Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1996 or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 1-3548 Minnesota Power & Light Company A Minnesota Corporation IRS Employer Identification No. 41-0418150 30 West Superior Street Duluth, Minnesota 55802 Telephone - (218) 722-2641 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Common Stock, no par value, 31,673,778 shares outstanding as of April 30, 1996
Minnesota Power & Light Company Index Page Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheet - March 31, 1996 and December 31, 1995 1 Consolidated Statement of Income - Quarter ended March 31, 1996 and 1995 2 Consolidated Statement of Cash Flows - Quarter ended March 31, 1996 and 1995 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12
Definitions The following abbreviations or acronyms are used in the text. Abbreviation or Acronym Term - -------------------- ------------------------------------------------------ 1995 Form 10-K Minnesota Power's Annual Report on Form 10-K for the Year Ended December 31, 1995 ADESA ADESA Corporation Capital Re Capital Re Corporation Company Minnesota Power & Light Company and its Subsidiaries CPI Consolidated Papers, Inc. DRIP Automatic Dividend Reinvestment and Stock Purchase Plan ESOP Employee Stock Ownership Plan FERC Federal Energy Regulatory Commission Heater Heater Utilities, Inc. Lehigh Lehigh Acquisition Corporation Minnesota Power Minnesota Power & Light Company and its Subsidiaries MW Megawatt(s) NOPR Notice of Proposed Rulemaking QUIPS Quarterly Income Preferred Securities Seabrook Heater of Seabrook, Inc. Square Butte Square Butte Electric Cooperative SSU Southern States Utilities, Inc.
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Minnesota Power Consolidated Balance Sheet In Thousands March 31, December 31, 1996 1995 Unaudited Audited - -------------------------------------------------------------------------------- Assets Plant and Other Assets Electric operations $ 802,417 $ 800,477 Water operations 316,807 323,182 Automobile auctions 134,043 123,632 Investments 196,279 201,360 ----------- ----------- Total plant and other assets 1,449,546 1,448,651 ----------- ----------- Current Assets Cash and cash equivalents 60,270 31,577 Trading securities 45,955 40,007 Trade accounts receivable (less reserve of $3,716 and $3,325) 173,207 128,072 Notes and other accounts receivable 18,172 12,220 Fuel, material and supplies 22,799 26,383 Prepayments and other 14,213 13,706 ----------- ----------- Total current assets 334,616 251,965 ----------- ----------- Deferred Charges Regulatory 82,946 88,631 Other 26,438 25,037 ----------- ----------- Total deferred charges 109,384 113,668 ----------- ----------- Intangible Assets Goodwill 121,124 120,245 Other 13,038 13,096 ----------- ----------- Total intangible assets 134,162 133,341 ----------- ----------- Total Assets $ 2,027,708 $ 1,947,625 - -------------------------------------------------------------------------------- Capitalization and Liabilities Capitalization Common stock without par value, 65,000,000 shares authorized 31,647,679 and 31,467,650 shares outstanding $ 379,925 $ 377,684 Unearned ESOP shares (71,964) (72,882) Net unrealized gain on securities investments 819 3,206 Cumulative translation adjustment (191) (177) Retained earnings 278,665 276,241 ----------- ----------- Total common stock equity 587,254 584,072 Cumulative preferred stock 28,547 28,547 Redeemable serial preferred stock 20,000 20,000 Company obligated mandatorily redeemable preferred securities of MP&L Capital I 75,000 - Long-term debt 576,362 639,548 ----------- ----------- Total capitalization 1,287,163 1,272,167 ----------- ----------- Current Liabilities Accounts payable 101,615 68,083 Accrued taxes 62,334 40,999 Accrued interest and dividends 9,744 14,471 Notes payable 45,096 96,218 Long-term debt due within one year 68,821 9,743 Other 35,470 27,292 ----------- ----------- Total current liabilities 323,080 256,806 ----------- ----------- Deferred Credits Accumulated deferred income taxes 162,532 164,737 Contributions in aid of construction 96,467 98,167 Regulatory 57,221 57,950 Other 101,245 97,798 ----------- ----------- Total deferred credits 417,465 418,652 ----------- ----------- Total Capitalization and Liabilities $ 2,027,708 $ 1,947,625 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of this statement. -1-
