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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE SECURITIES
EXCHANGE ACT OFof the Securities
Exchange Act of 1934 (AMENDMENT NO.(Amendment No. )
Filed by the registrantRegistrant [X]
Filed by a partyParty other than the registrant [ ]Registrant [_]
Check the appropriate box:
[ ][_] Preliminary proxy statement [ ]Confidential, for Use of the
Commission Only (as permittedProxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive proxy statement by Rule 14a-6(e)(2))
[ ]Proxy Statement
[_] Definitive additional materials
[ ]Additional Materials
[_] Soliciting material pursuantMaterial Pursuant to Rule 14a-11(c)Section 240.14a-11(c) or Rule 14a-12
Wisconsin Power and Light CompanySection 240.14a-12
WISCONSIN POWER AND LIGHT COMPANY
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(Name of Registrant as Specified inIn Its Charter)
Wisconsin Power and Light Company
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing feeFiling Fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ]No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ]-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ][_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the formForm or scheduleSchedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------Previously Paid:
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(2) Form, scheduleSchedule or registration statement no.Registration Statement No.:
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(3) Filing party:
- --------------------------------------------------------------------------------Party:
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(4) Date filed:
- --------------------------------------------------------------------------------Filed:
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Notes:
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WP&L Logo
Wisconsin Power & Light Company,LOGO
222 West Washington Avenue, P. O. BoxWEST WASHINGTON AVENUE P.O. BOX 192 Madison,MADISON, WI 53701-0192 Phone: (608) PHONE:
608/252-3311
July 30, 1996March 15, 1997
TO THE OWNERS OF WISCONSIN POWER AND LIGHT COMPANY:
We extend a cordial invitation to you to join us at the 19961997 Annual Meeting
of Shareowners of Wisconsin Power and Light Company (the "Company"). The
meeting will be held at the Exhibition Hall at the Dane County Expo Center,
1881 Expo Mall, Madison, Wisconsin, on Thursday, September 5, 1996,April 23, 1997, at 10:00 a.m.,
immediately preceding the Annual Meeting of Shareowners of WPL Holdings, Inc.
To help with directions, a map showing the location of the meeting site is
provided on the last page of this document. Parking will be available at no
cost. If you plan to join us for the meeting, please indicate the names of the
individuals who will be attending on the enclosed proxy card reservation form.
The enclosed Notice of Annual Meeting and Proxy Statement sets forth the
items to be considered at the meeting. A lunch will be served following the
meeting.
The Company is a subsidiary of WPL Holdings, Inc. ("WPLH") and the Company's
preferred stock is the only class of its stock outstanding in the hands of the
public. WPLH owns all of the Company's common stock. The Company and WPLH will
be holding separate shareowner meetings. If you are a shareowner of both WPLH
and the Company, you will receive two Notices of Annual Meeting and Proxy
Statements, one for each company. Shareowners of both companies will also
receive two proxy cards, one for each company. If you are a shareowner of both
companies, you will have to return both proxy cards to vote all your shares.
PLEASE NOTE THAT THE 19951996 ANNUAL REPORT OF THE COMPANY APPEARS AS APPENDIX A
TO THIS PROXY STATEMENT.
It is important to your interests, and also is helpful to the directors of
the Company, that all shareowners participate in the affairs of the Company,
regardless of the number of shares owned. Whether or not you plan to attend
the meeting, please sign and date the enclosed proxy card and return it in the
postage paid envelope provided for that purpose. You may, of course, still
vote your shares in person at the meeting even if you have previously returned
your proxy.
Your participation in person or by proxy is very important.
Sincerely,
LOGO
ERROLL/s/ Erroll B. DAVIS, JR.Davis, Jr.
Erroll B. Davis, Jr.
President and Chief Executive
Officer
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WISCONSIN POWER AND LIGHT COMPANY
ANNUAL MEETING OF SHAREOWNERS
DATE: Thursday, September 5, 1996April 23, 1997
TIME: 10:00 a.m.
LOCATION: EXHIBITION HALL AT THE
DANE COUNTY EXPO CENTER
MADISON, WISCONSINExhibition Hall at the
Dane County Expo Center
Madison, Wisconsin
(See map printed on last page
of this document.)
SHAREOWNER INFORMATION NUMBERS
LOCAL CALLS (MADISON AREA) ............................................ 252-3110......................252-3110
TOLL FREE NUMBER ................................................ 1-800-356-5343NUMBER..........................1-800-356-5343
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WP&L Logo
Wisconsin Power & Light Company,LOGO
222 West Washington Avenue, P. O. BoxWEST WASHINGTON AVENUE P.O. BOX 192 Madison,MADISON, WI 53701-0192 Phone: (608) PHONE:
608/252-3311
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
10:00 A.M.a.m., THURSDAY, SEPTEMBER 5, 1996April 23, 1997
The Annual Meeting of Shareowners of Wisconsin Power and Light Company (the
"Company") will be held at the Exhibition Hall at the Dane County Expo Center,
1881 Expo Mall, Madison, Wisconsin, on Thursday, September 5, 1996,April 23, 1997, at 10:00 a.m., local
time, for the following purposes:
(1) To elect a total of three directors for terms expiring at the 19992000
Annual Meeting of Shareowners.
(2) To appoint Arthur Andersen LLP as independent auditors for the calendar
year 1996.
(3) To consider and act upon any other business that may properly come
before the meeting.meeting or any adjournment or postponement thereof.
The Board of Directors of the Company presently knows of no other business
to come before the meeting.
Only the sole common shareowner, WPL Holdings, Inc., and preferred
shareowners of record on the books of the Company at the close of business on
July 10, 1996,February 25, 1997, are entitled to vote at the meeting. All such shareowners
are requested to be present at the meeting in person or by proxy.
PLEASE SIGN AND RETURN YOUR PROXY IMMEDIATELY. YOUR PROXY COVERS ALL OF YOUR
SHARES OF THE VARIOUS SERIES OF PREFERRED STOCK OF THE COMPANY. 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 PROXY PROMPTLY.
THE 19951996 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 COST, ALTHOUGH THE ANNUAL REPORT DOES NOT CONSTITUTE A PART OF
THE PROXY STATEMENT.
For information purposes only, you should have already receivedwill receive under separate cover a copy
of the WPL Holdings, Inc. 19951996 Annual Report to shareowners.Shareowners. That document wasis
sent to you in order that shareowners of the Company may be kept up-to-date on
activities of WPL Holdings, Inc. However, the WPL Holdings, Inc. Annual Report
is not intended to be used in conjunction with the solicitation of proxies
with respect to the Company.
By Order of the Board of Directors,
LOGO
EDWARD/s/ Edward M. GLEASONGleason
Edward M. Gleason
Corporate Secretary
July 30, 1996Madison, Wisconsin
March 15, 1997
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WP&L Logo
Wisconsin Power & Light Company,LOGO
222 West Washington Avenue, P. O. BoxWEST WASHINGTON AVENUE P.O. BOX 192 Madison,MADISON, WI 53701-0192 Phone: (608) PHONE:
608/252-3311
PROXY STATEMENT RELATING TO THE
19961997 ANNUAL MEETING OF SHAREOWNERS
This proxy statement is being furnished to holders of preferred stock of
Wisconsin Power and Light Company (the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company for use at
the 19961997 Annual Meeting of Shareowners (the "Meeting"). The Meeting will be
held at the Exhibition Hall of the Dane County Expo Center, 1881 Expo Mall,
Madison, Wisconsin, on September 5, 1996April 23, 1997 at 10:00 a.m. The purpose of the Meeting
is to consider and vote upon 1) a proposal to elect three directors for terms
expiring at the 19992000 Annual Meeting of Shareowners;Shareowners, and 2) a proposal to appoint Arthur
Andersen LLP as independent auditors for the Company for the calendar year 1996;
and 3) such other matters,
if any, that may properly come before the Meeting.Meeting or any adjournment or
postponement thereof.
The Board of Directors of the Company is not aware, as of the date of the
mailing of this proxy statement, of any other matters that may properly come
before the Meeting. If any such other matters properly come before the
Meeting, or any adjournment or postponement thereof, it is the intention of
the persons named in the proxy to vote such proxies in accordance with their
best judgment on such matters.
The enclosed proxy relating to the Meeting is solicited on behalf of the
Board of Directors of the Company and the cost of such solicitation will be
borne by the Company. Following the original solicitation of proxies by mail,
beginning on or about July 30, 1996,March 15, 1997, certain of the officers and regular
employees of the Company may solicit proxies by telephone, telecopy or in
person, but without extra compensation. The Company will pay to banks,
brokers, nominees, and other fiduciaries their reasonable charges and expenses
incurred in forwarding the proxy material to their principals.
The Company is a subsidiary of WPL Holdings, Inc. ("WPLH"), which owns all
of the Company's outstanding common stock.
On November 10, 1995, WPLH entered
into an agreement to combine (the "Proposed Merger") with IES Industries, Inc.
of Cedar Rapids, Iowa, and Interstate Power Company of Dubuque, Iowa, under a
holding company that will be known as Interstate Energy Corporation,
headquartered in Madison, Wisconsin. Since the Company is not a direct party to
the Proposed Merger, shareowners of the Company will not be entitled to vote
thereon. Additional information regarding the Proposed Merger is included in the
Company's 1995 Annual Report attached hereto as Appendix A.
Voting Rights. Only shareowners of the Company of record on its books at the
close of business on July 10, 1996,February 25, 1997, are entitled to vote at the Meeting.
Each such shareowner is entitled to vote on each matter submitted to a vote at
the Meeting. WPLH, the sole holder of the Company's common stock, has one vote
for each share it holds on the record date. Every holder of preferred stock
has, for each share of preferred stock held by him or her on the record date,
that number of votes (including any fractional vote) determined by dividing
the stated value of such shares by 100. Shareowners may vote either in person
or by duly authorized proxy. The giving of proxies by shareowners will not
affect 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 before it is voted, by advising the Secretary of
the Company prior to such voting. A proxy may also be revoked by a shareowner
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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 or postponed
session of the Meeting, all in accordance with the terms of such proxies.
Outstanding Voting Securities. The outstanding voting securities of the
Company on the record date stated above consisted of 13,236,601 shares of
common stock (all of which are held by WPLH) and 1,049,225 shares of preferred
stock (issued in various series).
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The Company will furnish without charge to each shareowner, who is entitled
to vote at the Meeting and who makes a written request, a copy of the
Company's Annual Report on Form 10-K (not including exhibits thereto), as
filed pursuant to the Securities Exchange Act of 1934. Written requests for
the Form 10-K should be mailed to the Corporate Secretary at the address
stated above.
PROPOSAL # 1:
ELECTION OF DIRECTORS
Three directors are to be elected at the Meeting. Rockne G. Flowers,
Katharine C. Lyallmeeting. Erroll B. Davis, Jr.,
Milton E. Neshek and Henry C. PrangeCarol T. Toussaint are nominees of the Board of Directors
to hold office for terms expiring at the 19992000 Annual Meeting of Shareowners of
the Company or until their successors have been duly elected and qualified.
Directors will be elected by a plurality of the votes cast at the Meeting
(assuming a quorum is present), with all shares of Company common stock and
preferred stock voting together as one class. Consequently, any shares not
voted at the Meeting, whether due to abstentions broker nonvotes or otherwise, will have no
impact on the election of directors. A vote shown as withheld on a returned
proxy card will be treated as an abstention. WPLH, which owns all of the
outstanding shares of the Company's common stock, intends to vote all of its
shares "FOR" the Board's nominees, thereby assuring the election of such
nominees. The proxies solicited may also be voted for a substitute nominee or
nominees in the event that any of the nominees shall be unable to serve or for
good reason will not serve, a contingency not now anticipated.
Brief biographies of director nominees and continuing directors follow.
These biographies include their age (as of December 31, 1995)1996), an account of
their business experience, and the names of corporations of which they are
also directors, as well as other information relating to their activities.
Except as otherwise indicated, each nominee and continuing director has been
engaged in his or her present principal occupation for at least the past five
years.
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Nominees
ROCKNE G. FLOWERS
LOGO Principal Occupation: President and Director of Nelson Industries,
Inc. (a muffler,
filter, industrial silencer, and active sound and vibration control
technology and
manufacturing firm), Stoughton, Wisconsin.
Age: 64
Served as director from: 1979 to 1990 and since 1994ERROLL B. DAVIS, JR.
Principal Occupation: President and Chief Executive
Officer of the Company; President and Chief Executive
Officer of WPLH; Chairman of the Board of Heartland
[PHOTO] Development Corporation.
Age: 52
Served as director since: April 1984
Annual Meeting at which nominated term of office will
expire: 2000
Other Information: Mr. Davis was elected President of the Company in July
1987, and was elected to his current position with the Company in August 1988.
Mr. Davis joined the Company in August 1978. Mr. Davis was elected President
of WPLH in January 1990, and was elected President and Chief Executive Officer
of WPLH effective July 1, 1990, and has served as a director of WPLH since May
1982. Mr. Davis was elected Chairman of the Board of Heartland Development
Corporation, a subsidiary of WPLH, effective July 1, 1990. He is a director of
the Edison Electric Institute, the Association of Edison Illuminating
Companies, Amoco Oil
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Company, Competitive Wisconsin, Inc., PPG Industries, Inc., Sentry Insurance
Company (a mutual company), and the Wisconsin Utilities Association. Mr. Davis
is also a director and past chair of the Wisconsin Association of
Manufacturers and Commerce, a director and vice chair of Forward Wisconsin,
and a director and vice chair of the Electric Power Research Institute.
MILTON E. NESHEK
Principal Occupation: President, Chief Executive Officer
and Director of the law firm of Godfrey, Neshek, Worth,
Leibsle and Connover, S.C., Elkhorn, Wisconsin, and
General Counsel, Assistant Secretary and Manager, New
[PHOTO] Market Development, Kikkoman Foods, Inc. (a food
products manufacturer), Walworth, Wisconsin.
Age: 66
Served as director since: November 1984
Annual Meeting at which nominated term of office will
expire: 2000
Other Information: Mr. Neshek has served as a director of WPLH since December
1986. Mr. Neshek is a director of Heartland Properties, Inc., and Capital
Square Financial Corporation, subsidiaries of Heartland Development
Corporation. He is also a director of Kikkoman Foods, Inc.; Midwest U.S.-Japan
Association; Regional Transportation Authority (for southeast Wisconsin); and
Wisconsin-Chiba, Inc. He is a fellow in the American College of Probate
Counsel. Mr. Neshek is active in the Walworth County Bar Association, the
State Bar of Wisconsin, and the American Judicature Society. Mr. Neshek is
also a member of the Wisconsin Sesquicentennial Commission and a member of the
Executive and Finance Committee for the Wisconsin Sesquicentennial Commission.
CAROL T. TOUSSAINT
Principal Occupation: Consultant
Age: 67
[PHOTO]
Served as director since: August 1976
Annual Meeting at which nominated term of office will
expire: 2000
Other Information: Mrs. Toussaint has served as a director of WPLH from 1986
to 1990 and since February 1994. She is an independent consultant on board
organization, fund development and public relations working primarily with
nonprofit organizations. She is the owner of Vantage Point, a lecture program
business, and an Associate of Hayes Briscoe, a fund development consulting
firm. She is an active member and past chair of the Utility Women's
Conference, a national organization open to women serving as directors or
officers of investor-owned electric, gas, water and telephone companies.
THE BOARD OF DIRECTORS RECOMMENDS THE FOREGOING NOMINEES FOR ELECTION AS
DIRECTORS AND URGES EACH SHAREOWNER TO VOTE "FOR" ALL NOMINEES. SHARES OF
STOCK REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" ALL
NOMINEES.
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Continuing Directors
L. DAVID CARLEY
Principal Occupation: Consultant to institutions and
associations in higher education and health care
delivery; financial advisor to and investor in small
businesses.
[PHOTO]
Age: 68
Served as director from: 1975 to 1977 and since October
1983
Annual Meeting at which current term of office will
expire: 1998
Other Information: Mr. Carley is a trustee of the Kennedy Presidential
Library, and is the Chairman of the Board of Alliance Therapies Inc., a health
rehabilitation firm. Mr. Carley has served as a director of WPLH from 1986 to
1990 and since February 1994.
ROCKNE G. FLOWERS
Principal Occupation: President and Director of Nelson
Industries, Inc. (a muffler, filter, industrial
silencer, and active sound and vibration control
technology and manufacturing firm), Stoughton,
[PHOTO] Wisconsin.
Age: 65
Served as director from: 1979 to 1990 and since February
1994
Annual Meeting at which current term of office will
expire: 1999
Other Information: Mr. Flowers has served as a director of WPLH since April
1981. He is also a director of RMT, Inc., a subsidiary of Heartland
Development Corporation; Digisonix, Inc.; American Family Mutual Insurance
Company; Janesville Sand and Gravel Company; M&I Madison Bank; Meriter Health
Services, Inc.; Meriter Hospital; and the Wisconsin History Foundation. HeFoundation and
University Research Park.
DONALD R. HALDEMAN
Principal Occupation: Executive Vice President and Chief
Executive Officer, Rural Insurance Companies (a mutual
group), Madison, Wisconsin; and farm owner-operator,
Norwalk, Wisconsin.
[PHOTO]
Age: 60
Served as director since: July 1985
Annual Meeting at which current term of office will
expire: 1998
Other Information: Mr. Haldeman is alsoa director of Competitive Wisconsin, Inc.,
and a member of the Board of Directors of the Natural Resources Foundation of
Wisconsin, Inc. He has served as a director of WPLH from 1986 to 1990 and
since February 1994.
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KATHARINE C. LYALL
Principal Occupation: President, University of Wisconsin-Madison School of Business Board of
Visitors.
KATHARINE C. LYALL
LOGO Principal Occupation: President, University of Wisconsin System,
Madison,
Wisconsin.
Age: 54
Served as director since: 1986
Annual Meeting at which nominatedWisconsin
System, Madison, Wisconsin.
[PHOTO]
Age: 55
Served as director since: October 1986
Annual Meeting at which current term of office will
expire: 1999
Other Information: Ms. Lyall has served as President of the University of
Wisconsin System since April, 1992. Prior to becoming President, she served as
Executive Vice President of the University of Wisconsin System. Ms. Lyall has
been a director of WPLH from 1986 to 1990 and since February 1994. 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; the Association of American Universities
(currently serving on the Executive Committee); the Wisconsin Academy of
Sciences, Arts and Letters; the American Red Cross (Dane County); Competitive
Wisconsin, Inc.; and Forward Wisconsin. In addition to her administrative
position, she is a professor of Economics at the University of Wisconsin-Madison.
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HENRY C. PRANGE
LOGOWisconsin-
Madison.
ARNOLD M. NEMIROW
Principal Occupation: Retired Chairman, of the Board, H. C. Prange
Company
(retail stores), Green Bay, Wisconsin.
Age: 68
Served as director since: 1965
Annual Meeting at which nominated term of office will expire: 1999
Other Information: Mr. Prange has served as a director of WPLH since 1986.
THE BOARD OF DIRECTORS RECOMMENDS THE FOREGOING NOMINEES FOR ELECTION AS
DIRECTORS AND URGES EACH SHAREOWNER TO VOTE "FOR" ALL NOMINEES. SHARES OF STOCK
REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" ALL NOMINEES.
Continuing Directors
L. DAVID CARLEY
LOGO Principal Occupation: Consultant to institutions and associations in
higher
education and health delivery; financial advisor to small businesses.
Age: 67
Served as director from: 1975 to 1977 and since 1983
Annual Meeting at which current term of office will expire: 1998
Other Information: Mr. Carley is a trustee of the Kennedy Presidential Library,
and is the Chairman of Board of Alliance Therapies Inc., a health rehabilitation
firm. Mr. Carley has served as a director of WPLH from 1986 to 1990 and since
1994.
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ERROLL B. DAVIS,
JR.
LOGO Principal Occupation: President and Chief Executive Officer of the
Company;
President and Chief Executive Officer of WPLH; Chairman of the Board
of
Heartland Development Corporation.
Age: 51
Served as director since: 1984
Annual Meeting at which current term of office will expire: 1997
Other Information: Mr. Davis was elected President of the Company in July 1987,
and was elected to his current position with the Company in August 1988. Mr.
Davis joined the Company in August 1978. Mr. Davis was elected President of WPLH
in January 1990, and was elected President and Chief
Executive Officer, of WPLH
effective July 1, 1990,Bowater, Inc. (a pulp and has served as a director of WPLH since 1982. Mr.
Davis was elected Chairman of the Board of Heartland Development Corporation, a
subsidiary of WPLH, effective July 1, 1990. He is a director of the Edison
Electric Institute, the Association of Edison Illuminating Companies, Amoco Oil
Company, Competitive Wisconsin, Inc.paper
manufacturer), Electric Power Research Institute, PPG
Industries, Inc., Sentry Insurance Company (a mutual company), and the Wisconsin
Utilities Association. Mr. Davis is also a director and immediate past chair of
the Wisconsin Association of Manufacturers and Commerce and a director and vice
chair of Forward Wisconsin.
DONALD R. HALDEMAN
LOGO Principal Occupation: Executive Vice President and Chief Executive
Officer,
Rural Insurance Companies (a mutual group), Madison, Wisconsin.
Age: 59
Served as director since: 1985
Annual Meeting at which current term of office will expire: 1998
Other Information: Mr. Haldeman is a director of Competitive Wisconsin, Inc.,
and a member of the Board of Directors of the Natural Resources Foundation of
Wisconsin, Inc. He has served as a director of WPLH from 1986 to 1990 and since
1994.
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ARNOLD M. NEMIROW
LOGO Principal Occupation: President and Chief Executive Officer, Bowater,
Inc.
(a pulp and paper manufacturer), Greenville, South Carolina.
Age: 52Greenville, South Carolina.
[PHOTO]
Age: 53
Served as director since: February 1994
Annual Meeting at which current term of office will
expire: 1998
Other Information: 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, Inc. in September 1994. Mr. Nemirow has
served as a director of WPLH since February 1991. He is a member of the New
York Bar.
MILTON E. NESHEK
LOGO Principal Occupation: President, Chief Executive Officer and Director
of the law
firm of Godfrey, Neshek, Worth & Leibsle, S.C., Elkhorn, Wisconsin,
and
General Counsel, Assistant Secretary and Manager of New Market
Development, Kikkoman Foods, Inc. (a food products manufacturer),
Walworth, Wisconsin.
Age: 65
Served as director since: 1984
Annual Meeting at which current term of office will expire: 1997
HENRY C. PRANGE
Principal Occupation: Retired Chairman of the Board, H.
C. Prange Company (retail stores), Green Bay, Wisconsin.
[PHOTO]
Age: 69
Served as director since: December 1965
Annual Meeting at which current term of office will
expire: 1999
Other Information: Mr. NeshekPrange has served as a director of WPLH since December
1986.
Mr.
Neshek is5
JUDITH D. PYLE
Principal Occupation: Vice Chair of The Pyle Group, a
director of Heartland Properties, Inc. (HPI), and Capital Square
Financial Corporation, a subsidiary of Heartland Development Corporation. He is
also a director of Kikkoman Foods, Inc.; Midwest U.S.-Japan Association;
Regional Transportation Authority (for southeast Wisconsin); and
Wisconsin-Chiba, Inc. Mr. Neshek was the Chairman of the Governor's Commission
on University of Wisconsin System Compensation from 1991 through 1995 and is a
former member of the University of Wisconsin Accountability Task Force. He is a
fellow in the American College of Probate Counsel. Mr. Neshek is active in the
Walworth County Bar Association, and the State Bar of Wisconsin and is a member
of the Wisconsin Sesquicentennial Commission.
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JUDITH D. PYLE
LOGO Principal Occupation: Vice Chair and Senior Vice President of
Corporate
Marketing of Rayovac Corporation (a battery and lighting products
manufacturer), Madison, Wisconsin.
Age: 52financial services company, Madison, Wisconsin.
[PHOTO]
Age: 53
Served as a director since: February 1994
Annual Meeting at which current term of office will
expire: 1998
Other Information: Prior to assuming her current position, Ms. Pyle served as
Vice Chair and Senior Vice President of Corporate Marketing of Rayovac
Corporation (a battery and lighting products manufacturer), Madison,
Wisconsin. Ms. Pyle has served as a director of WPLH since May 1992. SheMs Pyle
is
also a director of Rayovac Corporation, Firstar Corporation, and Oshkosh B'Gosh.Corporation. She is also a member of the Board of
Visitors at the University of Wisconsin School of Business and the School of
Family Resources and Consumer Sciences.Human Ecology. Further, Ms. Pyle is a member of the Board of Directors of the
United Way Foundation, Greater Madison Chamber of Commerce, Madison Art
Center, and Wisconsin Taxpayers Alliance, and is a trustee of the White House
Endowment Fund.
CAROL T. TOUSSAINT
LOGO Principal Occupation: Consultant
Age: 66
Served as director since: 1976
Annual Meeting at which current term of office will expire: 1997
Other Information: Mrs. Toussaint has served as a director of WPLH from 1986 to
1990 and since 1994. She is a Senior Associate of Hayes Briscoe, a national fund
development firm. She also works as an independent consultant to nonprofit
organizations and operates a lecture program business. She is a member of the
President's Advisory Council on the Arts of the Kennedy Center for the
Performing Arts, and serves on the Board of Governors of the Madison Community
Foundation and as Vice Chair of the Madison Rotary Foundation. Mrs. Toussaint
also serves as a director of the Evjue Foundation, the Madison Civic Center
Foundation and the Wisconsin History Foundation. At the University of
Wisconsin-Madison, she serves as a director of the Research Park, the School of
Business Dean's Advisory Board and the Foundation's Council on Women's Giving,
and as a director of the Alumni Association and convener of its Cabinet 99
Women's Initiative.
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PROPOSAL # 2:
APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors of the Company recommends the
reappointment of Arthur Andersen LLP, independent public accountants, as
auditors to examine the financial statements of the Company for 1996. Arthur
Andersen LLP served as auditors for the Company in 1995.
