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, 1999
or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______ to _______
Commission Name of Registrant, State of Incorporation, IRS Employer
File Number Address of Principal Executive Offices and Telephone Number Identification Number
- ----------- ----------------------------------------------------------- ---------------------
1-9894 ALLIANT ENERGY CORPORATION 39-1380265
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
0-4117-1 IES UTILITIES INC. 42-0331370
(an Iowa corporation)
Alliant Energy Tower
Cedar Rapids, Iowa 52401
Telephone (319)398-4411
0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
Interstate Energy Corporation
(Former name of Alliant 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 Alliant Energy Corporation, IES
Utilities Inc. and Wisconsin Power and Light Company. Information contained
herein relating to any individual registrant is filed by such registrant on its
own behalf. Each registrant makes no representation as to information relating
to the other registrants.
Number of shares outstanding of each class of common stock as of July 31, 1999:
Alliant Energy Corporation Common stock, $.01 par value, 78,457,664
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 Alliant Energy
Corporation)
Wisconsin Power and Light Company Common stock, $5 par value, 13,236,601
shares outstanding (all of which are owned
beneficially and of record by Alliant Energy
Corporation)
CONTENTS
Page
----
Part I. Financial Information 4
Item 1. Consolidated Financial Statements 4
Alliant Energy Corporation:
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1999 and 1998 4
Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
IES Utilities Inc.:
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1999 and 1998 10
Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 11
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 13
Notes to Consolidated Financial Statements 14
Wisconsin Power and Light Company:
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1999 and 1998 15
Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 16
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 18
Notes to Consolidated Financial Statements 19
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 38
Part II. Other Information 38
Item 4. Submission of Matters to a Vote of Security Holders 38
Item 6. Exhibits and Reports on Form 8-K 41
Signatures 42
2
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes of this combined
Form 10-Q are defined below:
Abbreviation or Acronym Definition
- ----------------------- ----------
ADEQ Arkansas Department of Environmental Quality
Alliant Energy Alliant Energy Corporation
Cargill Cargill Incorporated
CEMS Continuous Emission Monitoring System
Corporate Services Alliant Energy Corporate Services, Inc.
Dth Dekatherm
EAC Energy Adjustment Clause
EPA United States Environmental Protection Agency
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
IDNR Iowa Department of Natural Resources
IESU IES Utilities Inc.
IPC Interstate Power Company
ITC Independent Transmission Company
IUB Iowa Utilities Board
Kewaunee Kewaunee Nuclear Power Plant
McLeod McLeodUSA Inc.
MD&A Management's Discussion and Analysis of Financial
Condition and Results of Operations
Midwest ISO Midwest Independent System Operator
MW Megawatt
MWH Megawatt-Hour
NERC North American Electric Reliability Council
NOx Nitrogen Oxides
NSP Northern States Power Company
OCA Office of Consumer Advocate
PGA Purchased Gas Adjustment
PSCW Public Service Commission of Wisconsin
PUHCA Public Utility Holding Company Act of 1935
Resources Alliant Energy Resources, Inc.
RTO Regional Transmission Organization
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
SkyGen SkyGen Energy LLC
Whiting Whiting Petroleum Corporation
WP&L Wisconsin Power and Light Company
WPSC Wisconsin Public Service Corporation
WUHCA Wisconsin Utility Holding Company Act
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Operating revenues:
Electric utility $ 366,152 $ 380,414 $ 717,490 $ 738,165
Gas utility 46,200 45,267 179,885 175,313
Nonregulated and other 73,762 65,331 135,594 133,817
-------------- -------------- -------------- --------------
486,114 491,012 1,032,969 1,047,295
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric and steam production fuels 53,360 69,538 118,763 139,094
Purchased power 72,440 73,417 124,505 129,563
Cost of utility gas sold 22,666 23,907 104,009 101,186
Other operation 148,291 158,679 278,657 316,033
Maintenance 31,934 33,389 55,746 58,647
Depreciation and amortization 70,475 72,857 144,115 142,690
Taxes other than income taxes 26,690 26,598 53,929 53,575
-------------- -------------- -------------- --------------
425,856 458,385 879,724 940,788
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Operating income 60,258 32,627 153,245 106,507
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 34,715 32,231 68,114 63,155
Allowance for funds used during construction (1,782) (1,638) (3,716) (3,141)
Preferred dividend requirements of subsidiaries 1,677 1,675 3,353 3,349
Miscellaneous, net (37,065) 11,035 (43,834) 7,159
-------------- -------------- -------------- --------------
(2,455) 43,303 23,917 70,522
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 62,713 (10,676) 129,328 35,985
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Income taxes 24,167 (1,578) 49,039 16,208
-------------- -------------- -------------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 38,546 $ (9,098) $ 80,289 $ 19,777
============== ============== ============== ==============
- --------------------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding 78,214 76,800 77,997 76,689
============== ============== ============== ==============
- --------------------------------------------------------------------------------------------------------------------------------
Earnings per average common share (basic and diluted) $ 0.49 $ (0.12) $ 1.03 $ 0.26
============== ============== ============== ==============
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
ALLIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30,
1999 December 31,
ASSETS (Unaudited) 1998
- --------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 4,923,657 $ 4,866,152
Gas 522,436 515,074
Other 432,694 409,711
---------------- ----------------
5,878,787 5,790,937
Less - Accumulated depreciation 2,985,592 2,852,605
---------------- ----------------
2,893,195 2,938,332
Construction work in progress 128,757 119,032
Nuclear fuel, net of amortization 54,762 44,316
---------------- ----------------
3,076,714 3,101,680
Other property, plant and equipment, net of accumulated
depreciation and amortization of $191,728 and $178,248, respectively 357,856 355,100
---------------- ----------------
3,434,570 3,456,780
---------------- ----------------
- --------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 29,403 31,827
Accounts receivable:
Customer, less allowance for doubtful accounts
of $2,201 and $2,518, respectively 84,415 102,966
Other, less allowance for doubtful accounts
of $807 and $490, respectively 25,734 26,054
Notes receivable, less allowance for doubtful
accounts of $114 and $120, respectively 5,579 13,392
Income tax refunds receivable 18,399 14,826
Production fuel, at average cost 42,323 54,140
Materials and supplies, at average cost 55,081 53,490
Gas stored underground, at average cost 12,518 26,013
Regulatory assets 25,139 30,796
Prepaid gross receipts tax 21,912 22,222
Other 17,663 15,941
---------------- ----------------
338,166 391,667
---------------- ----------------
- --------------------------------------------------------------------------------------------------------------
Investments:
Investment in McLeodUSA Inc. 527,800 320,280
Nuclear decommissioning trust funds 251,475 225,803
Investment in foreign entities 133,745 68,882
Other 52,977 54,776
---------------- ----------------
965,997 669,741
---------------- ----------------
- --------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 272,086 284,467
Deferred charges and other 166,317 156,682
---------------- ----------------
438,403 441,149
---------------- ----------------
- --------------------------------------------------------------------------------------------------------------
Total assets $ 5,177,136 $ 4,959,337
================ ================
- --------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
ALLIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30,
1999 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
Common stock - $.01 par value - authorized 200,000,000 shares;
outstanding 78,424,441 and 77,630,043 shares, respectively $ 784 $ 776
Additional paid-in capital 926,242 905,130
Retained earnings 539,769 537,372
Accumulated other comprehensive income 300,613 163,017
----------------- -----------------
Total common equity 1,767,408 1,606,295
----------------- -----------------
Cumulative preferred stock of subsidiaries:
Par/Stated Authorized Shares Mandatory
Value Shares Outstanding Series Redemption
$ 100 * 449,765 4.40% - 6.20% No 44,977 44,977
$ 25 * 599,460 6.50% No 14,986 14,986
$ 50 466,406 366,406 4.30% - 6.10% No 18,320 18,320
$ 50 ** 216,381 4.36% - 7.76% No 10,819 10,819
$ 50 ** 545,000 6.40% Yes *** 27,250 27,250
----------------- -----------------
116,352 116,352
Less: unamortized expenses (2,784) (2,854)
----------------- -----------------
Total cumulative preferred stock of subsidiaries 113,568 113,498
----------------- -----------------
Long-term debt (excluding current portion) 1,514,498 1,543,131
----------------- -----------------
3,395,474 3,262,924
----------------- -----------------
* 3,750,000 authorized shares in total between the two classes
** 2,000,000 authorized shares in total between the two classes
*** $53.20 mandatory redemption price
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities and sinking funds 53,740 63,414
Variable rate demand bonds 56,975 56,975
Commercial paper 125,500 64,500
Notes payable 50,024 51,784
Capital lease obligations 12,277 11,978
Accounts payable 145,888 204,297
Accrued taxes 84,622 84,921
Other 107,544 111,685
----------------- -----------------
636,570 649,554
----------------- -----------------
- ------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 774,492 691,624
Accumulated deferred investment tax credits 74,585 77,313
Environmental liabilities 68,917 68,399
Customer advances 35,416 37,171
Capital lease obligations 25,611 13,755
Other 166,071 158,597
----------------- -----------------
1,145,092 1,046,859
----------------- -----------------
- ------------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 5,177,136 $ 4,959,337
================= =================
- ------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
6
ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30,
1999 1998
- -------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $ 80,289 $ 19,777
Adjustments to reconcile net income to net cash flows
from operating
activities:
Depreciation and amortization 144,115 142,690
Amortization of nuclear fuel 9,142 8,555
Amortization of deferred energy efficiency expenditures 13,250 14,443
Deferred taxes and investment tax credits (8,487) (13,075)
Refueling outage provision 4,412 (9,341)
Impairment of oil and gas properties - 6,746
(Gain) loss on disposition of assets, net (37,591) (1,020)
Other 1,502 4,998
Other changes in assets and liabilities:
Accounts receivable 18,871 25,338
Notes receivable 7,813 6,396
Production fuel 11,817 242
Gas stored underground 13,495 22,232
Accounts payable (58,409) (35,181)
Accrued taxes (299) (6,049)
Adjustment clause balances (9,240) 5,791
Benefit obligations and other 13,094 28,786
----------------- ----------------
Net cash flows from operating activities 203,774 221,328
----------------- ----------------
- -------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends declared (77,892) (63,649)
Dividends payable 287 (15,806)
Proceeds from issuance of common stock 20,888 10,634
Net change in Alliant Energy Resources, Inc.
credit facility 15,495 71,587
Proceeds from issuance of other long-term debt 12,144 2,516
Reductions in other long-term debt (67,016) (1,262)
Net change in short-term borrowings 59,240 (42,525)
Principal payments under capital lease obligations (6,869) (8,116)
Other (2) (36)
----------------- ----------------
Net cash flows used for financing activities (43,725) (46,657)
----------------- ----------------
- -------------------------------------------------------------------------------------------------
Cashflows used for investing activities:
Construction and acquisition expenditures:
Utility (105,054) (93,508)
Nonregulated businesses (78,654) (63,928)
Nuclear decommissioning trust funds (17,658) (15,863)
Proceeds from disposition of assets 47,209 3,997
Shared savings expenditures (10,594) (3,117)
Other 2,278 2,138
----------------- ----------------
Net cash flows used for investing activities (162,473) (170,281)
----------------- ----------------
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash
investments (2,424) 4,390
----------------- ----------------
- -------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 31,827 27,329
----------------- ----------------
- -------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 29,403 $ 31,719
================= ================
- -------------------------------------------------------------------------------------------------
Supplemental cash flow information: Cash paid during
the period for:
Interest $ 68,166 $ 62,132
================= ================
Income taxes $ 56,130 $ 45,435
================= ================
Noncash investing and financing activities:
Capital lease obligations incurred $ 18,252 $ 1,271
================= ================
- -------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
7
ALLIANT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. At the Annual Shareowners meeting on May 19, 1999, the shareowners
approved a proposal to change the name of the corporation from Interstate
Energy Corporation to Alliant Energy Corporation. The name change was
effective May 20, 1999.
