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
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
incorporation or organization) Number)
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) or 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
Indicate by check mark whether the registrant (1) has filed all
reports required to be file 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 knowledged, 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. [ X ]
The aggregate market value of the voting stock held by
nonaffiliates of the registrant: $969,368,022 based upon the closing price
as of January 31, 1996, of 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, 1996
Common Stock, $.01 par value 30,773,588 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement relating to its 1996
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, 1995
TABLE OF CONTENTS
Part I. Business . . . . . . . . . . . . . . . . . . 1
Properties . . . . . . . . . . . . . . . . . 13
Legal Proceedings . . . . . . . . . . . . . . 14
Executive Officers . . . . . . . . . . . . . 16
Part II. Financial Information . . . . . . . . . . . . 17
Part III. Directors and Executive Officers
Information . . . . . . . . . . . . . . 57
Part IV. Exhibits . . . . . . . . . . . . . . . . . . 58
Signatures . . . . . . . . . . . . . . . . . . . . . . . 62
Report of Independent Public Accountants on Schedules . . 63
PART I
ITEM 1. BUSINESS
WPL Holdings, Inc. (referred to herein as the "Company" or "WPLH")
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 (WP&L) 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 WP&L and or HDC. See Item 8 - "Financial Statements and
Supplementary Data, Notes to Consolidated Financial Statements", Note 14,
for financial information related to the Company's business segments.
On November 10, 1995, the Company entered an agreement to merge with
IES Industries Inc. ("IES") of Cedar Rapids, Iowa, and Interstate Power
Company ("IPC") of Dubuque, Iowa, under a holding company that will be
known as Interstate Energy Corporation, headquartered in Madison,
Wisconsin. The merger is subject to the approval of the common
shareowners of all companies and various regulatory agencies. Interstate
Energy Corporation will be registered under the Public Utility Holding
Company Act of 1935, as amended. It is anticipated that WP&L will
continue to operate as a separate entity, headquartered in Madison, WI,
for a period of time following the merger. See Item 5. " Market for
Registrant's Common Equity and Related Stockholder Matters - Proposed
Merger" for additional information.
WP&L
WP&L, 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. WP&L also transports,
distributes and sells natural gas purchased from gas suppliers. Nearly
all of the WP&L's customers are located in south and central Wisconsin.
WP&L operates in municipalities pursuant to permits of indefinite duration
which are regulated by Wisconsin law. WP&L does not derive a material
portion of its revenues from any one customer.
WP&L owns all of the outstanding capital stock of South Beloit Water,
Gas and Electric Company ("South Beloit"), a public utility supplying
electric, gas and water service, principally in Winnebago County,
Illinois, which was incorporated on July 23, 1908.
WP&L also owns varying interests in several other subsidiaries and
investments which are not material to the Company's operations.
Regulation
WP&L 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. The PSCW is comprised of
three Commissioners appointed by the Governor and ratified by the State
Senate. WP&L is required to file a rate case with the PSCW every two
years with requests for rate relief based on a forward- looking test
year period. South Beloit is subject to regulation by the Illinois
Commerce Commission ("ICC") for retail utility rates and service,
accounts, issuance and use of proceeds of securities, certain additions
and extensions to facilities, and in other respects.
The PSCW's inquiries into the future structure of the natural gas and
electric utility industries are ongoing. The stated goal of the PSCW in
the natural gas docket is to move all gas supply activities out of the
existing regulated distribution utilities and allow independent units to
compete for the business. The goal of the electric utility restructuring
process is to create open access transmission and distribution services
for all customers with competitive generation and customer service
markets. Additional proceedings as well as consultation with the
legislature are planned prior to a target implementation date after the
year 2000.
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
WP&L and in certain other respects. Certain of WP&L's natural gas
facilities and operations are subject to the jurisdiction of the FERC
under the Natural Gas Act. WP&L 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 FERC is currently developing regulation which will begin to
provide open access to electric utility transmission facilities for
wholesale customers subject to certain approved FERC tariffs. WP&L
believes its existing open access tariffs position it well to compete
under such market conditions.
With respect to environmental matters impacting WP&L and its
subsidiaries, the United States Environmental Protection Agency
administers certain federal statutes and has delegated the administration
of other environmental initiatives 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.
WP&L 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 1995, WP&L employed 2,332 persons, of whom 1,872 were
considered electric utility employees, 319 were considered gas utility
employees and 141 were considered other utility employees. WP&L 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 1,601 of WP&L's employees. The Company entered
discussions concerning renegotiation of this contract in February 1996.
No assurance can be given regarding the outcome of these negotiations.
ELECTRIC OPERATIONS:
General
WP&L provides electricity in a service territory of approximately
16,000 square miles in 35 counties in southern and central Wisconsin and
four counties in northern Illinois. As of December 31, 1995, WP&L
provided retail electric service to approximately 377,000 customers in 610
cities, villages and towns, and wholesale service to 25 municipal
utilities, one privately owned utility, three rural electric cooperatives,
one American Indian nation and to the Wisconsin Public Power, Inc. system
for the provision of retail service to nine communities.
Electric operations represented 79.2 percent of WP&L's total
operating revenues and 87.8 percent of WP&L's total operating income for
the year ended December 31, 1995.
Electric sales are seasonal to some extent with the yearly peak
normally occurring in the summer months. WP&L also experiences a smaller
winter peak in December or January. The maximum net hourly peak load on
the electric system was 2,197 megawatts and occurred on July 31, 1995. A
new winter system peak of 1,913 megawatts occurred on December 11, 1995.
During the year ended December 31, 1995, about 82.1 percent of total
kilowatthour requirements were generated by company-owned and
jointly-owned facilities and the remaining 17.9 percent were purchased.
WP&L's electric generating facilities include: four coal-fired
generating stations (including nine units; four jointly owned), seven
natural-gas-fired peaking units, eight hydro-electric plants (two jointly
owned), one gas-fired steam generating plant and one nuclear power plant
(jointly owned). WP&L will have the ability to dispatch and include in
its reserve margin an 86 MW gas-fired peaking unit which will be
operational in 1996. Refer to Item 2. "Properties" for additional
information regarding electric generating facilities. WP&L owns
21,413 miles of electric transmission and distribution lines and 362
substations located adjacent to the communities served. WP&L is
interconnected with other utilities in Wisconsin and neighboring states
and is an associate member of the Mid-Continent Power Pool ("MAPP") and a
member of the Mid-America Interconnected Network, Inc. ("MAIN"). WP&L
officially notified the MAIN board of directors of its intentions to
withdraw from MAIN, effective December 31, 1997. WP&L believes that its
customers' financial interest will be better served by participation in a
regional organization that can reach consensus on transmission
restructuring issues. To date, MAIN has been unable to accomplish that
objective. Although WP&L would have until December 31, 1997, to join
another reliability region, WP&L is currently studying its options and
expects to make a final decision in 1996.
WP&L projects electric sales to grow at a rate of 2.4 percent
annually over the next five years. For a discussion regarding the
Company's future construction, capital requirements and financing, see the
"Liquidity and Capital Resources" section of Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Fuel
In 1995, approximately 81.1 percent of WP&L's net kilowatthour
generation of electricity was fueled by coal and 15.3 percent by nuclear
fuel (provided by WP&L's 41 percent ownership interest in Kewaunee. The
remaining electricity generated was produced by hydroelectric, oil-fired
and natural gas generation.
Coal
WP&L's primary fuel source is coal. To ensure an adequate supply of
coal, WP&L has entered into certain long-term coal contracts. These
contracts include a demand or take-or-pay clause under which payments are
required if contracted quantities are not purchased. Purchase obligations
on these coal and related rail contracts total approximately $168 million
through December 31, 2002. WP&L'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 $37 million in 1996, 1997, 1998, $30 million in 1999 and
$10 million in 2000. WP&L anticipates that its average fuel costs will
likely increase in the future, due to cost escalation provisions in
existing coal and transportation contracts. WP&L's management believes
that any increases in costs associated with these contracts will be
incorporated in future rates and as such will not have a material effect
on operating results.
The estimated coal requirements of WP&L's generating units (including
jointly-owned facilities) for the years 1996 through 2015 total about 168
million tons. Present coal supply contracts and transportation contracts
(excluding extension options) cover approximately 16 percent and 19
percent, respectively, of this estimated requirement. WP&L 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.
Purchased Power
During the year ended December 31, 1995, about 17.9 percent of WP&L's
total kilowatthour requirements were met through purchased power.
Nuclear
Kewaunee is jointly-owned by WP&L (41 percent), Wisconsin Public
Service Corporation (41.2 percent) and Madison Gas & Electric Company
(17.8 percent). Wisconsin Public Service Corporation ("WPSC") is the
operator. The plant began commercial operation in 1974.
WPSC is a member of the Institute of Nuclear Power ("INPO"). All
nuclear generating units in the U.S. belong to INPO and have made a
commitment to the standards of excellence promoted by this organization.
INPO was created by the nuclear utilities in the U.S. after the Three Mile
Island accident. INPO has negotiated with insurance carriers for lower
premiums for those utilities that meet the highest standards of excellence
and have attained a Category 1 rating. Kewaunee has attained this
Category 1 rating 5 times out of 6 ranking periods and has benefited with
reduced insurance premiums. The National Nuclear Accrediting Board
("NNAB") is a part of the INPO structure. The purpose of NNAB is to
monitor and accredit each utility's training program as established by
INPO standards. All ten accredited training programs at Kewaunee are
currently in good standing.
The supply of nuclear fuel for the Kewaunee plant is dependent upon
the mining and milling of uranium ore to uranium concentrates, the
conversion of uranium concentrates to uranium hexafluoride, the enrichment
of the uranium hexafluoride and the 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 300,000 pounds of uranium
concentrates per year follows:
(a) Requirements for uranium are met through spot market or contract
purchases of uranium. In general, a three-year supply of
uranium is maintained.
(b) Uranium hexafluoride, from inventory and from spot market
purchases, was used to satisfy converted material requirements
in 1995. Conversion services relating to uranium hexafluoride
are purchased on the spot market, as the available supply in
this market provides for attractive pricing.
(c) In 1995, enrichment services were not required. Future services
will be procured from COGEMA, Inc. pursuant to a contract last
amended in October 1995. Enrichment services are also purchased
from the United States Enrichment Corporation under the terms
of the utility services contract. This contract is in effect
for the life of Kewaunee. The Kewaunee owners over the next ten
years are committed to take 70 percent of their annual
enrichment services requirements in alternate years 1997, 1999,
2001, 2003, and 2005 from the United States Enrichment
Corporation.
(d) Fuel fabrication requirements through 2001 are covered by
contract with Siemens Power Corporation.
(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 currently expected to increase
slightly.
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 an
additional $15.7 million in current dollars over the next 12 years plus
an adjustment for inflation. WP&L's share including interest amounted to
an annual payment of approximately $537,000 in 1995.
The steam generator tubes at Kewaunee are susceptible to corrosion
characteristics seen throughout the nuclear industry. During the first
quarter of 1995, Kewaunee was shutdown for scheduled maintenance and
refueling. Inspection of the steam generators revealed increased levels
of tube degeneration. Prior to shutdown the equivalent of approximately
12 percent of the tubes in the steam generators were plugged, with no loss
of capacity. When the plant was returned to service in May 1995,
approximately 21 percent of the tubes were plugged resulting in an initial
capacity reduction of approximately 4 percent. Approximately half of
this lost capacity has been recovered through operating modifications.
The ultimate small reduction in capacity did not affect revenues or
earnings in 1995 because of operating and maintenance cost savings and
reserve capacity recovery efforts at Kewaunee. In addition, there was no
impact on the Company's bulk power sales due to the availability of
attractive purchased power opportunities.
As a result of the need to address the repair or replacement of the
steam generators, the owners of Kewaunee have been, and are continuing to,
evaluate various alternatives to deal with the degradation of the steam
generator tubes. As part of this evaluation the owners have:
(a) submitted a request to the NRC to redefine the pressure boundary
point of the repaired steam generator tubes (sleeved tubes)
which have been removed from service by plugging, in order to
allow the return of many of the sleeved tubes to service. If
the request is granted, even if additional degraded tubes would
be discovered during the next planned shutdown in the fall of
1996, the requested redefinition of the pressure boundary point
should allow the plant to return to full output. Testing of
three tubes removed during the 1995 refueling outage indicates
structural soundness equal to the original tube strength.
Management believes the request will be granted by the NRC;
(b) requested approval from the NRC to pursue welded repair
technologies to return plugged tubes to service. Although
welded tube repair technologies exist, the technology is not
presently approved by the NRC; and
(c) continued to evaluate the economics of replacement of the steam
generators. The replacement of steam generators is estimated to
cost approximately $100 million, exclusive of additional
purchased power costs associated with an extended shutdown.
In the event none of the above alternatives is pursued (for failure
to obtain NRC approval or otherwise), the owners would continue to
evaluate the potential financial and regulatory implications of a change
in ownership (which would likely require as a condition precedent,
authority to replace the steam generator) or early shutdown of Kewaunee.
WP&L believes that the best near term economic alternative for the owners
of Kewaunee is to continue to pursue tube recovery and repair processes.
WP&L will reassess its views of available alternatives based on the
condition of steam generator tubes during the fall 1996 refueling outage.
If early shutdown is pursued, WP&L anticipates that it would receive full
recovery in rates of its undepreciated plant balance and decommissioning
expense. On December 31, 1995, the net book value of WP&L's share of
Kewaunee was $57.0 million.
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. The
undiscounted amount of decommissioning costs estimated to be expended
between the years 2014 and 2050 is $1,016 million. Wisconsin utilities
operating nuclear generating plants are required by the PSCW to establish
external trust funds to provide for the decommissioning of such plants.
WP&L's share of the decommissioning costs is estimated to be $169 million
(in 1995 dollars, assuming the plant is operating through 2013) based on a
1992 site-specific study, using the immediate dismantlement method of
decommissioning. WP&L's annual contribution to the external trust fund
for decommissioning was $10.7 million in 1995 and is expected to be $10.7
million in 1996. The market value of the investments in the funds
established by WP&L at December 31, 1995, totaled $73.4 million.
Additionally, in July 1994, the PSCW issued a generic order covering
utilities that have nuclear generation. This order standardizes the
escalation assumption to be used in determining nuclear decommissioning
liabilities. 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.
Pursuant to the Nuclear Waste Policy Act of 1982, the DOE has entered
into a contract with WP&L 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 Kewaunee. 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. Kewaunee is currently
evaluating options for the storage of additional quantities beyond 2001.
Several technologies are available. An investment of approximately $2.5
million could provide additional storage sufficient to meet on-site spent
fuel storage needs until 2013, the expiration of the current operating
license.
The Low-Level Radioactive Waste Policy Act of 1980, as amended,
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. Ohio has been selected as
the host state for the Midwest Compact and is proceeding with the
preliminary phases of site selection. In July 1995, the Branwell, South
Carolina disposal facility again began accepting waste materials from
outside its region. The Kewaunee owners expect to have sufficient storage
space either on site or through shipments to Branwell to satisfy low
level radioactive waste disposal needs until the Ohio facility accepts low
level radioactive waste materials.
Recovery of Electric Fuel Costs
In WP&L's most recent rate case, the PSCW approved elimination of the
retail electric fuel adjustment clause for a two year trial period, 1995-
1996. For this period, retail rates will remain unchanged even if fuel
costs vary from forecasted levels established in the rate proceeding.
WP&L'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.
Environmental Matters
WP&L 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, 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. WP&L 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. WP&L
currently has the necessary permits to operate its fossil-fueled
generating facilities. While periodic exceedances in air emissions may
occur, management promptly responds to these events and works with the DNR
to resolve any permit compliance issues. With the passage of the new
federal Clean Air Act Amendments, the state is required to include these
provisions into their permit requirements. WP&L has submitted timely
Title V permit applications in compliance with schedules set forth by the
regulators. WP&L has also completed application for Phase II permits
under the Clean Air Act in compliance with the time lines identified. The
state Title V operating permits, when issued, will consolidate all
existing air permit conditions and regulatory requirements into one permit
for each facility. Permits are expected to be issued in 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, WP&L has
submitted data and plans for 1996 sulfur dioxide emissions compliance.
Actual 1995 emissions were reported to the DNR. WP&L is currently in
compliance with the state requirement. WP&L will continue to 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.
WP&L's compliance strategy for Wisconsin's sulfur dioxide law
(discussed above) and the Federal Clean Air Act Amendments required plant
upgrades at its generating facilities. The majority of these projects
were completed in 1993. WP&L 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 WP&L's South Fond du Lac combustion
turbine site. These requirements were also met. Additional monitoring
systems for nitrogen oxides are required in 1996 at the combustion turbine
site. WP&L has installed these monitors, and will complete certification
tests for the equipment by May 1996. 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, WP&L has
submitted a facility response plan for the South Fond du Lac combustion
turbine site. The plan addresses pollution prevention and spill response
activities for those facilities with capacity to store in excess of one
million gallons of oil.
