UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____))
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[X ][X] Definitive Proxy Statement
[ ][_] Definitive Additional Materials
[ ][_] Soliciting Material Pursuant to Section(S) 240.14a-11(c)or Section(S) 240.14a-12
WISCONSIN POWER AND LIGHT COMPANYWisconsin Power and Light Company
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(Name of Registrant as Specified in itsIn Its Charter)
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SEC 1913 (3-99)
Your Vote is Important
Wisconsin Power and Light Company
Proxy Statement
Notice of 20002002 Annual Meeting
and
19992001 Annual Report
________________________________________________________________________________
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL MEETING OF SHAREOWNERS
DATE: May 24, 2000
DATE: May 22, 2002
TIME: 1:00 PM, Central Daylight Savings Time
LOCATION: Wisconsin Power and Light Company
Nile Meeting Room
4902 North Biltmore Lane
Madison,Wisconsin
Power and Light Company
Room 1A
222 West Washington Avenue
Madison, Wisconsin
________________________________________________________________________________
________________________________________________________________________________
SHAREOWNER INFORMATION NUMBERS
LOCAL CALLS (MADISON, WI AREA)..........608-252-3110
TOLL FREE NUMBER........................800-356-5343
________________________________________________________________________________
LOCAL CALLS (MADISON, WI AREA) 608-458-3110
TOLL FREE NUMBER.............. 800-356-5343
Wisconsin Power and Light
Company
222 West Washington Avenue4902 North Biltmore Lane
P. O. Box 2568
Madison, WI 53701-2568
Phone: 608-252-3110608-458-3110
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
Dear Wisconsin Power and Light Company Shareowner:
On Wednesday, May 24, 2000,22, 2002, Wisconsin Power and Light Company (the "Company")
will hold its 20002002 Annual Meeting of Shareowners at the office of the Company,
222 West Washington Avenue,4902 North Biltmore Lane, Nile Meeting Room, 1A, Madison, Wisconsin. The meeting
will begin at 1:00 p.m. Central Daylight Savings Time.
Only the sole common stock shareowner, Alliant Energy Corporation, and
preferred shareowners who owned stock at the close of business on April 5, 2000 canMarch 28,
2002 may vote at this meeting. All shareowners are requested to be present at
the meeting in person or by proxy so that a quorum may be assured. At the
meeting, the Company's shareowners will:
1. Elect fivefour directors for terms expiring at the 20032005 Annual Meeting of
Shareowners; and
2. Attend to any other business properly presented at the meeting.
The Board of Directors of the Company presently knows of no other business to
come before the meeting.
Please sign and return the enclosed proxy card as soon as possible.
If
you attend the meeting, you may revoke your proxy at the registration
desk and vote in person.
The 19992001 Annual Report of the Company appears as Appendix A to this Proxy
Statement. The Proxy Statement and Annual Report have been combined into a
single document to improve the effectiveness of our financial communication and
to reduce costs, although the Annual Report does not constitute a part of the
Proxy Statement.
Any Wisconsin Power and Light Company preferred shareowner who desires to
receive a copy of the Alliant Energy Corporation 19992001 Annual Report to
Shareowners may do so by calling the Shareowner Services Department at the
Shareowner Information Number shown at the front of this proxy statement or
writing to the Company at the address shown above.
By Order of the Board of Directors
/s/ Edward M. Gleason
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Edward M. Gleason
Vice President--Treasurer andF. J. Buri
F. J. Buri
Corporate Secretary
Dated and mailed on or about April 12, 20009, 2002
TABLE OF CONTENTS
Questions and Answers.............................................. 3
Election of Directors.............................................. 6
Nominees........................................................ 6
Continuing Directors............................................ 8
Meetings and Committees of the Board............................... 11
Compensation of Directors.......................................... 12
Ownership of Voting Securities..................................... 15
Compensation of Executive Officers................................. 17
Summary Compensation Table...................................... 17
Stock Options...................................................... 19
Stock Options/SAR Grants in 1999................................ 19
Options/SAR Values at December 31, 1999......................... 20
Long-Term Incentive Awards in 1999.............................. 20
Certain Agreements and Transactions................................ 21
Retirement and Employee Benefit Plans.............................. 23
Report of the Compensation and Personnel Committee on
Executive Compensation........................................... 28
Section 16(a) Beneficial Ownership Reporting Compliance............ 33
Appendix A -- Wisconsin Power and Light Company Annual Report......
Questions and Answers....................................................... 1
Election of Directors....................................................... 3
Meetings and Committees of the Board........................................ 6
Compensation of Directors................................................... 7
Ownership of Voting Securities.............................................. 9
Compensation of Executive Officers.......................................... 10
Stock Options............................................................... 12
Long-Term Incentive Awards.................................................. 13
Certain Agreements.......................................................... 14
Retirement and Employee Benefit Plans....................................... 15
Report of the Compensation and Personnel Committee on Executive Compensation 18
Report of the Audit Committee............................................... 21
Section 16(a) Beneficial Ownership Reporting Compliance..................... 22
Appendix A--Wisconsin Power and Light Company Annual Report................. A-1
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QUESTIONS AND ANSWERS
1. Q: Why am I receiving these materials?
A: The Board of Directors of Wisconsin Power and Light Company (the
"Company") is providing these proxy materials to you in connection with
the Company's Annual Meeting of Shareowners (the "Annual Meeting"), which
will take place on Wednesday, May 24, 2000.22, 2002. As a shareowner, you are
invited to attend the Annual Meeting and are entitled to and requested to
vote on the proposal described in this proxy statement.
2. Q: What is Wisconsin Power and Light Company and how does it relate to
Alliant Energy Corporation?
A: The Company is a subsidiary of Alliant Energy Corporation ("AEC"), which was formed as a
result of a three-way merger
(the "Merger") completed on April 21, 1998 involving WPL
Holdings, Inc., IES Industries Inc. ("IES Industries") and
Interstate Power Company. Thepublic utility holding company whose other primary first tier
subsidiaries of AEC include IES Utilities Inc. ("IES"), Interstate Power and Light Company ("IPC") andIP&L), Alliant
Energy Resources, Inc. ("AER") and Alliant Energy Corporate Services,
Inc. ("Alliant Energy Corporate Services").
3. Q: Who is entitled to vote at the Annual Meeting?
A: Only shareowners of record at the close of business on April 5, 2000March 28, 2002 are
entitled to vote at the Annual Meeting. As of the record date, 13,236,601
shares of common stock (owned solely by AEC) and 1,049,225 shares of
preferred stock, in seven series (representing 599,630 votes), were
issued and outstanding. Each share of Company common stock is entitled
to one vote per share. Each share ofand Company
preferred stock, with the exception of the 6.50% Series, is entitled to
one vote per share. The 6.50% Series of Company preferred stock is
entitled to 1/4 vote per share.
4. Q: What may I vote on at the Annual Meeting?
A: You may vote on the election of fivefour nominees to serve on the Company's
Board of Directors for terms expiring at the Annual Meeting of
Shareowners in the year 2003.2005.
5. Q: How does the Board of Directors recommend I vote?
A: The Board of Directors recommends that you vote your shares FOR each of
the listed director nominees.
6. Q: How can I vote my shares?
A: You may vote either in person at the Annual Meeting or by grantingappointing a
proxy. If you desire to grantappoint a proxy, then sign and date each proxy
card you receive and return it in the envelope provided. -3-
Appointing a
proxy will not affect your right to vote your shares if you attend the
Annual Meeting and desire to vote in person.
7. Q: How are votes counted?
A: In the election of directors, you may vote FOR all of the director
nominees or your vote may be WITHHELD with respect to one or more
nominees. If you return your signed proxy card but do not mark the boxes
showing how you wish to vote, your shares will be voted FOR all listed
director nominees.
8. Q: Can I change my vote?
A: You have the right to revoke your proxy at any time before the Annual
Meeting by:
-. providing written notice to the Corporate Secretary of the Company and
voting in person at the Annual Meeting; or
-. appointing a new proxy prior to the start of the Annual Meeting.
Attendance at the Annual Meeting will not cause your previously grantedappointed
proxy to be revoked unless you specifically so request.request in writing.
9. Q: What shares are included on the proxy card(s)?
A: Your proxy card(s) covers all of your shares of the Company's preferred
stock.
1010. Q: What does it mean if I get more than one proxy card?
A: If your shares are registered differently and are in more than one
account, then you will receive more than one card. Be sure to vote all of
your accounts to ensure that all of your shares are voted. The Company
encourages you to
1
have all accounts registered in the same name and address (whenever
possible). You can accomplish this by contacting the Company's Shareowner
Services Department at the Shareowner Information NumberNumbers shown at the
front of this proxy statement.
11. Q: Who may attend the Annual Meeting and how do I get a ticket?Meeting?
A: All shareowners who owned shares of the Company's common and preferred
stock on April 5, 2000March 28, 2002 may attend the Annual Meeting. You may indicate
on the reservation portion of the enclosed proxy card your intention to attend the Annual Meeting
and return it with your signed proxy.
No ticket is
required.
12. Q: How will voting on any other business be conducted?
A: The Board of Directors of the Company does not know of any business to be
considered at the 20002002 Annual Meeting other than the election of fivefour
directors. If any other business is properly presented at the Annual
Meeting, your signed proxy card gives authority to William D. Harvey, the
Company's President, and Edward M. Gleason,F. J. Buri, the Company's Vice
President-Treasurer and Corporate Secretary,
to vote on such matters atin their discretion.
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13. Q: Where and when will I be able to find the results of the voting?
A: The results of the voting will be announced at the Annual Meeting. You
may also call our Shareowner Services Department at the Shareowner
Information Numbers shown at the front of this proxy statement for the
results. The Company will also publish the final results in its Quarterly
Report on Form 10-Q for the second quarter of 20002002 to be filed with the
Securities and Exchange Commission.Commission
14. Q: When are shareowner proposals for the 20012003 Annual Meeting due?
A: All shareowner proposals to be considered for inclusion in the Company's
proxy statement for the 20012003 Annual Meeting must be received at the
principal office of the Company by December 13, 2000.10, 2002. In addition, any
shareowner who intends to present a proposal from the floor at the 20012003
Annual Meeting must submit the proposal in writing to the Corporate
Secretary of the Company no later than February 26, 2001.23, 2003.
15. Q: Who are the Independent Auditorsindependent auditors of the Company and how are they
elected?appointed?
A: The Board of Directors has appointed Arthur Andersen LLP as
the Company's independent auditors for 2000. Arthur Andersen LLP acted as independent auditors for the Company in
1999.2001. Representatives of Arthur Andersen LLP are not expected to be
present at the meeting. The Board of Directors expects to appoint the
Company's independent auditors for 2002 later in 2002.
16. Q: Who will bear the cost of soliciting votesproxies for the Annual Meeting?
A: The Company will pay the cost of preparing, assembling, printing, mailing
and distributing these proxy materials. In addition to the mailing of
these proxy materials, the solicitation of proxies or votes may be made
in person, by telephone or by electronic communication by the Company's
officers and employees who will not receive any additional compensation
for these solicitation activities. The Company will pay to banks,
brokers, nominees and other fiduciaries their reasonable charges and
expenses incurred in forwarding the proxy materials to their principals.
17. Q: How can I obtain a copy of the Company's Annual Report on Form 10-K?
A: The Company will furnish without charge, to each shareowner who is
entitled to vote at the Annual Meeting and who makes a written request, a
copy of the Company's Annual Report on Form 10-K (without exhibits) as
filed with the Securities and Exchange Commission. Written requests for
the Form 10-K should be mailed to the Corporate Secretary of the Company
at the address on the first page of this proxy statement.
-5-18. Q: If more than one shareowner lives in my household, how can I obtain an
extra copy of this proxy statement and Anual Report?
A. Pursuant to the rules of the SEC, services that deliver the Company's
communications to shareowners that hold their stock through a bank,
broker or other holder of record may deliver to multiple shareowners
sharing the same address a single copy of the Company's 2001 Annual
Report and proxy statement. Upon written or oral request, the Company
will deliver a separate copy of the 2001 Annual Report and proxy
statement to any shareowner at a shared address to which a single copy of
each document was delivered. You may notify the Company of your request
by calling or writing the Company's Shareowner Services Department at the
Shareowner Information Numbers shown at the front of this proxy statement
or at the address of the Company shown on the first page of this proxy
statement.
2
ELECTION OF DIRECTORS
FiveFour directors will be elected this year for terms expiring in 2003.2005. The
nominees for election as selected by the Nominating and Governance Committee of
the Company's Board of Directors are: ErrollAlan B. Davis,
Jr., Lee Liu, Milton E. Neshek, Robert W. SchlutzArends, Katharine C. Lyall,
Singleton B. McAllister, and Wayne H.
Stoppelmoor.Anthony R. Weiler. Each of the nominees is
currently serving as a director of the Company. Each person elected as director
will serve until the Annual Meeting of Shareowners of the Company in the year 20032005 or
until his or her successor has been duly elected and qualified.
Directors will be elected by a plurality of the votes cast at the meeting
(assuming a quorum is present). Consequently, any shares not voted at the
meeting, whether by abstention or otherwise, will have no effect on the
election of directors. The proxies solicited may be voted for a substitute
nominee or nominees in the event thatif any of the nominees shall beare unable to serve, or for good
reason will not serve, a contingency not now anticipated.
Brief biographies of the director nominees and continuing directors follow.
These biographies include their age (as of December 31, 1999)2001), an account of
their business experience and the names of publicly-held and certain other
corporations of which they are also directors. Except as otherwise indicated,
each nominee and continuing director has been engaged in his or her present
occupation for at least the past five years.
NOMINEES
[PHOTO]
Alan B. Arends
ALAN B. ARENDS
Director Since 1998
Age 68
Nominated Term Expires
in 2005
Mr. Arends is Chairman of the Board of Directors of Alliance
Benefit Group Financial Services Corp., Albert Lea, Minnesota,
an employee benefits company that he founded in 1983. He has
served as a director of IP&L (or predecessor companies) since
1993 and of AEC and AER since 1998.
[PHOTO]
Katharine C. Lyall
KATHARINE C. LYALL
Director Since 1986
Age 60
Nominated Term Expires
in 2005
Ms. Lyall is President of the University of Wisconsin System
in Madison, Wisconsin. In addition to her administrative
position, she is a professor of economics at the University of
Wisconsin-Madison. She serves on the Boards of Directors of
the Kemper National Insurance Companies, M&I Corporation and
the Carnegie Foundation for the Advancement of Teaching. Ms.
Lyall has served as a director of AEC and AER since 1994 and
of IP&L (or predecessor companies) since 1998.
[PHOTO]
Singleton B. McAllister
SINGLETON B. MCALLISTER
Director Since 2001
Age 49
Nominated Term Expires
in 2005
Ms. McAllister is a partner with Patton Boggs LLP, a
Washington D.C.-based law firm working in the public policy
and business law areas. From 1996 until early 2001, Ms.
McAllister was General Counsel for the United States Agency
for International Development. She was also a partner at Reed,
Smith, Shaw and McClay where she specialized in government
relations and corporate law. Ms. McAllister has served as a
director of AEC, IP&L (or predecessor companies), and AER
since 2001.
3
[PHOTO] ANTHONY R. WEILER
Director Since 1998
Anthony R. Age 65
Weiler Nominated Term Expires
in 2005
Mr. Weiler is a consultant for several home furnishings
organizations. Prior to assuming his current position, Mr.
Weiler had been a Senior Vice President for Heilig-Meyers
Company, a national furniture retailer headquartered in
Richmond, Virginia. He is a Director of the Retail Home
Furnishings Foundation. Mr. Weiler has served as a director of
IP&L (or predecessor companies) since 1979 and of AEC and AER
since 1998. Mr. Weiler is the Chair of the Nominating and
Governance Committee.
The Board of Directors unanimously recommends a vote FOR all nominees for
election as directors.
CONTINUING DIRECTORS
[PHOTO] ERROLL B. DAVIS, JR.
Director Since 1984
Erroll B. Age 55 Nominated57
Davis, Jr. Term to ExpireExpires in 2003
Mr. Davis has been President of AEC since January 1990 and was
elected President and Chief Executive Officer of AEC in July
1990. He was elected Chairman of the Board of AEC in April
2000. Mr. Davis joined the Company in August 1978 and was electedserved as
President in July 1987.of the Company from 1987 until 1998. He was elected President and
Chief Executive Officer of the Company in August 1988. Mr. Davis has
also served as Chief Executive Officer of IES, IPCAER and AERIP&L (or
predecessor companies) since 1998. He is a member of the
Boards of Directors of BP Amoco p.l.c., PPG Industries, Inc.,
Electric Power Research Institute and the Edison Electric
Institute. Mr. Davis has served as a director of AEC since
1982, of AER since 1988 and of IES and IPC
since 1998.
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[PHOTO] LEE LIU Director Since 1998
Age 66 Nominated Term to Expire in 2003
Mr. Liu has served as Chairman of the Board of the
Company and AEC since 1998. Mr. Liu will retire as
Chairman on April 21, 2000. He was Chairman of the
Board and Chief Executive Officer of IES Industries and
Chairman of the Board and Chief Executive Officer of
IES prior to the Merger in 1998. Mr. Liu held a number
of professional, management and executive positions
after joining Iowa Electric Light and Power Company
(later known as IES Utilities Inc.) in 1957. He is a
director of McLeodUSA Inc, Principal Financial Group
and Eastman Chemical Company. Mr. Liu has served as a
director of IESIP&L (or predecessor companies)
since 1981
and of AEC, IPC and AER since 1998. [PHOTO] MILTON E. NESHEK Director Since 1984
Age 69 Nominated Term to Expire in 2003
Mr. Neshek has served as Special Consultant toDavis is the Kikkoman Corporation, Tokyo, Japan, since
November 1997. In addition, he is General Counsel,
Secretary and Manager of New Market Development,
Kikkoman Foods, Inc., a food products manufacturer in
Walworth, Wisconsin, positions he has held since 1973.
Mr. Neshek is a director of Kikkoman Foods, Inc. and a
memberChair of the Walworth County Bar Association and the
State Bar of Wisconsin. Mr. Neshek has served as a
director of AEC since 1986, of AER since 1994 and of
IES and IPC since 1998.
[PHOTO] ROBERT W. SCHLUTZ Director Since 1998
Age 63 Nominated Term to Expire in 2003
Mr. Schlutz is President of Schlutz Enterprises, a
diversified farming and retailing business in Columbus
Junction, Iowa. Mr. Schlutz has served as a director of
IES (or predecessor companies) since 1989 and of AEC,
IPC and AER since 1998.
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[PHOTO] WAYNE H. STOPPELMOOR Director Since 1998
Age 65 Nominated Term to Expire in 2003
Mr. Stoppelmoor has served as Vice Chairman of the
Board of the Company and AEC since the Merger in 1998.
Mr. Stoppelmoor will retire as Vice Chairman on
April 21, 2000. Prior to the Merger he was Chairman,
President and Chief Executive Officer of IPC. He
retired as President of IPC on October 1, 1996 and as
Chief Executive Officer on January 1, 1997.
Mr. Stoppelmoor has served as a director of IPC since
1986 and of AEC, IES and AER since 1998.
The Board of Directors unanimously recommends a vote FOR all nominees
for election as directors.
CONTINUING DIRECTORS
--------------------
[PHOTO] ALAN B. ARENDS Director Since 1998
Age 66 Term Expires in 2002
Mr. Arends is Chairman of the Board of Directors of
Alliance Benefit Group Financial Services Corp.
(formerly Arends Associates, Inc.,) of Albert Lea,
Minnesota, an employee benefits company which he
founded in 1983. He has served as a director of IPC
since 1993 and of AEC, IES and AER since 1998.Capital Approval
Committee.
[PHOTO] JACK B. EVANS
Director Since 2000
Jack B. Evans Age 5153
Term Expires in 20012004
Mr. Evans is a directorDirector and since 1996 has served as President
of The Hall-Perrine Foundation, a private philanthropic
corporation in Cedar Rapids, Iowa. Previously, Mr. Evans was
President and Chief Operating Officer of SCI Financial Group,
Inc., a regional financial services firm. Mr. Evans is a
director of Gazette Communications, the Federal Reserve Bank
of Chicago and Nuveen Institutional Advisory Corp., and Vice
Chairman and a director of United Fire and Casualty Company.
Mr. Evans was appointed as a director
of the Company by the Board of Directors effective
January 1, 2000. He was also appointed to the Board of
Directors of AEC, IES, IPC and AER.
-8-
[PHOTO] ROCKNE G. FLOWERS Director From 1979 to
Age 68 1999 and Since 1994
Term Expires in 2002
Mr. Flowers is President of Nelson Industries, Inc. (a
subsidiary of Cummins Engine Company), a muffler,
filter, industrial silencer, and active sound and
vibration control technology and manufacturing firm in
Stoughton, Wisconsin. Mr. Flowers is a director of
American Family Mutual Insurance Company, Janesville
Sand and Gravel Company and M&I Bank of Southern
Wisconsin. He has served as a director of AEC, since
1981, ofIP&L (or
predecessor companies) and AER since 1990 and2000. Mr. Evans is Chair
of IES and IPC since 1998.the Audit Committee.
[PHOTO] JOYCE L. HANES
Director Since 1998
Joyce L. Hanes Age 6769
Term Expires in 20012004
Ms. Hanes has been a directorDirector of Midwest Wholesale, Inc., a
products wholesaler in Mason City, Iowa, since 1970 and
Chairman of the Board since December 1997, having previously
served as Chairman from 1986 to 1988. She is a director of
Iowa Student Loan Liquidity Corp. Ms. Hanes has served as a
director of IPCIP&L (or predecessor companies) since 1982 and of
AEC and AER since 1998.
4
[PHOTO] LEE LIU
Director Since 1998
Lee Liu Age 68
Term Expires in 2003
Mr. Liu was elected Vice Chairman the Board of Directors of
the Company, AEC, IP&L and AER in January 2002. He served as
Chairman of the Board of the Company and AEC from April 1998
until April 2000 in accordance with the terms of his
employment agreement. He was Chairman of the Board and Chief
Executive Officer of IES Industries Inc. (a predecessor to
AEC) and Chairman of the Board and Chief Executive Officer of
IES Utilities Inc., a predecessor to IP&L, prior to 1998. Mr.
Liu held a number of professional, management and executive
positions after joining Iowa Electric Light and Power Company
(later known as IES Utilities Inc.) in 1957. He is a director
of Principal Financial Group and Eastman Chemical Company. Mr.
Liu has served as a director of IP&L (or predecessor
companies) since 1981 and of AEC and AER since 1998.
[PHOTO] KATHARINE C. LYALLDAVID A. PERDUE
Director Since 19862001
David A. Perdue Age 5852
Term Expires in 2002
Ms. Lyall2004
Mr. Perdue is President and Chief Executive Officer of the
UniversityReebok Brand for Reebok International Limited, a designer,
distributor and marketer of Wisconsin
Systemfootwear, apparel and sports
equipment, located in Madison, Wisconsin. She serves on the BoardsCanton, Massachusetts. Prior to joining
Reebok in 1998, he was Senior Vice President of Directors of the Kemper National Insurance
Companies, M&I Corporation and the Carnegie Foundation
for the Advancement of Teaching. In addition to her
administrative position, she is a professor of
economicsOperations at
the University of Wisconsin-Madison.
Ms. LyallHaggar, Inc. Mr. Perdue has served as a director of AEC, since 1994,
of AER since 1994 and of IES and IPC since 1998.
[PHOTO] ARNOLD M. NEMIROW Director Since 1994
Age 56 Term Expires in 2001
Mr. Nemirow is Chairman, President and Chief Executive
Officer of Bowater Incorporated, a pulp and paper
manufacturer, located in Greenville, South Carolina. He
joined Bowater Incorporated in 1994 as President and
Chief Operating Officer. He became President and Chief
Executive Officer in 1995 and was elected Chairman in
1996. He is a member of the New York Bar. Mr. Nemirow
has served as a director of AECIP&L
(or predecessor companies) and AER since 1991 and
of IES and IPC since 1998.
-9-
2001.
[PHOTO] JUDITH D. PYLE
Director Since 1994
Judith D. Pyle Age 5658
Term Expires in 20012004
Ms. Pyle is Vice Chair of The Pyle Group, a financial services
company located in Madison, Wisconsin. Prior to assuming her
current position, Ms. Pyle served as Vice Chairman and Senior
Vice President of Corporate Marketing of Rayovac Corporation
(a battery and lighting products manufacturer), Madison,
Wisconsin. In addition, Ms. Pyle is Vice Chairman of Georgette
Klinger, Inc. and a director of Uniek, Inc. Ms. Pyle has
served as a director of AEC and AER since 1992 and of IES and IPCIP&L (or
predecessor companies) since 1998. Ms. Pyle is the Chair of
the Compensation and Personnel Committee.
[PHOTO] ANTHONY R. WEILERROBERT W. SCHLUTZ
Robert W. Director Since 1998
Schlutz Age 6365
Term Expires in 2002
In February 2000,2003
Mr. Weiler accepted positions asSchlutz is President of Schlutz Enterprises, a consultant with Pinnacle Marketingdiversified
farming and Management
Group, Baltimore, Maryland, and as a Director of
Business Development-Consumer Products Business Unit
for Leggett and Platt Corporation, Carthage, Missouri.
In addition,retailing business in Columbus Junction, Iowa. Mr.
Weiler also acts as a consultant for
other home furnishings organizations. Prior to assuming
his current positions, Mr. Weiler had been a Senior
Vice President for Heilig-Meyers Company, a national
furniture retailer with headquarters in Richmond,
Virginia. Mr. Weiler is a director of the Retail Home
Furnishings Foundation. Mr. WeilerSchlutz has served as a director of IESIP&L (or predecessor
companies) since 19791989 and of AEC IPC and AER since 1998. We regret that David Q. Reed, a directorMr.
Schlutz is the Chair of IES since 1967the Environmental, Nuclear, Health and
Safety Committee.
[PHOTO] WAYNE H. STOPPELMOOR
Wayne H. Director Since 1998
Stoppelmoor Age 67
Term Expires in 2003
Mr. Stoppelmoor served as Vice Chairman of the Board of the
Company sinceand AEC from April 1998 passed away on July 27, 1999. Jack B. Evans was
appointed by the Board of Directors as a director to complete
Mr. Reed's term endinguntil April 2000 in 2001.
Jack R. Newman, who had been a director of IES since 1994 and of the
Company since 1998 retired from his law practice and has accepted the
position of Vice President-Federal Relationsaccordance
with the Nuclear
Managementterms of his consulting agreement. Prior to 1998, he
was Chairman, President and Chief Executive Officer of
Interstate Power Company, a predecessor to IP&L. He retired as
Chief Executive Officer of which AEC is a member, effective December 10,
1999.Interstate Power Company in 1997.
Mr. Newman resigned from his positionStoppelmoor has served as a director of the
Company,IP&L (or
predecessor companies) since 1986 and of AEC IES, IPC and AER. Prior to his retirement from the legal
practice, Mr. Newman served as legal counsel to AEC on nuclear issues.
Mr. Newman's former law firm, Morgan, Lewis & Bockius, provides certain
legal services to the AEC.
Robert D. Ray turned 71 years of age on September 28, 1999. Pursuant to
the mandatory retirement provisions in the Company's Bylaws, Mr. Ray's
tenure on the Board of Directors expires with the 2000 Annual Meeting
of Shareowners.
The Company expresses its most sincere thanks and appreciation to
Messrs. Newman and Ray for their many years of service to the Company
and for their valued advice and guidance.
-10-AER since
1998.
5
MEETINGS AND COMMITTEES OF THE BOARD
The full Board of Directors of the Company considers all major decisions of the
Company. However, the Board has established standing Audit,Audit; Compensation and
Personnel,Personnel; Environmental, Nuclear, Health and Safety; Nominating and
GovernanceGovernance; and Capital Approval Committees each of which is chaired by an outside director, so that certain important matters
can be addressed in more depth than may be possible in a full Board meeting.
The following is a description of each of these committees:
Audit Committee
The Audit Committee held two meetings in 1999. This2001. The Committee currently consists
of J. L. HanesB. Evans (Chair), J.A. B. Evans,Arends, K. C. Lyall, M. E. NeshekS. B. McAllister and R. W. Schlutz.J. D.
Pyle. The Audit Committee recommends to the Board the appointment of
independent auditors; reviews the reports and comments of the independent
auditors; reviews the activities and reports of the Company's internal audit
staff; and, in response to the reports and comments of both the independent
auditors and internal auditors, recommends to the Board any action which the
Committee considers appropriate.
Compensation and Personnel Committee
The Compensation and Personnel Committee held three meetings in 1999.
This2001. The
Committee currently consists of A. M. NemirowJ. D. Pyle (Chair), A. B. Arends, J. B. Evans,
and D. Pyle and A. R. Weiler.Perdue. This Committee sets executive compensation policy;
administers the Company's Long-Term Equity Incentive Plan; reviews the
performance of and approves salaries for officers and certain other management
personnel; reviews and recommends to the Board new or changed employee benefit
plans; reviews major provisions of negotiated employment contracts; and reviews
human resource development programs.
Environmental, Nuclear, Health and Safety Committee
The Environmental, Nuclear, Health and Safety Committee held two meetings in
2001. The Committee currently consists of R. W. Schlutz (Chair), J. L. Hanes,
D. A. Perdue and A. R. Weiler. The Committee's responsibilities are to review
environmental policy and planning issues of interest to the Company, including
matters involving the Company before environmental regulatory agencies and
compliance with air, water and waste regulations. In addition, the Committee
reviews policies and operating issues related to the Company's nuclear
generating station investments including planning and funding for
decommissioning of the plants. The Committee also reviews health and safety
related policies, activities and operational issues as they affect employees,
customers and the general public.
Nominating and Governance Committee
The Nominating and Governance Committee held threefive meetings in 1999.2001. The Nominating and Governance
Committee currently consists of A. R. G.
FlowersWeiler (Chair), A.J. L. Hanes, K. C. Lyall,
S. B. Arends, J. D. Pyle,McAllister and R. D. Ray and A. R. Weiler.W. Schlutz. This Committee's responsibilities include
recommending and nominating new members of the Board; recommending committee
assignments and committee chairpersons; evaluating overall Board effectiveness;
preparing an annual report on Chief Executive Officer effectiveness; and
considering and developing recommendations to the Board of Directors on other
corporate governance issues. In making
recommendations of nomineesnominating persons for election to the Board,
the Nominating and Governance Committee will consider nominees recommended by
shareowners. Any shareowner wishing to make a recommendation should write to
the Corporate Secretary of the Company, who will forward all recommendations to
the Committee. The Company's Bylaws also provide for shareowner nominations of
candidates for election as directors. These provisions require such nominations
to be made pursuant to timely notice (as specified in the Bylaws) in writing to
the Corporate Secretary of the Company.
Capital Approval Committee
The Capital Approval Committee held one meeting in 2001. The Committee
currently consists of J. B. Evans, J. D. Pyle and A. R. Weiler. Mr. Davis is
the Chair and a non-voting member of this Committee. The purpose of this
Committee is the evaluation of certain investment proposals where (a) an
iterative bidding process is required and/or (b) the required timelines for
such a proposal would not permit the proposal to be brought before a regular
meeting of the Board of Directors and/or a special meeting of the full Board of
Directors is not practical or merited.
The Board of Directors held six meetings during 1999. All directors2001. Each director attended at
least 78%83% of the aggregate number of meetings of the Board and Board committees
on which he or she served.
The Board and each committee conducts performance evaluations annually to
determine its effectiveness and suggests improvements for consideration and
implementation. In addition, Mr. Davis' performance as Chief Executive Officer
is also evaluated by the full Board on an annual basis.
-11-6
COMPENSATION OF DIRECTORS
No retainer fees are paid to Messrs.Mr. Davis Liu and Stoppelmoor for theirhis service on the Company's Board
of Directors. In 1999,2001, all other directors (the "non-employee directors"), each
of whom serveserved on the Boards of the Company, AEC, IES IPC, WP&LUtilities Inc.,
Interstate Power Company and AER, received an annual retainer of $32,800 for service on
all five Boards.Boards consisting of $25,000 in cash and 1,000 shares of AEC common
stock. Travel expenses are paid for each meeting day attended. All non-employee directors were
also eligible to receive a 25 percent matching contribution in AEC
common stock for limited optional cash purchases, up to $10,000, of
AEC's common stock through AEC's Shareowner Direct Plan. Matching
contributions of $2,500 each for calendar year 1999 were made for the
following directors: A. B. Arends, R. G. Flowers, J. L. Hanes,
K. C. Lyall, A. M. Nemirow, M. E. Neshek, J. D. Pyle, R. D. Ray and
R. W. Schlutz. Beginning in
2000,2002, the annual retainer for each non-employee director has been increasedchanged to
$45,000$30,000 in cash and 1,000 shares of AEC common stock for service on all five Boards. Of that amount, $25,000 will be paid in cashfour
Boards (AEC, IP&L AER and $20,000
will be paid in AEC's common stock.the Company). The directors have the option to
receive each amount outright (in cash and stock), to have each amount deposited
to their Shareowner Direct Plan account or to a directors'director's Deferred
Compensation Account or any combination thereof.
Effective
April 21, 2000, Mr. Liu will retire as an employee of AEC and will be
eligible to receive this annual retainer.
Director's Deferred Compensation Plan
Under the Directors'Director's Deferred Compensation Plan, directors may elect to defer
all or part of their retainer fee. Amounts deposited to a Deferred Compensation
Interest Account earn interest atreceive an annual return based on the A-Utility Bond Rate with
a rate which is
equal to the greater ofminimum return no less than the prime interest rate as reportedpublished in The Wall
Street Journal, provided that in no event shall the rate of interest credited
for any plan year be greater than 12% or less than 6%.Journal. The balance credited to a director's Deferred Compensation
Interest Account as of any date will be the accumulated deferred cash
compensation and interest that are credited to such account as of such date.
Amounts deposited to an AEC Stock Account, whether they be the cash portion or the
stock portion of the directors'director's compensation, are treated as though invested in
the common stock of AEC and will earnbe credited with dividends and those dividends
will be reinvested. Annually, the director may elect that upon retirement or resignation from the Board, the Deferred
Compensation Account will be paid in a lump sum or in annual installments for
up to 10 years.ten years beginning in the year of or one tax year after retirement or
resignation from the Board.
Director's Charitable Award Program
AEC maintains a Director's Charitable Award Program for the members of its
Board of Directors beginning after three years of service. The purpose of the
Program is to recognize the interest of the Company and its directors in
supporting worthy institutions, and to enhance the Company's director benefit
program so that the Company is able to continue to attract and retain directors
of the highest caliber. Under the Program, when a director dies, the Company
and/or AEC will donate a total of $500,000 to one qualified charitable
organization, or divide that amount among a maximum of four qualified
charitable organizations, selected by the individual director. The individual
director derives no financial benefit from the Program. All deductions for
charitable contributions are taken by the Company or AEC, and the donations are
funded by the Company or AEC through life insurance policies on the directors.
Over the life of the Program, all costs of donations and premiums on the life
insurance policies, including a return of the Company's cost of funds, will be
recovered through life insurance proceeds on the directors. The Program, over
its life, will not result in any material cost to the Company or AEC.
-12-
Director's Life Insurance Program
AEC maintains a split-dollar Director's Life Insurance Program for non-employee
directors, beginning after three years of service, which provides a maximum
death benefit of $500,000 to each eligible director. Under the split-dollar
arrangement, directors are provided a death benefit only and do not have any
interest in the cash value of the policies. The Life Insurance Program is
structured to pay a portion of the total death benefit to AEC to reimburse AEC
for all costs of the program, including a return on its funds. The Life
Insurance Program, over its life, will not result in any material cost to AEC.
The imputed income allocations reported for each director in 19992001 under the
Director's Life Insurance Program were as follows: A. B. Arends--$306,
R. G. Flowers--$442,50, J. L.
Hanes--$485,50, K. C. Lyall--$391,
A. M. Nemirow--$56, M. E. Neshek--$989, J. R. Newman--$689, and395, J. D. Pyle--$91, R. D. Ray--50, W. H. Stoppelmoor--$746828 and A.
R. Weiler--$159.50.
Pension Arrangements
Prior to the Merger,April 1998, Mr. Liu participated in the IES Industries Inc. retirement
plan, which plan washas been transferred to Alliant Energy Corporate Services, Inc., a subsidiary of AEC ("Alliant Energy Corporate
Services") in connection with the Merger.Services. Mr.