The interim consolidated financial statements included herein have been
prepared by Alliant Energy, without audit, pursuant to the rules and
regulations of the SEC. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, although management believes that the disclosures
are adequate to make the information presented not misleading. The
consolidated financial statements include Alliant Energy and its
consolidated subsidiaries (WP&L, IESU, IPC, Resources and Corporate
Services). These financial statements should be read in conjunction with
the financial statements and the notes thereto included in Alliant
Energy's, IESU's and WP&L's latest Annual Report on Form 10-K.
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, 1999 and 1998, (b) the consolidated financial position at June
30, 1999 and December 31, 1998, and (c) the consolidated statement of
cash flows for the six months ended June 30, 1999 and 1998, have been
made. Because of the seasonal nature of IESU's, WP&L's and IPC's
operations, results for the three and six months ended June 30, 1999 are
not necessarily indicative of results that may be expected for the year
ending December 31, 1999. Certain prior period amounts have been
reclassified on a basis consistent with the 1999 presentation.
2. Alliant Energy's comprehensive income (loss), and the components of other
comprehensive income (loss), net of taxes, were as follows (in
thousands):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------------ ---------- ------------ ----------
Net income (loss) $ 38,546 ($ 9,098) $ 80,289 $19,777
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of tax (1) 84,742 (20,358) 159,773 41,471
Less: reclassification adjustment for gains
included in net income, net of tax (2) (21,324) -- (21,324) --
------------ ---------- ------------ ----------
Net unrealized gains (losses) 63,418 (20,358) 138,449 41,471
------------ ---------- ------------ ----------
Foreign currency translation adjustments (239) 1 (853) 56
------------ ---------- ------------ ----------
Other comprehensive income (loss) 63,179 (20,357) 137,596 41,527
============ ========== ============ ==========
Comprehensive income (loss) $101,725 ($29,455) $217,885 $61,304
============ ========== ============ ==========
(1) Primarily due to quarterly adjustments to the estimated fair value of
Alliant Energy's investment in McLeod.
8
(2) The second quarter 1999 earnings included a pre-tax gain of $33.8 million
($0.27 per share) from the sale of approximately 640,000 shares of McLeod
stock held by Alliant Energy. Following completion of the May 1999 sale,
Alliant Energy still held beneficial ownership in approximately 9.6
million shares of McLeod stock. McLeod declared a 2-for-1 stock split
effective July 1999.
IESU and WP&L had no comprehensive income in the periods presented.
3. Certain financial information relating to Alliant Energy's significant
business segments is presented below:
Alliant
-------------------------------------------
Regulated Domestic Utilities Nonregulated Energy
-------------------------------------------
Electric Gas Other Total Businesses Other Consolidated
----------------------------------------------------------------------------------------
(in thousands)
Three Months Ended
June 30, 1999
Operating revenues $366,152 $46,200 $7,820 $420,172 $66,595 ($653) $486,114
Operating income (loss) 56,155 (2,018) 1,529 55,666 4,101 491 60,258
Net income (loss) 17,138 21,560 (152) 38,546
Three Months Ended
June 30, 1998
Operating revenues $380,414 $45,267 $7,424 $433,105 $58,305 ($398) $491,012
Operating income (loss) 38,826 (7,404) 1,327 32,749 689 (811) 32,627
Net loss (3,024) (2,925) (3,149) (9,098)
Six Months Ended
June 30, 1999
Operating revenues $717,490 $179,885 $17,024 $914,399 $119,794 ($1,224) $1,032,969
Operating income 124,770 21,921 3,883 150,574 2,265 406 153,245
Net income (loss) 61,905 19,654 (1,270) 80,289
Six Months Ended
June 30, 1998
Operating revenues $738,165 $175,313 $15,833 $929,311 $118,627 ($643) $1,047,295
Operating income (loss) 94,664 14,971 3,158 112,793 (4,810) (1,476) 106,507
Net income (loss) 30,153 (6,925) (3,451) 19,777
Resources' (i.e., the nonregulated businesses) assets increased $263
million during the first six months of 1999, primarily due to the
increase in market value of its investment in McLeod and additional
investments in foreign entities. Intersegment revenues were not material
to Alliant Energy's operations and there was no single customer whose
revenues exceeded 10% or more of Alliant Energy's consolidated revenues.
4. The provisions for income taxes are based on the estimated annual
effective tax rate, which differs from the federal statutory rate of 35%
principally due to: state income taxes, tax credits, effects of utility
rate making and certain nondeductible expenses.
5. At June 30, 1999, Alliant Energy had $133.7 million of investments in
foreign entities on its Consolidated Balance Sheets that primarily
included investments in several New Zealand utility entities and
investments in several generation facilities in China. Alliant Energy
accounts for the China investments under the equity method and the other
investments under the cost method. The geographic concentration of
Alliant Energy's investments in foreign entities at June 30, 1999,
included investments of approximately $96.2 million in New Zealand, $37.0
million in China and $0.5 million in other countries.
9
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating revenues:
Electric utility $ 142,209 $ 147,640 $ 282,226 $ 288,290
Gas utility 22,012 20,921 83,308 81,316
Steam and other 6,572 6,172 14,524 13,405
--------------- --------------- --------------- ---------------
170,793 174,733 380,058 383,011
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric and steam production fuels 12,285 21,284 38,873 51,933
Purchased power 27,142 25,768 40,292 36,817
Cost of gas sold 11,623 10,782 49,535 48,439
Other operation 45,167 44,869 92,607 91,871
Maintenance 12,572 13,960 22,477 24,951
Depreciation and amortization 25,481 23,907 50,963 48,242
Taxes other than income taxes 12,468 12,407 25,083 24,713
--------------- --------------- --------------- ---------------
146,738 152,977 319,830 326,966
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Operating income 24,055 21,756 60,228 56,045
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 14,434 12,955 27,638 26,030
Allowance for funds used during construction (535) (801) (1,384) (1,566)
Miscellaneous, net (2,499) 4,167 (3,355) 4,446
--------------- --------------- --------------- ---------------
11,400 16,321 22,899 28,910
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 12,655 5,435 37,329 27,135
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Income taxes 5,611 2,474 15,828 12,515
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Net income 7,044 2,961 21,501 14,620
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Preferred dividend requirements 229 229 457 457
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Earnings available for common stock $ 6,815 $ 2,732 $ 21,044 $ 14,163
=============== =============== =============== ===============
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
10
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS
June 30,
1999 December 31,
ASSETS (Unaudited) 1998
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 2,163,280 $ 2,140,322
Gas 200,955 198,488
Steam 55,794 55,797
Common 126,385 106,940
----------------- -----------------
2,546,414 2,501,547
Less - Accumulated depreciation 1,266,117 1,209,204
----------------- -----------------
1,280,297 1,292,343
Construction work in progress 44,849 48,991
Leased nuclear fuel, net of amortization 37,804 25,644
----------------- -----------------
1,362,950 1,366,978
Other property, plant and equipment, net of accumulated
depreciation and amortization of $2,021 and $1,948, respectively 5,549 5,623
----------------- -----------------
1,368,499 1,372,601
----------------- -----------------
- ----------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 2,195 4,175
Temporary cash investments with associated companies - 53,729
Accounts receivable:
Customer, less allowance for doubtful accounts
of $593 and $1,058, respectively 5,420 16,703
Associated companies 1,718 2,662
Other, less allowance for doubtful accounts
of $672 and $357, respectively 9,036 10,346
Production fuel, at average cost 11,445 11,863
Materials and supplies, at average cost 25,050 25,591
Gas stored underground, at average cost 3,798 12,284
Regulatory assets 16,790 23,487
Prepayments and other 10,788 4,185
----------------- -----------------
86,240 165,025
----------------- -----------------
- ----------------------------------------------------------------------------------------------------------------
Investments:
Nuclear decommissioning trust funds 99,459 91,691
Other 6,457 6,019
----------------- -----------------
105,916 97,710
----------------- -----------------
- ----------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 130,217 137,908
Deferred charges and other 15,038 15,734
----------------- -----------------
145,255 153,642
----------------- -----------------
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 1,705,910 $ 1,788,978
================= =================
- ----------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
11
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30,
1999 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1998
- --------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
Common stock - $2.50 par value - authorized 24,000,000
shares; 13,370,788 shares outstanding $ 33,427 $ 33,427
Additional paid-in capital 279,042 279,042
Retained earnings 237,783 275,372
------------------ -----------------
Total common equity 550,252 587,841
Cumulative preferred stock, not mandatorily redeemable -
$50 par value - authorized 466,406 shares; 366,406 shares outstanding 18,320 18,320
Long-term debt (excluding current portion) 550,952 602,020
------------------ -----------------
1,119,524 1,208,181
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities and sinking funds 51,196 50,140
Capital lease obligations 12,263 11,965
Notes payable to associated companies 29,706 -
Accounts payable 23,733 43,953
Accounts payable to associated companies 20,140 22,487
Accrued payroll and vacations 7,546 6,365
Accrued interest 10,817 12,045
Accrued taxes 47,128 55,295
Accumulated refueling outage provision 11,017 6,605
Environmental liabilities 5,448 5,660
Other 7,823 17,617
------------------ -----------------
226,817 232,132
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 221,362 224,510
Accumulated deferred investment tax credits 27,963 29,243
Environmental liabilities 28,243 29,195
Pension and other benefit obligations 28,317 25,655
Capital lease obligations 25,541 13,679
Other 28,143 26,383
------------------ -----------------
359,569 348,665
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 1,705,910 $ 1,788,978
================== =================
- --------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
12
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $ 21,501 $ 14,620
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 50,963 48,242
Amortization of leased nuclear fuel 6,092 5,549
Amortization of deferred energy efficiency expenditures 9,518 10,103
Deferred taxes and investment tax credits (6,745) (4,040)
Refueling outage provision 4,412 (9,341)
Other 529 536
Other changes in assets and liabilities:
Accounts receivable 13,537 26,121
Gas stored underground 8,486 15,056
Accounts payable (22,567) (10,188)
Accrued taxes (8,167) (13,734)
Adjustment clause balances (8,488) 2,157
Benefit obligations and other 10,397 20,444
------------------- ------------------
Net cash flows from operating activities 79,468 105,525
------------------- ------------------
- ------------------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends declared (58,633) (18,840)
Dividends payable (4,840) 4,840
Preferred stock dividends (457) (457)
Reductions in long-term debt (50,140) (140)
Net change in short-term borrowings 29,706 -
Principal payments under capital lease obligations (6,869) (8,116)
Other (3) -
------------------- ------------------
Net cash flows used for financing activities (91,236) (22,713)
------------------- ------------------
- ------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Utility construction expenditures (41,173) (42,404)
Nuclear decommissioning trust funds (3,004) (3,004)
Other 236 100
------------------- ------------------
Net cash flows used for investing activities (43,941) (45,308)
------------------- ------------------
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments (55,709) 37,504
------------------- ------------------
- ------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 57,904 230
------------------- ------------------
- ------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 2,195 $ 37,734
=================== ==================
- ------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 24,714 $ 24,702
=================== ==================
Income taxes $ 30,824 $ 33,468
=================== ==================
Noncash investing and financing activities - Capital lease obligations incurred $ 18,252 $ 1,271
=================== ==================
- ------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
13
IES UTILITIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the Alliant Energy Notes to Consolidated
Financial Statements are incorporated by reference insofar as they
relate to IESU. Alliant Energy Note 5 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 Alliant Energy.
