SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )____)
Filed by the Registrant /X/[X]
Filed by a Party other than the Registrant / /[ ]
Check the appropriate box:
/ /[ ] Preliminary Proxy Statement
/ /[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/[X ] Definitive Proxy Statement
/ /[ ] Definitive Additional Materials
/ /[ ] Soliciting Material Pursuant to Section240.14a-11(c) Section 240.14a-11(c)or Section240.14a-12
- --------------------------------------------------------------------------------Section 240.14a-12
WISCONSIN POWER AND LIGHT COMPANY
(Name of Registrant as Specified In Itsin its Charter)
WISCONSIN POWER AND LIGHT
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/[X ] No fee required.
/ /[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(1)(4) and 0-11.
(1) 1)Title of each class of securities to which transaction
applies:
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(2) 2)Aggregate number of securities to which transaction
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(3) 3)Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set(Set forth the
amount on which the filing fee is calculated and state how
it was determined):
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/ /[ ] Fee paid previously with preliminary materials.
/ /[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
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Your Vote is Important
Wisconsin Power and Light Company
Proxy Statement
Notice of 2000 Annual Meeting
and
1999 Annual Report
________________________________________________________________________________
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL MEETING OF SHAREOWNERS
DATE: May 24, 2000
TIME: 1:00 PM, Central Daylight Savings Time
LOCATION: Wisconsin Power and Light Company
Room 1A
222 WEST WASHINGTON AVENUE P.O. BOXWest Washington Avenue
Madison, Wisconsin
________________________________________________________________________________
________________________________________________________________________________
SHAREOWNER INFORMATION NUMBERS
LOCAL CALLS (MADISON, WI AREA)..........608-252-3110
TOLL FREE NUMBER........................800-356-5343
________________________________________________________________________________
Wisconsin Power and Light Company
222 West Washington Avenue
P. O. Box 2568
MADISONMadison, WI 53701-2568
PHONE:
608/252-3110Phone: 608-252-3110
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
JUNE 17, 1998
1:00 P.M.
The Annual Meeting of Shareowners ofAND PROXY STATEMENT
Dear Wisconsin Power and Light Company Shareowner:
On Wednesday, May 24, 2000, Wisconsin Power and Light Company (the
"Company") will be heldhold its 2000 Annual Meeting of Shareowners at the
officesoffice of the Company, 222 West Washington Avenue, Room 1A, Madison,
WI, Room 4A/B on Wednesday, June 17, 1998,Wisconsin. The meeting will begin at 1:00 P.M. (local
time), forp.m. Central Daylight Savings
Time.
Only the following purposes:
(1) To elect (a)sole common stock shareowner, Alliant Energy Corporation, and
preferred shareowners who owned stock at the close of business on
April 5, 2000 can 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 five directors for terms expiring at the 20012003 Annual
Meeting of Shareowners, (b) three directors for terms expiring at the
2000 Annual Meeting of Shareowners,Shareowners; and
(c) three directors for terms
expiring at the 1999 Annual Meeting of Shareowners.
(2) To consider and act upon2. Attend to any other business that may properly come
beforepresented at the
meeting.
The Board of Directors of the Company presently knows of no other
business to come before the meeting.
OnlyPlease sign and return the sole commonenclosed 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 1999 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 Interstatewho desires
to receive a copy of the Alliant Energy Corporation (formerly WPL
Holdings, Inc.), and preferred shareowners1999 Annual Report
to Shareowners may do so by calling the Shareowner Services Department
at the Shareowner Information Number shown at the front of record on the books ofthis proxy
statement or writing to the Company at the close of business on May 11, 1998 are entitled to vote at the meeting.
PLEASE SIGN AND RETURN YOUR PROXY IMMEDIATELY. IF YOU ATTEND THE MEETING,
YOU MAY WITHDRAW YOUR PROXY AT THE REGISTRATION DESK AND VOTE IN PERSON. ALL
SHAREOWNERS ARE URGED TO RETURN THEIR PROXIES PROMPTLY.
In the past, the Company has held its annual meeting in conjunction with the
annual meeting of its parent, Interstate Energy Corporation. Beginning this
year, the Company is holding its annual meeting separate from its parent. The
annual meeting of the Company is intended only as a business meeting and will
not involve presentations or refreshments.
THE 1997 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 COST, ALTHOUGH THE ANNUAL REPORT DOES NOT CONSTITUTE A PART OF THE
PROXY STATEMENT.
For information purposes only, you will receive under separate cover a copy
of the Interstate Energy Corporation 1997 Annual Report to Shareowners. That
document is sent to you in order that shareowners of the Company may be kept
up-to-date on activities of Interstate Energy Corporation. However, the
Interstate Energy Corporation Annual Report is not intended to be used in
conjunction with the solicitation of proxies with respect to the Company.address above.
By Order of the Board of Directors,
[SIG]
EDWARD/s/ Edward M. GLEASON
VICE PRESIDENT--TREASURER
AND CORPORATE SECRETARY
Madison, Wisconsin
May 27, 1998Gleason
---------------------
Edward M. Gleason
Vice President--Treasurer and
Corporate Secretary
Dated and mailed on or about April 12, 2000
WISCONSIN POWER AND LIGHT COMPANY
222 WEST WASHINGTON AVENUE P.O. BOX 2568 MADISON WI 53701-2568 PHONE:
608/252-3110
May 27, 1998
PROXY STATEMENT RELATING TO
1998 ANNUAL MEETINGTABLE OF SHAREOWNERS
The purposesCONTENTS
Questions and Answers.............................................. 3
Election of Directors.............................................. 6
Nominees........................................................ 6
Continuing Directors............................................ 8
Meetings and Committees of the meetingBoard............................... 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...... A-1
-2-
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. As a shareowner, you are set forthinvited 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. The other first tier subsidiaries
of AEC include IES Utilities Inc. ("IES"), Interstate Power
Company ("IPC") and Alliant Energy Resources, Inc. ("AER").
3. Q: Who is entitled to vote at the Annual Meeting?
A: Only shareowners of record at the close of business on
April 5, 2000 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 of 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 five nominees to serve on
the Company's Board of Directors for terms expiring at the
Annual Meeting of Shareowners in the accompanying notice. The
enclosed proxy relating to the meeting is solicited on behalf ofyear 2003.
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 nominees.
6. Q: How can I vote my shares?
A: You may vote either in person at the Annual Meeting or by
granting a proxy. If you desire to grant a proxy, then sign
and date each proxy card you receive and return it in the
envelope provided.
-3-
7. Q: How are votes counted?
A: In the election of directors, you may vote FOR all of the
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 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 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 granted proxy to be revoked unless you
specifically so request.
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.
10 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 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 Number shown at the front of this
proxy statement.
11. Q: Who may attend the Annual Meeting and how do I get a ticket?
A: All shareowners who owned shares of the Company's common and
preferred stock on April 5, 2000 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 does not know of any business to be
considered at the 2000 Annual Meeting other than the
election of five 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, the Company's Vice
President-Treasurer and Corporate Secretary, to vote on such
matters at their discretion.
-4-
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 2000 to be
filed with the Securities and Exchange Commission.
14. Q: When are shareowner proposals for the 2001 Annual Meeting
due?
A: All shareowner proposals to be considered for inclusion in
the Company's proxy statement for the 2001 Annual Meeting
must be received at the principal office of the Company by
December 13, 2000. In addition, any shareowner who intends
to present a proposal from the floor at the 2001 Annual
Meeting must submit the proposal in writing to the Corporate
Secretary of the Company no later than February 26, 2001.
15. Q: Who are the Independent Auditors of the Company and how are
they elected?
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.
Representatives of Arthur Andersen LLP are not expected to
be present at the meeting.
16. Q: Who will bear the cost of such solicitationsoliciting votes for the Annual
Meeting?
A: The Company will be borne bypay the Company. Followingcost of preparing, assembling,
printing, mailing and distributing these proxy materials. In
addition to the originalmailing of these proxy materials, the
solicitation of proxies or votes may be made in person, by
mail, beginning ontelephone or about May 27, 1998, certain ofby electronic communication by the Company's
officers and regular employees of the Company
may solicit proxies by telephone, telegraph or in person, but without extra
compensation.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 materialmaterials to their principals.
On April 21, 1998, the merger involving IES Industries Inc. ("IES
Industries") (the former parent of IES Utilities Inc. ("IES")), Interstate Power
Company ("IPC") and WPL Holdings, Inc. was completed (the "Merger"), after which
the name17. Q: How can I obtain a copy of the Company's parent changed from WPL Holdings, Inc. to Interstate
Energy Corporation ("IEC").Annual Report on
Form 10-K?
A: The Company remainswill furnish without charge, to each shareowner
who is entitled to vote at the Annual Meeting and who makes
a subsidiarywritten request, a copy of IEC.
THE COMPANY WILL FURNISH WITHOUT CHARGE, TO EACH SHAREOWNER WHO IS ENTITLED
TO VOTE AT THE MEETING AND WHO MAKES A WRITTEN REQUEST, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORMthe Company's Annual Report on
Form 10-K (NOT INCLUDING EXHIBITS THERETO), AS FILED PURSUANT
TO THE SECURITIES EXCHANGE ACT OF 1934. WRITTEN REQUESTS FOR THE FORM(without exhibits) as filed with the Securities
and Exchange Commission. Written requests for the Form 10-K
SHOULD BE MAILED TO THE CORPORATE SECRETARY AT THE ADDRESS STATED ABOVE.should be mailed to the Corporate Secretary of the Company
at the address on the first page of this proxy statement.
-5-
ELECTION OF DIRECTORS
ElevenFive directors are towill be elected atthis year for terms expiring in 2003.
The nominees for election as selected by the Nominating and Governance
Committee of the Company's Annual MeetingBoard of Shareowners scheduled to be held on June 17, 1998. Joyce L. Hanes, Arnold M.
Nemirow, Jack R. Newman, Judith D. Pyle and David Q. Reed are nominees to hold
office for a term expiring in 2001;Directors are: Erroll B. Davis,
Jr., Lee Liu, Milton E. Neshek, Robert W. Schlutz and Wayne H.
Stoppelmoor are nominees to hold office for a term expiring in 2000; and Alan B.
Arends, Robert D. Ray and Anthony R. Weiler are nominees to hold office for a
term expiring in 1999. All nominees are currently directorsStoppelmoor. Each of the Companynominees is currently serving as well as directorsa director of
IEC, IES and IPC. All personsthe Company. Each person elected as directorsdirector will serve until the
Annual Meeting of Shareowners of the Company in the year their
respective term expires,2003 or until
their successors havehis 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 due to abstentions, broker non-votes 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 that any of the nominees shall be 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, 1997)1999),
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.
1
NOMINEES
FOR TERMS EXPIRING IN 2001
JOYCE L. HANES
Principal Occupation: Director and Chairman of Midwest Wholesale Inc.
Age: 65
Served as a director of the Company since the consummation of the
Merger.
[PHOTO]
Annual Meeting at which nominated term of office will expire: 2001
OTHER INFORMATION: Ms. Hanes[PHOTO] ERROLL B. DAVIS, JR. Director Since 1984
Age 55 Nominated Term to Expire in 2003
Mr. Davis has been a director of Midwest Wholesale Inc.,
Mason City, Iowa since 1970. She was re-elected Chairman of the Board of that
company in December 1997, having previously served as Chairman from 1986 to
1988. Ms. Hanes has served as a director of IPC since 1982, and of IES and IEC
since the consummation of the Merger.
ARNOLD M. NEMIROW
Principal Occupation: Chairman, President and Chief Executive
Officer, Bowater, Inc. (a pulp and paper manufacturer), Greenville,
South Carolina.
Age: 54
[PHOTO]
Served as a director of the Company since 1994.
Annual Meeting at which nominated term of office will expire: 2001
OTHER INFORMATION: Mr. Nemirow served as President, Chief Executive Officer and
Director of Wausau Paper Mills Company, a pulp and paper manufacturer, from 1990
until joining Bowater, Inc., in September 1994. Mr. Nemirow has served as a
director of IEC since 1991, and of IES and IPC since the consummation of the
Merger. He is a member of the New York Bar.
JACK R. NEWMAN
Principal Occupation: Partner of Morgan, Lewis & Bockius, an
international law firm based in Washington, D.C.
Age: 64
[PHOTO]
Served as a director of the Company since the consummation of the
Merger.
Annual Meeting at which nominated term of office will expire: 2001
OTHER INFORMATION: Mr. Newman has been engaged in private practice since 1967
and has been a partner of Morgan, Lewis & Bockius since December 1, 1994. Prior
to joining Morgan, Lewis & Bockius, he was a partner in the law firms Newman &
Holtzinger and Newman, Bouknight & Edgar. He has served as nuclear legal counsel
to IES since 1968. He advises a number of utility companies on nuclear power
2
matters, including many European and Asian companies. Mr. Newman is a member of
the Bar of the State of New York, the Bar Association of the District of
Columbia, the Association of the Bar of the City of New York, the Federal Bar
Association and the Lawyers Committee of the Edison Electric Institute. Mr.
Newman has served as a director of IES since 1994, and of IEC and IPC since the
consummation of the Merger.
JUDITH D. PYLE
Principal Occupation: Vice Chair of The Pyle Group, a financial
services company, Madison, Wisconsin.
Age: 54
[PHOTO]
Served as a director of the Company since 1994.
Annual Meeting at which nominated term of office will expire: 2001
OTHER INFORMATION: Prior to assuming her current position, Ms. Pyle served as
Vice Chair and Senior Vice President of Corporate Marketing of Rayovac
Corporation (a battery and lighting products manufacturer), Madison, Wisconsin.
Ms. Pyle is a director of Firstar Corporation. She is also a member of the Board
of Visitors at the University of Wisconsin School of Human Ecology. Further, Ms.
Pyle is a member of Boards of Directors of the United Way Foundation, Greater
Madison Chamber of Commerce, Madison Art Center, Wisconsin Taxpayers Alliance
and the Children's Theatre of Madison, and is a trustee of the White House
Endowment Fund. Ms. Pyle has served as a director of IECAEC since 1992, and of IES
and IPC since the consummation of the Merger.
DAVID Q. REED
Principal Occupation: Independent practitioner of law in Kansas City,
Missouri.
Age: 66
Served as a director of the Company since the consummation of the
Merger.
[PHOTO]
Annual Meeting at which nominated term of office will expire: 2001
OTHER INFORMATION: Mr. Reed has been engaged in the private practice of law
since 1960. He is a member of the American Bar Association, the Association of
Trial Lawyers of America, the Missouri Association of Trial Lawyers, the
Missouri Bar and the Kansas City Metropolitan Bar Association. Mr. Reed has
served as a director of IES (or predecessor companies) since 1967, and of IEC
and IPC since the consummation of the Merger.
3
FOR TERMS EXPIRING IN 2000
LEE LIU
Principal Occupation: Chairman of the Board of IEC.
Age: 64
Served as a director of the Company since the consummation of the
Merger.
[PHOTO]
Annual Meeting at which current term of office will expire: 2000
OTHER INFORMATION: Mr. Liu has served as Chairman of the Board of IEC since the
consummation of the Merger. Mr. Liu 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. Mr. Liu has 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 HON Industries Inc., an office equipment manufacturer in Muscatine,
Iowa; McLeodUSA Inc., a telecommunications company in Cedar Rapids, Iowa;
Principal Financial Group, an insurance company in Des Moines, Iowa; and Eastman
Chemical Company, a diversified chemical company in Kingsport, Tennessee. He
also serves as a trustee for Mercy Medical Center, a hospital in Cedar Rapids,
Iowa and is a member of the University of Iowa College of Business Board of
Visitors. Mr. Liu has served as a director of IES (or predecessor companies)
since 1981, and of IEC and IPC since the consummation of the Merger.
ROBERT W. SCHLUTZ
Principal Occupation: President of Schlutz Enterprises, a diversified
farming and retailing business in Columbus Junction, Iowa.
Age: 62
[PHOTO]
Served as a director of the Company since the consummation of the
Merger.
Annual Meeting at which current term of office will expire: 2000
OTHER INFORMATION: Mr. Schlutz is a director of PM Agri-Nutritional Group Inc.,
an animal health business in St. Louis, Missouri, and the Iowa Foundation for
Agricultural Advancement. Mr. Schlutz is President of the Iowa State Fair Board
and member of various community organizations. He also served on the National
Advisory Council for the Kentucky Fried Chicken Corporation. He is a past
Chairman of the Environmental Protection Commission for the State of Iowa. Mr.
Schlutz has served as a director of IES (or predecessor companies) since 1989,
and of IEC and IPC since the consummation of the Merger.
4
WAYNE H. STOPPELMOOR
Principal Occupation: Vice Chairman of the Board of IEC.
Age: 63
Served as a director of the Company since the consummation of the
Merger.
[PHOTO]
Annual Meeting at which current term of office will expire: 2000
OTHER INFORMATION: Mr. Stoppelmoor has served as Vice Chairman of the Board of
Directors of IEC since the consummation of the Merger. Prior thereto, Mr.
Stoppelmoor had served as 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 IEC and IES since the consummation of the Merger.
FOR TERMS EXPIRING IN 1999
ALAN B. ARENDS
Principal Occupation: 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.
[PHOTO]
Age: 64
Served as a director of the Company since the consummation of the
Merger.
Annual Meeting at which current term of office will expire: 1999
OTHER INFORMATION: Mr. Arends founded Alliance Benefit Group Financial Services
Corp. in 1983. Mr. Arends has served as a director of IPC since 1993, and of IEC
and IES since the consummation of the Merger.
ROBERT D. RAY
Principal Occupation: Retired President and Chief Executive Officer
of IASD Health Services Inc. (formerly Blue Cross and Blue Shield
of Iowa, Western Iowa and South Dakota), an insurance firm in Des
Moines, Iowa.
[PHOTO]
Age: 69
Served as a director of the Company since the consummation of the
Merger.
Annual Meeting at which current term of office will expire: 1999
OTHER INFORMATION: Mr. Ray served as Governor of the State of Iowa for fourteen
years, and was the United States Delegate to the United Nations in 1984. He is a
director of the Maytag Company, an appliance manufacturer in Newton, Iowa. He
also serves as Chairman of the National Leadership Commission on Health Care
Reform and the National Advisory Committee on Rural Health Care. Mr. Ray is
Chairman of the Board of Governors, Drake University, Des Moines, Iowa, and a
member of the Iowa Business
5
Council. Mr. Ray has served as a director of IES (or predecessor companies)
since 1987, and of IEC and IPC since the consummation of the Merger.
ANTHONY R. WEILER
Principal Occupation: Senior Vice President, Merchandising, for
Heilig-Meyers Company, a national furniture retailer in Richmond,
Virginia.
Age: 61
[PHOTO]
Served as a director of the Company since the consummation of the
Merger.
Annual Meeting at which current term of office will expire: 1999
OTHER INFORMATION: Mr. Weiler was previously Chairman and Chief Executive
Officer of Chittenden & Eastman Company, a national manufacturer of mattresses
in Burlington, Iowa. He was employed by Chittenden & Eastman in various
management positions from 1960 to 1995. Mr. Weiler joined Heilig-Meyers Company
as Senior Vice President of Merchandising in 1995. Mr. Weiler is Chairman of the
National Home Furnishings Association and a director of the Retail Home
Furnishings Foundation. He is a trustee of NHFA Insurance and a past director of
the Burlington Area Development Corporation, the Burlington Area Chamber of
Commerce and various community organizations. Mr. Weiler has served as a
director of IES (or predecessor companies) since 1991, and of IEC and IPC since
the consummation of the Merger.
THE BOARD OF DIRECTORS RECOMMENDS THE FOREGOING NOMINEES FOR ELECTION AS
DIRECTORS AND URGES EACH SHAREOWNER TO VOTE "FOR" ALL NOMINEES. SHARES OF COMMON
STOCK REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" ALL
NOMINEES.
6
CONTINUING DIRECTORS
ERROLL B. DAVIS,
JR.
Principal Occupation: President and Chief Executive Officer of IEC.
Age: 53
Served as a director of the Company since 1984.
[PHOTO]
Annual Meeting at which current term of office will expire: 2000
OTHER INFORMATION: Mr. Davis was elected President of IEC in January 1990
and was elected President and Chief Executive Officer
of IEC effectiveAEC in July 1, 1990. Mr. Davis joined the Company in
August 1978 and was elected President in July 1987. 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, IPC and IPCAER since
the consummation of the Merger.1998. He is a director of the Edison Electric
Institute, Amoco Oil Company, Competitive Wisconsin, Inc., PPG Industries, Inc.,
and the Wisconsin Utilities Association. Mr. Davis is also a director and past
chair of the Wisconsin Association of Manufacturers and Commerce, former
director and vice chair of Forward Wisconsin, director and acting chair of the
Electric Power Research Institute, and past director of the Association of
Edison Illuminating Companies and the American Gas Association. Mr. Davis is
also a member of the Iowa Business Council.Boards of Directors of
BP Amoco p.l.c., PPG Industries, Inc. and the Edison
Electric Institute. Mr. Davis has served as a director
of IECAEC since 1982, of AER since 1988 and of IES and IPC
since the consummation1998.
-6-
[PHOTO] LEE LIU Director Since 1998
Age 66 Nominated Term to Expire in 2003
Mr. Liu has served as Chairman of the Merger.
ROCKNE G. FLOWERS
Principal Occupation: Chief Executive Officer of Nelson Industries,
Inc. (a muffler, filter, industrial silencer, and active sound and
vibration control technology and manufacturing firm), Stoughton,
Wisconsin (a subsidiary of Cummins Engine Company).
[PHOTO]
Age: 66
Served as a director of the Company from 1979 to 1990 and since 1994.
Annual Meeting at which current term of office will expire: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 IES (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 to 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
member 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.
-7-
[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.
[PHOTO] JACK B. EVANS Director Since 2000
Age 51 Term Expires in 2001
Mr. Evans is a director 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
OTHER INFORMATION: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
Digisonix, Inc.; American Family Mutual Insurance Company;Company, Janesville
Sand and Gravel Company;Company and M&I Bank of Southern
Wisconsin; Meriter Health Services, Inc.; Meriter Hospital; the
Wisconsin History Foundation; and University Research Park. Mr. FlowersWisconsin. He has served as a director of IECAEC since
1981, of AER since 1990 and of IES and IPC since the
consummation1998.
[PHOTO] JOYCE L. HANES Director Since 1998
Age 67 Term Expires in 2001
Ms. Hanes has been a director of Midwest Wholesale
Inc., a products wholesaler in Mason City, Iowa, since
1970 and Chairman of the Merger.
7
KATHARINE C.
LYALL
Principal Occupation: President, University of Wisconsin System,
Madison, Wisconsin.
Age: 56
[PHOTO]
Served as a director of the Company since 1986.
Annual Meeting at which current term of office will expire: 1999
OTHER INFORMATION: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 IPC since 1982
and of AEC, IES and AER since 1998.
[PHOTO] KATHARINE C. LYALL Director Since 1986
Age 58 Term Expires in 2002
Ms. Lyall has served asis President of the University of Wisconsin
System since April 1992. Prior thereto, she served as Executive Vice
President of the University of Wisconsin System.in Madison, Wisconsin. She also serves on the BoardBoards
of Directors of the Kemper National Insurance
Companies, M&I Corporation and the Carnegie Foundation
for the Advancement of Teaching. She is a member of a variety of professional
and community organizations, including the American Economic Association;
Carnegie Foundation for Advancement of Teaching (President, Board of Trustees);
the Wisconsin Academy of Sciences, Arts and Letters; the American Red Cross
(Dane County); Competitive Wisconsin, Inc.; and Forward Wisconsin. In addition to her
administrative position, she is a professor of
economics at the University of Wisconsin-Madison.
Ms. Lyall has served as a director of IECAEC since 1994,
of AER since 1994 and of IES and IPC since the consummation1998.
[PHOTO] ARNOLD M. NEMIROW Director Since 1994
Age 56 Term Expires in 2001
Mr. Nemirow is Chairman, President and Chief Executive
Officer of the Merger.
MILTON E. NESHEK
Principal Occupation: Special Consultant to the Kikkoman Corporation,
Tokyo, Japan, and General Counsel, Secretary and Manager, New
Market Development, Kikkoman Foods, Inc. (a food products
manufacturer), Walworth, Wisconsin.
[PHOTO]
Age: 67
Served as a director of the Company since 1984.
Annual Meeting at which current term of office will expire: 2000
OTHER INFORMATION: Mr. Neshek isBowater Incorporated, a director of Kikkoman Foods, Inc.; Midwest
U.S.-Japan Association; Regional Transportation Authority (for southeast
Wisconsin);pulp and Wisconsin-Chiba, Inc.paper
manufacturer, located in Greenville, South Carolina. He
is a fellowjoined Bowater Incorporated in the American College of
Probate Counsel. Mr. Neshek1994 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 Walworth County Bar Association,
the State Bar of Wisconsin, and the American Judicature Society.New York Bar. Mr. Neshek is
also a member of the Wisconsin Sesquicentennial Commission and a member of its
Executive and Finance Committee. Mr. Neshek is a member of the Wisconsin
International Trade Council (WITCO) and is Chairman of the WITCO International
Education Task Force. Mr. NeshekNemirow
has served as a director of IECAEC and AER since 1986,1991 and
of IES and IPC since the consummation1998.
-9-
[PHOTO] JUDITH D. PYLE Director Since 1994
Age 56 Term Expires in 2001
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 IPC since 1998.
[PHOTO] ANTHONY R. WEILER Director Since 1998
Age 63 Term Expires in 2002
In February 2000, Mr. Weiler accepted positions as a
consultant with Pinnacle Marketing 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, 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 Merger.Retail Home
Furnishings Foundation. Mr. Weiler has served as a
director of IES (or predecessor companies) since 1979
and of AEC, IPC and AER since 1998.
We regret that David Q. Reed, a director of IES since 1967 and of the
Company since 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 ending 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 Relations with the Nuclear
Management Company, of which AEC is a member, effective December 10,
1999. Mr. Newman resigned from his position as a director of the
Company, 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-
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, Compensation and Personnel, and Nominating and Governance
Committees. Information regardingCommittees, each of the committeeswhich is set forth below.
8
AUDIT COMMITTEE
Aschaired 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
January 1, 1997, the committee consistedeach of L. David Carley, R. G.
Flowers, Donald. R. Haldeman, and K. C. Lyall (Chair). Messrs. Carley and
Haldeman retired as directors upon consummation of the Merger.these committees:
Audit Committee
The committeeAudit Committee held two meetings in 1997. Since the effective date of the Merger, the committee
has consisted1999. This Committee currently
consists of J. L. Hanes (Chair), J. B. Evans, K. C. Lyall, M. E. Neshek
D. Q. Reed and R. W. Schlutz. The committeeAudit 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 Audit Committee considers
appropriate.
COMPENSATION AND PERSONNEL COMMITTEE
As of January 1, 1997, the committee consisted of A. M. Nemirow (Chair), M.
E. Neshek, Henry. C. Prange, J. D. Pyle,Compensation and Carol. T. Toussaint. Mr. PrangePersonnel Committee
The Compensation and Mrs. Toussaint retired as directors upon consummation of the Merger. The
committeePersonnel Committee held twothree meetings in 1997. Since the effective date of the Merger, the
committee has consisted1999.
This Committee currently consists of A. M. Nemirow (Chair), A. B.
Arends, J. R. Newman, J.
D. Pyle and A. R. Weiler. The committeeThis 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, if any;contracts; and reviews human
resource development programs.
NOMINATING AND GOVERNANCE COMMITTEE
As of January 1, 1997, the committee consisted of L. D. Carley (Chair), R.
G. Flowers, K. C. Lyall, A. M. Nemirow, H. C. Prange,Nominating and J. D. Pyle.Governance Committee
The committeeNominating and Governance Committee held fourthree meetings in 1997. Since the effective date of the Merger,
the committee has consisted1999.
