SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. ____)
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c)or Section 240.14a-12
WISCONSIN POWER AND LIGHT COMPANY
(Name of Registrant as Specified in its
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BY RULE 14A-6(E)(2))
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/ / Soliciting Material Pursuant to Section240.14a-12
WISCONSIN POWER & LIGHT COMPANY
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Your Vote is Important
Wisconsin Power and Light CompanyWISCONSIN POWER AND LIGHT COMPANY
Proxy Statement
Notice of 20002001 Annual Meeting
and
19992000 Annual Report
________________________________________________________________________________
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL MEETING OF SHAREOWNERS
DATE: May 24, 2000
TIME: 1:00 PM, Central Daylight Savings Time
LOCATION: Wisconsin Power and Light Company
Room 1A
222 West Washington Avenue
Madison, Wisconsin
________________________________________________________________________________
________________________________________________________________________________
DATE: MAY 30, 2001
TIME: 1:00 PM, CENTRAL DAYLIGHT SAVINGS TIME
LOCATION: WISCONSIN POWER AND LIGHT COMPANY
ROOM 1A
222 WEST WASHINGTON AVENUE
MADISON, WISCONSIN
SHAREOWNER INFORMATION NUMBERS
LOCAL CALLS (MADISON, WI AREA)..........608-252-3110 ............ 608-252-3110
TOLL FREE NUMBER........................800-356-5343
________________________________________________________________________________NUMBER .......................... 800-356-5343
Wisconsin Power and Light Company
222 West Washington Avenue
P. O. Box 2568
Madison, WI 53701-2568
Phone: 608-252-3110
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
Dear Wisconsin Power and Light Company Shareowner:
On Wednesday, May 24, 2000,30, 2001, Wisconsin Power and Light Company (the "Company")
will hold its 20002001 Annual Meeting of Shareowners at the office of the Company,
222 West Washington Avenue, Room 1A, Madison, Wisconsin. The meeting will begin
at 1:00 p.m. Central Daylight Savings Time.
Only the sole common stock shareowner, Alliant Energy Corporation, and preferred
shareowners who owned stock at the close of business on April 5, 2000 can3, 2001 may vote
at this meeting. All shareowners are requested to be present at the meeting in
person or by proxy so that a quorum may be assured. At the meeting, the
Company's shareowners will:
1. Elect fivefour directors for terms expiring at the 20032004 Annual Meeting of
Shareowners; and
2. Attend to any other business properly presented at the meeting.
The Board of Directors of the Company presently knows of no other business to
come before the meeting.
Please sign and return the enclosed proxy card as soon as possible.
If
you attend the meeting, you may revoke your proxy at the registration
desk and vote in person.
The 19992000 Annual Report of the Company appears as Appendix A to this Proxy
Statement. The Proxy Statement and Annual Report have been combined into a
single document to improve the effectiveness of our financial communication and
to reduce costs, although the Annual Report does not constitute a part of the
Proxy Statement.
Any Wisconsin Power and Light Company preferred shareowner who desires to
receive a copy of the Alliant Energy Corporation 19992000 Annual Report to
Shareowners may do so by calling the Shareowner Services Department at the
Shareowner Information Number shown at the front of this proxy statement or
writing to the Company at the address shown above.
By Order of the Board of Directors
/s/ Edward M. Gleason
---------------------
EdwardEDWARD M. GleasonGLEASON
Vice President--Treasurer and
Corporate Secretary
Dated and mailed on or about April 12, 200010, 2001
TABLE OF CONTENTS
Questions and Answers.............................................. 3
Election of Directors.............................................. 6
Nominees........................................................ 6
Continuing Directors............................................ 8
Meetings and Committees of the Board............................... 11
Compensation of Directors.......................................... 12
Ownership of Voting Securities..................................... 15
Compensation of Executive Officers................................. 17
Summary Compensation Table...................................... 17
Stock Options...................................................... 19
Stock Options/SAR Grants in 1999................................ 19
Options/SAR Values at December 31, 1999......................... 20
Long-Term Incentive Awards in 1999.............................. 20
Certain Agreements and Transactions................................ 21
Retirement and Employee Benefit Plans.............................. 23
Questions and Answers....................................... 3
Election of Directors....................................... 5
Nominees............................................. 5
Continuing Directors................................. 6
Meetings and Committees of the Board........................ 8
Compensation of Directors................................... 10
Ownership of Voting Securities.............................. 12
Compensation of Executive Officers.......................... 14
Summary Compensation Table........................... 14
Stock Options............................................... 16
Stock Option Grants in 2000.......................... 16
Option Values at December 31, 2000................... 17
Long-Term Incentive Awards.................................. 18
Long-Term Incentive Awards in 2000................... 18
Certain Agreements and Transactions......................... 19
Retirement and Employee Benefit Plans....................... 21
Report of the Compensation and Personnel Committee on
Executive Compensation...................................... 25
Report of the Audit Committee............................... 28
Section 16(a) Beneficial Ownership Reporting Compliance..... 29
Exhibit I -- Audit Committee Charter........................ 30
Appendix A -- Wisconsin Power and Light Company Annual
Report of the Compensation and Personnel Committee on
Executive Compensation........................................... 28
Section 16(a) Beneficial Ownership Reporting Compliance............ 33
Appendix A -- Wisconsin Power and Light Company Annual Report...... A-1
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QUESTIONS AND ANSWERS
1. Q: Why am I receiving these materials?
A:
1. Q: WHY AM I RECEIVING THESE MATERIALS?
A The Board of Directors of Wisconsin Power and Light Company
(the "Company") is providing these proxy materials to you in
connection with the Company's Annual Meeting of Shareowners
(the "Annual Meeting"), which will take place on Wednesday,
May 24, 2000. As a shareowner, you are invited to attend the
Annual Meeting and are entitled to and requested to vote on
the proposal described in this proxy statement.
2. Q: What is Wisconsin Power and Light Company and how does it
relate to Alliant Energy Corporation?
A: The Company is a subsidiary of Alliant Energy Corporation
("AEC"), which was formed as a result of a three-way merger
(the "Merger") completed on April 21, 1998 involving WPL
Holdings, Inc., IES Industries Inc. ("IES Industries") and
Interstate Power Company. The other first tier subsidiaries
of AEC include IES Utilities Inc. ("IES"), Interstate Power
Company ("IPC") and Alliant Energy Resources, Inc. ("AER").
3. Q: Who is entitled to vote at the Annual Meeting?
A: Only shareowners of record at the close of business on
April 5, 2000 are entitled to vote at the Annual Meeting. As
of the record date, 13,236,601 shares of common stock (owned
solely by AEC) and 1,049,225 shares of preferred stock, in
seven series (representing 599,630 votes), were issued and
outstanding. Each share of Company common stock is entitled
to one vote per share. Each share of Company preferred
stock, with the exception of the 6.50% Series, is entitled
to one vote per share. The 6.50% Series of Company preferred
stock is entitled to 1/4 vote per share.
4. Q: What may I vote on at the Annual Meeting?
A: You may vote on the election of five nominees to serve on
the Company's Board of Directors for terms expiring at the
Annual Meeting of Shareowners in the year 2003.
5. Q: How does the Board of Directors recommend I vote?
A: The Board of Directors recommends that you vote your shares
FOR each of the nominees.
6. Q: How can I vote my shares?
A: You may vote either in person at the Annual Meeting or by
granting a proxy. If you desire to grant a proxy, then sign
and date each proxy card you receive and return it in the
envelope provided.
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7. Q: How are votes counted?
A: In the election of directors, you may vote FOR all of the
nominees or your vote may be WITHHELD with respect to one or
more nominees. If you return your signed proxy card but do
not mark the boxes showing how you wish to vote, your shares
will be voted FOR all nominees.
8. Q: Can I change my vote?
A: You have the right to revoke your proxy at any time before
the Annual Meeting by:
- providing notice to the Corporate Secretary of the
Company and voting in person at the Annual Meeting; or
- appointing a new proxy prior to the start of the Annual
Meeting.
Attendance at the Annual Meeting will not cause your
previously granted proxy to be revoked unless you
specifically so request.
9. Q: What shares are included on the proxy card(s)?
A: Your proxy card(s) covers all of your shares of the
Company's preferred stock.
10 Q: What does it mean if I get more than one proxy card?
A: If your shares are registered differently and are in more
than one account, then you will receive more than one card.
Be sure to vote all of your accounts to ensure that all of
your shares are voted. The Company encourages you to have
all accounts registered in the same name and address
(whenever possible). You can accomplish this by contacting
the Company's Shareowner Services Department at the
Shareowner Information Number shown at the front of this
proxy statement.
11. Q: Who may attend the Annual Meeting and how do I get a ticket?
A: All shareowners who owned shares of the Company's common and
preferred stock on April 5, 2000 may attend the Annual
Meeting. You may indicate on the reservation portion of the
enclosed proxy card your intention to attend the Annual
Meeting and return it with your signed proxy. No ticket is
required.
12. Q: How will voting on any other business be conducted?
A: The Board of Directors does not know of any business to be
considered at the 2000 Annual Meeting other than the
election of five directors. If any other business is
properly presented at the Annual Meeting, your signed proxy
card gives authority to William D. Harvey, the Company's
President, and Edward M. Gleason, the Company's Vice
President-Treasurer and Corporate Secretary, to vote on such
matters at their discretion.
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13. Q: Where and when will I be able to find the results of the
voting?
A: The results of the voting will be announced at the Annual
Meeting. You may also call our Shareowner Services
Department at the Shareowner Information Numbers shown at
the front of this proxy statement for the results. The
Company will also publish the final results in its Quarterly
Report on Form 10-Q for the second quarter of 2000 to be
filed with the Securities and Exchange Commission.
14. Q: When are shareowner proposals for the 2001 Annual Meeting
due?
A: All shareowner proposals to be considered for inclusion in
the Company's proxy statement for the 2001 Annual Meeting
must be received at the principal office of the Company by
December 13, 2000. In addition, any shareowner who intends
to present a proposal from the floor at the 2001 Annual
Meeting must submit the proposal in writing to the Corporate
Secretary of the Company no later than February 26, 2001.
15. Q: Who are the Independent Auditors of the Company and how are
they elected?
A: The Board of Directors has appointed Arthur Andersen LLP as
the Company's independent auditors for 2000. Arthur Andersen
LLP acted as independent auditors for the Company in 1999.
Representatives of Arthur Andersen LLP are not expected to
be present at the meeting.
16. Q: Who will bear the cost of soliciting votes for the Annual
Meeting?
A: The Company will pay the cost of preparing, assembling,
printing, mailing and distributing these proxy materials. In
addition to the mailing of these proxy materials, the
solicitation of proxies or votes may be made in person, by
telephone or by electronic communication by the Company's
officers and employees who will not receive any additional
compensation for these solicitation activities. The Company
will pay to banks, brokers, nominees and other fiduciaries
their reasonable charges and expenses incurred in forwarding
the proxy materials to their principals.
17. Q: How can I obtain a copy of the Company's Annual Meeting of Shareowners
(the "Annual Meeting"), which will take place on Wednesday,
May 30, 2001. As a shareowner, you are invited to attend the
Annual Meeting and are entitled to and requested to vote on
the proposal described in this proxy statement.
2. Q: WHAT IS WISCONSIN POWER AND LIGHT COMPANY AND HOW DOES IT
RELATE TO ALLIANT ENERGY CORPORATION?
A: The Company is a subsidiary of Alliant Energy Corporation
("AEC"), a public utility holding company whose other first
tier subsidiaries include IES Utilities Inc. ("IES"),
Interstate Power Company ("IPC"), Alliant Energy Resources,
Inc. ("AER") and Alliant Energy Corporate Services, Inc.
("Alliant Corporate Services").
3. Q: WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
A: Only shareowners of record at the close of business on April
3, 2001 are entitled to vote at the Annual Meeting. As of
the record date, 13,236,601 shares of common stock (owned
solely by AEC) and 1,049,225 shares of preferred stock, in
seven series (representing 599,630 votes), were issued and
outstanding. Each share of Company common stock is entitled
to one vote per share. Each share of Company preferred
stock, with the exception of the 6.50% Series, is entitled
to one vote per share. The 6.50% Series of Company preferred
stock is entitled to 1/4 vote per share.
4. Q: WHAT MAY I VOTE ON AT THE ANNUAL MEETING?
A: You may vote on the election of four nominees to serve on
the Company's Board of Directors for terms expiring at the
Annual Meeting of Shareowners in the year 2004.
5. Q: HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE?
A: The Board of Directors recommends that you vote your shares
FOR each of the nominees.
6. Q: HOW CAN I VOTE MY SHARES?
A: You may vote either in person at the Annual Meeting or by
appointing a proxy. If you desire to appoint a proxy, then
sign and date each proxy card you receive and return it in
the envelope provided.
7. Q: HOW ARE VOTES COUNTED?
A: In the election of directors, you may vote FOR all of the
nominees or your vote may be WITHHELD with respect to one or
more nominees. If you return your signed proxy card but do
not mark the boxes showing how you wish to vote, your shares
will be voted FOR all nominees.
8. Q: CAN I CHANGE MY VOTE?
A: You have the right to revoke your proxy at any time before
the Annual Meeting by:
- poviding written notice to the Corporate Secretary of
the Company and voting in person at the Annual Meeting;
or
- appointing a new proxy prior to the start of the
Annual Meeting.
Attendance at the Annual Meeting will not cause your
previously appointed proxy to be revoked unless you
specifically so request in writing.
3
9. Q: WHAT SHARES ARE INCLUDED ON THE PROXY CARD(S)?
A: Your proxy card(s) covers all of your shares of the
Company's preferred stock.
10. Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: If your shares are registered differently and are in more
than one account, then you will receive more than one card.
Be sure to vote all of your accounts to ensure that all of
your shares are voted. The Company encourages you to have
all accounts registered in the same name and address
(whenever possible). You can accomplish this by contacting
the Company's Shareowner Services Department at the
Shareowner Information Numbers shown at the front of this
proxy statement.
11. Q: WHO MAY ATTEND THE ANNUAL MEETING?
A: All shareowners who owned shares of the Company's common and
preferred stock on April 3, 2001 may attend the Annual
Meeting. You may indicate on the reservation portion of the
enclosed proxy card your intention to attend the Annual
Meeting and return it with your signed proxy.
12. Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: The Board of Directors of the Company does not know of any
business to be considered at the 2001 Annual Meeting other
than the election of four directors. If any other business
is properly presented at the Annual Meeting, your signed
proxy card gives authority to William D. Harvey, the
Company's President, and Edward M. Gleason, the Company's
Vice President-Treasurer and Corporate Secretary, to vote on
such matters in their discretion.
13. Q: WHERE AND WHEN WILL I BE ABLE TO FIND THE RESULTS OF THE
VOTING?
A: The results of the voting will be announced at the Annual
Meeting. You may also call our Shareowner Services
Department at the Shareowner Information Numbers shown at
the front of this proxy statement for the results. The
Company will also publish the final results in its Quar-
terly Report on Form 10-Q for the second quarter of 2001 to
be filed with the Securities and Exchange Commission.
14. Q: WHEN ARE SHAREOWNER PROPOSALS FOR THE 2002 ANNUAL MEETING
DUE?
A: All shareowner proposals to be considered for inclusion in
the Company's proxy statement for the 2002 Annual Meeting
must be received at the principal office of the Company by
December 11, 2001. In addition, any shareowner who intends
to present a proposal from the floor at the 2002 Annual
Meeting must submit the proposal in writing to the Corporate
Secretary of the Company no later than February 24, 2002.
15. Q: WHO ARE THE INDEPENDENT AUDITORS OF THE COMPANY AND HOW ARE
THEY APPOINTED?
A: The Board of Directors has appointed Arthur Andersen LLP as
the Company's independent auditors for 2001. Arthur Andersen
LLP acted as independent auditors for the Company in 2000.
Representatives of Arthur Andersen LLP are not expected to
be present at the meeting.
16. Q: WHO WILL BEAR THE COST OF SOLICITING PROXIES FOR THE ANNUAL
MEETING?
A. The Company will pay the cost of preparing, assembling,
printing, mailing and distributing these proxy materials. In
addition to the mailing of these proxy materials, the
solicitation of proxies or votes may be made in person, by
telephone or by electronic communication by the Company's
officers and employees who will not receive any additional
compensation for these solicitation activities. The Company
will pay to banks, brokers, nominees and other fiduciaries
their reasonable charges and expenses incurred in forwarding
the proxy materials to their principals.
17. Q: HOW CAN I OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K?
A: The Company will furnish without charge, to each shareowner
who is entitled to vote at the Annual Meeting and who makes
a written request, a copy of the Company's Annual Report on
Form 10-K (without exhibits) as filed with the Securities
and Exchange Commission. Written requests for the Form 10-K
should be mailed to the Corporate Secretary of the Company
at the address on the first page of this proxy statement.
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4
ELECTION OF DIRECTORS
FiveFour directors will be elected this year for terms expiring in 2003.2004. The
nominees for election as selected by the Nominating and Governance Committee of
the Company's Board of Directors are: ErrollJack B. Davis,
Jr., Lee Liu, Milton E. Neshek, Robert W. SchlutzEvans, Joyce L. Hanes, David A.
Perdue and Wayne H.
Stoppelmoor.Judith D. Pyle. Each of the nominees is currently serving as a
director of the Company. Each person elected as director will serve until the
Annual Meeting of Shareowners of the Company in the year 20032004 or until his or her
successor has been duly elected and qualified.
Directors will be elected by a plurality of the votes cast at the meeting
(assuming a quorum is present). Consequently, any shares not voted at the
meeting, whether by abstention or otherwise, will have no effect on the election
of directors. The proxies solicited may be voted for a substitute nominee or
nominees in the event thatif any of the nominees shall beare unable to serve, or for good reason will not
serve, a contingency not now anticipated.
Brief biographies of the director nominees and continuing directors follow.
These biographies include their age (as of December 31, 1999)2000), an account of
their business experience and the names of publicly-held and certain other
corporations of which they are also directors. Except as otherwise indicated,
each nominee and continuing director has been engaged in his or her present
occupation for at least the past five years.
NOMINEES
[PHOTO] ERROLL B. DAVIS, JR. Director Since 1984
Age 55 Nominated Term to Expire in 2003
Mr. Davis has been President of AEC since January 1990
and was elected President and Chief Executive Officer
of AEC in July 1990. Mr. Davis joined the Company in
August 1978 and was elected President in July 1987. He
was elected President and Chief Executive Officer of
the Company in August 1988. Mr. Davis has also served
as Chief Executive Officer of IES, IPC and AER since
1998. He is a member of the Boards of Directors of
BP Amoco p.l.c., PPG Industries, Inc. and the Edison
Electric Institute. Mr. Davis has served as a director
of AEC since 1982, of AER since 1988 and of IES and IPC
since 1998.
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JACK B. EVANS Director Since
[PHOTO] 2000
Age 52 Nominated Term
Expires in 2004
Mr. Evans is a director and since 1996 has served as
President of The Hall-Perrine Foundation, a private
philanthropic corporation in Cedar Rapids, Iowa. Previously,
Mr. Evans was President and Chief Operating Officer of SCI
Financial Group, Inc., a regional financial services firm.
Mr. Evans is a director of Gazette Communications, the
Federal Reserve Bank of Chicago and Nuveen Institutional
Advisory Corp., and Vice Chairman and a director of United
Fire and Casualty Company. Mr. Evans has served as a
director of AEC, IES, IPC and AER since 2000. Mr. Evans is
Chairperson of the Audit Committee.
JOYCE L. HANES Director Since
[PHOTO] 1998
Age 68 Nominated Term
Expires in 2004
Ms. Hanes has been a director of Midwest Wholesale, Inc., a
products wholesaler in Mason City, Iowa, since 1970 and
Chairman of the Board since December 1997, having
previously served as Chairman from 1986 to 1988. She is a
director of Iowa Student Loan Liquidity Corp. Ms. Hanes has
served as a director of IPC since 1982 and of AEC, IES and
AER since 1998.
DAVID A. PERDUE Director Since
[PHOTO] 2001
Age 51 Nominated Term
Expires in 2004
Mr. Perdue is President of the Reebok brand for Reebok
International Limited, a designer, distributor and marketer
of footwear, apparel and sports equipment, located in
Canton, Massachusetts. Prior to joining Reebok in 1998,
Mr. Perdue was Senior Vice President of Operations at
Haggar, Inc. He was appointed to serve as a director of the
Company, AEC, IES, IPC and AER as of February 15, 2001.
5
[PHOTO] LEE LIU Director Since 1998
Age 66 Nominated Term to Expire in 2003
Mr. Liu has served as Chairman of the Board of the
Company and AEC since 1998. Mr. Liu will retire as
Chairman on April 21, 2000. He was Chairman of the
Board and Chief Executive Officer of IES Industries and
Chairman of the Board and Chief Executive Officer of
IES prior to the Merger in 1998. Mr. Liu held a number
of professional, management and executive positions
after joining Iowa Electric Light and Power Company
(later known as IES Utilities Inc.)
JUDITH D. PYLE Director Since
[PHOTO] 1994
Age 57 Nominated Term
Expires in 2004
Ms. Pyle is Vice Chair of The Pyle Group, a financial
services company located in Madison, Wisconsin. Prior to
assuming her current position, Ms. Pyle served as Vice
Chairman and Senior Vice President of Corporate Marketing of
Rayovac Corporation (a battery and lighting products
manufacturer), Madison, Wisconsin. In addition, Ms. Pyle is
Vice Chairman of Georgette Klinger, Inc. and a director of
Uniek, Inc. Ms. Pyle has served as a director of AEC and
AER since 1992 and of IES and IPC since 1998. Ms. Pyle is
the Chairperson of the Compensation and Personnel Committee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL NOMINEES FOR
ELECTION AS DIRECTORS.
CONTINUING DIRECTORS
ALAN B. ARENDS Director Since
[PHOTO] 1998
Age 67 Term Expires in
2002
Mr. Arends is Chairman of the Board of Directors of Alliance
Benefit Group Financial Services Corp., Albert Lea,
Minnesota, an employee benefits company that he founded in
1983. He has served as a director of IPC since 1993 and of
AEC, IES and AER since 1998.
ERROLL B. DAVIS, JR. Director Since
[PHOTO] 1984
Age 56 Term Expires in
2003
Mr. Davis has been President of AEC since January 1990 and
was elected President and Chief Executive Officer of AEC in
July 1990. He was elected Chairman of the Board of AEC in
April 2000. Mr. Davis joined the Company in August 1978 and
was elected President of the Company in July 1987. He was
elected President and Chief Executive Officer of the Company
in August 1988. Mr. Davis has also served as Chief Executive
Officer of AER, IES and IPC since 1998. He is a member of
the Boards of Directors of BP Amoco p.l.c., PPG
Industries, Inc., Electric Power Research Institute and the
Edison Electric Institute. Mr. Davis has served as a
director of AEC since 1982, of AER since 1988 and of IES and
IPC since 1998.
LEE LIU Director Since
[PHOTO] 1998
Age 67 Term Expires in
2003
Mr. Liu served as Chairman of the Board of the Company and
AEC from April 1998 until April 2000 in accordance with the
terms of his employment agreement. He was Chairman of the
Board and Chief Executive Officer of IES Industries Inc. (a
predecessor to AEC) and Chairman of the Board and Chief
Executive Officer of IES prior to 1998. Mr. Liu held a
number of professional, management and executive positions
after joining Iowa Electric Light and Power Company (later
known as IES) in 1957. He is a director of McLeodUSA Inc, Principal
Financial Group and Eastman Chemical Company. Mr. Liu has
served as a director of IES (or predecessor companies) since
1981 and of AEC, IPC and AER since 1998.
[PHOTO] MILTON E. NESHEK Director Since 1984
Age 69 Nominated Term to Expire in 2003
Mr. Neshek has served as Special Consultant to the
Kikkoman Corporation, Tokyo, Japan, since
November 1997. In addition, he is General Counsel,
Secretary and Manager of New Market Development,
Kikkoman Foods, Inc., a food products manufacturer in
Walworth, Wisconsin, positions he has held since 1973.
Mr. Neshek is a director of Kikkoman Foods, Inc. and a
member of the Walworth County Bar Association and the
State Bar of Wisconsin. Mr. Neshek has served as a
director of AEC since 1986, of AER since 1994 and of
IES and IPC since 1998.
[PHOTO] ROBERT W. SCHLUTZ Director Since 1998
Age 63 Nominated Term to Expire in 2003
Mr. Schlutz is President of Schlutz Enterprises, a
diversified farming and retailing business in Columbus
Junction, Iowa. Mr. Schlutz has served as a director of
IES (or predecessor companies) since 1989 and of AEC,
IPC and AER since 1998.
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6
[PHOTO] WAYNE H. STOPPELMOOR Director Since 1998
Age 65 Nominated Term to Expire
KATHARINE C. LYALL Director Since
[PHOTO] 1986
Age 59 Term Expires in
2002
Ms. Lyall is President of the University of Wisconsin System
in Madison, Wisconsin. In addition to her administrative
position, she is a professor of economics at the University.
She serves on the Boards of Directors of the Kemper National
Insurance Companies, M&I Corporation and the Carnegie
Foundation for the Advancement of Teaching. Ms. Lyall has
served as a director of AEC and AER since 1994 and of IES
and IPC since 1998.
ROBERT W. SCHLUTZ Director Since 1998
[PHOTO] Age 64 Term Expires in
2003
Mr. Schlutz is President of Schlutz Enterprises, a
diversified farming and retailing business in Columbus
Junction, Iowa. Mr. Schlutz has served as a director of IES
(or predecessor companies) since 1989 and of AEC, IPC and
AER since 1998. Mr. Schlutz is the Chairperson of the
Environmental, Nuclear, Health and Safety Committee.
WAYNE H. STOPPELMOOR Director Since 1998
[PHOTO] Age 66 Term Expires in
2003
Mr. Stoppelmoor has served as Vice Chairman of the
Board of the Company and AEC since the Merger in 1998.
Mr. Stoppelmoor served as Vice Chairman of the Board of the
Company and AEC from April 1998 until April 2000 in
accordance with the terms of his consulting agreement. Prior
to 1998, he was Chairman, President and Chief Executive
Officer of IPC. He retired as President of IPC in 1996 and
as Chief Executive Officer in 1997. Mr. Stoppelmoor has
served as a director of IPC since 1986 and of AEC, IES and
AER since 1998.
ANTHONY R. WEILER Director Since 1998
[PHOTO] Age 64 Term Expires in
2002
Mr. Weiler is a consultant for several home furnishings
organizations. Prior to assuming his current position
Mr. Weiler had been a Senior Vice President for Heilig-
Meyers Company, a national furniture retailer headquartered
in Richmond, Virginia. Mr. Weiler is a director of the
Retail Home Furnishings Foundation. Mr. Weiler has served as
a director of IES (or predecessor companies) since 1979 and
of AEC, IPC and AER since 1998. Mr. Weiler is the
Chairperson of the Nominating and Governance Committee.
RETIRING DIRECTORS
Rockne G. Flowers will retire as Vice Chairman on
April 21, 2000. Prior to the Merger he was Chairman,
President and Chief Executive Officer of IPC. He
retired as President of IPC on October 1, 1996 and as
Chief Executive Officer on January 1, 1997.
Mr. Stoppelmoor has served as a director of IPC since
1986 and of AEC, IES and AER since 1998.
The Board of Directors unanimously recommends a vote FOR all nominees
for election as directors.
CONTINUING DIRECTORS
--------------------
[PHOTO] ALAN B. ARENDS Director Since 1998
Age 66 Term Expires in 2002
Mr. Arends is Chairman of the Board of Directors of
Alliance Benefit Group Financial Services Corp.
(formerly Arends Associates, Inc.,) of Albert Lea,
Minnesota, an employee benefits company which he
founded in 1983. He has served as a director of IPC
since 1993 and of AEC, IES and AER since 1998.
[PHOTO] JACK B. EVANS Director Since 2000
Age 51 Term Expires in 2001
Mr. Evans is a director and since 1996 has served as
President of The Hall-Perrine Foundation, a private
philanthropic corporation in Cedar Rapids, Iowa.
Previously, Mr. Evans was President and Chief Operating
Officer of SCI Financial Group, Inc., a regional
financial services firm. Mr. Evans is a director of
Gazette Communications, the Federal Reserve Bank of
Chicago and Nuveen Institutional Advisory Corp., and
Vice Chairman and a director of United Fire and
Casualty Company. Mr. Evans was appointed as a director
of the Company by the Board of Directors effective
January 1, 2000. He was also appointed to the Board of
Directors of AEC, IES, IPC and AER.
-8-
[PHOTO] ROCKNE G. FLOWERS Director From 1979 to
Age 68 1999 and Since 1994
Term Expires in 2002
Mr. Flowers is President of Nelson Industries, Inc. (a
subsidiary of Cummins Engine Company), a muffler,
filter, industrial silencer, and active sound and
vibration control technology and manufacturing firm in
Stoughton, Wisconsin. Mr. Flowers is a director of
American Family Mutual Insurance Company, Janesville
Sand and Gravel Company and M&I Bank of Southern
Wisconsin. He has served as a director of AEC since
1981, of AER since 1990 and of IES and IPC since 1998.
[PHOTO] JOYCE L. HANES Director Since 1998
Age 67 Term Expires in 2001
Ms. Hanes has been a director of Midwest Wholesale
Inc., a products wholesaler in Mason City, Iowa, since
1970 and Chairman of the Board since December 1997,
having previously served as Chairman from 1986 to 1988.
She is a director of Iowa Student Loan Liquidity Corp.
Ms. Hanes has served as a director of IPC since 1982
and of AEC, IES and AER since 1998.
[PHOTO] KATHARINE C. LYALL Director Since 1986
Age 58 Term Expires in 2002
Ms. Lyall is President of the University of Wisconsin
System in Madison, Wisconsin. She serves on the Boards
of Directors of the Kemper National Insurance
Companies, M&I Corporation and the Carnegie Foundation
for the Advancement of Teaching. In addition to her
administrative position, she is a professor of
economics at the University of Wisconsin-Madison.
Ms. Lyall has served as a director of AEC since 1994,
of AER since 1994 and of IES and IPC since 1998.
[PHOTO] ARNOLD M. NEMIROW Director Since 1994
Age 56 Term Expires in 2001
Mr. Nemirow is Chairman, President and Chief Executive
Officer of Bowater Incorporated, a pulp and paper
manufacturer, located in Greenville, South Carolina. He
joined Bowater Incorporated in 1994 as President and
Chief Operating Officer. He became President and Chief
Executive Officer in 1995 and was elected Chairman in
1996. He is a member of the New York Bar. Mr. Nemirow
has served as a director of AEC and AER since 1991 and
of IES and IPC since 1998.
-9-
[PHOTO] JUDITH D. PYLE Director Since 1994
Age 56 Term Expires in 2001
Ms. Pyle is Vice Chair of The Pyle Group, a financial
services company located in Madison, Wisconsin. Prior
to assuming her current position, Ms. Pyle served as
Vice Chairman and Senior Vice President of Corporate
Marketing of Rayovac Corporation (a battery and
lighting products manufacturer), Madison, Wisconsin. In
addition, Ms. Pyle is Vice Chairman of Georgette
Klinger, Inc. and a director of Uniek, Inc. Ms. Pyle
has served as a director of AEC and AER since 1992 and
of IES and IPC since 1998.
[PHOTO] ANTHONY R. WEILER Director Since 1998
Age 63 Term Expires in 2002
In February 2000, Mr. Weiler accepted positions as a
consultant with Pinnacle Marketing and Management
Group, Baltimore, Maryland, and as a Director of
Business Development-Consumer Products Business Unit
for Leggett and Platt Corporation, Carthage, Missouri.
In addition, Mr. Weiler also acts as a consultant for
other home furnishings organizations. Prior to assuming
his current positions, Mr. Weiler had been a Senior
Vice President for Heilig-Meyers Company, a national
furniture retailer with headquarters in Richmond,
Virginia. Mr. Weiler is a director of the Retail Home
Furnishings Foundation. Mr. Weiler has served as a
director of IES (or predecessor companies) since 1979
and of AEC, IPC and AER since 1998.
We regret that David Q. Reed, a director of IES since 1967 and of the
Company since 1998, passed away on July 27, 1999. Jack B. Evans was
appointed by the Board of Directors as a director to complete
Mr. Reed's term ending in 2001.
Jack R. Newman, who had been a director of IES since 1994 and of the
Company since 1998 retired from his law practice and has accepted the
position of Vice President-Federal Relations with the Nuclear
Management Company, of which AEC is a member, effective December 10,
1999. Mr. Newman resigned from his position as a director of the
Company, AEC, IES, IPC and AER. Prior to his retirement from the legal
practice, Mr. Newman served as legal counsel to AEC on nuclear issues.
Mr. Newman's former law firm, Morgan, Lewis & Bockius, provides certain
legal services to the AEC.
Robert D. Ray turned 71turn 70 years of age on September 28, 1999.April 6, 2001. Milton E. Neshek
turned 70 years of age on October 26, 2000. Pursuant to the mandatory retirement
provisions in the Company's Bylaws, Mr. Ray's
tenureFlowers and Mr. Neshek will retire as
directors on the Boarddate of Directors expires with the 2000 Annual MeetingMeeting.
In addition, Arnold M. Nemirow has indicated his intent, as a result of Shareowners.his
other time commitments, to resign as a director effective as of the Annual
Meeting.
The Company expresses its most sincere thanks and appreciation to
Messrs. NewmanFlowers, Neshek and RayNemirow for their many years of service to the
Company and for their valued advice and guidance.
-10-7
MEETINGS AND COMMITTEES OF THE BOARD
The full Board of Directors of the Company considers all major decisions of the
Company. However, the Board has established standing Audit,Audit; Compensation and
Personnel,Personnel; Environmental, Nuclear, Health and Safety; Nominating and GovernanceGovernance;
and Capital Approval Committees each of which is chaired by an outside director, so that certain important matters can be
addressed in more depth than may be possible in a full Board meeting. The
following is a description of each of these committees:
Audit CommitteeAUDIT COMMITTEE
The Audit Committee held two meetings in 1999. This2000. The Committee currently consists
of J. L. HanesB. Evans (Chair), J.A. B. Evans,Arends, K. C. Lyall, J. D. Pyle and M. E. Neshek
and R. W. Schlutz.Neshek.
The Audit Committee recommends to the Board the appointment of independent
auditors; reviews the reports and comments of the independent auditors; reviews
the activities and reports of the Company's internal audit staff; and, in
response to the reports and comments of both the independent auditors and
internal auditors, recommends to the Board any action which the Committee
considers appropriate.
Compensation and Personnel CommitteeCOMPENSATION AND PERSONNEL COMMITTEE
The Compensation and Personnel Committee held three meetings in 1999.
This2000. The
Committee currently consists of A. M. NemirowJ. D. Pyle (Chair), A. B. Arends, J. B. Evans,
A. M. Nemirow and D. Pyle and A. R. Weiler.Perdue. This Committee sets executive compensation
policy; administers the Company's Long-Term Equity Incentive Plan; reviews the
performance of and approves salaries for officers and certain other management
personnel; reviews and recommends to the Board new or changed employee benefit
plans; reviews major provisions of negotiated employment contracts; and reviews
human resource development programs.
