UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from __________ to __________
Commission file number 1-9894
WPL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1380265
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
222 West Washington Avenue, Madison, Wisconsin 53703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (608) 252-3311
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock (Par Value $.01 Per Share) New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.[ ]
The aggregate market value of the voting stock held by
nonaffiliates of the registrant: $842,426,972 based upon the closing price
as of January 31, 1995 of the registrant's Common Stock, $.01 par value,
on the New York Stock Exchange as reported in the Wall Street Journal.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Class Outstanding at January 31, 1995
Common Stock, $.01 par value 30,773,588 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1995 Proxy Statement relating to its
1995 Annual Meeting of Shareowners (to be filed with the Commission under
Regulation 14A within 120 days after the end of the registrant's fiscal
year) are incorporated by reference into Part III hereof.
WPL HOLDINGS, INC.
FORM 10-K
December 31, 1994
TABLE OF CONTENTS
Part I. Business............................................ 2
Properties.......................................... 16
Legal Proceedings................................... 18
Submission of Matters to a Vote of Security Holders. 19
Executive Officers.................................. 19
Part II. Financial Information............................... 20
Part III. Directors and Executive Officers
Information....................................... 52
Part IV. Exhibits............................................ 53
Signatures.................................................... 56
Report of Independent Public Accountants on Schedules......... 57
PART I
ITEM 1. BUSINESS
WPL Holdings, Inc. (referred to herein as the "Company") was
incorporated under the laws of the State of Wisconsin on April 22, 1981
and operates as a holding company with both utility and nonregulated
businesses. It is the parent company of a public utility, Wisconsin Power
and Light Company ("WPL") and its related subsidiaries, and of Heartland
Development Corporation ("HDC"), the parent corporation for the Company's
nonregulated businesses. The Company has no employees who are not also
employees of WPL and or HDC. See Item 8 - "Financial Statements and
Supplementary Data, Notes to Consolidated Financial Statements", Note 12,
for financial information related to the Company's business segments.
WPL
WPL, incorporated in Wisconsin on February 21, 1917 as the
Eastern Wisconsin Electric Company, is a public utility predominately
engaged in the transmission and distribution of electric energy and the
generation and bulk purchase of electric energy for sale. WPL also
transports, distributes and sells natural gas purchased from gas
suppliers. Nearly all of WPL's customers are located in south and central
Wisconsin. WPL operates in municipalities pursuant to permits of
indefinite duration which are regulated by Wisconsin law. WPL does not
derive a material portion of its revenues from any one customer.
WPL owns all of the outstanding capital stock of South Beloit
Water, Gas and Electric Company ("South Beloit"), a public utility
supplying electric, gas and water service, principally in Winnebago
County, Illinois, which was incorporated on July 23, 1908.
WPL also owns varying interests in several other subsidiaries
and investments which are not material to WPL's operations.
Regulation
WPL is subject to regulation by the Public Service Commission
of Wisconsin ("PSCW") as to retail utility rates and service, accounts,
issuance and use of proceeds of securities, certain additions and
extensions to facilities, and in other respects. South Beloit is subject
to regulation by the Illinois Commerce Commission ("ICC") for similar
items. The Federal Energy Regulatory Commission ("FERC") has jurisdiction
under the Federal Power Act over certain of the electric utility
facilities and operations, wholesale rates and accounting practices of
WPL and in certain other respects. Certain of WPL's natural gas
facilities and operations are subject to the jurisdiction of the FERC
under the Natural Gas Act. The Company is presently exempt from all
provisions of the Public Utility Holding Company Act of 1935, except
provisions relating to the acquisition of securities of other public
utility companies.
The PSCW has recently opened a formal docket initiating an
inquiry into the future structure of the electric utility industry in
Wisconsin. The goals of Wisconsin utility regulation and the principles
to be used in choosing among alternative proposals have been identified.
WPL has submitted its preferred structure which, in summary form, calls
for open access to transmission and distribution systems and a competitive
power generation marketplace. It is not possible at this time to predict
the outcome of these proceedings.
With respect to environmental matters impacting WPL and its
subsidiaries, the United States Environmental Protection Agency administers
certain federal statutes with administrative responsibility with respect
to others being delegated to the Wisconsin Department of Natural Resources
("DNR"). In addition, the DNR has jurisdiction over air and water quality
standards associated with fossil fuel fired electric generation and the
level and flow of water, safety and other matters pertaining to
hydroelectric generation.
WPL is subject to the jurisdiction of the Nuclear Regulatory
Commission ("NRC") with respect to the Kewaunee Nuclear Power Plant
("Kewaunee") and to the jurisdiction of the United States Department of
Energy ("DOE") with respect to the disposal of nuclear fuel and other
radioactive wastes from Kewaunee.
Employees
At year-end 1994, WPL employed 2,391 persons, of whom 1,924 were
considered electric utility employees, 334 were considered gas utility
employees and 133 were considered other utility employees. WPL has a
three-year contract with members of the International Brotherhood of
Electrical Workers, Local 965, that is in effect until June 1, 1996. The
contract covers 1,647 of WPL's employees.
ELECTRIC OPERATIONS:
General
WPL provides electricity in a service territory of approximately
16,000 square miles in 35 counties in southern and central Wisconsin and
four counties in northern Illinois. As of December 31, 1994, WPL provided
retail electric service to approximately 371,000 customers in 663 cities,
villages and towns, and wholesale service to 27 municipal utilities, one
privately owned utility, three rural electric cooperatives and to the
Wisconsin Public Power, Inc. system, which provides retail service to nine
communities.
WPL owns 20,969 miles of electric transmission and distribution
lines and 362 substations located adjacent to the communities served.
WPL's electric sales are seasonal to some extent with the yearly
peak normally occurring in the summer months. WPL also experiences a
smaller winter peak in December or January.
Fuel
In 1994, approximately 80 percent of WPL's net kilowatthour
generation of electricity was fueled by coal and 17 percent by nuclear
fuel (provided by WPL's 41 percent ownership interest in Kewaunee). The
remaining electricity generated was produced by hydroelectric, oil-fired
and natural gas generation.
Coal
WPL anticipates that its average fuel costs will likely increase
in the future, due to cost escalation provisions in existing coal and
transportation contracts.
The estimated coal requirements of WPL's generating units
(including jointly-owned facilities) for the years 1995 through 2014 total
about 167 million tons. Present coal supply contracts and transportation
contracts (excluding extension options) cover approximately 14 percent and
21 percent, respectively, of this estimated requirement. WPL will seek
renewals of existing contracts or additional sources of supply and
negotiate new or additional transportation contracts to satisfy these
requirements and to comply with environmental regulations.
Nuclear
Kewaunee is jointly-owned by WPL (41%), Wisconsin Public Service
Corporation (41.2%) and Madison Gas & Electric Company (17.8%). Wisconsin
Public Service Corporation (WPSC) is the operating partner. The plant
began commercial operation in 1974.
WPSC, the plant operator, is a member of the INPO, an
organization of nuclear utilities which promotes excellence in all aspects
of nuclear plant operations. INPO manages the accreditation process for
industry training programs, which includes periodic accreditation of those
training programs by an independent organization, the NNAB. All ten
accredited training programs at Kewaunee are currently in good standing
with the NNAB.
The supply of nuclear fuel for the Kewaunee plant involves the
mining and milling of uranium ore to uranium concentrates, the conversion
of uranium concentrates to uranium hexafluoride, enrichment of the uranium
hexafluoride and fabrication of the enriched uranium into usable fuel
assemblies. After a region (approximately one-third of the nuclear fuel
assemblies in the reactor) of spent fuel is removed from the reactor, it
is placed in temporary storage for cooling in a spent fuel pool at the
plant site. Permanent storage is addressed below. Presently, there are
no operating facilities in the United States reprocessing commercial
nuclear fuel. A discussion of the nuclear fuel supply for Kewaunee, which
requires approximately 250,000 pounds of uranium concentrates per year
follows:
(a) Requirements for uranium are met through spot market purchases
of uranium. In general, a four-year supply of uranium is
maintained.
(b) Uranium hexafluoride, from inventory and from spot market
purchases, was used to satisfy converted material requirements
in 1994. Conversion services relating to uranium hexafluoride
will be purchased on the spot market in the future.
(c) In 1994, enriched uranium was procured from COGEMA, Inc.
pursuant to a contract last amended in 1993. Enrichment
services were purchased from the Department of Energy (DOE),
under the terms of the utility services contract. This
contract is in effect for the life of Kewaunee. The
partnership is committed to take 70 percent of its annual
requirements in 1995, and in alternate years thereafter, from
the DOE.
(d) Fuel fabrication requirements through June 15, 1995 are
covered by contract. This contract contains an option to
allow extension of the contract through 1998. WPSC is
negotiating a contract for fuel fabrication extending through
2001.
(e) Beyond the stated periods for Kewaunee, additional contracts
for uranium concentrates, conversion to uranium hexafluoride,
fabrication and spent fuel storage will have to be procured.
The prices for the foregoing are expected to increase.
The National Energy Policy Act of 1992 provides that both the
Federal government and the nuclear utilities fund the decontamination and
decommissioning of the three federal gaseous diffusion plants in the
United States. This will require the owners of Kewaunee to pay
approximately $15 million in current dollars over a period of 15 years.
WPL's share amounts to an annual payment of approximately $410,000.
The steam generator tubes at the Kewaunee plant are susceptible to
corrosion characteristics, a condition that has been experienced
throughout the nuclear industry. Annual inspections are performed to
identify degraded tubes. Degraded tubes are either repaired by sleeving
or are removed from service by plugging. The steam generators were
designed with approximately 15 percent heat transfer margin, meaning that
full power should be sustainable with the equivalent of 15 percent of the
steam generator tubes plugged. Tube plugging and the build-up of deposits
on the tubes affect the heat-transfer capability of the steam generators
to the point where eventually full power operation is not possible and
there is a gradual decrease in the capacity of the plant. As a result of
this process, Kewaunee's capacity could be reduced by as much as 20% by
the year 2013 when the current operating license expires. Currently, the
equivalent of approximately 12 percent of the tubes in the steam generator
are plugged. WPL and the joint-owners recently completed studies
evaluating the economics of replacing the two steam generators at
Kewaunee. The studies resulted in the conclusion that the most prudent
course of action is to continue operation of the existing steam
generators. WPL and the other joint-owners continue to evaluate
appropriate strategies, including replacement, as well as continued
operation of the steam generator without replacement. WPL and the joint-
owners also continue to fund the development of welded repair technology
for steam generator tubes. The plant is expected to be operated until at
least 2013. WPL and the joint-owners are also continuing to evaluate and
implement initiatives to improve the performance of Kewaunee which already
performs at above average levels for the industry. These initiatives
include conversion from a 12-month to an 18-month fuel cycle and numerous
other cost reduction measures. These initiatives have resulted in
reductions in Kewaunee operating and maintenance costs since 1991.
Physical decommissioning is expected to occur during the period 2014
to 2021 with additional expenditures being incurred during the period 2022
to 2050 related to the storage of spent nuclear fuel at the site.
Wisconsin utilities operating nuclear generating plants are required by
the PSCW to establish external trust funds to provide for the
decommissioning of such plants. The market value of the investments in
the funds established by WPL at December 31, 1994 totaled $51.8 million.
Additionally, in July 1994, the PSCW issued a generic order covering
utilities that have nuclear generation. This order standardizes the
escalation assumptions to be used in determining nuclear decommissioning
liabilities.
WPL's share of the decommissioning costs is estimated to be $159
million (in 1994 dollars, assuming the plant is operating through 2013)
based on a 1992 study, using the immediate dismantlement method of
decommissioning. The undiscounted amount of decommissioning costs
estimated to be expended between the years 2014 and 2050 is $1,016
million. After-tax earnings on the tax-qualified and nontax-qualified
decommissioning funds are assumed to be 6.1% and 5.1%, respectively. The
future escalation rate is assumed to be 6.5%.
Pursuant to the Nuclear Waste Policy Act of 1982, the DOE has
entered into a contract with WPL to accept, transport and dispose of spent
nuclear fuel beginning no later than January 31, 1998. It is likely that
the DOE will delay the acceptance of spent nuclear fuel beyond 1998. A
fee to offset the costs of the DOE's disposal for all spent fuel used
since April 7, 1983 has been assessed by the DOE at one mill per net
kilowatthour of electricity generated and sold by the Kewaunee nuclear
power plant. An additional one-time fee was paid for the disposal of
spent nuclear fuel used to generate electricity prior to April 7, 1983.
Spent fuel is currently stored at Kewaunee. The existing capacity
of the spent fuel storage facility will enable storage of the projected
quantities of spent fuel through April 2001. WPL is currently evaluating
options for the storage of additional quantities beyond 2001. Several
technologies are available. An investment of approximately $2.5 million
in the early 2000's could provide additional storage sufficient to meet
spent fuel storage needs until the expiration of the current operating
license.
The Low-Level Radioactive Waste Policy Act of 1980 as amended in
1985 provides that states may enter into compacts to provide for regional
low-level waste disposal facilities. Wisconsin is a member of the Midwest
Interstate Low-Level Radioactive Waste Compact. The state of Ohio has
been selected as the host state for the Midwest Compact and is proceeding
with the preliminary phases of site selection. In June of 1994, the
Branwell, South Carolina disposal facility, which had been accepting
Kewaunee low level radioactive waste materials, discontinued taking waste
materials from outside its region. WPL expects to have sufficient storage
space of its own to satisfy low level radioactive waste disposal needs
until the Ohio facility accepts low level radioactive waste materials.
Recovery of Electric Fuel Costs
In 1994 WPL did not automatically pass changes in electric fuel costs
through to its Wisconsin retail electric customers. Instead, rates were
based on estimated per unit fuel costs established during rate proceedings
and were not subject to change by fuel cost fluctuations unless actual
costs were outside specified limits. If actual fuel costs had varied from
the estimated costs by more than +10 percent in a month or by more than
+3 percent for the test year to date, rates could have been adjusted,
based on the results of a special fuel cost hearing. During 1994, fuel
costs remained within the aforementioned parameters. See Note 1F in the
Notes to Consolidated Financial Statements included as part of Item 8
hereto.
WPL's wholesale rates and South Beloit's retail rates contain fuel
adjustment clauses pursuant to which rates are adjusted monthly to reflect
changes in the costs of fuel.
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED ELECTRIC STATISTICS
Year Ended December 31,
1994 1993 1992 1991 1990
Area served (end of period):
Population--retail (estimated)(a).......... 822,000 818,000 807,000 799,000 777,000
Cities, villages and towns served--retail.. 607 609 611 611 604
Customers served (end of period):
Residential and farm....................... 322,924 316,870 310,702 304,825 302,942
Industrial................................. 776 714 727 679 635
Commercial................................. 43,793 42,884 42,287 41,190 40,358
Wholesale.................................. 31 32 30 31 31
Class A.................................... 11 7 9 10 10
Other...................................... 1,256 1,236 950 1,173 1,147
--------- --------- --------- --------- ---------
Total.................................... 368,791 361,743 354,705 347,908 345,123
========= ========= ========= ========= =========
Sales--kilowatt-hours (in thousands):
Residential and farm....................... 2,776,895 2,751,363 2,614,439 2,729,917 2,566,093
Industrial................................. 3,764,953 3,540,082 3,377,132 3,185,101 3,173,932
Commercial................................. 1,688,349 1,629,911 1,551,823 1,558,297 1,492,255
Wholesale.................................. 2,207,098 2,105,905 1,994,722 1,979,832 1,885,424
Class A.................................... 367,023 282,226 213,697 461,357 352,129
Other...................................... 54,217 51,073 55,230 54,376 55,101
--------- --------- --------- --------- ---------
Total.................................... 10,858,535 10,360,560 9,807,043 9,968,880 9,524,934
========= ========= ========= ========= =========
Electric operating revenues (in thousands):
Residential and farm....................... 194,242 184,176 171,887 179,751 170,875
Industrial................................. 140,487 132,903 128,467 124,212 124,972
Commercial................................. 101,382 95,977 91,707 92,628 89,618
Wholesale.................................. 76,056 69,757 67,326 68,154 65,983
Class A.................................... 10,344 9,198 10,159 14,677 9,784
Other...................................... 9,236 11,176 8,189 9,130 9,587
--------- --------- --------- --------- ---------
Total.................................... 531,747 503,187 477,735 488,552 470,819
========= ========= ========= ========= =========
Percent of generation by fuel type:
Coal....................................... 80.4% 80.3% 79.8% 81.1% 79.6%
Nuclear.................................... 16.8% 16.5% 17.4% 15.7% 17.6%
Hydroelectric.............................. 2.4% 2.9% 2.6% 2.6% 2.5%
Natural gas................................ 0.3% 0.2% 0.1% 0.5% 0.2%
Oil........................................ 0.1% 0.1% 0.1% 0.1% 0.1%
--------- --------- --------- --------- ---------
Total.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
========= ========= ========= ========= =========
System capacity--at time of system peak:
(kWh's)
Company plants (including jointly owned)... 2,193,000 2,019,000 1,934,000 1,932,000 1,936,000
Firm purchased (sold) power................ 40,000 83,000 110,000 70,000 (55,000)
--------- --------- --------- --------- ---------
Total.................................... 2,233,000 2,102,000 2,044,000 2,002,000 1,881,000
System peak demand......................... 2,002,000 1,971,000 1,971,000 1,863,000 1,798,000
--------- --------- --------- --------- ---------
Reserve margin at time of peak............. 231,000 131,000 73,000 139,000 83,000
========= ========= ========= ========= =========
Fuel cost per kilowatt-hour (cents).......... 1.410 1.349 1.365 1.392 1.419
Cost per million BTU (all fuels) (cents)..... 124.76 128.69 130.80 132.70 134.86
BTU per kilowatthour generated (heat rate)... 10,451 10,483 10,438 10,493 10,519
Average annual electric bill per
residential and farm customer.............. $607 $587 $558 $594 $573
Average annual kilowatt-hour use per
residential and farm customer.............. 8,662 8,772 8,492 9,015 8,603
<FN>
(a) The estimated population for towns served jointly with other electric utilities has been
based upon a ratio of 2.5 population per retail electric customer.
