UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____))
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[ ][_] Definitive Additional Materials
[ ][_] Soliciting Material Pursuant to ss.(S) 240.14a-11(c) or ss.(S) 240.14a-12
WISCONSIN POWER AND LIGHT COMPANYWisconsin Power and Light Company
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(Name of Registrant as Specified in itsIn Its Charter)
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SEC 1913 (3-99)
Your Vote is Important
Wisconsin Power and Light Company
Proxy Statement
Notice of 2002 Annual Meeting
and
2001 Annual Report
WISCONSIN POWER AND LIGHT COMPANY
222 West Washington Avenue,ANNUAL MEETING OF SHAREOWNERS
DATE: May 22, 2002
TIME: 1:00 PM, Central Daylight Savings Time
LOCATION: Wisconsin Power and Light Company
Nile Meeting Room
4902 North Biltmore Lane
Madison,Wisconsin
SHAREOWNER INFORMATION NUMBERS
LOCAL CALLS (MADISON, WI AREA) 608-458-3110
TOLL FREE NUMBER.............. 800-356-5343
Wisconsin Power and Light
Company
4902 North Biltmore Lane
P. O. Box 2568
Madison, WI 53701-2568
Phone: 608/252-3110608-458-3110
NOTICE OF ANNUAL MEETING OF SHAREOWNERSAND PROXY STATEMENT
Dear Wisconsin Power and Light Company Shareowner:
On Wednesday, May 26, 1999
1:00 P.M.
The Annual Meeting of Shareowners of22, 2002, Wisconsin Power and Light Company (the "Company")
will be heldhold its 2002 Annual Meeting of Shareowners at the officesoffice of the Company,
222 West Washington
Avenue,4902 North Biltmore Lane, Nile Meeting Room, Madison, WI, Room 1A on Wednesday, May 26, 1999,Wisconsin. The meeting
will begin at 1:00 P.M. (local
time), forp.m. Central Daylight Savings Time.
Only the following purposes:
(1) To elect fivesole common stock shareowner, Alliant Energy Corporation, and
preferred shareowners who owned stock at the close of business on March 28,
2002 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 four directors for terms expiring at the 20022005 Annual Meeting of
Shareowners.
(2) To considerShareowners; and
act upon2. Attend to any other business that may properly come
beforepresented at the meeting or any adjournment or postponement thereof.meeting.
The Board of Directors of the Company presently knows of no other business to
come before the meeting.
Only the sole common shareowner, Interstate Energy Corporation (d/b/a
Alliant Energy Corporation), and preferred shareowners of record on the books of
the Company at the close of business on April 7, 1999 are entitled to vote at
the meeting.
Please sign and return yourthe enclosed proxy immediately. If you attend the meeting,
you may withdraw your proxy at the registration desk and vote in person. All
shareowners are urged to return their proxies promptly.card as soon as possible.
The 19982001 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 InterstateAlliant Energy Corporation 19982001 Annual Report to
Shareowners may do so by calling the Shareowner Services Department at 608-252-3110the
Shareowner Information Number shown at the front of this proxy statement or
writing to the Company at the above address.address shown above.
By Order of the Board of Directors
/s/Edward M. Gleason
Edward M. Gleason
Vice President - Treasurer
and F. J. Buri
F. J. Buri
Corporate Secretary
Madison,Dated and mailed on or about April 9, 2002
TABLE OF CONTENTS
Questions and Answers....................................................... 1
Election of Directors....................................................... 3
Meetings and Committees of the Board........................................ 6
Compensation of Directors................................................... 7
Ownership of Voting Securities.............................................. 9
Compensation of Executive Officers.......................................... 10
Stock Options............................................................... 12
Long-Term Incentive Awards.................................................. 13
Certain Agreements.......................................................... 14
Retirement and Employee Benefit Plans....................................... 15
Report of the Compensation and Personnel Committee on Executive Compensation 18
Report of the Audit Committee............................................... 21
Section 16(a) Beneficial Ownership Reporting Compliance..................... 22
Appendix A--Wisconsin Power and Light Company Annual Report................. A-1
QUESTIONS AND ANSWERS
1. Q: Why am I receiving these materials?
A: The Board of Directors of Wisconsin April 12, 1999
WISCONSIN POWER AND LIGHT COMPANY
222 West Washington Avenue, P. O. Box 2568, Madison, WI 53701-2568
Phone: 608/252-3110
April 12, 1999
PROXY STATEMENT RELATING TO
1999 ANNUAL MEETING OF SHAREOWNERSPower 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 22, 2002. 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 purposesCompany is a subsidiary of Alliant Energy Corporation ("AEC"), a
public utility holding company whose other primary first tier
subsidiaries include Interstate Power and Light Company ("IP&L), Alliant
Energy Resources, Inc. ("AER") and Alliant Energy Corporate Services,
Inc. ("Alliant Energy Corporate Services").
3. Q: Who is entitled to vote at the Annual Meeting?
A: Only shareowners of record at the close of business on March 28, 2002 are
entitled to vote at the Annual Meeting. As of the meeting are set forthrecord 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 and 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 accompanying notice.year 2005.
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 listed director 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. Appointing a
proxy will not affect your right to vote your shares if you attend the
Annual Meeting and desire to vote in person.
7. Q: How are votes counted?
A: In the election of directors, you may vote FOR all of the director
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 listed
director 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 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.
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
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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 March 28, 2002 may attend the Annual Meeting. You may indicate
on the enclosed proxy relatingcard your intention to attend the meeting is solicitedAnnual Meeting
and return it with your signed proxy.
12. Q: How will voting on behalf of theany other business be conducted?
A: The Board of Directors of the Company does not know of any business to be
considered at the 2002 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 F. J. Buri, the Company's 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 Quarterly
Report on Form 10-Q for the second quarter of 2002 to be filed with the
Securities and Exchange Commission
14. Q: When are shareowner proposals for the 2003 Annual Meeting due?
A: All shareowner proposals to be considered for inclusion in the Company's
proxy statement for the 2003 Annual Meeting must be received at the
principal office of the Company by December 10, 2002. In addition, any
shareowner who intends to present a proposal from the floor at the 2003
Annual Meeting must submit the proposal in writing to the Corporate
Secretary of the Company no later than February 23, 2003.
15. Q: Who are the independent auditors of the Company and how are they
appointed?
A: Arthur Andersen LLP acted as independent auditors for the Company in
2001. Representatives of Arthur Andersen LLP are not expected to be
present at the meeting. The Board of Directors expects to appoint the
Company's independent auditors for 2002 later in 2002.
16. Q: Who will bear the cost of such solicitationsoliciting proxies for the Annual Meeting?
A: The Company will be borne bypay the Company. Followingcost of preparing, assembling, printing, mailing
and distributing these proxy materials. In addition to the originalmailing of
these proxy materials, the solicitation of proxies or votes may be made
in person, by mail, beginning ontelephone or about April 12, 1999, certain ofby electronic communication by the Company's
officers and regular employees of the
Company may solicit proxies by telephone, telegraph or in person, but without
extra compensation.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 materialmaterials to their principals.
On April 21, 1998, the merger involving IES Industries Inc. ("IES
Industries," the former parent of IES Utilities Inc. ("IES")), Interstate Power
Company ("IPC") and WPL Holdings, Inc. was completed (the "Merger"), after which
the name17. Q: How can I obtain a copy of the Company's parent corporation, WPL Holdings, Inc., was changed to
Interstate Energy Corporation ("IEC"). The Company remains a subsidiary of IEC.Annual Report on Form 10-K?
A: The Company will furnish without charge, to each shareowner who is
entitled to vote at the meetingAnnual Meeting and who makes a written request, a
copy of the Company's Annual Report on Form 10-K (not including exhibits thereto),(without exhibits) as
filed pursuant towith the Securities and Exchange Act of 1934.Commission. Written requests for
the Form 10-K should be mailed to the Corporate Secretary of the Company
at the address stated above.on the first page of this proxy statement.
18. Q: If more than one shareowner lives in my household, how can I obtain an
extra copy of this proxy statement and Anual Report?
A. Pursuant to the rules of the SEC, services that deliver the Company's
communications to shareowners that hold their stock through a bank,
broker or other holder of record may deliver to multiple shareowners
sharing the same address a single copy of the Company's 2001 Annual
Report and proxy statement. Upon written or oral request, the Company
will deliver a separate copy of the 2001 Annual Report and proxy
statement to any shareowner at a shared address to which a single copy of
each document was delivered. You may notify the Company of your request
by calling or writing the Company's Shareowner Services Department at the
Shareowner Information Numbers shown at the front of this proxy statement
or at the address of the Company shown on the first page of this proxy
statement.
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ELECTION OF DIRECTORS
FiveFour directors are towill be elected at the Company's Annual Meeting of
Shareownersthis year for terms expiring in 2002.2005. The
nominees for election as selected by the Nominating and Governance Committee of
the Company's Board of Directors are: Alan B. Arends, Rockne G. Flowers, Katharine C. Lyall,
Robert D. RaySingleton B. McAllister, and Anthony R. Weiler. Each of the nominees is
currently serving as a director of the Company, IEC, IES, IPC and Alliant Energy Resources, Inc. ("AERI"), the holding
company for non-regulated operations of IEC. All personsCompany. Each person elected as directorsdirector
will serve until the Annual Meeting of Shareowners of the Company in the year
2002,2005 or
until their successors havehis 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 due to abstentionsby 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, 1998)2001), 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
For Terms Expiring in 2002[PHOTO]
Alan B. Arends
Principal Occupation:ALAN B. ARENDS
Director Since 1998
Age 68
Nominated Term Expires
in 2005
Mr. Arends is Chairman of the Board of Directors of Alliance
Benefit Group Financial Services Corp. (an, Albert Lea, Minnesota,
an employee benefits company formerly known as Arends Associates,
Inc.), Albert Lea, Minnesota.
Age: 65
(Photo)
Served as a director of the Company since the consummation
of the Merger.
Annual Meeting at which nominated term of office will
expire: 2002
Other Information: Mr. Arendsthat he founded Alliance Benefit Group Financial Services
Corp. in 1983. Mr. ArendsHe has
served as a director of IPCIP&L (or predecessor companies) since
1993 and of IECAEC and IESAER since the consummation of the Merger.
Rockne G. Flowers Principal Occupation: Chairman of Nelson Industries, Inc.
(a muffler, filter, industrial silencer, and active sound
and vibration control technology and manufacturing firm and
a subsidiary of Cummins Engine Company), Stoughton,
Wisconsin.
Age: 67
(Photo)
Served as a director of the Company from 1979 to 1990 and
since 1994.
Annual Meeting at which nominated term of office will
expire: 2002
Other Information: Mr. Flowers is a director of American Family Mutual Insurance
Company, Janesville Sand and Gravel Company, M&I Bank of Southern Wisconsin, the
Wisconsin History Foundation, and University Research Park. Mr. Flowers has
served as a director of IEC since 1981 and of IES and IPC since the consummation
of the Merger.
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1998.
[PHOTO]
Katharine C. Lyall
Principal Occupation: President, University of Wisconsin
System, Madison, Wisconsin.
Age: 57
(Photo) Served as a director of the Company since 1986.
Annual Meeting at which nominated term of office will
expire: 2002
Other Information:KATHARINE C. LYALL
Director Since 1986
Age 60
Nominated Term Expires
in 2005
Ms. Lyall has served asis President of the University of Wisconsin System
since April 1992. Prior thereto, she served as Executive Vice
President of the University of Wisconsin System. She also serves on the Board of
Directors of the Kemper National Insurance Companies and the Carnegie Foundation
for the Advancement of Teaching. She is a member of a variety of professional
and community organizations, including the American Economic Association,
Carnegie Foundation for Advancement of Teaching (President, Board of Trustees),
the Wisconsin Academy of Sciences, Arts and Letters, the American Red Cross
(Dane County), Competitive Wisconsin, Inc., and Forwardin Madison, Wisconsin. In addition to her administrative
position, she is a professor of economics at the University of
Wisconsin-Madison. 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 IECAEC and AER since 1994 and
of IESIP&L (or predecessor companies) since 1998.
[PHOTO]
Singleton B. McAllister
SINGLETON B. MCALLISTER
Director Since 2001
Age 49
Nominated Term Expires
in 2005
Ms. McAllister is a partner with Patton Boggs LLP, a
Washington D.C.-based law firm working in the public policy
and IPC sincebusiness law areas. From 1996 until early 2001, Ms.
McAllister was General Counsel for the consummation of the Merger.
Robert D. Ray Principal Occupation: President, Drake University, Des
Moines, Iowa.
Age: 70
(Photo)
Served as a director of the Company since the consummation
of the Merger.
Annual Meeting at which nominated term of office will
expire: 2002
Other Information: Mr. Ray has served as President of Drake University since
April 1998. He served as President and Chief Executive Officer of Life Investors
Insurance Co. (AEGON USA) from 1983 to 1989 and President of Blue Cross/Blue
Shield (Wellmark) from 1989 until his retirement in 1996. Prior thereto, Mr. Ray
served as Governor of the State of Iowa for fourteen years, and was a United States Delegate to the United NationsAgency
for International Development. She was also a partner at Reed,
Smith, Shaw and McClay where she specialized in 1984. Before that he was a trial
lawyer. He is a director of the Maytag Company (an appliance manufacturer)government
relations and a
director of Norwest Bank IA. He serves as Chairman of the National Coalition on
Health Care and the National Advisory Committee on Rural Health. Mr. Ray
previously served as Chairman of the Board of Governors, Drake University, and
as a member of the Iowa Business Council. Mr. Raycorporate law. Ms. McAllister has served as a
director of IESAEC, IP&L (or predecessor companies), and AER
since 1987 and of IEC and IPC since the
consummation of the Merger.2001.
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[PHOTO] ANTHONY R. WEILER
Director Since 1998
Anthony R. Age 65
Weiler Principal Occupation:Nominated Term Expires
in 2005
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, (aa national furniture retailer),retailer headquartered in
Richmond, Virginia. Age: 62
(Photo)
Served asHe is a director of the Company since the consummation
of the Merger.
Annual Meeting at which nominated term of office will
expire: 2002
Other Information: Mr. Weiler was previously Chairman and Chief Executive
Officer of Chittenden & Eastman Company, a national manufacturer of mattresses
in Burlington, Iowa. Chittenden & Eastman employed him in various management
positions from 1960 to 1995. Mr. Weiler joined Heilig-Meyers Company as Senior
Vice President in 1995. Mr. Weiler previously served as President and Chairman
of the National Home Furnishings Association and is currently a directorDirector of the Retail Home
Furnishings Foundation and the NHFA Insurance Trust. He is a past
director of the Burlington Area Development Corporation, the Burlington Area
Chamber of Commerce and various community organizations. He is a board member of
the Tuckahoe YMCA in Richmond, Virginia.Foundation. Mr. Weiler has served as a director of
IESIP&L (or predecessor companies) since 1979 and of IECAEC and IPCAER
since 1998. Mr. Weiler is the consummationChair of the Merger.
THE BOARD OF DIRECTORS RECOMMENDS THE FOREGOING NOMINEESNominating and
Governance Committee.
The Board of Directors unanimously recommends a vote FOR ELECTION AS
DIRECTORS AND URGES EACH SHAREOWNER TO VOTE "FOR" ALL NOMINEES. SHARES OF COMMON
STOCK REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" ALL
NOMINEES.
4
all nominees for
election as directors.
CONTINUING DIRECTORS
[PHOTO] ERROLL B. DAVIS, JR.
Director Since 1984
Erroll B. Age 57
Davis, Jr. Principal Occupation: President and Chief Executive Officer
of IEC.
Age: 54
(Photo)
Served as a director of the Company since 1984.
Annual Meeting at which current term of office will expire:
2000
Other Information:Term Expires in 2003
Mr. Davis was electedhas been President of IEC inAEC since January 1990 and was
elected President and Chief Executive Officer of IEC effectiveAEC in July
1, 1990. He was elected Chairman of the Board of AEC in April
2000. Mr. Davis joined the Company in August 1978 and was electedserved as
President in July
1987.of the Company from 1987 until 1998. He was elected President and
Chief Executive Officer of the Company in
August 1988. Mr. Davis has
also served as Chief Executive Officer of IESAER and IPCIP&L (or
predecessor companies) since the consummation of the Merger.1998. He is a member of the
Boards of Directors of BP Amoco p.l.c., PPG Industries, Inc.,
the Edison Electric Institute, the
Wisconsin Manufacturers and Commerce Association and the Association of Edison
Illuminating Companies. He also is a member of the Electric Power Research Institute the Iowa Business Council, the American Society of Corporate
Executives and the Nuclear EnergyEdison Electric
Institute. Mr. Davis has served as a director of IECAEC since
1982, of AER since 1988 and of IES and IPCIP&L (or predecessor companies)
since 1998. Mr. Davis is the consummationChair of the Merger.
Joyce L. Hanes
Principal Occupation:Capital Approval
Committee.
[PHOTO] JACK B. EVANS
Director Since 2000
Jack B. Evans Age 53
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 Midwest
Wholesale, Inc. (a products wholesaler), Mason City, Iowa.
Age: 66
(Photo)
ServedUnited Fire and Casualty Company.
Mr. Evans has served as a director of the CompanyAEC, IP&L (or
predecessor companies) and AER since the consummation2000. Mr. Evans is Chair
of the Merger.
Annual meeting at which current term of office will expire:
2001
Other Information:Audit Committee.
[PHOTO] JOYCE L. HANES
Director Since 1998
Joyce L. Hanes Age 69
Term Expires in 2004
Ms. Hanes has been a directorDirector of Midwest Wholesale, Inc., a
products wholesaler in Mason City, Iowa, since 1970. She was re-elected1970 and
Chairman of the Board of that
company insince December 1997, having previously
served as Chairman from 1986 to 1988. She is a director of
the Iowa Student Loan Liquidity Corp. and the North
Iowa Area Community College Foundation and is President of Camp Tanglefoot, Inc. Ms. Hanes has served as a
director of IPCIP&L (or predecessor companies) since 1982 and of
IECAEC and IESAER since the consummation of the Merger.
51998.
4
[PHOTO] LEE LIU
Director Since 1998
Lee Liu Principal Occupation:Age 68
Term Expires in 2003
Mr. Liu was elected Vice Chairman of the Board of IEC.
Age: 65
(Photo)
Served as a directorDirectors of
the Company, since the consummation
of the Merger.
Annual Meeting at which current term of office will expire:
2000
Other Information: Mr. Liu hasAEC, IP&L and AER in January 2002. He served as
Chairman of the Board of the Company and IEC sinceAEC from April 1998
until April 2000 in accordance with the consummationterms of the Merger. Mr. Liuhis
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 Utilities Inc., a predecessor to IP&L, prior to the Merger.1998. Mr.
Liu has held a number of professional, management and executive
positions after joining Iowa Electric Light and Power Company
(later known as IES)IES Utilities Inc.) in 1957. He is a director
of McLeodUSA Inc., a telecommunications company in Cedar Rapids, Iowa; Principal Financial Group an insurance company in Des Moines, Iowa; and Eastman Chemical Company, a diversified chemical company in Kingsport, Tennessee. He also serves
as a trustee for Mercy Medical Center, a hospital in Cedar Rapids, Iowa and is a
member of the University of Iowa College of Business Board of Visitors.Company. Mr.
Liu has served as a director of IESIP&L (or predecessor
companies) since 1981 and of IECAEC and IPCAER since the consummation of the Merger.
Arnold M. Nemirow
Principal Occupation: Chairman,1998.
[PHOTO] DAVID A. PERDUE
Director Since 2001
David A. Perdue Age 52
Term Expires in 2004
Mr. Perdue is President and Chief Executive Officer Bowater Incorporated (a pulp and paper
manufacturer), Greenville, South Carolina.
Age: 55
(Photo)
Served as a director of the
Company since 1994.
Annual MeetingReebok 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, he was Senior Vice President of Operations at
which current term of office will expire:
2001
Other Information:Haggar, Inc. Mr. Nemirow served as President, Chief Executive Officer and
Director of Wausau Paper Mills Company, a pulp and paper manufacturer, from 1990
until joining Bowater Incorporated in September 1994. He is a member of the New
York Bar. Mr. NemirowPerdue has served as a director of IECAEC, IP&L
(or predecessor companies) and AER since 1991 and of IES and
IPC since the consummation of the Merger.
6
Milton E. Neshek
Principal Occupation: General Counsel and member of the
Board of Directors of Kikkoman Foods, Inc. (a food products
manufacturer), Walworth, Wisconsin.
(Photo)
Age: 68
Served as a director of the Company since 1984.
Annual Meeting at which current term of office will expire:
2000
Other Information: Mr. Neshek is Special Consultant to the Kikkoman Corporation,
Tokyo, Japan, and General Counsel, Secretary and Manager, New Market
Development, Kikkoman Foods, Inc. He is also a director of Midwest U.S.-Japan
Association and Wisconsin-Chiba, Inc. He is a fellow in the American College of
Probate Counsel. Mr. Neshek is a member of the Walworth County Bar Association
and the State Bar of Wisconsin. Mr. Neshek is also a member of the Wisconsin
Sesquicentennial Commission and a member of its Executive and Finance Committee.
Mr. Neshek is a member of the Wisconsin International Trade Council ("WITCO")
and is Chairman of the WITCO International Education Task Force. Mr. Neshek has
served as a director of IEC since 1986 and of IES and IPC since the consummation
of the Merger.
Jack R. Newman
Principal Occupation: Partner of Morgan, Lewis & Bockius
(an international law firm), Washington, D.C.
Age: 65
(Photo)
Served as a director of the Company since the consummation
of the Merger.
Annual Meeting at which nominated term of office will
expire: 2001
Other Information: Mr. Newman has been engaged in private practice since 1967
and has been a partner of Morgan, Lewis & Bockius since December 1, 1994. Prior
to joining Morgan, Lewis & Bockius, he was a partner in the law firms of Newman
& Holtzinger and Newman, Bouknight & Edgar. He has served as nuclear legal
counsel to IES since 1968. He advises a number of utility companies on nuclear
power matters, including many European and Asian companies. Mr. Newman is a
member of the Bar of the State of New York, the Bar Association of the District
of Columbia, the Association of the Bar of the City of New York, the Federal Bar
Association and the Lawyers Committee of the Edison Electric Institute. Mr.
Newman has served as a director of IES since2001.
[PHOTO] JUDITH D. PYLE
Director Since 1994 and of IEC and IPC since the
consummation of the Merger.
7
Judith D. Pyle Principal Occupation:Age 58
Term Expires in 2004
Ms. Pyle is Vice Chair of The Pyle Group, (aa financial services
company),company located in Madison, Wisconsin.
Age: 55
(Photo)
Served as a director of the Company since 1994.
Annual Meeting at which current term of office will expire:
2001
Other Information: Prior to assuming her
current position, Ms. Pyle served as Vice ChairChairman and Senior
Vice President of Corporate Marketing of Rayovac Corporation
(a battery and lighting products manufacturer), Madison,
Wisconsin. In addition, Ms. Pyle is a director of Firstar Corporation. She is also a member of the Board
of Visitors at the University of Wisconsin School of Human Ecology. Further, Ms.
Pyle is a member of Boards of Directors of the United Way Foundation, Greater
Madison Chamber of Commerce, Wisconsin Taxpayers Alliance, Children's Theatre of
Madison, and the Boys and Girls Club of Dane County. Ms. Pyle is also Vice Chairman of Georgette
Klinger, Inc. and is a trusteedirector of the White House
Endowment Fund.Uniek, Inc. Ms. Pyle has
served as a director of IECAEC and AER since 1992 and of IES
and IPC since the consummation of the Merger.
David Q. Reed
Principal Occupation: Independent practitioner of law in
Kansas City, Missouri.
Age: 67
(Photo)
Served as a director of the Company since the consummation
of the Merger.
Annual Meeting at which current term of office will expire:
2001
Other Information: Mr. Reed has been engaged in the private practice of law
since 1960. He is also President and Chief Executive Officer of Fairview
Enterprises, Inc., a land holding corporation with properties in Missouri and
Michigan. He is a member of the American Bar Association, the Association of
Trial Lawyers of America, the Missouri Association of Trial Lawyers, the
Missouri Bar and the Kansas City Metropolitan Bar Association. Mr. Reed has
served as a director of IESIP&L (or
predecessor companies) since 1967 and of IEC and
IPC since1998. Ms. Pyle is the consummationChair of
the Merger.
8
Compensation and Personnel Committee.
[PHOTO] ROBERT W. SCHLUTZ
Robert W. Director Since 1998
Schlutz Principal Occupation:Age 65
Term Expires in 2003
Mr. Schlutz is President of Schlutz Enterprises, (aa diversified
farming and retailing business),business in Columbus Junction, Iowa.
Age: 63
(Photo)
Served as a director of the Company since the consummation
of the Merger.
Annual Meeting at which current term of office will expire:
2000
Other Information: Mr. Schlutz is a director of PM Agri-Nutritional Group Inc.,
an animal health business in St. Louis, Missouri. Mr. Schlutz is a past director
for the Iowa Foundation for Agricultural Advancement, past President of the Iowa
State Fair Board, past President of the Association of National Kentucky Fried
Chicken Franchisees, and a past director of the National Certified Angus Beef
Association. Mr. Schlutz is also a member of various community organizations. He
previously served on the National Advisory Council for the Kentucky Fried
Chicken Corporation. He is a past Chairman of the Environmental Protection
Commission for the State of Iowa. Mr.
Schlutz has served as a director of IESIP&L (or predecessor
companies) since 1989 and of IECAEC and IPCAER since 1998. Mr.
Schlutz is the consummationChair of the MergerEnvironmental, Nuclear, Health and
Safety Committee.
[PHOTO] WAYNE H. STOPPELMOOR
Wayne H. Director Since 1998
Stoppelmoor Principal Occupation: Vice Chairman of the Board of IEC.
Age: 64
(Photo)
Served as a director of the Company since the consummation
of the Merger.
Annual Meeting at which current term of office will expire:
2000
Other Information:Age 67
Term Expires in 2003
Mr. Stoppelmoor has served as Vice Chairman of the Board of the
Company and IEC sinceAEC from April 1998 until April 2000 in accordance
with the consummationterms of the Merger.his consulting agreement. Prior thereto, Mr.
Stoppelmoor had served asto 1998, he
was Chairman, President and Chief Executive Officer of
IPC.Interstate Power Company, a predecessor to IP&L. He retired as President of IPC on October 1, 1996 and as
Chief Executive Officer on January 1,of Interstate Power Company in 1997.
Mr. Stoppelmoor has served as a director of IPCIP&L (or
predecessor companies) since 1986 and of IECAEC and IESAER since
the consummation of the Merger.
91998.
5
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
Governance Committees. Information regardingGovernance; and Capital Approval Committees 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 the committees is set forth below.these committees:
Audit Committee
The Audit Committee held one meetingtwo meetings in 1998.2001. The Audit Committee currently consists
of J. L. HanesB. Evans (Chair), A. B. Arends, K. C. Lyall, M. E. Neshek,S. B. McAllister and J. R.
Newman and R. W. Schlutz.D.
Pyle. 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
Audit Committee considers appropriate.
Compensation and Personnel Committee
The Compensation and Personnel Committee held twothree meetings in 1998.2001. The
Compensation and Personnel
Committee currently consists of A. M. NemirowJ. D. Pyle (Chair), A. B. Arends, J. B. Evans,
and D. Pyle, D. Q. Reed and A. R. Weiler. The Compensation
and PersonnelPerdue. 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.
Environmental, Nuclear, Health and Safety Committee
The Environmental, Nuclear, Health and Safety Committee held two meetings in
2001. The Committee currently consists of R. W. Schlutz (Chair), J. L. Hanes,
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 twofive meetings in 1998.2001. The
Nominating and Governance
Committee currently consists of A. R. G. FlowersWeiler (Chair), A.J. L. Hanes, K. C. Lyall,
S. B. Arends, J. D. Pyle,McAllister and R. D. Ray and A. R. Weiler. The Nominating and
GovernanceW. Schlutz. This Committee's responsibilities include
recommending and nominating new members of the Board,Board; recommending committee
assignments and committee chairpersons,chairpersons; evaluating overall Board effectiveness,effectiveness;
preparing an annual report on Chief Executive Officer effectiveness,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 Chief Executive
OfficerCorporate 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 one meeting in 2001. The Committee
currently consists of J. B. Evans, J. D. Pyle and A. R. Weiler. Mr. Davis is
the Chair and a non-voting member of this Committee. The purpose of this
Committee is the evaluation of certain investment proposals where (a) an
iterative bidding process is required and/or (b) 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 fivesix meetings during 1998. All directors2001. Each director attended at
least 88%83% of the aggregate number of meetings of the Board and Board committees
on which he or she served.
10The 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.
6
COMPENSATION OF DIRECTORS
No retainer fees are paid to directors who are officers of the Company, IEC or any
of IEC's subsidiaries (presently Mr. Davis Mr. Liu and Mr. Stoppelmoor).
Non-managementfor his service on the Company's Board
of Directors. In 2001, all other directors (the "non-employee directors"), each
of whom serveserved on the Boards of the Company, IEC,AEC, IES IPCUtilities Inc.,
Interstate Power Company and AERI, receiveAER, received an annual retainer of $32,800 for service on
all five Boards.Boards consisting of $25,000 in cash and 1,000 shares of AEC common
stock. Travel expenses are paid for each meeting day attended. All
non-management directors also receive a 25 percent matching contributionBeginning in
IEC2002, the annual retainer for each non-employee director has been changed to
$30,000 in cash and 1,000 shares of AEC common stock for limited optionalservice on all four
Boards (AEC, IP&L AER and the Company). The directors have the option to
receive each amount outright (in cash purchases,and stock), to have each amount deposited
to their Shareowner Direct Plan account or to a director's Deferred
Compensation Account or any combination thereof.
Director's Deferred Compensation Plan
Under the 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 receive an annual return based on the A-Utility Bond Rate with
a minimum return no less than the prime interest rate published in 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 the cash portion or the
stock portion of the director's compensation, are treated as though invested in
the common stock of AEC and will be credited with dividends and those dividends
will be reinvested. Annually, the director may elect that the Deferred
Compensation Account will be paid in a lump sum or in annual installments for
up to $10,000,ten years beginning in the year of IEC's common
stock through IEC's Shareowner Direct Plan. Matching contributions of $2,500
each for calendaror one tax year 1998 were made forafter retirement or
resignation from the following directors: A. B. Arends,
R. G. Flowers, J. L. Hanes, K. C. Lyall, A. M. Nemirow, M. E. Neshek, J. R.
Newman, J. D. Pyle, R. D. Ray, and R. W. Schlutz. As of the effective date of
the Merger, a previously existing retirement plan for IES Industries directors
was terminated. Persons with vested interests in that plan received a payout of
those interests at the time of the Merger. Those persons receiving such a payout
included the following directors: L. Liu - $76,800, R. D. Ray - $76,800, D. Q.
Reed - $76,800, R. W. Schlutz - $76,800, and A. R. Weiler - $76,800.Board.
Director's Charitable Award Program
- IECAEC 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 IECAEC 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 IEC,AEC, and the donations are
funded by the Company or IECAEC 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 IEC.AEC.
Director's Life Insurance Program
- IECAEC 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 IECAEC to reimburse IECAEC
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 IEC.AEC.
The imputed income allocations reported for each director in 19982001 under the
Director's Life Insurance Program were as follows: R. G. Flowers - $432,A. B. Arends--$50, J. L.
Hanes--$50, K. C. Lyall - $393, A. M. Nemirow - $37, M. E.
Neshek - $950 andLyall--$395, J. D. Pyle - $70.
Director JackPyle--$50, W. H. Stoppelmoor--$828 and A.
R. Newman serves as legal counselWeiler--$50.
Pension Arrangements
Prior to IECApril 1998, Mr. Liu participated in the IES Industries Inc. retirement
plan, which has been transferred to Alliant Energy Corporate Services. Mr.
Liu's benefits under the plan have been "grandfathered" to reflect the benefit
plan formula in effect 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 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
7
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 Agreements
Mr. Stoppelmoor had a three-year consulting arrangement with AEC that expired
on nuclear issues.April 21, 2001. Under the terms of his consulting arrangement, Mr.
Newman's firm, Morgan, Lewis & Bockius provides certain legal servicesStoppelmoor received $200,000 in 2001 for consulting services. After April 21,
2001, Mr. Stoppelmoor became eligible to IEC.
11receive the annual compensation paid
to non-employee directors.
8
OWNERSHIP OF VOTING SECURITIES
All of the common stock of the Company is held by IEC.AEC. Listed in the following
table are the number of shares of IEC'sAEC'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, 1998.February 28, 2002. The
directors and executive officers of AEC and the Company as a group owned less than one percent1.8%
of the outstanding shares of IECAEC common stock on that date. No individual
director or officer owned more than 1% of the outstanding shares of AEC common
stock on that date. To the Company's knowledge, no shareowner beneficially
owned 5 percent5% or more of IEC'sAEC's outstanding common stock or the
Company's preferred stock as of December 31, 1998. None of the directors or
officers of the Company own any shares of Company preferred stock.
Shares
Beneficially
Name of Beneficial Owner Owned(1)
------------------------ -------------
Executives(2)
William D. Harvey......................... 23,759 (3)
Eliot G. Protsch.......................... 23,817 (3)
Thomas M. Walker.......................... 5,105 (3)
Director Nominees
Alan B. Arends............................ 2,202
Rockne G. Flowers......................... 10,189
Katharine C. Lyall........................ 7,715
Robert D. Ray............................. 4,032
Anthony R. Weiler......................... 4,603 (3)
Continuing Directors
Erroll B. Davis, Jr....................... 59,292 (3)
Joyce L. Hanes............................ 2,858 (3)
Lee Liu................................... 66,247 (3)
Arnold M. Nemirow......................... 10,387
Milton E. Neshek.......................... 12,315
Jack R. Newman............................ 2,027
Judith D. Pyle............................ 6,297
David Q. Reed............................. 6,043 (3)
Robert W. Schlutz......................... 4,185
Wayne H. Stoppelmoor...................... 12,424
All Executives and Directors as a Group
35 people, including those listed above... 399,672 (3)
- - ----------
(1) 2001.
