ML20216D207
| ML20216D207 | |
| Person / Time | |
|---|---|
| Site: | Monticello, Prairie Island  |
| Issue date: | 12/31/1997 |
| From: | Richard Anderson, Howard J, Mcintyre E NORTHERN STATES POWER CO. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| NUDOCS 9804150212 | |
| Download: ML20216D207 (57) | |
Text
-
4 Northem States Power Company Monticello Nuclear Generating Plant 2807 West County Road 75 Monticello. MN 55362 April 1,1998 10 CFR 50.71(b)
U. S. Nuclear Regulatory Commission Attention: Document Control Desk l
Washington, DC 20555 MONTICELLO NUCLEAR GENERATING PLANT Docket No. 50-263 License No. DPR-22 PRAIRIE ISLAND NUCLEAR GENERATING PLANT l
Docket No.
50-282 License No.
DPR-40 50-306 DPR-60 Submittal of 1997 AnnuN Report including the Certified Financial Statements in accordance with 10 CFR 50.71(b) and item No. 70 in Regulatory Guide 10.1, enclosed are ten (10) copies of our 1997 Annual Report, including the certified financial ctatements.
If you have any questions with regard to this information, please call Scott L. Weatherby at (612)-330-7643 or Sam Shirey at (612)-295-1449.
Sincerely, W1NDM/y Roger O. Anderson
- Director, Nuclear Energy Engineering Department c: w/ enclosure Regional Administrator-Ill, NRC Monticello NRR Project Matrager, NRC Monticello Resident inspector, NRC Prairie Island NRR Project Manager, NRC p1 g
.)b Prairie Island Resi: lent inspector, NRC P-s l-c: w/o enclosure State of Minnesota, Attn: Kris Sanda J E Silberg S L Weatherby 4
c5 d
6 9804150212 971231 PDR ADOCK 05000263 m
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Company Description Northern States Power Company (NSP), headquartered in Minneapolis, Minnesota, is a major U.S. utility with growing domestic and international nonregulated operations. NSP and its uholly owned utility subsidiary, 3'
Northern States Power Company-Wiscomin, operate generation, transmission and distribution facilities providing electricity to about 1.4 million customers in Minnesota, Wisconsin, North Dakota, South Dakota and Michigan.The two companies also distribute natural gas to more than 440,000 customers in Minnesota, Wisconsin, North Dakota and Michigan, and provide a variety of energy-related services throughout their service areas.
NRG Energy, Inc., a wholly owned subsidiary, operates and has ownership interests in independent, nonregulated energy businesses in the United States and other countries, with major projects in Germany and Australia.
Viking Gas Transmission Company, a w holly o vned subsidiary, owns and operates a 500-mile interstate natural gas pipeline pros iding gas transportation
,,ervices to customers in the Upper Midwest from connections with Ibur major pipelines in the United States and Canada.
Eloigne Company, a w holly owned subsidiary, has ownership interests in a0brdable housing projects, principally within NSP's service area.
Energy Masters internatior.al, Inc., a w holly owned subsidiary formerly known as Cencrprise, delivers natural gas and electric products and services to commercial and industrial customers, utilities, municipalities and energy marketers, and offers perfbrmance contracting to customers nationwide.
Financial Highlights trur Fnded Daember il 1997 1996
% Change Earnings per common share - assuming dilution:
f Ongoing operations *
$3.54
$3.82 (7.3%)
j Total 53.21
$3 82 (16.0%)
l Dividends declared per share 52.805
$2.745 2.2%
I Stock price (dose)
$58.250
$45.875 27.0 %
I Return on average common equity:
Ongoing operatione 11.3 %
12.5 %
To'al.
10.2 %
12.5 %
i Assets (milhons) 57 144.1
$6 636 9 7.6%
8ook value per common share 531.78
$30 93
- 2. 7 %
Electric and gas customers (thousands) 1 892.2 1 854.3 2.0%
Retail energy sales:
Dect'ic (melhons of kilowatt hours) 35 355 34 833 1.5 %
Gas (bilhons of cubic feet) 97.2 103.5 (6.1 %)
{
interstate transmission gas sales (bilhons of cubic feet) 149.4 142.7 4.7%
Benefit employees 6 718 6 470 3.8%
- liscludnng nonres urring tran sacitons on IVV 7. as Jou us sed in Atanagement 's Do scussion and.4nalnos under A onrecurrong frems
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Atter an eventful end challenging 1997, NSP is facing the future with renewed vigo and purpose. Our core businesses are strong, our nonregulated 3 ubsidiaries are growing, and our employees are l skilled and customer-fbcused. We see many opportunities in the increasingly compedtive electric and natural gas markets, and we're well-positioned to take advantage of them. From om perspective, there are no baundaries to our potential fbr success. ] Our focus in 1997 was threefold: continuing the operational excel-lence of our core businesses; profitably growing our traditional and new businesses; and preparing ihr a competitive future. We made g good progress in all three areas, despite the fact that the year also presented its share of challenges, including record floods and an unusually stormy summer. Financially,1997 was a year of mixed results. Your stock hit an all-time high of $58.875 and closed the year at $58.25, up 27 percent. NSP's total return of 34 percent exceeded the 33.3 percent return posted by the Standard and Poor's (S&P) 500 Index, as well as the S&P Electrics 26.1 percent return and the Dow Jones Industrials 24,9 percent return. Iloth Standard and Poor's and Moody's investors Services raised their ratings on our debt securities. Ilowever, we did not achieve our earnings-per-share objective. ~ Earnings per share from ongoing operations, excluding two nonre-l 1-curring transactions, were $3.54 in 1997, compared with $3.82 in 1996. Throughout the year, we worked diligently to ofTset the increased costs of severe spring and summer storms, increased l expenses resulting from the Federal Energy Regulatory Commission (FERC) Order 888, an extended outage at our Monticello nuclear James J. Howard, Chainnan plant to implement a design change, and adverse weather condi-of the Boan/. President and tions. The impact of weather alone reduced earnings 27 cents per ChiefExecutive og7cer share compared with 1996. Although our earnings fell short of our target, they are respectable in light of the challenges we overcame. Our goal ihr 1998 is to pro-l duce earnings per share consistent with what investors have come to expect from NSP. Continuing operational excellence l Operational excellence in our electric and natural gas businesses is l fundamental to our success, providing not only immediate returns but enabling us to take advantage of opportunities in other, nonreg-ulated areas. Ilecause core business strength is a top priority, we I were particularly gratified with the progress made in 1997 toward solving this nation's nuclear waste storage dilemma. In response to a lawsuit that NSP filed with other nuclear utilities and state agencies against the U.S. Department of Energy (DOE), the ( U.S. Court of Appeals for the District of Columbia Circuit affirmed L _ -_. _ _ _ _._ _ _. _ ___ __.____ _ __ L
the DOE's obligatioe to accept spent nuclear fuel. In addition, both houses of Congress passed nuclear waste bills. Although the President continues to threaten to veto the legislation, we are work-ing hard - through our grassroots political advocacy efTorts and other initiatives - to actieve veto-proof, bipartisan support in both the llouse and Senate beJore the final vote is taken. We've always advocated We importance of keeping this clean, reliable and cost-efTective energy source viable. Now, as the world debates global climau: change, it's even more clear that nuclear power, which providts 20 percent of U.S. electricity and 17 percent of the world's pow er, must be a vital contributor to our future energy supply. Nuenar energy emits none of the carbon dioxide or other greenhc use gases thought by many to contribute to climate change. Another f actor contributing to the t uccess of our core businesses is the depth of utility industry exper'ence among our management team. We bolstered our ofTicer roster in 1997 with the addition of Paul E. Pender as vice president and tieasurer, replacing Arland D. Brusven, who retired in April. We also welcomed Grady P. Butts as vice president of human resources. G ady replaced Cynthia L Lesher, who was remed president of NSP Gas. Cyndi replaced Keith 11. Wietecki, who is devoting full-time Mtention to his posi-tion as chairman and CEO of Energy Masters International, our nonregulated subsidiary formerly known as Cenerprise. John P. Moore Jr. was named corporate secrett ry, after serving since 1988 as NSP-Wisconsin's general counsel and corporate secretary. Paul E. Anders Jr. joined as as chiefinformation ofTicer, coming from Chrysler Financial Corpointion in Detroit. Paul is responsible for building the technology to support our business strategies, including our Year 2000 Project to modify NSP's computer systems so they will function correctly when the year changes to 2000. All of our critical systems should be modified by the end of 1998. Profitably growing our businesses The same expertise that enables us to be successful in oor core busi-nesses contributes to our ability to grow in nonregulated areas. One of the year's triumphs was the continuing success of NRG Energy, Inc., our nonregulated subsidiary doing business in the ixal energy market. NRG participates in more than 9,000 megawatts of projects in countries around the world. Because we believe NRG's value is not fully reflected in NSP's stock price, we will decide within the next year and a half whether to ofter as much as 20 percent of NRG to the public. A partial public olTering l would provide NRG with further funding as it grows, and would gwe investors the opportunity to buy into a nonregulated energy company. g
6 Regardless of what we decide, current NSP shareholders will con-tinue to benefit from their investraent in NSP and NRG. We also are excited about the possibility of bringing low-priced Canadian natural gas to our region through the Viking Voyageur pipeline. Our Viking Gas Transmission Co. is proposing to build the 775-mile pipeline from Emerson., Manitoba, to the Joliet, Illinois, area in partnership with TransCanada Pipelines Ltd. and Nicor. The pipeline would connect to local natural gas companies along the route, a feature that distinguishes Viking Voyageur from a com-peting proposed pipeline. FERC is considering the project, which at a capacity of 1.4 billion cubic feet is three times as large as our existing Viking capacity. Preparing for competition Like electric utilities across the nation, we are preparing for the restructuring of the electric industry and a competitive market. The pace of restructuring is moving slower in our service territory than in other areas of the country because electric prices already are low. Momentum at the federal level has slowed as the complexities of restructuring become clearer. We believe restructuring is inevitable and beneficial, but support ~ a careful approach to ensure the new industry remains reliable and healthy, protecting the interests of all customers and shareholders. We are discussing with state regulators and legislators such issues as utility property tax refbrm, which we think must occur befbre a competitive market is created. We are examining various potential competitive scenarios carefully, while also looking for opportunities in a restructured environment. Other 1997 highlights Another significant 1997 event was the addition oflioneywell President and Chief Operating OITicer Giannantonio Ferrari to our board of directors. An individual with extensive international busi-ness experience, Giannantonio has held several lioneywell manage-Survey work began in ment positions with responsibilities fbr business in Europe, Africa 'i / 997 on the pmpmec/ and the Middle East. lie is a director of the European-American l'iAing thyaxcurpipeline. Industrial Council in llelgium. in April, Allen E Jacobson, John E. Pearson and G.M. Pieschel retired from the boani, having reached mandatory retirement age. = All three men had long and distinguished tenures on our board and we thank them fbr their valuable contributions. 1997 was also the year we decided with Wisconsin Energy Corporation, our proposed merger partner, to terminate the merger because of the federal regulators' inability to specifically define requirements ihr their approval. Although we were disappointed by the final outcome, the merger process itself was beneficial because ~
it taught us a great deal about our own operations that will help us in a competitive environment. Looking to the future Although customer choice is inevitable, I am convinced it will come more slowly than expected. It's also clear that the electric industry will not be deregulated, but rather restructured. The introduction of a competitive market in Califbrnia, in fact, has resulted in greater regulatory complexity, not less. As restructuring evolves, NSP envisions separating the generation, transmission and distribution portions ofour business. Each would be operated independently. Because we've been organized as sepa-rate business units for several years, we are that much closer to suc-ceeding as stand-alone businesses when the traditional, vertically integrated electric utility no longer exists. We've already entered the competitive arena of power marketing, where we believe our years of experience generating electricity give us an edge. To ensure customer satisfaction in a competitive market, we are making significant investments in new technology to enhance our ability to meet present as well as future customer requirements. Because we recognize that exceeding customer expectations today ensures customers tomorrow, we continue to improve our customer relationships and work to surround them with the services they want. Our Seren and Energy Masters subsidiaries are gaining expertise in offering customers new products and services. Finally, we see a future in which our commitment to the communities we serve never wavers. The social and economic strength of this area will be as much an asset in the futurr,.s i is today. t As I look forward, I'm energized by the possibilities because I know I can rely upon the skill, dedication and good spirits of my fellow employees. Throughout the events of 1997 - the relentless battering of the weather, the uncertainties of a changing market-place and regulatory environment, and countless other challenges - they remained Ibcused and a source ofinspiration. I'm inspired as well by the trust you as shareholders have placed in us. When you combine those strengths with the opportunities awaiting us, I think you'll agree with me that our potential has no boundaries. Since'.cly, l James J. Iloward Chairman of the Board, President and Chief Executive Olricer
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No boundaries ( Just as energy knows no boundaries, the opportunities awaiting NSP in a competitive future are limitless. To take advantage of that i potential, NSP relies on the equally boundless and varied expertise ofits employees, who have years of experience in both the electric [ and natural gas industries. Excellent operations, strong financial discipline and a history ofinnovation complete the scenario, posi-1 tioning us for success whether we are doing business in our five-The expertise ofNSP state service territory or in countries around the world. ernployees helpsposition Perhaps the best example of our ability to leverage NSP's energy a cornyetirnl# e snarket. expertise in a competitive market is the growth of our nonregulated subsidiary NRG Energy, Inc. With participation in more than 9,000 megawatts of generating projects in the United States, Europe, the Pacific Rim and Latin America, NRG is one of the world's leading independent power producers. llut we also see great potential for growth at home, particularly because NSP understands the complexities of the energy business. Power marketing, traditionally the buying and selling of electricity among utilities to maintain reliability and 4timize production costs, is a business newly invigorated by the federal government's opening of utilities' traasmission lines to all wholesale electricity suppliers. Although NSP has been buying and selling power n>r years, we are expanding our elTorts to compete with local and national power marketers, establishing a new trading floor and i equipping NSP traders with the latest information technology and risk management tools. Because NSP trtderstands the complexities ofthe As the electric industry moves toward retail competition, NSP is encryv business, we can depending upon a lesson learned from experience: pay attention to take advantage ofenetyy-customers. One of our primary obj.ectives m workm.g with the regu-s' relatedgmwth opportunk-lators and legislators who are restructuring the m. dustry is to ensure ties at horne and abmad. that customers experience a seamless transition to the new system. t-9 v' y^y' *r77@7 t. Customers are key 'e.' y. them to choose NSP. To l'elp ensure that choice, we work closeh , p.6, f*. When customers are able to choose an energy supplier, we want f". g E-s with customers to understand their individual needs, and help them 'g conserve energy and manage its use. d J# .k One customer has already chosen NSP. The Mall of America in Illoomington, Minn., has designated NSP its ofTicial energy supplier. .= which means we will provide electricity to the Mall, including any 'M
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expansion, Ihr 10 years. As part of the agreement, we have constructed fbur interactive kiosks that infbrm Mall visitors of NSP's energy j conservation and environmental commitments, among other topics. In our largest energy conservation project ever, we are working with Metropolitan Council Environmental Services to upgrade equipment used in purifying wastewater at a treatment plant in St. Paul, Minn. The new equipraent should reduce the plant's energy use by more than eight megawatts. We also encourage customers to invest in electrotechnologies, which are innovative uses of electricity that result in improved productivity. Auto body shops such as Fischer Auto 13ody in St. Paul, Minn., fbr example, use electric infrared equipment to dry paint and save many hours of drying time. To ensure our systems are able to respond to the increasing needs of customers now and in the future, we've made significant investments over the last five years in new technologies. In 1997, NSP began installing an automatic meter-reading system that will allow the company to remotely read customer meters every month, essentially eliminating the need to estimate customer bills. Theforces of nature NSP's commitment to customers is perhaps never more dramatic than when our employees respond to natural disasters. Record winter snow falls, an early April ice storm, devastating floods and. finally, powerful winds that took down two of our major transmission lines made 1997 one of the most challengrig years on record fbr coping with the fbrees of nature. In every case, employees worked quickly and diligently to prevent damage or restore electric and natural gas service when it was lost. Power plant crews at our Minnesota Valley, Riverside, Illack Dog and liigh Bridge plants went to great lengths to protect those facili-ties from flood waters. Gas and electric crews fmm across the com-pany poured into the Red River Valley following April's flood to help in the restoration eflbrt. Our Grand Forks. East Grand Forks and Fargo employees exhibited dedication far beyond the call of duty as they worked long hours to help castomers, while dealing with their own property losses. Summer 1997 was no kinder. On July 1, powerful winds severely damaged two NSP 345-kilovolt transmission lines that connect our Sherco and Monticello power plants to the Twin Cities metropolitan area. July in fact had 10 severe weather days, causing 498,000 cus-tomer outages.13ut NSP crews rose to the challenge, restoring electric service to 90 percent of customers within 16 hours, and 99 percent . l -...
1 y $ ll . p within 24 hours. NSP and contract crews also rebuilt eight miles of g'~Pg' y u 1 transmission lines in record time, aided by favorable weather, the arrival of necessary materials ahead of schedule and the use of heli-copter line-stringing procedures. Despite the storms and floods, NSP can report improved electric 6 ~gp+=i reliability results for 1997. Total feeder outages, which affect about 2,000 customers per feeder, were at their lowest level since /n television andprint we began measuring them in 1991. We also made progress in ads, NSP /i atuird the reducing the number of outages to large, critical customers. cy,ypyyy boyg.y,nnding envimnrnental sten ard-Recognition and a milestone 3 hip, including;Glorts ,o,caucc,un sionsc Reliability is an important measure of success at our electric generat-c'"issi""S-ing plants as well, and 1997 saw notable achievements in reliability, among other areas. Our Monticello nuclear power plant received its 14th capacity factor award from General Electric (GE), making it the most decorated GE boiling water reactor in the world. Monticello also received an excellence rating from the institute of Nuclear Power Operations (INPO), indicating the plant's overall operations were exceptional. Our Prairie Island nuclear plant also received an INPO excellence rating as well as special recognition for having achieved and main-tained that standard for 10 consecutive years. Westinghouse recog-nized Prairic Island with its American 13eauty award, noting that fbr the past three years, the plant has been among the top 10 most cost-effective Westinghouse-designed plants in the U.S. To capitalize on our nuclear expertise, we began marketing nuclear Construction began in engineering services to other utilities. Although the cifort is only 1997 on the secondphase beginning,it's a promising venture, particularly because few nuclear of a ivind/iirin in 3oudiern utilities do their own fuel design nuclear engineering. j/innesota dial uiu 3upply NSP's coal-fired plants also achieved impressive results in 1997. In NSF'ri'h wi"d c"C 'i""- K October, we celebrated the 20th anniversary of Sherco units 1 and 2 and the 10th anniversary of Sherco 3 with an open house attended by more than 3,000 visitors. The units have perfbnned exceptionally over the years, particularly in terms of availability. Over comparable periods of time, Sherco's three-unit availability was 91.5 percent, compared with the industry average of 87.7 percent. A project to vertically expand a holding pond ihr Sherco ash, a combustion byproduct, won a Seven Wonders of Engineering ~ Award from the Minnesota Society of Professional Engineers. The ellbrt will save NSP $8 million compared with other expansion - J# options. Sherco also is in the process ofinstalling an innovative p application of wet electrostatic precipitator technology to reduce fine particulate emissions. That project should sas e $38 million compared with other technologies. \\ i
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w-. .-n ,y N in Sherco 2's most extensive maintenance outage ever, the unit's controls were upgraded and its maximum output increased by at least 10 megawatts. Other plants gained megawatts as well follow-ing maintenance outages. The King plant is producing more than 20 additional megawatts and the Riverside plant recovered almost 1 I megawatts of generating capacity following boiler work on units 7 and 8. Riverside was an outstanding performer in 1997, with few forced outages and an availability rating of 88.2 percent. . NSP-Hisconsin un a 10-year ' contmet to pmvide natum! gas to Fort hicCoy, a regional A winning combination uS. army twining center. "#dr S arta. H 7s, that One of NSP's competitive strengths is the fact that it is a combined v P electric and natural gas utility. The combination enables us to ofrer !. shouldyield 51.65 million customers a wider range of energy expertise and more products and L I" """""I 'rP'""#- services. Because our gas and electric utilities share customers, we achieve elTiciencies in billing, meter reading and construction. In 1997, NSP Gas proved once again to be a strong contributor to NSP's success. The company added more than 10,000 new cus-tomers and ranked in the top quartile among 18 peer gas utilities in terms of customer satisfaction, employee safety, and construction and maintenance costs. Thanks to NSP gas conservation programs, customers saved more than 595,000 thousand cubic feet ofgas. Several large customers 4 began using innovative applications of natural gas technology, including chillers and dessicant dehumidification systems, infrared heating oxidizers, and generators. t Pending permission from the South Dakota Public Utilities Commission, NSP-South Dakota is ready to provide natural gas to
- As a combination gas and ilutchinson Technology Inc., making Hutchinson our first retail nat-
) c/cctric utility. NSP can ural gas customer in the state. NSP-Wisconsin filed an application f i achiere construction. with the Public Service Commission of Wisconsin to purchase eficiencles byplacing Natural Gas, incorporated a gas utility in New Richmond, Wis.,
- . ' gas and electric lines in located in St. Croix County, the fastest growing county in Wisconsin i. the same trench.