GAS OPERATIONS:
General
As of December 31, 1994, WPL provided retail natural gas service
to approximately 141,000 customers in 239 cities, villages and towns in
22 counties in southern and central Wisconsin and one county in northern
Illinois.
WPL's gas sales follow a seasonal pattern. There is an annual
base load of gas used for heating, cooking, water heating and other
purposes, with a large peak occurring during the heating season.
In 1994, WPL continued to purchase significant volumes of lower
cost gas directly from producers and marketers and transported those
volumes over its two major pipeline supplier's systems. This replaced
higher cost gas historically purchased directly from the major pipeline
systems.
Gas Supplies
During 1993, both of the interstate pipelines which serve WPL,
ANR Pipeline and Northern Natural Pipeline, completed their transition to
providing unbundled services as mandated by the FERC in its Order 636. As
a result, WPL now contracts with these two parties for various unbundled
services such as firm and interruptible transportation, firm and
interruptible storage service and "no-notice" service. WPL and its gas
customers have benefited from enhanced access to competitively priced gas
supplies, and from more flexible transportation services. As part of this
restructuring, pipelines have sought and received authorization to recover
from their customers certain transition costs associated with
restructuring. WPL is passing these costs along to its retail gas
customers pursuant to provisions of its retail gas tariffs.
The gas industry, in general, was put to a severe test during
the first quarter of 1994 in the wake of the coldest weather on record.
On January 18, 1994, the temperature averaged -17F in Madison, Wisconsin
and did not rise above -7F. WPL set a record peak day load of 251,194
MMBTU. Overall throughput for January was 23% above forecast. Through
effective use of transportation, supply, and storage contracts and by
invoking tariff language allowing interruption and constraint of gas
supplies to WPL's large industrial and commercial customers, WPL was able
to maintain gas flows within the parameters imposed by its pipeline
contracts. By doing so, WPL avoided substantial penalty exposure from the
pipeline companies for unauthorized use of gas. WPL's large industrial
and commercial customers served under interruptible rates moved to
alternate fuel supplies during the periods of interruption and constraint.
These customers pay a discounted rate year round in exchange for WPL's
right to interrupt service to their facilities.
WPL's portfolio of natural gas contracts over the last several
years is as follows:
ANR Pipeline
Contract year 1990-91 1991-92 1992-93 1993-94 1994-1995
Maximum daily entitlement:
(000's Dt per day)
Contract demand 81.5 81.5 81.5 -- --
Firm transportation 25.9 25.9 25.9 79.0 79.0
Firm storage 40.1 40.1 40.1 85.5 85.5
------ ------ ------ ------ -------
Total 147.5 147.5 147.5 163.5 163.5
------ ------ ------ ------ -------
Maximum annual entitlement
(000's Dt) 11,680 11,680 N/A N/A N/A
Northern Natural Pipeline
Contract year 1990-91 1991-92 1992-93 1993-94 1994-1995
(a) (a) (a)
Maximum daily entitlement:
(000's Dt per day)
Contract demand 19.9 16.9 -- -- --
Firm transportation 13.7 26.5 53.6 53.6 53.6
Firm storage - 2.2 1.5 8.5 8.5
"Unbundled" sales - - 16.9 1.4 1.4
------ ------ ------ ------ ------
Total 33.6 45.6 53.6 53.6 53.6
====== ====== ====== ====== ======
Maximum annual entitlement
(000's Dt) 5,815 N/A N/A N/A N/A
<FN>
(a) Total no longer equals sum of components. Currently, Northern Natural requires that WPL hold firm transportation
equal to its total peak-day requirements. Firm storage, "unbundled" sales from Northern Natural, and third party
gas supply (not shown) are all eligible gas sources to be moved to WPL's city gates via this firm transportation.
Contract demand services from Northern Natural have been eliminated.
As the natural gas market continues to evolve, WPL continuously
evaluates products and services provided by pipelines and gas suppliers to
meet the changing needs of its firm and interruptible gas customers.
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED GAS STATISTICS
Year Ended December 31,
1994 1993 1992 1991 1990
Area served (end of period):
Population -- retail (estimated)(a)...... 399,000 391,000 377,000 375,000 363,000
Cities, villages and towns served --
retail................................ 239 217 194 199 195
Customers served (end of period):
Residential.............................. 124,938 120,829 116,642 113,475 110,606
Commercial firm.......................... 15,082 14,644 14,209 13,848 13,384
Industrial firm.......................... 449 444 447 443 438
Interruptible............................ 272 261 262 215 211
Transportation........................... 135 85 109 46 59
------- ------- ------- ------- -------
Total................................ 140,876 136,263 131,669 128,027 124,698
======= ======= ======= ======= =======
Sales - Therms (in thousands) (b):
Residential.............................. 119,562 120,005 114,131 114,772 102,048
Commercial firm.......................... 70,702 69,389 66,272 67,015 59,123
Industrial firm.......................... 16,785 17,649 15,815 16,436 15,202
Interruptible............................ 24,809 27,872 25,497 26,025 35,434
Interdepartmental sales.................. 7,425 3,346 1,923 5,530 2,537
Transported gas.......................... 85,364 84,877 69,244 61,001 56,493
------- ------- ------- ------- -------
Total................................ 324,647 323,138 292,882 290,779 270,837
======= ======= ======= ======= =======
Gas operating revenues (in thousands):
Residential.............................. $71,555 $71,632 $63,699 $63,521 $59,793
Commercial firm.......................... 34,644 33,456 30,486 29,640 27,509
Industrial firm.......................... 7,273 7,292 6,668 6,767 6,542
Interruptible............................ 8,777 10,685 14,589 12,051 11,563
Interdepartmental sales and other........ 2,779 400 281 1,469 883
Transported gas.......................... 15,112 14,919 3,639 4,327 4,133
------- ------- ------- ------- -------
Total................................ $140,140 $138,384 $119,362 $117,775 $110,423
======= ======= ======= ======= =======
Average annual residential heating use --
therms................................... 1,022 1,052 1,029 1,069 978
Average annual gas bill per residential
heating customer......................... $613 $631 $573 $590 $572
<FN>
(a) The estimated population for towns served jointly with other gas utilities has been based upon a ratio of 2.5
population per retail gas customer.
(b) One therm equals 100,000 British Thermal Units and is a measure of the heat content of natural gas.
Environmental Matters
WPL cannot precisely forecast the effect of future environmental
regulations by Federal, state and local authorities upon its generating,
transmission and other facilities, or its operations, but has taken steps
to anticipate the future while meeting the requirements of current
environmental regulations. The Clean Air Act Amendments of 1977 and
subsequent amendments to the Clean Air Act, as well as the new laws
affecting the handling and disposal of solid and hazardous wastes along
with clean air legislation passed in 1990 by Congress, could affect the
siting, construction and operating costs of both present and future
generating units.
Under the Federal Clean Water Act, National Pollutant Discharge
Elimination System permits for generating station discharge into water
ways are required to be obtained from the DNR to which the permit program
has been delegated. These permits must be periodically renewed. WPL has
obtained such permits for all of its generating stations or has filed
timely applications for renewals of such permits.
Air quality regulations promulgated by the DNR in accordance
with Federal standards impose statewide restrictions on the emission of
particulates, sulfur dioxide, nitrogen oxides and other air pollutants and
require permits from the DNR for the operation of emission sources. WPL
currently has the necessary permits to operate its fossil-fueled
generating facilities. With the passage of the new Federal Clean Air Act
Amendments, the states are required to include these provisions into their
permit requirements. WPL has submitted timely Title V permit applications
in compliance with schedules set forth by the regulators. The operating
permits, when issued, will consolidate all existing air permit conditions
and regulatory requirements into one permit for each facility. Permits
may be issued in late 1995 or 1996. Until such time, the facilities will
continue to operate under their existing permit conditions.
Pursuant to Section 144.386(2)of the Wisconsin Statutes, WPL has
submitted data and plans for 1995 sulfur dioxide emissions compliance.
Actual 1994 emissions were reported to the DNR. WPL is currently in
compliance with this state requirement. WPL will make any necessary
operational changes in fuel types and power plant dispatch to comply with
the system emissions limit of 1.2 pounds SO2 per million BTU.
WPL's compliance strategy for Wisconsin's sulfur dioxide law
(discussed above) and the Federal Clear Air Act Amendments required plant
upgrades at its generating facilities. The majority of these projects
were completed in 1993. WPL has installed continuous emission monitoring
systems at all of its coal fired boilers in compliance with Federal
requirements. Monitoring for sulfur dioxide was also required by Title IV
of the Federal Clean Air Act at WPL's South Fond du Lac combustion turbine
site. These requirements were also met. Additional monitoring systems
for nitrogen oxides will be required by January 1, 1996 at the combustion
turbine site. WPL will install these monitors in 1995. No significant
investments are anticipated at this time to meet the requirements of the
Federal Clean Air Act Amendments.
Pursuant to Section 311(j)(5) of the Clean Water Act, WPL has
submitted facility response plans for the Rock River generating station
and the South Fond du Lac combustion turbine site. The plans address
pollution prevention and spill response activities for those facilities
with capacity to store in excess of one million gallons of oil.
WPL maintains licenses for all its ash disposal facilities and
regularly reports to the DNR groundwater data and quantities of ash
landfilled or reused. The landfills are operated according to a Plan of
Operation approved by the DNR.
WPL's accumulated pollution abatement expenditures through
December 31, 1994, totaled approximately $133 million. The major
expenditures consist of about $60 million for the installation of
electrostatic precipitators for the purpose of reducing particulate
emissions from WPL's coal-fired generating stations and approximately
$73 million for other pollution abatement equipment at the Columbia, Edge-
water, Kewaunee, Nelson Dewey, Rock River and Blackhawk plants.
Expenditures during 1994 totalled approximately $5 million. Estimated
future pollution abatement expenditures total $1.5 million through 1996.
WPL's estimated pollution abatement expenditures are subject to continuing
review and are revised from time to time due to escalation of construction
costs, changes in construction plans and changes in environmental
regulations.
See "Electric Operations - Fuel" for information concerning the
disposal of spent nuclear fuel and high level nuclear waste.
Manufactured Gas Plant Sites
Historically, WPL has owned 11 properties that have been
associated with the production of manufactured gas. Currently, WPL owns
five of these sites, three are owned by municipalities, and the remaining
three are owned by private companies. In 1989, WPL initiated
investigation of these manufactured gas plant sites. The DNR has been
involved in reviewing investigation plans and has received ongoing reports
regarding these investigations.
In 1992, and into the beginning of 1993, WPL continued its
investigations and studies. WPL confirmed that there was no contamination
at two of the sites and received a close out letter from the DNR related
to one of those sites and requested a close out letter for the other site.
Additionally, the investigation of historical records at a third site
indicated a minimal likelihood of any significant environmental impacts.
In February 1993, WPL completed cost estimates for the environmental
remediation of the eight remaining sites. The results of this analysis
indicate that during the next 34 years, WPL will expend approximately $81
million for feasibility studies, data collection, soil remediation
activities, groundwater research and groundwater remediation activities,
including construction of slurry containment walls and the installation of
groundwater pump and treatment facilities. This estimate was based on
various assumptions, and is subject to continuous review and revision by
management.
The cost estimate set forth above assumes 4 percent average
inflation over a 34 year period. The cost estimate also contemplates that
primarily groundwater pump and treatment activities will take place after
1998 through and including 2027. During this time, WPL estimates that it
will incur average annual costs of $2.0 million to complete the planned
groundwater remediation activities.
With respect to rate recovery of these costs, the PSCW has
approved a five year amortization of the unamortized balance of
environmental costs expended to date.
In addition, WPL is pursuing insurance recovery for the costs of
remediating these sites and is investigating to determine whether there
are other parties who may be responsible for some of the clean-up costs.
Through 1994, management has continued its oversight of the
issues related to the above manufactured gas plant sites without
significant revision to the above estimates and assumptions.
Based on the present regulatory record at the PSCW, management
believes that future costs of remediating these manufactured gas plant
sites will be recovered in rates.
HDC
Incorporated in 1988, HDC is the parent company of all of the
Company's nonutility businesses. HDC and its principal subsidiaries are
engaged in business development in three major areas: (1) environmental
engineering and consulting, (2) affordable housing, and (3) energy
services.
At year-end 1994, HDC employed approximately 1,444 persons: 839
in the area of environmental engineering and consulting, 149 in the area
of affordable housing, 439 in the area of energy services, and 17 at the
HDC level.
ENVIRONMENTAL ENGINEERING AND CONSULTING:
WPL acquired RMT, Inc. in 1983. It subsequently became a wholly
owned subsidiary of HDC in 1988. In 1992, HDC transferred its ownership
of RMT to Environmental Holding Company ("EHC), a wholly owned subsidiary
of HDC and the parent company for its environmental engineering and
consulting activities. RMT is a Madison, Wisconsin based environmental
and engineering consulting company that serves clients nationwide in a
variety of industrial segment markets. The most significant of these are
foundries, chemical companies, pulp and paper processors, and other
manufacturers. RMT specializes in solid and hazardous waste management,
ground water quality protection, industrial design and hygiene
engineering, laboratory services, and air and water pollution control.
RMT owns and operates chemical and soil-testing laboratories in Madison
and leases biological-testing laboratories in Greenville, South Carolina.
EHC acquired Jones & Neuse, Inc. ("J&N") in 1993. J&N is based
in Austin, Texas and serves EHC's gulf coast region. J&N has four
additional Texas offices, a Louisiana office and a Mexican subsidiary (ABC
Estudios y Projectos). It provides full capabilities in air quality,
water quality, hazardous and solid waste engineering, and remedial
projects.
In addition to J&N, EHC acquired Hydroscience, Inc.
("Hydroscience") and Four Nines, Inc. ("Four Nines") in 1993. In 1994,
Hydroscience and Four Nines were merged into RMT.
In 1994, RMT acquired Braithwaite Consultants, Inc.
("Braithwaite"), located in Ann Arbor, Michigan. Braithwaite, combined
with the Lansing, MI office of RMT, will primarily serve the Michigan
marketplace.
AFFORDABLE HOUSING:
Formed by HDC in 1988, Heartland Properties, Inc. ("HPI") is
responsible for the development and management of HDC's real estate and
housing investments. HPI's primary focus has been the development,
construction, and management of affordable housing and historic
rehabilitation properties in Wisconsin, Indiana, Michigan, and Illinois.
As of December 31, 1994, HPI's level of investment in housing was
approximately $98 million, providing nearly 2,250 units to a diverse group
of residents.
Toolkit Property Management Systems, Inc. ("Toolkit"), organized
in 1993, provides property management services for many of HPI's housing
projects.
