UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Name of Registrant,
State of Incorporation,
Commission Address of Principal Executive IRS Employer
File Number Offices and Telephone Number Identification Number
- ----------- ------------------------------- ---------------------
1-9894 ALLIANT ENERGY CORPORATION 39-1380265
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
0-4117-1 IES UTILITIES INC. 42-0331370
(an Iowa corporation)
Alliant Energy Tower
Cedar Rapids, Iowa 52401
Telephone (319)398-4411
0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past (90) days. Yes [ X ]
No[ ]
This combined Form 10-Q is separately filed by Alliant Energy Corporation,
IES Utilities Inc. and Wisconsin Power and Light Company. Information
contained herein relating to any individual registrant is filed by such
registrant on its own behalf. Each registrant makes no representation as to
information relating to the other registrants.
Number of shares outstanding of each class of common stock as of October 31,
1999:
Alliant Energy Common stock, $.01 par value, 78,736,473 shares
Corporation outstanding
IES Utilities Inc. Common stock, $2.50 par value, 13,370,788 shares
outstanding (all of which are owned beneficially and
of record by Alliant Energy Corporation)
Wisconsin Power and Common stock, $5 par value, 13,236,601 shares
Light Company outstanding (all of which are owned beneficially and
of record by Alliant Energy Corporation)
CONTENTS
Page
Part I. Financial Information 4
Item 1. Consolidated Financial Statements 4
Alliant Energy Corporation:
---------------------------
Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 1999 and 1998 4
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
IES Utilities Inc.:
-------------------
Consolidated Statements of Income for the Three and
and Nine Months Ended September 30, 1999 and 1998 11
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 12
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 14
Notes to Consolidated Financial Statements 15
Wisconsin Power and Light Company:
----------------------------------
Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 1999 and 1998 16
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 17
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 19
Notes to Consolidated Financial Statements 20
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 41
Part II. Other Information 41
Item 1. Legal Proceedings 41
Item 6. Exhibits and Reports on Form 8-K 42
Signatures 43
-2-
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes of this combined
Form 10-Q are defined below:
Abbreviation or Acronym Definition
ADEQ Arkansas Department of Environmental Quality
Alliant Energy Alliant Energy Corporation
Cargill Cargill Incorporated
CEMS Continuous Emission Monitoring System
Corporate Services Alliant Energy Corporate Services, Inc.
DAEC Duane Arnold Energy Center
Dth Dekatherm
EAC Energy Adjustment Clause
EITF Emerging Issues Task Force
EPA United States Environmental Protection Agency
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
IDNR Iowa Department of Natural Resources
IES IES Industries Inc.
IESU IES Utilities Inc.
IPC Interstate Power Company
IRS Internal Revenue Service
IUB Iowa Utilities Board
Kewaunee Kewaunee Nuclear Power Plant
McLeod McLeodUSA Inc.
MD&A Management's Discussion and Analysis of
Financial Condition and Results of Operations
MGE Madison Gas and Electric Company
Midwest ISO Midwest Independent System Operator
MW Megawatt
MWH Megawatt-Hour
NERC North American Electric Reliability Council
NMC Nuclear Management Company LLC
NOx Nitrogen Oxides
NRC Nuclear Regulatory Commission
NSP Northern States Power Company
OCA Office of Consumer Advocate
PGA Purchased Gas Adjustment
PRP Potentially Responsible Party
PSCW Public Service Commission of Wisconsin
PUHCA Public Utility Holding Company Act of 1935
Resources Alliant Energy Resources, Inc.
RTO Regional Transmission Organization
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
SkyGen SkyGen Energy LLC
WDNR Wisconsin Department of Natural Resources
Whiting Whiting Petroleum Corporation
WP&L Wisconsin Power and Light Company
WPLH WPL Holdings, Inc.
WPSC Wisconsin Public Service Corporation
WUHCA Wisconsin Utility Holding Company Act
-3-
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Operating revenues:
Electric utility $ 475,423 $ 460,974 $ 1,192,913 $ 1,199,139
Gas utility 33,473 29,082 213,357 204,395
Non-regulated and other 89,440 65,257 225,035 199,074
-------------- -------------- -------------- --------------
598,336 555,313 1,631,305 1,602,608
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric and steam production fuels 80,250 85,854 199,013 224,948
Purchased power 74,802 69,366 199,308 198,930
Cost of utility gas sold 14,458 12,215 118,468 113,401
Other operation 165,268 140,082 443,925 456,113
Maintenance 31,376 29,274 87,122 87,921
Depreciation and amortization 74,542 70,097 218,656 212,787
Taxes other than income taxes 26,839 26,229 80,767 79,804
-------------- -------------- -------------- --------------
467,535 433,117 1,347,259 1,373,904
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Operating income 130,801 122,196 284,046 228,704
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 32,232 31,890 100,347 95,045
Allowance for funds used during construction (1,667) (1,884) (5,383) (5,024)
Preferred dividend requirements of subsidiaries 1,677 1,675 5,029 5,024
Miscellaneous, net (15,521) 1,131 (59,354) 8,289
-------------- -------------- -------------- --------------
16,721 32,812 40,639 103,334
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 114,080 89,384 243,407 125,370
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Income taxes 42,585 37,680 91,623 53,889
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 71,495 $ 51,704 $ 151,784 $ 71,481
============== ============== ============== ==============
- --------------------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding 78,569 77,008 78,187 76,796
============== ============== ============== ==============
- --------------------------------------------------------------------------------------------------------------------------------
Earnings per average common share (basic and diluted) $ 0.91 $ 0.67 $ 1.94 $ 0.93
============== ============== ============== ==============
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-4-
ALLIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30,
1999 December 31,
ASSETS (Unaudited) 1998
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 4,966,347 $ 4,866,152
Gas 529,420 515,074
Other 448,811 409,711
---------------- ----------------
5,944,578 5,790,937
Less - Accumulated depreciation 3,044,824 2,852,605
---------------- ----------------
2,899,754 2,938,332
Construction work in progress 135,497 119,032
Nuclear fuel, net of amortization 55,346 44,316
---------------- ----------------
3,090,597 3,101,680
Other property, plant and equipment, net of accumulated
depreciation and amortization of $197,328 and $178,248, respectively 344,619 355,100
---------------- ----------------
3,435,216 3,456,780
---------------- ----------------
- ---------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 69,028 31,827
Accounts receivable:
Customer, less allowance for doubtful accounts
of $2,119 and $2,518, respectively 102,441 102,966
Other, less allowance for doubtful accounts
of $931 and $490, respectively 30,834 26,054
Notes receivable, less allowance for doubtful
accounts of $97 and $120, respectively 6,199 13,392
Income tax refunds receivable 13,557 14,826
Production fuel, at average cost 47,988 54,140
Materials and supplies, at average cost 55,224 53,490
Gas stored underground, at average cost 25,455 26,013
Regulatory assets 25,171 30,796
Prepaid gross receipts tax 16,572 22,222
Other 26,793 15,941
---------------- ----------------
419,262 391,667
---------------- ----------------
- ---------------------------------------------------------------------------------------------------------------------
Investments:
Investment in McLeodUSA Inc. 818,162 320,280
Nuclear decommissioning trust funds 250,562 225,803
Investment in foreign entities 181,722 68,882
Other 57,798 54,776
---------------- ----------------
1,308,244 669,741
---------------- ----------------
- ---------------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 268,714 284,467
Deferred charges and other 165,809 156,682
---------------- ----------------
434,523 441,149
---------------- ----------------
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 5,597,245 $ 4,959,337
================ ================
- ---------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-5-
ALLIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30,
1999 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
Common stock - $.01 par value - authorized 200,000,000 shares;
outstanding 78,704,221 and 77,630,043 shares, respectively $ 787 $ 776
Additional paid-in capital 934,373 905,130
Retained earnings 572,035 537,372
Accumulated other comprehensive income 475,625 163,017
----------------- -----------------
Total common equity 1,982,820 1,606,295
----------------- -----------------
Cumulative preferred stock of subsidiaries:
Par/Stated Authorized Shares Mandatory
Value Shares Outstanding Series Redemption
----- ------ ----------- ------ ----------
$ 100 * 449,765 4.40% - 6.20% No 44,977 44,977
$ 25 * 599,460 6.50% No 14,986 14,986
$ 50 466,406 366,406 4.30% - 6.10% No 18,320 18,320
$ 50 ** 216,381 4.36% - 7.76% No 10,819 10,819
$ 50 ** 545,000 6.40% Yes *** 27,250 27,250
----------------- -----------------
116,352 116,352
Less: unamortized expenses (2,748) (2,854)
----------------- -----------------
Total cumulative preferred stock of subsidiaries 113,604 113,498
----------------- -----------------
Long-term debt (excluding current portion) 1,569,531 1,543,131
----------------- -----------------
3,665,955 3,262,924
----------------- -----------------
* 3,750,000 authorized shares in total between the two classes
** 2,000,000 authorized shares in total between the two classes
*** $53.20 mandatory redemption price
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities and sinking funds 53,679 63,414
Variable rate demand bonds 56,975 56,975
Commercial paper 146,500 64,500
Notes payable 17 51,784
Capital lease obligations 12,410 11,978
Accounts payable 178,387 204,297
Accrued taxes 100,220 84,921
Other 124,110 111,685
----------------- -----------------
672,298 649,554
----------------- -----------------
- ------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 888,170 691,624
Accumulated deferred investment tax credits 73,221 77,313
Environmental liabilities 69,131 68,399
Customer advances 36,704 37,171
Capital lease obligations 27,590 13,755
Other 164,176 158,597
----------------- -----------------
1,258,992 1,046,859
----------------- -----------------
- ------------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 5,597,245 $ 4,959,337
================= =================
- ------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-6-
ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months
Ended September 30,
1999 1998
- -----------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $ 151,784 $ 71,481
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 218,656 212,787
Amortization of nuclear fuel 14,099 13,718
Amortization of deferred energy efficiency expenditures 19,433 20,849
Deferred taxes and investment tax credits (14,281) (22,731)
Refueling outage provision 6,193 (6,707)
Impairment of oil and gas properties - 8,448
(Gain) loss on disposition of assets, net (44,534) (1,228)
Other (6,512) 3,568
Other changes in assets and liabilities:
Accounts receivable (4,255) 31,802
Notes receivable 7,193 9,945
Production fuel 6,152 (2,485)
Gas stored underground 558 9,737
Prepaid gross receipts tax 5,650 3,781
Accounts payable (25,910) (28,254)
Accrued taxes 15,299 22,542
Adjustment clause balances (17,228) 9,120
Benefit obligations and other 34,462 33,214
------------ ------------
Net cash flows from operating activities 366,759 389,587
------------ ------------
- -----------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends declared (117,121) (102,103)
Dividends payable 308 (15,453)
Proceeds from issuance of common stock 28,652 18,317
Net change in Alliant Energy Resources, Inc. credit facility 76,995 77,037
Proceeds from issuance of other long-term debt 12,162 2,594
Reductions in other long-term debt (73,784) (10,879)
Net change in short-term borrowings 30,233 (102,426)
Principal payments under capital lease obligations (9,461) (9,655)
Other (129) (91)
------------ ------------
Net cash flows used for financing activities (52,145) (142,659)
------------ ------------
- -----------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Construction and acquisition expenditures:
Utility (182,039) (167,109)
Non-regulated businesses (131,374) (74,437)
Nuclear decommissioning trust funds (19,879) (18,084)
Proceeds from disposition of assets 71,718 4,607
Shared savings program (15,219) (12,767)
Other (620) 3,000
------------ ------------
Net cash flows used for investing activities (277,413) (264,790)
------------ ------------
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments 37,201 (17,862)
------------ ------------
- -----------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 31,827 27,329
------------ ------------
- -----------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 69,028 $ 9,467
============ ============
- -----------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 93,854 $ 92,707
============ ============
Income taxes $ 89,773 $ 57,428
============ ============
Noncash investing and financing activities:
Capital lease obligations incurred $ 23,793 $ 1,276
============ ============
- -----------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-7-
ALLIANT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The interim consolidated financial statements included herein have been
prepared by Alliant Energy, without audit, pursuant to the rules and
regulations of the SEC. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, although management believes that the disclosures
are adequate to make the information presented not misleading. The
consolidated financial statements include Alliant Energy and its
consolidated subsidiaries (WP&L, IESU, IPC, Resources and Corporate
Services). These financial statements should be read in conjunction with
the financial statements and the notes thereto included in Alliant
Energy's, IESU's and WP&L's latest Annual Report on Form 10-K, as amended
on November 1, 1999.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three and nine months ended
September 30, 1999 and 1998, (b) the consolidated financial position at
September 30, 1999 and December 31, 1998, and (c) the consolidated
statement of cash flows for the nine months ended September 30, 1999 and
1998, have been made. Because of the seasonal nature of IESU's, WP&L's
and IPC's operations, results for the three and nine months ended
September 30, 1999 are not necessarily indicative of results that may be
expected for the year ending December 31, 1999. Certain prior period
amounts have been reclassified on a basis consistent with the 1999
presentation.