These financial statements should be read in conjunction with the
financial statements and the notes thereto included in IESU's latest
Annual Report on Form 10-K.
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, 1999 and 1998, (b) the consolidated financial position at June
30, 1999 and December 31, 1998, and (c) the consolidated statement of
cash flows for the six months ended June 30, 1999 and 1998, have been
made. Because of the seasonal nature of IESU's operations, results for
the three and six months ended June 30, 1999 are not necessarily
indicative of results that may be expected for the year ending December
31, 1999. Certain prior period amounts have been reclassified on a
basis consistent with the 1999 presentation.
14
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating revenues:
Electric utility $ 150,510 $ 154,314 $ 300,455 $ 305,624
Gas utility 15,358 16,943 67,151 67,261
Water 1,248 1,252 2,500 2,428
--------------- --------------- --------------- ---------------
167,116 172,509 370,106 375,313
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric production fuels 26,014 29,471 53,380 58,368
Purchased power 28,425 30,238 52,424 58,839
Cost of gas sold 5,798 8,515 36,979 39,229
Other operation 35,432 39,894 61,540 73,897
Maintenance 13,775 14,479 22,879 24,447
Depreciation and amortization 28,407 31,580 59,546 60,838
Taxes other than income taxes 7,355 7,504 15,057 15,215
--------------- --------------- --------------- ---------------
145,206 161,681 301,805 330,833
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 21,910 10,828 68,301 44,480
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 10,078 8,984 19,943 17,367
Allowance for funds used during construction (1,109) (742) (2,032) (1,398)
Miscellaneous, net 1,996 3,142 (2,348) 1,276
--------------- --------------- --------------- ---------------
10,965 11,384 15,563 17,245
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 10,945 (556) 52,738 27,235
--------------- --------------- --------------- ---------------
- --------------------------------------------------------------------------------------- ----------------------------------
Income taxes 3,992 677 19,497 10,870
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 6,953 (1,233) 33,241 16,365
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Preferred dividend requirements 828 828 1,656 1,656
--------------- --------------- --------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------------
Earnings available for common stock $ 6,125 $ (2,061) $ 31,585 $ 14,709
=============== =============== =============== ===============
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
15
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
June 30,
1999 December 31,
ASSETS (Unaudited) 1998
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 1,863,733 $ 1,839,545
Gas 248,576 244,518
Water 26,769 26,567
Common 222,206 219,268
----------------- -----------------
2,361,284 2,329,898
Less - Accumulated depreciation 1,231,444 1,168,830
----------------- -----------------
1,129,840 1,161,068
Construction work in progress 72,024 56,994
Nuclear fuel, net of amortization 16,958 18,671
----------------- -----------------
1,218,822 1,236,733
Other property, plant and equipment, net of accumulated
depreciation and amortization of $49 and $44, respectively 627 630
----------------- -----------------
1,219,449 1,237,363
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 4,279 1,811
Accounts receivable:
Customer 5,092 13,372
Associated companies 1,869 3,019
Other 8,378 8,298
Income tax refunds receivable 10,844 2,715
Production fuel, at average cost 15,477 20,105
Materials and supplies, at average cost 22,154 20,025
Gas stored underground, at average cost 7,801 10,738
Regulatory assets 3,707 3,707
Prepaid gross receipts tax 21,912 22,222
Other 1,399 4,272
----------------- -----------------
102,912 110,284
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Investments:
Nuclear decommissioning trust funds 152,015 134,112
Other 15,408 15,960
----------------- -----------------
167,423 150,072
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 73,244 76,284
Deferred charges and other 121,508 111,147
----------------- -----------------
194,752 187,431
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 1,684,536 $ 1,685,150
================= =================
- ---------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
16
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30,
1999 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1998
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
Common stock - $5 par value - authorized 18,000,000
shares; 13,236,601 shares outstanding $ 66,183 $ 66,183
Additional paid-in capital 199,438 199,438
Retained earnings 296,718 294,309
------------------- ------------------
Total common equity 562,339 559,930
------------------- ------------------
Cumulative preferred stock, not mandatorily redeemable without par value -
authorized 3,750,000 shares, maximum aggregate stated value $150,000,000:
$100 stated value - 449,765 shares outstanding 44,977 44,977
$25 stated value - 599,460 shares outstanding 14,986 14,986
------------------- ------------------
Total cumulative preferred stock 59,963 59,963
------------------- ------------------
Long-term debt (excluding current portion) 414,626 414,579
------------------- ------------------
1,036,928 1,034,472
------------------- ------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Variable rate demand bonds 56,975 56,975
Notes payable 50,000 50,000
Notes payable to associated companies 59,035 26,799
Accounts payable 62,920 84,754
Accounts payable to associated companies 21,790 20,315
Accrued payroll and vacations 8,227 5,276
Accrued interest 4,240 6,863
Other 8,014 14,600
------------------- ------------------
271,201 265,582
------------------- ------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 240,909 245,489
Accumulated deferred investment tax credits 32,240 33,170
Customer advances 32,687 34,367
Environmental liabilities 11,366 11,683
Other 59,205 60,387
------------------- ------------------
376,407 385,096
------------------- ------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 1,684,536 $ 1,685,150
=================== ==================
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
17
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30,
1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $ 33,241 $ 16,365
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 59,546 60,838
Amortization of nuclear fuel 3,050 3,006
Deferred taxes and investment tax credits (4,258) (1,736)
Other (620) (3,927)
Other changes in assets and liabilities:
Accounts receivable 9,350 20,317
Income tax refunds receivable (8,129) (11,224)
Production fuel 4,628 2,402
Gas stored underground 2,937 5,732
Accounts payable (20,359) 154
Benefit obligations and other (7,192) 14,869
--------------------- ---------------------
Net cash flows from operating activities 72,194 106,796
--------------------- ---------------------
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) financing activities:
Common stock dividends (29,176) (29,170)
Preferred stock dividends (1,656) (1,656)
Net change in short-term borrowings 32,236 (23,697)
--------------------- ---------------------
Net cash flows from (used for) financing activities 1,404 (54,523)
--------------------- ---------------------
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Utility construction expenditures (48,600) (38,980)
Nuclear decommissioning trust funds (14,654) (12,859)
Shared savings expenditures (7,723) (3,021)
Other (153) 2,023
--------------------- ---------------------
Net cash flows used for investing activities (71,130) (52,837)
--------------------- ---------------------
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments 2,468 (564)
--------------------- ---------------------
- --------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 1,811 2,492
--------------------- ---------------------
- --------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 4,279 $ 1,928
===================== =====================
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information: Cash paid during the period for:
Interest $ 21,860 $ 13,085
===================== =====================
Income taxes $ 32,885 $ 22,784
===================== =====================
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
18
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the Alliant Energy Notes to Consolidated
Financial Statements are incorporated by reference insofar as they
relate to WP&L. Alliant Energy Note 5 does not relate to WP&L and,
therefore, is not incorporated by reference.
1. The interim consolidated financial statements included herein have been
prepared by WP&L, without audit, pursuant to the rules and regulations
of the SEC. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted, although management believes that the disclosures are adequate
to make the information presented not misleading. The consolidated
financial statements include WP&L and its consolidated subsidiary. WP&L
is a subsidiary of Alliant Energy. These financial statements should be
read in conjunction with the financial statements and the notes thereto
included in WP&L's latest Annual Report on Form 10-K.
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, 1999 and 1998, (b) the consolidated financial position at June
30, 1999 and December 31, 1998, and (c) the consolidated statement of
cash flows for the six months ended June 30, 1999 and 1998, have been
made. Because of the seasonal nature of WP&L's operations, results for
the three and six months ended June 30, 1999 are not necessarily
indicative of results that may be expected for the year ending December
31, 1999. Certain prior period amounts have been reclassified on a
basis consistent with the 1999 presentation.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Alliant Energy was formed as the result of a three-way merger involving WPL
Holdings, Inc., IES Industries Inc. and IPC that was completed in April 1998.
The first tier subsidiaries of Alliant Energy include: WP&L, IESU, IPC,
Resources and Corporate Services. Among various other regulatory constraints,
Alliant Energy is operating as a registered public utility holding company
subject to the limitations imposed by PUHCA.
This MD&A includes information relating to Alliant Energy, IESU and WP&L (as
well as IPC, Resources and Corporate Services). Where appropriate, information
relating to a specific entity has been segregated and labeled as such. The
following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
included in this report as well as the financial statements, notes and MD&A
included in Alliant Energy's, IESU's and WP&L's latest Annual Report on Form
10-K.
FORWARD-LOOKING STATEMENTS
Statements contained in this report (including MD&A) that are not of historical
fact are forward-looking statements intended to qualify for the safe harbors
from liability established by the Private Securities Litigation Reform Act of
1995. From time to time, Alliant Energy, IESU or WP&L may make other
forward-looking statements within the meaning of the federal securities laws
that involve judgments, assumptions and other uncertainties beyond the control
of such companies. These forward-looking statements may include, among others,
statements concerning revenue and cost trends, cost recovery, cost reduction
strategies and anticipated outcomes, pricing strategies, changes in the utility
industry, planned capital expenditures, financing needs and availability,
statements of expectations, beliefs, future plans and strategies, anticipated
events or trends and similar comments concerning matters that are not historical
facts. Investors and other users of the forward-looking statements are cautioned
that such statements are not a guarantee of future performance and that such
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in, or implied
by, such statements. Some, but not all, of the risks and uncertainties include
weather effects on sales and revenues, competitive factors, general economic
conditions in the relevant service territory, federal and state regulatory or
government actions, resolution of issues being addressed by the Wisconsin
legislature relating to proposed amendments to WUHCA, unanticipated construction
and acquisition expenditures, issues related to stranded costs and the recovery
thereof, the operations of Alliant Energy's nuclear facilities, unanticipated
issues or costs associated with achieving Year 2000 compliance, the ability of
Alliant Energy to successfully integrate its operations and unanticipated costs
associated therewith, unanticipated difficulties in achieving expected synergies
from the merger, unanticipated costs associated with certain environmental
remediation efforts being undertaken by Alliant Energy, technological
developments, employee workforce factors, including changes in key executives,
collective bargaining agreements or work stoppages, political, legal and
economic conditions in foreign countries Alliant Energy has investments in and
changes in the rate of inflation.
UTILITY INDUSTRY OUTLOOK
A summary of the current regulatory environment is included in the Form 10-K
filed by Alliant Energy, IESU and WP&L for the year ended December 31, 1998. Set
forth below are several developments relating to such regulatory environment.
Across the nation, approximately half of the states have passed legislation or
issued regulatory rulings granting customers the right to choose their electric
energy supplier. At the federal level, a number of proposals to restructure the
electric industry are currently under consideration. However, there continues to
be a lack of consensus over how restructuring should be implemented and how much
control the federal government should have over this process. Until one of the
proposals gains significant bipartisan support, there is unlikely to be final
federal action to either facilitate or force states to open electricity markets
to competition.
