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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission Registrant; State of Incorporation IRS Employer
file number Address; and Telephone Number Identification No.
----------- ---------------------------------- ------------------
1-11337 WPS RESOURCES CORPORATION 39-1775292
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
414-433-1466
1-3016 WISCONSIN PUBLIC SERVICE CORPORATION 39-0715160
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
414-433-1466
Securities registered pursuant to Section 12(b) of the Act:
-----------------------------------------------------------
Title of Name of each exchange
each class on which registered
---------- ---------------------
WPS RESOURCES CORPORATION Common Stock, New York Stock Exchange and
$1 par value Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
-----------------------------------------------------------
WISCONSIN PUBLIC SERVICE CORPORATION
Preferred Stock, Cumulative, $100 par value
5.00% Series 6.76% Series
5.04% Series 6.88% Series
5.08% Series
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
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the Registrant.
---------------
WPS RESOURCES CORPORATION
$788,599,746 as of March 1, 1996
WISCONSIN PUBLIC SERVICE CORPORATION
None
Number of shares outstanding of each class of common stock, as of December 31,
------------------------------------------------------------------------------
1995:
----
WPS RESOURCES CORPORATION Common Stock, $1 par value,
23,896,962 shares
WISCONSIN PUBLIC SERVICE CORPORATION Common Stock, $4 par value,
23,896,962 shares
DOCUMENTS INCORPORATED BY REFERENCE
(1) Definitive proxy statement for the WPS Resources Corporation Annual
Meeting of Shareholders on May 2, 1996 is incorporated into Parts I
and III.
WPS RESOURCES CORPORATION
and
WISCONSIN PUBLIC SERVICE CORPORATION
FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1995
TABLE OF CONTENTS
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . iv
PART I
1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . 1
A. GENERAL
WPS Resources Corporation. . . . . . . . . . . 1
Wisconsin Public Service Corporation . . . . . 1
B. ELECTRIC MATTERS
Industry Restructuring . . . . . . . . . . . . 1
Electric Operations. . . . . . . . . . . . . . 3
Generating Capacity. . . . . . . . . . . . . . 3
Advance Plan . . . . . . . . . . . . . . . . . 4
Kewaunee Nuclear Power Plant . . . . . . . . . 4
Fuel Supply. . . . . . . . . . . . . . . . . . 6
Other Matters. . . . . . . . . . . . . . . . . 9
Electric Financial Summary . . . . . . . . . . 10
Electric Operating Statistics. . . . . . . . . 11
C. GAS MATTERS
Industry Restructuring . . . . . . . . . . . . 12
Other Matters. . . . . . . . . . . . . . . . . 12
Gas Financial Summary. . . . . . . . . . . . . 15
Gas Operating Statistics
WPS Resources Corporation . . . . . . . . 16
Wisconsin Public Service Corporation . . 17
D. UNREGULATED BUSINESS ACTIVITIES. . . . . . . . . . 18
E. ENVIRONMENTAL MATTERS
General. . . . . . . . . . . . . . . . . . . . 18
Air Quality. . . . . . . . . . . . . . . . . . 18
Water Quality. . . . . . . . . . . . . . . . . 19
Gas Plant Cleanup. . . . . . . . . . . . . . . 20
Other Solid Waste Disposal . . . . . . . . . . 20
F. REGULATORY MATTERS
General. . . . . . . . . . . . . . . . . . . . 22
Customer Rate Matters. . . . . . . . . . . . . 22
Industry Restructuring . . . . . . . . . . . . 22
Accounting Developments. . . . . . . . . . . . 23
Dividend Restrictions. . . . . . . . . . . . . 23
i
G. CAPITAL REQUIREMENTS . . . . . . . . . . . . . . . 23
H. EMPLOYEES. . . . . . . . . . . . . . . . . . . . . 24
2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . 25
3. LEGAL PROCEEDINGS
Sheboygan Gas Plant . . . . . . . . . . . . . . . . 26
Oshkosh Gas Plant . . . . . . . . . . . . . . . . . 26
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 27
4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . 28
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . 30
6. SELECTED FINANCIAL DATA
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1991 TO 1995)
A. CONSOLIDATED STATEMENTS OF INCOME. . . . . . . . . 32
B. CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . 33
C. FINANCIAL STATISTICS . . . . . . . . . . . . . . . 34
WISCONSIN PUBLIC SERVICE CORPORATION
COMPARATIVE FINANCIAL DATA AND
FINANCIAL STATISTICS (1991 TO 1995)
D. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . 35
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION OF
WPS RESOURCES CORPORATION AND
WISCONSIN PUBLIC SERVICE CORPORATION. . . . . . . . . . 36
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
A. CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS. . . . . . . . . . . . . . . 42
B. CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . 43
C. CONSOLIDATED STATEMENTS OF CAPITALIZATION. . . . . 45
D. CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . 46
E. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . 47
F. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . 64
WISCONSIN PUBLIC SERVICE CORPORATION
G. CONSOLIDATED STATEMENTS OF INCOME. . . . . . . . . 65
H. CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . 66
I. CONSOLIDATED STATEMENTS OF CAPITALIZATION. . . . . 68
ii
J. CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . 69
K. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS . . . 70
L. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . 71
M. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . 72
9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . 73
PART III. . . . . . . . . . . . . . . . . . . . . . . . . . 73
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . 73
DESCRIPTION OF DOCUMENTS. . . . . . . . . . . . . . . . 75
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 80
WPS RESOURCES CORPORATION
FINANCIAL STATEMENT SCHEDULES
A. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SCHEDULE III - CONDENSED PARENT
COMPANY ONLY FINANCIAL STATEMENTS . . . . . . . . . 93
B. STATEMENTS OF INCOME AND RETAINED EARNINGS. . . . . 94
C. BALANCE SHEETS. . . . . . . . . . . . . . . . . . . 95
D. STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . 96
E. NOTES TO PARENT COMPANY FINANCIAL STATEMENTS. . . . 97
iii
PAGE
DEFINITIONS
The following abbreviations and acronyms are used in the text of this
Form 10-K:
Act . . . . . . . . . . . . Federal Clean Air Act Amendments of
1990
AFUDC . . . . . . . . . . . Allowance for funds used during
construction
ANR . . . . . . . . . . . . ANR Pipeline Company
APBO. . . . . . . . . . . . Accrued post-retirement benefit
obligation
Columbia* . . . . . . . . . The Columbia Energy Center
Communications. . . . . . . WPS Communications, Inc., a former
subsidiary of the Company
Company . . . . . . . . . . WPS Resources Corporation
CPCN. . . . . . . . . . . . Certificate of Public Convenience and
Necessity
CWIP. . . . . . . . . . . . Construction work in progress
DNR . . . . . . . . . . . . Wisconsin Department of Natural
Resources
DOE . . . . . . . . . . . . U. S. Department of Energy
DRP . . . . . . . . . . . . Dividend Reinvestment and Stock
Purchase Plan of the Company
(subsequently replaced by the Stock
Investment Plan)
DSM . . . . . . . . . . . . Demand-side management of energy use
Edgewater*. . . . . . . . . The Edgewater Unit 4 power plant
EPA . . . . . . . . . . . . U. S. Environmental Protection Agency
ESOP. . . . . . . . . . . . Employee Stock Ownership Plan and
Trust of WPSC
ESI . . . . . . . . . . . . WPS Energy Services, Inc., a
subsidiary of the Company
FERC. . . . . . . . . . . . Federal Energy Regulatory Commission
GIC . . . . . . . . . . . . Gas Inventory Charge filed by ANR
Pipeline Company
Kewaunee. . . . . . . . . . Kewaunee Nuclear Power Plant
iv
kWh . . . . . . . . . . . . Kilowatt-hour
Leasing . . . . . . . . . . WPS Leasing, Inc., a subsidiary of
Wisconsin Public Service Corporation
MG&E. . . . . . . . . . . . Madison Gas and Electric Company
MPSC. . . . . . . . . . . . Michigan Public Service Commission
NERCO . . . . . . . . . . . NERCO Coal Company
NRC . . . . . . . . . . . . Nuclear Regulatory Commission
Nuclear Policy Act. . . . . Nuclear Waste Policy Act of 1982
Order . . . . . . . . . . . Order No. 636 issued by FERC in
April, 1992
Packerland. . . . . . . . . Packerland Energy Services, Inc., a
former subsidiary of the Company
PDI . . . . . . . . . . . . WPS Power Development, Inc., a
subsidiary of the Company
Polsky. . . . . . . . . . . Polsky Energy Corporation
PRP . . . . . . . . . . . . Potentially responsible party
PSCW. . . . . . . . . . . . Public Service Commission of
Wisconsin
Pulliam*. . . . . . . . . . The Pulliam generating facility
Railroads . . . . . . . . . Soo Line and Wisconsin Central
railroads
REC . . . . . . . . . . . . The Rhinelander Energy Center, a
canceled cogeneration facility which
would have been built adjacent to the
Rhinelander Paper Company, Inc. mill
in Rhinelander, Wisconsin.
Rhinelander . . . . . . . . Rhinelander Paper Company, Inc.
River Power . . . . . . . . Wisconsin River Power Company
SFAS. . . . . . . . . . . . Statement of Financial Accounting
Standards
Sheboygan II Gas Plant. . . Property adjacent to the Sheboygan
River previously used by Wisconsin
Public Service Corporation for the
gasification of coal
SIP . . . . . . . . . . . . Stock Investment Plan of the Company
Superfund . . . . . . . . . Comprehensive Environmental Response,
Compensation, and Liability Act
v
Union . . . . . . . . . . . Local 310 of the International Union
of Operating Engineers which
represents certain Wisconsin Public
Service Corporation employees
USEC. . . . . . . . . . . . United States Enrichment Corporation
Viking. . . . . . . . . . . Viking Gas Transmission Company
WDG . . . . . . . . . . . . Wisconsin Distributors Group
WEPCO . . . . . . . . . . . Wisconsin Electric Power Company
Weston* . . . . . . . . . . The Weston generating facility
Wisconsin*. . . . . . . . . State of Wisconsin
WP&L. . . . . . . . . . . . Wisconsin Power and Light Company
WPPI. . . . . . . . . . . . Wisconsin Public Power, Inc.
WPSC. . . . . . . . . . . . Wisconsin Public Service Corporation,
the principal subsidiary of the
Company
Yankee Atomic . . . . . . . Yankee Atomic Electric Company
- -----
* Indicates items not defined elsewhere in this report.
vi
PAGE
PART I
ITEM 1. BUSINESS
A. GENERAL
WPS Resources Corporation
WPS Resources Corporation ("Company"), a Wisconsin Corporation,
was incorporated on December 3, 1993 as a subsidiary of Wisconsin
Public Service Corporation ("WPSC"). On September 1, 1994, the
Company, in a share-for-share exchange of common stock, acquired all
of the common stock of WPSC, $4 par value, and issued to the former
shareholders of WPSC shares of the Company's common stock, $1 par
value. The Company operates as a holding company with both regulated
(utility) and non-regulated business units. The Company is the parent
of WPSC, a regulated electric and gas utility, and WPSC's non-
regulated subsidiary, WPS Leasing, Inc. At December 31, 1995, WPSC
represented 92% and 97% of the Company's consolidated revenues and
assets, respectively. At January 1, 1995, there were four
non-regulated subsidiaries of the Company, WPS Energy Services, Inc.