The Nominating and Governance Committee currently consists of R. G.
Flowers (Chair), A. B. Arends, J. D. Pyle, R. D. Ray and A. R. Weiler.
The committee'sThis Committee's responsibilities include recommending and nominating
new members of the Board,Board; recommending committee assignments and
committee chairpersons,chairpersons; evaluating overall Board effectiveness,effectiveness;
preparing an annual report on CEO effectiveness,Chief Executive Officer effectiveness;
and considering and developing recommendations to the Board of
Directors on other corporate governance issues. In making
recommendations of nominees for election to the Board, the committeeNominating
and Governance Committee will consider nominees recommended by
shareowners. Any shareowner wishing to make a recommendation should
write to the Chief Executive OfficerCorporate Secretary of the Company, who will forward all
recommendations to the committee.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. The Board of Directors held sevensix meetings
during 1997. Only one director
(Mr. Nemirow)1999. All directors attended less than 75%at least 78% 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-
COMPENSATION OF DIRECTORS
No retainer fees are paid to directors who are officers of the Company, its parent,
IEC, or any of IEC's subsidiaries (presently Mr.Messrs. Davis, Mr. Liu and Mr.
Stoppelmoor). Non-managementStoppelmoor for
their service on the Company's Board of Directors. In 1999, all other
directors (the "non-employee directors"), each of whom serve on the
Boards of the Company, IEC, IES, IPC, WP&L and Alliant Industries, Inc. (the holding company for
substantially all non-regulated subsidiaries of IEC ("Alliant Industries")),
receiveAER, received an annual
retainer of $32,800 for service on all five boards.Boards. Travel expenses are
paid for each meeting-daymeeting day attended. All non-managementnon-employee directors were
also eligible to receive a 25%25 percent matching contribution in IECAEC
common stock for limited optional cash purchases, up to $10,000, of
IEC'sAEC's common stock through IEC'sAEC's Shareowner Direct Plan. Matching
contributions of $2,500 each for calendar year 19971999 were made for the
following directors: L. D.
9
Carley,A. B. Arends, R. G. Flowers, D. R. Haldeman,J. L. Hanes,
K. C. Lyall, A. M. Nemirow, M. E. Neshek, H. C. Prange, J. D. Pyle, R. D. Ray and
C. T. Toussaint.
DIRECTOR'S CHARITABLE AWARD PROGRAM--AR. W. Schlutz. Beginning in 2000, the annual retainer for each
non-employee director has been increased to $45,000 for service on all
five Boards. Of that amount, $25,000 will be paid in cash and $20,000
will be paid in AEC's common stock. 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'
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' 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 at a rate which is
equal to the greater of the prime rate as reported 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%. 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' compensation, will earn 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.
Director's Charitable Award Program
is maintainedAEC maintains a Director's Charitable Award Program for the members of
the Company'sits 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 IECAEC 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 IEC,AEC, and the donations are
funded by the Company or IECAEC 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 IEC.
DIRECTOR'S LIFE INSURANCE PROGRAM--IECAEC.
-12-
Director's Life Insurance Program
AEC maintains a split-dollar Director's Life Insurance Program for
non-employee directors, of the Company, 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 IECAEC to reimburse IECAEC 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 1999 under the
Company.
DIRECTOR EMERITUS PROGRAM--In connection withDirector's Life Insurance Program were as follows: A. B. Arends--$306,
R. G. Flowers--$442, J. L. Hanes--$485, K. C. Lyall--$391,
A. M. Nemirow--$56, M. E. Neshek--$989, J. R. Newman--$689, and
J. D. Pyle--$91, R. D. Ray--$746 and A. R. Weiler--$159.
Pension Arrangements
Prior to the Merger, Mr. Liu participated in the Company put in
placeIES Industries
retirement plan, which plan was transferred to Alliant Energy Corporate
Services, Inc., a Director Emeritus Program under which directors that retired from the
Board as a resultsubsidiary of the Merger are paid the same annual retainer fee as
continuing directors for up to two years after they retire or until they reach
age 71, whichever occurs first. This program is intended to apply only to
directors who retiredAEC ("Alliant Energy Corporate
Services") in connection with the Merger. Director nominee Jack R. Newman serves as legal counselMr. Liu's benefits under the
plan have been "grandfathered" to IEC on nuclear
issues.reflect the benefit plan formula in
effect at the time of the Merger. 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. Mr. Newman's firm, Morgan, Lewis & Bockius hasLiu 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 qualified retirement plan, for a period
not to exceed 15 years following the date of retirement. The SRP also
provided legal
servicesprovides for certain death benefits to IEC relatedbe 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. 10If 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 into a three-year consulting arrangement with
AEC in connection with the Merger. 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 of $200,000 during the third year
of the consulting period. 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 be
eligible to receive any other compensation otherwise payable to
directors of AEC.
-14-
OWNERSHIP OF VOTING SECURITIES
All of the common stock of the Company is held by IEC.AEC. Listed in the
following table are the number of shares of IEC'sAEC'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 April 21, 1998.December 31, 1999. The directors
and executive officers of AEC and the Company as a group owned less
than one percent of the outstanding shares of IECAEC common stock on that
date. To the Company's knowledge, no shareowner beneficially owned 5five
percent or more of IEC'sAEC's outstanding common stock or the Company's preferred
stock as of April 21, 1998.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) Total shares of AEC common stock outstanding as of December 31,
1999 were 78,984,014.
(2) Stock ownership of Mr. Davis is shown with director nominees.
(3) Included in the beneficially owned shares shown are indirect
ownership interests with shared voting and investment powers:
Mr. Harvey --2,035, Mr. Protsch --614, Mr. Davis--6,380,
Mr. Evans--388, Ms. Hanes--473, Mr. Liu--9,755 and
Mr. Weiler--1,148; and stock options exercisable on or within
60 days of December 31, 1999: Mr. Davis--89,887, Mr. Liu--34,750,
Mr. Stoppelmoor--27,156, Mr. Harvey--27,744, Mr. Protsch--27,744,
Mr. Walker--13,071 and Ms. Wegner--18,036 (all executive officers
and directors as a group--389,977).
-15-
None of the directors or officers of the Company own any shares of Companythe
Company's preferred stock.
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)
- ----------------------------------------------------------------------------------------------- -----------
Executives(2)
A. J. (Nino) Amato......................................................................... 5,810(3)(4)
Daniel A. Doyle............................................................................ 3,603(3)
William D. Harvey.......................................................................... 14,767(3)
Eliot G. Protsch........................................................................... 14,941(3)
Director Nominees
Alan B. Arends............................................................................. 1,100
Joyce L. Hanes............................................................................. 1,868(3)
Lee Liu.................................................................................... 56,617(3)
Arnold M. Nemirow.......................................................................... 9,567
Jack R. Newman............................................................................. 1,482
Judith D. Pyle............................................................................. 6,100
Robert D. Ray.............................................................................. 3,193
David Q. Reed.............................................................................. 6,044(3)
Robert W. Schlutz.......................................................................... 3,633
Wayne H. Stoppelmoor....................................................................... 6,075
Anthony R. Weiler.......................................................................... 4,603(3)
Continuing Directors
Erroll B. Davis, Jr........................................................................ 33,703(3)
Rockne G. Flowers.......................................................................... 9,819
Katharine C. Lyall......................................................................... 7,194
Milton E. Neshek........................................................................... 12,195
All Executives and Directors as a Group
32 people, including those listed above.................................................... 282,899
- ---------
(1) Total sharesThe following table sets forth certain
information regarding the beneficial ownership of IEC commonthe Company's
preferred stock outstandingby each person known to the Company to own more than
five percent of any class of the Company's preferred stock as of
April 21, 1998 were
76,780,996.
(2)December 31, 1999.
Shares of
6.2% Preferred
Stock
ownershipBeneficially Percent of
Mr. Davis is shown with continuing directors.
(3) Included inName 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 beneficially owned shares shown are: Indirect ownership
interests with shared votingSecurities and investment powers: Mr. Amato--1,032, Mr.
Harvey--1,828, Mr. Protsch--552, Mr. Davis--5,603, Ms. Hanes--425, Mr.
Liu--9,755, Mr. Reed--353 and Mr. Weiler--1,037; and Excercisable stock
11Exchange Commission.
-16-
options: Mr. Davis--13,100, Mr. Harvey--4,700, Mr. Protsch--4,700, Mr.
Amato--3,650 and Mr. Doyle--2,900 (all directors and officers as a
group--39,200).
(4) Mr. Amato left the Company following the effective date of the Merger.
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 1997, 1996,1999, 1998 and 19951997 to the Chief Executive
Officer and the four other most highly compensated executive officers
(the "named executive officers").of the Company who performed policy making functions for the Company.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
---------------------------------------- SECURITIES
OTHER UNDERLYING
NAME AND ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) SARS(#)(3) COMPENSATION(4)Annual Compensation Long-Term Compensation
------------------------------------- -----------------------------------
Awards Payouts
------------------------ --------
Securities
Underlying
Other Restricted Options/
Name and Base Annual Stock SARs LTIP All Other
Principal Position Year Salary Bonus(1) Compensation(2) Awards(3) (Shares)(4) Payouts Compensation(5)
- ------------------------------ --------- ---------- ---------- ---------------- ------------- --------------------------------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr...........Jr. 1999 $580,000 $440,220 $12,526 -- 77,657 $84,870 $60,188
Chief Executive 1998 540,000 -- 13,045 -- 36,752 -- 57,996
Officer 1997 $ 396,000 $450,000 200,800 19,982 -- $ 17,584 13,800 $ 53,029
President and CEO 1996 396,000 146,790 20,625 12,600 58,706
1995 374,913 125,496 16,688 13,100 54,131-- 60,261
William D. Harvey.............Harvey 1999 254,423 116,535 4,565 $255,004 17,071 31,365 44,005
President 1998 233,846 -- 4,699 -- 11,406 -- 28,642
1997 209,000 18,986 14,197220,000 43,986 14,944 -- 5,100 31,391
Senior-- 33,043
Eliot G. Protsch 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 1996 209,000 82,104 10,227 4,650 27,875
1995 193,654 47,340 5,459 4,700 22,357
Eliot G. Protsch.............. 1997 200,200 26,400 10,414220,000 51,400 11,444 -- 5,100 24,353
Senior-- 30,057
Thomas M. Walker 1999 244,808 148,960 -- -- 16,402 -- 13,531
Executive Vice 1998 229,846 -- 814 -- 11,406 -- 13,263
President 1996 200,200 81,224 6,968 4,650 23,559
1995 182,000 47,520 3,951 4,700 18,362
Anthony& Chief 1997 230,000 62,100 38,138 -- -- -- 2,367
Financial Officer
Pamela J. Amato(5)...........Wegner 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 160,404 20,262 13,086 5,100 26,418
Senior Vice President 1996 160,404 60,920 8,879 3,550 21,586
1995 148,964 40,046 4,887 3,650 17,156
Daniel A. Doyle............... 1997 157,130 10,139 6,733 3,900 17,121
Vice President-- 1996 149,150 46,865 3,053 2,800 12,180
Power Production 1995 140,399 32,465 3,090 2,900 11,155160,000 26,216 3,498 -- 3,150 -- 15,579
- ---------
(1) Includes vacation days sold back to the Company. Does not include the
portion of salary charged to IEC.No bonuses were paid for 1998. The 1999 bonuses were earned in
1999 and paid in 2000.
(2) Other Annual Compensation for 19971999 consists of income tax
gross-ups for reverse split-dollar life insurance:insurance.
(3) In 1999, restricted stock was awarded under the Alliant Energy
Corporation Long-Term Equity Incentive Plan as follows:
Mr. Davis--$11,903,Harvey--9,294 shares, Mr. Harvey--$5,289,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 that such
restricted stock vests, 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, 1999 were as follows: Mr. Protsch--$2,608,Harvey --
9,294 shares ($255,585), Mr. Amato--$4,495,Protsch -- 9,294 shares ($255,585)
and Mr. Doyle--$3,096; Income tax
gross-ups on financial counseling benefit: Mr. Davis--$5,681, Mr.
Harvey--$8,908, Mr. Protsch--$7,806, Mr. Amato--$8,591, and Mr.
Doyle--$3,727.
(3)Ms. Wegner -- 8,930 shares ($245,575).
-17-
(4) Awards made in 19971999 were in combination with contingent dividendperformance share
awards as described in the table entitled "Long-Term Incentive
Awards in 1997"1999".
12
(4) All Other Compensation(5) The table below shows the components of the compensation
reflected under this column for 1997 consists of:1999:
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
B. 7,000 7,000 0 7,000 1,370
C. 22,207 9,467 8,640 0 6,013
D. 13,581 5,721 2,484 0 3,219
E. 0 0 0 1,351 0
F. 0 14,184 14,184 380 13,628
Total $60,188 $44,005 $32,941 $13,531 $31,568
A. Matching contributions to 401(k) plan, Mr. Davis-- $11,880, Mr. Harvey--$6,270 Mr. Protsch--$6,006,
Mr. Amato--$3,895,Plan and Mr. Doyle--$4,714;Deferred Compensation
Plan
B. Financial counseling benefit
Mr.
Davis--$6,160, Mr. Harvey--$9,659, Mr. Protsch--$9,783, Mr. Amato--$10,766
and Mr. Doyle--$4,671; Split dollarC. Split-dollar life insurance premiums, Mr. Davis--
$22,084, Mr. Harvey--$9,729, Mr. Protsch--$8,296, Mr. Amato--$6,123, and Mr.
Doyle--$3,969; Reverse split dollar life insurance, Mr. Davis--$12,905, Mr.
Harvey--$5,733, Mr. Protsch--$3,268, Mr. Amato--$5,634 and Mr.
Doyle--$3,767. The split dollar and reversereportable income (the split dollar
insurance premiums are calculated using the "foregone interest"
method.
(5) Mr. Amato left the Company following the effective datemethod)
D. Reverse split-dollar life insurance
E. Life insurance coverage in excess of the Merger.$50,000
F. Dividends on restricted stock
-18-
STOCK OPTIONS
The following table sets forth certain information concerning
options granted during 19971999 to the executives named below:
OPTION/STOCK OPTIONS/SAR GRANTS IN 19971999
--------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
NUMBER OFPotential Realizable
Value at Assumed
Annual Rates
of Stock Appreciation for
Individual Grants Option Term(2)
--------------------------------------------------------- --------------------------------
Number of % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(1) FISCAL YEARof Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted(1) Fiscal Year ($/SHARE) DATEShare) Date 5% 10%
- ---------------------------------- ------------- ----------------- ----------- ----------- ---------- ----------------------------------------------------------------------------------------------- --------------------------------
Erroll B. Davis, Jr............... 13,800 17 % $ 28.00 Jr. 77,657 9.4% $29.875 6/1/2/07 $ 243,018 $ 615,81409 $1,459,175 $3,698,026
William D. Harvey................. 5,100 6 % 28.00 Harvey 17,071 2.1% 29.875 6/1/2/07 89,811 227,61309 320,764 812,921
Eliot G. Protsch.................. 5,100 6 % 28.00 Protsch 17,071 2.1% 29.875 6/1/2/07 89,811 227,613
A.09 320,764 812,921
Thomas M. Walker 16,402 2.0% 29.875 6/1/09 308,194 781,063
Pamela J. (Nino) Amato................ 3,900 5 % 28.00 Wegner 16,402 2.0% 29.875 6/1/2/07 68,679 174,057
Daniel A. Doyle................... 3,250 4 % 28.00 1/2/07 57,233 145,04809 308,194 781,063
- ---------
(1) Consists of non-qualified stock options to purchase shares of IECAEC
common stock granted pursuant to IEC'sAEC's Long-Term Equity Incentive
Plan. Options were granted on January 2, 1997,June 1, 1999, and will fully vest
on January 2, 2000.
These options were granted with an equal number of contingent dividend
awards as described in the table entitled "Long-Term Incentive Awards in
1997" and have exercise prices equal to the fair market value of IEC shares
on the date of grant.1, 2002. Upon a "change in control" of IECAEC as defined
in the Plan or upon retirement, disability or death of the option
holder, these options shallwill become immediately exercisable. Upon exercise of an option,
the executive purchases all or a portion of the shares covered by the option
by paying the exercise price multiplied by the number of shares as to which
the option is exercised, either in cash or by surrendering common shares
already owned by the executive.
(2) The hypothetical potential appreciation shown for the named
executives is required by rules of the Securities and Exchange
Commission ("SEC") rules.. The amounts shown do not represent either the
historical or expected future performance of the IECAEC's common stock.
For example, inIn order for the named executives to realize the potential values
set forth in the 5% and 10% columns in the table above, the 13
price
per share of IECAEC's common stock would be $45.61$48.67 and $72.65,$77.50,
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. NoNone of the executives exercised options were
exercisable during 1997.
OPTION/SAR VALUES AT DECEMBER 31, 1997in fiscal 1999.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARSOPTION/SAR VALUES AT IN-THE-MONEY OPTIONS/SARS AT
FISCAL YEAR END FISCAL YEAR END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLEDECEMBER 31, 1999
--------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Fiscal Year End at Year End(1)
-------------------------------------- ------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------- --------------- ------------- --------------- ------------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr......................................Jr. 37,951 115,958 0 39,500 0 $ 174,338
William D. Harvey........................................Harvey 13,152 29,775 0 14,450 0 63,620
Eliot G. Protsch.........................................Protsch 13,152 29,775 0 14,450 0
63,620
A.Thomas M. Walker 3,802 24,006 0 0
Pamela J. (Nino) Amato.......................................Wegner 7,359 23,671 0 11,000 0 48,950
Daniel A. Doyle.......................................... 0 8,950 0 39,619
(1) Based on the closing per share price on December 31, 19971999 of IECAEC
common stock of $33.125.
LONG-TERM INCENTIVE AWARDS--The$27.50. Because the price per share on
December 31, 1999 was less than the option price for all of the
outstanding options, no options are considered in-the-money.
Long-Term Incentive Awards--The following table provides
information concerning long-term incentive awards made to the
executives named below in 1997.1999.
LONG-TERM INCENTIVE AWARDS IN 19971999
----------------------------------
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK
NUMBER OF PERFORMANCE OR PRICE-BASED PLANS(2)
SHARES, UNITS OTHER PERIOD ----------------------------------
OR OTHER RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAMEEstimated Future Payouts Under
Non-Stock Price-Based Plans
-------------------------------------------
Number of Performance or
Shares, Units Other Period
or Other Rights Until Maturation Threshold Target Maximum
Name (#)(1) OR PAYOUT ($) ($) ($)or Payout (#) (#) (#)
- -------------------------------------------- --------------- ---------------- ----------- --------- -----------------------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr......................... 13,800Jr. 11,649 1/2/00 66,240 82,800 144,9001/02 5,824 11,649 23,298
William D. Harvey........................... 5,100Harvey 2,987 1/2/00 24,480 30,600 53,5501/02 1,493 2,987 5,974
Eliot G. Protsch............................ 5,100Protsch 2,987 1/2/00 24,480 30,600 53,550
A.1/02 1,493 2,987 5,974
Thomas M. Walker 2,870 1/1/02 1,435 2,870 5,740
Pamela J. (Nino) Amato.......................... 3,900Wegner 2,870 1/2/00 18,720 23,400 40,950
Daniel A. Doyle............................. 3,250 1/2/00 15,600 19,500 34,12502 1,435 2,870 5,740
- ---------
(1) Consists of Performance Unitsperformance shares awarded under IEC'sAEC's Long-Term
Equity Incentive Plan in combinationPlan. These performance shares will vest based
on achievement of specified Total Shareholder Return (TSR) levels
as compared with stock options (as described inan investor-owned utility peer group over the table entitled
"Option/SAR Grants in 1997"). These Performance Units are entirely in the
form of contingent dividends and will be paid if total IEC shareowner return
over a three-year
period ending January 2, 2000 equals or exceeds the median
return earned by the companies in a peer group of utility holding companies,
except that there1, 2002. Payouts will be no payment if IEC's total return is negative over
the coursemade on a
one-for-one basis in shares of such period. If payable, each participant shall receive an
amount equal to the accumulated dividends paid on one share of IECAEC common stock during the period of January 2, 1997 through December 31, 2000
multiplied by the number of Performance Units awardedor cash, subject
to the participant,
and modified bymodification pursuant to a performance multiplier which ranges
from 0 to 1.75 based
on IEC's total return relative to the peer group.
(2) Assumes, for purposes of illustration only, a $2.00 per share annual
dividend on shares of IEC common stock for 1998 and 1999.
142.00.
-20-
CERTAIN AGREEMENTS AND TRANSACTIONS
WITH EXECUTIVES
In connection with the Merger, Mr. Davis entered into a newhas an employment agreement with IEC. Under Mr. Davis's agreement,AEC, pursuant to which
Mr. Davis will serve as the Chief Executive Officer of IECAEC until
at least the fifth anniversary of the
effective time of the Merger.April 21, 2003. Mr. Davis will also servebegin serving as the Chairman of
IEC
following the second anniversary of the Merger.AEC effective April 21, 2000. Following the expiration of the initial
term of Mr. Davis'sDavis' employment agreement, his agreement will
automatically renew for successive one-year terms, unless either
Mr. Davis or IECAEC gives prior written notice of his or its intent to
terminate the agreement. Mr. Davis will also serve as Chief Executive
Officer of each subsidiary of IEC,
including the Company,AEC until at least the third anniversary of the effective
time of the MergerApril 21, 2001 and as
a director of such companies during the term of his employment
agreement. Pursuant to Mr. Davis'sDavis' employment agreement, provides that he beis paid an
annual base salary of not less than $450,000. 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 to
receive before the effective time of the Merger, as well as
supplemental retirement benefits (including continued participation in
the CompanyWP&L 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 histhe employment agreement) or if heMr. Davis terminates his
employment for good reason (as defined in histhe employment agreement),
IECAEC or its affiliates will continue to provide the compensation and
benefits called for by the employment agreement through the end of the
term of thesuch 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, IECAEC or its affiliates will pay to himMr. 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, IECAEC or its
affiliates will pay his base salary through the date of termination
plus any previously deferred compensation. NotwithstandingUnder Mr. Davis' employment
agreement, if any payments thereunder constitute an excess parachute
payment under the foregoing, in the event
that any paymentsCode, AEC will pay to Mr. Davis under his employment agreement or otherwise are
subjectthe amount necessary
to offset the excise tax and any applicable taxes on excess parachute payments under the Internal
Revenue Code (the "Code"), then the total payments to be made under the
employment agreement will be reduced so that the value of these payments Mr.
Davis is entitled to receive is $1 less than the amount that would subject him
to the 20% excise tax imposed by the Code on certain excess payments, or which
IEC or its affiliates may pay without loss of deduction under the Code.
IEC alsothis additional
payment.
AEC currently has in effect key executive employment and severance
agreements ("KEESAs"(the "KEESAs") with Mr. Davis and with certain other executive officers of IEC and its
subsidiaries, includingAEC
(including Messrs. Davis, Harvey, Protsch, AmatoWalker and Doyle.Ms. Wegner). The
KEESAs provide that each executive officer thatwho is a party thereto is
entitled to benefits if, within five years after a change in control of
IECAEC (as defined in the KEESAs), the officer's employment is ended
through (i) termination by IEC,AEC, other than by reason of death or
disability or for cause (as defined in the KEESAs), or (ii) termination
by the officer due to a breach of the agreement by IECAEC or a significant
change in the officer's responsibilities, or (iii) in the case of
Mr. Davis'sDavis' agreement, termination by Mr. Davis following the first
anniversary of the change of control. The consummation of the Merger was deemed
to constitute a change in control of IEC for purposes of the KEESAs. The
benefits provided are:are (i) a
cash termination payment of one, two or three times (depending on which
executive is involved) the 15
sum of the officer's annual salary and his
-21-
or her average annual bonus during the three years before the
termination and (ii) 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 IEC or its
affiliatesAEC
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, 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'sDavis' employment agreement as described above limits
benefits paid thereunder to the extent that duplicate payments would be
provided to him under his KEESA.
In
connection with the termination of his employment and pursuant to a letter
agreement with IEC, Mr. Amato received benefits totaling $614,771 under his
KEESA.
During 1997, in connection with a Restricted Stock Agreement, Mr. Davis
converted 0.5567 shares of Alliant Industries stock into 7,754 shares of IEC
common stock and redeemed his remaining 1.1133 shares of Alliant Industries
stock for $421,553 per share. The proceeds of the redemption to Mr. Davis were
used, in part, to repay $315,257 of principal and interest on loans made by IEC
to Mr. Davis for taxes withheld in connection with the vesting of his Alliant
Industries stock. Mr. Davis was charged interest on these loans at the prime
rate.-22-
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 Company. All executives namedRetirement 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 foregoingPlan as of August
l, 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 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 participatedwho
participate in the Plan (Messrs. Davis, Harvey, Protsch and Ms. Wegner)
are "grandfathered" under the prior plans 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 during
1997.benefit formula. Contributions to the
"grandfathered" plan are determined actuarially, computed on a
straight-life annuity basis, and cannot be readily calculated as
applied to any individual participant or small group of participants.
For purposes of the plan,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. Retirement Plan benefits depend upon length of planPlan service
(up to a maximum of 30 years), age at retirement and amount of
compensation (determined in accordance with the plan)Plan) and are reduced
by up to 50 percent of Social Security benefits. Credited years of
service under the planPlan for covered persons named in the foregoing
Summary Compensation Table are as follows: Erroll B. Davis, Jr.,
1820 years; Eliot G. Protsch, 1820 years; A.
J. (Nino) Amato, 11 years; Daniel A. Doyle, 5 years; and William D. Harvey, 1012 years; and
Pamela J. Wegner, 5 years. Assuming retirement at age 65, a Retirement Plan
participant (in
16
conjunction with the Unfunded Supplemental RetirementExcess Plan described
below) would be eligible at retirement for a maximum annual retirement
benefit as follows:
RETIREMENT PLAN TABLE-23-
Retirement Plan Table
ANNUAL BENEFIT AFTER SPECIFIED YEARS IN PLAN*
-------------------------------------------------------------------
AVERAGE ANNUAL COMPENSATIONAverage Annual Benefit After Specified Years in Plan*
Annual --------------------------------------------------------------------------------------------------
Compensation 5 10 15 20 25 30
- -------------------------------------------- --------- --------- --------- ---------- ---------- ---------------------------------------------------------------------------------------------------------------------------------
$125,000.................................... $ 10,132 $ 20,265 $ 30,397 $ 40,529 $ 50,662 $ 60,794
150,000.................................... 12,424 24,848 37,272 49,696 62,120 74,544
200,000.................................... 17,007 34,015 51,022 68,029 85,037 102,044
250,000.................................... 21,591 43,181 64,772 86,363 107,953 129,544
300,000.................................... 26,174 52,348 78,522 104,696 130,870 157,044
350,000.................................... 30,757 61,515 92,272 123,029 153,787 184,544
400,000.................................... 35,341 70,681 106,022 141,363 176,703 212,044
450,000.................................... 39,924 79,848 119,772 159,696 199,620 239,544
475,000.................................... 42,216 84,431 126,647 168,863 211,078 253,294
500,000.................................... 44,507 89,015 133,722 178,029 222,537 267,044
525,000.................................... 46,799 93,598 140,397 187,196 233,995 280,794
550,000.................................... 49,091 98,181 147,272 196,363 245,453 294,544$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 Retirement 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, $150,000 for 1996 andaverage annual compensation cannot
exceed $160,000 for 1997)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 Retirement Plan, and a
supplemental survivors income plan,
if a Retirement Plan participant dies prior to retirement, the designated
survivor of the participant is entitled to a monthly income
benefit equal to approximately 50 percent (100 percent
in the case of certain executive officers and key management employees) 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, Mr. Walker participated in the IES Industries
retirement plan (which plan was transferred to Alliant Energy Corporate
Services in connection with the Merger). Plan benefits payable to
Mr. Walker have been "grandfathered" to reflect the benefit plan
formula in effect at the time of the Merger. Mr. Walker has three 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
Plan ifSalary (Remuneration) Benefits Based on Years of Service
For Three Consecutive --------------------------------------------
Years Out of the participant had remained
employed by the Company until eligible for normal retirement.