in 1996, with a 15 percent growth rate. We also entered into an agreement and plan of merger with Illack Mountain Gas Company, Cave Creek, Ariz. Illack Mountain Gas Company is a natural gas and propane distribution company serving 6,500 customers in a rapidly growing area near Phoenix. g The Viking Gas Transmission Co., an NSP interstate natural gas cg pipeline subsidiary, completed a 29-mile pipeline expansion in 1997 b; - ~ g K 7 to increase capacity by 14 percent. Viking stafTin two districts jg ? ? \\ t Crews (Ictd upgmded the turbine on unit I ofNSP.\\ Prairie island nuclear plant. which willincrease the unit.\\ capacity by more than \\ 15 megawatts and reduce.fierther turbine maintenance. ,m.. -+ 1 l
Iccated near the Minnesota communities of Frazee and Milaca each achieved a safety milestone in November when they completed 30 years without a lost-time injury. The other six Viking districts have achieved safety records ranging from I i to 37 years of operation with no lost-time injuries. Subsidiaries strong and growing NSP's nonregulated subsidiaries are making tremendous strides and ofrer even greater potential for growth, in part because we have resolved to stick to what we know best: the energy business. l NRG Energy, Inc., NSP's primary nonregulated subsidiary, is now the i Ith largest independent power producer m the world. One of NRG's l most important accomplishments in 1997 was winning a bid to pur-chase Loy Yang A, which at 2,000 megawatts is the largest coal-fired l electric generating plant in Victoria, Australia, and Australia's lowest-l cost thermal-generating facility. NRG holds a 25 percent ownership I interest in the project. The company also purchased a portion of Energy Development Limited, an Australian independent power producer. Other Australian ventures include NRG's partnership in the 1,680-l megawatt Gladstone coal-fired plant and the refurbishment of the i 189-megawatt Collinsville coal-fired plant, which should begin commercial operation in March 1998. i l l l' ,n 6 F. f / i i 5 i f i ? >q
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In Europe, NRG owns a 200-megawatt share of the 960-megawatt Schkopau coal-fired generating plant near Leipzig, Germany. Coal for Schkopae comes from the nearby MIBRAG industrial complex, in which NRG also is a partner. North of London, England, NRG and '4 a partner are building the Enfield Energy Centre, a 396-megawatt, natural gas-fired plant that should be operational in 1999. In Latin America, NRG and a partner own 97 percent of the Bolivian Ibwer Company, the second-largest generator of electricity in Bolivia, NEO a renewab/c energy with 171 megawatts of hydro and natural gas-fired capacity. subsidiarr ofNRG. had a verr success /id rear On the home front, NRG purchased 100 percent of the outstanding contru>uting signi/icant/r to shares of the Pacific Generating Company (PGC), a wholly owned NRG carnings. One of the indire.:t subsidiary of PacifiCorp. PGC holds ownership interests in ropfire land /iu genciution 12 op: rating pmjects with a total capacity of 776 megawatts. cony >anies in the nation. NRG alsa purchased the San Diego Power & Cooling Company, NEO has 19 gas land /lu which provides district cooling to 14 major customers in down. pni/cers in cperation or town San Diego, Calif., and signed an agreement to purchase the under construction and 13 h d"' /"H/Cel" in "Peration. 1,020-megawatt, natural gas-fired El Segundo Station, located J near Los Angeles, with partner Destec Energy, Inc. Also in 1997, NRG secured financing to build a 117-megawatt cogen-eration plant to be located within the Morris Cogen petrochemical manufacturing facility in Morris,111. The project, now owned by NRG Generating (U.S.) Inc. (NRCG), is under construction and should be in commercial operation in the fall of 1998. Grays Ferry, a 150-megawatt, natural gas-fired cogeneration project in Philadelphia, Pa., achieved its first controlled combustion turbine startup in 1997. Grays Ferry is owned by NRCG and partners. Seren Innovations, Inc., another nonregulated NSP subsidiary, is NRCG <y>ciutes and has developing network access alternatives for a variety of communica-an ownership interest in tions and data services. In 1997, Seren signed ajoint marketing agree-the Newark plant, a natuird ment with CellNet Data Systems, which included investment in the gay.j;n.d /heuity in wireless network used in our new automatic meter-reading system-New./crEy. Ultra Power Technologies, Inc. is a nonregulated NSP subsidiary established in 1997.The company markets a nondestructive, diagnostic power-cable testing technology to U.S. and Canadian companies that have underground cable. Energy Masters International, Inc. (EMI), the NSP subsidiary formerly known as Cenerprise, and partner Energy Performance ~ ~ Services (EPS,' carned a Department of Defense and Army Corps of Engineers cenification to pursue business at government facili-ties in 46 states as well as Puerto Rico and Washington, D.C. The cenification allows EMI and EPS to pursue energy savings per-formance contracts up to a total value of $ 150 million, in addition ( i to their current projects and others under development. J .A u
Healthy communities benefit all No matter where we do business, we never fi>rget that NSP's strength l Students /nnn serend I St. Pard h/ inn. higit schools is dependent on the economic and social well-being of the areas we sem. Our conunitment to time communities includes economic planted uces at NSP'v High development efli>rts, corporate contributions, employee volunteerism Bridge plant as part ofa and investments in alli>rdable housing. sununer employment pn>- l gram and Greening the A number of businesses chose to locate or expand in NSP's service ) Great River Park, a pn>/cci territory in 1997, thanks in part to NSP's economic development i to intnaduce native tree efforts. Ilutchinson Technology Inc., an electronics manufacturer, j species to the Mississippi announced expansions in both Eau Claire, Wis., and Sioux Falls, l River fidky in downtown S.D., that will add several thousandjobs to both communities over j St. Paul. NSP cmplorces. the next few years. With help from NSP-Wisconsin's economie retirees and theirfinnilies development stalT, La Crosse Footwear in La Crosse, Wis., acquired i aho helpedplant trecs. The an existing flicility fi>r its new distribution center, retaining 200 jobs planting efi>rt was one in that region. phave ofNSP.'s $500.000 in Minnesota, Praxair Inc., a manufacturer ofindustrial gases. conunirment to the city of announced an expansion that will add two to three megawatts to St. Pend's ricci#ont dercl-NSP's electric load. Industrial gases are used by refineries and the ofunent c#urt. l i \\ - msi .,,,4 '4'^ .- [., l t'"~~'";, );., W? ' L '"'~^ l: 3; I rga - 3 O xl h ' y ..-l rJ l' 's m z
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h fbod, electronics, metals and health-care industries. SICK Optic-Electronic, Inc., a German company that manufactures industrial sensors and environmental monitors, will locate its U.S. division in NSP's service territory, taking advantage of a special NSP economic ,j: development rate. 7 y' Our corporate contributions programs direct NSP funds toward programs that strengthen individuals, families and neighborhoods Employeesfn.nn NSP's. E'"#'#" F ""' ""# '"""~ I within NSP's service territory. We were recognized in 1997 by I the Minneapolis Chamber of Commerce's Minnesota Keystone
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'"I# "P"##"k Program as a company that contributes 2 percent ofits pretax income to charitable organizations. In South Dakota, NSP won j the Friend ofTurning Point Award ihr our long-standing support of that non-profit organization. I ^ We also recognize that allbrdable housing is an important part of a j s healthy community. NSP's subsidiary Eloigne Company has an own-o ership interest in 44 allbrdable housing projects that provide more than 3,000 residential housing units across NSP's service territory. The investments also generate federal income tax credits. NSP employees are equally committed to communities, which they f support through volunteer efibrts and financial contributions. For the ~ sixth year in a row, NSP employees won the Judson Bemis Visionary Award Ihr raising the most money for the annual Twin Cities College Fund /U.NCF Walk-a-thon. Employees and retirees pledged more than $1.1 million to the United Way, with support from the international !!rotherhood of Electrical Workers (IBEW), our primary labor union f i and a valuable partner in a number ofinitiatives. NSP is proud of the fact that with the IBEW we provide an inclurive Some b'O NSP cmployees, and v cleoming work environment fbr all employees. In 1997, we retirecs and theirfamilies won the Panners in Employment of People with Disabilities Award i voluntecirdfor Habitatfor from the Courage Center and the Minnesota Business Partnership Humanity, an organization Ibr our enbrts to employ people with disabilities. that builds andir/isrbishes - We have an excellent work three. That thet is illustrated in dramatic I"""#3 pr cligiNefamilies.- situations such as storm restoration, but also in day-to-day interac-tions with customers and ongoing e0brts to creatively prepare ihr a competitive future. Our employees recognize that they are producing and delivering a product that ensures notjust quality oflife, but life itself. It's an obligation they take very seriously. NSP in turn works hard to give employees the tools, training ai A support they need to succeed. In the final analysis, we know that :mployees will make the crucial difTerence in conquering new horizons. 4
.m. ~...., =,, - +.- ~lk. n% 'VC Q Q$$@@DY, Wh&, ?,.y"l35 @h -!N W MY lY. ye a & xQ e,_ ~ ~.; w,;, . 1.,n T'~~ '/ r~'%; ~~ 3 '1 g& f Dimbtors ofthehfirkesbte Companf f' ~ J 7 >es % y < ~., w W wm X s w n '. ' : ',, J e <,. ~ .s i ng um wm. r ~ y lf H. Lyman (Tad) Bretting (61) 1,'3 Douglas W. Leatherdale (61) 2,4 Q j PwsWnt and CEO ' ' ' 'Giannantonio Ferrari(58) 3,4 QQ -Pwsident and ChiefOpemting OfIcer' ' Chairman. Pwsident and CEO f.1%i % N C G. Bretting Manufacturing 1 lkmeywell, Inc. f The St. Paul Companies, Inc. d LCompany, incl. (elected October 1997)#. ' Property and liability insurance i r %( QOldanufacturer of napkiNand paper . f (elected April 1991) organization ) Q@[o C towel folding machines " Dale L Haaksnstad (69).1,3, N (~ elected March 1990)' Pettivdpirsident MCEO" Mern States Life insurance Company Dr. Margaret R; Proska (60) 2,4,,,ys q 92 David 'A. Christensen (62) 2,4/g/clected l'ebmary 1978) Distinguished Scry/ce PMsso6 Minnesota Stats Universit, ifs f Pwsident and CEO f / y f.,(elected January 11980) i yg Raven industries, inc; ff James J. Hcmtard (62)* $Wf~ . Mgyq/@ L' . Manufacturers of reinfor6cd plastics, Chairmanc Pwsident and CEO Northerr. States Power Company,N (electedJanuary 1987), j[%p gATPat sewn products and electmaic equipment
- 7 Consultantgg h,yg Qg (elected December 1976)
Af !,The Sampson Group, Inc., andycgg RNhard M. Kovacevich ($4) Ic3.Q Q' Dr.' y s W. John Driscoll(68) 2,4. '&Qj Management c6nss\\ tant companicW Retind Chairmsn and Pwsident Chairman ami CEOb Rock Island Company Norwest Corporation M[F [ (elected Jandery,19857 ' 4 /4 f % %h* ! l Private investment firm Holding company for banking (elected November 1974) insti'.utions?, aM O /.
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JLT pd. t Principal Officers of the Minnesota C<nnpany:n so GP L, p%y y up:in Apr s ,. w s 14 u / x; y pv'~ .l w Paul E. Anders Jr. (54) _ lJWps;; par c& M WVinPwsident and CFO' :%umn;. 5 ~ Edward J. McIntyre"(47) fdyRoger.D. Sandoen (52) W' S ? ,n r W " [ (s@Ag 5' l L S Vice President and Ccmtwiler ; Vice President and CIO k:3, ' xv@.:;+vn. M m Grady P. Butts (51) y ' y'our%n.q) 1: / -:h; n ;t
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? Pwsident-NSP Electric I Vice President-Human Res tes> k ? mkrnmentAfairsi '[ ~M jfy ' (h G Q ? i James J. Howard (62) John P. Moore Jr. t5i). Vice President-Nuclear Genemrion. .(> MR "
- E-Michael D.,Wa.dley (41)'
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- Audit Committee members
&i y [ 8 'J E.i ,., l 'i I " d.l ((( e jf j l. YPrincipal O(P.. ters ofthe Hisconsin Cdmpan,v 1 RL + q T-s , + * "4 j Michael N. Gregerson (50)L f...
- Aoger D. Sando'en (52) m Patrick D. Watkins (57) r g.
f 17ce President-Customer ServiceW Contmiler * ~ Iice President-Corpomte Services j j m Oohn P. Moore Jr. (51); N ' Corpomte Sectrtary l tice President-Tmnsmi.:sfon Systena Genemi Gnmsel 'l John D. Wilson (38)S Anthony G. Schuster (53) 7 - (. < . Neal A. Slikarla (51) - M ; John A. NoeriSI'l: 1 Chairman, President and CEO: ' Treasurer m+ i n ,; { > f \\ ' \\ W,. y t' lDinitors ofNRG Ersrgy, Inc..
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~ m% e. ' ~ ' i ', 4 ft ' Gary R. Johnson'($1)1 W Edward J. McIntyre (47) ; ? David H. Peterson (56) V ' 17ce Pmsident and Genem! Cmmsel ^ ! 57ce Persident and CFO L - Chairenan. President and CEO i fNorthern States Powot Company C
- Northern States Power Company s NRG Energy,Inc..
1 f g ; ' Y (elected February 1993)" ' ' ' g^ ~. 7,(elected May_1992) - (elected July 1989) ..g.-f Q 'a i Cynthia L Lesher(49) John' A. Noor (51)a ^ Chairinan, President and CEO -
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4 Northern Stktes Power CompariyJ il ~ + s 3 orthern States PoweVCompariyf N gg s l s(elected June 1996) / (Wisconsin) s /1 ~ 3: 4 ~ (e,lected June 1997);L 4 y, e-c ~.L . l' M JPr,incipal OVicers t/NRG Energy. In$s w s,1- . M, g 1. f g j 3< L n b M,m r, ' s<. s, t j, t. q s. + f 9 James J. Bender'(41) 1.,.. y ' t Valorie A. Knudsen'(41) . ( David H. Peterson (56) _ I ce President and Genc(n! Counsel / ' I1 ice Pnsiderk-finance imd t Chairman. Persident and CEO ~ ~ > ' Accounting)' ^L 'i g ( h ' BrinB'. Bibl(35); David E. Ripka (49) 7 7 o 1 Treasurcel ' Craig A.' Mataczynski(3'/)
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- Executive Vice Persident and CFO y Robert McClenachan (46) andAdministmtion 4
1 s n ; iJuHe A. Jorgensen (35) CEO COREE, and Persident.1 y ;..
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Management 's Discussion andAnalpis 1 I ) Northern States Power Company, a Minnesota corporation (the raised NSP bond rating to AA, as a part of an industry re-evahianon. Company), has two significant subsidiaries: Northern States Power
- n July 1997, Moodyi lnvestors Services (Moodyk) upgraded its rat-(.ompany, a Wisconsin corporatior,(the Wisconsin Company), and ing on NSP's first mortgage bonds to Aa3. Moody's rating action I
N RG Energy, lac., a Delaware corporation (NRG). The Company also reflects NSP's progress in satisfying legislative requirements associ-I h a several other subsidiaries, including Viking Gas Transmission ated with sont fuel storage at Prairie Island and various other factors. Company (Viking) Energy Masters International, Inc. (EMI), which Moody's also cited NSP's heahhy competitive position and strong changed its name from Cencrprise, Inc., effective Sept. I,190' sind financial condition. DufT & Phelps, Inc. raised the Company % bond j Eloigne Company (Eloigne). The Company and its subsidiaries collec-ratings to AA in February 1998. First mortgage bonds issued by the tively are referred to herein as NSP. Wisconsin Company carry comparable ratings. NSPi pretax interest ] coverage ratio for utility operations, based on income excludmg Financial Objectiver and Restdts Allowanee for Funds Used During Construction (AFC), was 3.5 in N5P's Financial Objectives are: 1997. A capital structure consisting of 46.7 percent common equity at year-end 1997 contributes to NSP's financial flexibility and strength. I e D provide investor returns in the top one-fourth of the utility } i:dustry as measured by a three-year average return on equity. Dusiness Stmtmtes NSP s average return on common equity for the three years endmg in NSP's mission is to be a recognized leader m. the energy m. dustry by 1997 was 12.0 percent. Based on a three-year average, th.is return mercasmg the value provided to our customers with energy-related places NSP below the top one-fourth of the industry, which was products and services. We will utilize the skills and talents of our approximately 12.7 percent, and abtwe the median three-year m. dus-people to thrive in a dynamic and competitive energy environment try average of approximately 11.3 percent. *t.he total return to that provides increased value for our customers and shareholders and ) investors (measured by dividends plus stock price appreciation) on significant growth opportunities for our company. Strategies to NSP common stock for the most recent five-year period averaged achieve this mission include: 12.4 percent per year. For the same period, the total return for the electric industry averaged 10.7 percent. NSPh stock price rose 27.0
- Exceeding Customer Reguirements. Anticipate and exceed cus-percent over the year, wcll above the 22.1 percent average increase of tomer reuuirements by balancing costs, benefits and expectations to other utilities rated AA by Standard & Poor's (S&P).
maximize value for each customer. e h increase dividends on a regular bash and maintain a long-term o improve Campetitiveness, Achiese and maintain best quartile status cverage payout ratio in the range of 65 to 75 percent. NSP has in the service and price of providing our electric and gas products. increased its dividend for 23 consecutis e years. In June 1997. NSP's
- 5upport E.mployees. Gain competitive advantage by f. lly utih.. ring u
annualized common dividend rate was increased by 6 cents per the diversity, skills and talents of our people, shaic, or 2.2 percent, from $2.76 to $2.82, The dividend payout ratio wms 89A percent in 1997, above the objective range due to the
- Support the Communitr cad the Environment. Preserve and unusual events that adversely afTeeted NSP's earnings in 1997. (See enhance NSP's name and reputation by protecting the environment discussion under Results of Operations.)Tbc objective payout ratio and helping to meet the social and economic needs of tFe community, is based on long-term carnings expectations.
thereby contributing to the growth of the community and creating EUPPort for our business requirements. e D maintain long-term overage annual earnings per share growth of 5 percentfrom ongoing operations, as described below. Excluding
- Grow the Business Profitably. Duild on our core businesses, sub-the nonrecurring items discussed later under Factors AfTecting Results sidiaries and strategic acquisitions to profitably grow our company, of Operations, NSP's earnings per share have grown by on average enhance shareholder value and excel in a dynamic industry em ironment.
t nnual rate of 4.1 percent since 1993. Mnawial him 1997 1996 1995 (amipgs per,sharepom.ongolng operations 53.54 $3.82 $3.69_ The following discussion and analysis by management focuses on E:rnings (losses) from nonrecurring items t0.33) 0.22 those factors that had a material efTect on NSP's financial condition Total earnings per share $3.21 $3.82 $3.91 and resuhs of operations during 1997 and 1996. It should be read in conjunction with the accompanying Iinancial Statements and Notes e D provide at least 20 percent of NSP earningsfrom NRG busi-t xtm wn and considered relevant. Material changes m balance nesses by theyear 2000. NRG cxpects to meet this goal through the sheet items are discussed bekiw and in the accompanying Notes to growing profitability of existmg businesses and the addition of new Financial Statements. businesses. Busincues owned by NRG provided 39 cents, or 11 pe. cent, of NSP) carnings per share from ongoing operations in 1997 Except for the historical information contained herein, the matters and 29 cents, or 7.6 percent, of NSPh earnings per share from ongoing discussed in the following discussion and analysis are forward-kiok-operations in 1996. ing statements that are subject to certain risks, uncertainties and e D maintain continuedfinancial strength with n AA ratingfor
- "Umrtions. Such forward-looking statements are intended to be trility bonds. The Companyi first mortgage bonds continued to be identified in this document by the words " anticipate,"" estimate,"
r:ted A A by Fitch Investors Service, Inc. In October 1997, S&P " expect,"" objective,""possible,"" potential" and similar expressions. q I i m l
~brWmveiTMiB i e s WWiFTn m p a n y CG s n e s o a a x anGTsW e ru e s } , Management k Discussion and Analysis Actual results may vary materially. Factors that could cause actual higher market prices due to market conditions contributed to the results to difier materially include, but are not limited to: general revenue increase in 1997. Market cond tions and regional transmission economic conditions, including their impact on capital expenditures; system constraints contributed to the sales decrease in 1996. business conditions in the energy industry; competitive factors; E unusual weather; changes m federal or state legislation; regulation; revenue c anga Mng the past two yeam the items discussed under " Factors AtTecting Results of Operations;. and the other risk factors listed from time to time by the Company in Nillions of dollars) / 99 7 vs.1994 1996 vs.1995 reports filed with the Securities and Exchange Commission (SEC), Retail sales growth includmg Exhibit 99.01 to the Companyk 1997 report on Form 10-K, (excluding weather impacts) $47 $ 29 Estimated impact of weather W M) Results ofOpemtions - 1997 Compared with 1996 au 1995 Municipal power sales (6) (15) NSP's 1997 earnings per share from ongoing operations (assumm.g Conservation cost recovery 10 13 dilution) were $3.54, down 28 cents, or 7.3 percent, from the $3.82 Fuel cost recovery 31 (10) earned in 1996 and down 15 cents, or 4.1 percent, from the $3.69 carned in 1995. NSP's total carnings per share (assuming dilution), ~Other rate changes (1) (5) Transmission and other electric revenues 19 8 including nonrecurring transactions in 1997 and 1995 (as discussed Total revenue increase (decrease) 591 $(15) later), were $3.21 in 1997, $3.82 in 1996 and $3.91 in 1995. Nonrceurring transactions in 1997 include the write-off of costs Electric Production Expenses Fuel expense for electric generation in incurred prior to Ihe termination of NSP's proposed merger with 1997 increased $8.8 million, or 2.9 percent, compared with a decrease Wisconsin Energy Corporation (WEC) and NRG's write-down of a of $24.5 million, or 7.5 percent, in 1996. The 1997 increase is primar-cogeneration project. ily due to higher average fossil fuel prices, mainly reflecting the Regulated utility businesser generated earnings of $3.24 per share increased use of higher-cost plvnts due to plant outages and transmis-from ongoing operations in 1997, $3.58 in 1996 and $3.41 in 1995. sion line and plant limitations, as discussed later. In 1997, manage-Earnings from ongoing regulated operations were lower in 1997, pri-ment decided to take the Companyi Monticello nuclear generating marily due to higher utility operations, maintenance and depreciation plant, a baseload plant, out of service to accelerate implementation of expenses, the impacts of bss favorable weather, and dilutive efTects of a design change originally planned for 1998. In addition, during the stock issuances. Partially offsetting these carnings decreases were summer of 1997, portions of transmission lines connecting two of growth in electric sales and reduced administrative costs. NSP's baseload generating plants, the Monticello nuclear and Sherco fossil plants, to the Minneapolis-St. Paul metro area were damaged by Nonregulated businesses generated earnings from ongoing operations of storms. Until repairs were completed later in 1997, the Company's 30 cents per share in 1997,24 cents in 1996 and 28 cents in 1995-generating and transmission capabilities were temporarily reduced. As Nonregulated earnings increased in 1997 primarily due to higher NRG a result, NSP increased generation at its more expensive peaking > carnir.gr from new projects, including tax credits. hicreased financing plants and purchased more power to meet 1997 sales requirements. cost at NRG and losses incurred by EMI partially offset these increases. The 1996 decrease was primarily due to lower average fuel costs resulting from a new coal transportation contract in July 1995, and UtHity Operating Results lower plant output caused by decreased electric sales, planned mainte-Electric Rcrenues Sales to retail customers, which account for more nance outages and conversion of two plants to peaking status, than 90 percent of NSP) electric revenue, increased 1.5 percent in 1997 and 1.0 percent in 1996. Sales in 1997 included unfavorable Purchased power costs increased $42.7 million, or 17.5 percent, in 1997 weather impacts compared with normal average temperatures, and after decreasing $4.1 million, or 1.7 percent, m 1996. The 1997 increase sales in 1996 and 1995 included favorable weather impacts compared was primarily due to higher purchases, higher average market prices and with normal average temperatures, with the retail sales impact for higher demand expenses. The higher purchases were a resuh of kiwer 1996 being less favorable than it was in 1995. Total electric sales vol. plant availability due to the unplanned nuclear plant outage and storms, umes increased 0.6 percent in 1997 and decreased 3.0 percent in 1996. as discussed previously, and higher 1997 sales requirements. The 1996 Lower ules volumes to other utilities in 1997 and 1996 and the loss of decrease primarily was due to lower demand expenses. several municipal power customers in 1945 and 1996 partially offset Gas Revenacs The mWority of NSP's retail gas sales are categorized as the retail sales growth in 1997 and contributed to the 1996 decrease. firm (primarily heating customers) and interruptible (commercial /indus-On a weather-adjusted basis, retail electric sales volumes are estimated trial customers with an alternate energy supply). Firm sales in 1997 to have increased 2.6 percent in 1997 and 1.5 percent in 1996. Retail decreased 10.8 percent compared with 1996 sales, while firm sales in electric sales growth Ibr 1998 is estimated to be 2.0 percent over 1997, 1996 increased 13.2 percent compared with 1995 sales.The decrease in or 1.5 percent, on a weather-adjusted basis. 1997 was primarily due to the impacts of famrable weather in 1996 and ) unfavorable weather in 1997, partially ofTset by sales growth. The Sales volumes to other utilities decreased 5.2 percent in 1997, while rev-increase in 1996 primarily was due to strong sales gnmth and favorable enues increased in 1997 (as shown in the following table). Constraints impacts of weather. on NSPi sptem due to unscheduled plant outages and storms (as discussed later) contributed to the decrease in volumes in 1997, while
Es.,s,- s...,, c o. .,y.,., . m..., ; a v n. a son.m.,., 2 s g Manag. ment k Discussion and Analysis On a weather-adjusted basis, firm gas sales are estimated to have The lower costs in 1996 largely are due to lower administrative and increased 2.2 percent in 1997 and increased 5.1 percent in 1996. The firm general costs, partly othet by higher scheduled plant maintenance out-sales increa.se in 1997 was partially ofTset by lost gas sales as a result of age expenses and provisions for uncollectible accounts. Administratise dooding in the Grand Forks area. Firm gas sales in 1998 are estimated and general expenses in 1996 rettect fewer employces and decreases in to be 7.0 percent higher compared with 1997 sales, or 3.3 percent higher insurance and claims, employee benefit and other corporate costs. on a weather-adjusted basis. (See Note 8 to the Financial Statements for a summary of administra- "" E#"""'#*E#""" Interruptible sales of gas increased i1.6 percent in 1997 and 3.6 per-c:nt in 1996.The increases in both years are the result of favorahle gas Conservation and Energy Afanagement Expenses increased in both mrrket prices compared with alternate fuels that caused large inter-1997 and 1996 mainly due to higher amortization levels of deferred ruptible customers with alternate fuel sources to use more natural gas. electric and gas conservation and energy management program costs. Other gas deliveries, including Viking sales, increased 0.6 percent in liigher cost lesels in 1996 also include the effects of expensing cur-1997 and 5.3 percent 51996. Viking gas transmission deliveries to rently (rather than amortizing over a period of time) new conservation parties other than NSP increased 4.8 percent in 1997 and 7.7 percent expenditures beginning in 1996. These higher amortization and cost in 1996. levels are recovered concurrently through retail rate adjustment "E" The table below summarires the principal reasons for the gas revenue later under Factors AfTecting Results of Operations. ch:nges during the past two years: &preciation andAmorti:ation The increases in 1997 and 1996 redect (Atilliam of dollarsp i907vs.1res j996vs ty93 higher levels of depreciable plant, including new information systems Sales growth ( and equipment in 1997 and 1996 with relatively short useful lives. _ _ exclud(ng weather impacts)~~~ ~~$U ~ ~$ 25~' information technok)gy improvements are expected to continue in 1998. Estimated impact of weather ~ _ gn irm sa esyo@mt.,.. _ _ _.M _ O f l Property and General Tarcs Property and general tans decreased in Purchased gas adjustment 1997 and 1996, primarily due to k wer property tax rates pattially off- ._. clause recovgry_ _ _ _ _ _2 8 _ __ S2 set by increases due to property additions. Conservation cost recoverv _ _and other rate changes (1) 6 Utility facome Taxes The variations in income taxes primarily are Transportation and other (11) S attributable to ductuations in taxable income and changes to elTective Total revenue increase (decrease) S(12) 1101 tax rates. (See Note 7 to the Financial Statements for a detailed recon-ciliation of the statutory tax rate to NSP's effective tax rate.) Cost of Gas Purchased and Transported The cost of gas purchased and transported decreased $4.2 million, or 1.2 percent, in 1997, primarily Nonoperating items Related to Utility Businesses due to lower gas sendout partially ofTset by a 6.7 percent increase in the Aterrer Costs in May 1997 NSP and WEC mutually terminated per unit cost of purchased gas. The lower sendout renects decreased gas their plans to merge. NSP's earnings for 1997 include a pretax sales as previously discussed, while the increase in cost per umt of pur-charge to nonoperating expense of $29 million, or 25 cents per chased gas, occurring mainly in the first quarter of 1997, reDects share, to write offits cumulative merger-related costs incurred. This changes in market conditions. The cost of gas purchased and transported charge is being reported as a nonrecurring item outside of carnings increased $78.7 million, or 30.6 percent,in 1996, primarily due to a from ongoing operations. 20.5 percent inercase in the per unit cost of purchased gas and higher Utility Financing Costs interest costs recognized for NSPh utility busi-gas sendout. The increase in gas sendout reflects increased gas sales, nesses, including amounts capitalized to reDect the financing costs of con-while the increase in cost per unit of purchased gas reflects changes m. struction activities, were $120.3 million in 1997, $123.1 million in 1996 and $1n4 million in 1995.The 1997 decrease is due primarily to kmer Other Operarlon, AfaIntenance and Administrattre and General average short-term bornming levels, and the retirement of $100 million These exFenses, in total, increased 7.4 million, or 5.9 percent, in of first mortgage bonds in October 1997. The slipt 19% decrease is 1997, compared with a decrease et s. 9 million, or 3.8 percent, in largely due to lower interest costs on variable rate long. term debt, partially 1996. The higher costs in 1997 are primarily due to increased operating ofTset by higher average short-term borrowing levels. The average short-expenses associated with 1997 business interruptions, higher customer term debt balance was $208.3 million in 1997, $265.4 million in 1996 and senice expenses, increased network transmission senice (NTS) costs, $208.7 million in 1995. In addition to interest expense, beginning in 1997, as discussed under Factors Affecting Results of Operations, higher financing costs of NSP's utility businesses include distributions on scheduled plant maintenance outage expense and higher technology redeemable preferred securities. improvement expenses.11usiness interruptions in 1997 included Good-ing in the Company a service area, the unscheduled Monticello plant Nonregulated Business Results outage and storm damage to transmission lines. Technology improve-NSPi nonregulated operations include diversified businesses, such as m nts included development of customer information, automated NRCi businesses, which are primarily independent power production, meter readmg and other systems, including preparations for the year commercial and industrial heating.nd cooling, and energy-related 2000. These cost increases were partially offset by a $6.9 million refuse-derived fuel production. In addition, LMl's primary business is j decrease in administrative and general expenses, redecting decreases m energy sales and service. NSP also has investments in afrontable housing in;urance and emphiyee benefit costs. projects through Eloigne and several income-producing properties