Liu's benefits under the plan have been "grandfathered" to reflect the benefit
plan formula in effect at the time of the Merger.in April 1998. See "Retirement and Employee Benefit
Plans--IES Industries Pension Plan."
Alliant Energy Corporate Services also maintains a non-qualified Supplemental
Retirement Plan ("SRP") for eligible former officers of IES Industries who elected to remain under this plan following the
Merger.Inc. Mr.
Liu participates in the SRP. The SRP generally provides for payment of
supplemental retirement benefits equal to 75% of the officer's base salary in
effect at the date of retirement, reduced by benefits receivable under the
7
qualified retirement plan, for a period not to exceed 15 years following the
date of retirement. The SRP also provides for certain death benefits to be paid
to the officer's designated beneficiary and benefits if an officer becomes
disabled under the terms of the qualified retirement plan.
Certain Agreements
Mr. Liu has an employment agreement with AEC, pursuant to which Mr. Liu
will serve as Chairman of the Board of AEC until April 21, 2000.
Mr. Liu will thereafter retire as Chairman of the Board of AEC,
although he will continue to serve as a director. Mr. Liu's employment
agreement provides that he receive an annual base salary of not less
than $400,000, and supplemental retirement benefits and the opportunity
to earn short-term and long-term incentive compensation (including
stock options, restricted stock and other long-term incentive
compensation) in amounts no less than he was eligible to receive from
IES Industries before the effective time of the Merger. If the
employment of Mr. Liu is terminated without cause (as defined in the
employment agreement) or if Mr. Liu terminates his employment for good
reason (as defined in the employment agreement), then AEC or its
affiliates will continue to provide the compensation and benefits
called for by the employment agreement through the end of the term of
such employment agreement (with incentive compensation based on the
maximum potential awards and with any stock compensation paid in cash),
and all unvested stock compensation will vest immediately. If Mr. Liu
dies or becomes disabled, or terminates his employment without good
reason, during the term of his respective employment agreement, then
AEC or its affiliates will pay to Mr. Liu or his beneficiaries or
-13-
estate all compensation earned through the date of death, disability or
such termination (including previously deferred compensation and pro
rata incentive compensation based upon the maximum potential awards).
If Mr. Liu is terminated for cause, then AEC or its affiliates will pay
his base salary through the date of termination plus any previously
deferred compensation. However, if any payments to Mr. Liu under his
employment agreement or otherwise are subject to the excise tax on
excess parachute payments under the Internal Revenue Code of 1986, as
amended (the "Code"), then the total payments to be made under
Mr. Liu's employment agreement will be reduced so that the value of
these payments he is entitled to receive is $1 less than the amount
that would subject Mr. Liu to the 20% excise tax imposed by the Code on
certain excess payments, or which AEC may pay without loss of deduction
under the Code.
Mr. Stoppelmoor entered intohad a three-year consulting arrangement with AEC in connection with the Merger.that expired
on April 21, 2001. Under the terms of his consulting arrangement, Mr.
Stoppelmoor receives an annual fee of $324,500 during
each of the first two years and a fee ofreceived $200,000 during the third year
of thein 2001 for consulting period.services. After April 21,
2001, Mr. Stoppelmoor is also entitled to
participate in compensation plans equivalent to those provided AEC's
Chairman of the Board and Chief Executive Officer during the consulting
period, subject to approval by the Compensation and Personnel Committee
of the Board. Although Mr. Stoppelmoor is eligible to participate in
the Directors Charitable Award Program and the Directors Life Insurance
Program as a result of his service as Vice Chairman of the Board of
Directors, his consulting arrangement provides that he will not bebecame eligible to receive any otherthe annual compensation otherwise payablepaid
to directors of AEC.
-14-non-employee directors.
8
OWNERSHIP OF VOTING SECURITIES
All of the common stock of the Company is held by AEC. Listed in the following
table are the number of shares of AEC's common stock beneficially owned by the
executive officers listed in the Summary Compensation Table and all nominees
and directors of AEC and the Company, as well as the number of shares owned by
directors and executive officers as a group as of December 31, 1999.February 28, 2002. The
directors and executive officers of AEC and the Company as a group owned less1.8%
of the outstanding shares of AEC common stock on that date. No individual
director or officer owned more than one percent1% of the outstanding shares of AEC common
stock on that date. To the Company's knowledge, no shareowner beneficially
owned five
percent5% or more of AEC's outstanding common stock as of December 31, 1999.
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)
- ------------------------ --------------
Executives(2)
William D. Harvey........................................ 51,358(3)
Eliot G. Protsch......................................... 50,223(3)
Thomas M. Walker......................................... 14,597(3)
Pamela J. Wegner......................................... 30,685(3)
Director Nominees
Erroll B. Davis, Jr...................................... 113,022(3)
Lee Liu.................................................. 89,197(3)
Milton E. Neshek......................................... 13,035
Robert W. Schlutz........................................ 4,935
Wayne H. Stoppelmoor..................................... 33,423(3)
Continuing Directors
Alan B. Arends........................................... 2,664
Jack B. Evans............................................ 30,388(3)
Rockne G. Flowers........................................ 12,810
Joyce L. Hanes........................................... 4,174(3)
Katharine C. Lyall....................................... 9,134
Arnold M. Nemirow........................................ 12,339
Judith D. Pyle........................................... 7,128
Anthony R. Weiler........................................ 5,100(3)
All Executives and Directors as a Group
32 people, including those listed above.................. 721,821(3)
(1) 2001.
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED/(1)/
------------------------ ------------
Executives/(2)/
William D. Harvey.......................... 101,673/(3)/
Eliot G. Protsch........................... 110,831/(3)/
Thomas M. Walker........................... 64,939/(3)/
Pamela J. Wegner........................... 73,032/(3)/
Director Nominees
Alan B. Arends............................. 6,884/(3)/
Katharine C. Lyall......................... 13,540
Singleton B. McAllister.................... 1,543
Anthony R. Weiler.......................... 8,847/(3)/
Directors
Erroll B. Davis, Jr........................ 326,875/(3)/
Jack B. Evans.............................. 33,961/(3)/
Joyce L. Hanes............................. 7,505/(3)/
Lee Liu.................................... 191,969/(3)/
David A. Perdue............................ 2,681/(3)/
Judith D. Pyle............................. 11,047
Robert W. Schlutz.......................... 9,694/(3)/
Wayne H. Stoppelmoor....................... 132,604/(3)/
All Executives and Directors as a Group 1,587,493/(3)/
29 people, including those listed above.
/(1)/Total shares of AEC common stock outstanding as of December 31,
1999February 28, 2002 were
78,984,014.
(2) 90,135,503.
/(2)/Stock ownership of Mr. Davis is shown with director nominees.
(3) the directors.
/(3)Included in the beneficially owned shares shown are indirect ownership
interests with shared voting and investment powers: Mr. Harvey --2,035,Davis--7,601, Ms.
Hanes--550, Mr. Protsch --614,Liu--19,755, Mr. Davis--6,380,Weiler--1,331, Mr. Evans--388, Ms. Hanes--473, Mr. Liu--9,755Harvey--2,365 and Mr.
Weiler--1,148;Protsch--714; shares of common stock held in deferred compensation plans:
Mr. Arends--2,927, Mr. Davis--29,255, Mr. Evans--3,961, Ms. Hanes--183, Mr.
Perdue--2,681, Mr. Schlutz--3,961, Mr. Weiler--2,927, Mr. Harvey--7,510,
Mr. Protsch--18,112, Mr. Walker--13,621 and Ms. Wegner--3,106 (all
executive officers and directors as a group--109,498); and stock options
exercisable on or within 60 days of December 31, 1999:February 28, 2002: Mr.
Davis--89,887,Davis--264,714, Mr. Liu--34,750,Liu--148,849, Mr. Stoppelmoor--27,156,Stoppelmoor--119,201, Mr.
Harvey--27,744,Harvey--64,235, Mr. Protsch--27,744,Protsch--64,235, Mr. Walker--13,071Walker--48,322 and Ms.
Wegner--18,036Wegner--51,544 (all executive officers and directors as a
group--389,977)group--1,142,859). -15-
/
None of the directors or officers of the 5% or more of any class of the
Company own any shares of the Company's preferred stock. The following table sets forth certain
information regarding the beneficial ownership of the Company's
preferred stock by each person known to the Company to own more than
five percent of any class of the Company's preferred stock as of
preferred stock. To the Company's December 31, 1999.
Shares of
6.2% Preferred
Stock
Beneficially Percent of
Name of Beneficial Owner Owned Class
- ----------------------- -------------- -----------
Wellington Management Company, LLP
755 State Street
Boston, Massachusetts 02109 18,500(1) 12.33%
(1) As reported to the Securities and Exchange Commission.
-16-2001.
knowledge, no shareowner beneficially
owned
9
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth the total compensation paid
by AEC, the Company and AEC's subsidiaries for all
services rendered during 1999, 1998 and 1997 to the Chief Executive Officer and
the four other most highly compensated executive officers of the Company who performed policy making functions for
the Company.all services rendered during 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE- ---------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------------- -------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Awards Payouts ------------------------ -------------------------
----------------------------------------------------
-----------------------------------
Securities
Underlying
Other Restricted Options/Underlying
Name and BaseOther Annual Stock SARsOptions LTIP All Other
Principal Position Year Base Salary Bonus(1) Compensation(2) Awards(3)Bonus Compensation/(1)/ Awards/(2)/ (Shares)(4)/(3)/ Payouts Compensation(5)All Other
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Compensation/(4)/
- ---------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 2001 $683,269 $489,364 $11,265 -- 108,592 $359,605 $50,284
Chairman, and Chief 2000 637,692 895,200 11,875 -- 111,912 196,711 52,619
Executive Officer 1999 $580,000 $440,220 $12,526580,000 440,220 12,526 -- 77,657 $84,870 $60,188
Chief Executive 1998 540,000 -- 13,045 -- 36,752 -- 57,996
Officer 1997 450,000 200,800 19,982 -- 13,800 -- 60,26184,870 53,188
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
William D. Harvey 2001 274,616 161,233 4,061 -- 21,798 92,209 42,944
President 2000 264,615 206,541 4,234 -- 21,063 47,474 42,230
1999 254,423 116,535 4,565 $255,004$ 255,004 17,071 31,365 44,005
President 1998 233,846 -- 4,699 -- 11,406 -- 28,642
1997 220,000 43,986 14,944 -- 5,100 -- 33,04337,005
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Eliot G. Protsch 2001 274,616 143,688 893 -- 21,798 92,209 38,372
Executive 2000 264,615 214,942 1,423 -- 21,063 47,474 38,058
Vice President 1999 254,423 152,898 1,909 255,004 17,071 31,365 32,941
Executive 1998 233,846 -- 2,443 -- 11,406 -- 20,398
Vice President 1997 220,000 51,400 11,444 -- 5,100 -- 30,057- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Thomas M. Walker 2001 264,615 133,852 -- -- 21,005 88,597 6,207
Executive Vice 2000 254,616 190,026 -- -- 20,268 47,474 6,166
President & Chief 1999 244,808 148,960 -- -- 16,402 -- 13,531
Executive Vice 1998 229,846 -- 814 -- 11,406 -- 13,263
President & Chief 1997 230,000 62,100 38,138 -- -- -- 2,3676,531
Financial Officer
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Pamela J. Wegner 2001 264,615 124,312 2,267 -- 21,005 88,597 35,370
Executive 2000 254,608 180,285 2,416 -- 20,268 27,563 34,377
Vice President 1999 244,615 145,187 2,569 245,017 16,402 19,373 31,568
Executive Vice 1998 193,001 -- 2,689 -- 6,178 -- 17,959
President 1997 160,000 26,216 3,498 -- 3,150 -- 15,57929,122
(1) No bonuses were paid for 1998. The 1999 bonuses were earned in
1999 and paid in 2000.
(2) /(1)Other Annual Compensation for 19992001 consists of income tax gross-ups for
reverse split-dollar life insurance. (3) /
/(2)In 1999, restricted stock was awarded under the Alliant Energy Corporation
Long-Term Equity Incentive Plan as follows: Mr. Harvey--9,294 shares, Mr.
Protsch--9,294 shares and Ms. Wegner--8,930 shares. Dividends on shares of
restricted stock granted under the Long-Term Equity Incentive Plan are held
in escrow and reinvested in shares of common stock pending vesting of the
underlying restricted stock. In the event thatIf such restricted stock vests, then the
participant is then also entitled to receive the common stock into which the
dividends on the restricted stock were reinvested. The amounts shown in the
table above represent the market value of the restricted stock on the date
of grant. The number of shares of restricted stock held by the officers
identified in the table and the market value of such shares as of December
31, 19992001 were as follows: Mr. Harvey --
9,294Harvey--9,294 shares ($255,585)282,166), Mr.
Protsch -- 9,294Protsch--9,294 shares ($255,585)282,166) and Ms. Wegner -- 8,930Wegner--8,930 shares ($245,575)271,115). -17-
(4) /
/(3)/Awards made in 19992001 were in combination with performance share awards as
described in the table entitled "Long-Term Incentive Awards in 1999"2001".
(5) 10
/(4)/The table below shows the components of the compensation reflected under
this column for 1999:2001:
- -----------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. William D. Harvey Eliot G. Protsch Thomas M. Walker Pamela J. Wegner
-------------------- ------------------- ------------------ ------------------ ------------------- -----------------------------------------------------------------------------------------------
A. $17,400 $7,633 $7,633 $4,800 $7,338$20,498 $ 8,238 $ 8,238 $5,250 $ 6,573
- -----------------------------------------------------------------------------------------------
B. 7,000 7,00012,466 7,121 6,861 0 7,000 1,3704,359
- -----------------------------------------------------------------------------------------------
C. 22,207 9,467 8,64012,302 5,127 1,162 0 6,0132,862
- -----------------------------------------------------------------------------------------------
D. 13,581 5,721 2,484 0 3,2195,018 998 651 957 957
- -----------------------------------------------------------------------------------------------
E. 0 21,460 21,460 0 0 1,351 0
F. 0 14,184 14,184 380 13,62820,619
- -----------------------------------------------------------------------------------------------
Total $60,188 $44,005 $32,941 $13,531 $31,568$50,284 $42,944 $38,372 $6,207 $35,370
- -----------------------------------------------------------------------------------------------
A. Matching contributions to 401(k) Plan and Deferred Compensation Plan
B. Financial counseling benefit
C. Split-dollar life insurance reportable income (the split dollarsplit-dollar insurance
premiums are calculated using the "foregone interest" method)
D.C. Reverse split-dollar life insurance
E.D. Life insurance coverage in excess of $50,000
F.E. Dividends earned in 2001 on restricted stock
-18-11
STOCK OPTIONS
The following table sets forth certain information concerning stock options
granted during 19992001 to the executives named below:
STOCK OPTIONS/SAROPTION GRANTS IN 1999
--------------------------------2001
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term(2)
--------------------------------------------------------- --------------------------------
Number ofTerm/(2)/
--------------------------------------------------------------------------
% of Total
Options
Number of Granted
Securities Options/SARs
Underlying Granted to Exercise
Underlying Employees or Options/SARs EmployeesBase
Options in BaseFiscal Price Expiration
Name Granted(1) FiscalGranted/(1)/ Year ($/Share) Date 5% 10%
- ------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 77,657 9.4% $29.875 6/108,592 15.1% $31.54 1/09 $1,459,175 $3,698,0261/11 $5,579,457 $8,883,912
- -----------------------------------------------------------------------------------------------
William D. Harvey 17,071 2.1% 29.875 6/21,798 3.0% 31.54 1/09 320,764 812,9211/11 1,119,981 1,783,294
- -----------------------------------------------------------------------------------------------
Eliot G. Protsch 17,071 2.1% 29.875 6/21,798 3.0% 31.54 1/09 320,764 812,9211/11 1,119,981 1,783,294
- -----------------------------------------------------------------------------------------------
Thomas M. Walker 16,402 2.0% 29.875 6/21,005 2.9% 31.54 1/09 308,194 781,0631/11 1,079,237 1,718,419
- -----------------------------------------------------------------------------------------------
Pamela J. Wegner 16,402 2.0% 29.875 6/21,005 2.9% 31.54 1/09 308,194 781,0631/11 1,079,237 1,718,419
(1) /(1)/Consists of non-qualified stock options to purchase shares of AEC common
stock granted pursuant to AEC's Long-Term Equity Incentive Plan. Options
were granted on June 1, 1999,January 2, 2001 and will fully vesthave a three year vesting
schedule with one-third becoming exercisable on January 1, 2002.2, 2002, one-third
becoming exercisable on January 2, 2003 and the final one-third becoming
exercisable on January 2, 2004. Upon a "change in control" of AEC as
defined in the Plan or upon retirement, disability or death of the option
holder, thesethe options will become immediately exercisable.
(2) /(2)The hypothetical potential appreciation shown for the named executives is
required by rules of the Securities and Exchange Commission ("SEC"). The
amounts shown do not represent the historical or expected future
performance of AEC's common stock. In order for the named executives to
realize the potential values set forth in the 5% and 10% columns in the
table above, the price per share of AEC's common stock would be $48.67$51.38 and
$77.50,$81.81, respectively, as of the expiration date of the options. -19-
/
The following table provides information for the executives named below
regarding the number and value of exercisable and unexercised options. None of
the executives exercised options in fiscal 1999.2001.
OPTION VALUES AT DECEMBER 31, 2001
OPTION/SAR VALUES AT DECEMBER 31, 1999
--------------------------------------
Number of Securities Underlying Unexercised Value of Unexercised Options/SARsIn-the-Money Options
Unexercised Options at In-the-Money Options/SARs Fiscal Year End at Year End(1)
-------------------------------------- ------------------------------------End/(1)/
---------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 37,951 115,958 0 0264,714 109,699 $239,754 $66,028
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
William D. Harvey 13,152 29,775 0 064,235 21,553 58,612 12,427
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Eliot G. Protsch 13,152 29,775 0 064,235 21,553 58,612 12,427
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Thomas M. Walker 3,802 24,006 0 048,322 20,759 31,871 11,958
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Pamela J. Wegner 7,359 23,671 0 051,544 20,759 47,027 11,958
(1) /(1)/Based on the closing per share price of Company common stock on December
31, 19992001 of AEC
common stock of $27.50. Because the price per share on
December 31, 1999 was less than the option price for all of the
outstanding options, no options are considered in-the-money.
Long-Term Incentive Awards--The$30.36.
12
LONG-TERM INCENTIVE AWARDS
The following table provides information concerning long-term incentive awards
made to the executives named below in 1999.2001.
LONG-TERM INCENTIVE AWARDS IN 1999
----------------------------------2001
------------------------------------------------------------------------------
Estimated Future Payouts Under
Non-Stock Price-Based Plans
-------------------------------------------------------------------------
Number of Performance or------------ -------- --------
Shares, Units Other Period or Other
Units or Period Until
Other Rights Until Maturation Threshold Target Maximum
Name (#)/(1)/ or Payout (#) (#) (#)
- -------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------
Erroll B. Davis, Jr. 11,64922,804 1/1/02 5,824 11,649 23,29804 11,402 22,804 45,608
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
William D. Harvey 2,9874,360 1/1/02 1,493 2,987 5,97404 2,180 4,360 8,720
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Eliot G. Protsch 2,9874,360 1/1/02 1,493 2,987 5,97404 2,180 4,360 8,720
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Thomas M. Walker 2,8704,201 1/1/02 1,435 2,870 5,74004 2,101 4,201 8,402
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Pamela J. Wegner 2,8704,201 1/1/02 1,435 2,870 5,74004 2,101 4,201 8,402
-----------------------------------------------------------------------------
(1) /(1)Consists of performance shares awarded under AEC's Long-Term Equity
Incentive Plan. TheseThe payout from the performance shares will vestis based on achievement of specifiedtwo
equally-weighted performance components: AEC's three-year Total Shareholder
Return (TSR) levels
as compared withrelative to an investor-owned utility peer group, overand
annualized earnings per share growth versus internally set performance
hurdles contained in the periodAlliant Energy Strategic Plan during the
performance cycle ending January 1, 2002.December 31, 2003. Payouts will be made on a
one-for-one basis in shares of AEC common stock or cash,are subject to
modification pursuant to a performance multiplier whichthat ranges from 0 to
2.00.
-20-2.00, and will be made in shares of AEC common stock or a combination of
common stock and cash. /
13
CERTAIN AGREEMENTS AND TRANSACTIONS
Mr. Davis has an employment agreement with AEC, pursuant to which Mr. Davishe will serve
as the Chairman, President and Chief Executive Officer of AEC until the
expiration of his term of the agreement on April 21, 2003. Mr. Davis will also begin serving as the Chairman of
AEC effective April 21, 2000. Following the
expiration of the initial term of Mr. Davis' employment agreement, his
agreement will automatically renew for successive one-year terms, unless either
Mr. Davis or AEC gives prior written notice of his or its intent to terminate
the agreement. Mr. Davis will also serve as the Chief Executive Officer and a
director of each subsidiary of AEC, until at least April 21, 2001 and as
a director of such companiesincluding the Company, during the term of
his employment agreement. Pursuant to Mr. Davis' employment agreement, he is
paid an annual base salary of not less than $450,000. Mr. Davis' current salary
under his employment agreement is $685,000. Mr. Davis also has the opportunity
to earn short-term and long-term incentive compensation (including stock
options, restricted stock and other long-term incentive compensation) in amounts no less than he was eligible toand
receive before the effective time of the Merger, as well as supplemental retirement benefits (including continued participation in
the WP&LCompany Executive Tenure Compensation Plan) in an amount no less than
he was eligible to receive before the effective time of the Merger, and life insurance providing a
death benefit of three times his annual salary. If the employment of Mr. Davis
is terminated without cause (as defined in the employment agreement) or if Mr.
Davis terminates his employment for good reason (as defined in the employment
agreement), AEC or its affiliates will continue to provide the compensation and
benefits called for by the employment agreement through the end of the term of
such employment agreement (with incentive compensation based on the maximum
potential awards and with any stock compensation paid in cash), and all
unvested stock compensation will vest immediately. If Mr. Davis dies or becomes
disabled, or terminates his employment without good reason, during the term of
his respective employment agreement, AEC or its affiliates will pay to Mr.
Davis or his beneficiaries or estate all compensation earned through the date
of death, disability or such termination (including previously deferred
compensation and pro rata incentive compensation based upon the maximum
potential awards). If Mr. Davis is terminated for cause, AEC or its affiliates
will pay his base salary through the date of termination plus any previously
deferred compensation. Under Mr. Davis' employment agreement, if any payments
thereunder constitute an excess parachute payment under the Internal Revenue
Code (the "Code"), AEC will pay to Mr. Davis the amount necessary to offset the
excise tax and any applicable taxes on this additional payment.
AEC currently has in effect key executive employment and severance agreements
(the "KEESAs") with certain executive officers of AEC (including Messrs. Davis,
Harvey, Protsch, Walker and Ms. Wegner). The KEESAs provide that each executive
officer who is a party thereto is entitled to benefits if, within five years
after a change in control of AEC (as defined in the KEESAs), the officer's
employment is ended through (i)(a) termination by AEC, other than by reason of
death or disability or for cause (as defined in the KEESAs), or (ii)(b) termination
by the officer due to a breach of the agreement by AEC or a significant change
in the officer's responsibilities, or (iii)(c) in the case of Mr. Davis' agreement,
termination by Mr. Davis following the first anniversary of the change of
control. The benefits provided are (i)(a) a cash termination payment of two or
three times (depending on which executive is involved) the sum of the officer's
annual salary and his -21-
or her average annual bonus during the three years before
the termination and (ii)(b) continuation for up to five years of equivalent
hospital, medical, dental, accident, disability and life insurance coverage as
in effect at the time of termination. Each KEESA for executive officers below
the level of Executive Vice President provides that if any portion of the
benefits under the KEESA or under any other agreement for the officer would
constitute an excess parachute payment for purposes of the Code, benefits will
be reduced so that the officer will be entitled to receive $1 less than the
maximum amount which he or she could receive without becoming subject to the
20% excise tax imposed by the Code on certain excess parachute payments, or
which AEC may pay without loss of deduction under the Code. The KEESAs for the
Chief Executive Officer and the Executive Vice Presidents (including Messrs.
Davis, Harvey, Protsch and Walker and Ms. Wegner) provide that if any payments
thereunder or otherwise constitute an excess parachute payment, AEC will pay to
the appropriate officer the amount necessary to offset the excise tax and any
additional taxes on this additional payment. Mr. Davis' employment agreement as
described above limits benefits paid thereunder to the extent that duplicate
payments would be provided to him under his KEESA.
-22-14
RETIREMENT AND EMPLOYEE BENEFIT PLANS
Alliant Energy Corporate Services Retirement Plans
Salaried employees (including officers) of the Company are eligible to
participate in a Retirement Plan maintained by Alliant Energy Corporate
Services. In 1998, the Retirement Plan was amended to implement a cash balance
format, thereby changing the benefit calculation formulas and adding a lump sum
distribution option for eligible participants. The Alliant Energy Cash Balance
Pension Plan (the "Plan") bases a participant's defined benefit pension on the value of a
hypothetical account balance. For individuals participating in the Plan as of
August l,1, 1998, a starting account balance was created equal to the present
value of the benefit accrued as of December 31, 1997, under the Plan's benefit
formula prior to the change to a cash balance approach. That formula provided a
retirement income based on years of credited service and final average
compensation for the 36 highest consecutive months, with a reduction for a
Social Security offset. In addition, individuals participating in the Plan as
of August 1, 1998 received a special one-time transition credit amount equal to
a specified percentage varying with age multiplied by credited service and base
pay.
For 1998 and thereafter, a participant receives annual credits to the account
equal to 5% of base pay (including certain incentive payments, pre-tax
deferrals and other items), plus an interest credit on all prior accruals equal
to 4% plus a potential share of the gain on the investment return on assets in
the trust investment for the year.
The life annuity payable under the Plan is determined by converting the
hypothetical account balance credits into annuity form. Individuals who were
participants in the Plan on August 1, 1998 are in no event to receive any less
than what would have been provided under the prior formula, had it continued,
if they terminate on or before August 1, 2008, and do not elect to commence
benefits before the age of 55.
All of the individuals listed in the Summary Compensation Table who participate
in the Plan (Messrs. Davis, Protsch and Harvey Protsch and Ms. Wegner) are
"grandfathered" under the prior plansplan benefit formula. Since their estimated
benefits under that formula are higher than under the Plan formula, utilizing
current assumptions, their benefits would currently be determined by the prior
plan benefit formula. Contributions toThe following table illustrates the "grandfathered" planestimated annual
benefits payable upon retirement at age 65 under the prior formula based on
average annual compensation and years of service. To the extent benefits under
the Plan are determined actuarially, computed on a
straight-life annuity basis, and cannotlimited by tax law, any excess will be readily calculated as
applied to any individual participant or small group of participants.paid under the Unfunded
Excess Plan described below.
Retirement Plan Table
Average Annual Benefit After Specified Years in Plan
Annual --------------------------------------------
Compensation 15 20 25 30+
------------ -------- -------- -------- --------
$ 200,000 $ 55,000 $ 73,300 $ 91,700 $110,000
300,000 82,500 110,000 137,500 165,000
400,000 110,000 146,700 183,300 220,000
500,000 137,500 183,300 229,100 275,000
600,000 165,000 220,000 275,000 330,000
700,000 192,500 256,700 320,800 385,000
800,000 220,000 293,300 366,700 440,000
900,000 247,000 330,000 412,500 495,000
1,000,000 275,000 366,700 458,300 550,000
1,100,000 302,500 403,300 504,100 605,000
For purposes of the Plan, compensation means payment for services rendered,
including vacation and sick pay, and is substantially equivalent to the salary
amounts reported in the foregoing Summary Compensation Table. Plan benefits
depend upon length of Plan service (up to a maximum of 30 years), age at
retirement and amount of compensation (determined in accordance with the Plan)
and are reduced by up to 50 percent50% of Social Security benefits. The estimated
benefits in the table above do not reflect the Social Security offset. The
estimated benefits are computed on a straight-life annuity basis. Benefits will
be adjusted if the employee receives one of the optional forms of payment.
Credited
15
years of service under the Plan for covered persons named in the foregoing
Summary Compensation Table are as follows: Erroll B. Davis, Jr., 2022 years;
Eliot G. Protsch, 2022 years; William D. Harvey, 1214 years; and Pamela J. Wegner,
57 years. Assuming retirement at age 65, a Plan
participant (in conjunction with the Unfunded Excess Plan described
below) would be eligible at retirement for a maximum annual retirement
benefit as follows:
-23-
Retirement Plan Table
Average Annual Benefit After Specified Years in Plan*
Annual --------------------------------------------------------------------------------------------------
Compensation 5 10 15 20 25 30
- -----------------------------------------------------------------------------------------------------------------------
$125,000 $10,085 $20,171 $30,256 $40,341 $50,427 $60,512
150,000 12,377 24,754 37,131 49,508 61,885 74,262
200,000 16,960 33,921 50,881 67,841 84,802 101,762
250,000 21,544 43,087 64,631 86,175 107,718 129,262
300,000 26,127 52,254 78,381 104,508 130,635 156,762
350,000 30,710 61,421 92,131 122,841 153,552 184,262
400,000 35,294 70,587 105,881 141,175 176,468 211,762
450,000 39,877 79,754 119,631 159,508 199,385 239,262
475,000 42,169 84,337 126,506 168,675 210,843 253,012
500,000 44,460 88,921 133,381 177,841 222,302 266,762
525,000 46,752 93,504 140,256 187,008 233,760 280,512
550,000 49,044 98,087 147,131 196,175 245,218 294,262
600,000 53,627 107,254 160,881 214,508 268,135 321,762
650,000 58,210 116,421 174,631 232,841 291,052 349,262
700,000 62,794 125,587 188,381 251,175 313,968 376,762
* Average annual compensation is based upon the average of the
highest 36 consecutive months of compensation. The Plan benefits
shown above are net of estimated Social Security benefits and do
not reflect any deductions for other amounts. The annual
retirement benefits payable are subject to certain maximum
limitations (in general, average annual compensation cannot
exceed $160,000 for 1999) under the Code. Amounts that would not
otherwise be payable under the Plan due to this limit are payable
under the Unfunded Excess Plan described below. Under the Plan,
if a Plan participant dies prior to retirement, the designated
survivor of the participant is entitled to a monthly income
benefit equal to approximately 50 percent of the monthly
retirement benefit which would have been payable to the
participant under the Plan.
-24-
IES Industries Pension Plan
Prior to the Merger,April 1998, Mr. Walker participated in the IES Industries retirement
plan (which plan was transferred tohas been merged into the Alliant Energy Corporate
Services in connection with the Merger)Cash Balance Plan). Plan
benefits payable to Mr. Walker have been "grandfathered" to reflect the benefit
plan formula in effect at that time. Since his estimated benefits under that
formula are higher than under the timePlan formula, utilizing current assumptions,
his benefits would currently be determined by the prior plan benefit formula.
The following table illustrates the estimated annual benefits payable upon
retirement at age 65 under the prior formula for the average annual
compensation and years of service. To the extent benefits under the Plan are
limited by tax law, any excess will be paid under the Unfunded Excess Plan
described below.
Pension Plan Table
Average Annual Benefit After Specified Years in Plan
Annual --------------------------------------------
Compensation 15 20 25 30 35
------------ -------- -------- -------- -------- --------
$200,000 $ 43,709 $ 58,279 $ 72,849 $ 87,418 $101,988
300,000 66,959 89,279 111,599 133,918 156,238
400,000 90,209 120,279 150,348 180,418 210,488
500,000 113,459 151,279 189,099 226,918 264,738
600,000 136,709 182,279 227,849 273,418 318,988
For purposes of the Merger.Plan, compensation means payment for services rendered,
including vacation and sick pay, and is substantially equivalent to the salary
amounts reported in the foregoing Summary Compensation Table. Plan benefits
depend upon length of Plan service (up to a maximum of 35 years), age at
retirement and amount of compensation (determined in accordance with the Plan).
The estimated benefits are computed on a straight-life annuity basis. Benefits
will be adjusted if the employee receives one of the optional forms of payment.
Mr. Walker has threefive years of credited service under this plan. Maximum annual benefits payable at
age 65 to participants who retire at age 65, calculated on the basis of
straight life annuity, are illustrated in the following table.
Pension Plan Table
Average of Highest Annual Estimated Maximum Annual Retirement
Salary (Remuneration) Benefits Based on Years of Service
For Three Consecutive --------------------------------------------
Years Out of the Last Ten 15 20 25 30 35
- -------------------------------------------------------------------------
125,000 26,583 35,444 44,305 53,166 62,027
150,000 32,395 43,194 54,992 64,791 75,590
200,000 44,020 58,694 73,368 88,041 102,715
225,000 49,618 66,156 82,696 99,235 115,774
250,000 50,757 67,676 84,595 101,514 118,433
300,000 50,757 67,676 84,595 101,514 118,433
400,000 50,757 67,676 84,595 101,514 118,433
Unfunded Excess Plan--Alliant Energy Corporate Services maintains an Unfunded
Excess Plan that provides funds for payment of retirement benefits above the
limitations on payments from qualified pension plans in those cases where an
employee's retirement benefits exceed the qualified plan limits. The Unfunded
Excess Plan provides an amount equal to the difference between the actual
pension benefit payable under the pension plan and what such pension benefit
would be if calculated without regard to any limitation imposed by the Code on
pension benefits or covered compensation.
Unfunded Executive Tenure Compensation Plan--Alliant Energy Corporate Services
maintains an Unfunded Executive Tenure Compensation Plan to provide incentive
for selected key executives to remain in the service of the Company by
providing additional compensation whichthat is payable only if the executive remains
with the Company until retirement (or other termination if approved by the
Board of Directors). In the case of the Chief Executive Officer only, in the
event that the Chief Executive Officer (1)(a) is terminated under his employment
agreement with AEC as described above other than for cause, death or disability
(as those terms are defined in the employment agreement), (2)(b) terminates his
employment under the employment agreement for good reason (as such term is
defined in the employment agreement), or (3)(c) is terminated as a result of a
failure of the employment agreement to be renewed automatically pursuant to its
terms (regardless of the reason for such non-renewal), then for purposes of the
plan,Plan, the Chief Executive Officer shall be deemed to have retired at age 65 and
shall be entitled to benefits under the plan. ParticipantsPlan. Any participant in the planPlan must
be designatedapproved by the Chief Executive Officer of the Company and approved by its Board of Directors. Mr. Davis was the only active
participant in the planPlan as of December 31, 1999.2001. The planPlan provides for monthly
payments to a participant after retirement (at or after age 65, or with Board
approval, prior to age 65) for 120 months. The payments will be equal -25-
to 25 percent25% of
the participant's highest average salary for any consecutive 36-month period.
If a participant dies prior to retirement or before 120 payments have been
made, the participant's beneficiary will receive monthly payments equal to 50 percent50%
of such amount for 120 months in the case of death before retirement, or if the
participant dies after retirement, 50 percent50% of such amount for the balance of the
120 months. Annual benefits of $145,000$160,000 would be payable to Mr. Davis upon
retirement, assuming he continues in Alliant Energy Corporate Services' service
until retirement at the same salary as was in effect on December 31, 1999.2001.
16
Alliant Energy Corporate Services Supplemental Executive Retirement Plan
The Company maintains an unfunded Supplemental Executive Retirement Plan
("SERP") to provide incentive for key executives to remain in the service of
the Company by providing additional compensation whichthat is payable only if the
executive remains with the Company until retirement, disability or death.
Participants in the planSERP must be approved by the Compensation and Personnel
Committee of the Board. The planSERP provides for payments of 60% of the
participant's average annual earnings (base salary and bonus) for the highest
paid three years out of the last ten years of the participant's employment
reduced by the sum of benefits payable to the officer from the officer's
defined benefit plan.plan and the Unfunded Excess Plan. The normal retirement date
under the planSERP is age 62 with at least ten years of service and early
retirement is at age 55 with at least ten years of service. If a participant
retires prior to age 62, the 60% payment under the planSERP is reduced by 3% per
year for each year the participant's retirement date precedes his/her normal
retirement date. The actuarial reduction factor will be waived for senior
officers who have attained age 55 and have a minimum of ten years of service in
a senior executive position with the Company. Benefit payments under the planSERP
will be made in a lump sum, or for the lifetime of the senior officer, with a
minimum of 12 years of payments if the participant dies after retirement. A
postretirement death benefit of one times the senior executive officer's final
average earnings at the time of retirement will be paid to the designated
beneficiary. Messrs. Davis, Harvey, Protsch and Walker and Ms. Wegner are
participants in this plan.the SERP. The following table shows payments under the plan,SERP,
assuming a minimum of 10ten years of service at retirement age.
