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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, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 0-692
NORTHWESTERN PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 46-0172280
(State of Incorporation) (IRS Employer Identification No.)
33 Third Street SE
Huron, South Dakota 57350-1318
(Address of principal office) (Zip Code)
605-352-8411
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $3.50 par value New York Stock Exchange
Company Obligated Mandatorily Redeemable New York Stock Exchange
Security of Trust Holding Solely Parent
Debentures, $25.00 liquidation amount
(Title of each class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Preferred Stock, Par Value $100
(Title of Class)
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. ( X ) Yes ( ) 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
nonaffiliated of the registrant:
$334,023,000 as of February 18, 1997
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common Stock, Par Value $3.50
8,922,632 shares outstanding at February 18, 1997
DOCUMENTS INCORPORATED BY REFERENCE:
1996 Annual Report to Stockholders . . . . . . . . Parts I and II
Proxy Statement for 1997 Annual Meeting . . . . . . . . Parts I and III
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Northwestern Public Service Company (Company) is a diversified energy
distribution company with core operations engaged in the electric, natural
gas, and propane businesses. The Company generates and distributes
electric energy to 56,000 customers in eastern South Dakota. The Company
also purchases, distributes, sells, and transports natural gas to 77,000
customers in Central Nebraska and eastern South Dakota.
The Company acquired Synergy Group Incorporated, a major retail
propane distributor in August 1995. In 1996, Northwestern acquired eight
additional propane companies, including Empire Energy Corporation in
October, then the eighth largest retail marketer of propane in the U.S.,
and CGI Holdings, Inc., then the eighteenth largest retail marketer of
propane in the U.S. in December. Also, in December 1996, Northwestern
combined all of its propane businesses into Cornerstone Propane Partners,
L.P. (Cornerstone), a publicly traded master limited partnership which sold
9.8 million common units to the public on December 17, 1996, at a price of
$21 per unit. Net proceeds from the offering of common units, together
with the concurrent sale of $220 million of senior secured notes by a
subsidiary partnership, were used to redeem preferred stock of the combined
propane entities and repay acquisition loans and existing debt.
Northwestern's majority-owned subsidiaries hold 6.9 million subordinated
units or 41.4% of Cornerstone, while public unitholders, own 58.6% of the
Partnership. Cornerstone is the fifth largest retail propane marketer in
the U.S., serving approximately 360,000 customers from 312 service centers
in 26 states.
Through its other subsidiaries, the Company is engaged in additional
nonregulated operations as more fully discussed in the section entitled
"Nonregulated Operations". The Company was incorporated under the laws of
the State of Delaware in 1923 and is qualified to conduct its utility
business in the states of South Dakota, Nebraska, Iowa, and North Dakota.
The Company does not serve any utility customers in North Dakota or Iowa.
The Company has its principal office at 33 Third Street SE, Huron, South
Dakota 57350-1318. Its telephone number is 605-352-8411.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information about industry segments is incorporated by
reference to Note 12 of the "Notes to Consolidated Financial Statements" on
page 19 of the financial section of the Company's 1996 Annual Report to
Stockholders, filed as an Exhibit hereto.
NARRATIVE DESCRIPTION OF BUSINESS
Pursuant to the South Dakota Public Utilities Act, the South Dakota
Public Utilities Commission (PUC) assigned as the Company's electric
service territory the communities and adjacent rural areas in which the
Company provides electric service in South Dakota. The Company has the
right to provide electric service to present and future electric customers
in its assigned service territory for so long as the service provided is
deemed adequate. Under the South Dakota Public Utilities Act, effective
July 1, 1976, the Company is not required to obtain or renew municipal
franchises to provide electric service within its assigned service
territory.
The Company has nonexclusive municipal franchises to provide gas
service in the Nebraska and South Dakota communities in which it provides
such service. The maximum term permitted under Nebraska law for such
franchises is 25 years while the maximum term permitted under South Dakota
law is 20 years. The Company's policy is to seek renewal of a franchise in
the last year of its term. The Company has never been denied the renewal
of any of these franchises and does not anticipate that any future renewals
would be withheld.
Unlike the Company's electric and natural gas businesses, propane
distribution rates and service areas are unregulated. In an unregulated
business such as propane, the Company is competing against a number of
other distributors. There are, however, certain inherent barriers for
customers to overcome in switching from one propane delivery service
provider to another. The Company believes that its ownership of propane
storage tanks installed at customers' premises, together with safety
regulations which prohibit other propane distributors from filling the
propane tanks and cylinders at the customers' premises, promotes long-
standing relationships which are typical in the retail propane industry.
The cost and inconvenience of switching tanks tend to minimize the
switching by customers among suppliers on the basis of minimal price
variations. Conversely, it also makes it more difficult for the Company to
acquire new customers, other than through acquisitions, in areas where
there are existing relationships between potential customers and other
distributors.
Weather patterns have a material impact on the Company's operating
performance for all three segments of its energy business. This impact is
particularly relevant for natural gas and propane. Because natural gas and
propane are heavily used for residential and commercial heating, the demand
for these products depends upon weather patterns throughout the Company's
service area. With a larger proportion of its operations related to
seasonal natural gas and propane sales in the future, the distribution of
the Company's quarterly operating performance will be different than in
historical periods. A significantly greater portion of the Company's
future operating income is expected to be recognized in the first and
fourth quarters related to higher revenues from the heating season.
Operating income for the second and third quarters is expected to be
significantly less than historical periods.
ELECTRIC BUSINESS
ELECTRIC SALES. On a consolidated basis, 21% of the Company's 1996
operating revenues were from the sale of electric energy. All of the
Company's electric revenues are derived from customers in South Dakota.
The Company has relatively few large customers in its service
territory. By customer category, 37% of 1996 total electric sales was from
residential sales, 55% was from commercial and industrial sales, 1% was
from street lighting and sales to public authorities, and 7% was from sales
for resale.
Sales for resale primarily include power pool sales to other
utilities. Power pool sales fluctuate from year to year depending on a
number of factors including the Company's availability of excess short-term
generation and the ability to sell the excess power to other utilities in
the power pool. The Company also sells power and energy at wholesale to
certain municipalities for resale and to various governmental agencies. In
1996, these sales accounted for less than 1% of total electric sales.
CAPABILITY AND DEMAND. The Company shares in the ownership of the Big
Stone Generating Plant (Big Stone), located near Big Stone City in
northeastern South Dakota. In North Dakota, the Company maintains
transmission facilities to interconnect with electric transmission lines of
other utilities and shares in the ownership of the Coyote I Electric
Generating Plant (Coyote), located near Beulah, North Dakota. In Iowa, the
Company shares in the ownership of Neal Electric Generating Unit #4 (Neal),
located near Sioux City, Iowa.
At December 31, 1996, the aggregate net summer peaking capacity of all
Company-owned electric generating units was 306,572 kw, consisting of
102,703 kw from Big Stone (the Company's 23.4% share), 42,700 kw from
Coyote (the Company's 10.0% share), 54,169 kw from Neal (the Company's 8.7%
share), and 107,000 kw from internal combustion turbine units and small
diesel units, used primarily for peaking purposes. In addition to those
plant facilities, the Company entered into an agreement in 1995 to purchase
up to 14,950 kw of firm capacity from Basin Electric Cooperative to assist
in meeting peak capacity demands. The Company has also contracted with
Nebraska Public Power District to purchase various amounts of firm capacity
to further assist in supplying peak energy demands.