f D lJwmoca M0pudo l&copeopa@, umdocioeoa obe moowdews Managementi Disctusion cndAnaysis l l through other subsidiaries. Due to the nature of these nonregulated busi-Equity in earnings from MIDRAG decreased, primarily due to an nesses, NSP anticipates that the carnings from nonregulated operations expected decline in heating briquette and coal sales. NRG's earnings will experience more variability than regulated utility businesses. As from ongoing operations were higher in 19%, as compared with 1995, discussed below and shown in hote 8 to the Financial Statements, NSPi despite experiencing an increased level of business development costs nonregulated earnings for these periods are experiencing such variability. in 1996 as it purraed several international and domestic projects. Until there is substantial assurance that a project in development will come The following summarizes the carnings contributions of NSP's to financial closure, such costs are expensed. nonregulated businesses: NRG) carnings for 1995 ' ncluded two nonrecurring items that added i omirihurbs to NSPMarnings per Sharr 1997-1996 1995 22 cents to 1995 carnings. A gain of approximately 26 cents per sharc NRG: was recorded for a pour sales contract termination settlement, which Ongoing operations $0.39 $0.29 $0.24 was partially offset by a domestic energy project write-down of 4 cents jogrecurringitgms _ _ (0.0s) 0.22 per share. Eloigne 0.06 0.05 _ _ 0.02 EMI (0.15) (0.12) (0.02) Further information on NRG s financial results may be obtained from Seren innovations (0.02) NRCi annwd report on Form 10-K filed with the SEC, Other (1) 0.02 0.02 0.04 Total $0.22 $0.24 $0.50 EMI (1) Includes NSP-owned refuse-derivedfuel operation, EMI's losacs for 1997 were higher than 1996, primarily due to losses managed by NRa incurred by EMl's gas mariseting joint venture, Enerval, the partial write-down of EMI's investment it. Enerval, and increased expenses "E E# ""EI NRG Inc. (ESl) and Energy Masters Corporation (EMC), both purchased by NRG) carnings from ongoing operations (excluding the nonrecurring gg transaction discussed later) tnercased in 1997, compared with 1996, increased operating margins, primarily due to the curtailment of gas primarily due to income from new projects, including tax credits. g g g 1 New projects contributing to NRCi carnings tneresse include: impacted operating margins during the first half of 1996. EMI is cur-Bolivian Power Company Ltd. (COHEE); Pacific Generation E*# * " " ' " " E N'" Company- (PGC); the Schkopau power generating facib*y in [#" #* m Enerval and expects to finalize the sale during the first quarter of Germany, which began operation in July 1996; and the Austrah.an . down to an estimate of the."" " State of Victoria's Loy Yang A power plant in which NRG, through ir net realizable value. affiliates, purchased a 25.37 percent interest in May 1997. NRG's landfill gas subsidiarp, NEO, has entered into projects in 1996 and EMii carnings for 1996 decreased, compared with 1995, largely duc 1997 that are generating higher levels of energy tax credits. Also con-to price volatility in the gas market, which adversely affected earnings tributing to NRCi increased earnings were the gains on the sale of from Enerval, and losses incurred from the gas trading business, equity interests in two projects late in 1997. liigher interest costs due to the $250 million senior notes issued in mid-1997 partially oliset other the increased earnings. Eloigne's earnings have continued to grow in 1997 and 1996 duc to " "E E NRG's carnings in 1997 were adversely afTected by declines in the "7' "**E" value of the Australian dollar and German deutsche mark in relation
- "N" ""
U"' to the U.S. dollar. Had exchange rates throughout 1997 staved the products and services. same as the beginning of the year, NRG's 1997 carnings would have been higher by approximately 4 cents per share. As of ycar-end 1997, NRG and its partner) effort to restructure the debt NSP's results of operations during 1997,1996 and 1995 primarily of the 58-megawatt Sunnyside cogeneration project in Utah was not suc-were dependent upon the operations of the Companyi and Wisconsin cessful. Due to a lack of progress in restructuring the pmjecti debt NRG Companyi utility businesses, consisting of the generation, transmission, recorded a nonrecurring expense of 8 cents per share to write down its distribution and sale of electricity, and 'he distribuGon, transportation investment in the Sunnyside project late in 1997. This write-down and sale of natural gas. NSP's utility revenues depend on customer j reduced income fro'm nonregulated businesses before interest and taxes usage, which varies with weather conditions, general business condi-I by 59 million for 1997 and is considered a nonrecurring item. tions, the state of the economy and the cost of energy services. Various Excluding the nonrecurring items discussed later, NRG's earnings Ngu at ry agencq appmw h p&es for ekcW and gas sus withN their respective jurisdictions. In addition NSP's nonregulated from ongoing operations increased m 1996, compared with 1995, due gp g primarily to higher equity in earnings of projects. Equity in earnings of projects increased in 1996, primarily due to first-time carnings from Schkopau and NRG Generating (U.S.) Inc. and higher income from Scudder Latin American Pmver Projects. These carnings were Regulation NSP's utility rates are approved by the Federal Energy partially otTset by lower equity earnings from the MIBRAG project. Regulatory Commission (FERC) and state regulatory commissions m 1
M:nagementk Discussion and Analysis Minnesota, North Dakota, South Dakota, Wisconsin and Michigan. On Feb.17.1995, NSP filed a rate application with the FERC to Rates are designed to recover plant investment and operating costs and update its rates for point-to-point transnussion service. As filed, the cn allowed return on investment, using an annual period upon which proposed rates increase annual transmission revenues by approximately i rate case filings are based. NSP requests changes in rates for utility ser- $4 million. In addition, the filing is expected to support reductions in vices as needed through filings with the governing commissions.The NSP s NTS costs, as discussed later. rates charged to retail customers in Wisconsin are reviewed and g g 9 adjusted bienmally. Because comprehensive rate changes are not ""E**'" I# requested annually in Minnesota, NSP s primary jurisdiction, changes
- *E'.* *"** "had on 1
ut n mc ng c pWon. W AcCs rdmn oW in operating costs can afTect NSP's earnings, shareholders' equity and Public Utility liolding Company Act of 1935 (PUllCA) promoted otheriinancial results. Except for Wisconsin electric cperations, NSP) creation of wholesale nonutility power generators and authon. zed the retail rate schedules provide for cost-of-energy ed resource adjust-FERC to require utilities to provide wholesale transraission services to . ments to billings and revenues for changes in the cost of fuel for elec-third parties. The legalation allows utilities and nonregulated compa-tric generation, purchased energy, pvehased gas, and, in Mm.nesota, mes to build, ow n and operate power plants cationally and internatica- . con ervation and energy management program costs. For %.:.sconsm ally without being subyct to restrictions that previously applied to chetuc operations, where cost-of-energy adjustment clauses are not utilities under the PUllCA. NSP plans to continue its ciforts to be a used, the biennial retail rate review process and an mterim fuel cost c mpetitively priced supplier of electricity and an active participant m hearing process provide the opportunity for rate recovery of changes in the competitive market for electricity, electric fuel and purchased energy costs in lieu of n cost-of-energy adjustment clause. In addition to changes in operating costs, other fac-in 1996, the FERC issued Orders No. 888 and 889, which have had a tors afecting rate filings are sales growth, consersation and demand-significant impact on wholesale electric markets by giving competitors 1 side management etTorts and the cost of capital, the abihty to transmit electricity through utilities' transmission systems. ' Order No. 888 granted nondiscriminatory access to transmission ser. As discussed in Note I to the F.inancial Statements, regulated pubh.c vice. Order No. 889 ensures a fair market by imposing standards of utilities are allowed to record as assets certain costs that would be conduct on transmission system owners, by requiring separation of the expensed by nonregulated enterprises, and to record as liabilities cer. wholesale power supply (" merchant") function from the transmission t-in gains that would be recognized as income by nonregulated enter-7 g g 7 prises, if deregulation or other changes m the regulatory environment sion availability and pricing information on an electronic bulletin occur, NSP may no longer be eligible to apply this accounting treat-board. These new open access rule, became c!Tective in 1996 and ment and may be required to eliminate such rea,ulatory assets and ha-1997. In 1997, the FERC issued clar:fying fiw.I orders in response to talities from its balance sheet. Such changes could have a material rehearing requests by numerous market participants regarding Orders adverse efTc:t on NSPV results of operat. ions in the period the write-oft No. 888 and 889. These FERC clarifying final orders are currently is recorded. At Dec. 31,1997, NSP reported on its balance sheet being appealed in federal court. NSP has made transmission filings i approximately $212 million and $129 million of regulatory assets and FERC and believes it is taking the proper steps to comply with habilities, respectively, that uvuld need to be recognized in the income p statement in the absence of regulation. Included in these regulatory supportive of the FERCi efforts to increase competition. assets are $87 mill.on of conservation expenditures that are anticipated to be substantially recovered by the year 2000 based on accelerated in compliance with FERC Orders No. 888 and 8129, NSP has separated recovery available through resource adjustment cleuses to customer personnel who perform the merchant function, which includes power rates, as discussed pivviously. In addition to a potentiat write ofTof reg-and energy marketing and trading, from personnel who perform the ulatory assets and liabilities, deregulation and competition (as dis-transmissico system operstion fimetion. In 1997. NSP) merch mt func-cussed later) may require recognition of certain " stranded costs" not tion, NSP Energy Marketing, expanded its power trading to focus on recoverable under market pricing. NSP currently is recosering its cosu new market opportunities created by epen transmission access. NSP is in all regulated jurisdictions and does not expect to write off to expense also developing risk management practices to respond to the rapidly cny " stranded ecsts" unless and until market price levels change, or growing electric commodity market. In addition, a significant effort unless cost levels increase above market price levels. was put f:rth in 1997 to enter cunent and all new requests for trans-mission service into the electronic tiulletin board, as directed by FERC Rate F&gs On Dec. 2,1997, the Company filed a natural gas rate Order No. 889 and supported by NSP, case seeking an annual rate increase of approximately $18.5 million for retail customers in Minnesota. An interim rate increase totaling The FERC Order No. S88 requires utilities to offer, among other ser- $13.9 million on an ar nual basis has been approved, subject to refund, vices, Netw.
- Transmission Service (NTS) to qualifying customers.
cirective Feb. I,1998. Under NTS, NV and other qualifying regional utilities share the total annu21C St8 I perating and maintaining the regional transmission net-On Nov.14,1997, the Wisconsin Company filed retail electric and work that NSP uses, net of related network revenues, bnsed on each com-natural gas rate cases for Wisconsin customers requesting that the rate g g, changes become efrective during the second quarter of 1998. The the FERC is used as the cost basis for FERC-regulated utihties in deter. Wisconsin Company is seeking an annual increase m retail electric g g g9 gp , gg rates of approximately $12.7 milhon and an armual decrease m retail received from other participating utilities and commewed sutlement natural gas rates of approximately $1.7 milh.on. - 7 g I
~~D ro r r o e r z ut s t es yo w e r co mp u sey, OB n n e s o r a a n dJ Mu 9 s tfie rB e s l Management's Discuss!on emdAnalysis a be paid by NSP for 1997. Dased on this review and discussion, NSP relief, asking the U.S. Court of Appeals for the District of Columbia concluded that its net NTS com for 1997 were leu than the $27 mil! ion (the Court) to order the DOE to take spent nuclea fuel by Jan. 31, j previously estunated. NSP has recarded a liability for what managerrient 1998, in November 1997, the Court, in a unanimous ruling, reiterated believes is a reasonable estimate of the net NTS costs for 1997. NSP the unconditional oNigation fur the DOE to begin acceptance of spent j expects that its transmission tvifT filing and settlement negotiations will nuclear fuel by Jan. 31,1998. The Court confirmed this obligation g result in lower N1S rosts in 1998. exists under both the statute and the standard contracu however, the Court denied the Companyi request for an order direc ing the DOE to S.ome states have begun to aWow retail customers to chow their elec-g tricity suppber, and many other states are considering retail access g; proposals. NsP helieven tMt retail competition will result in more i.e., damages, may be adequate. Tbc Court also held that the DOE can-innovative services and kmer prices for all consumers if the transition Y
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"E"'"' " j l is managed in a ilmughtful manner. NSP supports fair and equal treat. temporary storage facility as defense to utilities' actions for damages. i rnent for all cotopetitors, recovery of utilities, investments unie under j tsaditional regubtion and a resciution cf property tax issites. NSP in its November 1997 decision, the Court did not discuss the request to L supports a plan that would take two or three years to resolve these escrow payments to the Nuclear Waste Fund. In December 1997, the issues and develop infrastructure, and another two to three years to [)OE petitioned the Court for rehearing. Based on the Couds ruling, phase in customers' choice. In 1997, the Minnesota Public Utilities NSP and other utilities are currently analyzing claims again*t the DOE Commission (MPUC) approved a report by its stafT that identifies for the costs incurred as a result of the DOD failure to meet its statu-issues that must be resolved before retail competition can begin, but tory and contractual obligations. Ilowever, it is still unknown when the did rat approve an action plan or scheAle for its implementation. The DOE actually will begin accepting used fuel. Consequently, the i Minnetota Legislature began studying the issues in 1997 and con-Company continues to rely on interim on-site storage facilities. Also, cluded that anather year of study was necessary before any action the Company is part of a consortium to establish a private facility for could be taken. The Public Service Commission of Wisconsin (PSCW) interim storage of used nuclear fuel, the availability of which is uncer-revised its restructuring plan, delaying the start of retail competition tain at this time. (See Notes 13 and 14 to the Financial Statements for another year to 2002. Tim Michigan Public Service Commission more information.) (MPSC) approved a plan to begin ofTering a choice of suppliers to retaH sechnology Changesfor the l, ear 2000 Like many other companies, customers m selected markets m 1998. That guan wa unsuccessfully NSP expects to incur significant costs to modify or replace ex. ting is challenged by the afTected Michigan utilities, and the courts upbeld the technokigy, meluding computer software, for uninterrupted operation Mm d@ 'WhWWiMs@%% m the year 2000 and beyond. In 1996, NSP's Board of Directors actions regarding restructuring and their impact on NSP cannot be approved funding to address development and remediation efTorts predicted at this time and may be sigW ce related to the year 2000... committee made up of senior management Used Nuclear fuelStorage and Disposalin 1994, NSP received leg-is leading NSP's initiatives to identify year 2000 related issues and islative authorNation from the state of Minnesota for the use of 17 casks remediate business processes as necessary in 1998. Testing of com-for temporary spent-fuel storage at the Companyt Prairie Island nu&ar puter software modifications and other remediated processes is sched-generating facility. Based on assumptions in the original Certificate of uled for 1999. NSP is also working with major suppliers so that NSP Need granted by the MPUC, the Company previously estimated that 17 does not experience business interruptions due to year 2000 issues in casks would allow operation of the Prairie Island 0:ility to continue to the suppliers' business processes. The amount of additional develop-2003. Afkr review of the 1994 legislative authorization, which amends ment and remediation costs necessary after 1997 Sr NSP to prepare for the Certificate of Need, and the ure oflonger fuel cycles, the Company the year 2000 is estimated to be approximately $20 million, expected has determined 17 caslue will allow operation of the facility until 2007. mainly in 1998. In 1997 and 1996, NSP expensed approximately The first nine casks have been authorized b3 the Minnesota $2.3 million and $0.6 million, respectively, for this modification etTort. - Environmental Quality Board (MEQD).The Company had kaaded seven Environmental Matters NSP incurs several types of environmental of the casks as of Dec. 31,1997. As a condition of the authorization, the costs, inchidmg nuclear plant decommissioning, storage and ultimate dis-Minnesota l egislature established several resource cemitments for the posal of used nuclear fuel, disposal of hazardous materials and wastes, Comp any, including wind and biones bencration sources, as well as g g. other requirements. The Compay has taken steps to fulfill these requirements. The h TQD has terminated an alternattve sitmg process, tal awareness and increasing 9 stringent regulation, NSP has been expen-which had been one of the original legislative requirements. g g g Regarding permanent fuel storage, in 1996 the Company and other caused, and may continue to cause, slightly higher operating expenses and utilities were successful in a lawsuit against the U.S. Department of capital expenditures for environmental compliance. In addition to nuclear ' Energy (DOEJ to compel it to fulfill its statutory and contractual oblig-decommissioning and used nuclear fuel disposal expenses (as discussed ations to atore and dispose oi used nuclear fuel as required by the in Note 13 to the Financial Statements), costs charged to NSPh operating 1 Nuclear Waste Policy Act of 1982. In January 1997, the Company, other expenses for emironrnental monitoring and disposul of hazardous materi-utility parties and state parties filed another lawsuit against the DOE, als and wastes were approximately $31 million in 1997, $31 million in requesting authority to wit lCiold payments to the DOE for the perma-1996 and $26 milhon in 1995, and are expected to average approximately nent disposal program. In April 1997, the parties filed for additional $35 million per year for the five-year period 1998-2002. Ilowever, the w
Managernent' Discussion andAnalysis s precise timira and amount of env;mnmental uts, including those Use o/ Der / ratters Through its noriregulated subsidiaries, NSP uses j for site remed stion and disposal of hazardous materials, are currently derivative financial instruments to tuitigate the impact of changes in unknown. In each of the years 1997,1996 and 1995, the Company spent foreign currency exchange rates and natural gas prices, and changes in about $19 million, $ 10 million and $ 13 million, respectively, for capital interest rates on the cost of borrmving. Also, to mitigate the interest rate expenditures on environmental imprtwements at its utility facilities. In risk associated with fixed rate debt in a deciming mterest rate environ-1998, 9e Company expects to meur approximately $ 18 million in capital ment, NSP uses interest rate su ap agreements to convert fixed rate debt expenditures for compliance with environmentai regulations and approxi-to variable rate debt. (See Notes I and 11 to the Financial Statements mately $142 million for the five year period 1998 2002.These capital for further discussion of NSP) financial instruments and derivatives.) expenditure amounts include the costs ofconstructing used nuclear fuel
- "'" "E'
8"' storage casks. (See Notes 13 and i 4 to the Financial Statements for fur-ther discussion of these and other environmemal contingencies that could """'"*' ' '" #9"#" # ##"" "E " I' recorded a nonrecurring charge of $29 million, or 25 cents per share, to write ofTeosts previously deferred as a result of the proposed merger ff' arker NSPi carmngs can be significantly affected by unusual with WEC. Also, as discussed in the Nonregulated Business Results r weather. In 1997, warmer-than-normal weather late in the year section, NRG wrote down a cogeneration project, reducing income decreased earnings over a normal year by an estimated 1I cents per from nonregulated businesses hefore interest and taxes by $9 million, share. In 1996, colder-than-normal weather during the heating season or 8 cents per share. increased earnings oser a normal year by an estimated 16 cents per share. In 1995, unusual weather, mainly a hot summer, increased earn-NSP's earnings for 1995 include two significant unusual or infrequently ings over a normal year by an estimated 21 cents per share.The effect occurring items. As discusacd in the Nonregulated Business Results
- "E"
" E" ** E" " "II" "'* Y of weather is considered part of NSP's ongoing business operations. 26 cents per share, from a power sales contract termitiation set:lement. Impact ofNonregulatedlavestments A significant portion of NSP) Partially ofTsetting this gain was in asset impairment write-down of earnings comes from nonregulated operations, as discussed in the $5 million before taxes, or 4 cents per share, for a nonregulated domestic Results of Operations section. NSP expects to continue investing in entgy project. nonregulated projects, including domestic and international power pro-g g duciion projects through NRG, as described under Future I inancing affect NSP) prices to customers or returns to shareholders. Requirements. The nonregulated projects m which NRG has m. vested c:.rry a higher level of risk than NSP's traditional utility businesses. Current investments in nonregulated projects are subject to competi-Liquidity and CapitalRe"mrces tion operating risks, dependence on certain suppliers and customers, 1997 l'inancing Rgulrrmems NSPh need for capital funds primanly and domestic and foreign environmental and energy regulations. is related to the construction of plant and equipment to meet the needs Nonregulated project investments also may be subject to partnership f electric and gas utility customers and to fund equity commitments or t.nd government actions and foreign government., political, economic ther investments in nonregulated businesses. Total NSP utility capital end currency risks. Future nonregulated projects will be subject to expenditures (including AFC) were $397 million in 1997. Of that development risks, including uncertainties prior to final legal closing, amount, $305 million related to replacements and improvements of in addition to some or all of the previously identified risks. Most of NSP) electric system and nuclear fuel, and $72 million involved con-NRG) current project investments (as listed in Note 10 to the Financial struction of natural gas distribution and transmission facilities. NSP Statements) consist of minority interests, and a substantial portion of c mpanies invested approximately $591 million in 1997 for equity suture investments may take the form of minority interests, which may interests in and loans to nonregulated projects, for the acquisition of limit NRG) financial risk and ability to control the development or existing businesses and for additions to nonregulated property. NRG operation of the projects, in addition, significant expenses may be invested in many energy projects in 1997, including the $149 million incurred for piojects pursued by NRG that do not materialize. The purchase of PGC, and several equity investments, the largest of which aggregate etreet of these factors creates the potential for volatility in the are listed in Note 10 to the Financial Statements. Eloigne invested in ranregulated component of NSP) carnings. Accordingly, the historical affordable housing projects including wholly owned properties and operating results of NSPi nonregulated businesses may not necessarily limited partnership ventures. be indicative of future operating results. f 997 financing Activity During 1997, NSP) sources of capital included Acrounting Changes The Financial Accounting Standards Board inte ally generated funds and external financings, as discussed later. The ~ (FASU) has proposed new accounting standards that would require the allocation of financing requirements between these capital resources is full accrual of nuclear plant decommissioning and certain other site based on the relative cost of each resource, regulatory restrictions and the (xit obligations. Material adjustments to NSP's balance sheet would c nstraints of NSPilong-range capital structure objectives, occur upon implementation of the FASD's proposal, which does not Funds generated internally from operating cash tiows in 1997 remained currently have a scheduled effective date. Ilowever, the c;fects of regu-sufficient to meet working capital needs, debt service, dividend payout m I; tion are expected to minimize or eliminate any impact on operating requirements and nonregulated investment commitments, as well as to } expenses and earnings from this future accounting chauige. (For further fund a significant portion of construction exper.ditures. NSri objective discussion of the expected impact of this change, see Note 13 to the - pretax interest coverage ratio for utility operations is 3.5-5.0. The utility Financial Statements.) pretax interest coverage ratio, excluding AFC, was 3.6 in 1997,4.4 in e J l
Norsnirn Sogses:f'swer merazywinnesota angauoptainvies s x , p a IManagement Jr Discussion knd Anaiysis ) 1 l l 1996 and 4.1 in 1995, which falls within the objective range. Internally other regulatory requirements. NSP currently estimates that its utility g p generated funds from utility operations could have provided financing - capital expenditures will be $441 million in 1998 and $2.1 billion for 1 for more than 100 percent of NSPi utility capital expenditures fo-1997 ' the five-year period 1998 2002. Of the 1998 amount, approximately "and approximately 90 percent of the $1.9 billion in utility capital expen- -. $371 million is scheduled for electric utility facilities and approxi-l ditures incurred for the fiveyear perimi l993-1997.The pretax interest mately $49 million for natural gas facilities, including Viking.. coverage ratio, excluding AFC, for all NSP operations, was 2.8 in 1997 Approval of the $1.25 billion Viking Voyageur project, a proposed ~ 3;7 in 1996 and 3.8 in 1995, The 1997 decline in the coverage ratio is natural gas transmission pipeline, muld increase the total gas expendi-due to the unusual events that adversely affected NSPi carnings in tures approximately $500 million for the five year p tiod 1998-2002, .1997, as discussed previously in the Results of Operations section, and - with yearly expenditures dependent on FERC approval. In addition to : - issuance of new debt by NRG, as cincussed later. ~ . utility capital expenditures, expected financing regulNhiente for the "*lude approximately $606 million to NSP had approximately $260 million in short-term borrowings, includ. "I#"" ing $122 million related to NRG, outstanding as of Dec. 31,1997. Throughout 1997, the Company used short-term borrowings to tem-Through its subsidiaries NSP expects to invest significant amounts in porarily finance a portion of utility capital expenditures and provide for nonregulated projects in the future. Financing requirements for nonreg-4 other cash needs. NRG's line of credit borrowings were used for the ulated project investments will vary depending on the success, timing acquisition of PGC and other corporate purposes. and level ofinvolvement in projects currently under consideration. P ten a cap alm 9 Mnwnh r Mnkgulated pmjecu and In the utility businesses, during 1997 NSP issued $200 million of Property are estimated to be approxNately $310 million m 1998 and 7.875 percent preferred securities through a wholly owned special pur; aPpximaWy M mMm b* hycar W M8 2M2hc. pose subsidiary trust and used the proceeds to redeem two preferred . stock issues and reduce short4erm debt levels. The Company also col-8"* "*'"*"" . lateralized $188 million of outstanding pollution control bonds under ".ble heing projects, la its first mortgage indenture, and Viking issued $14 million oflong-nt t u nu Powndalinmtnwnu in unngulaW pmjecu term debt to finance an expansion project. as disclosed above, NSP continues to evaluate opportunities to enhance - . NSPh 1997 business acquisition, equity investments in nonregulated shareholder returns and achieve long-term fm' ancial objectives through. , projects, and constructSn expenditures were pnmarily financed through investments in projects or acquisitions of existing businesses. These internalty generated funds and the issuance of debt by nonregulated sub- - inver* ents'could cause significant changes to the capital requirement y-sidiaries'. NRO issued $250 million of 7.5 percent unsecured publicly. estimates for ronregulated projects and property. Long-term nonregu-E ' traded Senior Notes in 1997 to support equity requirements for projects lated financing may be required for such investments. currently under way and in development. The Senior Notes were The Company also will have future financing requirements for the assigned ratings of BBB-by S&P and Baa3 by Moody 1s. Pmject financ-p rtim ofmaclear plant decommissioning costs not funded externauy. 1 ing requirements,in ex ess ofequity contributions from investors, were """"**'*"8 I "N" '8" . satisfied with project debt and loans from NSP's nonregulated busii "N"* "" nesses (mainly NRG). Project debt associated with many of NSPh non- " "E" E" "8 ~ regulated investments is not reflected in NSP's balance sheet because. the equity method of accounting is used for such investments. (See Note Fatsre Sommes efhmencing NSF apects to obtain enternal capital.' y 10 to the Financial Statements.) Loans made by NSP to nonregulated.. for future financing requirements by periodically issuing long-term j projects are reflected' separately on the balance sheet as Notes debt, short-term debt, common stock 'and preferred securities as Receivable from Nonregulated Projects. needed to maintain desired capitalization ratios. Over the long term.
