UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| x | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12 |
Wisconsin Power and Light Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required. |
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL MEETING OF SHAREOWNERS
DATE: | Wednesday, May | |
TIME: | 2:00 p.m. (Central Daylight Time) | |
LOCATION: | Wisconsin Power and Light Company
Mississippi Meeting Room 4902 North Biltmore Lane Madison, | |
SHAREOWNER INFORMATION
Wells Fargo Shareowner Services
161 North Concord Exchange
P. O. Box 64854
St. Paul, MN 55164-0854
1-800-356-5343
www.wellsfargo.com/shareownerservices
Wisconsin Power and Light Company
4902 North Biltmore Lane
P. O. Box 256814720
Madison, WI 53701-256853708-0720
Phone: 608.458.3110
608-458-3110
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
Dear Wisconsin Power and Light Company Shareowner:
On Wednesday, May 23, 2007,26, 2010, Wisconsin Power and Light Company (the “Company”) will hold its 20072010 Annual Meeting of Shareowners at the offices of Alliant Energy Corporation, 4902 North Biltmore Lane, YangtzeMississippi Meeting Room, Madison, Wis.Wisconsin. The meeting will begin at 2:00 p.m. Central(Central Daylight Time.
Time).
Only the sole common shareowner, Alliant Energy Corporation, and preferred shareowners who owned stock at the close of business on April 10, 20076, 2010 may vote at this meeting. All shareowners are requested to be present at the meeting in person or by proxy so that a quorum may be ensured. At the meeting, the Company’sour shareowners will be asked to:
| 1. | Elect |
| 2. | Ratify the appointment of Deloitte & Touche LLP as |
| 3. | Attend to any other business properly presented at the meeting. |
TheOur Board of Directors of the Company presently knows of no other business to come before the meeting.
Please sign and return the enclosed proxy card as soon as possible.
The Company’s 2006A copy of our 2009 Annual Report appears as Appendix A to this proxy statement. The proxy statement and Annual Report have been combined into a single document to improve the effectiveness of our financial communication and to reduce costs, although the Annual Report does not constitute a part of the proxy statement.
Important Notice Regarding the Availability of Proxy Materials for the Shareowner Meeting to Be Held on May 26, 2010: Our 2010 Notice of Annual Meeting, Proxy Statement and the 2009 Annual Report to Shareowners are available athttp://www.alliantenergy.com/WPLproxy.
Any Wisconsin Power and Light Company preferred shareowner who desires to receive a copy of the Alliant Energy Corporation 20062009 Annual Report, 2010 Notice of Annual Meeting and Proxy Statement may do so by calling the Company’sour Shareowner Services Department at (608) 458-3110(800) 353-1089 or writing to the Companyus at the address shown above.
The Alliant Energy Corporation proxy statement for the 2010 Annual Meeting of Shareowners and the 2009 Annual Report to Shareowners are available athttp://www.alliantenergy.com/eproxy.
By Order of the Board of Directors,
F. J. Buri
Corporate Secretary and
Assistant General Counsel
Dated and mailed on or about April 17, 2007.15, 2010.
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Appendix | A-1 | |
| 1.Q: | Why am I receiving these materials? |
| A: |
| 2.Q: | What is Wisconsin Power and Light Company and how does it relate to Alliant Energy Corporation? |
| A: |
| 3.Q: | Who is entitled to vote at the Annual Meeting? |
| A: | Only shareowners of record at the close of business on April |
| 4.Q: | What may I vote on at the Annual Meeting? |
| A: | You may vote |
The election of four nominees to serve on our Board of Directors for terms expiring at the 2013 Annual Meeting; and
The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2010.
| 5. Q: | How does the Board of Directors recommend I vote? |
| A: |
| 6. Q: | How can I vote my shares? |
| A: | You may vote either in person at the Annual Meeting or by appointing a proxy. If you desire to appoint a proxy, then sign and date each proxy card you receive and return it in the envelope provided. Appointing a proxy will not affect your right to vote your shares if you attend the Annual Meeting and desire to vote in person. |
| 7. Q: | How are votes counted? |
| A: | In voting |
| 8. Q: | Can I change my vote? |
| A: | You have the right to revoke your proxy at any time before the Annual Meeting by: |
Providing written notice to theour Corporate Secretary of the Company and voting in person at the Annual Meeting; or
Appointing a new proxy prior to the start of the Annual Meeting.
Attendance at the Annual Meeting will not cause your previously appointed proxy to be revoked unless you specifically so request in writing.
| 9. Q: | What does it mean if I get more than one proxy card? |
| A: | If your shares are registered differently and are in more than one account, then you will receive more than one proxy card. Be sure to vote all of your accounts to ensure that all of your shares are voted. |
| 10. Q: | Who may attend the Annual Meeting? |
| A: | All shareowners who owned shares of |
| 11. Q: | How will voting on any other business be conducted? |
| A: |
| 12. Q: | Where and when will I be able to find the results of the voting? |
| A: | The results of the voting will be announced at the Annual Meeting. You may also call |
| 13. Q: | When are shareowner proposals for the |
| A: | All shareowner proposals to be considered for inclusion in |
| 14. Q: | Who is |
| A: | Deloitte & Touche LLP audited |
| 15. Q: | Who will bear the cost of soliciting proxies for the Annual Meeting and how will these proxies be solicited? |
| A: |
| 16. |
| If more than one shareowner lives in my household, how can I obtain an extra copy of the |
| A: | Pursuant to the rules of the SEC, services that deliver |
At the Annual Meeting, one director will be elected for a term expiring in 2008 and four directors will be elected for terms expiring in 2010.2013. The nominees for election as recommended by the Nominating and Governance Committee and selected by the Board of Directors are James A. Leach, for a term expiring in 2008; and Michael L. Bennett, Darryl B. Hazel, David A. Perdue and Judith D. Pyle for terms expiring in 2010. With the exception, of James A. Leach, eachPyle. Each of the nominees is currently serving as a directoron our Board of the Company.Directors. Each person elected as a director will serve until theour Annual Meeting of Shareowners of the Company in 2008 or 2010, as applicable,2013, or until his or her successor has been duly qualified and elected. Anthony R. Weiler will be retiring as a director at the Annual Meeting.
Directors will be elected by a plurality of the votes cast at the meeting (assuming a quorum is present). Consequently, any shares not voted at the meeting will have no effect on the election of directors. The proxies solicited may be voted for a substitute nominee or nominees if any of the nominees are unable to serve, or for good reason will not serve, a contingency not now anticipated.
Brief biographies of the director nominees and continuing directors follow. These biographies include their ages (as of Dec. 31, 2006)2009), an account of their business experience and the names of publicly held and certain other corporations of which they are, alsoor have been within the past five years, directors, and a brief discussion of their specific experience, qualifications, attributes or skills that led to the conclusion that they should serve as directors. Except as otherwise indicated, each nominee and continuing director has been engaged in his or her present occupation for at least the past five years.
NOMINEES
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Age | Director since 2003 Nominated Term expires in | ||
 | DARRYL B. HAZEL Age | Director since 2006 Nominated Term expires in | ||
| Mr. Hazel has been the principal of Darryl Hazel Consulting LLC, a business consulting firm in Detroit, Mich., since January 2010. He retired in January 2010 from his position as Senior Vice President, Global Services Initiatives of Ford Motor Company, an automobile manufacturer. He also served as President of the Customer Service Division and Senior Vice President of Ford Motor Company | ||||
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 | DAVID A. PERDUE Age | Director since 2001 Nominated Term expires in | ||
| Mr. Perdue | ||||
  | JUDITH D. PYLE Age | Director since 1994 Nominated Term expires in | ||
| Ms. Pyle is President of Judith Dion Pyle and Associates, a financial services company located in Middleton, Wis. Prior to assuming her current position in 2003, she served as Vice Chair of The Pyle Group, a financial services company located in Madison, Wis. She previously served as Vice Chair and Senior Vice President of Corporate Marketing of Rayovac Corporation, a battery and lighting products manufacturer located in Madison, Wis. In addition, Ms. Pyle is a | ||||
The Board of Directors unanimously recommends a vote FOR“FOR” all nominees for election as directors.
CONTINUING DIRECTORS
 | WILLIAM D. HARVEY Age | Director since 2005 Term expires in | ||
| Mr. Harvey has served as Chairman of the Board of the Company, AEC | ||||
| SINGLETON B. MCALLISTER Age | Director since 2001 Term expires in | ||
| Ms. McAllister has been a partner in the Washington D. C. office of the law firm of LeClair & Ryan LLP since October 2007. She previously served as a partner in the law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P. C. | ||||
 | ANN K. NEWHALL Age | Director since 2003 Term expires in | ||
| Ms. Newhall | ||||
 | DEAN C. OESTREICH Age | Director since 2005 Term expires in | ||
| Mr. Oestreich has served as | ||||
 | CAROL P. SANDERS Age | Director since 2005 Term expires in | ||
| Ms. Sanders has served as Chief Financial Officer and Corporate Secretary of Jewelers Mutual Insurance Company of Neenah, Wis., a nationwide insurer that specializes in protecting jewelers and personal jewelry, since 2004. She previously served as Controller and Assistant Treasurer of Sentry Insurance located in Stevens Point, Wis. from 2001 to 2004. | ||||
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors has standing Audit; Compensation and Personnel; Nominating and Governance; Environmental, Nuclear, Health and Safety; Capital Approval; and Executive Committees. The Board of Directors has adopted formal written charters for each of the Audit, Compensation and Personnel, and Nominating and Governance Committees, which are available free of charge, on the Alliant Energy’s WebEnergy web site atwww.alliantenergy.com/investors under the “Corporate Governance” caption or in print to any shareowner who requests them from the Company’s Corporate Secretary.caption. The following is a description of each of these committees. Joint meetings in the descriptions below refer to meetings of the committees of the Company, Alliant Energy IPL and Resources.IPL.
Audit Committee
The Audit Committee held tensix joint meetings in 2006.2009. The Committee currently consists of C. P. Sanders (Chair), M. L. Bennett, (Chair), D. B. Hazel, A. K. Newhall,and D. A. Perdue and C. P. Sanders.Perdue. Each of the members of the Committee is independent as defined by the New York Stock Exchange (“NYSE”) listing standards and SEC rules. The Board of Directors has determined that Mr. BennettMs. Sanders and the other three additional Audit Committee members qualify as “audit committee financial experts” as defined by SEC rules. The Audit Committee is responsible for assisting Board oversight of: (1) the integrity of our financial statements; (2) our compliance with legal and regulatory requirements; (3) the independent registered public accounting firm’s qualifications and independence; and (4) the performance of our internal audit function and independent registered public accounting firm. The Audit Committee is also directly responsible for the appointment, retention, termination, compensation and oversight of our independent registered public accounting firm.
Compensation and Personnel Committee
The Compensation and Personnel Committee held fiveeight joint meetings in 2006.2009. The Committee currently consists of S. B. McAllisterA. K. Newhall (Chair), M. L. Bennett, D. B. Hazel, and D. C. Oestreich.Oestreich and C. P. Sanders. Each of the members of the Committee is independent as defined by the NYSE listing standards and SEC rules. This Committee reviews and approves corporate goals and objectives relevant to Chief Executive Officerchief executive officer compensation and the compensation of the other principal executive officers, evaluates the Chief Executive Officer’schief executive officer’s performance and determines and approves as a committee, or together with the other independent directors, the Chief Executive Officer’schief executive officer’s compensation level based on theits evaluation of the Chief Executive Officer’s performance. Inchief executive officer’s performance in addition to reviewing and approving the recommendations of the chief executive officer with regard to the other executive officers. The Committee has responsibilities with respect to our executive compensation and incentive programs and management development programs. It also makes recommendations to the Nominating and Governance Committee regarding compensation for the non-management directors.
To support the Committee in carrying out its mission, the Committee has the authority to engage the services of outside advisors, experts and others to assist the Committee with the expense of such outside consultants provided for by us. TheFor 2009, the Committee engagesformally engaged Towers Perrin, now Towers Watson, as an outside compensation consultant to serve as an advisor in evaluating the compensation of our Chief Executive Officer,chief executive officer, other named executive officers and our outside non-management directors. The Committee retains the authority to terminate the services of the outsideTowers Watson also provides assistance and serves as an advisor and provides market information and trends regarding executive compensation consultant. During 2006 and previously, Towers Perrin also served as the compensation consultant providing the Committee with executive managementprograms; provides benchmarking and competitive compensation market reviews for the Chief Executive Officer and other namedof our executive officer total compensation. Towers Perrin alsocompensation; assists the Committee inwith the design of shortour short- and long termlong-term incentive programs and executive retirement programs as well as assisting management with the implementation of these programs.programs; and provides technical considerations and actuarial services. Alliant Energy provides for the appropriate funding, as determined by the Committee, for payment of fees and out of pocket expenses to Towers Perrin’sWatson. For services provided in 2009, these fees totaled approximately $100,000. The Committee has the authority to retain and terminate the outside compensation consultant. During 2009 and previously, Towers Watson, through a separate part of its organization, also provided certain services for management purposes that are recommended and approved by Alliant Energy’s chief executive
officer, vice president—human resources, and the Chief Executive Officer, Vice Presidentdirector of Shared Services, Chief Human Resources Officer, and/or the Director of Executive, Board and Total Compensation.total rewards. In the capacity as a consultant to management, Towers PerrinWatson provides competitive market data and business and technical insight, but does not recommend pay program and pay level changes.
A more complete description In 2009, Alliant Energy paid Towers Watson approximately $1,041,000 for services provided to management. The Committee was aware of and acknowledged the services provided for management by Towers Watson when it engaged Towers Watson. The Committee has determined that the measures taken to ensure the independence of the Committee’s practices, including the scope and authority ofadvice given by Towers Watson to the Committee the extentare appropriate.
The Committee reviews and approves all elements of our executive compensation programs. Our chief executive officer provides input to which the Committee may delegate its authority,in the assessment, design and the role of any executive officers in determining or recommending the amountrecommendation of executive compensation can be foundprograms, plans and awards. Annually, the chief executive officer reviews with the Committee market data provided by Towers Watson about the comparable companies that are identified as our peer group to help verify survey job information adequately captures officers’ duties. Based on that data, the chief executive officer recommends to the Committee base salary adjustments and short- and long-term incentive targets in relation to external market data while also considering internal equity considerations and executive officers’ individual performance. The chief executive officer provides recommendations to the Committee for total annual compensation of executive officers. The chief executive officer does not, however, make any recommendation to the Committee regarding his own compensation. Further, the chief executive officer and other executive officers assess the performance of those executive officers reporting to them. The chief executive officer is invited to attend all Committee meetings to provide an update of progress made towards achievement of annual performance goals and to provide management’s views on compensation program design features and components.
The Committee has reviewed and approved the charter for our internal Total Compensation DiscussionCommittee made up of vice presidents of our energy delivery, generation, finance/treasury, human resources and Analysis sectioncorporate services business units. The Committee has delegated to the Total Compensation Committee various powers of this Proxy Statement.
design and administration associated with our employee benefit plans for salaried and hourly employees. The Committee has also reviewed and approved the charter for our internal Investment Committee made up of voting members and non-voting members. The Investment Committee is made up of voting members, including vice presidents of our finance/treasury, human resources, energy delivery and accounting business units. Non-voting members include assistant treasurers, directors of business and financial performance for corporate services and energy delivery, a lead treasury analyst and director of total rewards. The Committee has delegated to the Investment Committee various powers regarding managing investment assets of our benefit and compensation plans and programs.
Nominating and Governance Committee
The Nominating and Governance Committee held four joint meetings in 2006.2009. The Committee currently consists of A. R. WeilerM. L. Bennett (Chair), A. K. Newhall,S. B. McAllister, D. A. Perdue and J. D. Pyle. Each of the members of the Committee is independent as defined by the NYSE listing standards and SEC rules. This Committee’s responsibilities are to: (1) identify individuals qualified to become Board members, consistent with the criteria approved by the Board, and to recommend nominees for directorships to be filled by the Board or shareowners; (2) identify and recommend Board members qualified to serve on Board committees; (3) develop and recommend to the Board a set of corporate governance principles; (4) oversee the
evaluation of the Board and our management; (5) oversee our related person transaction policy; and (6) advise the Board with respect to other matters relating to our corporate governance.
The Committee is responsible for evaluating nominees for director and director candidates based on such general and specific criteria and for seeking to assure that the specific talents, skills and other characteristics that are needed to increase the Board’s effectiveness are possessed by an appropriate combination of directors. Our Corporate Governance Principles, as adopted by the Board of Directors, provide insight for the Committee on the consideration of appropriate criteria for director nominees.
In making recommendations of nominees to serve as directors to the Board of Directors, the Nominating and Governance Committee will examine each director nominee on a case-by-case basis regardless of who recommended the nominee and take into account all factors it considers appropriate, which may include strength of character, mature judgment, career specialization, relevant technical skills or financial acumen, diversity of viewpoint and industry knowledge. However, the Committee believes that, to be recommended as a director nominee, each candidate must:
display the highest personal and professional ethics, integrity and values;
have the ability to exercise sound business judgment;
be highly accomplished in his or her respective field, with superior credentials and recognition and broad experience at the administrative and/or policy-making level in business, government, education, technology or public interest;
have relevant expertise and experience, and be able to offer advice and guidance to the Chief Executive Officer based on that expertise and experience;
be independent of any particular constituency, be able to represent all of our shareowners and be committed to enhancing long-term shareowner value; and
have sufficient time available to devote to activities of the Board of Directors and to enhance his or her knowledge of our business.
The Committee also believes the following qualities or skills are necessary for one or more directors to possess:
At least one director should have the requisite experience and expertise to be designated as an “audit committee financial expert” as defined by the applicable rules of the SEC.
Directors generally should be active or former senior executive officers of public companies or leaders of major and/or complex organizations, including commercial, governmental, educational and other non-profit institutions.
Directors should be selected so that the Board of Directors is a diverse body, with diversity reflecting age, gender, race and politicalprofessional experience.
The Committee has determined that each nominee for director as well as each continuing member of the Board of Directors possesses the applicable criteria for directors outlined above. In addition, the Committee annually reviews particular attributes, qualities and skills attendant to the members of our Board of Directors and documents this annual assessment through the use of a directors’ skills matrix that assesses directors’ experiences and expertise in areas such as public company environment, finance, operations, customer perspective, regulatory and public affairs, legal, human resources, technology, environment and safety, and diversity initiatives. Diversity is one of our core values and, in addition to being reflected in our directors’ skills matrix and in the criteria specified for use in the evaluation of our director nominees by the Committee, it is reflected in the Board of Directors’ responsibilities in advising and counseling management. Specifically, our Corporate Governance Principles provide that the Board of Directors is responsible for using the broad range of experiences and perspectives of directors to advise and counsel management, both in meetings and in informal consultations, on significant issues facing the Company. In its annual performance evaluation, the Committee assesses whether it effectively identifies individuals qualified to be nominated to the Board of Directors for election by the shareowners consistent with the criteria approved by the Board. We believe that our Board of Directors has been effective in assembling a diverse body of individuals as measured by the criteria of age, gender, race and professional experience specified in our Corporate Governance Principles.
The Nominating and Governance Committee will consider nominees recommended by shareowners in accordance with our Nominating and Governance Committee Charter and theour Corporate Governance Principles. Any shareowner wishing to make a recommendation should write to our Corporate Secretary and include appropriate biographical information concerning each proposed nominee. The Corporate Secretary will forward all recommendations to the Committee. Our Bylaws also set forth certain requirements for shareowners wishing to nominate director candidates directly for consideration by shareowners. These provisions require such nominations to be made pursuant to timely notice (as specified in the Bylaws) in writing to our Corporate Secretary.
We and the Committee maintain a file of recommended potential director nominees, which is reviewed at the time a search for a new director needs to be performed. To assist the Committee in its identification of qualified director candidates, the Committee may engage an outside search firm.
Environmental, Nuclear, Health and Safety Committee
The Environmental, Nuclear, Health and Safety Committee held three joint meetings in 2006.2009. The Committee currently consists of D. C. Oestreich (Chair), S. B. McAllister, A. K. Newhall, and J. D. Pyle, C. P. Sanders and A. R. Weiler.Pyle. Each of the members of the Committee is independent as defined by the NYSE listing standards and SEC rules. The Committee’s responsibilities are to review environmental policy and planning issues of interest to us, including matters involving our company before environmental regulatory agencies and compliance with air, water and waste regulations. The Committee also reviews healthhealth- and safety-relatedsafety- related policies, activities and operational issues as they affect employees, customers and the general public. In addition, the Committee reviews issues related to nuclear generating facilities from which our utility subsidiarieswe and IPL purchase power.
Capital Approval Committee
The Capital Approval Committee held notwo joint meetings in 2006.2009. The Committee currently consists of M. L. Bennett, A. K. Newhall and D. A. Perdue.C. Oestreich. Mr. Harvey is the Chair and a non-voting member of this Committee. The purpose of this Committee is to evaluate certain investment proposals where (1) an iterative bidding process is required, and/or (2) the required timelines for a proposal would not permit the proposal to be brought before a regular meeting of the Board of Directors and/or a special meeting of the full Board of Directors is not practical or merited.
Executive Committee
The Executive Committee held no meetings in 2006.2009. The Committee currently consists of M. L. Bennett, S. B. McAllister,A. K. Newhall, D. C. Oestreich and A. R. Weiler.C. P. Sanders. Mr. Harvey is the Chair and a non-voting member of this Committee. The purpose of this Committee is to possess all the powers and authorities of the Board of Directors when the Board is not in session, except for the powers and authorities excluded for such a Committee under the Wisconsin Business Corporation Law.
Attendance and Performance Evaluations
The Board of Directors held nineseven joint meetings during 2006.2009. Each director attended at least 75% of the aggregate number of meetings of the Board and Board committees on which he or she served, except for Ms. Pyle, who attended 67% due to health related issues.
served.
The Board and each Board committee conduct performance evaluations annually to determine their effectiveness and suggest improvements for consideration and implementation. In addition, the Compensation and Personnel Committee evaluates Mr. Harvey’s performance as Chief Executive Officerchief executive officer on an annual basis.
Board members are not expected to attend our annual meetings of shareowners. None of the Board members were present for our 20062009 Annual Meeting.
Corporate Governance Principles
The Board of Directors has adopted Corporate Governance Principles that, in conjunction with the Board committee charters, establish processes and procedures to help ensure effective and responsive governance by the Board. The Corporate Governance Principles are available free of charge, on the Alliant Energy Webweb site atwww.alliantenergy.com/investors under the “Corporate Governance” caption or in print to any shareowner who requests them from our Corporate Secretary.caption.
The Board of Directors has adopted certain categorical standards of independence to assist it in making determinations of director independence under the NYSE listing standards. Under theseThe categorical standards are available in Appendix A to our Corporate Governance Principles available on the following relationships that currently exist or that have existed, including duringAlliant Energy web site atwww.alliantenergy.com/investors under the preceding three years, willnot be considered to be material relationships that would impair a director’s independence:“Corporate Governance” caption.
A family member of the director is or was an employee (other than an executive officer) of ours.
A director, or a family member of the director, receives or received less than $100,000 during any twelve-month period in direct compensation from us, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided that such compensation is not contingent in any way on continued service with us).
A director, or a family member of the director, is a former partner or employee of our internal or external auditor but did not personally work on our audit within the last three years; or a family member of a director is employed by an internal or external auditor of ours but does not participate in such auditor’s audit, assurance or tax compliance practice.
A director, or a family member of the director, is or was employed other than as an executive officer of another company where any of our present executives serve on that company’s compensation committee.
A director is or was an executive officer, employee or director of, or has or had any other relationship (including through a family member) with, another company, that makes payments (other than contributions to tax exempt organizations) to, or receives payments from, us for property or services in an amount which, in any of the last three fiscal years, does not exceed the greater of $1 million or 2% of such other company’s consolidated gross revenues.
A director is or was an executive officer, employee or director of, or has or had any other relationship (including through a family member) with a tax exempt organization to which our discretionary charitable contributions in any single fiscal year do not exceed the greater of $1 million or 2% of such organization’s consolidated gross revenues.
In addition, any relationship that a director (or an “immediate family member” of the director) previously had that constituted an automatic bar to independence under NYSE listing standards will not be considered to be a material relationship that would impair a director’s independence three years after the end of such relationship in accordance with NYSE listing standards.
The Board of Directors also gave consideration to certain other factors in relation to an independence determination. Messrs. Bennett, Hazel, Oestreich and Perdue and Ms. Pyle serve (or served during 2009) as executive officers and/or directors of companies that are customers or, in the case of our company or our public utility affiliates.Mr. Bennett, suppliers of the Company and IPL. These customercustomer/supplier relationships do not constitute a material relationship under theNYSE listing standards cited above or the SEC rules governing related person transactions. Mr. Leach is a shareowner in an electrical supply company which has not done any business with our company or our public utility affiliates in a substantial number of years. However, each of these circumstances was evaluated under the applicable NYSE listing standards and SEC rules and, in the case of Mr. Leach, the Federal Energy Regulatory Commission regulations.rules. The Board determined that these factors did not impair the independence of these directors.
Based on these standards and this evaluation, the Board of Directors has affirmatively determined by resolution that each of Messrs. Bennett, Hazel, Oestreich Perdue, Weiler and LeachPerdue and Mses. McAllister, Newhall, Pyle and Sanders has no material relationship with us and, therefore, is independent in accordance with the NYSE listing standards. The Board of Directors will regularly review the continuing independence of the directors.
The Corporate Governance Principles provide that at least 75% of the members of the Board of Directors must be independent directors under the NYSE listing standards. The Audit, Compensation and Personnel, and Nominating and Governance Committees must consist of all independent directors.
Related Person Transactions
We have adopted a written policy that we will annually disclose information regarding related person transactions that is required by regulations of the SEC to be disclosed, or incorporated by reference, in our Annual Report on Form 10-K. For purposes of the policy:
The term related person“related person” means any of our directors or executive officers, or nominee for director, and any member of the “immediate family”immediate family of such person.
A related person transaction is generally a consummated or currently proposed transaction in which we were or are to be a participant and the amount involved exceeds $120,000, and in which the related person had or will have a direct or indirect material interest. A related person transaction doesnot include:
the payment of compensation by us to our executive officers, directors or nominee for director;
a transaction if the interest of the related person arises solely from the ownership of our shares and all shareowners receive the same benefit on a pro-rata basis;
a transaction in which the rates or charges involved are determined by competitive bids, or that involves the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed and in conformity with law or governmental authority; or
a transaction that involves our services as a bank, transfer agent, registrar, trustee under a trust indenture, or similar services.
Furthermore, a related person is not deemed to have a material interest in a transaction if the person’s interest arises only (i) from the person’s position as a director of another party to the transaction; (ii) from the ownership by such person and all other related persons, in the aggregate, of less than a 10% equity interest in another person (other than a partnership )partnership) that is a party to the transaction; (iii) from such person’s position as a limited partner in a partnership and all other related persons have an interest of less than 10% of and the person is not a general partner of or holdholds another position in, the partnership; and
(iv) from both such director position and ownership interest. Pursuant to the policy, each of our executive officers, directors and nominees for director is required to disclose to the Nominating and Governance Committee of the Board of Directors certain information regarding the related person transaction for review, approval or ratification by the Nominating and Governance Committee. Such disclosure to the Nominating and Governance Committee should occur before, if possible, or as soon as practicable after the related person transaction is effected, but in any event as soon as practicable after the executive officer, director or nominee for director becomes aware of the related person transaction.
The Nominating and Governance Committee’s decision whether or not to approve or ratify the related person transaction should be made in light of the Nominating and Governance Committee’s determination as to whether consummation of the transaction is believed by the Committee to not be, or to have been contrary to, the best interests of our company.Company. The Nominating and Governance Committee may take into account the effect of a director’s related person transaction on such person’s status as an independent member of our board of directors and eligibility to serve on board committees under SEC and NYSE rules.
Based on these standards, none of our directors engaged in awe had no related person transactiontransactions in 2006 or has a2009, and no related person transactiontransactions are currently proposed.
Lead Independent Director;Board Leadership Structure; Executive Sessions
TheOur Bylaws and our Corporate Governance Principles provide that the Board of Directors is responsible to select a Chairperson and a Chief Executive Officer. Our Corporate Governance Principles also provide that the Board of Directors should have the flexibility to decide whether it is best for our company that the two positions be filled by the same individual and that, if the Chairperson of the Board is not an independent director, the chairperson of the Nominating and Governance Committee will be designated the designated “LeadLead Independent Director”Director. The Board of Directors has determined that the positions of Chairperson of the Board and Chief Executive Officer should be held by one individual with the use of a Lead Independent Director. In choosing to combine the roles of Chairperson of the Board and Chief Executive Officer, the Board of Directors has expressed its belief that our management, through the Chairperson and Chief Executive Officer should have the primary accountability, and the responsibility to act as the spokesperson, for us. The Board of Directors believes that maintaining the positions of Chairperson and Chief Executive Officer in a single individual will promote the enhancement of a consistent and accurate message to our investors, employees, customers and other constituencies.
While our Corporate Governance Principles do not grant the Lead Independent Director any special authority over management, both the Board of Directors and management recognize the Lead Independent Director as a key position of leadership within the Board of Directors. Our Corporate Governance Principles do provide that the Lead Independent Director will preside as the chair at meetings orregular executive sessions of the Board without management participation. We believe that the use of a Lead Independent Director has proven effective for us and has greatly assisted with the facilitation of communication of important issues between the Board of Directors and the Chief Executive Officer. Subsequent to the adoption of our Corporate Governance Principles formally establishing the Lead Independent Director position, our Lead Independent Director’s role has developed to include additional board governance activities, including the following examples:
communicating applicable information arising out of the deliberations in executive sessions to the Chairperson and Chief Executive Officer;
reviewing with the Chairperson and Chief Executive Officer items of importance for consideration by the Board of Directors;
acting as principal liaison between the independent directors. directors and the Chairperson and Chief Executive Officer on sensitive issues;
discussing with the Chairperson and Chief Executive Officer important issues to assess and evaluate the view of the Board of Directors;
consulting and meeting with any or all of our independent directors, at the discretion of either party and with or without the attendance of the Chairperson and Chief Executive Officer;
in conjunction with the Nominating and Governance Committee, recommending to the Chairperson the membership of the various board committees and selection of the board committee chairs;
in conjunction with the Nominating and Governance Committee, interviewing all board candidates and making recommendations to the Board of Directors on director nominees;
mentoring and counseling new members of the Board of Directors to assist them in becoming active and effective directors;
in conjunction with the Nominating and Governance and Compensation and Personnel Committees, reviewing and approving the philosophy of, and program for, compensation of the independent directors; and
evaluating, along with the other members of the Board of Directors, the Chief Executive Officer’s performance and meeting with the Chief Executive Officer to discuss the Board of Directors’ evaluation.
As the Chairperson of the Nominating and Governance Committee, Mr. WeilerBennett is currently designated as the Lead Independent Director. Because Mr. Weiler will retire as a Director at the 2007 Annual Meeting, Mr. Bennett is expected to be appointed as the chairperson of the Nominating and Governance Committee and, therefore, assume the role of Lead Independent Director. At every regular in-person meeting of the Board of Directors, the independent directors meet in executive session with no member of our management present.
Risk Oversight
Our Corporate Governance Principles provide that the Board of Directors is responsible for overseeing and understanding our vision and mission, strategic plans, overall corporate risk profile, risk parameters, annual operating plans and annual budgets and for monitoring whether these plans are being implemented effectively. The Board of Directors annually conducts a broad based risk assessment with the assistance of the Chief Audit Executive. The methodology of the risk assessment identifies key themes and trends, quantifies our key risks and develops mitigation plans and strategies. This assessment provides the platform to develop appropriate audit plans and to ensure resources are devoted to areas having the highest risk. This assessment culminates in the Annual Risk Management Report to the Board of Directors. On an on-going basis, the Audit Committee regularly discusses our policies with respect to risk assessment and risk management, our financial risk exposures and the steps we have taken to monitor and control such exposures. The Board of Directors relies on the Compensation and Personnel Committee to address potential risks arising from our general compensation programs and policies for all employees, and the Committee recently conducted an assessment of these policies and practices to determine whether risks arising from them were reasonably likely to have a material adverse effect on us, as described in further detail under “Compensation Committee Risk Assessment” below.
Communication with Directors
Shareowners and other interested parties may communicate with the full Board, non-management directors as a group or individual directors, including the Lead Independent Director, by providing such communication in writing to our Corporate Secretary, who will post such communications directly to our Board of Directors’ Webweb site.
Ethical and Legal Compliance Policy
We have adopted a Code of Conduct, that serves as our code of ethics, and that applies to all employees, including our Chief Executive Officer, Chief Financial Officerchief executive officer, chief financial officer and Chief Accounting Officer,chief accounting officer, as well as our Board of Directors. We make our Code of Conduct available free of charge, on the Alliant Energy Webweb site atwww.alliantenergy.com/investors under the “Corporate Governance” caption or in print to any shareowner who requests it from our Corporate Secretary.caption. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, the Code of Conduct by posting such information on the Alliant Energy Webweb site.
OWNERSHIP OF VOTING SECURITIES
All of our common stock is held by Alliant Energy. None of our directors or officers own any shares of our preferred stock. Listed in the following table are the number of shares of Alliant Energy’s common stock beneficially owned as of February 28, 200726, 2010 by (1) the executive officers listed in the Summary Compensation Table, (2) all of our director nominees and directors and (3) all director nominees, directors and the executive officers as of Dec. 31, 2006 as a group. The directors and executive officers as a group owned less than 1% of the outstanding shares of Alliant EnergyEnergy’s common stock on that date. No individual director or officer owned more than 1% of the outstanding shares of Alliant EnergyEnergy’s common stock on that date.
NAME OF BENEFICIAL OWNER |
SHARES | ||
Executive Officers(2) | |||
Thomas L. Aller | (3) | ||
| |||
| (3) | ||
Eliot G. Protsch | (3)(5) | ||
Barbara J. Swan | (3) | ||
Patricia L. Kampling | 29,753 | (3) | |
Director Nominees | |||
Michael L. Bennett | (3) | ||
Darryl B. Hazel | (3)(4) | ||
| |||
David A. Perdue | (3) | ||
Judith D. Pyle | |||
Directors | |||
William D. Harvey | (3) | ||
Singleton B. McAllister | (3) | ||
Ann K. Newhall | (3) | ||
Dean C. Oestreich | (3) | ||
Carol P. Sanders | (3) | ||
| |||
All Executive Officers and Directors as a Group | |||
| (3) | ||
(1) | Total shares of Alliant |
(2) | Stock ownership of Mr. Harvey is shown with the directors. |
(3) | Included in the beneficially owned shares shown are indirect ownership interests with shared voting and investment powers: Mr. Harvey — |
(4) |
|
|
|
| Mr. Hazel has pledged 100 shares in a margin account. |
| (5) | Mr. Protsch retired effective Jan. 2, 2010. The number of shares reported in the table and footnote 3 above are as of Jan. 12, 2010, the last date on which we were able to obtain the information from Mr. Protsch. |
To our knowledge, no shareowner beneficially owned 5% or more of any class of our preferred stock as of Dec. 31, 2006. 2009.The following table sets forth information, as of Dec. 31, 2006,2009, regarding beneficial ownership by the only persons known to Alliant Energyus to own more than 5% of Alliant Energy’s common stock. The beneficial ownership set forth below has been reported on Schedule 13G filings with the SEC by the beneficial owners.
Amount and Nature of Beneficial Ownership
| Voting Power | Investment Power | Voting Power | Investment Power | |||||||||||||||||||||||
| Name and Address of Beneficial Owner | Sole | Shared | Sole | Shared | Aggregate | Percent of Class | Sole | Shared | Sole | Shared | Aggregate | Percent of Class | ||||||||||||||
Barclays Global Investors, N. A. (and certain affiliates) 45 Fremont Street San Francisco, CA 94105 | 10,614,669 | 0 | 12,114,020 | 0 | 12,114,020 | 10.44 | % | |||||||||||||||||||
BlackRock, Inc. (f/k/a Barclays Global Investors) (and certain affiliates) 40 East 52nd Street New York, NY 10022 | 8,476,492 | 0 | 8,476,492 | 0 | 8,476,492 | 7.66 | % | |||||||||||||||||||
COMPENSATION DISCUSSION AND ANALYSIS
Objectives of Compensation Programs:
The following is a discussion and analysis with respect to the compensation paid by Alliant Energy to our executive officers listed in the Summary Compensation Table for services performed for us, Alliant Energy and Alliant Energy’s other subsidiaries. References to “we,” “us,” “our,” and similar references in the following discussion and analysis include us, Alliant Energy and Alliant Energy’s other subsidiaries to our executive officers.
together unless the context indicates otherwise.
We are committed to implementingmaintaining a total compensation program for executive officers that:
furthers our strategic plan,
focuses and aligns executives’ and employees’ interests with those of our company, our shareowners and our customers,
is competitive with comparable employers to help ensure we attract and retain talented employees, and
is equitable among executives.
We believe these objectives will attract, retain and motivate a highly proficient workforce that will work in the interests of our shareowners and customers.
workforce.
We adhere to the following compensation principles, which are intended to facilitate the achievement of our business strategies:
Executive officer compensation (and in particular, long-term incentive compensation) should be closely and strongly aligned with the long-term interests of our shareowners and customers.
Total compensation should enhance our ability to attract, retain and encourage the development of exceptionally knowledgeable and experienced executive officers, upon whom, in large part, our successful operation and management depends.
Base salary levels should be targeted at a competitive market range of base salaries paid to executive officers of companies comparable companies.to Alliant Energy. Specifically, we target the median (50th percentile) of base salaries paid by comparable companies.
Incentive compensation programs should strengthen the relationship between pay and performance by emphasizing variable at-risk compensation based on meeting predetermined company, subsidiary,Company, Alliant Energy, affiliate, business unit and individual performance goals. We target incentive levels at the median (50th percentile) of incentive compensation atpaid by companies comparable companies.to Alliant Energy.
Executive officers should have access to retirement-oriented plans commonly in use among comparable companies, including deferred compensation plans, pension plans, supplemental retirement programs and 401(k) plans.
Executive officers should have significant holdings of ourAlliant Energy common stock to align their interests with the interests of our shareowners.
Benchmarking
We utilize compensation data from comparable companies to assess our competitivenessgeneral industry and the energy services sector in base salary and incentivedetermining the appropriate levels of compensation for all officer level positions and target the value of each component of compensation to the median level of comparable companies. The companies that we use for comparison consist of companies of similar revenue size as Alliant Energy’s bothour executives. Although our business is focused in the energy services sector, we believe that the competitive labor market for our company includes both general industry and utilitythe energy services industry, as well asparticularly for those executives who serve in a general industry.management capacity. We believe that consideration of general industry data for these positions allows us to effectively attract and retain best candidates and that compensation programs at these comparable companies both in general industry and the energy services industry should therefore serve as a benchmark for what constitutes competitive compensation. The comparable companies in the energy and utility industry that we used for benchmarking in 20062009 were drawn from Towers Perrin’s 20062008 Energy Services Industry Executive Compensation Database (the “2008 Energy Services database”), a survey of approximately 100 companies that includes compensation data fromwhich comprises nearly all U.S. utilities. The general industry data were obtained from Towers Perrin’s 20062008 General Industry Executive
Compensation Database, a survey of over 820 companies.800 companies the majority of which are Fortune 1000 companies (the “2008 General Industry database”). In using these broad-based surveys, we considered only aggregate data and did not select any individual companies for comparison. All of the survey data were aged to January 2009 using a 3.6% annual update factor. The data from both databases were adjusted to reflect how the data compare to companies of similar revenue size using regression analysis.
Our Compensation Consultant
To assistand Personnel Committee, or Committee, used this adjusted data, among other factors, to determine appropriate levels of pay in establishing2009 for our compensation program,named executive officers. We refer to this adjusted data as our “peer group” throughout the following discussion. For general management, including four of the named executive officers, and staff positions, equally blended energy industry and general industry data from these databases are used as the target market reflecting the broader talent market for these jobs and the fact that we operate in some diversified businesses. For utility-specific operating positions, including Mr. Aller’s and Ms. Doyle’s, two of the named executive officers, energy industry data are used as the target market. Overall,Alliant Energy’s revenue is ranked between the median and the average revenue of the companies in the 2008 Energy Services database. Towers Perrin advised our Compensation and Personnel Committee ofon setting compensation for our Board of Directors, which we refer to as the Committeenamed executive officers for 2009. See “Meetings and which is comprisedCommittees of the same directors as theBoard – Compensation and Personnel Committee of the Board of Directors of Alliant Energy, engages the services of Towers Perrin as the Committee’s outside compensation consultant. Towers Perrin provides assistance and serves as an advisor in evaluating the compensation of our non-management directors, the chief executive officer and the other executive officers; provides market information and trends regarding executive compensation programs; provides benchmarking and competitive market reviews of our executive officer total compensation; assists with the design of our short-and long-term incentive programs and executive retirement programs; and provides technical considerations and actuarial services. We provideCommittee” for the appropriate funding, as determined by the Committee, for payment of fees and out of pocket expenses to Towers Perrin. The Committee retains the authority to retain and terminate the outside compensation consultant.
Roles of Executives in Establishing Compensationmore details.
The Committee reviews and approves all elements of our executive compensation programs. Our chief executive officer provides input to the Committee in the assessment, design and recommendation of executive compensation programs, plans and awards. Annually, the chief executive officer reviews with the Committee market data provided by Towers Perrin to help verify survey job information adequately captures officers’ duties. Based on that data, the chief executive officer recommends to the Committee base salary adjustments and short-and long-term incentive targets in relation to external market data while also considering internal equity considerations and executive officers’ individual performance. The chief executive officer provides recommendations to the Committee for total annual compensation of executive officers. The chief executive officer does not, however, make any recommendation to the Committee regarding his own compensation. Further, the chief executive officer and other executive officers assess the performance of those executive officers reporting to them. The chief executive officer is invited to attend all Committee meetings to provide an update of progress made towards achievement of annual performance goals and to provide management’s views on compensation program design features and components.
Compensation Elements and Design
The major elements of the executive compensation program are base salary, short-term (annual) incentives, long-term (equity) incentives and other benefits. In setting the level for each major component of compensation, we consider an executive officer’s total compensation (which consists of all elements of compensation including employee benefit and perquisite programs), the current market for talent, our historic levels of compensation, company culture, individual and company performance, and internal equity. We aim to strike an appropriate balance among base salary, short-term incentive compensation and long-term incentive compensation. Our goal is to provide an overall compensation package for each executive officer that is competitive with the packages offered to similarly situated executive officers at comparable companies. Totalwithin our peer group. To achieve that goal, we target each element of compensation to the median levels within our peer group. We also have a goal to reward performance. To accomplish this goal, we weight performance-based incentive pay more heavily than other elements of our named executive officers’ total direct compensation, which consists of our executive officers includes a pay mix between base salary and short-term and long-term incentive pay. In 2009, incentive pay (both short-term and long-term) that is weighted such that targetedaccounted for 54%-77% of target total direct compensation for our named executive officers. Mr. Harvey’s target incentive pay accounts for 50-75%2009 was 77% of total direct compensation. In establishing the 2009 compensation reported, in the aggregate, our named executive officers were paid, on average, base salaries 7% below the median of our peer group, target cash compensation 7% below the median of our peer group and total direct compensation 9% below the median of our peer group. The following table shows the breakdown for each of our named executive officers in 2009 of the total direct compensation pay mix. The figures in this table were calculated using targeted compensation for 2009 and therefore may differ from the actual payments for 2009 as reported in the Summary Compensation Table below.
| Named Executive Officer | Title | Salary as a % of Total | Short-Term Incentive as a % of Total | Long-Term Incentive as a % of Total | ||||
Harvey, William D. | Chairman & CEO | 23% | 21% | 56% | ||||
Protsch, Eliot G. | Senior Executive VP & COO | 27% | 22% | 51% | ||||
Kampling, Patricia L. | EVP-CFO and Treasurer | 32% | 21% | 47% | ||||
Swan, Barbara J. | President | 35% | 21% | 44% | ||||
Aller, Thomas L. | SVP-Energy Resource Development | 46% | 21% | 33% | ||||
Doyle, Dundeana K. | SVP-Energy Delivery | 46% | 21% | 33% |
The columns titled “Short-Term Incentive as a % of Total” and “Long-Term Incentive as a % of Total” are the percentages of the total direct compensation represented by target payouts of incentive compensation under our short-term and long-term incentive plans. Alliant Energy made no payment to named executive officers for 2009 under these incentive plans.
Base Salary
We pay base salaries to assure management with a level of fixed compensation at competitive levels to reflect their professional skills, responsibilities and performance to attract and retain key executives. We adjust base salaries taking into consideration both changes in the market and performance against job expectations. Base salaries represent 15-50% of our executive officers’ total direct compensation.
The Committee generally seeks to set baseconsiders salaries for all executive officers at approximatelythat fall within 15% above or below the 50th percentile ofmedian salaries for similar positions at comparable companies.in the peer group to be competitive. The Committee will also consider the nature of the position, the responsibilities, skills and experience of the officer, and his or her past performance. AdjustmentsWe may be made inadjust base salaries to keep current with comparable companies,our peer group, to recognize outstanding individual performance or to recognize an increase in responsibility. In 2008, the Board of Directors approved new or revised responsibilities for certain named executive officers effective on Jan. 4, 2009. The Committee made salary adjustments to reflect the increased responsibilities of these named executive officers. Mr. Protsch was named Chief Operating Officer in addition to Senior Executive Vice President for AEC, and the Committee increased his base salary from $495,000 to $605,000. His salary was set at the median salary for similarly situated executives in our peer group.
For 2006, aggregate base salariesMs. Swan was named Alliant Energy’s Chief Administrative Officer, in addition to Executive Vice President and General Counsel, as well as President of our Company, and the Committee increased her salary from $374,000 to $450,000, which is above the median salary, but within 15% of the median salary for our executive officers were slightlypeer group. The Committee considered her experience with the company, the increase in her responsibilities and their desire to retain Ms. Swan when setting her salary. Ms. Kampling was named Chief Financial Officer, in addition to Vice President and Treasurer, and the Committee set her salary at $300,000. Ms. Kampling’s salary is more than 15% below the median of the peer group. The Committee set Ms. Kampling’s salary below the median salary for similarly situated executives at comparable companies. Our below market positioning wasin our peer group due in part to fairly recent promotionsher new appointment to the position of several executives including Mr. Harvey into the chief executive officer role in July 2005.CFO. The Committee set his baseplanned at the time to increase Ms. Kampling’s salary at that time at $700,000, belowto the median baseover a two or three year period, and subsequently increased it to within 15% of the median later in 2009, as described below.
Ms. Doyle was named Senior Vice President and the Committee increased her salary from $255,000 to $267,000, which was at the median salary for chief executive officerssimilarly situated executives in our peer group. Mr. Aller’s salary was not changed and remained at comparable companies,$267,500.
Mr. Harvey’s salary also remained unchanged in recognition of his recent promotion. When he became Chairman of the Board of Directors in February 2006, the Committee raised2009 at $845,000. Mr. Harvey’s base salary to $750,000was 6% below the median salary for similarly situated executives in recognition of his additional responsibilities as Chairman. The Committee set his base salary at $810,000 for 2007.
The Committee adjusted base salaries in 2006 for our other named executive officers as reported in the Summary Compensation Table below based upon the review of market information on salaries of comparable companies. Mr. Protsch’s base salary was increased from $450,000 to $455,000. Ms. Swan’s base salary was increased from $315,000 to $345,000. Mr. Aller’s base salary was increased from $245,000 to $250,000. Mr. Kratchmer’s base salary was increased from $200,000 to $219,000. Each of the executive officers base salary increases were set to target their salariespeer group and equal to the median of similarly situatedTowers Perrin’s 2008 Energy Services database. The Committee believes Mr. Harvey’s salary is competitive as it is at the median of the 2008 Energy Services database and within 15% of the peer group. In addition, Mr. Harvey’s incentive compensation elements are targeted to the median of the peer group, and they are generally higher than the 2008 Energy Services database but lower than the 2008 General Industry database. This results in more emphasis on incentive pay for our CEO, which we believe creates a stronger link between pay and performance.
For 2009, the Committee froze the salaries of our executive officers at comparable companiesthe Jan. 4, 2009 revised levels due to our financial performance and to align management’s compensation with the exceptionsalary freeze implemented for our general non-bargaining employees. The Committee also required executive officers to take one week of Mr. Harvey, whosefurlough in 2009, for which they received no compensation. The Committee determined that freezing salaries to reflect the financial performance of the Company and to align management with the general non-bargaining employees was a more important factor in setting base salaries for 2009 than was setting salaries at the median of our peer group.
At the end of 2009, Ms. Kampling was named Executive Vice President-Chief Financial Officer and Treasurer, and she was given increased responsibilities. The Committee increased her salary was belowto $380,000 as a result of her new responsibilities and to bring her closer to the median as discussed above.
salary of the peer group. The increased responsibility and salary increase became effective on Jan. 3, 2010. Ms. Kampling’s salary is now within 15% of the median salary for similarly situated executives in our peer group.
Short-Term Incentives
Our executive officers, including our named executive officers, are eligible to participate in the Management Incentive Compensation Plan, or MICP, which is Alliant Energy’s short-term (annual) incentive plan. The MICP provides executive officers with direct financial incentives in the form of annual cash bonuses tied to the achievement of our and Alliant EnergyEnergy’s financial, and strategic goals and individual performance goals. The MICP encourages executive officers to achieve superior annual performance on key financial, strategic and operational goals. By setting annual goals, the Committee endeavors to drive annual performance and align the interests of management with the interests of our shareowners and customers. Our target MICP compensation represents 20-25% of our executive officers’ total direct compensation. This pay mix aligns with our desire to emphasize variable at-risk compensation based on meeting predetermined company, subsidiary, business unit and individual performance goals.
The Committee seeks to set MICP payment levelsopportunities at the median short-term incentive payments,target levels, measured as a percentage of base salary, for comparable positions at comparable companies.in our peer group. MICP targets in 2006 ranged from 90%2009 were 95% of base salary for Mr. Harvey, to 35%80% for Mr. Protsch, 65% for Ms. Kampling, 60% for Ms. Swan, 45% for Mr. Aller and Ms. Doyle. The target levels of base salary for otherall of our
named executive officers with aare at or within 2% of the median percentage target levels for similar positions in our peer group. The maximum possible individual payout for all executive officers ofwas two times the target percentage. The 2006This range aligns with our desire to emphasize variable at risk compensation.
We pay incentives from a pool of funds that Alliant Energy establishes for MICP targets were slightly below market due to Mr. Harvey’s recent promotion to chief executive officer. MICP targets represent the percentage of base salary that would be paid to the executive if the targeted company-wide performance goals were met and the targeted individual performance goals were met.
payments. The Committee establishes threshold company-wide goals, which determine the funding level of an incentive pool. EarningsDiluted earnings per share from continuing operations of Alliant Energy’s utilities determinesour Company and IPL determined the funding level of 85% of the incentive pool. For 2006,If the threshold utility earnings per share was $2.15, the midpoint of our utility earnings per share guidance provided at the beginning of 2006. The utility earnings per share from continuing operations in 2006 was $2.21. If the earnings per share threshold is not met, then no incentives are paid under the MICP. IfFor 2009, the threshold utility earnings per share threshold is met, thenwas $2.10, which was the MICP is funded at a level determined by multiplyingmidpoint of the corporate score, which is based on how well we did compared to our2009 utility earnings per share threshold as well as whether we met our cash flow target, byguidance provided at the total aggregate target bonus amounts up to an established maximum funding amount.end of 2008. Cash flowflows from the utilities and our servicesAlliant Energy’s service company affiliate, Alliant Energysubsidiary, Corporate Services, Inc., determinesdetermined the funding level for 15% of the incentive pool. The cash flow target for 20062009 was $450 million and the level of cash flow achieved was $427$545 million. If the cash flow target is not met, the Committee is not required to fund the 15% of the incentive pool represented by cash flow. The minimum funding level is 20% of
We factor the incentive pool target and the maximum funding level is 150%.