2. Alliant Energy's comprehensive income (loss), and the components of other
comprehensive income (loss), net of taxes, were as follows (in
thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---------------------------- -----------------------------
Net income $ 71,495 $51,704 $151,784 $71,481
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of tax (1) 177,896 (102,546) 337,669 (61,075)
Less: reclassification adjustment for gains included
in net income, net of tax (2) - - (21,324) -
------------- ------------- ------------- -------------
Net unrealized gains (losses) 177,896 (102,546) 316,345 (61,075)
------------- ------------- ------------- -------------
Foreign currency translation adjustments (2,884) (8,511) (3,737) (8,455)
------------- ------------- ------------- -------------
Other comprehensive income (loss) 175,012 (111,057) 312,608 (69,530)
------------- ------------- ------------- -------------
Comprehensive income (loss) $246,507 ($59,353) $464,392 $ 1,951
============= ============= ============= =============
(1) Primarily due to quarterly adjustments to the estimated fair value of
Alliant Energy's investment in McLeod.
(2) The second quarter 1999 earnings included a pre-tax gain of $33.8 million
($0.27 per share) from the sale of approximately 640,000 shares of
McLeod stock held by Alliant Energy. McLeod declared a 2-for-1 stock
split effective July 1999. Alliant Energy still held beneficial
ownership in approximately 19.3 million shares of McLeod stock as of
September 30, 1999.
IESU and WP&L had no comprehensive income in the periods presented.
-8-
3. Certain financial information relating to Alliant Energy's significant
business segments is presented below:
--------------------------------------------------------
Regulated Domestic Utilities Alliant
-------------------------------------------------------- Non-regulated Energy
Electric Gas Other Total Businesses Other Consolidated
--------------------------------------------------------------------------------------------------------
(in thousands)
Three Months Ended
September 30, 1999
- ------------------
Operating revenues $475,423 $33,473 $6,892 $515,788 $83,069 ($521) $598,336
Operating income (loss) 137,795 (4,906) (71) 132,818 (1,969) (48) 130,801
Net income 62,805 7,359 1,331 71,495
Three Months Ended
September 30 ,1998
- ------------------
Operating revenues $460,974 $29,082 $7,207 $497,263 $58,642 ($592) $555,313
Operating income (loss) 129,319 (7,590) 1,243 122,972 (723) (53) 122,196
Net income (loss) 52,977 (1,217) (56) 51,704
Nine Months Ended
September 30, 1999
- ------------------
Operating revenues $1,192,913 $213,357 $23,916 $1,430,186 $202,863 ($1,744) $1,631,305
Operating income 262,565 17,015 3,812 283,392 296 358 284,046
Net income 124,710 27,013 61 151,784
Nine Months Ended
September 30, 1998
- ------------------
Operating revenues $1,199,139 $204,395 $23,040 $1,426,574 $177,269 ($1,235) $1,602,608
Operating income (loss) 223,983 7,381 4,401 235,765 (5,533) (1,528) 228,704
Net income (loss) 83,130 (8,142) (3,507) 71,481
Resources' (i.e., the non-regulated businesses) assets increased $617
million during the first nine months of 1999, primarily due to the
increase in market value of its investment in McLeod and additional
investments in foreign entities. Intersegment revenues were not material
to Alliant Energy's operations and there was no single customer whose
revenues exceeded 10% or more of Alliant Energy's consolidated revenues.
4. The provisions for income taxes are based on the estimated annual
effective tax rate, which differs from the federal statutory rate of 35%
principally due to: state income taxes, tax credits, effects of utility
rate making and certain non-deductible expenses.
5. At September 30, 1999, Alliant Energy had $182 million of investments in
foreign entities on its Consolidated Balance Sheet that primarily
included investments in several New Zealand utility entities, investments
in several generation facilities in China and an investment in secured
debentures of a development project in Mexico. Alliant Energy accounts
for the China investments under the equity method and the New Zealand
investments under the cost method. The geographic concentration of
Alliant Energy's investments in foreign entities at September 30, 1999,
included investments of approximately $111 million in New Zealand, $61
million in China, $9 million in Mexico and $1 million in other countries.
-9-
6. Summary financial information for Resources was as follows (in
thousands):
September 30,
1999
---------------
Current assets $ 104,745
Non-current assets 1,381,858
Current liabilities 52,605
Non-current liabilities
(excludes minority interest) 370,508
Minority interest 7,138
Refer to the "Non-regulated Businesses" column of Note 3 for summary
income statement data of Resources.
-10-
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating revenues:
Electric utility $ 206,148 $ 201,336 $ 488,374 $ 489,625
Gas utility 16,648 14,984 99,956 96,299
Steam and other 5,532 5,870 20,056 19,277
--------------- --------------- --------------- ---------------
228,328 222,190 608,386 605,201
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric and steam production fuels 31,064 35,478 69,937 87,411
Purchased power 22,057 18,315 62,349 55,132
Cost of gas sold 8,777 7,524 58,313 55,963
Other operation 44,075 42,020 136,681 133,891
Maintenance 12,295 13,042 34,772 37,993
Depreciation and amortization 25,481 23,885 76,444 72,127
Taxes other than income taxes 12,452 11,986 37,535 36,699
--------------- --------------- --------------- ---------------
156,201 152,250 476,031 479,216
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Operating income 72,127 69,940 132,355 125,985
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 11,765 13,124 39,403 39,154
Allowance for funds used during construction (424) (976) (1,808) (2,543)
Miscellaneous, net (213) 809 (3,568) 5,256
--------------- --------------- --------------- ---------------
11,128 12,957 34,027 41,867
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 60,999 56,983 98,328 84,118
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Income taxes 25,521 26,346 41,349 38,861
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Net income 35,478 30,637 56,979 45,257
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Preferred dividend requirements 229 229 686 686
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Earnings available for common stock $ 35,249 $ 30,408 $ 56,293 $ 44,571
=============== =============== =============== ===============
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-11-
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS
September 30,
1999 December 31,
ASSETS (Unaudited) 1998
- --------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 2,173,258 $ 2,140,322
Gas 203,722 198,488
Steam 55,794 55,797
Common 135,787 106,940
----------------- -----------------
2,568,561 2,501,547
Less - Accumulated depreciation 1,288,469 1,209,204
----------------- -----------------
1,280,092 1,292,343
Construction work in progress 47,839 48,991
Leased nuclear fuel, net of amortization 39,919 25,644
----------------- -----------------
1,367,850 1,366,978
Other property, plant and equipment, net of accumulated
depreciation and amortization of $2,058 and $1,948, respectively 5,513 5,623
----------------- -----------------
1,373,363 1,372,601
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 5,445 4,175
Temporary cash investments with associated companies - 53,729
Accounts receivable:
Customer, less allowance for doubtful accounts
of $565 and $1,058, respectively 15,000 16,703
Associated companies 1,908 2,662
Other, less allowance for doubtful accounts
of $803 and $357, respectively 16,905 10,346
Production fuel, at average cost 11,400 11,863
Materials and supplies, at average cost 25,374 25,591
Gas stored underground, at average cost 10,641 12,284
Adjustment clause balances 11,579 -
Regulatory assets 16,887 23,487
Prepayments and other 4,755 4,185
----------------- -----------------
119,894 165,025
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------
Investments:
Nuclear decommissioning trust funds 97,481 91,691
Other 6,678 6,019
----------------- -----------------
104,159 97,710
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 127,448 137,908
Deferred charges and other 15,722 15,734
----------------- -----------------
143,170 153,642
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------
Total assets $ 1,740,586 $ 1,788,978
================= =================
- --------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-12-
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30,
1999 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1998
- --------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
Common stock - $2.50 par value - authorized 24,000,000
shares; 13,370,788 shares outstanding $ 33,427 $ 33,427
Additional paid-in capital 279,042 279,042
Retained earnings 258,373 275,372
------------------ -----------------
Total common equity 570,842 587,841
Cumulative preferred stock, not mandatorily redeemable -
$50 par value - authorized 466,406 shares; 366,406 shares outstanding 18,320 18,320
Long-term debt (excluding current portion) 551,015 602,020
------------------ -----------------
1,140,177 1,208,181
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities and sinking funds 51,196 50,140
Capital lease obligations 12,396 11,965
Notes payable to associated companies 6,626 -
Accounts payable 35,702 43,953
Accounts payable to associated companies 16,717 22,487
Accrued payroll and vacations 8,163 6,365
Accrued interest 11,971 12,045
Accrued taxes 67,519 55,295
Accumulated refueling outage provision 12,798 6,605
Environmental liabilities 5,448 5,660
Other 8,859 17,617
------------------ -----------------
237,395 232,132
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 221,336 224,510
Accumulated deferred investment tax credits 27,322 29,243
Environmental liabilities 28,731 29,195
Pension and other benefit obligations 28,900 25,655
Capital lease obligations 27,523 13,679
Other 29,202 26,383
------------------ -----------------
363,014 348,665
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 1,740,586 $ 1,788,978
================== =================
- --------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-13-
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months
Ended September 30,
1999 1998
- -------------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $ 56,979 $ 45,257
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 76,444 72,127
Amortization of leased nuclear fuel 9,518 9,143
Amortization of deferred energy efficiency expenditures 12,668 14,339
Deferred taxes and investment tax credits (7,417) (9,948)
Refueling outage provision 6,193 (6,707)
Other 877 621
Other changes in assets and liabilities:
Accounts receivable (4,102) 24,219
Gas stored underground 1,643 9,328
Accounts payable (14,021) (23,192)
Accrued taxes 12,224 11,165
Adjustment clause balances (15,009) 6,307
Benefit obligations and other 14,580 16,216
------------ -------------
Net cash flows from operating activities 150,577 168,875
------------ -------------
- -------------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends declared (73,292) (18,840)
Dividends payable (4,840) 4,840
Preferred stock dividends (686) (686)
Reductions in long-term debt (50,140) (140)
Net change in short-term borrowings 6,626 -
Principal payments under capital lease obligations (9,461) (9,655)
Other (19) -
------------ -------------
Net cash flows used for financing activities (131,812) (24,481)
------------ -------------
- -------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Utility construction expenditures (66,753) (71,390)
Nuclear decommissioning trust funds (4,506) (4,506)
Other 35 467
------------ -------------
Net cash flows used for investing activities (71,224) (75,429)
------------ -------------
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments (52,459) 68,965
------------ -------------
- -------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 57,904 230
------------ -------------
- -------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 5,445 $ 69,195
============ =============
- -------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 34,825 $ 39,420
============ =============
Income taxes $ 41,052 $ 46,500
============ =============
Noncash investing and financing activities - Capital lease obligations incurred $ 23,793 $ 1,276
============ =============
- -------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-14-
IES UTILITIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the Alliant Energy Notes to Consolidated
Financial Statements are incorporated by reference insofar as they relate
to IESU. Alliant Energy Notes 5 and 6 do not relate to IESU and,
therefore, are not incorporated by reference.