20
The IUB has been reviewing all forms of competition in the electric utility
industry for several years. A group comprised of the IUB, Alliant Energy,
MidAmerican Energy Company, rural electric cooperatives, municipal utilities and
Iowans for Choice in Electricity (a diverse group of industrial customers,
marketers, such as Enron, and a low income customer representative, among
others) endorsed a bill to allow for such competition that was introduced in the
Iowa Legislature in March 1999. The bill was opposed by the OCA, which is
charged by Iowa law with representation of all consumers generally. While the
bill did not pass, it will by operation of Iowa General Assembly rules remain
alive in the General Assembly upon adjournment in the spring of its 1999 regular
session. By operation of House rules, it will be re-referred to the House
Commerce Committee and will again be inserted into the legislative process in
the Second Regular Session of the 78th General Assembly (2000).
"Reliability 2000" legislation was introduced in Wisconsin in the second quarter
of 1999. This legislation includes, among other items, a relaxation of the
non-utility asset limitations included in the WUHCA and the formation of a
Wisconsin transmission company (Transco) for those investor-owned utilities who
elect to take advantage of the new asset cap law. If passed, it is anticipated
that the three large Wisconsin investor-owned electric utilities, including
WP&L, would have incentives to include their transmission systems in the
Transco. Should the legislation pass, Alliant Energy would review the possible
inclusion of the transmission systems of IESU and IPC in the Transco as well.
The Transco, structured as a single-purpose corporation, would operate as a
member of the Midwest ISO. It would be a public utility, as defined under
Wisconsin law, with a board of directors comprised of one representative from
each utility having at least a 10% ownership interest in the Transco. Smaller
utilities could combine their transmission assets with others to reach the
minimum level for board membership. In addition, the original members of the
board would select four at-large directors.
Alliant Energy is unable to predict whether the Reliability 2000 legislation
will be enacted. As a result, it has also been reviewing various other
initiatives as it relates to the future of its transmission system. Such
initiatives include:
a. ITC - In November 1998, Alliant Energy and NSP announced plans to develop
an ITC to provide electric transmission services to the Upper Midwest.
Based on the merger announcement between NSP and New Century Energies Inc.
as well as NSP's recent announcement to join the Midwest ISO in some
capacity, the companies are no longer proceeding with the development of
the ITC in the manner previously contemplated.
b. Midwest ISO - Alliant Energy had originally filed to participate in the
Midwest ISO, which was conditionally approved by the FERC on September 16,
1998. However, as a result of the earlier decision to form the ITC with
NSP, Alliant Energy withdrew its Midwest ISO membership. In August 1999,
Alliant Energy informed the Midwest ISO that it will rejoin the Midwest ISO
in some capacity (i.e., as part of the Wisconsin Transco, as an integrated
utility or as part of a regional independent transmission company).
In addition, in May 1999, FERC issued a Notice of Proposed Rulemaking (NOPR)
concerning the development of RTOs. The proposed rules outline the requirements
for utilities to voluntarily turn over control of their transmission system to a
regional entity either by leasing the system to an RTO, or by outright
divestiture. FERC's timeline is to have a final rule issued by January 1, 2000,
and have the RTOs in operation by the end of 2001. Alliant Energy is currently
reviewing the NOPR.
Each of the utilities complies with the provisions of SFAS 71, "Accounting for
the Effects of Certain Types of Regulation." SFAS 71 provides that
rate-regulated public utilities record certain costs and credits allowed in the
rate making process in different periods than for 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
21
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.
ALLIANT ENERGY RESULTS OF OPERATIONS
Overview - Second Quarter Results
Alliant Energy reported net income of $38.5 million, or $0.49 per share (basic
and diluted), for the second quarter of 1999, compared with a loss of $9.1
million, or $0.12 per share (basic and diluted), for the second quarter of 1998.
The second quarter 1999 earnings included a pre-tax gain of $33.8 million ($0.27
per share) from the sale of approximately 640,000 shares of McLeod stock held by
Alliant Energy. Higher electric and natural gas margins from Alliant Energy's
utility operations and improved earnings from Alliant Energy's diversified
operations also contributed to the increase in earnings. These items, however,
were partially offset by higher utility operation and maintenance expenses,
largely due to outages at several generating facilities and higher employee
benefits costs, and increased utility depreciation expenses in 1999. The 1998
results included approximately $35 million of pre-tax merger-related expenses
($0.28 per share).
Alliant Energy's utility operations reported net income of approximately $17.1
million for the second quarter of 1999 compared with a loss of $3.0 million
(income of $14.8 million excluding merger-related expenses) for the same period
in 1998. The increase in utility earnings resulted primarily from higher
electric and natural gas margins. Higher operation and maintenance expenses
(excluding merger-related expenses) and depreciation expense partially offset
the increased earnings.
The higher electric margins stemmed primarily from separate $15 million rate
increases implemented at WP&L in July 1998 and early March 1999 to recover
higher purchased power and transmission costs. A 4% increase in sales to retail
customers, largely due to continued economic growth in Alliant Energy's service
territory, also contributed to the higher electric margins. Lower margins from
sales to off-system customers partially offset the increase.
The increase in operation and maintenance expenses resulted primarily from
higher operating costs at Alliant Energy's generating facilities, largely due to
outages at several facilities, and an increase in employee benefits costs. Such
items were partially offset by lower costs in 1999 due to merger-related
operating efficiencies.
Alliant Energy's diversified (nonregulated) operations reported net income of
$21.6 million in the second quarter of 1999 compared to a net loss of $2.9
million ($1.8 million excluding merger-related expenses) for the same period in
1998. The increased earnings were largely due to the gain on the sale of the
McLeod shares. Improved results from Alliant Energy's electric trading joint
venture also contributed to the increase.
22
Electric Utility Operations
Electric margins and MWH sales for Alliant Energy for the three months ended
June 30 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
---------------------------- ----------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------- ------------- ---------
Residential $ 123,379 $ 120,708 2% 1,575 1,525 3%
Commercial 77,534 74,762 4% 1,251 1,167 7%
Industrial 116,780 118,451 (1%) 3,239 3,150 3%
------------- ------------- ------------- -------------
Total from ultimate customers 317,693 313,921 1% 6,065 5,842 4%
Sales for resale 37,364 56,957 (34%) 1,339 2,036 (34%)
Other 11,095 9,536 16% 39 37 5%
------------- ------------- ------------- -------------
Total 366,152 380,414 (4%) 7,443 7,915 (6%)
============= ============= =========
Electric production fuels 49,827 66,387 (25%)
Purchased power 72,440 73,417 (1%)
------------- -------------
Margin $ 243,885 $ 240,610 1%
============= ============= =========
Electric margins and MWH sales for Alliant Energy for the six months ended June
30 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
---------------------------- ----------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------- ------------- ---------
Residential $ 253,659 $ 247,777 2% 3,385 3,237 5%
Commercial 149,557 146,794 2% 2,495 2,352 6%
Industrial 219,381 224,854 (2%) 6,314 6,150 3%
------------- ------------- ------------- -------------
Total from ultimate customers 622,597 619,425 1% 12,194 11,739 4%
Sales for resale 73,578 99,769 (26%) 2,684 3,706 (28%)
Other 21,315 18,971 12% 81 80 1%
------------- ------------- ------------- -------------
Total 717,490 738,165 (3%) 14,959 15,525 (4%)
============= ============= =========
Electric production fuels 111,136 132,089 (16%)
Purchased power 124,505 129,563 (4%)
------------- -------------
Margin $ 481,849 $ 476,513 1%
============= ============= =========
Electric margin increased $3.3 million, or 1%, and $5.3 million, or 1%, for the
three and six months ended June 30, 1999, respectively, compared with the same
periods in 1998. The increases were primarily due to separate $15 million annual
rate increases implemented at WP&L in July 1998 and early March 1999 to recover
higher purchased power and transmission costs, and 4% increases in sales to
retail customers. The sales increases resulted from continued economic growth
within Alliant Energy's service territory. In addition, more favorable weather
conditions in the first quarter of 1999 also contributed to the six-month
increase.
Partially offsetting the increase in electric margin for both periods, were: 1)
decreased sales to off-system customers, and 2) decreased recoveries of $1.6
million and $6.3 million of concurrent and previously deferred expenditures for
Iowa-mandated energy efficiency program costs for the three- and six-month
periods, respectively. Recoveries for energy efficiency program costs are in
accordance with IUB orders (a portion of these recoveries is also amortized to
expense in other operation expenses). The second quarter of 1998 margin also
included $3.2 million of revenues collected from WP&L customers for a surcharge
related to Kewaunee (a corresponding amount was included in depreciation and
amortization expense).
23
IESU's and IPC's electric tariffs include EAC's that are designed to currently
recover the costs of fuel and the energy portion of purchased power billings.
Gas Utility Operations
Gas margins and Dth sales for the three months ended June 30 were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 26,602 $ 25,999 2% 3,969 3,779 5%
Commercial 12,495 11,936 5% 2,532 2,352 8%
Industrial 3,649 3,030 20% 1,038 820 27%
Transportation and other 3,454 4,302 (20%) 10,834 11,953 (9%)
------------- ------------- ------------ -------------
Total 46,200 45,267 2% 18,373 18,904 (3%)
============ ============= =========
Cost of gas sold 22,666 23,907 (5%)
------------- -------------
Margin $ 23,534 $ 21,360 10%
============= ============= =========
Gas margins and Dth sales for the six months ended June 30 were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 109,041 $ 106,292 3% 18,805 17,557 7%
Commercial 51,654 51,134 1% 11,091 10,466 6%
Industrial 10,416 10,158 3% 2,957 2,661 11%
Transportation and other 8,774 7,729 14% 25,443 26,744 (5%)
------------- ------------- ------------ -------------
Total 179,885 175,313 3% 58,296 57,428 2%
============ ============= =========
Cost of gas sold 104,009 101,186 3%
------------- -------------
Margin $ 75,876 $ 74,127 2%
============= ============= =========
Gas margin increased $2.2 million, or 10%, and increased $1.7 million, or 2%,
for the three and six months ended June 30, 1999, respectively, compared with
the same periods in 1998, primarily due to more favorable weather conditions in
1999. The six-month increase was partially offset by a reduction of $1.2 million
in recoveries of Iowa-mandated energy efficiency costs and gas cost adjustments
at IPC. Refer to "Interest Expense and Other" for a discussion of income
realized from a weather hedge in the first quarter of 1999.
IESU's and IPC's gas tariffs include PGA clauses that are designed to currently
recover the cost of utility gas sold.
24
Nonregulated and Other Revenues
Nonregulated and other revenues for the three and six months ended June 30 were
as follows (in thousands):
For the three months For the six months
ended June 30, ended June 30,
1999 1998 1999 1998
------------ ------------ -------------- -------------
Environmental and engineering services $ 18,962 $ 16,687 $ 35,135 $ 33,324
Oil and gas production 16,608 17,477 29,442 34,624
Nonregulated energy 14,892 9,682 25,067 23,127
Transportation, rents and other 12,059 10,751 22,123 20,427
Steam 6,894 6,381 15,155 13,826
Affordable housing 3,099 3,100 6,172 6,061
Water 1,248 1,253 2,500 2,428
------------ ------------ -------------- -------------
$ 73,762 $ 65,331 $135,594 $ 133,817
============ ============ ============== =============
Nonregulated energy revenues increased by $5.2 million and $1.9 million for the
three and six months ended June 30, 1999, respectively, compared with the same
periods in 1998, primarily due to the second quarter 1999 acquisition of a small
oil gathering and transportation business in Texas. Oil and gas production
revenues declined $5.2 million for the six-month period, due to lower sales
volumes and gas prices, partially offset by an increase in oil prices.
Environmental and engineering services revenues increased $2.3 million and $1.8
million for the three- and six-month periods due to an increase in construction
management services.