NominatingENVIRONMENTAL, NUCLEAR, HEALTH AND SAFETY COMMITTEE
The Environmental, Nuclear, Health and GovernanceSafety Committee held two meetings in
2000. The Committee currently consists of R. W. Schlutz (Chair), J. L. Hanes,
M. E. Neshek, D. A. Perdue and A. R. Weiler. The Committee's responsibilities
are to review environmental policy and planning issues of interest to the
Company, including matters involving the Company before environmental regulatory
agencies and compliance with air, water and waste regulations. In addition, the
Committee reviews policies and operating issues related to the Company's nuclear
generating station investments including planning and funding for
decommissioning of the plants. The Committee also reviews health and safety
related policies, activities and operational issues as they affect employees,
customers and the general public.
NOMINATING AND GOVERNANCE COMMITTEE
The Nominating and Governance Committee held three meetings in 1999.2000. The Nominating and Governance
Committee currently consists of A. R. Weiler (Chair), R. G. Flowers, (Chair), A. B. Arends, J. D. Pyle,L.
Hanes, K. C. Lyall and R. D. Ray and A. R. Weiler.W. Schlutz. This Committee's responsibilities include
recommending and nominating new members of the Board; recommending committee
assignments and committee chairpersons; evaluating overall Board effectiveness;
preparing an annual report on Chief Executive Officer effectiveness; and
considering and developing recommendations to the Board of Directors on other
corporate governance issues. In making
recommendations of nomineesnominating persons for election to the Board,
the Nominating and Governance Committee will consider nominees recommended by
shareowners. Any shareowner wishing to make a recommendation should write to the
Corporate Secretary of the Company, who will forward all recommendations to the
Committee. The Company's Bylaws also provide for shareowner nominations of
candidates for election as directors. These provisions require such nominations
to be made pursuant to timely notice (as specified in the Bylaws) in writing to
the Corporate Secretary of the Company.
CAPITAL APPROVAL COMMITTEE
The Capital Approval Committee held no meetings in 2000. The Committee currently
8
consists of J. B. Evans, J. D. Pyle and A. R. Weiler. The purpose of this
Committee is the evaluation of certain investment proposals where (i) an
iterative bidding process is required and/or (ii) the required timelines for
such a proposal would not permit the proposal to be brought before a regular
meeting of the Board of Directors and/or a special meeting of the full Board of
Directors is not practical or merited.
The Board of Directors held sixseven meetings during 1999. All directors2000. Each director attended
at least 78%80% of the aggregate number of meetings of the Board and Board
committees on which he or she served.
The Board and each committee conducts performance evaluations annually to
determine its effectiveness and suggests improvements for consideration and
implementation. In addition, Mr. Davis' performance as Chief Executive Officer
is also evaluated by the full Board on an annual basis.
-11-9
COMPENSATION OF DIRECTORS
No retainer fees are paid to Messrs. Davis Liu and Stoppelmoor for their service on
the Company's Board of Directors. In 1999,2000, all other directors (the
"non-employee directors"), each of whom serve on the Boards of the Company, AEC,
IES, IPC WP&L and AER, received an annual retainer of $32,800$45,000 for service on all five
Boards.Boards consisting of $25,000 in cash and $20,000 in AEC common stock. Travel
expenses are paid for each meeting day attended. All non-employee directors were
also eligible to receive a 25 percent matching contribution in AEC
common stock for limited optional cash purchases, up to $10,000, of
AEC's common stock through AEC's Shareowner Direct Plan. Matching
contributions of $2,500 each for calendar year 1999 were made for the
following directors: A. B. Arends, R. G. Flowers, J. L. Hanes,
K. C. Lyall, A. M. Nemirow, M. E. Neshek, J. D. Pyle, R. D. Ray and
R. W. Schlutz. Beginning in 2000,2001, the annual
retainer for each non-employee director has been increasedchanged to $45,000$25,000 in cash and
1,000 shares of AEC common stock for service on all five Boards. Of that amount, $25,000 will be paid in cash and $20,000
will be paid in AEC's common stock. The directors
have the option to receive each amount outright (in cash and stock), to have
each amount deposited to their Shareowner Direct Plan account or to a directors'director's
Deferred Compensation Account or any combination thereof. Effective April 21,
2000,2001, Mr. LiuStoppelmoor's existing consulting contract will retire as an employee of AECexpire and he will be
eligible to receive this annual retainer.
Director's Deferred Compensation Plancompensation as a non-employee director on a prorated basis
for 2001.
DIRECTOR'S DEFERRED COMPENSATION PLAN
Under the Directors'Director's Deferred Compensation Plan, directors may elect to defer
all or part of their retainer fee. Amounts deposited to a Deferred Compensation
Interest Account earn interest atreceive an annual return based on the A-Utility Bond Rate with
a rate which is
equal to the greater ofminimum return no less than the prime interest rate as reportedpublished in The Wall Street
Journal, provided that in no event shall the rate of interest credited
for any plan year be greater than 12% or less than 6%.THE WALL
STREET JOURNAL. The balance credited to a director's Deferred Compensation
Interest Account as of any date will be the accumulated deferred cash
compensation and interest that are credited to such account as of such date.
Amounts deposited to an AEC Stock Account, whether they be the cash portion or the stock
portion of the directors'director's compensation, are treated as though invested in the
common stock of AEC and will earnbe credited with dividends and those dividends will
be reinvested. Annually, the director may elect that upon retirement or resignation from the Board, the Deferred Compensation
Account will be paid in a lump sum or in annual installments for up to 10 years.
Director's Charitable Award Programten
years, either in a designated year or upon retirement or resignation from the
Board.
DIRECTOR'S CHARITABLE AWARD PROGRAM
AEC maintains a Director's Charitable Award Program for the members of its Board
of Directors beginning after three years of service. The purpose of the Program
is to recognize the interest of the Company and its directors in supporting
worthy institutions, and to enhance the Company's director benefit program so
that the Company is able to continue to attract and retain directors of the
highest caliber. Under the Program, when a director dies, the Company and/or AEC
will donate a total of $500,000 to one qualified charitable organization, or
divide that amount among a maximum of four qualified charitable organizations,
selected by the individual director. The individual director derives no
financial benefit from the Program. All deductions for charitable contributions
are taken by the Company or AEC, and the donations are funded by the Company or
AEC through life insurance policies on the directors. Over the life of the
Program, all costs of donations and premiums on the life insurance policies,
including a return of the Company's cost of funds, will be recovered through
life insurance proceeds on the directors. The Program, over its life, will not
result in any material cost to the Company or AEC.
-12-
Director's Life Insurance ProgramDIRECTOR'S LIFE INSURANCE PROGRAM
AEC maintains a split-dollar Director's Life Insurance Program for non-employee
directors, beginning after three years of service, which provides a maximum
death benefit of $500,000 to each eligible director. Under the split-dollar
arrangement, directors are provided a death benefit only and do not have any
interest in the cash value of the policies. The Life Insurance Program is
structured to pay a portion of the total death benefit to AEC to reimburse AEC
for all costs of the program, including a return on its funds. The Life
Insurance Program, over its life, will not result in any material cost to AEC.
The imputed income allocations reported for each director in 19992000 under the
Director's Life Insurance Program were as follows: A. B. Arends--$306,50, R. G.
Flowers--$442,50, J. L. Hanes--$485,50, K. C. Lyall--$391,389, A. M. Nemirow--$56,50,
10
M. E. Neshek--$989, J. R. Newman--$689, and975, J. D. Pyle--$91, R. D. Ray--$74650, and A. R. Weiler--$159.
Pension Arrangements50.
PENSION ARRANGEMENTS
Prior to the Merger,April 1998, Mr. Liu participated in the IES Industries Inc. retirement
plan, which plan washas been transferred to Alliant Energy Corporate Services, Inc., a subsidiary of AEC ("Alliant Energy Corporate
Services") in connection with the Merger.Services.
Mr. Liu's benefits under the plan have been "grandfathered" to reflect the
benefit plan formula in effect at the time of the Merger.in April 1998. See "Retirement and Employee
Benefit Plans--IES Industries Pension Plan."
Alliant Energy Corporate Services also maintains a non-qualified Supplemental
Retirement Plan ("SRP") for eligible former officers of IES Industries who elected to remain under this plan following the
Merger.Inc.
Mr. Liu participates in the SRP. The SRP generally provides for payment of
supplemental retirement benefits equal to 75% of the officer's base salary in
effect at the date of retirement, reduced by benefits receivable under the
qualified retirement plan, for a period not to exceed 15 years following the
date of retirement. The SRP also provides for certain death benefits to be paid
to the officer's designated beneficiary and benefits if an officer becomes
disabled under the terms of the qualified retirement plan.
Certain AgreementsCERTAIN AGREEMENTS
Mr. Liu hashad an employment agreement with AEC, pursuant to which Mr. Liu will serveserved
as Chairman of the Board of AEC until April 21, 2000. At that time, Mr. Liu will thereafter retireretired
as Chairman of the Board of AEC, although he will continuecontinues to serve as a director.
Mr. Liu's employment agreement providesprovided that he receive an annual base salary of
not less than $400,000, and supplemental retirement benefits and the opportunity to
earn short-term and long-term incentive compensation (including stock options,
restricted stock and other long-term incentive compensation) in amounts no less than he was eligible to receive from
IES Industries before the effective time of the Merger. If the
employment of Mr. Liu is terminated without cause (as defined in the
employment agreement) or if Mr. Liu terminates his employment for good
reason (as defined in the employment agreement), then AEC or its
affiliates will continue to provide the compensation and benefits
called for by the employment agreement through the end of the term of
such employment agreement (with incentive compensation based on the
maximum potential awards and with any stock compensation paid in cash),
and all unvested stock compensation will vest immediately. If Mr. Liu
dies or becomes disabled, or terminates his employment without good
reason, during the term of his respective employment agreement, then
AEC or its affiliates will pay to Mr. Liu or his beneficiaries or
-13-
estate all compensation earned through the date of death, disability or
such termination (including previously deferred compensation and pro
rata incentive compensation based upon the maximum potential awards).
If Mr. Liu is terminated for cause, then AEC or its affiliates will pay
his base salary through the date of termination plus any previously
deferred compensation. However, if any payments to Mr. Liu under his
employment agreement or otherwise are subject to the excise tax on
excess parachute payments under the Internal Revenue Code of 1986, as
amended (the "Code"), then the total payments to be made under
Mr. Liu's employment agreement will be reduced so that the value of
these payments he is entitled to receive is $1 less than the amount
that would subject Mr. Liu to the 20% excise tax imposed by the Code on
certain excess payments, or which AEC may pay without loss of deduction
under the Code.
Mr. Stoppelmoor entered into a three-year consulting arrangement with AEC in
connection with the Merger.April 1998. Under the terms of his consulting arrangement, Mr. Stoppelmoor
receivesreceived an annual fee of $324,500 during each of the first two years and is
currently receiving a fee of $200,000 duringfor the third year of the consulting
period. Mr. Stoppelmoor is also entitled to participate in compensation plans
equivalent to those provided AEC's Chairman of the Board and Chief Executive
Officer during the consulting period, subject to approval by the Compensation
and Personnel Committee of the Board. Although Mr. Stoppelmoor is eligible to participate
in the DirectorsDirector's Charitable Award Program and the DirectorsDirector's Life Insurance
Program as a result of his service as Vice Chairman of the Board of
Directors, hisProgram. His consulting arrangement provides that he will not be eligible to
receive any other compensation otherwise payable to directors of AEC.
-14-AEC until the
end of the three-year term on April 21, 2001. At that time, Mr. Stoppelmoor will
be eligible to receive the annual director's compensation.
11
OWNERSHIP OF VOTING SECURITIES
All of the common stock of the Company is held by AEC. Listed in the following
table are the number of shares of AEC's common stock beneficially owned by the
executive officers listed in the Summary Compensation Table and all nominees and
directors of AEC and the Company, as well as the number of shares owned by
directors and executive officers as a group as of December 31, 1999.March 1, 2001. The directors
and executive officers of AEC and the Company as a group owned less than one
percent of the outstanding shares of AEC common stock on that date. To the
Company's knowledge, no shareowner beneficially owned five percent or more of
AEC's outstanding common stock as of December 31, 1999.
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)
- ------------------------ --------------
Executives(2)
William D. Harvey........................................ 51,358(3)
Eliot G. Protsch......................................... 50,223(3)
Thomas M. Walker......................................... 14,597(3)
Pamela J. Wegner......................................... 30,685(3)
Director Nominees
Erroll B. Davis, Jr...................................... 113,022(3)
Lee Liu.................................................. 89,197(3)
Milton E. Neshek......................................... 13,035
Robert W. Schlutz........................................ 4,935
Wayne H. Stoppelmoor..................................... 33,423(3)
Continuing Directors
Alan B. Arends........................................... 2,664
Jack B. Evans............................................ 30,388(3)
Rockne G. Flowers........................................ 12,810
Joyce L. Hanes........................................... 4,174(3)
Katharine C. Lyall....................................... 9,134
Arnold M. Nemirow........................................ 12,339
Judith D. Pyle........................................... 7,128
Anthony R. Weiler........................................ 5,100(3)
All Executives and Directors as a Group
32 people, including those listed above.................. 721,821(3)2000.
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)
- ------------------------ --------------
EXECUTIVES(2)
William D. Harvey......................................... 75,815(3)
Eliot G. Protsch.......................................... 77,715(3)
Thomas M. Walker.......................................... 36,893(3)
Pamela J. Wegner.......................................... 47,573(3)
DIRECTOR NOMINEES
Jack B. Evans............................................. 32,402(3)
Joyce L. Hanes............................................ 6,250(3)
David A. Perdue........................................... 1,556(3)
Judith D. Pyle............................................ 9,440
DIRECTORS
Alan B. Arends............................................ 4,629(3)
Erroll B. Davis, Jr....................................... 202,015(3)
Rockne G. Flowers......................................... 16,423(4)
Lee Liu................................................... 192,773(3)
Katharine C. Lyall........................................ 11,706
Arnold M. Nemirow......................................... 14,564(3)(4)
Milton E. Neshek.......................................... 14,742(3)(4)
Robert W. Schlutz......................................... 6,729(3)
Wayne H. Stoppelmoor...................................... 128,162(3)
Anthony R. Weiler......................................... 6,962(3)
All Executives and Directors as a Group
34 people, including those listed above................... 1,263,893(3)
(1) Total shares of AEC common stock outstanding as of December 31, 19992000 were
78,984,014.79,010,114.
(2) Stock ownership of Mr. Davis is shown with director nominees.the directors.
(3) Included in the beneficially owned shares shown are indirect ownership
interests with shared voting and investment powers: Mr. Harvey --2,035,-- 2,210,
Mr. Protsch --614,-- 667, Mr. Davis--6,380,Davis -- 7,028, Ms. Hanes -- 514, Mr. Evans--388, Ms. Hanes--473, Mr. Liu--9,755Liu -- 9,755
and Mr. Weiler--1,148;Weiler -- 1,148; shares of common stock held in deferred
12
compensation plans: Mr. Arends -- 1,862, Mr. Evans -- 2,402, Ms. Hanes --
174, Mr. Nemirow -- 830, Mr. Neshek -- 1,261, Mr. Perdue -- 1,556,
Mr. Schlutz -- 1,370, Mr. Weiler -- 1,862, Mr. Davis -- 6,187,
Mr. Protsch -- 7,232, Mr. Harvey -- 4,069, Mr. Walker -- 5,166,
Ms. Wegner -- 10 (all executive officers and directors as a group --
35,072); and stock options exercisable on or within 60 days of December 31, 1999:March 1,
2001: Mr. Davis--89,887,Davis -- 165,327, Mr. Liu--34,750,Liu -- 148,849, Mr. Stoppelmoor--27,156,Stoppelmoor -- 119,201,
Mr. Harvey--27,744,Harvey -- 44,258, Mr. Protsch--27,744,Protsch -- 44,258, Mr. Walker--13,071Walker -- 29,097 and
Ms. Wegner--18,036Wegner -- 32,319 (all executive officers and directors as a group--389,977)group --
865,376).
-15-
(4) Messrs. Flowers, Nemirow and Neshek will retire as directors at the Annual
Meeting.
None of the directors or officers of the Company own any shares of the Company's
preferred stock. The following table sets forth certain information regarding
the beneficial ownership of the Company's preferred stock by each person known
to the Company to own more than five percent of any class of the Company's
preferred stock as of December 31, 1999.
Shares of
6.2% Preferred
Stock
Beneficially Percent of
Name of Beneficial Owner Owned Class
- ----------------------- -------------- -----------
Wellington Management Company, LLP
7552000.
SHARES OF
6.2% PREFERRED STOCK PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ------------------------------------------------------------ -------------------- ----------
Wellington Management Company, LLP
75 State Street 18,500(1) 12.33%
Boston, Massachusetts 02109
18,500(1) 12.33%
(1) As reported to the Securities and Exchange Commission.
-16-13
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth the total compensation paid
by AEC, the Company and AEC's subsidiaries for all services rendered during
2000, 1999 1998 and 19971998 to the Chief Executive Officer and the four other most
highly compensated executive officers of the Company who performed policy making functions for the Company.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------------------------- -----------------------------------
Awards Payouts
------------------------ --------
Securities
Underlying
Other Restricted Options/
Name and Base Annual Stock SARs
- ----------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------------------------------------------------------------
AWARDS PAYOUTS
------------------------------------
SECURITIES
RESTRICTED UNDERLYING
NAME AND OTHER ANNUAL STOCK OPTIONS LTIP
All Other
Principal Position Year Salary Bonus(1) Compensation(2) Awards(3) (Shares)PRINCIPAL POSITION YEAR BASE SALARY BONUS(1) COMPENSATION(2) AWARDS(3) (SHARES)(4) Payouts Compensation(5)PAYOUTS
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 2000 $637,692 $895,200 $11,875 -- 111,912 $196,711
Chairman and Chief 1999 $580,000 $440,220 $12,526580,000 440,220 12,526 -- 77,657 $84,870 $60,188
Chief84,870
Executive Officer 1998 540,000 -- 13,045 -- 36,752 --
57,996
Officer 1997 450,000 200,800 19,982 -- 13,800 -- 60,261- ----------------------------------------------------------------------------------------------------------------------
William D. Harvey 2000 264,615 206,541 4,234 -- 21,063 47,474
President 1999 254,423 116,535 4,565 $255,004 17,071 31,365
44,005
President 1998 233,846 -- 4,699 -- 11,406 --
28,642
1997 220,000 43,986 14,944 -- 5,100 -- 33,043- ----------------------------------------------------------------------------------------------------------------------
Eliot G. Protsch 2000 264,615 214,942 1,423 -- 21,063 47,474
Executive Vice 1999 254,423 152,898 1,909 255,004 17,071 31,365
32,941
ExecutivePresident 1998 233,846 -- 2,443 -- 11,406 --
20,398
Vice President 1997 220,000 51,400 11,444 -- 5,100 -- 30,057- ----------------------------------------------------------------------------------------------------------------------
Thomas M. Walker 2000 254,616 190,026 -- -- 20,268 47,474
Executive Vice 1999 244,808 148,960 -- -- 16,402 --
13,531
Executive VicePresident 1998 229,846 -- 814 -- 11,406 --
13,263
President & Chief 1997 230,000 62,100 38,138 -- -- -- 2,367
Financial
Officer
- ----------------------------------------------------------------------------------------------------------------------
Pamela J. Wegner 2000 254,608 180,285 2,416 245,017 20,268 27,563
Executive Vice 1999 244,615 145,187 2,569 245,017-- 16,402 19,373
31,568
Executive VicePresident 1998 193,001 -- 2,689 -- 6,178 --
- ----------------------------------------------------------------------------------------------------------------------
- ---------------------- ----------------
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION(5)
- ---------------------- ----------------
Erroll B. Davis, Jr. $52,619
Chairman and Chief 53,188
Executive Officer 50,996
- ---------------------------------------------------------
William D. Harvey 42,230
President 37,005
21,642
- --------------------------------------------------------------------------
Eliot G. Protsch 38,058
Executive Vice 32,941
President 18,065
- -------------------------------------------------------------------------------------------
Thomas M. Walker 6,166
Executive Vice 6,531
President 15,026
& Chief Financial
Officer
- ------------------------------------------------------------------------------------------------------------
Pamela J. Wegner 34,377
Executive Vice 29,122
President 17,959
President 1997 160,000 26,216 3,498 -- 3,150 -- 15,579- ----------------------------------------------------------------------------------------------------------------------
(1) No bonuses were paid for 1998. The 1999 bonuses were earned in 1999 and
paid in 2000. The 2000 bonuses were earned in 2000 and paid in 2001.
(2) Other Annual Compensation for 19992000 consists of income tax gross-ups for
reverse split-dollar life insurance.
(3) In 1999, restricted stock was awarded under the Alliant Energy Corporation
Long-Term Equity Incentive Plan as follows: Mr. Harvey--9,294 shares,
Mr. Protsch--9,294 shares and Ms. Wegner--8,930 shares. Dividends on shares
of restricted stock granted under the Long-Term Equity Incentive Plan are
held in escrow and reinvested in shares of common stock pending vesting of
the underlying restricted stock. In the event thatIf such restricted stock vests, then the
participant is then also entitled to receive the common stock into which the
dividends on the restricted stock were reinvested. The amounts shown in the
table above represent the market value of the restricted stock on the date
of grant. The number of shares of restricted stock held by the officers
identified in the table and the market value of such shares as of
December 31, 19992000 were as follows: Mr. Harvey --
9,294Harvey--9,294 shares ($255,585)296,293),
Mr. Protsch -- 9,294Protsch--9,294 shares ($255,585)296,293) and Ms. Wegner -- 8,930Wegner--8,930 shares
($245,575)284,688).
-17-14
(4) Awards made in 19992000 were in combination with performance share awards as
described in the table entitled "Long-Term Incentive Awards in 1999"2000".
(5) The table below shows the components of the compensation reflected under
this column for 1999:2000:
Erroll- ------------------------------------------------------------------------------------------------------------------------------
ERROLL B. Davis, Jr. WilliamDAVIS, JR. WILLIAM D. Harvey EliotHARVEY ELIOT G. Protsch ThomasPROTSCH THOMAS M. Walker PamelaWALKER PAMELA J. Wegner
-------------------- ------------------- ------------------ ------------------ ------------------WEGNER
- ------------------------------------------------------------------------------------------------------------------------------
A. $17,400 $7,633 $7,633 $4,800 $7,338$19,131 $ 7,938 $ 7,938 $ 5,250 $6,373
- ------------------------------------------------------------------------------------------------------------------------------
B. 7,000 7,00018,952 8,524 7,956 0 7,000 1,3705,332
- ------------------------------------------------------------------------------------------------------------------------------
C. 22,207 9,467 8,64012,969 5,345 1,852 0 6,0133,050
- ------------------------------------------------------------------------------------------------------------------------------
D. 13,581 5,721 2,484 0 3,2191,567 320 209 916 306
- ------------------------------------------------------------------------------------------------------------------------------
E. 0 20,103 19,770 0 0 1,351 0
F. 0 14,184 14,184 380 13,62819,316
- ------------------------------------------------------------------------------------------------------------------------------
Total $60,188 $44,005 $32,941 $13,531 $31,568$52,619 $42,230 $38,058 $ 6,166 $34,377
- ------------------------------------------------------------------------------------------------------------------------------
A. Matching contributions to 401(k) Plan and Deferred Compensation Plan
B. Financial counseling benefit
C. Split-dollar life insurance reportable income (the split dollarsplit-dollar insurance
premiums are calculated using the "foregone interest" method)
D.C. Reverse split-dollar life insurance
E.D. Life insurance coverage in excess of $50,000
F.E. Dividends on restricted stock
-18-15
STOCK OPTIONS
The following table sets forth certain information concerning stock options
granted during 19992000 to the executives named below:
STOCK OPTIONS/SAROPTION GRANTS IN 1999
--------------------------------2000
Potential Realizable
Value at Assumed
Annual Rates
of Stock Appreciation for
Individual Grants Option Term(2)
--------------------------------------------------------- --------------------------------
Number of- ------------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
-------------------------------------------------------------
% of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted(1) Fiscal YearOF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED(1) YEAR ($/Share) DateSHARE) DATE 5% 10%
- ------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 77,657 9.4% $29.875 6/111,912 12.4% $28.5938 1/09 $1,459,175 $3,698,02618/10 $5,212,861 $8,300,513
- ------------------------------------------------------------------------------------------------------------------------------
William D. Harvey 17,071 2.1% 29.875 6/21,063 2.3% 28.5938 1/09 320,764 812,92118/10 981,115 1,562,243
- ------------------------------------------------------------------------------------------------------------------------------
Eliot G. Protsch 17,071 2.1% 29.875 6/21,063 2.3% 28.5938 1/09 320,764 812,92118/10 981,115 1,562,243
- ------------------------------------------------------------------------------------------------------------------------------
Thomas M. Walker 16,402 2.0% 29.875 6/20,268 2.3% 28.5938 1/09 308,194 781,06318/10 944,083 1,503,278
- ------------------------------------------------------------------------------------------------------------------------------
Pamela J. Wegner 16,402 2.0% 29.875 6/20,268 2.3% 28.5938 1/09 308,194 781,06318/10 944,083 1,503,278
- ------------------------------------------------------------------------------------------------------------------------------
(1) Consists of non-qualified stock options to purchase shares of AEC common
stock granted pursuant to AEC's Long-Term Equity Incentive Plan. Options
were granted on June 1, 1999,January 19, 2000 and will fully vesthave a three year vesting
schedule with one-third becoming exercisable on January 1, 2002.2, 2001, one-third
becoming exercisable on January 2, 2002 and the final one-third becoming
exercisable on January 2, 2003. Upon a "change in control" of AEC as
defined in the Plan or upon retirement, disability or death of the option
holder, thesethe options will become immediately exercisable.
(2) The hypothetical potential appreciation shown for the named executives is
required by rules of the Securities and Exchange Commission ("SEC"). The
amounts shown do not represent the historical or expected future
performance of AEC's common stock. In order for the named executives to
realize the potential values set forth in the 5% and 10% columns in the
table above, the price per share of AEC's common stock would be $48.67$46.58 and
$77.50,$74.17, respectively, as of the expiration date of the options.
-19-16
The following table provides information for the executives named below
regarding the number and value of exercisable and unexercised options. None of
the executives exercised options in fiscal 1999.2000.
OPTION VALUES AT DECEMBER 31, 2000
OPTION/SAR VALUES- ------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT DECEMBER 31, 1999
--------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Fiscal Year End at Year End(1)
-------------------------------------- ------------------------------------
Name Exercisable Unexercisable Exercisable UnexercisableFISCAL YEAR END AT YEAR END(1)
---------------------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 37,951 115,958 0 0165,327 100,494 $363,360 $297,362
- ------------------------------------------------------------------------------------------------------------------------------
William D. Harvey 13,152 29,775 0 044,258 19,732 95,168 57,607
- ------------------------------------------------------------------------------------------------------------------------------
Eliot G. Protsch 13,152 29,775 0 044,258 19,732 95,168 57,607
- ------------------------------------------------------------------------------------------------------------------------------
Thomas M. Walker 3,802 24,006 0 029,097 18,979 47,773 55,416
- ------------------------------------------------------------------------------------------------------------------------------
Pamela J. Wegner 7,359 23,671 0 032,319 18,979 73,099 55,416
- ------------------------------------------------------------------------------------------------------------------------------
(1) Based on the closing per share price on December 31, 1999 of AEC common stock of $27.50. Because the price per share on December 31,
1999 was less than the option price for all2000 of the
outstanding options, no options are considered in-the-money.
Long-Term Incentive Awards--The$31.88.
17
LONG-TERM INCENTIVE AWARDS
The following table provides information concerning long-term incentive awards
made to the executives named below in 1999.2000.
LONG-TERM INCENTIVE AWARDS IN 1999
----------------------------------2000
Estimated Future Payouts Under
Non-Stock Price-Based Plans
-------------------------------------------
Number of Performance or
Shares, Units Other Period
or Other Rights Until Maturation Threshold Target Maximum
Name- -----------------------------------------------------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
PERFORMANCE OR ------------------------------------------------------
NUMBER OF OTHER PERIOD
SHARES, UNITS UNTIL
OR OTHER RIGHTS MATURATION OR THRESHOLD TARGET MAXIMUM
NAME (#)(1) or PayoutPAYOUT (#) (#) (#)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 11,64919,025 1/1/02 5,824 11,649 23,29803 9,513 19,025 38,050
- -----------------------------------------------------------------------------------------------------------------------------
William D. Harvey 2,9873,707 1/1/02 1,493 2,987 5,97403 1,854 3,707 7,414
- -----------------------------------------------------------------------------------------------------------------------------
Eliot G. Protsch 2,9873,707 1/1/02 1,493 2,987 5,97403 1,854 3,707 7,414
- -----------------------------------------------------------------------------------------------------------------------------
Thomas M. Walker 2,8703,567 1/1/02 1,435 2,870 5,74003 1,784 3,567 7,134
- -----------------------------------------------------------------------------------------------------------------------------
Pamela J. Wegner 2,8703,567 1/1/02 1,435 2,870 5,74003 1,784 3,567 7,134
- -----------------------------------------------------------------------------------------------------------------------------
(1) Consists of performance shares awarded under the AEC's Long-Term Equity
Incentive Plan. TheseThe payout from the performance shares will vestis based on achievement of specifiedtwo
equally-weighted performance components: AEC's three-year Total Shareholder
Return (TSR) levels
as compared withrelative to an investor-owned utility peer group, overand
annualized earnings per share growth versus internally set performance
hurdles contained in the periodAlliant Energy Strategic Plan during the
performance cycle ending January 1,December 31, 2002. Payouts will be made on a
one-for-one basis in shares of AEC common stock or cash,are subject to
modification pursuant to a performance multiplier whichthat ranges from 0 to
2.00.
-20-2.00, and will be made in shares of AEC common stock or a combination of
common stock and cash.
18
CERTAIN AGREEMENTS AND TRANSACTIONS
Mr. Davis has an employment agreement with AEC, pursuant to which Mr. Davis will
serve as the Chief Executive Officer of AEC until April 21, 2003. Mr. Davis will also
beginbegan serving as the Chairman of AEC effective April 21, 2000. Following the
expiration of the initial term of Mr. Davis' employment agreement, his agreement
will automatically renew for successive one-year terms, unless either Mr. Davis
or AEC gives prior written notice of his or its intent to terminate the
agreement. Mr. Davis will also serveserves as Chief Executive Officer of each subsidiary
of AEC until at least April 21, 2001 and as a director of such companies during the term of his employment
agreement. Pursuant to Mr. Davis' employment agreement, he is paid an annual
base salary of not less than $450,000. Mr. Davis' current salary under his
employment agreement is $685,000. Mr. Davis also has the opportunity to earn
short-term and long-term incentive compensation (including stock options,
restricted stock and other long-term incentive compensation) in amounts no less than he was eligible toand receive before the effective time of the Merger, as well as
supplemental retirement benefits (including continued participation in the
WP&LCompany Executive Tenure Compensation Plan) in an amount no less than
he was eligible to receive before the effective time of the Merger, and life insurance providing a death
benefit of three times his annual salary. If the employment of Mr. Davis is
terminated without cause (as defined in the employment agreement) or if
Mr. Davis terminates his employment for good reason (as defined in the
employment agreement), AEC or its affiliates will continue to provide the
compensation and benefits called for by the employment agreement through the end
of the term of such employment agreement (with incentive compensation based on
the maximum potential awards and with any stock compensation paid in cash), and
all unvested stock compensation will vest immediately. If Mr. Davis dies or
becomes disabled, or terminates his employment without good reason, during the
term of his respective employment agreement, AEC or its affiliates will pay to
Mr. Davis or his beneficiaries or estate all compensation earned through the
date of death, disability or such termination (including previously deferred
compensation and pro rata incentive compensation based upon the maximum
potential awards). If Mr. Davis is terminated for cause, AEC or its affiliates
will pay his base salary through the date of termination plus any previously
deferred compensation. Under Mr. Davis' employment agreement, if any payments
thereunder constitute an excess parachute payment under the Internal Revenue
Code (the "Code"), AEC will pay to Mr. Davis the amount necessary to offset the
excise tax and any applicable taxes on this additional payment.
AEC currently has in effect key executive employment and severanceseverence agreements
(the "KEESAs") with certain executive officers of AEC (including Messrs. Davis,
Harvey, Protsch, Walker and Ms. Wegner). The KEESAs provide that each executive
officer who is a party thereto is entitled to benefits if, within five years
after a change in control of AEC (as defined in the KEESAs), the officer's
employment is ended through (i) termination by AEC, other than by reason of
death or disability or for cause (as defined in the KEESAs), or
(ii) termination by the officer due to a breach of the agreement by AEC or a
significant change in the officer's responsibilities, or (iii) in the case of
Mr. Davis' agreement, termination by Mr. Davis following the first anniversary
of the change of control. The benefits provided are (i) a cash termination
payment of two or three times (depending on which executive is involved) the sum
of the officer's annual salary and his -21-
or her average annual bonus during the
three years before the termination and (ii) continuation for up to five years of
equivalent hospital, medical, dental, accident, disability and life insurance
coverage as in effect at the time of termination. Each KEESA for executive
officers below the level of Executive Vice President provides that if any
portion of the benefits under the KEESA or under any other agreement for the
officer would constitute an excess parachute payment for purposes of the Code,
benefits will be reduced so that the officer will be entitled to receive $1 less
than the maximum amount which he or she could receive without becoming subject
to the 20% excise tax imposed by the Code on certain excess parachute payments,
or which AEC may pay
19
without loss of deduction under the Code. The KEESAs for the Chief Executive
Officer and the Executive Vice Presidents (including Messrs. Davis, Harvey,
Protsch, Walker and Ms. Wegner) provide that if any payments thereunder or
otherwise constitute an excess parachute payment, AEC will pay to the
appropriate officer the amount necessary to offset the excise tax and any
additional taxes on this additional payment. Mr. Davis' employment agreement as
described above limits benefits paid thereunder to the extent that duplicate
payments would be provided to him under his KEESA.
-22-20
RETIREMENT AND EMPLOYEE BENEFIT PLANS
Alliant Energy Corporate Services Retirement PlansALLIANT ENERGY CORPORATE SERVICES RETIREMENT PLANS
Salaried employees (including officers) of the Company are eligible to
participate in a Retirement Plan maintained by Alliant Energy Corporate
Services. In 1998, the Retirement Plan was amended to implement a cash balance
format, thereby changing the benefit calculation formulas and adding a lump sum
distribution option for eligible participants. The Alliant Energy Cash Balance
Pension Plan (the "Plan") bases a participant's defined benefit pension on the value of a
hypothetical account balance. For individuals participating in the Plan as of
August l,1, 1998, a starting account balance was created equal to the present
value of the benefit accrued as of December 31, 1997, under the Plan's benefit
formula prior to the change to a cash balance approach. That formula provided a
retirement income based on years of credited service and final average
compensation for the 36 highest consecutive months, with a reduction for a
Social Security offset. In addition, individuals participating in the Plan as of
August 1, 1998 received a special one-time transition credit amount equal to a
specified percentage varying with age multiplied by credited service and base
pay.