A representative of Arthur Andersen LLP will be present at the Meeting and
will be available to make a statement or to respond to questions, as
appropriate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE REAPPOINTMENT OF ARTHUR
ANDERSEN LLP. SHARES OF STOCK REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL
BE VOTED "FOR" SUCH REAPPOINTMENT.
MEETINGS AND COMMITTEES OF THE BOARD
During 1995,1996, the Board of Directors had standing Audit, Compensation and
Personnel, and Nominating and Governance Committees.
AUDIT COMMITTEE
AsThe committee consists of January 1, 1995, the committee consisted of L. Aspin, L. D. Carley, R. G. Flowers, D. R. Haldeman, H. F. Scheig, and
K. C. Lyall (Chair). Mr. Scheig
retired as a director effective May 17, 1995. Mr. Aspin passed away on May 21,
1995. The committee held two meetings in 1995.1996. The committee recommends to the
shareowners the independent auditors to be elected;
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
As of January 1, 1995, theThe committee consistedconsists of A. M. Nemirow (Chair), M. E. Neshek, (Chair), H. C. Prange,
J. D. Pyle, and C. T. Toussaint. On May 17, 1995,
Mr. Nemirow became Chair of the committee. The committee held sixthree meetings in 1995.1996.
The committee sets executive compensation policy; 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, if any; and
reviews human resource development programs.
NOMINATING AND GOVERNANCE COMMITTEE
As of January 1, 1995, theThe committee consistedconsists of L. Aspin,D. Carley (Chair), R. G. Flowers, K. C. Lyall,
A. M. Nemirow, (Chair), H. C. Prange, and J. D. Pyle. As of May 17,
1995, Mr. L. D. Carley was added to the committee and was elected as Chair. Mr.
Aspin passed away on May 21, 1995. The committee held two meetings
in 1995.1996. The committee's responsibilities include making recommendations to
the Board of Directors for nominees for election to the Board.Board, selecting
committee members and chairpersons, making recommendations relating to
specific corporate governance issues, and reviewing the
6
Chief Executive Officer's performance. In making recommendations of nominees
for election to the Board, the committee will consider nominees recommended by
shareowners. Any shareowner wishing to make a recommendation should write the
Chief Executive Officer of the Company, who will forward all recommendations
to the committee.
The Board of Directors held nineseven meetings during 1995.1996. No director attended
less than 76% of the aggregate number of meetings of the Board and Board
Committees on which he or she served.
8
13
COMPENSATION OF DIRECTORS
No fees are paid to directors who are officers of the Company and/or its
parent or any of its subsidiaries (presently Mr. Davis). Nonmanagement
directors, each of whom servesserve on the Board of DirectorsBoards of the Company, WPLH, and
Heartland Development Corporation, receive an annual retainer of $32,800 for
service on all three boards. Travel expenses are paid for each meeting day
attended. All nonmanagement directors also receivedreceive a 25 percent matching
contribution in WPLH common stock for limited optional cash purchases, up to
$10,000, of WPLH common stock through the WPLH Dividend Reinvestment and Stock
Purchase Plan. Matching contributions of $2,500 each for calendar year 19951996
were made for the following directors: L. Aspin, L. D. Carley, R. G. Flowers, D. R.
Haldeman, K. C. Lyall, A. M. Nemirow, M. E. Neshek, H. C. Prange, J. D. Pyle
H.
F. Scheig and C. T. Toussaint.
Director's Charitable Award Program -- AProgram--A Director's Charitable Award Program
is maintained for the nonmanagement members of the Company's 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, a total of $500,000
will be donated by the Company and/or WPLH to one qualified charitable
organization, or that amount will be divided 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 and WPLH, and the donations
are funded 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 policiesproceeds on the directors. The Program, over its life,
will not result in any material cost to the Company.
Director's Life Insurance Program -- TheProgram--The Company maintains a split-dollar
Director's Life Insurance Program for nonemployee 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 the Company to reimburse the Company 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 the Company.
9Director Emeritus Program--The Company has adopted a Director Emeritus
Program that will be available during the transition to a new Interstate
Energy Corporation board of directors. A director emeritus is appointed by the
Board of Directors of the Company and is entitled to serve as such until age
70, but no longer than two years. Directors emeriti are entitled to receive
the annual retainer fee paid to the Company's regular directors. Directors
emeriti will participate in various board activities but are not voting
members.
7
14
OWNERSHIP OF VOTING SECURITIES
The Company has two classes of voting securities outstanding, common stock
and preferred stock. WPLH owns 100 percent of the outstanding common stock of
the Company. As of June 1,December 31, 1996, no shareowner beneficially owned more
than five percent of any series of the Company's preferred stock. Listed in
the following table are the shares of WPLH common stock owned as of June 1,December
31, 1996, by the executive officers listed in the Summary Compensation Table
and all of the directors of the Company, as well as the shares owned by
directors and officers as a group. No one in this group owns shares of the
Company's preferred stock.
SHARES
BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED(1) OF CLASS
- ------------------------------------------------------------------------------------ ------------ --------
Executives(2)
A.J.A. J. (Nino) Amato................................................. 2,389(3)Amato.................................. 3,290(3) *
Daniel A. Doyle................................................... 345Doyle..................................... 438 *
William D. Harvey................................................. 7,393(3)Harvey................................... 7,817(3) *
Eliot G. Protsch.................................................. 8,344(3)Protsch.................................... 8,731(3) *
Director Nominees
Rockne G. Flowers................................................. 7,863Erroll B. Davis, Jr................................. 10,879(3)(4) *
Katharine C. Lyall................................................ 4,859Milton E. Neshek.................................... 11,007 *
Henry C. Prange................................................... 9,792(3)Carol T. Toussaint.................................. 9,243 *
Continuing Directors
L. David Carley................................................... 3,623Carley..................................... 4,175 *
Erroll B. Davis, Jr............................................... 10,486(3)(4)Rockne G. Flowers................................... 8,123 *
Donald R. Haldeman................................................ 3,510Haldeman.................................. 3,625 *
Katharine C. Lyall.................................. 5,245 *
Arnold M. Nemirow................................................. 6,814Nemirow................................... 7,005 *
Milton E. Neshek.................................................. 10,656Henry C. Prange..................................... 10,473(3) *
Judith D. Pyle.................................................... 4,592 *
Carol T. Toussaint................................................ 8,947Pyle...................................... 4,744 *
All Executives and Directors as a Group 27 people,(27 people),
including those listed above........................... 129,364above......................... 132,096 *
- ------------
* Less--------
*Less than one percent of the total outstanding shares of WPLH common stock.
(1) Total shares of WPLH common stock outstanding as of June 1,December 31, 1996 were
30,795,260.30,773,735. All individual executives and directors owned beneficially
less than one percent of the total outstanding shares.
(2) Stock ownership of Mr. Davis is shown with continuing directors.director nominees.
(3) Included in the beneficially owned shares shown are the following indirect
ownership interests with shared voting and investment powers: Mr. Harvey -- 1,558;Harvey--
1,662; Mr. Protsch -- 394;Protsch--461; Mr. Davis -- 4,602;Davis--4,976; Mr. Prange -- 248;Prange--248; and Mr.
Amato -- 880.Amato--938.
(4) Mr. Davis has been awarded 1.67 shares of restricted HDC common stock of
Heartland Development Corporation subject to a Restricted Stock Agreement
with Heartland Development Corporation (a subsidiary of WPLH) and WPLH.
108
15
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth the total compensation
paid by the Company for all services rendered during 1996, 1995, 1994, and 19931994 to
the Chief Executive Officer and the four other most highly compensated
executive officers (the "named executive officers").
SUMMARY COMPENSATION TABLE
(DOLLARS)
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION LONG-TERM
---------------------------------------- COMPENSATION
AWARDS
------------------
SECURITIES
-------------------------------------------- UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS/UNDERLYING ALL OTHER
POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($)(2) SARS (#)OPTIONS/SARS(#)(3) COMPENSATION($)(4)
- ----------------------------------------- ---- ------------ -------- ------------------ ------------------------------ ------------------
Erroll B. Davis, Jr....Jr. 1996 $396,000 $146,790 $20,626 12,600 $58,706
President and CEO 1995 374,913 125,496 16,688 13,100 54,131
President and CEO 1994 374,913 128,232 13,163 0 50,796
1993 374,190 115,796 8,979 0 48,715
William D. Harvey......Harvey 1996 209,000 82,104 10,226 4,650 27,875
Senior Vice 1995 193,654 47,340 5,459 4,700 22,357
Senior Vice President
-- 1994 193,654 56,080 5,203 0 22,632
WP&L 1993 168,962 42,104 4,152 0 24,003
Eliot G. Protsch.......Protsch 1996 200,200 81,224 6,968 4,650 23,559
Senior Vice 1995 182,000 47,520 3,951 4,700 18,362
Senior Vice President
-- 1994 178,600 56,080 3,694 0 17,245
WP&L 1993 144,748 42,104 2,934 0 14,122
Anthony J. Amato.......Amato 1996 160,404 60,920 8,879 3,550 21,586
Senior Vice 1995 148,964 40,046 4,887 3,650 17,156
Senior Vice President
-- 1994 152,426 43,138 5,312 0 16,970
WP&L 1993 140,769 33,240 4,181 0 17,842
Daniel A. Doyle........Doyle 1996 149,150 46,865 3,053 2,800 12,180
Vice President, Power 1995 140,399 32,465 3,090 2,900 11,155
Vice President,Production 1994 117,212 35,583 0 0 1,758
Finance(5) 1993 113,173 14,559 0 0 7,2821,758
- --------------------
(1) Includes vacation days sold back to the Company. Does not include the
portion of salary charged to WPLH.
(2) For all except Mr. Davis, amountsOther Annual Compensation for 1995 consist of income tax gross-ups
for reverse split-dollar life insurance. For Mr. Davis, amount for 19951996 consists of income tax gross-ups for
reverse split-dollar life insurance --
$12,630insurance: Mr. Davis--$12,306, Mr. Harvey--
$5,407, Mr. Protsch--$2,974, Mr. Amato--$4,709, and Mr. Doyle--$3,053; and
income tax gross-ups foron financial counseling benefit -- $4,058.benefit: Mr. Davis--$8,320,
Mr. Harvey--$4,819, Mr. Protsch--$3,994, and Mr. Amato--$4,170.
(3) Awards made in 19951996 were in combination with contingent dividend awards as
described in the table entitled "Long-Term Incentive Awards in 1995"1996".
(4) All Other Compensation for 19951996 consists of: matchingMatching contributions to
401(k) plan, Mr. Davis -- $11,247,Davis--$11,880, Mr. Harvey -- $5,892,Harvey--$6,270, Mr. Protsch --
$5,460,Protsch--$6,006,
Mr. Amato -- $4,469,Amato--$3,895, and Mr. Doyle -- $3,330; financialDoyle--$4,169; Financial counseling benefit,
Mr. Davis -- $4,400; splitDavis--$9,020, Mr. Harvey--$5,225, Mr. Protsch--$5,005, and Mr.
Amato--$5,225; Split dollar life insurance premiums, Mr. Davis -- $24,790,Davis--$24,464,
Mr. Harvey -- $10,546,Harvey--$10,518, Mr. Protsch -- $8,799,Protsch--$8,822, Mr. Amato --
$6,562,Amato--$6,565, and Mr.
Doyle -- $3,953; reverseDoyle--$4,184; Reverse split dollar life insurance, Mr. Davis -- $13,694,Davis--$13,342,
Mr. Harvey -- $5,919,Harvey--$5,862, Mr. Protsch -- $4,103,Protsch--$3,726, Mr. Amato --
$6,125Amato--$5,901 and Mr. Doyle -- $3,872.Doyle--
$3,827. The split dollar and reverse split dollar insurance premiums are
calculated using the "foregone interest" method.
(5) Mr. Doyle was appointed Vice President -- Power Production on April 8, 1996.
119
16
OPTION/SAR GRANTS IN 19951996
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK
SECURITIES % OF TOTAL PRICE
UNDERLYING OPTIONS/SARS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------
NAME (#)(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- ------------ --------- ---------- -------- --------
Erroll B. Davis, Jr..... 12,600 17% $30.75 1/2/06 $243,684 $617,652
William D. Harvey....... 4,650 6% 30.75 1/2/06 89,931 227,943
Eliot G. Protsch........ 4,650 6% 30.75 1/2/06 89,931 227,943
Anthony J. Amato........ 3,550 5% 30.75 1/2/06 68,657 174,021
Daniel A. Doyle......... 2,800 4% 30.75 1/2/06 54,152 137,228
The following table sets forth certain information concerning stock options
granted during 19951996 to the named executives under the WPLH Long-Term Equity
Incentive Plan:
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
--------------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE OR BASE EXPIRATION ------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE ($/SHARE) DATE 5%($) 10%($)
- ------------------------- ------------- ------------ ---------------- ---------- ------- -------
Erroll B. Davis, Jr. .... 13,100 31% 27.50 1/3/05 226,630 574,304
William D. Harvey........ 4,700 11% 27.50 1/3/05 81,310 206,048
Eliot G. Protsch......... 4,700 11% 27.50 1/3/05 81,310 206,048
Anthony J. Amato......... 3,650 9% 27.50 1/3/05 63,145 160,016
Daniel A. Doyle.......... 2,900 7% 27.50 1/3/05 50,170 127,136
- --------------------
(1) Consists of non-qualified stock options to purchase shares of WPLH common
stock granted pursuant to the WPLH Long-Term Equity Incentive Plan. OptionsThese
options were granted on January 3, 1995,2, 1996, and will fully vest on January 3, 1998.
These2,
1999. The options were granted with an equal number of contingent dividend
awards as described in the table entitled "Long-Term Incentive Awards in
1995"1996", and have per share exercise prices equal to the fair market value
of a share of WPLH common stock on the date of grant. Upon a "change in
control" of WPLH as defined in the Long-Term Equity Incentive 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 shares of WPLH
common stock already owned by the executive.
(2) The hypothetical potential appreciation shown for the named executives is
required by rules of the SEC rules.Securities and Exchange Commission. The amounts
shown do not represent either the historical or expected future
performance of WPLH's common stock level of
appreciation.stock. 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 WPLHthe WPLH's common stock
would be $44.80$50.09 and $71.34,$79.77, respectively, as of the expiration date of the
options.
12
17
OPTION/SAR VALUES AT DECEMBER 31, 1995
The following table provides information for the named executives regarding
the number and value of unexercised options. No options were exercisableexercised during
1995.1996.
OPTION VALUES AT DECEMBER 31, 1996
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
UNDERLYING UNEXERCISEDOPTIONS/SARS AT IN-THE-MONEY OPTIONS/SAR'S ATSARS
YEAR END OPTIONS/SAR'S AT YEAR END(1)
------------------------------ ------------------------------------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------- ----------- ------------- ----------- -------------
Erroll B. Davis, Jr.....................Jr......... 0 13,10025,700 0 $40,938$8,188
William D. Harvey.......................Harvey........... 0 4,7009,350 0 $14,6882,938
Eliot G. Protsch........................Protsch............ 0 4,7009,350 0 $14,6882,938
Anthony J. Amato........................Amato............ 0 3,6507,200 0 $11,4062,281
Daniel A. Doyle.........................Doyle............. 0 2,9005,700 0 $ 9,0631,813
- --------------------
(1) Based on the closing per share price on December 29, 199531, 1996 of WPLH common
stock of $30.625.$28.125.
10
LONG-TERM INCENTIVE AWARDS IN 19951996
The following table provides information concerning long-term incentive
awards made to the named executivesexecutive officers in 1995.1996.
PERFORMANCE
NUMBER OF OR OTHER
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
NUMBER OF PERFORMANCE OR PRICE-BASED PLANS (2)
SHARES, UNITS OTHER PERIOD NON-STOCK PRICE-BASED PLANS(2)
UNITS------------------------
OR UNTIL ------------------------------ OTHER RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME (#)(1) OR PAYOUT ($) ($) ($)
- ------------------------------------------- ------------ --------------- --------------- ---------------- --------- ------ -------
Erroll B. Davis, Jr........................ 13,100Jr..... 12,600 1/3/98 61,622 77,028 134,7992/99 60,228 75,222 131,670
William D. Harvey.......................... 4,700Harvey....... 4,650 1/3/98 22,109 27,636 48,3632/99 22,227 27,761 48,593
Eliot G. Protsch........................... 4,700Protsch........ 4,650 1/3/98 22,109 27,636 48,3632/99 22,227 27,761 48,593
Anthony J. Amato........................... 3,650Amato........ 3,550 1/3/98 17,170 21,462 37,5592/99 16,969 21,194 37,098
Daniel A. Doyle............................ 2,900Doyle......... 2,800 1/3/98 13,642 17,052 29,8412/99 13,373 16,716 29,253
- --------------------
(1) Consists of Performance Unitsperformance units awarded under WPLH'sthe WPLH Long-Term Equity
Incentive Plan in combination with stock options (as described in the
table entitled "Option/SAR Grants in 1995"1996"). These Performance Unitsperformance units are
entirely in the form of contingent dividends and will be paid if total
shareownershareholder return for WPLH over a three yearthree-year period ending January 3, 19982,
1999 equals or exceeds the median return earned by the companies in a peer
group of utility holding companies, except that there will be no payment
if WPLH's total return is negative over the course of such period. If
payable, each participant shall receive an amount equal to the accumulated
dividends paid on one share of WPLH common stock during the period of
January 3, 19952, 1996 through January 2,
19981, 1999 multiplied by the number of
performance units awarded to the participant, and modified by a
performance multiplier which ranges from 0 to 1.75 based on the WPLH total
return relative to the peer group.
(2) Assumes, for purposes of illustration only, a 2two cent per share increase
in the annual dividend on shares of WPLH common stock for 19961997 and 1997.
13
181998.
AGREEMENTS WITH EXECUTIVES
WPLH, the parent of the Company, has entered into employment and severance
agreements with certain executive officers of the Company, including Messrs.
Davis, Harvey, Protsch, Amato, and Doyle. WPLH recognized that, in today's
developing competitive marketplace within the energy industry, circumstances
may arise in which a change of control of WPLH may occur, through acquisition
or otherwise. This potentiality may cause uncertainty about the continued
employment of certain key executives with the Company, without regard to the
competence or past contributions of the executives. WPLH recognized further
that this uncertainty could result in the loss to the Company and WPLH of
valuable services of one or more of the key executives, particularly during a
period where these same executives may be called upon to negotiate on behalf
of the shareowners. Because of the intimate knowledge of the business and the
affairs of the Company which these executives possess, such loss could be to
the detriment of the Company and WPLH. To provide the Company, WPLH and key
executives reasonable security against changes in the relationship of the
executives with the Company and WPLH in the event of a change in control, WPLH
entered into the employment and severance agreements. The agreements provide
that each executive officer covered by the agreements is entitled to benefits
if, within five years after a change in control of WPLH (as defined in the
agreements), the officer's employment is ended through (i) termination by the
Company, other than by reason of death or disability or for cause (as defined
in the agreements), or (ii) termination by the officer due to a breach of the
agreement by WPLH or the Company or a significant change in the officer's
responsibilities, or (iii) in the case of Mr Davis' agreement only,
termination by Mr. Davis following the first anniversary of the change of
control. The benefits provided under each agreement are: (i) a cash
termination payment of one, two or three times (depending on which executive
is
11
involved) the sum of the executive officer's annual salary and his average
annual bonus during the three years before the termination and (ii)
continuation for up to five years of equivalent hospital, medical, dental,
accident, disability and life insurance coverage as in effect at the time of
termination. The agreements also provide the foregoing benefits in connection
with certain terminations which are effected in anticipation of a change of
control. Each agreement provides that if any portion of the benefits under the
agreement or under any other agreement for the officer would constitute an
excess payment for purposes of the Internal Revenue Code, benefits will be
reduced so that the officer will be entitled to receive $1 less than the
maximum amount which he could receive without becoming subject to the 20%
excise tax imposed by the Code on certain excess payments as defined in the
Code, or which WPLH may pay without loss of deduction under the Code. The
Board of Directors of WPLH has authorized that each of the foregoing
agreements be amended to specifically provide that the consummation of the
Proposedtransactions contemplated by the Agreement and Plan of Merger, dated as of
November 10, 1995, as amended, by and among WPLH, IES Industries Inc. ("IES"),
Interstate Power Company ("IPC") and certain related parties, will constitute
a change of control in certain cases for purposes of the agreements in the event of a termination without cause.agreements.
RETIREMENT AND EMPLOYEE BENEFIT PLANS
Salaried employees (including officers) of the Company are eligible to
participate in the Company's Retirement Plan. All eligible persons whose
compensation is reported in the foregoing Summary Compensation Table
participated in the plan during 1995.1996. Contributions to the plan are determined
actuarially, computed on a single-life, annuity basis, and cannot be readily
calculated as applied to any individual participant or small group of
participants. For purposes of the plan, compensation means payment for
services rendered, including vacation and sick pay, and is substantially
equivalent to salary reported in the foregoing Summary Compensation Table.
Retirement Plan benefits depend upon length of plan service (up to a maximum
of 30 years), age at retirement, and amount of compensation (determined in
accordance with the plan) and are reduced by up to 50 percent of Social
Security benefits. Credited years of service under the plan for covered
persons named in the foregoing Summary Compensation Table are as follows:
Erroll B. Davis, Jr., 1617 years; William D. Harvey, 89 years; Eliot G. Protsch,
1617 years; A. J. (Nino) Amato, 910 years; and Daniel A. 14
19
Doyle, 34 years. Assuming
retirement at age 65, a Retirement Plan participant (in conjunction with the
Unfunded Supplemental Retirement Plan described below) would be eligible at
retirement for a maximum annual retirement benefit as follows:
RETIREMENT PLAN TABLE
AVERAGE ANNUAL BENEFIT AFTER SPECIFIED YEARS IN PLAN*
ANNUAL ---------------------------------------------------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30
-
------------ ------- ------- -------- -------- -------- --------
$125,000.............................$125,000.................. $10,210 $20,421 $ 30,631 $ 40,841 $ 51,052 $ 61,262
150,000.............................150,000.................. 12,502 25,004 37,506 50,008 62,510 75,012
200,000.............................200,000.................. 17,085 34,171 51,256 68,341 85,427 102,512
250,000.............................250,000.................. 21,669 43,337 65,006 86,675 108,343 130,012
300,000.............................300,000.................. 26,252 52,504 78,756 105,008 131,260 157,512
350,000.............................350,000.................. 30,835 61,671 92,506 123,341 154,177 185,012
400,000.............................400,000.................. 35,419 70,837 106,256 141,675 177,093 212,512
450,000.............................450,000.................. 40,002 80,004 120,006 160,008 200,010 240,012
475,000.............................475,000.................. 42,294 84,587 126,881 169,175 211,468 253,762
500,000.................. 44,585 89,171 133,956 178,341 222,927 267,512
- --------------------
* Average annual compensation is based upon the average of the highest 36
consecutive months of compensation. The Retirement 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
12
maximum limitations (in general, $120,000 for 1995 and $120,000$150,000 for 1996)
under the Internal Revenue Code. Under the Retirement Plan and a
supplemental survivors income plan, if a Retirement Plan participant dies
prior to retirement, the designated survivor of the participant is entitled
to a monthly income benefit equal to approximately 50 percent (100 percent
in the case of certain executive officers and key management employees) of
the monthly retirement benefit which would have been payable to the
participant under the Retirement Plan if the participant had remained
employed by the Company until eligible for normal retirement.
Unfunded Supplemental Retirement Plan -- ThePlan--The Company maintains an Unfunded
Supplemental Retirement Plan which 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. Additionally, the plan provides for payments of supplemental
retirement benefits to employees holding the title of Vice President or
higher, who have been granted additional months of service by the Board of
Directors for purposes of computing retirement benefits. The benefits payable
under this plan are included in the amounts disclosed in the Retirement Plan
Table set forth above.
Unfunded Executive Tenure Plan -- ThePlan--The Company maintains an Unfunded Executive
Tenure Plan to provide incentive for key executives to remain in the service
of the Company by providing additional compensation which is payable only if
the executive remains with the Company until retirement (or other termination
if approved by the Board of Directors). Participants in the plan must be
designated by the Chief Executive Officer and approved by the Board. Mr. Davis
was the only active participant in the plan as of December 31, 1995.1996. The plan
provides for monthly payments to a participant after retirement (at or after
age 65, or with Board approval, prior to age 65) for 120 months. The payments
will be equal to 25 percent 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 percent of such amount for 120 months in the case
of death before retirement, or if the participant dies after retirement, 50
percent of such amount for the balance of the 120 months. Annual benefits of
$104,500$112,500 would be payable to Mr. Davis upon retirement, assuming he continues
in the Company's service until retirement at the same salary as was in effect
on December 31, 1995.
15
201996.
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 comprised of five
independent, nonemployee directors who have no "interlocking" relationships,
as defined by the Securities and Exchange Commission. 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. Other than for awards under the WPLH Long-Term Incentive Plan
which are made by the Compensation and PersonnelThe Committee of the Board of
Directors of WPLH, the Committeealso reviews and
approves all salary arrangements and other remuneration for executives,
as well as evaluates executive performance, and considers related matters. The members of the WPLH Compensation
and Personnel Committee are identical to the members of the Committee and both
such Committees are collectively referred to herein as the "Committee." To support the
Committee in carrying out its mission, Hewitt Associates,Towers Perrin, an independent
consultant, is engaged to provide assistance in the development of
comprehensive executive compensation policies.
The Committee is committed to implementing a total compensation program for
executives which furthers the Company's mission. The Committee, therefore,
adheres to the following compensation policies which are intended to
facilitate the achievement of the Company's business 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.
-13
Base salary levels should be targeted at the median levela competitive market range paid
to executives of comparable utility companies.
-
Incentive compensation programs should strengthen the relationship
between pay and performance by emphasizing variable, at-risk compensation
that is consistent with meeting predetermined Companycompany and individual
performance goals.