WP&L maintains licenses for all of 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. WP&L monitors hazardous materials use and
hazardous waste generation at its facilities. Annual reports are filed
with the DNR on quantities stored and generated as required by the
Superfund Amendments and Reauthorizaton Act and the Resource Conservation
Recovery Act.
WP&L's accumulated pollution abatement expenditures adjusted for
accumulated retirements totalled $132.7 million as of December 31, 1995.
The major expenditures consist of about $60 million for the installation
of electrostatic precipitators for the purpose of reducing particulate
emissions from WP&L'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 1995 totalled approximately $.5 million. Estimated
future pollution abatement expenditures total $3.7 million through 1997.
WP&L'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 - Nuclear" for information concerning the
disposal of spent nuclear fuel and high level nuclear waste.
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED ELECTRIC STATISTICS
Year Ended December 31,
1995 1994 1993 1992 1991
Area served (end of period):
Population--retail
(estimated)(a) . . . . . . 826,000 822,000 818,000 807,000 799,000
Cities, villages and towns
served --retail . . . . . . 610 607 609 611 611
Customers served (end of
period):
Residential and Farm . . . . 329,643 322,924 316,870 310,702 304,825
Industrial . . . . . . . . . 795 776 714 727 679
Commercial . . . . . . . . . 44,730 43,793 42,884 42,287 41,190
Wholesale and Class A . . . . 48 42 39 39 41
Other . . . . . . . . . . . . 1,294 1,256 1,236 950 1,173
------- ------- ------- ------- -------
Total . . . . . . . . . . . 376,510 368,791 361,743 354,705 347,908
======= ======= ======= ======= =======
Sales--kilowatt-hours (in
thousands):
Residential and Farm . . . . 2,937,825 2,776,895 2,751,363 2,614,439 2,729,917
Industrial . . . . . . . . . 3,872,520 3,764,953 3,540,082 3,377,132 3,185,101
Commercial . . . . . . . . . 1,773,406 1,688,349 1,629,911 1,551,823 1,558,297
Wholesale and Class A . . . . 3,109,385 2,574,121 2,388,131 2,208,419 2,441,189
Other . . . . . . . . . . . . 54,042 54,518 51,073 55,230 54,376
--------- --------- --------- --------- ---------
Total . . . . . . . . . . . 11,747,178 10,858,836 10,360,560 9,807,043 9,968,880
========== ========== ========== ========= =========
Electric operating revenues (in
thousands):
Residential and Farm . . . . $199,850 $194,242 $184,176 $171,887 $179,751
Industrial . . . . . . . . . 140,562 140,487 132,903 128,467 124,212
Commercial . . . . . . . . . 102,129 101,382 95,977 91,707 92,628
Wholesale and Class A . . . . 97,350 86,400 78,955 77,485 82,831
Other . . . . . . . . . . . . 6,433 9,236 11,176 8,189 9,130
-------- -------- -------- -------- --------
Total . . . . . . . . . . . $546,324 $531,747 $503,187 $477,735 $488,552
======= ======= ======= ======= =======
Percent of generation by fuel
type:
Coal . . . . . . . . . . . . 81.1% 80.4% 80.3% 79.8% 81.1%
Nuclear . . . . . . . . . . . 15.3% 16.8% 16.5% 17.4% 15.7%
Hydroelectric . . . . . . . . 2.2% 2.4% 2.9% 2.6% 2.6%
Natural gas . . . . . . . . . 1.3% 0.3% 0.2% 0.1% 0.5%
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) . . . . . . 2,176,000 2,193,000 2,019,000 1,934,000 1,932,000
Firm purchased (sold) power . 57,000 40,000 83,000 110,000 70,000
--------- --------- --------- --------- ---------
Total . . . . . . . . . . . 2,233,000 2,233,000 2,102,000 2,044,000 2,002,000
System peak demand . . . . . 2,197,000 2,002,000 1,971,000 1,782,000 1,863,000
--------- --------- --------- --------- ---------
Reserve margin at time of
peak . . . . . . . . . . . 36,000 231,000 131,000 262,000 139,000
======= ======== ======== ========= ========
Average annual electric bill
per residential and farm
customer . . . . . . . . . . $613 $607 $587 $558 $594
Average annual kilowatt-hour
use per residential and farm
customer . . . . . . . . . . 9,005 8,662 8,772 8,492 9,015
<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, 1995, WP&L provided retail natural gas service to
approximately 146,000 customers in 242 cities, villages and towns in
22 counties in southern and central Wisconsin and one county in northern
Illinois. Gas operations represented 20.2 percent of WP&L's total
operating revenues and 11.1 percent of WP&L's total operating income for
the year ended December 31, 1995.
WP&L's gas sales follow a seasonal pattern. There is an annual base
load of gas used for heating, cooking, water heating and other purposes,
with a large peak occurring during the heating season. WP&L set a new
record for natural gas peak-demand of 258,000 dekatherms on January 30-31,
1996. The previous record of 256,000 dekatherms was set on January 14-
15, 1995.
Gas Supplies
Prior to 1995, WP&L passed on its cost incurred from natural gas
suppliers and pipeline companies on a dollar-for-dollar basis to its
customers. In 1995, the PSCW approved implementation of a performance-
based rate mechanism for Wisconsin gas customers. Under this mechanism,
fluctuations in the commodity cost of gas above or below a prescribed
commodity price index will increase or decrease WP&L's margin on gas
sales. Both benefits and exposures are subject to customer sharing
provisions. Specifically, to the extent WP&L purchases its gas supply
below the index price, it will retain 50 percent of the first $1.151
million in savings; 25 percent of the next $1.151 million; and 10 percent
of the next $2.878 million. WP&L's share of the incentive is capped at
$1.1 million on a pre-tax basis. The balance of the savings is returned
to customers.
During 1995, WP&L paid the two pipeline companies serving WP&L (ANR
Pipeline and Northern Natural Gas Company) $2.6 million in Order 636
transition costs representing costs incurred by these pipelines in
transitioning from full service natural gas commodity providers to open
access gas transmission companies. In addition, WP&L incurred $.8 million
of take-or-pay costs paid to pipelines to reform its gas contracts from
the pre-Order 636 time period. Both categories of costs were fully
recovered from WP&L's gas customers.
Customers served under South Beloit's gas rate schedules continue to
pay for gas on a traditional purchase gas adjustment basis.
In providing gas commodity service to retail gas customers, WP&L
administers a diversified portfolio of transportation contracts with ANR
Pipeline and Northern Natural Gas Company allowing access to gas supplies
from the states of Oklahoma, Louisiana, Texas, and the province of
Alberta, Canada. WP&L's transportation contracts provide a maximum daily
delivery capability of 234,081 dekatherms per day of natural gas as
follows:
ANR Pipeline Northern Natural Gas Company Non-Traditional
148,075 Dt 73,556 Dt 12,450 Dt
Two non-traditional arrangements provide WP&L with gas delivered
directly to its"city gate" using the vendors' transportation contract with
ANR Pipeline.
WP&L's contracts also allow access to gas stored in underground
storage fields in the states of Michigan, New Mexico and Oklahoma. Gas
purchased in the summer and delivered in the winter comprise 25 percent of
WP&L's annual gas requirements.
WP&L maintains purchase agreements with over 60 suppliers of natural
gas from all gas producing regions of the U.S. and Canada. These include
9 contracts providing for long-term gas deliveries (i.e., with terms
ranging from 6 months to 10 years). These contracts provided 42 percent
of WP&L's annual gas purchases in 1995. In addition to its direct
purchase and sales of natural gas, WP&L provided transportation service to
154 customers who purchased their own gas, pursuant to WP&L's
transportation tariffs. These customers represent 30 percent of total
gas moved through WP&L's natural gas distribution pipe.
Manufactured Gas Plant Sites
Historically, WP&L has owned 11 properties that have been associated
with the production of manufactured gas. Currently, WP&L owns five of
these sites, three are owned by municipalities, and the remaining three
are owned by private companies. In 1989, WP&L initiated environmental
investigations of these manufactured gas plant sites. The DNR has been
involved in reviewing investigation plans and has received ongoing reports
regarding these investigations.
Through ongoing investigation and studies, WP&L confirmed that there
was no contamination at two of the sites and has now received a close out
letter from the DNR related to each of those sites. Additionally, the
investigation of historical records at a third site indicated a minimal
likelihood of any significant environmental impacts. In 1995, WP&L
requested and received a close out letter for the third site.
In February 1993, WP&L completed cost estimates for the environmental
remediation of the eight remaining sites. The results of this analysis
indicate that, during the next 32 years, WP&L will expend approximately
$77 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 the 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, WP&L estimates that it will
incur average annual costs of $2 million to complete the planned
groundwater remediation activities.
Through 1995, 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. 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. 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.
See "Item 3. Legal Proceedings" for information related to the
manufactured gas plant sites.
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED GAS STATISTICS
Year Ended December 31,
1995 1994 1993 1992 1991
Area served (end of period):
Population -- retail
(estimated) (a) . . . . . 408,000 399,000 391,000 377,000 375,000
Cities, villages and towns
served -- retail . . . . 242 239 217 194 199
Customers served (end of
period):
Residential and Farm . . . 129,576 124,938 120,829 116,642 113,475
Firm . . . . . . . . . . . 15,976 15,531 15,088 14,656 14,291
Interruptible . . . . . . . 257 272 261 262 215
Transport. and Other . . . 284 240 85 109 46
------- ------- ------- ------- ------
Total . . . . . . . . . . 146,093 140,981 136,263 131,669 128,027
======= ======= ======= ======= =======
Sales - Therms (in thousands)
(b):
Residential and Farm . . . 126,903 119,562 120,005 114,131 114,772
Firm . . . . . . . . . . . 91,316 87,487 87,038 82,087 83,451
Interruptible . . . . . . . 12,148 24,809 27,872 25,497 26,025
Tranport. and Other . . . . 169,121 142,252 84,877 71,167 66,531
------- ------- ------- ------- -------
Total . . . . . . . . . . 399,488 374,110 319,792 292,882 290,779
======= ======= ======= ======= =======
Gas operating revenues (in
thousands):
Residential and Farm . . . $70,382 $71,555 $71,632 $63,699 $63,521
Firm . . . . . . . . . . . 39,456 41,918 40,748 37,154 36,407
Interruptible . . . . . . . 3,708 8,777 11,247 14,589 12,051
Transport. and Other . . . 25,619 29,681 13,643 3,920 5,796
------- ------- ------- ------- -------
Total . . . . . . . . . . $139,165 $151,931 $137,270 $119,362 $117,775
======= ======= ======= ======= =======
Average annual residential
heating use -- therms . . . 971 1,022 1,052 1,029 1,069
Average annual gas bill per
residential heating
customer . . . . . . . . . $556 $613 $631 $573 $590
<FN>
(a) The estimated population for towns served jointly with other gas utilities has been based
upon a ratio of 2.8 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.
HDC
Incorporated in 1988, HDC is the parent company of all nonutility
businesses. HDC and its principal subsidiaries are engaged in business
development in three major areas: (1) environmental and engineering
services; (2) affordable housing; and (3) energy services.
At year-end 1995, HDC employed 1,224 persons: 815 in the area of
environmental engineering and consulting, 73 in the area of affordable
housing, 327 in the area of energy services, and 9 at the HDC level.
ENVIRONMENTAL ENGINEERING AND CONSULTING:
WP&L acquired RMT, Inc. ("RMT") in 1983, and it subsequently became
a wholly-owned subsidiary of HDC in 1988. In 1992, HDC transferred its
ownership in RMT to Heartland Environmental Holding Company ("HEHC"), a
wholly-owned subsidiary of HDC and the parent company for HDC's
environmental and engineering services activities. RMT is a Madison,
Wisconsin based environmental engineering and consulting company that
serves clients nationwide in a variety of industrial segment markets. The
most significant of these markets are chemical companies, pulp and paper
processors, foundries and other manufacturers. RMT specializes in solid
and hazardous waste management, ground water quality protection,
industrial design and hygiene engineering, air and water pollution
control, and laboratory services.
In 1993, HEHC acquired Jones & Neuse (J&N) based in Austin Texas.
J&N had several U.S. offices and a Mexican subsidiary (ABC Estudious y
Projectos). During 1995, two divisions of J&N, Fugitive Emissions and
Geotech, were sold and the operations at the Mexican subsidiary referred
to above were suspended.
In addition to J&N, HEHC acquired Hydroscience, Inc. and Four
Nines, Inc. in 1993. In 1994, HEHC acquired Braithwaite Consultants, Inc.
located in Ann Arbor, Michigan. These entities were merged into RMT in
1994.
The provision of environmental and engineering services contributed
11.0 percent of consolidated revenues in each of the years ended December
31, 1995, 1994 and 1993. No other nonutility business contributed 10
percent or more of the Company's consolidated revenues during that three-
year period.
AFFORDABLE HOUSING:
Formed by HDC in 1988, Heartland Properties, Inc. ("HPI") is
responsible for the acquisition, development, financing and syndication
of a $250 million portfolio of high-quality affordable housing
developments in Wisconsin and the Midwest. HPI has a majority ownership
interest in 59 of these properties. As of December 31, 1995, HPI's
investment in affordable housing properties was $102 million, net of
depreciation.
To facilitate HPI's development and financing efforts in the
affordable housing market, HDC incorporated Capital Square Financial
Corporation in 1992 to provide mortgage banking services, and Heartland
Capital Company LLC in 1994 to provide construction financing services.
Heartland Retirement Services ("HRS"), organized in 1993, provides
a comprehensive range of housing products for older adults. In January
1996, an agreement was signed to sell this business unit.
ENERGY SERVICES:
Heartland Energy Group, Inc ("HEG") was formed in 1995 as the
parent company for HDC's energy services businesses. The two most
significant components of HEG as of December 31, 1995, were Heartland
Energy Services, Inc. ("HES") and ENSERV, Inc.
HES, formed in 1993, provides energy supplies to industrial and
wholesale customers. Since March 1994, HES has been actively involved in
the buying and selling of natural gas, providing gas supply as well as
complete fuel management services. HES received federal marketing
authority for electricity in September 1994, and operates an energy
scheduling and coordination center which buys and sells electricity
throughout the United States. The initial electric transaction was made
in June 1995.
ENSERV offers turnkey project development and implementation for
customer energy supply initiatives. Services include project feasibility,
engineering, financing, and management.
Entec Consulting, Inc., is a Madison, Wisconsin based firm that
provides full service consulting to the utility industry for power
generation computer software programs.
DISCONTINUED OPERATIONS:
In December 1995, HDC committed to plans for the disposition of the
primary operations of A&C Enercom Consultants, Inc. ("A&C"), which was
acquired by HDC in 1993. A&C, a utility services company, based in
Atlanta, Georgia, provides a variety of energy consulting services
including marketing and demand side management. The sale of the assets of
these operations in a cash transaction was completed in January 1996.
ITEM 2. PROPERTIES
WP&L
The following table gives information with respect to electric
generating facilities of WP&L (including WP&L's portion of those
facilities jointly-owned).
1995 Summer
Capability Ownership
Type/ WP&L Portion Interest in
Location Name Fuel In Kilowatts Facility
Steam
Beloit, WI Blackhawk Natural Gas 54,500 100%
Janesville, WI Rock River Coal 156,000 100%
Cassville, WI Nelson Dewey Coal 226,000 100%
Sheboygan, WI Edgewater #3 Coal 74,000 100%
Sheboygan, WI Edgewater #4 Coal 224,370 68.2%
Sheboygan, WI Edgewater #5 Coal 301,500 75.0%
Kewaunee, WI Kewaunee Nuclear 212,700 41%
Portage, WI Columbia Energy Coal 485,100 46.2%
Center
Hydro
Wisconsin Dells, WI Kilbourn Hydro 9,500 100%
Prairie du Sac, WI Prairie du Sac Hydro 30,000 100%
Wisconsin River, Power Co. Petenwell/ Hydro 13,300 33%
Castle Rock
4 small units at
various locations Hydro 2,050 100%
Combustion Turbine
Janesville, WI Rock River Natural
or Oil 135,200 100%
Fond du Lac, WI South Fond du Lac Natural Gas
Unit 2 and 3 or Oil 169,700 100%
Edgerton, WI Sheepskin Natural Gas
or Oil 36,700 100%
---------
Total 2,130,620
=========
WP&L owns 21,413 miles of electric transmission and distribution lines and
362 substations located adjacent to the communities served. Substantially
all of WP&L's facilities are subject to the lien of its first mortgage
bond indenture.
HDC
The following table gives information as of December 31, 1995
with respect to rental properties associated with HDC's affordable housing
project developments, through its HPI subsidiary.
