01—Abstract
Summary
Summary of the 10-K filed March 25, 1994. Cited figures are marked; the original filing is the authoritative source.
Northern States Power Company (NSP, parent XEL) reported 1993 utility operating revenues of $2.40 billiona (up 11% from $2.16 billion) and net income of $211.7 million, or $3.02 per share, up from $2.31 before accounting changes in 1992.
Earnings were helped by new rate increases in Minnesota, North Dakota, South Dakota and Wisconsin totaling roughly $102 millionb annualized, plus colder-than-1992 weather and the recovery of a 1992 unusually cool summer's impact. The company ended 1993 with total assets of $5.59 billion and a common equity base of $1.83 billion, and it described its financial condition as strong, with AA-range first mortgage bond ratings. The dominant risk for investors is the Prairie Island nuclear plant.
Without additional onsite dry cask storage, which requires Minnesota Legislative approval after a June 1993 Court of Appeals ruling, Prairie Island Unit 2 would shut in May 1995 and Unit 1 in February 1996. The two units supply about 20% of company output, and management estimates the present value cost of replacement power plus unrecovered investment and decommissioning at $1.8 billionc, with recovery through rates uncertain. Other pressures include a pending Minnesota appeal of the allowed 11.47% return on equity (about $7 million at issue), an open labor contract with five IBEW locals that expired at year-end 1993 and carries strike authorization, and Order 636 gas industry restructuring.
Growth is being pursued through non-regulated businesses. NRG, the non-regulated subsidiary, acquired the Minneapolis Energy Center ($110 milliond), a stake in the Schkopau plant in Germany, and a 33% interest in MIBRAG, and plans a 37.5% stake in the Gladstone plant in Australia.
Management estimates NRG could require about $390 million of equity over 1994-1998, and the company expects roughly $540 million of non-regulated capital needs over the same period. Investors should weigh this growth against the Prairie Island uncertainty and the capital intensity of these projects.
02—Key points
Key Highlights
- 1993 net income of $211.7 million ($3.02 per share) versus $206.4 million in 1992; earnings per share were flat year over year on a reported basis but up 71 cents before 1992 accounting changes.
- Utility operating revenues rose 11% to $2.40 billion, driven by about $102 million of annualized rate increases, weather recovery and 1993 acquisitions.
- Prairie Island nuclear plant faces potential shutdown in 1995-1996 without Minnesota legislative approval for onsite dry cask storage; estimated cost impact is $1.8 billion present value.
- Three 1993 acquisitions totaling about $159 million: Viking Gas Transmission ($45 million, 500-mile pipeline), Minneapolis Energy Center ($110 million) and Cenergy's gas marketing assets ($4 million).
- Non-regulated international push through NRG: Schkopau power plant stake in Germany, MIBRAG coal mining interest and planned 37.5% stake in Gladstone, Australia, with roughly $390 million of potential NRG equity needs for 1994-1998.
- Dividends increased to $2.565 per share in 1993 from $2.495; book value per share rose to $27.32 from $25.91 after a 4.3 million share offering.
- Labor risk: contracts with five IBEW locals (about 3,150 employees) expired December 31, 1993, a strike authorization was approved, and negotiations were ongoing at filing.
03—Questions
Frequently Asked Questions
What is the single biggest risk to NSP's earnings and cash flow?
The potential shutdown of the Prairie Island nuclear units, which supply about 20% of output. If the Minnesota Legislature does not approve onsite dry cask storage, Unit 2 would shut in May 1995 and Unit 1 in February 1996. Replacement power could add at least $200 million a year in purchased power and fuel costs, and management estimates the present value impact at $1.8 billion, with rate recovery uncertain.
Is the dividend safe?
The dividend has grown every year shown, from $2.195 in 1989 to $2.565 in 1993, and the company stated that cash dividends on common stock were not legally restricted at year-end 1993. Earnings of $3.02 per share covered the $2.565 dividend. However, the Prairie Island outcome and the rate case appeal could pressure coverage if they go unfavorably.
How strong is NSP's balance sheet and access to capital?
Financial condition is described as strong. First mortgage bonds are rated AA- by S&P and Duff & Phelps, Aa2 by Moody's and AA by Fitch. The company targets 45-50% common equity and 40-45% debt, and had about $215 million of bank credit lines and $106 million of commercial paper outstanding at year-end. Internally generated funds covered 99% of 1993 capital spending, and management expects to issue about $450 million of debt in 1994.
What are the main growth drivers beyond the regulated utility?
Growth is expected from non-regulated investments, particularly NRG's international power and mining projects in Germany and Australia, along with Viking pipeline and Cenergy gas marketing. Management estimates $130 million of non-regulated capital needs in 1994 and about $540 million over 1994-1998, but these projects carry currency, foreign government and execution risk and may be financed largely through project-level debt.
What regulatory outcomes should investors watch in 1994?
Key items include the Minnesota Court of Appeals decision on the return on equity method (about $7 million of annual revenue at stake, decision expected by end of 1994), the MPUC decision on competitive bidding for new generation (expected Q2 1994), the Prairie Island storage legislation, FERC rehearing on the transmission access tariff, and the Minnesota Municipal Power Agency dispute over customers leaving in 1995-1996 (about $24 million of annual revenue).
04—Continue