The Committee may exercise its discretion and waive the earnings per share threshold or cash flow target if they are not met. For 2006, the Committee exercised its discretion and waived the Alliant Energy cash flow performance measure for 2006 and funded the MICP at 150% of target. The only reason the cash flow performance measure was not attained in 2006 was because in December 2006, management used available cash to make discretionary pension plan contributions, which would
have been required in 2007 through 2009. As a result of the discretionary pension plan contributions, the cash flow performance measure was not met and, without the waiver, the MICP would have been funded at 127.5%. The Committee granted this waiver in recognition of the discretionary pension plan contributions being voluntary and a good use of the cash held by Alliant Energy. As a result of the waiver, named executive officers received a larger MICP payment than they would have without the waiver. The differences between the MICP payments as a result of the waiver and what the MICP payments would have been without the waiver were: for Mr. Harvey, $151,875; for Mr. Protsch, $65,213; for Ms. Swan, $36,872; for Mr. Aller, $23,625; and for Mr. Kratchmer, $16,384.
Individual performance goals are reviewed and established by the Committee to assist in the determination of individual awards under the MICP. The Committee is presented with significant corporate goals for evaluation in conjunction with the establishment of individual performance goals for the chief executive officer and the other named executive officers. The chief executive officer provides recommendations to the Committee in reference to the applicable performance goals that should be implemented for each of the named executive officers depending on the strategic and functional responsibility of these officers. The chief executive officer is afforded discretion on the implementation of the performance goals for the other executive officers to keep continuity between the goals of the chief executive officer and those of the other executive officers. The goals are weighted. Individual performance goals are designed to be achievable but substantially challenging.
Mr. Harvey’s performance goals for 2006 specifically included financial goals of earnings per share from utility continuing operations of $2.15, earning a targeted return on equity at each utility and achieving cash flow of $450 million. In addition, Mr. Harvey’s goals included asset sale execution goals consistent with our strategic plan. These financial goals were weighted at 70%. Corporate well-being goals included achieving safety, employee engagement and diversity goals, weighted at 30%. The Committee determined that Mr. Harvey met his goals at a level of 100%.
Mr. Protsch’s goals for 2006 included the same financial goals as Mr. Harvey. In addition, Mr. Protsch had financial goals related to the performance of business units under his control. These financial goals were weighted at 70%. Mr. Protsch also had internal performance goals for the finance divisions he oversees, weighted at 15% in addition to corporate well-being goals weighted at 15%. Mr. Protsch achieved his goals at 98%.
Ms. Swan’s financial goals for 2006 included completion of asset divestitures consistent with our strategic plan, achieving a targeted return on equity for our company, and achieving regulatory outcomes to enhance financial performance of our company. These financial goals were weighted at 70%. She also had customer service and customer satisfaction benchmarks with a 15% weighting and corporate well-being goals, including employee engagement and diversity goals, weighted at 15%. Ms. Swan achieved her goals at 95%.
Mr. Aller’s financial goals for 2006 included earning a targeted return on equity at our Iowa utility affiliate, achieving a specified earnings per share target, meeting benchmarks from certain utility functions, and meeting certain financial targets related to our non-regulated transportation operations. These financial goals were weighted at 60%. Mr. Aller also had goals to achieve specified customer service and reliability standards, weighted at 25%. His corporate well-being goals included diversity, safety, employee engagement and leadership benchmarks, weighted at 15%. Mr. Aller achieved his goals at 105%.
Mr. Kratchmer’s financial goals for 2006 were to execute tax planning strategies and to evaluate and use key process inputs to develop reporting and tracking enhancements. These financial goals were weighted at 40%. He also had an internal customer satisfaction goal to provide appropriate support to the organization measured by customer satisfaction surveys. This customer goal was weighted at 30%. His corporate well-being goals included implementing and administering a financial employee development program and diversity goals. These goals were weighted at 30%. Mr. Kratchmer achieved his goals at 95%.
The level of individual performance as compared to the individual performance goals is factored into individual award amountsallocations after the pool has been funded. Individual awards may range from 0% to 200% of the targeted payment based on an individual’s achievement of performance goals. The Committee makes judgments about achievement of performance goals by the chief executive officer. Achievement of performance goals for the other executive officers is judged by the chief executive officer or the executive to whom the executive officer reports, in consultation with the Committee. The Committee provides final approval of the assessment of individual achievement compared to performance goals and final payment of awards to all executive officers under the MICP.
Individual performance goals are reviewed and established by the Committee to assist in the determination of individual awards under the MICP. Individual performance goals are derived from Alliant Energy’s strategic plan and from operational benchmarks intended to benefit our shareowners, customers and employees. The Committee believes that using Alliant Energy’s strategic plan to set individual performance goals aligns the executives’ incentive compensation with Alliant Energy shareowner interests. The Committee also believes that using operational benchmarks to set individual performance goals aligns the executives’ incentive compensation with customer interests.
The Committee sets three types of individual performance goals: financial, execution and corporate well-being. The individual performance goals of the named executive officers for 2009 are shown in the table below.
2009 Performance Goals
| Goal | William Harvey | Eliot Protsch | Patricia Kampling | Barbara Swan | Thomas Aller | Dundeana Doyle | ||||||
Financial Goals: Weighted 50% | ||||||||||||
| Achieve target EPS from continuing operations at Alliant Energy’s utilities of $2.10 | x | x | x | x | x | x | ||||||
| Achieve target Alliant Energy Corporation consolidated EPS from continuing operations of $2.33 | x | x | x | x | ||||||||
Achieve cash flow from operations of $545 million at Alliant Energy’s utilities and Corporate Services excluding: * Changes in sales of customer receivables * Tax effected pension contributions * Net collateral received by or paid by Alliant Energy’s utilities and Corporate Services | x | x | x | x | x | x | ||||||
| Financial benchmarks at Alliant Energy’s Transportation business | x | |||||||||||
Execution Goals: Weighted 30% | ||||||||||||
| Achieve certain milestones related to the proposed wind projects of IPL and the Company | x | x | x | x | ||||||||
| Achieve certain milestones related to biomass, natural gas and other new generation plans | x | x | x | x | x | |||||||
| Achieve certain milestones related to clean air compliance program projects | x | x | x | x | ||||||||
| Achieve certain milestones related to advanced metering infrastructure deployment at the Company | x | |||||||||||
| Achieve no fines for non-compliance with environmental laws and regulations | x | x | x | x | x | |||||||
| Meet energy efficiency benchmarks | x | x | x | |||||||||
| Build on and communicate Alliant Energy’s environmental commitment | x | x | x | x | x | |||||||
| Obtain targeted savings from Lean Six Sigma and related process improvements | x | x | x | x | x | x | ||||||
| Achieve reasonable and timely decisions for the Company and IPL base rate cases | x | x | x | |||||||||
| Achieve specified customer service standards | x | x | x | |||||||||
| Achieve specified reliability benchmarks | x | x | x | |||||||||
| Meet specified RMT, Inc. growth target | x | |||||||||||
Corporate Well-Being Goals: Weighted 20% | ||||||||||||
| Achieve specific safety targets | x | x | x | x | x | x | ||||||
| Achieve specific employee and supplier diversity goals | x | x | x | x | x | x |
Alliant Energy’s strategic planning department is responsible for initial drafting of the performance goals, which is done to ensure that the individual performance goals are closely aligned with Alliant Energy’s strategic plan. The chief executive officer provides recommendations to the Committee in reference to the applicable performance goals that should be implemented for each of the named executive officers (other than for himself) depending on the strategic and functional responsibility of these officers. The chief executive officer is afforded discretion on the implementation of the performance
goals for the other executive officers to keep continuity between the goals of the chief executive officer and those of the other executive officers. The Committee evaluates and ultimately approves all of the corporate and individual performance goals under the MICP for all of the executive officers. Financial goals are weighted at 50%, execution goals at 30% and corporate well-being goals at 20% for all the named executive officers. Individual performance goals are designed to be achievable but substantially challenging.
The MICP provides that, if Alliant Energy’s financial statements are the subject of a restatement due in whole or in part to gross negligence, intentional misconduct or fraud, we will seek reimbursement of excess incentive awards paid under the MICP. The excess incentive award that may be recovered is the difference, if any, between the incentive award actually paid to the executive officer and the incentive award that would have been made to the executive officer had the incentive award been calculated based on the financial statements as restated. We are not required to award executive officers an additional incentive award should the restated financial statements result in a higher incentive award. This claw-back may be sought with respect to incentive awards paid within 12 months of the filing of the financial statements that are required to be restated.
Alliant Energy’s utility earnings per share for 2009 were $2.03, and were adjusted to $1.86 to exclude several non-recurring charges and credits. This level of performance fell below the threshold utility earnings per share of $2.10 established to fund the incentive pool. Therefore, we did not pay incentives to our named executive officers under the MICP for 2009. The Committee did not consider achievement of individual performance goals when determining awards under the MICP because the threshold for incentive payments under the 2009 MICP was not met.
In February 2010, the Committee adopted a new short-term incentive plan for 2010 to replace the incentive plan used in 2009 and previous years to further incent executives to achieve goals that benefit Alliant Energy’s shareowners and customers. The new plan continues to allow executives to earn incentive compensation based on achievement of financial, strategic and individual goals but puts more focus on specific core value goals of Alliant Energy and customer focused goals. The new plan has two financial goals, utility earnings per share performance goal weighted at 60% and a target cash flow goal weighted at 10%. The 2010 plan also has specific operational goals including customer focused goals and goals focused on core values of our company, which are similar to the execution goals and corporate well-being goals under the current MICP. These operational goals are customer satisfaction weighted at 15%, safety weighted at 10% and diversity weighted at 5%.
For each of the short-term incentive measures, the Committee sets specific performance levels early in the plan year and factors in stretch performance objectives in developing the performance measures for each of the goals other than utility earnings per share. For the utility earnings per share goal, threshold level, target level and superior level earnings targets are set. The threshold level of utility earnings per share represents minimally acceptable performance, target level of utility earnings per share represents performance that should typically be achievable in any given year, and a superior level of utility earnings per share represents stellar performance beyond that typically achievable in any given year.
The threshold performance level under the MICP for 2009 required achievement of utility earnings per share at the midpoint of our financial guidance, which is the target level of achievement in the new plan. The new plan will result in incentive compensation payouts (at below individual executive targeted levels) if the utility earnings per share goal is below target but threshold utility earnings per share is achieved. Initiating incentive payouts at the threshold level of utility earnings per share better aligns with our peer group and creates a more consistent and realistic short-term incentive opportunity.We believe that specific company and customer based operational goals emphasizes focus on the customer and the core values of our company.
Long-Term Incentives
Alliant Energy awards long-term incentive compensation based on the achievement of longer-term, multi-year financial goals. We believe long-term incentive compensation aligns executives’ interests with those of Alliant EnergyEnergy’s and our shareowners by
compensating executive officers for long-term achievement of long-term financial goals.Long-termgoals. Long-term incentive compensation takes the form of equity awards granted under Alliant Energy’s 2002 Equity Incentive Plan. Long-term incentive compensation is targeted at 30-50%Plan, as amended and restated. All of our executive officers’ total direct compensation and, along with the MICP, further emphasizes variable at-risk compensation based on meeting predetermined company, subsidiary, business unit and individual performance goals.
Alliant Energy determines the amount of equity awards granted under Alliant Energy’s long-term incentive plans are performance based and will be forfeited if performance results are not achieved.
We determine the value of long-term incentive amounts by benchmarking to our executive officers by setting a dollarthe median value as a percentage of base salary at the level it believes appropriate based on the long-term incentives comparable companies provide,paid by our peer group, assessing the individual performance of the executive officer and internal equity among our executives. Alliant Energy then grantsexecutives, and considering the competitiveness of the total direct compensation package. Based on these factors, the Committee
approved, as a percentage of base salary, the following values of the long-term incentives awarded to the named executive officers for 2009: 250% for Mr. Harvey, 185% for Mr. Protsch, 150% for Ms. Kampling, 125% for Ms. Swan, 70% for Mr. Aller and 70% for Ms. Doyle. The target levels of all of our named executive officers are at the median target levels for similar positions in our peer group. The Committee approves the dollar value of the long-term equity awards prior to the grant date. We grant the number of shares of its common stock necessary to reachapproximate that dollar value based on the fair market value of itsAlliant Energy’s share price on the grant date. The levels in 2006 were 200%grant price used for Mr. Harvey, 120% for Mr. Protsch, 100% for Ms. Swan, 60% for Mr. Aller and 50% for Mr. Kratchmer. The long-term incentive targeted payout amounts were benchmarked toaccounting purposes is the medianfair market value of comparable companies as to their levels paid.
Alliant Energy’s common stock on the grant date.
The long-term incentive awards consist of performance contingent restricted stock and performance shares. We believe the use of these two componentstypes of long-term equity compensation providesawards provide incentives for our executive officers to produce value for Alliant Energy shareowners and ourEnergy’s shareowners over the long-term on both an absolute basis and a relative basis. Performance contingent restricted stock granted in 2009 vests if Alliant Energy’s earnings per share grows at a specified level of 5% compounded year-over-yearconsolidated income from continuing operations achieves 19% growth, which rewards absolute long-term growth. Performance shares vest and pay-out at varying levels depending on Alliant Energy’s total shareowner return as compared to a specified peer group,the S&P Midcap Utilities Index, which rewards relative long-term growth and total shareowner return.
The Committee approves the value of thegranted long-term equity awards in 2009 consisting of 60% performance shares and 40% performance contingent restricted stock to make efficient use of the remaining restricted shares authorized under the current 2002 Equity Incentive Plan.
Performance contingent restricted stock granted prior to 2008 vests if Alliant Energy’s consolidated earnings per share from continuing operations achieves 116% growth from the level of income in the calendar year immediately prior to the grant, date. The grant date of the awards made to our executive officerswhich is the first business day of the5% compounded year which maximizes the time periodover year growth for the incentives associated with the awards. The grant price used for accounting purposes is fair market value of Alliant Energy’s common stock on the grant date.
Long-term equity awards granted in 2006 consisted of 60%three years. For performance contingent restricted stock and 40%granted in 2009, as in 2008, the Committee used consolidated income from continuing operations as the performance shares.
criterion. The Committee believes using income from continuing operations as a performance criterion is preferable to using earnings per share because income from continuing operations avoids the volatility in earnings per share that can result from increases or decreases in the number of shares outstanding, which is unrelated to performance. In 2008, the Committee increased the growth rate of income that must be achieved for the performance criteria to be met from 5% to 6% compounded year over year growth for three years. The Committee believed that the increase would better align management’s interests with the high expected growth in earnings during the planned new generation build out period.
The vesting of the performance contingent restricted stock granted in 20062009 is based on Alliant Energy’s earnings per share growth. Specifically,growth in income from continuing operations using Alliant Energy’s final income from continuing operations in 2008 as the base. The base consolidated income from continuing operations for 2008 was $280 million. The performance contingent restricted stock granted in 2009 vests if Alliant Energy achieves earnings per shareconsolidated income from continuing operations growth of $2.68, which represents a 16% growth in earnings per share19% from 2005,2008, within a four year period. The target consolidated income from continuing operations is $333.2 million. In no case may the restricted stock vest earlier than two years from the grant date, and all shares will be forfeited if the earnings per shareconsolidated income from continuing operations target is not met at the end of the four-year mark.
period. No vesting occurred in 2009 for either the 2007 or 2008 performance contingent restricted stock grants that are currently outstanding.
The payout of performance shares granted in 20062009 is based on Alliant Energy’s total shareowner return over a three years.year period. Performance shares will provide a 100% payout, or target payout, if Alliant Energy’s relative total shareowner return over three years is equal to the median performance of a specific peer group selected by the Committee. The Committee selected the S&P Midcap Utilities Index wasas the peer group used for the 20062009 grants of performance shares.
Performance share payouts are capped at 200% of the target payout ifpayout. The following table shows the level of Performance share payouts based on Alliant Energy’s total shareowner return is at or aboveas compared to the 90th percentile of the total shareowner return of Alliant Energy’s peer group. The payout would be 50% of the target payout if Alliant Energy’s total shareowner return was in the 40th percentile of the total shareowner return of Alliant Energy’s peer group. There would be no payout if Alliant Energy’s total shareowner return fell below the 40th percentile of Alliant Energy’s peer group. S&P Midcap Utilities Index.
| Alliant Energy’s Percentile Rank | Percent of Target Value Payout | |
90th percentile or greater | 200% | |
80th percentile | 175% | |
70th percentile | 150% | |
60th percentile | 125% | |
50th percentile | 100% | |
45th percentile | 75% | |
40th percentile | 50% | |
Below 40th percentile | 0% |
Performance shares allow the executive to receive a payment in shares of Alliant Energy’s common stock, cash, or ina combination of Alliant Energy’s common stock and cash, the value of which is equal to the number of shares awarded, adjusted by the performance multiplier. The Committee generally requires an executive that has not met the share ownership guidelines to take a payment in Alliant Energy common stock or a combination of 50% Alliant Energy common stock and 50% cash in order to bring the executive closer to achieving the share ownership guideline. If the executive chooses to take the payment in cash, the amount of the payout is determined by multiplying the number of shares earned by the average of the high and low trading prices on a date chosen by the Committee. The Committee chooses this date in advance of issuing the shares.
In 2007, the Committee determined that Alliant Energy achieved theThe performance levelsshares issued for the 2007-2009 performance shares granted in 2004.period were forfeited as Alliant Energy’s relative total shareowner return performance forpercentile rank was below the three years ended Dec. 31, 2006 was at40th percentile.
The Committee approves the 69th percentile. Duedollar value of the long-term equity awards prior to the total shareowner return goal being achieved,grant date. The grant date of the awards that we had a performance share payout of 147.5% of targetmade in 2009 to our executive officers was Feb. 26, 2009. The grant price used for the 2004 grant. Also in 2007, following the confirmation from Alliant Energy’s audited financial statements, the Committee determined that the performance contingent restricted stock granted in 2005 vested due to the successful
achievementaccounting purposes was fair market value of Alliant Energy’s long-term goal of earnings per share growth targets after two years. Alliant Energy’s 2005 earnings per share growth goal was $2.13. Alliant Energy’s adjusted earnings per share from continuing operations forcommon stock on the year ended Dec. 31, 2006 was $2.20.
grant date.
Alliant Energy no longer grantsdoes not grant stock options as incentive compensation. Weoptions. Alliant Energy determined that performance contingent restricted stock and performance shares provide equally motivating forms of equity incentive compensation and reduce potential dilution of ourAlliant Energy’s shareowners because fewer shares need be granted. Alliant Energy’s last stock options were granted in 2004 and expire in 2014.
Occasionally, Alliant Energy grants time-based restricted stock to named executive officers in connection with an increase in responsibilities and to promote retention of that named executive officer. In 2009, Ms. Swan was granted shares of restricted stock valued at $100,006, which vest pro rata over three years, in connection with her increased responsibilities as Chief Administrative Officer. The Committee wanted to offer Ms. Swan a retention incentive in addition to her previously-discussed salary increase, but determined that using any additional cash incentive payments was not desirable. The Committee therefore awarded the restricted shares in lieu of a cash incentive payment. In addition, the Committee accelerated the vesting of restricted stock which was granted to Mr. Protsch in 2005 upon his retirement on Jan. 2, 2010. The accelerated vesting impacted half of the amount of restricted stock originally granted. The Committee determined that the accelerated vesting was appropriate based on Mr. Protsch’s over 30 years of service to the company.
Other Benefits
Alliant Energy also offers benefit programs to our executive officers with a focus towards their retirement.retirement consistent with those of the peer group. These plansprograms include 401(k), deferred compensation and pension benefits. These plansThe benefit programs are designed to be competitive in the market in attracting, retaining and motivating key executives and employees by providing competitive retirement benefits. We apply the same marketpeer group benchmarking approach in designing these programs in that we benchmark to median levels of benefit and design elements. The Committee reviews benefit programs on an annuala periodic basis to determine effectiveness and identify any necessary changes. These retirement relatedThe retirement-related benefit plans were allare reviewed during 2006periodically by the Committee with noand certain changes implemented. Ato the plans were made in 2009.A brief description of the plans with associated changes follows.
401(k) Savings Plan
OurAll of our salaried employees, including our executive officers, are eligible to participate in the Alliant EnergyEnergy’s 401(k) Plan. Alliant Energy matches $0.50 on theeach dollar for the first six percent8% of compensation deferred by the employee up to the IRS maximum.
The match was temporarily suspended for a period of 6 months in 2009 as a cost saving measure. The match is currently in effect for 2010. Beginning Aug. 3, 2008, Alliant Energy enhanced benefits under the 401(k) Plan to offset a freeze of the Alliant Energy Cash Balance Pension Plan. See “Pension Benefits” below for more information. Alliant Energy now contributes a percentage of employees’ salaries to their 401(k) accounts in addition to the company match. The amount of Alliant Energy’s contribution ranges from 4% to 6% of an employee’s salary. The amount of Alliant Energy’s contribution depends on the employee’s age and number of years of service at the company.
Key EmployeeAlliant Energy Deferred Compensation Plan
The Alliant Energy Key Employee Deferred Compensation Plan, or KEDCP,AEDCP, enables participants, including our executive officers, to defer up to 100% of base salary and annual incentive awards earned on a pre-tax basis and to receive earnings or incur losses on the deferrals until the date of distribution. The KEDCPAEDCP provides tax deferred savings and post-retirement income to our executive officers. The shares of common stock identified as obligations under the KEDCPAEDCP are held in a rabbi trust. Alliant Energy offersWe offer the KEDCPAEDCP as part of the executive’sexecutives’ competitive compensation package and believes itto permit executives to take advantage of the tax
code in saving for their retirement. We believe the AEDCP is in line with offerings from comparable companies.our peer group. See “Nonqualified Deferred Compensation” below for more information regarding the KEDCP.
AEDCP.
Cash Balance Pension Plan
OurCertain of our salaried employees, including our executive officers, are eligible to participate in the Alliant Energy Cash Balance Pension Plan. This defined benefit plan is portable, offers flexible payment options and steady growth of retirement funds. It is consistent with benefits that have been provided by other comparable companies.Future accruals to the Cash Balance Pension Plan were frozen for participants effective Aug. 2, 2008. See “Pension Benefits” below for more information regarding the Alliant Energy Cash Balance Pension Plan. In 2009, Alliant Energy amended the cash balance plan’s interest crediting rate for 2009 and future years. The new interest crediting rate will be equal to the annual change in the consumer price index, as of October each year, plus 3%.
Excess Retirement Plan
Certain of our salaried employees, including our executive officers, participate in the unfunded Alliant Energy Excess Retirement Plan. The plan is intended to provide the accruals that the participants would have earned under the Cash Balance Pension Plan and the 401(k) Savings Plan but for statutory limitations on employer-provided benefits imposed on those tax-qualified plans. See “Pension Benefits” below for more information regarding the Excess Retirement Plan.
Supplemental Executive Retirement Plan
Our executives who are vice presidents or above, including our named executive officers, participate in the unfunded Alliant Energy’s unfundedEnergy Supplemental Executive Retirement Plan, or SERP. Alliant Energy provides the SERP as an incentive for key executives to remain in ourAlliant Energy’s service by providing additional retirement compensation in addition to the benefits provided by the pension plan, which are limited by the tax code, that is payable only if the executive remains with usAlliant Energy until retirement, disability or death. See “Pension Benefits” below for more information regarding the SERP.
Split Dollar / Reverse Split Dollar Life Insurance Plan
Certain executive officers, including Messrs. Harvey and Protsch and Ms.Mses. Swan and Doyle, receive individually owned life insurance policies. Alliant Energy pays the premiums for this insurance and these payments are taxable to the individual officers. These specific policies were grandfathered in 1998 and we no longer offer the policies to other executive officers as part of total executive compensation.
Perquisites
For the first part of 2009, Alliant Energy providesprovided our officers, including our named executive officers, with a Flexible Perquisite Program. The program providesprovided a specified amount of funds to our executives to use for benefits, including an annual fixed automobile allowance, financial planning and legal services, a variety of club memberships and long-term care insurance. The
Committee reviews this program on an annual basis as part of our total compensation offering to determine its merits and the use of similar programs by comparable companies.our peer group. The last review took place at our joint December 2006 Committeea special committee meeting at whichin May 2009, where the Committee determined thatcancelled the Flexible Perquisite Program was comparableeffective June 1, 2009 to similar programs at comparable companiescut costs during the difficult economic climate and should continue as a component of totalto reflect current executive compensation. The Committee set the Flexible Perquisite Program funding amounts at $26,000 for Mr. Harvey, $20,000 for Mr. Protsch, $17,500 for Ms. Swan, $14,000 for Mr. Aller and $11,000 for Mr. Kratchmer.compensation trends. Our executive officers are also eligible for moderately more generous health and dental insurance, accidental death insurance, disability insurance, vacation, and other similar benefit programs than the balance of our non-bargaining unit employees. Such benefits have been historically provided and remain an appropriate component of our executive compensation program.
Post-Termination Compensation
KEESAs
Alliant Energy currently has in effect key executive employment and severance agreements, or KEESAs, with our executive officers, including our named executive officers (other than Mr. Protsch, who retired effective Jan. 2, 2010), and certain of our key employees. The KEESA is designed to provide economic protection to key executives following a change in control of Alliant Energy so that executives can remain focused on our business without undue personal concern. Alliant Energy recognizesWe recognize that circumstances may arise in which itAlliant Energy may consider a change of control transaction. We believe the security afforded the executives by the KEESA will help the executives to remain focused on business continuity and reduce the distraction of the executive’s reasonable personal concerns regarding future employment. We also believe that the KEESA allows the executive to better consider the best interests of our company and Alliant Energy and its shareowners due to the economic security provided by the KEESA benefits.
The KEESAs are triggered if, within a period of up to three years after a change in control of Alliant Energy for Mr. Harvey Mr. Protsch or Ms. Swan and two years for Ms. Kampling, Mr. Aller or Mr. Kratchmer,Ms. Doyle, there has occurred both a change in control and loss of employment, causing KEESA benefits to be subject to a “double trigger.” We implemented the double trigger mechanism to ensure that only those executives adversely affected by a change in control would receive benefits under the KEESA. The cash termination benefit under the KEESA is up to three times base salary and target bonus for Mr. Harvey Mr. Protsch and Ms. Swan and two times base salary and target bonus for Ms. Kampling, Mr. Aller and Mr. Kratchmer.
Ms. Doyle.
The KEESAs for Ms. Kampling, Mr. Aller and Mr. KratchmerMs. Doyle provide that if any portion of the benefits under the KEESA or under any other agreement for the officer would constitute an excess parachute payment for purposes of the Internal Revenue Code, benefits will be reduced so that the officer will be entitled to receive $1 less than the maximum amount which he or she could receive without becoming subject to the 20% excise tax imposed by the Code on certain excess parachute payments, or which weAlliant Energy may pay without loss of deduction under the Code. The KEESAs for Mr. Harvey Mr. Protsch and Ms. Swan provide that if any payments constitute an excess parachute payment, Alliant Energy will pay to the appropriate officer the amount necessary to offset the excise tax and any additional taxes on this additional payment.
We believe the level of the benefits provided by the KEESAs to each executive officer reflects the amount of work that would be required of them during a change in control transaction as well as the amount of opportunities they would be asked to forego to assist the change in control transaction rather than seek future employment. Top executives are required to put forth greater effort to ensure a smooth change in control of a company and we believe that it would take a longer time for them to find comparable employment based on their attained career status. The elevated positions held by Mr. Harvey and Ms. Swan, and their long tenure with the company, cause us to believe that this analysis is especially true for them. Therefore, they receive the highest benefit level and a tax-gross up. We plan to review our KEESA policy in 2010.
In consideration of the KEESA benefits, the executive agrees not to compete with Alliant Energy and us for a period of one year after the executive leaves Alliant Energyus and to keep in confidence any proprietary information or confidential information for a period of five years after the executive leaves Alliant Energy.Energy, or us. Both of these conditions can be waived in writing by Alliant Energy’s board of directors.
See “Potential Payments upon Termination or Change in Control” for more information regarding the KEESAs.
Executive Severance Plan
Alliant Energy also maintains a general executive severance plan for executive officers in the event that an officer’s position has been eliminated or significantly altered by Alliant Energy. The executive severance plan is designed to provide economic protection to key executives following the elimination of their position so that executives can remain focused on our business without undue personal concern. We recognize that circumstances may arise in which we may consider eliminating certain key positions that are no longer necessary. We believe the security afforded the executives by the severance plan will keep the executives focused on their duties at our company rather than on their personal concerns of job security. The plan provides for a minimum level of severance pay equal to one times annual base salary, payment of pro-ratedprorated incentive compensation within the discretion of the chief executive officer, up to 18 months of paid COBRA coverage, six months of which are paid by Alliant Energy, outplacement services and/or tuition reimbursement of up to $10,000, and access to Alliant Energy’sour employee assistance program. All executive officer severance packages are approved by the Alliant Energy Compensation Committee. We believe our executive severance plan is consistent with plans throughout the industry.
See “Potential Payments upon Termination or Change in Control” for more information regarding the Executive Severance Plan.
Employment Agreements
Alliant Energy no longer hasWe do not have any other employment agreements with our executive officers. Alliant Energy entered into an employment agreement with Mr. Davis to ensure the retention of his executive and industry experience during a period of our growth and diversification strategy. Upon Mr. Davis’ retirement on Feb. 1, 2006, this agreement expired. See footnote (9) to the Summary Compensation Table for further explanation of this agreement.
Share Ownership Guidelines
Alliant Energy established share ownership guidelines for our executive officers as a way to better align the financial interests of officers with those of shareowners. Under these guidelines, the requisite ownership numbers are 85,000 shares of Alliant Energy common stock for Mr. Harvey, 36,000 shares for Mr. ProtschMs. Kampling and Ms. Swan and 12,000 shares for Messrs.Mr. Aller and Kratchmer.Ms. Doyle. The executive officers are expected to make continuing progress toward compliance with these guidelines and achieve their designated levels within five years of being appointed as an officer. Alliant Energy monitorsWe monitor each officer’s
progression towards achievement of these guidelines on a semi-annual basis.
We plan to review our share ownership guidelines in 2010.
The share ownership guidelines have an impact upon the payout of awards by Alliant Energy for our performance shares. If executives have not yet met their share ownership level, they are required to receive at least 50% of any performance share payout made upon the vesting of the performance shares in shares of Alliant EnergyEnergy’s common stock. In addition, once the performance or time-based restrictions lapse on shares of performance contingent or time-based restricted stock, these shares are counted towards achievement of share ownership guidelines. Our chief executive officer retains the right to grant special dispensation for hardship, promotions or new hires. All of our current named executive officers have met their share ownership guidelines.guidelines, with the exception of Ms. Kampling. She has until 2015 to achieve the goal. Their share holdings are shown in the “Ownership of Voting Securities” table above.
Impact of Regulatory Requirements
Section 162(m) of the Internal Revenue Code generally limits the corporate deduction for compensation paid to our chief executive officer and the three other most highly compensated executive officers named in the proxy statement(excluding our Chief Financial Officer) to $1 million, unless such compensation is based upon performance objectives meeting certain regulatory criteria or is otherwise excluded from the limitation. Based on the Committee’s commitment to link compensation with performance as described above, the Committee intends to qualify future compensation paid to our executive officers for deductibility by us under Section 162(m) except in limited appropriate circumstances. All equity compensation plans are accounted for under FAS123(R).
At this time, plan compliance under Internal Revenue Code Section 409A has been extended to January 1, 2008. We have engaged outside legal counsel to assist in conducting a preliminary review and analysis of our executive compensation plans for impending changes as a result of Section 409A. We expect this review to be completed in 2007 and any necessary plan modifications required for compliance to be recommended to the Committee for approval and implementation effective January 1, 2008.
The Public Service Commission of Wisconsin recently allowed us to recover from customers portions of our incentive compensation payments attributable to customer service and reliability goals. We plan to structure our compensation program to take advantage of this allowed recovery.
Financial Accounting Standards Board Accounting Standards, Codification Topic 718.
Conclusion
The Committee is provided with appropriate information and reviews all components of our chief executive officer’s and other executive officers’ compensation. This includes base salary, short-term incentive compensation; long-term incentive compensation; accumulated realized and unrealized stock option and restricted stock gains;Based on this information, the dollar valueCommittee seeks to implement executive compensation that is appropriately tied to the executiveperformance of the executives on behalf of shareowners, employees and cost to us of all perquisites and other personal benefits; the earnings and accumulated payout obligations under our non-qualified deferred compensation program; the actual projected payout obligations under our supplemental retirement income plan; and potential severance and change-in-control compensation scenarios. A tally sheet setting forth all the above components was prepared and reviewed by the Committee affixing dollar amounts under various payout scenarios.customers.
COMPENSATION AND PERSONNEL COMMITTEE REPORT
To Our Shareowners:
The Compensation and Personnel Committee (the “Committee”) of the Board of Directors of the Company is currently composed of four independent directors. The Committee assesses the effectiveness and competitiveness of, approves the design of and administers executive compensation programs within a consistent total compensation framework for the Company. The Committee also reviews and approves all salary arrangements and other remuneration for executive officers, evaluates executive officer performance, and considers related matters. It also makes recommendations to the Nominating and Governance Committee regarding compensation for the non-management Directors.
The Committee has reviewed and discussed the Compensation and Discussion and Analysis with our management and it has been reviewed by our Audit Committee and our management.Committee. Based on the Committee’s reviewsreview and discussions,discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K for the year ended Dec. 31, 2006,2009, for filing with the SEC.
The Committee believes the existing executive compensation policies and programs provide the appropriate level of competitive compensation for our executive officers. In addition, the Committee believes that the long- and short-term performance incentives effectively align the interests of executive officers and shareowners toward a successful future for our company.
COMPENSATION AND PERSONNEL COMMITTEE
Singleton B. McAllisterAnn K. Newhall (Chairperson)
Michael L. Bennett
Darryl B. Hazel
Dean C. Oestreich
Carol P. Sanders
The table below summarizes the compensation paid to or earned by our chief executive officer, our chief financial officer (which for 2009 was Mr. Protsch for four days and Ms. Kampling for the balance of the year) and our next three highest paid AEC executive officers and our former chairman for all services rendered to us, Alliant Energy and Alliant Energy’s other subsidiaries in 2006.for 2009, 2008 and 2007. We refer to such individuals in this proxy statement collectively as our named executive officers.
Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock ($)(3) | Option ($)(4) | Non-Equity ($)(5) | Change in ($)(6) | All Other ($)(7) | Total ($) | |||||||||||||||||
William D. Harvey Chairman and Chief Executive Officer | 2006 | $ | 745,192 | $ | 151,875 | $ | 2,398,279 | $ | 32,148 | $ | 860,625 | $ | 689,334 | $ | 162,962 | $ | 5,040,415 | |||||||||
Eliot G. Protsch Chief Financial Officer | 2006 | $ | 454,519 | $ | 65,213 | $ | 1,263,614 | $ | 17,856 | $ | 369,540 | $ | 191,983 | $ | 109,941 | $ | 2,472,666 | |||||||||
Barbara J. Swan President | 2006 | $ | 342,116 | $ | 36,872 | $ | 821,333 | $ | 13,816 | $ | 208,941 | $ | 123,800 | $ | 57,299 | $ | 1,604,177 | |||||||||
Thomas L. Aller Senior Vice President Energy Delivery | 2006 | $ | 249,523 | $ | 23,625 | $ | 458,293 | $ | 9,356 | $ | 133,875 | $ | 188,916 | $ | 28,179 | $ | 1,091,767 | |||||||||
John E. Kratchmer Vice President Customer Service Operations-East (8) | 2006 | $ | 217,180 | $ | 16,384 | $ | 278,438 | $ | 4,392 | $ | 92,842 | $ | 50,971 | $ | 22,610 | $ | 682,817 | |||||||||
Erroll B. Davis, Jr. (9) | 2006 | $ | 153,824 | $ | 0 | $ | 1,785,237 | $ | 69,013 | $ | 104,000 | $ | 542,920 | $ | 177,287 | $ | 2,832,281 | |||||||||
Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($)(4) | Change in ($)(5) | All Other Compensation ($)(7) | Total ($) | |||||||||||||||||
William D. Harvey Chairman and Chief Executive Officer | 2009 | $ | 832,000 | $ | 0 | $ | 1,999,511 | $ | 0 | $ | 0 | $ | 147,000 | $ | 353,986 | $ | 3,332,497 | |||||||||
| 2008 | $ | 850,962 | $ | 0 | $ | 2,076,264 | $ | 0 | $ | 0 | $ | 2,103,000 | $ | 262,562 | $ | 5,292,788 | ||||||||||
| 2007 | $ | 811,962 | $ | 0 | $ | 1,695,768 | $ | 0 | $ | 677,160 | $ | 3,844,938 | $ | 226,340 | $ | 7,256,168 | ||||||||||
Eliot G. Protsch Chief Financial Officer/Chief Operating Officer | 2009 | $ | 594,846 | $ | 0 | $ | 1,059,373 | $ | 0 | $ | 0 | $ | 774,000 | $ | 159,361 | $ | 2,587,580 | |||||||||
| 2008 | $ | 498,515 | $ | 0 | $ | 729,761 | $ | 0 | $ | 0 | $ | 651,000 | $ | 129,785 | $ | 2,009,061 | ||||||||||
| 2007 | $ | 477,427 | $ | 0 | $ | 625,739 | $ | 0 | $ | 293,216 | $ | 1,757,578 | $ | 108,774 | $ | 3,262,734 | ||||||||||
Patricia L. Kampling Executive Vice President-Chief Financial Officer and Treasurer(6) | 2009 | $ | 294,769 | $ | 0 | $ | 425,945 | $ | 0 | $ | 0 | $ | 93,000 | $ | 42,368 | $ | 856,082 | |||||||||
Barbara J. Swan President | 2009 | $ | 442,500 | $ | 0 | $ | 632,437 | $ | 0 | $ | 0 | $ | 45,000 | $ | 97,865 | $ | 1,217,802 | |||||||||
| 2008 | $ | 377,669 | $ | 0 | $ | 460,667 | $ | 0 | $ | 0 | $ | 492,000 | $ | 84,344 | $ | 1,414,680 | ||||||||||
| 2007 | $ | 362,081 | $ | 0 | $ | 421,857 | $ | 0 | $ | 174,724 | $ | 245,478 | $ | 63,289 | $ | 1,267,429 | ||||||||||
Thomas L. Aller Senior Vice President- Energy Resource Development | 2009 | $ | 263,385 | $ | 0 | $ | 177,236 | $ | 0 | $ | 0 | $ | 151,000 | $ | 44,053 | $ | 635,674 | |||||||||
| 2008 | $ | 269,404 | $ | 30,000 | $ | 184,012 | $ | 0 | $ | 0 | $ | 0 | $ | 40,036 | $ | 523,452 | ||||||||||
| 2007 | $ | 258,346 | $ | 0 | $ | 150,458 | $ | 0 | $ | 90,640 | $ | 152,628 | $ | 31,199 | $ | 683,271 | ||||||||||
Dundeana K. Doyle Senior Vice President- Energy Delivery | 2009 | $ | 262,800 | $ | 0 | $ | 176,901 | $ | 0 | $ | 0 | $ | 153,832 | $ | 56,821 | $ | 650,354 | |||||||||
| 2008 | $ | 256,669 | $ | 0 | $ | 175,416 | $ | 0 | $ | 0 | $ | 94,791 | $ | 44,579 | $ | 571,455 | ||||||||||
| 2007 | $ | 236,696 | $ | 0 | $ | 114,891 | $ | 0 | $ | 77,776 | $ | 91,558 | $ | 33,206 | $ | 554,127 | ||||||||||
(1) | The amounts shown in this column include |
(2) | The |
(3) | The amounts in this column reflect the |
(4) |
|
| The amounts in this column represent cash amounts received by the executive officers under Alliant Energy’s MICP for services performed in |
| The amounts in this column reflect (a) the actuarial increase in the present value of the named executive officers benefits under all pension plans established by |
not currently be entitled to receive because such amounts are not vested, and (b) amounts representing above market interest on |
nonqualified deferred compensation. The |
| (6) | Ms. Kampling became a named executive officer in 2009. She was not a named executive officer in either 2007 or 2008. |
| (7) | The table below shows the components of the compensation reflected under this column for |
| Name | Perquisites & Other (a) | Registrant (b) | Life Insurance (c) | Tax (d) | Dividends (e) | Total | ||||||||||||||||||||||||||||||||||||
| Perquisites and Other Personal Benefits (a) | Registrant Contributions to Defined Contribution Plans (b) | Life Insurance (c) | Tax Reimbursements (d) | Dividends (e) | Total | |||||||||||||||||||||||||||||||||||||
William D. Harvey | $ | 21,435 | $ | 11,221 | $ | 40,839 | $ | 5,821 | $ | 83,646 | $ | 162,962 | $ | 19,220 | $ | 74,801 | $ | 79,693 | $ | 23,908 | $ | 156,364 | $ | 353,986 | ||||||||||||||||||
Eliot G. Protsch | $ | 19,416 | $ | 9,772 | $ | 31,801 | $ | 5,748 | $ | 43,204 | $ | 109,941 | $ | 10,927 | $ | 39,197 | $ | 34,239 | $ | 5,208 | $ | 69,790 | $ | 159,361 | ||||||||||||||||||
Patricia L. Kampling | $ | 6,818 | $ | 20,259 | $ | 1,081 | $ | 0 | $ | 14,210 | $ | 42,368 | ||||||||||||||||||||||||||||||
Barbara J. Swan | $ | 20,866 | $ | 6,600 | $ | 8,339 | $ | 5,538 | $ | 15,956 | $ | 57,299 | $ | 10,777 | $ | 28,665 | $ | 15,242 | $ | 8,428 | $ | 34,753 | $ | 97,865 | ||||||||||||||||||
Thomas L. Aller | $ | 15,088 | $ | 6,600 | $ | 767 | $ | 0 | $ | 5,724 | $ | 28,179 | $ | 10,849 | $ | 19,754 | $ | 2,788 | $ | 0 | $ | 10,662 | $ | 44,053 | ||||||||||||||||||
John E. Kratchmer | $ | 11,918 | $ | 6,504 | $ | 671 | $ | 0 | $ | 3,517 | $ | 22,610 | ||||||||||||||||||||||||||||||
Erroll B. Davis, Jr. | $ | 10,208 | $ | 2,431 | $ | 94,549 | $ | 17,647 | $ | 52,452 | $ | 177,287 | ||||||||||||||||||||||||||||||
Dundeana K. Doyle | $ | 8,062 | $ | 22,398 | $ | 10,366 | $ | 6,305 | $ | 9,690 | $ | 56,821 | ||||||||||||||||||||||||||||||
| (a) | Consists of allowance pursuant to Alliant Energy’s Flexible Perquisite Program that |
| (i) |
| No |
| (ii) | The Flexible Perquisite Program was cancelled effective June 1, 2009 as a part of our cost savings initiatives. |
| (b) | Matching contributions to the Alliant Energy 401(k) Savings Plan and the |
| (c) | All life insurance premiums. |
| (d) | Tax reimbursements for split and reverse dollar life insurance and, in the case of Mr. |
| (e) | Dividends earned in |
|
|
|
|
The following table sets forth information regarding all incentive plan awards that Alliant Energy granted to our named executive officers in 2006.2009.
| Name | Grant Date | Committee Approval Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(4) | Grant Date Fair Value of Stock Awards(5) | Grant | Committee | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Number | Grant Date Fair | |||||||||||||||||||||||||||||||||||||||||||||
Threshold 20% | Target ($) 100% | Maximum 200% | Threshold 50% | Target (#) 100% | Maximum 200% | Threshold 20% | Target ($) 100% | Maximum ($) 200% | Threshold 50% | Target ( # ) 100% | Maximum 200% | |||||||||||||||||||||||||||||||||||||||||||||
William D. Harvey | 1/3/2006(2) | 11/29/2005 | 15,966 | 31,931 | 63,862 | $ | 899,975 | 2/26/2009 | (3) | 2/11/2009 | 26,775 | 53,549 | 107,098 | $ | 1,154,516 | |||||||||||||||||||||||||||||||||||||||||
| 1/3/2006(3) | 11/29/2005 | 21,288 | $ | 600,002 | 2/26/2009 | (4) | 2/11/2009 | 35,699 | $ | 844,995 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2006 | $ | 135,000 | $ | 675,000 | $ | 1,350,000 | 2/11/2009 | $ | 160,550 | $ | 802,750 | $ | 1,605,500 | |||||||||||||||||||||||||||||||||||||||||||
Eliot G. Protsch | 1/3/2006(2) | 11/29/2005 | 5,650 | 11,300 | 22,600 | $ | 318,491 | 2/26/2009 | (3) | 2/11/2009 | 14,186 | 28,371 | 56,742 | $ | 611,679 | |||||||||||||||||||||||||||||||||||||||||
| 1/3/2006(3) | 11/29/2005 | 8,072 | $ | 227,509 | 2/26/2009 | (4) | 2/11/2009 | 18,914 | $ | 447,694 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2006 | $ | 59,150 | $ | 295,750 | $ | 591,500 | 2/11/2009 | $ | 96,800 | $ | 484,000 | $ | 968,000 | |||||||||||||||||||||||||||||||||||||||||||
Patricia L. Kampling | 2/26/2009 | (3) | 2/11/2009 | 5,704 | 11,407 | 22,814 | $ | 245,935 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2/26/2009 | (4) | 2/11/2009 | 7,605 | $ | 180,010 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/11/2009 | $ | 39,000 | $ | 195,000 | $ | 390,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Barbara J. Swan | 1/5/2009 | (2) | 12/11/2008 | 3,419 | $ | 100,006 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 1/3/2006(2) | 11/29/2005 | 3,672 | 7,344 | 14,688 | $ | 206,991 | 2/26/2009 | (3) | 2/11/2009 | 7,130 | 14,259 | 28,518 | $ | 307,424 | ||||||||||||||||||||||||||||||||||||||||||
| 1/3/2006(3) | 11/29/2005 | 4,896 | $ | 137,994 | 2/26/2009 | (4) | 2/11/2009 | 9,506 | $ | 225,007 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2006 | $ | 34,500 | $ | 172,500 | $ | 345,000 | 2/11/2009 | $ | 54,000 | $ | 270,000 | $ | 540,000 | |||||||||||||||||||||||||||||||||||||||||||
Thomas L. Aller | 1/3/2006(2) | 11/29/2005 | 1,552 | 3,104 | 6,208 | $ | 87,486 | 2/26/2009 | (3) | 2/11/2009 | 2,374 | 4,747 | 9,494 | $ | 102,345 | |||||||||||||||||||||||||||||||||||||||||
| 1/3/2006(3) | 11/29/2005 | 2,217 | $ | 62,486 | 2/26/2009 | (4) | 2/11/2009 | 3,164 | $ | 74,891 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2006 | $ | 20,000 | $ | 100,000 | $ | 200,000 | 2/11/2009 | $ | 24,075 | $ | 120,375 | $ | 240,750 | |||||||||||||||||||||||||||||||||||||||||||
John E. Kratchmer | 1/3/2006(2) | 11/29/2005 | 1,166 | 2,331 | 4,662 | $ | 65,699 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 1/3/2006(3) | 11/29/2005 | 1,554 | $ | 43,799 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2006 | $ | 15,330 | $ | 76,650 | $ | 153,300 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Erroll B. Davis, Jr.(6) | 1/3/2006(2) | 11/29/2005 | 16,605 | 33,209 | 66,418 | $ | 935,996 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 1/3/2006(3) | 11/29/2005 | 22,139 | $ | 623,988 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2006 | $ | 104,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dundeana K. Doyle | 2/26/2009 | (3) | 2/11/2009 | 2,369 | 4,738 | 9,476 | $ | 102,151 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2/26/2009 | (4) | 2/11/2009 | 3,158 | $ | 74,750 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/11/2009 | $ | 24,030 | $ | 120,150 | $ | 240,300 | ||||||||||||||||||||||||||||||||||||||||||||||||||
(1) | The amounts shown represent the threshold, target and maximum awards that could have been earned by each of our named executive officers under the MICP for |
(2) | The amount shown represents the number of shares of time-based restricted stock granted on Jan. 5, 2009. Time-based restricted stock awards granted in 2009 accumulate dividends on the same basis as shares of Alliant Energy’s common stock. |
| (3) | The amounts shown represent the threshold, target and maximum amounts of performance shares of Alliant Energy common stock that Alliant Energy awarded in |
|
|
| Performance contingent restricted stock awards granted in |
(5) | The grant date fair value of each equity award was computed in accordance with |
|
|
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information on outstanding Alliant Energy stock option awards and unvested stock awards held by our named executive officers on Dec. 31, 2006.2009.