1. The interim consolidated financial statements included herein have been
prepared by IESU, without audit, pursuant to the rules and regulations of
the SEC. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although management believes that the disclosures are adequate to make
the information presented not misleading. The consolidated financial
statements include IESU and its consolidated wholly-owned subsidiary, IES
Ventures Inc. IESU is a subsidiary of Alliant Energy. These financial
statements should be read in conjunction with the financial statements
and the notes thereto included in IESU's latest Annual Report on Form
10-K, as amended.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three and nine months ended
September 30, 1999 and 1998, (b) the consolidated financial position at
September 30, 1999 and December 31, 1998, and (c) the consolidated
statement of cash flows for the nine months ended September 30, 1999 and
1998, have been made. Because of the seasonal nature of IESU's
operations, results for the three and nine months ended September 30,
1999 are not necessarily indicative of results that may be expected for
the year ending December 31, 1999. Certain prior period amounts have
been reclassified on a basis consistent with the 1999 presentation.
-15-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating revenues:
Electric utility $ 173,561 $ 165,345 $ 474,016 $ 470,969
Gas utility 11,869 9,450 79,020 76,712
Water 1,360 1,335 3,860 3,763
-------------- --------------- --------------- ---------------
186,790 176,130 556,896 551,444
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric production fuels 30,994 33,520 84,374 91,889
Purchased power 34,704 30,539 87,129 89,378
Cost of gas sold 2,636 2,711 39,614 41,940
Other operation 31,653 31,140 93,194 105,036
Maintenance 14,397 10,793 37,276 35,240
Depreciation and amortization 32,446 30,237 91,992 91,075
Taxes other than income taxes 7,506 7,494 22,563 22,710
--------------- --------------- --------------- ---------------
154,336 146,434 456,142 477,268
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 32,454 29,696 100,754 74,176
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 10,352 9,224 30,295 26,591
Allowance for funds used during construction (1,279) (778) (3,311) (2,175)
Miscellaneous, net 110 573 (2,239) 1,849
--------------- --------------- --------------- ---------------
9,183 9,019 24,745 26,265
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 23,271 20,677 76,009 47,911
--------------- --------------- --------------- ---------------
- --------------------------------------------------------------------------------------- ----------------------------------
Income taxes 9,082 8,000 28,579 18,869
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Net income 14,189 12,677 47,430 29,042
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Preferred dividend requirements 827 827 2,483 2,483
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Earnings available for common stock $ 13,362 $ 11,850 $ 44,947 $ 26,559
=============== =============== =============== ===============
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-16-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
September 30,
1999 December 31,
ASSETS (Unaudited) 1998
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 1,889,883 $ 1,839,545
Gas 251,742 244,518
Water 27,523 26,567
Common 227,524 219,268
----------------- -----------------
2,396,672 2,329,898
Less - Accumulated depreciation 1,260,362 1,168,830
----------------- -----------------
1,136,310 1,161,068
Construction work in progress 73,165 56,994
Nuclear fuel, net of amortization 15,428 18,671
----------------- -----------------
1,224,903 1,236,733
Other property, plant and equipment, net of accumulated
depreciation and amortization of $151 and $44, respectively 538 630
----------------- -----------------
1,225,441 1,237,363
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 2,973 1,811
Accounts receivable:
Customer 6,496 13,372
Associated companies 2,758 3,019
Other 7,714 8,298
Income tax refunds receivable 4,801 2,715
Production fuel, at average cost 16,497 20,105
Materials and supplies, at average cost 21,650 20,025
Gas stored underground, at average cost 11,417 10,738
Regulatory assets 3,707 3,707
Prepaid gross receipts tax 16,572 22,222
Other 3,209 4,272
----------------- -----------------
97,794 110,284
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Investments:
Nuclear decommissioning trust funds 153,081 134,112
Other 15,013 15,960
----------------- -----------------
168,094 150,072
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 75,267 76,284
Deferred charges and other 121,442 111,147
----------------- -----------------
196,709 187,431
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 1,688,038 $ 1,685,150
================= =================
- ---------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-17-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30,
1999 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1998
- -----------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
Common stock - $5 par value - authorized 18,000,000
shares; 13,236,601 shares outstanding $ 66,183 $ 66,183
Additional paid-in capital 229,438 199,438
Retained earnings 295,491 294,309
----------------- -----------------
Total common equity 591,112 559,930
----------------- -----------------
Cumulative preferred stock, not mandatorily redeemable -
without par value - authorized 3,750,000 shares, maximum
aggregate stated value $150,000,000:
$100 stated value - 449,765 shares outstanding 44,977 44,977
$25 stated value - 599,460 shares outstanding 14,986 14,986
----------------- -----------------
Total cumulative preferred stock 59,963 59,963
----------------- -----------------
Long-term debt (excluding current portion) 414,650 414,579
----------------- -----------------
1,065,725 1,034,472
----------------- -----------------
- -----------------------------------------------------------------------------------------------------------
Current liabilities:
Variable rate demand bonds 56,975 56,975
Notes payable - 50,000
Notes payable to associated companies 77,145 26,799
Accounts payable 75,441 84,754
Accounts payable to associated companies 19,012 20,315
Accrued payroll and vacations 7,617 5,276
Accrued interest 8,220 6,863
Other 10,615 14,600
----------------- -----------------
255,025 265,582
----------------- -----------------
- -----------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 236,045 245,489
Accumulated deferred investment tax credits 31,775 33,170
Customer advances 33,583 34,367
Environmental liabilities 12,152 11,683
Other 53,733 60,387
----------------- -----------------
367,288 385,096
----------------- -----------------
- -----------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 1,688,038 $ 1,685,150
================= =================
- -----------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-18-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months
Ended September 30,
1999 1998
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $ 47,430 $ 29,042
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 91,992 91,075
Amortization of nuclear fuel 4,581 4,575
Deferred taxes and investment tax credits (8,962) (4,349)
Other (2,119) (1,508)
Other changes in assets and liabilities:
Accounts receivable 7,721 24,437
Prepaid gross receipts tax 5,650 3,781
Accounts payable (10,616) (2,134)
Benefit obligations and other (3,682) 14,687
-------------- --------------
Net cash flows from operating activities 131,995 159,606
-------------- --------------
- -----------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends (43,765) (43,756)
Preferred stock dividends (2,483) (2,483)
Reductions in long-term debt - (8,899)
Net change in short-term borrowings 346 (7,653)
Capital contribution from parent 30,000 -
-------------- --------------
Net cash flows used for financing activities (15,902) (62,791)
-------------- --------------
- -----------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Utility construction expenditures (88,421) (73,587)
Nuclear decommissioning trust funds (15,373) (13,578)
Shared savings program (11,880) (10,336)
Other 743 (683)
-------------- --------------
Net cash flows used for investing activities (114,931) (98,184)
-------------- --------------
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments 1,162 (1,369)
-------------- --------------
- -----------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 1,811 2,492
-------------- --------------
- -----------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 2,973 $ 1,123
============== ==============
- -----------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 27,614 $ 21,332
============== ==============
Income taxes $ 40,686 $ 22,524
============== ==============
- -----------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-19-
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the Alliant Energy Notes to Consolidated
Financial Statements are incorporated by reference insofar as they relate
to WP&L. Alliant Energy Notes 5 and 6 do not relate to WP&L and,
therefore, are not incorporated by reference.
1. The interim consolidated financial statements included herein have been
prepared by WP&L, without audit, pursuant to the rules and regulations of
the SEC. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although management believes that the disclosures are adequate to make
the information presented not misleading. The consolidated financial
statements include WP&L and its consolidated subsidiary. WP&L is a
subsidiary of Alliant Energy. These financial statements should be read
in conjunction with the financial statements and the notes thereto
included in WP&L's latest Annual Report on Form 10-K, as amended.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three and nine months ended
September 30, 1999 and 1998, (b) the consolidated financial position at
September 30, 1999 and December 31, 1998, and (c) the consolidated
statement of cash flows for the nine months ended September 30, 1999 and
1998, have been made. Because of the seasonal nature of WP&L's
operations, results for the three and nine months ended September 30,
1999 are not necessarily indicative of results that may be expected for
the year ending December 31, 1999. Certain prior period amounts have
been reclassified on a basis consistent with the 1999 presentation.
-20-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Alliant Energy was formed as the result of a three-way merger involving WPLH,
IES and IPC that was completed in April 1998. The first tier subsidiaries of
Alliant Energy include: WP&L, IESU, IPC, Resources and Corporate Services.
Among various other regulatory constraints, Alliant Energy is operating as a
registered public utility holding company subject to the limitations imposed
by PUHCA.
This MD&A includes information relating to Alliant Energy, IESU and WP&L (as
well as IPC, Resources and Corporate Services). Where appropriate,
information relating to a specific entity has been segregated and labeled as
such. The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes to Consolidated
Financial Statements included in this report as well as the financial
statements, notes and MD&A included in Alliant Energy's, IESU's and WP&L's
latest Annual Report on Form 10-K, as amended on November 1, 1999.
FORWARD-LOOKING STATEMENTS
Statements contained in this report (including MD&A) that are not of
historical fact are forward-looking statements intended to qualify for the
safe harbors from liability established by the Private Securities Litigation
Reform Act of 1995. From time to time, Alliant Energy, IESU or WP&L may make
other forward-looking statements within the meaning of the federal securities
laws that involve judgments, assumptions and other uncertainties beyond the
control of such companies. These forward-looking statements may include,
among others, statements concerning revenue and cost trends, cost recovery,
cost reduction strategies and anticipated outcomes, pricing strategies,
changes in the utility industry, planned capital expenditures, financing
needs and availability, statements of expectations, beliefs, future plans and
strategies, anticipated events or trends and similar comments concerning
matters that are not historical facts. Investors and other users of the
forward-looking statements are cautioned that such statements are not a
guarantee of future performance and that 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 the
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 issues or costs associated with
achieving Year 2000 compliance, unanticipated costs associated with certain
environmental remediation efforts being undertaken by Alliant Energy,
unanticipated issues relating to establishing a transmission company,
material changes in the value of Alliant Energy's investment in McLeod,
technological developments, employee workforce factors, including changes in
key executives, collective bargaining agreements or work stoppages,
political, legal and economic conditions in foreign countries Alliant Energy
has investments in and changes in the rate of inflation.
UTILITY INDUSTRY OUTLOOK
A summary of the current regulatory environment is included in the Form 10-K,
as amended, filed by Alliant Energy, IESU and WP&L for the year ended
December 31, 1998. Set forth below are several developments relating to such
regulatory environment.
Across the nation, approximately half of the states have passed legislation
or issued regulatory rulings granting customers the right to choose their
electric energy supplier. 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.
-21-
The IUB has been reviewing all forms of competition in the electric utility
industry for several years. A group comprised of the IUB, Alliant Energy,
MidAmerican Energy Company, rural electric cooperatives, municipal utilities
and Iowans for Choice in Electricity (a diverse group of industrial
customers, marketers, such as Enron, and a low income customer
representative, among others) endorsed a bill to allow for such competition
that was introduced in the Iowa Legislature in March 1999. The bill was
opposed by the OCA, which is charged by Iowa law with representation of all
consumers generally. While the bill did not pass, it will by operation of
Iowa General Assembly rules remain alive in the General Assembly upon
adjournment in the spring of its 1999 regular session. By operation of House
rules, it will be re-referred to the House Commerce Committee and will again
be inserted into the legislative process in the Second Regular Session of the
78th General Assembly (2000).
"Reliability 2000" legislation was signed into law by the Governor of
Wisconsin on October 27, 1999 as part of the state's biennial budget bill.