Minnesota Power Consolidated Statement of Income In Thousands Except Per Share Amounts - Unaudited Quarter Ended March 31, 1996 1995 - -------------------------------------------------------------------------------- Operating Revenue and Income Electric operations $ 131,501 $ 120,754 Water operations 19,227 15,600 Automobile auctions 39,693 - Investments 12,255 10,332 ----------- ----------- Total operating revenue and income 202,676 146,686 ----------- ----------- Operating Expenses Fuel and purchased power 43,643 40,310 Operations 86,030 62,142 Administrative and general 33,792 18,459 Interest expense 14,160 11,100 ----------- ----------- Total operating expenses 177,625 132,011 ----------- ----------- Income (Loss) from Equity Investments 3,777 (6,271) ----------- ----------- Operating Income from Continuing Operations 28,828 8,404 Income Tax Expense (Benefit) 10,324 (15,401) ----------- ----------- Income from Continuing Operations 18,504 23,805 Income from Discontinued Operations - 1,652 ----------- ----------- Net Income 18,504 25,457 Dividends on Preferred Stock 800 800 Distributions on Company Obligated Mandatorily Redeemable Preferred Securities of MP&L Capital I 201 - ----------- ----------- Earnings Available for Common Stock $ 17,503 $ 24,657 =========== =========== Average Shares of Common Stock 28,786 28,368 Earnings Per Share of Common Stock Continuing operations $ .61 $ .81 Discontinued operations - .06 ----- ----- Total $ .61 $ .87 ===== ===== Dividends Per Share of Common Stock $ .51 $ .51 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of this statement. -2-
Minnesota Power Consolidated Statement of Cash Flows In Thousands - Unaudited Quarter Ended March 31, 1996 1995 - -------------------------------------------------------------------------------- Operating Activities Net income $ 18,504 $ 25,457 Depreciation and amortization 16,216 13,766 Deferred income taxes (742) (17,415) Deferred investment tax credits (623) (620) Pre-tax gain on sale of plant (1,073) - Changes in operating assets and liabilities Trading securities (5,948) 2,336 Notes and accounts receivable (45,776) 8,763 Fuel, material and supplies 3,584 (1,613) Accounts payable 33,532 (7,052) Other current assets and liabilities 24,078 16,104 Other - net 5,342 3,698 --------- -------- Cash from operating activities 47,094 43,424 --------- -------- Investing Activities Proceeds from sale of investments in securities 7,849 26,466 Additions to investments (4,449) (20,042) Additions to plant (25,427) (17,027) Changes to other assets - net 250 1,035 --------- -------- Cash for investing activities (21,777) (9,568) --------- -------- Financing Activities Issuance of common stock 4,546 829 Issuance of long-term debt 77,108 305 Issuance of Company obligated mandatorily redeemable preferred securities of MP&L Capital I - net 72,638 - Changes in notes payable (53,821) (23,931) Reductions of long-term debt (81,217) (989) Dividends on preferred and common stock (15,878) (15,720) --------- -------- Cash from (for) financing activities 3,376 (39,506) --------- -------- Change in Cash and Cash Equivalents 28,693 (5,650) Cash and Cash Equivalents at Beginning of Period 31,577 27,001 --------- -------- Cash and Cash Equivalents at End of Period $ 60,270 $ 21,351 ========= ======== Supplemental Cash Flow Information Cash paid during the period for Interest (net of capitalized) $ 17,781 $ 16,616 Income taxes $ 2,844 $ 982 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of this statement. -3-
Notes to Consolidated Financial Statements The accompanying unaudited consolidated financial statements and notes should be read in conjunction with the Company's 1995 Form 10-K. In the opinion of the Company, all adjustments necessary for a fair statement of the results for the interim periods have been included. The results of operations for an interim period may not give a true indication of results for the year. The income statement information for prior periods has been reclassified to reflect the discontinuance of the paper and pulp business. Financial statement information may not be comparable between periods due to the purchase of ADESA on July 1, 1995. Note 1. Business Segments In Thousands <TABLE> <CAPTION> Investments ---------------------- Corporate Electric Water Automobile