Location Housing Development Resident Type
Property:
Antigo, I The Depot Families
Appleton, WI Lincoln Mills Families/Elderly
Appelton, WI Ravine Mills Families/Elderly
Appelton, WI The Mills II Families/Elderly
Beloit, WI Beloit Water Tower Place Families
Chisholm, MN Lincoln Square Families
DePere, WI Lawton Foundry Families
Madison, WI The Avenue Disabled/Families
Marinett, WI Dunlap Square Families/Elderly
Marshfield, WI The Woodlands Families/Elderly
Mc Farland, WI The Cottages Families/Elderly
Sheboygan Falls, WI Brickner Woolen Mills Families/Elderly
Sheboygan, WI Jung Apartments Families
Sheboygan, WI Sunnyside Townhouses Families
Sun Prairie, WI Vandenburg Heights Families
Verona, WI Sugar Creek Senior
Housing Elderly
Madison, WI YWCA Women & Homeless
Various Other Families, Elderly,
Singles, Disabled
& Homeless
Occupancy rates in the 59 properties/investments owned by HPI
averaged 92.7 percent during 1995.
HPI also maintains our equity ownership in development properties
where the majority interest was subsequently sold to outside investors.
This equity ownership is not considered material in relation to the
Company's consolidated financial statements.
ITEM 3. LEGAL PROCEEDINGS
On July 20, 1995, the City of Beloit ("Beloit") filed a suit against
WP&L in the Circuit Court of Rock County, Wisconsin alleging that, based
on negligence, nuisance and trespass, WP&L caused damage to Beloit through
the contamination of property owned by Beloit as a result of the
historical operation of manufactured gas plants on the property prior to
Beloit's acquisition of the property. The suit seeks damages equal to the
cost of cleaning up the property, for decrease in the value of the
property, and to compensate Beloit for lost development opportunities for
the property as well as consequential damages and costs of the action.
Beloit and WP&L entered into a Stipulation upon which the Court
issued an Order staying further proceedings in the action pending further
environmental investigation of the property and pending WP&L's
determination of the extent of liability insurance coverage for the
claims.
In management's judgement, the probability is remote that this action
will have a material adverse impact on the Company's financial condition.
ENVIRONMENTAL MATTERS
The information required by Item 3 is included in this Form 10-K as
Item 8 - Notes to Consolidated Financial Statements, Note 11c,
incorporated herein by reference.
RATE MATTERS
The information required by Item 3 is included in Item 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 (a)
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 (b) Date Year ($ Millions) ($ Millions) Equity Equity Effective
WP&L Retail
(PSCW)
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)
6680-UR-108 e,g,w 01-04-93 1993-94 24.5 17.7 13.10 12.40 01-01-93
6680-UR-109 e,g,w 02-01-94 1995-96 3.8 (11.6) 12.60 11.60 10-01-93
12.20 11.50 01-01-95
WP&L Wholesale
(FERC)
ER87-554 e 07-31-87 1987-88 (1.2) (.9) 13.00 (c) 01-01-88
ER93 e 05-28-93 1993-94 2.0 2.0 11.00 (c) 10-01-93
South Beloit
(ICC)
85-0505 e,w 11-08-85 1985-86 1.4 (d) .9 15.00 13.80 09-27-86
<FN>
(a) See "Item 3. Legal Proceedings" for additional information concerning
rate matters.
(b) e-electric, g-gas, w-water.
(c) Return on equity was not specified in the negotiated settlement
agreement.
(d) On May 7, 1986 South Beloit Water, Gas and Electric Co. adjusted the
increase requested downward to $1.1 million.
On November 6, 1995, WP&L filed the 1994 Depreciation Study (Docket
6680-DU-102) with the PSCW. The study is presently under review. It is
anticipated that the study will result in a $4 to $8 million pre-tax
increase in depreciation expense effective in 1997. The revised
depreciation rates are expected to be fully recoverable in WP&L's next
retail rate order which is scheduled to be effective on January 1, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Erroll B. Davis, Jr, 51, was elected President on January 17, 1990
and Chief Executive Officer effective July 1, 1990. He has served as
President and Chief Executive Officer of WP&L since August 1, 1988. He
has served as a director of WPL Holdings, Inc. 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
the Company, he held several management positions with Bucyrus Erie
Company, Milwaukee, Wisconsin.
Edward M. Gleason, 55, was elected Corporate Secretary of the Company
and WP&L on December 15, 1993. He was elected Vice President and
Treasurer of the Company effective October 3, 1993. He previously served
as Vice President-Finance and Treasurer of WP&L since May 1986. Mr.
Gleason functions as the principal financial officer of the Company.
William D. Harvey, 46, was appointed Senior Vice President of WP&L
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 WP&L, he was a member of the law firm of
Wheeler, Van Sickle, Anderson, Norman and Harvey.
Eliot G. Protsch, 42, was appointed Senior Vice President of WP&L
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, 44, was appointed Senior Vice President of WP&L
effective October 3, 1993. He previously served as Vice President -
Marketing and Strategic Planning since December 1992, Vice President -
Marketing and Communications 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, 37, was appointed Vice-President of Finance,
Controller and Treasurer of WP&L in December 1994. He previously served
as Controller and Treasurer of WP&L since October 3, 1993. He served as
Controller since July 1992. Prior to joining the Company, he was
Controller of Central Vermont Public Service Corporation since 1988. Mr.
Doyle functions as principal accounting officer of the Company.
Steve F. Price, 43, was appointed Assistant Corporate Secretary and
Assistant Treasurer on April 15, 1992. He had been Cash Management
Supervisor of WP&L since December 1987. He was also appointed Assistant
Corporate Secretary of WP&L on April 15, 1992.
NOTE: All ages are as of December 31, 1995. None of the executive
officers listed above is related to any member of the Board of
Directors 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:
1995 1994
Quarter High Low Dividend High Low Dividend
First $31 $27 1/4 0.485 $32 7/8 $27 3/4 $0.48
Second 30 27 1/2 0.485 30 3/4 26 3/8 0.48
Third 29 3/8 27 1/2 0.485 29 7/8 27 0.48
Fourth 31 3/4 29 1/4 0.485 28 7/8 26 7/8 0.48
------- ------- ----- ------ ------- ----
Year $31 3/4 $27 1/4 $ 1.94 $32 7/8 $26 3/8 $1.92
======= ======= ===== ====== ======= ====
Stock price at December 31, 1995: 30 5/8
At December 31, 1995, there were approximately 36,052 holders of
record of the Company's Stock including underlying holders in the
Company's Dividend Reinvestment and Stock Purchase Plan.
In accordance with the terms of the Merger Agreement (see "Proposed
Merger", below), the Company is not permitted to declare or pay any
dividends on any of its capital stock other than the obligations that
exist with respect to WP&L's cumulative preferred stock, and regular
quarterly dividends on the Company's common stock may not exceed 105
percent of the common stock dividends from the prior year.
In the retail rate order effective January 1, 1995, the PSCW ordered
that no dividend payment in excess of the level forecasted for 1995 ($58.1
million) may be paid, if such dividend payments would reduce WP&L's
average common equity ratio below the test year forecasted level of 51.93
percent.
Proposed Merger
The Company, IES Industries Inc. ("IES"), and Interstate Power
Company ("IPC") have entered into an Agreement and Plan of Merger ("Merger
Agreement"), dated November 10, 1995, providing for: a) IPC becoming a
wholly-owned subsidiary of the Company, and b) the merger of IES with and
into the Company, which merger will result in the combination of IES and
the Company as a single holding company (collectively, the "Proposed
Merger"). The new holding company will be named Interstate Energy
Corporation ("Interstate Energy"). The Proposed Merger, which will be
accounted for as a pooling of interests, has been approved by the
respective Boards of Directors. It is still subject to approval by the
shareholders of each company as well as several federal and state
regulatory agencies. The companies expect to receive the shareholder
approvals in the second quarter of 1996 and the regulatory approvals by
the second quarter of 1997.
The operating revenues, net income from continuing operations and
total assets of the companies were as follows:
PRO FORMA
COMBINED
WPLH IES IPC (Unaudited)
(in thousands)
1995 Operating revenues $807,255 $851,010 $318,542 $1,976,807
1995 Income from $71,618 $64,176 $25,198 $160,992
continuing operations
Assets at December 31, $1,872,414 $1,985,591 $634,316 $4,492,321
1995
Under the terms of the Merger Agreement, the outstanding shares of the
Company's common stock will remain unchanged and outstanding as shares of
Interstate Energy. Each outstanding share of IES common stock will be
converted to .98 shares of Interstate Energy's common stock. Each share
of IPC's common stock will be converted to 1.11 shares of Interstate
Energy's common stock. It is anticipated that Interstate Energy will
retain the Company's common share dividend payment level as of the
effective time of the merger. On January 24, 1996, the Board of Directors
of the Company declared a quarterly dividend of 49.25 cents per share.
This represents an annual rate of $1.97 per share.
IES is a holding company headquartered in Cedar Rapids, Iowa, and is
the parent company of IES Utilities Inc. ("IES Utilities") and IES
Diversified Inc. ("IES Diversified"). IES Utilities supplies electric and
gas service to approximately 333,000 and 174,000 customers, respectively,
in Iowa. IES Diversified and its principal subsidiaries are primarily
engaged in the energy-related, transportation and real estate development
businesses. IPC, an operating public utility headquartered in Dubuque,
Iowa, supplies electric and gas service to approximately 163,000 and
49,000 customers, respectively, in northeast Iowa, northwest Illinois and
southern Minnesota.
Interstate Energy will be the parent company of WP&L, IES Utilities
and IPC and will be registered under the Public Utility Holding Company
Act of 1935, as amended, ("1935 Act"). The Merger Agreement provides
that these operating utility companies will continue to operate as
separate entities for a minimum of three years after the effective date of
the merger. In addition, the non-utility operations of the Company and
IES Diversified will be combined shortly after the effective date of the
merger under one entity to manage the diversified operations of Interstate
Energy. The corporate headquarters of Interstate Energy will be in
Madison, Wisconsin.
The Securities and Exchange Commission ("SEC") historically has
interpreted the 1935 Act to preclude registered holding companies, with
limited exceptions, from owning both electric and gas utility systems.
Although the SEC has recently recommended that registered holding
companies be allowed to hold both gas and electric utility operations if
the affected states agree, it remains possible that the SEC may require as
a condition to its approval of the Proposed Merger that the Company, IES
and IPC divest their gas utility properties, and possibly certain non-
utility ventures of the Company and IES, within a reasonable time after
the effective date of the Proposed Merger.
ITEMS 6 AND 7. SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
(in millions, except per share data)
Operating revenues . . . . . $807 $796 $739 $673 $670
Income from continuing
operations . . . . . . . . . $72 $66 $64 $58 $66
Per share . . . . . . . $2.33 $2.17 $2.15 $2.10 $2.42
Discontinued operations . . . $(13) $(1) $(1) --- ---
Per share . . . . . . $(0.43) $(0.04) $(0.04) --- ---
Net income available for
common stockholders . . . . $58 $65 $63 $58 $66
Per share . . . . . . . $1.90 $2.13 $2.11 $2.10 $2.42
Cash dividends paid per share $1.94 $1.92 $1.90 $1.86 $1.80
Total assets (at December 31) $1,872 $1,806 $1,762 $1,566 $1,383
Long-term debt, net (at
December 31) . . . . . . . . $430 $448 $425 $418 $367
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
OVERVIEW
Earnings per share of WPL Holdings, Inc. (the "Company") common stock
decreased to $1.90 in 1995 from $2.13 in 1994 reflecting the 43-cent
impact of discontinued operations arising from the sale of A&C Enercom
Consultants, Inc., which is discussed in the "Other Events" section of
the Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A"). Consolidated income per share from
continuing operations increased to $2.33 in 1995 as compared to $2.17 in
1994, after reflecting a restatement of the prior year for discontinued
operations.
The 16-cent increase per share from continuing operations reflects the
impact of two non-recurring items in 1994 as well as higher earnings in
1995 at the Company's utility subsidiary, Wisconsin Power and Light
Company ("WP&L"). The higher earnings at the utility subsidiary were
primarily the result of higher electric and gas margins (see "Electric
Operations and Gas Operations" section of the MD&A), and aggressive cost
management.
The two non-recurring items affecting net income for 1994 were the
reversal of a coal contract penalty and costs associated with early
retirement and severance programs. The coal contract item is discussed in
the "Other Events" section of the MD&A. The following break out presents
the recurring aspects of 1995 and 1994 operations.
1995 1994
Earnings per share, as reported $1.90 $2.13
Per share impact of discontinued
operations 0.43 0.04
----- -----
Earnings per share from continuing
operations 2.33 2.17
Non-recurring items
Coal contract penalty reversal --- (0.16)
Early retirement and severance
costs --- 0.27
------ ------
Earnings per share from continuing
operations before non-recurring
items $2.33 $2.28
====== ======
Heartland Development Corporation, ("HDC"), parent company of the
Company's non-regulated operations, reported a loss from continuing
operations of $1.5 million in 1995 and a gain of $0.1 million in 1994.
The decline in earnings is primarily the result of higher interest expense
and new business development costs.
Electric Operations
Revenues and Costs % kWhs Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Year Change
1995 1994 1995 1994 1995 1994
Residential and Farm $199,850 $194,242 3% 2,937,825 2,776,895 6% 329,643 322,924 2%
Industrial 140,562 140,487 0% 3,872,520 3,764,953 3% 795 776 2%
Commercial 102,129 101,382 1% 1,773,406 1,688,349 5% 44,730 43,793 2%
Wholesale and Class A 97,350 86,400 13% 3,109,385 2,574,121 21% 48 42 14%
Other 6,433 9,236 (30%) 54,042 54,518 (1%) 1,294 1,256 3%
------- ------- ------- ------- ------ ------
Total 546,324 531,747 3% 11,747,178 10,858,836 8% 376,510 368,791 2%
======= ======= === ========== ========== === ======= ======= ===
Electric Production
Fuels 116,488 123,469 (6%)
Purchased Power 44,015 37,913 16%
------- ------- ---
Margin $385,821 $370,365 4%
======== ======== ===
Electric margin increased 4 percent during 1995 compared with 1994
primarily due to higher sales combined with reduced aggregate costs per
kWh for electric production fuels and purchased power. Kilowatthour sales
increased 8 percent due to a much warmer summer than normal, increased
sales to other utilities, a 2 percent growth in customers, and continued
economic strength in the service territory. Partially offsetting these
sales increases was a 2.8 percent decrease in retail electric rates
effective January 1, 1995.
A record setting heat wave resulted in WP&L setting a system peak of
2,197 megawatts on July 31, 1995. This reflects a 9.7 percent increase
over the previous record system peak of 2,002 megawatts set in 1994.
While overall kWh sales increased, the aggregate costs of electric
production fuels and purchased power remained relatively unchanged. The
stability of these costs reflects lower coal and transportation costs at
WP&L's generating units in 1995 as well as the availability of attractive
purchased power opportunities in the bulk power market.
Gas Operations
Revenues and Costs Therms Sold Customers at
(In Thousands) % Change (In Thousands) % Change End of Year % Change
1995 1994 1995 1994 1995 1994
Residential and Farm $70,382 $71,555 (2%) 126,903 119,562 6% 129,576 124,938 4%
Firm 39,456 41,918 (6%) 91,316 87,487 4% 15,976 15,531 3%
Interruptible 3,708 8,777 (58%) 12,148 24,809 (51%) 257 272 (6%)
Transport. and Other 25,619 29,681 (14%) 169,121 142,252 19% 284 240 18%
-------- -------- ------- ------- ------- -------
Total 139,165 151,931 (8%) 399,488 374,110 7% 146,093 140,981 4%
======= ======= ==== ======= ======= === ======= ======= ===
Purchased Gas 84,002 100,942 (17%)
------- ------- ----
Margin $55,163 $50,989 8%
====== ======= ====
Gas margin increased 8 percent during 1995 compared with 1994
primarily as a result of higher sales volumes and favorable gas
procurement strategies. Therm sales increased 7 percent principally due
to residential customer growth reflecting the favorable economic
conditions in WP&L's service territory and colder than normal weather in
the fourth quarter, offsetting a mild January and February. The 8 percent
decrease in gas revenues was the result of a pass through to customers of
the lower cost of purchased gas. Under the current rate structure, future
reductions in revenues resulting solely from such pass through would not
be expected to have a material impact on earnings. The gas incentive
program authorized by the Public Service Commission of Wisconsin also
resulted in additional pre-tax earnings of $750,000 in 1995.
Fees, Rents and Other Revenues
Fees, rents and other revenues primarily reflect sales and revenues
of the Company's non-regulated subsidiaries, consolidated under Heartland
Development Corporation, as adjusted for discontinued operations.