-26-
Supplemental Executive Retirement Plan Table
Average
Compensation <10 Years >
Annual Benefit After Specified Years in Plan
Average Annual --------------------------------------------
Compensation (less than)10 Years (greater than)10 Years*
------------ ------------------- -----------------------
$ 200,000 0 $120,000
300,000 0 180,000
400,000 0 240,000
500,000 0 300,000
600,000 0 360,000
700,000 0 420,000
800,000 0 480,000
900,000 0 540,000
1,000,000 0 600,000
1,100,000 0 660,000
- ----------------------------------------------------------------------
$ 125,000 $0 $ 75,000
150,000 0 90,000
200,000 0 120,000
250,000 0 150,000
300,000 0 180,000
350,000 0 210,000
400,000 0 240,000
450,000 0 270,000
500,000 0 300,000
550,000 0 330,000
600,000 0 360,000
650,000 0 390,000
700,000 0 420,000
750,000 0 450,000----------
* Reduced by the sum of the benefit payable from the applicable defined benefit
plan.or pension plan and the Unfunded Excess Plan.
Key Employee Deferred Compensation Plan--The Company maintains an unfunded Key
Employee Deferred Compensation Plan under which participants may defer up to
100% of base salary, or incentive compensation.compensation and eligible SERP payments.
Participants who have made the maximum allowed contribution to the
Company-sponsored 401(k) Plan may receive an additional credit to the Deferred
Compensation Plan. The Company matches upcredit will be equal to 50% of the employee deferral
(pluslesser of (a) the
amount contributed to the 401(k) contributions up toPlan plus the amount deferred under this Plan,
or (b) 6% of pay, lessbase salary reduced by the amount of any matching contributions in
the 401(k) matching
contributions).Plan. The employee may elect to have his deferrals credited to an
Interest Account or an AEC Stock Account. Deferrals and matching contributions
receivedto the Interest Account receive an annual return tobased on the A-utility bond rateA-Utility Bond
Rate with a minimum return no less than the prime interest rate published in
theThe Wall Street Journal.Journal provided that the return may not be greater than 12% or
less than 6%. Deferrals and matching contributions credited to the Common Stock
Account are treated as though invested in the common stock of AEC and will be
credited with dividends and those dividends will be reinvested. The shares of
common stock identified as obligations under the Plan are held in a rabbi
trust. Payments from the planPlan may be made in a lump sumssum or in annual
installments for up to ten years at the election of the participant.
Participants are selected by the Chief Executive Officer of Alliant Energy
Corporate Services. Messrs. Davis, Harvey, Protsch and Walker and Ms. Wegner
participate in the Plan.
-27-17
REPORT OF THE COMPENSATION AND PERSONNEL
COMMITTEE ON EXECUTIVE COMPENSATION
To Our Shareowners:
The Compensation and Personnel Committee (the "Committee") of the Board of
Directors of the Company is currently comprised of four non-employee directors
(the same directors that comprise the AEC Compensation and Personnel
Committee). The following is a report prepared by these directors with respect
to compensation paid by AEC, the Company and AEC's other subsidiaries. The
Committee assesses the effectiveness and competitiveness of, approves the
design of and administers executive compensation programs within a consistent
total compensation framework for the Company. The Committee also reviews and
approves all salary arrangements and other remuneration for executives,
evaluates executive performance, and considers related matters. To support the
Committee in carrying out its mission, an independent consultant is engaged to
provide assistance to the Committee.
The Committee is committed to implementing a totalan overall compensation program for
executives that furthers the Company's mission. Therefore, the Committee
adheres to the following compensation policies, which are intended to
facilitate the achievement of the Company's business strategies.
-strategies:
. Total compensation should enhance the Company's ability to attract,
retain and encourage the development of exceptionally knowledgeable and
experienced executives, upon whom, in large part, the successful
operation and management of the Company depends.
-. Base salary levels should be targeted at a competitive market range of
base salaries paid to executives of comparable companies. Specifically,
the Committee targets the median (50th percentile) of equally weighted data frombase salaries paid
by a selected group of utility and general industry companies.
- Incentive
compensation programs should strengthen the relationship between pay and
performance by emphasizing variable, at-risk compensation that is
consistent with meeting predetermined Company, subsidiary, business unit
and individual performance goals. In addition, the Committee targets
incentive levels
are targeted at the median (50th percentile) of equally
weighted data fromincentive
compensation paid by a selected group of utility and general industry
companies.
Components of Compensation
The major elements of the Company's executive compensation program are base
salary, short-term (annual) incentives and long-term (equity) incentives. These
elements are addressed separately below. In setting the level for each major
component of compensation, the Committee considers all elements of an
executive's total compensation package, including employee benefit and
perquisite programs. The Committee's goal is to provide an overall compensation
package for each executive officer that is competitive to the packages offered
other similarly situated executives. The Committee has determined that total
executive compensation, including that for Mr. Davis, is in line with
competitive salariescompensation of the comparison groupsgroup of companies.
Base Salaries
The Committee annually reviews each executive's base salary. Base salaries are
targeted at a competitive market range (i.e., at the median level) when
comparing both utility and non-utility (general industry) data. BaseThe Committee
annually adjusts base salaries are adjusted annually by the Committee to recognize changes in the market, varying
levels of responsibility,
-28-
prior experience and breadth of knowledge. Increases
to base salaries are driven primarily by market adjustments for a particular
salary level, which generally limitlimits across-the-board increases. IndividualThe Committee
does not consider individual performance factors are not considered by the Committee in setting base salaries. In 1999, theThe
Committee reviewed executive salaries for market comparability using utility
and general industry data contained in compensation surveys published by Edison
Electric Institute, American Gas Association and several compensation-consultingcompensation
consulting firms. TheBased on the foregoing, the Committee decided to maintain Mr. Davis' 1999 base salary atestablished the level
established in May 1998. The Summary Compensation Table reflects an annual
salary of $580,000 effective May 1, 1998 with compensation from
January through April 1998for Mr. Davis at $685,000 for the previous annual salary of $450,000
annually.2001 fiscal year.
Short-Term Incentives
The goal of the Company's short-term (annual) incentive programs is to promote the Committee's
pay-for-performance philosophy by providing executives with direct financial
incentives in the form of annual cash or stock based bonuses based ontied to the achievement of
corporate, subsidiary, business unit and individual performance goals. Annual
bonus opportunities allow the Committee to communicate specific goals that are
of primary importance during the coming year and motivate executives to achieve
these goals. The Committee on an annual basis reviews and approves the program'sprograms'
18
performance goals, and the relative weight assigned to each goal as well asand the targeted
and maximum award levels. A description of the short-term incentive programs
available during 19992001 to executive officers follows.
Alliant Energy Corporation Management Incentive Compensation Plan--In 1999,2001, the
Alliant Energy Corporation Management Incentive Compensation Plan (the "MICP")
covered utility executives and was based on achieving annual targets in corporate
performance that included an earnings per share ("EPS") target, safety and environmental
targets for the utility businesses, and business unit and individual
performance goals. Target and maximum bonus awards under the MICP in 19992001 were
set at the median of the utility and general industry market levels. Targets wereThe
Committee considered by the Committeethese targets to be achievable, but requiredto require
above-average performance from each of the executives. ActualThe level of performance
achieved in each category determines actual payment of bonuses, as a percentage
of annual salary, is determined by the level of performance achieved in each
category.salary. Weighting factors are applied to the percentage achievement
under each category to determine overall performance. If a pre-determined EPS
target is not met, there is no bonus payment associated with the MICP. If the
threshold performance for any other performance target is not reached, there is
no bonus payment associated with that particular category. Once the designated
maximum performance is reached, there is no additional payment for performance
above the maximum level. The actual percentage of salary paid as a bonus,
within the allowable range, is equal to the weighted average percent
achievement for all the performance categories. Potential MICP awards range
from 0% to 100% of annual salary for eligible executives range from 0 to 90 percent of annual salary.other than Mr. Davis.
The amounts paid under the MICP to eligible officers included in the Summary
Compensation Table are reflected in that table.table under the heading "Bonus".
In 1999,2001, Mr. Davis was covered by the MICP. Awards for Mr. Davis under the MICP
in 19992001 were based on corporate and strategic goal achievement in relation to
predetermined goals. For each plan year, the Committee determines the
performance apportionment for Mr. Davis. In 1999,2001, that apportionment was 70 percent75%
for corporate performance and 30 percent25% for strategic goal performance. Corporate
performance is measured based on a company-wideCompany-wide EPS, targetenvironmental, diversity and
safety targets established at the beginning of the year.
-29-
Strategic goals are
measured based on the achievement of certain specific goals, which included
strategy development and implementation, established for Mr. Davis by the
Committee. The 19992001 MICP award range for Mr. Davis was from 00% to 120 percent150% of
annual salary. Bonuses under
the MICP are earned and calculated in a manner similar to that employed
by the MICP. The award earned by Mr. Davis under the MICP for 19992001 is set
forth in the Summary Compensation Table.
Alliant Energy Resources Annual Incentive Plan--The Alliant Energy
Resources Annual Incentive Plan for 1999 covered non-utility executives
and was based on achieving annual targets in corporate performance
(that included an EPS target for the non-utility businesses), business
unit performance (that included the contribution to EPS by such
business unit) and group, unit and individual performance goals. Target
and maximum bonus awards were set at competitive market levels. Targets
were considered by the Committee to be achievable, but required
above-average performance from each of the executives. Actual payment
of bonuses, as a percentage of annual salary, is determined by the
level of performance achieved in each category. Weighting factors are
applied to the percentage achievement under each category to determine
overall performance. If the business unit's EPS contribution to
corporate is below the threshold level, there is no bonus payment
associated with the plan. If the threshold performance for any other
performance target is not reached, there is no bonus payment associated
with that particular category. Once the designated maximum performance
is reached for any other performance target, there is no additional
payment for performance above the maximum level. The actual percentage
of salary paid as a bonus, within the allowable range, is equal to the
weighted average percent achievement for all the performance
categories. Potential Alliant Energy Resources Annual Incentive Plan
awards for executives range from 0 to 60 percent of annual salary. The
amounts paidTable under the Alliant Energy Resources Annual Incentive Plan
to eligible officers included in the Summary Compensation Table are
reflected in that table.heading "Bonus".
Long-Term Incentives
The Committee strongly believes compensation for executives should include
long-term, at-risk pay to strengthen the alignment of the interests of the
shareowners and management. In this regard, the Alliant Energy Corporation
Long-Term Equity Incentive Plan permits grants of stock options, restricted
stock and performance unit/units/shares with respect to AEC's common stock. The
Long-Term Equity Incentive Plan is administered by the AEC Compensation and
Personnel Committee. The Committee believes the Long-Term Equity Incentive Plan
balances the Company's existingannual compensation programs by emphasizing compensation
based on the long-term successful performance of the Company from the
perspective of the shareowners of AEC.AEC's shareowners. A description of the long-term incentive
programs available during 19992001 to executive officers under the Long-Term Equity
Incentive Plan is set forth below.
Alliant Energy Corporation Long-Term Incentive Program--The Alliant Energy
Corporation Long-Term Incentive Program covered utility
executives and consisted of the
following components:components in 2001: non-qualified stock options and performance
shares. StockNon-qualified stock options provide a reward that is directly tied to
the benefit AEC's shareowners of AEC receive from increases in the price of AEC's
common stock. The payout from the performance shares is based on two
equally-weighted performance components: AEC's three-year total return to
shareowners relative to an investor-owned utility peer group.group, and annualized
EPS growth versus internally set performance hurdles contained in the Alliant
Energy Strategic Plan. Thus, the two components of the Long-Term Incentive
Program (i.e., stock options and performance shares) provide incentives for
management to produce superior shareowner returns on both an absolute and
relative basis. During 1999,2001, the AEC Compensation and Personnel Committee made
a grant of stock options and performance shares to various executive officers,
including Messrs. Davis, Harvey, Protsch and Walker and Ms. Wegner. All option
-30-
grants had per share exercise prices equal to the fair market value of a share
of AEC common stock on the date the grants were approved. Options vest on a
one-third basis at the beginning of each calendar year after grant and have a
ten-year term from the date of the grant. Executives in the Alliant Energy
Corporation Long-Term Equity Incentive Program were also granted performance
shares. Performance shares will be paid out in shares of AEC's common stock or
cash. The award will be modified by a performance multiplier, which ranges from
0 to 2.00 based on the three-year average of AEC's total shareowner return relative to
an investor-owned utility peer group.AEC performance.
In determining actual award levels under the Alliant Energy Corporation
Long-Term Equity Incentive Program, the AEC Compensation and Personnel
Committee was
19
primarily concerned with providing a competitive total compensation level to
officers. As such, award levels (including awards made to Mr. Davis) were based
on a competitive analysis of similarly sized utility companies that took into
consideration the market level of long-term incentives, as well as the
competitiveness of the total compensation package. Award ranges, as well as
individual award levels, were then established based on responsibility level
and market competitiveness. No corporate or individual performance measures
were reviewed in connection with the awards of options and performance shares.
Award levels were targeted to the median of the range of such awards paid by
comparable companies. In addition, theThe AEC Compensation and Personnel Committee did not
consider the amounts of options and performance shares already outstanding or
previously granted when making awards for 1999.2001. Mr. Davis' awards in 19992001 under
this programthe Long-Term Incentive Program are shown in the Stock Options/SARtables under "Stock Option
Grants in 1999 Table2001" and the
Long-Term"Long-Term Incentive Awards in 1999 Table.
Alliant Energy Resources Long-Term Incentive Program--The Alliant
Energy Resources Long-Term Incentive Program covered non-utility
executives and consisted of the following components: stock options and
performance shares. Stock options provide a reward that is directly
tied to the benefit shareowners of AEC receive from increases in the
price of AEC's common stock. The payout from the performance shares is
contingent upon achievement of specified AER earnings growth. Thus, the
two components of the Alliant Energy Resources Long-Term Incentive
Program, (i.e. stock options and performance shares) provide incentives
for management to produce superior shareowner returns on both an
absolute and relative basis. All option grants had a per share exercise
price equal to the fair market value of a share of AEC common stock on
the date the grants were approved. Options vest on a one-third basis at
the beginning of each calendar year and have a ten-year term from the
date of the grant. Executives in the Alliant Energy Resources Long-Term
Incentive Program were also granted performance shares. Performance
shares will be paid out in shares of AEC's common stock or cash. The
payment will be modified by a performance multiplier which ranges from
0 to 2.00 based on the AER three-year average growth in EPS
contribution to the Company's EPS.
In determining actual award levels, the AEC Compensation and Personnel
Committee was primarily concerned with providing a competitive total
compensation level to officers. As such, award levels were based on a
competitive analysis of similarly-sized general industry companies that
took into consideration the market level of long-term incentives, as
-31-
well as the competitiveness of the total compensation package. Award
ranges, as well as individual award levels, were then established based
on responsibility level and market competitiveness. No corporate or
individual performance measures were reviewed in connection with the
awards of options and performance shares. Award levels were targeted to
the median of the range of such awards paid by comparable companies. In
addition, the AEC Compensation and Personnel Committee did not consider
the amounts of options and performance units already outstanding or
previously granted when making awards for 1999.
Special Restricted Stock Awards in 1999
To provide selected executives of AEC with severance arrangements with
generally comparable terms relating to any future change in control of
AEC, AEC in 1999 offered new key executive employment and severance
agreements (the "New KEESAs") to such executive officers of AEC
(including Messrs. Davis, Harvey, Protsch, Walker and Ms. Wegner)2001". To
receive a New KEESA, each executive officer (other than Mr. Davis) was
required to cancel existing rights under his or her prior key executive
employment and severance agreement in exchange for a grant of
restricted stock. Mr. Davis did not receive a grant of restricted stock
in connection with the cancellation of his prior key executive
employment and severance agreement. Mr. Walker also did not receive a
restricted stock grant because he did not have a prior key executive
employment and severance agreement under which the existing rights were
cancelled. The grants of restricted stock were valued at one times
salary for Executive Vice Presidents of AEC (including Messrs. Harvey,
Protsch and Ms. Wegner) and one-half times salary for Vice Presidents
of AEC. Subject to certain exceptions, the restricted stock will vest
only if the executive remains with AEC for a period of at least three
years.
Policy with Respect to the $1 Million Deduction Limit
Section 162(m) of the Code generally limits the corporate deduction for
compensation paid to executive officers named in the proxy statement to $1
million unless such compensation is based upon performance objectives meeting
certain regulatory criteria or is otherwise excluded from the limitation. Based
on the Committee's commitment to link compensation with performance as
described in this report, the Committee currently intends, in most instances, to qualify
future compensation paid to the Company's executive officers for deductibility
by the Company under Section 162(m). except in limited appropriate circumstances.
Conclusion
The Committee believes the existing executive compensation policies and
programs provide thean appropriate level of competitive compensation for the
Company's executives. In addition, the Committee believes that the longlong- and
short termshort-term performance incentives effectively align the interests of executives
and shareowners toward a successful future for the Company.
COMPENSATION AND PERSONNEL COMMITTEE
Arnold M. NemirowJudith D. Pyle (Chair)
Alan B. Arends
Jack B. Evans
David A. Perdue
20
REPORT OF THE AUDIT COMMITTEE
The Audit Committee (the "Committee") of the Board of Directors of the Company
is composed of five independent directors, each of whom is independent as
defined in the New York Stock Exchange's listing standards (the same directors
that comprise the AEC Audit Committee). The Committee operates under a written
charter adopted by the Board of Directors. The Committee recommends to the
Board of Directors the selection of the Company's independent auditors.
The Company's management ("management") is responsible for the Company's
internal controls and the financial reporting process, including the system of
internal controls. The Company's independent auditors are responsible for
expressing an opinion on the conformity of the Company's audited consolidated
financial statements with generally accepted accounting principles. The
Committee has reviewed and discussed the audited consolidated financial
statements with management and the independent auditors. The Committee has
discussed with the independent auditors matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication With Audit Committees).
The Company's independent auditors have provided to the Committee the written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee discussed
with the independent auditors their independence. The Committee considered
whether the independent auditors provision of non-audit services is compatible
with maintaining the independent auditors independence. The fees to the
independent auditors for 2001 for the Company and AEC were as follows:
Audit Fees................... $936,324
Financial Information Systems
and Implementation Fees...... 0
All Other Fees:
Audit-Related Fees* $404,086
Tax Related Fees... 491,443
Other.............. 35,159
--------
Total All Other Fees......... 930,688
- ----------
*Audit-related fees include statutory audits of subsidiaries, benefit plan
audits, acquisition due diligence, accounting consultation, various attest
services under professional standards, assistance with registration statements,
comfort letters and consents.
The Committee discussed with the Company's internal and independent auditors
the overall scopes and plans for their respective audits. The Committee meets
with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, the evaluation of the
Company's internal controls and overall quality of the Company's financial
reporting.
Based on the Committee's reviews and discussions with management, the internal
auditors and the independent auditors referred to above, the Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the SEC.
AUDIT COMMITTEE
Jack B. Evans (Chair)
Alan B. Arends
Katharine C. Lyall
Singleton B. McAllister
Judith D. Pyle
Anthony R. Weiler
-32-21
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
The Company's directors, its executive officers and certain other officers are
required to report their ownership of AEC's common stock and Companysubsidiary
preferred stock and any changes in that ownership to the SEC and the New York
Stock Exchange. One report covering one
transaction was inadvertently filed late on behalf of William D.
Harvey. To the best of the Company's knowledge, all required filings in
1999, with the exception of that one filing,2000 were properly made in a timely fashion. In making the above statements,
the Company has relied on the representations of the persons involved and on
copies of their reports filed with the SEC.
By Order of the Board of Directors
/S/ Edward M. Gleason
---------------------
Edward M. Gleason
Vice President -- Treasurer
and/s/ F. J. Buri
F. J. Buri
Corporate Secretary
-33-22
APPENDIX A
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL REPORT
For the Year Ended December 31, 1999
TABLE OF CONTENTS
Contents Page
- -------- -----
The Company........................................................ A-4
Selected Financial Data............................................ A-5
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ A-6
Report of Independent Public Accountants...........................A-25
Consolidated Financial Statements:
Consolidated Statements of Income and Retained Earnings........A-26
Consolidated Balance Sheets....................................A-27
Consolidated Statements of Cash Flows..........................A-29
Consolidated Statements of Capitalization......................A-30
Notes to Consolidated Financial Statements.....................A-31
Shareowner Information.............................................A-48
Executive Officers.................................................A-48
-A-1-2001
Contents Page
- -------- ----
Definitions.......................................................................... A-2
The Company.......................................................................... A-3
Selected Financial Data.............................................................. A-3
Management's Discussion and Analysis of Financial Condition and Results of Operations A-4
Report of Independent Public Accountants............................................. A-14
Consolidated Financial Statements
Consolidated Statements of Income................................................. A-15
Consolidated Balance Sheets....................................................... A-16
Consolidated Statements of Cash Flows............................................. A-18
Consolidated Statements of Capitalization......................................... A-19
Consolidated Statements of Changes in Common Equity............................... A-20
Notes to Consolidated Financial Statements........................................... A-21
Shareowner Information............................................................... A-34
Executive Officers................................................................... A-34
A-1
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes of this report are
defined below:
Abbreviation or Acronym Definition
- ------------------------- -----------
AFUDC................... Allowance for Funds Used During Construction
Alliant Energy.......... Alliant Energy Corporation
ATC..................... American Transmission Company, LLC
Btu..................... British Thermal Unit
Cargill................. Cargill Incorporated
Corporate Services...... Alliant Energy Corporate Services, Inc.
CWIP.................... Construction Work-In-Progress
DAEC.................... Duane Arnold Energy Center
DOE..................... United States Department of Energy
Dth..................... Dekatherm
EDS..................... Electronic Data Systems Corporation
EITF.................... Emerging Issues Task Force
EPA..................... United States Environmental Protection Agency
ERISA................... Employee Retirement Income Security Act of 1974,
as amended
FASB.................... Financial Accounting Standards Board
FERC.................... Federal Energy Regulatory Commission
ICC..................... Illinois Commerce Commission
IES..................... IES Industries Inc.
IESU.................... IES Utilities Inc.
International........... Alliant Energy International, Inc.
IPC..................... Interstate Power Company
ISCO.................... Alliant Energy Industrial Services, Inc.
ISO..................... Independent System Operator
Kewaunee................ Kewaunee Nuclear Power Plant
McLeod.................. McLeodUSA Incorporated
MD&A.................... Management's Discussion and Analysis of
Financial Condition and Results of Operations
MG&E.................... Madison Gas & Electric Company
MGP..................... Manufactured Gas Plants
MPUC.................... Minnesota Public Utilities Commission
MW...................... Megawatt
MWH..................... Megawatt-Hour
NEIL.................... Nuclear Electric Insurance Limited
NEPA.................... National Energy Policy Act of 1992
NMC..................... Nuclear Management Company, LLC
NOPR.................... Notice of Proposed Rulemaking
NOx..................... Nitrogen Oxides
-A-2-
Abbreviation or Acronym Definition
- ------------------------- -----------
NRC..................... Nuclear Regulatory Commission
NSP..................... Northern States Power Company
NYMEX................... New York Mercantile Exchange
PCB..................... Polychlorinated Biphenyl
PGA..................... Purchased Gas Adjustment
PRP..................... Potentially Responsible Party
PSCW.................... Public Service Commission of Wisconsin
PUHCA................... Public Utility Holding Company Act of 1935
Resources............... Alliant Energy Resources, Inc.
RTO..................... Regional Transmission Organization
SEC..................... Securities and Exchange Commission
SFAS.................... Statement of Financial Accounting Standards
SkyGen.................. SkyGen Energy LLC
SO2..................... Sulfur Dioxide
South Beloit............ South Beloit Water, Gas and Electric Company
U.S..................... United States
WDNR.................... Wisconsin Department of Natural Resources
WEPCO................... Wisconsin Electric Power Company
WP&L.................... Wisconsin Power and Light Company
WPLH....................
Abbreviation or Acronym Definition
- ----------------------- ----------
AFUDC................ Allowance for Funds Used During Construction
Alliant Energy....... Alliant Energy Corporation
ATC.................. American Transmission Company, LLC
CAA.................. Clean Air Act
Corporate Services... Alliant Energy Corporate Services, Inc.
DNR.................. Department of Natural Resources
Dth.................. Dekatherm
Enron................ Enron Corporation
EPA.................. U.S. Environmental Protection Agency
FASB................. Financial Accounting Standards Board
FERC................. Federal Energy Regulatory Commission
ICC.................. Illinois Commerce Commission
IES.................. IES Industries Inc.
IESU................. IES Utilities Inc.
IPC.................. Interstate Power Company
IP&L................. Interstate Power and Light Company
ISO.................. Independent System Operator
Kewaunee............. Kewaunee Nuclear Power Plant
KWh.................. Kilowatt-hour
MD&A................. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MGP.................. Manufactured Gas Plants
MW................... Megawatt
MWh.................. Megawatt-hour
NEPA................. National Energy Policy Act of 1992
NOx.................. Nitrogen Oxides
NRC.................. Nuclear Regulatory Commission
PSCW................. Public Service Commission of Wisconsin
PUHCA................ Public Utility Holding Company Act of 1935
Resources............ Alliant Energy Resources, Inc.
SEC.................. Securities and Exchange Commission
SFAS................. Statement of Financial Accounting Standards
SFAS 133............. Accounting for Derivative Instruments and Hedging Activities
South Beloit......... South Beloit Water, Gas and Electric Company
STB.................. Surface Transportation Board
Union Pacific........ Union Pacific Railroad
U.S.................. United States
WNRB................. Wisconsin Natural Resources Board
WP&L................. Wisconsin Power and Light Company
WPLH................. WPL Holdings, Inc.
WPSC.................... Wisconsin Public Service Corporation
WUHCA................... Wisconsin Utility Holding Company Act
-A-3-
A-2
WP&L filed a combined Form 10-K for 19992001 with the SEC; such document included
the filings of WP&L's parent, Alliant Energy, IESUIP&L and WP&L. Certain portions
of MD&A and the Notes to the Consolidated Financial Statements included in this
WP&L Proxy Statement represent excerpts from the combined Form 10-K. As a
result, the disclosure included in this WP&L Proxy Statement at times includes
information relating to Alliant Energy, IESU, IPC,IP&L, Resources and/or Corporate
Services. All required disclosures for WP&L are included in this proxy
statement thus such additional disclosures represent supplemental information.
THE COMPANY
Alliant Energy was formed as the result of a three-way merger involvingIn April 1998, WPLH, IES and IPC that was completed a merger resulting in April 1998.Alliant
Energy. The primary first tier subsidiaries of Alliant Energy include: WP&L,
IESU, IPC,IP&L, Resources and Corporate Services. IP&L was formed as a result of the
merger of IPC with and into IESU effective January 1, 2002.
WP&L was incorporated in Wisconsin in 1917 as the Eastern Wisconsin Electric
Company and is a public utility engaged principally in the generation, transmission,
distribution and sale of electric energy; the purchase, distribution,
transportation and sale of natural gas; and the provision of water services in
selective markets. Nearly all of WP&L's customers are located in south and
central Wisconsin. WP&L operates in municipalities pursuant to permits of
indefinite duration which are regulated by Wisconsin law. At December 31, 1999,2001,
WP&L supplied electric and gas service to approximately 407,000421,608 and 162,000167,209 customers,
respectively. WP&L also has approximately 19,000had 19,318 water customers. In 1999, 19982001, 2000 and 1997,1999,
WP&L had no single customer for which electric and/or gas sales accounted for
10% or more of WP&L's consolidated revenues. WPL Transco LLC was formed in
Wisconsin in 2000 and is the wholly-owned subsidiary of WP&L, which holds the
investment in ATC. WP&L owns all of the outstanding capital stock of South
Beloit, a public utility supplying electric, gas and water service, principally
in Winnebago County, Illinois, which was incorporated in 1908. WP&L also owns
varying interests in several other subsidiaries and investments whichthat are not
material to WP&L's operations.
WP&L is subject to regulation by the PSCW as to retail utility rates and
service, accounts, issuance and use of proceeds of securities, certain
additions and extensions to facilities and in other respects. WP&L is generally
required to file a rate case with the PSCW every two years based on a
forward-looking test year period. However, as one of the conditions for
approval of the 1998 merger which formed Alliant Energy, the PSCW has required,
with certain exception, that WP&L freeze for four years on a post-merger basis
retail electric, natural gas and water rates. The last of the rate freezes will
expire in April 2002. WP&L filed retail and wholesale base rate increase
requests in 2001 and the first quarter of 2002, respectively. Refer to "Utility
Industry Review--Rates and Regulatory Matters" in MD&A for further discussion.
Electric Operations
AsOperations--As of December 31, 1999,2001, WP&L provided retail electric
service to approximately 407,000419,643 electric retail customers, 599600 communities and 2829 wholesale
customers. WP&L's electric utility operations accounted for 83.3%78% of operating
revenues and 89.9%97% of operating income for the year ended December 31, 1999.2001.
Electric sales are seasonal to some extent with the annual peak normally
occurring in the summer months. In 1999,2001, the maximum peak hour demand for WP&L
was 2,3972,696 MW and occurred on July 23, 1999.31, 2001.
Gas Operations
AsOperations--As of December 31, 1999,2001, WP&L provided retail natural gas
service to approximately 162,000167,209 gas customers in 235233 communities. WP&L's gas utility
operations accounted for 16.0%21% of operating revenues and 8.9%2% of operating income
for the year ended December 31, 1999.2001. WP&L's gas sales follow a seasonal
pattern. There is an annual base load of gas used for cooking, heating and
other purposes, with a large heating peak occurring during the winter season.
-A-4-
SELECTED FINANCIAL DATA
Year Ended December 31,
-----------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
1996 1995
--------------------------------------------------------------------------------------- ---------- ---------- ---------- ----------
(in thousands)
Operating revenues....................revenues..................... $ 965,353 $ 862,381 $ 752,505 $ 731,448 $ 794,717
$ 759,275 $ 689,672
Earnings available for common stock........................stock.... 70,180 68,126 67,520 32,264 67,924 79,175 75,342
Cash dividends declared on common stock........................stock 60,449 -- 58,353 58,341 58,343
66,087 56,778
Total assets..........................assets........................... 1,879,882 1,857,024 1,766,135 1,685,150 1,664,604
1,677,814 1,641,165
Long-term obligations, net............net............. 523,183 569,309 471,648 471,554 420,414 370,634 375,574
Alliant Energy is the sole common shareowner of all 13,236,601 shares of WP&L's
common stock outstanding. As such, earnings per share data is not disclosed
herein. The 1998 financial results reflect the recording of $17 million of
pre-tax merger-related charges.
-A-5-A-3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This MD&A includes information relating to Alliant Energy, IESU and
WP&L (as well as IPC, Resources and Corporate Services). Where
appropriate, information relating to a specific entity has been
segregated and labeled as such.
FORWARD-LOOKING STATEMENTS
Statements contained in this report (including MD&A) that are not of historical
fact are forward-looking statements intended to qualify for the safe harbors
from liability established by the Private Securities Litigation Reform Act of
1995. From time to time, Alliant Energy, IESU
or WP&L may make other forward-looking statements within the meaning of
the federal securities laws that involve judgments, assumptions and
other uncertainties beyond the control of such companies. These
forward-looking statements may include, among others, statements
concerning revenue and cost trends, cost recovery, cost reduction
strategies and anticipated outcomes, pricing strategies, changes in the
utility industry, planned capital expenditures, financing needs and
availability, statements of expectations, beliefs, future plans and
strategies, anticipated events or trends and similar comments
concerning matters that are not historical facts. Investors and other
users of the forward-looking statements are cautioned that such
statements are not a guarantee of future performance and that suchSuch forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in,
or implied by, such statements. Some, but not all, of the risks and
uncertainties includeinclude: factors listed in "Other Matters--Other Future
Considerations;" weather effects on sales and revenues,
competitive factors,revenues; general economic and
political conditions in the relevantWP&L's domestic service territory,territories; federal and state
regulatory or governmentgovernmental actions, including issues associated with the
deregulation of the domestic utility industry and the ability to obtain
adequate and timely rate relief; unanticipated construction and acquisition
expenditures,expenditures; issues related to stranded costs and the recovery thereof,thereof;
unanticipated issues related to the supply of purchased electricity and price
thereof; unexpected issues related to the operations of Alliant Energy's nuclear facilities,Kewaunee; unanticipated
costs associated with certain environmental remediation efforts being
undertaken by Alliant Energy, unanticipated issues relating to
establishing a transmission company, material changes in the value of
Alliant Energy's investment in McLeod,WP&L and with environmental compliance generally; technological
developments,developments; employee workforce factors, including changes in key executives,
collective bargaining agreements or work stoppages, political, legal
and economic conditions in foreign countries Alliant Energy has
investments instoppages; and changes in the rate of
inflation. WP&L assumes no obligation, and disclaims any duty, to update the
forward-looking statements in this report.
UTILITY INDUSTRY OUTLOOKREVIEW
Overview--WP&L has one utility subsidiary, South Beloit. As a holding companypublic utility
with significant utility assets, Alliant EnergyWP&L competes in an ever-changing utility
industry. Set forth below is an
overview of this evolving marketplace. Electric energy generation, transmission and distribution are in a
period of fundamental change in the manner in which customers obtain,
and energy suppliers provide, energy services. Asresulting from legislative, regulatory, economic
and technological changes. These changes occur,impact competition in the electric
wholesale and retail markets as customers of electric utilities are facing increased numbers ofbeing
offered alternative suppliers. Such competitive pressures could result in
loss ofelectric utilities losing customers and an
incurrence ofincurring stranded costs (i.e., assets
and other costs rendered unrecoverable as the result of competitive pricing). To
which would be borne by security holders if the extent
stranded costs cannot be recovered from
customers, they would be borne
by security holders.
-A-6-
Across the nation, approximately half of the states (including
Illinois) have passed legislation or issued regulatory rulings granting
customers the right to choose their electric energy supplier.
Legislation that would allow customers to choose their electric energy
suppliercustomers.
WP&L is expected to be introduced in Iowa in 2000. At the federal
level, a number of proposals to restructure the electric industry are
currently under consideration. However, there continues to be a lack of
consensus over how restructuring should be implemented and how much
control the federal government should have over this process. Until one
of the proposals gains significant bipartisan support, there is
unlikely to be final federal action to either facilitate or force
states to open electricity markets to competition.
WP&L realized 98% of its electric utility revenues in 1999 in Wisconsin
and 2% in Illinois. Approximately 84% of the electric revenues in 1999
were regulated by the PSCW or the ICC while the other 16% were
regulated by the FERC. WP&L realized 96% of its gas utility revenues in
1999 in Wisconsin and 4% in Illinois.
Federal Regulation
IESU, WP&L and IPC are subject to regulation by the FERC. NEPA
addresses several matters designed to promoteFERC, and state regulation in
Wisconsin and Illinois. FERC regulates competition in the electric wholesale
power generation market. FERC has issued final rules
(FERC Orders 888/888-Amarket and 889/889-A) requiring electric utilities to
open their transmission lines to other wholesale buyers and sellers of
electricity. In response to FERC Orders 888 and 888-A, Corporate
Services, on behalf of IESU, WP&L and IPC, has filed Open Access
Transmission Tariffs that comply with the orders. In response to FERC
Orders 889 and 889-A, IESU, WP&L and IPC are participating in a
regional Open Access Same-Time Information System.