UNFUNDED SUPPLEMENTAL RETIREMENT PLAN--The CompanyLast 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 Supplemental RetirementExcess Plan whichthat 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. Additionally,The Unfunded Excess Plan provides an amount
equal to the difference between the actual pension benefit payable
under the pension plan provides for payments of supplemental retirement benefitsand what such pension benefit would be if
calculated without regard to employees holding the position of Vice President or higher, who have been
granted additional months of serviceany limitation imposed by the Board of Directors for purposes of
computing retirement benefits.
UNFUNDED EXECUTIVE TENURE COMPENSATION PLAN--The CompanyCode 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 key executives to remain in the service of the
Company by providing additional compensation which 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) is terminated under his employment agreement with IEC (the
"Employment Agreement")AEC as
described above other than for cause, death or disability (as those
terms are defined in the Employment Agreement)employment agreement), (2) terminates his
employment under the Employment Agreementemployment agreement for good reason (as such term
is defined in the Employment Agreement)employment agreement), or
17
(3) is terminated as a
result of a failure of the Employment Agreementemployment agreement to be renewed
automatically pursuant to its terms (regardless of the reason for such
non-renewal), then for purposes of the plan, the Chief Executive
Officer shall be deemed to have retired at age 65 and shall be entitled
to benefits under the plan. Participants in the plan must be designated
by the Chief Executive Officer of the Company and approved by its Board
of Directors. Mr. Davis was the only active participant in the plan as
of December 31, 1997.1999. The plan 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 percent 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 percent of such amount for
120 months in the case of death before retirement, or if the
participant dies after retirement, 50 percent of such amount for the
balance of the 120 months. Annual benefits of $112,500$145,000 would be payable
to Mr. Davis upon retirement, assuming he continues in the Company'sAlliant Energy
Corporate Services' service until retirement at the same salary as was
in effect on December 31, 1997.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN--The1999.
Alliant Energy Corporate Services
Supplemental Executive Retirement Plan
The Company maintains an unfunded Supplemental Executive Retirement
Plan to provide incentive for key executives to remain in the service
of the Company by providing additional compensation which is payable
only if the executive remains with the Company until retirement,
disability or death. Participants in the plan must be approved by the
Compensation and Personnel Committee of the Board. The plan 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.employment reduced by the sum of benefits
payable to the officer from the officer's defined benefit plan. The
normal retirement date under the plan is age 65 or
the date the participant has completed 1062 with at least ten years
of employment, whicheverservice and early retirement is later.at age 55 with at least ten years of
service. If a participant retires prior to age 62, the 60% payment
under the plan 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
plan will be made for a maximumthe lifetime of 18 years,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, Walker and DoyleMs. Wegner are participants in this plan. The
following table shows payments under the plan, assuming a minimum of
10 years of service at retirement age.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
GREATER
LESS THAN 10 THAN 10
AVERAGE COMPENSATION YEARS YEARS
- ------------------------------------------------------------------------------------------ --------------- ----------
$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..................................................................................-26-
Supplemental Executive Retirement Plan Table
Average
Compensation <10 Years >10 Years*
- ----------------------------------------------------------------------
$ 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
KEY EMPLOYEE DEFERRED COMPENSATION PLAN--The600,000 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.
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
18
compensation. The Company matches up to 50% of the employee deferral
(plus 401(k) contributions up to 6% of pay, less 401(k) matching
contributions). The deferrals and matching contributions receivereceived an
19
annual return equal to the A-utility bond rate with a minimum return no less
than the prime interest rate published in the Wall Street Journal.
Payments from the plan may be made in lump sums or installments at the
election of the participant. Participants are selected by the CEOChief
Executive Officer of Alliant Services Company.Energy Corporate Services. Messrs. Davis,
Harvey, Protsch, Walker and DoyleMs. Wegner participate in this plan.the Plan.
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REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
TO OUR SHAREOWNERS:To Our Shareowners:
The Compensation and Personnel Committee (the "Committee") of the Board
of Directors of the Company is currently comprised of five independent,four non-employee
directors who have no "interlocking" relationships, as defined(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 SecuritiesCompany and
Exchange Commission ("SEC").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 total compensation program
for executives whichthat furthers the Company's mission. TheTherefore, the
Committee therefore, adheres to the following compensation policies, which are
intended to facilitate the achievement of the Company's business
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 paid to executives of comparable companies.
Specifically, the Committee targets the median (50th
percentile) of equally weighted data from 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, incentive levels
will beare targeted at the median (50th percentile) of equally
weighted data from utility and general industry companies.
COMPONENTS OF COMPENSATIONComponents 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 relatesconsiders all elements of an executive's total compensation
levelspackage, including employee benefit and perquisite programs. The
Committee's goal is to provide an overall compensation package for the Company's senior
executiveseach
executive officer that is competitive to the compensation paid to executives of comparable companies.
Utility executives' pay is compared to that of executives with similar
responsibilities at utilities and/or non-utilities (general industries) in both
the Midwest and national markets, as well as to companies with similar revenue
levels and employment levels.packages offered other
executives. The Committee has determined that total executive
compensation, including that for Mr. Davis, is in line with competitive
salaries of the comparison groups of companies.
The current 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 determining each component of
compensation, the Committee considers all elements of an executive's total
compensation package, including benefit and perquisite programs.
19
BASE SALARIESBase 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. 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.adjustments for a particular salary
level, which generally limit across-the-board increases. Individual
performance factors are not considered by the Committee in setting base
salaries. Base pay adjustments are
tied to market changes in appropriate salary levels and will minimize
across-the-board increases. During 1997, allIn 1999, the Committee reviewed executive salaries were reviewed for market
comparability using utility and general industry data contained in
compensation surveys published by Edison Electric Institute, American
Gas Association and several compensation-consulting firms. The
Committee decided to maintain Mr. Davis' 1999 base salary at the level
established in May 1998. The Summary Compensation Table reflects an
annual salary of $580,000 effective May 1, 1998 with compensation consulting firms. Any recommended changes
will be effective for 1998. Market ranges will be reviewedfrom
January through April 1998 at the previous annual salary of $450,000
annually.
SHORT-TERM INCENTIVESShort-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 to
achievebased on 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's performance goals and the relative
weight assigned to each goal as well as targeted and maximum award
levels. A description of the Company's short-term incentive programprograms available
during 19971999 to executive officers follows.
WISCONSIN POWER AND LIGHT COMPANY MANAGEMENT INCENTIVE PLAN--The Company'sAlliant Energy Corporation Management Incentive Compensation Plan--In
1999, the Alliant Energy Corporation Management Incentive Compensation
Plan (the "Company MIP""MICP") covered utility executives and in
1997 was based on achieving
annual targets in several areas of overall corporate performance that include profitability, operationsincluded an earnings per
share ("EPS") target for the utility businesses, and maintenance expense
control, reduction in lost time accidents,business unit and
individual/team performance.individual performance goals. Target and maximum bonus awards under the
MICP in 1999 were set at the median of the utility and general industry
market levels. Targets were considered by the Committee to be
achievable, but requirerequired 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 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
for eligible executives range from 0 to 90 percent of annual salary.
The amounts paid under the MICP to eligible officers included in the
Summary Compensation Table are reflected in that table.
In 1999, Mr. Davis was covered by the MICP. Awards for Mr. Davis under
the MICP in 1999 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, that
apportionment was 70 percent for corporate performance and 30 percent
for strategic goal performance. Corporate performance is measured based
on a company-wide EPS target 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 1999 MICP award range
for Mr. Davis was from 0 to 120 percent 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 1999 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 levelfor 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.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. For example, if
the overall weighted performance achievement is 70%, the executive will receive
70% of his or her maximum allowable bonus award. Potential Company MIPAlliant Energy Resources Annual Incentive Plan
awards for executives range from 0 to 4060 percent of annual salary. The
Company MIP does
not allow for discretion in bonus determinations. In 1997 there was no payout
for performance against the corporate targets. Executives received awardsamounts paid under the Company MIP for achievements against individual performance goals. Awards
for 1997 under the Company MIP madeAlliant Energy Resources Annual Incentive Plan
to top executives (other than to Mr. Davis
who participates in the IEC Management Incentive Plan) are showneligible officers included in the Summary Compensation Table.
IEC MANAGEMENT INCENTIVE PLAN--In 1997, Mr. Davis was covered by IEC's
Management Incentive Plan (the "IEC MIP"). Awards under the IEC MIPTable are
reflected in 1997 were
based on Company, Heartland Development Corporation ("HDC" and now known as
Alliant Industries) and individual performance
20
achievement in relation to predetermined goals. For each Plan year, the IEC
Compensation and Personnel Committee (which is comprised of the same members as
the Committee) determines the performance apportionment for Mr. Davis. In 1997
that apportionment was 50% for Company performance, 25% for HDC performance and
25% for individual performance. Company performance is measured based on the
overall percentage achievement factor of the corporate goals established for the
Company MIP. HDC performance is measured based on the overall percentage
achievement of the 1997 financial performance goals from the HDC plan.
Individual performance is measured based on the achievement of certain specific
goals, which included strategy development and implementation, established for
Mr. Davis by the IEC Committee. The 1997 IEC MIP award range for Mr. Davis was
from 0 to 70 percent of annual salary. The actual payment of bonuses as a
percentage of annual salary is determined as described for the Company MIP. In
1997, the IEC MIP provided a payment to Mr. Davis as a result of the HDC
financial performance component, and for achievement of the personal goals. For
1997 performance, Mr. Davis' annual bonus payment represented 22 percent of his
base salary. Under the IEC MIP, Mr. Davis was awarded $100,800 solely in
connection with 1997 performance as discussed above. None of Mr. Davis's award
for 1997 under the IEC MIP related to Company performance.
LONG-TERM INCENTIVEStable.
Long-Term Incentives
The Committee strongly believes compensation for senior executives should
include long-term, at-risk pay to strengthen the alignment of shareownerthe
interests of the shareowners and management. In this regard, IEC'sthe
Alliant Energy Corporation Long-Term Equity Incentive Plan allows forpermits
grants of stock options, restricted stock and performance units/unit/shares
with respect to IEC'sAEC's common stock. The Long-Term Equity Incentive Plan
is administered by the IECAEC Compensation and Personnel Committee. The
Committee believes the Long-Term Equity Incentive Plan balances the
Company's existing compensation programs by emphasizing compensation
based on the long-term successful performance of the Company from the
perspective of the shareowners of IEC.AEC. A description of the long-term
incentive programs available during 1999 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: stock options and
performance shares. Stock options provide a reward that is directly
tied to the benefit shareowners of IECAEC receive from increases in the
price of IEC'sAEC's common stock. The payout from the performance unitsshares is
based on IEC's continued payment of
dividends, a significant component of investment returns for utilities, and the
relativeAEC's three-year total return to shareowners comparedrelative to other comparable investments.an
investor-owned utility peer group. Thus, the two components of the
Long-Term Equity Incentive Plan, i.e.,Program (i.e. stock options and performance units,shares)
provide incentives for management to produce superior shareowner
returns on both an absolute and relative basis. During 19971999, the IECAEC
Compensation and Personnel Committee made a grant of stock options and
performance unitsshares to Messrsvarious executive officers, including
Messrs. Davis, Amato, Doyle,Harvey, Protsch, Walker and Harvey.Ms. Wegner. All option
-30-
grants were made athad per share exercise prices equal to the fair market value of
IECa share of AEC common stock on the date the grants were approved (January 2, 1997). The optionsapproved.
Options vest on a one-third basis at the beginning of each calendar
year after three yearsgrant 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 units which will accumulate all of the dividends paid on one share
of IEC's common stock over a three-year period. One performance unit was granted
for each option received by the executive. Accrued dividends are not reinvested
in IEC's common stock, nor is any interest paid on accrued dividends.shares. Performance unitsshares will
be paid out in cash or in shares of IEC'sAEC's common stock.stock or cash. The paymentaward will be
modified by a performance multiplier which ranges from 0 to 1.752.00 based
on the three yearthree-year average of IEC'sAEC's total shareowner return relative to
aan investor-owned utility holding company peer group. If IEC's total shareowner return for
the three year period is negative, the performance unit payout will be zero.
In determining actual award levels under the IECAlliant Energy Corporation
Long-Term Equity Incentive Program, the AEC Compensation and Personnel
Committee was primarily concerned with providing a competitive total
compensation level to officers. As such, award levels (including the awards
made to Mr. Davis) were based on a competitive analysis of similarly-sizedsimilarly
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 21
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
units.shares. Award levels were targeted to the median of the range of such
awards paid by comparable companies. In addition, the IECAEC Compensation
and Personnel Committee did not consider the amounts of options and
performance shares already outstanding or previously granted when
making awards for 1999. Mr. Davis' awards in 1999 under this program
are shown in the Stock Options/SAR Grants in 1999 Table and the
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 1997.
POLICY WITH RESPECT TO THE1999.
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). 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 LIMITMillion Deduction Limit
Section 162(m) of the Internal Revenue 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. The Committee has carefully considered the impact of this tax code
provision. Based on the Committee's commitment to link
compensation with performance as described in this report, the
Committee currently intends to qualify future compensation paid to the
Company's executive officers for deductibility by the Company under
Section 162(m).
CONCLUSIONConclusion
The Committee believes the existing executive compensation policies and
programs provide the appropriate level of competitive compensation for
the Company's executives. In addition, the Committee believes that the
long and short term performance incentives effectively align the
interests of executives and ultimate shareowners toward a successful future for
the Company.
COMPENSATION AND PERSONNEL COMMITTEE
Arnold M. Nemirow (Chair)
Alan B. Arends
Jack R. Newman
Judith D. Pyle
Anthony R. Weiler
22-32-
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
The Company's directors, its executive officers and certain other
officers are required to report their ownership of IEC'sAEC's common stock
and Company preferred stock and any changes in that ownership to the
SEC.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
19971999, with the exception of that one filing, 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.
GENERAL
VOTING--The outstanding voting securities of the Company on the record date
stated below consisted of 13,236,601 shares of common stock (owned solely by
IEC) and 1,049,225 shares of preferred stock, in seven series (representing
599,630 votes). Only shareowners of the Company of record on its books at the
close of business on May 11, 1998, are entitled to vote at the meeting. Each
share of Company common stock is entitled to one vote per share. Each share of
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. Shareowners may vote their shares either in person or by
proxy. The giving of proxies by shareowners will not effect their right to vote
their shares if they attend the meeting and desire to vote in person. Presence
at the meeting of a shareowner who signed a proxy, however, does not itself
revoke the proxy. A proxy may be revoked by the person giving it, at any time
prior to the time it is voted, by advising the Secretary of the Company prior to
such voting. A proxy may also be revoked by a shareowner who duly executes
another proxy bearing a later date but prior to the voting. All shares
represented by effective proxies on the enclosed form, received by the Company,
will be voted at the meeting or any adjourned session of the meeting, all in
accordance with the terms of such proxies.
PROPOSALS OF SHAREOWNERS--Under the rules of the SEC, any shareowner
proposal intended to be presented at the 1999 Annual Meeting of Shareowners must
be received at the principal office of the Company no later than January 27,
1999, in order to be eligible to be considered for inclusion in the Company's
proxy materials relating to that meeting.
INDEPENDENT AUDITORS--The Board of Directors has appointed Arthur Andersen
LLP as the Company's independent auditors for 1998. Arthur Andersen LLP acted as
independent auditors for the Company in 1997. Representatives of Arthur Andersen
LLP are expected to be present at the meeting with the opportunity to make a
statement if they so desire. Such representatives are also expected to be
available to respond to appropriate questions.
OTHER BUSINESS--The meeting is being held for the purposes set forth in the
notice accompanying this proxy statement. The Board of Directors of the Company
knows of no business to be transacted at the meeting other than that set forth
in the notice. However, if any other business should properly be presented to
the meeting, the proxies will be voted in respect thereof in accordance with the
judgment of the person or persons voting the proxies.
By Order of the Board of Directors
[SIG]/S/ Edward M. Gleason
---------------------
Edward M. Gleason
Vice President --- Treasurer
and Corporate Secretary
23-33-
APPENDIX A
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBERFor the Year Ended December 31, 1997
CONTENTS PAGE
- -------------------------------------------------------------------------- ----
The Company............................................................... A-2
Selected Financial Data................................................... A-3
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. A-3
Report of Independent Public Accountants.................................. A-21
Consolidated Financial Statements:
Consolidated Statements of Income....................................... A-22
Consolidated Balance Sheets............................................. A-23
Consolidated Statements of Cash Flows................................... A-25
Consolidated Statements of Capitalization............................... A-26
Consolidated Statements of Common Shareowners' Investment............... A-27
Notes to Consolidated Financial Statements.............................. A-28
Shareowner Information.................................................... A-44
Executive Officers........................................................ A-44
A-11999
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-
THE COMPANY
In April 1998, WPL Holdings,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.
(WPLH),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.
(IES) andIESU.................... IES Utilities Inc.
International........... Alliant Energy International, Inc.
IPC..................... Interstate Power Company
(IPC) completed a three-way merger (Merger) forming
InterstateISCO.................... Alliant Energy Corporation (Merged Company). In connection with the Merger,
IES was merged withIndustrial Services, Inc.
ISO..................... Independent System Operator
Kewaunee................ Kewaunee Nuclear Power Plant
McLeod.................. McLeodUSA Incorporated
MD&A.................... Management's Discussion and into WPLH forming the MergedAnalysis of
Financial Condition and Results of Operations
MG&E.................... Madison Gas & Electric Company
and IPC became a
subsidiaryMGP..................... Manufactured Gas Plants
MPUC.................... Minnesota Public Utilities Commission
MW...................... Megawatt
MWH..................... Megawatt-Hour
NEIL.................... Nuclear Electric Insurance Limited
NEPA.................... National Energy Policy Act of the Merged Company. The Merged1992
NMC..................... Nuclear Management Company, operates as a registered
public utility holding company and is subject to regulation by the Securities
andLLC
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 (SEC) under theof Wisconsin
PUHCA................... Public Utility Holding Company Act of 1935
(PUHCA), Following the Merger, the holding companies for the nonregulated
businessesResources............... Alliant Energy Resources, Inc.
RTO..................... Regional Transmission Organization
SEC..................... Securities and Exchange Commission
SFAS.................... Statement of the former WPLHFinancial Accounting Standards
SkyGen.................. SkyGen Energy LLC
SO2..................... Sulfur Dioxide
South Beloit............ South Beloit Water, Gas and IES (Heartland Development Corporation (HDC)
and IES Diversified Inc. (Diversified), respectively) were merged, and the
resulting entity was renamed Alliant Industries, Inc. (Industries). As a resultElectric Company
U.S..................... United States
WDNR.................... Wisconsin Department of the Merger, the first tier subsidiaries of the MergedNatural Resources
WEPCO................... Wisconsin Electric Power Company
consist of:WP&L.................... Wisconsin Power and Light Company
(WP&L), IES UtilitiesWPLH.................... WPL Holdings, Inc.
(IESU), IPC,
Industries,WPSC.................... Wisconsin Public Service Corporation
WUHCA................... Wisconsin Utility Holding Company Act
-A-3-
WP&L filed a combined Form 10-K for 1999 with the SEC; such document
included the filings of WP&L's parent, Alliant Energy, IESU and Alliant Services Company (a regulatory service company required
under PUHCAWP&L.
Certain portions of MD&A and SEC regulation). For additional information regarding the terms
ofNotes to the Merger, see Note 2 of the "Notes to Consolidated Financial
Statements."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, 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 involving
WPLH, IES and IPC that was completed in April 1998. The primary first
tier subsidiaries of Alliant Energy include: WP&L, IESU, IPC, Resources
and Corporate Services.
WP&L was incorporated in Wisconsin in 1917 as the Eastern Wisconsin
Electric Company and is a public utility predominately engaged principally in the
generation, transmission, distribution and distributionsale of electric energyenergy; the
purchase, distribution, transportation and sale of natural gas; and the
generation and bulk purchaseprovision of electric
energy for sale. WP&L also transports, distributes and sells natural gas
purchased from gas suppliers.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, 1997,1999, WP&L supplied
electric and gas service to approximately 393,000407,000 and 155,000162,000
customers, respectively. WP&L also has approximately 32,00019,000 water
customers. The water operations are immaterial to WP&L overall. In 1997, 19961999, 1998 and 19951997, WP&L had no single customer for
which electric and/or gas sales accounted for 10% or more of WP&L's
consolidated revenues. WP&L owns all of the outstanding capital stock
of South Beloit, Water, Gas
and Electric Company (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 interestinterests in several other
subsidiaries and investments which are not material to WP&L's
operations.
ELECTRIC OPERATIONS
WP&L provides electricity in a service territory of approximately 16,000
square miles in 35 counties in southern and central Wisconsin and four counties
in northern Illinois.Electric Operations
As of December 31, 1997,1999, WP&L provided retail electric service to
approximately 393,000407,000 electric retail customers, in 615 cities, villages599 communities and towns,
and28
wholesale service to 25 municipal utilities, one privately ownedcustomers. WP&L's electric utility three rural electric cooperatives, one Native American nation and to the
Wisconsin Public Power, Inc. systemoperations accounted for
the provision83.3% of retail service to 14
communities.
Electric operations represented 79.8% of WP&L's total operating revenues and 90.5%89.9% of WP&L's total operating income for the year
ended December 31, 1997.1999.
Electric sales are seasonal to some extent with the yearlyannual peak
normally occurring in the summer months. In 1999, the maximum peak hour
demand for WP&L also experiences a smaller winter peak in
December or January. The maximum net hourly peak load on the electric system was 2,253 megawatts2,397 MW and occurred on July 16, 1997.
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WP&L's electric generating facilities include: four coal-fired generating
stations (including nine units; four jointly-owned), seven natural-gas-fired
peaking units, eight hydro-electric plants (two jointly owned), one gas-fired
steam generating plant and one nuclear power plant.
GAS OPERATIONS23, 1999.
Gas Operations
As of December 31, 1997,1999, WP&L provided retail natural gas service to
approximately 155,000162,000 gas customers in 243 cities, villages and towns in 22 counties
in southern and central Wisconsin and one county in northern Illinois. Gas235 communities. WP&L's utility
operations represented 19.6%accounted for 16.0% of WP&L's total operating revenues and 9.8%8.9% of
WP&L's total
operating income for the year ended December 31, 1997.1999.
WP&L's gas sales follow a seasonal pattern. There is an annual base
load of gas used for heating, cooking, water heating and other purposes, with a large
heating peak occurring during the heatingwinter season.
-A-4-
SELECTED FINANCIAL DATA
Year Ended December 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
1994 1993
--------- --------- --------- --------- ---------
(IN MILLIONS)-----------------------------------------------------------------------------
(in thousands)
Operating revenues...............................................revenues.................... $ 795752,505 $ 759731,448 $ 690794,717 $ 688759,275 $ 644
Net income689,672
Earnings available for
common stock............................ $ 68 $ 79 $ 75 $ 68 $ 60stock........................ 67,520 32,264 67,924 79,175 75,342
Cash dividends declared on
common stock.......................... $ 58 $ 66 $ 57 $ 56 $ 54stock........................ 58,353 58,341 58,343 66,087 56,778
Total assets (at December 31).................................... $ 1,665 $ 1,678 $ 1,641 $ 1,585 $ 1,551assets.......................... 1,766,135 1,685,150 1,664,604 1,677,814 1,641,165
Long-term obligations, net (at December 31)...................... $ 420 $ 371 $ 376 $ 394 $ 393net............ 471,648 471,554 420,414 370,634 375,574
The 1998 financial results reflect the recording of $17 million of
pre-tax merger-related charges.
-A-5-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(MD&A)
MERGER
In April 1998, WPL Holdings, Inc. (WPLH), IES Industries Inc. (IES)This MD&A includes information relating to Alliant Energy, IESU and
Interstate Power Company (IPC) completedWP&L (as well as IPC, Resources and Corporate Services). Where
appropriate, information relating to a three-way merger (Merger) forming
Interstate Energy Corporation (Merged Company). In connection with the Merger,
IES was merged withspecific entity has been
segregated and into WPLH forming the Merged Company and IPC became a
subsidiary of the Merged Company. The Merged Company operateslabeled as a registered
public utility holding company and is subject to regulation by the Securities
and Exchange Commission (SEC) under the Public Utility Holding Company Act of
1935 (PUHCA). Following the Merger, the holding companies for the nonregulated
businesses of the former WPLH and IES (Heartland Development Corporation (HDC)
and IES Diversified Inc. (Diversified), respectively) were merged, and the
resulting entity was renamed Alliant Industries, Inc. (Industries). As a result
of the Merger, the first tier subsidiaries of the Merged Company consist of:
Wisconsin Power and Light Company (WP&L), IES Utilities Inc. (IESU), IPC,
Industries, and Alliant Services Company (a regulatory service company required
under PUHCA and SEC regulation). For additional information regarding the terms
of the Merger, see Note 2 of the "Notes to Consolidated Financial Statements."
The Merged Company currently anticipates cost savings resulting from the
Merger of approximately $749 million over a ten-year period, net of transaction
costs and costs to achieve the savings of approximately $78 million.
Approximately $22 million of these costs had been incurred through December 31,
1997. Upon consummation of the Merger, the Merged Company estimates it will
expense approximately $40 million of additional merger-related costs (e.g.,
required payments to or for financial advisors,
A-3
employee retirements and separations, attorneys, accountants, etc.). The
estimate of potential cost savings constitutes a forward-looking statement and
actual results may differ materially from this estimate. The estimate is
necessarily based upon various assumptions that involve judgments with respect
to, among other things, future national and regional economic and competitive
conditions, technological developments, inflation rates, regulatory treatments,
weather conditions, financial market conditions, future business decisions and
other uncertainties. No assurance can be given that the entire amount of
estimated cost savings will actually be realized. In addition, the allocation
between WPLH, IES and IPC and their customers of the estimated cost savings of
approximately $749 million over ten years resulting from the Merger, net of
costs incurred to achieve such savings, will be subject to regulatory review and
approval.
As part of the approval process for the Merger, WP&L has agreed to various
rate freezes not to exceed four years commencing on the effective date of the
Merger (see "Liquidity and Capital Resources--Rates and Regulatory Matters" for
a further discussion).
Assuming capture of the anticipated merger-related synergies and no
significant legislative or regulatory changes affecting WP&L, WP&L does not
expect the merger-related electric and natural gas price freezes to have a
material adverse effect on its financial position or results of operations.such.
FORWARD-LOOKING STATEMENTS
Statements contained in this Annual Report of WP&Lreport (including MD&A) that are not of
historical fact are forward-looking statements intended to qualify for
the safe harborharbors from liability established by the Private Securities
Litigation Reform Act of 1995. From time to time, Alliant Energy, IESU
or WP&L (including its consolidated
subsidiaries) 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 WP&L.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 WP&L's 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 of WP&L and that such
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 include weather effects on sales and revenues,
competitive factors, general economic conditions in WP&L'sthe relevant
service territory, federal and state regulatory or government actions,
including issues associated with the deregulation of the utility
industry, unanticipated construction and acquisition expenditures,
issues related to stranded costs and the recovery thereof, the
operations of Alliant Energy's nuclear facilities, 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 Kewaunee Nuclear Power Plant (Kewaunee), the abilityvalue of
the Merged Company
to successfully integrate the operations of WPLH, IESAlliant Energy's investment in McLeod, technological developments,
employee workforce factors, including changes in key executives,
collective bargaining agreements or work stoppages, political, legal
and IPCeconomic conditions in foreign countries Alliant Energy has
investments in and changes in the rate of inflation.