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED/(1)/
------------------------ ------------
Executives/(2)/
William D. Harvey.......................... 101,673/(3)/
Eliot G. Protsch........................... 110,831/(3)/
Thomas M. Walker........................... 64,939/(3)/
Pamela J. Wegner........................... 73,032/(3)/
Director Nominees
Alan B. Arends............................. 6,884/(3)/
Katharine C. Lyall......................... 13,540
Singleton B. McAllister.................... 1,543
Anthony R. Weiler.......................... 8,847/(3)/
Directors
Erroll B. Davis, Jr........................ 326,875/(3)/
Jack B. Evans.............................. 33,961/(3)/
Joyce L. Hanes............................. 7,505/(3)/
Lee Liu.................................... 191,969/(3)/
David A. Perdue............................ 2,681/(3)/
Judith D. Pyle............................. 11,047
Robert W. Schlutz.......................... 9,694/(3)/
Wayne H. Stoppelmoor....................... 132,604/(3)/
All Executives and Directors as a Group 1,587,493/(3)/
29 people, including those listed above.
/(1)/Total shares of IECAEC common stock outstanding as of December 31, 1998February 28, 2002 were
77,630,043.
(2) 90,135,503.
/(2)/Stock ownership of Mr. Davis and Mr. Liu areis shown with continuingthe directors.
(3) /(3)Included in the beneficially owned shares shown are: Indirectare indirect ownership
interests with shared voting and investment powers: Mr. Harvey - 1,897,Davis--7,601, Ms.
Hanes--550, Mr. Protsch - 573,Liu--19,755, Mr. Davis - 5,866, Ms. Hanes - 541,Weiler--1,331, Mr. Liu - 9,755,
Mr. Reed - 353Harvey--2,365 and Mr.
Weiler - 1,037;Protsch--714; shares of common stock held in deferred compensation plans:
Mr. Arends--2,927, Mr. Davis--29,255, Mr. Evans--3,961, Ms. Hanes--183, Mr.
Perdue--2,681, Mr. Schlutz--3,961, Mr. Weiler--2,927, Mr. Harvey--7,510,
Mr. Protsch--18,112, Mr. Walker--13,621 and exercisable stock options: Mr.
Davis - 37,950, Mr. Liu -8,449, Mr. Harvey - 13,152, Mr. Protsch -13,152,
Mr. Walker - 3,802 and Mr. Stoppelmoor - 6,336Ms. Wegner--3,106 (all
executive officers and directors as a group - 148,072)group--109,498); and stock options
exercisable on or within 60 days of February 28, 2002: Mr.
Davis--264,714, Mr. Liu--148,849, Mr. Stoppelmoor--119,201, Mr.
Harvey--64,235, Mr. Protsch--64,235, Mr. Walker--48,322 and Ms.
Wegner--51,544 (all executive officers and directors as a
group--1,142,859). 12/
None of the directors or officers of the 5% or more of any class of the
Company own any shares of the Company's Company's preferred stock as of
preferred stock. To the Company's December 31, 2001.
knowledge, no shareowner beneficially
owned
9
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth the total compensation paid
by IEC,AEC, the Company and IEC's otherAEC's subsidiaries for all
services rendered to such companies during 1998, 1997 and 1996 to the Chief Executive Officer and
the four other most highly compensated executive officers of the Company (the "named executive officers").
for
all services rendered during 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
(Dollars)
Long-Term
- ---------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
--------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Awards ------------------------------------------ --------------------------Payouts -----------------
----------------------------------------------------
-----------------------------------
Securities
Underlying
Other Restricted Options/Underlying
Name and Other Annual Stock SARs All OtherOptions LTIP
Principal Position Year Base Salary Bonus(1) Compensation(2) Awards(3)Bonus Compensation/(1)/ Awards/(2)/ (Shares)(4) Compensation(5)/(3)/ Payouts All Other
- - ------------------ ---- ------ -------- --------------- --------- ----------- -------------------------------------------------------------------------------------------------------------------Compensation/(4)/
- ---------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 1998 $540,000 $ - $13,045 $ - 36,752 $57,9962001 $683,269 $489,364 $11,265 -- 108,592 $359,605 $50,284
Chairman, and Chief 2000 637,692 895,200 11,875 -- 111,912 196,711 52,619
Executive Officer 1997 450,000 200,800 19,9821999 580,000 440,220 12,526 -- 77,657 84,870 53,188
- 13,800 60,261
1996 450,000 297,862 23,438---------------------------------------------------------------------------------------------------------------------
- 12,600 66,711
Lee Liu 1998 400,000 - - 337,241 25,347 52,073
Chairman of the Board 1997 400,000 189,000 5,956 176,391 - 13,277
of IEC 1996 380,000 175,000 2,578 253,475 - 13,956---------------------------------------------------------------------------------------------------------------------
William D. Harvey 1998 233,8462001 274,616 161,233 4,061 -- 21,798 92,209 42,944
President 2000 264,615 206,541 4,234 -- 21,063 47,474 42,230
1999 254,423 116,535 4,565 $ 255,004 17,071 31,365 37,005
- 4,699---------------------------------------------------------------------------------------------------------------------
- 11,406 28,642
President 1997 220,000 43,986 14,944 - 5,100 33,043
1996 220,000 92,104 10,765 - 4,650 29,343---------------------------------------------------------------------------------------------------------------------
Eliot G. Protsch 1998 233,846 - 2,443 - 11,406 20,3982001 274,616 143,688 893 -- 21,798 92,209 38,372
Executive 2000 264,615 214,942 1,423 -- 21,063 47,474 38,058
Vice President 1997 220,000 51,400 11,4441999 254,423 152,898 1,909 255,004 17,071 31,365 32,941
- 5,100 30,057
1996 220,000 101,224 7,657---------------------------------------------------------------------------------------------------------------------
- 4,650 25,890---------------------------------------------------------------------------------------------------------------------
Thomas M. Walker (6) 1998 229,846 - 814 - 11,406 13,2632001 264,615 133,852 -- -- 21,005 88,597 6,207
Executive Vice 2000 254,616 190,026 -- -- 20,268 47,474 6,166
President 1997 230,000 62,100 38,138 - - 2,367
and& Chief 1999 244,808 148,960 -- -- 16,402 -- 6,531
Financial Officer
1996 9,583 - ---------------------------------------------------------------------------------------------------------------------
- 30,000---------------------------------------------------------------------------------------------------------------------
Pamela J. Wegner 2001 264,615 124,312 2,267 -- 21,005 88,597 35,370
Executive 2000 254,608 180,285 2,416 -- 20,268 27,563 34,377
Vice President 1999 244,615 145,187 2,569 245,017 16,402 19,373 29,122
/(1)Other Annual Compensation for 2001 consists of income tax gross-ups for
reverse split-dollar life insurance. /
/(2)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. If such restricted stock vests, then the
participant is 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, 2001 were as follows: Mr. Harvey--9,294 shares ($282,166), Mr.
Protsch--9,294 shares ($282,166) and Ms. Wegner--8,930 shares ($271,115). /
/(3)/Awards made in 2001 were in combination with performance share awards as
described in the table entitled "Long-Term Incentive Awards in 2001".
10
/(4)/The table below shows the components of the compensation reflected under
this column for 2001:
- 119
(1) No bonuses were paid for 1998.
(2) Other Annual Compensation for 1998 consists of: income tax gross-ups for
reverse split-dollar life insurance for Messrs.-----------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. William D. Harvey and
Protsch; and relocation expense reimbursement for Mr. Walker.
(3) Prior to the Merger, IES Industries had historically made awards of
restricted stock. Such awards (to the extent not previously vested)
vested automatically upon the consummation of the Merger. The number of
shares of restricted stock reflected in this table that were subject to
such automatic vesting are as follows: Mr. LiuEliot G. Protsch Thomas M. Walker Pamela J. Wegner
- 8,703 shares awarded for
1998, 5,004 shares awarded for 1997 and 8,703 shares awarded for 1996;
Mr. Walker-----------------------------------------------------------------------------------------------
A. $20,498 $ 8,238 $ 8,238 $5,250 $ 6,573
- 1,000 shares awarded for 1996. Restricted stock was
considered outstanding upon the award date and dividends were paid to the
eligible officers on these shares while restricted. The amounts shown in
the table above represent the value of the awards based upon the closing
price of IES Industries common stock on the award date.
(4) Awards made in 1998 were in combination with performance share awards as
described in the table entitled "Long-Term Incentive Awards in 1998".
(5) All Other Compensation for 1998 consists of: matching contributions to
401(k) Plan and Deferred Compensation Plan, Mr. Davis-----------------------------------------------------------------------------------------------
B. 12,466 7,121 6,861 0 4,359
- $16,200, Mr. Liu-----------------------------------------------------------------------------------------------
C. 12,302 5,127 1,162 0 2,862
- $4,754, Mr. Harvey-----------------------------------------------------------------------------------------------
D. 5,018 998 651 957 957
- $7,015, Mr. Protsch-----------------------------------------------------------------------------------------------
E. 0 21,460 21,460 0 20,619
- $7,015 and Mr. Walker-----------------------------------------------------------------------------------------------
Total $50,284 $42,944 $38,372 $6,207 $35,370
- $5,000; financial counseling benefit, Mr. Davis -
13-----------------------------------------------------------------------------------------------
A. Matching contributions to 401(k) Plan and Deferred Compensation Plan
B. Split-dollar life insurance reportable income (the split-dollar insurance
premiums are calculated using the "foregone interest" method)
C. Reverse split-dollar life insurance
D. Life insurance coverage in excess of $50,000
E. Dividends earned in 2001 on restricted stock
11
$7,000, Mr. Liu - $4,448, Mr. Harvey - $7,000, Mr. Protsch - $2,333 and
Mr. Walker - $7,000; split dollar life insurance premiums, Mr. Davis -
$20,653, Mr. Harvey - $8,738 and Mr. Protsch - $7,989; reverse split
dollar life insurance, Mr. Davis - $14,143, Mr. Harvey - $5,889 and Mr.
Protsch - $3,061; life insurance coverage in excess of $50,000, Mr. Liu -
$9,910; and dividends on restricted stock, Mr. Liu - $32,961 and Mr.
Walker - $1,263. The split dollar insurance premiums are calculated using
the "foregone interest" method.
(6) Mr. Walker's employment with the Company began in 1996.
STOCK OPTIONS
The following table sets forth certain information concerning stock options
granted by IEC during 19982001 to the executives named below:
STOCK OPTION GRANTS IN 2001
OPTION/SAR GRANTS IN 1998
- - ----------------------- ------------------------------------------------------------------ ---------------------------
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Option
Individual Grants Term(2)
- - ----------------------- ------------------------------------------------------------------ ---------------------------
Number of
SecuritiesOption Term/(2)/
--------------------------------------------------------------------------
% of Total
Options
Number of Granted
Securities to Exercise
Underlying Options/SARs
Options/ Granted to
SARs Employees in Exercise or Base
Options in Fiscal Price Expiration
Name Granted(1) FiscalGranted/(1)/ Year Price ($/Share) Date 5% 10%
- - ----------------------- ------------- ---------------- ------------------- --------------- ------------ -------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 36,752 5.8% $31.5625 6/30/08 $729,527 $1,848,993108,592 15.1% $31.54 1/1/11 $5,579,457 $8,883,912
- - ----------------------- ------------- ---------------- ------------------- --------------- ------------ --------------
Lee Liu 25,347 4.0% 31.5625 6/30/08 503,138 1,275,208
- - ----------------------- ------------- ---------------- ------------------- --------------- ------------ -------------------------------------------------------------------------------------------------------------
William D. Harvey 11,406 1.8% 31.5625 6/30/08 226,409 573,83621,798 3.0% 31.54 1/1/11 1,119,981 1,783,294
- - ----------------------- ------------- ---------------- ------------------- --------------- ------------ -------------------------------------------------------------------------------------------------------------
Eliot G. Protsch 11,406 1.8% 31.5625 6/30/08 226,409 573,83621,798 3.0% 31.54 1/1/11 1,119,981 1,783,294
- - ----------------------- ------------- ---------------- ------------------- --------------- ------------ -------------------------------------------------------------------------------------------------------------
Thomas M. Walker 11,406 1.8% 31.5625 6/30/08 226,409 573,83621,005 2.9% 31.54 1/1/11 1,079,237 1,718,419
- - ----------------------- ------------- ---------------- ------------------- --------------- ------------ --------------
(1) Consists of non-qualified stock options to purchase shares of IEC common
stock granted pursuant to IEC's Long Term Equity Incentive Plan. Options
were granted on July 1, 1998, and will fully vest on January 2, 2001.
Upon a "change in control" of IEC as defined in the Plan or upon
retirement, disability or death of the option holder, these options shall
become immediately exercisable. Upon exercise of an option, the executive
purchases all or a portion of the shares covered by the option by paying
the exercise price multiplied by the number of shares as to which the
option is exercised, either in cash or by surrendering common shares
already owned by the executive.
(2) The hypothetical potential appreciation shown for the named executives is
required by the Securities and Exchange Commission ("SEC") rules. The
amounts shown do not represent either the historical or expected future
performance of IEC common stock level of appreciation. For example, 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 IEC
common stock would be $51.41 and $81.87,-----------------------------------------------------------------------------------------------
Pamela J. Wegner 21,005 2.9% 31.54 1/1/11 1,079,237 1,718,419
/(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 January 2, 2001 and will have a three year vesting
schedule with one-third becoming exercisable on January 2, 2002, one-third
becoming exercisable on January 2, 2003 and the final one-third becoming
exercisable on January 2, 2004. Upon a "change in control" of AEC as
defined in the Plan or upon retirement, disability or death of the option
holder, the 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 $51.38 and
$81.81, respectively, as of the expiration date of the options.
14
/
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 1998.2001.
OPTION VALUES AT DECEMBER 31, 2001
OPTION/SAR VALUES AT DECEMBER 31, 1998
- - -------------------------- ------------------------------------- ---------------------------------------
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money Options/SAR'sOptions
Unexercised Options at Fiscal Year End Options/SARs at Fiscal Year End(1)
- - -------------------------- ------------------------------------- ---------------------------------------End/(1)/
---------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- - -------------------------- ----------------- ------------------- ----------------- --------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 13,100 63,152 $62,225 $102,817264,714 109,699 $239,754 $66,028
- -----------------------------------------------------------------------------------------------------
- -------------------------- ----------------- ------------------- ----------------- ---------------------
Lee Liu - 25,347 - 17,426
- - -------------------------- ----------------- ------------------- ----------------- --------------------------------------------------------------------------------------------------------------------------
William D. Harvey 4,700 21,156 22,325 36,49264,235 21,553 58,612 12,427
- -----------------------------------------------------------------------------------------------------
- -------------------------- ----------------- ------------------- ----------------- --------------------------------------------------------------------------------------------------------------------------
Eliot G. Protsch 4,700 21,156 22,325 36,49264,235 21,553 58,612 12,427
- -----------------------------------------------------------------------------------------------------
- -------------------------- ----------------- ------------------- ----------------- --------------------------------------------------------------------------------------------------------------------------
Thomas M. Walker 48,322 20,759 31,871 11,958
- 11,406-----------------------------------------------------------------------------------------------------
- 7,842
- - -------------------------- ----------------- ------------------- ----------------- ---------------------
(1) Based on the closing per share price on December 31, 1998 of IEC common
stock of $32.25.-----------------------------------------------------------------------------------------------------
Pamela J. Wegner 51,544 20,759 47,027 11,958
Long-Term Incentive Awards -/(1)/Based on the closing per share price of Company common stock on December
31, 2001 of $30.36.
12
LONG-TERM INCENTIVE AWARDS
The following table provides information concerning long-term incentive awards
made by IEC to the executives named below in 1998.2001.
LONG-TERM INCENTIVE AWARDS IN 2001
LONG-TERM INCENTIVE AWARDS IN 1998
- - --------------------------- ---------------- --------------------- -----------------------------------------------
------------------------------------------------------------------------------
Estimated Future Payouts Under
Non-Stock Price-Based Plans
- - --------------------------- ---------------- --------------------- -----------------------------------------------------------------------------
Number of Performance or
Number Of Other Period------------ -------- --------
Shares, Units Until Maturation
Name or Other
Units or Period Until
Other Rights or PayoutMaturation Threshold Target Maximum
Name (#)/(1)/ or Payout (#) (#) (#)
- - --------------------------- ---------------- --------------------- ----------------- ------------- ---------------
-----------------------------------------------------------------------------
Erroll B. Davis, Jr. 11,02622,804 1/2/01 5,513 11,026 22,052
- - --------------------------- ---------------- --------------------- ----------------- ------------- ---------------
Lee Liu 7,604 1/2/01 3,802 7,604 15,208
- - --------------------------- ---------------- --------------------- ----------------- ------------- ---------------04 11,402 22,804 45,608
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
William D. Harvey 2,6614,360 1/2/01 1,330 2,661 5,322
- - --------------------------- ---------------- --------------------- ----------------- ------------- ---------------1/04 2,180 4,360 8,720
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Eliot G. Protsch 2,6614,360 1/2/01 1,330 2,661 5,322
- - --------------------------- ---------------- --------------------- ----------------- ------------- ---------------1/04 2,180 4,360 8,720
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Thomas M. Walker 2,6614,201 1/2/01 1,330 2,661 5,322
- - --------------------------- ---------------- --------------------- ----------------- ------------- ---------------
(1) Consists of performance shares awarded under IEC's Long-Term Equity
Incentive Plan. These performance shares will vest based on achievement
of specified Total Shareholder Return (TSR) levels as compared with an
investor-owned utility peer group over the period ending January 2, 2001.
Payouts will be in shares of IEC common stock, but will be modified by a
performance multiplier which ranges from 0 to 2.00.1/04 2,101 4,201 8,402
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Pamela J. Wegner 4,201 1/1/04 2,101 4,201 8,402
-----------------------------------------------------------------------------
15/(1)Consists of performance shares awarded under AEC's Long-Term Equity
Incentive Plan. The payout from the performance shares is based on two
equally-weighted performance components: AEC's three-year Total Shareholder
Return (TSR) relative to an investor-owned utility peer group, and
annualized earnings per share growth versus internally set performance
hurdles contained in the Alliant Energy Strategic Plan during the
performance cycle ending December 31, 2003. Payouts are subject to
modification pursuant to a performance multiplier that ranges from 0 to
2.00, and will be made in shares of AEC common stock or a combination of
common stock and cash. /
13
CERTAIN AGREEMENTS
AND TRANSACTIONS
Each of Messrs. Liu andMr. Davis havehas an employment agreementsagreement with IEC.
PursuantAEC, pursuant to Mr. Liu's agreement, Mr. Liu will serve as Chairman of IEC until
April 21, 2000. Mr. Liu will thereafter retire as an officer of IEC, althoughwhich he
may continue to serve as a director. Under Mr. Davis' agreement, Mr. Davis will serve
as the Chairman, President and Chief Executive Officer of IECAEC until the
expiration of his term of the agreement on April 21, 2003. Mr. Davis will
also serve as the Chairman of IEC following 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 IECAEC gives prior written notice of his or its intent to terminate
the agreement. Mr. Davis will also serve as the Chief Executive Officer and a
director of each subsidiary of IEC,AEC, including the Company, until at least April 21, 2001 and as a
director of such companies during the term of
his employment agreement.
Mr. Liu's employment agreement provides 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. 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 Company 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 either Mr. Liu or Mr. Davis
is terminated without cause (as defined in their respectivethe employment agreements)agreement) or if either of
themMr.
Davis terminates his employment for good reason (as defined in their respectivethe employment
agreements)agreement), IECAEC or its affiliates will continue to provide the compensation and
benefits called for by the respective 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 either Mr. Liu or Mr. Davis dies or becomes
disabled, or terminates his employment without good reason, during the term of
his respective employment agreement, IECAEC or its affiliates will pay to the officerMr.
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 the
officerMr. Davis is terminated for cause, IECAEC or its affiliates
will pay his base salary through the date of termination plus any previously
deferred compensation. Notwithstanding the foregoing, in the event that 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 (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 IEC may pay without loss of deduction under the Code.
Under Mr. Davis' employment agreement, if any payments
thereunder constitute an excess parachute payment IECunder 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.
Each of the three companies that were party to the Merger hadAEC currently has in effect
at the time of the Merger, key executive employment and severance agreements
(the "Pre-Merger KEESAs""KEESAs") with certain of their executive officers. The
Pre-Merger KEESAs were intended to provide the executives with specified
severance benefits in the event of certain terminations following a change in
control of the employer. The consummation
16
of the Merger constituted such a change in control. Although each party to the
Merger had Pre-Merger KEESAs in effect, the terms of such agreements were not
identical.
To provide selected executives of IEC with severance arrangements with
generally comparable terms relating to any future change in control of IEC, IEC
in 1999 offered new key executive employment and severance agreements (the "New
KEESAs") to such executive officers of IECAEC (including Messrs. Davis,
Harvey, Protsch, Walker and Walker)Ms. Wegner). In order to receive a New KEESA, each executive officer
(other than Mr. Davis) was required to cancel existing rights under his or her
Pre-Merger KEESA 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
Pre-Merger KEESA. The grants of restricted stock were valued at one times salary
for certain executive officers (including Messrs. Harvey, Protsch and Walker)
and one-half times salary for certain other officers. Subject to certain
exceptions, the restricted stock will vest only if the executive remains with
IEC for a period of at least three years.
The New 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 IECAEC (as defined in the New KEESAs), the officer's
employment is ended through (i)(a) termination by IEC,AEC, other than by reason of
death or disability or for cause (as defined in the KEESAs), or (ii)(b) termination
by the officer due to a breach of the agreement by IECAEC or a significant change
in the officer's responsibilities, or (iii)(c) 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) 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 or her average annual bonus during the three years before
the termination and (ii)(b) 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 New 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 IECAEC may pay without loss of deduction under the Code. The New KEESAs for the
Chief Executive Officer and the Executive Vice Presidents (including Messrs.
Davis, Harvey, Protsch and Walker)Walker and Ms. Wegner) provide that if any payments
thereunder or otherwise constitute an excess parachute payment, IECAEC 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 New KEESA.
Mr. Stoppelmoor entered into a three-year consulting arrangement with IEC
in connection with the Merger. Under the terms of his consulting arrangement,
Mr. Stoppelmoor receives an annual fee of $324,500 during each of the first two
years and a fee of $200,000 during the third year of the consulting period. Mr.
Stoppelmoor is also entitled to participate in compensation plans equivalent to
those provided the IEC'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 Directors Charitable Award Program and the Directors Life
Insurance Program as a result of his service as Vice Chairman of the Board of
IEC, his consulting arrangement provides that he shall not be eligible to
receive any other compensation otherwise payable to directors of IEC.
1714
RETIREMENT AND EMPLOYEE BENEFIT PLANS
Alliant 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, Inc., a subsidiary of IEC ("Alliant Energy Corporate Services").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 planAlliant Energy Cash Balance
Pension Plan bases a participant's defined benefit pension on the value of a
hypothetical account balance. For individuals participating in the planPlan 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 plansPlan'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 planPlan 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 potential share of the gain on the investment return on assets in
the trust investment for the year.
The life annuity payable under the planPlan is determined by converting the
hypothetical account balance credits into annuity form. Individuals who were
participants in the planPlan 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 earlierage of age 55.
TheAll of the individuals listed in the Summary Compensation Table who participate
in the plan (i.e., Messrs.Plan (Messrs. Davis, Protsch and Harvey)Harvey and Ms. Wegner) are
"grandfathered" under the prior plansplan benefit formula. Since their estimated
benefits under that formula are higher than under the cash balance planPlan formula, utilizing
current assumptions, their benefits would currently be determined by the prior
plan benefit formula. All eligible persons whoseThe following table illustrates the estimated annual
benefits payable upon retirement at age 65 under the prior formula based on
average annual compensation is reported inand years of service. To the foregoing Summary Compensationextent benefits under
the Plan are limited by tax law, any excess will be paid under the Unfunded
Excess Plan described below.
Retirement Plan Table
participated in the plan during 1998.
Contributions to the "grandfathered" plan are determined actuarially, computed
on a straight-life annuity basis, and cannot be readily calculated as applied to
any individual participant or small group of participants.
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,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 planPlan service (up to a maximum of 30 years), age at
retirement and amount of compensation (determined in accordance with the plan)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
15
years of service under the planPlan for covered persons named in the foregoing
Summary Compensation Table are as follows: Erroll B. Davis, Jr., 1922 years;
Eliot G. Protsch, 1922 years; and William D. Harvey, 1114 years; and Pamela J. Wegner,
7 years.
Assuming retirement at age 65, a plan participant (in
conjunction
18
with the Unfunded Excess Plan described below) would be eligible at retirement
for a maximum annual retirement benefit as follows:
Retirement Plan Table
Average
Annual Annual Benefit After Specified Years in Plan*
-------------------------------------------------------------------------
Compensation 5 10 15 20 25 30
- - ------------ ------- ------- -------- -------- -------- --------
$125,000 $10,116 $20,233 $ 30,349 $ 40,465 $ 50,582 $60,698
150,000 12,408 24,816 37,224 49,632 62,040 74,448
200,000 16,991 33,983 50,974 67,965 84,977 101,948
250,000 21,575 43,149 64,724 86,299 107,873 129,448
300,000 26,158 52,316 78,474 104,632 130,790 156,948
350,000 30,741 61,483 92,224 122,965 153,707 184,448
400,000 35,325 70,649 105,974 141,299 176,623 211,948
450,000 39,908 79,816 119,724 159,632 199,540 239,448
475,000 42,200 84,399 126,599 168,799 210,998 253,198
500,000 44,491 88,983 133,674 177,965 222,457 266,948
525,000 46,783 93,566 140,349 187,132 233,915 280,698
550,000 49,075 98,149 147,224 196,299 245,373 294,448
600,000 53,568 107,316 160,974 214,632 268,290 321,948
650,000 58,241 116,485 174,724 232,965 291,207 349,448
* 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, $160,000 for 1998) under the
Code. 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.
19
IES Industries Pension Plan
Applicable to Messrs. Liu and Walker
Prior to the Merger, Messrs. Liu andApril 1998, Mr. Walker participated in the IES Industries retirement
plan (which plan was transferred tohas been merged into the Alliant Energy Corporate Services in connection with the Merger)Cash Balance Plan). Messrs. Liu's and Walker'sPlan
benefits under the planpayable 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 time ofPlan formula, utilizing current assumptions,
his benefits would currently be determined by the Merger. Maximumprior plan benefit formula.
The following table illustrates the estimated annual benefits payable upon
retirement at age 65 to participants who retire at age 65, calculated onunder the basisprior formula for the average annual
compensation and years of straight
life annuity,service. To the extent benefits under the Plan are
illustrated inlimited by tax law, any excess will be paid under the following table:
Alliant Energy Corporate ServicesUnfunded Excess Plan
described below.
Pension Plan Table
Average of Highest Annual Estimated MaximumBenefit After Specified Years in Plan
Annual Retirement Benefits Based on
Salary (Remuneration) Years of Service
for 3 Consecutive --------------------------------------------------------------------
Years of the last 10--------------------------------------------
Compensation 15 20 25 30 35
-------------------- -- -- -- -- -------------- -------- -------- -------- -------- --------
$200,000 $ 125,00043,709 $ 26,86958,279 $ 35,82872,849 $ 44,784 $ 53,741 $ 62,697
150,000 32,683 43,576 54,471 65,366 76,259
175,000 35,913 48,282 60,650 73,019 85,388
200,000 40,038 54,282 68,525 82,769 97,013
225,000 44,163 60,282 76,400 92,519 108,638
250,000 44,818 61,235 77,652 94,068 110,48587,418 $101,988
300,000 44,818 61,235 77,652 94,068 110,48566,959 89,279 111,599 133,918 156,238
400,000 44,818 61,235 77,652 94,068 110,485
450,000 44,818 61,235 77,652 94,068 110,48590,209 120,279 150,348 180,418 210,488
500,000 44,818 61,235 77,652 94,068 110,485113,459 151,279 189,099 226,918 264,738
600,000 136,709 182,279 227,849 273,418 318,988
With respectFor purposes of the Plan, compensation means payment for services rendered,
including vacation and sick pay, and is substantially equivalent to Messrs. Liu and Walker, the remuneration for retirement
plan purposes would be substantially the same as that shown as "Salary"salary
amounts reported in the foregoing Summary Compensation Table. AsPlan benefits
depend upon length of December 31, 1998, Messrs. LiuPlan 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 had
41 and 2, respectively, accreditedhas five years of credited service under the retirementthis plan.
Unfunded Excess Plan - AlliantPlan--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. This
planThe 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 - AlliantPlan--Alliant Energy Corporate Services
maintains an Unfunded Executive Tenure Compensation Plan to provide incentive
for selected key executives to remain in the service of Alliant Energy
Corporate Servicesthe Company by
providing additional compensation whichthat is payable only if the executive remains
with Alliant Energy Corporate Servicesthe 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)(a) is terminated under his employment
agreement with IECAEC as described above (the
"Employment Agreement") other than for cause, death or disability
(as those terms are defined in the Employment Agreement)employment agreement), (2)(b) terminates his
employment under the Employment Agreementemployment agreement for good reason (as such term is
defined in the Employment Agreement)employment agreement), or (3)(c) is terminated as a result of a
failure of the Employment Agreementemployment agreement to be renewed automatically pursuant to its
terms (regardless of the reason for such non-renewal), then for purposes of the
plan,Plan, the Chief Executive Officer shall be deemed to have retired at age 20
65 and
shall be entitled to benefits under the plan. ParticipantsPlan. Any participant in the planPlan must
be designatedapproved by the Chief Executive Officer of the Company and approved by
its Board of Directors. Mr. Davis was the only active
participant in the planPlan as of December 31, 1998.2001. The planPlan 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 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, 1998.2001.
16
Alliant Energy Corporate Services Supplemental Retirement Plans
Supplemental Executive Retirement Plan -
The Company maintains an unfunded Supplemental Executive Retirement Plan
("SERP") to provide incentive for key executives to remain in the service of
the Company by providing additional compensation whichthat is payable only if the
executive remains with the Company until retirement, disability or death.
Participants in the planSERP must be approved by the Compensation and Personnel
Committee of the Board. The planSERP 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 benefitbenefits payable to the officer from the officer's
defined benefit plan.plan and the Unfunded Excess Plan. The normal retirement date
under the planSERP is age 62 with at least 10ten 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 planSERP 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 planSERP
will be made in a lump sum, or for a maximumthe lifetime of 18 years,the senior officer, with a
minimum of 12 years of payments if the participant dies after retirement. A
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 and Walker and Ms. Wegner are
participants in this plan.the SERP. The following table shows payments under the plan,SERP,
assuming a minimum of 10ten years of service at retirement age.
Supplemental Executive Retirement Plan Table
Average
Compensation (
Annual Benefit After Specified Years in Plan
Average Annual --------------------------------------------
Compensation (less than)10 Years (greater than)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 0 210,000
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
* Reduced by the sum of the benefit payable from the applicable defined benefit
plan.
21
Alliant Energy Corporate Services Supplemental Retirement Plan - Alliant
Energy Corporate Services maintains a non-qualified Supplemental Retirement Plan
("SRP") for eligible former officers of IES Industries who elected to remain
under thisor pension plan followingand the Merger. Mr. Liu is the only executive named in the
Summary Compensation Table participating in the SRP. The SRP currently 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. In the event of the death of the officer
following retirement, similar payments reduced by the joint and survivor annuity
of the qualified retirement plan will be made to his or her designated
beneficiary (surviving spouse or dependent children), if any, for a period not
to exceed 10 years from the date of the officer's retirement. Thus, if an
officer died 10 years after retirement, no payment to the beneficiary would be
made. Death benefits are provided on the same basis to a designated beneficiary
for a period not to exceed 10 years from the date of death should the officer
die prior to retirement. The SRP further provides that if, at the time of the
death of an officer, the officer is entitled to receive, is receiving, or has
received supplemental retirement benefits by virtue of having taken retirement,
a death benefit shall be paid to the officer's designated beneficiary or to the
officer's estate in an amount equal to 100% of the officer's annual salary in
effect at the date of retirement. Under certain circumstances, an officer who
takes early retirement will be entitled to reduced benefits under the SRP. The
SRP also provides for benefits in the event an officer becomes disabled under
the terms of the qualified retirement plan. Life insurance policies on the
participants have been purchased sufficient in amount to finance actuarially all
future liabilities under the SRP. The SRP has been designed so that if the
assumptions made as to mortality, experience, policy dividends, tax credits and
other factors are realized, all life insurance premium payments will be
recovered over the life of the SRP.
The following table shows the estimated annual benefits payable under the
Supplemental Retirement Plan equal to 75% of the officer's base salary in effect
at the date of retirement:
Alliant Energy Corporate Services
Supplemental Retirement Plan Payments
75% SRP Benefit
Years of Service
--------------------------------------------------------------------
Annual Salary 15 20 25 30 35
------------- -- -- -- -- --
$150,000 $ 79,817 $ 68,924 $ 58,029 $ 47,134 $ 36,241
175,000 95,337 82,968 70,600 58,231 45,862
200,000 109,962 95,718 81,475 67,231 52,987
225,000 124,587 108,468 92,350 76,231 60,112
250,000 142,682 126,265 109,848 93,432 77,015
300,000 180,182 163,765 147,348 130,932 114,515
400,000 255,182 238,765 222,348 205,932 189,515
450,000 292,682 276,265 259,848 243,432 227,015
500,000 330,182 313,765 297,348 280,932 264,515
Unfunded Excess Plan.