The Company is a summer peaking utility. The 1996 peak demand of
260,159 kw occurred on June 27, 1996. Total system capability at the time
of peak was 321,522 kw. The reserve margin for 1996 was 19%. The minimum
reserve margin requirement as determined by the members of the Mid-
Continent Area Power Pool (MAPP), of which the Company is a member, is 15%.
MAPP is an area power pool arrangement consisting of utilities and
power suppliers having transmission interconnections located in a 9-state
area in the North Central region of the United States and in two Canadian
provinces. The objective of MAPP is to accomplish coordination of planning
and operation of generation and interconnecting transmission facilities to
provide reliable and economical electric service to members' customers,
consistent with reasonable utilization of natural resources and protection
of the environment. While benefiting from the advantages of the planning,
coordination, and operations of MAPP, each member has the right and
obligation to own or otherwise provide the facilities to meet its own
requirements. The terms and conditions of the MAPP agreement and
transactions between MAPP members are subject to the jurisdiction of the
Federal Energy Regulatory Commission (FERC). The MAPP agreement was
accepted for filing by the FERC effective 1972. The Company also has
interconnections with the transmission facilities of Otter Tail Power
Company, Montana-Dakota Utilities Co., Northern States Power Company, and
Western Area Power Administration; and has emergency interconnections with
transmission facilities of East River Electric Cooperative, Inc. and West
Central Electric Cooperative. These interconnections and pooling
arrangements enable the Company to arrange purchases or sales of
substantial quantities of electric power and energy with other pool members
and to participate in the benefits of pool arrangements.
The Company has finalized an integrated resource plan to identify how
it will meet the energy needs of its customers. The plan includes
estimates of customer usage and programs to provide for economic, reliable,
and timely supplies of energy. The plan does not anticipate the need for
additional baseload generating capacity for at least the next ten years.
FUEL SUPPLY. Lignite and sub-bituminous coal were utilized by the
Company as fuel for virtually all of the electric energy generated during
1996. North Dakota lignite is the primary fuel at Coyote. The Company
burned Montana sub-bituminous coal at Big Stone during 1996. During 1996,
the average heating value of lignite burned was 6,974 BTU per pound at
Coyote. The sulfur content of this lignite is typically between 0.8% and
1.2%. The Montana sub-bituminous coal burned at Big Stone contained an
average heating value of 8,825 BTU per pound and a sulfur content between
0.55% and 0.75%. Neal burned Wyoming sub-bituminous coal which had an
average heating value of 8,491 BTU per pound during 1995. Typically, the
sulfur content of this coal is between 0.30% and 0.40%.
The Company's fuel costs have remained relatively stable. The average
cost by type of fuel burned is shown below for the periods indicated:
Cost Per Million BTU % of 1996
Year Ended December 31 Megawatt
---------------------- Hours
Fuel Type 1994 1995 1996 Generated
----- ----- ---- ---------
Lignite - Big Stone $1.10 $1.09 - 0%
Sub-bituminous-Big Stone - 1.00 $.95 46%
Lignite - Coyote** .86 .83 .86 26%
Sub-bituminous-Neal .74 .76 .75 28%
Natural Gas 2.21 1.80 2.24 *
Oil 3.90 3.96 4.65 *
*Combined for approximately one percent.
**Includes pollution control reagent.
During 1996, the average delivered cost per ton of lignite was $11.25
to Coyote. The average cost per ton of sub-bituminous coal received at Big
Stone for 1996 was $16.91. The average cost for coal delivered to Neal was
$12.08 per ton for 1996. Such amounts include severance taxes imposed by
the states of North Dakota and Montana and a production tax imposed by the
state of Wyoming. While the effect on the Company's fuel costs of future
changes in severance or production taxes cannot be predicted, any changes
in the Company's fuel costs may be passed on to its customers through the
operation of the fuel adjustment clause. This feature of the Company's
electric rates is more fully discussed in the section entitled
"Regulation".
The continued delivery of lignite and sub-bituminous coal to the three
large steam generating units in which the Company is part owner is
reasonably assured by contracts covering various periods of the operating
lives of these units. The contract for delivery of Montana sub-bituminous
coal to Big Stone expires in 1999, further evaluations will be conducted
during the contract term to select a coal supply for periods beyond 1999.
The contract for delivery of lignite to Coyote, which expires in 2016,
provides for an adequate fuel supply for the estimated economic life of
that plant. Neal receives Wyoming sub-bituminous coal under a long-term
contract which expires in 1998. In the near future, the Company, along
with the other owners of Neal, will begin to study options for the supply
of coal for periods beyond the expiration date.
Following test burns in 1990 and 1991, the owners of the Big Stone
Plant received approval from the South Dakota Department of Environment and
Natural Resources to burn tire derived fuel (TDF) and refuse derived fuel
(RDF). The quantity of TDF and RDF that was burned in 1996 is
insignificant when compared to total coal consumption at the plant.
The fossil fuel supplies for Big Stone and Neal are delivered via unit
trains belonging to the respective plants' owners and locomotives of the
Burlington Northern Railroad and the Union Pacific Railroad, respectively.
The lignite supply for Coyote is delivered via conveyor at this "mine-
mouth" plant. In early 1996, the Company and its partners at Big Stone
executed a fifteen year operating lease agreement for unit train cars.
This agreement was effective late in 1996. The prior unit train cars were
sold to another third party independent of the leasing transaction.
While the Company has no firm contract for diesel fuel for its other
electric generating plants, it has been able to purchase its diesel fuel
requirements in recent years from local suppliers and currently has in
storage an amount adequate to satisfy its normal requirements for such
fuel.
Additional information relating to jointly owned plants is
incorporated by reference to Note 8 of the "Notes to Consolidated
Statements" on page 17 of the financial section of the Company's 1996
Annual Report to Stockholders filed as an Exhibit hereto.
NATURAL GAS BUSINESS
NATURAL GAS SALES AND DEMAND. On a consolidated basis, 21% of the
Company's 1996 operating revenues were from the sale of natural gas energy.
During 1996, the Company derived 55% of its natural gas revenues from South
Dakota and 45% from Nebraska. The Company's peak daily sendout was 134,072
MMBTU.
CAPABILITY AND SUPPLY. The Company owns and operates natural gas
distribution systems serving 38,023 customers in eastern South Dakota. In
1996 the Company completed construction of a new natural gas pipeline in
northern South Dakota which increased internal capacity by 15,000 MMBTU per
day. In 1995, the Company executed a service agreement with Cibola Energy
Services Corporation (Cibola) whereby Cibola coordinates supply and
transportation services. The agreement with Cibola and Northern Natural
Gas pipeline and storage capacity, supplemented with peak shaving capacity
allows the Company to meet its peak day system needs. This agreement
provides for firm deliverable pipeline capacity of approximately 49,300
MMBTU per day in South Dakota.
In Nebraska, the Company owns and operates natural gas distribution
systems serving 39,455 retail customers in the village of Alda and the
cities of Grand Island, Kearney, and North Platte, Nebraska. The Company
purchases all of its natural gas for these systems through KN Gas
Marketing, Inc. (KN) under a service agreement entered in 1995 whereby KN
coordinates supply and transportation services. This agreement provides
for firm deliverable pipeline capacity of approximately 58,000 MMBTU per
day in Nebraska.