UTILITY INDUSTRY OUTLOOK
WP&LAs a holding company with significant utility assets, Alliant Energy
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. As legislative,
regulatory, economic and technological changes occur, electric
utilities are faced with increasing
pressure to become more competitive.facing increased numbers of alternative suppliers. Such
competitive pressures could result in loss of customers and an
A-4
incurrence of stranded costs (i.e., assets and other costs rendered
unrecoverable as the result of competitive pricing). To 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
supplier 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 19971999 in Wisconsin
and 2% in Illinois. Approximately 75%84% of the electric revenues in 19971999
were regulated by the Public Service Commission of Wisconsin (PSCW)PSCW or the ICC while the other 25%16% were
regulated by the Federal Energy Regulatory Commission (FERC).FERC. WP&L realized 96% of its gas utility revenues in
19971999 in Wisconsin and 4% in Illinois.
FEDERAL REGULATIONFederal Regulation
IESU, WP&L isand IPC are subject to regulation by the FERC. The National Energy Policy Act of
1992NEPA
addresses several matters designed to promote competition in the
electric wholesale power generation market. In 1996, FERC has issued final rules
(FERC Orders 888888/888-A and 889)889/889-A) requiring electric utilities to
open their transmission lines to other wholesale buyers and sellers of
electricity. In March 1997, FERC issued
orders on rehearing for Orders 888 and 889 (Orders 888-A and 889-A). In response to FERC Orders 888 and 888-A, Corporate
Services, on behalf of IESU, WP&L and IPC, has on filefiled Open Access
Transmission Tariffs that comply with the FERC pro forma open
access transmission tariffs.orders. In response to FERC
Orders 889 and 889-A, IESU, WP&L isand IPC are participating in a
regional Open Access Same-Time Information System. WP&L
cannot predict the long-term consequences of these rules on its results of
operations or financial condition.
FERC Order 888 permits utilities to seek recovery of legitimate,
prudent and verifiable stranded costs associated with providing open
access and 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
of 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.
WISCONSIN REGULATIONIn 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 subsidiaries cannot predict the
long-term consequences of these rules on their financial condition or
results of operations.
State Regulation
Wisconsin
WP&L is subject to regulation by 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 in theregarding natural gas docketservice
-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) in a step-wise manner, after each class has been
demonstrated to have a sufficient number of gas suppliers available.
In 1997, a
number of working groups were established by the PSCW and these working groups
are addressing numerous subjects which need to be resolved before deregulation
may proceed.
The short-term goals of the PSCW's electric restructuring process are
to ensure reliability of the state's electric system and development of
a robust wholesale electric market. The longer-termlong-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 the electric utility industry. It is not possible to
predict at 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 included in the WUHCA and the formation
of a Wisconsin transmission company for those Wisconsin utility holding
companies who elect 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) 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. ATC will be regulated by FERC
for all rate terms and conditions of service. ATC will be a
transmission-owning member of the Midwest ISO and will transfer
operational control of the 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 is
following a timetablehas not yet determined the exact scope of the assets that must
be transferred to make this latterthe ATC. Pending the final determination on allowing customer
choice in 1999-2000.
On September 26, 1996, the PSCW issued an order which establishes the
minimum standards for a Wisconsin Independent System Operator (ISO). The
standards will be applied by the PSCW,
WP&L estimates it will transfer approximately $150 million in Advance Plan proceedings, merger review
cases, transmission construction casesplant
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 other proceedings as appropriate. The
order provides that the standards will be reviewed and revised as necessary in
light of ongoing
A-5
regional and national events, such as FERC requirements or policy, regional
institutions, or relevant actions of neighboring states. In approving the
Merger, the PSCW gave the merger partners a choice of either filing their own
ISO proposal, giving notice of their intent to join a regional ISO or spinning
off existingIPC's transmission assets and operations into a separate independent
transmission company. IESU, IPC andto ATC as well. Alliant Energy
estimates the net book value of such plant assets to approximate
$220 million. While Alliant Energy will realize its proportionate share
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 developed an ISO proposal of their own.
However, the PSCW did not believe it met the PSCW's ISO guidelines. IESU,and IPC and WP&L subsequently asked the PSCW to permit them to join the Midwest ISO, a
regional ISO that has been filed with FERC. The member companies of the ISO
would retain ownership of the facilities, but the ISO would assume control of
the facilities, set rates for access and assure fair treatment for all companies
seeking access. Various other proposals for ISOs, which are being monitored by
the merger partners, have been proposed by other entities.
In addition to the ISO proceedings, the PSCW has issued an order outlining
its policies and principles for Public Benefits (low-income assistance, energy
efficiency, renewable generation and environmental research and development)
including funding levels, administration of the funds and how funds should be
collected from customers. The PSCW has proposed increasing funding levels
through utility rates by $50 to $75 million statewide. Legislation to implement
this proposal is being developed and likely will be introduced in 1998.
The PSCW has also initiated a Service Quality administrative rulemaking
process to establish measurement and reporting requirements for reliability of
service, call center answering times, safety, tree trimming, generation,
transmission and distribution inspection and maintenance plans, etc. A hearing
was held on these issues in March 1998.
ILLINOIS REGULATION
South Beloit is subject to regulation by the Illinois Commerce Commission.
TheICC. In December 1997,
the State of Illinois has passed electric deregulation legislation
requiring customer choice of electric suppliersuppliers for non-residential
customers with loads of four MW or larger and for approximately
one-third of all other non-residential customers bystarting October 1,
1999. All remaining non-residential customers will be eligible for
customer choice beginning December 31, 2000 and all residential
customers will be eligible for customer choice beginning May 1, 2002.
SUMMARY
WP<he new legislation is not expected 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 Statement of Financial Accounting
Standards No.SFAS 71, (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 ratemakingrate making process in different periods than
for nonregulatednon-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. If a
portion of WP&L'sthe utility subsidiaries' operations becomes no longer
subject to the provisions of SFAS 71 as a result of competitive
restructurings or otherwise, a write-down of related regulatory assets
and possibly other charges 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, WP&Leach utility subsidiary would
be required to determine any impairment of other assets and write-down
any impaired assets to their fair value. Management believes WP&L
meetsThe utility subsidiaries
believe they currently meet the requirements of SFAS 71.
WP&L71 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 above on itstheir financial condition or results of operations or
financial condition.operations.
The major objective is to allow WP&Lthe company to better prepare forcompete successfully in
a competitive, deregulated utility industry. The strategy for dealing
with these A-6
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.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 opportunities for new sources of growth.
Alliant Energy, through its subsidiary Resources, has established new
distinct platforms to complement its existing non-regulated
investments, which are designed 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 stake 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. and the United Kingdom.
Cargill-Alliant: Alliant Energy has an energy-trading joint
venture with Cargill that combines the risk-management and commodity
trading expertise of Cargill with Alliant Energy's low-cost electricity
generation and transmission business experience. Cargill-Alliant
officially began operations in 1997 and has an initial term though
October 2002. The term automatically renews for successive five-year
periods unless either party notifies the other at least one year prior
to the then expiring term.
Mass Markets: Resources is 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 mail with the
catalog and over the Internet. Resources expects to continue pursuing
opportunities in these markets, which it believes has a growth
potential as industry deregulation allows more customers to choose
their energy suppliers in an open market.
Alliant Energy believes that each of these platforms provide prospects
for growth both individually and collectively as the competitive
energy-services marketplace evolves. Alliant Energy expects that these
strategies 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 3-5 years.
WP&L RESULTS OF OPERATIONS--1997 COMPARED WITH 1996
OVERVIEWOPERATIONS
Overview
WP&L reported consolidated net income&L's earnings available for common stock of $67.9increased $35.3 million and
decreased $35.7 million in 1999 and 1998, respectively. The increased
earnings for 1997, as compared to $79.2 million for 1996. The decrease in
earnings in 1997 was1999 were primarily due to lower$17.3 million of merger-related
expenses in 1998, higher electric and natural gas margins, reduced
other operation and electric margins,maintenance expenses and income realized from
weather hedges. Such increases were partially offset by increased
depreciation and amortization expense (excluding hedge losses in WP&L's
nuclear decommissioning trust fund) and higher depreciation expense and the recognition of a gain on the sale of a combustion
turbine in 1996.
Gas and electric marginsinterest expense. The
decreased earnings for 1998 were down $4.2 and $2.0 million, respectively, in
1997 as compared to 1996. The decrease in gas margin was primarily due to lower
weather-drivenmerger-related
expenses, higher purchased-power and transmission costs, higher
depreciation and amortization expenses, decreased retail natural gas
sales largely due to residential customers as well asmilder weather, higher insurance-related expenses,
higher interest expense and a 2.2% average retail
gas rate decrease which went into effect on April 29, 1997. The lower electric
margin was the result ofhigher effective tax rate. These
decreases were partially offset by a 2.4% average3% increase in retail electric
rate decrease effective
April 29, 1997, as well as higher purchased power expensesales volumes, largely due to an extended
outage at Kewaunee. Sales to other utilities and continued economic strengthgrowth in WP&L'sthe service
territory, partially offset the impact of the declinereduced employee pension and benefit costs and lower costs
in margin.
In addition, income in 1997 was lower than 19961998 due to increased expensesmerger-related operating efficiencies.
-A-10-
Electric Utility Operations
Electric margins and MWH sales for plant maintenance, depreciationWP&L for 1999, 1998 and interest.
ELECTRIC OPERATIONS1997
were as follows:
REVENUES AND COSTS
KWHS SOLD CUSTOMERS AT
(IN THOUSANDS) (IN THOUSANDS) YEAR END
-------------------- -------------------- --------------------Revenues and Costs MWHs Sold
(in thousands) (in thousands)
------------------------------------------------- -----------------------------------------
1999 1998 * 1997 1996** 1999 1998 * 1997 1996 1997 1996
--------- --------- CHANGE --------- --------- CHANGE --------- ---------
----------- -------------**
----------------------------------------------------------------------------------------------
Residential.................... $ 199,633 $ 201,690 (1%) 2,973,932 2,979,826
Residential.................. $213,496 $198,770 7% $199,633 -- 343,637 336,933
Commercial.....................3,111 2,964 5% 2,974 --
Commercial................... 116,947 108,724 8% 107,132 105,3191% 1,980 1,898 4% 1,878 1%
Industrial................... 171,118 162,771 5% 152,073 7% 4,570 4,493 2% 1,877,640 1,814,3244,256 6%
------- ------- --------- ------ ----- -----
Total from ultimate
customers................. 501,561 470,265 7% 458,838 2% 9,661 9,355 3% 46,823 45,669
Industrial..................... 152,073 143,734 6% 4,255,637 3,985,672 7% 855 8159,108 3%
Sales for resale...............resale............. 102,751 128,536 (20%) 160,917 131,836 22% 5,823,521 5,245,812(20%) 3,252 4,492 (28%) 5,824 (23%)
Other........................ 22,295 15,903 40% 14,388 11% 122 90
Other.......................... 14,388 6,903 108% 61,330 57,757 6% 1,753 1,730
--------- --------- --------- --------- --------- ---------
Total........................54 59 (8%) 60 (2%)
------- ------- ------- ------ ----- ------
Total revenues............ 626,607 614,704 2% 634,143 589,482 8% 14,992,060 14,083,391 6% 393,190 385,237
--
--
--------- --------- --------- ---------
--------- --------- --------- ---------(3%) 12,967 13,906 (7%) 14,992 (7%)
====== ====== =======
Electric Production Fuels......production fuels
expense................... 110,521 120,485 (8%) 116,812 114,470 2%3%
Purchased Power................power expense...... 107,598 113,936 (6%) 125,438 81,108 55%
--------- ---------
Margin....................... $ 391,893 $ 393,904 (1%(9%)
--------- --------- ---
--------- --------- ---
CHANGE
-------------
Residential.................... 2%
Commercial..................... 3%
Industrial..................... 5%
Sales for resale............... 36%
Other.......................... 1%
Total........................ 2%
--
--
Electric Production Fuels......
Purchased Power................
Margin.......................------- ------- --------
Margin.................... $408,488 $380,283 7% $391,893 (3%)
======== ======== ========
* Reflects the % change from 1998 to 1999.
** Reflects the % change from 1997 to 1998.
Electric revenuesmargin increased $44.7$28.2 million, or 8%7%, and decreased
$11.6 million, or 3%, during 1999 and 1998, respectively. The 1999
increase was primarily due to separate $15 million annual rate
adjustments implemented at WP&L in 1997 as compared with
1996. Continued customerJuly 1998 and March 1999 to recover
higher purchased-power and transmission costs. An increase in retail
sales of 3% due to more favorable weather and economic growth economic strength inwithin
WP&L's service territory also contributed to the service area and
increasedincrease. Partially
offsetting the 1999 increase were lower sales to other utilities offset the impactoff-system and
wholesale customers due to transmission constraints and decreased
contractual commitments and $3.2 million of cooler summer weatherrevenues 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 warmer weather during the winter months of 1997. Revenues were also affected
by an average retailtransmission costs, a rate
decrease of 2.4% effectiveimplemented in April 29, 1997. Other
revenues increased in 1997 compared with 1996 due to increases in conservation
services. Refer to the "Liquidity and Capital Resources--Rates and Regulatory
Matters" section below for further discussion of these rate modifications.
Despite higher electric revenues, electric margin decreased $2.0 million, or
1%, as compared with 1996. The decline in margin reflects the impact of the
shutdown at Kewaunee throughout most of the first half of 1997 for steam
generator tube repairs as well as several temporary, routine outages atlower off-system sales
income. These items were partially offset by WP&L's
coal-
A-7
fired plants through the first five months of 1997. These outages caused a
greater reliance on more
costly purchasedpurchased-power in the first six months of 1997 due to various
power to meet customer requirements.
The PSCW orderedplant outages, particularly Kewaunee, and a temporary customer surcharge effective April 29, 1997 through
July 1, 1997, to allow WP&L to recover a portion of the higher purchased power
costs associated with the Kewaunee outage. Refer to the "Liquidity and Capital
Resources--Capital Requirements" section below for further discussion of the
Kewaunee plant outage. The Kewaunee outage and increased sales to other
utilities resulted in a 55%3% increase in the cost of purchased power.
For a discussion of electric capacityretail
sales.
-A-11-
Gas Utility Operations
Gas margins and reliability refer to "Other
Matters--Power Supply" section below.
GAS OPERATIONSDth sales for WP&L for 1999, 1998 and 1997 were
as follows:
REVENUES AND COSTS
THERMS SOLD CUSTOMERS AT
(IN THOUSANDS) (IN THOUSANDS) YEAR END
-------------------- -------------------- --------------------Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
------------------------------------------------ -------------------------------------------
1999 1998 * 1997 1996** 1999 1998 * 1997 1996 1997 1996
--------- --------- CHANGE --------- --------- CHANGE --------- ---------
----------- -----------**
----------------------------------------------------------------------------------------------
Residential.........................
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.................... $ 90,382 (6%) 127,704 142,97456,697 $ 50,328 13% $ 56,616 (11%)
137,827 133,580
Commercial.......................... 45,456 46,703 (3%) 85,917 91,665 (6%) 16,653 16,083
Industrial.......................... 8,378 11,410 (27%) 17,144 19,974 (14%) 488 529
Transportation and other............ 17,536 17,132 2% 175,943 185,671 (5%) 358 252
--------- --------- --------- --------- --------- ---------
Total............................. 155,883 165,627 (6%) 406,708 440,284 (8%) 155,326 150,444
--
--
--------- --------- --------- ---------
--------- --------- --------- ---------
Purchased Gas....................... 99,267 104,830 (5%)
--------- ---------
Margin............................ $ 56,616 $ 60,797 (7%)
--
--
--------- ---------
--------- ---------
CHANGE
-------------
Residential......................... 3%
Commercial.......................... 4%
Industrial.......................... (8%)
Transportation and other............ 42%
Total............................. 3%
--
--
Purchased Gas.......................
Margin............................======== ======== ========
* Reflects the % change from 1998 to 1999.
** Reflects the % change from 1997 to 1998.
Gas revenues decreased $9.7margin increased $6.4 million, or 6%13%, in 1997 as compared with 1996.and declined $6.3 million,
or 11%, during 1999 and 1998, respectively. The decline in revenues and margin reflected an average retail rate decrease of
2.2%, effective April 29, 1997, and lower sales. Therm sales declined by 8%1999 increase was due
to warmerincreased sales resulting from customer growth of approximately 2%
and more favorable weather conditions in the winter months of 1997. This1999. The 1998 decrease was
directly
reflected in the decline in revenues and corresponding $4.2 million, or 7%,
decrease in margin. WP&L realized favorable contributions to gas margin of $0.6
million and $1.1 million for 1997 and 1996, respectively, through its gas
incentive program. Refer to the "Liquidity and Capital Resources--Rates and
Regulatory Matters" section below for further discussion of this adjustment
mechanism.
OTHER OPERATION EXPENSE
Other operation expense decreased $8.9 millionprimarily due to a reduction in sales resulting from milder weather 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 Expense and Other" for a discussion of income realized from
two gas weather hedges in 1999.
Refer to Note 1(i) of the "Notes to Consolidated Financial Statements"
for a discussion of a 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.
Other Operating Expenses
Other operation expenses decreased $17.2 million and increased
$12.3 million for 1999 and 1998, respectively. The 1999 decrease was
primarily due to $11.2 million of merger-related expenses in 1998 for
employee retirements, separations 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 were partially
offset by increased costs for energy conservation, employee incentive
compensation and employee benefits expenses. The 1998 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 of $8.8and lower costs from
merger-related operating efficiencies.
Maintenance expenses decreased $4.3 million resulting from the retail rate order,
effective April 29, 1997. Partially offsetting thisin 1999. The decrease was
an additional
$3.0 million of operating expense in the fourth quarter of 1997,primarily due to lower nuclear expenses and reduced transmission and
distribution maintenance expenses. Such decreases were partially offset
by increased expenses associated with an early retirement program for eligible bargaining unit employees.
MAINTENANCE EXPENSE
Maintenance expense increased $1.6 million as a result of higher plant
maintenance expenses at Kewaunee and several of WP&L's coal-fired plants, as
discussed above under "Electric Operations."
DEPRECIATION AND AMORTIZATION EXPENSEYear 2000 readiness efforts.
Depreciation and amortization expense decreased $6.2 million and
increased $19.4$14.9 million for 1999 and 1998, respectively. The 1999
decrease was due to higher
depreciation rates approved by the PSCW, effective January 1, 1997, and property
additions. The increases approved by the
A-8
PSCW included higher depreciation expense for Kewaunee, based on the use of an
accelerated plant end-of-life, increased contributions toreduced earnings in the nuclear decommissioning
trust fund (offset entirely in "Miscellaneous, net") and other items. (Seethe
$3.2 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, higher Kewaunee depreciation (refer to
"Liquidity and Capital Resources--Capital Requirements"Requirements--Nuclear
Facilities" for additional information).
INTEREST EXPENSE AND OTHER and the Kewaunee surcharge.
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.
Interest expenseExpense and otherOther
Interest expense increased $4.4 million and $4.0 million in 1999 and
1998, respectively. The 1999 increase was primarily due to higher
short-term borrowings and the recognition1998 increase was primarily due to an
adjustment to decrease interest expense in 1996 of1997 relating to a gaintax audit
settlement and increased borrowings during 1998.
Miscellaneous, net income decreased $3.0 million and $2.7 million in
1999 and 1998, respectively. The 1999 decrease was primarily due to
lower earnings on the salenuclear decommissioning trust fund, partially
offset by $6.1 million of a combustion turbine.
INCOME TAXESmerger-related expenses in 1998 and pre-tax
income of $5 million recognized in 1999 associated with the settlement
of gas weather hedges. See Note 10(c) of the "Notes to Consolidated
Financial Statements" for additional information relating to the gas
weather hedges. The 1998 decrease in income taxes between periods reflects lower taxable income
and an adjustment of prior period taxes.
RESULTS OF OPERATIONS--1996 COMPARED WITH 1995
OVERVIEW
WP&L reported consolidated net income available for common stock of $79.2
million in 1996 as comparedwas primarily due to $75.3 million in 1995. The increase in earnings
in 1996 primarily reflects continued customer growth in the service territory
and increased power marketing activitymerger-related
expenses, which contributed to a $9 million
increase in electric margin in 1996 as compared with 1995. Gas margins also
increased due primarily to higher weather-driven sales. (See "Electric
Operations" and "Gas Operations" below). In addition, a $3.4 million after-tax
gain on the sale of a combustion turbine was recognized during 1996. These
events were partially offset by higher plant maintenanceearnings on the nuclear
decommissioning trust fund.
Income Taxes
The effective income tax rates were 39.2%, 41.0% and depreciation
expenses37.0% in 1996.
ELECTRIC OPERATIONS
REVENUES AND COSTS
KWHS SOLD CUSTOMERS AT
(IN THOUSANDS) (IN THOUSANDS) YEAR END
-------------------- -------------------- --------------------
1996 1995 1996 1995 1996 1995
--------- --------- CHANGE --------- --------- CHANGE --------- ---------
------------- -------------
Residential.................... $ 201,690 $ 199,850 1% 2,979,826 2,937,825 1% 336,933 329,643
Commercial..................... 105,319 102,129 3% 1,814,324 1,773,406 2% 45,669 44,730
Industrial..................... 143,734 140,562 2% 3,985,672 3,872,520 3% 815 795
Sales for resale............... 131,836 97,350 35% 5,245,812 3,109,385 69% 90 48
Other.......................... 6,903 6,433 7% 57,757 54,042 7% 1,730 1,294
--------- --------- --------- --------- --------- ---------
Total........................ 589,482 546,324 8% 14,083,391 11,747,178 20% 385,237 376,510
--
--
--------- --------- --------- ---------
--------- --------- --------- ---------
Electric Production Fuels...... 114,470 116,488 (2%)
Purchased Power................ 81,108 44,940 80%
--------- ---------
Margin....................... $ 393,904 $ 384,896 2%
--
--
--------- ---------
--------- ---------
CHANGE
-------------
Residential.................... 2%
Commercial..................... 2%
Industrial..................... 3%
Sales for resale............... 88%
Other.......................... 34%
Total........................ 2%
--
--
Electric Production Fuels......
Purchased Power................
Margin.......................
Electric margin increased $9.0 million, or 2%, during 1996 compared with
1995 primarily due1999,
1998 and 1997, respectively. See Note 5 of the "Notes to higher sales to commercial and industrial customers as
well as other utilities combined with reduced costs per kWhConsolidated
Financial Statements" for electric
production fuels and purchased power. Although fuel and purchased power costs
declined on a per kWh basis, purchased power expense increased by 80%. This
increase was due to WP&L's higher level of sales to other utilities as well as a
$5.0 million increase in purchased power related to purchases of replacement
power during the extended 1996 refueling outage at Kewaunee. Partially
A-9
offsetting increased purchased power costs were slightly lower delivered coal
and nuclear fuel costs per kWh.
GAS OPERATIONS
REVENUES AND COSTS
THERMS SOLD CUSTOMERS AT
(IN THOUSANDS) (IN THOUSANDS) YEAR END
-------------------- -------------------- --------------------
1996 1995 1996 1995 1996 1995
--------- --------- CHANGE --------- --------- CHANGE --------- ---------
----------- -----------
Residential......................... $ 90,382 $ 70,382 28% 142,974 126,903 13% 133,580 129,576
Commercial.......................... 46,703 35,411 32% 91,665 82,448 11% 16,083 15,724
Industrial.......................... 11,410 17,984 (37%) 19,974 21,435 (7%) 529 566
Transportation and other............ 17,132 15,388 11% 185,671 168,702 10% 252 227
--------- --------- --------- --------- --------- ---------
Total............................. 165,627 139,165 19% 440,284 399,488 10% 150,444 146,093
--
--
--------- --------- --------- ---------
--------- --------- --------- ---------
Purchased Gas....................... 104,830 84,002 25%
--------- ---------
Margin............................ $ 60,797 $ 55,163 10%
--
--
--------- ---------
--------- ---------
CHANGE
-------------
Residential......................... 3%
Commercial.......................... 2%
Industrial.......................... (7%)
Transportation and other............ 11%
Total............................. 3%
--
--
Purchased Gas.......................
Margin............................
Gas margins increased $5.6 million, or 10%, during 1996 compared with 1995
primarily as a result of higher sales. Therm sales increased 10% due to a
combination of colder weather during the first five months of 1996 as compared
to 1995, and customer growth of 3%. The 19% increase in gas revenues reflects
not only the higher therm sales but also the pass through of higher natural gas
costs to WP&L's customers. WP&L realized favorable contributions to gas margins
of $1.1 million and $0.8 million for 1996 and 1995, respectively, due to
favorable gas procurement activities. Refer to the "Liquidity and Capital
Resources--Rates and Regulatory Matters" section below for further discussion of this adjustment mechanism.
MAINTENANCE EXPENSE
Maintenance expense increased $4.4 million due to higher plant maintenance
and the extended 1996 refueling outage at Kewaunee (See "Liquidity and Capital
Resources--Capital Requirements" section below).
DEPRECIATION
Depreciation expense increased $3.8 million as a result of property
additions and greater amortization of contributions in aid of construction (a
reduction of expense) in 1995.
INTEREST EXPENSE AND OTHER
Interest expense was lower in 1996 compared to 1995 by $2.3 million as a
result of less short-term debt outstanding and a slight decrease in interest
rates. Other income increased $4.1 million due to a $5.7 million gain on the
sale of a combustion turbine.
INCOME TAXES
Income taxes increased for 1996 as a result of higher taxable income. The
effective tax rate was 39.5% and 36.7% for 1996 and 1995, respectively. The
lower rate in 1995 was the result of prior years' tax contingencies resolved
favorably in 1995 and increased non-deductible Merger expenses in 1996.
A-10
changes.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities at WP&L decreased to $149$14 million in
1997for
the year ended December 31, 1999, compared with $188 millionthe same period in
19961998, primarily due to a reduction in net
income and the changechanges in working capital.capital, partially offset by
higher net income. Cash flows used for financing activities decreased
$34 million for the year ended December 31, 1999, compared with the
same period in 1998, primarily due to $0.4a capital contribution of
$30 million in 1997 as compared to $77.4 million in 1996 resulting
from a net increase in the amount of long-term debt outstanding during 1997.Alliant Energy. Cash flows used for investing
activities were significantly lower in 1996 asincreased $17 million for the year ended December 31, 1999,
compared with 1997 and 1995the same period in 1998, primarily due to the proceeds received in 1996 from the sale
of other property and equipment. Times interest earned before income taxes for
WP&L for 1997, 1996 and 1995 was 4.47, 5.33 and 4.67, respectively.increased
construction expenditures.
Future Considerations
The capital requirements of WP&L will beAlliant Energy are primarily attributable
to its utility subsidiaries' construction program and acquisition programs, its
debt maturities. WP&L anticipatesmaturities 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. The level of cash generated from operations is partially
dependent upon economic conditions, legislative activities,
environmental matters and timely regulatory recovery of utility costs.
WP&L'sAlliant Energy's liquidity and capital resources will be affected by
costs associated with environmental and regulatory issues. Emerging
competition in the utility industry could also impact WP&L'sAlliant Energy's
liquidity and capital resources, as discussed previously in the
"Utility Industry Outlook" section.
FINANCING AND CAPITAL STRUCTUREAlliant 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. At December 31, 1999, Resources had
approximately $198 million of investments in foreign entities. At
December 31, 1999, IESU, 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 WP&LAlliant Energy and certain subsidiaries by Moody's and
Standard & Poor's are as follows:
MOODY'S
(AS OF STANDARDMoody's Standard & POOR'S
3/26/98) (AS OF 3/2/98)
------------- -----------------Poor's
-------------------------------
IESU................................... - Secured long-term debt...........................debt A2 A+
- Unsecured long-term debt A3 A
WP&L................................... - Secured long-term debt Aa2 AA
Corporate credit rating (a)...................... N/A AA-- Unsecured long-term debt.........................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) The "Corporate credit rating"Resources' debt is the overall rating of the parent
companyfully and is usedunconditionally guaranteed by
Standard & Poor's but not by Moody's. Effective
with the Merger,Alliant Energy.
