
$3.00
$2.49
$2.85 Maximumsendout( h) 710 831 662 025 737 258 659 800 686 130 Date of maximum sendout Jan.10 Jan.27 Feb.1 Jan.3 Jan.17
- Customer accounts for 1996,1997 and 1998 may not be fully comparable to prior years due to ddferences in meter accumulation in a new billing system implemented in 1996.
- Excludes cost and volumes for other gas delivered.
53 horthen states Power company Mmnesota and Subsidianes
&ffMYY!! $MMM!M $
Deeente S/
(74- - ^ s/4.unw) 1998 1997 Equity investment by Nonregulated Businesses in Unconsolidated Projects (Including undistributed earnings and capitalized development costs)
Australian projects
$ 327 841 $ 320069 European projects 134 197 105 925 South American and Latin American projects 95 173 81 712 Other international projects 9 534 Affordable housing projects (U.S) 45 411 38 230 Other U.S. projects 259 974 185 264 Total equity investment in unconsolidated nonregulated projects
$ 862 596 $ 740 734 Nonregulated property of consolidated subsidiaries (net of accumulated depreciation)- primarily U.S. projects 282 349 256 726 Notes receivable from unconsolidated projects, including current portion 110 886 133 426 Current assets 107 541 110 218 Other assets 126 110 108 229 Total Assets of Nonregulated Businesses
$1489 482 $1349 333 Long-term debt, including current maturities
$ 578233 $ 555843 Short-term debt 126 236 122 637 Other current liabilities 39 183 47 775 Other liabilities 69 072 66 283 Totalliabihties of nonregulated businesses
$ 812 724 $ 792 538 NSP's equity investment in nonregulated businesses 759 355 619 682 Cumulative currency translation adjustments (82 597)
(62 887)
Total equity of nonregulated businesses 676 758 556 795 Total Liabilities and Equity of Nonregulated Businesses
' $1489 482 71 349 333 Significant Nonregulated Generation Projects Operating at Dec. 31,1998 Total NRG Mw-Generation Projects Operating Location Mw Ownership Equity Operator Gladstone Power Station Austraha 1680 37.50 %
630 NRG LoyYang Power Australia 2 000 25.37 %
507 NRG/ CMS Generation Pacisc Generation Company USA / Canada 1093 3.7 % -100.00 %
174 Various/AES Schkopau Power Station (1)
Germany 960 20.95 %
200 PreussenElektra Kraftwerke A.G.
Cogeneration Corp. of America (CogenAmerica) (2)
NewJersey, USA 576 45.21 %
213 NRG COBEE Bolivia 188 48.30 %
91 COBEE MIBRAG mbH Germany 233 33.33 %
78 MIBRAG Energy Development Limited Australia 262 33.97 %
89 Energy Development Limited Scudder Latin American Power Projects (Scudder) (3)
Latin Amuica 748 25.00 %
45 Stewart & Stevenson/Wartsila Long Beach Generating USA 530 50.00 %
265 Southern California Edison ElSegundo Generating USA 1 020 50.00 %
510 Southern Cahfornia Edison (1) Through a lease agreement, NRG has ownership of 200 megawatts.
(2) CogenAmerica owns various percentagee of projects (33.33%-100%), makmg NRG's share of ownership 213 megawatts.
(3) Scudder owns various percentages of projects (131%-35.12%), making NRG's share of ownership 45 megawatts.
Northern States Power Company Mmnesota sad kbsidianes
$4
swwa nn 1998 1997 1996 1995 1934 Common stork shareholders at year-end 81 990 83 232 86 337 83 902 85 263 Book value at year-end
$16.25
$15.89
$15.47
$14.87
$14.18 Market prices High
$30%
$29 %.
$26%
$24%
$23%
!.ow
$25%
$22%
$22%
$21%
$19%
Year-end closing
$27%
$29%
$22%
$24M.