To facilitate HPI's development and financing efforts, HDC
incorporated Capital Square Financial Corporation ("Capital Square") in
1992 and Heartland Capital Company LLC ("HCC") in 1994 to provide mortgage
banking services and construction financing services, respectively, to the
affordable housing market.
Heartland Retirement Services, Inc. ("HRS"), organized in 1993,
provides a comprehensive range of housing related products for the fastest
growing segment of the American population, older adults.
ENERGY SERVICES:
A&C Enercom, Inc. ("A&C") was acquired by HDC in 1993. A&C, a
utility service company, is based in Atlanta, Georgia and provides a
variety of services including marketing and demand side management
primarily to public electric and gas utilitiy companies.
Entec Consulting, Inc. ("Entec"), acquired by HDC in 1993, is a
Madison, Wisconsin based firm that provides full-service consulting to the
utility industry for power generation computer software programs.
In 1994, A&C sold Ecogroup, Inc. Ecogroup, a Phoenix, Arizona
based company initially acquired by A&C in 1993, provides energy and
environmental programs primarily for the electric and gas utility
industry.
HDC has begun an assessment of the strategic fit of its utility
service business and is considering various alternatives, including the
possible sale of part or all of this business.
ITEM 2. PROPERTIES
WPL
The following table gives information with respect to electric
generating facilities of WPL (including WPL's portion of those facilities
jointly-owned).
1994 Summer
Capability
WPL Portion Ownership
Type/ in kilowatts Interest
Location Name Fuel (kw) in Facility
Steam
Beloit, WI Blackhawk Natural Gas 54,500 100%
Janesville, WI Rock River Coal 149,800 100%
Cassville, WI Nelson Dewey Coal 211,800 100%
Sheboygan, WI Edgewater #3 Coal 70,000 100%
Sheboygan, WI Edgewater #4 Coal 221,500 68.2%
Sheboygan, WI Edgewater #5 Coal 290,100 75%
Kewaunee, WI Kewaunee Nuclear 215,700 41%
Portage, WI Columbia Energy Coal 461,500 46.2%
Center
Hydro
Wisconsin Dells, WI Kilbourn Hydro 5,800 100%
Prairie du Sac, WI Prairie du Sac Hydro 14,200 100%
Wisconsin River Petenwell/ Hydro 6,100 33%
Power Co. Castle Rock
4 small units at
various locations Hydro 1,500 100%
Combustion Turbine
Janesville, WI Rock River Natural Gas
or Oil 130,300 100%
Fond du Lac, WI South Fond du Lac Natural Gas
Unit 2 and 3 or Oil 166,700 100%
Edgerton, WI Sheepskin Natural Gas
or Oil 37,500 100%
-------
Total 2,037,000
=========
The maximum net hourly peak load on WPL's electric system was
2,002,000 kw and occurred on June 16, 1994. At the time of such peak
load, 2,386,000 kw were produced by generating facilities operated by WPL
(including other company shared jointly-owned facilities). WPL delivered
934,000 kw of power and received 540,000 kw of power from external
sources. During the year ended December 31, 1994, about 84.4 percent of
WPL's total kilowatthour requirements were generated by company-owned and
jointly-owned facilities and the remaining 15.6 percent was purchased.
Substantially all of WPL's facilities are subject to the lien of its first
mortgage bond indenture.
HDC:
The following table gives information with respect to rental
properties associated with HPI's affordable housing and historic
rehabilitation project developments as of December 31, 1994.
Location Housing Development Resident Type Amount
(In Thousands)
Property:
Antigo, WI The Depot Families $ 2,219
Appleton, WI Lincoln Mills Families/Elderly 4,495
Appleton, WI Ravine Mills Families/Elderly 2,510
Appleton, WI The Mills II Families/Elderly 7,394
DePere, WI Lawton Foundry Families 4,354
Madison, WI The Avenue Disabled/Families 2,899
Madison, WI YWCA Women & Homeless 5,593
Marinette, WI Dunlap Square Families/Elderly 8,974
Marshfield, WI The Woodlands Families/Elderly 2,615
McFarland, WI The Cottages Families/Elderly 2,390
Sheboygan Falls, WI Jung Apartments Families 3,628
Sheboygan, WI Sunnyside Townhouses Families 2,543
Sheboygan, WI Brickner Woolen Mills Families/Elderly 3,283
Sun Prairie, WI Vandenburg Heights Families 2,997
Verona, WI Sugar Creek Elderly 3,027
Various Other Families, Elderly,
Singles, Disabled
& Homeless 45,834
-------
Total property 104,755
Accumulated depreciation (8,138)
-------
Net property $96,617
=======
Occupancy rates in the 60 properties/investments owned by HPI
averaged 94 percent during 1994.
HDC has no other properties which it considers to be material in
relation to the Company's consolidated financial statements.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which the
Company or any of its subsidiaries is a party or to which any of their
property is subject.
ENVIRONMENTAL MATTERS
The information required by Item 3 is included in this Form 10-K
in Note 11c to Notes to Consolidated Financial Statements, which
information is incorporated herein by reference.
RATE MATTERS
The information required by Item 3 is included in Items 6 and 7
of this Form 10-K within the Management's Discussion and Analysis of
Financial Condition and Results of Operations narrative under the caption
"Rates and Regulatory Matters."
RECENT RATE CASE PROCEEDINGS
Increase Ordered or
Increase (Decrease) Requested Negotiated Date
(Decrease) Ordered or % Return on % Return on Increase
Rate Case Type of Application Test Requested Negotiated Common Common (Decrease)
Designation Service(a) Date Year ($ Millions) ($ Millions) Equity Equity Effective
WPL Retail (PSC)
6680-UR-103 e,g,w 02-29-88 1988-89 14.7 5.5 13.25 13.10 10-18-88
6680-UR-104 e,g,w 12-30-88 1989-90 17.4 5.3 13.10 13.00 11-12-89
6680-UR-105 e,g,w 12-29-89 1990-91 9.0 (10.8) 13.10 12.90 08-01-90
6680-UR-106 e,g,w 12-28-90 1991-92 18.7 (0.1) 13.25 12.90 08-01-91
6680-UR-107 e,g,w 12-30-91 1992-93 17.8 (0.9) 13.10 12.40 01-01-93
6680-UR-108 e,g,w 01-04-93 1993-94 24.5 17.7 12.60 11.60 10-01-93
6680-UR-109 e,g,w 02-01-94 1995-96 3.8 (11.6) 12.20 11.50 01-01-95
WPL Wholesale (FERC)
ER87-554 e 07-31-87 1987-88 (1.2) (.9) 13.00 (b) 01-01-88
ER93 e 05-28-93 1993-94 2.0 2.0 11.00 (b) 10-01-93
South Beloit (ICC)
85-0505 e,w 11-08-85 1985-86 1.4(c) .9 15.00 13.80 09-27-86
<FN>
(a) e-electric, g-gas, w-water.
(b) Return on equity was not specified in the negotiated settlement agreement.
(c) On 05-07-86, South Beloit Water, Gas and Electric Co. adjusted the increase requested downward to $1.1 million.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
Erroll B. Davis, Jr, 50, was elected President on January 17,
1990 and Chief Executive Officer, effective July 1, 1990 of the Company.
He has served as President and Chief Executive Officer of WPL since
August 1, 1988. He has served as a director of the Company since March
1988.
Lance W. Ahearn, 46, was elected President of HDC effective
April 1, 1990 and Chief Executive Officer effective May 4, 1990. Prior
to joining HDC, he held several management positions with Bucyrus Erie
Company, Milwaukee, Wisconsin.
Edward M. Gleason, 54, was elected Vice President, Treasurer
and Corporate Secretary of the Company effective October 3, 1993. He
previously served as Vice President-Finance and Treasurer of WPL since May
1986. Mr. Gleason functions as the principal financial officer of the
Company.
William D. Harvey, 45, was appointed Senior Vice President of
WPL effective October 3, 1993. He previously served as Vice President-
Natural Gas and General Counsel since August 1992, Vice President-General
Counsel since October 1, 1990 and Vice President-Associate General Counsel
since July 1986. Prior to joining WPL, he was a member of the law firm
of Wheeler, Van Sickle, Anderson, Norman and Harvey.
Eliot G. Protsch, 41, was appointed Senior Vice President of
WPL effective October 3, 1993. He previously served as Vice President-
Customer Services and Sales since August 1992, Vice President and General
Manager-Energy Services since January 1989 and District Manager, Dane
County, since October 1986.
A.J. (Nino) Amato, 43, was appointed Senior Vice President of
WPL effective October 3, 1993. He previously served as Vice President -
Marketing and Strategic Planning of WPL since December 1992, Vice
President - Marketing and Communications of WPL since January 1989 and
Director of Electric Marketing and Customer Service since October 1988.
He had been President of Forward Wisconsin, Inc. from 1987 to 1988.
Daniel A. Doyle, 36, was appointed Vice President-Finance,
Controller and Treasurer of WPL on December 25, 1994. He previously
served as Controller and Treasurer of WPL since October 3, 1993. He has
served as Controller of WPL since July 1992. Prior to joining WPL, he was
Controller of Central Vermont Public Service Corporation since December
1988.
Steve F. Price, 42, was appointed Assistant Corporate Secretary
and Assistant Treasurer on April 15, 1992. He had been Cash Management
Supervisor since December 1987. He was also appointed Assistant Corporate
Secretary of WPL on April 15, 1992.
NOTE: All ages are as of December 31, 1994. None of the executive
officers listed above is related to any director of the Board
or nominee for director of the Company.
Executive officers of the Company have no definite terms of
office and serve at the pleasure of the Board of Directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades on the New York Stock Exchange. Quarterly
Price Ranges and Dividends with respect to the Common Stock are as follows:
1994 1993
---------------------------------- ------------------------------------
Quarter High Low Dividend High Low Dividend
First $32 7/8 $27 3/4 $ .48 $36 $32 1/2 $ .475
Second 30 3/4 26 3/8 .48 36 3/4 33 1/8 .475
Third 29 7/8 27 .48 36 1/4 35 .475
Fourth 28 7/8 26 7/8 .48 36 31 1/2 .475
------- ------- ------ ------- ------- -------
Year $32 7/8 $26 3/8 $ 1.92 $36 3/4 $31 1/2 $ 1.90
======= ======= ====== ======= ======= ======
Year-end stock price: $27 3/8
At December 31, 1994, there were approximately 37,049 holders of
record of the Company's common stock including underlying holders in the
Company's Dividend Reinvestment and Stock Purchase Plan.
WPL's retail rate order effective January 1, 1995, requires WPL to
maintain a utility common equity level of 51.93 percent of total utility
capitalization during the two year test year ending December 31, 1996.
In addition, the PSCW ordered that it must approve the payment of dividends
by WPL to the Company that are in excess of the level forecasted for 1995
($58.1 million), if such dividends would reduce WPL's average common equity
ratio below 51.93 percent.
ITEMS 6 AND 7. SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
WPL HOLDINGS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
SELECTED FINANCIAL DATA
1994 1993 1992 1991 1990
(In Millions Except for Per Share Data)
Operating revenues................. $ 816 $ 773 $ 673 $ 670 $ 618
Net income......................... $ 65 $ 63 $ 58 $ 66 $ 60
Earnings per share................. $ 2.13 $ 2.11 $ 2.10 $ 2.42 $ 2.23
Total assets (at December 31)...... $1,806 $1,762 $1,566 $1,383 $1,261
Long-term debt, net (at December 31) $ 448 $ 425 $ 418 $ 367 $ 343
Cash dividends paid per share...... $ 1.92 $ 1.90 $ 1.86 $ 1.80 $ 1.74
1994 COMPARED WITH 1993
OVERVIEW
Earnings per share of WPL Holdings, Inc. (the "Company") common stock
increased to $2.13 in 1994 compared with $2.11 in 1993. Earnings for 1994
were significantly affected by two non-recurring items from the Company's
utility subsidiary Wisconsin Power and Light Company ("WPL"). These items
were the reversal of a coal contract penalty in the 1st quarter and costs
associated with early retirement and severance programs which primarily
occurred in the 4th quarter. Both of these items are discussed in the
"Other Events" section of Management's Discussion and Analysis. The
following breakout presents the recurring aspects of 1994's operations.
1994 1993
Earnings per share, as reported $2.13 $2.11
Less: Increase in earnings from
reversal of coal contract
penalty (.16) ( - )
Add: Decrease in earnings from
costs associated with early
retirement and severance
programs .27 .04
----- -----
Earnings per share before the
above non-recurring items $2.24 $2.15
===== =====
The increase in the "Earnings per share before the above non-recurring
items" primarily reflects an increase in operating earnings from WPL. The
increase was somewhat offset by program start-up costs associated with
expansion of the affordable housing and energy services businesses of the
Company's non-regulated subsidiary, Heartland Development Corp. ("HDC").
Electric Operations
Revenues &
Costs Per
kWh's Sold, kWh Sold
Revenues % Generated % Generated Customers at
and Costs Change and Purchased Change & Purch. End of Year
1994 1993 1994 1993 1994 1993 1994 1993
(in thousands) (in thousands)
Residential
and farm $194,242 $184,176 5% 2,776,895 2,751,363 1% $.070 $.067 325,063 316,870
Industrial 140,487 132,903 6% 3,764,953 3,540,082 6% .037 .038 776 714
Commercial 101,382 95,977 6% 1,688,349 1,629,911 4% .060 .059 43,868 42,884
Wholesale and
Class A 86,400 78,955 9% 2,574,121 2,388,131 8% .034 .033 81 39
Other 9,236 11,176 -17% 54,518 51,073 7% .169 .219 1,477 1,236
-------- -------- ---- ---------- --------- ---- ----- ----- ------- -------
Total 531,747 503,187 6% 10,858,836 10,360,560 5% $.049 $.049 371,265 361,743
========== ========= ==== ===== ===== ======= =======
Elec. production
fuels 123,469 123,919 0% 9.445,950 9,180,484 3% $.013 $.013
========== ========= ==== ===== =====
Purchased power 37,913 28,574 33% 1,780,451 1,481,993 20% $.021 $.019
-------- -------- ---- ========== ========= ==== ===== =====
Margin $370,365 $350,694 6%
======== ======== ====
WPL's electric margin increased during 1994 compared to 1993. The primary
factor was a 3.8 percent retail rate increase effective October 1, 1993.
Strong economic conditions in the industrial and commercial customer
classes contributed higher sales and customer growth. A colder than
normal January and a very warm mid-September offset relatively mild summer
conditions in July and August making 1994 a relatively average year in
terms of degree day impacts on sales volumes. Electric production fuel
costs were stable in 1994. The volume of purchased power increased as a
result of WPL's efforts to conserve coal inventories during a rail strike
in the 3rd quarter of 1994. See "Other Events" for details.
Gas Operations
Revenues &
Revenues % Therms Sold % Costs Per Therm Customers at
and Costs Change & Purchased Change Sold, & Purch. End of Year
1994 1993 1994 1993 1994 1993 1994 1993
(in thousands) (in thousands)
Residential $ 71,555 $ 71,632 0% 119,562 120,005 0% $.60 $.60 124,938 120,829
Firm 41,918 40,748 3% 87,487 87,038 1% .48 .47 15,531 15,088
Interruptible 8,777 10,685 -22% 24,809 27,872 -13% .36 .39 272 261
Transportation 15,112 14,205 7% 85,364 84,877 1% .18 .17 135 85
Other 2,284 -- -% 7,536 -- -% .31 -- 90 --
-------- -------- ---- -------- -------- ----- ---- ---- ------- -------
Total 139,646 137,270 2% 324,758 319,792 2% $.44 $.43 140,966 136,263
======== ======== ===== ==== ==== ======= =======
Purchased gas 88,553 90,505 -3% 293,547 285,531 4% $.31 $.32
-------- -------- ----- ======== ======== ===== ==== ====
Margin $ 51,093 $ 46,765 10%
======== ======== =====
Gas margin increased in 1994 from 1993 primarily based on two factors: 1)
a 1.4 percent retail rate increase effective October 1, 1993 and, 2) an
increase in customers in the higher rate firm service resulted in a more
favorable sales mix. The overall cost of purchased gas declined
reflecting WPL's effective use of opportunities on the gas spot market.
Fees, Rents and Other Operating Revenues ("Other Revenues")
Environmental services revenues increased due to continued strong demand.
Other revenues increased due to an increased number of affordable housing
project syndications and the inclusion of the full year of revenues in
1994 for A&C Enercom Consultants, Inc. that was acquired in February,
1993.