COMPONENTS OF COMPENSATION
The Committee relates total compensation levels for the Company's senior
executives to the compensation paid to executives of similar companies in the
utility industry. Utilitycomparable companies.
Consequently, Company executives' pay is compared to that of executives at
utilities with
similar operationsresponsibilities at utilities in both the Midwest and national
markets, as well as to utilitiescompanies with similar revenue levels market capitalizations,and employment
levels, and total shareowner returns.levels.
The Committee has reviewed overall compensation levels and compared them to
the benchmarks established. It has been determined that total executive
compensation, including that for Mr. Davis, is in line with the mediancompetitive
salaries of the comparison groupgroups of companies.
The current 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 determining each component
of compensation, the Committee considers all elements of an executive's total
compensation package, including benefit and perquisite programs.
BASE SALARIES
The Committee annually reviews each executive's base salary. Base salaries
are targeted at the median ofa competitive market range for the utility industry's market rate.industry. Base
salaries are adjusted annually by the Committee to recognize changes in the
market,
16
21
rate, varying levels of responsibility, prior experience, and breadth of
knowledge
as well as internal equity issues.knowledge. Increases to base salaries are driven primarily by market rate
adjustments. Individual performance factors are not considered by the
Committee in setting base salaries. In 1995, executives did
not receive an across-the-board salary adjustment. Certain1996, certain executives received base
salary increases in recognition of increases or changes in management
responsibilities. Mr. Davis did not receive a base salary increase in 1995.the current market. Greater
emphasis was placed on the opportunity for executives to increase their
earnings through the Management Incentive Planannual incentive plans by exceeding specific strategic goals.
Base pay adjustments are tied to median market rate changes in appropriate salary levels
and will minimize across-the-board increases. During 1995,1996, all executive
salaries were reviewed for median market rate comparability utilizingusing utility and general
industry data contained in compensation surveys published by Edison Electric
Institute, American Gas Association and several compensation consulting firms.
Any recommended changes will be effective for 1996.1997. Market ratesranges will be
reviewed annually.
SHORT-TERM INCENTIVES
The goal of 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 to
achieve corporate, subsidiary, 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. Short-term incentive programThe Committee on an annual basis reviews and approves the
program's performance weighting,goals and the relative weight assigned to each goal as
well as targeted and maximum award levels, and performance goals
are reviewed and approved annually by the Committee.levels. A description of the short-term
incentive programprograms available to executive officers follows.
Wisconsin Power and Light Company Management Incentive Plan -- ThePlan--The WP&L
Management Incentive Plan (MIP) for the Company(the "WP&L MIP") covers utility executives including Mr. Davis' utility responsibilities. The MIPand in
19951996 was based on achieving annual targets in several areas of overall
corporate performance that include profitability, operations and maintenance
expense control, achievement
of electric service reliability standards and reduction in lost time accidents.accidents, and individual/team
performance. Target and maximum bonus awards were set
14
at the median of the utility market levels. Targets were considered by the
Committee to be achievable, but require above-average performance from each of
the executives. For 1995,1996, the threshold levels for all WP&L MIP performance
categories were exceeded. 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 threshold performance level
is not reached, there is no bonus payment associated with that particular
category. Once the designated maximum performance is reached, there is no
additional payment. 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. For example, if the overall weighted
performance achievement is 70%, the executive will receive 70% of his or her
maximum allowable bonus award. The WP&L MIP awarded 6491 percent of its
allowable maximum for 1995. The1996. Potential WP&L MIP awards for executives range
from 0 to 40 percent of annual salary. The WP&L MIP does not allow for
discretion in bonus determinations. Awards for 19951996 under the WP&L MIP made to
top executives are shown in the Summary Compensation Table. Mr. Davis is also
covered by WPLH's Management Incentive Plan (the "WPLH MIP"). Awards under the
WPLH MIP are based on WP&L, Heartland Development Corporation and individual
performance achievement in relation to predetermined goals. For each Plan
year, the WPLH Compensation and Personnel Committee will determine the
performance apportionment for Mr. Davis. The 1995members of the WPLH Compensation
and Personnel Committee are identical to the members of the Committee. In 1996
that apportionment was 50% for Company performance, 25% for Heartland
Development Corporation performance and 25% for individual performance. The
Company's performance is measured based on the overall percentage achievement
factor of the corporate goals established for the WP&L MIP. Heartland
Development Corporation performance is measured based on the overall
percentage achievement of the 1996 financial performance goals from the
Heartland Development Corporation plan. Individual performance is measured
based on the achievement of certain specific goals, which included strategy
development and implementation, established for Mr. Davis by the WPLH
Compensation and Personnel Committee. The 1996 WPLH MIP award range for Mr.
Davis was from 0 to 3570 percent of his annual utility-based salary. The actual payment of bonuses
as a percentage of annual salary is determined as described for the WP&L MIP.
In 1996, the WPLH MIP provided a payment to Mr. Davis as a result of the
achievement of goals under the WP&L MIP, the Heartland Development Corporation
financial performance component, and for achievement of the personal goals
established by the WPLH Compensation and Personnel Committee. For 19951996
performance, Mr. Davis' annual bonus payment represented 3449 percent of his
base salary, as reflected in the Summary Compensation Table. Under the WPLH
MIP, Mr. Davis was awarded $125,496$220,095 solely in connection with 19951996 performance
as discussed above. The MIP does not allow for
discretion in bonus determinations.In the judgement of the WPLH Compensation and Personnel
Committee, Mr. Davis' award range is in line with the median of the same
combined utility and general industry comparison group used for base salary
comparisons.
17
22
LONG-TERM INCENTIVES
The Committee strongly believes compensation for senior executives should
include long-term, at-risk pay to strengthen the alignment of shareowner and
management interests at both the WPLH and HDC level.interests. In this regard, the WPLH Long-Term Equity Incentive Plan
allows for grants of stock options, restricted stock, and performance
units/shares with respect to WPLH common stock.stock of WPLH. The Committee believes the
Long-Term Equity Incentive Plan balances the Company's existing compensation
programs by emphasizing compensation based on the long-term successful
performance of the CompanyWPLH from the perspective of the shareowners. Stock options
provide a reward that is directly tied to the benefit shareowners receive from
increases in the price of WPLH common stock. The payout from the performance
units is based on WPLH's continued payment of dividends, a significant
component of investment returns for utilities, and the relative total return
to shareowners compared to other comparable investments. Thus, the two
components of the Long-Term Equity Incentive Plan, i.e., stock options and
performance units, provide incentives for management to produce superior
shareowner returns on both an
15
absolute and relative basis. During 19951996 the WPLH Compensation and Personnel
Committee Committee made a grant of stock options and performance units to
Messrs.Messrs Davis, Harvey, Protsch, Amato Doyle, Protsch and Harvey.Doyle. All option grants were made at
the fair market value of WPLH'sWPLH common stock on the date the grants were
approved (January 3,
1995)2, 1996). The options vest after three years and have a tenten-
year term from the date of the grant. Executives were also granted performance
units which will accumulate all of the dividends paid on one share of WPLH
common stock over a three yearthree-year period. One performance unit was granted for
each option received by the executive. Accrued dividends are not reinvested in
WPLH common stock, nor is any interest paid on accrued dividends. Performance
units will be paid out in cash or in shares of WPLH common stock. The payment
will be modified by a performance multiplier which ranges from 0 to 1.75 based
on the three year average of WPLH total shareowner return relative to a
utility holding company peer group. If WPLHWPLH's total shareowner return for the
three yearthree-year period is negative, the performance unit payout will be zero. In
determining actual award levels, the WPLH Compensation and Personnel Committee
Committee was primarily concerned with providing a competitive total
compensation level to officers. As such, award levels (including the awards
made to Mr. Davis) were based on a competitive analysis of similarly-sized
utility companies that took into consideration the market level of long-term
incentives, as well as the competitiveness of the total compensation package.
Award ranges, as well as individual award levels, were then established based
on responsibility level and market competitiveness. No corporate or individual
performance measures were reviewed in connection with the awards of options
and performance units. Award levels were targeted to the median of the range
of such awards paid by comparable companies. In addition, the WPLH
Compensation and Personnel Committee did not consider the amounts of options
or performance units already outstanding or previously granted since no options or performance units have been granted bywhen making
awards for 1996.
SPECIAL BONUS PAYOUT
During 1996, Company executives devoted considerable time and effort toward
the completion of the merger with IES and IPC. The WPLH Compensation and
Personnel Committee and the WPLH Board determined that there should be
appropriate recognition and reward for this work. Therefore, the WPLH
Compensation and Personnel Committee recommended and the WPLH Board approved
special one time bonus awards in the past.amounts of $75,000 for Mr. Davis, $20,000
for Mr. Protsch, $10,000 for Mr. Harvey and $5,000 for Mr. Amato.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to executive officers named in the proxy
statement to $1 million unless such compensation is based upon performance
objectives meeting certain regulatory criteria or is otherwise excluded from
the limitation. The Committee has carefully considered the impact of this tax
code provision. Based on the Committee's commitment to link compensation with
performance as described in this report, the Committee currently intends to
qualify compensation paid to the Company's executive officers for tax
deductibility
by the Company under Section 162(m).
18
23
CONCLUSION
The Committee believes the existing executive compensation policies and
programs provide the appropriate level of competitive compensation for Company
executives. In addition, the Committee believes that the long and short term
performance incentives effectively align the interests of executives and
shareowners toward a successful future for the Company.
COMPENSATION AND PERSONNEL COMMITTEE
Arnold M. Nemirow (Chair)
Milton E. Neshek
Henry C. Prange
Judith D. Pyle
Carol T. Toussaint
COMPLIANCE WITH16
SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's directors, its executive officers, and certain other officers
are required to report their ownership of the Company'sWPLH common stock and Company
Preferred Stock and any changes in that ownership to the Securities and
Exchange Commission. All required filings in 19951996 were properly made in a
timely fashion. In making this statement, the Company has relied on the
representations of the persons involved and on copies of their reports filed
with the Securities and Exchange Commission.
GENERAL
Proposals of Shareowners. Under the rules of the Securities and Exchange
Commission, any shareowner proposal intended to be presented at the 19971998
Annual Meeting of Shareowners must be received at the principal office of the
Company no later than November 7, 1997, in order to be eligible to be
considered for inclusion in the Company's proxy materials relating to that
meeting.
Independent Auditors--The Board of Directors has appointed Arthur Andersen
LLP as the Company's independent auditors for 1997. Arthur Andersen LLP acted
as the independent auditors for the Company in 1996. Representatives of Arthur
Andersen LLP are expected to be present at the meeting with the opportunity to
make a reasonable time priorstatement if they so desire. Such representatives are also expected to
the solicitation of proxies for such meeting.be available to respond to appropriate questions.
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.
WISCONSIN POWER AND LIGHT COMPANY
LOGO
ERROLLWisconsin Power and Light Company
/s/ Erroll B. DAVIS, JR.Davis, Jr.
Erroll B. Davis, Jr.
President and Chief Executive
Officer
1917
24
APPENDIX A
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 19951996
CONTENTS PAGE
- ------------------------------------------------------------------------------------- ------------- ----
The Company..........................................................................Company............................................................... A-2
Management's Discussion and Analysis of Financial Condition and Results of
Operations.........................................................................Operations............................................................... A-3
Report of Independent Public Accountants.............................................Accountants.................................. A-15
Consolidated Financial Statements:
Consolidated Balance Sheets........................................................Statements of Income....................................... A-16
Consolidated Statements of Income.................................................. A-18Balance Sheets............................................. A-17
Consolidated Statements of Cash Flows..............................................Flows................................... A-19
Consolidated Statements of Capitalization..........................................Capitalization............................... A-20
Consolidated Statements of Common Shareowner's Investment..........................Investment............... A-21
Notes to Consolidated Financial Statements.........................................Statements.............................. A-22
Shareowner Information............................................................... A-39Information.................................................... A-35
Form 10-K Information................................................................ A-39Information..................................................... A-35
Executive Officers of the Company.................................................... A-39Company......................................... A-35
A-1
25
THE COMPANY
On March 1, 1988, after obtaining shareowner and all the necessary
regulatory approvals, Wisconsin Power and Light Company (the "Company" or
"WP&L")(WP&L) effected a
corporate restructuring which included the formation of a holding company, WPL
Holdings, Inc ("WPLH")Inc. (WPLH). WPLH is the parent company of WP&L and its utility
subsidiaries and of Heartland Development Corporation (HDC), the parent
corporationcompany for nonregulatednonutility businesses.
WP&L, incorporated in Wisconsin on February 21, 1917, as the Eastern
Wisconsin Electric Company, is a public utility predominately engaged in the
transmission and distribution of electric energy and the generation and bulk
purchase of electric energy for sale. It also transports, distributes and sells
natural gas purchased from gas suppliers. 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. WP&L does not derive a material portion of its revenues from any one
customer.
WP&L owns all of the outstanding capital stock of South Beloit Water, Gas
and Electric Company ("South Beloit")(SBWGE), a public utility supplying electric, gas and
water service, principally in Winnebago County, Illinois, which was
incorporated on July 23, 1908.
WP&L also owns varying interestsinterest in several other subsidiaries and
investments which are not material to WP&L's operations.
On November 10, 1995, WPLH, IES Industries Inc. (IES) and Interstate Power
Company (IPC) entered into an agreement to combine with IES
Industries Inc. ("IES") of Cedar Rapids, Iowa, and Interstate Power Company
("IPC") of Dubuque, Iowa, under a holding company
that will be known as Interstate Energy Corporation (Interstate Energy),
headquartered in Madison, Wisconsin. The combination, which will be accounted
for as a pooling of interests and is intended to be tax-free for federal
income tax purposes, has been approved by the respective Boards of Directors
and shareholders. It is still subject to the approval of the common shareowners of all
companiesby several federal and variousstate
regulatory agencies. Since WP&L is not a direct partyThe companies expect to receive the transaction, WP&L shareowners will not be entitled to vote thereon.
Interstate Energy Corporation will be registered underregulatory approvals
by the Public Utility
Holding Company Actthird quarter of 1935, as amended.1997. It is anticipated that WP&L will continue to
operate as a separate entity, headquartered in Madison, Wisconsin, for a
period of time following the combination. Refer to Note 2, "Proposed Merger of
the Company," for additional details relating to the proposed merger.
ELECTRIC OPERATIONS
WP&L provides electricity in a service territory of approximately 16,000
square miles in 35 counties in southern and central Wisconsin and four
counties in northern Illinois. As of December 31, 1995,1996, WP&L provided retail
electric service to approximately 377,000385,000 customers in 610615 cities, villages
and towns, and wholesale service to 2524 municipal utilities, one privately
owned utility, three3 rural electric cooperatives, one Native American Indian nation and
to the Wisconsin Public Power, Inc. system for the provision of retail service
to nine9 communities.
Electric operations represented 79.277.6 percent of WP&L's total operating
revenues and 87.887.2 percent of WP&L's total operating income for the year ended
December 31, 1995.1996.
Electric sales are seasonal to some extent with the yearly peak normally
occurring in the summer months. WP&L also experiences a smaller winter peak in
December or January. The maximum net hourly peak load on the electric system
was 2,1972,124 megawatts and occurred on July 31, 1995.August 6, 1996. A new winter system peak of 1,913
megawatts occurred on December 11, 1995. During the year ended December 31,
1995,1996, about 82.169.6 percent of total kilowatthour requirements were generated by
company-owned and jointly-owned facilities and the remaining 17.930.4 percent werewas
purchased.
A-2
26
WP&L's electric generating facilities include: four4 coal-fired generating
stations (including nine9 units; four4 jointly owned), seven7 natural-gas-fired peaking
units, eight8 hydro-electric plants (two(2 jointly owned), one gas-fired steam
generating plant and one nuclear power plant (jointly owned).plant.
GAS OPERATIONS
As of December 31, 1995,1996, WP&L provided retail natural gas service to
approximately 146,000151,000 customers in 242243 cities, villages and towns in 22
counties in southern and central Wisconsin and one county in northern
Illinois. Gas operations represented 20.221.8 percent of WP&L's total operating
revenues and 11.112.1 percent of WP&L's total operating income for the year ended
December 31, 1995.1996.
WP&L's gas sales follow a seasonal pattern. There is an annual base load of
gas used for heating, cooking, water heating and other purposes, with a large
peak occurring during the heating season. WP&L set a new record for natural gas
peak-demand of 258,000 dekathermsNear-record cold on January 30-31, 1996. The previous record30, 1996
resulted in sales volumes of 256,000 dekatherms was set on January 14-15, 1995.250,390 dekatherms.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
(IN MILLIONS)
1996 1995 1994 1993 1992
1991
------ ------ ------ ------ ------
(IN MILLIONS)
Operating revenues...............................revenues........................... $ 759 $ 690 $ 688 $ 644 $ 601
Net income................................... $ 610
Net income available for common stockholders.....79 $ 75 $ 68 $ 60 $ 55
$ 64
Total assets (at December 31).................................... $1,678 $1,641 $1,585 $1,551 $1,414 $1,250
Long-term debt, net (at December 31)...................... $ 259 $ 319 $ 337 $ 336 $ 336 $ 291336
WPL Holdings, Inc. (WPLH), the parent company of Wisconsin Power and Light
Company (WP&L), has entered into an Agreement and Plan of Merger, as amended
(Merger Agreement), dated November 10, 1995, with IES Industries Inc. (IES)
and Interstate Power Company (IPC). The Merger Agreement provides for the
combination of WPLH, IES and IPC. Following the merger, WP&L will be a
subsidiary of the combined company, Interstate Energy Corporation (Interstate
Energy). As a result of the merger, Interstate Energy currently anticipates
cost savings of approximately $749 million over a ten-year period, net of
transaction costs and costs to achieve the savings of approximately $14
million and $64.4 million, respectively. The estimate of potential cost
savings constitutes a forward-looking statement and actual results may differ
materially from this estimate. The estimate is necessarily based upon various
assumptions that involve judgments with respect to, among other things, future
national and regional economic and competitive conditions, technological
developments, inflation rates, regulatory treatments, weather conditions,
financial market conditions, future business decisions and other
uncertainties. No assurance can be given that the estimated costs savings will
actually be realized.
The merger, which is conditioned upon, among other things, receipt of
certain regulatory and governmental approvals, is expected to close by the end
of the third quarter of 1997. As part of the approval process, management has
proposed rate freezes to be implemented in certain jurisdictions for periods
not to exceed four years. See Note 2 of "Notes to Consolidated Financial
Statements" for additional information regarding the proposed merger.
A-3
1996 COMPARED WITH 1995
OVERVIEW
WP&L reported consolidated net income of $79.2 million as compared with net
income of $75.3 million in 1995. The increase in earnings in 1996 primarily
reflects continued customer growth in the service territory and increased
power marketing activity which contributed to a $9 million increase in
electric margin in 1996 as compared with 1995. Gas margins also increased due
primarily to higher weather-driven sales. (See "Electric Operations" and "Gas
Operations" below). In addition, a $3.4 million after-tax gain on the sale of
a combustion turbine was recognized during 1996. These events were partially
offset by higher plant maintenance and depreciation expenses in 1996.
During 1996, WP&L incurred $2.7 million after-tax in expenses associated
with its proposed merger with IES and IPC. See Note 2 of "Notes to
Consolidated Financial Statements" for additional information.
ELECTRIC OPERATIONS
REVENUES AND COSTS KWHS SOLD CUSTOMERS
(IN THOUSANDS) (IN THOUSANDS) AT YEAR END
------------------- --------------------- ---------------
1996 1995 CHANGE 1996 1995 CHANGE 1996 1995 CHANGE
--------- --------- ------ ---------- ---------- ------ ------- ------- ------
Residential and Farm.... $ 201,690 $ 199,850 1% 2,979,826 2,937,825 1% 336,933 329,643 2%
Industrial.............. 143,734 140,562 2% 3,985,672 3,872,520 3% 815 795 3%
Commercial.............. 105,319 102,129 3% 1,814,324 1,773,406 2% 45,669 44,730 2%
Sales to Other
Utilities.............. 131,836 97,350 35% 5,245,812 3,109,385 69% 90 48 88%
Other................... 6,903 6,433 7% 57,757 54,042 7% 1,730 1,294 34%
--------- --------- ---------- ---------- ------- -------
Total.................. 589,482 546,324 8% 14,083,391 11,747,178 20% 385,237 376,510 2%
========= ========= === ========== ========== === ======= ======= ===
Electric Production
Fuels.................. 114,470 116,488 (2%)
Purchased Power......... 81,108 44,940 80%
--------- ---------
Margin................. $ 393,904 $ 384,896 2%
========= ========= ===
Electric margin increased $9.0 million, or 2 percent, during 1996 compared
with 1995 primarily due to higher sales to commercial and industrial customers
as well as other utilities combined with reduced costs per kWh for electric
production fuels and purchased power. Although fuel and purchased power costs
declined on a per kWh basis, purchased power expense increased by 80 percent.
This increase was due to WP&L's higher level of sales to other utilities as
well as a $5.0 million increase in purchased power related to the purchase of
replacement power during the extended 1996 refueling outage at the Kewaunee
Nuclear Power Plant (Kewaunee). See "Capital Requirements" section below.
Partially offsetting increased purchased power costs were slightly lower
delivered coal and nuclear fuel costs per kWh.
GAS OPERATIONS
REVENUES AND COSTS THERMS SOLD CUSTOMERS
(IN THOUSANDS) (IN THOUSANDS) AT YEAR END
------------------- --------------- ---------------
1996 1995 CHANGE 1996 1995 CHANGE 1996 1995 CHANGE
--------- --------- ------ ------- ------- ------ ------- ------- ------
Residential............. $ 90,382 $ 70,382 28% 142,974 126,903 13% 133,580 129,576 3%
Commercial and
Industrial............. 50,270 39,456 27% 98,095 91,316 7% 16,309 15,976 2%
Interruptible........... 5,261 3,708 42% 13,480 12,148 11% 303 257 18%
Transportation and
other.................. 19,714 25,619 (23%) 185,735 169,121 10% 252 284 (11%)
--------- --------- ------- ------- ------- -------
Total.................. 165,627 139,165 19% 440,284 399,488 10% 150,444 146,093 3%
========= ========= ==== ======= ======= === ======= ======= ====
Purchased Gas........... 104,830 84,002 25%
--------- ---------
Margin................. $ 60,797 $ 55,163 10%
========= ========= ====
A-4
Gas margin increased $5.6 million, or 10 percent, during 1996 compared with
1995 primarily as a result of higher sales. Therm sales increased 10 percent
due to a combination of colder weather during the first five months of 1996 as
compared to 1995 and customer growth of 3 percent. The 19 percent increase in
gas revenues reflects not only the higher therm sales but also the pass
through of higher natural gas costs to WP&L's customers as described below.
Effective January 1, 1995, the Wisconsin Public Service Commission (PSCW)
approved the replacement of the purchased gas adjustment clause with an
adjustment mechanism based on a prescribed commodity price index. Fluctuations
in WP&L's commodity cost of gas as compared to the price index are subject to
a customer sharing mechanism with WP&L's gains or losses limited to $1.1
million. Due to favorable gas procurement activities in both 1996 and 1995,
WP&L realized favorable contributions to gas margin in those years of $1.1
million and $0.8 million, respectively.
OTHER OPERATION EXPENSE
Other operation expense increased $2.0 million due to expenses associated
with the proposed merger (See Note 2 of "Notes to Consolidated Financial
Statements" for additional information) which were partially offset by a
decrease in operation expense due to cost saving efforts at Kewaunee.
MAINTENANCE EXPENSE
Maintenance expense increased $4.4 million due to higher plant maintenance
and the extended 1996 refueling outage at Kewaunee (See "Capital Requirements"
section below).
DEPRECIATION
Depreciation expense increased $3.8 million as a result of property
additions and greater amortization of contributions in aid of construction (a
reduction of expense) in 1995.
INTEREST EXPENSE AND OTHER
Interest expense was lower in 1996 compared to 1995 by $2.3 million as a
result of less short-term debt outstanding and a slight decrease in interest
rates. Other income increased $5.0 million due to a $5.7 million gain on the
sale of a combustion turbine.
INCOME TAXES
Income taxes increased for 1996 as a result of higher taxable income. The
effective tax rate was 39.5 percent and 36.7 percent for 1996 and 1995,
respectively. The lower rate in 1995 was the result of prior years' tax
contingencies resolved favorably in 1995 and increased non-deductible merger
expenses in 1996.
A-5
1995 COMPARED WITH 1994
OVERVIEW
Net income of Wisconsin Power and Light Company ("WP&L" or the "Company")&L increased to $75.3 million in 1995 compared with $68.2
million in 1994. Net income for 1994 was significantly affected by two non-recurringnon-
recurring items. These items were the reversal of a coal contract penalty and
costs associated with early retirement and severance programs. The coal
contract item is discussedrelates to a Wisconsin Supreme Court decision which reversed a
coal contract penalty assessed against WP&L in the "Other Events" section of the Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A").1989. The following break out
presents the recurring aspects of 1995 and 1994 operations.operations (dollars in
millions).
1995 1994
----- -----
Net income, as reported........................................reported..................................... $75.3 $68.2
Less: increase in net income from reversal of coalNon-recurring items:
Coal contract penalty...................................................... (--) (5.3)
Add: decrease in net income from cost associated with earlypenalty reversal............................ -- $(5.3)
Early retirement and severance programs............................ (--)costs...................... -- $ 8.2
----- -----
Net income before non-recurring items..........................items....................... $75.3 $71.1
===== =====
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27
The increase in the "netnet income before non-recurring items"items primarily reflects
higher electric and gas margins, resulting from an increase in weather related
sales, and aggressive cost management:management.