In 1992, FERC issued Order 636. Order 636 requires, among other
provisions, that all companies with natural gas pipelines separate natural
gas supply or production services from transportation service and storage
businesses. This allows gas distribution companies, such as the Company,
and individual customers to purchase gas directly from producers, third
parties, and various gas marketing entities and transport it through the
suppliers' pipelines. The Company has operated under the restructured
environment during the past three years.
To supplement firm gas supplies, the Company's service agreements with
Cibola and KN also provide for underground natural gas storage services to
meet the heating season and peak day requirements of its gas customers. In
addition, the Company also owns and operates six propane-air plants with a
total rated capacity of 18,000 MMBTU per day, or approximately 17% of peak
day requirements. The propane-air plants provide an economic alternative
to pipeline transportation charges to meet the peaks caused by customer
demand on extremely cold days.
A few of the Company's industrial customers purchase their natural gas
requirements directly from gas marketing firms for transportation and
delivery through the Company's distribution system. The transportation
rates have been designed to make the Company economically indifferent as to
whether the Company sells and transports gas or only transports gas.
PROPANE BUSINESS
Effective August 15, 1995, the Company acquired Synergy Group, Inc.
(Synergy), a retail propane distributor with operations in the eastern and
south-central regions of the United States. Synergy was acquired through a
subsidiary (SYN Inc.) formed for this purpose. Late in 1995, two smaller
propane companies were acquired: Western Gas on November 20 and Myers
Propane Gas Company on December 7. Propane complements the Company's
electric and natural gas distribution businesses and adds geographical
diversity to its operations.
On October 7, 1996, the Company completed the acquisition of Empire
Energy Corporation (Energy), a retail distributor of propane. Energy
maintained 168 retail branches serving approximately 130,000 customers in
10 states, primarily in southeast and midwest regions of the United States.
On December 17, 1996, a wholly owned subsidiary of Northwestern Growth
Corporation acquired CGI Holdings, Inc. (Coast). Immediately after the
acquisition the Company combined the propane distribution businesses of
Coast, Energy, Myers and Synergy into Cornerstone. As part of an IPO on
the same date, Cornerstone sold a total of 9,821,000 Common Units at a
price to the public of $21 a unit. Cornerstone's capital consists of
9,821,000 Common Units, 6,597,619 subordinated units (Subordinated Units)
representing limited partner interests and a 1% general partner interest.
The Company's majority owned subsidiaries own all 6,597,619 Subordinated
Units and an aggregate 2% general partner interest in the Partnership, or a
combined 41.4% effective interest in the Partnership.
The net proceeds from the sale of 9,821,000 Common Units of
Cornerstone and the net proceeds from the issuance of Cornerstone Senior
Notes were used to repay term and revolving debt of Coast, Energy and
Synergy, including accrued interest and any prepayment premiums which were
assumed by the Partnership. In addition, the preferred stock of Synergy
was redeemed at a premium. As a result of these repayments, the Company
recorded a one-time after tax gain of $.19 per share from the prepayment of
the term debt and redemption of preferred stock investment in Synergy.
Additional information regarding the acquisitions is incorporated by
reference to Note 2 of the "Notes to Consolidated Statements" on page 13 of
the financial section of the Company's 1996 Annual Report to Stockholders,
filed as an Exhibit hereto.
SALES. On a consolidated basis, 51% of the Company's 1996 operating
revenues were from the sale of propane. Operating revenues recorded of
$175.1 million on sales of 160 million gallons do not reflect a full year
of operations due to various acquisitions.
Similar to its electric and natural gas businesses, no single customer
accounts for a significant portion of the Company's propane sales. By
customer category, propane sales were 50% residential, 21% commercial and
industrial, 13% agriculture related, 4% other, and 12% to wholesale
customers.
Agricultural uses of propane include tobacco curing, crop drying, and
poultry breeding. Other customers include industrial customers who use
propane to fire furnaces, as a cutting gas, and in other process
applications. Other industrial customers include large scale heating
accounts, local gas utility customers who maintain a standby propane
capability for use during peak demand periods, and customers who use
propane as a feedstock in manufacturing processes.
SUPPLY AND DISTRIBUTION. The Company purchased propane from various
suppliers, including major domestic oil companies and independent producers
of gas liquid and oil and made occasional spot market transactions. The
majority of the propane purchases were on a contractual basis under one-
year agreements subject to annual renewal. The largest supplier provided
approximately 13% of the total volumes purchased under contract. The
percentage of contract purchases may vary from year to year depending on a
number of factors. Supply contracts generally provide for pricing in
accordance with posted prices at the time of delivery or contract prices
established at major storage points, and some contracts include a pricing
formula that typically is based on such market prices. The Company has
established relationships with a number of suppliers and believes it will
have ample sources of supply under comparable terms to draw upon to meet
the necessary propane requirements if it were to discontinue purchasing
propane from its two largest suppliers. The Company has not experienced a
shortage that has prevented it from satisfying its own customers' needs and
does not foresee any significant shortage in the supply of propane that
would cause a disruption in meeting the needs of the Company's customers as
well.
The Company primarily uses common carriers and railroad tank cars to
transport propane from refineries, natural gas processing plants or
pipeline terminals to the Company's bulk storage plants. The
transportation of propane requires specialized equipment. The trucks and
railroad cars utilized for this purpose carry specialized steel tanks that
maintain the propane in a liquefied state.
Propane delivery to customers is made by means of 917 bulk delivery
tank trucks owned by the Company. Propane is stored by the customers on
their premises in stationary steel tanks generally ranging in capacity from
120 to 1,000 gallons, with large users having tanks with a capacity of
30,000 gallons. A majority of the propane storage tanks used by the
Company's residential and commercial customers are owned by the Company.
In addition, a certain number of Company owned tanks are provided to
customers under a leasing agreement.
COMPETITION
Although the Company's electric service territory is assigned
according to the South Dakota Public Utilities Act, and the Company has the
right to provide electric service to present and future electric customers
in its assigned service area for so long as the service provided is deemed
adequate, the energy industry in general has become increasingly
competitive. Electric service also competes with other forms of energy and
the degree of competition may vary from time to time depending on relative
costs and supplies of other forms of energy.
The National Energy Policy Act of 1992 (Energy Act) was designed to
promote energy efficiency and increased competition in the electric
wholesale markets. The Energy Act also allows the FERC to order wholesale
wheeling by public utilities to provide utility and nonutility generators
access to public utility transmission facilities. The provision allows the
FERC to set prices for wheeling, which will allow utilities to recover
certain costs from the companies receiving the services, rather than the
utilities' retail customers. Many states are currently considering retail
wheeling, which aims to provide all customers with the right to choose
their electricity supplier. No regulatory proposals with respect to retail
wheeling have yet been formally introduced in South Dakota.
Federal Energy Regulatory Commission Order 636 requires, among other
provisions, that all companies with natural gas pipelines separate natural
gas supply or production services from transportation service and storage
businesses. This allows gas distribution companies, such as the Company,
and individual customers to purchase gas directly from producers, third
parties, and various gas marketing entities and transport it through the
suppliers' pipelines. While Order 636 had positive aspects by providing
for more diversified supply and storage options, it also required the
Company to assume responsibility for the procurement, transportation, and
storage of natural gas. The alternatives now available under Order 636
create additional pressure on all distribution companies to keep gas supply
and transportation pricing competitive, particularly for large customers.
Weather conditions have a significant impact on the demand for propane
for both heating and agricultural purposes. Many customers of Cornerstone
rely heavily on propane as a heating fuel. Actual weather conditions can
vary substantially from year to year, significantly affecting Cornerstone's
financial performance. Furthermore, variations in weather in one or more
regions in which Cornerstone operates can significantly affect the total
volumes sold by Cornerstone and the margins realized on such sales and,
consequently Cornerstone's results of operations.