| Option Awards | Stock Awards | |||||||||||||||||||||
Name | Number of (#) | Number of (#) | Option ($) (1) | Option Expiration Date | Number (#) | Market Value ($) (2) | Equity (#) (2) | Equity ($) (2) (3) | ||||||||||||||
William D. Harvey | 21,798 | $ | 31.54 | 1/2/2011 | ||||||||||||||||||
| 26,642 | $ | 27.79 | 5/16/2012 | |||||||||||||||||||
| 26,642 | $ | 16.82 | 1/21/2013 | |||||||||||||||||||
| 33,959 | 16,979 | $ | 24.90 | 1/2/2014 | ||||||||||||||||||
| 15,011 | 7,505 | $ | 25.93 | 2/9/2014 | ||||||||||||||||||
| 4,319 | $ | 163,130 | (4) | |||||||||||||||||||
| 36,732 | $ | 1,387,368 | (5a) | |||||||||||||||||||
| 11,445 | $ | 432,278 | (6) | |||||||||||||||||||
| 5,041 | $ | 190,399 | (7) | |||||||||||||||||||
| 11,138 | $ | 420,682 | (8) | |||||||||||||||||||
| 15,561 | $ | 587,739 | (9) | |||||||||||||||||||
| 22,008 | $ | 831,242 | (10) | |||||||||||||||||||
| 31,931 | $ | 1,206,034 | (11) | |||||||||||||||||||
Eliot G. Protsch | 7,071 | $ | 29.88 | 6/1/2009 | ||||||||||||||||||
| 21,063 | $ | 28.59 | 1/19/2010 | |||||||||||||||||||
| 11,798 | $ | 31.54 | 1/2/2011 | |||||||||||||||||||
| 26,642 | $ | 27.79 | 5/16/2012 | |||||||||||||||||||
| 16,642 | $ | 16.82 | 1/21/2013 | |||||||||||||||||||
| 10,733 | 10,366 | $ | 24.90 | 1/2/2014 | ||||||||||||||||||
| 6,598 | 3,299 | $ | 25.93 | 2/9/2014 | ||||||||||||||||||
| 4,319 | $ | 163,130 | (4) | |||||||||||||||||||
| 18,366 | $ | 693,684 | (5b) | |||||||||||||||||||
| 6,987 | $ | 263,899 | (6) | |||||||||||||||||||
| 2,221 | $ | 83,887 | (7) | |||||||||||||||||||
| 7,293 | $ | 275,457 | (8) | |||||||||||||||||||
| 9,509 | $ | 359,155 | (9) | |||||||||||||||||||
| 8,345 | $ | 315,191 | (10) | |||||||||||||||||||
| 11,300 | $ | 426,801 | (11) | |||||||||||||||||||
Barbara J. Swan | 5,861 | $ | 31.56 | 7/1/2008 | ||||||||||||||||||
| 15,732 | $ | 29.88 | 6/1/2009 | |||||||||||||||||||
| 19,473 | $ | 28.59 | 1/19/2010 | |||||||||||||||||||
| 20,212 | $ | 31.54 | 1/2/2011 | |||||||||||||||||||
| 24,705 | $ | 27.79 | 5/16/2012 | |||||||||||||||||||
| 18,945 | 9,473 | $ | 24.90 | 1/2/2014 | ||||||||||||||||||
| 2,405 | 1,203 | $ | 25.93 | 2/9/2014 | ||||||||||||||||||
| 4,319 | $ | 163,130 | (4) | |||||||||||||||||||
| 6,385 | $ | 241,161 | (6) | |||||||||||||||||||
| 809 | $ | 30,556 | (7) | |||||||||||||||||||
| 4,773 | $ | 180,276 | (8) | |||||||||||||||||||
| 6,669 | $ | 251,888 | (9) | |||||||||||||||||||
| 5,062 | $ | 191,192 | (10) | |||||||||||||||||||
| 7,344 | $ | 277,383 | (11) | |||||||||||||||||||
Name Number of (#) Number of (#) Option ($) (1) Number (#) Market Value ($) (2) Equity (#) (2) Equity ($) (2) (3) Thomas L. Aller John E. Kratchmer Erroll B. Davis, Jr. Number (#) Market Value of Shares ($)(2) William D. Harvey Eliot G. Protsch Patricia L. Kampling Barbara J. Swan Thomas L. Aller Dundeana K. Doyle Option Awards Stock Awards
Securities
Underlying
Unexercised
Options
Exercisable
Securities
Underlying
Unexercised
Options
Unexercisable
Exercise
Price Option
Expiration
Date
of Shares
or Units of
Stock
That Have
Not
Vested
of Shares
or Units of
Stock
That Have
Not
Vested
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
Incentive
Plan Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested 10,063 $ 29.81 8/21/2008 13,255 $ 29.88 6/1/2009 14,307 $ 28.59 1/19/2010 12,229 $ 31.54 1/2/2011 17,438 $ 27.79 5/16/2012 17,438 $ 16.82 1/21/2013 12,511 6,256 $ 24.90 1/2/2014 1,925 962 $ 25.93 2/9/2014 4,417 $ 166,830 (6) 647 $ 24,437 (7) 2,785 $ 105,189 (8) 3,458 $ 130,609 (9) 2,292 $ 86,569 (10) 3,104 $ 117,238 (11) 6,007 $ 31.56 7/1/2008 6,681 $ 29.88 6/1/2009 6,664 $ 28.59 1/19/2010 7,926 $ 31.54 1/2/2011 3,307 $ 24.90 1/2/2014 215 107 $ 25.93 2/9/2014 2,600 $ 98,202 (6) 67 $ 2,531 (7) 1,515 $ 57,222 (8) 2,470 $ 93,292 (9) 1,607 $ 60,696 (10) 2,331 $ 88,042 (11) 33,012 $ 1,246,863 (6)a 3,008 $ 113,612 (7)b 23,639 $ 892,845 (8)c 33,027 $ 1,247,430 (9)d 22,887 $ 864,442 (10)e 33,209 $ 1,254,304 (11)f Option Awards Stock Awards Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#) Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) Option
Exercise
Price
($)(1) Option
Expiration
Date
of Shares
or Units of
Stock
That Have
Not
Vested
or Units of
Stock
That Have
Not
Vested Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#) Equity
Incentive
Plan Awards:
Market
or Payout
Value of
Unearned
Shares, Units
or
Other Rights
That Have
Not Vested
($)(2)(3) 21,798 $ 31.54 1/2/2011 11,258 $ 25.93 2/9/2014 16,705 $ 505,493 (4a) 26,128 $ 790,633 (5) 26,087 $ 789,393 (6) 28,765 $ 870,429 (7) 53,549 $ 1,620,393 (8) 37,287 $ 1,128,305 (9) 10,441 $ 315,945 �� (4b) 9,641 $ 291,737 (5) 9,169 $ 277,454 (6) 10,110 $ 305,929 (7) 28,371 $ 858,506 (8) 19,755 $ 597,786 (9) 1,717 $ 51,956 (5) 1,902 $ 57,555 (6) 2,097 $ 63,455 (7) 11,407 $ 345,176 (8) 7,943 $ 240,355 (9) 3,620 $ 109,541 (4c) 6,500 $ 196,690 (5) 5,788 $ 175,145 (6) 6,382 $ 193,119 (7) 14,259 $ 431,477 (8) 9,929 $ 300,452 (9) 14,307 $ 28.59 1/19/2010 12,229 $ 31.54 1/2/2011 17,438 $ 27.79 5/16/2012 17,438 $ 16.82 1/21/2013 18,767 $ 24.90 1/2/2014 2,887 $ 25.93 2/9/2014 2,318 $ 70,143 (5) 2,312 $ 69,961 (6) 2,549 $ 77,133 (7) 4,747 $ 143,644 (8) 3,305 $ 100,009 (9) 1,770 $ 53,560 (5) 2,204 $ 66,693 (6) 2,430 $ 73,532 (7) 4,738 $ 143,372 (8) 3,298 $ 99,797 (9)
(1) | The exercise price for all stock option grants is the fair market value of Alliant Energy’s common stock on the date of grant. |
(2) | The value of unvested shares is calculated by using the closing price of Alliant Energy’s common stock of |
(3) | This column reports dollar amounts that would be received for the equity awards based upon the executive’s achievement at the target performance level, plus dividends accumulated on the performance contingent restricted stock. |
| Time-based restricted stock granted on |
| Time-based restricted stock granted on July 11, 2005. The remaining shares vested completely in January 2010 in accordance with an amendment to the Restricted Stock Agreement between Mr. Protsch and Alliant Energy authorized by the Compensation and Personnel Committee of our Board of Directors in recognition of Mr. Protsch’s long-term service to Alliant Energy. |
| (4c) | Time-based restricted stock granted on Jan. 5, 2009. The shares vest |
| (5) | Performance contingent restricted stock granted on Jan. 3, 2007. Vesting occurs if the performance criterion is met in 3 or 4 years. |
|
|
(6) | Performance shares granted on Jan. 2, |
(7) |
|
| Performance contingent restricted stock granted on Jan. |
|
|
|
|
| Performance shares granted on |
Mr. Davis receives a prorated award pursuant to the terms of the performance contingent restricted stock agreement and performance share agreement provided as a part of the awards previously made:
| (9) |
Performance contingent restricted stock granted on |
OPTION EXERCISES AND STOCK VESTED
The following table shows a summary of the Alliant Energy stock options exercised by our named executive officers in 2006during 2009 and Alliant Energy stock awards vested for the named executive officers during 2006.2009.
| Option Awards | Stock Awards | |||||||||||
| Name | Number of Shares Acquired on Exercise ( # ) | Value Realized on Exercise ($)(1) | Long-Term Incentive Plan | Number of Shares Acquired on Vesting ( # ) | Value Realized on Vesting ($)(2)(3) | |||||||
William D. Harvey | 54,640 | $ | 342,591 | Performance Shares | 24,317 | $ | 930,302 | |||||
| Performance Contingent Restricted Stock | 11,221 | $ | 470,341 | |||||||||
Eliot G. Protsch | 56,506 | $ | 534,042 | Performance Shares | 13,582 | $ | 519,606 | |||||
| Performance Contingent Restricted Stock | 7,348 | $ | 307,985 | |||||||||
Barbara J. Swan | 19,520 | $ | 238,556 | Performance Shares | 10,611 | $ | 405,956 | |||||
| Performance Contingent Restricted Stock | 4,809 | $ | 201,574 | |||||||||
Thomas L. Aller | 0 | $ | 0 | Performance Shares | 7,469 | $ | 285,761 | |||||
| Performance Contingent Restricted Stock | 2,806 | $ | 117,607 | |||||||||
John E. Kratchmer | 27,581 | $ | 301,771 | Performance Shares | 3,934 | $ | 150,498 | |||||
| Performance Contingent Restricted Stock | 1,526 | $ | 63,967 | |||||||||
Erroll B. Davis, Jr. | 812,406 | $ | 7,655,025 | Performance Shares | 36,895 | $ | 1,411,529 | |||||
| Performance Contingent Restricted Stock | 12,900 | $ | 540,721 | |||||||||
| Option Awards | Stock Awards | |||||||||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Long-Term Incentive Plan | Number of Shares Acquired on Vesting (#) | Value ($)(1) | |||||||||||
William D. Harvey | 0 | $ | 0 | Time-Based Restricted Stock | 16,249 | $ | 415,812 | |||||||||
Eliot G. Protsch(2) | 0 | $ | 0 | Time-Based Restricted Stock | 6,093 | $ | 155,920 | |||||||||
(1) |
|
| Reflects an amount calculated by multiplying the |
|
|
The table below sets forth the number of years of credited service, the present value of accumulated benefits and payments during 20062009 for each of our named executive officers under the Alliant Energy Cash Balance Pension Plan, the Alliant Energy Unfunded Excess Retirement Plan and the Alliant Energy Supplemental Executive Retirement Plan, or SERP, which are each described below. The disclosed amounts are estimates only and do not necessarily reflect the actual amounts that will be paid to our named executive officers, which will only be known at the time that they become eligible for payment.
| Name | Plan Name | Number of Years Credited Service ( # ) | Present ( $ ) (1) | Payments ( $ ) | Plan Name | Number of (#) | Present ($)(1) | Payments ($) | |||||||||||||||
William D. Harvey | Cash Balance Plan | 19.2 | $ | 541,000 | $ | 0 | Cash Balance Plan | 21.0 | $ | 703,000 | $ | 0 | |||||||||||
| Excess Plan | 19.2 | $ | 1,036,000 | $ | 0 | Excess Plan | 22.4 | $ | 2,040,000 | $ | 0 | ||||||||||||
| SERP | 19.2 | $ | 1,861,000 | $ | 0 | SERP | 22.4 | $ | 7,278,000 | $ | 0 | ||||||||||||
| Total | $ | 3,438,000 | $ | 0 | Total | $ | 10,021,000 | $ | 0 | ||||||||||||||
Eliot G. Protsch | Cash Balance Plan | 26.9 | $ | 584,000 | $ | 0 | Cash Balance Plan | 28.8 | $ | 742,000 | $ | 0 | |||||||||||
| Excess Plan | 26.9 | $ | 610,000 | $ | 0 | Excess Plan | 30.2 | $ | 995,000 | $ | 0 | ||||||||||||
| SERP | 26.9 | $ | 1,711,000 | $ | 0 | SERP | 30.2 | $ | 4,474,000 | $ | 0 | ||||||||||||
| Total | $ | 2,905,000 | $ | 0 | Total | $ | 6,211,000 | $ | 0 | ||||||||||||||
Patricia L. Kampling | Cash Balance Plan | 2.9 | $ | 39,000 | $ | 0 | |||||||||||||||||
| Excess Plan | 4.3 | $ | 7,000 | $ | 0 | ||||||||||||||||||
| SERP | 4.3 | $ | 218,000 | $ | 0 | ||||||||||||||||||
| Total | $ | 264,000 | $ | 0 | |||||||||||||||||||
Barbara J. Swan | Cash Balance Plan | 17.8 | $ | 456,000 | $ | 0 | Cash Balance Plan | 19.7 | $ | 585,000 | $ | 0 | |||||||||||
| Excess Plan | 17.8 | $ | 256,000 | $ | 0 | Excess Plan | 21.1 | $ | 415,000 | $ | 0 | ||||||||||||
| SERP | 17.8 | $ | 2,167,000 | $ | 0 | SERP | 21.1 | $ | 2,781,000 | $ | 0 | ||||||||||||
| Total | $ | 2,879,000 | $ | 0 | Total | $ | 3,781,000 | $ | 0 | ||||||||||||||
Thomas L. Aller | Cash Balance Plan | 13.3 | $ | 125,000 | $ | 0 | Cash Balance Plan | 15.2 | $ | 173,000 | $ | 0 | |||||||||||
| Excess Plan | 13.3 | $ | 8,000 | $ | 0 | Excess Plan | 16.7 | $ | 29,000 | $ | 0 | ||||||||||||
| SERP | 13.3 | $ | 1,348,000 | $ | 0 | SERP | 16.7 | $ | 1,528,000 | $ | 0 | ||||||||||||
| Total | $ | 1,481,000 | $ | 0 | Total | $ | 1,730,000 | $ | 0 | ||||||||||||||
John E. Kratchmer | Cash Balance Plan | 21.7 | $ | 184,000 | $ | 0 | |||||||||||||||||
| Excess Plan | 21.7 | $ | 37,000 | $ | 0 | ||||||||||||||||||
| SERP | 21.7 | $ | 102,000 | $ | 0 | ||||||||||||||||||
| Total | $ | 323,000 | $ | 0 | |||||||||||||||||||
Erroll B. Davis, Jr. | Cash Balance Plan | 27.1 | $ | 1,033,000 | $ | 71,000 | |||||||||||||||||
| Excess Plan | 27.1 | $ | 3,007,000 | ||||||||||||||||||||
| SERP | 27.1 | $ | 5,517,000 | $ | 0 | ||||||||||||||||||
| Executive Tenure Plan | 27.1 | $ | 1,412,000 | $ | 63,000 | ||||||||||||||||||
| Total | $ | 7,962,000 | $ | 3,141,000 | |||||||||||||||||||
Dundeana K. Doyle | Cash Balance Plan | 23.7 | $ | 384,000 | $ | 0 | |||||||||||||||||
| Excess Plan | 25.1 | $ | 33,000 | $ | 0 | ||||||||||||||||||
| SERP | 25.1 | $ | 552,000 | $ | 0 | ||||||||||||||||||
| Total | $ | 969,000 | $ | 0 | |||||||||||||||||||
(1) | The |
Alliant Energy Cash Balance Pension Plan — OurSubstantially all of our salaried employees, including our named executive officers, are eligible to participate in the Alliant Energy Cash Balance Pension Plan, or Pension Plan, that Alliant Energy maintains. The Pension Plan bases a participant’s defined benefit pension on the value of a hypothetical account balance. For individuals participating in the Pension Plan as of Aug. 1, 1998, a starting account balance was created equal to the present value of the benefit accrued as of Dec. 31, 1997, under the applicable prior benefit formula. In addition, such individuals received a special one-time transition credit amount equal to a specified percentage varying with age multiplied by credited service and pay. For 1998 and thereafter,through Aug. 2, 2008, a participant receivesreceived annual credits to the account equal to 5% of base pay (including certain incentive payments, pre-tax deferrals and other items), plus. For 1998 through 2008, a participant also received an interest credit on all prior accruals equal to 4%, plus a potential share of the gain on the investment return on Pension Plan assets for the year. Alliant Energy amended the Pension Plan’s interest crediting rate for 2009 and future years. The new interest crediting rate will be equal to the annual change in the trust investment for the year.consumer price index, as of October each year, plus 3%.
The life annuity payable under the Pension Plan is determined by converting the hypothetical account balance credits into annuity form. Individuals who were participants in the Pension Plan on Aug. 1, 1998, are in no event to receive any less than what would have been provided under the prior formula that was applicable to them, had it continued if they terminate on or beforeuntil Aug. 1, 2008, and do not elect to commence benefits before the age of 55.
2, 2008.
All of our named executive officers, participate inwith the Pension Plan andexception of Ms. Kampling, are “grandfathered” under the applicable prior plan benefit formula. BecauseWith the exception of Mr. Aller, their estimated benefits under the applicable prior plan benefit formula are expected to be higher than under the Pension Plan formula, utilizing current assumptions,assumptions. Therefore, the benefits for all of our named executive officers, with the exception of Ms. Kampling and Mr. Aller, would currently be determined under the applicable prior plan benefit formula. To the extent benefits under the Pension Plan are limited by tax law, any excess will be paid under the Unfunded Excess Retirement Plan described below. Future pension planPension Plan accruals will ceaseceased as of Aug. 1,2, 2008. This “freeze” will applyapplies to both the 5% of base pay annual credits to the hypothetical account balance and to the grandfathered prior plan formulas. Thereafter,Subsequent to Aug. 2, 2008, active participants will receive enhanced benefits under ourthe Alliant Energy 401(k) plan.
Savings Plan.
WP&LWPL Plan A Prior Formula. One of the applicable prior plan formulas provided retirement income based on years of credited service and final average compensation for the 36 highest consecutive months, with a reduction for Social Security offset. Our named executive officers covered by this prior formula are Messrs. Davis, Harvey and Protsch and Ms. Swan.
For purposes of the Pension Plan, compensation means payment for services rendered, including vacation and sick pay, and is substantially equivalent to the salary amounts reported in the Summary Compensation Table. Pension Plan benefits depend upon length of Pension Plan service (up to a maximum of 30 years), age at retirement and amount of compensation (determined in accordance with the Pension Plan) and are reduced by up to 50% of Social Security benefits. The general formula is (i) 55% of final average compensation less 50% of Social Security benefits, the difference multiplied by (ii) a fraction not greater than 1, the numerator of which is the number of years of credit and the denominator of which is 30. This formula provides the basic benefit payable for the life of the participant. If the participant receives an alternative form of payment, then the monthly benefit would be reduced accordingly.
Mr.Messrs. Harvey and Protsch and Ms. Swan are eligible for early retirement because they are over age 55. For each year they would choose to retire and commence benefits prior to age 62, their benefits would be reduced by 5% per year. If benefits commence at or after age 62, there would be no reduction for early commencement prior to the normal retirement age of 65.
IES Industries Pension Plan Prior Formula. Another applicable prior plan formula applies to Mr. Kratchmer.Ms. Doyle. This formula provides retirement income based on years of service, final average compensation, and Social Security covered compensation. Technically, this formula also applies to Mr. Aller, but his prior plan formula benefit is frozen in the annual amount of $7,607 payable at age 65; therefore, the regularCash Balance Pension Plan formula is expected to apply to him.provide him with a greater benefit.
The benefit formula for Mr. KratchmerMs. Doyle for service until the Aug. 1,2, 2008 freeze date is generally the benefit heshe had accrued under an old formula in existence prior to 1988 plus (i) 1.05% of average monthly compensation for years of service not in excess of 35, plus (ii) 0.50% of average monthly compensation in excess of Social Security covered compensation for years of service not in excess of 35, plus (iii) 1.38% of average monthly compensation for years of service in excess of 35. Compensation generally is the salary amount reported in the Summary Compensation Table, with the final average compensation being calculated based on the three highest thirty-six monthscalendar years of such pay. The formula provides the basic benefit payable for the life of the participant. If the participant receives an alternative form of payment, then the monthly benefit would be reduced accordingly.
Unfunded Excess Retirement Plan — Alliant Energy maintains an Unfundedunfunded Excess Retirement Plan that provides funds for payment of retirement benefits above the limitations on payments from qualified pension plans in those cases where an employee’s retirement
retirement benefits exceed the qualified plan limits. The Unfunded Excess Retirement Plan provides an amount equal to the difference between the actual pension benefit payable under the Pension Plan and Alliant Energy’s actual contributions based on age and service to the Alliant Energy 401(k) Savings Plan and what such pension benefitbenefits and contributions would be if calculated without regard to any limitation imposed by the Code on pension benefits or covered compensation. Upon Mr. Davis’ retirement on Feb. 1, 2006, his vested benefit had a lump sum value of $3,003,018. A portion of Mr. Davis’ benefit was paid on Feb. 1, 2006, and the remaining balance was paid on Aug. 1, 2006.
Unfunded Executive Tenure Compensation Plan — Alliant Energy maintains an Unfunded Executive Tenure Compensation Plan to provide incentive for selected key executives to remain in Alliant Energy’s service by providing additional compensation that is payable only if the executive remains with Alliant Energy until retirement (or other termination if approved by the Board of Directors of Alliant Energy). Any participant in the Plan must be approved by the Alliant Energy’s Board of Directors. Mr. Davis was the only participant in the Plan as of Dec. 31, 2006. The Plan provides for monthly payments to a participant after retirement (at or after age 65, or with Alliant Energy Board approval, prior to age 65) for 120 months. The payments will be equal to 25% 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% of such amount for 120 months in the case of death before retirement or, if the participant dies after retirement, 50% of such amount for the balance of the 120 months. Annual benefits of $184,620 commenced to Mr. Davis as of Sept. 1, 2006.
Supplemental Executive Retirement Plan — Alliant Energy maintains an unfunded Supplemental Executive Retirement Plan, or SERP, to provide incentive for key executives to remain in Alliant Energy’s service by providing additional compensation that is payable only if the executive remains with usAlliant Energy until retirement, disability or death. While the SERP provides different levels of benefits depending on the executive covered, this summary reflects the terms applicable to all of our named executive officers. Participants in the SERP must be approved by the Compensation and Personnel Committee of the Board of Directors of Alliant Energy.Committee.
For Messrs. Davis, Harvey and Protsch and Ms. Swan, the SERP provides for payments of 60% of the participant’s average annual earnings (base salary and bonus) for the highest paid three consecutive years out of the last 10 years of the participant’s employment reduced by the sum of benefits payable to the officer from the officer’s defined benefit plan, Alliant Energy’s contributions based on age and service to the 401(k) Savings Plan, and the Unfunded Excess Retirement Plan. The normal retirement date under the SERP is age 62 with at least 10 years of service and early retirement is at age 55 with at least 10 years of service. Mr.Messrs. Harvey and Protsch and Ms. Swan are currently eligible to elect early retirement under such provisions. If a participant retires prior to age 62, the 60% payment under the SERP is reduced by 3% per year for each year the participant’s retirement date precedes his/her normal retirement date. The actuarial reduction factor will be waived for participants who have attained age 55 and have a minimum of 10 years of service in a senior executive position with Alliant Energy on or after April 21, 1998. Payment of benefits under the SERP commences six months after the participant’s retirement. At the timely election of the participant, benefits under the SERP will be made in a lump sum, in installments over a period of up to 10five years, or for the lifetime of the participant.
For Ms. Kampling and Mr. Aller, the SERP provides for payments of 50% of the participant’s average annual earnings (base salary and bonus) for the highest paid three consecutive years out of the last 10 years of the participant’s employment reduced by the sum of benefits payable to the officer from the officer’s defined benefit plan, Alliant Energy’s contributions based on age and service to the 401(k) Savings Plan, and the Unfundedunfunded Excess Retirement Plan. The normal retirement date under the SERP is age 62 with at least 10 years of service with Alliant Energy and early retirement is at age 55 with at least 10 years of service and five or more years of continuous SERP employment, which age and service requirements Mr. Aller has already satisfied. If a participant retires prior to age 62, the 50% payment under the SERP is reduced by approximately 5% per year for each year the participant’s retirement date precedes his/her normal retirement date. Payment of benefits under the SERP commences six months after the participant’s retirement. At the timely election of the participant, benefits under the SERP will be made in a lump sum, in annual installments over a period of up to 10five years, or in monthly installments for 18 years.
Participants made their elections in December 2008.
For Mr. Kratchmer,Ms. Doyle, the SERP provides for payments of 50%60% of the participant’s average annual earnings (base salary and bonus) for the highest paid three consecutive years out of the last 10 years of the participant’s employment reduced by the sum of benefits payable to the officer from the officer’s defined benefit plan, Alliant Energy’s contributions based on age and service to the 401(k) Savings Plan, and the Unfunded Excess Retirement Plan. The normal retirement date under the SERP is age 62 with at least 10 years of service and early retirement is at age 55 with at least 10 years of service and five or more years of continuous SERP employment.service. If a participant retires prior to age 62, the 50%60% payment under the SERP is reduced by 5%3% per year for each year the participant’s retirement date precedes his/her normal retirement date. Payment of benefits under the SERP commences six months after the participant’s retirement. At the timely election of the participant, benefits under the SERP will be made in a lump sum, in installments over a period of up to 10five years, or in monthly installments for 18 years.
Participants may change their form of payment once, provided that the new election is made at least 12 months prior to their retirement. If such an election is made, benefits under the SERP will not be paid for five years after they otherwise would have been.
For Messrs. Harvey and Protsch and Ms. Swan, if the lifetime benefit is selected, and for Mr. Aller and Mr. Kratchmer,Mses. Kampling and Doyle, if the monthly benefit is selected, and in either case the participant dies prior to receiving 12 years of payments, payments continue
to any surviving spouse or dependent children, of a deceased participant who dies while still employed by Alliant Energy, payable for the remainder of the 12 year period. In each case, if the five annual installment benefit is selected and the participant dies prior to receiving five annual payments, payments will continue to any surviving spouse or dependent children, payable for the remainder of the five year period. If the participant dies while still employed by Alliant Energy, the designated beneficiary shall receive a lump sum equal to the discounted value of retirement benefits for 12 years. For Messrs. Harvey and Protsch and Ms.Mses. Swan and Doyle, a post-retirement death benefit of one times the participant’s final average earnings at the time of retirement will be paid to the designated beneficiary.beneficiary in addition to the continuation of benefit payments as described above.
Upon Mr. Davis’ retirement on Feb. 1, 2006, his SERP benefit had a lump sum value of $5,517,280 that was paid to him on Jan. 1, 2007.
NONQUALIFIED DEFERRED COMPENSATION
The table below sets forth certain information as of Dec. 31, 2009 for each of our named executive officers with respect to the Alliant Energy Key Employee Deferred Compensation Plan, which is described below.
| Name | Executive
( $ ) | Registrant
( $ )(4) | Aggregate
( $ )(5) | Aggregate ( $ ) | Executive ($)(1) | Registrant ($)(2) | Aggregate ($)(3) | Aggregate ($) | Aggregate ($) | |||||||||||||||||||||||
William D. Harvey | $ | 7,442 | (1) | $ | 4,621 | $ | 518,530 | $ | 3,383,682 | |||||||||||||||||||||||
William D.Harvey | $ | 320,775 | $ | 23,773 | $ | 246,805 | $ | 0 | $ | 4,383,697 | ||||||||||||||||||||||
Eliot G. Protsch | $ | 4,544 | (1) | $ | 3,172 | $ | 500,058 | $ | 3,271,097 | $ | 0 | $ | 2,471 | $ | 206,120 | $ | 0 | $ | 3,366,314 | |||||||||||||
Patricia L. Kampling | $ | 8,735 | $ | 0 | $ | 1,745 | $ | 0 | $ | 10,480 | ||||||||||||||||||||||
Barbara J. Swan | $ | 36,500 | (2) | $ | 0 | $ | 255,091 | $ | 1,260,050 | $ | 0 | $ | 0 | $ | 108,977 | $ | 0 | $ | 973,087 | |||||||||||||
Thomas L. Aller | $ | 0 | $ | 0 | $ | 80,046 | $ | 407,975 | $ | 0 | $ | 0 | $ | 35,480 | $ | 0 | $ | 305,448 | ||||||||||||||
John E. Kratchmer | $ | 58,363 | (3) | $ | 3,474 | $ | 48,416 | $ | 397,968 | |||||||||||||||||||||||
Erroll B. Davis, Jr. | $ | 0 | $ | 0 | $ | 849,859 | $ | 6,677,149 | ||||||||||||||||||||||||
Dundeana K. Doyle | $ | 0 | $ | 0 | $ | 36,939 | $ | 0 | $ | 408,670 | ||||||||||||||||||||||
(1) | The amounts reported are also reported under the “Salary” |
(2) |
|
|
|
| The amounts reported in this column are also reported under the “All Other Compensation” heading in the Summary Compensation Table. |
| The following |
Alliant Energy maintains the Alliant Energy Deferred Compensation Plan and 9.0% in the case of a frozen benefit in the IP&L Deferred Compensation Plan in which only Mr. Kratchmer is a participant) exceeded 120% of the applicable federal long-term interest rate, with compounding, at the time the interest rate was set (120% of this rate was 5.7%).
Alliant Energy maintains a Key Employee Deferred Compensation Plan, or KEDCP,AEDCP, under which participants, including our named executive officers, may defer up to 100% of base salary and annual incentive compensation. Participants who have made the maximum allowed contribution to the Alliant Energy’sEnergy 401(k) planSavings Plan may receive an additional credit to the KEDCP.AEDCP. The credit will bemade in January 2009 was equal to 50% of (a), minus (b), where:
(a) equals the lesser of (a)(i) 8% of base salary for the Plan Year (except that for the credit to be made in early 2009 based on 2008 compensation, such amount contributed to Alliant Energy’s 401(k) plan plusshall be the amount deferred under the KEDCP or (b)sum of 6% of base salary reducedfor the period Jan. 1 through July 31, 2008 plus 8% of base salary for Aug. 1 through Dec. 31, 2008), or (ii) the sum of the amounts (if any) contributed by the participant to the Alliant Energy 401(k) Savings Plan during the applicable year that were eligible for matching contributions under the Alliant Energy 401(k) Savings Plan, plus the amounts deferred by the participant during the applicable year under the AEDCP; and
(b) equals the amount of any matching contributions inunder the Alliant Energy’sEnergy 401(k) plan. Savings Plan on behalf of the participant for the applicable year.
The participant may elect to have his or her deferrals credited to an Interest Account, Equity Account or an Alliant Energy Stock Account. Deferrals and matching contributions to the Interest Account receive an annual return based on the A-Utility10-year Treasury Bond Rate with a minimum return no less thanplus 1.50% as established by the prime interest rate published inThe Wall Street Journal, provided that the return
may not be greater than 12% or less than 6%.Federal Reserve. Deferrals and matching contributions credited to the Equity Account are treated as invested in an S&P 500 index fund. Deferrals and matching contributions credited to Alliant EnergyEnergy’s Stock Account are treated as though invested in Alliant EnergyEnergy’s common stock and will beare credited with dividend equivalents, which will beare treated as if reinvested. The shares of Alliant Energy common stock identified as obligations under the KEDCPAEDCP are held in a rabbi trust. Payments from the KEDCPAEDCP due to death or retirement may be made in a lump sum or in annual installments for up to 10 years at the election of the participant. Payments from the AEDCP for any reason other than death or retirement are made in a lump sum. Participants are selected by theour chief executive officer of Alliant Energy.officer. Messrs. Harvey, Protsch and Aller, and KratchmerMses. Kampling, Swan and Ms. SwanDoyle are participants in the KEDCP. Prior to his retirement, Mr. Davis wasAEDCP.
Alliant Energy maintains a participantfrozen legacy deferred compensation plan, the IES Deferred Compensation Plan, in which Ms. Doyle maintains a frozen account. An interest credit is provided for the balance in the KEDCPaccount at a rate of 11% for the balance in the account prior to July 1, 1993 and he will receive distributions from9% on the KEDCP in accordance with his prior elections.remainder of the account. This plan was frozen on April 21, 1998 and no amounts have been deferred to the account since then.
POTENTIAL PAYMENTS UPON TERMINATION OR
OR CHANGE IN CONTROL
The following tables describe potential payments and benefits under ourAlliant Energy’s compensation and benefit plans and arrangements to which our named executive officers would be entitled upon termination of employment or change in control of Alliant Energy. The estimated amount of compensation payable to each of our named executive officers (other than Mr. Davis) in each situation is listed in the tables below assuming that the termination and/or change in control of Alliant Energy occurred at Dec. 29, 200631, 2009 and that Alliant EnergyEnergy’s common stock is valued at $37.77,$30.26, which was the closing market price for Alliant EnergyEnergy’s common stock on Dec. 29, 2006.31, 2009. The actual amount of payments and benefits can only be determined at the time of such a termination or change in control and therefore the actual amounts will vary from the estimated amounts in the tables below. Descriptions of the circumstances that would trigger payments or benefits to our named executive officers, how such payments and benefits are determined under the circumstances, material conditions and obligations applicable to the receipt of payments or benefits and other material factors regarding such agreements and plans, as well as other material assumptions that we have made in calculating the estimated compensation, follow these tables.
| William D. Harvey | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination without Cause or for Good Reason | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination Without Cause or for Good Reason | Change In Control Without Termination | ||||||||||||||||||||||||
Triggered Payouts | |||||||||||||||||||||||||||||||||||
Cash Termination Payment | $ | — | $ | — | $ | 750,000 | $ | — | $ | 4,275,000 | $ | — | $ | — | $ | 845,000 | $ | — | $ | 4,943,250 | $ | — | |||||||||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 6,828 | $ | — | $ | 163,487 | $ | — | $ | — | $ | 5,627 | $ | — | $ | 272,844 | $ | — | |||||||||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | 1,132,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Unvested Stock Options | $ | 307,379 | $ | 307,379 | $ | 307,379 | $ | 307,379 | $ | 307,379 | * | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Unvested Restricted Stock | $ | 1,550,498 | $ | 1,550,498 | $ | 1,550,498 | $ | 1,550,498 | $ | 1,550,498 | * | $ | 505,493 | $ | 505,493 | $ | 505,493 | $ | 505,493 | $ | 505,493 | $ | 505,493 | ||||||||||||
Unearned Performance Contingent Restricted Stock | $ | 836,294 | $ | 836,294 | $ | 836,294 | $ | 836,294 | $ | 836,294 | * | $ | 1,747,031 | $ | 1,747,031 | $ | 1,747,031 | $ | 1,747,031 | $ | 1,747,031 | $ | 1,747,031 | ||||||||||||
Unearned Performance Shares | $ | 1,416,513 | $ | 1,416,513 | $ | 1,416,513 | $ | 1,416,513 | $ | 1,416,513 | * | $ | 1,066,393 | $ | 1,066,393 | $ | 1,066,393 | $ | 1,066,393 | $ | 1,066,393 | $ | 1,066,393 | ||||||||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 75,000 | $ | — | $ | — | $ | 10,000 | $ | — | $ | 84,500 | $ | — | |||||||||||||
Tax Preparation Assistance | $ | — | $ | — | $ | — | $ | — | $ | 15,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Legal and Accounting Advisor Services | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | |||||||||||||
Excise Tax Gross Up | n/a | n/a | n/a | n/a | $ | 3,852,378 | * | n/a | n/a | n/a | n/a | $ | 3,263,654 | $ | — | ||||||||||||||||||||
Life Insurance Proceeds | $ | 2,040,012 | $ | — | $ | — | $ | — | $ | — | $ | 2,757,905 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Total Pre-tax Benefit | $ | 6,150,696 | $ | 4,110,684 | $ | 4,877,512 | $ | 4,110,684 | $ | 13,633,549 | $ | 6,076,822 | $ | 3,318,917 | $ | 4,179,544 | $ | 3,318,917 | $ | 11,893,165 | $ | 3,318,917 | |||||||||||||
Triggered Payouts Cash Termination Payment Life, Medical, Dental Insurance Continuation Lump Sum SERP Unvested Stock Options Unvested Restricted Stock Unearned Performance Contingent Restricted Stock Unearned Performance Shares Outplacement Services Tax Preparation Assistance Legal and Accounting Advisor Services Excise Tax Gross Up Life Insurance Proceeds Total Pre-tax BenefitEliot G. Protsch Death Disability Involuntary
Termination
Without
Cause Retirement Change In
Control and
Termination
Without
Cause or for
Good
Reason Change In
Control
Without
Termination $ — $ — $ 605,000 $ — $ 3,267,000 $ — $ — $ — $ 8,669 $ — $ 154,733 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 315,945 $ 315,945 $ 315,945 $ 315,945 $ 315,945 $ 315,945 $ 694,951 $ 694,951 $ 694,951 $ 694,951 $ 694,951 $ 694,951 $ 471,138 $ 471,138 $ 471,138 $ 471,138 $ 471,138 $ 471,138 $ — $ — $ 10,000 $ — $ 60,500 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 10,000 $ — n/a n/a n/a n/a $ — $ — $ 2,104,720 $ — $ — $ — $ — $ — $ 3,586,754 $ 1,482,034 $ 2,105,703 $ 1,482,034 $ 4,974,267 $ 1,482,034
* Awards of stock options, restricted stock, performance contingent restricted stock and performance shares vest upon a change in control of Alliant Energy regardless of whether the executive officer is terminated. Accordingly, upon a change in control not followed by a termination, only the asterisked items will be taken into account to determine whether an excise tax is triggered and, as a result, the excise tax gross up amounts may be reduced if the excise tax is triggered upon a change in control only.
| Patricia L. Kampling | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination Without Cause or for Good Reason | Change In Control Without Termination | |||||||||||||||||
Triggered Payouts | |||||||||||||||||||||||
Cash Termination Payment | $ | — | $ | — | $ | 300,000 | $ | — | $ | 990,000 | $ | — | |||||||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 8,669 | $ | — | $ | 36,839 | $ | — | |||||||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | 643,000 | $ | — | |||||||||||
Unvested Stock Options | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Unvested Restricted Stock | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Unearned Performance Contingent Restricted Stock | $ | 174,388 | $ | 174,388 | $ | 174,388 | $ | 174,388 | $ | 174,388 | $ | 174,388 | |||||||||||
Unearned Performance Shares | $ | 153,428 | $ | 153,428 | $ | 153,428 | $ | 153,428 | $ | 153,428 | $ | 153,428 | |||||||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 30,000 | $ | — | |||||||||||
Tax Preparation Assistance | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Legal and Accounting Advisor Services | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | |||||||||||
Excise Tax Cut Back | n/a | n/a | n/a | n/a | $ | (755,920 | ) | $ | — | ||||||||||||||
Life Insurance Proceeds | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Total Pre-tax Benefit | $ | 327,816 | $ | 327,816 | $ | 646,485 | $ | 327,816 | $ | 1,281,735 | $ | 327,816 | |||||||||||
| Eliot G. Protsch | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination without Cause or for Good Reason | ||||||||||||||||||||||||||||||||||
Triggered Payouts | |||||||||||||||||||||||||||||||||||||||
| Barbara J. Swan | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination Without Cause or for Good Reason | Change In Control Without Termination | |||||||||||||||||||||||||||||||||
Triggered Payouts | |||||||||||||||||||||||||||||||||||||||
Cash Termination Payment | $ | — | $ | — | $ | 455,000 | $ | — | $ | 2,252,250 | $ | — | $ | — | $ | 450,000 | $ | — | $ | 2,160,000 | $ | — | |||||||||||||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 8,925 | $ | — | $ | 148,951 | $ | — | $ | — | $ | 5,627 | $ | — | $ | 79,491 | $ | — | |||||||||||||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | 3,844,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
Unvested Stock Options | $ | 172,471 | $ | 172,471 | $ | 172,471 | $ | 172,471 | $ | 172,471 | * | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Unvested Restricted Stock | $ | 856,814 | $ | 856,814 | $ | 856,814 | $ | 856,814 | $ | 856,814 | * | $ | 109,541 | $ | 109,541 | $ | 109,541 | $ | 109,541 | $ | 109,541 | $ | 109,541 | ||||||||||||||||
Unearned Performance Contingent Restricted Stock | $ | 433,059 | $ | 433,059 | $ | 433,059 | $ | 433,059 | $ | 433,059 | * | $ | 425,607 | $ | 425,607 | $ | 425,607 | $ | 425,607 | $ | 425,607 | $ | 425,607 | ||||||||||||||||
Unearned Performance Shares | $ | 729,490 | $ | 729,490 | $ | 729,490 | $ | 729,490 | $ | 729,490 | * | $ | 260,589 | $ | 260,589 | $ | 260,589 | $ | 260,589 | $ | 260,589 | $ | 260,589 | ||||||||||||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 45,500 | $ | — | $ | — | $ | 10,000 | $ | — | $ | 45,000 | $ | — | |||||||||||||||||
Tax Preparation Assistance | $ | — | $ | — | $ | — | $ | — | $ | 15,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
Legal and Accounting Advisor Services | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | |||||||||||||||||
Excise Tax Gross Up | n/a | n/a | n/a | n/a | $ | 2,620,381 | * | n/a | n/a | n/a | n/a | $ | — | $ | — | ||||||||||||||||||||||||
Life Insurance Proceeds | $ | 1,943,714 | $ | — | $ | — | $ | — | $ | — | $ | 536,306 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
Total Pre-tax Benefit | $ | 4,135,548 | $ | 2,191,834 | $ | 2,665,759 | $ | 2,191,834 | $ | 11,127,916 | $ | 1,332,043 | $ | 795,737 | $ | 1,261,364 | $ | 795,737 | $ | 3,090,228 | $ | 795,737 | |||||||||||||||||
Triggered Payouts Cash Termination Payment Life, Medical, Dental Insurance Continuation Lump Sum SERP Unvested Stock Options Unvested Restricted Stock Unearned Performance Contingent Restricted Stock Unearned Performance Shares Outplacement Services Tax Preparation Assistance Legal and Accounting Advisor Services Excise Tax Cut Back Life Insurance Proceeds Total Pre-tax Benefit* Awards of stock options, restricted stock, performance contingent restricted stock and performance shares vest upon a change in control of Alliant Energy regardless of whether the executive officer is terminated. Accordingly, upon a change in control not followed by a termination, only the asterisked items will be taken into account to determine whether an excise tax is triggered and, as a result, the excise tax gross up amounts may be reduced if the excise tax is triggered upon a change in control only.Thomas L. Aller Death Disability Involuntary
Termination
Without
Cause Retirement Change In
Control and
Termination
Without
Cause or for
Good
Reason Change In
Control
Without
Termination $ — $ — $ 267,500 $ — $ 775,750 $ — $ — $ — $ 5,627 $ — $ 28,026 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 154,901 $ 154,901 $ 154,901 $ 154,901 $ 154,901 $ 154,901 $ 94,522 $ 94,522 $ 94,522 $ 94,522 $ 94,522 $ 94,522 $ — $ — $ 10,000 $ — $ 26,750 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 10,000 $ — n/a n/a n/a n/a $ — $ — $ — $ — $ — $ — $ — $ — $ 249,423 $ 249,423 $ 532,550 $ 249,423 $ 1,089,949 $ 249,423
| Barbara J. Swan | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination without Cause or for Good Reason | ||||||||||||
Triggered Payouts | |||||||||||||||||
Cash Termination Payment | $ | — | $ | — | $ | 345,000 | $ | — | $ | 1,552,500 | |||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 8,925 | $ | — | $ | 78,564 | |||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | 821,000 | |||||||
Unvested Stock Options | $ | 136,161 | $ | 136,161 | $ | 136,161 | $ | 136,161 | $ | 136,161 | * | ||||||
Unvested Restricted Stock | $ | 163,130 | $ | 163,130 | $ | 163,130 | $ | 163,130 | $ | 163,130 | * | ||||||
Unearned Performance Contingent Restricted Stock | $ | 275,877 | $ | 275,877 | $ | 275,877 | $ | 275,877 | $ | 275,877 | * | ||||||
Unearned Performance Shares | $ | 532,104 | $ | 532,104 | $ | 532,104 | $ | 532,104 | $ | 532,104 | * | ||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 34,500 | |||||||
Tax Preparation Assistance | $ | — | $ | — | $ | — | $ | — | $ | 15,000 | |||||||
Legal and Accounting Advisor Services | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | |||||||
Excise Tax Gross Up | n/a | n/a | n/a | n/a | $ | 1,356,559 | * | ||||||||||
Life Insurance Proceeds | $ | 372,901 | $ | — | $ | — | $ | — | $ | — | |||||||
Total Pre-tax Benefit | $ | 1,480,173 | $ | 1,107,272 | $ | 1,471,197 | $ | 1,107,272 | $ | 4,975,395 | |||||||
* Awards of stock options, restricted stock, performance contingent restricted stock and performance shares vest upon a change in control of Alliant Energy regardless of whether the executive officer is terminated. Accordingly, upon a change in control not followed by a termination, only the asterisked items will be taken into account to determine whether an excise tax is triggered and, as a result, the excise tax gross up amounts may be reduced if the excise tax is triggered upon a change in control only.
Triggered Payouts Cash Termination Payment Life, Medical, Dental Insurance Continuation Lump Sum SERP Unvested Stock Options Unvested Restricted Stock Unearned Performance Contingent Restricted Stock Unearned Performance Shares Outplacement Services Tax Preparation Assistance Legal and Accounting Advisor Services Excise Tax Gross Up Life Insurance Proceeds Total Pre-tax BenefitThomas L. Aller Death Disability Involuntary
Termination
Without
Cause Retirement Change In
Control and
Termination
without
Cause or for
Good
Reason $ — $ — $ 250,000 $ — $ 700,000 $ — $ — $ 6,828 $ — $ 28,847 $ — $ — $ — $ — $ — $ 91,905 $ 91,905 $ 91,905 $ 91,905 $ 91,905 * $ — $ — $ — $ — $ — * $ 148,472 $ 148,472 $ 148,472 $ 148,472 $ 148,472 * $ 317,419 $ 317,419 $ 317,419 $ 317,419 $ 317,419 * $ — $ — $ 10,000 $ — $ 25,000 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 10,000 n/a n/a n/a n/a n/a $ — $ — $ — $ — $ — $ 557,796 $ 557,796 $ 824,624 $ 557,796 $ 1,321,643
* Awards of stock options, restricted stock, performance contingent restricted stock and performance shares vest upon a change in control of Alliant Energy regardless of whether the executive officer is terminated.
| John E. Kratchmer | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination without Cause or for Good Reason | ||||||||||||
Triggered Payouts | |||||||||||||||||
Cash Termination Payment | $ | — | $ | — | $ | 219,000 | $ | — | $ | 591,300 | |||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 8,925 | $ | — | $ | 37,040 | |||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | 485,000 | |||||||
Unvested Stock Options | $ | 43,828 | $ | 43,828 | $ | 43,828 | $ | 43,828 | $ | 43,828 | * | ||||||
Unvested Restricted Stock | $ | — | $ | — | $ | — | $ | — | $ | — | * | ||||||
Unearned Performance Contingent Restricted Stock | $ | 87,570 | $ | 87,570 | $ | 87,570 | $ | 87,570 | $ | 87,570 | * | ||||||
Unearned Performance Shares | $ | 192,274 | $ | 192,274 | $ | 192,274 | $ | 192,274 | $ | 192,274 | * | ||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 21,900 | |||||||
Tax Preparation Assistance | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
Legal and Accounting Advisor Services | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | |||||||
Excise Tax Gross Up | n/a | n/a | n/a | n/a | n/a | ||||||||||||
Life Insurance Proceeds | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
Total Pre-tax Benefit | $ | 323,672 | $ | 323,672 | $ | 561,596 | $ | 323,672 | $ | 1,468,912 | |||||||
* Awards of stock options, restricted stock, performance contingent restricted stock and performance shares vest upon a change in control of Alliant Energy regardless of whether the executive officer is terminated.
| Dundeana K. Doyle | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination Without Cause or for Good Reason | Change In Control Without Termination | |||||||||||||||||
Triggered Payouts | |||||||||||||||||||||||
Cash Termination Payment | $ | — | $ | — | $ | 267,000 | $ | — | $ | 774,300 | $ | — | |||||||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 8,669 | $ | — | $ | 55,409 | $ | — | |||||||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | 895,000 | $ | — | |||||||||||
Unvested Stock Options | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Unvested Restricted Stock | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Unearned Performance Contingent Restricted Stock | $ | 135,837 | $ | 135,837 | $ | 135,837 | $ | 135,837 | $ | 135,837 | $ | 135,837 | |||||||||||
Unearned Performance Shares | $ | 92,253 | $ | 92,253 | $ | 92,253 | $ | 92,253 | $ | 92,253 | $ | 92,253 | |||||||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 26,700 | $ | — | |||||||||||
Tax Preparation Assistance | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Legal and Accounting Advisor Services | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | |||||||||||
Excise Tax Cut Back | n/a | n/a | n/a | n/a | $ | (186,030 | ) | $ | — | ||||||||||||||
Life Insurance Proceeds | $ | 365,331 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Total Pre-tax Benefit | $ | 593,421 | $ | 228,090 | $ | 513,759 | $ | 228,090 | $ | 1,803,469 | $ | 228,090 | |||||||||||
Change in Control Agreements
Alliant Energy currently has in effect Key Executive Employment and Severance Agreements, or KEESAs, with our executive officers, including our named executive officers, other than Mr. Davis, and certain of our key employees. The KEESAs provide that each executive officer who is a party thereto is entitled to benefits if, within a period of up to three
years (in the case of Mr. Harvey, Mr. Protsch and Ms. Swan) or two years (in the case of Mr. Aller or Mr. Kratchmer)and Mses. Kampling and Doyle) after a change in control of Alliant Energy (as defined below), the officer’s employment is ended through (a) termination by Alliant Energy, other than by reason of death or disability or for cause (as defined below) or (b) termination by the officer for good reason (as defined below).
The KEESAs provide the following benefits, each of which are reflected in the tables above assuming the maximum potential amounts payable pursuant to the terms of the KEESAs:
reimbursement for up to 10% of the officer’s annual base salary for outplacement services;
continuation of life, hospital, medical and dental insurance coverage for up to three years (in the case of Mr. Harvey, Mr. Protsch and Ms. Swan) or two years (in the case of Mr. Aller or Mr. Kratchmer)Mses. Kampling and Doyle);
full vesting of the officer’s accrued benefit under any supplemental executive retirement plan, or SERP, and in any defined contribution retirement plan and deemed satisfaction of any minimum years of service requirement under the SERP (the amounts shown in the tables above assume a lump sum form of payment under the SERP using the 20062009 lump sum interest rate of 4.29%3.26% and a single life annuity or lump sum payment under Alliant Energy’s qualified Cash Balance Pension Plan and nonqualified Unfunded Excess Plan), provided that the SERP benefit will not be received until the executive officer reaches age 55;
full vesting of any time-based restricted stock and stock options;
payment at target of all performance plan awards pursuant to any long-term incentive plan on a pro rata basis unless the award cycle has been in effect less than six months;
in the case of Mr. Harvey, Mr. Protsch and Ms. Swan, reimbursement for up to $15,000 in tax preparation assistance fees;
a cash termination payment of up to three times (in the case of Mr. Harvey, Mr. Protsch and Ms. Swan) or two times (in the case of Mr. Aller or Mr. Kratchmer)and Mses. Kampling and Doyle) the sum of the officer’s annual base salary and the greater of the officer’s target bonus for the year in which the termination date occurs or the officer’s bonus in the year prior to the change in control; and
to the change in control which is immediately payable up to $460,000 (the limit provided in Section 409A of the Internal Revenue Code), with any amounts over $460,000 payable in six months after the termination date; and |
reimbursement for up to $10,000 in legal or accounting advisor fees.