FERC Order 888 permits utilities to seek recovery of legitimate,
prudent and verifiable stranded costs associated with providing open
access transmission services. FERC does not have jurisdiction over
retail distribution and, consequently, the final FERC rules do not
provide for the recovery of stranded costs resulting from retail
competition. The various states retain jurisdiction over the question
ofeach state regulates whether to permit retail
competition, the terms of such retail competition and the recovery of any
portion of stranded costs that are ultimately determined to have resulted from
retail competition. In May 1999, FERC issued a NOPR concerning the development of RTOs. The
proposed rules outline the requirements for utilities to voluntarily
turn over control of their transmission system to a regional entity
either by leasing the system to an RTO or by outright divestiture. In
December 1999, FERC issued Order 2000 which implemented the proposed
rules with minor modifications. FERC's timeline is to have the RTOs in
operation by the end of 2001. Alliant Energy is involved with other
utilities and industry groups in reviewing Order 2000 and has submitted
a joint petition to FERC seeking further clarification of the operating
and ownership limitations that will be imposed on the RTOs. Alliant
Energy's current plans to contribute its Wisconsin transmission assets
to ATC, in exchange for an equity interest, and participate in the
Midwest ISO are expected to comply with the provisions of Order 2000.
Alliant Energy and the utility subsidiariesWP&L cannot predict the long-term consequencestiming of these rulesa restructured electric
industry or the impact on theirits financial condition or results of operations.
State Regulation
Wisconsinoperations but
does believe it is well-positioned to compete in a deregulated competitive
market. Although WP&L is subject to regulation byultimately believes that the PSCW. The PSCW's inquiries into
the future structure of the natural gas and electric utility industries
are ongoing. The stated goal of the PSCW regarding natural gas service
-A-7-
is "to accommodate competition but not create it." The PSCW has
followed a measured approach to restructuring the natural gas industry
in Wisconsin. The PSCW has determined that customer classes will be
deregulated, (i.e., the gas utility would no longer have an obligation
to procure gas commodity for customers, but would still have a delivery
obligation)pace of deregulation in a step-wise manner, after each classits primary retail electric service
territories has been demonstrateddelayed due to have a sufficient number of gas suppliers available.
The short-term goals of the PSCW's electric restructuring process areevents related to ensure reliability of the state's electric systemEnron and development of
a robust wholesale electric market. The long-term goal is to establish
prerequisite safeguards to protect customers prior to allowing retail
customer choice. There are no other restructuring working groups
currently active in Wisconsin.
In May 1998, the PSCW reactivated Docket No. 05-BU-101 with the
objective of examining the degree of separation which should be
required as a matter of policy between utility and non-utility
activities involving the various state utilities. Final hearings were
held in February 2000 and the PSCW ruled that utilities can continue to
offer non-utility services to customers and affiliates and that
utilities must continue to fully allocate their costs to such
non-utility activities.
It is anticipated that there will be legislative proposals introduced
in the 2001-2002 legislative session on issues dealing with
restructuring of theCalifornia's
restructured electric utility industry.
It isWP&L, including South Beloit, transferred its transmission assets with no gain
or loss (approximate net book value of $186 million) to ATC on January 1, 2001.
WP&L received a tax-free cash distribution of $75 million from ATC and had a
$110 million equity investment in ATC, with an ownership percentage of
approximately 26.5 percent at December 31, 2001. This transfer has not possibleresulted
in a significant impact on WP&L's financial condition or results of operations
since FERC allows ATC to predict atearn a return on the contributed assets comparable to
the return formerly allowed WP&L by the PSCW and FERC. During 2001, ATC
returned approximately 80 percent of its earnings to the equity holders and,
although no assurance can be given, WP&L anticipates ATC will continue with
this time the scope or the possibility of enactment of such
proposals.
"Reliability 2000" legislation was enacted in Wisconsin in 1999. This
legislation included, among other items, a relaxation of the
non-utility asset limitations includedpolicy in the WUHCA andfuture. ATC realizes its revenues from the formationprovision of
a Wisconsin transmission company for those Wisconsin utility holding
companies who electservices to take advantage of the new asset cap law. Alliant
Energy has agreed to contribute WP&L's transmission assets to the
transmission company (American Transmission Company, or ATC)both participants in exchange for an equity interest in ATC. WP&L made several federal and
state regulatory filings and commitments in the fourth quarter of 1999
relating to its participation in ATC.
ATC's sole business will be to provide reliable, economic transmission
service to all customers in a fair and equitable manner. ATC will plan,
construct, operate, maintain and expand transmission facilities it will
own to provide for adequate and reliable transmission of power. It will
provide comparable service to all customers, including Alliant Energy,
and it will support effective competition in energy markets without
favoring any market participant. Formation of the company will require
federal and state regulatory approvals.as well as non-participants.
ATC will be regulated by FERC
for all rate terms and conditions of service. ATC will beis a transmission-owning member of the Midwest ISO and will transferthe Mid-America
Interconnected Network, Inc. Regional Reliability Council.
WP&L complied with provisions of a FERC order requiring utilities to
voluntarily turn over operational control of thetheir transmission systems to the Midwest ISO.
ATC will be a
public utility, as defined under Wisconsin law, with a
board of directors comprised of one representative from each utility
having at least a 10% ownership interest in ATC. Smaller utilities
could combine their transmission assets with others to reach the
minimum level for board membership. In addition, the shareowners of ATC
will select four at-large directors that can not be employed or engaged
in energy businesses.
The PSCW has not yet determined the exact scope of the assets that must
be transferred to the ATC. Pending the final determinationregional entity by the PSCW,end of 2001 by WP&L estimates it will&L's transfer approximately $150 million in plant
assets at net book value to the ATC when it becomes operational in late
2000. Alliant Energy is also reviewing the possible contribution of IESU's and IPC'sits transmission
assets to ATC as well.and the participation of WP&L in the Midwest ISO, which was given
Regional Transmission Organization (RTO) status in December 2001. The Midwest
ISO began providing security coordination functions in December 2001 and began
offering transmission service in the first quarter of 2002 and WP&L now
receives all of its transmission services from the Midwest ISO.
A-4
Rates and Regulatory Matters--As part of its merger approval, FERC accepted a
proposal by WP&L which provides for a four-year freeze on wholesale electric
prices beginning with the effective date of the April 1998 merger forming
Alliant Energy
estimatesEnergy. WP&L also agreed with the net book valuePSCW to provide customers a four-year
retail electric and gas price freeze (the ICC granted South Beloit a three-year
price freeze), with certain exceptions, which commenced on the effective date
of the April 1998 merger. As a result, the last of the price freezes impacting
WP&L will expire in April 2002.
In 2000, the NRC issued expanded performance measures which raised several
areas of concern with Kewaunee's operations. Kewaunee is a nuclear facility in
which WP&L has a 41 percent ownership interest. Addressing the NRC's concerns
and ensuring that Kewaunee operates in accordance with current industry and
regulatory standards resulted in additional operating costs to WP&L in 2001 of
approximately $8 million and WP&L is expected to incur an additional $21
million of incremental costs in 2002 through 2005. In April 2001, the PSCW
approved the deferral of such plant assets to approximate
$220 million. While Alliant Energy will realize its proportionate shareincremental costs incurred after March 27, 2001
(WP&L has deferred $5.5 million of ATC's earnings, it is not yet known what the overall financial
impact of Alliant Energy's participation in ATC will be.
-A-8-
Illinois
WP&L and IPC are subject to regulation by the ICC. In December 1997,
the State of Illinois passed electric deregulation legislation
requiring customer choice of electric suppliers for non-residential
customers with loads of four MW or larger and for approximately
one-third of all other non-residential customers starting October 1,
1999. All remaining non-residential customers will be eligible for
customer choice beginningsuch costs at December 31, 2000 and all residential
customers will be eligible for customer choice beginning May 1, 2002.
The new legislation is not expected2001). In July
2001, WP&L requested a one-time $19 million retail electric rate increase from
the PSCW to have a significant impact on
Alliant Energy's financial condition or results of operations given the
relatively small size of Alliant Energy's Illinois operations. As of
December 31, 1999, no eligible Alliant Energy customer had selected
another electric supplier.
Accounting Implications
Each of the utilities complies with the provisions of SFAS 71,
"Accounting for the Effects of Certain Types of Regulation." SFAS 71
provides that rate-regulated public utilities record certain costs and
credits allowed in the rate making process in different periods than
for non-regulated entities. These are deferred as regulatory assets or
regulatory liabilities and are recognized in the consolidated
statements of income at the time they are reflected in rates. Ifrecover a portion of the utility subsidiaries'costs associated with the increased
Kewaunee operating costs and costs associated with the replacement of the steam
generators at Kewaunee. WP&L expects that the remainder of the additional
operating costs related to Kewaunee will be recovered through future base rate
filings with the PSCW.
In August 2001, WP&L filed a $114 million base rate increase request with the
PSCW related to its investments in reliability, customer service, technology
and environmental upgrades, as well as investments in its infrastructure. In
September 2001, WP&L filed a request with the PSCW to consolidate the $19
million request for increased Kewaunee operating costs with the new base rate
increase request of $114 million. These filings apply to retail electric ($105
million), natural gas ($26 million) and water ($2 million) rates. Also in
September 2001, WP&L filed a request with the PSCW, along with three other
Wisconsin utilities, for an increase in rates of $16 million for incremental
costs associated with the start-up and ongoing operations becomes no longer
subjectof ATC (WP&L has
deferred $5.9 million of such costs at December 31, 2001). In December 2001,
WP&L filed a request for interim rate relief related to such filings of
approximately $63 million ($41 million for retail electric, $21 million for
natural gas and $1 million for water rates) to be effective on April 14, 2002.
The interim level is generally based on PSCW staff adjustments recommended in a
recently completed audit. Reductions in purchased-power and fuel costs since
the provisionsinitial filing constituted a significant portion of SFAS 71 assuch adjustments. As a
result, of competitive
restructurings or otherwise, a write-down of related regulatory assets
and possibly other chargesthese adjustments would be required, unless some form of
transition cost recovery is established by the appropriate regulatory
body that would meet the requirements under generally accepted
accounting principles for continued accounting as regulatory assets
during such recovery period. In addition, each utility subsidiary would
be required to determine any impairment of other assets and write-down
any impaired assets to their fair value. The utility subsidiaries
believe they currently meet the requirements of SFAS 71 and will
continue to monitor and assess this as the various utility industry
restructuring initiatives progress.
Positioning for a Competitive Environment
Alliant Energy and its subsidiaries cannot currently predict the
long-term consequences of the competitive and restructuring issues
described abovehave no impact on theirWP&L's financial condition or
results of operations. The major objective isWP&L expects final rates to allowbe implemented in the companythird
quarter of 2002 and to compete successfullybe set at levels higher than the interim levels, but
significantly lower than the original request, although no assurance can be
given. Also, in February 2002, WP&L filed a competitive, deregulated utility industry. The strategy for dealing$6.2 million request with these emerging issues includes seeking growth opportunities,
forming strategic alliances with other energy-related businesses,
continuing to offer quality customer service, initiating ongoing cost
reductions and productivity enhancements and developing new products
and services.
As competitive forces shape the energy-services industry, energy
providers are being challenged to increase growth and profits. Because
Alliant Energy expects consumption of electricity and natural gas to
grow only modestly within Alliant Energy's domestic utility service
territories, Alliant Energy has entered several energy-services markets
that it expects will provide opportunitiesFERC for
new sourceswholesale electric base rates. WP&L also plans to file a base rate increase
request with the PSCW in the second quarter of growth.
Alliant Energy, through2002 for its subsidiary Resources, has established2003 and 2004
rates. At this time, there are no plans for filing a new distinct platformsbase rate case in
Illinois for South Beloit.
In December 2001, the PSCW authorized WP&L to complement its existing non-regulated
investments, which are designeddefer incremental costs for
security measures and insurance premiums related to meet customer needs.
-A-9-
These platforms and existing investments include:
Investments: Resources' existing investments include an oil and
gas production company, a short-line railroad, a barge company, an
affordable housing company, various real estate joint ventures and an
equity stakethe September 11, 2001
terrorist attacks. WP&L began deferring the increased costs in an independent telecommunications provider.
International: International is a partner in developing, or
seeking to develop, energy generation and infrastructure in New
Zealand, Australia, China, Mexico and Brazil, markets which have been
selected because of their growth potential.
Industrial Services: ISCO is a provider of energy and
environmental services designed to maximize productivity for industrial
and large commercial customers. This platform consists of four units:
Energy Planning; Energy Management; Energy Applications, which provides
facilities-based and commodities-based energy solutions; and RMT, Inc.,
an environmental management and engineering firm with offices
throughout the U.S.December 2001
and the United Kingdom.
Cargill-Alliant: Alliant Energy hasissue of cost recovery will be addressed in WP&L's future base rate
case proceedings.
In December 2000, WP&L requested a $73 million annual retail electric rate
increase from the PSCW to cover increases in WP&L's 2001 fuel and
purchased-power costs. The PSCW approved a $46 million interim increase
effective February 2001, which was replaced with a $58 million final increase
effective June 2001. Two customer groups filed an energy-trading joint
ventureappeal to a Wisconsin state
court, challenging certain portions of the final order. This matter is still
pending in state court. The final order included a refund provision for costs
collected in rates that are in excess of actual costs incurred. In March 2002,
WP&L filed with Cargill that combines the risk-managementPSCW to refund approximately $4 million to customers based
on lower than projected fuel and commodity
trading expertisepurchased-power costs in 2001. The refund
amount ultimately provided by WP&L is subject to PSCW approval. WP&L had
recorded the necessary reserve for the 2001 refund at December 31, 2001. In
addition, in March 2002 WP&L filed with and received approval from the PSCW for
a decrease in retail electric rates of Cargill with Alliant Energy's low-cost electricity
generationapproximately $19 million based on lower
fuel and transmission business experience. Cargill-Alliant
officially began operations in 1997 and haspurchased-power costs.
WP&L believed Union Pacific was charging an initial term though
October 2002. The term automatically renewsexcessive rate for successive five-year
periods unless either party notifiestransporting
low-sulfur coal from the other at least one year priorPowder River Basin to the then expiring term.
Mass Markets: Resources isEdgewater Generating Station
located in Sheboygan, Wisconsin. To contest the rate, WP&L filed a provider of products and services
designed to meet the comfort, security and productivity needs of
residential and small commercial customers. Resources currently offers
home appliance and furnace warranties and a variety of home energy,
safety and security products through its "Power House" catalog. Such
products are marketed directly to customers, through the mailrate case
with the catalogSTB and, overupon the Internet. Resources expectsexpiration of the existing contract, began moving
coal under a tariff rate beginning January 1, 2000. Following the STB's initial
decision, WP&L, as part of a negotiated settlement, received payments from
Union Pacific in 2001 of $4 million, covering the period from January 1, 2000
through October 22, 2001. While WP&L and Union Pacific
A-5
have agreed upon future rates, both parties have filed petitions for
reconsideration with the STB on certain aspects of its decision, which could
impact the final amount received by WP&L. The refund amount will also be
reviewed by the PSCW in conjunction with WP&L's 2001 fuel refund filing.
In connection with a statewide docket to continue pursuing
opportunitiesinvestigate compliance issues
associated with the EPA's NOx emission reductions, in these markets, which it believes1999 the PSCW authorized
deferral of all incremental NOx compliance costs excluding internal labor and
replacement purchased-power costs. The PSCW approved WP&L's compliance plans
and granted a 10-year straight-line depreciation method for NOx compliance
investments. WP&L has a growth
potential as industry deregulation allows more customers to choose
their energy suppliers in an open market.
Alliant Energy believes that eachdeferred $3.0 million of costs at December 31, 2001 and
anticipates recovery of these platforms provide prospects
for growth both individually and collectively ascosts beginning with the competitive
energy-services marketplace evolves. Alliant Energy expects that these
strategiesbase rate increase
request filed in 2001. The depreciation lives will contribute significantly to its annual earnings growth
target of 4-6% from its business operations. Resources is expected to
contribute 25% of such earnings within the next 3-5be reviewed every two years.
WP&L
RESULTS OF OPERATIONS
Overview
WPOverview--WP&L's earnings available for common stock increased $35.3$2.1 million and
decreased $35.7$0.6 million in 19992001 and 1998,2000, respectively. The increased
earnings for 1999 were2001 increase was primarily
due to $17.3 million of merger-related
expenses in 1998, higher electric margins and naturala lower effective income tax rate, partially
offset by increased operating expenses and lower gas margins. The 2000 increase
was primarily due to higher electric margins and a reduced othereffective income tax
rate, largely offset by increased operation and maintenance, expensesdepreciation and
amortization and interest expenses.
Weather did not have a material impact on WP&L's 2001 results as the benefits
from a colder than normal first quarter, high humidity levels for a portion of
the summer and income realized from a weather hedges. Such increases were partially offset by increased
depreciation and amortization expense (excluding hedge lossesWP&L had in WP&L's
nuclear decommissioning trust fund) and higher interest expense. The
decreased earnings for 1998 were primarily due to merger-related
expenses, higher purchased-power and transmission costs, higher
depreciation and amortization expenses, decreased retail natural gas
sales largely due to milder weather, higher insurance-related expenses,
higher interest expense and a higher effective tax rate. These
decreases were partially offset by a 3% increase in retail electric
sales volumes, largely due to continued economic growthplace in the
service
territory, reduced employee pension and benefit costs and lower costs
in 1998 due to merger-related operating efficiencies.
-A-10-
fourth quarter largely offset the impact of an extremely mild fourth quarter.
Electric Utility Operations
ElectricOperations--Electric margins and MWHMWh sales for WP&L for 1999, 19982001,
2000 and 19971999 were as follows:follows (in thousands):
Revenues and Costs MWHsMWhs Sold
(in thousands) (in thousands)
------------------------------------------------- --------------------------------------------------------------------------- ----------------------------
2001 2000 * 1999 1998** 2001 2000 * 19971999 **
1999 1998 * 1997 **
------------------------------------------------------------------------------------------------------ -------- -- -------- -- ------ ------ -- ------ --
Residential..................Residential...................... $248,128 $229,668 8% $213,496 $198,770 7% $199,633 --8% 3,318 3,151 5% 3,111 2,964 5% 2,974 --
Commercial...................1%
Commercial....................... 138,269 127,199 9% 116,947 108,724 8% 107,132 1%9% 2,122 2,031 4% 1,980 1,898 4% 1,878 1%
Industrial...................3%
Industrial....................... 207,791 190,085 9% 171,118 162,771 5% 152,073 7%11% 4,538 4,688 (3)% 4,570 4,493 2% 4,256 6%
------- ------- ---------3%
-------- -------- -------- ------ ----- ----------- ------
Total from ultimate customers.................customers. 594,188 546,952 9% 501,561 470,265 7% 458,8389% 9,978 9,870 1% 9,661 2% 9,661 9,355 3% 9,108 3%
Sales for resale.............resale................. 131,187 115,715 13% 102,751 128,536 (20%) 160,917 (20%)13% 3,524 3,228 9% 3,252 4,492 (28%) 5,824 (23%)
Other........................(1)%
Other............................ 28,075 29,524 (5)% 22,295 15,903 40% 14,388 11%32% 61 63 (3)% 54 59 (8%) 60 (2%)
------- ------- -------17%
-------- -------- -------- ------ ----------- ------
Total revenues............revenues/sales.......... 753,450 692,191 9% 626,607 614,704 2% 634,143 (3%)10% 13,563 13,161 3% 12,967 13,906 (7%) 14,992 (7%)1%
====== ====== =============
Electric production fuels expense...................expense 120,722 113,208 7% 110,521 120,485 (8%) 116,812 3%
Purchased power expense......2%
Purchased-power expense.......... 217,306 146,939 48% 107,598 113,936 (6%) 125,438 (9%)
------- -------37%
-------- Margin....................-------- --------
Margin........................ $415,422 $432,044 (4)% $408,488 $380,283 7% $391,893 (3%)6%
======== ======== ========
- ----------
* Reflects the %percent change from 19982000 to 1999.2001. ** Reflects the %percent change
from 19971999 to 1998.
Electric2000.
Due to the formation of ATC on January 1, 2001, electric margin in 2001
included wheeling expenses from ATC of $30 million. Such expenses were offset
by equity income (WP&L accounts for its investment in ATC under the equity
method), reduced other operation and maintenance expenses and lower
depreciation expense, resulting in no significant net income impact due to the
formation of ATC. On a comparable basis, electric margin increased $28.2 million, or 7%, and decreased
$11.6$13.8
million, or 3%, and $23.6 million, or 6%, during 19992001 and 1998,2000, respectively.
The 19992001 increase was primarily due to separate $15 million annual rate
adjustments implemented at WP&L in July 1998 and March 1999 to recover
higherlower purchased-power and transmission costs. An increase in retailfuel costs
impacting margin, increased residential and commercial sales of 3% due to more
favorable weather conditions in 2001 compared to 2000 and economic growth within
WP&L's service territory also contributed to the increase. Partially
offsetting the 1999 increase were lower sales to off-system and
wholesale customers due to transmission constraints and decreased
contractual commitments and $3.2 million of revenues collected in 1998
for a surcharge related to Kewaunee.
The 1998 decline in margin was due to regulatory lag associated with
rate recovery of higher purchased-power and transmission costs, a rate
decrease of 2.4% implemented in April 1997 and lower off-system sales
income.continued retail
customer growth. These items were partially offset by WP&L's reliance on more
costly purchased-power$10 million of income
recorded in the first six months2000 for a change in estimate of 1997utility services rendered but
unbilled at month-end and lower industrial sales, largely due to various
power plant outages, particularly Kewaunee, andimpacts of a
3%slowing economy.
A-6
The 2000 increase in retail
sales.
-A-11-
Gas Utility Operations
Gas margins and Dth sales for WP&L for 1999, 1998 and 1997 were
as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
------------------------------------------------ -------------------------------------------
1999 1998 * 1997 ** 1999 1998 * 1997 **
----------------------------------------------------------------------------------------------
Residential.................. $ 69,662 $ 65,173 7% $ 84,513 (23%) 12,070 10,936 10% 12,770 (14%)
Commercial................... 35,570 33,898 5% 45,456 (25%) 7,771 7,285 7% 8,592 (15%)
Industrial................... 6,077 5,896 3% 8,378 (30%) 1,520 1,422 7% 1,714 (17%)
Transportation/other......... 9,461 6,770 40% 17,536 (61%) 13,237 12,948 2% 17,595 (26%)
------- -------- -------- -------- ------- -------
Total revenues............ 120,770 111,737 8% 155,883 (28%) 34,598 32,591 6% 40,671 (20%)
Cost of gas sold............. 64,073 61,409 4% 99,267 (38%) ======== ======= ======
-------- -------- --------
Margin.................... $ 56,697 $ 50,328 13% $ 56,616 (11%)
======== ======== ========
* Reflects the % change from 1998 to 1999.
** Reflects the % change from 1997 to 1998.
Gas margin increased $6.4 million, or 13%, and declined $6.3 million,
or 11%, during 1999 and 1998, respectively. The 1999 increase was primarily due to increased sales resulting from customerto retail customers due
to continued economic growth in WP&L's service territory, the favorable $10
million change in estimate of approximately 2%utility services rendered but unbilled at
month-end and more favorableincreased energy conservation revenues. These items were
partially offset by the impact of milder weather conditions in 1999. The 1998 decrease was
primarily due2000 compared to
a reduction in sales resulting from milder weather1999 and an average retail rate reduction of 2.2% implemented in April 1997.
Refer to Note 1(h) of the "Notes to Consolidated Financial Statements"
for discussion of an accounting change implemented in 1998. Refer to
"Interest Expensehigher purchased-power and Other" for a discussion of income realized from
two gas weather hedges in 1999.fuel costs.
Refer to Note 1(i) of the "Notes to Consolidated Financial Statements" for
a discussioninformation relating to utility fuel cost recovery. Refer to "Utility Industry
Review--Rates and Regulatory Matters" for information on WP&L's rate filings.
Gas Utility Operations--Gas margins and Dth sales for WP&L for 2001, 2000 and
1999 were as follows (in thousands):
Revenues and Costs Dths Sold
------------------------------------ -----------------------------
2001 2000 * 1999 ** 2001 2000 * 1999 **
-------- -------- --- -------- --- ------ ------ --- ------ --
Residential............. $107,673 $ 96,204 12% $ 69,662 38% 11,754 12,769 (8)% 12,070 6%
Commercial.............. 58,658 54,512 8% 35,570 53% 7,572 8,595 (12)% 7,771 11%
Industrial.............. 8,907 8,581 4% 6,077 41% 1,197 1,476 (19)% 1,520 (3)%
Transportation/other.... 31,625 5,855 440% 9,461 (38)% 16,866 13,680 23% 13,237 3%
-------- -------- -------- ------ ------ ------
Total revenues/sales. 206,863 165,152 25% 120,770 37% 37,389 36,520 2% 34,598 6%
====== ====== ======
Cost of gas sold........ 153,823 107,131 44% 64,073 67%
-------- -------- --------
Margin............... $ 53,040 $ 58,021 (9)% $ 56,697 2%
======== ======== ========
- ----------
* Reflects the percent change from 2000 to 2001. ** Reflects the percent change
from 1999 to 2000.
Gas revenues and cost of agas sold increased significantly for 2001 and 2000 due
to the large increase in natural gas prices in the first half of 2001 and last
half of 2000. Due to WP&L's rate recovery mechanisms for gas costs, these
increases alone had little impact on gas margin. Gas margin decreased $5.0
million, or 9%, and increased $1.3 million, or 2%, during 2001 and 2000,
respectively. The 2001 decrease was largely due to lower retail sales primarily
related to unusually high gas prices earlier in 2001 as some customers either
chose alternative fuel sources or used less natural gas, the impact of the
slowing economy and losses associated with current commodity costs, which are
shared by ratepayers and shareowners. The 2000 increase was largely due to more
favorable weather conditions in the 2000 heating season compared to 1999,
partially offset by reduced energy conservation revenues. WP&L realized pre-tax
income of $2 million, $2 million and $5 million from weather hedges it had in
place in 2001, 2000 and 1999, respectively, which is recorded in
"Miscellaneous, net" in WP&L's Consolidated Statements of Income. Refer to Note
1(i) of the "Notes to Consolidated Financial Statements" for information
relating to natural gas cost adjustment mechanism in place at WP&L.
The impact on the results of operations from such mechanism was not
significant in any of the periods presented.recovery.
Other Operating Expenses
OtherExpenses-- Due to the formation of ATC in 2001, WP&L incurred
$10 million of operation and maintenance expenses in 2000 that were not
incurred in 2001. On a comparable basis, other operation and maintenance
expenses increased $7.6 million and $16.8 million for 2001 and 2000,
respectively. The 2001 increase was primarily due to higher nuclear operating
costs (partially due to a planned refueling outage at Kewaunee in the fourth
quarter of 2001), higher uncollectible customer account balances largely due to
the unusually high gas prices earlier in the year and higher other
administrative and general costs. These items were partially offset by
decreased $17.2fossil-plant maintenance expenses. The 2000 increase was primarily
due to a planned refueling outage at Kewaunee, higher expenses in the energy
delivery business unit, increased energy conservation expense and increased
maintenance expenses. The 2000 increases were partially offset by expenses
incurred in 1999 relating to WP&L's Year 2000 program.
Depreciation and amortization expense decreased $10.8 million and increased
$12.3$26.9 million for 19992001 and 1998,2000, respectively. The 19992001 decrease was primarily
due to $11.2 millionthe impact of merger-related expenses in 1998 for
employee retirements, separationsthe formation of ATC and relocations, reduced
insurance-related expenses, lower operating costs at WP&L's generating
plants, lower transmission and distribution expenses and lower costs
due to merger-related operating efficiencies. Such items weredecreased earnings on the nuclear
decommissioning trust fund, partially offset by increased costs for energy conservation, employee incentive
compensation and employee benefits expenses.expense due to
property additions. The 19982000 increase was primarily due to merger-related expenses, higher insurance-related
expenses and an increase in other administrative and general expenses.
Such items were partially offset by reduced employee pension and
benefits expenses, reduced conservation expense and lower costs from
merger-related operating efficiencies.
Maintenance expenses decreased $4.3 million in 1999. The decrease was
primarily due to lower nuclear expenses and reduced transmission and
distribution maintenance expenses. Such decreases were partially offset
by increased expenses associated with Year 2000 readiness efforts.
Depreciation and amortization expense decreased $6.2 million and
increased $14.9 million for 1999 and 1998, respectively. The 1999
decrease was due to reduced earnings
in the nuclear decommissioning trust fund (offset entirely in "Miscellaneous, net") and the
$3.2of approximately $20 million, Kewaunee surcharge in 1998. These items were partially
-A-12-
offset by the impact of property additions. The 1998 increase was due
to
property additions and higher Kewaunee depreciation (refer to
"Liquidity and Capital Resources--Capital Requirements--Nuclear
Facilities" for additional information) and the Kewaunee surcharge.amortization expense. The accounting for earnings
on the nuclear decommissioning trust funds results in no net income impact.
Miscellaneous, net income is increased for earnings on the trust fund, which is
offset in depreciation expense.
Taxes other than income taxes increased $3.3 million for 2001 due to increased
gross receipts and payroll taxes.
A-7
Interest Expense and Other
InterestOther--Interest expense increased $4.4 million and $4.0$3.7 million in 1999 and
1998, respectively. The 1999 increase was primarily2000 due
to higher short-terminterest rates and borrowings and the 1998 increase was primarilyoutstanding.
Equity income from unconsolidated investments increased $15.0 million for 2001,
largely due to an
adjustment to decrease interest expense in 1997 relating to a tax audit
settlement and increased borrowings during 1998.ATC beginning operations on January 1, 2001.
Miscellaneous, net income decreased $3.0$3.5 million and $2.7increased $18.4 million in
19992001 and 1998, respectively. The 1999 decrease was2000, respectively, primarily due to lowerdifferences in earnings onin the
nuclear decommissioning trust fund,fund. WP&L realized $2 million, $2 million and $5
million of income from weather hedges in 2001, 2000 and 1999, respectively.
Income Taxes--The effective income tax rates were 35.9%, 37.5% and 39.2% in
2001, 2000 and 1999, respectively. Refer to Note 4 of the "Notes to
Consolidated Financial Statements" for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Overview--Given WP&L's financing flexibility, including access to the debt
securities market, management believes it has the necessary financing
capabilities in place to adequately finance its capital requirements for the
foreseeable future. WP&L's capital requirements are primarily attributable to
its construction and acquisition programs and its debt maturities. WP&L expects
to meet its future capital requirements with cash generated from operations and
external financings. The level of cash generated from operations is partially
dependent on economic conditions, legislative activities and timely regulatory
recovery of utility costs. Liquidity and capital resources are also affected by
costs associated with environmental and regulatory issues.
Based on current expectations, WP&L plans to invest approximately $832 million
in various capital projects and investments in 2002-2006, including generation
projects and environmental compliance initiatives. These various investments
are described in detail below.
Cash Flows--In 2001, WP&L's cash flows from operating activities decreased $40
million due to changes in working capital. In 2001, WP&L's cash flows used for
financing activities increased $14 million due to common stock dividends paid
in 2001 as no dividends were declared in 2000 due to management of WP&L's
capital structure, partially offset by $6.1a capital contribution of $35 million by
the parent company and changes in debt issued and retired. Cash flows used for
investing activities decreased $57 million in 2001 due to proceeds received
from the transfer of WP&L's transmission assets to ATC which were partially
offset by increased levels of construction expenditures. In 2000, WP&L's cash
flows used for financing activities increased $20 million due to changes in
debt issued and retired and a capital contribution of $30 million in 1999 from
the parent company, partially offset by no common stock dividends declared in
2000 due to management of its capital structure.
Long-Term Debt--At December 31, 2001, WP&L had $150 million of merger-related expenses in 1998 and pre-tax
incomelong-term debt
that will mature prior to December 31, 2006. Depending on market conditions, it
is anticipated that a majority of $5 million recognized in 1999 associatedthe maturing debt will be refinanced with the
settlementissuance of gas weather hedges. Seelong-term securities. Refer to Note 10(c)7(b) of the "Notes to
Consolidated Financial Statements" for additional information relatingon long-term debt.
Short-Term Debt--In addition to the gas
weather hedges. The 1998 decrease was primarily due to merger-related
expenses, which was partially offset by higher earnings on the nuclear
decommissioning trust fund.
Income Taxes
The effective income tax rates were 39.2%, 41.0% and 37.0% in 1999,
1998 and 1997, respectively. See Note 5 of the "Notes to Consolidated
Financial Statements" for a discussion of the changes.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities at WP&L decreased $14 million for
the year ended December 31, 1999, compared with the same period in
1998, primarily due to changes infunding working capital partially offset by
higher net income. Cash flows used forneeds, the availability
of short-term financing activities decreased
$34 million forprovides WP&L flexibility in the year ended December 31, 1999, compared with the
same period in 1998, primarily due to a capital contributionissuance of $30 million from Alliant Energy. Cash flows used for investing
activities increased $17 million for the year ended December 31, 1999,
compared with the same period in 1998, primarily due to increased
construction expenditures.
Future Considerations
The capital requirements of Alliant Energy are primarily attributable
to its utility subsidiaries' construction and acquisition programs, its
debt maturities and business opportunities of Resources. It is
anticipated that future capital requirements of Alliant Energy will be
met by cash generated from operations, sale of investments and external
financing.long-term
securities. The level of cash generated from operations is partially
dependent upon economic conditions, legislative activities,
environmental matters and timely regulatory recoveryshort-term borrowing fluctuates based on seasonal
corporate needs, the timing of utility costs.
Alliant Energy's liquiditylong-term financing and capital resources will be affected by
costs associated with environmental and regulatory issues. Emerging
competition in the utility industry could also impact Alliant Energy's
liquidity and capital resources, as discussed previously in the
"Utility Industry Outlook" section.
Alliant Energy expects to pursue various potential business development
opportunities, including international as well as domestic investments,
and is devoting resources to such efforts. Foreign investments may
carry a higher level of risk than Alliant Energy's traditional domestic
-A-13-
utility investments or Resources' domestic investments. Such risks
could include foreign government actions, foreign economic and currency
risks and others. It is anticipated that Alliant Energy will strive to
select investments where the international and other risks are both
understood and manageable.market
conditions. At December 31, 1999, Resources had
approximately $198 million2001, WP&L was authorized by the applicable federal
or state regulatory agency to issue short-term debt of investments in foreign entities. At
December 31, 1999, IESU,$240 million.
WP&L and IPC did not have any foreign
investments.
Financing and Capital Structure
Access to the long-term and short-term capital and credit markets, and
costs of external financing, are dependent on creditworthiness. The
debt ratings of Alliant Energy and certain subsidiaries by Moody's and
Standard & Poor's are as follows:
Moody's Standard & Poor's
-------------------------------
IESU................................... - Secured long-term debt A2 A+
- Unsecured long-term debt A3 A
WP&L................................... - Secured long-term debt Aa2 AA
- Unsecured long-term debt Aa3 A+
IPC.................................... - Secured long-term debt A1 A+
Resources.............................. - Commercial paper(a) P1 A1
- Unsecured long-term debt(a) A3 A
Alliant Energy......................... - Commercial paper(b) P1 A1
(a) Resources' debt is fully and unconditionally guaranteed by
Alliant Energy.
(b) IESU, WP&L and IPC participateparticipates in a utility money pool that is funded, as needed, through
the issuance of commercial paper by Alliant Energy. Interest expense and other
fees are allocated based on borrowing amounts. The PSCW has restricted WP&L
from lending money to non-utility affiliates and non-Wisconsin utilities. As a
result, WP&L is prohibited from lending money to
the utility money pool but is able tocan only borrow money from the utility money pool.
Other than periodic sinking fund requirements, which will not require
additional cash expenditures, the following long-term debt (in
millions) will mature prior to December 31, 2004:
Alliant
IESUA-8
WP&L Energy-Parent Resources IPC Total
--------- ------- --------------- ---------- ------- ----------
$137.4 $63.9 $24.0 $12.6 $ 1.0 $238.9
Depending upon market conditions, it is currently anticipated that a
majority of the maturing debt will be refinanced with the issuance of
long-term securities.
On August 24, 1999, WP&L filed an application with the PSCW for
authority to issue up to $100 million of debentures for the purpose of
refinancing existing debt. Approval was granted in February 2000 and
the senior unsecured debentures were issued in March 2000 at a fixed
interest rate of 7 5/8%, due 2010. The amount of short-term borrowings
authorized by the PSCW will be reduced by the same $100 million.