This legislation includes, among other items, a relaxation of the non-utility
asset limitations included in the WUHCA and the formation of a Wisconsin
transmission company (Transco) for those Wisconsin utility holding companies
who elect to take advantage of the new asset cap law. The asset cap
modifications will not be effective for Alliant Energy until it agrees to
include WP&L's transmission system in the Transco and makes several federal
and state regulatory filings and commitments relating to its participation in
the Transco. Such efforts are currently underway and are expected to be
completed by year-end. Alliant Energy will review the possible inclusion of
the transmission systems of IESU and IPC in the Transco as well. Refer to
"Liquidity and Capital Resources - Future Considerations" for a further
discussion of the asset cap.
The Transco, structured as an independent single-purpose corporation, will
operate as a member of the Midwest ISO. Companies would transfer their
transmission assets at net book value to the Transco in exchange for an
ownership interest. The Transco will transfer operational control of the
transmission systems to the Midwest ISO and 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
the Transco. Smaller utilities could combine their transmission assets with
others to reach the minimum level for board membership. In addition, the
shareowners of the Transco will select four at-large directors that could not
be employed or engaged in electricity or natural gas businesses.
In addition, in May 1999, FERC issued a Notice of Proposed Rulemaking (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. FERC's timeline is to have a final rule
issued by January 1, 2000, and have the RTOs in operation by the end of
2001. Alliant Energy is involved with other utilities and industry groups in
reviewing the NOPR and has submitted joint and individual comments to FERC.
Alliant Energy is unable to determine what, if any, impact the establishment
of the Transco or the final outcome of the FERC NOPR on RTOs will have on its
financial position or results of operations.
Each of the utilities complies with the provisions of SFAS 71, "Accounting
for the Effects of Certain Types of Regulation." SFAS 71 provides that
rate-regulated public utilities record certain costs and credits allowed in
the rate making process in different periods than for non-regulated
entities. These are deferred as regulatory assets or regulatory liabilities
and are recognized in the consolidated statements of income at the time they
are reflected in rates. If a portion of the 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, each utility subsidiary would be required to determine
any impairment of other assets and write-down any impaired assets to their
fair value. The utility subsidiaries believe they currently meet the
requirements of SFAS 71.
-22-
ALLIANT ENERGY RESULTS OF OPERATIONS
Overview - Third Quarter Results
Alliant Energy reported net income of $71.5 million, or $0.91 per share
(basic and diluted), for the third quarter of 1999, compared to net income of
$51.7 million, or $0.67 per share (basic and diluted), for the third quarter
of 1998.
Higher electric and natural gas margins from Alliant Energy's utility
operations, a significant improvement in earnings from Alliant Energy's
diversified operations and a lower effective income tax rate contributed to
the increase in earnings. These items were partially offset by higher
utility operation and maintenance expenses, largely due to uncollectible
expenses associated with WP&L's Year 2000 program, and increased depreciation
expenses in 1999. The 1998 results included approximately $6.5 million of
merger-related expenses ($0.05 per share).
Alliant Energy's utility operations reported net income of approximately
$62.8 million for the third quarter of 1999, compared to $53.0 million ($56.4
million excluding merger-related expenses) for the same period in 1998. The
increase in utility earnings resulted primarily from higher electric and
natural gas margins and a lower effective income tax rate ($0.15, $0.02 and
$0.04 per share, respectively). Higher operation and maintenance expenses
(excluding merger-related expenses) and depreciation expense partially offset
the increased earnings ($0.07 and $0.04 per share, respectively).
The higher electric margins resulted from a $15 million annual rate
adjustment implemented at WP&L in early March 1999 to recover higher
purchased-power and transmission costs, and continued economic growth in
Alliant Energy's service territory. In addition, earnings for the third
quarter of 1999 were favorably impacted ($0.07 per share) by a change in
estimate of Alliant Energy's utility services rendered but unbilled at
month-end. Alliant Energy estimates that weather did not significantly
impact the comparison of third quarter 1999 earnings to the earnings for the
same period in 1998. Lower margins from sales to wholesale and off-system
customers and higher purchased-power costs partially offset the increase.
The increase in operation and maintenance expenses resulted primarily from
WP&L expensing $4.5 million ($0.04 per share) of previously deferred
expenditures relating to its Year 2000 readiness program in the third quarter
of 1999. The PSCW recently approved the recovery by WP&L of $6.3 million of
the $10.8 million in total expenditures for its Year 2000 program. Increases
in employee benefits, incentive pay and energy conservation costs also
contributed to the increase in operation and maintenance expenses. Such
items were partially offset by lower transmission and distribution expenses.
Alliant Energy's diversified (non-regulated) operations reported net income
of $7.4 million in the third quarter of 1999 compared to a net loss of $1.2
million (net loss of $0.3 million excluding merger-related expenses) for the
same period in 1998. The increased earnings were largely due to gains
realized from the sale of certain New Zealand electric distribution
investments ($0.05 per share), strong operating results from Alliant Energy's
electric trading joint venture ($0.04 per share) and improved earnings from
Alliant Energy's oil and gas business ($0.03 per share). During the third
quarter of 1999, Alliant Energy sold its entire interest in one of its New
Zealand distribution investments, and a partial interest in the other one.
Alliant Energy is in the process of selling its investments in regulated
distribution businesses in New Zealand and strategically investing in new
generation and retail energy businesses there.
-23-
Electric Utility Operations
Electric margins and MWH sales for Alliant Energy for the three months ended
September 30 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
----------------------------- ----------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- -------------- ------------- ---------
Residential $ 169,507 $ 161,978 5% 2,076 1,962 6%
Commercial 103,111 94,590 9% 1,511 1,350 12%
Industrial 139,984 136,922 2% 3,435 3,311 4%
--------------- ------------- -------------- -------------
Total from ultimate customers 412,602 393,490 5% 7,022 6,623 6%
Sales for resale 49,158 56,617 (13%) 1,500 1,851 (19%)
Other 13,663 10,867 26% 41 38 8%
--------------- ------------- --------------- -------------
Total 475,423 460,974 3% 8,563 8,512 1%
============== ============= =========
Electric production fuels 76,629 82,725 (7%)
Purchased power 74,802 69,366 8%
--------------- -------------
Margin $ 323,992 $ 308,883 5%
=============== ============= =========
Electric margins and MWH sales for Alliant Energy for the nine months ended
September 30 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
----------------------------- ----------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- -------------- ------------- ---------
Residential $ 423,166 $ 409,757 3% 5,461 5,198 5%
Commercial 252,668 241,384 5% 4,005 3,702 8%
Industrial 359,365 361,776 (1%) 9,749 9,461 3%
--------------- ------------- -------------- -------------
Total from ultimate customers 1,035,199 1,012,917 2% 19,215 18,361 5%
Sales for resale 122,736 156,657 (22%) 4,184 5,557 (25%)
Other 34,978 29,565 18% 123 118 4%
--------------- ------------- -------------- -------------
Total 1,192,913 1,199,139 (1%) 23,522 24,036 (2%)
============== ============= =========
Electric production fuels 187,765 214,815 (13%)
Purchased power 199,308 198,930 --
-------------- -------------
Margin $ 805,840 $ 785,394 3%
=============== ============= =========
Electric margin increased $15.1 million, or 5%, and $20.4 million, or 3%, for
the three and nine months ended September 30, 1999, respectively, compared
with the same periods in 1998. The increases were primarily due to a $15
million annual rate increase implemented at WP&L in early March 1999 to
recover higher purchased-power and transmission costs, and continued economic
growth in Alliant Energy's service territory. In addition, electric margins
for the three and nine months ended September 30, 1999, were favorably
impacted by approximately $9 million due to a change in estimate of Alliant
Energy's utility services rendered but unbilled at month-end. A separate $15
million annual rate increase implemented at WP&L in July 1998 to recover
higher purchased-power and transmission costs and more favorable weather
conditions in the first quarter of 1999 also contributed to the nine-month
increase.
Partially offsetting the increase in electric margin for both periods were:
1) decreased sales to wholesale and off-system customers, primarily due to
lower wholesale customer contractual commitments and transmission
constraints; 2) decreased recoveries of $4.5 million and $10.8 million of
concurrent and previously deferred expenditures for Iowa-mandated energy
efficiency program costs for the three- and nine-month periods, respectively;
and 3) higher purchased-power costs. Recoveries for energy efficiency
-24-
program costs are in accordance with IUB orders (a portion of these
recoveries is also amortized to expense in other operation expenses). Also
impacting the nine month variance were $3.2 million of revenues collected
from WP&L customers for a surcharge related to Kewaunee (a corresponding
amount was included in depreciation and amortization expense) in the second
quarter of 1998.
IESU's and IPC's electric tariffs include EAC's that are designed to
currently recover the costs of fuel and the energy portion of purchased-power
billings.
Gas Utility Operations
Gas margins and Dth sales for Alliant Energy for the three months ended
September 30 were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- ------------- ------------ ---------
Residential $ 17,774 $ 15,504 15% 2,178 1,918 14%
Commercial 8,888 7,709 15% 1,582 1,533 3%
Industrial 4,526 3,407 33% 1,228 998 23%
Transportation and other 2,285 2,462 (7%) 10,192 11,589 (12%)
--------------- ------------- --------------- -------------
Total 33,473 29,082 15% 15,180 16,038 (5%)
============= ============ =========
Cost of gas sold 14,458 12,215 18%
--------------- -------------
Margin $ 19,015 $ 16,867 13%
=============== ============= =========
Gas margins and Dth sales for Alliant Energy for the nine months ended
September 30 were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- ------------- ------------ ---------
Residential $ 126,815 $ 121,797 4% 20,983 19,475 8%
Commercial 60,542 58,843 3% 12,673 11,998 6%
Industrial 14,942 13,564 10% 4,185 3,658 14%
Transportation and other 11,058 10,191 9% 35,635 38,333 (7%)
--------------- ------------- --------------- -------------
Total 213,357 204,395 4% 73,476 73,464 --
============= ============ =========
Cost of gas sold 118,468 113,401 4%
--------------- -------------
Margin $ 94,889 $ 90,994 4%
=============== ============= =========
Gas margin increased $2.1 million, or 13%, and increased $3.9 million, or 4%,
for the three and nine months ended September 30, 1999, respectively,
compared with the same periods in 1998, primarily due to higher retail sales
due to customer growth, more favorable weather conditions in 1999 and
contributions to gas margin from WP&L's gas cost sharing mechanism. The
nine-month increase was partially offset by a reduction of $2.1 million in
recoveries of Iowa-mandated energy efficiency costs and gas cost adjustments
at IPC. Refer to "Interest Expense and Other" for a discussion of income
realized from a weather hedge in the first quarter of 1999.
IESU's and IPC's gas tariffs include PGA clauses that are designed to
currently recover the cost of utility gas sold.
-25-
Non-regulated and Other Revenues
Non-regulated and other revenues for the three and nine months ended
September 30 were as follows (in thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
------------ ------------- ------------- -------------
Non-regulated energy $33,791 $ 7,668 $ 58,858 $ 30,796
Environmental and engineering services 19,714 17,348 54,849 50,672
Oil and gas production 13,621 15,854 43,062 50,478
Transportation, rents and other 12,248 13,985 34,373 34,411
Steam 5,804 6,059 20,959 19,885
Affordable housing 2,902 3,008 9,074 9,069
Water 1,360 1,335 3,860 3,763
------------ ------------- ------------- -------------
$89,440 $65,257 $225,035 $199,074
============ ============= ============= =============
Non-regulated energy revenues increased by $26.1 million and $28.1 million
for the three and nine months ended September 30, 1999, respectively,
compared with the same periods in 1998, primarily due to the second quarter
1999 acquisition of a small oil gathering and transportation business in
Texas. Environmental and engineering services revenues increased $2.4
million and $4.2 million for the three- and nine-month periods due to an
increase in construction management services. Oil and gas production
revenues declined $2.2 million and $7.4 million for the three- and nine-month
periods, primarily due to lower gas prices (including impacts of the
transaction entered into during the first quarter of 1999 to fix the sales
price for approximately two-thirds of the anticipated gas production) and
lower sales volumes. An increase in oil prices partially offset these
items.