ELECTRIC OPERATIONS
CUSTOMERS AT END
REVENUES AND
COSTS (IN KWHS SOLD OFCUSTOMERS AT
THOUSANDS) (IN THOUSANDS) YEAR ------------------- % ----------------------- %END
----------------- %--------------------- ---------------
1995 1994 CHANGE 1995 1994 CHANGE 1995 1994 CHANGE
-------- -------- ------ ---------- ---------- ------ ------- ------- ------
(IN THOUSANDS) (IN THOUSANDS)
Residential and Farm.......Farm.... $199,850 $194,242 3% 2,937,825 2,776,895 6% 329,643 322,924 2%
Industrial.................Industrial.............. 140,562 140,487 00% 3,872,520 3,764,953 33% 795 776 2
Commercial.................2%
Commercial.............. 102,129 101,382 11% 1,773,406 1,688,349 55% 44,730 43,793 2
Wholesale and Class A......2%
Sales to other
Utilities.............. 97,350 86,400 1313% 3,109,385 2,574,121 2121% 48 42 14
Other......................14%
Other................... 6,433 9,236 (30)(30%) 54,042 54,518 (1)(1%) 1,294 1,256 33%
-------- -------- ---------- ---------- ------- -------
Total....................Total.................. 546,324 531,747 33% 11,747,178 10,858,836 8% 376,510 368,791 2%
======== ======== ==== ========== ========== === ======= ======= ===
Electric Production
Fuels.................. 116,488 123,469 (6%)
Purchased Power......... 44,940 37,913 16%
-------- --------
Margin................. $384,896 $370,365 4%
======== ======== =======
-------- --------
Electric Production
Fuels.................... 116,488 123,469 (6)
Purchased Power............ 44,015 37,913 16
-------- --------
Margin..................... $385,821 $370,365 4%
========= ========= ===========
Electric margin increased 4 percent during 1995 compared with 1994 primarily
due to higher sales combined with reduced aggregate costs per kWh for electric
production fuels and purchased power. Kilowatthour sales increased 8 percent
due to a much warmer summer than normal, increased sales to other utilities, a
2 percent growth in customers, and continued economic strength in the service
territory. Partially offsetting these sales increases was a 2.8 percent
decrease in retail electric rates effective January 1, 1995.
A record setting heat wave resulted in WP&L setting a system peak of 2,197
megawatts on July 31, 1995. This reflects a 9.7 percent increase over the
previous record system peak of 2,002 megawatts set in 1994.
While overall kWh sales increased, the aggregate costs of electric
production fuels and purchased power remained relatively unchanged. The
stability of these costs reflects lower coal and transportation costs at
the
Company'sWP&L's generating units in 1995 as well as the availability of attractive
purchased power opportunities in the bulk power market.
A-6
GAS OPERATIONS
CUSTOMERS AT
REVENUES AND COSTS THERMS SOLD CUSTOMERS AT
(IN THOUSANDS) (IN THOUSANDS) YEAR END
OF YEAR
------------------- % ----------------- % ----------------- %--------------- ---------------
1995 1994 CHANGE 1995 1994 CHANGE 1995 1994 CHANGE
-------- ----------------- --------- ------ ------- ------- ------ ------- ------- ------
(IN THOUSANDS) (IN THOUSANDS)
Residential and Farm......Residential............. $ 70,382 $ 71,555 (2)%(2%) 126,903 119,562 6% 129,576 124,938 4%
Firm......................Commercial and
Industrial............. 39,456 41,918 (6)(6%) 91,316 87,487 44% 15,976 15,531 3
Interruptible.............3%
Interruptible........... 3,708 8,777 (58)(58%) 12,148 24,809 (51)(51%) 257 272 (6)
Transport(6%)
Transportation and
Other.......other.................. 25,619 29,681 (14)(14%) 169,121 142,252 1919% 284 240 18
-------- --------18%
--------- --------- ------- ------- ------- -------
Total...................Total.................. 139,165 151,931 (8)(8%) 399,488 374,110 7% 146,093 140,981 4%
-------- --------========= ========= ==== ======= ======= ==== ======= ======= ===
======= ======= ==
Purchased Gas.............Gas........... 84,002 100,942 (17)
-------- --------
Margin....................(17%)
--------- ---------
Margin................. $ 55,163 $ 50,989 8%
======== ======== ============ ========= ====
A-4
28
Gas margin increased 8 percent during 1995 compared with 1994 primarily as a
result of higher sales volumes and favorable gas procurement strategies. Therm
sales increased 7 percent principally due to residential customer growth
reflecting the favorable economic conditions in the Company'sWP&L's service territory and
colder than normal weather in the fourth quarter of 1995, offsetting a mild
January and February. The 8 percent decrease in gas revenues was the result of
a pass through to customers of the lower cost of purchased gas. Under the current rate
structure futurediscussed previously reductions in revenues resulting solely from
such pass through would not be expected to have a material impact on earnings.
The gas incentive program authorized by the Public Service Commission of Wisconsin ("PSCW")PSCW also resulted in additional
pre-tax earnings of $750,000$0.8 million in 1995.
OPERATING EXPENSES
The decline in operations expense principally reflects the impact of a $13.7
million charge for early retirement and severance costs in 1994. While the
CompanyWP&L
was able to achieve savings in 1995 from its continued reengineering of
operations, these savings were offset somewhat by higher conservation
expenses. The increase in depreciation expense in 1995 is primarily the result
of property additions at the utility and higher contributions to WP&L's external nuclear
decommissioning trust. Despite higher operating income in 1995, the income tax
expense was unchanged due to prior years' tax adjustments resolved in 1995.
OTHER INCOME&L.
INTEREST EXPENSE AND DEDUCTIONS
Other income and deductions in 1994 includes after-tax income of $5.3
million related to the reversal of a coal contract penalty as discussed in the
"Other Events" section of the MD&A. In addition, income associated with the
allowance for funds used during construction ("AFUDC") decreased in 1995 due to
significantly lower construction work in progress amounts and a lower Federal
Energy Regulatory Commission ("FERC") AFUDC rate.
INTEREST EXPENSEOTHER
Interest expense increased due to the higher levels of short-term debt and
higher short-term interest rates. During the second quarter of 1995, WP&L
repurchased $18 million of its Series V bonds from private investors. WP&L
applied revenue requirement neutral accounting treatment to these reacquiredacquired
bonds which are
anticipated to be refinancedconsistent with regulatory requirements.
Other income and deductions in 1996.
A-5
29
1994 COMPARED WITH 1993
OVERVIEW
Netincludes after-tax income of WP&L increased$5.3
million related to $68.2 million in 1994 compared with $60.2
million in 1993. Net income for 1994 was significantly affected by two
non-recurring items. These items were the reversal ofa Wisconsin Supreme Court decision which reversed a coal
contract penalty and costsassessed against WP&L in 1989. In addition, income associated
with early retirement and severance programs which
primarily occurredthe allowance for funds used during construction ("AFUDC") decreased in
the fourth quarter. The reversal of the coal contract
penalty is discussed in the "Other Events" section of the MD&A. The following
break out presents the recurring aspects of 1994 and 1993 operations.
1994 1993
----- -----
Net Income, as reported....................................... $68.2 $60.2
Less: increase in net income from reversal of coal contract
penalty..................................................... (5.3) (--)
Add: decrease in net income from costs associated with early
retirement and severance programs........................... 8.2 1.1
----- -----
Net Income before non-recurring items......................... $71.1 $61.3
===== =====
The increase in the "net income before non-recurring items" primarily
reflects an increase in operating earnings.
ELECTRIC OPERATIONS
CUSTOMERS AT
REVENUES AND COST KWH SOLD END OF YEAR
------------------- % ----------------------- % ----------------- %
1994 1993 CHANGE 1994 1993 CHANGE 1994 1993 CHANGE
-------- -------- ------ ---------- ---------- ------ ------- ------- ------
(IN THOUSANDS) (IN THOUSANDS)
Residential and Farm..... $194,242 $184,176 5% 2,776,895 2,751,363 1% 322,924 316,870 2%
Industrial............... 140,487 132,903 6 3,764,953 3,540,082 6 776 714 9
Commercial............... 101,382 95,977 6 1,688,349 1,629,911 4 43,793 42,884 2
Wholesale and Class A.... 86,400 78,955 9 2,574,121 2,388,131 8 42 39 8
Other.................... 9,236 11,176 (17) 54,518 51,073 7 1,256 1,236 2
-------- -------- ---------- ---------- ------- -------
Total................ 531,747 503,187 6 10,858,836 10,360,560 5% 368,791 361,743 2%
========== ========== = ======= ======= =
-------- --------
Electric production
fuels.................. 123,469 123,919 0
Purchased Power.......... 37,913 28,574 33
-------- --------
Margin................... $370,365 $350,694 6%
======== ======== ===
WP&L's electric margin increased 6 percent during 1994 compared to 1993.
The primary factor was a 3.8 percent retail rate increase effective October 1,
1993. Strong economic conditions in the industrial and commercial customer
classes and residential customer growth contributed to higher sales.
Electric production fuel costs were reasonably stable for 1994. The volume
of purchased power increased as a result of WP&L's efforts to conserve coal
inventories during a rail strike in the third quarter of 1994. The financial
impact on WP&L's operating results was not material.
A-6
30
GAS OPERATIONS
CUSTOMERS AT END
REVENUES AND COSTS THERMS SOLD OF YEAR
------------------- % ----------------- % ----------------- %
1994 1993 CHANGE 1994 1993 CHANGE 1994 1993 CHANGE
-------- -------- ------ ------- ------- ------ ------- ------- ------
(IN THOUSANDS) (IN THOUSANDS)
Residential and Farm..... $ 71,555 $ 71,632 0% 119,562 120,005 0% 124,938 120,829 3%
Firm..................... 41,918 40,748 3 87,487 87,038 1 15,531 15,088 3
Interruptible............ 8,777 11,247 (22) 24,809 27,872 (11) 272 261 4
Transport and Other...... 29,681 13,643 118 142,252 84,877 68 240 85 182
-------- -------- ------- ------- ------- -------
Total.................. 151,931 137,270 11 374,110 319,792 17 140,981 136,263 3%
-------- --------
======= ======= ====== ======= ======= ===
Purchased Gas............ 100,942 90,505 12
-------- --------
Margin................... $ 50,989 $ 46,765 9%
======== ======== ===
Gas margin increased 9 percent in 1994 from 1993 primarily1995 due to significantly lower construction work in progress amounts and a
1.4
percent retail rate increase effective October 1, 1993, andlower Federal Energy Regulatory Commission (FERC) AFUDC rate.
INCOME TAXES
Despite higher sales to firm
service customers. The overall cost of purchased gas declined reflecting WP&L's
effective use of opportunities onoperating income in 1995, the gas spot market.
OPERATING EXPENSES
Other operationincome tax expense increase primarilywas
unchanged due to several early retirement
and severance programs offeredprior years' tax contingencies resolved in 1994. The increase in depreciation expense in
1995 is primarily the result of increased property additions at the utility and
higher contributions to the Company's external nuclear decommissioning trust.
Income taxes increased between years primarily due to higher taxable income.
Partially offsetting these costs were reductions in operating costs resulting
from the ongoing reengineering of processes. Maintenance expense decreased
between years due to variation in the timing and extent of maintenance on
generating facilities between years. Secondarily, a severe storm in the summer
of 1993 increased 1993's maintenance expense related to service restoration.
OTHER INCOME AND (DEDUCTIONS)
Other income increased resulting from the reversal of a coal contract
penalty which is discussed in the "Other Events" section of the MD&A.
INTEREST EXPENSE
Interest expense decreased primarily due to the lower short-term debt
interest.1995.
A-7
LIQUIDITY AND CAPITAL RESOURCES
WP&L finances its construction expenditures through internally generated
funds supplemented, when required, by outside financing. During 1996, 1995 and
1994, the CompanyWP&L generated sufficient cash flows from operations, the sale of other
property and equipment and short-term borrowingsborrowing to cover operating expenses,
cash dividends and investmentinvesting activities. In 1993, cash flows from operations
covered a portion of investing activities, the remainder was generated through
the issuance of common stock and long and short-term debt. Cash flows from operations increaseddecreased
to $188 million for 1996, compared with $196 million and $183 million in 1995
compared with $187and 1994, respectively. The decrease in cash flows used for investing
activities in 1996 was primarily attributable to $36.3 million and $153
million in 1994 and 1993, respectively.
A-7
31received from
the sale of a combustion turbine.
RATES AND REGULATORY MATTERS
Effective January 1, 1995, for the two-year period ended December 31, 1996,
the PSCW, in rate order UR-109, authorized a 2.8 percent annual decrease in
electric rates, a .50.5 percent annual increase in gas rates and a decline in
the allowed return on common equity to 11.5 percent from the previous 11.6
percent. None of these events isare expected to have a material impact on
earnings. Further,See Note 1J of the "Notes to Consolidated Financial Statements" for
additional information. WP&L submitted its biennial rate case filing with the
PSCW approved certain incentive programs described below:
1. Theon April 1, 1996, for the test year beginning January 1, 1997. In the
filing, WP&L requested rate increases of $13.4 million or 3.0 percent for
Wisconsin retail electric fuel adjustment mechanism, which allowed costscustomers and $2.4 million or 1.6 percent for
Wisconsin natural gas customers. This request was based on an 11.9 percent
return on common equity. Technical hearings were completed in November 1996.
WP&L filed additional testimony subsequent to fluctuate within a 3 percent band width, was eliminated. The eliminationthe conclusion of the adjustment mechanism did not haveNovember
1996 hearings regarding recovery of replacement power and operations and
maintenance expenses for the extended outage at Kewaunee. Because of this
additional filing, a material effect on 1995 earnings
andfinal rate order is not expected until April 1997. Refer
to materially impact 1996 results.
2. The automatic purchased gas adjustment clause was also eliminated.
The fluctuations in"Subsequent Events" for further information relating to the commodity cost of gas above or below a prescribed
commodity price index will serve to increase or decrease WP&L's margin on
gas sales. Both benefits and exposures are subject to customer sharing
provisions. WP&L's share is capped at $1.1 million pre-tax. For 1995, WP&L
earned $750,000 pre-tax under this incentive mechanism. The customers'
share of this program is $1.1 million pre-tax which will be refunded to
customers in April 1996. The refund has been fully reserved in the 1995
financial results. The Company uses gas commodity swaps to hedge the price
risks associated with the purchase and sale of stored gas.
3. In order to promote air quality and delivery system reliability,
there are SO(2) emissions and service reliability incentive clauses.
Positive incentives available under these clauses include $1.5 million
pre-tax for the SO(2) emissions and $.5 million pre-tax for the service
reliability. WP&L's earnings are also negatively exposed for equal amounts.
For calendar year 1995, WP&L collected $2.0 million pre-tax in revenues and
also deferred $2.1 million pre-tax in revenues. WP&L plans to refund this
amount to customers in April 1996, resulting in no material impact on 1995
revenues.new rate order.
INDUSTRY OUTLOOK
WP&L is subject to regulation by the PSCW and the FERC. The PSCW's inquiries
into the future structure of the natural gas and electric utility industries
are ongoing. The stated goal of the PSCW in itsthe natural gas docket is to move
all gas supply activities out of the existing regulated distribution utilities
and allow independent units to compete for the business. The goal of the
electric utility restructuring process is to create open access transmission and
distribution services for all customers with competitive generation and
customer service markets. Additional proceedings as well as consultation with
the legislature are planned prior to a target implementation date after the
year 2000. The CompanyWP&L cannot currently predict what impact, if any, these
proceedings may have on its future financial condition or results of
operations. The CompanyWP&L believes, however, that it is well positioned to compete in a
deregulated environment. WP&L's rates to all customer classes are competitive
within the stateState of Wisconsin and are below the average in the Midwest region.
On April 24, 1996, the FERC issued two orders (No. 888 and 889) that will
promote competition by opening access to the nation's wholesale power market.
The FERC is developing regulation which will beginnew orders require public utilities that own, control or operate
transmission systems to provide other companies with the same transmission
access/service that they provide to themselves. WP&L presently has on file
with the FERC a pro forma open access transmission tariff, filed in compliance
with FERC Order No. 888. On November 13, 1996, the FERC accepted the non-rate
terms and conditions of WP&L's tariff for filing without modification. On
September 20, 1996, the FERC extended the deadline for compliance with Order
No. 889 to utilityJanuary 3, 1997, which was met by WP&L through participation in a
regional Open Access Same-Time Information System.
On September 26, 1996, the PSCW issued an order which establishes the
minimum Standards for a Wisconsin Independent System Operator (Standards). The
Standards will be applied by the PSCW in Advance Plan proceedings, merger
review cases, transmission facilitiesconstruction cases and other proceedings as
appropriate.
A-8
The order provides that the Standards will be reviewed and revised as
necessary in light of ongoing regional and national events, such as FERC
requirements or policy, regional institutions, or relevant actions of
neighboring states.
On November 18, 1996, WP&L submitted applications and subsequently became a
member of both the Mid-Continent Area Power Pool (MAPP) Regional Transmission
Group (RTG) and the Power and Energy Market. WP&L declined membership in the
MAPP Regional Reliability Council and will continue its membership in the Mid-
American Interconnected Network, Inc. (MAIN) through 1997.
As described in Note 1H of the "Notes to Consolidated Financial Statements,"
WP&L complies with the provisions of Statement of Financial Accounting
Standards (SFAS No. 71), "Accounting for wholesale electric customers subjectthe Effects of Certain Types of
Regulation." In the event WP&L determines that it no longer meets the criteria
for following SFAS 71, the accounting impact would be an extraordinary, non-
cash charge to certain approved FERC tariffs.operations of an amount that could be material. Criteria that
give rise to the discontinuance of SFAS 71 include (1) increasing competition
that restricts WP&L's ability to establish prices to recover specific costs
and (2) a significant change in the manner in which rates are set by
regulators from cost-based regulation to another form of regulation. WP&L
periodically reviews these criteria to ensure that the continuing application
of SFAS 71 is appropriate. WP&L believes its existing open access tariffs
positionthat it well to compete under such market conditions.still meets the requirements
of SFAS 71.
FINANCING AND CAPITAL STRUCTURE
The level of short-term borrowingsborrowing fluctuates based on seasonal corporate
needs, the timing of long-term financing, and capital market conditions. WP&L
generally borrows on a short-term basis to provide interim A-8
32
financing of
construction and capital expenditures in excess of available internally-generatedinternally
generated funds. WP&L periodically reduces its outstanding short-term
borrowings through the issuance of long-term debt and through WPL Holdings,
Inc.'sWPLH's
additional investment in its common equity. To maintain flexibility in its
capital structure and to take advantage of favorable short-term rates, WP&L
also uses proceeds from the sales of accounts receivable and unbilled revenues
to finance a portion of its long-term cash needs. The CompanyWP&L also anticipates that
short-term debt funds will continue to be available at reasonable costs due to
strong ratings by independent utility analysts and rating services. Commercial
paper has been rated A-1+ by Standard & Poor's Corp. and P-1 by Moody's
Investors Service. BankWP&L's bank lines of credit of $70 million at December 31,
1995,1996 are available to support these borrowings.
The CompanyWP&L has only limited involvement with derivative financial instruments and
does not use them for trading purposes. They are used to manage well-defined
interest rate and gas commodity price risks. The CompanyWP&L enters into interest rate swap
agreements to reduce the impact of changes in interest rates on its floating-ratefloating-
rate long-term debt, short-term debt and the sales of its accounts receivable.
The total notional amount of interest rate swaps was $123$89 million and $150$123
million, respectively, for the years ended December 31, 19951996 and 1994. The Company1995. WP&L
uses gas commodity swaps, futures and options to hedge the price risks associated with the
purchase and sale of stored gas.
The Company'sWP&L's capitalization at December 31, 1995,1996, including the current maturities
of long-term debt, variable rate demand bonds and short-term debt, consisted
of 5354 percent common equity, 6 percent preferred stock and 4140 percent debt.
The common equity to total capitalization ratio at December 31, 1995,1996 increased
to 5354 percent from 5253 percent at December 31, 1994.1995.
The retail rate order effective January 1, 1995 requires WP&L to maintain a
utility common equity level of 51.93 percent of total utility capitalization.
In addition, the PSCW ordered that it must approve the payment of dividends by
WP&L to WPLH if such dividends would reduce WP&L's average common equity ratio
below 51.93 percent. At December 31, 1996, WP&L's common equity ratio was 53.5
percent. Refer to "Subsequent Events" for further information relating to the
new rate order.
A-9
In accordance with the terms of the Merger Agreement (See "Other Events"
section(see Note 2 of the
MD&A."Notes to Consolidated Financial Statements"), WPLH may not declare or pay any
dividends on any of its capital stock other than the obligations that exist
with respect to cumulative preferred stock, and regular quarterly dividends on
common stock mayprovided they do not to exceed 105 percent of the common stock
dividends from the prior year.
The retail rate order received effective January 1, 1995, requires WP&L to
maintain a utility common equity level of 51.93 percent of total utility
capitalization during the two-year period ending December 31, 1996. In addition,
the PSCW ordered that it must approve the payment of dividends by WP&L to WPLH
that are in excess of the level forecasted for 1995 ($58.1 million), if such
dividends would reduce WP&L's average common equity ratio below 51.93 percent.
At December 31, 1995, WP&L's common equity ratio was 52.6 percent.
CAPITAL REQUIREMENTS
WP&L isoperates a capital-intensive business and requires large investments in
long-lived assets. Therefore, the Company'sWP&L's most significant capital requirements relate to
construction expenditures. Additions to utility plant
decreased in 1995 by $29.6 million and in 1994 by $25.9 million primarily due to
the completion of two
A-9
33
86-megawatt combustion-turbine generators in 1994. Estimated capital requirements for the next five
years are as follows:
CAPITAL REQUIREMENTS
----------------------------------------------
1996
1997 1998 1999 2000 2001
------ ------ ------ ------ ------
(IN MILLIONS)
Construction expenditures
Electric............................Electric................................. $ 81.588.7 $ 79.589.2 $ 75.389.9 $ 77.990.6 $ 72.091.3
Gas, water and common............... 41.7 38.9 31.1 31.4 32.1common.................... 45.0 43.8 44.3 44.7 45.2
Nuclear fuel........................ 8.3 10.0 8.2 9.7 13.7
Decommissioning fund................ 15.4 16.3 17.2 18.3 18.7
AFUDC............................... 2.5 2.2 1.3 1.4 1.4fuel............................. 11.4 6.8 9.4 11.4 6.1
AFUDC.................................... 2.1 2.1 2.1 2.1 2.1
------ ------ ------ ------ ------
Total construction expenditures................... 149.4 146.9 133.1 138.7 137.9expenditures........ 147.2 141.9 145.7 148.8 144.7
Changes in working capital and other............................... (8.3) 7.1 (16.3) 0.2 (6.1)other....... 22.6 16.8 (5.4) 13.9 13.6
------ ------ ------ ------ ------
Total construction and operating
capital........................ 141.1 154.0 116.8 138.9 131.8capital............................... 169.8 158.7 140.3 162.7 158.3
Long-term debt maturities............. --maturities.................. 55.0 8.9 --0.0 1.9 0.0
Manufactured gas plant remediation.... 6.8 11.4 8.6 0.6 0.6remediation......... 5.0 1.0 0.5 0.5 0.5
------ ------ ------ ------ ------
Total capital requirements....... $147.9 $220.4 $134.3 $139.5 $134.3requirements............. $229.8 $168.6 $140.8 $165.1 $158.8
====== ====== ====== ====== ======
Included in the construction expenditure estimates, in addition to the
recurring
additions and improvements to the distribution and transmission systems, are
the following: 1) expenditures for managing and controlling
electric line losses and for the electric delivery system to enhance WP&L's
interconnection capability with other utilities; 2) expenditures related to upgrading computer systems in order to improve
productivity and customer service; and 3)service. Electric expenditures associated withinclude the construction of an 86-megawatt combustion-
turbine generator expected to become operational in 1996. The decommissioning
expenditures represent both the amount of annual
contribution to external trust funds andto fund the income earned on the external trust funds.decommissioning of Kewaunee.
These amounts are recorded in depreciation expense and recovered in rates.
WP&L expects to contribute $10.7$19.7 million annually to this fund. TheRefer to
"Subsequent Events" for further information relating to the new rate order.
WP&L has a 41 percent ownership interest in Kewaunee. During a scheduled
refueling and maintenance outage of the plant in September 1996, steam
generator tube degradation was discovered which required that the tubes be
repaired before the plant could resume operation. A laser weld repair process
was implemented to address the problem. During testing of the success of this
process in early February 1997, it was discovered that further repair work or
tube plugging would be required for a portion of the welded tubes. Further
investigation is ongoing which may delay the return of the plant to service
beyond the first quarter of 1997.
WP&L's costs associated with these tube repairs are estimated at $2.3
million of which $1.4 million was expensed in 1996. Additional costs
associated with the purchase of replacement power, estimated at approximately
$500,000 per week, were not recoverable from customers under the retail rate
order in effect at the time of the outage. However, if the outage were to
extend beyond the implementation of a PSCW rate order expected to be issued in
April 1997, replacement power costs incurred subsequent to that order are
expected to be recovered through a surcharge mechanism. Refer to "Subsequent
Events" for further information relating to the new rate order.
A-10
Repairs using laser technology may be only temporary because corrosion will
continue at a rate which cannot be accurately forecasted. Because of these
uncertainties, the PSCW, on January 3, 1997, approved accelerated cost
recovery of the remaining depreciation costs and unfunded decommissioning
liability based on an expected end of plant life of 2002 rather than the
currently licensed end of life of 2013. The accelerated depreciation and
decommissioning expense will be incorporated with the retail rate order
expected to be issued in April of 1997. Based on a 1992 site specific study,
WP&L's share of the costs to decommission Kewaunee are susceptiblewas estimated at $142
million. Assuming an annual inflation rate of 6.5 percent, WP&L's liability in
current year dollars is approximately $180 million. As of December 31, 1996,
$90.7 million, net of tax, was available in external trust funds to corrosion
characteristics seen throughoutmeet this
liability. See Note 11 of the nuclear industry."Notes to Consolidated Financial Statements" for
additional information. Refer to "Subsequent Events" for further information
relating to the new rate order.