Other Operation Expense
The increase in other operation expense is primarily related to the early
retirement and severance programs discussed later in the "Other Events"
section and increased program start-up costs associated with the expansion
of the Company's affordable housing and energy services businesses.
Offsetting these costs were reductions in WPL's operating costs resulting
from the ongoing reengineering of its processes.
Maintenance
Maintenance expense decreased between years due to the variation in the
timing and extent of WPL's maintenance outages at its generating
facilities between years. Secondarily, a severe storm in the summer of
1993 increased 1993's maintenance expense related to service restoration.
Depreciation and Amortization
Depreciation expense increased, principally reflecting increased property
additions, and increased decommissioning costs for WPL.
Other Income and (Deductions)
Other income increased due to the reversal of a coal contract penalty
discussed later in the "Other Events" section.
Income Taxes
Income taxes increased between years primarily due to higher taxable
income.
Affordable housing tax credits declined as HPI reduced its ownership
interests in qualifying properties late in 1993, placing more emphasis on
the generation of syndication and development fees and retaining only
small ownership interests in additional properties.
1993 COMPARED WITH 1992
OVERVIEW
Earnings per share of the Company common stock increased to $2.11 in 1993
compared with $2.10 in 1992. The increase in earnings primarily reflected
an increase in earnings from WPL. The principle factors leading to
increased earnings included warmer summer weather and lower electric fuel
costs per kWh which yielded higher electric margins for WPL. These
increases were somewhat offset by increased depreciation expense resulting
from additional investment in utility plant and property additions, a
change in the mix of gas sales from higher margin sales to lower margin
sales, the increase in the Federal corporate tax rate from 34 percent to
35 percent and a one-time 4-cent-per-share charge associated with a
voluntary separation program for the executive management group at the
utility.
The Company's nonregulated subsidiary, HDC, contributed to earnings
through its principal businesses: 1) environmental engineering and
consulting, 2) affordable housing, and 3) energy products and services.
Electric Operations
Revenues &
Costs Per
kWh's Sold, kWh Sold
Revenues % Generated % Generated Customers at
and Costs Change and Purchased Change & Purch. End of Year
1993 1992 1993 1992 1993 1992 1993 1992
(In Thousands) (In Thousands)
Residential
and farm $184,176 $171,887 7% 2,751,363 2,614,439 5% $.067 $.066 316,870 310,702
Industrial 132,903 128,467 3% 3,540,082 3,377,132 5% .038 .038 714 727
Commercial 95,977 91,707 5% 1,629,911 1,551,823 5% .059 .059 42,884 42,287
Wholesale and
Class A 78,955 77,485 2% 2,388,131 2,208,419 8% .033 .035 39 39
Other 11,176 8,189 36% 51,073 55,230 -8% .219 .148 1,236 950
-------- -------- ---- ---------- --------- ---- ----- ----- ------- -------
Total 503,187 477,735 5% 10,360,560 9,807,043 6% $.049 $.049 361,743 354,705
========== ======== ==== ===== ===== ======= =======
Elec. production
fuels 123,919 123,440 .4% 9,180,484 9,041,317 2% $.013 $.014
========== ========= ==== ===== =====
Purchased power 28,574 24,427 17% 1,481,993 1,124,667 32% $.019 $.022
-------- -------- ---- ========== ========= ==== ===== =====
Margin $350,694 $329,868 6%
======== ======== ====
WPL's electric margin in dollars increased during 1993 compared with 1992
due to increased demand for electricity brought on by warmer summer
weather. Residential customers, being the most weather sensitive,
experienced the most significant increases. Wisconsin's strong economy
kept the commercial and industrial classes growing steadily. These
increases were coupled with declining electric production fuel costs per
kWh. The decrease in electric production fuels was due to WPL's
aggressive pursuit of additional spot coal purchase opportunities as its
longer term contracts began to expire. Additionally, a highly competitive
rail transportation environment significantly reduced the cost of
transporting the coal. Also, lower cost purchased power became available
due to excess capacity in the bulk-power market.
Gas Operations
Revenues &
Revenues % Therms Sold % Costs Per Therm Customers at
and Costs Change & Purchased Change Sold, & Purch. End of Year
1993 1992 1993 1992 1993 1992 1993 1992
(in thousands) (in thousands)
Residential $ 71,632 $ 63,699 13% 120,005 114,131 6% $.60 $.56 120,829 116,642
Firm 40,748 37,154 10% 87,038 82,087 7% .47 .46 15,088 14,656
Interruptible 10,685 9,554 12% 27,872 25,497 10% .39 .38 261 262
Transportation 14,205 8,674 64% 84,877 69,244 19% .17 .13 85 109
Other -- 281 -% -- 1,923 -% -- .15 -- --
-------- -------- ----- -------- -------- ----- ---- ---- ------- -------
Total 137,270 119,362 16% 319,792 292,882 10% $.43 $.41 136,263 131,669
======== ======== ===== ==== ==== ======= =======
Purchased gas 90,505 77,112 18% 285,531 258,431 11% $.32 $.30
-------- -------- ----- ======== ======== ===== ==== ====
Margin $ 46,765 $ 42,250 11%
======== ======== =====
WPL's gas revenues for 1992 were affected by the recognition of a $4.9
million before-tax refund to its natural gas customers resulting from an
adjustment in the calculation of the purchased gas adjustment clause.
Without the impact of this revenue adjustment, comparative gas margins
would have declined for 1993 compared with 1992.
The overall increases in gas revenues and purchased gas costs between
years resulted primarily from increased volumes procured on behalf of
transportation customers. This had the impact of decreasing margins as a
percentage of total revenues. A change in the mix of gas sales from
higher margin residential sales to lower margin sales also moved margins
downward. Offsetting this decline, Wisconsin's strong economy enabled
growth in the commercial and industrial classes, and there was also some
overall increase in the demand for natural gas due to colder weather.
Fees, Rents and Other Operating Revenues ("Other Revenues")
Other revenues increased between years as a result of RMT's and HPI's
growth in their respective businesses and the result of acquisitions in
the environmental and energy-services businesses.
Other Operation Expense
Other operation expense also increased as a result of the above factors.
An additional increase resulted from higher WPL employee benefit expense
(see Notes to Consolidated Financial Statements, Note 7). These increases
were offset somewhat by decreases in WPL's conservation program
expenditures and decreases in fees associated with the sale of WPL's
accounts receivable due to a decline in interest rates. Additionally,
WPL's cost management efforts have helped control annual inflationary
pressures on general and administrative costs.
Depreciation and Amortization
Depreciation and amortization expense increased, principally reflecting
increased property additions and the commencement of deferred charge
amortizations approved in WPL's rate orders received in December 1992 and
October 1993. The most significant amortizations include the amortization
related to an acquisition adjustment which resulted from the purchase of
transmission facilities and the amortization of costs incurred related to
the remediation of former manufactured gas plant sites (see Notes to the
Consolidated Financial Statements, Note 11).
Allowance for Funds Used During Construction ("AFUDC")
Total AFUDC increased in 1993 compared with 1992, reflecting the greater
amounts of construction work in progress including the costs associated
with WPL's construction of two 86-megawatt combustion-turbine generators.
Interest Expense
Interest expense on debt decreased between years, primarily reflecting the
benefits of WPL's refinancing efforts.
LIQUIDITY AND CAPITAL RESOURCES
Rates and Regulatory Matters
On December 9, 1994, the Public Service Commission of Wisconsin ("PSCW")
issued rate order UR-109, effective for a two-year period beginning
January 1, 1995. The order included the following decisions on WPL's
retail rate application as filed on February 4, 1994: 1) electric
revenues will be decreased by approximately $12.3 million (2.8 percent)
annually, 2) natural gas revenues will be increased by approximately $.7
million (.5 percent) annually, 3) return on common equity will be 11.5
percent versus WPL's previously allowed return on equity of 11.6 percent.
Further, the PSCW approved certain incentive programs described below:
1. The electric fuel adjustment mechanism was eliminated. In its
absence, WPL will benefit from reductions in fuel cost. Conversely,
WPL will be exposed to increases in fuel costs.
2. The automatic purchased gas adjustment clause was also eliminated.
In the future, the fluctuations in the commodity cost of gas above or
below a prescribed commodity price index will serve to increase or
decrease WPL's margin on gas sales. Fixed demand costs are excluded
from the incentive program. Both benefits and exposures are subject
to ratepayer sharing provisions, which are capped at $1.1 million.
3. In order to promote air quality and reliability, there are SO2
emissions and service reliability incentive clauses. Positive
incentive available under these clauses is a pre-tax $1.5 million
for the SO2 emissions and a pre-tax $.5 million for the service
reliability. WPL's earnings are also negatively exposed for equal
amounts. Since WPL is allowed to collect all revenues under these
programs in advance, up to $4.0 million annually of pre-tax revenue
may be collected subject to refund upon final determination of
performance under this program.
Industry Outlook
The PSCW has recently opened a formal docket initiating an inquiry into
the future structure of the electric utility industry in Wisconsin. The
goals of Wisconsin utility regulation and the principles to be used in
choosing among alternative proposals have been identified. WPL has
submitted its preferred structure which, in summary form, calls for open
access to transmission and distribution systems and a competitive power
generation market place. It is not possible at this time to predict the
outcome of these proceedings.
Financing and Capital Structure
The level of short-term borrowings fluctuates based on seasonal corporate
needs, the timing of long-term financing and capital market conditions.
The Company's operating subsidiaries generally issue short-term debt to
provide interim financing of construction and capital expenditures in
excess of available internally generated funds. The subsidiaries
periodically reduce their outstanding short-term debt through the issuance
of long-term debt and through the Company's additional investment in their
common equity. To maintain flexibility in its capital structure and to
take advantage of favorable short-term rates, the Company also uses
proceeds from the sales of accounts receivable and unbilled revenues to
finance a portion of its long-term cash needs. The Company anticipates
that short-term debt funds will continue to be available at reasonable
costs due to strong ratings by independent utility analysts and rating
services. WPL commercial paper has been rated A-1+ by Standard & Poor's
Corp. and P-1 by Moody's Investors Service.
Bank lines of credit of $97.5 million at December 31, 1994 are available
to support these borrowings.
The Company's capitalization at December 31, 1994, including the current
maturities of long-term debt, variable rate demand bonds and short-term
debt, consisted of 48.8 percent common equity, 4.9 percent preferred stock
and 46.3 percent long-term debt. The common-equity-to-total
capitalization ratio at December 31, 1994 increased to 48.8 percent from
47.9 percent at December 31, 1993.
The retail rate order effective January 1, 1995, requires WPL to maintain
a utility common equity level of 51.93 percent of total utility
capitalization during the two-year test year ending December 31, 1996. In
addition, the PSCW ordered that it must approve the payment of dividends
by WPL to the Company that are in excess of the level forecasted for 1995
($58.1 million), if such dividends would reduce WPL's average common
equity ratio below 51.93 percent.
Capital Requirements
The Company's largest subsidiary, WPL, is capital-intensive and requires
large investments in long-lived assets. Therefore, the Company's most
significant capital requirements relate to WPL construction expenditures.
Estimated capital requirements of WPL for the next five years are as
follows:
Capital Requirements
1995 1996 1997 1998 1999
(in millions)
Construction expenditures $131.2 $100.4 $132.2 $119.6 $130.6
Changes in working capital
and other (4.6) (5.5) 67.0 16.3 (3.8)
------ ------ ------ ------ ------
Construction and operating
capital $126.6 $ 94.9 $199.2 $135.9 $126.8
Manufactured gas plant site
remediation expenditures 2.0 9.2 10.5 9.6 .6
------ ------ ------ ------ ------
Total capital requirements $128.6 $104.1 $209.7 $145.5 $127.4
====== ====== ====== ====== ======
Included in the construction expenditure estimates, in addition to the
recurring additions and improvements to the distribution and transmission
systems, are the following: 1) expenditures for managing and controlling
electric line losses and for the electric delivery system that will reduce
electric line losses and enhance WPL's interconnection capability with
other utilities; 2) expenditures related to environmental compliance
issues, including the installation of additional emissions-monitoring
equipment and coal-handling equipment; 3) expenditures associated with the
construction of an 86-megawatt combustion-turbine generator expected to
become operational in 1996.
The Company's capital requirements may also be impacted by decisions
relating to the Kewaunee Nuclear Power Plant ("Kewaunee"). The steam
generator tubes at Kewaunee are susceptible to corrosion characteristics,
a condition that has been experienced throughout the nuclear industry.
Annual inspections are performed to identify degraded tubes. Degraded
tubes are either repaired by sleeving or are removed from service by
plugging. The steam generators were designed with an approximately 15
percent heat transfer margin, meaning that full power should be
sustainable with the equivalent of 15 percent of the steam generator
tubes plugged. Tube plugging and the build-up of deposits on the tubes
affect the heat-transfer capability of the steam generators to the point
where eventually full-power operation is not possible and there is a
gradual decrease in the capacity of the plant. The plant's capacity
could be reduced by as much as 20% by the year 2013 when the current
operating license expires. Currently, the equivalent of approximately
12 percent of the tubes in the steam generators are plugged. WPL and
the joint-owners recently completed studies evaluating the economics of
replacing the two steam generators at Kewaunee. The studies resulted
in the conclusion that the most prudent course of action is to continue
operation of the existing steam generators. WPL and the other joint-
owners continue to evaluate appropriate strategies, including
replacement, as well as continued operation of the steam generators
without replacement. WPL and the joint owners also continue to fund the
development of welded repair technology for steam generator tubes. The
plant is expected to be operated until at least 2013. WPL and the joint-
owners are also continuing to evaluate and implement initiatives to
improve the performance of Kewaunee, which already performs at above-
average levels for the industry. These initiatives include conversion
from a 12-month to an 18-month fuel cycle and numerous other cost
reduction measures. These initiatives have resulted in reductions in
Kewaunee operating and maintenance costs since 1991.
HDC has expanded its energy related products and services business and its
environmental services through investment in existing businesses during
1994. In addition to its investment in affordable housing, HPI continues
to market its affordable housing expertise by expanding its business to
provide assistance to other corporate/public investors in their
development, operation and financing of affordable housing projects.
HDC has begun an assessment of the strategic fit of its utility service
business and is considering various alternatives, including the possible
sale of part or all of this business.
In 1994, A&C Enercom sold its EcoGroup operations. EcoGroup, a Phoenix,
Arizona based company initially acquired by A&C Enercom in 1993, provided
energy and environmental programs primarily for the electric and gas
utility industry.
Capital Resources
One of the Company's objectives is to finance construction expenditures
through internally generated funds supplemented, when required, by outside
financing. With this objective in place, the Company has financed an
average of 85 percent of its construction expenditures during the last
five years from internal sources. However, during the next five years,
the Company expects this percentage to be reduced primarily due to the
continuation of major construction expenditures and the maturity of $64
million of WPL first mortgage bonds. External financing sources such as
the issuance of long-term debt, common stock and short-term borrowings
will be used by the Company to finance the remaining construction
expenditure requirements for this period. Current forecasts are that
$40.5 million of additional equity and $65 million of long-term debt will
be issued over the next three years.
In 1994, the Company increased its dividends by 1.1 percent and issued
337,980 new shares of common stock through its Dividend Reinvestment and
Stock Purchase Plan and 401(k) Savings Plan, generating proceeds of $9.7
million.
INFLATION
Under current rate-making methodologies prescribed by the various
commissions that regulate WPL, projected or forecasted operating costs,
including the impacts of inflation, are incorporated into WPL revenue
requirements. Accordingly, the impacts of inflation on WPL are currently
mitigated. Although rates will be held flat until at least 1997,
management expects that any impact of inflation will be mitigated by
customer growth and productivity improvements. Inflationary impacts on
the non-regulated businesses are not anticipated to be material to the
Company.
OTHER EVENTS
Coal Contract Penalty
In November 1989, the PSCW concluded that WPL did not properly administer
a coal contract, resulting in an assessment to compensate ratepayers for
excess fuel costs having been incurred. As a result, WPL recorded a
reserve in 1989 that had an after-tax affect of reducing 1989 net income
by $4.9 million. The PSCW decision was found to represent unlawful
retroactive rate-making by both the Dane County Circuit Court and the
Wisconsin Court of Appeals. The case was then appealed to the Wisconsin
Supreme Court.