Portfolio & Real Charges Consolidated Operations Operations Auctions <F1> Reinsurance Estate & Other ------------ ----------- ---------- ------------ ----------- ------ ---------- Quarter Ended March 31, 1996 - ---------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Operating revenue and income $ 202,676 $ 131,501 $ 19,227 $ 39,693 $ 3,869 $ 8,676 $ (290) Operation and other expense 147,249 95,307 11,518 34,202 523 3,213 2,486 Depreciation and amortization expense 16,216 10,499 3,137 2,550 - 30 - Interest expense 14,160 5,674 3,190 1,291 1 2 4,002 Income from equity investments 3,777 - - - 3,777 - - ---------- ---------- ---------- ---------- ---------- ---------- --------- Operating income from continuing operations 28,828 20,021 1,382 1,650 7,122 5,431 (6,778) Income tax expense (benefit) 10,324 7,742 449 662 2,322 2,363 (3,214) ---------- ---------- ---------- ---------- ---------- ---------- --------- Net income $ 18,504 $ 12,279 $ 933 $ 988 $ 4,800 $ 3,068 $ (3,564) ========== ========== ========== ========== ========== ========== ========= Total assets $2,027,708 $ 990,018 $ 340,312 $ 429,604 $ 210,973 $ 55,225 $ 1,576 Accumulated depreciation $ 631,694 $ 518,311 $ 110,536 $ 2,847 - - - Accumulated amortization $ 4,195 - - $ 3,398 - $ 797 - Construction work in progress $ 55,491 $ 27,715 - $ 27,776 - - - Quarter Ended March 31, 1995 - ---------------------------- Operating revenue and income $ 146,686 $ 120,754 $ 15,600 - $ 6,739 $ 4,265 $ (672) Operation and other expense 108,310 87,037 11,055 - 935 7,134<F3> 2,149 Depreciation and amortization expense 12,601 10,021 2,520 - - 60 - Interest expense 11,100 5,497 2,463 - 2 2 3,136 Income (loss) from equity investments (6,271) - - - 2,257 - (8,528)<F2> ---------- ---------- ---------- ---------- ---------- ---------- --------- Operating income (loss) from continuing operations 8,404 18,199 (438) - 8,059 (2,931) (14,485) Income tax expense (benefit) (15,401) 7,782 (395) - 1,775 (18,015)<F4> (6,548) ---------- ---------- ---------- ---------- ---------- ---------- --------- Income (loss) from continuing operations 23,805 $ 10,417 $ (43) - $ 6,284 $ 15,084 $ (7,937) ========== ========== ========== ========== ========== ========= Income from discontinued operations 1,652 ---------- Net income $ 25,457 ========== Total assets $1,786,626<F5> $ 992,699 $ 310,776 - $ 274,383 $ 34,443 $ 362 Accumulated depreciation $ 598,644<F6> $ 501,545 $ 91,334 - - - - Accumulated amortization $ 507 - - - - $ 507 - Construction work in progress $ 37,155 $ 30,432 $ 6,723 - - - - - -------------------------------- <FN> <F1> Purchased July 1, 1995. <F2> Includes an $8.5 million pre-tax provision for exiting the equipment manufacturing business. <F3> Includes $3.7 million of minority interest relating to the recognition of tax benefits. (See Note 4.) <F4> Includes $18.4 million of tax benefits. (See Note 4.) <F5> Includes $174 million related to operations discontinued in 1995. <F6> Includes $5.8 million related to operations discontinued in 1995. </FN> </TABLE> -4-
Note 2. Securities Investments <TABLE> <CAPTION> March 31, 1996 December 31, 1995 ------------------------------------- ---------------------------- Gross Unrealized Gross Unrealized ---------------- Fair ---------------- Fair Summary of Securities Cost Gain (Loss) Value Cost Gain (Loss) Value - ------------------------------------------------------------------------------------------------------------------- In Thousands <S> <C> <C> <C> <C> <C> <C> <C> <C> Trading $ 45,955 $ 40,007 ======== ========= Available-for-sale Common stock $ 2,599 $ - $ (519) $ 2,080 $ 2,599 $ - $ (451) $ 2,148 Preferred stock 59,758 1,617 (2,516) 58,859 64,506 1,969 (3,090) 63,385 ------- ------ ------- -------- -------- ------ ------- --------- $62,357 $1,617 $(3,035) $ 60,939 $ 67,105 $1,969 $(3,541) $ 65,533 ======= ====== ======= ======== ======== ====== ======= ========= </TABLE> The net unrealized gain on securities investments on the balance sheet also includes the Company's share of Capital Re's unrealized holding gains of $1.7 million at March 31, 1996 and $4.1 million at December 31, 1995. Quarter Ended March 31, 1996 1995 - ------------------------------------------------------------------------------- In Thousands Trading securities Change in net unrealized holding gain included in earnings $ 856 $ 778 