Business Context and Reporting Period
Company: Northern States Power Company (Minnesota) and Subsidiaries (NSP), a subsidiary of Xcel Energy Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and nine months ended September 30, 1997.
Overview: NSP operates regulated electric and gas utilities in Minnesota and Wisconsin, alongside diversified nonregulated businesses including NRG Energy, Inc. (independent power production) and Energy Masters International. The period was significantly impacted by the termination of a proposed merger with Wisconsin Energy Corporation, severe flooding in the Grand Forks service area, and an unscheduled outage at the Monticello nuclear plant.
Key Financial Metrics
| Metric (in thousands, except per share) | 3 Months Ended 9/30/97 | 3 Months Ended 9/30/96 | 9 Months Ended 9/30/97 | 9 Months Ended 9/30/96 |
|---|---|---|---|---|
| Total Utility Operating Revenues | $697,443 | $633,258 | $2,034,263 | $1,944,226 |
| Utility Operating Income | $118,540 | $105,456 | $272,582 | $265,535 |
| Net Income | $87,912 | $84,239 | $171,938 | $194,831 |
| Earnings Available for Common Stock | $85,541 | $81,178 | $163,239 | $185,647 |
| Earnings Per Share (Diluted) | $1.23 | $1.18 | $2.36 | $2.70 |
| Cash and Cash Equivalents | $112,521 | $51,118 (Dec 31, 1996) | $112,521 | $79,398 (Dec 31, 1996) |
| Net Cash Provided by Operating Activities | N/A | N/A | $508,864 | $436,929 |
| Long-Term Debt | $1,856,479 | $1,592,568 (Dec 31, 1996) | $1,856,479 | $1,592,568 (Dec 31, 1996) |
Material Changes vs. Prior Period
- Revenue Growth: Total utility operating revenues increased 10.1% in the third quarter and 4.8% year-to-date compared to 1996. Electric revenues rose due to higher sales volumes and rate adjustments for fuel costs. Gas revenues increased despite lower sales volumes, driven by higher average prices.
- Expense Increases: Fuel and purchased power costs combined increased 14.3% in the third quarter and 7.6% year-to-date. This was driven by higher fossil fuel prices, increased plant output, and the need to purchase power due to the Monticello nuclear plant outage and transmission line limitations.
- Merger Costs: A one-time charge of $29 million (approx. $0.25 per share) was recorded in the second quarter to write off deferred merger-related costs following the termination of the proposed merger with Wisconsin Energy Corporation.
- Nonregulated Performance: Nonregulated earnings per share decreased from $0.07 to $0.02 in the third quarter and from $0.13 to $0.18 year-to-date. NRG Energy earnings were impacted by higher interest costs and lower project earnings, partially offset by new tax credits.
- Capital Structure: In September 1997, the company completed a public offering of 4.9 million shares of common stock, raising net proceeds of $237 million. In January 1997, $200 million in Trust Originated Preferred Securities (TOPrS) were issued.
Guidance, Outlook, and Risks
- 1997 Outlook: Management expects 1997 earnings from ongoing operations (excluding merger costs) to be below 1996 results. This outlook is primarily due to business interruptions (flooding, plant outages) and increased Network Transmission Service (NTS) costs.
- Business Interruptions:
- Flooding: Grand Forks area flooding reduced year-to-date earnings by an estimated 4 to 5 cents per share. The company anticipates approximately $4 million in capital expenditures to rebuild delivery systems.
- Monticello Outage: An unscheduled outage at the Monticello nuclear plant (May-August 1997) reduced earnings by approximately 2 cents per share for the quarter and 4 cents per share year-to-date.
- Storms: Storm damage to transmission lines limited power sales opportunities and incurred approximately $4 million in operating expenses and $10 million in capital expenditures.
- Regulatory and Legal Risks:
- NTS Costs: A potential increase of $7 million in annual NTS expenses was identified in October 1997; the company is reviewing the data and may dispute the amounts.
- Nuclear Waste: Ongoing litigation against the Department of Energy regarding the acceptance of spent nuclear fuel. The company is seeking authority to escrow payments.
- Rate Filings: The company plans to file for retail gas rate increases in Minnesota and transmission rate updates with FERC later in 1997. Wisconsin rate applications were filed in November 1997.
- Nonregulated Project Risks: The Cilegon power project in Indonesia is under government review. The Sunnyside cogeneration project in Utah faces cash flow shortfalls, and the company is negotiating debt restructuring.
Investor Verification Checklist
- Merger Cost Finalization: Verify if the $29 million merger write-off is final or if additional regulatory costs are expected.
- Flood Recovery: Monitor the timeline for full gas service restoration in Grand Forks and the final insurance recovery amounts.
- NTS Cost Impact: Confirm the outcome of the review regarding the potential $7 million increase in Network Transmission Service costs.
- Nonregulated Project Viability: Assess the status of the Cilegon (Indonesia) and Sunnyside (Utah) projects, specifically regarding regulatory approval and debt restructuring.
- Rate Case Outcomes: Track the approval status of pending rate filings in Minnesota and Wisconsin to ensure cost recovery for fuel and capital expenditures.
- Capital Expenditures: Verify the total capital spend required for flood rebuilding and storm repairs against the budgeted amounts.