In January, 1994, the Wisconsin Supreme Court affirmed the decisions of
the Dane County Circuit Court and Wisconsin Court of Appeals. In
management's opinion, all avenues for appeal have been exhausted. As a
result, WPL reversed the entire reserve and was also allowed to collect
interest on amounts of the penalty previously refunded to ratepayers. The
reversal of the reserve plus interest had an after-tax affect of
increasing net income in 1994 by $5.3 million.
Early Retirement and Severance Programs
Given the expectation of increasing competition, WPL has continued to
reengineer its processes to implement cost efficiencies in its operations.
In connection with these efforts, WPL offered voluntary early retirement
programs and voluntary severance programs to affected employees in 1994
and 1993. These programs primarily closed late in the fourth quarter of
1994 and 1993.
In terms of pre-tax costs, the early retirement programs totalled $9.8
million and the severance programs totalled $3.9 million for a grand total
of $13.7 million in 1994. For 1993, program costs totalled $1.8 million.
Coal Transporter's Strike
One of WPL's major coal transporters experienced a labor strike during the
third quarter of 1994. During the term of the strike (55 days), WPL's
ability to receive coal from its suppliers was impaired, which required
WPL to use some of its existing coal reserves and to purchase additional
power. On August 29, 1994, President Clinton, acting under the Railway
Labor Act, forced a temporary end (the "cooling off period") to the strike
by ordering the railroad union employees back to work and establishing a
three member Presidential Emergency Board to draft a recommended
settlement. Railroad management and the United Transportation Union have
subsequently settled on a contract. As of December 31, 1994, the existing
and anticipated financial impact on WPL's operating results was not
material.
Environmental
WPL cannot precisely forecast the effect of future environmental
regulations by federal, state and local authorities upon its generating,
transmission and other facilities, or its operations, but has taken steps
to anticipate the future while meeting the requirements of current
environmental regulations. The Clean Air Act Amendments of 1977 and
subsequent amendments to the Clean Air Act, as well as the new laws
affecting the handling and disposal of solid and hazardous wastes, along
with the clean air legislation passed in 1990 by Congress, could affect
the siting, construction and operating costs of both present and future
generating units.
Under the Federal Clean Water Act, National Pollutant Discharge
Elimination System permits for generating station discharge into water
ways are required to be obtained from the Wisconsin Department of Natural
Resources (DNR). WPL has obtained such permits for all of its generating
stations or has filed timely applications for renewals.
Air quality regulations promulgated by the DNR in accordance with federal
standards impose statewide restrictions on the emission of particulates,
sulfur dioxide, nitrogen oxides and other air pollutants and require
permits from the DNR for the operation of emission sources. WPL currently
has the necessary permits to operate its fossil-fueled generating
facilities. However, beginning in 1994, new permits were required for all
major facilities in Wisconsin. WPL's Columbia Generating facility
submitted a permit application on May 1, 1994. The remaining facilities
will be addressed in early 1995.
WPL's compliance strategy for Wisconsin's 1993 sulfur dioxide law and the
Federal Clean Air Act Amendments required plant upgrades at its generating
facilities. The majority of these projects were completed in 1993 and
1994. WPL has installed continuous emissions monitoring systems at all of
its coal fired boilers. No additional costs for compliance with these
acid-rain-prevention requirements are anticipated at this time.
Also see Note 11c in the Notes to the Consolidated Financial Statements
for a discussion of WPL's manufactured gas plant sites.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To WPL Holdings, Inc.:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of WPL HOLDINGS, INC. (a Wisconsin
corporation) and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, common shareowners' investment
and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of WPL Holdings,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
Milwaukee, Wisconsin, ARTHUR ANDERSEN LLP
February 1, 1995
WPL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1994 1993
(dollars in thousands)
ASSETS
Utility plant:
Plant in service--
Electric.............................................. $1,611,351 $1,518,701
Gas................................................... 204,514 194,283
Water................................................. 22,070 20,437
Common................................................ 123,254 106,803
---------- ----------
1,961,189 1,840,224
Dedicated decommissioning funds......................... 51,791 49,803
---------- ----------
2,012,980 1,890,027
Less--Accumulated provision for depreciation............ 808,853 763,027
---------- ----------
1,204,127 1,127,000
Construction work in progress........................... 42,732 75,732
Nuclear fuel, net....................................... 19,396 18,000
---------- ----------
Total utility plant................................... 1,266,255 1,220,732
Other property and equipment:
Rental, net............................................. 96,536 100,515
Other, net.............................................. 26,693 17,872
---------- ----------
Total other property and equipment, net............... 123,229 118,387
Investments............................................... 12,320 15,525
---------- ----------
Current assets:
Cash and equivalents.................................... 7,273 19,468
Net accounts receivable and unbilled revenue, less
allowance for doubtful accounts of $1,964 and
$1,662, respectively.................................. 71,465 67,623
Coal, at average cost................................... 15,824 16,042
Materials and supplies, at average cost................. 21,618 21,679
Gas in storage, at average cost......................... 7,975 8,754
Prepayments and other................................... 30,279 23,251
---------- ----------
Total current assets.................................. 154,434 156,817
---------- ----------
Restricted cash........................................... 3,217 6,712
---------- ----------
Deferred charges:
Regulatory assets....................................... 144,476 148,805
Other................................................... 101,970 94,921
---------- ----------
Total deferred charges................................ 246,446 243,726
---------- ----------
TOTAL ASSETS.............................................. $1,805,901 $1,761,899
========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareowners' investment.......................... $ 597,798 $ 582,966
Subsidiary preferred stock not mandatorily redeemable... 59,963 59,963
Long-term debt, net..................................... 448,110 425,105
---------- ----------
Total capitalization.................................. 1,105,871 1,068,034
---------- ----------
Current liabilities:
Current maturities of long-term debt.................... 2,832 782
Variable rate demand bonds.............................. 56,975 56,975
Short-term debt......................................... 64,501 91,902
Accounts payable and accruals........................... 71,949 78,195
Accrued payroll and vacation............................ 17,357 17,287
Accrued (pre-paid) taxes................................ 6,395 (570)
Accrued interest........................................ 9,138 9,282
Other................................................... 21,925 21,168
--------- ---------
Total current liabilities............................. 251,072 275,021
--------- ---------
Other credits:
Accumulated deferred income taxes....................... 224,049 212,844
Accumulated deferred investment tax credits............. 40,758 42,684
Accrued environmental remediation costs................. 79,280 80,973
Deferred credits and other.............................. 104,871 82,343
--------- ---------
448,958 418,844
--------- ---------
Commitments and contingencies (Notes 2 and 11)
TOTAL CAPITALIZATION AND LIABILITIES...................... $1,805,901 $1,761,899
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1994 1993 1992
(in thousands except per-share data)
Operating revenues:
Electric................................... $531,747 $503,187 $477,735
Gas........................................ 139,646 137,270 119,362
Fees, rents and other...................... 144,766 131,486 76,176
-------- -------- --------
816,159 771,943 673,273
-------- -------- --------
Operating expenses:
Electric production fuels.................. 123,469 123,919 123,440
Purchased power............................ 37,913 28,574 24,427
Purchased gas.............................. 88,553 90,505 77,112
Other operation............................ 279,721 256,509 196,044
Maintenance................................ 41,227 44,763 45,081
Depreciation and amortization.............. 81,480 69,112 59,949
Taxes other than income.................... 33,787 32,378 29,261
-------- -------- --------
686,150 645,760 555,314
-------- -------- --------
Operating income............................. 130,009 126,183 117,959
-------- -------- --------
Other income and (deductions):
Allowance for equity funds used during
construction............................. 3,009 2,977 2,351
Other, net................................. 7,610 (633) 2,390
-------- -------- --------
10,619 2,344 4,741
-------- -------- --------
Interest expense:
Interest on debt........................... 37,686 38,073 38,954
Allowance for borrowed funds used during
construction............................. (1,029) (1,053) (1,329)
-------- -------- --------
36,657 37,020 37,625
-------- -------- --------
Income before income taxes................... 103,971 91,507 85,075
Income taxes................................. 35,411 25,056 23,257
Preferred stock dividends of subsidiary...... 3,310 3,928 3,811
-------- -------- --------
Net income................................... $ 65,250 $ 62,523 $ 58,007
======== ======= ========
Weighted average number of shares of common
stock outstanding.......................... 30,671 29,681 27,559
======== ======== ========
Earnings per share........................... $ 2.13 $ 2.11 $ 2.10
======== ======== ========
Cash dividends paid per share................ $ 1.92 $ 1.90 $ 1.86
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1994 1993 1992
(dollars in thousands)
Cash flows generated from (used for)
operating activities:
Net income........................................... $ 65,250 $ 62,523 $ 58,007
Adjustments to reconcile net income to net cash
generated from operating activities:
Depreciation and amortization...................... 81,480 69,112 59,949
Deferred income taxes.............................. 10,321 5,015 8,124
Investment tax credit restored..................... (1,926) (1,967) (2,125)
Amortization of nuclear fuel....................... 6,707 7,049 7,961
Allowance for equity funds used during construction (3,009) (2,977) (2,351)
Other, net......................................... (408) (7,201) (1,731)
Changes in assets and liabilities:
Restricted cash.................................... 3,495 5,417 23,513
Net accounts receivable and unbilled revenue....... (3,842) (11,578) (10,744)
Coal............................................... 217 2,943 2,666
Materials and supplies............................. 61 (6) 1,769
Gas in storage..................................... 779 (4,463) 1,403
Prepayments and other.............................. (7,028) (1,226) 4,453
Accounts payable and accruals...................... (6,245) 760 3,587
Accrued taxes...................................... 6,965 1,438 (5,414)
Other, net......................................... 20,451 9,194 (12,020)
--------- -------- --------
Net cash generated from operating activities..... 173,268 148,435 137,047
--------- -------- --------
Cash flows generated from (used for)
financing activities:
Issuance of common stock............................. - 58,575 -
Issuance of long-term debt........................... - 11,538 289,510
Issuance of preferred stock.......................... - 29,986 -
Redemption of preferred stock........................ - (29,986) -
Long-term debt maturities, redemptions and sinking
fund requirements................................... 24,993 (7,257) (243,641)
Net change in short-term debt........................ (27,401) 20,475 18,589
Common stock cash dividends, less dividends
reinvested.......................................... (49,357) (40,342) (32,668)
Other, net........................................... (1,061) (2,052) (1,462)
--------- -------- --------
Net cash (used for) generated from financing
activities..................................... (52,826) 40,937 30,328
--------- -------- --------
Cash flows generated from (used for)
investing activities:
Additions to utility plant, excluding AFUDC.......... (123,460) (149,333) (123,321)
Allowance for borrowed funds used during construction (1,029) (1,053) (1,329)
Dedicated decommissioning funds...................... (1,988) (9,426) (3,737)
Purchase of other property and equipment............. (6,160) (16,553) (44,097)
Other, net........................................... - 2,123 2,003
-------- --------- --------
Net cash (used for) investing activities......... (132,637) (174,242) (170,481)
-------- --------- --------
Net increase (decrease) in cash and equivalents........ (12,195) 15,130 (3,106)
Cash and equivalents at beginning of year.............. 19,468 4,338 7,444
-------- --------- --------
Cash and equivalents at end of year.................... $ 7,273 $ 19,468 $ 4,338
======== ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest on debt..................................... $ 36,914 $ 36,759 $ 37,763
Preferred stock dividends of subsidiary.............. $ 3,310 $ 3,928 $ 3,811
Income taxes......................................... $ 22,902 $ 20,743 $ 21,201
Non-cash financing activites:
Dividends reinvested................................. $ 9,653 $ 15,284 $ 17,533
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31, 1994 1993
(in thousands except per-share data)
Common shareowners' investment:
Common stock, $.01 par value, authorized--
100,000,000 shares; issued and outstanding--30,773,588
shares and 30,438,654 shares, respectively.................... $ 308 $ 305
Additional paid-in capital..................................... 304,442 297,916
Reinvested earnings............................................ 293,048 284,745
-------- --------
Total common shareowners' investment....................... $597,798 $582,966
-------- --------
Preferred stock:
Wisconsin Power and Light Company--
Cumulative, without par value, authorized 3,750,000 shares,
maximum aggregate stated value $150,000,000;
Preferred stock without mandatory redemption, $100 stated
value--
4.50% series, 99,970 shares outstanding.................... 9,997 9,997
4.80% series, 74,912 shares outstanding.................... 7,491 7,491
4.96% series, 64,979 shares outstanding.................... 6,498 6,498
4.40% series, 29,957 shares outstanding.................... 2,996 2,996
4.76% series, 29,947 shares outstanding.................... 2,995 2,995
6.20% series, 150,000 shares outstanding................... 15,000 15,000
Cumulative, without par value, $25 stated value,
6.50% series, 599,460 shares outstanding................... 14,986 14,986
------ ------
Total preferred stock...................................... $59,963 $59,963
Long-term debt:
Wisconsin Power and Light Company--
First mortgage bonds:
Series L, 6.25%, due 1998..................................... 8,899 8,899
1984 Series A, variable rate, due 2014 (5.40% at Dec. 31,
1994)....................................................... 8,500 8,500
1988 Series A, variable rate, due 2015 (5.80% at Dec. 31,
1994)....................................................... 14,600 14,600
1990 Series V, 9.3%, due 2025................................. 50,000 50,000
1991 Series A, variable rate, due 2015 (5.95% at Dec. 31,
1994)....................................................... 16,000 16,000
1991 Series B, variable rate, due 2005 (5.95% at Dec. 31,
1994)....................................................... 16,000 16,000
1991 Series C, variable rate, due 2000 (5.95% at Dec. 31,
1994)....................................................... 1,000 1,000
1991 Series D, variable rate, due 2000 (5.95% at Dec. 31,
1994)....................................................... 875 875
1992 Series W, 8.6%, due 2027................................. 90,000 90,000
1992 Series X, 7.75%, due 2004................................ 62,000 62,000
1992 Series Y, 7.6%, due 2005................................. 72,000 72,000
1992 Series Z, 6.125%, due 1997............................... 55,000 55,000
------- -------
Total first mortgage bonds............................... $394,874 $394,874
------- -------
Heartland Development Corporation--
Multifamily Housing Revenue Bonds issued
by various housing and community
development authorities, due 2004-2024, 1.8% - 7.55%........ 39,169 40,010
Other mortgage notes payable, due 1996-2042, 0% - 10.75%...... 41,235 38,881
--------- --------
$80,404 $78,891
--------- --------
WPL Holdings, Inc.--
8.96% Senior notes, due 1997.................................. 10,000 10,000
8.59% Senior notes, due 2004.................................. 24,000 -
Other......................................................... - 519
--------- --------
$34,000 $10,519
--------- --------
Less--
Current maturities............................................ (2,832) (782)
Variable rate demand bonds.................................... (56,975) (56,975)
Unamortized discount and premium, net......................... (1,361) (1,422)
--------- ---------
Total long-term debt, net................................... $448,110 $425,105
--------- ---------
TOTAL CAPITALIZATION............................................ $1,105,871 $1,068,034
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMMON
SHAREOWNERS' INVESTMENT
Year Ended December 31, 1994 1993 1992
(dollars in thousands)
Common stock:
Balance at beginning of year....................... $ 305 $ 278 $ 273
Issued in connection with public offering........ - 17 -
Issued in connection with acquisitions........... - 5 -
Issued in connection with dividend reinvestment
plan........................................... 3 5 5
-------- -------- --------
Balance at end of year............................. 308 305 278
-------- -------- --------
Additional paid-in capital:
Balance at beginning of year....................... 297,916 204,041 187,532
Received in connection with public offering...... - 58,558 -
Received in connection with acquisitions......... - 20,721 -
Received in connection with dividend reinvestment
plan........................................... 9,650 15,279 17,528
Common stock issuance expense.................... - (1,888) -
Other............................................ (3,124) 1,205 (1,019)
-------- -------- --------
Balance at end of year............................. 304,442 297,916 204,041
-------- -------- --------
Reinvested earnings:
Balance at beginning of year....................... 284,745 279,217 271,854
Net income....................................... 65,250 62,523 58,007
Cash dividends ($1.92 per share, $1.90
per share, and $1.86 per share, respectively).. (59,010) (55,626) (50,201)
Expense of issuing stock and other............... 2,063 (1,369) (443)
-------- -------- --------
Balance at end of year............................. 293,048 284,745 279,217
-------- -------- --------
TOTAL COMMON SHAREOWNERS' INVESTMENT................ $597,798 $582,966 $483,536
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except as
otherwise indicated)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES:
a. Business and Consolidation:
WPL Holdings, Inc. (the "Company" or "WPLH") is the parent holding company
of Wisconsin Power and Light Company ("WPL") and Heartland Development
Corporation ("HDC"). The consolidated financial statements include the
Company and its consolidated subsidiaries, WPL and HDC, along with their
respective subsidiaries. Certain amounts from prior years have been
reclassified to conform with the current year presentation.