The various charter provisions of the entities identified below
authorize and limit the aggregate amount of additional shares of
Cumulative Preferred Stock and Cumulative Preference Stock that may be
issued. At December 31, 1999, the companies could have issued the
following additional shares of Cumulative Preferred or Preference Stock:
IESU WP&L IPC
------- ----------- ----------
Cumulative Preferred............... 100,000 2,700,775 1,238,619
Cumulative Preference.............. 700,000 -- 2,000,000
-A-14-
For interim financing, IESU, WP&L and IPC were authorized by the
applicable federal or state regulatory agency to issue short-term debt
at December 31, 1999 as follows (in millions):
IESU WP&L IPC
----- ---- -----
Regulatory authorization................... $150 $128 $50
Short-term debt outstanding--money pool.... $57 $126 $39
At December 31, 1999, there was no short-term debt outstanding with
external parties at the utility subsidiaries. In addition to the
$222 million of commercial paper Alliant Energy issued to fund the
utility money pool and $139 million of commercial paper at Resources,
Alliant Energy had an additional $64 million of short-term debt
outstanding at December 31, 1999. In addition to providing for ongoing
working capital needs, this availability of short-term financing
provides the companies flexibility in the issuance of long-term
securities. The level of short-term borrowing fluctuates based on
seasonal corporate needs, the timing of long-term financing and capital
market conditions. To maintain flexibility in its capital structure and
to take advantage of favorable short-term rates, IESU and WP&L also use
proceeds from the sale of accounts receivable and unbilled revenues to
finance a portion of their long-term cash needs. Alliant Energy anticipates that short-term debt will continue to be available at
reasonable costs due to current ratings by independent utility analysts
and credit rating services. InRefer to
Note 7(a) of the "Notes to Consolidated Financial Statements" for additional
information on short-term debt, including information on the utility money pool.
Debt Ratings--Access to the long-term and short-term capital and credit
markets, and costs of external financing, are dependent on creditworthiness.
The debt ratings of WP&L by Moody's and Standard & Poor's were as follows at
December 1999,31, 2001:
Moody's Standard & Poor's
------- -----------------
Secured long-term debt.. Aa2 A+
Unsecured long-term debt Aa3 A-
Ratings Triggers--The long-term debt of WP&L is not subject to any repayment
requirements as a result of credit rating downgrades or so-called "ratings
triggers." However, certain lease agreements of WP&L do contain such ratings
triggers. The threshold for these triggers varies among the applicable leases.
If the payments were accelerated under all the affected leases it would result
in accelerated payments of less than $30 million.
Sale of Accounts Receivable--Refer to Note 3 of the "Notes to Consolidated
Financial Statements" for information on WP&L's sale of accounts receivable
program.
Financial Commitments--WP&L has various synthetic leases related to the
financing of certain utility railcars and a utility radio dispatch system.
Certain financings involve the use of unconsolidated structured finance or
special purpose entities. WP&L believes these financings are not material to
its liquidity or capital resources. WP&L also uses a consolidated special
purpose entity for its utility sale of accounts receivable program. WP&L does
not use special purpose entities for any other purpose. These financings are
all fully reported in Notes 2 and 3 of the "Notes to Consolidated Financial
Statements."
Credit Risk--Credit risk is inherent in WP&L's operations and relates to the
risk of loss resulting from non-performance of contractual obligations by a
counterparty. WP&L maintains credit risk oversight and sets limits and policies
with regards to its counterparties, which management believes minimizes its
overall credit risk exposure. However, there is no assurance that such policies
will protect WP&L against all losses from non-performance by counterparties.
Although WP&L had modest contracts with Enron, their bankruptcy has had an
insignificant impact on WP&L's day-to-day operations. WP&L has replaced certain
Enron contracts by entering into contracts with credit-worthy counterparties
where deemed necessary.
Environmental--WP&L's pollution abatement programs are subject to continuing
review and are periodically revised due to changes in environmental
regulations, construction plans and escalation of construction costs. While
management cannot precisely forecast the effect of future environmental
regulations on operations, it has taken steps to anticipate the future while
also meeting the requirements of current environmental regulations.
Wisconsin facilities are subject to state and federal requirements of the CAA,
including meeting ambient air quality standards. Based on modeling conducted
under the CAA by the Wisconsin DNR, an eastern portion of Wisconsin along Lake
Michigan, in which WP&L's Edgewater Generating Station is located, has been
designated as non-attainment with respect to the one-hour ozone air quality
standard. The Wisconsin DNR has developed a rate-of-progress (ROP) rule to
bring the area into attainment with the standard. The rule requires Edgewater
Generating Station to meet annual NOx emission reductions beginning in May 2003
and ending in May 2007. Thereafter, the May 2007 ozone emission standard will
apply to the facility. The Wisconsin DNR will determine the success of the ROP
rule through modeling. To date, the modeling data still indicates the area is
non-attainment with the one-hour ozone standard although recent data indicates
the air quality is improving. Based on existing technology, WP&L estimates the
capital investments required to meet the ROP rule through 2007 will be
approximately $15 million.
WP&L is also pursuing voluntary NOx reductions and along with Alliant Energy
IESU,has developed a unique and cost effective technology to reduce NOx emissions
from power generating facilities. The U.S. Department of Energy has awarded
Alliant Energy a $2.5 million federal grant for its innovation for leading edge
clean coal technologies.
A-9
Revisions to the Wisconsin Administrative Code have been proposed that could
have a significant impact on WP&L's operation of its Wisconsin generating
facilities. The proposed revisions would affect the amount of heat that WP&L's
generating stations can discharge into Wisconsin waters. WP&L cannot presently
predict the final outcome of the revisions but believes that, as the revisions
are currently proposed, capital investments and/or modifications required to
meet the proposed discharge limits could be significant.
In 2000, the EPA made a regulatory determination in favor of controlling
Hazardous Air Pollutant Emissions (HAPs) (including mercury) from electric
utilities, which was challenged by utility industry groups in two lawsuits
filed in February 2001. The court has since ruled in favor of the EPA in both
cases. The EPA is currently developing regulations that are expected to be in
place by 2004, with a compliance deadline of 2007. Although the level of
control of mercury and other HAPs from generating plants is uncertain at this
time, WP&L believes that capital investments and/or modifications that may be
required to control these emissions could be significant.
Also in 2000, the WNRB voted to allow the Wisconsin DNR to proceed with
rulemaking to reduce mercury emissions. WP&L and IPC filed an
applicationthe other Wisconsin Utility
Association members have recommended to the WNRB a workable state-level mercury
emissions control program that protects reliability and does not disadvantage
Wisconsin when federal mercury rules are later developed. The Wisconsin DNR
issued the proposed rule in May 2001, which is expected to be modified in late
2002. WP&L cannot presently predict the final outcome of the regulation, but
believes that required capital investments and/or modifications to achieve
compliance with the SEC for approvalregulation could be significant.
In December 2000 and February 2001, the EPA requested certain information
relating to the historical operation of a combined accounts receivable
program whereby each utility will sell their respective receivables
through wholly-owned special purpose entities to an affiliated
financing entity, whichWP&L's major coal-fired generating
units in turn will sell the receivables to an outside
investor. The new program would replace the existing programs for IESU
andWisconsin. WP&L has responded to both requests and would function the same in most respects. Approvalshas not yet
received a response from the SECEPA. In some cases involving similar EPA requests
from other electric generating facilities, penalties and capital expenditures
have resulted. The U.S. Department of Justice is currently conducting a review
of this enforcement initiative to assess whether it is consistent with the necessary state commissionsCAA.
In addition, on a broader basis, the EPA is assessing the impact of investments
in utility generation capacity, energy efficiency and environmental protection,
as well as assessing proposed multi-pollutant legislation. Results of these
reviews are expected in the second
quartermid-2002. WP&L cannot presently predict what impact, if
any, these issues may have on its financial condition or results of 2000.
Alliant Energy has $250 million of committed bank lines of credit, of
which none was utilized at December 31, 1999, available for direct
borrowing oroperations.
However, any required remedial action resulting from these matters could be
significant.
Refer to support commercial paper. Commitment fees are paid to
maintain these lines and there are no conditions which restrict the
unused lines of credit. From time to time, Alliant Energy may borrow
from banks and other financial institutions on uncommitted "as-offered"
credit lines in lieu of commercial paper, and has agreements with
several financial institutions for such borrowings. There are no
commitment fees associated with these agreements and there were no
borrowings outstanding under these agreements at December 31, 1999.
Alliant Energy made a filing with the SEC in February 1999 under PUHCA
to provide Alliant Energy with, among other things, broad authorization
over the next three years to issue stock and debt, provide guarantees,
acquire energy-related assets and enter into interest rate hedging
transactions. ApprovalNote 10(d) of the filing was received from the SEC in
August 1999.
Given the above financing flexibility, including Alliant Energy's
access"Notes to both the debtConsolidated Financial Statements" for
further discussion of environmental matters.
Construction and equity securities markets, management
believes it has the necessary financing capabilities in place to
adequately finance its capital requirements for the foreseeable future.
Capital Requirements
General
Capital expenditure and investmentAcquisition Expenditures--Capital expenditures, investments
and financing plans are continually reviewed, approved and updated as part of
WP&L's ongoing strategic planning and annual budgeting processes. In addition,
material capital expenditures and investments are subject to continuala rigorous
cross-functional review prior to approval. Changes in WP&L's anticipated
construction and change. The capital expenditure and investment
programsacquisition expenditures may be revised significantly asresult from a resultnumber of many
considerations,reasons
including changes in economic conditions, variations in
actual sales and load growth compared to forecasts,regulatory requirements, of
environmental, nuclear and other regulatory authorities, acquisition
-A-15-
and business combination opportunities, the availability of alternate
energy and purchased-power sources, the ability to obtain
adequate and timely rate relief, escalationsthe level of WP&L's profitability, variations
in sales, changing market conditions and new opportunities. WP&L anticipates
financing its construction costs and conservation
and energy efficiency programs.
WP&L's construction and acquisition expenditures, for the years ended
December 31, 1999 and 1998 were $132 million and $117 million,
respectively. WP&L's anticipated construction and acquisition
expenditures for 2000 are estimated to be approximately $143 million,
of which 45% is for electric transmission and distribution, 25% forincluding new electric generation
15% for information technology and the remaining
15% represents miscellaneous electric, gas, water and general
expenditures. WP&L's construction and acquisition expenditures are
projected to be $166 million in 2001, $181 million in 2002,
$192 million in 2003 and $136 million in 2004, which include
expenditures to comply with NOx emissions reductions as discussed in
"Other Matters--Environmental."
Alliant Energy anticipates financing utility construction expendituresfacilities, during 2000-20042002-2006 through internally generated funds supplemented,
when required,necessary, by outside financing. Funding of Resources'WP&L believes it has a strong financial
position that provides it the ability to issue external financings at
competitive rates.
WP&L currently anticipates 2002 utility construction and acquisition
expenditures over that same period of time is expected to
be completed with a combination of external financings, sales of
investments and internally generated funds.
Nuclear Facilities
Alliant Energy owns interests in two nuclear facilities, Kewaunee and
DAEC. Kewaunee, a 532 MW pressurized water reactor plant, is operated
by WPSC and is jointly owned by WPSC (41.2%), WP&L (41.0%), and MG&E
(17.8%). The Kewaunee operating license expires in 2013. DAEC, a 535 MW
boiling water reactor plant, is operated by IESU which has a 70%
ownership interest in the plant. The DAEC operating license expires in
2014.
On April 7, 1998, the PSCW approved WPSC's application for replacement
of the two steam generators at Kewaunee. The total cost of replacing
the steam generators will be approximately $90.7$158 million. During 2003-2006, WP&L
currently anticipates to spend approximately $674 million with WP&L's
share of the cost being approximately $37.2 million. The replacement
work originally planned for the spring of 2000 is now scheduled for the
fall of 2001utility
construction and will take approximately 60 days. The delay is
attributable to the inability of the steam generator manufacturer to
meet the spring 2000 delivery schedule. Delays in meeting the delivery
schedule did not allow for steam generator replacement to occur prior
to the start of the summer weather in 2000. Therefore, the decision was
made to store the steam generators after they are received and wait
until the next scheduled refueling outage in the fall of 2001. It is
anticipated that the delay will not adversely impact the reliability of
Kewaunee in the interim. Plans to shutdown the plant for a spring 2000
refueling remain unchanged.
On July 2, 1998, the PSCW approved an agreement between the owners of
Kewaunee which provides for WPSC to assume the 17.8% Kewaunee ownership
share currently held by MG&E prior to work beginning on the replacement
of steam generators. On September 29, 1998, WPSC and MG&E finalized an
arrangement in which WPSC will acquire MG&E's 17.8% share of Kewaunee.
This agreement, the closing of which is contingent upon regulatory
approval and the steam generator replacement in the fall of 2001, will
give WPSC 59.0% ownership in Kewaunee. After the change in ownership,
WPSC and WP&L will be responsible for the decommissioning of the plant.
WPSC and WP&L are discussing revisions to the joint power supply
agreement which will govern operation of the plant after the ownership
change takes place. Prior to the July 2, 1998 PSCW decision, the PSCW
had directed the owners of Kewaunee to record depreciation and
-A-16-acquisition expenditures.
A-10
decommissioning cost levels based on an expected plant end-of-life of
2002 versus a license end-of-life of 2013. This was prompted by the
uncertainty regarding the expected useful life of the plant without
steam generator replacement. This level of depreciation will remain in
effect until the steam generator replacement is completed at which time
the entire plant will be depreciated over 8.5 years using an
accelerated method.
In February 1999, Alliant Energy, NSP, WPSC and WEPCO announced the
formation of the NMC to sustain long-term safety, optimize reliability
and improve the operational performance of their nuclear generating
plants. Combined, the NMC members operate seven nuclear generating
units at five plants. In October 1999, Alliant Energy received approval
from the SEC, under PUHCA, to form Alliant Energy Nuclear LLC, whose
purpose is solely to invest in the NMC. Such investment has been made
and Alliant Energy Nuclear LLC now has a 25% ownership interest in the
NMC. In November 1999, the NMC members applied to the NRC to allow the
NMC to operate the plants owned or co-owned by the four utilities.
Applications to the PSCW, MPUC and the SEC to allow the purchase of
operating services were also made at that time. These approvals are
required if the applicable utilities choose to transfer their operating
license to, and take operating services from, the NMC. As presently
proposed, the NMC would operate the plants, but the utilities would
continue to own their plants, be entitled to energy generated at the
plants and retain the financial obligations for the safe operation,
maintenance and decommissioning of the plants.
For additional information related to Kewaunee, see Notes 1, 9, 11 and
12 of the "Notes to Consolidated Financial Statements." Refer to the
"Other Matters--Environmental" section for a discussion of various
issues impacting Alliant Energy's future capital requirements.
Rates and Regulatory Matters
FERC
In November 1997, as part of its merger approval, FERC accepted a
proposal by IESU, WP&L, and IPC, which provides for a four-year freeze
on wholesale electric prices beginning with the effective date of the
merger.
In association with the merger, IESU, WP&L and IPC entered into a
System Coordination and Operating Agreement which became effective with
the consummation of the merger. The agreement, which has been approved
by the FERC, provides a contractual basis for coordinated planning,
construction, operation and maintenance of the interconnected electric
generation and transmission systems of the three utility companies. In
addition, the agreement allows the interconnected system to be operated
as a single control area with off-system capacity sales and purchases
made to market excess system capability or to meet system capability
deficiencies. Such sales and purchases are allocated among the three
utility companies based on procedures included in the agreement. The
procedures were approved by both the FERC and all state regulatory
bodies having jurisdiction over these sales.
WP&L
In connection with its approval of the merger, the PSCW accepted a WP&L
proposal to freeze rates for four years commencing on the effective
date of the merger. A re-opening of an investigation into WP&L's rates
during the rate freeze period, for both cost increases and decreases,
may occur only for single events that are not merger-related and have a
revenue requirement impact of $4.5 million or more. In addition, the
electric fuel adjustment clause and PGA clause are not affected by the
rate freezes.
In February 2000, the PSCW issued an order allowing WP&L to defer
certain incremental costs it incurs after February 16, 2000 relating to
the development of the ATC.
-A-17-
The retail electric rates are based in part on forecasted fuel and
purchased-power costs. Under PSCW rules, Wisconsin utilities can seek
emergency rate increases if the annual costs are more than 3% higher
than the estimated costs used to establish rates. In March 1998, WP&L
requested an electric rate increase to cover purchased-power and
transmission costs that had increased due to transmission constraints
and electric reliability concerns in the Midwest. Effective July 16,
1998, the PSCW granted a retail electric rate increase of $14.8 million
annually. In November 1998, WP&L requested an electric rate increase to
cover additional increases in purchased-power and transmission costs.
In early March 1999, the PSCW granted a retail electric rate increase
of $14.5 million annually. If WP&L's earnings exceed its authorized
return on equity, the incremental revenues collected causing the
excessive return are subject to refund. In December 1999, WP&L
requested a $26 million retail electric rate increase to reflect higher
purchased power costs and to cover transmission costs that have
increased due to transmission constraints. While the most current
request is still pending, WP&L anticipates receiving an order in the
second quarter of 2000.
In May 1998, the PSCW approved the deferral by WP&L of certain costs
associated with its Year 2000 program. In November 1998, WP&L filed for
rate recovery of the Wisconsin retail portion of its Year 2000 costs.
In accordance with the order received from the PSCW, WP&L began
deferring its Year 2000 project costs, other than internal labor and
associated overheads. In November 1999, the PSCW allowed WP&L rate
recovery of $6.3 million of its Year 2000 program expenditures, but it
denied rate recovery of the first $4.5 million. These costs were
expensed in 1999. The PSCW's decision has been appealed by certain
intervenors in Dane County district court and such appeal is pending.
In January 1999, WP&L made a filing with the PSCW proposing to begin
deferring, on January 1, 1999, all costs associated with the EPA's
required NOx emission reductions. In connection with a statewide docket
to investigate compliance issues associated with the EPA's NOx emission
reductions, on March 30, 1999, the PSCW authorized deferral of all
non-labor related costs incurred after March 30, 1999. However, the
utilities are not allowed to defer costs of replacement power
associated with NOx compliance. WP&L requested expedited approval to
start construction of NOx reduction investments at several generating
units operated by WP&L and in the third quarter of 1999 received
approval from the PSCW for limited NOx related expenditures at one of
its generating units. WP&L has also requested recovery of all the NOx
reduction costs through a surcharge mechanism. In March 2000, the PSCW
issued an order approving WP&L's NOx compliance plans and granted the
recovery of costs incurred to comply with EPA NOx regulations over ten
years using a straight-line depreciation method. Recovery of such costs
will begin with rate changes after the rate freeze expires. The
depreciation lives will be reviewed every two years. Refer to the
"Other Matters--Environmental" section for a further discussion of the
NOx issue.
In rate order UR-110, the PSCW approved new rates effective April 29,
1997. On average, WP&L's retail electric rates under the new rate order
declined by 2.4% and retail gas rates declined by 2.2%.
Refer to "Capital Requirements--Nuclear Facilities" for a discussion of
several PSCW rulings regarding Kewaunee.
-A-18-
Assuming capture of the merger-related synergies and no significant
legislative or regulatory changes negatively affecting its utility
subsidiaries, Alliant Energy does not expect the merger-related
electric and gas price freezes to have a material adverse effect on its
financial condition or results of operations.
OTHER MATTERS
Year 2000
Alliant Energy had no significant embedded equipment, computer system
or other malfunctions during the critical December 31, 1999 to
January 1, 2000 date rollover or the February 28, 2000 to February 29,
2000 date rollover. Alliant Energy will continue to monitor for any
supply chain issues into the second quarter of 2000.
Alliant Energy's historical Year 2000 project expenditures were as
follows (incremental costs, in millions):
Description Total IESU WP&L Other
- ---------------------------------------------------------------------------------------------------------------------
Costs incurred from 1/1/98--12/31/98................... $ 8.7 $ 4.8 $ 3.2 $ 0.7
Costs incurred from 1/1/99--12/31/99................... 18.6 7.6 7.1 3.9
------- ------ ------ ------
Total................................................ $ 27.3 $ 12.4 $ 10.3 $ 4.6
====== ====== ====== ======
In addition, Alliant Energy estimates it incurred $7 million and
$3 million in 1999 and 1998, respectively, of costs for internal labor
and associated overheads. Alliant Energy does not expect to incur any
significant incremental costs in 2000 on its Year 2000 readiness
program. Refer to "Liquidity and Capital Resources--Rates and
Regulatory Matters" for a discussion of the filing WP&L made with the
PSCW for rate recovery of a portion of its Year 2000 program costs.
Labor Issues
The status of the collective bargaining agreements at each of the
utilities at December 31, 1999 was as follows:
IESU WP&L IPC
---- ----- -----
Number of collective bargaining agreements 6 1 3
Percentage of workforce covered by agreements 61% 93% 83%
The collective bargaining agreements at Alliant Energy cover
approximately 51% of all Alliant Energy employees. In 1999, eight
agreements expired and four of these agreements have been ratified and
four are still being negotiated (three at IPC and one at IESU). The
agreements still being negotiated have been extended and represent 42%
of employees covered under bargaining agreements and 22% of total
Alliant Energy employees. In 2000, two contracts expire representing
approximately 1% of employees covered under bargaining agreements and
less than 1% of total Alliant Energy employees. Alliant Energy has not
experienced any significant work stoppage problems in the past. While
negotiations are continuing, Alliant Energy is currently unable to
predict the outcome of these negotiations.
Market Risk Sensitive Instruments and Positions
Alliant Energy'sPositions--WP&L's primary market risk
exposures are associated with interest rates, commodity prices and equity
prices and currency exchange
rates. Alliant Energyprices. WP&L has risk management policies to monitor and assist in controlling
these market risks and uses derivative instruments to manage some of the
exposures.
Interest Rate Risk
Alliant EnergyRisk--WP&L is exposed to risk resulting from changes in interest
rates as a result of its issuance of variable-rate debt. Alliant Energydebt and its utility
accounts receivable sale program. WP&L manages its interest rate risk by
limiting its variable interest rate exposure and by continuously monitoring the
effects of market changes -A-19-
inon interest rates. Alliant EnergyWP&L has also historically used
interest rate swap and interest rate forward agreements to assist in the
management of its interest exposure. If variable interest rates were to
average 1% higher (lower) in 2000 than in 1999, interest expense and
pre-tax earnings would increase (decrease) by approximately
$5.1 million. Comparatively, if variable interest rates had averaged 1%
higher (lower) in 1999 than in 1998, interest expense and pre-tax
earnings would have increased (decreased) by approximately
$4.5 million. These amounts were determined by considering the impact
of a hypothetical 1% increase (decrease) in interest rates on the
variable-rate debt and related derivative instruments held by Alliant
Energy as of December 31, 1999 and 1998. In the event of significant interest rate
fluctuations, management would take actions to minimize the effect of such
changes on Alliant Energy'sWP&L's results of operations.
However, due to the uncertainty of the specific actions that would be
takenoperations and their possible effects, the sensitivity analysis assumesfinancial condition. Assuming no
change in Alliant Energy'sWP&L's consolidated financial structure.structure, if variable interest rates
were to average 100 basis points higher (lower) in 2002 than in 2001, interest
expense and pre-tax earnings would increase (decrease) by approximately $1.4
million. This amount was determined by considering the impact of a hypothetical
100 basis points increase (decrease) in interest rates on WP&L's variable-rate
debt held and the amount outstanding under its accounts receivable sale program
at December 31, 2001.
Commodity Risk--Non-trading
Alliant EnergyRisk--Non-trading--WP&L is exposed to the impact of market
fluctuations in the commodity price and transportation costs of electricity and
natural gas and oil products it markets. Alliant EnergyWP&L employs established policies and procedures to
manage its risks associated with these market fluctuations including the use of
various commodity derivatives. Alliant Energy'sWP&L's exposure to commodity price risks in its utility
business is
significantly mitigated by the current rate making structures in place for the
recovery of its electric fuel and purchased energy costs as well as its cost of
natural gas purchased for resale. Refer to Note 1(i) of the "Notes to
Consolidated Financial Statements" for a further discussion.
From time to time, WP&L periodically utilizes gas commodity swap arrangements for
the purpose of mitigatingderivative instruments to reduce the
impact of price fluctuations on gas purchased and injected into storage during
the summer months and withdrawn and sold at current market prices during the
winter months. The gas commodity swaps in place approximate the forecasted
storage withdrawal plan during this period. Therefore, market price
fluctuations that result in an increase or decrease in the value of the
physical commodity are substantially offset by changes in the value of the gas
commodity swaps. To the extent actual storage withdrawals vary from forecasted
withdrawals, WP&L has physical commodity price exposure. A 10% increase/decrease10 percent increase
(decrease) in the price of gas would not have an
insignificanta significant impact on the
combined fair market value of the gas in storage and related swap arrangements
in place as ofat December 31, 1999
and 1998.2001.
Equity Price Risk
Alliant EnergyRisk--WP&L maintains a trust funds at IESU and WP&Lfund to fund its anticipated nuclear
decommissioning costs. As ofAt December 31, 19992001 and 1998, these funds were2000, this fund was invested
primarily in domestic equity and debt instruments. WP&L has entered into an equity collar that uses options
to mitigate the effect of significant market fluctuations on its common
stock investments. Alliant Energy's exposure to fluctuationsFluctuations in equity
prices or interest rates will not affect itsWP&L's consolidated results of
operations as such fluctuations are recorded in equally offsetting amounts of
investment income and depreciation (WP&L) or interest
(IESU) expense when they are realized. In February
2001, WP&L entered into a four-year hedge on equity assets in its nuclear
decommissioning trust fund. Refer to Note 109(c) of the "Notes to Consolidated
Financial Statements" for a further discussion of Alliant Energy's derivative financial
instruments.discussion.
Accounting Pronouncements
In June 1998,Pronouncements--In July 2001, the FASB issued SFAS 133.141, "Business
Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141
requires that all business combinations be accounted for using the purchase
method. Use of the pooling-of-interests method is no longer allowed. The
Statement establishesprovisions of SFAS 141 were effective for all business combinations initiated
after June 30, 2001. SFAS 142 addresses the method of accounting for acquired
goodwill and other intangible assets upon, and subsequent to, the date of the
acquisition. Among other provisions, SFAS 142 eliminates the amortization of
goodwill and replaces it with periodic assessments of the realization of the
recorded goodwill and other intangible assets. WP&L did not incur goodwill or
other intangible assets impairment charges upon its adoption of SFAS 142.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or
-A-20-
liability measured at its fair value. The Statement requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15, 2000
and must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired or substantively modified after December 31, 1998 (effective
dates noted are as amended by SFAS 137). Alliant Energy has organized a
cross-functional project team to assist in implementing SFAS 133. The
team consists of both Alliant Energy employees and a consultant that
has been engaged to support the project. The team has begun to
inventory financial instruments, commodity contracts and other
commitments with the purpose of identifying and assessing all of
Alliant Energy's derivatives. Although the impact of implementing
SFAS 133 has not yet been quantified, it could increase volatility in
earnings and other comprehensive income. Alliant Energy is analyzing
various alternatives relating to the possible early adoption of
SFAS 133 in 2000. SFAS 133 may only be adopted on the first day of any
quarter prior to the required adoption date.
Accounting for Obligations Associated with the Retirement of Long-Lived
Assets
The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry, including IESU and WP&L,
regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating stations in financial
statements of electric utilities. In response to these questions, the
FASB has a project on its agenda to review the accounting for
obligations associated with the retirement of tangible long-lived assets includingand
the associated asset retirement costs. WP&L must adopt SFAS 143 no later than
January 1, 2003. With regards to the decommissioning of nuclear power plants. If current electric
utility industry accounting practices for nuclear power plantKewaunee, SFAS 143 will
require WP&L to record at fair value the decommissioning are changed,liability and a
corresponding asset, which will then be depreciated over the annual provision forremaining expected
service life of the plant's generating unit. Currently,
A-11
decommissioning could increase relative to 1999,amounts collected in rates and the estimated cost for
decommissioning could be recordedinvestment earnings are
reported in accumulated depreciation. WP&L has not yet determined what other
assets may have associated retirement costs as a liability (rather than as
accumulated depreciation), with recognition of an increase in the cost
of the related nuclear power plant. Assuming no significant change in
regulatory treatment, IESU anddefined by SFAS 143. WP&L dodoes
not believe that such changes,
if required, would have an adverse effect on their financial condition
or results of operations due to their ability to recover
decommissioning costs through rates.
Inflation
Alliant Energy, IESU and WP&L do not expect the effects of inflation at
current levels to have a significant effect on their financial
condition or results of operations.
Environmental
The pollution abatement programs of IESU, WP&L, IPC and Resources are
subject to continuing review and are revised from time to time due to
changes in environmental regulations, changes in construction plans and
escalation of construction costs. While management cannot precisely
forecast the effect of future environmental regulations on Alliant
Energy's operations, it has taken steps to anticipate the future while
also meeting the requirements of current environmental regulations.
The Clean Air Act Amendments of 1990 (Act) require emission reductions
of SO2, NOx and other air pollutants to achieve reductions of
atmospheric chemicals believed to cause acid rain. IESU, WP&L and IPC
-A-21-
have met the provisions of Phase I of the Act and Phase II of the Act.
The Act also governs SO2 allowances, which are defined as an
authorization for an owner to emit one ton of SO2 into the atmosphere.
IESU, WP&L and IPC are reviewing their options to ensure theySFAS 143 will have
sufficient allowances to offset their emissions in the future and
believe that the potential costs of complying with these provisions of
Title IV of the Act will not have a material adverse impact on their
financial condition or results of operations.
The Act and other federal laws also require the EPA to study and
regulate, if necessary, additional issues that potentially affect the
electric utility industry, including emissions relating to ozone
transport, mercury and particulate control as well as modifications to
the PCB rules. In July 1997, the EPA issued final rules that would
tighten the National Ambient Air Quality Standards for ozone and
particulate matter emissions and in June 1998, the EPA modified the PCB
rules. Alliant Energy cannot predict the long-term consequences of
these rules on its financial condition
or results of operations.
In October 1998,2001, the EPAFASB issued a final rule requiring 22 states,
including Wisconsin, to modify their state implementation plans to
addressSFAS 144, "Accounting for the ozone transport issue. However,Impairment or
Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. WP&L adopted
SFAS 144 on May 25, 1999, a federal
appeals court delayed indefinitelyJanuary 1, 2002. WP&L expects that the implementation of the rule. On
March 3, 2000, the federal appeals court affirmed EPA's NOx rule for
the affected states. However, the court found that the EPA had failed
to explain how Wisconsin contributes significantly to non-attainment in
any other state thus it has vacated the rule as relates to Wisconsin.
Given the EPA could still appeal this decision, and Alliant Energy is
still reviewing the recent court order, Alliant Energy is unable to
predict the final outcome of this issue. The implementation of the rule
would likely require WP&L to reduce its NOx emissions at all of its
plants to a fleet average of .15 lbs/mmbtu by 2003. WP&L is following
this issue closely and continues to evaluate various options to meet
the emission levels. Based on existing technology, the preliminary
estimates indicate that capital investments would be in the range of
$150 million to $215 million. Refer to the "Liquidity and Capital
Resources--Rates and Regulatory Matters" section for a discussion of a
filing WP&L made with the PSCW regarding seeking rate recovery of these
costs.
Revisions to the Wisconsin Administrative Code have been proposed that
could have a significant impact on WP&L's operation of the Rock River
Generating Station in Beloit, Wisconsin. The proposed revisions will
affect the amount of heat that the generating station can discharge
into the Rock River. WP&L cannot presently predict the final outcome of
the rule, but believes that, as the rule is currently proposed, the
capital investments and/or modifications required to meet the proposed
discharge limits could be significant.
On February 28, 1998, the EPA issued the final report to Congress on
the Study of Hazardous Air Pollutant Emissions from Electric Utility
Steam Generating Units regarding hazardous air pollutant emissions from
electric utilities (the HAPs report). The HAPs report concluded that
mercury emissions from coal-fired generating plants were a concern.
However, the EPA does not believe it has sufficient information
regarding such emissions. To remedy this lack of information, the EPA
required IESU, WP&L, IPC and all other applicable electric utilities in
the U.S. to start collecting information regarding the types and amount
of mercury emitted as of January 1, 1999. To better understand mercury
emissions, the EPA required WP&L to conduct stack tests at several of
its generating stations. Both stations selected have completed their
stack testing. Although the control of mercury emissions from
generating plants is uncertain at this time, Alliant Energy believes
that the capital investments and/or modifications required to control
mercury emissions could be significant.
-A-22-
WP&L has been notified by the EPA that it is a PRP with respect to
environmental impacts identified at the MIG/DeWane Landfill Superfund
Site. WP&L is participating in the initiation of an alternate dispute
resolution process to allocate liability associated with the
investigation and remediation of the site. Management believes that any
likely action resulting from this matterSFAS 144
will not have a material adverse effectimpact on WP&L'sits financial condition or results of
operations.
WPCritical Accounting Policies--WP&L has been notified by Monroe County, Wisconsin that it is a PRP
with respectbelieves the policies identified below are
critical to environmental impacts identified at the Monroe County
Interim Landfill in Sparta, Wisconsin. WP&L has provided a summary of
records and documents relating to waste disposal at the landfill to
Monroe County. WP&L cannot currently estimate what liability, if any,
it may have with respect to this site.
A global treaty has been negotiated that could require reductions of
greenhouse gas emissions from utility plants. In November 1998, the
U.S. signed the treaty and agreed with the other countries to resolve
all remaining issues by the end of 2000. At this time, management is
unable to predict whether the U.S. Congress will ratify the treaty.
Given the uncertainty of the treaty ratification&L's business and the ultimate termsunderstanding of the final regulations, management cannot currently estimate the
impact the implementationits results of the treaty would have on Alliant Energy's operations.
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates
that each state must take responsibility for the storage of low-level
radioactive waste produced within its borders. The States of Iowaimpact and Wisconsinany associated risks related to these policies on WP&L's
business are members of the six-state Midwest Interstate Low-Level
Radioactive Waste Compact (Compact) which is responsible for
development of any new disposal capability within the Compact member
states. In June 1997, the Compact commissioners voteddiscussed throughout MD&A where applicable. Refer to discontinue
work on a proposed waste disposal facility in the State of Ohio because
the expected cost of such a facility was comparably higher than other
options currently available. Dwindling waste volumes and continued
access to existing disposal facilities were also reasons cited for the
decision. A disposal facility located near Barnwell, South Carolina
continues to accept the low-level waste and IESU and WP&L currently
ship the waste each produces to such site, thereby minimizing the
amount of low-level waste stored on-site. Given technological advances,
waste compaction and the reduction in the amount of waste generated,
DAEC and Kewaunee each have on-site storage capability sufficient to
store low-level waste expected to be generated over at least the next
ten years. While Alliant Energy is unable to predict how long the
Barnwell facility will continue to accept its waste, continuing access
to this facility expands Alliant Energy's on-site storage capability
indefinitely.
See Notes 11(e) and 11(f)Note 1 of the
"Notes to Consolidated Financial Statements" for detailed discussion on the
application of these and other accounting policies. The preparation of the
consolidated financial statements requires management to make estimates and
assumptions that affect: a) the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements; and b) the reported amounts of revenues and expenses
during the reporting period. WP&L evaluates its estimates on an ongoing basis
and bases them on a further discussioncombination of Alliant Energy's environmental
issues.
Power Supply
Wisconsin enacted electric reliability legislationhistorical experience and various other
assumptions that are believed to be reasonable under the circumstances. Actual
results could differ from those estimates. WP&L's critical accounting policies
that affect its more significant judgments and estimates used in 1998 (Wisconsin
Reliability Act)the
preparation of its consolidated financial statements are as follows:
Regulatory Assets and Liabilities--SFAS 71, "Accounting for the Effects of
Certain Types of Regulation," requires rate-regulated public utilities to
record certain costs and credits allowed in the rate making process in
different periods than for non-regulated entities. These costs and credits are
deferred as regulatory assets or accrued as regulatory liabilities and are
recognized in the Consolidated Statements of Income at the time they are
reflected in rates. WP&L recognizes regulatory assets and liabilities in
accordance with rulings of its federal and state regulators and future
regulatory rulings may impact the carrying value and accounting treatment of
WP&L's regulatory assets and liabilities. WP&L evaluates and revises the
accounting for its regulatory assets and liabilities on an ongoing basis, and
as new regulatory orders are issued, to properly account for its activities
under SFAS 71.