Revenues of the principal businesses of HDC were as follows:
1995 1994
(in millions)
Environmental and
engineering services $88.6 $87.7
Other 29.0 20.2
------ ------
$117.6 $107.9
====== ======
The increase in other revenues in 1995 was attributable to higher
energy marketing revenues and syndication fees associated with the
development of affordable housing properties for institutional investors.
Due to uncertainties as to the future of the affordable housing tax credit
program, the Company is not making additional commitments in this area at
this time. While revenues of the environmental and engineering business
were relatively unchanged, margins were lower in 1995 reflecting greater
price competition in that industry.
In addition to the revenues of the non-regulated businesses, fees,
rents and other revenues also include revenue received from the water
utility operations of WP&L. These revenues represented $4.2 million and
$4.1 million, respectively, in 1995 and 1994.
Operating Expenses
Operations expense includes expenses related to the Company's utility
operations, parent company and the non-regulated businesses of HDC. The
distribution of operations expense was as follows:
1995 1994
(in millions)
Utility operations $137.4 $148.4
Non-regulated businesses and
parent company operations 113.4 97.8
------ ------
Total $250.8 $246.2
===== =====
The decline in utility-related operations expense principally
reflects the impact of a $13.7 million charge for early retirement and
severance costs in 1994. While the utility was able to achieve savings in
1995 from its continued reengineering of operations, these savings were
offset somewhat by higher conservation expenses.
The increase in operations expense associated with the non-regulated
businesses and parent company principally reflects higher costs at the
energy marketing company, Heartland Energy Services Inc. In addition,
this business experienced additional administrative costs associated with
new business development resulting in an operating loss in 1995 of 3 cents
per share.
The environmental and engineering business also incurred higher
operations costs. However, as a result of realigning its business in 1995
through the sale of selected operations as discussed in the "Other Income
and Deductions" section of the MD&A, the environmental and engineering
business was able to maintain a 7 cent per share contribution to earnings
in both 1995 and 1994.
As is typical of the affordable housing business, operating expenses
exceeded operating income. However, after adjusting for the tax benefits
and credits associated with this business, the affordable housing business
contributed approximately 4 cents per share in 1995 and 3 cents per share
in 1994.
The increase in depreciation expense in 1995 is primarily the result
of property additions at the utility and higher contributions to WP&L's
external nuclear decommissioning trust.
Other Income and Deductions
Other income and deductions in 1994 include after-tax income of $5.3
million related to the reversal of a coal contract penalty as discussed in
the "Other Events" section of the MD&A. In addition, income associated
with the allowance for funds used during construction ("AFUDC") decreased
in 1995 due to significantly lower construction-work-in-progress amounts
and a lower Federal Energy Regulatory Commission ("FERC") AFUDC rate.
Other income also includes $2.2 million associated with the gain on
the sale of various investments and environmental consulting divisions in
1995 by HDC, offset somewhat by expenses associated with the Company's
plans to merge with two Iowa-based utility companies. See the "Other
Events" section of the MD&A.
Interest Expense
Interest expense increased due to the higher levels of short-term
debt and higher short-term interest rates. During the second quarter of
1995, WP&L repurchased $18 million of Series V bonds from private
investors. WP&L applied revenue neutral treatment to these reacquired
bonds which are anticipated to be refinanced in 1996.
Income Taxes
Despite higher operating income in 1995, the income tax expense was
unchanged due to prior years' tax adjustments resolved in 1995.
1994 COMPARED WITH 1993
OVERVIEW
Earnings per share of the Company's common stock increased to $2.13
in 1994 compared with $2.11 in 1993. Earnings per share from continuing
operations increased from $2.15 in 1993 to $2.17 in 1994 reflecting the
sale of A&C Enercom Consultants, Inc. (see "Other Events" section of the
MD&A). Earnings for 1994 were significantly affected by two non-recurring
items from the Company's utility subsidiary, WP&L. These items were the
reversal of a coal contract penalty and costs associated with early
retirement and severance programs. The reversal of the coal contract
penalty is discussed in the "Other Events" section of the MD&A. The
following break out presents the recurring aspects of 1994 and 1993
operations.
1994 1993
Earnings per share, as reported $2.13 $2.11
Per share impact of discontinued
operations 0.04 0.04
----- ------
Earnings per share from continuing
operations 2.17 2.15
Non-recurring items
Coal contract penalty reversal (0.16) ---
Early retirement and severance
costs 0.27 0.04
----- -----
Earnings per share before non-
recurring items $2.28 $2.19
===== ====
The increase in the "Earnings per share before non-recurring items"
primarily reflects an increase in operating earnings from WP&L. The
increase was somewhat offset by program start-up costs associated with
expansion of the affordable housing and energy marketing services
businesses of the Company's non-regulated subsidiary, Heartland
Development Corporation.
Electric Operations
Revenues and Cost % kWhs Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Year Change
1994 1993 1994 1993 1994 1993
Residential and Farm $194,242 $184,176 5% 2,776,895 2,751,363 1% 322,924 316,870 2%
Industrial 140,487 132,903 6% 3,764,953 3,540,082 6% 776 714 9%
Commercial 101,382 95,977 6% 1,688,349 1,629,911 4% 43,793 42,884 2%
Wholesale and Class A 86,400 78,955 9% 2,574,121 2,388,131 8% 42 39 8%
Other 9,236 11,176 (17%) 54,518 51,073 7% 1,256 1,236 2%
------- ------- ---------- --------- ------- -------
Total 531,747 503,187 6% 10,858,836 10,360,560 5% 368,791 361,743 2%
======= ======= === ========== ========== === ======= ======= ===
Electric Production
Fuels 123,469 123,919 0%
Purchased Power 37,913 28,574 33%
-------- ------- ---
Margin $370,365 $350,694 6%
======== ======== ===
WP&L's electric margin increased 6 percent 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 and residential customer growth contributed
to higher sales.
Electric production fuel costs were reasonably stable for 1994.
The volume of purchased power increased as a result of WP&L's efforts to
conserve coal inventories during a rail strike in the third quarter of
1994. The financial impact on WP&L's operating results was not material.
Gas Operations
Revenues and Cost Therms Sold % Customers at
(In Thousands) % Change (In Thousands) Change End of Year % Change
1994 1993 1994 1993 1994 1993
Residential and Farm $71,555 $71,632 0% 119,562 120,005
Firm 41,918 40,748 3% 87,487 87,038 1% 15,531 15,088 3%
Interruptible 8,777 11,247 (22%) 24,809 27,872 (11%) 272 261 4%
Transport. and Other 29,681 13,643 118% 142,252 84,877 68% 240 85 182%
------- ------- ------- ------- -------
Total 151,931 137,270 11% 374,110 319,792 17% 140,981 136,263 3%
======= ======= ==== ======= ======= === ======= ======= ===
Purchased Gas 100,942 90,505 12%
------- ------- ----
Margin $50,989 $46,765 9%
======= ======= ====
Gas margin increased 9 percent in 1994 from 1993 primarily due to a
1.4 percent retail rate increase effective October 1, 1993, and higher
sales to firm service customers. The overall cost of purchased gas
declined reflecting WP&L's effective use of opportunities on the gas spot
market.
Fees, Rents and Other Revenues
Environmental services revenue increased due to continued strong
demand. Other revenues increased due to an increased number of affordable
housing project syndications.
Operating Expenses
Operations expense increased primarily due to several early
retirement and severance programs offered in 1994 and increased program
start-up costs associated with the expansion of the Company's affordable
housing and energy services businesses. Depreciation expense increased 10
percent, principally reflecting increased property additions and increased
decommissioning costs.
Partially offsetting these costs were reductions in WP&L's operating
costs resulting from the ongoing reengineering of its processes.
Maintenance expense decreased between years due to the variation in the
timing and extent of maintenance on its generating facilities between
years. Secondarily, a severe storm in the summer of 1993 increased 1993's
maintenance expense related to service restoration.
Other Income and (Deductions)
Other income increased resulting from the reversal of a coal
contract penalty which is discussed in the "Other Events" section of the
MD&A.
Income Taxes
Income taxes increased between years primarily due to higher taxable
income. Affordable housing tax credits declined as HDC 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.
LIQUIDITY AND CAPITAL RESOURCES
During 1995 and 1994 the Company generated sufficient cash flows from
operations and short-term borrowings to cover operating expenses, cash
dividends, and investment activities. In 1993, cash flows from operations
covered a portion of investing activities, the remainder was generated
through the issuance of common stock and long and short-term debt. Cash
flows from operations increased to $186 million in 1995 compared with $172
million and $148 million in 1994 and 1993, respectively.
Rates and Regulatory Matters
Effective January 1, 1995, for the two-year period ended December 31,
1996, the PSCW in rate order UR-109, authorized a 2.8 percent annual
decrease in electric rates, a 0.5 percent annual increase in gas rates and
a decline in the allowed return on common equity to 11.5 percent from the
previous 11.6 percent. None of these events is expected to have a
material impact on earnings. Further, the PSCW approved certain incentive
programs described below:
1. The retail electric fuel adjustment mechanism, which allowed costs to
fluctuate within a 3 percent band width, was eliminated. The elimination
of the adjustment mechanism did not have a material effect on 1995
earnings and is not expected to materially impact 1996 results.
2. The automatic purchased gas adjustment clause was also eliminated.
The fluctuations in the commodity cost of gas above or below a prescribed
commodity price index will serve to increase or decrease WP&L's margin on
gas sales. Both benefits and exposures are subject to customer sharing
provisions. WP&L's share is capped at $1.1 million pre-tax. For 1995,
WP&L earned $750,000 pre-tax under this incentive mechanism. The
customers' share of this program is $1.1 million pre-tax which will be
refunded to customers in April 1996. The refund has been fully reserved
in the 1995 financial results.
3. In order to promote air quality and delivery system reliability, there
are SO2 emissions and service reliability incentive clauses. Positive
incentives available under these clauses include $1.5 million pre-tax for
the SO2 emissions and $.5 million pre-tax for the service reliability.
WP&L's earnings are also negatively exposed for equal amounts. For
calendar year 1995, WP&L collected $2.0 million pre-tax in revenues and
also deferred $2.1 million pre-tax in revenues. WP&L plans to refund the
$2.1 million to customers in April 1996, resulting in no material impact
on 1995 revenues.
Industry Outlook
The primary business of WPL Holdings, Inc. is that of its public
utility, WP&L, which is subject to regulation by the PSCW and the FERC.
The stated goal of the PSCW in its natural gas docket is to move all gas
supply activities out of the existing regulated distribution utilities and
allow independent units to compete for the business. The goal of the
electric utility restructuring process is to create open access
transmission and distribution services for all customers with competitive
generation and customer service markets. Additional proceedings as well
as consultation with the legislature are planned prior to a target
implementation date after the year 2000. The Company cannot currently
predict what impact, if any, these proceedings may have on its future
financial condition or results of operations. The Company believes,
however, that it is well positioned to compete in a deregulated
environment. WP&L's rates to all customer classes are competitive
within the state of Wisconsin and below the average in the Midwest region.
The FERC is developing regulation which will begin to provide open
access to utility transmission facilities for wholesale electric customers
subject to certain approved FERC tariffs. WP&L believes its existing open
access tariffs position it well to compete under such market conditions.
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 borrow on a
short-term basis to provide interim financing of construction and capital
expenditures in excess of available internally generated funds. The
subsidiaries periodically reduce their outstanding short-term borrowings
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 also 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. 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 $141.9 million at December 31, 1995, are available to support
these borrowings.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined interest rate and gas commodity price risks. The
Company enters into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating-rate long-term debt, short-term
debt and the sales of its accounts receivable. The total notional amount
of interest rate swaps was $123 million and $150 million, respectively,
for the years ended December 31, 1995 and 1994. The Company uses gas
commodity swaps to hedge the price risks associated with the purchase and
sale of stored gas.
The Company's capitalization at December 31, 1995, including the
current maturities of long-term debt, variable rate demand bonds and
short-term debt, consisted of 47 percent common equity, 5 percent
preferred stock and 48 percent debt. The common equity to total
capitalization ratio at December 31, 1995, decreased to 47 percent from 49
percent at December 31, 1994.
In accordance with the terms of the Merger Agreement (see "Other
Events" section of the MD&A), the Company may not declare or pay any
dividends on any of its capital stock other than the obligations that
exist with respect to cumulative preferred stock, and regular quarterly
dividends on common stock may not exceed 105 percent of the common stock
dividends from the prior year.
The retail rate order effective January 1, 1995, requires WP&L to
maintain a utility common equity level of 51.93 percent of total utility
capitalization during the two-year period ending December 31, 1996. In
addition, the PSCW ordered that it must approve the payment of dividends
by WP&L to the Company that are in excess of the level forecasted for 1995
($58.1 million), if such dividends would reduce WP&L's average common
equity ratio below 51.93 percent. At December 31, 1995, WP&L's common
equity ratio was 52.6 percent.
Capital Requirements
The Company's largest subsidiary, WP&L, is a capital-intensive
business and requires large investments in long-lived assets. Therefore,
the Company's most significant capital requirements relate to construction
expenditures. Additions to utility plant decreased in 1995 by $29.6
million and in 1994 by $25.9 million primarily due to the completion of
two 86-megawatt combustion-turbine generators in 1994. Estimated capital
requirements for WP&L for the next five years are as follows:
1996 1997 1998 1999 2000
(in millions)
Construction expenditures
Electric $81.5 $79.5 $75.3 $77.9 $72.0
Gas, water and common 41.7 38.9 31.1 31.4 32.1
Nuclear fuel 8.3 10.0 8.2 9.7 13.7
Decommissioning fund 15.4 16.3 17.2 18.3 18.7
AFUDC 2.5 2.2 1.3 1.4 1.4
----- ----- ----- ----- -----
Total construction
expenditures 149.4 146.9 133.1 138.7 137.9
Changes in working capital
and other (8.3) 7.1 (16.3) .2 (6.1)
----- ------ ------ ------ ------
Total construction and
operating capital 141.1 154.0 116.8 138.9 131.8
Long-term debt maturities -- 55.0 8.9 -- 1.9
Manufactured gas plant
remediation 6.8 11.4 8.6 0.6 0.6
----- ----- ----- ----- -----
Total capital
requirements $147.9 $220.4 $134.3 $139.5 $134.3
====== ====== ====== ====== ======
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 WP&L's interconnection
capability with other utilities; 2) expenditures related to upgrading
computer systems to improve productivity and customer service; and 3)
expenditures associated with the construction of an 86-megawatt
combustion-turbine generator expected to become operational in 1996. The
decommissioning expenditures represent both the amount of annual
contribution to external trust funds and the income earned on the external
trust funds. These amounts are recorded in depreciation expense and
recovered in rates. The Company expects to contribute $10.7 million
annually to this fund.
The steam generator tubes at the Kewaunee Nuclear Power Plant
("Kewaunee") are susceptible to corrosion characteristics seen throughout
the nuclear industry. During the first quarter of 1995, Kewaunee was
shutdown for scheduled maintenance and refueling. Inspection of the steam
generators revealed increased levels of tube degeneration. Prior to
shutdown the equivalent of approximately 12 percent of the tubes in the
steam generators were plugged, with no loss of capacity. When the plant
was returned to service in May 1995, approximately 21 percent of the tubes
were plugged.
As a result of the need to address the repair or replacement of the
steam generators, the owners of Kewaunee have been, and are continuing to,
evaluate various alternatives to deal with the capacity degradation of the
steam generator tubes. As part of this evaluation the owners have:
(a) submitted a request to the NRC to redefine the pressure boundary
point of the repaired steam generator tubes (sleeved tubes) which
have been removed from service by plugging, in order to allow the
return of many of the sleeved tubes to service. If the request
is granted, even if additional degraded tubes would be discovered
during the next planned shutdown in the fall of 1996, the
requested redefinition of the pressure boundary point should
allow the plant to return to full output. Testing of three tubes
removed during the 1995 refueling outage indicates structural
soundness equal to the original tube strength. Management
believes the request will be granted by the NRC;
(b) requested approval from the NRC to pursue welded repair
technologies to return plugged tubes to service. Although welded
tube repair technologies exist, the technology is not presently
approved by the NRC; and
(c) continued to evaluate the economics of replacement of the steam
generators. The replacement of steam generators is estimated to
cost approximately $100 million, exclusive of additional
purchased power costs associated with an extended shutdown.
The owners continue to evaluate the potential financial and
regulatory implications of a change in ownership (which would likely
require, as a condition precedent, authority to replace the steam
generator) or early shutdown of Kewaunee. WP&L believes that the best
near term economic alternative for the owners of Kewaunee is to continue
to pursue tube recovery and repair processes. WP&L will reassess its
views of available alternatives based on the condition of steam generator
tubes during the fall 1996 refueling outage. On December 31, 1995, the
net book value of WP&L's share of Kewaunee was $57.0 million.
