SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 18, 2000
Xcel Energy Inc.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of incorporation)
1-3034 | 41-0448030 | |
(Commission File Number) | (IRS Employer Identification No.) | |
414 Nicollet Mall, Mpls, MN |
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55401 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code 612-330-5500
Northern States Power Company
(Former name or former address, if changed since last report)
TABLE OF CONTENTS
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Page |
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Glossary of Terms | |||
Item 2Acquisition or Disposition of Assets | |||
Item 7Financial Statements and Exhibits | |||
Exhibit Index | |||
Signatures | |||
Exhibit 23.01 Consent of Arthur Andersen LLP | |||
Exhibit 23.02 Consent of PricewaterhouseCoopers LLP | |||
Exhibit 99.01 News Release of Xcel Energy Inc. dated August 17, 2000 | |||
Exhibit 99.02 Supplemental Consolidated Financial Statements | |||
Management's Discussion and Analysis | |||
Reports of Independent Public Accountants | |||
Supplemental Consolidated Statements of Income | |||
Supplemental Consolidated Statements of Cash Flows | |||
Supplemental Consolidated Balance Sheets | |||
Supplemental Consolidated Statements of Stockholders' Equity | |||
Supplemental Consolidated Statements of Capitalization | |||
Notes to Supplemental Consolidated Financial Statements | |||
Exhibit 99.03 Supplemental Consolidated Condensed Six Months Ended Financial Statements | |||
Management's Discussion and Analysis | |||
Supplemental Consolidated Condensed Statements of Income for the six months ended June 30, 2000 and 1999 | |||
Supplemental Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2000 and 1999 | |||
Supplemental Consolidated Condensed Balance Sheets as of June 30, 2000 and Dec. 31, 1999 | |||
Notes to Supplemental Consolidated Condensed Financial StatementsJune 30, 2000 | |||
Exhibit 99.04 Statement Pursuant to Private Securities Litigation Reform Act |
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The abbreviations or acronyms used in the text and notes are defined below:
Abbreviation or Acronym |
Term |
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ACC | Arizona Corporate Commission | |
AFDC | Allowance for Funds Used During Construction | |
BMG | Black Mountain Gas | |
CERCLA | Comprehensive Environmental Response, Compensation and Liability Act | |
Cheyenne | Cheyenne Light, Fuel and Power Company | |
COLI | Company owned life insurance | |
CPUC | Public Utilities Commission of the State of Colorado | |
Craig | Craig Steam Electric Generating Station | |
Denver District Court | District Court in and for the City and County of Denver | |
DOE | Department of Energy | |
DSM | Demand-Side Management | |
DSMCA | Demand-Side Management Cost Adjustment | |
Dth | Dekatherm | |
e prime | e prime, inc. and subsidiaries | |
ECA | Energy Cost Adjustment | |
EITF 98-10 | Emerging Issues Task Force Issue No. 98-10, "Accounting for Energy Trading and Risk Management Activities" | |
EMI | Energy Masters International, Inc. | |
EPA | U.S. Environmental Protection Agency | |
ESOP | Employee Stock Ownership Plan | |
FASB | Financial Accounting Standards Board | |
FERC | Federal Energy Regulatory Commission | |
Fort St. Vrain | Fort St. Vrain Electric Generating Station | |
GCA | Gas Cost Adjustment | |
Hayden | Hayden Steam Electric Generating Station | |
ICA | Incentive Cost Adjustment | |
IRS | Internal Revenue Service | |
Kwh | Kilowatt-hour | |
Manitoba Hydro | Manitoba Hydro-Electric Board | |
MDOC | Minnesota Department of Commerce | |
MISO | Midwest Independent System Operator | |
MPUC | Minnesota Public Utilities Commission | |
Mw | Megawatt | |
NCE | New Century Energies, Inc. | |
NCE/NSP Merger | The proposed business combination between NCE and NSP | |
NCE/NSP Merger Agreement | Agreement and Plan of Merger between NCE and NSP | |
NDPSC | North Dakota Public Service Commission | |
NEIL | Nuclear Electric Insurance Limited | |
NMC | Nuclear Management Company | |
NMPRC | New Mexico Public Regulation Commission | |
NSP | Northern States Power Company | |
NSP-Minnesota | Northern States Power CompanyMinnesota | |
NSP-Wisconsin | Northern States Power CompanyWisconsin | |
Natural Fuels | Natural Fuels Corporation | |
NC Enterprises | NC Enterprises, Inc. | |
NCI | New Century International, Inc. |
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New Century Cadence | New Century Cadence, Inc. | |
NOx | Nitrogen Oxide | |
NRC | Nuclear Regularory Commission | |
NRG | NRG Energy, Inc. | |
OCC | Colorado Office of Consumer Counsel | |
OPEB | Other Postretirement Employee Benefits | |
Pawnee | Pawnee Steam Electric Generating Station | |
Pawnee 2 | Pawnee Steam Electric Generating Station, Unit 2 (proposed) | |
Planergy | The Planergy Group, Inc. | |
PRPs | Potentially Responsible Parties | |
PSCCC | PS Colorado Credit Corporation | |
PSCo | Public Service Company of Colorado | |
PSCo/SPS Merger | The business combination between the PSCo and SPS | |
PSCW | Public Service Commission of Wisconsin | |
PSRI | PSR Investments, Inc. | |
PUHCA | Public Utility Holding Company Act of 1935 | |
PUCT | Public Utility Commission of Texas | |
QF | Qualifying Facility | |
QFCCA | Qualifying Facilities Capacity Cost Adjustment | |
QSP | Quality of Service Plan | |
Quixx | Quixx Corporation and subsidiaries | |
SEC | Securities and Exchange Commission | |
Seren | Seren Innovations, Inc. | |
SDPUC | South Dakota Public Utilities Commission | |
SFAS | Statement of Financial Accounting Standards | |
SFAS 71 | SFAS No. 71"Accounting for the Effects of Certain Types of Regulation" | |
SFAS 101 | SFAS No. 101"Regulated EnterprisesAccounting for the Discontinuation of SFAS 71" | |
SFAS 106 | SFAS No. 106"Employers' Accounting for Postretirement Benefits Other Than Pensions" | |
SFAS 112 | SFAS No. 112"Employers' Accounting for Postemployment Benefits" | |
SFAS 123 | SFAS No. 123"Accounting for Stock-Based Compensation" | |
SFAS 133 | SFAS No. 133"Accounting for Derivative Instruments and Hedging Activities" | |
SO2 | Sulfur Dioxide | |
SPS | Southwestern Public Service Company | |
TOG | Texas-Ohio Gas, Inc. | |
Tri-State | Tri-State Generation and Transmission Association, Inc. | |
UE or Utility Engineering | Utility Engineering Corporation and subsidiaries | |
U.K. | United Kingdom | |
Viking | Viking Gas Transmission Company | |
WDNR | Wisconsin Department of Natural Resources | |
WPSC | Public Service Commission of Wyoming | |
Young Storage | Young Gas Storage Company, Ltd. | |
Yorkshire Electricity | Yorkshire Electricity Group, plc | |
Yorkshire Power | Yorkshire Power Group Ltd. |
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Item 2. Acquisition or Disposition of Assets
On August 18, 2000, following receipt of all required regulatory approvals, NSP and NCE merged and formed Xcel Energy Inc. Each share of NCE common stock was exchanged for 1.55 shares of Xcel Energy common stock and NSP shares became Xcel Energy shares on a one-for-one basis. Cash was paid in lieu of any fractional shares of Xcel Energy common stock.
The merger was structured as a tax-free, stock-for-stock exchange for stockholders of both companies (except for fractional shares), and accounted for as a pooling of interests. At the time of the merger, Xcel Energy was registered as a holding company under the Public Utility Holding Company Act of 1935.
A copy of the news release with respect to the NCE/NSP merger is attached as an exhibit to this report.
Item 7. Financial Statements and Exhibits
The following documents, previously filed with the SEC are incorporated by reference:
New Century Energies, Inc. Annual Report on Form 10-K and 10-K/A for the year ended Dec. 31, 1999 (1-12927). | |
Northern States Power Company Annual Report on Form 10-K for the year ended Dec. 31, 1999 (1-03034). | |
NRG Energy, Inc. Annual Report on Form 10-K for the year ended Dec. 31, 1999 (333-33397). | |
New Century Energies, Inc. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000, and June 30, 2000 (1-12927). | |
Northern States Power Company Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000, and June 30, 2000 (1-03034). | |
NRG Energy, Inc. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000 and June 20, 2000 (333-33397). | |
New Century Energies, Inc. Reports on Form 8-K dated April 19, 2000, June 1, 2000, and July 24, 2000 (1-12927). | |
Northern States Power Company Reports on Form 8-K dated Jan. 13, 2000, Feb 23, 2000, March 3, 2000, March 29, 2000 and May 26, 2000 (1-3034). | |
Agreement and Plan of Merger, dated March 24, 1999, by and between Northern States Power Company and New Century Energies, Inc. (Exhibit 2.1 to the Report on Form 8-K (File No. 1-12907) of New
Century Energies, Inc. dated March 24, 1999. |
(c) EXHIBITS
Exhibit No. |
Description |
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4.01 | Copy of Xcel Energy Inc.'s Amended and Restated Articles of Incorporation, as amended and restated on August 18, 2000 | |
23.01 | Consent of Independent AccountantsArthur Andersen LLP | |
23.02 | Consent of Independent AccountantsPricewaterhouseCoopers LLP | |
27.01 | Financial Data Schedule for the period ending Dec. 31, 1999 | |
27.02 | Financial Data Schedule for the period ending June 30, 2000 | |
99.01 | News Release of Xcel Energy Inc. dated August 17, 2000 | |
99.02 | Supplemental Consolidated Financial Statements | |
99.03 | Supplemental Consolidated Condensed Six Months Ended Financial Statements | |
99.04 | Statement pursuant to Private Securities Litigation Reform Act of 1995 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
XCEL ENERGY INC. (a Minnesota Corporation) |
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By |
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/s/ EDWARD J. MCINTYRE Edward J. McIntyre Vice President and Chief Financial Officer |
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August 21, 2000
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Exhibit 4.01
RESTATED ARTICLES OF INCORPORATION
OF
XCEL ENERGY INC.
(a Minnesota Corporation)
These Restated Articles of Incorporation of Xcel Energy, Inc. (formerly known as Northern States Power Company), a corporation incorporated under Chapter 302A of the Minnesota Statutes, the Minnesota Business Corporation Law, supersede and take the place of the existing Restated Articles of Incorporation and all prior amendments thereto.
The name of this corporation shall be Xcel Energy Inc. At the time of the adoption of these Articles, the address of the registered office of the Corporation is 414 Nicollet Mall, Minneapolis, Minnesota 55401.
The corporation is organized for general business purposes, including but not limited to acquiring, maintaining and operating facilities by or through which the corporation can provide communication, transportation, water, light, heat, or power to the public and to acquire and hold rights and franchises for the occupation and use of property for providing public utility services.
The period of duration of this Corporation shall be perpetual.
1. Names of Directors
The names and places of residence of directors of the Corporation at the time of the adoption of these Restated Articles (this reference to "these Restated Articles" refers to the Restated Articles filed on June 23, 1980(1)):
David A. Christensen, RR#3, Box 233, Sioux Falls, SD 57101 | |
W. John Driscoll, 357 Salem Church Road, St. Paul, MN 55118 | |
N. Bud Grossman, 3412 Oakridge Road, Apt. #210, Minnetonka, MN 55343 | |
Dale L. Haakenstad, 1342 South Ninth, Fargo, ND 58102 | |
Robert E. Haugan, 2 Shelby Place, St. Paul, MN 55116 | |
Richard H. Magnuson, 2141 Doswell Avenue, St. Paul, MN 55108 | |
Donald W. McCarthy, 2862 Gale Road, Wayzata, MN 55391 | |
M.D. McVay, 2201 Isengard Road, Minnetonka, MN 55343 | |
William G. Phillips, 2610 West Lafayette Road, Excelsior, MN 55331 | |
G. M. Pieschel, Route 2, Box 78, Springfield, MN 56087 | |
Margaret R. Preska, 10 Sumner Hills, Mankato, MN 56001 | |
D. B. Reinhart, 2425 Main Street, LaCrosse, WI 54601 | |
Dorothy J. Skwiera, 1260 West Larpenteur Avenue, Apt. #207, St. Paul, MN 55113 |
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2. Board of Directors
The management of this Corporation shall be vested in a Board of Directors composed of not less than three (3) and not more than seventeen (17) members, who shall be elected by the stockholders of the Corporation in the manner provided by the Bylaws. It shall not be necessary that directors be stockholders in the Corporation. The number of directors shall be fixed from time to time by the Bylaws, and such number may be increased or decreased within the above limits in such manner as may be provided by the Bylaws. Vacancies in the Board caused by an increase in the number of directors or by death, resignation, disqualification, or other cause, may be filled by the remaining directors or by the stockholders at an annual or special meeting, as may be provided by the Bylaws.
ARTICLE V. DESCRIPTION OF CAPITAL STOCK
The authorized number of shares that may be issued by the Corporation and that the Corporation will henceforth be authorized to have is one billion seven million (1,007,000,000) of the par value per share hereinafter set forth.
A description of the classes of shares and a statement of the number of shares in each class and the relative rights, voting power, and preferences granted to and restrictions imposed upon the shares of each class are as follows:
1. Authorized Number and Classes of Shares
Such shares shall be divided into two classes to be designated, respectively, Preferred Stock and Common Stock. The total authorized number of shares of Preferred Stock is seven million (7,000,000) having a par value of one hundred dollars ($100.00) per share, and the total authorized number of shares of Common Stock is one billion (1,000,000,000) having a par value of two dollars and fifty cents ($2.50) per share.
2. Issuance and Terms of Preferred Stock
The Preferred Stock may be issued in series, each of which series shall have such distinctive designation as may be fixed by the Board of Directors prior to the issuance or allotment of any share of such series, provided that such designation shall in each case include the words "Preferred Stock." The Board of Directors is hereby authorized, within the limitations and restrictions hereinafter stated, to fix from time to time, in respect of shares of Preferred Stock at the time unallotted, the dividend rates and times of payment, the redemption price, and liquidation price or preference as to assets in voluntary liquidation of the shares of any series of Preferred Stock (except the series designated "Cumulative Preferred Stock, $3.60 Series," in respect of which such provisions are hereinafter set forth) and the number of shares constituting any series of Preferred Stock.
3. Preferences of Preferred Stock
a. Dividends
The holders of shares of Preferred Stock, irrespective of the series thereof, shall be entitled to receive in preference to the Common Stock, when and as declared by the Board of Directors of the Corporation, out of its net earnings or surplus, cumulative dividends at such rate as shall have been fixed for the series of which such shares are a part, and no more, payable to shareholders of record on such dates and for such dividend periods as shall be fixed by the Board of Directors of the Corporation. So long as dividends are in default in whole or in part on a series of Preferred Stock for any prior dividend period for such series of Preferred Stock, any dividends on the Preferred Stock shall be divided among the outstanding series of Preferred Stock for which dividends are accumulated and unpaid for any prior dividend period applicable thereto in
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proportion to the aggregate amounts that then would be distributable to the holders of Preferred Stock of each such series if all dividends accumulated thereon and unpaid for all prior dividend periods applicable thereto were paid and declared thereon. Dividends on each share of Preferred Stock shall begin to accrue on the first day of the dividend period during which the original issue of a certificate for such share shall occur; provided, however, that, in the case of any series of Preferred Stock created after May 6, 1970, the Board of Directors, in its discretion, may fix the date of original issue of the shares of such series as the date from which dividends shall accrue.
b. Liquidation and Dissolution
In the event of any distribution of assets of the Corporation other than by dividends from net earnings or surplus, whether upon voluntary liquidation or dissolution or upon involuntary liquidation or dissolution of the Corporation, the holders of the shares of Preferred Stock shall be entitled, in preference to the Common Stock, to one hundred dollars ($100) per share in the case of involuntary liquidation or dissolution and to such amount per share in the case of voluntary liquidation or dissolution (which may differ from that payable in involuntary liquidation or dissolution) as shall have been fixed by the Board of Directors for the shares of the series of which they are a part, plus in each case an amount equal to all dividends accumulated and unpaid thereon, and no more. The consolidation or merger of this Corporation with or into any other corporation or corporations shall not be deemed to be a distribution of assets or liquidation or dissolution of the Corporation within the meaning of any provisions hereof.
If upon any such distribution of assets of the Corporation the assets distributable among the holders of the Preferred Stock of all series shall be insufficient to pay in full the amounts to which the holders of Preferred Stock of all series are entitled under the foregoing provisions, the amount distributable to the holders of all shares of Preferred Stock of all series shall be apportioned among them ratably in proportion to the amounts to which they are, respectively, entitled in accordance with such foregoing provisions.
c. Dividend Arrearages
Dividends may be paid upon the Common Stock only when dividends have been paid, or declared and set apart for payment in full, on the Preferred Stock of all series from the date on which dividends thereon began to accrue to the beginning of the current dividend periods, but whenever all such dividends have been paid, or declared and funds set apart for the payment thereof in full, upon the Preferred Stock of all series then dividends upon the Common Stock may be declared, payable then or thereafter out of any net earnings or surplus then remaining. The holders of Preferred Stock shall not be entitled to receive any amounts upon any distribution of the assets of the Corporation other than by dividends from net earnings or surplus in excess of the amount to which they are, respectively, entitled in accordance with the foregoing provisions hereof, but after the payment of such amounts in accordance with the provisions hereinabove set forth, the holders of Common Stock, subject to the rights of holders of stock of any other class hereafter authorized, shall receive all further amounts in distribution of such assets of the Corporation.
4. Redemption of Preferred Stock
The Corporation, at its option, may at any time and from time to time redeem the whole or any part of the Preferred Stock of any series or all series, upon at least thirty days' previous notice by mail or publication given to the holders of record of the shares to be redeemed or upon such other period and form of notice as shall be fixed by the Board of Directors in the resolution establishing such series, by paying for each share to be redeemed the redemption price which shall have been fixed, as herein provided, for the shares of the series of which it is a part plus in each case an amount equal to the
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dividends upon such shares so to be redeemed at the rate or rates fixed with respect to such shares from the date or dates on which dividends on such shares began to accrue to the date fixed for the redemption thereof less the amount of dividends theretofore paid thereon, such payment to be made only on presentation and surrender for cancellation of the certificate or certificates representing the share or shares so called for redemption properly endorsed or assigned by the owner of record thereof. If less than all the outstanding shares of the Preferred Stock are to be redeemed, the shares to be redeemed shall be determined by the Board of Directors of the Corporation, either by lot, or by redemption pro rata, as the Board of Directors see fit. If the notice of redemption hereinabove provided for shall have been given as hereinabove provided and if on or before the redemption date specified in such notice funds necessary for the redemption of the share or shares to be redeemed shall have been set apart, as a trust fund, so as to be available therefor, then notwithstanding that any certificate for the shares of Preferred Stock so to be redeemed shall not have been surrendered for cancellation, the shares represented thereby from and after the date of redemption so specified shall no longer be deemed outstanding and the right to receive dividends thereon shall cease to accrue and all rights of the holders of the shares to be redeemed as shareholders of the Corporation, except the right to receive the redemption price without interest upon endorsement and surrender of the certificates for said shares so redeemed, shall cease and terminate.
5. Voting Rights
a. Number of Votes
The holders of the Preferred Stock (other than Preferred Stock of the series designated "Cumulative Preferred Stock, $3.60 Series") shall be entitled to one vote for each share thereof held by them, the holders of Preferred Stock heretofore or hereafter issued of the series designated "Cumulative Preferred Stock, $3.60 Series" shall be entitled to three votes for each share thereof held by them, and the holders of the Common Stock shall be entitled to one vote for each share thereof held by them; provided, however, that:
(i) If and when dividends payable on the Preferred Stock of any series at the time outstanding are in default in an amount equivalent to the amount payable thereon during the immediately preceding twelve month period, and until such default shall have been remedied as hereinafter provided, the preferred shareholders, voting as a class and without regard to series, shall be entitled to elect the smallest number of directors necessary to constitute a majority of the full Board of Directors, and the common shareholders, voting separately as a class, shall be entitled to elect the remaining directors of the Corporation. Upon accrual of such special right of the Preferred Stock, a meeting of the preferred and the common shareholders for the election of directors shall be held upon notice promptly given as provided in the Bylaws for a special meeting by the President or the Secretary of the Corporation. If within fifteen days after the accrual of such special right of the Preferred Stock the President and the Secretary of the Corporation shall fail to call such meeting, then such meeting shall be held upon notice, as provided in the Bylaws for a special meeting, given by the holders of not less than 1,000 shares of the Preferred Stock after filing with the Corporation of notice of their intention to do so. The terms of office of all persons who may be directors of the Corporation at the time shall terminate upon the election of a majority of the Board of Directors by the preferred shareholders, whether or not the common shareholders shall at the time of such termination have elected the remaining directors of the Corporation; thereafter during the continuance of such special right of the Preferred Stock to elect a majority of the Board of Directors, the holders of such stock, voting as a class, shall be entitled to elect a majority of the Board of Directors and the holders of the Common Stock, voting separately as a class, shall be entitled to elect the remaining directors of the corporation; and all directors so elected, whether at such special meeting or any adjournment thereof, or at any subsequent
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annual meeting for the election of directors, held during the continuance of such special right, shall hold office until the next succeeding annual election and until their respective successors, elected by the preferred shareholders, voting as a class, and the common shareholders, voting as a class, are elected and qualified, unless their terms of office shall be sooner terminated as hereinafter provided. However, if and when all dividends then in default on the Preferred Stock shall thereafter be paid (and such dividends shall be declared and paid out of any funds legally available therefor as soon as reasonably practicable), the Preferred Stock shall thereupon be divested of such special right herein provided for to elect a majority of the Board of Directors, but subject always to the same provisions for the vesting of such special right in such stock in the case of any similar future default or defaults, and the election of directors by the preferred and common shareholders, voting without regard to class, shall take place at the next succeeding annual meeting for the election of directors, or at any adjournment thereof. The terms of office of all persons who may be directors of the Corporation at the time of such divestment shall terminate upon the election of the directors at such annual meeting or adjournment thereof.
b. First Meeting for Election of Directors
At the first meeting for the election of directors after any accrual of the special right of the preferred shareholders to elect a majority of the Board of Directors, as provided above, and at any subsequent annual meeting for the election of directors held during the continuance of such special right, the presence in person or by proxy of the holders of record of a majority of the outstanding shares of Preferred Stock without regard to series, shall be necessary to constitute a quorum for the election of the directors whom the preferred shareholders are entitled to elect, and the presence in person or by proxy of the holders of record of a majority of the outstanding shares of Common Stock shall be necessary to constitute a quorum for the election of the directors whom the common shareholders are entitled to elect. If at any such meeting there shall not be such a quorum of the preferred shareholders, the meeting shall be adjourned from time to time without notice other than announcement at the meeting until such quorum shall have been obtained; provided that, if such quorum shall not have been obtained within ninety (90) days from the date of such meeting as originally called (or, in the case of any annual meeting held during the continuance of such special right, from the date fixed for such annual meetings, the presence in person or by proxy of the holders of record of one-third of the outstanding shares of the Preferred Stock, without regard to series, shall then be sufficient to constitute a quorum for the election of the directors whom such shareholders are then entitled to elect. The absence of a quorum of the preferred shareholders as a class or of the common shareholders as a class shall not, except as hereinafter provided for, prevent or invalidate the election by the other class of shareholders of the directors whom they are entitled to elect, if the necessary quorum of shareholders of such other class is present in person or represented by proxy at any such meeting or any adjournment thereof. However, at the first meeting for the election of directors after any accrual of the special right of the preferred shareholders to elect a majority of the Board of Directors, the absence of a quorum of the preferred shareholders shall prevent the election of directors by the common shareholders, until a quorum of the preferred shareholders shall be obtained.
c. Cumulative Voting
The holders of shares of stock of any class entitled to vote at a meeting for the election of directors shall have the right to cumulate their votes at such election in the manner provided by the Minnesota Business Corporation Act.
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6. Special Voting Rights of Preferred Stock
a. Act Requiring Majority Vote of Preferred Stock
So long as any of the Preferred Stock is outstanding, the Corporation shall not, without the consent (given in writing or by vote at a meeting duly called for the purpose in accordance with the provisions of the Bylaws) of the holders of a majority of the total number of shares of such stock, without regard to series, present or represented by proxy at such meeting, at which meeting a quorum as hereinafter provided shall be present or represented by proxy, merge or consolidate with or into any other corporation or corporations, unless such merger or consolidation, or the issuance of assumption of all securities to be issued or assumed in connection with any such merger or consolidation, shall have been ordered, approved, or permitted by the Securities and Exchange Commission under the provisions of the Public Utility Holding Company Act of 1935 or by any successor commission or regulatory authority of the United States of America having jurisdiction in the premises; provided that the provisions of this Section 6(a) shall not apply to a purchase or other acquisition by the Corporation of the franchises or other assets of another corporation, or otherwise apply in any matter which does not involve a merger or consolidation.
b. Quorum of Preferred Stockholders
For the purpose of this Section 6, the presence in person or by proxy of the holders of record of a majority of the outstanding shares of Preferred Stock, without regard to series, shall be necessary to constitute a quorum; provided, that if such quorum shall not have been obtained at such meeting or at any adjournment thereof within thirty (30) days from the date of such meeting as originally called, the presence in person or by proxy of the holders of record of one-third (1/3) of the outstanding shares of such stock, without regard to series, shall then be sufficient to constitute a quorum; and provided further that in the absence of a quorum, such meeting or any adjournment thereof may be adjourned from time to time by the officer or officers of the Corporation who shall have called the meeting (but at intervals of not less than seven days unless all shareholders present or represented by proxy shall agree to a shorter interval) without notice other than announcement at the meeting until a quorum as above provided shall be obtained.
c. Acts which Include Redemption of Preferred Stock
No vote or consent of the holders of any series of the Preferred Stock shall be required, however, if, at or prior to the issue of any such securities representing unsecured indebtedness, or such consolidation, merger, or sale, provision is made for the redemption or other retirement of all shares of such series then outstanding.
d. Additional to Other Voting Requirements
The provisions set forth in this Section 6 are in addition to any other vote required by any provision of the Articles of Incorporation of the Corporation, as amended, or applicable statute, and shall be so construed.
7. Increase in Amount of Preferred Stock
So long as any of the Preferred Stock is outstanding, the Corporation shall not, without the consent (given by vote at a meeting duly called for the purpose in accordance with the provisions of the Bylaws) of the holders of a majority of the total number of shares of such stock then outstanding, without regard to class or series, present or represented by proxy at such meeting, increase the total authorized amount of Preferred Stock (other than as authorized by this Article V) or authorize any
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other preferred stock ranking on a parity with the Preferred Stock as to assets or dividends (other than through the reclassification of then authorized but unissued shares of Preferred Stock into shares of such other preferred stock).
8. Issuance of Stock Preferred over Preferred Stock
So long as any of the Preferred Stock is outstanding, the Corporation shall not, without the consent (given by vote at a meeting duly called for the purpose in accordance with the provisions of the Bylaws) of the holders of at least sixty-six and two-thirds per cent (662/3%) of the total number of shares of Preferred Stock, without regard to series, then outstanding, present or represented by proxy at such meeting, authorize any class of stock which shall be preferred as to assets or dividends over the Preferred Stock; or, without the consent of the holders of at least sixty-six and two-thirds per cent (662/3%) of the total number of shares of Preferred Stock then outstanding, given as above provided in this Section 8, amend the Articles of Incorporation to change the express terms and provisions of the Preferred Stock in any manner substantially prejudicial to the holders thereof.
9. Effecting and Validating Additional Stock or Securities Convertible into Stock
So long as any shares of Preferred Stock are outstanding, the consent of the holders of at least two-thirds (2/3) of the Preferred Stock at the time outstanding, voting as a class and without regard to series, given in person or by proxy, either in writing or by vote at any meeting called for the purpose, shall be necessary for effecting or validating the issue of any additional shares of Preferred Stock (other than and not exceeding 275,000 shares of the Cumulative Preferred Stock, $3.60 Series), or any shares of stock, or of any security convertible into stock, of any class ranking on a parity with the Preferred Stock, unless
(i) the net income of the Corporation (determined as hereinafter provided) for any twelve consecutive calendar months within the fifteen calendar months immediately preceding the month within which the issuance of such additional shares is authorized by the Board of Directors of the Corporation shall have been in the aggregate not less than one and one half times the sum of the interest requirements for one year on all of the indebtedness of the Corporation to be outstanding at the date of such proposed issue and the full dividend requirements for one year on all shares of Preferred Stock, and all other stock, if any, ranking prior to or on a parity with the Preferred Stock, to be outstanding at the date of such proposed issue, including the shares then proposed to be issued but excluding any such indebtedness and any such shares proposed to be retired in connection with such proposed issue. For purposes of calculating the dividend requirements for one year applicable to any series of Preferred Stock proposed to be issued which will have dividends determined according to an adjustable, floating or variable rate, the dividend rate used shall be the higher of (A) the dividend rate applicable to such series of Preferred Stock on the date of such calculation, or (B) the average dividend rate payable on all series of Preferred Stock outstanding during the twelve month period immediately preceding the date of such calculation. For purposes of calculating the dividend or interest requirements for one year applicable to any series of Preferred Stock or indebtedness outstanding at the date of such proposed issue and having dividends or interest determined according to an adjustable, floating or variable rate, the dividend or interest rate used shall be: (A) if such series of Preferred Stock or indebtedness has been outstanding for at least twelve months, the actual amount of dividends or interest paid on account of such series of Preferred Stock or indebtedness for the twelve month period immediately preceding the date of such calculation, or (B) if such series of Preferred Stock or indebtedness has been outstanding for less than twelve months, the higher of (1) the dividend or interest rate applicable to such series of Preferred Stock or indebtedness on the date of such calculation or (2) the average dividend or
7
interest rate payable on all series of Preferred Stock or indebtedness outstanding during the twelve month period immediately preceding the date of such calculation. "Net income" for any period for the purpose of this Section 9 shall be computed by adding to the net income of the Corporation for said period, determined in accordance with generally accepted accounting practices, as adjusted by action of the Board of Directors of the Corporation as hereinafter provided, the amount deducted for interest before arriving at such net income (adjusted as above provided). In determining such net income for any period, there shall be deducted the provisions for depreciation and depletion as recorded on such books or the minimum amount required therefor under the provisions of any then existing trust indenture or supplements thereto of the Corporation, whichever is larger. In the determination of such net income, the Board of Directors of the Corporation may, in the exercise of due discretion, make adjustments by way of increase or decrease in such net income to give effect to changes therein resulting from any acquisition of properties or to any redemption, acquisition, purchase, sale, or exchange of securities by the Corporation either prior to the issuance of any shares of Preferred Stock, or stock, or securities convertible into stock, ranking on a parity therewith then to be issued or in connection therewith; and
(ii) the aggregate of the capital of the Corporation applicable to all stock of any class ranking junior to the Preferred Stock, plus the surplus of the Corporation, shall be not less than the aggregate amount payable upon involuntary liquidation, dissolution, or winding up of the affairs of the Corporation to the holders of all shares of Preferred Stock and of any shares of stock of any class ranking on a parity therewith to be outstanding immediately after such proposed issue, excluding from such computation all indebtedness and stock to be retired through such proposed issue. No portion of the surplus of the Corporation utilized to satisfy the foregoing requirements shall be available for dividends (other than dividends payable in stock of any class ranking junior to the Preferred Stock) or other distributions upon or in respect of shares of stock of the Corporation of any class ranking junior to the Preferred Stock for the purchase of shares of such junior stock until such number of additional shares of Preferred Stock or of stock, or securities convertible into stock, ranking on a parity with the Preferred Stock are retired or until and to the extent that the capital applicable to such junior stock shall have been increased.
10. Dividends on Common Stock
So long as any shares of the Preferred Stock are outstanding, the Corporation shall not pay any dividends on its Common Stock (other than dividends payable in Common Stock) or make any distribution on or purchase or otherwise acquire for value any of its Common Stock (each such payment, distribution, purchase and/or acquisition being herein referred to as a "Common Stock dividend"), except to the extent permitted by the following provisions of this Section 10:
a. No Common Stock dividend shall be declared or paid in an amount which, together with all other Common Stock dividends declared in the year ending on (and including) the date of the declaration of such Common Stock dividend, would in the aggregate exceed fifty per cent (50%) of the net income of the Corporation for the period consisting of the twelve consecutive calendar months ending on the last day of the second calendar month next preceding the declaration of such Common Stock dividend after deducting from such net income, dividends accruing on any preferred stock of the Corporation during such period, if at the end of such period the ratio (herein referred to as the "capitalization ratio") of the sum of (1) the capital represented by the Common Stock (including premiums on capital stock) and (2) the surplus accounts, of the Corporation, to the sum of (1) the total capital and (2) the surplus accounts, of the Corporation (after adjustment of the surplus accounts to reflect payment of such Common Stock dividend) would be less than twenty per cent (20%).
8
b. If such capitalization ratio, determined as aforesaid shall be twenty per- cent (20%) or more, but less than twenty-five per cent (25%) no Common Stock dividend shall be declared or paid in an amount which, together with all other Common Stock dividends declared in the year ending on (and including) the date of the declaration of such Common Stock dividend, would in the aggregate exceed seventy-five per cent (75%) of the net income of the Corporation for the period consisting of the twelve consecutive calendar months ending on the last day of the second calendar month next preceding the declaration of such Common Stock dividend after deducting from such net income, dividends accruing on any preferred stock of the Corporation during such period; and
c. If such capitalization ratio, determined as aforesaid, shall be in excess of twenty-five per cent (25%), no Common Stock dividend shall be declared or paid which would reduce such capitalization ratio to less than twenty-five per cent (25%) except to the extent permitted by the next preceding paragraphs (a) and (b) hereof. For the purpose of this condition:
(i) The total capital of the Corporation shall be deemed to consist of the aggregate of (1) the principal amount of all outstanding indebtedness of the Corporation maturing more than one year after the date of issue thereof and (2) the par value of or the stated capital applicable to all outstanding capital stock (including premiums on capital stock) of all classes of the Corporation. All indebtedness and capital stock owned by the Corporation shall be excluded in determining total capital. Surplus accounts shall be deemed to include all earned surplus, paid-in surplus, capital surplus, or any other surplus of the Corporation.