Currently, the owners of Kewaunee have different views of the future market
value of energy which impact on the desirability of replacing the steam
generators. During the first quarter of 1995, Kewaunee was shutdown for scheduled maintenance and refueling.
Inspection of the steam generators revealed increased levels of tube
degeneration. Prior to shutdown the equivalent of approximately 12 percent of
the tubes in the steam generators were plugged, with no loss of capacity. When
the plant was returned to service in May 1995 approximately 21 percent of the
tubes were plugged resulting in1996, Wisconsin Public Service
Corporation filed an initial capacity reduction of approximately 4
percent. Approximately half of this lost capacity has been recovered through
operating modifications. The ultimate small reduction in capacity did not affect
revenues or earnings in 1995 because of operating and maintenance cost savings
and reserve capacity recovery efforts at Kewaunee. In addition, there was no
impact on the Company's bulk power sales due to the availability of attractive
purchased power opportunities.
As a result of the need to address the repair or replacement of the steam
generators, the owners of Kewaunee have been, and are continuing to, evaluate
various alternatives to dealapplication with the loss of capacity resulting from the
continuing degradation of the steam generator tubes. As part of this evaluation
the owners have:
(a) submitted a request to the NRC to redefine the pressure boundary point
of the repaired steam generator tubes (sleeved tubes) which have been
removed from service by plugging, in order to allow
A-10
34
the return of many of the sleeved tubes to service. If the request is
granted, even if additional degraded tubes would be discovered during
the next planned shutdown in the fall of 1996, the requested
redefinition of the pressure boundary point should allow the plant to
return to full output. Testing of three tubes removed during the 1995
refueling outage indicates structural soundness equal to the original
tube strength. Management believes the request will be granted by the
NRC;
(b) requestedPSCW seeking approval from the NRC to pursue welded repair technologies to
return plugged tubes to service. Although welded tube repair
technologies exist, the technology is not presently approved by the
NRC; and
(c) continued to evaluate the economics of replacement of the steam
generators. The replacement of steam generators is estimated to cost
approximately $100 million, exclusive of additional purchased power
costs associated with an extended shutdown.
The owners continue to evaluate the potential financial and regulatory
implications of a change in ownership (which would likely require, as a
condition precedent, authority to replace the
steam generator) or early shutdowngenerators in 1999. The total cost of Kewaunee. WP&L believes that the best near term economic alternative forgenerator replacement would be
approximately $89 million. A PSCW decision on this application is expected in
October 1997. In addition, the joint owners continue to analyze and discuss
other options related to the future of Kewaunee, isincluding various ownership
transfer alternatives. If it should become necessary to continue to pursue tube recoveryretire Kewaunee
permanently, WP&L would replace the Kewaunee generation through a combination
of power purchases, increased generation at existing WP&L generating units and
repair processes.
WP&L will reassess its views of available alternatives based on the condition of
the steam generator tubes during the fall 1996 refueling outage. On December 31,
1995, thenew generating unit additions, if necessary.
The net book value of WP&L's share of Kewaunee as of December 31, 1996 was
$57.0 million.
Physical decommissioning$51.4 million, excluding the value of nuclear fuel.
Certain matters discussed concerning Kewaunee is expectedare forward-looking statements
and can generally be identified as such because the content of the statement
include the phrase WP&L "expects" or other words of similar import. Similarly,
statements that describe the WP&L's future plans, objectives and goals are
also forward-looking statements. Such forward-looking statements are subject
to occur during the period
2014certain risks and uncertainties which could cause actual results and
outcomes to 2021 with additional expenditures being incurred during the period 2022
to 2050 relateddiffer materially from those currently anticipated. In addition to
the storagematters discussed above, factors that could affect actual results or
outcomes include the timing and nature of spent nuclear fuel atregulatory responses and approvals,
technological developments and advancements regarding repair of the site.steam
generator tubes, the useful life of the repairs effected and the cost of
purchased electric power or additional generating facilities to replace the
power generated by Kewaunee.
The undiscounted amountstaff of the Securities and Exchange Commission also has questioned
certain of the current accounting practices of the electric utility industry,
including WP&L, regarding the recognition, measurement and classification of
decommissioning costs estimated to be expended between
the years 2014 and 2050 is $1,016 million. Wisconsin utilities operatingfor nuclear generating plants are required bystations in financial statements
of electric utilities. In response to these questions, the PSCWFinancial
Accounting Standards Board (FASB) has decided to establish external trust funds to
providereview the accounting for
theclosure and removal costs, including decommissioning of suchnuclear power plants. WP&L's share of the
decommissioning costs is estimated to be $169 million in 1995 dollars, assuming
the plant is operating through 2013, based on a 1992 site-specific study, using
the immediate dismantlement method of decommissioning. The market value of the
investments in the funds established by WP&L at December 31, 1995, totaled $73.4
million.
CAPITAL RESOURCES
One of the Company'sWP&L's objectives is to finance utility construction expenditures
through WP&L's internally generated funds supplemented, when required, by
outside financing. With this objective in place, the Company hasWP&L financed an average of
6870 percent of
its construction expenditures during the past five years1996 from internal sources. However,
during the next five years, the CompanyWP&L expects this percentage to increase primarily
due to relatively stable levellevels of construction expenditures and higher
depreciation rates beginning in 1997. External financing sources such as the
issuance of long-term debt and short-term borrowings and equity contributions from its parent, WPL Holdings,
Inc. will be used by the CompanyWP&L to
finance the remaining construction expenditure requirements for this period.
Expectations are that approximately $60$105 million of long-term debt will be
issued in 1996.1997.
A-11
NEW ACCOUNTING PRONOUNCEMENTSPRONOUNCEMENT
In October 1995,June 1996, the Financial Accounting Standards Board ("FASB")FASB issued StatementSFAS No. 125, "Accounting for Transfers and
Servicing of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation Plans"Assets and Extinguishments of Liabilities," which
establishes standards of financial accountingfor asset and reporting for stock based compensation plans. As allowed under SFAS
A-11
35
No. 123,liability recognition when transfers
occur. This statement, effective January 1, 1997, is not expected to
materially impact WP&L will continue to apply APB No. 25, "Accounting for Stock Issued to
Employees," in accounting for stock based compensation plans when the statement
becomes effective in 1996. As a result, this statement will have no impact on
the&L's financial position or results of operationsoperations.
Effective January 1, 1997, WP&L adopted the provisions of WP&L.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of.Position (SOP) 96-1, "Environmental Remediation Liabilities." This statement
imposes stricter criteriaStatement
provides authoritative guidance for evaluating the recoverabilityrecognition, measurement, display and
disclosure of regulatory
assets.environmental remediation liabilities in financial statements.
WP&L adopted this standard on January 1, 1996, and doeshas recorded environmental remediation liabilities of $74.1 million at
December 31, 1996. Adoption of SOP 96-1 is not expect that
adoption willexpected to have a material
impact on theWP&L's financial position or results of operations of the Company. This conclusion may change in the future as
competitive factors influence wholesale and retail pricing in the utility.operations.
INFLATION
The impacts of inflation on WP&L are currently mitigated through current
ratemaking
methodologies. Although rates will be held flat until at least 1997,
management expects that any impact of inflation will be mitigated bymethodologies, customer growth and productivity improvements.
OTHER EVENTS
COAL CONTRACT PENALTY
In November 1989, the PSCW concluded that WP&L did not properly administer
a coal contract, resulting in an assessment to compensate ratepayers for excess
fuel costs having been incurred. As a result, WP&L recorded a reserve in 1989
that had an after-tax effect of reducing 1989 net income by $4.9 million. The
PSCW decision was found to represent unlawful retroactive rate-making by both
the Dane County Circuit Court and the Wisconsin Court of Appeals. The case was
then appealed to the Wisconsin Supreme Court.
In January 1994, the Wisconsin Supreme Court affirmed the decisions of the
Dane County Circuit Court and Wisconsin Court of Appeals. In management's
opinion, all avenues for appeal have been exhausted. As a result, WP&L reversed
the entire reserve and was also allowed to collect interest on amounts of the
penalty previously refunded to ratepayers. The reversal of the reserve plus
interest had an after-tax affect of increasing net income in 1994 by $5.3
million.
MERGER PROPOSAL
WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES"), and Interstate
Power Company ("IPC") have entered into an Agreement and Plan of Merger ("Merger
Agreement"), dated November 10, 1995, providing for: a) IPC becoming a
wholly-owned subsidiary of WPLH, and b) the merger of IES with and into WPLH,
which merger will result in the combination of IES and WPLH as a single holding
company (collectively, the "Proposed Merger").
The new holding company will be named Interstate Energy Corporation
("Interstate Energy"). The Proposed Merger, which will be accounted for as a
pooling of interests, has been approved by the respective Board of Directors. It
is still subject to approval by the shareholders of each company as well as
several federal and state regulatory agencies. The companies expect to receive
the shareholder approvals in the third quarter of 1996 and if all required
regulatory approvals are received, it is presently anticipated that the proposed
combination will be completed during the first half of 1997. The corporate
headquarters of Interstate Energy will be in Madison.
A-12
36
The business of Interstate Energy will consist of utility operations and
various non-utility enterprises, and it is expected that its utility
subsidiaries will serve more than 870,000 electric customers and 360,000 natural
gas customers in Iowa, Illinois, Minnesota and Wisconsin. The operating
revenues, net income from continuing operations and total assets of the
companies were as follows:
PRO FORMA
COMBINED
WPLH IES IPC (UNAUDITED)
---------- ---------- -------- ----------
(IN THOUSANDS)
1995 Operating revenues.......... $ 807,255 $ 851,010 $318,542 $1,976,807
1995 Net income from continued
operations..................... $ 71,618 $ 64,176 $ 25,198 $ 160,992
Assets at December 31, 1995...... $1,872,414 $1,985,591 $634,316 $4,492,321
Under the terms of the Merger Agreement, the outstanding shares of WPLH's
common stock will remain unchanged and outstanding as shares of Interstate
Energy. Each outstanding share of IES common stock will be converted to 1.01
shares (the "IES Ratio") of Interstate Energy's common stock. Each share of
IPC's common stock will be converted to 1.11 shares of Interstate Energy's
common stock. It is anticipated that Interstate Energy will retain WPLH's common
share dividend payment level as of the effective time of the merger. On January
24, 1996, the Board of Directors of WPL Holdings, Inc. declared a quarterly
dividend of 49.25 cents. This represents an equivalent annual rate of $1.97 per
share.
An amendment to the Merger Agreement provided for an adjustment of the IES
Ratio from 0.98 shares to 1.01 shares in the event that, prior to consummation
of the Mergers, McLeod, Inc. ("McLeod"), a Delaware Corporation in which IES has
a significant interest, completed a firm commitment underwritten initial public
offering, subject to certain requirements (the "McLeod Contingency"). On June
14, 1996, McLeod completed its initial public offering and the McLeod
Contingency was satisfied. As a result, the IES Ratio was automatically adjusted
to 1.01.
Interstate Energy will be the parent company of the Company, IES Utilities
and IPC and will be registered under the Public Utility Holding Company Act of
1935, as amended ("1935 Act"). The Merger Agreement provides that these
operating utility companies will continue to operate as separate entities for a
minimum of three years beyond the effective date of the merger. In addition, the
non-utility operations of WPLH and IES will be combined shortly after the
effective date of the merger under one entity to manage the diversified
operations of Interstate Energy.
The Securities and Exchange Commission (the "SEC") historically has
interpreted the 1935 Act to preclude registered holding companies, with limited
exceptions, from owning both electric and gas utility systems. Although the SEC
has recently recommended that registered holding companies be allowed to hold
both gas and electric utility operations if the affected states agree, it
remains possible that the SEC may require as a condition to its approval of the
Proposed Merger that WPLH, IES and IPC divest their gas utility properties, and
possibly certain non-utility ventures of WPLH and IES, within a reasonable time
after the effective date of the Proposed Merger.
Legislation to repeal the 1935 Act was introduced in Congress in 1995 and
is pending. No assurance can be given as to when or if such legislation will be
considered or enacted. The Staff of the SEC has also recommended that the SEC
"permit combination systems by registered holding companies if the affected
states concur," and the SEC has proposed rules that would relax current
restrictions on investment by registered holding companies in certain "energy
related," non-utility businesses. No prediction can be made as to the outcome of
these legislative and regulatory proposals.
A-13
37
UNION CONTRACT
The three year contract WP&L has withand the International Brotherhood of Electrical Workers, Local 965,
isreached agreement on a new three-year collective bargaining contract on June
14, 1996. The new agreement includes increases in effect untilthe base wage during the
first, second and third years of the contract of 3 percent, 3 percent and 3.25
percent, respectively. The new agreement was effective retroactive to June 1,
1996. The1996, with wages retroactive to May 26, 1996, which was the beginning of a pay
period. At the end of 1996, the contract covers 1,601covered 1,617 of WP&L's employees
which represents approximately 69 percent of the total employees at December 31, 1995. At this time the results of
negotiations cannot be estimated.WP&L.
ENVIRONMENTAL
WP&L cannot precisely forecast the effect of future environmental
regulations by federal, state and local authorities uponon its generating,generation,
transmission and other facilities, or its operations, but has taken steps to
anticipate the future while meeting the requirements of current environmental
regulations. The Clean Air Act Amendments of 1977 and subsequent amendments to
the Clean Air Act, as well as the new laws affecting the handling and disposal
of solid and hazardous wastes, could affect the siting, construction and
operating costs of both present and future generating units.
Under the Federal Clean Water Act, National Pollutant Discharge Elimination
System permits for generating station discharge into water ways are required
to be obtained from the Wisconsin Department of Natural Resources ("DNR")(DNR) to
which the permit program has been delegated. These permits must be
periodically reviewed. WP&L has obtained such permits for all of its
generating stations or has filed timely applications for renewals of such
permits.
Air quality regulations promulgated by the DNR in accordance with Federalfederal
standards impose statewide restrictions on the emission of particulates,
sulfur dioxide, nitrogen oxides and other air pollutants and require permits
from the DNR for the operation of emission sources. WP&L currently has the
necessary permits to operate its fossil-fueled generating facilities. While periodic
exceedances in air emissions may occur, management promptly acts on these
excursionsthem and
works with the DNR to resolve any permit compliance issues. With the passage
of the new
A-12
Federal Clean Air Act Amendments, the state is required to include these
provisions in its permit requirements. WP&L has submitted timely Title V permit
applications in compliance with schedules set forth by the regulators. WP&L
has also completed application for Phase II permits under the Clean Air Act in
compliance with the time lines identified. The state Title V operating
permits, when issued, will consolidate all existing air permit conditions and
regulatory requirements into one permit for each facility. Permits have been
or are expected to be issued in 1996.1997. Until such time, the facilities will
continue to operate under their existing permit conditions.
WP&L's compliance strategy for Wisconsin's sulfur dioxide law (discussed
above) and the Federal Clean Air Act Amendments required plant upgrades at its
generating facilities. The majority of these projects were completed in 1993.
WP&L has installed continuous emission monitoring systems at all of its coal
fired boilers in compliance with federal requirements. Monitoring for sulfur
dioxide was also required by Title IV of the Federal Clean Air Act at WP&L's
South Fond du Lac, combustion turbineWisconsin combustion-turbine site. These requirements were
also met. Additional monitoring systems for nitrogen oxides arewere required in
1996 at the combustion-turbinecombustion turbine site. WP&L has installed these monitors, and
will completecompleted certification tests for the equipment by May 1996.equipment. No significant additional
investments are anticipated at this time to meet the requirements of the
Federal Clean Air Act Amendments.
For a discussion of the Company'sWP&L's liability regarding environmental remediation at
certain manufactured gas plant sites formerly operated by WP&L, see Note 11 of
"Notes to Consolidated Financial Statements."
SUBSEQUENT EVENTS
WP&L submitted its biennial rate case filing (UR-110) with the PSCW on April
1, 1996, for the test year beginning January 1, 1997. In the filing, WP&L
requested rate increases of $13.4 million or 3.0 percent for Wisconsin retail
electric customers and $2.4 million or 1.6 percent for Wisconsin natural gas
customers. This request was based on an 11.9 percent return on common equity.
On March 4, 1997, the PSCW finalized certain decisions relating to this rate
case. For a description of this filing, refer to "Rates and Regulatory
Matters" above. The following decisions were reached: authorization of a
surcharge to collect replacement power costs while Kewaunee is out of service;
authorization of an increase in the return on equity to 11.7 percent from its
current level of 11.5 percent; a requirement to maintain a utility common
equity level of 51.98 percent as compared to the current level of 51.93
percent; reinstatement of the electric fuel adjustment clause; and
continuation of a modified gas performance based ratemaking incentive
mechanism. Preliminary estimates for UR-110 indicate an $11.2 million or 2.5
percent reduction for Wisconsin retail electric customers and a $1.3 million
or 2.3 percent reduction for Wisconsin natural gas customers. Although the
PSCW has publicly announced the foregoing decisions, a final order in WP&L's
rate case is not expected to be issued by the PSCW until April 1997.
As previously discussed in the MD&A under "Capital Requirements," Kewaunee
is in the process of using laser technology for tube repairs and further
investigation is ongoing which may delay the return of the plant to service
beyond the first quarter of 1997. Because of these uncertainties, the PSCW, on
January 3, 1997, approved accelerated cost recovery of the remaining
depreciation costs and unfunded decommissioning liability based on an expected
end of plant life of 2002 rather than the current licensed end of life of
2013. The accelerated depreciation and decommissioning expense will be
incorporated with the retail rate order UR-110. Based on the March 4, 1997
decisions by the PSCW, WP&L expects to recover in rates an additional $3.0
million annually related to the accelerated depreciation of Kewaunee and to
increase the annual contribution to the external decommissioning trust funds
to $16 million from its current level of $10.7 million. The forecasted level
of the contribution included in the capital requirements section was $19.7
million. After-tax earnings on the tax-qualified and non-qualified
decommissioning funds are assumed to be 5.6 percent and 7.0 percent,
respectively.
A-13
Based on a 1992 site specific study, WP&L's share of the costs to
decommission Kewaunee was estimated at $142 million. WP&L's share of the
decommissioning costs of Kewaunee was previously established to be $180
million (in 1996 dollars) using an annual inflation rate of 6.5 percent. The
inflation assumptions applied in UR-110 were as follows: labor, 4.12 percent;
burial costs, 10.42 percent; energy, 3.66 percent; and other,
8.00 percent for a weighted average inflation rate of 5.44 percent. Based on
this revised inflation rate, WP&L's liability in current year dollars is
approximately $176 million. As of December 31, 1996, $90.7 million, net of
tax, was available in external trust funds to meet this liability. See Note 11
of the "Notes to Consolidated Financial Statements" for additional
information. The undiscounted amount of decommissioning costs estimated to be
expended between the years 2014 and 2050 was $1,016 million. Based on the
revised funding plan this amount was decreased to $611 million to be expended
between the years 2003 and 2039.
DIVIDEND DECLARATION
On January 24, 1996,22, 1997, the Board of Directors of WPL Holdings, Inc. declared a
quarterly dividend on common stock. The dividend is 49.2550 cents per share payable
February 15 to shareowners of record on February 2, 1996.January 31, 1997.
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
The summarized quarterly financial data below were not audited by
independent public accountants, but reflect all adjustments necessary, in the
opinion of WP&L, for a fair presentation of the data. The quarterly amounts
can be affected by seasonal weather conditions. Refer to MD&A for a discussion
of the impacts of weather.
OPERATING OPERATING NET
REVENUES INCOME INCOME
--------- --------- -------
(IN THOUSANDS)
QUARTER ENDED
1996:
March 31.................................... $221,234 $59,958 $31,950
June 30..................................... 166,117 34,436 19,538
September 30................................ 165,536 32,625 15,152
December 31................................. 206,388 29,323 12,535
1995:
March 31.................................... $187,342 $45,132 $20,899
June 30..................................... 149,557 22,972 8,846
September 30................................ 165,481 42,678 21,124
December 31................................. 187,292 42,041 24,473
A-14
38
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 COMPANYWisconsin Power and Light Company (a Wisconsin
corporation) and subsidiaries as of December 31, 19951996 and 1994,1995, and the
related consolidated statements of income, cash flows and common shareowners'
investment and cash flows for each of the three years in the period ended December 31, 1995.1996.