For 1998 and thereafter, a participant receives annual credits to the account
equal to 5% of base pay (including certain incentive payments, pre-tax
deferrals and other items), plus an interest credit on all prior accruals equal
to 4% plus a share of the gain on the investment return on assets in the trust
investment for the year.
The life annuity payable under the Plan is determined by converting the
hypothetical account balance credits into annuity form. Individuals who were
participants in the Plan on August 1, 1998 are in no event to receive any less
than what would have been provided under the prior formula, had it continued, if
they terminate on or before August 1, 2008, and do not elect to commence
benefits before the age of 55.
All of the individuals listed in the Summary Compensation Table who participate
in the Plan (Messrs. Davis, Protsch Harvey Protsch and Ms. Wegner) are "grandfathered"
under the prior plansplan benefit formula. Since their estimated benefits under that
formula are higher than under the Plan formula, utilizing current assumptions,
their benefits would currently be determined by the prior plan benefit formula.
Contributions toThe following table illustrates the "grandfathered" planestimated annual benefits payable upon
retirement at age 65 under the prior formula based on average annual
compensation and years of service. To the extent benefits under the Plan are
determined actuarially, computed on a
straight-life annuity basis, and cannotlimited by tax law, any excess will be readily calculated as
applied to any individual participant or small group of participants.paid under the Unfunded Excess Plan
described below.
21
RETIREMENT PLAN TABLE
AVERAGE ANNUAL BENEFIT AFTER SPECIFIED YEARS IN PLAN
ANNUAL ---------------------------------------------
COMPENSATION 15 20 25 30+
-------------- --------- --------- --------- ---------
$ 200,000 $ 55,000 $ 73,300 $ 91,700 $110,000
300,000 82,500 110,000 137,500 165,000
400,000 110,000 146,700 183,300 220,000
500,000 137,500 183,300 229,100 275,000
600,000 165,000 220,000 275,000 330,000
700,000 192,500 256,700 320,800 385,000
800,000 220,000 293,300 366,700 440,000
900,000 247,000 330,000 412,500 495,000
1,000,000 275,000 366,700 458,300 550,000
1,100,000 302,500 403,300 504,100 605,000
For purposes of the Plan, compensation means payment for services rendered,
including vacation and sick pay, and is substantially equivalent to the salary
amounts reported in the foregoing Summary Compensation Table. Plan benefits
depend upon length of Plan service (up to a maximum of 30 years), age at
retirement and amount of compensation (determined in accordance with the Plan)
and are reduced by up to 50 percent50% of Social Security benefits. The estimated benefits
in the table above do not reflect the Social Security offset. The estimated
benefits are computed on a straight-life annuity basis. Benefits will be
adjusted if the employee receives one of the optional forms of payment. Credited
years of service under the Plan for covered persons named in the foregoing
Summary Compensation Table are as follows: Erroll B. Davis, Jr., 2021 years; Eliot
G. Protsch, 2021 years; William D. Harvey, 1213 years; and Pamela J. Wegner,
56 years.
Assuming retirement at age 65, a Plan
participant (in conjunction with the Unfunded Excess Plan described
below) would be eligible at retirement for a maximum annual retirement
benefit as follows:
-23-
Retirement Plan Table
Average Annual Benefit After Specified Years in Plan*
Annual --------------------------------------------------------------------------------------------------
Compensation 5 10 15 20 25 30
- -----------------------------------------------------------------------------------------------------------------------
$125,000 $10,085 $20,171 $30,256 $40,341 $50,427 $60,512
150,000 12,377 24,754 37,131 49,508 61,885 74,262
200,000 16,960 33,921 50,881 67,841 84,802 101,762
250,000 21,544 43,087 64,631 86,175 107,718 129,262
300,000 26,127 52,254 78,381 104,508 130,635 156,762
350,000 30,710 61,421 92,131 122,841 153,552 184,262
400,000 35,294 70,587 105,881 141,175 176,468 211,762
450,000 39,877 79,754 119,631 159,508 199,385 239,262
475,000 42,169 84,337 126,506 168,675 210,843 253,012
500,000 44,460 88,921 133,381 177,841 222,302 266,762
525,000 46,752 93,504 140,256 187,008 233,760 280,512
550,000 49,044 98,087 147,131 196,175 245,218 294,262
600,000 53,627 107,254 160,881 214,508 268,135 321,762
650,000 58,210 116,421 174,631 232,841 291,052 349,262
700,000 62,794 125,587 188,381 251,175 313,968 376,762
* Average annual compensation is based upon the average of the
highest 36 consecutive months of compensation. The Plan benefits
shown above are net of estimated Social Security benefits and do
not reflect any deductions for other amounts. The annual
retirement benefits payable are subject to certain maximum
limitations (in general, average annual compensation cannot
exceed $160,000 for 1999) under the Code. Amounts that would not
otherwise be payable under the Plan due to this limit are payable
under the Unfunded Excess Plan described below. Under the Plan,
if a Plan participant dies prior to retirement, the designated
survivor of the participant is entitled to a monthly income
benefit equal to approximately 50 percent of the monthly
retirement benefit which would have been payable to the
participant under the Plan.
-24-
IES Industries Pension PlanINDUSTRIES PENSION PLAN
Prior to the Merger,April 1998, Mr. Walker participated in the IES Industries retirement
plan (which plan washas been transferred to Alliant Energy Corporate Services in connection with the Merger)Services).
Plan benefits payable to Mr. Walker have been "grandfathered" to reflect the
benefit plan formula in effect at that time. Since his estimated benefits under
that formula are higher than under the timePlan formula, utilizing current
assumptions, his benefits would currently be determined by the prior plan
benefit formula. The following table illustrates the estimated annual benefits
payable upon retirement at age 65 under the prior formula for the average annual
compensation and years of service. To the extent benefits under the Plan are
limited by tax law, any excess will be paid under the Unfunded Excess Plan
described below.
PENSION PLAN TABLE
AVERAGE ANNUAL BENEFIT AFTER SPECIFIED YEARS IN PLAN
ANNUAL ---------------------------------------------------------
COMPENSATION 15 20 25 30 35
-------------- --------- --------- --------- --------- ---------
$200,000 $ 43,868 $ 58,490 $ 73,113 $ 87,735 $102,358
300,000 67,118 89,490 111,863 134,235 156,608
400,000 90,367 120,490 150,612 180,735 210,857
500,000 113,618 151,490 189,363 227,235 265,108
600,000 136,868 182,490 228,113 273,735 319,358
For purposes of the Merger.Plan, compensation means payment for services rendered,
including vacation and sick pay, and is substantially equivalent to the salary
amounts reported in the
22
foregoing Summary Compensation Table. Plan benefits depend upon length of Plan
service (up to a maximum of 35 years), age at retirement and amount of
compensation (determined in accordance with the Plan). The estimated benefits
are computed on a straight-life annuity basis. Benefits will be adjusted if the
employee receives one of the optional forms of payment. Mr. Walker has threefour
years of credited service under this plan.
Maximum annual benefits payable at
age 65 to participants who retire at age 65, calculated on the basis of
straight life annuity, are illustrated in the following table.
Pension Plan Table
Average of Highest Annual Estimated Maximum Annual Retirement
Salary (Remuneration) Benefits Based on Years of Service
For Three Consecutive --------------------------------------------
Years Out of the Last Ten 15 20 25 30 35
- -------------------------------------------------------------------------
125,000 26,583 35,444 44,305 53,166 62,027
150,000 32,395 43,194 54,992 64,791 75,590
200,000 44,020 58,694 73,368 88,041 102,715
225,000 49,618 66,156 82,696 99,235 115,774
250,000 50,757 67,676 84,595 101,514 118,433
300,000 50,757 67,676 84,595 101,514 118,433
400,000 50,757 67,676 84,595 101,514 118,433
Unfunded Excess Plan--AlliantUNFUNDED EXCESS PLAN--Alliant Energy Corporate Services maintains an Unfunded
Excess Plan that provides funds for payment of retirement benefits above the
limitations on payments from qualified pension plans in those cases where an
employee's retirement benefits exceed the qualified plan limits. The Unfunded
Excess Plan provides an amount equal to the difference between the actual
pension benefit payable under the pension plan and what such pension benefit
would be if calculated without regard to any limitation imposed by the Code on
pension benefits or covered compensation.
Unfunded Executive Tenure Compensation Plan--AlliantUNFUNDED EXECUTIVE TENURE COMPENSATION PLAN--Alliant Energy Corporate Services
maintains an Unfunded Executive Tenure Compensation Plan to provide incentive
for key executives to remain in the service of the Company by providing
additional compensation which is payable only if the executive remains with the
Company until retirement (or other termination if approved by the Board of
Directors). In the case of the Chief Executive Officer only, in the event that
the Chief Executive Officer (1) is terminated under his employment agreement
with AEC as described above other than for cause, death or disability (as those
terms are defined in the employment agreement), (2) terminates his employment
under the employment agreement for good reason (as such term is defined in the
employment agreement), or (3) is terminated as a result of a failure of the
employment agreement to be renewed automatically pursuant to its terms
(regardless of the reason for such non-renewal), then for purposes of the plan,
the Chief Executive Officer shall be deemed to have retired at age 65 and shall
be entitled to benefits under the plan. Participants in the plan must be
designated by the Chief Executive Officer of the Company and approved by its
Board of Directors. Mr. Davis was the only active participant in the plan as of
December 31, 1999.2000. The plan provides for monthly payments to a participant after
retirement (at or after age 65, or with Board approval, prior to age 65) for
120 months. The payments will be equal -25-
to 25 percent25% of the participant's highest
average salary for any consecutive 36-month period. If a participant dies prior
to retirement or before 120 payments have been made, the participant's
beneficiary will receive monthly payments equal to 50 percent50% of such amount for
120 months in the case of death before retirement, or if the participant dies
after retirement, 50 percent50% of such amount for the balance of the 120 months. Annual
benefits of $145,000$160,000 would be payable to Mr. Davis upon retirement, assuming he
continues in Alliant Energy Corporate Services' service until retirement at the
same salary as was in effect on December 31, 1999.
Alliant Energy Corporate Services
Supplemental Executive Retirement Plan2000.
ALLIANT ENERGY CORPORATE SERVICES SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company maintains an unfunded Supplemental Executive Retirement Plan to
provide incentive for key executives to remain in the service of the Company by
providing additional compensation which is payable only if the executive remains
with the Company until retirement, disability or death. Participants in the plan
must be approved by the Compensation and Personnel Committee of the Board. The
plan provides for payments of 60% of the participant's average annual earnings
(base salary and bonus) for the highest paid three years out of the last ten
years of the participant's employment reduced by the sum of benefits payable to
the officer from the officer's defined benefit plan.plan and the Unfunded Excess
Plan. The normal retirement date under the plan is age 62 with at least ten
years of service and early retirement is at age 55 with at least ten years of
service. If a participant retires prior to age 62, the 60% payment under the
plan is reduced by 3% per year for each year the participant's retirement date
precedes his/her normal retirement date. The actuarial reduction factor will be
waived for senior officers who have attained age 55 and have a minimum of ten
years of service in a senior executive position with the Company. Benefit
payments under the plan will be made for the lifetime of the senior officer,
with a minimum of 12 years of payments if the participant dies after retirement.
A
23
postretirement death benefit of one times the senior executive officer's final
average earnings at the time of retirement will be paid to the designated
beneficiary. Messrs. Davis, Harvey, Protsch Walker and Ms. Wegner are
participants in this plan. The following table shows payments under the plan,
assuming a minimum of 10ten years of service at retirement age.
-26-
Supplemental Executive Retirement Plan Table
Average
Compensation <10 Years >10 Years*SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
AVERAGE ANNUAL BENEFIT AFTER SPECIFIED YEARS IN PLAN
ANNUAL ---------------------------------------------
COMPENSATION < 10 YEARS > 10 YEARS*
-------------- -------------------- ----------------------
$ 200,000 0 $120,000
300,000 0 180,000
400,000 0 240,000
500,000 0 300,000
600,000 0 360,000
700,000 0 420,000
800,000 0 480,000
900,000 0 540,000
1,000,000 0 600,000
1,100,000 0 660,000
- ----------------------------------------------------------------------
$ 125,000 $0 $ 75,000
150,000 0 90,000
200,000 0 120,000
250,000 0 150,000
300,000 0 180,000
350,000 0 210,000
400,000 0 240,000
450,000 0 270,000
500,000 0 300,000
550,000 0 330,000
600,000 0 360,000
650,000 0 390,000
700,000 0 420,000
750,000 0 450,000------------
* Reduced by the sum of the benefit payable from the applicable defined benefit plan.
Key Employee Deferred Compensation Plan--Theretirement or
pension plan and the Unfunded Excess Plan.
KEY EMPLOYEE DEFERRED COMPENSATION PLAN--The Company maintains an unfunded Key
Employee Deferred Compensation Plan under which participants may defer up to
100% of base salary or incentive compensation. Participants who have made the
maximum allowed contribution to the Company-sponsored 401(k) Plan may receive an
additional credit to the Deferred Compensation Plan. The Company matches upcredit will be equal to
50% of the employee deferral
(pluslesser of (i) the amount contributed to the 401(k) contributions up toPlan plus the
amount deferred under this Plan, or (ii) 6% of pay, lessbase salary reduced by the amount
of any matching contributions in the 401(k) matching
contributions).Plan. The employee may elect to have
his deferrals credited to an Interest Account or an AEC Stock Account. Deferrals
and matching contributions receivedto the Interest Account receive an annual return
tobased on the A-utility bond rateA-Utility Bond Rate with a minimum return no less than the prime
interest rate published in THE WALL STREET JOURNAL. Deferrals and matching
contributions credited to the Wall Street Journal.Common Stock Account are treated as though
invested in the common stock of AEC and will be credited with dividends and
those dividends will be reinvested. The shares of common stock identified as
obligations under the plan as of December 31, 2000 are held in a rabbi trust
established in 2000. Payments from the plan may be made in a lump sumssum or in
annual installments for up to ten years at the election of the participant.
Participants are selected by the Chief Executive Officer of Alliant Energy
Corporate Services. Messrs. Davis, Harvey, Protsch Walker and Ms. Wegner
participate in the Plan.
-27-plan.
24
REPORT OF THE COMPENSATION AND PERSONNEL
COMMITTEE ON EXECUTIVE COMPENSATION
To Our Shareowners:TO OUR SHAREOWNERS:
The Compensation and Personnel Committee (the "Committee") of the Board of
Directors of the Company is currently comprised of four non-employee directors
(the same directors that comprise the AEC Compensation and Personnel Committee).
The following is a report prepared by these directors with respect to
compensation paid by AEC, the Company and AEC's other subsidiaries. The
Committee assesses the effectiveness and competitiveness of, approves the design
of, and administers executive compensation programs within a consistent total
compensation framework for the Company. The Committee also reviews and approves
all salary arrangements and other remuneration for executives, evaluates
executive performance, and considers related matters. To support the Committee
in carrying out its mission, an independent consultant is engaged to provide
assistance to the Committee.
The Committee is committed to implementing a totalan overall compensation program for
executives that furthers the Company's mission. Therefore, the Committee adheres
to the following compensation policies, which are intended to facilitate the
achievement of the Company's business strategies.strategies:
- Total compensation should enhance the Company's ability to attract, retain
and encourage the development of exceptionally knowledgeable and
experienced executives, upon whom, in large part, the successful operation
and management of the Company depends.
- Base salary levels should be targeted at a competitive market range paid
to executives of comparable companies. Specifically, the Committee targets
the median (50th percentile) of equally weighted data frombase salaries paid by a selected group of
utility and general industry companies.
- Incentive compensation programs should strengthen the relationship between
pay and performance by emphasizing variable, at-risk compensation that is
consistent with meeting predetermined Company, subsidiary, business unit
and individual performance goals. In addition, incentive levels are
targeted at the median (50th percentile) of equally
weighted data fromincentive compensation paid by
a selected group of utility and general industry companies.
Components of CompensationCOMPONENTS OF COMPENSATION
The major elements of the Company's executive compensation program are base
salary, short-term (annual) incentives and long-term (equity) incentives. These
elements are addressed separately below. In setting the level for each major
component of compensation, the Committee considers all elements of an
executive's total compensation package, including employee benefit and
perquisite programs. The Committee's goal is to provide an overall compensation
package for each executive officer that is competitive to the packages offered
other similarly situated executives. The Committee has determined that total
executive compensation, including that for Mr. Davis, is in line with
competitive salariescompensation of the comparison groupsgroup of companies.
Base SalariesBASE SALARIES
The Committee annually reviews each executive's base salary. Base salaries are
targeted at a competitive market range (i.e., at the median level) when
comparing both utility and non-utility (general industry) data. Base salaries
are adjusted annually by the Committee to recognize changes in the market,
varying levels of responsibility, -28-
prior experience and breadth of knowledge.
Increases to base salaries are driven primarily by market adjustments for a
particular salary level, which generally limit across-the-board increases.
Individual performance factors are not considered by the Committee in setting
base salaries. In 1999, theThe Committee reviewed executive salaries for market
comparability using utility and general industry data contained in compensation
surveys published by Edison Electric Institute, American Gas Association and
several compensation-consultingcompensation consulting firms. The
Committee decided to maintain Mr. Davis' 1999 base salary atBased on the level
established in May 1998. The Summary Compensation Table reflects anforegoing, the
25
annual salary of $580,000 effective May 1, 1998 with compensation from
January through April 1998for Mr. Davis was fixed at $640,000 for the previous annual salary of $450,000
annually.
Short-Term Incentives2000 fiscal year.
SHORT-TERM INCENTIVES
The goal of the Company's short-term (annual) incentive programs is to promote
the Committee's pay-for-performance philosophy by providing executives with
direct financial incentives in the form of annual cash or stock based bonuses
based on the achievement of corporate, subsidiary, business unit and individual
performance goals. Annual bonus opportunities allow the Committee to communicate
specific goals that are of primary importance during the coming year and
motivate executives to achieve these goals. The Committee on an annual basis
reviews and approves the program'sprograms' performance goals and the relative weight
assigned to each goal as well as targeted and maximum award levels. A
description of the short-term incentive programs available during 19992000 to
executive officers follows.
Alliant Energy Corporation Management Incentive Compensation Plan--In
1999,ALLIANT ENERGY CORPORATION MANAGEMENT INCENTIVE COMPENSATION PLAN-- In 2000, the
Alliant Energy Corporation Management Incentive Compensation Plan (the "MICP")
covered utility executives and was based on achieving annual targets in corporate
performance that included an earnings per share ("EPS") target, safety and environmental
targets for the utility businesses, and business unit and individual performance
goals. Target and maximum bonus awards under the MICP in 19992000 were set at the
median of the utility and general industry market levels. Targets were
considered by the Committee to be achievable, but required above-average
performance from each of the executives. ActualThe level of performance achieved in
each category determines actual payment of bonuses, as a percentage of annual
salary, is determined by the level of performance achieved in each
category.salary. Weighting factors are applied to the percentage achievement under each
category to determine overall performance. If a pre-determined EPS target is not
met, there is no bonus payment associated with the MICP. If the threshold
performance for any other performance target is not reached, there is no bonus
payment associated with that particular category. Once the designated maximum
performance is reached, there is no additional payment for performance above the
maximum level. The actual percentage of salary paid as a bonus, within the
allowable range, is equal to the weighted average percent achievement for all
the performance categories. Potential MICP awards range from 0% to 90% of annual
salary for eligible executives range from 0 to 90 percent of annual salary.other than Mr. Davis. The amounts paid under the
MICP to eligible officers included in the Summary Compensation Table are
reflected in that table.
In 1999,2000, Mr. Davis was covered by the MICP. Awards for Mr. Davis under the MICP
in 19992000 were based on corporate and strategic goal achievement in relation to
predetermined goals. For each plan year, the Committee determines the
performance apportionment for Mr. Davis. In 1999,2000, that apportionment was 70 percent70% for
corporate performance and 30 percent30% for strategic goal performance. Corporate
performance is measured based on a company-wideCompany-wide EPS targetand environmental and safety
targets established at the beginning of the year.
-29-
Strategic goals are measured
based on the achievement of certain specific goals, which included strategy
development and implementation, established for Mr. Davis by the Committee. The
19992000 MICP award range for Mr. Davis was from 00% to 120 percent150% of annual salary. Bonuses under
the MICP are earned and calculated in a manner similar to that employed
by the MICP. The
award earned by Mr. Davis under the MICP for 19992000 is set forth in the Summary
Compensation Table.
Alliant Energy Resources Annual Incentive Plan--The Alliant Energy
Resources Annual Incentive Plan for 1999 covered non-utility executives
and was based on achieving annual targets in corporate performance
(that included an EPS target for the non-utility businesses), business
unit performance (that included the contribution to EPS by such
business unit) and group, unit and individual performance goals. Target
and maximum bonus awards were set at competitive market levels. Targets
were considered by the Committee to be achievable, but required
above-average performance from each of the executives. Actual payment
of bonuses, as a percentage of annual salary, is determined by the
level of performance achieved in each category. Weighting factors are
applied to the percentage achievement under each category to determine
overall performance. If the business unit's EPS contribution to
corporate is below the threshold level, there is no bonus payment
associated with the plan. If the threshold performance for any other
performance target is not reached, there is no bonus payment associated
with that particular category. Once the designated maximum performance
is reached for any other performance target, there is no additional
payment for performance above the maximum level. The actual percentage
of salary paid as a bonus, within the allowable range, is equal to the
weighted average percent achievement for all the performance
categories. Potential Alliant Energy Resources Annual Incentive Plan
awards for executives range from 0 to 60 percent of annual salary. The
amounts paidTable under the Alliant Energy Resources Annual Incentive Plan
to eligible officers included in the Summary Compensation Table are
reflected in that table.
Long-Term Incentivesheading "Bonus".
LONG-TERM INCENTIVES
The Committee strongly believes compensation for executives should include
long-term, at-risk pay to strengthen the alignment of the interests of the
shareowners and management. In this regard, the Alliant Energy Corporation
Long-Term Equity Incentive Plan permits grants of stock options, restricted
stock and performance unit/shares with respect to AEC's common stock. The
Long-Term Equity Incentive Plan is administered by the AEC Compensation and
Personnel Committee. The Committee believes the Long-Term Equity Incentive Plan
balances the Company's existing compensation programs by emphasizing
compensation based on the long-term successful performance of the Company from
the perspective of the shareowners of AEC. A description of the long-term
incentive programs available during 19992000 to executive officers under the
Long-Term Equity Incentive Plan is set forth below.
ALLIANT ENERGY CORPORATION LONG-TERM INCENTIVE PROGRAM--The Alliant Energy
Corporation
Long-Term Incentive Program--The Alliant
Energy Corporation26
Long-Term Incentive Program covered utility executives and consisted of the following
components:components in 2000: stock options and performance shares. Stock options provide
a reward that is directly tied to the benefit shareowners of AEC receive from
increases in the price of AEC's common stock. The payout from the performance
shares is based on two equally-weighted performance components: AEC's three-year
total return to shareowners relative to an investor-owned utility peer group.group,
and annualized EPS growth versus internally set performance hurdles contained in
the Alliant Energy Strategic Plan. Thus, the two components of the Long-Term
Incentive Program (i.e., stock options and performance shares) provide
incentives for management to produce superior shareowner returns on both an
absolute and relative basis. During 1999,2000, the AEC Compensation and Personnel
Committee made a grant of stock options and performance shares to various
executive officers, including Messrs. Davis, Harvey, Protsch, Walker and
Ms. Wegner. All option
-30-
grants had per share exercise prices equal to the fair
market value of a share of AEC common stock on the date the grants were
approved. Options vest on a one-third basis at the beginning of each calendar
year after grant and have a ten-year term from the date of the grant. Executives
in the Alliant Energy Corporation Long-Term Equity Incentive Program were also
granted performance shares. Performance shares will be paid out in shares of
AEC's common stock or cash. The award will be modified by a performance
multiplier, which ranges from 0 to 2.00 based on the three-year average of AEC's total shareowner return relative to
an investor-owned utility peer group.AEC performance.
In determining actual award levels under the Alliant Energy Corporation
Long-Term Equity Incentive Program, the AEC Compensation and Personnel Committee
was primarily concerned with providing a competitive total compensation level to
officers. As such, award levels (including awards made to Mr. Davis) were based
on a competitive analysis of similarly sized utility companies that took into
consideration the market level of long-term incentives, as well as the
competitiveness of the total compensation package. Award ranges, as well as
individual award levels, were then established based on responsibility level and
market competitiveness. No corporate or individual performance measures were
reviewed in connection with the awards of options and performance shares. Award
levels were targeted to the median of the range of such awards paid by
comparable companies. In addition, theThe AEC Compensation and Personnel Committee did not
consider the amounts of options and performance shares already outstanding or
previously granted when making awards for 1999.2000. Mr. Davis' awards in 19992000 under
this programthe Long-Term Incentive Program are shown in the Stock Options/SAROption Grants in 19992000
Table and the Long-Term Incentive Awards in 19992000 Table.
Alliant Energy Resources Long-Term Incentive Program--The Alliant
Energy Resources Long-Term Incentive Program covered non-utility
executives and consisted of the following components: stock options and
performance shares. Stock options provide a reward that is directly
tied to the benefit shareowners of AEC receive from increases in the
price of AEC's common stock. The payout from the performance shares is
contingent upon achievement of specified AER earnings growth. Thus, the
two components of the Alliant Energy Resources Long-Term Incentive
Program, (i.e. stock options and performance shares) provide incentives
for management to produce superior shareowner returns on both an
absolute and relative basis. All option grants had a per share exercise
price equal to the fair market value of a share of AEC common stock on
the date the grants were approved. Options vest on a one-third basis at
the beginning of each calendar year and have a ten-year term from the
date of the grant. Executives in the Alliant Energy Resources Long-Term
Incentive Program were also granted performance shares. Performance
shares will be paid out in shares of AEC's common stock or cash. The
payment will be modified by a performance multiplier which ranges from
0 to 2.00 based on the AER three-year average growth in EPS
contribution to the Company's EPS.
In determining actual award levels, the AEC Compensation and Personnel
Committee was primarily concerned with providing a competitive total
compensation level to officers. As such, award levels were based on a
competitive analysis of similarly-sized general industry companies that
took into consideration the market level of long-term incentives, as
-31-
well as the competitiveness of the total compensation package. Award
ranges, as well as individual award levels, were then established based
on responsibility level and market competitiveness. No corporate or
individual performance measures were reviewed in connection with the
awards of options and performance shares. Award levels were targeted to
the median of the range of such awards paid by comparable companies. In
addition, the AEC Compensation and Personnel Committee did not consider
the amounts of options and performance units already outstanding or
previously granted when making awards for 1999.
Special Restricted Stock Awards in 1999
To provide selected executives of AEC with severance arrangements with
generally comparable terms relating to any future change in control of
AEC, AEC in 1999 offered new key executive employment and severance
agreements (the "New KEESAs") to such executive officers of AEC
(including Messrs. Davis, Harvey, Protsch, Walker and Ms. Wegner). To
receive a New KEESA, each executive officer (other than Mr. Davis) was
required to cancel existing rights under his or her prior key executive
employment and severance agreement in exchange for a grant of
restricted stock. Mr. Davis did not receive a grant of restricted stock
in connection with the cancellation of his prior key executive
employment and severance agreement. Mr. Walker also did not receive a
restricted stock grant because he did not have a prior key executive
employment and severance agreement under which the existing rights were
cancelled. The grants of restricted stock were valued at one times
salary for Executive Vice Presidents of AEC (including Messrs. Harvey,
Protsch and Ms. Wegner) and one-half times salary for Vice Presidents
of AEC. Subject to certain exceptions, the restricted stock will vest
only if the executive remains with AEC for a period of at least three
years.
Policy with Respect to thePOLICY WITH RESPECT TO THE $1 Million Deduction LimitMILLION DEDUCTION LIMIT
Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to executive officers named in the proxy
statement to $1 million unless such compensation is based upon performance
objectives meeting certain regulatory criteria or is otherwise excluded from the
limitation. Based on the Committee's commitment to link compensation with
performance as described in this report, the Committee currently intends to
qualify future compensation paid to the Company's executive officers for
deductibility by the Company under Section 162(m).
Conclusion except in limited appropriate
circumstances.
CONCLUSION
The Committee believes the existing executive compensation policies and programs
provide the appropriate level of competitive compensation for the Company's
executives. In addition, the Committee believes that the long and short term
performance incentives effectively align the interests of executives and
shareowners toward a successful future for the Company.
COMPENSATION AND PERSONNEL COMMITTEECOMMITTEE*
Arnold M. Nemirow (Chair)
Alan B. Arends
Judith D. Pyle
Anthony R. Weiler
-32-* Members of the Compensation and Personnel Committee on December 31, 2000 who
approved this Report.
27
REPORT OF THE AUDIT COMMITTEE
The Audit Committee (the "Committee") of the Board of Directors of the Company
is composed of five independent directors, each of whom is independent as
defined in the American Stock Exchange's listing standards (the same directors
that comprise the AEC Audit Committee). The Committee operates under a written
charter adopted by the Board of Directors, which is attached to this proxy
statement as Exhibit I. The Committee recommends to the Board of Directors the
selection of the Company's independent auditors.
The Company's management ("management") is responsible for the Company's
internal controls and the financial reporting process, including the system of
internal controls. The Company's independent auditors are responsible for
expressing an opinion on the conformity of the Company's audited consolidated
financial statements with generally accepted accounting principles. The
Committee has reviewed and discussed the audited consolidated financial
statements with management and the independent auditors. The Committee has
discussed with the independent auditors matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication With Audit Committees).
The Company's independent auditors have provided to the Committee the written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee discussed
with the independent auditors their independence. The Committee considered
whether the independent auditors' provision of
non-audit services is compatible with maintaining the independent auditors'
independence. The fees to the independent auditors for 2000 for the Company and
AEC were as follows:
Audit Fees.................. $ 840,000
Financial Information
Systems Design and
Implementation Fees......... 0
All Other Fees.............. 1,145,000
The Committee discussed with the Company's internal and independent auditors the
overall scopes and plans for their respective audits. The Committee meets with
the internal and independent auditors, with and without management present, to
discuss the results of their examinations, the evaluation of the Company's
internal controls and overall quality of the Company' financial reporting.
Based on the Committee's reviews and discussions with management, the internal
auditors and the independent auditors referred to above, the Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 for filing with the SEC.
AUDIT COMMITTEE
Jack B. Evans (Chair)
Alan B. Arends
Katharine C. Lyall
Milton E. Neshek
Judith D. Pyle
28
SECTION 16(a)16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
The Company's directors, its executive officers and certain other officers are
required to report their ownership of AEC's common stock and Companysubsidiary
preferred stock and any changes in that ownership to the SEC and the New York
Stock Exchange. One report covering one
transaction was inadvertently filed late on behalf of William D.
Harvey. To the best of the Company's knowledge, all required filings in
1999, with the exception of that one filing,2000 were properly made in a timely fashion. In making the above statements, the
Company has relied on the representations of the persons involved and on copies
of their reports filed with the SEC.
By Order of the Board of Directors
/S//s/ Edward M. Gleason
---------------------
Edward M. Gleason
Vice President -- Treasurer
and Corporate Secretary
-33-29
EXHIBIT I
AUDIT COMMITTEE CHARTER
The Audit Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent directors in accordance with the
requirements of the American Stock Exchange listing standards. All members of
the Committee shall be financially literate and at least one member of the
Committee shall have accounting or related financial management expertise. The
Chair and the members of the Audit Committee shall be elected annually by a
majority vote of the members of the Board of Directors. The Audit Committee
shall meet at the call of any one of its members, but in no event shall it meet
less than twice a year. Subsequent to each Audit Committee meeting, a report of
the actions taken by the Audit Committee shall be made to the Board of
Directors.
The Audit Committee will review and update this Charter periodically, at least
annually, as conditions dictate.
The functions and responsibilities of the Audit Committee shall be to:
1. Evaluate the performance of independent auditors and recommend to the
Board of Directors the appointment of the independent auditors, who are
ultimately accountable to the Audit Committee and the Board. Where
appropriate, recommend that the Board of Directors replace the
independent auditors.
2. Discuss with the independent auditors the scope of their audit.
3. Discuss with the independent auditors and management the Company's
accounting principles, policies and practices and its reporting policies
and practices.
4. Review and discuss with the independent auditors and Company management
the Company's audited annual financial statements and the results of the
annual audit. Determine whether to recommend to the Board of Directors
that the audited consolidated financial statements be included in the
Company's Annual Report on Form 10-K.
5. Consider the independent auditors' judgements about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
6. Discuss with the independent auditors and the Company's internal auditor
the adequacy of the Company's or any of its subsidiaries accounting,
financial and operational controls.
7. Discuss with the Company's internal auditor the scope and results of
internal audits and initiate such accounting principles, policies and
practices, and reporting policies and practices as it may deem necessary
or proper.
8. Consider whether the independent auditors provision of non-audit
services is compatible with maintaining the independent auditors
independence.
9. Annually review and verify the effectiveness of the Company's Legal
Compliance Program.
10. Annually review and verify the effectiveness of the Company's Risk
Management Program including the use of financial derivative
instruments.
30
11. As a whole, or through the Audit Committee Chair, review with the
independent auditors the Company's interim financial results included in
the Quarterly Reports on Form 10-Q prior to filing with the Securities
and Exchange Commission.
12. Submit appropriate reports required by the SEC to the shareowners in the
Company's annual proxy statements and provide appropriate certification
to the NYSE as required.
13. Ensure that the independent auditors submit periodic reports to the
Audit Committee delineating all relationships between the independent
auditor and the Company, consistent with Independence Standards Board
Standard No. 1; discuss such reports with the independent auditors; and
recommend that the Board of Directors take appropriate action to satisfy
itself of the independence of the independent auditors.
14. Discuss with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61.
While the Audit Committee has the responsibilities and functions set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditors. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditors or to
assure compliance with laws and regulations.