The retail propane business is a margin-based business in which gross
profits depend on the excess of sales prices over propane supply costs.
Consequently, Cornerstone's profitability will be sensitive to changes in
wholesale propane prices. Propane is a commodity, the market price of
which can be subject to volatile changes in response to changes in supply
or other market conditions. As it may not be possible immediately to pass
on to customers rapid increases in the wholesale cost of propane, such
increases could reduce Cornerstone's gross profits.
Cornerstone's profitability is affected by the competition for
customers among all participants in the retail propane business. Some of
Cornerstone's competitors are larger or have greater financial resources
than Cornerstone. Should a competitor attempt to increase market share by
reducing prices, Cornerstone's financial condition and results of
operations could be materially adversely affected. In addition, propane
competes with other sources of energy, some of which are less costly for
equivalent energy value.
REGULATION
The Company is a "public utility" within the meaning of the Federal
Power Act and the South Dakota Public Utilities Act and, as such, is
subject to the jurisdiction of, and regulation by, FERC with respect to
issuance of securities, the PUC with respect to electric service
territories, and both FERC and the PUC with respect to rates, service,
accounting records, and in other respects. The State of Nebraska has no
centralized regulatory agency which has jurisdiction over the Company's
operations in that state; however, the Company's natural gas rates are
subject to regulation by the municipalities in which it operates.
Under the South Dakota Public Utilities Act, effective July 1, 1976, a
requested rate increase may be implemented by the Company 30 days after the
date of its filing unless its effectiveness is suspended by the PUC and, in
such event, can be implemented subject to refund with interest six months
after the date of filing, unless sooner authorized by the PUC. The
Company's electric rate schedules provide that it may pass along to all
classes of customers qualified increases or decreases in the cost of fuel
used in its generating stations and in the cost of fuel included in
purchased power. A purchased gas adjustment provision in its gas rate
schedules permits the Company to pass along to gas customers increases or
decreases in the cost of purchased gas.
The Company filed no electric rate cases in South Dakota during the
three years ended December 31, 1996. A natural gas increase was
implemented in South Dakota on November 15, 1994. Effective April 1, 1995,
the Company implemented increased rates related to its Nebraska natural gas
service area as a result of a negotiated settlement with representatives of
the four communities in which the Company operates. These new rates will
generate additional annual revenues of $2.3 million, based on normal
weather, or an overall increase of 8.3%.
On April 24, 1996, FERC issued its final rule (Order No. 888) on
wholesale electric transmission open access and recovery of stranded costs.
On July 9, 1996, the Company filed proposed tariffs with FERC in compliance
with Order 888. Under the proposed tariffs, which became effective on July
10, 1996, eligible transmission service customers can choose to purchase
transmission services from a variety of options ranging from full use of
the transmission network on a firm long-term basis to a fully interruptible
service available on an hourly basis. The proposed tariffs also include a
full range of ancillary services necessary to support the transmission of
energy while maintaining reliable operations of the Company's transmission
system. The Company is awaiting final approval of the proposed tariffs by
FERC.
On August 27, 1996, the Company filed a Request for Waiver of the
requirements of FERC Order No. 889 as it relates to the Standards of
Conduct. The Standards of Conduct require companies to physically separate
their transmission operations/reliability functions from their
marketing/merchant functions. The Request for Waiver is based on criteria
established by FERC, exempting small public utilities as defined by the
United States Small Business Administration. The Request for Waiver was
approved by FERC on November 26, 1996.
ENVIRONMENTAL MATTERS
The Company is subject to regulation with regard to air and water
quality, solid waste disposal, and other environmental considerations by
Federal, state, and local governmental authorities. The application of
governmental requirements to protect the environment involves or may
involve review, certification, issuance of permits, or similar action by
government agencies or authorities, including the United States
Environmental Protection Agency (EPA), the South Dakota Department of
Environment and Natural Resources (DENR), the North Dakota State Department
of Health, and the Iowa Department of Environmental Quality, as well as
compliance with decisions of the courts.
CLEAN AIR ACT. The Clean Air Act Amendments of 1990 (the Clean Air
Act) which stipulate limitations on sulfur dioxide and nitrogen oxide
emissions from certain coal-fired power plants will require the purchase of
additional emission allowances or a reduction in sulfur dioxide emissions
beginning in the year 2000 from Big Stone. The Company believes Big Stone
can most economically meet the sulfur dioxide emission requirements of the
Clean Air Act by changing its fuel source from North Dakota lignite to low-
sulfur western sub-bituminous coal available in the region as evidenced by
the switch made to Montana sub-bituminous coal in August 1995. The
Company's other baseload plants, Coyote and Neal, are expected to comply
with the sulfur dioxide emission limitations through the use of existing
flue gas scrubbing and low sulfur coal without the need for additional
emission allowances.
With regard to the Clean Air Act's nitrogen oxide emission
requirements, the Neal wall-fired boiler is expected to meet the emission
limitations for such boilers. The Clean Air Act does not yet specify
nitrogen oxide limitations for boilers with cyclone burners such as those
used at Big Stone and Coyote because practical low-nitrogen oxide cyclone
burner technology does not exist. It requires the EPA to establish
nitrogen oxide emission limitations before 1997 for cyclone boilers
including taking into account that the cost to accomplish such limits be
comparable to retrofitting low-nitrogen oxide burner technology to other
types of boilers. In addition, it also requires future studies to
determine what controls, if any, should be imposed on coal-fired boilers to
control emissions of certain air toxics other than sulfur and nitrogen
oxides. Because of the uncertain nature of cyclone boiler nitrogen oxide
and air toxic emission limits, the Company cannot now determine the
additional costs, if any, it may incur due to these provisions of the Clean
Air Act.
PCBs. The Company has met or exceeded the removal and disposal
requirements of equipment containing polychlorinated biphenyls (PCBs) as
required by state and Federal regulations. The Company will use some PCB-
contaminated equipment for its remaining useful life, and dispose of the
equipment according to pertinent regulations that govern that use and
disposal of this equipment. PCB-contaminated oil is burned for energy
recovery at a permitted facility.
STORAGE TANKS. The South Dakota DENR and the EPA adopted regulations
imposing requirements upon the owners and operators of above ground and
underground storage tanks. The Company's fuel oil storage facilities at
its generating plants in South Dakota are affected by the above ground tank
regulations, and the Company has instituted procedures for compliance.
SITE REMEDIATION. The Company conducted an investigation of a
manufactured gas plant (MGP) site and took remedial action during 1995 by
permanently removing the residues contained in the soil through a thermal
desorption process. In May 1996, EPA Region VIII (which includes South
Dakota, North Dakota, Colorado, Utah, Wyoming, and Montana) selected the
Company to receive an Outstanding Achievement Award for Leadership and
Innovation. EPA Region VIII chose recipients who had demonstrated
protection and enhancement of Region VIII's environment. Adjustments of
the Company's natural gas rates to reflect the costs associated with the
remediation were approved by the South Dakota Public Utilities Commission.
The Company is pursuing recovery from insurance carriers. Any recovery
from insurance regarding the MGP soil remediation costs, less costs of
insurance recovery, will be passed back to customers.