These financial statements are the responsibility of the Company'sWP&L's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amountsamount 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 statementsstatement referred to above present fairly, in
all material respects, the financial position of Wisconsin Power and Light
Company and subsidiaries as of December 31, 19951996 and 1994,1995, and the results of
theirits operations and theirits cash flows for each of the three years in the period
ended December 31, 1995,1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSENArthur Andersen LLP
Milwaukee, Wisconsin
January 26, 199630, 1997
A-15
39
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETSSTATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
---------- ----------
(DOLLARS IN-------- -------- --------
(IN THOUSANDS)
Utility plant:
Plant in Service--
Electric........................................................ $1,681,093 $1,611,351
Gas............................................................. 217,678 204,514
Water........................................................... 22,518 22,070
Common.......................................................... 136,943 123,255
---------- ----------
2,058,232 1,961,190
Dedicated decommissioning
OPERATING REVENUES:
Electric........................................ $589,482 $546,324 $531,747
Gas............................................. 165,627 139,165 151,931
Water........................................... 4,166 4,183 4,133
-------- -------- --------
759,275 689,672 687,811
-------- -------- --------
OPERATING EXPENSES:
Electric production fuels....................... 114,470 116,488 123,469
Purchased power................................. 81,108 44,940 37,913
Purchased gas................................... 104,830 84,002 100,942
Other operation................................. 141,885 139,877 150,995
Maintenance..................................... 46,492 42,043 41,227
Depreciation.................................... 84,942 81,164 73,194
Taxes other than income......................... 29,206 28,335 27,100
-------- -------- --------
602,933 536,849 554,840
-------- -------- --------
OPERATING INCOME.................................. 156,342 152,823 132,971
-------- -------- --------
INTEREST EXPENSE AND OTHER:
Interest expense................................ 31,472 33,821 31,148
Allowance for funds at market......................... 73,357 51,791
---------- ----------
2,131,589 2,012,981
Less-Accumulated provision for depreciation........................ 887,562 808,853
---------- ----------
1,244,027 1,204,128
Construction work in progress...................................... 36,996 42,731
Nuclear fuel, net.................................................. 18,867 19,396
---------- ----------
Total utility plant................................................ 1,299,890 1,266,255
Other property and equipment, net.................................... 22,275 9,133
Investments.......................................................... 12,488 12,228
Current assets:
Cash and equivalents............................................... 4,671 2,234
Net accounts receivable and unbilled revenue, less allowance for
doubtful accounts of $0 and $209, respectively.................. 33,971 21,689
Coal, at average cost.............................................. 14,625 15,824
Materials and supplies, at average cost............................ 20,611 20,835
Gas in storage, at average cost.................................... 6,319 7,975
Prepayments and other.............................................. 21,190 22,310
---------- ----------
Total current assets............................................ 101,387 90,867
---------- ----------
Deferred charges:
Regulatory assets.................................................. 156,740 144,476
Other.............................................................. 48,385 62,165
---------- ----------
Total deferred charges.......................................... 205,125 206,641
---------- ----------
TOTAL ASSETS.................................................... $1,641,165 $1,585,124
========== ==========used during construction.... (3,208) (2,088) (4,038)
Other........................................... (8,215) (3,168) (10,361)
-------- -------- --------
20,049 28,565 16,749
-------- -------- --------
Income from operations before income taxes........ 136,293 124,258 116,222
Income taxes...................................... 53,808 45,606 44,727
Preferred dividend requirement.................... 3,310 3,310 3,310
-------- -------- --------
NET INCOME........................................ $ 79,175 $ 75,342 $ 68,185
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
A-16
40
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
CAPITALIZATION AND LIABILITIES
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---------- ----------
(DOLLARS IN(IN THOUSANDS)
Capitalization:
Common shareowners' investment..................................... $ 563,070 $ 544,506
Preferred stock not mandatorily redeemable......................... 59,963 59,963
First mortgage bonds, net.......................................... 318,599 336,538ASSETS:
Utility plant:
Plant in service
Electric............................................. $1,729,311 $1,665,611
Gas.................................................. 227,809 217,678
Water................................................ 23,905 22,518
Common............................................... 152,093 136,943
---------- ----------
Total capitalization............................................ 941,632 941,0072,133,118 2,042,750
Less--accumulated provision for depreciation........... 967,436 887,562
---------- ----------
1,165,682 1,155,188
Construction work in progress.......................... 55,519 36,996
Nuclear fuel, net...................................... 19,368 18,867
---------- ----------
1,240,569 1,211,051
---------- ----------
Other property and equipment, net........................ 1,397 22,275
---------- ----------
Investments:
Nuclear decommissioning trust funds.................... 90,671 73,357
Other investments...................................... 15,354 13,011
---------- ----------
106,025 86,368
---------- ----------
Current liabilities:
Variable rate demand bonds......................................... 56,975 56,975
Short-term debt.................................................... 72,500 50,500
Accounts payableassets:
Cash and accruals...................................... 82,428 67,518
Accrued payrollequivalents................................... 4,167 4,671
Net accounts receivable and vacation....................................... 11,011 12,624
Accrued taxes...................................................... 7,795 7,299
Accrued interest................................................... 7,574 7,669
Other.............................................................. 22,356 12,456unbilled revenue........... 34,220 33,971
Coal, at average cost.................................. 15,841 14,625
Materials and supplies, at average cost................ 19,915 20,611
Gas in storage, at average cost........................ 9,992 6,319
Prepayments and other.................................. 22,053 21,190
---------- ----------
Total current liabilities....................................... 260,639 215,041106,188 101,387
---------- ----------
Other credits:
Accumulated deferred income taxes.................................. 239,812 222,373
Accumulated deferred investment tax credits........................ 38,842 40,758
Accrued environmental remediation costs............................ 76,852 79,280
Deferred credits and other......................................... 83,388 86,665charges:
Regulatory assets...................................... 160,877 170,269
Other.................................................. 62,758 49,815
---------- ----------
438,894 429,076223,635 220,084
---------- ----------
Commitments and contingencies (Note 11)
TOTAL CAPITALIZATION AND LIABILITIES............................ASSETS............................................. $1,677,814 $1,641,165 $1,585,124
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
A-17
41
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOMEBALANCE SHEETS (CONTINUED)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995
1994 1993
-------- -------- --------
(DOLLARS IN---------- ----------
(IN THOUSANDS)
Operating revenues:
Electric.................................................... $546,324 $531,747 $503,187
Gas......................................................... 139,165 151,931 137,270
Water....................................................... 4,183 4,133 3,927
-------- -------- --------
689,672 687,811 644,384
-------- -------- --------
Operating expenses:
Electric production fuels................................... 116,488 123,469 123,919
Purchased power............................................. 44,015 37,913 28,574
Purchased gas............................................... 84,002 100,942 90,505CAPITALIZATION AND LIABILITIES
Capitalization (See Consolidated Statements of
Capitalization):
Common shareowners' investment........................ $ 576,158 $ 563,070
Subsidiary preferred stock not mandatorily redeemable. 59,963 59,963
Long-term debt, net................................... 258,660 318,599
---------- ----------
894,781 941,632
---------- ----------
Current liabilities:
Current maturities of long-term debt.................. 55,000 --
Variable rate demand bonds............................ 56,975 56,975
Short-term debt....................................... 69,500 72,500
Accounts payable and accruals......................... 92,719 82,428
Accrued payroll and vacation.......................... 11,687 11,011
Accrued taxes......................................... 3,616 7,795
Accrued interest...................................... 7,504 7,574
Other................................................. 34,424 22,356
---------- ----------
331,425 260,639
---------- ----------
Other operation............................................. 137,396 148,360 139,075
Maintenance................................................. 42,043 41,227 44,763
Depreciation................................................ 81,164 73,194 61,197
Taxes --
Current federal income................................... 30,129 26,727 25,063credits:
Accumulated deferred income taxes..................... 244,817 239,812
Accumulated deferred investment tax credits........... 36,931 38,842
Accrued environmental remediation costs............... 74,075 76,852
Deferred income........................................ 10,664 10,270 5,053
Investment tax credit (restored)....................... (1,916) (1,926) (1,967)
Current state income................................... 7,006 6,147 6,580
Other.................................................. 28,335 27,100 26,145
-------- -------- --------
579,326 593,423 548,907
-------- -------- --------
Net operating income.......................................... 110,346 94,388 95,477
-------- -------- --------
Other incomecredits and (deductions):
Allowance for equity funds used during construction......... 1,425 3,009 2,977
Other, net.................................................. (238) 7,726 (2,188)
Current income tax.......................................... 329 (1,480) (519)
Deferred income tax......................................... (52) (2,029) (419)
-------- -------- --------
1,464 7,226 (149)
-------- -------- --------
Income before interest expense................................ 111,810 101,614 95,328
-------- -------- --------
Interest expense:
Interest on bonds........................................... 28,647 28,796 28,422
Allowance for borrowed funds used during construction....... (663) (1,029) (1,053)
Other....................................................... 5,174 2,352 3,854
-------- -------- --------
33,158 30,119 31,223
-------- -------- --------
Net income.................................................... 78,652 71,495 64,105
-------- -------- --------
Preferred stock dividends..................................... 3,310 3,310 3,928
-------- -------- --------
Net income for common stock................................... $ 75,342 $ 68,185 $ 60,177
======== ======== ========other............................ 95,785 83,388
---------- ----------
451,608 438,894
---------- ----------
Commitments and contingencies (Note 11)
TOTAL CAPITALIZATION AND LIABILITIES.................... $1,677,814 $1,641,165
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
A-18
42
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994
1993
-------- -------- --------
(DOLLARS IN--------- --------- ---------
(IN THOUSANDS)
Cash flows generated from (used for) operating activities:CASH FLOWS GENERATED FROM (USED FOR)
OPERATING ACTIVITIES:
Net income...........................................................income................................... $ 82,485 $ 78,652 $ 71,495 $ 64,105
Adjustments to reconcile net income to net
cash generated from operating activities:
Depreciation.....................................................Depreciation............................... 84,942 81,164 73,194
61,197
Deferred income taxes............................................taxes...................... 14,540 10,716 12,299 5,472
Investment tax credit restored...................................restored............. (1,911) (1,916) (1,926) (1,967)
Amortization of nuclear fuel.....................................fuel............... 6,057 7,787 6,707 7,049
Allowance for equity funds usingused during
construction.............construction.............................. (2,270) (1,425) (3,009)
(2,977)Gain on sale of other property and
equipment................................. (5,676) -- --
Changes in assets and liabilities:
Net accounts receivable and unbilled
revenue.......................revenue................................... (250) (12,281) 16,335 4,124
Coal............................................................... 1,199 218 2,943
Materials and supplies............................................. 224 884 (6)
Gas in storage..................................................... 1,656 779 (4,463)11,000
Inventories................................ (4,193) 3,079 1,841
Prepayments and other..............................................other...................... (863) 1,121 (634) (383)
Accounts payable and accruals......................................accruals.............. 10,896 13,203 (4,912) 640(4,406)
Accrued taxes......................................................taxes.............................. (4,179) 496 (3,775) (538)6,495
Other, net.........................................................net................................. 8,551 15,674 19,102 18,004
-------- -------- --------10,028
--------- --------- ---------
Net cash generated from (used for) operating
activities.....................activities.............................. 188,129 196,270 186,757 153,200
-------- -------- --------
Cash flows generated183,084
--------- --------- ---------
CASH FLOWS GENERATED FROM (USED FOR)
FINANCING ACTIVITIES:
Common stock cash dividends, less dividends
reinvested................................ (66,087) (56,778) (55,911)
Preferred stock dividends.................. (3,310) (3,310) (3,310)
Retirement of first mortgage bonds......... (5,000) (18,000) --
Net change in short-term debt.............. (3,000) 22,000 (8,500)
Other, net................................. -- -- 9,649
--------- --------- ---------
Net cash from (used for) financing
activities:
Common stock cash dividends.......................................... (56,778) (55,911) (54,327)
Retirement of first mortgage bonds................................... (18,000) -- --
Issuance of preferred stock.......................................... -- -- 29,986
Redemption of preferred stock........................................ -- -- (29,986)
Preferred stock issuance expense..................................... -- -- (1,083)
Preferred stock dividends............................................ (3,310) (3,310) (3,928)
Net change in short-term debt........................................ 22,000 (8,500) 8,000
Current bond maturities and sinking fund requirements................ -- -- (100)
Equity contribution from parent...................................... -- 9,649 61,399
-------- -------- --------
Net cash (used for) generated from financing activities............activities.............................. (77,397) (56,088) (58,072)
9,961
-------- -------- --------
Cash flows generated--------- --------- ---------
CASH FLOWS GENERATED FROM (USED FOR)
INVESTING ACTIVITIES:
Proceeds from (used for) investing activities:sale of other property and
equipment................................. 36,264 -- --
Additions to utility plant, excluding
AFUDC.......................... (97,938) (123,959) (149,333)AFUDC..................................... (120,732) (99,746) (119,272)
Additions to nuclear fuel.................. (6,558) (7,258) (8,103)
Allowance for borrowed funds used during
construction................construction.............................. (938) (663) (1,029)
(1,053)
Dedicated decommissioning funds......................................trust funds...... (17,314) (21,566) (1,988)
(9,426)
Other, net........................................................... (17,578) (5,405) 2,200
-------- -------- --------net................................. (1,958) (8,512) 1,684
--------- --------- ---------
Net cash used forfrom (used for) investing
activities.............................activities.............................. (111,236) (137,745) (132,381) (157,612)
-------- -------- --------
Net increase (decrease) in cash and equivalents........................(128,708)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS................................. (504) 2,437 (3,696)
5,549
Cash and equivalents at beginning of year..............................CASH AND EQUIVALENTS AT BEGINNING OF YEAR.... 4,671 2,234 5,930
381
-------- -------- --------
Cash and equivalents at end of year....................................--------- --------- ---------
CASH AND EQUIVALENTS AT END OF YEAR.......... $ 4,167 $ 4,671 $ 2,234
$ 5,930
======== ======== ========
Supplemental disclosures of cash flow information:========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:year:
Interest on debt...................................................debt........................... $ 28,786 $ 30,841 $ 30,156
Income taxes............................... $ 32,246
Income taxes.......................................................48,622 $ 37,968 $ 29,642 $ 32,465
The accompanying notes are an integral part of the consolidated financial
statements.
A-19
43
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995
1994
-------- --------
(DOLLARS IN
THOUSANDS)--------- ---------
(IN THOUSANDS
EXCEPT SHARE DATA)
Common shareowners investment:COMMON SHAREOWNERS' INVESTMENT:
Common stock $5 par value, authorized--18,000,000 shares;authorized 18,000,000 shares,
issued and outstanding--13,236,601 shares....................................shares.............. $ 66,183 $ 66,183
Premium on capital stock.............................................stock................................ 197,423 197,423
Capital surplus......................................................surplus......................................... 1,747 1,747
Reinvested earnings..................................................earnings..................................... 310,805 297,717
279,153
-------- --------
Total common shareowner's investment............................--------- ---------
576,158 563,070
544,506
Preferred stock not mandatorily redeemable:--------- ---------
PREFERRED STOCK WITHOUT MANDATORY REDEMPTION, $100
STATED VALUE
Cumulative, without par value, $100 stated value, authorized 3,750,000
shares, maximum aggregate stated value $150,000,000;$150,000,000:
4.50% series, 99,970 shares outstanding.........................outstanding............... 9,997 9,997
4.80% series, 74,912 shares outstanding.........................outstanding............... 7,491 7,491
4.96% series, 64,979 shares outstanding.........................outstanding............... 6,498 6,498
4.40% series, 29,957 shares outstanding.........................outstanding............... 2,996 2,996
4.76% series, 29,947 shares outstanding.........................outstanding............... 2,995 2,995
6.20% series, 150,000 shares outstanding........................outstanding.............. 15,000 15,000
Cumulative, without par value, $25 stated value,value-- 6.50%
series, 599,460 shares outstanding........................................outstanding..................... 14,986 14,986
-------- --------
Total preferred stock...........................................--------- ---------
59,963 59,963
--------- ---------
LONG-TERM DEBT:
First mortgage bonds:
Series L, 6.25%, due 1998............................................1998............................. 8,899 8,899
1984 Series A, variable rate, due 2014 (5.25%(4.60% at
12/31/95)..........96)............................................ 8,500 8,500
1988 Series A, variable rate, due 2015 (5.15%(4.25% at
12/31/95)...........96)............................................ 14,600 14,600
1990 Series V, 9.3%, due 2025........................................2025......................... 27,000 32,000 50,000
1991 Series A, variable rate, due 2015 (6.10%(5.00% at
12/31/95)...........96)............................................ 16,000 16,000
1991 Series B, variable rate, due 2005 (6.10%(5.00% at
12/31/95)..........96)............................................ 16,000 16,000
1991 Series C, variable rate, due 2000 (6.10%(5.00% at
12/31/95)..........96)............................................ 1,000 1,000
1991 Series D, variable rate, due 2000 (6.10%(5.00% at
12/31/95)..........96)............................................ 875 875
1992 Series W, 8.6%, due 2027........................................2027......................... 90,000 90,000
1992 Series X, 7.75%, due 2004.......................................2004........................ 62,000 62,000
1992 Series Y, 7.6%, due 2005........................................2005......................... 72,000 72,000
1992 Series Z, 6.125%, due 1997......................................1997....................... 55,000 55,000
-------- --------
Total first mortgage bonds......................................--------- ---------
371,874 376,874
394,874
Less:--------- ---------
Less--
Current maturities.................................... (55,000) --
Variable rate demand bonds...........................................bonds............................ (56,975) (56,975)
Unamortized discount.................................................discount and premium, net................. (1,239) (1,300)
(1,361)
-------- --------
Total first mortgage bonds, net.................................--------- ---------
258,660 318,599
336,538
-------- ----------------- ---------
TOTAL CAPITALIZATION......................................... $941,632 $941,007
======== ========CAPITALIZATION.................................... $ 894,781 $ 941,632
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
A-20
44
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF COMMON
SHAREOWNER'SSHAREOWNERS' INVESTMENT
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993
-------- -------- --------
(DOLLARS IN(IN THOUSANDS)
Common stock:
Balance at beginning and end of year........................year............ $ 66,183 $ 66,183 $ 66,183
Premium on capital stock:
Balance at beginning of year................................year.................... 197,423 197,423 187,774 126,374
Equity contribution from parent.............................parent............... -- -- 9,649 61,399
-------- -------- --------
Balance at end of year......................................year.......................... 197,423 197,423 187,773197,423
Capital surplus:
Balance at beginning and end of year........................year............ 1,747 1,747 1,747
Reinvested earnings:
Balance at beginning of year................................year.................... 297,717 279,153 267,000
262,233
Add--IncomeIncome before preferred dividends......................dividends............. 82,485 78,652 71,494 64,105
Deduct--
Cash dividends on preferred stock........................stock............. (3,310) (3,310) (3,928)(3,310)
Cash dividends to parent on common stock.................stock...... (66,087) (56,778) (55,911)
(54,327)
Preferred stock issuance expense.........................Other......................................... -- -- (1,083)
Other.................................................... -- (120) --
-------- -------- --------
Balance at end of year...................................year.......................... 310,805 297,717 279,153
267,000-------- -------- --------
TOTAL COMMON SHAREOWNER'S INVESTMENT..........................SHAREOWNERS' INVESTMENT.............. $576,158 $563,070 $544,506 $522,703
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
A-21
45
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES:
A. BUSINESS AND CONSOLIDATION:POLICIES
a. General
Wisconsin Power and Light Company ("WP&L" or the "Company")(WP&L) is a subsidiary of WPL Holdings,
Inc. ("WPLH")(WPLH). WP&L is a public utility predominantlypredominately engaged in the
transmission and distribution of electric energy and the generation and bulk
purchase of electric energy for sale. WP&L also transports, distributes and
sells natural gas purchased from gas suppliers. Nearly all of WP&L's retail
customers are located in south and central Wisconsin. WP&L's principal
consolidated subsidiary is South Beloit Water, Gas and Electric Company.
Certain amounts from prior years
have been reclassified to conform with the current year presentation.
B. REGULATION:b. Regulation
WP&L's financial records are maintained in accordance with the uniform
system of accounts prescribed by its regulators. The Public Service Commission
of Wisconsin ("PSCW")(PSCW) and the Illinois Commerce Commission (ICC) have
jurisdiction over retail rates, which represent approximately 82 percent of electric revenues
plus alland gas revenues. The Federal Energy
Regulatory Commission ("FERC")(FERC) has jurisdiction over wholesale electric
rates representing the balancerevenues.
c. Use of electric
revenues. Statement of Financial Accounting Standards ("SFAS") No. 71,
"Accounting for the Effects of Certain Types of Regulation" provides that
rate-regulated public utilities such as WP&L record certain costs and credits
allowed in the ratemaking process in different periods than for unregulated
entities. These are deferred as regulatory assets or regulatory liabilities and
are recognized in the Consolidated Statements of Income at the time they are
reflected in rates.
C. USE OF ESTIMATES:Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results will, in most cases,could differ from those estimates.
D. UTILITY PLANT AND OTHER PROPERTY AND EQUIPMENT:d. Cash and Equivalents
WP&L considers all highly liquid debt instruments purchased and investments
with a maturity of three months or less to be cash equivalents.
e. Utility Plant and Other Property and Equipment
Utility plant and other property and equipment are recorded at original
cost and cost, respectively.cost. Utility plant costs include financing costs that are capitalized using
the FERC method for allowance for funds used during construction ("AFUDC")(AFUDC). The
AFUDC capitalization rate for 1996, 1995 and 1994 was 6.68 percent.10.23%, 6.68% and
10.15%, respectively. These capitalized costs are recovered in rates as the
cost of the utility plant is depreciated.
Normal repairs, maintenance and minor items of utility plant and other
property and equipment are expensed. Ordinary utility plant retirements,
including removal costs less salvage value, are charged to accumulated
depreciation upon removal from utility plant accounts, and no gain or loss is
recognized. Upon A-22
46
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: (CONTINUED)
retirement or sale of other property and equipment, the cost
and related accumulated depreciation are removed from the accounts and any
gain or loss is included in other income and deductions.
E. DEPRECIATION:
The Companyf. Depreciation
WP&L uses the straight-line method of depreciation. For utility plant,
straight-line depreciation is computed on the average balance of depreciable
property at individual straight-line PSCW approved rates that consider the
estimated useful life and removal cost or salvage value as follows:
A-22
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ELECTRIC GAS WATER COMMON
--------1996 1995 1994
---- ----- ---------- ----
1995............................................Electric................................................... 3.3% 3.3% 3.2%
Gas........................................................ 3.7% 3.7% 3.7%
Water...................................................... 2.6% 2.5% 2.5%
Common..................................................... 8.1% 7.9% 1994............................................ 3.2% 3.7% 2.5% 7.2%
1993............................................ 3.2% 3.7% 2.5% 7.3%7.9%
Depreciation expense related to WP&L's share of the decommissioning of the
Kewaunee Nuclear Power Plant is discussed in "NoteNote 11 Commitments"Commitments and
Contingencies." WP&L has filed a depreciation rate case with the PSCW requestingwill implement higher depreciation rates which if approved, will be effective
inJanuary 1, 1997.
Estimated useful lives related to other property and equipment are from 34 to
12 years for equipment and 31.5 to 40 years for buildings.
F. NUCLEAR FUEL:g. Nuclear Fuel
Nuclear fuel is recorded at its original cost and is amortized to expense
based upon the quantity of heat produced for the generation of electricity.
This accumulated amortization assumes spent nuclear fuel will have no residual
value. Estimated future disposal costs of such fuel are expensed based on
kilowatthours generated.
G. REVENUE:h. Regulatory Assets and Liabilities
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation," provides that rate-regulated
public utilities such as WP&L record certain costs and credits allowed in the
ratemaking process in different periods than for unregulated entities. These
are deferred as regulatory assets or regulatory liabilities and are recognized
in the consolidated statements of income at the time they are reflected in
rates. If a portion of WP&L's operations become no longer subject to the
provisions of SFAS No. 71, a write-off of regulatory assets and liabilities
would be required, unless some form of transition cost recovery is established
by the appropriate regulatory body.
As of December 31, 1996 and 1995, regulatory created assets include the
following:
1996 1995
-------- --------
Environmental remediation costs (Note 11).............. $ 81,431 $ 81,431
Tax related (Note 6)................................... 57,198 62,796
Jurisdictional plant differences....................... 7,603 7,517
Decontamination and decommissioning costs of Federal
enrichment facilities................................. 6,061 6,555
Other.................................................. 8,584 11,970
-------- --------
Total.............................................. $160,877 $170,269
======== ========
As of December 31, 1996 and 1995, WP&L had recorded regulatory related
liabilities of $33,901 and $37,898, respectively. These liabilities are
primarily tax related.
i. Revenue
WP&L accrues utility revenues for services provided but not yet billed.
H. ELECTRIC PRODUCTION FUELS AND PURCHASED GAS:
(1) Electric Production Fuels:
Through 1994, the PSCW retail electric rates provided a range from
which actual fuel costs could vary in relation to costs forecasted and used
in rates. If actual fuel costs fell outside this range, a hearing could be
held to determine if a rate change was necessary, and a rate increase or
decrease could result.
Beginning with WP&L's latest rate order UR-109, effective January 1,
1995, the automatic fuel adjustment clause was eliminated. In its absence,
WP&L will benefit from reductions in fuel cost. Conversely, WP&L will be
exposed to increases in fuel costs.billed at month-end.
A-23
47
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTEj. Rate Matters
Effective January 1, 1995, for the two-year period ended December 31, 1996,
the PSCW in rate order UR-109, authorized a 2.8 percent annual decrease in
electric rates, a 0.5 percent annual increase in gas rates and a decline in
the allowed return on common equity to 11.5 percent from 11.6 percent.
Further, the PSCW approved certain incentive programs described below:
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: (CONTINUED)
An automaticThe electric fuel adjustment clause formechanism, which allowed costs to
fluctuate within a 3 percent band width, was eliminated. The elimination of
the FERC wholesale portion of
WP&L's electric business and South Beloit's retail rates operates to
increase or decrease monthly rates basedadjustment mechanism did not have a material impact on changes in fuel costs.
(2) Purchased Gas:
Through 1994, WP&L's base gas cost recovery rates permitted the
recovery of, or refund to, all customers for any increases or decreases in
the cost of gas purchased from WP&L's suppliers through a monthly purchased
gas adjustment clause. Beginning with UR-109, the monthlyearnings.
2. The automatic purchased gas adjustment clause was also eliminated. Thus, the fluctuationseliminated and
replaced by a performance based rate (PBR) mechanism. Fluctuations in the
commodity cost of gas above or below a prescribed commodity price index
will serve to increase or decrease WP&L's margin on gas sales. Fixed demand
costs are excluded from the incentive program. Both benefits and
exposures are subject to customer sharing provisions. WP&L's share is
capped at $1.1 million pre-tax. I. CASH AND EQUIVALENTS:
The Company considers all highly liquid debt instruments purchasedFor 1996 and 1995, WP&L earned $1.1 million
and $0.8 million, respectively, under this PBR mechanism.
3. In order to promote air quality and delivery system reliability, there
are SO/2/ emissions and service reliability performance and incentive
clauses. Positive incentives available under these clauses include $1.5
million pre-tax for the SO/2/ emissions and $0.5 million pre-tax for the
service reliability. WP&L's earnings are also negatively exposed for equal
amounts. For 1996 and 1995, WP&L collected $2.0 million pre-tax in revenues
and also deferred $2.6 and $2.1 million pre-tax in revenues, respectively.
WP&L made its required biennial rate case filing with a
maturitythe PSCW on April 1,
1996. Technical hearings took place during 1996. A final order is expected in
April of three months or less to be cash equivalents. The carrying amount
approximates fair value because1997.
k. Income Taxes
WP&L follows the liability method of the short maturity of these items.
J. INCOME TAXES:
Under the terms of an agreement with WPLH, the Company calculates its
federal tax provisions and makes payments to WPLH as if it were a separate
taxable entity.
Beginning in 1993, WP&L fully providesaccounting for deferred income taxes,
which requires the establishment of deferred tax liabilities and assets, as
appropriate, for all temporary differences between the tax basis of assets and
liabilities and the amounts reported in accordancethe financial statements using
currently enacted tax rates as shown in Note 6.
l. Reclassifications
Certain reclassifications have been made to the prior years financial
statements to conform with SFAS No. 109, "Accounting for Income Taxes"the current year presentation.
NOTE 2. PROPOSED MERGER OF THE COMPANY
On November 10, 1995, WPLH, IES Industries Inc. (IES), to reflect tax effectsand Interstate Power
Company (IPC) entered into an Agreement and Plan of reporting bookMerger, as amended (Merger
Agreement), providing for: a) IPC becoming a wholly-owned subsidiary of WPLH,
and tax itemsb) the merger of IES with and into WPLH, which merger will result in different periods. Investment tax credits arethe
combination of IES and WPLH as a single holding company (collectively, the
Proposed Merger). The new holding company will be named Interstate Energy
Corporation (Interstate Energy). The Proposed Merger, which will be accounted
for onas a deferred basispooling of interests and reflected inis intended to be tax-free for federal
income ratably overtax purposes, has been approved by the liferespective Boards of related property.Directors
and shareowners. It is still subject to approval by several federal and state
regulatory agencies. The companies expect to receive the regulatory approvals
by the end of the third quarter of 1997.
A-24
48
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)The summary below contains selected unaudited pro forma financial data for
the year ended December 31, 1996. The financial data should be read in
conjunction with the historical consolidated financial statements and related
notes of WPLH, IES and IPC and in conjunction with the unaudited pro forma
combined financial statements and related notes of Interstate Energy included
in the Form 10-K Annual Report of WPLH. The pro forma combined earnings per
share reflect the issuance of shares associated with the exchange ratios
discussed below.
WPLH IES PRO FORMA
(IN THOUSANDS EXCEPT PER SHARE (AS (AS IPC COMBINED
DATA) REPORTED) REPORTED) (AS REPORTED) (UNAUDITED)
------------------------------ ---------- ---------- ------------- -----------
Operating Revenues............. $ 932,844 $ 973,912 $326,084 $2,232,840
Income from Continuing
Operations.................... $ 73,205 $ 60,907 $ 25,860 $ 159,972
Earnings per share from
Continuing Operations......... $ 2.38 $ 2.04 $ 2.69 $ 2.12
Assets at December 31, 1996.... $1,900,531 $2,125,562 $639,200 $4,665,293
Long-term obligations, net at
December 31, 1996............. $ 430,190 $ 744,298 $188,731 $1,363,219
Under the terms of the Merger Agreement, the outstanding shares of WPLH
common stock will remain unchanged and outstanding as shares of Interstate
Energy. Each outstanding share of IES common stock will be converted to 1.14
shares of Interstate Energy common stock. Each share of IPC common stock will
be converted to 1.11 shares of Interstate Energy common stock. It is
anticipated that Interstate Energy will retain WPLH's common share dividend
payment level as of the effective time of the merger. On January 22, 1997, the
Board of Directors of WPLH declared a quarterly dividend of $0.50 per share.
This represents an annual rate of $2.00 per share.
IES is a holding company headquartered in Cedar Rapids, Iowa, and is the
parent company of IES Utilities Inc. (IES Utilities) and IES Diversified Inc.
(IES Diversified). IES Utilities supplies electric and gas service to
approximately 336,000 and 176,000 customers, respectively, in Iowa. IES
Diversified and its principal subsidiaries are primarily engaged in the
energy-related, transportation and real estate development businesses. IPC, an
operating public utility headquartered in Dubuque, Iowa, supplies electric and
gas service to approximately 165,000 and 49,000 customers, respectively, in
northeast Iowa, northwest Illinois and southern Minnesota.