- 9" During 1907, the Company issued 5.6 million shares of common stock..
manad at h nonaguled suWary led, hmn mkmaHy gener-Of these # hares,4.9 million were sold to a group of underwriters in sted funds or the issuance of subsidiary debt. Financing requirements SepMer 1997 at an offering price to the public of $49.5625 per - or the nonregulated projects, in excess of equity contributions from share. The net proceeds to the Company of $237 million were used for project investors, are expected to be fulfilled through project or sub. <s ' Bencial C rpm 88 Purposes, including the retirement of $100 million of sidiary debt. In addition, to provide additional capital to NRO, NSP is . first mortgage bonds that matured Oct. I,1997, expenditures for the emidering the public offering of up to 20 percent equity ownership of Company's constr'uction ptogram and the repayment of short-term 82 M gne exPecu to nnana ammximately 'S . borrowings. Of the remaining new shares,0.3 million were issued nla e ng Cent 2 year nwnu m a ' under the Dividend Reinvestment and Stock Purchase Plan (DRSPP). Projects with equity and approximately 40 percent with long-term debt. . 0.2 million overe issued under the Employee Stock Ownership Plan
- "in ss ng exPen8c8 Mt an"knulin* am CKPMed (ESOP) and 0.2 million were issued under the Executive Long-Term to be fm.anced through a combination ofinternally generated funds, gggp long-term debt and common stock. The extent of external financing to Fatsre Financing Requirements Utility financing requirements fc-be required for nuclear decommissioning costs, as discussed above, is 1998 2002 may be affected in varying degrees by numerous factors, unknown at this time.
including load growth, changes in capital expenditure levels, rate changes y C n5t n Pmgram at a mad 8 InanM lu allowed by regulatory agencies, new legislation, market entry orcompet-E I'" ing electric power generators, changes in environmental regulations and w
I a-- i Mdnagementk Discussion andAnaksis I l L irsestors' return expectatious. Financing flexibility is enhanced by short-term financing available in the form of bank loans, letters of credit i providing working capital needs and a high percentage of total capital and suptwrt for commercial paper for utility operations. , requirements from intemal sources, and having the ability to issue long4 ""T*"# ^ '" " E f term securities and obtain short-term credit. NSP expects to ma:ntain adequate access to securities markets in 1998. Access to securities mar-amount of preferred stock that may be issued. Under these prmisions, Lets at a reaaabl *rt is determmed in lar;;e pan by ciedit quality ne the Company could have issued all $500 million ofits remaining autho. rized, but unissued, preferred stock at Dec. 31,1997, and remained in Companyk first mortgage bonds are currently rated AA by Standard &
- "8"*
Puork Corporation, Aa3 by Moodyh investors Service,Inc., AA by DufT - A Phelps, hic., and AA by Fitch investors Service, Inc. Ratings for the The Companyi Articles of tncorporation authorite an additional 85A mil-Wisconsin Companyi first mortgage bonds are generally comparable. lion shaies of common stock in excess of shares issued at Dec. 31,1997. Then ratinEs redect the views of such organizations, awl an explanation In 1996, the Company filed a registration statement with the SEC to pro-of the significance of these ratings may be obtained from each agency. vide for the sale of up to 1.6 million additional shares of new common De Company's and the Wisconsin Company's first mortgage m, den-stock under the Companyi DRSPP and Executive Long-Term incentive i i ^** "E"@ "" " "* W "* tures limit the amount of first mortgage bonds that may be issued. The on the open market fbr its stock-based plans. ('See Note 3 to the l'inancial MPUC anu le PSCW have j.urisdiction over securities issuance. At "8 "P"# Dec.31,1997, with an assumed interest rate of 6.75 percent, the plans to issue new shares for its DRSPP, ESOP and Executive Long-Term Company could have. issued about $2.1 bith.on of additional first mort-gage bonds under its mdenture, and the Wisconvir. Company could Incentive Award Stock plans m. 1998. NSP currently has no plans for any general offerings of common stock in 1998 or 1999. hive issued about $351 million of additional first mortgage bonds . under its indenture. InternaHy generated funds from utility operations are expected to equal "" *'# ' E#*" 'I #"I "' " The Company filed a shelf registration for first mortgage bonds with the SEC in October 1995. Detending on capital market conditions, the i E' sty capital expenditures for the five-year period 1998-2002. Internally i Company expects to issue the remainirg $300 million ofregistered, but unissued, bonds over the next several years to raise additional capital or dMh%hmW@WWW E" """#T" #
- "I redeem outstanding securities.
1998 and the five-year period 19^8-2002, respectively. Because NSP has The Cornpanyi lloard of Directors has approved short-term borrowing generally been reinvesting foreign cash flows in operations outside the levels up to 10 percent of capitalization. The Company has received reg. United States, the equity. 9me from foreign investments is not fully ulatory approval for up to $575 million in short-term borrowing levels available to provide operating cash flows for domestic cash requirements and plans to keep its credh lines at or above its average level of com-such as payment of NSP dividends, domestic capital expenditures and - mercial paper borrowings. Commercial banks presently provide credit domestic debt service.nrough NRG, NSP is establishing a di /erse port-lines of $300 million to the Company and an additional $245 million to folio of foreign energy projects w ith varying levels of cash flows, income i subsidiaries of the Company, including a $175 million unsecured and fbreign taxation to allow maximum flexibility of foreign cash flown revolving bank credit facility available to NRO. NSP credit lines make in the future. l i i
Nsruds sectes Pawar conopssy Minnesota and subsidiaries Conschid:tedStatements ofIncome F Year Ended December 31 j (Thousands of dollars, except per share data) 1997 1996 1995 Utility Operating Revenues Electric 52 218 550 $2127 413 $2142 770 - Gas ' 515 196 526 793 425 814 Total 2 733 746 2 654 206 2 568 584 . Utility Operating Expenses - Fuel for electric generation 309 999 301 201 325 652 286 239. 243 562 247 699, Purrhased and interchange power._ igost o.f gas puri ased and transpgtted,_ , _ 331 296 335 453
- 256 758 h
Othefppefation ,368545 _ 333 010 _ 318 015_ ~A n r nd general - [ ~ [ 2 Conservation and energy management - 70 939 69 784 53 466 _ Depreciation and amortization _ 325880 306 432 290 184 Property and general taxes 227 893 '_ _ 232 824 239 433 ' ' hcome taxes 144 855 161 410 147 148 Total 2 371 990 2 288 162 2 222 705 Utility Operating income 361 756 366 044 345 879 Other income (Expense) 1_2_ 078 _ 18 543 49 611 Income from nonregulated businesses - before_ interest and taxes _6 401 7 595
- 6194_,
Allowance for funds used during constructpn - equity _ Merger costs ~ (29 005) Other utility income (deductions)- net. (2 886) (1 544) 1 481 Income taxes on nonregulated operations and nonoperating items 48 145 14 600 (5 080) Total 34 733 39 194 52 806 income Sofore Financing Costs 396 449 405 233 398 685 Financing Costs interest on utilitt on_g-term debt 101 250 101_177 103 298 l ' Other utility _ interest and amortization '19 063 - 21 950 20 151 _Nonreguleted interest and amortization 34 627 18 834 ,9, 8J9, ' Aliowanu for funds used during construction - debt (10 208) (11 262)- (10 438) 144 732 130 699 122 890 Total interest charges - Distributions on redeemable preferred securities of subsidiary trust 14 437 Total Finan:ing Costs - 159 169 130 699 122 890 Net income 237 320 - 274 539 275 795 Preferred Stock Dividends 11 071 12 245 12 449 Earnings Available for Common Stock 5 226 249 1 262 294 $ 263 346 t' 70 297 '68_5_61 6_7 3_23_ Average Number of Common Shares Outstanding (000}) 70 435 68 679 67 416 Average Number of Common and Potential,ly Dilutive Shares Outstanding (000's) , Earnings Per Average Common Share - Sasic $3.22 _ $3.83 $3.91 L Earnings Per,, Average Com_ mon Share-Assuming Dilution. 53.21 $3.82 $3.91 i [ Common Dividends Declared per Share 52.8'5 $2.745 $2.685 1' r See Notes to Financial Statements on pages 36 to 30 s
-W Consolidated Statnxnts ofCakh Flows Year l'nded December 31 (nousands of dullars) 1997 1996 1995 Cash Flows from Operating Activities: Net income. $ 237 320 $274 539 $275 795 Adjustments to reconcile net income to cash from operating activities: __..pppreciadop and, amortiratjon 358 928_ _ _ _ 33{_60_5 __ 322,296_ Nuclear fuel a,mortigtlon Deferred income taxes 40 015 _ _ 45 774 _ 49 7,78_ (5 902) (30 561) (11 076) ._._ Deferred investment tax credits recognize,d__ ( ( ( ..___1_0_061)___ _ 9 352)_, _ 9117) _.. Apowancy,for funds usedfuring construction - equity (6 401_) _._.Undistrib,uted equity in earnings of unconsolidated affiliates (5 364)_ (7 595) __ 6 _7f_4)_ ( (25 976) . (24 305) Undistributed equity in gain from nonregulated contract terinination (17 565) Write-off of prior year merger costs 25 289 _ Cash provided by (use_d fo_r) changes in certain_ wor _ king capitalitems (see below)_ 36 117 _ _ 58 634)_ (791)_ ( Conservation program expenditures-net of amortization (9 207) _ 2 854)_ _ _ 21 668) ( ( Cash provided by changes in other assets and liabilities 29 051 23 518 17 234 _ Net Cash Provided by Operating Activities 689 785 544 464 573 787 Cash Flows from investing Activities: Capital expenditures: Utility plant additions (including nuclear fuel) (396 605) Additions to nonregulated property (35 928)_ (386 615)_ (386 0_22)_ (25 407) (14 984) _I?.C_reaseJ_@ crease)Jn$ons_t_ructio_n payables 2 563 _ _ _ (3 716) (12 59P)_ Al ywance for funds used durir g construction - equity 6 401 7 595 6 794_ j investment in external decommissioning fund (41 261) (40 497) (33 196) Equity investments, loans and deposits for nonregulated projects (395 495) (299 173) (55 884) Collection of loans made to nonregulated projects 87 128 116 126 1 766 Business acquisitions (159 600) Other investments - net (15 692) (15 873) (998) Net Cash Used for Investing Activities (948 489) (648 000) (495 112) Cash Flows from Financing Activities: Change in short-term debt - net issuances (repayments) (108 023) 152 173 (22 245) . _P_roceeds from issuance of lon_g-term debt - net 299 779 197 824 277 174 Loen to ESOP (15 000) _ Repayment of long-term debt, including reacquisition premiums - (141 685) 48) (195 683) Proceeds from issuance of preferred securities-net 193 315 Proceeds, from issuance of_ common st,ock - net _ _ _ _267 965 _ _41 725 56 1_85, Redemption of preferred stock, including reacquisition premiums (41 278) Dividends paid (207 726) (198 234) (191 367) Net Cash Provided by (Used for) Financing Activities 262 351 125 860 (90 936) Net increase (Decrease) in Cash and Cash [qu;valents 3 647 22 324 (12 261) Cash and Cash Equivalents at Beginning of Period 51 118 28 794 41 055 Cash and Cash Equivalents at End of Period $ 54 765 $ 51118 $ 28 794 Cash Provided by (Used for) Changes in Certain Working Capital itens _._ Customer accounts receivable and u,nbilled util[ty revenues S 47878 $ (41495) $ (66 311) .. yattrials and supplies inventories (8 547)_ _ 9 891) ( _Payables and accrued liabilitie. (excluding construction payables) (7 342) 1 179_ _14 290_ 51 316 Other 4 128 (8 427) (86) Net $ 36117 $ (58 634) $ (791) Supplemental Disclosures of Cash Flow information: Cash paid du ing the year for: Interest (net of amount capitalized) $ 144 062 $121697 $113 705 income taxes (net of refunds rrceived) $ 113 009 $165146 $131452 See Notes to haancial Statements on pages 36 to 90 1 -_x____
I B3IN.erthera. IStates. Po wer compenf,JAlinn. es ote 'and.Su bONtariese c 3} c s t- .i. 1 r, J Consolidated Balance Sheets : i December 31 , _3 _ _ __ V. (Thouiands of dhllars). 1997 1996 ' Q.j O Assets,, Utility Plant. .Electrk -including construction work in progress: 1997 $9_,302Q996 $J3_2,,7,05 $6_964_888 l $,6 766 896] 2 J 1 ~ t 1 o, Gas' 821 119 - 750 449. ~ ~ 335~445~ 343 950 Other s 8 129 957 7 848 786;
- ( p oTotal.
_(3 868 810)_ (3 611 2_44),. . Accumulatedprovision for depreciation jiuclear fuel-including amounts in process: 1997, $23,381; 1996, $6,916 __ 932 335
- 8_92_484_
Ar. cumulated provision for amortization (832 162) (792 146) Net utility plant 4 361 320 4 337 800 = s Current Assets
- 54 745I
$111h ' Cash and cash equivalents - 1 n ' Customer accounts receivable - not of accumulated provisions ' " for uncollectible accountsi 1997, $10,406; 1996, $10,195 ~ 269 455 e 288 330 121 $19 147 366,. _ynbiped_uti@pennues - 55 787 - 5 753 Ngtesy,eceivable i o,_m,nonregfated prpjects t Otherieceivables 80 803 77 571: ' Materials and supplies inventories - at average cost J. Fuel. 56 434 45 013 Other- - 107 254 - '109_425_ ~_ Prepayments and other 55 674 72 647 - Total current assets 801 791 - 797 223 Other Assers _Equ_ityinvestmentsin nonregulatedprojects - 740 734 _ 409 729_ External decommissioning furd and other investments 400 290 302 25_0 3# 122-354_128_,. -Regulatory assets,_ _Nonregulated property-net of accumulated depreciation: 1997, $1_05 526; 1996 $93,320 - 256 726 - 192 790 ~ f 1 _ Notes. receivable from nonregulatedprojects 77 639 75 811-42 600 63 684_ Other long, term, receivables < Long-terrn prepaf_ments._and deferred charges 30 015-57 2_3,7;. Intangible assets - net of accumulated amortization 92 829 - 46 168 Total other assets 1 980 955 1 501 797 l: Total - 57 144 066 ' $6 636 900 - Liabilities and Equity. Capitalisation (See pages 34-35) L Common stockholderv eguity ' b2 371728 $2135_880_ 200 340 _ 2,40 _469_ Preferred stockholders' equity Company obligated mandatorily redeemable preferred securities of subsidiary trust, holding as its sole asset junior subordinated deferrable debentures of the Company 200_000 Long-term debt - 1 878 875 - 1 592 568 Totalcapitalizatior ^ 4 650 943 3 968 917 Current Liabilities _Long-term debt due within one year _ 22,820 119 618_ other long term debt potentially due within one year '141 600, 141 600 260 352 368 367 Short teren debt Taxes accrued 186 3G9 204 348 I6N 34 72 I ~ ITs lnteresticrued - ~ ~ 2 54 778 50 409 jg Dividendspayable c n common and preferred stocks 7 Accrued payroll, vacation and other 89 562 80 995 Total current liabilities - 1 034 018 1 236 400 g i Other Liabilities ? Deferred income taxes, 792 569 804 342 1M L 149 606 perred lnwstrne_n[ tag [ edit _s 305 765 302_6_47_
- Regulatory liabilities ' ~_ __
_PostLetirement and other_ boneilt _ obi,igations 135 612 114 312 ' Other long-term obligations and deferred income 86 650 60 676 ] ' Total other liabilities 1 459 105 1 431 583 j Commitments and Contingent Liebilitiesgo Notes 13 and 14) Total 57 144 066 $6 636 900 j oJ..s j ,See Notes to financialStatements on pages 36 to 30 \\ ' f,.. ( _.