OTHER. In addition to the Clean Air Act, the Company is also subject
to other environmental regulations. The Company believes that it is in
compliance with all presently applicable environmental protection
requirements and regulations. However, the Company is unable to forecast
the effect which future environmental regulations may ultimately have upon
the cost of its utility related facilities and operations. No
administrative or judicial proceedings involving the Company are now
pending or known by the Company to be contemplated under presently
effective environmental protection requirements.
SITING. The states of South Dakota, North Dakota, and Iowa have
enacted laws with respect to the siting of large electric generating plants
and transmission lines. The South Dakota PUC, the North Dakota Public
Service Commission, and the Iowa Utilities Board have been granted
authority in their respective states to issue site permits for nonexempt
facilities.
PROPANE TRANSPORTATION AND SAFETY MATTERS. The Company's propane
operations are subject to various Federal, state, and local laws governing
the transportation, storage and distribution of propane, occupational
health and safety, and other matters. All states in which the Company
operates have adopted fire safety codes that regulate the storage and
distribution of propane. In some states, these laws are administered by
state agencies, and in others they are administered on a municipal level.
Certain municipalities prohibit the underground installation of propane
furnaces and appliances, and certain states are considering the adoption of
similar regulations.
The Company currently meets and exceeds Federal regulations requiring
that all persons employed in the handling of propane gas be trained in
proper handling and operating procedures. All employees have participated,
or will participate within 90 days of their employment date, in hazardous
materials training. The Company has established ongoing training programs
in all phases of product knowledge and safety including participation in
the National Propane Gas Association's (NPGA) Certified Employee Training
Program.
CAPITAL SPENDING AND FINANCING
The Company's primary ongoing capital requirements include the funding
of its energy business construction and expansion programs, the funding of
debt and preferred stock retirements and sinking fund requirements, and the
funding of its corporate development and investment activities.
The emphasis of the Company's construction activities is to undertake
those projects that most efficiently serve the expanding needs of its
customer base, enhance energy delivery capabilities, expand its current
customer base, and provide for the reliability of energy supply. Capital
expenditure plans are subject to continual review and may be revised as a
result of changing economic conditions, variations in sales, environmental
requirements, investment opportunities, and other ongoing considerations.
Expenditures for construction activities for 1996, 1995, and 1994 were
$35.2 million, $29.6 million, and $22.7 million. Construction expenditures
during the last three years included expenditures related to an operations
center expected to provide cost savings and operating efficiencies through
consolidation of activities, the installation of an additional 43 mw of
internal peaking capacity, and the expansion of the Company's natural gas
system into additional communities in eastern South Dakota. In addition,
1996 and 1995 included $9.8 million and $4.7 million of capital
expenditures related to propane. Construction expenditures for 1997,
excluding propane, are estimated to be $14.5 million. The majority of the
projected expenditures will be spent on enhancements of the electric and
gas distribution systems. Estimated electric and natural gas related
construction expenditures for the years 1997 through 2001 are expected to
be $69.1 million. Nonregulated capital expenditures for 1997 are estimated
to be $4.8 million. Estimated nonregulated capital expenditures for the
years 1997 through 2001 are expected to be $18.8 million.
Capital requirements for the mandatory retirement of long-term debt
and mandatory preferred stock sinking fund redemption totaled $400,000,
$600,000 and $600,000 for the years ended 1996, 1995, and 1994,
respectively. It is expected that such mandatory retirements will be $1.2
million in 1997, $21.5 million in 1998, $14.0 million in 1999, $6.5 million
in 2000, and $6.5 million in 2001.
The Company anticipates that future capital requirements will be met
by both internally generated cash flows, available investments and
available external financing.
The Company plans to continue to evaluate and pursue opportunities to
enhance shareholder return through nonregulated business investments.
Nonregulated projects are expected to be financed from the existing
investment portfolio and from other available financing options.
Information relating to capital resources and liquidity is
incorporated by reference to "Management's Discussion and Analysis" on
pages 1 - 6 of the financial section of the Company's 1996 Annual Report to
Stockholders, filed as an Exhibit hereto.
NONREGULATED OPERATIONS
GRANT, INC. Grant, Inc., which holds title to property not used in
the Company's utility business, was incorporated in South Dakota in 1972.
NORTHWESTERN ENERGY CORPORATION. Northwestern Energy Corporation
markets natural gas and energy related services, and has interests in
nonregulated energy holdings.
NORTHWESTERN GROWTH CORPORATION (NGC). NGC was incorporated under the
laws of South Dakota in 1994 to pursue and manage nonutility investments
and development activities. NGC owns majority common stock control of SYN
Inc., the entity created to acquire Synergy and Western Gas. Other NGC
assets include a portfolio of marketable securities and the investments of
two subsidiaries: Northwestern Networks, Inc., which holds a common stock
investment in LodgeNet Entertainment Corporation, a provider of television
entertainment and information systems to hotels and motels, and
Northwestern Systems, Inc., which owns 100% of the common stock of Lucht
Inc., a firm that develops, manufactures, and markets multi-image
photographic printers and other related equipment. Although the primary
focus of NGC's investment program will be to continue to seek growth
opportunities in the energy, energy equipment, and energy services
industries, NGC will also continue to pursue opportunities in existing and
emerging growth entities in non-energy industries that meet return and
capital gain requirements.
Additional information relating to nonregulated business is
incorporated by reference to "Management's Discussion and Analysis" on
pages 1 - 6 of the financial section of the Company's 1996 Annual Report to
Stockholders, filed as an Exhibit hereto.
EMPLOYEES
At December 31, 1996, the Company had 436 utility employees. A three-
year collective bargaining agreement which expires June 30, 1998, covers
239 operating and clerical employees. The Company has never experienced a
work stoppage or strike and considers its relationship with its employees
to be very good.
At December 31, 1996, the Company had 1,995 employees involved in its
propane operations. None of these employees are represented by unions.
The Company has not experienced any work stoppage or other significant
labor problems and believes it has a good relationship with its employees.
At December 31, 1996, the Company had 150 employees involved in its
manufacturing operations. None of these employees are represented by
unions. The Company has not experienced any work stoppage or other
significant labor problems and believes it has a good relationship with its
employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
R. A. Wilkens, Chairman of the Board, age 68
Chairman of the Board of Directors since February 1994. Formerly
Chief Executive Officer from 1990-1994; President from 1980-1994.
M. D. Lewis, President and Chief Executive Officer, age 49
President and Chief Executive Officer since February 1994; formerly
Executive Vice President from May 1993, to February 1994; Executive
Vice President-Corporate Services 1992-1993; Vice President-Corporate
Services 1987-1992; Assistant Corporate Secretary 1982-1993. Mr.
Lewis also serves as Chairman and Chief Executive Officer of
Northwestern Growth Corporation since September 1994. Mr. Lewis is
also a member of the board of directors of Cornerstone Propane
Partners, Lucht, Inc. and Northwestern Energy Corporation. Mr. Lewis
has been elected to serve as Chairman of the Board of Northwestern
Public Service effective May 1, 1997.
R. R. Hylland, Executive Vice President, age 36
Executive Vice President - Strategic Development since November 1995;
formerly Vice President-Strategic Development from August 1995 to
November 1995; Vice President Corporate Development from 1993-1995;
Vice President-Finance from 1991-1995; Treasurer from 1990-1994; Mr.
Hylland also serves as President and Chief Operating Officer of
Northwestern Growth Corporation since September 1994. Mr. Hylland is
also a member of the board of directors of Northwestern Public
Service, Northwestern Growth Corporation, LodgeNet Entertainment
Corporation, Lucht, Inc., Cornerstone Propane Partners and Franklin
Industries.