("ESI"), WPS Power Development, Inc. ("PDI"), Packerland Energy
Services, Inc. ("Packerland"), and WPS Communications, Inc.
("Communications"). On January 3, 1995, Packerland was merged into
ESI in an effort to consolidate the marketing of energy and related
services. On December 14, 1995, Communications was merged into WPSC.
Wisconsin Public Service Corporation
At December 31, 1995, WPSC served at retail 360,977 electric
customers and 204,726 gas customers in an 11,000 square mile service
territory in Northeastern Wisconsin and an adjacent part of Upper
Michigan. Additionally, WPSC provides wholesale, full or partial
requirements electric service, either directly or indirectly, to 11
municipal utilities, 2 Rural Electrification Administration financed
electric cooperatives, and a privately held utility. About 98% of
operating revenues in the year 1995 were derived from Wisconsin
customers and 2% from Michigan customers. Of total revenues in 1995,
74% were from electric operations and 26% from gas operations. Of
total electric revenues, 92% were from retail sales and 8% were from
wholesale sales.
WPSC's retail service areas are principally protected in
Wisconsin by indeterminate permits secured by statute, and in the
state of Michigan by franchises granted by municipalities.
B. ELECTRIC MATTERS
INDUSTRY RESTRUCTURING. The Federal Energy Regulatory Commission
("FERC"), in March 1995, issued a notice of proposed rulemaking which
would: (1) require all utilities under the FERC's jurisdiction,
including WPSC, to file non-discriminatory, open access transmission
tariffs which would be available to all wholesale buyers and sellers
of electric energy, (2) require utilities to take service under the
-1-
tariffs for their own wholesale sales and purchases of electric
energy, and (3) provide utilities with an opportunity to recover
stranded costs (i.e., unrecovered investment in facilities that are no
longer economical to operate). When implemented, this regulatory
initiative might force investor-owned utilities to separate their
generation, transmission, and distribution functions in order to
create a level playing field where they can compete with municipal
utilities, cooperatives, independent power producers, energy
marketers, and brokers.
WPSC is developing and implementing strategies to deal with the
FERC's March 29, 1995 Notice of Proposed Rulemaking on transmission
access and stranded investment. WPSC will develop a separate internal
transmission group to meet the Proposed Rulemaking's functional
unbundling requirement. WPSC has also filed comparable transmission
access tariffs which have been accepted for use, subject to refund.
Comparable transmission access tariffs, as defined by FERC, provide
transmission access to other parties on the same terms and conditions
that WPSC provides transmission service to itself. Approval of these
tariffs are contingent upon a number of considerations including
FERC's final rulemaking expected later in 1996.
In December 1995, the Public Service Commission of Wisconsin
("PSCW") outlined its plan for restructuring the electric industry in
Wisconsin. Utilities are required to develop detailed plans
illustrating how they plan to separate generation, transmission,
distribution, and energy services functions into separate business
units and establish transfer prices for use between the business
units.
Under the PSCW plan, the competitive market for new generation
would be enhanced by modifying the present bidding process and
replacing the Advance Plan process with a "strategic evaluation"
process. The PSCW also concluded that the economic benefits and
responsiblities of existing generation belong to present customers.
The PSCW would continue transmission regulation by retaining
control over planning and siting of transmission facilities. To limit
the market power of current transmission owners, the PSCW proposes
moving either to appointment of an independent transmission system
operator or to organization of a single state-wide transmission
system.
As part of its continuing assessment of retail access, the PSCW
would establish broad pricing reforms for customer segments and
quality of service standards. The PSCW would retain jurisdiction over
low income programs, the winter moratorium on disconnection, demand-
side management, renewables, and research and development funding. A
Public Benefits Advisory Board would be formed to advise the PSCW on
conservation and renewable resource issues.
The Wisconsin Legislature is not expected to consider electric
restructuring until 1997. In the meantime, the PSCW, utility
companies, various advocacy groups, and utility customers will
continue to dialogue in an effort to reach a consensus on when and how
to introduce retail competition into the electric marketplace. The
-2-
PSCW timetable would provide all retail electric customers with energy
supply choices by 2001.
Two major mergers were announced in the WPSC region during 1995.
Wisconsin Energy Corporation and Northern States Power Company
announced that they are taking steps to form Primergy; and Wisconsin
Power and Light Company plans to join with IES Industries, Inc. and
Interstate Power Company to form Interstate Energy Corporation. WPSC
is following these developments closely and is taking the actions
necessary to assure WPSC's continued access to the bulk power markets.
ELECTRIC OPERATIONS. The largest communities served at retail
with electricity are the cities of Green Bay, Oshkosh, Wausau, and
Stevens Point.
WPSC owns 33.1% of the outstanding capital stock of Wisconsin
River Power Company ("River Power"). The business of River Power
consists of the ownership and operation of two dams and related
hydroelectric plants on the Wisconsin River having an aggregate
installed capacity of about 35,000 Kw. The output of the
hydroelectric plants is sold, at the sites of the plants, to the three
companies which own the outstanding capital stock substantially in
proportion to their stock ownership interests.
GENERATING CAPACITY. Coordinated planning for generation and
transmission is a function of the Wisconsin Upper Michigan Systems of
which WPSC is a member along with Madison Gas and Electric Company
("MG&E"), Upper Peninsula Power Company, Wisconsin Electric Power
Company ("WEPCO"), Wisconsin Power and Light Company ("WP&L"), and
Wisconsin Public Power, Inc. ("WPPI"). Existing and planned
interconnections with other neighboring utilities provide a further
means of sharing reserve capacities and interchanging energy.
WPSC's maximum net load in 1995 was 1,743,000 Kw which occurred
on July 13. The maximum net load was made up of 1,670,000 Kw of net
native load and 73,000 Kw of firm capacity sales to other utilities
(maximum net load in past 10-K reports included only net native load).
At the time of the maximum net load, owned generating capability was
1,833,100 Kw and, including firm purchases and sales to other
utilities, WPSC's reserve margin was 8.0%. Without the firm sales,
that were committed only for 1995, WPSC's reserve margin would have
been 12.8%. WPSC's future reserves, also adjusted for firm purchases
and sales and planned capacity additions, are estimated to be above
the planning criteria of a 15% minimum reserve in 1996 and 1997. See
Part I, Item 2, PROPERTIES, at page 25 for information concerning
generating facilities.
In November 1995, WPSC signed a 25-year agreement to purchase
power from Polsky Energy Corporation ("Polsky"), an independent power
producer proposing to build a plant adjacent to the Nicolet Paper
Company mill in DePere, Wisconsin. The first phase of the project
calls for completion of a 179-megawatt combustion turbine facility in
1999. The second phase, scheduled to be in service in 2004, converts
the facility to a combined cycle unit and increases the total capacity
to 232 megawatts.
-3-
The Polsky project is in the second stage of a two-stage
Certificate of Public Convenience and Necessity ("CPCN") permitting
process prescribed by the PSCW. In the first stage of the CPCN
process, the Rhinelander Energy Center ("REC") was selected as the
best of 13 project proposals to meet WPSC's future electrical needs.
The Polsky project, which was ranked second, became the primary
project in August of 1995 when the REC project was canceled due to
Rhinelander Paper Company, Inc.'s termination of negotiations to
receive steam from the REC. As a result of this cancellation, in
September 1995 WPSC wrote off its entire investment in the REC
project. The charge, which totaled $2.7 million ($1.6 million after
tax), was recorded as other expense, reducing net income by $.07 per
share.
Construction of the Polsky project is contingent upon PSCW
approval in stage two of the CPCN process. The PSCW has stated that
during stage two of the CPCN proceedings, evidence of the need for the
facility will be considered. A final decision on stage two of the
CPCN for the Polsky project is expected in 1997.
ADVANCE PLAN. In December of 1995, the PSCW approved the Advance
Plan 7 order. The transmission and generation plans submitted by WPSC
in Advance Plan 7 were approved. The Advance Plan order provides that
WPSC provide cost effective demand-side energy management programs.
The order stresses use of renewable resources such as wind and biomass
and the statewide development of design and feasibility of increased
use of solar water heating and the use of natural light in new
building design.
KEWAUNEE NUCLEAR POWER PLANT. The Kewaunee Nuclear Power Plant
("Kewaunee") is operated by WPSC. WPSC has a 41.2% ownership interest
in Kewaunee which it owns jointly with two other utilities. The
Kewaunee operating license expires in 2013.
The steam generator tubes at Kewaunee are susceptible to
corrosion characteristics seen throughout the nuclear industry.
During the first quarter of 1995, Kewaunee was shut down for scheduled
maintenance and refueling. Inspection of the steam generators
revealed increased levels of tube degradation. Prior to the shutdown,
the equivalent of approximately 12% of the tubes in the steam
generators were plugged with no loss of capacity. When the plant was
returned to service in May 1995, approximately 21% of the tubes were
plugged, resulting in an initial capacity reduction of approximately
4%. Approximately half of this lost capacity has been recovered
through operating modifications. The ultimate small reduction in
capacity did not affect earnings in 1995 because of operating and
maintenance cost savings and reserve capacity recovery efforts at
Kewaunee.
As a result of the need to keep Kewaunee cost competitive and to
address the repair or replacement of the steam generators, the owners
of Kewaunee have been and are continuing to evaluate various
alternatives to deal with the potential future loss of capacity
resulting from the continuing degradation of the steam generator
tubes. As part of this evaluation, the following actions are being
taken:
-4-
(a) A request has been submitted to the Nuclear Regulatory
Commission ("NRC") to redefine the pressure boundary point
of the repaired steam generator tubes (sleeved tubes), which
have been removed from service by plugging, in order to
allow the return of many of the sleeved tubes to service.
If the request is granted, and even if additional degraded
tubes would be discovered during the next planned shutdown
in the fall of 1996, Kewaunee should be able to return to
near full capacity at that time.
(b) A request will be submitted to the NRC to allow the owners
to pursue welded repair technologies to repair existing
sleeved tubes in an effort to return plugged tubes to
service. Although welded tube repair technologies exist,
such technologies have not yet been approved by the NRC.
(c) Continuing evaluations are being performed with respect to
the economics of replacing the steam generators.
Replacement of steam generators is estimated to cost
approximately $100 million, exclusive of additional purchase
power costs associated with an extended shutdown.
(d) WPSC is evaluating the need to accelerate the collection of
funds for decommissioning and the recovery of existing
investment.
