UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Name of Registrant, State of
Incorporation, IRS Employer
Commission Address of Principal Executive Offices and Identification
File Number Telephone Number Number
1-9894 INTERSTATE ENERGY CORPORATION 39-1380265
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
0-4117-1 IES UTILITIES INC. 42-0331370
(an Iowa corporation)
Alliant Tower
Cedar Rapids, Iowa 52401
Telephone (319)398-4411
0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
WPL Holdings, Inc.
(Former name of Interstate Energy
Corporation)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrants were required to file such reports), and (2) have
been subject to such filing requirements for the past (90) days.
Yes X No _____
This combined Form 10-Q is separately filed by Interstate Energy
Corporation, IES Utilities Inc. and Wisconsin Power and Light Company.
Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
Number of shares outstanding of each class of common stock as of July 31,
1998:
Interstate Energy Common stock, $.01 par value, 76,907,499
Corporation shares outstanding
IES Utilities Inc. Common stock, $2.50 par value, 13,370,788
shares outstanding (all of which are owned
beneficially and of record by Interstate
Energy Corporation)
Wisconsin Power and Light Common stock, $5 par value, 13,236,601
Company shares outstanding (all of which are owned
beneficially and of record by Interstate
Energy Corporation)
CONTENTS
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Interstate Energy Corporation:
Consolidated Statements of Income for the
Three and Six Months Ended
June 30, 1998 and 1997 6
Consolidated Balance Sheets as of June
30, 1998 and December 31, 1997 7
Consolidated Statements of Cash Flows for
the Six Months Ended
June 30, 1998 and 1997 9
Notes to Consolidated Financial
Statements 10
IES Utilities Inc.:
Consolidated Statements of Income for the
Three and Six Months Ended
June 30, 1998 and 1997 13
Consolidated Balance Sheets as of June
30, 1998 and December 31, 1997 14
Consolidated Statements of Cash Flows for
the Six Months Ended
June 30, 1998 and 1997 16
Notes to Consolidated Financial
Statements 17
Wisconsin Power and Light Company:
Consolidated Statements of Income for the
Three and Six Months Ended
June 30, 1998 and 1997 19
Consolidated Balance Sheets as of June
30, 1998 and December 31, 1997 20
Consolidated Statements of Cash Flows for
the Six Months Ended
June 30, 1998 and 1997 22
Notes to Consolidated Financial
Statements 23
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 59
Part II. Other Information 59
Item 1. Legal Proceedings 59
Item 4. Submission of Matters to a Vote of
Security Holders 60
Item 5. Other Information 62
Item 6. Exhibits and Reports on Form 8-K 63
Signatures 72
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes of this
combined Form 10-Q are defined below:
Abbreviation or Acronym Definition
AICPA American Institute of Certified Public
Accountants
Alliant Industries Alliant Industries, Inc.
Alliant Services Alliant Services Company
DAEC Duane Arnold Energy Center
Diversified IES Diversified Inc.
DOE U.S. Department of Energy
Dth Dekatherm
EAC Energy Adjustment Clause
EPA United States Environmental Protection
Agency
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
HDC Heartland Development Corporation
IDNR Iowa Department of Natural Resources
IEC Interstate Energy Corporation
IEPC Iowa Environmental Protection Commission
IES IES Industries Inc.
IESU IES Utilities Inc.
IPC Interstate Power Company
ISO Independent System Operator
IUB Iowa Utilities Board
Kewaunee Kewaunee Nuclear Power Plant
LIBOR London Interbank Offer Rate
McLeod McLeodUSA Inc.
MD&A Management's Discussion and Analysis of
Financial Condition and Results of
Operations
MG&E Madison Gas and Electric Company
MGP Manufactured Gas Plants
Midwest ISO Midwest Independent System Operator
MPUC Minnesota Public Utilities Commission
MWH Megawatt-Hour
NOx Nitrogen Oxides
OCA Office of Consumer Advocate
PCB Polychlorinated Biphenyl
PGA Purchased Gas Adjustment
PSCW Public Service Commission of Wisconsin
PSD Prevention of Significant Deterioration
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
SIP State Implementation Plan
SO2 Sulfur Dioxide
SOP Statement of Position
Whiting Whiting Petroleum Corporation
WP&L Wisconsin Power and Light Company
WPLH WPL Holdings, Inc.
WPSC Wisconsin Public Service Corporation
INTERSTATE ENERGY CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
INTERSTATE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
(in thousands, except per share amounts)
Operating revenues:
Electric utility $ 380,414 $ 351,399 $ 738,165 $ 711,394
Gas utility 45,267 58,217 175,313 235,815
Nonregulated and other 65,331 84,226 133,817 210,282
-------- -------- --------- ---------
491,012 493,842 1,047,295 1,157,491
-------- -------- --------- ---------
Operating expenses:
Electric and steam
production fuels 69,538 65,382 139,094 140,337
Purchased power 73,417 64,048 129,563 127,833
Cost of utility gas sold 23,907 35,148 101,186 156,711
Other operation 158,220 147,928 308,370 339,094
Maintenance 33,389 33,215 58,647 60,779
Depreciation and
amortization 73,589 63,468 144,153 126,338
Taxes other than income
taxes 26,598 26,333 53,575 52,664
-------- -------- --------- ---------
458,658 435,522 934,588 1,003,756
-------- -------- --------- ---------
Operating income 32,354 58,320 112,707 153,735
-------- -------- --------- ---------
Interest expense and other:
Interest expense 32,231 28,434 63,155 56,934
Allowance for funds used
during construction (1,638) (1,109) (3,141) (2,364)
Preferred dividend
requirements of
subsidiaries 1,675 1,673 3,349 3,346
Miscellaneous, net 11,035 (1,740) 7,159 (5,213)
-------- -------- --------- ---------
43,303 27,258 70,522 52,703
-------- -------- --------- ---------
Income (loss) before income
taxes (10,949) 31,062 42,185 101,032
-------- -------- --------- ---------
Income taxes (1,382) 10,203 19,124 37,316
-------- -------- --------- ---------
Net income (loss) $ (9,567) $ 20,859 $ 23,061 $ 63,716
======== ======== ========= =========
Average number of common
shares outstanding 76,800 76,133 76,689 76,032
======== ======== ========= ==========
Earnings per average common
share (basic and diluted) $ (0.12) $ 0.27 $ 0.30 $ 0.84
======== ======== ========= ==========
Dividends declared per
common share $ 0.50 $ 0.50 $ 1.00 $ 1.00
======== ======== ========= ==========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
INTERSTATE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31,
ASSETS 1998 1997
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 4,771,760 $ 4,733,222
Gas 499,459 495,155
Other 373,197 366,395
---------- ----------
5,644,416 5,594,772
Less - Accumulated depreciation 2,751,605 2,631,582
---------- ----------
2,892,811 2,963,190
Construction work in progress 115,502 86,511
Nuclear fuel, net of amortization 48,804 55,777
---------- ----------
3,057,117 3,105,478
Other property, plant and equipment,
net of accumulated depreciation and
amortization of $138,792 and $122,058,
respectively 379,964 357,435
---------- ----------
3,437,081 3,462,913
---------- ----------
Current assets:
Cash and temporary cash investments 31,719 27,329
Accounts receivable:
Customer, less allowance for doubtful
accounts of $2,512 and $2,400,
respectively 103,700 123,545
Other, less allowance for doubtful
accounts of $287 and $224,
respectively 15,331 20,824
Notes receivable 17,014 23,410
Production fuel, at average cost 40,414 40,656
Materials and supplies, at average cost 50,782 49,845
Gas stored underground, at average cost 10,132 32,364
Regulatory assets 33,251 36,330
Prepayments and other 61,972 57,939
---------- ----------
364,315 412,242
---------- ----------
Investments:
Investment in McLeodUSA Inc. 398,995 328,022
Nuclear decommissioning trust funds 216,316 190,238
Investment in foreign entities 65,464 57,072
Other 48,742 49,319
---------- ----------
729,517 624,651
---------- ----------
Other assets:
Regulatory assets 326,635 352,365
Deferred charges and other 91,771 99,550
---------- ----------
418,406 451,915
---------- ----------
$ 4,949,319 $ 4,951,721
========== ==========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
INTERSTATE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED) (UNAUDITED)
June 30, December 31,
CAPITALIZATION AND LIABILITIES 1998 1997
(in thousands, except share amounts)
Capitalization:
Common stock - $.01 par value -
authorized 200,000,000 shares;
outstanding 76,874,391 and
76,481,102 shares, respectively $ 769 $ 765
Additional paid-in
capital 881,734 868,903
Retained earnings 562,266 602,854
Accumulated other
comprehensive income 215,039 173,512
--------- ---------
Total common
equity 1,659,808 1,646,034
--------- ---------
Cumulative preferred stock of
subsidiaries:
Par/Stated Authorized Shares Mandatory
Value Shares Outstanding Redemption
$ 100 * 449,765 No 44,977 44,977
$ 25 * 599,460 No 14,986 14,986
$ 50 466,406 366,406 No 18,320 18,320
$ 50 ** 216,381 No 10,819 10,819
$ 50 ** 545,000 Yes *** 27,250 27,250
---------- ----------
116,352 116,352
Less: unamortized expenses (2,919) (2,983)
---------- ----------
Total cumulative preferred
stock of subsidiaries 113,433 113,369
---------- ----------
Long-term debt (excluding
current portion) 1,489,369 1,467,903
---------- ----------
3,262,610 3,227,306
---------- ----------
Current liabilities:
Current maturities and sinking
funds 68,985 18,329
Variable rate demand
bonds 56,975 56,975
Commercial paper 77,651 114,500
Notes payable 36,324 42,000
Capital lease obligations 13,211 13,197
Accounts payable 157,453 192,634
Accrued taxes 73,562 78,923
Other 115,473 133,233
---------- ----------
599,634 649,791
---------- ----------
Other long-term liabilities and
deferred credits:
Accumulated deferred income taxes 737,837 731,026
Accumulated deferred investment tax
credits 80,116 82,862
Environmental liabilities 54,625 62,021
Customer advances 34,924 36,619
Capital lease obligations 19,338 23,634
Other 160,235 138,462
---------- ----------
1,087,075 1,074,624
---------- ----------
$ 4,949,319 $ 4,951,721
========== ==========
* 3,750,000 authorized shares in total between
the two classes
** 2,000,000 authorized shares in total between
the two classes
*** $53.20 mandatory redemption
price
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
INTERSTATE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months
Ended June 30,
1998 1997
(in thousands)
Cash flows from operating activities:
Net income $ 23,061 $ 63,716
Adjustments to reconcile net income
to net cash flows
from operating activities:
Depreciation and amortization 144,153 126,338
Amortization of nuclear fuel 8,555 7,370
Amortization of deferred energy
efficiency expenditures 14,443 3,956
Deferred taxes and investment tax
credits (10,847) (7,157)
Refueling outage provision (9,341) 4,190
Other 3,978 4,184
Other changes in assets and
liabilities:
Accounts receivable 25,338 41,959
Notes receivable 6,396 (14,764)
Production fuel 242 (2,024)
Materials and supplies (937) (2,144)
Gas stored underground 22,232 14,765
Accounts payable (35,181) (58,419)
Accrued taxes (5,361) (1,591)
Benefit obligations and other 31,480 15,571
----------- -----------
Net cash flows from operating
activities 218,211 195,950
----------- -----------
Cash flows from (used for) financing
activities:
Common stock dividends (79,455) (72,492)
Proceeds from issuance of common
stock 10,634 8,905
Net change in Alliant Industries,
Inc. credit facility 71,587 18,772
Proceeds from issuance of other
long-term debt 2,516 160,000
Reductions in other long-term debt (1,262) (90,965)
Net change in short-term
borrowings (42,525) (4,274)
Principal payments under capital
lease obligations (8,116) (5,665)
Other (36) (2,817)
---------- -----------
Net cash flows from (used for)
financing activities (46,657) 11,464
---------- -----------
Cash flows used for investing
activities:
Construction and acquisition
expenditures:
Utility (93,508) (119,715)
Other (64,845) (35,670)
Deferred energy efficiency
expenditures - (9,798)
Nuclear decommissioning trust
funds (15,863) (12,992)
Other 7,052 2,165
----------- ----------
Net cash flows used for
investing activities (167,164) (176,010)
----------- ----------
Net increase in cash and temporary
cash investments 4,390 31,404
----------- ----------
Cash and temporary cash investments at
beginning of period 27,329 22,817
----------- ----------
Cash and temporary cash investments at
end of period $ 31,719 $ 54,221
=========== ===========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 62,132 $ 58,133
=========== ==========
Income taxes $ 45,435 $ 48,264
=========== ==========
Noncash investing and financing
activities:
Capital lease obligations
incurred $ 1,271 $ 123
=========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
INTERSTATE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The interim consolidated financial statements included herein have
been prepared by IEC, without audit, pursuant to the rules and
regulations of the SEC. Accordingly, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although management believes that the
disclosures are adequate to make the information presented not
misleading. The consolidated financial statements include IEC and
its consolidated subsidiaries (WP&L, IESU, IPC, Alliant Industries and
Alliant Services). These statements are prepared on the basis of
accounting for the merger of WPLH, IES and IPC, which was effective
on April 21, 1998, as a pooling of interests. Certain adjustments
have been made to the prior period amounts as part of the restatement
to reflect the pooling of interests transaction. These financial
statements should be read in conjunction with the financial
statements and the notes thereto included in WPLH's, WP&L's, IES's,
IESU's and IPC's latest Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three and six months ended
June 30, 1998 and 1997, (b) the consolidated financial position at
June 30, 1998 and December 31, 1997, and (c) the consolidated
statement of cash flows for the six months ended June 30, 1998 and
1997, have been made. Because of the seasonal nature of IESU's,
WP&L's and IPC's operations, results for the three and six months
ended June 30, 1998 are not necessarily indicative of results that
may be expected for the year ending December 31, 1998. Certain prior
period amounts have been reclassified on a basis consistent with the
1998 presentation.
2. On January 1, 1998, IEC adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS 130 establishes standards for reporting of
comprehensive income and its components in a full set of general
purpose financial statements. SFAS 130 requires reporting a total
for comprehensive income which includes: (a) unrealized holding
gains/losses on securities classified as available-for-sale under
SFAS 115, (b) foreign currency translation adjustments accounted for
under SFAS 52, and (c) minimum pension liability adjustments made
pursuant to SFAS 87. Prior years have been restated to conform to
the SFAS 130 requirements. IESU and WP&L had no comprehensive income
in the periods presented.
IEC's comprehensive income (loss), and the components of other
comprehensive income (loss), net of taxes, were as follows (in thousands):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Net income (loss) $ (9,567) $ 20,859 $ 23,061 $ 63,716
Other comprehensive
income (loss), net
of tax:
Unrealized gain
(loss) on
securities
(Note 1) (20,358) - 41,471 -
Foreign currency
translation
adjustments 1 - 56 -
------- ------- -------- ------
Other
comprehensive
income (loss),
net of tax (20,357) - 41,527 -
------- ------- -------- -------
Comprehensive income
(loss) $ (29,924) $ 20,859 $ 64,588 $ 63,716
======== ======= ======== =======
Note 1: Adjustment to the estimated fair value each quarter of IEC's
investment in McLeod.
3. In accordance with an order from the PSCW, effective January 1, 1998,
off-system gas sales for WP&L are included in the Consolidated
Statements of Income as a reduction of the cost of gas sold rather
than as gas revenue. In 1997, off-system gas sales were included in
the Consolidated Statements of Income as gas revenue.
4. WPLH, as the surviving corporation in the merger, changed its name to
IEC. In connection with the merger, the number of authorized shares
of IEC common stock was increased to 200,000,000. See Item 2, "MD&A
- Merger" for additional information.
5. The provisions for income taxes are based on the estimated annual
effective tax rate, which differs from the federal statutory rate of
35% principally due to: state income taxes, tax credits, effects of
utility rate making and certain nondeductible expenses.
IES UTILITIES INC.
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
(in thousands)
Operating revenues:
Electric utility $ 147,640 $ 137,691 $ 288,290 $ 274,977
Gas utility 20,921 25,776 81,316 107,203
Steam and other 6,172 6,156 13,405 13,841
---------- ----------- ---------- -----------
174,733 169,623 383,011 396,021
---------- ----------- ---------- -----------
Operating expenses:
Electric and steam production
fuels 21,284 26,532 51,933 56,413
Purchased power 25,768 15,050 36,817 33,723
Cost of gas sold 10,782 15,788 48,439 76,579
Other operation 44,869 38,026 91,871 74,256
Maintenance 13,960 12,644 24,951 25,450
Depreciation and amortization 23,907 23,294 48,242 46,764
Taxes other than income taxes 12,407 11,715 24,713 23,607
---------- ----------- ---------- -----------
152,977 143,049 326,966 336,792
---------- ----------- ---------- -----------
Operating income 21,756 26,574 56,045 59,229
---------- ----------- ---------- -----------
Interest expense and other:
Interest expense 12,955 12,768 26,030 25,075
Allowance for funds used
during construction (801) (372) (1,566) (767)
Miscellaneous, net 4,167 1,883 4,446 1,530
---------- ----------- ----------- -----------
16,321 14,279 28,910 25,838
---------- ----------- ---------- -----------
Income before income taxes 5,435 12,295 27,135 33,391
---------- ----------- ---------- -----------
Income taxes 2,474 5,404 12,515 14,649
---------- ----------- ---------- -----------
Net income 2,961 6,891 14,620 18,742
---------- ----------- ---------- -----------
Preferred dividend requirements 229 229 457 457
---------- ----------- ---------- -----------
Earnings available for common
stock $ 2,732 $ 6,662 $ 14,163 $ 18,285
========== =========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS
June 30,
1998 December 31,
ASSETS (Unaudited) 1997
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 2,092,687 $ 2,072,866
Gas 189,821 187,098
Steam 55,374 55,374
Common 95,306 90,342
---------- ----------
2,433,188 2,405,680
Less - Accumulated depreciation 1,166,953 1,115,261
---------- ----------
1,266,235 1,290,419
Construction work in progress 53,414 38,923
Leased nuclear fuel, net of
amortization 32,454 36,731
---------- ----------
1,352,103 1,366,073
Other property, plant and equipment, net
of accumulated depreciation and
amortization of $1,839 and $1,709,
respectively 5,632 5,762
---------- ----------
1,357,735 1,371,835
---------- ----------
Current assets:
Cash and temporary cash investments 24,391 230
Temporary cash investments with
associated companies 13,343 -
Accounts receivable:
Customer, less allowance for doubtful
accounts of $946 and $630,
respectively 4,693 29,259
Associated companies 1,843 907
Other, less allowance for doubtful
accounts of $287 and $224,
respectively 6,744 9,235
Production fuel, at average cost 10,183 10,579
Materials and supplies, at average cost 23,151 22,976
Gas stored underground, at average cost 2,136 17,192
Regulatory assets 33,251 36,330
Prepayments and other 9,334 11,680
----------- ----------
129,069 138,388
----------- ----------
Investments:
Nuclear decommissioning trust funds 83,781 77,882
Other 5,572 5,167
----------- ----------
89,353 83,049
----------- ----------
Other assets:
Regulatory assets 146,261 163,264
Deferred charges and other 10,149 12,393
----------- -----------
156,410 175,657
----------- -----------
$ 1,732,567 $ 1,768,929
=========== ===========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30,
1998 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1997
(in thousands, except share amounts)
Capitalization:
Common stock - par value $2.50 per share -
authorized 24,000,000 shares; 13,370,788
shares outstanding $ 33,427 $ 33,427
Additional paid-in capital 279,042 279,042
Retained earnings 228,540 233,216
---------- ----------
Total common equity 541,009 545,685
Cumulative preferred stock, not
mandatorily redeemable - par value
$50 per share - authorized 466,406
shares; 366,406 shares outstanding 18,320 18,320
Long-term debt (excluding current portion) 601,842 651,848
----------- -----------
1,161,171 1,215,853
----------- -----------
Current liabilities:
Current maturities and sinking funds 50,140 140
Capital lease obligations 13,197 13,183
Accounts payable 24,130 60,546
Accounts payable to associated companies 28,964 2,736
Accrued payroll and vacations 7,556 7,615
Accrued interest 12,245 12,230
Accrued taxes 45,262 58,996
Accumulated refueling outage provision 1,265 10,606
Environmental liabilities 5,415 4,054
Other 17,643 11,533
----------- -----------
205,817 181,639
----------- -----------
Other long-term liabilities and deferred
credits:
Accumulated deferred income taxes 232,493 238,829
Accumulated deferred investment tax
credits 30,540 31,838
Environmental liabilities 34,819 38,256
Pension and other benefit obligations 26,361 17,334
Capital lease obligations 19,257 23,548
Other 22,109 21,632
---------- ----------
365,579 371,437
---------- ----------
$ 1,732,567 $ 1,768,929
========== ==========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months
Ended June 30,
1998 1997
(in thousands)
Cash flows from operating activities:
Net income $ 14,620 $ 18,742
Adjustments to reconcile net income to
net cash flows from operating
activities:
Depreciation and amortization 48,242 46,764
Amortization of nuclear fuel 5,549 7,109
Amortization of deferred energy
efficiency expenditures 10,103 2,944
Deferred taxes and investment tax
credits (4,040) (9,746)
Refueling outage provision (9,341) 4,190
Other 536 2,466
Other changes in assets and
liabilities:
Accounts receivable 26,121 12,243
Production fuel 396 (356)
Materials and supplies (175) (950)
Gas stored underground 15,056 8,218
Accounts payable (10,188) (29,936)
Accrued taxes (13,734) 2,309
Adjustment clause balances 2,157 15,067
Benefit obligations and other 20,223 (1,187)
---------- -----------
Net cash flows from operating
activities 105,525 77,877
---------- ----------
Cash flows used for financing activities:
Common stock dividends (14,000) (28,000)
Preferred stock dividends (457) (457)
Proceeds from issuance of long-term
debt - 55,000
Reductions in long-term debt (140) (63,140)
Net change in short-term borrowings - 15,000
Principal payments under capital
lease obligations (8,116) (5,665)
Other - (112)
---------- -----------
Net cash flows used for financing
activities (22,713) (27,374)
---------- -----------
Cash flows used for investing activities:
Construction expenditures (42,404) (48,258)
Deferred energy efficiency
expenditures - (7,530)
Nuclear decommissioning trust funds (3,004) (3,004)
Other 100 62
---------- -----------
Net cash flows used for investing
activities (45,308) (58,730)
---------- -----------
Net increase (decrease) in cash and
temporary cash investments 37,504 (8,227)
---------- -----------
Cash and temporary cash investments at
beginning of period 230 11,608
---------- -----------
Cash and temporary cash investments at
end of period $ 37,734 $ 3,381
========== ===========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 24,702 $ 24,142
========= ==========
Income taxes $ 33,468 $ 31,876
========= ==========
Noncash investing and financing
activities - Capital lease
obligations incurred $ 1,271 $ 123
========= ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
IES UTILITIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the IEC Notes to Consolidated Financial
Statements are incorporated by reference insofar as they relate to
IESU. IEC Note 3 does not relate to IESU and, therefore, is not
incorporated by reference.