(ii) Such surplus accounts upon which capitalization ratios are computed shall be adjusted to eliminate (1) the amount, if any, by which fifteen per cent (15%) of the gross operating revenues of the Corporation (calculated in the manner provided in the covenants relating to payment of Common Stock dividends embodied in the indentures and supplemental indentures securing the mortgage bonds of the Corporation) for the entire period from July 1, 1946, to the end of the second calendar month immediately preceding the date of the proposed payment of Common Stock dividends exceeds the total amount expended by the Corporation during such period for maintenance and repairs and the total provision made by the Corporation during such period for depreciation, all as shown by the books of the Corporation, and (2) any amounts on the books of the Corporation known or estimated, if not known, to represent the excess, if any, of recorded value over original cost of used and useful utility plant and other property, and any item set forth on the asset side of the balance sheet of the Corporation as a result of accounting convention, such as unamortized debt discount and expense, capital stock discount and expense, and the excess, if any, of the aggregate amount payable on involuntary dissolution, liquidation, or winding up of the Corporation upon all outstanding shares of preferred stock of all series over the aggregate stated or par value of such shares, unless any such amount or item, as the case may be, is being amortized or is being provided for by a reserve; and
(iii) In computing net income of the Corporation applicable to the Common Stock of the Corporation for any particular twelve (12) months' period for the purpose of this condition, operating expenses, among other things, shall include the greater of (1) the provision for depreciation for such period as recorded on the books of the Corporation or (2) the amount by which fifteen per cent (15%) of the gross operating revenues of the Corporation for such period (calculated in the manner provided in the above mentioned covenants relating to payment of Common Stock dividends) exceeds the total amount expended by the Corporation during such periods for maintenance and repairs as shown by the books of the Corporation.
9
11. Acceptance of Shares
In consideration of the issue by the Corporation, and the acceptance by the holders thereof, of shares of the capital stock of the Corporation, each and every present and future holder of shares of the Preferred Stock, the Common Stock and of any stock hereafter authorized of the Corporation shall be conclusively deemed, by acquiring or holding such shares, to have expressly consented to all and singular the terms and provisions of this Article V and to have agreed that the voting rights of such holder and the restrictions and qualifications thereof shall be as set forth in this Article.
12. Outstanding Stock or Evidence of Indebtedness
No share of stock or evidence of indebtedness shall be deemed to be "outstanding," as that term is used in this Article V, if, prior to or concurrently with the event in reference to which a determination as to the amount thereof outstanding is to be made, the requisite funds for the redemption thereof shall be deposited in trust for that purpose and the requisite notice for the redemption thereof shall be given or the depositary of such funds shall be irrevocably authorized and directed to give or complete such notice of redemption.
13. Rights of Unissued Stock or Other Securities
No holder of any stock of the Corporation shall be entitled, as of right, to purchase or subscribe for any part of any issued shares of stock of the Corporation or for any additional shares of stock, of any class or series, which may at any time be issued, whether now or hereafter authorized, or for any rights, options, or warrants to purchase or receive shares of stock or for any bonds, certificates of indebtedness, debentures, or other securities convertible into shares of stock, or any class or series thereof; but any such unissued or additional shares, rights, options, or warrants or convertible securities of the Corporation may, from time to time, be issued and disposed of by the Board of Directors to such persons, firms, corporations or associations, and upon such terms, as the Board of Directors may, in its discretion, determine, without offering any part thereof to any shareholders of any class or series then of record; and any shares, rights, options or warrants or convertible securities which the Board of Directors may at any time determine to offer to shareholders for subscription may be offered to holders of shares of any class or series at the time existing, to the exclusion of holders of shares of any or all other classes or series at the time existing, in each case as the Board of Directors may, in its discretion, determine.
14. Series of Preferred Stock
a. Cumulative Preferred Stock, $3.60 Series
Anything herein to the contrary notwithstanding, there shall be and is hereby created a series of preferred stock which is hereby designated "Cumulative Preferred Stock, $3.60 Series," dividends on which shares of Cumulative Preferred Stock, $3.60 Series, shall be payable, if declared, on the 15th days of January, April, July, and October of each year; which dividends shall be cumulative from the first day of the respective quarter-yearly period in which the respective shares of such series shall have been originally issued, the term "quarter-yearly period" as used herein referred to the period from July 1, 1946, to and including September 30, 1946, and thereafter to each quarter-yearly period of three (3) consecutive months, beginning with October 1, 1946; the dividend rate of which series is hereby fixed at Three Dollars and Sixty Cents ($3.60) per share per annum; the redemption price of the shares of which series is hereby fixed at One Hundred and Five Dollars and Seventy Five Cents ($105.75) per share in case of redemption on or prior to September 30, 1951; One Hundred and Four Dollars and Seventy Five Cents ($104.75) per share in case of redemption subsequent to September 30, 1951, and on or prior to September 30, 1956; and One Hundred and Three Dollars and Seventy Five Cents ($103.75) per share in case of
10
redemption subsequent to September 30, 1956, in each case plus the amount payable thereon in accordance with the provisions hereof equal to the cumulative dividends accrued and unpaid thereon; the amount which the shares of such series are entitled to receive in preference to the Common Stock upon any distribution of assets other than by dividends from net earnings or surplus upon voluntary liquidation or dissolution of the Corporation is hereby fixed at the then redemption price thereof, plus the amount payable thereon in accordance with the provisions hereof equal to the cumulative dividends accrued and unpaid thereon; the amount which the shares of such series are entitled to receive in preference to the Common Stock upon any distribution of assets, other than by dividends from net earnings or surplus, upon any involuntary liquidation or dissolution of the Corporation is hereby fixed at One Hundred Dollars ($100) per share, plus the amount payable thereon in accordance with the provisions hereof equal to the cumulative dividends accrued and unpaid thereon.
b. Cumulative Preferred Stock, $4.10 Series
(i) There be and there hereby is created from the authorized and unallotted shares of Preferred Stock of the Company, a new series of Preferred Stock of the Company which is hereby designated "Cumulative Preferred Stock, $4.10 Series," and the number of shares constituting said new series is hereby fixed at 175,000 shares.
(ii) The dividend rate of the shares of said new series is hereby fixed at $4.10 per share per annum; dividends on said shares shall be payable on the 15th day of January, April, July and October for the quarter-yearly period ending with the last day of the preceding month, when and as declared by the Board of Directors.
(iii) The redemption price of the shares of said new series is hereby fixed at $105.50 per share in case of redemption on or prior to December 31, 1955; $104.50 per share in case of redemption subsequent to December 31, 1955 and on or prior to December 31, 1960; $103.50 per share in case of redemption subsequent to December 31, 1960 and on or prior to December 31, 1965; and $102.50 per share in case of redemption subsequent to December 31, 1965; plus in each case an amount equal to the dividends at the rate of $4.10 per share per annum from the date dividends on the shares to be redeemed began to accrue to the date fixed for redemption thereof less the amount of dividends theretofore paid thereon.
(iv) The amount which the shares of said new series are entitled to receive in preference to the Common Stock upon any distribution of assets, other than by dividends from net earnings or surplus, upon any involuntary liquidation or dissolution of the corporation is hereby fixed at $100 per share plus an amount equal to all dividends accumulated and unpaid thereon and the amount which the shares of said new series are entitled to receive in preference to the Common Stock upon any distribution of assets, other than by dividends from net earnings or surplus, upon voluntary liquidation or dissolution of the corporation is hereby fixed as the then redemption price, including an amount equal to all dividends accumulated and unpaid thereon.
c. Cumulative Preferred Stock, $4.08 Series
(i) There be and there hereby is created from the authorized and unallotted shares of Preferred Stock of the Company, a new series of Preferred Stock of the Company which is hereby designated "Cumulative Preferred Stock, $4.08 Series," and the number of shares constituting said new series is hereby fixed at 150,000 shares.
(ii) The dividend rate of the shares of said new series is hereby fixed at $4.08 per share per annum; dividends on said shares shall be payable on the 15th day of January, April, July
11
and October for the quarter-yearly period ending with the last day of the preceding month, when and as declared by the Board of Directors.
(iii) The redemption price of the shares of said new series is hereby fixed at $105 per share in case of redemption on or prior to December 31, 1959; $104 per share in case of redemption subsequent to December 31, 1959 and on or prior to December 31, 1964; $103 per share in case of redemption subsequent to December 31, 1964 and on or prior to December 31, 1969; and $102 per share in case of redemption subsequent to December 31, 1969; plus in each case an amount equal to the dividends at the rate of $4.08 per share per annum from the date dividends on the shares to be redeemed began to accrue to the date fixed for redemption thereof less the amount of dividends theretofore paid thereon.
(iv) The amount which the shares of said new series are entitled to receive in preference to the Common Stock upon any distribution of assets, other than by dividends from net earnings or surplus, upon voluntary liquidation or dissolution of the corporation is hereby fixed as the then redemption price, including an amount equal to all dividends accumulated and unpaid thereon.
d. Cumulative Preferred Stock, $4.11 Series
(i) There be and there hereby is created from the authorized and unallotted shares of Preferred Stock of the Company, a new series of Preferred Stock of the Company which is hereby designated "Cumulative Preferred Stock, $4.11 Series," and the number of shares constituting said new series is hereby fixed at 200,000 shares.
(ii) The dividend rate of the shares of said new series is hereby fixed at $4.11 per share per annum; dividends on said shares shall be payable on the 15th day of January, April, July and October for the quarter-yearly period ending with the last day of the preceding month, when and as declared by the Board of Directors.
(iii) The redemption prices of the shares of said new series are hereby fixed at $105.732 per share in case of redemption on or prior to December 31, 1959; $104.732 per share in case of redemption subsequent to December 31, 1959 and on or prior to December 31, 1964; and $103.732 per share in case of redemption subsequent to December 31, 1964; plus in each case an amount equal to the dividends at the rate of $4.11 per share per annum from the date dividends on the shares to be redeemed began to accrue to the date fixed for redemption thereof less the amount of dividends theretofore paid thereon.
(iv) The amount which the shares of said new series are entitled to receive in preference to the Common Stock upon any distribution of assets, other than by dividends from net earnings or surplus, upon voluntary liquidation or dissolution of the corporation is hereby fixed as the then redemption price, plus an amount equal to all dividends accumulated and unpaid thereon.
e. Cumulative Preferred Stock, $4.16 Series
(i) There be and there hereby is created from the authorized and unallotted shares of Preferred Stock of the Company, a new series of Preferred Stock of the Company which is hereby designated "Cumulative Preferred Stock, $4.16 Series," and the number of shares constituting said new series is hereby fixed at 100,000 shares.
(ii) The dividend rate of the shares of said new series is hereby fixed at $4.16 per share per annum; dividends on said shares shall be payable on the 15th day of January, April, July and October for the quarter-yearly period ending with the last day of the preceding month, when and as declared by the Board of Directors.
12
(iii) The redemption prices of the shares of said new series are hereby fixed at $106.25 per share in case of redemption on or prior to December 31, 1961; $105.75 per share in case of redemption subsequent to December 31, 1961 and on or prior to December 31, 1966; $104.75 per share in case of redemption subsequent to December 31, 1966 and on or prior to December 31, 1971; and $103.75 per share in case of redemption subsequent to December 31, 1971; plus in each case an amount equal to the dividends at the rate of $4.16 per share per annum from the date dividends on the shares to be redeemed began to accrue to the date fixed for redemption thereof, less the amount of dividends theretofore paid thereon.
(iv) The amount which the shares of said new series are entitled to receive in preference to the Common Stock upon any distribution of assets, other than by dividends from net earnings or surplus, upon voluntary liquidation or dissolution of the corporation is hereby fixed as the then redemption price, plus an amount equal to all dividends accumulated and unpaid thereon.
f. Cumulative Preferred Stock, $4.56 Series
(i) There be and there hereby is created from the authorized and unallotted shares of Preferred Stock of the Company, a new series of Preferred Stock of the Company which is hereby designated "Cumulative Preferred Stock, $4.56 Series," and the number of shares constituting said new series is hereby fixed at 150,000 shares.
(ii) The dividend rate of the shares of said new series is hereby fixed at $4.56 per share per annum; dividends on said shares shall be payable on the 15th day of January, April, July and October for the quarter-yearly period ending with the last day of the preceding month, when and as declared by the Board of Directors.
(iii) The redemption prices of the shares of said new series are hereby fixed at $105.89 per share in case of redemption on or prior to December 31, 1969; $104.75 per share in case of redemption subsequent to December 31, 1969 and on or prior to December 31, 1974; $103.64 per share in case of redemption subsequent to December 31, 1974 and on or prior to December 31, 1979; and $102.47 per share in case of redemption subsequent to December 31, 1979; plus in each case an amount equal to the dividends at the rate of $4.56 per share per annum from the date dividends on the shares to be redeemed began to accrue to the date fixed for redemption thereof, less the amount of dividends theretofore paid thereon.
(iv) The amount which the shares of said new series are entitled to receive in preference to the Common Stock upon any distribution of assets, other than by dividends from net earnings or surplus, upon voluntary liquidation or dissolution of the corporation is hereby fixed as the then redemption price, including an amount equal to all dividends accumulated and unpaid thereon.
ARTICLE VI. LIMITATION OF DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except to the extent provided by applicable law for (i) liability based on a breach of the duty of loyalty to the Corporation or the shareholders; (ii) liability for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) liability based on the payment of an improper dividend or an improper repurchase of the Corporation's stock under Section 559 of the Minnesota Business Corporation Act (Minnesota Statues, Chap. 302A) or for liability arising under Section 80A.23 of Minnesota Statutes for the unlawful sale of securities; (iv) liability for any transaction from which the director derived an improper personal benefit; or (v) liability for any act or omission occurring prior to the date this Article VI becomes effective. If the Minnesota Business Corporation Act is further
13
amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by any amendment to the Minnesota Business Corporation Act. Any repeal or modification of this Article by the shareholders of the Corporation shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification.
Authority to make and alter the Bylaws of the Corporation is hereby vested in the Board of Directors of the Corporation, subject to the power of the stockholders to change or repeal such Bylaws; provided, however, the Board of Directors shall not make or alter any bylaw fixing their number, qualifications, classifications, or term of office.
14
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 8-K into the Company's previously filed Registration Statement on Form S-3 No. 333-35482 (relating to the offering by certain selling shareholders for common stock), Registration Statement on Form S-3A No. 333-36270 (relating to the Xcel Energy Inc. Direct Purchase Plan), Registration Statements on Form S-3 No. 333-00415 and 333-91497 (relating to the Northern States Power Company Dividend Reinvestment and Stock Purchase Plan), Registration Statement on Form S-8 No. 2-61264 (relating to the Northern States Power Company Employee Stock Ownership Plan), Registration Statements on Form S-8 No. 33-38700 and 333-91495 (relating to the Northern States Power Company Executive Long-Term Incentive Award Stock Plan), Registration Statement on Form S-3 No. 33-63243 (relating to the Northern States Power Company $300,000,000 Principal Amount of First Mortgage Bonds), Registration Statement on Form S-3 No. 333-67675 (relating to the Northern States Power Company $400,000,000 Principal Amount of Debt Securities), Registration Statement on Form S-4A No. 333-76989 (relating to Northern States Power Company's merger with New Century Energies, Inc.) and we hearby consent to the incorporation by reference in this Form 8-K of our report dated February 15, 2000, included in the New Century Energies, Inc. Annual Report of Form 10-K for the year ended December 31, 1999. It should be noted that we have not audited any financial statements of New Century Energies, Inc. subsequent to December 31, 1999 or performed any audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Denver,
Colorado,
August 18, 2000.
1
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 No. 333-35482 (relating to the offering by certain selling shareholders for common stock), Registration Statement on Form S-3A No. 333-36270 (relating to the Xcel Energy Inc. Direct Purchase Plan), Registration Statements on Form S-3 No. 333-00415 and 333-91497 (relating to the Northern States Power Company Dividend Reinvestment and Stock Purchase Plan), Registration Statement on Form S-8 No. 2-61264 (relating to the Northern States Power Company Employee Stock Ownership Plan), Registration Statements on Form S-8 No. 33-38700 and 333-91495 (relating to the Northern States Power Company Executive Long-Term Incentive Award Stock Plan), Registration Statement on Form S-3 No. 33-63243 (relating to the Northern States Power Company $300,000,000 Principal Amount of First Mortgage Bonds), Registration Statement on Form S-3 No. 333-67675 (relating to the Northern States Power Company $400,000,000 Principal Amount of Debt Securities) and Registration Statement on Form S-4A No. 333-76989 (relating to Northern States Power Company's merger with New Century Energies, Inc.) of our report dated January 31, 2000, except as to Note 2, which is as of February 22, 2000, relating to the consolidated financial statements of Northern States Power Company, which appears in this Form 8-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis,
Minnesota,
August 18, 2000.
1
<TABLE> <S> <C> <ARTICLE> UT <LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENTS OF INCOME, BALANCE SHEETS, STATEMENTS OF CAPITALIZATION, STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. </LEGEND> <MULTIPLIER> 1,000 <S> <C> <PERIOD-TYPE> 12-MOS <FISCAL-YEAR-END> DEC-31-1999 <PERIOD-END> DEC-31-1999 <BOOK-VALUE> PER-BOOK <TOTAL-NET-UTILITY-PLANT> 10,145,284 <OTHER-PROPERTY-AND-INVEST> 4,606,678 <TOTAL-CURRENT-ASSETS> 2,060,944 <TOTAL-DEFERRED-CHARGES> 566,727 <OTHER-ASSETS> 690,725 <TOTAL-ASSETS> 18,070,358 <COMMON> 838,193 <CAPITAL-SURPLUS-PAID-IN> 2,288,254 <RETAINED-EARNINGS> 2,253,800 <TOTAL-COMMON-STOCKHOLDERS-EQ> 5,290,220<F1> <PREFERRED-MANDATORY> 494,000 <PREFERRED> 105,340 <LONG-TERM-DEBT-NET> 5,827,485 <SHORT-TERM-NOTES> 399,159 <LONG-TERM-NOTES-PAYABLE> 0 <COMMERCIAL-PAPER-OBLIGATIONS> 1,033,527 <LONG-TERM-DEBT-CURRENT-PORT> 431,049 <PREFERRED-STOCK-CURRENT> 0 <CAPITAL-LEASE-OBLIGATIONS> 56,645 <LEASES-CURRENT> 0 <OTHER-ITEMS-CAPITAL-AND-LIAB> 4,432,933<F1> <TOT-CAPITALIZATION-AND-LIAB> 18,070,358 <GROSS-OPERATING-REVENUE> 6,869,404 <INCOME-TAX-EXPENSE> 179,673 <OTHER-OPERATING-EXPENSES> 5,646,847 <TOTAL-OPERATING-EXPENSES> 5,646,847 <OPERATING-INCOME-LOSS> 1,222,557 <OTHER-INCOME-NET> (18,874) <INCOME-BEFORE-INTEREST-EXPEN> 1,024,010 <TOTAL-INTEREST-EXPENSE> 453,077 <NET-INCOME> 570,933 <PREFERRED-STOCK-DIVIDENDS> 5,292 <EARNINGS-AVAILABLE-FOR-COMM> 565,641 <COMMON-STOCK-DIVIDENDS> 489,913 <TOTAL-INTEREST-ON-BONDS> 283,662 <CASH-FLOW-OPERATIONS> 1,325,429 <EPS-BASIC> 1.70 <EPS-DILUTED> 1.70 <FN> <F1>Note 1 - ($90,027) thousand of Common Stockholders' Equity is classified as Other Items-Capitalization and Liabilities. This represents the net of leveraged common stock held by the Employee Stock Ownership Plan, currency translation adjustments, and investment valuation reserve. </FN> </TABLE>
<TABLE> <S> <C> <ARTICLE> UT <LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENTS OF INCOME, BALANCE SHEETS, STATEMENTS OF CAPITALIZATION, STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. </LEGEND> <MULTIPLIER> 1,000 <S> <C> <PERIOD-TYPE> 6-MOS <FISCAL-YEAR-END> DEC-31-1999 <PERIOD-END> JUN-30-2000 <BOOK-VALUE> PER-BOOK <TOTAL-NET-UTILITY-PLANT> 10,211,072 <OTHER-PROPERTY-AND-INVEST> 6,481,477 <TOTAL-CURRENT-ASSETS> 2,222,401 <TOTAL-DEFERRED-CHARGES> 564,498 <OTHER-ASSETS> 855,168 <TOTAL-ASSETS> 20,334,616 <COMMON> 845,643 <CAPITAL-SURPLUS-PAID-IN> 2,555,397 <RETAINED-EARNINGS> 2,298,335 <TOTAL-COMMON-STOCKHOLDERS-EQ> 5,550,447<F1> <PREFERRED-MANDATORY> 494,000 <PREFERRED> 105,340 <LONG-TERM-DEBT-NET> 7,087,558 <SHORT-TERM-NOTES> 189,704 <LONG-TERM-NOTES-PAYABLE> 0 <COMMERCIAL-PAPER-OBLIGATIONS> 1,333,395 <LONG-TERM-DEBT-CURRENT-PORT> 557,762 <PREFERRED-STOCK-CURRENT> 0 <CAPITAL-LEASE-OBLIGATIONS> 55,347 <LEASES-CURRENT> 0 <OTHER-ITEMS-CAPITAL-AND-LIAB> 4,961,063<F1> <TOT-CAPITALIZATION-AND-LIAB> 20,334,616 <GROSS-OPERATING-REVENUE> 4,208,362 <INCOME-TAX-EXPENSE> 144,979 <OTHER-OPERATING-EXPENSES> 3,409,433 <TOTAL-OPERATING-EXPENSES> 3,409,433 <OPERATING-INCOME-LOSS> 798,929 <OTHER-INCOME-NET> (13,242) <INCOME-BEFORE-INTEREST-EXPEN> 640,708 <TOTAL-INTEREST-EXPENSE> 330,636 <NET-INCOME> 296,414 <PREFERRED-STOCK-DIVIDENDS> 2,121 <EARNINGS-AVAILABLE-FOR-COMM> 294,293 <COMMON-STOCK-DIVIDENDS> 249,758 <TOTAL-INTEREST-ON-BONDS> 189,086 <CASH-FLOW-OPERATIONS> 670,361 <EPS-BASIC> .87 <EPS-DILUTED> .87 <FN> <F1>Note 1 - ($148,928) thousand of Common Stockholders' Equity is classified as Other Items-Capitalization and Liabilities. This represents the net of leveraged common stock held by the Employee Stock Ownership Plan, currency translation adjustments, and investment valuation reserve. </FN> </TABLE>QuickLinks -- Click here to rapidly navigate through this document
Exhibit 99.01News Release
Joint News ReleaseNew Centuries Energy and Northern States Power Company
For NCE: | For NSP: | |
Media Relations | Media Relations | |
(303) 294-8900 | (612) 337-2167 | |
Investors, Mike Pritchard | Investors, Dick Kolkmann | |
(303) 294-2588 | (612) 330-6622 | |
www.ncenergies.com | www.nspco.com |
August 17, 2000
Xcel Energy Inc. born as merger receives final approval from SEC
Stock trading to begin August 21
MINNEAPOLIS AND DENVERJust 17 months after announcement of merger plans, Minneapolis-based Northern States Power Co. and Denver-based New Century Energies have cleared the last hurdle to combine under the new name Xcel Energy Inc. The merger creates one of the 10 largest electricity and natural gas companies in the United States.
The Securities and Exchange Commission issued its approval of the merger, wrapping up approvals from several federal agencies and states where the companies operate.
Xcel Energy will serve more than 3 million electricity and 1.5 million natural gas customers in 12 states, and 2 million electricity customers internationally. Company headquarters will be in Minneapolis.
Stock will begin trading on the New York Stock Exchange on August 21, under the symbol XEL. Current New Century Energies shareholders will receive 1.55 shares of Xcel Energy stock for each share of NCE they hold. NSP shareholders will get one for one and will not be required to exchange their existing NSP stock.
The merger proposal was announced March 25, 1999, and completed in less than a year and a half. "This has been an incredibly successful merger process," said Jim Howard, Xcel chairman. "It demonstrates what can be accomplished when regulators, environmentalists, community leaders and the merger partners all work in a common directionto create a better utility company for the future."
Wayne Brunetti, Xcel president and chief executive officer, echoed Howard's comments. "I can think of no comparable energy industry merger completed so quickly," Brunetti said. "This is clearly a good idea, for communities stretching from the North Star state to the Lone Star state. Customers will benefit from low-cost energy and world-class service from skilled, dedicated employees."
From the outset, merger teams from both companies sought out stakeholders such as consumer advocates and environmentalists in the various states, giving them a voice in the process. Settlements provide rate cuts and freezes, and guarantees of excellent customer service and continuing environmental initiatives. The states needing to approve the merger did so relatively quickly, during the first five months of this year.
The merger is expected to result in more than $1.1 billion in cost savings over the next 10 years, benefiting customers and shareholders. "We'll have a company ready to compete in the future, with a size and scale that will allow us to control our own destiny as the electricity industry is restructured," Brunetti said. "Our strength will come from a base of millions of customers spread over a large area, combined with our rapidly growing non-regulated businesses like NRG Energy, now the seventh largest independent power producer in the world."
With approval in state and federal arenas, only paperwork remains to finalize the merger. Customers will begin to see a changeover to the new name and logo over a period of several months.
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Gradually, the NSP and NCE names will be phased out as Xcel Energy provides enhanced products and services in 12 states, including parts of Minnesota, Colorado, Wisconsin, Texas, Michigan, Kansas, Oklahoma, Arizona, New Mexico, North Dakota, South Dakota, and Wyoming.
"We were able to achieve a timely approval of this merger through a disciplined and focused approach," Brunetti said. "That approach will make Xcel Energy a success for customers, employees, shareholders and the communities we serve."
###
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Exhibit 99.02Supplemental Consolidated Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS
Xcel Energy Inc., a Minnesota corporation, is a registered holding company under the Public Utility Holding Company Act of 1935. On August 18, 2000, NCE merged into NSP, with NSP as the surviving legal entity. NSP was renamed Xcel Energy Inc. Each share of NCE common stock was exchanged for 1.55 shares of Xcel Energy common stock. NSP shares became Xcel Energy shares on a one-for-one basis. Cash was paid to NCE shareholders in lieu of any fractional shares of Xcel Energy common stock upon exchange. Also in connection with the merger, all of NSP's pre-merger utility assets and liabilities were transferred to a new-formed utility subsidiary.
The merger was structured as tax-free, stock-for-stock exchange for shareholders of both companies (except for fractional shares), and accounted for as a pooling of interests. The Supplemental Consolidated Financial Statements are presented as if the merger had been completed as of the beginning of the earliest period presented. The Supplemental Consolidated Financial Statements are not necessarily indicative of what the combined company's financial position or operating results would have been if the merger had been completed on the assumed completion dates.
Xcel Energy owns the following direct subsidiaries, some of which are intermediate holding companies with additional subsidiaries:
In addition, Xcel Energy, through the Xcel Wholesale Energy Group, owns 82 percent of the common stock of NRG Energy, Inc., a publicly traded independent power producer. Xcel Energy owned 100 percent of NRG until the second quarter 2000, when NRG completed its initial public offering. Xcel Energy and its subsidiaries collectively are referred to as Xcel Energy.
FINANCIAL REVIEW
The following discussion and analysis by management focuses on those factors that had a material effect on Xcel Energy's financial condition and results of operations during the periods presented, or
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are expected to have a material impact in the future. It should be read in conjunction with the accompanying Supplemental Consolidated Financial Statements and Notes.
Except for the historical statements contained in this report, the matters discussed in the following discussion and analysis are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "estimate," "expect," "objective," "outlook," "possible," "potential" and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to:
RESULTS OF OPERATIONS
Xcel Energy's earnings per share were $1.70, $1.91 and $1.24 for 1999, 1998 and 1997, respectively. Xcel Energy's 1997 earnings per share were $1.61 before an extraordinary item. The lower levels of earnings in 1999 and 1997 reflect the impact of several significant factors, as discussed below.
Significant Factors that Impacted 1999 Results
Conservation Incentive Recovery
In June 1999, the MPUC denied NSP-Minnesota recovery of 1998 lost margins, load management discounts and incentives associated with state-mandated programs for electric energy conservation. Xcel Energy recorded a $35 million charge based on this action, which reduced 1999 earnings by 7 cents per share.
At the end of 1999, the MPUC had not approved a conservation plan for 1999. Based on the change in MPUC policy on conservation incentives and regulatory uncertainty, management decided not to accrue any conservation incentives for 1999 or subsequent years.
EMI Goodwill
In December 1999, Xcel Energy recorded a pretax charge (reported in special charges) of approximately $17 million, or about 4 cents per share, to write off all goodwill that was recorded by its subsidiary EMI for its acquisitions of Energy Masters Corporation in 1995 and Energy Solutions International in 1997. This charge reflects a revised business outlook based on recent levels of contract signings by EMI.
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Loss on Marketable Securities
During 1999, Xcel Energy recorded pretax charges (reported in special charges) of approximately $14 million, or 3 cents per share, for a valuation write-down on its investment in the publicly traded common stock of CellNet Data Systems, Inc. In October 1999, CellNet announced it was experiencing financial difficulties and was contemplating restructuring its capital financing. In February 2000, CellNet filed for Chapter 11 bankruptcy protection.
Significant Factors that Impacted 1997 Results
U.K. Windfall Tax
In July 1997, the U.K. government enacted a windfall tax on certain privatized business entities, payable in two installments with the first in December 1997 and the second in December 1998. The windfall tax was a retroactive adjustment to the privatization value based on post-privatization profits during the 1992 to 1995 period. During the third quarter of 1997, Xcel Energy's affiliate Yorkshire Power recorded an extraordinary charge of approximately $221 million (135 million pounds sterling) for this windfall tax. Xcel Energy's share of this tax was approximately $110.6 million, or 37 cents per share.
Merger Costs
In May 1997, NSP and Wisconsin Energy Corp. mutually terminated their plans to merge. Earnings for 1997 were reduced by a pretax charge (reported in special charges) of $29 million, or 6 cents per share, to write off cumulative merger-related costs incurred. In August 1997, PSCo and SPS completed their merger and recorded a pretax charge (reported in special charges) of approximately $34 million, or 10 cents per share, for merger-related costs.
Electric Utility Margins
The following table details the change in electric revenue and margin. Electric production expenses tend to vary with changing retail and wholesale sales requirements and unit cost changes in fuel and purchased power. Due to fuel clause cost recovery mechanisms for retail customers in several states and the ability to vary wholesale prices with changing market conditions, most fluctuations in energy costs do not affect electric margin. However, the fuel clause cost recovery in the various jurisdictions does not allow for complete recovery of all variable production expenses, and, therefore, higher costs in periods of extreme temperatures can result in an adverse earnings impact.
(Millions of dollars) |
1999 |
1998 |
1997 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Electric revenue | $ | 4,924 | $ | 4,985 | $ | 4,669 | |||||
Electric fuel and purchased power | (1,959 | ) | (1,973 | ) | (1,778 | ) | |||||
Electric margin | $ | 2,965 | $ | 3,012 | $ | 2,891 | |||||
Electric revenue decreased by approximately $61 million, or 1.2 percent, in 1999, largely due to the disallowance of 1998 conservation incentives in Minnesota, which reduced revenues $78 million, as compared with 1998. In addition, wholesale revenue decreased due to lower non-firm sales. Despite customer growth, retail sales increased only 0.5 percent, largely due to mild weather in Colorado and Texas. Electric margin decreased by approximately $47 million, or 1.6 percent, in 1999, largely due to the disallowance of 1998 conservation incentives in Minnesota, which reduced margin by $78 million, as compared with 1998. The disallowance of 1998 conservation incentives was recorded during 1999, as a result of the timing of an MPUC decision. In addition, electric margin was reduced by approximately $19 million in 1999, due to higher purchased power costs in Minnesota and Wisconsin not recoverable in rates.
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Electric revenue increased $316 million, or 6.8 percent, in 1998, largely due to retail sales growth of 3.2 percent and wholesale energy sales growth of 37.8 percent. Electric revenue also increased in 1998 due to revenue recognition of approximately $17 million for SPS's settlement of a 1985 FERC rate case. Electric margin increased by $121 million, or 4.2 percent, in 1998, due to electric sales growth and the SPS FERC settlement.
Gas Utility Margins
The following table details the change in gas revenue and margin. The cost of gas tends to vary with changing sales requirements and unit cost of gas purchases. However, due to purchased gas cost recovery mechanisms for retail customers, fluctuations in the cost of gas have little effect on gas margin.
(Millions of dollars) |
1999 |
1998 |
1997 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Gas revenue | $ | 1,141 | $ | 1,110 | $ | 1,153 | |||||
Cost of gas purchased and transported | (683 | ) | (659 | ) | (707 | ) | |||||
Gas margin | $ | 458 | $ | 451 | $ | 446 | |||||
Gas revenue increased by approximately $31 million, or 2.8 percent, and margin increased by approximately $7 million, or 1.6 percent, in 1999, largely due to increased retail sales, which increased 3.2 percent compared with 1998. In addition, gas revenue and margin in 1999 increased due to higher base rates resulting from PSCo's 1998 rate case, which became effective in July 1999.
Gas revenue decreased by approximately $43 million, or 3.7 percent, in 1998, largely due to warm winter weather in Minnesota and Wisconsin, which reduced sales levels. Retail gas sales for Xcel Energy decreased 8.6 percent in 1998 compared with 1997. This decline in retail sales in 1998 was partially offset by increased transportation volume, which increased 7.6 percent compared with 1997. Gas margin increased by approximately $5 million, or 1.1 percent, in 1998, largely due to an increase in PSCo's base revenues associated with a rate increase effective in February 1997.