(b) IESU, WP&L willand IPC participate in a utility money pool which will
bethat is
funded, as needed, by the Merged Company through the issuance of commercial paper. Thispaper 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 will replace the commercial
paper program previously in effect at WP&L.
The following material long-term debt financing activities took place at WP&L in
1997--
- On April 28, 1997, WP&L entered into an interest rate forward contractbut is able to hedge interest rate risk related to the anticipated issuance of $105
million of long-term debt securities. The securities were issued on June
30, 1997 (7.00% interest rate, maturing in 2007) and the forward contract
was settled which resulted in a cash payment of $3.8 million by WP&L. This
payment is being recognized as an adjustment to interest expense over the
life of the new debt securities to approximate the interest rate implicit
in the forward contract.
- WP&L utilized the net proceedsborrow money from the
issuance of the $105 million of
debt securities described above to repay maturing short-term debt, finance
utility construction expenditures and to repay at maturity $55 million of
WP&L's First Mortgage Bonds, Series Z, 6.125%.
A-11
money pool.
Other than periodic sinking fund requirements, which will not require
additional cash expenditures, WP&L has $10.8 million ofthe following long-term debt that(in
millions) will mature prior to December 31, 2002.2004:
Alliant
IESU 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 currently has no authority fromfiled an application with the PSCW or the SECfor
authority to issue additional long-term debt but is evaluating its
future financing needs and will make the necessary regulatory filings as needed.
Under the most restrictive terms of its indentures, WP&L could have issued
at least $276up to $100 million of long-term debtdebentures for the purpose of
refinancing existing debt. Approval was granted in February 2000 and
the senior unsecured debentures were issued in March 2000 at December 31, 1997. In addition, at
December 31, 1997, WP&L could have issued 2,700,775a 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.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 isand IPC were authorized by the
PSCWapplicable federal or state regulatory agency to issue $138short-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
andoutstanding at December 31, 1997 had $81 million outstanding.1999. In addition to providing for ongoing
working capital needs, this availability of short-term financing
provides WP&Lthe 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 uses theuse
proceeds from the sale of accounts receivable and unbilled revenues to
finance a portion of itstheir long-term cash needs. WP&LAlliant 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.
In December 1999, Alliant Energy, IESU, WP&L hadand IPC filed an
application with the SEC for approval 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, which in turn will sell the receivables to an outside
investor. The new program would replace the existing programs for IESU
and WP&L, and would function the same in most respects. Approvals from
the SEC and the necessary state commissions are expected in the second
quarter of 2000.
Alliant Energy has $250 million of committed bank lines of credit, of
$70 million at December 31, 1997 available
to support its borrowings of which none of this amount was utilized at December 31, 1997.1999, available for direct
borrowing or 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, WP&LAlliant 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, 1997.1999.
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. Approval of the filing was received from the SEC in
August 1999.
Given the above financing flexibility, availableincluding Alliant Energy's
access to WP&L,both the debt 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
GENERALCapital Requirements
General
Capital expenditure and investment and financing plans are subject to
continual review and change. The capital expenditure and investment
programs may be revised significantly as a result of many
considerations, including changes in economic conditions, variations in
actual sales and load growth compared to forecasts, requirements of
environmental, nuclear and other regulatory authorities, acquisition
-A-15-
and business combination opportunities, the availability of alternate
energy and purchased powerpurchased-power sources, the ability to obtain adequate and
timely rate relief, escalations in construction costs and conservation
and energy efficiency programs.
WP&L's levelsconstruction 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 utilitywhich 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 $133$166 million in 1998,2001, $181 million in 2002,
$192 million in 2003 and $136 million in 1999, $138 million2004, which include
expenditures to comply with NOx emissions reductions as discussed in
2000, $141 million in 2001 and $144 million in 2002. WP&L"Other Matters--Environmental."
Alliant Energy anticipates funding
the large majority of itsfinancing utility construction and acquisition expenditures
during 1998-20022000-2004 through internally generated funds supplemented, when
required, by outside financing. Funding of Resources' construction and
acquisition expenditures over that same period of time is expected to
be completed with a combination of external financings, as needed. With this objectivesales of
investments and internally generated funds.
Nuclear Facilities
Alliant Energy owns interests in place, WP&L financed 73% of its
construction expenditures during 1997 from internal sources.
A-12
NUCLEAR FACILITIEStwo nuclear facilities, Kewaunee and
DAEC. Kewaunee, a 535-megawatt (nameplate capacity)532 MW pressurized water reactor plant, is operated
by Wisconsin Public Service Corporation (WPSC)WPSC and is jointly owned by WPSC (41.2%), WP&L (41.0%), and Madison Gas & Electric Company (MG&E)MG&E
(17.8%). The Kewaunee operating license expires in 2013. Kewaunee returned to service on June 12, 1997 after having been out of
service since September 21, 1996DAEC, 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 refueling, routine maintenance, and repairreplacement
of the two steam generators. The original Kewaunee steam generator tubes are
susceptible to corrosion. Tubes are repaired by inserting sleeves (tubes within
tubes) in the original steam generator tubes. The most recent repair was
undertaken when previously repaired tubes failed. The repair consisted of
removing old sleeves and inserting new slightly longer sleeves which cover the
areas of concern in the original steam generator tubes. The new sleeves will be
inspected during the next refueling and maintenance outage which is scheduled
for the Fall of 1998. As of this filing, Kewaunee had remained in continuous
operation since the plant was returned to service with the exception of a
one-week outage for replacement of a reactor coolant pump seal. Kewaunee is
operatinggenerators at 97% of rated capacity because certain steam generator tubes have
been removed from service rather than repaired.
In accordance with PSCW authorization, WP&L had deferred $3.1 million at
December 31, 1997, associated with Kewaunee steam generator repair costs. In
March 1998, the PSCW approved recovery of these costs through a customer
surcharge effective April 1, 1998 through May 31, 1998.Kewaunee. The total cost of replacing
the two steam generators wouldwill be approximately $89.0$90.7 million, of whichwith WP&L's
share would be $36.5of the cost being approximately $37.2 million. BecauseThe replacement
work originally planned for the spring of work
already completed,2000 is now scheduled for the
elapsed time from placing a firm orderfall of 2001 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 receiving delivery has been shortened to approximately 22 months.
Theshutdown the plant for a spring 2000
refueling remain unchanged.
On July 2, 1998, the PSCW approved an agreement between the owners of
Kewaunee have differing viewswhich provides for WPSC to assume the 17.8% Kewaunee ownership
share currently held by MG&E prior to work beginning on the desirabilityreplacement
of proceeding withsteam 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 project. Althoughin the new
resleeving repair technology may allowfall 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 remain in service for an
extended period of time, WPSC favors replacement at the earliest possible date
because of reliability and cost concerns related to steam generator repairs.
WP&L and MG&E have been unwilling to support replacement. In March 1996, WPSC
filed an application withJuly 2, 1998 PSCW decision, the PSCW
for permission to replace the Kewaunee steam
generators. This application was approved in April 1998. The issues related to
the continued operation and future ownership still need to be resolved before
steam generator replacement can proceed. The joint owners continue to analyze
and discuss other options related to the future of Kewaunee including various
ownership transfer alternatives. If it should become necessary to retire
Kewaunee permanently, WP&L would replace the Kewaunee generation through a
combination of purchased power, increased generation at existing WP&L generating
units and new generating unit additions, if necessary.
The PSCW hashad directed the owners of Kewaunee to developrecord depreciation and
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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. At December 31, 1997,This level of depreciation will remain in
effect until the net carrying amount of WP&L's investment
in Kewaunee was approximately $45.7 million. The current cost of WP&L's sharesteam 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 estimated costsNMC to decommission Kewauneesustain 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 $181.3 million and exceeds the
trust assets at December 31, 1997 by $68.9 million. The costs of decommissioning
are assumedsolely to escalate at an annual rate of 5.83%. WP&L's retail customersinvest in the Wisconsin jurisdictionNMC. 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
responsiblerequired 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 approximately 80% of WP&L's share
of Kewaunee costs.
A-13
As a result of accelerating the recovery of WP&L's share of Kewaunee related
costs, depreciation expensesafe operation,
maintenance and decommissioning funding will increase
approximately $3.0 million (from $4.8 million to $7.8 million) and $5.4 million
(from $10.7 million to $16.1 million), respectively, on an annualized basis.
During 1997, $6.5 million of depreciation expensethe plants.
For additional information related to unrecovered plant
investment was recognized compared to $4.8 million which was recognized in 1996.
During 1997, decommissioning expense associated with funding increased to $14.3
million from $10.7 million in 1996. The $14.3 million represents a combinationKewaunee, see Notes 1, 9, 11 and
12 of the annual funding levels in accordance with UR-109 through April 29, 1997
and UR-110 post-April 29, 1997. Customer rates, which became effective in
Wisconsin on April 29, 1997, are designed"Notes to recover the accelerated Kewaunee
depreciation and decommissioning costs.Consolidated Financial Statements." Refer to the
"Other Matters--Environmental" section for a discussion of various
issues impacting WP&L'sAlliant Energy's future capital requirements.
RATES AND REGULATORY MATTERSRates 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.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,merger, the PSCW accepted a WP&L
proposal to freeze rates for four years followingcommencing on the effective
date of the Merger.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-relatedmerger-related and have a
revenue requirement impact of $4.5 million or more. In rate order UR-110, the PSCW approved new rates effective April 29, 1997
through 1998. On average, WP&L's retail electric rates declined by 2.4% and
retail gas rates declined by 2.2%. Other items included in the rate order were:
authorization of a surcharge to collect replacement power costs while Kewaunee
remained out of service for the period effective April 29, 1997 through July 1,
1997; authorization of an increase in the return on equity to 11.7% from 11.5%;
reinstatement ofaddition, the
electric fuel adjustment clause; continuation of a modified
gas performance based ratemaking incentive mechanism;clause and a modified SO(2)
incentive.PGA clause are not affected by the
rate freezes.
In addition,February 2000, the PSCW ordered that it must approve the payment of
dividends byissued an order allowing WP&L to its parent company that are in excessdefer
certain incremental costs it incurs after February 16, 2000 relating to
the development 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% of total capitalization. Based
on a 13-month average for 1997, WP&L's common equity ratio was 52.56%.ATC.
-A-17-
The retail electric rates are based in part on forecasted fuel and
purchase
powerpurchased-power costs. Under PSCW rules, Wisconsin utilities can seek
emergency rate increases if thesethe annual costs are more than three percent3% higher
than the estimated costs used to establish rates. In March 1998, WP&L's case, actual fuel&L
requested an electric rate increase to cover purchased-power and
transmission costs since May 1997
have been higher than estimatedthat had increased due to transmission constraints
and are expected to remain well aboveelectric reliability concerns in the estimated levels in 1998. As a result, WP&L has askedMidwest. 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
approve a rate
increase. It is expected thatcover additional increases in purchased-power and transmission costs.
In early March 1999, the PSCW will issuegranted a decisionretail 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 1998. Any increase approved by2000.
In May 1998, the PSCW will be implementedapproved 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 prospective basis.
The gas performance incentive was modifiedstatewide docket
to eliminateinvestigate compliance issues associated with the maximum gain or
loss to be recognized by WP&L. Previously, this incentive was limited to $1.1
million to WP&L. The incentive includes a sharing mechanism, whereby 40%EPA's NOx emission
reductions, on March 30, 1999, the PSCW authorized deferral of all
gains and losses relativenon-labor related costs incurred after March 30, 1999. However, the
utilities are not allowed to current commodity prices as well as other
benchmarks are recognizeddefer 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 rather than refunded to or recovered from
customers.
A-14
OTHER MATTERS
YEAR 2000
WP&L utilizes software, embedded systems and related technologies throughout
its business that will be affected by the date change in the Year 2000. An
internal task force has been assembled to review and developthird quarter of 1999 received
approval from the full scope,
work plan and cost estimates to ensure that WP&L's systems continue to meetPSCW for limited NOx related expenditures at one of
its internal and customer needs.
Phase I of the project, which encompassed a review of the necessary software
modifications that will need to be made to WP&L's financial and customer
systems, has been completed. WP&L currently estimates that the remaining costs
to be incurred on this phase of the project will be approximately $2 million to
$5 million in the aggregate.
The task force has also begun Phase II of the project which is an extensive
review of WP&L's embedded systems for Year 2000 conversion issues. The task
force has inventoried critical embedded operating systems and is working with
the system vendors to ascertain Year 2000 compliance of these systems. The task
force is also developing detailed plans for testing and remediating critical
systems (i.e., systems whose failure could affect employee safety or business
operations).
As part of an awareness effort,generating units. WP&L has also notifiedrequested 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
customers
of its Year 2000 project efforts. Key suppliers are also being contactedsubsidiaries, Alliant Energy does not expect the merger-related
electric and gas price freezes to
confirm their Year 2000 readiness plans. Efforts are also underway to develop
contingency plans for critical embedded operating systems. WP&L is currently
unable to estimate the costs to be incurred on this phase of the project but
does believe that the costs will be significant. An estimate of the expenses to
be incurred on this phase of the project is expected to be available by the
third quarter of 1998.
The goal of WP&L is to have all the material Year 2000 conversions made
sufficiently in advance of December 31, 1999 to allow for unanticipated issues.
At this time, management is unable to determine if the Year 2000 issue will have a material adverse effect on WP&L'sits
financial positioncondition 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 Apriladdition, 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 filed a requestmade with the
PSCW requesting deferral
treatmentfor 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 YearAlliant 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, costs, provided that such costs exceed $4.5 million.
Currently, management cannottwo 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 action the PSCW may take regarding this
request.
LABOR ISSUES
WP&Loutcome of these negotiations.
Market Risk Sensitive Instruments and the International Brotherhood of Electrical Workers, Local 965,
reached agreement on a new three-year collective bargaining contract on June 14,
1996. At the end of 1997, the contract covered approximately 69%Positions
Alliant Energy's primary market risk exposures are associated with
interest rates, commodity prices, equity prices and currency exchange
rates. Alliant Energy has risk management policies to monitor and
assist in controlling these market risks and uses derivative
instruments to manage some of the total
employees at WP&L.
FINANCIAL INSTRUMENTS
WP&L has historically had only limited involvement with derivative financial
instruments and has not used them for trading purposes. They have been usedexposures.
Interest Rate Risk
Alliant Energy is exposed to manage well-defined interest rate and commodity price risks. WP&L historically
has entered into interest rate swap agreements to reduce the impact ofrisk resulting from changes in interest
rates as a result of its issuance of variable-rate debt. Alliant Energy
manages its interest rate risk by limiting its variable interest rate
exposure and by continuously monitoring the effects of market changes
-A-19-
in interest rates. Alliant Energy 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 its floating-rate long-term debt, short-termthe
variable-rate debt and related derivative instruments held by Alliant
Energy as of December 31, 1999 and 1998. In the salesevent of its accounts receivable. The total notional amount ofsignificant
interest rate swaps outstanding was $40 million at December 31, 1997. WP&L has used swaps,
futuresfluctuations, management would take actions to minimize
the effect of such changes on Alliant Energy's results of operations.
However, due to the uncertainty of the specific actions that would be
taken and optionstheir possible effects, the sensitivity analysis assumes no
change in Alliant Energy's financial structure.
Commodity Risk--Non-trading
Alliant Energy is exposed to hedge the impact of market fluctuations in the
commodity price and transportation costs of electricity, natural gas
and oil products it markets. Alliant Energy employs established
policies and procedures to manage its risks associated with these
market fluctuations including the purchaseuse of various commodity derivatives.
Alliant Energy'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 A-15
salepurchased
energy costs as well as its cost of storednatural gas at WP&L. On April 28, 1997, WP&L entered into an interest
rate forward contractpurchased for resale.
Refer to hedge interest rate risk related to the anticipated
issuance of $105 million of long-term debt securities. See Note 81(i) of the "Notes to Consolidated Financial Statements"
for additional information.
ACCOUNTING PRONOUNCEMENTS
Statementa further discussion.
From time to time, WP&L utilizes gas commodity swap arrangements for
the purpose of Financial Accounting Standards No. 130 (SFAS 130), Reporting
Comprehensive Income, was issued bymitigating the Financial Accounting Standards Board
(FASB)impact of price fluctuations on gas
purchased and injected into storage during the summer months and
withdrawn and sold at current 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 second quartervalue of 1997. SFAS 130 establishes standards for
reportingthe physical
commodity are offset by changes in the value of comprehensivethe gas commodity
swaps. A 10% increase/decrease in the price of gas would have an
insignificant impact on the combined fair market value of the gas in
storage and related swap arrangements in place as of December 31, 1999
and 1998.
Equity Price Risk
Alliant Energy maintains trust funds at IESU and WP&L to fund its
anticipated nuclear decommissioning costs. As of December 31, 1999 and
1998, these funds were 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 fluctuations in equity
prices or interest rates will not affect its 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.
Refer to Note 10 of the "Notes to Consolidated Financial Statements"
for a further discussion of Alliant Energy's derivative financial
instruments.
Accounting Pronouncements
In June 1998, the FASB issued SFAS 133. The Statement establishes
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 componentsfair 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 full setderivative'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 general
purpose financial statements.transactions that receive hedge accounting.
SFAS 130 will require reporting a total for
comprehensive income which includes: (a) unrealized holding gains/losses on
securities classified as available-for-sale under SFAS 115, (b) foreign currency
translation adjustments accounted for under SFAS 52, and (c) minimum pension
liability adjustments made pursuant to SFAS 87. SFAS 130133 is effective for periodsfiscal 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 15, 1997.
Statement31, 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 Financial Accounting Standards No. 131 (SFAS 131), Disclosures
About Segments of an Enterpriseboth Alliant Energy employees and Related Information, was issued bya consultant that
has been engaged to support the FASB
in the second quarter of 1997. SFAS 131 requires disclosures for each business
segment in a manner consistent with how management disaggregatesproject. The team has begun to
inventory financial instruments, commodity contracts and evaluates
the company,other
commitments with the additionpurpose of quarterly disclosure requirementsidentifying and a finer
partitioningassessing all of
geographic disclosures.Alliant Energy's derivatives. Although the impact of implementing
SFAS 131133 has not yet been quantified, it could increase volatility in
earnings and other comprehensive income. Alliant Energy is effectiveanalyzing
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 periods
beginning after December 15, 1997.
ACCOUNTING FOR OBLIGATIONS ASSOCIATED WITH THE RETIREMENT OF LONG-LIVED ASSETSObligations Associated with the Retirement of Long-Lived
Assets
The staff of the Securities and Exchange CommissionSEC 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 is reviewinghas a project on its agenda to review the accounting for
closure and removal costs,obligations associated with the retirement of long-lived assets,
including decommissioning of nuclear power plants. If current electric
utility industry accounting practices for nuclear power plant
decommissioning are changed, the annual provision for decommissioning
could increase relative to 1997,1999, and the estimated cost for
decommissioning could be recorded 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 shift,treatment, IESU and WP&L doesdo not believe that such changes,
if required, would have an adverse effect on itstheir financial positioncondition
or results of operations due to itstheir ability to recover
decommissioning costs through rates.
INFLATIONInflation
Alliant Energy, IESU and WP&L doesdo not expect the effects of inflation at
current levels to have a significant effect on itstheir financial
positioncondition or results of operations.
ENVIRONMENTALEnvironmental
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 WP&Lmanagement cannot precisely
forecast the effect of future environmental regulations on itsAlliant
Energy's operations, it has taken steps to anticipate the future while
also meeting the requirements of current environmental regulations.
A-16
WP&L has current or previous ownership interests in 14 properties previously
associated with the production of gas at manufactured gas plants (MGP) for which
it may be liable for investigation, remediation and monitoring costs relating to
the 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
it has completed the remediaton 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 has recorded an environmental liability of $9.2 million at December 31,
1997 related to the MGP sites; such amount is based on the best current estimate
of the 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 the current estimates as the investigation
process proceeds and as additional facts become known.
WP&L completed a comprehensive review of its MGP liability in the third
quarter of 1997. This review resulted in a $65 million reduction in the recorded
MGP liability, largely due to the approval by the Wisconsin Department of
Natural Resources (WDNR) of less costly containment and control strategies as an
alternative to excavation processes at various sites. See Note 11 c. of the
"Notes to Consolidated Financial Statements" for additional information.
Under the current rate making treatment approved by the PSCW, the MGP
expenditures, net of any insurance proceeds, are deferred and collected from gas
customers over a five-year period after new rates are implemented. As a result,
a regulatory asset of $16.3 million at December 31, 1997, has been recorded
which reflects the probable future rate recovery. 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 financial position or results of operations.
The Clean Air Act Amendments of 1990 (Act) require emission reductions
of sulfur dioxide (SO(2)), nitrogen oxides (NO(x))SO2, NOx and other air pollutants to achieve reductions of
atmospheric chemicals believed to cause acid rain. IESU, WP&L hasand IPC
-A-21-
have met the provisions of Phase I of the Act and is in the process of meeting
the requirements of Phase II of the Act (effective in the year 2000).Act.
The Act also governs SO(2)SO2 allowances, which are defined as an
authorization for an owner to emit one ton of SO(2)SO2 into the atmosphere.
IESU, WP&L isand IPC are reviewing itstheir options to ensure itthey will have
sufficient allowances to offset itstheir emissions in the future. WP&L believesfuture 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 itstheir
financial positioncondition or results of operations.
The Act and other federal laws also require the United States Environmental
Protection Agency (EPA)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 Polychlorinated Biphenyl (PCB)PCB rules. In July 1997, the EPA issued final rules that would
tighten the National Ambient Air Quality Standards (NAAQS) for ozone and
particulate matter emissions. WP&L is currently reviewingemissions and in June 1998, the EPA modified the PCB
rules. Alliant Energy cannot predict the long-term consequences of
these rules to determine what impact they may have on its financial condition or results of operations.
In October 1997,1998, the EPA issued a proposedfinal rule to requirerequiring 22 states,
including Wisconsin, to modify their State Implementation Plans (SIPs)state implementation plans to
address the ozone transport issue. However, on May 25, 1999, a federal
appeals court delayed indefinitely 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 proposedimplementation of the rule
would likely require WP&L to reduce its NO(x)NOx emissions at all of its
plants to a fleet average of .15 lbs/mmbtu.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
A-17
predict the final outcome of
this proposalthe rule, but believes that, underas the termsrule 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 proposed rule,site. Management believes that any
likely action resulting from this matter will not have a material
adverse effect on WP&L's financial condition or results of operations.
WP&L has been notified by Monroe County, Wisconsin that it would be requiredis a PRP
with respect to install controlsenvironmental impacts identified at its plantsthe Monroe County
Interim Landfill in Sparta, Wisconsin. WP&L has provided a summary of
records and thatdocuments relating to waste disposal at the costs related thereto would be significant.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. Negotiators left significant
implementationIn November 1998, the
U.S. signed the treaty and compliance questions openagreed with the other countries to resolution at meetings to be
held starting in November 1998.resolve
all remaining issues by the end of 2000. At this time, WP&Lmanagement is
unable to predict whether the U.S. Congress will ratify the treaty.
Given the uncertainty of the treaty ratification and the ultimate terms
of the final regulations, WP&Lmanagement cannot currently estimate the
impact the implementation of the treaty would have on itsAlliant Energy's
operations.
The Nuclear Waste Policy Act of 1982 (NWPA) assigned responsibility to the
U.S. Department of Energy (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 contract and has made the agreed payments
to the Nuclear Waste Fund (NWF) 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 January 31, 1998. Furthermore, 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. WP&L is evaluating and
pursuing multiple options, including litigation and legislation to protect its
customers and its contractual and statutory rights that are diminished by delays
in the DOE program.
The NWPA 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, Kewaunee would have
sufficient fuel storage capacity to the end of the license life in 2013.
Legislation is being considered on the federal level to provide for the
establishment of an interim storage facility as early as 2002.
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 Iowa and
Wisconsin is a memberare 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 voted 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 produced at Kewaunee is currently shippedeach produces to such site, thereby minimizing the
amount of low-level waste stored on-site. In addition, givenGiven technological advances,
waste compaction and the reduction in the amount of waste generated,
DAEC and Kewaunee haseach have on-site storage capability sufficient to
store low-level waste expected to be generated over at least the next
ten years, withyears. While Alliant Energy is unable to predict how long the
Barnwell facility will continue to accept its waste, continuing access
to the Barnwell disposalthis facility extending thatexpands Alliant Energy's on-site storage capability
indefinitely.
See Notes 11(e) and 11(f) of the "Notes to Consolidated Financial
Statements" for a further discussion of Alliant Energy's environmental
issues.
Power Supply
Wisconsin enacted electric reliability legislation in 1998 (Wisconsin
Reliability Act) with the goal of assuring reliable electric energy for
Wisconsin. The National Energy Policy Actlaw allows the construction of 1992 requires owners of nuclearmerchant power plants in
the state and streamlines the regulatory approval process for building
new generation and transmission facilities. As a requirement of the
legislation, the PSCW completed a regional transmission constraint
study. The PSCW is authorized to pay a special assessment into a "Uranium Enrichment Decontamination
and Decommissioning Fund." The assessment isorder construction of new transmission
facilities, based upon prior nuclear fuel
purchases. WP&L is recovering these costs fromon the findings of its customers and atconstraint study, through
December 31, 1997 had a regulatory asset and a liability of $5.9 million and $5.1 million
recorded, respectively.
A-182004.
-A-23-
POWER SUPPLY
The power supply concerns of 1997 have raised awareness of the electric
system reliability challenges
facing Wisconsin and the Midwest region. WP&L was among an 11-member group of
Wisconsin energy suppliers that, on October 1, 1997, recommended to the Governor
of Wisconsin a series of recommendations to improve electric reliability in the
state. The recommendations included additional transmission system capacity to
substantially increase Wisconsin's ability to import electricity from other
states in the region and additional power plant capacity in eastern Wisconsin.
As a result, WP&L and other Wisconsin-based utilities are advocating faster PSCW
approval of needed transmission projects.
On September 24, 1997, the PSCW ordered WP&L and two other Wisconsin
utilities to arrange for additional electric capacity to help maintain
reliable service for their customers. In responseJuly 1998, Alliant Energy and
SkyGen announced an agreement whereby SkyGen would build, own and
operate a power plant in Wisconsin capable of producing up to this order, WP&L has450 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 Requestrevised 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 Proposal (RFP)construction 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 of this effort includes purchased power contracts to provideat
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 with an additional 150
megawatts of electric capacity beginning as early as June 1, 1999. WP&L
anticipates its RFP will result&L's service territory. These higher costs are
included in a purchased power arrangement with a contract
period of three to eight yearsrate increase requested by WP&L in December 1999 as
discussed in "Liquidity and contract extension or "rollover" options.
WP&L expects to award the contract at the end of the second quarter of 1998.
Utility officials notedCapital Resources--Rates and Regulatory
Matters--WP&L."
Alliant Energy notes that it will take time to getfor new transmission and
power plant projects to be approved and built.built in Wisconsin. While
utility officials fully expectAlliant Energy currently expects to meet customer demands in 1998 and 1999, problems2000,
unanticipated reliability issues could still could arise if there arein the event
Wisconsin experiences unexpected power plant outages, transmission
system outages or extended periods of extremely hot weather.
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following unaudited consolidated quarterly data of WP&L, in the opinion
of management, include adjustments which are normal and recurring in nature
necessary for the fair presentation of the results of operations and financial
position. The quarterly amounts were affected by, among other items, rate
activities, seasonal weather conditions and changes in sales and operating
expenses. Refer to "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a discussion of these items. Net income in both
the first and second quarter of 1997 was lower than the first and second quarter
of 1996 primarily due to lower electric and gas margins. The lower margins
resulted from warmer weather and several temporary plant outages during the
first five months of 1997. In addition, a $3.4 million after-tax gain was
recognized on the sale of a combustion turbine in the second quarter of 1996.