Derivative Financial Instruments--WP&L uses derivative financial instruments to
hedge exposures to fluctuations in interest rates, certain commodity prices and
volatility in a portion of natural gas sales volumes due to weather. WP&L does
not use such instruments for speculative purposes. To account for these
derivative instruments in accordance with the goalapplicable accounting rules, WP&L
must determine the fair value of assuring reliable electricits derivatives. If an established, quoted
market exists for the underlying commodity of the derivative instrument, WP&L
uses the quoted market price to value the derivative instrument. For other
derivatives, WP&L estimates the value based upon other quoted prices or
acceptable valuation methods. WP&L also reviews the nature of its contracts for
the purchase and sale of non-financial assets to assess whether the contracts
meet the definition of a derivative and the requirements to follow hedge
accounting as allowed by the applicable accounting rules. The determination of
derivative status and valuations involves considerable judgment. WP&L reviews
the accounting for and subsequent valuation of its derivative instruments on an
ongoing basis.
Unbilled Revenues--WP&L accrues revenues for utility services rendered but
unbilled at month-end. The monthly accrual process includes the development of
various significant estimates, including the amount of natural gas and
electricity used by each customer class and the associated revenues generated.
Significant fluctuations in energy demand for Wisconsin. The law allows the construction of merchant power plantsunbilled period or changes in
the state and streamlinescomposition of WP&L's customer classes could impact the regulatory approval process for building
new generation and transmission facilities. As a requirementaccuracy of the
legislation,unbilled revenues estimate. WP&L updates the PSCW completedcalculation each month and
performs a regional transmission constraint
study.detailed review of the estimate each quarter.
Valuation of Assets--WP&L's balance sheet includes investments in several
available-for-sale securities accounted for in accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities." WP&L
monitors any unrealized losses from such investments to determine if the loss
is considered to be a temporary or permanent decline. The PSCWdetermination as to
whether the investment is authorizedtemporarily versus permanently impaired requires
considerable judgment. When the investment is considered permanently impaired,
the previously recorded unrealized loss would be recorded directly to order constructionthe
income statement as a realized loss.
A-12
Environmental Contingencies--WP&L has recorded various environmental
liabilities as noted in Note 10(d) of new transmission
facilities,the "Notes to Consolidated Financial
Statements." Such environmental liabilities are estimated based upon historical
experience and periodic analyses of its various environmental remediation
sites. Such analyses estimate the environmental liability based on the findingsbest
current estimate of the remaining amount to be incurred for investigation,
remediation and monitoring costs for those sites where the investigation
process has been or is substantially completed and the minimum of the estimated
cost range for those sites where the investigation is in its constraint study, through
December 31, 2004.
-A-23-
On September 24, 1997,earlier stages. It
is possible that future cost estimates will be greater than current estimates
as the PSCW orderedinvestigation process proceeds, additional facts become known, or
additional sites are identified and the liabilities are updated once such
information becomes available. For WP&L, changes in cost estimates may be
offset through rate recovery.
Other Future Considerations--In addition to items discussed earlier in MD&A,
the following items could impact WP&L's future financial condition or results
of operations:
WP&L's pension and two other Wisconsin
utilitiespostretirement benefit expenses for 2002 are expected
to arrange for additional electric capacitybe approximately $9 million higher than in 2001, primarily due to
help maintain
reliable service for their customers. In July 1998, Alliant Energyunfavorable asset returns, a reduction in the discount rate used to value plan
benefits and SkyGen announced an agreement whereby SkyGen would build, own and
operate a power plantexpected increases in retiree medical costs. These cost increases
will be addressed in rate filings in Wisconsin capableand with FERC in 2002.
WP&L has provided energy conservation services to its customers for many years
through a program called Shared Savings. WP&L earns incentives that are
recoverable in rates for assisting customers that make building or equipment
improvements to reduce energy usage. As a result of producing uplegislative changes, this
program may be reduced or eliminated in Wisconsin effective January 1, 2003.
WP&L is aggressively pursuing both regulatory and legislative changes to 450 MW of
electricity. Under the agreement, Alliant Energy will purchase the
capacity to meet the electric needs of its utility customers, as
outlined by the Wisconsin Reliability Act. A third party filed an
appeal to the EPA Appeals Board on the issue of NOx mitigation. In the
fourth quarter of 1999, the WDNR issued a revised air permit which was
appealed again by the third party. In March 2000, the EPA denied the
third party's final appeal which finalizes the air permitting process
and allows for constructionretain
some or all of the plant.
The EPA appeal process resulted in the SkyGen project being delayed
until the summer of 2001. Alliant Energy has made other contractual
commitments to ensure an 18% reserve margin in 2000, as required for
Wisconsin. Part ofnet income from this effort includes purchased power contracts at
higher costs than the SkyGen power, including purchasing power from 54
portable diesel generators that will be located at various substation
locations within WP&L's service territory. These higher costs are
included in a rate increase requested by WP&L in December 1999 as
discussed in "Liquidity and Capital Resources--Rates and Regulatory
Matters--WP&L."
Alliant Energy notes that it will take time for new transmission and
power plant projects to be approved and builtprogram in Wisconsin. While
Alliant Energy currently expectsIf such efforts
are unsuccessful, WP&L would experience a reduction in net income in 2003
compared to meet customer demandsincome realized in 2000,
unanticipated reliability issues could still arise in2001. WP&L is also pursuing the event
Wisconsin experiences unexpected power plant outages, transmission
system outagesdevelopment of
additional demand-side management related programs within its service territory
to replace or extended periods of extremely hot weather.
-A-24-increase this net income.
A-13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareowners of Wisconsin Power and Light Company:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Wisconsin Power and Light Company (a Wisconsin corporation)
and subsidiaries as of December 31, 19992001 and 1998,2000, and the related consolidated
statements of income, retained
earningscash flows and cash flowschanges in common equity for each of the
three years in the period ended December 31, 1999.2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted auditing
standards.in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wisconsin Power and Light
Company and subsidiaries as of December 31, 19992001 and 1998,2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999,2001, in conformity with accounting principles generally
accepted accounting principles.in the United States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 28, 2000
-A-25-25, 2002
A-14
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
------------------------------------------------------------------
2001 2000 1999
1998 1997
--------------------------------------
(in thousands)
Operating revenues:
Electric utility......................................................... $ 626,607 $ 614,704 $ 634,143
Gas utility.............................................................. 120,770 111,737 155,883
Water.................................................................... 5,128 5,007 4,691
------------------------------------------
752,505 731,448 794,717
------------------------------------------
Operating expenses:
Electric production fuels................................................ 110,521 120,485 116,812
Purchased power.......................................................... 107,598 113,936 125,438
Cost of gas sold......................................................... 64,073 61,409 99,267
Other operation.......................................................... 126,479 143,666 131,398
Maintenance.............................................................. 45,652 49,912 48,058
Depreciation and amortization............................................ 113,037 119,221 104,297
Taxes other than income taxes............................................ 30,240 30,169 30,338
------------------------------------------
597,600 638,798 655,608
------------------------------------------
Operating income............................................................ 154,905 92,650 139,109
------------------------------------------
Interest expense and other:
Interest expense......................................................... 40,992 36,584 32,607
Allowance for funds used during construction............................. (4,511) (3,049) (2,775)
Miscellaneous, net....................................................... 1,836 (1,129) (3,796)
------------------------------------------
38,317 32,406 26,036
------------------------------------------
Income before income taxes.................................................. 116,588 60,244 113,073
------------------------------------------
Income taxes................................................................ 45,758 24,670 41,839
------------------------------------------
Net income.................................................................. 70,830 35,574 71,234
------------------------------------------
Preferred dividend requirements............................................. 3,310 3,310 3,310
------------------------------------------
Earnings available for common stock......................................... $ 67,520 $ 32,264 $ 67,924
==========================================
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended December 31,
-----------------------------------------
1999 1998 1997
------------------------------------------------- -------- --------
(in thousands)
Balance at beginningOperating revenues:
Electric utility............................................................ $753,450 $692,191 $626,607
Gas utility................................................................. 206,863 165,152 120,770
Water....................................................................... 5,040 5,038 5,128
-------- -------- --------
965,353 862,381 752,505
-------- -------- --------
Operating expenses:
Electric production fuels................................................... 120,722 113,208 110,521
Purchased power............................................................. 217,306 146,939 107,598
Cost of year................................................gas sold............................................................ 153,823 107,131 64,073
Other operation and maintenance............................................. 186,477 188,967 172,131
Depreciation and amortization............................................... 129,098 139,911 113,037
Taxes other than income taxes............................................... 32,504 29,163 30,240
-------- -------- --------
839,930 725,319 597,600
-------- -------- --------
Operating income............................................................... 125,423 137,062 154,905
-------- -------- --------
Interest expense and other:
Interest expense............................................................ 43,483 44,644 40,992
Equity income from unconsolidated investments............................... (15,535) (552) (641)
Allowance for funds used during construction................................ (4,753) (5,365) (4,511)
Miscellaneous, net.......................................................... (12,500) (15,984) 2,477
-------- -------- --------
10,695 22,743 38,317
-------- -------- --------
Income before income taxes..................................................... 114,728 114,319 116,588
-------- -------- --------
Income taxes................................................................... 41,238 42,918 45,758
-------- -------- --------
Income before cumulative effect of a change in accounting principle, net of tax 73,490 71,401 70,830
-------- -------- --------
Cumulative effect of a change in accounting principle, net of tax.............. -- 35 --
-------- -------- --------
Net income..................................................................... 73,490 71,436 70,830
-------- -------- --------
Preferred dividend requirements................................................ 3,310 3,310 3,310
-------- -------- --------
Earnings available for common stock............................................ $ 294,30970,180 $ 320,38668,126 $ 310,805
Net income.................................................................. 70,830 35,574 71,234
Cash dividends declared on common stock..................................... (58,353) (58,341) (58,343)
Cash dividends declared on preferred stock.................................. (3,310) (3,310) (3,310)
------------------------------------------
Balance at end of year...................................................... $ 303,476 $ 294,309 $ 320,386
==========================================67,520
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
-A-26-A-15
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------------
1999 1998
---------------------------------------------------------
ASSETS 2001 2000
------ ----------- -----------
(in thousands)
ASSETS
Property, plant and equipment:
Utility
PlantElectric plant in service
Electric.....................................................................service............... $ 1,921,6241,779,593 $ 1,839,545
Gas.......................................................................... 258,132 244,518
Water........................................................................ 27,770 26,567
Common....................................................................... 218,607 219,268
---------------------------------
2,426,133 2,329,898
Less--Accumulated depreciation................................................. 1,266,366 1,168,830
---------------------------------
1,159,767 1,161,0682,007,974
Gas plant in service.................... 280,881 273,457
Water plant in service.................. 32,497 29,869
Other plant in service.................. 243,121 223,921
Accumulated depreciation................ (1,328,111) (1,380,723)
----------- -----------
Net plant........................... 1,007,981 1,154,498
Construction work in progress.................................................. 66,784 56,994progress........... 37,828 59,133
Nuclear fuel, net of amortization.............................................. 15,079 18,671
---------------------------------
1,241,630 1,236,733amortization....... 17,404 16,099
Other, property, plant and equipment, net of accumulated
depreciation and amortization of $169 and $44, respectively.................... 608 630
---------------------------------
1,242,238 1,237,363
---------------------------------net.............................. 681 369
----------- -----------
1,063,894 1,230,099
----------- -----------
Current assets:
Cash and temporary cash investments............................................... 3,555 1,811investments..... 4,389 2,584
Accounts receivable:
Customer....................................................................... 22,061 13,372Customer.............................. 33,190 51,769
Associated companies........................................................... 5,067 3,019
Other.......................................................................... 10,984 8,298companies.................. 3,676 2,211
Other................................. 16,571 13,865
Production fuel, at average cost.................................................. 20,663 20,105cost........ 17,314 17,811
Materials and supplies, at average cost........................................... 20,439 20,025cost. 20,669 21,639
Gas stored underground, at average cost........................................... 8,624 10,738
Regulatory assets................................................................. 3,707 3,707cost. 22,187 13,876
Prepaid gross receipts tax........................................................ 20,864 22,222
Other............................................................................. 5,568 6,987
---------------------------------
121,532 110,284
---------------------------------tax.............. 25,673 23,088
Other................................... 13,018 6,397
----------- -----------
156,687 153,240
----------- -----------
Investments:
Nuclear decommissioning trust funds............................................... 166,202 134,112
Other............................................................................. 15,272 15,960
---------------------------------
181,474 150,072
---------------------------------funds..... 215,794 195,768
Investment in ATC and other............. 127,941 14,362
----------- -----------
343,735 210,130
----------- -----------
Other assets:
Regulatory assets................................................................. 82,161 76,284assets....................... 109,864 88,721
Deferred charges and other........................................................ 138,730 111,147
---------------------------------
220,891 187,431
---------------------------------other.............. 205,702 174,834
----------- -----------
315,566 263,555
----------- -----------
Total assets.........................................................................assets............................... $ 1,766,1351,879,882 $ 1,685,150
=================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-A-27-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
December 31,
--------------------------------
1999 1998
--------------------------------
(in thousands)
CAPITALIZATION AND LIABILITIES
Capitalization (See Consolidated Statements of Capitalization):
Common stock..................................................................... $ 66,183 $ 66,183
Additional paid-in capital....................................................... 229,438 199,438
Retained earnings................................................................ 303,476 294,309
---------------------------------
Total common equity........................................................... 599,097 559,930
---------------------------------
Cumulative preferred stock, not mandatorily redeemable........................... 59,963 59,963
Long-term debt (excluding current portion)....................................... 414,673 414,579
---------------------------------
1,073,733 1,034,472
---------------------------------
Current liabilities:
Current maturities............................................................... 1,875 --
Variable rate demand bonds....................................................... 55,100 56,975
Notes payable.................................................................... -- 50,000
Notes payable to associated companies............................................ 125,749 26,799
Accounts payable................................................................. 88,245 84,754
Accounts payable to associated companies......................................... 25,306 20,315
Accrued payroll and vacations.................................................... 7,499 5,276
Accrued interest................................................................. 6,903 6,863
Other............................................................................ 15,881 14,600
---------------------------------
326,558 265,582
---------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes................................................ 235,838 245,489
Accumulated deferred investment tax credits...................................... 31,311 33,170
Customer advances................................................................ 34,643 34,367
Environmental liabilities........................................................ 10,861 11,683
Other............................................................................ 53,191 60,387
---------------------------------
365,844 385,096
---------------------------------
Commitments and contingencies (Note 11)
Total capitalization and liabilities................................................. $ 1,766,135 $ 1,685,150
=================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-A-28-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
-------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income....................................................... $ 70,830 $ 35,574 $ 71,234
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization................................. 113,037 119,221 104,297
Amortization of nuclear fuel.................................. 6,094 5,356 3,534
Deferred taxes and investment tax credits..................... (12,618) (7,529) 3,065
Other......................................................... 2,432 (2,089) (1,323)
Other changes in assets and liabilities:
Accounts receivable........................................... (13,423) 12,845 (3,314)
Accounts payable.............................................. 8,482 19,452 (7,102)
Benefit obligations and other................................. (11,854) (5,509) (20,460)
------- ------ -------
Net cash flows from operating activities.................... 162,980 177,321 149,931
------- ------- -------
Cash flows from (used for) financing activities:
Common stock dividends........................................ (58,353) (58,341) (58,343)
Preferred stock dividends..................................... (3,310) (3,310) (3,310)
Proceeds from issuance of long-term debt...................... -- 60,000 105,000
Reductions in long-term debt.................................. -- (8,899) (55,000)
Net change in short-term borrowings........................... 48,950 (4,201) 11,500
Capital contribution from parent.............................. 30,000 -- --
Other......................................................... -- (1,966) (2,601)
------ ------ ------
Net cash flows from (used for) financing
activities................................................ 17,287 (16,717) (2,754)
------ ------- ------
Cash flows used for investing activities:
Utility construction expenditures............................. (131,915) (117,143) (119,232)
Nuclear decommissioning trust funds........................... (16,092) (14,297) (11,427)
Shared savings program........................................ (31,085) (24,355) (17,610)
Other......................................................... 569 (5,490) (583)
-------- -------- --------
Net cash flows used for investing activities................ (178,523) (161,285) (148,852)
-------- --------- ---------
Net increase (decrease) in cash and temporary cash
investments...................................................... 1,744 (681) (1,675)
-------- --------- --------
Cash and temporary cash investments at beginning
of period........................................................ 1,811 2,492 4,167
-------- --------- --------
Cash and temporary cash investments at end of period................. $ 3,555 $ 1,811 $ 2,492
============ ============= ==============
Supplemental cash flow information:
Cash paid during the period for:
Interest ................................................... $ 38,330 $ 33,368 $ 32,955
============ ============= ==============
Income taxes................................................ $ 47,164 $ 31,951 $ 37,407
============ ============= ==============1,857,024
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
-A-29-A-16
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATIONBALANCE SHEETS (Continued)
December 31,
---------------------------------
1999 1998
-------------------------------------------------------
CAPITALIZATION AND LIABILITIES 2001 2000
----------------------------- ---------- ----------
(in thousands
except share amounts)
Common equity:
Common stock--$5.00 par value--authorized 18,000,000 shares;thousands)
13,236,601 shares outstanding.................................................Capitalization (See Consolidated Statements of Capitalization):
Common stock................................................ $ 66,183 $ 66,183
Additional paid-in capital....................................................... 229,438 199,438capital.................................. 264,603 229,516
Retained earnings................................................................ 303,476 294,309
------- -------
599,097 559,930
------- -------earnings........................................... 381,333 371,602
Accumulated other comprehensive loss........................ (10,167) (4,708)
---------- ----------
Total common equity..................................... 701,952 662,593
---------- ----------
Cumulative preferred stock.................................. 59,963 59,963
Long-term debt (excluding current portion).................. 468,083 514,209
---------- ----------
1,229,998 1,236,765
---------- ----------
Current liabilities:
Variable rate demand bonds.................................. 55,100 55,100
Notes payable to associated companies....................... 90,816 29,244
Accounts payable............................................ 98,173 120,155
Accounts payable to associated companies.................... 36,678 32,442
Other....................................................... 35,219 36,266
---------- ----------
315,986 273,207
---------- ----------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes........................... 206,245 222,819
Accumulated deferred investment tax credits................. 24,907 29,472
Customer advances........................................... 34,178 34,815
Pension and other benefit obligations....................... 18,175 --
Other....................................................... 50,393 59,946
---------- ----------
333,898 347,052
---------- ----------
Commitments and contingencies (Note 10)
Total capitalization and liabilities........................... $1,879,882 $1,857,024
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-17
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
(in thousands)
Cash flows from operating activities:
Net income...................................................................... $ 73,490 $ 71,436 $ 70,830
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization................................................. 129,098 139,911 113,037
Amortization of nuclear fuel.................................................. 4,554 5,066 6,094
Deferred tax benefits and investment tax credits.............................. (6,791) (12,077) (12,618)
Equity income from unconsolidated investments, net............................ (15,535) (552) (641)
Distributions from equity method investments.................................. 8,450 992 248
Other......................................................................... (10,539) (15,451) 3,073
Other changes in assets and liabilities:
Accounts receivable........................................................... 14,408 (29,733) (13,423)
Accounts payable.............................................................. (20,891) 39,046 8,482
Benefit obligations and other................................................. (40,700) (21,797) (11,854)
--------- --------- ---------
Net cash flows from operating activities.................................. 135,544 176,841 163,228
--------- --------- ---------
Cash flows from (used for) financing activities:
Common stock dividends........................................................ (60,449) -- (58,353)
Preferred stock dividends..................................................... (3,310) (3,310) (3,310)
Proceeds from issuance of long-term debt...................................... -- 100,000 --
Reductions in long-term debt.................................................. (47,000) (1,875) --
Net change in short-term borrowings........................................... 61,572 (96,505) 48,950
Capital contribution from parent.............................................. 35,000 -- 30,000
Other......................................................................... (2,720) (1,242) --
--------- --------- ---------
Net cash flows from (used for) financing activities....................... (16,907) (2,932) 17,287
--------- --------- ---------
Cash flows used for investing activities:
Utility construction expenditures............................................. (147,032) (131,640) (131,915)
Nuclear decommissioning trust funds........................................... (16,092) (16,092) (16,092)
Proceeds from formation of ATC and other asset dispositions................... 75,600 961 237
Other......................................................................... (29,308) (28,109) (31,001)
--------- --------- ---------
Net cash flows used for investing activities.............................. (116,832) (174,880) (178,771)
--------- --------- ---------
Net increase (decrease) in cash and temporary cash investments................... 1,805 (971) 1,744
--------- --------- ---------
Cash and temporary cash investments at beginning of period....................... 2,584 3,555 1,811
--------- --------- ---------
Cash and temporary cash investments at end of period............................. $ 4,389 $ 2,584 $ 3,555
========= ========= =========
Supplemental cash flow information:
Cash paid during the period for:..............................................
Interest.................................................................. $ 43,237 $ 40,455 $ 38,330
========= ========= =========
Income taxes.............................................................. $ 54,161 $ 54,676 $ 47,164
========= ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-18
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
----------------------
2001 2000
---------- ----------
(in thousands,
except share amounts)
Common equity:
Common stock--$5 par value--authorized 18,000,000 shares;13,236,601 shares
outstanding........................................................................... $ 66,183 $ 66,183
Additional paid-in capital.............................................................. 264,603 229,516
Retained earnings....................................................................... 381,333 371,602
Accumulated other comprehensive loss.................................................... (10,167) (4,708)
---------- ----------
701,952 662,593
---------- ----------
Cumulative preferred stock:
Cumulative, without par value, not mandatorily redeemable--authorized 3,750,000 shares,
maximum aggregate stated value $150,000,000:
$100 stated value--4.50% series, 99,970 shares outstanding..................outstanding.......................... 9,997 9,997
$100 stated value--4.80% series, 74,912 shares outstanding..................outstanding.......................... 7,491 7,491
$100 stated value--4.96% series, 64,979 shares outstanding..................outstanding.......................... 6,498 6,498
$100 stated value--4.40% series, 29,957 shares outstanding..................outstanding.......................... 2,996 2,996
$100 stated value--4.76% series, 29,947 shares outstanding..................outstanding.......................... 2,995 2,995
$100 stated value--6.20% series, 150,000 shares outstanding.................outstanding......................... 15,000 15,000
$25 stated value--6.50% series, 599,460 shares outstanding................outstanding.......................... 14,986 14,986
------ ---------------- ----------
59,963 59,963
------ ---------------- ----------
Long-term debt:
First Mortgage Bonds:
1990 Series V, 9.3%, retired in 2001................................................ -- 27,000
1984 Series A, variable rate (5.00%(1.7% at December 31, 1999)2001), due 2014...........2014.................. 8,500 8,500
1988 Series A, variable rate (5.60%(1.85% at December 31, 1999)2001), due 2015...........2015................. 14,600 14,600
1990 Series V, 9.3%, due 2025................................................. 27,000 27,000
1991 Series A, variable rate (4.75%(1.9% at December 31, 1999)2001), due 2015...........2015.................. 16,000 16,000
1991 Series B, variable rate (4.75%(1.9% at December 31, 1999)2001), due 2005...........2005.................. 16,000 16,000
1991 Series C, variable rate (4.75% at December 31, 1999), due 2000........... 1,000 1,000
1991 Series D, variable rate (4.75% at December 31, 1999), due 2000........... 875 875
1992 Series W, 8.6%, due 2027................................................. 90,0002027, partially retired in 2001............................ 70,000 90,000
1992 Series X, 7.75%, due 2004................................................2004...................................................... 62,000 62,000
1992 Series Y, 7.6%, due 2005.................................................2005....................................................... 72,000 72,000
------ ------
307,975 307,975---------- ----------
259,100 306,100
Debentures, 7%, due 2007.........................................................2007................................................................ 105,000 105,000
Debentures, 5.7%, due 2008.......................................................2008.............................................................. 60,000 60,000
------ ------
472,975 472,975
------- -------Debentures, 7 5/8%, due 2010............................................................ 100,000 100,000
---------- ----------
524,100 571,100
---------- ----------
Less:
Current maturities............................................................ (1,875) --
Variable rate demand bonds....................................................bonds.......................................................... (55,100) (56,975)(55,100)
Unamortized debt premium and (discount), net.................................. (1,327) (1,421)
------ ------
414,673 414,579
------- -------discount, net...................................................... (917) (1,791)
---------- ----------
468,083 514,209
---------- ----------
Total capitalization................................................................. $ 1,073,733 $ 1,034,472
============= ==============capitalization....................................................................... $1,229,998 $1,236,765
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-19
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Common
Stock Capital Earnings Income (Loss) Equity
------- ---------- -------- ------------- --------
(in thousands)
1999:
Beginning balance................................................ $66,183 $199,438 $294,309 $ -- $559,930
Earnings available for common stock........................... 67,520 67,520
Common stock dividends........................................ (58,353) (58,353)
Capital contribution from parent.............................. 30,000 30,000
------- -------- -------- --------- --------
Ending balance................................................... 66,183 229,438 303,476 -- 599,097
2000:
Comprehensive income:
Earnings available for common stock......................... 68,126 68,126
Other comprehensive income (loss):
Unrealized losses on derivatives qualified as hedges:
Unrealized holding losses arising during period
due to cumulative effect of a change in
accounting principle, net of tax of ($430)........... (642) (642)
Other unrealized holding losses arising during
period, net of tax of ($3,634)....................... (5,151) (5,151)
Less: reclassification adjustment for losses
included in earnings available for common
stock, net of tax of ($769).......................... (1,085) (1,085)
--------- --------
Net unrealized losses on qualifying derivatives........... (4,708) (4,708)
--------- --------
Total comprehensive income.................................. 63,418
Common stock issued........................................... 78 78
------- -------- -------- --------- --------
Ending balance................................................... 66,183 229,516 371,602 (4,708) 662,593
2001:
Comprehensive income:
Earnings available for common stock......................... 70,180 70,180
Other comprehensive income (loss):
Minimum pension liability adjustment, net of tax
of ($9,552)............................................. (14,248) (14,248)
Unrealized gains on derivatives qualified as
hedges:
Unrealized holding gains arising during
period, net of tax of $3,932......................... 5,952 5,952
Less: reclassification adjustment for losses
included in earnings available for common
stock, net of tax of ($1,676)........................ (2,837) (2,837)
--------- --------
Net unrealized gains on qualifying derivatives............ 8,789 8,789
--------- --------
Total comprehensive income.................................. 64,721
Common stock dividends........................................ (60,449) (60,449)
Common stock issued........................................... 87 87
Capital contribution from parent.............................. 35,000 35,000
------- -------- -------- --------- --------
Ending balance................................................... $66,183 $264,603 $381,333 ($ 10,167) $701,952
======= ======== ======== ========= ========
-A-30-The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-20
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General The Consolidated Financial Statements--The consolidated financial statements include the accounts of
WP&L and its principal consolidated subsidiaries.subsidiaries WPL Transco LLC and South
Beloit. WP&L is a subsidiary of Alliant Energy and is engaged principally in
the generation, transmission, distribution and sale of electric energy; the purchase,
distribution, transportation and sale of natural gas; and water services.
Nearly all of WP&L's retail customers are located in south and central
Wisconsin.
WP&L's principal consolidated subsidiary is South Beloit.
The consolidated financial statements reflect investments in controlled
subsidiaries on a consolidated basis. The financial statements are prepared in conformity with
accounting principles generally accepted accounting principles,in the U.S., which give recognition to
the rate making and accounting practices of FERC and state commissions having
regulatory jurisdiction. Certain
prior period amounts have been reclassified on a basis consistent with
the current year presentation.
Unconsolidated investments for which WP&L has at least a 20% voting
interest are generally accounted for under the equity method of
accounting. These investments are stated at acquisition cost, increased
or decreased for WP&L's equity in net income or loss, which is
included in "Miscellaneous, net" in the Consolidated Statements of
Income and decreased for any dividends received. Investments that do not
meet the criteria for consolidation or the equity method of accounting
are accounted for under the cost method.
The preparation of the consolidated financial
statements requires management to make estimates and assumptions that affect:
a) the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements; and
b) the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Certain prior period amounts
have been reclassified on a basis consistent with the current year presentation.
Unconsolidated investments for which WP&L has at least a 20 percent
non-controlling voting interest are generally accounted for under the equity
method of accounting. These investments are stated at acquisition cost,
increased or decreased for WP&L's equity in net income or loss, which is
included in "Equity income from unconsolidated investments" in the Consolidated
Statements of Income and decreased for any dividends received. These
investments are also increased or decreased for WP&L's proportionate share of
other comprehensive income, which is included in "Accumulated other
comprehensive loss" on the Consolidated Balance Sheets. Investments that do not
meet the criteria for consolidation or the equity method of accounting are
accounted for under the cost method. Refer to Note 8 for discussion of WP&L's
cost method investments that are marked-to-market as a result of SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities."
(b) Regulation
WPRegulation--WP&L is subject to regulation by theunder PUHCA, FERC, the PSCW and
the ICC.
(c) Regulatory Assets
WPAssets--WP&L is subject to the provisions of SFAS 71,
"Accounting for the Effects of Certain Types of Regulation.Regulation," SFAS 71which provides
that rate-regulated public utilities record certain costs and credits allowed
in the rate making process in different periods than for unregulatednon-regulated
entities. These are deferred as regulatory assets or accrued as regulatory
liabilities and are recognized in the Consolidated Statements of Income at the
time they are reflected in rates. At December 31, 19992001 and 1998, WP&L's2000, regulatory
assets of $85.9 million
and $80.0 million, respectively, were comprised of the following items (in millions):
1999 1998
---- ----
Tax-related (Note 1(d)).................................... $43.4 $49.3
Energy efficiency program costs............................ 7.0 --
Environmental liabilities (Note 11(e))..................... 19.1 19.5
Other...................................................... 16.4 11.2
---- ----
$85.9 $80.0
2001 2000
------ -----
Energy efficiency program costs....... $ 33.9 $19.8
Tax-related (Note 1(d))............... 29.0 37.6
Environmental liabilities (Note 10(d)) 18.7 16.6
Other................................. 33.4 18.4
------ -----
$115.0 $92.4
====== =====
=====
Refer to the individual notes referenced above for a further discussion
of certain items reflected in regulatory assets.
If a portion of WP&L's operations becomebecomes no longer subject to the provisions
of SFAS 71 as a result of competitive restructuring or otherwise, a write-down
of related regulatory assets would be required, unless some form of transition
cost recovery is established by the appropriate regulatory body that would meet
the requirements under -A-31-
accounting principles generally accepted accounting principlesin the U.S. for
continued accounting as regulatory assets during such recovery period. In
addition, WP&L would be required to determine any impairment toof other assets
and write-down such assets to their fair value.
(d) Income Taxes
Alliant EnergyTaxes--WP&L follows the liability method of accounting for deferred
income taxes, which requires the establishment of deferred tax assets and
liabilities, as appropriate, for all temporary differences between the tax
basis of assets and liabilities and the amounts reported in the consolidated
financial statements. Deferred taxes are recorded using currently enacted tax
rates.
A-21
Except as noted below, income tax expense includes provisions for deferred
taxes to reflect the tax effects of temporary differences between the time when
certain costs are recorded in the accounts and when they are deducted for tax
return purposes. As temporary differences reverse, the related accumulated
deferred income taxes are reversed to income. Investment tax credits have been
deferred and are subsequently credited to income over the average lives of the
related property.
As part of the affordable housing and oil and gas production
businesses, Alliant Energy is eligible to claim certain tax credits.
These tax credits reduce current federal taxes to the extent Alliant
Energy has consolidated taxes payable.
The PSCW has allowed rate recovery of deferred taxes on all temporary
differences since August 1991. WP&L established a regulatory asset associated
with those temporary differences occurring prior to August 1991 that will be
recovered in future rates.rates through 2007.
Alliant Energy files a consolidated federal income tax return. Under the terms
of an agreement between Alliant Energy and WP&L, WP&L calculates its subsidiaries,
the subsidiaries calculate their respective federal
income tax provisions and makemakes payments to or receivereceives payments from Alliant
Energy as if theyit were a separate taxable entities.entity.
(e) Temporary Cash Investments
TemporaryInvestments--Temporary cash investments are stated at cost,
which approximates market value, and are considered cash equivalents for the
Consolidated Balance Sheets and the Consolidated Statements of Cash Flows.
These investments consist of short-term liquid investments that have maturities
of less than 90 days from the date of acquisition.
(f) Depreciation of Utility Property, Plant and Equipment
WPEquipment--WP&L uses thea
combination of straight-line and sum-of-the-years-digits depreciation methodmethods
as approved by the PSCW.PSCW and ICC. The remaining depreciable life of Kewaunee, of
which WP&L is a co-owner, is based on the PSCW approved revised end-of-life of
2002 (prior to May
1997 the calculation was based on the NRC license end-of-life of 2013).2010. Depreciation expense related to the decommissioning of Kewaunee is
discussed in Note 11(g)10(e). The average rates of depreciation for electric and gas
properties, of WP&L, consistent with current rate making practices, were as follows:
1999 1998 1997
--- ---- ----
Electric.................... 3.6% 3.6% 3.6%
Gas.........................
2001 2000 1999
---- ---- ----
Electric 3.7% 3.6% 3.6%
Gas..... 4.1% 4.1% 3.9%
3.8% 3.8%
(g) Property, Plant and Equipment
UtilityEquipment--Utility plant is recorded at original cost,
which includes overhead, and
administrative costs and AFUDC. WP&L's aggregate gross
AFUDC which represents the cost during
the construction period of fundsrecovery rates used for construction purposes, is
capitalized as a component of the cost of utility plant. The amount of
AFUDC applicable to debt funds2001, 2000 and to other (equity) funds, a non-cash
item, is1999, computed in accordance with
the prescribed FERC formula. These
capitalized costs are recovered in rates as the cost of the utility
plant is depreciated. WP&L's aggregate gross rates used for 1999, 1998regulatory formula, were 7.9%, 10.8% and 1997 were 5.4%, 5.2% and 6.2%, respectively.
Other property, plant and equipment is recorded at original cost. Upon
retirement or sale of other property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any -A-32-
gain or loss is included in
"Miscellaneous, net" in the Consolidated Statements of Income. Normal repairs, maintenance and minor items of
utility plant and other property, plant and equipment are expensed. Ordinary
retirements of utility plant, including removal costs less salvage value, are
charged to accumulated depreciation upon removal from utility plant accounts
and no gain or loss is recognized.
(h) Operating Revenues
WPRevenues--WP&L accrues revenues for services rendered but
unbilled at month-end
in order to more properly match revenues with expenses.month-end. In accordance
with an order from the PSCW, effective January 1, 1998, off-system gas
sales for2000, WP&L are includedrecorded an increase of $10 million in the
Consolidated Statementsestimate of Income as
a reductionutility services rendered but unbilled at month-end due to the
implementation of the cost of gas sold rather than as gas revenues.
Off-system gas sales at WP&L were $12.8 million, $11.5 million and
$11.1 million in 1999, 1998 and 1997, respectively.refined estimation processes.
(i) Utility Fuel Cost Recovery
WPRecovery--WP&L's retail electric rates are based in part on
annual forecasted fuel and purchased-power costs. Under PSCW rules, Wisconsin utilitiesWP&L can
seek emergency rate increases if the annual costs are more than 3%three percent
higher than the estimated costs used to establish rates. Any collections in
excess of costs incurred in 2001 will be refunded in 2002, with interest.
Accordingly, WP&L established a reserve in 2001 due to overcollection of fuel
and purchased-power costs. WP&L has a gas performance incentive which includes
a sharing mechanism whereby 40%40 percent of all gains and losses relative to
current commodity prices, as well as other benchmarks, are retained by WP&L,
rather thanwith the remainder refunded to or recovered from customers.
(j) Nuclear Refueling Outage Costs
OperatingCosts--Operating expenses incurred during
refueling outages at Kewaunee are expensed by WP&L as incurred. A scheduled
refueling outage occurred at Kewaunee in late 2001. The next scheduled
refueling outage at Kewaunee is anticipated to commence in Spring 2003.