Nonregulated Operating Margins
The following table details the change in nonregulated revenue and margin.
(Millions of dollars) |
1999 |
1998 |
1997 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Nonregulated and other revenue | $ | 691 | $ | 384 | $ | 420 | |||||
Earnings from equity investments* | 112 | 116 | 53 | ||||||||
Nonregulated cost of goods sold | (323 | ) | (204 | ) | (275 | ) | |||||
Nonregulated margin | $ | 480 | $ | 296 | $ | 198 | |||||
Nonregulated and other revenue increased by approximately $307 million, or 79.9 percent, in 1999, largely due to NRG's acquisition of generation facilities during 1999 in the Northeast region of the United States. Earnings from equity investments decreased by approximately $4 million, or 3.4 percent, in 1999, primarily due to lower earnings from NRG's West Coast power generating affiliate as a result of cool summer weather during 1999 compared with the summer of 1998. Nonregulated margin increased by approximately $184 million, or 62.2 percent, in 1999, largely due to NRG's acquisition of generation facilities during 1999 in the Northeast region of the United States.
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Nonregulated and other revenue decreased by approximately $36 million, or 8.6 percent, in 1998, primarily due to the exit of Energy Masters from the gas marketing business, which offset increased revenue from new projects at NRG. The margins on Energy Masters' gas marketing business were not material. Earnings from equity investments increased by approximately $63 million, or 118.9 percent, in 1998, largely due to increased equity earnings from new NRG projects, including El Segundo, Long Beach and certain Pacific Generation operations. Nonregulated margin increased by approximately $98 million, or 49.5 percent, in 1998, largely due to new projects at NRG.
Non-Fuel Operating Expense and Other Item
Other utility operation and maintenance expense decreased approximately $34 million, or 2.6 percent, in 1999 primarily, due to lower benefit costs and cost control efforts. Regulated Other Operation and Maintenance Expense increased approximately $59 million, or 4.6 percent, in 1998, primarily due to timing of plant outages in Minnesota, Year 2000 remediation costs, nuclear regulatory costs, storm damage due to several severe wind storms in Minnesota and higher labor costs from wage rate increases.
Nonregulated other operation and maintenance expense increased by approximately $79 million, or 35.3 percent, in 1999, and approximately $57 million, or 34.5 percent, in 1998. These increases are primarily due to costs of operations acquired, increased business development activities and legal, technical and accounting expenses resulting from NRG's expanding operations. In addition, costs also increased due to the acquisition of Planergy in April 1998, higher costs incurred in providing energy management and consulting services and Seren's expansion of its broadband communications in Minnesota.
Depreciation and Amortization Expense increased $52 million, or 8.4 percent, in 1999 and increased $45 million, or 7.7 percent, in 1998, primarily due to acquisitions of generating facilities by NRG and increased additions to utility plant.
During 1998, NRG recorded gains of approximately $26 million on the partial sale of NRG's interest in the Enfield project and approximately $2 million on the sale of NRG's interest in the Mid-Continent Power facility. NRG also recorded gains of approximately $9 million on the sale of various projects in 1997.
Interest expense increased $70 million, or 20.2 percent, in 1999 and $13 million, or 3.9 percent, in 1998, primarily due to increased debt levels to finance several asset acquisitions by NRG.
Factors Affecting Results of Operations
Xcel Energy's utility revenues depend on customer usage, which varies with weather conditions, general business conditions and the cost of energy services. Various regulatory agencies approve the prices for electric and gas service within their respective jurisdictions. In addition, Xcel Energy's nonregulated businesses are becoming a more significant factor in Xcel Energy's earnings. The historical and future trends of Xcel Energy's operating results have been and are expected to be affected by the following factors:
Competition and Industry Restructuring
The landscape of the electric and gas utility industry continues to change rapidly. The majority of states are moving forward to develop and implement retail competition with an unbundling of regulated energy services. Merger and acquisition activity over the past few years has been significant as utilities reach to expand their customer base and/or establish a strategic niche in preparing for the future. Certain traditional regulated utilities are divesting generation assets to further evolve this competitive environment, recover stranded costs and pursue other business opportunities. The transition to this
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competitive environment will be extremely challenging during the next few years and will most likely have significant impacts on the industry.
In 1999, FERC Order 2000 was issued to advance the formation of regional transmission organizations on a voluntary basis. The FERC's goal is to provide a framework that allows the individual states flexibility to manage deregulation and to build upon the foundation it established in 1996, promoting the development of competitive bulk power markets through non-discriminatory open access of transmission services and the recovery of stranded costs.
Some states have begun to allow retail customers to choose their electricity supplier, and many other states are considering retail access proposals. Electric restructuring legislation was passed in Texas and New Mexico during 1999. Overall, in these states, retail competition and customer choice are expected to be available to most customers by Jan. 1, 2002. In early January 2000, SPS filed its business separation plan in Texas for the unbundling of business activities into power generation, transmission and distribution and retail electric provider services. SPS is diligently working to satisfy the legislative and regulatory requirements of Texas and New Mexico in developing its transition plans. Major issues include market power, divestiture of generation capacity, transmission constraints, legal separation, refinancing of securities, implementing procedures to govern affiliate transactions, investments in information technology and the pricing of unbundled services, all of which have significant financial implications. Xcel Energy can not predict the outcome of its restructuring proceedings at this time. As these issues are addressed in 2000 and sufficient details are available to reasonably determine how this transition will affect the portions of the businesses whose pricing is being deregulated, SPS may discontinue applying regulatory accounting for those businesses. The resolution of these matters may have a significant impact on the financial position, results of operations and cash flows of Xcel Energy. For more information on restructuring in Texas and New Mexico, see Note 2 to Exhibit 99.03.
With respect to other Xcel Energy regulatory jurisdictions, the Minnesota Legislature continues to study industry restructuring issues, but has determined that further study is necessary before any action can be taken. During 1998, an electric restructuring bill was passed in Colorado which establish an advisory panel to conduct an evaluation of restructuring. During 1999, this panel concluded that Colorado should not open its markets to outside competition. The PSCW and Wisconsin Legislature have been focusing their efforts on improving electric reliability by requiring utility infrastructure improvements prior to addressing customer choice. The Michigan Public Service Commission has approved voluntary plans that began offering retail customers a choice of suppliers in selected markets in 1998. The Michigan Legislature is considering legislation to allow customer choice for all customers by 2002. The timing of regulatory and legislative actions regarding restructuring in these Midwestern states and their impact on Xcel Energy cannot be predicted at this time and may be significant.
Regulation
The electric and gas rates charged to customers of Xcel Energy's utility subsidiaries, are approved by the FERC and the state regulatory commissions in which they operate. The rates are generally designed to recover plant investment, operating costs and an allowed return on investment. Xcel Energy requests changes in rates for utility services through filings with the governing commissions. Because comprehensive rate changes are requested infrequently in some states, changes in operating costs can affect Xcel Energy's financial results. In addition to changes in operating costs, other factors affecting rate filings are sales growth, conservation and demand-side management efforts and the cost of capital.
Except for Wisconsin electric operations, most of the retail rate schedules for Xcel Energy's utility subsidiaries provide for periodic cost-of-energy and resource adjustments to billings and revenues for changes in the cost of fuel for electric generation, purchased energy, purchased gas and, in Minnesota and Colorado, conservation and energy management program costs. In Minnesota, changes in electric
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capacity costs are not recovered through the fuel clause. For Wisconsin electric operations, where cost-of-energy adjustment clauses are not used, the biennial retail rate review process and an interim fuel cost hearing process provide the opportunity for rate recovery of changes in electric fuel and purchased energy costs in lieu of a cost-of-energy adjustment clause. PSCo has an incentive cost adjustment (ICA), which allows for a 50 percent / 50 percent sharing among customers and shareholders of certain fuel and energy cost increases and decreases.
Regulated public utilities are allowed to record as assets certain costs that would be expensed by nonregulated enterprises and to record as liabilities certain gains that would be recognized as income by nonregulated enterprises. If restructuring or other changes in the regulatory environment occur, Xcel Energy may no longer be eligible to apply this accounting treatment and may be required to eliminate such regulatory assets and liabilities from its balance sheet. Such changes could have a material adverse effect on Xcel Energy's results of operations in the period the write-off is recorded. At Dec. 31, 1999, Xcel Energy reported on its balance sheet regulatory assets of approximately $382 million and regulatory liabilities of approximately $128 million that would need to be recognized in the income statement in the absence of regulation. In addition to a potential write-off of regulatory assets and liabilities, restructuring and competition may require recognition of certain "stranded costs" not recoverable under market pricing. Xcel Energy currently does not expect to write off any "stranded costs" unless market price levels change, or cost levels increase above market price levels. See Notes 1 and 15 to the Financial Statements for further discussion of regulatory deferrals.
Environmental Matters
Xcel Energy incurs several types of environmental costs, including nuclear plant decommissioning, storage and ultimate disposal of spent nuclear fuel, disposal of hazardous materials and wastes, remediation of contaminated sites and monitoring of discharges into the environment. Because of greater environmental awareness and increasingly stringent regulation, Xcel Energy has experienced increasing environmental costs. This trend has caused, and may continue to cause, slightly higher operating expenses and capital expenditures for environmental compliance. In addition, NRG's recent acquisition of existing generation facilities will tend to increase nonutility costs for environmental compliance.
In addition to nuclear decommissioning and spent nuclear fuel disposal expenses, costs charged to Xcel Energy's operating expenses for environmental monitoring and disposal of hazardous materials and wastes were approximately:
Xcel Energy's utility operations expect to spend approximately $60 million65 million per year for 2000-2004. However, the precise timing and amount of environmental costs, including those for site remediation and disposal of hazardous materials, are currently unknown.
Capital expenditures on environmental improvements at its utility facilities, which include the costs of constructing spent nuclear fuel storage casks, were approximately:
Xcel Energy expects to incur approximately $42 million in capital expenditures for compliance with environmental regulations in 2000 and approximately $165 million for 2000-2004. In addition, NRG
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expects to incur approximately $44 million in capital expenditures for environmental compliance for 2000-2004. See Notes 6 and 14 to the Supplemental Consolidated Financial Statements for further discussion of Xcel Energy's environmental contingencies.
Weather
Xcel Energy's earnings can be significantly affected by weather. Very hot summers and very cold winters increase electric and gas sales, but can also increase expenses, which may not be fully recoverable. Unseasonably mild weather reduces electric and gas sales.
Impact of Nonregulated Investments
Xcel Energy's earnings from nonregulated operations has increased significantly due to acquisitions. Xcel Energy expects to continue investing in nonregulated projects, including domestic and international power production projects through NRG, international projects through the Yorkshire Power Group and broadband communications systems through Xcel Communications. Xcel Energy's nonregulated businesses may carry a higher level of risk than its traditional utility businesses due to a number of factors, including:
Some of Xcel Energy's nonregulated subsidiaries have project investments (as listed in Note 11 to the Supplemental Consolidated Financial Statements) consisting of minority interests, which may limit the financial risk, but also limit the ability to control the development or operation of the projects. In addition, significant expenses may be incurred for projects pursued by Xcel Energy's subsidiaries that do not materialize. The aggregate effect of these factors creates the potential for volatility in the nonregulated component of Xcel Energy's earnings. Accordingly, the historical operating results of Xcel Energy's nonregulated businesses may not necessarily be indicative of future operating results.
Accounting Changes
The FASB has proposed new accounting standards that would require the full accrual of nuclear plant decommissioning and certain other site exit obligations. Material adjustments to Xcel Energy's balance sheet would occur upon implementation of the FASB's proposal, which would be no earlier than 2002. However, the effects of regulation are expected to minimize or eliminate any impact on operating expenses and earnings from this future accounting change. For further discussion of the expected impact of this change, see Note 6 to the Supplemental Consolidated Financial Statements.
In June 1998, the FASB issued SFAS No. 133Accounting for Derivative Instruments and Hedging Activities. This statement requires that all derivatives be recognized at fair value in the balance sheet and all changes in fair value be recognized currently in earnings or deferred as a component of other comprehensive income, depending on the intended use of the derivative, its resulting designation and its effectiveness. Xcel Energy plans to adopt this standard in 2001, as required. Xcel Energy has not yet determined the potential impact of implementing this statement.
Inflation
Inflation at its current level is not expected to materially affect Xcel Energy's prices or returns to shareholders.
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Derivatives, Risk Management and Market Risk
Xcel Energy uses derivative financial instruments to mitigate the impact of changes in foreign currency exchange rates on international project cash flows, natural gas, electricity and fuel prices on margins and interest rates on the cost of borrowing. Xcel Energy and its subsidiaries are exposed to market risks in both the energy trading and non-trading operations. Xcel Energy manages these market risks through various policies and procedures that allow for the use of various instruments in the energy and financial markets. See Notes 1 and 13 to the Supplemental Consolidated Financial Statements for further discussion of Xcel Energy's financial instruments and derivatives.
Commodity Price Risk
Xcel Energy has a wholesale power marketing operation within its regulated subsidiaries. The primary objective of the regulated power marketing operation is to meet the requirements of Xcel Energy's retail and wholesale customers for low-cost power, while optimizing margins from generation resources. Xcel Energy's exposure to changes in commodity prices may increase, which may result in earnings volatility. To manage exposure to price volatility in the natural gas and electricity markets, a variety of energy contracts, both financial and commodity based, are utilized as hedges. These contracts consist mainly of commodity futures and options, index or fixed price swaps and basis swaps and are used by both the trading and non-trading operations. As of Dec. 31, 1999, a 10 percent increase or decrease in electricity futures and forward prices would have an immaterial impact on Xcel Energy's financial results. Any changes in the values of these futures contracts would be offset by a change in the underlying commodities being hedged. Due to cost-based rate regulation, Xcel Energy's regulated subsidiaries have limited exposure to commodity price.
Xcel Energy also has a power marketing operation at NRG. NRG's power marketing subsidiary is exposed to the risk of changes in market prices of fuel oil, natural gas and electricity. To manage exposure of this volatility, NRG uses a variety of energy contracts, including options, swaps and forward contracts. As of Dec. 31, 1999, a 10 percent increase in fuel oil, natural gas and electricity forward prices would result in a gain on these contracts of approximately $12 million. Conversely, a 10 percent decrease in fuel oil, natural gas and electricity forward prices would result in a loss on these contracts of approximately $12 million. These hypothetical gains and losses on energy forward contracts would be offset by the gains and losses on the underlying commodities being hedged.
Interest Rate Risk
Xcel Energy and its subsidiaries have both long-term and short-term debt instruments that subject Xcel Energy and certain of its subsidiaries to the risk of loss associated with movements in market interest rates. This risk is limited for Xcel Energy's regulated companies primarily due to cost-based rate regulation. In the future, management anticipates utilizing financial instruments to manage its exposure to changes in interest rates. These instruments may include interest rate swaps, caps, collars and exchange-traded futures contracts and put or call options on U.S. Treasury securities.
At Dec. 31, 1999, a 100 basis point change in the benchmark rate on Xcel Energy's variable debt would impact net income by approximately $12 million.
The fair value of NRG's interest rate hedging contracts is sensitive to changes in interest rates. As of Dec. 31, 1999, a 10 percent decrease in interest rates from prevailing market rates would decrease the market value of NRG's interest rate hedging contracts by approximately $28 million. Conversely, a 10 percent increase in interest rates from the prevailing market rates would increase the market value by approximately $26 million.
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Currency Exchange Risk
Xcel Energy's investment in Yorkshire Power, a foreign currency denominated joint venture and various NRG projects, also expose Xcel Energy to currency translation rate risk. NRG has an investment in the Kladno project in the Czech Republic. SFAS No. 52 requires foreign currency gains and losses to flow through the income statement if settlement of an obligation is in a currency other than the local currency of the entity. A portion of the Kladno project debt is in non-local currency (U.S. dollars and German deutsche marks). As of Dec. 31, 1999, if the value of the Czech koruna decreased by 10 percent in relation to the U.S. dollar and the German deutsche mark, NRG would have recorded a $5 million loss (after tax) on the currency transaction adjustment. If the value of the Czech koruna increased by 10 percent, NRG would have recorded a $5 million gain (after tax) on the currency transaction adjustment.
At Dec. 31, 1999, Xcel Energy's exposure to changes in foreign currency exchange rates through its investment in Yorkshire Power is not material to its consolidated financial position, results of operations or cash flows. Xcel Energy does not presently utilize financial instruments to manage its exposures to foreign currency exchange rate movements.
Credit Risk
In addition to the risks discussed above, Xcel Energy and its subsidiaries are exposed to credit risk in risk management activities. Credit risk relates to the risk of loss resulting from the nonperformance of a counterparty of its contractual obligations. As Xcel Energy continues to expand its gas and power marketing and trading activities, its exposure to credit risk and counterparty default may increase. Xcel Energy and its subsidiaries maintain credit policies intended to minimize overall credit risk.
Xcel Energy and its subsidiaries conduct standard credit reviews for all of its counterparties. Xcel Energy employs additional credit risk control mechanisms when appropriate, such as letters of credit, parental guarantees and standardized master netting agreements that allow for offsetting of positive and negative exposures. The credit exposure is monitored and, when necessary, the activity with a specific counterparty is limited until credit enhancement is provided.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
|
1999 |
1998 |
1997 |
||||||
---|---|---|---|---|---|---|---|---|---|
Net cash provided by operating activities (in millions) | $ | 1,325 | $ | 1,362 | $ | 1,034 |
Cash provided by operating activities decreased slightly during 1999, compared with 1998, primarily due to a decrease in working capital due to timing of cash flows. Cash provided by operations increased in 1998, compared with 1997, primarily due to increased net income, higher depreciation and higher working capital in 1998.
|
1999 |
1998 |
1997 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Net cash used in investing activities (in millions) | $ | (2,953 | ) | $ | (1,221 | ) | $ | (1,805 | ) |
Cash used in investing activities increased during 1999, compared with 1998, primarily due to acquisitions of existing generating facilities by NRG and increased levels of utility capital expenditures.
10
Cash used in investing activities decreased during 1998, compared with 1997, primarily due to the investment in Yorkshire Power and asset acquisitions by NRG in 1997.
|
1999 |
1998 |
1997 |
||||||
---|---|---|---|---|---|---|---|---|---|
Net cash provided by (used in) financing activities (in millions) | $ | 1,668 | $ | (169 | ) | $ | 797 |
Cash provided by financing activities increased during 1999, compared with 1998, primarily due to the issuance of debt to finance NRG asset acquisitions in 1999. Cash provided by financing activities decreased during 1998, compared with 1997, primarily due to the issuance of long-term debt in 1997, primarily to fund the investment in Yorkshire Power and NRG's asset acquisitions. In addition, during 1998 the repayment of long-term debt and the redemption of preferred stock resulted in a use of cash by financing activities.
Prospective Capital Requirements
The estimated cost as of Dec. 31, 1999, of the capital expenditure programs of Xcel Energy and its subsidiaries and other capital requirements for the years 2000, 2001 and 2002 are shown in the table below (in millions):
|
2000 |
2001 |
2002 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Electric utility | $ | 790 | $ | 852 | $ | 805 | ||||
Gas utility | 111 | 96 | 96 | |||||||
Other utility | 90 | 69 | 75 | |||||||
Total utility | 991 | 1,017 | 976 | |||||||
NRG | 2,700 | 500 | 500 | |||||||
Seren | 180 | | | |||||||
Other nonregulated | 24 | 23 | 20 | |||||||
Total capital expenditures | 3,895 | 1,540 | 1,496 | |||||||
Sinking funds and debt maturities | 311 | 330 | 158 | |||||||
Total capital requirements | $ | 4,206 | $ | 1,870 | $ | 1,654 | ||||
The capital expenditure programs of Xcel Energy are subject to continuing review and modification. Actual utility construction expenditures may vary from the estimates, due to changes in the electric system projected load growth, the desired reserve margin and the availability of purchased power, as well as alternative plans for meeting Xcel Energy's long-term energy needs. In addition, Xcel Energy's ongoing evaluation of merger, acquisition and divestiture opportunities to support corporate strategies, to address restructuring requirements and to comply with future requirements to install emission control equipment may impact actual capital requirements. For more information, see Note 12 on Regulatory Matters and Note 14 on Commitments and Contingencies to the Supplemental Consolidated Financial Statements.
Xcel Energy and its subsidiaries continue to evaluate opportunities to enhance shareholder returns and achieve long-term financial objectives through investments in projects or acquisitions of existing businesses. Xcel Energy's subsidiaries expect to invest significant amounts in nonregulated projects in the future. Financing requirements for nonregulated project investments will vary depending on the success, timing and level of involvement in projects currently under consideration. These investments could cause significant changes to the capital requirement estimates for nonregulated projects and property. Long-term financing may be required for such investments.
11
NRG expects to invest approximately $2.7 billion in 2000 for nonregulated projects and property, which include acquisitions and project investments. NRG's future capital requirements may vary significantly. For 2000, NRG's capital requirements reflect expected acquisitions of existing generation facilities, including Cajun, Killingholme A and the Conectiv fossil assets.
Seren, a subsidiary of Xcel Communications, expects to spend approximately $180 million during 2000, which reflects the build-out of its broadband communications network in northern California. Seren's capital requirements for 2001-2002 may vary significantly depending on the success of development efforts under way.
Xcel Energy also will have future financing requirements for the portion of nuclear plant decommissioning costs not funded externally. Based on the most recent decommissioning study approved by regulators, these amounts are anticipated to be approximately $363 million and are expected to be paid during the years 2010 to 2022.
Common Stock Dividend
It is anticipated that Xcel Energy will initially adopt a dividend of $1.50 per share on an annual basis. The actual dividend level is dependent upon Xcel Energy's results of operations, financial position, cash flows and other factors, and will be evaluated by the Board of Directors of Xcel Energy.
Capital Sources
Xcel Energy expects to meet future financing requirements by periodically issuing long-term debt, short-term debt, common stock and preferred securities to maintain desired capitalization ratios. Over the long term, Xcel Energy's equity investments in and acquisitions of nonregulated projects are expected to be financed at the nonregulated subsidiary level from internally generated funds or the issuance of subsidiary debt. Financing requirements for the nonregulated projects, in excess of equity contributions from partners, are expected to be fulfilled through project or subsidiary debt. Decommissioning expenses not funded by an external trust will be financed through a combination of internally generated funds, long-term debt and common stock. In addition, Seren is evaluating various financing options, including equity financing to third parties and project-secured debt. The financing needs are subject to continuing review and can change depending on market and business conditions and changes, if any, in the construction programs and other capital requirements of the Xcel Energy and its subsidiaries.
Registration Statements
Effective at the time of the merger, Xcel Energy's Articles of Incorporation were amended to increase the authorized shares of common stock from 350 million to 1 billion. As of Dec. 31, 1999, Xcel Energy had approximately 335 million shares of common stock outstanding. In addition, Xcel Energy's Articles of Incorporation authorize the issuance of 7 million shares of $100 par value preferred stock. As of Dec. 31, 1999, Xcel Energy has 1,050,000 shares of preferred stock outstanding.
PSCo has an effective shelf registration statement under which $300 million of senior debt securities are available for issuance.
During the second half of 2000, NSP-Minnesota plans to file a $400 million universal debt shelf registration.
During 1999, NSP-Wisconsin filed a shelf registration with the SEC to issue up to $80 million of long-term debt. NSP-Wisconsin currently expects to issue between $50 million and $80 million of unsecured long-term debt during 2000, primarily to reduce short-term debt levels.
12
In December 1999, NRG filed a shelf registration with the SEC to issue up to $500 million of unsecured debt. NRG expects to issue debt under this filing during 2000 for general corporate purposes, which may include financing development and construction of new facilities, additions to working capital and financing capital expenditures and pending or potential acquisitions. In addition to NRG corporate debt, NRG Northeast Generating LLC (N.E. Generating), a wholly owned subsidiary of NRG, issued $750 million of bonds in February 2000 to pay down short-term borrowings and reduce NRG's corporate debt issued to fund N.E. Generating (see Note 2 to the Supplemental Consolidated Financial Statements).
Short-Term Borrowing Arrangements
Xcel Energy plans to secure various credit lines and borrowing arrangements subsequent to its creation in 2000. Until then, subsidiary credit facilities will provide financing to meet Xcel Energy's short-term capital requirements.
At the end of 1999, NSP-Minnesota had a $300 million revolving credit facility under a commitment fee arrangement. This facility provides short-term financing in the form of bank loans, letters of credit and support for commercial paper sales. NSP did not borrow or issue any letters of credit against this facility in 1998 or 1999.
PSCo and its subsidiaries have available committed lines of credit to meet their short-term cash requirements. PSCo and its subsidiaries have a credit facility with several banks which provides $300 million in committed bank lines of credit and is used primarily to support the issuance of commercial paper by PSCo and PSCCC, and to provide for direct borrowings thereunder. The facility expires Nov. 17, 2000. Additionally, PSCo has a credit facility, which provides $300 million in committed lines of credit and expires on June 23, 2000. As of Dec. 31, 1999, PSCo had used $355.6 million of the total capacity available under its committed lines of credit. Generally, the banks participating in the credit facility would have no obligation to continue their commitments if there has been a material adverse change in the consolidated financial condition, operations, business or otherwise that would prevent PSCo and its subsidiaries from performing their obligations under these credit facilities. Individual PSCo arrangements for uncommitted bank lines of credit totaled $150 million at Dec. 31, 1999, none of which were used or outstanding.
PSCCC may periodically issue medium-term notes to supplement the financing or purchase of PSCo's customer accounts receivable and fossil fuel inventories. As of Dec. 31, 1999, PSCCC had issued and had outstanding $100 million in medium-term notes. The level of financing of PSCCC is tied directly to daily changes in the level of PSCo's outstanding customer accounts receivable and monthly changes in fossil fuel inventories and will vary minimally from year to year although seasonal fluctuations in the level of assets will cause corresponding fluctuations in the level of associated financing.
SPS has two credit facilities, which provide $250 million in committed bank lines of credit, each with a commitment termination date of Feb. 22, 2000. As of Dec. 31, 1999, SPS had used $181 million of the total capacity available under its committed lines of credit.
At the end of 1999, banks provided $550 million of credit lines to NRG. At Dec. 31, 1999, NRG had borrowed $340 million against these lines.
13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO XCEL ENERGY INC.:
We have audited the consolidated balance sheets of New Century Energies, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999 (not presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Century Energies, Inc. and its subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles.
We have also made a similar audit of the accompanying supplemental consolidated balance sheets and statements of capitalization of Xcel Energy Inc. and subsidiaries at December 31, 1999 and 1998, and the related supplemental consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. The supplemental consolidated financial statements give retroactive effect to the merger between New Century Energies, Inc. and Northern States Power Company on August 18, 2000, which has been accounted for as a pooling of interests as described in Note 1. These supplemental financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplemental financial statements based on our audit.
We did not audit the financial statements of Northern States Power Company included in the supplemental consolidated financial statements on Xcel Energy Inc., which statements reflect total assets and revenues constituting 54% percent and 50% percent, respectively, in 1999 and 49% percent and 47% percent, respectively, in 1998 and total revenues constituting 47% percent in 1997 of the related supplemental consolidated totals. These statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Northern States Power Company, is based solely upon the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion.
14
In our opinion, based upon our audit and the report of the other auditors, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of Xcel Energy Inc. and its subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, after giving retroactive effect to the merger between New Century Energies, Inc. and Northern States Power Company as described in Note 1, all in conformity with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Denver,
Colorado,
August 18, 2000.
15
Report of Independent Accountants
To the Shareholders of
Northern States Power Company:
In our opinion, the consolidated balance sheets and statements of capitalization as of December 31, 1999 and 1998 and the related consolidated statements of income, of common stockholders' equity and of cash flows for each of the three years in the period ended December 31, 1999 of Northern States Power Company and its subsidiaries (not presented separately herein) present fairly, in all material respects, the financial position, results of operations and cash flows of Northern States Power Company and its subsidiaries at December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Minneapolis,
Minnesota
January 31, 2000, except as to Note 2,
which is as of February 22, 2000
16
XCEL ENERGY INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except per Share Data)
|
Year ended December 31 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
1999 |
1998 |
1997 |
|||||||||
Operating revenues: | ||||||||||||
Electric utility | $ | 4,924,363 | $ | 4,985,319 | $ | 4,669,048 | ||||||
Gas utility | 1,141,429 | 1,110,004 | 1,152,535 | |||||||||
Nonregulated and other | 691,488 | 383,852 | 420,348 | |||||||||
Equity earnings from investments in affiliates | 112,124 | 115,985 | 52,766 | |||||||||
Total revenue | 6,869,404 | 6,595,160 | 6,294,697 | |||||||||
Operating expenses: | ||||||||||||
Electric fuel and purchased powerutility | 1,958,912 | 1,973,043 | 1,777,592 | |||||||||
Cost of gas sold and transportedutility | 683,455 | 659,493 | 706,685 | |||||||||
Cost of salesnonregulated and other | 323,262 | 204,331 | 275,412 | |||||||||
Other operating and maintenance expensesutility | 1,307,136 | 1,341,468 | 1,282,919 | |||||||||
Other operating and maintenance expensesnonregulated | 302,201 | 223,374 | 166,117 | |||||||||
Depreciation and amortization | 679,851 | 627,438 | 582,408 | |||||||||
Taxes (other than income taxes) | 360,916 | 356,045 | 358,530 | |||||||||
Special charges | 31,114 | 790 | 63,093 | |||||||||
Total operating expenses | 5,646,847 | 5,385,982 | 5,212,756 | |||||||||
Operating income | 1,222,557 | 1,209,178 | 1,081,941 | |||||||||
Other income (deductions)net |
|
|
(18,874 |
) |
|
8,878 |
|
|
4,592 |
|
||
Gains on the sale of nonregulated projects | | 29,951 | 8,702 | |||||||||
Interest charges and financing costs: | ||||||||||||
Interest chargesnet of amounts capitalized | 414,277 | 344,643 | 331,760 | |||||||||
Distributions on redeemable preferred securities of subsidiary trusts | 38,800 | 33,311 | 22,287 | |||||||||
Dividend requirements and redemption premium on preferred stock of subsidiaries | | 5,332 | 11,752 | |||||||||
Total interest and financing costs | 453,077 | 383,286 | 365,799 | |||||||||
Income before income taxes and extraordinary item | 750,606 | 864,721 | 729,436 | |||||||||
Income taxes | 179,673 | 240,391 | 230,629 | |||||||||
Income before extraordinary item | 570,933 | 624,330 | 498,807 | |||||||||
Extraordinary itemU.K. windfall tax | | | (110,565 | ) | ||||||||
Net income | 570,933 | 624,330 | 388,242 | |||||||||
Dividend requirements and redemption premiums on Xcel Energy preferred stock | 5,292 | 5,548 | 11,071 | |||||||||
Earnings available for common shareholders | $ | 565,641 | $ | 618,782 | $ | 377,171 | ||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 331,943 | 323,883 | 303,042 | |||||||||
Diluted | 332,054 | 324,355 | 303,422 | |||||||||
Earnings per sharebasic and diluted: | ||||||||||||
Income before extraordinary item | $ | 1.70 | $ | 1.91 | $ | 1.61 | ||||||
Extraordinary item | | | (0.37 | ) | ||||||||
Net income | $ | 1.70 | $ | 1.91 | $ | 1.24 | ||||||
See Notes to Supplemental Consolidated Financial Statements
17
XCEL ENERGY INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
|
Year ended December 31 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
1999 |
1998 |
1997 |
||||||||||
Operating activities: | |||||||||||||
Net income | $ | 570,933 | $ | 624,330 | $ | 388,242 | |||||||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||||
Depreciation and amortization | 718,323 | 659,226 | 612,191 | ||||||||||
Nuclear fuel amortization | 50,056 | 43,816 | 40,015 | ||||||||||
Deferred income taxes | 18,277 | 5,231 | 46,309 | ||||||||||
Amortization of investment tax credits | (14,916 | ) | (14,654 | ) | (15,562 | ) | |||||||
Allowance for equity funds used during construction | (1,130 | ) | (8,509 | ) | (6,400 | ) | |||||||
Undistributed equity in earnings of unconsolidated affiliates | (67,926 | ) | (56,952 | ) | (36,532 | ) | |||||||
Extraordinary itemU.K. windfall tax | | | 110,565 | ||||||||||
Write-down of investments in projects | 31,346 | 26,740 | 16,052 | ||||||||||
Write-off of Primergy merger costs | | | 25,289 | ||||||||||
Gain on sale of projects | (37,194 | ) | (26,200 | ) | 1,994 | ||||||||
Conservation incentive adjustmentsnoncash | 71,348 | | | ||||||||||
Change in accounts receivable | (113,521 | ) | 8,373 | (7,366 | ) | ||||||||
Change in inventories | (44,183 | ) | (12,550 | ) | (10,881 | ) | |||||||
Change in other current assets | (164,995 | ) | 22,263 | (60,437 | ) | ||||||||
Change in accounts payable | 214,791 | 2,105 | (5,223 | ) | |||||||||
Change in other current liabilities | 81,056 | 60,618 | (36,267 | ) | |||||||||
Change in other assets and liabilities | 13,164 | 27,767 | (27,765 | ) | |||||||||
Net cash provided by operating activities | 1,325,429 | 1,361,604 | 1,034,224 | ||||||||||
Investing activities: | |||||||||||||
Nonregulated capital expenditures and asset acquisitions | (1,620,462 | ) | (58,748 | ) | (195,527 | ) | |||||||
Utility capital/construction expenditures | (1,178,663 | ) | (1,014,710 | ) | (869,540 | ) | |||||||
Allowance for equity funds used during construction | 1,130 | 8,509 | 6,400 | ||||||||||
Proceeds from disposition of property, plant and equipment | 83,190 | 9,369 | 2,117 | ||||||||||
Investments in external decommissioning fund | (39,183 | ) | (41,360 | ) | (41,261 | ) | |||||||
Equity investments, loans and deposits for nonregulated projects | (240,282 | ) | (234,214 | ) | (765,507 | ) | |||||||
Collection of loans made to nonregulated projects | 81,440 | 109,530 | 87,128 | ||||||||||
Other investmentsnet | (40,054 | ) | 642 | (28,738 | ) | ||||||||
Net cash used in investing activities | (2,952,884 | ) | (1,220,982 | ) | (1,804,928 | ) | |||||||
Financing activities: | |||||||||||||
Short-term borrowingsnet | 1,315,027 | (84,471 | ) | 181,759 | |||||||||
Proceeds from issuance of long-term debt | 1,215,312 | 641,123 | 719,598 | ||||||||||
Repayment of longterm debt, including reacquisition premiums | (465,045 | ) | (394,506 | ) | (369,258 | ) | |||||||
Proceeds from issuance of preferred securities | | 187,700 | 193,315 | ||||||||||
Proceeds from issuance of common stock | 95,317 | 234,171 | 554,834 | ||||||||||
Redemption of preferred stock, including reacquisition premiums | | (276,824 | ) | (41,943 | ) | ||||||||
Dividends paid | (492,456 | ) | (476,172 | ) | (441,346 | ) | |||||||
Net cash provided by (used in) financing activities | 1,668,155 | (168,979 | ) | 796,959 | |||||||||
Net increase (decrease) in cash and cash equivalents | 40,700 | (28,357 | ) | 26,255 | |||||||||
Cash and cash equivalents at beginning of year | 99,031 | 127,388 | 101,133 | ||||||||||
Cash and cash equivalents at end of year | $ | 139,731 | $ | 99,031 | $ | 127,388 | |||||||
Supplemental disclosure of cash flow information | |||||||||||||
Cash paid for interest (net of amount capitalized) | $ | 458,897 | $ | 397,680 | $ | 374,569 | |||||||
Cash paid for income taxes (net of refunds received) | $ | 193,448 | $ | 209,781 | $ | 212,947 |
See Notes to Supplemental Consolidated Financial Statements
18
XCEL ENERGY INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
|
Year ended December 31 |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
1999 |
1998 |
|||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 139,731 | $ | 99,031 | |||||
Accounts receivablenet of allowance for bad debts of $13,043 and $10,018, respectively | 800,066 | 673,360 | |||||||
Accrued unbilled revenues | 410,798 | 269,553 | |||||||
Materials and supplies inventories at average cost | 306,524 | 179,565 | |||||||
Fuel and gas inventories at average cost | 152,874 | 136,083 | |||||||
Prepayments and other | 250,951 | 199,030 | |||||||
Total current assets | 2,060,944 | 1,556,622 | |||||||
Property, plant and equipment, at cost: | |||||||||
Electric utility plant | 14,807,684 | 14,176,818 | |||||||
Gas utility plant | 2,266,516 | 2,084,250 | |||||||
Nonregulated property and other | 3,242,410 | 1,304,977 | |||||||
Construction work in progress | 533,046 | 521,732 | |||||||
Total property, plant and equipment | 20,849,656 | 18,087,777 | |||||||
Less: accumulated depreciation | (8,153,434 | ) | (7,629,745 | ) | |||||
Nuclear fuelnet of accumulated amortization of $923,336 and $873,281, respectively | 102,727 | 101,749 | |||||||
Net property, plant and equipment | 12,798,949 | 10,559,781 | |||||||
Other assets: | |||||||||
Investments in unconsolidated affiliates | 1,439,002 | 1,203,470 | |||||||
Nuclear decommissioning fund investments | 514,011 | 436,936 | |||||||
Other investments | 137,075 | 107,028 | |||||||
Regulatory assets | 566,727 | 700,101 | |||||||
Other | 553,650 | 490,852 | |||||||
Total deferred charges and other assets | 3,210,465 | 2,938,387 | |||||||
Total Assets | $ | 18,070,358 | $ | 15,054,790 | |||||
LIABILITIES AND EQUITY |
|
||||||||
Current liabilities: | |||||||||
Current portion of long-term debt | $ | 431,049 | $ | 507,365 | |||||
Short-term debt | 1,432,686 | 764,224 | |||||||
Accounts payable | 793,139 | 556,879 | |||||||
Taxes accrued | 260,676 | 255,658 | |||||||
Dividends payable | 127,568 | 124,921 | |||||||
Other | 438,101 | 348,038 | |||||||
Total current liabilities | 3,483,219 | 2,557,085 | |||||||
Deferred credits and other liabilities: | |||||||||
Deferred income taxes | 1,779,046 | 1,762,230 | |||||||
Deferred investment tax credits | 214,008 | 229,369 | |||||||
Regulatory liabilities | 442,204 | 358,768 | |||||||
Benefit obligations and other | 420,140 | 381,718 | |||||||
Total deferred credits and other liabilites | 2,855,398 | 2,732,085 | |||||||
Minority interest in subsidiaries | 14,696 | 13,516 | |||||||
Capitalization (see Statements of Capitalization): | |||||||||
Long-term debt | 5,827,485 | 4,056,691 | |||||||
Mandatorily redeemable preferred securities of subsidiary trusts (see Note 5) | 494,000 | 494,000 | |||||||
Preferred stockholders' equity | 105,340 | 105,340 | |||||||
Common stockholders' equity | 5,290,220 | 5,096,073 | |||||||
Commitments and contingencies (see Note 14) | |||||||||
Total Liabilities and Equity | $ | 18,070,358 | $ | 15,054,790 | |||||
See Notes to the Supplemental Consolidated Financial Statements.