Physical decommissioning of Kewaunee 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. The undiscounted amount of decommissioning costs estimated to be
expended between the years 2014 and 2050 is $1,016 million. Wisconsin
utilities operating nuclear generating plants are required by the PSCW to
establish external trust funds to provide for the decommissioning of such
plants. WP&L's share of the decommissioning costs is estimated to be $169
million in 1995 dollars, assuming the plant is operating through 2013,
based on a 1992 site-specific study, using the immediate dismantlement
method of decommissioning. The market value of the investments in the
funds established by WP&L at December 31, 1995, totaled $73.4 million.
Capital requirements for HDC, the Company's non-utility subsidiary,
generally consist of funds used for investing in development of affordable
housing projects and for business acquisition activity. In addition,
funds are required periodically to provide for changes in working capital
for the operations of existing businesses.
In addition to those items mentioned above, requirements at HDC over
the next five years are expected to emphasize implementation of project
development at the energy marketing company, Heartland Energy Group
("HEG"). ENSERV, a subsidiary of HEG, will provide energy supply services
for customers including project feasibility, engineering, financing and
management.
Capital Resources
One of the Company's objectives is to finance utility construction
expenditures through WP&L's internally generated funds supplemented, when
required, by outside financing. With this objective in place, WP&L has
financed an average of 68 percent of its construction expenditures during
the past five years from internal sources. However, during the next five
years, the Company expects this percentage to increase primarily due to
relatively stable level of construction expenditures and higher
depreciation rates beginning in 1997. External financing sources such as
the issuance of long-term debt, short-term borrowings and equity
contributions from its parent, WPL Holdings, Inc. will be used by WP&L to
finance the remaining construction expenditure requirements for this
period. Expectations are that approximately $60 million of long-term debt
will be issued in 1996. HDC's financing of capital requirements will be
accomplished through internally generated funds, supplemented by external
borrowings and equity contributions from WPL Holdings, Inc.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123 "Accounting for
Stock Based Compensation Plans" which establishes standards of financial
accounting and reporting for stock based compensation plans. As allowed
under SFAS No. 123, the Company will continue to apply APB No. 25,
"Accounting for Stock Issued to Employees," in accounting for stock based
compensation plans when the statement becomes effective in 1996. As a
result, this statement will have no impact on the financial position or
results of operations of the Company.
In March 1995, the FASB issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of." This statement imposes
stricter criteria for evaluating the recoverability of regulatory assets
and real estate investments. The Company adopted this standard on
January 1, 1996, and does not expect that adoption will have a material
impact on the financial position or results of operations of the Company
which may change in the future as competitive factors influence wholesale
and retail pricing in the utility industry.
INFLATION
The impacts of inflation on WP&L are currently mitigated
through current ratemaking methodologies. 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
Sale of Business Segment
The Company's financial statements reflect the discontinuance
of operations of A&C Enercom Consultants, Inc., its utility energy and
marketing consulting business, in 1995. The discontinuance of this
business resulted in a pre-tax loss of $7.7 million ($11.0 million net of
the applicable income tax expenses). Operating revenues, operating
expenses, other income and expense and income taxes from the discontinued
operations for the time periods presented have been excluded from income
from continuing operations. Interest expense has been adjusted for the
amounts associated with direct obligations of the discontinued operations.
Operating revenues, related losses, and income tax benefits
associated with the discontinued operations for the indicated time periods
were as follows:
Year Ended December 31,
1995 1994 1993
(in thousands)
Operating revenues . . . . . . $24,979 $34,798 $33,340
====== ====== ======
Loss from discontinued
operations before income tax . $3,663 $1,806 $1,761
Income tax benefit . . . . . . 1,451 632 599
------ ------ ------
Loss from discontinued
operations . . . . . . . . . . $2,212 $1,174 $1,162
====== ====== ======
Coal Contract Penalty
In November 1989, the PSCW concluded that WP&L did not
properly administer a coal contract, resulting in an assessment to
compensate ratepayers for excess fuel costs having been incurred. As a
result, WP&L recorded a reserve in 1989 that had an after-tax effect 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, WP&L 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.
Proposed Merger
The Company, IES Industries Inc. ("IES"), and Interstate Power
Company ("IPC") have entered into an Agreement and Plan of Merger ("Merger
Agreement"), dated November 10, 1995, providing for: a) IPC becoming a
wholly-owned subsidiary of the Company, and b) the merger of IES with and
into the Company, which merger will result in the combination of IES and
the Company as a single holding company (collectively, the "Proposed
Merger"). The new holding company will be named Interstate Energy
Corporation ("Interstate Energy"). The Proposed Merger, which will be
accounted for as a pooling of interests, has been approved by the
respective Boards of Directors. It is still subject to approval by the
shareholders of each company as well as several federal and state
regulatory agencies. The companies expect to receive the shareholder
approvals in the second quarter of 1996 and regulatory approvals by the
second quarter of 1997. The corporate headquarters of Interstate Energy
will be in Madison.
The business of Interstate Energy will consist of utility
operations and various non-utility enterprises, and it is expected that
its utility subsidiaries will serve more than 870,000 electric customers
and 360,000 natural gas customers in Iowa, Illinois, Minnesota and
Wisconsin.
The operating revenues, net income from continuing operations
and total assets of the companies were as follows:
PRO FORMA
COMBINED
WPLH IES IPC (Unaudited)
(in thousands)
1995 operating revenues $807,255 $851,010 $318,542 $1,976,807
1995 net income from
continuing operations $71,618 $64,176 $25,198 $160,992
Assets at December 31,
1995 $1,872,414 $1,985,591 $634,316 $4,492,321
Under the terms of the Merger Agreement, the outstanding
shares of the Company's common stock will remain unchanged and outstanding
as shares of Interstate Energy. Each outstanding share of IES common
stock will be converted to .98 shares of Interstate Energy's common stock.
Each share of IPC's common stock will be converted to 1.11 shares of
Interstate Energy's common stock. It is anticipated that Interstate
Energy will retain the Company's common share dividend payment level as of
the effective time of the merger. On January 24, 1996, the Board of
Directors of WPL Holdings Inc. declared a quarterly dividend of 49.25
cents. This represents an annual rate of $1.97 per share.
Interstate Energy will be the parent company of Wisconsin
Power and Light Company, IES Utilities and IPC and will be registered
under the Public Utility Holding Company Act of 1935, as amended ("1935
Act"). The Merger Agreement provides that these operating utility
companies will continue to operate as separate entities for a minimum of
three years beyond the effective date of the merger. In addition, the
non-utility operations of the Company and IES Diversified will be combined
shortly after the effective date of the merger under one entity to manage
the diversified operations of Interstate Energy.
The SEC historically has interpreted the 1935 Act to preclude
registered holding companies, with limited exceptions, from owning both
electric and gas utility systems. Although the SEC has recently
recommended that registered holding companies be allowed to hold both gas
and electric utility operations if the affected states agree, it remains
possible that the SEC may require as a condition to its approval of the
Proposed Merger that the Company, IES and IPC divest their gas utility
properties, and possibly certain non-utility ventures of the Company and
IES, within a reasonable time after the effective date of the Proposed
Merger.
Legislation to repeal the 1935 Act was introduced in Congress
in 1995 and is pending. No assurance can be given as to when or if such
legislation will be considered or enacted. The Staff of the SEC has also
recommended that the SEC "permit combination systems by registered holding
companies if the affected states concur," and the SEC has proposed rules
that would relax current restrictions on investment by registered holding
companies in certain "energy related," non-utility businesses. No
prediction can be made as to the outcome of these legislative and
regulatory proposals.
Union Contract
The three year contract WP&L has with the International
Brotherhood of Electrical Workers, Local 965 is in effect until June 1,
1996. The contract covers 1,601 of WP&L's employees which represents
approximately 69 percent of the total employees at December 31,1995. At
this time the results of negotiations cannot be estimated.
Environmental
WP&L 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, 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") to which the permit program has been delegated.
These permits must be periodically reviewed. The Company 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. WP&L
currently has the necessary permits to operate its fossil-fueled
generating facilities. While periodic exceedances in air emissions may
occur, management promptly acts on these excursions and works with the DNR
to resolve any permit compliance issues. With the passage of the new
Federal Clean Air Act Amendments, the state is required to include these
provisions in its permit requirements. WP&L has submitted timely Title V
permit applications in compliance with schedules set forth by
the regulators. WP&L has also completed application for Phase II permits
under the Clean Air Act in compliance with the time lines identified. The
state Title V operating permits, when issued, will consolidate all
existing air permit conditions and regulatory requirements into one permit
for each facility. Permits are expected to be issued in 1996. Until such
time, the facilities will continue to operate under their existing permit
conditions.
WP&L's compliance strategy for Wisconsin's sulfur dioxide law
(discussed above) and the Federal Clean Air Act Amendments required plant
upgrades at its generating facilities. The majority of these projects
were completed in 1993. WP&L 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 WP&L's South Fond du Lac combustion-
turbine site. These requirements were also met. Additional monitoring
systems for nitrogen oxides are required in 1996 at the combustion turbine
site. WP&L has installed these monitors, and will complete certification
tests for the equipment by May 1996. No significant investments are
anticipated at this time to meet the requirements of the Federal Clean Air
Act Amendments.
For a discussion of the Company's liability regarding
environmental remediation at certain manufactured gas plant sites formerly
operated by WP&L, see Note 11 of "Notes to Consolidated Financial
Statements."
Dividend Declaration
On January 24, 1996, the Board of Directors of WPL Holdings,
Inc. declared a quarterly dividend on common stock. The dividend is 49.25
cents per share payable February 15 to shareowners of record on February
2, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT ON THE FINANCIAL INFORMATION
WPL Holdings, Inc. management is responsible for all the information
appearing in this annual report and for the accuracy and internal
consistency of that information. The consolidated financial statements
that follow have been prepared in accordance with generally accepted
accounting principles. In addition to selecting appropriate accounting
principles, management is responsible for the manner of presentation and
for the reliability of the financial information. In fulfilling that
responsibility, it is necessary for management to make estimates based on
currently available information and judgments of current conditions and
circumstances.
Through a well-developed system of internal controls, management seeks to
ensure the integrity and objectivity of the financial information
presented in this report. This system of internal control is designed to
provide reasonable assurance that the assets of the company are
safeguarded and that the transactions are executed according to
management's authorizations and are recorded in accordance with the
appropriate accounting principles.
The Board of Directors participates in the financial information reporting
process through its Audit Committee.
Erroll B. Davis Jr.
President and Chief Executive Officer
WPL Holdings, Inc.
Edward M. Gleason
Vice President, Treasurer and Corporate Secretary
Principal Financial Officer
WPL Holdings, Inc.
Daniel A. Doyle
Vice President, Finance, Controller and Treasurer
Wisconsin Power and Light Company
Principal Accounting Officer
WPL Holdings, Inc.
January 26, 1996
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 26, 1996
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1995 1994 1993
(in thousands except for per-share
data)
Operating revenues:
Electric . . . . . . . . . $546,324 $531,747 $503,187
Gas . . . . . . . . . . . . 139,165 151,931 137,270
Fees, rents and other . . . 121,766 112,039 98,147
------- ------- -------
807,255 795,717 738,604
------- ------- -------
Operating expenses:
Electric production
fuels . . . . . . . . . 116,488 123,469 123,919
Purchased power . . . . . . 44,015 37,913 28,574
Purchased gas . . . . . . . 84,002 100,942 90,505
Other operation . . . . . . 250,796 246,212 221,840
Maintenance . . . . . . . . 42,043 41,227 44,763
Depreciation and
amortization . . . . . . 86,319 80,351 68,680
Taxes other than income . . 34,188 33,788 32,379
------- ------- -------
657,851 663,902 610,660
------- ------- -------
Operating income . . . . . . 149,404 131,815 127,944
------- ------- -------
Other income and
(deductions):
Allowance for equity funds
used during construction 1,425 3,009 2,978
Other, net . . . . . . . . 3,103 7,610 (633)
------- ------- ------
4,528 10,619 2,345
------- ------- ------
Interest expense:
Interest on debt . . . . . 43,559 37,686 38,073
Allowance for borrowed
funds used during
construction . . . . . . . (663) (1,029) (1,053)
------- ------- -------
42,896 36,657 37,020
------- ------- -------
Income from continuing
operations before income
taxes . . . . . . . . . . . 111,036 105,777 93,269
Income taxes . . . . . . . . 36,108 36,043 25,656
Preferred stock dividends of
subsidiary . . . . . . . . . 3,310 3,310 3,928
------- ------- -------
Income from continuing
operations . . . . . . . . . 71,618 66,424 63,685
------- ------- -------
Discontinued operations (Note
13):
Loss from operation of
discontinued subsidiary
net of applicable tax
benefits of $1,451, $632,
and $599 . . . . . . . . 2,212 1,174 1,162
Loss on disposal of
subsidiary net of
applicable taxes of $3,271 10,974 ---- ----
------- ------- -------
13,186 1,174 1,162
------- ------- -------
Net Income . . . . . . . . . $58,432 $65,250 $62,523
======= ====== =======
Earnings per share:
Income from continuing
operations . . . . . . . . $2.33 $2.17 $2.15
Discontinued operation . . (0.43) (0.04) (0.04)
----- ----- -----
Net income . . . . . . . . $1.90 $2.13 $2.11
===== ===== =====
Weighted average number of
shares of common stock
outstanding . . . . . . . . 30,774 30,671 29,681
====== ====== ======
Cash dividends paid per share $1.94 $1.92 $1.90
===== ===== =====
The accompanying notes are an integral part of the consolidated
financial statements.