In addition, the KEESAs for Mr. Harvey, Mr. Protsch and Ms. Swan provide that if the aggregate payments under the KEESA or otherwise are an “excess parachute payment” for purposes of the Internal Revenue Code, then Alliant Energy will pay the officer the amount necessary to offset the 20% excise tax imposed by the Internal Revenue Code and any additional taxes on this payment. In determining the amount of the excise tax gross-up included in the tables above, we made the following material assumptions: a Section 280G excise tax rate of 20%, a 35% federal income tax rate, a 1.45% Medicare tax rate, a 6.75%7.75% state income tax rate for Mr. Harvey and Ms. Swan and a 8.98% state income tax rate for Mr. Protsch; the calculation also assumes that Alliant Energy would pay 18 months of COBRA coverage, the performance period for outstanding performance contingent restricted stock would be two years and that Alliant Energy can prove that the awards of performance contingent restricted stock and performance shares in 20062009 were not made in connection with or contemplation of a change of control of Alliant Energy. Furthermore, it was assumed that no value will be attributed to reasonable compensation under any non-competition agreement. At the time of any change in control, a value may be so attributed, which would result in a reduction of amounts subject to the excise tax. The KEESAs for Mr. Aller and Mr. KratchmerMses. Kampling and Doyle provide that if the aggregate payments under the KEESA or otherwise are an “excess parachute payment,” then the payments will be reduced so that the officer will be entitled to receive $1 less than the maximum amount which the officer could receive without becoming subject to the 20% excise tax or which Alliant Energy may pay without loss of deduction under the Internal Revenue Code. For Mr. Aller and Mr. Kratchmer,Mses. Kampling and Doyle, the potential payment and benefit amounts shown in the tables above do not reflect this reductioncutback provision from their KEESAs and, accordingly, the potential payment and benefit amounts for Mr. Aller and Mr. Kratchmer may be reduced should an excise tax be triggered upon a change in control.
KEESAs.
In consideration of the KEESA benefits, the executive officer agrees not to compete with Alliant Energy and us for a period of one year after the executive officer leaves Alliant Energyemployment and to keep in confidence any proprietary information or confidential information for a period of five years after the executive officer leaves Alliant Energy. Both of these conditions can be waived in writing by Alliant Energy’s Board of Directors.
Under the KEESAs, a “change in control” is deemed to have occurred if:
any person is or becomes the beneficial owner of securities representing 20% or more of Alliant Energy’s outstanding shares of common stock or combined voting power;
there is a change in the composition of Alliant Energy’s Board of Directors that is not approved by at least two-thirds of the existing directors;
Alliant Energy’s shareowners approve a merger, consolidation or share exchange with any other corporation (or the issuance of voting securities in connection with a merger, consolidation or share exchange) in which Alliant Energy’s shareholdersshareowners control less than 50% of combined voting power after the merger, consolidation or share exchange;
Alliant Energy’s shareowners approve of a plan of complete liquidation or dissolution or an agreement for the sale or disposition by Alliant Energy of all or substantially all of its assets.
Under the KEESAs, the term “cause” means:
engaging in intentional conduct that causes Alliant Energy demonstrable and serious financial injury;
conviction of a felony that substantially impairs the officer’s ability to perform duties or responsibilities; or
continuing willful and unreasonable refusal by an officer to perform duties or responsibilities.
Under the KEESAs, the term “good reason” means:
a material breach of the agreement by Alliant Energy;
any reductiona material diminution in anthe officer’s base salary, percentage of base salary available as incentive compensation or bonus opportunity or benefits;compensation;
ana material diminution in the officer’s removal as,authority, duties, or any failure to reelect or reappoint him to serve as, any ofresponsibilities, including a material diminution in the positions held with Alliant Energy on the date of the change in control of Alliant Energy or any other positions tobudget over which he or she is thereafter elected, appointedretains authority; or assigned, except
a material diminution in the event that such removal or failure to reelect or reappoint relates to Alliant Energy’s termination of an officer’s employment for cause or by reason of disability;
a good faith determination by an officer that there has been a significant adverse change in his or her working conditions or status relative to the most favorable working conditions or status in effect during the 180-day period prior to the change in control, or, to the extent more favorable to him, those in effect at any time while employed during the employment period, including but not limited to a significant change in the nature or scope of his authority, powers, functions, duties, or responsibilities of the supervisor to whom the officer is required to report, including a requirement that he or she report to a significant reduction incorporate officer or employee instead of reporting directly to the levelboard of support services, staff, secretarial and other assistance, office space and accoutrements, but in each case excluding for this purpose an isolated, insubstantial and inadvertent event not occurring in bad faith that we remedy promptly after receipt of notice thereof; ordirectors.
Alliant Energy’s failure to cause a successor to assume an officer’s agreement.
Stock Option Agreements
The agreements under which Alliant Energy has awarded stock options to our executive officers provide that:
if the officer’s employment is terminated by reason of death or disability, then the options will immediately vest and remain exercisable for twelve months after such termination;
if the officer’s employment is terminated by reason of retirement after satisfying the minimum requirements for early retirement under the Alliant Energy Cash Balance Pension Plan, then the options will immediately vest and may be exercised for three years after such termination; and
upon a change in control of Alliant Energy, which is defined in the same manner as under the KEESAs except that the trigger for a merger consolidation or share exchange will only be triggered upon consummation of such a transaction, the options will immediately vest and become exercisable.
The tables above include the amounts by which the closing price of Alliant Energy’s common stock on Dec. 29, 200631, 2009 exceeds the exercise price for unvested options held by our named executive officers.
Restricted Stock Agreements
The agreements under which Alliant Energy has awarded restricted stock to our executive officers provide that the forfeiture restrictions on such restricted stock will immediately lapse upon:
a change in control of Alliant Energy, which is defined in the same manner as under the KEESAs;
the termination of the officer’s employment by reason of death or disability; and
the termination of the officer’s employment without cause, which is defined in the same manner as under the KEESAs.
The tables above include the amounts attributable to unvested restricted stock held by our named executive officers valued at the closing price of ourAlliant Energy’s common stock on Dec. 29, 2006.
31, 2009.
Performance Contingent Restricted Stock Agreements and Performance Share Agreements
The agreements under which Alliant Energy has awarded performance contingent restricted stock and performance shares to our executive officers provide that:
if the performance contingency under the award is satisfied and if the officer’s employment is terminated by reason of death, disability, involuntary termination without cause (which means the admission by or conviction of the officer of an act of fraud, embezzlement, theft, or other criminal act constituting a felony involving moral turpitude) or retirement (which means after the officer has reached age 55 with 10 years of service), then the officer will be entitled to a prorated number of shares based on the ratio of the number of months the officer was employed during the performance period to the total number of months in the performance period; and
if a change in control of Alliant Energy, which is defined in the same manner as under the KEESAs except that the trigger for a merger consolidation or share exchange will only be triggered upon consummation of such a transaction, at least 180 days after the date of the award, then the officer will be entitled to a prorated number of shares based on the ratio of the number of months the officer was employed during the performance period up to the change in control to 36 (unless, in the case of performance contingent restricted stock awards, the performance period was already into its fourth year, in which case the denominator would be 48).
The tables above include the amounts attributable to the pro rata shares that would be received by our named executive officers valued at the closing price of Alliant Energy’s common stock on Dec. 29, 200631, 2009 assuming, in the case of a termination by reason of death, disability, involuntary termination without cause or retirement, that the applicable performance contingency was satisfied.
Executive Severance Plan
Alliant Energy also maintains a general executive severance plan for our executive officers and general managers that applies when the officer’s or manager’s position is eliminated or significantly altered by us. The plan provides for a minimum level of severance pay equal to one times base salary, except that any amount over the Internal Revenue Code Section 409A limit (currently about $460,000) will be delayed for six months, payment of pro-ratedprorated incentive compensation as within the discretion of the chief executive officer, up to 18 months of paid COBRA coverage, six months of which are paid by Alliant Energy, outplacement services and/or tuition reimbursement of up to $10,000, and access to Alliant Energy’s employee assistance program. Eligibility for benefits under this plan is conditioned upon the executive executing a severance agreement and release form. The plan also provides the executive officer with the option to use the severance benefit and any unused vacation pay to bridge service to meet minimum qualifications for standard early retirement at the actuarially reduced rate under the Cash Balance Plan. From time to time, we will negotiate various elements of the severance plan with the executive to provide for a benefit greater than what the plan would otherwise afford. All executive officer severance packages are approved by the Compensation and Personnel Committee.
Life Insurance Proceeds
The amounts shown in the tables above reflect proceeds to be paid to the executive officer’s beneficiaries pursuant to life insurance policies Alliant Energy offers that are not otherwise available to all employees (i.e., split dollar and/or reverse split dollar policies, as applicable).
Pension Plans
The tables above do not include any amounts for the Alliant Energy Cash Balance Pension Plan noror the Unfundedunfunded Excess Retirement Plan because those plans are not impacted by the nature of the termination of employment nor whether or not there has been a change in control of Alliant Energy. The tables above also do not include any amounts for the Supplemental Executive Retirement Plan other than in the event of a termination after a change in control because that plan is not impacted by the nature of the termination of employment unless there has been a change in control of Alliant Energy, in which case the benefits under the Supplemental Executive Retirement Plan may be enhanced under the KEESA as described above under “Change in Control Agreements.”
Davis Employment AgreementCompensation Committee Risk Assessment
Mr. Davis’ former positionIn December 2009 and February 2010, the Compensation and Personnel Committee undertook an assessment of Alliant Energy’s general compensation policies and practices for all employees, including Alliant Energy’s non-regulated businesses, to evaluate whether risks arising from these policies and practices were reasonably likely to have a material adverse effect on us. The Committee did not recommend or implement any material changes in 2010 as a result of its assessment, but has identified or implemented the following features of Alliant Energy’s policies and practices that it believes serve to mitigate any risks arising from Alliant Energy’s compensation policies and practices, including the following:
Use of a mix of short-term and long-term incentive awards to provide an appropriate balance of short and long-term risk and reward horizons;
Use of a variety of performance metrics for incentive awards to avoid excessive focus on a single measure of performance;
Caps on incentive awards to reduce incentives to take short-term or inappropriately risky measures to increase payouts in any given year;
Review of Alliant Energy’s compensation programs for reasonableness by our Chairman of the Board was subject to an employment agreement with Alliant Energy. The payments made bystate utility commission mitigates risk;
Claw-back policies that provide Alliant Energy with the ability to Mr. Davisrecoup short-term and long-term incentive awards under this agreement are described under the Summary Compensation Table. See footnote (9) to the Summary Compensation Table for a description of the terms of this agreement applicable to such payments.appropriate circumstances; and
Stock ownership requirements for certain executives, including our named executive officers, which we believe help to focus our executives on long-term stock price appreciation and sustainability.
The following table summarizes the compensation paid to, or earned by, our non-employee directors for all services rendered to us, Alliant Energy and Alliant Energy’s other subsidiaries during 2006.2009.
| Name (1) | Fees Earned or Paid in Cash ($)(2) | Nonqualified Deferred Compensation Earnings ($)(3) | All Other Compensation ($)(4) | Total ($) | Fees Earned or Paid in Cash ($)(2) | All Other Compensation ($)(3) | Total ($) | |||||||||||||||||
Michael L. Bennett | $ | 110,000 | $ | 0 | $ | 0 | $ | 110,000 | $ | 153,500 | $ | 12,462 | $ | 165,962 | ||||||||||
Darryl B. Hazel | $ | 27,800 | $ | 0 | $ | 0 | $ | 27,800 | $ | 152,500 | $ | 0 | $ | 152,500 | ||||||||||
James A. Leach | $ | 145,000 | $ | 0 | $ | 145,000 | ||||||||||||||||||
Singleton B. McAllister | $ | 108,500 | $ | 698 | $ | 17,555 | $ | 126,753 | $ | 125,000 | $ | 18,725 | $ | 143,725 | ||||||||||
Ann K. Newhall | $ | 103,500 | $ | 0 | $ | 0 | $ | 103,500 | $ | 130,000 | $ | 12,920 | $ | 142,920 | ||||||||||
Dean C. Oestreich | $ | 102,900 | $ | 0 | $ | 0 | $ | 102,900 | $ | 130,000 | $ | 945 | $ | 130,945 | ||||||||||
David A. Perdue | $ | 103,500 | $ | 657 | $ | 21,892 | $ | 126,049 | $ | 128,500 | $ | 21,892 | $ | 150,392 | ||||||||||
Judith D. Pyle | $ | 100,000 | $ | 0 | $ | 5,437 | $ | 105,437 | $ | 125,000 | $ | 5,547 | $ | 130,547 | ||||||||||
Carol P. Sanders | $ | 103,500 | $ | 41 | $ | 0 | $ | 103,541 | $ | 151,200 | $ | 0 | $ | 151,200 | ||||||||||
Anthony R. Weiler (6) | $ | 125,000 | $ | 11,225 | $ | 42,581 | $ | 178,806 | ||||||||||||||||
Robert W. Schlutz (7) | $ | 43,700 | $ | 0 | $ | 0 | $ | 43,700 | ||||||||||||||||
(1) | Directors who also are |
(2) | The amounts shown in this column include the following aggregate dollar amounts deferred and the equivalent number of shares of common stock acquired by each of the following directors in our Alliant |
|
|
| The amounts in this column reflect the sum of amounts attributable to directors for director life insurance premiums, |
Name | Life Insurance Premium Paid | Charitable Award Premium Paid | Total | ||||||
M. L. Bennett | $ | 0 | $ | 0 | $ | 0 | |||
D. B. Hazel | $ | 0 | $ | 0 | $ | 0 | |||
S. B. McAllister | $ | 0 | $ | 17,555 | $ | 17,555 | |||
A. K. Newhall | $ | 0 | $ | 0 | $ | 0 | |||
D. C. Oestreich | $ | 0 | $ | 0 | $ | 0 | |||
D. A. Perdue | $ | 0 | $ | 21,892 | $ | 21,892 | |||
J. D. Pyle | $ | 0 | $ | 5,437 | $ | 5,437 | |||
C. P. Sanders | $ | 0 | $ | 0 | $ | 0 | |||
R. W. Schlutz | $ | 0 | $ | 0 | $ | 0 | |||
A. R. Weiler | $ | 15,740 | $ | 26,841 | $ | 42,581 | |||
|
|
|
|
|
|
Name | Charitable Award Premium Paid | All Other Compensation Paid | Total | ||||||
Michael L. Bennett | $ | 12,462 | $ | 0 | $ | 12,462 | |||
Darryl B. Hazel | $ | 0 | $ | 0 | $ | 0 | |||
James A. Leach | $ | 0 | $ | 0 | $ | 0 | |||
Singleton B. McAllister | $ | 17,555 | $ | 1,170 | $ | 18,725 | |||
Ann K. Newhall | $ | 12,462 | $ | 458 | $ | 12,920 | |||
Dean C. Oestreich | $ | 0 | $ | 945 | $ | 945 | |||
David A. Perdue | $ | 21,892 | $ | 0 | $ | 21,892 | |||
Judith D. Pyle | $ | 5,437 | $ | 110 | $ | 5,547 | |||
Carol P. Sanders | $ | 0 | $ | 0 | $ | 0 | |||
Retainer Fees — In 2006,2009, all non-employee directors, each of whom served on our Board and the Boards of AEC,the Company, Alliant Energy and IPL, and Resources, received an annual retainer for service on all four Boards consisting of $100,000$125,000 in cash. Also in 2006,2009, the Chairperson of the Audit Committee received an additional $10,000$13,500 cash retainer and the Chairpersons of the Compensation and Personnel, Nominating and Governance, and Environmental, Nuclear, Health, and Safety Committees received an additional $5,000 cash retainer; other members of the Audit Committee received an additional $3,500 cash retainer; and the Lead Independent Director received an additional $20,000 cash retainer. Directors
Meeting Fees — A Special Litigation Committee of the Alliant Energy Board was created on Dec. 11, 2008 for which the independent members of Alliant Energy’s Board set compensation at $2,000 per committee meeting in addition to the payment of all necessary and reasonable expenses. In 2009, the Special Litigation Committee, that included at various times Messrs. Hazel, Leach and Ms. Sanders, met a total of 12 times. Other than the Special Litigation Committee, directors do not receive any additional compensation for attendance at Board or Committee meetings. The
Effective for 2010, the Alliant Energy Board did not make any changesof Directors adopted the recommendations of the Compensation and Personnel Committee and Nominating and Governance Committee to theseincrease the annual retainer fee for all non-employee directors to $145,000. In doing so, the Board of Directors, through its Compensation and Personnel Committee and Nominating and Governance Committee, expressed a philosophy to set appropriate levels of compensation for 2007.
directors that will ensure we attract and retain highly qualified individuals. All other committee retainers and meeting fees will remain the same as in 2009. The Chairperson of the Audit Committee will receive an additional $13,500 cash retainer and the Chairpersons of the Compensation and Personnel, Nominating and Governance, and Environmental, Nuclear, Health, and Safety Committees will receive an additional $5,000 cash retainer; other members of the Audit Committee receive an additional $3,500 cash retainer; and the Lead Independent Director receives an additional $20,000 cash retainer.
Other — Pursuant to ourAlliant Energy’s directors’ expense reimbursement policy, we reimburseAlliant Energy reimburses all directors for travel and other necessary business expenses incurred in the performance of their responsibilities for us. WeCommittees are provided the opportunity to retain outside independent advisors, as needed. Alliant Energy also extendextends coverage to directors under our travel accident and directors’ and officers’ indemnity insurance policies.
Receipt of Fees in Stock — For fees paid in 2006,2009, each director was encouraged to voluntarily elect to use not less than 50% of his or her cash retainer to purchase shares of Alliant Energy’s common stock pursuant to the Alliant EnergyEnergy’s Shareowner Direct Plan or to defer such amount through the Alliant Energy Stock Account in the Director’sAlliant Energy Deferred Compensation Plan. Alliant Energy’s 2002 Equity Incentive Plan was amended in 2006 to provide that, in the discretion of and subject to restrictions imposed by the Compensation and Personnel Committee, a non-employee director may elect to receive, or the Compensation and Personnel Committee may require that a non-employee director will be paid, all or any portion of his or her annual cash retainer payment or other cash fees for serving as a director in the form of shares of Alliant EnergyEnergy’s common stock under the Plan. For fees paid in 2007,2010, the Compensation and Personnel Committee recommended toand the Nominating and Governance Committee again recommended that each non-employee director voluntarily elect to receive a portion of his or her cash retainer to purchase shares of Alliant EnergyEnergy’s common stock.
Share Ownership Guidelines — Pursuant to Alliant Energy’s Articles of Incorporation, directors are required to be shareowners. Ashareowners of Alliant Energy. In 2008, upon the recommendation of the Compensation and Personnel and Nominating and Governance Committees, Alliant Energy’s Board amended the target share ownership level to be the number of 8,400 shares equal to the value of Alliant Energy’s common stocktwo times the annual retainer amount received by each of the non-employee directors. The achievement of this ownership level is to be achievedaccomplished by each director
within five years of joining the Board or as soon thereafter as practicable. Shares held by directors in the Shareowner Direct Plan and the Directors Deferred Compensation Plan are included in the target goal.
As of February 26, 2010, all non-management directors, with the exception of Mr. Hazel, who joined the Board in 2006, had met the target ownership level. We will continue to monitor the status of achievement of the target ownership levels and review them with the Board of Directors.
Director’sAlliant Energy Deferred Compensation Plan — Under the Director’sAlliant Energy Deferred Compensation Plan, directors may elect to defer all or part of their retainer fee. Amounts deposited to a Deferred Compensationthe Interest Account receive an annual return based on the A-Utility10-year Treasury Bond Rate with a minimum return no less thanplus 1.50% as established by the prime interest rate published inThe Wall Street Journal, provided that the return may not be greater than 12% nor less than 6% with the exception of earnings on a frozen benefit in the IPL Deferred Compensation Plan as described above.Federal Reserve. Amounts deposited to the Equity Account are treated as invested in an S&P 500 index fund. Amounts deposited to Alliant EnergyEnergy’s Stock Account are treated as though invested in Alliant Energy’s common stock and will be credited with dividend equivalents, which will be treated as if reinvested. The director may elect that the Deferred Compensation Account be paid in a lump sum or in annual installments for up to 10 years beginning in the year of or one, two or three tax years after retirement or resignation from the Board.
Director’sDirectors’ Charitable Award Program—Alliant Energy maintains a Director’s Charitable Award Program applicable to certain members of our Board of Directors beginning after three years of service. The Board has terminated this Program for all directors who joined the Board after Jan. 1, 2005. The participants in this Program currently are Mr. Bennett, Ms. McAllister, Ms. Newhall, Mr. Perdue and Ms. Pyle, Mr. Weiler and Mr. Davis.Pyle. The purpose of the Program is to recognize our and our directors’ interest in supporting worthy charitable institutions. Under the Program, when a director dies, Alliant Energy will donate a total of $500,000 to one qualified charitable organization or divide that amount among a maximum of five qualified charitable organizations selected by the individual director. The individual director derives no financial benefit from the Program. Alliant Energy takes all deductions for charitable contributions, and funds the donations 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 Alliant Energy’s cost of funds, will be recovered through life insurance proceeds on the directors. The Program, over its life, will not result in any material cost to Alliant Energy. The cost to Alliant Energy of the Program for the individual directors in 20062009 is included in the Director Compensation table above.
Director’sDirectors’ Life Insurance Program—Alliant Energy maintains a split-dollar Director’sDirectors’ Life Insurance Program for non-employee directors. In November 2003, the Board of Directors terminated this insurance benefit for any director not already having the required vesting period of three years of service and for all new directors. The participantsonly active director participant in this Program areprogram is Ms. Pyle and Mr. Weiler.Pyle. The Program 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 Program is structured to pay a portion of the total death benefit to Alliant Energy to reimburse Alliant Energy for all costs of the Program, including a return on its funds. The Program, over its life, will not result in any material cost to Alliant Energy. TheDuring 2009, there was no cost to Alliant Energy ofincurred under the Programprogram for the individual directors in 2006 is included in the Director Compensation table above.current directors.
Alliant Energy Matching Gift Program — Directors are eligible to participate in the Alliant Energy Foundation, Inc. matching gift program, which is generally available to all employees and retirees. Under this program, the foundation matches 100 percent100% of charitable donations over $25 to eligible charities up to a maximum of $5,000 per year for each individual. Effective Feb. 20, 2007, these limits have been increased to provide that the foundation will match 100 percent of eligible charitable donations up to a maximum of $10,000 per year for each individual. These limits apply to active employees, retirees and directors.
To Our Shareowners:
The Audit Committee of our Board of Directors is composed of fivefour directors, each of whom is independent under the NYSE listing standards and SEC rules. The Committee operates under a written charter adopted by the Board of Directors.
Our management is responsible for our internal controls and the financial reporting process, including the system of internal controls. The independent registered public accounting firm is responsible for expressing opinions on the conformity of our audited consolidated financial statements with accounting principles generally accepted in the United States of America. The Committee has reviewed and discussed the audited consolidated financial statements with management and the independent registered public accounting firm. The Committee has discussed with the independent registered public accounting firm matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
AU Section 380 of the Public Company Accounting Oversight Board, as amended, SEC regulations and NYSE requirements.
Our independent registered public accounting firm has provided to the Committee the written disclosures required by Independence Standardsapplicable requirements of the Public Company Accounting Oversight Board Standard No. 1 (Independence Discussionsregarding the independent registered public accounting firm’s communications with Audit Committees),the audit committee concerning independence, and the Committee discussed with the independent registered public accounting firm its independence.
The Committee has adopted a policy that requires advance approval of all audit, audit-related, tax and other permitted services performed by the independent registered public accounting firm. The policy provides for pre-approval by the Committee of specifically defined audit and non-audit services after the Committee is provided with the appropriate level of details regarding the specific services to be provided. The policy does not permit delegation of the Committee’s authority to management. In the event the need for specific services arises between Committee meetings, the Committee has delegated to the Chairperson of the Committee authority to approve permitted services provided that the Chairperson reports any decisions to the Committee at its next scheduled meeting. In accordance with the policy, the Committee pre-approved all audit, audit-related, tax and other permitted services performed by Deloitte & Touche LLP and its affiliates and related entities in 2006.
2009.
The principal accounting fees that were billed to usour company by ourits independent registered public accounting firm for work performed on behalf of our company and our subsidiaries for 20052008 and 20062009 were as follows:
| 2005 | 2006 | |||||
Audit Fees | $ | 892,000 | $ | 770,000 | ||
Audit-Related Fees | 33,000 | 29,000 | ||||
Tax Fees | 77,000 | 58,000 | ||||
All Other Fees | 25,000 | 29,000 | ||||
| 2008 | 2009 | |||||
Audit Fees | $ | 1,087,000 | $ | 925,000 | ||
Audit-Related Fees | 39,000 | 29,000 | ||||
Tax Fees | 11,000 | 569,000 | ||||
All Other Fees | 9,000 | 7,000 | ||||
Audit Fees consisted of the fees billed for the audit of (i) the consolidated financial statements of our company and our subsidiaries, and (ii) the effectiveness of internal controls over financial reporting,subsidiaries; for reviews of financial statements included in Form 10-Q filingsfilings; and for services normally provided in connection with statutory and regulatory filings such as financing transactions. Audit fees also included our company’s portion of the fees for the audits of Alliant Energy’s consolidated financial transactions.statements and effectiveness of internal controls over financial reporting.
Audit-Related Fees consisted of the fees billed for services rendered related to employee benefits plan audits and attest services not required by statute or regulations.
Tax Fees consisted of the fees billed for professional services rendered for tax compliance, tax advice and tax planning, including all services performed by the tax professional staff inof affiliates of the independent registered public accounting firm’s tax division,firm, except those rendered in connection with the audit.
All Other Fees consisted of seminars, license fees for tax and accounting research software products.products and education programs.
The Audit Committee does not consider the provision of non-audit services by the independent registered public accounting firm described above to be incompatible with maintaining auditor independence.independence of the independent registered public accounting firm.
The Committee discussed with our internal auditor and independent registered public accounting firm the overall scopes and plans for their respective audits. The Committee meets with the internal auditor and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, the evaluation of our internal controls and overall quality of our financial reporting.
Based on the Committee’s reviews and discussions with management, the internal auditor and the independent registered public accounting firm referred to above, the Committee recommended to the Board of Directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the year ended Dec. 31, 2006,2009 for filing with the SEC.
AUDIT COMMITTEE
Carol P. Sanders (Chairperson)
Michael L. Bennett (Chairperson)
Darryl B. Hazel
Ann K. Newhall
David A. Perdue
Carol P. Sanders
PROPOSAL FOR THE RATIFICATION OF THE APPOINTMENT
OF DELOITTE & TOUCHE LLP AS THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 20072010
In accordance with its charter, the Audit Committee of the Board of Directors appointed the firm of Deloitte & Touche LLP, independent registered public accounting firm, to audit the consolidated financial statements of the Company and its subsidiaries for the year ending Dec. 31, 20072010, as well as to report as to the effectiveness of internal controls over financial reporting of the Company and its subsidiaries as of Dec. 31, 2010, and is requesting that its shareowners ratify such appointment.
Representatives of Deloitte & Touche LLP are not expected to attend the annual meeting. Further information about the services of Deloitte & Touche LLP, including the fees paid in 20052008 and 2006,2009, is set forth in the “Report of the Audit Committee.”
Vote Required
The affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting (assuming a quorum is present) is required to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2007.2010. For purposes of determining the vote required for this proposal, abstentions and broker nonvotesnon-votes will have no impact on the vote. The votes represented by proxies will be voted FOR ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2010, unless a vote against such approval or to abstain from voting is specifically indicated on the proxy. If the appointment is not ratified by a majority of the votes cast, the failure by the shareowners to ratify will be considered by the Audit Committee as an indication that it should consider selecting another independent registered public accounting firm for the following fiscal year. Even if the shareowners ratify the appointment, the Audit Committee, in its discretion, may select a new independent registered public accounting firm at any time during the year if it feels that such a change would be in the best interest of the Company.
The Board of Directors recommends that shareowners vote FOR“FOR” the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2007.2010.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and certain officers to file reports of ownership and changes in ownership of the Company’s preferred stock with the SEC and furnish copies of those reports to us. As a matter of practice, the Company’sAlliant Energy’s Shareowner Services Department assists the Company’s directors and executive officers in the preparation of initial reports of ownership and reports of changes in ownership and files those reports with the SEC on their behalf. Based on the written representations of the reporting persons and on copies of the reports filed with the SEC, the Company believes that all reporting persons of the Company satisfied thesethe filing requirements in 2006.2009.
We will furnish to any shareowner, without charge, a copy of our Annual Report on Form 10-K for the year ended Dec. 31, 2009. You may obtain a copy of the Form 10-K by writing Alliant Energy Shareowner Services at 4902 North Biltmore Lane, P.O. Box 14720, Madison, WI 53708-0720 or via email atshareownerservices@alliantenergy.com.
By Order of the Board of Directors,
F. J. Buri
Corporate Secretary and
Assistant General Counsel
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL REPORT
For the Year Ended December 31, 20062009
Contents | Page | |
| A-2 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
Management’s Annual Report on Internal Control Over Financial Reporting | A-35 | |
Consolidated Statements of | ||
Wisconsin Power and Light Company (WPL) filed a combined Form 10-K for 20062009 with the Securities and Exchange Commission (SEC); such. Such document included the filings of WPL’s parent, Alliant Energy Corporation (Alliant Energy), Interstate Power and Light Company (IPL) and WPL. The primary first tier subsidiaries of Alliant Energy are WPL, IPL, Alliant Energy Resources, Inc.LLC (Resources) and Alliant Energy Corporate Services, Inc. (Corporate Services). Certain portions of Management’s Discussion and Analysis of Financial Condition and Results of Operations (MDA) and the Notes to Consolidated Financial Statements included in this WPL Annual Report represent excerpts from the combined Form 10-K. As a result, the disclosure included in this WPL Annual Report at times includes information relating to Alliant Energy, IPL, Resources and/or Corporate Services. All required disclosures for WPL are included in this Annual Report thus such additional disclosures represent supplemental information. The information contained in this Annual Report, with the exception of the section entitled “Shareowner Information,” was filed with the SEC on March 1, 2007February 26, 2010 and was complete and accurate as of that date. WPL disclaims any responsibility to update that information in this Annual Report.
Overview - WPL was incorporated in 1917 in Wisconsin as Eastern Wisconsin Electric Company. WPL is a public utility engaged principally in the generation, distribution and sale of electric energy; and the purchase, distribution, transportation and sale of natural gas in selective markets in south and central Wisconsin. WPL operates in municipalities pursuant to permits of indefinite duration, which are regulated by Wisconsin law, and pursuant to state statutes authorizing utility operation in areas annexed by a municipality. At Dec. 31, 2006, WPL supplied electric and gas service to 456,425 and 182,098 retail customers, respectively. WPL also provides various other energy-related products and services. In 2006, 2005 and 2004, WPL had no single customer for which electric, gas and/or other sales accounted for 10% or more of WPL’s consolidated revenues. WPL Transco LLC is a wholly-owned subsidiary of WPL and holds WPL’s investment in American Transmission Company LLC (ATC). WPL also owns all of the outstanding capital stock of South Beloit Water, Gas and Electric Company (South Beloit), which was incorporated in 1908. South Beloit was a public utility that supplied electric, gas and water service, principally in Winnebago County, Illinois, and which WPL divested. Refer to Note 16 of the “Notes to Consolidated Financial Statements” for details regarding the sale of WPL’s Illinois electric distribution and gas properties within South Beloit in February 2007.
Regulation - WPL is subject to regulation by the Public Service Commission of Wisconsin (PSCW) for retail utility rates and standards of service, accounting requirements, issuance and use of proceeds of securities, approval of the location and construction of electric generating facilities, certain other additions and extensions to facilities, and in other respects. WPL is required to file rate cases with the PSCW using a forward-looking test year period. There is no statutory time limit for the PSCW to decide rate cases. However, the PSCW attempts to process all base rate cases in 10 months or less and the PSCW has the ability to approve interim rate relief, subject to refund, if necessary. For fuel-only rate case increases, the PSCW attempts to provide interim rate relief within 21 days of notice to customers, subject to refund. There is no statutory time limit for final fuel-only rate relief decisions. In 2005, Wisconsin enacted Act 7, which provides Wisconsin companies with the necessary rate making principles - and resulting, increased regulatory and investment certainty - prior to making certain generation investments in Wisconsin.
WPL is also subject to regulation by the Federal Energy Regulatory Commission (FERC) and the United States of America (U.S.) Environmental Protection Agency (EPA), as well as various other federal, state and local agencies.
Electric Utility Operations - As of Dec. 31, 2006, WPL provided electric service to 456,425 retail, 26 wholesale and 2,066 other customers in 611 communities. 2006 electric utility operations accounted for 79% of operating revenues and 78% of operating income. Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months due to air conditioning requirements. In 2006, the maximum peak hour demand for WPL was 2,941 megawatts (MW) on July 17, 2006.
Gas Utility Operations - As of Dec. 31, 2006, WPL provided natural gas service to 182,098 retail and 251 transportation and other customers in 246 communities. 2006 gas utility operations accounted for 20% of operating revenues and 22% of operating income. In addition to sales of natural gas to retail customers, WPL provides transportation service to commercial and industrial customers by moving customer-owned gas through WPL’s distribution system to the customers’ meters. Gas sales follow a seasonal pattern with an annual base load of gas and a large heating peak occurring during the winter season. Natural gas obtained from producers, marketers and brokers, as well as gas in storage, is utilized to meet the peak heating season requirements.
| 2006 (a) | 2005 (a) | 2004 (a) | 2003 | 2002 | |||||||||||
| (in millions) | |||||||||||||||
Operating revenues | $ | 1,401.3 | $ | 1,409.6 | $ | 1,209.8 | $ | 1,217.0 | $ | 989.5 | |||||
Earnings available for common stock | 102.0 | 101.8 | 110.4 | 111.6 | 77.6 | ||||||||||
Cash dividends declared on common stock | 92.2 | 89.8 | 89.0 | 70.6 | 59.6 | ||||||||||
Cash flows from operating activities | 162.6 | 176.6 | 199.3 | 138.5 | 223.9 | ||||||||||
Total assets | 2,699.1 | 2,667.6 | 2,656.1 | 2,469.3 | 2,335.1 | ||||||||||
Long-term obligations, net | 403.8 | 403.7 | 491.3 | 453.5 | 523.3 | ||||||||||
Alliant Energy is the sole common shareowner of all 13,236,601 shares of WPL’s common stock outstanding. As such, earnings per share data is not disclosed herein.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements contained in this report that are not of historical fact are forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements. Some, but not all, of theWPL’s risks and uncertainties include:
federal and state regulatory or governmental actions, including the impact of energy-related legislation in Congress, federaland tax legislation and of regulatory agency orders; the
its ability to obtain adequate and timely rate relief to allow for, among other things, the recovery of operating costs, and deferred expenditures and capital expenditures, costs related to generating units that may be permanently closed, the earning of reasonable rates of return, and the payment of expected levels of dividends;
the state of the economy in its service territory and resulting implications on sales, margins and ability to collect unpaid bills, in particular as a result of current or future litigation,economic conditions;
weather effects on results of operations;
developments that adversely impact its ability to implement its strategic plan including unanticipated issues in connection with construction and operation of its new wind generating facilities, its potential purchase of the Riverside Energy Center (Riverside), and unfavorable regulatory investigations, proceedings or inquiries; economic and political conditions in WPL’s service territory; outcomes;
issues related to the availability of WPL’s generating facilities and the supply and delivery of fuel and purchased electricity and price thereof, including the ability to recover and to retain the recovery of purchased power, fuel and fuel-related costs through rates in a timely manner;
the impact higherthat fuel and fuel-related prices and other economic conditions may have on customerits customers’ demand for utility services, customers’ ability to pay utility bills and WPL’s ability to collect unpaid utility bills; unanticipated issuesservices;
impacts that storms or natural disasters in connection with WPL’s construction of new generating facilities; unanticipated construction and acquisition expenditures; costsits service territory may have on its operations;
issues associated with WPL’s environmental remediation efforts and with environmental compliance generally; weather effectsgenerally, including changing environmental laws and regulations, the ability to defend against environmental claims brought by state and federal agencies, such as the United States of America (U.S.) Environmental Protection Agency (EPA), or third parties such as the Sierra Club, and the ability to recover through rates all environmental compliance costs, including costs for projects put on resultshold due to uncertainty of operations; future environmental laws and regulations;
the ability to continue cost controls and operational efficiencies;
potential impacts of any future laws or regulations regarding global climate change or carbon emissions reductions, including those that contain a proposed greenhouse gas (GHG) cap-and-trade program;
continued access to the capital markets on competitive terms and rates;
financial impacts of WPL’srisk hedging strategies, including the impact of weather hedges or the absence of weather hedges on WPL’s utility earnings;
the impact of the American Recovery and Reinvestment Act of 2009, and pending legislation;
issues related to electric transmission, including operating in Regional Transmission Organization (RTO) energy and ancillary services markets, the Midwest Independent System Operator (MISO) energy market, the impactimpacts of potential future billing adjustments from MISO,RTOs and recovery of costs incurred,incurred;
unplanned outages, transmission constraints or operational issues impacting fossil or renewable generating facilities and legislative and regulatory issues affecting such transmission; unanticipated issuesrisks related to recovery of resulting incremental costs through rates;
Alliant Energy’s ability to successfully defend against, and any liabilities arising out of, the Calpine Corporation (Calpine) bankruptcy that could adversely impact WPL’s purchased power agreements (PPAs); alleged violation of the Employee Retirement Income Security Act of 1974 by Alliant Energy’s Cash Balance Pension Plan;
current or future litigation, regulatory investigations, proceedings or inquiries;
the direct or indirect effects resulting from terrorist incidents or responses to such incidents; unplanned outages at WPL’s generating facilities and risks related to recovery of incremental costs through rates; continued access to the capital markets; material declines in the fair market value of, or expected cash flows from, WPL’s investments; inflation and interest rates; developments that adversely impact WPL’s ability to implement its strategic plan; the incurrence of any material post-closing adjustments related to any of WPL’s past asset divestitures;
employee workforce factors, including changes in key executives, collective bargaining agreements and negotiations, work stoppages or work stoppages; additional restructurings;
access to technological developments;
any material post-closing adjustments related to any of its past asset divestitures;
the impact of necessary accruals or adjustments for the terms of WPL’s short- and long-term incentive compensation plans;
the effect of accounting pronouncements issued periodically by standard-setting bodies; WPL’s
increased retirement and benefit plan costs;
the ability to continue cost controlsutilize net operating losses generated to date, and operational efficiencies; WPL’s ability to identify and successfully complete potential development projects; those that may be generated in the future, before they expire;
the ability to successfully complete ongoing tax audits and appeals with no material impact on WPL’s earnings and cash flows;
inflation and interest rates; and
factors listed in “Other Matters - Other Future Considerations.” Considerations” in MDA.
WPL assumes no obligation, and disclaims any duty, to update the forward-looking statements in this report.
Overview - WPL was incorporated in 1917 in Wisconsin as Eastern Wisconsin Electric Company. WPL is a public utility engaged principally in the generation and distribution of electric energy and the distribution and transportation of natural gas in selective markets in southern and central Wisconsin. WPL operates in municipalities pursuant to permits of indefinite duration and state statutes authorizing utility operation in areas annexed by a municipality. At Dec. 31, 2009, WPL supplied electric and gas service to 453,573 and 177,968 retail customers, respectively. WPL also provides various other energy-related products and services. In 2009, 2008 and 2007, WPL had no single customer for which electric, gas and/or other sales accounted for 10% or more of WPL’s consolidated revenues. WPL Transco LLC is a wholly-owned subsidiary of WPL and holds WPL’s investment in the American Transmission Company LLC (ATC).
Regulation - WPL is subject to regulation by the Public Service Commission of Wisconsin (PSCW) related to its operations in Wisconsin for various issues including, but not limited to, retail utility rates and standards of service, accounting requirements, issuance and use of proceeds of securities, approval of the location and construction of electric generating facilities and certain other additions and extensions to facilities.
Retail Utility Base Rates - WPL files periodic requests with the PSCW for retail rate relief. These filings are required to be based on forward-looking test periods. There is no statutory time limit for the PSCW to decide retail rate requests. However, the PSCW attempts to process base retail rate cases in approximately 10 months and has the ability to approve interim retail rate relief, subject to refund, if necessary.
Retail Commodity Cost Recovery Mechanisms -
Electric - WPL’s retail electric rates are based on estimates of annual fuel-related costs (includes fuel and purchased power energy costs) anticipated during the test period. During each electric retail rate proceeding, the PSCW sets fuel monitoring ranges based on the forecasted fuel-related costs used to determine rates in such proceeding. If WPL’s actual fuel-related costs fall outside these fuel monitoring ranges, the PSCW can authorize an adjustment to future retail electric rates.
The fuel monitoring ranges set by the PSCW consist of unit cost variances between monitoring levels and actual unit costs and include three different ranges based on monthly costs, cumulative costs and revised forecasted annual costs during the test-year period. In order for WPL, or others, to initiate a proceeding to change rates related to fuel-related costs during the test period, WPL, or others, must demonstrate: a) that either 1) any actual monthly costs during the test period exceeded the monthly ranges or 2) the actual cumulative costs to date during the test period exceeded the cumulative ranges; and b) that the annual projected costs (that include cumulative actual costs) for the test period also exceed the annual ranges. In December 2009, the PSCW approved an order continuing WPL’s fuel monitoring ranges of plus or minus 8% for the monthly range; for the cumulative range, plus or minus 8% for the first month, plus or minus 5% for the second month, and plus or minus 2% for the remaining months of the monitoring period; and plus or minus 2% for the annual range. For fuel-only retail rate changes, the PSCW attempts to provide interim changes effective within 21 days of notice to customers. There is no statutory time limit for final fuel-only retail rate change decisions.
Natural Gas - WPL’s retail natural gas tariffs contain an automatic adjustment clause for changes in prudently incurred natural gas costs required to serve its retail gas customers. Any over/under collection of natural gas costs for each given month are automatically reflected in future billings to retail customers.
New Electric Generating Facilities - A Certificate of Authority application is required to be filed with the PSCW for construction approval of any new electric generating facility with a capacity of less than 100 megawatts (MW). A Certificate of Public Convenience and Necessity application is required to be filed with the PSCW for construction approval of any new electric generating facility with a capacity of 100 MW or more. In addition, WPL’s ownership and operation of electric generating facilities (including those located in Minnesota) to serve Wisconsin customers is subject to retail utility rate regulation by the PSCW.
Advance Rate Making Principles - Wisconsin Statutes §196.371 (formerly referred to as Act 7) provides Wisconsin utilities with the opportunity to request rate making principles prior to the purchase or construction of any nuclear or fossil-fueled electric generating facility or renewable generating resource, such as a wind facility, utilized to serve Wisconsin customers. WPL is not obligated to file for or accept authorized rate making principles under Wisconsin Statutes §196.371. WPL can proceed with an approved project under traditional rate making terms.
Other -WPL is also subject to regulation by the Federal Energy Regulatory Commission (FERC) and the EPA, as well as various other federal, state and local agencies.
Electric Utility Operations -As of Dec. 31, 2009, WPL provided electric service to 453,573 retail, 21 wholesale and 2,158 other customers in 608 communities. 2009 electric utility operations accounted for 84% of operating revenues and 87% of operating income. Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months due to air conditioning requirements. In 2009, the maximum peak hour demand for WPL was 2,558 MW on June 23, 2009.
Gas Utility Operations - As of Dec. 31, 2009, WPL provided natural gas service to 177,968 retail and 221 transportation and other customers in 236 communities. 2009 gas utility operations accounted for 16% of operating revenues and 15% of operating income. In addition to sales of natural gas to retail customers, WPL provides transportation service to commercial and industrial customers by moving customer-owned gas through WPL’s distribution system to the customers’ meters. Gas sales follow a seasonal pattern with an annual base-load of gas and a large heating peak occurring during the winter season. Natural gas obtained from producers, marketers and brokers, as well as gas in storage, is utilized to meet the peak heating season requirements.
| 2009 (a) | 2008 (a) | 2007 (a) | 2006 | 2005 | |||||||||||
| (in millions) | |||||||||||||||
Operating revenues | $ | 1,386.1 | $ | 1,465.8 | $ | 1,416.8 | $ | 1,401.3 | $ | 1,409.6 | |||||
Earnings available for common stock | 86.2 | 115.1 | 110.2 | 102.0 | 101.8 | ||||||||||
Cash dividends declared on common stock | 91.0 | 91.3 | 191.1 | 92.2 | 89.8 | ||||||||||
Cash flows from operating activities | 305.8 | 239.7 | 258.0 | 162.6 | 176.6 | ||||||||||
Total assets | 3,681.4 | 3,265.5 | 2,788.6 | 2,699.1 | 2,667.6 | ||||||||||
Long-term obligations, net | 1,146.3 | 899.0 | 715.7 | 524.5 | 526.4 | ||||||||||
| (a) | Refer to “Results of Operations” in MDA for a discussion of the 2009, 2008 and 2007 results of operations. |
Alliant Energy is the sole common shareowner of all 13,236,601 shares of WPL’s common stock outstanding. As such, earnings per share data is not disclosed herein.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTENTS OF MDA
MDA consists of the following information:
Executive Summary
Strategic Overview
Rate Matters
Environmental Matters
Legislative Matters
Results of Operations
Liquidity and Capital Resources
Other Matters
Market Risk Sensitive Instruments and Positions
New Accounting Pronouncements
Critical Accounting Policies and Estimates
Other Future Considerations
EXECUTIVE SUMMARY
Description of Business
General - WPL is a public utility engaged principally in the generation and distribution of electric energy and the distribution and sale of electric energy; and the purchase, distribution, transportation and sale of natural gas in selective markets in southern and central Wisconsin. WPL owns an approximate 16% interest in ATC, a transmission-only utility operating in Wisconsin, Michigan, Illinois and Minnesota. WPL also owns a portfolio of electric generating facilities located in Wisconsin with a diversified fuel mix including coal, natural gas and renewable resources. The output from these generating facilities, supplemented with purchased power, is used to provide electric service to approximately 459,000454,000 retail electric customers in the upper Midwest.Wisconsin. WPL also procures natural gas from various suppliers to provide service to approximately 182,000178,000 retail gas customers in the upper Midwest.Wisconsin. WPL’s earnings and cash flows are sensitive to various external factors including, but not limited to, the impact of weather on electric and gas sales volumes, the amount and timing of rate relief approved by regulatory authorities, the impact of weather and economic conditions on electric and gas sales volumes and other factors listed in “Forward-Looking“Forward-looking Statements.”
Summary of HistoricalFinancial Results of Operations - In 2006, 20052009, 2008 and 2004,2007, WPL’s earnings available for common stock were $102.0$86.2 million, $101.8$115.1 million and $110.4$110.2 million, respectively. Refer to “Results of Operations” for details regarding the various factors impacting earnings during 2006, 20052009, 2008 and 2004.2007.
Strategic Overview
The strategic plan for WPL focuses on investments in new wind generation to meet customer demand and renewable portfolio standards, emission controls at its existing fleet of electric generating facilities to meet environmental regulations and energy efficiency programs. Key strategic plan developments impacting WPL during 2009 include:
March 2009 - WPL acquired approximately 400 MW of wind site capacity in Freeborn County, Minnesota and the development rights for an approximately 100 MW wind project site near Green Lake, Wisconsin. WPL plans to use 200 MW of the capacity from the wind project site in Freeborn County, Minnesota for its Bent Tree - Phase I wind project.
April 2009 - WPL and its co-owners filed a certificate of authority with the PSCW to install emission controls at the Columbia Energy Center (Columbia) to reduce sulfur dioxide (SO2) and mercury emissions.
June 2009 - WPL acquired the Neenah Energy Facility and related assets from Resources for $92 million.
July 2009 - WPL received an order from the PSCW approving construction of the 200 MW Bent Tree -Phase I wind project.
October 2009 - WPL received an order from the Minnesota Public Utilities Commission (MPUC) approving the Site Permit and Certificate of Need applications for the 200 MW Bent Tree - Phase I wind project.
December 2009 - WPL and Wisconsin Electric Power Company (WEPCO) entered into a contingent agreement for WPL to purchase WEPCO’s 25% ownership interest in Edgewater Generating Station Unit 5 (Edgewater Unit 5).
December 2009 - As of Dec. 31, 2009, WPL had completed approximately 90% of its Advanced Metering Infrastructure (AMI) by installing over 560,000 AMI electric meters and gas modules in its service territory.
Refer to “Strategic Overview” for additional details regarding these and other strategic plan developments.
Rate Matters
WPL is subject to federal regulation by FERC, which has jurisdiction over wholesale electric rates, and state regulation in Wisconsin for retail utility rates and standards of service. Key regulatory developments impacting WPL during 2009 include:
September 2009 - The PSCW set WPL’s retail electric fuel rates currently in effect subject to refund beginning Sep. 1, 2009 as a result of lower than expected fuel costs incurred by WPL. In January 2010, WPL filed a retail electric fuel refund report indicating retail fuel over collections of $4 million for the final four months of 2009.
November 2009 - Legislation (2009 Assembly Bill 600) was introduced in Wisconsin to change statutes related to the process by which utilities recover electric fuel-related costs from their retail electric customers.
December 2009 - WPL received an order from the PSCW authorizing an annual retail electric rate increase of $59 million, or approximately 6%, and an annual retail natural gas rate increase of $6 million, or approximately 2%, effective January 2010. The order also authorized WPL to recover a portion of the previously deferred costs for the cancelled Nelson Dewey #3 project and certain deferred benefits costs incurred by WPL in 2009.
Refer to “Rate Matters” for additional details regarding these and other regulatory developments, including plans to file a retail rate case in Wisconsin in the first half of 2010.
Environmental Matters -
WPL is subject to regulation of environmental matters by various federal, state and local authorities. Key environmental developments during 2009 and early 2010 that may impact WPL include:
April 2009 - The U.S. Supreme Court granted the EPA authority to use a cost-benefit analysis when setting technology-based requirements under Section 316(b) of the Federal Clean Water Act (Section 316(b)). A revised Section 316(b) rule reflecting the U.S. Supreme Court’s decision is anticipated to be proposed by the EPA in 2010.
October 2009 - The EPA published the proposed GHG Tailoring rule, which could require large industrial facilities to obtain permits that demonstrate use of Best Available Control Technologies (BACT) and energy efficiency measures to minimize GHG emissions when facilities are constructed or significantly modified.
October 2009 - WPL received from the Sierra Club a notice of intent to file a civil lawsuit (NOI) based on allegations that modifications were made at the Nelson Dewey Generating Station (Nelson Dewey) and Columbia without complying with air permitting requirements. In December 2009, the Sierra Club sent a separate NOI to WPL containing similar allegations regarding the Edgewater Generating Station (Edgewater). WPL and the other owners of Columbia and Edgewater are exploring settlement options with the Sierra Club while simultaneously defending against these actions.
December 2009 - The EPA’s Mandatory GHG Reporting rule became effective, which requires electric utilities, among other companies, to monitor and report annual levels of GHG emissions beginning with calendar year 2010.
December 2009 - The EPA published a proposed rule that would establish a new one-hour National Ambient Air Quality Standard (NAAQS) for SO2 and associated monitoring requirements. The final standard is expected by June 2010 and final designations of non-attainment areas are expected to be issued by June 2012.