$22 Dividends declared per share
$1.425
$1.403
$1.373
$1.343
$1.313 Headquarters: 414 Nicollet Mall, Minneapolis, MN 55401 Schedule of Anticipated Dividend Record Dates and Payment Dates for 1999:
Shareholders luformation: Contact the NSP Shareholders Department toll-free at Preferred Stock Common stock (800) 521-4677, Monday through Friday, 7:30 a.m. to 4:30 p.m. Central Time, Record Dates Payment Dates Record Dates Payment Dates cr e-mail at shareholders @nspco.com. From the Minneapolis-St. Paul area, Dec. 31,1998 Jan.15,1999 Jan.4,1999 Jan.20,1999 call (612) 330-5560.
March 31,1999 April 15,1999 April 7,1999 April 20,1999 Investor Relations Information: Internet address: httpl/www.nspco.com/ir.htm Contact Richard J. Kolkmann, Investor Relations, at NSP headquarters.
an.B,2000 ec.
Call (612) 330-6622.
Direct Dividend Deposit: NSP offers direct deposit of dividands to shareholders' Form 10-K (The Annual Report to the Securities an:r Exchange Commission):
checking or savings accounts. To sign up for this free service, contact the Available online at htt71/www.nspco.com/ir.htm or contact the Snareholders Shareholders Department for information and an authorization form.
Department at NSP headquarters at the,iumber listed below. A statistical su ernen annua ep r als avaHak Dividend Reinvestment and Stock Purchasa Plan: NSP's Dividend Reinvestment ard Stock Purchase Plat, offered by Prospectus is a convenient way to purchase Street-Name Shareholders and Beneficial Owners: If you would like to receive sharos of NSP's common stock without payment of any brokerage cornmission or NSP's quarterly report, contact the Shareholders Department at NSP headquarters service charge. Those eligible to perticipate in the plan are:
?t the number listed below.
-Shareholders of record of NSP
- Shareholders who hold stock in
- street name" through mvestment firms, D@Wi4 WeedelM @dhm provided the firm has established procedures permitting participation i
S DWMMPW hW
- Employees of NSP and its subsidiaries
- Non-shareholders of legal age who live in Minnesota, North Dakota, South Dako'a, Wisconsin and Michigan. (Non-shareholders must make Call the Shareholders Department toll-free at (800) 527-4677, Mar.d3M,.ough an initial investment cf at least $100.)
Friday, 7:30 a.m. to 4:30 p.m. Central Time, or e-mail at shareholders @nspco.com.
nn ad ama, caH M NE Once enrolled in the plan, participants may:
- Automatically reinvest all or a portion of their quarterly dividends
-l'ake additional cash investments. Tb minimum single payment is $25 and the maximum quarterh payment is $10,000.
Contact the Shareholders Department for a Prospectus and authorization form.
Stock Exchange Listings and Ticker Symbol: Common stock is traded on the Neo Vork, Chicago and Pacific Excharges. Ticker symbol: NSP. Newspaper stack tables list NSP as NoStPw, NoStPwr or NSPw NYSE lists some of NSP's preferred stcck and its preferred secunties. The stock of CogenAmerica, an affiliate of NRG, is listed on the NASDAQ SmallCap Market under the ticker symbol CGCA.
Annual Meeting: Wednesday, April 28,1999,10:00 a.m. at the Minneapolis Convention Center, Minneapolis. Minn.
Internet Address: http://www.nspco.com
(
55 Northern States Power company. Mmnesota and subsidianes
VW AMWfe f
beten Statu Pum dw (3thausta)
Transfer Agent, Common and Preferred Stoc Couron-Paying Agents-B ds Northern States Power Company Harris Trust and Savings Bank, Chicago.
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Registrar, Common and Prefer 'd Stocks Norwest Bank Minnesota, NA xth St. and Marquette Ave.
Tender, Registrar and Paying Agent Minneapolis, MN 55479-005 Chase Manhattan Bank 450 West 33rd St., New Yort,ltY 10001 Dividend Distribution j
Trustee-Trust Originated Preferred Securities *
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Northern States PowerCompany Wilmington Trust Company,1100 North Market St., Wilmington, DE 19807 Forwarding Agent
- Securities of NSP Financing 1, a wholly owned special purpose subsidiary trust of Norwest Bank International,3 New York Plaza Northern States Power Company (Minnesota)
New York, NY 10004 Trustee-Bonds Hawis Trust and Savings Bank,111 West Mohr St., Chicago,IL 606s0 U.S. Bank Trust, NA,180 East 5th St.