Available-for-sale securities Proceeds from sales $ 7,849 $ 26,466 Gross realized gains $ 105 $ 274 Gross realized (losses) $ (367) $ (419) Note 3. Square Butte Purchased Power Contract The Company has a contract to purchase power and energy from Square Butte. Under the terms of the contract which extends through 2007, the Company is purchasing 71 percent of the output from a generating plant which is capable of generating up to 470 MW. Reductions to about 49 percent of the output are provided for in the contract and, at the option of Square Butte, could begin after a five-year advance notice to the Company. The cost of the power and energy is a proportionate share of Square Butte's fixed obligations and variable operating costs, based on the percentage of the total output purchased by the Company. The annual fixed obligations of the Company to Square Butte are $19.4 million from 1996 through 2000. The variable operating costs are not incurred unless production takes place. The Company is responsible for paying all costs and expenses of Square Butte if not paid by Square Butte when due. These obligations and responsibilities of the Company are absolute and unconditional whether or not any power is actually delivered to the Company. -5-
Note 4. Income Tax Expense Quarter Ended March 31, Schedule of Income Tax Expense (Benefit) 1996 1995 - -------------------------------------------------------------------------------- In Thousands Charged to continuing operations Current tax Federal $ 8,859 $ 5,402 Foreign (101) - State 2,931 (1,449) --------- --------- 11,689 3,953 --------- --------- Deferred tax Federal (12) (73) State (730) (261) --------- --------- (742) (334) --------- --------- Change in valuation allowance - (18,400) --------- Deferred tax credits (623) (620) --------- --------- Income tax - continuing operations 10,324 (15,401) --------- --------- Charged to discontinued operations Current tax Federal - (106) State - (17) --------- --------- - (123) --------- --------- Deferred tax Federal - 1,018 State - 301 --------- --------- - 1,319 --------- --------- Income tax - discontinued operations - 1,196 --------- --------- Total income tax expense (benefit) $ 10,324 $ (14,205) ========= ========= In March 1995 based on the results of a project which analyzed the economic feasibility of realizing future tax benefits available to the Company, the board of directors of Lehigh directed the management of Lehigh to dispose of Lehigh's assets in a manner that would maximize utilization of tax benefits. Based on this directive, Lehigh recognized $18.4 million of income in the first quarter of 1995 by reducing the valuation reserve which offsets deferred tax assets. Additional unrealized net deferred tax assets resulting from the original purchase of Lehigh of $8.2 million are included on the Company's balance sheet. These assets are fully offset by the deferred tax asset valuation allowance because under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," it is currently "more likely than not" that the value of these assets will not be realized. Management reviews the appropriateness of the valuation allowance quarterly. -6-
Note 5. Discontinued Operations On June 30, 1995 Minnesota Power sold its interest in the paper and pulp business. The financial results of the paper and pulp business, including the loss on disposition, have been accounted for as discontinued operations. Quarter Ended March 31, Summary of Discontinued Operations 1996 1995 - -------------------------------------------------------------------------------- In Thousands Operating revenue and income - $ 22,039 ========= Equity in earnings - $ 1,821 ========= Income from operations - $ 2,848 Income tax expense - 1,196 --------- Income from discontinued operations - $ 1,652 ========= The Company is still committed to a maximum guaranty of $95 million to ensure a portion of a $33.4 million annual lease obligation for paper mill equipment under an operating lease extending to 2012. The purchaser of the Company's paper and pulp business, CPI, has agreed to indemnify the Company for any payments the Company may make as a result of the Company's obligation relating to this operating lease. Note 6. Mandatorily Redeemable Preferred Securities of MP&L Capital I MP&L Capital I (Trust) was established as a wholly owned business trust