Interstate Energy will be the parent company of WP&L, IES Utilities and IPC
and will be registered under the Public Utility Holding Company Act of 1935,
as amended (1935 Act). The Merger Agreement provides that these operating
utility companies will continue to operate as separate entities for a minimum
of three years beyond the effective date of the merger. In addition, the non-
utility operations of WPLH and IES Diversified will be combined shortly after
the effective date of the merger under one entity to manage the diversified
operations of Interstate Energy. The corporate headquarters of Interstate
Energy will be in Madison, Wisconsin.
The Securities and Exchange Commission (SEC) historically has interpreted
the 1935 Act to preclude registered holding companies, with limited
exceptions, from owning both electric and gas utility systems. Although the
SEC has recommended that registered holding companies be allowed to hold both
gas and electric utility operations if the affected states agree, it remains
possible that the SEC may require as a condition to its approval of the
Proposed Merger that WPLH, IES and IPC divest their gas utility properties,
and possibly certain non-utility ventures of WPLH and IES, within a reasonable
time after the effective date of the Proposed Merger.
A-25
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2.3. JOINTLY OWNED UTILITY PLANTS:PLANTS
WP&L participates with other Wisconsin utilities in the construction and
operation of several jointly owned utility generating plants. Each of the
respective owners is responsible for the financing of its portion of the
construction costs. Kilowatt-hour generation and operating expenses are
divided on the same basis of ownership with each owner reflecting its
respective costs in its consolidated statements of income. The chart below
represents WP&L's proportionate share of such plants as reflected in the
Consolidated Balance Sheetsconsolidated balance sheets at December 31, 19951996 and 1994.1995.
1996 1995
1994
------------------------------- -------------------------------
OWNERSHIP------------------------------ ----------------------------
ACCUMULATED ACCUMULATED
OWNERSHIP PROVISION PROVISION
INTEREST INSERVICE PLANT MW PLANT IN PROVISION FOR PLANT IN PROVISION FOR
% DATE CAPACITY SERVICE DEPRECIATION CWIP SERVICE DEPRECIATION CWIP
--------- ----------- -------- -------- ------------------------- ------ -------- ------------------------- ------
Coal:
Columbia Energy Center....Center. 46.2 1975 & 1978 1,023 $161,811 $ 86,375 $1,581 $160,348 $ 79,521 $ 881
$159,650 $ 78,573 $1,484
Edgewater Unit 4..........4....... 68.2 1969 330 50,796 28,056 702 50,762 26,759 216
50,206 25,394 181
Edgewater Unit 5..........5....... 75.0 1985 380 228,805 73,697 51 229,429 68,515 0 225,336 63,324 26
Nuclear:
Kewaunee Nuclear Power
Plant...................Plant................. 41.0 1974 535 131,207 80,577 810 132,211 76,096 836
132,726 72,367 452
-------- --------------------- ------ -------- --------------------- ------
Total.......................Total.................. $572,619 $268,705 $3,144 $572,750 $ 250,891$250,891 $1,933
$567,918 $ 239,658 $2,143
======== =================== ====== ======== =================== ======
Each of the respective joint owners finances its portion of construction
costs. WP&L's share of operation and maintenance expenses is included in the
Consolidated Statements of Income.
NOTE 3.4. NET ACCOUNTS RECEIVABLE:RECEIVABLE
WP&L has a contract with a financial organization to sell, with limited
recourse, certain accounts receivable and unbilled revenues. These receivables
include customer receivables, sales to other public utilities and billings to
the co-owners of the jointly owned electric generating plants that WP&L
operates. The contract allows WP&L to sell up to $150 million of receivables
at any time. Expenses related to the sale of receivables are paid to the
financial organization under this contract, and include, along with various
other fees, a monthly discount charge on the outstanding balance of
receivables sold that approximated a 5.945.90 percent annual rate during 1995.1996.
These costs are recovered in retail utility rates as an operating expense. All
billing and collection functions remain the responsibility of WP&L. The
contract expires August 16, 1998, unless extended by mutual agreement.
As of December 31, 19951996 and 1994,1995, the balance of sold accounts receivable
that had not been collected totaled $79.5$86.5 million and $76.5$79.5 million,
respectively. During 1995,1996, the monthly proceeds from the sale of accounts
receivable averaged $77.5$86.6 million, compared with $82.3$77.5 million in 1994.
The Company1995.
WP&L does not have any significant concentrations of credit risk in the
December 31, 19951996 and 19941995 net accounts receivable balances.
A-25In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which establishes standards for asset and
liability recognition when transfers occur. This statement, effective January
1, 1997, specifies conditions when control has been surrendered which
determines if sale treatment of the receivables would be allowed. At the
present time, this new standard is not expected to materially impact WP&L's
financial position or results of operations.
A-26
49
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 4. REGULATORY ASSETS AND REGULATORY LIABILITIES:
Certain costs and credits are deferred and amortized in accordance with
authorized or expected ratemaking treatment. As of December 31, 1995 and 1994,
regulatory created assets include the following:
1995 1994
-------- --------
Environmental remediation costs.......................... $ 81,431 $ 82,179
Tax related (See note 6)................................. 47,837 43,736
Jurisdictional plant differences......................... 7,517 7,173
Decontamination and decommissioning costs of federal
enrichment facilities.................................. 6,555 7,100
Other.................................................... 13,400 4,288
-------- --------
$156,740 $144,476
======== ========
The PSCW, in rate case UR-108, ordered the recovery of environmental
remediation costs incurred be deferred and amortized over a five-year period
with no recovery of the carrying costs on the unamortized balance.
As of December 31, 1995 and 1994, WP&L had recorded regulatory related
liabilities of $37,898 and $42,803, respectively. These liabilities are
primarily tax related.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of." This statement imposes stricter criteria for regulatory
assets by requiring that such assets be probable of future recovery at each
balance sheet date. The Company adopted this standard on January 1, 1996, and
does not expect that adoption will have a material impact on the financial
position or results of operations of the Company based on the current regulatory
structure in which the Company operates. This conclusion may change in the
future as competitive factors influence wholesale and retail pricing in this
industry.
NOTE 5. EMPLOYEE BENEFIT PLANS:
A. PENSION PLANS:PLANS
a. Pension Plans
WP&L has noncontributory, defined benefit retirement plans covering
substantially all employees. The benefits are based upon years of service and
levels of compensation. WP&L's funding policy is to contribute at least the
statutory minimum to a trust.
The projected unit credit actuarial cost method was
used to compute net pension costs and the accumulated and projected benefit
obligations. The
discount rate used in determining those benefit obligations was 7.25, 8.25WP&L's policy is to fund the pension cost at an amount that is at
least equal to the minimum funding requirements mandated by the Employee
Retirement Income Security Act (ERISA) and 7.25 percentthat does not exceed the maximum
tax deductible amount for 1995, 1994 and 1993, respectively. The long-term rate of return
on assets used in determining those benefit obligations was 9.00, 9.00 and 9.75
percent for 1995, 1994, and 1993, respectively.
A-26
50
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 5. EMPLOYEE BENEFIT PLANS: (CONTINUED)the year.
The following table sets forth the funded status of the WP&L plans and amounts
recognized in the Company's Consolidated Balance SheetsWP&L's consolidated balance sheets at December 31, 19951996 and
1994:1995:
1996 1995 1994
--------- ---------
Accumulated benefit obligation--obligation --
Vested benefits......................................benefits........................................ $(161,031) $(157,111)
$(134,829)
Non-vested benefits..................................benefits.................................... (3,298) (2,755) (3,295)
--------- ---------
Total benefits.................................... $(159,866) $(138,124)
========= =========Total................................................ (164,329) (159,866)
--------- ---------
Projected benefit obligation........................... $(184,937) $(154,283)obligation............................. (189,653) (184,937)
Plan assets at fair value, primarily common stocks and
fixed income securities..............................value................................ 218,920 202,343 178,095
--------- ---------
Plan assets in excess of projected benefit obligation...........................................obligation.. 29,267 17,406 23,812
Unrecognized net transition asset......................asset........................ (14,480) (16,928) (19,376)
Unrecognized prior service cost........................cost.......................... 3,712 4,022 5,679
Unrecognized net loss..................................loss.................................... 15,011 24,685 14,737
--------- ---------
Pre-paidPrepaid pension costs, included in other deferred
charges..............................................costs.................................. $ 33,510 $ 29,185
$ 24,852========= =========
Assumed rate of return on plan assets.................... 9.00% 9.00%
========= =========
Discount rate of projected benefit obligation............ 7.50% 7.25%
========= =========
Range of assumed rate increases for future compensation
levels.................................................. 3.50-4.50% 3.50-4.50%
========= =========
The net pension cost (benefit) recognized in the Consolidated Statementsconsolidated statements of
Incomeincome for 1996, 1995 1994 and 19931994 included the following components:
1996 1995 1994
1993
-------- -------- --------------- ------- -------
Service Cost....................................cost......................................... $ 5,072 $ 3,879 $ 5,123
$ 4,263
Interest Costcost on projected benefit obligation...obligation........ 13,625 12,911 12,051 11,614
Actual return on assets.........................assets.............................. (24,962) (31,548) 1,016
(24,759)
Amortization and deferral.......................deferral............................ 5,452 15,103 (17,795)
8,430
-------- -------- --------------- ------- -------
Net Pensionpension cost (benefit)............................................. $ (813) $ 345 $ 395
$ (452)
======== ======== =============== ======= =======
B. OTHER POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE:
Effective January 1, 1993, the Company prospectively adopted SFAS No. 106,
"Employers' AccountingBENEFITS
WP&L accrues for Postretirement Benefits Other Than Pensions". SFAS
No. 106 establishes standards of financial accounting and reporting for the
Company's postretirement health care and life insurance benefits. SFAS No. 106
requires the accrual of the expected cost of suchpostretirement health-care and life
insurance benefits during the employees' years of service based on actuarial
methodologies that closely parallel pension accounting
A-27
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
requirements. WP&L has elected delayed recognition of the transition obligation in
accordance with current accounting principles and is amortizing the discounted
present value of the transition obligation to expense over 20 years. TheFor WP&L,
the cost of providing postretirement benefits, including the transition
obligation, is being recovered in retail rates under current regulatory
practices.
A-27
51
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 5. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The following table sets forth the plans' funded status:status of the plans and amounts
recognized in WP&L's consolidated balance sheets at December 31, 1996 and
1995:
1996 1995 1994
-------- --------
Accumulated benefit obligation--
Retirees...............................................Retirees................................................. $(32,244) $(35,639) $(29,273)
Fully eligible active plan participants................participants.................. (4,954) (6,261) (5,998)
Other active plan participants.........................participants........................... (9,396) (8,091) (7,675)
-------- --------
Total...............................................Total.................................................. (46,594) (49,991) (42,946)
Plan assets at fair value................................value.................................. 13,801 11,768 9,767
-------- --------
Accumulated benefit obligation
in excess of plan assets.................................................assets................................ (32,793) (38,223) (33,179)
Unrecognized transition obligation.......................obligation......................... 23,532 25,003
26,474
Unrecognized loss........................................prior service cost............................ (294) 0
Unrecognized net loss...................................... (5,045) 1,166 (2,570)
-------- --------
Accrued postretirement benefits liability................ $(14,600) $(12,054)
$ (9,275)======== ========
Assumed rate of return on plan assets...................... 9.00% 9.00%
======== ========
Discount rate of accumulated benefit obligation............ 7.50% 7.25%
======== ========
Medical cost trend on paid charges:
Initial trend rate....................................... 9.00% 9.00%
======== ========
Ultimate trend rate...................................... 5.00% 5.00%
======== ========
The net postretirement benefits cost recognized in the Consolidated
Statementsconsolidated
statements of Incomeincome for 1996, 1995 1994 and 19931994 included the following
components:
1996 1995 1994
1993
------------- ------ ------
Service cost..................................... $ 1,495cost............................................ $1,804 $1,495 $1,739 $1,463
Interest cost on projected benefit obligation....obligation........... 3,375 3,567 3,135 3,151
Actual return on assets..........................assets................................. (1,351) (2,051) (253) (696)
Amortization of transition obligation............obligation................... 1,471 1,471 1,527
1,560
Amortization and deferral........................deferral............................... 371 1,313 (381)
(27)
------------- ------ ------
Net postretirement benefits cost................. $ 5,795cost...................... $5,670 $5,795 $5,767
$5,451
============= ====== ======
The postretirement benefits cost components for 1995 were calculated
assuming health-care cost trend rates ranging from 11.5 percent for 1995 and
decreasing to 5.0 percent by the year 2002. The health-care cost trend rate
considers estimates of health care inflation, changes in utilization or
delivery, technological advances, and changes in the health status of the plan
participants.
Increasing the health-caremedical cost trend rate by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1995,1996 by $2.8$2.0 million and the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost for
the year by $.5$0.3 million.
The assumed discount rate used in determining the accumulated
postretirement obligation was 7.25, 8.25 and 7.25 percent in 1995, 1994 and
1993, respectively. The long-term rate of return on assets was 9.00, 9.00 and
9.50 percent in 1995, 1994 and 1993, respectively. Plan assets are primarily
invested in common stock,
A-28
52
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 5. EMPLOYEE BENEFIT PLANS: (CONTINUED)
bondsC. LONG-TERM EQUITY INCENTIVE PLAN
WPLH has a long-term equity incentive plan which permits the grant of non-
qualified stock options and fixed income securities. The Company's funding policy is to contribute
the tax-advantaged maximum to a trust.
C. OTHER POST-EMPLOYMENT BENEFITS:
In November 1992, the Financial Accounting Standards Board issuedequivalent performance units. SFAS No. 112, "Employers' Accounting123,
"Accounting for Post-employment Benefits.Stock Based Compensation Plans," SFAS No. 112, which
was effective January 1, 1994, establishes standards of
financial accounting and reporting for the estimated cost of benefits provided by an employer to former
or inactive employees after employment but before retirement. The effect of
adoptingstock-based compensation plans. As
allowed under SFAS No. 112 was not material123, WP&L elected to the Company's financial position and
results of operations.
D. LONG-TERM EQUITY INCENTIVE PLAN
On January 23, 1994, the Company adopted the "WPL Holdings, Inc. Long-Term
Equity Incentive Plan" (the "Plan") which permits the grant of non-qualifiedcontinue to apply APBO No. 25,
"Accounting for Stock Issued to Employees", in accounting for stock options and performance units. To date, 41,900 non-qualified stock options
and equivalent performance units have been granted. The non-qualifiedbased
compensation plans. Proforma disclosures pursuant to SFAS No. 123 for stock
options have a per-share option price of $27.50. There were no options exercised
duringnot been presented as the year nor exercisable at year-end.impact would not change reported
earnings per share.
NOTE 6. INCOME TAXES:TAXES
The following table reconciles the statutory federal income tax rate to the
effective income tax rate:rate on continuing operations:
1996 1995 1994 1993
---- ---- ----
Statutory federal income tax rate.......................rate............................. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit..............benefit.................... 6.1 5.8 5.6 6.1
Investment tax credits restored.........................restored............................... (1.4) (1.5) (1.7) (2.0)
Amortization of excess deferred taxes...................taxes......................... (1.3) (1.4) (1.5)
(1.5)
Adjustment for prior period taxes.......................Affordable housing and historical tax credits................. 0.0 (1.5) 1.3
(2.3)
Other differences, net..................................net........................................ 1.1 0.3 (0.2) 0.4
---- ---- ----
Effective income tax rate...............................tax........................................ 39.5% 36.7% 38.5% 35.7%
==== ==== ====
The breakdown of income tax expense as reflected in the consolidated
statements of income is as follows:
1996 1995 1994
------- ------- -------
Current federal...................................... $37,945 $29,847 $27,406
Current state........................................ 9,558 6,959 6,448
Deferred............................................. 8,217 10,716 12,799
Investment tax credit restored....................... (1,912) (1,916) (1,926)
------- ------- -------
$53,808 $45,606 $44,727
======= ======= =======
The temporary differences that resulted in accumulated deferred income taxes
(assets) and liabilities as of December 31, 1996 and 1995, are as follows:
1996 1995
-------- --------
Property tax related........................................ $223,386 $214,793
Investment tax credit related............................... (19,886) (20,915)
Decommissioning related..................................... 14,541 12,613
Other....................................................... 26,776 33,321
-------- --------
$244,817 $239,812
======== ========
A-29
53
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 6. INCOME TAXES: (CONTINUED)
The temporary differences that resulted in accumulated deferred income tax
(assets) and liabilities as of December 31, 1995 and 1994, are as follows:
1995 1994
-------- --------
Accelerated depreciation and other plant related......... $226,647 $213,447
Unamortized investment tax credits....................... (20,762) (21,784)
Regulatory liability..................................... 19,202 17,553
Other.................................................... 14,725 13,157
-------- --------
$239,812 $222,373
======== ========
Changes in WP&L's deferred income taxes arising from the adoption of SFAS
No. 109 represent amounts recoverable or refundable through future rates and
have been recorded as net regulatory assets on the Consolidated Balance Sheets.
These net regulatory assets are being recovered in rates over the estimated
remaining useful lives of the assets to which they pertain.
NOTE 7. SHORT-TERM DEBT AND LINES OF CREDIT:
The Company maintainsCREDIT
WP&L and its subsidiaries maintain committed bank lines of credit, most of
which are at the bank prime rates, to obtain short-term borrowing flexibility,
including pledging lines of credit as security for any commercial paper
outstanding. Amounts available under these lines of credit totaled $70 million
as of December 31, 1995.1996. Information regarding short-term debt and lines of
credit is as follows:
1996 1995 1994
1993
----------- ----------- --------------------- ---------- ----------
As of endyear end--
Lines of year--credit borrowings............... $ -- $ -- $ --
Commercial paper outstanding...................... $56,500 $50,500 $49,000outstanding............. $ 59,500 $ 56,500 $ 50,500
Notes payable outstanding......................... $16,000outstanding................ $ 10,000 $ 16,000 $ -- $10,000
Discount rates on commercial paper................ 5.73%-5.95% 5.64%-6.12% 3.24%-3.40%paper....... 5.35-5.65% 5.73-5.77% 5.64-6.12%
Interest rates on notes payable................... 5.80%-5.83%payable.......... 5.95% 5.80-5.83% -- 3.34%
For the year ended--
Maximum month-end amount of short-term
debt....... $80,000 $50,500 $59,000debt..................................... $ 69,500 $ 80,000 $ 50,500
Average amount of short-term debt (based
on daily outstanding balances).......................... $48,760 $25,374 $30,423.......... $ 33,901 $ 48,760 $ 25,374
Average interest rate on short-term debt..........debt... 5.86% 5.90% 4.39% 3.29%
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS:
The CompanyINSTRUMENTS
WP&L has only limited involvement with derivative financial instruments and
does not use them for trading purposes. They are used to manage well-defined
interest rate and gas commodity price risks.
A-30
54
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS: (CONTINUED)
The CompanyINTEREST RATE SWAPS: WP&L enters into interest rate swap agreements to
reduce the impact of changes in interest rates on its floating-rate debt and
fees associated with the sale of its accounts receivable. The notional
principal amount of interest rate swaps outstanding as of December 31, 1995,1996,
was $123$89.0 million. Average variable rates are based on rates implied in the
forward yield curve at the reporting date. The average pay and receive rates
associated with these agreements are 5.275.08 percent and 5.314.78 percent,
respectively. The swap agreements have contract maturities from one-and-a halftwo days to
fivethree years. It is not the
Company'sWP&L's intent to terminate these contracts, however,
the total cost to the
CompanyWP&L if it were to terminate all of the agreements existing
at December 31, 1995,1996, is $.8$0.1 million.
In addition, the Company1995, WP&L entered into an interest rate forward contract related to the
anticipated issuance of $60 million of long-term debt securities. At December 31, 1995,The
securities were not issued in 1996 and the forward contract if settled on that
date, would have requiredwas closed which
resulted in a payment by the Companygain of approximately $6.7
million.$0.8 million to WP&L. The financial impact of this contract, whichgain was deferred and will result in either a
cash payment or cash receipt, will be deferred and
recognized as an adjustment to interest expense over the life of the new bonds
expected to effect the interest rate
implicitbe issued during 1997 as discussed in the forward contract.
The CompanyNote 10b.
GAS SWAPS: WP&L uses gas commodity swaps to reduce the impact of price
fluctuations on gas purchased and injected into storage during the summer
months and withdrawn and sold at current market prices during the winter
months. Variances between underlying commodity prices and financial contracts
on these agreements are deferred and recognized as increases or decreases in
the cost of gas at the time the storage gas is sold. At December 31, 19951996 and
1994,1995, the commodity swap agreements outstanding were immaterial.
A-30
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In accordance with SFAS No. 107, "Disclosure about Fair ValueINSTRUMENTS
The estimated fair values of Financial
Instruments," all financial instruments at December 31, 1996 and
1995, and the basis upon which they were estimated are as follows:
CASH, NUCLEAR DECOMMISSIONING TRUST FUNDS AND SHORT-TERM DEBT: The carrying
amount of cash and short-term debt approximates fair value due to their short
maturities. As of December 31, 1996 and 1995, the investments in the nuclear
decommissioning trust, which are carried at fair value, included a net
unrealized gain of $9.4 million and $4.7 million, respectively.
CUMULATIVE PREFERRED STOCK OF WP&L: The estimated fair value of the
Company for whichpreferred stock is $47.7 million and $49.3 million at December 31, 1996 and
1995, respectively. These amounts are based on the carrying
amount does not approximate fair value, must be disclosed.market yield of similar
securities and quoted market prices.
LONG-TERM DEBT: At December 31, 1996 and 1995, the estimated fair value of
long-term debt wasis $331.9 million and $408.4 million, respectively. These
amounts are based upon the market yield of similar securities and quoted
market prices.
Since WP&L is subject to regulation, any gains or losses related to the
difference between the carrying amount was
$375.6 million. At December 31, 1994,and the fair value of WP&L's nuclear
decommissioning trust funds and long-term debt was
$385.1 million and the carrying amount was $393.5 million.may not be realized by its
shareholders.
NOTE 10. CAPITALIZATION:
A. COMMON SHAREOWNER'S INVESTMENT:CAPITALIZATION
a. Common Shareowners' Investment
A retail rate order effective January 1, 1995, requires WP&L to maintain a
utility common equity level of 51.93 percent of total utility capitalization
during the test years January 1, 1995 to December 31, 1996. In addition, the
PSCW ordered that it must approve the payment of dividends by WP&L to WPLH
that are in excess of the level forecasted in the rate order ($58.1 million),
if such dividends would reduce WP&L's average common equity ratio below 51.93
percent. At December 31, 1995,1996, WP&L's common equity ratio was 52.653.53 percent.
A-31
55
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 10. CAPITALIZATION: (CONTINUED)
B. LONG-TERM DEBT:b. Long-Term Debt
Substantially, all of WP&L's utility plant is secured by its first mortgage
bonds. Current maturities of long-term debt of WP&L are as follows: $0 in 1996, $55$55.0
million in 1997, $8.9 million in 1998, $0$0.0 million in 1999, and $1.9 million in
2000.2000 and $0.0 million in 2001.
On September 14, 1995, the CompanyWP&L received an order from the PSCW authorizing the
sale of up to $60 million of long-term debt securities. The
Company currently expectsWP&L had expected to
make an offering of the long-term debt securities before December 31, 1996, unless1996.
WP&L did not make this offering and does not intend to request an extension of
this order. WP&L expects to request PSCW permission for the PSCW grants a request for extension. The
Companysale of up to $105
million of long-term debt securities to be issued before December 31, 1997.
WP&L intends to use the net proceeds from the sale of these securities first
to
repay short-term debt which was incurred in June 1995provide funds for the retirement of Series Z Bonds and to repurchase in
private transactions $18 million aggregate principal amount ofon the
Company's
9.30 percent first mortgage bonds,open market Series V due December 1, 2025.and/or Series W Bonds. The remainder of the net proceeds
will be used to repay other short-term debt incurred by the
CompanyWP&L, to finance
utility construction expenditures and for general corporate purposes.
A-31
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. COMMITMENTS AND CONTINGENCIES:
A. COAL CONTRACT COMMITMENTS:CONTINGENCIES
a. Coal Contract Commitments
To ensure an adequate supply of coal, WP&L has entered into certain long-termlong-
term coal contracts. These contracts include a demand or take-or-pay clause
under which payments are required if contracted quantities are not purchased.
Purchase obligations on these coal and related rail contracts total
approximately $16814.5 million tons through December 31, 2002.2001. WP&L's management
believes it will meet minimum coal and rail purchase obligations under the
contracts. Minimum purchase obligations on these contracts over the next five
years are estimated to be $36 million in 1997, $37 million in 1996, 1997, and 1998, $30$28
million in 1999, and $10$9 million in 2000.
B. PURCHASED POWER AND GAS:2000 and $9 million in 2001.
b. Purchased Power and Gas
Under firm purchased power and gas contracts, WP&L is obligated as follows
(dollars in millions):
PURCHASED POWER PURCHASED GAS
-------------------- ---------------------------
PURCHASE PURCHASE DECATHERMS
OBLIGATION MW'S OBLIGATION (IN MILLIONS)
---------- ------ ------------------------- -------------
1996................................... $ 23.4 2,893 $ 73 94
1997................................... 14.1 4,212 62 82
1998................................... 17.7 4,041 52 69
1999................................... 19.8 4,050 43 54
2000................................... 27.7 4,796 39 52
Thereafter............................. 104.6 11,510 108 1631997........................................ $64.2 $46.8
1998........................................ 16.8 40.2
1999........................................ 20.2 30.7
2000........................................ 27.6 26.2
2001........................................ 28.9 21.6
Thereafter.................................. 84.9 46.1
A-32
56
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
C. MANUFACTURED GAS PLANT SITES:
Historically,c. Manufactured Gas Plant Sites
WP&L has owneda current or previous ownership interest in 11 properties
that have been associated in the past with the production of manufactured gas. Currently,Some of these
sites contain coal tar waste products which may present an environmental
hazard. WP&L owns five of these sites, three are currently owned by
municipalities and the remaining three are currently owned by private
companies.