Operating Expenses
Other operation expenses for the three and six months ended June 30 were as
follows (in thousands):
For the three months For the six months
ended June 30, ended June 30,
1999 1998 1999 1998
------------- -------------- ------------- --------------
Utility - WP&L / IESU / IPC $ 98,383 $ 113,193 $ 186,212 $ 215,940
Nonregulated and other 49,908 45,486 92,445 100,093
------------- -------------- ------------- --------------
$ 148,291 $ 158,679 $ 278,657 $ 316,033
============= ============== ============= ==============
Other operation expenses at the utility subsidiaries decreased $14.8 million and
$29.7 million for the three and six months ended June 30, 1999, respectively,
compared with the same periods in 1998, primarily due to incurring pre-tax
merger-related expenses of $20.1 million and $29.8 million in 1998,
respectively, and lower costs in 1999 due to operating efficiencies associated
with the merger. Such decreases were partially offset by increased expenses for
employee benefits, nuclear operations and Year 2000 readiness efforts.
Maintenance expenses at the utility subsidiaries decreased $1.6 million and $3.2
million for the three and six months ended June 30, 1999, respectively, compared
with the same periods in 1998 primarily due to lower nuclear maintenance
expenses partially offset by expenses associated with outages at several
generating facilities.
Other operation expenses at the nonregulated businesses increased $4.4 million
and decreased $7.6 million for the three and six months ended June 30, 1999,
respectively, compared with the same periods in 1998. The three-month increase
was primarily due to expenses associated with the increase in construction
management services and the acquisition of the oil gathering and transportation
business. Pre-tax merger-related expenses of $1.2 million for both the three and
six months ended June 30, 1998, contributed to a decrease in other operation
expenses in 1999. Also contributing to the decrease for the six months ended
June 30, 1999, were lower operation expenses in the gas
25
marketing business and a $6.7 million asset impairment charge in the first
quarter of 1998 at Whiting. Partially offsetting the six-month decrease were the
increased expenses from the oil gathering and transportation business.
Depreciation and amortization expense decreased $2.4 million and increased $1.4
million for the three and six months ended June 30, 1999, respectively, compared
with the same periods in 1998. The decrease for the three months ended June 30,
1999 was primarily due to reduced earnings in WP&L's nuclear decommissioning
trust fund, which was offset entirely in "Miscellaneous, net," and the $3.2
million Kewaunee surcharge in the second quarter of 1998 at WP&L (recorded in
depreciation and amortization expense with a corresponding increase in revenues
resulting in no earnings impact). Higher depreciation expense related to
property additions partially offset the decrease.
Interest Expense and Other
Interest expense increased $2.5 million and $5.0 million for the three and six
months ended June 30, 1999, respectively, compared with the same periods in
1998, due to higher nuclear decommissioning trust fund interest expense at IESU,
which was offset entirely in "Miscellaneous, net." In addition, higher utility
and nonregulated borrowings outstanding during 1999 contributed to the increase
for the six months ended June 30, 1999.
The accounting for earnings on the nuclear decommissioning trust funds results
in no net income impact. Miscellaneous, net income increases for earnings on the
nuclear decommissioning funds at both WP&L and IESU. In accordance with their
respective regulatory requirements, the corresponding offset is recorded as
depreciation expense at WP&L and interest expense at IESU.
Miscellaneous, net income increased $48.1 million and $51.0 million for the
three and six months ended June 30, 1999, respectively. Alliant Energy realized
a pre-tax gain of $33.8 million in the second quarter of 1999 from the sale of
approximately 640,000 shares of McLeod stock. The three and six months ended
June 30, 1998, included $13.5 million and $13.7 million of pre-tax
merger-related expenses. Also contributing to the increase for the three and six
months ended June 30, 1999, were improved operating results from Alliant
Energy's electric trading joint venture and for the six months ended June 30,
1999, $2.5 million of income realized from settlement of a weather hedge at WP&L
for the November 1, 1998 to March 31, 1999 heating season. Partially offsetting
these increases were lower earnings on Alliant Energy's nuclear decommissioning
trust funds.
Income Taxes
Alliant Energy's income tax expense increased $25.7 million and $32.8 million
for the three and six months ended June 30, 1999, respectively, compared with
the same periods last year, primarily due to higher pre-tax income. The
six-month increase was partially offset by a lower effective income tax rate.
IESU RESULTS OF OPERATIONS
Overview - Second Quarter Results
IESU's earnings available for common stock increased $4.1 million for the three
months ended June 30, 1999, compared with the same period in 1998. The increased
earnings were primarily due to $10.3 million of pre-tax merger-related expenses
incurred during the three months ended June 30, 1998. Higher electric margins
also contributed to the increase. Such increases were partially offset by higher
operation and maintenance expenses (excluding merger-related expenses), and
higher depreciation and amortization expense.
26
Electric Utility 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) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 51,226 $ 50,269 2% 595 571 4%
Commercial 38,884 37,255 4% 618 564 10%
Industrial 43,211 44,498 (3%) 1,292 1,238 4%
------------- ------------- ------------ -------------
Total from ultimate customers 133,321 132,022 1% 2,505 2,373 6%
Sales for resale 6,382 13,251 (52%) 341 532 (36%)
Other 2,506 2,367 6% 11 10 10%
------------- ------------- ------------ -------------
Total 142,209 147,640 (4%) 2,857 2,915 (2%)
============ ============= =========
Electric production fuels 8,752 18,133 (52%)
Purchased power 27,142 25,768 5%
------------- -------------
Margin $ 106,315 $ 103,739 2%
============= ============= =========
Electric margins and MWH sales for IESU for the six months ended June 30 were as
follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 105,579 $ 104,838 1% 1,288 1,234 4%
Commercial 77,432 74,866 3% 1,246 1,147 9%
Industrial 81,093 84,737 (4%) 2,474 2,401 3%
------------- ------------- ------------ -------------
Total from ultimate customers 264,104 264,441 -- 5,008 4,782 5%
Sales for resale 12,735 18,963 (33%) 682 721 (5%)
Other 5,387 4,886 10% 21 21 --
------------- ------------- ------------ -------------
Total 282,226 288,290 (2%) 5,711 5,524 3%
============ ============= =========
Electric production fuels 31,247 44,928 (30%)
Purchased power 40,292 36,817 9%
------------- -------------
Margin $ 210,687 $ 206,545 2%
============= ============= =========
Electric margin increased $2.6 million, or 2%, and $4.1 million, or 2%, for the
three and six months ended June 30, 1999, respectively, compared with the same
periods in 1998, primarily due to increases of 6% and 5%, respectively, in sales
volumes to retail customers due to continued economic growth in the service
territory. More favorable weather conditions in 1999 also contributed to the
six-month increase. Increased purchased power capacity costs in both periods
partially offset the increases. Sales for resale decreased significantly for the
three- and six-month periods, primarily due to various resale customers of IESU
selecting another utility as their electricity provider effective in early 1999
and lower sales from the merger-related joint sales agreement. IESU does not
anticipate the loss of the resale customers will have a material impact on its
electric margins in the future. Under the joint sales agreement, the margins
resulting from Alliant Energy's off-system sales are allocated among IESU, IPC
and WP&L. Off-system sales revenues are passed through IESU's EAC and therefore
have no impact on electric margin.
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.
27
Gas Utility Operations
Gas margins and Dth sales for IESU for the three months ended June 30 were as
follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 13,034 $ 12,994 -- 1,783 1,793 (1%)
Commercial 5,968 5,513 8% 1,146 1,060 8%
Industrial 2,033 1,530 33% 605 431 40%
Transportation and other 977 884 11% 2,267 2,500 (9%)
------------- ------------- ------------ -------------
Total 22,012 20,921 5% 5,801 5,784 --
============ ============= =========
Cost of gas sold 11,623 10,782 8%
------------- -------------
Margin $ 10,389 $ 10,139 2%
============= ============= =========
Gas margins and Dth sales for IESU for the six months ended June 30 were as
follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 52,195 $ 50,996 2% 8,638 8,417 3%
Commercial 23,938 23,505 2% 5,035 4,936 2%
Industrial 4,836 4,692 3% 1,478 1,345 10%
Transportation and other 2,339 2,123 10% 5,462 5,736 (5%)
------------- ------------- ------------ -------------
Total 83,308 81,316 2% 20,613 20,434 1%
============ ============= =========
Cost of gas sold 49,535 48,439 2%
------------- -------------
Margin $ 33,773 $ 32,877 3%
============= ============= =========
Gas margin increased $0.3 million, or 2%, and $0.9 million, or 3%, for the three
and six months ended June 30, 1999, respectively, compared with the same periods
in 1998, primarily due to more favorable weather conditions in 1999.
IESU's gas tariffs include PGA clauses that are designed to currently recover
the cost of gas sold.
Operating Expenses
IESU's other operation expenses increased $0.3 million and $0.7 million for the
three and six months ended June 30, 1999, respectively, compared with the same
periods in 1998, largely due to increased expenses for employee pension and
benefits, nuclear operations and Year 2000 readiness efforts. Such increases
were largely offset by pre-tax merger-related expenses of $6.1 million and $7.9
million incurred during the three and six months ended June 30, 1998,
respectively. In addition, merger-related operating efficiencies realized in
1999 also contributed to a reduction in other operation expenses.
IESU's maintenance expenses decreased $1.4 million and $2.5 million for the
three and six months ended June 30, 1999, respectively, compared with the same
periods in 1998, primarily due to reduced nuclear maintenance expenses.
IESU's depreciation and amortization expense increased $1.6 million and $2.7
million for the three and six months ended June 30, 1999, respectively, compared
with the same periods in 1998, primarily due to property additions.
28
Interest Expense and Other
Interest expense increased $1.5 million and $1.6 million for the three and six
months ended June 30, 1999, respectively, compared with the same periods in
1998, due to higher nuclear decommissioning trust fund interest expense, which
was offset entirely in "Miscellaneous, net." A decrease in interest expense
resulting from lower borrowings outstanding during 1999 partially offset the
increase.
The accounting for earnings on the nuclear decommissioning trust funds results
in no net income impact. Miscellaneous, net income increases for earnings on the
trust fund and the corresponding offset is recorded as interest expense.
Miscellaneous, net income increased $6.7 million and $7.8 million for the three
and six months ended June 30, 1999, respectively, compared with the same periods
in 1998, primarily due to $4.2 million and $4.4 million of pre-tax
merger-related expenses incurred during the three and six months ended June 30,
1998, respectively. Also contributing to the increase was the nuclear
decommissioning trust fund interest previously described.
Income Taxes
IESU's income tax expense increased $3.1 million and $3.3 million for the three
and six months ended June 30, 1999, respectively, compared with the same periods
in 1998, primarily due to higher taxable income. A lower effective income tax
rate in 1999, primarily due to a reduction in flow-through depreciation expense
and nondeductible merger expenses in 1998, partially offset the six-month
increase.
WP&L RESULTS OF OPERATIONS
Overview - Second Quarter Results
WP&L's earnings available for common stock increased $8.2 million for the three
months ended June 30, 1999, compared with the same period in 1998. The increased
earnings were primarily due to $10.6 million of pre-tax merger-related expenses
incurred during the three months ended June 30, 1998, and higher electric
margins. Higher operation and maintenance expenses (excluding merger-related
expenses) and increased interest expense partially offset the increase.