WPL is a public utility predominantly engaged in the transmission and
distribution of electric energy and the generation and bulk purchase of
electric energy for sale. WPL also transports, distributes and sells
natural gas purchased from gas suppliers. Nearly all of WPL's retail
customers are located in south and central Wisconsin. WPL's principal
consolidated subsidiary is South Beloit Water, Gas and Electric Company.
HDC and its principal subsidiaries are engaged in business development in
three major areas: 1) environmental services through the Environmental
Holding Company ("EHC"), the parent company of RMT, Inc. ("RMT"), Jones
and Neuse, Inc., and QES, Inc., 2) affordable housing and historic
rehabilitation through Heartland Properties, Inc. ("HPI") and 3) energy
services, which includes ENSERV, Inc., A&C Enercom Consultants, Inc. and
Entec Consulting, Inc.
b. Regulation:
WPL's financial records are maintained in accordance with the uniform
system of accounts prescribed by its regulators. The Public Service
Commission of Wisconsin ("PSCW") and the Illinois Commerce Commission have
jurisdiction over retail rates, which represent approximately 83 percent
of electric revenues plus all gas revenues. The Federal Energy Regulatory
Commission ("FERC") has jurisdiction over wholesale electric rates
representing the balance of electric revenues. Statement of Financial
Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of
Certain Types of Regulation" provides that rate-regulated public utilities
such as WPL record certain costs and credits allowed in the ratemaking
process in different periods than for unregulated entities. These are
deferred as regulatory assets or regulatory liabilities and are recognized
in the Consolidated Statements of Income at the time they are reflected in
rates.
c. Utility Plant and Other Property and Equipment:
Utility plant and other property and equipment are recorded at original
cost and cost, respectively. Utility plant costs include financing costs
that are capitalized through the PSCW-approved allowance for funds used
during construction ("AFUDC"). The AFUDC capitalization rates approximate
WPL's cost of capital. These capitalized costs are recovered in rates as
the cost of the utility plant is depreciated.
Normal repairs, maintenance and minor items of utility plant and other
property and equipment are expensed. Ordinary utility plant retirements,
including removal costs less salvage value, are charged to accumulated
depreciation upon removal from utility plant accounts, and no gain or loss
is recognized. Upon retirement or sale of other property and equipment,
the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is included in other income and deductions.
d. Nuclear Fuel:
Nuclear fuel is recorded at its original cost and is amortized to expense
based upon the quantity of heat produced for the generation of
electricity. This accumulated amortization assumes spent nuclear fuel
will have no residual value. Estimated future disposal costs of such fuel
are expensed based on kilowatthours generated.
e. Revenue:
WPL accrues utility revenues for services provided but not yet billed.
HDC records revenues earned but not billed and revenues from professional
services rendered as incurred using a time-and-materials basis.
f. Electric Production Fuels and Purchased Gas:
(1)Electric Production Fuels:
Through 1994, the PSCW retail electric rates provided a range from
which actual fuel costs could vary in relation to costs forecasted
and used in rates. If actual fuel costs fell outside this range, a
hearing could be held to determine if a rate change was necessary,
and a rate increase or decrease could result.
Beginning with WPL's latest rate order UR-109, effective January 1,
1995, the automatic fuel adjustment clause was eliminated. In its
absence, WPL will benefit from reductions in fuel cost.
Conversely, WPL will be exposed to increases in fuel costs.
An automatic fuel adjustment clause for the FERC wholesale portion
of WPL's electric business operates to increase or decrease monthly
rates based on changes in fuel costs.
(2)Purchased Gas:
Through 1994, WPL's base gas cost recovery rates permitted the
recovery of or refund to all customers for any increases or
decreases in the cost of gas purchased from WPL's suppliers through
a monthly purchased gas adjustment clause.
Beginning with UR-109, the monthly purchased gas adjustment clause
was also eliminated. In the future, the fluctuations in the
commodity cost of gas above or below a prescribed commodity price
index will serve to increase or decrease WPL's margin on gas sales.
Fixed demand costs are excluded from the incentive program. Both
benefits and/or exposures are subject to ratepayer sharing
provisions, which are capped at $1.1 million.
g. Cash and Equivalents:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The carrying
amount approximates fair value because of the short maturity of these
items.
h. Income Taxes:
The Company files a consolidated federal income tax return. Under the
terms of an agreement between WPLH and its subsidiaries, WPL and HDC
calculate their respective federal tax provisions and make payments to
WPLH as if they were separate taxable entities. Beginning in 1993, the
Company fully provides deferred income taxes in accordance with SFAS
No.109, "Accounting for Income Taxes," to reflect tax effects of reporting
book and tax items in different periods.
As part of HPI's investments in affordable housing, HPI is eligible to
claim affordable housing and historic rehabilitation credits. These tax
credits can be recognized to the extent the Company has consolidated taxes
payable.
i. Goodwill:
The excess of the purchase cost over the fair value of net assets acquired
is amortized over 20 to 30 years on a straight-line basis based on its
estimated useful benefit. Subsequent to its acquisitions, the Company
continually evaluates whether later events and circumstances have occurred
that indicate the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable.
To evaluate goodwill for possible impairment, the Company uses a forecast
of the related business's discounted earnings over the remaining life of
the goodwill. Goodwill (net of accumulated amortization) was $20,135 and
$20,920 at December 31, 1994 and 1993, respectively.
NOTE 2. PROPERTY:
a. Jointly-Owned Utility Plants:
WPL participates with other Wisconsin utilities in the construction and
operation of several jointly-owned utility generating plants. The chart
below represents WPL's proportionate share of such plants as reflected in
the Consolidated Balance Sheets at December 31, 1994 and 1993:
1994 1993
----------------------------- ------------------------------
Plant Accumulated Plant Accumulated
Ownership Inservice Plant MW in Provision for in Provision for
Interest % Date Capacity Service Depreciation CWIP Service Depreciation CWIP
Coal:
Columbia Energy
Center 46.2 1975 & 1978 1,023 $159,650 $ 78,573 $1,484 $159,818 $ 76,602 $1,986
Edgewater Unit 4 68.2 1969 330 50,206 25,394 181 49,631 24,160 83
Edgewater Unit 5 75.0 1985 380 225,336 63,324 26 224,902 58,338 21
Nuclear:
Kewaunee Nuclear
Power Plant 41.0 1974 535 132,726 72,637 452 133,342 69,647 848
-------- -------- ------ -------- --------- -------
Total $567,918 $239,928 $2,143 $567,693 $228,747 $2,938
======== ======== ====== ======== ========= ======
Each of the respective joint owners finances its portion of construction
costs. WPL's share of operation and maintenance expenses is included in
the Consolidated Statements of Income.
b. Capital Expenditures:
The Company's capital expenditures for 1995 are estimated to total $102
million. Substantial commitments have been incurred for such
expenditures.
NOTE 3. DEPRECIATION:
The Company uses the straight-line method of depreciation. For utility
plant, straight-line depreciation is computed on the average balance of
depreciable property at individual straight-line PSCW approved rates that
consider the estimated useful life and removal cost or salvage value as
follows:
Electric Gas Water Common
1994 3.2% 3.7% 2.5% 7.2%
1993 3.2% 3.7% 2.5% 7.3%
1992 3.2% 3.7% 2.6% 7.1%
Estimated useful lives related to other property and equipment are from 3
to 12 years for equipment and 31.5 to 40 years for buildings.
NOTE 4. NUCLEAR OPERATIONS:
Depreciation expense related to the Kewaunee Nuclear Power Plant
("Kewaunee") includes a provision to accrue for the cost of
decommissioning over the life of the plant, which totalled $13.4 million,
$6.1 million and $3.9 million in 1994, 1993 and 1992, respectively.
Wisconsin utilities with ownership of nuclear generating plants are
required by the PSCW to establish and make annual contributions to
external trust funds to provide for plant decommissioning. Additionally,
in July 1994, the PSCW issued a generic order covering utilities that have
nuclear generation. This order standardizes the escalation assumptions to
be used in determining nuclear decommissioning liabilities.
WPL's share of the decommissioning costs is estimated to be $159 million
(in 1994 dollars, assuming the plant is operating through 2013) based on a
1992 study, using the immediate dismantlement method of decommissioning.
The undiscounted amount of decommissioning costs estimated to be expended
between the years 2014 and 2050 is $1.016 billion. After-tax earnings on
the tax-qualified and nontax-qualified decommissioning funds are assumed
to be 6.1 percent and 5.1 percent, respectively. The future escalation
rate is assumed to be 6.5 percent.
Decommissioning costs and a charge to offset earnings on the external
trusts are recorded as portions of depreciation expense and accumulated
provision for depreciation on the Statements of Consolidated Income and
the Consolidated Balance Sheets, respectively. As of December 31, 1994,
the total decommissioning costs included in the accumulated provision for
depreciation were approximately $62.8 million.
WPL has established external trusts to hold decommissioning funds, and the
PSCW has approved WPL's funding plan which provides for annual
contributions of current accruals over the remaining service lives of the
nuclear plants. The earnings on the external trusts accumulate in the
fund balance and in the accumulated provision for depreciation. Such
earnings on the external trust funds, which have been offset by a charge
to depreciation expense on the Statements of Consolidated Income, were
$2.7, $1.1 and $1.2 million for the years ended December 31, 1994, 1993
and 1992, respectively.
Under the Nuclear Waste Policy Act of 1982, the U.S. Department of Energy
("DOE") is responsible for the ultimate storage and disposal of spent
nuclear fuel removed from nuclear reactors.
Interim storage space for spent nuclear fuel is currently provided at
Kewaunee. Currently there is on-site storage capacity for spent fuel
through the year 1999. Nuclear fuel, net, at December 31, consists of:
1994 1993
Original cost of nuclear fuel $155,190 $147,325
Less--Accumulated amortization 135,794 129,325
-------- --------
Nuclear fuel, net $ 19,396 $ 18,000
======== ========
The Price Anderson Act provides for the payment of funds for public
liability claims arising from a nuclear incident. Accordingly, in the
event of a nuclear incident, WPL, as a 41-percent owner of Kewaunee, is
subject to an overall assessment of approximately $32.5 million per
incident for its ownership share of this reactor, not to exceed $4.1
million payable in any given year.
Through its membership in Nuclear Electric Insurance Limited, WPL has
obtained property damage and decontamination insurance totalling $1.5
billion for loss from damage at Kewaunee. In addition, WPL maintains
outage and replacement power insurance coverage totalling $101.4 million
in the event an outage exceeds 21 weeks.
NOTE 5. NET ACCOUNTS RECEIVABLE:
WPL has a contract with a financial organization to sell, with limited
recourse, certain accounts receivable and unbilled revenues. These
receivables include customer receivables resulting from sales to other
public utilities as well as from billings to the co-owners of the jointly-
owned electric generating plants that WPL operates. The contract allows
WPL to sell up to $150 million of receivables at any time. Expenses
related to the sale of receivables are paid to the financial organization
under this contract and include, along with various other fees, a monthly
discount charge on the outstanding balance of receivables sold that
approximated a 4.86 percent annual rate during 1994. These costs are
recovered in retail utility rates as an operating expense. All billing
and collection functions remain the responsibility of WPL. The contract
expires August 19, 1995, unless extended by mutual agreement.
As of December 31, 1994 and 1993, proceeds from the sale of accounts
receivable totalled $76.5 million and $74 million, respectively. During
1994, WPL sold an average of $82.3 million of accounts receivable per
month, compared with $75.9 million in 1993.
As a result of its diversified customer base and WPL's sale of
receivables, the Company does not have any significant concentrations of
credit risk in the December 31, 1994, net accounts receivable balance.
NOTE 6. REGULATORY ASSETS AND REGULATORY LIABILITIES:
Certain costs and credits are deferred and amortized in accordance with
authorized or expected rate-making treatment. As of December 31, 1994 and
1993, regulatory created assets include the following:
1994 1993
Environmental remediation costs $ 82,179 $ 82,380
Tax related (see Note 8) 43,736 47,787
Jurisdictional plant differences 7,173 6,533
Decontamination and decommissioning
costs of federal enrichment facilities 7,100 6,181
Other 4,288 5,924
-------- --------
$144,476 $148,805
======== ========
As of December 31, 1994 and 1993, regulatory created liabilities included
$6,738 and $6,618 respectively, for amounts due to customers related to
the sale of air emissions credits.
NOTE 7. EMPLOYEE BENEFIT PLANS:
a. Pension Plans:
WPL has non-contributory, defined benefit retirement plans covering
substantially all employees. The benefits are based upon years of service
and levels of compensation. WPL's funding policy is to contribute at
least the statutory minimum to a trust.
The projected unit credit actuarial cost method was used to compute net
pension costs and the accumulated and projected benefit obligations. The
discount rate used in determining those benefit obligations was 8.25, 7.25
and 8.00 percent for 1994, 1993 and 1992 respectively. The long-term rate
of return on assets used in determining those benefit obligations was
9.00, 9.75 and 10.00 percent for 1994, 1993, and 1992, respectively.
The following table sets forth the funded status of the WPL plans and
amounts recognized in the Company's Consolidated Balance Sheets at
December 31, 1994 and 1993:
1994 1993
Accumulated benefit obligation--
Vested benefits $(134,829) $(135,303)
Non-vested benefits (3,295) (2,962)
--------- ----------
$(138,124) $(138,265)
--------- ----------
Projected benefit obligation $(154,283) $(164,271)
Plan assets at fair value, primarily
common stocks and fixed income
securities 178,095 183,881
--------- ---------
Plan assets in excess of projected
benefit obligation 23,812 19,610
Unrecognized net transition asset (19,376) (21,823)
Unrecognized prior service cost 5,679 7,691
Unrecognized net loss 14,737 20,650
--------- ---------
Pre-paid pension costs, included in
deferred charges and other $ 24,852 $ 26,128
========= =========
The net pension (benefit) recognized in the Consolidated Statements of
Income for 1994, 1993 and 1992 included the following components:
1994 1993 1992
Service cost $ 5,123 $ 4,263 $ 3,912
Interest cost on projected benefit
obligation 12,051 11,614 10,615
Actual return on assets 1,016 (24,759) (12,143)
Amortization and deferral (17,795) 8,430 (5,317)
-------- -------- --------
Net pension cost (benefit) $ 395 $ (452) $ (2,933)
======== ======== ========
b. Postretirement Health Care and Life Insurance:
Effective January 1, 1993, the Company prospectively adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions".
SFAS No. 106 establishes standards of financial accounting and reporting
for the Company's postretirement health care and life insurance benefits.
SFAS No. 106 requires the accrual of the expected cost of such benefits
during the employees' years of service based on actuarial methodologies
that closely parallel pension accounting requirements. WPL has elected
delayed recognition of the transition obligation and is amortizing the
discounted present value of the transition obligation to expense over 20
years. For WPL, the cost of providing postretirement benefits, including
the transition obligation, is being recovered in retail rates under
current regulatory practices.
The following table sets forth the plans' funded status:
1994 1993
Accumulated postretirement benefit
obligation--
Retirees $(29,273) $(27,358)
Fully eligible active plan participants (5,998) (5,429)
Other active plan participants (7,675) (9,980)
-------- --------
Accumulated benefit obligation (42,946) (42,767)
Plan assets at fair value 9,767 7,073
-------- --------
Accumulated benefit obligation
in excess of plan assets $(33,179) $(35,694)
Unrecognized transition obligation 26,474 29,638
Unrecognized loss (2,570) 2,025
-------- --------
Accrued postretirement benefits liability $ (9,275) $ (4,031)
======== ========
For 1994 and 1993, the annual net postretirement benefits costs recognized
in the Consolidated Statements of Income consist of the following
components:
1994 1993
Service cost $ 1,739 $ 1,463
Interest cost on projected benefit
obligation 3,135 3,151
Actual return on plan assets (253) (696)
Amortization of transition obligation 1,527 1,560
Amortization and deferral (381) (27)
------- -------
Net postretirement benefits cost $ 5,767 $ 5,451
====== ======
The postretirement benefits cost components for 1994 were calculated
assuming health care cost trend rates ranging from 11.5 percent for 1994
and decreasing to 5 percent by the year 2002. The health care cost trend
rate considers estimates of health care inflation, changes in utilization
or delivery, technological advances, and changes in the health status of
the plan participants. Increasing the health care cost trend rate by one
percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994 by $2.5 million
and the aggregate of the service and interest cost components of the net
periodic postretirement benefit cost for the year by $.4 million.