19
XCEL ENERGY INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(Thousands of Dollars)
|
Par Value |
Premium |
Retained Earnings |
Shares Held by ESOP |
Accumulated Other Comprehensive Income |
Total Stockholders' Equity |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at Dec. 31, 1996 | $ | 747,121 | $ | 1,461,106 | $ | 2,113,990 | $ | (19,091 | ) | $ | 2,794 | $ | 4,305,920 | ||||||||
Net income | 388,242 | 388,242 | |||||||||||||||||||
Currency translation adjustments | (61,539 | ) | (61,539 | ) | |||||||||||||||||
Comprehensive income for 1997 | 326,703 | ||||||||||||||||||||
Dividends declared: | |||||||||||||||||||||
Cumulative preferred stock of Xcel | (9,923 | ) | (9,923 | ) | |||||||||||||||||
Common stock | (467,130 | ) | (467,130 | ) | |||||||||||||||||
Premium on redeemed preferred stock of Xcel | (1,148 | ) | (1,148 | ) | |||||||||||||||||
Issuances of common stocknet | 55,124 | 510,108 | 565,232 | ||||||||||||||||||
Tax benefit from stock options exercised | 1,009 | 1,009 | |||||||||||||||||||
Other | (106 | ) | (106 | ) | |||||||||||||||||
Repayment of ESOP loan(a) | 8,558 | 8,558 | |||||||||||||||||||
Balance at Dec. 31, 1997 | $ | 802,245 | $ | 1,972,223 | $ | 2,023,925 | $ | (10,533 | ) | $ | (58,745 | ) | $ | 4,729,115 | |||||||
Net income | 624,330 | 624,330 | |||||||||||||||||||
Unrealized loss from marketable securities, net of tax of $4,417 | (6,416 | ) | (6,416 | ) | |||||||||||||||||
Currency translation adjustments | (16,089 | ) | (16,089 | ) | |||||||||||||||||
Comprehensive income for 1998 | 601,825 | ||||||||||||||||||||
Dividends declared: | |||||||||||||||||||||
Cumulative preferred stock of Xcel | (5,548 | ) | (5,548 | ) | |||||||||||||||||
Common stock | (475,399 | ) | (475,399 | ) | |||||||||||||||||
Issuances of common stocknet | 23,150 | 223,985 | 247,135 | ||||||||||||||||||
Pooling of interests business combinations | 6,065 | 6,065 | |||||||||||||||||||
Tax benefit from stock options exercised | 850 | 850 | |||||||||||||||||||
Loan to ESOP to purchase shares(a) | (15,000 | ) | (15,000 | ) | |||||||||||||||||
Repayment of ESOP loan(a) | 7,030 | 7,030 | |||||||||||||||||||
Balance at Dec. 31, 1998 | $ | 825,395 | $ | 2,197,058 | $ | 2,173,373 | $ | (18,503 | ) | $ | (81,250 | ) | $ | 5,096,073 | |||||||
Net income | 570,933 | 570,933 | |||||||||||||||||||
Recognition of unrealized loss from marketable securities, net of tax of $4,417 | 6,416 | 6,416 | |||||||||||||||||||
Currency translation adjustments | (3,587 | ) | (3,587 | ) | |||||||||||||||||
Comprehensive income for 1999 | 573,762 | ||||||||||||||||||||
Dividends declared: | |||||||||||||||||||||
Cumulative preferred stock of Xcel | (5,292 | ) | (5,292 | ) | |||||||||||||||||
Common stock | (489,813 | ) | (489,813 | ) | |||||||||||||||||
Issuances of common stocknet | 12,930 | 92,247 | 105,177 | ||||||||||||||||||
Pooling of interests business combination | 4,599 | 4,599 | |||||||||||||||||||
Tax benefit from stock options exercised | 58 | 58 | |||||||||||||||||||
Repurchase of common stock | (132 | ) | (1,109 | ) | (1,241 | ) | |||||||||||||||
Repayment of ESOP loan(a) | 6,897 | 6,897 | |||||||||||||||||||
Balance at Dec. 31, 1999 | $ | 838,193 | $ | 2,288,254 | $ | 2,253,800 | $ | (11,606 | ) | $ | (78,421 | ) | $ | 5,290,220 | |||||||
See Notes to Supplemental Consolidated Financial Statements
20
XCEL ENERGY INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
|
Dec. 31 |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
1999 |
1998 |
|||||||
Long-Term Debt | |||||||||
NSP-Minnesota Debt | |||||||||
First Mortgage Bonds, Series due: | |||||||||
Feb. 1, 1999, 51/2% | $ | | $ | 200,000 | |||||
Dec. 1, 1999 - 2006, 6.00% - 6.75% | | 16,900 | (a) | ||||||
Dec. 1, 1999 - 2006, 3.50 - 4.10% | 15,170 | (a) | | ||||||
Dec. 1, 2000, 53/4% | 100,000 | 100,000 | |||||||
Oct. 1, 2001, 77/8% | 150,000 | 150,000 | |||||||
March 1, 2003, 57/8% | 100,000 | 100,000 | |||||||
April 1, 2003, 63/8% | 80,000 | 80,000 | |||||||
Dec. 1, 2005, 61/8% | 70,000 | 70,000 | |||||||
April 1, 2007, 6.80% | 60,000 | (b) | 60,000 | (b) | |||||
March 1, 2011, Variable Rate, 5.75% at 12/31/99 and 4.3% at 12/31/98 | 13,700 | (b) | 13,700 | (b) | |||||
March 1, 2019, Variable Rate, 3.7% at 12/31/99 and 3.1% at 12/31/98 | 27,900 | (b) | 27,900 | (b) | |||||
Sept. 1, 2019, Variable Rate | 100,000 | (b) | 100,000 | (b) | |||||
July 1, 2025, 71/8% | 250,000 | 250,000 | |||||||
March 1, 2028, 61/2% | 150,000 | 150,000 | |||||||
Guaranty Agreements, Series due: Feb. 1, 1999 - May 1, 2003, 5.41% - 7.40% | 30,650 | (b) | 31,350 | (b) | |||||
NSP-Minnesota Senior Notes Due Aug. 1, 2009, 67/8% | 250,000 | | |||||||
City of Becker Pollution Control Revenue BondsSeries due Dec. 1, 2005, 7.25% | 9,000 | (b) | 9,000 | (b) | |||||
Anoka County Resource Recovery BondSeries due Dec. 1, 1999 - 2008, 6.70% - 7.15% | | 20,600 | (a) | ||||||
Anoka County Resource Recovery BondSeries due Dec. 1, 2000 - 2008, 3.95% - 4.60% | 19,615 | (a) | | ||||||
Other | 1,458 | 135 | |||||||
Unamortized discount-net | (6,604 | ) | (5,280 | ) | |||||
Total | 1,420,889 | 1,374,305 | |||||||
Less redeemable bonds classified as current (See Note 3) | 141,600 | 141,600 | |||||||
Less current maturities | 104,673 | 203,700 | |||||||
Total NSP-Minnesota long-term debt | $ | 1,174,616 | $ | 1,029,005 | |||||
PSCo Debt | |||||||||
First Mortgage Bonds, Series due: | |||||||||
Jan. 1, 2001, 6.00% | $ | 102,667 | $ | 102,667 | |||||
April 15, 2003, 6.00% | 250,000 | 250,000 | |||||||
March 1, 2004, 81/8% | 100,000 | 100,000 | |||||||
March 1, 2004, 57/8%, retired | | 21,500 | (b) | ||||||
Nov. 1, 2005, 63/8% | 134,500 | 134,500 | |||||||
June 1, 2006, 71/8% | 125,000 | 125,000 | |||||||
April 1, 2008, 55/8% | 18,000 | (b) | 18,000 | (b) | |||||
Nov. 1, 2009, 73/8%, retired | | 27,250 | (b) | ||||||
June 1, 2012, 51/2% | 50,000 | (b) | 50,000 | (b) | |||||
April 1, 2014, 57/8% | 61,500 | (b) | 61,500 | (b) | |||||
Jan, 1, 2019, 5.1% | 48,750 | (b) | | ||||||
July 1, 2020, 97/8% | 70,000 | 75,000 | |||||||
March 1, 2022, 83/4% | 148,000 | 150,000 | |||||||
Jan. 1, 2024, 71/4% | 110,000 | 110,000 | |||||||
Unsecured Senior A Notes, due July 15, 2009, 6.78% | 200,000 | | |||||||
Secured Medium-Term Notes, due March 15, 1999 - March 5, 2007, 6.02% - 9.25% | 256,500 | 296,500 | |||||||
Other secured long-term debt 13.25%, due in installments through Oct. 1, 2016 | 30,298 | 30,755 | |||||||
PSCCC Unsecured Medium-Term Notes due May 30, 2000, 5.86% | 100,000 | 100,000 | |||||||
Unamortized discount | (6,998 | ) | (4,616 | ) | |||||
Capital lease obligations, 6.68% - 11.21% due in installments through May 31, 2025 | 56,565 | 39,555 | |||||||
Total | 1,854,782 | 1,687,611 | |||||||
Less current maturities | 132,823 | 44,481 | |||||||
Total PSCo long-term debt | $ | 1,721,959 | $ | 1,643,130 | |||||
See Notes to Supplemental Consolidated Financial Statements
21
|
Dec. 31 |
||||||||
---|---|---|---|---|---|---|---|---|---|
Long-Term Debtcontinued (Thousands of Dollars) |
1999 |
1998 |
|||||||
SPS Debt | |||||||||
First Mortgage Bonds, Series due: | |||||||||
Dec. 1, 1999, 67/8%, retired | $ | | $ | 90,000 | |||||
July 15, 2004, 71/4% | 135,000 | 135,000 | |||||||
March 1, 2006, 61/2% | 60,000 | 60,000 | |||||||
July 15, 2022, 81/4% | 36,000 | 40,000 | |||||||
Dec. 1, 2022, 8.20% | 89,000 | 100,000 | |||||||
Feb. 15, 2025, 8.50% | 60,267 | 70,000 | |||||||
Unsecured Senior A Notes, due March 1, 2009, 6.2% | 100,000 | | |||||||
Pollution control obligations, securing pollution control revenue bonds, | |||||||||
Not collateralized by First Mortgage Bonds due: | |||||||||
July 1, 2011, 5.2% (converted to fixed rate June 1999 and variable rate of 4.3% at 12/31/98) | 44,500 | 44,500 | |||||||
July 1, 2016, Variable rate, 4.7% at 12/31/99 and 4.15% at 12/31/98 | 25,000 | 25,500 | |||||||
Sept. 1, 2016, 53/4% series | 57,300 | 57,300 | |||||||
Less: funds held by Trustee: | (168 | ) | (168 | ) | |||||
Other | | 112 | |||||||
Unamortized discount and premiumnet | (1,024 | ) | (1,013 | ) | |||||
Total | 605,875 | 620,731 | |||||||
Less current maturities | | 90,113 | |||||||
Total SPS long-term debt | $ | 605,875 | $ | 530,618 | |||||
NRG Debt | |||||||||
NRG Energy, Inc. Senior Notes, Series due | |||||||||
Feb. 1, 2006, 7.625% | $ | 125,000 | $ | 125,000 | |||||
June 15, 2007, 7.5% | 250,000 | 250,000 | |||||||
June 1, 2009, 7.5% | 300,000 | | |||||||
Nov. 1, 2013, 8% | 240,000 | | |||||||
NRG debt secured solely by project assets: | |||||||||
NRG Northeast Generating debt reclassified from short-term (see Note 2) | 646,564 | | |||||||
Crockett Corp. LLP debt due Dec. 31, 2014, 8.13% | 255,000 | | |||||||
NRG Energy Center, Inc. Senior Secured Notes, Series due June 15, 2013, 7.31% | 68,881 | 71,783 | |||||||
Various debt due 2000 - 2008, 0.0% - 10.729% | 62,072 | 50,269 | |||||||
Other | 18,631 | | |||||||
Total | 1,966,148 | 497,052 | |||||||
Less current maturities | 30,524 | 9,329 | |||||||
Total NRG long-term debt | $ | 1,935,624 | $ | 487,723 | |||||
NSP-Wisconsin Debt | |||||||||
First Mortgage Bonds Series due: | |||||||||
Oct. 1, 2003, 53/4% | $ | 40,000 | $ | 40,000 | |||||
March 1, 2023, 71/4% | 110,000 | 110,000 | |||||||
Dec. 1, 2026, 73/8% | 65,000 | 65,000 | |||||||
City of La Crosse Resource Recovery BondSeries due Nov. 1, 2021, 6% | 18,600 | (a) | 18,600 | (a) | |||||
Unamortized discounts | (1,650 | ) | (1,737 | ) | |||||
Total NSP-Wisconsin long-term debt | 231,950 | 231,863 | |||||||
Other Subsidiaries' Long-Term Debt |
|
|
|
|
|
|
|
||
First Mortgage BondsCheyenne: | |||||||||
Series due April 1, 2003; - Jan 1, 2024, 7.50% - 77/8% | 12,000 | 12,000 | |||||||
Industrial Development Revenue Bonds due Sept. 1, 2021 - March 1, 2027, variable rate (5.60% and 4.05% at Dec. 31, 1999 and 1998) | 17,000 | 17,000 | |||||||
Viking Gas Transmission Company Senior NotesSeries due Oct. 31, 2008 - Sept. 30, 2014, 6.65% - 8.04% | 54,702 | 38,461 | |||||||
Various Eloigne Company Affordable Housing Project Notes due 1999 - 2027, 1.0% - 9.9% | 47,116 | 46,024 | |||||||
Other | 48,072 | 39,009 | |||||||
Total | 178,890 | 152,494 | |||||||
Less current maturities | 21,429 | 18,142 | |||||||
Total Other long-term debt | $ | 157,461 | $ | 134,352 | |||||
Total long-term debt | $ | 5,827,485 | $ | 4,056,691 | |||||
See Notes to Supplemental Consolidated Financial Statements
22
XCEL ENERGY INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CAPITALIZATION (Continued)
(Thousands of Dollars)
|
Dec. 31 |
||||||||
---|---|---|---|---|---|---|---|---|---|
(Thousands of dollars) |
1999 |
1998 |
|||||||
Mandatorily Redeemable Preferred Securities of Subsidiary Trusts each holding as its sole asset junior subordinated deferrable debentures of NSP-Minnesota, PSCo and SPS, respectively(See Note 5) |
$ | 494,000 | $ | 494,000 | |||||
Cumulative Preferred Stockauthorized 7,000,000 shares of $100 par value outstanding shares: 1999 and 1998, 1,050,000 | |||||||||
$3.60 series, 275,000 shares | $ | 27,500 | $ | 27,500 | |||||
4.08 series, 150,000 shares | 15,000 | 15,000 | |||||||
4.10 series, 175,000 shares | 17,500 | 17,500 | |||||||
4.11 series, 200,000 shares | 20,000 | 20,000 | |||||||
4.16 series, 100,000 shares | 10,000 | 10,000 | |||||||
4.56 series, 150,000 shares | 15,000 | 15,000 | |||||||
Total | 105,000 | 105,000 | |||||||
Premium on preferred stock | 340 | 340 | |||||||
Total preferred stockholders' equity | $ | 105,340 | $ | 105,340 | |||||
Common Stockholders' Equity |
|
|
|
|
|
|
|
||
Common stockauthorized 350,000,000 shares of $2.50 par value issued shares: 1999, 335,277,321; 1998, 330,157,668 |
$ | 838,193 | $ | 825,395 | |||||
Premium on common stock | 2,288,254 | 2,197,058 | |||||||
Retained earnings | 2,253,800 | 2,173,373 | |||||||
Leveraged common stock held by ESOPshares at cost: 1999, 392,325; 1998, 641,884 | (11,606 | ) | (18,503 | ) | |||||
Accumulated other comprehensive income | (78,421 | ) | (81,250 | ) | |||||
Total common stockholders' equity | $ | 5,290,220 | $ | 5,096,073 | |||||
See Notes to Supplemental Consolidated Financial Statements
23
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Merger and Supplemental Financial Statements (Basis of Presentation)
On March 24, 1999, NCE and NSP entered into an Agreement and Plan of Merger, which provided for a strategic business combination involving NCE and NSP in a "merger-of-equals" transaction. On Aug. 18, 2000, following receipt of all required regulatory approvals, NSP and NCE merged and formed Xcel Energy Inc. Each share of NCE common stock was exchanged for 1.55 shares of Xcel Energy common stock. NSP shares became Xcel Energy shares on a one-for-one basis. Cash was paid in lieu of any fractional shares of Xcel Energy common stock. The merger was structured as tax-free, stock-for-stock exchange for shareholders of both companies (except for fractional shares) and accounted for as a pooling of interests. At the time of the merger, Xcel Energy registered as a holding company under the Public Utility Holding Company Act of 1935.
Pursuant to the Merger Agreement, NCE was merged with and into NSP. NSP, as the surviving legal corporation, changed its name to Xcel Energy. Also, as part of the Merger, NSP transferred its existing utility operations that were being conducted directly by NSP at the parent company level to a newly formed wholly-owned subsidiary of Xcel Energy which was renamed NSP-Minnesota. Xcel Energy has the following public utility subsidiary companies:. NSP-Minnesota, NSP-Wisconsin, PSCo, SPS, Cheyenne and BMG.
Operating revenues and earnings available for common shareholders were as follows (in thousands):
|
NSP |
NCE |
Xcel |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Year ended Dec. 31, 1999: | ||||||||||
Operating revenue | $ | 3,449,709 | $ | 3,419,695 | $ | 6,869,404 | ||||
Earnings available for common shareholders | 219,044 | 346,597 | 565,641 | |||||||
Year ended Dec. 31, 1998: | ||||||||||
Operating revenue | $ | 3,081,288 | $ | 3,513,872 | $ | 6,595,160 | ||||
Earnings available for common shareholders | 276,825 | 341,957 | 618,782 | |||||||
Year ended Dec. 31, 1997: | ||||||||||
Operating revenue | $ | 2,975,917 | $ | 3,318,780 | $ | 6,294,697 | ||||
Earnings available for common shareholders | 226,249 | 150,922 | 377,171 |
Compared with amounts previously reported, NSP's operating revenues have been reclassified to include nonregulated operating revenues and equity earnings from unconsolidated affiliates. Similarly, NCE's operating revenues have been reclassified to include equity earnings from unconsolidated affiliates.
Business and System of Accounts
Xcel Energy is a registered holding company under PUHCA and its domestic utility subsidiaries are engaged principally in the generation, purchase, transmission, distribution and sale of electricity and in the purchase, transportation, distribution and sale of natural gas. Xcel Energy and its subsidiaries are subject to the regulatory provisions of the PUHCA. The utility subsidiaries are subject to regulation by the FERC and state utility commissions in Minnesota, Wisconsin, North Dakota, South Dakota, Michigan, Arizona, Colorado, Texas, New Mexico, Wyoming, Kansas and Oklahoma. All of the utility companies' accounting records conform to the FERC uniform system of accounts or to systems required by various state regulatory commissions, which are the same in all material aspects.
24
Principles of Consolidation
Xcel Energy owns the following direct subsidiaries, which are included in the consolidated financial statements:
Several of these subsidiaries are intermediate holding companies with additional subsidiaries, which are also consolidated. For example, the Xcel Wholesale Energy Group owns a controlling interest in the common stock of NRG Energy, Inc., a publicly traded independent power producer. Xcel Energy owned 100 percent of NRG until the second quarter 2000, when NRG completed its initial public offering. Xcel Energy and its subsidiaries collectively are referred to as Xcel Energy.
Xcel Energy uses the equity method of accounting for its investments in partnerships, joint ventures and certain projects. We record our portion of earnings from international investments after subtracting foreign income taxes. In the consolidation process, we eliminate all significant intercompany transactions and balances.
Revenue Recognition
Xcel Energy records utility revenues based on a calendar month, but reads meters and bills customers according to a cycle that doesn't necessarily correspond with the calendar month's end. To compensate, we estimate and record unbilled revenues from the monthly meter-reading dates to the month's end.
Xcel Energy's utility subsidiaries have adjustment mechanisms in place, which currently provide for the recovery of certain purchased gas and electric energy costs. These cost adjustment tariffs may increase or decrease the level of costs recovered through base rates and are revised periodically, as
25
prescribed by the appropriate regulatory agencies, for any difference between the total amount collected under the clauses and the recoverable costs incurred.
PSCo's rates in Colorado are adjusted under a performance-based regulatory plan, which takes into account changes in energy costs. SPS' rates in Texas and New Mexico have periodic fuel filing and reporting requirements, which can provide cost recovery. NSP-Wisconsin's rates include a cost-of-energy adjustment clause for purchased gas, but not for purchased electricity or electric fuel. In Wisconsin, we can request recovery of those electric costs prospectively through the rate review process, which normally occurs every two years, and an interim fuel cost hearing process. For more information, see Note 12Regulatory Matters in the Supplemental Consolidated Financial Statements.
In addition, NSP-Minnesota and PSCo's rates include monthly adjustments for the recovery of conservation and energy management program costs and incentives in Minnesota, which are reviewed annually.
Property, Plant, Equipment and Depreciation
Property, plant and equipment is stated at original cost. The cost of plant includes direct labor and materials, contracted work, overhead costs and applicable interest expense. The cost of plant retired, plus net removal cost, is charged to accumulated depreciation and amortization. Maintenance and replacement of items determined to be less than units of property are charged to operating expenses.
Xcel Energy determines the depreciation of its plant by spreading the original cost equally over the plant's useful life. Depreciation expense, expressed as a percentage of average depreciable property, ranged from approximately 3.2-3.4 percent for the years ended Dec. 31, 1999, 1998 and 1997.
Allowance for Funds Used During Construction
AFDC, a noncash item, represents the cost of capital used to finance utility construction activity. AFDC is computed by applying a composite pretax rate to qualified construction work in progress. The amount of AFDC capitalized as a utility construction cost is credited to Other Income and DeductionsNet (for equity capital) and interest charges (for debt capital). AFDC amounts capitalized are included in Xcel Energy's rate base for establishing utility service rates. In addition to construction-related amounts, AFDC is also recorded to reflect returns on capital used to finance conservation programs in Minnesota. Interest capitalized as AFDC was approximately $19 million in 1999, $25 million in 1998 and $21 million in 1997.
Decommissioning
Xcel Energy accounts for the future cost of decommissioningor permanently retiringits nuclear generating plants through annual depreciation accruals using an annuity approach designed to provide for full rate recovery of the future decommissioning costs. Our decommissioning calculation covers all expenses, including decontamination and removal of radioactive material, and extends over the estimated lives of the plants. The calculation assumes that NSP-Minnesota and NSP-Wisconsin will recover those costs through rates. (See Note 6 to the Supplemental Consolidated Financial Statements for more information on nuclear decommissioning.)
26
Nuclear Fuel Expense
Nuclear fuel expense, which is recorded as the plant uses fuel, includes the cost of nuclear fuel used and future spent nuclear fuel disposal, based on fees established by the U.S. DOE and NSP's portion of the cost of decommissioning or shutting down the DOE's fuel enrichment facility.
Environmental Costs
We record environmental costs when it is probable that Xcel Energy is liable for the costs and we can reasonably estimate the liability. We may defer costs as a regulatory asset based on our expectation that we will recover these costs from customers in future rates. Otherwise, we expense the costs. If an environmental expense is related to facilities we currently use, such as pollution control equipment, we capitalize and depreciate the costs over the life of the plant.
We record estimated remediation costs, excluding inflationary increases and possible reductions for insurance coverage and rate recovery. The estimates are based on our experience, our assessment of the current situation and the technology currently available for use in the remediation.
We regularly adjust the recorded costs as we revise estimates and as remediation proceeds. If we are one of several designated responsible parties, we estimate and record only our share of the cost. We treat any future costs of restoring sites where operation may extend indefinitely as a capitalized cost of plant retirement. The depreciation expense levels we can recover in rates include a provision for these estimated removal costs.
Income Taxes
Xcel Energy and its subsidiaries file consolidated Federal and consolidated and separate state income tax returns. Income taxes are allocated to the subsidiaries based on separate company computations of taxable income or loss. Investment tax credits have been deferred and are being amortized over the service lives of the related property. Deferred taxes are provided on temporary differences between the financial accounting and tax bases of assets and liabilities using the tax rates that are in effect at the balance sheet date.
Due to the effects of past regulatory practices, when deferred taxes were not required to be recorded, we account for the reversal of some temporary differences as current income tax expense. We defer investment tax credits and spread their benefits over the estimated lives of the related property. Utility rate regulation also has created certain regulatory assets and liabilities related to income taxes, which we summarize in Note 15 to the Supplemental Consolidated Financial Statements. We discuss our income tax policy for international operations in Note 8 to the Supplemental Consolidated Financial Statements.
Foreign Currency Translation
Xcel Energy's foreign operations generally use the local currency as their functional currency in translating international operating results and balances to U.S. currency. Foreign currency denominated assets and liabilities are translated at the exchange rates in effect at the end of a reporting period. Income, expense and cash flows are translated at weighted-average exchange rates for the period. We accumulate the resulting currency translation adjustments and report them as a component of Accumulated Other Comprehensive Income.
27
When we convert cash distributions made in one currency to another currency, we include those gains and losses in the results of operations as a component of income from nonregulated businesses before interest and taxes. We do the same for foreign currency derivative arrangements that do not qualify for hedge accounting.
Derivative Financial Instruments
Xcel Energy and its subsidiaries utilize a variety of derivatives, including interest rate swaps and locks, foreign currency hedges and energy contracts. The energy contracts are both financial and commodity based, in the energy trading and energy non-trading operations, to reduce their exposure to commodity price risk. These contracts consist mainly of commodity futures and options, index or fixed price swaps and basis swaps.
Xcel Energy and its subsidiaries adopted EITF 98-10, "Accounting for Energy Trading and Risk Management Activities", effective Jan. 1, 1999. EITF 98-10 requires gains or losses resulting from market value changes on energy trading contracts to be recorded in earnings. The initial adoption of EITF 98-10 had an immaterial impact on Xcel Energy's net income.
Energy contracts are also utilized by Xcel Energy and its subsidiaries in non-trading operations to reduce commodity price risk. Hedge accounting is applied only if the contract reduces the price risk of the underlying hedged item and is designated as a hedge at its inception. Gains and losses related to qualifying hedges of firm commitments or anticipated transactions are deferred and recognized as a component of purchased power or cost of gas sold when settlement occurs. If, subsequent to the inception of the hedge, the underlying transactions are no longer likely to occur, the related gains and losses are recognized currently in income.
While NRG is not currently hedging investments involving foreign currency, NRG will hedge such investments when it believes that preserving the U.S. dollar value of the investment is appropriate. NRG is not hedging currency translation adjustments related to future operating results. NRG does not speculate in foreign currencies.
From time to time, NRG also uses interest rate hedging instruments to protect it from an increase in the cost of borrowing. Gains and losses on interest rate hedging instruments are reported as part of the asset for Equity Investments in Nonregulated Projects when the hedging instrument relates to a project that has financial statements that are not consolidated into NRG's financial statements. Otherwise, they are reported as a part of debt.
A final derivative instrument used by Xcel Energy is the interest rate swap. The cost or benefit of the interest rate swap agreements is recorded as a component of interest expense. None of these derivative financial instruments are reflected on Xcel Energy's balance sheet. For further discussion of Xcel Energy's risk management and derivative activities, see Note 13 to the Supplemental Consolidated Financial Statements.
Use of Estimates
In recording transactions and balances resulting from business operations, Xcel Energy uses estimates based on the best information available. We use estimates for such items as plant depreciable lives, tax provisions, uncollectible amounts, environmental costs, unbilled revenues and actuarially determined benefit costs. We revise the recorded estimates when we get better information or when we
28
can determine actual amounts. Those revisions can affect operating results. Each year, we also review the depreciable lives of certain plant assets and revise them if appropriate.
Cash Equivalents
Xcel Energy considers investments in certain debt instrumentswith a remaining maturity of three months or less at the time of purchaseto be cash equivalents. Those debt instruments are primarily commercial paper and money market funds.
Regulatory Accounting
Xcel Energy's regulated utility subsidiaries account for certain income and expense items using SFAS No. 71Accounting for the Effects of Regulation. Under SFAS No. 71:
We base our estimates of recovering deferred costs and returning deferred credits on specific ratemaking decisions or precedent for each item. We amortize regulatory assets and liabilities consistent with the period of expected regulatory treatment.