31
APPENDIX A
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL REPORT
For the Year Ended DecemberFOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Contents Page
- -------- -----
The Company........................................................ A-4
Selected Financial Data............................................ A-5
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ A-6
Report of Independent Public Accountants...........................A-25
Consolidated Financial Statements:
Consolidated Statements of Income and Retained Earnings........A-26
Consolidated Balance Sheets....................................A-27
Consolidated Statements of Cash Flows..........................A-29
Consolidated Statements of Capitalization......................A-30
Notes to Consolidated Financial Statements.....................A-31
Shareowner Information.............................................A-48
Executive Officers.................................................A-48
-A-1-2000
CONTENTS PAGE
- -------- ----
The Company................................................. A-3
Selected Financial Data..................................... A-3
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. A-4
Report of Independent Public Accountants.................... A-14
Consolidated Financial Statements
Consolidated Statements of Income......................... A-15
Consolidated Balance Sheets............................... A-16
Consolidated Statements of Cash Flows..................... A-18
Consolidated Statements of Capitalization................. A-19
Consolidated Statements of Changes in Common Equity....... A-20
Notes to Consolidated Financial Statements................ A-21
Shareowner Information...................................... A-38
Executive Officers.......................................... A-38
A-1
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes of this report are
defined below:
Abbreviation or Acronym Definition
- ------------------------- -----------
AFUDC................... Allowance for Funds Used During Construction
Alliant Energy.......... Alliant Energy Corporation
ATC..................... American Transmission Company, LLC
Btu..................... British Thermal Unit
Cargill................. Cargill Incorporated
Corporate Services...... Alliant Energy Corporate Services, Inc.
CWIP.................... Construction Work-In-Progress
DAEC.................... Duane Arnold Energy Center
DOE..................... United States Department of Energy
Dth..................... Dekatherm
EDS..................... Electronic Data Systems Corporation
EITF.................... Emerging Issues Task Force
EPA..................... United States Environmental Protection Agency
ERISA................... Employee Retirement Income Security Act of 1974,
as amended
FASB.................... Financial Accounting Standards Board
FERC.................... Federal Energy Regulatory Commission
ICC..................... Illinois Commerce Commission
IES..................... IES Industries Inc.
IESU.................... IES Utilities Inc.
International........... Alliant Energy International, Inc.
IPC..................... Interstate Power Company
ISCO.................... Alliant Energy Industrial Services, Inc.
ISO..................... Independent System Operator
Kewaunee................ Kewaunee Nuclear Power Plant
McLeod.................. McLeodUSA Incorporated
MD&A.................... Management's Discussion and Analysis of
Financial Condition and Results of Operations
MG&E.................... Madison Gas & Electric Company
MGP..................... Manufactured Gas Plants
MPUC.................... Minnesota Public Utilities Commission
MW...................... Megawatt
MWH..................... Megawatt-Hour
NEIL.................... Nuclear Electric Insurance Limited
NEPA.................... National Energy Policy Act of 1992
NMC..................... Nuclear Management Company, LLC
NOPR.................... Notice of Proposed Rulemaking
NOx..................... Nitrogen Oxides
-A-2-
Abbreviation or Acronym Definition
- ------------------------- -----------
NRC..................... Nuclear Regulatory Commission
NSP..................... Northern States Power Company
NYMEX................... New York Mercantile Exchange
PCB..................... Polychlorinated Biphenyl
PGA..................... Purchased Gas Adjustment
PRP..................... Potentially Responsible Party
PSCW.................... Public Service Commission of Wisconsin
PUHCA................... Public Utility Holding Company Act of 1935
Resources............... Alliant Energy Resources, Inc.
RTO..................... Regional Transmission Organization
SEC..................... Securities and Exchange Commission
SFAS.................... Statement of Financial Accounting Standards
SkyGen.................. SkyGen Energy LLC
SO2..................... Sulfur Dioxide
South Beloit............ South Beloit Water, Gas and Electric Company
U.S..................... United States
WDNR.................... Wisconsin Department of Natural Resources
WEPCO................... Wisconsin Electric Power Company
WP&L.................... Wisconsin Power and Light Company
WPLH....................
Abbreviation or Acronym Definition
- ----------------------- ----------
AFUDC Allowance for Funds Used During Construction
Alliant Energy Alliant Energy Corporation
APB Accounting Principles Board Opinion
ATC American Transmission Company, LLC
Corporate Services Alliant Energy Corporate Services, Inc.
Dth Dekatherm
EDS Electronic Data Systems Corporation
EITF Emerging Issues Task Force
EPA United States Environmental Protection Agency
FAC Fuel Adjustment Clause
FERC Federal Energy Regulatory Commission
ICC Illinois Commerce Commission
IES IES Industries Inc.
IESU IES Utilities Inc.
IPC Interstate Power Company
ISO Independent System Operator
Kewaunee Kewaunee Nuclear Power Plant
MD&A Management's Discussion and Analysis of Financial
Condition and Results of Operations
MGP Manufactured Gas Plants
MW Megawatt
MWh Megawatt-Hour
NEPA National Energy Policy Act of 1992
NOx Nitrogen Oxides
NRC Nuclear Regulatory Commission
PGA Purchased Gas Adjustment
PRP Potentially Responsible Party
PSCW Public Service Commission of Wisconsin
PUHCA Public Utility Holding Company Act of 1935
Resources Alliant Energy Resources, Inc.
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
South Beloit South Beloit Water, Gas and Electric Company
STB Surface Transportation Board
U.S. United States
WDNR Wisconsin Department of Natural Resources
WNRB Wisconsin Natural Resources Board
WP&L Wisconsin Power and Light Company
WPLH WPL Holdings, Inc.
WPSC.................... Wisconsin Public Service Corporation
WUHCA................... Wisconsin Utility Holding Company Act
-A-3-
A-2
WP&L filed a combined Form 10-K for 19992000 with the SEC; such document included
the filings of WP&L's parent, Alliant Energy, IESU and WP&L. Certain portions of
MD&A and the Notes to the Consolidated Financial Statements included in this WP&L
Proxy Statement represent excerpts from the combined Form 10-K. As a result, the
disclosure included in this WP&L Proxy Statement at times includes information
relating to Alliant Energy, IESU, IPC, Resources and/or Corporate Services. All
required disclosures for WP&L are included in this proxy statement thus such
additional disclosures represent supplemental information.
THE COMPANY
Alliant Energy was formed as the result of a three-way merger involvingIn April 1998, WPLH, IES and IPC that was completed a merger resulting in April 1998.Alliant Energy.
The primary first tier subsidiaries of Alliant Energy include: WP&L, IESU, IPC,
Resources and Corporate Services.
WP&L was incorporated in Wisconsin in 1917 as the Eastern Wisconsin Electric
Company and is a public utility engaged principally in the generation,
transmission, distribution and sale of electric energy; the purchase,
distribution, transportation and sale of natural gas; and the provision of water
services in selective markets. Nearly all of WP&L's customers are located in
south and central Wisconsin. WP&L operates in municipalities pursuant to permits
of indefinite duration which are regulated by Wisconsin law. At December 31,
1999,2000, WP&L supplied electric and gas service to approximately 407,000414,000 and
162,000165,000 customers, respectively. WP&L also hashad approximately 19,000 water
customers. In 2000, 1999 1998 and 1997,1998, WP&L had no single customer for which
electric and/or gas sales accounted for 10% or more of WP&L's consolidated
revenues. WPL Transco LLC was formed in Wisconsin in 2000 and is the wholly-
owned subsidiary of WP&L which holds the investment in ATC. WP&L owns all of the
outstanding capital stock of South Beloit, a public utility supplying electric,
gas and water service, principally in Winnebago County, Illinois, which was
incorporated in 1908. WP&L also owns varying interests in several other
subsidiaries and investments which are not material to WP&L's operations.
Electric Operations
AsELECTRIC OPERATIONS--As of December 31, 1999,2000, WP&L provided retail electric
service to approximately 407,000414,000 electric retail customers, 599600 communities and
28 wholesale customers. WP&L's electric utility operations accounted for 83.3%80% of
operating revenues and 89.9%90% of operating income for the year ended December 31,
1999.2000. Electric sales are seasonal to some extent with the annual peak normally
occurring in the summer months. In 1999,2000, the maximum peak hour demand for WP&L
was 2,3972,508 MW and occurred on July 23, 1999.
Gas Operations
AsAugust 31, 2000.
GAS OPERATIONS--As of December 31, 1999,2000, WP&L provided retail natural gas
service to approximately 162,000165,000 gas customers in 235233 communities. WP&L's gas
utility operations accounted for 16.0%19% of operating revenues and 8.9%9% of operating
income for the year ended December 31, 1999.2000. WP&L's gas sales follow a seasonal
pattern. There is an annual base load of gas used for cooking, heating and other
purposes, with a large heating peak occurring during the winter season.
-A-4-
SELECTED FINANCIAL DATA
Year Ended DecemberYEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
1995
-----------------------------------------------------------------------------
(in thousands)--------- --------- --------- --------- ---------
(IN THOUSANDS)
Operating revenues....................revenues........................... $ 862,381 $ 752,505 $ 731,448 $ 794,717 $ 759,275
$ 689,672
Earnings available for common stock........................stock.......... 68,126 67,520 32,264 67,924 79,175 75,342
Cash dividends declared on common stock........................stock...... -- 58,353 58,341 58,343 66,087
56,778
Total assets..........................assets................................. 1,857,024 1,766,135 1,685,150 1,664,604 1,677,814
1,641,165
Long-term obligations, net............net................... 569,309 471,648 471,554 420,414 370,634 375,574
The 1998 financial results reflect the recording of $17 million of pre-tax
merger-related charges.
-A-5-A-3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
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 suchSuch 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
includeinclude: weather effects on sales and revenues,
competitive factors,revenues; general economic conditions in
the relevantWP&L's service territory,territories; federal and state regulatory or government actions,
including issues associated with the deregulation of the domestic utility
industry and the setting of rates and recovery of costs; unanticipated
construction and acquisition expenditures,expenditures; issues related to stranded costs and
the recovery thereof,thereof; unanticipated issues related to the supply of purchased
electricity and price thereof; unexpected issues related to the operations of
Alliant Energy's nuclear facilities,Kewaunee; unanticipated costs associated with certain environmental remediation
efforts being undertaken by Alliant Energy, unanticipated issues relating to
establishing a transmission company, material changes in the value of
Alliant Energy's investment in McLeod,WP&L; technological developments,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 instoppages; and changes in the rate of inflation.
UTILITY INDUSTRY OUTLOOK
AsOVERVIEW--As a holding companypublic utility with significant utility assets, Alliant EnergyWP&L competes in
an ever-changing utility industry. Set forth below is an
overview of this evolving marketplace. Electric energy generation, transmission and
distribution are in a period of fundamental change in the manner in which customers obtain,
and energy suppliers provide, energy services. Asresulting from legislative,
regulatory, economic and technological changes. These changes occur,impact competition
in the electric wholesale and retail markets as customers of electric utilities
are facing increased numbers ofbeing offered alternative suppliers. Such competitive pressures could result
in loss ofelectric utilities losing customers and an
incurrence ofincurring stranded costs (i.e.,
assets and other costs rendered unrecoverable as the result of competitive
pricing). To which would be borne by security holders if the extent
stranded costs cannot be
recovered from customers, they would be borne
by security holders.
-A-6-
Across the nation, approximately half of the states (including
Illinois) have passed legislation or issued regulatory rulings granting
customers the right to choose their electric energy supplier.
Legislation that would allow customers to choose their electric energy
suppliercustomers.
WP&L is expected to be introduced in Iowa in 2000. 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.
WP&L realized 98% of its electric utility revenues in 1999 in Wisconsin
and 2% in Illinois. Approximately 84% of the electric revenues in 1999
were regulated by the PSCW or the ICC while the other 16% were
regulated by the FERC. WP&L realized 96% of its gas utility revenues in
1999 in Wisconsin and 4% in Illinois.
Federal Regulation
IESU, WP&L and IPC are subject to regulation by the FERC. NEPA
addresses several matters designed to promoteFERC, and state regulation in
Wisconsin and Illinois. FERC regulates competition in the electric wholesale
power generation market. FERC has issued final rules
(FERC Orders 888/888-Amarket and 889/889-A) requiring electric utilities to
open their transmission lines to other wholesale buyers and sellers of
electricity. In response to FERC Orders 888 and 888-A, Corporate
Services, on behalf of IESU, WP&L and IPC, has filed Open Access
Transmission Tariffs that comply with the orders. In response to FERC
Orders 889 and 889-A, IESU, WP&L and IPC are participating in a
regional Open Access Same-Time Information System.
FERC Order 888 permits utilities to seek recovery of legitimate,
prudent and verifiable stranded costs associated with providing open
access transmission services. FERC does not have jurisdiction over
retail distribution and, consequently, the final FERC rules do not
provide for the recovery of stranded costs resulting from retail
competition. The various states retain jurisdiction over the question
ofeach state regulates whether to permit retail
competition, the terms of such retail competition and the recovery of any
portion of stranded costs that are ultimately determined to have resulted from
retail competition. WP&L cannot predict the timing of a restructured electric
industry or the impact on its financial condition or results of operations but
does believe it is well positioned to compete in a deregulated competitive
market. Although WP&L ultimately believes that the electric industry will be
deregulated, the pace of deregulation in its Wisconsin retail electric service
territories will likely be delayed due to recent events related to California's
restructured electric utility industry.
In May 1999, Wisconsin enacted "Reliability 2000" legislation which included, among
other items, the formation of a Wisconsin transmission company (American
Transmission Company, or ATC) for those Wisconsin utility holding companies who
elected to take advantage of the modified asset cap law and others who elected
to join. ATC received all necessary regulatory approvals and began operations on
January 1, 2001. WP&L, including South Beloit, transferred its transmission
assets (approximate net book value of $177 million) to ATC on January 1, 2001.
WP&L will receive cash of $88 million in 2001 and currently has an $89 million
equity investment in ATC, resulting in no gain or loss for WP&L. WP&L does not
expect this transfer to result in a significant impact on its financial
condition or results of operations because it believes FERC issuedwill allow WP&L to
earn a NOPR concerningreturn on the development of RTOs. The
proposed rules outlinecontributed assets
A-4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
comparable to 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. In
December 1999, FERC issued Order 2000 which implemented the proposed
rules with minor modifications. FERC's timeline is to have the RTOs in
operationreturn currently allowed by the endPSCW and FERC. In addition to
transferring its transmission assets, WP&L also transferred ownership of 2001. Alliant Energyits
System Operations Center to ATC. WP&L's ownership percentage in ATC is
involved with other
utilitiesapproximately 26 percent and industry groupsits investment is accounted for under the equity
method. Although no assurance can be given, it is currently anticipated that
ATC's dividend policy will support a return of a significant portion of these
earnings to the equity holders. ATC is expected to realize its revenues from the
provision of transmission services to both participants in reviewing Order 2000 and has submittedATC as well as
nonparticipants. ATC's current rates are subject to refund pending final
approval by FERC. ATC is a joint petition to FERC seeking further clarificationtransmission-owning member of the operatingMidwest ISO and ownership limitations that will be imposed on the
RTOs. Alliant
Energy's current plans to contributeMid-America Interconnected Network, Inc. Regional Reliability Council.
WP&L's transfer of its Wisconsin transmission assets to ATC in exchange for an equity interest, and participateits participation in the
Midwest ISO are expected to comply with the provisions of Order 2000.a FERC order requiring
utilities to turn over voluntarily the operational control of their transmission
systems to a regional entity by the end of 2001.
RATES AND REGULATORY MATTERS--As part of its merger approval, FERC accepted a
proposal by WP&L which provides for a four-year freeze on wholesale electric
prices beginning with the effective date of the April 1998 merger forming
Alliant EnergyEnergy. WP&L also agreed with the PSCW to provide customers a four-year
retail electric and gas price freeze (the ICC granted South Beloit a three-year
rate freeze), excluding the electric FAC and PGA clause, which commenced on the
effective date of the April 1998 merger. In Wisconsin, a re-opening of an
investigation into WP&L's rates during the rate freeze period, for both cost
increases and decreases, may occur only for single events that are not
merger-related and have a revenue requirement impact of $4.5 million or more.
Assuming capture of the merger-related synergies and no significant legislative
or regulatory changes negatively affecting its utility subsidiaries, cannot predictWP&L does
not expect the long-term consequences of these rulesmerger-related electric and gas price freezes to have a material
adverse effect on theirits financial condition or results of operations.
State RegulationIn connection with a statewide docket to investigate compliance issues
associated with the EPA's NOx emission reductions, in March 1999, the PSCW
authorized deferral of all incremental NOx compliance costs excluding internal
labor and replacement purchased-power costs. In March 2000, the PSCW issued an
order approving WP&L's NOx compliance plans, including additional investments at
several WP&L generating units. The order also approved a 10-year straight-line
depreciation method for NOx compliance investments. Such depreciation is also
being deferred and WP&L anticipates recovery of all deferred NOx compliance
costs beginning with the first rate changes after the rate freeze expires. The
depreciation lives will be reviewed every two years. Refer to "Liquidity and
Capital Resources--Environmental" for further discussion of the NOx issue.
WP&L's retail electric rates are based in part on forecasted fuel and
purchased-power costs. Under PSCW rules, WP&L can seek emergency rate increases
if the annual fuel and purchased-power costs are more than 3 percent higher than
the estimated costs used to establish rates. If WP&L's earnings exceed its
authorized return on equity, the incremental revenues collected causing the
excessive return are subject to refund.
In December 2000, WP&L requested a $73 million (revised to $64 million) annual
retail electric rate increase from the PSCW to cover increases in WP&L's 2001
fuel and purchased-power costs due to the continued increases in natural gas
prices which impact WP&L's generation costs and the increased costs of
purchased-power. The PSCW approved a $46 million interim retail electric rate
increase effective February 9, 2001. A decision on a permanent rate increase is
expected in the second quarter of 2001. The PSCW also granted WP&L annual retail
electric rate increases of $14.8 million, $14.5 million and
A-5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
$16.5 million in July 1998, March 1999 and May 2000, respectively, due to higher
fuel and purchased-power costs, some of which have been caused by the
transmission constraints and electric reliability concerns in the Midwest. WP&L
does not believe any revenues collected to date are subject to refund.
In November 1999, the PSCW allowed WP&L rate recovery of $6.3 million of its
Year 2000 (Y2K) program expenditures, but it denied rate recovery of the first
$4.5 million. These costs were expensed in 1999. The PSCW's decision to allow
rate recovery was appealed by certain intervenors in Dane County, Wisconsin
district court. In April 2000, the intervenors withdrew their appeal. WP&L began
recovering such costs in May 2000 and is amortizing the deferred costs as the
amounts are recovered in rates.
In February 2000, the PSCW issued an order allowing WP&L to defer certain
incremental costs it incurred after February 16, 2000 relating to the
development of ATC. In December 2000, the PSCW issued an order allowing WP&L to
defer incremental operating costs associated with ATC. Recovery of such costs
will be addressed in WP&L's next retail rate case.
In 2000, the NRC raised several areas of concern with Kewaunee's operations. The
concerns raised by the NRC are estimated to result in additional operating costs
to WP&L in 2001 of approximately $5 million. Additional operating costs to WP&L
over the period of 2002 through 2005 are estimated to be approximately
$20 million and will be included in a future rate request. WP&L submitted a
request to the PSCW for deferral of incremental costs associated with this
issue. The NRC has acknowledged the safety record of Kewaunee and its ability to
continue operations.
WP&L is subjectin the process of pursuing a rate complaint against Union Pacific
Railroad with the STB. WP&L believes Union Pacific Railroad is charging an
excessive rate for transporting low-sulfur coal from the Powder River Basin to
regulation by the PSCW. The PSCW's inquiries intoEdgewater Generating Station located in Sheboygan, Wisconsin. To contest the
future structurerate, WP&L filed a rate case with the STB and upon the expiration of the
natural gas and electric utility industries
are ongoing. The stated goal of the PSCW regarding natural gas service
-A-7-
is "to accommodate competition but not create it." The PSCW has
followedexisting contract, began moving coal under a measured approach to restructuring the natural gas industrytariff rate beginning January 1,
2000. Final briefs were filed in Wisconsin. The PSCW has determined that customer classes will be
deregulated (i.e., the gas utility would no longer have an obligation
to procure gas commodity for customers, but would still have a delivery
obligation) in a step-wise manner, after each class has been
demonstrated to have a sufficient number of gas suppliers available.
The short-term goals of the PSCW's electric restructuring process are
to ensure reliability of the state's electric system and development of
a robust wholesale electric market. The long-term goal is to establish
prerequisite safeguards to protect customers prior to allowing retail
customer choice. There are no other restructuring working groups
currently active in Wisconsin.
In May 1998, the PSCW reactivated Docket No. 05-BU-101 with the
objective of examining the degree of separation which should be
required as a matter of policy between utility and non-utility
activities involving the various state utilities. Final hearings were
held in FebruaryDecember 2000 and the PSCW ruled that utilities can continueSTB has until
September 2001 to offer non-utility servicesissue a final decision. If the STB rules in WP&L's favor, a
refund to WP&L's customers and affiliates and that
utilities must continuewill need to fully allocate their costs to such
non-utility activities.
It is anticipated that there will be legislative proposals introducedconsidered in the 2001-2002 legislative session on issues dealingconjunction with
restructuring of the
electric utility industry. It is not possible to
predict at this time the scope or the possibility of enactment of such
proposals.
"Reliability 2000" legislation was enactedFAC in Wisconsin in 1999. This
legislation included, among other items, a relaxation of the
non-utility asset limitations included in the WUHCA and the formation
of a Wisconsin transmission company for those Wisconsin utility holding
companies who elect to take advantage of the new asset cap law. Alliant
Energy has agreed to contributeWisconsin.
WP&L's transmission assets to the
transmission company (American Transmission Company, or ATC) in
exchange for an equity interest in ATC. WP&L made several federal and
state regulatory filings and commitments in the fourth quarter of 1999
relating to its participation in ATC.
ATC's sole business will be to provide reliable, economic transmission
service to all customers in a fair and equitable manner. ATC will plan,
construct, operate, maintain and expand transmission facilities it will
own to provide for adequate and reliable transmission of power. It will
provide comparable service to all customers, including Alliant Energy,
and it will support effective competition in energy markets without
favoring any market participant. Formation of the company will require
federal and state regulatory approvals. ATC will be regulated by FERC
for all rate terms and conditions of service. ATC will be a
transmission-owning member of the Midwest ISO and will transfer
operational control of the transmission systems to the Midwest ISO.
ATC will be a public utility, as defined under Wisconsin law, with a
board of directors comprised of one representative from each utility
having at least a 10% ownership interest in ATC. Smaller utilities
could combine their transmission assets with others to reach the
minimum level for board membership. In addition, the shareowners of ATC
will select four at-large directors that can not be employed or engaged
in energy businesses.
The PSCW has not yet determined the exact scope of the assets that must
be transferred to the ATC. Pending the final determination by the PSCW,
WP&L estimates it will transfer approximately $150 million in plant
assets at net book value to the ATC when it becomes operational in late
2000. Alliant Energy is also reviewing the possible contribution of
IESU's and IPC's transmission assets to ATC as well. Alliant Energy
estimates the net book value of such plant assets to approximate
$220 million. While Alliant Energy will realize its proportionate share
of ATC's earnings, it is not yet known what the overall financial
impact of Alliant Energy's participation in ATC will be.
-A-8-
Illinois
WP&L and IPC are subject to regulation by the ICC. In December 1997,
the State of Illinois passed electric deregulation legislation
requiring customer choice of electric suppliers for non-residential
customers with loads of four MW or larger and for approximately
one-third of all other non-residential customers starting October 1,
1999. All remaining non-residential customers will be eligible for
customer choice beginning December 31, 2000 and all residential
customers will be eligible for customer choice beginning May 1, 2002.
The new legislation is not expected to have a significant impact on
Alliant Energy's financial condition or results of operations given the
relatively small size of Alliant Energy's Illinois operations. As of
December 31, 1999, no eligible Alliant Energy customer had selected
another electric supplier.
Accounting Implications
Each of the utilities complies with the provisions of SFAS 71, "Accounting for the Effects of
Certain Types of Regulation." SFAS 71 provides that rate-regulated public
utilities record certain costs and credits allowed in the rate making process in
different periods than for non-regulated entities. These are deferred as
regulatory assets or accrued as regulatory liabilities and are recognized in the
consolidated
statementsConsolidated Statements of incomeIncome at the time they are reflected in rates. If a
portion of the utility subsidiaries'WP&L's operations becomes no longer subject to the provisions ofcomplies with 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 meetmeets the requirements under generally accepted accounting
principles for continued accounting as regulatory assets during such recovery
period. In addition, each utility subsidiaryWP&L would be required to determine any impairment of other
assets and write-down any impaired assets to their fair value. The utility subsidiaries
believe theyWP&L believes it
currently meetmeets the requirements of SFAS 71 and will
continue to monitor and assess this as the various utility industry
restructuring initiatives progress.
Positioning for a Competitive Environment
Alliant Energy and its subsidiaries cannot currently predict the
long-term consequences of the competitive and restructuring issues
described above on their financial condition or results of operations.
The major objective is to allow the company to compete successfully in
a competitive, deregulated utility industry. The strategy for dealing
with these emerging issues includes seeking growth opportunities,
forming strategic alliances with other energy-related businesses,
continuing to offer quality customer service, initiating ongoing cost
reductions and productivity enhancements and developing new products
and services.
As competitive forces shape the energy-services industry, energy
providers are being challenged to increase growth and profits. Because
Alliant Energy expects consumption of electricity and natural gas to
grow only modestly within Alliant Energy's domestic utility service
territories, Alliant Energy has entered several energy-services markets
that it expects will provide opportunities for new sources of growth.
Alliant Energy, through its subsidiary Resources, has established new
distinct platforms to complement its existing non-regulated
investments, which are designed to meet customer needs.
-A-9-
These platforms and existing investments include:
Investments: Resources' existing investments include an oil and
gas production company, a short-line railroad, a barge company, an
affordable housing company, various real estate joint ventures and an
equity stake in an independent telecommunications provider.
International: International is a partner in developing, or
seeking to develop, energy generation and infrastructure in New
Zealand, Australia, China, Mexico and Brazil, markets which have been
selected because of their growth potential.
Industrial Services: ISCO is a provider of energy and
environmental services designed to maximize productivity for industrial
and large commercial customers. This platform consists of four units:
Energy Planning; Energy Management; Energy Applications, which provides
facilities-based and commodities-based energy solutions; and RMT, Inc.,
an environmental management and engineering firm with offices
throughout the U.S. and the United Kingdom.
Cargill-Alliant: Alliant Energy has an energy-trading joint
venture with Cargill that combines the risk-management and commodity
trading expertise of Cargill with Alliant Energy's low-cost electricity
generation and transmission business experience. Cargill-Alliant
officially began operations in 1997 and has an initial term though
October 2002. The term automatically renews for successive five-year
periods unless either party notifies the other at least one year prior
to the then expiring term.
Mass Markets: Resources is a provider of products and services
designed to meet the comfort, security and productivity needs of
residential and small commercial customers. Resources currently offers
home appliance and furnace warranties and a variety of home energy,
safety and security products through its "Power House" catalog. Such
products are marketed directly to customers, through the mail with the
catalog and over the Internet. Resources expects to continue pursuing
opportunities in these markets, which it believes has a growth
potential as industry deregulation allows more customers to choose
their energy suppliers in an open market.
Alliant Energy believes that each of these platforms provide prospects
for growth both individually and collectively as the competitive
energy-services marketplace evolves. Alliant Energy expects that these
strategies will contribute significantly to its annual earnings growth
target of 4-6% from its business operations. Resources is expected to
contribute 25% of such earnings within the next 3-5 years.
WP&L71.
RESULTS OF OPERATIONS
Overview
WPOVERVIEW--WP&L's earnings available for common stock increased $0.6 million and
$35.3 million in 2000 and decreased $35.7 million in 1999, and 1998, respectively. The increased
earnings for 1999 were2000 increase was primarily
due to higher electric margins and a reduced effective income tax rate, largely
offset by increased operation and maintenance, depreciation and amortization and
interest expenses. The 1999 increase was primarily due to the nonrecurrence of
$17.3 million of merger-related expenses in 1998, higher electric and natural
gas margins, reduced other
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
operation and maintenance expenses and income realized from weather hedges. Such
increases were partially offset by increased depreciation and amortization
expense (excluding hedge losses in WP&L's nuclear decommissioning trust fund)
and higher interest expense.
The
decreased earnings for 1998 were primarily due to merger-related
expenses, higher purchased-power and transmission costs, higher
depreciation and amortization expenses, decreased retail natural gas
sales largely due to milder weather, higher insurance-related expenses,
higher interest expense and a higher effective tax rate. These
decreases were partially offset by a 3% increase in retail electric
sales volumes, largely due to continued economic growth in the service
territory, reduced employee pension and benefit costs and lower costs
in 1998 due to merger-related operating efficiencies.
-A-10-
Electric Utility Operations
ElectricELECTRIC UTILITY OPERATIONS--Electric margins and MWHMWh sales for WP&L for 2000,
1999 1998 and 19971998 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
------------------------------------------------- -----------------------------------------REVENUES AND COSTS (IN THOUSANDS) MWHS SOLD (IN THOUSANDS)
-------------------------------------- --------------------------------
2000 1999 * 1998 ** 2000 1999 * 19971998 **
1999 1998 * 1997 **
------------------------------------------------------------------------------------------------------ -------- --- -------- --- ------ ------ --- ------ ---
Residential..................Residential................. $229,668 $213,496 8% $198,770 7% $199,633 --3,151 3,111 1% 2,964 5%
2,974 --
Commercial...................Commercial.................. 127,199 116,947 9% 108,724 8% 107,132 1%2,031 1,980 3% 1,898 4%
1,878 1%
Industrial...................Industrial.................. 190,085 171,118 11% 162,771 5% 152,073 7%4,688 4,570 3% 4,493 2%
4,256 6%
------- ------- ----------------- -------- -------- ------ ----- ----------- ------
Total from ultimate
customers.................customers............... 546,952 501,561 9% 470,265 7% 458,8389,870 9,661 2% 9,661 9,355 3% 9,108 3%
Sales for resale.............resale............ 115,715 102,751 13% 128,536 (20%) 160,917 (20%3,228 3,252 (1%) 3,252 4,492 (28%)
5,824 (23%)
Other........................Other....................... 29,524 22,295 32% 15,903 40% 14,388 11%63 54 17% 59 (8%)
60 (2%)
------- ------- --------------- -------- -------- ------ ----------- ------
Total revenues............revenues/sales...... 692,191 626,607 10% 614,704 2% 634,143 (3%)13,161 12,967 1% 13,906 (7%) 14,992 (7%)
====== ====== =============
Electric production fuels
expense................... 113,208 110,521 2% 120,485 (8%)
116,812 3%
Purchased power expense......expense..... 146,939 107,598 37% 113,936 (6%)
125,438 (9%)
------- --------------- -------- --------
Margin.................... $432,044 $408,488 6% $380,283 7% $391,893 (3%)
======== ======== ========
* Reflects the % change from 19981999 to 1999.2000. ** Reflects the % change from 19971998 to
1998.1999.
Electric margin increased $23.6 million, or 6%, and $28.2 million, or 7%, during
2000 and decreased
$11.61999, respectively. The 2000 increase was primarily due to increased
sales to retail customers due to continued economic growth in WP&L's service
territory, a favorable $10 million or 3%, duringchange in estimate of utility services
rendered but unbilled at month-end and increased energy conservation revenues.
These items were partially offset by the impact of milder weather conditions in
2000 compared to 1999 and 1998, respectively.higher purchased-power and fuel expenses.
The 1999 increase was primarily due to separate $15 million annual rate
adjustments implemented at WP&L in July 1998 and March 1999 to recover higher
purchased-power and transmission costs. An increase in retail sales of 3% due to
more favorable weather and economic growth within WP&L's service territory also
contributed to the increase. Partially offsetting the 1999 increase were lower
sales to off-system and wholesale customers due to transmission constraints and
decreased contractual commitments and $3.2 million of revenues collected in 1998
for a surcharge related to Kewaunee.
The 1998 declineRefer to "Utility Industry Outlook--Rates and Regulatory Matters" for
information on a WP&L FAC filing in margin was due to regulatory lag associated with
rate recovery of higher purchased-power and transmission costs, a rate
decrease of 2.4% implemented in April 1997 and lower off-system sales
income. These items were partially offset by WP&L's reliance on more
costly purchased-power in the first six months of 1997 due to various
power plant outages, particularly Kewaunee, and a 3% increase in retail
sales.
-A-11-December 2000.
A-7
Gas Utility Operations
GasMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
GAS UTILITY OPERATIONS--Gas margins and Dth sales for WP&L for 2000, 1999 1998 and
19971998 were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
------------------------------------------------ -------------------------------------------REVENUES AND COSTS (IN THOUSANDS) DTHS SOLD (IN THOUSANDS)
-------------------------------------- --------------------------------
2000 1999 * 1998 ** 2000 1999 * 19971998 **
1999 1998 * 1997 **
------------------------------------------------------------------------------------------------------ -------- --- -------- --- ------ ------ --- ------ ---
Residential..................Residential................. $ 96,204 $ 69,662 38% $ 65,173 7% $ 84,513 (23%)12,769 12,070 6% 10,936 10%
12,770 (14%)
Commercial...................Commercial.................. 54,512 35,570 53% 33,898 5% 45,456 (25%)8,595 7,771 11% 7,285 7%
8,592 (15%)
Industrial...................Industrial.................. 8,581 6,077 41% 5,896 3% 8,378 (30%1,476 1,520 (3%) 1,520 1,422 7%
1,714 (17%Transportation/other........ 5,855 9,461 (38%)
Transportation/other......... 9,461 6,770 40% 17,536 (61%)13,680 13,237 3% 12,948 2% 17,595 (26%)
-------
-------- -------- -------- ------- ------------- ------ ------
Total revenues............revenues/sales...... 165,152 120,770 37% 111,737 8% 155,883 (28%)36,520 34,598 6% 32,591 6%
40,671 (20%)====== ====== ======
Cost of gas sold.............sold............ 107,131 64,073 67% 61,409 4% 99,267 (38%) ======== ======= ======
-------- -------- --------
Margin.................... $ 58,021 $ 56,697 2% $ 50,328 13% $ 56,616 (11%)
======== ======== ========
* Reflects the % change from 19981999 to 1999.2000. ** Reflects the % change from 19971998 to
1998.1999.
Gas margin increased $1.3 million, or 2%, and $6.4 million, or 13%, during 2000
and declined $6.3 million,
or 11%,1999, respectively. The 2000 increase was largely due to more favorable
weather conditions in the 2000 heating season compared to 1999, partially offset
by reduced energy conservation revenues. Due to WP&L's rate recovery mechanisms
for gas costs, the significant increase in WP&L's cost of gas sold during 1999 and 1998, respectively.2000
had no adverse impact on gas margin. The 1999 increase was due to increased
sales resulting from customer growth of approximately 2% and more favorable
weather conditions in 1999.
The 1998 decrease was
primarily due to a reduction in sales resulting from milder weather and
an average retail rate reduction of 2.2% implemented in April 1997.
Refer to Note 1(h) of the "Notes to Consolidated Financial Statements"
for discussion of an accounting change implemented in 1998. Refer to "Interest Expense and Other" for a discussion of income realized from two gas
weather hedges in 1999.
Refer to2000 and 1999 and Note 1(i) of the "Notes to Consolidated
Financial Statements" for a discussion of a gas cost adjustment mechanism in place
at WP&L.