Net income in the fourth quarter of 1997 was higher than the fourth quarter of
1996 due to increased electric margin and reduced maintenance expense. Electric
margin improved in the fourth quarter of 1997 compared with the same period in
1996 due to higher sales and reduced fuel costs per kwh. Maintenance costs were
lower in the fourth quarter of 1997 compared with the same period in 1996
primarily due to
A-19
increased expenses in the fourth quarter of 1996 associated with the outage of
Kewaunee as previously discussed.
NET INCOME
OPERATING OPERATING AVAILABLE FOR
REVENUES INCOME COMMON STOCK
---------- ----------- --------------
(IN THOUSANDS)
QUARTER ENDED
1997:
March 31.................................................................. $ 231,005 $ 43,275 $ 22,523
June 30................................................................... 176,065 20,694 10,216
September 30.............................................................. 180,192 33,769 14,409
December 31............................................................... 207,455 41,371 20,776
1996:
March 31.................................................................. $ 221,234 $ 59,808 $ 31,950
June 30................................................................... 166,117 33,670 19,538
September 30.............................................................. 165,536 32,175 15,152
December 31............................................................... 206,388 32,235 12,535
A-20-A-24-
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, 19971999 and
1996,1998, and the related consolidated statements of income, retained
earnings and cash flows and common shareowners' investment for each of the three years in the period ended
December 31, 1997.1999. 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 generally accepted auditing
standards. 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, 19971999 and
1996,1998, and the results of itstheir operations and itstheir cash flows for each
of the three years in the period ended December 31, 1997,1999, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 30, 1998
A-2128, 2000
-A-25-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
YEAR ENDED DECEMBERWISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
------------------------------------------------------------------------
1999 1998 1997
1996 1995
---------- ---------- ------------------------------------------------
(in thousands)
Operating revenues:
OPERATING REVENUES:
Electric...................................................................Electric utility......................................................... $ 626,607 $ 614,704 $ 634,143
$ 589,482 $ 546,324
Gas........................................................................Gas utility.............................................................. 120,770 111,737 155,883
165,627 139,165
WaterWater.................................................................... 5,128 5,007 4,691
4,166 4,183
---------- ---------- ----------------------------------------------------
752,505 731,448 794,717
759,275 689,672
---------- ---------- ----------
OPERATING EXPENSES:------------------------------------------
Operating expenses:
Electric production fuels..................................................fuels................................................ 110,521 120,485 116,812
114,470 116,488
Purchased power............................................................power.......................................................... 107,598 113,936 125,438
81,108 44,940
Purchased gas..............................................................Cost of gas sold......................................................... 64,073 61,409 99,267
104,830 84,002
Other operation............................................................operation.......................................................... 126,479 143,666 131,398
140,339 139,322
Maintenance................................................................Maintenance.............................................................. 45,652 49,912 48,058 46,492 42,043
Depreciation and amortization..............................................amortization............................................ 113,037 119,221 104,297 84,942 81,164
Taxes other than income....................................................income taxes............................................ 30,240 30,169 30,338
29,206 28,335
---------- ---------- ----------------------------------------------------
597,600 638,798 655,608
601,387 536,294
---------- ---------- ----------
OPERATING INCOME.............................................................------------------------------------------
Operating income............................................................ 154,905 92,650 139,109
157,888 153,378
---------- ---------- ----------
INTEREST EXPENSE AND OTHER:------------------------------------------
Interest expense...........................................................expense and other:
Interest expense......................................................... 40,992 36,584 32,607 31,472 33,821
Allowance for funds used during construction...............................construction............................. (4,511) (3,049) (2,775)
(3,208) (2,088)
Miscellaneous, net.........................................................net....................................................... 1,836 (1,129) (3,796)
(6,669) (2,613)
---------- ---------- ----------------------------------------------------
38,317 32,406 26,036
21,595 29,120
---------- ---------- ----------
INCOME BEFORE INCOME TAXES...................................................------------------------------------------
Income before income taxes.................................................. 116,588 60,244 113,073
136,293 124,258
INCOME TAXES.................................................................------------------------------------------
Income taxes................................................................ 45,758 24,670 41,839
53,808 45,606
---------- ---------- ----------
NET INCOME...................................................................------------------------------------------
Net income.................................................................. 70,830 35,574 71,234
82,485 78,652
PREFERRED DIVIDEND REQUIREMENT...............................................------------------------------------------
Preferred dividend requirements............................................. 3,310 3,310 3,310
---------- ---------- ----------
NET INCOME AVAILABLE FOR COMMON STOCK........................................------------------------------------------
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 beginning of year................................................ $ 79,175294,309 $ 75,342
---------- ---------- ----------
---------- ---------- ----------320,386 $ 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
==========================================
The accompanying notesNotes to Consolidated Financial Statements are an integral
part of the consolidated financialthese statements.
A-22-A-26-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBERWISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
1997 1996
------------ ---------------------------------------------
1999 1998
---------------------------------
(in thousands)
ASSETS
Property, plant and equipment:
Utility
Plant in service
ASSETS
UTILITY PLANT:
Plant in service
Electric..........................................................................Electric..................................................................... $ 1,790,6411,921,624 $ 1,729,311
Gas............................................................................... 237,856 227,809
Water............................................................................. 24,864 23,905
Common............................................................................ 195,815 152,093
------------ ------------
2,249,176... 2,133,118
Less--accumulated provision for depreciation........................................ 1,065,726 967,436
------------ ------------
1,183,450 1,165,6821,839,545
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 1,161,068
Construction work in progress....................................................... 42,312 55,519progress.................................................. 66,784 56,994
Nuclear fuel, net................................................................... 19,046 19,368
------------ ------------
1,244,808 1,240,569
------------ ------------
OTHER PROPERTY AND EQUIPMENT, NET..................................................... 684 1,397
------------ ------------
INVESTMENTS:
Nuclear decommissioning trust funds................................................. 112,356 90,671net of amortization.............................................. 15,079 18,671
---------------------------------
1,241,630 1,236,733
Other investments................................................................... 14,877 15,354
------------ ------------
127,233 106,025
------------ ------------
CURRENT ASSETS:property, plant and equipment, net of accumulated
depreciation and amortization of $169 and $44, respectively.................... 608 630
---------------------------------
1,242,238 1,237,363
---------------------------------
Current assets:
Cash and equivalents................................................................ 2,492 4,167temporary cash investments............................................... 3,555 1,811
Accounts receivable and unbilled revenue............................................ 37,534 34,220
Coal,receivable:
Customer....................................................................... 22,061 13,372
Associated companies........................................................... 5,067 3,019
Other.......................................................................... 10,984 8,298
Production fuel, at average cost............................................................... 18,857 15,841cost.................................................. 20,663 20,105
Materials and supplies, at average cost............................................. 19,274 19,915cost........................................... 20,439 20,025
Gas in storage,stored underground, at average cost..................................................... 12,504 9,992cost........................................... 8,624 10,738
Regulatory assets................................................................. 3,707 3,707
Prepaid gross receipts tax.......................................................... 22,153 19,389
Prepaymentstax........................................................ 20,864 22,222
Other............................................................................. 5,568 6,987
---------------------------------
121,532 110,284
---------------------------------
Investments:
Nuclear decommissioning trust funds............................................... 166,202 134,112
Other............................................................................. 15,272 15,960
---------------------------------
181,474 150,072
---------------------------------
Other assets:
Regulatory assets................................................................. 82,161 76,284
Deferred charges and other............................................................... 4,824 2,664
------------ ------------
117,638 106,188
------------ ------------
DEFERRED CHARGES:
Regulatory assets................................................................... 91,314 160,877
Other............................................................................... 82,927 62,758
------------ ------------
174,241 223,635
------------ ------------
TOTAL ASSETS..........................................................................other........................................................ 138,730 111,147
---------------------------------
220,891 187,431
---------------------------------
Total assets......................................................................... $ 1,664,6041,766,135 $ 1,677,814
------------ ------------
------------ ------------1,685,150
=================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
The accompanying notes are an integral part of the consolidated financial
statements.
A-23-A-27-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
DECEMBERWISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
December 31,
--------------------------
1997 1996
------------ --------------------------------------------
1999 1998
--------------------------------
(in thousands)
CAPITALIZATION AND LIABILITIES
Capitalization (See Consolidated Statements of Capitalization):
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (SEE CONSOLIDATED STATEMENTS OF CAPITALIZATION):
Common shareowners' investment......................................................stock..................................................................... $ 585,73966,183 $ 576,158
Preferred66,183
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..........................................redeemable........................... 59,963 59,963
Long-term debt net................................................................. 354,540 258,659
------------ ------------
1,000,242 894,780
------------ ------------
CURRENT LIABILITIES:(excluding current portion)....................................... 414,673 414,579
---------------------------------
1,073,733 1,034,472
---------------------------------
Current maturities of long-term debt................................................ 8,899 55,000liabilities:
Current maturities............................................................... 1,875 --
Variable rate demand bonds..........................................................bonds....................................................... 55,100 56,975
56,975
Short-term debt..................................................................... 81,000 69,500Notes payable.................................................................... -- 50,000
Notes payable to associated companies............................................ 125,749 26,799
Accounts payable................................................................. 88,245 84,754
Accounts payable and accruals....................................................... 85,617 92,719to associated companies......................................... 25,306 20,315
Accrued payroll and vacation........................................................ 12,221 11,687vacations.................................................... 7,499 5,276
Accrued taxes....................................................................... -- 3,616
Accrued interest.................................................................... 6,317 7,504
Other............................................................................... 25,162 34,425
------------ ------------
276,191 331,426
------------ ------------
OTHER CREDITS: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................................................... 251,709 244,817taxes................................................ 235,838 245,489
Accumulated deferred investment tax credits......................................... 35,039 36,931
Accrued environmental remediation costs............................................. 9,238 74,075
Deferred creditscredits...................................... 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 other.......................................................... 92,185 95,785
------------ ------------
388,171 451,608
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTEcontingencies (Note 11)
TOTAL CAPITALIZATION AND LIABILITIES..................................................Total capitalization and liabilities................................................. $ 1,664,6041,766,135 $ 1,677,814
------------ ------------
------------ ------------1,685,150
=================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
The accompanying notes are an integral part of the consolidated financial
statements.
A-24-A-28-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBERWISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------------------------------------------------------
1999 1998 1997
1996 1995
----------- ----------- ------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
CASH FLOWS GENERATED FROM (USED FOR) OPERATING ACTIVITIES:
Net income...............................................................income....................................................... $ 70,830 $ 35,574 $ 71,234 $ 82,485 $ 78,652
Adjustments to reconcile net income to net cash
generatedflows from operating activities:
Depreciation and amortization........................................amortization................................. 113,037 119,221 104,297 84,942 81,164
Deferred income taxes................................................ 4,957 8,217 10,716
Investment tax credit restored....................................... (1,892) (1,911) (1,916)
Amortization of nuclear fuel......................................... 4,444 6,057 7,787
Allowance for equity funds used during construction.................. (2,033) (2,270) (1,425)
(Gain) loss on disposition of other propertyfuel.................................. 6,094 5,356 3,534
Deferred taxes and equipment........... 710 (5,676) --
Changesinvestment tax credits..................... (12,618) (7,529) 3,065
Other......................................................... 2,432 (2,089) (1,323)
Other changes in assets and liabilities:
Net accounts receivableAccounts receivable........................................... (13,423) 12,845 (3,314)
Accounts payable.............................................. 8,482 19,452 (7,102)
Benefit obligations and unbilled revenue......................... (3,314) (250) (12,281)
Inventories.......................................................... (4,887) (4,193) 3,079
Prepayments and other................................................ (4,924) (863) 1,121
Accounts payable and accruals........................................ (7,755) 10,896 13,203
Accrued taxes........................................................ (3,616) (4,179) 496
Other, net........................................................... (8,528) 14,874 15,674
----------- ----------- -----------other................................. (11,854) (5,509) (20,460)
------- ------ -------
Net cash flows from operating activities.................... 162,980 177,321 149,931
------- ------- -------
Cash flows from (used for) operating activities...................... 148,693 188,129 196,270
----------- ----------- -----------
CASH FLOWS GENERATED FROM (USED FOR) FINANCING ACTIVITIES:financing activities:
Common stock cash dividends..........................................dividends........................................ (58,353) (58,341) (58,343) (66,087) (56,778)
Preferred stock dividends............................................dividends..................................... (3,310) (3,310) (3,310)
Retirement of first mortgage bonds................................... (55,000) (5,000) (18,000)
IssuanceProceeds from issuance of long-term debt...........................................debt...................... -- 60,000 105,000
Reductions in long-term debt.................................. -- --(8,899) (55,000)
Net change in short-term debt........................................borrowings........................... 48,950 (4,201) 11,500
(3,000) 22,000
Other, net........................................................... (221)Capital contribution from parent.............................. 30,000 -- --
----------- ----------- -----------Other......................................................... -- (1,966) (2,601)
------ ------ ------
Net cash flows from (used for) financing
activities...................... (374) (77,397) (56,088)
----------- ----------- -----------
CASH FLOWS GENERATED FROM (USED FOR) INVESTING ACTIVITIES:
Proceeds from sale of other property and equipment................... -- 36,264 --
Additions to utility plant, excluding AFUDC.......................... (116,457) (120,732) (99,746)
Additions to nuclear fuel............................................ (4,123) (6,558) (7,258)
Allowanceactivities................................................ 17,287 (16,717) (2,754)
------ ------- ------
Cash flows used for borrowed funds used during construction................ (742) (938) (663)
Dedicatedinvesting activities:
Utility construction expenditures............................. (131,915) (117,143) (119,232)
Nuclear decommissioning trust funds................................ (21,685) (17,314) (21,566)
Other, net........................................................... (6,987) (1,958) (8,512)
----------- ----------- -----------funds........................... (16,092) (14,297) (11,427)
Shared savings program........................................ (31,085) (24,355) (17,610)
Other......................................................... 569 (5,490) (583)
-------- -------- --------
Net cash from (used for)flows used for investing activities...................... (149,994) (111,236) (137,745)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS............................activities................ (178,523) (161,285) (148,852)
-------- --------- ---------
Net increase (decrease) in cash and temporary cash
investments...................................................... 1,744 (681) (1,675)
(504) 2,437
CASH AND EQUIVALENTS AT BEGINNING OF YEAR..................................-------- --------- --------
Cash and temporary cash investments at beginning
of period........................................................ 1,811 2,492 4,167
4,671 2,234
----------- ----------- -----------
CASH AND EQUIVALENTS AT END OF YEAR........................................-------- --------- --------
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 ................................................... $ 4,16738,330 $ 4,671
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR:
Interest on debt.......................................................33,368 $ 32,77832,955
============ ============= ==============
Income taxes................................................ $ 28,78647,164 $ 30,841
Income taxes...........................................................31,951 $ 37,407
$ 48,622 $ 37,968============ ============= ==============
The accompanying notesNotes to Consolidated Financial Statements are an integral
part of the consolidated financialthese statements.
A-25-A-29-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
DECEMBERDecember 31,
--------------------------
1997 1996
------------ ------------
(IN THOUSANDS EXCEPT FOR
SHARE DATA)---------------------------------
1999 1998
---------------------------------
(in thousands
except share amounts)
Common equity:
Common stock--$5.00 par value--authorized 18,000,000 shares;
COMMON SHAREOWNERS' INVESTMENT:
Common stock $5 par value, authorized 18,000,000
13,236,601 shares issued and outstanding--
13,236,601 shares.................................................................outstanding................................................. $ 66,183 $ 66,183
Premium on capital stock............................................................ 197,423 197,423
Capital surplus..................................................................... 1,747 1,747
Reinvested earnings................................................................. 320,386 310,805
------------ ------------
585,739 576,158
------------ ------------
PREFERRED STOCK:Additional paid-in capital....................................................... 229,438 199,438
Retained earnings................................................................ 303,476 294,309
------- -------
599,097 559,930
------- -------
Cumulative preferred stock:
Cumulative, without par value, authorizednot mandatorily redeemable--authorized
3,750,000 shares, maximum aggregate statestated value $150,000,000:
Preferred stock without mandatory redemption, $100 stated value--
4.50%value--4.50% series, 99,970 shares outstanding.........................................outstanding.................. 9,997 9,997
4.80%$100 stated value--4.80% series, 74,912 shares outstanding.........................................outstanding.................. 7,491 7,491
4.96%$100 stated value--4.96% series, 64,979 shares outstanding.........................................outstanding.................. 6,498 6,498
4.40%$100 stated value--4.40% series, 29,957 shares outstanding.........................................outstanding.................. 2,996 2,996
4.76%$100 stated value--4.76% series, 29,947 shares outstanding.........................................outstanding.................. 2,995 2,995
6.20%$100 stated value--6.20% series, 150,000 shares outstanding........................................outstanding................. 15,000 15,000
Cumulative, without par value, $25 stated value--
6.50%value--6.50% series, 599,460 shares outstanding......................................outstanding................ 14,986 14,986
------------ ------------------ ------
59,963 59,963
------------ ------------
LONG-TERM DEBT:------ ------
Long-term debt:
First mortgage bonds:
Series L, 6.25%, due 1998....................................................... 8,899 8,899Mortgage Bonds:
1984 Series A, variable rate (5.00% at December 31, 1999), due 2014 (3.80% at 12/31/97)......................2014........... 8,500 8,500
1988 Series A, variable rate (5.60% at December 31, 1999), due 2015 (3.80% at 12/31/97)......................2015........... 14,600 14,600
1990 Series V, 9.3%, due 2025...................................................2025................................................. 27,000 27,000
1991 Series A, variable rate (4.75% at December 31, 1999), due 2015 (5.05% at 12/31/97)......................2015........... 16,000 16,000
1991 Series B, variable rate (4.75% at December 31, 1999), due 2005 (5.05% at 12/31/97)......................2005........... 16,000 16,000
1991 Series C, variable rate (4.75% at December 31, 1999), due 2000 (5.05% at 12/31/97)......................2000........... 1,000 1,000
1991 Series D, variable rate (4.75% at December 31, 1999), due 2000 (5.05% at 12/31/97)......................2000........... 875 875
1992 Series W, 8.6%, due 2027...................................................2027................................................. 90,000 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
1992 Series Z, 6.125%, repaid 1997.............................................. -- 55,000------ ------
307,975 307,975
Debentures, 7%, due 2007............................................................2007......................................................... 105,000 --
------------ ------------
421,874 371,874
------------ ------------105,000
Debentures, 5.7%, due 2008....................................................... 60,000 60,000
------ ------
472,975 472,975
------- -------
Less:
Current maturities.................................................................. (8,899) (55,000)maturities............................................................ (1,875) --
Variable rate demand bonds.......................................................... (56,975)bonds.................................................... (55,100) (56,975)
Unamortized discountdebt premium and premium, net............................................... (1,460) (1,240)
------------ ------------
354,540 258,659
------------ ------------
TOTAL CAPITALIZATION..................................................................(discount), net.................................. (1,327) (1,421)
------ ------
414,673 414,579
------- -------
Total capitalization................................................................. $ 1,000,2421,073,733 $ 894,780
------------ ------------
------------ ------------1,034,472
============= ==============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
The accompanying notes are an integral part of the consolidated financial
statements.
A-26
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF COMMON
SHAREOWNERS' INVESTMENT
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
COMMON STOCK:
Balance at beginning and end of year....................................... $ 66,183 $ 66,183 $ 66,183
PREMIUM ON CAPITAL STOCK:
Balance at beginning and end of year....................................... 197,423 197,423 197,423
CAPITAL SURPLUS:
Balance at beginning and end of year....................................... 1,747 1,747 1,747
REINVESTED EARNINGS:
Balance at beginning of year............................................... 310,805 297,717 279,153
Income before preferred dividends........................................ 71,234 82,485 78,652
Cash dividends on preferred stock........................................ (3,310) (3,310) (3,310)
Cash dividends to parent on common stock................................. (58,343) (66,087) (56,778)
---------- ---------- ----------
Balance at end of year..................................................... 320,386 310,805 297,717
---------- ---------- ----------
TOTAL COMMON SHAREOWNERS' INVESTMENT......................................... $ 585,739 $ 576,158 $ 563,070
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
A-27-A-30-
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 1.(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
Wisconsin Power(a) General
The Consolidated Financial Statements include the accounts of WP&L and
Light Company (WP&L)its consolidated subsidiaries. WP&L is a subsidiary of WPL Holdings,
Inc. (WPLH). WP&LAlliant Energy
and is a public utility engaged principally in the generation, transmission,
distribution and sale of electric energy andenergy; the purchase, distribution,
transportation and sale of natural gas primarily in the state of
Wisconsin.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
Water, Gas and Electric Company.
Certain reclassifications have been made to the prior yearsBeloit.
The consolidated financial statements to conform with the current year presentation.
B. REGULATION
WP&L'sreflect investments in controlled
subsidiaries on a consolidated basis. The financial recordsstatements are
maintained in accordance with the uniform
system of accounts prescribed by its regulators. The Public Service Commission
of Wisconsin (PSCW) and the Illinois Commerce Commission (ICC) have jurisdiction
over retail electric and gas revenues. The Federal Energy Regulatory Commission
(FERC) has jurisdiction over wholesale electric revenues.
C. USE OF ESTIMATES
The preparation of financial statementsprepared in conformity with generally accepted accounting principles,
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 financial statements requires management to make
estimates and assumptions that affectaffect: a) the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statementsstatements; and b) the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
D. CASH AND EQUIVALENTS(b) Regulation
WP&L considersis subject to regulation by the FERC, the PSCW and the ICC.
(c) Regulatory Assets
WP&L is subject to 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
unregulated 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. At
December 31, 1999 and 1998, WP&L's 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
===== =====
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 become 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-
generally accepted accounting principles for continued accounting as
regulatory assets during such recovery period. In addition, WP&L would
be required to determine any impairment to other assets and write-down
such assets to their fair value.
(d) Income Taxes
Alliant Energy 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
financial statements. Deferred taxes are recorded using currently
enacted tax rates.
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.
Alliant Energy files a consolidated federal income tax return. Under
the terms of an agreement between Alliant Energy and its subsidiaries,
the subsidiaries calculate their respective federal income tax
provisions and make payments to or receive payments from Alliant Energy
as if they were separate taxable entities.
(e) Temporary Cash Investments
Temporary cash investments are stated at cost, which approximates
market value, and are considered cash equivalents for 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
WP&L uses the straight-line depreciation method as approved by the
PSCW. The remaining 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).
Depreciation expense related to the decommissioning of Kewaunee is
discussed in Note 11(g). The average rates of depreciation for electric
and gas properties of WP&L, consistent with a maturity of three
months or less to be cash equivalents.
E. UTILITY PLANT AND OTHER PROPERTY AND EQUIPMENTcurrent rate making
practices, were as follows:
1999 1998 1997
--- ---- ----
Electric.................... 3.6% 3.6% 3.6%
Gas......................... 3.9% 3.8% 3.8%
(g) Property, Plant and Equipment
Utility plant and other property and equipment areis recorded at original cost. Utility plantcost, which includes overhead and
administrative costs include financing costs that are capitalized usingand AFUDC. AFUDC, which represents the FERC method for allowance forcost during
the construction period of funds used duringfor construction (AFUDC).purposes, is
capitalized as a component of the cost of utility plant. The amount of
AFUDC capitalization rates for 1997, 1996applicable to debt funds and 1995 were 6.22%, 10.23% and 6.68%,
respectively.to other (equity) funds, a non-cash
item, is 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, 1998
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, retirements, including removal costs less
salvage value, are charged to accumulated depreciation upon removal
from utility plant accounts and no gain or loss is recognized.
A-28
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Upon retirement or sale of other property and equipment, the cost and related
accumulated depreciation are removed(h) Operating Revenues
WP&L accrues revenues for services rendered but unbilled at month-end
in order to more properly match revenues with expenses. In accordance
with an order from the accounts and any gain or loss is
included in other income and deductions.
F. DEPRECIATION
WP&L uses the straight-line method of depreciation. For utility plant,
straight-line depreciation is computed on the average balance of depreciable
property at individual straight-line regulatory-approved rates that consider the
estimated useful life and removal cost or salvage value as follows:
1997 1996 1995
--------- --------- ---------
Electric............................................................ 3.6% 3.3% 3.3%
Gas................................................................. 3.8% 3.7% 3.7%
Water............................................................... 2.7% 2.6% 2.5%
Common.............................................................. 11.9% 8.1% 7.9%
Depreciation expense related to WP&L's share of the decommissioning of the
Kewaunee Nuclear Power Plant (Kewaunee) is discussed in Note 11 "Commitments and
Contingencies." WP&L implemented higher depreciation ratesPSCW, effective January 1, 1997.
Estimated useful lives related1998, off-system gas
sales for WP&L are included in the Consolidated Statements of Income as
a reduction 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.
(i) Utility Fuel Cost Recovery
WP&L's 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. WP&L has a gas
performance incentive which includes a sharing mechanism whereby 40% of
all gains and losses relative to current commodity prices, as well as
other property and equipmentbenchmarks, are retained by WP&L rather than refunded to or
recovered from 4 to
12 years for equipment and 31.5 to 40 years for buildings.
G. NUCLEAR FUELcustomers.
(j) Nuclear Refueling Outage Costs
Operating expenses incurred during refueling outages at Kewaunee are
expensed by WP&L as incurred.
(k) Nuclear Fuel
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 kilowatthourskilowatt-hours generated.
H. REGULATORY ASSETS AND LIABILITIES
Statement(l) Derivative Financial Instruments
From time to time, Alliant Energy uses derivative financial instruments
to hedge exposures to fluctuations in interest rates, certain commodity
prices and volatility in a portion of Financial Accounting Standards No. 71 (SFAS 71), "Accountingnatural gas sales volumes due to
weather. These instruments are used to mitigate risks and are not to be
used for speculative purposes. Under the Effectsdeferral method of Certain Types of Regulation," providesaccounting,
gains and losses related to derivatives that rate-regulated
public utilities, suchqualify as WP&L, record certain costs and credits allowed in the
ratemaking process in different periods than for unregulated entities. These are
deferred as regulatory assets or regulatory liabilities andhedges are
recognized in earnings when the consolidated statementsunderlying hedged item or physical
transaction is recognized in income.
Alliant Energy is exposed to losses related to financial instruments in
the event of income at the time they are reflected in rates.
If a portion of WP&L's operations becomes 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 iscounterparties' nonperformance. Alliant Energy has
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, WP&L
would be requiredcontrols to determine and monitor the creditworthiness of
counterparties in order to mitigate its exposure to counterparty credit
risk. Alliant Energy is not aware of any impairmentcounterparties that will fail
to other assets and write-down
such
A-29
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assetsmeet their obligations.
Refer to their fair value. AsNote 10 for a further discussion of December 31, 1997 and 1996, regulatory-created
assets include the following:
1997 1996
--------- ---------
Environmental remediation costs (Note 11).................................. $ 16.3 $ 81.4
Tax related................................................................ 52.2 57.2
Jurisdictional plant differences........................................... 7.9 7.6
Decontamination and decommissioning costs of
federal enrichment facilities............................................. 5.9 6.1
Other...................................................................... 9.0 8.6
--------- ---------
$ 91.3 $ 160.9
--------- ---------
--------- ---------
As of December 31, 1997 and 1996, WP&L had recorded regulatory-related
liabilities of $39.6 and $33.9, respectively. These liabilities are primarily
tax related.
I. REVENUE
WP&L accrues revenues for services provided but not yet billed at month-end.
J. INCOME TAXES
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 theAlliant Energy's
derivative financial statements using currently
enacted tax rates as shown in Note 6.
Investment tax credits are accounted for on a deferred basis and reflected
in income ratably over the life of the related utility plant.
NOTE 2. PROPOSEDinstruments.