WPSC believes Kewaunee can remain cost competitive and generate
economically until the expiration of the operating license in 2013,
but that it is probable that this cannot be achieved without
replacement of the steam generators. There are many uncertainties
which may impact the future operations of Kewaunee such as steam
generator tube damage and degradation rates, development of repair
technologies, regulatory approvals, and changes in power generation
economics which can lead to continued repair strategies, a steam
generator replacement decision, or a decision to retire Kewaunee
earlier than the year 2013.
As operator of Kewaunee and based on our current view of future
energy prices, WPSC believes it is prudent to seek prompt regulatory
approval to replace the steam generators. A consensus in this regard
has not been reached with the other owners of Kewaunee and will be the
subject of further discussion. Steam generator replacement, in the
opinion of WPSC management, would reduce the financial risks that
would be associated with an unplanned shutdown due to continued steam
generator degradation.
Operating and maintenance costs at Kewaunee have been reduced
more than 25% over the last three years. Continued reduction of
costs, while not sacrificing safety, is planned to keep Kewaunee cost
competitive. The NRC continues to rate Kewaunee superior (Category 1)
in all areas: maintenance, operations, engineering, and plant
support.
If Kewaunee remains in operation until expiration of the
operating license, physical decommissioning is expected to occur
during the period 2014 to 2021 with additional expenditures being
-5-
incurred during the period 2022 to 2050 related to the storage of
spent nuclear fuel at the site. In July 1994, the PSCW issued an
order covering all Wisconsin utilities with nuclear generation. The
order standardizes cost escalation assumptions used in determining
decommissioning liabilities. Based on this methodology, and
considering other assumption changes, Kewaunee decommissioning costs
are estimated to be $376 million in current dollars and $1,905 million
in year-of-expenditure dollars. WPSC's share of Kewaunee
decommissioning costs are estimated to be $155 million in current
dollars and $785 million in year-of-expenditure dollars. These costs
are recovered currently in customer rates and deposited in external
trusts. As of December 31, 1995, the external trusts totaled
$82.1 million.
Spent fuel is currently stored at Kewaunee. The existing
capacity of the spent fuel storage facility will enable storage of the
projected quantities of spent fuel through April 2001. WPSC is
evaluating options for the storage of additional quantities beyond
2001. Several technologies are available. An investment of
approximately $2.5 million in the early 2000s could provide additional
storage sufficient to meet spent fuel storage needs until expiration
of the current operating license in 2013.
The Low-Level Radioactive Waste Policy Act of 1980 specifies that
states may enter into compacts to provide for regional low-level waste
disposal facilities. Wisconsin is a member of the Midwest Low Level
Radioactive Waste Compact. The state of Ohio has been selected as the
host state for the Midwest Compact and is proceeding with the
preliminary phases of site selection. In July 1995, the Barnwell,
South Carolina, disposal facility again began to accept low-level
radioactive waste materials from outside its region.
The Kewaunee capability factor was 83.1% in 1995, compared to a
projected industry average of 84.5%.
FUEL SUPPLY. WPSC's electric generation mix in 1995 compared to
1994 was: steam plants (coal), 63.7%, up from 62.6%; steam plant
(nuclear), 13.5%, down from 14.5%; hydro, 2.6%, unchanged from 2.6%;
combined natural gas and fuel oil, .9%, up from .7%; and purchased
power, 19.3%, down from 19.6%. Purchased power represents short-term
energy purchases.
WPSC has reduced overall fuel costs for the sixth consecutive
year. Fuel costs in 1995 compared with 1994, expressed in dollars per
million Btu, were: nuclear, $.50, up from $.49; coal, $1.18, down from
$1.31; natural gas, $2.29, down from $2.77; and No. 2 fuel oil, $4.35,
up from $4.15.
In 1996, WPSC will purchase all of the coal for its solely-owned
plants from Western sources. Delivery of coal at the Pulliam plant is
via railroad or lake vessel and at the Weston, Columbia, and Edgewater
plants via railroad.
The Pulliam and Weston power plants burn Powder River Basin
sub-bituminous coal. WPSC has a long-term contract with one coal
supplier that is expected to provide approximately two-thirds of the
-6-
projected 1996 coal requirements for Unit 3 at Weston. The coal
contract will provide low sulfur Powder River Basin coal for a term
ending in 2016. The remainder of the coal for solely-owned generating
facilities will be purchased under short-term agreements of two years
or less.
During 1991, WPSC bought out the coal supply agreement with NERCO
Coal Company ("NERCO") and the corresponding rail transportation
contracts with the Soo Line and the Wisconsin Central ("Railroads").
WPSC paid approximately $34 million to NERCO and the Railroads as
compensation for relief of all contractual obligations. The PSCW has
ruled that the railroad and coal contract buyout costs may be
recovered in customer rates subject to a benefits test. In the
Wisconsin jurisdiction, the remaining unamortized buyout costs of
$7.7 million will be recovered during 1996. FERC issued a conditional
order on November 15, 1994 allowing recovery of all but approximately
$3.6 million of NERCO buyout costs through a monthly surcharge rate
over the period January 1993 through December 2005. The portion of
the $3.6 million disallowance allocable to the FERC jurisdiction has
not been determined. Management believes it is likely that the
disallowance allocable to the FERC jurisdiction will not exceed the
$625,000 write-off taken in 1993 in anticipation of the disallowance.
WPSC will accrue and recover carrying charges on the unrecovered
balance.
WPSC also has a 31.8% ownership share in Columbia and a 31.8%
ownership share in the Edgewater Unit 4, both of which are operated by
WP&L which has coal procurement responsibilities for these units.
Columbia, with two 527-megawatt units, uses coal from the Wyoming-
Montana coal fields. The entire low sulfur coal supply for Units 1
and 2 is supplied from the Southern Powder River Basin under
short-term contracts of one to three years. Edgewater uses a blend of
bituminous and sub-bituminous Powder River Basin coal both of which
are acquired under short-term contracts.
The supply of nuclear fuel for Kewaunee requires the purchase of
uranium concentrates, the conversion of uranium concentrates to
uranium hexafluoride, enrichment of the uranium hexafluoride, and
fabrication of the enriched uranium into usable fuel assemblies.
After a region of spent fuel (approximately one-third of the nuclear
fuel assemblies in the reactor) is removed from the reactor, it is
placed in temporary storage in a spent fuel pool at the plant site.
Permanent storage is addressed below. There are presently no
operating facilities in the United States that are reprocessing
commercial nuclear fuel. A discussion of the nuclear fuel supply for
Kewaunee follows:
(a) Requirements for uranium are met through spot or contract
purchases. An inventory policy, which takes advantage of
economical spot market purchases of uranium, results in WPSC
maintaining inventories sufficient for up to two reactor
reloads of fuel, excluding in-process uranium.
(b) Uranium hexafluoride from inventory and from spot market
purchases was used to satisfy converted material
requirements in 1995. WPSC intends to purchase future
-7-
conversion services on the spot market unless it can
negotiate economical long-term contracts with primary
suppliers.
(c) In 1995, enrichment services were not required. However,
future services will be procured from COGEMA, Inc. pursuant
to a contract executed in 1983 and last amended in 1995.
Enrichment services are also purchased from the United
States Enrichment Corporation ("USEC") under the terms of
the utility services contract which is in effect for the
life of Kewaunee. WPSC is committed to take 70% of its
annual enrichment requirements in 1997 and, in alternate
years thereafter, from the Enrichment Corporation.
(d) Fuel fabrication services through March 15, 2001 are covered
by contract with Siemens Power Corporation.
(e) Beyond the stated periods set forth above, additional
contracts for uranium concentrates, conversion to uranium
hexafluoride, enrichment, fabrication, and spent fuel
storage will have to be procured. WPSC anticipates the
prices for the foregoing will modestly increase.
Pursuant to the Nuclear Waste Policy Act of 1982 ("Nuclear Policy
Act"), the U. S. Department of Energy ("DOE") entered into a contract
with WPSC to accept, transport, and dispose of spent nuclear fuel
beginning no later than January 31, 1998. It is likely that the DOE
will delay the acceptance of spent nuclear fuel beyond 1998. A fee to
offset the costs of the DOE's disposal for all spent fuel used since
April 7, 1983 has been assessed by the DOE at one mill per net
kilowatt hour of electricity generated and sold by Kewaunee. An
additional one-time fee was paid to the DOE for disposal of spent
nuclear fuel used to generate electricity prior to April 7, 1983.
The Nuclear Policy Act provides that both the federal government
and the nuclear utilities fund the decontamination and decommissioning
of the three gaseous diffusion plants in the United States. Utility
contributions will be collected through a special assessment based on
a utility's percentage of uranium enrichment services purchased
through the date of enactment compared to total enrichment sales by
the DOE. The owners of Kewaunee are required to pay approximately
$19.2 million in current dollars over a period of 15 years. At
December 31, 1995, the remaining liability was $14.4 million of which
WPSC's share was $5.9 million. The payments are subject to adjustment
for inflation.
In 1995, Yankee Atomic Electric Company ("Yankee Atomic")
received a United States Court of Federal Claims decision that Yankee
Atomic was entitled to a refund of $3 million paid to the Uranium
Enrichment Decontamination and Decommissioning Fund. The court ruled
that by entering into contracts with utilities, the government agreed
to charge certain prices for uranium enrichment services that could
not be legislatively changed after performance and payment were
completed. The Yankee Atomic decision addresses only a refund to
Yankee Atomic. Based on the Yankee Atomic decision, WPSC is
investigating options and actions available.
-8-
Utility customers of the United States Enrichment Corporation
("USEC") have challenged the pricing of enrichment services, by the
USEC, subsequent to the Energy Policy Act of 1992. The position of
the utilities is that the charges by the USEC are higher than the
terms of the contracts originally entered into with the DOE. WPSC is
investigating the situation to determine actions available.
OTHER MATTERS. The Company is seeking FERC "marketer" status.
This status will give WPSC, ESI, and PDI the flexibility to sell
energy and capacity at market rates rather than only at cost-based
rates. ESI and PDI have received PSCW approval of "marketer" status.
WPSC would also have to receive PSCW approval for this status.
WPSC faces increased competition in the wholesale power market.
This may result in the loss of certain wholesale customers and reduced
margins. WPSC intends to compete aggressively to retain wholesale
load and to secure new wholesale load.
In October 1992, Wisconsin Public Power, Inc. ("WPPI") notified
WPSC that it was ending its agreement to purchase power effective in
October 1997. WPPI is a wholesale customer which buys 66 megawatts of
electricity from WPSC for resale to municipal utilities in Algoma,
Eagle River, New Holstein, Sturgeon Bay, and Two Rivers. WPPI entered
into an agreement to buy power from another Wisconsin utility during
the 1997-2009 period.