- e.,.-
Crmsolidated Statements of Comm on Stockholders ' Equity Cumulative l Currency Number of Retained shares Held Translation (Dollar amonts in thousands) Shares issued Par Value Premium Earnmgs by ESOP Adjustments Balance at Dec. 31,1994 66 922 144 $167 305 $545 875 $1183191 $ (2 990) $ 3 586 ."9' _.2 7 5195 .. Cumulative preferred stock _ _ __,_,, __, _, _ _ _ _ _ 12 4 50)._ ( Common stock (180 510) _lssuances o,f commory stock - net _, _1_253 790_ _ 3 135 _ _ 53 050, _ _,_ ___, _ _,, _. _ _ _ _ _ _T3x benefit,!_ rom stock optiorg exercised ', (15001 169 Loan to ESOP to purchase shcres 93P8'/*'",t o_f E5_0_P loan *._ Currency translation adjustmo 's_,, _ , _ 7 333 _ _ _ _ _ _,. (1 098) Balance at Dec. 31,1995 64 175 934 $170 440 $599 094 $1266 026 $(10 657) $ 2 488 j _ 274 539 Cumulative preferred stock (12 245) Common stock (187 521) q lssuances of commen stock-net 887 778 2 219 39 256 _Tu benefit,hom stock optigns emcised. _,,,,,_,,,, ____,,,,,._ __,_,_369 (15 000)_ .Lpan_to_ESOP t,o purchase shares *_ _ _ _ _ _ _ _Rjpayment.,0f,E50f,, loan,*._, 6 566_, ___ __ Currency translation adjustments ?O6_ Balance at Dec. 31,199G 69 063 712 $172 659 $638 719 $1340 799 $(19 091) $ 2 7Q "C _ -. _ _. _.. _. _., _.. _.. 237 320_ _ _. _. _, _,. _ _,, ._ Curnulative preferred stock _, _, _ ., 9 923) ( ( .._ Common st_ock,_ _ __ _. _ _ _, _ __ _ _ _ _ _ _ _ _, _, _ _ _ _,_ _. _ _ 2_0_2 17 3), _ _ _ _ _, _, _ _, _ _, _ ..ffemium_on redeemed preferred stock __ _ ___ _ _ __._, _ _.. _ _ _ (1_148).. Jssuan_ces of common stoc_k - net _ 5 55_4 670 _ _ 13 887 _ _ _ 253 999 _ ___, Jf.x benefjt f om stock options exercised 1 009 Repayment of E50P loan
- 8 558 Currency translation adjustments (65 681)
B' lance at Dec. 31,1997 74 618 382 $186 546 $893 727 51 364 875 $(10 533) $(62 887)
- Did not affect N5P cash flows See Notes to financial Statements on pages 36 to w I
~%T13nRUER'Umre s :n w e r Wik a n y, a n a e s e o a a n et afiWi7Fjt a rae s y ~ ~
- ConsolidatedStatements ofCapiwlization ' '
December Ji iThousand.e of dollars) ' 1997 1996 ) Common 5sockholders' Equity
- Comenon stock - authorized 160,000,000 shares of $2.50 par value:
' issued shares; 1997, 74,618,382i 1996, 69,063,712 _ ' $ iSG 546 $ 172 659 Premium on common stock 893 727 638 719 Retained earnings 1 364 875. 1,340 799 T _ Leveraged common stock held by Empicyee Stock Ownership Plan (ESOP)- - shares at cost: 1997, 230,253; 1996,361,313 '(10 533) (19 091)' Currency translation adjustments - net (62887) 2 794 - ? 't-Total common stockholders' equity - 52 371 728 $2135 880 Cumulative Preferred Stock - authorized 7,000,000 shares of $100 par value; . outstanding shares: 1997, 2,000,00 % 1996, 2,400,000 - . Minnesota Company $3.60ieries,275/00 snares ~ 5. 27 500- ~ $ ' 27 500 4.08 series _,150,000 shares s15 000 15 000 e _4.10_ series, 175,000 shares 17 500 __17 500 - s 4.11 series,200,000 shares 20 000-20 000 - ,/ - 4.16 series, 100,000 shares 1,0_000 L .10 000 4.56 series, 150,000 shares, 15 000 - 15 000 - 6.00 series,200,000 shares - l20 000 7.00 series, 200,000 shares 20 000 ll i Variable Rate series A,300,000 shares 30 000 - 30 000 Variable Rate series 8,650,000 shares 65 000 65 000 Total' 200 000 240 000. Premium on preferred stock 340 469 Total preferred stockholders' equity 5 200 340 - $ 240 469 Mandatority Redeemable Preferred Securities of Subsidiary Trust (See note 2) 7 %% series,8.000,000 shares, due Jan. 31,2037 5 200 000 Long Term Debt First Mortgare Sonds - Minnesota Company Series due: Oct.1,1997, 5%% $ - 100 000 3-Feb.1,1999, SM% - $ 200 000 200 000 Dec 1,2000, SM% - 100 000 - 100 000 - Oct.1,2001,7M% - March 1,2002, 7M% 150 000 150 000 . 50 000 - 50 000 Feb.1,2003,7M% 50 000 50 000 April 1,2003,6M% 80 000 80 000 Dec.1,2005,6M% 70 000 70 000 Dec.1,1996 2006,6.65% 18 400 " 19 800** l March 1,2011, Variable Rate 13 700* 13 700* f-July 1,2025,7M% 250 000 250 000 ' April 1,2007,6.80% 60 000* March 1,2019, Variable Rate ~Nb00* Sept.1,2019 Variable Rate 100 060* Total 1 170 000 1 083 500 ' I ass redeemable bonds classified as current (See Note 5) (141 6(0) (13 70T0 j
- 9. 'urrerit maturities (1 500)
(101 400) 't 51026 9J0 $ 968 400 l i I
- Pollution control financing
" Resource recovery financing See Notes to Financial Statements on pages 36 to 30 l 2 4 w 3 -l a. i .__m. ii i mi i iwmI
y"-['y \\ "' } f i- [ ' f 9. : p y : L ". '.. ' r"". 'a Consolidated Statements <fCapitalt:ation j l Thousumts of dollars) Do cember 31 1997 1996 I Long-Term Debt - continued First Mortgage Bonds -Wisconsin Company Series due _Oct h 2003,5,k%_ __ _. _ _ _ _ _ _ _ 5 40_000_ $ 40_000 .. March i,2023,7x% _ ___ __ 110,000. _ 110 000. Dec.1, 2026, 74% 65 000 65 000 Total 5 215 000 5 215 000 Guaranty Agreements-Minnesota Company Series due: ) Feb.1,1997-2,003, 5.41 %_ _ 5 ,5 300* .$,._5500* May 1,1997 2003,5.70% 23 ZIO* 23 750* Feb.1, 2003, 7.40% 3 500* 3 500* Total 32_050 _ _, 32 ]50, j Less current maturities (700) (700) Net 5 31 350 $ 32 050 Other Long-Term Debt City of Becker Pollution Control Revenue Bonds -Series due Dec.1, 2005, 7.25 % 5 9 000* 2000* i .- 000* . _... -. April.1,2007,6. 80%.. -. ~ 60 j March 1,2019, Variable Rate 27 900* Sept.1,2019, Variable Rate 100 000* Anoka County Resource Recovery Bond - Series due - _ Dec._1,199 7 2008, 7.09%, _ _ _ 21 850**__ 23 050** City of La Crosse Resource Recovery Bond - Series due 18 600** 18 600** ..N.. ov. 1, 20. 21, 6 %..... Viking Gas Transmission Company Senior Notes - Series duc j __ _.0c(31, 2,003, 6.65 %, _,_, _ _ _. _ _, _,__ _ __ _, _ _ 23 111_ __._25 244_ Nov. 30, 2011, 7.1 % 5 010 5 370 ..___Sypt. 30, 2012, 7.31 % _... _, _ _ _, _ _ ?3 767_ NRG Energy, Inc. Senior Notes - Series due Feb.1, 2006, 7.625% 125 000 125 000 .. _.... 3.une 15, 2007, 7.5% _, 250 000 _ NRG Energy Center, Inc. (Minneapolis Energy Center) Senior Secured N tes - Series due June 15, 2013, 7.31 % 74 441 76 992 Pacific Generation Company debtdue 2,00 2007,4 7% 9.9% _, _. _ _,33_42,4 _ 0 Various NEO Corporation debt due Oct. 30,2000, 6.9 %-9.4 % 5 610 United Power & Land Notes due ... Magh.3,1, 2000, 7.62 % _ _ _,, _ _ _ _ _ _. _ ._ _ _ _ _,6875 _ 7 708 _ Various Eloigne Company Affordable Housing Project Notes due 1997 2024, 1.0 % 9.9 % 27 223 24 7S5 Employee Stock Ownership Plan Bank Loans due _, _ 1997-2003, Variable Rate._ _ _ _ 1,0 535_, __ 17 571, Miscellaneous 7 385 7 533 ~ 0)' ~ d_as c[rkhehte 5)__ (( k 8b d5 Less current maturities (20 620) (17 518) Net 5 611 259 5 383 305 Unamortised discount on long-term debt - net (5 634) (6 187) Totallong term debt 51 878 875 57 592 568 Total capitalization 54 650 943 53 968 917
- Pollution control financing
" Resource recovery financing See Notes to Financial Statements on pages 36 to.40
7't,Jtdii%TWF%W5IETViiiriF%o m p 3 y, f CAIn n e s o o a ' a u(WinfiTM a rHe s y, '\\ ' i Notes to FinancialStatemenis J o "f I iJ AlkmemvArfunds UsedD edag Construcdna UFO AFC a noncash -] J. Summary of Significant Accounting Policies , System ofAccounts Northern States Power Company, a Minnesota - item, is computed by applyir; a composite petax rate, representing the e ' corporation (the Company), is predominantly a regulated public utility cost of capital used to fin ace utility construction activities, to ,[ ! serving customers in Minnesota; North Dakota and South Dakok qualified' Construction Worl in Progresa (CWIP).The AFC rate was J . Northern States Power Company, a Wisconsin' corporation (the 5.75 percent in 1997,5.5 per ent in 19% ad 6.0 percent in 1995.The - j U' L , Wisconsin Company), a wholly owned subsidiary of the Company, is amount of AFC capitalized.: construction cost in CWlp is credited (a regulsed 'public u,tility serving customers in Wisconsin and, . to otlwr income (for equit capital) and interest charges (for debt
- Michigan. Another wicily owned subsidiary, Viking Gas Transmission capital). AFC amounts capi alized in CWIP are included in rate lee Company'(Vikingl,is a regulated natural gas transmission company for establishing utility sertio ' rates. In addition to construction-related.
that operates a 500-mile interstate natural gas pipelin Consequeistly, - amounts, AFC is also recor. 'ed to tellect returns on cap ~ the Company, the Wisennsin Company and Viking maictain accounting finance conservation program o s records in accordance with either the uniform system of accounts "8 E"'E " """"8"" prescribed by the Federal Energy Regulatory Comadssion (FERC) or by applying the straight line method over the estimated useful lives of those prescribed by state regulatory commissions, whose systems are urious property classes. The Company files with the Minnesota the same in all materal respects. Public Utilities Commission (MPUC) an annual review of remaining Principles of Consollderlon 1he consolidated Enancial statements lives for electric and gas production properties. The most recent .g include all material companies in which the Company holds a contrulhng studies, as apprmed by the MPUC, recommended inmutc.ial changes financial interest, including: the Wisconsin Company; NRG Energy, in annual depreciation accruals for '1997 and 1996. Inc. (NRG) Viking; Energy Masters International, ines (EMI), The Company also submitted in 1997, as required every five years, an formerly Cenerprise, Inc.; and Elo,igne Company (Eloigne). The Company and its subsidiaries collectively are referred to herein as avnagy service life filing f r transmission, distribution and general pmpert es. The filing, as apprmed by the MPUC, decreased depreciation NSP. As discussed in Note 10 NSP has investments in partnerships, appr simately si million from 1996 levels. Deprecbtion provisions, J joint ventures and pmjects for which the equity method nraccounting is applied. Earnings from equity in international investments are au FMntage oW amagg' '"ance of deprectable utility pro F#"I '" E* * " recorded net of foreign income taxes. All significant intercompany 3.64 percent in 1995, transactions and balances have been climinated in consolidation except for intereompany nnd intersegment profits for sales among the Dmommissioning As discussed in Note 13, NSP currently is recording electric and gas utility businesses of the Company, the Wisconsin the future costs of decommissioning the Companyi nuclear genermg L Comp,my and Viking, which are allowed in utility rates. placts through annual depreciation accruals. The provision br the Rewnnes Revenues are recognized based on products and services ymndss n ngc sts as n ca ula us ng abuh es niate appr ach designed to provide for full eyense accrual (with full rate provided to customers each month. Ilecast e utility customer meters
- "I
- I"*"*
"""""*"8* "8 are read and billed on a cycle basis, unbilled revenues (and related estimated operating lives of the Companyi . energy costs) are estimated and recorded for services provided from nuclear plants The Fmancial Accounting Standards Board (FAS13) has - the monthly metenreading dates to month-end. proposed new accounting standards that would require the full accrual The Company % rate scheduks, applicable to substantially all ofits of nuclear piknt decommissioning and certain other site exit obligations utility customers, include cost-of energy and resource adjustment beginning no sooner than 1999. (See Note 13 for more discussion of clauses, under which rates are adjuted to reficet changes in average this pmposed standard.) costs of fuels, purchased energy, purchased gas and, in Mirncsota, Nuclear fuel Erpense The original cost of nuclear fuel is amortized conservation and energy management program costs. As ordered by its ""*'**F" " 87 "F"" "
- '" #'""""*"*".fr m the U."3. Depanment of Ener primary regulator, Wisconsin Company retail rate schedules include a cost-of-evrgy adjustment clause for purchased gas but not for electric emu Mutum fu a and ME fac% &coninnssionbg, as
' fuel and purchased energy. For Wisconsin electric operations where cost-of-energy adjustment clauses are not used, the biennial retad rate review process and an interim fuel cost hearing process provide the Ewironmenant Costs Accruals for environmental costs are recognized 1a opportunity for rate recovery of changes M clectric fuel and purchased when it is probde that a liability has been irarred and the anmit of energy costs in lieu of a cost-of-energy adjustment. the liability can be reasonably estimated Costs are charged to expense if they re ate to the mmediadon o onMons cauw@ past yadons,m - Utility Plant and Retirements Utility plant is stated at original cost. if they are not expected to nutigate or prevent contammation from The cost of adetions to utility plant includes direct labor and materials, futM Peradons. Costs ny Wemd as a mgulatwy asset bawd contracted work, allocable overhead costs and allowance for funds used on expected recovery.m future rates. Where environmental expends.- during construction. The cost of voits of property retired, plus net '"*' I" ' I"#
- ""*E I" ""#' '"0 ** P
""*""'"I removal cost, is *arged to the accumulated provision for depreciation equi ment, the costs may be capitalized and depreciated over the P and amortization. t..aintenance and replacement ofitems determined to be less than units of property are charged to operating expenses. I"'",re service peri ds. Estimated remediation costs are recorded at undiscounted amounts, mdepent.ent of any insurance or rate recovery, { based on prior experience, assessments and current technology. j i i 1 i
htes to FinancialStatements 1 i l Acerued obligations are segularly adjusted as environmental auess-hedging instruments were available, to preserve their U.S. dollar vnlue. ments and estimates are revised, and remediation efrorts proceed. For Gains and losses on these agreements offset the effects of foreign sites wisere NSP has been Asignated as one of sescral potemially currency exchange rate nuctuations on the valuation of the invest-responsible parties, the amount accrued represents NSP's estir ated menta underlying the hedges. HeJging gains and losses, net ofincome share of the cost. NSP intends to treat any future costs incurred related tax cITects, on these apeements were reported with other currency to decommissioning and tastoration ofits nonnuclear power plants and translation adjustments as a separate component of stockholders' substation sites, where operation may extend indennitely, as a capitah/ed equity. While NRG is not currently hedging foreign currency denomi-removal cost ofretirement in utility plant. Depreciation expense levels nated imestments, NRG will hedge such imestmem. when management currently recosered in rates include a provision for an estimate of belieses that preserving the U.S. dollar salue of the investment is appro-removal costs, based on historical experience. priate. NRG is not hedging corrency translation a4ustments related to future operating resuhs. NRG does noi speculate in foreign currencies. L:come Tates Under the liabihty method used by NSP, m.come taxes tre deferred for all temporary differences between pretax financial Where appropriate, NRG also uses interest rate hedging instruments to cnd taxable income and ICween the book and tax bases of assets and protect against ivreases in the cost of borrowing at both the corporate ILbilities, using the tax rates scheduled by law to be in efTect when the and project level. Gains and hmes on interest rate hedging instruments temporary differences reverse. Due to the elTects of regulation, current are deferred and included in the measurement of the unuerlying equity income tas expense is provided for the reversal of some temporary investments when made. differences previously accounted for by the flow through method. Also, regulation has created certain regulatory assets and liabilities Another derivative arrangement is tlw use of natural gas futures contracts related to income taxes, as summarized in Note 9. NSP's policy'8hr by EMI to manage the risk of gas price iluctuations. The cost or benefit income taxes related to international operations is discussed in Note 7. cf natural gas futures contracts is recorded when related sales commit-ments are fulfilled as a component of EMI's nonregniated operating Investment t.4 credits were deferred and are being amortized over the expenses. NSP does not speculate in natural ga4 futures. A final estimated lives of the related property. derivative instrument used by NSP is interest rate swaps that convert fixed-rate debt to variable-rate debt. The cost or benefit of the interest Fonrign Currency Translation The local currencies are generally the functional currency of NSP's foreign operations. Foreign currency rate swap agreements is recorded as a component ofinterest expense, g g; g gpg & nominated assets and liabilities are translated at end-of-period rates balance sheet. of exchange. Income, expense and cash dows are translated at weyhted-average rates of exchange for the period. The resuiting Use offstimates in recording transactions and balances resulting currency translation adjustments are accumulated and reported as a from business operations NSP uses estimates based on the best infor-separate component of stockholders
- equity. During 1997, the effects mation available. Estimates are used for such items as plant depreciable of changes in currency cxchange rates on NR G's international project lives, tax provisions, uncollectible accounts, environmemal costs, investments, mainly in Australia, reduced equity by $66 million.
unbilled revenues and actuarially determined benefit costs. As better Exthange gains and, tosses that result from foreign currency transactions information becomes available, or actual amounis are determinable, (e g., converting cash distributions made in one currency to another) and the recorded estimates are revised Consequently, operating results can derivative arrangements that do oM qualify for hedge accounting be affected by revisions to prior accounting estimates. The depreciable (see Note 11) are included in the resuhs of operations as a component of lives of certain plant assets are reviewed and, if appropriate, revised income from nonregulated busmesses before interest and ines.The each year, as discussed previously. earnings impact of these items was not material to NSP's results for the Cash Equivalents NSP considers investments in certain debt instru-periods presented. ments, primarily commercial paper and money market funda, with an original maturity to NSP cf three months or less at the time of f' Derin *ive Financialinstruments NSP's pah.ey 1s to hedge projected purchase to be cash equivalents. foreign currency denomm.ated cash flow s, where appropriate hedging instruments are available, to preserve their U.S. dollar value. NRG has Regulatory Dcferrals As regulated utilities, the Cor.ipany, the Wisconsin entered into currency hedging transactions through the use of forward Company and Viking account for certain income and cupense items ' foreign currency cwhange agreements with terms ofless than one to under the provisions of Statement of Financial Accountmg Standards three years. Gains and losses on these agreements of1 set the effect of (SFAS) No. 71 - Accounting for the EITects of Regulation. In doing so, foreign currency exchange rate ductuations on NRCi1.mwn and antic-certain costs that would otherwise be charged to expense are deferred as ipated cash flows. Gains on agreements that hedge firm commitments regulatory assets based on expected recovery from customers in feture of cash Dows are deferred and included in the measurement of the rates. Likewise, certain credits that otherwise would be redected as related fi reign currency transaction in the period the transaction occurs, income are deferred as regulatory liabilities based on expected flowback r_nd kisses on these agreements are deferred in the saine nianner unless to customers in future ntes. Management's expected recovery of it is estimated that deferral would lead to recognizing losses in later deferred cosu and expected flow back of deferred credits are generally periods. Gains and losses on agreements that hedge cash flows not based on specific ratemaking decisions or precedent for each item. meeting the criteria of a firm commitment are recorded in the current Regulatory assets and liabilities are amortked consistent with atemaking period as a component of NRG's nonregulated income before interest treatment established by regulators. Note 9 describes the nature and ed taxes. Prn,r to July 1997 NSPh policy was to hedge fbreign currency amounts of these regulatory deferrals. denominated investments as they were made, where appropriate
V58 ;ko%rnjtates Power Company. ~htinnesotaiaadl Su9siWlaries -, &.L..g r?' s ? l Notes to IirsancialStatements. i' l s Iron Asti E*; Wye Compenntlan NSP has several stock-based At Dec. J i,1997, various preferred stock series were callable at prices compensation plana, as described in Note 3. Under the intrinsic-value-per share r.mging from $100.00 to $ 103.75, plus accrued dividends, based method of accounting followed by NSP, no compensation b hy 19% MNdWNesWWMd 1 ' expense is recorded for stock options because there is no difference NSP issued $200 millior in 7.875 percent preferred securities that ( . between the market price and purchase price at the grant date, which mature in 2037, A portio s of the proceeds was used to redeem the I ts the measurement date for determining compensation expense. NSP - .s $6.80 and $7.30 series of preferred stock in February . does, howeWr, record c' mpensation expense for stock that is awarded 1997. Distributiom, paid to pri.f* red security holders are reflected as ) o l to certam employees, but held by NSP until the restrictions lapse or : , 7; g g g the stock ts forfeited. Effective for 1996, the FASB issued a new - interest expense. Distributions paid by the subsidiary trust on the accounting standard, SFAS No.123 - Accounting for Stock-Ilased ' preferred securities are f.manced through interest payments from the Compensation, which provides an optional accounting method for Company on vebentures issued by the Company and held by the compensation from stock option and other stock award programs. NSP subsidiary trust, which are eliminated in NSP's consolidation. The pre-did not elect the new optional accounting method. if the provisions of -
- c d am na a F
e nn ng in M l the optional method had been adopted as of the begianing of 1995, the Distributions and redemption payments are guaranteed by NSP. effect on net income and earnings per share for 1997,1996 and 1995 l would have been immaterial. Development Costs As it pursues projects under development, NRG ' The Company's Articles of Incorporation and l'irst Mortgage j expenses devek>pment costs incurred until a sales agreement or letter Indenture provide for certain restrictions on the payment of cash . ofintent is signed and the project has received capital authorization, dividends on common stock. At Dec. 31,1997, the Company could Additional costs incurred after this point are capitalized as part of have paid, without restrictions, additional cash dividends of more than equity investments in projects. When project operations begin, such $1 billion on common stock. capitalized costs are amortiied on a straight-line basis over the lesser N @iM M ys W W M M q kpM & of the life of the project's related assets or revenue contract period. NSP's E.xecutive Long-Term incentive Award Stock Plan. The awards Other Anets The purchase of various nonregulated entities at a price granted in any calendar year cannot exceed I percent of the number of . exceedmg the underlying fair value of net assets acquired has resulted outstanding shares of NSP common stock at the end of the previous in recorded goodwill of $43 million ($38 million net of accumulated calendar year. When options are exercised, or restricted stock granted, amortization) at Dec. 31,1997. This goodwill and other intangible, the Company may either issue new shares or purchase market shares. l assets acquired are being amortized using the straight-line method Using the treasury stock method of accounting for stock options over periods of three to'30 years. NSP periodically evaluates the unexercised, the weighted aserage number of shares of common stock recovery of goodwill based on an analpis of estimated undiscounted outstanding for the calculation of Earnings Per Share - Assuming < future cash flows. ' Dilution includes any dilutive effects of stock options and other stock Intangible and other assets also include deferred financing costs (net of amortization) of approximately $22 million at Dec. 31,1997. These. Stock options' currently granted may be exercised one year from the financing'cor,ts are being amortized over the remaining maturity date of grant and are exercisable thereaner for up to nine years.The l period of the related debt. options are forfeited if employment ceases before the one-year sesting
- ["'
9" "I '"" T "' ' Rn lassificartons Certain reclassifications have been made to the 1996 wtil either be forfeited, or would need to be esercised within three or and 1995 income statements to conform to 1997 presentation. These - nmn S, pen ng on & cimunwanno W execk pda dan classifications had no efrect on net income or earnings per t. hare. option is the market price of NSP common stock on the date of grant. The plan, in previous years, granted ' ther types of performance o 2 Pr ferred securities The Company has two series of adjustable rate preferred stock. The "I "*E" r
- "'"'E" f'
dividend rates are calculated quarterly and are based on presailing rates E*Y'"#" L of certain taxable government debt securities indices. At Dec. 31,1997
- ! E " "'
- pmgrants, cmnp n ng weigM average the annunlized dividend rates were $5.50 for both series A and series 13.
exercise pnce, were as follows: Stock Opt!on and Performance Awards 1997 1996 1995 Average Average Average (Thousands uf ahores) Shares Price Shares Price Shares Price Outstandmg Jan.1 1 117 $43.97 990 $41.97 782 $40.58 Options granted in January 287 $47.44 263 $50.94 278 $45.50 s Options and awards exercised - (260) $42.23 (105) $41.98 (64) $40.26 Opppns and a;vardspr,feit4,___,,_,_,,__,,_,,, _ Jpk $4?.19_,__,,(2?L _ $47,.70_ _ 6)_ $44_.58 ( Options and awards expired (11) 550.94 (4) $40.00 Outstanding at Dec. 31 1103 545.13 1 117 $43.97 990 $41.97 ExeNisable at Dec. 31 843 544.41 870 $41.96 716 140.60 t !
Notes to financialkrements l l The following table summarises information about stock options necessary to redeem I percent of the highest principal amount of cach outstanding at Dec. 31,1997: series of first mortgage bonds at any time outstanding, excluding those
- '""##"####7
""'"E'"" Range of Exercise Prices $33.25 40.94 $42.19-50.94 excluding certam other series totaling $1 billion. The Company may, Options outstanding: and has, applied property additions in lieu of cash payments on all Weigh' te' -average remaining ~ 170 346 923 517 series, as permitted by its first Mortgage Indenture. The Wisconsin Number outstanding at Dec. 31,1997 ~ Company also may apply property additions in lieu of cash on all d c.ontractual hfe (years). .. 3.1 7.4 senes as pumitted by its First Mortgage Indenture. Weighted-average exercise price _ _, $ 3 7.15 , $46.00 The Companyt 2011 and 2019 series I irst Mortgage llonds have variable Options Exercisable: interest rates, which currently change at sarious periods up to 270 Number exercisable at Dec. 31,1997 170 346 663 156 days, base <l on prevailing rates for certain commercial paper securities Weighted-average exercise price $ 37.15 $46.27 s b Wi h@ m h h mW 4.0 percent and 3.8 percent, respectively, at Dec. 31,1997, The 2011 In addition to stock options, restricted stock is granted based on a dollar value of the award. The market price on the date of grant is used to series bonds are redeemaNe upon seven days notice at the option of determine the number of restricted shares awarded. The stock is held the bondholder. The Company also is potentially liable for repayment of the 2019 series uhen the bonds are tendered, which occurs each by NSp until the restrictions lapse: 50 percent of the stock will vest one year from the date of the award and the remaming 50 percent vests t me the variable interest rates change. The principal amount of all of these variable rate bonds outstanding represents potential short-term two years from the date of the award. Dividends on the shares held obligations and, therefore, is reported under current liabilities on the while the restrictions are in place are reimested to obtaic additional balance sheet. shares, and the restrictions apply to these additional shares. In each of the years 1995 through 1997. NSp ranted restricted stock awards of Maturities and sinking-fund requirements on long term det inn mil-g 13,898,18.584 and 26,344 shares, respectively, at then-current market lions) are: 1998, $22.8; 1999, $217.3; 2000, $122.4; 2P ;t, $167.8; prices of NSp stock. Compensation expense related to these awards and 2002, $76.6. was immatenal.