The impact on the results of operations from such mechanism was not
significant in any of the periods presented.
Other Operating Expenses
OtherOTHER OPERATING EXPENSES--Other operation and maintenance expenses decreased $17.2increased
$16.8 million and increased
$12.3decreased $21.4 million for 2000 and 1999, respectively. The
2000 increase was primarily due to a planned refueling outage at Kewaunee,
higher expenses in the energy delivery business unit, increased energy
conservation expense and 1998, respectively.increased maintenance expenses. The 2000 increases were
partially offset by expenses incurred in 1999 relating to WP&L's Y2K program.
The 1999 decrease was primarily due to the nonrecurrence of $11.2 million of
merger-related expenses in 1998 for employee retirements, separations and
relocations, reduced expenses in the energy delivery and generation business
units, reduced insurance-related expenses, lower operating costs at WP&L's generating
plants, lower transmission and distributionnuclear expenses and lower
costs due to merger-related operating efficiencies. Such itemsThe 1999 decreases were
partially offset by increased costs for energy conservation, employee incentive
compensation, expenses incurred in 1999 relating to the Y2K program and employee
benefits expenses.
Depreciation and amortization expense increased $26.9 million and decreased
$6.2 million for 2000 and 1999, respectively. The 19982000 increase was primarily
due to merger-related expenses,increased earnings in the nuclear decommissioning trust fund of
approximately $20 million, property additions and higher insurance-related
expenses and an increase in other administrative and general expenses.
Such items were partially offset by reduced employee pension and
benefits expenses, reduced conservation expense and lower costs from
merger-related operating efficiencies.
Maintenance expenses decreased $4.3 million in 1999. The decrease was
primarily due to lower nuclear expenses and reduced transmission and
distribution maintenance expenses. Such decreases were partially offset
by increased expenses associated with Year 2000 readiness efforts.
Depreciation and amortization expense decreased $6.2 million and
increased $14.9 million for 1999 and 1998, respectively.expense.
The 1999 decrease was due to reduced earnings in the nuclear decommissioning
trust fund (offset entirely in "Miscellaneous, net") and the nonrecurrence of the $3.2 million Kewaunee surcharge in 1998.
These items wereThe 1999 decrease was partially
-A-12-
offset by the impact of property additions. The
1998 increase was due
to property additions, higher Kewaunee depreciation (refer to
"Liquidity and Capital Resources--Capital Requirements--Nuclear
Facilities" for additional information) and the Kewaunee surcharge.
The accounting for earnings on the nuclear decommissioning
A-8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
trust funds results in no net income impact. Miscellaneous, net income is
increased for earnings on the trust fund, which is offset in depreciation
expense.
Interest Expense and Other
InterestINTEREST EXPENSE AND OTHER--Interest expense increased $3.7 million and
$4.4 million in 2000 and $4.0 million1999, respectively. The 2000 increase was primarily due
to higher interest rates and borrowings outstanding in 1999 and
1998, respectively.2000. The 1999 increase
was primarily due to higher short-term borrowingsborrowings.
Miscellaneous, net income increased $18.4 million and the 1998decreased $3.0 million in
2000 and 1999, respectively. The 2000 increase was primarily due to an
adjustment to decrease interest expenseincreased
earnings in 1997 relating to a tax audit
settlement and increased borrowings during 1998.
Miscellaneous, netthe nuclear decommissioning trust fund of approximately
$20 million, partially offset by reduced income decreased $3.0of $2 million and $2.7 million in
1999 and 1998, respectively.realized from gas
weather hedges. The 1999 decrease was primarily due to lower earnings on the
nuclear decommissioning trust fund, partially offset by the nonrecurrence of
$6.1 million of merger-related expenses in 1998 and pre-tax
income of $5 million recognized in
1999 associated with the settlement of gas weather hedges. SeeRefer to Note 10(c)10(b)
of the "Notes to Consolidated Financial Statements" for additional information
relating to the gas weather hedges.
The 1998 decrease was primarily due to merger-related
expenses, which was partially offset by higher earnings on the nuclear
decommissioning trust fund.
Income Taxes
TheINCOME TAXES--The effective income tax rates were 39.2%37.5%, 39.2% and 41.0% in
2000, 1999 and 37.0% in 1999,
1998, and 1997, respectively. SeeRefer to Note 5 of the "Notes to Consolidated
Financial Statements" for a discussion of the changes.additional information.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities atOVERVIEW--Given WP&L decreased $14 million for
the year ended December 31, 1999, compared with the same period in
1998, primarily due to changes in working capital, partially offset by
higher net income. Cash flows used for financing activities decreased
$34 million for the year ended December 31, 1999, compared with the
same period in 1998, primarily due to a capital contribution of
$30 million from Alliant Energy. Cash flows used for investing
activities increased $17 million for the year ended December 31, 1999,
compared with the same period in 1998, primarily due to increased
construction expenditures.
Future Considerations
The capital requirements of Alliant Energy are primarily attributable
to its utility subsidiaries' construction and acquisition programs, its
debt maturities and business opportunities of Resources. It is
anticipated that future capital requirements of Alliant Energy will be
met by cash generated from operations, sale of investments and external
financing. The level of cash generated from operations is partially
dependent upon economic conditions, legislative activities,
environmental matters and timely regulatory recovery of utility costs.
Alliant Energy's liquidity and capital resources will be affected by
costs associated with environmental and regulatory issues. Emerging
competition in the utility industry could also impact Alliant Energy's
liquidity and capital resources, as discussed previously in the
"Utility Industry Outlook" section.
Alliant Energy expects to pursue various potential business development
opportunities, including international as well as domestic investments,
and is devoting resources to such efforts. Foreign investments may
carry a higher level of risk than Alliant Energy's traditional domestic
-A-13-
utility investments or Resources' domestic investments. Such risks
could include foreign government actions, foreign economic and currency
risks and others. It is anticipated that Alliant Energy will strive to
select investments where the international and other risks are both
understood and manageable. At December 31, 1999, Resources had
approximately $198 million of investments in foreign entities. At
December 31, 1999, IESU, WP&L and IPC did not have any foreign
investments.
Financing and Capital Structure
Access to the long-term and short-term capital and credit markets, and
costs of external financing, are dependent on creditworthiness. The
debt ratings of Alliant Energy and certain subsidiaries by Moody's and
Standard & Poor's are as follows:
Moody's Standard & Poor's
-------------------------------
IESU................................... - Secured long-term debt A2 A+
- Unsecured long-term debt A3 A
WP&L................................... - Secured long-term debt Aa2 AA
- Unsecured long-term debt Aa3 A+
IPC.................................... - Secured long-term debt A1 A+
Resources.............................. - Commercial paper(a) P1 A1
- Unsecured long-term debt(a) A3 A
Alliant Energy......................... - Commercial paper(b) P1 A1
(a) Resources' debt is fully and unconditionally guaranteed by
Alliant Energy.
(b) IESU, WP&L and IPC participate in a utility money pool that is
funded, as needed, through the issuance of commercial paper by
Alliant Energy. Interest expense and other fees are allocated
based on borrowing amounts. The PSCW has restricted WP&L from
lending money to non-utility affiliates and non-Wisconsin
utilities. As a result, WP&L is prohibited from lending money to
the utility money pool but is able to borrow money from the
utility money pool.
Other than periodic sinking fund requirements, which will not require
additional cash expenditures, the following long-term debt (in
millions) will mature prior to December 31, 2004:
Alliant
IESU WP&L Energy-Parent Resources IPC Total
--------- ------- --------------- ---------- ------- ----------
$137.4 $63.9 $24.0 $12.6 $ 1.0 $238.9
Depending upon market conditions, it is currently anticipated that a
majority of the maturing debt will be refinanced with the issuance of
long-term securities.
On August 24, 1999, WP&L filed an application with the PSCW for
authority to issue up to $100 million of debentures for the purpose of
refinancing existing debt. Approval was granted in February 2000 and
the senior unsecured debentures were issued in March 2000 at a fixed
interest rate of 7 5/8%, due 2010. The amount of short-term borrowings
authorized by the PSCW will be reduced by the same $100 million.
The various charter provisions of the entities identified below
authorize and limit the aggregate amount of additional shares of
Cumulative Preferred Stock and Cumulative Preference Stock that may be
issued. At December 31, 1999, the companies could have issued the
following additional shares of Cumulative Preferred or Preference Stock:
IESU WP&L IPC
------- ----------- ----------
Cumulative Preferred............... 100,000 2,700,775 1,238,619
Cumulative Preference.............. 700,000 -- 2,000,000
-A-14-
For interim financing, IESU, WP&L and IPC were authorized by the
applicable federal or state regulatory agency to issue short-term debt
at December 31, 1999 as follows (in millions):
IESU WP&L IPC
----- ---- -----
Regulatory authorization................... $150 $128 $50
Short-term debt outstanding--money pool.... $57 $126 $39
At December 31, 1999, there was no short-term debt outstanding with
external parties at the utility subsidiaries. In addition to the
$222 million of commercial paper Alliant Energy issued to fund the
utility money pool and $139 million of commercial paper at Resources,
Alliant Energy had an additional $64 million of short-term debt
outstanding at December 31, 1999. In addition to providing for ongoing
working capital needs, this availability of short-term financing
provides the companies flexibility in the issuance of long-term
securities. The level of short-term borrowing fluctuates based on
seasonal corporate needs, the timing of long-term financing and capital
market conditions. To maintain flexibility in its capital structure and
to take advantage of favorable short-term rates, IESU and WP&L also use
proceeds from the sale of accounts receivable and unbilled revenues to
finance a portion of their long-term cash needs. Alliant Energy
anticipates that short-term debt will continue to be available at
reasonable costs due to current ratings by independent utility analysts
and credit rating services.
In December 1999, Alliant Energy, IESU, WP&L and IPC filed an
application with the SEC for approval of a combined accounts receivable
program whereby each utility will sell their respective receivables
through wholly-owned special purpose entities to an affiliated
financing entity, which in turn will sell the receivables to an outside
investor. The new program would replace the existing programs for IESU
and WP&L, and would function the same in most respects. Approvals from
the SEC and the necessary state commissions are expected in the second
quarter of 2000.
Alliant Energy has $250 million of committed bank lines of credit, of
which none was utilized at December 31, 1999, available for direct
borrowing or to support commercial paper. Commitment fees are paid to
maintain these lines and there are no conditions which restrict the
unused lines of credit. From time to time, Alliant Energy may borrow
from banks and other financial institutions on uncommitted "as-offered"
credit lines in lieu of commercial paper, and has agreements with
several financial institutions for such borrowings. There are no
commitment fees associated with these agreements and there were no
borrowings outstanding under these agreements at December 31, 1999.
Alliant Energy made a filing with the SEC in February 1999 under PUHCA
to provide Alliant Energy with, among other things, broad authorization
over the next three years to issue stock and debt, provide guarantees,
acquire energy-related assets and enter into interest rate hedging
transactions. Approval of the filing was received from the SEC in
August 1999.
Given the above&L's financing flexibility, including Alliant Energy's access to both the debt
and equity securities markets, management believes it has the necessary
financing capabilities in place to adequately finance its capital requirements
for the foreseeable future. Capital Requirements
General
Capital expenditure and investment and financing plansWP&L's capital requirements are subjectprimarily
attributable to continual review and change. The capital expenditure and investment
programs may be revised significantly as a result of many
considerations, including changes in economic conditions, variations in
actual sales and load growth compared to forecasts, requirements of
environmental, nuclear and other regulatory authorities, acquisition
-A-15-
and business combination opportunities, the availability of alternate
energy and purchased-power sources, the ability to obtain adequate and
timely rate relief, escalations in construction costs and conservation
and energy efficiency programs.
WP&L'sits utility construction and acquisition expenditures forprograms and its debt
maturities. WP&L expects to meet its future capital requirements with cash
generated from operations and external financing. The level of cash generated
from operations is partially dependent on economic conditions, legislative
activities, environmental matters and timely regulatory recovery of utility
costs. Liquidity and capital resources will be affected by costs associated with
environmental and regulatory issues. Changes in the years ended
December 31, 1999utility industry could also
impact WP&L's liquidity and 1998 were $132 million and $117 million,
respectively. WP&L's anticipated construction and acquisition
expenditures for 2000 are estimated to be approximately $143 million,
of which 45% is for electric transmission and distribution, 25% for
electric generation, 15% for information technology and the remaining
15% represents miscellaneous electric, gas, water and general
expenditures. WP&L's construction and acquisition expenditures are
projected to be $166 million in 2001, $181 million in 2002,
$192 million in 2003 and $136 million in 2004, which include
expenditures to comply with NOx emissions reductionscapital resources, as discussed in "Other Matters--Environmental."Utility Industry
Outlook."
Alliant Energy anticipates financing utility construction expenditures
during 2000-2004 through internally generated funds supplemented, when
required, by outside financing. Funding of Resources' construction and
acquisition expenditures over that same period of time is expected to
be completed with a combination of external financings, sales of
investments and internally generated funds.
Nuclear Facilities
Alliant Energy owns interests in two nuclear facilities, Kewaunee and
DAEC. Kewaunee, a 532 MW pressurized water reactor plant, is operated
by WPSC and is jointly owned by WPSC (41.2%), WP&L (41.0%), and MG&E
(17.8%). The Kewaunee operating license expires in 2013. DAEC, a 535 MW
boiling water reactor plant, is operated by IESU which has a 70%
ownership interest in the plant. The DAEC operating license expires in
2014.
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 will be approximately $90.7 million, withCASH FLOWS--In 2000, WP&L's share of the cost being approximately $37.2 million. The replacement
work originally plannedcash flows used for the spring of 2000 is now scheduled for the
fall of 2001 and will take approximately 60 days. The delay is
attributablefinancing activities increased
$20 million due to the inabilityreduction 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 startshort-term debt outstanding and a capital
contribution 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.
On July 2, 1998, the PSCW approved an agreement between the owners of
Kewaunee which provides for WPSC to assume the 17.8% Kewaunee ownership
share currently held by MG&E prior to work beginning on the replacement
of steam generators. On September 29, 1998, WPSC and MG&E finalized an
arrangement in which WPSC will acquire MG&E's 17.8% share of Kewaunee.
This agreement, the closing of which is contingent upon regulatory
approval and the steam generator replacement in the fall of 2001, will
give WPSC 59.0% ownership in Kewaunee. After the change in ownership,
WPSC and WP&L will be responsible for the decommissioning of the plant.
WPSC and WP&L are discussing revisions to the joint power supply
agreement which will govern operation of the plant after the ownership
change takes place. Prior to the July 2, 1998 PSCW decision, the PSCW
had directed the owners of Kewaunee to record depreciation and
-A-16-
decommissioning cost levels based on an expected plant end-of-life of
2002 versus a license end-of-life of 2013. This was prompted by the
uncertainty regarding the expected useful life of the plant without
steam generator replacement. This level of depreciation will remain in
effect until the steam generator replacement is completed at which time
the entire plant will be depreciated over 8.5 years using an
accelerated method.
In February 1999, Alliant Energy, NSP, WPSC and WEPCO announced the
formation of the NMC to sustain long-term safety, optimize reliability
and improve the operational performance of their nuclear generating
plants. Combined, the NMC members operate seven nuclear generating
units at five plants. In October 1999, Alliant Energy received approval
from the SEC, under PUHCA, to form Alliant Energy Nuclear LLC, whose
purpose is solely to invest in the NMC. Such investment has been made
and Alliant Energy Nuclear LLC now has a 25% ownership interest in the
NMC. In November 1999, the NMC members applied to the NRC to allow the
NMC to operate the plants owned or co-owned by the four utilities.
Applications to the PSCW, MPUC and the SEC to allow the purchase of
operating services were also made at that time. These approvals are
required if the applicable utilities choose to transfer their operating
license to, and take operating services from, the NMC. As presently
proposed, the NMC would operate the plants, but the utilities would
continue to own their plants, be entitled to energy generated at the
plants and retain the financial obligations for the safe operation,
maintenance and decommissioning of the plants.
For additional information related to Kewaunee, see Notes 1, 9, 11 and
12 of the "Notes to Consolidated Financial Statements." Refer to the
"Other Matters--Environmental" section for a discussion of various
issues impacting Alliant Energy's future capital requirements.
Rates and Regulatory Matters
FERC
In November 1997, as part of its merger approval, FERC accepted a
proposal by IESU, WP&L, and IPC, which provides for a four-year freeze
on wholesale electric prices beginning with the effective date of the
merger.
In association with the merger, IESU, WP&L and IPC entered into a
System Coordination and Operating Agreement which became effective with
the consummation of the merger. The agreement, which has been approved
by the FERC, provides a contractual basis for coordinated planning,
construction, operation and maintenance of the interconnected electric
generation and transmission systems of the three utility companies. In
addition, the agreement allows the interconnected system to be operated
as a single control area with off-system capacity sales and purchases
made to market excess system capability or to meet system capability
deficiencies. Such sales and purchases are allocated among the three
utility companies based on procedures included in the agreement. The
procedures were approved by both the FERC and all state regulatory
bodies having jurisdiction over these sales.
WP&L
In connection with its approval of the merger, the PSCW accepted a WP&L
proposal to freeze rates for four years commencing on the effective
date of the merger. A re-opening of an investigation into WP&L's rates
during the rate freeze period, for both cost increases and decreases,
may occur only for single events that are not merger-related and have a
revenue requirement impact of $4.5 million or more. In addition, the
electric fuel adjustment clause and PGA clause are not affected by the
rate freezes.
In February 2000, the PSCW issued an order allowing WP&L to defer
certain incremental costs it incurs after February 16, 2000 relating to
the development of the ATC.
-A-17-
The retail electric rates are based in part on forecasted fuel and
purchased-power costs. Under PSCW rules, Wisconsin utilities can seek
emergency rate increases if the annual costs are more than 3% higher
than the estimated costs used to establish rates. In March 1998, WP&L
requested an electric rate increase to cover purchased-power and
transmission costs that had increased due to transmission constraints
and electric reliability concerns in the Midwest. Effective July 16,
1998, the PSCW granted a retail electric rate increase of $14.8 million
annually. In November 1998, WP&L requested an electric rate increase to
cover additional increases in purchased-power and transmission costs.
In early March 1999, the PSCW granted a retail electric rate increase
of $14.5 million annually. If WP&L's earnings exceed its authorized
return on equity, the incremental revenues collected causing the
excessive return are subject to refund. In December 1999, WP&L
requested a $26 million retail electric rate increase to reflect higher
purchased power costs and to cover transmission costs that have
increased due to transmission constraints. While the most current
request is still pending, WP&L anticipates receiving an order in the
second quarter of 2000.
In May 1998, the PSCW approved the deferral by WP&L of certain costs
associated with its Year 2000 program. In November 1998, WP&L filed for
rate recovery of the Wisconsin retail portion of its Year 2000 costs.
In accordance with the order received from the PSCW, WP&L began
deferring its Year 2000 project costs, other than internal labor and
associated overheads. In November 1999, the PSCW allowed WP&L rate
recovery of $6.3 million of its Year 2000 program expenditures, but it
denied rate recovery of the first $4.5 million. These costs were
expensed in 1999. The PSCW's decision has been appealed by certain
intervenors in Dane County district court and such appeal is pending.
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 requested expedited approval to
start construction of NOx reduction investments at several generating
units operated by WP&L and in the third quarter of 1999 received
approval from the PSCW for limited NOx related expenditures at one of
its generating units. WP&L has also requested recovery of all the NOx
reduction costs through a surcharge mechanism. In March 2000, the PSCW
issued an order approving WP&L's NOx compliance plans and granted the
recovery of costs incurred to comply with EPA NOx regulations over ten
years using a straight-line depreciation method. Recovery of such costs
will begin with rate changes after the rate freeze expires. The
depreciation lives will be reviewed every two years. Refer to the
"Other Matters--Environmental" section for a further discussion of the
NOx issue.
In rate order UR-110, the PSCW approved new rates effective April 29,
1997. On average, WP&L's retail electric rates under the new rate order
declined by 2.4% and retail gas rates declined by 2.2%.
Refer to "Capital Requirements--Nuclear Facilities" for a discussion of
several PSCW rulings regarding Kewaunee.
-A-18-
Assuming capture of the merger-related synergies and no significant
legislative or regulatory changes negatively affecting its utility
subsidiaries, Alliant Energy does not expect the merger-related
electric and gas price freezes to have a material adverse effect on its
financial condition or results of operations.
OTHER MATTERS
Year 2000
Alliant Energy had no significant embedded equipment, computer system
or other malfunctions during the critical December 31, 1999 to
January 1, 2000 date rollover or the February 28, 2000 to February 29,
2000 date rollover. Alliant Energy will continue to monitor for any
supply chain issues into the second quarter of 2000.
Alliant Energy's historical Year 2000 project expenditures were 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--12/31/99................... 18.6 7.6 7.1 3.9
------- ------ ------ ------
Total................................................ $ 27.3 $ 12.4 $ 10.3 $ 4.6
====== ====== ====== ======
In addition, Alliant Energy estimates it incurred $7 million and
$3$30 million in 1999 and 1998, respectively, of costs for internal labor
and associated overheads.from Alliant Energy, does not expect to incur any
significant incremental costspartially offset by the
issuance of $100 million of senior unsecured debentures in 2000 on its Yearand no common
stock dividends declared in 2000 readiness
program. Referdue to "Liquidity and Capital Resources--Rates and
Regulatory Matters" for a discussion of the filing WP&L made with the
PSCW for rate recovery of a portion of its Year 2000 program costs.
Labor Issues
The status of the collective bargaining agreements at each of the
utilities at December 31, 1999 was as follows:
IESU WP&L IPC
---- ----- -----
Number of collective bargaining agreements 6 1 3
Percentage of workforce covered by agreements 61% 93% 83%
The collective bargaining agreements at Alliant Energy cover
approximately 51% of all Alliant Energy employees. In 1999, eight
agreements expired and four of these agreements have been ratified and
four are still being negotiated (three at IPC and one at IESU). The
agreements still being negotiated have been extended and represent 42%
of employees covered under bargaining agreements and 22% of total
Alliant Energy employees. In 2000, two contracts expire representing
approximately 1% of employees covered under bargaining agreements and
less than 1% of total Alliant Energy employees. Alliant Energy has not
experienced any significant work stoppage problems in the past. While
negotiations are continuing, Alliant Energy is currently unable to
predict the outcome of these negotiations.
Market Risk Sensitive Instruments and Positions
Alliant Energy's primary market risk exposures are associated with
interest rates, commodity prices, equity prices and currency exchange
rates. Alliant Energy has risk management policies to monitor and
assist in controlling these market risks and uses derivative
instruments to manage some of the exposures.
Interest Rate Risk
Alliant Energy is exposed to risk resulting from changes in interest
rates as a result of its issuance of variable-rate debt. Alliant Energy
manages its interest rate risk by limiting its variable interest rate
exposure and by continuously monitoring the effects of market changes
-A-19-
in interest rates. Alliant Energy has also historically used interest
rate swap and interest rate forward agreements to assist in the management of its interest exposure. If variable interest rates were to
average 1% higher (lower) in 2000 than incapital structure. In
1999, interest expense and
pre-tax earnings would increase (decrease) by approximately
$5.1 million. Comparatively, if variable interest rates had averaged 1%
higher (lower) in 1999 than in 1998, interest expense and pre-tax
earnings would have increased (decreased) by approximately
$4.5 million. These amounts were determined by considering the impact
of a hypothetical 1% increase (decrease) in interest rates on the
variable-rate debt and related derivative instruments held by Alliant
Energy as of December 31, 1999 and 1998. In the event of significant
interest rate fluctuations, management would take actions to minimize
the effect of such changes on Alliant Energy's results of operations.
However,WP&L's cash flows from operating activities decreased $14 million
primarily due to the uncertainty of the specific actions that would be
taken and their possible effects, the sensitivity analysis assumes no
changechanges in Alliant Energy's financial structure.
Commodity Risk--Non-trading
Alliant Energy is exposed to the impact of market fluctuations in the
commodity price and transportation costs of electricity, natural gas
and oil products it markets. Alliant Energy employs established
policies and procedures to manage its risks associated with these
market fluctuations including the use of various commodity derivatives.
Alliant Energy's exposure to commodity price risks in its utility
business is significantly mitigated by the current rate making
structures in place for the recovery of its electric fuel and purchased
energy costs as well as its cost of natural gas purchased for resale.
Refer to Note 1(i) of the "Notes to Consolidated Financial Statements"
for a further discussion.
From time to time, WP&L utilizes gas commodity swap arrangements for
the purpose of mitigating the impact of price fluctuations on gas
purchased and injected into storage during the summer months and
withdrawn and sold at current prices during the winter months. The gas
commodity swaps in place approximate the forecasted storage withdrawal
plan during this period. Therefore, market price fluctuations that
result in an increase or decrease in the value of the physical
commodity areworking capital, partially offset by changeshigher net
income primarily due to merger-related expenses in the value of the gas commodity
swaps. A 10% increase/decrease1998; cash flows used for
financing activities decreased $34 million due to increased short-term
borrowings in the price of gas would have an
insignificant impact on the combined fair market value of the gas in
storage and related swap arrangements in place as of December 31, 1999
and 1998.
Equity Price Risk
Alliant Energy maintains trust funds at IESU and WP&L to fund its
anticipated nuclear decommissioning costs. As of December 31, 1999 and
1998, these funds were invested primarily in domestic equity and debt
instruments. WP&L has entered into an equity collar that uses options
to mitigate the effect of significant market fluctuations on its common
stock investments. Alliant Energy's exposure to fluctuations in equity
prices or interest rates will not affect its consolidated results of
operations as such fluctuations are recorded in equally offsetting
amounts of investment income and depreciation (WP&L) or interest
(IESU) expense when they are realized.
Refer to Note 10 of the "Notes to Consolidated Financial Statements"
for a further discussion of Alliant Energy's derivative financial
instruments.
Accounting Pronouncements
In June 1998, the FASB issued SFAS 133. The Statement establishes
accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or
-A-20-
liability measured at its fair value. The Statement requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15, 2000
and must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired or substantively modified after December 31, 1998 (effective
dates noted are as amended by SFAS 137). Alliant Energy has organized a
cross-functional project team to assist in implementing SFAS 133. The
team consists of both Alliant Energy employees and a consultant that
has been engaged to support the project. The team has begun to
inventory financial instruments, commodity contracts and other
commitments with the purpose of identifying and assessing all of
Alliant Energy's derivatives. Although the impact of implementing
SFAS 133 has not yet been quantified, it could increase volatility in
earnings and other comprehensive income. Alliant Energy is analyzing
various alternatives relating to the possible early adoption of
SFAS 133 in 2000. SFAS 133 may only be adopted on the first day of any
quarter prior to the required adoption date.
Accounting for Obligations Associated with the Retirement of Long-Lived
Assets
The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry, including IESU and WP&L,
regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating stations in financial
statements of electric utilities. In response to these questions, the
FASB has a project on its agenda to review the accounting for
obligations associated with the retirement of long-lived assets,
including decommissioning of nuclear power plants. If current electric
utility industry accounting practices for nuclear power plant
decommissioning are changed, the annual provision for decommissioning
could increase relative to 1999 and the estimated cost$30 million capital contribution from Alliant Energy,
partially offset by the issuance of $60 million of debentures in 1998; and cash
flows used for decommissioning could be recorded as a liability (rather than as
accumulated depreciation), with recognition of an increase in the cost
of the related nuclear power plant. Assuming no significant change in
regulatory treatment, IESU and WP&L do not believe that such changes,
if required, would have an adverse effect on their financial condition
or results of operationsinvesting activities increased $17 million primarily due to
their ability to recover
decommissioning costs through rates.
Inflation
Alliant Energy, IESU and WP&L do not expect the effects of inflation at
current levels to have a significant effect on their financial
condition or results of operations.
Environmental
Theincreased construction expenditures.
ENVIRONMENTAL--WP&L's pollution abatement programs of IESU, WP&L, IPC and Resources are subject to continuing
review and are periodically revised from time to time due to changes in environmental regulations, changes in
construction plans and escalation of construction costs. While management cannot
precisely forecast the effect of future environmental regulations on Alliant
Energy's operations,
it has taken steps to anticipate the future while also meeting the requirements
of current environmental regulations.
TheA-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Wisconsin is subject to the Clean Air Act Amendments of 1990 (Act) require emission reductions
of SO2, NOx and other air pollutantsdue to achieve reductions of
atmospheric chemicals believedits non-attainment status with
respect to cause acid rain. IESU, WP&L and IPC
-A-21-
have met the provisions of Phase I of the Act and Phase II of the Act.
The Act also governs SO2 allowances, which are defined as an
authorization for an owner to emit one ton of SO2 into the atmosphere.
IESU, WP&L and IPC are reviewing their options to ensure they will have
sufficient allowances to offset their emissionsone-hour ozone standard in the future and
believeLake Michigan region. The WDNR has
developed a rule that the potential costs of complying with these provisions of
Title IV of the Act will not havecontains a material adverse impact on their
financial condition or results of operations.
The Act and other federal laws also require the EPA to study and
regulate, if necessary, additional issues that potentially affect the
electric utility industry, including emissions relating to ozone
transport, mercury and particulate control as well as modifications to
the PCB rules. In July 1997, the EPA issued final rules that would
tighten the National Ambient Air Quality Standards for ozone and
particulate matter emissions and in June 1998, the EPA modified the PCB
rules. Alliant Energy cannot predict the long-term consequences of
these rules on its financial condition or results of operations.
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, on May 25, 1999, a federal
appeals court delayed indefinitely the implementation of the rule. On
March 3, 2000, the federal appeals court affirmed EPA's NOx ruleplan for the affected states. However, the court found that the EPA had failed
to explain how Wisconsin contributes significantly to non-attainment in
any other state thus it has vacated the rule as relates to Wisconsin.
Given the EPA could still appeal this decision, and Alliant Energy is
still reviewing the recent court order, Alliant Energy is unable to
predict the final outcome of this issue. 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 one-hour ozone
attainment standard. The plan focuses on rate of progress requirements that are
specified by the Clean Air Act for the years 2002, 2005 and 2007. The rule
requires NOx reductions in counties that are currently in non-attainment of the
one-hour ozone standard which includes WP&L's Edgewater power plant. WP&L is
currently evaluating various alternatives to achieve the proposed reductions and
to reduce the emission levels.levels at various power plants. Based on existing
technology, the preliminary estimates indicate that capital investments would be in the range
of $150$30 to $40 million 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.could be required.
Revisions to the Wisconsin Administrative Code have been proposed that could
have a significant impact on WP&L's operation of the Rock River Generating
Station in Beloit, Wisconsin. The proposed revisions will affect the amount of
heat that the generating station can discharge into the Rock River. WP&L cannot
presently predict the final outcome of the rule, but believes that, as the rule
is currently proposed, the capital investments and/or modifications required to
meet the proposed discharge limits could be significant.
On February 28,In 1998, the EPA issued the final report to Congress on the Study of Hazardous
Air Pollutant Emissions (HAPs) from Electric Utility Steam Generating Units
regarding hazardous air pollutant emissions from electric utilities, (the HAPs report). The HAPs reportwhich
concluded that mercury emissions from coal-fired generating plants were a
concern. However,The EPA is developing regulations that are expected to be in place by
2004. In December 2000, the EPA does not believe it has sufficient information
regarding such emissions. To remedy this lackmade a regulatory determination in favor of
information, the EPA
required IESU, WP&L, IPC and all other applicablecontrolling HAPs (including mercury) from electric utilities, which is being
challenged by utility industry groups 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 required WP&L to conduct stack tests at several of
its generating stations. Both stations selected have completed their
stack testing.two lawsuits filed in February 2001.
Although the control of mercury emissions from generating plants is uncertain at
this time, Alliant EnergyWP&L believes that the capital investments and/or modifications that
may be required to control mercury emissions could be significant.
-A-22-
Also in December 2000, the WNRB voted to allow the WDNR to proceed with mercury
rulemaking. WP&L and the other Wisconsin Utility Association members have
recommended to WNRB a workable mercury program that protects reliability and
does not disadvantage Wisconsin when federal mercury rules are developed. The
WDNR has indicated its desire to have the proposed rule written by the Spring of
2001. WP&L cannot presently predict the final outcome of the regulation, but
believes that capital investments and/or modifications required could be
significant.
WP&L has been notified by the EPA that it is a PRP with respect to
environmental impacts identified at the
MIG/DeWane Landfill Superfund Site. WP&L is participating in the initiation of
an alternate dispute resolution process to allocate liability associated with
the investigation and remediation of the site. Management believes that any
likely action resulting from this matter will not have a material adverse effect
on WP&L's financial condition or results of operations.
In 2000, WP&L has beenwas notified by Monroe County, Wisconsin that it is a PRPdoes not have
liability for costs associated with respect to environmental impacts identified at the Monroe County Interim Landfill in
Sparta, Wisconsin. Monroe County has decided that it will pay for the
investigation and cleanup of the landfill through community-wide funding.
In December 2000 and February 2001, the EPA requested certain information
relating to the historical operation of WP&L's major coal-fired generating units
in Wisconsin. WP&L has provided a summaryresponded to the December 2000 request and is in the
process of recordspreparing its response to the February 2001 request. In some cases
involving similar EPA requests from other electric generating facilities,
penalties and documents relating to waste disposal at the landfill to
Monroe County.capital
A-10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
expenditures have resulted. WP&L cannot currently estimatepresently predict what liability,impact, if any,
itthe EPA's request may have with respect toon its financial condition or results of operations.
However, any required remedial action resulting from this site.matter could be
significant.
A global treaty has been negotiated that could require reductions of greenhouse
gas emissions from utility plants. In November 1998, the U.S. signed the treaty and
agreed with the other countries to resolve all remaining issues by the end of 2000.
That deadline has not been met and significant differences remain between the
U.S. and other countries. At this time, management is unable to predict whether
the U.S. Congress will ratify the treaty. Given the uncertainty of the treaty
ratification and the ultimate terms of the final regulations, management cannot
currently estimate the impact the implementation of the treaty would have on
Alliant Energy'sWP&L's operations.
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates
that each state must take responsibility for the storage of low-level
radioactive waste produced within its borders. The States of Iowa and
Wisconsin are members of the six-state Midwest Interstate Low-Level
Radioactive Waste Compact (Compact) which is responsible for
development of any new disposal capability within the Compact member
states. In June 1997, the Compact commissioners votedRefer to discontinue
work on a proposed waste disposal facility in the State of Ohio because
the expected cost of such a facility was comparably higher than other
options currently available. Dwindling waste volumes and continued
access to existing disposal facilities were also reasons cited for the
decision. A disposal facility located near Barnwell, South Carolina
continues to accept the low-level waste and IESU and WP&L currently
ship the waste each produces to such site, thereby minimizing the
amount of low-level waste stored on-site. Given technological advances,
waste compaction and the reduction in the amount of waste generated,
DAEC and Kewaunee each have on-site storage capability sufficient to
store low-level waste expected to be generated over at least the next
ten years. While Alliant Energy is unable to predict how long the
Barnwell facility will continue to accept its waste, continuing access
to this facility expands Alliant Energy's on-site storage capability
indefinitely.