of the Company for the purpose of issuing common and preferred securities (Trust Securities). On March 20, 1996 the Trust publicly issued three million 8.05% Cumulative Quarterly Income Preferred Securities (QUIPS), representing preferred beneficial interests in the assets held by the Trust, indirectly resulting in net proceeds to the Company of $72.6 million. Holders of the QUIPS are entitled to receive quarterly distributions at an annual rate of 8.05 percent of the liquidation preference value of $25 per security. The Company is the owner of all the common trust securities, which constitute approximately 3 percent of the aggregate liquidation amount of all the Trust Securities. The sole asset of the Trust is $77.5 million of 8.05% Junior Subordinated Debentures, Series A, Due 2015 (Subordinated Debentures) issued by the Company, interest on which is deductible by the Company for income tax purposes. The Trust will use interest payments received on the Subordinated Debentures it holds to make the quarterly cash distributions on the QUIPS. The QUIPS are subject to mandatory redemption upon repayment of the Subordinated Debentures at maturity or upon redemption. The Company has the option at any time on or after March 20, 2001, to redeem the Subordinated Debentures, in whole or in part. The Company also has the option, upon the occurrence of certain events, (i) to redeem at any time the Subordinated Debentures, in whole but not in part, which would result in the redemption of all the Trust Securities, or (ii) to terminate the Trust and cause the pro rata distribution of the Subordinated Debentures to the holders of the Trust Securities. In addition to the Company's obligations under the Subordinated Debentures, the Company has guaranteed, on a subordinated basis, payment of distributions on the Trust Securities, to the extent the Trust has funds available to pay such distributions, and has agreed to pay all of the expenses of the Trust (such additional obligations collectively, the Back-up Undertakings). Considered together, the Back-up Undertakings constitute a full and unconditional guarantee by the Company of the Trust's obligations under the QUIPS. -7-
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Minnesota Power has operations in four business segments: (1) electric operations, which include electric and gas services, and coal mining; (2) water operations, which include water and wastewater services; (3) automobile auctions, which also include a finance company and an auto transport company; and (4) investments, which include real estate operations in Florida, a 21 percent equity investment in a financial guaranty reinsurance company, and a securities portfolio. Earnings per share of common stock for the quarter ended March 31, 1996 were 61 cents compared to 87 cents for the quarter ended March 31, 1995. All four business segments were profitable for the first quarter ended March 31, 1996. Increased electric sales, a gain in water operations and improvement in real estate operations, excluding the recognition of tax benefits in 1995, were contributing factors to 1996 earnings. Higher earnings in 1995 were attributed to the 52 cent per share recognition of tax benefits associated with real estate operations. Earnings in 1995 also reflect an 18 cent per share provision associated with exiting the truck-mounted lifting equipment business. Quarter Ended March 31, Earnings Per Share 1996 1995 - -------------------------------------------------------------------------------- Continuing Operations Electric Operations $ .41 $ .35 Water Operations .03 .00 Automobile Auctions .03 - Investments Portfolio and reinsurance .17 .22 Real estate .11 .53 ----- ----- .28 .75 Corporate Charges and Other (.14) (.29) ----- ----- Total Continuing Operations .61 .81 Discontinued Operations - .06 ----- ----- Total Earnings Per Share $ .61 $ .87 ===== ===== Results of Operations Comparison of the Quarter Ended March 31, 1996 and 1995. Electric operations. Operating revenue and income from electric operations were higher in 1996 compared to 1995 due to a 14 percent increase in total kilowatt-hours sales. The increase in sales is attributed primarily to the Company's ability to market energy to other power suppliers. Extreme winter weather in 1996 compared to the milder winter in 1995 also increased