As a result of a bidding process, WPSC has been selected to serve
the power needs of the Oconto Electric Cooperative for the period of
May 1996 through April of 2005. It is expected that a contract will
be signed in 1996. The peak demand for Oconto Electric Cooperative is
17 megawatts.
Although 11% of electric revenues come from sales to 20 paper
mills, resulting in a relatively high and favorable load factor, there
is no single customer or small group of customers, the loss of which
would have a materially adverse effect on the electric business of
WPSC under the current regulatory environment.
WPSC has begun construction of a jointly owned 138 Kv
transmission line extending from New London to Stevens Point. WPSC's
share of the 60-mile transmission project will cost approximately
$14.9 million. The remaining $9.6 million cost of the project is the
responsibility of WEPCO and WP&L. Completion of the project is
expected by early 1997.
WPSC is awaiting a ruling from the PSCW regarding the Wausau to
Abbotsford transmission project, which is part of a larger
transmission interface project with Northern States Power Company,
consisting of the reconstruction of approximately 23 miles of 115 Kv
transmission line. WPSC's share of the cost of the project is
estimated to be $4.2 million.
Applications for relicensing of WPSC's Caldron Falls, High Falls,
Johnson Falls, Sandstone Rapids, Potato Rapids, Peshtigo, Grand
Rapids, and Jersey Projects were submitted to the FERC in
December 1991. These licenses, representing 30 megawatts of
-9-
hydroelectric generating capacity, expired in December 1993.
Application to the FERC for relicensing of WPSC's Wausau Project was
submitted in June 1993. The license for this project expired in June
of 1995 and represents 5,400 kilowatts of capacity. Since the FERC
had not considered WPSC's applications at the license expiration
dates, the licenses have been extended on an annual basis until FERC
acts on the applications.
Electric research and development expenditures totaled
$2.6 million for 1995, $2.3 million for 1994, and $2.1 million for
1993. These expenditures were made for WPSC sponsored projects and
were primarily charged to electric operations.
ELECTRIC FINANCIAL SUMMARY. The following table sets forth the
revenues, operating income, and identifiable assets attributable to
electric utility operations:
YEAR ENDED DECEMBER 31
--------------------------
1995 1994 1993
---- ---- ----
(Thousands)
Electric Operating Revenues $489,628 $480,816 $493,256
Operating Income, Including
Allowance For Funds Used
During Construction $ 98,556 $ 95,392 $106,160
Identifiable Assets $926,888 $937,481 $938,951
See Note 8 in Notes to Consolidated Financial Statements.
-10-
ELECTRIC OPERATING STATISTICS
WPS RESOURCES CORPORATION AND WISCONSIN PUBLIC SERVICE CORPORATION
==================================================================================================
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
Operating revenues (Thousands)
Residential and farm $168,391 $163,381 $165,568 $156,659 $158,014
Small commercial and industrial 140,280 137,323 140,678 136,164 134,314
Large commercial and industrial 117,978 118,121 123,920 115,147 111,037
Resale and other 62,351 61,991 63,090 69,655 67,912
- --------------------------------------------------------------------------------------------------
Total $489,000 $480,816 $493,256 $477,625 $471,277
==================================================================================================
Kilowatt-hour sales (Thousands)
Residential and farm 2,548,373 2,406,479 2,349,307 2,268,685 2,319,972
Small commercial and industrial 2,672,359 2,555,488 2,444,548 2,384,098 2,388,787
Large commercial and industrial 3,644,764 3,468,390 3,296,254 3,016,329 2,854,519
Resale and other 2,112,635 2,121,660 2,060,804 2,078,057 2,004,925
- --------------------------------------------------------------------------------------------------
Total 10,978,131 10,552,017 10,150,913 9,747,169 9,568,203
==================================================================================================
Customers served (End of period)
Residential and farm 322,550 316,442 310,336 304,404 298,194
Small commercial and industrial 37,455 36,491 35,683 34,783 33,981
Large commercial and industrial 170 164 137 129 125
Resale and other 802 796 794 825 908
- --------------------------------------------------------------------------------------------------
Total 360,977 353,893 346,950 340,141 333,208
==================================================================================================
Annual average use (kWh)
Residential and farm 7,982 7,688 7,649 7,538 7,845
Small commercial and industrial 72,326 70,931 69,532 69,394 70,962
Large commercial and industrial 21,824,937 22,091,659 24,416,697 23,750,625 22,476,532
==================================================================================================
Average kWh price (Cents)
Residential and farm 6.61 6.79 7.05 6.91 6.81
Small commercial and industrial 5.25 5.37 5.75 5.71 5.62
Large commercial and industrial 3.24 3.41 3.76 3.82 3.89
==================================================================================================
Production capacity (Kw)
Steam 1,269,240 1,269,240 1,269,240 1,269,240 1,269,240
Nuclear 221,000 221,000 221,000 221,000 221,000
Hydraulic 64,786 64,786 64,786 64,786 64,786
Combustion turbine 239,700 239,700 239,700 156,200 156,200
Other 4,040 4,040 4,040 4,040 4,040
Interest in Wis. River Power Co. 11,667 11,667 11,667 11,667 11,667
- --------------------------------------------------------------------------------------------------
Total system capacity 1,810,433 1,810,433 1,810,433 1,726,933 1,726,933
==================================================================================================
Generation and purchases
(Thousands of kWh)
Steam 7,428,612 7,047,511 7,004,634 6,796,975 6,731,857
Nuclear 1,564,268 1,631,003 1,572,696 1,622,279 1,512,712
Hydraulic 306,101 292,617 346,386 325,663 326,212
Purchases and other 2,310,399 2,243,021 1,849,047 1,628,326 1,603,161
- --------------------------------------------------------------------------------------------------
Total 11,609,380 11,214,152 10,772,763 10,373,243 10,173,942
==================================================================================================
Steam fuel costs
(Cents per million Btu)
Fossil 118.365 132.360 139.038 160.144 169.169
Nuclear 49.539 49.168 44.888 40.528 52.034
Total 106.320 116.782 121.949 136.965 147.532
- --------------------------------------------------------------------------------------------------
System peak - firm (Kw) 1,670,000 1,549,000 1,548,000 1,494,000 1,592,000
==================================================================================================
Annual load factor 73.35% 76.66% 74.29% 74.03% 69.44%
==================================================================================================
-11-
PAGE
C. GAS MATTERS
INDUSTRY RESTRUCTURING. The re-regulation of the natural gas
business on the federal level prompted the PSCW to begin examining the
future regulation of the natural gas distribution business in
Wisconsin. In mid-September 1995, the PSCW tentatively concluded that
once a class of customers has access to the competitive marketplace,
they will be expected to purchase gas from unregulated suppliers and,
possibly, lose the utility option for gas supply. Utilities would
only transport gas to such customers. The PSCW also tentatively
concluded that utilities could be required to offer unbundled pricing
and service choices to their natural gas customers.
The Michigan Public Service Commission ("MPSC") initiated a
similar process to look at gas industry restructuring by forming a
committee of interested parties which will consider changes in the gas
cost recovery mechanism, service unbundling, curtailment issues, and
storage issues. The MPSC opened a formal docket on this issue and
began prehearings in February 1996.
OTHER MATTERS. At December 31, 1995, WPSC provided natural gas
distribution service to 199,577 customers in 149 cities, villages, and
towns in Northeastern Wisconsin and 5,028 customers in and around
Menominee, Michigan. The principal Wisconsin cities served include
Green Bay, Oshkosh, Sheboygan, Marinette, Two Rivers, Stevens Point,
and Rhinelander. The principal Michigan city is Menominee.
WPSC transported 62,634,059 dekatherms of gas of which 38,042,369
dekatherms were for resale during the year ended December 31, 1995.
At the end of 1995, WPSC had 117 end-user customers who purchased
their gas directly from suppliers and contracted with transporters,
including WPSC, to transport the gas to their points of use. A total
of 24,591,690 dekatherms was transported for these customers. Load
loss due to fuel switching has been minor because customers have been
able to purchase transportation gas from suppliers at competitive
prices.
Because WPSC has a purchased gas adjustment provision as part of
its customer rates, it recovers all of its purchased gas costs from
customers. This allows WPSC to receive the same margin (gas revenues
less cost of gas) on therm sales to similar customers who purchase
natural gas from WPSC as it receives from transportation customers.
The PSCW has opened a docket on the purchased gas adjustment clause.
Hearings are anticipated to begin in March 1996.
WPSC has created a gas supply portfolio to match its gas load
profile at the lowest reasonable cost. The portfolio is based on
20-year gas peak day and annual sales forecasts and is structured to
place WPSC in an optimum gas purchasing position. WPSC has entered
into 16 gas supply contracts with 14 suppliers with terms from
3 months to 5 years with domestic suppliers and 10 years with Canadian
suppliers. There are 8 years remaining on the contracts with Canadian
suppliers. The gas is competitively priced based on a monthly spot
price index. The gas supply contracts contain a gas inventory charge
as well as corporate warranties to assure gas deliverability for the
term of the contract.
-12-
Peak day design requirements of 347,827 dekatherms per day are
based on a 1995-1996 peak day forecast. An additional 4,245
dekatherms per day, or 1.2%, of reserve capacity allows for growth and
any unforeseen need. Peak day requirements will be served by 124,707
dekatherms per day from transportation gas, and 223,120 dekatherms per
day from storage gas. WPSC has access to 11.3 billion cubic feet of
storage capacity in Michigan. Storage gas is purchased and stored
during the summer for redelivery during the heating season. WPSC has
purchased 0.25 billion cubic feet of underground salt dome storage in
the production area to protect against a supply area gas shortage
(e.g., wellhead freeze-offs).
WPSC transports gas from Louisiana, the Gulf of Mexico, the
Texas-Oklahoma Panhandle area, and Canada under contracts with ANR
Pipeline Company ("ANR") for domestic gas and Viking Gas Transmission
Company ("Viking") for Canadian supplies. On November 1, 1993, FERC
Order 636 became effective for ANR. Order 636 prohibits pipeline
companies (such as ANR) from bundling gas merchant services with
transportation services. Thus, Order 636 shifts gas supply
responsibilities to local distribution companies (such as WPSC) while
the pipeline companies continue to transport gas owned by others.
Pipeline transportation rates are governed by tariffs subject to
adjustment by the pipeline companies with the approval of the FERC.
As a result of restructuring under Order 636, effective November 1,
1993, WPSC contracted for its pro rata share of pipeline capacity from
each of ANR's three supply areas: Southeast, Southwest, and Canada.
The initial term of each contract was for ten years with the right to
extend in five-year increments. There are eight years remaining on
these capacity contracts. In addition, WPSC has pre-existing capacity
with Viking for delivery of Canadian gas for a remaining term of two
years with a right to extend.
Order 636 mandates a straight fixed-variable rate design which
loads all fixed costs into the reservation charge and all variable
costs into the commodity charge. Based on rates effective May 1,
1994, pipeline company reservation charges for 1995 totaled
$41.3 million. WPSC also utilizes ANR's no-notice service to
accommodate load swings caused by unexpected system requirements such
as weather changes.