The assumed discount rate used in determining the accumulated
postretirement obligation was 8.25 and 7.25 percent in 1994 and 1993,
respectively. The long-term rate of return on assets was 9.00 and 9.50
percent in 1994 and 1993, respectively. Plan assets are primarily
invested in common stock, bonds and fixed income securities. The
Company's funding policy is to contribute the tax-advantaged maximum to a
trust.
The costs for the postretirement health care and life insurance benefits,
based on an actuarial determination were $1.3 million in 1992.
c. Other Postemployment Benefits:
In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits". SFAS No.
112, which was effective January 1, 1994, establishes standards of
financial accounting and reporting for the estimated cost of benefits
provided by an employer to former or inactive employees after employment
but before retirement. The effect of adopting SFAS No. 112 was not
material.
NOTE 8. INCOME TAXES:
The following table reconciles the statutory federal income tax rate to
the effective income tax rate:
1994 1993 1992
Statutory federal income tax rate 35.0% 35.0% 34.0%
State income taxes, net of federal
benefit 5.3 5.1 7.0
Investment tax credits restored (1.9) (2.1) (2.7)
Amortization of excess deferred taxes (1.6) (1.7) (1.8)
Affordable housing and historical tax
credits (4.6) (5.7) (7.5)
Other differences, net 1.9 (3.2) (.6)
---- ---- ----
Effective income tax rate 34.1% 27.4% 28.4%
==== ==== ====
The breakdown of income tax expense as reflected in the Consolidated
Statements of Income is as follows:
1994 1993 1992
Current Federal $26,161 $20,725 $19,703
Current state 5,673 6,500 5,343
Deferred 10,321 5,015 8,124
Investment tax credit restored (1,926) (1,967) (2,125)
Affordable housing and historical
tax credits (4,818) (5,217) (7,788)
------- ------- -------
$35,411 $25,056 $23,257
======= ======= =======
In 1992, deferred taxes arising from utility plant timing differences, the
qualified nuclear decommissioning trust contribution, employee benefits
and other totalled $4,104, $709, $2,081, and $1,230, respectively.
The temporary differences that resulted in accumulated deferred income tax
(assets) and liabilities as of December 31 are as follows:
1994 1993
Accelerated depreciation and other
plant related $186,565 $171,993
Excess deferred taxes 21,215 22,744
Unamortized investment tax credits (21,784) (22,812)
Allowance for equity funds used during
construction 14,384 13,518
Regulatory liability 17,553 19,179
Other 6,116 8,222
-------- --------
$224,049 $212,844
======== ========
Changes in WPL's deferred income taxes arising from the adoption of SFAS
No. 109 represent amounts recoverable or refundable through future rates
and have been recorded as net regulatory assets totalling approximately
$26 million and $29 million in 1994 and 1993, respectively, on the
Consolidated Balance Sheets. These net regulatory assets are being
recovered in rates over the estimated remaining useful lives of the assets
to which they pertain.
NOTE 9. SHORT-TERM DEBT AND LINES OF CREDIT:
The Company and its subsidiaries maintain bank lines of credit, most of
which are at the bank prime rates, to obtain short-term borrowing
flexibility, including pledging lines of credit as security for any
commercial paper outstanding. Amounts available under these lines of
credit totalled $97.5 million, $100 million and $70 million as of December
31, 1994, 1993 and 1992, respectively. Information regarding short-term
debt and lines of credit is as follows:
1994 1993 1992
As of end of year--
Lines of credit borrowings $ - $ 2,000 $ -
Commercial paper outstanding $ 50,500 $49,000 $26,000
Notes payable outstanding $ 14,001 $40,954 $44,095
Discount rates on commercial
paper 5.64%-6.12% 3.24%-3.40% 3.15%-3.90%
Interest rates on notes payable 6.04%-6.07% 3.34%-3.35% 3.46%-3.62%
For the year ended--
Maximum month-end amount of
short-term debt $ 81,000 $92,000 $70,155
Average amount of short-term
debt (based on daily
outstanding balances) $ 61,835 $56,250 $41,882
Average interest rate on
short-term debt 4.49% 3.33% 3.78%
NOTE 10. CAPITALIZATION:
a. Common Shareowners' Investment:
During 1994, 1993 and 1992, respectively, the Company issued 337,980,
451,233 and 528,142 new shares of common stock through its Dividend
Reinvestment and Stock Purchase Plan and 401(k) Savings Plan, generating
proceeds of $9.6 million, $15.3 million and $17.5 million, respectively.
On April 27, 1993, a public offering of 1.65 million newly issued shares
of the Company's common stock, priced at $35.50 per share, raised net
proceeds of $56.7 million. The proceeds were used by the Company to
refinance short-term debt and for general corporate purposes including
construction.
In February 1989, the Board of Directors of the Company declared a
dividend distribution of one common stock purchase right ("right") on each
outstanding share of the Company's common stock. Each right would
initially entitle shareowners to buy one-half of one share of the
Company's common stock at an exercise price of $60.00 per share, subject
to adjustment. The rights are not currently exercisable, but would become
exercisable if certain events occurred related to a person or group
acquiring or attempting to acquire 20 percent or more of the outstanding
shares of common stock. The rights expire on February 22, 1999, unless
the rights are earlier redeemed or exchanged by the Company.
Authorized shares of common stock total 100,000,000 as of December 31,
1994, and can be categorized as follows:
No. Of Shares
Issued and outstanding . . . . . . . . . . . . . . 30,773,588
Reserved for issuance for Dividend
Reinvestment and Stock Purchase Plan . . . . . . 645,973
Reserved for issuance for WPLH Long-Term
Equity Incentive Plan . . . . . . . . . . . . . . 1,000,000
Common Stock Rights Agreement . . . . . . . . . . . 15,709,781
Unreserved . . . . . . . . . . . . . . . . . . . . 51,870,658
------------
Total authorized . . . . . . . . . . . . . . . 100,000,000
------------
A retail rate order effective January 1, 1995, requires WPL to maintain a
utility common equity level of 51.93 percent of total utility
capitalization during the test year January 1, 1995 to December 31, 1996.
In addition, the PSCW ordered that it must approve the payment of
dividends by WPL to the Company that are in excess of the level forecasted
in the rate order ($58.1 million), if such dividends would reduce WPL's
average common equity ratio below 51.93 percent.
b. Preferred Stock:
On October 27, 1993, WPL issued two new series of preferred stock through
two separate public offerings. The 6.2 percent Series is non-redeemable
for ten years and the 6.5 percent Series is non-redeemable for five years.
The proceeds from the sale were used to retire 150,000 shares of 7.56
percent Series and 149,865 shares of 8.48 percent Series preferred stock.
c. Long-term Debt:
Substantially all of WPL's utility plant is secured by its first mortgage
bonds. Current maturities of long-term debt are as follows: $2.8 million
in 1995, $3.3 million in 1996, $67.6 million in 1997, $11.6 million in
1998 and $2.1 million in 1999.
The Company has $150 million of notional principal under interest rate
swap contracts. The fair value of these contracts was not material as of
December 31, 1994.
The fair value of the Company's long-term debt based on quoted market
prices for similar issues at December 31, 1994 and 1993 was $501,530 and
$518,251, respectively.
NOTE 11. COMMITMENTS AND CONTINGENCIES:
a. Coal Contract Commitments:
To ensure an adequate supply of coal, WPL has entered into certain
long-term coal contracts. These contracts include a demand or take-or-pay
clause under which payments are required if contracted quantities are not
purchased. Purchase obligations on these coal and related rail contracts
total approximately $149 million through December 31, 2003. WPL's
management believes it will meet minimum coal and rail purchase
obligations under the contracts. Minimum purchase obligations on these
contracts over the next five years are estimated to be $25 million in 1995
and $26 million in 1996, 1997, 1998 and 1999, respectively.
b. Purchased Power and Gas:
Under firm purchase power and gas contracts, WPL is obligated as follows
(dollars in millions):
Purchased Power Purchased Gas
Purchase Purchase Decatherms
Obligation MW's Obligation (in millions)
1995 $ 8.3 1,920 $ 67 89
1996 8.1 1,830 67 90
1997 10.9 1,944 55 78
1998 15.6 2,505 45 66
1999 18.8 2,910 41 53
Thereafter 106.5 12,720 77 101
------ ------ ---- ---
$168.2 23,829 $352 477
====== ====== ==== ===
c. Manufactured Gas Plant Sites:
Historically, WPL has owned 11 properties that have been associated with
the production of manufactured gas. Currently, WPL owns five of these
sites, three are owned by municipalities, and the remaining three are
owned by private companies. In 1989, WPL initiated investigation of these
manufactured gas plant sites. The Wisconsin Department of Natural
Resources ("DNR") has been involved in reviewing investigation plans and
has received ongoing reports regarding these investigations.
In 1992, and into the beginning of 1993, WPL continued its investigations
and studies. WPL confirmed that there was no contamination at two of the
sites. WPL received a close-out letter from the DNR related to one of
those sites and requested a close-out letter for the other site.
Additionally, the investigation of historical records at a third site
indicated a minimal likelihood of any significant environmental impacts.
In February 1993, WPL completed cost estimates for the environmental
remediation of the eight remaining sites. The results of this analysis
indicate that during the next 35 years, WPL will expend approximately $81
million for feasibility studies, data collection, soil remediation
activities, groundwater research and groundwater remediation activities,
including construction of slurry containment walls and the installation of
groundwater pump and treatment facilities. This estimate was based on
various assumptions, and is subject to continuous review and revision by
management.
The cost estimate set forth above assumes 4 percent average inflation over
a 35 year period. The cost estimate also contemplates that primarily
groundwater pump and treatment activities will take place after 1998
through and including 2027. During this time, WPL estimates that it will
incur average annual costs of $2.0 million to complete the planned
groundwater remediation activities.
With respect to rate recovery of these costs, the PSCW has approved a five
year amortization of the unamortized balance of environmental costs
expended to date.
In addition, WPL is pursuing insurance recovery for the costs of
remediating these sites and is investigating to determine whether there
are other parties who may be responsible for some of the clean-up costs.
Through 1994, management has continued its oversight of the issues related
to the above manufactured gas plant sites without significant revision to
the above estimates and assumptions.
Based on the present regulatory record at the PSCW, management believes
that future costs of remediating these manufactured gas plant sites will
be recovered in rates.
NOTE 12. SEGMENT INFORMATION:
The following table sets forth certain information relating to the
Company's consolidated operations:
Year Ended December 31,
1994 1993 1992
Operation information:
Customer revenues--
Electric $ 531,747 $ 503,187 $ 477,735
Gas 139,646 137,270 119,362
Environmental services 87,673 81,396 67,533
Other 57,093 50,090 8,643
---------- ---------- ----------
Total operating revenues $ 816,159 $ 771,943 $ 673,273
========== ========== ==========
Operating income (loss)--
Electric $ 120,218 $ 118,785 $ 109,459
Gas 13,344 10,431 8,724
Environmental services 6,038 4,219 3,542
Other (a) (9,591) (7,252) (3,766)
Other income and (deductions),
net 10,619 2,344 4,741
Interest expense, net (36,657) (37,020) (37,625)
Income taxes (35,411) (25,056) (23,257)
Preferred stock dividends
of subsidiary (3,310) (3,928) (3,811)
---------- ---------- ----------
Net income $ 65,250 $ 62,523 $ 58,007
========== ========== ==========
Investment information:
Identifiable assets,
including allocated common
plant at December 31--
Electric $1,197,060 $1,170,010 $1,064,418
Gas 235,862 228,257 210,965
Environmental services 41,187 40,124 31,400
Other 331,792 323,508 259,115
---------- ---------- ----------
Total assets $1,805,901 $1,761,899 $1,565,898
========== ========== ==========
Other information:
Construction and nuclear fuel
expenditures--
Electric $ 113,836 $ 139,805 $ 113,252
Gas 19,683 18,876 13,974
Other 6,169 18,538 45,606
---------- ---------- ----------
Total construction and
nuclear fuel
expenditures $ 139,688 $ 177,219 $ 172,832
========== ========== ==========
Provision for depreciation
and amortization--
Electric $ 65,195 $ 53,398 $ 49,554
Gas 8,082 7,329 6,578
Other 8,203 8,385 3,817
---------- ---------- ----------
Total provision for
depreciation $ 81,480 $ 69,112 $ 59,949
========== ========== ==========
(a) Excludes the effects of affordable housing and historical tax
credits of $4.8 million, $5.2 million and $7.8 million in 1994, 1993
and 1992, respectively.
NOTE 13. ACQUISITIONS:
On August 31, 1993, the Company issued 515,993 shares of Company common
stock in exchange for the outstanding common and preferred stock of Jones
and Neuse, Inc. ("JN"), a 250-employee environmental consulting and
engineering service firm based in Austin, Texas. This transaction was
accounted for as a pooling of interests. The Company positioned JN as a
service region of its own 550-employee environmental consulting and
engineering company, RMT, a subsidiary of HDC.
In February 1993, HDC acquired A&C Enercom Consultants, Inc., a Georgia
corporation, for cash and new shares of the Company's common stock. A&C
Enercom provides demand-side management and energy-related consulting
services, primarily to public electric and gas utility companies.
NOTE 14. CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
Seasonal factors significantly affect WPL and, therefore, the data
presented below should not be expected to be comparable between quarters
nor necessarily indicative of the results to be expected for an annual
period.
The amounts below were not audited by independent public accountants, but
reflect all adjustments necessary, in the opinion of the Company, for a
fair presentation of the data.
Operating Operating Earnings
Quarter Ended Revenues Income Net Income Per Share
1994: (in thousands except for per-share data)
March 31 $234,178 $47,245 $26,369 $.87
June 30 181,285 20,864 10,303 .33
September 30 193,706 33,515 15,309 .50
December 31 209,555 28,385 13,269 .43
1993:
March 31 $209,250 $36,490 $19,766 $.70
June 30 173,631 19,872 7,190 .24
September 30 173,869 29,358 13,258 .44
December 31 216,307 40,463 22,309 .73
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 relating to directors and
nominees for election as directors at the Company's 1995 Annual Meeting of
Shareowners is incorporated herein by reference to the information under
the caption "Election of Directors" in the Company's Proxy Statement for
its 1995 Annual Meeting of Shareowners (the "1995 Proxy Statement"). The
1995 Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days after the end of the Company's fiscal year.
The information required by Item 10 relating to executive officers is
set forth in Part I of this Annual Report on Form 10-K. The information
required by Item 10 relating to delinquent filers is incorporated herein
by reference to the information under the caption "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the 1995 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by
reference to the information under the captions "Compensation of Executive
Officers" and "Compensation of Directors" (but not including the Report of
the Compensation and Personnel Committee on Executive Compensation) in the
1995 Proxy Statement. The 1995 Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by
reference to the information under the caption "Ownership of Voting
Securities" in the 1995 Proxy Statement. The 1995 Proxy Statement will be
filed with the Securities and Exchange Commission within 120 days after
the end of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference
to the information under the caption "Compensation of Executive Officers"
(but not including the Report of the Compensation and Personnel Committee
on Executive Compensation) in the 1995 Proxy Statement. The 1995 Proxy
Statement will be filed with the Securities and Exchange Commission within
120 days after the end of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) (1) Consolidated Financial Statements
Included in Part II of this report:
Report of Independent Public Accountants
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993 and 1992
Consolidated Balance Sheets, December 31, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Capitalization, December 31,
1994 and 1993
Consolidated Statements of Common Shareowners' Investment
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules
For each of the years ended December 31, 1994, 1993 and 1992
Schedule I. Parent Company Financial Statements
Schedule II. Valuation and Qualifying Accounts and
Reserves
All other schedules are omitted because they are not applicable
or not required, or because that required information is shown
either in the consolidated financial statements or in the notes
thereto.
(a) (3) Exhibits
The following Exhibits are filed herewith or incorporated herein
by reference. Documents indicated by an asterisk (*) are
incorporated herein by reference.