Stock-Based Employee Compensation
Xcel Energy has several stock-based compensation plans. We accounts for those plans using the intrinsic value method. We do not record compensation expense for stock options because there is no difference between the market price and the purchase price at grant date. We do, however, record compensation expense for restricted stock that Xcel Energy awards to certain employees, but holds until the restrictions lapse or the stock is forfeited. We do not use the optional accounting under SFAS No. 123Accounting for Stock-Based Compensation. If we had used the SFAS No. 123 method of accounting, the reduction in earnings for 1999, 1998 and 1997 would have been approximately 1 cent per share per year. For more information, see Note 9 to the Supplemental Consolidated Financial Statements.
NRG Development Costs
As NRG develops projects, it expenses the development costs it incurs until a sales agreement or letter of intent is signed and the project has received NRG board approval. NRG capitalizes additional costs incurred at that point. When a project begins to operate, NRG amortizes the capitalized costs over either the life of the project's related assets or the revenue contract period, whichever is less. If a project is terminated without becoming operational, NRG expenses the capitalized costs in the year of the termination.
Intangible Assets and Deferred Financing Costs
Goodwill results when Xcel Energy purchases an entity at a price higher than the underlying fair value of the net assets. We amortize the goodwill and other intangible assets over periods consistent with the economic useful life of the assets. Our intangible assets are currently amortized over a range
29
of seven to 40 years. We periodically evaluate the recovery of goodwill based on an analysis of estimated undiscounted future cash flows. At Dec. 31, 1999, Xcel Energy's intangible assets included $65 million of goodwill, net of accumulated amortization.
Intangible and other assets also included deferred financing costs, net of amortization, of approximately $67 million at Dec. 31, 1999. We are amortizing these financing costs over the remaining maturity periods of the related debt.
Reclassifications
We reclassified certain items in the 1997 and 1998 income statements to conform to the 1999 presentation. These reclassifications had no effect on net income or earnings per share.
2. Short-Term Borrowings
Notes Payable and Commercial Paper
Information regarding notes payable and commercial paper for the years ended Dec. 31, 1999 and 1998 is as follows (in millions, except interest rates):
|
1999 |
1998 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Notes payable to banks | $ | 399 | $ | 126 | |||||
Commercial paper | 1,034 | 638 | |||||||
$ | 1,433 | $ | 764 | ||||||
Weighted average interest rate at year end | 6.37 | % | 5.59 | % |
Bank Lines of Credit and Compensating Bank Balances
At Dec. 31, 1999, Xcel Energy and its subsidiaries had approximately $2 billion in credit facilities with several banks. Arrangements by Xcel Energy and its subsidiaries for committed lines of credit are maintained by a combination of fee payments and compensating balances.
PSCo and its subsidiaries have entered into a credit facility with several banks providing $300 million in committed bank lines of credit. The credit facility, which is used primarily to support the issuance of commercial paper by PSCo and PSCCC, alternatively provides for direct borrowings thereunder. 1480 Welton, Inc. and PSRI are provided access to the credit facility with direct borrowings guaranteed by PSCo. The facility expires Nov.17, 2000. Additionally, PSCo has a credit facility, which provides $300 million in committed lines of credit and expires on June 23, 2000. SPS has two credit facilities, which provide $250 million in committed bank lines of credit, each with a commitment termination date of Feb. 25, 2000. As of Dec. 31, 1999, PSCo had used $355.6 million and SPS had used $181 million of the total capacity available under their respective committed lines of credit.
PSCo and SPS may borrow under uncommitted preapproved lines of credit upon request; however, the banks have no firm commitment to make such loans. Individual PSCo arrangements for uncommitted bank lines of credit totaled $150 million at Dec. 31, 1999, none of which were used or outstanding.
At the end of 1998 and 1999, NSP-Minnesota had a $300 million revolving credit facility under a commitment fee arrangement. This facility provides short-term financing in the form of bank loans,
30
letters of credit and support for commercial paper sales. NSP did not borrow or issue any letters of credit against this facility in 1998 or 1999. NSP-Minnesota had $420 million and $114 million of commercial paper outstanding at the end of 1999 and 1998, respectively.
At the end of 1999, banks provided $550 million of credit lines to NRG. At Dec. 31, 1999, NRG had borrowed $340 million against these lines.
On Feb. 22, 2000, NRG Northeast Generating issued $750 million of senior secured bonds to refinance short-term project borrowings. The bond offering included three tranches: $320 million with an interest rate of 8.065 percent due in 2004, $109 million with an interest rate of 8.842 percent due in 2010 and $321 million with an interest rate of 9.292 percent due in 2024. NRG used $647 million of the proceeds to repay short-term borrowings outstanding at Dec. 31, 1999. Accordingly, $647 million of short-term debt has been classified as long-term debt, based on this refinancing.
3. Long-Term Debt
Except for minor exclusions, all property of Xcel Energy's utility subsidiaries is subject to the liens of the first mortgage indentures, which are contracts between the companies and their bond holders. This property is also security for other debt obligations of Xcel Energy, as indicated in Consolidated Statement of Capitalization. Additionally, the SPS Indenture provides for certain restrictions on the payment of dividends by SPS. In addition, certain SPS payments under its pollution control obligations are pledged to secure obligations of the Red River Authority of Texas.
The annual sinking-fund requirements of NSP-Minnesota and NSP-Wisconsin's first mortgage indentures are the amounts necessary to redeem 1 percent of the highest principal amount of each series of first mortgage bonds at any time outstanding, excluding series issued for pollution control and resource recovery financings and certain other series totaling $1 billion.
The sinking fund requirements relate to NSP-Minnesota, NSP-Wisconsin, PSCo and Cheyenne and they expect to satisfy substantially all of their sinking fund obligations in accordance with the terms of their respective indentures through the application of property additions. SPS has no significant sinking fund requirements.
NSP-Minnesota's 2011 and 2019 series First Mortgage Bonds have variable interest rates, which currently change at various periods up to 270 days, based on prevailing rates for certain commercial paper securities or similar issues. The 2011 series bonds are redeemable upon seven days notice at the option of the bondholder. NSP-Minnesota also is potentially liable for repayment of the 2019 series when the bonds are tendered, which occurs each time the variable interest rates change. The principal amount of all of these variable rate bonds outstanding represents potential short-term obligations and, therefore, is reported under current liabilities on the Balance Sheets.
Maturities and sinking-fund requirements for Xcel Energy's long-term debt are:
2000 | $ | 290 million | |
2001 | $ | 333 million | |
200 | $ | 62 million | |
2003 | $ | 575 million | |
2004 | $ | 658 million |
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4. Preferred Stock
At Dec. 31, 1999, Xcel Energy had various preferred stock series, which were callable at prices per share ranging from $102.00 to $103.75, plus accrued dividends.
PSCo has 10 million shares of cumulative preferred stock, $0.01 par value authorized. This preferred stock may be issued from time to time in such series and having such designations, preferences, limitations and relative rights as the Board of Directors may determine. At Dec. 31, 1999 and 1998, PSCo had no shares of preferred stock outstanding.
SPS has 10 million shares of cumulative preferred stock, $1.00 par value authorized. This preferred stock may be issued from time to time in such series and having such designations, preferences, limitations and relative rights as the Board of Directors may determine. At Dec. 31, 1999 and 1998, SPS had no shares of preferred stock outstanding.
5. Mandatorily Redeemable Preferred Securities of Subsidiary Trusts
In 1998, PSCo Capital Trust I, a wholly owned special purpose subsidiary trust of PSCo, issued 7,760,000 shares of its 7.60 percent Trust Originated Preferred Securities for $194 million. The sole asset of the trust is $200 million principal amount of PSCo's 7.60 percent Deferrable Interest Subordinated Debentures, due June 30, 2038. Holders of the securities are entitled to receive quarterly dividends at an annual rate of 7.60 percent of the liquidation preference value of $25. The securities are redeemable at the option of PSCo on and after May 11, 2003, at 100 percent of the principal amount outstanding plus accrued interest. In addition to PSCo's obligations under the Subordinated Debentures, PSCo has agreed, pursuant to a guarantee issued to the trust and the provisions of the trust agreement establishing the trust, to guarantee, on a subordinated basis, payment of distributions on the preferred securities (but not if the trust does not have sufficient funds to pay such distributions) and to pay all of the expenses of the trust (collectively, the Back-up Undertakings). Considered together, the Back-up Undertakings constitute a full and unconditional guarantee by PSCo of the trust obligations under the preferred securities.
In 1996, Southwestern Public Service Capital I, a wholly owned special purpose subsidiary trust of SPS, issued $100 million of its 7.85 percent Trust Preferred Securities, Series A. The sole asset of the trust is $103 million principal amount of SPS's 7.85 percent Deferrable Interest Subordinated Debentures, Series A, due Sept. 1, 2036. The securities are redeemable at the option of SPS on and after Oct. 21, 2001, at 100 percent of the principal amount plus accrued interest. In addition to SPS's obligations under the Subordinated Debentures, SPS has agreed, pursuant to a guarantee issued to the trust, the provisions of the trust agreement establishing the trust and a related expense agreement, to guarantee, on a subordinated basis, payment of distributions on the preferred securities (but not if the trust does not have sufficient funds to pay such distributions) and to pay all of the expenses of the trust. Considered together, the Back-up Undertakings constitute a full and unconditional guarantee by SPS of the trust obligations under the preferred securities.
In 1997, NSP Financing I, a wholly owned special purpose subsidiary trust of NSP-Minnesota, issued $200 million of 7.875 percent preferred securities that mature in 2037. Distributions paid by the subsidiary trust on the preferred securities are financed through interest payments on debentures issued by NSP-Minnesota and held by the subsidiary trust, which are eliminated in consolidation. The preferred securities are redeemable at $25 per share beginning in 2002. Distributions and redemption payments are guaranteed by NSP-Minnesota.
Distributions paid to preferred security holders are reflected as a financing cost in the Consolidated Income Statements along with interest expense.
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6. Nuclear Obligations
Fuel Disposal
NSP-Minnesota is responsible for temporarily storing usedor spentnuclear fuel from its nuclear plants. The U.S. DOE is responsible for permanently storing spent fuel from NSP's nuclear plants as well as from other U.S. nuclear plants. NSP-Minnesota has been funding its portion of the DOE's permanent disposal program since 1981. The fuel disposal fees are based on a charge of 0.1 cent per kilowatt-hour sold to customers from nuclear generation. Fuel expense includes DOE fuel disposal assessments of approximately $12 million in 1999, $11 million in 1998 and $10 million in 1997.
In total, NSP-Minnesota had paid approximately $272 million to the DOE through Dec. 31, 1999. However, we cannot determine whether the amount and method of the DOE's assessments to all utilities will be sufficient to fully fund the DOE's permanent storage or disposal facility.
The Nuclear Waste Policy Act requires the DOE to begin accepting spent nuclear fuel no later than Jan. 31, 1998. In 1996, the DOE notified commercial spent fuel owners of an anticipated delay in accepting spent nuclear fuel by the required date and conceded that a permanent storage or disposal facility will not be available until at least 2010. NSP-Minnesota and other utilities have commenced lawsuits against the DOE to recover damages caused by the DOE's failure to meet its statutory and contractual obligations.
Without a DOE facility, NSP-Minnesota has been providing, with regulatory and legislative approval, its own temporary on-site storage facilities at its Monticello and Prairie Island nuclear plants. With the dry cask storage facilities approved in 1994, management believes it has adequate storage capacity to continue operation of its Prairie Island nuclear plant until at least 2007. The Monticello nuclear plant has storage capacity to continue operations until 2010. Storage availability to permit operation beyond these dates is not assured at this time. We are investigating all of its alternatives for spent fuel storage until a DOE facility is available, including pursuing the establishment of a private facility for interim storage of spent nuclear fuel as part of a consortium of electric utilities. If on-site temporary storage at Prairie Island reaches approved capacity, we could seek interim storage at this or another contracted private facility, if available.
Nuclear fuel expense includes payments to the DOE for the decommissioning and decontamination of the DOE's uranium enrichment facilities. In 1993, NSP-Minnesota recorded the DOE's initial assessment of $46 million, which is payable in annual installments from 1993-2008. NSP-Minnesota is amortizing each installment to expense on a monthly basis in the 12 months following each payment. The most recent installment paid in 1999 was $4 million; future installments are subject to inflation adjustments under DOE rules. NSP is obtaining rate recovery of these DOE assessments through the cost-of-energy adjustment clause as the assessments are amortized. Accordingly, we deferred the unamortized assessment of $32 million at Dec. 31, 1999, as a regulatory asset.
Plant Decommissioning
Decommissioning of NSP-Minnesota's nuclear facilities is planned for the years 2010-2022, using the prompt dismantlement method. We are currently following industry practice by ratably accruing the costs for decommissioning over the approved cost recovery period and including the accruals in Utility PlantAccumulated Depreciation. Consequently, the total decommissioning cost obligation and corresponding assets currently are not recorded in Xcel Energy's financial statements.
The FASB has proposed new accounting standards, which, if approved, would require the full accrual of nuclear plant decommissioning and other site exit obligations no sooner than 2002. Using
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Dec. 31, 1999, estimates, adoption of the proposed accounting would result in the recording of the total discounted decommissioning obligation of $705 million as a liability, with the corresponding costs capitalized as plant and other assets and depreciated over the operating life of the plant. We have not yet determined the potential impact of the FASB's proposed changes in the accounting for site exit obligations, such as costs of removal, other than nuclear decommissioning. However, the ultimate decommissioning and site exit costs to be accrued are expected to be similar to the current methodology. The effects of regulation are expected to minimize or eliminate any impact on operating expenses and results of operations from this future accounting change.
Consistent with cost recovery in utility customer rates, we record annual decommissioning accruals based on periodic site-specific cost studies and a presumed level of dedicated funding. Cost studies quantify decommissioning costs in current dollars. Since the costs are expected to be paid in 2010-2022, funding presumes that current costs will escalate in the future at a rate of 4.5 percent per year. The total estimated decommissioning costs that will ultimately be paid, net of income earned by external trust funds, is currently being accrued using an annuity approach over the approved plant recovery period. This annuity approach uses an assumed rate of return on funding, which is currently 6 percent, net of tax, for external funding and approximately 8 percent, net of tax, for internal funding.
The MPUC last approved NSP-Minnesota's nuclear decommissioning study and related nuclear plant depreciation capital recovery request in April 1997, using 1993 cost data. Although we expect to operate Prairie Island through the end of each unit's licensed life, the approved capital recovery would allow for the plant to be fully depreciated, including the accrual and recovery of decommissioning costs, in 2008. This is about six years earlier than each unit's licensed life. The approved recovery period for Prairie Island has been reduced because of the uncertainty regarding used fuel storage. We believe future decommissioning cost accruals will continue to be recovered in customer rates.
The total obligation for decommissioning currently is expected to be funded approximately 82 percent by external funds and 18 percent by internal funds, as approved by the MPUC. Contributions to the external fund started in 1990 and are expected to continue until plant decommissioning begins. Costs not funded by external trust assets, including accumulated earnings, will be funded through internally generated funds and issuance of NSP-Minnesota debt or Xcel Energy stock. The assets held in trusts as of Dec. 31, 1999, primarily consisted of investments in fixed income securities, such as tax-exempt municipal bonds and U.S. government securities that mature in two to 30 years, and common stock of public companies. We plan to reinvest matured securities until decommissioning begins.
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At Dec. 31, 1999, NSP-Minnesota had recorded and recovered in rates cumulative decommissioning accruals of $549 million. The following table summarizes the funded status of NSP-Minnesota's decommissioning obligation at Dec. 31, 1999:
|
1999 |
||||
---|---|---|---|---|---|
(Thousands of dollars) | |||||
Estimated decommissioning cost obligation from most recently approved study (1993 dollars) | $ | 750,824 | |||
Effect of escalating costs to 1999 dollars (at 4.5 percent per year) | 226,944 | ||||
Estimated decommissioning cost obligation in current dollars | 977,768 | ||||
Effect of escalating costs to payment date (at 4.5 percent per year) | 867,017 | ||||
Estimated future decommissioning costs (undiscounted) | 1,844,785 | ||||
Effect of discounting obligation (using risk-free interest rate) | (1,140,003 | ) | |||
Discounted decommissioning cost obligation | 704,782 | ||||
Assets held in external decommissioning trust | 517,129 | ||||
Discounted decommissioning obligation in excess of assets currently held in external trust | $ | 187,653 | |||
Decommissioning expenses recognized include the following components:
|
1999 |
1998 |
1997 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
(Thousands of dollars) | ||||||||||||
Annual decommissioning cost accrual reported as depreciation expense: | ||||||||||||
Externally funded | $ | 33,178 | $ | 33,178 | $ | 33,178 | ||||||
Internally funded (including interest costs) | 1,595 | 1,477 | 1,368 | |||||||||
Interest cost on externally funded decommissioning obligation | 4,191 | 6,960 | 7,690 | |||||||||
Earnings from external trust funds | (4,191 | ) | (6,960 | ) | (7,690 | ) | ||||||
Net decommissioning accruals recorded | $ | 34,773 | $ | 34,655 | $ | 34,546 | ||||||
Decommissioning and interest accruals are included with the accumulated provision for depreciation on the balance sheet. Interest costs and trust earnings associated with externally funded obligations are reported in Other Utility Income and Deductions on the income statement.
A triennial nuclear plant decommissioning filing was made with the MPUC in October 1999. Approval by the MPUC is expected in 2000, effective for cost accruals Jan. 1, 2000.
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7. Joint Plant Ownership
The investments by Xcel Energy's utility subsidiaries in jointly-owned plants and the related ownership percentages as of Dec. 31, 1999, are (in thousands):
|
Plant in Service |
Accumulated Depreciation |
Construction Work in Progress |
Ownership % |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|
NSP-Minnesota: | |||||||||||
Sherco Unit 3 | $ | 607,347 | $ | 232,645 | $ | | 59.0 | ||||
PSCo: | |||||||||||
Hayden Unit 1 | 77,594 | 33,943 | 586 | 75.5 | |||||||
Hayden Unit 2 | 58,478 | 37,473 | 16,576 | 37.4 | |||||||
Hayden Common Facilities | 29,907 | 1,395 | 2,484 | 53.1 | |||||||
Craig Units 1 & 2 | 57,710 | 27,927 | | 9.7 | |||||||
Craig Common Facilities Units 1,2 & 3 | 20,810 | 7,747 | 52 | 6.5 - 9.7 | |||||||
Transmission Facilities, Including Substations | 81,391 | 26,025 | 289 | 42.0 - 73.0 | |||||||
$ | 933,237 | $ | 367,155 | $ | 19,987 | ||||||
The PSCo assets include approximately 320 megawatts of net dependable generating capacity. PSCo is responsible for its proportionate share of operating expenses (reflected in the Consolidated Statements of Income) and construction expenditures. The increase in plant in service in 1999 and the construction work in progress amounts for Hayden Unit 1, Hayden Unit 2 and Hayden Common Facilities, including construction expenditures for installing emission control equipment for these facilities, are discussed in Note 14 Commitments and ContingenciesEnvironmental Matters.
NSP-Minnesota is part owner of an 860-megawatt coal-fired electric generating unit called Sherco 3. NSP-Minnesota owns and has financed 59 percent and Southern Minnesota Municipal Power Agency owns and has financed 41 percent of Sherco 3. NSP is the operating agent under the joint ownership agreement. NSP-Minnesota's share of related expenses for Sherco 3 is included in Utility Operating Expenses.
8. Income Taxes
Total income tax expense from operations differs from the amount computed by applying the statutory federal income tax rate to income before income tax expense. The reasons for the difference are:
|
1999 |
1998 |
1997 |
||||||
---|---|---|---|---|---|---|---|---|---|
Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
Increases (decreases) in tax from: | |||||||||
State income taxes, net of federal income tax benefit | 2.1 | % | 2.8 | % | 2.9 | % | |||
Life insurance policies | (2.3 | )% | (1.7 | )% | (1.8 | )% | |||
Tax credits recognized | (6.0 | )% | (4.6 | )% | (4.4 | )% | |||
Equity income from unconsolidated affiliates | (5.5 | )% | (4.9 | )% | (3.0 | )% | |||
Regulatory differencesutility plant items | 1.9 | % | 1.0 | % | 1.9 | % | |||
Othernet | (1.3 | )% | 0.2 | % | 1.0 | % | |||
Effective income tax rate | 23.9 | % | 27.8 | % | 31.6 | % | |||
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Income taxes (in thousands of dollars) are comprised of the following expense (benefit) items:
Current federal tax expense | $ | 175,461 | $ | 238,124 | $ | 188,069 | ||||||
Current state tax expense | 26,949 | 34,454 | 27,880 | |||||||||
Current foreign tax expense | 4,040 | 2,358 | 236 | |||||||||
Current federal tax credits | (30,137 | ) | (25,122 | ) | (17,006 | ) | ||||||
Deferred federal tax expense | 27,380 | 9,940 | 43,212 | |||||||||
Deferred state tax expense | (2,352 | ) | 3,027 | 5,989 | ||||||||
Deferred foreign tax expense | (6,868 | ) | (7,736 | ) | (2,892 | ) | ||||||
Deferred investment tax credits | (14,800 | ) | (14,654 | ) | (14,859 | ) | ||||||
Total income tax expense | $ | 179,673 | $ | 240,391 | $ | 230,629 | ||||||
Xcel Energy management intends to indefinitely reinvest earnings from foreign operations. Accordingly, U.S. income taxes and foreign withholding taxes have not been provided on a cumulative amount of unremitted earnings of foreign subsidiaries of approximately $201 million and $119 million at Dec. 31, 1999 and 1998. The additional U.S. income tax and foreign withholding tax on the unremitted foreign earnings, if repatriated, would be offset in part by foreign tax credits. Thus, it is not practicable to estimate the amount of tax that might be payable.
The components of Xcel Energy's net deferred tax liability (current and noncurrent portions) at Dec. 31 were:
|
1999 |
1998 |
||||||
---|---|---|---|---|---|---|---|---|
(Thousands of dollars) | ||||||||
Deferred tax liabilities: | ||||||||
Differences between book and tax bases of property | $ | 1,698,413 | $ | 1,635,856 | ||||
Regulatory assets | 208,178 | 261,036 | ||||||
Tax benefit transfer leases | 23,431 | 27,170 | ||||||
Other | 138,148 | 140,298 | ||||||
Total deferred tax liabilities | $ | 2,068,170 | $ | 2,064,360 | ||||
Deferred tax assets: | ||||||||
Regulatory liabilities | $ | 73,006 | $ | 98,628 | ||||
Employee benefits | 23,129 | 32,602 | ||||||
Deferred investment tax credits | 83,164 | 89,445 | ||||||
Other | 110,237 | 78,418 | ||||||
Total deferred tax assets | $ | 289,536 | $ | 299,093 | ||||
Net deferred tax liability | $ | 1,778,634 | $ | 1,765,267 | ||||
9. Common Stock and Incentive Stock Plans
Incentive Stock Plans
Xcel Energy and its subsidiaries have incentive compensation plans, which provide for annual and long-term incentive awards for key employees. The weighted average number of Xcel Energy common and potentially dilutive shares outstanding includes the dilutive effect of stock options and other stock
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awards based on the treasury stock method. For the periods presented, these plans are those of the predecessor companies NSP and NCE. Stock options issued under NCE plans have been adjusted for the 1.55 exchange ratio.
A summary of the Xcel Energy's stock options at Dec. 31, 1999, 1998 and 1997, and changes during the years then ended is presented in the table below:
|
1999 |
1998 |
1997 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stock Options and Performance Awards |
Shares |
Average Price |
Shares |
Average Price |
Shares |
Average Price |
|||||||||
(Thousands of shares) | |||||||||||||||
Outstanding at beginning of year | 6,156 | $ | 26.15 | 5,439 | $ | 24.92 | 2,976 | $ | 21.57 | ||||||
Granted | 2,545 | 22.64 | 1,456 | 29.19 | 3,193 | 27.19 | |||||||||
Exercised | (90 | ) | 18.72 | (636 | ) | 22.36 | (642 | ) | 20.83 | ||||||
Forfeited | (111 | ) | 30.10 | (94 | ) | 28.15 | (66 | ) | 23.42 | ||||||
Expired | (10 | ) | 25.64 | (9 | ) | 23.24 | (22 | ) | 25.47 | ||||||
Outstanding at end of year | 8,490 | 25.12 | 6,156 | 26.15 | 5,439 | 24.92 | |||||||||
Exercisable at end of year | 5,301 | 25.84 | 4,405 | 25.14 | 2,353 | 21.89 | |||||||||
The following table summarizes information about stock options outstanding at Dec. 31, 1999:
|
Range of Exercise Prices |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
$16.60 - $20.30 |
$20.40 - $25.50 |
$26.60 - $30.70 |
|||||||
Options Outstanding (a): | ||||||||||
Number outstanding at Dec. 31, 1999 | 1,913,166 | 1,812,157 | 4,752,371 | |||||||
Weighted average remaining contractual life (years) | 7.8 | 5.3 | 7.6 | |||||||
Weighted average exercise price | $ | 19.94 | $ | 23.08 | $ | 27.86 | ||||
Options Exercisable: | ||||||||||
Number exercisable at Dec. 31, 1999 | 367,971 | 1,812,157 | 3,108,246 | |||||||
Weighted average exercise price | $ | 18.49 | $ | 23.08 | $ | 27.77 |
In addition to granting stock options, NSP's incentive plans granted certain employees restricted stock based on a dollar value of the award. We use the market price of the stock on the date it was granted to determine the number of restricted shares to grant. Xcel Energy holds the stock until restrictions lapse; 50 percent of the stock vests one year from the date of the award and the other 50 percent vests two years from the date of the award. We reinvest dividends on the shares we hold while restrictions are in place. Restrictions also apply to the additional shares acquired through dividend reinvestment. NSP has granted the following restricted stock awards under its plan: 52,688 shares in 1999, 49,651 shares in 1998 and 51,790 shares in 1997. Compensation expense related to these awards was immaterial.
The NCE/NSP merger did not constitute a change in control under the NCE incentive plans and, therefore, there will be no accelerated vesting for stock options issued under the NCE plan. When the NCE/NSP Merger was consummated, outstanding NCE stock options were converted to Xcel options at a rate of 1.55 Xcel options for every NCE option. The NCE/NSP merger represented a change in
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control under the NSP incentive plan and, therefore, all unvested stock options and restricted stock awards under that plan became fully vested and exercisable as of the merger date.
Dividend Restrictions
Xcel Energy's Articles of Incorporation and first mortgage indenture include certain restrictions on paying cash dividends on common stock. Even with these restrictions, Xcel Energy could have paid more than $2.2 billion in additional cash dividends on common stock at Dec. 31, 1999.
10. Benefit Plans and Other Postretirement Benefits
Xcel Energy offers the following benefit plans to its benefit employees. Approximately 42 percent of benefit employees are represented by several local labor unions under several collective-bargaining agreements. NSP-Minnesota and NSP-Wisconsin have approximately 3,204 union employees covered under a collective-bargaining agreement, which expires at the end of 2004. PSCo has approximately 1,911 union employees covered under a collective-bargaining agreement, which expires in May 2003. SPS has approximately 784 union employees covered under a collective-bargaining agreement, which expires in October 2002.
Pension Benefits
Xcel Energy has several noncontributory, defined benefit pension plans that cover almost all utility employees. Benefits are based on a combination of years of service, the employee's average pay and Social Security benefits.
Xcel Energy's policy is to fully fund into an external trust the actuarially determined pension costs recognized for ratemaking and financial reporting purposes, subject to the limitations of applicable employee benefit and tax laws. Plan assets principally consist of the common stock of public companies, corporate bonds and U.S. government securities.
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A comparison of the actuarially computed pension benefit obligation and plan assets at Dec. 31, 1999 and 1998 for all Xcel Energy plans on a combined basis, is presented in the following table (in thousands).
|
1999 |
1998 |
||||||
---|---|---|---|---|---|---|---|---|
Change in Benefit Obligation | ||||||||
Obligation at Jan. 1 | $ | 2,157,255 | $ | 2,040,224 | ||||
Service cost | 63,674 | 55,545 | ||||||
Interest cost | 154,619 | 145,574 | ||||||
Plan amendments | 184,255 | 42,301 | ||||||
Actuarial (gain)loss | (225,355 | ) | 10,781 | |||||
Benefit payments | (163,821 | ) | (137,170 | ) | ||||
Obligation at Dec. 31 | $ | 2,170,627 | $ | 2,157,255 | ||||
Change in Fair Value of Plan Assets | ||||||||
Fair value of plan assets at Jan. 1 | $ | 3,460,740 | $ | 3,109,808 | ||||
Actual return on plan assets | 466,374 | 488,102 | ||||||
Benefit payments | (163,821 | ) | (137,170 | ) | ||||
Fair value of plan assets at Dec. 31 | $ | 3,763,293 | $ | 3,460,740 | ||||
Funded Status at Dec. 31 | ||||||||
Net asset | $ | 1,592,666 | $ | 1,303,485 | ||||
Unrecognized transition (asset) obligation | (23,945 | ) | (31,258 | ) | ||||
Unrecognized prior-service cost | 247,632 | 81,232 | ||||||
Unrecognized (gain) loss | (1,680,616 | ) | (1,288,178 | ) | ||||
Prepaid pension asset recorded | $ | 135,737 | $ | 65,281 | ||||
|
1999 |
1998 |
||||
---|---|---|---|---|---|---|
Significant assumptions | ||||||
Discount rate | 7.5 - 8.0 | % | 6.5 - 6.75 | % | ||
Expected long-term increase in compensation level | 4.0 - 4.5 | % | 4.0 - 4.5 | % | ||
Expected average long-term rate of return on assets | 8.5 - 10.0 | % | 8.5 - 9.5 | % |
The components of net periodic pension cost (credit) for Xcel Energy plans are as follows (in thousands):
|
1999 |
1998 |
1997 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Service cost | $ | 63,674 | $ | 55,545 | $ | 46,098 | |||||
Interest cost | 154,619 | 145,574 | 140,978 | ||||||||
Expected return on plan assets | (259,074 | ) | (233,191 | ) | (209,926 | ) | |||||
Curtailment | | | 126 | ||||||||
Amortization of transition asset | (7,314 | ) | (7,314 | ) | (7,314 | ) | |||||
Amortization of prior-service cost | 17,855 | 6,209 | 3,502 | ||||||||
Amortization of net gain | (40,217 | ) | (30,607 | ) | (23,157 | ) | |||||
Net periodic pension cost (credit) under SFAS 87 | $ | (70,457 | ) | $ | (63,784 | ) | $ | (44,693 | ) | ||
Credits not recognized due to ratemaking | 36,469 | 35,545 | 30,862 | ||||||||
Net benefits cost (credit) recognized for financial reporting | $ | (33,988 | ) | $ | (28,239 | ) | $ | (13,831 | ) | ||
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Additionally, Xcel Energy maintains noncontributory defined benefit supplemental retirement income plans for certain qualifying executive personnel. Benefits for these unfunded plans are paid out of Xcel Energy's operating cash flows.
Defined Contribution Plans
Xcel Energy maintains 401(K) and other defined contribution plans that cover substantially all employees. Total contributions to these plans were approximately $21 million annually in 1999, 1998 and 1997.
Xcel Energy has a leveraged ESOP that covers substantially all employees of NSP-Minnesota and NSP-Wisconsin. Xcel Energy makes contributions to this noncontributory, defined contribution plan to the extent we realize a tax savings from dividends paid on certain ESOP shares. ESOP contributions have no material effect on Xcel Energy earnings because the contributions are essentially offset by the tax savings provided by the dividends paid on ESOP shares. Xcel Energy allocates leveraged ESOP shares to participants when it repays ESOP loans with dividends on stock held by the ESOP.
Xcel Energy's ESOP held 11.3 million shares of Xcel Energy common stock at the end of 1999 and 1998, and 11.2 million shares of Xcel Energy common stock at the end of 1997. Xcel Energy excluded the following uncommitted leveraged ESOP shares from earnings per share calculations: 0.5 million in 1999, 0.6 million in 1998 and 0.6 million in 1997.
Postretirement Health Care
Xcel Energy has contributory health and welfare benefit plans that provide health care and death benefits to almost all Xcel Energy retirees. The NSP plan was terminated for nonbargaining employees retiring after 1998 and for bargaining employees after 1999.
In conjunction with the 1993 adoption of SFAS 106, Xcel Energy elected to amortize the unrecognized accumulated postretirement benefit obligation (APBO) on a straight-line basis over 20 years.
Regulators for nearly all of Xcel Energy's retail and wholesale utility customers have allowed rate recovery of accrued benefit costs under SFAS 106. PSCo transitioned to full accrual accounting for SFAS 106 costs between Jan. 1, 1993 and Dec. 31, 1997, consistent with the accounting requirements for rate regulated enterprises. The Colorado jurisdictional SFAS 106 costs deferred during the transition period are being amortized to expense on a straight line basis over the 15-year period from 1998 to 2012. NSP-Minnesota also transitioned to full accrual accounting for SFAS 106 costs, with regulatory differences fully amortized prior to 1997.
Additionally, certain state agencies, which regulate Xcel Energy's utility subsidiaries, have issued guidelines related to the funding of SFAS 106 costs. SPS is required to fund SFAS 106 costs for Texas and New Mexico jurisdictional amounts collected in rates and PSCo and Cheyenne are required to fund SFAS 106 costs in irrevocable external trusts that are dedicated to the payment of these postretirement benefits. Minnesota and Wisconsin retail regulators require external funding to the extent it is tax advantaged. Plan assets held in external funding trusts principally consist of investments in equity mutual funds, fixed securities and cash equivalents.