A-22
(k) Nuclear Fuel
NuclearFuel--Nuclear fuel for Kewaunee is recorded at its original cost
and is amortized to expense based upon the quantity of heat produced for the
generation of electricity. This accumulated amortization assumes spent nuclear
fuel will have no residual value. Estimated future disposal costs of such fuel
are expensed based on kilowatt-hoursKWhs generated.
(l) Derivative Financial Instruments
From time to time, Alliant EnergyInstruments--WP&L uses derivative financial
instruments to hedge exposures to fluctuations in interest rates, certain
commodity prices and volatility in a portion of natural gas sales volumes due
to weather. These instruments are usedWP&L also utilizes derivatives to mitigate risks and arethe equity price
volatility associated with certain investments in equity securities. WP&L does
not to be
useduse such instruments for speculative purposes. UnderThe fair value of all
derivatives are recorded as assets or liabilities on the deferral method of accounting,Consolidated Balance
Sheets and gains and losses related to derivatives that are designated as, and
qualify as hedges, are recognized in earnings when the underlying hedged item
or physical transaction is recognized in income. Alliant EnergyGains and losses related to
derivatives that do not qualify for, or are not designated in hedge
relationships, are recognized in earnings immediately. WP&L has a number of
commodity purchase and sales contracts that have been designated, and qualify
for, the normal purchase and sale exception in SFAS 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities--an Amendment of
SFAS 133." Based on this designation, these contracts are not accounted for as
derivative instruments.
WP&L is exposed to losses related to financial instruments in the event of
counterparties' nonperformance. Alliant Energynon-performance. WP&L has established controls to determine and
monitor the creditworthiness of counterparties in order to mitigate its
exposure to counterparty credit risk. Alliant EnergyWP&L has replaced certain Enron contracts
by entering into contracts with credit-worthy counterparties where deemed
necessary. WP&L is not aware of any counterparties that will failmaterial exposure to meet their obligations.counterparty credit
risk.
Refer to Note 109 for a further discussion of Alliant Energy'sWP&L's derivative financial
instruments.
(2) MERGER
On April 21, 1998, IES, WPLH and IPC completed a merger forming Alliant
Energy. The merger was accounted for as a pooling of interests and the
accompanying Consolidated Financial Statements, along with the related
notes, are presented as if the companies were combined as of the
earliest period presented.
In association with the merger, Alliant Energy eliminated 167 positions
in 1998. As a result, Alliant Energy recorded $15 million of expenses
during 1998 in "Other operation" expense related to the employee
separation benefits to be paid to the impacted employees. The bulk of
the positions eliminated were administrative in nature and resulted
from no longer needing certain duplicative positions given the
consolidation of the three companies. The departure dates for the
-A-33-
impacted employees varied based on the need for their services during
the transition period as well as certain other factors. The balance of
the accrual at December 31, 1999 and 1998 was $1.0 million and $5.7
million, respectively. As of December 31, 1999, all of the terminated
employees had actually left the organization. As of December 31, 1998,
156 of the terminated employees had actually left the organization. The
balance remaining in the accrued liability at December 31, 1999 related
to payments to certain terminated executives that were being paid out
over a 18-36 month period pursuant to the terms of their respective
severance agreements. The only significant adjustments made to the
liability after the initial accrual were to reflect the actual payments
of the employee separation benefits.
(3) LEASES
WP&L's operating lease rental expenses, which include certain purchased-power
operating leases, for 2001, 2000 and 1999 1998were $23.4 million, $7.9 million and 1997 were
$7.7 million, $6.4respectively. The purchased-power leases below include $33
million in 2003 and $5.5a total amount of $423 million respectively.related to a new plant
(Riverside) currently under development in Wisconsin. At December 31, 2001,
WP&L's future minimum operating lease payments by year arewere as follows (in millions):
Operating
Year Leases
- ---- ----------
2000.......................................................... $ 8.0
2001.......................................................... 7.6
2002.......................................................... 6.2
2003.......................................................... 4.9
2004.......................................................... 4.5
Thereafter.................................................... 25.3
----
$56.5
=====
(4)
2002 2003 2004 2005 2006 Thereafter Total
----- ----- ----- ----- ----- ---------- ------
Certain purchased-power agreements....... $18.3 $51.4 $65.8 $67.2 $68.5 $290.6 $561.8
Financings using special purpose entities 2.7 2.7 2.7 2.7 2.7 15.7 29.2
Other.................................... 3.6 5.8 6.1 6.0 5.6 3.8 30.9
----- ----- ----- ----- ----- ------ ------
$24.6 $59.9 $74.6 $75.9 $76.8 $310.1 $621.9
===== ===== ===== ===== ===== ====== ======
WP&L has various synthetic leases related to the financing of certain utility
railcars and a utility radio dispatch system. Certain financings involve the
use of unconsolidated structured finance or special purpose entities. Based on
the magnitude of the amounts shown in the above table in "Financings using
special purpose entities," WP&L believes these financings are not material to
its liquidity or capital resources.
(3) UTILITY ACCOUNTS RECEIVABLE
Utility customer accounts receivable, including unbilled revenues, arise
primarily from the sale of electricity and natural gas. At December 31, 1999,2001
and 2000, WP&L was serving a diversified base of residential, commercial and
industrial customers and did not have any significant concentrations of credit
risk.
SimilarWP&L participates in a combined accounts receivable financing arrangements exist forsale program whereby IP&L
and WP&L which
sellsmay sell up to a pre-determinedcombined maximum amount of $250 million (there are no
individual limits) of their respective accounts receivable to a third-party
financial institution on a limited recourse basis. Accountsbasis through wholly-owned and
consolidated special purpose entities. Corporate Services acts as a collection
agent for the buyer and receives a fee for collection services that
approximates fair value. The agreement expires in April 2004 and is subject to
annual renewal or renegotiation for a longer period thereafter. Under terms
A-23
of the agreement, the third-party financial institution purchases the
receivables initially for the face amount. On a monthly basis, this sales price
is adjusted, resulting in payments to the third-party financial institution of
an amount that varies based on interest rates and length of time the sold
receivables remain outstanding. Collections on sold receivables are used to
purchase additional receivables from the utility subsidiaries.
At December 31, 2001 and 2000, WP&L had sold $88 million and $89 million of
receivables, respectively. In 2001, 2000 and 1999, WP&L received approximately
$1.1 billion, $0.9 billion and $0.9 billion, respectively, in aggregate
proceeds from the sale of accounts receivable. WP&L uses proceeds from the sale
of accounts receivable sold includeand unbilled revenues to maintain flexibility in its
capital structure, take advantage of favorable short-term rates and finance a
portion of its long-term cash needs. WP&L paid fees associated with these sales
of $4.0 million, $5.0 million and $4.0 million in 2001, 2000 and 1999,
respectively.
WP&L accounts for the sale of accounts receivable to the third-party financial
institution as sales under SFAS 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Retained receivables arising from salesare
available to customersthe third-party financial institution to pay any fees or expenses
due it, and to other
public, municipal and cooperative utilities, as well as from billings
to the co-ownersabsorb all credit losses incurred on any of the jointly-owned electric generating plants
operated by WP&L. The amounts are discounted at the then-prevailing
market rate and additional administrative fees are payable according to
the activity levels undertaken. All billing and collection functions
remain the responsibility of WP&L. Specifics of WP&L's agreement
include (dollars in millions):
Year agreement expires........................................ 2000
Maximum amount of receivables that can be sold................ $ 150
Effective 1999 all-in cost.................................... 5.58%
Average monthly sale of receivables--1999..................... $ 73
--1998..................... $ 83
Receivables sold at December 31, 1999......................... $ 67
For additional information on the accounts receivable programs, refer
to the "Liquidity and Capital Resources--Financing and Capital
Structure" section of MD&A.
(5)receivables.
(4) INCOME TAXES
The components of federal and state income taxes for WP&L for the years
ended December 31 were as follows (in millions):
1999 1998 1997
----- ------- -----
Current tax expense............... $ 58.4 $ 32.2 $38.8
Deferred tax expense.............. (10.7) (5.6) 4.9
Amortization of investment tax credits (1.9) (1.9) (1.9)
---- ---- ----
$ 45.8 $ 24.7 $41.8
====== ======
2001 2000 1999
----- ----- -----
Current tax expense:
Federal............................ $36.8 $44.5 $47.3
State.............................. 11.2 10.5 11.1
Deferred tax benefit:
Federal............................ (4.6) (9.9) (9.4)
State.............................. (0.4) (0.3) (1.3)
Amortization of investment tax credits (1.8) (1.9) (1.9)
----- ----- -----
$41.2 $42.9 $45.8
===== ===== =====
-A-34-
The overall effective income tax rates shown below forin the years ended
December 31following table were
computed by dividing total income tax expense by income before income taxes.
2001 2000 1999 1998 1997
---- ---- ----
Statutory federal income tax rate.........................rate.............. 35.0% 35.0% 35.0%
State income taxes, net of federal benefits...........benefits. 6.4 6.0 6.3 7.8 5.7
Amortization of investment tax credits................credits...... (1.6) (3.1) (1.7)(1.6) (1.6)
Adjustment of prior period taxes......................taxes............ (2.8) (0.8) (0.3) -- (2.1)
Merger expenses....................................... -- 2.5 0.3
Amortization of excess deferred taxes.................taxes....... (1.5) (1.3) (2.5) (1.3)
Other items, net......................................net............................ 0.4 0.2 1.1
1.3 1.1
--- --- ------- ---- ----
Overall effective income tax raterate.............. 35.9% 37.5% 39.2% 41.0% 37.0%
==== ==== ====
The accumulated deferred income taxestax (assets) and liabilities as set
forth belowincluded on the
Consolidated Balance Sheets at December 31 arise from the following temporary
differences (in millions):
1999 1998
---- ----
Property related................................ $ 271.9 $ 282.7
Investment tax credit related................... (21.0) (22.2)
Other........................................... (15.1) (15.0)
----- -----
$ 235.8 $ 245.5
======== ========
(6)
2001 2000
------ ------
Property related...... $217.5 $260.5
Investment tax credits (16.7) (19.7)
Other................. 5.4 (18.0)
------ ------
$206.2 $222.8
====== ======
A-24
(5) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Substantially all of WP&L has a&L's employees are covered by two non-contributory
defined benefit pension plan that covers
substantially all of its employees whoplans. Benefits are subject to a collective
bargaining agreement. Plan benefits are generally based on the employees' years of
service and levels of compensation. Effective in 1998, eligible
employees of WP&L that are not subject to a collective bargaining
agreement are covered by the Alliant Energy Cash Balance Pension Plan,
a non-contributory defined benefit pension plan. The projected unit
credit actuarial cost method was used to compute pension cost and the
accumulated and projected benefit obligations. WP&L's policy is to fund
the pension plan at an amount that is at least equal to the minimum
funding requirements mandated by ERISA, and that does not exceed the
maximum tax deductible amount for the year. WP&L also provides certain other postretirement health care
and life benefits to retirees,
including medical benefits for retireeseligible retirees. In general, the health care plans are
contributory with participants' contributions adjusted regularly and their spouses and, in some
cases, retireethe life
insurance. WP&L's funding policy is generally to
fund tax deductible amounts up to the incurred but unclaimed paid
medical claim reserve and tax deductible amounts (if any) to the
retiree medical account within the Cash Balance Pension Plan.insurance plans are non-contributory.
The weighted-average assumptions as ofat the measurement date of September 30 arewere
as follows:
Other Postretirement
Qualified Pension Benefits Benefits
-------------------------------- ---------------------------------------------------------- -------------------
2001 2000 1999 1998 19972001 2000 1999
1998 1997
-------------------------------- ------------------------------------- ---- ---- ---- ---- ----
Discount rate........................................rate......................... 7.25% 8.00% 7.75% 6.75% 7.25% 8.00% 7.75% 6.75% 7.25%
Expected return on plan assets.......................assets........ 9% 9% 9% 9% 9% 9%
Rate of compensation increase........................increase......... 3.5% 3.5% 3.5-4.5%3.5% 3.5% 3.5% 3.5%
Medical cost trend on covered charges:
Initial trend range..............................rate................. N/A N/A N/A 12% 9% 7% 8% 8%
Ultimate trend range.............................rate................ N/A N/A N/A 5% 5% 5%
-A-35-
The components of WP&L's qualified pension benefits and other postretirement
benefits costs arewere as follows (in millions):
Other Postretirement
Qualified Pension Benefits Other Postretirement Benefits
------------------------------------- ----------------------------------------------------------- -------------------
2001 2000 1999 1998 19972001 2000 1999
1998 1997
------------------------------------- ----------------------------------------- ------- ------- ----- ----- -----
Service cost................................cost..................... $ 2.8 $ 3.0 $ 3.8 $ 3.21.6 $ 4.81.4 $ 1.6
$ 1.7 $ 1.8
Interest cost...............................cost.................... 9.2 8.9 8.5 13.98.9 3.6 3.3 2.7 2.6 3.3
Expected return on plan assets..............assets... (13.7) (12.9) (12.8) (19.2)(12.9) (1.7) (1.6) (1.5) (1.5) (1.1)
Amortization of:
Transition obligation (asset)............. (2.1) (2.1) (2.4)(2.1) 1.2 1.3 1.51.2 1.2
Prior service cost.......................cost............ 0.5 0.4 0.5 0.4 -- -- --
Actuarial loss (gain).................... 0.2......... -- -- 0.2 (0.6) (0.8) (0.9) (1.1) (0.3)
--------- --------
------- ------- ------- -------
Total..............................----- ----- -----
($ 3.3) ($ 2.7) ($ 1.7) $ (1.7)4.1 $ (2.7)3.5 $ (2.5) $ 3.1 $ 3.0 $ 5.2
========= ========
======= ======= ======= ============ ===== =====
During 1998 and 1997, WP&L recognized an additional $0.6 million and
$1.3 million, respectively, of costs in accordance with SFAS 88. The
charges were for severance and early retirement programs in the
respective years. In addition, during 1998 and 1997, WP&L recognized
$3.6 million and $1.7 million, respectively, of curtailment charges
relating to WP&L's other postretirement benefits.
The pension benefit cost shown above (and in the following tables) for
1999 and 1998 represents
only the pension benefit cost for bargaining unit employees of WP&L covered
under the bargaining unit pension plan that is sponsored by WP&L. The benefit
obligations and assets associated with WP&L's non-bargaining employees who are
participants in other Alliant Energy plans are reported in Alliant Energy's
consolidated financial statements and are not reported above. The pension
benefit costincome for WP&L's non-bargaining employees who are now participants in
other Alliant Energy plans was ($1.8)$1.5 million, $1.3 million and $3.0$1.8 million for
2001, 2000 and 1999, and 1998,
respectively, including a special charge of $3.6 million in 1998 for
severance and early retirement window programs.respectively. In addition, Corporate Services provides
services to WP&L. The allocated pension benefit costs associated with these
services was $1.3 million, $1.3 million and $1.2 million for 2001, 2000 and
$0.6 million for
1999, and 1998, respectively. The other postretirement benefit cost shown above for each
period (and in the following tables) represents the other postretirement
benefit cost for all WP&L employees. The allocated other postretirement benefit
cost associated with Corporate Services for WP&L was $0.3 million, $0.3 million
and $0.4 million for 2001, 2000 and $0.2 million for 1999, and 1998, respectively.
The assumed medical trend rates are critical assumptions in determining the
service and interest cost and accumulated postretirement benefit obligation
related to postretirement benefit costs. A one percent change in the medical
trend rates for 1999,2001, holding all other assumptions constant, would have the
following effects (in millions):
1 Percent 1 Percent
Increase Decrease
-----------------------
Effect on total of service and
interest cost components.................... $0.3 ($0.3)
Effect on postretirement benefit obligation.... $1.5 ($1.5)
-A-36-
1 Percent Increase 1 Percent Decrease
------------------ ------------------
Effect on total of service and interest cost components $0.5 ($0.4)
Effect on postretirement benefit obligation............ $4.2 ($3.9)
A-25
A reconciliation of the funded status of WP&L's plans to the amounts recognized
on WP&L's Consolidated Balance Sheets at December 31 is presented belowwas as follows (in
millions):
Other
Qualified Postretirement
Pension Postretirement Benefits Benefits
------------------------ ---------------------------
1999 1998 1999 1998
------------------------ --------------------------
Change in benefit obligation:--------------- ----------------
2001 2000 2001 2000
------ ------ ------- -------
Change in benefit obligation:
Net benefit obligation at beginning of year.......................year................... $115.9 $117.2 $ 132.342.3 $ 205.1 $ 40.3 $ 47.1
Transfer of obligations to other Alliant Energy plans............. -- (91.9)42.4
Service cost.................................................. 2.8 3.0 1.6 1.4
Interest cost................................................. 9.2 8.9 3.6 3.3
Plan participants' contributions.............................. -- -- Service cost...................................................... 3.8 3.2 1.6 1.7
Interest cost..................................................... 8.9 8.5 2.7 2.6
Plan participants' contributions.................................. -- -- 1.2 0.8
Actuarial loss (gain)............................................. (20.8) 12.2 0.8 (9.7)
Curtailments...................................................... -- -- -- 0.7
Special termination benefits...................................... -- 0.6 -- --......................................... 18.3 (6.2) 16.6 (1.3)
Gross benefits paid...............................................paid........................................... (7.0) (5.4) (4.2) (2.9)
---------- -------- ----------(7.0) (5.2) (4.7)
------ ------ ------- -------
Net benefit obligation at end of year.......................... 117.2 132.3 42.4 40.3
---------- -------- ----------year..................... 139.2 115.9 60.5 42.3
------ ------ ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year.................... 137.5 244.4 15.1 16.1
Transfer of assets to other Alliant Energy plans.................. -- (100.2) -- --year................ 156.3 147.6 19.4 17.9
Actual return on plan assets...................................... 17.1 (1.3) 1.8 1.1assets.................................. (10.5) 15.7 (0.5) 1.5
Employer contributions............................................contributions........................................ -- -- 4.0 --2.5 3.5
Plan participants' contributions..................................contributions.............................. -- -- 1.6 1.2 0.8
Gross benefits paid...............................................paid........................................... (7.0) (5.4) (4.2) (2.9)
---------- -------- ----------(7.0) (5.2) (4.7)
------ ------ ------- -------
Fair value of plan assets at end of year....................... 147.6 137.5 17.9 15.1
---------- -------- ----------year.................. 138.8 156.3 17.8 19.4
------ ------ ------- -------
Funded status at end of year.......................................... 30.4 5.2 (24.5) (25.2)year..................................... (0.4) 40.4 (42.7) (22.9)
Unrecognized net actuarial loss (gain)................................ 0.8 26.0 (14.5) (17.0)........................... 34.3 (8.2) 4.4 (15.0)
Unrecognized prior service cost....................................... 4.7 5.1cost.................................. 3.9 4.3 (0.2) (0.2)
Unrecognized net transition obligation (asset)........................ (5.8) (7.9) 14.9 17.2
---------- --------- ----------................... (1.7) (3.7) 12.6 13.8
------ ------ ------- -------
Net amount recognized at end of year...........................year...................... $ 30.136.1 $ 28.432.8 ($ 25.9) ($ 24.3)
($25.2)
---------- --------- ---------- ------====== ====== ======= =======
Amounts recognized on the Consolidated Balance Sheets consist of:
Prepaid benefit cost..............................................cost.......................................... $ 30.136.1 $ 28.432.8 $ 0.61.3 $ 0.40.9
Accrued benefit cost..............................................cost.......................................... -- -- (24.9) (25.6)
---------- --------- ----------(27.2) (25.2)
------ ------ ------- -------
Net amount recognized at measurement date......................... 30.1 28.4date................. 36.1 32.8 (25.9) (24.3)
(25.2)
---------- --------- ---------- ------ ------ ------- -------
Contributions paid after 9/30 and prior to 12/31......................31................. -- -- 1.0 2.1
---------- --------- ----------1.1 0.6
------ ------ ------- -------
Net amount recognized at 12/31....................................31............................ $ 30.136.1 $ 28.432.8 ($23.3) 24.8) ($23.1)
========== ========= ========== 23.7)
====== ====== ======= =======
Alliant Energy sponsors several non-qualified pension plans which cover
certain current and former officers. The pension expense allocated to
WP&L for these plans was $0.8 million, $0.8 million and $0.5 million in
1999, 1998 and 1997, respectively.
WP&L employees also participate in defined contribution pension plans
(401(k) plans) covering substantially all employees. WP&L's
contributions to the plans, which are based on the participants' level
of contribution, were $2.0 million, $2.4 million and $2.8 million in
1999, 1998 and 1997, respectively.
The benefit obligation and fair value of plan assets for the postretirement
welfare plans with benefit obligations in excess of plan assets were $36.5$53.8
million and $8.4 million as of September 30, 1999 and
$33.4 million and $6.2$8.5 million, respectively, as of September 30, 1998.
-A-37-2001 and $37.1
million and $9.5 million, respectively, as of September 30, 2000. For the
various pension and postretirement plans, Alliant Energy common stock
represented less than one percent of total plan investments at December 31,
2001 and 2000.
Alliant Energy sponsors several non-qualified pension plans that cover certain
current and former key employees. The pension expense allocated to WP&L for
these plans was $1.0 million, $1.2 million and $0.8 million in 2001, 2000 and
1999, respectively. At December 31, 2001 and 2000, the funded balances of such
plans did not consist of any Alliant Energy common stock.
WP&L has various life insurance policies that cover certain key employees and
directors. At December 31, 2001 and 2000, the cash surrender value of these
investments was $9 million and $8 million, respectively.
A significant number of WP&L employees also participate in defined contribution
pension plans (401(k) plans). WP&L's contributions to the plans, which are
based on the participants' level of contribution, were $2.1 million, $2.1
million and $2.0 million in 2001, 2000 and 1999, respectively.
A-26
(7)(6) COMMON PREFERRED AND PREFERENCEPREFERRED STOCK
(a) Common Stock
WPStock--WP&L has common stock dividend restrictions based on its respective
bond
indentures and articles of incorporation. WP&L hasincorporation, and restrictions on the payment of
common stock dividends that are commonly found with preferred stock. WP&L's common stock
dividends are restricted to the extent that such dividend would reduce the
common stock equity ratio to less than 25%.25 percent. Also at WP&L, in rate order UR-110, the PSCW ordered that
it must approve the payment of dividends by WP&L to Alliant Energy that are in
excess of the level forecasted in the rate order ($58.3 million), if such
dividends would reduce WP&L's average common equity ratio below 52.00%52 percent of
total capitalization. The dividends paid by WP&L to Alliant Energy since the
rate order was issued have not exceeded the level forecasted in the rate order.
All non-employee directors are eligible to receive a 25% matching
contribution in Alliant Energy common stock for limited cash purchases,
up to $10,000, of Alliant Energy's common stock through Alliant
Energy's Shareowner Direct Plan. Matching contributions of $2,500 each
were made to nine directors in 1999.such level.
(b) Preferred and Preference Stock
TheStock--The carrying value of WP&L's cumulative preferred stock at
December 31, 19992001 and 19982000 was $60 million. The fair market value, based upon
the market yield of similar securities and quoted market prices, at December
31, 19992001 and 19982000 was $49 million and $55$44 million, respectively.
(8)(7) DEBT
(a) Short-Term Debt
WPDebt--WP&L participatesand IP&L participate in a utility money pool, with IESU and IPC thatwhich
is funded, as needed, through the issuance of commercial paper by Alliant
Energy. Interest expense and other fees are allocated based on borrowingborrowed
amounts. The PSCW has restricted WP&L from lending money to non-utility
affiliates and non-Wisconsin utilities. As a result, WP&L is prohibited from lending money to the utility money pool but is able
tocan only borrow money
from the utility money pool. At December 31, 2001 and 2000, WP&L had money pool
borrowings of $90.8 million and $29.2 million, respectively. Information
regarding WP&L's short-term debt isand lines of credit was as follows (dollars in
millions):
2001 2000 1999
1998 1997
-----------------------------------------------
As of year end:----- ----- ------
Commercial paper outstanding...................................... $-- $-- $81.0
Notes payable outstanding......................................... $-- $50.0 $--At year end:
Money pool borrowings.............................................borrowings................................................... $90.8 $29.2 $125.7
$26.8 $--
DiscountInterest rates on commercial paper................................ N/A N/A 5.82-5.90%
Interest rate on notes payable.................................... N/A 5.44% N/A
Interest rate on money pool borrowings............................ 5.84% 5.17% N/Aborrowings................................. 2.4% 6.6% 5.8%
For the year ended:
Average amount of short-term debt (based on daily outstanding balances) $77.1 $48.4 $49.2. $23.8 $25.5 $ 77.1
Average interest raterates on short-term debt.......................... 5.22% 5.55% 5.64%debt............................... 3.7% 6.2% 5.2%
-A-38-
(b) Long-Term DebtDebt--WP&L's First Mortgage Bonds are secured by substantially
all of its utility plant. WP&L also maintains unsecured indentures relating to
the issuance of debt securities. WP&L's debt maturities (excluding periodic sinking fund requirements,
which will not require additional cash expenditures) for 20002002 to 20042006 are $1.9 million,
$0, $0, $0 and $62.0 million, $88.0 million, and $0, respectively. Depending upon
market conditions, it is currently anticipated that a majority of the maturing
debt will be refinanced with the issuance of long-term securities. The carrying
value of WP&L's long-term debt (including variable rate demand bonds) at
December 31, 19992001 and 19982000 was $472 million.$523 million and $569 million, respectively. The
fair market value, based upon the market yield of similar securities and quoted
market prices, at December 31, 19992001 and 19982000 was $469$548 million and $513$584 million,
respectively.
(9)(8) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Information relating to other financial instruments held by WP&L is as
follows (in millions):
December 31, 1999 December 31, 1998
---------------------------------- --------------------------------------
Gross Gross
Carrying Fair Unrealized Carrying Fair Unrealized
Value Value Gains/(Losses) Value Value Gains
---------------------------------- --------------------------------------
Nuclear decommissioning trust funds:
Equity securities................... $ 65 $ 65 $ 45 $ 53 $ 53 $ 27
Debt securities..................... 101 101 (3) 81 81 1
------ ------ ----- ----- ------ --------
Total......................... $ 166 $ 166 $ 42 $ 134 $ 134 $ 28
====== ====== ===== ====== ====== ========
The carrying amount of WP&L's current assets and current liabilities
approximates fair value because of the short maturity of such financial
instruments. As requiredSince WP&L is subject to regulation, any gains or losses related
to the difference between the carrying amount and the fair value of their
financial instruments may not be realized by WP&L's parent. Information
relating to various investments held by Alliant Energy that are
marked-to-market as a result of SFAS 115 WP&L'swere as follows (in millions):
December 31, 2001 December 31, 2000
-------------------- --------------------
Carrying/ Unrealized Carrying/ Unrealized
Fair Gains, Fair Gains,
Value Net of Tax Value Net of Tax
--------- ---------- --------- ----------
Available-for-sale securities:
Nuclear decommissioning trust funds:
Debt securities.................. $122 $ 2 $115 $ 2
Equity securities................ 94 23 81 26
---- --- ---- ---
Total......................... $216 $25 $196 $28
==== === ==== ===
A-27
Nuclear Decommissioning Trust Funds--At December 31, 2001, $77 million, $21
million and $24 million of the debt securities mature in 2002-2010, 2011-2020
and equity security investments in
the nuclear decommissioning trust funds are classified as available for
sale.2021-2049, respectively. The fair market value of the nuclear decommissioning
trust funds iswas as reported by the trustee, adjusted for the tax effect of
unrealized gains and losses. Net unrealized holding gains were recorded as part
of accumulated provision for depreciation. The funds realized gainsgains/(losses)
from the sales of securities of $4.1$2.1 million, $0.8$5.2 million and $0.1($10.4) million
in 1999, 19982001, 2000 and 1997,1999, respectively (cost of the investments based on specific
identification were $86.2was $147.4 million, $57.6$202.1 million and $54.0$94.6 million,
respectively, and proceeds from the sales were $149.5 million, $207.3 million
and $84.2 million, respectively).
SinceInvestment in ATC--WP&L, including South Beloit, transferred its transmission
assets with no gain or loss (approximate net book value of $186 million) to ATC
on January 1, 2001. WP&L is subject
to regulation, any gains or losses related toreceived a tax-free cash distribution of $75 million
from ATC and had a $110 million equity investment in ATC, with an ownership
percentage of approximately 26.5 percent at December 31, 2001. WP&L accounts
for its investment in ATC under the difference between
the carrying amount and the fair value of itsequity method.
Unconsolidated Equity Investments--Summary financial instruments may
not be realized byinformation from WP&L's
parent.
Refer to Note 10 for a discussion of WP&L's derivativeunconsolidated equity investments' financial instruments.
(10)statements is as follows (in
millions):
Ownership Less Than
or Equal to 50%
-------------------
2001 2000 1999
------ ----- ----
Income statement data (for the year ended):
Operating revenues...................... $212.3 $ 5.3 $5.6
Operating income........................ 65.8 1.3 1.3
Net income.............................. 55.9 1.6 3.0
2001 2000
------ -----
Balance sheet data (at December 31):
Current assets.......................... $ 63.3 $19.6
Non-current assets...................... 690.9 29.6
Current liabilities..................... 46.1 34.1
Non-current liabilities................. 10.7 0.7
(9) DERIVATIVE FINANCIAL INSTRUMENTS
Information relating to(a) Accounting for Derivative Instruments and Hedging Activities--WP&L records
derivative financial instruments utilized byat fair value on the balance sheet as assets or
liabilities and changes in the derivatives' fair values in earnings unless
specific hedge accounting criteria are met.
Cash Flow Hedging Instruments--During 2001 and 2000, WP&L isheld derivative
instruments designated as follows:
(a) Interest Rate Swaps
At December 31, 1999,cash flow hedging instruments. WP&L had two interest rate swap agreements
outstanding (both expiring in January 2000), with an aggregate notional
amount of $30 million. The agreements converted variable rate debt into
fixed rate debt. If WP&L had terminated the agreements at December 31,
1999, WP&L would have made an insignificant payment. Settlements on
these swaps occurring during the year were recorded as a component of
interest expense.
(b) Utility Gas Commodities Instruments
WP&L usesutilized gas
commodity swapsfinancial swap arrangements to reduce the impact of price
fluctuations on gas purchased and injected into storage during the summer
months and withdrawn and sold at current market prices during -A-39-
the winter months. The notional amount of gas commodity swaps
outstanding as of December 31, 1999 and 1998 was 1.9 million and
5.8 million dekatherms, respectively. Unrealized gains/losses are
deferred and accounted for as hedges of the fair value of the gas in
storage as the indexed price WP&L pays is highly correlatedmonths
pursuant to the marketnatural gas cost incentive sharing mechanism with customers in
Wisconsin. WP&L also utilized physical coal purchase contracts, which did not
qualify for the normal purchase and sale exception, to manage the price thatof
anticipated coal purchases and sales. For WP&L, will receive from customers underthese contracts are used to
manage costs within the current
rate making structure. If WP&L had terminated all of the agreements
existing at December 31, 1999forecasts used to set its electric rates.
In 2001 and 1998, WP&L would have realized an
estimated gain2000, a net loss of $0.1 million and $0.8a net gain of $0.4 million,
respectively, based on
current NYMEX gas futureswere recognized relating to the amount of hedge ineffectiveness
in accordance with SFAS 133. WP&L did not exclude any components of the
derivative instruments' gain or loss from the assessment of hedge effectiveness
and in 2001 reclassified a loss of $0.9 million into earnings as a result of
the discontinuance of hedges. At December 31, 2001, the maximum length of time
over which WP&L hedged its exposure to the variability in future cash flows for
forecasted transactions was three months and WP&L estimated that gains of $4.1
million will be reclassified from accumulated other comprehensive loss into
earnings in 2002 as the hedged transactions affect earnings. At December 31,
2000, the maximum length of time over which WP&L hedged its exposure to the
variability in future cash flows for forecasted transactions was ten months and
WP&L estimated that losses of $4.7 million would be reclassified from
accumulated other comprehensive loss into earnings in 2001 as the hedged
transactions affected earnings.
A-28
Other Derivatives Not Designated in Hedge Relationships--Alliant Energy's
derivatives that were not designated in hedge relationships during 2001 and/or
2000 included electricity price collars and physical coal contracts adjustednot
designated in hedge relationships. Electricity price collars were used to
manage utility energy costs during supply/demand imbalances. Physical coal
contracts that do not qualify for the proper basis
differential. Settlements of these swaps are recorded as an adjustment
to the cost of gas sold in the period that coincides with the
withdrawalnormal purchase and sale exception were
used to manage the price of anticipated coal purchases and sales. These
contracts are used to manage costs within the hedged gas in storage.
(c)forecasts used to set its
electric rates.
(b) Weather Derivatives
WPDerivatives--WP&L uses weather derivatives to reduce the impact of
weather volatility on its natural gas sales volumes. In September 1998,2001 and 2000, WP&L
entered into a non-exchange traded "weather collar" with a contract
period commencingoptions based on November 1, 1998 and ending on March 31, 1999. The
maximum amount to be paid or received underheating degree days in which
WP&L receives payment from the collar was $5,000,000.
WP&L recognized a gain in "Miscellaneous, net" on this collar of
$2.5 millioncounterparty if actual heating degree days are
less than the strike price in the first quarter of 1999 upon termination ofcontract. WP&L paid premiums to enter into
these contracts, which are amortized to expense over the collar. In August 1999,contract period. WP&L
entered into a non-exchange traded
"weather collar" with a contract period commencing on November 1, 1999
and ending on March 31, 2000. The maximum payment amount is $5,000,000.
Pursuant to the requirements of EITF-99-2, WP&L is accounting for this
instrument usinghas used the intrinsic value method and recognized an
unrealized gain in "Miscellaneous, net" of $2.4 million in the fourth
quarter of 1999.
(d)to account for these weather derivatives.
(c) Nuclear Decommissioning Trust Fund InvestmentsInvestments--Historically, WP&L has
entered into an equity collar that uses writtencombinations of options to mitigate the effect of significant
market fluctuations on its common stock investments in its nuclear
decommissioning trust funds. The program isderivative transactions are designed to
protect the portfolio's value while allowing the funds to earn a total return
modestly in excess of long-term expectations over the two-year hedge period, which expires September
2000. The notional amount of the options was $78 million and
$52 million at December 31, 1999 and 1998, respectively. The options
are reported at fair market value each reporting period. These fairFair value
changes of these instruments do not impact net income as they are recorded as
equally offsetting changes in the investment in nuclear decommissioning trust
funds and accumulated depreciation.
The option liability fair value
exceeded the premium received by $17.8 million and $8.9 million at
December 31, 1999 and December 31, 1998, respectively, as reported by
the trustee.
(11) (10)COMMITMENTS AND CONTINGENCIES
(a) Construction and Acquisition Program
WP&L'sProgram--WP&L currently anticipates 2002
utility construction and acquisition expenditures will be approximately $158
million. During 2003-2006, WP&L currently anticipates to spend approximately
$674 million for the years ended
December 31, 1999 and 1998 were $132 million and $117 million,
respectively. WP&L's anticipatedutility construction and acquisition expenditures for 2000 are estimated to be approximately $143 million,
of which 45% is for electric transmission and distribution, 25% for
electric generation, 15% for information technology and the remaining
15% represents miscellaneous electric, gas, water and general
expenditures. WP&L's construction and acquisition expenditures are
projected to be $166 million in 2001, $181 million in 2002,
$192 million in 2003 and $136 million in 2004, which include
expenditures to comply with NOx emissions reductions as discussed in
"Other Matters--Environmental."
-A-40-
(b) Purchased-Power, Coal and Natural Gas Contracts
CorporateContracts--Alliant Energy, through
its subsidiaries (Corporate Services, IESU, WP&L and IPC), has entered into
purchased-power, capacity contracts
as agent for WP&L, IESUcoal and IPC.natural gas supply, transportation and storage
contracts. Certain purchased-power commitments are considered operating leases
and are therefore not included here, but are included in Note 2. Based on the
System Coordination and Operating Agreement, Alliant Energy annually allocates
purchased-power contracts to the individual utilities. Such process considers
factors such as resource mix, load growth and resource availability. SeeRefer to
Note 1514 for additional information. In addition, Corporate Services has
entered into various coal contracts as agent for WP&L, IESU and IPC.