Key Employee Deferred Compensation Plan - ThePlan--The Company maintains an unfunded Key
Employee Deferred Compensation Plan under which participants may defer up to
100% of base salary, or incentive compensation.compensation and eligible SERP payments.
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 (a) the
amount contributed to the 401(k) contributions up to
22
Plan plus the amount deferred under this Plan,
or (b) 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
theThe Wall Street Journal.Journal provided that the return may not be greater than 12% or
less than 6%. Deferrals and matching contributions credited to the 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 are held in a rabbi
trust. Payments from the planPlan 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 and Protsch
currentlyWalker and Ms. Wegner
participate in the Plan.
17
REPORT OF THE COMPENSATION AND PERSONNEL
COMMITTEE ON EXECUTIVE COMPENSATION
To Our Shareowners:
The Compensation and Personnel Committee (the "Committee") of the Board of
Directors of the Company is currently comprised of fivefour non-employee directors
(the same directors that comprise the IECAEC Compensation and Personnel
Committee). The following is a report prepared by these directors with respect
to compensation paid by IEC,AEC, the Company and IEC'sAEC'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 whichthat furthers the Company's mission. TheTherefore, the Committee therefore,
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 of
base salaries paid to executives atof 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, the Committee targets
incentive levels will be 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 Compensation
The Committee relates total compensation levels for the Company's senior
executives to the compensation paid to executives of comparable companies. As
the Company is a diversified utility holding company with both regulated and
non-regulated operations, comparison groups are customized to the respective
position which an executive holds. Utility executives' pay is compared to that
of executives with similar responsibilities at utilities and/or non-utilities
(general industries) in both the Midwest and national markets, as well as to
companies with similar revenue levels and employment levels. Compensation paid
to holding company executives, including Mr. Davis, the Company's Chief
Executive Officer, is compared to the compensation paid by a utility comparison
group. However, in order to recognize holding company employees for increasing
non-regulated business responsibilities, benchmark data also are drawn from
similarly sized diversified
23
industrial companies furnished by public survey data. For executives with sole
responsibilities in the non-regulated businesses, comparison group data reflect
the relevant mix of the non-regulated business operations.
The Committee has determined that total executive compensation, including
that for Mr. Davis, is in line with competitive salaries of the comparison
groups of companies.
The currentmajor 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 determiningsetting the level for each major
component of compensation, the Committee considers all elements of an
executive's total compensation package, including employee benefit and
prerequisiteperquisite 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 compensation of the comparison group of companies.
Base 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. BaseThe Committee
annually adjusts base salaries are adjusted annually by
the Committee to recognize changes in the market, varying
levels of responsibility, prior experience and breadth of knowledge. Increases
to base salaries are driven primarily by market adjustments. Individualadjustments for a particular
salary level, which generally limits across-the-board increases. The Committee
does not consider individual performance factors are not considered by the Committee in setting base salaries. Base pay
adjustments are tied to market changes in appropriate salary levels and will
minimize across-the-board increases. ExecutiveThe
Committee reviewed executive salaries were reviewed for market comparability using utility
and general industry data contained in compensation surveys published by Edison
Electric Institute, American Gas Association and several compensation
consulting firms. Based on these factors, the baseforegoing, the Committee established the annual
salary for Mr. Davis was set at $540,000$685,000 for 1998.the 2001 fiscal year.
Short-Term Incentives
The goal of theCompany'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 tied to achievethe 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'
18
performance goals, and the relative weight assigned to each goal as
well asand the targeted
and maximum award levels. A description of the short-term incentive programs
available during 19982001 to executive officers follows.
InterstateAlliant Energy Corporation OfficerManagement Incentive Compensation Plan--The
IEC OfficerPlan--In 2001, the
Alliant Energy Corporation Management Incentive Compensation Plan (the "IEC OICP""MICP")
covered utility
executives and in 1998 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.performance goals. Target and maximum bonus awards under the MICP in 2001 were
set at the median of the utility and general industry market levels. Targets wereThe
Committee considered by the Committeethese targets to be achievable, but requiredto require
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
hastarget is not been met, there is no bonus payment associated with the plan.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 notno additional payment.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 24
categories. Potential IEC OICPMICP awards for executives range
from 00% to 70 percent100% of annual salary.salary for eligible executives other than Mr. Davis.
The amounts paid under the MICP to eligible officers included in the Summary
Compensation Table are reflected in that table under the heading "Bonus".
In 1998 there was no payout associated with the IEC OICP since
the pre-determined EPS was not met.
In 1998,2001, Mr. Davis was covered by the Company's Officer Incentive
Compensation Plan (the "Company OICP").MICP. Awards for Mr. Davis under the Company OICPMICP
in 19982001 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 19982001, that apportionment was 75%
for corporate performance and 25% for strategic goal performance. Corporate
performance is measured based on a company-wideCompany-wide EPS, targetenvironmental, diversity and
safety targets established at the beginning of the year. 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 1998 OICP2001 MICP award range for Mr. Davis was from 00% to 100 percent150% of
annual salary. The actual payment of bonuses
as a percentage of annual salary is determined as described for the IEC OICP. In
1998, the Company OICP did not provide a payment toaward earned by Mr. Davis as a result ofunder the pre-determined EPS not being met.
Alliant Energy Resources Annual Incentive Plan--The Alliant Energy
Resources Annual Incentive Plan covered non-utility executives andMICP for 2001 is set
forth in 1998 was
based on achieving annual targets in corporate performance that included an EPS
target, business unit performance that includes the contribution to EPS, and
group (International) unit and individual performance. Target and maximum bonus
awards were set at competitive market levels. Targets were considered bySummary Compensation Table under 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 threshold level, there is no bonus payment associated with
the plan. If the threshold performance is not reached, there is no bonus payment
associated with that particular category. Once the designated maximum
performance is reached, there is not additional payment. 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 50 percent of annual salary. In 1998 there was no payout associated with
the plan since the business unit's EPS contribution to corporate was below the
threshold level.heading "Bonus".
Long-Term Incentives
The Committee strongly believes compensation for executives should include
long-term, at-risk pay to strengthen the alignment of shareownerthe interests of the
shareowners and management. In this regard, IEC'sthe Alliant Energy Corporation
Long-Term Equity Incentive Plan allows forpermits grants of stock options, restricted
stock and performance unit/units/shares with respect to IEC'sAEC's common stock. The
Long-Term Equity Incentive Plan is administered by the IECAEC Compensation and
Personnel Committee. The Committee believes the Long-Term Equity Incentive Plan
balances the Company's existingannual compensation programs by emphasizing compensation
based on the long-term successful performance of the Company from the
perspective of the shareowners of
IEC.AEC's shareowners. A description of the long-term incentive
programs available during 19982001 to executive officers follows.
Interstateunder the Long-Term Equity
Incentive Plan is set forth below.
Alliant Energy Corporation Long-Term Incentive Program--The InterstateAlliant Energy
Corporation Long-Term Incentive Program covered utility executives and consisted of the
following components:components in 2001: non-qualified stock options and performance
shares. StockNon-qualified stock options provide a reward that is directly tied to
the benefit AEC's shareowners
of IEC receive from increases in the price of IEC'sAEC's
common stock. The payout from the performance shares is based on IEC'stwo
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.(i.e., stock options and performance shares,shares) provide
25
incentives for
management to produce superior shareowner returns on both an absolute and
relative basis. During 19982001, the IECAEC Compensation and Personnel Committee made
a grant of stock options and performance shares to various executive officers,
including Messrs. Davis,
Liu, Harvey, Protsch and Walker.Walker and Ms. Wegner. All option
grants were made athad per share exercise prices equal to the fair market value of IECa share
of AEC common stock on the date the grants were approved (July 1, 1998).approved. Options havevest on a
two and one-halfone-third basis at the beginning of each calendar year vesting schedule with one-third vesting on
January 2, 1999, one-third vesting on January 2, 2000 and the final one-third
vesting on January 2, 2001after 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 IEC'sAEC's common stock.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 IEC's
total shareowner return relative to an investor-owned utility peer group.AEC performance.
In determining actual award levels under the IECAlliant Energy Corporation
Long-Term Equity Incentive Program, the AEC Compensation and Personnel
Committee was
19
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-sizedsimilarly 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, the IECThe AEC Compensation and Personnel Committee did not
consider the amounts of options and performance shares already outstanding or
previously granted when making awards for 1998.
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 units.
Stock options provide a reward that is directly tied to the benefit shareowners
of IEC receive from increases2001. Mr. Davis' awards in the price of IEC's common stock. The payout
from the performance units is based on the Alliant Energy Resources three-year
average growth in EPS contribution to IEC's EPS. Thus, the two components of2001 under
the Long-Term Incentive Program i.e. stock optionsare shown in the tables under "Stock Option
Grants in 2001" and performance units, provide
incentives for management to produce superior shareowner returns on both an
absolute and relative basis. All option grants were made at the fair market
value of IEC common stock on the date the grants were approved (August 21,
1998). Options have a two and one-half year vesting schedule with one-third
vesting on January 2, 1999, one-third vesting on January 2, 2000 and the final
one-third vesting on January 2, 2001 and have a ten-year term from the date of
the grant. Executives were also granted performance units. Performance units
will be paid out"Long-Term Incentive Awards in cash. The payment will be modified by a performance
multiplier which ranges from 0 to 2.00 based on the Alliant Energy Resources
three-year average growth in EPS contribution to IEC's EPS. In determining
actual award levels, the IEC 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 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 units. Award levels were targeted to the median of the
range of such awards paid by comparable companies. In addition, the IEC
Compensation and Personnel Committee did not consider the amounts of options and
performance units already outstanding or previously granted when making awards
for 1998.
26
2001".
Policy with Respect to the $1 Million Deduction Limit
Section 162(m) of the 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, in most instances, to qualify
future compensation paid to the Company's executive officers for deductibility
by the Company under Section 162(m). except in limited appropriate circumstances.
Conclusion
The Committee believes the existing executive compensation policies and
programs provide thean appropriate level of competitive compensation for the
Company's executives. In addition, the Committee believes that the longlong- and
short termshort-term performance incentives effectively align the interests of executives
and shareowners toward a successful future for the Company.
COMPENSATION AND PERSONNEL COMMITTEE
Arnold M. NemirowJudith D. Pyle (Chair)
Alan B. Arends
Jack R. NewmanB. Evans
David A. Perdue
20
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 New York 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. 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 2001 for the Company and AEC were as follows:
Audit Fees................... $936,324
Financial Information Systems
and Implementation Fees...... 0
All Other Fees:
Audit-Related Fees* $404,086
Tax Related Fees... 491,443
Other.............. 35,159
--------
Total All Other Fees......... 930,688
- ----------
*Audit-related fees include statutory audits of subsidiaries, benefit plan
audits, acquisition due diligence, accounting consultation, various attest
services under professional standards, assistance with registration statements,
comfort letters and consents.
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's 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, 2001 for filing with the SEC.
AUDIT COMMITTEE
Jack B. Evans (Chair)
Alan B. Arends
Katharine C. Lyall
Singleton B. McAllister
Judith D. Pyle
Anthony R. Weiler
COMPENSATION AND PERSONNEL COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The members of the Compensation and Personnel Committee who served during
1998 are identified above. Mr. Newman, a member of the Compensation and
Personnel Committee during 1998, is a partner in the law firm of Morgan, Lewis
and Bockius. Morgan, Lewis and Bockius provides certain legal services to the
Company. Mr. Newman no longer serves on this Committee.21
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
The Company's directors, its executive officers and certain other officers are
required to report their ownership of IEC'sAEC's common stock and Companysubsidiary
preferred stock and any changes in that ownership to the SecuritiesSEC and Exchange Commission. In November, 1998, a Form 4 was inadvertently filed late
for Mr. Alan B. Arends reflecting a stock purchase on October 29, 1998. In
addition, Form 3s were filed late on behalf of Thomas Aller and Claire
Fulenwider reflecting their status as insiders effective October 21, 1998.the New York
Stock Exchange. To the best of the Company's knowledge, all required filings in
1998, with the
exception of those noted,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 Securities and Exchange
Commission.
27
GENERAL
Voting - The outstanding voting securities of the Company on the record
date stated below consisted of approximately 13,236,601 shares of common stock
(owned solely by IEC) and 1,049,225 shares of preferred stock, in seven series
(representing 599,630 votes). Only shareowners of the Company of record on its
books at the close of business on April 7, 1999, are entitled to vote at the
meeting. 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. Shareowners may vote their shares either in
person or by proxy. The giving of proxies by shareowners will not effect their
right to vote their shares if they attend the meeting and desire to vote in
person. Presence at the meeting of a shareowner who signed a proxy, however,
does not itself revoke the proxy. A proxy may be revoked by the person giving
it, at any time prior to the time it is voted, by advising the Secretary of the
Company prior to such voting. A proxy may also be revoked by a shareowner who
duly executes another proxy bearing a later date but prior to the voting. All
shares represented by effective proxies on the enclosed form, received by the
Company, will be voted at the meeting or any adjourned session of the meeting,
all in accordance with the terms of such proxies.
Proposals of Shareowners - Any shareowner proposal intended to be
presented at and included in the Company's proxy materials for the 2000 annual
Meeting of Shareowners pursuant to Rule 14a-8 under the Securities Exchange Act
of 1934 ("Rule 14a-8"), must be received at the principal office of the Company
no later than December 14, 1999. If the Company does not receive notice of a
shareowner proposal submitted otherwise than pursuant to Rule 14a-8 prior to
February 27, 2000, then the notice will be considered untimely, and the persons
named in proxies solicited by the Board of Directors for the 2000 Annual Meeting
of Shareowners may exercise discretionary voting power with respect to such
proposal.
Independent Auditors - The Board of Directors has appointed Arthur
Andersen LLP as the Company's independent auditors for 1999. Arthur Andersen LLP
acted as independent auditors for the Company in 1998. Representatives of Arthur
Andersen LLP are not expected to be present at the meeting.
Other Business - The meeting is being held for the purposes set forth in
the notice accompanying this proxy statement. The Board of Directors of the
Company knows of no business to be transacted at the meeting other than that set
forth in the notice. However, if any other business should properly be presented
to the meeting, the proxies will be voted in respect thereof in accordance with
the judgment of the person or persons voting the proxies.SEC.
By Order of the Board of Directors
/s/Edward M. Gleason
Edward M. Gleason
Vice President - Treasurer
and F. J. Buri
F. J. Buri
Corporate Secretary
2822
APPENDIX A
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL REPORT
For the Year Ended December 31, 1998
Contents Page
The Company A-2
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-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-53
Executive Officers ........................................................A-542001
Contents Page
- -------- ----
Definitions.......................................................................... A-2
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-34
Executive Officers................................................................... A-34
A-1
Wisconsin PowerDEFINITIONS
Certain abbreviations or acronyms used in the text and Light Company (WP&L)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
CAA.................. Clean Air Act
Corporate Services... Alliant Energy Corporate Services, Inc.
DNR.................. Department of Natural Resources
Dth.................. Dekatherm
Enron................ Enron Corporation
EPA.................. U.S. Environmental Protection Agency
FASB................. Financial Accounting Standards Board
FERC................. Federal Energy Regulatory Commission
ICC.................. Illinois Commerce Commission
IES.................. IES Industries Inc.
IESU................. IES Utilities Inc.
IPC.................. Interstate Power Company
IP&L................. Interstate Power and Light Company
ISO.................. Independent System Operator
Kewaunee............. Kewaunee Nuclear Power Plant
KWh.................. Kilowatt-hour
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
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
SFAS 133............. Accounting for Derivative Instruments and Hedging Activities
South Beloit......... South Beloit Water, Gas and Electric Company
STB.................. Surface Transportation Board
Union Pacific........ Union Pacific Railroad
U.S.................. United States
WNRB................. Wisconsin Natural Resources Board
WP&L................. Wisconsin Power and Light Company
WPLH................. WPL Holdings, Inc.
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WP&L filed a combined Form 10-K for 19982001 with the Securities and Exchange Commission (SEC);SEC; such document included
the filings of WP&L's parent, InterstateAlliant Energy, Corporation (IEC), IES Utilities
Inc. (IESU)IP&L and WP&L. Certain portions
of Management's Discussion and Analysis
of Financial Condition and Results of Operations (MD&A)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 IEC, IESU, Interstate Power Company (IPC)Alliant Energy, IP&L, Resources and/or Alliant Energy Resources, Inc.
(Alliant Energy Resources).Corporate
Services. All required disclosures for WP&L are included in this appendix,proxy
statement thus such additional disclosures solely represent supplemental information.
THE COMPANY
OnIn April 21, 1998, WPLH, IES Industries Inc. (IES), WPL Holdings, Inc. (WPLH) and IPC completed a three-way merger (Merger) forming IEC. IEC is currently
doing business asresulting in Alliant
Energy. The primary first tier subsidiaries of Alliant Energy Corporation. Asinclude: WP&L,
IP&L, Resources and Corporate Services. IP&L was formed as a result of the
Merger, the
first tier subsidiariesmerger of IEC include:IPC with and into IESU effective January 1, 2002.
WP&L IPC, Alliant Energy
Resources and Alliant Energy Corporate Services, Inc. (Alliant Energy 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, 1998,2001,
WP&L supplied electric and gas service to approximately 401,000421,608 and 159,000167,209 customers,
respectively. WP&L also has approximately 35,000had 19,318 water customers. In 1998, 19972001, 2000 and 1996,1999,
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, Water, Gas
and Electric Company (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 whichthat are not
material to WP&L's operations.
Electric Operations
WP&L provides electricityis subject to regulation by the PSCW as to retail utility rates and
service, accounts, issuance and use of proceeds of securities, certain
additions and extensions to facilities and in 34 countiesother respects. WP&L is generally
required to file a rate case with the PSCW every two years based on a
forward-looking test year period. However, as one of the conditions for
approval of the 1998 merger which formed Alliant Energy, the PSCW has required,
with certain exception, that WP&L freeze for four years on a post-merger basis
retail electric, natural gas and water rates. The last of the rate freezes will
expire in southernApril 2002. WP&L filed retail and central
Wisconsinwholesale base rate increase
requests in 2001 and four countiesthe first quarter of 2002, respectively. Refer to "Utility
Industry Review--Rates and Regulatory Matters" in northern Illinois. AsMD&A for further discussion.
Electric Operations--As of December 31, 1998,2001, WP&L provided retail electric
service to approximately 401,000419,643 electric retail customers, in 599600 communities and 29 wholesale
service to 24 municipal utilities, one privately ownedcustomers. WP&L's electric utility three rural electric cooperatives, one Native American nation and to
the Wisconsin Public Power, Inc. systemoperations accounted for the provision78% of retail service to
14 communities.
The percentage of utility operating
revenues and utility97% of operating income
from electric utility operations for WP&L for the year ended December 31, 1998
was as follows:
Percent of Percent of
Operating Operating
Revenues Income
--------------- -------------
84.0% 94.3%
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2001.
Electric sales are seasonal to some extent with the annual peak normally
occurring in the summer months. In 1998,2001, the maximum peak hour demand for WP&L
was 2,292 megawatts (MW)2,696 MW and occurred on July 14, 1998.
WP&L's electric generating facilities include: three coal-fired
generating stations (including seven units; four jointly-owned), one multi-fuel
generating facility (coal and natural gas; including two units), seven
natural-gas-fired peaking units, five hydro-electric plants (two jointly owned),
one gas-fired steam generating plant and one nuclear power plant.31, 2001.
Gas Operations
AsOperations--As of December 31, 1998,2001, WP&L provided retail natural gas
service to approximately 159,000167,209 gas customers in 233 communities in southern and central
Wisconsin and one county in northern Illinois.
The percentagecommunities. WP&L's gas utility
operations accounted for 21% of utility operating revenues and utility2% of operating income
from gas utility operations for WP&L
for the year ended December 31, 1998 was as
follows:
Percent of Percent of
Operating Operating
Revenues Income
--------------- -------------
15.3% 3.9%
The2001. WP&L's gas sales of WP&L follow a seasonal
pattern. There is an annual base load of gas used for heating, cooking, water heating and
other purposes, with a large heating peak occurring during the winter heating season.
SELECTED FINANCIAL DATA
Year Ended December 31,
-------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
1996 1995 1994
---- ---- ---- ---- -------------- ---------- ---------- ---------- ----------
(in thousands)
Operating revenuesrevenues..................... $ 965,353 $ 862,381 $ 752,505 $ 731,448 $ 794,717
$ 759,275 $ 689,672 $ 687,811
Earnings available for common stockstock.... 70,180 68,126 67,520 32,264 67,924 79,175 75,342 68,185
Cash dividends declared on common stock 60,449 -- 58,353 58,341 58,343
66,087 56,778 55,911
Total assetsassets........................... 1,879,882 1,857,024 1,766,135 1,685,150 1,664,604
1,677,814 1,641,165 1,585,124
Long-term obligations, net 471,554 420,414 370,634 375,574 393,513net............. 523,183 569,309 471,648 471,554 420,414
Alliant Energy is the sole common shareowner of all 13,236,601 shares of WP&L's
common stock outstanding. As such, earnings per share data is not disclosed
herein. The 1998 financial results reflect the recording of $17 million of
pre-tax merger-related charges.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (MD&A)
This MD&A includes information relating to IEC, IESU and WP&L (as well as
IPC and Alliant Energy Resources). Where appropriate, information relating to a
specific entity has been segregated and labeled as such. The financial results
described below reflect the consummation of the Merger accounted for as a
pooling of interests.
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, IEC, IESU or WP&L may make other forward-looking
statements within the meaning of the federal securities laws that involve
judgments, assumptions and other uncertainties beyond the control of such
companies. These forward-looking statements may include, among others,
statements concerning revenue and cost trends, cost recovery, cost reduction
strategies and anticipated outcomes, pricing strategies, changes in the utility
industry, planned capital expenditures, financing needs and availability,
statements of expectations, beliefs, future plans and strategies, anticipated
events or trends and similar comments concerning matters that are not historical
facts. Investors and other users of the forward-looking statements are cautioned
that such statements are not a guarantee of future performance and that 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: factors listed in "Other Matters--Other Future
Considerations;" weather effects on sales and revenues, competitive factors,revenues; general economic and
political conditions in the relevantWP&L's domestic service territory,territories; federal and state
regulatory or governmentgovernmental actions, including issues associated with the
deregulation of the domestic utility industry and the ability to obtain
adequate and timely rate relief; 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 IEC's nuclear facilities, unanticipated issues or costs associated with
achieving Year 2000 compliance, the ability of IEC to successfully integrate the
operations of the parties to the Merger and unanticipated costs associated
therewith, unanticipated difficulties in achieving expected synergies from the
Merger,Kewaunee; unanticipated
costs associated with certain environmental remediation efforts being
undertaken by IEC,WP&L and with environmental compliance generally; 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
IEC has investments instoppages; and changes in the rate of
inflation. WP&L assumes no obligation, and disclaims any duty, to update the
forward-looking statements in this report.
UTILITY INDUSTRY OUTLOOK
IECREVIEW
Overview--WP&L has one utility subsidiary, South Beloit. As a public utility
with significant utility assets, WP&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.
Legislation which would allow customers to choose their electric energy
suppliercustomers.
WP&L is expected to be introduced in Iowa and Minnesota in 1999. IEC does
not currently expect similar legislation to be introduced
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in Wisconsin this year. Nationwide, 16 states (including Illinois and Michigan)
have decided to provide for customer choice.
IEC realized 56%, 39%, 3% and 2% of its electric utility revenues in
1998, in Iowa, Wisconsin, Minnesota and Illinois, respectively. Approximately
87% of the electric revenues were regulated by the respective state commissions
while the other 13% were regulated by the Federal Energy Regulatory Commission
(FERC). IEC realized 58%, 36%, 3% and 3% of its gas utility revenues in Iowa,
Wisconsin, Minnesota and Illinois, respectively, during the same period.
WP&L realized 98% of its electric utility revenues in 1998 in Wisconsin
and 2% in Illinois. Approximately 79% of the electric revenues in 1998 were
regulated by the Public Service Commission of Wisconsin (PSCW) or the Illinois
Commerce Commission (ICC) while the other 21% were regulated by the FERC. WP&L
realized 96% of its gas utility revenues in 1998 in Wisconsin and 4% in
Illinois.
Federal Regulation
WP&L, IESU and IPC are subject to regulation by the FERC. The National
Energy Policy Act of 1992 addresses several matters designed to promoteFERC, and state regulation in
Wisconsin and Illinois. FERC regulates competition in the electric wholesale
power generation market. In 1996, FERC
issued final rules (FERC Orders 888market and 889) requiring electric utilities to
open their transmission lines to other wholesale buyers and sellers of
electricity. In March 1997, FERC issued orders on rehearing for Orders 888 and
889 (Orders 888-A and 889-A). In response to FERC Orders 888 and 888-A, Alliant
Energy Corporate Services, on behalf of WP&L, IESU and IPC, filed an Open Access
Transmission Tariff that complies with the orders. Upon receiving the final
merger-related regulatory order, a compliance tariff was filed by Alliant Energy
Corporate Services with the FERC. This filing was made to comply with the FERC's
merger order. In response to FERC Orders 889 and 889-A, WP&L, IESU and IPC are
participating in a regional Open Access Same-Time Information System.
FERC Order 888 permits utilities to seek recovery of legitimate, prudent
and verifiable stranded costs associated with providing open access transmission
services. FERC does not have jurisdiction over retail distribution and,
consequently, the final FERC rules do not provide for the recovery of stranded
costs resulting from retail competition. The various states retain jurisdiction
over the question 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. IEC and the utility subsidiariesWP&L cannot predict the long-term
consequencestiming of these rulesa restructured electric
industry or the impact on theirits 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 primary retail electric service
territories has been delayed due to events related to Enron and California's
restructured electric utility industry.
WP&L, including South Beloit, transferred its transmission assets with no gain
or loss (approximate net book value of $186 million) to ATC on January 1, 2001.
WP&L received a tax-free cash distribution of $75 million from ATC and had a
$110 million equity investment in ATC, with an ownership percentage of
approximately 26.5 percent at December 31, 2001. This transfer has not resulted
in a significant impact on WP&L's financial condition.
In November 1998, IECcondition or results of operations
since FERC allows ATC to earn a return on the contributed assets comparable to
the return formerly allowed WP&L by the PSCW and Northern States Power Co. (NSP) announced plansFERC. During 2001, ATC
returned approximately 80 percent of its earnings to develop an independent transmission company (ITC) to provide electricthe equity holders and,
although no assurance can be given, WP&L anticipates ATC will continue with
this policy in the future. ATC realizes its revenues from the provision of
transmission services to both participants in ATC as well as non-participants.
ATC is a transmission-owning member of the Upper Midwest. The two companies are developingMidwest ISO and the Mid-America
Interconnected Network, Inc. Regional Reliability Council.
WP&L complied with provisions of a relationshipFERC order requiring utilities to
voluntarily turn over operational control of their transmission systems to a
regional entity by which NSP will create an independent transmission entity that,
in turn, will lease the end of 2001 by WP&L's transfer of its transmission
assets to ATC and the participation of IEC.WP&L in the Midwest ISO, which was given
Regional Transmission Organization (RTO) status in December 2001. The independent entityMidwest
ISO began providing security coordination functions in December 2001 and began
offering transmission service in the first quarter of 2002 and WP&L now
receives all of its transmission services from the Midwest ISO.
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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 Energy. 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
price freeze), with certain exceptions, which commenced on the effective date
of the April 1998 merger. As a result, the last of the price freezes impacting
WP&L will expire in April 2002.
In 2000, the NRC issued expanded performance measures which raised several
areas of concern with Kewaunee's operations. Kewaunee is a nuclear facility in
which WP&L has a 41 percent ownership interest. Addressing the NRC's concerns
and ensuring that Kewaunee operates in accordance with current industry and
regulatory standards resulted in additional operating costs to WP&L in 2001 of
approximately $8 million and WP&L is expected to incur an additional $21
million of incremental costs in 2002 through 2005. In April 2001, the PSCW
approved the deferral of such incremental costs incurred after March 27, 2001
(WP&L has deferred $5.5 million of such costs at December 31, 2001). In July
2001, WP&L requested a one-time $19 million retail electric rate increase from
the PSCW to recover a portion of the costs associated with the increased
Kewaunee operating costs and costs associated with the replacement of the steam
generators at Kewaunee. WP&L expects that the remainder of the additional
operating costs related to Kewaunee will be publicly traded and have its own board of directors, management
and employees.recovered through future base rate
filings with the PSCW.
In February 1999, the Nebraska Public Power District signed an
agreement with IEC and NSP to share information and discuss how they might
participate in the proposed ITC.
IEC expects to fileAugust 2001, WP&L filed a $114 million base rate increase request with the
PSCW related to its investments in reliability, customer service, technology
and environmental upgrades, as well as investments in its infrastructure. In
September 2001, WP&L filed a request with the PSCW to consolidate the $19
million request for increased Kewaunee operating costs with the new base rate
increase request of $114 million. These filings apply to retail electric ($105
million), natural gas ($26 million) and water ($2 million) rates. Also in
September 2001, WP&L filed a request with the PSCW, along with three other
Wisconsin utilities, for an increase in rates of $16 million for incremental
costs associated with the start-up and ongoing operations of ATC (WP&L has
deferred $5.9 million of such costs at December 31, 2001). In December 2001,
WP&L filed a request for interim rate relief related to such filings of
approximately $63 million ($41 million for retail electric, $21 million for
natural gas and $1 million for water rates) to be effective on April 14, 2002.
The interim level is generally based on PSCW staff adjustments recommended in a
recently completed audit. Reductions in purchased-power and fuel costs since
the initial filing constituted a significant portion of such adjustments. As a
result, these adjustments would have no impact on WP&L's financial condition or
results of operations. WP&L expects final rates to be implemented in the third
quarter of 2002 and to be set at levels higher than the interim levels, but
significantly lower than the original request, although no assurance can be
given. Also, in February 2002, WP&L filed a $6.2 million request with FERC and Minnesota Public Utilities
Commission (MPUC)for
new wholesale electric base rates. WP&L also plans to file a base rate increase
request with the PSCW in the second quarter of 19992002 for permissionits 2003 and 2004
rates. At this time, there are no plans for filing a new base rate case in
Illinois for South Beloit.
In December 2001, the PSCW authorized WP&L to lease its
transmission assetsdefer incremental costs for
security measures and insurance premiums related to the ITC. Filings will also be made atSeptember 11, 2001
terrorist attacks. WP&L began deferring the IUBincreased costs in December 2001
and ICC at
a later time. The first FERC filing will also include a tariff designed to allow
for open and economical deliverythe issue of electric power throughout the region. The
tariffcost recovery will be availableaddressed in WP&L's future base rate
case proceedings.
In December 2000, WP&L requested a $73 million annual retail electric rate
increase from the PSCW to non-ITC
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participants as well as ITC members. Although no assurance can be given, IECcover increases in WP&L's 2001 fuel and
NSP currently believe they can have the ITC established in the year 2000.
IEC had originally filed to participate in the Midwest Independent System
Operator (Midwest ISO)purchased-power costs. The PSCW approved a $46 million interim increase
effective February 2001, which was conditionally approved by the FERC on September
16, 1998. However, asreplaced with a result$58 million final increase
effective June 2001. Two customer groups filed an appeal to a Wisconsin state
court, challenging certain portions of the ITC announcement, IEC has withdrawn its
Midwest ISO membership.
State Regulation
Wisconsinfinal order. This matter is still
pending in state court. The final order included a refund provision for costs
collected in rates that are in excess of actual costs incurred. In March 2002,
WP&L filed with the PSCW to refund approximately $4 million to customers based
on lower than projected fuel and purchased-power costs in 2001. The refund
amount ultimately provided by WP&L is subject to regulation byPSCW approval. WP&L had
recorded the PSCW. The PSCW's inquiries intonecessary reserve for the future structure2001 refund at December 31, 2001. In
addition, in March 2002 WP&L filed with and received approval from the PSCW for
a decrease in retail electric rates of approximately $19 million based on lower
fuel and purchased-power costs.
WP&L believed Union Pacific was charging an excessive rate for transporting
low-sulfur coal from the Powder River Basin to the Edgewater Generating Station
located in Sheboygan, Wisconsin. To contest the rate, WP&L filed a rate case
with the STB and, upon the expiration of the natural gasexisting contract, began moving
coal under a tariff rate beginning January 1, 2000. Following the STB's initial
decision, WP&L, as part of a negotiated settlement, received payments from
Union Pacific in 2001 of $4 million, covering the period from January 1, 2000
through October 22, 2001. While WP&L and electric utility industries are ongoing.Union Pacific
A-5
have agreed upon future rates, both parties have filed petitions for
reconsideration with the STB on certain aspects of its decision, which could
impact the final amount received by WP&L. The stated goal ofrefund amount will also be
reviewed by the PSCW in conjunction with WP&L's 2001 fuel refund filing.
In connection with a statewide docket to investigate compliance issues
associated with the natural gas docket is "to accommodate
competition but not create it."EPA's NOx emission reductions, in 1999 the PSCW authorized
deferral of all incremental NOx compliance costs excluding internal labor and
replacement purchased-power costs. The PSCW approved WP&L's compliance plans
and granted a 10-year straight-line depreciation method for NOx compliance
investments. WP&L has followed a measured approach to
restructuringdeferred $3.0 million of costs at December 31, 2001 and
anticipates recovery of these costs beginning with the natural gas industrybase rate increase
request filed in Wisconsin.2001. The PSCW has determined
that customer classesdepreciation lives will be deregulated (i.e., the gas utility would no longer
have an obligation to procure gas commodity for customers, but would still have
a delivery obligation) in a step-wise manner, after each class has been
demonstrated to have a sufficient number of gas suppliers available. A number of
working groups have been established by the PSCW and these working groups are
addressing numerous issues which need to be resolved before deregulation may
proceed.