Operating Expenses
Other operation expenses for the three and nine months ended September 30
were as follows (in thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
------------ ------------- ------------- -------------
Utility - WP&L / IESU / IPC $ 92,178 $ 92,688 $278,389 $308,627
Non-regulated and other 73,090 47,394 165,536 147,486
------------ ------------- ------------- -------------
$165,268 $140,082 $443,925 $456,113
============ ============= ============= =============
Other operation expenses at the utility subsidiaries decreased $0.5 million
and $30.2 million for the three and nine months ended September 30, 1999,
respectively, compared with the same periods in 1998. Merger-related
expenses of $1.9 million and $31.7 million incurred during the three- and
nine-month periods in 1998, respectively, lower costs in 1999 due to
operating efficiencies associated with the merger and lower transmission and
distribution expenses contributed to the decreases. Such decreases were
partially offset by increased expenses for employee benefits, incentive pay
and energy conservation costs. Also partially offsetting the nine-month
decrease were increased expenses for nuclear operations and Year 2000
readiness efforts.
Other operation expenses at the non-regulated businesses increased $25.7
million and $18.1 million for the three and nine months ended September 30,
1999, respectively, compared with the same periods in 1998. The increases
were primarily due to expenses associated with the acquisition of the oil
gathering and transportation business and costs associated with the increased
demand for construction management services. Partially offsetting the
increases were lower operation expenses in the gas marketing business, a $6.7
million asset impairment charge in the first quarter of 1998 at Whiting and
merger-related expenses of $2.1 million for the nine months ended September
30, 1998.
-26-
Maintenance expenses increased $2.1 million and decreased $0.8 million for
the three and nine months ended September 30, 1999, respectively, compared
with the same periods in 1998. WP&L expensed $4.5 million of previously
deferred expenditures related to its Year 2000 readiness program in the third
quarter of 1999. Refer to the "Liquidity and Capital Resources - Rates and
Regulatory Matters" section for a further discussion. Lower nuclear
maintenance and transmission and distribution expense partially offset the
Year 2000 expense. Expenses associated with outages at several generating
facilities partially offset the nine-month decrease.
Depreciation and amortization expense increased $4.4 million and $5.9 million
for the three and nine months ended September 30, 1999, respectively,
compared with the same periods in 1998. The increases were primarily due to
property additions, partially offset by reduced earnings in WP&L's nuclear
decommissioning trust fund, which was offset entirely in "Miscellaneous,
net," and lower depletion expense at Whiting. The nine-month increase was
also partially offset by the $3.2 million Kewaunee surcharge in the second
quarter of 1998 at WP&L (recorded in depreciation and amortization expense
with a corresponding increase in revenues resulting in no earnings impact).
Interest Expense and Other
Interest expense increased $5.3 million for the nine months ended September
30, 1999, compared with the same period in 1998, due to higher utility and
non-regulated borrowings outstanding during 1999 and an increase in nuclear
decommissioning trust fund interest expense at IESU, which was offset
entirely in "Miscellaneous, net."
The accounting for earnings on the nuclear decommissioning trust funds
results in no net income impact. Miscellaneous, net income increases for
earnings on the nuclear decommissioning funds at both WP&L and IESU. In
accordance with their respective regulatory requirements, the corresponding
offset is recorded through depreciation expense at WP&L and interest expense
at IESU.
Miscellaneous, net income increased $16.7 million and $67.6 million for the
three and nine months ended September 30, 1999, respectively, primarily due
to the following:
a. Merger-related expenses of $3.7 million and $17.4 million incurred during
the three and nine months ended September 30, 1998, respectively.
b. Gains of $6.0 million realized during the third quarter of 1999 from the
sale of certain New Zealand electric distribution investments.
c. Improved operating results from Alliant Energy's electric trading joint
venture.
d. A pre-tax gain of $33.8 million in the second quarter of 1999 from the
sale of approximately 640,000 shares of McLeod stock and $2.5 million
of income realized from settlement of a weather hedge at WP&L for the
November 1, 1998 to March 31, 1999, heating season also contributed to
the nine-month increase.
e. Partially offsetting these items were lower earnings on Alliant Energy's
nuclear decommissioning trust funds.
Income Taxes
Alliant Energy's income tax expense increased $4.9 million and $37.7 million
for the three and nine months ended September 30, 1999, respectively,
compared with the same periods last year, primarily due to higher pre-tax
income, partially offset by lower effective income tax rates in 1999
primarily due to a reduction in flow-through depreciation expense and
non-deductible merger expenses in 1998.
IESU RESULTS OF OPERATIONS
Overview - Third Quarter Results
IESU's earnings available for common stock increased $4.8 million for the
three months ended September 30, 1999, compared with the same period in
1998. The increased earnings were primarily due to higher electric margins,
a lower effective income tax rate, merger-related expenses incurred during
the three months ended September 30, 1998, and reduced interest expense.
Electric margins were higher due to a $5 million pre-tax change in estimate
-27-
of IESU's utility services rendered but unbilled at month-end and increased
retail sales. Such increases were partially offset by higher other operation
expense (excluding merger-related expenses) and higher depreciation and
amortization expense.
Electric Utility Operations
Electric margins and MWH sales for IESU for the three months ended September
30 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- ------------- ------------ ---------
Residential $ 76,739 $ 74,079 4% 818 761 7%
Commercial 58,716 53,132 11% 781 676 16%
Industrial 56,796 55,883 2% 1,312 1,229 7%
--------------- ------------- ------------- ------------
Total from ultimate customers 192,251 183,094 5% 2,911 2,666 9%
Sales for resale 10,373 15,190 (32%) 385 520 (26%)
Other 3,524 3,052 15% 9 11 (18%)
--------------- ------------- ------------- ------------
Total 206,148 201,336 2% 3,305 3,197 3%
============= ============ =========
Electric production fuels 27,442 32,349 (15%)
Purchased power 22,057 18,315 20%
--------------- -------------
Margin $ 156,649 $ 150,672 4%
=============== ============= =========
Electric margins and MWH sales for IESU for the nine months ended September
30 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- ------------- ------------ ---------
Residential $ 182,318 $ 178,917 2% 2,106 1,995 6%
Commercial 136,148 127,998 6% 2,027 1,823 11%
Industrial 137,889 140,620 (2%) 3,786 3,630 4%
--------------- ------------- ------------- ------------
Total from ultimate customers 456,355 447,535 2% 7,919 7,448 6%
Sales for resale 23,108 34,153 (32%) 1,068 1,241 (14%)
Other 8,911 7,937 12% 29 32 (9%)
--------------- ------------- ------------- ------------
Total 488,374 489,625 -- 9,016 8,721 3%
============= ============ =========
Electric production fuels 58,689 77,278 (24%)
Purchased power 62,349 55,132 13%
--------------- -------------
Margin $ 367,336 $ 357,215 3%
=============== ============= =========
Electric margin increased $6.0 million, or 4%, and $10.1 million, or 3%, for
the three and nine months ended September 30, 1999, respectively, compared
with the same periods in 1998, primarily due to a change in estimate of
IESU's utility services rendered but unbilled at month-end of approximately
$5 million and increased sales to retail customers due to continued economic
growth in IESU's service territory. More favorable weather conditions in the
first quarter of 1999 also contributed to the nine-month increase. Increased
purchased-power capacity costs partially offset the increases. Sales for
resale decreased significantly for the three- and nine-month periods,
primarily due to various resale customers of IESU selecting another utility
as their electricity provider effective in early 1999. IESU does not
anticipate the loss of the resale customers will have a material impact on
its electric margins in the future.
IESU's electric tariffs include EAC's that are designed to currently recover
the costs of fuel and the energy portion of purchased-power billings.
-28-
Gas Utility Operations
Gas margins and Dth sales for IESU for the three months ended September 30
were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- ------------- ------------ ---------
Residential $ 8,913 $ 8,187 9% 988 933 6%
Commercial 3,787 3,852 (2%) 608 714 (15%)
Industrial 2,988 2,110 42% 820 652 26%
Transportation and other 960 835 15% 2,250 2,537 (11%)
--------------- ------------- ------------- ------------
Total 16,648 14,984 11% 4,666 4,836 (4%)
============= ============ =========
Cost of gas sold 8,777 7,524 17%
--------------- -------------
Margin $ 7,871 $ 7,460 6%
=============== ============= =========
Gas margins and Dth sales for IESU for the nine months ended September 30
were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- ------------- ------------ ---------
Residential $ 61,108 $ 59,183 3% 9,626 9,350 3%
Commercial 27,725 27,357 1% 5,643 5,650 --
Industrial 7,824 6,801 15% 2,298 1,997 15%
Transportation and other 3,299 2,958 12% 7,712 8,273 (7%)
--------------- ------------- ------------- ------------
Total 99,956 96,299 4% 25,279 25,270 --
============= ============ =========
Cost of gas sold 58,313 55,963 4%
--------------- -------------
Margin $ 41,643 $ 40,336 3%
=============== ============= =========
Gas margin increased $0.4 million, or 6%, and $1.3 million, or 3%, for the
three and nine months ended September 30, 1999, respectively, compared with
the same periods in 1998. The nine-month increase was primarily due to more
favorable weather conditions in 1999.
IESU's gas tariffs include PGA clauses that are designed to currently recover
the cost of gas sold.
Operating Expenses
IESU's other operation expenses increased $2.1 million and $2.8 million for
the three and nine months ended September 30, 1999, respectively, compared
with the same periods in 1998, largely due to increased expenses for employee
benefits and incentive pay. Also contributing to the nine-month increase
were increased expenses for nuclear operations and Year 2000 readiness
efforts. Such increases were partially offset by merger-related expenses of
$0.8 million and $8.7 million incurred during the three and nine months ended
September 30, 1998, respectively, and merger-related operating efficiencies
realized in 1999.
IESU's maintenance expenses decreased $0.7 million and $3.2 million for the
three and nine months ended September 30, 1999, respectively, compared with
the same periods in 1998, primarily due to reduced nuclear maintenance
expenses.
IESU's depreciation and amortization expense increased $1.6 million and $4.3
million for the three and nine months ended September 30, 1999, respectively,
compared with the same periods in 1998, primarily due to property additions.
-29-
Interest Expense and Other
Interest expense decreased $1.4 million and increased $0.2 million for the
three and nine months ended September 30, 1999, respectively, compared with
the same periods in 1998. The three-month decrease was primarily due to
lower borrowings outstanding in 1999. For the nine-month period, interest
expense increased due to higher nuclear decommissioning trust fund interest
expense, largely offset by lower borrowings outstanding in 1999. Nuclear
decommissioning trust fund interest expense is offset entirely in
"Miscellaneous, net."
The accounting for earnings on the nuclear decommissioning trust funds
results in no net income impact. Miscellaneous, net income increases for
earnings on the trust fund and the corresponding offset is recorded as
interest expense.
Miscellaneous, net income increased $1.0 million and $8.8 million for the
three and nine months ended September 30, 1999, respectively, compared with
the same periods in 1998, primarily due to $1.6 million and $6.0 million of
merger-related expenses incurred during the three and nine months ended
September 30, 1998, respectively. Also contributing to the nine-month
increase was the higher nuclear decommissioning trust fund interest
previously described.
Income Taxes
IESU's income tax expense increased $2.5 million for the nine months ended
September 30, 1999, compared with the same period in 1998. The increase was
primarily due to higher pre-tax income, partially offset by a lower effective
income tax rate in 1999 due to a reduction in flow-through depreciation
expense and non-deductible merger expenses in 1998.
WP&L RESULTS OF OPERATIONS
Overview - Third Quarter Results
WP&L's earnings available for common stock increased $1.5 million for the
three months ended September 30, 1999, compared with the same period in
1998. The increased earnings were primarily due to higher electric and gas
margins and merger-related expenses incurred during the three months ended
September 30, 1998. Partially offsetting the increase were higher
maintenance expenses (largely due to the expensing of $4.5 million of
previously deferred expenditures for WP&L's Year 2000 readiness program for
which WP&L was denied rate recovery), depreciation and amortization expenses,
and interest expense.