1. The interim consolidated financial statements included herein have
been prepared by IESU, without audit, pursuant to the rules and
regulations of the SEC. Accordingly, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although management believes that the
disclosures are adequate to make the information presented not
misleading. The consolidated financial statements include IESU and
its consolidated wholly-owned subsidiary, IES Ventures Inc. IESU is
a subsidiary of IEC. These statements are prepared on the basis of
accounting for the merger of WPLH, IES and IPC, which was effective
on April 21, 1998, as a pooling of interests. Certain adjustments
have been made to the prior period amounts as part of the restatement
to reflect the pooling of interests transaction. These financial
statements should be read in conjunction with the financial
statements and the notes thereto included in IESU's latest Annual
Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three and six months ended
June 30, 1998 and 1997, (b) the consolidated financial position at
June 30, 1998 and December 31, 1997, and (c) the consolidated
statement of cash flows for the six months ended June 30, 1998 and
1997, have been made. Because of the seasonal nature of IESU's
operations, results for the three and six months ended June 30, 1998
are not necessarily indicative of results that may be expected for
the year ending December 31, 1998. Certain prior period amounts have
been reclassified on a basis consistent with the 1998 presentation.
WISCONSIN POWER AND LIGHT COMPANY
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
(in thousands)
Operating revenues:
Electric utility $ 154,314 $ 151,306 $ 305,624 $ 309,733
Gas utility 16,943 23,633 67,261 95,212
Water 1,252 1,126 2,428 2,125
---------- ----------- ---------- -----------
172,509 176,065 375,313 407,070
---------- ----------- ---------- -----------
Operating expenses:
Electric production fuels 29,471 28,329 58,368 58,403
Purchased power 30,238 33,679 58,839 67,070
Cost of gas sold 8,515 13,884 39,229 61,266
Other operation 39,894 30,880 73,897 65,277
Maintenance 14,479 14,882 24,447 25,161
Depreciation and amortization 31,580 25,539 60,838 50,376
Taxes other than income taxes 7,504 7,990 15,215 15,417
---------- ----------- ---------- -----------
161,681 155,183 330,833 342,970
---------- ----------- ---------- -----------
Operating income 10,828 20,882 44,480 64,100
---------- ----------- ---------- -----------
Interest expense and other:
Interest expense 8,984 5,877 17,367 13,882
Allowance for funds used
during construction (742) (680) (1,398) (1,521)
Miscellaneous, net 3,142 (2,448) 1,276 (4,818)
---------- ----------- ---------- -----------
11,384 2,749 17,245 7,543
---------- ----------- ---------- -----------
Income (loss) before income
taxes (556) 18,133 27,235 56,557
---------- ----------- ---------- -----------
Income taxes 677 7,089 10,870 22,162
---------- ----------- ---------- -----------
Net income (loss) (1,233) 11,044 16,365 34,395
---------- ----------- ---------- -----------
Preferred dividend requirements 828 828 1,656 1,656
---------- ----------- ---------- -----------
Earnings available for common
stock $ (2,061) $ 10,216 $ 14,709 $ 32,739
========== =========== ========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
June 30,
1998 December 31,
ASSETS (Unaudited) 1997
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 1,802,936 $ 1,790,641
Gas 239,079 237,856
Water 25,881 24,864
Common 196,632 195,815
---------- ----------
2,264,528 2,249,176
Less - Accumulated depreciation 1,118,076 1,065,726
---------- ----------
1,146,452 1,183,450
Construction work in progress 51,961 42,312
Nuclear fuel, net of amortization 16,349 19,046
---------- ----------
1,214,762 1,244,808
Other property, plant and equipment,
net of accumulated depreciation and
amortization of $40 and $44,
respectively 787 684
---------- ----------
1,215,549 1,245,492
---------- ----------
Current assets:
Cash and temporary cash investments 1,928 2,492
Accounts receivable:
Customer 6,672 20,928
Associated companies 1,958 5,017
Other 8,587 11,589
Production fuel, at average cost 16,455 18,857
Materials and supplies, at average
cost 19,559 19,274
Gas stored underground, at average
cost 6,772 12,504
Prepayments and other 36,611 26,977
---------- ----------
98,542 117,638
---------- ----------
Investments:
Nuclear decommissioning trust funds 132,534 112,356
Other 14,499 14,877
---------- -----------
147,033 127,233
---------- -----------
Other assets:
Regulatory assets 117,183 120,826
Deferred charges and other 49,721 53,415
---------- ----------
166,904 174,241
---------- ----------
$ 1,628,028 $ 1,664,604
========== ==========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30,
1998 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1997
(in thousands, except share amounts)
Capitalization:
Common stock - par value $5 per
share - authorized
18,000,000 shares; 13,236,601
shares outstanding $ 66,183 $ 66,183
Additional paid-in capital 199,334 199,170
Retained earnings 305,925 320,386
---------- ----------
Total common equity 571,442 585,739
---------- ----------
Cumulative preferred stock, not
mandatorily redeemable -
without par value - authorized
3,750,000 shares, maximum
aggregate stated value
$150,000,000:
$100 stated value - 449,765
shares outstanding 44,977 44,977
$ 25 stated value - 599,460
shares outstanding 14,986 14,986
---------- ----------
Total cumulative preferred
stock 59,963 59,963
---------- ----------
Long-term debt (excluding current
portion) 354,586 354,540
---------- ----------
985,991 1,000,242
---------- ----------
Current liabilities:
Current maturities and sinking
funds 8,899 8,899
Variable rate demand bonds 56,975 56,975
Commercial paper - 81,000
Notes payable to associated
companies 57,303 -
Accounts payable 65,601 85,617
Accounts payable to associated
companies 20,170 -
Accrued payroll and vacations 11,557 12,221
Accrued interest 6,315 6,317
Other 23,231 25,162
---------- ----------
250,051 276,191
---------- ----------
Other long-term liabilities and
deferred credits:
Accumulated deferred income taxes 249,853 251,709
Accumulated deferred investment tax
credits 34,105 35,039
Customer advances 32,587 34,240
Environmental liabilities 8,943 9,238
Other 66,498 57,945
--------- ----------
391,986 388,171
--------- ----------
$ 1,628,028 $ 1,664,604
========= =========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months
Ended June 30,
1998 1997
(in thousands)
Cash flows from operating activities:
Net income $ 16,365 $ 34,395
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 60,838 50,376
Amortization of nuclear fuel 3,006 261
Deferred taxes and investment tax
credits (1,736) (361)
Other (971) (1,135)
Other changes in assets and liabilities:
Accounts receivable 20,317 15,254
Production fuel 2,402 (2,782)
Gas stored underground 5,732 4,923
Prepayments and other (9,634) (61)
Accounts payable 154 (7,730)
Benefit obligations and other 13,279 (841)
--------- ----------
Net cash flows from operating
activities 109,752 92,299
--------- ----------
Cash flows from (used for) financing
activities:
Common stock dividends (29,170) (41,480)
Preferred stock dividends (1,656) (1,656)
Proceeds from issuance of long-term debt - 105,000
Net change in short-term borrowings (23,697) (46,000)
Other - (2,622)
---------- -----------
Net cash flows from (used for)
financing activities (54,523) 13,242
---------- -----------
Cash flows used for investing activities:
Construction expenditures (38,980) (60,563)
Nuclear decommissioning trust funds (12,859) (9,988)
Other (3,954) (4,046)
---------- ----------
Net cash flows used for investing
activities (55,793) (74,597)
---------- ----------
Net increase (decrease) in cash and
temporary cash investments (564) 30,944
---------- ----------
Cash and temporary cash investments at
beginning of period 2,492 4,167
---------- ----------
Cash and temporary cash investments at end
of period $ 1,928 $ 35,111
========== ===========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 13,085 $ 14,646
========== ============
Income taxes $ 22,784 $ 17,748
========== ============
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the IEC Notes to Consolidated Financial
Statements are incorporated by reference insofar as they relate to
WP&L.
1. The interim consolidated financial statements included herein have
been prepared by WP&L, without audit, pursuant to the rules and
regulations of the SEC. Accordingly, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although management believes that the
disclosures are adequate to make the information presented not
misleading. The consolidated financial statements include WP&L and
its consolidated subsidiary. WP&L is a subsidiary of IEC. These
financial statements should be read in conjunction with the financial
statements and the notes thereto included in WP&L's latest Annual
Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three and six months ended
June 30, 1998 and 1997, (b) the consolidated financial position at
June 30, 1998 and December 31, 1997, and (c) the consolidated
statement of cash flows for the six months ended June 30, 1998 and
1997, have been made. Because of the seasonal nature of WP&L's
operations, results for the three and six months ended June 30, 1998
are not necessarily indicative of results that may be expected for
the year ending December 31, 1998. Certain prior period amounts have
been reclassified on a basis consistent with the 1998 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MERGER
In April 1998, IES, WPLH and IPC completed a three-way merger (Merger)
forming IEC. IEC is currently doing business as Alliant Corporation. In
connection with the Merger, IES was merged with and into WPLH forming IEC,
and IPC became a subsidiary of IEC. In addition, following the Merger,
the holding companies for the nonregulated businesses of the former WPLH
and IES (HDC and Diversified, respectively) were merged. The resulting
company from this merger is Alliant Industries. As a result of the
Merger, the first tier subsidiaries of IEC include: WP&L, IESU, IPC,
Alliant Industries and Alliant Services (the subsidiary formed to provide
administrative services as required under the Public Utility Holding
Company Act of 1935). Among various other regulatory constraints, IEC is
operating as a registered public utility holding company subject to the
limitations imposed by the Public Utility Holding Company Act of 1935.
Certain additional information regarding the Merger is included in the
Current Report on Form 8-K, dated April 21, 1998, filed by IEC with the
Securities and Exchange Commission.
As part of the approval process for the Merger, IEC agreed to various rate
freezes and rate caps implemented in certain jurisdictions for periods not
to exceed four years commencing on the effective date of the Merger (see
"Liquidity and Capital Resources - Rates and Regulatory Matters" for a
further discussion). Assuming capture of the anticipated merger-related
synergies and no significant legislative or regulatory changes affecting
IEC, IEC does not expect the merger-related electric and natural gas price
freezes to have a material adverse effect on its financial position or
results of operations.
This MD&A includes information relating to IEC, IESU, and WP&L (as well as
IPC and Alliant Industries). Where appropriate, information relating to a
specific entity has been segregated and labeled as such.
FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q (including
MD&A) that are not of historical fact are forward-looking statements
intended to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. From time to time, IEC,
IESU or WP&L may make other forward-looking statements within the meaning
of the federal securities laws that involve judgments, assumptions and
other uncertainties beyond the control of such companies. These forward-
looking statements may include, among others, statements concerning
revenue and cost trends, cost recovery, cost reduction strategies and
anticipated outcomes, pricing strategies, changes in the utility industry,
planned capital expenditures, financing needs and availability, statements
of expectations, beliefs, future plans and strategies, anticipated events
or trends and similar comments concerning matters that are not historical
facts. Investors and other users of the forward-looking statements are
cautioned that such statements are not a guarantee of future performance
and that such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from
those expressed in, or implied by, such statements. Some, but not all, of
the risks and uncertainties include weather effects on sales and revenues,
competitive factors, general economic conditions in the relevant service
territory, federal and state regulatory or government actions,
unanticipated construction and acquisition expenditures, issues related to
stranded costs and the recovery thereof, the operations of IEC's nuclear
facilities, unanticipated issues or costs associated with achieving Year
2000 compliance, the ability of IEC to successfully integrate the
operations of the parties to the Merger and unanticipated costs associated
therewith, unanticipated costs associated with certain environmental
remediation efforts being undertaken by IEC, technological developments
and changes in the rate of inflation.
UTILITY INDUSTRY OUTLOOK
IEC competes in an ever-changing utility industry. Set forth below is an
overview of this evolving marketplace.
Electric energy generation, transmission and distribution are in a period
of fundamental change in the manner in which customers obtain, and energy
suppliers provide, energy services. As legislative, regulatory, economic
and technological changes occur, electric utilities are faced with
increasing pressure to become more competitive. Such competitive
pressures could result in loss of customers and an incurrence of stranded
costs (i.e., assets and other costs rendered unrecoverable as the result
of competitive pricing). To the extent stranded costs cannot be recovered
from customers, they would be borne by security holders.
Legislative action which would allow customers to choose their electric
energy supplier is not expected in Wisconsin, Iowa or Minnesota this year.
Nationwide, however, 18 states (including Illinois and Michigan) have
adopted legislative or regulatory plans to implement electric utility
competition. In March 1998, the Clinton Administration unveiled its
electric utility competition plan, proposing that states implement
customer choice by January 1, 2003.
IEC realized 54%, 41%, 3% and 2% of its electric utility revenues in the
six months ended June 30, 1998 in Iowa, Wisconsin, Minnesota and Illinois,
respectively. Approximately 86% of the electric revenues were regulated
by the respective state commissions while the other 14% were regulated by
the FERC. IEC realized 57%, 37%, 3% and 3% of its gas utility revenues in
Iowa, Wisconsin, Minnesota and Illinois, respectively, during the same
period.
IESU realized all of its electric and gas utility revenues in Iowa in the
first and second quarters of 1998. During the six months ended June 30,
1998, approximately 93% of the electric revenues were regulated by the IUB
while the other 7% were regulated by the FERC.
WP&L realized 98% of its electric utility revenues in the six months ended
June 30, 1998 in Wisconsin and 2% in Illinois. Approximately 77% of the
electric revenues in the first six months of 1998 were regulated by the
PSCW and the ICC while the other 23% were regulated by the FERC. WP&L
realized 96% of its gas utility revenues in the first six months of 1998
in Wisconsin and 4% in Illinois.
Federal Regulation
WP&L, IESU and IPC are subject to regulation by the FERC. The National
Energy Policy Act of 1992 addresses several matters designed to promote
competition in the electric wholesale power generation market. In 1996,
FERC issued final rules (FERC Orders 888 and 889) requiring electric
utilities to open their transmission lines to other wholesale buyers and
sellers of electricity. In March 1997, FERC issued orders on rehearing
for Orders 888 and 889 (Orders 888-A and 889-A). In response to FERC
Orders 888 and 888-A, Alliant Services, on behalf of WP&L, IESU and IPC,
filed an Open Access Transmission Tariff (Tariff) that complies with the
orders. The Tariff supersedes the transmission tariffs previously filed
by the three utilities. Upon receiving the final merger-related
regulatory order, a compliance tariff was filed by Alliant Services with
the FERC. This filing was made to comply with the FERC's merger order.
In response to FERC Orders 889 and 889-A, WP&L, IESU and IPC are
participating in a regional Open Access Same-Time Information System.
FERC Order 888 permits utilities to seek recovery of legitimate, prudent
and verifiable stranded costs associated with providing open access
transmission services. FERC does not have jurisdiction over retail
distribution and, consequently, the final FERC rules do not provide for
the recovery of stranded costs resulting from retail competition. The
various states retain jurisdiction over the question of whether to permit
retail competition, the terms of such retail competition, and the recovery
of any portion of stranded costs that are ultimately determined to have
resulted from retail competition.
The utility subsidiaries cannot predict the long-term consequences of
these rules on their results of operations or financial condition.
In April 1998, IEC submitted an application to join the Midwest ISO for
electric transmission and advised the FERC of its decision. The Midwest
ISO initially was filed with the FERC by nine energy companies in January
1998. It would establish independent operation and control of the
electric transmission system across a broad geographic area spanning from
West Virginia to Missouri. All buyers and sellers of electricity would
have open access to the transmission system governed by the Midwest ISO.
The FERC must review and approve the Midwest ISO proposal. As part of its
Merger proceedings, the FERC accepted IEC's offer to file an ISO proposal
in early 1998. IEC believes that its decision to join the Midwest ISO
satisfies FERC requirements. IEC also filed with the FERC a copy of a
Wisconsin-only ISO proposal developed by Wisconsin Public Power Inc. IEC
was ordered to include the Wisconsin Public Power Inc. proposal in its
FERC filing by the PSCW, which reviewed and commented upon IEC's ISO
filing with the FERC as a condition of Merger approval in Wisconsin.
IEC's decision to join the Midwest ISO also responds to electric-
reliability legislation that was enacted in Wisconsin.
In June 1998, the PSCW revised the ten ISO standards it developed in 1996
and consolidated them into four new principles. The PSCW commented that
the four new principles establish a reasonable and proper basis for
providing Wisconsin public utilities and others with guidance for
participating in an ISO under Wisconsin Statutes. Although the PSCW found
that the Midwest ISO does not meet its new principles, many industry
observers believe that the FERC will have final jurisdiction as to the
design and membership of ISOs.
State Regulation
Iowa
IESU and IPC are subject to regulation by the IUB. The IUB initiated a
Notice of Inquiry (Docket No. NOI-95-1) in early 1995 on the subject of
"Emerging Competition in the Electric Utility Industry" to address all
forms of competition in the electric utility industry and to gather
information and perspectives on electric competition from all persons or
entities with an interest or stake in the issues. The IUB staff's report
in this docket was accepted by the IUB, finding, in part, that there is no
compelling reason to move quickly into restructuring the electric utility
industry in Iowa, based upon the existing level of relative prices.
However, the IUB is continuing the analysis and debate on restructuring
and retail competition in Iowa.
On September 10, 1997, the IUB issued an order adopting an "Action
Plan to Develop a Competitive Model for the Electric Industry in Iowa."
The IUB states in this action plan that while "the IUB has not determined
retail competition in the electric industry is in the best interests of
Iowa's consumers...", the State of Iowa is likely to be affected by
federal or neighboring states' actions so there is a need for the IUB to
design a model that suits Iowa's needs. The priority concerns in the plan
are public interest issues (an Iowa-specific pilot project, customer
information and assessment, environmental impacts, public benefits and
transition costs/benefits) and transmission-related issues (transmission
and distribution system reliability and transmission system operations).
There is no timetable in the action plan. On October 2, 1997, the IUB
staff sent to the advisory group (of which IESU and IPC are members) for
written comment a set of proposed guidelines for an Iowa-specific electric
pilot project that would allow retail access to a "subset of all customer
classes." The IUB has also issued an order covering unbundling of natural
gas rates for all Iowa customers to be effective in 1999.
The Iowa legislature is planning to conduct interim legislative committee
meetings regarding restructuring in the fall of 1998.
Wisconsin
WP&L is subject to regulation by the PSCW. The PSCW's inquiries into the
future structure of the natural gas and electric utility industries are
ongoing. The stated goal of the PSCW in the natural gas docket is "to
accommodate competition but not create it." The PSCW has followed a
measured approach to restructuring the natural gas industry in Wisconsin.
The PSCW has determined that customer classes will be deregulated (i.e.,
the gas utility would no longer have an obligation to procure gas
commodity for customers, but would still have a delivery obligation) in a
step-wise manner, after each class has been demonstrated to have a
sufficient number of gas suppliers available. A number of working groups
have been established by the PSCW and these working groups are addressing
numerous subjects which need to be resolved before deregulation may
proceed.