The short-term goals of the electric restructuring process are to ensure
reliability of the state's electric system and development of a robust wholesale
electric market. The longer-term goal is to establish prerequisite safeguards to
protect customers prior to allowing retail customer choice.
The PSCW has issued an order outlining its policies and principles for
Public Benefits (low-income assistance, energy efficiency, renewable generation
and environmental research and development) including funding levels,
administration of the funds and how funds should be collected from customers.
The PSCW has proposed increasing annual funding levels primarily through utility
rates by $50 to $75 million statewide.
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. Hearings were held in the fourth quarter of 1998 but a
final decision by the PSCW has not been issued yet. A future phase of the docket
will investigate the standards of conduct that should govern relationships and
transactions between a utility and its affiliates.
It is anticipated that there will be legislative proposals introduced in
the 1999-2000 legislative session on issues dealing with restructuring,
including affiliated interest, public benefits, competition and others. It is
impossible to predict at this time the scope or the possibility of enactment of
such proposals.
Illinois
IPC and WP&L 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
megawatts 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 IEC's results of
operations or financial condition given the relatively small size of IEC's
Illinois operations.
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Accounting Implications
Each of the utilities complies with the provisions of Statement of
Financial Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain
Types of Regulation." SFAS 71 provides that rate-regulated public utilities
record certain costs and credits allowed in the rate making process in different
periods than for nonregulated entities. These are deferred as regulatory assets
or regulatory liabilities and are recognized in the consolidated statements of
income at the time they are reflected in rates. If a portion of the utility
subsidiaries' operations becomes no longer subject to the provisions of SFAS 71
as a result of competitive restructurings or otherwise, a write-down of related
regulatory assets and possibly other charges would be required, unless some form
of transition cost recovery is established by the appropriate regulatory body
that would meet the requirements under generally accepted accounting principles
for continued accounting as regulatory assets during such recovery period. In
addition, each utility subsidiary would be required to determine any impairment
of other assets and write-down any impaired assets to their fair value. The
utility subsidiaries believe they currently meet the requirements of SFAS 71.
Positioning for a Competitive Environment
IEC and its subsidiaries cannot currently predict the long-term
consequences of the competitive and restructuring issues described above on
their results of operations or financial condition. The major objective is to
allow the 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 will face challenges to continued growth. Since consumption of
electricity or natural gas is expected to grow only modestly within IEC's
utility service territory, IEC has entered several markets that provide
opportunities for new sources of earnings growth.
In addition to Alliant Energy Resources' existing businesses, IEC has
launched four distinct platforms designed to meet customer needs throughout the
Midwest, the nation and the world. These platforms include:
Alliant Energy Industrial Services, a provider of energy and
environmental services designed to maximize productivity for industrial
and large commercial customers;
Alliant Energy International, a partner in developing energy generation
and infrastructure in growing markets throughout the world;
Alliant Energy Retail Services, encompassing a wide array of products and
services designed to meet the comfort, security and productivity needs of
residential and small commercial customers; and
Cargill-Alliant Energy, an energy-trading joint venture that combines the
superior risk-management and commodity trading expertise of Cargill
Incorporated (Cargill), one of the world's largest and most established
commodity trading firms, with IEC's low-cost electric-generation and
transmission business experience.
IEC believes that each of these four platforms provides unique prospects
for growth both individually and collectively as the competitive energy-services
marketplace evolves.
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WP&Lreviewed every two years.
RESULTS OF OPERATIONS
Overview
WPOverview--WP&L's earnings available for common stock decreased $35.7increased $2.1 million and
$11.3$0.6 million in 19982001 and 1997,2000, respectively. The decreased earnings for 1998
were2001 increase was primarily
due to merger-relatedhigher electric margins and a lower effective income tax rate, partially
offset by increased operating expenses and lower gas margins. The 2000 increase
was primarily due to higher purchased-powerelectric margins and transmission costs, highera reduced effective income tax
rate, largely offset by increased operation and maintenance, depreciation and
amortization expenses, decreased
retail natural gas salesand interest expenses.
Weather did not have a material impact on WP&L's 2001 results as the benefits
from a colder than normal first quarter, high humidity levels for a portion of
the summer and income realized from a weather hedge WP&L had in place in the
fourth quarter largely due to milder weather, higher injuries and
damages expenses, higher interest expense and a higher effective tax rate. These
decreases were partially offset by a 3 percent increase in retail electricity
sales volumes, largely due to continued economic growth within WP&L's service
territory, reduced employee pension and benefit costs and lower costs in 1998
due to merger-related operating efficiencies. The decreased earnings for 1997
were primarily due to lower gas and electric margins, higher depreciation
expense, higher interest expense and the recognitionimpact of a gain on the sale of a
combustion turbine in 1996.an extremely mild fourth quarter.
Electric Utility Operations
ElectricOperations--Electric margins and MWHMWh sales for WP&L for 19982001,
2000 and 19971999 were as follows:follows (in thousands):
Revenues and Costs MWHsMWhs Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1998 1997 Change 1998 1997 Change
------------- ------------- --------- ------------ ------------- ------------------------------------------- ----------------------------
2001 2000 * 1999 ** 2001 2000 * 1999 **
-------- -------- -- -------- -- ------ ------ -- ------ --
Residential $198,770 $ 199,633 - 2,964 2,974 -
Commercial 108,724 107,132 1% 1,898 1,878 1%
Industrial 162,771 152,073 7% 4,493 4,256 6%
------------- ------------- ------------ -------------
Total from ultimate customers 470,265 458,838 2% 9,355 9,108 3%
Sales for resale 128,536 160,917 (20%) 4,492 5,824 (23%)
Other 15,903 14,388 11% 59 60 (2%)
------------- ------------- ------------ -------------
Total 614,704 634,143 (3%) 13,906 14,992 (7%)
============ ============= =========
Electric production fuels 120,485 116,812 3%
Purchased-power 113,936 125,438 (9%)
------------- -------------
Margin $380,283 $ 391,893 (3%)
============= ============= =========
A-8
Electric margins and MWH sales for WP&L for 1997 and 1996 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1997 1996 Change 1997 1996 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 199,633 $ 201,690 (1%) 2,974 2,980 -
Commercial 107,132 105,319 2% 1,878 1,814Residential...................... $248,128 $229,668 8% $213,496 8% 3,318 3,151 5% 3,111 1%
Commercial....................... 138,269 127,199 9% 116,947 9% 2,122 2,031 4% Industrial 152,073 143,734 6% 4,256 3,986 7%
------------- ------------- ------------ -------------1,980 3%
Industrial....................... 207,791 190,085 9% 171,118 11% 4,538 4,688 (3)% 4,570 3%
-------- -------- -------- ------ ------ ------
Total from ultimate customers 458,838 450,743customers. 594,188 546,952 9% 501,561 9% 9,978 9,870 1% 9,661 2% 9,108 8,780 4%
Sales for resale 160,917 131,836 22% 5,824 5,246 11%
Other 14,388 6,903 108% 60 57 5%
------------- ------------- ------------ -------------resale................. 131,187 115,715 13% 102,751 13% 3,524 3,228 9% 3,252 (1)%
Other............................ 28,075 29,524 (5)% 22,295 32% 61 63 (3)% 54 17%
-------- -------- -------- ------ ------ ------
Total 634,143 589,482 8% 14,992 14,083 6%
============ ============= =========revenues/sales.......... 753,450 692,191 9% 626,607 10% 13,563 13,161 3% 12,967 1%
====== ====== ======
Electric production fuels 116,812 114,470expense 120,722 113,208 7% 110,521 2%
Purchased-power 125,438 81,108 55%
------------- -------------
Margin $ 391,893 $ 393,904 (1%)
============= ============= =========expense.......... 217,306 146,939 48% 107,598 37%
-------- -------- --------
Margin........................ $415,422 $432,044 (4)% $408,488 6%
======== ======== ========
Electric- ----------
* Reflects the percent change from 2000 to 2001. ** Reflects the percent change
from 1999 to 2000.
Due to the formation of ATC on January 1, 2001, electric margin decreased $11.6in 2001
included wheeling expenses from ATC of $30 million. Such expenses were offset
by equity income (WP&L accounts for its investment in ATC under the equity
method), reduced other operation and maintenance expenses and lower
depreciation expense, resulting in no significant net income impact due to the
formation of ATC. On a comparable basis, electric margin increased $13.8
million, or 3%, and $2.0$23.6 million, or 1%6%, during 19982001 and 1997,2000, respectively.
The 1998 decline in margin2001 increase was due to:
a) Purchased-power and transmission costs - such costs have increased
significantly because of stricter reliability requirements and higher
transmission costsprimarily due to system constraints in Wisconsin. Recovery of
such increased costs in Wisconsin generally involves regulatory lag
between the time of the cost increase and the time a rate increase is
implemented. The PSCW granted WP&L an annual rate increase of $15 million
in July 1998 related to these cost increases. In addition, WP&L made a
filing with the PSCW in November 1998 seeking another rate increase for
higherlower purchased-power and transmission costs. (Referfuel costs
impacting margin, increased residential and commercial sales due to "Liquiditymore
favorable weather conditions in 2001 compared to 2000 and Capital Resources - Rates and Regulatory Matters" for a further
discussion of this filing). The effect of these 1998 cost increases wascontinued retail
customer growth. These items were partially offset by WP&L's reliance on more costly purchased-power$10 million of income
recorded in the
first six months2000 for a change in estimate of 1997utility services rendered but
unbilled at month-end and lower industrial sales, largely due to various power plant outages, particularly
Kewaunee Nuclear Power Plant (Kewaunee).
b) Lower off-system sales income -impacts of a
slowing economy.
A-6
The 2000 increase was primarily due to the transmission constraints,
increased native demand, a more active bulk power market, which resulted
in lower bulk power margins, and the implementation of a merger-related
joint sales agreement (effective with the consummation of the Merger, the
margins resulting from IEC's off-system sales are allocated among IESU,
IPC and WP&L).
A 2.4% retail rate decrease implemented at WP&L in April 1997 also
contributed to the lower electric margin in 1998. The increased sales to ultimateretail customers largely due
to continued economic growth in WP&L's service territory, partially offset these items. Weather normalized sales volumes (excluding
off-system sales)the favorable $10
million change in estimate of utility services rendered but unbilled at
month-end and increased approximately 2.2% in 1998 compared to an actual
increase of 1.3%.
The decrease in margin in 1997 was due to the rate decrease, milder
weather conditions in 1997 as compared to 1996 and WP&L's reliance on more
costly purchased power in 1997 due to the various power plant outages.energy conservation revenues. These items were
partially offset by the increased commercial and industrial sales, an
increaseimpact of milder weather conditions in off-system sales in 19972000 compared to
1999 and higher revenues from conservation
services.
A-9
Gas Utility Operations
Gas marginspurchased-power and Dth sales for WP&L for 1998 and 1997 were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1998 1997 Change 1998 1997 Change
------------- ------------- --------- ------------ ------------- ------
Residential $ 65,173 $ 84,513 (23%) 10,936 12,770 (14%)
Commercial 33,898 45,456 (25%) 7,285 8,592 (15%)
Industrial 5,896 8,378 (30%) 1,422 1,714 (17%)
Transportation and other 6,770 17,536 (61%) 12,948 17,595 (26%)
------------- ------------- ------------ -------------
Total 111,737 155,883 (28%) 32,591 40,671 (20%)
============ ============= =========
Cost of gas sold 61,409 99,267 (38%)
------------- -------------
Margin $ 50,328 $ 56,616 (11%)
============= ============= =========
Gas margins and Dth sales for WP&L for 1997 and 1996 were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1997 1996 Change 1997 1996 Change
------------- ------------- --------- ------------ ------------- ---------
Residential $ 84,513 $ 90,382 (6%) 12,770 14,297 (11%)
Commercial 45,456 46,703 (3%) 8,592 9,167 (6%)
Industrial 8,378 11,410 (27%) 1,714 1,997 (14%)
Transportation and other 17,536 17,132 2% 17,595 18,567 (5%)
------------- ------------- ------------ -------------
Total 155,883 165,627 (6%) 40,671 44,028 (8%)
============ ============= =========
Cost of gas sold 99,267 104,830 (5%)
------------- -------------
Margin $ 56,616 $ 60,797 (7%)
============= ============= =========
Gas margin declined $6.3 million, or 11%, and $4.2 million, or 7%, during
1998 and 1997, respectively, due to a reduction in Dth sales resulting from
milder weather and an average retail rate reduction of 2.2% implemented in April
1997. In 1998, the significant decline in transportation and other revenues and
sales reflects an accounting change for off-system sales as required by the PSCW
effective January 1, 1998. The accounting change requires that beginning in 1998
off-system gas sales be reported as a reduction of the cost of gas sold rather
than as gas revenue. In 1997, off-system gas revenues were $11.1 million.fuel costs.
Refer to "Liquidity and Capital Resources - Rates and Regulatory Matters"
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.
Operating Expenses
Other operation expense increased $12.3 million and decreased $8.9
million for 1998 and 1997, respectively. The 1998 increase was primarily due to
$11.2 million of merger-related expenses for employee retirements, separations
and relocations. Higher injuries and damages expenses and an increase in other
administrative and general expenses also contributed to the increase. Such items
were partially offset by reduced employee pension and benefits expenses, reduced
conservation expense and lower costs from merger-related operating efficiencies.
The 1997 decrease was primarily due to a reduction in conservation expense,
A-10
which was partially offset by costs associated with an early retirement program
in 1997 for eligible bargaining unit employees.
Depreciation and amortization expense increased $14.9 million and $19.4
million for 1998 and 1997, respectively. 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 a Kewaunee surcharge of $3.2 million (which has been recorded
in depreciation and amortization expense with a corresponding increase in
revenues resulting in no impact on earnings). The 1997 increase was due to
higher depreciation rates approved by the PSCW, effective January 1, 1997, and
property additions.
Interest Expense and Other
Interest expense increased $4.0 million in 1998 primarily due to
unusually low interest expense in the second quarter of 1997, resulting from an
adjustment to decrease interest expense relating to a tax audit settlement, and
increased borrowings during 1998.
Miscellaneous, net income decreased $2.7 million and $2.9 million in 1998
and 1997, respectively. The 1998 decrease was primarily due to $6.1 million of
merger-related expenses which was partially offset by higher earnings on the
nuclear decommissioning trust fund. The 1997 decrease was primarily due to the
recognition of a gain on the sale of a combustion turbine in 1996.
Income Taxes
Income taxes decreased $17.2 million and $12.0 million in 1998 and 1997,
respectively, due to lower pre-tax income. See Note 51(i) of the "Notes to Consolidated Financial Statements" for
detailsinformation relating to utility fuel cost recovery. Refer to "Utility Industry
Review--Rates and Regulatory Matters" for information on the effective taxWP&L's rate changes.
LIQUIDITY AND CAPITAL RESOURCES
Historicalfilings.
Gas Utility Operations--Gas margins and Dth sales for WP&L Analysis
Cash flows generatedfor 2001, 2000 and
1999 were as follows (in thousands):
Revenues and Costs Dths Sold
------------------------------------ -----------------------------
2001 2000 * 1999 ** 2001 2000 * 1999 **
-------- -------- --- -------- --- ------ ------ --- ------ --
Residential............. $107,673 $ 96,204 12% $ 69,662 38% 11,754 12,769 (8)% 12,070 6%
Commercial.............. 58,658 54,512 8% 35,570 53% 7,572 8,595 (12)% 7,771 11%
Industrial.............. 8,907 8,581 4% 6,077 41% 1,197 1,476 (19)% 1,520 (3)%
Transportation/other.... 31,625 5,855 440% 9,461 (38)% 16,866 13,680 23% 13,237 3%
-------- -------- -------- ------ ------ ------
Total revenues/sales. 206,863 165,152 25% 120,770 37% 37,389 36,520 2% 34,598 6%
====== ====== ======
Cost of gas sold........ 153,823 107,131 44% 64,073 67%
-------- -------- --------
Margin............... $ 53,040 $ 58,021 (9)% $ 56,697 2%
======== ======== ========
- ----------
* Reflects the percent change from operations2000 to 2001. ** Reflects the percent change
from 1999 to 2000.
Gas revenues and cost of gas sold increased $27significantly for 2001 and 2000 due
to the large increase in natural gas prices in the first half of 2001 and last
half of 2000. Due to WP&L's rate recovery mechanisms for gas costs, these
increases alone had little impact on gas margin. Gas margin decreased $5.0
million, or 9%, and decreased
$42increased $1.3 million, in 1998or 2%, during 2001 and 1997,2000,
respectively. The 19982001 decrease was largely due to lower retail sales primarily
related to unusually high gas prices earlier in 2001 as some customers either
chose alternative fuel sources or used less natural gas, the impact of the
slowing economy and losses associated with current commodity costs, which are
shared by ratepayers and shareowners. The 2000 increase was primarily a
result of changeslargely due to more
favorable weather conditions in working capital and higher depreciation and amortization
expensesthe 2000 heating season compared to 1999,
partially offset by lower net income. The decreasereduced energy conservation revenues. WP&L realized pre-tax
income of $2 million, $2 million and $5 million from weather hedges it had in
1997 was mainly
attributableplace in 2001, 2000 and 1999, respectively, which is recorded in
"Miscellaneous, net" in WP&L's Consolidated Statements of Income. Refer to Note
1(i) of the "Notes to Consolidated Financial Statements" for information
relating to natural gas cost recovery.
Other Operating Expenses-- Due to the changeformation of ATC in working capital. Cash flows used for financing
activities2001, WP&L incurred
$10 million of operation and maintenance expenses in 2000 that were not
incurred in 2001. On a comparable basis, other operation and maintenance
expenses increased $14$7.6 million and decreased $75$16.8 million in 1998for 2001 and 1997,
respectively, primarily due to changes in the amount of debt outstanding. Cash
flows used for investing activities increased $12 million and $34 million in
1998 and 1997,2000,
respectively. The 2001 increase in 1998 was primarily due to higher shared savings expenditures andnuclear operating
costs (partially due to a planned refueling outage at Kewaunee in the increase in 1997 was mainlyfourth
quarter of 2001), higher uncollectible customer account balances largely due to
the proceedsunusually high gas prices earlier in the year and higher other
administrative and general costs. These items were partially offset by
decreased fossil-plant maintenance expenses. 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 increased
maintenance expenses. The 2000 increases were partially offset by expenses
incurred in 1999 relating to WP&L's Year 2000 program.
Depreciation and amortization expense decreased $10.8 million and increased
$26.9 million for 2001 and 2000, respectively. The 2001 decrease was primarily
due to the impact of the formation of ATC and decreased earnings on the nuclear
decommissioning trust fund, partially offset by increased expense due to
property additions. The 2000 increase was primarily due to increased earnings
in the nuclear decommissioning trust fund of approximately $20 million,
property additions and higher amortization expense. The accounting for earnings
on the nuclear decommissioning 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.
Taxes other than income taxes increased $3.3 million for 2001 due to increased
gross receipts and payroll taxes.
A-7
Interest Expense and Other--Interest expense increased $3.7 million in 2000 due
to higher interest rates and borrowings outstanding.
Equity income from unconsolidated investments increased $15.0 million for 2001,
largely due to ATC beginning operations on January 1, 2001.
Miscellaneous, net income decreased $3.5 million and increased $18.4 million in
2001 and 2000, respectively, primarily due to differences in earnings in the
salenuclear decommissioning trust fund. WP&L realized $2 million, $2 million and $5
million of other propertyincome from weather hedges in 2001, 2000 and equipment1999, respectively.
Income Taxes--The effective income tax rates were 35.9%, 37.5% and 39.2% in
1996.
Future Considerations
The2001, 2000 and 1999, respectively. Refer to Note 4 of the "Notes to
Consolidated Financial Statements" for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Overview--Given WP&L's financing flexibility, including access to the debt
securities market, management believes it has the necessary financing
capabilities in place to adequately finance its capital requirements of IECfor the
foreseeable future. WP&L's capital requirements are primarily attributable to
its utility
subsidiaries' construction and acquisition programs and its debt maturities and
business opportunities of Alliant Energy Resources. It is anticipated thatmaturities. WP&L expects
to meet its future capital requirements of IEC will be met bywith cash generated from operations and
external financing.financings. The level of cash generated from operations is partially
dependent uponon economic conditions, legislative activities environmental
matters and timely regulatory
recovery of utility costs. IEC's liquidityLiquidity and capital resources will beare also affected by
costs associated with environmental and regulatory issues.
A-11
Emerging competitionBased on current expectations, WP&L plans to invest approximately $832 million
in various capital projects and investments in 2002-2006, including generation
projects and environmental compliance initiatives. These various investments
are described in detail below.
Cash Flows--In 2001, WP&L's cash flows from operating activities decreased $40
million due to changes in working capital. In 2001, WP&L's cash flows used for
financing activities increased $14 million due to common stock dividends paid
in 2001 as no dividends were declared in 2000 due to management of WP&L's
capital structure, partially offset by a capital contribution of $35 million by
the utility industry could also impact IEC's liquidityparent company and changes in debt issued and retired. Cash flows used for
investing activities decreased $57 million in 2001 due to proceeds received
from the transfer of WP&L's transmission assets to ATC which were partially
offset by increased levels of construction expenditures. In 2000, WP&L's cash
flows used for financing activities increased $20 million due to changes in
debt issued and retired and a capital resources, as discussed previouslycontribution of $30 million in 1999 from
the "Utility Industry Outlook"
section.
Atparent company, partially offset by no common stock dividends declared in
2000 due to management of its capital structure.
Long-Term Debt--At December 31, 1998, Alliant Energy Resources2001, WP&L had approximately $69$150 million of investments in foreign entities. At December 31, 1998, IESU, WP&L and
IPC did not have any foreign investments. IEC continues to explore additional
international investment opportunities. Such investments may carry a higher
level of risk than IEC's traditional domestic utility investments or Alliant
Energy Resources' domestic investments. Such risks could include foreign
government actions, foreign economic and currency risks and others.
IEC is expected to pursue various potential business development
opportunities, including international as well as domestic investments, and is
devoting resources to such efforts. It is anticipated that IEC will strive to
select investments where the international and other risks are both understood
and manageable. Under the Public Utility Holding Company Act (PUHCA), IEC's
investments in exempt wholesale generators (EWG's) and foreign utility companies
(FUCO's) is limited to 50% of IEC's consolidated retained earnings. In addition,
there are limitations on the amount of non-utility investments IEC can make
under the Wisconsin Utility Holding Company Act (WUHCA) as well.
IEC had certain off-balance sheet financial guarantees and commitments
outstanding at December 31, 1998. They generally consist of third-party
borrowing arrangements and lending commitments, guarantees of financial
performance of syndicated affordable housing properties and guarantees relating
to IEC's electricity trading joint venture. Refer to Note 11(d) of the "Notes to
the Consolidated Financial Statements" for additional details.
Financing and Capital Structure
Access to the long-term and short-term capital and credit markets, and
costs of external financing, are dependent on creditworthiness. The debt ratings
of IEC and certain subsidiaries by Moody's and Standard & Poor's are as follows:
Standard &
Moody's Poor's
----------------- -----------------
IESU
Secured long-term debt
A2 A+
Unsecured long-term debt A3 A
WP&L
Secured long-term debt Aa2 AA
Unsecured long-term debt Aa3 A+
IPC
Secured long-term debt A1 A+
Unsecured long-term debt A2 A
Alliant Energy Resources
Commercial paper P2 A1
IEC
Commercial paper (a) P1 A1
- - ---------------
(a) IESU, WP&L and IPC participate in a utility money pool which is
funded, as needed, through the issuance of commercial paper by
IEC. The PSCW has restricted WP&L from lending money to
non-utility affiliates and non-Wisconsin utilities. As a result,
WP&L is restricted from lending money to the utility money pool
but is able to borrow money from the utility money pool.
A-12
Other than periodic sinking fund requirements, which will not require
additional cash expenditures, the following long-term debt (in millions)that will mature prior to December 31, 2003:
IESU $187.5
IPC 3.3
WP&L 1.9
Alliant Energy Resources 279.2
-----------
IEC $471.9
===========2006. Depending uponon market conditions, it
is currently anticipated that a majority of the maturing debt will be refinanced with the
issuance of long-term securities. WP&L currently has no authority fromRefer to Note 7(b) of the PSCW or the Securities and
Exchange Commission (SEC)"Notes to
issueConsolidated Financial Statements" for additional information on long-term debt.
On November 25,
1998, IESU and IPC received authority from the SEC under PUHCA to issue $200
million and $80 million of long-term debt securities, respectively. The
companies continually evaluate their future financing needs and will make any
necessary regulatory filings as needed.
Under the most restrictive terms of their respective indentures, IESU,
WP&L and IPC could have issued at least $241 million, $309 million and $182
million of long-term debt at December 31, 1998, respectively.
On October 30, 1998, WP&L issued $60 million of debentures at a coupon
rate of 5.70% maturing on October 15, 2008. The net proceeds from the debt
offering were used to pay down short-term debt, including short-term debt used
to retire maturing long-term debt.
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, 1998,
the companies could have issued the following additional shares of Cumulative
Preferred or Preference Stock:
IESU WP&L IPC
---- ---- ---
Cumulative Preferred - 2,700,775 1,238,619
Cumulative Preference 700,000 - 2,000,000
For interim financing, IESU, WP&L and IPC were authorized by the applicable
federal or state regulatory agency to issue short-term debt as follows (in
millions) at December 31, 1998:
IESU WP&L IPC
---- ---- ---
Regulatory authorization $150 $128 $72
Short-term debt outstanding - external parties - $50 -
Short-term debt outstanding - money pool - $27 $22
InShort-Term Debt--In addition to the short-term debt outstanding at its utility
subsidiaries, IEC had an additional $66 million of short-term debt outstanding
at December 31, 1998. In addition to providing for ongoingfunding working capital needs, thisthe availability
of short-term financing provides the companiesWP&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. To maintain flexibilityAt December 31, 2001, WP&L was authorized by the applicable federal
or state regulatory agency to issue short-term debt of $240 million.
WP&L participates in its capital
structurea utility money pool that is funded, as needed, through
the issuance of commercial paper by Alliant Energy. Interest expense and to take advantage of favorable short-term rates, IESU andother
fees are allocated based on borrowing amounts. The PSCW has restricted WP&L
also use proceedsfrom lending money to non-utility affiliates and non-Wisconsin utilities. As a
result, WP&L can only borrow money from the sale of accounts receivable and unbilled revenues to
finance a portion of their long-term cash needs. IECutility money pool.
A-8
WP&L anticipates that short-term debt will continue to be available at
reasonable costs due to current ratings by independent utility analysts andcredit rating services. A-13
In additionRefer to
the aforementioned borrowing capability under Alliant
Energy Resources Credit Agreements, IEC has $150 million of bank lines of
credit, of which none was utilized at December 31, 1998, available for direct
borrowing or to support commercial paper. Commitment fees are paid to maintain
these lines and there are no conditions which restrict the unused lines of
credit.
From time to time, IEC may borrow from banks and other financial
institutions on "as-offered" credit lines in lieu of commercial paper, and has
agreements with several financial institutions for such borrowings. There are no
commitment fees associated with these agreements and there were no borrowings
outstanding under these agreements at December 31, 1998.
IEC made a filing with the SEC in February 1999 under PUHCA to provide
IEC 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.
Given the above financing flexibility, including IEC's access to both the
debt and equity securities markets, management believes it has the necessary
financing capabilities in place to adequately finance its capital requirements
for the foreseeable future.
Capital Requirements
General
Capital expenditure and investment and financing plans are subject to
continual review and change. The capital expenditure and investment programs may
be revised significantly as a result of many considerations, including changes
in economic conditions, variations in actual sales and load growth compared to
forecasts, requirements of environmental, nuclear and other regulatory
authorities, acquisition and business combination opportunities, the
availability of alternate energy and purchased-power sources, the ability to
obtain adequate and timely rate relief, escalations in construction costs and
conservation and energy efficiency programs.
Construction and acquisition expenditures for IEC for the year ended
December 31, 1998 were $372 million, compared with $328 million for the year
ended December 31, 1997. IEC's anticipated construction and acquisition
expenditures for 1999 are estimated to be approximately $495 million, consisting
of approximately $275 million in its utility operations, $100 million for
energy-related international investments and $120 million for new business
development initiatives at Alliant Energy Resources. IEC's anticipated utility
construction and acquisition expenditures for 1999 is made up of 53% for
electric transmission and distribution, 18% for electric generation, 10% for
information technology and 19% for miscellaneous electric, gas, water and steam
projects. The level of 1999 domestic and international investments could vary
significantly from the estimates noted here depending on actual investment
opportunities, timing of the opportunities and the receipt of regulatory
approvals to exceed limitations in place under WUHCA and PUHCA on the amount of
IEC's non-utility investments. It is expected that IEC will spend approximately
$1.3 billion on utility construction and acquisition expenditures during
2000-2003, including expenditures to comply with nitrogen oxides (NOx) emissions
reductions in Wisconsin as discussed in "Other Matters Environmental." It is
expected that Alliant Energy Resources will invest in energy products and
services in domestic and international markets, industrial services initiatives
and other strategic initiatives during 2000-2003.
A-14
WP&L's construction and acquisition expenditures for the years ended
December 31, 1998 and 1997 were $117 and $119 million, respectively. WP&L's
anticipated construction and acquisition expenditures for 1999 are estimated to
be approximately $126 million, of which 50% represents expenditures for electric
transmission and distribution facilities, 17% represents generation
expenditures, 10% represents information technology expenditures and the
remaining 23% represents miscellaneous electric, gas, water and general
expenditures. WP&L's construction and acquisition expenditures are projected to
be $162 million in 2000, $130 million in 2001, $155 million in 2002 and $185
million in 2003 which include expenditures to comply with NOx emissions
reductions as discussed in "Other Matters - Environmental."
IEC anticipates financing utility construction expenditures during
1999-2003 through internally generated funds supplemented, when required, by
outside financing. Funding of a majority of the Alliant Energy Resources
construction and acquisition expenditures is expected to be completed with
external financings.
Nuclear Facilities
IEC owns interests in two nuclear facilities, Kewaunee and the Duane
Arnold Energy Center (DAEC). Set forth below is a discussion of certain matters
impacting these facilities.
Kewaunee, a 532-megawatt pressurized water reactor plant, is operated by
Wisconsin Public Service Corporation (WPSC) and is jointly owned by WPSC
(41.2%), WP&L (41.0%), and Madison Gas and Electric Company (MG&E) (17.8%). The
Kewaunee operating license expires in 2013.
On April 7, 1998, the PSCW approved WPSC's application for replacement of
the two steam generators at Kewaunee. The total cost of replacing the steam
generators would be approximately $90.7 million, with WP&L's share of the cost
being approximately $37.2 million. The replacement work is tentatively planned
for the spring of 2000 and will take approximately 60 days. On July 2, 1998, the
PSCW approved an agreement between the owners of Kewaunee which provides for
WPSC to assume the 17.8% Kewaunee ownership share currently held by MG&E prior
to work beginning on the replacement of steam generators. 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 the
steam generator replacement, 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.
On October 17, 1998, Kewaunee was shut down for a planned maintenance and
refueling outage. Inspection of the plant's two steam generators shows that the
repairs made in 1997 are holding up well and few additional repairs were needed.
In addition to the inspection and repairs of the steam generator, a major
overhaul was performed on the main turbine generator. The plant was back in
operation on November 27, 1998.
Prior to the July 2, 1998 PSCW decision, the PSCW had directed the owners
of Kewaunee to record depreciation and decommissioning cost levels based on an
expected plant end-of-life of 2002 versus a license end-of-life of 2013. This
was prompted by the uncertainty regarding the expected useful life of the plant
without steam generator replacement. The revised end-of life of 2002 resulted in
higher depreciation and decommissioning expense at WP&L beginning in May 1997,
in accordance with the PSCW rate order UR-110. This level of depreciation will
remain in effect until the steam generator replacement is completed at which
time the entire plant will be depreciated over 8.5 years using an accelerated
method. At December 31, 1998, the net carrying amount of WP&L's investment in
Kewaunee was approximately $44.9 million. WP&L's
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retail customers in Wisconsin are responsible for approximately 80% of WP&L's
share of Kewaunee costs (see Note 11 (h)7(a) of the "Notes to Consolidated Financial Statements" for additional
information).
In February 1999, IEC, NSP, WPSC and Wisconsin Electric Power Co.
announcedinformation on short-term debt, including information on the formation of a nuclear management company (NMC) to sustain
long-term safety, optimize reliability and improve the operational performance
of their nuclear generating plants. Combined, the four utilities operate seven
nuclear generating plants at five locations. IEC's participation in the NMC is
contingent on approval from the SEC under PUHCA. Each utility will be required
to obtain various other state or federal regulatory approvals prior to its
participation in the NMC. In addition, Nuclear Regulatory Commission (NRC)
approval is required if any utilities choose to transfer their operating licensemoney pool.
Debt Ratings--Access to the new company. As presently proposed, the utilities would continue to own
their plants, be entitled to energy generated at the plantslong-term and retain the
financial obligations for their safe operation, maintenanceshort-term capital and decommissioning.
Refer to the "Other Matters - Environmental" section for a discussioncredit
markets, and costs of various issues impacting IEC's future capital requirements.