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A comparison of the actuarially computed benefit obligation and plan assets at Dec. 31, 1999 and 1998 for all Xcel Energy postretirement healthcare plans is presented in the following table (in thousands):
|
1999 |
1998 |
||||||
---|---|---|---|---|---|---|---|---|
Change in Benefit Obligation: | ||||||||
Obligation at Jan. 1 | $ | 616,957 | $ | 655,915 | ||||
Service cost | 4,680 | 8,164 | ||||||
Interest cost | 35,583 | 42,399 | ||||||
Plan amendments | (80,840 | ) | (65,802 | ) | ||||
Actuarial (gain) loss | (5,581 | ) | 10,578 | |||||
Benefit payments | (37,341 | ) | (34,297 | ) | ||||
Obligation at Dec. 31 | $ | 533,458 | $ | 616,957 | ||||
Change in Fair Value of Plan Assets |
|
|
|
|
|
|
|
|
Fair value of plan assets at Jan. 1 | $ | 180,742 | $ | 132,107 | ||||
Actual return on plan assets | 11,981 | 16,629 | ||||||
Employee contributions | 21,313 | 535 | ||||||
Employer contributions | 14,630 | 56,611 | ||||||
Benefit payments | (26,899 | ) | (25,140 | ) | ||||
Fair value of plan assets at Dec. 31 | $ | 201,767 | $ | 180,742 | ||||
Funded Status at Dec. 31 |
|
|
|
|
|
|
|
|
Net obligation | $ | 331,691 | $ | 436,215 | ||||
Unrecognized transition asset (obligation) | (219,644 | ) | (317,130 | ) | ||||
Unrecognized prior-service credit | 14,999 | 15,987 | ||||||
Unrecognized gain (loss) | 5,559 | 6,035 | ||||||
Accrued benefit liability recorded | $ | 132,605 | $ | 141,107 | ||||
|
|
1999 |
|
1998 |
|
|||
Significant assumptions: | ||||||||
Discount rate | 7.5 - 8.0 | % | 6.5-6.75 | % | ||||
Expected average long-term rate of return on assets | 8.5 - 9.5 | % | 8.5 - 9.5 | % |
The assumed health care cost trend rate for 1999 is approximately 8.0 percent, decreasing to 5.5 percent in 2004 and to 4.25 percent in 2007. A 1 percent increase in the assumed health care cost trend rate would increase the estimated total accumulated benefit obligation for Xcel Energy by $49.6 million, and the service and interest cost components of net periodic postretirement benefit costs by $4.3 million. A 1 percent decrease in the assumed health care cost trend rate would decrease the estimated total accumulated benefit obligation for Xcel Energy by $41.5 million, and the service and interest cost components of net periodic postretirement benefit costs by $3.5 million.
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The components of net periodic postretirement benefit cost of all Xcel Energy's plans are as follows (in thousands):
|
1999 |
1998 |
1997 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Service cost | $ | 4,680 | $ | 8,164 | $ | 11,216 | |||||
Interest cost | 35,583 | 42,399 | 45,409 | ||||||||
Expected return on plan assets | (15,003 | ) | (12,349 | ) | (9,320 | ) | |||||
Curtailment | | | 3,323 | ||||||||
Amortization of transition obligation | 17,461 | 23,411 | 25,772 | ||||||||
Amortization of prior-service cost (credit) | (1,803 | ) | (932 | ) | | ||||||
Amortization of net gain | (5 | ) | (790 | ) | (1,159 | ) | |||||
Net periodic postretirement benefit costs under SFAS 106 | 40,913 | 59,903 | 75,241 | ||||||||
Additional cost recognized (deferred) due to regulation | 4,029 | 5,673 | (5,382 | ) | |||||||
Net cost recognized for financial reporting | 44,942 | 65,576 | 69,859 | ||||||||
11. Investments Accounted for by the Equity Method
Xcel Energy's nonregulated subsidiaries have investments in various international and domestic energy projects, and domestic affordable housing and real estate projects. We use the equity method of accounting for such investments in affiliates, which include joint ventures and partnerships. That's because the ownership structure prevents Xcel Energy from exercising a controlling influence over the projects' operating and financial policies. Under this method, Xcel Energy records its portion of the earnings or losses of unconsolidated affiliates as equity earnings. A summary of Xcel Energy's significant equity method investments is listed the following table.
Name |
Geographic Area |
Economic Interest |
||
---|---|---|---|---|
Loy Yang Power A | Australia | 25.37% | ||
Enfield Energy Centre | Europe | 25.00% | ||
Yorkshire Power | Europe | 50.00% | ||
Gladstone Power Station | Australia | 37.50% | ||
COBEE (Bolivian Power Co. Ltd.) | South America | 49.10% | ||
MIBRAG mbH | Europe | 33.33% | ||
Cogeneration Corp. of America | USA | 20.00% | ||
Schkopau Power Station | Europe | 20.95% | ||
Long Beach Generating | USA | 50.00% | ||
El Segundo Generating | USA | 50.00% | ||
Encina | USA | 50.00% | ||
San Diego Combustion Turbines | USA | 50.00% | ||
Energy Developments Limited | Australia | 29.14% | ||
Scudder Latin American Power | Latin America | 6.63% | ||
Various independent power production facilities | USA | 45%-50% | ||
Various affordable housing limited partnerships | USA | 20% - 99.9% |
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Summarized financial information for these projects, including interests owned by Xcel Energy and other parties, is as follows for the years ended Dec. 31:
Results of Operations
|
1999 |
1998 |
1997 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
(Millions of dollars) | ||||||||||
Operating revenues | $ | 4,087 | $ | 3,791 | $ | 3,191 | ||||
Operating income | $ | 516 | $ | 530 | $ | 1,132 | ||||
Income before extraordinary item | $ | 290 | $ | 220 | $ | 154 | ||||
Extraordinary itemU.K. windfall tax | | | $ | (221 | ) | |||||
Net income (losses) | $ | 290 | $ | 220 | $ | (67 | ) | |||
Xcel Energy's: |
|
|
|
|
|
|
|
|
|
|
Equity earnings before extraordinary item | $ | 113 | $ | 119 | $ | 54 | ||||
Extraordinary itemU.K. windfall tax | | | $ | (111 | ) | |||||
Equity earnings (losses) of unconsolidated affiliates | $ | 113 | $ | 119 | $ | (57 | ) |
Financial Position
|
1999 |
1998 |
|||||
---|---|---|---|---|---|---|---|
(Millions of dollars) | |||||||
Current assets | $ | 1,198 | $ | 1,266 | |||
Other assets | 10,877 | 11,515 | |||||
Total assets | $ | 12,075 | $ | 12,781 | |||
Current liabilities | $ | 1,384 | $ | 1,344 | |||
Other liabilities | 7,719 | 8,465 | |||||
Equity | 2,972 | 2,972 | |||||
Total liabilities and equity | $ | 12,075 | $ | 12,781 | |||
12. Regulatory Matters
Electric Utility Matters
Restructuring Legislation
SPS is an integrated electric utility and serves approximately 385,000 retail customers in portions of the states of Texas, New Mexico, Oklahoma and Kansas. Over 97 percent of SPS' retail customers, sales and revenues are in Texas and New Mexico. SPS serves wholesale customers within its service territory that comprise approximately 30-35 percent of total electric revenues and Kwh sales. Restructuring legislation has been enacted in Texas and New Mexico, which may have a significant financial impact on the financial position, results of operations and cash flows of SPS and Xcel Energy. The Texas and New Mexico restructuring legislation is summarized in Note 2 to Exhibit 99.03 of this report.
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PSCo Performance Based Regulatory Plan (PBRP)
PSCo's base electric rates are based on traditional cost-of-service ratemaking principles. The CPUC established a performance based regulatory plan in connection with the CPUC's decision to approve the PSCo/SPS merger. The major components of this regulatory plan include the following:
PSCo has recorded an estimated customer refund obligation under the earnings test for the calendar years 1997 to 1999. In April of each year following the measurement period, PSCo files its proposed rate adjustment under the PBRP. The CPUC conducts proceedings to review and approve these rate adjustments annually. Since July 1998, PSCo has been refunding amounts related to the sharing of earnings in excess of 11 percent return on equity to customers. PSCo has recorded customer refund obligations for its earnings test of approximately $15 million for 1997, $8 million for 1998 and a preliminary estimate of $17 million for 1999. Final determinations of amounts to be refunded for 1998 and 1999 have not been made.
In 1999, PSCo did not achieve all of the minimum service performance measures under the QSP, due in part to circumstances outside of its control. PSCo recorded an estimated refund obligation of approximately $3.6 million in 1999. PSCo has filed its report for the year ended 1999 with the CPUC addressing the calculated amount of the refund. Final approval by the CPUC is pending.
Additionally, PSCo agreed to freeze base electric rates after the PSCo/SPS merger rate reductions for the period through Dec. 31, 2001, with the flexibility to make certain other rate changes, including those necessary for the recovery of DSM, QF capacity costs and decommissioning costs. The freeze in base electric rates does not prohibit PSCo from filing a general rate case or deny any party the opportunity to initiate a complaint or show cause proceeding.
SPS Electric Cost Adjustment Mechanisms
Substantially all fuel and purchased power costs are recoverable from utility customers, as determined on a jurisdictional basis, using approved cost adjustment mechanisms.
Texas
The PUCT's regulations require periodic examination of SPS's fuel and purchased power costs, the efficiency of the use of such fuel and purchased power, fuel acquisition and management policies and purchase power commitments. SPS is required to file an application for the PUCT to retrospectively review, at least every three years, the operations of a utility's electricity generation and fuel management activities. In June 1998, SPS filed its reconciliation for the generation and fuel management activities totaling approximately $690 million, for the period from January 1995 through December 1997. For this same period, SPS had approximately $21.4 million in under-recovered fuel costs associated with the Texas retail jurisdiction. SPS has entered into a settlement agreement with the
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General Counsel of the PUCT, which, if approved, would provide for the recovery of substantially all fuel costs. The final outcome of this fuel reconciliation proceeding is pending. Various parties in the proceedings are contesting the settlement agreement, which includes the recovery of the Thunder Basin costs discussed below.
SPS was named as a defendant in a case entitled Thunder Basin Coal Co. vs. Southwestern Public Service Co. In 1994, the jury returned a verdict in favor of Thunder Basin and awarded damages of approximately $18.8 million. SPS appealed the judgment and, in 1997, that Court found in favor of Thunder Basin and upheld the judgment. The judgment including interest and court costs totaling approximately $22.3 million was paid in 1997.
New Mexico
The NMPRC regulations provide for a fuel and purchased power cost adjustment clause and a fixed annual fuel factor for SPS's New Mexico retail jurisdiction. SPS files monthly and annual reports of its fuel and purchased power costs with the NMPRC, which include the current over/under fuel collection calculation, plus interest. In addition, SPS revises its fixed fuel factor annually to recover projected fuel and purchase power costs as well as any over/under fuel cost balance for the current year. SPS is required to petition for a change in the fixed fuel factor if the over/under recovery balance reaches $5 million. New Mexico's over/under calculation, plus interest, is similar to the Texas fixed fuel factor calculation.
SPS New Mexico Rate Case
In 1997, the NMPRC issued an order investigating SPS's rates. In the order, the NMPRC determined that because of the rapid changes occurring in the electric industry, the NMPRC would require rate case filings by the major electricity suppliers who have not adopted a plan to provide retail open access and customer choice of suppliers. SPS made a compliance filing in May 1998 and subsequently entered into an uncontested stipulation agreement settling the rate investigation case. As part of this settlement, SPS instituted a $6 million annual reduction in base rates for certain retail customers and implemented full normalization in its accounting for income taxes with recovery of the New Mexico jurisdictional portion of the tax regulatory asset over 16.8 years. The NMPRC approved the stipulation and the new rates became effective Dec. 30, 1998.
NCE/NSP Merger Rate Filings
The discussion below summarizes the significant results of the state regulatory approvals in Xcel Energy's largest utility jurisdictions in Colorado, Minnesota, Texas and New Mexico.
Colorado
The major provisions of the CPUC decision approving the NCE/NSP merger include:
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Minnesota
The major provisions of the agreements approved by the MPUC include the following:
Texas
The major provisions of the regulatory plan included in the Stipulation, include the following:
New Mexico
The major provisions of the NMPRC decision approving the merger are as follows:
We estimate that SPS's New Mexico retail customers will receive approximately $4.0 million of merger savings over the period ending Dec. 31, 2004.
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Gas Utility Matters
PSCo Rate Cases
In 1998, PSCo filed a retail gas rate case with the CPUC requesting an annual increase in rates of approximately $23.4 million. The request for a rate increase reflects revenues for additional plant investment, a 12.0 percent return on equity and the recovery of incremental year 2000 costs. In 1999, the CPUC approved an increase in base rates of approximately $15 million with an 11.25 percent return on equity, effective July 1, 1999. PSCo was also allowed recovery of certain environmental costs. Prudently incurred year 2000 costs will be recovered under a separate mechanism beginning in 2000.
In 1996, PSCo filed a retail rate case with the CPUC requesting an annual increase in its jurisdictional gas department revenues equal to approximately $34 million. In early 1997, the CPUC approved an overall increase of approximately $18 million with an 11.25 percent return on equity, but disallowed the recovery of certain postemployment benefit costs under SFAS 112. During 1997, PSCo filed a petition with the Denver District Court appealing the CPUC's decision. The Denver District Court affirmed the CPUC disallowance of SFAS 112 costs in 1999 and PSCo subsequently filed a petition with the Colorado Supreme Court to appeal the Denver District Court's decision. In the event that PSCo is not successful in its appeal(s), including pursuing regulatory recovery, $23 million of deferred SFAS 112 costs will be written off.
Planned Closure of PSCo Underground Gas Storage Facility
PSCo filed an application with the CPUC requesting authority to shut down and abandon an underground natural gas storage facility during 2001, after 40 years of operation. The application seeks approval of a formal decommissioning plan. The plan outline PSCo's proposal to plug and abandon the wells that are currently being used to inject and withdraw gas from the mine and requests approval of the costs to decommission and shut down the facility, which are currently estimated at approximately $8.6 million. An application to recover these costs and remaining plant investments from the ratepayers will be filed with the CPUC in a separate future proceeding.
PSCo Unbundling and Deregulation of the Retail Natural Gas Supply Business
During 1999, a bill allowing natural gas public utilities to voluntarily submit plans to the CPUC to open their markets and enable customers to choose their natural gas supplier was approved by the Colorado Legislature and by the Governor. Currently, PSCo provides a traditional bundled gas service with rates designed for the recovery of actual gas costs through the GCA and for providing transportation and delivery services. Delivery of natural gas will continue to be regulated, with delivery companies required to offer nondiscriminatory pipeline access to competitors. PSCo will continue to be subject to the reporting requirements of SFAS 71 as a regulated distribution company. PSCo has not filed a plan to open its natural gas supply business to competition and continues to evaluate its business opportunities for doing so.
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13. Financial Instruments
Fair Values
The estimated Dec. 31 fair values of Xcel Energy's recorded financial instruments are as follows:
|
1999 |
1998 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
||||||||
(Thousands of dollars) | ||||||||||||
Mandatorily redeemable preferred securities | $ | 494,000 | $ | 427,240 | $ | 494,000 | $ | 515,250 | ||||
Long-term investments | $ | 543,300 | $ | 538,926 | $ | 474,866 | $ | 474,237 | ||||
Long-term debt, including current portion | $ | 6,258,534 | $ | 5,997,522 | $ | 4,564,056 | $ | 4,747,717 |
For cash, cash equivalents and short-term investments, the carrying amount approximates fair value because of the short maturity of those instruments. The fair values of Xcel Energy's long-term investments, mainly debt securities in an external nuclear decommissioning fund, are estimated based on quoted market prices for those or similar investments. The fair value of Xcel Energy's long-term debt and the mandatorily redeemable preferred securities are estimated based on the quoted market prices for the same or similar issues, or the current rates for debt of the same remaining maturities and credit quality.
The fair value estimates presented are based on information available to management as of Dec. 31, 1999 and 1998. These fair value estimates have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair values may differ significantly from the amounts presented herein.
Guarantees
NSP-Minnesota has sold a portion of its other receivables to a third party. The portion of the receivables sold consisted of customer loans to local and state government entities for energy efficiency improvements under various conservation programs offered by NSP-Minnesota. Under the sales agreements, NSP-Minnesota is required to guarantee repayment to the third party of the remaining loan balances. At Dec. 31, 1999, the outstanding balance of the loans was approximately $25 million. Based on prior collection experience of these loans, NSP-Minnesota believes that losses under the loan guarantees, if any, would have an immaterial impact on the results of operations.
Xcel Energy has entered into a construction contract guarantee that assures Quixx's performance under its engineering, procurement, and construction contract with Borger Energy Associates, L.P. (BEA). Quixx, which owns 45 percent of BEA, is constructing a 230-megawatt cogeneration facility at a Phillips Petroleum site near Borger, Texas. The maximum aggregate amount of this guarantee at Dec. 31, 1999, was $88.4 million. This maximum amount decreases to $25.0 million at commercial operation of the facility and remains in effect for a period of no longer than 24 months before expiring. Based upon the current status of construction of the facility, this guarantee is not expected to have any financial impact on Xcel Energy.
As of Dec. 31, 1999, Xcel Energy had $147.9 million of guarantees outstanding to e prime. These guarantees were made to facilitate e prime's gas marketing and trading activities.
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In connection with an agreement for the sale of electric power, SPS guaranteed certain obligations of a customer totaling $32 million at Dec. 31, 1999. These obligations related to the construction of certain utility property that, in the event of default by the customer, would revert to SPS.
Young Storage entered into a $30.7 million credit agreement with various lending institutions on March 26, 1999, with a stated maturity date of March 31, 2014. As support for the loan, Xcel Energy has provided a letter of credit of approximately $0.8 million to fulfill debt service reserve requirements under the loan. This loan refinanced the initial $32 million credit facility originally entered into on June 27, 1995, which was incurred for the development and construction of an underground natural gas storage facility in northeastern Colorado. Separately, Xcel Energy has guaranteed up to $4.5 million to cover costs of expenses related to the project.
Xcel Energy had $10 million of guarantees outstanding for Xcel Cadence (formerly New Century Cadence) as of Dec. 31, 1999. These guarantees relate to the capital requirements and operations of Cadence Network LLC.
Derivatives
As of Dec. 31, 1999, NRG had no contracts to hedgeor protectforeign currency denominated future cash flows. One contract that was outstanding during 1999 had no material effect on earnings.
During the third quarter of 1999, NRG Northeast Generating LLC (N.E. Generating), a wholly owned subsidiary of NRG, entered into $600 million of "treasury locks," at various interest rates, which expired in February 2000. These treasury locks were an interest rate hedge for an N.E. Generating bond offering issued in February 2000.
At Dec. 31, 1999, NRG had three interest rate swap agreements with notional amounts totaling approximately $393 million. The contracts are used to manage NRG's exposure to changes in interest rates. If the swaps had been discontinued on Dec. 31, 1999, NRG would have owed the counterparties approximately $3 million. Management believes that NRG's exposure to credit risk due to nonperformance by the counterparties to its hedging contracts is insignificant, based on the investment grade rating of the counterparties.
SPS has an interest rate swap agreement, which, in effect, fixes the interest rate on a $25 million notional amount of tax exempt bonds at 6.435 percent. Amounts paid or received under this agreement are accrued as interest rates change and are recognized over the life of the agreement as an adjustment to interest expense. SPS is exposed to interest rate risk in the event of nonperformance by counterparties; however, SPS does not anticipate such nonperformance.
Xcel Energy's regulated Power Marketing division uses energy futures contracts, along with physical supply, to hedge market risk in the energy market. At Dec. 31, 1999, the notional amount of
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energy futures contracts was immaterial and management believes that the risk of counterparty nonperformance with regard to any of the hedge transactions is not significant.
As of Dec. 31, 1999, EMI had natural gas forward and futures contracts in the notional amount of less than $1 million. These contracts will expire during 2000 and EMI will have no further derivative activity.
At Dec. 31, 1999, e prime's retail gas marketing business held notional long volumetric positions of approximately 7.0 million Mmbtus of natural gas related to these financial instruments that had related unrealized losses of approximately $1.4 million. At Dec. 31, 1998, e prime held notional long volumetric positions of approximately 14.2 million Mmbtus of natural gas related to these financial instruments that had related unrealized losses of approximately $6.4 million. The weighted average maturity of these instruments is less than one year.
NRG's Power Marketing subsidiary uses energy forward contracts, along with physical supply, to hedge market risk in the energy market. At Dec. 31, 1999, the notional amount of energy forward contracts was approximately $207 million. If the contracts had been terminated at Dec. 31, 1999, NRG would have received approximately $12 million based on price fluctuations to date. Management believes the risk of counterparty nonperformance with regards to any of NRG's hedging transactions is not significant.
Letters of Credit
Xcel Energy and its subsidiaries use letters of credit, generally with terms of one year, to provide financial guarantees for certain operating obligations. In addition, NRG uses letters of credit for nonregulated equity commitments, collateral for credit agreements, fuel purchase and operating commitments, and bids on development projects. At Dec. 31, 1999, there were $140 million in letters of credit outstanding, including $116 million related to NRG commitments. The contract amounts of these letters of credit approximate their fair value and are subject to fees determined in the marketplace.
14. Commitments and Contingent Liabilities
Legislative Resource Commitments
In 1994, NSP-Minnesota received Minnesota legislative approval for additional on-site temporary spent fuel storage facilities at its Prairie Island plant, provided NSP-Minnesota satisfies certain requirements. Seventeen dry cask containers were approved. As of Dec. 31, 1999, NSP-Minnesota had loaded nine casks. The Minnesota Legislature established several energy resource and other commitments for NSP-Minnesota to obtain the Prairie Island temporary nuclear fuel storage facility approval. These commitments can be met by building, purchasing or, in the case of biomass, converting generation resources.
The 1994 legislation requires NSP-Minnesota to have 425 megawatts of wind resources contracted by Dec. 31, 2002. Of this commitment, approximately 130 megawatts remain to be contracted. During 1999, the MPUC ordered an additional 400 megawatts to be contracted by 2012, subject to least-cost determinations.
During 1997 and 1998, NSP-Minnesota executed three separate power purchase agreements (PPA) for a total of 125 megawatts of biomass-fueled generation resources. These contracts would meet the statutory requirements to contract for 125 megawatts of biomass energy by Dec. 31, 1998. However, in
51
December 1999, NSP-Minnesota terminated one of the contracts due to the nonperformance of the vendor. NSP is currently working to replace this contract. At a hearing in December 1999, the MPUC approved two 25-megawatt PPAs and required further reporting by NSP-Minnesota in relation to its efforts to meet the mandate, including whether NSP-Minnesota intends to exercise an option to increase the megawatt size of one of the contracts. Although the agreements met the requirements for biomass scheduled to be operational by Dec. 31, 2001, and Dec. 31, 2002, due to various delays the actual operational dates of the biomass facilities may be later than scheduled.
Other commitments established by the Legislature include a discount for low-income electric customers, required conservation improvement expenditures and various study and reporting requirements to a legislative electric energy task force. NSP-Minnesota has implemented programs to meet the legislative commitments. NSP-Minnesota's capital commitments include the known effects of the Prairie Island legislation. The impact of the legislation on future power purchase commitments and other operating expenses is not yet determinable.
Capital Commitments
As discussed in Liquidity and Capital under Management's Discussion and Analysis, the estimated cost, as of Dec. 31, 1999, of the capital expenditure programs of Xcel Energy and its subsidiaries and other capital requirements is approximately $4.2 billion in 2000, $1.9 billion in 2001 and $1.7 billion in 2002.
The capital expenditure programs of Xcel Energy are subject to continuing review and modification. Actual utility construction expenditures may vary from the estimates due to changes in the electric system projected load growth, the desired reserve margin and the availability of purchased power, as well as alternative plans for meeting Xcel Energy's long-term energy needs. In addition, Xcel Energy's ongoing evaluation of merger, acquisition and divestiture opportunities to support corporate strategies, address restructuring requirements and comply with future requirements to install emission control equipment may impact actual capital requirements.
Xcel Energy's capital expenditures include approximately $2.7 billion in 2000 for NRG investments and asset acquisitions. NRG's future capital requirements may vary significantly. For 2000, NRG's capital requirements reflect expected acquisitions of existing generation facilities, including Cajun, Killingholme A and the Conectiv fossil assets.
Tax Matters
PSRI, a subsidiary of PSCo, owns and manages permanent life insurance policies on certain past and present employees. These COLI policies were entered into prior to July 1, 1986. In 1996, Congress passed legislation to phase out the tax benefits with certain COLI policies; however, PSRI's policies were grandfathered under this legislation. In August 1998, the IRS issued a Notice of Proposed Adjustment proposing to disallow the 1993 and 1994 deductions of interest expense related to policy loans on the COLI policies totaling approximately $54.6 million. A Request for Technical Advice from the IRS National Office with respect to the proposed adjustment is pending.
Management is vigorously contesting this issue. PSRI has not recorded any provision for income tax or interest expense related to this matter and has continued to take deductions for interest expense related to policy loans on its income tax returns for subsequent years. Management believes that PSRI's tax deduction of interest expense on life insurance policy loans was in full compliance with IRS
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regulations and believes that the resolution of this matter will not have a material adverse impact on Xcel Energy's financial position, results of operations or cash flows.
Leases
Xcel Energy's subsidiaries lease various equipment and facilities used in the normal course of business, some of which are accounted for as capital leases. Expiration of the capital leases range from 2000 to 2025. The net book value of property under capital leases was approximately $57 million and $40 million at Dec. 31, 1999 and 1998, respectively. Assets acquired under capital leases are recorded as property at the lower of fair-market value or the present value of future lease payments and are amortized over their actual contract term in accordance with practices allowed by regulators. The related obligation is classified as long-term debt. Executory costs are excluded from the minimum lease payments.
Rental expense under operating lease obligations was approximately $57 million, $49 million and $68 million for 1999, 1998 and 1997, respectively. Future commitments under these leases generally decline from current levels.
Nuclear Insurance
NSP's public liability for claims resulting from any nuclear incident is limited to $9.5 billion under the 1988 Price-Anderson amendment to the Atomic Energy Act of 1954. NSP has secured $200 million of coverage for its public liability exposure with a pool of insurance companies. The remaining $9.3 billion of exposure is funded by the Secondary Financial Protection Program, available from assessments by the federal government in case of a nuclear accident. NSP is subject to assessments of up to $88 million for each of its three licensed reactors to be applied for public liability arising from a nuclear incident at any licensed nuclear facility in the United States. The maximum funding requirement is $10 million per reactor during any one year.
NSP purchases insurance for property damage and site decontamination cleanup costs from NEIL. The coverage limits are $1.5 billion for each of NSP's two nuclear plant sites.
NEIL also provides business interruption insurance coverage, including the cost of replacement power obtained during certain prolonged accidental outages of nuclear generating units. Premiums are expensed over the policy term. All companies insured with NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. Capital has been accumulated in the reserve funds of NEIL to the extent that NSP would have no exposure for retroactive premium assessments in case of a single incident under the business interruption and the property damage insurance coverage. However, in each calendar year, NSP could be subject to maximum assessments of approximately $4 million for business interruption insurance and $15 million for property damage insurance if losses exceed accumulated reserve funds.
Fuel Contracts
Xcel Energy has contracts providing for the purchase and delivery of a significant portion of its current coal, nuclear fuel and natural gas requirements. These contracts expire in various years between 2000 and 2017. In total, Xcel Energy is committed to the minimum purchase of approximately $2.1 billion of coal, $21 million of nuclear fuel and $706 million of natural gas and related
53
transportation, or to make payments in lieu thereof, under these contracts. In addition, NSP is required to pay additional amounts depending on actual quantities shipped under these agreements.
Xcel Energy's risk of loss, in the form of increased costs, from market price changes in fuel is mitigated through the cost-of-energy adjustment provision of the ratemaking process, which provides for recovery of most fuel costs.
Purchase Power Agreements
The utility subsidiaries of Xcel Energy have entered into agreements with utilities, QFs and other energy suppliers for purchased power to meet system load and energy requirements, replace generation from company-owned units under maintenance and during outages, and meet operating reserve obligations. NSP-Minnesota, PSCo and SPS have various pay-for-performance contracts with expiration dates through the year 2033. In general, these contracts provide for capacity payments, subject to meeting certain contract obligations, and energy payments based on actual power taken under the contracts. The capacity and energy costs are recovered through base rates and other cost recovery mechanisms. Additionally, NSP-Minnesota, PSCo, SPS and Cheyenne have long-term purchased power contracts with various regional utilities expiring through 2018.
NSP-Minnesota has a 500-megawatt participation power purchase commitment with Manitoba Hydro, which expires in 2005. The cost of this agreement is based on 80 percent of the costs of owning and operating NSP-Minnesota's Sherco 3 generating plant, adjusted to 1993 dollars. In addition, NSP-Minnesota and Manitoba Hydro have seasonal diversity exchange agreements and there are no capacity payments for the diversity exchanges. These commitments represent about 17 percent of Manitoba Hydro's system capacity and account for approximately 10 percent of NSP-Minnesota's 2000 electric system capability. The risk of loss from nonperformance by Manitoba Hydro is not considered significant, and the risk of loss from market price changes is mitigated through cost-of-energy rate adjustments.
At Dec. 31, 1999, the estimated future payments for capacity that the utility subsidiaries of Xcel Energy are obligated to purchase, subject to availability, are as follows (in thousands):
|
QFs & Other |
Regional Utilities |
Total |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2000 | $ | 217,557 | $ | 239,710 | $ | 457,267 | |||||
2001 | 233,606 | 213,021 | 446,627 | ||||||||
2002 | 224,202 | 199,950 | 424,152 | ||||||||
2003 | 214,042 | 188,982 | 403,024 | ||||||||
2004 | 211,309 | 178,515 | 389,824 | ||||||||
2005 and thereafter | 2,647,280 | 1,076,384 | 3,723,664 | ||||||||
Total | $ | 3,747,996 | $ | 2,096,562 | $ | 5,844,558 | |||||
Environmental Contingencies
Xcel Energy and its subsidiaries are subject to various environmental laws, including regulations governing air and water quality, the storage of natural gas and the storage and disposal of hazardous or toxic wastes. Xcel Energy and its subsidiaries assess, on an ongoing basis, measures to ensure compliance with laws and regulations related to air and water quality, hazardous materials and
54
hazardous waste compliance and remediation activities. Changes to environmental regulations, interpretations or enforcement policies may impact the future construction and operation of Xcel Energy's electric generation, transmission and distribution systems and gas transportation, storage and distribution systems.
Other long-term liabilities include an accrual of $39 million, and other current liabilities include an accrual of $10 million, at Dec. 31, 1999, for estimated costs associated with environmental remediation. Approximately $24 million of the long-term liability and $4 million of the current liability relate to a DOE assessment for decommissioning a federal uranium enrichment facility, as discussed in Note 6. Other estimates have been recorded for expected environmental costs associated with manufactured gas plant sites and other waste disposal sites, as discussed later. These environmental liabilities do not include accruals recorded and collected from customers in rates for future nuclear fuel disposal costs or decommissioning costs related to NSP-Minnesota's nuclear generating plants. See Note 6 for further discussion of nuclear items.
Environmental liabilities are subject to considerable uncertainties that affect Xcel Energy's ability to estimate its share of the ultimate costs of remediation and pollution control efforts. Uncertainties include the nature and extent of site contamination, the extent of required cleanup efforts, varying costs of alternative cleanup methods and pollution control technologies, changes in environmental remediation and pollution control requirements, the potential effect of technological improvements, the number and financial strength of other potentially responsible parties at multi-party sites and the identification of new environmental cleanup sites. Xcel Energy has recorded and/or disclosed its best estimate of expected future environmental costs and obligations.
Site Remediation
The EPA or state environmental agencies have designated NSP-Minnesota as a potentially responsible party (PRP) for 14 waste disposal sites to which NSP-Minnesota allegedly sent hazardous materials.
While it is not feasible to determine the ultimate impact of PRP site remediation at this time, the amounts accrued represent the best current estimate of NSP-Minnesota's future liability. It is NSP-Minnesota's practice to vigorously pursue and, if necessary, litigate with insurers to recover incurred remediation costs whenever possible. Through litigation, NSP-Minnesota has recovered a portion of the remediation costs paid to date. Management believes remediation costs incurred, but not
55
recovered, from insurance carriers or other parties should be allowed recovery in future ratemaking. Until NSP-Minnesota is identified as a PRP, it is not possible to predict the timing or amount of any costs associated with sites, other than those discussed previously.
NSP-Wisconsin may be involved in the cleanup and remediation at three sites, including one that NSP-Minnesota is also investigating. One site is a former transformer disposal facility in New Lisbon, Wis., and the remaining two are locations where fuel tanks were installed. The ultimate cleanup and remediation costs of these sites and the extent of NSP-Wisconsin's responsibility, if any, for sharing such costs are not known at this time, but are expected to be immaterial.
NSP-Minnesota is also investigating other properties that were formerly sites of gas manufacturing, gas storage plants or gas pipelines to determine if waste materials are present and if they are an environmental or health risk. NSP-Minnesota also determines if it has any responsibility for remedial action and if recovery under NSP-Minnesota's insurance policies can contribute to any remediation costs.
While it is not feasible to determine at this time the ultimate cost of gas site remediation, the amounts accrued represent the best current estimate of NSP-Minnesota's future liability for any required cleanup or remedial actions at these former gas operating sites. Environmental remediation costs may be recovered from insurance carriers, third parties or in future rates. The MPUC allowed NSP-Minnesota to defer certain remediation costs of four active sites in 1994. In September 1998, the MPUC allowed the recovery of these gas site remediation costs in gas rates, with a portion assigned to NSP's electric operations for two sites formerly used by NSP generating facilities. Accordingly, NSP-Minnesota has recorded an environmental regulatory asset for these costs. NSP-Minnesota may request recovery of costs to remediate other activated sites following the completion of preliminary investigations.
NSP-Wisconsin will be involved in the cleanup and remediation at locations of former manufactured gas plants at Ashland, LaCrosse, Eau Claire and Chippewa Falls, Wis. The ultimate cleanup and remediation costs of sites other than Ashland (discussed below) and the extent of NSP-Wisconsin's responsibility, if any, for sharing such costs are not known at this time, but are expected to be immaterial.
The WDNR named NSP-Wisconsin as one of three PRPs for creosote and coal tar contamination at the Ashland site. The Ashland site includes property owned by NSP-Wisconsin and two other
56
properties, which include an adjacent city lakeshore park area and a small area of Lake Superior's Chequemegon Bay adjoining the park.