WPL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
Year Ended December 31,
1995 1994
(dollars in thousands)
ASSETS
Utility plant:
Plant in service--
Electric . . . . . . . . $1,681,093 $1,611,351
Gas . . . . . . . . . . . 217,678 204,514
Water . . . . . . . . . . 22,518 22,070
Common . . . . . . . . . 136,943 123,254
--------- ----------
2,058,232 1,961,189
Dedicated decommissioning
funds, at market . . . . 73,357 51,791
--------- ---------
2,131,589 2,012,980
Less--accumulated
provision for
depreciation . . . . . . 887,562 808,853
--------- ---------
1,244,027 1,204,127
Construction work in
progress . . . . . . . . 36,996 42,732
Nuclear fuel, net . . . . 18,867 19,396
--------- ---------
Total utility plant . . 1,299,890 1,266,255
--------- ---------
Other property and
equipment:
Rental, net . . . . . . . 102,206 96,536
Other, net . . . . . . . 42,563 26,693
-------- --------
Total other property
and equipment, net . 144,769 123,229
Investments . . . . . . . . 12,105 12,320
Current assets: -------- -------
Cash and equivalents . . 11,386 7,273
Net accounts receivable
and unbilled revenue,
less allowance for
doubtful accounts of
$1,735 and $1,964,
respectively . . . . . . 94,648 71,465
Coal, at average cost . . 14,625 15,824
Materials and supplies, at
average cost . . . . . . 20,723 21,618
Gas in storage, at average
cost . . . . . . . . . . 6,319 7,975
Prepayments and other . . 27,987 30,279
-------- -------
Total current assets 175,688 154,434
-------- -------
Restricted cash . . . . . . 3,266 3,217
-------- -------
Deferred charges:
Regulatory assets . . . 156,740 144,476
Other . . . . . . . . . 79,956 101,970
-------- --------
Total deferred charges 236,696 246,446
--------- ---------
TOTAL ASSETS . . . . . . . $1,872,414 $1,805,901
========= ==========
CAPITALIZATION AND
LIABILITIES
Capitalization:
Common shareowners'
investment . . . . . . $597,470 $597,798
Subsidiary preferred
stock not mandatorily
redeemable . . . . . . 59,963 59,963
Long-term debt, net . . 430,362 448,110
-------- ---------
Total capitalization . 1,087,795 1,105,871
--------- ---------
Current liabilities:
Current maturities of
long-term debt . . . . 3,397 2,832
Variable rate demand
bonds . . . . . . . . . 56,975 56,975
Short-term debt . . . . 109,525 64,501
Accounts payable and
accruals . . . . . . . 94,898 71,949
Accrued payroll and
vacation . . . . . . . 14,299 17,357
Accrued taxes . . . . . 6,483 6,395
Accrued interest . . . . 9,214 9,138
Other . . . . . . . . . 26,783 21,925
--------- ---------
Total current
liabilities . . . . 321,574 251,072
--------- ---------
Other credits:
Accumulated deferred
income taxes . . . . . 241,150 224,049
Accumulated deferred
investment tax
credits . . . . . . . 38,842 40,758
Accrued environmental
remediation costs . . 76,852 79,280
Deferred credits and
other . . . . . . . . 106,201 104,871
--------- ---------
Total other credits . 463,045 448,958
--------- ---------
Commitments and
contingencies (Note 11)
TOTAL CAPITALIZATION AND
LIABILITIES . . . . . . . $1,872,414 $1,805,901
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1995 1994 1993
(dollars in thousands)
Cash flows generated from
(used for) operating activities:
Net income . . . . . . . . . . . $58,432 $65,250 $62,523
Adjustments to reconcile net
income to net cash generated
from operating activities:
Depreciation and amortization . 86,319 80,351 68,680
Deferred income taxes . . . . . 10,716 10,321 5,015
Investment tax credit restored . (1,916) (1,926) (1,967)
Amortization of nuclear fuel . . 7,787 6,707 7,049
Allowance for equity funds used
during construction . . . . . . (1,425) (3,009) (2,977)
Loss on sale of subsidiary . . . 10,974 --- ---
Changes in assets and
liabilities:
Restricted cash . . . . . . . . (49) 3,495 5,417
Net accounts receivable and
unbilled revenue . . . . . . . (23,183) (3,842) (11,578)
Coal . . . . . . . . . . . . . . 1,199 217 2,943
Materials and supplies . . . . . 895 61 (6)
Gas in storage . . . . . . . . . 1,656 779 (4,463)
Prepayments and other . . . . . 2,293 (7,028) (1,226)
Accounts payable and accruals . 20,414 (6,245) 760
Accrued taxes . . . . . . . . . 88 6,965 1,438
Other, net . . . . . . . . . . . 11,473 20,043 16,395
-------- ------- --------
Net cash generated from
operating activities . . . . . 185,673 172,139 148,003
------- ------- --------
Cash flows generated from (used
for) financing activities:
Issuance of common stock . . . . --- --- 58,575
Issuance of long-term debt . . . --- --- 11,538
Issuance of preferred stock . . --- --- 29,986
Redemption of preferred stock . --- --- (29,986)
Long-term debt maturities,
redemptions and sinking fund
requirements . . . . . . . . . 756 24,993 (7,257)
Net change in short-term debt . 45,024 (27,401) 20,475
Retirement of first mortgage
bonds . . . . . . . . . . . . . (18,000) --- ---
Common stock cash dividends,
less dividends reinvested . . . (59,701) (49,357) (40,342)
Other, net . . . . . . . . . . . 941 (1,061) (2,052)
------- -------- -------
Net cash (used for) generated
from financing activities . . (30,980) (52,826) 40,937
------- -------- -------
Cash flows generated from (used
for) investing activities:
Additions to utility plant,
excluding AFUDC . . . . . . . . (93,857) (123,460) (149,333)
Allowance for borrowed funds
used during construction . . . (663) (1,029) (1,053)
Dedicated decommissioning funds (21,566) (1,988) (9,426)
Purchase of other property and
equipment . . . . . . . . . . . (21,539) (6,160) (16,553)
Other, net . . . . . . . . . . . (12,955) 1,129 2,555
-------- -------- --------
Net cash used for investing
activities . . . . . . . . . . (150,580) (131,508) (173,810)
-------- -------- --------
Net increase (decrease) in cash
and equivalents . . . . . . . . 4,113 (12,195) 15,130
Cash and equivalents at beginning
of year . . . . . . . . . . . . 7,273 19,468 4,338
-------- ------- -------
Cash and equivalents at end of
year . . . . . . . . . . . . . . $11,386 $7,273 $19,468
======= ====== =======
Supplemental disclosures of cash
flow information:
Cash paid during the year:
Interest on debt . . . . . . . . $39,984 $36,914 $36,759
Preferred stock dividends of
subsidiary . . . . . . . . . . $3,310 $3,310 $3,928
Income taxes . . . . . . . . . . $29,499 $22,902 $20,743
Non-cash financing activities:
Dividends reinvested . . . . . . --- $9,653 $15,284
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
Years Ended December 31,
1995 1994
(dollars in thousands)
Common shareowners' investment:
Common stock $.01 par value,
authorized--100,000,000 shares;
issued and outstanding --30,773,588
shares . . . . . . . . . . . . . . $308 $308
Additional paid in capital . . . . . 305,223 304,442
Reinvested earnings . . . . . . . . 291,939 293,048
------- -------
Total common shareowners'
investment . . . . . . . . . . . . 597,470 597,798
------- -------
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 (5.25% at 12/31/95) . . . . . 8,500 8,500
1988 Series A, variable rate, due
2015 (5.15% at 12/31/95) . . . . . 14,600 14,600
1990 Series V, 9.3%, due 2025 . . . 32,000 50,000
1991 Series A, variable rate, due
2015 (6.10% at 12/31/95) . . . . . 16,000 16,000
1991 Series B, variable rate, due
2005 (6.10% at 12/31/95) . . . . . 16,000 16,000
1991 Series C, variable rate, due
2000 (6.10% at 12/31/95) . . . . . 1,000 1,000
1991 Series D, variable rate, due
2000 (6.10% at 12/31/95) . . . . . 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 . . . . 376,874 394,874
------- -------
Heartland Development Corporation--
Multifamily Housing Revenue Bonds
issued by various housing and
community development authorities,
due 2004-2024, 2.00% - 7.55% . . . 38,326 39,169
Other mortgage notes payable, due
1996-2042, 0% - 10.75% . . . . . . 42,834 41,235
------- -------
81,160 80,404
WPL Holdings, Inc.-- ------- -------
8.96% Senior note, due 1997 . . . . 10,000 10,000
8.59% Senior notes, due 2004 . . . . 24,000 24,000
------- -------
34,000 34,000
------- -------
Less--
Current maturities . . . . . . . . . (3,397) (2,832)
Variable rate demand bonds . . . . . (56,975) (56,975)
Unamortized discount and premium,
net . . . . . . . . . . . . . . . . (1,300) (1,361)
------- -------
Total long-term debt, net . . 430,362 448,110
--------- ---------
TOTAL CAPITALIZATION . . . . . . . . $1,087,795 $1,105,871
========= ==========
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,
1995 1994 1993
Common stock: (dollars in thousands)
Balance at beginning of year $308 $305 $278
Issued in connection with
public offering . . . . . . --- --- 17
Issued in connection with
acquisitions . . . . . . . --- --- 5
Issued in connection with
dividend reinvestment plan --- 3 5
----- ----- -----
Balance at end of year 308 308 305
----- ----- -----
Additional paid-in capital:
Balance at beginning of year 304,442 297,916 204,041
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
Common stock issuance expense --- --- (1,888)
Other . . . . . . . . . . . 781 (3,124) 1,205
------- ------- -------
Balance at end of year . . 305,223 304,442 297,916
------- ------- -------
Reinvested earnings:
Balance at beginning of year 293,048 284,745 279,217
Net income . . . . . . . 58,432 65,250 62,523
Cash dividends ($1.94 per
share, $1.92 per share, and
$1.90 per share,
respectively) . . . . . . . (59,701) (59,010) (55,626)
Expense of issuing stock and
other . . . . . . . . . . . 160 2,063 (1,369)
------- ------- -------
Balance at end of year . . 291,939 293,048 284,745
------- ------- -------
The accompanying notes are an integral part of the consolidated
financial statements.
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 ("WP&L") and Heartland Development
Corporation ("HDC"). The consolidated financial statements include the
Company and its consolidated subsidiaries, WP&L and HDC, along with their
respective subsidiaries. Certain amounts from prior years have been
reclassified to conform with the current year presentation.
WP&L 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. WP&L also transports, distributes and sells
natural gas purchased from gas suppliers. Nearly all of WP&L's retail
customers are located in south and central Wisconsin. WP&L's principal
consolidated subsidiary is South Beloit Water, Gas and Electric Company.
HDC and its principal subsidiaries are engaged in business development in
three major areas: 1) environmental and engineering services through the
Heartland Environmental Holding Company ("HEHC") which is the parent
company of RMT, Inc. ("RMT"), Jones and Neuse, Inc., and QES, Inc., 2)
affordable housing through Heartland Properties, Inc. ("HPI") and 3)
energy services which includes Heartland Energy Group, Inc., and Entec
Consulting, Inc. In 1995, WPLH discontinued the operations of A&C Enercom
Consultants, Inc., its utility energy and marketing consulting business.
An agreement was reached to sell the assets of these operations in a cash
transaction; the operating results of this entity have been excluded from
continued operations in the consolidated financial statements (see "Note
13 Discontinued Operations").
b. Regulation:
WP&L'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 82 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 WP&L record certain costs and credits allowed in the ratemaking
process in different periods than for unregulated entities. These are
deferred as regulatory assets or regulatory liabilities and are recognized
in the Consolidated Statements of Income at the time they are reflected in
rates.
c. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results will, in most cases, differ
from those estimates.
d. 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 using the FERC method for allowance for funds used
during construction ("AFUDC"). The AFUDC capitalization rate for 1995 was
6.68 percent. 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.
e. 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
1995 3.3% 3.7% 2.5% 7.9%
1994 3.2% 3.7% 2.5% 7.2%
1993 3.2% 3.7% 2.5% 7.3%
Depreciation expense related to WP&L's share of the decommissioning of the
Kewaunee Nuclear Power Plant is discussed in "Note 11. Commitments and
Contingencies". WP&L has filed a depreciation rate case with the PSCW
requesting higher depreciation rates, which if approved, will be effective
in 1997.
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.
f. 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.
g. Revenue:
WP&L 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.
h. 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 WP&L's latest rate order UR-109, effective January
1, 1995, the automatic fuel adjustment clause was eliminated. In
its absence, WP&L will benefit from reductions in fuel cost.
Conversely, WP&L will be exposed to increases in fuel costs.
An automatic fuel adjustment clause for the FERC wholesale portion
of WP&L's electric business and South Beloit's retail rates
operates to increase or decrease monthly rates based on changes in
fuel costs.
(2)Purchased Gas:
Through 1994, WP&L'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 WP&L's suppliers
through a monthly purchased gas adjustment clause.
Beginning with UR-109, the monthly purchased gas adjustment clause
was also eliminated. Thus, the fluctuations in the commodity cost
of gas above or below a prescribed commodity price index will serve
to increase or decrease WP&L's margin on gas sales. Fixed demand
costs are excluded from the incentive program. Both benefits and
exposures are subject to customer sharing provisions. WP&L's share
is capped at $1.1 million pre-tax.
i. 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.
j. Income Taxes:
The Company files a consolidated federal income tax return. Under the
terms of an agreement between WPLH and its subsidiaries, WP&L 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. Investment tax credits are
accounted for on a deferred basis and reflected in income ratably over the
life of related property.
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.
k. 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 $11,900 and
$20,136 at December 31, 1995 and 1994, respectively. The decrease in
goodwill is primarily due to the sale of A&C Enercom Consultants, Inc.
(see "Note 13. Discontinued Operations" for further discussion).
NOTE 2. JOINTLY OWNED UTILITY PLANTS:
WP&L participates with other Wisconsin utilities in the construction and
operation of several jointly owned utility generating plants. The chart
below represents WP&L's proportionate share of such plants as reflected in
the Consolidated Balance Sheets at December 31, 1995 and 1994.
1995 1994
Accumulated Plant Accumulated
Ownership Inservice Plant MW Plant Provision for In Provision for
Interest % Date Capacity in Service Depreciation CWIP Service Depreciation CWIP
Coal:
Columbia Energy
Center 46.2 1975 & 1978 1,023 $160,348 $79,521 $881 $159,650 $78,573 $1,484
Edgewater Unit 4 68.2 1969 330 50,762 26,759 216 50,206 25,394 181
Edgewater Unit 5 75 1985 380 229,429 68,515 0 225,336 63,324 26
Nuclear:
Kewaunee Nuclear
Power Plant 41 1974 535 132,211 76,096 836 132,726 72,367 452
--------- -------- ------ ------- -------- ------
Total $572,750 $250,891 $1,933 $567,918 $239,658 $2,143
======== ======== ====== ====== ======= ======
Each of the respective joint owners finances its portion of construction
costs. WP&L's share of operations and maintenance expenses is included in
the Consolidated Statements of Income.
NOTE 3. NET ACCOUNTS RECEIVABLE:
WP&L has a contract with a financial organization to sell, with limited
recourse, certain accounts receivable and unbilled revenues. These
receivables include customer receivables, sales to other public utilities
and billings to the co-owners of the jointly owned electric generating
plants that WP&L operates. The contract allows WP&L 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 5.94
percent annual rate during 1995. These costs are recovered in retail
utility rates as an operating expense. All billing and collection
functions remain the responsibility of WP&L. The contract expires August
16, 1998, unless extended by mutual agreement.
As of December 31, 1995 and 1994, the balance of sold accounts receivable
that had not been collected totaled $79.5 million and $76.5 million,
respectively. During 1995, the monthly proceeds from the sale of accounts
receivable averaged $77.5 million, compared with $82.3 million in 1994.
The Company does not have any significant concentrations of credit risk in
the December 31, 1995 and 1994 net accounts receivable balances.
NOTE 4. REGULATORY ASSETS AND REGULATORY LIABILITIES:
Certain costs and credits are deferred and amortized in accordance with
authorized or expected ratemaking treatment. As of December 31, 1995 and
1994, regulatory created assets include the following:
1995 1994
Environmental remediation costs $81,431 $82,179
Tax related (see Note 6) 47,837 43,736
Jurisdictional plant differences 7,517 7,173
Decontamination and
decommissioning costs of
Federal enrichment facilities 6,555 7,100
Other 13,400 4,288
------- -------
$156,740 $144,476
======= =======
The PSCW, in rate case UR-108, ordered the recovery of environmental
remediation costs incurred be deferred and amortized over a five-year
period with no recovery of the carrying costs on the unamortized balance.
As of December 31, 1995 and 1994, WP&L had recorded regulatory related
liabilities of $37,898 and $42,803, respectively. These liabilities are
primarily tax related.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." This statement imposes stricter criteria for
regulatory assets by requiring that such assets be probable of future
recovery at each balance sheet date. The Company adopted this standard on
January 1, 1996, and does not expect that adoption will have a material
impact on the financial position or results of operations of the Company
based on the current regulatory structure in which the Company operates.
This conclusion may change in the future as competitive factors influence
wholesale and retail pricing in this industry.
NOTE 5. EMPLOYEE BENEFIT PLANS:
a. Pension Plans:
WP&L has noncontributory, defined benefit retirement plans covering
substantially all employees. The benefits are based upon years of service
and levels of compensation. WP&L'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 7.25, 8.25
and 7.25 percent for 1995, 1994 and 1993, respectively. The long-term
rate of return on assets used in determining those benefit obligations was
9.00, 9.00 and 9.75 percent for 1995, 1994 and 1993, respectively.
The following table sets forth the funded status of the WP&L plans and
amounts recognized in the Company's Consolidated Balance Sheets at
December 31, 1995 and 1994:
1995 1994
Accumulated benefit obligation--
Vested benefits $(157,111) $(134,829)
Non-vested benefits (2,755) (3,295)
-------- --------
Total benefits (159,866) (138,124)
======== =========
Projected benefit obligation (184,937) (154,283)
Plan assets at fair value, primarily
common stocks and fixed income
securities 202,343 178,095
------- -------
Plan assets in excess of projected
benefit obligation 17,406 23,812
Unrecognized net transition asset (16,928) (19,376)
Unrecognized prior service cost 4,022 5,679
Unrecognized net loss 24,685 14,737
------- -------
Prepaid pension costs, included in
other deferred charges $29,185 $24,852
======= =======
The net pension cost (benefit) recognized in the Consolidated Statements
of Income for 1995, 1994 and 1993 included the following components:
1995 1994 1993
Service cost $3,879 $5,123 $4,263
Interest cost on projected
benefit obligation 12,911 12,051 11,614
Actual return on assets (31,548) 1,016 (24,759)
Amortization and deferral 15,103 (17,795) 8,430
------ ------ ------
Net pension cost (benefit) $345 $395 $(452)
==== ==== =====
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. WP&L 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 WP&L, 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:
1995 1994
Accumulated benefit obligation--
Retirees $(35,639) $(29,273)
Fully eligible active plan
participants (6,261) (5,998)
Other active plan participants (8,091) (7,675)
------- -------
Total (49,991) (42,946)
Plan assets at fair value 11,768 9,767
------- -------
Accumulated benefit obligation in
excess of plan assets (38,223) (33,179)
Unrecognized transition obligation 25,003 26,474
Unrecognized loss 1,166 (2,570)
------- ------
Accrued postretirement benefits
liability $(12,054) $(9,275)
======= =======
The net postretirement benefits cost recognized in the
Consolidated Statements of Income for 1995, 1994 and 1993
included the following components:
1995 1994 1993
Service cost $1,495 $1,739 $1,463
Interest cost on projected
benefit obligation 3,567 3,135 3,151
Actual return on assets (2,051) (253) (696)
Amortization of transition
obligation 1,471 1,527 1,560
Amortization and deferral 1,313 (381) (27)
----- ----- -----
Net postretirement benefits cost $5,795 $5,767 $5,451
===== ===== =====
The postretirement benefits cost components for 1995 were calculated
assuming health-care cost trend rates ranging from 11.5 percent for 1995
and decreasing to 5.0 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, 1995, by $2.8
million and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost for the year by $.5 million.