The short-term goals of the electric restructuring process are to ensure
reliability of the state's electric system and development of a robust
wholesale electric market. The longer-term goal is to establish
prerequisite safeguards to protect customers prior to allowing retail
customer choice. The PSCW is following a timetable to make this latter
determination on allowing customer choice in 1999-2000.
The PSCW has issued an order outlining its policies and principles for
Public Benefits (low-income assistance, energy efficiency, renewable
generation and environmental research and development) including funding
levels, administration of the funds and how funds should be collected from
customers. The PSCW has proposed increasing funding levels primarily
through utility rates by $50 to $75 million statewide. Legislation to
implement this proposal is being developed and likely will be introduced
later this year.
In May 1998, the PSCW reactivated Docket No. 05-BU-101, with the objective
of examining the degree of separation which should be required as a matter
of policy between utility and non-utility activities involving the various
state utilities. This issue will be addressed in hearings in November
1998. A future phase of the docket will investigate the standards of
conduct that should govern relationships and transactions between the
utility and its affiliates.
In June 1998, the PSCW issued a revision to its ISO standards as
previously discussed under "Federal Regulation."
Minnesota
IPC is subject to regulation by the MPUC. The MPUC established an
Electric Competition Working Group in April 1995. On October 28, 1997,
the Working Group issued a report and recommendations on retail
competition. The MPUC reviewed the report and directed its staff to
develop an electric utility restructuring plan and timeline. The
Minnesota legislature had established a joint legislative task force on
electric utility restructuring in 1995. It appears the earliest
restructuring legislation could be introduced is in 1999.
Illinois
IPC and WP&L are subject to regulation by the Illinois Commerce
Commission. The State of Illinois has passed electric deregulation
legislation requiring customer choice of electric supplier for all
customers by May 1, 2002. The legislation also requires filing a plan for
the assignment of transmission assets in Illinois to an ISO by June 1998.
IEC believes it met this requirement by joining the Midwest ISO as
previously discussed under "Federal Regulation."
Summary
Each of the utilities complies with the provisions of SFAS 71, "Accounting
for the Effects of Certain Types of Regulation." SFAS 71 provides that
rate-regulated public utilities record certain costs and credits allowed
in the ratemaking process in different periods than for nonregulated
entities. These are deferred as regulatory assets or regulatory
liabilities and are recognized in the consolidated statements of income at
the time they are reflected in rates. If a portion of the utility
subsidiaries' operations becomes no longer subject to the provisions of
SFAS 71 as a result of competitive restructurings or otherwise, a write-
down of related regulatory assets and possibly other charges would be
required, unless some form of transition cost recovery is established by
the appropriate regulatory body that would meet the requirements under
generally accepted accounting principles for continued accounting as
regulatory assets during such recovery period. In addition, each utility
subsidiary would be required to determine any impairment of other assets
and write-down any impaired assets to their fair value. The utility
subsidiaries believe they currently meet the requirements of SFAS 71.
IEC and its subsidiaries cannot currently predict the long-term
consequences of the competitive and restructuring issues described above
on their results of operations or financial condition. The major
objective is to allow the utilities to better prepare for a competitive,
deregulated utility industry. The strategy for dealing with these
emerging issues includes seeking growth opportunities, continuing to offer
quality customer service, ongoing cost reductions and productivity
enhancements.
IEC RESULTS OF OPERATIONS -
THREE MONTHS ENDED JUNE 30, 1998 VS. JUNE 30, 1997
Overview
IEC reported a second quarter 1998 net loss of $9.6 million, or $0.12 per
share, compared to net income of $20.9 million, or $0.27 per share, in the
second quarter of 1997. All references to earnings per share throughout
MD&A refer to both basic and diluted earnings per share.
The 1998 second quarter results included approximately $35 million (pre-
tax) of one-time merger-related expenses ($0.28 per share). Excluding
these one-time merger-related expenses, earnings would have been
approximately $0.16 per share in the second quarter of 1998. The merger-
related expenses were primarily for employee retirements and separations,
the services of IEC's advisors and other miscellaneous costs related to
the closing of the Merger. IEC estimates one-time merger-related expenses
will amount to $0.43 per share in 1998 ($0.35 per share for the six months
ended June 30, 1998, and an additional $0.08 per share in the second half
of 1998).
IEC's utility operations recorded a net loss of $3.0 million in the second
quarter of 1998 as compared to net income of $20.4 million for the same
period in 1997. Excluding the one-time merger-related expenses, the 1998
second quarter earnings would have been approximately $14.8 million.
IEC's utility earnings are typically lower in the second quarter, as
compared to other quarters, given the seasonal nature of the utility
business.
Contributing to the lower earnings was a decrease in IEC's natural gas
sales in the second quarter of 1998 due to milder weather conditions.
This was virtually offset by an increase in electric sales to ultimate
customers of 3% for the quarter. The increase was due largely to sales
growth as sales to industrial customers during the quarter increased 5%
reflecting continued growth in the IEC service territory. Warmer weather
conditions in the latter half of the second quarter of 1998 also resulted
in a slight increase in sales to residential customers.
The lower utility earnings in the second quarter of 1998 were also due to
higher depreciation expense, resulting from IEC's continued investment in
utility assets, and increased interest expense. The increase in interest
expense was largely due to unusually low interest expense in the second
quarter of 1997 resulting from an adjustment to decrease interest expense
relating to a tax audit settlement. In addition, the second quarter of
1998 reflects the impact of increasing the estimated 1998 effective tax
rate.
IEC's diversified (nonregulated) operations reported a net loss of $3.4
million in the second quarter of 1998 as compared to net income of $1.3
million in the comparable 1997 period. Excluding the one-time merger-
related expenses, the second quarter 1998 net loss would have been
approximately $2.3 million. The decrease in earnings was largely due to a
net loss of $1.9 million from IEC's electric-trading joint venture. The
trading loss stemmed from energy-supply constraints faced by the electric-
utility industry during a portion of June 1998 resulting from a
combination of very warm weather, generating plant outages and
transmission availability problems. Higher interest expense and start-up
expenses in international and domestic growth operations also contributed
to the decrease in earnings.
The 1998 second quarter results also reflect corporate expenses at the
parent of $3.1 million in the second quarter of 1998 as compared to $0.8
million in the comparable 1997 period. The increase was due to the
recording of certain merger-related expenses at the parent as well as
increased income tax expense.
Electric Operations
Electric margins and MWH sales for IEC for the three months ended June 30
were as follows:
Revenues and Costs MWHs Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 120,708 $ 115,467 5% 1,525 1,506 1%
Commercial 74,762 70,777 6% 1,167 1,127 4%
Industrial 118,451 111,704 6% 3,150 3,013 5%
-------- -------- --------- ---------
Total from ultimate
customers 313,921 297,948 5% 5,842 5,646 3%
Sales for resale 56,957 45,962 24% 2,036 1,618 26%
Other 9,536 7,489 27% 37 38 (3%)
-------- -------- -------- ---------
Total 380,414 351,399 8% 7,915 7,302 8%
======== ========= ====
Electric production
fuels 66,387 62,006 7%
Purchased power 73,417 64,048 15%
-------- --------
Margin $ 240,610 $ 225,345 7%
======== ======== ====
Electric margin increased $15.3 million, or 7%, during the second quarter
of 1998 compared with the same period in 1997 primarily due to the
recovery of concurrent and previously deferred expenditures for Iowa-
mandated energy efficiency programs. The recovery for energy efficiency
programs is in accordance with IUB orders (a portion of these recoveries
is also amortized to expense in other operation expenses). Electric
revenues included recoveries for energy efficiency program costs in Iowa
of $11.7 million and $2.2 million for the second quarters of 1998 and
1997, respectively.
Electric margin also improved $3.2 million due to the collection from WP&L
customers of a surcharge related to Kewaunee in April and May of 1998 (see
"Capital Requirements - Nuclear Facilities" for a further discussion).
The surcharge increased revenues and electric margin; however, a
corresponding amount was included in depreciation and amortization expense
resulting in no impact on earnings. Also contributing to the increase in
electric margin in the second quarter of 1998 was the reliance on more
costly purchased power at WP&L in the second quarter of 1997. WP&L
experienced higher levels of purchased power in 1997 due to numerous
outages including the shutdown of Kewaunee throughout most of the second
quarter of 1997 for steam generator tube repairs. Electric margin also
increased as a result of a sales increase, which was due largely to sales
growth in the IEC service territory with warmer weather conditions in the
latter half of the second quarter of 1998 also contributing slightly.
Partially offsetting the increase in electric margin were higher than
forecasted purchased power and transmission costs in Wisconsin and an
average retail rate decrease of 2.4% effective in April 1997. The higher
purchased power and transmission costs resulted in increased rates
beginning July 16, 1998 (see "Rates and Regulatory Matters - WP&L" for
additional information).
IESU's and IPC's electric tariffs include EAC's that are designed to
currently recover the costs of fuel and the energy portion of purchased
power billings.
Gas Operations
Gas margins and Dth sales for IEC for the three months ended June 30 were
as follows:
Revenues and Costs Dths Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 25,999 $ 32,327 (20%) 3,779 5,358 (29%)
Commercial 11,936 15,127 (21%) 2,352 3,180 (26%)
Industrial 3,030 3,900 (22%) 820 1,105 (26%)
Transportation and
other 4,302 6,863 (37%) 11,953 12,736 (6%)
-------- -------- -------- ---------
Total 45,267 58,217 (22%) 18,904 22,379 (16%)
======== ========= =======
Cost of utility gas
sold 23,907 35,148 (32%)
-------- ---------
Margin $ 21,360 $ 23,069 (7%)
======== ========= ======
Gas margin decreased $1.7 million, or 7%, during the second quarter of
1998 compared with the second quarter of 1997 primarily due to reduced
sales. Dth sales declined by 16% due to milder weather in the second
quarter of 1998 compared with the second quarter of 1997. Partially
offsetting the decline in margin were higher revenues from the recovery of
concurrent and previously deferred energy efficiency expenditures for
Iowa-mandated energy efficiency program costs in accordance with IUB
orders (a portion of these recoveries is also amortized to expense in
other operation expenses). Gas revenues included recoveries for energy
efficiency program costs in Iowa of $2.5 million and $0.7 million for the
second quarters of 1998 and 1997, respectively.
IESU's and IPC's gas tariffs include PGA clauses that are designed to
currently recover the cost of utility gas sold.
Nonregulated and Other Revenues
Nonregulated and other revenues for the three months ended June 30 were as
follows (in thousands):
1998 1997
Oil and gas production $17,477 $14,352
Environmental and engineering 16,687 19,235
services
Professional fees, rents and other 10,751 11,377
Nonregulated energy 9,682 27,930
Steam 6,381 7,088
Affordable housing 3,100 3,118
Water 1,253 1,126
------ ------
$65,331 $84,226
====== ======
The revenues for nonregulated energy declined significantly in the second
quarter of 1998 compared with the same period in 1997 primarily due to a
shift to higher margin, lower volume gas customers and the transfer of the
power marketing business to a joint venture in July 1997 with Cargill
Incorporated to market electricity and risk management services to
wholesale buyers. In addition, revenues declined in environmental and
engineering services due to a softening market. These decreases were
partially offset by increased oil and gas production revenues due to
increased 1998 acquisition and development activity.
Operating Expenses
Other operation expenses for the three months ended June 30 were as
follows (in thousands):
1998 1997
Utility-WP&L/IESU/IPC $113,193 $ 82,687
Nonregulated 44,615 65,183
Other 412 58
------- -------
$158,220 $147,928
======= =======
IEC's other operation expenses increased $10.3 million during the second
quarter of 1998 compared to the second quarter of 1997. The increase in
other operation expense at the utility subsidiaries was primarily due to
$20.1 million of merger-related expenses incurred in the second quarter of
1998, an increase of $11.0 million in energy efficiency expenses in Iowa
and higher administrative and general expenses at WP&L. The merger-
related expenses were primarily for employee retirements and separations.
The increase was partially offset by reduced nuclear operation expenses at
IESU.
Other operation expenses at the nonregulated businesses were lower in the
second quarter of 1998 compared with the second quarter of 1997 due to a
decrease in the cost of nonregulated energy sold of $18.0 million, a
softening market in the environmental and engineering services business
and the change in operating activities in the nonregulated energy business
described above. These reductions in operation expense were partially
offset by higher expenses in the oil and gas production business due to
increased activity and start-up expenses associated with international and
domestic growth opportunities.
Depreciation and amortization expense increased as a result of property
additions and the Kewaunee surcharge (which is recorded in depreciation
and amortization expense with a corresponding increase in revenues
resulting in no impact on earnings). (See "Capital Requirements - Nuclear
Facilities" for additional information).
Interest Expense and Other
Interest expense increased $3.8 million during the second quarter of 1998
compared with the second quarter of 1997 due to unusually low interest
expense in the second quarter of 1997, resulting from an adjustment to
decrease interest expense relating to a tax audit settlement. Interest
expense was also impacted by higher borrowings in the second quarter of
1998 as compared with the same period in 1997.
Miscellaneous, net expense increased $12.8 million primarily due to
merger-related expenses incurred in the second quarter of 1998 for the
services of IEC's advisors. Also contributing to the increase was a
second quarter 1998 pre-tax loss of $2.9 million from IEC's electric-
trading joint venture. Miscellaneous, net expense was impacted in the
second quarter of 1997 by a $2.5 million reserve for non-utility
investments.
Income Taxes
IEC's income tax expense decreased $11.6 million due to lower pre-tax
income which was partially offset by an increase in the overall effective
tax rate. The effective tax rate increased primarily due to reflecting
adjustments in the second quarter of 1998 for an increase in the estimated
1998 annual effective rate.
IEC RESULTS OF OPERATIONS -
SIX MONTHS ENDED JUNE 30, 1998 VS. JUNE 30, 1997
Overview
IEC reported net income for the six months ended June 30, 1998 of $23.1
million, or $0.30 per share, compared with $63.7 million, or $0.84 per
share, for the six months ended June 30, 1997.
The six months ended June 30, 1998 results included approximately $45
million (pre-tax) of one-time merger-related expenses ($0.35 per share).
Without these merger-related expenses, earnings would have been
approximately $0.65 per share for the six months ended June 30, 1998. The
merger-related expenses were primarily for employee retirements and
separations, the services of IEC's advisors and other miscellaneous
costs related to the closing of the Merger. IEC estimates one-time
merger-related expenses will amount to $0.43 per share in 1998 ($0.35 per
share for the six months ended June 30, 1998, and an additional $0.08 per
share in the second half of 1998).
IEC's utility operations recorded net income of $30.2 million for the six
months ended June 30, 1998 compared to net income of $63.2 million for the
same period in 1997. Excluding the one-time merger-related expenses,
earnings for the six months ended June 30, 1998 would have been
approximately $54 million. Contributing to the lower earnings was a
significant decrease in IEC's natural gas sales for the six months ended
June 30, 1998 due to milder weather conditions. Electric MWH sales
remained relatively unchanged with a 1% increase in sales to ultimate
customers. While sales to industrial customers increased 4% due to
continued growth in the IEC service territory, residential sales declined
3% due to milder weather.
The lower utility earnings for the six months ended June 30, 1998 were
also due to higher depreciation expense, resulting from IEC's continued
investment in utility assets, a higher effective income tax rate and
increased interest expense.
IEC's nonregulated operations reported a net loss of $3.6 million for the
six months ended June 30, 1998 compared with net income of $1.1 million
for the six months ended June 30, 1997. The decrease in earnings was
primarily related to merger-related expenses, losses incurred from IEC's
electric trading joint venture, start-up expenses in international and
domestic growth opportunities and lower oil and gas prices.
The six months ended June 30, 1998 results also reflect corporate expenses
at the parent of $3.5 million as compared to $0.6 million for the same
period in 1997. The increase was due to the recording of certain merger-
related expenses at the parent as well as increased income tax expense.
Electric Operations
Electric margins and MWH sales for IEC for the six months ended June 30
were as follows:
Revenues and Costs MWHs Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 247,777 $ 246,469 1% 3,237 3,333 (3%)
Commercial 146,794 142,889 3% 2,352 2,317 2%
Industrial 224,854 214,224 5% 6,150 5,939 4%
-------- -------- -------- --------
Total from ultimate
customers 619,425 603,582 3% 11,739 11,589 1%
Sales for resale 99,769 91,264 9% 3,706 3,212 15%
Other 18,971 16,548 15% 80 85 (6%)
-------- -------- -------- --------
Total 738,165 711,394 4% 15,525 14,886 4%
======== ======== =====
Electric production
fuels 132,089 131,973 -
Purchased power 129,563 127,833 1%
-------- --------
Margin $ 476,513 $ 451,588 6%
======== ======== =====
Electric margin increased $24.9 million, or 6%, during the six months
ended June 30, 1998 compared with the same period in 1997 primarily due to
the recovery of concurrent and previously deferred expenditures for Iowa-
mandated energy efficiency programs. The recovery for energy efficiency
programs is in accordance with IUB orders (a portion of these recoveries
is also amortized to expense in other operation expenses). Electric
revenues included recoveries for energy efficiency program costs in Iowa
of $24.0 million and $4.1 million for the six months ended June 30, 1998
and 1997, respectively.
Electric margin also improved $3.2 million due to the collection from WP&L
customers of a surcharge related to Kewaunee in April and May of 1998 (see
"Capital Requirements - Nuclear Facilities" for a further discussion). The
surcharge increased revenues and electric margin; however, a corresponding
amount was included in depreciation and amortization expense resulting in
no impact on earnings. Also contributing to the increase in electric
margin during the first six months of 1998 compared with the same period
in 1997 was the reliance on more costly purchased power at WP&L in the
first six months of 1997. WP&L experienced higher levels of purchased
power in 1997 due to numerous outages including the shutdown of Kewaunee
for steam generator tube repairs. A slight increase in sales to ultimate
customers and lower capacity costs at IESU also contributed to the
increase in margin.
Partially offsetting the increase in electric margin were higher than
forecasted purchased power and transmission costs at WP&L and rate
reductions implemented at WP&L and IPC in April 1997 and October 1997,
respectively. The higher purchased power and transmission costs resulted
in increased rates beginning July 16, 1998 (see "Rates and Regulatory
Matters - WP&L" for additional information).
IESU's and IPC's electric tariffs include EAC's that are designed to
currently recover the costs of fuel and the energy portion of purchased
power billings.
Gas Operations
Gas margins and Dth sales for IEC for the six months ended June 30 were as
follows:
Revenues and Costs Dths Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 106,292 $ 138,783 (23%) 17,557 21,449 (18%)
Commercial 51,134 69,390 (26%) 10,466 12,606 (17%)
Industrial 10,158 14,020 (28%) 2,661 3,102 (14%)
Transportation and
other 7,729 13,622 (43%) 26,744 29,204 (8%)
-------- -------- -------- --------
Total 175,313 235,815 (26%) 57,428 66,361 (13%)
======== ======== ======
Cost of utility gas
sold 101,186 156,711 (35%)
-------- --------
Margin $ 74,127 $ 79,104 (6%)
======== ======== =====
Gas margin decreased $5.0 million, or 6%, during the six months ended June
30, 1998 compared with the second quarter of 1997 primarily due to reduced
sales. Dth sales declined by 13% due to milder weather in the first six
months of 1998 compared with the same period in 1997. A rate reduction
implemented in April 1997 at WP&L also contributed to the decrease in
margin. Partially offsetting the margin decrease were higher revenues
from the recovery of concurrent and previously deferred energy efficiency
expenditures for Iowa-mandated energy efficiency program costs in
accordance with IUB orders (a portion of these recoveries is also
amortized to expense in other operation expenses). Gas revenues included
recoveries for energy efficiency program costs in Iowa of $9.6 million and
$2.4 million for the six months ended June 30, 1998 and 1997,
respectively.
IESU's and IPC's gas tariffs include PGA clauses that are designed to
currently recover the cost of utility gas sold.
Nonregulated and Other Revenues
Nonregulated and other revenues for the six months ended June 30 were as
follows (in thousands):
1998 1997
Oil and gas production $ 34,624 $ 30,683
Environmental and
engineering services 33,324 38,757
Professional fees, rents
and other 20,427 22,936
Nonregulated energy 23,127 93,650
Steam 13,826 15,910
Affordable housing 6,061 6,222
Water 2,428 2,124
------- -------
$133,817 $210,282
======= =======
The revenues for nonregulated energy declined significantly during the
first six months of 1998 compared with the same period in 1997 primarily
due to a shift to higher margin, lower volume gas customers and the
transfer of the power marketing business to a joint venture in July 1997
with Cargill Incorporated to market electricity and risk management
services to wholesale buyers. In addition, revenues declined in
environmental and engineering services due to a softening market. These
decreases were partially offset by increased oil and gas production
revenues due to increased 1998 acquisition and development activity. The
revenue increase from the higher oil and gas volumes sold was largely
offset by lower oil and gas prices, however.