Rates and Regulatory Matters
In November 1997, as part of its Merger approval, FERC accepted a
proposal by IESU, WP&L, and IPC, which provides for a four-year freeze on
wholesale electric prices beginning with the effective date of the Merger.
In association with the Merger, 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 purchasesexternal financing, 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.
In connection with its approval of the Merger, the PSCW accepted a WP&L
proposal to freeze rates for four years following the date of the Merger. A
re-opening of an investigation into WP&L's rates during the rate freeze period,
for both cost increases and decreases, may occur only for single events that are
not merger-related and have a revenue requirement impact of $4.5 million or
more. In addition, the electric fuel adjustment clause and purchased gas
adjustment (PGA) clause are not affected by the rate freezes.
In rate order UR-110, the PSCW approved new rates effective April 29,
1997. On average, WP&L's retail electric rates under the new rate order declined
by 2.4% and retail gas rates declined by 2.2%. In addition, the PSCW ordered
that it must approve the payment of dividends by WP&L to IEC that are in excess
of the level forecasted in the rate order ($58.3 million), if such dividends
would reduce WP&L's average common equity ratio below 52.00% of total
capitalization. The dividends paid by WP&L to IEC since the rate order was
issued have not exceeded the level forecasted in the rate order.
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 have increased due
to transmission constraints and electric
A-16
reliability concerns in the Midwest. On July 14, 1998, the PSCW granted a retail
electric rate increase of $14.8 million annually that was effective on July 16,
1998. In November 1998, WP&L requested another 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. The
additional revenues collected are subject to refund if WP&L's earnings exceed
its authorized return on equity.
The gas performance incentive includes a sharing mechanism, whereby 40%
of all gains and losses relative to current commodity prices as well as other
benchmarks are retained by WP&L rather than refunded to or recovered from
customers.
Rate order UR-110 also provided for the recovery of costs associated with
WP&L's energy efficiency programs, including the recovery of the cost of capital
associated with advances made to customers to install energy-efficient
equipment.
In May 1998, the PSCW approved the deferral of certain costs associated
with the Year 2000 issue and in November 1998, WP&L filed for rate recovery of
$16.1 million related to the Wisconsin retail portion of Year 2000 costs. A
pre-hearing conference was held in January 1999 and hearings are scheduled for
May 1999. Management anticipates receiving an order by the end of the second
quarter of 1999.
In January 1999, WP&L made a filing with the PSCW proposing to begin
deferring, on January 1, 1999, all costs associated with the United States
Environmental Protection Agency's (EPA) required NOx emission reductions. WP&L
has requested recovery of all the NOx reduction costs through a surcharge
mechanism. WP&L anticipates receiving a final order in this proceeding in late
1999 or early 2000. Refer to the "Other Matters - Environmental" section for a
further discussion of the NOx issue.
Refer to "Nuclear Facilities" for a discussion of several PSCW rulings
regarding Kewaunee.
Assuming capture of the merger-related synergies and no significant
legislative or regulatory changes negatively affecting its utility subsidiaries,
IEC does not expect the merger-related electric and gas price freezes to have a
material adverse effect on its financial position or results of operations.
OTHER MATTERS
Year 2000
Overview IEC utilizes software, embedded systems and related technologies
throughout its business that will be affected by the date change in the Year
2000. The Year 2000 problem exists because many computerized operating systems,
applications, databases and embedded systems use a standard two digit year field
instead of four digits to reference a given year. For example, "00" in the date
field would actually represent 1900. As a result, information technology and
embedded systems may not properly recognize the Year 2000 or process data
correctly, potentially causing data inaccuracies, operational malfunctions or
operational failures.
Following up on earlier work, IEC formally established a company-wide
project team in 1997 to assess, remediate and communicate its Year 2000 issues
as well as develop the necessary contingency plans. Expertise on the team has
been drawn from various areas, including, but not limited to, information
technology, engineering, communications, internal audits, legal, facilities,
supply chain, finance, and project management. A full-time project manager heads
up a team of approximately 50 employees who are dedicated to the team full-time
and another 475 employees are working on the project on a part-time basis. In
addition, there are approximately 135 individuals from external consulting firms
who are also providing various Year 2000-related
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services for the project team. Status reports are provided to senior management
monthly and at every meeting of IEC's Board of Directors. Auditing of the Year
2000 inventory, remediation efforts and contingency planning is being done by
the Internal Audits Department. IEC has also retained an outside third party to
assess and evaluate its Year 2000 project.
The various phases of and other matters relating to the Year 2000 project
are described below.
Assessment A company-wide inventory has been completed for information
technology (hardware, software, databases, network infrastructure operating
systems) and embedded systems (computers or microprocessors that run specialized
software). Inventoried devices and systems have been assessed and prioritized
into three categories based on the relative critical nature of their business
function: safety-related; critical-business-continuity-related; and
non-critical.
Remediation and Testing IEC's approach to remediation is to repair,
replace or retire the affected devices and systems. Remediation and testing of
safety-related and critical-business-continuity-related devices and systems is
underway in all business units. In some cases IEC's ability to meet its target
date for remediation is dependent upon the timely provision of necessary
upgrades and modifications by its software vendors. As of December 31, 1998, IEC
was expecting upgrades from 48 embedded system vendors and 14 information
technology vendors. Should these upgrades be delayed it would impact IEC's
ability to meet its target date. At this time, IEC does not expect that these
upgrades will be delayed. As part of the testing process, client/server
applications are being tested in an isolated test lab on Year 2000 compliant
hardware and software. Also, IEC intends to implement a process to protect the
integrity of the data once it is year 2000 compliant.
A. Embedded Systems - The project team is using testing standards and
procedures based on those developed in the national electric utility industry
effort led by the Electric Power Research Institute (EPRI). The team is also
using information and testing guidance received from IEC's vendors. IEC is
participating in EPRI's Year 2000 collaborative effort to share information
about test procedures, test results and vendor information. The project team is
also working with equipment vendors to ascertain Year 2000 compliance with
systems and devices. Testing methodology includes a power on/off test and
testing for 13 critical dates including 12/31/99, 1/1/2000 and 2/29/2000. All
testing for assessing Year 2000 compliance has been completed. The only testing
remaining is post-remediation testing. The goal is to complete
remediation/testing work for the embedded systems by March 31, 1999;
approximately 85% of this remediation/testing work has been completed as of the
end of 1998.
Experience to date suggests that Year 2000 problems in embedded systems
are occurring at a lower rate than originally anticipated. For IEC, 1-2% of
embedded systems have been identified as Year 2000 problematic. This rate is
generally consistent in both volume and by type of device with other similar
sized electric utilities participating in EPRI's Year 2000 Embedded System
Program.
B. Information Technology - IEC's information technology Year 2000
readiness project consists of both application and operating systems, and
infrastructure (PC, servers, printers, etc.) components. The inventory and
assessment of both the systems and the infrastructure has been completed. IEC's
goal is to complete the remediation and testing of the systems by March 31, 1999
and the infrastructure components by June 30, 1999. At the end of 1998,
approximately 65% of the systems and 40% of the infrastructure components have
been remediated and tested.
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IEC's customer information systems and financial systems make up the
majority of the remediation and testing effort remaining. The remediation and
testing of the customer information systems was 70% complete at the end of 1998
with an anticipated completion date of May 31, 1999. The financial systems have
been remediated with final roll-forward-testing scheduled to be completed by
mid-year 1999. Therefore, it is anticipated that IEC will have its information
technology remediation and testing efforts 90% complete by March 31, 1999 with
work completed and into production by mid-year 1999.
Costs to Address Year 2000 Compliance IEC's historical Year 2000 project
expenditures as well as CURRENT ESTIMATES for the remaining costs to be incurred
on the project are as follows (incremental costs, in millions):
Description Total IESU WP&L Other
----------- ----- ---- ---- -----
Costs incurred from 1/1/98 - 12/31/98 $8.7 $4.8 $3.2 $0.7
Current estimate of remaining modifications $32 $10 $ 14 $ 8
In addition, the company estimates it incurred $3 million in costs for
internal labor and associated overheads in 1998 and anticipates expenditures of
$8 million in 1999.
While work was done on the Year 2000 project prior to 1998, IEC did not
begin tracking the costs separately until 1998. In accordance with an order
received from the PSCW, WP&L began deferring its Year 2000 project costs, other
than internal labor and associated overheads, in May 1998 (approximately $2.7
million of the expenditures incurred at WP&L for the 12 months ended December
31, 1998 have been deferred.) (Refer to "Liquidity and Capital Resources - Rates
and Regulatory Matters" for a further discussion.) IEC expects to fund its Year
2000 expenditures through internal sources. Other than the costs being deferred
by WP&L pursuant to the PSCW order, IEC is expensing all the Year 2000 costs
noted above.
Communications / Third Party Assessment IEC is heavily dependent on other
utilities (including electric, gas, telecommunicationscreditworthiness.
The debt ratings of WP&L by Moody's and water utilities) and
its suppliers. An effort is underway to communicate with such parties to
increase their awareness of Year 2000 issues and monitor and assess, to the
extent possible, their Year 2000 readiness. IEC has sought written assurance
that third parties with significant relationships with IEC will be Year 2000
ready. As part of an extensive awareness effort, IEC is also communicating with
its utility customers, regulatory agencies, elected and appointed government
officials, and industry groups. IEC executives and account managers are also
having discussions with IEC's largest customers to review their initiatives for
Year 2000 readiness. IEC is also working closely with the North American
Electric Reliability Council (NERC) and the Natural Gas Council to assist their
efforts to make certain all system interconnections across regional areas are
Year 2000 compliant.
Risks and Contingency Planning The systems which pose the greatest Year
2000 risks for IEC if the Year 2000 project is not successful are the
telecommunications facilities and network systems as well as the information
technology systems. The potential problems related to these systems include
service interruptions, service order and billing delays and the resulting
customer relations and cash flow issues. IEC is currently unable to quantify the
financial impact of such contingencies if in fact theyStandard & Poor's were to occur.
Even though IEC intends to complete the bulk of its Year 2000 remediation
and testing activities by the end of March 1999 and has initiated Year 2000
communications with significant customers, key vendors, suppliers, and other
parties material to IEC's operation, failures or delay in achieving Year 2000
compliance could significantly disrupt IEC's business. Therefore, IEC has
initiated contingency planning to address alternatives in the event of a Year
2000 failure that occurs within IEC or where IEC is impacted by an external Year
2000 failure. The plan will address mission-critical processes, devices and
systems and will
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include training, testing and rehearsal of procedures, and the need for
installation of backup equipment as necessary. The goal is to have the
contingency plan completed by mid-year 1999. As a member of Mid-America
Interconnected Network, Inc. (MAIN), IEC is also working with the Operating
Committee Y2K Task Force which will expand existing emergency operating
strategies for member company control centers to ensure rapid responses to any
Year 2000-related electric system disturbances and will coordinate those
strategies with other reliability organizations. MAIN is one of the 10 regional
coordinating councils that make up NERC. IEC also belongs to the Mid-Continent
Area Power Pool (MAPP), another one of the 10 NERC councils, and will be
coordinating Year 2000 contingency planning with MAPP as well.
As part of its contingency planning process, NERC has scheduled two
nation-wide electric utility industry drills in April 1999 and September 1999.
These drills will focus on safe and reliable electrical system operations with
the partial loss of telecommunications. In addition to these NERC drills, IEC
will be conducting three additional internal drills. These will include a March
1999 table-top drill, a June 1999 functional drill and an August 1999 full-scale
development drill where key employees will test and critique IEC's contingency
plans.
Since early 1998, IEC has devoted a significant portion of its
information technology resources to the Year 2000 project given the importance
of such project to the continued operations of IEC. As a result, there have been
some delays in implementing other information technology projects. The delays
are simply a matter of timing and IEC does not currently believe that such
delays will have a material adverse impact on its results of operations or
financial position.
Summary Based on IEC's current schedule for completion of its Year 2000
tasks, IEC believes its plan is adequate to secure Year 2000 readiness of its
critical systems. Nevertheless, achieving Year 2000 readiness is subject to many
risks and uncertainties, as described above. If IEC, or third parties, fail to
achieve Year 2000 readiness with respect to critical systems and, as such, there
are systematic problems, there could be a material adverse effect on IEC's
results of operations and financial condition.
Labor Issues
The status of the collective bargaining agreements at each of the
utilities is as follows at
December 31, 1998:
IESU2001:
Moody's Standard & Poor's
------- -----------------
Secured long-term debt.. Aa2 A+
Unsecured long-term debt Aa3 A-
Ratings Triggers--The long-term debt of WP&L IPC
---- ---- ---
Numberis not subject to any repayment
requirements as a result of collective bargainingcredit rating downgrades or so-called "ratings
triggers." However, certain lease agreements 6 1 3
Percentage of workforce covered by agreements 61 92 81
Eight agreements are scheduled to expire in 1999 and represent
substantially all employees covered under collective bargaining agreements.
These employees represent approximately 50% of all IEC employees. IEC has not
experienced any significant work stoppage problems in the past. While
negotiations have commenced, IEC is currently unable to predict the outcome of
these negotiations.
Market Risk Sensitive Instruments and Positions
IEC, through its consolidated subsidiaries, has historically had only
limited involvement with derivative financial instruments and has not used them
for speculative purposes. They have been used to manage well-defined interest
rate and commodity price risks.
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WP&L and Alliant Energy Resources have historically entered into interest
rate swap agreementsdo contain such ratings
triggers. The threshold for these triggers varies among the applicable leases.
If the payments were accelerated under all the affected leases it would result
in accelerated payments of less than $30 million.
Sale of Accounts Receivable--Refer to reduce the impact of changes in interest rates on its
variable-rate debt. The total notional amount of interest rate swaps outstanding
at WP&L and Alliant Energy Resources at December 31, 1998, was $30 million and
$200 million, respectively. See Note 10(a)3 of the "Notes to Consolidated
Financial Statements" for additional information.
As discussedinformation on WP&L's sale of accounts receivable
program.
Financial Commitments--WP&L has various synthetic leases related to the
financing of certain utility railcars and a utility radio dispatch system.
Certain financings involve the use of unconsolidated structured finance or
special purpose entities. WP&L believes these financings are not material to
its liquidity or capital resources. WP&L also uses a consolidated special
purpose entity for its utility sale of accounts receivable program. WP&L does
not use special purpose entities for any other purpose. These financings are
all fully reported in Note 10(a)Notes 2 and 3 of the "Notes to Consolidated Financial
Statements,Statements."
Credit Risk--Credit risk is inherent in WP&L's operations and relates to the
risk of loss resulting from timenon-performance of contractual obligations by a
counterparty. WP&L maintains credit risk oversight and sets limits and policies
with regards to its counterparties, which management believes minimizes its
overall credit risk exposure. However, there is no assurance that such policies
will protect WP&L against all losses from non-performance by counterparties.
Although WP&L had modest contracts with Enron, their bankruptcy has had an
insignificant impact on WP&L's day-to-day operations. WP&L has replaced certain
Enron contracts by entering into contracts with credit-worthy counterparties
where deemed necessary.
Environmental--WP&L's pollution abatement programs are subject to continuing
review and are periodically revised due to changes in environmental
regulations, construction plans and escalation of construction costs. While
management cannot precisely forecast the effect of future environmental
regulations on operations, it has taken steps to anticipate the future while
also meeting the requirements of current environmental regulations.
Wisconsin facilities are subject to state and federal requirements of the CAA,
including meeting ambient air quality standards. Based on modeling conducted
under the CAA by the Wisconsin DNR, an eastern portion of Wisconsin along Lake
Michigan, in which WP&L's Edgewater Generating Station is located, has been
designated as non-attainment with respect to the one-hour ozone air quality
standard. The Wisconsin DNR has developed a rate-of-progress (ROP) rule to
bring the area into attainment with the standard. The rule requires Edgewater
Generating Station to meet annual NOx emission reductions beginning in May 2003
and ending in May 2007. Thereafter, the May 2007 ozone emission standard will
apply to the facility. The Wisconsin DNR will determine the success of the ROP
rule through modeling. To date, the modeling data still indicates the area is
non-attainment with the one-hour ozone standard although recent data indicates
the air quality is improving. Based on existing technology, WP&L estimates the
capital investments required to meet the ROP rule through 2007 will be
approximately $15 million.
WP&L is also pursuing voluntary NOx reductions and along with Alliant Energy
has developed a unique and cost effective technology to reduce NOx emissions
from power generating facilities. The U.S. Department of Energy has awarded
Alliant Energy a $2.5 million federal grant for its innovation for leading edge
clean coal technologies.
A-9
Revisions to the Wisconsin Administrative Code have been proposed that could
have a significant impact on WP&L's operation of its Wisconsin generating
facilities. The proposed revisions would affect the amount of heat that WP&L's
generating stations can discharge into Wisconsin waters. WP&L cannot presently
predict the final outcome of the revisions but believes that, as the revisions
are currently proposed, capital investments and/or modifications required to
meet the proposed discharge limits could be significant.
In 2000, the EPA made a regulatory determination in favor of controlling
Hazardous Air Pollutant Emissions (HAPs) (including mercury) from electric
utilities, which was challenged by utility industry groups in two lawsuits
filed in February 2001. The court has since ruled in favor of the EPA in both
cases. The EPA is currently developing regulations that are expected to be in
place by 2004, with a compliance deadline of 2007. Although the level of
control of mercury and other HAPs from generating plants is uncertain at this
time, WP&L believes that capital investments and/or modifications that may be
required to control these emissions could be significant.
Also in 2000, the WNRB voted to allow the Wisconsin DNR to proceed with
rulemaking to reduce mercury emissions. WP&L and the other Wisconsin Utility
Association members have recommended to the WNRB a workable state-level mercury
emissions control program that protects reliability and does not disadvantage
Wisconsin when federal mercury rules are later developed. The Wisconsin DNR
issued the proposed rule in May 2001, which is expected to be modified in late
2002. WP&L cannot presently predict the final outcome of the regulation, but
believes that required capital investments and/or modifications to achieve
compliance with the regulation could be significant.
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 responded to both requests and has not yet
received a response from the EPA. In some cases involving similar EPA requests
from other electric generating facilities, penalties and capital expenditures
have resulted. The U.S. Department of Justice is currently conducting a review
of this enforcement initiative to assess whether it is consistent with the CAA.
In addition, on a broader basis, the EPA is assessing the impact of investments
in utility generation capacity, energy efficiency and environmental protection,
as well as assessing proposed multi-pollutant legislation. Results of these
reviews are expected in mid-2002. WP&L cannot presently predict what impact, if
any, these issues may have on its financial condition or results of operations.
However, any required remedial action resulting from these matters could be
significant.
Refer to Note 10(d) of the "Notes to Consolidated Financial Statements" for
further discussion of environmental matters.
Construction and Acquisition Expenditures--Capital expenditures, investments
and financing plans are continually reviewed, approved and updated as part of
WP&L's ongoing strategic planning and annual budgeting processes. In addition,
material capital expenditures and investments are subject to a rigorous
cross-functional review prior to approval. Changes in WP&L's anticipated
construction and acquisition expenditures may result from a number of reasons
including economic conditions, regulatory requirements, ability to obtain
adequate and timely rate relief, the level of WP&L's profitability, variations
in sales, changing market conditions and new opportunities. WP&L anticipates
financing its construction expenditures, including new electric generation
facilities, during 2002-2006 through internally generated funds supplemented,
when necessary, by outside financing. WP&L believes it has a strong financial
position that provides it the ability to issue external financings at
competitive rates.
WP&L currently anticipates 2002 utility construction and acquisition
expenditures will be approximately $158 million. During 2003-2006, WP&L
currently anticipates to spend approximately $674 million for utility
construction and acquisition expenditures.
A-10
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 exposed to risk resulting from changes in interest
rates as a result of its issuance of variable-rate debt and its utility
accounts receivable sale program. WP&L manages its interest rate risk by
limiting its variable interest rate exposure and by continuously monitoring the
effects of market changes on 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 and financial condition. Assuming no
change in WP&L's consolidated financial structure, if variable interest rates
were to average 100 basis points higher (lower) in 2002 than in 2001, interest
expense and pre-tax earnings would increase (decrease) by approximately $1.4
million. This amount was determined by considering the impact of a hypothetical
100 basis points increase (decrease) in interest rates on WP&L's variable-rate
debt held and the amount outstanding under its accounts receivable sale program
at December 31, 2001.
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 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 further discussion.
WP&L periodically utilizes gas commodity swap arrangementsderivative instruments to mitigatereduce 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. While it is not WP&L's intent to terminate the contracts
currentlyThe gas commodity swaps in place approximate the impact of a termination of allforecasted
storage withdrawal plan during this period. Therefore, market price
fluctuations that result in an increase or decrease in the agreements
outstanding at December 31, 1998, would have been an estimated gain of $0.8
million.
WP&L has entered into a weather insurance agreement which terminates
March 31, 1999, for the purpose of hedging a portionvalue of the
risk associated with
the changes in weather from normal conditions. Under this agreement, a payment
will be made or received if the heating degree days from November 1, 1998 to
March 31, 1999, fall outside certain pre-determined heating degree levels. The
payment is limited to a maximum of $5 million. At December 31, 1998, the fair
value of this agreement if it were terminated would have resulted in a payment
to WP&L of an estimated $1.8 million.
While IEC is exposed to credit risk when it enters into a hedging
transaction, it has established procedures and policies designed to mitigate
such risks due to a counterparty default. IEC utilizes a listing of approved
counterparties and monitors the creditworthiness on an ongoing basis.
Accounting Pronouncements
In February 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 addresses,
among other things, expensing versus capitalization of costs, accounting for the
costs incurred in the upgrading of the software and amortizing the capitalized
cost of software. This statement is effective for fiscal years beginning after
December 15, 1998. IEC adopted the requirements of this statement in 1999 and
such adoption did not have any significant impact on its financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." This SOP provides guidance on the financial reporting of
start-up costs and organization costs. Costs of start-up activities and
organization costsphysical commodity are required to be expensed as incurred. The statement is
effective for periods beginning after December 15, 1998. IEC adopted the
requirements of this statement in 1999 and such adoption did not have any
significant impact on its financial statements.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded on the balance sheet as either an asset or
liability measured at its fair value. The Statement requires thatsubstantially offset by 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 onof the hedged
itemgas
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 income statement, and requires that a company must formally
document, designate, and assess the effectivenessprice of transactions that receive
hedge accounting.
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SFAS 133 is effective for fiscal years beginning after June 15, 1999.
SFAS 133 must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued, acquired,
or substantively modified after December 31, 1997. IEC has not yet quantified
the impacts of SFAS 133 on the financial statements and has not determined the
timing of or method of adoption of SFAS 133. However, the Statement could
increase volatility in earnings and other comprehensive income.
In December 1998, the Emerging Issues Task Force reached consensus on
Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities" (EITF Issue 98-10). EITF Issue 98-10 is effective for
fiscal years beginning after December 15, 1998 and requires energy trading
contracts to be recorded at fair value on the balance sheet, with the changes in
fair value included in earnings. IEC anticipates that the adoption of EITF Issue
98-10 willgas would not have a significant impact on IEC's financial statements based on
its current operations.
Accounting for Obligations Associated with the
Retirement of Long-Lived Assets
The staffcombined fair market value of the SEC has questioned certain of the current accounting
practices of the electric utility industry, including IESUgas in storage and WPrelated swap arrangements
in place at December 31, 2001.
Equity Price Risk--WP&L regarding
the recognition, measurementmaintains a trust fund to fund its anticipated nuclear
decommissioning costs. At December 31, 2001 and classification of decommissioning costs for
nuclear generating stations2000, this fund was invested
primarily in financial statements of electric utilities. In
response to these questions, the FASB is reviewing the accounting for closuredomestic equity and removal costs, including decommissioning of nuclear power plants. If current
electric utility industry accounting practices for nuclear power plant
decommissioning are changed, the annual provision for decommissioning could
increase relative to 1998, and the estimated cost for decommissioning could be
recorded as a liability (rather than as accumulated depreciation), with
recognition of an increasedebt instruments. Fluctuations in the cost of the related nuclear power plant.
Assuming no significant change in regulatory treatment, IESU andequity
prices or interest rates will not affect WP&L do not
believe that such changes, if required, would have an adverse effect on their
financial position or&L's consolidated results of
operations due to their ability to recoveras 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 costs through rates.
Inflation
IEC, IESU and WP&L do not expect the effects of inflation at current
levels to have a significant effect on their financial position or results of
operations.
Environmental
The pollution abatement programs of IESU, WP&L, IPC and Alliant Energy
Resources are subject to continuing review and are revised from time to time due
to changes in environmental regulations, changes in construction plans and
escalation of construction costs. While management cannot precisely forecast the
effect of future environmental regulations on IEC's operations, it has taken
steps to anticipate the future while also meeting the requirements of current
environmental regulations.
The Clean Air Act Amendments of 1990 (Act) require emission reductions of
sulfur dioxide (SO2), NOx and other air pollutants to achieve reductions of
atmospheric chemicals believed to cause acid rain. IESU, WP&L and IPC have met
the provisions of Phase I of the Act and are in the process of meeting the
requirements of Phase II of the Act (effective in the year 2000). The Act also
governs SO2 allowances, which are defined as an authorization for an owner to
emit one ton of SO2 into the atmosphere. The companies are reviewing their
options to ensure they will have sufficient allowances to offset their emissions
in the future. The companies believe that the potential costs of complying with
these provisions of Title IV of the Act will not have a material adverse impact
on their financial position or results of operations.
A-22
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 polychlorinated biphenyl
(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. IEC cannot predict
the long-term consequences of these rules on its results of operations or
financial condition.
In October 1998, the EPA issued a final rule requiring 22 states,
including Wisconsin, to modify their State Implementation Plans (SIPs) to
address the ozone transport issue. The implementation of the rule will likely
require WP&L to reduce its NOx emissions at all of its plants to .15 lbs/mmbtu
by 2003. WP&L is currently evaluating various options to meet the emission
levels. These options include fuel switching, operational modifications and
capital investments. Based on existing technology, the preliminary estimates
indicate that capital investments will be approximately $150 million.trust fund. 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 rate recovery of
these costs.
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.
A global treaty has been negotiated that could require reductions of
greenhouse gas emissions from utility plants. In November 1998, the United
States signed the treaty and agreed with the other countries to resolve all
remaining issues by the end of 2000. At this time, management is unable to
predict whether the United States Congress will ratify the treaty. Given the
uncertainty of the treaty ratification and the ultimate terms of the final
regulations, management cannot currently estimate the impact the implementation
of the treaty would have on IEC's operations.
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates
that each state must take responsibility for the storage of low-level
radioactive waste produced within its borders. The States of Iowa and Wisconsin
are members of the six-state Midwest Interstate Low-Level Radioactive Waste
Compact (Compact) which is responsible for development of any new disposal
capability within the Compact member states. In June 1997, the Compact
commissioners voted to discontinue work on a proposed waste disposal facility in
the State of Ohio because the expected cost of such a facility was comparably
higher than other options currently available. Dwindling waste volumes and
continued access to existing disposal facilities were also reasons cited for the
decision. A disposal facility located near Barnwell, South Carolina continues to
accept the low-level waste and IESU and WP&L currently ship the waste each
produces to such site, thereby minimizing the amount of low-level waste stored
on-site. In addition, given technological advances, waste compaction and the
reduction in the amount of waste generated, DAEC and Kewaunee each have on-site
storage capability sufficient to store low-level waste expected to be generated
over at least the next ten years, with continuing access to the Barnwell
disposal facility extending that on-site storage capability indefinitely.
See Notes 11(f) and 11(g)Note 9(c) of the "Notes to Consolidated
Financial Statements" for a further discussion of IEC's environmental issues.
A-23
Power Supply
The power supply concerns of 1997 have raised awarenessdiscussion.
Accounting Pronouncements--In July 2001, the FASB issued SFAS 141, "Business
Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141
requires that all business combinations be accounted for using the purchase
method. Use of the electric
system reliability challenges facingpooling-of-interests method is no longer allowed. The
provisions of SFAS 141 were effective for all business combinations initiated
after June 30, 2001. SFAS 142 addresses the method of accounting for acquired
goodwill and other intangible assets upon, and subsequent to, the date of the
acquisition. Among other provisions, SFAS 142 eliminates the amortization of
goodwill and replaces it with periodic assessments of the realization of the
recorded goodwill and other intangible assets. WP&L did not incur goodwill or
other intangible assets impairment charges upon its adoption of SFAS 142.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. WP&L must adopt SFAS 143 no later than
January 1, 2003. With regards to the decommissioning of Kewaunee, SFAS 143 will
require WP&L to record at fair value the decommissioning liability and a
corresponding asset, which will then be depreciated over the remaining expected
service life of the plant's generating unit. Currently,
A-11
decommissioning amounts collected in rates and the investment earnings are
reported in accumulated depreciation. WP&L has not yet determined what other
assets may have associated retirement costs as defined by SFAS 143. WP&L does
not anticipate SFAS 143 will have a material impact on its financial condition
or results of operations.
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. WP&L adopted
SFAS 144 on January 1, 2002. WP&L expects that the implementation of SFAS 144
will not have a material impact on its financial condition or results of
operations.
Critical Accounting Policies--WP&L believes the policies identified below are
critical to WP&L's business and the understanding of its results of operations.
The impact and any associated risks related to these policies on WP&L's
business are discussed throughout MD&A where applicable. Refer to Note 1 of the
"Notes to Consolidated Financial Statements" for detailed discussion on the
application of these and other accounting policies. The preparation of the
consolidated 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. WP&L evaluates its estimates on an ongoing basis
and bases them on a combination of historical experience and various other
assumptions that are believed to be reasonable under the circumstances. Actual
results could differ from those estimates. WP&L's critical accounting policies
that affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements are as follows:
Regulatory Assets and Liabilities--SFAS 71, "Accounting for the Effects of
Certain Types of Regulation," requires rate-regulated public utilities to
record certain costs and credits allowed in the rate making process in
different periods than for non-regulated entities. These costs and credits 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. WP&L recognizes regulatory assets and liabilities in
accordance with rulings of its federal and state regulators and future
regulatory rulings may impact the carrying value and accounting treatment of
WP&L's regulatory assets and liabilities. WP&L evaluates and revises the
accounting for its regulatory assets and liabilities on an ongoing basis, and
as new regulatory orders are issued, to properly account for its activities
under SFAS 71.
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. WP&L does
not use such instruments for speculative purposes. To account for these
derivative instruments in accordance with the applicable accounting rules, WP&L
must determine the fair value of its derivatives. If an established, quoted
market exists for the underlying commodity of the derivative instrument, WP&L
uses the quoted market price to value the derivative instrument. For other
derivatives, WP&L estimates the value based upon other quoted prices or
acceptable valuation methods. WP&L also reviews the nature of its contracts for
the purchase and sale of non-financial assets to assess whether the contracts
meet the definition of a derivative and the requirements to follow hedge
accounting as allowed by the applicable accounting rules. The determination of
derivative status and valuations involves considerable judgment. WP&L reviews
the accounting for and subsequent valuation of its derivative instruments on an
ongoing basis.
Unbilled Revenues--WP&L accrues revenues for utility services rendered but
unbilled at month-end. The monthly accrual process includes the development of
various significant estimates, including the amount of natural gas and
electricity used by each customer class and the associated revenues generated.
Significant fluctuations in energy demand for the unbilled period or changes in
the composition of WP&L's customer classes could impact the accuracy of the
unbilled revenues estimate. WP&L updates the calculation each month and
performs a detailed review of the estimate each quarter.
Valuation of Assets--WP&L's balance sheet includes investments in several
available-for-sale securities accounted for in accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities." WP&L
monitors any unrealized losses from such investments to determine if the loss
is considered to be a temporary or permanent decline. The determination as to
whether the investment is temporarily versus permanently impaired requires
considerable judgment. When the investment is considered permanently impaired,
the previously recorded unrealized loss would be recorded directly to the
income statement as a realized loss.
A-12
Environmental Contingencies--WP&L has recorded various environmental
liabilities as noted in Note 10(d) of the "Notes to Consolidated Financial
Statements." Such environmental liabilities are estimated based upon historical
experience and periodic analyses of its various environmental remediation
sites. Such analyses estimate the environmental liability 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, additional facts become known, or
additional sites are identified and the liabilities are updated once such
information becomes available. For WP&L, changes in cost estimates may be
offset through rate recovery.
Other Future Considerations--In addition to items discussed earlier in MD&A,
the following items could impact WP&L's future financial condition or results
of operations:
WP&L's pension and other postretirement benefit expenses for 2002 are expected
to be approximately $9 million higher than in 2001, primarily due to
unfavorable asset returns, a reduction in the discount rate used to value plan
benefits and expected increases in retiree medical costs. These cost increases
will be addressed in rate filings in Wisconsin and the Midwest region.with FERC in 2002.
WP&L has provided energy conservation services to its customers for many years
through a program called Shared Savings. WP&L earns incentives that are
recoverable in rates for assisting customers that make building or equipment
improvements to reduce energy usage. As a result of legislative changes, this
program may be reduced or eliminated in Wisconsin enacted electric reliability legislation in April 1998
(Wisconsin Reliability Act). The legislation has the goal of assuring reliable
electric energy for Wisconsin. The new law, effective May 12, 1998, requires
Wisconsin utilitiesJanuary 1, 2003.
WP&L is aggressively pursuing both regulatory and legislative changes to join a regional independent system operator for
transmission by the year 2000, allows the construction of merchant power plants
in the state and streamlines the regulatory approval process for building new
generation and transmission facilities. As a requirementretain
some or all of the legislation,net income from this program in Wisconsin. If such efforts
are unsuccessful, WP&L would experience a reduction in net income in 2003
compared to income realized in 2001. WP&L is also pursuing the PSCW completed a regional transmission constraint study. The PSCW is authorizeddevelopment of
additional demand-side management related programs within its service territory
to order construction of new transmission facilities, based on the findings of
its constraint study, through December 31, 2004.