3A* Restated Articles of Incorporation (incorporated by
reference to Exhibit 4.1 to the Company's Form S-3
Registration Statement No. 33-59972)
3B By-Laws of the Company as revised to February 23, 1994
4A* Indenture of Mortgage or Deed of Trust dated August 1,
1941, between WPL and First Wisconsin Trust Company and
George B. Luhman, as Trustees, incorporated by reference
to Exhibit 7(a) in File No. 2-6409, and the indentures
supplemental thereto dated, respectively, January 1,
1948, September 1, 1948, June 1, 1950, April 1, 1951,
April 1, 1952, September 1, 1953, October 1, 1954,
March 1, 1959, May 1, 1962, August 1, 1968, June 1,
1969, October 1, 1970, July 1, 1971, April 1, 1974,
December 1, 1975, May 1, 1976, May 15, 1978, August 1,
1980, January 15, 1981, August 1, 1984, January 15,
1986, June 1, 1986, August 1, 1988, December 1, 1990,
September 1, 1991, October 1, 1991, March 1, 1992, May
1, 1992, June 1, 1992 and July 1, 1992 (incorporated by
reference to Second Amended Exhibit 7(b) in File No.
2-7361; Amended Exhibit 7(c) incorporated by reference
to File No. 2-7628; Amended Exhibit 7.02 in File No.
2-8462; Amended Exhibit 7.02 in File No. 2-8882; Second
Amendment Exhibit 4.03 in File No. 2-9526; Amended
Exhibit 4.03 in File No. 2-10406; Amended Exhibit 2.02
in File No. 2-11130; Amended Exhibit 2.02 in File No.
2-14816; Amended Exhibit 2.02 in File No. 2-20372;
Amended Exhibit 2.02 in File No. 2-29738; Amended
Exhibit 2.02 in File No. 2-32947; Amended Exhibit 2.02
in File No. 2-38304; Amended Exhibit 2.02 in File No.
2-40802; Amended Exhibit 2.02 in File No. 2-50308;
Exhibit 2.01(a) in File No. 2-57775; Amended Exhibit
2.02 in File No. 2-56036; Amended Exhibit 2.02 in File
No. 2-61439; Exhibit 4.02 in File No. 2-70534; Amended
Exhibit 4.03 File No. 2-70534; Exhibit 4.02 in File No.
33-2579; Amended incorporated by reference to Exhibit
4.03 in File No. 33-2579; Amended Exhibit 4.02 in File
No. 33-4961; Exhibit 4B to WPL's Form 10-K for the year
ended December 31, 1988, Exhibit 4.1 to WPL's Form 8-K
dated December 10, 1990, Amended Exhibit 4.26 in File
No. 33-45726, Amended Exhibit 4.27 in File No.33-45726,
Exhibit 4.1 to WPL's Form 8-K dated March 9, 1992,
Exhibit 4.1 to WPL's Form 8-K dated May 12, 1992,
Exhibit 4.1 to WPL's Form 8-K dated June 29, 1992 and
Exhibit 4.1 to WPL's Form 8-K dated July 20, 1992)
4B* Rights Agreement, dated as of February 22, 1989, between
the Company and Morgan Shareholder Services Trust
Company (incorporated by reference to Exhibit 4 to the
Company's current report on Form 8-K dated February 27,
1989)
10A*# Executive Tenure Compensation Plan, as revised November
1992 (incorporated by reference to Exhibit 10A to the
Company's Form 10-K for the year ended December 31,
1992)
10B*# Form of Supplemental Retirement Plan, as revised
November 1992 (incorporated by reference to Exhibit 10B
to the Company's Form 10-K for the year ended December
31, 1992)
10C*# Forms of Deferred Compensation Plans, as amended June,
1990 (incorporated by reference to Exhibit 10C to the
Company's Form 10-K for the year ended December 31,
1990)
10C.1*# Officer's Deferred Compensation Plan II, as adopted
September 1992 (incorporated by reference to Exhibit
10C.1 to the Company's Form 10-K for the year ended
December 31, 1992)
10C.2*# Officer's Deferred Compensation Plan III, as adopted
January 1993 (incorporated by reference to Exhibit 10C.2
to the Company's Form 10-K for the year ended December
31, 1993)
10D*# Pre-Retirement Survivor's Income Supplemental Plan, as
revised November 1992 (incorporated by reference to
Exhibit 10F to the Company's Form 10-K for the year
ended December 31, 1992)
10E*# Wisconsin Power and Light Company Management Incentive
Plan (incorporated by reference to Exhibit 10H to the
Company's Form 10-K for the year ended December 31,
1992)
10F# Deferred Compensation Plan for Directors, as amended
January 17, 1995
10G*# WPL Holdings, Inc. Long-Term Equity Incentive Plan
(incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994)
10H*# Key Executive Employment and Severance Agreement by and
between WPL Holdings, Inc., and E.B. Davis, Jr.
(incorporated by reference to Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994)
10I*# Form of Key Executive Employment and Severance Agreement
by and between WPL Holdings, Inc. and each of L.W.
Ahearn, W.D. Harvey, E.G. Protsch and A.J. Amato
(incorporated by reference to Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994)
10J*# Form of Key Executive Employment and Severance Agreement
by and between WPL Holdings, Inc. and each of E.M.
Gleason, B.J. Swan, D.A. Doyle, N.E. Boys, D.E.
Ellestad, P.J. Wegner and K.K. Zuhlke (incorporated by
reference to Exhibit 4.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994)
10K*# Restricted Stock Agreement -- Lance Ahearn (incorporated
by reference to Exhibit 10J to the Company's Form 10-K
for the year ended December 31, 1992)
10L# Restricted Stock Agreement -- Erroll B. Davis
10M# Summary of Heartland Development Corporation Short-
Term Incentive Plan
21 Subsidiaries of the Company
23 Consent of Independent Public Accountants
27 Financial Data Schedule
99* 1995 Proxy Statement for the Annual Meeting of
Shareowners to be held May 17, 1995 [The Proxy Statement
for the 1995 Annual Meeting of Shareowners will be filed
with the Securities and Exchange Commission under
Regulation 14A within 120 days after the end of the
Company's fiscal year; except to the extent incorporated
by reference, the Proxy Statement for the 1995 Annual
Meeting of Shareowners shall not be deemed to be filed
with the Securities and Exchange Commission as part of
this Annual Report on Form 10-K]
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company
hereby agrees to furnish to the Securities and Exchange
Commission, upon request, any instrument defining the rights of
holders of unregistered long-term debt not filed as an exhibit
to this Form 10-K. No such instrument authorizes securities in
excess of 10 percent of the total assets of the Company.
# - A management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 22nd day of February, 1995.
WPL HOLDINGS, INC.
By:/s/ Erroll B. Davis, Jr.
Erroll B. Davis, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 22nd day of
February 1995.
/s/ Erroll B. Davis, Jr. President, Chief Executive Officer
Erroll B. Davis, Jr. and Director (principal executive
officer)
/s/ Edward M. Gleason Vice President, Treasurer and Corporate
Edward M. Gleason Secretary (principal financial officer)
/s/ Daniel A. Doyle Vice President - Finance, Controller
Daniel A. Doyle and Treasurer - Wisconsin Power and
Light Company (principal accounting
officer)
/s/ Les Aspin Director /s/ Milton E. Neshek Director
Les Aspin Milton E. Neshek
/s/ L. David Carley Director /s/ Henry C. Prange Director
L. David Carley Henry C. Prange
/s/ Rockne G. Flowers Director /s/ Judith D. Pyle Director
Rockne G. Flowers Judith D. Pyle
/s/ Donald R. Haldeman Director /s/ Henry F. Scheig Director
Donald R. Haldeman Henry F. Scheig
/s/ Katharine C. Lyall Director /s/ Carol T. Toussaint Director
Katharine C. Lyall Carol T. Toussaint
/s/ Arnold M. Nemirow Director
Arnold M. Nemirow
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To WPL Holdings, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in the 1994 Form 10-K of
WPL Holdings, Inc. and have issued our report thereon dated February 1,
1995. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. Supplemental Schedules I and II are the
responsibility of the Company's management and are presented for purposes
of complying with the Securities and Exchange Commission's rules and are
not part of the basic consolidated financial statements. These schedules
have been subjected to the auditing procedures applied in the audit of the
basic consolidated financial statements and, in our opinion, fairly state
in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken
as a whole.
Milwaukee, Wisconsin, ARTHUR ANDERSEN LLP
February 1, 1995
WPL HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
FINANCIAL STATEMENT SCHEDULES:
I. Parent Company Financial Statements
II. Valuation and Qualifying Accounts and Reserves
NOTE: All other schedules are omitted because they are not
applicable or not required, or because that required
information is shown either in the financial statements or in
the notes thereto.
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPL HOLDINGS, INC.
(Parent Company Only)
STATEMENTS OF INCOME AND REINVESTED EARNINGS
As of December 31,
1994 1993 1992
(In Thousands)
Income:
Cash dividends................................ $59,010 $56,068 $51,385
Undistributed subsidiary earnings (loss):
Heartland Development Corporation......... (4,706) 1,337 857
Wisconsin Power and Light Company......... 12,173 5,850 4,243
Investment income and other................... 681 33 182
------ ------- ------
67,158 63,288 56,667
------ ------- ------
Expenses:
Operating (Note D)........................... 1,978 1,018 90
Interest and other............................ 842 805 658
------ ------ ------
2,820 1,823 748
------ ------ ------
Income before income tax benefit.................. 64,338 61,465 55,919
------ ------ ------
Income tax benefit (expense):
Current....................................... 974 750 372
Deferred...................................... (62) 308 730
------ ------ ------
912 1,058 1,102
------ ------ ------
Net income........................................ 65,250 62,523 57,021
------ ------ ------
Reinvested earnings, beginning of year............ 284,745 276,968 270,266
Cash dividends................................ (59,010) (55,626) (50,201)
Expense of issuing preferred stock............ 0 (1,082) 0
Other......................................... 2,063 1,962 (118)
------- ------- -------
Reinvested earnings at end of year................ $293,048 $284,745 $276,968
======= ======= =======
The accompanying notes are an integral part of these state
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPL HOLDINGS, INC.
(Parent Company Only)
BALANCE SHEET
As of December 31,
1994 1993
(In Thousands)
ASSETS
Current assets:
Cash and equivalents........................ $1,061 $8,642
Accounts receivable - affiliates (Note B)... 187 109
Notes receivable - affiliates (Note B)..... 28,471 24,948
-------- --------
29,719 33,699
-------- --------
Accounts receivable from WPL Holding DRIP....... 250 150
-------- -------
Tax benefit receivable.......................... 1,219 2,156
-------- -------
Property and equipment.......................... 1,009 1,023
-------- -------
Investments and other........................... 267 677
-------- -------
Investments in Subsidiaries, at equity:
Heartland Development Corporation........... 66,834 71,439
Wisconsin Power and Light Company........... 544,506 522,667
-------- -------
611,340 594,106
Deferred income taxes........................... 372 372
-------- --------
Total Assets.................................... $644,176 $632,183
======== ========
LIABILITIES AND CAPITALIZATION
Current liabilities:
Short term debt (Note C)................... $11,500 $32,958
Accounts payable - affiliates (Note B)..... (149) 4,727
Accounts payable............................ 3 3
Accrued taxes............................... (912) (94)
Accrued interest and other.................. 220 739
Dividends payable........................... 228 148
------- -------
10,890 38,481
Long-term debt.................................. 34,000 10,463
Deferred taxes.................................. 274
Deferred credit................................. 1,214 273
------- -------
35,488 10,736
------- -------
Capitalization:
Common shareowners' investment:
Common stock, $.01 par value, authorized
100,000,000 shares; issued and
outstanding -- 30,773,588 shares and
30,438,654 shares at December 31,
1994 and 1993, respectively............. 308 305
Additional paid-in-capital................ 304,442 297,916
Reinvested earnings....................... 293,048 284,745
-------- --------
Total Capitalization.................. 597,798 582,966
-------- --------
Total Capitalization and Liabilities............ $644,176 $632,183
======== ========
The accompanying notes are an integral part of these statements.
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPL HOLDINGS, INC.
(Parent Company Only)
STATEMENT OF CASH FLOWS
As of December 31,
1994 1993 1992
(In Thousands)
Cash flows generated from (used for) operating
activities:
Net income....................................... $65,250 $62,523 $57,021
Undistributed earnings of subsidiaries........... (7,467) (7,187) (5,100)
Equity Investments in subsidiaries and other..... (9,649) (77,196) (17,818)
Depreciation..................................... 13 12 3
Deferred income taxes............................ (62) (308) (730)
Changes in assets and liabilities:
Receivables.................................. (2,764) 3,703 (11,218)
Investments.................................. 7 (553) 780
Accounts payable............................. (4,876) (3,798) 5,747
Accrued taxes................................ (818) (94) (199)
Accrued interest and other................... (519) 36 368
Dividends payable............................ 80 (165) (10)
Other........................................ 355 (27) (16)
Net cash generated from (used for)
operating activities................... 39,550 (23,054) 28,828
Cash flows generated from (used for) financing
activities:
Issuance of common stock......................... -- 58,575 --
Common stock issuance expense.................... -- (1,888) --
Issuance of long-term debt....................... 23,537 -- --
Long-term debt maturities........................ (56) -- (57)
Net change in short term debt.................... (21,402) 13,807 3,773
Common stock cash dividends less dividends
reinvested.................................... (49,357) (40,342) (32,668)
Other............................................ 147 1,205 (1,144)
Net cash (used for) generated from
financincing activities................. (47,131) 31,357 (30,096)
Cash flows generated from (used for) investing
activities:
Purchase of property and equipment............... -- -- (39)
Net cash used for investing activities........ -- -- (39)
Net (decrease) increase in cash and equivalents...... (7,581) 8,303 (1,307)
Cash and equivalents at beginning of year............ 8,642 339 1,646
Cash and equivalents at end of year.................. $1,061 $8,642 $339
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on debt............................. $2,097 $627 $658
Income taxes................................. $16,412 $14,685 $17,411
Noncash financing activities:
Dividends reinvested......................... $9,653 $15,284 $17,533
The accompanying notes are an integral part of these statements.
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPL HOLDINGS, INC.
Supplemental Notes to Parent Company Only Financial Statements
The following are supplemental notes to the WPL Holdings, Inc. (the
"Company") Parent Company Financial Statements and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in the WPL Holdings, Inc. 1994 Annual Report, which are hereby
incorporated herein by reference.
Note A. The parent company files a consolidated federal income tax return
with its subsidiaries.
Note B. Net amounts due to (due from) affiliates result from intercompany
transactions including loans, federal income tax liabilities and
an administrative allowance.
Note C. Information regarding short-term debt is as follows:
1994 1993
(In Thousands)
As of end of year:
Notes payable outstanding................ $11,500 $32,958
Interest rates on notes payable.......... 6.06% 3.58%
For the year ended:
Maximum month-end amount of short-term
debt................................... $52,500 $36,000
Average amount of short-term debt........ $36,462 $25,827
Average interest rate on short-term debt. 4.56% 3.37%
Note D. During 1994, 1993 and 1992, Wisconsin Power and Light Company
allocated and billed certain administrative and general expenses to the
Company using an allocation method approved by the Public Service
Commission of Wisconsin. These expenses totalled $759,000, $777,000 and
$867,000 during 1994, 1993 and 1992, respectively.
SCHEDULE II
WPL HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($ In Thousands)
Additions
Balance at Charged to Balance a
beginning costs and end of
Description of period expenses Deductions period
Year ended December 31, 1994:
Allowance for doubtful accounts... $1,662 $1,027 $725 [1] $1,964
===== ===== === ======
Year ended December 31, 1993:
Allowance for doubtful accounts... $732 $1,540 $610 [1] $1,662
==== ===== === ======
Year ended December 31, 1992:
Allowance for doubtful accounts... $949 $115 $332 [1] $732
==== ===== === ====
<FN>
[1] Uncollectible accounts written off, net of recoveries.
EXHIBIT INDEX
Exhibit
No. Description
3B By-Laws of as revised to February 23, 1994
10F Deferred Compensation Plan for Directors, as amended
January 17, 1995
10L Restricted Stock Agreement -- Erroll B. Davis
10M Summary of Heartland Development Corporation Short-
Term Incentive Plan
21 Subsidiaries of the Company
23 Consent of Independent Public Accountants
27 Financial Data Schedule