-30-
Electric Utility Operations
Electric margins and MWH sales for WP&L for the three months ended September
30 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- ------------- ------------ ---------
Residential $ 60,399 $ 55,156 10% 885 833 6%
Commercial 32,028 29,671 8% 543 522 4%
Industrial 44,732 42,504 5% 1,186 1,182 --
--------------- ------------- ------------- ------------
Total from ultimate customers 137,159 127,331 8% 2,614 2,537 3%
Sales for resale 30,769 33,800 (9%) 879 1,072 (18%)
Other 5,633 4,214 34% 14 13 8%
--------------- ------------- ------------- ------------
Total 173,561 165,345 5% 3,507 3,622 (3%)
============= ============ =========
Electric production fuels 30,994 33,520 (8%)
Purchased power 34,704 30,539 14%
--------------- -------------
Margin $ 107,863 $ 101,286 6%
=============== ============= =========
Electric margins and MWH sales for WP&L for the nine months ended September
30 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- ------------- ------------ ---------
Residential $ 163,948 $ 152,861 7% 2,403 2,289 5%
Commercial 88,489 83,039 7% 1,502 1,453 3%
Industrial 126,211 121,179 4% 3,387 3,335 2%
--------------- ------------- ------------- ------------
Total from ultimate customers 378,648 357,079 6% 7,292 7,077 3%
Sales for resale 79,635 103,373 (23%) 2,454 3,592 (32%)
Other 15,733 10,517 50% 43 44 (2%)
--------------- ------------- ------------- ------------
Total 474,016 470,969 1% 9,789 10,713 (9%)
============= ============ =========
Electric production fuels 84,374 91,889 (8%)
Purchased power 87,129 89,378 (3%)
--------------- -------------
Margin $ 302,513 $ 289,702 4%
=============== ============= =========
Electric margin increased $6.6 million, or 6%, and $12.8 million, or 4%, for
the three and nine months ended September 30, 1999, respectively, compared
with the same periods in 1998. The increases were primarily due to a $15
million annual rate increase implemented in early March 1999 to recover
higher purchased-power and transmission costs and continued economic growth
within WP&L's service territory. A separate $15 million annual rate increase
implemented in July 1998 to recover higher purchased-power and transmission
costs and more favorable weather conditions in the first quarter of 1999 also
contributed to the nine-month increase. Other revenues increased for both
periods due to conservation programs for which WP&L receives a return on its
invested capital.
Lower off-system sales, due to increased transmission constraints and
implementation of the merger-related joint sales agreement, and lower sales
to wholesale customers, primarily due to decreased contractual commitments,
partially offset these items. Under the joint sales agreement, the margins
resulting from Alliant Energy's off-system sales are allocated among IESU,
IPC and WP&L. Higher purchased-power costs partially offset the three-month
increase and $3.2 million of revenues in 1998 for a surcharge related to
Kewaunee (a corresponding amount was included in depreciation and
amortization expense) partially offset the nine-month increase.
-31-
Gas Utility Operations
Gas margins and Dth sales for WP&L for the three months ended September 30
were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- ------------- ------------ ---------
Residential $ 6,459 $ 5,112 26% 852 737 16%
Commercial 4,128 2,969 39% 769 663 16%
Industrial 694 561 24% 171 152 13%
Transportation and other 588 808 (27%) 2,804 2,715 3%
--------------- ------------- ------------- ------------
Total 11,869 9,450 26% 4,596 4,267 8%
============= ============ =========
Cost of gas sold 2,636 2,711 (3%)
--------------- -------------
Margin $ 9,233 $ 6,739 37%
=============== ============= =========
Gas margins and Dth sales for WP&L for the nine months ended September 30
were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
--------------- ------------- --------- ------------- ------------ ---------
Residential $ 46,389 $ 45,102 3% 8,179 7,454 10%
Commercial 23,518 22,712 4% 5,253 4,781 10%
Industrial 3,860 4,019 (4%) 1,008 951 6%
Transportation and other 5,253 4,879 8% 9,542 9,190 4%
--------------- ------------- ------------- ------------
Total 79,020 76,712 3% 23,982 22,376 7%
============= ============ =========
Cost of gas sold 39,614 41,940 (6%)
--------------- -------------
Margin $ 39,406 $ 34,772 13%
=============== ============= =========
Gas margin increased $2.5 million, or 37%, and $4.6 million, or 13%, for the
three and nine months ended September 30, 1999, respectively, compared with
the same periods in 1998. The increases resulted primarily from higher sales
due to customer growth. More favorable weather conditions in 1999 and
increased contributions to gas margin in 1999 from WP&L's gas cost sharing
mechanism also contributed to the nine-month increase. Refer to "Interest
Expense and Other" for a discussion of income realized from a weather hedge
in the first quarter of 1999.
Operating Expenses
Other operation expenses increased $0.5 million and decreased $11.8 million
for the three and nine months ended September 30, 1999, respectively,
compared to the same periods in 1998. The three-month increase was primarily
due to increased expenses for energy conservation costs, employee benefits
and incentive pay, which were largely offset by lower transmission and
distribution expenses. The nine-month decrease was primarily due to $9.7
million of merger-related expenses incurred during 1998, lower transmission
and distribution expenses and lower costs due to merger-related operating
efficiencies. Such expenses were partially offset by increased costs for
energy conservation, employee benefits and incentive pay.
Maintenance expenses increased $3.6 million and $2.0 million for the three
and nine months ended September 30, 1999, respectively, primarily due to the
write-off of $4.5 million of previously deferred expenditures relating to its
Year 2000 readiness program in the third quarter of 1999. Partially
offsetting the increases were reduced transmission and distribution
maintenance expenses. See "Liquidity and Capital Resources - Rates and
Regulatory Matters" for further discussion of WP&L's Year 2000 rate
recovery.
-32-
Depreciation and amortization expense increased $2.2 million and $0.9 million
for the three and nine months ended September 30, 1999, respectively,
compared with the same periods in 1998, primarily due to increased property
additions. The increases were partially offset by reduced earnings on the
nuclear decommissioning trust fund (offset entirely in "Miscellaneous,
net"). The nine-month increase was also partially offset by the second
quarter 1998 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 Expense and Other
Interest expense increased $1.1 million and $3.7 million for the three and
nine months ended September 30, 1999, respectively, compared with the same
periods in 1998, primarily due to higher borrowings outstanding in 1999.
Miscellaneous, net income increased $4.1 million for the nine months ended
September 30, 1999, compared with the same period in 1998, due to $6.1
million of merger-related expenses incurred in 1998. Also contributing to
the increase was $2.5 million of pre-tax income realized in the first
quarter of 1999 from settlement of a weather hedge for the November 1,
1998, to March 31, 1999, heating season. Partially offsetting the increases
were reduced earnings on the nuclear decommissioning trust fund.
Income Taxes
Income taxes increased $1.1 million and $9.7 million for the three and nine
months ended September 30, 1999, respectively, compared with the same periods
in 1998, due to higher pre-tax income. A lower effective income tax rate
partially offset the nine-month increase.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities at Alliant Energy decreased $23 million
for the nine months ended September 30, 1999, compared with the same period
in 1998, primarily due to changes in working capital, partially offset by
changes in net income, the refueling outage provision and deferred taxes and
investment tax credits. Cash flows used for financing activities decreased
$91 million for the nine months ended September 30, 1999, compared with the
same period in 1998, primarily as a result of changes in the amount of debt
outstanding. Cash flows used for investing activities increased $13 million
for the nine months ended September 30, 1999, compared with the same period
in 1998, due to increased levels of construction and acquisition
expenditures, which were partially offset by increased proceeds from the
disposition of assets.
Cash flows from operating activities at IESU decreased $18 million for the
nine months ended September 30, 1999, compared with the same period in 1998,
primarily due to changes in working capital, partially offset by changes in
the refueling outage provision and net income. Cash flows used for financing
activities increased $107 million for the nine months ended September 30,
1999, compared with the same period in 1998, due to increased common stock
dividends as no dividend payments were made in the last three quarters of
1998 due to merger-related tax considerations. As a result, the dividend
payment in the first quarter of 1999 was larger than IESU's historical
quarterly payment. A reduction in the amount of debt outstanding in 1999
also contributed to the increase.
Cash flows from operating activities at WP&L decreased $28 million for the
nine months ended September 30, 1999, compared with the same period in 1998,
primarily due to changes in working capital, which were partially offset by
higher net income. Cash flows used for financing activities decreased $47
million for the nine months ended September 30, 1999, compared with the same
period in 1998, primarily due to a capital contribution of $30 million from
Alliant Energy and changes in the amount of debt outstanding. Cash flows
used for investing activities increased $17 million for the nine months ended
September 30, 1999, compared with the same period in 1998, primarily due to
increased construction expenditures.
-33-
Future Considerations
At September 30, 1999, Alliant Energy had an investment in the stock of
McLeod, a telecommunications company, valued at $818 million (based on a
September 30, 1999 closing price of $42.56 per share and compared to a cost
basis of $28.4 million). McLeod declared a 2-for-1 stock split which was
effective in July 1999. Pursuant to the applicable accounting rules, the
carrying value of this investment is adjusted to the estimated fair value
each quarter based on the closing price at the end of the quarter. The
adjustments do not impact net income as the unrealized gains or losses, net
of taxes, are recorded directly to the common equity section of the balance
sheet and are a component of other comprehensive income. In addition, any
such gains or losses are reflected in current earnings only at the time they
are realized through a sale. Alliant Energy entered into an agreement in
November 1998, as amended, with McLeod whereby Alliant Energy's ability to
sell the McLeod stock is subject to various restrictions.
In November 1999, Alliant Energy realized a pre-tax gain of approximately $6
million from the sale of 150,000 shares of McLeod stock, at an average price
of $43.38 per share.
Under PUHCA, certain investments of Alliant Energy in exempt wholesale
generators and foreign utility companies are limited to 50% of Alliant
Energy's consolidated retained earnings. Alliant Energy is pursuing making
the necessary regulatory filings requesting an increase in this limitation.
Under WUHCA, there is an asset cap provision that has generally limited
non-utility assets in a utility holding company to 25% of utility assets.
This provision has been limiting Alliant Energy's ability to make additional
investments in its non-utility businesses. The Reliability 2000 legislation
that was signed into law by the Governor of Wisconsin on October 27, 1999,
will provide Wisconsin utility holding companies significant asset cap relief
once they meet certain conditions relating to the formation of a Transco, as
discussed in the "Utility Industry Outlook" section. Under the provisions of
the new law, assets related to the provision of various energy-related,
environmental engineering and telecommunications services will no longer be
included in the calculation of the non-utility assets limited to 25% of
utility assets.
Under terms of comprehensive restructuring legislation passed in New Zealand,
Alliant Energy is required to sell a portion of its current New Zealand
utility investments. Alliant Energy realized pre-tax gains of $6.0 million
in the third quarter of 1999 on the sale of a portion of these investments
and anticipates it will realize an additional gain on the one remaining sale
in 2000. Alliant Energy is in the process of strategically investing in new
generation and retail businesses in New Zealand.
Whiting has entered into an agreement to sell 50%-100% of its interest in an
offshore oil and gas production property (the percentage interest sold is
based on the buyer having the option to make various installment payments to
Whiting). Whiting expects to realize a pre-tax gain on the sale in the fourth
quarter of 1999 of approximately $3 (50%) million to $6 (100%) million. As
part of the transaction, Whiting does retain the liability for certain
dismantlement and abandonment costs associated with the properties. Such
costs are currently estimated at $13 million and have been fully accrued by
Whiting.
Financing and Capital Structure
On November 9, 1999, Resources issued $250 million of 7-3/8% senior notes due
2009 in a private placement in accordance with Rule 144A of the Securities
Act of 1933. The notes are unconditionally guaranteed by Alliant Energy.