A. D. Dietrich, Vice President - Administration and Corporate Secretary,
age 46
Vice President-Administration since November 1994; Corporate Secretary
since October 1989; formerly Vice President-Legal May 1990-November
1994.
A. R. Donnell, Vice President - Energy Operations, age 53
Vice President-Energy Operations since November 1994; formerly Vice
President-Electric Operations July 1987-November 1994.
T. A. Gulbranson, Vice President - Energy Services, age 49
Vice President - Energy Services since January 1996; formerly Vice
President November 1994-January 1996; Vice President-Corporate
Services May 1993-November 1994; Vice President-Community Development
1988-1993.
R. F. Leyendecker, Vice President - Market Development, age 51
Vice President-Market Development since January 1996; formerly Vice
President-Energy Services November 1994-January 1996; Vice President-
Rates & Regulation 1987-November 1994.
W. K. Lotsberg, Vice President - Public Affairs, age 54
Vice President-Public Affairs since May 1994; formerly Vice President-
Consumer Affairs March 1989-May 1994.
D. K. Newell, Vice President - Finance, age 40
Vice President - Finance since July 1995. Joined the Company in July
1995. Formerly CFO, Vice President - Finance and Treasurer with Energy
Fuels Corporation. Mr. Newell also serves as Executive Vice President
of Northwestern Growth Corporation since July 1995. Mr. Newell also
is a member of the board of directors of Northwestern Growth
Corporation, Cornerstone Propane Partners, Lucht, Inc. and Franklin
Industries.
D. C. Oberlander, Assistant Vice President, age 51
Assistant Vice President since May 1994; formerly Controller April
1991-May 1994; Assistant Controller December 1990-April 1991; Manager-
Information Systems 1979-1990.
R. A. Thaden, Vice President - Communications and Treasurer, age 45
Vice President-Communications since February 1997; Treasurer since
November 1994; formerly Manager-Corporate Accounting 1987-November
1994. Ms. Thaden also serves as Vice President and Treasurer of
Northwestern Growth Corporation since September 1995.
All of the executive officers of the registrant serve at the
discretion of the Board and are elected annually by the Board of Directors
following the Annual Meeting of Stockholders. No family relationships
exist between any officers of the Company.
ITEM 2. PROPERTIES
ELECTRIC PROPERTY
The Company's electric properties consist of an interconnected and
integrated system. The Company, Otter Tail Power Company (Otter Tail), and
Montana-Dakota Utilities Co. (MDU) jointly own Big Stone, a 455,783
kilowatt (kw) nameplate capacity coal-fueled electric generating plant and
related transmission facilities. Big Stone is operated by Otter Tail for
the benefit of the owners. The Company owns 23.4% of the Big Stone Plant.
The Company is one of four power suppliers which jointly own Coyote, a
455,782 kw nameplate capacity lignite-fueled electric generating plant and
related transmission facilities located near Beulah, North Dakota. The
Company has a 10% interest in Coyote, which is operated by MDU for the
benefit of the owners.
The Company is one of 14 power suppliers which jointly own Neal, a
639,999 kw nameplate capacity coal-fueled electric generating plant and
related transmission facilities located near Sioux City, Iowa. MidAmerican
Energy Company is principal owner of Neal and is the operator of the unit.
The Company has an 8.7% interest in Neal.
The Company has an undivided interest in these jointly owned
facilities and is responsible for its proportionate share of the capital
and operating costs while being entitled to its proportionate share of the
power generated. Each participant finances its own investment. The
Company's interest in each plant is reflected in the Consolidated Balance
Sheet on a pro rata basis, and its share of operating expenses is reflected
in the Consolidated Statement of Income and Retained Earnings.
In addition to its interest in Big Stone, Coyote and Neal, the Company
owns and operates 19 fuel oil and gas-fired units for peaking and reserve
capacity.
As of December 31, 1996, the aggregate nameplate capacity of all
Company-owned electric generating units was 327,419 kw, with an aggregate
net summer peaking capacity of 306,572 kw and a net winter peaking capacity
of 327,449 kw. In addition to owned capacity, the Company entered into two
contractual agreements to purchase firm capacity to assist in meeting peak
energy needs.
The Company's interconnected transmission system consists of 321.8
miles operating at 115 kilovolts (kv) and 897.6 miles operating at 69 kv
and 34.5 kv. The Company also owns three segments of transmission line,
which are not tied to its internal system, in connection with its joint
ownership in the three large steam generating plants. These lines consist
of 18.2 miles of 230 kv line from Big Stone, 25.4 miles of 345 kv line from
Neal, and 23.1 miles of 345 kv line from Coyote. In addition to these
lines, the Company owns 1,732.3 miles of distribution lines serving
customers in more than 100 communities and adjacent rural areas. The
Company owns 38 transmission substations with a total rated capacity of
1,111,417 kilovolt amperes (kva), two mobile substations with a total rated
capacity of 5,500 kva and 78 distribution substations with a total rated
capacity of 350,949 kva.
GAS PROPERTY
On December 31, 1996, the Company owned 1,017 miles of distribution
mains and appurtenant facilities in South Dakota. The Company also owns
propane-air facilities in Aberdeen, Brookings, Huron, and Mitchell, South
Dakota, having a total rated capacity of 15,280 MMBTU per day, which are
operated for standby and peak shaving purposes only.
On December 31, 1996, the Company owned 659 miles of distribution
mains and appurtenant facilities in Nebraska. The Company also owns
propane-air facilities at Kearney and North Platte, Nebraska, having a
total rated capacity of 9,380 MMBTU per day, which are operated for standby
and peak shaving purposes only.
PROPANE PROPERTY
The Company operates 312 service centers consisting of appliance
showrooms, bulk storage plants, warehousing space, maintenance facilities,
garages, and storage depots of large propane tanks with associated
distribution equipment. These service center facilities are located in 26
states comprised of Texas, New Mexico, Oklahoma, Mississippi, Tennessee,
Arkansas, Missouri, Vermont, New Hampshire, New York, Maryland, New Jersey,
Virginia, North Carolina, South Carolina, Ohio, Florida, California,
Alaska, Nevada, Utah, Indiana, Illinois, Georgia, Alabama, and Kentucky.