- 6. Benefit Plans and Other Postratirement Benefits
- 4. Short Term sorrowings NSp olTers the following benefit plans to its benefit employees, of As of Dec. 31,1997 and 1996, the Company had a $300 million whom approximately 40 percent are represented by five kical labor revoh ing credit facility under a commitment fee arrangement. This unions under a collective bargaining agreement, which expires facihty provides short term financing in the form of bank loans, Dec. 31,1999, letters of credit and support for commercial paper sales. There were no borrowings against this facility at Dec. 31,1997 and 1996. At Dec. 31, Prmion Benefirs NSp has a noncontributory, defined benefit pension
'" # * #"N##' 1997 and 1996, credit lines of $245 million and $75 million, respectively, "*N were provided primarily by commercial banks to wholly owned sub-stdiaries of the C,ompany. There were $122 million and approximately for 48 consecutive months and Soetal Security benefits. $4 mill;on in outstanding loans against these subsidiary credit lines at NSP's policy is to fully fund into an external trust the actuarially deter-Dec. 31,1997 and 1996, respectively, in addition. at Dec. 31,1997 mined pension costs recognized for ratemaking and financial report-cnd 1996, $49 million and $21 milhon, respectnely, in letters of credit ing purposes, subject to the limitations under applicable employee were outstanding (as discussed in Note i I), w hich reduced the as ailable benefit and tax laws. plan assets principally consist of common stock credit lines. of public companies, corporate bonds and U.S. government securities. At Dec. 31,1997 and 1996, the Company had $138 million and $362 million, respectively, in short-term commercial paper borrowings (DousanJs of dollars) 1997 1996 outstanding, and another $122 million and $7 million, respectively, in Actuarial Present Value of Benefit Obligation: chort-term bank loans outstanding, mainly for nonregulated _ Vested _ _. _ _ $. 701219_ $ 660 920 subsidiaries. The weighted average interest rates on all short term Nonvested 165 004 147 278 borrowings were 6.2 percent as of Dec. 31,1997, and 5.7 percent as of Accumulated benefit obligation 5 866 223 $ 808198 Dec. 31,1996. .. Projected _ benefit obligation _ $1_048 251_ $ 993 821 Plan assets at fair value 1 978 538 1 634 696 5, Long-Term Debt 9* 2R f(8M Except for minor exclusions, all real and personal property of the Company and the Wisconsin Company is subject to the liens of the First '] q ~(539) Mortgage Indentures. Other debt securities are secured by a lien on the Onrecognized net transisonal asset' ' (463) ' ~ related real or personal property, as indicated on the Consolidated Net pension asset (liability) recorded $ (5 338) $ 8 702 Statements of Capitalization. The annual sinking fund requirements of the Company's and the Wisconsin Company's First Mortgage Indentures are the amounts
l Je0: Northers Sintes pow Companye Minnesora and MGs0Sarres. c INotes to FinancialStarchsents .g For ratemaking purposes, the Company % pension costs are determined Before 1993, NSP funded payments for retiree benefits internally. r ' and recorded under the aggregate-cost actuarial method. As required While NSP generally prefers to continue using internal fundmg of by SFAS Nn. 87 - Employers' Accounting for Pensions, the difference benefits paid and accrued, significant levels of external funding, between the pension costs recorded for ratemaking purposes and the including the use of tax-advantaged trusts, have been tequired by amounts determined under SFAS No. 87 is recorded as a regulatory NSP's regulators, as discussed later. Plan assets held in such trusts L liability on the balance sheet. Net annual periodic pension cost principally consist of investments in equity mutual funds and cash l. I~ . includes the following componentsi equivalents. The funded status of NSP s retirce health care plan as of D##' }i i' ** f li w' (Thousands of dollarsi ~1997 1996 1995 Service cost-benefits earned (Thousonds of dollars) 1997 1996 ._pu@g t@_ period, _,, ~,,, _,,, -$2J,680,_,,,$29,971_$24 499, AP80: Interest cost on projected jRetirees__.___ _ _$149 081_ $144180 _benefi.t obligation 72 651 - 70 863 69 742 Fully chgible plan participants __2124_5_ 23 438_ Other active plan participants 108 904 101 065 Actu,apeturn og assets,,,,,, (420174)J265 37_0) (344 837)~ Total AP80 279 230 . 268 683 Net amortization and deferral 285 048 139 874 _ 240 458 ~ An~assEsAfaEv'aiue 1US4 55 5 [ Pf Net periodk penMon cost - _1,0_13_8) APBO in excess of, plan _ assets __. 259 446L 2531_69_ _ determined under SFA5 No. 87]34 795) ( _ 24,,662) ( Additional costs recognized _U,nrecognized,n,et actuarial loss __ _ _(14 408) (12 46,7), due to actions of regulators 30862 23 572 - 10 454 Unrecognized transition obligation (161 700) (172 480) Not periodic pension cost Net benefit liability recorded $ 83 338 $ 68 222 recognised for thsandal reporting $ (3 933) $ (1090) $ 316 He assumed health care cost trend rates used in measuring the APHO The weighted average discount rate used in determining the nctuarial ' at Dec. 31,1P97 and 1996, were 9.2 percent and 9.8 percent for those present value of the projected obligation was 7 percent for Dec. 31,1997, under age 65, and 6.8 percent and 7.1 percent for those age 65 and and 7.5 percent for Dec. 31,1996. ne rate ofincrease in future compen-over, respectively. The assumed cost trend rates are expected to sation levels used in determining the actuarial present value of the decrease each year until they reach 5.5 percent for both age groups in projected obligation was 5 percent in 1997 and 1996. The assumed long-the year 2004, atier which they are assumed to remain constant. term rate of return on assets used for cost determinations under SFAS ' A 1 percent increase in the assumed health care cost trend rate for each . No. 87 was 9 percent for 1997,1996 and 1995. Assumption changes year would increase the APDO by approximately 14.5 percent as'of decreased 1997 pension costs (determined under SFAS No. 87) by Dec. 31,1997 Tervice and interest cost components of the net approximately $6.9 million and increased 1996 costs by approximately periodic postre mment cost would increase by approximately 15.4 pen:ent $12.6 million. Ilowever, because the Company's pension expense is with a simihr a percent increase in the assumed health care cost trend - determined under the aggregate-cost method (not SFAS No. 87) for rate.The as aumed discount rate used in determining the APBO was ratemaking and financial reporting purposes, the effects of regulation 7 percent for Dec. 31,1997, and 7.5 percent for Dec. 31,1996, compounded an. ually. The assumed long-term rate of return on assets prevented the majonty of assumption changes from affecting carnings. used f r cost deten nat ns under SFAS No.106 was 8 percent for 401(A) NSP has a contributory, defined contribution Retirement 1997,1996 and 1995. Asumption changes decreased costs by approx-Savings Plan, which complies with sectioi401(k) of the Internal imately $4.0 million in 1997 and approximately $2.0 million in 1996. Revenue Code and covers substantially all employees. Since 1994, NSP has been matching specified amounts' of empkryce contributions The net annual periodic postretirement benefit cost recordcd consists to this platt. NSP) matching contributions we $4.4 million in 1997, of the following components: $4.3 million in 1996 and $3.7 million in 1995. (Thousands of dollars) 1997 1996 1995 Pustrer/renrent licolth Care NSP has a contributory health and service cost-benefits i welfare benefit plan that provides health care and death benefits to _ earned du_ ring the year $ 5 095 $ 6 380 $ 5 206 l substantially all employees afier their retirement. The plan is intended Interest cost (on service cost and AP80) 18 872 19 283 19 201 to provide for sharing the costs of retiree heahh care between NSP and Actual return on assets (1 461) (947) (1 046) ' retirees. For employees retiring aller Jan. I,1994, a six-year cost-sharing strategy was implemented with retirees paying 15 percent of the total . Amortization of transition obligation 10 780 10 780 10 780 Net amortization and deferral 222 140 406 cost of health care in 1994, increasing to a total of 40 percent in 1999. in conjunction with the 1993 adoption of SFAS No.106 F.mployers, Net periodic postretirement 0 health care cost under SFA5 No.106 33 508 35 636 134 547 Accounting for Postretirement Benefits Other Than Pensions, NSP Additional costs recognized due to - elected to amortize on a straight-line basis over 20 years the unrecog-actions of regulators 4 033 4 033 - nized accumulated postretirement benefit obligation (APBO) of No Pos e c $215.6 million for current and future retirees. f0r ncial res orting $33 508 $39 669 $38 580
41 i s s e Notes to FinancialStatements 4 Regulators for nearly all of NSPi retail and wholesale customers paid on certain shares held by the ESOP. Contributions to the ESOP in j have allowed full recovery ofincreased benefit costs under SFAS No. 1997,1996 and 1995, which represent compensation expense, were 106, elTective in 1993. Increased 1993 accrual costs of npproximately $4.4 milhon,54.6 million and $5.0 milhon, respectively. ESOP contri- $12 million for Minnesota retail customers were amortized over the butions have no material elfect on NSP earnings because the contribu-years 1994 through 1996, consistent with approved rate recovery. tions (net of tax) are essentially offset by the tax savirgs provided by External funding was required by Minnesota and Wisconsin retail reg-the dividends paid on ESOP shares. Leveraged shares held by the l ulators to the extent it is tax advantaged, funding began for Wisconsin ESOP are allocated to participants when dividends on stock held by 1 in 1993 and w 31 begin in 1998 for Minnesota. For wholesale ratenuaing, the plan are used to repay ESOP loans. NSPi ESOP held 5.6 million the ERC has required external funding for all benefits paid and and 5.9 million shares of the Company % common stock as of Dec. 31, accrued under SFAS No.106 since 1993. 1997 and 1996, respectively. An average of 0.3 million,0.2 million
- *"8' ES9P NSP hns a leveraged Employee Stock Ownership Plan (ESOP) from earningeper-share calculations in 1997,1996 and 1995, respec-that covers substanually all employees. Emphyer contributions to th.is tnely. The fair value of NSPileveraged ESOP shares was approxi-noncontributory, def.med contribution plan are generally made to the mately the same as cost at Dec. 31,1997 and 1996.
extent NSP realizes a tax savings on its income statement from dividends
- 7. Income Tames
. Total income tax expense from operations ditTers from the amount computed by applying the statutory federal income tax rate to income before income tax expense. The reasons for the ditTerence are as follows: 1997 1996 1995 Federal statutory rate 35.0%_ __ 35.0%__ 35.0 % increases (decreases)in tax from: State income taxes, net of federalincome tax benefit 4.3% 5.2% 5.1% Tax credits recognized (7.9)% (4.1)% (3.4)% __. 2.6)%__ _(2.5)% _ ( Equity income from unconsolidated affiliates __ _ 2_.5)%, ( 3.eg(atory differences util!ty plant items __1.1 %.__ 0.9 %_ _ _ 1.0% _ Other - net (1.0)% 0.4% 0.4% Effective income tax rate 29.0 % 34.8 % 35.6 % (Thousands of dollars) income taxes are comprised of the following expense (benefit) items: Included in utility operating expenses: Current federal tax expense. _ _ _ $125 202_ _ __ $154 421_. _ $137 011_ Current state tax expense 33 359 _Def_ rred_ federal tax expe_nse_ _ _ _ _. _ _ _ _28 812_ _ 39 923, (12 019) _ -.Aferred state tax expense __, (88)_, __ _ 3 958)_ _ 2 396) _.19_933) ( e (23) ( ( Deferred investment tax credits _(9 048) (9 043) (8 807) Total 144 855 161 410 147 148 included in income taxes on nonregulated operations and nonoperating items: Current federal tax expense (19 470) (906) 5 481 Current state tax expense (5 804) 712 1 629 Current foreign tax expense 236 616 233 Current federa! tax credits (17 006) (8 044) (5 292) Deferred federal tax expense (? 237) (5 150) 2 646 Deferred state tax expense (662) (1 520) 693 De erred foreign tax expense (2 892) _ ,, _ _(308) _ _ _ _ _ Deferred investment tax credits (310) (310) Total (48 145) (14 600) 5 080 Total income tax expet.5 5 96 710 $146 810 $152 228 income before income taxes includes net foreign equity income of not been provided on a cumulative amount of unremitted earnings of $27 million, $28 million and 532 million in 1997,1996 and 1995, foreign subsidiaries of approximately 5112 million at Dec. 31,1997. respectively. Except to the extent NSP s camings from foreign operations The additional U.S. income tax and foreign withholding tax on the r.re subject to current U.S. income taxes, NSP s management intends unremitted foreign carnings, if repatriated, would be oliset in whole or to reinvest. indefinitely such earnings in its foreign operations. in part by foreign tax credits Thus, it is impracticable to estimate the Accordingly, U.S. income taxes and foreign withholding taxes have amount of tax that might be payable. I I L.
> : dii^r'DfETLQ.112 f e s To w & r 150 m p nny, QR]rin c s o I a a n 5f%iuVil?dia rGe s i l ~ .o ' Notes to handalStatements l. I l L The components of NSP) net deferred tax liability (current and non-
- 9. Regulatory Assets and Liabilities current portions) at Dec. 31 were:
The following summarizes the individual components of unamortized E *W**"*" I (Thousands of dollars: 1997 1996 at h R Deferred Tax Uabilities: i Difference between book and Remaining Amortizat o ._ tax bases o_f property ___ $_8,67,1,55_$_850_1_39_ _ Regulatory assets _ __ _100 564__121_232 Ta benefit transfer leases on a net-of-tax basis
- Plant Uves $128 364 $137 412 Conservation and energy Primarily Total deferred tax liabilities
$1021048 - $1038 034 Deferred Tax Assets: ~ "'T Regulatory liabilities 5 83 765 "$ '90 485~ *'Y Deferred compens' tion,Ea'catior$ ~ ~ ~ - "'9'#b# f nian 0 WaL SM J2 322 a }"" and other accrued liabilities ate commh " not currently deductible 70 765 65 690 "WP9 *$"'**I""I - 2'"* "*- 86 J2% -.de'ferre.dInvestmin.i.tA__ credits _ ____54 741 .57 239, ~ Unrecovered purchased 3 g ga 8M Total deferred tax assets 5 235 828 $ 247 923 Net deferred tax liability 5 785 220 $ 790111 Total regulatory assets $140122 $354128 Defegyncome tax,, adjustments _ _5 88_0_35 $ 9_2 3_90,
- 8. Detail of Certain income and Eaponse items investment tax credit deferrals
. ' 91 146 97 636 Administrative and general (A&G) expense for Ltility operations Unrealized gains from consists of the following: decommissioning investments 85 482 43 008 Pension costs - regulatory differences 27 107 45 080 tThowsands of dollars) 1997 1996 1995 Ju~e~lidt's, reiu5fs And otiie~r~' ' ~ U99 i4 533" A&G sajaries.and wages _ _,_ 5 44 514 $_47_546_$ 48 437 Total regulatory liabilities $305 765 $302 647 Pension, medical and other i.bepefits,a(utilityemployee(,,, 57 529 _ 64 733, _ 81 279_
- Earns a return on investment in the ratemaking process information technology facilities 10.' Investments A' counted for by the Equity Method
.._ and administrative support __28_653 _ 21281_ 31. 863_ c . !nsurance ap,d claims _1 007 _,5 503 _ __13 9 9 Through its nonregulated subsidiaries, NSP has investments in various Other 10 019 9593 10 599 international and domestic energy projects and domestic affordable Total 5141 802 $148 656 $186147 housing and real estate projects. The equny method of accounting is applied to such investmenu in afliliates, which includej#nt ventures and Income from nonregulated businesses consists of the following: partnerships,becat ' vrship structure prevents NSP from exer-gym,j,,f jg,, cising a controlling in merating and financial policies of the . esrept per share amounts) 1997 1996 1995 projects. Under this aethoi 'n the pretax income or losses of AP*!agng geven_ues_,,_ $217 844_$303 903 j313 082, domestic partrierships and in th act mcome or losses ofinternational Equity in earnings of projects is reflected as Equity in Earnings of Unconsolidated Affiliates. A unconsolidated affiliates: hummary of NSPb significant equity-method investments is as folkms: _ Earnings from operations __18_600_30 668_28 055_ Gains from contract terminations 29 850 Geographic Economic Name Area Interest Operating and Interest and other income 26 721 10 304 6 518, .M899 E"E.*-. _ -. - 3ustraha_, ___2}3pe,
- development _ expenses
- _ _ 251_087) 326 332) 0 27 894)
( faciHyypneration Co_mpany_ US.A/ Canada _8.50428.70%. Income from nonregulated businesses Gladstong,Pgw,er 5tation __ Aus.tralia _,37.50% before interest and taxes 12 078 18 543 49 611 . COBE_( _ _,__ __,,,_ -_ South Arnerica__48.30%_ mortization expense k627)_1_8 834U9]8E9{ y8 RAG, mb4,_$5pn_c._,,_ _, ( ~ ,_, _ _,,_,_,, _ E urope_ _ 33.33 % MG,pwr_apng ,.___,ge,_,,_,321 %,, income tax benefit (expense) 38 032 16 576 (6 119) Schhppau_ Power _Statio.,__ _ Europe _ _ 20.55 %. n Net income 5 15 483 $ 16 285 $ 33 613 Contribution of nonregulated Energy Development, Umited* Australia 19.97 % businesses to NSP's Scudder Latin American Trust f' earnings per share
- 0.22 $
0.24 $ 0.50 for Independent Power Energy Projects Latin Ameria 25% (
- Includes nonrecurring project write-downs of $9 milhon in 1997 larious independent power and $5 million in 1995 production facilities
- USA 45450%
Various affordable housing limited partnerships
- USA 20 %
_ _. _ _ ~. _ _ _. _ _ _.. _ _ _._ 99%
- Acquired in 1997
....... - e. 1: ...,,, +. s; w Notes 10 Financial Statements ' Summerhed financiallnformotion ref UnconwliduudAf]Iliates $8 6 million to hedge projected construction expenditurei.. which do not Summarised financialinformanon for these projects, including qualify for hedge accounting and consequently result in currency fluctua-interests owned by NSP and other parties, was as follows for the tions that can afTect camings.The effect on 1997 earnings from these con-I years ended and as of Dec. 31: tracts was immaterial. The forurd foreign currency exchange contracts Results of Operations terminate in 1998. If all of the contracts had been terminated at De. 31, lAlillsons of dollarx) 1997 1996 1995 I997* $1.0 million would hase been payable by NRG for currev:y j Operating Revenues ~ $1698 $ 958 ^$ 790 exchange rate changes to date. Management beliews NRG s exposure tt Operating income ' $ 93 " $ 105 $ 154 credit risk due to nonperfonnance by the counterparties to its forward N5P's EqbtylrI Earnings o'f ~ ' ' '$'~84 [ 89 ~'$ 160 ~ exchanFe contracts is not signineant, based on the imestrnent grade mting Net irwome of the counterparties.
- Unconsolid.a.ted Affiliates __ $_ _19_
$ 31. $_ 59 NRG also has two agreements in place, with a notional amount of $80 million, to fix the interest rate at a rate based on U.S. Treasury Financial Position obligations for known future borrowings related to project imestment iAls/Ilons of dollarsi 1991 1996
- E "#
'Otber Asset's' ~ $ 742 $ 681 Current Assets 7 il53 3 52 i 1997, $4.2 million w uld have been payable by NRG based on the Total Assets 58 595 $4 206 underlying U.S. Treasury interest rate on that date. 1 Current Liabihties 5 514 $ 397 Other Liabihties 6 109 2 798 EMI has entered into natural gas futuivs contracts m the notional ammmt of $23 million at Dec. 31,1997. The original contract terms range from Equity i 972 1 011 one month to two years. The contracts are intended to mitigate risk fmm Total Liabilities and Equity 18 595 54 206 Ouctuations in the price of natural gas that will be required to satisfy NSP's Equity investment & commitments for future delivetics to customers in escess of EMIi in Unconsolidated Affiliates $ 741 $ 410 natural gas reserves. EMl's futures contracts hedge $24 million in antici-pated natural gas sales in 19981999. Margin balances of $3 million at
- 11. Financial Instruments Dec. 31,1997, w ere maintained on deposit with brokers and recorded as Fair lhlmen The estimated Dec. 31 fair 5alues of NSP*s recorded cash and cash equivalents on NSP's balance sheet. The counterparties to financial instruments are as follows:
die futures enntracts are the New hk Mercantile Exchange, imestmem banks and major gas pipeline operators. Management beheses that the rihansands nidollarsh 1997 1996 z
- g g
Carrying Fair Carrying Fair contracts had been terminated at Dec. 31,1997,50.7 million would have Amount Value Amourrt Value been payable by EMI for natural gas price ductuations to date. and short. term NSP has two interest rate swap agreements with notional amounts investments 54 765 $ 54 765, $, 51118 $ 51 118 totaling $220 million. These swaps were entered into in conjunction Long-term with first mortgage bonds. As summarized below, these agreements decommissionin9 effectively convert the interest costs of these debt issues from fixed to investments $ 344 491 $. 344_491 $ 260 756 $ 260 756 variable rates based on the six-month London Interbank OfTered Rate Long-term debt, (LIBOR), with the rates changing semiannually, including , _ current portion $2 043 295 $2 079123 $1853 786 $1838 408 Notional Amount Term of f4et Effective ( tlillion i Swap interest Cost at Series n/ dollars; Agreement Dec. 31,1997 For cash, cash equivalents and short-term imestments, the carrying 5x% 5eries due amount approximates fair value because of the short maturity of those _ Feb.1,1999 _ _ _$200, Maturity _ _ _. 5.49% instruments. The fair values of the Company's long-term investments, 7X% 5eries due mainly debt securities 'in an external nuclear decommissioning fund, _ March 1,2023, _ .$ 20 March 1,1998 7.96 % are estimated based on quoted market prices for those or similar investments. The fair value of NSPi long-term debt is estimated based Market risks associated with these agreements result from short-term ca the quoted market prices for the same or simdar issues, or the current interest rate Quetuations. Credit risk related to nonperformance of the rates for debt of the same remaining maturities and credit quality, counterparties is not deemed significant, but would result in NSP terminating the swap transaction and recognizing a gain or loss, Derlmlirrs NRG has entered into forward foreign currency exchange depending on the fair market value of the swap.The interest rate swaps contracts with counterparties to hedge certain exposures to currency serve to hedge the market risk associated with fixed rate debt in a ductuations. Pursuant to these contraus, transactions have been executed declining interest tr.te environment. This hedge is produced by the that are designed to protect the economic value in U.S. dollars of selected tendency for changes in the fair market value of the swap to be olTset known and anticipated NRG cash fkws denominated in Australian dollars by changes in the present value of the liability attributable to the fixed and German deutsd e marks. As of Dec. 31,1997. NRG had in place con-rate debt issued in conjt netion with the interest rate swaps. If the interest tracts with a notional value of $10 million to hedge foreign currency rate swaps had been discontinued on Dec. 31,1997, $0h million wuuld denominated kramn future cash flows. In addition, NRG has in place for-hve been payable by the Company, while the present value of the word foreign currency exchange contr. cts with a net notitmal value of related fixed rate debt was 50.6 million below carrying value.