The net proceeds from the debt offering will be used to repay commercial
paper, as it becomes due, that has been issued and backed by Resources'
3-Year Credit Agreement. Funds not immediately used to repay commercial
paper will be used to fund existing operations or invested in short-term
instruments. The senior notes have been assigned ratings of A by Standard &
Poors and A3 by Moody's. The senior notes have not been registered under the
Securities Act of 1933 or the securities laws of any other jurisdiction.
In anticipation of the $250 million debt issuance, Resources terminated its
two interest rate swap agreements, each with notional amounts of $100
million, in November 1999. Resources received a payment of $47,000 upon
termination of the agreements.
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On November 1, 1999, Resources entered into an interest rate forward contract
related to the anticipated issuance of the $250 million of senior notes. The
senior notes were priced on November 4, 1999, and the forward contract was
terminated, which resulted in a cash payment of $2.5 million by Resources.
In October 1999, Resources extended its 364-Day Credit Agreement with various
banking institutions whereby the agreement now expires in October 2000.
There were no borrowings outstanding under this facility at September 30,
1999, or October 31, 1999.
At September 30, 1999, Resources had $330 million of commercial paper
outstanding and backed by its 3-Year Credit Agreement with discount rates
ranging from 5.40%-5.55%. Resources intends to continue issuing commercial
paper backed by this facility, and no conditions existed at September 30,
1999, that would prevent the issuance of commercial paper or direct
borrowings on its bank lines. Accordingly, this debt was classified as
long-term at September 30, 1999.
On August 24, 1999, WP&L filed an application with the PSCW for authority to
issue up to $100 million of debentures for the purpose of refinancing debt.
Approval is expected during the fourth quarter of 1999.
On March 23, 1999, IPC issued $7.7 million of pollution control revenue bonds
due January 1, 2013. The proceeds were used to refinance $7.7 million of
6.375% pollution control revenue bonds that were due serially 1999-2007. The
new bonds have a fixed interest rate of 4.20% for the first five years.
Thereafter, IPC will have the option to reset the interest rate at one of
three variable short-term interest rates or at a new long-term interest rate,
based on the then prevailing market conditions, provided the rate does not
exceed 12% per annum.
On March 1, 1999, IESU retired $50 million of Series Z, 7.6% First Mortgage
Bonds due in March 1999. Internally generated funds were used to retire the
bonds.
On February 11, 1999, IPC issued $3.25 million of pollution control revenue
bonds due February 1, 2010. The proceeds were used to retire $3.25 million
of 6.375% pollution control revenue bonds that were due serially 1999-2007.
The new bonds have a fixed interest rate of 4.05% for the first five years.
Thereafter, IPC will have the option to reset the interest rate at one of
three variable short-term interest rates or at a new long-term interest rate,
based on the then prevailing market conditions, provided the rate does not
exceed 12% per annum.
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.
Capital Requirements
Nuclear Facilities
On April 7, 1998, the PSCW approved WPSC's application for replacement of the
two steam generators at Kewaunee. The total cost of replacing the steam
generators would be approximately $90.7 million, with WP&L's share of the
cost being approximately $37.2 million. The replacement work originally
planned for the spring of 2000 is now scheduled for the fall of 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 shutdown the plant for a
spring 2000 refueling remain unchanged.
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In February 1999, Alliant Energy, NSP, WPSC and Wisconsin Electric Power Co.
announced the formation of the NMC to sustain long-term safety, optimize
reliability and improve the operational performance of their nuclear
generating plants. Combined, the four utilities operate seven nuclear
generating plants at five locations. The SEC approved in October 1999, under
PUHCA, Alliant Energy's membership in the NMC, and the ability of IESU, 70%
owner of DAEC, to purchase services from the NMC. The members have received
all other necessary federal and state approvals to participate in the NMC.
NRC approval is required if any utilities choose to transfer their operating
license to the new company. As presently proposed, the utilities would
continue to own their plants, be entitled to energy generated at the plants
and retain the financial obligations for their safe operation, maintenance
and decommissioning.
Rates and Regulatory Matters
In May 1998, the PSCW approved the deferral by WP&L of certain costs
associated with its Year 2000 program. In November 1998, WP&L filed for rate
recovery of the Wisconsin retail portion of its Year 2000 costs. In
accordance with the order received from the PSCW, WP&L began deferring its
Year 2000 project costs, other than internal labor and associated overheads.
However, the PSCW ruled in the third quarter of 1999 that it will not allow
WP&L to recover any of its Year 2000 program costs in rates. WP&L filed a
motion asking the PSCW to reconsider its decision. In October 1999, the PSCW
revised its earlier decision at an oral hearing by allowing WP&L rate
recovery of $6.3 million. In its October ruling, the PSCW denied rate
recovery of the first $4.5 million of WP&L's Year 2000 program expenditures.
These costs were expensed in the third quarter of 1999. Refer to "Other
Matters - Year 2000" for a further discussion of Alliant Energy's Year 2000
program.
In January 1999, WP&L made a filing with the PSCW proposing to begin
deferring, on January 1, 1999, all costs associated with the EPA's required
NOx emission reductions. In connection with a statewide docket to
investigate compliance issues associated with the EPA's NOx emission
reductions, on March 30, 1999, the PSCW authorized deferral of all non-labor
related costs incurred after March 30, 1999. However, the utilities are not
allowed to defer costs of replacement power associated with NOx compliance.
WP&L has requested expedited approval to start construction of NOx reduction
investments at several generating units operated by WP&L and in the third
quarter of 1999 received approval from the PSCW for limited NOx related
expenditures at one of its generating units. WP&L has also requested
recovery of all the NOx reduction costs through a surcharge mechanism. WP&L
anticipates receiving a final order in this proceeding in the first quarter
of 2000. No assurance can be given as to what relief, if any, will be
granted by the PSCW. Refer to the "Other Matters - Environmental" section
for a further discussion of the NOx issue.
WP&L's retail electric rates are based on forecasted fuel and purchased-power
costs. Under PSCW rules, WP&L can seek an emergency rate increase if the
annual costs are more than 3% higher than the estimated costs used to
establish rates. WP&L anticipates a need to request an electric retail rate
increase for higher forecasted purchased capacity and energy costs for year
2000, totaling approximately $26 million.
Pursuant to PSCW requirements, WP&L recognizes annual demand side management
expense based on: 1) an annual fixed expenditure amount as approved by the
PSCW in the rate making process, and 2) PSCW approved amortization of any
difference in historical demand side management expenditures and associated
rate recoveries of such costs. Effective with WP&L's rates implemented April
29, 1997, the annual rate recovery for demand side management expenses (and
the associated demand side management expense) was reduced to $6.9 million
reflecting annual demand side management expenditures of $14.4 million
reduced by a two-year amortization of prior period expenditures which were
less than the associated rate recoveries ($7.5 million per year). At the
completion of the two-year amortization period, the annual demand side
management expense to be recognized by WP&L returned to the $14.4 million
level. Given the price freeze WP&L has in effect in Wisconsin, the annual
rate recovery of demand side management expense is still $6.9 million.
In the second quarter of 1999, the OCA requested certain financial
information related to the electric utility operations within the state of
Iowa for IESU and IPC and the gas utility operations within the state of Iowa
for IPC. IESU and IPC responded to the data requests in a timely manner.
While IESU and IPC cannot predict the outcome of this process, such data
requests could lead to an effort by the OCA to seek a rate reduction for one
or both of IESU and IPC in Iowa.
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OTHER MATTERS
Year 2000
A summary of Alliant Energy's Year 2000 program is included in the Form 10-K,
as amended, filed by Alliant Energy, IESU and WP&L for the year ended
December 31, 1998. Set forth below are developments relating to the Year
2000 program.
Remediation and Testing Year 2000 remediation and testing has been completed
for all critical operational areas of Alliant Energy, which include
generating stations, substations, transmission and distribution substations,
natural gas distribution systems, system and distribution operating centers,
customer inquiry, customer billing, all key building infrastructure,
financial systems and all other information technology applications. A
critical Year 2000 date (September 9, 1999) has passed during which no
embedded equipment, computer system failures or other malfunctions occurred.
Alliant Energy has complied with the NERC's requirements for completing
remediation and testing of mission-critical systems by June 30, 1999, without
exceptions, and has filed the required letter with NERC informing it of such
compliance.
To protect the investments made to remediate and test embedded and
information technology systems, Alliant Energy has instituted a Year 2000
clean management program. This program provides for a quiet period from
October 1, 1999, to November 15, 1999, by which only limited and authorized
changes can be made to Year 2000 sensitive equipment and also includes a
freeze period from November 16, 1999, to December 31, 1999, where very
limited and authorized access is allowed. A quiet period will also be in
effect from January 1, 2000 until March 1, 2000.
A. Embedded Systems -
Virtually all work in this area has been completed and contingency plans have
already been developed, deployed and tested.
B. Information Technology -
Alliant Energy's infrastructure components, customer information systems and
financial systems have all been remediated and tested. Alliant Energy also
completed an independent validation and verification process for all
mission-critical mainframe applications on September 1, 1999.
Costs to Address Year 2000 Compliance Alliant Energy's historical Year 2000
project expenditures as well as current estimates for the remaining costs to
be incurred on the project are 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 - 3/31/99 5.2 2.3 1.9 1.0
Costs incurred from 4/1/99 - 6/30/99 6.5 1.8 2.4 2.3
Costs incurred from 7/1/99 - 9/30/99 3.0 1.2 1.5 0.3
Current estimate of remaining costs 6.6 2.4 3.8 0.4
---------- -------- --------- --------
Total $30.0 $12.5 $12.8 $4.7
========== ======== ========= ========
In addition, Alliant Energy estimates it incurred $3 million in costs for
internal labor and associated overheads in 1998 and anticipates expenditures
of $6.0 million in 1999 ($5.1 million was incurred in the first three
quarters of 1999). The total estimated project cost has decreased from the
figures reported in the Form 10-K due to lower than anticipated remediation
costs and a reduction in the contingency estimate. Refer to "Liquidity and
Capital Resources - Rates and Regulatory Matters" for a discussion of the
filing WP&L made with the PSCW for rate recovery of a portion of its Year
2000 program costs.
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Risks and Contingency Planning Alliant Energy continues to work on refining
- ------------------------------
and implementing its Year 2000 contingency plan. The planning process
includes three components: 1) base contingency planning, 2) emergency
preparedness, and 3) electric and gas industry-wide coordination. The base
contingency planning phase involves the development of operating procedures
to handle the malfunction of a specific device. This work was completed in
the first quarter of 1999. The emergency preparedness phase involves the
refinement of operating procedures to handle the malfunction of major
business processes. This work started in late 1998 and will continue through
December 1999. Remaining work is focused on company drills and advance
preparations for the date rollover.
The electric and gas industry-wide coordination is a major focus of Alliant
Energy's efforts in preparation for industry-wide drills which are being
coordinated by NERC. As part of its contingency planning process, NERC
scheduled two nation-wide electric utility industry drills in April 1999 and
September 1999. These drills focused on safe and reliable electrical system
operations with the partial loss of telecommunications and both drills were
successful. All contingency plans worked as anticipated, however, some
procedures and manual data forms will be refined to enhance efficiency.
In addition, an in-depth analysis of Year 2000 readiness has been completed
for all of Alliant Energy's key suppliers. Based upon this analysis,
inventory of a small number of items will be increased above or to normal
maximum levels. A monitoring system has also been established for such
materials. It was also established that for such key suppliers, only 17% of
their raw materials is obtained from international companies and alternative
domestic suppliers have been established.
Alliant Energy also retained an outside third party to assess and evaluate
its Year 2000 program and such study did not find any material deficiencies
in the program.
Summary Alliant Energy believes its plan is adequate to secure Year 2000
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readiness of its critical systems. Nevertheless, achieving Year 2000
readiness is subject to many risks and uncertainties. If Alliant Energy, or
third parties, fail to achieve Year 2000 readiness with respect to critical
systems and, as such, there are systematic problems, there could be a
material adverse effect on Alliant Energy's results of operations and
financial condition.