sales. Revenue from electric sales to taconite customers accounted for 31 percent of electric operating revenue in 1996 compared to 36 percent in 1995. Electric sales to paper and other wood-products companies accounted for 11 percent of electric operating revenue in 1996 and 13 percent in 1995. Sales to other power suppliers accounted for 5 percent of electric operating revenue in 1996 compared to only 1 percent in 1995. Water operations. Operating revenue and income from water operations were higher in 1996 due to the $1.1 million pre-tax gain from the sale of Seabrook's assets in South Carolina, the addition of 17,000 new water and wastewater customers as a result of the December 1995 purchase of the assets of Orange Osceola Utilities in Florida, and SSU's implementation of a $7.9 million interim rate increase effective January 23, 1996. -8-
Automobile Auctions. Automobile auction operations were profitable despite severe winter weather on the east coast which limited auction sales in January 1996. New auctions began operations at Jacksonville, Florida and Newark, New Jersey during the first quarter of 1996. Consolidated operating expenses in 1996 are significantly higher due to the inclusion of ADESA's operations following its purchase by the Company in July 1995. Investments. - Securities Portfolio and Reinsurance. The Company's securities portfolio and reinsurance performed well in 1996. The portfolio produced less earnings in 1996 because its balance was smaller as a result of the sale of a portion of the portfolio to fund the purchase of ADESA. - Real Estate Operations. Revenue in 1996 includes $3.7 million from the sale of Lehigh's joint venture in a resort and golf course. In 1995 $18.4 million of tax benefits were recognized by Lehigh. The Company's portion of the tax benefits reflected as net income was $14.7 million, or 52 cents per share. Corporate Charges and Other. In March 1995 the Company recorded a $5 million provision, lowering earnings per share by 18 cents, in anticipation of exiting the truck-mounted lifting equipment business. Discontinued Operations. Income from discontinued operations in 1995 reflects the operating results of the paper and pulp business which was sold in June 1995. Liquidity and Financial Position Reference is made to the Consolidated Statement of Cash Flows for the three months ended March 31, 1996 and 1995, for purposes of the following discussion. Automobile auction operations, which were acquired in July 1, 1995, are included in the three months ended March 31, 1996. Cash flow activities. Cash from operating activities was affected by a number of factors representative of normal operations. Working capital, if and when needed, generally is provided by the sale of commercial paper. In addition, securities investments can be liquidated to provide funds for reinvestment in existing businesses or acquisition of new businesses, and approximately 500,000 original issue shares of common stock are available for issuance through the DRIP. MP&L Capital I (Trust) was established as a wholly owned business trust of the Company for the purpose of issuing common and preferred securities. On March 20, 1996 the Trust publicly issued three million 8.05% Cumulative Quarterly Income Preferred Securities (QUIPS), representing preferred beneficial interests in the assets held by the Trust, indirectly resulting in net proceeds to the Company of $72.6 million. The net proceeds to the Company were used to retire approximately $56 million of commercial paper and approximately $17 million will be used to redeem all of the outstanding shares of the Company's Serial Preferred Stock, $7.36 Series, on May 13, 1996. Capital requirements. Consolidated capital expenditures for the three months ended March 31, 1996 totaled $29.3 million. These expenditures include $11.2 million for electric operations, $3.6 million for water operations and $14.5 million for automobile auction operations. Internally generated funds were the primary source for funding these expenditures. -9-