Operating Expenses
Other operation expenses for the six months ended June 30 were as follows
(in thousands):
1998 1997
Utility- WP&L/IESU/IPC $215,940 $167,583
Nonregulated 91,597 171,507
Other 833 4
------- -------
$308,370 $339,094
======= =======
IEC's other operation expenses decreased $30.7 million during the six
months ended June 30, 1998 compared to the same period in 1997. Other
operation expense at the utility subsidiaries increased primarily due to
$29.8 million of merger-related expenses incurred in the first six months
of 1998, an increase of $23.5 million in energy efficiency expenses in
Iowa and higher administrative and general expenses at WP&L. The merger-
related expenses were primarily for employee retirements and separations.
The increase was partially offset by reduced nuclear operation expenses at
IESU.
Other operation expenses at the nonregulated businesses were lower in the
six month period ended June 30, 1998 compared with the same period in 1997
due to a decrease in the cost of nonregulated energy sold of $71.1
million, a softening market in the environmental and engineering services
business and the change in operating activities in the nonregulated energy
business described previously. These reductions in operation expenses
were partially offset by higher operation expenses in the oil and gas
production business due to increased activity as described above and
start-up expenses associated with international and domestic growth
opportunities.
Depreciation and amortization expense increased as a result of property
additions, the Kewaunee surcharge (which is recorded in depreciation and
amortization expense with a corresponding increase in revenues resulting
in no impact on earnings) and higher depletion expense at Whiting. (See
"Capital Requirements - Nuclear Facilities" for additional information).
Interest Expense and Other
Interest expense increased $6.2 million for the six months ended June
30,1998 compared with the same period in 1997 due to unusually low
interest expense in the second quarter of 1997, resulting from an
adjustment to decrease interest expense relating to a tax audit
settlement. Interest expense was also impacted by higher borrowings in
the first six months of 1998 as compared with the same period in 1997.
Miscellaneous, net expense increased $12.4 million primarily due to
merger-related expenses incurred during the first six months of 1998 for
the services of IEC's advisors. Also contributing to the increase was a
second quarter 1998 pre-tax loss of $3.2 million from IEC's electric-
trading joint venture. Miscellaneous, net expense was impacted in the
second quarter of 1997 by a $2.5 million reserve for non-utility
investments and higher interest income.
Income Taxes
IEC's income tax expense decreased $18.2 million due to lower pre-tax
income which was partially offset by an increase in the overall effective
tax rate. The effective tax rate increased primarily due to reflecting
adjustments in the second quarter of 1998 for an increase in the estimated
1998 annual effective rate.
IESU RESULTS OF OPERATIONS -
THREE MONTHS ENDED JUNE 30, 1998 VS. JUNE 30, 1997
Overview
IESU reported second quarter 1998 earnings available for common stock of
$2.7 million compared with $6.7 million for the same period in 1997. The
reduced earnings were primarily due to merger-related expenses and lower
weather-sensitive electric and gas sales due to milder weather conditions
in the second quarter of 1998. These items were partially offset by lower
other operation and maintenance expenses (other than merger-related and
energy efficiency expenses) and a $2.5 million reserve for non-utility
investments recorded in the second quarter of 1997.
Prior to August 1997, energy efficiency expenditures for state mandated
energy efficiency programs had been recorded as a regulatory asset and
recovered through rates over a four-year period. In August 1997, the IUB
allowed IESU to begin concurrent recovery of its prospective expenditures
(see "Rates and Regulatory Matters" for additional information).
Electric Operations
Electric margins and MWH sales for IESU for the three months ended June 30
were as follows:
Revenues and Costs MWHs Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 50,269 $ 50,442 - 571 603 (5%)
Commercial 37,255 36,450 2% 564 558 1%
Industrial 44,498 42,936 4% 1,238 1,183 5%
-------- -------- ------- -------
Total from ultimate
customers 132,022 129,828 2% 2,373 2,344 1%
Sales for resale 13,251 5,296 150% 532 184 189%
Other 2,367 2,567 (8%) 10 11 (9%)
-------- -------- ------- --------
Total 147,640 137,691 7% 2,915 2,539 15%
======= ======== ======
Electric production
fuels 18,133 23,156 (22%)
Purchased power 25,768 15,050 71%
-------- ---------
Margin $ 103,739 $ 99,485 4%
======== ========= ======
Electric margin increased $4.3 million, or 4%, during the second quarter
of 1998 compared with the same period in 1997 primarily due to the
recovery of concurrent and previously deferred expenditures for Iowa-
mandated energy efficiency programs. The recovery for energy efficiency
programs is in accordance with IUB orders (a portion of these recoveries
is also amortized to expense in other operation expenses). Electric
revenues included recoveries for energy efficiency program costs of $6.9
million and $1.0 million for the second quarters of 1998 and 1997,
respectively. A slight reduction in purchased power capacity costs also
contributed to the increase in margin. Industrial sales increased by 5%
as a result of continuing growth in IESU's service territory. Partially
offsetting the increase in margin was a sales decrease of 5% to higher
margin residential customers due to milder weather conditions in the
second quarter of 1998 as compared with the second quarter of 1997. Sales
for resale increased significantly as a result of the implementation of a
merger-related joint sales process during the second quarter of 1998 (off-
system sales revenues are passed through IESU's energy adjustment clause).
See "Rates and Regulatory Matters" for a further discussion.
IESU's electric tariffs include EAC's that are designed to currently
recover the costs of fuel and the energy portion of purchased power
billings.
Gas Operations
Gas margins and Dth sales for IESU for the three months ended June 30 were
as follows:
Revenues and Costs Dths Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 12,994 $ 15,649 (17%) 1,793 2,478 (28%)
Commercial 5,513 7,244 (24%) 1,060 1,429 (26%)
Industrial 1,530 2,030 (25%) 431 599 (28%)
Transportation and other 884 853 4% 2,500 2,455 2%
-------- -------- ------- -------
Total 20,921 25,776 (19%) 5,784 6,961 (17%)
======= ======= ====
Cost of gas sold 10,782 15,788 (32%)
-------- -------- ----
Margin $ 10,139 $ 9,988 2%
======== ======== ====
Gas margin increased $0.2 million, or 2%, during the second quarter of
1998 compared with the second quarter of 1997 primarily due to higher
revenues from the recovery of concurrent and previously deferred energy
efficiency expenditures for Iowa-mandated energy efficiency program costs
in accordance with IUB orders (a portion of these recoveries is also
amortized to expense in other operation expenses). Gas revenues included
recoveries for energy efficiency program costs of $1.7 million and $0.5
million for the second quarters of 1998 and 1997, respectively. Virtually
offsetting this was a decrease in Dth sales of 17% resulting from milder
weather.
IESU's gas tariffs include PGA clauses that are designed to currently
recover the cost of gas sold.
Operating Expenses
IESU's other operation expenses increased $6.8 million during the second
quarter of 1998 compared to the second quarter of 1997, primarily due to
$6.1 million of merger-related expenses and an increase of $6.1 million in
energy efficiency expense. The increase was partially offset by reduced
nuclear operation expenses. The merger-related expenses were primarily
for employee retirements and separations.
Maintenance expense increased $1.3 million primarily due to increased
nuclear plant maintenance costs and higher transmission and distribution
maintenance expenses. These expenses were partially offset by lower
fossil-fueled plant maintenance costs.
Interest Expense and Other
Miscellaneous, net expense increased $2.3 million during the second
quarter of 1998 compared with the second quarter of 1997 primarily due to
merger-related expenses for the services of the company's advisors.
Miscellaneous, net expense was impacted in the second quarter of 1997 by a
$2.5 million reserve for non-utility investments.
Income Taxes
IESU's income tax expense decreased $2.9 million due to lower pre-tax
income which was partially offset by a slight increase in the overall
effective tax rate.
IESU RESULTS OF OPERATIONS -
SIX MONTHS ENDED JUNE 30, 1998 VS. JUNE 30, 1997
Overview
IESU reported earnings available for common stock of $14.2 million for the
six months ended June 30, 1998 compared with $18.3 million for the same
period in 1997. The reduced earnings were primarily due to merger-related
expenses and lower gas sales due to milder weather conditions. Lower
other operation and maintenance expenses (other than merger-related and
energy efficiency expenses) partially offset these items.
Prior to August 1997, energy efficiency expenditures for state mandated
energy efficiency programs had been recorded as a regulatory asset and
recovered through rates over a four-year period. In August 1997, the IUB
allowed IESU to begin concurrent recovery of its prospective expenditures
(see "Rates and Regulatory Matters" for additional information).
Electric Operations
Electric margins and MWH sales for IESU for the six months ended June 30
were as follows:
Revenues and Costs MWHs Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 104,838 $ 103,526 1% 1,234 1,296 (5%)
Commercial 74,866 73,262 2% 1,147 1,137 1%
Industrial 84,737 81,631 4% 2,401 2,330 3%
-------- -------- -------- --------
Total from ultimate
customers 264,441 258,419 2% 4,782 4,763 -
Sales for resale 18,963 11,493 65% 721 356 103%
Other 4,886 5,065 (4%) 21 23 (9%)
-------- -------- ------- --------
Total 288,290 274,977 5% 5,524 5,142 7%
======= ========
Electric production
fuels 44,928 48,049 (6%)
Purchased power 36,817 33,723 9%
---------- ---------
Margin $ 206,545 $ 193,205 7%
========== ========= =====
Electric margin increased $13.3 million, or 7%, during the six months
ended June 30, 1998 compared with the same period in 1997 primarily due to
the recovery of concurrent and previously deferred expenditures for Iowa-
mandated energy efficiency programs and reduced purchased power capacity
costs. The recovery for energy efficiency programs is in accordance with
IUB orders (a portion of these recoveries is also amortized to expense in
other operation expenses). Electric revenues included recoveries for
energy efficiency program costs of $14.6 million and $2.3 million for the
six months ended June 30, 1998 and 1997, respectively. Partially
offsetting the increase in margin was a sales decrease of 5% to higher
margin residential customers due to milder weather conditions during the
six-month period ended June 30, 1998 compared with the same period in
1997. Sales for resale increased significantly as a result of the
implementation of a merger-related joint sales process during the second
quarter of 1998 (off-system sales revenues are passed through IESU's
energy adjustment clause). See "Rates and Regulatory Matters" for a
further discussion.
IESU's electric tariffs include EAC's that are designed to currently
recover the costs of fuel and the energy portion of purchased power
billings.
Gas Operations
Gas margins and Dth sales for IESU for the six months ended June 30 were
as follows:
Revenues and Costs Dths Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 50,996 $ 66,235 (23%) 8,417 10,115 (17%)
Commercial 23,505 32,819 (28%) 4,936 5,762 (14%)
Industrial 4,692 6,270 (25%) 1,345 1,434 (6%)
Transportation and other 2,123 1,879 13% 5,736 5,220 10%
-------- -------- --------- ---------
Total 81,316 107,203 (24%) 20,434 22,531 (9%)
========= =========
Cost of gas sold 48,439 76,579 (37%)
--------- ---------
Margin $ 32,877 $ 30,624 7%
========= =========
Gas margin increased $2.3 million, or 7%, during the six months ended June
30, 1998 compared with the same period in 1997 primarily due to higher
revenues from the recovery of concurrent and previously deferred energy
efficiency expenditures for Iowa-mandated energy efficiency program costs
in accordance with IUB orders (a portion of these recoveries is also
amortized to expense in other operation expenses). Gas revenues included
recoveries for energy efficiency program costs of $6.9 million and $2.1
million for the six months ended June 30, 1998 and 1997, respectively.
Partially offsetting this was a decrease in Dth sales of 9% resulting from
milder weather.
IESU's gas tariffs include PGA clauses that are designed to currently
recover the cost of gas sold.
Operating Expenses
IESU's other operation expenses increased $17.6 million during the six
months ended June 30, 1998 compared to the same period in 1997, primarily
due to an increase of $15.0 million in energy efficiency expenses and $7.9
million of merger-related expenses. The increase was partially offset by
reduced nuclear operation expenses. The merger-related expenses were
primarily for employee retirements and separations.
Depreciation and amortization expense increased $1.5 million for the six
months ended June 30, 1998 compared with the same period in 1997 primarily
because of increases in utility plant in service. Depreciation and
amortization expenses for all periods include a provision for
decommissioning the DAEC, which is collected through rates. The current
annual recovery level is $6.0 million.
Interest Expense and Other
Miscellaneous, net expense increased $2.9 million during the six months
ended June 30, 1998 compared with the same period in 1997 primarily due to
merger-related expenses for the services of the company's advisors and
lower returns on deferred energy efficiency expenditures (which are being
recovered concurrently effective August 1997). Miscellaneous, net expense
was impacted in the second quarter of 1997 by a $2.5 million reserve for
non-utility investments.
Income Taxes
IESU's income tax expense decreased $2.1 million due to lower pre-tax
income which was partially offset by an increase in the overall effective
tax rate.
WP&L RESULTS OF OPERATIONS -
THREE MONTHS ENDED JUNE 30, 1998 VS. JUNE 30, 1997
Overview
WP&L reported a loss for the second quarter of 1998 of $2.1 million as
compared with $10.2 million of consolidated earnings available for common
stock for the same period in 1997. The decline in earnings was primarily
due to merger-related expenses, higher other operation expenses and
increased interest expense. These increased expenses were partially offset
by higher electric margin due to economic strength in the service
territory, a surcharge related to the deferral of Kewaunee steam generator
repair costs (described below), warmer weather and less reliance on more
costly purchased power.
Electric Operations
Electric margins and MWH sales for WP&L for the three months ended June 30
were as follows:
Revenues and Costs MWHs Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 47,950 $ 45,206 6% 698 653 7%
Commercial 27,764 25,738 8% 472 438 8%
Industrial 41,606 38,908 7% 1,112 1,049 6%
-------- -------- --------- --------
Total from
ultimate customers 117,320 109,852 7% 2,282 2,140 7%
Sales for resale 33,898 39,498 (14%) 1,105 1,406 (21%)
Other 3,096 1,956 58% 14 13 8%
-------- -------- --------- ---------
Total 154,314 151,306 2% 3,401 3,559 (4%)
========= =========
Electric production
fuels 29,471 28,329 4%
Purchased power 30,238 33,679 (10%)
--------- ---------
Margin $ 94,605 $ 89,298 6%
========= ========= ====
Electric margin increased $5.3 million, or 6%, during the second quarter
of 1998 compared with the second quarter of 1997. The increase was due to
economic strength in the service territory, a $3.2 million surcharge
related to Kewaunee (see "Capital Requirements - Nuclear Facilities" for a
further discussion of the surcharge), warmer weather and the increased use
of less costly internal generation compared with the same period in 1997.
The Kewaunee surcharge increased revenues and electric margin; however, a
corresponding amount was included in depreciation and amortization expense
resulting in no impact on earnings. Residential sales increased 7% in the
second quarter of 1998 compared with the same period in 1997 primarily due
to warmer weather in May and June of 1998 compared with the same period in
1997.
Also contributing to the increase in electric margin in the second quarter
of 1998 was the reliance on more costly purchased power in the second
quarter of 1997. WP&L experienced higher levels of purchased power in
1997 due to numerous outages including the shutdown of Kewaunee throughout
most of the second quarter of 1997 for steam generator tube repairs.
Partially offsetting the increase in electric margin in the second quarter
of 1998 were higher than forecasted purchased power and transmission costs
and an average retail rate decrease of 2.4% effective in April 1997. The
higher purchased power and transmission costs resulted in increased rates
beginning July 16, 1998 (see "Rates and Regulatory Matters - WP&L" for
additional information).
Gas Operations
Gas margins and Dth sales for WP&L for the three months ended June 30 were
as follows:
Revenues and Costs Dths Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 8,979 $ 11,774 (24%) 1,490 2,055 (27%)
Commercial 4,506 5,577 (19%) 998 1,272 (21%)
Industrial 784 1,002 (22%) 198 259 (24%)
Transportation and other 2,674 5,280 (49%) 2,643 3,825 (31%)
-------- --------- -------- --------
Total 16,943 23,633 (28%) 5,329 7,411 (28%)
========= ========= =======
Cost of gas sold 8,515 13,884 (39%)
-------- ---------
Margin $ 8,428 $ 9,749 (14%)
======== ========= ======
Gas margin declined $1.3 million, or 14%, in the second quarter of 1998 as
compared with the second quarter of 1997 primarily due to a reduction in
Dth sales and an average retail rate reduction of 2.2% effective April 29,
1997. Sales declined 28% primarily as a result of milder weather in the
second quarter of 1998 compared with the second quarter of 1997. The
significant decline in transportation and other revenues resulted from
both reduced Dth sales and an accounting change for off-system sales as
required by the PSCW effective January 1, 1998. The accounting change
requires that beginning in 1998 off-system gas sales are reported as a
reduction of the cost of gas sold rather than as gas revenue. Off-system
gas sales were $1.0 million and $2.4 million in the second quarter of 1998
and 1997, respectively.
Effective January 1, 1995, the PSCW approved the replacement of the PGA
clause with an adjustment mechanism based on a prescribed commodity price
index. Prior to April 29, 1997, fluctuations in WP&L's commodity cost of
gas as compared with the price index were subject to a customer sharing
mechanism, with WP&L's gains or losses limited to $1.1 million. The gas
incentive mechanism was modified effective April 29, 1997 with Rate Order
UR-110 to include a revised sharing mechanism. Under the revised sharing
mechanism, 40% of all gains and losses relative to current commodity
prices as well as other benchmarks are recognized by WP&L rather than
refunded to or recovered from customers. WP&L realized unfavorable
contributions to gas margin of $0.7 million for the second quarter of 1998
and $0.5 million for the second quarter of 1997.
Operating Expenses
Other operation expense increased $9.0 million primarily due to merger-
related expenses for employee retirements and separations and higher
administrative and general expenses.
Depreciation and amortization expense increased $6.0 million primarily due
to the Kewaunee surcharge previously discussed, property additions and
higher depreciation and decommissioning expenses associated with Kewaunee
which were effective in May 1997 (see "Capital Requirements - Nuclear
Facilities" for additional information).
Interest Expense and Other
Interest expense and other increased $8.6 million in the second quarter of
1998 compared with the second quarter of 1997. Interest expense increased
$3.1 million in the second quarter of 1998 compared with the second
quarter of 1997 primarily due to unusually low interest expense in the
second quarter of 1997, resulting from an adjustment to decrease interest
expense relating to a tax audit settlement. Interest expense was also
impacted by increased borrowings in the second quarter of 1998 as compared
with the same period of 1997.
Miscellaneous, net expense increased $5.6 million in the second quarter of
1998 compared with the second quarter of 1997 largely due to merger-
related expenses for the services of the company's advisors.
Income Taxes
Income taxes decreased $6.4 million between quarters consistent with lower
taxable income partially offset by an adjustment recorded in the second
quarter of 1998 for an increase in the estimated 1998 annual effective tax
rate.
WP&L RESULTS OF OPERATIONS -
SIX MONTHS ENDED JUNE 30, 1998 VS. JUNE 30, 1997
Overview
WP&L reported for the six months ended June 30, 1998 consolidated earnings
available for common stock of $14.7 million compared with $32.7 million
for the same period in 1997. The decrease in earnings was primarily due
to merger-related expenses, higher other operation expenses, increased
interest expense and a lower gas margin.
Electric Operations
Electric margins and MWH sales for WP&L for the six months ended June 30
were as follows:
Revenues and Costs MWHs Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 97,704 $ 100,011 (2%) 1,456 1,464 (1%)
Commercial 53,368 52,538 2% 931 904 3%
Industrial 78,675 74,190 6% 2,153 2,045 5%
--------- --------- -------- ---------
Total from ultimate
customers 229,747 226,739 1% 4,540 4,413 3%
Sales for resale 69,302 77,463 (11%) 2,520 2,793 (10%)
Other 6,575 5,531 19% 31 33 (6%)
---------- --------- -------- ---------
Total 305,624 309,733 (1%) 7,091 7,239 (2%)
======== =========
Electric production
fuels 58,368 58,403 -
Purchased power 58,839 67,070 (12%)
--------- ---------
Margin $ 188,417 $ 184,260 2%
========= ========= =====
Electric margin increased $4.2 million, or 2%, during the six months ended
June 30, 1998 compared with the same period in 1997. The margin increase
was largely due to economic strength in the service territory, the
surcharge related to Kewaunee previously discussed and the increased use
of less costly internal generation compared with the same period in 1997.
Partially offsetting the increase in electric margin were higher than
forecasted purchased power and transmission costs. The higher purchased
power and transmission costs resulted in increased rates beginning July
16, 1998 (see "Rates and Regulatory Matters - WP&L" for additional
information). Also offsetting the increase in electric margin were lower
residential sales, primarily due to less favorable weather from January
1998 through April 1998 compared with the same period in 1997, and an
average retail rate decrease of 2.4% effective in April 1997.