December 2009 - The EPA sent a Notice of Violation (NOV) to WPL as an owner and the operator of Nelson Dewey, Columbia and Edgewater. The NOV alleges that the owners failed to comply with appropriate pre-construction review and permitting requirements. WPL and the other owners of Columbia and Edgewater are exploring settlement options with the EPA while simultaneously defending against these actions.
December 2009 - The EPA issued a final rule finding that concentrations of GHG emissions in the atmosphere threaten public health and welfare and that emissions from motor vehicles contribute to atmospheric concentrations of GHG emissions and hence to the threat of climate change.
January 2010 - The Wisconsin Department of Natural Resources (DNR) issued a state thermal rule, subject to EPA approval, regulating the amount of heat that generating facilities can discharge into Wisconsin waters.
January 2010 - The EPA issued a proposal to reduce the primary NAAQS standard for ozone and establish a new seasonal secondary standard for ozone. The final rule is expected to be issued by August 2010 and final designations of non-attainment areas are expected to be issued by August 2011.
January 2010 - The EPA issued a final rule to strengthen the primary NAAQS for nitrogen oxide (NOx) as measured by nitrogen dioxide (NO2). The EPA expects to designate non-attainment areas for the new NO2 standard by January 2012.
January 2010 - The EPA issued an information collection request for coal- and oil-fired electric utility steam generation units over 25 MW in order to develop a proposed Utility Maximum Available Control Technology (MACT) standard for the control of mercury and other federal hazardous air pollutants. The EPA is currently negotiating a consent decree that could require the agency to propose Utility MACT standards no later than March 2011 and promulgate final standards no later than November 2011.
Refer to “Environmental Matters” for additional details regarding these and other environmental developments.
Legislative Matters
WPL monitors various legislative developments, including climate change, tax-related and other matters. Key legislative developments impacting WPL during 2009 include:
February 2009 - The American Recovery and Reinvestment Act of 2009 (ARRA) was enacted. The most significant provisions of the ARRA for WPL provide a one-year extension of the 50% bonus depreciation deduction for certain expenditures for property that is acquired or constructed in 2009, incentives for wind facilities placed in service by Dec. 31, 2012 and grants for qualifying investments that are expected to improve the electric grid and transportation infrastructure.
February 2009 - The Wisconsin Senate Bill 62 (SB 62) was enacted. The most significant provision of SB 62 for WPL requires combined reporting for corporate income taxation in Wisconsin beginning with tax returns filed for the calendar year 2009.
June 2009 - The U.S. House of Representatives (House) approved H.R. 2454. H.R. 2454 contains a proposed cap-and-trade GHG emissions reduction program.
November / December 2009 - The House and the U.S. Senate passed different versions of proposed healthcare legislation. Both versions contain a provision that would eliminate the non-taxable status of the 28% subsidy provided to employers who continue prescription drug coverage for their retirees.
December 2009 - The House approved H.R. 4173. The most significant provision of H.R. 4173 for WPL may require it to post large volumes of cash collateral related to its derivative instruments.
Refer to “Legislative Matters” for additional details regarding these and other legislative developments.
Liquidity and Capital Resources
Based on its current liquidity position and capital structure, WPL believes it will be able to secure the additional capital required to implement its strategic plan and to meet its long-term contractual obligations. Key financing developments impacting WPL during 2009 include:
June 2009 - WPL’s shelf registration statement became effective, which provided WPL the flexibility to offer up to an aggregate of $700 million of preferred stock and unsecured debt securities from June 2009 through June 2012.
July 2009 - WPL received authorization from the PSCW to issue long-term debt securities of no more than $350 million in 2010.
July 2009 - WPL issued $250 million of 5% debentures due 2019. Proceeds from this issuance were used to repay short-term debt and invest in short-term assets.
December 2009 - At Dec. 31, 2009, WPL had $240 million of available capacity under its revolving credit facility.
Refer to “Liquidity and Capital Resources” for additional details regarding these and other financing developments.
STRATEGIC OVERVIEW
Summary - WPL is committed to maintaining sustained, long-term strong financial performance with a strong balance sheet and credit ratings. This strong financial performance will help ensure access to capital markets at reasonable costs as WPL embarks on a substantial infrastructure investment program described in “Generation Plan” below. WPL’s strategic plan is concentrated on: 1) building and maintaining the generation and infrastructure necessary to provide its utility customers with safe, reliable and environmentally sound energy service; 2) earning returns authorized by its regulators; and 3) controlling costs to mitigate potential rate increases. WPL is utilizing a comprehensive Lean Six Sigma program to assist it in generating cost savings and operational efficiencies.
WPL believes legislation passed in Wisconsin provides utility companies in Wisconsin with the necessary rate making principles - and resulting increased regulatory and investment certainty - prior to making certain generation investments. These changes have enabled WPL to pursue additional generation investments to serve its customers and to provide WPL with greater certainty regarding the returns on these investments. Refer to “Rates and Regulatory Matters” for additional information regarding the legislation.
GenerationStrategic Plan - WPL’s currentstrategic plan focuses on the execution of its generation, plan forenvironmental compliance and energy efficiency plans, while meeting or exceeding customers’ and regulators’ expectations regarding reliability, availability, customer service and community support. The generation, environmental compliance and energy efficiency plans reflect a balanced approach to meeting the 2007 to 2013 time period reflectsneeds of customers, shareowners and the need to increase base-load generation in Wisconsin. The proposed new generation is expectedenvironment and include the following key components:
Generation plans -include building or acquiring electric generating facilities to meet increasing customer demand and renewable portfolio standards, reduce reliance on PPAspurchased power and mitigate theany impacts of potential future plant retirements. WPL will continue to purchase energyWPL’s proposed new electric generating facilities have a diversified fuel mix and capacitycurrently include wind projects in the marketMidwest and intendsa natural gas-fired generating facility in Wisconsin. WPL believes a diversified fuel mix for new electric generating facilities is important to remainmeeting the needs of its customers, shareowners and the environment while preparing for a net purchaserpotentially carbon-constrained environment in the future. Additional details of both, butnew electric generating facilities are included in “Generation Plans” below.
Environmental compliance plans - include implementing emission controls at WPL’s existing fleet of electric generating facilities to meet current and proposed environmental regulations issued by the EPA and state environmental agencies. After implementation, WPL’s new emission controls are expected to significantly reduce future emissions of NOx, SO2 and mercury at its generating facilities. Additional details regarding proposed new emission controls are included in “Environmental Compliance Plans” below.
Energy efficiency programs - include contributing to Wisconsin’s Focus on Energy program, continuing WPL’s Shared Savings program and installing AMI as a reduced level assuming the successful completionplatform for Smart Grid initiatives in WPL’s service territory. Additional details of these generation projects. The plan also reflects continued commitments to WPL’s energy efficiency and environmental protection programs. WPL continues to monitor developments related to state and federal renewable portfolio standards, environmental requirements for new generation and federal and state tax incentives.plans are included in “Energy Efficiency Programs” below.
Generation Plans - WPL reviews and updates, as deemed necessary and in accordance with regulatory requirements, its generation plan and expects to adjust its plan as neededplans. WPL is currently evaluating the types of capacity additions it will pursue to meet anyits customers’ long-term energy needs and is monitoring several related external factors that will influence those evaluations. Some of these standards or to react to any marketexternal factors increasing or decreasing theinclude regulatory decisions regarding proposed projects, changes in long-term projections of customer demand, availability orand cost effectiveness of different generation technologies, market conditions for obtaining financing, developments related to federal and state renewable portfolio standards, environmental requirements for new generation, such as future carbon and renewable requirements and federal and state tax incentives. The following provides details of the various renewable energy technologiesgeneration project within the Generation Plans that was completed during 2009.
Neenah Energy Facility - In June 2009, WPL acquired the Neenah Energy Facility and other alternatives to itsrelated assets from Resources for $92 million. The Neenah Energy Facility is a 300 MW, simple-cycle, dual-fueled (natural gas/diesel) electric generating facility located in Neenah, Wisconsin.
The remaining generation plan.projects in WPL’s current generation plan for the 2007 toplans through 2013 time period isare as follows:follows (Not Applicable (N/A)):
Owner or Counterparty to PPA | Generation Type | Owned or PPA | Capacity (MW) | Expected Commercial Operation Date | Notes | |||||
IPL and/or WPL | Wind | PPA | 20-100 | 2007 -2009 | ||||||
WPL | Wind | Owned | 60-100 | 2008 | (a) | |||||
WPL | Wind | Owned | 200 | 2009 | (b) | |||||
WPL | Coal-fired (Base-load) | Owned | 300 | 2012 | (c) | |||||
IPL and/or WPL | Anaerobic digesters | PPA | 3 | 2013 |
Primary Generation Type | Project Name / Location | Capacity (MW) | Expected Date | Cost Estimate (a) | Current Capitalized Costs (b) | Actual / Expected Decision Date | ||||||
Wind | Bent Tree - Phase I Freeborn County, MN | 200 | Q4 2010 and Q1 2011 | $425 - $460 | $162 | October 2009 | ||||||
Natural-gas | Riverside Energy Center Beloit, WI | 600 | 2013 | 365 - 375 | N/A | 2012 - 2013 | ||||||
| $162 | ||||||||||||
| (a) |
|
|
| (b) | Costs represent capitalized expenditures in millions of dollars recorded in “Property, plant and equipment” on the |
Alliant Energy currently has PPAsBent Tree - In March 2009, WPL acquired approximately 400 MW of wind site capacity in Freeborn County, Minnesota. WPL plans to use 200 MW of the capacity from this site for its Bent Tree - Phase I wind project. In July 2009, WPL received an order from the PSCW approving construction of the 200 MW project. The total project cost approved by the PSCW is $497 million ($460 million, excluding AFUDC). WPL must promptly notify the PSCW if the scope, design or location of the project changes significantly, or if the project cost exceeds the approved amount by more than 10%. WPL expects to use traditional rate making procedures for the recovery of and return on its capital costs for the 200 MW of capacity. In October 2009, WPL received an order from the MPUC approving the Site Permit and Certificate of Need applications. WPL plans to utilize 200 MW of wind turbine generator sets and related equipment under the master supply agreement entered into with Calpine subsidiariesVestas-American Wind Technology, Inc. (Vestas) in 2008 for the Bent Tree - Phase I wind project. In 2009, WPL made progress payments of $146 million to Vestas for the 200 MW of wind turbine generator sets and related equipment. Construction of Bent Tree - Phase I is expected to begin in 2010 and the expected commercial operation date is subject to the timing of remaining local permits and execution of a transmission interconnect agreement. Future development of the remaining 200 MW of wind site capacity will depend on numerous factors such as renewable portfolio standards, availability of wind turbines and transmission capabilities. As of Dec. 31, 2009, WPL’s capitalized costs related to the purchase of energy and capacity from the 460 MW RockGen Energy Center (RockGen), in Christiana, Wisconsin and the 603 MW (Alliant Energy leases 481additional 200 MW of this total capacity under its current PPA)held for future development were $14 million.
Riverside - WPL has a purchased power agreement (PPA) with a subsidiary of Calpine Corporation related to Riverside Energy Center (Riverside) in Beloit, Wisconsinthat extends through May 2013 and hasprovides WPL the option to purchase these two facilities in 2009 and 2013, respectively.Riverside at the end of the PPA term. For contingency planning purposes, Alliant Energy has requested proposals for WPL’s summer peaking power supply needs forWPL is currently assuming it will exercise its option to purchase Riverside, a 600 MW natural-gas fired electric generating facility in Beloit, Wisconsin, to replace the years 2007 throughoutput currently obtained under the PPA.
Other Wind Projects - In March 2009, if RockGen becomes unavailable asWPL purchased development rights to a resultwind site with the potential to develop an approximate 100 MW of wind capacity in Green Lake and Fond du Lac Counties in Wisconsin. Development and construction of the Calpine bankruptcy proceeding. In addition, Alliant Energy has also requested longer-term proposalsproject will depend on numerous factors such as renewable portfolio standards, site permitting and environmental approvals, transmission interconnections and availability of wind turbines. As of Dec. 31, 2009, WPL’s capitalized costs related to the wind project were $5 million.
Contingent Purchase Agreement for either a PPA or the purchase of a facility to meet the peaking power supply needs of IPL and WPL beginning in 2008. Alliant Energy is pursuing responses from interested parties.Edgewater Unit 5 - Refer to Note 1812(g) of the “Notes to Consolidated Financial Statements” for discussion of WPL’s contingent purchase agreement for Edgewater Unit 5.
Environmental Compliance Plans - WPL has developed environmental compliance plans to help ensure cost effective compliance with current and “Other Matters - Other Future Considerations - Calpine Bankruptcy”proposed environmental regulations expected to significantly reduce future emissions of NOx, SO2 and mercury at its generating facilities. Details of these current and proposed environmental regulations are discussed in “Environmental Matters.” The current environmental compliance plans for WPL include investments in emission controls for its electric generating facilities as well as purchases of emission allowances. WPL reviews and updates, as deemed necessary and in accordance with regulatory requirements, its environmental compliance plans to address various external factors. Some of these external factors include regulatory decisions regarding proposed emission control projects, developments related to environmental regulations, availability and cost effectiveness of different emission reduction technologies, market prices for emission allowances, market conditions for obtaining financings and federal and state tax incentives. The following provides details of capital expenditure estimates for 2010 through 2012 for emission control projects included in WPL’s current environmental compliance plans (in millions):
Generating Unit | Emissions Controlled | Technology (a) | 2010 | 2011 | 2012 | ||||||||
Edgewater Unit 5 | NOx | SCR | $ | 15 | $ | 40 | $ | 45 | |||||
Columbia | SO2 and Mercury | Scrubber and Baghouse | 20 | 100 | 125 | ||||||||
| $ | 35 | $ | 140 | $ | 170 | ||||||||
| (a) | Selective Catalytic Reduction (SCR) is a post-combustion process that injects ammonia or urea into the stream of gases leaving the generating facility boiler to convert NOx emissions into nitrogen and water. The use of a catalyst enhances the effectiveness of the conversion enabling NOx emissions reductions of up to 90%. |
Baghouse / carbon injection processis a post-combustion process that injects carbon particles into the stream of gases leaving the generating facility boiler to facilitate the capture of mercury in filters or bags. A baghouse / carbon injection process can remove more than 85% of mercury emissions.
Scrubberis a post-combustion process that injects lime or lime slurry into the stream of gases leaving the generating facility boiler to remove SO2 and capture it in a solid or liquid waste by-product. A scrubber typically removes more than 90% of the SO2 emissions regardless of generating facility boiler type or design.
These capital expenditure estimates represent WPL’s portion of the total escalated capital expenditures and exclude AFUDC, if applicable. Capital expenditure estimates are subject to change based on future changes to plant-specific costs of emission control technologies and air quality rules. WPL is currently evaluating its environmental compliance plans for 2013 and beyond and will update its capital expenditure plans for these periods in the future when the plans are finalized. Refer to “Environmental Matters” for additional information.details regarding proposed environmental rules that may impact environmental compliance plans.
Emission Control Projects - WPL must file a certificate of authority and receive authorization from the PSCW to proceed with any individual clean air compliance project containing estimated project costs of $8 million or more. In March 2007, the PSCW approved the deferral of the retail portion of WPL’s incremental pre-certification and pre-construction costs for current or future clean air compliance rule projects requiring PSCW approval, effective on the request date of November 2006. WPL currently anticipates that such deferred costs will be recovered in future rates and therefore does not expect these costs to have an adverse impact on its financial condition or results of operations. WPL has filed certificates of authority for the following individual clean air compliance projects.
Edgewater Unit 5 - In 2008, WPL filed a certificate of authority with the PSCW to install a SCR system at Edgewater Unit 5 to reduce NOx emissions at the facility. WPL’s portion of the capital expenditures, excluding AFUDC, for the Edgewater Unit 5 emission controls is currently estimated to be $115 million, a portion of which is included in the above estimates for WPL’s environmental compliance plans. WPL currently expects the PSCW to issue a ruling on its application in the second quarter of 2010. The SCR system at Edgewater Unit 5 is expected to support compliance obligations for current and anticipated air quality regulatory requirements, primarily including CAIR and the Wisconsin Reasonably Available Control Technology (RACT) Rule.
Columbia - In April 2009, WPL and its co-owners filed a certificate of authority with the PSCW to install a scrubber and baghouse at Columbia to reduce SO2 and mercury emissions, respectively, at the generating facility. WPL’s portion of the capital expenditures, excluding AFUDC, for the Columbia emission controls is currently estimated to be $290 million, a portion of which is included in the above estimate for WPL’s environmental compliance plans. WPL currently expects the PSCW to issue a ruling on its application in the first quarter of 2010. The scrubber and baghouse at Columbia are expected to support compliance obligations for current and anticipated air quality regulatory requirements, primarily including the Clean Air Interstate Rule (CAIR) and the Wisconsin State Mercury Rule.
Nelson Dewey - In 2007, WPL filed a certificate of authority with the PSCW to install a scrubber and baghouse at the two existing units at Nelson Dewey to reduce SO2 and mercury emissions, respectively, at the generating facility. WPL is reevaluating this project due to forthcoming changes in environmental rules and regulations. There are no capital expenditures included in the above table relating to this project.
Business DivestituresEnergy Efficiency Programs - In February 2007, WPL has several energy efficiency programs that help customers reduce their energy usage through the use of new energy efficient equipment, products and practices. The following are WPL’s current key energy efficiency programs:
Smart Grid Initiatives - Smart Grid initiatives are designed to improve customer service, enhance energy management and conservation and provide operational savings through increased efficiencies of WPL’s electric distribution system. AMI is expected to be the foundation for the Smart Grid in WPL’s service territory. WPL has completed the saleapproximately 90% of its AMI deployment by installing over 560,000 AMI electric distributionmeters and gas propertiesmodules in Illinois and received net proceeds of $23 million. In July 2006, WPL completed the sale of the water utility in South Beloit, Illinois and received net proceeds of $4 million. Asits service territory as of Dec. 31, 2006, none2009. WPL anticipates its total capital expenditures for AMI will be approximately $110 million ($90 million for the electric portion and $20 million for the gas portion) upon completion of these divested utility businesses have been reported as discontinued operations.the deployment in 2010.
RATES AND REGULATORYFocus on Energy Program - WPL contributes 1.2% of annual retail utility revenues to help fund Focus on Energy, Wisconsin’s statewide energy efficiency and renewable energy resource program. Focus on Energy works with eligible Wisconsin residents and businesses to finance and install energy efficiency and renewable energy equipment. Contributions to Focus on Energy are recovered from WPL’s retail rate payers.
Shared Savings Program - - WPL offers an energy efficiency program to certain customers in Wisconsin referred to as the Shared Savings program. This program provides low-cost financing to help customers identify, purchase and install energy efficiency improvement projects. The customers repay WPL with monthly payments over a term up to five years.
RATE MATTERS
Overview -WPL is currently subject to federal regulation by FERC, which has jurisdiction over wholesale electric rates, electric transmission and certain natural gas facilities, and state regulation in Wisconsin for retail utility rates and standards of service. Such regulatory oversight also covers WPL’s plans for construction and financing of new generation facilities and related activities.
Recent UtilityRetail Base Rate CasesFilings - - Details of WPL’s retail base rate cases impacting its historical and future results of operations are as follows (dollars in millions; Electric (E); Gas (G); Water (W); To Be Determined (TBD); Not Applicable (N/A); Fuel-related (F-R); fourth quarter (Q4)):
Case | Utility Type | Filing Date | Increase Requested | Interim Increase Granted (a) | Interim Effective Date | Final Increase Granted (a) | Final Effective Date | Expected Final Effective Date | Return on Common Equity | Notes | |||||||||||||||
Wholesale | E | 9/06 | $ | 9 | $ | 9 | 6/07 | TBD | TBD | 9/07 | N/A | (b | ) | ||||||||||||
2007 retail | E/G | 3/06 | 96 | N/A | N/A | $ | 34 | 1/07 | �� | N/A | 10.80 | % | (c | ) | |||||||||||
2005 retail (F-R) | E | 8/05 | 96 | 96 | Q4 ‘05 | 54 | 9/06 | N/A | N/A | (d | ) | ||||||||||||||
2005 retail (F-R) | E | 3/05 | 26 | 26 | 4/05 | 26 | 7/05 | N/A | N/A | ||||||||||||||||
2005/2006 retail | E/G | 9/04 | 63 | N/A | N/A | 21 | 7/05 | N/A | 11.50 | % | |||||||||||||||
Wholesale | E | 8/04 | 12 | 12 | 1/05 | 8 | 1/05 | N/A | N/A | (e | ) | ||||||||||||||
2004 retail (F-R) | E | 2/04 | 16 | 16 | 3/04 | 10 | 10/04 | N/A | N/A | ||||||||||||||||
2004 retail | E/G/W | 3/03 | 87 | — | N/A | 14 | 1/04 | N/A | 12.00 | % | |||||||||||||||
Wholesale | E | 3/03 | 5 | 5 | 7/03 | 5 | 2/04 | N/A | N/A | ||||||||||||||||
Retail Base Rate Cases | Utility Type | Filing Date | Final Increase (Decrease) Granted | Final Effective Date | Return on Common Equity | ||||||
2010 Test Year | E/G | May-09 | E-$59; G-$6 | Jan-10 | 10.4 | % | |||||
2009/2010 Test Period | E/G | Feb-08 | G-(4) | Jan-09 | N/A | ||||||
2008 Test Year | E | Apr-07 | 26 | Jan-08 | N/A |
Retail Rate Case (2010 Test Year) -In May 2009, WPL filed a request with the PSCW to increase annual retail electric rates by $86 million, or approximately 9%, and increase annual retail natural gas rates by $6 million, or approximately 3%. The request was based on a 2010 forward-looking test year. The key drivers for the filing included recovery of infrastructure costs of the electric and natural gas utility systems, which had been impacted by a material reduction in sales and increased costs. In addition, WPL requested recovery of the remaining retail portion of the deferred costs for its cancelled Nelson Dewey #3 project. In September 2009, WPL revised its request to an annual electric retail rate increase of $99 million and annual retail natural gas rate increase of $8 million. The increase in the requested amount for the retail electric rates was primarily due to increased infrastructure costs and a reduced 2010 sales forecast.
In December 2009, WPL received an order from the PSCW authorizing an annual retail electric rate increase of $59 million, or approximately 6%, and an annual retail natural gas rate increase of $6 million, or approximately 2%, effective January 2010. The PSCW order included the following details:
Return on common equity of 10.4%
Regulatory capital structure comprised of 50.4% common equity, 43.3% long-term debt, 3.9% short-term debt and 2.4% preferred equity
Weighted average cost of capital of 8.18%
2010 average rate base of $1.38 billion for retail electric and $0.21 billion for retail natural gas.
The December 2009 order from the PSCW also approved recovery of certain deferred benefits costs incurred by WPL in 2009 and a portion of the previously deferred costs for the cancelled Nelson Dewey #3 project. Refer to Note 1(b) of the “Notes to Consolidated Financial Statements” and “Results of Operations” for further discussion regarding the PSCW’s decision regarding recovery of these deferred costs and regulatory-related charges in 2009 for the portion of the cancelled Nelson Dewey #3 costs that WPL was denied recovery.
The 2010 retail electric rate relief approved by the PSCW includes an amount that represents a current return on 50% of the estimated construction work in progress (CWIP) for WPL’s Bent Tree - Phase I wind project for 2010. The remaining CWIP balance for its Bent Tree - Phase I wind project will accrue AFUDC during 2010. In addition, the PSCW authorized WPL to defer the retail portion of return on rate base, depreciation expense and other operation and maintenance expenses for those portions of the Bent Tree -Phase I wind project placed in service in 2010.
Retail Rate Case (2009/2010 Test Period) -In February 2008, WPL filed a request with the PSCW to increase current retail electric rates by $93 million, or approximately 9%, and reduce current retail gas rates by $1 million, or approximately 1%, effective Jan. 1, 2009. The electric request was based on a 2009 forward-looking test year with approval to reopen the case to address limited cost drivers for 2010. The electric request reflected recovery for increased projected spending on electric generation infrastructure, environmental compliance and stewardship, enhanced investment in renewable energy projects, stepped-up customer energy efficiency and conservation efforts, and related electric transmission and distribution costs. The gas request was based on an average of 2009 and 2010 projected costs.
Through the course of the PSCW audit, the 2009 request was updated for various new cost estimates and removal of capital projects that had not yet been approved by the PSCW. These projects include Bent Tree - Phase I, Nelson Dewey #3 (subsequently rejected by the PSCW in December 2008) and various environmental compliance projects. WPL received approval from the PSCW for the Bent Tree - Phase I wind project in 2009, and it was subsequently included in WPL’s 2010 retail rate case.
In December 2008, WPL and major intervenors in the case reached a stipulated agreement on electric and gas rate changes for 2009. The parties agreed to hold retail electric rates flat and decrease retail gas rates by $4 million. The stipulated agreement also included a provision that authorized WPL to defer, and record carrying costs on, the retail portion of pension and benefit costs in excess of $4 million, any change in the retail portion of network wheeling costs charged by ATC that is different than the $82 million included in rates and any change in the retail portion of emission allowance expense that is different than $2 million. In addition, the stipulated agreement included the recovery of $9 million over a two-year period for pre-certification costs related to the Nelson Dewey #3 project that had been incurred through December 2007. The PSCW approved the stipulations in December 2008.
Retail Rate Case (2008 Test Year) -In April 2007, WPL filed a request with the PSCW to reopen its 2007 retail rate case for the limited purpose of increasing electric retail rates in an amount equal to deferral credits that were fully amortized on Dec. 31, 2007. WPL also requested clarification that it is authorized to record AFUDC on all CWIP balances in excess of the CWIP balance included in the 2007 test year. In November 2007, the PSCW issued a final written order approving an annual electric retail rate increase of $26 million effective Jan. 1, 2008 and approving WPL’s requested clarification regarding AFUDC and CWIP.
Planned Utility Rate Case in 2010 -WPL expects to file a retail electric and gas rate case in March 2010 based on a forward-looking test period that includes 2011 and 2012. The key drivers for the filing include recovery of investments in WPL’s Bent Tree - Phase I wind project and other infrastructure projects. Any rate changes granted are expected to be effective on Jan. 1, 2011, which is the start of the test-year period.
Other Utility Rate Case Information -With the exception of recovering a return on additions to WPL’s infrastructure, a significant portion of the rate increases included in the above table reflect thea recovery of increased costs incurred or expected to be incurred by WPL.WPL and the impact of lower sales. Thus, these increases in revenues are notfrom rate increases cannot be expected to result in a significantan equal increase in net income.WPL’s income before income taxes.
Rate-making Principles for New Electric Generating FacilitiesRetail Fuel-related Rate Filings - Wisconsin has a law (Act 7) that allows a public utility that proposes to purchase or construct an electric generating facility in Wisconsin to apply toDetails of WPL’s retail fuel-related rate filings impacting its historical results of operations are as follows:
2009 Test Year -In August 2009, WPL notified the PSCW that its actual retail fuel-related costs incurred during the month of July 2009 were below the monthly monitoring range of plus or minus 8% and projected annual retail fuel-related costs for 2009 could fall outside the annual monitoring range of plus or minus 2%. In September 2009, the PSCW issued an order that specifiesset WPL’s retail electric fuel rates currently in advanceeffect subject to refund beginning Sep. 1, 2009. In January 2010, WPL filed a retail electric fuel refund report indicating retail fuel over collections of $4 million for the rate making principles thatperiod from Sep. 1, 2009 through Dec. 31, 2009. As of Dec. 31, 2009, WPL reserved $4 million, including interest, for refunds anticipated to be paid to its retail electric customers. WPL currently expects to receive the PSCW’s decision and complete any refunds to its retail electric customers in the second quarter of 2010.
2008 Test Year -In March 2008, WPL filed a request with the PSCW will apply to theincrease annual retail electric generating facilityrates by $16 million to recover anticipated increased electric production fuel and energy purchases (fuel-related costs). Actual fuel-related costs in future rate making proceedings. This law is designed to give utilities in Wisconsin more regulatory certainty, including providing utilitiesthrough February 2008, combined with a fixed rateprojections of return and recovery period for these investments, when financing electric generation projects. WPL plans to utilize the rate making principles included in Act 7continued higher fuel-related costs for the remainder of 2008, significantly exceeded the amounts being recovered in retail electric generation facilities includedrates at the time of the filing. In the second quarter of 2008, WPL received an order from the PSCW authorizing the requested $16 million interim increase, subject to refund, effective in WPL’s generation plan. Refer to “Strategic Overview - Generation Plan” for additional details of WPL’s generation plan including discussion of WPL’s recent filings requesting approval to construct its wind generating facility in Fond du Lac County, Wisconsin and coal-fired generating facility in Cassville, Wisconsin.
New electric generating facilities require large outlays of capital and long periods of time to construct resulting in significant financing costs. FinancingApril 2008. Retail fuel-related costs incurred by utilities during construction are generally included as partWPL in 2008 were lower than retail fuel-related costs used to determine interim rates that were effective April 2008, resulting in $23 million, including interest, of refunds owed to its retail electric customers. WPL refunded the construction work$23 million to its retail electric customers in process (CWIP) cost of the new generating facility through accruals of AFUDC. 2009.
2007 Test Year -In recent base rate cases,May 2007, WPL notified the PSCW has authorized WPL to recover 50%that its actual average fuel-related costs for the month of these financing costs during construction by including that portion ofMarch 2007 had fallen below the construction costsmonthly fuel monitoring range set in net investment rate base and to recover the other 50% of these financing costs after the asset is placed in service. In its 2007WPL’s most recent retail rate case WPL requestedand that projected average fuel-related costs for 2007 could be below the PSCWannual monitoring range to authorizean extent that 100% of CWIP costs related to newwould warrant a decrease in retail electric generating facilities be included in net investment rate base allowing recovery of these costs during construction of these facilities as opposed to after they are placed in service.rates. In JanuaryJune 2007, the PSCW denied WPL’s request because the new electric generating facilities had not yet received the required PSCW approval. WPL will continue to seek recovery of financing costs by inclusion of 100% of CWIP costs in net investment rate base in future rate proceedings.
Lastly, new electric generating facilities require material expenditures for planning and siting these facilities prior to receiving approval from regulatory commissions to begin construction. These expenditures are commonly referred to as pre-certification costs and pre-construction costs. WPL has received approval from the PSCW to defer pre-certification costs
and pre-construction costs related to its wind generating facility in Fond du Lac County, Wisconsin and coal-fired generating facility in Cassville, Wisconsin.
Utility Fuel Cost Recovery - WPL’s wholesale electric tariffs provide for subsequent adjustments to its rates for changes in commodity costs thereby eliminating price risk for prudently incurred commodity costs. WPL’s retail gas tariffs provide for subsequent adjustments to its natural gas rates for changes in the current monthly natural gas commodity price index. Also, WPL currently has a gas performance incentive which includes a sharing mechanism whereby starting in January 2007, 35% of all gains and losses relative to current commodity prices, as well as other benchmarks, are retained by WPL, with 65% refunded to or recovered from customers. Such rate mechanisms, significantly reduce commodity price risk associated with WPL’s wholesale electric and retail gas margins. WPL’s retail electric margins, however, are more exposed to the impact of changes in commodity prices due largely to the current retail recovery mechanisms in place in Wisconsin for fuel-related costs as discussed below.
Retail Electric Fuel-related Cost Recovery -issued an order that set WPL’s retail electric rates are based on forecasts of forward-looking test year periods and include estimates of future monthlycurrently in effect subject to refund beginning June 1, 2007. Retail fuel-related costs (includes fuel and purchased energy costs) anticipated duringincurred by WPL for the test year. During each electricperiod from June 1, 2007 to Dec. 31, 2007 were lower than retail rate proceeding, the PSCW sets fuel monitoring ranges based on the forecasted fuel-related costs used to determine rates during such period resulting in such proceeding. If WPL’s actual fuel-related costs fall outside these fuel monitoring ranges, the PSCW can authorize an adjustment$22 million, including interest, of refunds owed to futureits retail electric rates.customers. WPL completed these refunds by reimbursing its retail electric customers $4 million in 2007, $16 million in 2008 and $2 million in 2009.
The fuel monitoring ranges set by the PSCW include three different ranges based on monthly costs, annual costs and cumulative costs during the test period.Wholesale Rate Filing - In December 2006, WPL received an order for WPLfrom FERC authorizing an interim rate increase, subject to be authorized to file for a proceeding to change ratesrefund, effective June 1, 2007 related to fuel-related costs during the test period,WPL’s request to implement a formula rate structure for its wholesale electric customers. In February 2008, final written agreements were filed with FERC that contained a settlement between WPL must demonstrate first that (1) any actual monthly costs during the test period exceeded the monthly ranges or (2) the actual cumulative costs to date during the test period exceeded the cumulative ranges. In addition, the annual projected costs (that include cumulative actual costs) for the test period must also exceed the annual ranges. Any affected party, including WPL or the PSCW, may initiate a proceeding to change rates due to changes in fuel related costs during the monitoring period based on the above criteria. In January 2007, the PSCW approved an order changing WPL’s fuel cost monitoring ranges to plus or minus 8% for the monthly range; plus or minus 2% for the annual range; and for the cumulative range, plus or minus 8% for the first month, plus or minus 5% for the second month, and plus or minus 2% for the remaining monthsits wholesale customers of the monitoring period.issues identified in WPL’s filing requesting the formula rate structure. In August 2008, FERC approved the settlement and the implementation of settlement rates effective June 1, 2008. During the period the interim rate increase was effective from June 1, 2007 to May 31, 2008, WPL over-recovered $10 million, including interest, from its wholesale customers. In September 2008, WPL refunded the $10 million to its wholesale electric customers.
The PSCW attempts to authorize, after a required hearing, interim fuel-related rate increases within 21 days of notice to customers. Any such change in rates would be effective prospectively and would require a refund with interest at the overall
Authorized Return on Equity -At Dec. 31, 2009, WPL’s most recently authorized return on common equity if finalfor each of its key jurisdictions were as follows:
Wisconsin retail (PSCW): | |||
Electric | 10.40 | % | |
Gas | 10.40 | % | |
Wholesale (FERC): | |||
Electric | 10.90 | % |
Proposed Changes to Rate Recovery Mechanisms
Wholesale Formula Rate Change -In August 2009, WPL filed a request with FERC requesting approval of changes to WPL’s wholesale formula rates in order to implement for billing purposes the full impact of accounting for defined benefit postretirement plans. In October 2009, WPL wholesale customers requested that FERC suspend the August 2009 filing and set up an evidentiary hearing to be held pending the outcome of settlement discussions.
Electric Fuel-related Cost Recovery Mechanism in Wisconsin -In November 2009, legislation (2009 Assembly Bill 600) was introduced in Wisconsin to change statutes related to the process by which utilities recover electric fuel-related costs from their retail electric customers. If approved, the new electric fuel-related costs recovery mechanism would allow Wisconsin utilities to automatically defer electric fuel-related costs that fall outside a symmetrical cost tolerance band and reflect the over/under recovery of these deferred costs in future billings to their retail customers. This change would eliminate the current regulatory lag between the point in time fuel-related costs fall outside tolerance bands and the point in time when new rates are determinedplaced into effect. The PSCW supports this legislation. In February 2010, the Wisconsin Assembly approved the 2009 Assembly Bill 600. However, WPL is unable to predict whether the legislation will be enacted.
ENVIRONMENTAL MATTERS
Overview -WPL is subject to regulation of environmental matters by federal, state and local authorities as a result of its current and past operations. WPL monitors these environmental matters and addresses them with pollution abatement programs. These programs are subject to continuing review and are periodically revised due to various factors, including changes in environmental regulations, litigation of environmental requirements, construction plans and compliance costs. There is currently significant regulatory uncertainty with respect to the various environmental rules and regulations discussed below. Given the dynamic nature of environmental regulations and other related regulatory requirements, WPL has established an integrated planning process that is used for environmental compliance of its future anticipated operations. WPL anticipates future expenditures for environmental compliance will be material including significant capital investments. WPL anticipates that prudent expenditures incurred to comply with environmental requirements likely would be recovered in rates from its customers. Refer to “Strategic Overview - Environmental Compliance Plans” for details of WPL’s environmental compliance plans, including estimated capital expenditures. The following are major environmental matters that could potentially have a significant impact on WPL’s financial condition and results of operations.
Air Quality -The Clean Air Act (CAA) and its amendments mandate preservation of air quality through existing regulations and periodic reviews to ensure adequacy of these provisions based on scientific data. As part of the basic framework under the CAA, the EPA is required to establish NAAQS, which serve to protect public health and welfare. These standards address six “criteria” pollutants, four of which are particularly relevant to WPL’s electric operations, including NOx, SO2, particulate matter (PM), and ozone. Ozone is not directly emitted from WPL’s generating facilities; however, NOx emissions may contribute to its formation in the atmosphere. Fine particulate matter (PM2.5) may also be formed in the atmosphere from SO2 and NOx emissions.
State implementation plans (SIPs) document the collection of regulations that individual state agencies will apply to maintain NAAQS and related CAA requirements. The EPA must approve each SIP and if a SIP is not acceptable to the EPA or if a state chooses not to issue separate state rules, then the EPA can assume enforcement of the CAA in that state by issuing a federal implementation plan (FIP). Areas that comply with NAAQS are considered to be lower than interim rates approved. Rate decreases duein attainment, whereas routinely monitored locations that do not comply with these standards may be classified by the EPA as non-attainment and require further actions to decreases in fuel-related costs canreduce emissions. Additional emissions standards may also be implemented without a hearing.applied under the CAA regulatory framework beyond the NAAQS. The specific federal and state regulations that may affect WPL’s operations include: CAIR, Clean Air Visibility Rule (CAVR), Wisconsin State Mercury Rule, Wisconsin RACT Rule, MACT standards and NAAQS rules. WPL also monitors various other potential environmental matters related to air quality, including: litigation of various federal rules also include a process whereby Wisconsin utilities can seek deferral treatment of emergency changes in fuel-related costs between fuel-related or base rate cases. Such deferrals would be subject to review, approval and recovery in future fuel-related or base rate cases.
Potential Changes to WPL’s Fuel Cost Recovery Mechanisms - In February 2007, WPL and certain other investor-owned utilities jointly filed withissued under the PSCW proposed changesCAA statutory authority; revisions to the current retailNew Source Review/Prevention of Significant Deterioration (PSD) permitting programs and New Source Performance Standards; and proposed legislation or other regulatory actions to regulate the emission of GHG.
CAIR -CAIR was issued by the EPA in 2005 to reduce emissions of SO2 and NOx from electric fuel-related cost recovery rulesgenerating units with greater than 25 MW of capacity. CAIR established new SO2 and NOx (both annual and ozone season) emission caps beginning in Wisconsin. The proposal recommends each utility annually file2010 and 2009, respectively, with further reductions in SO2 and NOx emission caps effective in 2015. CAIR included a forecastlarge regional cap-and-trade system, where compliance may be achieved by either adding emission controls and/or purchasing emission allowances. In July 2008, the U.S. Court of total fuel-related costs and salesAppeals for the upcoming 12-month period, which willD.C. Circuit (D.C. Circuit Court) vacated CAIR in its entirety. In September 2008, the EPA and other affected parties filed petitions requesting the D.C. Circuit Court review this decision, including a request that CAIR be usedremanded to determine fuel-related ratesthe EPA for such period. Any under- or over-collection of actual fuel-related costs,reconsideration and not vacated in excess of plus or minus 1%, for a utility during such 12-month period would be reflected inits entirety. In December 2008, the D.C. Circuit Court issued an escrow account, with interest fororder that utility. The balancedenied rehearing of the escrow account atoriginal court decision and also remanded (rather than vacated) CAIR to the end of each year would be includedEPA for revision to address flaws identified in the forecastJuly 2008 opinion in the case. The impact of total fuel-related costs for the following 12-month period allowing recoverycourt’s remand of under-collected costs or refund of over-collected costs in each subsequent year.CAIR to the EPA is that CAIR obligations became effective Jan. 1, 2009. The EPA has indicated that a revised CAIR proposal also providesis expected to be issued by May 2010 and the PSCW an opportunityfinal revised rule is expected to review the actual fuel-related costs for each 12-month periodbe issued 12 to ensure the fuel-related costs were prudent. The definition of fuel-related costs would also be expanded to specifically include MISO energy market costs and revenues, emission allowance and trading costs and revenues, renewable resource credit costs and revenues and other variable operation and maintenance costs. This proposal and other alternatives remain under discussion with the PSCW and other interested parties, including WPL.14 months later.
In January 2007,The 2008 court ruling may have an indirect impact on the PSCW directedCAVR issued by the EPA in 1999 and related Best Available Retrofit Technology Rule (BART) determination guidance in 2005 to address regional haze as discussed below. The EPA’s response to this court decision and associated implications to WPL are uncertain at this time. There are also uncertainties regarding the state regulation in Wisconsin that were adopted to work withimplement CAIR and state responses when a federal CAIR replacement rule is finalized by the PSCW staff over the following three months to help the PSCW determine if it may be necessary to reevaluate the current benchmarks for WPL’s gas cost recovery mechanism or explore a modified one-for-one pass through of gas costs to retail customers.EPA.
WPL is currently unable to predict the final outcome of the EPA’s further work on a replacement rule for CAIR, but expects that capital investments and/or modifications resulting from the replacement air quality rules that address SO2 and NOx emissions could be significant. WPL continues to implement its environmental compliance plans to meet the currently effective CAIR requirements, which include investments in emission controls for electric generating facilities as well as purchases of emission allowances. WPL will closely monitor future developments relating to the CAIR regulations and update its environmental compliance plans as needed.
CAVR -CAVR requires states to develop and implement SIPs to address visibility impairment in designated national parks and wilderness areas across the country with a national goal of no impairment by 2064. Affected states, including Wisconsin, were required to submit a CAVR SIP to the EPA by December 2007 to include BART emission controls and other additional measures needed for reducing state contributions to regional haze. Wisconsin has not yet submitted a CAVR SIP for EPA review. In January 2009, the EPA found Wisconsin to be deficient regarding the CAVR SIP submittal. The EPA is now required to promulgate a FIP within two years. However, the FIP requirement is void if a state submits a regional haze SIP, and the EPA approves that SIP within the two-year period. Electric generating facility emissions of primary concern for BART and regional haze regulation include SO2, NOx and PM. There are pending obligations under the EPA’s CAVR to complete BART determinations that would evaluate control options to reduce these initiatives.emissions at certain WPL units that were built between 1962 and 1977. The D.C. Circuit Court CAIR ruling in 2008 may have an indirect impact on the CAVR and BART SIP implementation approach because the EPA allowed for BART obligations for SO2 and NOx emissions to be fulfilled by the CAIR program. As a result of the D.C. Circuit Court CAIR ruling in December 2008 to revise CAIR, there are uncertainties in the applicability of and compliance outcomes of BART control approaches that will be approved for inclusion in CAVR SIPs. In addition, there are uncertainties whether additional emission reductions could be required to address regional haze impacts beyond BART. WPL is unable to predict the impact that CAVR might have on the operations of existing electric generating facilities until EPA final approval of state CAVR plans, which is currently expected in 2011.
Utility MACT Standard -In February 2009, the EPA filed a motion to dismiss its request for review of the D.C. Circuit Court’s decision vacating the Clean Air Mercury Rule. According to the motion to dismiss, the EPA intends to develop MACT standards for electric generating units pursuant to Section 112 of the CAA. When developing a MACT standard, the EPA looks at the current level of emissions control achieved by best-performing similar sources. These emissions control levels set a baseline, often referred to as the “MACT floor” for the new standard. In January 2010, the EPA issued an information collection request for coal- and oil-fired electric utility steam generating units over 25 MW in order to develop a proposed Utility MACT standard for the control of mercury and other federal hazardous air pollutants. The purpose of the proposed information collection request is to collect data necessary to identify affected categories of electric generation units that will be subject to a Utility MACT standard and to define the MACT floor. The EPA is currently negotiating a consent decree that could require the agency to propose Utility MACT standards for coal- and oil-fired electric generating units no later than March 2011 and promulgate final standards no later than November 2011. WPL is currently unable to predict the
final outcome of Utility MACT standards to regulate mercury and other federal hazardous air pollutants from electric generating units, but expects that capital investments and/or modifications could be significant to comply with any such regulations.
Recent Regulatory-related Legislative DevelopmentsWisconsin State Mercury Rule - - In December 2006, legislation was enacted2008, a state-only mercury emission control rule became effective, which requires electric utility companies in Wisconsin to reduce annual mercury emissions by 40% from a historic baseline beginning in 2010. As part of its environmental compliance plans, WPL has invested in emission control technologies to meet the 2010 compliance requirements. In addition, the Wisconsin State Mercury Rule requires large coal-fired electric generating units with greater than 150 MW of capacity to either achieve a 90% annual mercury emissions reduction standard or limit the annual concentration of mercury emissions to 0.008 pounds of mercury per gigawatt-hour beginning in 2015. There is also an alternative multi-pollutant option that extended certain tax provisions containedextends the time for compliance with the annual mercury reduction requirement until 2021, but in addition requires the affected facilities to achieve NOx and SO2 reductions beyond those currently required by federal and state regulations. Other coal-fired electric generating units between 25 MW and 150 MW of capacity must install BACT by Jan. 1, 2015 to reduce mercury emissions. WPL is planning additional investments in emission controls to meet the post-2010 compliance requirements. Refer to “Strategic Overview - Environmental Compliance Plans - Emission Control Projects” for discussion of these proposed WPL emission controls. WPL continues to evaluate the impact of this state mercury rule and the federal Utility MACT rule discussed above to determine further mercury emission reductions that will be required.
Wisconsin RACT Rule -In 2004, the EPA designated 10 counties in Southeastern Wisconsin as non-attainment areas for the ozone NAAQS. This designation includes Sheboygan County, where WPL operates the Sheboygan Falls Energy Facility (SFEF) and Edgewater. In 2007, the Wisconsin DNR issued a RACT rule that requires NOx emission reductions at electric generating facilities as part of the federal ozone SIP submittal to address non-attainment areas in Wisconsin. Facility modifications are not necessary at SFEF to comply with this rule. As part of its environmental compliance plans, WPL completed investments for installation of NOx emission control technologies at Edgewater to meet the 2009 to 2012 compliance requirements. Refer to “Strategic Overview - Environmental Compliance Plans - Emission Control Projects” for discussion of proposed emission controls for further NOx emission reductions at Edgewater Unit 5 to meet 2013 compliance deadlines.
Ozone NAAQS Rule -In March 2008, the EPA announced reductions in the Energy Policy Actprimary NAAQS for eight-hour ozone to a level of 2005 including extension0.075 parts per million (ppm) from the previous standard of 0.08 ppm. A court has challenged that this new standard is not stringent enough. In January 2010, the renewable energy production tax credit for generating facilities placed into service priorEPA issued a proposal to Jan. 1, 2009.
Inreduce the primary standard to a level within the range of 0.06 to 0.07 ppm and establish a new seasonal secondary standard. The final rule is expected to be issued by August 2006,2010 and final designations of non-attainment areas are expected to be issued by August 2011. Depending on the Pension Protection Actlevel and location of 2006 was enacted. This legislation includesnon-attainment areas, WPL may be subject to additional NOx emissions reduction requirements to meet the new ozone standard. WPL is currently unable to predict the impact of any potential changes to these ozone standards on its financial condition and results of operations.
Fine Particle NAAQS Rule -The EPA lowered the minimum funding level requirements for postretirement benefit plans beginning24-hour fine particle primary NAAQS (PM2.5 NAAQS) from 65 micrograms per cubic meter (ug/m3) to 35 ug/m3 in 2008.2006. In October 2009, the EPA announced final designation of PM2.5 non-attainment areas. WPL does not expecthave any generating facilities in these non-attainment areas. However, in February 2009, the D.C. Circuit Court of Appeals issued a decision for litigation regarding the EPA’s determination not to lower the annual PM2.5 NAAQS in 2006. In response to the litigation decision, the EPA must re-evaluate its justification for not tightening the annual standard related to adverse effects on health and visibility. If the annual PM2.5 standard becomes more stringent, it could require SO2 and NOx emission reductions in areas designated as non-attainment. WPL is currently unable to predict the potential impact of the 2006 PM2.5 NAAQS re-evaluation on its financial condition and results of operations.
NO2 NAAQS Rule -In January 2010, the EPA issued a final rule to strengthen the primary NAAQS for NOx as measured by NO2. The final rule establishes a new one-hour NO2 standard of 100 parts per billion (ppb) and associated ambient air monitoring requirements, while maintaining the current annual standard of 53 ppb. The EPA is expected to designate non-attainment areas for the new NO2 standard by January 2012. WPL is currently unable to predict the impact of any potential NO2 standard changes on its financial condition or results of operations.
SO2 NAAQS Rule -In December 2009, the EPA published a proposed rule that would establish a new one-hour NAAQS for SO2 and associated monitoring requirements. The proposed rule would revise the primary SO2 standard to a level of between 50 and 100 ppb measured over one hour. The EPA anticipates that a new one-hour standard in the proposed range would prevent SO2 concentrations from exceeding the current 24-hour and annual health-based standards. As a result, the EPA is proposing to revoke both of the current primary SO2 standards. Alternatively, the EPA is seeking comment on a
one-hour standard of 150 ppb, which would supplement the existing standards. The EPA is under a court order to issue a final SO2 standard by June 2010 and is expected to designate non-attainment areas by June 2012. WPL is currently unable to predict the impact of any potential SO2 standard changes on its financial condition or results of operations.
Industrial Boiler and Process Heater MACT Rule -The EPA’s Industrial Boiler and Process Heater MACT rule became effective in 2004 and compliance with these new emission requirements for hazardous air pollutants was required by September 2007. This rule applies to fossil fuel electric generating units with less than 25 MW capacity as well as certain auxiliary boilers and process heaters operated at electric generating facilities. In June 2007, a court decision vacated this legislationrule. The EPA will havebe revising the Industrial Boiler and Process Heater MACT rule by April 2010 in response to this court decision, and the implications to WPL are uncertain at this time. Until the EPA issues a significantrevised Industrial Boiler and Process Heater MACT rule, the federal CAA generally requires affected facilities to submit to state permitting authorities an application for a case-by-case MACT determination for all potentially affected units under this rule. Case-by-case MACT determinations are effective compliance measures until revised final federal regulations can replace these interim requirements. WPL submitted case-by-case permit application information in 2009. The outcome of the case-by-case MACT determinations by the Wisconsin DNR is uncertain at this time. WPL is currently unable to predict the impact of any potential Industrial Boiler and Process Heater MACT standard changes on its financial condition or results of operations and continues to monitor related regulatory developments.
Air Permit Renewals - -WPL is aware of certain public comments or petitions from citizen groups that have been submitted to the Wisconsin DNR or to the EPA regarding the renewal of air operating permits at certain of its facilities. WPL has since received renewal air permits for Edgewater and Columbia, which considered all public comments and contain changes to permit requirements that resulted from the Wisconsin DNR’s review process. In December 2008, the Sierra Club submitted a notice of intent to sue the EPA for failure to respond to its petition encouraging the EPA to challenge the air permit issued by the Wisconsin DNR for Columbia. In October 2009, the EPA responded to the Sierra Club petition and granted one of three issues from the Sierra Club petition, objecting to that portion of the permit issued by the Wisconsin DNR. The Wisconsin DNR has been working with EPA, and has been in contact with WPL, related to this matter. To date, no changes have been made to the previously issued permit for Columbia.