On September 24, 1997, the PSCW ordered WP&L and two other Wisconsin
utilities to arrange for additional electric capacity to help maintain reliable
service for their customers. In July 1998, IEC and Polsky Energy Corp. (Polsky)
announced an agreement whereby Polsky would build, own and operate a power plant
in southeastern Wisconsin capable of producing up to 450 megawatts (MW) of
electricity (reduced from earlier estimates of 525 MW due to NOx emissions
limitations imposed by the Wisconsin Department of Natural Resources (WDNR)).
Under the agreement, IEC will purchase the capacity to meet the electric needs
of its utility customers, as outlined by the Wisconsin Reliability Act. It is
expected thatreplace or increase this new power plant will be operational in June 2000. The PSCW
issued an order dated December 18, 1998 approving the project.
Utility officials noted that it will take time for new transmission and
power plant projects to be approved and built. While utility officials fully
expect to meet customer demands in 1999, problems still could arise if there are
unexpected power plant outages, transmission system outages or extended periods
of extremely hot weather.
A-24net income.
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, 19982001 and 1997,2000, 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, 1998.2001. 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, 19982001 and 1997,2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998,2001, in conformity with accounting principles generally
accepted accounting
principles.in the United States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 29, 1999
A-2525, 2002
A-14
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
-----------------------------------------------------------
1998 1997 1996
---- ---- ----
(in thousands)
Operating revenues:
Electric utility $ 614,704 $ 634,143 $ 589,482
Gas utility 111,737 155,883 165,627
Water 5,007 4,691 4,166
----------------- ----------------- -----------------
731,448 794,717 759,275
----------------- ----------------- -----------------
Operating expenses:
Electric production fuels 120,485 116,812 114,470
Purchased power 113,936 125,438 81,108
Cost of gas sold 61,409 99,267 104,830
Other operation 143,666 131,398 140,339
Maintenance 49,912 48,058 46,492
Depreciation and amortization 119,221 104,297 84,942
Taxes other than income taxes 30,169 30,338 29,206
----------------- ----------------- -----------------
638,798 655,608 601,387
----------------- ----------------- -----------------
Operating income 92,650 139,109 157,888
----------------- ----------------- -----------------
Interest expense and other:
Interest expense 36,584 32,607 31,472
Allowance for funds used during construction (3,049) (2,775) (3,208)
Miscellaneous, net (1,129) (3,796) (6,669)
----------------- ----------------- -----------------
32,406 26,036 21,595
----------------- ----------------- -----------------
Income before income taxes 60,244 113,073 136,293
----------------- ----------------- -----------------
Income taxes 24,670 41,839 53,808
----------------- ----------------- -----------------
Net income 35,574 71,234 82,485
----------------- ----------------- -----------------
Preferred dividend requirements 3,310 3,310 3,310
----------------- ----------------- -----------------
Earnings available for common stock $ 32,264 $ 67,924 $ 79,175
================= ================= =================
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended December 31,
-----------------------------------------------------------
1998 1997 1996
---- ---- --------------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Balance at beginningOperating revenues:
Electric utility............................................................ $753,450 $692,191 $626,607
Gas utility................................................................. 206,863 165,152 120,770
Water....................................................................... 5,040 5,038 5,128
-------- -------- --------
965,353 862,381 752,505
-------- -------- --------
Operating expenses:
Electric production fuels................................................... 120,722 113,208 110,521
Purchased power............................................................. 217,306 146,939 107,598
Cost of yeargas sold............................................................ 153,823 107,131 64,073
Other operation and maintenance............................................. 186,477 188,967 172,131
Depreciation and amortization............................................... 129,098 139,911 113,037
Taxes other than income taxes............................................... 32,504 29,163 30,240
-------- -------- --------
839,930 725,319 597,600
-------- -------- --------
Operating income............................................................... 125,423 137,062 154,905
-------- -------- --------
Interest expense and other:
Interest expense............................................................ 43,483 44,644 40,992
Equity income from unconsolidated investments............................... (15,535) (552) (641)
Allowance for funds used during construction................................ (4,753) (5,365) (4,511)
Miscellaneous, net.......................................................... (12,500) (15,984) 2,477
-------- -------- --------
10,695 22,743 38,317
-------- -------- --------
Income before income taxes..................................................... 114,728 114,319 116,588
-------- -------- --------
Income taxes................................................................... 41,238 42,918 45,758
-------- -------- --------
Income before cumulative effect of a change in accounting principle, net of tax 73,490 71,401 70,830
-------- -------- --------
Cumulative effect of a change in accounting principle, net of tax.............. -- 35 --
-------- -------- --------
Net income..................................................................... 73,490 71,436 70,830
-------- -------- --------
Preferred dividend requirements................................................ 3,310 3,310 3,310
-------- -------- --------
Earnings available for common stock............................................ $ 320,38670,180 $ 310,80568,126 $ 297,717
Net income 35,574 71,234 82,485
Cash dividends declared on common stock (58,341) (58,343) (66,087)
Cash dividends declared on preferred stock (3,310) (3,310) (3,310)
----------------- ----------------- -----------------
Balance at end of year $ 294,309 $ 320,386 $ 310,805
================= ================= =================67,520
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-26A-15
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------------------
1998 1997
---- ----------------------------
ASSETS 2001 2000
------ ----------- -----------
(in thousands)
ASSETS
Property, plant and equipment:
Utility -
PlantElectric plant in service -
Electricservice............... $ 1,839,5451,779,593 $ 1,790,6412,007,974
Gas 244,518 237,856plant in service.................... 280,881 273,457
Water 26,567 24,864
Common 219,268 195,815
----------------- ------------------
2,329,898 2,249,176
Less -plant in service.................. 32,497 29,869
Other plant in service.................. 243,121 223,921
Accumulated depreciation 1,168,830 1,065,726
----------------- ------------------
1,161,068 1,183,450depreciation................ (1,328,111) (1,380,723)
----------- -----------
Net plant........................... 1,007,981 1,154,498
Construction work in progress 56,994 42,312progress........... 37,828 59,133
Nuclear fuel, net of amortization 18,671 19,046
----------------- ------------------
1,236,733 1,244,808amortization....... 17,404 16,099
Other, property, plant and equipment, net of accumulated
depreciation and amortization of $44 for both years 630 684
----------------- ------------------
1,237,363 1,245,492
----------------- ------------------net.............................. 681 369
----------- -----------
1,063,894 1,230,099
----------- -----------
Current assets:
Cash and temporary cash investments 1,811 2,492investments..... 4,389 2,584
Accounts receivable:
Customer 13,372 20,928Customer.............................. 33,190 51,769
Associated companies 3,019 5,017
Other 8,298 11,589companies.................. 3,676 2,211
Other................................. 16,571 13,865
Production fuel, at average cost 20,105 18,857cost........ 17,314 17,811
Materials and supplies, at average cost 20,025 19,274cost. 20,669 21,639
Gas stored underground, at average cost 10,738 12,504cost. 22,187 13,876
Prepaid gross receipts tax 22,222 22,153
Other 6,987 4,824
----------------- ------------------
106,577 117,638
----------------- ------------------tax.............. 25,673 23,088
Other................................... 13,018 6,397
----------- -----------
156,687 153,240
----------- -----------
Investments:
Nuclear decommissioning trust funds 134,112 112,356
Other 15,960 14,877
----------------- ------------------
150,072 127,233
----------------- ------------------funds..... 215,794 195,768
Investment in ATC and other............. 127,941 14,362
----------- -----------
343,735 210,130
----------- -----------
Other assets:
Regulatory assets 133,501 120,826assets....................... 109,864 88,721
Deferred charges and other 57,637 53,415
----------------- ------------------
191,138 174,241
----------------- ------------------other.............. 205,702 174,834
----------- -----------
315,566 263,555
----------- -----------
Total assets............................... $ 1,685,1501,879,882 $ 1,664,604
================= ==================1,857,024
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-27A-16
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)(Continued)
December 31,
----------------------------------------
1998 1997
---- --------------------------
CAPITALIZATION AND LIABILITIES 2001 2000
----------------------------- ---------- ----------
(in thousands)
CAPITALIZATION AND LIABILITIES
Capitalization (See Consolidated Statements of Capitalization):
Common stockstock................................................ $ 66,183 $ 66,183
Additional paid-in capital 199,438 199,170capital.................................. 264,603 229,516
Retained earnings 294,309 320,386
------------------ -----------------earnings........................................... 381,333 371,602
Accumulated other comprehensive loss........................ (10,167) (4,708)
---------- ----------
Total common equity 559,930 585,739
------------------ -----------------equity..................................... 701,952 662,593
---------- ----------
Cumulative preferred stock, not mandatorily redeemablestock.................................. 59,963 59,963
Long-term debt (excluding current portion) 414,579 354,540
------------------ -----------------
1,034,472 1,000,242
------------------ -----------------.................. 468,083 514,209
---------- ----------
1,229,998 1,236,765
---------- ----------
Current liabilities:
Current maturities - 8,899
Variable rate demand bonds 56,975 56,975
Commercial paper - 81,000
Notes payable 50,000 -bonds.................................. 55,100 55,100
Notes payable to associated companies 26,799 -companies....................... 90,816 29,244
Accounts payable 84,754 85,617payable............................................ 98,173 120,155
Accounts payable to associated companies 20,315 -
Accrued payroll and vacations 5,276 12,221
Accrued interest 6,863 6,317
Other 14,600 25,162
------------------ -----------------
265,582 276,191
------------------ -----------------companies.................... 36,678 32,442
Other....................................................... 35,219 36,266
---------- ----------
315,986 273,207
---------- ----------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 245,489 251,709taxes........................... 206,245 222,819
Accumulated deferred investment tax credits 33,170 35,039credits................. 24,907 29,472
Customer advances 34,367 34,240
Environmental liabilities 11,683 13,738
Other 60,387 53,445
------------------ -----------------
385,096 388,171
------------------ -----------------advances........................................... 34,178 34,815
Pension and other benefit obligations....................... 18,175 --
Other....................................................... 50,393 59,946
---------- ----------
333,898 347,052
---------- ----------
Commitments and contingencies (Note 11)
$1,685,150 $ 1,664,604
================== =================10)
Total capitalization and liabilities........................... $1,879,882 $1,857,024
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-28A-17
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996
---- ---- -----------------------------------
2001 2000 1999
--------- --------- ---------
(in thousands)
Cash flows from operating activities:
Net incomeincome...................................................................... $ 35,57473,490 $ 71,23471,436 $ 82,48570,830
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization 119,221 104,297 84,942amortization................................................. 129,098 139,911 113,037
Amortization of nuclear fuel 5,356 3,534 4,845fuel.................................................. 4,554 5,066 6,094
Deferred taxestax benefits and investment tax credits (7,529) 3,065 6,306
(Gain) loss on disposition of other property and equipment 38 710 (5,676)
Other (2,127) (2,033) (2,270)credits.............................. (6,791) (12,077) (12,618)
Equity income from unconsolidated investments, net............................ (15,535) (552) (641)
Distributions from equity method investments.................................. 8,450 992 248
Other......................................................................... (10,539) (15,451) 3,073
Other changes in assets and liabilities:
Accounts receivable 12,845 (3,314) (250)
Production fuel (1,248) (3,016) (1,216)
Materials and supplies (751) 641 696
Gas stored underground 1,766 (2,512) (3,673)
Prepaid gross receipts tax (69) (2,764) (1,087)receivable........................................................... 14,408 (29,733) (13,423)
Accounts payable 19,452 (7,102) 10,291payable.............................................................. (20,891) 39,046 8,482
Benefit obligations and other (5,207) (12,809) 16,834
--------------- ---------------- ----------------other................................................. (40,700) (21,797) (11,854)
--------- --------- ---------
Net cash flows from operating activities 177,321 149,931 192,227
--------------- ---------------- ----------------activities.................................. 135,544 176,841 163,228
--------- --------- ---------
Cash flows used forfrom (used for) financing activities:
Common stock dividends (58,341) (58,343) (66,087)dividends........................................................ (60,449) -- (58,353)
Preferred stock dividendsdividends..................................................... (3,310) (3,310) (3,310)
Proceeds from issuance of long-term debt 60,000 105,000 -debt...................................... -- 100,000 --
Reductions in long-term debt (8,899) (55,000) (5,000)debt.................................................. (47,000) (1,875) --
Net change in short-term borrowings (4,201) 11,500 (3,000)
Other (1,966) (2,601) -
--------------- ---------------- ----------------borrowings........................................... 61,572 (96,505) 48,950
Capital contribution from parent.............................................. 35,000 -- 30,000
Other......................................................................... (2,720) (1,242) --
--------- --------- ---------
Net cash flows used forfrom (used for) financing activities (16,717) (2,754) (77,397)
--------------- ---------------- ----------------activities....................... (16,907) (2,932) 17,287
--------- --------- ---------
Cash flows used for investing activities:
Construction expenditures (117,143) (119,232) (123,942)Utility construction expenditures............................................. (147,032) (131,640) (131,915)
Nuclear decommissioning trust funds (14,297) (11,427) (9,986)
Additions to nuclear fuel (4,981) (3,212) (5,344)funds........................................... (16,092) (16,092) (16,092)
Proceeds from saleformation of ATC and other property and equipment 53 4 36,613
Shared savings expenditures (24,355) (17,610) (5,196)
Other (562) 2,625 (7,479)
--------------- ---------------- ----------------asset dispositions................... 75,600 961 237
Other......................................................................... (29,308) (28,109) (31,001)
--------- --------- ---------
Net cash flows used for investing activities (161,285) (148,852) (115,334)
--------------- ---------------- ----------------activities.............................. (116,832) (174,880) (178,771)
--------- --------- ---------
Net decreaseincrease (decrease) in cash and temporary cash investments (681) (1,675) (504)
--------------- ---------------- ----------------investments................... 1,805 (971) 1,744
--------- --------- ---------
Cash and temporary cash investments at beginning of period 2,492 4,167 4,671
--------------- ---------------- ----------------period....................... 2,584 3,555 1,811
--------- --------- ---------
Cash and temporary cash investments at end of periodperiod............................. $ 1,8114,389 $ 2,4922,584 $ 4,167
=============== ================ ================3,555
========= ========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest..............................................
Interest.................................................................. $ 33,36843,237 $ 32,95540,455 $ 29,092
=============== ================ ================38,330
========= ========= =========
Income taxestaxes.............................................................. $ 31,95154,161 $ 37,40754,676 $ 48,622
=============== ================ ================47,164
========= ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-29A-18
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
-----------------------------------------
1998 1997
---- --------------------------
2001 2000
---------- ----------
(in thousands,
except share amounts)
Common equity:
Common stock - $5.00equity:
Common stock--$5 par value - authorizedvalue--authorized 18,000,000 shares;13,236,601 shares
outstandingoutstanding........................................................................... $ 66,183 $ 66,183
Additional paid-in capital 199,438 199,170capital.............................................................. 264,603 229,516
Retained earnings 294,309 320,386
------------------- -------------------
559,930 585,739
------------------- -------------------earnings....................................................................... 381,333 371,602
Accumulated other comprehensive loss.................................................... (10,167) (4,708)
---------- ----------
701,952 662,593
---------- ----------
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 outstandingoutstanding.......................... 9,997 9,997
$100 stated value - 4.80%value--4.80% series, 74,912 shares outstandingoutstanding.......................... 7,491 7,491
$100 stated value - 4.96%value--4.96% series, 64,979 shares outstandingoutstanding.......................... 6,498 6,498
$100 stated value - 4.40%value--4.40% series, 29,957 shares outstandingoutstanding.......................... 2,996 2,996
$100 stated value - 4.76%value--4.76% series, 29,947 shares outstandingoutstanding.......................... 2,995 2,995
$100 stated value - 6.20%value--6.20% series, 150,000 shares outstandingoutstanding......................... 15,000 15,000
$25 stated value - 6.50%value--6.50% series, 599,460 shares outstandingoutstanding.......................... 14,986 14,986
------------------- ----------------------------- ----------
59,963 59,963
------------------- ----------------------------- ----------
Long-term debt:
First Mortgage Bonds:
1990 Series L, 6.25%V, 9.3%, retired in 1998 - 8,8992001................................................ -- 27,000
1984 Series A, variable rate (3.85%(1.7% at December 31, 1998)2001), due 20142014.................. 8,500 8,500
1988 Series A, variable rate (4.20%(1.85% at December 31, 1998)2001), due 20152015................. 14,600 14,600
1990 Series V, 9.3%, due 2025 27,000 27,000
1991 Series A, variable rate (5.15%(1.9% at December 31, 1998)2001), due 20152015.................. 16,000 16,000
1991 Series B, variable rate (5.15%(1.9% at December 31, 1998)2001), due 20052005.................. 16,000 16,000
1991 Series C, variable rate (5.15% at December 31, 1998), due 2000 1,000 1,000
1991 Series D, variable rate (5.15% at December 31, 1998), due 2000 875 875
1992 Series W, 8.6%, due 2027, 90,000partially retired in 2001............................ 70,000 90,000
1992 Series X, 7.75%, due 20042004...................................................... 62,000 62,000
1992 Series Y, 7.6%, due 20052005....................................................... 72,000 72,000
------------------- -------------------
307,975 316,874---------- ----------
259,100 306,100
Debentures, 7%, due 20072007................................................................ 105,000 105,000
Debentures, 5.7%, due 20082008.............................................................. 60,000 -
------------------- -------------------
472,975 421,874
------------------- -------------------60,000
Debentures, 7 5/8%, due 2010............................................................ 100,000 100,000
---------- ----------
524,100 571,100
---------- ----------
Less:
Current maturities - (8,899)
Variable rate demand bonds (56,975) (56,975)bonds.......................................................... (55,100) (55,100)
Unamortized debt premium and (discount), net (1,421) (1,460)
------------------- -------------------
414,579 354,540
------------------- -------------------
$ 1,034,472 $ 1,000,242
=================== ===================discount, net...................................................... (917) (1,791)
---------- ----------
468,083 514,209
---------- ----------
Total capitalization....................................................................... $1,229,998 $1,236,765
========== ==========
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)
1999:
Beginning balance................................................ $66,183 $199,438 $294,309 $ -- $559,930
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 earnings available for common
stock, net of tax of ($769).......................... (1,085) (1,085)
--------- --------
Net unrealized losses on qualifying derivatives........... (4,708) (4,708)
--------- --------
Total comprehensive income.................................. 63,418
Common stock issued........................................... 78 78
------- -------- -------- --------- --------
Ending balance................................................... 66,183 229,516 371,602 (4,708) 662,593
2001:
Comprehensive income:
Earnings available for common stock......................... 70,180 70,180
Other comprehensive income (loss):
Minimum pension liability adjustment, net of tax
of ($9,552)............................................. (14,248) (14,248)
Unrealized gains on derivatives qualified as
hedges:
Unrealized holding gains arising during
period, net of tax of $3,932......................... 5,952 5,952
Less: reclassification adjustment for losses
included in earnings available for common
stock, net of tax of ($1,676)........................ (2,837) (2,837)
--------- --------
Net unrealized gains on qualifying derivatives............ 8,789 8,789
--------- --------
Total comprehensive income.................................. 64,721
Common stock dividends........................................ (60,449) (60,449)
Common stock issued........................................... 87 87
Capital contribution from parent.............................. 35,000 35,000
------- -------- -------- --------- --------
Ending balance................................................... $66,183 $264,603 $381,333 ($ 10,167) $701,952
======= ======== ======== ========= ========
A-30The 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:POLICIES
(a) General -
The Consolidated Financial Statements--The consolidated financial statements include the accounts of
Wisconsin
Power and Light (WP&L)WP&L and its principal consolidated subsidiaries.subsidiaries WPL Transco LLC and South
Beloit. WP&L is a subsidiary of Interstate Energy Corporation (IEC). IEC is currently doing business as
Alliant Energy Corporation. Nearly all of WP&L's retail customers are located in
south and central Wisconsin. WP&L's principal consolidated subsidiary is South
Beloit Water, Gas and Electric Company.
IEC resulted from the April 1998 merger between WPL Holdings, Inc. (WPLH),
IES Industries Inc. (IES) and Interstate Power Company (IPC) (refer to Note 2
for a discussion of the merger). IEC is an investor-owned holding company
currently doing business as Alliant Energy Corporation whose subsidiaries are
IES Utilities Inc. (IESU), WP&L, IPC, Alliant Energy Resources, Inc. (Alliant
Energy Resources) and Alliant Energy Corporate Services, Inc. (Alliant Energy
Corporate Services). IESU, WP&L and IPC are engaged principally in
the generation, transmission, distribution and sale of electric energy; the purchase,
distribution, transportation and sale of natural gas; and water and
steam services in selective markets. The principal marketsservices.
Nearly all of IESU, WP&L and IPC&L's retail customers are located in Iowa, Wisconsin, Minnesotasouth and Illinois. Alliant Energy Resources
(through its numerous direct and indirect subsidiaries) provides energy products
and services to domestic and international markets; provides industrial services
including environmental, engineering and transportation services; invests in
affordable housing initiatives; and invests in various other strategic
initiatives. Alliant Energy Corporate Services is the subsidiary formed to
provide administrative services to IEC and its subsidiaries as required under
the Public Utility Holding Company Act of 1935 (PUHCA).central
Wisconsin.
The consolidated financial statements reflect investments in controlled
subsidiaries on a consolidated basis. All significant intercompany balances and
transactions, other than certain energy-related transactions affecting IESU,
WP&L and IPC, have been eliminated from the Consolidated Financial Statements.
Such energy-related transactions are made at prices that approximate market
value and the associated costs are recoverable from customers through the rate
making process. 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 the Federal Energy Regulatory Commission
(FERC)FERC and state commissions having
regulatory jurisdiction. Unconsolidated investments for which IEC has at least a 20% voting
interest are generally accounted for under the equity method of accounting.
These investments are stated at acquisition cost, increased or decreased for
IEC'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 consolidated financial
statements requires management to make estimates and assumptions that affect:
1)a) the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements,statements; and
2)b) the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Certain prior period amounts
have been reclassified on a basis consistent with the current year presentation.
A-31
Unconsolidated investments for which WP&L has at least a 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 "Equity income from unconsolidated investments" in the Consolidated
Statements of Income and decreased for any dividends received. These
investments are also increased or decreased for WP&L's proportionate share of
other comprehensive income, which is included in "Accumulated other
comprehensive loss" on the Consolidated Balance Sheets. Investments that do not
meet the criteria for consolidation or the equity method of accounting are
accounted for under the cost method. Refer to Note 8 for discussion of WP&L's
cost method investments that are marked-to-market as a result of SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities."
(b) Regulation -
IECRegulation--WP&L is a registered public utility holding company subject to regulation byunder PUHCA, FERC, the SecuritiesPSCW and
Exchange Commission (SEC) under the PUHCA. IESU, WP&L and
IPC are subject to regulation by the FERC and their respective state regulatory
commissions (Iowa Utilities Board (IUB), Public Service Commission of Wisconsin
(PSCW), Minnesota Public Utilities Commission (MPUC) and Illinois Commerce
Commission (ICC)).ICC.
(c) Regulatory Assets -
IESU, WPAssets--WP&L and IPC areis subject to the provisions of Statement of Financial
Accounting Standards,SFAS 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71). SFAS 71Regulation," which 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, 19982001 and 1997,
IEC's2000, regulatory
assets of $368.8 million and $388.7 million, respectively, were comprised of the following items (in millions):
IESU WP&L IPC
-------------------- --------------------- ------------------
1998 1997 1998 1997 1998 1997
---------- --------- ---------- ---------- -------- ---------2001 2000
------ -----
Energy efficiency program costs....... $ 33.9 $19.8
Tax-related (Note 1(d)) $81.4 $80.3 $49.3 $55.5 $29.8 $29.7
Energy efficiency program costs 39.8 59.4 53.5 29.5 25.9 30.0............... 29.0 37.6
Environmental liabilities (Note 11(f)10(d)) 35.2 42.9 19.5 22.2 17.5 6.2
Other 5.0 17.0 11.2 13.6 0.7 2.4
---------- --------- ---------- ---------- -------- ---------
Total $161.4 $199.6 $133.5 $120.8 $73.9 $68.3
========== ========= ========== ========== ======== =========18.7 16.6
Other................................. 33.4 18.4
------ -----
$115.0 $92.4
====== =====
Refer to the individual notes referenced above for a further discussion of
certain items reflected in regulatory assets. Regulators allow IESU and IPC to
earn a return on energy efficiency program costs but not on the other regulatory
assets. In Wisconsin, WP&L is allowed to earn a return on all regulatory assets
other than those associated with manufactured gas plants (MGP).
If a portion of IESU's, WP&L's or IPC'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 accounting principles generally accepted accounting principlesin the U.S. for
continued accounting as regulatory assets during such recovery period. In
addition, IESU, WP&L or IPC would be required to determine any impairment toof other assets
and write-down such assets to their fair value.
(d) Income Taxes -
IECTaxes--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 consolidated
financial statements. Deferred taxes are recorded using currently enacted tax
rates as shown in Note 5.rates.
A-21
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 A-32
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 business, IEC is eligible to claim affordable
housing credits. These tax credits reduce current federal taxes to the extent
IEC has consolidated taxes payable.
Consistent with Iowa rate making practices for IESU and IPC, deferred tax
expense is not recorded for certain temporary differences (primarily related to
utility property, plant and equipment). As the deferred taxes become payable
(over periods exceeding 30 years for some generating plant differences) they are
recovered through rates. Accordingly, IESU and IPC have recorded deferred tax
liabilities and regulatory assets for certain temporary differences, as
identified in Note 1(c). In Wisconsin, theThe 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 which isthat will be
recovered in future rates through rates.2007.
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 federal
income tax provisions and makes payments to or receives payments from Alliant
Energy as if it were a separate taxable entity.
(e) Temporary Cash Investments -
TemporaryInvestments--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 -
IESU, WPEquipment--WP&L and IPC useuses a
combination of remaining lifestraight-line and straight-linesum-of-the-years-digits depreciation methods
as approved by their respective regulatory commissions.the PSCW and ICC. The remaining depreciable life of the Duane Arnold Energy Center (DAEC), IESU's nuclear
generating facility, is based on the Nuclear Regulatory Commission (NRC) license
life of 2014. The remaining life of the Kewaunee, Nuclear Power Plant (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 life of
2013).2010. Depreciation expense related to the decommissioning of DAEC and Kewaunee is
discussed in Note 11(h)10(e). WP&L implemented higher depreciation rates effective
January 1, 1997. The average rates of depreciation for electric and gas
properties, of IESU, WP&L and IPC, consistent with current rate making practices, were as follows:
IESU WP&L IPC
---------------------------------- ---------------------------------- ---------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ----------2001 2000 1999
---- ---- ----
Electric 3.5% 3.5% 3.5%3.7% 3.6% 3.6%
3.3% 3.6% 3.6% 3.6%
Gas 3.5% 3.5% 3.5% 3.8% 3.8% 3.7% 3.4% 3.4% 3.4%Gas..... 4.1% 4.1% 3.9%
(g) Property, Plant and Equipment -
UtilityEquipment--Utility plant (other than acquisition adjustments at IESU of $26.8
million, net of accumulated amortization, recorded at cost) is recorded at original cost,
which includes overhead, and administrative costs and an allowance
for funds used during construction (AFUDC). TheAFUDC. 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 funds2001, 2000 and to other (equity) funds, a non-cash
A-33
item, is1999, computed in accordance with
the prescribed FERC formula. These
capitalized costs are recovered in rates as the cost of the utility plant is
depreciated. The aggregate gross rates usedregulatory formula, were as follows:
1998 1997 1996
------------------- ------------------ ------------------
IESU 8.9% 6.7% 5.5%
WP&L 5.2% 6.2% 10.2%
IPC 7.0% 6.0% 5.8%7.9%, 10.8% and 5.4%, 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 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 -
IECRevenues--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 Incomeutility services rendered but unbilled at month-end due to the
implementation of refined estimation processes.
(i) Utility Fuel Cost Recovery--WP&L's retail electric rates are based on
annual forecasted fuel and purchased-power costs. Under PSCW rules, WP&L can
seek emergency rate increases if the annual costs are more than three percent
higher than the estimated costs used to establish rates. Any collections in
excess of costs incurred in 2001 will be refunded in 2002, with interest.
Accordingly, WP&L established a reserve in 2001 due to overcollection of fuel
and purchased-power costs. WP&L has a gas performance incentive which includes
a sharing mechanism whereby 40 percent of all gains and losses relative to
current commodity prices, as a reduction ofwell as other benchmarks, are retained by WP&L,
with the cost of gas sold rather than as gas revenues. In
1997, off-system gas sales were included in the Consolidated Statements of
Income as gas revenue.
(i)remainder refunded to or recovered from customers.
(j) Nuclear Refueling Outage Costs -
The IUB allows IESU to collect, as part of its base revenues, funds to
offset other operating and maintenance expenditures incurred during refueling
outages at DAEC. As these revenues are collected, an equivalent amount is
charged to other operating and maintenance expenses with a corresponding credit
to a reserve. During a refueling outage, the reserve is reversed to offset the
refueling outage expenditures. OperatingCosts--Operating expenses incurred during
refueling outages at Kewaunee are expensed by WP&L as incurred. (j)A scheduled
refueling outage occurred at Kewaunee in late 2001. The next scheduled
refueling outage at Kewaunee is anticipated to commence in Spring 2003.
A-22
(k) Nuclear Fuel -
Nuclear fuel for DAEC is leased. Annual nuclear fuel lease expenses
include the cost of fuel, based on the quantity of heat produced for the
generation of electric energy, plus the lessor's interest costs related to fuel
in the reactor and administrative expenses. NuclearFuel--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-hoursKWhs generated.
(k) Comprehensive Income -
On January 1, 1998, IEC adopted SFAS 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting of comprehensive income
and its components in a full set of general purpose financial statements. SFAS
130 requires reporting a total for comprehensive income which includes, in
addition to net income: (1) unrealized holding gains/losses on securities
classified as available-for-sale under SFAS 115; (2) foreign currency
translation adjustments accounted for under SFAS 52; and
A-34
(3) minimum pension liability adjustments made pursuant to SFAS 87. WP&L had no
other comprehensive income in the periods presented.
(l) Derivative Financial Instruments -
From timeInstruments--WP&L uses derivative financial
instruments to time, IEC enters into interest rate swapshedge exposures to reduce exposure
to interest rate fluctuations in connectioninterest rates, certain
commodity prices and volatility in a portion of natural gas sales volumes due
to weather. WP&L also utilizes derivatives to mitigate the equity price
volatility associated with shortcertain investments in equity securities. WP&L does
not use such instruments for speculative purposes. The fair value of all
derivatives are recorded as assets or liabilities on the Consolidated Balance
Sheets and variable rate
long-term debt issues. The swap's cash flows correspond with those ofgains and losses related to derivatives that are designated as, and
qualify as hedges, are recognized in earnings when the underlying exposures. Thehedged item
or physical transaction is recognized in income. Gains and losses related costs associated with these agreementsto
derivatives that do not qualify for, or are amortized over their respective lives as components of interest expense.
IEC, through its consolidated subsidiaries, currently utilizes derivative
financial and commodity instruments to reduce price risk inherentnot designated in its gas and
electric activities on a very limited basis and such instruments may not be used
for trading purposes. The costs or benefits associated with any such hedging
activitieshedge
relationships, are recognized when the related purchase or sale transactions are
completed.
(2) MERGER:
On April 21, 1998, IES, WPLH and IPC completedin earnings immediately. WP&L has a three-way merger (Merger)
forming IEC. Each outstanding share of common stock of IES, WPLH and IPC was
exchanged for 1.14, 1.0 and 1.11 shares, respectively, of IEC common stock
resulting in the issuance of approximately 77 million shares of IEC common
stock, $.01 par value per share. The outstanding debt and preferred stock
securities of IEC and its subsidiaries were not affected by the Merger. In
connection with the Merger, the number of
authorized sharescommodity purchase and sales contracts that have been designated, and qualify
for, the normal purchase and sale exception in SFAS 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities--an Amendment of
IEC common stock
was increased to 200,000,000.
The Merger wasSFAS 133." Based on this designation, these contracts are not accounted for as
derivative instruments.
WP&L is exposed to losses related to financial instruments in the event of
counterparties' non-performance. WP&L has established controls to determine and
monitor the creditworthiness of counterparties in order to mitigate its
exposure to counterparty credit risk. WP&L has replaced certain Enron contracts
by entering into contracts with credit-worthy counterparties where deemed
necessary. WP&L is not aware of any material exposure to counterparty credit
risk.
Refer to Note 9 for further discussion of WP&L's derivative financial
instruments.
(2) LEASES
WP&L's operating lease rental expenses, which include certain purchased-power
operating leases, for 2001, 2000 and 1999 were $23.4 million, $7.9 million and
$7.7 million, respectively. The purchased-power leases below include $33
million in 2003 and a poolingtotal amount of interests and the
accompanying Consolidated Financial Statements, along with the$423 million related notes,
are presented as if the companies were combined as of the earliest period
presented. As part of the pooling, the accrued pension liability (and offsetting
regulatory asset), of IES was recomputed using the method used by WPLH and IPC
to recognize deferred asset gains. In addition, IPC adopted unbilled revenues as
part of the pooling to conform to the revenue accounting method used by WPLH and
IES. Neither of these adjustments had any income statement impact for the
periods presenteda new plant
(Riverside) currently under development in this report.