See NotesNote 11(e) and 11(f) of the "Notes to Consolidated Financial Statements" for
a further discussion of Alliant Energy'sWP&L's environmental issues.
Power Supply
Wisconsin enacted electric reliability legislation in 1998 (Wisconsin
Reliability Act)matters.
LONG-TERM DEBT--In March 2000, WP&L issued $100 million of senior unsecured
debentures at a fixed interest rate of 7 5/8%, due 2010. The net proceeds were
primarily used to repay short-term debt. WP&L has $150 million of long-term debt
that will mature prior to December 31, 2005. Depending on market conditions, it
is anticipated that a majority of the maturing debt will be refinanced with the
goalissuance of assuring reliable electric energylong-term securities. Refer to Note 8(b) of the "Notes to
Consolidated Financial Statements" for Wisconsin. The law allowsadditional information on long-term debt.
SHORT-TERM DEBT--In addition to funding working capital needs, the constructionavailability
of merchant power plantsshort-term financing provides WP&L flexibility in the issuance of long-term
securities. The level of short-term borrowing fluctuates based on seasonal
corporate needs, the timing of long-term financing and capital market
conditions. At December 31, 2000, WP&L was authorized by the applicable federal
or state regulatory agency to issue short-term debt of $128 million.
WP&L, IESU and streamlinesIPC participate in a utility money pool that is funded, as
needed, through the regulatory approval process for building
new generationissuance of commercial paper by Alliant Energy. Interest
expense and transmission facilities.other fees are allocated based on borrowing amounts. The PSCW has
restricted WP&L from lending money to non-utility affiliates and non-Wisconsin
utilities. As a requirementresult, WP&L can only borrow money from the utility money pool.
WP&L anticipates that short-term debt will continue to be available at
reasonable costs due to current ratings by independent utility analysts and
credit rating services. Refer to Note 8(a) of the legislation,"Notes to Consolidated
Financial Statements" for additional information on short-term debt.
SALE OF ACCOUNTS RECEIVABLE--To maintain flexibility in its capital structure
and to take advantage of favorable short-term rates, WP&L uses proceeds from the
PSCW completedsale of accounts receivable and unbilled revenues to finance a regional transmission constraint
study.portion of its
long-term cash needs. WP&L has filed applications with the SEC and state
regulatory agencies for approval of a combined accounts receivable sale program
whereby WP&L, IESU and IPC will sell their respective receivables through
wholly-owned special purpose entities to an affiliated financing entity, which
in turn will sell the receivables to an outside investor. The PSCWnew program would
replace the existing program for WP&L, and would be substantially similar to the
prior program. All necessary approvals are expected by mid-2001.
FINANCIAL COMMITMENTS--Refer to Note 11(d) of the "Notes to Consolidated
Financial Statements" for information.
A-11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CONSTRUCTION AND ACQUISITION EXPENDITURES--Capital expenditure and investment
and financing plans are subject to change as a result of many considerations,
including: changes in economic conditions; variations in actual sales and load
growth compared to forecasts; requirements of environmental, nuclear and other
regulatory authorities; acquisition and business combination opportunities; the
availability of alternate energy and purchased-power sources; the ability to
obtain adequate and timely rate relief; escalations in construction costs; and
conservation and energy efficiency programs. WP&L anticipates financing utility
construction expenditures during 2001-2005 through internally generated funds
supplemented, when required, by outside financing. Refer to Note 11(a) of the
"Notes to Consolidated Financial Statements" for information on WP&L's
anticipated construction and acquisition expenditures.
OTHER MATTERS
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
WP&L's primary market risk exposures are associated with interest rates,
commodity prices and equity prices. WP&L has risk management policies to monitor
and assist in controlling these market risks and uses derivative instruments to
manage some of the exposures.
INTEREST RATE RISK--WP&L is authorizedexposed to order constructionrisk resulting from changes in interest
rates as a result of new transmission
facilities, basedits issuance of variable-rate debt. WP&L manages its
interest rate risk by limiting its variable interest rate exposure and by
continuously monitoring the effects of market changes in interest rates. WP&L
has also historically used interest rate swap and interest rate forward
agreements to assist in the management of its interest exposure. In the event of
significant interest rate fluctuations, management would take actions to
minimize the effect of such changes on WP&L's results of operations. Assuming no
change in WP&L's financial structure, if variable interest rates were to average
1 percent higher (lower) in 2001 compared to 2000, and in 2000 compared to 1999,
interest expense and pre-tax earnings would increase (decrease) by approximately
$0.6 million for both time periods. These amounts were determined by considering
the impact of a hypothetical 1 percent increase (decrease) in interest rates on
the findingsvariable-rate debt held by WP&L as of December 31, 2000 and 1999.
COMMODITY RISK--NON-TRADING--WP&L is exposed to the impact of market
fluctuations in the commodity price and transportation costs of electricity and
natural gas it markets. WP&L employs established policies and procedures to
manage its risks associated with these market fluctuations including the use of
various commodity derivatives. WP&L's exposure to commodity price risks is
significantly mitigated by the current rate making structures in place for the
recovery of its constraint study, throughelectric fuel and purchased energy costs as well as its cost of
natural gas purchased for resale. Refer to Note 1(i) of the "Notes to
Consolidated Financial Statements" for further discussion.
WP&L periodically utilizes gas commodity swap arrangements to reduce the impact
of price fluctuations on gas purchased and injected into storage during the
summer months and withdrawn and sold at current market prices during the winter
months. The gas commodity swaps in place approximate the forecasted storage
withdrawal plan during this period. Therefore, market price fluctuations that
result in an increase or decrease in the value of the physical commodity are
substantially offset by changes in the value of the gas commodity swaps. To the
extent actual storage withdrawals vary from forecasted withdrawals, WP&L has
physical commodity price exposure. A 10 percent increase (decrease) in the price
of gas would have an insignificant impact on the combined fair market value of
the gas in storage and related swap arrangements in place as of December 31,
2004.
-A-23-2000 and 1999.
A-12
On September 24, 1997, the PSCW orderedMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
EQUITY PRICE RISK--WP&L maintains trust funds to fund its anticipated nuclear
decommissioning costs. As of December 31, 2000 and 1999, these funds were
invested primarily in domestic equity and debt instruments. Fluctuations in
equity prices or interest rates will not affect WP&L's results of operations as
such fluctuations are recorded in equally offsetting amounts of investment
income and depreciation expense when they are realized. In February 2001, WP&L
entered into a four-year hedge on equity assets in its nuclear decommissioning
trust fund.
Refer to Notes 1(l) and two other Wisconsin
utilities to arrange for additional electric capacity to help maintain
reliable service for their customers. In July 1998, Alliant Energy and
SkyGen announced an agreement whereby SkyGen would build, own and
operate a power plant in Wisconsin capable of producing up to 450 MW of
electricity. Under the agreement, Alliant Energy will purchase the
capacity to meet the electric needs of its utility customers, as
outlined by the Wisconsin Reliability Act. A third party filed an
appeal to the EPA Appeals Board on the issue of NOx mitigation. In the
fourth quarter of 1999, the WDNR issued a revised air permit which was
appealed again by the third party. In March 2000, the EPA denied the
third party's final appeal which finalizes the air permitting process
and allows for construction10 of the plant.
The EPA appeal process resulted in the SkyGen project being delayed
until the summer"Notes to Consolidated Financial Statements"
for further discussion of 2001. Alliant Energy has made other contractual
commitments to ensure an 18% reserve margin in 2000, as required for
Wisconsin. Part of this effort includes purchased power contracts at
higher costs than the SkyGen power, including purchasing power from 54
portable diesel generators that will be located at various substation
locations within WP&L's service territory. These higher costs are
included in a rate increase requested by WP&L in December 1999 as
discussed in "Liquidity and Capital Resources--Rates and Regulatory
Matters--WP&L."
Alliant Energy notes that it will take time for new transmission and
power plant projects to be approved and built in Wisconsin. While
Alliant Energy currently expects to meet customer demands in 2000,
unanticipated reliability issues could still arise in the event
Wisconsin experiences unexpected power plant outages, transmission
system outages or extended periods of extremely hot weather.
-A-24-derivative financial instruments.
A-13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareowners of Wisconsin Power and Light Company:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Wisconsin Power and Light Company (a Wisconsin corporation)
and subsidiaries as of December 31, 19992000 and 1998,1999, and the related consolidated
statements of income, retained
earningscash flows and cash flowschanges in common equity for each of the
three years in the period ended December 31, 1999.2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
auditing
standards.in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wisconsin Power and Light
Company and subsidiaries as of December 31, 19992000 and 1998,1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999,2000, in conformity with accounting principles generally
accepted accounting principles.in the United States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 28, 2000
-A-25-29, 2001
A-14
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December
YEAR ENDED DECEMBER 31,
--------------------------------------2000 1999 1998
1997
--------------------------------------
(in thousands)
Operating revenues:--------- --------- ---------
(IN THOUSANDS)
OPERATING REVENUES:
Electric utility......................................................... $ 626,607 $ 614,704 $ 634,143utility.......................................... $692,191 $626,607 $614,704
Gas utility..............................................................utility............................................... 165,152 120,770 111,737
155,883
Water....................................................................Water..................................................... 5,038 5,128 5,007
4,691
-------------------------------------------------- -------- --------
862,381 752,505 731,448
794,717
------------------------------------------
Operating expenses:-------- -------- --------
OPERATING EXPENSES:
Electric production fuels................................................fuels................................. 113,208 110,521 120,485
116,812
Purchased power..........................................................power........................................... 146,939 107,598 113,936 125,438
Cost of gas sold.........................................................sold.......................................... 107,131 64,073 61,409
99,267
Other operation.......................................................... 126,479 143,666 131,398
Maintenance.............................................................. 45,652 49,912 48,058operation and maintenance........................... 188,967 172,131 193,578
Depreciation and amortization............................................amortization............................. 139,911 113,037 119,221 104,297
Taxes other than income taxes............................................taxes............................. 29,163 30,240 30,169
30,338
-------------------------------------------------- -------- --------
725,319 597,600 638,798
655,608
------------------------------------------
Operating income............................................................-------- -------- --------
OPERATING INCOME............................................ 137,062 154,905 92,650
139,109
-------------------------------------------------- -------- --------
INTEREST EXPENSE AND OTHER:
Interest expense and other:
Interest expense.........................................................expense.......................................... 44,644 40,992 36,584 32,607
Allowance for funds used during construction.............................construction.............. (5,365) (4,511) (3,049)
(2,775)
Miscellaneous, net.......................................................net........................................ (16,536) 1,836 (1,129)
(3,796)
-------------------------------------------------- -------- --------
22,743 38,317 32,406
26,036
------------------------------------------
Income before income taxes..................................................-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 114,319 116,588 60,244
113,073
------------------------------------------
Income taxes................................................................-------- -------- --------
INCOME TAXES................................................ 42,918 45,758 24,670
41,839
------------------------------------------
Net income..................................................................-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, NET OF TAX..................................... 71,401 70,830 35,574
71,234
------------------------------------------
Preferred dividend requirements.............................................-------- -------- --------
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, NET
OF TAX.................................................... 35 -- --
-------- -------- --------
NET INCOME.................................................. 71,436 70,830 35,574
-------- -------- --------
PREFERRED DIVIDEND REQUIREMENTS............................. 3,310 3,310 3,310
------------------------------------------
Earnings available for common stock.........................................-------- -------- --------
EARNINGS AVAILABLE FOR COMMON STOCK......................... $ 68,126 $ 67,520 $ 32,264
$ 67,924
================================================== ======== ========
- -----------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
A-15
CONSOLIDATED BALANCE SHEETS
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended DecemberDECEMBER 31,
-----------------------------------------2000 1999
1998 1997
-----------------------------------------
(in thousands)ASSETS -------------- --------------
(IN THOUSANDS)
Balance at beginning of year................................................ $ 294,309 $ 320,386 $ 310,805
Net income.................................................................. 70,830 35,574 71,234
Cash dividends declared on common stock..................................... (58,353) (58,341) (58,343)
Cash dividends declared on preferred stock.................................. (3,310) (3,310) (3,310)
------------------------------------------
Balance at end of year...................................................... $ 303,476 $ 294,309 $ 320,386
==========================================
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
-A-26-
WISCONSIN POWERPROPERTY, PLANT AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------------
1999 1998
---------------------------------
(in thousands)
ASSETS
Property, plant and equipment:EQUIPMENT:
Utility --
Plant in service
Electric.....................................................................--
Electric.............................................. $ 2,007,974 $ 1,921,624
$ 1,839,545
Gas..........................................................................Gas................................................... 273,457 258,132
244,518
Water........................................................................Water................................................. 29,869 27,770
26,567
Common.......................................................................Common................................................ 223,921 218,607
219,268
----------------------------------------------- --------------
2,535,221 2,426,133
2,329,898
Less--Accumulated depreciation.................................................Less -- Accumulated depreciation........................ 1,380,723 1,266,366
1,168,830
----------------------------------------------- --------------
1,154,498 1,159,767 1,161,068
Construction work in progress..................................................progress........................... 59,133 66,784 56,994
Nuclear fuel, net of amortization..............................................amortization....................... 16,099 15,079
18,671
----------------------------------------------- --------------
1,229,730 1,241,630 1,236,733
Other property, plant and equipment, net of accumulated
depreciation and amortization of $195 and $169,
and $44, respectively....................respectively............................................ 369 608
630
----------------------------------------------- --------------
1,230,099 1,242,238
1,237,363
---------------------------------
Current assets:-------------- --------------
CURRENT ASSETS:
Cash and temporary cash investments...............................................investments....................... 2,584 3,555 1,811
Accounts receivable:
Customer.......................................................................Customer................................................ 51,769 22,061
13,372
Associated companies...........................................................companies.................................... 2,211 5,067
3,019
Other..........................................................................Other................................................... 13,865 10,984 8,298
Production fuel, at average cost..................................................cost.......................... 17,811 20,663 20,105
Materials and supplies, at average cost...........................................cost................... 21,639 20,439 20,025
Gas stored underground, at average cost...........................................cost................... 13,876 8,624 10,738
Regulatory assets................................................................. 3,707 3,707
Prepaid gross receipts tax........................................................tax................................ 23,088 20,864
22,222
Other............................................................................. 5,568 6,987
---------------------------------Other..................................................... 6,397 9,275
-------------- --------------
153,240 121,532
110,284
---------------------------------
Investments:-------------- --------------
INVESTMENTS:
Nuclear decommissioning trust funds...............................................funds....................... 195,768 166,202
134,112
Other.............................................................................Other..................................................... 14,362 15,272
15,960
----------------------------------------------- --------------
210,130 181,474
150,072
---------------------------------
Other assets:-------------- --------------
OTHER ASSETS:
Regulatory assets.................................................................assets......................................... 88,721 82,161 76,284
Deferred charges and other........................................................other................................ 174,834 138,730
111,147
----------------------------------------------- --------------
263,555 220,891
187,431
---------------------------------
Total assets.........................................................................-------------- --------------
TOTAL ASSETS................................................ $ 1,857,024 $ 1,766,135
$ 1,685,150
=================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.============== ==============
- ---------------------------------------------------------------------------------------------
-A-27-THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
A-16
CONSOLIDATED BALANCE SHEETS (CONTINUED)
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
DecemberDECEMBER 31,
--------------------------------2000 1999 1998
--------------------------------
(in thousands)
CAPITALIZATION AND LIABILITIES Capitalization (See Consolidated Statements of Capitalization):--------------- ---------------
(IN THOUSANDS)
CAPITALIZATION (SEE CONSOLIDATED STATEMENTS OF
CAPITALIZATION):
Common stock.....................................................................stock.............................................. $ 66,183 $ 66,183
Additional paid-in capital.......................................................capital................................ 229,516 229,438
199,438
Retained earnings................................................................earnings......................................... 371,602 303,476
294,309
---------------------------------Accumulated other comprehensive loss...................... (4,708) --
--------------- ---------------
Total common equity...........................................................equity..................................... 662,593 599,097
559,930
------------------------------------------------ ---------------
Cumulative preferred stock, not mandatorily redeemable...........................stock................................ 59,963 59,963
Long-term debt (excluding current portion)....................................................... 514,209 414,673
414,579
------------------------------------------------ ---------------
1,236,765 1,073,733
1,034,472
------------------------------------------------ ---------------
CURRENT LIABILITIES:
Current liabilities:
Current maturities...............................................................maturities........................................ -- 1,875 --
Variable rate demand bonds.......................................................bonds................................ 55,100 56,975
Notes payable.................................................................... -- 50,00055,100
Notes payable to associated companies............................................companies..................... 29,244 125,749
26,799
Accounts payable.................................................................payable.......................................... 120,155 88,245 84,754
Accounts payable to associated companies.........................................companies.................. 32,442 25,306
20,315
Accrued payroll and vacations.................................................... 7,499 5,276
Accrued interest................................................................. 6,903 6,863
Other............................................................................ 15,881 14,600
---------------------------------Other..................................................... 36,266 30,283
--------------- ---------------
273,207 326,558
265,582
---------------------------------
Other long-term liabilities and deferred credits:--------------- ---------------
OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes................................................taxes......................... 222,819 235,838 245,489
Accumulated deferred investment tax credits......................................credits............... 29,472 31,311
33,170
Customer advances................................................................advances......................................... 34,815 34,643
34,367
Environmental liabilities........................................................liabilities................................. 7,564 10,861
11,683
Other............................................................................Other..................................................... 52,382 53,191
60,387
------------------------------------------------ ---------------
347,052 365,844
385,096
---------------------------------
Commitments and contingencies (Note--------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
Total capitalization and liabilities.................................................TOTAL CAPITALIZATION AND LIABILITIES........................ $ 1,857,024 $ 1,766,135
$ 1,685,150
=================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.=============== ===============
- -----------------------------------------------------------------------------------------------
-A-28-THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
A-17
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December
YEAR ENDED DECEMBER 31,
-------------------------------------------------2000 1999 1998
1997
-------------------------------------------------
(in thousands)
Cash flows from operating activities:--------------- --------------- ---------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................income........................................ $ 71,436 $ 70,830 $ 35,574
$ 71,234
Adjustments to reconcile net income to net cash
flows from operating activities:ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
FLOWS FROM OPERATING ACTIVITIES:
Depreciation and amortization.................................amortization.................... 139,911 113,037 119,221 104,297
Amortization of nuclear fuel..................................fuel..................... 5,066 6,094 5,356 3,534
Deferred taxes and investment tax credits.....................credits........ (12,077) (12,618) (7,529)
3,065
Other.........................................................Other............................................ (16,003) 2,432 (2,089)
(1,323)
Other changes in assets and liabilities:OTHER CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable...........................................receivable.............................. (29,733) (13,423) 12,845
(3,314)
Accounts payable..............................................payable................................. 39,046 8,482 19,452 (7,102)
Benefit obligations and other.................................other.................... (21,797) (11,854) (5,509)
(20,460)
------- ------ ---------------------- --------------- ---------------
Net cash flows from operating activities....................activities....... 175,849 162,980 177,321
149,931
------- ------- -------
Cash flows from (used for) financing activities:--------------- --------------- ---------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Common stock dividends........................................dividends........................... -- (58,353) (58,341)
(58,343)
Preferred stock dividends.....................................dividends........................ (3,310) (3,310) (3,310)
Proceeds from issuance of long-term debt......................debt......... 100,000 -- 60,000 105,000
Reductions in long-term debt..................................debt..................... (1,875) -- (8,899) (55,000)
Net change in short-term borrowings...........................borrowings.............. (96,505) 48,950 (4,201) 11,500
Capital contribution from parent..............................parent................. -- 30,000 --
--
Other.........................................................Other............................................ (1,242) -- (1,966)
(2,601)
------ ------ --------------------- --------------- ---------------
Net cash flows from (used for) financing
activities................................................activities................................... (2,932) 17,287 (16,717)
(2,754)
------ ------- ------
Cash flows used for investing activities:--------------- --------------- ---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Utility construction expenditures.............................expenditures................ (131,640) (131,915) (117,143) (119,232)
Nuclear decommissioning trust funds...........................funds.............. (16,092) (16,092) (14,297)
(11,427)
Shared savings program........................................ (31,085) (24,355) (17,610)
Other......................................................... 569 (5,490) (583)
-------- -------- --------Other............................................ (26,156) (30,516) (29,845)
--------------- --------------- ---------------
Net cash flows used for investing activities................activities... (173,888) (178,523) (161,285)
(148,852)
-------- --------- ---------
Net increase (decrease) in cash and temporary cash
investments......................................................--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS...................................... (971) 1,744 (681)
(1,675)
-------- --------- --------
Cash and temporary cash investments at beginning
of period........................................................--------------- --------------- ---------------
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF
PERIOD........................................... 3,555 1,811 2,492
4,167
-------- --------- --------
Cash and temporary cash investments at end of period.................--------------- --------------- ---------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF
PERIOD........................................... $ 2,584 $ 3,555 $ 1,811
$ 2,492
============ ============= ==============
Supplemental cash flow information:=============== =============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ...................................................Interest......................................... $ 40,455 $ 38,330 $ 33,368
=============== =============== ===============
Income taxes..................................... $ 32,955
============ ============= ==============
Income taxes................................................54,676 $ 47,164 $ 31,951
$ 37,407
============ ============= ============================= =============== ===============
- --------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
-A-29-THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
A-18
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December
DECEMBER 31,
---------------------------------2000 1999
1998
---------------------------------
(in thousands
except share amounts)
Common equity:
Common stock--$5.00 par value--authorized 18,000,000 shares;------------ ------------
(IN THOUSANDS, EXCEPT SHARE
AMOUNTS)
COMMON EQUITY:
Common stock -- $5.00 par value -- authorized 18,000,000
shares; 13,236,601 shares outstanding.................................................outstanding................... $ 66,183 $ 66,183
Additional paid-in capital.......................................................capital................................ 229,516 229,438
199,438
Retained earnings................................................................earnings......................................... 371,602 303,476
294,309
------- -------Accumulated other comprehensive loss...................... (4,708) --
---------- ----------
662,593 599,097
559,930
------- -------
Cumulative preferred stock:---------- ----------
CUMULATIVE PREFERRED STOCK:
Cumulative, without par value, not mandatorily redeemable--authorizedredeemable
-- authorized 3,750,000 shares, maximum aggregate stated
value $150,000,000:
$100 stated value--4.50%value -- 4.50% series, 99,970 shares
outstanding..................outstanding.......................................... 9,997 9,997
$100 stated value--4.80%value -- 4.80% series, 74,912 shares
outstanding..................outstanding.......................................... 7,491 7,491
$100 stated value--4.96%value -- 4.96% series, 64,979 shares
outstanding..................outstanding.......................................... 6,498 6,498
$100 stated value--4.40%value -- 4.40% series, 29,957 shares
outstanding..................outstanding.......................................... 2,996 2,996
$100 stated value--4.76%value -- 4.76% series, 29,947 shares
outstanding..................outstanding.......................................... 2,995 2,995
$100 stated value--6.20%value -- 6.20% series, 150,000 shares
outstanding.................outstanding.......................................... 15,000 15,000
$25$ 25 stated value--6.50%value -- 6.50% series, 599,460 shares
outstanding................outstanding.......................................... 14,986 14,986
------ ---------------- ----------
59,963 59,963
------ ------
Long-term debt:---------- ----------
LONG-TERM DEBT:
First Mortgage Bonds:
1984 Series A, variable rate (5.00%(5% at December 31, 1999)2000),
due 2014...........2014............................................... 8,500 8,500
1988 Series A, variable rate (5.60%(5.15% at December 31,
1999)2000), due 2015...........2015........................................ 14,600 14,600
1990 Series V, 9.3%, due 2025.................................................2025........................... 27,000 27,000
1991 Series A, variable rate (4.75%(4.85% at December 31,
1999)2000), due 2015...........2015........................................ 16,000 16,000
1991 Series B, variable rate (4.75%(4.85% at December 31,
1999)2000), due 2005...........2005........................................ 16,000 16,000
1991 Series C, variable rate (4.75% at December 31, 1999), due 2000........... 1,000retired in 2000.......................... -- 1,000
1991 Series D, variable rate (4.75% at December 31, 1999), due 2000........... 875retired in 2000.......................... -- 875
1992 Series W, 8.6%, due 2027.................................................2027........................... 90,000 90,000
1992 Series X, 7.75%, due 2004................................................2004.......................... 62,000 62,000
1992 Series Y, 7.6%, due 2005.................................................2005........................... 72,000 72,000
------ ------
307,975---------- ----------
306,100 307,975
Debentures, 7%, due 2007.........................................................2007.................................. 105,000 105,000
Debentures, 5.7%, due 2008.......................................................2008................................ 60,000 60,000
------ ------Debentures, 7 5/8%, due 2010.............................. 100,000 --
---------- ----------
571,100 472,975
472,975
------- ----------------- ----------
Less:
Current maturities............................................................maturities...................................... -- (1,875) --
Variable rate demand bonds....................................................bonds.............................. (55,100) (56,975)(55,100)
Unamortized debt premium and (discount), net..................................net............ (1,791) (1,327)
(1,421)
------ ---------------- ----------
514,209 414,673
414,579---------- ----------
TOTAL CAPITALIZATION........................................ $1,236,765 $1,073,733
========== ==========
- -----------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
A-19
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE COMMON
STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
-------- ---------- --------- ------------- ---------
(IN THOUSANDS)
1998:
Beginning balance............................ $66,183 $199,170 $320,386 $ -- $585,739
Earnings available for common stock........ 32,264 32,264
Common stock dividends..................... (58,341) (58,341)
Common stock issued........................ 268 268
------- -------- -------- ------- --------
Ending balance............................... 66,183 199,438 294,309 -- 559,930
1999:
Earnings available for common stock........ 67,520 67,520
Common stock dividends..................... (58,353) (58,353)
Capital contribution from parent........... 30,000 30,000
------- -------- -------- ------- --------
Ending balance............................... 66,183 229,438 303,476 -- 599,097
2000:
Comprehensive income:
Earnings available for common stock...... 68,126 68,126
Other comprehensive income (loss):
Unrealized losses on derivatives
qualified as hedges:
Unrealized holding losses arising
during period due to cumulative
effect of a change in accounting
principle, net of tax of
($430)........................... (642) (642)
Other unrealized holding losses
arising during period, net of tax
of ($3,634)...................... (5,151) (5,151)
Less: reclassification adjustment
for losses included in net
income, net of tax of ($769)..... (1,085) (1,085)
------- --------
Net unrealized losses on qualifying
derivatives......................... (4,708) (4,708)
------- --------
Total capitalization................................................................. $ 1,073,733 $ 1,034,472
============= ==============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.comprehensive income............... 63,418
Common stock issued........................ 78 78
------- -------- -------- ------- --------
Ending balance............................... $66,183 $229,516 $371,602 ($4,708) $662,593
======= ======== ======== ======= ========
- ------------------------------------------------------------------------------------------------------------
-A-30-THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
A-20
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
The Consolidated Financial Statements(A) GENERAL--The consolidated financial statements include the accounts of WP&L
and its consolidated subsidiaries. WP&L is a subsidiary of Alliant Energy and is
engaged principally in the generation, transmission, distribution and sale of
electric energy; the purchase, distribution, transportation and sale of natural
gas; and water services. Nearly all of WP&L's retail customers are located in
south and central Wisconsin. WP&L's principal consolidated subsidiary issubsidiaries are WPL
Transco LLC and South Beloit.
The consolidated financial statements reflect investments in controlled
subsidiaries on a consolidated basis.
The financial statements are prepared in conformity with accounting principles
generally accepted accounting principles,in the U.S., which give recognition to the rate making and
accounting practices of FERC and state commissions having regulatory
jurisdiction. Certain
prior periodThe preparation of the financial statements requires management to
make estimates and assumptions that affect: a) the reported amounts have been reclassified on a basis consistent withof assets
and liabilities and the current year presentation.disclosure of contingent assets and liabilities at the
date of the financial statements; and b) the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Unconsolidated investments for which WP&L has at least a 20%20 percent
non-controlling voting interest are generally accounted for under the equity
method of accounting. These investments are stated at acquisition cost,
increased or decreased for WP&L's equity in net income or loss, which is
included in "Miscellaneous, net" in the Consolidated Statements of Income and
decreased for any dividends received. Investments that do not meet the criteria
for consolidation or the equity method of accounting are accounted for under the
cost method.
The preparation of the financial statements requires management to make
estimates and assumptions that affect: a) the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements; and b) the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(b) Regulation
WP(B) REGULATION--WP&L is a public utility company subject to regulation by the FERC,
the PSCW and the ICC.
(c) Regulatory Assets
WP(C) REGULATORY ASSETS--WP&L is subject to the provisions of SFAS 71, "Accounting
for the Effects of Certain Types of Regulation.Regulation," SFAS 71which provides that
rate-regulated public utilities record certain costs and credits allowed in the
rate making process in different periods than for unregulatednon-regulated entities. These
are deferred as regulatory assets or accrued as regulatory liabilities and are
recognized in the Consolidated Statements of Income at the time they are
reflected in rates. At December 31, 19992000 and 1998, WP&L's1999, regulatory assets of
$85.9$92.4 million and $80.0$85.9 million, respectively, were comprised of the following
items (in millions):
1999 1998
---- ----
Tax-related (Note 1(d)).................................... $43.4 $49.3
Energy efficiency program costs............................ 7.0 --
Environmental liabilities (Note 11(e))..................... 19.1 19.5
Other...................................................... 16.4 11.2
---- ----
2000 1999
-------- --------
Tax-related (Note 1(d))..................................... $37.6 $43.4
Energy efficiency program costs............................. 19.8 7.0
Environmental liabilities (Note 11(e))...................... 16.6 19.1
Other....................................................... 18.4 16.4
----- -----
$92.4 $85.9 $80.0
===== =====
Refer to the individual notes referenced above for a further discussion
of certain items reflected in regulatory assets.
If a portion of WP&L's operations becomebecomes no longer subject to the provisions of
SFAS 71 as a result of competitive restructuring or otherwise, a write-down of
related regulatory assets would be required, unless some form of transition cost
recovery is established by the appropriate regulatory body that would meet the
requirements under -A-31-
generally accepted accounting principles for continued
accounting as regulatory assets during such recovery period. In addition, WP&L
would be required to determine any impairment toof other assets and write-down
such assets to their fair value.
(d) Income Taxes
Alliant EnergyA-21
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) INCOME TAXES--WP&L follows the liability method of accounting for deferred
income taxes, which requires the establishment of deferred tax assets and
liabilities, as appropriate, for all temporary differences between the tax basis
of assets and liabilities and the amounts reported in the financial statements.
Deferred taxes are recorded using currently enacted tax rates.
Except as noted below, income tax expense includes provisions for deferred taxes
to reflect the tax effects of temporary differences between the time when
certain costs are recorded in the accounts and when they are deducted for tax
return purposes. As temporary differences reverse, the related accumulated
deferred income taxes are reversed to income. Investment tax credits have been
deferred and are subsequently credited to income over the average lives of the
related property.
As part of the affordable housing and oil and gas production
businesses, Alliant Energy is eligible to claim certain tax credits.
These tax credits reduce current federal taxes to the extent Alliant
Energy has consolidated taxes payable.
The PSCW has allowed rate recovery of deferred taxes on all temporary
differences since August 1991. WP&L established a regulatory asset associated
with those temporary differences occurring prior to August 1991 that will be
recovered in future rates.
Alliant Energy files a consolidated federal income tax return. Under the terms
of an agreement between Alliant Energy and WP&L, WP&L calculates its subsidiaries,
the subsidiaries calculate their respective federal
income tax provisions and makemakes payments to or receivereceives payments from Alliant
Energy as if theyit were a separate taxable entities.
(e) Temporary Cash Investments
Temporaryentity.
(E) TEMPORARY CASH INVESTMENTS--Temporary cash investments are stated at cost,
which approximates market value, and are considered cash equivalents for the
Consolidated Balance Sheets and the Consolidated Statements of Cash Flows. These
investments consist of short-term liquid investments that have maturities of
less than 90 days from the date of acquisition.
(f) Depreciation of Utility Property, Plant and Equipment
WP(F) DEPRECIATION OF UTILITY PROPERTY, PLANT AND EQUIPMENT--WP&L uses the
straight-line depreciation method as approved by the PSCW.PSCW and the ICC. The
remaining life of Kewaunee, of which WP&L is a co-owner, is based on the PSCW
approved revised end-of-life of 2002 (prior to May
1997 the calculation was based on the NRC license end-of-life of 2013).2010. Depreciation expense related to the
decommissioning of Kewaunee is discussed in Note 11(g)11(f). The average rates of
depreciation for electric and gas properties of WP&L, consistent with current
rate making practices, were as follows:
1999 1998 1997
--- ---- ----
Electric.................... 3.6% 3.6% 3.6%
Gas.........................
2000 1999 1998
-------- -------- --------
Electric.................................................... 3.6% 3.6% 3.6%
Gas......................................................... 4.1% 3.9% 3.8%
3.8%
(g) Property, Plant and Equipment
Utility
(G) PROPERTY, PLANT AND EQUIPMENT--Utility plant is recorded at original cost,
which includes overhead and administrative costs and AFUDC. WP&L's aggregate
gross AFUDC which represents the cost during
the construction period of fundsrecovery rates used for construction purposes, is
capitalized as a component of the cost of utility plant. The amount of
AFUDC applicable to debt funds2000, 1999 and to other (equity) funds, a non-cash
item, is1998, computed in accordance
with the prescribed FERC formula. These
capitalized costs are recovered in rates as the cost of the utility
plant is depreciated. WP&L's aggregate gross rates used for 1999, 1998regulatory formula, were 10.8%, 5.4% and 1997 were 5.4%, 5.2% and 6.2%, respectively.
Other property, plant and equipment is recorded at original cost. Upon
retirement or sale of other property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any -A-32-
gain or loss is
included in "Miscellaneous, net" in the Consolidated Statements of Income. Normal repairs, maintenance and minor items of
utility plant and other property, plant and equipment are expensed.
Ordinary retirements of utility plant, including removal costs less salvage
value, are charged to accumulated depreciation upon removal from utility plant
accounts and no gain or loss is recognized.
(h) Operating Revenues
WP(H) OPERATING REVENUES--WP&L accrues revenues for services rendered but unbilled
at month-end
in order to more properly match revenues with expenses.month-end. In accordance
with an order from the PSCW, effective January 1, 1998, off-system gas
sales for2000, WP&L are includedrecorded an increase of $10 million in the Consolidated Statementsestimate
of Income asutility services rendered but unbilled at month-end due to the implementation
of a reduction of the cost of gas sold rather than as gas revenues.
Off-system gas sales at WP&L were $12.8 million, $11.5 million and
$11.1 million in 1999, 1998 and 1997, respectively.
(i) Utility Fuel Cost Recovery
WPrefined estimation process.