(2) MERGER
OF WPLH
On November 10, 1995, WPLH,April 21, 1998, IES, Industries Inc. (IES), and Interstate Power
Company (IPC) entered into an Agreement and Plan of Merger, as amended (Merger
Agreement), providing for: a) IPC becoming a subsidiary of WPLH and b) theIPC completed a merger of IES with and into WPLH, whichforming Alliant
Energy. The merger will result in the combination of
IES and WPLH as a single holding company (collectively, the Proposed Merger).
The new holding company will be named Interstate Energy Corporation (Merged
Company). The Proposed Merger, which will bewas accounted for as a pooling of interests and is intendedthe
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 tax-free for federal income tax purposes, has
been approved bypaid to the respective Boards of Directors, shareowners, state
regulatory agencies and mostimpacted employees. The bulk of
the federal agencies. It is still subject to
approval bypositions eliminated were administrative in nature and resulted
from no longer needing certain duplicative positions given the
Securitiesconsolidation 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 A-30
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 2. PROPOSED MERGER OF WPLH (CONTINUED)
Exchange Commission (SEC).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
companies expect to receive SEC approvalbalance remaining in the second quarter of 1998.
The summary below contains selected unaudited pro forma financial data for
the year endedaccrued liability at December 31, 1997. The financial data should be read in
conjunction with the historical consolidated financial statements and1999 related
notes thereto of WPLH and in conjunction with the unaudited pro forma combined
financial statements and related notes of the Merged Company included in the
Form 10-K Annual Report of WPLH. The pro forma combined earnings per share
reflect the issuance of shares associated with the exchange ratios discussed
below.
WPLH IES IPC PRO FORMA
(AS (AS (AS PRO FORMA COMBINED
REPORTED) REPORTED) REPORTED) ADJUSTMENTS (UNAUDITED)
------------ ------------ ------------ ------------- ------------
Operating revenues......................... $ 919.3 $ 930.7 $ 331.8 $ 118.8 $ 2,300.6
Income from continuing operations.......... $ 61.3 $ 66.3 $ 26.7 $ -- $ 154.3
Earnings per share from continuing
operations (basic and diluted)........... $ 1.99 $ 2.18 $ 2.74 $ -- $ 2.02
Assets at December 31, 1997................ $ 1,861.8 $ 2,457.2 $ 638.7 ($ 6.0) $ 4,951.7
Long-term obligations, net at December 31,
1997..................................... $ 526.0 $ 882.4 $ 195.9 $ -- $ 1,604.3
Underto 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
Merger Agreement,liability after the outstanding shares of WPLH's
common stock will remain unchanged and outstanding as sharesinitial accrual were to reflect the actual payments
of the Merged
Company's common stock, each outstanding share of IES common stock will be
converted to 1.14 shares of the Merged Company's common stockemployee separation benefits.
(3) LEASES
WP&L's operating lease rental expenses for 1999, 1998 and each share of
IPC common stock will be converted to 1.11 shares of the Merged Company's common
stock. It is anticipated that the Merged Company will retain WPLH's common share
dividend payment level1997 were
$7.7 million, $6.4 million and $5.5 million, respectively. WP&L's
future minimum lease payments by year are as of the effective time of the merger. On January 16,
1998, the Board of Directors of WPLH declared a quarterly dividend of $0.50 per
share. This represents an annual rate of $2.00 per share.
IES is a holding company headquartered in Cedar Rapids, Iowa, and is the
parent company of IES Utilities Inc. (IESU) and IES Diversified Inc.
(Diversified). IESU supplies electric and gas service to approximately 339,000
and 178,000 customers, respectively, in Iowa. Diversified and its principal
subsidiaries are primarily engaged in the energy-related, transportation and
real estate development businesses. IPC, an operating public utility
headquartered in Dubuque, Iowa, supplies electric and gas service to
approximately 166,000 and 50,000 customers, respectively, in northeast Iowa,
northwest Illinois and southern Minnesota.
The Merged Company will be the parent company of WP&L, IESU and IPC and will
be registered under the Public Utility Holding Company Act of 1935, as amended
(1935 Act). The Merger Agreement provides that these operating utility companies
will continue to operate as separate entities for a minimum of three years
beyond the effective date of the Proposed Merger. In addition, the non-utility
operations of WPLH and IES will be combined shortly after the effective date of
the Proposed Merger under one entity
A-31
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 2. PROPOSED MERGER OF WPLH (CONTINUED)
to manage the diversified operations of the Merged Company. The corporate
headquarters of the Merged Company will be in Madison, Wisconsin.
NOTE 3. JOINTLY-OWNED UTILITY PLANTS
WP&L participates with other Wisconsin utilities in the construction and
operation of several jointly-owned utility generating plants. Each of the
respective owners is responsible for the financing of its portion of the
construction costs. Kilowatthour generation and operating expenses are divided
on the same basis of ownership with each owner reflecting its respective costs
in its consolidated statements of income. The chart below represents WP&L's
proportionate share of such plants as reflected in the consolidated balance
sheets at December 31, 1997 and 1996.
1997 1996
--------------------------------------- -----------
PLANT ACCUMULATED
OWNERSHIP INSERVICE MW PLANT IN PROVISION FOR PLANT IN
INTEREST % DATE CAPACITY SERVICE DEPRECIATION CWIP SERVICE
------------- ------------- ----------- ----------- ------------- ----------- -----------
Coal:
Columbia Energy Center...... 46.2 1975 & 1978 1,023 $ 161.4 $ 89.2 $ 0.8 $ 161.8
Edgewater Unit 4............ 68.2 1969 330 51.5 29.5 1.0 50.8
Edgewater Unit 5............ 75.0 1985 380 229.4 79.8 0.1 228.8
Nuclear:
Kewaunee Nuclear
Power Plant................ 41.0 1974 535 132.0 86.6 0.3 131.2
----------- ------ --- -----------
Total....................... $ 574.3 $ 285.1 $ 2.2 $ 572.6
----------- ------ --- -----------
----------- ------ --- -----------
ACCUMULATED
PROVISION FOR
DEPRECIATION CWIP
------------- -----------
Coal:
Columbia Energy Center...... $ 86.4 $ 1.6
Edgewater Unit 4............ 28.0 0.7
Edgewater Unit 5............ 73.7 0.0
Nuclear:
Kewaunee Nuclear
Power Plant................ 80.6 0.8
------ ---
Total....................... $ 268.7 $ 3.1
------ ---
------ ---
NOTE 4.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) UTILITY ACCOUNTS RECEIVABLE
Utility customer accounts receivable, including unbilled revenues,
arise primarily from the sale of electricity and natural gas. At
December 31, 1999, WP&L haswas serving a contract withdiversified base of residential,
commercial and industrial customers and did not have any significant
concentrations of credit risk.
Similar accounts receivable financing arrangements exist for WP&L which
sells up to a pre-determined maximum amount of accounts receivable to a
financial organization to sell, withinstitution on a limited recourse certain accountsbasis. Accounts receivable
and unbilled revenues. Thesesold include receivables include customer receivables,arising from sales to customers and to other
public, municipal and cooperative utilities, andas well as from billings
to the co-owners of the jointly-owned electric generating plants
thatoperated by WP&L
operates.&L. The contract allows WP&L to sell up to $150.0 of receivablesamounts are discounted at any
time. Expenses relatedthe then-prevailing
market rate and additional administrative fees are payable according to
the sale of receivables are paid to the financial
organization under this contract, and include, along with various other fees, a
monthly discount charge on the outstanding balance of receivables sold that
approximated a 5.83% annual rate during 1997. These costs are recovered in
retail utility rates as an operating expense.activity levels undertaken. All billing and collection functions
remain the responsibility of WP&L. The contract expires August 16,
1998, unless extended by mutual agreement.
AsSpecifics 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, 1997 and 1996,1999......................... $ 67
For additional information on the balance of sold accounts receivable that had not been collected totaled $91.0programs, refer
to the "Liquidity and $86.5, respectively. DuringCapital Resources--Financing and Capital
Structure" section of MD&A.
(5) 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
====== ====== =====
-A-34-
The overall effective income tax rates shown below for the monthly proceedsyears ended
December 31 were computed by dividing total income tax expense by income
before income taxes.
1999 1998 1997
---- ---- ----
Statutory federal income tax rate......................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefits........... 6.3 7.8 5.7
Amortization of investment tax credits................ (1.6) (3.1) (1.7)
Adjustment of prior period taxes...................... (0.3) -- (2.1)
Merger expenses....................................... -- 2.5 0.3
Amortization of excess deferred taxes................. (1.3) (2.5) (1.3)
Other items, net...................................... 1.1 1.3 1.1
--- --- ---
Overall effective income tax rate 39.2% 41.0% 37.0%
==== ==== ====
The accumulated deferred income taxes (assets) and liabilities as set
forth below on the Consolidated Balance Sheets at December 31 arise
from the salefollowing 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) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
WP&L has a non-contributory, defined benefit pension plan that covers
substantially all of A-32
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 4. UTILITY ACCOUNTS RECEIVABLE (CONTINUED)
accounts receivable averaged $92.1, compared with $86.6 in 1996. As of December
31, 1997, the amount of sold receivablesits employees who are subject to recourse was $8.2.
WP&L does not have any significant concentrations of credit risk in the
December 31, 1997 and 1996 utility accounts receivable balances.
In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which establishes standards for asset and
liability recognition when transfers occur. This statement, effective January 1,
1997, specifies conditions when control has been surrendered which determines if
sale treatment of the receivables would be allowed. This standard has not had
any impact on WP&L's financial position or results of operations.
NOTE 5. EMPLOYEE BENEFIT PLANS
A. PENSION PLANS
WP&L has noncontributory, defined benefit retirement plans covering
substantially all employees. Thea collective
bargaining agreement. Plan benefits are generally based uponon 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 net pension costscost and the
accumulated and projected benefit obligations. WP&L's policy is to fund
the pension cost at an amount that is at
least equal to the minimum funding requirements mandated by the Employee
Retirement Income Security Act of 1974, as amended (ERISA), and that does not
exceed the maximum tax deductible amount for the year.
A-33
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the plans and amounts
recognized in WP&L's consolidated balance sheets at December 31, 1997 and 1996:
1997 1996
---------- ----------
Accumulated benefit obligation
Vested benefits........................................................................ ($ 173.4) ($ 161.0)
Non-vested benefits.................................................................... (6.1) (3.3)
---------- ----------
Total................................................................................ (179.5) (164.3)
Projected benefit obligation............................................................. (205.1) (189.6)
Plan assets at fair value................................................................ 244.4 218.9
---------- ----------
Plan assets in excess of projected benefit obligation.................................. 39.3 29.3
Unrecognized net transition asset........................................................ (12.0) (14.5)
Unrecognized prior service cost.......................................................... 7.8 3.7
Unrecognized net loss.................................................................... 0.8 15.0
---------- ----------
Prepaid pension costs.................................................................. $ 35.9 $ 33.5
---------- ----------
---------- ----------
Assumed rate of return on plan assets.................................................... 9.00% 9.00%
---------- ----------
---------- ----------
Discount rate of projected benefit obligation............................................ 7.25% 7.50%
---------- ----------
---------- ----------
Range of assumed rate increases for future compensation levels........................... 3.50-4.50% 3.50-4.50%
---------- ----------
---------- ----------
The net pension cost (benefit) recognized in the consolidated statements of
income for 1997, 1996 and 1995 included the following components:
1997 1996 1995
--------- --------- ---------
Service cost.............................................................................. $ 4.8 $ 5.1 $ 3.9
Interest cost on projected benefit obligation............................................. 13.8 13.6 12.9
Actual return on assets................................................................... (36.2) (25.0) (31.6)
Amortization and deferrals................................................................ 15.1 5.5 15.1
--------- --------- ---------
Net pension cost (benefit).............................................................. ($ 2.5) ($ 0.8) $ 0.3
--------- --------- ---------
--------- --------- ---------
During 1997, WP&L expensed $1.3 for an early retirement program for eligible
bargaining unit employees.
B. OTHER POSTRETIREMENT BENEFITS
WP&L accrues for the expected cost of postretirement health-care and life
insurance benefits during the employees' years of service based on actuarial
methodologies that closely parallel pension accounting
A-34
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 5. EMPLOYEE BENEFIT PLANS (CONTINUED)
requirements. WP&L elected delayed recognition of the transition obligation in
accordance with current accounting principles and is amortizing the discounted
present value of the transition obligation to expense over 20 years. For WP&L,
the cost of providing postretirement benefits, including the transition
obligation, is being recovered in retail rates under current regulatory
practices. WP&L's policy is to fund the postretirement cost 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 benefits to retirees,
including medical benefits for retirees and their spouses and, in some
cases, retiree 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.
The following table sets forth the funded statusweighted-average assumptions as of the plans and amounts
recognized in WP&L's consolidated balance sheets at December 31, 1997 and 1996:measurement date of
September 30 are as follows:
Other Postretirement
Qualified Pension Benefits Benefits
-------------------------------- ---------------------------------
1999 1998 1997 1996
--------- ---------1999 1998 1997
-------------------------------- ---------------------------------
Accumulated benefit obligation
Retirees..................................................................................... ($ 31.4) ($ 32.2)
Fully eligible active plan participants...................................................... (4.4) (5.0)
Other active plan participants............................................................... (11.3) (9.4)
--------- ---------
Total...................................................................................... (47.1) (46.6)
Plan assets at fair value...................................................................... 16.1 13.8
--------- ---------
Accumulated benefit obligation in excess of plan assets........................................ (31.0) (32.8)
Unrecognized transition obligation............................................................. 21.0 23.5
Unrecognized prior service cost................................................................ (0.3) (0.3)
Unrecognized net gain.......................................................................... (8.3) (5.0)
--------- ---------
Accrued postretirement benefits liability.................................................... ($ 18.6) ($ 14.6)
--------- ---------
--------- ---------
Assumed rate of
Discount rate........................................ 7.75% 6.75% 7.25% 7.75% 6.75% 7.25%
Expected return on plan assets.......................................................... 9.00% 9.00%
--------- ---------
--------- ---------
Discount rateassets....................... 9% 9% 9% 9% 9% 9%
Rate of projected benefit obligation.................................................. 7.25% 7.50%
--------- ---------
--------- ---------compensation increase........................ 3.5% 3.5% 3.5-4.5% 3.5% 3.5% 3.5%
Medical cost trend on paidcovered charges:
Initial trend rate........................................................................... 8.00% 9.00%
--------- ---------
--------- ---------range.............................. N/A N/A N/A 7% 8% 8%
Ultimate trend rate.......................................................................... 5.00% 5.00%
--------- ---------
--------- ---------range............................. N/A N/A N/A 5% 5% 5%
A-35-A-35-
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The netcomponents of WP&L's qualified pension benefits and other
postretirement benefits cost recognized in the consolidated
statements of income for 1997, 1996 and 1995 included the following components:costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits
------------------------------------- ----------------------------------
1999 1998 1997 1996 1995
--------- --------- ---------1999 1998 1997
------------------------------------- ----------------------------------
Service cost................................................................................cost................................ $ 3.8 $ 3.2 $ 4.8 $ 1.6 $ 1.7 $ 1.8
$ 1.8 $ 1.5
Interest cost on projected benefit obligation...............................................cost............................... 8.9 8.5 13.9 2.7 2.6 3.3
3.4 3.6
ActualExpected return on assets..................................................................... (1.9) (1.3)plan assets.............. (12.9) (12.8) (19.2) (1.5) (1.5) (1.1)
Amortization of:
Transition obligation (asset)............ (2.1) Amortization of transition obligation.......................................................(2.1) (2.4) 1.2 1.3 1.5
1.5 1.5
Amortization and deferrals..................................................................Prior service cost....................... 0.4 0.5 0.3 1.3
--- --- ---
Net postretirement benefits cost..........................................................0.4 -- -- --
Actuarial loss (gain).................... 0.2 -- -- (0.9) (1.1) (0.3)
--------- -------- ------- ------- ------- -------
Total.............................. $ (1.7) $ (2.7) $ (2.5) $ 3.1 $ 3.0 $ 5.2
$ 5.7 $ 5.8
--- --- ---
--- --- ---========= ======== ======= ======= ======= =======
IncreasingDuring 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
assumed health-carerespective 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 trend rateshown 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 one percentage pointWP&L. The pension benefit cost for WP&L's
non-bargaining employees who are now participants in each year would increase the accumulatedother Alliant
Energy plans was ($1.8) million and $3.0 million for 1999 and 1998,
respectively, including a special charge of $3.6 million in 1998 for
severance and early retirement window programs. In addition, Corporate
Services provides services to WP&L. The allocated pension benefit costs
associated with these services was $1.2 million and $0.6 million for
1999 and 1998, respectively. The other postretirement benefit obligation as
of December 31, 1997 by $2.7cost
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 $0.4 million and the aggregate of$0.2 million for 1999 and 1998,
respectively.
The assumed medical trend rates are critical assumptions in determining
the service and interest cost componentsand accumulated postretirement benefit
obligation related to postretirement benefit costs. A one percent
change in the medical trend rates for 1999, 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-
A reconciliation of the net periodic postretirement benefit cost for the year by $0.4.
During 1997,funded status of WP&L expensed $1.7 for an early retirement program for eligible
bargaining unit employees.
NOTE 6. INCOME TAXES
The following table reconciles the statutory federal income tax rate&L's plans to the
effective income tax rateamounts recognized on continuing operations:WP&L's Consolidated Balance Sheets at December 31
is presented below (in millions):
1997 1996 1995
--------- --------- ---------Other
Qualified Pension Postretirement
Benefits Benefits
------------------------ ---------------------------
1999 1998 1999 1998
------------------------ --------------------------
Change in benefit obligation:
Statutory federal income tax rate..................................................... 35.0% 35.0% 35.0%
State income taxes, net
Net benefit obligation at beginning of federal benefit............................................ 5.7 6.1 5.0
Investment tax credits restored....................................................... (1.7) (1.4) (1.5)
Amortizationyear....................... $ 132.3 $ 205.1 $ 40.3 $ 47.1
Transfer of excess deferred taxes................................................. (1.3) (1.3) (1.4)
Adjustment of prior period taxes...................................................... (2.1)obligations to other Alliant Energy plans............. -- (91.9) -- --
Other differences, net................................................................ 1.4Service 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 -- --
Gross benefits paid............................................... (7.0) (5.4) (4.2) (2.9)
---------- -------- ---------- ------
Net benefit obligation at end of year.......................... 117.2 132.3 42.4 40.3
---------- -------- ---------- ------
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) -- --
Actual return on plan assets...................................... 17.1 (1.3) 1.8 1.1
(0.4)Employer contributions............................................ -- -- 4.0 --
Plan participants' contributions.................................. -- -- 1.2 0.8
Gross benefits paid............................................... (7.0) (5.4) (4.2) (2.9)
---------- -------- ---------- ------
Fair value of plan assets at end of year....................... 147.6 137.5 17.9 15.1
---------- -------- ---------- ------
Funded status at end of year.......................................... 30.4 5.2 (24.5) (25.2)
Unrecognized net actuarial loss (gain)................................ 0.8 26.0 (14.5) (17.0)
Unrecognized prior service cost....................................... 4.7 5.1 (0.2) (0.2)
Unrecognized net transition obligation (asset)........................ (5.8) (7.9) 14.9 17.2
---------- --------- ---------- ------
Net amount recognized at end of year........................... $ 30.1 $ 28.4 ($24.3) ($25.2)
---------- --------- ---------- ------
Amounts recognized on the Consolidated Balance Sheets
consist of:
Prepaid benefit cost.............................................. $ 30.1 $ 28.4 $ 0.6 $ 0.4
Accrued benefit cost.............................................. -- -- (24.9) (25.6)
---------- --------- Effective income tax.................................................................. 37.0% 39.5% 36.7%---------- ------
Net amount recognized at measurement date......................... 30.1 28.4 (24.3) (25.2)
---------- --------- ---------- ------
Contributions paid after 9/30 and prior to 12/31...................... -- -- 1.0 2.1
---------- --------- ---------
--------- --------- ------------------- ------
Net amount recognized at 12/31.................................... $ 30.1 $ 28.4 ($23.3) ($23.1)
========== ========= ========== ======
A-36Alliant 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 million and $8.4 million as of September 30, 1999 and
$33.4 million and $6.2 million, respectively, as of September 30, 1998.
-A-37-
WISCONSIN POWER(7) COMMON, PREFERRED AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 6. INCOME TAXES (CONTINUED)
The breakdownPREFERENCE STOCK
(a) Common Stock
WP&L has common stock dividend restrictions based on its respective
bond indentures and articles of income tax expense as reflectedincorporation. WP&L has 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%. 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 consolidated
statementsrate order
($58.3 million), if such dividends would reduce WP&L's average common
equity ratio below 52.00% of incometotal 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.
(b) Preferred and Preference Stock
The carrying value of WP&L's cumulative preferred stock at December 31,
1999 and 1998 was $60 million. The fair market value, based upon the
market yield of similar securities and quoted market prices, at
December 31, 1999 and 1998 was $49 million and $55 million,
respectively.
(8) DEBT
(a) Short-Term Debt
WP&L participates in a utility money pool with IESU and IPC 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
to borrow money from the utility money pool. Information regarding
WP&L's short-term debt is as follows:follows (dollars in millions):
1999 1998 1997
1996 1995
--------- --------- --------------------------------------------------------
As of year end:
Current federal.......................................................................... $ 32.3 $ 37.9 $ 29.8
Current state............................................................................ 6.5 9.6 7.0
Deferred................................................................................. 4.9 8.2 10.7
Investment tax credit restored........................................................... (1.9) (1.9) (1.9)
--------- --------- ---------
$ 41.8 $ 53.8 $ 45.6
--------- --------- ---------
--------- --------- ---------
The temporary differences that resulted in accumulated deferred income tax
(assets) and liabilities as of December 31, 1997 and 1996, are as follows:
1997 1996
--------- ---------
Property related........................................................... $ 287.2 $ 276.1
Investment tax credit related.............................................. (23.5) (19.9)
Decommissioning related.................................................... (16.0) (14.5)
Other...................................................................... 4.0 3.1
--------- ---------
$ 251.7 $ 244.8
--------- ---------
--------- ---------
NOTE 7. SHORT-TERM DEBT AND LINES OF CREDIT
WP&L and its subsidiaries maintain committed bank lines of credit, most of
which are at the bank prime rates, to obtain short-term borrowing flexibility,
including pledging lines of credit as security for any commercial paper
outstanding. Amounts available under these lines of credit totaled $70.0 as of
December 31, 1997. Information regarding short-term debt and lines of credit is
as follows:
1997 1996 1995
---------- ---------- ----------
As of year end--
Lines of credit borrowings............................................... -- -- --
Commercial paper outstanding............................................. $ 81.0 $ 59.5 $ 56.5outstanding...................................... $-- $-- $81.0
Notes payable outstanding................................................ -- $ 10.0 $ 16.0outstanding......................................... $-- $50.0 $--
Money pool borrowings............................................. $125.7 $26.8 $--
Discount rates on commercial paper....................................... 5.48-5.90% 5.35-5.65% 5.73-5.77%paper................................ N/A N/A 5.82-5.90%
Interest ratesrate on notes payable..........................................payable.................................... N/A 5.95% 5.80-5.83%5.44% N/A
Interest rate on money pool borrowings............................ 5.84% 5.17% N/A
For the year ended--
Maximum month-end amount of short-term debt.............................. $ 81.0 $ 69.5 $ 80.0ended:
Average amount of short-term debt (based on daily outstanding balances).............................................................. $ 49.2 $ 33.9 $ 48.8 $77.1 $48.4 $49.2
Average interest rate on short-term debt.................................debt.......................... 5.22% 5.55% 5.64% 5.86% 5.90%
A-37-A-38-
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED(b) Long-Term Debt
WP&L's debt maturities (excluding periodic sinking fund requirements,
which will not require additional cash expenditures) for 2000 to 2004
are $1.9 million, $0, $0, $0 and $62.0 million, respectively.
The carrying value of WP&L's long-term debt at December 31, 1999 and
1998 was $472 million. The fair market value, based upon the market
yield of similar securities and quoted market prices, at December 31,
1999 and 1998 was $469 million and $513 million, respectively.
(9) ESTIMATED FAIR VALUE OF FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 8.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 required by SFAS 115, WP&L's debt and equity security investments in
the nuclear decommissioning trust funds are classified as available for
sale. The fair market value of the nuclear decommissioning trust funds
is 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
gains from the sales of securities of $4.1 million, $0.8 million and
$0.1 million in 1999, 1998 and 1997, respectively (cost of the
investments based on specific identification were $86.2 million,
$57.6 million and $54.0 million, respectively). Since WP&L is subject
to regulation, any gains or losses related to the difference between
the carrying amount and the fair value of its financial instruments may
not be realized by WP&L's parent.
Refer to Note 10 for a discussion of WP&L's derivative financial
instruments.
(10) DERIVATIVE FINANCIAL INSTRUMENTS
WP&L has only limited involvement withInformation relating to derivative financial instruments and
does not use them for trading purposes. They are used to manage well-defined
interest rate and commodity price risks.
INTEREST RATE SWAPS AND FORWARD CONTRACTS:utilized by
WP&L enters intois as follows:
(a) Interest Rate Swaps
At December 31, 1999, WP&L had two interest rate swap agreements
to reduce the impact of changesoutstanding (both expiring in interest rates on its
floating-rate debt and fees associatedJanuary 2000), with the sale of its accounts receivable.
Thean aggregate notional principal
amount of interest$30 million. The agreements converted variable rate swaps outstanding as of December
31, 1997, was $40.0. Average variable rates are based on rates implied in the
forward yield curve at the reporting date. The average pay and receive rates
associated with these agreements are 4.11% and 3.61%, respectively. The swap
agreements have contract maturities from three months to two years. It is notdebt into
fixed rate debt. If WP&L's intent to terminate these contracts; however, the total cost to WP&L if
it had terminated all of the agreements existing at December 31,
1997,1999, WP&L would have been $0.2.
In 1995, WP&L entered intomade an insignificant payment. Settlements on
these swaps occurring during the year were recorded as a component of
interest rate forward contract related to the
anticipated issuance of $60.0 of long-term debt securities. The securities were
not issued in 1996 and the forward contract was closed which resulted in a gain
of $0.8 to WP&L. The gain was deferred and was recognized as an adjustment to
interest expense over the life of the debt securities issued during 1997 as
discussed in Note 10(b).
On April 28, 1997, WP&L entered into an interest rate forward contract to
hedge interest rate risk related to the anticipated issuance of $105.0 of
long-term debt securities. The securities were issued in June 1997 and the
forward contract was settled which resulted in a cash payment of $3.8 by WP&L.
This payment was recognized as an adjustment to interest expense over the life
of the new debt securities to approximate the interest rate implicit in the
forward contract.
GAS SWAPS:expense.
(b) Utility Gas Commodities Instruments
WP&L uses gas commodity swaps 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, 19971999 and 1998 was 4.81.9 million dekatherms. Variances between underlying commodity prices and
financial contracts on these agreements5.8 million dekatherms, respectively. Unrealized gains/losses are
deferred and recognizedaccounted for as increases
or decreaseshedges of the fair value of the gas in
storage as the cost of gas at the time the storage gas is sold. It is not
WP&L's intent to terminate these contracts; however, the total cost toindexed price WP&L if
itpays is highly correlated to the
market price that WP&L will receive from customers under the current
rate making structure. If WP&L had terminated all of the agreements
existing at December 31, 1997,1999 and 1998, WP&L would have beenrealized an
estimated gain of $0.1 million and $0.8 million, respectively, based on
current NYMEX gas futures contracts adjusted 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
withdrawal and sale of the hedged gas in storage.
(c) Weather Derivatives
WP&L uses weather derivatives to reduce the impact of weather
volatility on its natural gas sales volumes. In September 1998, WP&L
entered into a non-exchange traded "weather collar" with a contract
period commencing on November 1, 1998 and ending on March 31, 1999. The
maximum amount to be paid or received under the collar was $5,000,000.