[JiUIDerlDthlesR Hr Momp.ay[Rdxnesosa eQMMODawdMMo - L [ Notes to FinancialStatements 1 i Lettrra of Crrdit NSP uses letters of credit to provide financial NSP and other utilities are curremly analyzing claims against the DOE guarantees for certain operating obligations, including NSP workers' for the costs incurred as a result of the DOE's failure to meet its statu. compensation benefits and ash disposal site costs, and EMI natural gas tory and contractual obligations. With the dry cask storage facilities purchases, generally with terms of one year which are automatically approved in 1994 for the Prairic Island nuclear generating plant, the renewed, unless prior written notice of cancellation is provided to NSP Company believes it has adequate storage capacity to continue opera-and the beneficiary by the issuing bank. In ad6htion, NRG uses letters of tion of its Prairic Island nuclear plant until at least 2007. The credit for nonregulated equity commitments, as collateral for credit agree-Monticello nuclear plant has storage capacity to continue operations ments, for fuel purchase and operating commitments and bids on devel-until 2010. Storage availability to permit operation beyond these dates opment projects. At Dec. 31.1997, letters of credit of 5101 million were is not assured at this time. In the meantime, NSP is investigating all of outstanding, of which 548 million related to NRO conunitments. The con-its alternativea for used fuel storage until a DOE facility is available, ' tract amounts of these letters ofcredit approximate their fair ' ahie and are including pursWng the establishment of a prime facility for interim v subject to fees competitively determined in the marketplace. storage of used nuclear fuel as part of a consortium of electric utilities. If on-site temporary storage at NSPi nuclear plants reaches approved i
- 12. Joint Plant Ownership capacity, the Company could seek interim storage at this or another The Company is a part owner of an 855-megawatt coal-fired electric gen-contracted private facility, if available, crating unit, Sherburne Coumy generating station unit No. 3 (Sherco 3),
Nuclear fuel expenses in 1997,1996 anJ 1995 !nchade about $4 million, which began commercial operation Nov.1,1987. Undisided interests in 54 million and $5 million, respectively, for payments to the DOE for Sherco 3 have been financed and are owned by the Company the decommissioning and decontamination of the DOE's uranium (59 percent) and Southern Minnesota Mumcipal Pow ler Agency enrichment facilities. The DOE's initial assessment of $46 million to (41 percent). The Company ts the operating agent under thejoint ouer-the Company was recorded in 1993. This assessment will be payable in ship agreetnent. The Companyi share of related expenses for Sherco 3 annual installments from 1993-2008 and each installment is being since commercial operations began are included in Utility Operating gg g Expenses.The Companyi share of the gross cost recorded in Utility Plant at Dec. 31,1997 and 1996, was 5603.9 million and $588.0 million, respec-7"" "#"""".*"'.E" future mstallments are subject to mflation adjustments under DOE
- E"" "8 "##"*" "'#N"
- E*#'"#"
- rules. The Company is obtaining rate recovery of these DOE assess-
$196 2 million and $168.6 million. ments through the cost-of energy adjustment clause as the assessments
- 13. Nuclear Obligations
- " W#"# " * " '#8 "'"'"I Fuel D/sposal NSP is responsible for the temporary storage of used reported under the caption Environmental Costs m Note 9.
nuclear fuel from the C,ompanyi nuclear generating plants. Under a etntract with the Company, the DOE is obligated to assume the Plant Decommluloning Decommissioning of all Company nuclear respensibility for permanent storage or disposal f NSP's used nuclear facilities is planned for the years 2010-2022, using the prompt fuel.The Company has been funding its portion of the DOE's perma-dismantlement method. The Company currently is following industry nent disposal program since 1981. Funding took place through an practice by ratably accruing the costs for decommissioning over the I internal sinking fund until 1983, when the DOE began assessing fuel approsed cost recovery period and including the accruals in j disposal fees under the Nuclear Waste Policy Act of 1982 based on a Utility Plant - Accumulated Depreciation, as discussed in Note 1. l charge of 0.1 cent per kilowatt-hour sold to customers from nuclear Consequently, the total decommissioning cost obligation and corre-generation. Fuel expense includes DOE fuel disposal assessments of sponding asset currently are not rscorded in NSP's financial 510.1 million, $11.3 million and $12.3 million in 1997,1996 and statements. The FASD has proposed new accounting standards, which, 1995, respectively. The cumulative amount of such assessments paid if approved, would require the full accrual of nuclear plant decommis-by NSP to the DOE through Dec. 31, 1997, was approximately sioning and certain other site exit obligations no aooner than 1999. 5250 million. Currently, it is not determinable if the amount and Using Dec. 31,1997, estimates, NSP's adoption of the proposed method of the DOEi assessments to all utilities will be sutTicient to accounting would result in the recoading of the total discounted decom-fully fund the DOEi permanent storage or disposal facihty. missioning obligation of $648 million as a liability, with the corre. "8 #" * "" " The Nuclear Waste Policy Act stipulated that the DOE crecute contracts
- ##'* "8 8"
with utilities that require DOE to begin accepting spent nuclear fuel E"E"#
- I "8
no later than Jan. 31,1998. Accotdingly, NSP has been providing.
- " I
""8"*"" with regulatory and legislative approval, its own temporary on-site storage facilities at its Monticello and Prairie Island nuclear plants. In 8 yemed in raws, as hssed lainA Gnmany has not yet c
- """ "Y"#
E"
- ""8#' '" #
December 1996, the DOE notified commercial spent fuel owners of "#* "" "E 8' " " * " "8 an anticipated delay in accepting used nuclear fuel by the required i u um enua u n* mn n ng aM date of Jan. 31,1998, and conceded that a permanent storage or disposal facility will not be available until at least 2010. accordingly, the cfTects of regulation are expected to minimize or elim-The Company and other affected parties have commenced lawsuits inate any impact on operatiag expenses and results of operations from against the DOE to require the DOE to meet its statutory and contrac-this future accounting change. tual obligations, which can include damages for nonperformance. ) 1
m Notes to FinancialStatements I Consistent with cost recovery in utility customer rates, the Company Decommissioning expenses recognized include the following records anmaal decommissioning accruals based on periodie site-specific components: cost studies and a presumed level of dedicated fundinF. Cost studies Thousands of douars) 1997 1996 1995 quantify decommissioning costs in current dollars. Since the costs am Annual decommissioning cost ucrual expected to be paid in 2010-2022, funding presumes that current costs reported as depreciation expeise: will escalate in the future at a rate of 4.5 percent per year. The total Externally funded $33178 $33178 $33178 estimated decommissioning costs that will ultimately be paid, net of ~internady Unded~ ' income earned by external trust funds,is currently being accrued (including irf.orest a.4 1 368 1 268 using an annuity approach over the approved plant ecovery period. SteresUost on'externaby fu'rde5" ~ ' 1 174 ~ ~ ~ This annuity approach uses an assumed rate of return on funding, _ decommissioning obligation 7 690 5 246 5 966 which is currently 6 percent (net of tax) for external funding and Earnings from extertiaitn3sIUn5I(7 690) (6 294) (5620i ^ ~ approximately 8 percent (net of tax) for internal funding. Net decommissioning acuuals recorded $34 546 $33 398 134 698 The total obligation for decommissioning currently is expected to be funded approximately 82 percent by external funds and 18 percent by ."E
- internal funds, as approved by the MPUC. Rate recovery ofinternal funding began in 1971 through depreciation rates for removal expense, E'
- E'"
and was changed to a sinking fund recovery in 1981. Contributions to I " "*** *E""# the external fund started in 1990 and are expected to continue until plant decommissioning begins. Costs not funded by external trust The MPUC last approved a nuclear decommissioning study and assets, including accumulated earnings, will be funded through inter. related nuclear plant depreciation capital recovery request in April nally generated funds and issuance of Company debt or stock. The 1997, using cost data from the 1993 study. Although management assets held in trusts as of Dec. 31,1997, primarily consisted ofinvest-expects to operate the Prairie Island units through the end of each unith ments in fixed income securities, such as tax-exempt municipal bonda licensed life, the approved capkal recovery would allow for the plant and U.S. government securities, which mature in two to 26 years, and to be fully depreciated, includmg the accrual and recovery of decom. common stock of public companies. The Company plans to reinvest missioning costs, in 2008, about six years earlier than the end of each matured securities until decomrnissioning commences, unit's licensed life. The approved recovery period for prairie Island has " I *8' "8 " At Dec. 31,1997, the Company has recorded and recovered in rates as hu@sushMompany Wes fuWxonun. "'8#' - ng cumulative decommissioning accruals of $465 millitx.. The following
- "'I**""*'
table summarizes the funded status of the Company's decommission-ing obligation at Dec. 31,1997:
- 14. Commitments and Cor.tingent Llabilities (Thousands of donard 1997 Capital Commitments NSP estimates utility capital expenditures, Estimated decommissioning cost obligation including acquisitions of nuclear fuel, will be $441 million in 1998 frgn most recent appr_oved study (1993 dollars)_ _ _$ 750 824 and $2. I billion for 1998-2002. There also are contractual comtnit-Effect of escalating costs to 1997 dollars ments for the disposal of used nuclear fuel. (See Note 13.)
(at 4.5% per year) 144 548 Estimated decommissioning cost obligation As of Dec. 31,1997, NRG is contractually committed to additional in current dollars 895 372 equity investments of approximately $35 million in 1998 and approxi-Effect of escalating costs to payment mately $172 million for 1998 2002 for various international power date (at 4.5% per year) 949 413 generation projects. In addition, in 1996, NRG executed an agreement _ Estimated future decomnpssioning costs (undiscounted)1_ 844 785_ whereby NRG is obligated to progide to NRG Generating (U.S.) Inc. Effect of discounting obligation (using risk-free (NRCG), an unconsolidated affiliate of NRG, gmer generation invest-interest rate) (1 147 177) ment opportunities in the United States over a three-year period. These Jiscgunted decpmmissioning cost obligation _6,97 608_ projects must have in aggregate, over the three-year term, an equity External trust fund assets at fair value 344 491 value of at leas' $60 million or a minimum of 150 net megawatts. In Discounted decommissioning obligation in excess addition NRG has committed to finance NRCG's investment in the d of assets currently held in external trust $ 353117 projects to the extent funds are not available to NRCG on comparable terms from other sources. As required by the agreement, NRG pnnided several investment opportunities to NPGG in 1997, and, as a result. NRCG purchased the Millennium project from NRG. NRCG financed the Millennium purchase from sources other than NRG. s l 4 w.
@Q r15 era Defois ikw3r @lmpyy; f]&6been6 9M U60Mowwa .-1 e .Not:s to FinancialStatements legisistive Resource Commliments in 1994,the Minnesota Legislature disclosed below, include the known elTeets of the 1994 Prairie Island j established several energy resource and other commitments for NSP to legislation. The impact of the legislation on power purchase commit. obtain the Prairic Island temporary nuclear fuel storage facility approval. ments and other operating expenses is not yet determinable. The commitments, which can be met by building, purchasing or, in the G,uarantccs In 1997 and 1996, the Company sold a portion ofits other case of biomass, converting generation resources, are: receivables, consisting of energy loans made to customers, to a third Power Type Megawatts Required Contract Deadline party. The portion of the receivables sold consisted of customer loans Wind 1_00_(Addjtion_al[_ -12/31/96_ to local government entities for energy efficiency improvements under Wind 100 (Additional) - 12/31/99 various conservation programs offered by the Company. Under the Wind 200 (Additional) 12/31/02 sale agreements, the Company is required to guarantee repayment to Total Wind 400 the third party of the remaining loan balances. At Dec. 31,1997, the 8pmass _ ___, 50 (A,@tignaQ y31/98 outstanding balance of the loans was approximately $28 million. Biomass 75 (Additional) 12/31/98 Based on prior collection experience for these loans, the Company Total Biomass 125 believes that losses under the loan guarantees, if any, would have an The Company is complying with the requirements of these resource commitments as follows: Lesses Rentals under operating leases wre approximately $32 million, $29 million and $27 milhon for 1997,1996 and 1995, respecuvely. Future Power Type Developer Megawatts Operation Date Wi,nd_ _ Lake Ee,nton Power _, _ Furt Contracts NSP has contracts providing for the purchase and Partners LLC (1) 107.25' June 1998 (2) Wind Northern Alternative delivery of a significant portion ofits current coal, nuclear fuel and _ Energy, Inc. 22.65 Od.1998 (2) natural gas requir. ments. These contracts, which expire in various _ Wind Lake Benton Power years bttween 1998 and 2013, require minimum purchases and deliv-Partnergil LLC 100.50 Mid-1999,(3). eries of fuel, and additional payments for the signt to purchase coal in Wind Woodstock Wind Farm, LLC _ 10.20 Oct.1998 (2) the future. In total, NSP is committed to the minimum purchase of Total Wind 240.60 l. .spproximately $341 million of coal, $29 million of nuclear fuel and $291 million of natural gas and related transportation, or to make pay. ~.00 DE5U0il5) ~ (4) 75 Aa o TC9 P87 n8 8m u CPen&ng on actual quann.es f Biomass District Energy St. Paul Inc. 25.00 Summer 2002 (6) Biomass Lindroc Energy ~ 2500lummer'2'002'(6) er en agmment As a M ME % h 6%, NSP elged a mix of gas supply, transportation and storage Total Blomass 125.00 l contr=x mgned to meet its needs for retail gas sales. The contracts are wh several suppliers and for various periods of time. Because (1) Formerly Zond Minnesota Development Corporation il NSP has other sources of fuel available and suppliers are expected to (2) Approved by MPUC (3) Selected after a competitive negotiation process continue to provide reliable fuel supplies, risk of loss from nonperfor. (4) Formerly Minnesota Agri-Power Project mance under these contracts is not considered significant. In addition, (5) Agreement signed NSPi risk ofloss, in the form of increased costs, from market price (6) 5 elected after a competitive bid process changes in fuel is mitigated through the cost-of-energy adjustment . provision of the ratemaking process, which provides for recovery of in 1994, the Company received Minnesota legislative approval for nearly all fuel costs, additional on-site temporary storage facilities at NSP's Prairie Island Ibwer Agreements The Company has executed several agreements plant, provided the Company satisfies certain requirements. Seventeen with the Manitoba liydro-Electric Doard (Mil) for hydroelectricity. dry cask containers, each of which can store approximately one-half A summary of the agreements is as follows: g year's used fuel, were approved to become available. The first four casks were available in 1994. In late 1996, the MEQB certified that Years Megawatts NSp has met the requirements necessary to use the sixth through ninth Participation Power Purchase 1998-2005 500 cusks at the Prairie Island nuclear generating facility.The f' al eight seasonal Diversity Exchanges: m casks become available in 1999 unless the above resource commit. _.5um_mer exchanges from MH 1998-2014 150 1998-2016 200 ments are not met and the Minnesota Legislature revokes its approval. Winter exchanges to MH 1998-2014 150 As of Dec. 31,1997, the Company had loaded seven casks. 1998-2015 200 Other commitmer.ts established by the Legislature include a discount 2015-2017 400 ment expenditures and various study and reporting requirements to a ~ 200' for low-incorne electric customers, required conservation improve. ~~~~~ 2018 ~ legislative electrie energy task force. In 1995, the MPUC approved the The cost of the 500-megawatt participation power purchase commit-Company's low-income discount programs in accordance with the ment is based on 80 percent of the costs of owning and operating the statute.The Company has implemented programs to begin meeting the Company's Sherco 3 generstmg plant, ndjusted to 1993 dollars. The other legislative commitments. The Company's capital commitments, future annual capacity costs for the 500-megawatt Mil agreement is
l Nous w FinancialStatemenu l estimated to be app oximatsy $55 million. There are no capacity approximately $4.6 million for business interruption insurance (five payments for the diversity exchanges. These commitments to Mil times the amount ofits annual premium) and $19.0 milhon for propeny represent about 17 percent of Mll's system capability in 1998 and damage insurance (generally five times the amount of its aanual pre-account for approximatt?y 10 percent of NSp's 1998 electric system mium)iflosses exceed accumulated reserve funds. capability. The risk of loss from nonperformance by Mil is not g considered significant, and the risk ofloss from market price changes accrual of $34 million, and other current liabilities include an accrual is mitigated through cost-of-energy rate adjustments. of $6 million at Dec. 31,1997, for estimated costs associated with The Company has an agreement with Minnkota lher Cooperative for environmental remediation. Approximately $31 million of the long-the purchase of summer season capacity and energy. From 1998 term liability and $4 million of the current liability relate to a dot! through 2001, the Company will buy 150 meg. marts of summer season assessment for decommissioning a federal uranium enrichment facil-capacity for $12 million annually. From 2002 through 2015, the ity, as discussed in Note 13. Other estimates hase been recorded for Company will purchase 100 megawatts of capacity for $10 million expected environmental costs associated with manufactured gas plant annually. Under the agreement, energy will be priced at the cost of sites formerly used by the Company, and other waste disposal sites, as fuel consumed per megawatt-hour at the Coyote Generating Station in discussed below. North Dakota. The Company also has a seasonal (surnmer) purchase i iM i 6 ncorded,and power agreement with Minnesota Power for the purchase of 173 collected from customers in rates, for future nuclear fuel disposal megawatts, meluding reserves, from 1998-2000. The annual cost of this capacity will be approximately $2 milhon, costs or decommissioning costs related to the Company's nuclear g g g; The Company has agreements with several nonregulated power pro- " #N J ducers to purchase electric capacity and associated energy. The 1998 "Y** "
- cost of these commitments for nonregulated capacity is apprurimately E'
'E ""T*"I $46 million for 360 megawatts of summer capacity, nis commitment I"#"' is expected to remain at this level until 2012, at which time it will remediated and, consistent with settlements reached with the EPA and decrease to approximately $39 rnillion annually and tnen gradually g 'g g g decrease to approximately $26 milhon m the year 2027 due so the remediation costs. %,hile these remedwed sites will continue to be expiration of existing agreemer.ts. Nucleae Insurance The Companyi public liability for claims resulting 611 be immaterial. Under applict.ble law, the Cepany, along with frora any mtclear incident is limited to,%,9 billion under the 1988 each PRP, could be heldjointly and severally liable for ths ental reme-Price-Anderson amendment to the Atomic Energy Act of 1954. The diation costs of PRP sites. Of the five unremediated sites, the total Company has secured $200 million of coverage for its public liabihty remediation costs are currently estimated to be approximately exposure with a pool ofinsurance companies. The remaining $8.7 billion $1 I million. If additional remediation is necessary or unexpected costs of exposure is funded by the Secondary Financial Protection Program, are incurred, the amount could be higher.The Company is not aware available from assessments by the federal govermnent in case of a of the other parties' inability tu pay, nor does it know if responsibility nuclear accident The Company is subject to assessments of up to $79 for any of the sites is in dispute. For these five sites, neither the million for each ofits three licensed reactors to be applied for public amount of remediation costs nor the final method of their allocation liability arising from a nuelcar incident at any licensed nuclear frility among all designated PRPs has been determined. Ilowever, the in the United States.The maximum funding requirement is $10 million Company has recorded an estimate of approximately $750,000 for its per reactor during any one year. share of future costs for these five sites,includ ng $700,000 that is expected to be paid in 1998. While it is not fea 4ible to determine the The Company purchases insurance for property damage and site p g decontammation cleanup costs with coverage limits of $1.5 billion for cach of the Company % two nuclear plant sites. The coverage consists accrued represent the best current estimate of the Companyi future I' " * "Y" E'** " '." # I""" *^ 8 of $500 million from Nuclear Mutual Limited (NML) and $1.0 bilhon
- "*7' E*'*
from Nuclear Electric Insurance Limited (NEIL). whenever possible. Through litigation, the Company has recovered a NEIL also provides business in'.erruption insurance coverage, including portion of the remediation costs paid to date. Management believes the cost of replacement power obtained during certain prolonged acci-remediation costs incurred, but not recovered, from insurance carriers dental outages of nuckar generating units. Premiums billed to NSP or other parties should be allowed recovery in future ratemaking. Until from NML and NEIL are expensed mer the policy term. All companies the Compaay i. Jentified as a PRP, it is not possible to predict the insured with NML and NEIL are subject to retrospective premium timing or amount of any costs associated with sites, other than those adjustments iflosses exceed accumulated reserve funds. Capital has. discussed abme. been accumulated in the reserve funds of NML and NEll to the extent that the Company would have no exposure for retrospective premium The Wisconsin Company potentially may be involved in the cleanup and remediation at four sites. Three sites are solid and hazardous waste land-usessments in case of a s.mgle m.eident under the business interruption g gg g and the property damage insurance coverages. Ilouver, m each cakndar 7 year, the Company could be subject to maximum essessments of landfills during the time period in question. Because neither the amount l 1
M Wo r tD e r 4 fiiTeTDo w e r Wo m p uj { O: tc e s o O s a n HYi1SERVbTJ91 L e Notes to FinancialStatements of cleanup costs nor the final method of their allocation among all In January 1998, the MPUC allowed the reemery of these gas site reme-designated PRPs has been determined, it is not feasible to predict the diation costs in the interim gas rates that went into effect in February outcome of these matters at this time. The Wisconsin Department of 1998. Accordingly, the Company has recorded an environmental regula. ^ Natural Resources (WDNR) named the Wisconsin Company as one of. tory asset for these costs. (See Note 9.)The Company may requast three Responsible Parties for creosote and coal tar contamination at a - recovery of costs to remedy the other two active sites following the fourth site in Ashland, Wis. WDNRh consultant is preparing a remedial completion of preliminary investigations. option study for the entire Ashland site, which includes the Wisconsin i W 1990 W Ci d Companyi portion and two other adjacent portions. Until this study is gg g g;g;g completed and more information is known concerning the extent of the hd%m% Mh Whda wM W final remediation required by the WDNR, the remediation method phased in, began in 1995. The majority of the rules implementmg this selected, the related costs, the various parties involved, and the extent of NSP W iW @ih@ the Wisconsm Companyi responsibility, if any, for sharing the costs, the i ini i NM ultimate cost to the Wisconsin Company and timmg of any payments g g gg related to the Ashland site are not determinable. At Dec. 31,1997, th diox de emission limits of the Clean Air Act. NSP is still evaluating how Company had recorded an estimated liability of $880,000 for future .best to implement the nitrogen oxides standards. The Companyi capital remediation costs associated with the %isconsin Company-owned expenditures include some costs for ensunng compliance with the Clean portion of the Ashland site. Through Dec. 31,1997, the Wisonsin Air Act's other emist, ion requirements; other expenditures ma/ be actual expenditures Company has m.eurred approximately $646,000 m., g pg , to date. Dased on a recent Public Seruce Commission of %isconsm still in the process ofimplementing some provisions of the Clem Air decision to allow recovery ofincremental costs incurred for this site g g g g g begmnmg m 1997, the Wisconsin Company has recorded ;. regulatory tures for opacity comph.ance are mnsidered in the capital expenditure , asset for the acce sed and actual expemhtures related to the Ashlamt site, I The ultimate cleanup and remediation costs at the Eau Claire, Amery, Rice Lake and Ashland sites and the extent of the Wisconsin Compt.ny's responsibility, if any, for sharing such costs are not known at this time, Several of NSPi facilities have asbestos-containing material, which but may he significant. represents a potential health hazard to people who coma in contact with it. Governmental regulations specify the timing am! nature of The Company also,s continuing to investigate various properties, which
- """""8"#"*"'
"9" i it presently or previously owned. The properties were formerly sites of asbestos not readily accessible to the environment need not be gas manufacturing, gas storage plants or gas pipelines. He purpose of gg this mvestijation is to determme if waste materials are present, if they "8 ****"'""'"*"8 are nn environmental or health risk,if the Company has any responsibihty "I****'""
- "I '*E" * " '
- for remedial action and if recovery under the Company % insurance poli-c st $45 mit i n n 1997 dollars. Depending on the timing of asbestos
/ cies can contribute to any remediation costs. De Company has already rem val, such costs would be recorded as incurred as operating remediatedone site, which continues to be monitored. The Company has paid 52.5 inillion to remediate this site and expects to incur in the "E "E" future only immaterial monitoring costs related to this remediated site. Anotler 14 gas sites remain under investigation, and the Company is Environmental liabilities are subject to considerable uncertainties that activaly taking remedial action at four of the sites. In addii;ct, tN affect NSP) ability to estimate its share of the ultimate costs of remedi-Cornpany has been notified that two other sites eventually will require ation ar.d pollution conuui circrts Such uncertainties involve the nature remediation, and a study was initiated in 1996 to determine the cost and and extent of site contamination, the extent of required cleanup efforts, reethod of cleanup at these two sites, which began in 1997. As of Dec. varying costs of alternative cleanup mGhis and pollution control tech-31,1997, the Company has paid 58.1 million for the six active sites and nologies, changes in environmental remediation and pollution control has recorded an estimated liability of approximately $3.0 million for requirements, the potential effect of technological improvements, the future costs, with payment expected over the next 10 years. nis estimate number and financial strength ofother pctentially resivmsible parties at is based on prior experience and includes investigation, remediation and multi-party sites and the identification of new environmental cleanup i litigation costs. As for the eight inactive sites, no liability has been sites. NSP has recorded and/or disclosed its best estimate of expected recorded for remediation or investigation because the present land use at future environmental costs and obligatiuns, as discussed previously. each of these sites does not warrant a response action. While it is not p; feasible to determine at this time the ultimate costs of gas site remedia-claims and h..tigation arising from prior and current operations. NSP is tion, the amounts accrued represent the best current estimate of the actively defending these matters and has recorded an estimate of the Companyi future liability for any required cleanup or remedial actions probabic cost of settlement or other disposition. - at these former gas operating sites. Env.ironmental remediation costs may be recovered from insurance carriers, third parties, or in future rates. The MPUC allowed the Company to defer certain remediation cests of four active sites in 1994 and the Company requested, in its December 1997 gas rate case, recovery of these acumulated costs. ( ) a
49 e Notes to Financial Swtements
- 15. Segment Information Year Ended December 31 (Thousands of dallars) 1997 1996 1995 Utility operating income before income taxes Electric
$ 456 489 5 469 321 $ 444 687 Gas 50 122 58 133 48 340 Total utility operating income before income f ates $ 506 611 1 527 454 $ 493 027 Utility depreciation and amortization Electric $ 299 226 $ 279 828 $ 266 231 Gas 26 654 26 604 23 953 Total utility depreciation and amortization 5 325 880 $ 306 432 $ 290184 Utility capital expenditures Electric $ 305 292 $ 323 532 $ 317 750 Gas 71 386 42 225 37 215 Common 19 927 20 898 31 057 Total utility capital empenditures 5 396 605 $ 386 655 $ 386 022 s Identifiabb utility assets Electric $4 845 306 $4 735 330 14 751 650 Gas 675 030 649 218 600 738 Total identifiable utility assets 55 520 336 $5 384 548 $5 352 388 Other corporate assets
- 1 623 730 1 252 352 876 197 Total assets
$7144 066 $6 636 900 $6 228 585
- Includes equity investments for nonregulated energy projects outside of the United States of $517 rnillion in 1997, $295 million in 1996 and $185 million in 1995 Note: The gas utdity segment indades 11Aing.