St. Paul, MN 55101 Harwest Bank Minnesots, NA, Minneapolis
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Trustee-Bonds U.S. Bank Trust, NA,180 East 5th St.
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hthe-states Power Company, Minnesota and schsdobr>
56
Dhectou amt' Of(Reu Di<ectes ej the 1Ntaneesta Gempany H. Lyman (Tad) Bretting (62) 1,3 Giannantonio Ferrari(59) 3,4 0 Juglas W. Leatherdale (62) 2,4 Allan L Schuman (64) 3,4 President and CEO President and Chief Operating Chairman and CEO Presir'ent and Chief C.G. Bretting Manufacturing Officer Tha St. Paul Companies Mc.
r,xecutive Off cer CDmpany(nc.
Honeywell, Inc.
(elected April 1991)
Ecolab inc.
(elected Martn 199 (elected October 1997)
(elected January 1999)
L Dr. Margaret R. Preska (61) 2. 4 David A. Christensen (63) 2,4 lames J. Howard (63)*
Distinguished Service Professor Board Committees President and CE0 Chair'ntaQqsident and CEO Minnesota State Universities
- 1. Audit Raven industries,Inc.
Northern States Power Company (elected January 1980)
- 2. Corporate Management (elected December 1976)
(elected January 1987) 3_J4aanc^
%. Patricia SampsoniS0rT[4. Power Supply A
W. John Driscoll(fi9) 2,4 Richard M. Kovacevich (55)),3 Jresid6iiand CEO Retired Chairmati and President President and CEO
/
The Samhon Group,Inc.
- James J Howard is an ex othcio Rock Island Company Welis FargoMo (elected January'1985 memberof aucommmas.
p (elected November 1974)
(etected Apal1990)
P4ct at C// teen of the ?Ntauneta Gompay ul E. Anders Jr. (55)
Cynthia L Lesher (50)
John P. Moore Jr. (52)
Roger D. Sandsen (53)
Vice President and CIO President-NSP Gas Corporate Secretary Vice President and'Ocatroller N
Grady P. Butts (52)
Edward J. McIntyre (48)
John A. Noer (52)
David M. Sparby (44)
Vice President-Human Resources Vice President and CfD President-NSP Combustion Vice President-Regulatory Sewices and Hydro Generation James 1. Howard (63)
Thomas A.Micheletti(52)
Loren L Taylor (52)
\\
Chairman, President and CEO Vice President-Public and Paul E. Pender (44)
President NSF Electric Government Affairs Vice President-Finance and Gary R. Johnson (52)
Treasurer Michael D. Ladiey (42)
Vice President and General Counsel Vice President-Nuclear Generation
/
Disectou ej the ?Viseensta Gompany H. Lyman (Tad) Bretting (62)*
Jerome L Larsen (50)
Larry G. Schnack (61)*
President and CEO President and CEO Chancellor C.G. Bretting Manufacturing NSP-Wisconsin University of Wisconsin-Eau Claire NCompany. Inc.
(elected June 1998)
(elected May 1988)
(electedMarch 1990)
N Ray A. Lai on Jr. (69)*
Loren L Taylor (52)
Philip M. Gelatt (48b President President-NSP Electric
[
President V4 son. Sand and Gravel Company (eiected May 1988)
Northern Engraving Corporation (electe'd Rovembe'r 1979)
- Audd Smmmee erribers (e!ected May 1990)
Pstaetpal C// teen of the 1%eensta Compay/
Mit hael N. Gregerson (51)
John P. Moore it:
Anthony G. Schuster (54)
Vi'a President-Marketing and
' portile Secretary Vice President Transmission Cor Business Development Systems Roger D. Sandeen (53)
Jerem.ettatsen (50)
Treasurer and Controller John D. Wilson (19)
/Prlis'ident and CEO General Counsel
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.. Minneapolis, MN 55401 (612) 330-3600
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