Operating revenues and net income for the three months ended March 31,
1998, and for the years endedWisconsin. At December 31, 1997, and December 31, 1996,2001,
WP&L's future minimum operating lease payments were as follows (in millions):
WPLH IES IPC IEC
------------ ------------ ------------ -------------2002 2003 2004 2005 2006 Thereafter Total
----- ----- ----- ----- ----- ---------- ------
Three months ended March 31, 1998
Operating revenues $229.5 $241.7 $85.1 $556.3
Net income $15.8 $8.1 $5.0 $28.9
Year ended December 31, 1997
Operating revenues $978.7 $990.1 $331.8 $2,300.6
Net income $61.3 $56.6 $26.7 $144.6
Year ended December 31, 1996
Operating revenues $932.8 $973.9 $326.1 $2,232.8
Net income $71.9 $58.0 $25.9 $155.8
Certain purchased-power agreements....... $18.3 $51.4 $65.8 $67.2 $68.5 $290.6 $561.8
Financings using special purpose entities 2.7 2.7 2.7 2.7 2.7 15.7 29.2
Other.................................... 3.6 5.8 6.1 6.0 5.6 3.8 30.9
----- ----- ----- ----- ----- ------ ------
$24.6 $59.9 $74.6 $75.9 $76.8 $310.1 $621.9
===== ===== ===== ===== ===== ====== ======
The financial resultsWP&L has various synthetic leases related to the financing of IES have been restated for all periods presented
to reflectcertain utility
railcars and a change in accounting method for Whiting's oil and gas properties
implementedutility radio dispatch system. Certain financings involve the
use of unconsolidated structured finance or special purpose entities. Based on
the magnitude of the amounts shown in the third quarter of 1998 from the full cost methodabove table in "Financings using
special purpose entities," WP&L believes these financings are not material to
the
successful efforts method. In addition, the operating revenues of WPLH and IES
for the 1998
A-35
and 1997 periods presented have been adjusted to reflect the financial results
of a joint venture between the two companies as a consolidated subsidiary.its liquidity or capital resources.
(3) LEASES:
WP&L's operating lease rental expenses for 1998, 1997 and 1996 were $6.4
million, $5.5 million and $5.3 million, respectively. WP&L's future minimum
lease payments by year are as follows (in thousands):
Operating
Year Leases
-------------- -------------
1999 $ 7,772
2000 6,948
2001 5,925
2002 5,303
2003 4,146
Thereafter 26,042
-------------
$ 56,136
=============
(4) UTILITY ACCOUNTS RECEIVABLE:RECEIVABLE
Utility customer accounts receivable, including unbilled revenues, arise
primarily from the sale of electricity and natural gas. At December 31, 1998,
IEC2001
and 2000, WP&L was serving a diversified base of residential, commercial and
industrial customers and did not have any significant concentrations of credit
risk.
SeparateWP&L participates in a combined accounts receivable financing arrangements exist for two of IEC's
utility subsidiaries, IESUsale program whereby IP&L
and WP&L which are similar in most important
aspects. In both cases, the utility subsidiariesmay sell up to a pre-determinedcombined maximum amount of $250 million (there are no
individual limits) of their respective accounts receivable to a third-party
financial institution on a limited recourse basis includingthrough wholly-owned and
consolidated special purpose entities. Corporate Services acts as a collection
agent for the buyer and receives a fee for collection services that
approximates fair value. The agreement expires in April 2004 and is subject to
annual renewal or renegotiation for a longer period thereafter. Under terms
A-23
of the agreement, the third-party financial institution purchases the
receivables initially for the face amount. On a monthly basis, this sales price
is adjusted, resulting in payments to customersthe third-party financial institution of
an amount that varies based on interest rates and length of time the sold
receivables remain outstanding. Collections on sold receivables are used to
purchase additional receivables from the utility subsidiaries.
At December 31, 2001 and 2000, WP&L had sold $88 million and $89 million of
receivables, respectively. In 2001, 2000 and 1999, WP&L received approximately
$1.1 billion, $0.9 billion and $0.9 billion, respectively, in aggregate
proceeds from the sale of accounts receivable. WP&L uses proceeds from the sale
of accounts receivable and unbilled revenues to maintain flexibility in its
capital structure, take advantage of favorable short-term rates and finance a
portion of its long-term cash needs. WP&L paid fees associated with these sales
of $4.0 million, $5.0 million and $4.0 million in 2001, 2000 and 1999,
respectively.
WP&L accounts for the sale of accounts receivable to the third-party financial
institution as sales under SFAS 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Retained receivables are
available to the third-party financial institution to pay any fees or expenses
due it, and to other public, municipal and
cooperative utilities, as well as billings to the co-ownersabsorb all credit losses incurred on any of the jointly-owned
electric generating plants that the utility subsidiaries operate. The amounts
are discounted at the then-prevailing market rate and additional administrative
fees are payable according to the activity levels undertaken. All billing and
collection functions remain the responsibility of the respective utilities.
Specifics of the two agreements include (dollars in millions):
IESU WP&L
-------------- -----------
Year agreement expires 1999 1999
Maximum amount of receivables that can be sold $65 $150
Effective 1998 all-in cost 6.02% 5.95%
Average monthly sale of receivables - 1998 $63 $83
- 1997 $65 $92
Receivables sold at December 31, 1998 $55 $75
A-36
(5)receivables.
(4) INCOME TAXES:TAXES
The components of federal and state income taxes for WP&L for the years
ended December 31 were as follows (in millions):
1998 1997 1996
------------ ----------- ----------
Current tax expense $ 32.2 $ 38.8 $ 47.5
Deferred tax expense (5.6) 4.9 8.2
Amortization of investment tax credits (1.9) (1.9) (1.9)
------------ ----------- ----------
$ 24.7 $ 41.8 $ 53.8
============ =========== ==========
2001 2000 1999
----- ----- -----
Current tax expense:
Federal............................ $36.8 $44.5 $47.3
State.............................. 11.2 10.5 11.1
Deferred tax benefit:
Federal............................ (4.6) (9.9) (9.4)
State.............................. (0.4) (0.3) (1.3)
Amortization of investment tax credits (1.8) (1.9) (1.9)
----- ----- -----
$41.2 $42.9 $45.8
===== ===== =====
The overall effective income tax rates shown below forin the years ended
December 31following table were
computed by dividing total income tax expense by income before income taxes.
1998 1997 1996
------------ ------------ -------------2001 2000 1999
---- ---- ----
Statutory federal income tax raterate.............. 35.0% 35.0% 35.0%
State income taxes, net of federal benefits 7.8 5.7 6.1benefits. 6.4 6.0 6.3
Amortization of investment tax credits (3.1) (1.7) (1.4)credits...... (1.6) (1.6) (1.6)
Adjustment of prior period taxes - (2.1) 0.4
Merger expenses 2.5 0.3 0.4taxes............ (2.8) (0.8) (0.3)
Amortization of excess deferred taxes (2.5)taxes....... (1.5) (1.3) (1.3)
Other items, net 1.3net............................ 0.4 0.2 1.1
0.3
------------ ------------ ----------------- ---- ----
Overall effective income tax rate 41.0% 37.0% 39.5%
============ ============ =============rate.............. 35.9% 37.5% 39.2%
==== ==== ====
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):
1998 1997
--------------- --------------
Property related $ 282.7 $ 287.2
Investment tax credit related (22.2) (23.5)
Decommissioning related (17.5) (16.0)
Other 2.5 4.0
--------------- --------------
$ 245.5 $ 251.7
=============== ==============
(6) BENEFIT PLANS:
(a) Pension Plans and Other Postretirement Benefits -
2001 2000
------ ------
Property related...... $217.5 $260.5
Investment tax credits (16.7) (19.7)
Other................. 5.4 (18.0)
------ ------
$206.2 $222.8
====== ======
A-24
(5) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Substantially all of WP&L adopted SFAS 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" in 1998. WP&L has a noncontributory,&L's employees are covered by two non-contributory
defined benefit pension plan covering substantially all employees who are subject to a
collective bargaining agreement. The benefitsplans. Benefits are based uponon 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 cost in an amount that is
A-37
at least equal to the minimum funding requirements mandated by the Employee
Retirement Income Security Act of 1974 (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 regularly and their spouses (and Medicare Part B
reimbursement for certain retirees) and, in some cases, retireethe life
insurance.
WP&L's funding of other postretirement benefits generally approximates the
maximum tax deductible amount on an annual basis.insurance plans are non-contributory.
The weighted-average assumptions as ofat the measurement date of September 30 arewere
as follows:
Other Postretirement
Qualified Pension Benefits Other Postretirement Benefits
------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
------------ ----------- ------------ ------------------------ ---------------------------------------- -------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Discount rate 6.75%rate......................... 7.25% 7.50% 6.75%8.00% 7.75% 7.25% 7.50%8.00% 7.75%
Expected return on plan assetsassets........ 9% 9% 9% 9% 9% 9%
Rate of compensation increase 3.5% 3.5-4.5% 3.5-4.5%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 rangerate................. N/A N/A N/A 8% 8%12% 9% 7%
Ultimate trend rangerate................ N/A N/A N/A N/A 5% 5% 5% The components of WP&L's qualified pension benefits and other postretirement
benefits costs are5%
The components of WP&L's qualified pension benefits and other postretirement
benefits costs were as follows (in millions):
Other Postretirement
Qualified Pension Benefits Other Postretirement Benefits
------------------------------------- --------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- --------- -------- -------- ---------------------------------- -------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ----- ----- -----
Service costcost..................... $ 3.22.8 $ 4.83.0 $ 5.13.8 $ 1.71.6 $ 1.81.4 $ 1.81.6
Interest cost 8.5 13.9 13.6 2.6cost.................... 9.2 8.9 8.9 3.6 3.3 3.42.7
Expected return on plan assets (12.8) (19.2) (17.9)assets... (13.7) (12.9) (12.9) (1.7) (1.6) (1.5) (1.1) (1.0)
Amortization of:
Transition obligation (asset). (2.1) (2.4) (2.4) 1.3 1.5 1.5(2.1) (2.1) 1.2 1.2 1.2
Prior service costcost............ 0.5 0.4 0.3 - - -0.4 -- -- --
Actuarial (gain)/loss - - 0.5 (1.1) (0.3) -
---------- ----------- --------- -------- -------- ---------
Total(gain)......... -- -- 0.2 (0.6) (0.8) (0.9)
------- ------- ------- ----- ----- -----
($ 3.3) ($ 2.7) ($ 1.7) $ (2.7)4.1 $ (2.5)3.5 $ (0.8) $ 3.0 $ 5.2 $ 5.7
========== =========== ========= ======== ======== =========3.1
======= ======= ======= ===== ===== =====
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 were for
severance and early retirement programs in the respective years. 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 amounts include a December 1998 early retirement program.
The pension benefit cost shown above (and in the following table) for 1998tables) 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 benefit
obligations and assets associated with WP&L's non-bargaining employees who are
participants in other Alliant Energy plans are reported in Alliant Energy's
consolidated financial statements and are not reported above. The pension
benefit costincome for WP&L's non-bargaining employees who are now participants in
other IECAlliant Energy plans was $3.0$1.5 million, $1.3 million and $1.8 million for
1998, including a special
charge of $3.6 for severance2001, 2000 and early retirement window programs.1999, respectively. In addition,
Alliant Energy Corporate Services provides
services to WP&L. The allocated pension benefit costs associated with these
services was $0.6$1.3 million, $1.3 million and $1.2 million for 1998.2001, 2000 and
1999, respectively. The other postretirement benefit cost shown above for each
period (and in the following tables) represents the other A-38
postretirement
benefit cost for all WP&L employees. The allocated other postretirement benefit
cost associated with Alliant Energy Corporate Services for WP&L was $0.2$0.3 million, $0.3 million
and $0.4 million for 1998.2001, 2000 and 1999, 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 1998,2001, holding all other assumptions constant, would have the
following effects (in millions):
1 Percent Increase 1 Percent Decrease
------------------- ---------------------------------------- ------------------
Effect on total of service and interest cost components $0.3$0.5 ($0.3)0.4)
Effect on postretirement benefit obligation $1.7obligation............ $4.2 ($1.7)3.9)
A-39A-25
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 was as follows (in
millions):
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 Postretirement
Pension Benefits Other Postretirement Benefits
---------------------------- -------------------------------
1998 1997 1998 1997
----------- ------------ -------------- ------------
Change in benefit obligation:--------------- ----------------
2001 2000 2001 2000
------ ------ ------- -------
Change in benefit obligation:
Net benefit obligation at beginning of yearyear................... $115.9 $117.2 $ 205.142.3 $ 189.6 $ 47.1 $ 46.6
Transfer of obligations to other IEC plans (91.9) - - -42.4
Service cost 3.2 4.8 1.7 1.8cost.................................................. 2.8 3.0 1.6 1.4
Interest cost 8.5 13.9 2.6cost................................................. 9.2 8.9 3.6 3.3
Plan participants' contributions - - 0.8 1.0
Plan amendments - 4.4 - -contributions.............................. -- -- 1.6 1.2
Actuarial (gain) / loss 12.2 2.9 (9.7) (2.7)
Curtailments - - 0.7 0.6
Special termination benefits 0.6 1.3 - -(gain)......................................... 18.3 (6.2) 16.6 (1.3)
Gross benefits paid (5.4) (11.8) (2.9) (3.5)
----------- ------------ -------------- ------------paid........................................... (7.0) (7.0) (5.2) (4.7)
------ ------ ------- -------
Net benefit obligation at end of year 132.3 205.1 40.3 47.1
----------- ------------ -------------- ------------year..................... 139.2 115.9 60.5 42.3
------ ------ ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 244.4 218.9 16.1 13.8
Transfer of assets to other IEC plans (100.2) - - -year................ 156.3 147.6 19.4 17.9
Actual return on plan assets (1.3) 36.2 1.1 1.9assets.................................. (10.5) 15.7 (0.5) 1.5
Employer contributions - 1.1 - 2.9contributions........................................ -- -- 2.5 3.5
Plan participants' contributions - - 0.8 1.0contributions.............................. -- -- 1.6 1.2
Gross benefits paid (5.4) (11.8) (2.9) (3.5)
----------- ------------ -------------- ------------paid........................................... (7.0) (7.0) (5.2) (4.7)
------ ------ ------- -------
Fair value of plan assets at end of year 137.5 244.4 15.1 16.1
----------- ------------ -------------- ------------year.................. 138.8 156.3 17.8 19.4
------ ------ ------- -------
Funded status at end of year 5.2 39.3 (25.2) (31.0)year..................................... (0.4) 40.4 (42.7) (22.9)
Unrecognized net actuarial (gain) / loss 26.0 0.8 (17.0) (8.3)(gain)........................... 34.3 (8.2) 4.4 (15.0)
Unrecognized prior service cost 5.1 7.8cost.................................. 3.9 4.3 (0.2) (0.3)(0.2)
Unrecognized net transition obligation (asset) (7.9) (12.0) 17.2 21.0
----------- ------------ -------------- ------------................... (1.7) (3.7) 12.6 13.8
------ ------ ------- -------
Net amount recognized at end of yearyear...................... $ 28.436.1 $ 35.9 $ (25.2) $ (18.6)
=========== ============ ============== ============32.8 ($ 25.9) ($ 24.3)
====== ====== ======= =======
Amounts recognized on the Consolidated Balance Sheets consist of:
Prepaid benefit costcost.......................................... $ 28.4 35.936.1 $ 0.432.8 $ 0.31.3 $ 0.9
Accrued benefit cost - - (25.6) (18.9)
----------- ------------ -------------- ------------cost.......................................... -- -- (27.2) (25.2)
------ ------ ------- -------
Net amount recognized at measurement date 28.4 35.9 (25.2) (18.6)
----------- ------------ -------------- ------------date................. 36.1 32.8 (25.9) (24.3)
------ ------ ------- -------
Contributions paid after 9/30 and prior to 12/31 - - 2.1 -
=========== ============ ============== ============31................. -- -- 1.1 0.6
------ ------ ------- -------
Net amount recognized at 12/31/9831............................ $ 28.436.1 $ 35.9 $ (23.1) $ (18.6)
=========== ============ ============== ============32.8 ($ 24.8) ($ 23.7)
====== ====== ======= =======
IEC sponsors a non-qualified pension plan which covers certain current and
former officers. The pension expense allocated to WP&L for this plan was $0.8
million, $0.5 million and $0.5 million in 1998, 1997 and 1996, respectively.
A-40
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 $2.4
million, $2.8 million and $1.8 million in 1998, 1997 and 1996, respectively.
The benefit obligation and fair value of plan assets for the postretirement
welfare plans with benefit obligations in excess of plan assets were $33.4$53.8
million and $6.2 million as of September 31, 1998 and $40.6 million
and $7.7$8.5 million, respectively, as of September 30, 2001 and $37.1
million and $9.5 million, respectively, as of September 30, 2000. For the
prior measurement date.
(b) Long-Term Equity Incentive Plan -
IEC has a long-term equity incentivevarious pension and postretirement plans, Alliant Energy common stock
represented less than one percent of total plan which permits the grant of
non-qualified stock options, incentive stock options, restricted stock,
performance shares and performance units to key employees. As ofinvestments at December 31,
1998, only2001 and 2000.
Alliant Energy sponsors several non-qualified stock optionspension plans that cover certain
current and performance units had been granted toformer key employees. The maximumpension expense allocated to WP&L for
these plans was $1.0 million, $1.2 million and $0.8 million in 2001, 2000 and
1999, respectively. At December 31, 2001 and 2000, the funded balances of such
plans did not consist of any Alliant Energy common stock.
WP&L has various life insurance policies that cover certain key employees and
directors. At December 31, 2001 and 2000, the cash surrender value of these
investments was $9 million and $8 million, respectively.
A significant number of shares of IEC common stock that may be
issued under the plan may not exceed one million. Options are granted at the
fair market value of the shares on the date of grant and vest over three years.
Options outstanding will expire no later than 10 years after the grant date. The
first options were grantedWP&L employees also participate in 1995 and became exercisable in January 1998. All
options granted priordefined contribution
pension plans (401(k) plans). WP&L's contributions to the consummation of the Merger were issued by WPLH. A
summary of the stock option activity for 1998, 1997 and 1996 is as follows:
1998 1997 1996
---------------------- ----------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------------------- ---------------------- ---------------------
Outstanding at beginning of year 191,800 $28.98 114,150 $29.56 41,900 $27.50
Options granted 636,451 31.32 77,650 28.12 72,250 30.75
Options exercised (8,900) 28.59 - - - -
Options forfeited (68,267) 30.49 - - - -
---------------------- ---------------------- ---------------------
Outstanding at end of year 751,084 $30.83 191,800 $28.98 114,150 $29.56
====================== ====================== =====================
Exercisable at end of year 38,250 $27.50 - -
The range of exercise prices for the options outstanding at December 31,
1998 was $27.50 to $31.56.
The value of the options at the grant date using the Black-Scholes
pricing method is as follows:
1998 1997 1996
------------ ------------ ------------
Value of options based on Black-Scholes model $4.93 $3.30 $3.47
Volatility 21% 15% 16%
Risk free interest rate 5.75% 6.43% 5.56%
Expected life 10 years 10 years 10 years
Expected dividend yield 7.0% 7.0% 7.0%
IEC follows Accounting Principles Board (APB) Opinion 25, "Accounting for
Stock Issued to Employees," to account for stock options. No compensation cost
is recognized because the option exercise price is equal to the market price of
the underlying stock on the date of grant. Had compensation cost for the plan
been determinedplans, which are
based on the Black-Scholes value at the grant dates for awards
as prescribed by
A-41participants' level of contribution, were $2.1 million, $2.1
million and $2.0 million in 2001, 2000 and 1999, respectively.
A-26
SFAS 123 "Accounting for Stock-Based Compensation," pro forma net income(6) COMMON AND PREFERRED STOCK
(a) Common Stock--WP&L has common stock dividend restrictions based on its bond
indentures and earnings per share would have been:
1998 1997 1996
----------- ----------- -----------
Net income (in millions) $93.5 $144.3 $155.5
Earnings per share (basicarticles of incorporation, and diluted) $1.22 $1.89 $2.06
The performance units represent accumulated dividendsrestrictions on the shares
underlyingpayment of
common stock dividends commonly found with preferred stock. WP&L's common stock
dividends are restricted to the non-qualifiedextent that such dividend would reduce the
common stock options and are expensed over a three-year
vesting period based on the annual dividend rate at the grant date. The
performance unit payout is contingent upon three-year performance criteria. The
cost of this program in 1998, 1997 and 1996 was not significant.
(7) COMMON STOCK:
In rate order UR-110,equity ratio to less than 25 percent. Also the PSCW ordered that
it must approve the payment of dividends by WP&L to IECAlliant 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 percent of
total capitalization. The dividends paid by WP&L to IECAlliant Energy since the
rate order was issued have not exceeded such level.
(b) Preferred Stock--The carrying value of WP&L's cumulative preferred stock at
December 31, 2001 and 2000 was $60 million. The fair market value, based upon
the level forecasted in
the rate order.
(8) DEBT:market yield of similar securities and quoted market prices, at December
31, 2001 and 2000 was $49 million and $44 million, respectively.
(7) DEBT
(a) Short-Term Debt -Debt--WP&L and IP&L participate in a utility money pool, which
is funded, as needed, through the issuance of commercial paper by Alliant
Energy. Interest expense and other fees are allocated based on borrowed
amounts. The PSCW has restricted WP&L from lending money to non-utility
affiliates and non-Wisconsin utilities. As a result, WP&L can only borrow money
from the utility money pool. At December 31, 2001 and 2000, WP&L had money pool
borrowings of $90.8 million and $29.2 million, respectively. Information
regarding WP&L's short-term debt isand lines of credit was as follows (in(dollars in
millions):
1998 1997 1996
-------------- -------------- --------------
As of year end--2001 2000 1999
----- ----- ------
Commercial paper outstanding - $81.0 $59.5
Notes payable outstanding $50.0 - $10.0At year end:
Money pool borrowings $26.8 - -
Discount rates on commercial paper N/A 5.82-5.90% 5.35-5.65%borrowings................................................... $90.8 $29.2 $125.7
Interest rates on notes payable 5.44% N/A 5.95%
Interest rate on money pool borrowings 5.17% N/A N/Aborrowings................................. 2.4% 6.6% 5.8%
For the year ended--ended:
Average amount of short-term debt (based on daily outstanding balances) $48.4 $49.2 $33.9. $23.8 $25.5 $ 77.1
Average interest raterates on short-term debt 5.55% 5.64% 5.86%debt............................... 3.7% 6.2% 5.2%
(b) Long-Term Debt -
SubstantiallyDebt--WP&L's First Mortgage Bonds are secured by substantially
all of WP&L'sits utility plant is secured by its First Mortgage
Bonds.plant. WP&L also maintains an unsecured indentureindentures relating to
the issuance of debt securities. DebtWP&L's debt maturities (excluding periodic sinking fund requirements, which will
not require additional cash expenditures) for 19992002 to 20032006 are
$0, $1.9$0, $62.0 million, $0, $0$88.0 million, and $0, respectively. Refer to "Management's Discussion and AnalysisDepending upon
market conditions, it is currently anticipated that a majority of Financial Condition and
Resultsthe maturing
debt will be refinanced with the issuance of Operations" (MD&A) for a further discussionlong-term securities. The carrying
value of WP&L's debt.
A-42
(9)long-term debt (including variable rate demand bonds) at
December 31, 2001 and 2000 was $523 million and $569 million, respectively. The
fair market value, based upon the market yield of similar securities and quoted
market prices, at December 31, 2001 and 2000 was $548 million and $584 million,
respectively.
(8) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each classcarrying amount of WP&L's financial instruments:
o Current Assetscurrent assets and Current Liabilities - The carrying amountcurrent liabilities
approximates fair value because of the short maturity of such financial
instruments.
o Nuclear Decommissioning Trust Funds - The carrying amount represents
the fair value of these trust funds, as reported by the trustee. The
balance of the "Nuclear decommissioning trust funds" as shown on the
Consolidated Balance Sheets included $18.7 million and $16.4 million
of net unrealized gains at December 31, 1998 and December 31, 1997,
respectively, on the investments held in the trust funds. The
accumulated reserve for decommissioning costs was adjusted by a
corresponding amount.
o Cumulative Preferred Stock - Based upon the market yield of similar
securities and quoted market prices.
o Long-Term Debt - Based upon the market yield of similar securities
and quoted market prices.
The following table presents the carrying amount and estimated fair value
of certain financial instruments for WP&L as of December 31 (in millions):
1998 1997
--------------------------- ----------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ----------- ------------ -----------
Nuclear decommissioning trust funds $ 134 $ 134 $ 112 $ 112
Cumulative preferred stock 60 55 60 52
Long-term debt, including current portion 472 513 420 449
Since WP&L is subject to regulation, any gains or losses related
to the difference between the carrying amount and the fair value of itstheir
financial instruments may not be realized by WP&L's parent. (10) DERIVATIVE FINANCIAL INSTRUMENTS:
IEC, through its consolidated subsidiaries, has historically had only
limited involvement with derivative financial instruments and has not used them
for speculative purposes. They have been usedInformation
relating to manage well-defined interest
rate and commodity price risks.
(a) Interest Rate Swaps and Forward Contracts -
Atvarious investments held by Alliant Energy that are
marked-to-market as a result of SFAS 115 were as follows (in millions):
December 31, 2001 December 31, 2000
-------------------- --------------------
Carrying/ Unrealized Carrying/ Unrealized
Fair Gains, Fair Gains,
Value Net of Tax Value Net of Tax
--------- ---------- --------- ----------
Available-for-sale securities:
Nuclear decommissioning trust funds:
Debt securities.................. $122 $ 2 $115 $ 2
Equity securities................ 94 23 81 26
---- --- ---- ---
Total......................... $216 $25 $196 $28
==== === ==== ===
A-27
Nuclear Decommissioning Trust Funds--At December 31, 1998, Alliant Energy Resources had two interest rate swap
agreements outstanding (both expiring in April 2000 with the bank having a
1-year extension option for one2001, $77 million, $21
million and $24 million of the agreements) eachdebt securities mature in 2002-2010, 2011-2020
and 2021-2049, respectively. The fair 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 $2.1 million, $5.2 million and ($10.4) million
in 2001, 2000 and 1999, respectively (cost of the investments based on specific
identification was $147.4 million, $202.1 million and $94.6 million,
respectively, and proceeds from the sales were $149.5 million, $207.3 million
and $84.2 million, respectively).
Investment in ATC--WP&L, including South Beloit, transferred its transmission
assets with a notional amountno gain or loss (approximate net book value of $100 million.$186 million) to ATC
on January 1, 2001. WP&L alsoreceived a tax-free cash distribution of $75 million
from ATC and had two interest rate swap agreements outstanding
(both expiringa $110 million equity investment in 2000)ATC, with an ownership
percentage of approximately 26.5 percent at December 31, 1998,2001. WP&L accounts
for its investment in ATC under the equity method.
Unconsolidated Equity Investments--Summary financial information from WP&L's
unconsolidated equity investments' financial statements is as follows (in
millions):
Ownership Less Than
or Equal to 50%
-------------------
2001 2000 1999
------ ----- ----
Income statement data (for the year ended):
Operating revenues...................... $212.3 $ 5.3 $5.6
Operating income........................ 65.8 1.3 1.3
Net income.............................. 55.9 1.6 3.0
2001 2000
------ -----
Balance sheet data (at December 31):
Current assets.......................... $ 63.3 $19.6
Non-current assets...................... 690.9 29.6
Current liabilities..................... 46.1 34.1
Non-current liabilities................. 10.7 0.7
(9) DERIVATIVE FINANCIAL INSTRUMENTS
(a) Accounting for Derivative Instruments and Hedging Activities--WP&L records
derivative instruments at fair value on the combined notional amount
of the two agreements was $30 million. These agreements were entered into in
order to reduce the impact ofbalance sheet as assets or
liabilities and changes in variable interest rates by converting
variable rate borrowings into fixed rate borrowings thus all agreements require
Alliant Energy Resourcesthe derivatives' fair values in earnings unless
specific hedge accounting criteria are met.
Cash Flow Hedging Instruments--During 2001 and 2000, WP&L to pay a fixed rate and receive a variable
rate. Had Alliant Energy Resources andheld derivative
instruments designated as cash flow hedging instruments. WP&L terminated the agreements at
December 31, 1998, they would have had to make payments of $2.9 million and $0.3
million, respectively.
A-43
On September 14, 1998, WP&L entered into an interest rate forward contract
related to the anticipated issuance of $60 million of debentures. The securities
were issued on October 30, 1998, and the forward contract was settled, which
resulted in a cash payment of $1.5 million by WP&L.
(b) Gas Commodities Instruments -
WP&L usesutilized gas
commodity swapsfinancial 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
notionalmonths
pursuant to the natural gas cost incentive sharing mechanism with customers in
Wisconsin. WP&L also utilized physical coal purchase contracts, which did not
qualify for the normal purchase and sale exception, to manage the price of
anticipated coal purchases and sales. For WP&L, these contracts are used to
manage costs within the forecasts used to set its electric rates.
In 2001 and 2000, a net loss of $0.1 million and a net gain of $0.4 million,
respectively, were recognized relating to the amount of gas commodity swaps outstandinghedge ineffectiveness
in accordance with SFAS 133. WP&L did not exclude any components of the
derivative instruments' gain or loss from the assessment of hedge effectiveness
and in 2001 reclassified a loss of $0.9 million into earnings as a result of
the discontinuance of hedges. At December 31, 1998,2001, the maximum length of time
over which WP&L hedged its exposure to the variability in future cash flows for
forecasted transactions was 5.8three months and WP&L estimated that gains of $4.1
million dekatherms. Had WP&L terminated all ofwill be reclassified from accumulated other comprehensive loss into
earnings in 2002 as the agreements existing athedged transactions affect earnings. At December 31,
1998, it2000, the maximum length of time over which WP&L hedged its exposure to the
variability in future cash flows for forecasted transactions was ten months and
WP&L estimated that losses of $4.7 million would have realized an estimated gainbe reclassified from
accumulated other comprehensive loss into earnings in 2001 as the hedged
transactions affected earnings.
A-28
Other Derivatives Not Designated in Hedge Relationships--Alliant Energy's
derivatives that were not designated in hedge relationships during 2001 and/or
2000 included electricity price collars and physical coal contracts not
designated in hedge relationships. Electricity price collars were used to
manage utility energy costs during supply/demand imbalances. Physical coal
contracts that do not qualify for the normal purchase and sale exception were
used to manage the price of $0.8 million.
(11) anticipated coal purchases and sales. These
contracts are used to manage costs within the forecasts used to set its
electric rates.
(b) Weather Derivatives--WP&L uses weather derivatives to reduce the impact of
weather volatility on its natural gas sales volumes. In 2001 and 2000, WP&L
entered into non-exchange traded options based on heating degree days in which
WP&L receives payment from the counterparty if actual heating degree days are
less than the strike price in the contract. WP&L paid premiums to enter into
these contracts, which are amortized to expense over the contract period. WP&L
has used the intrinsic value method to account for these weather derivatives.
(c) Nuclear Decommissioning Trust Fund Investments--Historically, WP&L has
entered into combinations of options to mitigate the effect of significant
market fluctuations on its common stock investments in its nuclear
decommissioning trust funds. The derivative transactions are 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 hedge period. Fair value
changes of these instruments do not impact net income as they are recorded as
equally offsetting changes in the investment in nuclear decommissioning trust
funds and accumulated depreciation.
(10)COMMITMENTS AND CONTINGENCIES:CONTINGENCIES
(a) Construction and Acquisition Program -
Plans for WP&L'sProgram--WP&L currently anticipates 2002
utility construction and acquisition program canexpenditures will be found
elsewhere in this report in the "Liquidityapproximately $158
million. During 2003-2006, WP&L currently anticipates to spend approximately
$674 million for utility construction and Capital Resources - Capital
Requirements" section of MD&A.acquisition expenditures.
(b) Purchased-Power, Coal and Natural Gas Contracts -Contracts--Alliant Energy, through
its subsidiaries (Corporate Services, IESU, WP&L and IPC), has entered into
purchased-power, capacitycoal and natural gas supply, transportation and storage
contracts. Certain purchased-power commitments are considered operating leases
and are therefore not included here, but are included in Note 2. 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. Refer to
Note 14 for additional information. Coal contract quantities are directly
assigned to specific plants at the individual utilities based on various
factors including projected heat input requirements, combustion compatibility
and efficiency. However, for 2002-2006, system-wide contracts of $48.1 million
(7.2 million tons), $50.0 million (7.6 million tons), $31.4 million (3.9
million tons), $22.8 million (2.7 million tons) and $8.2 million (0.9 million
tons), respectively, have not yet been directly assigned to the individual
utilities since the specific needs of each utility is not yet known. The
natural gas supply commitments are all index-based. Alliant Energy expects to
supplement its coal and natural gas supplies with spot market purchases as
needed. The table includes commitments for "take or pay" contracts and itswhich result
in dollar commitments with no associated MWhs, tons or Dths. WP&L's minimum
commitments are as follows (dollars and Dths in millions, megawatt-hours (MWHs)millions; MWhs and tons in
thousands):
Coal
(including transportation
Purchased-Power costs)
--------------------------- --------------------------------
Dollars MWHs Dollars Tons
----------- ------------ ------------- ---------------
1999 $ 62.3 1,290 $ 22.2 6,124
2000 66.0 1,509 10.1 2,986
2001 52.4 864 8.4 1,600
2002 31.8 219 4.4 750
2003 24.3 219 - -
Purchased-power Coal Natural gas
--------------- ------------ ------------
Dollars MWhs Dollars Tons Dollars Dths
------- ---- ------- ---- ------- ----
2002 $36.4 219 $9.8 716 $25.4 2
2003 17.8 219 5.6 -- 21.2 1
2004 6.2 219 5.6 -- 12.9 --
2005 -- -- -- -- 12.7 --
2006 -- -- -- -- 12.3 --
(c) 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, WP&L 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
1999-2003 are 70.3, 59.7, 45.4, 31.5 and 24.5, respectively. The minimum dollar
commitments for 1999-2003, in millions, are $42.8, $32.5, $27.1, $24.7 and
$17.0, 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 -
In May 1998, IEC entered into an agreement, expiring in 2004, with
Electronic Data Systems Corporation (EDS) for information technology services.