Gas Operations
Gas margins and Dth sales for WP&L for the six months ended June 30 were
as follows:
Revenues and Costs Dths Sold
(in thousands) Change (in thousands) Change
1998 1997 1998 1997
Residential $ 39,989 $ 53,406 (25%) 6,717 8,108 (17%)
Commercial 19,743 26,616 (26%) 4,119 4,950 (17%)
Industrial 3,458 4,958 (30%) 800 989 (19%)
Transportation and
other 4,071 10,232 (60%) 6,473 10,003 (35%)
-------- --------- -------- --------
Total 67,261 95,212 (29%) 18,109 24,050 (25%)
======== ======== =======
Cost of gas sold 39,229 61,266 (36%)
--------- ---------
Margin $ 28,032 $ 33,946 (17%)
========= ========= ======
Gas margin declined $5.9 million, or 17%, in the six months ended June 30,
1998 compared with the same period in 1997 primarily due to a reduction in
Dth sales and an average retail rate reduction of 2.2% effective in April
1997. Sales declined 25% primarily as a result of milder weather during
the first five months of 1998 compared with the same period in 1997. The
significant decline in transportation and other revenues resulted from
both reduced Dth sales and an accounting change for off-system sales as
required by the PSCW effective January 1, 1998. The accounting change
requires that beginning in 1998 off-system gas sales are reported as a
reduction of the cost of gas sold rather than as gas revenue. Off-system
gas sales were $7.9 million and $7.8 million during the first six months
of 1998 and 1997, respectively.
Effective January 1, 1995, the PSCW approved the replacement of the PGA
clause with an adjustment mechanism based on a prescribed commodity price
index. The gas incentive mechanism was modified effective April 29, 1997
with Rate Order UR-110 to include a revised sharing mechanism. Under the
revised sharing mechanism, 40% of all gains and losses relative to current
commodity prices as well as other benchmarks are recognized by WP&L rather
than refunded to or recovered from customers. WP&L realized unfavorable
contributions to gas margin of $0.5 million for the first six months of
1998 and favorable contributions of $0.4 million for the first six months
of 1997.
Operating Expenses
Other operation expense increased $8.6 million primarily due to merger-
related expenses for employee retirements and separations.
Depreciation and amortization expense increased $10.5 million due to the
Kewaunee surcharge previously discussed, property additions and higher
depreciation and decommissioning expenses associated with Kewaunee which
were effective in May 1997 (see "Capital Requirements - Nuclear
Facilities" for additional information).
Interest Expense and Other
Interest expense and other increased $9.7 million during the six months
ended June 30, 1998 compared with the same period in 1997. Interest
expense increased $3.5 million during this same period primarily due to
unusually low interest expense in the second quarter of 1997, resulting
from an adjustment to decrease interest expense relating to a tax audit
settlement. Interest expense was also impacted by increased borrowings in
1998 as compared with 1997.
Miscellaneous, net expense increased $6.1 million during the six months
ended June 30, 1998 compared with the same period in 1997 due to merger-
related expenses for the services of the company's advisors.
Income Taxes
Income taxes decreased $11.3 million between the six months ended June 30,
1998 and the same period in 1997 consistent with lower taxable income
which was partially offset by a slightly higher effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Historical IEC Analysis
Cash flows from operating activities at IEC increased to $218 million for
the six months ended June 30, 1998 compared with $196 million for the six
months ended June 30, 1997 primarily due to changes in working capital
partially offset by lower net income. Cash flows used for financing
activities were higher for the first six months of 1998 compared to the
first six months of 1997 due to the net change in short-term borrowings.
Cash flows used for investing activities were lower in the first six
months of 1998 compared with the first six months of 1997 due to the
concurrent recovery of energy efficiency expenditures in 1998. Times
interest earned before income taxes for IEC for the six months ended June
30, 1998 was 1.72 compared with 2.83 for the same time period in 1997.
Historical IESU Analysis
Cash flows generated from operating activities increased to $106 million
during the six months ended June 30, 1997 compared to $78 million for the
six months ended June 30, 1998 primarily due to changes in working
capital. Cash flows used for financing activities were lower in the first
six months of 1998 compared with the same period last year primarily due
to reduced common stock dividends partially offset by changes in debt
levels. Cash flows used for investing activities were lower during the
first six months of 1998 as compared with the first six months of 1997 due
to the concurrent recovery of energy efficiency expenditures in 1998 and
lower construction expenditures.
Historical WP&L Analysis
Cash flows generated from operations were $110 million for the six months
ended June 30, 1998 compared with $92 million for the six months ended
June 30, 1997. The increase was primarily due to higher depreciation
expense and changes in working capital, partially offset by lower net
income. Cash flows used for financing activities were higher in the first
six months of 1998 compared with the same period in 1997 primarily due to
changes in debt levels and lower common stock dividends. Cash flows used
for investing activities were lower in the first quarter of 1998 due to
reduced construction expenditures which were partially offset by higher
nuclear decommissioning funding levels.
Future Considerations
The capital requirements of IEC are primarily attributable to its utility
subsidiaries' construction and acquisition programs, its debt maturities
and business opportunities of Alliant Industries. It is anticipated that
future capital requirements of IEC will be met by cash generated from
operations and external financing. The level of cash generated from
operations is partially dependent upon economic conditions, legislative
activities, environmental matters and timely regulatory recovery of
utility costs. IEC's liquidity and capital resources will be affected by
costs associated with environmental and regulatory issues. Emerging
competition in the utility industry could also impact IEC's liquidity and
capital resources, as discussed previously in the "Utility Industry
Outlook" section.
IEC has interests in the international arena. At June 30, 1998, Alliant
Industries had approximately $65 million of investments in foreign
entities. At June 30, 1998, IESU, WP&L and IPC did not have any foreign
investments. It is expected that IEC will continue to explore additional
international investment opportunities. Such investments may carry a
higher level of risk than IEC's traditional domestic utility investments
or Alliant Industries' domestic investments. Such risks could include
foreign government actions, foreign economic and currency risks and
others.
IEC is expected to pursue various potential business development
opportunities, including international as well as domestic investments,
and is devoting resources to such efforts. It is anticipated that IEC
will strive to select investments where the international and other risks
are both understood and manageable.
At June 30, 1998, Alliant Industries and IPC had investments in the stock
of McLeod, a telecommunications company, valued at $397.3 million and $1.7
million (based on a June 30, 1998 closing price of $38.875 per share and
compared to a cost basis of $29.0 million and $0.1 million), respectively.
Pursuant to the applicable accounting rules, the carrying value of the
investments are adjusted to the estimated fair value each quarter based on
the closing price at the end of the quarter. The adjustments do not
impact net income as the unrealized gains or losses, net of taxes, are
recorded directly to the common equity section of the balance sheet. In
addition, any such gains or losses are reflected in current earnings only
at the time they are realized through a sale. Alliant Industries has
entered into an agreement with McLeod which restricts the sale or disposal
of their shares without the consent of the McLeod Board of Directors until
September 1998.
IEC had certain off-balance sheet financial guarantees and commitments
outstanding at June 30, 1998. They generally consist of third-party
borrowing arrangements and lending commitments as well as guarantees of
financial performance of syndicated affordable housing properties. Such
guarantees were generally issued to support third-party borrowing
arrangements and similar transactions. Management currently believes the
possibility of IEC having to make any material cash payments under these
agreements is remote.
Financing and Capital Structure
Access to the long-term and short-term capital and credit markets, and
costs of external financing, are dependent on creditworthiness. The debt
ratings of IEC and certain subsidiaries are as follows:
Standard &
Moody's Poor's
IESU - Secured long-term debt A2 A+
- Unsecured long-term debt A3 A
WP&L - Secured long-term debt Aa2 AA
- Unsecured long-term debt Aa3 A+
IPC - Secured long-term debt A1 A+
- Unsecured long-term debt A2 A
Alliant - Commercial paper P2 A1
Industries
IEC - Commercial paper (a) P1 A1
(a) IESU, WP&L and IPC participate in a utility money pool which is
funded, as needed, through the issuance of commercial paper by IEC.
This utility money pool replaced the commercial paper programs
previously in place at IESU, WP&L and IPC and they ceased issuing
their own commercial paper as of June 30, 1998.
Alliant Industries is a party to a 3-Year Credit Agreement with various
banking institutions. The agreement extends through October 2000, with
one-year extensions available upon agreement by the parties. Unused
borrowing availability under this agreement is also used to support
Alliant Industries' commercial paper program. A combined maximum of $450
million of borrowings under this agreement and the commercial paper
program may be outstanding at any one time. Interest rates and maturities
are set at the time of borrowing. The rates are based upon quoted market
prices and the maturities are less than one year. At June 30, 1998,
Alliant Industries had $254 million of borrowings outstanding under this
facility with interest rates ranging from 5.63%-6.25%. (Refer to the
"Other Matters - Financial Instruments" section for a discussion of
several interest rate swaps Alliant Industries has entered into relative
to $200 million of borrowings under this Agreement). Alliant Industries
intends to continue borrowing under the renewal options of this facility
and no conditions existed at June 30, 1998 that would prevent the issuance
of commercial paper or direct borrowings on its bank lines. Accordingly,
this debt is classified as long-term. In addition, Alliant Industries
also has in place a $150 million 364-Day Credit Agreement which is
described below.
Other than periodic sinking fund requirements, which will not require
additional cash expenditures, the following long-term debt (in millions)
will mature prior to December 31, 2002:
IESU $185.1
IPC 8.1
WP&L 10.8
Alliant Industries 282.8
------
IEC $486.8
======
Depending upon market conditions, it is currently anticipated that a
majority of the maturing debt will be refinanced with the issuance of
long-term securities.
IESU, WP&L and IPC currently have no authority from their applicable
federal/state regulatory commissions or the SEC to issue additional long-
term debt. The companies continually evaluate their future financing
needs and will make the necessary regulatory filings as needed. In July
1998, WP&L filed an application with the PSCW and a registration statement
with the SEC relating to the issuance of up to $60 million of unsecured
debt securities. It is currently anticipated that these securities will
be issued in the third quarter of 1998. The proceeds will be used to
reduce short term debt (short-term debt was also used to repay at maturity
$8.9 million of WP&L's Series L first mortgage bonds due August 1, 1998).
Also in July 1998, IESU filed an application with the FERC to issue up to
$200 million of debt securities. It is anticipated that the securities
will be issued during the next two years.
The various charter provisions of the entities identified below authorize
and limit the aggregate amount of additional shares of Cumulative
Preferred Stock and Cumulative Preference Stock that may be issued. At
June 30, 1998, the companies could have issued the following additional
shares of Cumulative Preferred or Preference Stock:
IESU WP&L IPC
Cumulative Preferred - 2,700,775 1,238,619
Cumulative Preference 700,000 - 2,000,000
The capitalization ratios of IEC, IESU, WP&L and IPC were as follows:
IEC IEC IESU WP&L IPC
6/30/98 12/31/97 6/30/98 12/31/97 6/30/98 12/31/97 6/30/98 12/31/97
Common equity 51% 51% 47% 45% 58% 59% 52% 52%
Preferred stock 3 3 1 1 6 6 8 8
Long-term debt 46 46 52 54 36 35 40 40
---- ---- ---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100% 100% 100%
For interim financing, IESU, WP&L and IPC were authorized by the
applicable federal or state regulatory agency to issue short-term debt as
follows (in millions) at June 30, 1998:
IESU WP&L IPC
Regulatory authorization $200 $138 $75
Short-term debt outstanding - $ 57 $14
IEC also had an additional $105 million of short-term debt outstanding at
June 30, 1998. In addition to providing for ongoing working capital
needs, this availability of short-term financing provides the companies
flexibility in the issuance of long-term securities. The level of short-
term borrowing fluctuates based on seasonal corporate needs, the timing of
long-term financing, and capital market conditions. To maintain
flexibility in its capital structure and to take advantage of favorable
short-term rates, IESU and WP&L also use proceeds from the sale of
accounts receivable and unbilled revenues to finance a portion of their
long-term cash needs. IEC anticipates that short-term debt will continue
to be available at reasonable costs due to current ratings by independent
utility analysts and rating services.
Alliant Industries is also a party to a 364-Day Credit Agreement with
various banking institutions. The agreement extends through October 20,
1998, with 364 day extensions available upon agreement by the parties.
The unborrowed portion of this agreement is also used to support Alliant
Industries' commercial paper program. A combined maximum of $150 million
of borrowings under this agreement and the commercial paper program may be
outstanding at any one time. Interest rates and maturities are set at the
time of borrowing. The rates are based upon quoted market prices and the
maturities are less than one year. There were no borrowings under this
facility at June 30, 1998.
In addition to the aforementioned borrowing capability under Alliant
Industries Credit Agreements, IEC had $150 million of bank lines of
credit, of which none was utilized, at June 30, 1998 available for direct
borrowing or to support commercial paper. Commitment fees are paid to
maintain these lines and there are no conditions which restrict the unused
lines of credit.
From time to time, IEC may borrow from banks and other financial
institutions on "as-offered" credit lines in lieu of commercial paper, and
has agreements with several financial institutions for such borrowings.
There are no commitment fees associated with these agreements and there
were no borrowings outstanding under these agreements at June 30, 1998.
Given the above financing flexibility, including IEC's access to both the
debt and equity securities markets, management believes it has the
necessary financing capabilities in place to adequately finance its
capital requirements for the foreseeable future.
Capital Requirements
General
Capital expenditure and investment and financing plans are subject to
continual review and change. The capital expenditure and investment
programs may be revised significantly as a result of many considerations,
including changes in economic conditions, variations in actual sales and
load growth compared to forecasts, requirements of environmental, nuclear
and other regulatory authorities, acquisition and business combination
opportunities, the availability of alternate energy and purchased power
sources, the ability to obtain adequate and timely rate relief,
escalations in construction costs and conservation and energy efficiency
programs.
Construction and acquisition expenditures for IEC for the six months
ended June 30, 1998 were $158 million. IEC's anticipated construction and
acquisition expenditures for 1998 were forecasted to be approximately
$630 million, consisting of approximately $277 million in its utility
operations, $190 million for energy-related international investments and
$163 million for new business development initiatives at Alliant Industries.
The level of 1998 domestic and international investments could vary
significantly from the estimates noted here depending on actual
investment opportunities, timing of the opportunities and the receipt of
regulatory approvals to exceed limitations in place under the Wisconsin
Utility Holding Company Act (WUHCA) on the amount of IEC's non-utility
investments. It is expected that IEC will spend approximately $1.2 billion
on utility construction and acquisition expenditures during 1999-2002.
It is expected that Alliant Industries will invest in energy products and
services in domestic and international markets, industrial services
initiatives and other strategic initiatives.
IEC anticipates financing utility construction expenditures during 1998-
2002 through internally generated funds supplemented, when required, by
outside financing. Funding of a majority of the Alliant Industries
construction and acquisition expenditures is expected to be completed with
external financings.
IESU's construction and acquisition expenditures for the six months ended
June 30, 1998 were $42.4 million compared with $48.3 million for the six
months ended June 30, 1997. IESU's construction and acquisition program
anticipates expenditures of approximately $124 million for 1998, of which
46% represents expenditures for electric transmission and distribution
facilities, 17% represents electric generation expenditures, 12%
represents information technology expenditures and 7% represents gas
utility expenditures. The remaining 18% represents miscellaneous
electric, steam and general expenditures. IESU's levels of utility
construction and acquisition expenditures are projected to be $129 million
in 1999, $103 million in 2000, $98 million in 2001 and $99 million in
2002. IESU anticipates funding the large majority of its utility
construction and acquisition expenditures during 1998-2002 through
internally generated funds, supplemented by external financings as needed.
WP&L's construction and acquisition expenditures for the six months ended
June 30, 1998 were $39.0 million compared with $60.6 million for the six
months ended June 30, 1997. The decrease was due to significant
expenditures in 1997 for computer system development projects. WP&L's
levels of utility construction and acquisition expenditures are projected
to be $133 million in 1998, $136 million in 1999, $138 million in 2000,
$141 million in 2001 and $144 million in 2002. WP&L anticipates funding
the large majority of its utility construction and acquisition
expenditures during 1998-2002 through internally generated funds,
supplemented by external financings as needed.
Nuclear Facilities
IEC owns interests in two nuclear facilities, Kewaunee and the DAEC. Set
forth below is a discussion of certain matters impacting these facilities.
Kewaunee, a 532-megawatt pressurized water reactor plant, is operated by
WPSC and is jointly owned by WPSC (41.2%), WP&L (41.0%), and MG&E (17.8%).
The Kewaunee operating license expires in 2013.
In accordance with PSCW authorization, WP&L had deferred $3.1 million at
March 31, 1998, associated with Kewaunee steam generator repair costs. In
March 1998, the PSCW approved recovery of these costs through a customer
surcharge effective April 1, 1998 through May 31, 1998.
On April 7, 1998, the PSCW approved WPSC's application for replacement of
the two steam generators at Kewaunee. The total cost of replacing the
steam generators would be approximately $90.7 million with WP&L's share of
the cost being approximately $37.2 million. The replacement work is
tentatively planned for the spring of 2000 and will take approximately 60
days. On July 2, 1998, the PSCW approved an agreement between the owners
of Kewaunee which provides for WPSC to assume the 17.8% Kewaunee ownership
share currently held by MG&E prior to work beginning on the replacement of
steam generators. When the ownership change takes place, WPSC will own
59.0% of Kewaunee and WP&L's share will remain at 41%. WPSC and WP&L
are putting in place revisions to the joint power supply agreement which
will govern operations of the plant after the ownership change takes
place.
Also on July 2, 1998, WP&L received approval from the PSCW to defer all
costs associated with the repair of Kewaunee steam generator tubes during
the fall 1998 refueling outage. Recovery of the deferred costs will then
be requested in a future rate proceeding.
Prior to the July 2, 1998 PSCW decisions, the PSCW had directed the owners
of Kewaunee to develop depreciation and decommissioning cost levels based
on an expected plant end-of-life of 2002 versus a license end-of-life of
2013. This was prompted by the uncertainty regarding the expected useful
life of the plant without steam generator replacement. The revised end-of
life of 2002 resulted in higher depreciation and decommissioning expense
at WP&L beginning in May 1997, in accordance with the PSCW rate order UR-
110. This level of depreciation will remain in effect until the steam
generator replacement is completed at which time the entire plant will be
depreciated over 8.5 years. At June 30, 1998, the net carrying amount of
WP&L's investment in Kewaunee was approximately $44.4 million. The
current cost of WP&L's share of the estimated costs to decommission
Kewaunee is $189.5 million and exceeds the trust assets at June 30, 1998
by $57.0 million. WP&L's contribution to the decommissioning trust fund
is based on an annual inflation rate of 5.83%. WP&L's retail customers in
the Wisconsin jurisdiction are responsible for approximately 80% of WP&L's
share of Kewaunee costs.
WPSC is an intervenor defendant in Madison Gas and Electric Co. v. Public
Service Commission of Wisconsin, Dane County Circuit Court. The case
involves MG&E's appeal of the PSCW's order granting WPSC authority to
replace the steam generators at Kewaunee. MG&E opposes the steam generator
replacement project. WPSC and MG&E have entered into a letter of intent
to consummate certain transactions which would result in the settlement of
MG&E's opposition to the steam generator replacement project and the
dismissal of MG&E's appeal. WPSC and MG&E anticipate executing a
definitive settlement agreement in August 1998.
DAEC, a 535-megawatt boiling water reactor plant, is operated by IESU and
IESU has a 70% ownership interest in the plant. The DAEC operating
license expires in 2014. Pursuant to the most recent electric rate case
order, the IUB allows IESU to recover $6.0 million annually for the cost
to decommission the DAEC. The current recovery figures are based on an
assumed cost to decommission the DAEC of $252.8 million, which is IESU's
70% portion in 1993 dollars, based on the Nuclear Regulatory Commission
minimum formula (which exceeds the amount in the current site-specific
study completed in 1994). At June 30, 1998, IESU had $83.8 million
invested in external decommissioning trust funds and also had an internal
decommissioning reserve of $21.7 million recorded as accumulated
depreciation.
Refer to the "Other Matters - Environmental" section for a discussion of
various issues impacting IEC's future capital requirements.
Rates and Regulatory Matters
In November 1997, as part of its Merger approval, FERC accepted a proposal
by IESU, WP&L, and IPC, which provides for a four-year freeze on wholesale
electric prices beginning with the effective date of the Merger.
In association with the Merger, IES, WP&L and IPC entered into a System
Coordination and Operating Agreement (Agreement) which became effective
with the consummation of the Merger. The Agreement, which has been
approved by the FERC, provides a contractual basis for coordinated
planning, construction, operation and maintenance of the interconnected
electric generation and transmission systems of the three utility
companies. In addition, the Agreement allows the interconnected system to
be operated as a single control area with off-system capacity sales and
purchases made to market excess system capability or to meet system
capability deficiencies. Such sales and purchases are allocated among the
three utility companies based on procedures included in the Agreement, and
approved by both the FERC and all state regulatory bodies having
jurisdiction over these sales.
IESU
In September 1997, IESU agreed with the IUB to provide Iowa customers a
four-year retail electric and gas price freeze commencing on the effective
date of the Merger. The agreement excluded price changes due to
government-mandated programs (such as energy efficiency cost recovery),
the electric fuel adjustment clause and PGA clause and unforeseen dramatic
changes in operations. In addition, the price freeze does not preclude a
review by either the IUB or OCA into whether IESU is exceeding a
reasonable return on common equity.