WP&L recognized a gain in "Miscellaneous, net" on this collar of
$1.0.
A-38
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS$2.5 million in the first quarter of 1999 upon termination of the
collar. In August 1999, 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 following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CURRENT ASSETS AND CURRENT LIABILITIES-- The carryingmaximum payment amount approximates
fair value dueis $5,000,000.
Pursuant to the short maturitiesrequirements of these financial instruments.
NUCLEAR DECOMMISSIONING TRUST FUNDS-- AsEITF-99-2, WP&L is accounting for this
instrument using the intrinsic value method and recognized an
unrealized gain in "Miscellaneous, net" of December 31, 1997 and 1996,$2.4 million in the fourth
quarter of 1999.
(d) Nuclear Decommissioning Trust Fund Investments
WP&L entered into an equity collar that uses written options to
mitigate the effect of significant market fluctuations on its common
stock investments in theits nuclear decommissioning trust fundfunds. The
program is 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 carriedreported at fair market value each reporting period. These fair
value changes 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.
The balance as shown on the consolidated balance
sheets included a net unrealized gain of $16.4 and $9.4 as of December 31, 1997
and 1996, respectively.
PREFERRED STOCK OF WP&L-- Based on quoted market prices for the same or
similar issues.
LONG-TERM DEBT-- Based upon the market yield of similar securities and
quoted market prices on the current rates for debt of the same remaining
maturities. The estimated fair values of financial instruments at December 31,
1997 and 1996:
1997 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- --------- ----------- ---------
Nuclear decommissioning trust funds...................................... $ 112.4 $ 112.4 $ 90.7 $ 90.7
Preferred stock.......................................................... 60.0 51.7 60.0 47.7
Long-term debt, including current portion................................ 420.4 449.3 370.6 387.0
Since WP&L is subject to regulation, any gains or losses related to the
difference between the carrying amount and the fair value of WP&L's nuclear
decommissioning trust funds and long-term debt may not be realized by its
shareowners.
NOTE 10. CAPITALIZATION
A. COMMON SHAREOWNERS' INVESTMENT
A retail rate order effective April 29, 1997, requires WP&L to maintain a
utility common equity level of 52.00% of total utility capitalization. In
addition, the PSCW ordered that it must approve the payment of dividends by WP&L
to its parent that are in excess of the level forecasted in the rate order
($58.3), if such dividends would reduce WP&L's average common equity ratio below
52.00% of total capitalization. Based on a 13-month average for 1997, WP&L's
common equity ratio was 52.56%.
A-39
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 10. CAPITALIZATION (CONTINUED)
B. LONG-TERM DEBT
Substantially, all of WP&L's utility plant is secured by its first mortgage
bonds. Current maturities of long-term debt of WP&L are as follows: $8.9 in
1998, $0.0 in 1999, $1.9 in 2000, $0.0 in 2001 and $0.0 in 2002.
In June 1997, WP&L issued $105.0 of 7.00% Debentures due June 15, 2007.
Approximately $50.0 of the net proceeds was used to repay maturing short-term
debt and finance utility construction expenditures. The balance of the proceeds
was used to retire the $55.0 of WP&L's First Mortgage Bonds, Series Z, 6.125%,
due July 15, 1997.
NOTE 11.(11) COMMITMENTS AND CONTINGENCIES
A. COAL CONTRACT COMMITMENTS
To ensure an adequate supply of coal,(a) Construction and Acquisition Program
WP&L has entered into certain
long-term coal contracts. These contracts include a demand or take-or-pay clause
under which payments are required if contracted quantities are not purchased.
Purchase obligations on these coal&L's construction and related rail contracts total
approximately 12.5 million tons throughacquisition expenditures for the years ended
December 31, 2002.1999 and 1998 were $132 million and $117 million,
respectively. WP&L's management
believes it will meet minimum coalanticipated construction and rail purchase obligations under the
contracts. Minimum purchase obligations on these contracts over the next five
yearsacquisition
expenditures for 2000 are estimated to be $36.0 in 1998, $29.0 in 1999, $9.0 in 2000, $9.0 in
2001approximately $143 million,
of which 45% is for electric transmission and $4.0 in 2002.
B. PURCHASED POWER AND GAS
Under firm purchased power and gas contracts, WP&L is obligated as follows:
POWER GAS
--------- ---------
1998......................................................................... $ 72.0 $ 37.0
1999......................................................................... 76.3 32.7
2000......................................................................... 86.5 27.1
2001......................................................................... 38.1 22.4
2002......................................................................... 28.0 18.0
Thereafter................................................................... 58.0 29.6
C. MANUFACTURED GAS PLANT SITES
WP&L has a current or previous ownership interest in 11 properties,
consisting of 14 individual sites, associated in the past with the production of
manufactured gas. Some of these sites contain coal tar waste products which may
present an environmental hazard. WP&L owns six of these sites, three are
currently owned by municipalitiesdistribution, 25% for
electric generation, 15% for information technology and the remaining
five15% represents miscellaneous electric, gas, water and general
expenditures. WP&L's construction and acquisition expenditures are
all or partially
owned by private companies.
A-40projected 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-
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)(b) Purchased-Power, Coal and Natural Gas Contracts
Corporate Services has entered into purchased-power capacity contracts
as agent for WP&L, conducted a comprehensive review inIESU and IPC. Based on the third quarter of 1997 of its
liability at each ofSystem Coordination and
Operating Agreement, Alliant Energy annually allocates purchased-power
contracts to the 14 sites. This comprehensive review considered several
recent significant developmentsindividual utilities. Such process considers factors
such as resource mix, load growth and resulted in a reduction in the estimate of
the probable liabilityresource availability. See Note
15 for cleanup. At December 31, 1997 the liability is $9.2.additional information. In addition, management believes it is possible, butCorporate Services has
entered into various coal contracts as agent for WP&L, IESU and IPC.
Contract quantities are allocated 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, system-wide contracts of $24.6 million (6.5 million tons) and
$12.5 million (3.6 million tons), respectively, have not likely, that an
additional $3.2 of remediation costs may be incurred. In 1996,yet been
allocated to the Wisconsin
Department of Natural Resources (DNR) approved less costly containment and
control strategies as an alternative to excavation processes at two sites. The
decline in the liability of approximately $65.0 from December 31, 1996 to
December 31, 1997, isindividual utilities due to the successful implementationneed for additional
analysis of these strategies
at those two sitescombustion compatibility and several additional sites. Further reductionsefficiency. 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 liability resulted fromprocess 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 receivingalso 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&L expects to supplement its natural gas supply
with spot market purchases as needed.
(c) Information Technology Services
Alliant Energy has an additional close out letteragreement, expiring in 2004, with EDS for
information technology services. WP&L's anticipated operating and
capital expenditures under the agreement for 2000 are estimated 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 the
DNR, bringing the total number of sites with close out letters to four.
The cleanup estimate discussed above includes the costs of feasibility
studies, data collection, soil and groundwater remediation activities, and
ongoing monitoring activities through 2027. The estimateEDS.
(d) Nuclear Insurance Programs
Public liability for nuclear accidents is based on a number of
factors including the estimated extent and volume of contaminated soil and/or
groundwater. Changes in the estimate are reasonably possible in the near term.
Changes in the liability do not immediately impact the earnings of WP&L.
Under the current rate making treatment approvedgoverned by the PSCW, the costs expended
in the environmental remediation of these sites, net of any insurance proceeds,
are deferred and collected from gas customers over a five year period after new
rates are implemented. Although no assurance can be given, management currently
believes future costs will also be recovered in rates. The associated regulatory
asset is $16.3 as of December 31, 1997.
D. SPENT NUCLEAR FUEL AND DECOMMISSIONING COSTS
The current cost of WP&L's share of the estimated costs to decommission
Kewaunee ($181.3), assuming early retirement, exceeds the trust assets at
December 31, 1997 ($112.4) by $68.9. The costs of decommissioning are assumed to
escalate at an annual rate of 5.83%.
As required by the PSCW and FERC, WP&L makes annual contributions to
qualified and nonqualified external trust funds to provide for decommissioning
of Kewaunee. The Company's annual contribution is $14.3 for 1997 and $10.7 for
1996 and 1995. These amounts are fully recovered in rates. The after-tax income
of the external trust funds was $3.2, $2.7 and $2.8 for 1997, 1996 and 1995,
respectively.
Decommissioning costs, which include the annual contribution to external
trust funds and earnings on the assets of these trusts, are recorded as
depreciation expense in the consolidated statements of income with the
cumulative amount included in the accumulated provision for depreciation on the
consolidated balance sheets. As of December 31, 1997, the total decommissioning
costs included in the accumulated provision for depreciation were $112.4.
Under the Nuclear Waste Policy Act of 1982, the U.S. Department of Energy
(DOE) is responsible for the ultimate storage and disposal of spent nuclear fuel
removed from nuclear reactors. Interim storage
A-41
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
space for spent nuclear fuel is currently provided at Kewaunee. Currently there
is on-site storage capacity for spent fuel through the year 2001. An investment
of approximately $2.5 could provide additional storage sufficient to meet spent
fuel storage needs until the expiration of the current operating license.
The following summarizes WP&L's investment in nuclear fuel at December 31,
1997 and 1996:
1997 1996
--------- ---------
Original cost of nuclear fuel.............................................. $ 169.6 $ 166.4
Less--Accumulated amortization............................................. 150.5 147.0
--------- ---------
Nuclear fuel, net........................................................ $ 19.1 $ 19.4
--------- ---------
--------- ---------
E. NUCLEAR PERFORMANCE
WP&L has a 41% ownership interest in Kewaunee. Kewaunee resumed operations
on June 12, 1997 after being out of service since September 21, 1996 for
refueling and repairs to the steam generator tubes. The joint owners continue to
analyze and discuss other options related to the future of Kewaunee, including
various ownership transfer alternatives.
F. NUCLEAR INSURANCE
The Price
Anderson Act providesof 1988, which sets a statutory limit of $9.5 billion for
liability to the payment of fundspublic for public
liability claims arising from a single nuclear incident. Accordingly,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 reactor in the U.S. is subject to an assessment in the event
of a nuclear incident at any nuclear plant in the U.S. These limits are
subject to adjustments for changes in the number of participants and
inflation in future years. WP&L, as a 41% owner of Kewaunee, is subject
to an overall assessment of approximately $32.5$36.1 million per incident,
not to exceed $4.1 million payable in any given year.
ThroughWP&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 membershipexposure in Nuclear Mutual Limitedthe event of a single incident under the primary
and Nuclear Electric
Insurance Limited,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's financial condition and
results of operations.
(e) Environmental Liabilities
WP&L had recorded the following environmental liabilities, and
regulatory assets associated with certain of these liabilities, as of
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
===== =====
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
WP&L has obtainedcurrent or previous ownership interests in 14 sites,
previously associated with the production of gas for which it may be
liable for investigation, remediation and monitoring costs relating to
the 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,
damageincluding natural resources, at and decontamination
insurance totaling $1.8 billion for loss from damagearound the sites in order to
protect public health and the environment. WP&L believes that it has
completed the remediation at Kewaunee. In addition,
WP&L maintains outage and replacement power insurance coverage totaling $101.4various sites, although it is still in the
event an outage exceeds 21 weeks.
G. PLANNED CAPITAL EXPENDITURES
Plansprocess 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, 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 constructioninvestigation, remediation and monitoring of all WP&L
sites to be approximately $6 million to $8 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, regulatory 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 its MGP-related costs and all issues have
been resolved. Insurance recoveries of $2.1 million were available as
of December 31, 1999 and 1998. 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
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 Energy 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) Decommissioning of Kewaunee
Pursuant to the most recent electric rate case order, 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 its most recent electric rate order (dollars in millions):
Assumptions relating to current rate recovery figures:
Alliant Energy's share of estimated decommissioning cost $200.8
Year dollars in 1999
Method to develop estimate Site-specific study
Annual inflation rate 5.83%
Decommissioning method Prompt dismantling and removal
Year decommissioning to commence 2013
After-tax return on external investments:
Qualified. 5.62%
Non-qualified 6.97%
External trust fund balance at December 31, 1999 $166.2
Internal reserve at December 31, 1999 --
After-tax losses on external trust funds in 1999 ($4.3)
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 change in
future regulatory proceedings. 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) 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. Each of the respective
owners is responsible for the financing of future additionsits portion of the
construction costs. Kilowatt-hour 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 is as follows (dollars in millions):
1999 1998
Plant ------------------------------ -------------------------------
Name-plate Accumulated Accumulated
Ownership In-service MW Plant in Provision for Plant in Provision for
Interest % Date Capacity Service Depreciation CWIP Service Depreciation CWIP
-------------------------------------- -------------------------------- -------------------------------
WP&L
Coal: 1975 &
Columbia Energy Center.... 46.2 1978 1,023 $163.2 $ 97.8 $ 2.6 $ 161.5 $ 93.8 $ 1.4
Edgewater Unit 4.......... 68.2 1969 330 52.7 32.0 0.7 52.4 30.8 0.4
Edgewater Unit 5.......... 75.0 1985 380 229.3 92.2 0.6 229.0 85.9 0.2
Nuclear:
Kewaunee.................. 41.0 1974 535 135.0 100.7 13.6 132.2 93.7 6.4
----- ----- ---- ----- ---- ---
Total WP&L.................. $580.2 $ 322.7 $ 17.5 $ 575.1 $ 304.2 $ 8.4
====== ======== ======= ======= ======= =======
(13) SEGMENTS OF BUSINESS
WP&L is a regulated domestic utility, plant can be found elsewhereserving customers in this report under "Management's DiscussionWisconsin
and AnalysisIllinois, with three principal business segments: a) electric
operations; b) gas operations; and c) other, which includes water
operations and the unallocated portions of Financial Conditionthe utility business.
Intersegment revenues were not material to WP&L's operations and Resultsthere
was no single customer whose revenues exceeded 10% or more of Operations."
A-42
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS EXCEPT AS OTHERWISE INDICATED)
NOTE 12. SEGMENT INFORMATION
The following table sets forth certainWP&L's
consolidated revenues.
Certain financial information relating to WP&L's consolidated continuing operations:significant business
segments is presented below:
1997 1996 1995
--------- --------- ---------Electric Gas Other Total
----------------------------------------------------
(in millions)
1999
Operation information:
Customer revenues--
Electric.....................................................................
Operating revenue..................................................... $ 626.6 $ 120.8 $ 5.1 $ 752.5
Depreciation and amortization expense................................. 97.5 14.5 1.0 113.0
Operating income...................................................... 139.3 13.8 1.8 154.9
Interest expense, net of AFUDC........................................ 36.5 36.5
Net income from equity method subsidiaries............................ (0.7) (0.7)
Miscellaneous, net (other than equity income/loss).................... 2.5 2.5
Income tax expense.................................................... 45.8 45.8
Net income............................................................ 70.8 70.8
Preferred and preference dividends.................................... 3.3 3.3
Earnings available for common stock................................... 67.5 67.5
Total assets.......................................................... 1,310.5 200.3 255.3 1,766.1
Investments in equity method subsidiaries............................. 5.2 5.2
Construction and acquisition expenditures............................. 111.2 18.2 2.5 131.9
-A-45-
Electric Gas Other Total
-------------------------------------------------
(in millions)
1998
Operating revenue................................................. $ 614.7 $ 111.7 $ 5.0 $ 731.4
Depreciation and amortization expense............................. 104.7 13.6 0.9 119.2
Operating income.................................................. 87.4 3.6 1.7 92.7
Interest expense, net of AFUDC.................................... 33.5 33.5
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 3.3
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 $ 589.5155.9 $ 546.3
Gas........................................................................ 155.9 165.6 139.2
Water...................................................................... 4.7 4.2 4.2$ 794.7
Depreciation and amortization expense............................. 91.2 12.3 0.8 104.3
Operating income (loss)--
Electric................................................................... $........................................... 125.9 $ 136.3 $ 134.2
Gas........................................................................ 13.7 18.9 17.0
Water(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 other (a).......................................................... (0.5) 2.7 2.2
Investment information:
Identifiable assets, including allocatedpreference dividends................................ 3.3 3.3
Earnings available for common plant at December 31--
Electric................................................................... $ 1,245.2 $ 1,225.3 $ 1,226.8
Gas........................................................................stock............................... 67.9 67.9
Total assets...................................................... 1,270.9 193.6 262.1 250.6
Water...................................................................... 22.4 21.4 20.1
Assets not allocated....................................................... 203.4 169.0 143.6
Other information:200.1 1,664.6
Investments in equity method subsidiaries......................... 5.7 5.7
Construction decommissioning and nuclear fuel--
Electric................................................................... $ 123.8 $ 125.9 $ 122.3
Gas........................................................................ 15.3 18.0 16.9
Water...................................................................... 2.1 1.7 2.1
Depreciation expense--
Electric................................................................... $ 91.2 $ 74.5 $ 71.4
Gas........................................................................ 12.3 9.8 9.6
Water...................................................................... 0.8 0.7 0.2acquisition expenditures......................... 101.3 16.1 1.8 119.2
- ------------------------
(a) Certain reclassifications have(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 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 fourth
quarters, respectively.
-A-46-
(15) RELATED PARTY ISSUES
In association with the merger, IESU, WP&L and IPC entered into a
System Coordination and Operating Agreement which became effective with
the merger. 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 1995three utility companies based on
procedures included in the agreement. The sales amounts allocated to
WP&L were $23.8 million and 1996 figures$23.6 million for 1999 and 1998,
respectively. The purchases allocated to conform withWP&L were $101.0 million and
$70.0 million for 1999 and 1998, respectively. The procedures were
approved by both the 1997 presentation.
NOTE 13. SUBSEQUENT EVENT (UNAUDITED)
In April 1998,FERC and all state regulatory bodies having
jurisdiction over these sales. Under the Proposed Merger involving WPLH, IESagreement, IESU, WP&L and IPC
was
consummated and WPLH and its consolidated subsidiaries was renamed Interstate
Energy Corporation. For information regardingare 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 termsthree utilities in proportion to
each utility's share of electric production at the time of the Proposed Mergersale.
Pursuant to a service agreement approved by the SEC under PUHCA, WP&L
received various administrative and selected unaudited pro forma financial datageneral 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 Interstate Energy
Corporation, see Note 2.
A-43WP&L. These costs totaled $96.5 million 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, 1999 and 1998, WP&L had an intercompany payable to
Corporate Services of $24.7 million and $20.0 million, respectively.
-A-47-
SHAREOWNER INFORMATION
MARKET INFORMATIONMarket Information
The 4.50% series of preferred stock is listed on the American Stock
Exchange, with the trading symbol of WisWis. Pr. All other series of
preferred stock are traded on the over-the-counter market.
Seventy-fourSeventy-three percent of the Company's individual preferred shareowners
are Wisconsin residents.
DIVIDEND INFORMATIONDividend Information
Preferred stock dividends paid per share for each quarter during 19971999
were as follows:
SERIES DIVIDEND
- ----------------------- ---------
4.40%.................. $ 1.1000
4.50%.................. $ 1.1250
4.76%.................. $ 1.1900
4.80%.................. $ 1.2000
SERIES DIVIDEND
- ----------------------- ---------
4.96%.................. $ 1.2400
6.20%.................. $ 1.5500
6.50%.................. $ 0.4025
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 Company Board of
Directors, preferred stock dividend record and payment dates normally
are as follows:
RECORD DATE PAYMENT DATE
- ------------------------------------- ---------------
February 28.......................... March 15
May 31............................... June 15
August 31............................ September 15
November 30..........................Record Date Payment Date
- --------------------------------------------------------------
February 29..................................... March 15
May 31.......................................... June 15
August 31....................................... September 15
November 30..................................... December 15
STOCK TRANSFER AGENT AND REGISTRAR
InterstateStock Transfer Agent and Registrar
Alliant Energy Corporation
Shareowner Services
P. O.P.O. Box 2568
Madison, WI 53701-2568
FORMForm 10-K INFORMATIONInformation
A copy of Form 10-K as filed with the Securities and Exchange
Commission will be provided without charge upon request. Requests may
be directed to Shareowner Services at the above address.
EXECUTIVE OFFICERS OF WP&L
ERROLLErroll B. DAVIS, JR.Davis, Jr., 53,55, was elected Chief Executive Officer effective
April 1998. He previously served as President and Chief Executive
Officer effective Augustof WP&L since 1988 and has been a board member of WP&L since April
1984. Mr. Davis is also an officer of Alliant Energy and IESU.
William D. Harvey, 50, 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 WPL Holdings, Inc. in January 1990Alliant Energy and IESU.
Eliot G. Protsch, 46, 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.
Barbara J. Swan, 48, 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.
Thomas M. Walker, 52, was elected Executive Vice President and Chief
Financial Officer effective October 1998. Mr. Walker is also an officer
of Alliant Energy and IESU.
Pamela J. Wegner, 52, was elected Executive Officer of WPL Holdings, Inc. in July 1990. He hasVice President-Corporate
Services effective October 1998. She previously served as a directorVice
President-Information Services and Administration from 1994 to 1998 at
WP&L. Ms. Wegner is also an officer of WPL
Holdings, Inc. since March 1998.
A-44Alliant Energy and IESU.
-A-48-
A.J. (NINO) AMATO, 46,Dale R. Sharp, 59, was elected Senior Vice PresidentPresident-Transmission
effective September 1999. He previously served as Senior Vice
President-Engineering and Standards since October 1993.1998 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 1996 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-MarketingPresident-Manufacturing and Strategic Planning
from 1992 to 1993.
WILLIAM D. HARVEY, 48, was elected SeniorEnergy Portfolio Services since
October 1998 at WP&L and IESU and Vice President effective October
1993.President-Fossil Plants since
April 1998 at WP&L. He previouslyhas also served as Vice President-Natural Gas and General Counsel
from 1992 to 1993.
ELIOT G. PROTSCH, 44, was elected Senior Vice President effective October
1993. He previously served as Vice President-Customer Services and Sales from
1992 to 1993.
DANIEL A. DOYLE, 39, was elected Vice President-Power
Production effective
April 1996. He previously served asfrom 1996 to 1998 and Vice President-Finance, Controller and
Treasurer from 1994 to 1996 as Controllerat WP&L. Mr. Doyle is also an officer of
Alliant Energy and Treasurer from 1993 to 1994 and
Controller from 1992 to 1993.
BARBARA J. SWAN, 46,IESU.
Edward M. Gleason, 59, was elected Vice President-General CounselPresident-Treasurer and
Corporate Secretary effective December 1994. She previously served as General Counsel from 1993 to 1994 and
Associate General Counsel from 1987 to 1993.
PAMELA J. WEGNER, 50, was elected Vice President-Information Services and
Administration effective October 1994. Prior to joining the Company, she was the
Administrator of the Division of Finance and Program Management in the Wisconsin
Department of Administration from 1987 to 1994.
KIM K. ZUHLKE, 44, was elected Vice President-Customer Services and Sales
effective October 1993.April 1998. He previously served as Director of Marketing and Sales
Services from 1991 to 1993.
JOSEPH E. SHEFCHEK, 41, was elected Assistant Vice President-Environmental
Affairs and Research effective December 1994. He previously served as Director
of Environmental Affairs and Research from 1991 to 1994.
EDWARD M. GLEASON, 57, was elected
Controller, Treasurer, and Corporate Secretary of WP&L effective May 1996. He previously served assince 1996 and
Corporate Secretary of WP&L from 1993 to 1996 and Vice President-Finance and Treasurer of
WP&L from 1986 to 1993. He has also served as Vice President - Treasurer and
Corporate Secretary of WPL Holdings, Inc. since 1993.1996. Mr. Gleason functions as
principal financialis also an
officer of WPL Holdings, Inc.Alliant Energy and WP&L.
SUSAN J. KOSMO, 51,IESU.
Dundeana K. Langer, 41, was elected Assistant ControllerVice President-Customer Services
and Operations effective September 1995.1999. She previously served as Trust Investments and Investor Relations
Supervisor from 1992 to 1995.
DAVID A. RAMOS, 41,Vice
President-Customer Services since October 1998. Ms. Langer is also an
officer of IESU.
Daniel L. Mineck, 51, was elected Assistant ControllerVice President-Performance
Engineering and Environmental effective January 1995.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 ManagerAssistant Vice
President-Nuclear since April 1998. Mr. Wilson is also an officer of
Budgets, RatesIESU.
Kim K. Zuhlke, 46, 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 Cost Accountingsince
October 1998 at IESU and as Vice President-Customer Services and Sales
from 19941993 to 1995 and Manager1998 at WP&L. Mr. Zuhlke is also an officer of Budgets and Rates from 1992 to 1994.
STEVEN F. PRICE, 45,IESU.
Linda J. Wentzel, 51, was elected Assistant Corporate Secretary
effective April 1992May 1998. She previously served as Executive Administrative
Assistant since 1995 at WPL Holdings, Inc.Alliant Energy. Ms. Wentzel is also an officer
of Alliant Energy and WP&L and Assistant Treasurer effective
April 1992 at WPL Holdings, Inc.
ROBERT A. RUSCH, 35,IESU.
Enrique Bacalao, 50, was elected Assistant Treasurer effective
September
1995.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. He previously served as Financial Analyst from 1989 to 1995.Assistant Corporate Secretary since
1992 at Alliant Energy and WP&L and as Assistant Treasurer since 1992
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.
NOTE:None of the executive officers listed above is related to any
member of the Board of Directors or nominee for director.
Executivedirector 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-45-A-49-
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. Box 2568
Madison, WI 53701-2568
WISCONSIN POWER AND LIGHT COMPANY
P.O. BOX 2568
MADISON, WI 53701-2568
_____________________________________________
ANNUAL MEETING OF SHAREOWNERS ON JUNE 17, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF WISCONSIN POWER
AND LIGHT COMPANY.
The Board of Directors recommends a vote "FOR" the election of all listed
nominees. If no specification is given, the proxies will vote FOR the election
of all listed nominees. To vote in accordance with the Board of Directors'
recommendations, just sign on the reverse side without checking any boxes.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
1. ELECTION OF DIRECTORS
Nominees for term ending in:
2001- MAY 24, 2000
1999
---- ---- ----
Joyce L. Hanes Lee Liu Alan B. Arends
Arnold M. Nemirow Robert W. Schlutz Robert D. Ray
Jack R. Newman Wayne H. Stoppelmoor Anthony R. Weiler
nominee,
Judith D. Pyle
and
David Q. Reed
WITHHOLD FOR ALL
FOR ALL FOR ALL EXCEPT (*)
/ / / / / /
(*) To withhold authority to vote for any individual
strike a line through the nominee's name to the left and
mark an (X) in the "FOR ALL EXCEPT" box.
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
PROXY TO BE SIGNED AND DATED ON THE REVERSE SIDE.
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL MEETING OF SHAREOWNERS ON JUNE 17, 1998_____________________________________________
The undersigned appoints William D. Harvey, and Edward M. Gleason,
or either of them, attorneys and proxies, with the power of
substitution to vote all shares of stock of Wisconsin Power and Light
Company, (the "Company") held of record in the name of the undersigned at the close
of business on May 6,
1998,April 5, 2000, at the 1998 Annual Meeting of Shareowners
of the Company to be held in Room 1A at the office of
the Company,General Office, 222 West
Washington Avenue,Ave., Madison, Wisconsin, on June 17, 1998May 24, 2000 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 May 22, 1998April 12, 2000
and accompanying Proxy Statement, subject to any directions indicated
on the reverse side of this card.
Dated:________________________________, 1998
Signature__________________________________
Signature__________________________________
Please sign exactly as name appears hereon. When signing as attorney,
executor, administrator, trustee, guardian, etc., give full title as such.
InThis proxy is solicited on behalf of the caseBoard of JOINT HOLDERS,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 proxy
will vote "FOR" the election of all should sign.
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
listed nominess.