Electric Utility 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) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 49,660 $ 47,950 4% 717 698 3%
Commercial 29,445 27,764 6% 494 472 5%
Industrial 41,880 41,606 1% 1,115 1,112 --
------------- ------------- ------------ -------------
Total from ultimate customers 120,985 117,320 3% 2,326 2,282 2%
Sales for resale 23,937 33,898 (29%) 762 1,105 (31%)
Other 5,588 3,096 80% 14 14 --
------------- ------------- ------------ -------------
Total 150,510 154,314 (2%) 3,102 3,401 (9%)
============ ============= =========
Electric production fuels 26,014 29,471 (12%)
Purchased power 28,425 30,238 (6%)
------------- -------------
Margin $ 96,071 $ 94,605 2%
============= ============= =========
29
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) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 103,549 $ 97,704 6% 1,518 1,456 4%
Commercial 56,461 53,368 6% 959 931 3%
Industrial 81,479 78,675 4% 2,201 2,153 2%
------------- ------------- ------------ -------------
Total from ultimate customers 241,489 229,747 5% 4,678 4,540 3%
Sales for resale 48,866 69,302 (29%) 1,575 2,520 (38%)
Other 10,100 6,575 54% 29 31 (6%)
------------- ------------- ------------ -------------
Total 300,455 305,624 (2%) 6,282 7,091 (11%)
============ ============= =========
Electric production fuels 53,380 58,368 (9%)
Purchased power 52,424 58,839 (11%)
------------- -------------
Margin $ 194,651 $ 188,417 3%
============= ============= =========
Electric margin increased $1.5 million, or 2%, and $6.2 million, or 3%, for the
three and six months ended June 30, 1999, respectively, compared with the same
periods in 1998, primarily due to separate $15 million annual rate increases
implemented in July 1998 and early March 1999 to recover higher purchased power
and transmission costs. Sales to retail customers increased 2% and 3% for the
three and six months ended June 30, 1999, respectively, compared with the same
periods in 1998, primarily due to economic strength in the service territory.
More favorable weather conditions in 1999 also contributed to the six-month
sales increase. Other revenues increased for both periods due to conservation
programs for which WP&L receives a return on its invested capital.
Lower income from off-system sales, due to increased transmission constraints
and implementation of the merger-related joint sales agreement, partially offset
these items. Under the joint sales agreement, the margins resulting from Alliant
Energy's off-system sales are allocated among IESU, IPC and WP&L. The second
quarter of 1998 margin also included $3.2 million of revenues for a surcharge
related to Kewaunee (a corresponding amount was included in depreciation and
amortization expense).
Gas Utility Operations
Gas margins and Dth sales for WP&L for the three months ended June 30 were as
follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 8,670 $ 8,979 (3%) 1,470 1,490 (1%)
Commercial 4,290 4,506 (5%) 991 998 (1%)
Industrial 662 784 (16%) 178 198 (10%)
Transportation and other 1,736 2,674 (35%) 2,695 2,643 2%
------------- ------------- ------------ -------------
Total 15,358 16,943 (9%) 5,334 5,329 --
============ ============= =========
Cost of gas sold 5,798 8,515 (32%)
------------- -------------
Margin $ 9,560 $ 8,428 13%
============= ============= =========
30
Gas margins and Dth sales for WP&L for the six months ended June 30 were as
follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 39,930 $ 39,989 -- 7,327 6,717 9%
Commercial 19,390 19,743 (2%) 4,484 4,119 9%
Industrial 3,166 3,458 (8%) 837 800 5%
Transportation and other 4,665 4,071 15% 6,738 6,473 4%
------------- ------------- ------------ -------------
Total 67,151 67,261 -- 19,386 18,109 7%
============ ============= =========
Cost of gas sold 36,979 39,229 (6%)
------------- -------------
Margin $ 30,172 $ 28,032 8%
============= ============= =========
Gas margin increased $1.1 million, or 13%, and $2.1 million, or 8%, for the
three and six months ended June 30, 1999, respectively, compared with the same
periods in 1998. The increase for the three months was primarily due to more
favorable contributions to gas margin in 1999 from WP&L's gas cost sharing
mechanism. The increase for the six months resulted primarily from increased
sales due to customer growth and colder weather in the first quarter of 1999.
Refer to "Interest Expense and Other" for a discussion of income realized from a
weather hedge in the first quarter of 1999.
Operating Expenses
Other operation expenses decreased $4.5 million and $12.4 million for the three
and six months ended June 30, 1999, respectively, compared to the same periods
in 1998, primarily due to $6.1 million and $9.3 million of pre-tax
merger-related expenses incurred during 1998, lower transmission and
distribution expenses and lower costs due to merger-related operating
efficiencies. Such expenses were partially offset by increased conservation
expense.
Maintenance expenses decreased $0.7 million and $1.6 million for the three and
six months ended June 30, 1999, respectively, due to lower transmission and
distribution maintenance expenses, which were partially offset by increased
operating costs at WP&L's generating facilities, largely due to several outages.
Depreciation and amortization expense decreased $3.2 million and $1.3 million
for the three and six months ended June 30, 1999, respectively, compared with
the same periods in 1998, primarily due to reduced earnings on the nuclear
decommissioning trust fund (offset entirely in "Miscellaneous, net") and the
second quarter 1998 Kewaunee surcharge. These decreases were partially offset by
increased property additions.
The accounting for earnings on the nuclear decommissioning trust funds results
in no net income impact. Miscellaneous, net income increases for earnings on the
trust fund and the corresponding offset is recorded as depreciation expense.
Interest Expense and Other
Interest expense increased $1.1 million and $2.6 million for the three and six
months ended June 30, 1999, respectively, compared with the same periods in
1998, primarily due to higher borrowings outstanding in 1999.
Miscellaneous, net income increased $1.1 million and $3.6 million for the three
and six months ended June 30, 1999, respectively, compared with the same periods
in 1998, due to $4.5 million and $4.6 million of pre-tax merger-related expenses
incurred in 1998. Also contributing to the six-month increase was $2.5 million
of pre-tax income realized in the first quarter of 1999 from settlement of a
weather hedge for the November 1, 1998, to March 31, 1999, heating season.
Partially offsetting such increases were reduced earnings on the nuclear
decommissioning trust fund.
31
Income Taxes
Income taxes increased $3.3 million and $8.6 million for the three and six
months ended June 30, 1999, respectively, compared with the same periods in
1998, due to higher pre-tax income. A lower effective income tax rate partially
offset the six-month increase.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities at Alliant Energy decreased $18 million for
the six months ended June 30, 1999, compared with the same period in 1998,
primarily due to changes in working capital, which were partially offset by
changes in net income, the refueling outage provision and deferred taxes and
investment tax credits. Cash flows used for financing activities decreased $3
million for the six months ended June 30, 1999, compared with the same period in
1998, primarily as a result of proceeds from the issuance of common stock,
partially offset by changes in the amount of debt outstanding. Cash flows used
for investing activities decreased $8 million for the six months ended June 30,
1999, compared with the same period in 1998, due to increased proceeds from the
disposition of assets, which were partially offset by increased levels of
construction and acquisition expenditures.
Cash flows from operating activities at IESU decreased $26 million for the six
months ended June 30, 1999, compared with the same period in 1998, primarily due
to changes in working capital, partially offset by changes in the refueling
outage provision and net income. Cash flows used for financing activities
increased $69 million for the six months ended June 30, 1999, compared with the
same period in 1998, due to a reduction in the amount of debt outstanding in
1999 and increased common stock dividends as no dividend payments were made in
the last three quarters of 1998 due to merger-related tax considerations. As a
result, the dividend payment in the first quarter of 1999 was larger than IESU's
historical quarterly payment.
Cash flows from operating activities at WP&L decreased $35 million for the six
months ended June 30, 1999, compared with the same period in 1998, primarily due
to changes in working capital, which were partially offset by higher net income.
Cash flows used for financing activities decreased $56 million for the six
months ended June 30, 1999, compared with the same period in 1998, primarily due
to changes in the amount of short-term borrowings. Cash flows used for investing
activities increased $18 million for the six months ended June 30, 1999,
compared with the same period in 1998, primarily due to increased construction
expenditures.
Future Considerations
At June 30, 1999, Alliant Energy had an investment in the stock of McLeod, a
telecommunications company, valued at $527.8 million (based on a June 30, 1999
closing price of $55.00 per share and compared to a cost basis of $28.4
million). McLeod declared a 2-for-1 stock split which was effective in July
1999. Pursuant to the applicable accounting rules, the carrying value of this
investment is adjusted to the estimated fair value each quarter based on the
closing price at the end of the quarter. The adjustments do not impact net
income as the unrealized gains or losses, net of taxes, are recorded directly to
the common equity section of the balance sheet and are a component of other
comprehensive income. In addition, any such gains or losses are reflected in
current earnings only at the time they are realized through a sale. Alliant
Energy entered into an agreement in November 1998 with McLeod whereby Alliant
Energy's ability to sell the McLeod stock is subject to various restrictions.
Under PUHCA, certain investments of Alliant Energy in exempt wholesale
generators and foreign utility companies are limited to 50% of Alliant Energy's
consolidated retained earnings. Alliant Energy is pursuing making the necessary
regulatory filings requesting an increase in this limitation. Under WUHCA, there
is an asset cap provision that generally limits non-utility assets in a utility
holding company to 25% of utility assets. This provision is currently limiting
Alliant Energy's ability to make additional investments in its non-utility
businesses. Members of Energize Wisconsin (Alliant Energy, NSP, Wisconsin Energy
Corporation, Wisconsin Gas Company and WPSC) have been working with various
interest groups on a set of proposals that would provide significant asset cap
relief for Wisconsin utility holding companies. Such legislation was introduced
in the second quarter of 1999. In
32
addition to seeking legislative relief, Alliant Energy has also been seeking a
regulatory increase in its limitation under the statutory language as currently
enacted. As part of this regulatory process, the PSCW granted Alliant Energy
interim relief from the asset cap limitations in the third quarter of 1999. Such
relief temporarily removed the asset cap provision for non-utility assets
currently held by Alliant Energy and granted the company $75 million above the
current asset cap limit for new non-utility investments. Alliant Energy is
continuing to pursue permanent regulatory relief under the current statutory
language. If Alliant Energy is unable to obtain permanent legislative or
regulatory relief from the WUHCA provisions, it may be forced to divest certain
assets to stay in compliance.
Under terms of comprehensive restructuring legislation passed in New Zealand,
Alliant Energy is required to sell a portion of its current New Zealand utility
investments. Alliant Energy realized a pre-tax gain of $2.4 million in July 1999
on the sale of a portion of these investments and anticipates it will realize
additional gains on the remaining sales.
Whiting has entered into an agreement to sell 50%-100% of its interest in an
offshore oil and gas production property (the percentage interest sold is based
on the buyer having the option to make various installment payments to Whiting).
Whiting expects to realize a pre-tax gain on the sale in the second half of 1999
of approximately $3 (50%) million to $6 (100%) million. As part of the
transaction, Whiting does retain the liability for certain dismantlement and
abandonment costs associated with the properties. Such costs are currently
estimated at $13 million and have been fully accrued by Whiting.
Financing and Capital Structure
At June 30, 1999, Resources had $268 million of commercial paper outstanding and
backed by its 3-Year Credit Agreement with interest rates ranging from
4.88%-5.35%. Resources intends to continue issuing commercial paper backed by
this facility, and no conditions existed at June 30, 1999 that would prevent the
issuance of commercial paper or direct borrowings on its bank lines.
Accordingly, this debt is classified as long-term.
On March 23, 1999, IPC issued $7.7 million of pollution control revenue bonds
due January 1, 2013. The proceeds were used to refinance $7.7 million of 6.375%
pollution control revenue bonds that were due serially 1999-2007. The new bonds
have a fixed interest rate of 4.20% for the first five years. Thereafter, IPC
will have the option to reset the interest rate at one of three variable
short-term interest rates or at a new long-term interest rate, based on the then
prevailing market conditions, provided the rate does not exceed 12% per annum.