Pursuant to the authority described in the prior paragraph, the OCA has
requested certain financial information related to both electric and gas
utility jurisdictions within the state of Iowa for IESU. The OCA
requested information on what pro forma adjustments IESU would make to its
most recent historical test year (1997) to be in compliance with the State
of Iowa Code, IUB rules and past rate case precedent. IESU completed the
data request in a timely manner and based upon that information management
believes no change that would reduce utility rates would be warranted.
While IESU cannot predict the outcome of this process, management believes
that the final outcome will not have a material adverse impact on IESU's
results of operations or financial position.
Under provisions of the IUB rules, IESU is currently recovering the costs
it has incurred for its energy efficiency programs. There have been
several cost recovery filings made with and approved by the IUB over the
course of the last few years. Generally, the costs incurred through July
1997 are being recovered over various four-year periods. The IUB
commenced a rulemaking in January 1997 to implement statutory changes
allowing concurrent recovery and a final order in this proceeding was
issued in April 1997. The new rules allowed IESU to begin concurrent
recovery of its prospective expenditures on August 1, 1997. The
implementation of these changes will gradually eliminate the regulatory
asset that was created under the prior rate making mechanism as these
costs are recovered.
IESU has the following amounts of energy efficiency costs included in
regulatory assets on its Consolidated Balance Sheets (in thousands):
Four-Year
Recovery June 30, December 31,
Beginning 1998 1997
Costs incurred through
1993 6/95 $ 5,257 $ 7,779
Costs incurred in
1994-1995 8/97 26,565 30,924
Costs incurred from
1/96 - 7/97 8/97 16,625 19,847
(Over) under collection
of concurrent recovery N/A (804) 850
------ ------
$ 47,643 $ 59,400
====== ======
WP&L
In connection with its approval of the Merger, the PSCW accepted a WP&L
proposal to freeze rates for four years following the date of the Merger.
A re-opening of an investigation into WP&L's rates during the rate freeze
period, for both cost increases and decreases, may occur only for single
events that are not merger-related and have a revenue requirement impact
of $4.5 million or more. In addition, the electric fuel adjustment clause
and PGA clause are not affected by the rate freezes.
In rate order UR-110, the PSCW approved new rates effective April 29,
1997. On average, WP&L's retail electric rates under the new rate order
declined by 2.4% and retail gas rates declined by 2.2%. Other items
included in the rate order were: authorization of a surcharge to collect
replacement power costs while Kewaunee remained out of service for the
period effective April 29, 1997 through July 1, 1997; authorization of an
increase in the return on equity to 11.7% from 11.5%; reinstatement of the
electric fuel adjustment clause; continuation of a modified gas
performance based ratemaking incentive mechanism; and a modified SO2
incentive. In addition, the PSCW ordered that it must approve the payment
of dividends by WP&L to its parent company that are in excess of the level
forecasted in the rate order ($58.3 million), if such dividends would
reduce WP&L's average common equity ratio below 52.00% of total
capitalization. Based on the PSCW method approved for calculating return
on average common equity, the common equity ratio at June 30, 1998 was
53.52%.
The retail electric rates are based in part on forecasted fuel and
purchased power costs. Under PSCW rules, Wisconsin utilities can seek
emergency rate increases if these costs are more than 3% higher than the
estimated costs used to establish rates. In March 1998, WP&L requested an
electric rate increase to cover purchased power and transmission costs
that have increased due to transmission constraints and electric
reliability concerns in the Midwest. On July 14, 1998, the PSCW granted
an electric rate increase of $14.8 million annually that was effective on
July 16, 1998.
The gas performance incentive was modified to eliminate the maximum gain
or loss to be recognized by WP&L. Previously, this incentive was limited
to a maximum of $1.1 million to WP&L. The incentive includes a sharing
mechanism, whereby 40% of all gains and losses relative to current
commodity prices as well as other benchmarks are recognized by WP&L rather
than refunded to or recovered from customers.
In April 1998, WP&L filed a request with the PSCW requesting deferral
treatment of all Year 2000 costs provided those costs exceed $4.5 million.
In May 1998, the PSCW approved the deferral of certain costs associated
with the Year 2000 issue and required WP&L to submit a request and support
for the rate recovery of costs deferred as well as estimated future Year
2000 costs by November 1, 1998.
Refer to "Nuclear Facilities" for a discussion of recent PSCW rulings
regarding Kewaunee.
IPC
In September 1997, IPC agreed with the IUB to provide Iowa customers a
four-year retail electric and gas price freeze commencing on the effective
date of the Merger. The agreement excluded price changes due to
government-mandated programs (such as energy efficiency cost recovery),
the electric fuel adjustment clause and PGA clause and unforeseen dramatic
changes in operations. In addition, the price freeze does not preclude a
review by either the IUB or OCA into whether IPC is exceeding a reasonable
return on common equity. IPC also agreed with the MPUC and Illinois
Commerce Commission to four-year and three-year rate freezes,
respectively, commencing on the effective date of the Merger.
Pursuant to the authority described in the prior paragraph, the OCA has
requested certain financial information related to both electric and gas
utility jurisdictions within the state of Iowa for IPC. The OCA requested
information on what pro forma adjustments IPC would make to their most
recent historical test year (1997) to be in compliance with the State of
Iowa Code, IUB rules and past rate case precedent. IPC completed the data
request in a timely manner and based upon that information management
believes no change that would reduce utility rates would be warranted.
While IPC cannot predict the outcome of this process, management believes
that the final outcome will not have a material adverse impact on IPC's
results of operations or financial position.
On September 30, 1997, the IUB approved a settlement between IPC and the
OCA which provided for an electric rate reduction of approximately $3.2
million annually. The reduction applied to all bills rendered on and
after October 7, 1997.
IPC is also recovering its energy efficiency costs in Iowa in a similar
manner as IESU and began its concurrent cost recovery in October 1997.
IPC has the following amounts of energy efficiency costs to be recovered
in Iowa included in regulatory assets on its Balance Sheets (in
thousands):
Four-Year
Recovery June 30, December 31,
Beginning 1998 1997
Costs incurred through
1992 10/94 $304 $912
Costs incurred in
1993 - 1995 5/97 14,150 16,576
Costs incurred from
1/96 - 9/97 10/97 8,490 9,796
------- ------
$22,944 $27,284
====== ======
In addition, IPC had $2.7 million at both June 30, 1998 and December 31,
1997, respectively, included in regulatory assets for energy efficiency
recoveries in Minnesota.
Assuming capture of the merger-related synergies and no significant
legislative or regulatory changes affecting its utility subsidiaries, IEC
does not expect the merger-related electric and gas price freezes to have
a material adverse effect on its financial position or results of
operations.
OTHER MATTERS
Year 2000
IEC utilizes software, embedded systems and related technologies
throughout its businesses that will be affected by the date change in the
Year 2000. An internal task force has been assembled to review and
develop the full scope, work plan and cost estimates to ensure that IEC's
systems continue to meet their internal and customer needs.
A review has been completed to determine the necessary software
modifications that will need to be made to IEC's financial and customer
systems. Software modifications are intended to be ninety percent
complete by the end of the first quarter of 1999. IEC currently estimates
that the remaining costs to be incurred on the software modifications will
be approximately $7 million to $12 million in the aggregate ($3 million to
$5 million for WP&L, $3 million to $5 million for IESU and $1 million to
$2 million for IPC and Alliant Industries combined).
In addition to software modifications, a review of IEC's embedded systems
that may be affected by the Year 2000 or other problematic dates is also
underway. The task force has essentially completed inventory of these
embedded systems. Inventoried devices and systems have been prioritized
into three categories based on the relative critical nature of their
business function: safety-related; critical-business-continuity-related;
and non-critical.
Testing safety-related and critical-business-continuity-related devices
and systems is underway in all business units. The task force is using
testing standards based on those developed in a national electric utility
industry effort led by the Electric Power Research Institute and IEC is
participating in that organization's Year 2000 project to share
information about test procedures, results and vendor information. The
task force is working with equipment vendors to ascertain Year 2000
compliance of systems and devices. Remediation efforts are now in
progress and all business units are on schedule to complete remediation by
the end of the first quarter of 1999.
IEC is currently unable to estimate the costs to be incurred on this phase
of the project but does believe that the costs will be significant.
Detailed cost estimates cannot be determined until after the testing work
is completed. An estimate of the expenses to be incurred on this phase is
expected to be available by the end of the third quarter of 1998.
In addition, a significant contingency planning effort is underway which
will also address each mission-critical device or system. This includes
not only written procedures but substantial personnel training, testing
and rehearsal of these procedures. Additionally, back-up equipment will
be installed as necessary.
IEC is heavily dependent on other utilities (including electric, gas,
telecommunications and water) and its suppliers. An effort is underway to
communicate with such parties to increase their awareness of Year 2000
issues and determine the extent of their Year 2000 readiness. As part of
an extensive awareness effort, IEC is also communicating with its utility
customers, regulatory agencies, elected government officials and industry
groups. IEC executives and account managers are also having discussions
with IEC's largest customers to review their initiatives for Year 2000
compliance.
The goal of IEC is to have all the material Year 2000 conversions made
sufficiently in advance of December 31, 1999 to allow for unanticipated
issues. At this time, management is unable to determine if the Year 2000
issue will have a material adverse effect on the financial position or
results of operations of IEC.
Refer to "Rates and Regulatory Matters" for a discussion of a Year 2000
cost recovery filing made by WP&L with the PSCW.
Labor Issues
The status of the collective bargaining agreements at each of the
utilities is as follows at June 30, 1998:
IESU WP&L IPC
Number of collective bargaining
agreements 6 1 3
Percentage of workforce covered
by agreements 61 92 81
Upon completion of the Merger, numerous employees of IESU, WP&L and IPC
became employees of Alliant Services. At this time, there are no
bargaining employees at Alliant Services. The percentage of workforce
covered by the agreements above is therefore higher than previously
reported. There are two agreements at IESU which were scheduled to expire
on July 1, 1998 but have been extended on a day to day basis. IESU is
actively negotiating these two contracts. The number of employees covered
under these agreements is relatively small. There are eight agreements
scheduled to expire in 1999.
Financial Instruments
IEC has historically had only limited involvement with derivative
financial instruments and has not used them for speculative purposes.
They have been used to manage well-defined interest rate and commodity
price risks. WP&L historically has entered 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
outstanding was $30 million at June 30, 1998. IEC has historically used
swaps, futures and options to hedge the price risks associated with the
purchase and sale of stored gas at WP&L and with the purchases and sales
of gas and electric power at its energy marketing subsidiary.
On April 23, 1998 Alliant Industries successfully competitively bid $200
million of interest rate swaps. These interest rate swap agreements were
entered into to reduce the impact of changes in variable interest rates by
converting variable rate borrowings into fixed rate borrowings. Two
separate structures of $100 million each were put in place. The first
structure, a straight 2-year swap, was priced at 5.841%. Under this
structure, Alliant Industries pays a fixed rate of 5.841% and receives 3-
month LIBOR. Payments are made and LIBOR is reset quarterly. The second
structure, a 2-year swap with a 1-year extension option, was priced at
5.6891%. This structure is identical to the first structure except the
bank has the option to extend the swap an additional year at the end of
the second year. The LIBOR set for the current 3-month period is 5.6875%.
IESU and IPC had no derivatives outstanding at June 30, 1998.
Accounting Pronouncements
In February 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP
provides authoritative guidance for determining whether computer software
is in fact internal-use software, citing specific examples and situations
that answer that preliminary question. Further, it provides guidelines on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public.
Additionally, SOP 98-1 addresses specifics of accounting by discussing
expensing versus capitalization of costs, accounting for the costs
incurred in the upgrading of the software and amortizing the capitalized
cost of software. This statement is effective for fiscal years beginning
after December 15, 1998. IEC will be adopting the requirements of this
statement in 1999 and does not anticipate any material impact on its
financial statements upon adoption.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." This SOP provides guidance on the financial
reporting of start-up costs and organization costs. Costs of start-up
activities and organization costs are required to be expensed as incurred.
The statement is effective for periods beginning after December 15, 1998.
IEC will be adopting the requirements of this statement in 1999 and does
not anticipate any material impact on its financial statements upon
adoption.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The Statement requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15, 1999.
SFAS 133 must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997.
IEC has not yet quantified the impacts of SFAS 133 on the financial
statements and has not determined the timing of or method of adoption of
SFAS 133. However, the Statement could increase volatility in earnings
and other comprehensive income.
Accounting for Obligations Associated with the Retirement of Long-Lived
Assets
The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry, including IESU and WP&L,
regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating stations in financial
statements of electric utilities. In response to these questions, the
FASB is reviewing the accounting for closure and removal costs, including
decommissioning of nuclear power plants. If current electric utility
industry accounting practices for nuclear power plant decommissioning are
changed, the annual provision for decommissioning could increase relative
to 1997, and the estimated cost for decommissioning could be recorded as a
liability (rather than as accumulated depreciation), with recognition of
an increase in the cost of the related nuclear power plant. Assuming no
significant change in regulatory treatment, IESU and WP&L do not believe
that such changes, if required, would have an adverse effect on their
financial position or results of operations due to their ability to
recover decommissioning costs through rates.
Inflation
IEC, IESU and WP&L do not expect the effects of inflation at current
levels to have a significant effect on their financial position or results
of operations.
Environmental
The pollution abatement programs of IESU, WP&L, IPC and Alliant Industries
are subject to continuing review and are revised from time to time due to
changes in environmental regulations, changes in construction plans and
escalation of construction costs. While management cannot precisely
forecast the effect of future environmental regulations on IEC's
operations, it has taken steps to anticipate the future while also meeting
the requirements of current environmental regulations.
IESU, WP&L and IPC all have current or previous ownership interests in
properties previously associated with the production of gas at MGP sites
for which they may be liable for investigation, remediation and monitoring
costs relating to the sites. A summary of information relating to the
sites is as follows:
IESU WP&L IPC
Number of known sites for which
liability may exist 34 14 9
Liability recorded at June 30,
1998 (millions) $31.2 $8.9 $5.8
Regulatory asset recorded at
June 30, 1998 (millions) $31.1 $15.5 $6.0
The companies are working pursuant to the requirements of various federal
and state agencies to investigate, mitigate, prevent and remediate, where
necessary, the environmental impacts to property, including natural
resources, at and around the sites in order to protect public health and
the environment. The companies each believe that they have completed the
remediation at various sites, although they are still in the process of
obtaining final approval from the applicable environmental agencies for
some of these sites.
Each company has recorded environmental liabilities related to the MGP
sites; such amounts are based on the best current estimate of the
remaining amount to be incurred for investigation, remediation and
monitoring costs for those sites where the investigation process has been
or is substantially completed, and the minimum of the estimated cost range
for those sites where the investigation is in its earlier stages.
Management currently estimates the range of remaining costs to be incurred
for the investigation, remediation and monitoring of all IEC sites to be
approximately $34 million to $81 million. IESU and WP&L currently
estimate their share of the remaining costs to be incurred to be
approximately $21 million to $49 million and $7 million to $12 million,
respectively. It is possible that future cost estimates will be greater
than the current estimates as the investigation process proceeds and as
additional facts become known.
Under the current rate making treatment approved by the PSCW, the MGP
expenditures of WP&L, net of any insurance proceeds, are deferred and
collected from gas customers over a five-year period after new rates are
implemented. The MPUC also allows the deferral of MGP-related costs
applicable to the Minnesota sites and IPC has been successful in obtaining
approval to recover such costs in rates in Minnesota. While the IUB does
not allow for the deferral of MGP-related costs, it has permitted
utilities to recover prudently incurred costs. As a result, regulatory
assets have been recorded by each company which reflect the probable
future rate recovery, where applicable. Considering the current rate
treatment, and assuming no material change therein, each of IESU, WP&L and
IPC believes that the clean-up costs incurred for these MGP sites will not
have a material adverse effect on their respective financial positions or
results of operations.
In April 1996, IESU filed a lawsuit against certain of its insurance
carriers seeking reimbursement for its MGP-related costs. Settlement has
been reached with all twenty-one carriers. After the remaining settlement
payments have been received, IESU will dismiss its lawsuit, as all issues
will have been resolved. In 1994, IPC filed a lawsuit against certain of
its insurance carriers to recover its MGP-related costs. Settlements have
been reached with eight carriers. IPC is continuing its pursuit of
additional recoveries. Amounts received from insurance carriers are being
deferred by IESU and IPC pending a determination of the regulatory
treatment of such recoveries. WP&L has settled with twelve carriers and
is also continuing to pursue additional recoveries from other carriers.
IPC and WP&L are unable to predict the amount of any additional insurance
recoveries they may realize.
The Clean Air Act Amendments of 1990 (Act) require emission reductions of
SO2, NOx and other air pollutants to achieve reductions of atmospheric
chemicals believed to cause acid rain. IESU, WP&L and IPC have met the
provisions of Phase I of the Act and are in the process of meeting the
requirements of Phase II of the Act (effective in the year 2000). The Act
also governs SO2 allowances, which are defined as an authorization for an
owner to emit one ton of SO2 into the atmosphere. The companies are
reviewing their options to ensure they will have sufficient allowances to
offset their emissions in the future. The companies believe that the
potential costs of complying with these provisions of Title IV of the Act
will not have a material adverse impact on their financial position or
results of operations.
The Act and other federal laws also require the EPA to study and regulate,
if necessary, additional issues that potentially affect the electric
utility industry, including emissions relating to ozone transport, mercury
and particulate control as well as modifications to the PCB rules. In
July 1997, the EPA issued final rules that would tighten the National
Ambient Air Quality Standards for ozone and particulate matter emissions.
IESU, IPC and WP&L are currently reviewing the rules to determine what
impact they may have on their operations.
In October 1997, the EPA issued a proposed rule to require 22 states,
including Wisconsin, to modify their SIPs to address the ozone transport
issue. The proposed rule would require WP&L to reduce its NOx emissions
at all of its plants to .15 lbs/mmbtu. WP&L cannot presently predict the
final outcome of this proposal but believes that, under the terms of the
proposed rule, it would be required to make various capital investments
and/or modifications at its plants and that the costs related thereto
would be significant.
In 1995, the EPA published the Sulfur Dioxide Network Design Review for
Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst-case
modeling method, suggested that the Cedar Rapids area could be classified
as "nonattainment" for the National Ambient Air Quality Standards
established for SO2. The worst-case modeling suggested that two of IESU's
generating facilities contributed to the modeled exceedences. As a result
of exceedences at a monitor near one of IESU's generating facilities, the
EPA issued a letter to the Iowa Governor's office directing the state to
develop a plan of action. In this regard, IESU entered into a consent
order with the IDNR in the third quarter of 1997 on this issue. IESU
agreed to limit the SO2 emissions from the two noted generating facilities
and to install a new stack (potential aggregate capital cost of up to $2.5
million over the next two years of which $1.5 million is included in the
anticipated 1998 capital requirements and $1.0 million is included in the
anticipated 1999 capital requirements) at one of the facilities. The
consent order is one piece of a revision to the SIP being proposed by the
IDNR. The public comment period on the SIP revision was May 28 through
June 26, 1998. IEPC approved the SIP revision on July 20, 1998. The SIP
revision transmittal letter from Iowa to the EPA is awaiting the signature
of the Governor of Iowa and then will be sent to the EPA Region VII for
review and approval.
Pursuant to a routine internal review of documents, IESU determined that
certain changes undertaken during previous years at one of its generating
facilities may have required a federal PSD permit. IESU initiated
discussions with its regulators on the matter, resulting in the submittal
of a PSD permit application in February 1997. IESU received the permit in
the second quarter of 1998. IESU may be subject to a penalty for not
having obtained the permit previously; however, IESU believes that any
likely actions resulting from this matter will not have a material adverse
effect on its financial position or results of operation.
Pursuant to a separate routine internal review of plant operations, IESU
determined that certain permit limits were exceeded in 1997 at one of its
generating facilities in Cedar Rapids, Iowa. IESU has initiated
discussions with its regulators on the matter and has proposed a
compliance plan which includes equipment modifications and contemplates
operational changes. In addition, IESU may be required to obtain a PSD
permit. On May 13, 1998, IESU received a citation from the Linn County
Health Department alleging violations at the facility. IESU has
negotiated a settlement agreement with the Linn County Health Department,
resolving the matter for $30,000. The settlement is scheduled for court
review and approval during the third quarter of 1998. Depending on the
outcome of communications with the IDNR, IESU may be subject to a penalty
for not having a PSD permit for this facility; however, management
believes that any likely actions resulting from this matter will not have
a material adverse effect on IESU's financial position or results of
operations.
In March 1998, IPC received a Notice of Intent to Sue from an
environmental group alleging certain violations of effluent limits,
established pursuant to the Clean Water Act, at IPC's generating facility
in Clinton, Iowa. On May 14, 1998, IPC received from the IDNR an
inspection report and notice of violation addressing the same and other
concerns as were raised by the environmental group. IPC responded to the
environmental group on May 19, 1998, providing an evaluation of the
alleged violations. IPC responded to the IDNR on June 26, 1998 with a
plan of action addressing the IDNR's concerns. While IPC believes that it
has satisfied IDNR's concerns, IPC notes that it may be subject to a
penalty for exceeding permit limits established for this facility,
however, management believes that any likely actions resulting from this
matter will not have a material adverse effect on IPC's financial position
or results of operations.