A-22
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) UTILITY FUEL COST RECOVERY--WP&L's retail electric rates are based in part
on forecasted fuel and purchased-power costs. Under PSCW rules, Wisconsin utilitiesWP&L can seek
emergency rate increases if the annual costs are more than 3%3 percent higher than
the estimated costs used to establish rates. WP&L has a gas performance
incentive which includes a sharing mechanism whereby 40%40 percent of all gains and
losses relative to current commodity prices, as well as other benchmarks, are
retained by WP&L, rather thanwith the remainder refunded to or recovered from customers.
(j) Nuclear Refueling Outage Costs
Operating(J) NUCLEAR REFUELING OUTAGE COSTS--Operating expenses incurred during refueling
outages at Kewaunee are expensed by WP&L as incurred. (k) Nuclear Fuel
NuclearThe next scheduled
refueling outage at Kewaunee is anticipated to commence in Fall 2001.
(K) NUCLEAR FUEL--Nuclear fuel for Kewaunee is recorded at its original cost and
is amortized to expense based upon the quantity of heat produced for the
generation of electricity. This accumulated amortization assumes spent nuclear
fuel will have no residual value. Estimated future disposal costs of such fuel
are expensed based on kilowatt-hours generated.
(l) Derivative Financial Instruments
From time to time, Alliant Energy(L) DERIVATIVE FINANCIAL INSTRUMENTS--WP&L uses derivative financial instruments
to hedge exposures to fluctuations in interest rates, certain commodity prices
and volatility in a portion of natural gas sales volumes due to weather. These instruments are usedWP&L
also utilizes derivatives to mitigate risks and arethe equity price volatility associated
with certain investments in equity securities. WP&L does not to be
useduse such
instruments for speculative purposes. UnderIn accordance with SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities--an Amendment of SFAS 133," the deferral methodfair value of accounting,all derivatives are
recorded as assets or liabilities on the Consolidated Balance Sheets and gains
and losses related to derivatives that are designated as, and qualify as hedges,
are recognized in earnings when the underlying hedged item or physical
transaction is recognized in income. Alliant Energy is exposed toGains and losses related to financial instrumentsderivatives
that do not qualify for, or are not designated in hedge relationships, are
recognized in earnings immediately. WP&L has a number of commodity purchase and
sales contracts for both capacity and energy that have been designated, and
qualify for, the event of counterparties' nonperformance. Alliant Energy has
established controls to determinenormal purchase and monitor the creditworthiness of
counterpartiessale exception in order to mitigate its exposure to counterparty credit
risk. Alliant Energy isSFAS 138. Based on this
designation, these contracts are not aware of any counterparties that will fail
to meet their obligations.accounted for as derivative instruments.
Refer to Note 10 for a further discussion of Alliant Energy'sWP&L's derivative financial
instruments.
(2) MERGER
OnIn April 21, 1998, WPLH, IES WPLH and IPC completed a merger formingresulting in Alliant Energy.
The merger was accounted for as a pooling of interests and the
accompanying Consolidated Financial Statements, along with the related
notes, are presented as if the companies were combined as of the
earliest period presented.
In association with the merger, Alliant Energy eliminated 167 positions
in 1998. As a result, Alliant Energy recorded $15 million of expenses
during 1998 in "Other operation" expense related to the employee
separation benefits to be paid to the impacted employees. The bulk of
the positions eliminated were administrative in nature and resulted
from no longer needing certain duplicative positions given the
consolidation of the three companies. The departure dates for the
-A-33-interests.
A-23
impacted employees varied based on the need for their services during
the transition period as well as certain other factors. The balance of
the accrual at December 31, 1999 and 1998 was $1.0 million and $5.7
million, respectively. As of December 31, 1999, all of the terminated
employees had actually left the organization. As of December 31, 1998,
156 of the terminated employees had actually left the organization. The
balance remaining in the accrued liability at December 31, 1999 related
to payments to certain terminated executives that were being paid out
over a 18-36 month period pursuant to the terms of their respective
severance agreements. The only significant adjustments made to the
liability after the initial accrual were to reflect the actual payments
of the employee separation benefits.
(3) LEASES
WP&L's operating lease rental expenses for 2000, 1999 and 1998 and 1997 were
$7.9 million, $7.7 million $6.4 million and $5.5$6.4 million, respectively. WP&L's future minimum
lease payments by year are as follows (in millions):
Operating
Year Leases
- ---- ----------
2000.......................................................... $ 8.0
2001.......................................................... 7.6
2002.......................................................... 6.2
2003.......................................................... 4.9
2004.......................................................... 4.5
Thereafter.................................................... 25.3
----
$56.5
=====
OPERATING
YEAR LEASES
- ---- ---------
2001........................................................ $ 14.0
2002........................................................ 16.5
2003........................................................ 15.5
2004........................................................ 15.1
2005........................................................ 15.2
Thereafter.................................................. 64.2
------
$140.5
======
(4) UTILITY ACCOUNTS RECEIVABLE
Utility customer accounts receivable, including unbilled revenues, arise
primarily from the sale of electricity and natural gas. At December 31, 2000 and
1999, WP&L was serving a diversified base of residential, commercial and
industrial customers and did not have any significant concentrations of credit
risk.
SimilarAn accounts receivable financing arrangements existarrangement exists through 2001 for WP&L, in
which sellsit may sell up to a pre-determined maximum amount of $150 million of accounts receivable
to a financial institution on a limited recourse basis. Accounts receivable sold
include receivables arising from sales to customers and to other public,
municipal and cooperative utilities, as well as from billings to the co-owners
of the jointly-owned electric generating plants operated by WP&L. The amounts are discounted at the then-prevailing
market rate and additional administrative fees are payable according to
the activity levels undertaken. AllWP&L receives
a fee for billing and collection functions, which remain the responsibility of WP&L. Specifics of WP&L's agreement
include (dollarsresponsibility,
that approximates fair value. In 2000, 1999 and 1998, WP&L received
approximately $0.9 billion, $0.9 billion and $1.0 billion, respectively, in
millions):
Year agreement expires........................................ 2000
Maximum amount of receivables that can be sold................ $ 150
Effective 1999 all-in cost.................................... 5.58%
Average monthlyaggregate proceeds from this facility. WP&L uses proceeds from the sale of
receivables--1999..................... $ 73
--1998..................... $ 83
Receivables sold at December 31, 1999......................... $ 67
For additional information on the accounts receivable programs, referand unbilled revenues to the "Liquidityfinance a portion of its long-term
cash needs. Included in WP&L's Consolidated Statements of Income for 2000, 1999
and Capital Resources--Financing1998, were fees associated with these sales of $5.0 million, $4.0 million
and Capital
Structure" section of MD&A.$4.9 million, respectively.
(5) INCOME TAXES
The components of federal and state income taxes for WP&L for the years ended
December 31 were as follows (in millions):
1999 1998 1997
----- ------- -----
Current tax expense............... $ 58.4 $ 32.2 $38.8
Deferred tax expense.............. (10.7) (5.6) 4.9
Amortization of investment tax credits (1.9) (1.9) (1.9)
---- ---- ----
$ 45.8 $ 24.7 $41.8
======
2000 1999 1998
-------- -------- --------
Current tax expense......................................... $55.0 $ 58.4 $32.2
Deferred tax expense........................................ (10.2) (10.7) (5.6)
Amortization of investment tax credits...................... (1.9) (1.9) (1.9)
----- ------ -----
$42.9 $ 45.8 $24.7
===== ====== =====
-A-34-
A-24
(5) INCOME TAXES (CONTINUED)
The overall effective income tax rates shown below for the years ended
December 31 were computed by dividing total income tax expense by income before
income taxes.
2000 1999 1998
1997
---- ---- ------------ -------- --------
Statutory federal income tax rate.........................STATUTORY FEDERAL INCOME TAX RATE........................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefits...........benefits............... 6.0 6.3 7.8 5.7
Amortization of investment tax credits................credits.................... (1.6) (1.6) (3.1) (1.7)
Adjustment of prior period taxes......................taxes.......................... (0.8) (0.3) --
(2.1)
Merger expenses.......................................expenses........................................... -- -- 2.5 0.3
Amortization of excess deferred taxes.................taxes..................... (1.3) (1.3) (2.5)
(1.3)
Other items, net......................................net.......................................... 0.2 1.1 1.3
1.1
--- --- ---
Overall effective income tax rate----- ------ -----
OVERALL EFFECTIVE INCOME TAX RATE........................... 37.5% 39.2% 41.0%
37.0%
==== ==== ========= ====== =====
The accumulated deferred income taxestax (assets) and liabilities as set
forth belowincluded on the
Consolidated Balance Sheets at December 31 arise from the following temporary
differences (in millions):
1999 1998
---- ----
Property related................................ $ 271.9 $ 282.7
Investment tax credit related................... (21.0) (22.2)
Other........................................... (15.1) (15.0)
----- -----
$ 235.8 $ 245.5
======== ========
2000 1999
-------- --------
Property related............................................ $260.5 $271.9
Investment tax credit related............................... (19.7) (21.0)
Other....................................................... (18.0) (15.1)
------ ------
$222.8 $235.8
====== ======
(6) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
WP&L has atwo non-contributory defined benefit pension planplans that coverscover
substantially all of its employees whoemployees. Benefits are subject to a collective
bargaining agreement. Plan benefits are generally based on the employees' years
of service and levels of compensation. Effective in 1998, eligible
employees of WP&L that are not subject to a collective bargaining
agreement are covered by the Alliant Energy Cash Balance Pension Plan,
a non-contributory defined benefit pension plan. The projected unit
credit actuarial cost method was used to compute pension cost and the
accumulated and projected benefit obligations. WP&L's policy is to fund
the pension plan at an amount that is at least equal to the minimum
funding requirements mandated by ERISA, and that does not exceed the
maximum tax deductible amount for the year. WP&L also provides certain other postretirement health
care and life benefits to retirees,
including medical benefits for retireeseligible retirees. In general, the health care plans
are contributory with participants' contributions adjusted annually and their spouses and, in some
cases, retireethe life
insurance. WP&L's funding policy is generally to
fund tax deductible amounts up to the incurred but unclaimed paid
medical claim reserve and tax deductible amounts (if any) to the
retiree medical account within the Cash Balance Pension Plan.insurance plans are non-contributory.
The weighted-average assumptions as of the measurement date of September 30 are
as follows:
Other Postretirement
Qualified Pension Benefits Benefits
-------------------------------- ---------------------------------QUALIFIED PENSION OTHER POSTRETIREMENT
BENEFITS BENEFITS
------------------------------ ------------------------------
2000 1999 1998 19972000 1999 1998
1997
-------------------------------- ----------------------------------------- -------- -------- -------- -------- --------
Discount rate........................................rate................................... 8.00% 7.75% 6.75% 7.25%8.00% 7.75% 6.75% 7.25%
Expected return on plan assets.......................assets.................. 9% 9% 9% 9% 9% 9%
Rate of compensation increase........................increase................... 3.5% 3.5% 3.5-4.5%3.5% 3.5% 3.5% 3.5%
Medical cost trend on covered charges:
Initial trend range..............................range........................... N/A N/A N/A 9% 7% 8% 8%
Ultimate trend range.............................range.......................... N/A N/A N/A 5% 5% 5%
-A-35-A-25
(6) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The components of WP&L's qualified pension benefits and other postretirement
benefits costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits
------------------------------------- ----------------------------------OTHER POSTRETIREMENT
QUALIFIED PENSION BENEFITS BENEFITS
------------------------------------ ------------------------------------
2000 1999 1998 19972000 1999 1998
1997
------------------------------------- ------------------------------------------ -------- -------- -------- -------- --------
Service cost................................cost..................................... $ 3.0 $ 3.8 $ 3.2 $ 4.81.4 $ 1.6 $ 1.7
$ 1.8
Interest cost...............................cost.................................... 8.9 8.9 8.5 13.93.3 2.7 2.6 3.3
Expected return on plan assets..............assets................... (12.9) (12.9) (12.8) (19.2)(1.6) (1.5) (1.5) (1.1)
Amortization of:
Transition obligation (asset).............................. (2.1) (2.1) (2.4)(2.1) 1.2 1.2 1.3
1.5
Prior service cost.......................cost............................. 0.4 0.4 0.5 0.4 -- -- --
Actuarial loss (gain).............................................. -- 0.2 -- --(0.8) (0.9) (1.1)
(0.3)
--------- -------- ------- ------- ------- -------
Total..............................------ ------ ------ ----- ----- -----
Total ($ 2.7) ($ 1.7) ($ 2.7) $ (1.7) $ (2.7) $ (2.5)3.5 $ 3.1 $ 3.0
$ 5.2
========= ======== ======= ======= ======= ============= ====== ====== ===== ===== =====
During 1998, and 1997, WP&L recognized an additional $0.6 million and
$1.3 million, respectively, of costs in accordance
with SFAS 88. The
charges were88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," for severance and early
retirement programs in the
respective years.programs. In addition, during 1998, and 1997, WP&L recognized $3.6 million and $1.7 million, respectively, of
curtailment charges relating to WP&L's other postretirement benefits.
The pension benefit cost shown above (and in the following tables) for
1999 and 1998 represents
only the pension benefit cost for bargaining unit employees of WP&L covered
under the bargaining unit pension plan that is sponsored by WP&L. The pension
benefit cost for WP&L's non-bargaining employees who are now participants in
other Alliant Energy plans was ($1.3) million, ($1.8) million and $3.0 million
for 2000, 1999 and 1998, respectively, including a special charge of
$3.6 million in 1998 for severance and early retirement window programs. In
addition, Corporate Services provides services to WP&L. The allocated pension
benefit costs associated with these services was $1.3 million, $1.2 million and
$0.6 million for 2000, 1999 and 1998, respectively. The other postretirement
benefit cost shown above for each period (and in the following tables)
represents the other postretirement benefit cost for all WP&L employees. The
allocated other postretirement benefit cost associated with Corporate Services
for WP&L was $0.3 million, $0.4 million and $0.2 million for 2000, 1999 and
1998, respectively.
The assumed medical trend rates are critical assumptions in determining the
service and interest cost and accumulated postretirement benefit obligation
related to postretirement benefit costs. A one percent change in the medical
trend rates for 1999,2000, holding all other assumptions constant, would have the
following effects (in millions):
1 Percent 1 Percent
Increase Decrease
-----------------------
Effect on total of service and
interest cost components.................... $0.3 ($0.3)
Effect on postretirement benefit obligation.... $1.5 ($1.5)
-A-36-
1 PERCENT INCREASE 1 PERCENT DECREASE
------------------ ------------------
Effect on total of service and interest cost
components........................................ $0.4 ($0.4)
Effect on postretirement benefit obligation......... $3.0 ($2.9)
A-26
(6) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
A reconciliation of the funded status of WP&L's plans to the amounts recognized
on WP&L's Consolidated Balance Sheets at December 31 is presented below (in
millions):
Other
Qualified Pension Postretirement
Benefits Benefits
------------------------ ---------------------------OTHER
QUALIFIED PENSION POSTRETIREMENT
BENEFITS BENEFITS
---------------------- ----------------------
2000 1999 19982000 1999
1998
------------------------ --------------------------
Change in benefit obligation:-------- -------- -------- --------
Change in benefit obligation:
Net benefit obligation at beginning of year....................... $ 132.3 $ 205.1 $ 40.3 $ 47.1
Transfer of obligations to other Alliant Energy plans............. -- (91.9) -- --year............... $117.2 $132.3 $42.4 $40.3
Service cost......................................................cost.............................................. 3.0 3.8 3.21.4 1.6
1.7
Interest cost.....................................................cost............................................. 8.9 8.58.9 3.3 2.7 2.6
Plan participants' contributions..................................contributions.......................... -- -- 1.2 0.81.2
Actuarial loss (gain).................................................................................. (6.2) (20.8) 12.2(1.3) 0.8 (9.7)
Curtailments...................................................... -- -- -- 0.7
Special termination benefits...................................... -- 0.6 -- --
Gross benefits paid...............................................paid....................................... (7.0) (5.4)(7.0) (4.7) (4.2)
(2.9)
---------- -------- ---------------- ------ ------ ------
Net benefit obligation at end of year..........................year................... 115.9 117.2 132.342.3 42.4
40.3
---------- -------- ---------------- ------ ------ ------
Change in plan assets:
Fair value of plan assets at beginning of year....................year............ 147.6 137.5 244.417.9 15.1 16.1
Transfer of assets to other Alliant Energy plans.................. -- (100.2) -- --
Actual return on plan assets......................................assets.............................. 15.7 17.1 (1.3)1.5 1.8
1.1
Employer contributions............................................contributions.................................... -- -- 3.5 4.0 --
Plan participants' contributions..................................contributions.......................... -- -- 1.2 0.81.2
Gross benefits paid...............................................paid....................................... (7.0) (5.4)(7.0) (4.7) (4.2)
(2.9)
---------- -------- ---------------- ------ ------ ------
Fair value of plan assets at end of year.......................year................ 156.3 147.6 137.519.4 17.9
15.1
---------- -------- ---------------- ------ ------ ------
Funded status at end of year..........................................year................................ 40.4 30.4 5.2(22.9) (24.5) (25.2)
Unrecognized net actuarial loss (gain)...................................................... (8.2) 0.8 26.0(15.0) (14.5) (17.0)
Unrecognized prior service cost.......................................cost............................. 4.3 4.7 5.1 (0.2) (0.2)
Unrecognized net transition obligation (asset)...................................... (3.7) (5.8) (7.9)13.8 14.9
17.2
---------- --------- ---------------- ------ ------ ------
Net amount recognized at end of year...........................year.................... $ 32.8 $ 30.1 $ 28.4 ($24.3) ($25.2)
---------- --------- ---------- ------24.3)
====== ====== ====== ======
Amounts recognized on the Consolidated Balance Sheets
consist of:
Prepaid benefit cost..............................................cost.................................... $ 32.8 $ 30.1 $ 28.40.9 $ 0.6
$ 0.4
Accrued benefit cost..............................................cost.................................... -- -- (25.2) (24.9)
(25.6)
---------- --------- ---------------- ------ ------ ------
Net amount recognized at measurement date.........................date............... 32.8 30.1 28.4 (24.3) (25.2)
---------- --------- ----------(24.3)
------ ------ ------ ------
Contributions paid after 9/September 30 and prior to
12/31......................December 31............................................... -- -- 0.6 1.0
2.1
---------- --------- ---------------- ------ ------ ------
Net amount recognized at 12/31....................................December 31.................... $ 32.8 $ 30.1 $ 28.4($23.7) ($23.3)
($23.1)
========== ========= ================ ====== ====== ======
Alliant Energy sponsors several non-qualified pension plans which cover
certain current and former officers. The pension expense allocated to
WP&L for these plans was $0.8 million, $0.8 million and $0.5 million in
1999, 1998 and 1997, respectively.
WP&L employees also participate in defined contribution pension plans
(401(k) plans) covering substantially all employees. WP&L's
contributions to the plans, which are based on the participants' level
of contribution, were $2.0 million, $2.4 million and $2.8 million in
1999, 1998 and 1997, respectively.A-27
(6) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The benefit obligation and fair value of plan assets for the postretirement
welfare plans with benefit obligations in excess of plan assets were
$36.5$37.1 million and $8.4$9.5 million as of September 30, 19992000 and $33.4$36.5 million and
$6.2$8.4 million, respectively, as of September 30, 1998.
-A-37-
1999.
Alliant Energy sponsors several non-qualified pension plans that cover certain
current and former officers. The pension expense allocated to WP&L for these
plans was $1.2 million, $0.8 million and $0.8 million in 2000, 1999 and 1998,
respectively.
A significant number of WP&L employees also participate in defined contribution
pension plans (401(k) plans). WP&L's contributions to the plans, which are based
on the participants' level of contribution, were $2.1 million, $2.0 million and
$2.4 million in 2000, 1999 and 1998, respectively.
(7) COMMON AND PREFERRED AND PREFERENCE STOCK
(a) Common Stock
WP(A) COMMON STOCK--WP&L has common stock dividend restrictions based on its
respective bond indentures and articles of incorporation. WP&L hasincorporation, and restrictions on
the payment of common stock dividends that are commonly found with preferred stock.
WP&L's common stock dividends are restricted to the extent that such dividend
would reduce the common stock equity ratio to less than 25%.25 percent. Also at WP&L, in rate order UR-110, the
PSCW ordered that it must approve the payment of dividends by WP&L to Alliant
Energy that are in excess of the level forecasted in the rate order
($58.3 million), if such dividends would reduce WP&L's average common equity
ratio below 52.00%52.00 percent of total capitalization. The dividends paid by WP&L to
Alliant Energy since the rate order was issued have not exceeded the level forecasted in the rate order.
All non-employee directors are eligible to receive a 25% matching
contribution in Alliant Energy common stock for limited cash purchases,
up to $10,000, of Alliant Energy's common stock through Alliant
Energy's Shareowner Direct Plan. Matching contributions of $2,500 each
were made to nine directors in 1999.
(b) Preferred and Preference Stock
Thesuch level.
(B) PREFERRED STOCK--The carrying value of WP&L's cumulative preferred stock at
December 31, 19992000 and 19981999 was $60 million. The fair market value, based upon
the market yield of similar securities and quoted market prices, at
December 31, 2000 and 1999 and 1998 was $49$44 million and $55$49 million, respectively.
(8) DEBT
(a) Short-Term Debt
WP(A) SHORT-TERM DEBT--WP&L, participatesIESU and IPC participate in a utility money pool,
with IESU and IPC thatwhich is funded, as needed, through the issuance of commercial paper by Alliant
Energy. Interest expense and other fees are allocated based on borrowingborrowed amounts.
The PSCW has restricted WP&L from lending money to non-utility affiliates and
non-Wisconsin utilities. As a result, WP&L is prohibited from lending money to the utility money pool but is able
tocan only borrow money from the
utility money pool. Information regarding WP&L's short-term debt iswas as follows
(dollars in millions):
2000 1999 1998
1997
------------------------------------------------------- -------- --------
As of year end:
Commercial paper outstanding......................................Notes payable outstanding............................... $-- $-- $81.0
Notes payable outstanding......................................... $-- $50.0 $--
Money pool borrowings............................................. $125.7 $26.8 $--
Discount rates on commercial paper................................ N/A N/A 5.82-5.90%
Interest rate on notes payable....................................payable.......................... N/A 5.44% N/A 5.4%
Money pool borrowings................................... $29.2 $125.7 $26.8
Interest rate on money pool borrowings............................ 5.84% 5.17% N/Aborrowings.................. 6.6% 5.8% 5.2%
For the year ended:
Average amount of short-term debt (based on
daily outstanding balances)........................... $25.5 $77.1 $48.4 $49.2
Average interest rate on short-term debt.......................... 5.22% 5.55% 5.64%debt................ 6.2% 5.2% 5.6%
-A-38-A-28
(b) Long-Term Debt(8) DEBT (CONTINUED)
(B) LONG-TERM DEBT--Substantially all of WP&L's utility plant is secured by its
First Mortgage Bonds. WP&L also maintains unsecured indentures relating to the
issuance of debt securities. WP&L's debt maturities (excluding periodic sinking fund requirements,
which will not require additional cash expenditures) for 20002001 to 20042005 are $1.9 million, $0, $0,
$0, $62.0 million and $62.0$88.0 million, respectively. The carrying value of WP&L's
long-term debt at December 31, 2000 and 1999 was $569 million and 1998 was $472 million.million,
respectively. The fair market value, based upon the market yield of similar
securities and quoted market prices, at December 31, 2000 and 1999 was
$584 million and 1998 was $469 million, and $513 million, respectively.
(9) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Information relating to other financial instruments held by WP&L is as
follows (in millions):
December 31, 1999 December 31, 1998
---------------------------------- --------------------------------------
Gross Gross
Carrying Fair Unrealized Carrying Fair Unrealized
Value Value Gains/(Losses) Value Value Gains
---------------------------------- --------------------------------------
Nuclear decommissioning trust funds:
Equity securities................... $ 65 $ 65 $ 45 $ 53 $ 53 $ 27
Debt securities..................... 101 101 (3) 81 81 1
------ ------ ----- ----- ------ --------
Total......................... $ 166 $ 166 $ 42 $ 134 $ 134 $ 28
====== ====== ===== ====== ====== ========
The carrying amount of WP&L's current assets and current liabilities
approximates fair value because of the short maturity of such financial
instruments.
As required by SFAS 115, WP&L's debt and equity security investments in
the nuclear decommissioning trust funds are classified as available for
sale. The fair market value of the nuclear decommissioning trust funds
is as reported by the trustee, adjusted for the tax effect of
unrealized gains and losses. Net unrealized holding gains were recorded
as part of accumulated provision for depreciation. The funds realized
gains from the sales of securities of $4.1 million, $0.8 million and
$0.1 million in 1999, 1998 and 1997, respectively (cost of the
investments based on specific identification were $86.2 million,
$57.6 million and $54.0 million, respectively). Since WP&L is subject to regulation, any gains or losses related to
the difference between the carrying amount and the fair value of its financial
instruments may not be realized by WP&L's parent. ReferInformation relating to
Note 10investments held by WP&L that are marked to market as a result of SFAS 115,
"Accounting for a discussionCertain Investments in Debt and Equity Securities," were as
follows (in millions):
DECEMBER 31, 2000 DECEMBER 31, 1999
---------------------- ----------------------
NET
CARRYING/ NET CARRYING/ UNREALIZED
FAIR UNREALIZED FAIR GAINS/
VALUE GAINS VALUE (LOSSES)
--------- ---------- --------- ----------
Available-for-sale securities:
Nuclear decommissioning trust funds:
Equity securities....................................... $ 81 $26 $ 65 $29
Debt securities......................................... 115 2 101 (2)
---- --- ---- ---
Total................................................. $196 $28 $166 $27
==== === ==== ===
NUCLEAR DECOMMISSIONING TRUST FUNDS--As required by SFAS 115, WP&L's debt and
equity security investments in the nuclear decommissioning trust funds are
classified as available-for-sale. As of WP&L's derivative financial
instruments.December 31, 2000, $75 million,
$14 million and $26 million of the debt securities mature in 2001-2010,
2011-2020 and 2021-2035, respectively. The fair market value of the nuclear
decommissioning trust funds was as reported by the trustee, adjusted for the tax
effect of unrealized gains and losses. Net unrealized holding gains were
recorded as part of accumulated provision for depreciation. The funds realized
gains/(losses) from the sales of securities of $5.2 million, ($10.4) million and
$0.8 million in 2000, 1999 and 1998, respectively (cost of the investments based
on specific identification were $202.1 million, $94.6 million and
$57.6 million, respectively, and proceeds from the sales were $207.3 million,
$84.2 million and $58.4 million, respectively).
A-29
(10) DERIVATIVE FINANCIAL INSTRUMENTS
Information(A) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--WP&L adopted
SFAS 133 as of July 1, 2000. SFAS 133 requires that every derivative instrument
be recorded on the balance sheet as an asset or liability measured at its fair
value and that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS 133 requires
that as of the date of initial adoption, the difference between the fair value
of derivative instruments recorded on the balance sheet and the previous
carrying amount of those derivatives be reported in net income or other
comprehensive income, as appropriate, as the cumulative effect of a change in
accounting principle in accordance with APB 20, "Accounting Changes." Transition
adjustments relating to WP&L's derivative financial instruments utilized byhad no material impact on
net income or the balance sheet.
A limited number of WP&L's fixed price commodity contracts are defined as
derivatives under SFAS 133. The fair values of these derivative instruments have
been recorded as assets and liabilities on the balance sheet and in the
transition adjustment in accordance with the transition provisions of SFAS 133.
Changes in the fair values of these instruments subsequent to July 1, 2000, to
the extent that the derivatives are designated in cash flow hedging
relationships and are effective at mitigating the underlying commodity risk, are
recorded in other comprehensive income. At the date the underlying transaction
occurs, the amounts accumulated in other comprehensive income are reported in
the Consolidated Statements of Income. To the extent that the hedges are not
effective, the ineffective portion of the changes in fair value is recorded
directly in earnings.
As of December 31, 2000, WP&L isheld derivative instruments designated as follows:
(a) Interest Rate Swaps
At December 31, 1999,cash
flow hedging instruments and other derivatives. The cash flow hedging
instruments are comprised of natural gas swaps and coal purchase and sales
contracts which are used to manage the price of anticipated coal purchases and
sales. WP&L had two interest rate swap agreements
outstanding (both expiring in January 2000), with an aggregate notional
amount of $30 million. The agreements converted variable rate debt into
fixed rate debt. If WP&L had terminated the agreements at December 31,
1999, WP&L would have made an insignificant payment. Settlements on
these swaps occurring during the year were recorded as a component of
interest expense.
(b) Utility Gas Commodities Instruments
WP&L usesutilizes gas commodity swapsswap arrangements to reduce the impact of
price fluctuations on gas purchased and injected into storage during the summer
months and withdrawn and sold at current market prices during -A-39-
the winter months.months
pursuant to the natural gas cost incentive sharing mechanism with customers in
Wisconsin. The notional amount of gas commodity swaps outstandingin place hedge the forecasted sales of
natural gas withdrawn from storage during this period.
In 2000, a net gain of approximately $0.4 million was recognized in earnings
(recorded in gas revenues) representing the amount of hedge ineffectiveness.
WP&L did not exclude any components of the derivative instruments' gain or loss
from the assessment of hedge effectiveness and there were no reclasses into
earnings as a result of the discontinuance of hedges. As of December 31, 19992000,
the maximum length of time over which WP&L is hedging its exposure to the
variability in future cash flows for forecasted transactions is ten months and
1998 was 1.9WP&L estimates that losses of $4.7 million will be reclassified from accumulated
other comprehensive income into earnings within the 12 months between
January 1, 2001 and 5.8 million dekatherms, respectively. Unrealized gains/losses are
deferredDecember 31, 2001 as the hedged transactions affect
earnings.
WP&L's derivatives that have not been designated in hedge relationships include
natural gas swaps and accounted for as hedgeselectricity price collars which manage energy costs during
supply/demand imbalances. As of theDecember 31, 2000, these derivatives were
recorded at their fair value ofas derivative assets and derivative liabilities on
the gas in
storage as the indexed price WP&L pays is highly correlated to the
market price that WP&L will receive from customers under the current
rate making structure. If WP&L had terminated all of the agreements
existing at December 31, 1999Consolidated Balance Sheets and 1998, WP&L would have realized an
estimated gain of $0.1 million and $0.8 million, respectively, based on
current NYMEX gas futures contracts adjusted for the proper basis
differential. Settlements of these swaps are recorded as an adjustment
to the cost of gas soldpurchased-power expense in the period that coincides with the
withdrawal and saleConsolidated
Statements of the hedged gas in storage.
(c) Weather Derivatives
WPIncome.
A-30
(10) DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
(B) WEATHER DERIVATIVES--WP&L uses weather derivatives to reduce the impact of
weather volatility on its natural gas sales volumes. EITF 99-2, "Accounting for
Weather Derivatives," requires the use of the intrinsic value method to account
for non-exchange traded weather derivatives. In September 1998,August 2000, WP&L entered into a
non-exchange traded "weather collar"weather floor with a contract period commencing onfrom November 1, 1998 and ending on2000
to March 31, 1999.2001 that requires the counterparty pay WP&L $11,000 per heating
degree-day less than 5,600 during the contract period. The maximum payout amount
to be paid or received underby the collar was $5,000,000.counterparty on this floor is $7 million. WP&L recognizedpaid a gain in "Miscellaneous, net" onpremium to enter
into this collar of
$2.5 million incontract, which is being amortized to expense over the first quarter of 1999 upon termination of the
collar.contract
period. In August 1999, WP&L entered into a non-exchange traded "weather collar"
with a contract period commencing onfrom November 1, 1999 and ending onto March 31, 2000. The maximum
paymentpayout amount is $5,000,000.
Pursuant to the requirements of EITF-99-2, WPwas $5 million.
(C) NUCLEAR DECOMMISSIONING TRUST FUND INVESTMENTS--WP&L is accounting for this
instrument using the intrinsic value method and recognized an
unrealized gain in "Miscellaneous, net" of $2.4 million in the fourth
quarter of 1999.
(d) Nuclear Decommissioning Trust Fund Investments
WP&Lpreviously entered into
an equity collar that usesused written options to mitigate the effect of significant
market fluctuations on its common stock investments in its nuclear
decommissioning trust funds. The program iswas designed to protect the portfolio's
value while allowing the funds to earn a total return modestly in excess of
long-term expectations over the two-year hedge period, which expires Septemberwas settled in
December 2000. The notional amount of the options was $78 million and
$52 million at
December 31, 1999 and 1998, respectively.1999. The options arewere reported at fair market value each reporting
period. These fair value changes dodid not impact net income as they arewere recorded
as equally offsetting changes in the investment in nuclear decommissioning trust
funds and accumulated depreciation. The option liability fair value exceeded the
premium received by $17.8 million and $8.9 million at December 31, 1999, and December 31, 1998, respectively, as reported by the
trustee.
(11) COMMITMENTS AND CONTINGENCIES
(a) Construction and Acquisition Program
WP&L's(A) CONSTRUCTION AND ACQUISITION PROGRAM--WP&L anticipates 2001 utility
construction and acquisition expenditures will be approximately $138 million.
During 2002-2005, WP&L expects to spend approximately $667 million for the years ended
December 31, 1999 and 1998 were $132 million and $117 million,
respectively. WP&L's anticipatedutility
construction and acquisition expenditures for 2000 are estimated to be approximately $143 million,
of which 45% is for electric transmission and distribution, 25% for
electric generation, 15% for information technology and the remaining
15% represents miscellaneous electric, gas, water and general
expenditures.
WP&L's construction and acquisition expenditures are
projected to be $166 million in 2001, $181 million in 2002,
$192 million in 2003 and $136 million in 2004, which include
expenditures to comply with NOx emissions reductions as discussed in
"Other Matters--Environmental."