ContractCoal contract quantities are allocateddirectly
assigned to specific plants at the individual utilities based on various
factors including projected heat input requirements, combustion compatibility
and efficiency. However, in 2000
and 2001,for 2002-2006, system-wide contracts of $24.6$48.1 million
(6.5(7.2 million tons), $50.0 million (7.6 million tons), $31.4 million (3.9
million tons), $22.8 million (2.7 million tons) and $12.5$8.2 million (3.6(0.9 million
tons), respectively, have not yet been allocateddirectly assigned to the individual
utilities due tosince the need for additional
analysisspecific needs of combustion compatibility and efficiency.each utility is not yet known. The
minimum
commitments directly assigned to WP&L are as follows (dollars in
millions, tons in thousands):
Coal
(including
Purchased-Power transportation)
-------------------- --------------------------
Dollars MWHs Dollars Tons
-------------------- --------------------------
2000............ $79.8 1,509 $16.8 5,269
2001............ 59.2 864 14.0 4,557
2002............ 43.9 219 9.8 3,707
2003............ 33.4 219 5.4 2,957
2004............ 25.2 219 5.4 2,957
Corporate Services is in the process of negotiating several new coal
contracts. In addition, it expects to supplement its coal contracts
with spot market purchases to fulfill its future fossil fuel needs.
WP&L also has various natural gas supply, transportation and storage
contracts outstanding. The minimum dekatherm commitments, in millions,
for 2000-2004 are 60.0, 44.9, 42.6, 34.6 and 7.4, respectively. The
minimum dollar commitments for 2000-2004, in millions, are $27.9,
$18.5, $14.6, $12.0 and $1.9, respectively. The gas supply commitments are all index-based. WP&LAlliant Energy expects to
supplement its coal and natural gas supplysupplies with spot market purchases as
needed. (c) Information Technology Services
Alliant Energy has an agreement, expiringThe table includes commitments for "take or pay" contracts which result
in 2004,dollar commitments with EDS for
information technology services.no associated MWhs, tons or Dths. WP&L's anticipated operatingminimum
commitments are as follows (dollars and capital expenditures under the agreement for 2000 are estimatedDths in millions; MWhs and tons in
thousands):
Purchased-power Coal Natural gas
--------------- ------------ ------------
Dollars MWhs Dollars Tons Dollars Dths
------- ---- ------- ---- ------- ----
2002 $36.4 219 $9.8 716 $25.4 2
2003 17.8 219 5.6 -- 21.2 1
2004 6.2 219 5.6 -- 12.9 --
2005 -- -- -- -- 12.7 --
2006 -- -- -- -- 12.3 --
(c) Legal Proceedings--WP&L is involved in legal and administrative proceedings
before various courts and agencies with respect to total approximately $2 million. Future costs under the agreement are
variable and are dependent upon WP&L's level of usage of technological
services from EDS.
(d) Nuclear Insurance Programs
Public liability for nuclear accidents is governed by the Price
Anderson Act of 1988, which sets a statutory limit of $9.5 billion for
liability to the public for a single nuclear power plant incident and
requires nuclear power plant operators to provide financial protection
for this amount. Under the industry-wide plan, each operating licensed
nuclear reactormatters arising in the
U.S. is subjectordinary course of business. Although unable to an assessment inpredict the eventoutcome of a nuclear incident at any nuclear plant in the U.S. These limits are
subject to adjustments for changes in the numberthese
matters, WP&L believes that appropriate reserves have been established and
final disposition of participants and
inflation in future years. WP&L, as a 41% owner of Kewaunee, is subject
to an overall assessment of approximately $36.1 million per incident,these actions will not to exceed $4.1 million payable in any given year.
WP&L is a member of NEIL, which provides $1.8 billion of insurance
coverage for WP&L on certain property losses for property damage,
decontamination and premature decommissioning. The proceeds from such
insurance, however, must first be used for reactor stabilization and
site decontamination before they can be used for plant repair and
premature decommissioning. NEIL also provides separate coverage for
additional expense incurred during certain outages. Owners of nuclear
generating stations insured through NEIL are subject to retroactive
premium adjustments if losses exceed accumulated reserve funds.
-A-41-
NEIL's accumulated reserve funds are currently sufficient to more than
cover its exposure in the event of a single incident under the primary
and excess property damage or additional expense coverages. However,
WP&L could be assessed annually a maximum of $1.1 million for NEIL
primary property, $1.6 million for NEIL excess property and
$0.4 million for NEIL additional expense coverage. WP&L is not aware of
any losses that they believe are likely to result in an assessment.
In the unlikely event of a catastrophic loss at Kewaunee, the amount of
insurance available may not be adequate to cover property damage,
decontamination and premature decommissioning. Uninsured losses, to the
extent not recovered through rates, would be borne by WP&L and could have a material adverse effect on
WP&L'sits financial condition andor results of operations.
(e)A-29
(d) Environmental Liabilities
WPLiabilities--WP&L had recorded the following environmental
liabilities, and regulatory assets associated with certain of these
liabilities, as ofat December 31 (in millions):
1999 1998
----- -----
Environmental liabilities
MGP sites............................................. $7.3 $7.7
NEPA.................................................. 4.1 4.6
Other................................................. 0.1 --
----- -----
$11.5 $12.3
Environmental liabilities 2001 2000
------------------------- ---- ----
MGP sites........ $4.4 $4.5
NEPA............. 3.1 3.6
Other............ -- 0.1
---- ----
$7.5 $8.2
==== ====
Regulatory assets 2001 2000
----------------- ----- -----
MGP sites.... $11.7 $11.7
NEPA......... 4.0 4.4
Other........ 3.0 0.5
----- -----
$18.7 $16.6
===== =====
1999 1998
---- ----
Regulatory assets
MGP sites............................................. $14.2 $14.1
NEPA.................................................. 4.9 5.4
Other................................................. -- --
----- -----
$19.1 $19.5
===== =====
WP&L's significant environmental liabilities are discussed further
below.
Manufactured Gas Plant Sites
WPSites--WP&L has current or previous ownership interests in 14 sites
previously associated with the production of gas for which itthey may be liable
for investigation, remediation and monitoring costs relating to the sites. WP&L
has received letters from state environmental agencies requiring no further
action at five sites. WP&L is working pursuant to the requirements of various
federal and state agencies to investigate, mitigate, prevent and remediate,
where necessary, the environmental impacts to property, including natural
resources, at and around the sites in order to protect public health and the
environment.
WP&L believes that it has
completed the remediation at various sites, although it is still in the
process of obtaining final approval from the applicable environmental
agencies for some of these sites.
WP&L records environmental liabilities based upon periodic studies, most
recently updated in the third quarter of 1999,2001, related to the MGP sites. Such
amounts are based on the best current estimate of the remaining amount to be
incurred for investigation, remediation and monitoring costs for those sites
where the investigation process has been or is substantially completed, and the
minimum of the estimated cost range for those sites where the investigation is
in its earlier stages. It is possible that future cost estimates will be
greater than current estimates as the investigation process proceeds and as
additional facts become known. The amounts recognized as liabilities are
reduced for expenditures made and are adjusted as further information develops
or circumstances change. Costs of future expenditures for environmental
remediation obligations are not discounted to their fair value. Management
currently estimates the range of remaining costs to be incurred for the
investigation, remediation and monitoring of all WP&L&L's sites to be approximately
$6$4 million to $8$5 million.
Under the current rate making treatment approved by the PSCW, the MGP
expenditures of WP&L, net of any insurance proceeds, are deferred and collected
from gas customers over a five-year period after new rates -A-42-
are implemented.
As a result, regulatoryRegulatory assets have been recorded by WP&L, which reflect the probable future
rate recovery, where applicable. Considering the current rate treatment, and
assuming no material change therein, WP&L believes that the clean-up costs
incurred for these MGP sites will not have a material adverse effect on its
respective financial conditions or results of operations.
Settlement has been reached with all of WP&L's insurance carriers regarding
reimbursement for itstheir MGP-related costs and all issues have
been resolved.costs. Insurance recoveries of $2.1 million were available as
ofat
December 31, 1999 and 1998.2001 for WP&L were $2.1 million. Pursuant to its applicable rate
making treatment, WP&L has recorded its recoveries as an offset against its
regulatory assets.
National Energy Policy Act of 1992
NEPA1992--NEPA requires owners of nuclear power
plants to pay a special assessment into a "Uranium Enrichment Decontamination
and Decommissioning Fund." The assessment is based upon prior nuclear fuel
purchases. Alliant EnergyWP&L recovers the costs associated with this assessment over the
period the costs are assessed. WP&L continues to pursue relief from this
assessment through litigation.
(f) Spent Nuclear Fuel
Nuclear Waste Policy Act of 1982 assigned responsibility to the DOE to
establish a facility for the ultimate disposition of high level waste
and spent nuclear fuel and authorized the DOE to enter into contracts
with parties for the disposal of such material beginning in January
1998. WP&L entered into such contracts and has made the agreed payments
to the Nuclear Waste Fund held by the U.S. Treasury. WP&L was
subsequently notified by the DOE that it was not able to begin
acceptance of spent nuclear fuel by the January 31, 1998 deadline.
Furthermore, the DOE has experienced significant delays in its efforts
and material acceptance is now expected to occur no earlier than 2010
with the possibility of further delay being likely. Alliant Energy has
participated in several litigation proceedings against the DOE on this
issue and the respective courts have affirmed the DOE's responsibility
for spent nuclear fuel acceptance. Alliant Energy is evaluating its
options for recovery of damages due to the DOE's delay in accepting
spent nuclear fuel.
The Nuclear Waste Policy Act of 1982 assigns responsibility for interim
storage of spent nuclear fuel to generators of such spent nuclear fuel,
such as WP&L. In accordance with this responsibility, WP&L has been
storing spent nuclear fuel on site at Kewaunee since plant operations
began. With minor modifications planned for 2001, Kewaunee would have
sufficient fuel storage capacity to store all of the fuel it will
generate through the end of the NRC license life in 2013. No decisions
have been made concerning post-shutdown storage needs. Legislation is
being considered on the federal level that would, among other
provisions, expand the DOE's permanent spent nuclear fuel storage to
include interim storage for spent nuclear fuel as early as 2003. This
legislation has been passed in the U.S. Senate and submitted in the
U.S. House. The prospects for the legislation being approved by the
U.S. Senate and the President, and subsequent successful implementation
by the DOE, are uncertain at this time.
(g)A-30
(e) Decommissioning of Kewaunee
PursuantDAEC and Kewaunee--Pursuant to the most recent electric
rate case order,orders, the PSCW allows WP&L to recover $16 million annually for its
share of the cost to decommission Kewaunee. Decommissioning expense is included
in "Depreciation and amortization" in the Consolidated Statements of Income and
the cumulative amount is included in "Accumulated depreciation" on the
Consolidated Balance Sheets to the extent recovered through rates. -A-43-
Additional
information relating to the decommissioning of Kewaunee included in itsthe most
recent electric rate order was as follows (dollars in millions):
Assumptions relating to current rate recovery figures:
Alliant Energy'samounts:
WP&L's share of estimated decommissioning cost $200.8cost..... $224.9
Year dollars in 1999in.................................... 2001
Method to develop estimateestimate......................... Site-specific
study
Annual inflation raterate.............................. 5.83%
Decommissioning methodmethod............................. Prompt
dismantling
and removal
Year decommissioning to commencecommence................... 2013
After-tax return on external investments:
Qualified.Qualified...................................... 5.62%
Non-qualifiedNon-qualified.................................. 6.97%
External trust fund balance at December 31, 1999 $166.2
Internal reserve at December 31, 1999 --2001...... $215.8
After-tax lossesearnings on external trust funds in 1999 ($4.3)2001.... $7.1
WP&L is funding all rate recoveries for decommissioning into external trust
funds and funding on a tax-qualified basis to the extent possible. All of the
rate recovery assumptions are subject to changeand levels will be addressed in future regulatory proceedings.WP&L's 2002 rate
case. In accordance with its respective regulatory requirements, WP&L records
the earnings on the external trust funds as interest income with a
corresponding entry to depreciation expense. The earnings accumulate in the
external trust fund balances and in accumulated depreciation on utility plant.
(h) Legal Proceedings
Alliant Energy is involved in legal and administrative proceedings
before various courts and agencies with respect to matters arising in
the ordinary course of business. Although unable to predict the outcome
of these matters, Alliant Energy believes that appropriate reserves
have been established and final disposition of these actions will not
have a material adverse effect on its financial condition or results of
operations.
-A-44-
(12)(11) JOINTLY-OWNED ELECTRIC UTILITY PLANT
Under joint ownership agreements with other Wisconsin utilities, WP&L has
undivided ownership interests in jointly-owned electric generating stations and related transmission facilities.stations.
Each of the respective owners is responsible for the financing of its portion
of the construction costs. Kilowatt-hourKWh generation and operating expenses are divided on
the same basis as ownership with each owner reflecting its respective costs in
its Consolidated Statements of Income. Information relative to WP&L's ownership
interest in these facilities at December 31, 1999 is2001 was as follows (dollars in
millions):
1999 1998
Plant ------------------------------ -------------------------------
Name-plate Accumulated AccumulatedConstruction
Fuel Ownership In-service MW Plant in Provision for Plant in Provision forWork-In-
Type Interest % Date Capacity Service Depreciation CWIP Service Depreciation CWIP
-------------------------------------- -------------------------------- -------------------------------Progress
------- ---------- -------- ------------- ------------
WP&L
Coal: 1975 &
Columbia Energy Center....Center Coal 46.2 1978 1,023 $163.2 $ 97.8 $ 2.6 $ 161.5 $ 93.8 $$174.3 $105.3 $1.7
Edgewater Unit 4...... Coal 68.2 57.1 34.3 1.4
Edgewater Unit 4.......... 68.2 1969 330 52.7 32.0 0.7 52.4 30.8 0.4
Edgewater Unit 5..........5...... Coal 75.0 1985 380 229.3 92.2 0.6 229.0 85.9 0.2
Nuclear:
Kewaunee..................232.2 106.2 2.5
Kewaunee.............. Nuclear 41.0 1974 535 135.0 100.7 13.6 132.2 93.7 6.4
----- -----167.3 111.3 3.7
------ ------ ----
----- ---- ---
Total WP&L.................. $580.2 $ 322.7 $ 17.5 $ 575.1 $ 304.2 $ 8.4$630.9 $357.1 $9.3
====== ======== ======= ======= ======= ============= ====
(13)Increases in utility plant in service balances for Kewaunee during 2001 were
largely due to the replacement of the steam generators, which is expected to
result in significant increases in generating capability compared to such
capability prior to undertaking such project.
A-31
(12) SEGMENTS OF BUSINESS
WP&L is a regulated domestic utility, serving customers in Wisconsin and
Illinois, withand is broken down into three principal business segments: a) electric operations; b)
gas operations; and c) other, which includes the water operationsbusiness and the
unallocated portions of the utility business. Various line items in the
following tables are not allocated to the electric and gas segments for
management reporting purposes and therefore are included in "Other."
Intersegment revenues were not material to WP&L's operations and there was no
single customer whose revenues exceeded 10%were 10 percent or more of WP&L's consolidated
revenues. Certain financial information relating to WP&L's significant business
segments is presented below:was as follows (in millions):
Electric Gas Other Total
----------------------------------------------------
(in millions)
1999--------- ------ ------- ---------
2001
Operating revenue.....................................................revenues........................... $ 753.5 $206.9 $ 5.0 $ 965.4
Depreciation and amortization................ 111.5 16.4 1.2 129.1
Operating income............................. 121.6 2.5 1.3 125.4
Interest expense, net of AFUDC............... 38.7 38.7
Equity income from unconsolidated investments (15.5) (15.5)
Miscellaneous, net........................... (12.5) (12.5)
Income tax expense........................... 41.2 41.2
Net income................................... 73.5 73.5
Preferred dividends.......................... 3.3 3.3
Earnings available for common stock.......... 70.2 70.2
Total assets................................. 1,323.9 224.5 331.5 1,879.9
Investments in equity method subsidiaries.... 117.3 117.3
Construction and acquisition expenditures.... 127.9 16.8 2.3 147.0
2000
Operating revenues........................... $ 692.2 $165.2 $ 5.0 $ 862.4
Depreciation and amortization................ 122.9 15.9 1.1 139.9
Operating income............................. 123.2 12.2 1.7 137.1
Interest expense, net of AFUDC............... 39.3 39.3
Equity income from unconsolidated investments (0.5) (0.5)
Miscellaneous, net........................... (16.0) (16.0)
Income tax expense........................... 42.9 42.9
Net income................................... 71.4 71.4
Preferred dividends.......................... 3.3 3.3
Earnings available for common stock.......... 68.1 68.1
Total assets................................. 1,344.9 226.1 286.0 1,857.0
Investments in equity method subsidiaries.... 4.8 4.8
Construction and acquisition expenditures.... 114.2 15.1 2.3 131.6
1999
Operating revenues........................... $ 626.6 $ 120.8$120.8 $ 5.1 $ 752.5
Depreciation and amortization expense.................................amortization................ 97.5 14.5 1.0 113.0
Operating income......................................................income............................. 139.3 13.8 1.8 154.9
Interest expense, net of AFUDC........................................AFUDC............... 36.5 36.5
NetEquity income from equity method subsidiaries............................unconsolidated investments (0.7) (0.7)
Miscellaneous, net (other than equity income/loss)....................net........................... 2.5 2.5
Income tax expense....................................................expense........................... 45.8 45.8
Net income............................................................income................................... 70.8 70.8
Preferred and preference dividends....................................dividends.......................... 3.3 3.3
Earnings available for common stock...................................stock.......... 67.5 67.5
Total assets..........................................................assets................................. 1,310.5 200.3 255.3 1,766.1
Investments in equity method subsidiaries.............................subsidiaries.... 5.2 5.2
Construction and acquisition expenditures.............................expenditures.... 111.2 18.2 2.5 131.9
-A-45-A-32
(13) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
Electric Gas Other Total
-------------------------------------------------2001 (a) 2000
--------------------------------- ---------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
(in millions)
1998
Operating revenue................................................. $ 614.7 $ 111.7 $ 5.0 $ 731.4
Depreciation and amortization expense............................. 104.7 13.6 0.9 119.2revenues................. $317.2 $204.1 $228.3 $215.8 $218.8 $193.9 $199.6 $250.1
Operating income.................................................. 87.4 3.6 1.7 92.7
Interest expense, net of AFUDC.................................... 33.5 33.5income................... 37.0 23.4 36.2 28.8 40.5 25.1 36.9 34.6
Net income from equity method subsidiaries........................ (0.8) (0.8)
Miscellaneous, net (other than equity income/loss)................ (0.3) (0.3)
Income tax expense................................................ 24.7 24.7
Net income........................................................ 35.6 35.6
Preferred and preference dividends................................ 3.3 3.3income......................... 19.3 11.6 19.9 22.8 21.9 11.3 17.6 20.6
Earnings available for common stock............................... 32.3 32.3
Total assets...................................................... 1,276.4 195.9 212.9 1,685.2
Investments in equity method subsidiaries......................... 5.2 5.2
Construction and acquisition expenditures......................... 99.6 16.0 1.5 117.1
1997
Operating revenue................................................. $ 634.1 $ 155.9 $ 4.7 $ 794.7
Depreciation and amortization expense............................. 91.2 12.3 0.8 104.3
Operating income (loss)........................................... 125.9 13.7 (0.5) 139.1
Interest expense, net of AFUDC.................................... 29.8 29.8
Net income from equity method subsidiaries........................ (0.4) (0.4)
Miscellaneous, net (other than equity income/loss)................ (3.3) (3.3)
Income tax expense................................................ 41.8 41.8
Net income........................................................ 71.2 71.2
Preferred and preference dividends................................ 3.3 3.3
Earnings available for common stock............................... 67.9 67.9
Total assets...................................................... 1,270.9 193.6 200.1 1,664.6
Investments in equity method subsidiaries......................... 5.7 5.7
Construction and acquisition expenditures......................... 101.3 16.1 1.8 119.2stock 18.4 10.7 19.0 22.0 21.0 10.5 16.8 19.8
(14) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
Quarter Ended
--------------------------------------------
March 31 June 30 September 30 December 31
--------------------------------------------
(in millions)
1999
Operating revenues.................. $203.0 $167.1 $186.8 $195.6
Operating income.................... 46.4 21.9 32.5 54.1
Net income.......................... 26.3 6.9 14.2 23.4
Earnings available for common stock. 25.4 6.1 13.4 22.6
1998*
Operating revenues.................. $202.8 $172.5 $176.1 $180.0
Operating income.................... 33.7 10.8 29.7 18.5
Net income (loss)................... 17.6 (1.2) 12.7 6.5
Earnings available for common stock. 16.8 (2.1) 11.9 5.7
* Earnings for 1998 were impacted by- ----------
(a)Summation of the recording of approximately
$3 million, $11 million, $2 million and $1 million of pre-tax
merger-related expenses in the first, second, third and fourthindividual quarters respectively.
-A-46-
(15)may not equal annual totals due to
rounding.
(14) RELATED PARTY ISSUES
In association with the merger,
IESU, WP&L and IPC have entered into a System Coordination and Operating
Agreement which became effective with
the merger.Agreement. The agreement, which has been approved by FERC, provides a
contractual basis for coordinated planning, construction, operation and
maintenance of the interconnected electric generation and transmission systems
of the three utility companies. In addition, the agreement allows the
interconnected system to be operated as a single entity with off-system
capacity sales and purchases made to market excess system capability or to meet
system capability deficiencies. Such sales and purchases are allocated among
the three utility companies based on procedures included in the agreement. The
sales amounts allocated to WP&L were $32.1 million, $28.6 million and $23.8
million for 2001, 2000 and $23.6 million for 1999, and 1998, respectively. The purchases allocated to WP&L
were $209.2 million, $130.7 million and $101.0 million for 2001, 2000 and $70.0 million for 1999, and 1998,
respectively. The procedures were approved by both the FERC and all state
regulatory bodies having jurisdiction over these sales. Under the agreement,
IESU, WP&L and IPC are fully reimbursed for any generation expense incurred to
support a sale to an affiliate or to a non-affiliate. Any margins on sales to
non-affiliates are distributed to the three utilities in proportion to each
utility's share of electric production at the time of the sale.
Pursuant to a service agreement approved by the SEC under PUHCA, WP&L receivedreceives
various administrative and general services from an affiliate, Corporate
Services. These services are billed to WP&L at cost based on payroll and other
expenses incurred by Corporate Services for the benefit of WP&L. These costs
totaled $107.0 million, $103.4 million and $96.5 million for 2001, 2000 and
$53.9 million
for 1999, and 1998, respectively, and consisted primarily of employee compensation, benefits
and fees associated with various professional services. Corporate Services began operations in May 1998 upon the
consummation of the merger.
At December 31, 19992001
and 1998,2000, WP&L had an intercompany payable to Corporate Services of $24.7$33.5
million and $20.0$30.6 million, respectively.
-A-47-A-33
SHAREOWNER INFORMATION
Market Information
TheInformation--The 4.50% series of preferred stock is listed on the
American Stock Exchange, with the trading symbol of Wis. Pr.WIS_P. All other series of
preferred stock are traded on the over-the-counter market. Seventy-threeSeventy-one percent
of the Company'sWP&L's individual preferred shareowners are Wisconsin residents.
Dividend Information
PreferredInformation--Preferred stock dividends paid per share for each quarter
during 19992001 were as follows:
Series Dividend
- ---------------------------------------------------------
Series Dividend
------ --------
4.40%........................................... $1.10
4.50%........................................... $1.125
4.76%........................................... $1.19
4.80%........................................... $1.20
4.96%........................................... $1.24
6.20%........................................... $1.55
6.50%........................................... $0.40625
As authorized by the Wisconsin Power and Light CompanyWP&L Board of Directors, preferred stock dividend record
and payment dates normallyfor 2002 are as follows:
Record Date Payment Date
- --------------------------------------------------------------
February 29.....................................
Record Date Payment Date
----------- ------------
February 28 March 15
May 31.......................................... June 15
August 31....................................... September 15
November 30..................................... December 15
May 31..... June 15
August 30.. September 14
November 29 December 14
Stock Transfer Agent and Registrar
Alliant Energy Corporation
Shareowner Services
P.O. Box 2568
Madison, WI 53701-2568
Form 10-K Information
AInformation--A copy of Form 10-K as filed with the Securities and Exchange
CommissionSEC will be
provided without charge upon request. Requests may be directed to Shareowner
Services at the above address.
EXECUTIVE OFFICERS
OF WP&L
Erroll B. Davis, Jr., 55,57, was elected Chairman of the Board effective April
2000 and Chief Executive Officer (CEO) effective April 1998. He previously
served as President and Chief Executive
Officer of WP&LCEO since 1988 and has been a board member of WP&L since 1984. Mr. Davis is also an officer of Alliant Energy and IESU.
William D. Harvey, 50,52, was elected President effective April 1998. He
previously served as Senior Vice President since 1993 at WP&L.
Mr. Harvey is also an officer of Alliant Energy and IESU.1993.
Eliot G. Protsch, 46,48, was elected Executive Vice President-Energy Delivery
effective October 1998. He previously served as Senior Vice President from 1993
to 1998 at WP&L. Mr. Protsch is also an officer of
Alliant Energy and IESU.1998.
Barbara J. Swan, 48,50, was elected Executive Vice President and General Counsel
effective October 1998. She previously served as Vice President-General Counsel
from 1994 to 1998 at WP&L. Ms. Swan is also
an officer of Alliant Energy and IESU.1998.
Thomas M. Walker, 52,54, was elected Executive Vice President and Chief Financial
Officer (CFO) effective October 1998. Mr. Walker is also an officer
of Alliant EnergyHe previously served as Executive Vice
President and CFO since 1996 at IES and IESU.
Pamela J. Wegner, 52,54, was elected Executive Vice President-Corporate
ServicesPresident-Shared Solutions
effective October 1998. She previously served as Vice President-Information
Services and Administration from 1994 to 1998 at
WP&L. Ms. Wegner is also an officer of Alliant Energy and IESU.
-A-48-1998.
A-34
Dale R. Sharp, 59,Vern A. Gebhart, 48, was elected Senior Vice President-TransmissionPresident-Customer Operations effective
September 1999.January 2002. He previously served as Senior Vice
President-EngineeringManaging Director-Strategic Projects and
StandardsCapital Control since October2000 at Alliant Energy, Director-Strategic Projects and
Capital Control from 1998 at WP&L and
IESU. He has also served as Vice President-Engineering from 1996 to 1998 and Vice President-Power Production from 1995 to 19962000 at IPC.
Mr. Sharp is also an officer of IESU.
Daniel A. Doyle, 41, was elected Vice President-Chief Accounting and
Financial Planning Officer effective January 2000. He previously served
as Vice President-Manufacturing and Energy Portfolio Services since
October 1998 at WP&L and IESU and Vice President-Fossil Plants since
April 1998 at WP&L. He has also served as Vice President-Power
Production from 1996 to 1998 and Vice President-Finance, Controller and
Treasurer from 1994 to 1996 at WP&L. Mr. Doyle is also an officer of Alliant Energy and IESU.Director-Strategic
Projects and Capital Control from 1997 to 1998 at IES.
Edward M. Gleason, 59,61, was elected Vice President-Treasurer and Corporate
Secretary effective April 1998. He previously served as Controller, Treasurer,
and Corporate Secretary of WP&L since 1996 and
Corporate Secretary of WP&L from 1993 to 1996. Mr. Gleason is also an
officer of Alliant Energy and IESU.
Dundeana K. Langer, 41,Doyle, 43, was elected Vice President-Customer Services
and OperationsPresident-Infrastructure Security
effective September 1999.January 2002. She previously served as Vice President-Customer
Operations since December 2000, Vice President-Customer Services since October 1998. Ms. Langer is also an
officer ofand Operations
from 1999 to 2000, Vice President-Customer Services from 1998 to 1999 and
Assistant Vice President-Field Operations from 1997 to 1998 at IESU.
Daniel L. Mineck, 51,53, was elected Vice President-Performance Engineering and
Environmental effective April 1998. Mr. Mineck is also
an officer of IESU.
David L. Wilson, 53, was elected Vice President-Nuclear effective
September 1999. He previously served as Assistant Vice
President-NuclearPresident-Corporate Engineering since April 1998. Mr. Wilson is also an officer of1996 at IESU.
Kim K. Zuhlke, 46,48, was elected Vice President-Engineering, Sales & Marketing
effective September 1999. He previously served as Vice President-Customer
Operations since April 1998 at WP&L and since
October 1998 at IESU and as Vice President-Customer Services and Sales
from 1993 to 1998 at WP&L. Mr. Zuhlke is also an officer of IESU.
Linda J. Wentzel, 51,1998.
John E. Kratchmer, 39, was elected Assistant Corporate SecretaryController and Chief Accounting
Officer effective May 1998. She previously served as Executive Administrative
Assistant since 1995 at Alliant Energy. Ms. Wentzel is also an officer
of Alliant Energy and IESU.
Enrique Bacalao, 50, was elected Assistant Treasurer effective
November 1998. Prior to joining WP&L, he was Vice President, Corporate
Banking from 1995 to 1998 at the Chicago Branch of The Industrial Bank
of Japan, Limited. Mr. Bacalao is also an officer of Alliant Energy and
IESU.
Steven F. Price, 47, was elected Assistant Treasurer effective
April 1998.October 2000. He previously served as Assistant Corporate SecretaryController
since 1992April 1998 at Alliant Energy and WP&Las Manager of Financial Reporting and
as Assistant Treasurer since 1992Property from 1996 to 1998 at Alliant Energy. Mr. Price is also an officer of IESU.
Robert A. Rusch, 37, was elected Assistant Treasurer effective
April 1998. He previously served as Assistant Treasurer since 1995 at
WP&L. Mr. Rusch is also an officer of IESU.IES.
NOTE:None of the executive officers listed above is related to any member of
the Board of Directors or nominee for director or any other executive officer.
Mr. Davis has an employment agreement with Alliant Energy pursuant to which his
term of office is established. All other executive officers have no definite
terms of office and serve at the pleasure of the Board of Directors.
-A-49-Additional Officers
Linda J. Wentzel, 53, was elected Assistant Corporate Secretary effective May
1998. She previously served as Executive Administrative Assistant since 1995 at
Alliant Energy.
Enrique Bacalao, 52, was elected Assistant Treasurer effective November 1998.
Prior to joining Alliant Energy, he was Vice President, Corporate Banking from
1995 to 1998 at the Chicago Branch of The Industrial Bank of Japan, Limited.
Steven F. Price, 49, was elected Assistant Treasurer effective April 1998. He
previously served as Assistant Corporate Secretary since 1992.
A-35
PROXY CARD
[WISCONSIN POWER & LIGHT LOGO] Shareowners Services
P.O. Box 2568
Madison, WI 53701-2568
SHAREOWNER INFORMATION NUMBERS
Local Madison, WI....1-608-252-3110
All Other Areas......1-800-356-5343
To all
Wisconsin Power and& Light Company shareowners:
Please take a moment to vote your shares for the upcoming Annual
Meeting of Shareowners.
Below is your 2000 Wisconsin Power and Light Company proxy card. Please read
both sides of the proxy card, note your election, sign and date it. Detach and
return it promptly in the self-addressed enclosed envelope. Whether or not you
are attending, we encourage you to vote your shares.
You are invited to attend the Annual Meeting of Shareowners on Wednesday, May
24, 2000 at 1:00 p.m. in the General Office in Room 1A at 222 West Washington
Ave., Madison, Wisconsin.
Please Fold and Detach Proxy Card at Perforation.
- --------------------------------------------------------------------------------
Indicate your vote by an (X) in the appropriate boxes.
ELECTION OF DIRECTORS: For All Withhold For All
For All Except(*)
[ ] [ ] [ ]
Nominees for terms
ending in 2003:
01 Erroll B. Davis, Jr. (*) TO WITHHOLD AUTHORITY TO VOTE FOR ANY
02 Lee Liu INDIVIDUAL NOMINEE, STRIKE A LINE
03 Milton E. Neshek THROUGH THE NOMINEE'S NAME IN THE
04 Robert W. Schultz LIST TO THE LEFT AND MARK AN (X) IN
05 Wayne H. Stoppelmoor THE "For All Except" BOX.
P
R
O
X
Y
Please date and sign your name(s) exactly as shown
above and mail promptly in the enclosed envelope.
_________________________________________________ Important: When signing
Signature DATE as attorney, executor,
_________________________________________________ administrator, trustee, or
guardian, please give your
Signature DATE full title as such. In the
case of JOINT HOLDERS, all
should sign.
[BACK SIDE OF PROXY CARD]
To access the Alliant Energy Annual Report on the Internet please open our site
at WWW.alliant-energy.com. We encourage you to check out our site to see how
easy and convenient it is. Click on the Annual Report button. You may print
or just view this material.
(continued and to be signed and dated on the other side)
********************************************************************************
[Wisconsin Power and Light Logo] P.O. BoxBOX 2568
Madison, WI 53701-2568
WISCONSIN POWER AND LIGHT COMPANY
P.O.PO BOX 2568
MADISON WI 53701-2568
_____________________________________________- --------------------------------------------------------------------------------
ANNUAL MEETING OF SHAREOWNERS - MAY 24, 2000
_____________________________________________22, 2002
- --------------------------------------------------------------------------------
The undersigned appoints William D. Harvey and Edward M. Gleason,F.J. Buri, or either of them,
attorneys and proxies with the power of substitution to vote all shares of stock
of Wisconsin Power and Light Company, held of record in the name of the
undersigned at the close of business on April 5, 2000,March 28, 2002, at the Annual Meeting of
Shareowners of the Company to be held in Room 1A at the General Office, 222 West
Washington Ave.,4902 N. Biltmore Lane, Madison,
Wisconsin on May 24, 200022, 2002 at 1:00 p.m., and at all adjournments thereof, upon
all matters that properly come before the meeting, including the matters
described in the Company's Notice of Annual Meeting of Shareowners dated April
12, 20009, 2002 and accompanying Proxy Statement, subject to any directions indicated on
the reverse side of this card.
This proxy is solicited on behalf of the Board of Directors of Wisconsin Power
and Light Company. This proxy when properly executed will be voted in the manner
directed herein by the shareowner. If no direction is made, the proxyproxies will
vote "FOR" the election of all listed nominess.director nominees.
To access the Alliant Energy Corporation Annual Report and Proxy Statement
on the Internet, please open our site at www.alliantenergy.com. We
encourage you to check out our site to see how easy and convenient it is.
Click on the Annual Report button for the Annual Report/Proxy Statement.
You may print or just view these materials. Your Internet provider may have
usage charges associated with electronic access.
Wisconsin Power & Light Company
Shareowner Services
PO Box 2568
Madison WI 53701-2568
SHAREOWNER INFORMATION NUMBERS
Local Madison, WI1-608-458-3110
All Other Areas 1-800-356-5343
Indicate your vote by an (X) in the appropriate boxes.
ELECTION OF DIRECTORS
Withhold For All
For All For All Except(*)
Nominees for terms ending in 2005: [_] [_] [_]
01 Alan B. Arends
02 Katharine C. Lyall
03 Singleton B. McAllister
04 Anthony R. Weiler
* TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE AND MARK AN (X) IN THE "For All
Except" BOX.
Please date and sign your name(s) exactly as shown above and mail promptly in
the enclosed envelope.
Signature Date
----------------------------- ---------------------------
Signature Date
----------------------------- ---------------------------
Important: When signing as attorney, executor, administrator, trustee or
guardian, please give your full title as such. In the case of JOINT HOLDERS, all
should sign.
Please fold and detach Proxy Card at perforation if appointing a proxy by mail.
- --------------------------------------------------------------------------------
To all Wisconsin Power and Light Company Shareowners:
Please take a moment to vote your shares for the upcoming Annual Meeting of
Shareowners.
Above is your 2002 Wisconsin Power and Light Company proxy card. Please read
both sides of the proxy card, note your election, sign and date it. Detach and
return promptly in the enclosed self-addressed envelope. Whether or not you are
attending, we encourage you to vote your shares.
You are invited to attend the Annual Meeting of Shareowners on Wednesday, May
22, 2002 at 1:00 p.m. at the Alliant Energy Corporate Headquarters in the Nile
Meeting Room at 4902 N. Biltmore Lane, Madison, Wisconsin.