On December 30, 1995, in FERC Docket No. RP96-106-000, ANR filed
its seventh annual reconciliation of the take-or-pay buyout/buydown
costs recovered through monthly charges. These costs, representing
75% of ANR's total take-or-pay buyout/buydown costs paid to their gas
suppliers, are being passed on to ANR's customers, including WPSC.
WPSC's remaining fixed charge obligation for the take-or-pay docket
outstanding is $48,195. Monthly fixed charge payments and volumetric
payments are scheduled to be made through April 1998. All such costs
are expected to be recovered from customers pursuant to established
policies of the PSCW and the MPSC.
ANR, as a result of its FERC Order 636 compliance filing, will
recover various transition costs from its customers, including WPSC.
WPSC expects to recover ANR transition costs in future customer rates.
These costs include purchased gas adjustment costs of which WPSC's
share is approximately $2.7 million. In addition, ANR has upstream
-13-
pipeline capacity costs of between $58 million and $248 million of
which WPSC's share is approximately 10%. The exact amount cannot be
determined at this time.
WPSC is currently being billed for ANR's above-market costs of
gas purchases from the Dakota Gasification Plant. The potential total
amount of these billings is undetermined at this time. The 1995
allocation of these costs was $2.7 million, and the 1996 allocation is
expected to be $2.0 million. WPSC, as part of the Wisconsin
Distributors Group ("WDG"), is contesting the legality of the Dakota
Gasification Plant costs provision and is paying these costs under
protest subject to refund. A FERC hearing took place in 1995 and the
Administrative Law Judge made an initial decision on December 29,
1995. This initial decision was in favor of the WDG on the three
major issues; price for coal gas, purchase volume obligations, and the
transportation of gas rate. While refunds are possible from this
decision, FERC has to approve the decision and any additional legal or
settlement actions. The amount or timing of any refunds cannot be
determined at this time.
On April 29, 1994, ANR filed its Reconciliation Report of
activity under its previously effective Gas Inventory Charge ("GIC").
As a result, WPSC received a GIC refund of $4.7 million of the
$9.0 million WPSC had previously paid. WPSC and WDG intervened and
protested at FERC the results of the formula used to allocate the
refunds. Hearings on Docket RP89-161-030 are scheduled to begin on
May 14, 1996. WPSC expects to recover additional refund dollars which
would be passed on to WPSC customers.
On November 29, 1993, ANR filed for a general rate increase in
RP94-43-000. WPSC, WDG, and other parties intervened and protested
the filing. Extensive discovery has taken place and hearings are
scheduled to begin on January 31, 1996. Intervenors are proposing to
reduce ANR's cost of service by up to $100 million per year, which
could result in a significant rate decrease. Final settlement could
take up to two years.
The Company has established a non-regulated subsidiary,
WPS Energy Services, Inc. ("ESI"), to market natural gas, other fuels,
and related services to transportation customers.
WPSC is a member of the WDG which utilizes a Washington, D.C.
legal counsel to monitor FERC activities and advise the group. The
group files testimony and interventions in cases that impact its
members. WPSC is also advised by the same Washington, D.C. legal
counsel. WPSC files interventions in cases to protect its interests
as they may be different from those of the group.
All of WPSC's Wisconsin retail natural gas rates contain a
purchased gas adjustment clause which provides for tracking changes
for wholesale costs and an annual true-up of such costs. The PSCW
reaffirmed this purchased gas adjustment clause/true-up mechanism in
WPSC's 1994 rate order. WPSC's Michigan retail rates include a gas
cost recovery plan under procedures authorized by the MPSC in 1983.
Both the PSCW and the MPSC have approved mechanisms to allow for full
-14-
recovery of take-or-pay and transition related costs which the FERC
has authorized ANR to pass on to its customers.
WPSC's aggressive program to connect new natural gas customers
resulted in the addition of about 7,300 new residential customers in
1995. Growth in number of natural gas customers comes from the
addition of new customers in existing service areas and from the
acquisition of new natural gas distribution franchises. At
December 31, 1995, two applications for new gas distribution
franchises were pending before the PSCW.
WPSC uses gas for power generation in peaking turbines and for
ignition and flame stabilization at its Weston Unit 3 and Pulliam
generating plants.
A special tariff has been approved by the PSCW to enable WPSC to
encourage customers, who could by pass WPSC's distribution system and
connect directly to a cross-country pipeline company, to continue to
be a WPSC customer. Only one industrial customer is currently using
this tariff. The impact of customers by passing WPSC's distribution
system is considered minimal, at this time.
GAS FINANCIAL SUMMARY. The following table sets forth the
amounts of revenues, operating income, and identifiable assets
attributable to gas utility operations:
YEAR ENDED DECEMBER 31
------------------------
1995 1994 1993
---- ---- ----
(Thousands)
Gas Operating Revenues $230,220 $192,979 $187,376
Operating Income, Including
Allowance For Funds Used During
Construction $ 9,851 $ 10,419 $ 10,691
Identifiable Assets $240,463 $191,349 $184,880
See Note 8 in Notes to Consolidated Financial Statements.
-15-
GAS OPERATING STATISTICS
WPS RESOURCES CORPORATION
===================================================================================================
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------
Operating revenues (Thousands)
Residential $109,998 $104,020 $110,541 $ 93,234 $ 94,274
Small commercial and industrial 19,933 18,586 20,254 15,796 15,557
Large commercial and industrial 47,627 45,115 47,091 33,676 34,396
Other 52,367 25,258 9,490 14,471 7,995
- ---------------------------------------------------------------------------------------------------
Total $229,925 $192,979 $187,376 $157,177 $152,222
===================================================================================================
Therms delivered (Thousands)
Residential 202,152 187,355 192,053 182,603 184,042
Small commercial and industrial 42,600 38,568 41,385 38,060 36,743
Large commercial and industrial 129,494 115,939 108,068 88,516 87,506
Other 294,372 56,961 6,337 3,718 5,414
- ---------------------------------------------------------------------------------------------------
Total therm sales 668,618 398,823 347,843 312,897 313,705
Transportation 241,531 234,149 220,672 232,578 228,991
- ---------------------------------------------------------------------------------------------------
Total 910,149 632,972 568,515 545,475 542,696
===================================================================================================
Customers served (End of period)
Residential 186,267 178,992 172,902 168,349 164,392
Small commercial and industrial 15,905 14,689 14,571 14,248 13,635
Large commercial and industrial 2,432 2,867 2,508 2,178 2,360
Other 265 30 1 1 1
Transportation customers 121 117 127 161 165
- ---------------------------------------------------------------------------------------------------
Total 204,990 196,695 190,109 184,937 180,553
===================================================================================================
Average annual use (Therms)
Residential 1,112.3 1,068.8 1,128.4 1,099.4 1,133.0
Small commercial and industrial 2,770.8 2,673.9 2,888.8 2,737.4 2,753.3
Large commercial and industrial 39,707.6 34,651.2 41,354.4 38,680.8 36,369.3
===================================================================================================
Average therm price (Cents)
Residential 54.41 55.52 57.56 51.06 51.22
Small commercial and industrial 46.79 48.19 48.94 41.50 42.34
Large commercial and industrial 40.63 41.84 44.97 38.30 39.39
===================================================================================================
-16-
GAS OPERATING STATISTICS
WISCONSIN PUBLIC SERVICE CORPORATION
===================================================================================================
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------
Operating revenues (Thousands)
Residential $109,998 $104,020 $110,541 $ 93,234 $ 94,274
Small commercial and industrial 19,933 18,586 20,254 15,796 15,557
Large commercial and industrial 47,627 45,115 47,091 33,676 34,396
Other (2,865) 14,337 9,490 14,471 7,995
- ---------------------------------------------------------------------------------------------------
Total $174,693 $182,058 $187,376 $157,177 $152,222
===================================================================================================
Therms delivered (Thousands)
Residential 202,152 187,355 192,053 182,603 184,042
Small commercial and industrial 42,600 38,568 41,385 38,060 36,743
Large commercial and industrial 129,494 115,939 108,068 88,516 87,506
Other 15,415 9,810 6,337 3,718 5,414
- ---------------------------------------------------------------------------------------------------
Total therm sales 389,661 351,672 347,843 312,897 313,705
Transportation 241,531 234,149 220,672 232,578 228,991
- ---------------------------------------------------------------------------------------------------
Total 631,192 585,821 568,515 545,475 542,696
===================================================================================================
Customers served (End of period)
Residential 186,267 178,992 172,902 168,349 164,392
Small commercial and industrial 15,905 14,689 14,571 14,248 13,635
Large commercial and industrial 2,432 2,867 2,508 2,178 2,360
Other 1 1 1 1 1
Transportation customers 121 117 127 161 165
- ---------------------------------------------------------------------------------------------------
Total 204,726 196,666 190,109 184,937 180,553
===================================================================================================
Average annual use (Therms)
Residential 1,112.3 1,068.8 1,128.4 1,099.4 1,133.0
Small commercial and industrial 2,770.8 2,673.9 2,888.8 2,737.4 2,753.3
Large commercial and industrial 39,707.6 34,651.2 41,354.4 38,680.8 36,369.3
===================================================================================================
Average therm price (Cents)
Residential 54.41 55.52 57.56 51.06 51.22
Small commercial and industrial 46.79 48.19 48.94 41.50 42.34
Large commercial and industrial 40.63 41.84 44.97 38.30 39.39
===================================================================================================
-17-
D. UNREGULATED BUSINESS ACTIVITIES
The Company's non-regulated subsidiaries include WPS Energy
Services, Inc. ("ESI") and WPS Power Development, Inc. ("PDI"). ESI
is a diversified energy company organized to offer electric and gas
marketing, real-time energy management, project management, and energy
consulting services. Within energy consulting, ESI offers evaluation
of base-line facility energy requirements, preparation of electric and
gas cost studies, analysis of energy rates, and evaluation of power
supply and generation options to wholesale and retail customers in the
unregulated energy marketplace.
ESI made two investments in October 1995. It acquired an
interest in a producing gas reserve operation and acquired Fuel
Services Group, a gas marketing operation. While these are not large
acquisitions, they are initial efforts to enhance growth
opportunities.
PDI is a company organized to participate in the development of
electric generation projects and to provide services to the
unregulated electric power generation industry. Services include
acquisition and investment analyses; project development, engineering,
and management services; and operations and maintenance services with
particular emphasis in cogeneration, distributed generation, and
repowering projects.
The Company's non-regulated subsidiaries did not have a material
impact on the Company's 1995 earnings per share.