The assumed discount rate used in determining the accumulated
postretirement obligation was 7.25, 8.25 and 7.25 percent in 1995, 1994
and 1993, respectively. The long-term rate of return on assets was 9.00,
9.00 and 9.50 percent in 1995, 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.
c. Other Post-employment Benefits:
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, "Employers' Accounting for Post-employment 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 to the
Company's financial position or results of operations.
d. Long-Term Equity Incentive Plan
On January 23, 1994, the Company adopted the "WPL Holdings, Inc. Long-Term
Equity Incentive Plan" (the "Plan") which permits the grant of non-
qualified stock options and equivalent performance units. To date, 41,900
non-qualified stock options and equivalent performance units have been
granted under the Plan. The non-qualified stock options have a per-share
option price of $27.50. There were no options exercised during the year
nor exercisable at year-end.
NOTE 6. INCOME TAXES:
The following table reconciles the statutory federal income tax rate to
the effective income tax rate on continuing operations:
1995 1994 1993
Statutory federal income tax
rate 35.0 % 35.0 % 35.0 %
State income taxes, net of
federal benefit 6.0 5.3 5.1
Investment tax credits restored (1.7) (1.9) (2.1)
Amortization of excess deferred
taxes (1.5) (1.6) (1.7)
Affordable housing and
historical tax credits (4.5) (4.6) (5.7)
Other differences, net (0.8) 1.9 (3.1)
----- ----- -----
Effective income tax rate 32.5 % 34.1 % 27.5 %
===== ===== =====
The breakdown of income tax expense as reflected in the Consolidated
Statements of Income is as follows:
1995 1994 1993
Current federal $25,679 $26,793 $21,325
Current state 6,620 5,673 6,500
Deferred 10,716 10,321 5,015
Investment tax credit restored (1,916) (1,926) (1,967)
Affordable housing and
historical tax credits (4,991) (4,818) (5,217)
------ ------- ------
$36,108 $36,043 $25,656
====== ====== ======
The temporary differences that resulted in accumulated deferred income tax
(assets) and liabilities as of December 31, 1995 and 1994, are as follows:
1995 1994
Accelerated depreciation and other $226,647 $213,447
plant related
Unamortized investment tax credit (20,762) (21,784)
Regulatory liability 19,202 17,553
Other 16,063 14,833
------- -------
$241,150 $224,049
======= =======
Changes in WP&L'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 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 7. SHORT-TERM DEBT AND LINES OF CREDIT:
The Company and its subsidiaries maintain committed bank lines of credit,
most of which are at the bank prime rates, to obtain short-term borrowing
flexibility, including pledging lines of credit as security for any
commercial paper outstanding. Amounts available under these lines of
credit totaled $141.9 million as of December 31, 1995. Information
regarding short-term debt and lines of credit is as follows:
1995 1994 1993
As of end of year---
Lines of credit borrowings $ --- $ --- $2,000
Commercial paper
outstanding $56,500 $50,500 $49,000
Notes payable outstanding $53,025 $14,001 $40,954
Discount rates on
commercial paper 5.73%-5.77% 5.64%-6.12% 3.24%-3.40%
Interest rates on notes
payable 5.80%-6.42% 6.04%-6.07% 3.34%-3.35%
For the year ended--
Maximum month-end amount
of short-term debt $117,000 $81,000 $92,000
Average amount of short-
term debt (based on daily
outstanding balances) $68,725 $61,835 $56,250
Average interest rate on
short-term debt 5.95% 4.49% 3.33%
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS:
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined interest rate and gas commodity price risks.
The Company enters into interest rate swap agreements to reduce the impact
of changes in interest rates on its floating-rate debt and fees associated
with the sale of its accounts receivable. The notional principal amount
of interest rate swaps outstanding as of December 31, 1995, was $123
million. Average variable rates are based on rates implied in the forward
yield curve at the reporting date. The average pay and receive rates
associated with these agreements are 5.27 percent and 5.31 percent,
respectively. The swap agreements have contract maturities from one-and-a
half to five years. It is not the Company's intent to terminate these
contracts, however, the total cost to the Company if it were to terminate
all of the agreements existing at December 31, 1995, is $.8 million. In
addition, the Company entered into an interest rate forward contract
related to the anticipated issuance of $60 million of long-term debt
securities. At December 31, 1995, the forward contract, if settled on
that date, would have required a payment by the Company of approximately
$6.7 million. The financial impact of this contract, which will result in
either a cash payment or cash receipt, will be deferred and recognized as
an adjustment to interest expense over the life of the new bonds to effect
the interest rate implicit in the forward contract.
The Company uses gas commodity swaps to reduce the impact of price
fluctuations on gas purchased and injected into storage during the summer
months and withdrawn and sold at current market prices during the winter
months. Variances between underlying commodity prices and financial
contracts on these agreements are deferred and recognized as increases or
decreases in the cost of gas at the time the storage gas is sold. At
December 31, 1995 and 1994, the commodity swap agreements outstanding were
immaterial.
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In accordance with SFAS No. 107, "Disclosure about Fair Value of Financial
Instruments," all financial instruments of the Company for which the
carrying amount does not approximate fair value, must be disclosed. At
December 31, 1995, the fair value of long-term debt was $523.6 million and
the carrying amount was $490.7 million. At December 31, 1994, the fair
value of long-term debt was $499.6 million and the carrying amount was
$507.9 million.
NOTE 10. CAPITALIZATION:
a. Common Shareowners' Investment:
During 1995, 1994 and 1993, respectively, the Company issued 0, 337,980
and 451,233 new shares of common stock through its Dividend Reinvestment
and Stock Purchase Plan and 401(k) Savings Plan, generating proceeds of
$0, $9.6 million and $15.3 million, respectively.
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,
1995, and can be categorized as follows:
No. Of Shares
Issued and outstanding . . . . . . . . 30,773,588
Reserved for issuance for Dividend
Reinvestment and Purchase Plan . . . . 501,017
Reserved for WPLH Long-Term Equity
Incentive Plan . . . . . . . . . . . . 1,000,000
Common Stock Rights Agreement . . . . . 15,709,781
Unreserved . . . . . . . . . . . . . . 52,015,614
-----------
Total authorized . . . . . . . . . 100,000,000
===========
A retail rate order effective January 1, 1995, requires WP&L to maintain a
utility common equity level of 51.93 percent of total utility
capitalization during the test years January 1, 1995 to December 31, 1996.
In addition, the PSCW ordered that it must approve the payment of
dividends by WP&L to the Company that are in excess of the level
forecasted in the rate order ($58.1 million), if such dividends would
reduce WP&L's average common equity ratio below 51.93 percent. At
December 31, 1995, WP&L's common equity ratio was 52.6 percent.
b. Long-Term Debt:
Substantially all of WP&L's utility plant is secured by its first mortgage
bonds. Current maturities of long-term debt of the Company are as
follows: $3.4 million in 1996, $68.1 million in 1997, $12.1 million in
1998, $3.3 million in 1999 and $6.6 million in 2000.
On September 14, 1995, the Company received an order from the PSCW
authorizing the sale of up to $60 million of long-term debt securities.
The Company currently expects to make an offering of the long-term debt
securities before December 31, 1996, unless the PSCW grants a request for
extension. The Company intends to use the net proceeds from the sale of
these securities first to repay short-term debt which was incurred in June
1995 to repurchase in private transactions $18 million aggregate principal
amount of the Company's 9.30 percent first mortgage bonds, Series V, due
December 1, 2025. The remainder of the net proceeds will be used to repay
other short-term debt incurred by the Company to finance utility
construction expenditures and for general corporate purposes.
NOTE 11. COMMITMENTS AND CONTINGENCIES:
a. Coal Contract Commitments:
To ensure an adequate supply of coal, WP&L has entered into certain
long-term coal contracts. These contracts include a demand or take-or-pay
clause under which payments are required if contracted quantities are not
purchased. Purchase obligations on these coal and related rail contracts
total approximately $168 million through December 31, 2002. WP&L'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 $37 million in
1996, 1997, and 1998, $30 million in 1999 and $10 million in 2000,
respectively.
b. Purchased Power and Gas:
Under firm purchased power and gas contracts, WP&L is obligated as follows
(dollars in millions):
Purchased Power Purchased Gas
Purchase Purchase Dekatherms
Obligation MW's Obligation (in millions)
1996 $23.4 2,893 $73 94
1997 14.1 4,212 62 82
1998 17.7 4,041 52 69
1999 19.8 4,050 43 54
2000 27.7 4,796 39 52
Thereafter 104.6 11,510 108 163
c. Manufactured Gas Plant Sites:
Historically, WP&L has owned 11 properties that have been associated with
the production of manufactured gas. Currently, WP&L owns five of these
sites, three are owned by municipalities, and the remaining three are
owned by private companies. In 1989, WP&L 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.
WP&L has continued its investigations and studies. WP&L confirmed that
there was no contamination at two of the sites and has now received a
close out letter from the DNR related to each of those sites.
Additionally, the investigation of historical records at a third site
indicated a minimal likelihood of any significant environmental impacts.
In 1995, WP&L requested and received a close out letter for the third
site.
In February 1993, WP&L completed cost estimates for the environmental
remediation of the eight remaining sites. The result of this analysis
indicates that during the next 32 years, WP&L will expend approximately
$77 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
the 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, WP&L estimates that it will
incur average annual costs of $2 million to complete the planned
groundwater remediation activities.
Through 1995, 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. 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. 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.
d. Spent Nuclear Fuel and Decommissioning Costs:
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 over the
remaining life of the Kewaunee Nuclear Power Plant ("Kewaunee"). In July
1994, the PSCW issued a generic order covering utilities that have nuclear
generation, which standardizes the escalation assumptions to be used in
determining nuclear decommissioning liabilities.
WP&L's share of the decommissioning costs of Kewaunee is estimated to be
$169 million (in 1995 dollars, assuming the plant is operating through
2013) based on a 1992 site-specific study, using the immediate
dismantlement method of decommissioning. The costs of decommissioning are
assumed to escalate at an annual rate of 6.5 percent. The undiscounted
amount of decommissioning costs estimated to be expended between the years
2014 and 2050 is $1,016 million.
WP&L has established external trusts to custody decommissioning funds.
The Company's current annual contribution is $10.7 million. This amount
is fully recovered in rates. The after-tax income of the external trust
funds was $2.8 million, $2.7 million and $1.1 million for the years ended
December 31, 1995, 1994 and 1993, respectively. In accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", the fair value of the external trusts as of December 31, 1995
and 1994 is reported as $73.4 million and $51.8 million, respectively.
Decommissioning costs, which include the annual contribution and earnings
on the assets of the trust, are recorded as depreciation expense in the
Consolidated Statements of Income with the cumulative amount included in
the accumulated provision for depreciation on the Consolidated Balance
Sheets. Depreciation expense related to Kewaunee totaled $13.6 million,
$13.4 million and $6.1 million in 1995, 1994 and 1993, respectively. As
of December 31, 1995, the total decommissioning costs included in the
accumulated provision for depreciation were $73.4 million.
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 2001. An
investment of approximately $2.5 million could provide additional storage
sufficient to meet spent fuel storage needs until the expiration of the
current operating license.
The following summarizes the investment at December 31, 1995 and 1994:
1995 1994
Original cost of
nuclear fuel $160,997 $155,190
Less--Accumulated
amortization 142,130 135,794
------- -------
Nuclear fuel, net $18,867 $19,396
====== ======
e. Nuclear Insurance:
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, WP&L, as a 41-percent owner of Kewaunee, is
subject to an overall assessment of approximately $32.5 million per
incident for its ownership of this factor, not to exceed $4.1 million
payable in any given year.
Through its membership in Nuclear Electric Insurance Limited, WP&L has
obtained property damage and decontamination insurance totaling $1.5
billion for loss from damage at Kewaunee. In addition, WP&L maintains
outage and replacement power insurance coverage totaling $101.4 million in
the event an outage exceeds 21 weeks.
f. Planned Capital Expenditures:
Plans for the construction and financing of future additions to utility
plant can be found elsewhere in this report in "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
NOTE 12. PROPOSED MERGER OF THE COMPANY:
The Company, IES Industries Inc. ("IES"), and Interstate Power Company
("IPC") have entered into an Agreement and Plan of Merger ("Merger
Agreement"), dated November 10, 1995, providing for: a) IPC becoming a
wholly-owned subsidiary of the Company, and b) the merger of IES with and
into the Company, which merger will result in the combination of IES and
the Company as a single holding company (collectively, the "Proposed
Merger"). The new holding company will be named Interstate Energy
Corporation ("Interstate Energy"). The Proposed Merger, which will be
accounted for as a pooling of interests, has been approved by the
respective Boards of Directors. It is still subject to approval by the
shareholders of each company as well as several federal and state
regulatory agencies. The companies expect to receive the shareholder
approvals in the second quarter of 1996 and the regulatory approvals by
the second quarter of 1997.
The operating revenues, net income from continuing operations and total
assets of the companies were as follows:
PRO FORMA
COMBINED
WPLH IES IPC (Unaudited)
1995 Operating
revenues $807,255 $851,010 $318,542 $1,976,807
1995 Income from
continuing operations $71,618 $64,176 $25,198 $160,992
Assets at December 31,
1995 $1,872,414 $1,985,591 $634,316 $4,492,321
Under the terms of the Merger Agreement, the outstanding shares of the
Company's common stock will remain unchanged and outstanding as shares of
Interstate Energy. Each outstanding share of IES common stock will be
converted to .98 shares of Interstate Energy's common stock. Each share
of IPC's common stock will be converted to 1.11 shares of Interstate
Energy's common stock. It is anticipated that Interstate Energy will
retain the Company's common share dividend payment level as of the
effective time of the merger. On January 24, 1996, the Board of Directors
of the Company declared a quarterly dividend of 49.25 cents per share.
This represents an annual rate of $1.97 per share.
IES is a holding company headquartered in Cedar Rapids, Iowa, and is the
parent company of IES Utilities Inc. ("IES Utilities") and IES Diversified
Inc. ("IES Diversified"). IES Utilities supplies electric and gas service
to approximately 333,000 and 174,000 customers, respectively, in Iowa.
IES Diversified and its principal subsidiaries are primarily engaged in
the energy-related, transportation and real estate development businesses.
IPC, an operating public utility headquartered in Dubuque, Iowa, supplies
electric and gas service to approximately 163,000 and 49,000 customers,
respectively, in northeast Iowa, northwest Illinois and southern
Minnesota.
Interstate Energy will be the parent company of WP&L, IES Utilities and
IPC and will be registered under the Public Utility Holding Company Act of
1935, as amended ("1935 Act"). The Merger Agreement provides that these
operating utility companies will continue to operate as separate entities
for a minimum of three years beyond the effective date of the merger. In
addition, the non-utility operations of the Company and IES Diversified
will be combined shortly after the effective date of the merger under one
entity to manage the diversified operations of Interstate Energy. The
corporate headquarters of Interstate Energy will be in Madison.
The SEC historically has interpreted the 1935 Act to preclude registered
holding companies, with limited exceptions, from owning both electric and
gas utility systems. Although the SEC has recently recommended that
registered holding companies be allowed to hold both gas and electric
utility operations if the affected states agree, it remains possible that
the SEC may require as a condition to its approval of the Proposed Merger
that the Company, IES and IPC divest their gas utility properties, and
possibly certain non-utility ventures of the Company and IES, within a
reasonable time after the effective date of the Proposed Merger.
NOTE 13. DISCONTINUED OPERATIONS:
The Company's financial statements reflect the discontinuance of
operations of its utility energy and marketing consulting business in
1995. The discontinuance of this business resulted in a pre-tax loss of
$7.7 million ($11.0 million, net of the applicable income tax expenses).
The after tax loss on disposition was $11.0 million reflecting the
associated tax expense on disposition due to the non-deductibility of the
carrying value of goodwill at sale. Operating revenues, operating
expenses, other income and expense and income taxes for the discontinued
operations for the time periods presented have been excluded from income
from continuing operations. Interest expense has been adjusted for the
amounts associated with direct obligations of the discontinued operations.