-A-40-
(b) Purchased-Power, Coal and Natural Gas Contracts
Corporate(B) PURCHASED-POWER AND TRANSMISSION, COAL AND NATURAL GAS CONTRACTS--Corporate
Services has entered into purchased-power capacityand transmission, coal, and natural
gas supply, transportation and storage contracts as agent for WP&L, IESU and
IPC. The gas supply commitments are all index-based. Based on the System
Coordination and Operating Agreement, Alliant Energy annually allocates
purchased-power contracts to the individual utilities. Such process considers
factors such as resource mix, load growth and resource availability. SeeRefer to
Note 15 for additional information. In addition, Corporate Services has entered
into various coal contracts as agent for WP&L, IESU and IPC. Contract quantities
are allocated to specific plants at the individual utilities based on various
factors including projected heat input requirements, combustion compatibility
and efficiency. However, in 2000for 2001, 2002 and 2001,2003, system-wide contracts of
$24.6$21.3 million (6.5(5.1 million tons), $1.7 million (0.5 million tons) and
$12.5$1.7 million (3.6(0.5 million tons), respectively, have not yet been allocated to
the individual utilities due to the need for additional analysis of combustion
compatibility and efficiency. Corporate Services expects to supplement its coal
and natural gas supplies with spot market purchases as needed. The minimum
A-31
(11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
commitments directly assigned to WP&L are as follows (dollars and Dths in
millions,millions; MWhs and tons in thousands):
Coal
(including
Purchased-Power transportation)
-------------------- --------------------------
Dollars MWHs Dollars Tons
-------------------- --------------------------
2000............ $79.8 1,509 $16.8 5,269
2001............ 59.2 864 14.0 4,557
2002............ 43.9 219 9.8 3,707
2003............ 33.4 219 5.4 2,957
2004............ 25.2 219 5.4 2,957
Corporate
NATURAL GAS SUPPLY,
PURCHASED-POWER AND COAL (INCLUDING TRANSPORTATION AND
TRANSMISSION TRANSPORTATION) STORAGE CONTRACTS
--------------------- --------------------- ---------------------
DOLLARS MWHS DOLLARS TONS DOLLARS DTHS
--------- --------- --------- --------- --------- ---------
2001 $53.2 864 $14.0 4,523 $39.6 93
2002 34.3 219 9.8 3,673 26.9 88
2003 21.8 219 5.5 2,957 22.9 79
2004 14.0 219 5.5 2,957 11.2 56
2005 8.0 -- -- -- 11.1 55
(C) INFORMATION TECHNOLOGY SERVICES--Corporate Services is in the process of negotiating several new coal
contracts. In addition, it expects to supplement its coal contracts
with spot market purchases to fulfill its future fossil fuel needs.
WP&L also has various natural gas supply, transportation and storage
contracts outstanding. The minimum dekatherm commitments, in millions,
for 2000-2004 are 60.0, 44.9, 42.6, 34.6 and 7.4, respectively. The
minimum dollar commitments for 2000-2004, in millions, are $27.9,
$18.5, $14.6, $12.0 and $1.9, respectively. The gas supply commitments
are all index-based. WP&L expects to supplement its natural gas supply
with spot market purchases as needed.
(c) Information Technology Services
Alliant Energy has an agreement,
expiring in 2004, with EDS for information technology services. WP&L's
anticipated operating and capital expenditures under the agreement for 20002001 are
estimated to total approximately $2 million. Future costs under the agreement
are variable and are dependent upon WP&L's level of usage of technological
services from EDS.
(d) Nuclear Insurance Programs
Public liability for nuclear accidents is governed by(D) FINANCIAL COMMITMENTS--During 2000, WP&L committed to transfer all of its
transmission assets to ATC. This transfer occurred on January 1, 2001, at the
Price
Anderson Actnet book value of 1988, which setsthe assets. WPL Transco LLC, a statutory limitwholly-owned subsidiary of
$9.5 billion for
liability toWP&L, will hold the public for a single nuclear power plant incidentresulting investment in ATC and requires nuclear power plant operators to provide financial protection
for this amount. Underfollow the industry-wide plan, each operating licensed
nuclear reactor in the U.S. is subject to an assessment in the eventequity method of
a nuclear incident at any nuclear plant in the U.S. These limits are
subject to adjustments for changes in the number of participants and
inflation in future years. WP&L, as a 41% owner of Kewaunee, is subject
to an overall assessment of approximately $36.1 million per incident,
not to exceed $4.1 million payable in any given year.
WP&L is a member of NEIL, which provides $1.8 billion of insurance
coverage for WP&L on certain property losses for property damage,
decontamination and premature decommissioning. The proceeds from such
insurance, however, must first be used for reactor stabilization and
site decontamination before they can be used for plant repair and
premature decommissioning. NEIL also provides separate coverage for
additional expense incurred during certain outages. Owners of nuclear
generating stations insured through NEIL are subject to retroactive
premium adjustments if losses exceed accumulated reserve funds.
-A-41-
NEIL's accumulated reserve funds are currently sufficient to more than
cover its exposure in the event of a single incident under the primary
and excess property damage or additional expense coverages. However,
WP&L could be assessed annually a maximum of $1.1 million for NEIL
primary property, $1.6 million for NEIL excess property and
$0.4 million for NEIL additional expense coverage. WP&L is not aware of
any losses that they believe are likely to result in an assessment.
In the unlikely event of a catastrophic loss at Kewaunee, the amount of
insurance available may not be adequate to cover property damage,
decontamination and premature decommissioning. Uninsured losses, to the
extent not recovered through rates, would be borne by WP&L and could
have a material adverse effect on WP&L's financial condition and
results of operations.
(e) Environmental Liabilities
WPaccounting.
(E) ENVIRONMENTAL LIABILITIES--WP&L had recorded the following environmental
liabilities, and regulatory assets associated with certain of these liabilities,
as of December 31 (in millions):
1999 1998
----- -----
Environmental liabilities
MGP sites............................................. $7.3 $7.7
NEPA.................................................. 4.1 4.6
Other................................................. 0.1 --
----- -----
$11.5 $12.3
ENVIRONMENTAL LIABILITIES 2000 1999 REGULATORY ASSETS 2000 1999
- ------------------------- ---------- ---------- ----------------- ---------- ----------
MGP sites............ $4.5 $ 7.3 MGP sites...... $11.7 $14.2
NEPA................. 3.6 4.1 NEPA........... 4.4 4.9
Other................ 0.1 0.1 Other.......... 0.5 --
---- ----- ----- -----
$8.2 $11.5 $16.6 $19.1
==== ===== ===== =====
1999 1998
---- ----
Regulatory assets
MGP sites............................................. $14.2 $14.1
NEPA.................................................. 4.9 5.4
Other................................................. -- --
----- -----
$19.1 $19.5
===== =====
WP&L's significant environmental liabilities are discussed further
below.
Manufactured Gas Plant Sites
WPSITES--WP&L has current or previous ownership interests in 14 sites
previously associated with the production of gas for which it may be liable for
investigation, remediation and monitoring costs relating to the sites. WP&L has
received letters from state environmental agencies requiring no further action
at four sites. WP&L is working pursuant to the requirements of various federal
and state agencies to investigate, mitigate, prevent and remediate, where
necessary, the environmental impacts to property, including natural resources,
at and around the sites in order to protect public health and the environment.
WP&L believes that it has
completed the remediation at various sites, although it is still in the
process of obtaining final approval from the applicable environmental
agencies for some of these sites.
WP&L records environmental liabilities based upon periodic studies, most
recently updated in the third quarter of 1999,2000, related to the MGP sites. Such
amounts are based on the best current estimate of the remaining amount to be
incurred for investigation, remediation and monitoring costs for those sites
where the investigation process has been or is substantially completed, and the
minimum of the estimated cost range for those sites where the investigation is
in its earlier stages. It is possible that future cost estimates will be greater
than current estimates as the investigation process proceeds and as additional
facts become known. The amounts recognized as liabilities are reduced for
expenditures made and are adjusted as further information develops or
circumstances change. Costs of future
A-32
(11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
expenditures for environmental remediation obligations are not discounted to
their fair value. Management currently estimates the range of remaining costs to
be incurred for the investigation, remediation and monitoring of all WP&L&L's
sites to be approximately $6$4 million to $8$5 million.
Under the current rate making treatment approved by the PSCW, the MGP
expenditures of WP&L, net of any insurance proceeds, are deferred and collected
from gas customers over a five-year period after new rates -A-42-
are implemented.
As a result, regulatoryRegulatory assets have been recorded by WP&L, which reflect the probable future
rate recovery, where applicable. Considering the current rate treatment, and
assuming no material change therein, WP&L believes that the clean-up costs
incurred for these MGP sites will not have a material adverse effect on its
respective
financial conditionscondition or results of operations.
Settlement has been reached with all of WP&L's insurance carriers regarding
reimbursement for its MGP-related costs and all issues have been resolved.
Insurance recoveries of $2.1 million were available as of both December 31, 2000 and 1999 and 1998.for WP&L
were $2.1 million. Pursuant to its applicable rate making treatment, WP&L has
recorded its recoveries as an offset against its regulatory assets.
National Energy Policy Act of 1992
NEPANATIONAL ENERGY POLICY ACT OF 1992--NEPA requires owners of nuclear power plants
to pay a special assessment into a "Uranium Enrichment Decontamination and
Decommissioning Fund." The assessment is based upon prior nuclear fuel
purchases. Alliant EnergyWP&L recovers the costs associated with
this assessment over the period the costs are assessed. WP&L continues to pursue
relief from this assessment through litigation.
(f) Spent Nuclear Fuel
Nuclear Waste Policy Act of 1982 assigned responsibility to the DOE to
establish a facility for the ultimate disposition of high level waste
and spent nuclear fuel and authorized the DOE to enter into contracts
with parties for the disposal of such material beginning in January
1998. WP&L entered into such contracts and has made the agreed payments
to the Nuclear Waste Fund held by the U.S. Treasury. WP&L was
subsequently notified by the DOE that it was not able to begin
acceptance of spent nuclear fuel by the January 31, 1998 deadline.
Furthermore, the DOE has experienced significant delays in its efforts
and material acceptance is now expected to occur no earlier than 2010
with the possibility of further delay being likely. Alliant Energy has
participated in several litigation proceedings against the DOE on this
issue and the respective courts have affirmed the DOE's responsibility
for spent nuclear fuel acceptance. Alliant Energy is evaluating its
options for recovery of damages due to the DOE's delay in accepting
spent nuclear fuel.
The Nuclear Waste Policy Act of 1982 assigns responsibility for interim
storage of spent nuclear fuel to generators of such spent nuclear fuel,
such as WP&L. In accordance with this responsibility, WP&L has been
storing spent nuclear fuel on site at Kewaunee since plant operations
began. With minor modifications planned for 2001, Kewaunee would have
sufficient fuel storage capacity to store all of the fuel it will
generate through the end of the NRC license life in 2013. No decisions
have been made concerning post-shutdown storage needs. Legislation is
being considered on the federal level that would, among other
provisions, expand the DOE's permanent spent nuclear fuel storage to
include interim storage for spent nuclear fuel as early as 2003. This
legislation has been passed in the U.S. Senate and submitted in the
U.S. House. The prospects for the legislation being approved by the
U.S. Senate and the President, and subsequent successful implementation
by the DOE, are uncertain at this time.
(g) Decommissioning of Kewaunee
Pursuant(F) DECOMMISSIONING OF KEWAUNEE--Pursuant to the most recent electric rate case
order, the PSCW allows WP&L to recover $16 million annually for its share of the
cost to decommission Kewaunee. Decommissioning expense is included in
"Depreciation and amortization" in the Consolidated Statements of Income and the
cumulative amount is included in "Accumulated depreciation" on the Consolidated
Balance Sheets to the extent recovered through rates. -A-43-
Additional information
relating to the decommissioning of Kewaunee included in itsthe most recent electric
rate orderorders was as follows (dollars in millions):
Assumptions relating to current rate recovery figures:
Alliant Energy'samounts:
WP&L's share of estimated decommissioning cost $200.8cost............ $212.5
Year dollars in 1999in........................................... 2000
Method to develop estimateestimate................................ Site-specific
study
Annual inflation raterate..................................... 5.83%
Decommissioning methodmethod.................................... Prompt dismantling
and removal
Year decommissioning to commencecommence.......................... 2013
After-tax return on external investments:
Qualified.Qualified............................................... 5.62%
Non-qualifiedNon-qualified........................................... 6.97%
External trust fund balance at December 31, 1999 $166.2
Internal reserve at December 31, 1999 --2000............ $195.8
After-tax lossesearnings on external trust funds in 1999 ($4.3)2000.......... $11.3
A-33
(11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
WP&L is funding all rate recoveries for decommissioning into external trust
funds and funding on a tax-qualified basis to the extent possible. All of the
rate recovery assumptions are subject to change in future regulatory
proceedings. In accordance with its respective
regulatory requirements, WP&L records the
earnings on the external trust funds as interest income with a corresponding
entry to depreciation expense. The earnings accumulate in the external trust
fund balances and in accumulated depreciation on utility plant.
(h) Legal Proceedings
Alliant Energy(G) LEGAL PROCEEDINGS--WP&L is involved in legal and administrative proceedings
before various courts and agencies with respect to matters arising in the
ordinary course of business. Although unable to predict the outcome of these
matters, Alliant EnergyWP&L believes that appropriate reserves have been established and final
disposition of these actions will not have a material adverse effect on its
financial condition or results of operations.
-A-44-
(12) JOINTLY-OWNED ELECTRIC UTILITY PLANT
Under joint ownership agreements with other Wisconsin utilities, WP&L has
undivided ownership interests in jointly-owned electric generating stations and
related transmission facilities. Each of the respective owners is responsible
for the financing of its portion of the construction costs. Kilowatt-hour
generation and operating expenses are divided on the same basis as ownership
with each owner reflecting its respective costs in its Consolidated Statements
of Income. Information relative to WP&L's ownership interest in these facilities
at December 31, 19992000 is as follows (dollars in millions):
1999 1998
Plant ------------------------------ -------------------------------
Name-plate Accumulated Accumulated
Ownership In-service MW Plant in Provision for Plant in Provision for
InterestACCUMULATED CONSTRUCTION
OWNERSHIP PLANT IN PROVISION FOR WORK-IN-
FUEL TYPE INTEREST % Date Capacity Service Depreciation CWIP Service Depreciation CWIP
-------------------------------------- -------------------------------- -------------------------------SERVICE DEPRECIATION PROGRESS
----------- ----------- ------------- ------------- ------------
WP&L
Coal: 1975 &
Columbia Energy Center....Center............... Coal 46.2 1978 1,023 $163.2$175.4 $103.6 $ 97.8 $ 2.6 $ 161.5 $ 93.8 $ 1.40.5
Edgewater Unit 4..........4..................... Coal 68.2 1969 330 52.7 32.0 0.7 52.4 30.8 0.453.0 33.6 1.6
Edgewater Unit 5..........5..................... Coal 75.0 1985 380 229.3 92.2 0.6 229.0 85.9 0.2
Nuclear:
Kewaunee..................230.2 98.6 0.3
Kewaunee............................. Nuclear 41.0 1974 535 135.0 100.7 13.6 132.2 93.7 6.4136.8 108.1 21.4
------ ------ -----
----- ---- ----- ---- ---
Total WP&L.................. $580.2 $ 322.7 $ 17.5 $ 575.1 $ 304.2 $ 8.4$595.4 $343.9 $23.8
====== ======== ======= ======= ======= ============= =====
A-34
(13) SEGMENTS OF BUSINESS
WP&L is a regulated domestic utility, serving customers in Wisconsin and
Illinois, withand is broken down into three principal business segments: a) electric operations;
b) gas operations; and c) other, which includes the water operationsbusiness and the
unallocated portions of the utility business. Various line items in the
following tables are not allocated to the electric and gas segments for
management reporting purposes and therefore are included in "Other."
Intersegment revenues were not material to WP&L's operations and there was no
single customer whose revenues exceeded 10%10 percent or more of WP&L's
consolidated revenues. Certain financial information relating to WP&L's
significant business segments is presented below:
Electric Gas Other Total
----------------------------------------------------
(in millions)
1999ELECTRIC GAS OTHER TOTAL
-------- -------- -------- --------
(IN MILLIONS)
2000
Operating revenue.....................................................revenue........................................... $ 692.2 $165.2 $ 5.0 $ 862.4
Depreciation and amortization expense....................... 122.9 15.9 1.1 139.9
Operating income............................................ 123.2 12.2 1.7 137.1
Interest expense, net of AFUDC.............................. 39.3 39.3
Net income from equity method subsidiaries.................. (0.5) (0.5)
Miscellaneous, net (other than equity income)............... (16.0) (16.0)
Income tax expense.......................................... 42.9 42.9
Net income.................................................. 71.4 71.4
Preferred dividends......................................... 3.3 3.3
Earnings available for common stock......................... 68.1 68.1
Total assets................................................ 1,344.9 226.1 286.0 1,857.0
Investments in equity method subsidiaries................... 4.8 4.8
Construction and acquisition expenditures................... 114.2 15.1 2.3 131.6
1999
Operating revenue........................................... $ 626.6 $ 120.8$120.8 $ 5.1 $ 752.5
Depreciation and amortization expense.................................expense....................... 97.5 14.5 1.0 113.0
Operating income......................................................income............................................ 139.3 13.8 1.8 154.9
Interest expense, net of AFUDC........................................AFUDC.............................. 36.5 36.5
Net income from equity method subsidiaries............................subsidiaries.................. (0.7) (0.7)
Miscellaneous, net (other than equity income/loss)....................income)............... 2.5 2.5
Income tax expense....................................................expense.......................................... 45.8 45.8
Net income............................................................income.................................................. 70.8 70.8
Preferred and preference dividends....................................dividends......................................... 3.3 3.3
Earnings available for common stock...................................stock......................... 67.5 67.5
Total assets..........................................................assets................................................ 1,310.5 200.3 255.3 1,766.1
Investments in equity method subsidiaries.............................subsidiaries................... 5.2 5.2
Construction and acquisition expenditures.............................expenditures................... 111.2 18.2 2.5 131.9
-A-45-A-35
(13) SEGMENTS OF BUSINESS (CONTINUED)
Electric Gas Other Total
-------------------------------------------------
(in millions)
1998ELECTRIC GAS OTHER TOTAL
-------- -------- -------- --------
(IN MILLIONS)
1998
Operating revenue.................................................revenue........................................... $ 614.7 $ 111.7$111.7 $ 5.0 $ 731.4
Depreciation and amortization expense.............................expense....................... 104.7 13.6 0.9 119.2
Operating income..................................................income............................................ 87.4 3.6 1.7 92.7
Interest expense, net of AFUDC....................................AFUDC.............................. 33.5 33.5
Net income from equity method subsidiaries........................subsidiaries.................. (0.8) (0.8)
Miscellaneous, net (other than equity income/loss)................income)............... (0.3) (0.3)
Income tax expense................................................expense.......................................... 24.7 24.7
Net income........................................................income.................................................. 35.6 35.6
Preferred and preference dividends................................dividends......................................... 3.3 3.3
Earnings available for common stock...............................stock......................... 32.3 32.3
Total assets......................................................assets................................................ 1,276.4 195.9 212.9 1,685.2
Investments in equity method subsidiaries.........................subsidiaries................... 5.2 5.2
Construction and acquisition expenditures.........................expenditures................... 99.6 16.0 1.5 117.1
1997
Operating revenue................................................. $ 634.1 $ 155.9 $ 4.7 $ 794.7
Depreciation and amortization expense............................. 91.2 12.3 0.8 104.3
Operating income (loss)........................................... 125.9 13.7 (0.5) 139.1
Interest expense, net of AFUDC.................................... 29.8 29.8
Net income from equity method subsidiaries........................ (0.4) (0.4)
Miscellaneous, net (other than equity income/loss)................ (3.3) (3.3)
Income tax expense................................................ 41.8 41.8
Net income........................................................ 71.2 71.2
Preferred and preference dividends................................ 3.3 3.3
Earnings available for common stock............................... 67.9 67.9
Total assets...................................................... 1,270.9 193.6 200.1 1,664.6
Investments in equity method subsidiaries......................... 5.7 5.7
Construction and acquisition expenditures......................... 101.3 16.1 1.8 119.2
(14) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA Quarter Ended
--------------------------------------------
March 31 June 30 September 30 December 31
--------------------------------------------
(in millions)
1999
Operating revenues.................. $203.0 $167.1 $186.8 $195.6
Operating income.................... 46.4 21.9 32.5 54.1
Net income.......................... 26.3 6.9 14.2 23.4
Earnings available for common stock.(UNAUDITED)
QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN MILLIONS)
2000
Operating revenues...................................... $218.8 $193.9 $199.6 $250.1
Operating income........................................ 40.5 25.1 36.9 34.6
Net income.............................................. 21.9 11.3 17.6 20.6
Earnings available for common stock..................... 21.0 10.5 16.8 19.8
1999
Operating revenues...................................... $203.0 $167.1 $186.8 $195.6
Operating income........................................ 46.4 21.9 32.5 54.1
Net income.............................................. 26.3 6.9 14.2 23.4
Earnings available for common stock..................... 25.4 6.1 13.4 22.6
1998*
Operating revenues.................. $202.8 $172.5 $176.1 $180.0
Operating income.................... 33.7 10.8 29.7 18.5
Net income (loss)................... 17.6 (1.2) 12.7 6.5
Earnings available for common stock. 16.8 (2.1) 11.9 5.7
* Earnings for 1998 were impacted by the recording of approximately
$3 million, $11 million, $2 million and $1 million of pre-tax
merger-related expenses in the first, second, third and fourth
quarters, respectively.
-A-46-
(15) RELATED PARTY ISSUES
In association with the 1998 merger that resulted in the formation of Alliant
Energy, IESU, WP&L and IPC entered into a System Coordination and Operating
Agreement which became effective with the merger. The agreement, which has been
approved by FERC, provides a contractual basis for coordinated planning,
construction, operation and maintenance of the interconnected electric
generation and transmission systems of the three utility companies. In addition,
the agreement allows the interconnected system to be operated as a single entity
with off-system capacity sales and purchases made to market excess system
capability or to meet system capability deficiencies. Such sales and purchases
are allocated among the three utility companies based on procedures included in
the agreement. The sales amounts allocated to WP&L were $28.6 million,
$23.8 million and $23.6 million for 2000, 1999 and 1998, respectively. The
purchases allocated to WP&L were $130.7 million, $101.0 million and
$70.0 million for 2000, 1999 and 1998, respectively. The procedures were
approved by both the FERC and all state regulatory bodies having jurisdiction
over these sales. Under the agreement, IESU,
A-36
(15) RELATED PARTY ISSUES (CONTINUED)
WP&L and IPC are fully reimbursed for any generation expense incurred to support
a sale to an affiliate or to a non-affiliate. Any margins on sales to
non-affiliates are distributed to the three utilities in proportion to each
utility's share of electric production at the time of the sale.
Pursuant to a service agreement approved by the SEC under PUHCA, WP&L received
various administrative and general services from an affiliate, Corporate
Services. These services are billed to WP&L at cost based on payroll and other
expenses incurred by Corporate Services for the benefit of WP&L. These costs
totaled $103.4 million, $96.5 million and $53.9 million for 2000, 1999 and 1998,
respectively, and consisted primarily of employee compensation, benefits and
fees associated with various professional services. Corporate Services began
operations in May 1998 upon the consummation of the merger. At December 31, 19992000
and 1998,1999, WP&L had an intercompany payable to Corporate Services of
$30.6 million and $24.7 million, and $20.0 million, respectively.
-A-47-A-37
SHAREOWNER INFORMATION
Market Information
TheMARKET INFORMATION--The 4.50% series of preferred stock is listed on the
American Stock Exchange, with the trading symbol of Wis. Pr.WIS_P. All other series of
preferred stock are traded on the over-the-counter market. Seventy-threeSeventy-two percent
of the Company'sWP&L's individual preferred shareowners are Wisconsin residents.
Dividend Information
PreferredDIVIDEND INFORMATION--Preferred stock dividends paid per share for each quarter
during 19992000 were as follows:
Series Dividend
- ---------------------------------------------------------
4.40%........................................... $1.10
4.50%........................................... $1.125
4.76%........................................... $1.19
4.80%........................................... $1.20
4.96%........................................... $1.24
6.20%........................................... $1.55
6.50%...........................................
SERIES DIVIDEND
- ------ ---------
4.40%.......................... $1.10
4.50%.......................... $1.125
4.76%.......................... $1.19
4.80%.......................... $1.20
4.96%.......................... $1.24
6.20%.......................... $1.55
6.50%.......................... $0.40625
As authorized by the Wisconsin Power and Light CompanyWP&L Board of Directors, preferred stock dividend record
and payment dates normally are as follows:
Record Date Payment Date
- --------------------------------------------------------------
February 29..................................... March 15
May 31.......................................... June 15
August 31....................................... September 15
November 30.....................................
RECORD DATE PAYMENT DATE
- ----------- --------------
February 28.................. March 15
May 31....................... June 15
August 31.................... September 15
November 30.................. December 15
Stock Transfer Agent and Registrar
STOCK TRANSFER AGENT AND REGISTRAR
Alliant Energy Corporation
Shareowner Services
P.O. Box 2568
Madison, WI 53701-2568
FormFORM 10-K Information
AINFORMATION--A copy of Form 10-K as filed with the Securities and Exchange
CommissionSEC will be
provided without charge upon request. Requests may be directed to Shareowner
Services at the above address.
EXECUTIVE OFFICERS
OF WP&L
ErrollERROLL B. Davis, Jr.DAVIS, JR., 55,56, was elected Chairman of the Board effective
April 2000 and Chief Executive Officer (CEO) effective April 1998. He previously
served as President and Chief Executive
Officer of WP&LCEO since 1988 and has been a board member of WP&L since 1984.
Mr. Davis is also an officer of Alliant Energy and IESU.
WilliamWILLIAM D. Harvey, 50,HARVEY, 51, was elected President effective April 1998. He previously
served as Senior Vice President since 1993 at WP&L.
Mr. Harvey is also an officer of Alliant Energy and IESU.
Eliot1993.
A-38
ELIOT G. Protsch, 46,PROTSCH, 47, was elected Executive Vice President-Energy Delivery
effective October 1998. He previously served as Senior Vice President from 1993
to 1998 at WP&L. Mr. Protsch is also an officer of
Alliant Energy and IESU.
Barbara1998.
BARBARA J. Swan, 48,SWAN, 49, was elected Executive Vice President and General Counsel
effective October 1998. She previously served as Vice President-General Counsel
from 1994 to 1998 at WP&L. Ms. Swan is also
an officer of Alliant Energy and IESU.
Thomas1998.
THOMAS M. Walker, 52,WALKER, 53, was elected Executive Vice President and Chief Financial
Officer (CFO) effective October 1998. Mr. Walker is also an officer
of Alliant EnergyPrior thereto, he served as Executive Vice
President and CFO since 1996 at IES and IESU.
PamelaPAMELA J. Wegner, 52,WEGNER, 53, was elected Executive Vice President-Corporate Services
effective October 1998. She previously served as Vice President-Information
Services and Administration from 1994 to 1998 at
WP&L. Ms. Wegner is also an officer of Alliant Energy and IESU.
-A-48-
Dale R. Sharp, 59, was elected Senior Vice President-Transmission
effective September 1999. He previously served as Senior Vice
President-Engineering and Standards since October 1998 at WP&L and
IESU. He has also served as Vice President-Engineering from 1996 to
1998 and Vice President-Power Production from 1995 to 1996 at IPC.
Mr. Sharp is also an officer of IESU.
Daniel A. Doyle, 41, was elected Vice President-Chief Accounting and
Financial Planning Officer effective January 2000. He previously served
as Vice President-Manufacturing and Energy Portfolio Services since
October 1998 at WP&L and IESU and Vice President-Fossil Plants since
April 1998 at WP&L. He has also served as Vice President-Power
Production from 1996 to 1998 and Vice President-Finance, Controller and
Treasurer from 1994 to 1996 at WP&L. Mr. Doyle is also an officer of
Alliant Energy and IESU.
Edward1998.
EDWARD M. Gleason, 59,GLEASON, 60, was elected Vice President-Treasurer and Corporate
Secretary effective April 1998. He previously served as Controller, Treasurer,
and Corporate Secretary of WP&L since 1996 and
Corporate Secretary of WP&L from 1993 to 1996.
Mr. Gleason is also an
officer of Alliant Energy and IESU.
DundeanaDUNDEANA K. Langer, 41,LANGER, 42, was elected Vice President-Customer Services
and Operations effective
September 1999.December 2000. She previously served as Vice President-Customer Services and
Operations since October 1998. Ms. Langer is also an
officer ofSeptember 1999, Vice President-Customer Services from 1998 to
1999, Assistant Vice President-Field Operations from 1997 to 1998 at IESU and
General Manager-Operations & Director Process Redesign Implementation from 1996
to 1997 at IESU.
DanielDANIEL L. Mineck, 51,MINECK, 52, was elected Vice President-Performance Engineering and
Environmental effective April 1998. Mr. Mineck is also
an officer of IESU.
David L. Wilson, 53, was elected Vice President-Nuclear effective
September 1999. He previously served as Assistant Vice
President-NuclearPresident-Corporate Engineering since April 1998. Mr. Wilson is also an officer of1996 at IESU.
KimKIM K. Zuhlke, 46,ZUHLKE, 47, was elected Vice President-Engineering, Sales & Marketing
effective September 1999. He previously served as Vice President-Customer
Operations since April 1998 at WP&L and since
October 1998 at IESU and as Vice President-Customer Services and Sales
from 1993 to 1998 at WP&L. Mr. Zuhlke is also an officer of IESU.
Linda J. Wentzel, 51,1998.
JOHN E. KRATCHMER, 38, was elected Assistant Corporate SecretaryController and Chief Accounting
Officer effective May 1998. She previously served as Executive Administrative
Assistant since 1995 at Alliant Energy. Ms. Wentzel is also an officer
of Alliant Energy and IESU.
Enrique Bacalao, 50, was elected Assistant Treasurer effective
November 1998. Prior to joining WP&L, he was Vice President, Corporate
Banking from 1995 to 1998 at the Chicago Branch of The Industrial Bank
of Japan, Limited. Mr. Bacalao is also an officer of Alliant Energy and
IESU.
Steven F. Price, 47, was elected Assistant Treasurer effective
April 1998.October 2000. He previously served as Assistant Corporate SecretaryController
since 1992April 1998 at Alliant Energy and WP&Las Manager of Financial Reporting and
as Assistant Treasurer since 1992Property from 1996 to 1998 at Alliant Energy. Mr. Price is also an officer of IESU.
Robert A. Rusch, 37, was elected Assistant Treasurer effective
April 1998. He previously served as Assistant Treasurer since 1995 at
WP&L. Mr. Rusch is also an officer of IESU.IES.
NOTE:None of the executive officers listed above is related to any member of
the Board of Directors or nominee for director or any other executive officer.
Mr. Davis has an employment agreement with Alliant Energy pursuant to which his
term of office is established. All other executive officers have no definite
terms of office and serve at the pleasure of the Board of Directors.
-A-49-ADDITIONAL OFFICERS
LINDA J. WENTZEL, 52, was elected Assistant Corporate Secretary effective
May 1998. She previously served as Executive Administrative Assistant since 1995
at Alliant Energy.
ENRIQUE BACALAO, 51, was elected Assistant Treasurer effective November 1998.
Prior to joining Alliant Energy, he was Vice President, Corporate Banking from
1995 to 1998 at the Chicago Branch of The Industrial Bank of Japan, Limited.
STEVEN F. PRICE, 48, was elected Assistant Treasurer effective April 1998. He
previously served as Assistant Corporate Secretary since 1992.
A-39
PROXY CARDShareowner Services
P.O. Box 2568
[WISCONSIN POWER & LIGHT LOGO]
Shareowners Services
P.O. Box 2568
Madison, WI 53701-2568
SHAREOWNER INFORMATION NUMBERSNUMBERS:
Local Madison, WI....1-608-252-3110WI: 1-608-252-2110
All Other Areas......1-800-356-5343Areas: 1-800-356-5343
To all Wisconsin Power and Light Company shareowners:
Please take a moment now to vote your shares for the upcoming Annual Meeting of
Shareowners.
Below is your 20002001 Wisconsin Power and Light Company proxy card. Please read
both sides of the proxy card, note your election, sign and date it. Detach and
return it promptly in the enclosed self-addressed enclosed envelope. Whether or not you
are attending, we encourage you to vote your shares.
You are invited to attend the Annual Meeting of Shareowners on Wednesday, May
24, 200030, 2001 at 1:00 p.m. inat the General OfficeAlliant Energy Corporation Headquarters in Room 1A
at 222 West Washington Ave., Madison, Wisconsin.
Please Fold and Detach Proxy Card at Perforation.
- --------------------------------------------------------------------------------
Indicate your vote by an (X) in the appropriate boxes.
FOR ALL WITHHOLD FOR ALL
ELECTION OF DIRECTORS: For All Withhold For All
For All Except(*FOR ALL EXCEPT(*)
[ ] [ ] [ ]/ / / / / /
Nominees for terms
ending in 2003:
01 Erroll B. Davis, Jr.2004:
(*) TO WITHHOLD AUTHORITY TO VOTE
01 Jack B. Evans FOR ANY
02 Lee Liu INDIVIDUAL NOMINEE, STRIKE
02 Joyce L. Hanes A LINE
03 Milton E. Neshek THROUGH THE NOMINEE'S NAME
03 David A. Perdue IN THE
04 Robert W. Schultz LIST TO THE LEFT AND MARK
04 Judith D. Pyle AN (X) IN
05 Wayne H. Stoppelmoor THE "For All Except" BOX.
P
R
O
X
Y
Please date and sign your name(s) exactly as shown
above and mail promptly in the enclosed envelope.
_________________________________________________PLEASE DATE AND SIGN YOUR NAME(S)
EXACTLY AS SHOWN ABOVE AND MAIL
PROMPTLY IN THE ENCLOSED ENVELOPE.
- ----------------------------------------- Important: When signing Signature DATE as attorney,
Signature Date executor,
_________________________________________________ administrator, trustee or
guardian, please give your
Signature DATE full
title as such. In the case of
- ----------------------------------------- JOINT HOLDERS, all should sign.
Signature Date
[BACK SIDE OF PROXY CARD]
To access the Alliant Energy Annual Report on the Internet, please open our
site at WWW.alliant-energy.com.www.alliant-energy.com. We encourage you to check out our site to
see how easy and convenient it is. Click on the Annual Report button. You
may print or just view this material. Your internet provider may have usage
charges associated with electronic access.
(continued and to be signed and dated on the other side)
********************************************************************************
[Wisconsin Power and Light Logo]side.)
- --------------------------------------------------------------------------------
WISCONSIN POWER & LIGHT P.O. BoxBOX 2568
Madison,[LOGO] MADISON WI 53701-2568
WISCONSIN POWER AND& LIGHT COMPANY
P.O. BOX 2568
MADISON WI 53701-2568
_____________________________________________- --------------------------------------------------------------------------------
ANNUAL MEETING OF SHAREOWNERS - MAY 24, 2000
_____________________________________________30, 2001
- --------------------------------------------------------------------------------
The undersigned appoints William D. Harvey, and Edward M. Gleason, or either of
them, attorneys and proxies, with the power of substitution to vote all shares
of stock of Wisconsin Power and Light Company, held of record in the name of the
undersigned at the close of business on April 5, 2000, 3, 2001,at the Annual Meeting of
Shareowners of the Company to be held in Room 1AIA at the General Office,Alliant Energy
Corporation headquarters, 222 West Washington Ave., Madison, Wisconsin on May
24, 200030, 2001 at 1:00 p.m., and at all adjournments thereof, upon all matters that
properly come before the meeting including the matters described in the
Company's Notice of Annual MeetingAnnual-Meeting of Shareowners dated April 12, 200010, 2001 and
accompanying Proxy Statement, subject to any directions indicated on the reverse
side of this card.
This proxy is solicited on behalf of the Board of Directors of Wisconsin Power
and Light Company. This proxy when properly executed will be voted in the manner
directed herein by the shareowner. If no direction is made, the proxy will vote
"FOR" the election of all listed nominess.nominees.