E. ENVIRONMENTAL MATTERS
GENERAL. WPSC is subject to regulation with regard to the impact
of its operations on air and water quality and solid waste disposal,
and may be subject to regulation with regard to other environmental
considerations by various federal, state, and local authorities. The
application of federal and state restrictions to protect the
environment involves or may involve review, certification or issuance
of permits by various federal and state authorities, including the
U. S. Environmental Protection Agency ("EPA") and the Wisconsin
Department of Natural Resources ("DNR"). Such restrictions,
particularly in regard to emissions into the air and water and solid
waste disposal, may limit, prevent or substantially increase the cost
of the operation of WPSC's generating facilities and may require
substantial investments in new equipment at existing installations.
They may also require substantial investments for proposed new
projects and may delay or prevent authorization and completion of the
projects. WPSC cannot forecast other effects of all such regulation
upon its generating, transmission, and other facilities, or its
operations, but believes that it is presently meeting existing
requirements.
AIR QUALITY. The plants which WPSC operates are in compliance
with all current sulfur dioxide, nitrogen oxide, and particulate
emission standards.
-18-
The Federal Clean Air Act Amendments of 1990 ("Act") were enacted
in 1990. The Act required reductions in sulfur dioxide in 1995
(Phase I) to meet limitations based on an emission rate of 2.5 pounds
per million Btu multiplied by a historical generation baseline for
Pulliam Unit 8 and Edgewater Unit 4 generating units. The Act
requires further reductions beginning in the year 2000 (Phase II).
The year 2000 limits are based on an emission rate of 1.2 pounds per
million Btu multiplied by a historical generation baseline for all
generating units. WPSC's generating facilities met the year 2000
standard in 1995. WPSC achieved compliance with Wisconsin and federal
sulfur dioxide emission limitations by switching to low sulfur coal.
Because of the emission allowance system included in the Act,
operations during Phase I are expected to produce surplus allowances
which are expected to be available to aid in compliance with the
requirements of Phase II. To the extent WPSC determines that it will
have allowances available beyond its own requirements in both Phase I
and Phase II, it will consider the sale of these excess allowances.
The PSCW has ordered that profits from the sale of allowances be used
to benefit utility customers.
The Act also requires the installation of low nitrogen oxide
burners on several units. Low nitrogen oxide burners were installed
at Pulliam Unit 8 early in 1994. Phase I of the Act allows units
smaller than 100 megawatts, such as Pulliam Unit 7, to be designated
Phase I units, thus building up sulfur dioxide credits. Having made
this election, low nitrogen oxide burners were installed on Pulliam
Unit 7 in 1994. Low nitrate oxide emissions from Pulliam Units 7 and
8 and Weston Unit 3 are averaged with Weston Units 1 and 2. This
averaging plan generates additional emission allowances in Phase I and
locks in Phase I nitrogen oxide limits for these units. This should
reduce Phase II compliance costs.
Expenditures of $3 million to $5 million are projected through
1999 to assure continued federal and Wisconsin emission compliance
under all normal operating conditions at Pulliam and Weston. Based on
past experience, it is anticipated that expenditures related to sulfur
dioxide and nitrogen oxide emission compliance will be recoverable in
customer rates.
Air toxic provisions in the Act will not be applied until the EPA
conducts a three-year study to determine if those standards need to be
applied to utilities.
WATER QUALITY. WPSC is subject to regulation by the EPA and the
DNR with respect to thermal and other discharges from WPSC's power
plants into Lake Michigan and other waters of Wisconsin. Permits were
reissued to WPSC for its Pulliam and Weston power plants. Various
portions of those permits were challenged. These challenges have not
been formally resolved, although many of the issues raised in the
challenges have been resolved through informal discussions with the
DNR, additional testing by WPSC, and regulatory changes. Under
Wisconsin law, the challenged portions of the permits are stayed, and
the administrative review process is completed. It is not anticipated
that any of the outstanding issues will have a material cost
associated with them.
-19-
GAS PLANT CLEANUP. WPSC is currently investigating the need for
environmental cleanup of eight manufactured gas plant sites which it
previously operated. WPSC engaged an environmental consultant to
develop cleanup cost estimates for the seven sites at which either a
Phase I or Phase II site investigation has been completed. The
estimated cleanup cost range for each of the seven sites are; Green
Bay from $4.1 to $5.3 million, Two Rivers from $3.9 to $4.0 million,
Oshkosh from $3.3 to $4.5 million, Marinette from $5.6 to $6.8
million, Sheboygan I from $2.7 to $3.9 million, Sheboygan II from
$12.2 to $13.4 million, and Stevens Point from $1.4 to $1.9 million.
The estimates assume excavation of contaminated soils, thermal
treatment of soils, disposal of treatment residuals, on-site
groundwater extraction and treatment, and post-cleanup monitoring for
a minimum of 3 and a maximum of 10 or 25 years, depending on site
conditions. The cost estimate for six of the sites (Green Bay, Two
Rivers, Oshkosh, Marinette, Sheboygan I, and Sheboygan II) assumes, in
addition to those items noted previously, removal and disposal of
contaminated river sediments. The consultant has yet to perform a
detailed investigation of the Menominee site and comparable
information on this site is not available. WPSC used the estimate for
the Stevens Point site as a basis for making a projection of $1.5 to
$1.9 million on cleanup costs at the Menominee site, if cleanup is
required. Both sites are relatively small and are not located
adjacent to rivers.
The range of future investigation and cleanup costs for all eight
sites is estimated to be from $34.7 million to $41.7 million.
Remediation expenditures would be made over the next 33 years. WPSC
has recorded as a liability with an offsetting deferred charge (i.e.,
a regulatory asset) of $41.7 million, which represents WPSC's current
estimate of cleanup costs for all eight sites. The liability, as
presently calculated, represents a $14.8 million increase from the
December 31, 1994 liability of $26.9 million. Based on discussions
with regulators and a recent rate order in Wisconsin, management
believes that these costs, but not the carrying costs associated with
the deferred charges, will be recoverable in future customer rates.
As additional investigations and initial remedial actions are
completed, these estimates may be adjusted and these adjustments could
be significant. Other factors that can affect these estimates are
changes in remedial technology and regulatory requirements. The
estimates presented above do not take into consideration any recovery
from insurance carriers or other third parties which WPSC is pursuing.
See also Part I, Item 3, LEGAL PROCEEDINGS, at page 26, for
discussion of the Sheboygan Gas Plant and Oshkosh Gas Plant sites.
OTHER SOLID WASTE DISPOSAL. On December 1, 1986, WPSC received
notice from EPA-Region V that it was one of 832 potentially
responsible parties ("PRP") for the cleanup of Maxey Flats Waste
Disposal Site. Documents obtained to date indicate that WPSC
contributed 0.0162% of the waste disposed of at the site. A remedial
investigation and feasibility study has been completed. At this time,
the cost of the remedial action and EPA oversight is estimated to be
about $77.5 million. The EPA has offered a buyout agreement to
de minimis PRPs. Although a final agreement with payment has not been
-20-
executed, WPSC's buyout cost is expected to be $28,000. While
liability for cleanup under the Comprehensive Environmental Response,
Compensation, and Liability Act ("Superfund") program is joint and
several, the amounts paid by the PRPs are usually related to their
volumetric contribution of waste to the site.
In November 1986, WPSC was notified by the DNR that it was one of
the several PRPs involved in the Holtz & Krause Landfill located in
Wausau, Wisconsin. WPSC disposed of 12,516 cubic yards of
non-hazardous office waste and construction debris at the site. This
represents 1.02% of the total amount of waste at the site. The
landfill is currently only being addressed by the DNR, and the current
work is not being conducted as part of the EPA's Superfund program.
The DNR selected a remedy which was estimated to cost a total of $11
million to $12 million and has been substantially completed within
that budget. The DNR agreed to contribute approximately $4.5 million
toward the remedy. The amount allocated to WPSC, $37,163, was paid to
the cleanup fund in October 1993. The DNR has indicated that it will
pursue a cost-recovery action against entities that did not settle
with the Holtz & Krause PRP Group. In 1994, WPSC entered into a
Consent Decree that acknowledges the payment of the settlement amount,
requires the settling parties to clean up the site, and requires the
state to pay its agreed upon contribution. In addition, WPSC entered
into a "buyout" agreement with the larger contributors of waste to the
site in which the larger contributors agreed to indemnify WPSC for any
cost overruns up to a total site remedial cost of $20 million. If
site remedial costs exceed $20 million, the cost allocation may be
reopened. Most of the site work was completed in 1994.
In March 1987, WPSC was notified by the EPA that it was a PRP for
the cost of cleaning up the Rose Chemical site in Holden, Missouri.
Based on records that are available, a small amount of polychlorinated
biphenyl material, about 39,000 pounds, was sent to the site. WPSC
has signed a participation agreement for the cleanup and contributed
$60,192 which is based on the volumetric contribution of waste and the
expected total cleanup cost. The cleanup has been substantially
completed and WPSC has received a refund of $40,980.
In November 1988, WPSC received notice from the DNR that the
Sherman Street property located in Wausau, Wisconsin, had levels of
lead contamination present. Based on an investigation conducted by a
neighboring business, Wausau Steel, this contamination originated on
an adjacent Wausau Steel property. The cleanup of the property by
Wausau Steel has been completed and approved by the DNR.
In January 1995, WPSC was notified that the EPA was seeking to
recover $775,442 from several companies (not including WPSC) that sent
waste drums to the J. K. Drum site in New London, Wisconsin. WPSC's
records indicate that it contributed drums to the site which it
believes were empty. WPSC has signed a settlement agreement with the
group of responsible parties, named by the EPA, which required payment
of an allocation of $2,489 to the group of responsible parties.
-21-
F. REGULATORY MATTERS
GENERAL. Utility rates, service, and securities issues of WPSC
are subject to regulation by the PSCW and the MPSC, and WPSC is
subject to regulation of its wholesale electric rates, hydroelectric
projects, and certain other matters by the FERC. It is also subject
to limited regulation by local authorities. WPSC follows Statement of
Financial Accounting Standard No. 71, Accounting for the Effects of
Certain Types of Regulation, and its financial statements reflect the
effects of the different ratemaking principles of the various
jurisdictions. These include the PSCW, 90% of revenues, the MPSC, 2%
of revenues, and the FERC, 8% of revenues. The operation of Kewaunee
is subject to the jurisdiction of the U. S. Nuclear Regulatory
Commission.
In the Wisconsin jurisdiction, the rate process has been changed
effective in 1995 such that retail electric and natural gas rates will
be set every two years, rather than annually as has been the practice
in the past. The earliest that the rates, which took effect on
January 1, 1995, could change would be for the year 1997. Customer
rates are set based on forecasted expenses and capital costs.
Wisconsin retail rates include an electric fuel-adjustment clause
based on a "cost variance range approach". This range is based on a
specific estimated fuel cost for the forecast year. If WPSC's actual
fuel costs fall outside this range, a hearing may be held and an
adjustment to rates may result. Automatic fuel-adjustment clauses are
used for FERC wholesale-electric and Michigan retail-electric portions
of WPSC's business. WPSC has a purchased-gas-adjustment clause which
allows it to pass on to all classes of gas customers changes in the
cost of gas purchased from its suppliers, subject to PSCW and MPSC
review.