In October 2009, the Sierra Club petitioned the EPA to object to a proposed Title V air permit for Edgewater that the Wisconsin DNR had submitted to the EPA for review. The EPA had 60 days from the filing of the petition to respond. In October 2009, the Wisconsin DNR issued the Title V air permit renewal for Edgewater, responding to comments made by the Sierra Club, which were the foundation for the petition. In December 2009, the Sierra Club filed a notice of intent to sue the EPA over its failure to act on the petition. The EPA has not yet acted on the petition, and WPL cannot predict the outcome of the EPA’s response to the Sierra Club petition or the Sierra Club’s notice of intent to sue the EPA for failure to act on the petition.
Air Permitting Violation Claims -In October 2009, WPL, as an owner and the operator of Nelson Dewey and Columbia, received from the Sierra Club an NOI based on allegations that modifications were made at those facilities without complying with the current funded status of its postretirement benefits plans.
In March 2006, a new law (Act 141) governing renewable energy and energy efficiency was enacted in Wisconsin. Act 141 commits Wisconsin utilities to a Renewable Portfolio Standard (RPS) using a benchmark of average retail sales of renewable electricity in 2001, 2002 and 2003 which was approximately 3% to 4% for WPL. WPL must increase renewable retail electric sales as a percentage of total retail electric sales by two percentage points above this benchmark by 2010, and by six percentage points above this benchmark by 2015. Wisconsin utilities may meet the renewable energyPSD program requirements, Title V Operating Permit requirements of the RPSCAA and state regulatory counterparts contained within the Wisconsin SIP designed to implement the CAA. In December 2009, WPL received from the Sierra Club a separate NOI, which contained similar allegations regarding Edgewater. The NOIs allege that various projects performed at Nelson Dewey, Columbia and Edgewater in years past were major modifications, as defined in the CAA, and that the owners violated the CAA when they undertook those projects without obtaining permits and installing the best available emission controls for SO2, NOx and PM. In the Edgewater NOI, additional allegations were made regarding violations of emission limits for visible emissions.
In December 2009, the EPA sent an NOV to WPL as an owner and the operator of Nelson Dewey, Columbia and Edgewater. The NOV alleges that the owners failed to comply with renewable energy generatedappropriate pre-construction review and permitting requirements and as a result violated the PSD program requirements, Title V Operating Permit requirements of the CAA and the SIP.
If pursued successfully by the utility, renewable energy acquired under PPAs EPA and/or the useSierra Club, these actions could result in civil penalties in amounts of renewable resource credits. Referup to “Strategic Overview - Generation Plan”$37,500 per day for discussioneach violation and/or injunctive relief to require installation of pollution control technology at Nelson Dewey, Columbia and Edgewater, which would increase WPL’s generation plan which includes additional supply from wind generation that will contribute towardsfuture capital and operating expenditures. WPL meeting this new RPS in Wisconsin. In addition,is currently reviewing the new law requires Wisconsin utilitiesallegations and is unable to allocate 1.2%predict the impact of annual operating revenues to a statewide energy efficiency and renewable resource fund to be jointly administered by public utilities beginning in 2007. WPL’s contributions to the energy efficiency and renewable resource fund will be recovered from ratepayers and therefore is not expected to impactallegations on its financial condition or results of operations.operations, but believes that an adverse outcome could be significant. WPL and the other owners of Columbia and Edgewater are exploring settlement options with each of the EPA and the Sierra Club while simultaneously defending against these actions. WPL believes the projects at Nelson Dewey, Columbia and Edgewater were routine or not projected to increase emissions therefore did not violate the permitting requirements of the CAA.
Water Quality -
Section 316(b) of Federal Clean Water Act -The Federal Clean Water Act requires the EPA to regulate cooling water intake structures to assure that these structures reflect the “best technology available” for minimizing adverse environmental impacts to fish and other aquatic life. The second phase of this EPA rule became effective in 2004 and is generally referred to as Section 316(b). Section 316(b) applies to existing cooling water intake structures at large steam-electric generating facilities. In 2007, a court opinion invalidated aspects of the Section 316(b), which allowed for consideration of cost-effectiveness when determining the appropriate compliance measures. As a result, the EPA formally suspended Section 316(b) in 2007. In April 2009, the U.S. Supreme Court granted the EPA authority to use a cost-benefit analysis when setting technology-based requirements under Section 316(b). A revised Section 316(b) rule reflecting the U.S. Supreme Court’s decision is anticipated to be proposed by the EPA in 2010 and a final rule is expected in 2012. WPL has identified three generating facilities that may be impacted by the revised Section 316(b) rule. WPL is currently unable to predict the final requirements from Section 316(b), but expects that capital investments and/or modifications resulting from the rule could be significant.
Wisconsin State Thermal Rule -In January 2010, the Wisconsin Natural Resources Board adopted a revised thermal rule proposal for regulating the amount of heat that facilities can discharge into Wisconsin waters. The rule must now be approved by the EPA and is anticipated to be effective in the first half of 2010. Compliance with the thermal rule will be evaluated on a case-by-case basis as discharge permits for WPL’s generating facilities are renewed. WPL continues to evaluate the thermal rule regulatory requirements and the compliance options available to meet the heat limitations for its generating facility discharges into Wisconsin waters. WPL is unable to predict the final requirements of this rule until discharge permits for the impacted facilities are renewed; however, should capital investments and/or modifications be required, WPL believes these investments could be significant.
Hydroelectric Fish Passages and Fish Protective Devices -In 2002, FERC issued an order requiring the following actions regarding WPL’s Prairie due Sac hydroelectric generating facility: 1) develop a detailed engineering and biological evaluation of potential fish passages for the facility within 12 months; 2) install an agency-approved fish-protective device at the facility within 12 months; and 3) install an agency-approved fish passage at the facility within three years. The due dates for designing the potential fish passages and installing the fish-protective device were extended to June 30, 2010, and the due date for installing the fish passage was extended to Dec. 31, 2012. In December 2009, WPL completed the installation of an agency-approved fish protection device at its Prairie du Sac facility as required by FERC. WPL continues to work with the agencies to design and install the fish passage. WPL believes the required capital investments and/or modifications to comply with the FERC order for the fish passage at its Prairie du Sac facility could be significant.
Other Recent RegulatoryLand and Solid Waste -
Manufactured Gas Plant (MGP) Sites -WPL has current or previous ownership interests in 14 MGP sites previously associated with the production of gas for which it may be liable for investigation, remediation and monitoring costs relating to the sites. WPL is working pursuant to the requirements of federal and state agencies to investigate, mitigate, prevent and remediate, where necessary, the environmental impacts to property, including natural resources, at and around the sites in order to protect public health and the environment. Refer to Note 12(e) of the “Notes to Consolidated Financial Statements” for estimates of the range of remaining costs to be incurred for the investigation, remediation and monitoring of WPL’s MGP sites.
Coal Combustion By-products (CCB) -WPL is monitoring potential regulatory changes that may affect the rules for operation and maintenance of active ash ponds and/or landfills, in the wake of an ash pond containment berm failure at a different utility. In 2009, WPL responded to information collection requests from the EPA for data on coal ash surface impoundments at four of its facilities. The EPA is evaluating the responses and has indicated its intent to issue proposed regulations for public comment in 2010 and final regulations in 2011. These proposed regulations may include additional requirements with significant impact for CCB management, beneficial use applications and disposal. WPL is currently unable to predict the impact of these information collection requests or potential regulations resulting from such requests.
Polychlorinated Biphenyls (PCBs) -WPL is monitoring possible new regulations for PCB that could require replacement of all electrical equipment containing PCB insulating fluid. WPL is currently unable to predict the outcome of this possible regulatory change, but believes that the required capital investment and/or modifications resulting from these potential regulations could be significant.
EPA GHG Rulemakings - Climate change continues to garner public attention along with support for policymakers to take action to mitigate global warming. There is considerable debate regarding the public policy response that the U.S. should adopt, involving both domestic actions and international efforts. Several members of Congress have proposed legislation to regulate GHG emissions, primarily targeting reductions of carbon dioxide (CO2) emissions. In addition, efforts are underway by the EPA to respond to a court ruling that could require rules to reduce GHG emissions, including assessment of whether or how the agency should regulate GHG emissions. Initiatives to address GHG emissions are also underway in Wisconsin. Given the highly uncertain outcome and timing of future regulations regarding the control of GHG emissions, WPL currently cannot predict the financial impact of any future climate change regulations on its operations but believes the expenditures to comply with any new emissions regulations could be significant. Refer to “Legislative Matters - Climate Change Legislative Developments” for federal and state legislative initiatives to address GHG emissions.
EPA Mandatory GHG Reporting Rule -In December 2009, the final EPA Mandatory GHG Reporting rule became effective. The final rule does not require control of GHG emissions, rather it requires that sources above certain threshold levels monitor and report emissions. The EPA anticipates that the data collected by this rule will improve the U.S. government’s ability to formulate a set of climate change policy options. The GHG emissions covered by the final EPA reporting rule include CO2, methane (CH4), nitrous oxide (N2O), sulfur hexafluoride, hydrofluorocarbons (HFCs), perfluorocarbons and other fluorinated gases. Emissions of GHG will be reported at the facility level in CO2-equivalent (CO2e) and include those facilities that emit 25,000 metric tons or more of CO2e annually. The final rule applies to electric utility and natural gas distribution operations at WPL. The annual reporting compliance requirement begins for the calendar year 2010, with the first GHG emissions reports due by March 31, 2011.
The primary GHG emitted from WPL’s operations is CO2 from the combustion of fossil fuels at its larger electric generating facilities. WPL is currently updating its emissions monitoring methodologies to capture all the GHG emissions data required to comply with the EPA’s mandatory GHG reporting rule.
GHG Endangerment and Cause or Contribute Finding -In April 2009, the EPA issued a “Proposed Endangerment and Cause or Contribute Findings for GHG under the CAA.” This proposal includes two distinct findings regarding GHG emissions under the CAA. First, the current and projected concentrations of GHG emissions in the atmosphere threaten the public health and welfare of current and future generations. This is referred to as the endangerment finding and includes the six key GHG emissions identified in the EPA’s proposed reporting rule. Second, the combined emissions of CO2, CH4, N2O, and HFCs from new motor vehicles and motor vehicle engines contribute to the atmospheric concentrations of these key GHG emissions and hence to the threat of climate change. This is referred to as the cause or contribute finding. The EPA’s proposed findings do not include any specific regulations that mandate reductions in GHG emissions. However, finalization of these findings is requisite to EPA’s future issuance of regulations to reduce GHG emissions from motor vehicles or other emissions sources, which could include electric utility operations. In December 2009, the EPA published the final rule for this finding with an effective date of January 2010. The final rule is currently being challenged by several groups in the D.C. Circuit Court.
The implications of the EPA’s findings are highly uncertain, including the nature or timing related to future issuance of regulations mandating reductions of GHG emissions. WPL is currently unable to predict the final outcome of the EPA’s findings, but expects that expenditures to comply with any regulations to reduce GHG emissions could be significant.
GHG Tailoring Rule -In October 2009, the EPA published the GHG Tailoring rule proposal to establish GHG permit applicability thresholds. This proposed rule defines when CAA permits under the PSD and Title V programs would be required for new and existing large industrial facilities. The proposed rule would create a new emissions threshold (25,000 tons per year CO2e) for GHG emissions. New and significantly modified facilities would be required to obtain PSD pre-construction permits that demonstrate use of BACT and energy efficiency measures to minimize GHG emissions. Existing facilities may also be required to obtain a revised Title V operating permit if their GHG emissions exceed the proposed threshold. A final GHG Tailoring rule is anticipated in the first half of 2010. WPL is currently unable to predict the final outcome of the EPA’s proposed permitting rule, but expects that expenditures to comply with any regulations to reduce GHG emissions could be significant.
Chicago Climate Exchange (CCX) -WPL continues to take voluntary measures to reduce its emissions including CO2 and other GHG as prudent steps to address potential climate change regulation. In May 2009, WPL committed to continued participation in Phase II of the CCX for the period from 2007 through 2010. CCX is a voluntary market-based emissions cap and trade program for reducing GHG emissions, including CO2.
Refer to Note 12(e) of the “Notes to Consolidated Financial Statements” and “Liquidity and Capital Resources - Cash Flows - Investing Activities - Construction and Acquisition Expenditures” for further discussion of environmental matters.
LEGISLATIVE MATTERS
Climate Change Legislative Developments -
Kewaunee OutageFederal -The U.S. Congress is currently debating various forms of legislation to regulate GHG emissions, including legislation to create a cap and trade program (i.e., H.R. 2454 approved by the House in June 2009). WPL is not able to determine what, if any, GHG legislation will finally be enacted, or the impact of such legislation. If enacted, WPL believes that GHG legislation could have a material adverse impact on its financial condition and results of operations.
Midwestern Governors Association GHG Accord -The Midwest Governors Association began a process in 2007 to develop a series of policy recommendations and proposals to address various Climate Change GHG issues. Various recommendations have come from the process related to infrastructure siting and carbon sequestration studies. Other recommendations outlined a system to enable a regional market-based multi-sector cap and trade program for GHG reductions. The recommendations for a cap and trade system are still under discussion, and any final recommendations will be advisory only in the form of a model rule. Any adoption of any cap and trade or other GHG reduction proposals that are allowed under interstate commerce and other federal law will have to be adopted by member states subject to the approval of their legislatures and governors.
Wisconsin -In JanuaryApril 2007, Governor Doyle signed Executive Order 191, which created the Wisconsin Task Force on Global Warming (GWTF). In July 2008, the GWTF issued its final report containing policy recommendations for state-level actions to address climate change. The report contains short- and long-term goals and action items Wisconsin might undertake, and it was understood legislation would be introduced where needed to accomplish the recommendations. In 2009, Senate Bill 450 and Assembly Bill 649 were introduced proposing enactment of some of the GWTF recommendations. The most significant provisions of these bills include: 1) increasing the Wisconsin Renewable Portfolio Standard (RPS) to 20% by 2020 and 25% by 2025; 2) requiring a portion (6% by 2020 and 10% by 2025) of the RPS to be met with renewable sources located in Wisconsin; 3) implementing a statewide goal of 2% annual energy savings and expanding energy efficiency programs and spending to accomplish this goal; and 4) allowing the PSCW approved recoveryto mandate utilities to make power purchases at prices higher than avoided cost (Feed in Tariffs) from small distributed renewable generation owned by third parties. The bills do not propose a Wisconsin or regional cap and trade regime. WPL expects final action on these proposals by April 2010. WPL is currently unable to determine what impacts these initiatives will have on its future financial condition or results of previously deferred costs associated withoperations.
Other Recent Legislative Developments -
American Recovery and Reinvestment Act of 2009 -In February 2009, the ARRA was enacted. The most significant provisions of the ARRA for WPL provides a one-year extension of the unplanned outage at Kewaunee prior50% bonus depreciation deduction for certain expenditures for property that is acquired or constructed in 2009, incentives for wind facilities placed in service by Dec. 31, 2012 and grants for qualifying investments that are expected to improve the saleelectric grid and transportation infrastructure. Based on capital projects placed into service in 2009, WPL estimates its 2009 bonus tax depreciation deduction to be approximately $79 million. This 2009 bonus tax depreciation deduction significantly reduced the amount of cash taxes paid by WPL in 2009. Refer to “Other Matters - Other Future Considerations” for additional details of its interest in Kewaunee in July 2005. The PSCW approval included recovery of $20 million of these deferred costs through increased retail electric rates charged by WPL over a two-year recovery period.potential incentives for WPL’s proposed wind project.
Kewaunee SaleWisconsin Senate Bill 62 - - In January 2007,February 2009, SB 62 was enacted. The most significant provision of SB 62 for WPL requires combined reporting for corporate income taxation in Wisconsin beginning with tax returns filed for the PSCW approved recoverycalendar year 2009. This provision will require legal entities in which Alliant Energy owns a 50% or more interest to file as members of a portionunitary return in Wisconsin. Refer to Note 5 of the previously deferred loss associated with the sale“Notes to Consolidated Financial Statements” and “Other Matters - Critical Accounting Policies and Estimates - Income Taxes” for additional discussion of Kewaunee. The PSCW approval included recoverySB 62 and its impact on WPL’s financial condition and results of $3 million of these deferred costs through increased retail rates charged by WPL over a two-year recovery period.operations during 2009.
Coal Delivery DisruptionFederal Healthcare Legislation (Senate Bill H.R. 3590 and House Bill H.R. 3962) - - In September 2006,Both the PSCWHouse and the U.S. Senate approved recoverydifferent versions of previouslyproposed healthcare legislation recently. Both versions of healthcare legislation contain a provision that would eliminate the non-taxable status of the 28% subsidy provided to employers who continue prescription drug coverage for their retirees. If healthcare legislation that contains this provision is enacted, WPL expects to record deferred costs associated with coal conservation efforts at WPL due to coal delivery disruptions. The coal delivery disruptions were caused by railroad train derailments in Wyoming in 2005 that caused heavy damage to heavily-used joint railroad lines that supply coal to numerous generating facilitiesincome tax expense of approximately $4 million in the U.S., including facilities owned by WPL.period the legislation is enacted.
Federal Regulatory Reform Legislation -In December 2009, the House approved comprehensive regulatory reform legislation (H.R. 4173). The PSCW approved recoverymost significant provision of $20 million ($8 million deferred in 2006this legislation for WPL would create Commodities Futures Trading Commission regulations and $12 million deferred in 2005) of these deferred costs by including them as a component of the fuel-related costs used to determine final rates in WPL’s fuel-related rate case.
MISO Wholesale Energy Market - In March 2005, the PSCW approved the deferral of certain incremental costs incurred bymandatory clearing definitions, which may require WPL to participate inpost large amounts of cash collateral related to its derivative instruments. During consideration of this legislation, an amendment was approved that narrowed the MISO wholesale energy market. In June 2006,definition of major swaps participant to focus on systemic risk, not counterparty credit risk exposures. As a result, WPL as well as other end-users of derivatives may not fall under the PSCW provided further clarificationscope of which incremental costs incurred by WPL to participate in the MISO market are eligible to be deferred. Such deferred amounts are the subject of a generic docket currently before the PSCW. Hearings were held in early February 2007 and WPL anticipates an order in the third quarter of 2007.this legislation. WPL is currently working throughunable to determine the regulatory process to establish long-term recovery mechanisms for these costs.ultimate impact of this proposed legislation on its financial condition and results of operations.
Kewaunee Decommissioning Trust Assets - In April 2006, WPL received approval from the FERC to refund the wholesale portion of the Kewaunee-related non-qualified decommissioning trust assets to WPL’s wholesale customers. In May 2006, WPL liquidated its remaining nuclear decommissioning trust funds and refunded $21.5 million to its wholesale customers.
RESULTS OF OPERATIONS
Overview - - WPL’s earnings available for common stock were flat in 2006 and decreased $9$29 million in 2005.2009 and increased $5 million in 2008. The 2006 results included lower operating expenses and higher gas margins offset by lower electric margins and higher interest expense. The 20052009 decrease was primarily due to lower electric marginssales resulting from cool summer weather and adverse economic conditions in 2009, higher depreciation expense from its Cedar Ridge wind project and the acquisition of the Neenah Energy Facility, and higher interest expense from the issuances of new debentures. The 2008 increase was primarily due to lower purchased electric capacity expenses and higher AFUDC related to the construction of WPL’s Cedar Ridge wind project. These items were partially offset by decreased operating expenses.higher interest expense resulting from the issuance of new debentures and gains in 2007 from WPL’s performance-based gas commodity cost recovery program.
Electric Margins - -Electric margins are defined as electric operating revenues less electric production fuel, energy purchases and purchased electric capacity expenses. Management believes that electric margins provide a more meaningful basis for evaluating utility operations than electric operating revenues since electric production fuel, energy purchases and purchased electric capacity expenses are generally passed through to customers, and therefore result in changes to electric operating revenues that are comparable to changes in electric production fuel, energy purchases and purchased electric capacity expenses. Electric margins and megawatt-hour (MWh) sales for WPL were as follows:
| Revenues and Costs (in millions) | MWhs Sold (in thousands) | Revenues and Costs (dollars in millions) | MWhs Sold (MWhs in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2006 | 2005 | (a) | 2004 | (b) | 2006 | 2005 | (a) | 2004 | (b) | 2009 | 2008 | (a) | 2007 | (b) | 2009 | 2008 | (a) | 2007 | (b) | |||||||||||||||||||||||||||||||||||
Residential | $ | 385.9 | $ | 369.5 | 4 | % | $ | 327.8 | 13 | % | 3,513 | 3,599 | (2 | %) | 3,375 | 7 | % | $ | 389.7 | $ | 389.5 | — | $ | 396.3 | (2 | )% | 3,419 | 3,446 | (1 | )% | 3,549 | (3 | )% | |||||||||||||||||||||
Commercial | 212.4 | 197.4 | 8 | % | 180.0 | 10 | % | 2,277 | 2,274 | — | 2,215 | 3 | % | 220.0 | 218.1 | 1 | % | 219.0 | — | 2,257 | 2,270 | (1 | )% | 2,310 | (2 | )% | ||||||||||||||||||||||||||||
Industrial | 323.0 | 288.2 | 12 | % | 262.6 | 10 | % | 4,948 | 4,825 | 3 | % | 4,769 | 1 | % | 298.2 | 327.7 | (9 | )% | 329.9 | (1 | )% | 4,119 | 4,748 | (13 | )% | 4,942 | (4 | )% | ||||||||||||||||||||||||||
Retail subtotal | 921.3 | 855.1 | 8 | % | 770.4 | 11 | % | 10,738 | 10,698 | — | 10,359 | 3 | % | 907.9 | 935.3 | (3 | )% | 945.2 | (1 | )% | 9,795 | 10,464 | (6 | )% | 10,801 | (3 | )% | |||||||||||||||||||||||||||
Sales for resale: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wholesale | 143.3 | 156.8 | (9 | %) | 114.7 | 37 | % | 3,029 | 3,120 | (3 | %) | 2,890 | 8 | % | 166.6 | 178.5 | (7 | )% | 158.5 | 13 | % | 2,848 | 3,364 | (15 | )% | 3,141 | 7 | % | ||||||||||||||||||||||||||
Bulk power and other | 20.7 | 41.1 | (50 | %) | 29.4 | 40 | % | 1,082 | 1,251 | (14 | %) | 907 | 38 | % | 61.0 | 10.0 | 510 | % | 14.5 | (31 | )% | 1,682 | 301 | 459 | % | 969 | (69 | )% | ||||||||||||||||||||||||||
Other | 26.1 | 20.9 | 25 | % | 25.3 | (17 | %) | 72 | 75 | (4 | %) | 80 | (6 | %) | 24.8 | 29.2 | (15 | )% | 22.5 | 30 | % | 71 | 74 | (4 | )% | 74 | — | |||||||||||||||||||||||||||
Total revenues/sales | 1,111.4 | 1,073.9 | 3 | % | 939.8 | 14 | % | 14,921 | 15,144 | (1 | %) | 14,236 | 6 | % | 1,160.3 | 1,153.0 | 1 | % | 1,140.7 | 1 | % | 14,396 | 14,203 | 1 | % | 14,985 | (5 | )% | ||||||||||||||||||||||||||
Electric production fuel and purchased power expense | 649.5 | 600.8 | 8 | % | 431.5 | 39 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Electric production fuel expense | 160.6 | 174.6 | (8 | )% | 170.0 | 3 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Energy purchases expense | 290.7 | 259.6 | 12 | % | 247.5 | 5 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Purchased electric capacity expense | 144.6 | 145.1 | — | 166.6 | (13 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||
Margins | $ | 461.9 | $ | 473.1 | (2 | %) | $ | 508.3 | (7 | %) | $ | 564.4 | $ | 573.7 | (2 | )% | $ | 556.6 | 3 | % | ||||||||||||||||||||||||||||||||||
| (a) | Reflects the % change from |
20062009 vs. 20052008 Summary -Electric margins decreased $11$9 million, or 2%, in 20062009, primarily due to $38an estimated $12 million of higher purchased power capacity costs related to the Kewaunee PPA, which beganreduction in July 2005, and the net impacts of weather conditions and WPL’s weather hedging activities. These decreases were partially offset by approximately $40 million of under-recoveries of retail fuel and purchased power energy costselectric margins from changes in 2005 and a 2% increase in weather-normalized retail sales in 2006.
2005 vs. 2004 Summary - Electric margins decreased $35 million, or 7%, in 2005 primarily due to the impact of $47 million of higher purchased power capacity costs from the Kewaunee and Riverside PPAs and an approximate $30 million increase in the under-recovery of retail fuel and purchased power energy costs in 2005 compared to 2004. These decreases were partially offset by the impact of rate increases implemented in 2005 and 2004, the net impacts of weather conditions and WPL’s weather hedging activities, and a modest increase in retail weather-normalized sales in 2005.
Purchased Power Capacity Costs - WPL sold its interest in its Kewaunee nuclear facility in July 2005. Prior to the sale$12 million of Kewaunee, the operatinghigher purchased electric capacity expenses related to the facility consisted primarilyKewaunee Nuclear Power Plant (Kewaunee) PPA and a decrease in weather-normalized sales volumes. These items were partially offset by $9 million of other operation and maintenance and depreciation and amortization expenses. Uponlower purchased electric capacity expenses related to the sale of Kewaunee, WPL entered intoRockGen Energy Center (RockGen) PPA, which terminated in May 2009, a PPA with the new owner of the facility and its share of the costs associated with this facility is now recorded as purchased power expense. As a result, there are large nuclear-related variances between periods for these income statement line items, which are somewhat offsetting$5 million increase in nature and also do not capture other benefitselectric margins from the sale including, among others, the impact of WPL’s annual adjustments to unbilled revenue estimates and a $3 million increase in electric margins from the applicationimpact of changes in the sales proceeds. Purchased powerrecovery of electric production fuel and energy purchases expense.
2008 vs. 2007 Summary -Electric margins increased $17 million, or 3%, in 2008, primarily due to $16 million of purchased electric capacity costsexpenses in 2007 related to a contract that ended in December 2007, $8 million of lower purchased electric capacity expenses in 2008 from the Kewaunee PPA as well asand a $4 million impact from changes in WPL’s annual adjustments to unbilled revenue estimates. These items were partially offset by an $11 million reduction in electric margins from the Riverside PPA which beganimpact of changes in June 2004electric production fuel and energy purchases cost recoveries and lower industrial sales volumes due to the negative impact the slowing economy in 2008 had on WPL’s large industrial customer demand during such period.
Electric Production Fuel and Energy Purchases (Fuel-related) Cost Recoveries -WPL burns coal and other fossil fuels to produce electricity at its generating facilities. The cost of fossil fuels used during each period is included in electric production fuel expense. WPL also purchases electricity to meet the demand of its customers and charges these costs to energy purchases expense. WPL’s electric production fuel expense decreased $14 million, or 8%, in 2009 and increased $5 million, or 3%, in 2008. The 2009 decrease was primarily due to lower coal volumes burned at its generating facilities resulting from reduced generation needed to serve the lower sales volumes. WPL’s energy purchases expense increased $31 million, or 12%, in 2009 and increased $12 million, or 5%, in 2008. The 2009 increase was primarily due to higher energy purchased volumes and higher costs in 2009 related to derivative instruments used to mitigate pricing volatility for the electricity purchased to supply to its customers. The 2008 increase was primarily due to changes in commodity prices. The impact of the changes in energy purchases volumes were as follows (in millions):largely offset by the impact of changes in bulk power sales volumes discussed below.
WPL’s rate recovery mechanism for wholesale fuel-related costs provides for subsequent adjustments to its wholesale electric rates for changes in commodity costs, thereby mitigating impacts of changes to commodity costs on its electric margins.
| 2006 | 2005 | 2004 | |||||||
Kewaunee PPA | $ | 68 | $ | 30 | $ | — | |||
Riverside PPA | 53 | 52 | 35 | ||||||
WPL’s retail fuel-related costs incurred in 2009, 2008 and 2007 were all lower than the forecasted fuel-related costs used to set retail rates during such periods. WPL estimates the lower than forecasted retail fuel-related costs increased electric margins by approximately $8 million, $5 million and $16 million in 2009, 2008 and 2007, respectively.
Refer to “Other Matters - Market Risk Sensitive Instruments and Positions” for discussion of risks associated with increased electric production fuel and energy purchases expenses on WPL’s electric margins. Refer to “Rate Matters” and Note 181(h) of the “Notes to Consolidated Financial Statements” for additional information regarding the Riverside PPA.
Fuel and Purchased Power Energy (Fuel-related) Cost Recoveries - WPL’s fuel-related costs increased in 2006 and 2005 comparedrelating to prior years primarily due to increased commodity prices. The increase in commodity prices relative to historic averages was largely due to natural gas disruption caused by hurricane activity in the Gulf of Mexico in the third quarter of 2005. WPL’s electric margins are subject to volatility with changes in fuel-related costs due largely to the current retail recovery mechanisms in place in Wisconsin for fuel-related costs. As a result of its retail rate recovery mechanism in Wisconsin, WPL estimates it under-recovered approximately $40 million and $10 million of retail fuel-related costs in 2005 and 2004, respectively. WPL’s under-recovery of retail fuel-related costs in 2006 was not significant. The under-recovery of retail fuel-related costs in 2005 was largely due to the impact of incremental purchased power energy costs resulting from an unplanned outage at Kewaunee in 2005 and the impact of coal supply constraints from the Power River Basin in 2005. Refer to “Other Matters - Market Risk Sensitive Instruments and Positions - Commodity Price Risk” for discussion of risks associated with increasedelectric production fuel and purchased power costs on WPL’s electric margins. Refer to “Rates and Regulatory
Matters - Utility Fuel Cost Recovery” forenergy purchases expenses including proposed changes to the retail rate recovery mechanisms in placemechanism in Wisconsin for fuel-related costs.such expenses.
Impacts of Weather Conditions -Estimated increases (decreases) to WPL’s electric margins from the net impacts of weather and WPL’s weather hedging activities were as follows (in millions):
| 2006 | 2005 | 2004 | 2009 | 2008 | 2007 | |||||||||||||||||||
Weather impacts on demand compared to normal weather | $ | — | $ | 7 | ($ | 10 | ) | $ | (11 | ) | $ | (1 | ) | $ | 5 | |||||||||
Losses from weather derivatives (a) | (2 | ) | (3 | ) | — | |||||||||||||||||||
Gains (losses) from weather derivatives (a) | (1 | ) | 1 | (3 | ) | |||||||||||||||||||
Net weather impact | ($2 | ) | $ | 4 | ($10 | ) | $ | (12 | ) | $ | — | $ | 2 | |||||||||||
| (a) | Recorded in “Other” revenues in the above table. |
WPL’s electric sales demand is seasonal to some extent with the annual peak normally occurring in the summer months due to air conditioning usage by its residential and commercial customers. Cooling degree days (CDD) data is used to measure the variability of temperatures during summer months and is correlated with electric sales demand. Heating degree days (HDD) data is used to measure the variability of temperatures during winter months and is correlated with electric and gas sales demand. Refer to “Gas Margins - Impacts of Weather Conditions” for details regarding HDD in WPL’s service territory. CDD in WPL’s service territory were as follows:
| Actual | Actual | |||||||||||||||
| 2006 | 2005 | 2004 | Normal (a) | 2009 | 2008 | 2007 | Normal (a) | |||||||||
CDD (a): | ||||||||||||||||
Madison, Wisconsin | 284 | 421 | 138 | 248 | 368 | 538 | 781 | 642 | ||||||||
| (a) | CDD are calculated using a |
In 2005, WPL began utilizingperiodically utilizes weather derivatives based on CDD in Chicagoand HDD to reduce the potential volatility on its electric margins during the summer months of June through August.August and the winter months of November through March, respectively. WPL estimatesentered into weather derivatives based on CDD in Madison, Wisconsin for the impactperiods June 1, 2008 to Aug. 31, 2008 and June 1, 2007 to Aug. 31, 2007. WPL did not enter into any weather derivatives for the June 1, 2009 to Aug. 31, 2009 time period. WPL entered into weather derivatives based on HDD in Madison, Wisconsin for the periods Nov. 1, 2008 to March 31, 2009 and Nov. 1, 2007 to March 31, 2008, and weather derivatives based on HDD in Chicago, Illinois for the periods Nov. 1, 2006 to March 31, 2007. As of Dec. 31, 2009, WPL did not enter into any weather derivatives for the Nov. 1, 2009 to March 31, 2010 time period.
Purchased Electric Capacity Expense -WPL enters into PPAs to help meet the electricity demand comparedof its customers. Certain of these PPAs include minimum payments for WPL’s rights to normalelectric generating capacity. Details of purchased electric capacity expense included in the electric margin table above were as follows (in millions):
| 2009 | 2008 | 2007 | |||||||
Kewaunee PPA | $ | 74 | $ | 62 | $ | 70 | |||
Riverside PPA | 57 | 56 | 57 | ||||||
RockGen PPA - Expired May 2009 | 7 | 16 | 16 | ||||||
Minnesota Power PPA - Expired December 2007 | — | — | 16 | ||||||
Other | 7 | 11 | 8 | ||||||
| $ | 145 | $ | 145 | $ | 167 | ||||
At Dec. 31, 2009, the future estimated purchased electric capacity expense related to the Kewaunee (expires in 2013) and Riverside (expires in 2013) PPAs were as follows (in millions):
| 2010 | 2011 | 2012 | 2013 | Total | |||||||||||
Kewaunee PPA | $ | 73 | $ | 51 | $ | 60 | $ | 63 | $ | 247 | |||||
Riverside PPA | 58 | 59 | 60 | 17 | 194 | ||||||||||
| $ | 131 | $ | 110 | $ | 120 | $ | 80 | $ | 441 | ||||||
Unbilled Revenue Estimates -In the second quarter of each year, when weather during September 2006, 2005 and 2004 (such periods were not covered by weather derivatives) was ($2) million, $2 million and $0, respectively.
Wholesale Sales - Wholesaleimpacts on electric sales volumes are historically minimal, WPL refines its estimates of unbilled electric revenues. Adjustments resulting from these refined estimates can increase (e.g. 2009) or decrease (e.g. 2007) electric margins reported in the second quarter. Estimated increases (decreases) in WPL’s electric margins from the annual adjustments to unbilled revenue estimates recorded in the second quarter of 2009, 2008 and 2007 were higher$5 million, $0 and ($4) million, respectively.
Sales Trends -Wholesale and retail sales volumes decreased in 2005 compared to 2006 and 20042009 largely due to the impactsimpact of weather and economic conditions in 2009 on the electric sales demand of WPL’s wholesale and retail customers. The decrease in weather-normalized retail sales volumes was largely due to a 13% decrease in industrial sales caused by plant closures and shift reductions as a result of economic conditions in 2009. Wholesale and retail sales volumes in 2008 were impacted by WPL’s sale of its electric distribution properties in Illinois in February 2007. Prior to these asset sales, electric revenues and MWhs sold to retail customers in Illinois were included in residential, commercial and industrial sales in the electric margin table above. Upon completion of these asset sales, WPL entered into separate wholesale agreements to continue to provide electric service to its former retail customers in Illinois. Electric revenues and MWhs sold under these wholesale agreements are included in wholesale sales demand at WPL. In addition,in the electric margin table above. The lower pricing for wholesale revenues were higher in 2005customers as compared to 2006retail customers resulted in a decrease to electric margins following the sale of the electric distribution properties in Illinois.
Bulk power and 2004other revenue changes were largely due to the impacts of higher fuel-related cost recovery revenues from wholesale customers at WPL in 2005. The changes in revenues causedfrom sales in the wholesale energy market operated by the Midwest Independent Transmission System Operator and PJM Interconnection, LLC. These changes are impacted by several factors including the availability of WPL’s generating facilities and electricity demand within these wholesale energy markets. Changes in fuel-related costsbulk power and other sales revenues were largely offset by changes in electric production fuel and purchased powerenergy purchases expense and therefore did not have a significant impact on electric margins.
Bulk Power andRefer to “Other Matters - Other Sales - Bulk power and other revenues were higher in 2005 compared to 2006 and 2004 largely due to higherFuture Considerations” for discussion of electric sales in the restructured wholesale energy market operatedprojections influenced by MISO, which began on April 1, 2005. These changes in revenues were largely offset by changes in electric production fuel and purchased power expense and therefore did not have a significant impact on electric margins.economic conditions.
Gas Margins - -Gas margins are defined as gas operating revenues less cost of gas sold. Management believes that gas margins provide a more meaningful basis for evaluating utility operations than gas operating revenues since cost of gas sold are generally passed through to customers, and therefore, result in changes to gas operating revenues that are comparable to changes in cost of gas sold. Gas margins and dekatherm (Dth) sales for WPL were as follows:
| Revenues and Costs (in millions) | Dths Sold (in thousands) | Revenues and Costs (dollars in millions) | Dths Sold (Dths in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2006 | 2005 | (a) | 2004 | (b) | 2006 | 2005 | (a) | 2004 | (b) | 2009 | 2008 | (a) | 2007 | (b) | 2009 | 2008 | (a) | 2007 | (b) | |||||||||||||||||||||||||||||||||||
Residential | $ | 144.9 | $ | 156.4 | (7 | %) | $ | 136.4 | 15 | % | 11,270 | 12,068 | (7 | %) | 12,456 | (3 | %) | $ | 122.2 | $ | 165.7 | (26 | )% | $ | 145.2 | 14 | % | 11,639 | 12,520 | (7 | )% | 11,596 | 8 | % | ||||||||||||||||||||
Commercial | 84.4 | 89.3 | (5 | %) | 76.8 | 16 | % | 8,155 | 8,187 | — | 8,585 | (5 | %) | 73.9 | 103.2 | (28 | )% | 84.0 | 23 | % | 9,274 | 9,362 | (1 | )% | 8,337 | 12 | % | |||||||||||||||||||||||||||
Industrial | 8.3 | 10.0 | (17 | %) | 8.1 | 23 | % | 876 | 978 | (10 | %) | 1,098 | (11 | %) | 5.7 | 10.7 | (47 | )% | 8.2 | 30 | % | 771 | 1,019 | (24 | )% | 883 | 15 | % | ||||||||||||||||||||||||||
Retail subtotal | 237.6 | 255.7 | (7 | %) | 221.3 | 16 | % | 20,301 | 21,233 | (4 | %) | 22,139 | (4 | %) | 201.8 | 279.6 | (28 | )% | 237.4 | 18 | % | 21,684 | 22,901 | (5 | )% | 20,816 | 10 | % | ||||||||||||||||||||||||||
Interdepartmental | 17.0 | 50.8 | (67 | %) | 20.4 | 149 | % | 2,116 | 6,448 | (67 | %) | 3,212 | 101 | % | 2.0 | 5.6 | (64 | )% | 14.8 | (62 | )% | 464 | 1,156 | (60 | )% | 2,264 | (49 | )% | ||||||||||||||||||||||||||
Transportation/other | 19.3 | 15.8 | 22 | % | 12.1 | 31 | % | 21,094 | 25,200 | (16 | %) | 17,472 | 44 | % | 12.7 | 14.8 | (14 | )% | 13.5 | 10 | % | 23,656 | 24,477 | (3 | )% | 24,478 | — | |||||||||||||||||||||||||||
Total revenues/sales | 273.9 | 322.3 | (15 | %) | 253.8 | 27 | % | 43,511 | 52,881 | (18 | %) | 42,823 | 23 | % | 216.5 | 300.0 | (28 | )% | 265.7 | 13 | % | 45,804 | 48,534 | (6 | )% | 47,558 | 2 | % | ||||||||||||||||||||||||||
Cost of gas sold | 174.8 | 231.9 | (25 | %) | 165.8 | 40 | % | 138.1 | 213.6 | (35 | )% | 175.0 | 22 | % | ||||||||||||||||||||||||||||||||||||||||
Margins | $ | 99.1 | $ | 90.4 | 10 | % | $ | 88.0 | 3 | % | $ | 78.4 | $ | 86.4 | (9 | )% | $ | 90.7 | (5 | )% | ||||||||||||||||||||||||||||||||||
| (a) | Reflects the % change from |
20062009 vs. 20052008 Summary -Gas margins increased $9decreased $8 million, or 10%9%, in 20062009, primarily due to the impact of the 2009 retail gas rate decrease effective in January 2009, which reduced gas revenues in 2009 by $4 million and an estimated $2 million reduction in gas margins from changes in the net impacts of weather conditions and WPL’s weather hedging activities, the impactsactivities.
2008 vs. 2007 Summary -Gas margins decreased $4 million, or 5% in 2008, primarily due to $5 million of a rate increase implementedgains in 20052007 from WPL’s performance-based gas commodity cost recovery program (benefits were allocated between ratepayers and WPL) and a modest increasedecrease in weather-normalized retail residential sales largely due to the negative impacts high natural gas prices and the slowing economy in 2006.2008 had on customer demand during such period. These increasesitems were partially offset by the negative impact onan estimated $5 million increase in gas margins from lower interdepartmental sales.changes in the net impacts of weather conditions and WPL’s weather hedging activities.
2005 vs. 2004 Summary - Gas margins increased $2 million, or 3%, in 2005 primarily due to $3 million of improved results from WPL’s performance-based gas cost recovery program (benefits are shared by ratepayers and shareowners) and the impact on margins from higher interdepartmental sales. These increases were partially offset by a 4% decrease in weather normalized retail sales primarily due to the negative impact high gas prices in the fourth quarter of 2005 had on gas sales during that period.
Natural Gas Cost Recoveries -In 2009 and 2008, WPL’s cost of gas sold decreased $76 million, or 35%, and increased in 2006 and 2005 compared to prior years$39 million, or 22%, respectively. The 2009 decrease was primarily due to increaseda decrease in Dths sold to retail customers and a decrease in natural gas prices. The 2008 increase was primarily due to an increase in prices relative to historic averages was largely due to natural gas disruption caused by hurricane activityprices and an increase in the Gulf of Mexico in the third quarter of 2005.Dths sold to retail customers. Due to WPL’s rate recovery mechanisms for natural gas costs, these increaseschanges in cost of gas sold resulted in a comparable increasechanges in gas revenues and, therefore, did not have a significant impact on gas margins. Refer to Note 1(h) of the “Notes to Consolidated Financial Statements” for additional information relating to natural gas cost recoveries.
Impacts of Weather Conditions -Estimated decreasesincreases (decreases) to WPL’s gas margins from the net impacts of weather and WPL’s weather hedging activities were as follows (in millions):
| 2006 | 2005 | 2004 | |||||||
Weather impacts on retail demand compared to normal weather | ($5 | ) | ($3 | ) | ($3 | ) | |||
Gains (losses) from weather derivatives (a) | 4 | (1 | ) | — | |||||
Net weather impact | ($1 | ) | ($4 | ) | ($3 | ) | |||
| 2009 | 2008 | 2007 | ||||||||||
Weather impacts on demand compared to normal weather | $ | 1 | $ | 4 | $ | (1 | ) | |||||
Losses from weather derivatives (a) | (1 | ) | (2 | ) | (2 | ) | ||||||
Net weather impact | $ | — | $ | 2 | $ | (3 | ) | |||||
| (a) | Recorded in “Transportation/other” revenues in the above table. |
WPL’s gas sales demand follows a seasonal pattern with an annual base load of gas and a large heating peak occurring during the winter season. Heating degree days (HDD)HDD data is used to measure the variability of temperatures during winter months and is correlated with gas sales demand. HDD in WPL’s service territory were as follows:
| Actual | Actual | |||||||||||||||
| 2006 | 2005 | 2004 | Normal (a) | 2009 | 2008 | 2007 | Normal (a) | |||||||||
HDD (a): | ||||||||||||||||
Madison, Wisconsin | 6,499 | 6,796 | 6,831 | 7,197 | 7,356 | 7,714 | 6,935 | 7,095 | ||||||||
| (a) | HDD are calculated using a simple average of the high and low temperatures each day compared to a 65 degree base. Normal degree days are calculated using a rolling 20-year |
WPL periodically utilizes weather derivatives based on HDD to reduce the potential volatility on its gas margins during the winter months of November through March.
Performance-based Gas Commodity Recovery Program - During 2006, 2005In 2007, 35% of all gains and 2004, WPL had alosses from WPL’s gas performance incentive which included a sharing mechanism whereby 50% of gains and losses relative to current commodity prices, as well as other benchmarks, were retained by WPL, with the remainder65% refunded to or recovered from customers. Effective Nov. 1, 2007, WPL’s gas performance incentive sharing mechanism was terminated and replaced with a modified one-for-one pass through of gas costs. WPL’s performance-based gas commodity recovery program resulted in gains which increased gas margins by $13 million, $13 million and $10$5 million in 2006, 2005 and 2004, respectively. In January 2007, the PSCW changed the gas performance incentive sharing mechanism with WPL’s 2007 retail rate order to 35% of all gains and losses being retained by WPL and the remaining 65% refunded or recovered from customers.2007. Refer to “Rates and Regulatory Matters - Utility Fuel Cost Recovery” for further potential changes to the performance-based gas commodity recovery program currently being evaluated by the PSCW.
Weather-normalized Retail Sales - Weather-normalized retail sales in 2006 and 2005 were lower than 2004 primarily due to the impact high natural gas prices in the fourth quarter of 2005 and the first quarter of 2006 had on customer usage during those periods. Industrial sales volumes were lower in 2006 compared to 2005 primarily due to a decrease in industrial customers.
Interdepartmental Sales - WPL supplies natural gas to the natural gas-fired generating facilities it owns and accounts for these sales as interdepartmental gas sales. Interdepartmental gas sales volumes were higher in 2005 as compared to 2006 and 2004 due largely to increased usage of natural gas-fired generating facilities in 2005 to meet electric demand resulting from warmer summer weather conditions. Interdepartmental sales volumes also increased in 2005 compared to 2004 largely due to demand from SFEF which was placed in service in June 2005.
Refer to “Rates and Regulatory Matters” for discussion of various electric and gas rate filings. Refer to “Rates and Regulatory Matters” and Note 1(h) of the “Notes to Consolidated Financial Statements” for information relating to utility fuel and naturaladditional details of the gas cost recovery. commodity recovery program implemented in November 2007.
Refer to Note 11(b)“Rate Matters” for discussion of the “NotesWPL’s electric and gas rate filings including an anticipated rate filing in 2010.
Electric Transmission Service Expenses -
2008 vs. 2007 Summary -Electric transmission service expenses increased $12 million in 2008, largely due to Consolidated Financial Statements” for additional information regarding weather derivatives including details of weather derivatives entered intoincreased transmission rates billed to WPL by WPL in the fourth quarter of 2006 to reduce potential volatility on its margins from Jan. 1, 2007 through March 31, 2007.ATC.
Other Operation and Maintenance Expenses -2006
2009 vs. 20052008 Summary -Other operation and maintenance expenses decreased $14increased $2 million in 20062009, primarily due to a reduction$11 million of regulatory-related charges in nuclear generation-related expenses as a result2009 related to the Nelson Dewey #3 project, $7 million of restructuring charges incurred in 2009 related to the Kewaunee sale (such expenses totaled $21 million in 2005)elimination of certain corporate and operations positions and a $7$2 million regulatory-related chargeloss contingency reserve recorded in 2005.2009 related to the Alliant Energy Cash Balance Pension Plan lawsuit. These decreasesitems were partiallysubstantially offset by $9$4 million of higher incentive-related compensation expenses resulting from improved performanceregulatory-related charges in 2006 against2008 related to the earnings and total shareowner return metrics established within the plans, $2 million of higher transmission and distribution expenses and increases in other administrative and general expenses.
2005 vs. 2004 - Other operation and maintenance expenses decreased $23 million in 2005 primarily due to $26 million of lower nuclear generation-related expenses, $5Nelson Dewey #3 project, $3 million of lower incentive-related compensation expenses and the impact of cost saving initiatives implemented by WPL in 2009. Pension and other postretirement benefit costs, net of the portion allocated to capital projects, increased $15 million primarily due to the amortization of actuarial losses and lower expected return on plan assets caused by significant decreases in plan assets in 2008. These higher net pension costs were offset by a deferral of retail pension and benefits costs recorded in accordance with the stipulation agreement approved by the PSCW related to WPL’s 2009 retail rate case.
2008 vs. 2007 Summary -Other operation and maintenance expenses decreased $4 million in 2008, primarily due to $7 million of lower pension and other postretirement benefits expenses, $7 million of lower incentive-related compensation expenses and a $4 million regulatory-related charge in 2007. These items were partially offset by $5 million of higher employee health care costs, a $4 million regulatory-related charge in 2008, $3 million of lower transmissionregulatory liability amortizations and distribution expenses. These decreases were partially offset by a $7 million regulatory-related charge recorded in 2005 and $6$1 million of higher fossil fuel generation-related expenses.
Nuclear Generation-related Expenses - Referbad debt expenses primarily due to “Electric Margins - Purchased Power Capacity Costs” for a discussion of the impact of the sale of WPL’s nuclear facility on electric margins and operating expenses. Nuclear generation-related expenses included in other operation and maintenance expenses related to Kewaunee were $21 million and $47 million in 2005 and 2004, respectively.economic conditions.
Refer to “Other Matters - Other Future Considerations - Incentive Compensation Plans” for discussion of WPL’s incentive compensation plans and “Other Matters - Other Future Considerations - Pension and Other Postretirement Benefits Costs”Considerations” for discussion of anticipated reductionsmaterial decreases in pension and other postretirement benefits costsexpenses in 2010 resulting from contributionsincreases in retirement plans’ assets during 2009 and plan amendments to postretirement benefits plansanticipated increases in 2006.maintenance expenses in 2010 for WPL’s Bent Tree - Phase I wind project.
Depreciation and Amortization Expenses - -2006
2009 vs. 20052008 Summary -Depreciation and amortization expense decreased $1expenses increased $14 million in 20062009, primarily due to lower nuclear depreciation of $5 million as a result of the Kewaunee sale in July 2005 and lower software amortization. These decreases were substantially offset by the impact of property additions including SFEF.related to WPL’s Cedar Ridge wind project that began commercial operation in late 2008, AMI placed into service in 2009 and the June 2009 acquisition of the Neenah Energy Facility.
20052008 vs. 20042007 Summary -Depreciation and amortization expenseexpenses decreased $3$8 million in 20052008, primarily due to a $9 million decrease from the implementation of lower nuclear depreciation of $7 millionrates in 2008 as a result of the Kewaunee sale in July 2005a new depreciation study and lower amortization expenses from enterprise resource planning software amortization.that became fully amortized in 2007. These decreasesitems were partially offset by additional depreciation expense from the impact of utility property additions including SFEF.
Taxes Other than Income Taxes -2006 vs. 2005 - Taxes other than income taxes increased $4 millionWPL’s Cedar Ridge wind project that began commercial operation in 2006 primarily due to increased gross receipts taxes resulting from increased revenues.late 2008.
Refer to “Rates and Regulatory“Rate Matters” for discussion of the interplay between utility operating expenses and utility margins given their impact on WPL’s utility rate activities.
Interest Expense - -2006
2009 vs. 20052008 Summary -Interest expense increased $8$13 million in 20062009, primarily due to $5 million of higher affiliated interest expense associated withfrom WPL’s issuances of 7.6% debentures in October 2008 and 5% debentures in July 2009. These items were partially offset by the SFEF capital lease WPL entered intoimpact of WPL’s 5.7% debentures retired in June 2005October 2008 and lower commercial paper outstanding balances and interest expense accruedrates in 2006 on the regulatory liability related2009 compared to the reserve for rate refund associated with WPL’s fuel-related rate case.2008.