In 1989, WP&L initiated investigation of these manufactured gas plant
sites. The Wisconsin Department of Natural Resources ("DNR") has been involved
in reviewing investigation plans and has receivedThrough ongoing reports regarding
these investigations.
WP&L has continued its investigations and studies.studies, WP&L confirmed that there was no
contamination at two of the sites and has now received a close out
letter from the DNR related to each of those sites. Additionally, the
investigation of historical records at a third site indicatedonly a minimal likelihood of
any significant environmental impacts. In 1995,contamination at a third site. As WP&L requested andhas received a close out letterletters from the
State of Wisconsin Department of Natural Resources (DNR) for the third site.
In February 1993,these three
sites, WP&L completed cost estimates forhas no further obligation at these sites. WP&L has also
implemented DNR-approved remediation plans at two additional sites in the environmentallast
several years. An air sparging/biosparging remediation system was implemented
at one of the eightsites, while excavation and disposal of the coal tar residue and
contaminated soils was implemented at the other. Groundwater monitoring is
ongoing at both sites.
WP&L currently estimates that the remaining sites.remediation costs associated
with the former manufactured gas plant sites is $74 million. The resultestimate
includes the costs of this analysis indicate
that during the next 32 years, WP&L will expend approximately $77 million for feasibility studies, data collection, soil remediation activities, groundwater
research and
groundwater remediation activities including construction of
slurry containment walls and the installation of groundwater pump and treatment
facilitates. Thisongoing monitoring activities through
2027. The estimate wasis based on various assumptions,a number of factors including the estimated
extent and volume of contaminated soil and/or groundwater. The estimate is
subject to
continuous review and revision by management.
The cost estimate set forth above assumes 4 percent average inflation overalso premised in part on a remediation method that involves treatment or
removal of contaminated soil. Based on recent approvals from the period. The cost estimate also contemplates that primarily groundwater pump
and treatment activities will take place after 1998 through and including 2027.
During this time,DNR, WP&L estimates that it will incur average annual costs of $2
millionmay
be able to complete the planned groundwaterimplement a less-costly containment and control remediation
activities.
Through 1995, management has continued its oversightstrategy at two of the issues relatedremaining sites. WP&L plans to implement this
remediation at these two sites in 1997. If remediation is successful,
management believes there may be a significant reduction in the above manufactured gas plant sites without significant revision toestimated
liability.
A-32
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Changes in the above estimates and assumptions. With respect toliability do not immediately impact the earnings of WP&L.
Under the current rate recoverymaking treatment approved by the PSCW, the costs
expended in the environmental remediation of these costs,
the PSCW has approvedsites are deferred and
collected from gas customers over a five-year amortization of the unamortized balance of
environmental costs expended to date. Based on the present regulatory record at
the PSCW, managementfive year period after new rates are
implemented. Management believes that future costs of remediating these
manufactured gas plant sites will also be recovered in rates.
D. SPENT NUCLEAR FUEL AND DECOMMISSIONING COSTS:
Wisconsin utilities with ownership of nuclear generating plants are
required by the PSCW to establishd. Spent Nuclear Fuel and make annual contributions to external
trust funds to provide for plant decommissioning over the remaining life of the
Kewaunee Nuclear Power Plant ("Kewaunee"). In July 1994, the PSCW issued a
generic order covering utilities that have nuclear generation, which
standardizes the escalation assumptions to be used in determining nuclear
decommissioning liabilities.Decommissioning Costs
WP&L's share of the decommissioning costs of Kewaunee Nuclear Power Plant
(Kewaunee) is estimated to be $169$180 million (in 19951996 dollars, assuming the
plant is operating through 2013) based on a 1992 site-specific study, using
the immediate dismantlement method of decommissioning. The costs of
decommissioning are assumed to escalate A-33
57
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
at an annual rate of 6.5 percent. The
undiscounted amount of decommissioning costs estimated to be expended between
the years 2014 and 2050 is $1,016 million.
As required by the PSCW and FERC, WP&L has establishedmakes annual contributions to
qualified and nonqualified external truststrust funds to custodyprovide for decommissioning
funds. The
Company's currentof Kewaunee. WP&L's annual contribution is $10.7 million.million for the years ended
December 31, 1996, 1995 and 1994. This amount is fully recovered in rates. The
after-tax income of the external trust funds was $2.7 million, $2.8 million
and $2.7 million and $1.1 million for the years ended December 31, 1995,
1994 and 1993, respectively. In accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the fair value of the
external trusts as of December 31,1996, 1995 and 1994, is reported as $73.4 million
and $51.8 million, respectively.
Decommissioning costs, which include the annual contribution to external
trust funds and earnings on the assets of the trust,these trusts, are recorded as
depreciation expense in the Consolidated Statementsconsolidated statements of Incomeincome with the
cumulative amount included in the accumulated provision for depreciation on
the Consolidated Balance Sheets.
Depreciation expense related to Kewaunee totaled $13.6 million, $13.4 million
and $6.1 million in 1995, 1994 and 1993, respectively.consolidated balance sheets. As of December 31, 1995,1996, the total
decommissioning costs included in the accumulated provision for depreciation
were $73.4$90.7 million.
Under the Nuclear Waste Policy Act of 1982, the U.S. Department of Energy
("DOE")(DOE) is responsible for the ultimate storage and disposal of spent nuclear
fuel removed from nuclear reactors. Interim storage space for spent nuclear
fuel is currently provided at Kewaunee. Currently there is on-site storage
capacity for spent fuel through the year 2001. An investment of approximately
$2.5 million could provide additional storage sufficient to meet spent fuel
storage needs until the expiration of the current operating license.
The following summarizes the investment at December 31, 19951996 and 1994:1995:
1996 1995 1994
-------- --------
Original cost of nuclear fuel............................fuel.......................... $166,342 $160,997
$155,190
Less -- AccumulatedLess--Accumulated amortization......................... 146,974 142,130 135,794
-------- --------
Nuclear fuel, net........................................net...................................... $ 18,86719,368 $ 19,39618,867
======== ========
E. NUCLEAR INSURANCE:e. Nuclear Performance
In September 1996, Kewaunee was taken out of service for a scheduled
refueling and maintenance outage which was originally projected to be of five
weeks duration. During the outage, however, extensive tube degradation was
encountered which extended the outage through the first quarter of 1997. The
estimated costs attributable to the outage extension are replacement power
costs of $500,000 per week and WP&L's share of the repair costs are
approximately $2.3 million of which $1.4 million was expensed in 1996.
Additional details of the Kewaunee outage can be found elsewhere in this
report in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
A-33
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
f. Nuclear Insurance
The Price Anderson Act provides for the payment of funds for public
liability claims arising from a nuclear incident. Accordingly, in the event of
a nuclear incident, WP&L, as a 41-percent owner of Kewaunee, is subject to an
overall assessment of approximately $32.5 million per incident, for its ownership
of this factor, not to exceed
$4.1 million payable in any given year.
Through its membership in Nuclear Mutual Limited and Nuclear Electric
Insurance Limited, WP&L has obtained property damage and decontamination
insurance totaling $1.5$2 billion for loss from damage at Kewaunee. In addition,
WP&L maintains outage and replacement power insurance coverage totaling $101.4
million in the event an outage exceeds 21 weeks.
A-34
58
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
F. PLANNED CAPITAL EXPENDITURES:g. Planned Capital Expenditures
Plans for the construction and financing of future additions to utility
plant can be found elsewhere in this report in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
NOTE 12. PROPOSED MERGER OF THE COMPANY:
WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES"), and Interstate
Power Company ("IPC") have entered into an Agreement and Plan of Merger ("Merger
Agreement"), dated November 10, 1995, providing for: a) IPC becoming a
wholly-owned subsidiary of WPLH, and b) the merger of IES with and into WPLH,
which merger will result in the combination of IES and WPLH as a single holding
company (collectively, the "Proposed Merger"). The new holding company will be
named Interstate Energy Corporation ("Interstate Energy"). The Proposed Merger,
which will be accounted for as a pooling of interests, has been approved by the
respective Boards of Directors. It is still subject to approval by the
shareholders of each company as well as several federal and state regulatory
agencies. The companies expect to receive the shareholder approvals in the
second quarter of 1996 and the regulatory approvals by the second quarter of
1997.
The operating revenues, net income from continuing operations and total
assets of the companies were as follows:
PRO FORMA
COMBINED
WPLH IES IPC (UNAUDITED)
---------- ---------- -------- ----------
1995 Operating revenues.......... $ 807,255 $ 851,010 $318,542 $1,976,807
1995 Income from continuing
operations..................... $ 71,618 $ 64,176 $ 25,198 $ 160,992
Assets at December 31, 1995...... $1,872,414 $1,985,591 $634,316 $4,492,321
Under the terms of the Merger Agreement, the outstanding shares of WPLH's
common stock will remain unchanged and outstanding as shares of Interstate
Energy. Each outstanding share of IES common stock will be converted to .98
shares of Interstate Energy's common stock. Each share of IPC's common stock
will be converted to 1.11 shares of Interstate Energy's common stock. It is
anticipated that Interstate Energy will retain WPLH's common share dividend
payment level as of the effective time of the merger. On January 24, 1996, the
Board of Directors of WPLH declared a quarterly dividend of 49.25 cents per
share. This represents an annual rate of $1.97 per share.
IES is a holding company headquartered in Cedar Rapids, Iowa, and is the
parent company of IES Utilities Inc. ("IES Utilities") and IES Diversified Inc.
("IES Diversified"). IES Utilities supplies electric and gas service to
approximately 333,000 and 174,000 customers, respectively, in Iowa. IES
Diversified and its principal subsidiaries are primarily engaged in the
energy-related, transportation and real estate development businesses. IPC, an
operating public utility headquartered in Dubuque, Iowa, supplies electric and
gas service
A-35
59
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 12. PROPOSED MERGER OF THE COMPANY: (CONTINUED)
to approximately 163,000 and 49,000 customers, respectively, in northeast Iowa,
northwest Illinois and southern Minnesota.
Interstate Energy will be the parent company of WP&L, IES Utilities and IPC
and will be registered under the Public Utility Holding Company Act of 1935, as
amended ("1935 Act"). The Merger Agreement provides that these operating utility
companies will continue to operate as separate entities for a minimum of three
years beyond the effective date of the merger. In addition, the non-utility
operations of WPLH and IES will be combined shortly after the effective date of
the merger under one entity to manage the diversified operations of Interstate
Energy. The corporate headquarters of Interstate Energy will be in Madison.
The Securities and Exchange Commission (the "SEC") historically has
interpreted the 1935 Act to preclude registered holding companies, with limited
exceptions, from owning both electric and gas utility systems. Although the SEC
has recently recommended that registered holding companies be allowed to hold
both gas and electric utility operations if the affected states agree, it
remains possible that the SEC may require as a condition to its approval of the
Proposed Merger that WPLH, IES and IPC divest their gas utility properties, and
possibly certain non-utility ventures of WPLH and IES, within a reasonable time
after the effective date of the Proposed Merger.
A-36
60
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 13. SEGMENT INFORMATION:INFORMATION
The following table sets forth certain information relating to the
Company'sWP&L's
consolidated continuing operations:
YEAR ENDED DECEMBER 31,
--------------------------------------1996 1995 1994 1993
---------- ---------- ----------
Operation information:
Customer revenues--
Electric............................................Electric.................................. $ 589,482 $ 546,324 $ 531,747
$ 503,187
Gas.................................................Gas....................................... 165,627 139,165 151,931
137,270
Water...............................................Water..................................... 4,166 4,183 4,133
3,927
Operating income (loss)--
Electric............................................
Electric.................................. $ 137,171136,339 $ 121,136134,180 $ 118,785
Gas................................................. 17,341 13,334 10,431
Water............................................... 1,718 1,134 990118,782
Gas....................................... 18,929 16,963 13,075
Water..................................... 1,074 1,680 1,114
Investment information:
Identifiable assets, including allocated
common plant at December 31--
Electric............................................ $1,226,789Electric.................................. $1,225,321 $1,226,786 $1,176,670
$1,170,010
Gas.................................................Gas....................................... 262,090 250,643 234,815
228,257
Water............................................... 20,211Water..................................... 21,389 20,111 18,791 17,703
Assets not allocated................................... 143,522allocated...................... 169,014 143,625 154,848 134,687
Other information:
Construction and nuclear fuel expenditures--
Electric............................................Electric.................................. $ 125,894 $ 122,297 $ 103,420
$ 139,805
Gas.................................................Gas....................................... 17,978 16,905 20,319
18,876
Water...............................................Water..................................... 1,669 2,124 2,149
1,908
Provision for depreciationDepreciation and amortization--
Electric............................................amortization expense
Electric.................................. $ 74,492 $ 71,379 $ 64,695
$ 53,398
Gas.................................................Gas....................................... 9,756 9,629 8,082
7,329
Water...............................................Water..................................... 694 156 417 470
A-37A-34
61
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 14. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED):
The summarized quarterly financial data below were not audited by
independent public accountants, but reflect all adjustments necessary, in the
opinion of the Company, for a fair presentation of the data.
OPERATING OPERATING
QUARTER ENDED REVENUES INCOME NET INCOME
------------------------------------------------ --------- --------- ----------
1995:
March 31...................................... $ 187,342 $29,879 $ 20,899
June 30....................................... 149,557 16,814 8,846
September 30.................................. 165,481 29,062 21,124
December 31................................... 187,292 34,591 24,473
1994:
March 31...................................... $ 203,251 $31,684 $ 26,633
June 30....................................... 150,924 15,838 11,231
September 30.................................. 161,620 24,470 16,927
December 31................................... 172,016 22,396 13,394
The Company's business is influenced by seasonal weather conditions.
A-38
62
SHAREOWNER INFORMATION
MARKET INFORMATION
The 4.50% series of preferred stock is listed on the American Stock
Exchange, with the trading sysbolsymbol of Wis Pr. All other series of preferred
stock are traded on the over-the-counter market. Seventy-twoSeventy-four percent of the
Company's individual preferred shareowners are Wisconsin residents.
DIVIDEND INFORMATION
Preferred stock dividends paid per share for each quarter during 19951996 were
as follows:
SERIES DIVIDEND
- ------ --------
4.40%........... $1.10
4.50%........... $1.125
4.76%........... $1.19
4.80%........... $1.20
SERIES DIVIDEND
- ------ --------
------ --------
4.40% $ 1.10 4.96% $ 1.24
4.50% $1.125........... $1.24
6.20% $ 1.55
4.76% $ 1.19........... $1.55
6.50% $ 0.4025
4.80% $ 1.20........... $0.4025
As authorized by the Wisconsin Power and Light Company Board of Directors,
dividend record and payment dates normally are as follows:
RECORD DATE PAYMENT DATE
----------------------------------------- ------------
February 2828................. March 15
May 3131...................... June 15
August 3131................... September 15
November 3030................. December 15
STOCK TRANSFER AGENT AND REGISTRAR
WPL Holdings, Inc.
Shareowner Services
P. O.P.O. Box 2568
Madison, WI 53701-2568
FORM 10-K INFORMATION
A copy of Form 10-K as filed with the Securities and Exchange Commission
will be provided without charge upon request. Requests may be directed to
Shareowner Services at the above address.
EXECUTIVE OFFICERS OF THE COMPANYWP&L
ERROLL B. DAVIS, JR, 51,JR., 52, was elected President and Chief Executive Officer
effective August 1, 1988 and has been a board member since April 1984. He had
been Executive Vice President since May 1984, Vice President - FinancePresident--Finance and
Public Affairs since November 1982 and Vice President - FinancePresident--Finance since August
1978. Mr. Davis was elected President of WPL Holdings, Inc. on January 17,
1990 and Chief Executive Officer of WPL Holdings, Inc. effective July 1,January 17,
1990. He has served as a director of WPL Holdings, Inc. since March 1988.
EDWARD M. GLEASON, 55,56, was elected Corporate Secretary of WP&L and WPL
Holdings, Inc. effective December 15, 1993. He was elected Vice President and
Treasurer of WPL Holdings, Inc. effective October 3,
A-39A-35
63
1993. He previously served as Vice President - FinancePresident--Finance and Treasurer of WP&L
since May 1986. Mr. Gleason functions as principal financial officer of WPL
Holdings, Inc.
A.J. (NINO) AMATO, 44,45, was appointed Senior Vice President effective October
3, 1993. He previously served as Vice President - MarketingPresident--Marketing and Strategic
Planning since December 1992, Vice President - MarketingPresident--Marketing and Communications
since January 1989 and Director of Electric Marketing and Customer Service
since October 1988. He had been President of Forward Wisconsin, Inc. from 1987
to 1988.
WILLIAM D. HARVEY, 46,47, was appointed Senior Vice President effective October
3, 1993. He previously served as Vice President - NaturalPresident--Natural Gas and General
Counsel since August 1992, Vice President - GeneralPresident--General Counsel since October 1, 1990 and
Vice President - AssociatePresident--Assistant General Counsel since July 1986. Prior to joining
the Company, he was a member of the law firm of Wheeler, Van Sickle, Anderson,
Norman and Harvey.
ELIOTELOIT G. PROTSCH, 42,43, was appointed Senior Vice President effective October
3, 1993. He previously served as Vice President - CustomerPresident--Customer Services and Sales
since August 1992, Vice President and General Manager - EnergyManager--Energy Services since
January 1989 and District Manager, Dane County, since October 1986.
DANIEL A. DOYLE, 37,38, was appointed Vice President -- PowerPresident--Power Production on April
8, 1996. He previously served as Vice President - Finance,President--Finance, Controller and
Treasurer since December 1994 and as Controller and Treasurer of WP&L since
October 3, 1993. He served as Controller since July, 1992. Prior to joining
the Company, he was Controller of Central Vermont Public Service Corporation
since December 1988.
DAVID E. ELLESTAD, 55,56, Vice President, was appointed Scholar in Residence at
the University - Wisconsin-Platteville,University--Wisconsin-Platteville, effective January 15, 1995. His
appointment is for a two year period. He previously served as Vice President -President--
Electrical Engineering and Operations since August 1, 1992. He served as Vice
President - EngineeringPresident--Engineering and Operations since 1988; Vice President of Electrical
Engineering and Procurement since January 1, 1986; Director of Electrical
Engineering &and Procurement since May 1985 and Director of Electrical
Engineering since November 1979.
SUSAN J. KOSMO, 49,50, was elected Assistant Controller on September 20, 1995.
She had been Trust Investments and Investor Relations Supervisor in the
Treasury Department since 1992 and Financial Relations Supervisor since 1989.
DAVID A. RAMOS, 39,40, was elected Assistant Controller on January 23, 1995. He
previously served the Company as Manager of Budgets, Rates and Cost Accounting
since January 1994, Manager of Budgets and Rates since October 1992 and
Manager of Rates and Financial Planning since January 1990.
ROBERT A. RUSCH, 33,34, was elected Assistant Treasurer on September 20, 1995.
He had been Financial Analyst in the Finance Department since April 1989.
STEVEN F. PRICE, 43,44, was appointed Assistant Corporate Secretary on April
15, 1992. He had been Cash Management Supervisor since December 1987. He was
also appointed Assistant Corporate Secretary and Assistant Treasurer of WPL
Holdings, Inc. on April 15, 1992.
A-40
64
JOSEPH E. SHEFCHEK, 39,40, was elected Assistant Vice President of
Environmental Affairs and Research effective December 25, 1994. He previously
served as Director of Environmental Affairs and Research since June 1991.
Before joining the Company, he held various environmental engineering
positions in private industry and government.
A-36
BARBARA J. SWAN, 44,45, was elected Vice President - GeneralPresident--General Counsel effective
December 25, 1994. She previously served as General Counsel since 1993 and
Associate General Counsel from 1987 to 1993.1987-1993.
PAMELA J. WEGNER, 48,49, was elected Vice President-InformationPresident--Information Services and
Administration on October 13, 1994. Prior to joining the Company, she was the
Administrator of the Division of Finance and Program Management in the
Wisconsin Department of Administration since 1987.
KIM K. ZUHLKE, 42,43, was elected Vice President - CustomerPresident--Customer Services and Sales
effective October 3, 1993. He previously served as Director of Marketing and
Sales Services since 1991, Director of Market Research, Planning and
Development since February 1990, Director of Customer Services since 1988 and
District Manager at Beaver Dam since April 1984.
NOTE: All ages are as of December 31, 1995.1996. None of the executive officers
listed above is related to any member of the Board of Directors or nominee for
director of the Company.
Executive officers of the Company have no definite terms of office and serve
at the pleasure of the Board of Directors.
A-41A-37
65
LOGO
TAKE THE RIMROCK ROAD EXIT #262 OR THE JOHN NOLEN DR. EXIT #263
OFF AND ON HIGHWAY 12 AND 18.[MAP DESCRIBING DIRECTIONS TO ANNUAL MEETING OF SHAREOWNERS]
66
[WISCONSIN[LOGO OF WISCONSIN POWER & LIGHT LOGO]LIGHT]
-----------------------------------------
PROXY CARD AND ANNUAL MEETING RESERVATION
-----------------------------------------
To All Wisconsin Power & Light Co. Shareowners:
You are invited to attend the Annual Meeting of Shareowners on Thursday,
September 5, 1996,Wednesday, April
23, 1997, at 10:00 a.m. in the Exhibition Hall at the Dane County Exposition
Center, 1881 Expo Mall, Madison, Wisconsin.
Attached below is your 19961997 Wisconsin Power & Light Co. Proxy Card and Annual
Meeting Luncheon Reservation Form. Please read both sides of the Proxy Card,
note your election, sign and date it. Detach and return it promptly in the
self-addressed enclosed envelope. We encourage you to vote your shares.
If you are attending the Annual Meeting and Luncheon, please complete, detach
and return the Reservation Form with the signed proxy card in the enclosed
envelope.
To cancel your luncheon reservation, contact Shareowners Services at:
Local (Madison)...608-252-3110
Toll Free.......1-800-356-5343
IMPORTANT
You are urged to date and sign the enclosed proxy and return it promptly. This
will help avoid any expenses associated with follow-up letters to shareowners
who have not responded.
PLEASE CONTACT SHAREOWNER SERVICES AT 1-800-356-5343 TO CANCEL YOURPlease FOLD and DETACH Reservation Form
- --------------------------------------------------------------------------------
VOID
ACCT #9999999
(WE) WILL ATTEND THE ANNUAL MEETING LUNCHEON
RESERVATION.
SHAREOWNER INFORMATION NUMBERS
Local(Madison).................... 608-252-3110
All Other Areas..................1-800-365-5343
Please FOLD here and DETACH Reservation Form Please FOLD here and DETACH Proxy Card
- ------------------------------------------------------------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS: 2. PROPOSAL TO APPOINT
Nominees for terms ending ARTHUR ANDERSEN LLP
in 1999. as independent auditors
for 1996.
Rockne G. Flowers
Katharine C. Lyall For Against Abstain
Henry C. Prange / / / / / /
Withhold For All
For All For All Except
/ / / / / /
(*) TO WITHHOLD AUTHORITY
TO VOTE FOR ANY
INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH
THE NOMINEE'S NAME IN
THE LIST ABOVE AND MARK
AN (X) IN THE "FOR ALL
EXCEPT" BOX).
I (WE) WILL ATTEND THE ANNUAL MEETING LUNCHEON.
Please list your name(s) and your guest(s) below: P
________________________________________________ R
________________________________________________ O
________________________________________________ X
IMPORTANT: When signing
________________________________________________ Y Please date and as attorney, executor,
sign your name(s) administrator, trustee,
You must return this stub if you are planning to exactly as shown or guardian, please give
attend the luncheon. above and mail your full title as such.
promptly in the In the case of JOINT
enclosed envelope. HOLDERS, all should sign.
_________________________________DATED:____________
_________________________________DATED:____________Please list your name(s) and your guest(s) below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You must return this stub if you are planning to attend the luncheon.
Please FOLD here and DETACH Proxy Card
- --------------------------------------------------------------------------------
PROXY
ELECTION OF DIRECTORS:
Nominees for terms ending in 2000.
Withheld For All
For All For All Except(*)
[_] [_] [_]
Errol B. Davis, Jr.
Milton E. Neshek
Carol T. Toussaint
(*) To withhold authority to vote for any individual nominee, strike a line
through the nominee's name to the left and mark an (X) in the 'For All
Except' box.
- --------------------------------------------------------------------------------
VOID
ACCT #99999999
PROXY #500002-7
Please date and sign your name(s) exactly as shown above and mail promptly in
the enclosed envelope.
- --------------------------------------------------------------------------------
Signature
[WISCONSIN POWERDate
- --------------------------------------------------------------------------------
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.
[LOGO OF WP&L] Wisconsin Power & LIGHT LOGO]Light
P.O. Box 2568
Madison, WI 53701-2568
----------------------------------------------
ANNUAL MEETING OF SHAREOWNERS - APRILApril 23, 19961997
----------------------------------------------
The undersigned appoints Erroll B. Davis, Jr. and Edward M. Gleason, or
either of them, attorneys and proxies, with power of substitution, to vote all
shares of preferred stock of Wisconsin Power and Light Company of record in the
name of the undersigned at the close of business on February 27, 1996,25, 1997, at the
Annual Meeting of Shareowners of the Company, to be held in the Exhibition Hall
at the Dane County Exposition Center, Madison, Wisconsin, on April 23, 1996,1997, at
10:00 a.m., and at all adjournments thereof, upon matters that may properly come
before the meeting, including matters described in the Company's Notice of
Annual Meeting of Shareowners and Proxy Statement dated March 7, 1996,1997 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.
IF NO CHOICE IS SPECIFIED, THE PROXIES SHALL VOTEThis Proxy is solicited on behalf of the Board of Directors of Wisconsin Power
and Light Company.
If No Choice is Specified, the Proxies Shall vote FOR THE PROPOSALS.the Proposals.
(continued and to be signed and dated on the other side)