Pursuant to an internal review of operations, IPC discovered that Unit No.
6 at its generating facility in Dubuque, Iowa, may require a Clean Air Act
Acid Rain permit and continuous emissions monitoring system. IPC has
initiated discussions with its regulators, is continuing its internal
review of historical operations and communications on the matter, and has
discontinued operation of the unit, pending resolution of the issues.
Pursuant to its internal review, IPC also identified and disclosed to its
regulators a potentially similar situation at its Lansing, Iowa generating
facility. IPC may be subject to a penalty for not having installed the
continuous emissions monitoring system and for not having obtained the
permit previously. However, IPC believes that any likely actions
resulting from this matter will not have a material adverse effect on its
financial position or results of operations.
A global treaty has been negotiated that could require reductions of
greenhouse gas emissions from utility plants. Negotiators left
significant implementation and compliance questions open to resolution at
meetings to be held starting in November 1998. At this time, management
is unable to predict whether the United States Congress will ratify the
treaty. Given the uncertainty of the treaty ratification and the ultimate
terms of the final regulations, management cannot currently estimate the
impact the implementation of the treaty would have on IEC's operations.
The Nuclear Waste Policy Act of 1982 assigned responsibility to the DOE to
establish a facility for the ultimate disposition of high level waste and
spent nuclear fuel and authorized the DOE to enter into contracts with
parties for the disposal of such material beginning in January 1998. IESU
and WP&L entered into such contracts and have made the agreed payments to
the Nuclear Waste Fund held by the U.S. Treasury. The companies were
subsequently notified by the DOE that it was not able to begin acceptance
of spent nuclear fuel by the January 31, 1998 deadline. Furthermore, DOE
has experienced significant delays in its efforts and material acceptance
is now expected to occur no earlier than 2010 with the possibility of
further delay being likely. IESU and WP&L are evaluating and pursuing
multiple options, including litigation and legislation to protect their
customers and the contractual and statutory rights that are diminished by
delays in the DOE program.
The Nuclear Waste Policy Act of 1982 assigns responsibility for interim
storage of spent nuclear fuel to generators of such spent nuclear fuel,
such as IESU and WP&L. In accordance with this responsibility, IESU and
WP&L have been storing spent nuclear fuel on site at DAEC and Kewaunee,
respectively, since plant operations began. IESU will have to increase
its spent fuel storage capacity at DAEC to store all of the spent fuel
that will be produced before the current license expires in 2014. There
are several options available that will satisfy DAEC's storage needs.
IESU is currently reviewing its options to expand on-site storage
capability. To provide assurance that both the operating and post-
shutdown storage needs are satisfied, a combination of expanding the
capacity of the existing fuel pool and construction of a dry cask modular
facility are being contemplated. With minor modifications, Kewaunee would
have sufficient fuel storage capacity to store all of the fuel they will
generate through the end of the license life in 2013. Legislation is
being considered on the federal level to provide for the establishment of
an interim storage facility as early as 2002.
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates
that each state must take responsibility for the storage of low-level
radioactive waste produced within its borders. The States of Iowa and
Wisconsin are members of the six-state Midwest Interstate Low-Level
Radioactive Waste Compact (Compact) which is responsible for development
of any new disposal capability within the Compact member states. In June
1997, the Compact commissioners voted to discontinue work on a proposed
waste disposal facility in the State of Ohio because the expected cost of
such a facility was comparably higher than other options currently
available. Dwindling waste volumes and continued access to existing
disposal facilities were also reasons cited for the decision. A disposal
facility located near Barnwell, South Carolina continues to accept the
low-level waste and IESU and WP&L currently ship the waste each produces
to such site, thereby minimizing the amount of low-level waste stored on-
site. In addition, given technological advances, waste compaction and the
reduction in the amount of waste generated, DAEC and Kewaunee each have
on-site storage capability sufficient to store low-level waste expected to
be generated over at least the next ten years, with continuing access to
the Barnwell disposal facility extending that on-site storage capability
indefinitely.
The National Energy Policy Act of 1992 requires owners of nuclear power
plants to pay a special assessment into a "Uranium Enrichment
Decontamination and Decommissioning Fund." The assessment is based upon
prior nuclear fuel purchases. IESU is recovering the costs associated
with this assessment through its electric fuel adjustment clauses over the
period the costs are assessed. IESU's 70% share of the future assessment
at June 30, 1998 was $8.9 million and has been recorded as a liability
with a related regulatory asset for the unrecovered amount. WP&L is also
recovering these costs from its customers and at June 30, 1998 had a
regulatory asset and a liability of $5.9 million and $5.1 million
recorded, respectively.
Whiting, a wholly-owned subsidiary of Alliant Industries, is responsible
for certain dismantlement and abandonment costs related to various off-
shore oil and gas platforms (and related on-shore plants and equipment),
the most significant of which is located off the coast of California.
Whiting estimates the total costs for these properties to be approximately
$14 million and the expenditures are not expected to be incurred for
approximately five years. Whiting accrues these costs as reserves are
extracted, resulting in a recorded liability of $9.2 million at June 30,
1998.
Power Supply
The power supply concerns of 1997 have raised awareness of the electric
system reliability challenges facing Wisconsin and the Midwest region.
WP&L was among an 11-member group of Wisconsin energy suppliers that, on
October 1, 1997, recommended to the Governor of Wisconsin a series of
steps to improve electric reliability in the state. Wisconsin enacted
electric reliability legislation in April 1998 (Wisconsin Reliability
Act). The legislation has the goal of assuring reliable electric energy
for Wisconsin. The new law, effective May 12, 1998, requires
Wisconsin utilities to join a regional independent system operator for
transmission by the year 2000, allows the construction of merchant power
plants in the state and streamlines the regulatory approval process for
building new generation and transmission facilities. This legislation
also requires the PSCW to complete a regional transmission constraint
study by September 1, 1998. The PSCW is then authorized to order
construction of new transmission facilities, based on the findings of its
constraint study, through December 31, 2000.
On September 24, 1997, the PSCW ordered WP&L and two other Wisconsin
utilities to arrange for additional electric capacity to help maintain
reliable service for their customers. In response to this order, WP&L
issued a Request for Proposal for contracts to provide WP&L with an
additional 150 MW of electric capacity beginning as early as June 1, 1999.
WP&L evaluated applications on the basis of per-megawatt cost,
transmission capacity, environmental factors, experience in building and
operating similar generating facilities and the ability to meet a June
2000 in-service date. In July 1998, IEC and Polsky Energy Corp. (Polsky)
announced an agreement whereby Polsky would build, own and operate a power
plant in southeastern Wisconsin capable of producing up to 525 megawatts
of electricity. Under the agreement, IEC will purchase the capacity to
meet the electric needs of its utility customers, as outlined by the
Wisconsin Reliability Act. It is expected that this new generation will
be operational in June of 2000. This is the first plant to be announced
by the three Wisconsin utilities under the Wisconsin Reliability Act.
Polsky will be seeking the necessary approvals from the PSCW and Wisconsin
Department of Natural Resources.
Utility officials noted that it will take time for new transmission and
power plant projects to be approved and built. While utility officials
fully expect to meet customer demands in 1998 and 1999, problems still
could arise if there are unexpected power plant outages, transmission
system outages or extended periods of extremely hot weather.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
IEC
On April 29, 1998, a lawsuit was filed, Aliant Communications Inc. v.
Interstate Energy Corporation, in federal district court against IEC by
Aliant Communications Inc. alleging trademark infringement, dilution and
unfair competition in connection with the use by IEC of the name
"Alliant." The plaintiff ultimately is seeking a permanent injunction with
respect to such matters and damages equal to one-half of what plaintiff
has spent to advertise and promote its Aliant mark, trebled pursuant to
certain provisions of the Lanham Act, and related interest, costs, and
attorney's fees. A hearing was held on June 17, 1998 and the court issued
an order granting in part plaintiff's request for a preliminary
injunction. The court ordered IEC not to conduct a shareholder meeting
for the purpose of changing its corporate name to include the name
"Alliant" and not to use the "Alliant" mark in advertising before the
trial on the merits of this case is held (scheduled to begin on October 5,
1998). The court specifically stated that IEC is not precluded from using
the "Alliant" mark in customer communications and billing or from using
the stock symbol "LNT" however. Settlement discussions between the parties
are currently underway. IEC is unable to predict the outcome of this
matter but believes it will not have a material adverse effect on its
financial position or results of operations.
On April 17, 1998, MG&E and Citizens Utility Board appealed the decision
of the SEC approving the Merger, Madison Gas and Electric Company and
Citizens Utility Board v. Securities and Exchange Commission. On May 15,
1998, IEC moved to intervene in this appeal and the United States Court of
Appeals for the District of Columbia District granted the motion. Briefs
are due later this year and oral arguments are scheduled for January 13,
1999.
IESU
On April 30, 1996, IESU filed suit, IES Utilities Inc. v. Home Ins. Co.,
et al., No. 4-96-CV-10343 (S.D. Iowa filed Apr. 30, 1996), against various
insurers who had sold comprehensive general liability policies to Iowa
Southern Utilities Company (ISU) and Iowa Electric Light and Power Company
(IE) (IESU was formed as the result of a merger of ISU and IE). The suit
seeks judicial determination of the respective rights of the parties, a
judgment that each defendant is obligated under its respective insurance
policies to pay in full all sums that IESU has become or may become
obligated to pay in connection with its defense against allegations of
liability for property damage at and around MGP sites, and indemnification
for all sums that it has or may become obligated to pay for the
investigation, mitigation, prevention, remediation and monitoring of
environmental impacts to property, including natural resources like
groundwater, at and around the MGP sites. Settlement has been reached
with all twenty-one carriers. After the remaining settlement payments are
received, IESU will dismiss its lawsuit, as all issues will have been
resolved. Any amounts received from insurance carriers are being deferred
pending a determination of the regulatory treatment of such recoveries.
IESU is in discussions with the regulators regarding certain environmental
permit issues. For a discussion of these matters, see MD&A above, which
information is incorporated herein by reference.
IPC
In March 1998, IPC received a Notice of Intent to Sue from an
environmental group alleging certain violations of effluent limits,
established pursuant to the Clean Water Act, at IPC's generating facility
in Clinton, Iowa. On May 14, 1998, IPC received from the IDNR an
inspection report and notice of violation addressing the same and other
concerns as were raised by the environmental group. IPC responded to the
environmental group on May 19, 1998, providing an evaluation of the
alleged violations. IPC responded to the IDNR on June 26, 1998 with a
plan of action addressing the IDNR's concerns. While IPC believes that it
has satisfied the IDNR's concerns, IPC notes that it may be subject to a
penalty for exceeding permit limits established for this facility;
however, management believes that any likely actions resulting from this
matter will not have a material adverse effect on IPC's financial position
or results of operations.
IPC also is in discussions with the regulators regarding an environmental
permit and related issues at generating facilities in Dubuque, Iowa and
Lansing, Iowa. For a discussion of this matter, see "Other Matters -
Environmental", which information is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
IEC
At IEC's annual meeting of shareowners held on June 24, 1998, Alan B.
Arends, Robert D. Ray and Anthony R. Weiler were elected as directors of
IEC for terms expiring in 1999. The following sets forth certain
information with respect to the election of these directors at the annual
meeting.
Name of Nominee Shares Voted For Shares Against/Withheld
Alan B. Arends 56,169,298 1,232,964
Robert D. Ray 56,099,522 1,302,740
Anthony R. Weiler 56,162,154 1,240,108
At IEC's annual meeting of shareowners held on June 24, 1998, Lee Liu,
Robert W. Schlutz and Wayne H. Stoppelmoor were elected as directors of
IEC for terms expiring in 2000. The following sets forth certain
information with respect to the election of these directors at the annual
meeting.
Name of Nominee Shares Voted For Shares Against/Withheld
Lee Liu 56,118,205 1,284,057
Robert W. Schlutz 56,206,733 1,195,529
Wayne H. Stoppelmoor 56,214,221 1,188,041
At IEC's annual meeting of shareowners held on June 24, 1998, Joyce L.
Hanes, Arnold M. Nemirow, Jack R. Newman, Judith D. Pyle and David Q. Reed
were elected as directors of IEC for terms expiring in 2001. The
following sets forth certain information with respect to the election of
these directors at the annual meeting.
Name of Nominee Shares Voted For Shares Against/Withheld
Joyce L. Hanes 56,133,975 1,268,287
Arnold M. Nemirow 55,486,825 1,915,437
Jack R. Newman 56,138,175 1,264,087
Judith D. Pyle 56,163,283 1,238,979
David Q. Reed 56,123,134 1,279,128
The following table sets forth the other directors of IEC whose terms of
office continued after the 1998 annual meeting.
Name of Director Year in Which Term Expires
Rockne G. Flowers 1999
Katharine C. Lyall 1999
Erroll B. Davis, Jr. 2000
Milton E. Neshek 2000
WP&L
At WP&L's annual meeting of shareowners held on June 17, 1998, Alan B.
Arends, Robert D. Ray and Anthony R. Weiler were elected as directors of
WP&L for terms expiring in 1999. The following sets forth certain
information with respect to the election of these directors at the annual
meeting.
Name of Nominee Shares Voted For Shares Against/Withheld
Alan B. Arends 13,598,409 1,120
Robert D. Ray 13,598,303 1,226
Anthony R. Weiler 13,598,410 1,119
At WP&L's annual meeting of shareowners held on June 17, 1998, Lee Liu,
Robert W. Schlutz and Wayne H. Stoppelmoor were elected as directors of
WP&L for terms expiring in 2000. The following sets forth certain
information with respect to the election of these directors at the annual
meeting.
Name of Nominee Shares Voted For Shares Against/Withheld
Lee Liu 13,598,157 1,372
Robert W. Schlutz 13,598,359 1,170
Wayne H. Stoppelmoor 13,598,405 1,124
At WP&L's annual meeting of shareowners held on June 17, 1998, Joyce L.
Hanes, Arnold M. Nemirow, Jack R. Newman, Judith D. Pyle and David Q. Reed
were elected as directors of WP&L for terms expiring in 2001. The
following sets forth certain information with respect to the election of
these directors at the annual meeting.
Name of Nominee Shares Voted For Shares Against/Withheld
Joyce L. Hanes 13,598,015 1,514
Arnold M. Nemirow 13,598,257 1,272
Jack R. Newman 13,598,360 1,169
Judith D. Pyle 13,598,119 1,410
David Q. Reed 13,598,253 1,276
The following table sets forth the other directors of WP&L whose terms of
office continued after the 1998 annual meeting.
Year in Which Term
Name of Director Expires
Rockne G. Flowers 1999
Katharine C. Lyall 1999
Erroll B. Davis, Jr. 2000
Milton E. Neshek 2000
IESU
The following individuals were elected as directors of IESU for terms
expiring at the annual meeting in 2001:
Joyce L. Hanes
Arnold M. Nemirow
Jack R. Newman
Judith D. Pyle
David Q. Reed
Such persons were elected by a consent action executed by IEC as the
sole holder of capital stock of IESU entitled to vote with respect to
the election of directors. IEC voted all of the outstanding shares of
common stock of IESU (consisting of 13,370,788 shares) in favor of the
election of the aforementioned individuals.
The following tables sets forth the other directors of IESU whose term of
office continued.
Name of Director Year in Which Term Expires
Alan B. Arends 1999
Rockne G. Flowers 1999
Katharine C. Lyall 1999
Robert D. Ray 1999
Anthony R. Weiler 1999
Erroll B. Davis, Jr. 2000
Lee Liu 2000
Milton E. Neshek 2000
Robert W. Schlutz 2000
Wayne H. Stoppelmoor 2000
ITEM 5. OTHER INFORMATION
IEC
The deadline for submission of shareowner proposals pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, as amended, for inclusion in
IEC's proxy statement for its 1999 Annual Meeting of Shareowners is
January 21, 1999. Additionally, if IEC receives notice of a shareowner
proposal after April 7, 1999, the persons named in proxies solicited by
the Board of Directors of IEC for its 1999 Annual Meeting of Shareowners
may exercise discretionary voting power with respect to such proposal.
WP&L
The deadline for submission of shareowner proposals pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, as amended, for inclusion in
WP&L's proxy statement for its 1999 Annual Meeting of Shareowners is
January 27, 1999. Additionally, if WP&L receives notice of a shareowner
proposal after April 12, 1999, the persons named in proxies solicited by
the Board of Directors of WP&L for its 1999 Annual Meeting of Shareowners
may exercise discretionary voting power with respect to such proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by the 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.
2.1* 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 IEC's Current
Report on Form 8-K, dated November 10, 1995)
2.2* Amendment No. 1 to Agreement and Plan of Merger and Stock
Option Agreements, dated May 22, 1996, by and among WPL
Holdings, Inc., IES Industries Inc., Interstate Power Company,
a Delaware corporation, AMW Acquisition, Inc., WPLH
Acquisition Co. and Interstate Power Company, a Wisconsin
corporation (incorporated by reference to Exhibit 2.1 to IEC's
Current Report on Form 8-K, dated May 22, 1996)
2.3* Amendment No. 2 to Agreement and Plan of Merger, dated August
16, 1996, by and among WPL Holdings, Inc., IES Industries
Inc., Interstate Power Company, a Delaware corporation, WPLH
Acquisition Co. and Interstate Power Company, a Wisconsin
corporation (incorporated by reference to Exhibit 2.1 to IEC's
Current Report on Form 8-K, dated August 15, 1996)
3.1* Restated Articles of Incorporation of Interstate Energy
Corporation, as amended (incorporated by reference to Exhibit
3.2 to IEC's Current Report on Form 8-K, dated April 21, 1998)
3.2* Bylaws of Interstate Energy Corporation (incorporated by
reference to Exhibit 3.3 to IEC's Current Report on Form 8-K,
dated April 21, 1998)
3.3* Restated Articles of Incorporation of Wisconsin Power & Light
Company, as amended (incorporated by reference to Exhibit 3.1
to WP&L's Form 10-Q for the quarter ended June 30, 1994)
3.4 Bylaws of Wisconsin Power and Light Company
3.5 Amended and Restated Articles of Incorporation of IES
Utilities Inc.
3.6 Bylaws of IES Utilities Inc.
4.1* 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)
4.2* Rights Agreement, dated February 22, 1989, between Interstate
Energy Corporation (formerly WPL Holdings, Inc.) and Morgan
Shareholder Services Trust Company (incorporated by reference
to Exhibit 4 to IEC's Current Report on Form 8-K, dated
February 27, 1989)
4.3* Indenture, dated as of June 20, 1997, between WP&L and Firstar
Trust Company, as Trustee, relating to debt securities
(incorporated by reference to Exhibit 4.33 to Amendment No. 2
to WP&L's Registration Statement on Form S-3 (Registration No.