Operating revenues, related losses, and income tax benefits associated
with the discontinued operations for the indicated time periods were as
follows:
1995 1994 1993
Operating revenues . . . . . $24,979 $34,798 $33,340
====== ====== ======
Loss from discontinued
operations before income tax $3,663 $1,806 $1,761
Income tax benefit . . . . . 1,451 632 599
----- ----- ------
Loss from discontinued
operations . . . . . . . . . $2,212 $1,174 $1,162
===== ===== =====
The assets and liabilities associated with discontinued operations
included in the Balance Sheets at December 31, 1995 and 1994 follow:
Assets: 1995 1994
Other property, plant and
equipment, net and investments . $1,612 $2,983
Accounts receivable, net . . . . . 4942 9914
Prepaids and other . . . . . . . . 333 932
Deferred charges and other . . . . 5717 16362
Liabilities:
Long-term debt, net . . . . . . . 147 218
Current maturities of long-term
debt . . . . . . . . . . . . . . 65 161
Accounts payable and accruals . . 1491 1022
Other accrued liabilities . . . . 684 2911
Other liabilities and deferred
credits . . . . . . . . . . . . . 736 1282
----- ------
Net assets . . . . . . . . . $9,481 $24,597
===== ======
NOTE 14. SEGMENT INFORMATION:
The following table sets forth certain information relating to the
Company's consolidated continuing operations:
Year Ended December 31,
1995 1994 1993
Operation information:
Customer revenues--
Electric $546,324 $531,747 $503,187
Gas 139,165 151,931 137,270
Environmental and
engineering services 88,574 87,673 81,396
Other 33,192 24,366 16,751
Operating income
(loss)--
Electric $137,171 $121,136 $118,785
Gas 17,341 13,334 10,431
Environmental and
engineering services 3,680 6,038 4,219
Other (a) (8,788) (8,693) (5,491)
Investment information:
Identifiable assets,
including allocated
common plant at
December 31--
Electric $1,226,786 $1,176,670 $1,170,010
Gas 250,643 234,815 228,257
Environmental and
engineering services 38,116 41,187 40,124
Other 356,869 353,229 323,508
Other information:
Construction and
nuclear fuel
expenditures--
Electric $122,297 $103,420 $139,805
Gas 16,905 20,319 18,876
Other 14,607 5,949 18,538
Depreciation and
amortization expense
Electric $71,379 $64,695 $53,398
Gas 9,629 8,082 7,329
Other 5,311 7,574 7,953
(a) excludes the effects of affordable housing and historical tax credits
of $5.0 million, $4.8 million and $5.2 million in 1995, 1994 and 1993,
respectively.
NOTE 15. CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
The summarized quarterly financial data 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
Revenues Income Net Income Per Share
Quarter Ended
1995:
March 31 $215,874 $44,701 $19,653 $0.64
June 30 175,990 21,427 6,939 .23
September 30 196,131 41,923 20,709 .67
December 31 219,260 41,353 11,131 .36
1994:
March 31 $227,023 $47,330 $26,369 $0.87
June 30 175,783 21,814 10,303 .33
September 30 190,178 33,801 15,309 .50
December 31 202,733 28,870 13,269 .43
The Company's business is influenced by seasonal weather conditions.
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 1996 Annual Meeting of
Shareowners is incorporated herein by reference to the information under
the caption "Election of WPLH Directors" in the Company's Proxy Statement
for its 1996 Annual Meeting of Shareowners (the "1996 Proxy Statement").
The 1996 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.
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 "Meetings and Committees of the WPLH Board-Compensation of Directors"
(but not including the Report of the Compensation and Personnel Committee
on Executive Compensation) in the 1996 Proxy Statement. The 1996 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 1996 Proxy Statement. The 1996 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 herein 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 1996 Proxy Statement. The 1996 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 on Schedules
Consolidated Statements of Income for the Years Ended December 31,
1995, 1994 and 1993
Consolidated Balance Sheets, December 31, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993
Consolidated Statements of Capitalization, December 31, 1995 and 1994
Consolidated Statements of Common Shareowners' Investment
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules
For each of the years ended December 31, 1995, 1994 and 1993
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 Required by Securities and Exchange Commission Regulation
S-K
The following Exhibits are filed herewith or incorporated herein by
reference. Documents indicated by an asterisk (*) are incorporated
herein by reference.
(2A*) Agreement and Plan of Merger, dated as of November 10, 1995, by
and among WPL Holdings, Inc., IES industries Inc., Interstate
Power Company and AMW Acquisition, Inc. (incorporated by
reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K, dated November 10, 1995)
(2B*) Option Grantor/Option Holder Stock Option and Trigger Payment
Agreement, dated as of November 10, 1995, by and among WPL
Holdings, Inc. and IES Industries Inc. (incorporated by
reference to Exhibit 2.2 to the Company's Current Report on
Form 8-K, dated November 10, 1995)
(2C*) Option Grantor/Option Holder Stock Option and Trigger Payment
Agreement, dated as of November 10, 1995, by and among WPL
Holdings, Inc. and Interstate Power Company. (incorporated by
reference to Exhibit 2.3 to the Company's Current Report on
Form 8-K, dated November 10, 1995)
(2D*) Option Grantor/Option Holder Stock Option and Trigger Payment
Agreement, dated as of November 10, 1995, by and among IES
Industries Inc. and WPL Holdings, Inc. (incorporated by
reference to Exhibit 2.4 to the Company's Current Report on
Form 8-K, dated November 10, 1995)
(2E*) Option Grantor/Option Holder Stock Option and Trigger Payment
Agreement, dated as of November 10, 1995, by and among IES
Industries, Inc. and Interstate Power Company. (incorporated
by reference to Exhibit 2.5 to the Company's Current Report on
Form 8-K, dated November 10, 1995)
(2F*) Option Grantor/Option Holder Stock Option and Trigger Payment
Agreement, dated as of November 10, 1995, by and among
Interstate Power Company and WPL Holdings, Inc. (incorporated
by reference to Exhibit 2.6 to the Company's Current Report on
Form 8-K, dated November 10, 1995)
(2G*) Option Grantor/Option Holder Stock Option and Trigger Payment
Agreement, dated as of November 10, 1995, by and among
Interstate Power Company and IES Industries Inc. (incorporated
by reference to Exhibit 2.7 to the Company's Current Report on
Form 8-K, dated November 10, 1995)
3A* Restated Articles of Incorporation (Exhibit 4.1 to the
Company's Form S-3 Registration Statement No. 33-59972)
3B Amendments to By-Laws of the Company
3C By-Laws of Company as Amended
4A* Indenture of Mortgage or Deed of Trust dated August 1, 1941,
between WP&L and First Wisconsin Trust Company and George B.
Luhman, as Trustees, filed as 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 (Second
Amended Exhibit 7(b) in File No. 2-7361; Amended Exhibit 7(c)
in 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 Exhibit 4.03 in File
No. 33-2579; Amended Exhibit 4.02 in File No. 33-4961;
Exhibit 4B to WP&L's Form 10-K for the year ended December 31,
1988, Exhibit 4.1 to WP&L'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 WP&L's Form 8-K dated March
9, 1992, Exhibit 4.1 to WP&L's Form 8-K dated May 12, 1992,
Exhibit 4.1 to WP&L's Form 8-K dated June 29, 1992 and Exhibit
4.1 to WP&L's Form 8-K dated July 20, 1992)
4B* Rights Agreement, dated 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)
59
10A*# Executive Tenure Compensation Plan as revised November 1992
(incorporated by reference to Exhibit 10A to 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 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 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 Company's
Form 10-K for the year ended December 31, 1993)
10F*# Pre-Retirement Survivor's Income Supplemental Plan, as revised
November 1992 (incorporated by reference to Exhibit 10F to
Company's Form 10-K for the year ended December 31, 1992)
10H*# 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)
10I# Deferred Compensation Plan for Directors, as amended January
17, 1995
10J*# 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)
10K*# 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)
10L*# 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)
10M*# 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)
10N*# Restricted Stock Agreement -- Lance W. Ahearn (incorporated by
reference to Exhibit 10J to the Company's Form 10-K for the
year ended December 31, 1992)
10O*# Restricted Stock Agreement -- Erroll B. Davis, Jr.
(incorporated by reference to Exhibit 10O to the Company's Form
10-K for the year ended December 31, 1994.)
21 Subsidiaries of the Company
23 Consent of Independent Public Accountants
27 Financial Data Schedule
99 1996 Proxy Statement for the Annual Meeting of Shareowners
currently scheduled to be held April 23, 1996. [The Proxy
Statement for the 1996 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 1996 Annual Meeting of Shareowners
will 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.
The Company filed a Current Report on Form 8-K, dated November 10,
1995, reporting (under Item 5) that it had entered into an Agreement
and Plan of Merger with IES Industries Inc. and Interstate Power
Company, and certain related documents.
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
29th day of March 1996.
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 29th day of
March 1996.
/s/ Erroll B. Davis, Jr. President, Chief Executive Officer and
Erroll B. Davis, Jr. 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 and
Daniel A. Doyle Treasurer (principal accounting officer)
Wisconsin Power and Light Company
/s/ L. David Carley Director /s/ Milton E. Neshek Director
L. David Carley Milton E. Neshek
/s/ Rockne G. Flowers Director /s/ Henry C. Prange Director
Rockne G. Flowers Henry C. Prange
/s/ Donald R. Haldeman Director /s/ Carol T. Toussaint Director
Donald R. Haldeman Carol T. Toussaint
/s/ Katharine C. Lyall Director /s/ Judith D. Pyle Director
Katharine C. Lyall Judith D. Pyle
/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 1995 Form 10-K of
WPL Holdings, Inc. and have issued our report thereon dated January 26,
1996. 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
January 26, 1996.
WPL HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
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.
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. 1995 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:
1995 1994
(In Thousands)
As of end of year:
Notes payable outstanding . . . . . . . . . . . . $37,000 $11,500
Interest rates on notes payable . . . . . . . . . 5.83 - 6.42% 6.06%
For the year ended:
Maximum month-end amount of short-term debt . . . $37,000 $52,500
Average amount of short-term debt . . . . . . . . $19,965 $36,462
Average interest rate on short-term debt . . . . . 5.99% 4.56%
Note D. During 1995, 1994 and 1993, 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
$2,005,000, $759,000, and $777,000 during 1995, 1994 and 1993,
respectively.
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPL HOLDINGS, INC.
(Parent Company Only)
STATEMENTS OF INCOME AND REINVESTED EARNINGS
As of December 31,
1995 1994 1993
(In Thousands)
Income:
Cash dividends . . . . . $59,701 $59,010 $56,068
Undistributed subsidiary
earnings (loss):
Heartland Development
Corporation . . . . . (17,570) (4,706) 1,337
Wisconsin Power and Light
Company . . . . . . . 18,564 12,173 5,850
Investment income and other 250 681 33
------- ------- -------
60,945 67,158 63,288
------- ------- -------
Expenses:
Operating (Note D) . . . 2,443 1,978 1,018
Interest and other . . . 1,248 842 805
------- ------ ------
3,691 2,820 1,823
------- ------ ------
Income before income tax
benefit . . . . . . . . . 57,254 64,338 61,465
------- ------ -------
Income tax benefit
(expense):
Current . . . . . . . . 1,178 974 750
Deferred . . . . . . . . 0 (62) 308
------- ------- ------
1,178 912 1,058
------- ------- ------
Net income . . . . . . . . 58,432 65,250 62,523
------- ------- ------
Reinvested earnings,
beginning of year . . . . 293,048 284,745 276,968
Cash dividends . . . . . (59,701) (59,010) (55,626)
Expense of issuing
preferred stock . . . 0 0 (1,082)
Other . . . . . . . . . 160 2,063 1,962
------- -------- -------
Reinvested earnings at end
of year . . . . . . . . . $291,939 $293,048 $284,745
======== ======= =======
The accompanying notes are an integral part of these statements.
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPL HOLDINGS, INC.
(Parent Company Only)
BALANCE SHEET
As of December 31,
1995 1994
(In Thousands)
ASSETS
Current assets:
Cash and equivalents . . . . . . . . $266 $1,061
Accounts receivable - affiliates . . 0 187
Notes receivable - affiliates (Note
B) . . . . . . . . . . . . . . . . . 53,182 28,471
------- -------
53,448 29,719
------- -------
Accounts receivable from WPL Holding
DRIP . . . . . . . . . . . . . . . . . 150 250
------- -------
Tax benefit receivable . . . . . . . . 823 1,219
------- -------
Property and equipment, net . . . . . . 999 1,009
------- -------
Investments and other . . . . . . . . . 200 267
------- -------
Investments in subsidiaries, at equity:
Heartland Development Corporation . . 49,145 66,834
Wisconsin Power and Light Company . . 563,070 544,506
------- -------
612,215 611,340
Deferred income taxes . . . . . . . . . 387 372
------- -------
Total Assets . . . . . . . . . . . . . $668,222 $644,176
======= =======
LIABILITIES AND CAPITALIZATION
Current liabilities:
Short term debt (Note C) . . . . . . $37,000 $11,500
Accounts payable - affiliates (Note
B) . . . . . . . . . . . . . . . . . (17) (149)
Accounts payable . . . . . . . . . . 0 3
Accrued taxes . . . . . . . . . . . . (1,170) (912)
Accrued interest and other . . . . . 248 220
Dividends payable . . . . . . . . . . 254 228
------- -------
36,315 10,890
Long-term debt . . . . . . . . . . . . 34,000 34,000
Deferred taxes . . . . . . . . . . . . 0 273
Deferred credit . . . . . . . . . . . . 437 1,215
------- --------
34,437 35,488
Capitalization: ------- --------
Common shareowners' investment:
Common stock, $.01 par value,
authorized 100,000,000 shares; issued
and outstanding -- 30,773,588 shares
and 30,773,588 shares at December 31,
1995 and 1994, respectively . . . . 308 308
Additional paid-in-capital . . . . . 305,223 304,442
Reinvested earnings . . . . . . . . . 291,939 293,048
-------- --------
Total Capitalization . . . . . . . . 597,470 597,798
-------- --------
Total Capitalization and Liabilities . $668,222 $644,176
======== ========
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,
1995 1994 1993
(In Thousands)
Cash flows generated from
(used for) operating
activities:
Net income $58,432 $65,250 $62,523
Undistributed earnings of
subsidiaries . . . . . . (994) (7,467) (7,187)
Equity investments in
subsidiaries and other . 119 (9,649) (77,196)
Depreciation . . . . . . 10 13 12
Deferred income taxes . . (288) (62) (308)
Changes in assets and
liabilities:
Receivables . . . . . . (24,028) (2,764) 3,703
Investments . . . . . . 67 7 (553)
Accounts payable . . . . 129 (4,876) (3,798)
Accrued taxes . . . . . (258) (818) (94)
Accrued interest and
other . . . . . . . . 28 (519) 36
Dividends payable . . . 26 80 (165)
Other . . . . . . . . . (778) 355 (27)
------ ------ ------
Net cash generated from
(used for) operating
activities . . . . . . 32,465 39,550 (23,054)
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 0 23,537 --
Long-term debt maturities 0 (56) --
Net change in short term
debt . . . . . . . . . . 25,500 (21,402) 13,807
Common stock cash
dividends less dividends
reinvested . . . . . . . (59,701) (49,357) (40,342)
Other . . . . . . . . . . 941 147 1,205
-------- -------- --------
Net cash (used for)
generated from financing
activities . . . . . . . (33,260) (47,131) 31,357
Cash flows generated from
(used for) investing
activities:
Purchase of property and
equipment . . . . . . . . -- -- --
------ ------ ------
Net cash used for
investing activities . . -- -- --
------ ------ -------
Net (decrease) increase in
cash and equivalents . . . (795) (7,581) 8,303
Cash and equivalents at
beginning of year . . . . 1,061 8,642 339
------ ------- ------
Cash and equivalents at end
of year . . . . . . . . . $266 $1,061 $8,642
====== ===== =====
Supplemental disclosures of
cash flow information:
Cash paid during the year
for:
Interest on debt $4,175 $2,097 $627
Income taxes . . . . . . $19,118 $16,412 $14,685
Noncash financing
activities:
Dividends reinvested . . $0 $9,653 $15,284
The accompanying notes are an integral part of these
statements.
SCHEDULE II
WPL HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($ In Thousands)
Additions Balance
Balance at Charged to at end
beginning costs and of
Description of period expenses Deductions period
Year ended
December 31, 1995:
Allowance for
doubtful $1,964 $966 $1,195 [1] $1,735
accounts . . . . ===== ==== ===== =====
Year ended
December 31, 1994:
Allowance for
doubtful $1,662 $1,027 $725 [1] $1,964
accounts . . . . ===== ===== ==== =====
Year ended
December 31, 1993:
Allowance for
doubtful $732 $1,540 $610 [1] $1,662
accounts . . . . ==== ===== ==== =====
[1] Uncollectible accounts written off, net of recoveries.
WPL HOLDINGS, INC. AND SUBSIDIARIES
Exhibit Index for the Year Ended
December 31, 1995
Item Description
3B Amendments to By-Laws of the Company
3C By-Laws of Company as Revised to January 24, 1996
21 Subsidiaries of the Company
23 Consent of Independent Public Accountants
27 Financial Data Schedule
99 1996 Proxy Statement for the Annual Meeting of Shareowners (to be
filed with the Securities and Exchange Commission under Regulation
14A within 120 days after the end of the Company's fiscal year)