Market Risk Sensitive Instruments and Positions
Whiting is exposed to market risk in the pricing of its oil and gas
production. Historically, prices received for oil and gas production have
been volatile because of seasonal weather patterns, supply and demand
factors, transportation availability and price, and general economic
conditions. Worldwide political developments have historically also had an
impact on oil prices. In the past, Alliant Energy generally has not utilized
derivative instruments designed to reduce its exposure to these price
fluctuations. However, during the first quarter of 1999, Alliant Energy
entered into a limited amount of commodity derivative transactions to fix the
ultimate sales price for approximately two-thirds of Whiting's anticipated
gas production for 1999. Alliant Energy has also entered into additional
commodity derivative transactions in the third quarter of 1999 to fix the
ultimate sales price for approximately two-thirds of Whiting's anticipated
gas production for 2000. At September 30, 1999, the estimated fair value of
the outstanding agreements would have resulted in Alliant Energy receiving a
settlement of approximately $0.3 million.
WP&L settled the weather insurance agreement it entered into for the November
1, 1998, to March 31, 1999, heating season and recognized pre-tax income of
$2.5 million in the first quarter of 1999 relating to such settlement.
WP&L has entered into another weather insurance agreement which terminates
March 31, 2000, for the purpose of hedging a portion of the risk associated
with the changes in weather from normal conditions. Under this agreement, a
payment will be made or received if the heating degree days from November 1,
1999 to March 31, 2000, fall outside certain pre-determined heating degree day
levels. The payment is limited to a maximum of $5 million.
At September 30, 1999, Alliant Energy had an investment in the stock of
McLeod, a telecommunications company, valued at $818 million (based on a
September 30, 1999 closing price of $42.56 per share and compared to a cost
basis of $28.4 million). McLeod declared a 2-for-1 stock split which was
effective in July 1999. Pursuant to the applicable accounting rules, the
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carrying value of this investment is adjusted to the estimated fair value
each quarter based on the closing price at the end of the quarter. Alliant
Energy entered into an agreement in November 1998, as amended, with McLeod
whereby Alliant Energy's ability to sell the McLeod stock is subject to
various restrictions.
Alliant Energy has a 50% interest in an electricity trading joint venture
with Cargill. Both Alliant Energy and Cargill have made guarantees to
certain counterparties regarding the performance of contracts entered into by
the joint venture. Guarantees of approximately $90 million have been issued
of which approximately $17 million were outstanding at September 30, 1999.
Under the terms of the joint venture agreement, any payments required under
the guarantees would be shared by Alliant Energy and Cargill on a 50/50 basis
to the extent the joint venture is not able to reimburse the guarantor for
payments made under the guarantee.
Accounting Pronouncements
In June 1999, the FASB issued SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." SFAS 137 amended SFAS 133's effective date to fiscal
years beginning after June 15, 2000 (January 1, 2001 for Alliant Energy).
Also, SFAS 137 amended the date required to recognize all derivatives
embedded in hybrid instruments that were issued, acquired, or substantively
modified from December 31, 1997 to December 31, 1998.
In July 1999, the EITF reached consensus on Issue No. 99-2, "Accounting for
Weather Derivatives" which is effective for derivative contracts entered into
after July 22, 1999. Non-exchange traded, swap-based weather derivatives
entered into in connection with non-trading activities should be accounted
for using the intrinsic value method, which requires that an entity allocate
the cumulative strike amount to individual periods within the contract term.
Gains and losses to be recorded at interim measurement dates would then be
calculated based on cumulative differences between the actual experience and
the allocation through the measurement date. The initial allocation is not
adjusted to reflect actual results. Alliant Energy adopted the requirements
of this statement in 1999 and such adoption did not have any significant
impact on its financial statements.
Environmental
A summary of Alliant Energy's environmental issues is included in the Form
10-K, as amended, filed by Alliant Energy, IESU and WP&L for the year ended
December 31, 1998. Set forth below are several developments relating to
Alliant Energy's environmental issues.
In October 1998, the EPA issued a final rule requiring 22 states, including
Wisconsin, to modify their state implementation plans to address the ozone
transport issue. However, a federal appeals court on May 25, 1999, delayed
indefinitely the implementation of the rule. Should the courts find in favor
of EPA, the implementation of the rule would likely require WP&L to reduce
its NOx emissions at all of its plants to a fleet average of .15 lbs/mmbtu by
2003. WP&L is following this issue closely and continues to evaluate various
options to meet the emission levels. Based on existing technology, the
preliminary estimates indicate that capital investments would be in the range
of $150 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.
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 they have 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 also required WP&L
to conduct stack tests at several of its generating stations in the fourth
quarter of 1999 and first quarter of 2000. In addition, the Wisconsin
legislature has introduced legislation that would require the control and
reduction of mercury emissions from coal-fired generating plants. Although
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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.
In March 1998 and January 1999, IPC received Notices of Intent to Sue from an
environmental group alleging certain violations of effluent limits,
established pursuant to the Clean Water Act, at IPC's generating facility in
Clinton, Iowa. On May 14, 1998, IPC received from the IDNR an inspection
report and notice of violation addressing the same and other concerns as were
raised by the environmental group. On May 4, 1999, IPC received a letter
from the IDNR indicating it does not anticipate taking any enforcement action
regarding this issue. Therefore, management believes that any likely actions
resulting from this matter will not have a material adverse effect on IPC's
financial position or results of operations.
Pursuant to an internal review of operations in 1998, IPC discovered that
Unit No. 6 at its generating facility in Dubuque, Iowa required a Clean Air
Act Acid Rain permit and CEMS. IPC has informed its environmental regulators
and has installed the CEMS and obtained the permit. Pursuant to its internal
review, IPC also identified and disclosed to regulators a potentially similar
situation at its Lansing, Iowa generating facility. In the second quarter of
1999, EPA determined that Lansing units 1 and 2 are affected units.
Therefore, in the third quarter of 1999, IPC installed the CEMS at both of
these facilities. The Lansing facility is still awaiting its EPA certification
which is expected by the end of 1999. IPC may be subject to a penalty for not
having installed the CEMS and for not having obtained the permits previously.
However, IPC believes that any likely actions resulting from this matter will
not have a material adverse effect on its financial position or results of
operations.
On February 4, 1999, Whiting received a Notice of Violation letter from the
ADEQ, citing Whiting for flaring sour gas in excess of permit limits and not
having a valid permit. In June 1999, the ADEQ sent Whiting a Consent
Administrative Order proposing a voluntary civil penalty of $225,000 for
Whiting's alleged emission violations. Whiting is presently negotiating with
the ADEQ to offset as much of the fine as possible by participating in or
funding an approved mitigation project. Final settlement is anticipated in
the fourth quarter of 1999. Management believes that any likely actions
resulting from this matter will not have a material adverse effect on
Whiting's financial position or results of operations.
WP&L has been notified by the EPA that it is a PRP with respect to
environmental impacts identified at the MIG/DeWane Landfill Superfund Site.
WP&L is participating in the initiation of an Alternate Dispute
Resolution process to allocate liability associated with the investigation
and remediation of the site. It is not possible at this time to reasonably
estimate the amount of any obligation associated with the site because
allocation among the PRPs, and concurrence of the regulatory authorities,
have not yet advanced to the stage where a reasonable estimate can be made.
However, management believes that any likely action resulting from this
matter will not have a material adverse effect on WP&L's financial
position or results of operations.
IPC has been notified by the EPA that it is a PRP with respect to
environmental impacts identified at the Missouri Electric Works, Inc. (MEW)
site in Cape Girardeau, Missouri. IPC has been served with a Complaint filed
by the MEW Site Trust Fund, the PRP group involved in investigating and
remediating the site, for response costs incurred by the PRP group. IPC
believes that it is not liable as a PRP for this site because it did not
arrange for the disposal of any waste materials at the site. IPC will be
filing an answer to the Complaint and will be vigorously defending its
position.
WP&L has been notified by Monroe County, Wisconsin, that it is a PRP with
respect to environmental impacts identified at the Monroe County Interim
Landfill in Sparta, Wisconsin, and Monroe County has requested records and
documents from WP&L relating to waste disposal at the landfill. WP&L is
reviewing whether it has any records or documents relating to waste disposal
at the landfill, and will respond to Monroe County as appropriate. WP&L
cannot currently estimate what liability, if any, it may have with respect to
this site.
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Power Supply
In July 1998, Alliant Energy and SkyGen announced an agreement whereby SkyGen
would build, own and operate a power plant in southeastern Wisconsin capable
of producing up to 450 MW of electricity. Under the agreement, Alliant
Energy will purchase the capacity to meet the electric needs of its utility
customers, as outlined by the Wisconsin Reliability Act. A third party has
filed an appeal to the EPA Appeals Board on the issue of NOx mitigation. The
EPA has issued its decision which resulted in the WDNR issuing an air permit
that will be effective on November 15, 1999.
It was announced in September 1999 by Alliant Energy and SkyGen that the
SkyGen project is being delayed as a result of the EPA appeal process and
will not be completed by the summer of 2000 as originally planned. The delay
in the project means reduced power supplies in Wisconsin during periods of
peak electric demand. As a result, Alliant Energy will need to rely on more
costly purchased-power. Alliant Energy is unable to predict the quantity and
cost of the additional purchased-power it will need or the resulting rate
treatment of such potential costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Quantitative and Qualitative Disclosures About Market Risk are reported under
Item 2. MD&A "Other Matters - Market Risk Sensitive Instruments and
Positions."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Alliant Energy
On July 15, 1999, the PSCW found that Alliant Energy was in violation of the
PSCW's merger order because after Alliant Energy exercised its right to
withdraw from the Midwest ISO, it had no proposal on file with the PSCW
either to be in an ISO or to spin off its transmission assets (Alliant Energy
has subsequently rejoined the Midwest ISO). The PSCW deferred consideration
of any remedies. Both Alliant Energy and the intervenors in the proceeding
have appealed the PSCW's decision to the Dane County Circuit Court. The
appeals are pending.
Alliant Energy has received an adverse ruling from a U.S.
district court judge dealing with an income tax refund claim the company
filed relating to capital losses disallowed under audit by the IRS.
The district court judge also disallowed certain related deductions allowed
by the IRS as an offset against a tax refund due to Alliant Energy. Alliant
Energy is considering an appeal of the district court's ruling but believes
the ruling would not have a material adverse impact on its financial position
or results of operations.
WP&L
In the second quarter of 1999, WP&L received a demand for arbitration from
MGE pursuant to the terms of joint plant operating agreements between the
parties regarding issues of ownership and operation of the Columbia Energy
Center.
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In September 1999, a Wisconsin Circuit Court judge ruled that some of MGE's
claims were arbitrable. The parties are currently in the process of selecting
arbitrators and determining the procedures to be followed in the arbitration.
WP&L believes MGE's claims are without merit and will be vigorously defending
its position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following Exhibits are filed herewith.
27.1 Financial Data Schedule for Alliant Energy Corporation at and for
the period ended September 30, 1999
27.2 Financial Data Schedule for IES Utilities Inc. at and for the
period ended September 30, 1999
27.3 Financial Data Schedule for Wisconsin Power and Light Company at
and for the period ended September 30, 1999
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Alliant
Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company
have each duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 12th day of November 1999.
ALLIANT ENERGY CORPORATION
- --------------------------
Registrant
By: /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer
Thomas M. Walker (Principal Financial Officer)
By: /s/ John E. Ebright Vice President-Controller(Principal Accounting Officer)
John E. Ebright
IES UTILITIES INC.
- ------------------
Registrant
By: /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer
Thomas M. Walker (Principal Financial Officer)
By: /s/ John E. Ebright Vice President-Controller (Principal Accounting Officer)
John E. Ebright
WISCONSIN POWER AND LIGHT COMPANY
- ---------------------------------
Registrant
By: /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer
Thomas M. Walker (Principal Financial Officer)
By: /s/ John E. Ebright Vice President-Controller(Principal Accounting Officer)
John E. Ebright
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