33-60917))
4.4* Officers' Certificate, dated as of June 25, 1997, creating the
7% debentures due June 15, 2007 of WP&L (incorporated by
reference to Exhibit 4 to WP&L's Current Report on Form 8-K,
dated June 25, 1997)
4.5* Indenture of Mortgage and Deed of Trust, dated as of
September 1, 1993, between IES Utilities Inc. (formerly Iowa
Electric Light and Power Company (IE)) and The First National
Bank of Chicago, as Trustee (Mortgage) (incorporated by
reference to Exhibit 4(c) to IESU's Form 10-Q for the quarter
ended September 30, 1993)
4.6* Supplemental Indentures to the Mortgage:
IESU/IES
Number Dated as of File Reference Exhibit
First October 1, 1993 Form 10-Q, 11/12/93 4(d)
Second November 1, 1993 Form 10-Q, 11/12/93 4(e)
Third March 1, 1995 Form 10-Q, 5/12/95 4(b)
Fourth September 1, 1996 Form 8-K, 9/19/96 4(c)(i)
Fifth April 1, 1997 Form 10-Q, 5/14/97 4(a)
4.7* Indenture of Mortgage and Deed of Trust, dated as of August 1,
1940, between IES Utilities Inc. (formerly IE) and The First
National Bank of Chicago, Trustee (1940 Indenture)
(incorporated by reference to Exhibit 2(a) to IESU's
Registration Statement, File No. 2-25347)
4.8* Supplemental Indentures to the 1940 Indenture:
IESU
Number Dated as of File Reference Exhibit
First March 1, 1941 2-25347 2(a)
Second July 15, 1942 2-25347 2(a)
Third August 2, 1943 2-25347 2(a)
Fourth August 10, 1944 2-25347 2(a)
Fifth November 10, 1944 2-25347 2(a)
Sixth August 8, 1945 2-25347 2(a)
Seventh July 1, 1946 2-25347 2(a)
Eighth July 1, 1947 2-25347 2(a)
Ninth December 15, 1948 2-25347 2(a)
Tenth November 1, 1949 2-25347 2(a)
Eleventh November 10, 1950 2-25347 2(a)
Twelfth October 1, 1951 2-25347 2(a)
Thirteenth March 1, 1952 2-25347 2(a)
Fourteenth November 5, 1952 2-25347 2(a)
Fifteenth February 1, 1953 2-25347 2(a)
Sixteenth May 1, 1953 2-25347 2(a)
Seventeenth November 3, 1953 2-25347 2(a)
Eighteenth November 8, 1954 2-25347 2(a)
Nineteenth January 1, 1955 2-25347 2(a)
Twentieth November 1, 1955 2-25347 2(a)
Twenty-first November 9, 1956 2-25347 2(a)
Twenty-second November 6, 1957 2-25347 2(a)
Twenty-third November 4, 1958 2-25347 2(a)
Twenty-fourth November 3, 1959 2-25347 2(a)
Twenty-fifth November 1, 1960 2-25347 2(a)
Twenty-sixth January 1, 1961 2-25347 2(a)
Twenty-seventh November 7, 1961 2-25347 2(a)
Twenty-eighth November 6, 1962 2-25347 2(a)
Twenty-ninth November 5, 1963 2-25347 2(a)
Thirtieth November 4, 1964 2-25347 2(a)
Thirty-first November 2, 1965 2-25347 2(a)
Thirty-second September 1, 1966 Form 10-K, 1966 4.10
Thirty-third November 30, 1966 Form 10-K, 1966 4.10
Thirty-fourth November 7, 1967 Form 10-K, 1967 4.10
Thirty-fifth November 5, 1968 Form 10-K, 1968 4.10
Thirty-sixth November 1, 1969 Form 10-K, 1969 4.10
Thirty-seventh December 1, 1970 Form 8-K, 12/70 1
Thirty-eighth November 2, 1971 2-43131 2(g)
Thirty-ninth May 1, 1972 Form 8-K, 5/72 1
Fortieth November 7, 1972 2-56078 2(i)
Forty-first November 7, 1973 2-56078 2(j)
Forty-second September 10, 1974 2-56078 2(k)
Forty-third November 5, 1975 2-56078 2(l)
Forty-fourth July 1, 1976 Form 8-K, 7/76 1
Forty-fifth November 1, 1976 Form 8-K, 12/76 1
Forty-sixth December 1, 1977 2-60040 2(o)
Forty-seventh November 1, 1978 Form 10-Q, 6/30/79 1
Forty-eighth December 1, 1979 Form S-16, 2-65996 2(q)
Forty-ninth November 1, 1981 Form 10-Q, 3/31/82 2
Fiftieth December 1, 1980 Form 10-K, 1981 4(s)
Fifty-first December 1, 1982 Form 10-K, 1982 4(t)
Fifty-second December 1, 1983 Form 10-K, 1983 4(u)
Fifty-third December 1, 1984 Form 10-K, 1984 4(v)
Fifty-fourth March 1, 1985 Form 10-K, 1984 4(w)
Fifty-fifth March 1, 1988 Form 10-Q, 5/12/88 4(b)
Fifty-sixth October 1, 1988 Form 10-Q, 11/10/88 4(c)
Fifty-seventh May 1, 1991 Form 10-Q, 8/13/91 4(d)
Fifty-eighth March 1, 1992 Form 10-K, 1991 4(c)
Fifty-ninth October 1, 1993 Form 10-Q, 11/12/93 4(a)
Sixtieth November 1, 1993 Form 10-Q, 11/12/93 4(b)
Sixty-first March 1, 1995 Form 10-Q, 5/12/95 4(a)
Sixty-second September 1, 1996 Form 8-K, 9/19/96 4(f)
Sixty-third April 1, 1997 Form 10-Q, 5/14/97 4(b)
4.9* Indenture or Deed of Trust dated as of February 1, 1923,
between IES Utilities Inc. (successor to Iowa Southern
Utilities Company (IS) as result of merger of IS and IE) and
The Northern Trust Company (The First National Bank of
Chicago, successor) and Harold H. Rockwell (Richard D.
Manella, successor), as Trustees (1923 Indenture)
(incorporated by reference to Exhibit B-1 to File No. 2-1719)
4.10* Supplemental Indentures to the 1923 Indenture:
File
Dated as of Reference Exhibit
May 1, 1940 2-4921 B-1-k
May 2, 1940 2-4921 B-1-l
October 1, 1945 2-8053 7(m)
October 2, 1945 2-8053 7(n)
January 1, 1948 2-8053 7(o)
September 1, 1950 33-3995 4(e)
February 1, 1953 2-10543 4(b)
October 2, 1953 2-10543 4(q)
August 1, 1957 2-13496 2(b)
September 1, 1962 2-20667 2(b)
June 1, 1967 2-26478 2(b)
February 1, 1973 2-46530 2(b)
February 1, 1975 2-53860 2(aa)
July 1, 1975 2-54285 2(bb)
September 2, 1975 2-57510 2(bb)
March 10, 1976 2-57510 2(cc)
February 1, 1977 2-60276 2(ee)
January 1, 1978 0-849 2
March 1, 1979 0-849 2
March 1, 1980 0-849 2
May 31, 1986 33-3995 4(g)
July 1, 1991 0-849 4(h)
September 1, 1992 0-849 4(m)
December 1, 1994 0-4117-1 4(f)
4.11* Indenture (For Unsecured Subordinated Debt Securities), dated
as of December 1, 1995, between IES Utilities Inc. and The
First National Bank of Chicago, as Trustee (Subordinated
Indenture) (incorporated by reference to Exhibit 4(i) to
IESU's Amendment No. 1 to Registration Statement, File No. 33-
62259)
4.12* Indenture (For Senior Unsecured Debt Securities), dated as of
August 1, 1997, between IES Utilities Inc. and The First
National Bank of Chicago, as Trustee (incorporated by
reference to Exhibit 4(j) to IESU's Registration Statement,
File No. 333-32097)
4.13* The Original through the Nineteenth Supplemental Indentures of
Interstate Power Company to The Chase Manhattan Bank and Carl
E. Buckley and C. J. Heinzelmann, as Trustees, dated January
1, 1948 securing First Mortgage Bonds (incorporated by
reference to Exhibits 4(b) through 4(t) to IPC's Registration
Statement No. 33-59352 dated March 11, 1993)
4.14* Twentieth Supplemental Indenture of Interstate Power Company
to The Chase Manhattan Bank and C. J. Heinzelmann, as
Trustees, dated May 15, 1993 (incorporated by reference to
Exhibit 4(u) to IPC's Registration Statement No. 33-59352
dated March 11, 1993)
10.1 Service Agreement by and among Wisconsin Power & Light
Company, South Beloit Water, Gas and Electric Company, IES
Utilities Inc., Interstate Power Company, and Alliant
Services Company
10.2 Service Agreement by and among Alliant Industries, Inc.,
IPC Development Company, Inc. and Alliant Services Company
10.3 System Coordination and Operating Agreement dated April 11,
1997, among IES Utilities Inc., Interstate Power Company,
Wisconsin Power & Light Company and Alliant Services, Inc.
10.4* Joint Power Supply Agreement among Wisconsin Public Service
Corporation, Wisconsin Power and Light Company, and Madison
Gas and Electric Company, dated February 2, 1967 (incorporated
by reference to Exhibit 4.09 of Wisconsin Public Service
Corporation in File No. 2-27308)
10.5* Joint Power Supply Agreement among Wisconsin Public Service
Corporation, Wisconsin Power and Light Company, and Madison
Gas and Electric Company, dated July 26, 1973 (incorporated by
reference to Exhibit 5.04A of Wisconsin Public Service
Corporation in File No. 2-48781)
10.6* Basic Generating Agreement, Unit 4, Edgewater Generating
Station, dated June 5, 1967, between Wisconsin Power and Light
Company and Wisconsin Public Service Corporation (incorporated
by reference to Exhibit 4.10 of Wisconsin Public Service
Corporation in File No. 2-27308)
10.7* Agreement for Construction and Operation of Edgewater 5
Generating Unit, dated February 24, 1983, between Wisconsin
Power and Light Company, Wisconsin Electric Power Company and
Wisconsin Public Service Corporation (incorporated by
reference to Exhibit 10C-1 to Wisconsin Public Service
Corporation's Form 10-K for the year ended December 31, 1983
(File No. 1-3016))
10.7a* Amendment No. 1 to Agreement for Construction and Operation of
Edgewater 5 Generating Unit, dated December 1, 1988
(incorporated by reference to Exhibit 10C-2 to Wisconsin
Public Service Corporation's Form 10-K for the year ended
December 31, 1988 (File No. 1-3016))
10.8* Revised Agreement for Construction and Operation of Columbia
Generating Plant among Wisconsin Public Service Corporation,
Wisconsin Power and Light Company, and Madison Gas and
Electric Company, dated July 26, 1973 (incorporated by
reference to Exhibit 5.07 of Wisconsin Public Service
Corporation in File No. 2-48781)
10.9* Operating and Transmission Agreement between Central Iowa
Power Cooperative and IESU (incorporated by reference to
Exhibit 10(q) to IESU's Form 10-K for the year 1990)
10.10* Duane Arnold Energy Center Ownership Participation Agreement
dated June 1, 1970 between Central Iowa Power Cooperative,
Corn Belt Power Cooperative and IESU (incorporated by
reference to Exhibit 5(kk) to IESU's Registration Statement,
File No. 2-38674)
10.11* Duane Arnold Energy Center Operating Agreement dated June 1,
1970 between Central Iowa Power Cooperative, Corn Belt Power
Cooperative and IESU (incorporated by reference to Exhibit
5(ll) to IESU's Registration Statement, File No. 2-38674)
10.12* Duane Arnold Energy Center Agreement for Transmission,
Transformation, Switching, and Related Facilities dated June
1, 1970 between Central Iowa Power Cooperative, Corn Belt
Power Cooperative and IESU (incorporated by reference to
Exhibit 5(mm) to IESU's Registration Statement, File No.
2-38674)
10.13* Basic Generating Agreement dated April 16, 1975 between Iowa
Public Service Company, Iowa Power and Light Company, Iowa-
Illinois Gas and Electric Company and IESU for the joint
ownership of Ottumwa Generating Station-Unit 1 (OGS-1)
(incorporated by reference to Exhibit 1 to IESU's Form 10-K
for the year 1977)
10.13a* Addendum Agreement to the Basic Generating Agreement for OGS-1
dated December 7, 1977 between Iowa Public Service Company,
Iowa-Illinois Gas and Electric Company, Iowa Power and Light
Company and IESU for the purchase of 15% ownership in OGS-1
(incorporated by reference to Exhibit 3 to IESU's Form 10-K
for the year 1977)
10.14* Second Amended and Restated Credit Agreement dated as of
September 17, 1987 between Arnold Fuel, Inc. and the First
National Bank of Chicago and the Amended and Restated Consent
and Agreement dated as of September 17, 1987 by IESU
(incorporated by reference to Exhibit 10(j) to IESU's Form
10-K for the year 1987)
10.15# Form of Supplemental Retirement Agreement
10.16# Interstate Energy Corporation 1998 Officer Incentive
Compensation Plan
10.17# Interstate Energy Corporation Long-Term Incentive Program,
revised July 1, 1998
10.18# Alliant Services Company Key Employee Deferred Compensation
Plan
10.19#* Executive Tenure Compensation Plan as revised November 1992
(incorporated by reference to Exhibit 10A to IEC's Form 10-K
for the year ended December 31, 1992)
10.19a# Amendment to Executive Tenure Compensation Plan adopted
February 23, 1998
10.20#* Form of Supplemental Retirement Plan, as revised November 1992
(incorporated by reference to Exhibit 10B to IEC's Form 10-K
for the year ended December 31, 1992)
10.21#* Forms of Deferred Compensation Plans, as amended June, 1990
(incorporated by reference to Exhibit 10C to IEC's Form 10-K
for the year ended December 31, 1990)
10.21a#* Officer's Deferred Compensation Plan II, as adopted September
1992 (incorporated by reference to Exhibit 10C.1 to IEC's Form
10-K for the year ended December 31, 1992)
10.21b#* Officer's Deferred Compensation Plan III, as adopted January
1993 (incorporated by reference to Exhibit 10C.2 to IEC's Form
10-K for the year ended December 31, 1993)
10.22#* Pre-Retirement Survivor's Income Supplemental Plan, as revised
November 1992 (incorporated by reference to Exhibit 10F to
IEC's Form 10-K for the year ended December 31, 1992)
10.23#* Deferred Compensation Plan for Directors, as amended January
17, 1995 (incorporated by reference to Exhibit 10I to IEC's
Form 10-K for the year ended December 31, 1995)
10.24#* Interstate Energy Corporation Long-Term Equity Incentive Plan
(incorporated by reference to Exhibit 4.1 to IEC's Form 10-Q
for the quarter ended June 30, 1994)
10.25#* Key Executive Employment and Severance Agreement by and
between Interstate Energy Corporation and each of W.D. Harvey
and E.G. Protsch (incorporated by reference to Exhibit 4.3 to
IEC's Form 10-Q for the quarter ended June 30, 1994)
10.26#* Key Executive Employment and Severance Agreement by and
between Interstate Energy Corporation and each of E.M.
Gleason, B.J. Swan, D.A. Doyle, P.J. Wegner, C. Fulenwider and
K.K. Zuhlke (incorporated by reference to Exhibit 4.4 to
IEC's Form 10-Q for the quarter ended June 30, 1994)
10.27#* Severance Agreement by and between Interstate Energy
Corporation and Lance W. Ahearn (incorporated by reference to
Exhibit 10N to IEC's Form 10-K for the year ended December 31,
1997)
10.28# Severance Agreement by and between Interstate Energy
Corporation and Anthony J. Amato
10.29#* Employment Agreement, dated as of April 21, 1998, by and
between Interstate Energy Corporation and Erroll B. Davis, Jr.
(incorporated by reference to Exhibit 10.1 to IEC's Form 8-K
dated April 21, 1998)
10.30#* Employment Agreement, dated as of April 21, 1998, by and
between Interstate Energy Corporation and Lee Liu
(incorporated by reference to Exhibit 10.2 to IEC's Form 8-K
dated April 21, 1998)
10.31#* Employment Agreement, dated as of April 21, 1998, by and
between Interstate Power Company and Michael R. Chase
(incorporated by reference to Exhibit 10.3 to IEC's Form 8-K
dated April 21, 1998)
10.32#* Supplemental Retirement Plan (incorporated by reference to
Exhibit 10(l) to IES's Form 10-K for the year ended December
31, 1987)
10.33#* Key Employee Deferred Compensation Plan (incorporated by
reference to Exhibit 10(n) to IES's Form 10-K for the year
ended December 31, 1987)
10.34#* Executive Guaranty Plan (incorporated by reference to Exhibit
10(p) to IES's Form 10-K for the year ended December 31, 1987)
10.35#* Executive Change of Control Severance Agreement - CEO
(incorporated by reference to Exhibit 10(a) to IES's Form 10-Q
for the quarter ended September 30, 1996)
10.36#* Executive Change of Control Severance Agreement - Vice
Presidents (incorporated by reference to Exhibit 10(b) to
IES's Form 10-Q for the quarter ended September 30, 1996)
10.37#* Executive Change of Control Severance Agreement - Other
Officers (incorporated by reference to Exhibit 10(c) to IES's
Form 10-Q for the quarter ended September 30, 1996)
10.38#* Amendments to Key Employee Deferred Compensation Agreement for
Directors (incorporated by reference to Exhibit 10(u) to IES's
Form 10-Q for the quarter ended March 31, 1990)
10.39#* Amendments to Key Employee Deferred Compensation Agreement for
Key Employees (incorporated by reference to Exhibit 10(v) to
IES's Form 10-Q for the quarter ended March 31, 1990)
10.40#* IES Industries Inc. Grantor Trust for Director Retirement Plan
(incorporated by reference to Exhibit 10(c) to IES's Form 10-Q
for the quarter ended September 30, 1997)
10.41#* IES Industries Inc. Grantor Trust for Deferred Compensation
Agreements (incorporated by reference to Exhibit 10(d) to
IES's Form 10-Q for the quarter ended September 30, 1997)
10.42#* IES Industries Inc. Grantor Trust for Supplemental Retirement
Agreements (incorporated by reference to Exhibit 10(e) to
IES's Form 10-Q for the quarter ended September 30, 1997)
10.43#* IES Utilities Inc. Grantor Trust for Deferred Compensation
Agreements (incorporated by reference to Exhibit 10(f) to
IES's Form 10-Q for the quarter ended September 30, 1997)
10.44#* IES Utilities Inc. Grantor Trust for Supplemental Retirement
Agreements (incorporated by reference to Exhibit 10(g) to
IES's Form 10-Q for the quarter ended September 30, 1997)
10.45#* Interstate Power Company Irrevocable Trust Agreement dated
April 30, 1990 (incorporated by reference to Exhibit 99.f to
IPC's Form 10-K for the year ended December 31, 1993)
10.46#* Interstate Power Company Amended Deferred Compensation Plan as
amended through January 30, 1990 (incorporated by reference to
Exhibit 99.e to IPC's Form 10-K for the year ended December
31, 1993)
10.47#* Interstate Power Company Supplemental Retirement Plan as
amended and restated November 10, 1995 and December 9, 1997
(incorporated by reference to Exhibit 99.5 to IPC's Form 10-K
for the year ended December 31, 1997)
10.48#* Interstate Power Company Irrevocable Trust Agreement dated
December 1997 (incorporated by reference to Exhibit 99.7 to
IPC's Form 10-K for the year ended December 31, 1997)
27.1 Financial Data Schedule for Interstate Energy Corporation
27.2 Financial Data Schedule for Interstate Energy Corporation -
Restated June 30, 1997 Results
27.3 Financial Data Schedule for IES Utilities Inc.
27.4 Financial Data Schedule for IES Utilities Inc. - Restated
June 30, 1997 Results
27.5 Financial Data Schedule for Wisconsin Power and Light Company
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant 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-Q. No such instrument authorizes
securities in excess of 10% of the total assets of IEC, WP&L or IESU, as
the case may be.
Documents incorporated by reference to filings made by IEC under the
Securities Exchange Act of 1934, as amended, are under File No. 1-9894.
Documents incorporated by reference to filings made by WP&L under the
Securities Exchange Act of 1934, as amended, are under File No. 0-337.
Documents incorporated by reference to filings made by IES under the
Securities Exchange Act of 1934, as amended, are under File No. 1-9187.
Documents incorporated by reference to filings made by IESU under the
Securities Exchange Act of 1934, as amended, are under File No. 0-4117-1.
Documents incorporated by reference to filings made by IPC under the
Securities Exchange Act of 1934, as amended, are under File No. 1-3632.
# - A management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
Interstate Energy Corporation filed a Current Report on Form 8-K, dated
April 21, 1998, reporting (under Items 2 and 7) the consummation of the
three-way business combination between WPL Holdings, Inc., IES Industries
Inc. and Interstate Power Company.
Interstate Energy Corporation filed a Current Report on Form 8-K, dated
May 18, 1998, reporting (under Item 5) post-merger information included in
the Interstate Energy Corporation (d/b/a Alliant Corporation) Annual
Report to Shareowners.
Interstate Energy Corporation filed a Current Report on Form 8-K, dated
June 10, 1998, reporting (under Item 5) the Kewaunee Nuclear Power Plant
steam generator replacement and transfer of ownership by Madison Gas and
Electric Company to Wisconsin Public Service Corporation.
IES Utilities Inc. filed a Current Report on Form 8-K, dated April 21,
1998, reporting (under Item 5) the consummation of the three-way business
combination between WPL Holdings, Inc., IES Industries Inc. and Interstate
Power Company.
Wisconsin Power and Light Company filed a Current Report on Form 8-K,
dated April 21, 1998, reporting (under Item 5) the consummation of the
three-way business combination between WPL Holdings, Inc., IES Industries
Inc. and Interstate Power Company.
Wisconsin Power and Light Company filed a Current Report on Form 8-K,
dated June 10, 1998, reporting (under Item 5) the Kewaunee Nuclear Power
Plant steam generator replacement and transfer of ownership by Madison Gas
and Electric Company to Wisconsin Public Service Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Interstate Energy Corporation, IES Utilities Inc. and Wisconsin Power and
Light Company have each duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized on the 13th day of August
1998.
INTERSTATE ENERGY CORPORATION
Registrant
By: /s/ Thomas M. Walker Executive Vice President and
Thomas M. Walker Chief Financial Officer (Principal
Financial Officer)
By: /s/ John E. Ebright Vice President-Controller (Principal
John E. Ebright Accounting Officer)
IES UTILITIES INC.
Registrant
By: /s/ Edward M. Gleason Vice President-Treasurer and
Edward M. Gleason Corporate Secretary (Principal
Financial Officer)
By: /s/ John E. Ebright Vice President-Controller (Principal
John E. Ebright Accounting Officer)
WISCONSIN POWER AND LIGHT COMPANY
Registrant
By: /s/ Edward M. Gleason Vice President-Treasurer and
Edward M. Gleason Corporate Secretary (Principal
Financial Officer)
By: /s/ John E. Ebright Vice President-Controller (Principal
John E. Ebright Accounting Officer)