CHARACTER OF OWNERSHIP
All mortgage bonds issued under the Company's General Mortgage
Indenture and Deed of Trust dated as of August 1, 1993 (the "Indenture")
are secured by a first mortgage lien on the Company's properties used in
the generation, production, transmission or distribution of electric energy
or the distribution of natural gas in any form and for any purpose, with
certain exceptions expressly provided in the Indenture. The principal
offices and properties of the Company are held in fee and are free from
other encumbrances, subject to minor exceptions, none of which is of such a
nature as substantially to impair the usefulness to the Company of such
properties. In general, the electric lines and natural gas lines and mains
are located on land not owned in fee, but are covered by necessary consents
of various governmental authorities or by appropriate rights obtained from
owners of private property. These consents and rights are deemed adequate
for the purposes for which they are being used.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various pending proceedings and suits, but
in the judgment of management after consultation with counsel for the
Company, the nature of such proceedings and suits, and the amounts involved
do not depart from the routine litigation and proceedings incident to the
kind of business conducted by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No issues were submitted to a vote of security holders during the last
quarter of the period covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information required by this Item 5 is incorporated by reference
to page 21 of the Company's 1996 Annual Report to Stockholders, filed as an
Exhibit hereto.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is incorporated by reference
to "Financial Statistics" on page 21 of the financial section of the
Company's 1996 Annual Report to Stockholders, filed as an Exhibit hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The information required by this Item 7 is incorporated by reference
to "Management's Discussion and Analysis" on pages 1 - 6 of the financial
section of the Company's 1996 Annual Report to Stockholders, filed as an
Exhibit hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is incorporated by reference
to the Company's financial statements and related footnotes on pages 11 -
20, of the financial section of the Company's 1996 Annual Report to
Stockholders, filed as an Exhibit hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in accountants or disagreements on
accounting principles or practices or financial statement disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT
(a) IDENTIFICATION OF DIRECTORS
The information regarding directors required by this Item 10 and
paragraphs (a) and (e) of Item 401 of Regulation S-K is incorporated by
reference to the information under "Election of Directors" in the Company's
definitive Proxy Statement dated March 15, 1997, and filed with the
Commission pursuant to Regulation 14A under the Securities Exchange Act of
1934 within 120 days after the close of the Company's fiscal year ended
December 31, 1996.
The information relating to the Company's executive officers is set
forth in Part I of this Annual Report on Form 10-K.
Reports to the Securities and Exchange Commission
The information required by Item 405 of Regulation S-K is incorporated
by reference to the information under "Reports to the Securities and
Exchange Commission" in the Company's definitive Proxy Statement dated
March 15, 1997 and filed with the Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934 within 120 days after the close
of the Company's fiscal year ended December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference
to the information under "Compensation of Directors and Executive Officers"
in the Company's definitive Proxy Statement dated March 15, 1997, and filed
with the Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934 within 120 days after the close of the Company's
fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference
to the information under "Securities Ownership by Directors and Officers"
in the Company's definitive Proxy Statement dated March 15, 1997, and filed
with the Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934 within 120 days after the close of the Company's
fiscal year ended December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
The Company has no relationships or transactions covered by this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1. Financial Statements
The following items are included in this annual report by reference to
the registrant's Annual Report to Stockholders for the year ended December
31, 1996:
Page in financial
section of Annual
Report to Stockholders
FINANCIAL STATEMENTS:
Report of Independent Public Accountants 7
Consolidated Statements of Income and
Retained Earnings for the Three Years
Ended December 31, 1996 8
Consolidated Statement of Cash Flows for the
Three Years Ended December 31, 1996 9
Consolidated Balance Sheets,
December 31, 1996 and 1995 10
Notes to Consolidated Financial Statements 11-20
Quarterly Unaudited Financial Data for the
Two Years Ended December 31, 1996 20
2. Financial Statement Schedules
The following supplemental financial data included herein should be
read in conjunction with the financial statements referenced above:
Page in
Form 10-K
----------
Report of Independent Public Accountants 26
Schedule II - Valuation and Qualifying Accounts 27
Schedules other than those listed above are omitted because of the
absence of the conditions under which they are required or because the
information required is included in the financial statements or the notes
thereto.
3. Exhibits
The exhibits listed on the Exhibit Index beginning on page 28 of this
Annual Report on Form 10-K are filed herewith or are incorporated herein by
reference to other filings.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended
December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NORTHWESTERN PUBLIC SERVICE COMPANY (Registrant)
/s/ M. D. Lewis
M. D. Lewis, Director and President and Chief Executive Officer
March 15th, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ R. A. Wilkens
- -------------------------------
R. A. Wilkens, Chairman of the Board of Directors
/s/ M. D. Lewis
- -------------------------------
M. D. Lewis, Director and President and Chief Executive Officer
/s/ R. R. Hylland
- -------------------------------
R. R. Hylland, Director and Executive Vice President
/s/ D. K. Newell
- -------------------------------
D. K. Newell, Vice President-Finance (Principal Financial Officer)
/s/ Rogene A. Thaden
- -------------------------------
Rogene A. Thaden, Vice President-Communications and Treasurer (Principal
Accounting Officer)
/s/ Jerry W. Johnson
- -------------------------------
Jerry W. Johnson, Director
/s/ Aelred J. Kurtenbach
- -------------------------------
Aelred J. Kurtenbach, Director
/s/ Herman Lerdal
- -------------------------------
Herman Lerdal, Director
/s/ Larry F. Ness
- -------------------------------
Larry F. Ness, Director
/s/ Raymond M. Schutz
- -------------------------------
Raymond M. Schutz, Director
/s/ Bruce I. Smith
- -------------------------------
Bruce I. Smith, Director
/s/ Gary Olson
- -------------------------------
Gary Olson, Director
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Northwestern Public Service Company:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Northwestern Public
Service Company's annual report to shareholders incorporated by reference
in this Form 10-K, and have issued our report thereon dated January 31,
1997. Our audit was made for the purpose of forming an opinion on those
financial statements taken as a whole. The schedule listed in the table of
contents of financial statements is the responsibility of the Company's
management and is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
January 31, 1997
NORTHWESTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
- ---------------------------- ----------- --------------------- --------- -----------
Additions
Balance ---------------------
Beginning Charged to Charged Balance
of Period Costs and to Other Deductions End
Description Expenses Expenses of Period
- ---------------------------- ------------ ----------- --------- ------------ -----------
FOR THE YEAR ENDED DECEMBER 31, 1996
- ------------------------------------
RESERVES DEDUCTED
FROM APPLICABLE ASSETS:
Uncollectible accounts $ 8,704,698 $3,109,374 $ $(6,445,418) $ 5,368,654
=========== =========== ======== ============ ===========
OTHER DEFERRED CREDITS:
Reserve for decommissioning costs $ 7,788,482 $ 511,341 $ $ $ 8,299,823
=========== =========== ======== ============ ===========
FOR THE YEAR ENDED DECEMBER 31, 1995
- ------------------------------------
RESERVES DEDUCTED
FROM APPLICABLE ASSETS:
Uncollectible accounts $ 5,907,675 $ 827,909 $ $ (310,681) $ 6,424,903
=========== =========== ======== ============ ===========
OTHER DEFERRED CREDITS:
Reserve for decommissioning costs $ 7,278,173 $ 510,309 $ $ $ 7,788,482
=========== =========== ======== ============ ===========
FOR THE YEAR ENDED DECEMBER 31, 1994
- ------------------------------------
RESERVES DEDUCTED
FROM APPLICABLE ASSETS:
Uncollectible accounts $ 400,000 $ 129,039 $ $ (129,039) $ 400,000
=========== =========== ======== ============ ===========
OTHER DEFERRED CREDITS:
Reserve for decommissioning costs $ 6,769,631 $ 508,542 $ $ $ 7,278,173
=========== =========== ======== ============ ===========
The beginning balance for 1996 and 1995 were restated to reflect propane acquisitions that
occurred during those periods.
All deductions from reserves were for purposes for which such reserves were created.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1996
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3(a)(1)
Registrant's Restated Certificate of Incorporation, dated February 7, 1990,
is incorporated by reference to Exhibit 3(a)(1) to Form 10-K for the year
ended December 31, 1989, Commission File No. 0-692.
3(a)(2)
Certificate of Retirement of Preferred Stocks, dated January 13, 1992, is
incorporated by reference to Exhibit 3(a)(2) to Form 10-K for the year
ended December 31, 1991, Commission File No. 0-692.
3(a)(3)
Certificate of Amendment of Restated Certificate of Incorporation, dated
May 16, 1996.