On March 1, 1999, IESU retired $50 million of Series Z, 7.6% First Mortgage
Bonds due in March 1999. Internally generated funds were used to retire the
bonds.
On February 11, 1999, IPC issued $3.25 million of pollution control revenue
bonds due February 1, 2010. The proceeds were used to retire $3.25 million of
6.375% pollution control revenue bonds that were due serially 1999-2007. The new
bonds have a fixed interest rate of 4.05% for the first five years. Thereafter,
IPC will have the option to reset the interest rate at one of three variable
short-term interest rates or at a new long-term interest rate, based on the then
prevailing market conditions, provided the rate does not exceed 12% per annum.
Capital Requirements
Nuclear Facilities
On April 7, 1998, the PSCW approved WPSC's application for replacement of the
two steam generators at Kewaunee. The total cost of replacing the steam
generators would be approximately $90.7 million, with WP&L's share of the cost
being approximately $37.2 million. The replacement work originally planned for
the spring of 2000 is now scheduled for the fall of 2001 and will take
approximately 60 days. The delay is attributable to the inability of the steam
generator manufacturer to meet the spring 2000 delivery schedule. Delays in
meeting the delivery schedule did not allow for steam generator replacement to
occur prior to the start of the summer weather in 2000. Therefore, the decision
was made to store the steam generators after they are received and wait until
the next scheduled refueling outage in the fall of 2001. It is anticipated that
the delay will not adversely impact the reliability of Kewaunee in the interim.
Plans to shutdown the plant for a spring 2000 refueling remain unchanged.
Rates and Regulatory Matters
In May 1998, the PSCW approved the deferral by WP&L of certain costs associated
with its Year 2000 program. In November 1998, as amended in May 1999, WP&L filed
for rate recovery of $12.2 million related to the Wisconsin retail portion of
Year 2000 costs. In accordance with the order received from the PSCW, WP&L began
deferring its
33
Year 2000 project costs, other than internal labor and associated overheads
(approximately $6.5 million of expenditures had been deferred as of June 30,
1999). However, the PSCW ruled at an oral hearing in early August 1999 that it
will not allow WP&L to recover any of its Year 2000 program costs in rates. WP&L
has filed a motion asking the PSCW to reconsider its decision and, if necessary,
will file an appeal in district court. Pending final resolution of the issue,
WP&L expects to record a pre-tax reserve of $6.5 million in the third quarter of
1999 relating to the costs it had deferred as of June 30, 1999. WP&L will also
record a reserve for the Year 2000 program expenditures it incurs after June 30,
1999. Refer to "Other Matters - Year 2000" for a further discussion of Alliant
Energy's Year 2000 program.
In January 1999, WP&L made a filing with the PSCW proposing to begin deferring,
on January 1, 1999, all costs associated with the EPA's required NOx emission
reductions. In connection with a statewide docket to investigate compliance
issues associated with the EPA's NOx emission reductions, on March 30, 1999, the
PSCW authorized deferral of all non-labor related costs incurred after March 30,
1999. However, the utilities are not allowed to defer costs of replacement power
associated with NOx compliance. WP&L has requested expedited approval to start
construction of NOx reduction investments at several generating units operated
by WP&L and has requested recovery of all the NOx reduction costs through a
surcharge mechanism. WP&L anticipates receiving a final order in this proceeding
in the first quarter of 2000. No assurance can be given as to what relief, if
any, will be granted by the PSCW. Refer to the "Other Matters - Environmental"
section for a further discussion of the NOx issue.
Pursuant to PSCW requirements, WP&L recognizes annual demand side management
expense based on: 1) an annual fixed expenditure amount as approved by the PSCW
in the rate making process, and 2) PSCW approved amortization of any difference
in historical demand side management expenditures and associated rate recoveries
of such costs. Effective with WP&L's rates implemented April 29, 1997, the
annual rate recovery for demand side management expenses (and the associated
demand side management expense) was reduced to $6.9 million reflecting annual
demand side management expenditures of $14.4 million reduced by a two-year
amortization of prior period expenditures which were less than the associated
rate recoveries ($7.5 million per year). At the completion of the two-year
amortization period, the annual demand side management expense to be recognized
by WP&L returned to the $14.4 million level. Given the price freeze WP&L has in
effect in Wisconsin, the annual rate recovery of demand side management expense
is still $6.9 million.
The OCA has requested certain financial information related to the electric
utility operations within the state of Iowa for IESU and IPC and the gas utility
operations within the state of Iowa for IPC. IESU and IPC responded to the data
requests in a timely manner. It is unknown if additional data requests will be
received by either IESU or IPC. While IESU and IPC cannot predict the outcome of
this process, such data requests could lead to an effort by the OCA to seek a
rate reduction for one or both of IESU and IPC in Iowa.
OTHER MATTERS
Year 2000
A summary of Alliant Energy's Year 2000 program is included in the Form 10-K
filed by Alliant Energy, IESU and WP&L for the year ended December 31, 1998. Set
forth below are developments relating to the Year 2000 program.
Remediation and Testing Year 2000 remediation and testing has been completed for
all mission-critical operational areas of Alliant Energy, which include
generating stations, substations, transmission and distribution substations,
natural gas distribution systems, system and distribution operating centers,
customer inquiry, customer billing and all key building infrastructure. As of
July 31, 1999, Alliant Energy was still expecting an upgrade from one
information technology vendor. Alliant Energy considers the potential impact on
the Year 2000 program from this upgrade to be minimal as operational contingency
plans have already been developed and deployed. Alliant Energy has complied with
the NERC's requirements for completing remediation and testing of
mission-critical systems by June 30, 1999, without exceptions, and has filed the
required letter with NERC informing them of such compliance.
34
A. Embedded Systems -
All post-remediation testing for assessing Year 2000 compliance has been
completed. Remaining work includes minor upgrades on less than 5 miscellaneous
non-critical systems.
B. Information Technology -
As of June 30, 1999, approximately 98% of Alliant Energy's applications have
been remediated and tested and all remediation and testing has been completed
for Alliant Energy's infrastructure components, customer information systems and
financial systems. Alliant Energy has also initiated an independent validation
and verification process for all mission-critical mainframe applications. This
process started in June 1999, and is expected to be finished by September 1,
1999.
Costs to Address Year 2000 Compliance Alliant Energy's historical Year 2000
project expenditures as well as CURRENT ESTIMATES for the remaining costs to be
incurred on the project are as follows (incremental costs, in millions):
Description Total IESU WP&L Other
------------- ----------- ----------- -----------
Costs incurred from 1/1/98 - 12/31/98 $ 8.7 $ 4.8 $ 3.2 $ 0.7
Costs incurred from 1/1/99 - 3/31/99 5.2 2.3 1.9 1.0
Costs incurred from 4/1/99 - 6/30/99 6.5 1.8 2.4 2.3
Current estimate of remaining costs 11.0 3.6 6.2 1.2
------------- ----------- ----------- -----------
Total $ 31.4 $ 12.5 $ 13.7 $ 5.2
============= =========== =========== ===========
In addition, Alliant Energy estimates it incurred $3 million in costs for
internal labor and associated overheads in 1998 and anticipates expenditures of
$6 million in 1999 ($3.5 million was incurred in the first two quarters of
1999). The total estimated project cost has decreased from the figures reported
in the Form 10-K due to lower than anticipated remediation costs and a reduction
in the contingency estimate.
In accordance with an order received from the PSCW, WP&L is deferring its Year
2000 project costs, other than internal labor and associated overheads
(approximately $6.5 million of the expenditures incurred at WP&L from January 1,
1998 through June 30, 1999 have been deferred). Refer to the "Liquidity and
Capital Resources - Rates and Regulatory Matters" section for a discussion of
the status of the filing WP&L made with the PSCW for rate recovery of a portion
of its Year 2000 program costs, including a recent PSCW ruling which disallowed
WP&L's requested recovery of such costs.
Risks and Contingency Planning Alliant Energy continues to work on refining and
implementing its Year 2000 contingency plan. The planning process includes three
components: 1) base contingency planning, 2) emergency preparedness, and 3)
electric and gas industry-wide coordination. The base contingency planning phase
involves the development of operating procedures to handle the malfunction of a
specific device. This work was completed in the first quarter of 1999. The
emergency preparedness phase involves the development of operating procedures to
handle the malfunction of major business processes. This work started in late
1998 and will continue through early December 1999.
The electric and gas industry-wide coordination is a major focus of Alliant
Energy's efforts in preparation for industry-wide drills which are being
coordinated by NERC. As part of its contingency planning process, NERC scheduled
two nation-wide electric utility industry drills in April 1999 and September
1999. These drills focus on safe and reliable electrical system operations with
the partial loss of telecommunications. The April 1999 NERC drill was
successful. All contingency plans worked as anticipated, however, some
procedures and manual data forms will be refined to enhance efficiency.
In addition to these NERC drills, Alliant Energy has conducted two internal
drills, the first of which was completed in March 1999. In June 1999, Alliant
Energy had its own functional drill that focused on communications and
35
involved exercising 200 contingency scripts, 11 information technology
applications and over 250 employees. Communication and contingency plans
generally worked according to plan and efficiency enhancements will be made for
future drills. Alliant Energy also has three additional internal drills planned.
An August 1999 full-scale drill will be conducted in which key employees will
test and critique Alliant Energy's contingency plans. Two other internal drills
will be scheduled after the September NERC drill.
Alliant Energy also retained an outside third party to assess and evaluate its
Year 2000 program and such study did not find any material deficiencies in the
program.
Summary Alliant Energy believes its plan is adequate to secure Year 2000
readiness of its critical systems. Nevertheless, achieving Year 2000 readiness
is subject to many risks and uncertainties. If Alliant Energy, or third parties,
fail to achieve Year 2000 readiness with respect to critical systems and, as
such, there are systematic problems, there could be a material adverse effect on
Alliant Energy's results of operations and financial condition.
Market Risk Sensitive Instruments and Positions
Whiting is exposed to market risk in the pricing of its oil and gas production.
Historically, prices received for oil and gas production have been volatile
because of seasonal weather patterns, supply and demand factors, transportation
availability and price, and general economic conditions. Worldwide political
developments have historically also had an impact on oil prices. In the past,
Alliant Energy generally has not utilized derivative instruments designed to
reduce its exposure to these price fluctuations. However, during the first
quarter of 1999, Alliant Energy entered into a limited amount of commodity
derivative transactions to fix the ultimate sales price for approximately
two-thirds of Whiting's anticipated gas production for 1999. At June 30, 1999,
the estimated fair value of the outstanding agreements would have resulted in a
settlement payment by Alliant Energy of approximately $2.4 million.
WP&L settled the weather insurance agreement it entered into for the November 1,
1998, to March 31, 1999, heating season and recognized income of $2.5 million in
the first quarter of 1999 relating to such settlement.
At June 30, 1999, Alliant Energy had an investment in the stock of McLeod, a
telecommunications company, valued at $527.8 million (based on a June 30, 1999
closing price of $55.00 per share and compared to a cost basis of $28.4
million). McLeod declared a 2-for-1 stock split which was effective in July
1999. Pursuant to the applicable accounting rules, the carrying value of this
investment is adjusted to the estimated fair value each quarter based on the
closing price at the end of the quarter. Alliant Energy entered into an
agreement in November 1998 with McLeod whereby Alliant Energy's ability to sell
the McLeod stock is subject to various restrictions.