CUSTOMER RATE MATTERS. On January 1, 1995, in the Wisconsin
jurisdiction, WPSC retail electric customers received an average rate
reduction of 2.6% which amounted to an annual rate reduction of
$10.6 million. WPSC's largest industrial customers received rate
reductions averaging between 3.7% and 4.1%. With the implementation of
a new two-year rate cycle in Wisconsin, these rates are effective for
years 1995 and 1996. Wisconsin natural gas rates and rates in the
FERC and Michigan jurisdictions remained unchanged.
The Company's return on common equity was 11.7% and 11.4%,
respectively, for 1995 and 1994. The Company's returns on common
equity are determined in large part by the returns authorized for WPSC
by the PSCW. The authorized returns were 11.5% and 11.3%,
respectively, for 1995 and 1994, before giving consideration to
earnings on deferred investment tax credits.
INDUSTRY RESTRUCTURING. See Part I, Item 1B, ELECTRIC MATTERS -
Industry Restructuring, at page 1, and Part I, Item 1C, GAS MATTERS -
Industry Restructuring, at page 12, for discussions of electric and
gas utility restructuring.
-22-
ACCOUNTING DEVELOPMENTS. See Part II, Item 7, MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION, at page 36, for a discussion of accounting developments.
In addition, the staff of the U. S. Securities and Exchange
Commission has questioned certain of the current accounting practices
of the electric utility industry regarding the recognition,
measurement, and classification of nuclear decommissioning costs for
nuclear generation facilities in the financial statements of electric
utilities. In response to these questions, the Financial Accounting
Standards Board has agreed to review the accounting for nuclear
decommissioning costs. If current electric utility industry
accounting practices for such decommissioning are changed the annual
provisions for decommissioning could increase and the estimated cost
for decommissioning could be recorded as a liability rather than as
accumulated depreciation. WPSC does not believe that such changes, if
required, would have an adverse effect on results of operations due to
its current and future ability to recover decommissioning costs
through customer rates.
The PSCW certified new straight-line depreciation rates which
became effective January 1, 1994 concurrent with the implementation of
new customer rates. The result was a reduction in annual depreciation
expense of approximately $5.8 million.
Regulatory assets represent probable future revenue associated
with certain costs which will be recovered from customers through the
ratemaking process. Regulatory liabilities represent costs previously
collected that are refundable in future rates. At December 31, 1995,
regulatory assets and liabilities amounted to $111.1 million and
$50.0 million, respectively. Based on prior and current rate
treatment of such deferred charges, management believes it is probable
that WPSC will continue to recover these costs from ratepayers.
Pursuant to a PSCW rate order, effective January 1, 1995, WPSC is to
recover approximately $23.6 million of deferred regulatory costs each
year.
DIVIDEND RESTRICTIONS. WPSC is restricted by a PSCW order to
paying normal common stock dividends of no more than 109% of the
previous year's common stock dividend without prior notice to the
PSCW. Also, Wisconsin law prohibits WPSC from making loans to the
Company and its non-regulated subsidiaries and from guaranteeing their
obligations.
Effective January 15, 1996, a special common stock dividend of
$11,000,000 was declared by WPSC to be paid to the Company, the parent
holding company. The special dividend will allow WPSC's equity
capitalization ratio to remain at approximately 54%, as approved by
the PSCW for ratemaking. The dividend was paid in January 1996.
G. CAPITAL REQUIREMENTS
The Company's subsidiary, WPSC, requires large investment in
capital assets. Most of the Company's significant capital
requirements relate to WPSC construction expenditures.
-23-
Anticipated construction expenditures for WPSC for 1996 are $78.8
million and construction expenditures for 1997 and 1998 combined are
anticipated to total $135.6 million. The $78.8 million of 1996
construction expenditures includes $46.3 million for electric
construction, $9.2 million for nuclear fuel, $15.4 million for gas
construction, and $7.9 million for other construction expenditures.
WPSC also anticipates $8.8 million of expenditures related to unit
trains to be leased through WPSC's subsidiary WPS Leasing.
The Company has no plans in 1996, 1997, or 1998 for permanent
financing, although project financing may occur in the non-utility
subsidiaries.
H. EMPLOYEES
At December 31, 1995, the Company, including subsidiaries,
employed 2,547 persons. Of this number, 2,517 employees were employed
by WPSC.
Of the employees of WPSC, 1,979 were considered electric and 538
were considered gas utility employees, respectively. Approximately
1,116 WPSC employees are represented by Local 310 of the International
Union of Operating Engineers ("Union"). The current agreement between
the Union and WPSC runs through October 1997. There has never been a
strike against WPSC by its employees.
-24-
PAGE
ITEM 2. PROPERTIES
The following table includes information about electric
generation facilities of WPSC (including those jointly-owned):
RATED
CAPACITY(a)
TYPE NAME LOCATION FUEL (KILOWATTS)
- ---- ---- -------- ---- -----------
Steam Pulliam Green Bay, WI Coal 398,300 (b)
Weston Wausau, WI Coal or Gas 491,300 (c)
Kewaunee Kewaunee, WI Nuclear 213,800 (d)
Columbia -
Units No.1 & 2 Portage, WI Coal 324,700 (d)
Edgewater
Unit No. 4 Sheboygan, WI Coal 102,500 (d)
---------
Total Steam 1,530,600
Hydro Various 68,000
(15 Plants)
Combustion Various Gas or Oil 261,400 (e)
Turbine (6 Plants)
& Diesel
---------
Total System 1,860,000
=========
(a) Based on 1995 winter capacity (through February 1996).
(b) This plant contains six units. Pulliam Unit 3 (28.2 MW)
is out of service for maintenance, but would be available
with a seven-month notice.
(c) This plant contains three units. Two units burn only
coal and the other can burn coal or natural gas.
(d) These facilities are jointly-owned. Kewaunee is operated
by WPSC. WP&L is operator of the Columbia and Edgewater
units. The capacity indicated is WPSC's portion of total
plant capacity based on percent of ownership.
(e) WPSC and the Marshfield Electric and Water Department
jointly own 113,300 kilowatts of combustion turbine
peaking capacity which WPSC operates. The capacity
included is WPSC's portion of total plant capacity based
on percent of ownership.
WPSC owns 51 transmission substations with a transformer capacity
of 5,253,000 kva; 107 distribution substations with a transformer
capacity of 3,527,485 kva; and 20,392 route miles of electric
transmission and distribution lines. Gas properties include
-25-
approximately 3,777 miles of main, 63 gate and city regulator
stations, and 189,642 services. All gas facilities are located in
Wisconsin except for distribution facilities in and near the city of
Menominee, Michigan.
Substantially all of WPSC's utility plant is subject to a first
mortgage lien.
ITEM 3. LEGAL PROCEEDINGS
SHEBOYGAN GAS PLANT. In November 1990, WPSC was notified by the
DNR that it may be a PRP for environmental contamination found on
property next to the Sheboygan River previously used by WPSC for the
gasification of coal in the City of Sheboygan, Wisconsin (the
"Sheboygan II Gas Plant"). WPSC last used the property for this
purpose in approximately 1930. In 1966, the property was sold and is
now owned by the City of Sheboygan. The DNR has offered WPSC the
opportunity to investigate and remediate the property under an
agreement with Wisconsin as opposed to having the site handled by the
EPA as part of the larger Sheboygan River and Harbor Superfund site.
WPSC, the City of Sheboygan, and Wisconsin have negotiated an
agreement for performing the work, and therefore, Wisconsin, and not
the EPA, will be handling this matter.
An initial study was completed on the site which confirmed the
presence of contaminants that appear to be related to the Sheboygan II
Gas Plant. A Phase II investigation was recommended by the
environmental consultant to determine more precisely the scope of the
contamination and to determine if any contamination is migrating from
off-site and whether sediments are impacted. This Phase II
investigation has been substantially completed. WPSC and the City of
Sheboygan will negotiate an allocation of the costs associated with
cleanup of the site. Based on the Phase II study, it is believed that
the cost of cleanup for the Sheboygan II Gas Plant site could be as
much as $13.4 million. The estimates presented above do not take into
consideration any recovery from insurance carriers or other third
parties which WPSC is pursuing.
OSHKOSH GAS PLANT. In April 1992, WPSC received an order from
the DNR directing it to complete an investigation and implement
remedial activities on property owned by WPSC in the City of Oshkosh,
Wisconsin. Previously, WPSC had operated a manufactured gas plant on
the property from 1883 until 1946. A challenge to the order was filed
on May 8, 1992, and WPSC and the DNR have negotiated the terms of a
consent order. An environmental consultant conducted an investigation
in late 1993 and a more detailed investigation in 1994, with sediment
sampling conducted in 1995. Based on these investigations, the cost
of remediation is estimated to be as much as $4.5 million. The City
of Oshkosh has claimed that contaminated groundwater from the former
gas plant property has migrated onto city-owned land. WPSC has agreed
to stay the statute of limitations that may be applicable to the City
of Oshkosh's claim in order to avoid the filing of a lawsuit by the
City of Oshkosh. WPSC is continuing to evaluate the validity of the
City of Oshkosh's claim as additional data is received. The estimates
-26-
presented above do not take into consideration any recovery from
insurance carriers or other third parties which WPSC is pursuing.
Incorporated herein by reference are the descriptions of the
various proceedings relating to environmental matters described under
E. ENVIRONMENTAL MATTERS, Part I, Item 1E at page 18.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year.
-27-
PAGE
ITEM 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about outside directors is omitted for the reason
that such information will be included in a proxy statement for the
Annual Meeting of Shareholders of the Company which is scheduled to be
held on May 2, 1996.
EXECUTIVE OFFICERS OF WPS RESOURCES CORPORATION ("Company")
- -----------------------------------------------------------
Current Position and Business Effective
Name and Age Experience During Past Five Years Date
- ------------------------- ------------------------------------ ---------
DANIEL A. BOLLOM 59 Chairman and Chief Executive Officer 01-01-96
President and Chief Executive Officer 12-09-93
LARRY L. WEYERS 50 President and Chief Operating Officer 01-01-96
PHILLIP M. MIKUlSKY 47 Vice President-Development 09-01-95
PATRICK D. SCHRICKEL 51 Vice President 12-09-93
RALPH G. BAETEN 52 Treasurer 12-09-93
DIANE L. FORD 42 Controller 12-15-93
FRANCIS J. KICSAR 56 Secretary 01-01-96
Reflected in the information above are the officer changes,
announced by the Company, effective January 1, 1996: Daniel A. Bollom
(age 59) assumed the position of Chairman and Chief Executive Officer,
Larry L. Weyers (age 50) assumed the position of President and Chief
Operating Officer, and Francis J. Kicsar (age 56) assumed the position
of Secretary replacing Robert H. Knuth (Assistant Vice President-
Secretary), who retired December 31, 1995.