3(a)(4)
Certificate of Retirement of Preferred Stocks, dated June 20, 1996.
3(b)
Registrant's By-Laws, as amended, dated August 7, 1996.
(4) INDENTURES AND POLLUTION CONTROL FACILITY OBLIGATIONS
4(a)(1)
General Mortgage Indenture and Deed of Trust, dated as of August 1, 1993,
from the Company to The Chase Manhattan Bank (National Association), as
Trustee, is incorporated by reference to Exhibit 4(a) of Form 8-K, dated
August 16, 1993, Commission File No. 0-692.
4(a)(2)
Supplemental Indenture, dated August 15, 1993, from the Company to The
Chase Manhattan Bank (National Association), as Trustee, is incorporated by
reference to Exhibit 4(b) of Form 8-K, dated August 16, 1993, Commission
File No. 0-692.
4(a)(3)
Letter Agreement, dated July 28, 1995, from the Company to The Chase
Manhattan Bank (National Association), as Trustee, the Travelers Insurance
Company, and Metropolitan Life Insurance Company pursuant to which each
party agreed to amend the 1940 Mortgage Indenture and allow bonds issued
under the 1940 Indenture be exchanged for comparable bonds under the 1993
General Mortgage Indenture and Deed of Trust.
4(a)(4)
Supplemental Indenture, dated August 1, 1995, from the Company to The Chase
Manhattan Bank (National Association), as Trustee, is incorporated by
reference to Exhibit 4(b) of Form 8-K, dated August 30, 1995, Commission
File No. 0-692.
4(a)(5)
Supplemental Indenture, dated September 1, 1995, from the Company to The
Chase Manhattan Bank (National Association), as Trustee, concerning the New
Mortgage Bonds, 6.99% Series due 2002.
4(a)(6)
Supplemental Indenture, dated September 1, 1995, from the Company to The
Chase Manhattan Bank (National Association), as Trustee, concerning the New
Mortgage Bonds, 8.824% Series due 1998.
4(a)(7)
Supplemental Indenture, dated September 1, 1995, from the Company to The
Chase Manhattan Bank (National Association), as Trustee, concerning the New
Mortgage Bonds, 8.90% Series due 1999.
4(b)(1)
Preferred Securities Guarantee Agreement, dated August 3, 1995, between the
Company and Wilmington Trust Company is incorporated by reference to
Exhibit 1(d) of Form 8-K, dated August 30, 1995, Commission File No. 0-692.
4(b)(2)
Declaration of Trust of NWPS Capital Financing I is incorporated by
reference to Exhibit 4(d) of Form 8-K, dated August 30, 1995, Commission
File No. 0-692.
4(b)(3)
Amended and Restated Declaration of Trust of NWPS Capital Financing I is
incorporated by reference to Exhibit 4(e) of Form 8-K, dated August 30,
1995, Commission File No. 0-692.
4(b)(4)
Subordinated Debt Securities Indenture, dated August 1, 1995, between the
Company and The Chase Manhattan Bank (National Association), as Trustee, is
incorporated by reference to Exhibit 4(f) of Form 8-K, dated August 30,
1995, Commission File No. 0-692.
4(b)(5)
First Supplemental Indenture, dated August 1, 1995, to the Subordinated
Debt Securities Indenture is incorporated by reference to Exhibit 4(g) of
Form 8-K, dated August 30, 1995, Commission File No. 0-692.
4(c)(1)
Copy of Sale Agreement between Company and Mercer County, North Dakota,
dated June 1, 1993, related to issuance of Pollution Control Refunding
Revenue Bonds (Northwestern Public Service Company Project) Series 1993, is
incorporated by reference to Exhibit 4(b)(1) of Registrant's report on Form
10-Q for the quarter ending June 30, 1993, Commission File No. 0-692.
4(c)(2)
Copy of Loan Agreement between Company and Grant County, South Dakota,
dated June 1, 1993, related to issuance of Pollution Control Refunding
Revenue Bonds (Northwestern Public Service Company Project) Series 1993A,
is incorporated by reference to Exhibit 4(b)(2) of Registrant's report on
Form 10-Q for the quarter ending June 30, 1993, Commission File No. 0-692.
4(c)(3)
Copy of Loan Agreement between Company and Grant County, South Dakota,
dated June 1, 1993, related to issuance of Pollution Control Refunding
Revenue Bonds (Northwestern Public Service Company Project) Series 1993B,
is incorporated by reference to Exhibit 4(b)(3) of Registrant's report on
Form 10-Q for the quarter ending June 30, 1993, Commission File No. 0-692.
4(c)(4)
Copy of Loan Agreement between Company and City of Salix, Iowa, dated June
1, 1993, related to issuance of Pollution Control Refunding Revenue Bonds
(Northwestern Public Service Company Project) Series 1993, is incorporated
by reference to Exhibit 4(b)(4) of Registrant's report on Form 10-Q for the
quarter ending June 30, 1993, Commission File No. 0-692.
(10) MATERIAL CONTRACTS
10(a)(1)
Supplemental Income Security (Retirement) Plan for Directors, Officers and
Managers, as amended January 1, 1997.
10(a)(2)
Deferred Compensation Plan for Non-employee Directors adopted November 6,
1985, is incorporated by reference to Exhibit 10(g)(2) to Form 10-K for the
year ended December 31, 1988, Commission File No. 0-692.
10(a)(3)
Pension Equalization Plan, dated August 5, 1987, is incorporated by
reference to Exhibit 10(g)(4) to Form 10-K for the year ended December 31,
1988, Commission File No. 0-692.
10(a)(4)
Director Retirement Plan, dated November 4, 1987, as amended May 3, 1995,
is incorporated by reference to Exhibit 10(a)(4) to Form 10-K for the year
ended December 31, 1995, Commission File No. 0-692.
10(a)(5)
Long-term Incentive Compensation Plan (Phantom Stock Unit Plan) for
Directors and Officers, dated February 1, 1989, as amended May 3, 1996.
10(a)(6)
Form of Severance Agreement for Officers, dated November 1, 1995, is
incorporated by reference to Exhibit 10(a)(6) to Form 10-K for the year
ended December 31, 1995, Commission File No. 0-692.
10(a)(7)
Annual Performance Incentive Plan (NorthSTAR Plan) for all eligible
employees, as amended May 1, 1996.
(13) REPORT FURNISHED TO SECURITY HOLDERS
13(a)
Annual Report for fiscal year ended December 31, 1996, furnished to
stockholders of record on March 11, 1997 (exhibit filed herewith).
(21) SUBSIDIARIES OF REGISTRANT
State of Jurisdiction
of Incorporation
Name or Limited Partnership
- ------------------------------------- ----------------------
Northwestern Public Service Company Delaware
Grant, Inc. South Dakota
Northwestern Growth Corporation South Dakota
Northwestern Networks, Inc. South Dakota
Northwestern Systems, Inc. South Dakota
Lucht Inc. Delaware
Cornerstone Propane GP, Inc. California
SYN Inc. (1) Delaware
Cornerstone Propane Delaware -
Partners, L.P.(2) Limited Partnership
Northwestern Energy Corporation South Dakota
Nekota Resources Inc. South Dakota
(1) Cornerstone Propane GP, Inc. owns 82.5% of the common stock of
SYN Inc.
(2) Cornerstone Propane GP, Inc. and SYN Inc. own a combined partnership
interest of 41.4% of Cornerstone Propane Partners, L.P.