The EPA has accepted a petition from a local environmental group to conduct a preliminary assessment of the Ashland site under the CERCLA. A preliminary assessment (PA) is a limited scope investigation to evaluate the potential for hazardous substance releases from a site and also to determine if the site is likely to score at a high enough level to be considered for inclusion on the National Priorities List (NPL). The PA was performed in the second half of 1999 and the results indicated a score sufficiently high to proceed to the next formal step of the EPA scoring under the Hazardous Ranking System (HRS) under CERCLA. The HRS scoring process being performed by the EPA is now under way. NSP-Wisconsin anticipates the WDNR will still act as lead agency on the site. The PA and HRS scoring process will result in a delay in selection of a remedial strategy for the site until later in 2000. NSP-Wisconsin has proposed and WDNR has conceptually approved an interim action (groundwater treatment system) for one operable unit at the site for which NSP-Wisconsin has accepted responsibility. This interim action is expected to be operational by the spring of 2000 and is designed to be a first step in remediating one portion of the site.
The WDNR and NSP-Wisconsin have each developed several estimates of the ultimate cost to remediate the Ashland site. The estimates vary significantly, between $4 million and $93 million, based on different assumptions for methods of remediation and expected results. However, NSP-Wisconsin believes that the estimated costs of the most reasonable and effective solutions are between $24 million and $51 million. During 2000, the WDNR is expected to select the method of remediation for use at the site, after which a more accurate estimate of the cost can be developed. NSP-Wisconsin has already recorded a liability for remediation costs for its portion of the Ashland site, estimated using reasonably effective remedial methods. NSP-Wisconsin has deferred as a regulatory asset the remediation costs accrued for the Ashland site because management expects that the PSCW will continue to allow NSP-Wisconsin to recover payments for environmental remediation from its customers. The PSCW has consistently authorized recovery in NSP-Wisconsin rates of all remediation costs incurred at the Ashland site, and has authorized recovery of similar remediation costs for other utilities.
Under CERCLA, the EPA identified low-level, widespread contamination from hazardous substances at the Barter Metals Company (Barter) properties located in central Denver. Because it was identified as a PRP, PSCo completed the cleanup of this site at a cost of approximately $9 million. In January 1996, in a lawsuit by PSCo against its insurance providers, the Denver District Court entered final judgment in favor of PSCo in the amount of $5.6 million for certain cleanup costs at Barter. Several appeals and cross appeals were filed by one of the insurance providers and PSCo. In September 1999, the Colorado Supreme Court held that the trial court should have allocated the damages and self-insured retentions over the entire period the facilities were in operation. Although the Colorado Supreme Court remanded the judgement to the trial court for additional proceedings, it suggested that its ruling may reduce PSCo's available recovery to approximately $1.4 million. PSCo requested recovery of environmental costs of approximately $7.7 million related to Barter over four years in its proposed Performance Based Regulatory Plan for calendar years 1998-2001 (see Note 12 Regulatory Matters).
PSCo has identified several other sites where clean-up of hazardous substances may be required. While potential liability and settlement costs are still under investigation and negotiation, PSCo believes that the resolution of these matters will not have a material adverse effect on PSCo's financial position,
57
results of operations or cash flows. PSCo will pursue the recovery of all significant costs incurred for such projects through insurance claims and/or the rate regulatory process.
Several of NSP-Minnesota's facilities contain asbestos, which can be a health hazard to people who come in contact with it. Under governmental requirements, asbestos not readily accessible to the environment need not be removed until the facilities containing the material are demolished. Although the ultimate cost and timing of asbestos removal is not yet known, it is estimated that removal under current regulations would cost $45 million in 1999 dollars. Asbestos removal costs would be recorded as incurred as operating expenses for maintenance projects, capital expenditures for construction projects or removal costs for demolition projects.
Plant Emissions
In 1998, the EPA published nitrogen oxide (NOx) emission regulations affecting 22 states, including Wisconsin. The goal of the new regulations is to reduce NOx emissions by 85 percent by May 1, 2003. Two of NSP-Wisconsin's boilers and eight of its combustion turbines may be affected by this action. If the existing boilers and combustion turbines are made compliant using retrofit technology to control NOx emissions, it could cost NSP-Wisconsin up to $62 million for capital improvements and add $14 million each year for operation and maintenance expenses. This is the estimated cost of the most expensive alternative to achieve compliance, which is not necessarily the compliance alternative of choice. If the rules are finalized in their most stringent form, other alternatives for these older units may be deemed more cost effective than retrofitting. How the WDNR will implement the new EPA NOx regulations and their applicability to NSP-Wisconsin are still uncertain.
NSP-Wisconsin has joined with two other Wisconsin-based utilities as well as the Wisconsin Paper Council and Wisconsin Manufacturers and Commerce industrial organizations to request a judicial review of the EPA's final NOx rules. NSP-Wisconsin believes that the EPA improperly included Wisconsin in the scope of the regulatory action and improperly calculated potential emissions of NOx, reducing the allowable emission limits for the state.
In 1999, the EPA was ordered by a federal appeals panel to suspend implementation of the NOx rules pending further action on a lawsuit brought by another trade group. It is possible that the state of Wisconsin will either not be required to meet the more stringent NOxrequirements or that their implementation will be delayed substantially.
The Clean Air Act calls for phased-in reductions in emissions of sulfur dioxide and nitrogen oxides from electric generating plants. NSP-Minnesota is completing installation of over-fire air at the King plant to meet the NOX emission limitations. NSP-Minnesota's capital expenditures include some costs for ensuring compliance with the Clean Air Act; other expenditures may be necessary upon EPA finalization of remaining rules. PSCo has obtained all necessary conditions to proceed with its plans to spend approximately $211 million on its Denver and Boulder metro area coal-fueled power plants to further reduce such emissions below the required regulatory levels discussed above. The cost of this emission control equipment will be recovered through rates from Colorado customers under a separate rate schedule when this equipment is placed in service.
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SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Commitments and Contingent Liabilities (Continued)
In May 1996, PSCo and the other joint owners of Hayden Station reached an agreement resolving violations alleged in complaints filed by a conservation organization, the CDPHE and the EPA against the joint owners. PSCo is the operator and owns an average undivided interest of approximately 53 percent of the station's two generating units. In connection with the settlement, the joint owners of the Hayden station were required to install emission control equipment of approximately $130 million (PSCo's portion is approximately $70 million). This equipment was installed and became operational on Units 1 and 2 during 1998 and 1999 as scheduled and required under the settlement. Additionally, the settlement included stipulated future penalties for failure to comply with specified SO2 and NOx emission levels. Based on current operations, management anticipates that it will be able to operate the units as planned.
In October 1996, a conservation organization filed a complaint in the U. S. District Court pursuant to provisions of the Federal Clean Air Act against the joint owners of the Craig Steam Electric Generating Station located in western Colorado. Tri-State Generation and Transmission Association, Inc. is the operator of the Craig station and PSCo owns an undivided interest (acquired in April 1992) in each of two units at the station totaling approximately 9.7 percent. The plaintiff alleged that the station violated Clean Air Act requirements related to opacity. The complaint seeks, among other things, civil monetary penalties and injunctive relief. The Clean Air Act provides for penalties of up to $25,000 per day per violation, but the level of penalties imposed in any particular instance is discretionary. The parties, the EPA and the CDPHE have entered into mediation in an attempt to resolve all air quality matters related to the facility. Resolution of this matter may require the installation of additional emission control equipment. Management does not believe that any potential liability, the future impact of this litigation on plant operations, or any related cost will have a material adverse impact on PSCo's financial position, results of operations or cash flows.
Because Xcel Energy is still in the process of implementing some provisions of the Clean Air Act, its total financial impact is unknown at this time. Capital expenditures for opacity compliance are included in the capital expenditure commitments disclosed previously. The depreciation of these capital costs will be subject to regulatory recovery in future rate proceedings.
In addition to Xcel Energy's utility plants, NRG has several plants throughout the United States, some of which were acquired during 1999. These plants are subject to federal and state emission standards and other environmental regulations. Although NRG continues to study and investigate the methods and costs of complying with these standards and regulations, the future financial effect is not known at this time and may be material.
Legal Claims
In the normal course of business, Xcel Energy is a party to routine claims and litigation arising from prior and current operations. Xcel Energy is actively defending these matters and has recorded an estimate of the probable cost of settlement or other disposition.
On Dec. 11, 1998, a gas explosion in St. Cloud, Minn., killed four people, including two NSP employees, injured approximately 14 people and damaged several buildings. The accident occurred as a crew from Cable Constructors Inc. (CCI) was installing fiber optic cable for Seren. Seren, CCI and Sirti, an architecture/engineering firm retained by Seren, are named as defendants in 10 lawsuits relating to the explosion. NSP is a defendant in eight of the lawsuits. NSP and Seren deny any liability for this accident. NSP has a self-insured retention deductible of $2 million with general liability
59
coverage limits of $185 million. Seren's primary insurance coverage is $1 million and its secondary insurance coverage is $185 million. The ultimate cost to NSP and Seren, if any, is presently unknown.
In April 1997, a fire damaged several buildings in downtown Grand Forks, N. D., during a flood in the city. On July 23, 1998, the St. Paul Mercury Insurance Co. commenced a lawsuit against NSP for damages in excess of $15 million. The suit was filed in the District Court in Grand Forks County in North Dakota. The insurance company alleges the fire was electrical in origin and that NSP was legally responsible for the fire because it failed to shut off electrical power to downtown Grand Forks during the flood and prior to the fire. Seven additional lawsuits have been filed against NSP by insurance companies which insured businesses damaged by the fire. It is NSP's position that it is not legally responsible for this unforeseeable event. NSP has a self-insured retention deductible of $2 million, with general liability insurance coverage limits of $150 million. The ultimate cost to NSP, if any, is unknown at this time.
On or about July 12, 1999, Fortistar Capital, Inc. commenced an action against NRG in Hennepin County (Minnesota) District Court, seeking damages in excess of $100 million and an order restraining NRG from consummating the acquisition of Niagara Mohawk Power Corp.'s Oswego generating station. Fortistar's motion for a temporary restraining order was denied and a temporary injunction hearing was held on Sept. 27, 1999. The acquisition of the Oswego generating station was closed on Oct. 22, 1999, following notification to the court of the closing date. NRG intends to continue to vigorously defend the suit and believes Fortistar's claims to be without merit. NRG has asserted numerous counterclaims against Fortistar.
15. Regulatory Assets and Liabilities
Xcel Energy's regulated subsidiaries prepare their financial statements in accordance with the provisions of SFAS 71, as discussed in Note 1. Xcel Energy believes its utility subsidiaries continued to be subject to rate regulation as of Dec. 31, 1999. However, the pending deregulation efforts underway in Xcel Energy's utility jurisdictions may preclude the use of SFAS 71 accounting in the future.
Current accounting rules require that when deregulatory legislation is passed or when a rate order (whichever is necessary to effect change in the jurisdiction) that contains sufficient detail for an enterprise to reasonably determine how the transition plan will affect the separable portion of its business whose pricing is being deregulated is issued, the enterprise should stop applying SFAS 71 to that separable portion of its business. While legislation has been enacted in Texas and New Mexico as of Dec. 31, 1999, there were several unresolved issues that will significantly impact how and when deregulation related to the generation portion of the business will be implemented by SPS. It is expected that SPS will discontinue the application of SFAS 71 related to the generation portion of the business when the requirements noted above have been met, which is expected to occur in the year 2000 (see Note 12).
In the event that a portion of a subsidiary's operations is no longer subject to the provisions of SFAS 71, as a result of a change in regulation or the effects of competition, Xcel Energy's subsidiaries could be required to write off that portion's regulatory assets, determine any impairment to other assets resulting from deregulation and write down any impaired assets to their estimated fair value. Depending on ratemaking treatment provided, such write-downs could have a material adverse effect on Xcel Energy's financial position, results of operations or cash flows.
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The following summarizes the individual components of unamortized regulatory assets and liabilities shown on the Balance Sheet at Dec. 31:
|
Remaining Amortization Period |
1999 |
1998 |
||||||
---|---|---|---|---|---|---|---|---|---|
(Thousands of dollars) | |||||||||
AFC recorded in plant(a) | Plant Lives | $ | 184,860 | $ | 196,452 | ||||
Conservation programs(a) | 5 Years | 40,868 | 110,155 | ||||||
Losses on reacquired debt | Term of Related Debt | 84,190 | 89,380 | ||||||
Environmental costs | Primarily 10 Years | 48,708 | 50,158 | ||||||
Unrecovered gas costs | 1-2 Years | 15,266 | 16,259 | ||||||
Deferred income tax adjustments | Mainly Plant Lives | 28,581 | 57,601 | ||||||
Nuclear decommissioning costs | 6 Years | 63,835 | 69,490 | ||||||
Employees' postretirement benefits other than pension | 13 Years | 53,321 | 57,350 | ||||||
Employees' postemployment benefits | Undetermined | 23,374 | 24,888 | ||||||
State commission accounting adjustments(a) | Plant Lives | 7,641 | 7,370 | ||||||
Other | Various | 16,083 | 20,998 | ||||||
Total regulatory assets | $ | 566,727 | $ | 700,101 | |||||
Investment tax credit deferrals | $ | 136,349 | $ | 146,460 | |||||
Unrealized gains from decommissioning investments | 177,578 | 138,613 | |||||||
Pension costs-regulatory differences | 84,198 | 53,012 | |||||||
Conservation incentives | 25,284 | ||||||||
Fuel costs, refunds and other | 18,795 | 20,683 | |||||||
Total regulatory liabilities | $ | 442,204 | $ | 358,768 | |||||
16. Segment and Related Information
Xcel Energy has four reportable segments: Electric Utility, Gas Utility and two of its nonregulated energy businesses, NRG and Xcel International, both subsidiaries of Xcel Energy.
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Revenues from operating segments not included above are below the necessary quantitative thresholds and are therefore included in the All Other category. Those primarily include a company involved in nonregulated power and gas marketing activities throughout the United States; a company that invests in and develops cogeneration and energy related projects; a company that is engaged in engineering, design construction management and other miscellaneous services, a company engaged in energy consulting, energy efficiency management, conservation programs and mass market services, an affordable housing investment company, a broadband telecommunications company and several other small companies and businesses.
To report net income for electric and gas utility segments, Xcel Energy must assign or allocate all costs and certain other income. In general, costs are:
The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies. Xcel Energy evaluates performance by each legal entity based on profit or loss generated from the product or service provided. Assets by segment are not reported to management and are not included in the disclosures that follow.
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Business Segments
1999 |
Electric Utility |
Gas Utility |
NRG |
Xcel International |
All Other |
Reconciling Eliminations |
Consolidated Total |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Thousands of dollars) | ||||||||||||||||||||||
Operating revenues from external customers (b) | $ | 4,923,530 | $ | 1,141,294 | $ | 427,567 | | $ | 263,921 | | $ | 6,756,312 | ||||||||||
Intersegment revenues | 1,303 | 11,785 | 963 | | 121,648 | (134,731 | ) | 968 | ||||||||||||||
Equity in earnings (losses) of unconsolidated affiliates | | | 68,947 | 44,908 | (1,731 | ) | | 112,124 | ||||||||||||||
Total revenues | $ | 4,924,833 | $ | 1,153,079 | $ | 497,477 | 44,908 | $ | 383,838 | $ | (134,731 | ) | $ | 6,869,404 | ||||||||
Depreciation and amortization | 546,794 | 82,206 | 37,026 | 182 | 17,767 | | 683,975 | |||||||||||||||
Financing costs, mainly interest expense | 300,108 | 53,217 | 92,570 | 714 | 25,488 | (19,020 | ) | 453,077 | ||||||||||||||
Income tax expense (credit) | 272,129 | 24,081 | (26,416 | ) | (13,559 | ) | (62,428 | ) | (14,135 | ) | 179,672 | |||||||||||
Segment net income (loss) | $ | 431,510 | $ | 49,175 | $ | 57,195 | $ | 58,301 | $ | (12,127 | ) | $ | (13,121 | ) | $ | 570,933 | ||||||
1998 |
|
Electric Utility |
|
Gas Utility |
|
NRG |
|
Xcel International |
|
All Other |
|
Reconciling Eliminations |
|
Consolidated Total |
||||||||
(Thousands of dollars) | ||||||||||||||||||||||
Operating revenues from external customers (b) | $ | 4,984,506 | $ | 1,109,953 | $ | 98,688 | | $ | 285,100 | | $ | 6,478,247 | ||||||||||
Intersegment revenues | 1,131 | 14,573 | 1,737 | | 75,209 | (91,722 | ) | 928 | ||||||||||||||
Equity in earnings (losses) of unconsolidated affiliates | | | 81,706 | 38,127 | (3,848 | ) | | 115,985 | ||||||||||||||
Total revenues | $ | 4,985,637 | $ | 1,124,526 | $ | 182,131 | $ | 38,127 | $ | 356,461 | $ | (91,722 | ) | $ | 6,595,160 | |||||||
Depreciation and amortization | 524,703 | 75,753 | 16,320 | 121 | 14,353 | | 631,250 | |||||||||||||||
Financing costs, mainly interest expense | 262,654 | 44,074 | 50,313 | 745 | 19,635 | 5,865 | 383,286 | |||||||||||||||
Income tax expense (credit) | 300,103 | 24,945 | (25,654 | ) | (15,817 | ) | (28,212 | ) | (14,974 | ) | 240,391 | |||||||||||
Segment net income (loss) | $ | 505,077 | $ | 47,180 | $ | 41,732 | $ | 51,978 | $ | 6,365 | (28,002 | ) | $ | 624,330 | ||||||||
1997 |
|
Electric Utility |
|
Gas Utility |
|
NRG |
|
Xcel International |
|
All Other |
|
Reconciling Eliminations |
|
Consolidated Total |
||||||||
(Thousands of dollars) | ||||||||||||||||||||||
Operating revenues from external customers (b) | $ | 4,668,040 | $ | 1,155,410 | $ | 102,791 | | $ | 314,648 | | $ | 6,240,889 | ||||||||||
Intersegment revenues | 1,301 | 9,938 | 926 | | 25,819 | (36,942 | ) | 1,042 | ||||||||||||||
Equity in earnings (losses) of unconsolidated affiliates | | | 26,003 | 35,499 | (8,736 | ) | | 52,766 | ||||||||||||||
Total revenues | $ | 4,669,341 | $ | 1,165,348 | $ | 129,720 | $ | 35,499 | $ | 333,731 | $ | (36,942 | ) | $ | 6,294,697 | |||||||
Depreciation and amortization | 493,202 | 68,442 | 10,310 | 89 | 14,116 | | 586,159 | |||||||||||||||
Financing costs, mainly interest expense | 263,313 | 40,805 | 30,729 | 186 | 18,066 | 12,700 | 365,799 | |||||||||||||||
Income tax expense (credit) | 269,276 | 30,642 | (23,680 | ) | (1,186 | ) | (41,227 | ) | (3,196 | ) | 230,629 | |||||||||||
Segment net income (loss) | $ | 415,265 | $ | 49,318 | $ | 21,982 | $ | 35,946 | $ | (4,753 | ) | (18,951 | ) | $ | 498,807 | |||||||
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17. Summarized Quarterly Financial Data (Unaudited)
|
Quarter Ended |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 31, 1999 |
June 30, 1999(a) |
Sept. 30, 1999 |
Dec. 31, 1999(a) |
|||||||||
(Thousands of dollars, except per share amounts) | |||||||||||||
Revenue | $ | 1,744,155 | $ | 1,508,776 | $ | 1,816,339 | $ | 1,800,134 | |||||
Operating income | 306,285 | 189,662 | 423,601 | 303,009 | |||||||||
Net income | 153,621 | 60,725 | 209,264 | 147,323 | |||||||||
Earnings available for common stock | 152,561 | 58,615 | 208,204 | 146,261 | |||||||||
Earnings per average common share: | |||||||||||||
Basic | $ | 0.46 | $ | 0.18 | $ | 0.63 | $ | 0.44 | |||||
Diluted | $ | 0.46 | $ | 0.18 | $ | 0.63 | $ | 0.44 |
|
Quarter Ended |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 31, 1998 |
June 30, 1998 |
Sept. 30, 1998(b) |
Dec. 31, 1998(c) |
|||||||||
(Thousands of dollars except per share amounts) | |||||||||||||
Revenue | $ | 1,679,122 | $ | 1,518,326 | $ | 1,723,820 | $ | 1,673,892 | |||||
Operating income | 299,577 | 230,341 | 368,473 | 310,787 | |||||||||
Net income | 143,266 | 91,627 | 192,466 | 196,971 | |||||||||
Earnings available for common stock | 140,899 | 90,567 | 191,406 | 195,910 | |||||||||
Earnings per average common share: | |||||||||||||
Basic | $ | 0.44 | $ | 0.28 | $ | 0.59 | $ | 0.60 | |||||
Diluted | $ | 0.44 | $ | 0.28 | $ | 0.59 | $ | 0.60 |
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Exhibit 99.03Supplemental Consolidated Condensed Six Months Ended Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
The following discussion and analysis by management focuses on those factors that had a material effect on Xcel Energy's financial condition and results of operations during the periods presented, or are expected to have a material impact in the future. It should be read in conjunction with the accompanying Supplemental Financial Statements and Notes.
Except for the historical statements contained in this report, the matters discussed in the following discussion and analysis are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "estimate," "expect," "objective," "outlook," "possible," "potential" and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to:
RESULTS OF OPERATIONS
Xcel Energy's earnings per share were $0.87 for the first six months of 2000, compared with $0.64 for the first six months of 1999. Xcel Energy's earnings per share for the first six months of 2000 were reduced by 4 cents per share for an extraordinary item related to the deregulation of SPS's generation business, as discussed later. Xcel Energy's results for the first six months of 2000, increased by 13 cents per share due to higher project earnings at NRG and 5 cents per share due to increased equity earnings from Yorkshire Power.
Extraordinary Item
With the issuance of a final written order by the PUCT on May 31, 2000, addressing the implementation of electric utility restructuring for SPS, management believes that sufficient details of a transition plan to competition now exist allowing for a reasonable determination of the impacts of the deregulation of SPS' generation business. Accordingly, SPS discontinued the application of SFAS 71 for the generation portion of its business during the second quarter of 2000. SPS applied the provisions of SFAS No. 101, "Regulated EnterprisesAccounting for the Discontinuation of SFAS 71" and Emerging Issues Task Force Consensus No. 97-4, "Deregulation of the Pricing of ElectricityIssues Related to the Application of FASB Statements No. 71 and 101" to SPS' electric generation business. While the
1
PUCT rate order only addresses Texas operations, SPS plans to pursue a similar strategy to implement the restructuring legislation enacted in New Mexico and believes that all of its generation will ultimately be deregulated. Accordingly, SPS has applied SFAS 101 to all jurisdictions of its generation business. SPS's transmission and distribution business continues to meet the requirements of SFAS 71, as that business is expected to remain regulated. During the second quarter of 2000, SPS wrote off its generation related regulatory assets and other deferred costs totaling approximately $19 million. This resulted in an after-tax extraordinary charge of approximately $13.7 million against the earnings of Xcel Energy and SPS. The total impacts of deregulation may be affected by the results of future state and federal regulatory proceedings prior to actual implementation of full competition, currently anticipated to begin on Jan. 1, 2002 (see Note 2 Regulation and Rate Matters for further discussion).
Electric Utility Margins
The following table details the change in electric revenue and margin. Electric production expenses tend to vary with changing retail and wholesale sales requirements and unit cost changes in fuel and purchased power. Due to fuel clause cost recovery mechanisms for retail customers in several states and the ability to vary wholesale prices with changing market conditions, most fluctuations in energy costs do not affect electric margin. However, the fuel clause cost recovery in the various jurisdictions does not allow for complete recovery of all variable production expenses and, therefore, higher costs in periods of extreme temperatures can result in an adverse earnings impact.
|
Six Months Ended June 30 |
|||||||
---|---|---|---|---|---|---|---|---|
|
2000 |
1999 |
||||||
(Millions of dollars) | ||||||||
Electric revenue | $ | 2,517 | $ | 2,315 | ||||
Electric fuel and purchased power | (1,021 | ) | (901 | ) | ||||
Electric margin | $ | 1,496 | $ | 1,414 | ||||
Electric revenue and margin for the first six months of 2000 increased, compared with the first six months of 1999, largely due to increased retail and wholesale sales. Favorable results from the wholesale sale energy marketing and trading, contributed $34 million to electric margin. In addition, revenue and margin for the first six months of 1999 were reduced by approximately $32 million for the disallowance of 1998 conservation incentives in Minnesota.
Gas Utility Margins
The following table details the change in gas revenue and margin. The cost of gas tends to vary with changing sales requirements and unit cost of gas purchases. However, due to purchased gas cost recovery mechanisms for retail customers, fluctuations in the cost of gas have little effect on gas margin.
|
Six Months Ended June 30 |
|||||||
---|---|---|---|---|---|---|---|---|
|
2000 |
1999 |
||||||
(Millions of dollars) | ||||||||
Gas revenue | $ | 718 | $ | 660 | ||||
Cost of gas purchased and transported | (450 | ) | (416 | ) | ||||
Gas margin | $ | 268 | $ | 244 | ||||
Gas revenue and margin for the first six months of 2000 increased, compared with the first six months of 1999, largely due to higher sales and a PSCo gas rate increase, which was effective July 1999.
2
The increase in gas revenue and margin during the first six months of 2000 was partially offset by warmer-than-normal winter weather in Minnesota, Wisconsin and Colorado. Revenue for the first six months of 2000 also increased due to higher costs of purchased gas, which is recovered through various purchased gas adjustment clauses in Xcel Energy's utility jurisdictions.
Nonregulated Operating Margins
The following table details the change in nonregulated revenue and margin.
|
Six Months Ended June 30 |
|||||||
---|---|---|---|---|---|---|---|---|
|
2000 |
1999 |
||||||
(Millions of dollars) | ||||||||
Nonregulated and other revenue | $ | 903 | $ | 250 | ||||
Earnings from equity investments | 70 | 27 | ||||||
Nonregulated production expenses | (407 | ) | (148 | ) | ||||
Nonregulated margin | $ | 566 | $ | 129 | ||||
Nonregulated revenue increased for the first six months of 2000, largely due to NRG's acquisitions of generating facilities in the Northeast United States. These acquisitions closed at various times from April 1999 through March 2000.
Earnings from equity investments for the first six months of 2000 increased compared with the first six months of 1999. Equity earnings from Yorkshire increased by approximately $17 million, due to a stronger performance in the supply business, lower operating costs and a change in its accounting for depreciation. Equity earnings also increased at NRG due to acquisitions and warmer than normal weather on the West Coast.
Nonregulated margin increased for the first six months of 2000, largely due to NRG's acquisitions of generating facilities in the Northeast United States. These acquisitions closed at various times from April 1999 through March 2000.
Non-Fuel Operating Expense and Other Costs
Regulated Other Operation and Maintenance Expense increased by approximately $12 million, or 1.9 percent, for the first six months of 2000, compared with the first six months of 1999. The increase is largely due to $8 million of nuclear outage costs and a $5 million adjustment recorded in 1999 that lowered pension accruals.
Nonregulated Other Operation and Maintenance Expense increased by approximately $169 million, or 146 percent, for the first six months of 2000, compared with the first six months of 1999. The increase is primarily due to costs of nonregulated operations acquired, increased business development activities and legal, technical and accounting expenses resulting from NRG's expanding operations.
Depreciation and Amortization Expense increased by approximately $56 million, or 17.2 percent, for the first six months of 2000, compared with the first six months of 1999, primarily due to acquisitions of generating facilities by NRG and increased capital additions to utility plant.
Interest expense increased by approximately $131 million, or 73 percent, for the first six months of 2000, compared with the first six months of 1999, primarily due to increased debt levels to fund several asset acquisitions by NRG.
3
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
|
Six Months Ended June 30 |
|||||
---|---|---|---|---|---|---|
|
2000 |
1999 |
||||
Net cash provided by operating activities (in millions) | $ | 670 | $ | 568 |
Cash provided by operating activities increased for the first six months of 2000, compared with the six months of 1999, primarily due to increased nonregulated operations.
|
Six Months Ended June 30 |
||||||
---|---|---|---|---|---|---|---|
|
2000 |
1999 |
|||||
Net cash used in investing activities (in millions) | $ | (2,383 | ) | $ | (1,536 | ) |
Cash used in investing activities increased for the first six months of 2000, compared with the first six months of 1999, primarily due to NRG's acquisitions of the Cajun generation assets and the Killingholme A generation assets in 2000. During the first six months of 1999, NRG acquired the following generating assets: Oswego, Somerset, Encina, Huntly and Dunkirk, Arthur Kill and Astoria.
|
Six Months Ended June 30 |
|||||
---|---|---|---|---|---|---|
|
2000 |
1999 |
||||
Net cash provided by financing activities (in millions) | $ | 1,730 | $ | 1,039 |
Cash provided by financing activities increased for the first six months of 2000, compared with the first six months of 1999, primarily due to the issuance of debt and a public stock offering by NRG to fund its acquisitions of generating facilities.
Market Risks
Xcel Energy and its subsidiaries are exposed to market risks, including changes in commodity prices, interest rates and currency exchange rates as disclosed in Management's Discussion and Analysis in Exhibit in Exhibit 99.02. Xcel Energy's regulated subsidiaries have limited exposure to commodity price and interest rate risk due to cost-based rate regulation. There have been no material changes in the market risk exposures that affect the quantitative and qualitative disclosures presented as of Dec. 31, 1999.
In connection with the deregulation of the electricity industry in the states of Texas and New Mexico, SPS is in the process of refinancing its First Mortgage Bonds. As a result, SPS will remain exposed to interest rate risk for its generation business. SPS's fuel adjustment clauses are expected to remain in effect through Dec. 31, 2001, thereby limiting the short-term exposure to commodity price risk.
Financing Activities
In March 2000, NRG South Central Generating LLC, a subsidiary of NRG, issued $800 million of senior secured bonds in a two-part offering. The first tranche was for $500 million with a coupon of 8.962 percent and a maturity of 2016. The second tranche was for $300 million with a coupon of 9.479 percent and a maturity of 2024. The proceeds were used to finance a portion of NRG's investment in the Cajun generating facilities.
In March 2000, NRG issued 160 million pound sterling (approximately $250 million at the time of issuance) of 7.97 percent reset senior notes due 2020, principally to finance NRG's equity investment in
4
the Killingholme facility. On March 15, 2005, these senior notes may be remarketed by Bank of America, N.A. at a fixed rate of interest through the maturity date or at a floating rate of interest for up to one year and then at a fixed rate of interest through 2020. Interest is payable semi-annually on these securities beginning Sept. 15, 2000, through March 15, 2005, and then at intervals and interest rates established in the remarketing process.
In March 2000, three of NRG's foreign subsidiaries entered into a 335 million pound sterling ($533 million) secured borrowing facility agreement with Bank of America International Limited as arranger. Under this facility, the financial institutions have made available to NRG's subsidiaries various term loans totaling 235 million pound sterling ($374 million) for purposes of financing the acquisition of the Killingholme facility and 100 million pound sterling ($159 million) of revolving credit and letter of credit facilities to provide working capital for operating the Killingholme facility. The final maturity date of the facility is the earlier of June 30, 2019, or the date on which all borrowings and commitments under the largest tranche of the term facility have been repaid or cancelled.
During the first and second quarters of 2000, SPS repurchased in the open market approximately $27 million and $58 million, respectively, of its First Mortgage Bonds. On July 24, 2000, SPS announced the commencement of a tender offer for all of its outstanding First Mortgage Bonds ($294.9 million). Settlement of bonds tendered will occur no later than Aug. 9, 2000. Any bonds not tendered or otherwise acquired by SPS are expected to be defeased in accordance with SPS's First Mortgage Indenture by the end of 2000.
On July 20, 2000, SPS closed a $500 million credit agreement, which terminates on Jan. 20, 2002. The funds from this credit agreement will be used for general corporate purposes, including commercial paper backup and costs resulting from Texas and New Mexico deregulation legislation such as open market purchases, tender offer and defeasance costs of SPS's outstanding First Mortgage Bonds and other related restructuring costs. SPS is the initial borrower under this credit agreement; however, at the time of separation of the generation assets, the obligations under this credit agreement will be assumed by a newly formed generation company. See Note 2Regulation and Rate Matters for more information.
SPS closed a credit agreement on Feb. 25, 2000. The commitment under the credit agreement is $300 million and terminates on Feb. 23, 2001 and will be used primarily for commercial paper backup but also provides for direct borrowings.
PSCo and its subsidiary, PSCCC, closed on a $600 million credit agreement on July 20, 2000, which will be used primarily to support the issuance of commercial paper by PSCo and PSCCC, but also provides for direct borrowings. This credit agreement, which terminates on July 19, 2001, replaces PSCo's existing $300 million 364- day facility, which expired on July 23, 2000, and PSCo and its subsidiaries' $300 million, multi-year facility, which would have terminated on Nov. 17, 2000.
During the second quarter of 2000, NRG completed an initial public offering of 28,170,000 shares priced at $15 per share. NRG also granted the underwriters an over-allotment option to purchase an additional 4,225,500 shares. In June 2000, the underwriters exercised their option and purchased the additional shares. Upon completion of the initial public offering, Xcel Energy owns approximately 147,600,000 Class A shares of NRG common stock, or 82 percent of NRG's outstanding shares. Management has concluded that this offering of NRG stock will not affect Xcel Energy's ability to use the pooling of interests method of accounting for the merger of NSP and NCE. The offering's net proceeds of approximately $454 million will be used to fund a portion of NRG Energy's project investments and other capital requirements for 2000. No proceeds of this offering were received by Xcel Energy. A portion of the proceeds was accounted for as a gain on the sale of 18 percent of Xcel Energy's ownership in NRG. This gain of $216 million was not recorded in earnings, but consistent with Xcel Energy's accounting policy was recorded as an increase in the common stock premium component of stockholders' equity.