EXECUTIVE OFFICERS OF WISCONSIN PUBLIC SERVICE CORPORATION ("WPSC")
- -------------------------------------------------------------------
Current Position and Business Effective
Name and Age Experience During Past Five Years Date
- ------------------------- ------------------------------------ ---------
DANIEL A. BOLLOM 59 Chairman and Chief Executive Officer 01-01-96
President and Chief Executive Officer 03-01-91
President and Chief Operating Officer 06-01-89
LARRY L. WEYERS 50 President and Chief Operating Officer 01-01-96
Senior Vice President-Power Supply
and Engineering 08-01-95
Vice President-Power Supply
and Engineering 05-09-94
Vice President-Energy Supply 01-01-92
Assistant Vice President-Energy Supply 07-01-90
DANIEL P. BITTNER 52 Senior Vice President-Customer
Service 05-09-94
Senior Vice President-Finance 03-01-92
Vice President-Treasurer 02-01-89
RICHARD A. KRUEGER 58 Senior Vice President-Sales
and Marketing 05-09-94
Senior Vice President-Power Supply
and Engineering 07-01-89
-28-
PATRICK D. SCHRICKEL 51 Senior Vice President-Finance
and Corporate Services 05-09-94
Senior Vice President-Operations 06-01-89
CLARK R. STEINHARDT 54 Senior Vice President-Nuclear Power 06-01-91
Vice President-Nuclear Power 06-01-90
J. GUS SWOBODA 60 Senior Vice President-Human and
Corporate Development 05-09-94
Senior Vice President-Marketing and
Corporate Services 10-01-89
RALPH G. BAETEN 52 Vice President-Treasurer 08-01-95
Treasurer 03-01-92
Insurance and Benefits Director 05-01-87
RICHARD E. JAMES 42 Vice President-Corporate Planning 08-01-95
Assistant Vice President-Corporate
Planning 05-09-94
Assistant Vice President-Rates and
Economic Evaluation 03-01-92
Manager-Rates and Economic Evaluation 01-01-89
BERNARD J. TREML 46 Vice President-Human Resources 05-09-94
Assistant Vice President-Human
Resources 07-01-93
Manager-Human Resources 08-01-92
Manager-Marketing Programs and
Services 08-01-91
Manager-Retail Marketing 07-01-90
DAVID W. SCHONKE 62 Assistant Vice President-Electric
Distribution Engineering 06-01-86
GLEN R. SCHWALBACH 50 Assistant Vice President-Gas
Engineering and Supply 06-01-90
DIANE L. FORD 42 Controller 03-01-92
Administrator-Corporate Accounting 05-01-87
FRANCIS J. KICSAR 56 Secretary 01-01-96
Assistant Secretary 03-01-92
Director-Corporate Tax 10-01-76
Reflected in the information above are the officer changes,
announced by WPSC, effective January 1, 1996: Daniel A. Bollom (age
59) assumed the position of Chairman and Chief Executive Officer,
Larry L. Weyers (age 50) assumed the position of President and Chief
Operating Officer, and Francis J. Kicsar (age 56) assumed the position
of Secretary replacing Robert H. Knuth (Assistant Vice President-
Secretary), who retired December 31, 1995.
NOTE: All ages for the Company and WPSC are as of December 31, 1995.
None of the executives listed above for the Company or for
WPSC are related by blood, marriage, or adoption to any of the
other officers listed or to any director of the Registrant.
Each officer shall hold office until his or her successor
shall have been duly elected and qualified, or until his or
her death, resignation, disqualification, or removal.
-29-
PAGE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
WPS RESOURCES CORPORATION COMMON STOCK Two-Year Comparison (1)
Dividends
Share Data Per Share Price Range
- ---------- --------- -----------------
1995 High Low
------ ------
1st Quarter $ .455 29-3/4 26-3/4
2nd Quarter .455 29-7/8 27-7/8
3rd Quarter .465 30-3/4 28-1/8
4th Quarter .465 34-1/4 30-1/4
------
Total $1.84
1994
1st Quarter $ .445 33-5/8 28
2nd Quarter .445 30-3/4 27-3/8
3rd Quarter .455 30-3/8 27
4th Quarter .455 28-3/8 26-1/4
------
Total $1.80
- -----
(1) The dividends paid to public shareholders for the first three
quarters of 1994 were paid by WPSC. As a result of the
reorganization described in Part I, Item 1A, WPS RESOURCES
CORPORATION, at page 1, the dividends for the fourth
quarter of 1994 and for all subsequent quarters were paid by
the Company.
WPSC, the Company's principal subsidiary, is restricted by a PSCW
order to paying normal common stock dividends of no more than 109% of
the previous year's common stock dividend without prior notice to the
PSCW.
Effective January 15, 1996 a special common stock dividend of
$11,000,000 was declared by WPSC to be paid to the Company, the parent
holding company. The special dividend will allow WPSC's equity
capitalization ratio to remain at approximately 54% as approved by the
PSCW for ratemaking. The dividend was paid in January 1996.
-30-
Common Stock
Listed on the New York and Chicago Stock Exchanges
Ticker Symbol: WPS
Transfer Agent and Registrar:
Firstar Trust Company
P.O. Box 2077
Milwaukee, Wisconsin 53201
As of December 31, 1995, there were 24,341 common stock
shareholders of record.
See also Items 6 and 8 below.
-31-
ITEM 6. SELECTED FINANCIAL DATA
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1991 TO 1995)
A. CONSOLIDATED STATEMENTS OF INCOME
=========================================================================================================
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
(Thousands, except share amounts) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
Operating revenues
Electric $489,000 $480,816 $493,256 $477,625 $471,277
Gas 229,925 192,979 187,376 157,177 152,222
Other 923 - - - -
- ---------------------------------------------------------------------------------------------------------
Total operating revenues 719,848 673,795 680,632 634,802 623,499
=========================================================================================================
Operating expenses
Electric production fuels 104,858 111,011 114,051 123,866 131,054
Purchased power 39,593 38,631 30,703 29,594 32,886
Gas purchased for resale 170,236 137,014 133,347 109,890 103,189
Other operating expenses 154,445 148,917 148,270 135,614 128,820
Maintenance 50,761 49,983 51,597 46,436 48,223
Depreciation and decommissioning 65,627 56,365 60,609 58,592 55,687
Taxes other than income 25,921 26,063 25,204 24,459 23,034
- ---------------------------------------------------------------------------------------------------------
Total operating expenses 611,441 567,984 563,781 528,451 522,893
=========================================================================================================
Operating income 108,407 105,811 116,851 106,351 100,606
- ---------------------------------------------------------------------------------------------------------
Other income
Allowance for equity funds
used during construction 170 108 287 494 113
Other, net 6,080 4,473 3,356 6,076 4,351
- ---------------------------------------------------------------------------------------------------------
Total other income 6,250 4,581 3,643 6,570 4,464
=========================================================================================================
Income before interest expense 114,657 110,392 120,494 112,921 105,070
- ---------------------------------------------------------------------------------------------------------
Interest on long-term debt 22,859 23,407 24,393 25,662 22,127
Other interest 2,604 1,796 1,562 1,477 2,908
Allowance for borrowed funds
used during construction (68) (139) (200) (542) (193)
- ---------------------------------------------------------------------------------------------------------
Total interest expense 25,395 25,064 25,755 26,597 24,842
=========================================================================================================
Income before income taxes 89,262 85,328 94,739 86,324 80,228
Income taxes 30,808 29,526 32,539 28,322 26,056
Preferred stock dividends of subsidiary 3,111 3,111 3,311 3,237 3,237
- ---------------------------------------------------------------------------------------------------------
Net income $ 55,343 $ 52,691 $ 58,889 $ 54,765 $ 50,935
=========================================================================================================
Shares of common stock outstanding
At December 31 23,897 23,897 23,897 23,846 22,889
Average 23,897 23,897 23,888 23,350 22,889
Earnings per average share of common stock $2.32 $2.21 $2.47 $2.35 $2.23
Dividend per share of common stock 1.84 1.80 1.76 1.72 1.68
=========================================================================================================
-32-
PAGE
ITEM 6. SELECTED FINANCIAL DATA
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1991 TO 1995)
B. CONSOLIDATED BALANCE SHEETS
========================================================================================================
Consolidated Balance Sheets
At December 31 (Thousands) 1995 1994 1993 1992 1991
========================================================================================================
Assets
========================================================================================================
Utility plant
Electric $1,449,201 $1,423,316 $1,386,007 $1,354,579 $1,277,913
Gas 229,992 203,384 184,234 173,012 164,038
- --------------------------------------------------------------------------------------------------------
Total 1,679,193 1,626,700 1,570,241 1,527,591 1,441,951
Less - Accumulated depreciation
and decommissioning 905,519 846,505 801,056 748,427 695,586
Total 773,674 780,195 769,185 779,164 746,365
Nuclear decommissioning trusts, at cost 82,109 64,147 56,699 51,023 45,504
Nuclear fuel, net 14,275 19,417 17,981 16,880 18,704
- --------------------------------------------------------------------------------------------------------
Net utility plant 870,058 863,759 843,865 847,067 810,573
========================================================================================================
Current assets 186,085 170,015 180,140 160,331 165,393
Regulatory and other assets 210,600 183,501 174,836 138,152 97,571
- --------------------------------------------------------------------------------------------------------
Total assets $1,266,743 $1,217,275 $1,198,841 $1,145,550 $1,073,537
========================================================================================================
========================================================================================================
Capitalization and Liabilities
========================================================================================================
Capitalization
Common stock equity $ 463,441 $ 446,540 $ 433,724 $ 413,226 $ 369,298
Preferred stock of subsidiary
with no mandatory redemption 51,200 51,200 51,200 51,200 51,200
Long-term debt of subsidiary 306,590 309,945 314,225 321,498 332,907
- --------------------------------------------------------------------------------------------------------
Total capitalization 821,231 807,685 799,149 785,924 753,405
========================================================================================================
Liabilities
Short-term borrowings 26,500 22,500 21,000 20,000 13,000
Bond sinking fund requirements and maturing
first mortgage bonds of subsidiary - - - 8,726 235
Deferred income taxes 135,958 126,639 138,952 169,012 160,703
Other liabilities and credits 283,054 260,451 239,740 161,888 146,194
- --------------------------------------------------------------------------------------------------------
Total liabilities 445,512 409,590 399,692 359,626 320,132
========================================================================================================
Total capitalization and liabilities $1,266,743 $1,217,275 $1,198,841 $1,145,550 $1,073,537
========================================================================================================
-33-
ITEM 6. SELECTED FINANCIAL DATA
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1991 TO 1995)
C. FINANCIAL STATISTICS
========================================================================================================
Year Ended December 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
Stock price $34 $26-3/4 $33-5/8 $31-3/4 $28-1/4
====================