WP&L's anticipated operating and capital expenditures under the agreement for
1999 are estimated to total approximately $2.8 million. Future costs
A-44
under the agreement are variable and are dependent upon WP&L's level of usage of
technological services from EDS.
(d) Financial Guarantees and Commitments -
IEC has financial guarantees, which were generally issued to support
third-party borrowing arrangements and similar transactions, amounting to $18.1
million outstanding at December 31, 1998. Such guarantees are not reflected in
the consolidated financial statements. Management believes that the likelihood
of IEC having to make any material cash payments under these agreements is
remote.
In addition, as part of IEC's electricity trading joint venture with
Cargill Incorporated (Cargill), Cargill has made guarantees to certain
counterparties regarding the performance of contracts entered into by the joint
venture. Guarantees of approximately $50 millionappropriate reserves have been issuedestablished and
final disposition of which
approximately $5 million were outstanding at December 31, 1998. Under the terms
of the joint venture agreement, any payments required under the guarantees would
be shared by IEC and Cargill on a 50/50 basis to the extent the joint venture isthese actions will not able to reimburse the guarantor for payments made under the guarantee.
As of December 31, 1998, Alliant Energy Resources had extended commitments
to provide $7.2 million in nonrecourse, fixed rate, permanent financing to
developers which are secured by affordable housing properties. IEC anticipates
other lenders will ultimately finance these properties.
(e) Nuclear Insurance Programs -
Public liability for nuclear accidents is governed by the Price Anderson
Act of 1988, which sets a statutory limit of $9.8 billion for liability to the
public for a single nuclear power plant incident and requires nuclear power
plant operators to provide financial protection for this amount. As required,
IESU provides this financial protection for a nuclear incident at DAEC through a
combination of liability insurance ($200 million) and industry-wide
retrospective payment plans ($9.6 billion). Under the industry-wide plan, each
operating licensed nuclear reactor in the United States is subject to an
assessment in the event of a nuclear incident at any nuclear plant in the United
States. The owners of DAEC could be assessed a maximum of $88.1 million per
nuclear incident, with a maximum of $10 million per incident per year (of which
IESU's 70 % ownership portion would be approximately $61.7 million and $7
million, respectively) if losses relating to the incident exceeded $200 million.
These limits are subject to adjustments for changes in the number of
participants and inflation in future years. On a similar note, 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.
IESU and WP&L are members of Nuclear Electric Insurance Limited (NEIL).
NEIL provides $1.9 billion of insurance coverage for IESU and $1.8 billion 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. 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, IESU could be assessed annually
a maximum of $1.9 million for NEIL primary property, $3.5 million for NEIL
excess property and $0.7 million for NEIL additional expenses if losses exceed
the accumulated reserve funds. WP&L could be assessed
A-45
annually a maximum of $1.1 million for NEIL primary property, $2.0 million for
NEIL excess property and $0.6 million for NEIL additional expense coverage. IESU
and WP&L are 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 or DAEC, 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 IEC and could have a material adverse effect on
IEC'sits financial position andcondition or results of operations.
(f)A-29
(d) Environmental Liabilities -
WPLiabilities--WP&L hashad recorded the following environmental
liabilities, and regulatory assets associated with certain of approximately $12.3 million
on its Consolidated Balance Sheetsthese
liabilities, at December 31 1998. IEC's significant
environmental liabilities are discussed below.
Manufactured Gas Plant Sites
IESU, WP(in millions):
Environmental liabilities 2001 2000
------------------------- ---- ----
MGP sites........ $4.4 $4.5
NEPA............. 3.1 3.6
Other............ -- 0.1
---- ----
$7.5 $8.2
==== ====
Regulatory assets 2001 2000
----------------- ----- -----
MGP sites.... $11.7 $11.7
NEPA......... 4.0 4.4
Other........ 3.0 0.5
----- -----
$18.7 $16.6
===== =====
MGP Sites--WP&L and IPC all havehas current or previous ownership interests in properties14 sites
previously associated with the production of gas at MGP sites for which they may be liable
for investigation, remediation and monitoring costs relating to the sites. A summary of information relating to the sitesWP&L
has received letters from state environmental agencies requiring no further
action at five sites. WP&L is as
follows:
IESU WP&L IPC
---- ---- ----
Number of known sites for which liability may exist 34 14 9
Liability recorded at December 31, 1998 (millions) $26.6 $7.7 $17.5
Regulatory asset recorded at December 31, 1998 (millions) $26.6 $14.1 $17.5
The companies are working pursuant to the requirements of various
federal and state agencies to investigate, mitigate, prevent and remediate,
where necessary, the environmental impacts to property, including natural
resources, at and around the sites in order to protect public health and the
environment.
The companies each believe that they have completed the remediation at various
sites, although they are still in the process of obtaining final approval from
the applicable environmental agencies for some of these sites.
Each companyWP&L records environmental liabilities based upon periodic studies, most
recently updated in the fourththird quarter of 1998,2001, 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 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 IECWP&L's sites to be approximately
$35$4 million to $66$5 million. IESU, WP&L and IPC currently estimate
their share of the remaining costs to be incurred to be approximately $17
million to $36 million, $5 million to $9 million and $13 million to $21 million,
respectively.
Under the current rate making treatment approved by the PSCW, the MGP
expenditures of WP&L, net of any insurance proceeds, are deferred and collected
from gas customers over a five-year period after new rates are implemented.
The
MPUC also allows the deferral of MGP-related costs applicable to the Minnesota
sites and IPC has been successful in obtaining approval to recover such costs in
rates in Minnesota. While the
A-46
IUB does not allow for the deferral of MGP-related costs, it has permitted
utilities to recover prudently incurred costs. As a result, regulatoryRegulatory assets have been recorded by each companyWP&L, which reflect the probable future
rate recovery, where applicable. Considering the current rate treatment, and
assuming no material change therein, IESU, WP&L and IPC believebelieves that the clean-up costs
incurred for these MGP sites will not have a material adverse effect on theirits
respective financial positionsconditions or results of operations.
In April 1996, IESU filed a lawsuit against certain of its insurance
carriers seeking reimbursement for its MGP-related costs.
Settlement has been reached with all its carriers and all issues have been resolved. In 1994, IPC
filed a lawsuit against certain of itsWP&L's insurance carriers to recover itsregarding
reimbursement for their MGP-related costs. Settlements have been reached with eight carriers. IPC is
continuingInsurance recoveries available at
December 31, 2001 for WP&L were $2.1 million. Pursuant to its pursuit of additional recoveries but is unable to predict the
amount of any additional recoveries they may realize. Amounts received from
insurance carriers are being deferred by IESU and IPC pending a determination of
the regulatoryapplicable rate
making treatment, of such recoveries. WP&L has settled with all ofrecorded its carriers.recoveries as an offset against its
regulatory assets.
National Energy Policy Act of 1992
The National Energy Policy Act of 19921992--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. IESU is recoveringWP&L recovers the costs associated with this assessment through
its electric fuel adjustment clauses over the
period the costs are assessed. IESU's 70% share of the future assessment at December 31, 1998 was $7.8 million
and has been recorded as a liability with a related regulatory asset for the
unrecovered amount. WP&L had a regulatory asset and a liability of $5.4 million
and $4.6 million recorded at December 31, 1998, respectively. IEC continues to pursue relief from this
assessment through litigation.
(g) Spent Nuclear Fuel -
The Nuclear Waste Policy Act of 1982 assigned responsibility to the U.S.
Department of Energy (DOE) to establish a facility for the ultimate disposition
of high level waste and spent nuclear fuel and authorized the DOE to enter into
contracts with parties for the disposal of such material beginning in January
1998. IESU and WP&L entered into such contracts and have made the agreed
payments to the Nuclear Waste Fund held by the U.S. Treasury. The companies were
subsequently notified by the DOE that it was not able to begin acceptance of
spent nuclear fuel by the January 31, 1998 deadline. Furthermore, 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. IEC 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. IEC 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
IESU and WP&L. In accordance with this responsibility, IESU and WP&L have been
storing spent nuclear fuel on site at DAEC and Kewaunee, respectively, since
plant operations began. IESU will have to increase its spent fuel storage
capacity at DAEC to store all of the spent fuel that will be produced before the
current license expires in 2014. To provide assurance that both the operating
and post-shutdown storage needs are satisfied, construction of a dry cask
modular facility is being contemplated. With minor modifications, Kewaunee would
have sufficient fuel storage capacity to store all of the fuel it will generate
through the end of the 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
A-47A-30
provisions, expand the DOE's permanent spent nuclear fuel storage to include
interim storage for spent nuclear fuel as early as 2002. This legislation has
been submitted in the U.S. House. The prospects for passage by the U.S.
Congress, and subsequent successful implementation by the DOE, are uncertain at
this time.
(h)(e) Decommissioning of DAEC and Kewaunee -
PursuantKewaunee--Pursuant to the most recent electric
rate case order,orders, the IUB and PSCW allow IESU andallows WP&L to recover $6 million and $16 million annually for theirits
share of the cost to decommission DAEC and Kewaunee, respectively.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. Additional
information relating to the decommissioning of DAEC and
Kewaunee includesincluded in the most
recent electric rate order was as follows (dollars in millions):
DAEC Kewaunee
------------------------- --------------------------
Assumptions relating to current rate recovery figures:
IEC'samounts:
WP&L's share of estimated decommissioning cost $252.8 $189.7cost..... $224.9
Year dollars in 1993 1998in.................................... 2001
Method to develop estimate NRC minimum formulaestimate......................... Site-specific
study
Annual inflation rate 4.91%rate.............................. 5.83%
Decommissioning method Prompt dismantling andmethod............................. Prompt
dismantling
and removal
removal
Year decommissioning to commence 2014commence................... 2013
Average after-taxAfter-tax return on external investments 6.82% 6.21%investments:
Qualified...................................... 5.62%
Non-qualified.................................. 6.97%
External trust fund balance at December 31, 1998 $91.7 $134.1
Internal reserve at December 31, 1998 $21.7 -2001...... $215.8
After-tax earnings on external trust funds in 1998 $2.7 $5.22001.... $7.1
The rate recovery figures for DAEC only included an inflation estimate
through 1997. Both IESU and WP&L areis 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
changeand levels will be addressed in future regulatory proceedings.WP&L's 2002 rate
case. In accordance with theirits respective regulatory requirements, IESU and WP&L recordrecords
the earnings on the external trust funds as interest income with a
corresponding entry to interest expense at IESU
and to depreciation expense at WP&L.expense. The earnings accumulate in the
external trust fund balances and in accumulated depreciation on utility plant.
(i) Legal Proceedings -
IEC 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,
A-48
IEC believes that appropriate reserves have been established and final
disposition of these actions will not have a material adverse effect on its
financial position or results of operations.
(12)(11) JOINTLY-OWNED ELECTRIC UTILITY PLANT:PLANT
Under joint ownership agreements with other Iowa and Wisconsin utilities, IESU,
WP&L and IPC havehas
undivided ownership interests in jointly-owned electric generating stations and related transmission facilities.stations.
Each of the respective owners is responsible for the financing of its portion
of the construction costs. Kilowatt-hourKWh 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 IESU's, WP&L's and
IPC's ownership
interest in these facilities at December 31, 1998 is2001 was as follows (dollars in
millions):
1998 1997
-------------------------------- ------------------------------
Accumulated Accumulated
Plant Provision Plant ProvisionConstruction
Fuel Ownership In-service MW Plant in Provision for in forWork-In-
Type Interest % Date Capacity Service Depreciation CWIP Service Depreciation CWIP
- - -------------------- ----------- --------- --------- -- --------- ------------- -------- --Progress
------- ---------- -------- ------------- ------------
Columbia Energy Center Coal 46.2 $174.3 $105.3 $1.7
Edgewater Unit 4...... Coal 68.2 57.1 34.3 1.4
Edgewater Unit 5...... Coal 75.0 232.2 106.2 2.5
Kewaunee.............. Nuclear 41.0 167.3 111.3 3.7
------ ------ ----
$630.9 $357.1 $9.3
====== ====== ====
Increases in utility plant in service balances for Kewaunee during 2001 were
largely due to the replacement of the steam generators, which is expected to
result in significant increases in generating capability compared to such
capability prior to undertaking such project.
A-31
(12) SEGMENTS OF BUSINESS
WP&L is a regulated domestic utility, serving customers in Wisconsin and
Illinois, and is broken down into three segments: a) electric operations; b)
gas operations; and c) other, which includes the water business 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 were 10 percent or more of WP&L's consolidated
revenues. Certain financial information relating to WP&L's significant business
segments was as follows (in millions):
Electric Gas Other Total
--------- ------ ------- IESU
Coal:---------
2001
Operating revenues........................... $ 753.5 $206.9 $ 5.0 $ 965.4
Depreciation and amortization................ 111.5 16.4 1.2 129.1
Operating income............................. 121.6 2.5 1.3 125.4
Interest expense, net of AFUDC............... 38.7 38.7
Equity income from unconsolidated investments (15.5) (15.5)
Miscellaneous, net........................... (12.5) (12.5)
Income tax expense........................... 41.2 41.2
Net income................................... 73.5 73.5
Preferred dividends.......................... 3.3 3.3
Earnings available for common stock.......... 70.2 70.2
Total assets................................. 1,323.9 224.5 331.5 1,879.9
Investments in equity method subsidiaries.... 117.3 117.3
Construction and acquisition expenditures.... 127.9 16.8 2.3 147.0
2000
Operating revenues........................... $ 692.2 $165.2 $ 5.0 $ 862.4
Depreciation and amortization................ 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
Equity income from unconsolidated investments (0.5) (0.5)
Miscellaneous, net........................... (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 revenues........................... $ 626.6 $120.8 $ 5.1 $ 752.5
Depreciation and amortization................ 97.5 14.5 1.0 113.0
Operating income............................. 139.3 13.8 1.8 154.9
Interest expense, net of AFUDC............... 36.5 36.5
Equity income from unconsolidated investments (0.7) (0.7)
Miscellaneous, net........................... 2.5 2.5
Income tax expense........................... 45.8 45.8
Net income................................... 70.8 70.8
Preferred dividends.......................... 3.3 3.3
Earnings available for common stock.......... 67.5 67.5
Total assets................................. 1,310.5 200.3 255.3 1,766.1
Investments in equity method subsidiaries.... 5.2 5.2
Construction and acquisition expenditures.... 111.2 18.2 2.5 131.9
A-32
(13) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
2001 (a) 2000
--------------------------------- ---------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
(in millions)
Ottumwa Unit 1 48.0 1981 716 $193.1 $102.7 $0.8 $191.6 $96.6 $-
Neal Unit 3 28.0 1975 515 59.0 32.4 0.1 60.8 30.6 0.1
Nuclear:
DAEC 70.0 1974 520 507.1 247.2 1.4 500.6 230.8 2.8
--------- ------------- -------- -------- ------------- -------
Total IESU $759.2 $382.3 $2.3 $753.0 $358.0 $2.9
WP&L
Coal:
Columbia Energy 1975 &
Center 46.2 1978 1,023 $161.5 $93.8 $1.4 $161.4 $89.2 $0.8
Edgewater Unit 4 68.2 1969 330 52.4 30.8 0.4 51.5 29.5 1.0
Edgewater Unit 5 75.0 1985 380 229.0 85.9 0.2 229.4 79.8 0.1
Nuclear:
Kewaunee Nuclear
Power Plant 41.0 1974 535 132.2 93.7 6.4 132.0 86.6 0.3
--------- ------------- ------- --------- ------------ -------
Total WP&L $575.1 $304.2 $8.4 $574.3 $285.1 $2.2
IPC
Coal:
Neal Unit 4 21.5 1979 640 $82.1 $48.4 $1.5 $82.2 $45.8 $-
Louisa Unit 1 4.0 1983 738 24.7 11.7 - 24.7 10.9 -
--------- ------------- ------- --------- ------------ -------
Total IPC $106.8 $60.1 $1.5 $106.9 $56.7 $-
--------- ------------- ------- --------- ------------ -------
Total IEC $1,441.1 $746.6 $12.2 $1,434.2 $699.8 $5.1
========= ============= ======= ========= ============ =======
A-49
(13) SEGMENTS OF BUSINESS:
In 1998, IEC adopted SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information." IEC's principal business segments are:
o Regulated domestic utilities - consists of IEC's three regulated
utility operating companies (IESU, WP&L, and IPC) serving customers
in Iowa, Wisconsin, Minnesota and Illinois. The regulated domestic
utility business is broken down into three segments which are: 1)
electric operations; 2) gas operations; and 3) other, which includes
the water and steam businesses as well as the unallocated portions
of the utility business.
o Nonregulated businesses - represents the operations of Alliant
Energy Resources and its subsidiaries. This includes the company's
domestic and international energy products and services businesses;
industrial services, which includes environmental, engineering and
transportation services; investments in affordable housing
initiatives; and investments in various other strategic initiatives.
o Other - includes the operations of IEC's parent company and Alliant
Energy Corporate Services, as well as any reconciling/eliminating
entries.
Intersegment revenues were not material to IEC's operations and there was
no single customer whose revenues exceeded 10% or more of IEC's consolidated
revenues.
A-50
Certain financial information relating to IEC's significant business segments
and products and services is presented below:
Regulated Domestic Utilities Nonregulated IEC
-----------------------------------------------
Electric Gas Other Total Businesses Other Consolidated
- - -------------------------------------------------------------------------------------------------------------------------------
(in thousands)
1998
Operating revenues $1,567,442 $295,590 $31,235 $1,894,267 $238,676 ($2,069) $2,130,874
Depreciation and
amortization expense 219,364 23,683 2,623 245,670 33,835 - 279,505revenues................. $317.2 $204.1 $228.3 $215.8 $218.8 $193.9 $199.6 $250.1
Operating income (loss) 271,511 16,027 5,598 293,136 (8,608) (1,226) 283,302
Interest expense, net 96,951 96,951 23,298 2,302 122,551
Preferred and preference
dividends 6,699 6,699 - - 6,699income................... 37.0 23.4 36.2 28.8 40.5 25.1 36.9 34.6
Net (income) loss from equity
method subsidiaries (858) (858) 2,197 - 1,339
Miscellaneous, net (other than
equity income/loss) 3,545 3,545 (7,973) 2,353 (2,075)
Income tax expense (benefit) 77,257 77,257 (17,232) (1,912) 58,113
Net income (loss) 109,542 109,542 (8,898) (3,969) 96,675
Total assets 3,202,837 458,832 469,822 4,131,491 869,261 (41,415) 4,959,337
Investments in equity method
subsidiaries 5,189 5,189 49,446 - 54,635
Construction and acquisition
expenditures 233,638 33,200 2,295 269,133 102,925 - 372,058
1997
Operating revenues $1,515,753 $393,907 $30,882 $1,940,542 $361,961 ($1,876) $2,300,627
Depreciation and amortization
expense 201,742 21,553 2,432 225,727 33,936 - 259,663
Operating income (loss) 316,880 29,330 2,169 348,379 (6,818) (5,178) 336,383
Interest expense, net 95,734 95,734 23,197 (1,642) 117,289
Preferred and preference
dividends 6,693 6,693 - - 6,693
Net (income) loss from equity
method subsidiaries (32) (32) 849 - 817
Miscellaneous, net (other than
equity income/loss) (8,257) (8,257) (8,282) 1,812 (14,727)
Income tax expense (benefit) 101,739 101,739 (18,616) (1,390) 81,733
Net income (loss) 152,502 152,502 (3,966) (3,958) 144,578
Total assets 3,142,910 448,845 485,225 4,076,980 838,504 8,066 4,923,550
Investments in equity method
subsidiaries 5,694 5,694 39,175 - 44,869
Construction and acquisition
expenditures 217,023 33,984 5,753 256,760 71,280 - 328,040
A-51
Regulated Domestic Utilities
----------------------------------------------- Nonregulated IEC
Electric Gas Other Total Businesses Other Consolidated
- - -------------------------------------------------------------------------------------------------------------------------------
(in thousands)
1996
Operating revenues $1,440,375 $375,955 $24,008 $1,840,338 $393,963 ($1,461) $2,232,840
Depreciation and amortization
expense 180,989 18,124 1,891 201,004 31,359 - 232,363
Operating income (loss) 326,370 40,521 7,001 373,892 (6,666) (1,787) 365,439
Interest expense, net 86,084 86,084 17,859 3,804 107,747
Preferred and preference
dividends 6,687 6,687 - - 6,687
Net (income) loss from equity
method subsidiaries (372) (372) 18 - (354)
Miscellaneous, net (other than
equity income/loss) (1,390) (1,390) (9,968) (131) (11,489)
Income tax expense (benefit) 115,033 115,033 (12,724) 3,451 105,760
Net income (loss) from
continuing operations 167,850 167,850 (1,851) (8,911) 157,088
Discontinued operations - - (1,297) - (1,297)
Net income (loss) 167,850 167,850 (3,148) (8,911) 155,791
Total assets 3,122,761 511,110 452,885 4,086,756 546,690 6,380 4,639,826
Investments in equity method
subsidiaries 6,110 6,110 11,163 - 17,273
Construction and acquisition
expenditures 247,323 34,738 15,135 297,196 115,078 - 412,274
Products and Services
Revenues
----------------------------------------------------------------------------------------------------------------------
Regulated Domestic Utilities Nonregulated Businesses
------------------------------------ ---------------------------------------------------------------------------------
Environmental Transportation, Total
and Engineering Oil and Nonregulated Rents and Nonregulated
Year Electric Gas Other Services Production Energy Other Businesses
- - -------------------------------------------- ---------------------------------------------------------------------------------
(in thousands)
1998 $1,567,442 $295,590 $31,235 $72,616 $64,622 $40,536 $60,902 $238,676
1997 1,515,753 393,907 30,882 78,105 68,922 151,128 63,806 361,961
1996 1,440,375 375,955 24,008 84,859 65,724 192,217 51,163 393,963
(14) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA - WP&L:
------------------------------------------------------------------------
Quarter Ended
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- --------------- ----------------- ------------------
(in thousands)
1998*
Operating revenues $202,803 $172,509 $176,130 $180,006
Operating income 33,651 10,828 29,696 18,475
Net income (loss) 17,598 (1,233) 12,677 6,532income......................... 19.3 11.6 19.9 22.8 21.9 11.3 17.6 20.6
Earnings available for common stock 16,770 (2,061) 11,850 5,705
* 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-5218.4 10.7 19.0 22.0 21.0 10.5 16.8 19.8
- ----------
(a)Summation of the individual quarters may not equal annual totals due to
rounding.
(14) RELATED PARTY ISSUES
IESU, WP&L and IPC have entered into a System Coordination and Operating
Agreement. 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 $32.1 million, $28.6 million and $23.8
million for 2001, 2000 and 1999, respectively. The purchases allocated to WP&L
were $209.2 million, $130.7 million and $101.0 million for 2001, 2000 and 1999,
respectively. The procedures were approved by both the FERC and all state
regulatory bodies having jurisdiction over these sales. Under the agreement,
IESU, 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 receives
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 $107.0 million, $103.4 million and $96.5 million for 2001, 2000 and
1999, respectively, and consisted primarily of employee compensation, benefits
and fees associated with various professional services. At December 31, 2001
and 2000, WP&L had an intercompany payable to Corporate Services of $33.5
million and $30.6 million, respectively.
A-33
------------------------------------------------------------------------
Quarter Ended
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- --------------- ----------------- ------------------
(in thousands)
1997
Operating revenues $231,005 $176,065 $180,192 $207,455
Operating income 45,413 20,882 34,158 38,656
Net income 23,351 11,044 15,236 21,603
Earnings available for common stock 22,523 10,216 14,409 20,776
SHAREOWNER INFORMATION
Market Information
TheInformation--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-sevenSeventy-one percent
of the
Company'sWP&L's individual preferred shareowners are Wisconsin residents.
Dividend Information
PreferredInformation--Preferred stock dividends paid per share for each quarter
during 19982001 were as follows:
Series Dividend Series Dividend
------ -------- ------ --------
4.40% $1.1000 4.96% $ 1.2400
4.50% $1.1250 6.20% $ 1.5500
4.76% $1.1900
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
4.80% $1.2000
As authorized by the Wisconsin Power and Light CompanyWP&L Board of Directors, preferred stock dividend record
and payment dates normallyfor 2002 are as follows:
Record Date Payment Date
----------- ------------
February 26
Record Date Payment Date
----------- ------------
February 28 March 15
May 28 June 15
August 31 September 15
November 30 December 15
May 31..... June 15
August 30.. September 14
November 29 December 14
Stock Transfer Agent and Registrar
InterstateAlliant Energy Corporation
Shareowner Services
P.O. Box 2568
Madison, WI 53701-2568
Form 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.
A-53
EXECUTIVE OFFICERS OF WP&L
Erroll B. Davis, Jr., 54,57, 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 IEC and IESU.
William D. Harvey, 49,52, 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 IEC and IESU.1993.
Eliot G. Protsch, 45,48, 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 IEC and IESU.1998.
Barbara J. Swan, 47,50, 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 IEC and IESU.1998.
Thomas M. Walker, 51,54, was elected Executive Vice President and Chief Financial
Officer (CFO) effective October 1998. Mr. Walker is also on officer of IECHe previously served as Executive Vice
President and IESUCFO since 1996 at IES and IESU.
Pamela J. Wegner, 51,54, was elected Executive Vice President-Corporate
ServicesPresident-Shared Solutions
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 IEC and IESU.
Dale R. Sharp, 58,1998.
A-34
Vern A. Gebhart, 48, was elected Senior Vice President-Engineering and
StandardsPresident-Customer Operations effective
October 1998.January 2002. He previously served as Vice
President-EngineeringManaging Director-Strategic Projects and
Capital Control since 1996, Vice President-Power Production2000 at Alliant Energy, Director-Strategic Projects and
Capital Control from 19951998 to 19962000 at Alliant Energy and Director-Electrical EngineeringDirector-Strategic
Projects and Capital Control from 1980 to 1995 at IPC. Mr. Sharp is
also an officer of IESU.
Daniel A. Doyle, 40, was elected Vice President-Manufacturing and Energy
Portfolio Services effective October 1998. He previously served as Vice
President-Fossil Plants since April 1998, Vice President-Power Production from
19961997 to 1998 and Vice President-Finance, Controller and Treasurer from 1994 to
1996 at WP&L. Mr. Doyle is also an officer of IESU.
John E. Ebright, 55, was elected Vice President-Controller effective April
1998. Mr. Ebright is also an officer of IEC and IESU.
Dean E. Ekstrom, 51, was elected Vice President-Sales and Services
effective April 1998. Mr. Ekstrom is also an officer of IESU.
John F. Franz, Jr., 59, was elected Vice President-Nuclear effective April
1998. Mr. Franz is also an officer of IESU.IES.
Edward M. Gleason, 58,61, 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 IEC and IESU.
Dundeana K. Langer, 40,Doyle, 43, was elected Vice President-Infrastructure Security
effective January 2002. She previously served as Vice President-Customer
Operations since December 2000, Vice President-Customer Services effective October 1998. Ms. Langer is also an officer ofand Operations
from 1999 to 2000, Vice President-Customer Services from 1998 to 1999 and
Assistant Vice President-Field Operations from 1997 to 1998 at IESU.
Daniel L. Mineck, 50,53, was elected Vice President-Performance Engineering and
Environmental effective April 1998. Mr. Mineck is also an officer ofHe previously served as Assistant Vice
President-Corporate Engineering since 1996 at IESU.
A-54
Kim K. Zuhlke, 45,48, was elected Vice President-Customer OperationsPresident-Engineering, Sales & Marketing
effective April 1998.September 1999. He previously served as Vice President-Customer
Operations since April 1998 and as Vice President-Customer Services and Sales
since 1993 at WP&L. Mr. Zuhlke is also an officer of IESU.
David L. Wilson, 52, was elected Assistant Vice President-Nuclear
effective April 1998. Mr. Wilson is also an officer of IESU.
Linda J. Wentzel, 50, was appointed Assistant Corporate Secretary
effective May 1998. She previously served as Executive Administrative Assistant
since 1995 and Administrative Assistant from 1992 to 1995 at IEC. Ms. Wentzel is
also an officer of IEC and IESU.
Enrique Bacalao, 49, was appointed Assistant Treasurer effective November
1998. Prior to joining WP&L, he was Vice President, Corporate Banking at the
Chicago Branch from 1995 to 1998, and Manager and Head of the Customer Dealing
Group at the London Branch from 1993 to 1995, of The Industrial Bank of Japan,
Limited. Mr. Bacalao is also an officer of IEC and IESU.
Steven F. Price, 46,1998.
John E. Kratchmer, 39, was elected Assistant TreasurerCorporate Controller and Chief Accounting
Officer effective April 1998.October 2000. He previously served as Assistant Corporate SecretaryController
since 1992April 1998 at IEC and WP&LAlliant Energy and as Assistant Treasurer since 1992Manager of Financial Reporting and
Property from 1996 to 1998 at IEC. Mr. Price is also an officer of
IESU.
Robert A. Rusch, 36, was elected Assistant Treasurer effective April 1998.
He previously served as Assistant Treasurer since 1995 and Financial Analyst
from 1989 to 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 agreementsagreement with IECAlliant 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-55Additional Officers
Linda J. Wentzel, 53, was elected Assistant Corporate Secretary effective May
1998. She previously served as Executive Administrative Assistant since 1995 at
Alliant Energy.
Enrique Bacalao, 52, 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, 49, was elected Assistant Treasurer effective April 1998. He
previously served as Assistant Corporate Secretary since 1992.
A-35
Wisconsin Power & Light Company P.O. BoxBOX 2568
Madison, WI 53701-2568
WISCONSIN POWER AND LIGHT COMPANY
PO BOX 2568
MADISON WI 53701-2568
- --------------------------------------------------------------------------------
ANNUAL MEETING OF SHAREOWNERS - MAY 26, 199922, 2002
- --------------------------------------------------------------------------------
The undersigned appoints William D. Harvey and Edward M. Gleason,F.J. Buri, 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 7, 1999,March 28, 2002, at the 1999 Annual Meeting of
Shareowners of the Company to be held in room 1A at the
General Office, 222 W. Washington Avenue,4902 N. Biltmore Lane, Madison,
Wisconsin on May 26, 1999,22, 2002 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 Meeting of Shareowners dated April
12, 1999,9, 2002 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 proxyproxies will
be
votedvote "FOR" the election of all listed director nominees.
(continuedTo access the Alliant Energy Corporation Annual Report and to be signed and datedProxy Statement
on the other side)Internet, please open our site at www.alliantenergy.com. We
encourage you to check out our site to see how easy and convenient it is.
Click on the Annual Report button for the Annual Report/Proxy Statement.
You may print or just view these materials. Your Internet provider may have
usage charges associated with electronic access.
WisconsinPowerWisconsin Power & Light PROXY CARDCompany
Shareowner Services
PO Box 2568
Madison WI 53701-2568
SHAREOWNER INFORMATION NUMBERS
Local Madison, WI1-608-458-3110
All Other Areas 1-800-356-5343
Indicate your vote by an (x)(X) in the appropriate boxes.
1. ELECTION OF DIRECTORS:
Nominees for termsDIRECTORS
Withhold For All
ending in 2002:
For All For All Except(*)
[ ] [ ] [ ]Nominees for terms ending in 2005: [_] [_] [_]
01 Alan B. Arends
Rockne G. Flowers02 Katharine C. Lyall
Robert D. Ray03 Singleton B. McAllister
04 Anthony R. Weiler
Please date and sign your name(s) exactly as shown above
and return this proxy card in the enclosed envelope.
________________________ DATED: ________________ (*)* TO WITHHOLD AUTHORITY TO VOTE ________________________ DATED: ________________ FOR ANY INDIVIDUAL
Signature(s) NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE AND MARK AN (x) ON(X) IN THE "For All
Except" BOX.
IMPORTANT:Please date and sign your name(s) exactly as shown above and mail promptly in
the enclosed envelope.
Signature Date
----------------------------- ---------------------------
Signature Date
----------------------------- ---------------------------
Important: When signing as attorney, executor, administrator, trustee or
guardian, please give your full title as such. In the case of JOINT HOLDERS, all
should sign.
Please FOLD herefold and DETACHdetach Proxy Card at perforation if appointing a proxy by mail.
- --------------------------------------------------------------------------------
To Allall Wisconsin Power and Light Company Shareowners:
You are invitedPlease take a moment to attendvote your shares for the upcoming Annual Meeting of
Shareowners on Wednesday, May
26, 1999, at 1:00 p.m. in the General Office, in room 1A at 222 West Washington
Ave., Madison, Wisconsin.Shareowners.
Above is your 19992002 Wisconsin Power and Light Company Proxy Card.proxy card. Please read
both sides of the Proxy Card,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.
SHAREOWNER INFORMATION NUMBERS
Local (Madison) 1-608-252-3110
All Other Areas 1-800-296-5343You are invited to attend the Annual Meeting of Shareowners on Wednesday, May
22, 2002 at 1:00 p.m. at the Alliant Energy Corporate Headquarters in the Nile
Meeting Room at 4902 N. Biltmore Lane, Madison, Wisconsin.