5
XCEL ENERGY INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(Thousands of Dollars, Except per Share Data)
|
Six Months Ended June 30 |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2000 |
1999 |
|||||||
Operating revenues: | |||||||||
Electric utility | $ | 2,517,279 | $ | 2,315,008 | |||||
Gas utility | 718,360 | 660,430 | |||||||
Nonregulated and other | 902,634 | 250,157 | |||||||
Equity earnings from investments in affiliates | 70,089 | 27,336 | |||||||
Total revenue | 4,208,362 | 3,252,931 | |||||||
Operating expenses: | |||||||||
Electric fuel and purchased powerutility | 1,020,779 | 901,171 | |||||||
Cost of gas sold and transportedutility | 449,614 | 416,224 | |||||||
Cost of salesnonregulated and other | 406,621 | 147,909 | |||||||
Other operating and maintenance expensesutility | 679,649 | 667,147 | |||||||
Other operating and maintenance expensesnonregulated | 285,230 | 115,835 | |||||||
Depreciation and amortization | 385,158 | 328,748 | |||||||
Taxes (other than income taxes) | 181,445 | 190,795 | |||||||
Special chargeswrite down of CellNet stock | 937 | 3,412 | |||||||
Total operating expenses | 3,409,433 | 2,771,241 | |||||||
Operating income | 798,929 | 481,690 | |||||||
Other income (deductions)net | (13,242 | ) | (7,833 | ) | |||||
Interest charges and financing costs: | |||||||||
Interest chargesnet of amount capitalized | 311,236 | 180,089 | |||||||
Distributions on redeemable preferred securities of subsidiary trusts | 19,400 | 19,400 | |||||||
Total interest charges and financing costs | 330,636 | 199,489 | |||||||
Income before income taxes and extraordinary item | 455,051 | 274,364 | |||||||
Income taxes | 144,979 | 60,022 | |||||||
Income before extraordinary item | 310,072 | 214,346 | |||||||
Extraordinary item (See Note 2) | (13,658 | ) | | ||||||
Net income | 296,414 | 214,346 | |||||||
Dividend requirements and redemption premiums on Xcel Energy preferred stock | 2,121 | 3,171 | |||||||
Earnings available for common shareholders | $ | 294,293 | $ | 211,175 | |||||
Weighted average common shares outstanding: | |||||||||
Basic | 336,663 | 330,770 | |||||||
Diluted | 336,769 | 330,954 | |||||||
Earnings per sharebasic and diluted before extraordinary item | $ | 0.91 | $ | 0.64 | |||||
Extraordinary item (see Note 2) | $ | (0.04 | ) | $ | | ||||
Earnings per sharebasic and diluted | $ | 0.87 | $ | 0.64 | |||||
See Notes to the Supplemental Consolidated Condensed Financial Statements
6
XCEL ENERGY INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands of Dollars)
|
Six Months Ended June 30 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2000 |
1999 |
||||||||
Operating activities: | ||||||||||
Net income | $ | 296,414 | $ | 214,346 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 407,409 | 345,124 | ||||||||
Nuclear fuel amortization | 20,675 | 24,867 | ||||||||
Deferred income taxes | 33,045 | (18,743 | ) | |||||||
Amortization of investment tax credits | (7,013 | ) | (7,016 | ) | ||||||
Allowance for equity funds used during construction | (743 | ) | (3,584 | ) | ||||||
Distributions in excess of (less than) equity earnings of unconsolidated affiliates | (61,384 | ) | 14,399 | |||||||
Conservation incentive accrual adjustmentnoncash | | 35,035 | ||||||||
Extraordinary item (See Note 2) | 13,658 | | ||||||||
Change in accounts receivable | (66,468 | ) | 3,238 | |||||||
Change in inventories | 20,855 | 23,066 | ||||||||
Change in other current assets | (18,454 | ) | 29,677 | |||||||
Change in accounts payable | 9,816 | (27,341 | ) | |||||||
Change in other current liabilities | 19,528 | (54,422 | ) | |||||||
Change in other assets and liabilities | 3,023 | (10,158 | ) | |||||||
Net cash provided by operating activities | 670,361 | 568,488 | ||||||||
Investing activities: | ||||||||||
Nonregulated capital expenditures and asset acquisitions | (1,793,959 | ) | (985,459 | ) | ||||||
Utility capital/construction expenditures | (442,956 | ) | (470,709 | ) | ||||||
Allowance for equity funds used during construction | 743 | 3,584 | ||||||||
Proceeds from disposition of property, plant and equipment | 2,747 | 512 | ||||||||
Investments in external decommissioning fund | (26,443 | ) | (21,119 | ) | ||||||
Equity investments, loans and deposits for nonregulated projects | (70,028 | ) | (77,606 | ) | ||||||
Collection of loans made to nonregulated projects | 339 | 39,956 | ||||||||
Other investmentsnet | (53,519 | ) | (24,909 | ) | ||||||
Net cash used in investing activities | (2,383,076 | ) | (1,535,750 | ) | ||||||
Financing activities: | ||||||||||
Short-term borrowingsnet | 85,300 | 1,045,694 | ||||||||
Proceeds from issuance of long-term debtnet | 2,404,630 | 465,685 | ||||||||
Repayment of long-term debt, including reacquisition premiums | (1,014,739 | ) | (275,441 | ) | ||||||
Proceeds from issuance of Xcel Energy common stock | 51,376 | 48,090 | ||||||||
Proceeds from the public offering of NRG stock | 453,705 | | ||||||||
Dividends paid | (250,709 | ) | (245,467 | ) | ||||||
Net cash provided by financing activities | 1,729,563 | 1,038,561 | ||||||||
Net increase in cash and cash equivalents | 16,848 | 71,299 | ||||||||
Cash and cash equivalents at beginning of period | 139,731 | 99,031 | ||||||||
Cash and cash equivalents at end of period | $ | 156,579 | $ | 170,330 | ||||||
See Notes to the Supplemental Consolidated Condensed Financial Statements
7
XCEL ENERGY INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
|
June 30 2000 |
Dec. 31 1999 |
|||||||
---|---|---|---|---|---|---|---|---|---|
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 156,579 | $ | 139,731 | |||||
Accounts receivablenet of allowance for bad debts of $12,340 and $13,043, respectively | 891,650 | 800,066 | |||||||
Accrued unbilled revenues | 363,273 | 410,798 | |||||||
Materials and supplies inventories at average cost | 387,074 | 306,524 | |||||||
Fuel and gas inventories at average cost | 108,238 | 152,874 | |||||||
Prepayments and other | 315,587 | 250,951 | |||||||
Total current assets | 2,222,401 | 2,060,944 | |||||||
Property, plant and equipment, at cost: | |||||||||
Electric utility | 15,092,500 | 14,807,684 | |||||||
Gas utility | 2,313,390 | 2,266,516 | |||||||
Nonregulated property and other | 5,151,652 | 3,242,410 | |||||||
Construction work in progress | 547,845 | 533,046 | |||||||
Total property, plant and equipment | 23,105,387 | 20,849,656 | |||||||
Less: accumulated depreciation | (8,500,169 | ) | (8,153,434 | ) | |||||
Nuclear fuelnet of accumulated amortization of $944,012 and $923,336, respectively | 97,314 | 102,727 | |||||||
Net property, plant and equipment | 14,702,532 | 12,798,949 | |||||||
Other assets: | |||||||||
Investments in unconsolidated affiliates | 1,442,519 | 1,439,002 | |||||||
Nuclear decommissioning fund investments | 547,498 | 514,011 | |||||||
Other investments | 182,146 | 137,075 | |||||||
Regulatory assets | 564,498 | 566,727 | |||||||
Deferred charges and other | 673,022 | 553,650 | |||||||
Total other assets | 3,409,683 | 3,210,465 | |||||||
Total Assets | $ | 20,334,616 | $ | 18,070,358 | |||||
LIABILITIES AND EQUITY | |||||||||
Current liabilities: | |||||||||
Current portion of long-term debt | $ | 557,762 | $ | 431,049 | |||||
Short-term debt | 1,523,099 | 1,432,686 | |||||||
Accounts payable | 819,817 | 793,139 | |||||||
Taxes accrued | 219,015 | 260,676 | |||||||
Dividends payable | 128,737 | 127,568 | |||||||
Other | 495,650 | 438,101 | |||||||
Total current liabilities | 3,744,080 | 3,483,219 | |||||||
Deferred credits and other liabilities: | |||||||||
Deferred income taxes | 1,853,366 | 1,779,046 | |||||||
Deferred investment tax credits | 206,623 | 214,008 | |||||||
Regulatory liabilities | 557,999 | 442,204 | |||||||
Benefit obligations and other | 477,726 | 420,140 | |||||||
Total deferred credits and other liabilities | 3,095,714 | 2,855,398 | |||||||
Minority interest in subsidiaries | 257,477 | 14,696 | |||||||
Long-term debt | 7,087,558 | 5,827,485 | |||||||
Mandatorily redeemable preferred securities of subsidiary trusts (see Note 5) | 494,000 | 494,000 | |||||||
Preferred stockholders' equity | 105,340 | 105,340 | |||||||
Common stock and paid-in capital | 3,401,040 | 3,126,447 | |||||||
Retained earnings | 2,298,335 | 2,253,800 | |||||||
Leveraged shares held by ESOP at cost | (8,248 | ) | (11,606 | ) | |||||
Accumulated comprehensive income | (140,680 | ) | (78,421 | ) | |||||
Total common stockholders' equity | 5,550,447 | 5,290,220 | |||||||
Commitments and contingencies | |||||||||
Total Liabilities and Equity | $ | 20,334,616 | $ | 18,070,358 | |||||
See Notes to the Supplemental Condensed Financial Statements
8
Xcel Energy Inc.
NOTES TO SUPPLEMENTAL CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the financial position of Xcel Energy Inc. and its subsidiaries (collectively, Xcel Energy) as of June 30, 2000, and Dec. 31, 1999, the results of its operations for the six months ended June 30, 2000 and 1999, and its cash flows for the six months ended June 30, 2000 and 1999. Due to the seasonality of Xcel Energy's electric and gas sales and variability of nonregulated operations, quarterly and year-to-date results are not necessarily an appropriate base from which to project annual results.
The accounting policies followed by Xcel Energy are set forth in Note 1 to the financial statements in Exhibit 99.02. The following notes should be read in conjunction with such policies and other disclosures in the Form 8-K.
1. Business Developments
NRGIn January 2000, NRG reached agreement to purchase 1,875 Mw of fossil-fueled electric generation assets in the Northeast region of the United States from Conectiv. The purchase price is approximately $800 million. NRG will sell 500 Mw of energy around the clock to Delmarva Power and Light Company under a five-year agreement. The remaining energy and capacity will be sold into the markets in the Northeast region of the United States. NRG will own a 100 percent interest in the project. NRG expects to close the acquisition in the fourth quarter of 2000.
In March 2000, NRG purchased 1,708 Mw of fossil-fueled generation from Cajun Electric Power Cooperative for approximately $1 billion. The output from the base-load Cajun facility will be sold principally under long-term contracts. NRG owns 100 percent of this project. Pro forma results including Cajun are presented in Note 8.
In March 2000, NRG purchased the 680-Mw Killingholme A station from National Power plc. for approximately 390 million pounds sterling (approximately $615 million based on exchange rates at the time of acquisition). Killingholme A was commissioned in 1994 and is a combined-cycle, gas-turbine power station located in England. NRG owns 100 percent of this project.
During June 2000, the Estonian Cabinet approved the terms under which NRG may proceed to purchase a 49-percent interest in Narva Power, which owns approximately 3,000 megawatts of oil shale-fired generation plants and a 51-percent interest in state-owned oil shale mines, Eesti Polevkivi. NRG's purchase of a 49-percent interest in Narva Power remains subject to successful negotiation of definitive agreements. State-owned Eesti-Energia will retain 51-percent ownership of Narva Power. The terms include a commitment by Narva Power to invest approximately $361 million for reconstructing and refurbishing the generation plants and making environmental improvements. NRG Energy will make an initial $65 million to $70 million equity commitment. Narva Power's two stations, Balti and Eesti, currently supply more than 90 percent of Estonia's electricity. Narva Power will enter into a 15-year power purchase agreement with Eesti-Energia.
During August 2000, NRG was named the successful bidder in the South Australian Government's electricity privatization auction for Flinders Power, South Australian's final generation company to be privatized. NRG agreed to pay (AUS) $313 million ($180 million US) for a 100 year lease of the Flinders Power assets. Flinders Power includes two power stations totaling 760 Mw, the Leigh Creek coal mine and a dedicated rail line. The lease agreement also includes managing the long-term fuel supply and power purchase agreement of the 180-Mw Osborne Cogeneration Station. The transaction is expected to close in the third quarter of 2000.
9
2. Regulation and Rate Matters
Restructuring Legislation
SPS is an integrated electric utility and serves approximately 385,000 retail customers in portions of the states of Texas, New Mexico, Oklahoma and Kansas. Over 97 percent of SPS's retail customers, sales and revenues are in Texas and New Mexico. SPS serves wholesale customers, within its service territory, that comprise approximately 30-35 percent of total electric revenues and Kwh sales. Restructuring legislation has been enacted in Texas and New Mexico, as summarized below. SPS has made and continues to make filings with the PUCT and the NMPRC, as required by each state's legislation, to address critical issues related to SPS's transition plans to retail competition. Retail competition is expected to be implemented in these states on or before Jan. 1, 2002. Texas is expected to institute a 5-percent pilot program beginning June 2001. State and federal regulators will be addressing a number of issues related to the implementation of restructuring during 2000 and 2001. SPS is diligently working to satisfy the legislative and regulatory requirements in developing its transition plans. It is anticipated that the implementation approach being developed in Texas, as discussed below, will satisfy the legislative and regulatory requirements in New Mexico and will be consistent with other state and federal regulations.
Overview of New Mexico Legislation
On April 8, 1999, New Mexico enacted the Electric Utility Restructuring Act of 1999, which provides for customer choice for residential, small commercial and educational customers beginning Jan. 1, 2001, and all remaining retail customers beginning Jan. 1, 2002. Customers of a municipal utility and customers of a distribution cooperative utility will be afforded choice only if the respective utility elects to participate. The legislation provides for recovery of no less than 50 percent of stranded costs for all utilities as quantified by the NMPRC. Transition costs must be approved by the NMPRC prior to being recovered through a non-by-passable wires charge, which must be included in transition plan filings. SPS must separate its utility operations into at least two segments: 1) energy generation and competitive services and 2) transmission and distribution utility services either by the creation of separate affiliates that may be owned by a common holding company or by the sale of assets to one or more third parties. A regulated company, in general, is prohibited from providing unregulated services.
In January 2000, SPS petitioned the NMPRC to file its transition plan by June 1, 2000. Additionally, SPS requested that the NMPRC postpone the beginning of customer choice for certain retail customers until June 1, 2001, and postpone the completion of SPS corporate separation from Jan. 1, 2001, to Jan. 1, 2002. On May 16, 2000, the NMPRC approved: 1) a one-year delay of customer choice for residential, small commercial and educational customers to Jan. 1, 2002, 2) a six-month delay in customer choice for commercial and industrial customers to July 1, 2002, 3) a seven-month delay for completion of SPS corporate separation by Aug. 1, 2001 and 4) a utility transition plan filing date of June 1, 2000.
Overview of Texas Legislation
On June 18, 1999, an electric utility restructuring act (SB-7) was passed in Texas, which provides for the implementation of retail competition for most areas of the state beginning Jan. 1, 2002. The legislation requires, among other things, a rate freeze for all customers, effective Sept. 1, 1999, until Jan. 1, 2002, together with an annual earnings test through 2001; a 6-percent rate reduction for those
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residential and small commercial customers who choose not to switch suppliers at the start of retail competition; the unbundling of business activities, costs and rates relating to generation, transmission and distribution and retail services; reductions in NOx and SO2 emissions and the recovery of stranded costs. The PUCT can delay the date for retail competition if a power region is unable to offer fair competition and reliable service during the 2001 pilot projects.
Overall, SB-7's objective is to introduce full retail competition into the Texas electric utility industry. SB-7 requires each utility to unbundle its business activities into three separate legal entities: 1) a power generation company, 2) a regulated transmission and distribution company, and 3) a retail electric provider. SB-7 limits the market share that a single generation provider can control to 20 percent of the generating capacity within a power region. The establishment of a qualified power region with multiple generation suppliers is required under SB-7 in order to implement full retail competition. SB-7 specifically addresses competition in the Texas Panhandle, where SPS operates, recognizing that certain transmission constraints exist within the region that may require full retail customer choice to develop on a more structured schedule than the rest of the state. SPS must file a transition to competition plan with the PUCT by Dec. 1, 2000. SPS, with no estimated net stranded costs, must return any excess earnings indicated in the annual earnings tests to customers during the period Jan. 1, 1999, through Dec. 31, 2001, or alternatively may direct any excess earnings to improvements in transmission and distribution facilities, to capital expenditures to improve air quality or to accelerate the amortization of regulatory assets, subject to PUCT approval.
Implementation
SPS filed its business separation plan in Texas during the first quarter of 2000 for the unbundling of business activities relating to power generation, transmission, and distribution and retail electric provider services. In summary, SPS has committed to separate into distinct businesses and to operate in an arm's length manner so that the transactions between affiliated entities and regulated entities do not confer any undue competitive advantages on Xcel Energy's businesses compared with non-affiliates. In April 2000, the PUCT approved SPS's business separation plan. Overall, the plan provides for the separation of all competitive energy services by Sept. 1, 2000, the establishment of an Xcel Energy customer care company, which will provide customer services for all of Xcel Energy's operating utilities, and a formal code of conduct and compliance manual for managing affiliate transactions. Prior to any legal separation and unbundling, SPS will be required to address the provisions limiting or otherwise affecting such activities contained in its first mortgage bond indenture. SPS has arranged interim financing, as approved by the NMPRC, to enable SPS to make open market purchases, and to complete a tender offer and the monetary defeasance of all outstanding First Mortgage Bonds. Subject to all required approvals and indebtedness restrictions, it is anticipated that all generation-related and certain other assets and liabilities will be transferred at net book value to newly-formed affiliates in accordance with SPS' business separation plan by Jan. 1, 2001 (approximately 50 percent of SPS' assets). It is expected that SPS and its affiliates will be capitalized consistent with their respective business operations.
On April 18, 2000, SPS entered into a stipulation with the staff of the PUCT and other significant parties to the NCE/NSP merger docket, which was filed with the PUCT, and among other things, specifically addresses SPS implementation plans to meet the requirements of the Texas deregulation
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legislation. In summary, the stipulation provides for the implementation of full retail customer choice by SPS in its Texas service region, including the future divestiture of certain SPS generation assets. Subject to certain market conditions, SPS has agreed to divest 1,750 megawatts, at a minimum, by Jan. 1, 2002, and has specifically identified the plants that it would sell in connection with additional divestitures required to establish a qualified power region. For SPS to comply with this qualified power region requirement and to implement full customer choice in Texas, a minimum of 2,843 megawatts and a maximum of 3,184 megawatts of existing power generation assets or capacity must be sold to third party non-affiliates. SPS has committed to complete these divestitures by Jan. 1, 2006. These divestitures represent approximately 64-71 percent of the generation capacity owned by SPS and its affiliates. SPS expects some or all of these divestitures to be completed by the end of 2001. Assuming these divestitures are completed, approximately 1,281 to 1,608 megawatts of generation capacity in Texas and New Mexico would be retained by Xcel Energy through an affiliated power generation company. Management believes that these divestitures are in response to the legal requirements of SB-7 and that these divestitures can occur consistent with the pooling-of-interests accounting requirements. The stipulation provides that if the SEC determines that the divestitures would be a pooling violation, the divestitures would be scheduled to meet the SEC's pooling-of-interests requirements.
The stipulation also resolved certain issues related to the merger between NCE and NSP and concluded that such merger is in the public interest. On May 30, 2000, the PUCT issued a rate order approving the stipulation. SPS has committed, contingent upon closing of the NCE/NSP merger, to transfer functional control of its electric transmission system to the Midwest Independent System Operator, Inc. (MISO), a regional transmission organization that will operate the transmission systems of multiple owners in the central United States.
SPS filed a rate case on March 31, 2000, to set the rates for the transmission and distribution services in Texas, which are to be unbundled and implemented on Jan. 1, 2002. SPS requested recovery of all jurisdictional costs associated with restructuring in Texas. Hearings and a final rate order are not expected before 2001.
On June 1, 2000, SPS filed its transition plan with the NMPRC. SPS filed to establish rates for the transmission and distribution business in New Mexico, requesting approval of its corporate restructuring/separation and other associated matters. Hearings are anticipated to be held in the fourth quarter of 2000.
On July 24, 2000, SPS commenced a fixed spread tender offer to purchase for cash the remaining $294.9 million total principal amount of five series of SPS' First Mortgage Bonds. Under the terms of the offer, SPS will purchase the remaining bonds of each series at a price [determined by the yield to maturity for bonds that are not redeemable and to the first redemption date for bonds that are redeemable], at the time of tender, equal to the sum of the yield on the applicable referenced U.S. Treasury Note plus a fixed spread. The purchase offer expired on Aug. 4, 2000, with approximately 92 percent of the outstanding bonds purchased. SPS currently intends that all bonds which are not tendered or otherwise acquired by SPS (approximately 8 percent of the total outstanding First Mortgage Bonds) will be defeased by the end of 2000. The bonds will be defeased by depositing with the trustee cash sufficient to pay the principal amount of the outstanding First Mortgage Bonds at maturity or the first redemption date, the applicable redemption date, the applicable redemption
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premium at the first redemption date and accrued interest to maturity or the first redemption date. Upon defeasance, all obligations of SPS under its Indenture and the First Mortgage Bonds would be discharged.
Financial Reporting Matters
With the issuance of a final written order by the PUCT on May 30, 2000, addressing the implementation of electric utility restructuring for SPS, management believes that sufficient details of a transition plan to competition now exist allowing for a reasonable determination of the impacts of the deregulation of SPS's generation business. Accordingly, SPS discontinued the application of SFAS 71 for that portion of its business during the second quarter of 2000. SPS applied the provisions of SFAS No. 101, "Regulated EnterprisesAccounting for the Discontinuation of SFAS 71", and Emerging Issues Task Force Consensus No. 97-4, "Deregulation of the Pricing of ElectricityIssues Related to the Application of FASB Statements No. 71 and 101" for SPS's electric generation business. While the above rate order only addresses Texas operations, SPS plans to pursue a similar strategy to implement the restructuring legislation enacted in New Mexico and believes that all of its generation will ultimately be deregulated. Accordingly, SPS has applied SFAS 101 to all jurisdictions of its generation business. SPS's transmission and distribution business continues to meet the requirements of SFAS 71, as that business remains regulated. During the second quarter 2000, SPS wrote off its generation-related regulatory assets and other deferred costs totaling approximately $19 million. This resulted in an after-tax extraordinary charge of approximately $13.7 million against the earnings of Xcel Energy and SPS. The total impacts of deregulation may be affected by the results of future state and federal regulatory proceedings prior to actual implementation of full competition, estimated to begin on Jan. 1, 2002.
Additionally, there may be other significant financial implications of implementing SB-7 and electric restructuring in New Mexico. These implications include, but are not limited to, the refinancing of securities, investments in information technology, establishing an independent operation of the electric transmission systems, implementing the procedures to govern affiliate transactions, the pricing of unbundled energy services and the regulatory recovery of incurred costs related to these issues. Based on current estimates, these incurred costs could be as much as $75 million.
The resolution of these matters may have a significant financial impact on the financial position, results of operations and cash flows of Xcel Energy and SPS.
SPS Electric Cost Adjustment MechanismsTexas
The PUCT's regulations require periodic examination of SPS fuel and purchased power costs, the efficiency of the use of such fuel and purchased power, fuel acquisition and management policies and purchase power commitments. SPS is required to file an application for the PUCT to retrospectively review, at least every three years, the operations of a utility's electricity generation and fuel management activities. In June 1998, SPS filed its reconciliation for the generation and fuel management activities totaling approximately $690 million, for the period from January 1995 through December 1997. For this same period, SPS had approximately $21.4 million in under-recovered fuel costs associated with the Texas retail jurisdiction. In July 2000, the PUCT approved a settlement agreement between SPS and the General Counsel of the PUCT, which provided for the recovery of
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substantially all fuel costs, including approximately $12.1 million of the Texas retail jurisdictional portion of the Thunder Basin judgment.
On June 30, 2000, SPS filed an application for the PUCT to retrospectively review the operations of a utility's electricity generation and fuel management activities. In this application, SPS filed its reconciliation for the generation and fuel management activities totaling approximately $419 million, for the period from January 1998 through December 1999. Final approval is pending.
SPS filed an emergency application on July 21, 2000, seeking to increase its fixed fuel factor, to be effective Sept. 1, 2000. SPS was approximately $18 million under-recovered in fuel costs associated with the Texas retail jurisdiction through May 2000 as a result of recent increases in natural gas costs. SPS has committed to file an additional application seeking to surcharge its Texas retail customers the under-recovered amount above including any related interest.
Other Rate Matters
On July 17, 2000, PSCo filed a retail rate case with the CPUC requesting an annual increase in its jurisdictional gas department revenues of approximately $40 million. The request for a rate increase reflects revenues for additional plant investment, a 12.5-percent return on equity, new depreciation rates and recovery of the dismantlement costs associated with the Leyden Gas Storage facility. Hearings have not yet been scheduled.
On April 14, 2000, PSCo filed an application with the CPUC requesting authority to shut down and abandon its Leyden Natural Gas Underground Storage Facility located northwest of the City of Arvada, Colo., during 2001, after 40 years of operation. The application seeks approval of a formal decommissioning plan. The plan outlines PSCo's proposal to plug and abandon the wells that are currently being used to inject and withdraw gas from the mine and requests approval of the costs to decommission and shut down the facility, which are currently estimated at approximately $8.6 million. In June 2000, an ALJ determined that the notice was adequate and the application was proper. Hearings and testimony are scheduled for the third quarter of 2000. PSCo has requested recovery of these costs and its remaining plant investments in the retail rate case filed in July 2000.
On Feb. 14, 2000, NSP-Wisconsin filed an application with the Public Service Commission of Wisconsin (PSCW) to increase electric rates for fuel costs. This application was subsequently updated with additional information on March 17, 2000. The increase is primarily the result of higher purchased power costs than anticipated in current rates. The surcharge factor is expected to increase revenues by approximately $6.5 million in 2000 and represents an increase for a typical residential electric customer of approximately 3 percent. The PSCW issued their order granting the surcharge on May 2, 2000. The surcharge factor is expected to be effective through Dec. 31, 2001.
NSP-Minnesota has had a 4.1 percent conservation rate surcharge in place since 1998, pending resolution of the conservation incentive recovery issue. On July 31, 2000, the MPUC ordered NSP-Minnesota to reduce the surcharge level to 0.68 percent (consistent with current costs to be recovered) and to refund cumulative overcollections of approximately $24 million. This refund does not include the 1998 conservation incentive amounts still under appeal. Although cash flows will be reduced, Xcel Energy does not expect any earnings impact from these actions due to accruals previously recorded.
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3. Commitments and Contingent Liabilities
As of June 30, 2000, Seren had approximately $5 million of intangible assets related to CellNet Data Systems, Inc. In February 2000, CellNet filed for Chapter 11 bankruptcy protection. Although recovery of these assets is not assured at this time, pending the resolution of CellNet's financial difficulties, NSP-Minnesota is working with CellNet to restructure our contracts with them to provide recovery.
On March 30, 2000, NRG received notification from the New York Independent System Operator (NYISO) of their petition to the FERC to place a $2.52-per-megawatt-hour market cap on ancillary service revenues. The NYISO also requested authority to impose this cap on a retroactive basis to March 1, 2000. On May 31, 2000, FERC approved a request of the NYISO to impose price limitations on one ancillary service, Ten Minute Non-synchronize Reserves, effective March 28, 2000. FERC rejected the NYISO's request for authority to adjust the market clearing prices for that service on a retroactive basis. As a result of the FERC order (unless the NYISO or another party successfully appeals the order), NRG will retain the approximately $8.0 million of revenues collected in February 2000 and approximately $8.2 million included in revenues, but not collected, for March 2000. The NYISO sought reconsideration of the FERC order on June 30, 2000.
The circumstances set forth in Note 6 to Xcel Energy's financial statements in Exhibit 99.02 appropriately represent, in all material respects, the current status of commitments and contingent liabilities regarding public liability for claims resulting from any nuclear incident.
4. Short-Term Borrowings
At June 30, 2000, Xcel Energy and its subsidiaries had approximately $1.5 billion of short-term debt outstanding at a weighted average interest rate of 6.22 percent.
5. Financial Instruments
As of June 30, 2000, NRG had seven interest rate swap agreements with notional amounts totaling approximately $880 million. If the swaps had been discontinued on June 30, 2000, NRG would have owed the counter-parties approximately $4.4 million. NRG believes that its exposure to credit risk due to nonperformance by the counter-parties to the hedging contracts is insignificant. These swaps are described below.
NRG entered into a swap agreement effectively converting the 7.5 percent fixed rate on $200 million of Senior Notes due 2007 to a variable rate based on the London Interbank Offered Rate. The swap expires on June 1, 2009.
A second swap effectively converts a $16 million issue of non-recourse variable rate debt into a fixed rate debt. The swap expires on Sept. 30, 2002 and is secured by the Camas Power Boiler assets.
A third swap converts $177 million of non-recourse variable rate debt into fixed rate debt. The swap expires on Dec. 17, 2014 and is secured by the Crockett Cogeneration assets.
A fourth swap converts £188 million of non-recourse variable rate debt into fixed rate debt. The swap expires on June 30, 2019 and is secured by the Killingholme assets.
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NRG entered into three additional forward swap agreements to hedge against interest rate risk associated with future corporate bond offerings. The swaps expire on December 31, 2000.
6. Other Comprehensive Income
Xcel Energy's other comprehensive income consists of net income, a gain on from NRG's stock offering, foreign currency translation adjustments related to investments in international projects and changes in the fair value of investments in certain marketable securities. Other comprehensive income for the first six months of 2000 and 1999 is listed below.
Millions of Dollars |
Six Months Ended |
|||||||
---|---|---|---|---|---|---|---|---|
Increase / (decrease) in Other Comprehensive Income |
||||||||
6/30/00 |
6/30/99 |
|||||||
Net Income | $ | 296.4 | $ | 214.3 | ||||
Gain from NRG stock offering | 215.9 | | ||||||
Currency translation adjustments | (62.3 | ) | 3.4 | |||||
Marketable securities: | ||||||||
Holding gain (loss) during periodnet of tax | (0.6 | ) | 2.0 | |||||
Loss realized during periodnet of tax | 0.6 | 2.0 | ||||||
Total | $ | 450.0 | $ | 221.7 | ||||
7. Segment Information
Xcel Energy has four reportable segments: Electric Utility, Gas Utility and two of its nonregulated energy businesses, NRG and Xcel International.
Business Segments
Six months ended 6/30/2000 |
Electric Utility |
Gas Utility |
NRG |
Xcel International |
All Other |
Reconciling Eliminations |
Consolidated Total |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Thousands of dollars) | |||||||||||||||||||||
Operating revenues from external customers | $ | 2,516,887 | $ | 718,275 | $ | 805,906 | | $ | 96,729 | | $ | 4,137,797 | |||||||||
Intersegment revenues | 569 | 7,972 | 601 | | 43,713 | $ | (52,379 | ) | 476 | ||||||||||||
Segment net income (loss) | $ | 179,653 | $ | 40,964 | $ | 46,682 | $ | 27,913 | $ | 8,991 | $ | (7,789 | ) | $ | 296,414 | ||||||
Six months ended 6/30/1999 |
Electric Utility |
Gas Utility |
NRG |
Xcel Internalational |
All Other |
Reconciling Eliminations |
Consolidated Total |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Thousands of dollars) | |||||||||||||||||||||
Operating revenues from external customers (b) | $ | 2,314,606 | $ | 660,333 | $ | 97,133 | | $ | 153,024 | | $ | 3,225,096 | |||||||||
Intersegment revenues | 664 | 5,313 | 748 | | 49,994 | $ | (56,220 | ) | 499 | ||||||||||||
Segment net income (loss) | $ | 168,123 | $ | 32,379 | $ | 1,401 | $ | 18,075 | $ | 517 | $ | (6,149 | ) | $ | 214,346 | ||||||
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8. Pro FormaNRG's Cajun Acquisition
During March 2000, NRG completed the acquisition of two fossil fueled generating plants from Cajun Electric Power Cooperative, Inc. for approximately $1 billion. The following information summarizes the pro forma results of operations as if the acquisition, which was accounted for as a purchase, had occurred as of the beginning of the six-month periods ended June 30.
Millions of Dollars except earnings per share |
Six Months Ended |
|||||
---|---|---|---|---|---|---|
Actual Results |
6/30/00 |
6/30/99 |
||||
Revenue | $ | 4,208 | $ | 3,253 | ||
Net income | 296 | 214 | ||||
Available for common | 294 | 211 | ||||
Earnings per share | $ | 0.87 | $ | 0.64 |
Millions of Dollars except earnings per share |
Six Months Ended |
|||||
---|---|---|---|---|---|---|
Pro Forma Results |
6/30/00 |
6/30/99 |
||||
Revenue | $ | 4,288 | $ | 3,426 | ||
Net income | 293 | 211 | ||||
Available for common | 291 | 208 | ||||
Earnings per share | $ | 0.86 | $ | 0.63 |
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Exhibit 99.04
Xcel Energy Cautionary Factors
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage such disclosures without the threat of litigation providing those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward-looking statements have been and will be made in written documents and oral presentations of Xcel Energy. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in Xcel Energy's documents or oral presentations, the words "anticipate", "estimate", "expect", "objective", "outlook", "possible", "potential" and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause Xcel Energy's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following:
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Xcel Energy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors pursuant to the Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by Xcel Energy prior to the effective date of the act.
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