PART II. OTHER INFORMATION Item 5. Other Information Reference is made to the Company's 1995 Form 10-K for background information on the following updates. Unless otherwise indicated, cited references are to the Company's 1995 Form 10-K. Ref. Page 9. - Second Full Paragraph and Page 13 - Fourth Full Paragraph On May 1, 1996 the FERC issued an Order on Rehearing for the St. Louis River Project (Project). The FERC directed the Company to negotiate with the Fond du Lac Band of Lake Superior Chippewa a reasonable annual charge for the use of tribal lands within the Project. With respect to the Company's arguments regarding the generating capacity that will be lost as a result of certain license terms and conditions mandated by the FERC to mitigate environment consequences of the Project, the FERC determined that not enough evidence was provided to alter the FERC's original analysis of the anticipated impact of such mandates on the generating capacity. The FERC extended the license term from 30 to 40 years because of the anticipated impact of such mandates. The Company estimates that the revenue from this Project will be reduced by approximately $1 million on an annual basis as a result of the license terms. Ref. Page 9. - Last Paragraph On March 29, 1996 the Public Service Commission of Wisconsin approved a $451,000, or 1.1 percent, increase in rates, with an 11.6 percent return on equity for the Company's wholly owned subsidiary Superior Water, Light and Power Company. Final rates were effective March 30, 1996. Ref. Page 10. - Fourth Paragraph On April 24, 1996 the FERC issued two final rules and a NOPR. The first rule, Order No. 888, addresses both open access to transmission lines for wholesale transactions and stranded cost issues. The second rule, Order No. 889, requires utilities to establish electronic systems to share information about available transmission capacity and establishes standards of conduct. The NOPR, "Capacity Reservation Open Access Transmission Tariffs," proposes to establish a new system for utilities to use in reserving capacity on their own and others' transmission lines. The new and proposed rules are designed to facilitate competition in the electric industry, lower prices and provide more choices to energy customers. In anticipation of the new rules, the Company filed an open access transmission tariff for wholesale service on April 16, 1996 with the FERC. This filing will allow the Company to have a current cost-based tariff in place for any new open access transmission customers requesting service on Minnesota Power's system. The tariff is expected to be effective 60 days after the filing date with the revenue subject to refund pending final approval of the rates. -10-
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4(a) Amended and Restated Trust Agreement, dated as of March 1, 1996, relating to MP&L Capital I's 8.05% Cumulative Quarterly Income Preferred Securities, between the Company, as Depositor, and The Bank of New York, The Bank of New York (Delaware), Philip R. Halverson, David G. Gartzke and James K. Vizanko, as Trustees. 4(b) Amendment No. 1, dated April 11, 1996, to Amended and Restated Trust Agreement, dated as of March 1, 1996, relating to MP&L Capital I's 8.05% Cumulative Quarterly Income Preferred Securities. 4(c) Indenture, dated as of March 1, 1996, relating to the Company's 8.05% Junior Subordinated Debentures, Series A, Due 2015, between the Company and The Bank of New York, as Trustee. 4(d) Guarantee Agreement, dated as of March 1, 1996, relating to MP&L Capital I's 8.05% Cumulative Quarterly Income Preferred Securities, between the Company, as Guarantor, and The Bank of New York, as Trustee. 4(e) Agreement as to Expenses and Liabilities, dated as of March 20, 1996, relating to MP&L Capital I's 8.05% Cumulative Quarterly Income Preferred Securities, between the Company and MP&L Capital I. 27 Financial Data Schedule * 99 The consolidated financial statements of ADESA Corporation for the quarter ended March 31, 1995 (filed as exhibit 99(b) to Form 8-K dated July 12 ,1995, File No. 1-3548). - --------------------------- * Incorporated herein by reference as indicated. (b) Reports on Form 8-K Report on Form 8-K dated and filed April 9, 1996 with respect to Item 5. Other Events. -11-
Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Minnesota Power & Light Company ------------------------------- (Registrant) May 10, 1996 D. G. Gartzke ------------------------------- D. G. Gartzke Senior Vice President - Finance and Chief Financial Officer May 10, 1996 Mark A. Schober ------------------------------- Mark A. Schober Corporate Controller