20052008 vs. 20042007 Summary -Interest expense increased $7$13 million in 20052008, primarily due to $8 million of affiliatedhigher interest expense associated with the SFEF capital leasefrom WPL’s 6.375% debentures issued in 2005.August 2007 and 7.6% debentures issued in October 2008. These items were partially offset by lower interest expense as a result of WPL’s 7% debentures retired in June 2007 and 5.7% debentures retired in October 2008.
Refer to Note 3(b)8(b) of the “Notes to Consolidated Financial Statements” for details of WPL’s long-term debt issuances and retirements.
Equity Income from Unconsolidated Investments -
2009 vs. 2008 Summary -Equity income from unconsolidated investments increased $3 million in 2009, primarily due to $4 million of higher equity income from ATC.
2008 vs. 2007 Summary -Equity income from unconsolidated investments increased $6 million in 2008, primarily due to $5 million of higher equity income from ATC.
AFUDC -
2009 vs. 2008 Summary -AFUDC decreased $4 million in 2009, primarily due to AFUDC recognized in 2008 related to the SFEF capital lease.construction of WPL’s Cedar Ridge wind project, partially offset by AFUDC recognized in 2009 related to the construction of WPL’s Bent Tree - Phase I wind project.
2008 vs. 2007 Summary -AFUDC increased $7 million in 2008, primarily due to AFUDC recognized in 2008 related to the construction of WPL’s Cedar Ridge wind project.
Income Taxes - - The effective income tax rates were 37.1%33.9%, 36.7%,36.6% and 36.8%34.3% in 2006, 20052009, 2008 and 2004,2007, respectively.
2009 vs. 2008 Summary -The decrease in the effective income tax rate for 2009 was primarily due to $4 million of production tax credits in 2009 from the Cedar Ridge wind project that began commercial operation in December 2008 and $2 million of income tax benefits recognized in 2009 related to the net impacts of the SB 62 enacted in February 2009 and a decision by management to allow WPL to do business in Iowa thus requiring WPL to file as part of the Iowa consolidated tax return.
2008 vs. 2007 Summary -The increase in the effective tax rate for 2008 was primarily due to a reserve recorded in 2008 for a tax-related regulatory asset and deferred tax rate changes as a result of estimated higher state income tax rates from apportionment changes anticipated in the future.
Refer to Note 5 of the “Notes to Consolidated Financial Statements” for additional information.information regarding changes in WPL’s effective income tax rates. Refer to “Other Matters - Other Future Considerations” for discussion of production tax credits for wind projects, which may impact future effective income tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Overview - WPL believes it has, a strong liquidity position and expects to maintain, a strongan adequate liquidity position to operate its business as a result of available capacity under its revolving credit facility and operating cash flows. Based on its strong liquidity position and capital structure, WPL believes it will be able to secure the additional capital required to implement its strategic plan.plan and to meet its long-term contractual obligations. Access by WPL to capital markets to fund theits future capital requirements of its strategic plan at reasonable costs is largely dependent on theits credit quality of WPL.and on developments in those capital markets.
Liquidity Position - At Dec. 31, 2006,2009, WPL had $115$240 million of available capacity under its revolving credit facility and $2 millionfacility. Refer to “Cash Flows - Financing Activities - Short-term Debt” for further discussion of cash and cash equivalents.the credit facility.
Capital Structure - WPL plans to maintain adjusted consolidated debt-to-total capitalization ratios that are consistent with investment-grade credit ratings in order to ensurefacilitate ongoing and reliable access to capital markets aton reasonable costs.terms and conditions. WPL’s financial capitalizationcapital structure at Dec. 31, 20062009 was as follows (dollars in millions):
Common equity | $ | 1,110.8 | 65.0 | % | $ | 1,254.7 | 53.5 | % | ||||
Preferred equity | 60.0 | 3.5 | % | |||||||||
Preferred stock | 60.0 | 2.5 | % | |||||||||
Long-term debt (incl. current maturities) | 403.6 | 23.6 | % | 1,031.6 | 44.0 | % | ||||||
Short-term debt | 134.9 | 7.9 | % | |||||||||
| $ | 1,709.3 | 100.0 | % | $ | 2,346.3 | 100.0 | % | |||||
Important capitalization
In addition to capital structure, other important financial considerations used to determine the characteristics of future financings include financingfinancial coverage ratios, flexibility forregarding WPL’s generation growth plans, state regulations and the levels of debt imputed by rating agencies and state regulations.agencies. The most stringentsignificant debt imputations include attributed debt for a portion of the Kewaunee and Riverside PPAs and RockGen long-term PPAs. Refer to “Rates and Regulatory Matters” for details ofpostretirement benefits obligations. The PSCW explicitly factors certain imputed debt adjustments in establishing a regulatory capital structure as part of WPL’s retail rate cases, particularly those related to operating leases and PPAs.
WPL intends to manage its capital structure in such a way that it does not compromise its ability to raise the necessary funding required to enable it to continue to provide utility services reliably and at reasonable costs, while maintaining financial capital structure targets consistent with those approved by regulators. Key considerations include maintaining access to the PSCWfinancial markets on the terms, in the amounts and within the timeframes required to fund WPL’s most recent rate case.strategic plan, retaining a prudent level of financial flexibility and maintaining its investment-grade credit ratings. The capital structure is only one of a number of components that needs to be actively managed in order to achieve these objectives. WPL currently expects to maintain a capital structure in which total debt would not exceed 40% to 45%, and preferred stock would not exceed 5% to 10%, of total capital. These targets may be adjusted depending on subsequent developments and on their potential impact on WPL’s investment-grade credit ratings.
Credit and Capital Market Developments - Financial markets were subjected to considerable strain over the past two years, resulting in adverse impacts on the availability and terms of credit for businesses. A number of initiatives have been taken by the U.S. Treasury Department and the Federal Reserve System intended to contain the contraction of credit in the economy and of liquidity in the various capital markets. These initiatives have resulted in a degree of stabilization, which has varied across different sectors of the capital markets. Financial market conditions continue to remain highly sensitive to the evolving economic outlook. Liquidity in the various markets has fluctuated unpredictably, as investment flows continue to alternate between the safety of shorter-dated U.S. Treasury obligations and the higher yields associated with investments in corporate and/or longer-dated instruments. Concerns regarding the U.S. dollar’s reserve currency role, and the willingness of overseas investors to continue to buy and hold U.S. Treasury obligations, have also impacted the capital markets. The uncertain profile and impact of prospective financial market re-regulation contributes to the unsettled tone of the various market sectors.
WPL is aware of the potential implications these credit and capital market developments might have on its ability to raise the external funding required for its operations and capital expenditure plans. WPL has already taken measures over the past several years to improve its financial strength including: securing a multi-year committed revolving credit facility to provide backstop liquidity to its commercial paper programs and a committed source of alternative liquidity in the event the commercial paper market becomes disrupted; extending its long-term debt maturity profile and avoiding undue concentrations of maturities over the next few years; and converting its pollution control revenue bonds from variable interest rates to fixed interest rates. As discussed below, WPL retains flexibility in undertaking its capital expenditure program, particularly with respect to capital expenditures to fund the investment program within its strategic plans.
Primary Sources and Uses of Cash - WPL’s most significant source of cash is electric and gas sales to its utility customers. Cash from these sales reimbursereimburses WPL for prudently incurred expenses to provide service to its utility customers and provides WPL a return on rate base assets required to provide such services. Operating cash flows are expected to substantially cover the majority of WPL’s utility maintenance capital expenditures required to maintain its current infrastructure and dividends paid to Alliant Energy. Capital requirements needed to retire debt and fund capital expenditures associated with utility rate base growth, includingrelated to new generating facilities and environmental compliance programs are expected to be financed primarily through external financings, supplemented by internally generated funds.financings. Ongoing monitoring of credit and capital market conditions allows management to evaluate the availability of funding and the terms and conditions attached to such financing. In order to maintain its planned debt-to-total capitalization ratios that are consistent with investment-grade ratings, WPL may periodically issue additional debt to fund such capital requirements.requirements with additional debt and equity.
Cash Flows - Selected information from the Consolidated Statements of Cash Flows wasis as follows (in millions):
| 2006 | 2005 | 2004 | 2009 | 2008 | 2007 | |||||||||||||||||||
Cash and cash equivalents at Jan. 1 | $ | 4.5 | $ | 0.4 | $ | 1.6 | ||||||||||||||||||
Cash flows from (used for): | ||||||||||||||||||||||||
Operating activities | $ | 162.6 | $ | 176.6 | $ | 199.3 | 305.8 | 239.7 | 258.0 | |||||||||||||||
Investing activities | (149.0 | ) | (42.9 | ) | (214.3 | ) | (493.4 | ) | (376.0 | ) | (207.0 | ) | ||||||||||||
Financing activities | (12.0 | ) | (133.8 | ) | (12.0 | ) | 201.6 | 140.4 | (52.2 | ) | ||||||||||||||
Net increase (decrease) | 14.0 | 4.1 | (1.2 | ) | ||||||||||||||||||||
Cash and cash equivalents at Dec. 31 | $ | 18.5 | $ | 4.5 | $ | 0.4 | ||||||||||||||||||
Cash Flows From Operating Activities -
Historical Changes2009 vs. 2008 - WPL’s cash flows from operating activities increased $66 million primarily due to $107 million of higher cash flows from changes in Cash Flows From Operating Activities -income tax payments and refunds, lower payments for gas stored underground partially due to lower natural gas prices, $28 million of higher cash flows from changes in the amount of collateral paid to and received from counterparties of derivative contracts during 2009 and 2008 and $16 million of refunds paid by WPL to retail electric customers in 2008 related to over-recovered fuel-related costs in 2007. These items were partially offset by $47 million of pension plan contributions in 2009, $23 million of refunds paid by WPL to its retail customers in 2009 for over-collected fuel-related costs in 2008 and the impact of lower electric sales due to weather and economic conditions in 2009.
20062008 vs. 20052007 - WPL’s cash flows from operating activities decreased $14$18 million primarily due to $22 million of collateral payments received from counterparties of derivative contracts in 2007, $16 million of refunds paid to retail electric customers in 2008 for over-recovered fuel-related costs in 2007 and other changes in working capital caused largely by the timing of vendor payments and higher pension plan contributions,capital. These items were partially offset by the impact$32 million of improved retail fuel-related rate recoveries.lower income tax payments.
2005 vs. 2004Income Tax Payments and Refunds - WPL’sIncome tax payments and refunds resulted in higher cash flows from operating activities decreased $23 million primarily dueoperations for WPL in 2009 compared to higher2008. These changes in income tax payments and higher purchased powerrefunds were largely due to bonus tax depreciation deductions eligible to be taken by WPL for 2009 under the ARRA and fuel expenditures, partially offsetthe impact of a change in accounting method for repairs expenditures. Refer to “Legislative Matters” for additional discussion of the 2009 bonus tax depreciation deductions under the ARRA and Note 5 of the “Notes to Consolidated Financial Statements” for additional discussion of the change in tax method for repairs expenditures.
Cash Collateral - WPL has entered into various commodity contracts that contain provisions requiring the parties to provide cash collateral if their liability position under the contract exceeds certain limitations. Refer to Note 4(a) of the “Notes to Consolidated Financial Statements” for additional information on the cash collateral outstanding as of Dec. 31, 2009 and 2008. Refer to “Legislative Matters” for proposed legislation that may impact the amount of cash collateral required to be paid by changesWPL in the level of accounts receivable sales.future.
Pension Plan Contributions - In August 2006, the Pension Protection Act of 2006 was enacted. This legislation includesincluded changes to minimum funding level requirements of pension plans beginning in 2008. In 2006,2008, the Worker, Retiree and Employer Recovery Act of 2008 was enacted. This legislation provides pension plan funding relief to retirement plan sponsors impacted by material losses to their retirement plan assets in 2008. WPL contributedis currently in compliance with these two acts and expects to maintain compliance with these acts as a result of future expected pension plan contributions. Pension plan contributions for WPL include contributions to its qualified pension plan as well as an allocated portion of the contributions to pension plans with the intention of satisfying the minimum funding level requirements throughsponsored by Corporate Services and were $47 million, $0 and $0 for 2009, 2008 and does not expect2007, respectively. Estimates of pension plan contributions expected to make any additional significant contributions prior to 2009.be made in 2010, 2011 and 2012 are $0, $0 and $5 million, respectively, and are based on the funded status and assumed return on assets as of the Dec. 31, 2009 measurement date for WPL’s plan. Refer to Note 6(a) of the “Notes to Consolidated Financial Statements” for discussion of the current funded levels of WPL’s pension plans.
Cash Flows Used For Investing Activities -plan.
Historical Changes in Cash Flows Used For Investing Activities -
20062009 vs. 20052008 - WPL’s cash flows used for investing activities increased $106$117 million primarily due to proceeds from$145 million of higher construction and acquisition expenditures including expenditures in 2009 for the sale of its interest in Kewaunee in 2005Bent Tree - Phase I wind project, the Neenah Energy Facility and lower proceeds from the liquidations of nuclear decommissioning trust fund assets in 2006 compared to 2005. These increases wereAMI. This item was partially offset by lower construction expenditures.changes in the collection of and advances for customer energy efficiency projects.
20052008 vs. 20042007 - WPL’s cash flows used for investing activities decreased $171increased $169 million primarily due to $160 million of higher construction expenditures including expenditures for its Cedar Ridge wind project in 2008 and $24 million of net proceeds received from WPL’sthe sale of its interestIllinois properties in Kewaunee and related liquidation of a portion of nuclear decommissioning trust fund assets in 2005.2007.
Construction and Acquisition Expenditures - Capital expenditures investments and financing plans are reviewed, approved and updated as part of WPL’s strategic planning and budgeting processes. In addition, significant capital expenditures and investments are subject to a rigorous cross-functional review prior to approval. Changes in WPL’s anticipated construction and acquisition expenditures may result from a number of reasons including but not limited to, economic conditions, regulatory requirements, ability to obtain adequate and timely rate relief, the level of WPL’s profitability, WPL’s desire to maintain targeted capitalization ratios and credit ratings, variations in sales, changing market conditions and new opportunities. WPL currently anticipates construction and acquisition expenditures during 2007 and 20082010 through 2012 as follows (in millions):
| 2007 | 2008 | |||||
Distribution (electric and gas) and transmission (gas only) | $ | 120 | $ | 130 | ||
Generation - new facilities | 50 | 390 | ||||
Generation - existing facilities | 15 | 30 | ||||
Environmental | 20 | 65 | ||||
Other miscellaneous utility property | 30 | 70 | ||||
Contributions to ATC | — | 25 | ||||
| $ | 235 | $ | 710 | |||
| 2010 | 2011 | 2012 | |||||||
New wind generating facility - Bent Tree - Phase I | $ | 290 | $ | 10 | $ | — | |||
Environmental | 35 | 140 | 170 | ||||||
AMI | 10 | — | — | ||||||
Other capital expenditures | 190 | 220 | 245 | ||||||
| $ | 525 | $ | 370 | $ | 415 | ||||
Cost estimates represent WPL’s estimated portion of total escalated construction and acquisition expenditures in millions of dollars and exclude AFUDC, if applicable. WPL has not yet entered into contractual commitments relating to the majority of its anticipated future capital expenditures. As a result, WPL does haveit has discretion with regard to the level of capital expenditures eventually incurred and it closely monitors and frequently updates such estimates on an ongoing basis based on numerous economic and other factors. WPL has capital purchase obligations under a master supply agreement executed in 2008 with Vestas for the purchase of wind turbine generator sets and related equipment to support its wind generation plans. Refer to “Certain Financial Commitments - Contractual Obligations” for long-term capital purchase obligations related to wind projects and “Strategic Overview” and “Environmental” for further discussion.discussion of WPL’s generation plans and environmental compliance plans.
WPL expects to finance its 2010 through 2012 capital expenditure plans in a manner that allows it to adhere to the capital structure targets discussed in the “Capital Structure” section above. 2010 capital expenditures are expected to be funded with a combination of internally-generated cash, and short- and long-term debt. The precise characteristics of the financing for the 2011 and 2012 capital expenditures will be determined closer to the time that the financing is required. Flexibility will be required in implementing the long-term financing for capital expenditure plans to allow for scheduling variations in the required authorization and construction work, changing market conditions and any adjustments that might be required to ensure there are no material adverse impacts to WPL’s capital structure.
Proceeds from Asset Sales - ProceedsNet proceeds from asset sales have been and will be used primarily for debt reduction and general corporate purposes. ReferProceeds from assets sales for 2009, 2008 and 2007 were $0, $3 million and $24 million, respectively. The 2007 proceeds related to “Strategic Overview” for discussionWPL’s sale of WPL’s recent asset divesture activities.its electric and gas utility assets in Illinois.
Cash Flows Used For Financing Activities -
Historical Changes in Cash Flows Used For Financing Activities -20062009 vs. 20052008 - WPL’s cash flows used forfrom financing activities decreased $122increased $61 million primarily due to changes in the amount of long-term debt issued and retired during 2009 and a capital contribution from Alliant Energy in 2006.2008 discussed below.
20052008 vs. 20042007 - WPL’s cash flows used forfrom financing activities increased $122$193 million primarily due to $100 million of lower common stock dividends and a $100 million capital contribution from its parent, Alliant Energy, in 2008. These items were partially offset by changes in the amount of long-term debt issued and retired.retired during 2008 and 2007.
State Regulatory Financing AuthorizationsAuthorization - In July 2009, WPL hasreceived authorization forfrom the PSCW to issue long-term debt securities of no more than $350 million in 2010. WPL is also authorized by the PSCW to have no more than $250 million of short-term borrowings of $250 million.outstanding.
Shelf RegistrationsRegistration - WPL’s current SECIn the second quarter of 2009, WPL filed a shelf registration allowsstatement with the SEC. WPL’s shelf registration became effective in June 2009 and provided WPL flexibility to offer from time to time up to an aggregate of $200$700 million of preferred stock and unsecured debt securities and first mortgage bonds.from June 2009 through June 2012. As of Dec. 31, 2006,2009, WPL had $200$450 million remaining available under its shelf registration.
Common Stock Dividends - Refer to Note 7(a) of the “Notes to Consolidated Financial Statements” for discussion of WPL’s dividend payment restrictions based on the terms of its outstanding preferred stock and stateapplicable regulatory limitations applicable to it.limitations.
Long-term DebtCapital Contributions - Refer to Note 8(b)7(a) of the “Notes to Consolidated Financial Statements” for information regarding long-term debt.discussion of capital contributions made from Alliant Energy to WPL in 2009 and 2008.
Short-term Debt - In 2006,2007, WPL completedextended the re-syndicationterms of aits revolving credit facility and extended the term of the facility to November 2011.2012. This credit facility backstops commercial paper issuances used to finance short-term borrowing requirements, which fluctuate based on seasonal corporate needs, the timing of long-term financings and capital market conditions. Information regardingAt Dec. 31, 2009, WPL’s short-term borrowing arrangements included a revolving credit facility of $240 million. There are currently 14 lenders that participate in the credit facility, with aggregate commitments ranging from $8 million to $26 million. WPL anticipates that in March 2010, two lenders that participate in the credit facility will merge, resulting in the maximum exposure to a single lender increasing from
$26 million to $45 million. At Dec. 31, 2009, WPL had no commercial paper at Dec. 31, 2006 was as follows (dollars in millions):outstanding under its credit facility and had $240 million of available credit facility capacity. During 2009, WPL issued commercial paper to meet short-term financing requirements and did not borrow under its credit facility.
Amount outstanding | $ | 134.9 | ||
Weighted average maturity | 2 days | |||
Interest rates | 5.4 | % | ||
Available capacity | $ | 115.1 |
WPL’s credit facility agreement contains a covenant whichthat requires WPL to maintain a debt-to-capital ratio of less than 58%. At Dec. 31, 2009, WPL’s actual debt-to-capital ratio was 47%. The debt component of the capital ratio includes long- and short-term debt (excluding non-recourse debt and hybrid securities to the extent such hybrid securities do not exceed 15% of consolidated capital of the borrower), capital lease obligations, letters of credit, guarantees of the foregoing and new synthetic leases. The equity component excludes accumulated other comprehensive income (loss).
TheWPL’s credit facility agreement contains negative pledge provisions, which generally prohibit placing liens on any of WPL’s property with certain exceptions. Exceptions include among others, securing obligations of up to 5% of the consolidated assets of the borrower, the issuance of secured debt under first mortgage bond indentures by WPL, non-recourse project financing and purchase money liens.
The credit facility agreement contains provisions that require, during its term, any proceeds from asset sales, with certain exclusions, in excess of 20% of WPL’s consolidated assets to be used to reduce commitments under WPL’sits facility. Exclusions include, among others, certain sale and lease-back transactions.
The credit facility agreement contains customary events of default. If an event of default under WPL’sthe credit facility agreement occurs and is continuing, then the lenders may declare any outstanding obligations under the credit facility agreement immediately due and payable.payable and could terminate such agreement. In addition, if any order for relief is entered under bankruptcy laws with respect to WPL, then any outstanding obligations under WPL’sthe credit facility agreement would be immediately due and payable. At Dec. 31, 2009, WPL did not have any direct borrowings outstanding under its credit facility agreement. A default by either Alliant Energy, IPL or Resources would not trigger a cross-default event for WPL.
A material adverse change representation is not required for borrowings under WPL’sthe credit facility agreement.
At Dec. 31, 2006,2009, WPL was in compliance with all covenants and other provisions of the credit facility.facility agreement.
Refer to Note 8(a) of the “Notes to Consolidated Financial Statements” for additional information on short-term debt.
Long-term Debt - In 2009 and 2008, significant issuances of long-term debt were as follows (dollars in millions):
Year | Principal Amount | Type | Interest Rate | Due Date | Use of Proceeds | |||||||
2009 | $ | 250.0 | Debentures | 5 | % | Jul-2019 | Repay short-term debt and invest in short-term assets | |||||
2008 | $ | 250.0 | Debentures | 7.6 | % | Oct-2038 | Invest in short-term assets, repay short-term debt, and repay at maturity its $60 million 5.7% debentures | |||||
In 2008, WPL retired its $60 million 5.7% debentures, which were due October 2008.
Refer to Note 8(b) of the “Notes to Consolidated Financial Statements” for additional information on long-term debt.
Creditworthiness -
Credit Ratings - - Access to the capital markets and the costs of obtaining external financing are dependent on creditworthiness. WPL is committed to taking the necessary steps required to maintain investment-grade credit ratings. WPL’s current credit ratings and outlooks are as follows:
| Standard & Poor’s Ratings Services (S&P) | Moody’s Investors Service (Moody’s) | |||
| ||||
| A- | A2 | ||
Commercial paper | A-2 | P-1 | ||
| A- | A2 | ||
Preferred stock | BBB | Baa1 | ||
Outlook | Stable | Stable |
Credit ratings are not recommendations to buy or sell securities and are subject to change, and each rating should be evaluated independently of any other rating. WPL assumes no obligation to update its credit ratings.
Ratings Triggers - - The long-term debt of WPL is not subject to any repayment requirements as a result of explicit credit rating downgrades or so-called “ratings triggers.” However, WPL is party to various agreements, including PPAs and fuelcommodity contracts that are dependent on maintaining investment-grade credit ratings. In the event of a downgrade below these credit rating levels,investment-grade level, WPL may need to provide credit support, such as letters of credit or cash collateral equal to the amount of the exposure, or may need to unwind the contract or pay the underlying obligation. In the event of a downgrade below investment-grade level, management believes WPL has sufficient liquidity to cover counterparty credit support or collateral requirements under these various agreements. Refer to Note 11(a) of the various agreements with rating triggers.“Notes to Consolidated Financial Statements” for additional information on ratings triggers for commodity contracts accounted for as derivatives.
Off-Balance Sheet Arrangements -
Synthetic Leases - - WPL utilizes off-balance sheet synthetic operating leases that relaterelated to the financing of certain utility railcars and a utility radio dispatch system.railcars. Synthetic leases provide favorable financing rates to WPL while allowing it to maintain operating control of its leased assets. Refer to Note 3(a) of the “Notes to Consolidated Financial Statements” for future minimum lease payments and residual value guarantees associated with these synthetic leases.
Guarantees and IndemnificationsSpecial Purpose Entities - - WPL has guarantees and indemnifications outstanding related to its recent divestiture activities. Refer to Note 12(d)18 of the “Notes to Consolidated Financial Statements” for additional information.information regarding variable interest entities.
Certain Financial Commitments -
Contractual Obligations - - WPL’s consolidated long-term contractual obligations as of Dec. 31, 20062009 were as follows (in millions):
| 2007 | 2008 | 2009 | 2010 | 2011 | Thereafter | Total | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | |||||||||||||||||||||||||||||
Purchase obligations (Note 12(b)): | ||||||||||||||||||||||||||||||||||||||||||
Operating expense purchase obligations (Note 12(b)): | ||||||||||||||||||||||||||||||||||||||||||
Purchased power and fuel commitments | $ | 180 | $ | 180 | $ | 122 | $ | 118 | $ | 92 | $ | 258 | $ | 950 | $ | 252 | $ | 121 | $ | 104 | $ | 106 | $ | 24 | $ | 34 | $ | 641 | ||||||||||||||
Other | 3 | 1 | — | — | — | — | 4 | 3 | 8 | 8 | 7 | — | — | 26 | ||||||||||||||||||||||||||||
Long-term debt maturities (Note 8(b)) | 105 | 60 | — | 100 | — | 139 | 404 | 100 | — | — | — | 9 | 930 | 1,039 | ||||||||||||||||||||||||||||
Interest - long-term debt obligations | 22 | 19 | 15 | 12 | 8 | 149 | 225 | 63 | 59 | 59 | 59 | 59 | 1,083 | 1,382 | ||||||||||||||||||||||||||||
Wind generation capital purchase obligations (Note 12(a))(c) | 174 | — | — | — | — | — | 174 | |||||||||||||||||||||||||||||||||||
Operating leases (Note 3(a)) | 88 | 76 | 67 | 64 | 60 | 87 | 442 | 65 | 65 | 62 | 20 | 4 | 3 | 219 | ||||||||||||||||||||||||||||
Capital leases (Note 3(b)) | 15 | 15 | 15 | 15 | 15 | 203 | 278 | |||||||||||||||||||||||||||||||||||
Capital lease - Sheboygan Falls Energy Facility (Note 3(b)) | 15 | 15 | 15 | 15 | 15 | 158 | 233 | |||||||||||||||||||||||||||||||||||
Capital leases - other | — | — | — | — | — | 1 | 1 | |||||||||||||||||||||||||||||||||||
| $ | 413 | $ | 351 | $ | 219 | $ | 309 | $ | 175 | $ | 836 | $ | 2,303 | $ | 672 | $ | 268 | $ | 248 | $ | 207 | $ | 111 | $ | 2,209 | $ | 3,715 | |||||||||||||||
| (a) | Purchased power and fuel commitments represent normal business contracts used to ensure adequate purchased power, coal and natural gas supplies and to minimize exposure to market price fluctuations. Alliant Energy, through its subsidiary Corporate Services, has entered into various coal commitments that have not yet been directly assigned to WPL. Such commitments are not included in WPL’s purchased power and fuel commitments. |
| (b) | Other operating expense purchase obligations represent individual commitments incurred during the normal course of business that exceeded $1 million at Dec. 31, 2009. |
| (c) | In 2008, Corporate Services, as agent for IPL and WPL, entered into a master supply agreement with Vestas for the purchase of 500 MW of wind turbine generator sets and related equipment to support IPL’s and WPL’s wind generation plans. WPL’s wind generation plans are described in more detail in “Strategic Overview - Generation Plans.” |
At Dec. 31, 2006, long-term debt and capital lease obligations2009, WPL had $42.1 million of uncertain tax positions recorded as noted in the above table were included on the Consolidated Balance Sheet. Included in WPL’s long-term debt obligations was variable rate debt of $39 million,liabilities, which represented 10% of total long-term debt outstanding. The long-term debt amounts exclude reductions related to unamortized debt discounts. Interest on variable rate debt in the above table was calculated using rates as of Dec. 31, 2006. Purchased power and fuel commitments represent normal business contracts used to ensure adequate purchased power, coal and natural gas supplies and to minimize exposure to market price fluctuations. Alliant Energy, through its subsidiary Corporate Services, has entered into various purchased power and coal commitments that have not yet been directly assigned to IPL and WPL. Such commitments are not included in WPL’s purchase obligations. Other purchase obligations represent individual commitments incurred during the normal courseabove table. It is uncertain if, and when, such amounts may be settled with the respective taxing authorities. Related to these uncertain tax positions, WPL also recorded liabilities for potential interest of business which exceeded $1.0$2.1 million at Dec. 31, 2006. In connection with its construction2009, which are also not included in the above table.
Refer to Note 6(a) of the “Notes to Consolidated Financial Statements” for anticipated pension and acquisition program, WPL also enters into commitments related to such program on an ongoing basisother postretirement benefits funding amounts, which are not reflectedincluded in the above table. Refer to “Cash Flows Used For- Investing Activities - Construction and Acquisition Expenditures” for additional information.information on WPL’s construction and acquisition programs. In addition, at Dec. 31, 2006,2009, there were various other long-term liabilities and deferred credits included on the Consolidated Balance Sheet that, due to the nature of the liabilities, the timing of payments cannot be estimated and are therefore excluded from the above table. Refer to Note 6(a) of the “Notes to Consolidated Financial Statements” for anticipated pension and other postretirement benefit funding amounts, which are not included in the above table.
Environmental -
Overview - WPL’s pollution abatement programs are subject to continuing review and are periodically revised due to changes in environmental regulations, construction plans and escalation of construction costs. WPL continually evaluates the impact of potential future federal, state and local environmental rulemakings on its operations. While the final outcome of these rule makings cannot be predicted, WPL believes that required capital investments and/or modifications resulting from them could be significant, but expects that prudent expenditures it incurs likely would be recovered in rates from its customers. Given the dynamic nature of the utility environmental and other related regulatory requirements, WPL has an integrated planning process that includes the determination of new generation, environmental compliance requirements and other operational needs. As part of WPL’s planning process, investments for environmental requirements are approved by WPL’s Board of Directors. The following are major environmental issues that could potentially have a significant impact on WPL’s financial condition, results of operations and cash flows. Refer to “Cash Flows Used For Investing Activities - Construction and Acquisition Expenditures” for information on WPL’s anticipated 2007 and 2008 environmental capital expenditures.
Air Quality - The 1990 Clean Air Act Amendments mandate preservation of air quality through existing regulations and periodic reviews to ensure adequacy of these provisions based on scientific data. In 2005, the EPA finalized the Clean Air Interstate Rule (CAIR), which requires emission control upgrades to existing electric generating units with greater than 25 MW capacity. This rule will cap emission of sulfur dioxide (SO2) and nitrogen oxides (NOx) in 28 states (including Wisconsin) in the eastern U.S and, when fully implemented, reduce SO2 and NOx emissions in these states by over 70% and
60% from 2003 levels, respectively. The specific reductions for WPL will be determined by state-specific implementation plans, which could be more or less stringent than the noted 70% and 60% reductions. The first phase of compliance for SO2 and NOx is required by 2010 and 2009, respectively, and the second phase of compliance for both SO2 and NOx is required by 2015. This federal rule allows that additional reduction requirements may also be imposed at the state level for those areas that are in non-attainment with National Ambient Air Quality Standards (NAAQS). WPL has existing electric generating units located in non-attainment areas for the 8-hour ozone standard and may be subject to additional NOx emission reductions.
In 2005, the EPA also finalized the Clean Air Mercury Rule (CAMR) which requires mercury emission control upgrades for coal-fired generating units with greater than 25 MW capacity. When fully implemented, this rule will reduce U.S. utility (including WPL) mercury emissions by approximately 70% in a two-phased reduction approach. The first phase of compliance is required by 2010 and the second phase by 2018.
The final CAIR and CAMR rules were both effective in 2005 and, by September 2006 and November 2006, respectively, each state was to have submitted enforceable plans to the EPA for approval, which complied with the requirements of these rules. A federal implementation plan went into effect for those states that failed to file the state implementation plans by the respective due date. The federal implementation plan adopted the EPA’s model cap-and-trade program for meeting the state emission budgets under CAIR and CAMR. The EPA views the federal implementation plan as a temporary measure that remains effective until that state’s implementation plan is submitted and approved. Wisconsin continues planning for these rules and intends to file its state implementation plans with the EPA in the first quarter of 2007. WPL continues to participate in the development of the state implementation plans that impact its operations. WPL’s specific compliance plans will not be completed until states with jurisdictions impacting WPL have received approval from the EPA for their respective state implementation plans.
With the publication of the CAIR and CAMR rules in 2005, WPL completed a preliminary evaluation of these rulemakings based on the EPA’s model cap-and-trade program to meet the required state emission reductions in a flexible and cost effective manner. The resulting compliance plan for WPL includes investments in emission controls for its generating units as well as purchases of emission allowances. WPL’s estimated capital expenditures from its initial plans for 2007 through 2010 associated with the first phase of compliance for CAIR and CAMR are $100 million to $140 million. WPL expects additional capital investments for the second phase compliance with CAIR and CAMR to be significant and material. Based on WPL’s initial plan, estimates for capital expenditures for 2011 through 2018 required for phase two compliance with these rules are $150 million to $200 million. These estimates are based on industry average costs of technologies and expected outcomes of state implementation plans for these rules. In 2006, additional information became available on state compliance requirements, however all state implementation plans that impact WPL are not final. WPL is currently developing an updated compliance plan with revised cost estimates for emission control options for the affected generating units and continues to explore the potential use of the developing emission allowance markets as an option for compliance. WPL plans to finalize an updated compliance plan after state implementation plans are approved by the EPA in 2007.
In addition, WPL is aware that certain citizen groups have begun pursuing claims against owners of utility generating stations regarding excess emissions, including opacity emissions. While WPL has not received any such claims to date, it is aware that certain public comments have been submitted to the Wisconsin Department of Natural Resources (DNR) regarding excess emission reports for two of WPL’s generating facilities. WPL is unable to predict what actions, if any, the Wisconsin DNR or the public commenters may take in response to these public comments. WPL continues to monitor its emissions closely to determine whether additional controls will be required. The anticipated additional capital investments for CAIR and CAMR compliance discussed above should contribute to improvements in opacity emissions. However, should more stringent opacity limits be required, the timing of investments and control equipment options to comply with these multiple regulatory requirements will need further evaluation.
There have been instances where citizen groups have pursued claims against utilities for alleged air permitting violations. While WPL has not received any such claims to date, WPL is aware of certain public comments that have been submitted to the Wisconsin DNR regarding the renewal of an air operating permit for one of WPL’s generating facilities and that a certain citizen group has filed a petition with the Wisconsin DNR regarding modification of an air operating permit for another WPL generating facility. WPL is unable to predict what actions, if any, the Wisconsin DNR or the public commenters may take in response to these public comments.
WPL is also currently monitoring various other potential federal, state and local environmental rulemakings and activities, including, but not limited to: litigation of various federal rules issued under the statutory authority of the Clean Air Act Amendments; revisions to the New Source Review and Prevention of Significant Deterioration permitting programs;
Regional Haze evaluations for Best Available Retrofit Technology; ozone requirements for Reasonably Available Control Technology; revisions to the NAAQS including particulate matter; and several other legislative and regulatory proposals regarding the control of emission of air pollutants and greenhouse gases, including carbon dioxide, from a variety of sources, including generating facilities.
Water Quality - The EPA regulation under the Clean Water Act referred to as “316(b)” became effective in 2004. This regulation requires existing large generating facilities with cooling water intake structures to apply technology to minimize adverse environmental impacts to fish and other aquatic life. WPL has initially identified 3 generating facilities which it believes are impacted by 316(b) and is currently preparing evaluations of the potential impacts of the rule. In January 2007, a court decision on this rule remanded some aspects of the rule to the EPA for further consideration. WPL is currently unable to predict the final outcome, however expects that required capital investments and/or modifications resulting from this regulation could be significant.
WPL is also currently evaluating proposed revisions to the Wisconsin Administrative Code concerning the amount of heat that WPL’s generating facilities can discharge into Wisconsin waters. At this time, WPL is unable to predict the final outcome, but believes that required capital investments and/or modifications resulting from this regulation could be significant.
In 2004, FERC issued an order requiring WPL to develop a detailed engineering and biological evaluation of potential fish passages, to install an agency approved fish-protective device within one year and within three years to install an agency-approved fish passage at one of WPL’s hydroelectric generating facilities. WPL is working with the appropriate federal and state agencies to comply with these provisions and research solutions. In 2005, WPL filed a one-year extension request with FERC for the detailed engineering and biological evaluation of potential fish passages and installation of an agency approved fish-protective device. In October 2006, FERC approved the extension for completing the evaluation and installation for the downstream fish passage to April 2008 and upstream fish passage to April 2009. In January 2007, the federal and state agencies requested additional changes and further analysis on the fish passage designs. WPL is currently evaluating these latest agency requests and plans to file a new extension request with FERC in the third quarter of 2007. WPL believes that required capital investments and/or modifications resulting from this issue could be significant.
Land and Solid Waste - WPL has current or previous ownership interests in 14 manufactured gas plant (MGP) sites previously associated with the production of gas for which it may be liable for investigation, remediation and monitoring costs relating to the sites. WPL is working pursuant to the requirements of various federal and state agencies to investigate, mitigate, prevent and remediate, where necessary, the environmental impacts to property, including natural resources, at and around the sties in order to protect public health and the environment. Refer to Note 12(e) of the “Notes to Consolidated Financial Statements” for estimates of the range of remaining costs to be incurred for the investigation, remediation and monitoring of WPL’s MGP sites.
WPL is also monitoring various other land and solid waste regulatory changes. This includes a potential EPA regulation for management of coal combustion product in landfills and surface impoundments that could require installation of monitoring wells at some facilities and an ongoing expanded groundwater monitoring program. Compliance with the polychlorinated biphenyls (PCB) Fix-it Rule/Persistent Organic Pollutants Treaty could possibly require replacement of all electrical equipment containing PCB insulating fluid which is a substance known to be harmful to human health. The Wisconsin Department of Commerce is proposing new rules related to flammable, combustible and hazardous liquids stored in above ground storage tanks in which the primary financial impact would be from a secondary containment requirement for all hazardous materials tanks and for hazardous material unloading areas. WPL is unable to predict the outcome of these possible regulatory changes at this time, but currently believes that the required capital investment and/or modifications resulting from these potential regulations could be significant.
Refer to Note 12(e) of the “Notes to Consolidated Financial Statements,” and “Construction and Acquisition Expenditures” for further discussion of environmental matters.
OTHER MATTERS
Market Risk Sensitive Instruments and Positions - - WPL’s primary market risk exposures are associated with commodity prices, investment prices and interest rates and equity prices.rates. WPL has risk management policies to monitor and assist in controlling these market risks and uses derivative instruments to manage some of the exposures. Refer to Notes 1(j)1(i) and 11 of the “Notes to Consolidated Financial Statements” for further discussion of WPL’s derivative financial instruments.
Commodity Price Risk- - WPL is exposed to the impact of market fluctuations in the commodity price and transportation costs of electric, coal and natural gas productscommodities it procures and markets. WPL employs established policies and procedures to mitigate its risks associated with these market fluctuations including the use of various commodity derivatives and contracts of various durations for the forward sale and purchase of these commodities. Specifically, WPL has entered into several commodity derivative instruments to substantially hedge its open positions related to electric supply in 2010. However, WPL still has some exposure to commodity risk as a result of changes in its forecasted electric demand, expected availability of its generating units and the limitations of its Electric Risk Management Plan (ERMP) discussed below. WPL’s exposure to commodity price risks is also significantly mitigated by the current rate making structures in place for recovery of its electric production fuel and purchased energy costsexpenses (fuel-related costs) as well as its cost of natural gas purchased for resale.
WPL’s gas and wholesale electric tariffs provide for subsequent adjustments to its rates for changes in commodity costs thereby eliminating price risk for prudently incurred commodity costs. WPL’s retail gas tariffs provide for subsequent adjustments to its natural gas rates for changes in the current monthly natural gas commodity price index. Also, WPL currently has a gas performance incentive which includes a sharing mechanism whereby gains and losses relative to current commodity prices, as well as other benchmarks, are shared by WPL and its retail customers. Such rate mechanisms, combined with commodity derivatives, discussed above, significantly reduce commodity risk associated with WPL’s wholesaleits electric and retail gas margins.
However, WPL’s retail electric margins are more exposedhave the most exposure to the impact of changes in commodity prices due largely to the current retail recovery mechanismsmechanism in place in Wisconsin for fuel-related costs. WPL’s retail electric rates approved by the PSCW are based on forecasts of forward-looking test year periods and include estimates of future fuel-related costs per MWh anticipated during the test year.period. During each electric retail rate proceeding for WPL that includes fuel-related costs, the PSCW sets fuel monitoring ranges based on the forecasted fuel-related costs used to determine base rates. If WPL’s actual fuel-related costs fall outside these fuel monitoring ranges during the test year period, WPL and/or other parties can request, and the PSCW can authorize, an adjustment to future retail electric rates.rates based on changes in fuel-related costs only. The PSCW on its own, or at the request of a party to the case, including WPL, can request that the PSCW set rates subject to refund pending a review of fuel-related costs. As part of this process, the PSCW may authorize an interim fuel-related rate increase or decrease until final rates are determined.approved. However, if an interim rate increase is granted and the final rate increase is less than the interim rate increase, WPL wouldmust refund the excess collection to retail customers with interest at the current authorized return on common equity rate. As part of WPL’s most recent2010 retail rate case decision in January 2007,order effective Jan. 1, 2010, the PSCW approved annual forecasted fuel-related costs of $445 million or $29.65 per MWh of $27.46 based on $378 million of variable fuel costs for WPL’s 2010 test yearperiod and left unchanged the annual fuel monitoring rangesrange of plus or minus 2%.
Based on thethis current retail recovery mechanism, WPL has exposure to its retail electric margins from increases in fuel-related costs above the forecasted fuel-related costs per MWh used to determine electric rates to the extent such increases are not recovered through prospective fuel only retail rate changes. WPL has additional commodity price risk resulting from the lag inherent in obtaining any approved retail rate relief for potential increases in fuel-related costs above the fuel monitoring ranges and the prospective nature of any retail rate relief, which precludes WPL from recovering under recoveredpreviously under-recovered costs from ratepayers in the future.
Refer to “Rates and Regulatory Matters - Utility Fuel Cost Recovery” for additional details of the retail rate recovery mechanism in Wisconsin for electric fuel-related costs and a discussion of potential changes to the current retail fuel cost recovery mechanisms in Wisconsin which may impact commodity price risk associated with WPL’s future electric and gas retail margins. WPL is unable to determine the anticipated impact of changes in commodity prices on its future retail electric margins given the uncertainty of how future fuel-related costs will correlate with the retail electric rates in place and the outcome of the proposed changes to the current retail electric fuel-related cost recovery rules in Wisconsin. Refer to “Rate Matters” for additional details of the retail rate recovery mechanism in Wisconsin for electric fuel-related costs including potential changes to WPL’s electric fuel-related cost recovery mechanism.
In October 2008, the PSCW issued an order approving an ERMP for WPL that expires in December 2010. The ERMP determines hedging options for WPL’s electric operations and which costs of hedging transactions can be included in fuel costs for purposes of cost recovery. The ERMP was developed with the involvement of individuals representing key customer groups as well as PSCW staff, and as proposed, included a number of new elements that would expand WPL’s hedging options, including longer time horizons and greater protections for decisions made to take advantage of unusual market conditions. However, in approving the ERMP, the PSCW added a new limitation that WPL may not hedge more than a cumulative 75% of a future month’s expected open position (expected electric system demand less expected generation and firm purchases) although this limitation may be waived for the month immediately preceding the future month in order to assure reliable provision of service.
Investment Price - WPL is exposed to investment price risk as a result of its investments in debt and equity securities, largely related to securities held by its pension and other postretirement benefits plans. Refer to Note 6(a) of the “Notes to Consolidated Financial Statements” for details of the debt and equity securities held by WPL’s pension and other postretirement benefit plans.
Interest Rate Risk- - WPL is exposed to risk resulting from changes in interest rates as a result of its issuance of variable rate debt and variable-rate leasing agreements.short-term borrowings. WPL manages this interest rate risk by limiting its variable interest rate exposure. Assuming no changedid not have any variable-rate short-term borrowings outstanding at Dec. 31, 2009.
In addition, WPL is exposed to changes in WPL’s consolidated financial structure, if variableearnings resulting from changes in interest rates were to average 100 basis points higher (lower)as a result of balances of cash and cash equivalents that are currently invested in 2007 than in 2006, expense would increase (decrease) by approximately $1.8 million. This amount was determined by consideringmoney market funds with yields that may fluctuate daily. Assuming the impact of a hypothetical 100 basis point increase (decrease) in interest rates on WPL’s consolidated variable-rate debt held and variable-rate lease balancesmoney market fund investments at Dec. 31, 2006.
Equity Price Risk - WPL is exposed to equity price risk as a result of its investments in debt and equity securities, including securities held2009, WPL’s annual interest income would increase by its pension and other postretirement benefit plans.approximately $0.2 million.
New Accounting Pronouncements - - Refer to Note 1(q)1(p) of the “Notes to Consolidated Financial Statements” for discussion of new accounting pronouncements impacting WPL.
Critical Accounting Policies and Estimates - -The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) requires that management apply accounting policies and make estimates that affect results of operations and the amounts of assets and liabilities reported in the financial statements. Based on historical experience and various other factors, WPL believes the following accounting policies and estimates are critical to its business and the understanding of its financial results of operations as they require critical estimates be made based on the assumptions and judgment ofjudgments by management. The preparation of consolidated financial statements requires management to make various estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingencies. The results of these estimatesassumptions and judgments form the basis for making judgments aboutestimates regarding the carrying valuesresults of operations and the amounts of assets and liabilities that are not readily apparent from other sources. Actual financial results may differ materially from these estimates
and judgments.estimates. WPL’s management has discussed these critical accounting policies and estimates with the Audit Committee of its Board of Directors. Refer to Note 1 of the “Notes to Consolidated Financial Statements” for aadditional discussion of WPL’s accounting policies and the estimates and assumptions used in the preparation of the consolidated financial statements.
Contingencies -WPL makes assumptions and judgments regarding the future outcome of contingent events and record loss contingency amounts for any contingent events that are both probable and reasonably estimable based upon current available information. The amounts recorded may differ from the actual income or expense that occurs when the uncertainty is resolved. The estimates that WPL makes in accounting for contingencies, and the gains and losses that it records upon the ultimate resolution of these uncertainties, could have a significant effect on the results of operations and the amount of assets and liabilities in its financial statements. Refer to Note 12 of the “Notes to Consolidated Financial Statements” for discussion of current contingencies that may have a material impact on WPL’s financial condition or results of operations.
Regulatory Assets and Liabilities - - WPL is regulated by various federal and state regulatory agencies. As a result, it qualifiesis subject to accounting guidance for the application of Statement of Financial Accounting Standards (SFAS) 71, “Accounting for the Effects of Certain Types of Regulation.” SFAS 71regulated operations, which recognizes that the actions of a regulator can provide reasonable assurance of the existence of an asset or liability. Regulatory assets or liabilities arise as a result of a difference between accounting principles generally accepted in the U.S.GAAP and the accounting principles imposed by the regulatory agencies. Regulatory assets generally represent incurred costs that have been deferred as they are probable of recovery in future customer rates. Regulatory liabilities generally represent obligations to make refunds to customers and amounts collected in rates for which the related costs have not yet been incurred.
WPL recognizes regulatory assets and liabilities in accordance with the rulings of its federal and state regulators and future regulatory rulings may impact the carrying value and accounting treatment of WPL’sits regulatory assets and liabilities. WPLManagement periodically assesses whether the regulatory assets are probable of future recovery and the regulatory liabilities are probable of future obligations by considering factors such as regulatory environment changes, recent rate orders issued by the applicable regulatory agencies and the status of any pending or potential deregulation legislation.historical decisions by applicable regulatory agencies regarding similar regulatory assets and liabilities. The assumptions and judgments used by regulatory authorities continue to have an impact on the recovery of costs, the rate of return on invested capital and the timing and amount of assets to be recovered by rates. A change in these assumptions may result in a material impact on WPL’s results of operations.operations and the amount of assets and liabilities in its financial statements. Refer to Note 1(b) of the “Notes to Consolidated Financial Statements” for further discussion.details of the nature and amounts of WPL’s regulatory assets and liabilities as of Dec. 31, 2009 and 2008.
Asset ValuationsLong-Lived Assets -Long-Lived Assets Held for Sale - The Consolidated Balance Sheets include long-lived assets, which are not yet being recovered from WPL’s customers or may cease to be recovered from WPL’s customers as a result of regulatory decisions in the future. As a result, WPL must determine whether it will be able to generate sufficient future cash flows from such assets held for sale are reviewed for possible impairment each reporting period and impairment charges are recorded ifto ensure recovery of the carrying value of the long-lived assets. WPL assesses the carrying amount and potential impairment of these assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered in determining if an impairment review is necessary include a significant underperformance of the assets relative to historical or projected future operating results, a significant change in the use of the acquired assets or business strategy related to such assets, exceedsand significant negative industry, regulatory or economic trends. When an impairment review is deemed necessary, a comparison is made between the estimated fair value less costexpected undiscounted future cash flows and the carrying amount of the asset. If the carrying amount of the asset is the larger of the two balances, an impairment loss is recognized equal to sell. The fair valuesthe amount the carrying amount of WPL’s assets held for sale are generally determined based upon current market information including information from bid information received from potential buyers. If current market information is not available, WPL estimatesthe asset exceeds the fair value of its assets held for sale utilizingthe asset. The fair value is determined by the use of quoted market prices, appraisals, or the use of valuation techniques such as expected discounted future cash flows. WPL must make assumptions and judgments regarding these estimated future cash flows and other factors to determine the recoverability and fair value of its long-lived assets. Refer to Note 1(e) of the respective assets.“Notes to Consolidated Financial Statements” for details of wind sites currently expected to be used by WPL to develop future wind projects.
Unbilled Revenues - Energy sales to individual customers are based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated and the corresponding estimated unbilled revenue is recorded. The unbilled revenue estimate is based on daily system demand volumes, estimated customer usage by class, weather impacts, line losses and the most recent customer rates. Such process involves the use of various estimates, thusjudgments and assumptions and significant changes in the estimatesthese judgments and assumptions could have a material impact on WPL’s results of operations. At Dec. 31, 20062009 and 2005,2008, WPL’s unbilled revenues were $74$87 million and $78$92 million, respectively. Refer to “Results of Operations - Electric Margins - Unbilled Revenue Estimates” for discussion of annual adjustments to unbilled electric revenue estimates in the second quarters of 2009, 2008 and 2007.