I _. . =.. -... '
u, l. %% r tQ e r n, b.ltsiss ys w e r igh m ps ky,j i:(ixu e s o t a s n clYWTi1RKExe s l s -m e y 3, ^ Notes to FinancialStatements -l i 9' 1
- i.
? 16. Summarised Quarterly Financial Data (Unaudited) > Quarter Ended - f-- (Thomsands of dollar:J. - March 31,1997 June 30,1997* ' Sept. 30,1997 Dec. 31,1997* _Ut}!ity operating revenues __ 57,42 496_ _$59_4 323 $697 443_ . $699 484. 88 456 65 586 118 540 89 174 - _U,tility operating income - ~ _'_65 773 18 253 87 912 65 382 _ Net income ~ , Earnings available for common stock 51 816 - .15 882 - 85 541 63 010 Earnings per averg ) common share: ' 8asic $0.90 $0.23 $1.23. $0.85 Assuming dilution $0.90 $0.23 - $1.23 $0.85, Dividends decla_ red per common share ' $.690_ 5.7_05 5.705 ' - 5.705 $49% . $52 $52'% - low $451 $44W $48. _ $58% _Stoc,k prices,- high - $48% _ e. Quarter Ended - (Thousands 'of dottars) ' March 31,1996 ' June 30,1996 Sept.30,1996 Dec. 31,1996 Utility operating revenues - $718 709 $592_258 . $633 258 $709 981 _ Utility operating income 89 277 70 801 105 456 ' 100 510 . Earnings availabl,e for common stock 67 210 43 382,' 84 239 79 708 _N.et income. . 64 149 _ . _ _ 40 321 ' 81 178 76 646 Earnings per average common share: $1.18 $1.12_ _ Basic ; $0.94 _ $0.59 ._ Assuming dilution. $0.94 - $0.59 . $1.18 ' $1.11 Diviciends dedaredper common share $.675 $.690 $.690 $.690_. Stock prices - high $53M $49% $49X $494 _ - low $47M $45W $444 $45M
- 1997 resuhs include two nonrecurring items: a $29 million pretas charge, which reduced second quarter earnings by 25 cents per share, for the write.off of merger costs; and a $9 million pretas charge, which reduced fourth quarter earnings by 8 cents per share, for the write-down of an NRG cogeneration project.
I ( f i I i 1 -f
.s ..s 4 s,.....s r.."., < -,,, s g.,,uv,. -.7 o s,,,,z.- 5 _g-_, Reports ofManagement andIndependent Accountants Ceport of Managemert Report of Independent Accountants Management is responsible for the preparation and integrity of NSP's To the Shareholders of Northern States Power Company: financial statements. The financial statements have been prepared in in our opinion, the accompanying consohdated balance sheets and recordance with generally accepted accounting principles and necep statements of capitalization and the related consolidated statements of sarily include some amounts that are based on managemer.t's income, of common stockholders' equity and of cash flow s present estimates and judgment. fairly, in all material respects, the financial position of Northern States To fulfill its responsibility, management ma'ntains a str.,ng internal Power Cor* ny, a Mimiesota corporation, and its subsidiaries at control structure, supported by formal policies und procedures that are Dec. 31,1% i and 1996, and the results of their operations and their communicated throughout NSP. Management also mainutins a staff of cash flows for cash of the three years in the period ended Dec. 31, internal auditors who evaluate the adequacy of and investigate the 1997, in conformity with generally accepted accounting principles. adherence to these controls, policies and procedures. These financial statements are the responsibility of the Company's
- * "*8 #**"" ""I "'E
- E*"'"
Our independent public accountants have audited the financial state-f manc. l statements based on our audits. We conducted our audits of ia ments and have rendered an opinion as to the statements' fairness of these statements in accordance with generully accepted auditmg presentation, in all material respects, in conformity with generally g g accepted accounting principles. During the audit, they obtamed an reasonable assurance about whether the financial statements are free understanding of NSP's intemal control structure, and performed tests of material misstatement. An audit includes exarnining, on a test basis, and other procedures to the extent required by Fenerally accepted evidence supporting the amounts and disclosures in the financial auditing standards. statements, assessing the accounting principles used and sigmficant The Doard of Directors pursues its oversight role with respect to estimates made by management, and evaluating the overall financial NSP's financial statements through the Audit Committee, which is statement presentation. We believe that our audits provide a reasonable comprised solely or nonmanagement directors. The Committee meets basis for the opinion expressed above. 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 accountants A[co have for improving the internal control structure. The lloard of Directors, on the recommendation of the Audit Committee, engages Price Waterhouse LLP the independent public accountants, subject to shareholder approval. Mintaapolis, Minnesota Both the independent public accountants and the internal auditors have unrestricted access to the Audit Committee.
- cmeA, V
James J. Iloward Chcirman of the lloard, President and Chief Executive Officer Edward J. McIntyre Vice President and Chief Financial OITicer Northern States Power Cornpany Minneapolis. Minnesota Feb.2,1998 ~_ %.i
%'NortDerk ptsref(thyrr MomQUnesole andr MuDsUCMarHes ~ lOpetuli:s St INtics : r 8 Regulated Bloctric Operations s 1997 1996 1995-1994 1993 Revenues (Thousands) , ResidentiaF g_ _, 57_39_,684 - . $727145 $735 M - 5683 83 $651593 'l _.5 mall,c,pmmercial and indus rial _ ,, 379 848 ' 376 797 362 521 '351 287 327 888 ; -l t L ... Medium commercial and_lndustrial. 433 526 - 401 137 399 259 468404 450 811 _ _ ___448 226 _824 195 780 444
- Large_ commercial and industrial --
30 826 ' 30 033 - 29 162 28 936 29 214 Streetlighting and other Total ret, ail - 2 _052_288 _ 1 985 923 1 9_74 911 1 888 201-1 789 139 I _ Sales for resale - 107 464 l _98 961 133 961_ _ _ 146,23L 159 498 Miscellaneous, 58 798 42 529 33 898- ~ 32 204 - 26 279 Total 52 218 550 - $2127 413 52 142 770- $2 066 644 $1974 916 5aies (Millions of kilowart-hours) Residential
- 9 791 9 847 -
9 956 9 303 9 092 Small commercial and industrial 5 907 6 091-5 N3 ' 5 585 5 N7- ~ Medium commercial and industrial. 8 263 7 470 - '_7 511- _Large commercial and industrial 11 059 11 089 10 941-17 874; 17 117 Streetlighting and other 335 '336 '329 334 - 344-Total retail 35 355 34 833 34 500 - 33 096 31 860 Sales for resale : 4 658 4 929 6 500 6 733 8 044 Total 40 013 39 762 41 000 39 829 39 904 - Customer accounts (At Dec. 31)** Residential 1 273 161 1 252 476 ' 1 238 576 1 222 628' 1 207 572 - Small commercial and Industrial - 150 103 149 134 144 774 142 858 141 446 _ Medium commercial and industrial' 9142 g 962 7 906 8 114 652- _8 172 ,_Lar,ge commercial and industrial 695 669 _ 4 883 - 4 836 4 813 Streetlighting and other 6 274 5 030 Total retail 1 439 377 1 415 271 1 396 791 1 378 494 1 361 945 Sales for resale 59 54 67-70 71 - Total 1 439 436 1 415 325 1 396 858 1 378 564 1 362 016 Average revenue per kilowatt-hour Residential 7.55c 7.38( 7.?9( ' 7.35( 7.17f Small commercial and industrial 6.43 6.19 6.29 6.29 6.18 Medium commercial and industrial 5.25 - 5.37 5.32 Large commercial and industrial 4.24 - 4.07 4.10 4.61 4.56 Totalretail 5.80s - 5.704 5.72( 5.71( - 5.62( Kilowatt hour output (Mallions) Thermal 31 896 32 657 33 802 32 710 33 130 J ydro 1 015 1 194 1 049 922 >1001-Purchased and interchange 10641 9 065 9 ; 29 9 054 8 541 Total 43 572 42 916 44 040 42 686 42 ti72 i' Capability at time of maximum demand (Megawatts) .. Company owned _ 7 117 7 109 7 100 6 859 6 816 _ Purchased and sales - net (with reserve) 1 706 1 698 1 910 1860 1 787 Total 8 823 8 807 9 010 8 719 8 603 Maximum demand (Megawaits) 7 353 ]487 7 519 7 101 6 990 Date of snanimum demand July 16 Aug.6 July 13 June 14 Aug. 25
- 8eginning in 1995, the commercial and industrial customer class was segmented into small (less than 100 kw in demand per year), heeueum (100 kw up to 1,000 kw) and large (1,000 kw or more). The medium group, which is an estimate, was reported as large prior to 1995.
- Customer accounts for 1996 and 1997 may not be fully comparable to prior years due to differences in meter accumulation in a new
. billing system implemented in 1996. + l
mv e Opemting Statistics Regulated Gas Operations 1997 19 % 1995 1994 1993 Revenues (Thousands) ._ Residential __ _$253 065 $267130 $215 543 $207 506 ,$2_23 543_ Commercial and industrial Farm 144 539 146 145 119 863 120 912 131 431 _ interruptible 79 135 63 Sb5 48 646, 49 384_ >2 216 Other 74 153 1 686 3 688 630 Total retail 476 773 477 013 385 738 381 490 407 820 Interstate transmission (Viking) 19 809 17 553 16 328 16 307 10 247 _ Agency, transportation and off-system sales _ 2_1 287 34 662 26 122 24 338 12 237 Elimination of Viking sales to NSP (2 673) (2 435) (2 374) (2 232) (1 228) Total 5515 196 $526 793 $425 814 $419 903 $429 076 Sales (Thousands of mcf) _ Residential 42 428 48 149 42 294 38 750 41 277 Commercial and industrial Firm 28 880 31 748 28 275 _27 34_2 _ 28_622_ interruptible 25 898 23 210 22 408 19 373 18 559 Other 33 394 772 212 186 Total retail 97 239 103 501 93 749 85 677 88 644 Other gas delivered (Thousands of mc/) Interstate transmission (Viking) 166 588 _ 161 972 152 952 147 919 83 613 _ Agency, transportation and off-system sales 11 701 17 535 19 679 13 466 8 128 Elimination of Viking sales to NSP (17 145), 160 196 152 191 144 540 83 315 (19 311) (20 440) (16 845) (8 425) Total other gas delivered 161 144 Cust ' ner accounts (At Dec. J/>
- l aMinEstrial
^ ~ er 2 Total retail 452 678 438 967 424 582 407 874 393 461 Other gas delivered 36 30 62 18 40 Total 452 714 438 997 424 644 407 892 393 501 Average revenue per mcf Residential $5.96 $5.55 $5.10 $5.35 $5.42 f.h"lyomme[clal and indystri_al _5;00_ _ 4.60 4 24 _ 4;42 __4.59, interruptible ccmmercial and industrial 3,06 2.74 2.17 2.55 2.81 Total retail 54.90 $4.61 $4.11 $4.45 $4.60 Gas purchased for resale to utility customers Total cost (Thoussads)" $317 646 $312 943 $236 714 $245 939 $275 313 Cost recognized per mcf sold ** $3.20 $3.00 $2.49 $2.85 $3.11 Maximum sendout (.mf) 662 025 737 258 659 800 686 130 642 684 Date of maximum sendout Jan.27 Feb.1 Jan. 3 Jan.17 Dec. 27 )
- Customer accounts for 1996 and 1997 may not be fully comparable to prior years due to differences in meter accumulation in a new billing system implemented in 1996.
- Excludes cost and volumes for other gas delivered r
l
- 54. M o r e% e rk lS tu t e s f o s e r Co m p a ny, Zll a n e s e t a s uffYSTEITMfe r g e s.
~ f Nonergulued Business Inform: tion ' December 31 ' YThousands of dollarst ' 1997 1996 Equity investment ta nonregulated businesses in unconsolidated projects (including u'.aistributed earnings and capitalized development costs) r $ 320 069 $ 91350 Australianprojects 105 925 108 091 Europeanprojects - 81 712 92 257 South American and Latin American pro [ects (, 9534 3 316 ( Other international projects 38 230 32 034 Affordable housingprojects (U.S.) 185 264 82 681 Other U.S. projects 740 734 409 729 i Total equity investment in unconsolidated nonregulated projects Nonregulated property of consolidated subsidiaries 256 726 - 192 790 (net of accumulated depreciation) primarily U.S. projects 133 426 ' 81 564 _N_otes, receivable from uncos olidated_ projects, including current portion 110 218 101 496_ , intangible assets, including goodwill - 108 229 52 080 - Curr ant and other assets 51 349 333 5837 659 Total assets of nonregulated businesses Long-term debt, including current maturities 5 _555 843 ' $269 486 122 437 7 030 _5_hort-term debt 47 775 45 957 __Other current liabilities 66 283 23 954 Other liabilities 792 538 346 427 Total liabilities of nonregulated businesses 619 682 488 438 NSP's equity investment in nonregulated businesses Cumulative currency translation adjustments (62 887) 2 794 556 795 491 232 Total equity of nonregulated businesses ,Totalliabilities and equity of nonregulated businesses 51 349 333 5837 659 Significant Nontegulated Generation Projects Operating at December 31, !997 Totel NRG Mw-Generation Projects Operating - Location Mw Ownership Iquity Operator Gladstone Power Station. Australia 1680 37.50 % 40 NRG Loy Yang Australia 2000 25.37 % 50/ nlRG/ CMS Generation - Pacific Generation Cumpany ' USA / Canada 776 ' 8.50 %-100.00 % 203 Various/AES Schkopau Power Station (1) Germany 960 20.55 % 200 Veba Kraftwerke Ruhr A.G. NRG Generating (U.S.) inc. (NRCG) (2) New Jersey, USA 196 45.21 % 87 NRG. CO8EE Solivia 171 48.30 % 83 CO8EE M18 RAG mbH r Germany .200 33.33% ~ 67- ~ M18 RAG ' Energy Development Limited - Australia 237 19.97 % 38 Energy Development Limited Scudder Latin Amerkaq Power Projects (Scudder)(3) Latin America 254 25.00 % ' 19 Stewart & Stevenson/Wartsila (1) Through a lease agreement, NRG has ownership of 200 megawatts.
- 2) NRCG owns various percentages of projects (15.07437.52%) making NRG's share of ownership 87 megawatts.
(3) Scudder owns various percentages of projects (6.45%-8.78%) making NRG's share of ownership 19 megawatts. j i
Fin:ncialStatistics Selected Financial Data (Militans of dollars. encept per.sharr Jara) 1997 1996 1995 1994 1993 Ut@ty ppgating revenues $2 734 $2 654 $2 569 $2 487 $2 404 Utility operating expenses $2 372 $2 288 $2 223 $2178 $2100 .~ Net income (1) $ 237 $ 275 $ 276 $ 243 $ 212 Earn,ings available for co_m_ mon stock (1) $ 226 $ 262_ _ $ 263 $ 231 $ 157 , Ave age number of common sharys outstanding (000's) 70 297 68 561 67 323 66 775 65 116 Average number of common and potentially _.II.lupt e, shares outstandin.g (000's).. 70 435 68 679 67 416 66 845 65 211 Earnings per average common share: Basic (1) $3.22 $3.83 $3.91 $3.46 $3.03 Assuming Di'ution (1) $3.21 $3.82 $3.91 $3.46 $3.02 _Diyyepds declared per shay 9_,_,, $2.805 $2.745 $2.685 $2.625 $2.565 Total assets $7144 $6 637 $6 229 $5 950 $5 588 Long term debt $1879 $1 $93 $1542 $1463 $1292 Ratio of earnings to fixed charges 2.9 3.8 3.9 4.0 4.0 Financial $tatistics 1997 1996 1995 1994 1993 Return on average common equity:(2) ._.Earni,ngs frpm ongoing operations (1) 11.3 % 12.5 % 12.6 % 12.3 % 11.3 % . Tpta,[pafningsjyagl fo[ common stock 10.2 % 1_2.5% 13.4 %, 12.3 %_ 11.3% _ y DMdgnds as percent of earnings 89.4 % 71.5 % 68.5 % 75.8 % 85.5 % Dividends as percent af book value 9.1% 9.3% 9.5% 9.7% 10.0 % .Five-year growth rate in earnings per share: (3) Continuing operations _before accounting, change (4) 7.3 %. 8.6% 7.0% 1.0% (2.9%) Total earnings avail,ab,le for common stock 3.7% 4.8% 5.2% 2.6% 0.1_% _ Capital expenditures, _.yycluding business aiquisitions (millions)., _ $433 _ _$412 $401 .$409 $3,62_ Percent of capital expenditures that could be financed by internally generated funds ,, excluding AFC and after dividends) 104.0 % 74.6 % 85.0 % 69.3 % 98.5 % ( Cash dividend coverage 2.9 3.0 3.1 3.0 3.1 AFC as percent of_ earnings per share 7.3% 7.2% 6.5% 5.4% 6.5 % Effective tax rate 29.0 % 34.8 % 35.6 % 34.7 % 38.2 % 8enefit empJoyees (at Dec. 31) 6 718 6 470 6 829 7 032 7 362 Capitalization:(5) Common equiry____ f'!!'f!! equi _ty ,_46 7%_,, 46.5%_ 48 4%_ 47.5%_ _ 49.4 %_ d 1 Debt ___ _ 7.9_% _ _ 5.2% _ _ 5.7_% _ _6.0%._ _ 6.5%_ 45.4 % 48.3 % 45.9% - 46.5 % 44.1 % Total _ _1,00.0%_,,100 0% 100.0 % ,_1_00 0%_ _100D%_ Average,, cost _ p,ongjefm utili,ty debt 6.83 % 6.80 % 6.88 % 7.36 % 6.95% o _ Average u_tality plant investment per clollar of revenue, $3.26 $3.23 $3.22 $3.19 $3.15 Accumulated depreciation as a percent _of depreciable utility plant 47.8 % 46.7 % 45.2 % 43.3 % 42.1 % Depreciation expense as a percent a.of everage depreciable utility plant 3.78 % 3.68 % 3.64 % 3.55 % 3.47 % AFC-Allowance for Funds Used During Construction (1) Net income and earnings per share include nonrecurring items in 1997 and 1995, as discussed on page 27. Excluding these nonrecurring Jtems, earnings per share, assuming dilution, from ongoing operations were $3.54 and $3.69, respectively, and the avera2e annual growth rate in earnings per share since 1993 was 4.1 percent. (2) 13 month average (3) Least squares method (4) Earnings used for this calculation exclude discontinued telephone operations through 1991 and an accounting change in 1992. (5) includes short. term notes payable, current portion of long-term debt and preferred securities i
W Nirth;rQ Siitik Pkwer Compsdy,7 Minnote a:ad 5sDslClarlet f w w I . ShanholderInformation ? f l 1997 19 % 1995 1994 1993, Common stock shareholders at year-end 83 232 86 337, 83 902 85 263 86 4_04 _ took value at year-end $31.78 $30.93 $29.74 ' $28.35 $27.32 i Market prices. High $58% $53M ~ $49M. $47 $47M Low ,$44M_ $44M $42M $38M $40M I'. ._Ye,a_rgnd cig, sing ' $58M $45M $494 $44 $43M Dividends dedared per share 52.005, - $2J45 $2.685 $2.625 _ $2.565_ f Headquerters: 414 Nicollet Mall, Minneapolis, MN 55401 schedule of Anticipated Dividend Record Dates Stock Infornsation: Contact the Shareholders Department at NSP headquarters toll-free (800) 527-4677 Monday through l~riday, Preferred 5tock Common 5tock 7:30 A.M. to 4:30 r.M. CST. From the Minneapolis-St. Paul area, Record Dates Payment Dates Record Dates Payment Dates call (612) 330-$$60. Dec.31,1997 Jan.15,1998 Jan.2,1998 Jan.20,1998 investor Relations information: Contact Richard J. Kolkmann, March 31,1998, Apgl 15,1998 April 8,1998 April 20,1998_ Investor Relations, at NSP headquarters. Call (612) 330-6622. June 30,1998 July 15,1998 July 9,1998 Ju!y 20,1998 Sept. 30,1998 Oct.15,1998 Oct.1,1998 Oct. 20,1998 Direct Dividend Deposit: NSP offers direct deposit of dividends o,{3Tig98~ Jan.15,5599 ~ ~ to 6hareholders' checking or savings accounts.To sign up for this free service, contact the Shareholders Department for information and Form 10 K (The Annual Report to the Securities and authorization form. Eachange Commission): Contact the Shareholders Department at NSP headquarters at the numbe: listed below. A statistical supplement Dividend Reinvestment and Stoch Purchase Plan: to the annual report is also available. The Company's Dividend Reinvestment and Stock Purchase Plan olTered by Prospectus is a convenient way to purchase shares of the Street Name shareholders and seneficial owners: Company's common stock without payment of any brokerage com-mission or service charge.Those eligible to participate in the plan are: If you w uld like to receive NSPh quarterly report, contact the Sharehoklers Department at NSP headquarters at the number listed below. -
- Shareholders of record of NSP
- Shareholders who hold stock in " street name" through investment Duplicate Mallings: If there are two or more shareholders at your firms, provided the firm has established procedures permitting
- address, you may have received duplicate shareholder mailings, participation To eliminate duplicate mailings, write or call the Shareholders ~
- Emphryces of NSP and its subsidiaries Department at NSP headquarters at the number listed below.
- Non-shareholders oflegal age who live in Minnesota, North Dakota,
. Call the Shareholders Department toll-free (800) 527 4677 Monday South Dakota, Wisconsin anJ Michigan. (Non-sharchclders must make an initial investment of at least $100.). through Friday,7:30 A.M. to 4:30 P.M. CST. From the Minneapolis-~ St. Paul area, call (612) 330-5560. - Once enrolled in the plan, participants mny; . Automatically reinvest all or a portion of their quarterly dividends
- Make additional cash investments. The minimum single payment is J.
525 and the maximum quarterly payment is $10,000. l. Contact the Shareholders Department for a Prospectus and authoriza- - tion form. Stock Eachange Listings and Ticker Symbol: Common stock is traded on New York, Chicago, and Pacific ' . Exchanges. Ticker symbol: NSP. Newspaper stock tables list NSP as NoStPw, NoStPwr or NSPw. NYSE lists some of NSP) preferred stock i' and its preferred securities. The stock of NRG Generating (U.S.) Inc., l an affiliate of NRG Energy, Inc., is listed on the NASDAQ SmallCap l Market under the ticker symbo! NRCG. Annual Meeting:. Wednesday, April 22,1998,10 A.M. at the j ~ Minneapolis Convention Center, Minneapolis, MN. laternet Address: http://www.nspco.com
a sa s s FiscalAgents, 1 Northern States Power Company Nc.rthern States Power Company (Minnesota) (Wisconsin) Townsfer Agent, Common and Preferred Stocks Trustee-Bands Northern St.ites Power Company First Trust Company,Inc. 180 East 5th St. Registrar, Common and Preferred Stocks St. Paul, MN $$101 Norwest Bank Minnesota, N.A. Sixth St. and Marquette Ave. Firstar Trust Company Minneapolis, MN $5479-0059 1555 North River Center Drive Suite 301 Dividend Distribution Milwaukee,W153212 Northern States Power Company Fornwrding Agent NRG Energy, Inc. Norwest Bank International 3 New York Plaza,15th Floor Trustee-Senior Notes New York, NY 10004 Norwest Bank Minnesota, N.A. Sixth St. and Marquette Ave. Trustre-#onds Minneapolis, MN 55479-0059 liarris Trust and Savings Dank 111 West Monroe St. Chicago,IL 60690 First Trust National Association i80 East 5th St. St. Paul, MN 55101 Norwest Bank Minnesota, N.A. Minneapolin Couptm-nryingAgents-Bonds liarris Trust and Scvings Bank Chicago First Trust National Association St. Paul Tender, Registrar and Paying Agent ' Chase Manhattan Bank 450 West 33rd St. New York, NY 10001 1htster-D'uxt Originated Preferred Securities
- Wilmington Trust Company 1100 North Market St.
Wilmington, DE 19807
- Securities ofNSP Financing 1. a wholly owned specialpurpose subsiduary trust ofNorthern Saares IUwr Company (Mumesotal Printed on paper cumtaining 10 percent ove>viedfibers and a minimum of10percentpost-ccmsumer unste. Please nvycle.
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