Alliant Energy has a 50% interest in an electricity trading joint venture with
Cargill. Guarantees of approximately $61 million have been issued of which
approximately $14 million were outstanding at June 30, 1999. Under the terms of
the joint venture agreement, any payments required under the guarantees would be
shared by Alliant Energy and Cargill on a 50/50 basis to the extent the joint
venture is not able to reimburse the guarantor for payments made under the
guarantee.
Accounting Pronouncements
In June 1999, the FASB issued SFAS 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133." SFAS 137 amended SFAS 133's effective date to fiscal years beginning after
June 15, 2000 (January 1, 2001 for Alliant Energy). Also, SFAS 137 amended the
date required to recognize all derivatives embedded in hybrid instruments that
were issued, acquired, or substantively modified from December 31, 1997 to
December 31, 1998.
36
Environmental
A summary of Alliant Energy's environmental issues is included in the Form 10-K
filed by Alliant Energy, IESU and WP&L for the year ended December 31, 1998. Set
forth below are several developments relating to Alliant Energy's environmental
issues.
In October 1998, the EPA issued a final rule requiring 22 states, including
Wisconsin, to modify their state implementation plans to address the ozone
transport issue. However, a federal appeals court on May 25, 1999, delayed
indefinitely the implementation of the rule. Should the courts find in favor of
EPA, the implementation of the rule would likely require WP&L to reduce its NOx
emissions at all of its plants to a fleet average of .15 lbs/mmbtu by 2003. WP&L
is following this issue closely and continues to evaluate various options to
meet the emission levels. Based on existing technology, the preliminary
estimates indicate that capital investments would be in the range of $150 to
$215 million. Refer to the "Liquidity and Capital Resources - Rates and
Regulatory Matters" section for a discussion of a filing WP&L made with the PSCW
regarding seeking rate recovery of these costs.
On February 28, 1998, the EPA issued the final report to Congress on the Study
of Hazardous Air Pollutant Emissions from Electric Utility Steam Generating
Units regarding hazardous air pollutant emissions from electric utilities (the
HAPs report). The HAPs report concluded that mercury emissions from coal-fired
generating plants were a concern. However, the EPA does not believe they have
sufficient information regarding such emissions. To remedy this lack of
information, the EPA required IESU, WP&L, IPC and all other applicable electric
utilities in the U.S. to start collecting information regarding the types and
amount of mercury emitted as of January 1, 1999. To better understand mercury
emissions, the EPA also required WP&L to conduct stack tests at several of its
generating stations in the fall of 1999. In addition, the Wisconsin legislature
has introduced legislation that would require the control and reduction of
mercury emissions from coal-fired generating plants. Although the control of
mercury emissions from generating plants is uncertain at this time, Alliant
Energy believes that the capital investments and/or modifications required to
control mercury emissions could be significant.
In March 1998 and January 1999, IPC received Notices of Intent to Sue from an
environmental group alleging certain violations of effluent limits, established
pursuant to the Clean Water Act, at IPC's generating facility in Clinton, Iowa.
On May 14, 1998, IPC received from the IDNR an inspection report and notice of
violation addressing the same and other concerns as were raised by the
environmental group. On May 4, 1999, IPC received a letter from the IDNR
indicating it does not anticipate taking any enforcement action regarding this
issue. Therefore, management believes that any likely actions resulting from
this matter will not have a material adverse effect on IPC's financial position
or results of operations.
Pursuant to an internal review of operations in 1998, IPC discovered that Unit
No. 6 at its generating facility in Dubuque, Iowa required a Clean Air Act Acid
Rain permit and CEMS. IPC has informed its environmental regulators and has
installed the CEMS and obtained the permit. Pursuant to its internal review, IPC
also identified and disclosed to regulators a potentially similar situation at
its Lansing, Iowa generating facility. In the second quarter of 1999, EPA
determined that Lansing units 1 and 2 are affected units. Therefore, IPC will be
installing CEMS and applying for Acid Rain permits for these units by December
1, 1999. IPC may be subject to a penalty for not having installed the CEMS and
for not having obtained the permits previously. However, IPC believes that any
likely actions resulting from this matter will not have a material adverse
effect on its financial position or results of operations.
On February 4, 1999, Whiting received a Notice of Violation letter from the
ADEQ, citing Whiting for flaring sour gas in excess of permit limits and not
having a valid permit. In June 1999, the ADEQ sent Whiting a Consent
Administrative Order proposing a voluntary civil penalty of $225,000 for
Whiting's alleged emission violations. Whiting is presently negotiating with the
ADEQ to offset as much of the fine as possible by participating in or funding an
approved mitigation project. Management believes that any likely actions
resulting from this matter will not have a material adverse effect on Whiting's
financial position or results of operations.
37
Alliant Energy has been notified by the EPA that it is a Potentially Responsible
Party (PRP) with respect to environmental impacts identified at the MIG/DeWane
Landfill Superfund Site. Alliant Energy is participating in the initiation of an
Alternate Dispute Resolution process to allocate liability associated with the
investigation and remediation of the site. It is not possible at this time to
reasonably estimate the amount of any obligation associated with the site
because allocation among the PRPs, and concurrence of the regulatory
authorities, have not yet advanced to the stage where a reasonable estimate can
be made. However, management believes that any likely action resulting from this
matter will not have a material adverse effect on Alliant Energy's financial
position or results of operations.
Power Supply
In July 1998, Alliant Energy and SkyGen announced an agreement whereby SkyGen
would build, own and operate a power plant in southeastern Wisconsin capable of
producing up to 450 MW of electricity. Under the agreement, Alliant Energy will
purchase the capacity to meet the electric needs of its utility customers, as
outlined by the Wisconsin Reliability Act. Recent developments for the 450 MW
SkyGen project include an appeal to the EPA Appeals Board on the NOx mitigation.
The appeal, if successful, would require selective catalytic reduction to be
used for NOx mitigation instead of dry low NOx burners. Management currently
believes that the EPA will rule in favor of SkyGen, but is unable to predict
when the power plant may be in-service.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Quantitative and Qualitative Disclosures About Market Risk are reported under
Item 2. MD&A "Other Matters - Market Risk Sensitive Instruments and Positions."
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ALLIANT ENERGY
At Alliant Energy's annual meeting of shareowners held on May 19, 1999, Alan B.
Arends, Rockne G. Flowers, Katharine C. Lyall, Robert D. Ray and Anthony R.
Weiler were elected as directors of Alliant Energy for terms expiring in 2002.
The following sets forth certain information with respect to the election of
these directors at the annual meeting.
Name of Nominee Votes For Votes Withheld
- --------------- --------- --------------
Alan B. Arends 61,341,679 1,776,251
Rockne G. Flowers 61,334,647 1,783,283
Katharine C. Lyall 61,312,326 1,805,604
Robert D. Ray 61,155,262 1,962,668
Anthony R. Weiler 61,335,067 1,782,863
38
The following table sets forth the other directors of Alliant Energy whose terms
of office continued after the 1999 annual meeting.
Name of Director Year in Which Term Expires
- ---------------- --------------------------
Erroll B. Davis, Jr. 2000
Lee Liu 2000
Milton E. Neshek 2000
Robert W. Schlutz 2000
Wayne H. Stoppelmoor 2000
Joyce L. Hanes 2001
Arnold M. Nemirow 2001
Jack R. Newman 2001
Judith D. Pyle 2001
David Q. Reed 2001 *
* In July 1999, Mr. Reed resigned from the Alliant Energy board of directors.
Also at Alliant Energy's annual meeting of shareowners held on May 19, 1999, the
following matters were submitted to a vote of shareowners.
Votes Votes Votes Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
Approval of the name change from Interstate Energy
Corporation to Alliant Energy Corporation 59,300,156 2,537,051 1,280,719 4
Approval of the Long-Term Equity Incentive Plan, as
amended 47,566,918 12,721,346 2,829,660 6
WP&L
At WP&L's annual meeting of shareowners held on May 26, 1999, Alan B. Arends,
Rockne G. Flowers, Katharine C. Lyall, Robert D. Ray and Anthony R. Weiler were
elected as directors of WP&L for terms expiring in 2002. The following sets
forth certain information with respect to the election of these directors at the
annual meeting.
Name of Nominee Votes For Votes Withheld
- --------------- --------- --------------
Alan B. Arends 13,597,997 6,409
Rockne G. Flowers 13,597,546 6,860
Katharine C. Lyall 13,597,726 6,680
Robert D. Ray 13,597,504 6,902
Anthony R. Weiler 13,598,106 6,300
39
The following table sets forth the other directors of WP&L whose terms of office
continued after the 1999 annual meeting.
Name of Director Year in Which Term Expires
- ---------------- --------------------------
Erroll B. Davis, Jr. 2000
Lee Liu 2000
Milton E. Neshek 2000
Robert W. Schlutz 2000
Wayne H. Stoppelmoor 2000
Joyce L. Hanes 2001
Arnold M. Nemirow 2001
Jack R. Newman 2001
Judith D. Pyle 2001
David Q. Reed 2001 *
* In July 1999, Mr. Reed resigned from the WP&L board of directors.
IESU
At IESU's annual meeting of shareowners held on May 24, 1999, Alan B. Arends,
Rockne G. Flowers, Katharine C. Lyall, Robert D. Ray and Anthony R. Weiler were
elected as directors of IESU for terms expiring in 2002. Alliant Energy voted
all of the outstanding shares of common stock of IESU (consisting of 13,370,778
shares) in favor of the election of the aforementioned individuals.
The following table sets forth the other directors of IESU whose terms of office
continued.
Name of Director Year in Which Term Expires
- ---------------- --------------------------
Erroll B. Davis, Jr. 2000
Lee Liu 2000
Milton E. Neshek 2000
Robert W. Schlutz 2000
Wayne H. Stoppelmoor 2000
Joyce L. Hanes 2001
Arnold M. Nemirow 2001
Jack R. Newman 2001
Judith D. Pyle 2001
David Q. Reed 2001 *
* In July 1999, Mr. Reed resigned from the IESU board of directors.
40
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following Exhibits are filed herewith.
3.1 Form of Amendment to Restated Articles of Incorporation of
Alliant Energy Corporation
3.2 Restated Articles of Incorporation of Alliant Energy
Corporation, as amended
10.1 Long-Term Equity Incentive Plan, as amended
10.2 Consulting Agreement by and between Alliant Energy Corporation
and Wayne H. Stoppelmoor
27.1 Financial Data Schedule for Alliant Energy Corporation at and
for the period ended June 30, 1999
27.2 Financial Data Schedule for IES Utilities Inc. at and for the
period ended June 30, 1999
27.3 Financial Data Schedule for Wisconsin Power and Light Company at
and for the period ended June 30, 1999
(b) Reports on Form 8-K:
None.
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Alliant
Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company
have each duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized on the 13th day of August 1999.
ALLIANT ENERGY CORPORATION
- --------------------------
Registrant
By: /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer
Thomas M. Walker (Principal Financial Officer)
By: /s/ John E. Ebright Vice President-Controller (Principal Accounting Officer)
John E. Ebright
IES UTILITIES INC.
- ------------------
Registrant
By: /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer
Thomas M. Walker (Principal Financial Officer)
By: /s/ John E. Ebright Vice President-Controller (Principal Accounting Officer)
John E. Ebright
WISCONSIN POWER AND LIGHT COMPANY
- ---------------------------------
Registrant
By: /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer
Thomas M. Walker (Principal Financial Officer)
By: /s/ John E. Ebright Vice President-Controller (Principal Accounting Officer)
John E. Ebright
42