Accounting for Pensions and Other Postretirement Benefits - - WPL accounts for pensionssponsors various defined benefit pension and other postretirement benefits under SFAS 87, “Employers’plans that provide benefits to a significant portion of its employees. Accounting for Pensions,” SFAS 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,”these retirement plans requires the use of judgments and SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R).” Under these rules, certain assumptions, are made which represent significant estimates. There are many factorsjudgments and assumptions involved in determining an entity’s pension and other postretirement liabilities and costs each period including assumptions regarding employee demographics (including age, life expectancies and compensation levels), discount rates, assumed rate of returns and funding. Changes made to the plan provisions may also impact current and future pensionbenefits costs. Judgments and other postretirement costs. WPL’s assumptions are supported by historical data and reasonable projections and are reviewed annually with an outside actuary firm and an investment consulting firm.annually. As of Sep. 30, 2006Dec. 31, 2009 (WPL’s most recent measurement date), WPL’s future assumptions included a 5.85% discount raterates of 5.80% and 5.55% to calculate benefit obligations associated with WPL’s defined benefit pension and a 8.5%other postretirement benefits plans, respectively, and an 8.25% future annual expected rate of return on investments.plan assets. In selecting an assumed discount rate, WPLmanagement reviews various corporate Aa bond indices. The 8.5%8.25% annual expected rate of return is consistent with WPL’s historical returns and is based on projected long-term equity and bond returns, maturities and asset allocations.
Refer to NoteNotes 1(j) and 6(a) of the “Notes to Consolidated Financial Statements” for additional discussion of the impactaccounting for pension and other postretirement benefits. Refer to “Other Future Considerations - Retirement Plan Costs” for discussion of a changeanticipated material decreases in the medical trend rates.pension and other postretirement benefits expenses in 2010 resulting from increases in retirement plans’ assets during 2009.
Income Taxes - - WPL accountsis subject to income taxes in various jurisdictions. Accounting for income taxes under SFAS 109, “Accounting for Income Taxes.” Under these rules, certainrequires judgments and assumptions are made which represent significant estimates. There are many factors involved in determiningto determine an entity’s income tax assets, liabilities, benefits and expenseexpenses each period. These factorsjudgments and assumptions represent significant estimates and include assumptions regardingprojections of WPL’s future taxable income used to determine its ability to utilize loss and credit carryforwards prior to their expiration and the impacts from the completioninterpretation of audits of the tax treatment of certain transactions. WPL’s
laws regarding uncertain tax positions. Judgments and assumptions are supported by historical data and reasonable projections and are reviewed quarterly by management. Significant changes in these judgments and assumptions could have a material impact on WPL’s financial condition and results of operations. WPL is required to adopt the provisions of Financial Accounting Standards Board Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes,” on Jan. 1, 2007. FIN 48 prescribes recognition thresholds and measurement attributes for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.
Refer to Note 5 of the “Notes to Consolidated Financial Statements” for further discussion.additional details regarding uncertain tax positions.
Accounting for Costs Related to the MISO Wholesale Energy Market - Effective April 1, 2005, MISO implemented the MISO Midwest Market, a bid-based energy market. The market requires that all market participants submit day-ahead and/or real-time bids and offers for energy at locations across the MISO region. MISO then calculates the most efficient solution for all the bids and offers made in the market that day, and determines a locational marginal price which reflects the market price for energy. As a participant in the new MISO Midwest Market, WPL is required to follow MISO’s instructions when dispatching generating units to support MISO’s responsibility for maintaining stability of the transmission system.
As a participant in MISO, WPL offers its generation and bids its demand into the market on an hourly basis, resulting in net receipt from or net obligation to MISO for each hour of each day. MISO aggregates these hourly transactions and currently provides updated settlement statements to market participants seven, 14, 55, 105, 252, 399 and 546 days after each operating day. In addition, MISO and its participants also have the ability to file with FERC for settlement periods which may extend beyond 546 days after each operating day. Each subsequent statement may contain billing adjustments which could have a material impact on WPL’s results of operations.
Other Future Considerations - - In addition to items discussed earlier in MDA and in the “Notes to Consolidated Financial Statements,” the following items could impact WPL’s future financial condition or results of operations:
Retirement Plan Costs - WPL’s net periodic benefit costs related to its defined benefit pension and other postretirement benefits plans are currently expected to be lower in 2010 than 2009 by approximately $10 million. The decrease in expected net periodic benefit costs are primarily due to lower amortization of actuarial losses and higher expected returns on plan assets resulting from significant increases in retirement plan assets during 2009. Approximately 30% to 40% of net periodic benefit costs are allocated to capital projects each year. As a result, the decrease in net periodic benefit costs is not expected to result in a comparable decrease in other operation and maintenance expenses. In addition, the PSCW authorized WPL to defer $12 million of other operation and maintenance expenses incurred in 2009 related to the retail portion of net periodic benefit costs that exceeded levels used to determine retail rates in 2009. Refer to Note 6(a) of the “Notes to Consolidated Financial Statements” for additional details of WPL’s defined benefit pension and other postretirement benefits plans.
Electric Sales Projections -WPL is currently expecting modest decreases in weather-normalized retail electric sales in 2010 compared to 2009 largely due to economic conditions in its service territory. Electric sales from industrial customers in 2010 are expected to be impacted the most as a result of the full year impacts of plant closures at various industrial customers in WPL’s service territory in 2009. WPL is currently unable to estimate the impacts of economic conditions on its future electric sales demand and electric margins.
Government Incentives for Wind Projects -WPL’s corporate strategy includes building a wind project to produce electricity to meet customer demand and renewable portfolio standards. In addition to producing electricity, this wind project may also generate material incentives depending on when it begins commercial operation. The ARRA enacted in February 2009 provides incentives to owners of wind projects placed into service between Jan. 1, 2009 and Dec. 31, 2012. The incentives available to qualified wind projects under the ARRA include production tax credits for a 10-year period based on the electricity output generated by the wind project, an investment tax credit equal to 30% of the qualified cost basis of the wind project, or a government grant equal to 30% of the qualified cost basis of the wind project. The government grant incentive is only available for qualified wind projects that are placed into service in 2009 or 2010 and qualified wind projects that began construction in 2009 or 2010 and are placed into service by Dec. 31, 2012.
WPL’s generation plan has one wind project that currently qualifies, or is expected to qualify, for one of these incentives based on the provisions of the ARRA. This wind project is WPL’s Bent Tree - Phase I wind project (200 MW capacity) that is expected to be fully commercially operational in 2011. WPL continues to evaluate the three options to maximize the incentives for its wind project. Selection of the government grant option must be made prior to the application deadline on Sep. 30, 2011. Selection of the investment tax credit option must be made prior to the due date of the Federal tax return for the calendar year the wind project begins commercial operation. WPL currently plans to recognize production tax credits for its eligible wind project until an incentive option is selected for the project. The amount of production tax credits is dependent on the level of electricity output generated by the wind project, which is impacted by a variety of operating and economic parameters. Any incentives for WPL’s wind project are expected to be utilized in determining customers’ rates.
Maintenance Costs for Wind Projects -Wind projects require periodic maintenance to ensure reliability of operations. WPL has entered into agreements with outside vendors to provide this service for its Bent Tree - Phase I wind project. WPL currently estimates approximately $8 million of annual maintenance expenses for its Bent Tree - Phase I wind project after it begins commercial operation.
Incentive Compensation Plans - - Alliant Energy’s total compensation programpackage includes an incentive compensation program, (ICP) which provides substantially all itsof Alliant Energy’s non-bargaining employees (including WPL employees) an opportunity to receive annual short-term incentive cash payments based on the achievement of specific annual corporate goals for Alliant Energy, including, among others,operational and financial performance measures. The operational performance measures relate to diversity, safety and customer satisfaction, and the financial performance measures include utility earnings per share from continuing operations and cash flows from operations. Funding of the ICP is designed so that Alliant Energy’s shareowners are entitled to all earnings up to a pre-established earnings target. After achieving such target, there is a sharing mechanism of earnings between Alliant Energy’s shareownersoperations generated by IPL, WPL and employees up to an established maximum funding amount for the ICP.Corporate Services. In addition, the total compensation program for certain key employees includes long-term incentive awards issued under an Equity Incentive Plan (EIP). Refer to Note 6(b) of the “Notes to Consolidated Financial Statements” for additional discussion of outstanding awards issued under the EIP.EIP and the proposed 2010 Omnibus Incentive Plan. WPL is currently unable to determine what impacts these incentive compensation plans will have on its future financial condition or results of operations.
PensionMANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Wisconsin Power and Other Postretirement Benefits Costs - In December 2006, WPL contributed to its pension plans. These contributions are intended to satisfy the funding requirementsLight Company and subsidiaries (WPL) is responsible for its pension plans through 2009establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the new minimum funding requirements includedSecurities Exchange Act of 1934. WPL’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the Pension Protection ActUnited States of 2006. Contributions in 2006America.
Because of the inherent limitations of internal control over financial reporting, misstatements may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are expected to result in a decrease to WPL’s future pension and other postretirement benefits costs.
MISO Wholesale Energy Market - MISO is currently developing an ancillary services market to complement the existing wholesale energy market that MISO implemented in April 2005. The ancillary services market is currently projected to begin operation in the first half of 2008. MISO filed the applicable tariff for this new market with FERC in early 2007 and plans to develop systems and business processes relatedsubject to the marketrisk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
WPL’s management assessed the effectiveness of WPL’s internal control over financial reporting as of December 31, 2009 using the coursecriteria set forth inInternal Control - Integrated Framework issued by the Committee of 2007. WPL is monitoring the developmentSponsoring Organizations of the ancillary services market to ensureTreadway Commission. Based on this assessment, WPL’s management concluded that, the rules associated with the market are reasonable, WPL is prepared for the startas of the market and that costs and revenues associated with the market receive appropriate regulatory recovery treatment. WPL is currently unable to determine what impacts this new market will have on its futureDecember 31, 2009, WPL’s internal control over financial condition or results of operations.reporting was effective.
Calpine Bankruptcy - In December 2005, Calpine filed voluntary petitions to restructure under Chapter 11 of the U.S. Bankruptcy Code. WPL has PPAs with Calpine subsidiaries related to RockGen and Riverside. RockGen is part of the bankruptcy proceedings but Riverside is excluded. WPL utilizes RockGen primarily for capacity. WPL is currently evaluating its options should the PPA be terminated by the bankruptcy trustees. While WPL is unable to provide any assurances at this time, it does not expect the Calpine bankruptcy to have a material adverse impact on its future financial condition or results of operations.
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| William D. Harvey |
| Chairman and Chief Executive Officer |
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| Patricia L. Kampling |
| Executive Vice President-Chief Financial Officer and Treasurer |
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| Thomas L. Hanson |
| Vice President-Controller and Chief Accounting Officer |
| February 26, 2010 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareowners of Wisconsin Power and Light Company:Company
Madison, Wisconsin
We have audited the accompanying consolidated balance sheets and statements of capitalization of Wisconsin Power and Light Company and subsidiaries (the “Company”) as of December 31, 20062009 and 2005,2008, and the related consolidated statements of income, changes in common equity, comprehensive income, and cash flows for each of the three years in the period ended December 31, 2006.2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20062009 and 2005,2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006,2009, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 6(a) to the consolidated financial statements, at December 31, 2006, the Company adopted Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.”
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
March 1, 2007February 26, 2010
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
| 2006 | 2005 | 2004 | 2009 | 2008 | 2007 | |||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||||||
Electric utility | $ | 1,111.4 | $ | 1,073.9 | $ | 939.8 | $ | 1,160.3 | $ | 1,153.0 | $ | 1,140.7 | ||||||||||||
Gas utility | 273.9 | 322.3 | 253.8 | 216.5 | 300.0 | 265.7 | ||||||||||||||||||
Other | 16.0 | 13.4 | 16.2 | 9.3 | 12.8 | 10.4 | ||||||||||||||||||
| 1,401.3 | 1,409.6 | 1,209.8 | 1,386.1 | 1,465.8 | 1,416.8 | |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Electric production fuel and purchased power | 649.5 | 600.8 | 431.5 | |||||||||||||||||||||
Electric production fuel and energy purchases | 451.3 | 434.2 | 417.5 | |||||||||||||||||||||
Purchased electric capacity | 144.6 | 145.1 | 166.6 | |||||||||||||||||||||
Electric transmission service | 94.2 | 93.2 | 81.0 | |||||||||||||||||||||
Cost of gas sold | 174.8 | 231.9 | 165.8 | 138.1 | 213.6 | 175.0 | ||||||||||||||||||
Other operation and maintenance | 245.3 | 259.1 | 282.1 | 234.3 | 232.3 | 236.2 | ||||||||||||||||||
Depreciation and amortization | 107.3 | 107.9 | 111.0 | 115.4 | 101.7 | 109.9 | ||||||||||||||||||
Taxes other than income taxes | 39.5 | 35.3 | 36.6 | 41.2 | 40.8 | 39.9 | ||||||||||||||||||
| 1,216.4 | 1,235.0 | 1,027.0 | 1,219.1 | 1,260.9 | 1,226.1 | |||||||||||||||||||
Operating income | 184.9 | 174.6 | 182.8 | 167.0 | 204.9 | 190.7 | ||||||||||||||||||
Interest expense and other: | ||||||||||||||||||||||||
Interest expense | 48.3 | 40.4 | 33.5 | 74.8 | 62.2 | 49.6 | ||||||||||||||||||
Equity income from unconsolidated investments | (27.0 | ) | (26.3 | ) | (25.0 | ) | (37.0 | ) | (33.9 | ) | (28.4 | ) | ||||||||||||
Allowance for funds used during construction | (2.6 | ) | (3.3 | ) | (4.5 | ) | (5.7 | ) | (9.6 | ) | (2.6 | ) | ||||||||||||
Interest income and other | (1.3 | ) | (2.2 | ) | (1.2 | ) | (0.4 | ) | (0.6 | ) | (0.7 | ) | ||||||||||||
| 17.4 | 8.6 | 2.8 | 31.7 | 18.1 | 17.9 | |||||||||||||||||||
Income before income taxes | 167.5 | 166.0 | 180.0 | 135.3 | 186.8 | 172.8 | ||||||||||||||||||
Income taxes | 62.2 | 60.9 | 66.3 | 45.8 | 68.4 | 59.3 | ||||||||||||||||||
Net income | 105.3 | 105.1 | 113.7 | 89.5 | 118.4 | 113.5 | ||||||||||||||||||
Preferred dividend requirements | 3.3 | 3.3 | 3.3 | 3.3 | 3.3 | 3.3 | ||||||||||||||||||
Earnings available for common stock | $ | 102.0 | $ | 101.8 | $ | 110.4 | $ | 86.2 | $ | 115.1 | $ | 110.2 | ||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
| December 31, | ||||||||||||||||
| 2006 | 2005 | |||||||||||||||
| (in millions) | December 31, | |||||||||||||||
ASSETS | 2009 | 2008 | ||||||||||||||
| (in millions) | ||||||||||||||||
Property, plant and equipment: | ||||||||||||||||
Electric plant in service | $ | 2,111.7 | $ | 2,047.1 | $ | 2,726.5 | $ | 2,500.3 | ||||||||
Gas plant in service | 325.6 | 319.4 | 393.8 | 370.1 | ||||||||||||
Other plant in service | 189.3 | 222.0 | 219.8 | 198.1 | ||||||||||||
Accumulated depreciation | (1,054.7 | ) | (1,054.6 | ) | (1,185.8 | ) | (1,165.9 | ) | ||||||||
Net plant | 1,571.9 | 1,533.9 | 2,154.3 | 1,902.6 | ||||||||||||
Leased Sheboygan Falls Energy Facility, less accumulated amortization of $9.8 and $3.6 | 114.0 | 120.2 | ||||||||||||||
Construction work in progress | 66.7 | 53.0 | ||||||||||||||
Other, less accumulated depreciation of $0.6 and $0.5 | 2.7 | 1.4 | ||||||||||||||
Leased Sheboygan Falls Energy Facility, less accumulated amortization of $28.2 and $22.1 | 95.5 | 101.7 | ||||||||||||||
Construction work in progress: | ||||||||||||||||
Bent Tree - Phase I wind project | 165.5 | — | ||||||||||||||
Other | 39.4 | 88.4 | ||||||||||||||
Other, less accumulated depreciation of $1.6 and $1.1 | 21.0 | 3.8 | ||||||||||||||
| 1,755.3 | 1,708.5 | 2,475.7 | 2,096.5 | |||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | 1.6 | — | 18.5 | 4.5 | ||||||||||||
Accounts receivable: | ||||||||||||||||
Customer, less allowance for doubtful accounts of $1.5 and $2.1 | 153.1 | 167.5 | ||||||||||||||
Other, less allowance for doubtful accounts of $ 0.1 and $0.6 | 49.6 | 40.0 | ||||||||||||||
Customer, less allowance for doubtful accounts of $1.6 and $1.8 | 80.8 | 83.4 | ||||||||||||||
Unbilled utility revenues | 86.7 | 92.5 | ||||||||||||||
Other, less allowance for doubtful accounts of $0.4 and $- | 45.7 | 75.9 | ||||||||||||||
Income tax refunds receivable | 81.3 | 8.4 | ||||||||||||||
Production fuel, at weighted average cost | 26.7 | 20.2 | 39.1 | 40.4 | ||||||||||||
Materials and supplies, at weighted average cost | 19.8 | 18.2 | 22.7 | 22.8 | ||||||||||||
Gas stored underground, at weighted average cost | 28.6 | 40.2 | 27.4 | 47.9 | ||||||||||||
Regulatory assets | 66.4 | 32.7 | 78.6 | 21.8 | ||||||||||||
Prepaid gross receipts tax | 35.6 | 31.8 | 38.5 | 37.8 | ||||||||||||
Assets held for sale | 24.3 | 26.1 | ||||||||||||||
Derivative assets | 11.2 | 10.7 | ||||||||||||||
Other | 25.1 | 33.7 | 30.3 | 25.6 | ||||||||||||
| 430.8 | 410.4 | 560.8 | 471.7 | |||||||||||||
Investments: | ||||||||||||||||
Investment in American Transmission Company LLC | 166.2 | 152.4 | 218.6 | 195.1 | ||||||||||||
Other | 21.4 | 44.6 | 22.7 | 22.2 | ||||||||||||
| 187.6 | 197.0 | 241.3 | 217.3 | |||||||||||||
Other assets: | ||||||||||||||||
Regulatory assets | 211.8 | 168.9 | 331.3 | 378.6 | ||||||||||||
Deferred charges and other | 113.6 | 182.8 | 72.3 | 101.4 | ||||||||||||
| 325.4 | 351.7 | 403.6 | 480.0 | |||||||||||||
Total assets | $ | 2,699.1 | $ | 2,667.6 | $ | 3,681.4 | $ | 3,265.5 | ||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS (Continued)
| December 31, | ||||||||||||||
| 2006 | 2005 | |||||||||||||
| (in millions, except per share and share amounts) | December 31, | |||||||||||||
CAPITALIZATION AND LIABILITIES | 2009 | 2008 | ||||||||||||
Capitalization (Refer to Consolidated Statements of Capitalization): | ||||||||||||||
Common stock - $5 par value - authorized 18,000,000 shares; 13,236,601 shares outstanding | $ | 66.2 | $ | 66.2 | ||||||||||
| (in millions, except per share and share amounts) | ||||||||||||||
Capitalization: | ||||||||||||||
Wisconsin Power and Light Company common equity: | ||||||||||||||
Common stock - $5 par value - 18,000,000 shares authorized; 13,236,601 shares outstanding | $ | 66.2 | $ | 66.2 | ||||||||||
Additional paid-in capital | 568.6 | 525.8 | 768.9 | 668.9 | ||||||||||
Retained earnings | 483.5 | 473.7 | 419.6 | 424.4 | ||||||||||
Accumulated other comprehensive loss | (7.5 | ) | (3.1 | ) | ||||||||||
Total common equity | 1,110.8 | 1,062.6 | ||||||||||||
Total Wisconsin Power and Light Company common equity | 1,254.7 | 1,159.5 | ||||||||||||
Cumulative preferred stock | 60.0 | 60.0 | 60.0 | 60.0 | ||||||||||
Long-term debt, net (excluding current portion) | 298.6 | 364.3 | 931.6 | 782.9 | ||||||||||
| 1,469.4 | 1,486.9 | 2,246.3 | 2,002.4 | |||||||||||
Current liabilities: | ||||||||||||||
Current maturities | 105.0 | — | ||||||||||||
Variable rate demand bonds | — | 39.1 | ||||||||||||
Current maturities of long-term debt | 100.0 | — | ||||||||||||
Commercial paper | 134.9 | 93.5 | — | 43.7 | ||||||||||
Accounts payable | 91.4 | 122.3 | 99.6 | 130.9 | ||||||||||
Accounts payable to associated companies | 39.6 | 29.7 | 15.7 | 26.1 | ||||||||||
Accrued interest | 24.1 | 17.9 | ||||||||||||
Regulatory liabilities | 52.0 | 86.2 | 32.5 | 50.9 | ||||||||||
Accrued taxes | 6.1 | 2.4 | ||||||||||||
Derivative liabilities | 44.4 | 19.0 | 51.0 | 8.6 | ||||||||||
Liabilities held for sale | 1.3 | 2.2 | ||||||||||||
Other | 30.3 | 32.5 | 33.4 | 24.0 | ||||||||||
| 498.9 | 424.5 | 362.4 | 304.5 | |||||||||||
Other long-term liabilities and deferred credits: | ||||||||||||||
Deferred income taxes | 255.5 | 224.8 | 490.8 | 329.3 | ||||||||||
Regulatory liabilities | 168.7 | 191.9 | 159.6 | 174.1 | ||||||||||
Capital lease obligations - Sheboygan Falls Energy Facility | 118.6 | 120.8 | 110.4 | 113.4 | ||||||||||
Pension and other benefit obligations | 70.6 | 101.8 | 121.7 | 185.1 | ||||||||||
Other | 117.4 | 116.9 | 190.2 | 156.7 | ||||||||||
| 730.8 | 756.2 | 1,072.7 | 958.6 | |||||||||||
Commitments and contingencies (Note 12) | ||||||||||||||
Total capitalization and liabilities | $ | 2,699.1 | $ | 2,667.6 | $ | 3,681.4 | $ | 3,265.5 | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
| 2006 | 2005 | 2004 | 2009 | 2008 | 2007 | |||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income | $ | 105.3 | $ | 105.1 | $ | 113.7 | $ | 89.5 | $ | 118.4 | $ | 113.5 | ||||||||||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 107.3 | 107.9 | 111.0 | 115.4 | 101.7 | 109.9 | ||||||||||||||||||
Other amortizations | 33.5 | 35.7 | 41.4 | 35.2 | 38.4 | 38.7 | ||||||||||||||||||
Deferred tax expense (benefit) and investment tax credits | 41.6 | (3.5 | ) | 8.5 | 157.7 | 36.1 | (6.9 | ) | ||||||||||||||||
Equity income from unconsolidated investments | (27.0 | ) | (26.3 | ) | (25.0 | ) | (37.0 | ) | (33.9 | ) | (28.4 | ) | ||||||||||||
Distributions from equity method investments | 23.2 | 24.7 | 20.5 | 29.9 | 27.8 | 21.7 | ||||||||||||||||||
Other | (1.4 | ) | (1.0 | ) | (3.7 | ) | 8.5 | (6.6 | ) | (1.6 | ) | |||||||||||||
Other changes in assets and liabilities: | ||||||||||||||||||||||||
Accounts receivable | 4.8 | (37.3 | ) | (16.9 | ) | 31.3 | (68.7 | ) | 19.6 | |||||||||||||||
Sale of accounts receivable | — | — | (50.0 | ) | ||||||||||||||||||||
Income tax refunds receivable | (1.9 | ) | — | 16.8 | (72.9 | ) | (5.8 | ) | (0.7 | ) | ||||||||||||||
Gas stored underground | 11.6 | (9.9 | ) | (6.0 | ) | |||||||||||||||||||
Prepaid pension costs | (11.1 | ) | (1.7 | ) | (11.1 | ) | — | 37.2 | (24.2 | ) | ||||||||||||||
Regulatory assets | (39.7 | ) | (91.5 | ) | (67.0 | ) | (54.2 | ) | (192.3 | ) | 44.3 | |||||||||||||
Derivative assets | 10.5 | (12.4 | ) | (3.4 | ) | |||||||||||||||||||
Accounts payable | (17.6 | ) | 36.4 | 8.6 | (16.0 | ) | 27.2 | 2.6 | ||||||||||||||||
Accrued taxes | (7.3 | ) | 1.7 | 3.2 | ||||||||||||||||||||
Regulatory liabilities | (58.1 | ) | 23.2 | (18.7 | ) | (22.2 | ) | 2.3 | 3.7 | |||||||||||||||
Derivative liabilities | 26.0 | 13.8 | 3.1 | 51.5 | 7.1 | (38.8 | ) | |||||||||||||||||
Pension and benefit obligations | (15.3 | ) | 15.4 | 55.9 | ||||||||||||||||||||
Deferred income taxes | 2.5 | 22.4 | 15.1 | |||||||||||||||||||||
Non-current taxes payable | 36.2 | (0.2 | ) | 0.1 | ||||||||||||||||||||
Pension and other benefit obligations | (63.4 | ) | 112.3 | 0.4 | ||||||||||||||||||||
Other | (21.8 | ) | (3.7 | ) | 18.4 | 13.8 | 16.3 | (11.0 | ) | |||||||||||||||
Net cash flows from operating activities | 162.6 | 176.6 | 199.3 | 305.8 | 239.7 | 258.0 | ||||||||||||||||||
Cash flows used for investing activities: | ||||||||||||||||||||||||
Utility construction and acquisition expenditures | (162.5 | ) | (185.3 | ) | (211.5 | ) | ||||||||||||||||||
Utility construction and acquisition expenditures: | ||||||||||||||||||||||||
Neenah Energy Facility and related assets | (92.4 | ) | — | — | ||||||||||||||||||||
Other | (416.0 | ) | (363.1 | ) | (203.1 | ) | ||||||||||||||||||
Advances for customer energy efficiency projects | (28.1 | ) | (34.5 | ) | (44.9 | ) | ||||||||||||||||||
Collections of advances for customer energy efficiency projects | 58.6 | 33.1 | 30.7 | |||||||||||||||||||||
Proceeds from asset sales | 4.1 | 80.1 | — | 0.1 | 2.6 | 23.6 | ||||||||||||||||||
Purchases of securities within nuclear decommissioning trusts | — | (6.1 | ) | (209.5 | ) | |||||||||||||||||||
Sales of securities within nuclear decommissioning trusts | — | 83.4 | 357.7 | |||||||||||||||||||||
Changes in restricted cash within nuclear decommissioning trusts | 23.5 | (17.3 | ) | (151.1 | ) | |||||||||||||||||||
Other | (14.1 | ) | 2.3 | 0.1 | (15.6 | ) | (14.1 | ) | (13.3 | ) | ||||||||||||||
Net cash flows used for investing activities | (149.0 | ) | (42.9 | ) | (214.3 | ) | (493.4 | ) | (376.0 | ) | (207.0 | ) | ||||||||||||
Cash flows used for financing activities: | ||||||||||||||||||||||||
Cash flows from (used for) financing activities: | ||||||||||||||||||||||||
Common stock dividends | (92.2 | ) | (89.8 | ) | (89.0 | ) | (91.0 | ) | (91.3 | ) | (191.1 | ) | ||||||||||||
Preferred stock dividends | (3.3 | ) | (3.3 | ) | (3.3 | ) | (3.3 | ) | (3.3 | ) | (3.3 | ) | ||||||||||||
Capital contribution from parent | 42.6 | — | — | 100.0 | 100.0 | — | ||||||||||||||||||
Proceeds from issuance of long-term debt | 39.1 | — | 100.0 | 250.0 | 250.0 | 300.0 | ||||||||||||||||||
Reductions in long-term debt | (39.1 | ) | (88.0 | ) | (62.0 | ) | ||||||||||||||||||
Payments to retire long-term debt | — | (60.0 | ) | (105.0 | ) | |||||||||||||||||||
Net change in short-term borrowings | 41.4 | 46.5 | 47.0 | (43.7 | ) | (38.1 | ) | (53.1 | ) | |||||||||||||||
Other | (0.5 | ) | 0.8 | (4.7 | ) | (10.4 | ) | (16.9 | ) | 0.3 | ||||||||||||||
Net cash flows used for financing activities | (12.0 | ) | (133.8 | ) | (12.0 | ) | ||||||||||||||||||
Net cash flows from (used for) financing activities | 201.6 | 140.4 | (52.2 | ) | ||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 1.6 | (0.1 | ) | (27.0 | ) | 14.0 | 4.1 | (1.2 | ) | |||||||||||||||
Cash and cash equivalents at beginning of period | — | 0.1 | 27.1 | 4.5 | 0.4 | 1.6 | ||||||||||||||||||
Cash and cash equivalents at end of period | $ | 1.6 | $ | — | $ | 0.1 | $ | 18.5 | $ | 4.5 | $ | 0.4 | ||||||||||||
Supplemental cash flows information: | ||||||||||||||||||||||||
Cash paid during the period for: | ||||||||||||||||||||||||
Cash paid (refunded) during the period for: | ||||||||||||||||||||||||
Interest | $ | 48.7 | $ | 41.9 | $ | 31.3 | $ | 69.6 | $ | 57.6 | $ | 42.5 | ||||||||||||
Income taxes, net of refunds | $ | 31.4 | $ | 64.1 | $ | 40.4 | $ | (76.1 | ) | $ | 30.7 | $ | 62.5 | |||||||||||
Noncash investing and financing activities: | ||||||||||||||||||||||||
Capital lease obligations incurred | $ | — | $ | 123.8 | $ | — | $ | 0.7 | $ | — | $ | — | ||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CAPITALIZATIONCOMMON EQUITY
| December 31, | ||||||||
| 2006 | 2005 | |||||||
| (dollars in millions, except per share amounts) | ||||||||
Common equity (Refer to Consolidated Balance Sheets) | $ | 1,110.8 | $ | 1,062.6 | ||||
Cumulative preferred stock: | ||||||||
Cumulative, without par value, not mandatorily redeemable - authorized 3,750,000 shares, maximum aggregate stated value $150, redeemable any time: | ||||||||
$100 stated value - 4.50% series, 99,970 shares outstanding | 10.0 | 10.0 | ||||||
$100 stated value - 4.80% series, 74,912 shares outstanding | 7.5 | 7.5 | ||||||
$100 stated value - 4.96% series, 64,979 shares outstanding | 6.5 | 6.5 | ||||||
$100 stated value - 4.40% series, 29,957 shares outstanding | 3.0 | 3.0 | ||||||
$100 stated value - 4.76% series, 29,947 shares outstanding | 3.0 | 3.0 | ||||||
$100 stated value - 6.20% series, 150,000 shares outstanding | 15.0 | 15.0 | ||||||
$25 stated value - 6.50% series, 599,460 shares outstanding | 15.0 | 15.0 | ||||||
| 60.0 | 60.0 | |||||||
Long-term debt, net: | ||||||||
Pollution Control Revenue Bonds: | ||||||||
2006 Series A, variable rate (3.85% at Dec. 31, 2006), due 2015 | 14.6 | — | ||||||
2006 Series B, variable rate (3.85% at Dec. 31, 2006), due 2014 and 2015 | 24.5 | — | ||||||
| 39.1 | — | |||||||
First Mortgage Bonds: | ||||||||
1984 Series A, variable rate (3.8% at Dec. 31, 2005), due 2014, retired early in 2006 | — | 8.5 | ||||||
1988 Series A, variable rate (3.7% at Dec. 31, 2005), due 2015, retired early in 2006 | — | 14.6 | ||||||
1991 Series A, variable rate (3.88% at Dec. 31, 2005), due 2015, retired early in 2006 | — | 16.0 | ||||||
| — | 39.1 | |||||||
Other: | ||||||||
Debentures, 7%, due 2007 | 105.0 | 105.0 | ||||||
Debentures, 5.7%, due 2008 | 60.0 | 60.0 | ||||||
Debentures, 7.625%, due 2010 | 100.0 | 100.0 | ||||||
Debentures, 6.25%, due 2034 | 100.0 | 100.0 | ||||||
| 365.0 | 365.0 | |||||||
Total, gross | 404.1 | 404.1 | ||||||
Less: | ||||||||
Current maturities | (105.0 | ) | — | |||||
Variable rate demand bonds | — | (39.1 | ) | |||||
Unamortized debt discount, net | (0.5 | ) | (0.7 | ) | ||||
Total long-term debt, net | 298.6 | 364.3 | ||||||
Total capitalization | $ | 1,469.4 | $ | 1,486.9 | ||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total WPL Common Equity | ||||||||||||||
| (in millions) | ||||||||||||||||||
2007: | ||||||||||||||||||
Beginning balance (a) | $ | 66.2 | $ | 568.6 | $ | 483.5 | $ | (7.5 | ) | $ | 1,110.8 | |||||||
Earnings available for common stock | 110.2 | 110.2 | ||||||||||||||||
Common stock dividends | (191.1 | ) | (191.1 | ) | ||||||||||||||
Adoption of accounting for uncertain tax positions (Note 5) | (0.8 | ) | (0.8 | ) | ||||||||||||||
Other | 0.2 | 0.2 | ||||||||||||||||
Other comprehensive income, net of tax | 7.5 | 7.5 | ||||||||||||||||
Ending balance | 66.2 | 568.8 | 401.8 | — | 1,036.8 | |||||||||||||
2008: | ||||||||||||||||||
Earnings available for common stock | 115.1 | 115.1 | ||||||||||||||||
Common stock dividends | (91.3 | ) | (91.3 | ) | ||||||||||||||
Capital contribution from parent | 100.0 | 100.0 | ||||||||||||||||
Adoption of new measurement date for retirement plans, net of tax of ($1.2) (Note 6(a)) | (1.2 | ) | (1.2 | ) | ||||||||||||||
Other | 0.1 | 0.1 | ||||||||||||||||
Ending balance | 66.2 | 668.9 | 424.4 | — | 1,159.5 | |||||||||||||
2009: | ||||||||||||||||||
Earnings available for common stock | 86.2 | 86.2 | ||||||||||||||||
Common stock dividends | (91.0 | ) | (91.0 | ) | ||||||||||||||
Capital contribution from parent | 100.0 | 100.0 | ||||||||||||||||
Ending balance | $ | 66.2 | $ | 768.9 | $ | 419.6 | $ | — | $ | 1,254.7 | ||||||||
| (a) | Accumulated other comprehensive loss at Jan. 1, 2007 consisted entirely of retirement benefits compensation-related adjustments. |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year Ended December 31, | |||||||||
| 2009 | 2008 | 2007 | |||||||
| (in millions) | |||||||||
Earnings available for common stock | $ | 86.2 | $ | 115.1 | $ | 110.2 | |||
Other comprehensive income, net of tax: | |||||||||
Pension and other postretirement benefits amortizations and reclassification to regulatory assets, net of tax of $-, $- and $5.7 | — | — | 7.5 | ||||||
Total other comprehensive income | — | — | 7.5 | ||||||
Comprehensive income | $ | 86.2 | $ | 115.1 | $ | 117.7 | |||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Common Equity | |||||||||||||
| (in millions) | |||||||||||||||||
2004: | |||||||||||||||||
Beginning balance (a) | $ | 66.2 | $ | 525.6 | $ | 440.3 | ($20.3 | ) | $ | 1,011.8 | |||||||
Earnings available for common stock | 110.4 | 110.4 | |||||||||||||||
Minimum pension liability adjustment, net of tax of $11.7 | 17.6 | 17.6 | |||||||||||||||
Total comprehensive income | 128.0 | ||||||||||||||||
Common stock dividends | (89.0 | ) | (89.0 | ) | |||||||||||||
Other | 0.1 | 0.1 | |||||||||||||||
Ending balance | 66.2 | 525.7 | 461.7 | (2.7 | ) | 1,050.9 | |||||||||||
2005: | |||||||||||||||||
Earnings available for common stock | 101.8 | 101.8 | |||||||||||||||
Minimum pension liability adjustment, net of tax of ($0.3) | (0.4 | ) | (0.4 | ) | |||||||||||||
Total comprehensive income | 101.4 | ||||||||||||||||
Common stock dividends | (89.8 | ) | (89.8 | ) | |||||||||||||
Other | 0.1 | 0.1 | |||||||||||||||
Ending balance | 66.2 | 525.8 | 473.7 | (3.1 | ) | 1,062.6 | |||||||||||
2006: | |||||||||||||||||
Earnings available for common stock | 102.0 | 102.0 | |||||||||||||||
Minimum pension liability adjustment, net of tax of $0.7 | 0.8 | 0.8 | |||||||||||||||
Total comprehensive income | 102.8 | ||||||||||||||||
Common stock dividends | (92.2 | ) | (92.2 | ) | |||||||||||||
Capital contribution from parent | 42.6 | 42.6 | |||||||||||||||
SFAS 158 transition adjustment, net of tax of ($4.2) (Note 6(a)) | (5.2 | ) | (5.2 | ) | |||||||||||||
Other | 0.2 | 0.2 | |||||||||||||||
Ending balance | $ | 66.2 | $ | 568.6 | $ | 483.5 | ($7.5 | ) | $ | 1,110.8 | |||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General -
(a) GeneralDescription of Business - The consolidated financial statements include the accounts of WPLWisconsin Power and Light Company (WPL) and its principalprimary consolidated subsidiariessubsidiary, WPL Transco LLC and South Beloit Water, Gas and Electric Company (South Beloit). In February 2007, WPL completed the sale of its Illinois electric distribution and gas properties within South Beloit. Refer to Note 16 for further discussion.LLC. WPL is a direct subsidiary of Alliant Energy Corporation (Alliant Energy) and is engaged principally in the generation and distribution of electric energy, the distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas;gas, and various other energy-related services. WPL’s service territories are located in south and central Wisconsin.
Basis of Presentation - The consolidated financial statements reflect investments in controlled subsidiaries on a consolidated basis. basis and WPL’s proportionate share of jointly owned utility facilities. Unconsolidated investments, which WPL does not control, but does have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method of accounting. Investments that do not meet the criteria for consolidation or the equity method of accounting are accounted for under the cost method. WPL did not reflect any variable interest entities on a consolidated basis in the consolidated financial statements. Refer to Notes 9(a) and 18 for further discussion of equity method investments and variable interest entities, respectively.
All significant intercompany balances and transactions other than certain energy-related transactions affecting South Beloit, have been eliminated from the consolidated financial statements. Such energy-related transactions not eliminated are made at prices that approximate market value and the associated costs are recoverable from customers through the rate making process. The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S.) (GAAP), which give recognition to the rate making and accounting practices of the Federal Energy Regulatory Commission (FERC) and state commissions having regulatory jurisdiction. Certain prior period amounts have been reclassified on a basis consistent with the current period financial statement presentation.
Use of Estimates - The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect: a) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements; and b) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior period amounts have been reclassified on a basis consistent with the current year presentation. Unless otherwise noted, the notes herein have been revised to exclude discontinued operations and assets and liabilities held for sale for all periods presented.
Unconsolidated investments, which WPL does not control, but does have the ability to exercise significant influence over operating and financial policies (generally, 20% to 50% voting interest), are accounted for under the equity method of accounting. These investments are stated at acquisition cost, increased or decreased for WPL’s equity in net income or loss, which is included in “Equity income from unconsolidated investments” in the Consolidated Statements of Income, and decreased for any dividends received. These investments are also increased or decreased for WPL’s proportionate share of the investee’s other comprehensive income (loss), which is included in “Accumulated other comprehensive loss” on the Consolidated Balance Sheets. Investments that do not meet the criteria for consolidation or the equity method of accounting are accounted for under the cost method.
(b) Regulatory Assets and Liabilities - - WPL is subject to regulation by FERC and various state regulatory commissions.the Public Service Commission of Wisconsin (PSCW). As a result, WPL is subject to theGAAP provisions of Statement of Financial Accounting Standards (SFAS) 71, “Accounting for the Effects of Certain Types of Regulation,”regulated operations, which providesprovide that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for non-regulated entities. These are deferred as regulatory assets or accrued as regulatory liabilities and are generally recognized in the Consolidated Statements of Income at the time they are reflected in rates.
Regulatory Assets - - At Dec. 31, regulatory assets were comprised of the following items (in millions):
| 2006 | 2005 | |||||
Pension and other postretirement benefits (Note 6(a)) | $ | 107.1 | $ | 45.9 | ||
Derivatives (Note 11(a)) | 46.5 | 20.5 | ||||
Kewaunee Nuclear Power Plant (Kewaunee) outage in 2005 | 20.1 | 19.4 | ||||
Excess allowance for funds used during construction (AFUDC) (Note 1(e)) | 12.8 | 12.4 | ||||
Asset retirement obligations (AROs) (Note 17) | 12.0 | 10.7 | ||||
Tax-related (Note 1(c)) | 11.0 | 14.0 | ||||
Kewaunee sale | 10.9 | 16.1 | ||||
Debt redemption costs (Note 1(p)) | 9.1 | 9.1 | ||||
Environmental-related (Note 12(e)) | 8.1 | 9.0 | ||||
Costs for base-load, clean air compliance and wind projects | 7.6 | 0.8 | ||||
Energy conservation program costs | 6.7 | 9.3 | ||||
Coal delivery disruptions | — | 12.3 | ||||
Other | 26.3 | 22.1 | ||||
| $ | 278.2 | $ | 201.6 | |||
Pension and other postretirement benefits (Note 6(a)) Derivatives (Note 11(a)) Asset retirement obligations (Note 17) Proposed base-load projects Benefits costs Tax-related (Notes 1(c) and 5) Proposed clean air compliance projects Debt redemption costs (Note 1(o)) Environmental-related (Note 12(e)) Midwest Independent Transmission System Operator (MISO)-related costs Other 2009 2008 $ 222.3 $ 266.8 65.1 13.0 14.7 13.4 12.7 35.6 12.0 — 11.8 10.6 10.3 8.2 7.7 8.2 6.5 8.1 5.0 10.0 41.8 26.5 $ 409.9 $ 400.4
A portion of the regulatory assets in the above table are not earning a return. These regulatory assets are expected to be recovered from customers in future rates, however the carrying costs of these assets are borne by WPL’s shareowners.WPL. At Dec. 31, the2009, WPL had $25 million of regulatory assets representing past expenditures that were not earning returnsa return. WPL’s regulatory assets that were as follows (dollarsnot earning a return consisted primarily of debt redemption costs, the wholesale portion of costs for proposed base-load and clean air compliance projects and the retail portion of under collected natural gas costs. All other regulatory assets reported in millions):the above table either earn a return or the cash has not yet been expended, in which case the assets are offset by liabilities that also do not incur a carrying cost.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 2006 | 2005 | |||||
Regulatory assets not earning returns | $ | 8 | $ | 8 | ||
Weighted average remaining life (in years) | 5 | 5 | ||||
Pension and Other Postretirement Benefitsother postretirement benefits - In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R),” which requires the recognition of gains and losses, prior service costs and credits and transition assets and obligations, which have not previously been amortized and recognized as a component of net periodic benefits costs pursuant to SFAS 87, “Employers’ Accounting for Pensions,” and SFAS 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” through accumulated other comprehensive income or loss. The Public Service Commission of Wisconsin (PSCW)PSCW has authorized WPL to record the retail portion of its previously unrecognized net actuarial gains and losses, prior service costs and credits, and transition assets and obligations as “Regulatory assets”regulatory assets in lieu of “Accumulatedaccumulated other comprehensive loss”loss on itsthe Consolidated Balance Sheet.Sheets. WPL also recognizes the wholesale portion of its previously unrecognized net actuarial gains and losses, prior service costs and credits and transition assets and obligations as regulatory assets on the Consolidated Balance Sheets because the costs are expected to be recovered in rates in future periods under the formula rate structure implemented in 2007. These regulatory assets will be increased or decreased as the net actuarial gains or losses, prior service costs or credits, and transition assets or obligations are subsequently amortized and recognized as a component of net periodic benefit costs. Refer to Notes 1(q) and 6(a) for additional information regarding SFAS 158.
Derivatives - WPL generally records unrealized losses from its derivative instruments with offsets to regulatory assets based on its fuel and natural gas cost recovery mechanisms, which allow prudently incurred costs from derivative instruments to be recovered from customers in the future when any losses are realized.
Asset Retirement Obligationsretirement obligations - WPL believes it is probable that any differences between expenses accrued for legal AROs calculated under SFAS 143, “Accounting for Asset Retirement Obligations,” and FASB Interpretation No. (FIN) 47, “Accounting for Conditional Asset Retirement Obligations - an interpretation of SFAS 143,”asset retirement obligations related to its regulated operations and expenses recovered currently in rates will be recoverable in future rates, and is deferring the difference as a regulatory asset.
Kewaunee OutageProposed base-load project -In December 2008, the PSCW issued an order denying WPL’s application to construct a 300 megawatt (MW) coal-fired electric generating facility in 2005Cassville, Wisconsin referred to as Nelson Dewey #3. Costs included in the above table reflect the remaining retail and wholesale portions of costs related to this project.
Retail portion - In December 2008, WPL received approval from the PSCW to recover $4 million from its retail customers during calendar year 2009 for a portion of the costs incurred through December 2007. In December 2009, WPL received approval from the PSCW to recover an additional $11 million of project costs from its retail customers over a five-year period ending December 2014. In December 2009, the PSCW also denied WPL recovery of the remaining project costs, which represent all project costs incurred by WPL after June 2008 and one-half of the pre-construction project costs incurred by WPL prior to July 2008. As a result of this PSCW order, WPL recorded a pre-tax regulatory-related charge of $11 million in “Other operation and maintenance” in the Consolidated Statement of Income in 2009.
Wholesale portion - In April 2009, WPL executed an agreement with its wholesale customers to recover $4 million of the wholesale portion of the capitalized expenditures for the Nelson Dewey #3 project that were incurred by WPL through December 2008. The agreement allows WPL to recover the $4 million of capitalized expenditures from its wholesale customers over a 12-month period ending May 2010. As a result of this agreement, WPL recorded a pre-tax regulatory-related charge of $4 million in “Other operation and maintenance” in the Consolidated Statement of Income in 2008.
Benefits costs -In December 2008, WPL received approval from the PSCW to defer beginning April 15, 2005, incremental fuel relatedthe retail portion of pension and other benefit costs associated with the extension of an unplanned outage at Kewaunee, which occurred from February 2005charged to early July 2005. The PSCW also approved the deferral of incrementalother operation and maintenance expenses during 2009 in excess of $4 million. WPL’s retail portion of pension and other benefit costs related toexpensed during 2009 were $16 million resulting in the unplanned outage.recognition of a regulatory asset of $12 million for the deferred portion of these costs. In January 2007,December 2009, WPL received approval from the PSCW to recover thesethe deferred costs over a two-yearfive-year period through 2008.ending December 2014.
Kewaunee SaleProposed Clean Air Compliance Program (CACP) projects -CACP projects require material expenditures for activities related to determining the feasibility of environmental compliance projects under consideration. These expenditures commonly called preliminary survey and investigation charges are generally recorded as regulatory assets on the Consolidated Balance Sheets in accordance with FERC regulations. The retail portion of these amounts is expensed immediately unless otherwise authorized by the PSCW. However, since these amounts are material for WPL’s CACP projects, WPL requested and received deferral accounting approval to record the retail portion of these costs as regulatory assets on the Consolidated Balance Sheets.
The wholesale portion of amounts deferred and recorded as preliminary survey and investigation charges do not include any accrual of carrying costs or allowance for funds used during construction (AFUDC). WPL’s retail portion of deferred preliminary survey and investigation charges (commonly referred to as pre-certification expenditures) and construction expenditures incurred prior to project approval that are recorded in regulatory assets include accrual of carrying costs as prescribed in the approved deferral order. Upon regulatory approval of the project, the wholesale portion of deferred
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
preliminary survey and investigation charges as well as all pre-construction expenditures are transferred to construction work in progress (CWIP) and begin to accrue AFUDC. The retail portion of deferred preliminary survey and investigation charges or pre-certification expenditures remain as regulatory assets until they are approved for inclusion in revenue requirements and amortized to expense. In December 2009, WPL received approval from the PSCW to defer all gains, losses, and transaction costs associated with the sale of Kewaunee. In July 2005, WPL completed the sale of its interest in Kewaunee and recognized a loss (including transaction costs but excluding the benefits of the non-qualified decommissioning trust assets discussed in “Regulatory Liabilities”) of $16recover $4 million from the sale. At Dec. 31, 2006 and 2005, WPL recorded regulatory asset reserves of $5 million and $9 million, respectively, primarily related to the uncertainty regarding the level of recovery of WPL’s loss on the sale of its interest in Kewaunee. These reserves are reflected asretail customers over a reduction to regulatory assets in the “Other” line in the above table. The reduction in the reserve and the reduction in the Kewaunee Sale regulatory asset reflect the impacts of WPL’s wholesale rate case settlement in 2006 which addressed recovery of the wholesale portion of the loss and the PSCW order associated with WPL’s 2007 base rate case which allowed WPL recovery ofthree-year period ending December 2012 for a portion of the losspre-certification expenditures incurred through December 2008.
WPL anticipates that all remaining costs for proposed clean air compliance projects are probable of recovery from its retailfuture rates charged to customers. WPLThe recovery period for these remaining costs will seek recovery of the remaining loss from its retail customersgenerally be determined by regulators in future rate cases.proceedings.
Debt redemption costs -For debt retired early with no subsequent re-issuance, WPL defers any unamortized debt issuance costs and discounts as regulatory assets. These regulatory assets are amortized over the remaining original life of the debt retired early. Losses resulting from the refinancing of debt are deferred as regulatory assets and amortized over the life of the new debt issued.
Coal Delivery DisruptionsEnvironmental-related - Under the current rate making treatment approved by the PSCW, WPL’s manufactured gas plant (MGP) expenditures are deferred and collected from retail gas customers over a five-year period after new rates are implemented. Regulatory assets have been recorded by WPL, which reflect the probable future rate recovery of MGP expenditures.
MISO-related costs - In August 2007, the PSCW issued an order requiring WPL to discontinue, effective Dec. 31, 2007, the deferral of the retail portion of certain costs incurred by WPL to participate in the MISO market. WPL incurred $10 million of deferred retail costs prior to 2008 to participate in the MISO market that were recognized in regulatory assets on the Consolidated Balance Sheets. In December 2008, WPL received approval from the PSCW to defer, beginning Aug. 3, 2005,recover the retail portion of incremental purchased power energy costs associated with coal conservation efforts at WPL due to coal delivery disruptions. The coal delivery disruptions were caused by railroad train derailments in Wyoming that caused damage to heavily-used joint railroad lines that supply coal to numerous generating facilities in the U.S., including facilities owned by WPL and its joint partners. In September 2006, the PSCW approved recovery of $20 million ($8 million deferred in 2006 and $12 million deferred in 2005) of these deferred costs by including them as a component of the fuel-related costs used to determine final rates in WPL’s fuel-related rate case. As a result of the PSCW decision, the $20$10 million of previously deferred retail costs were recorded in “Electric production fuel and purchased power” in the Consolidated Statement of Income in 2006.over a two-year period ending December 2010. MISO costs incurred after Dec. 31, 2007 are subject to recovery through WPL’s retail electric fuel-related cost recovery mechanism.
Other - WPL periodically assesses whether its regulatory assets are probable of future recovery by considering factors such as applicable regulations, recent orders by the applicable regulatory environment changes, recent rate orders issuedagencies, historical treatment of similar costs by the applicable regulatory agencies and the status of any pending or potential deregulation legislation.regulatory environment changes. Based on these assessments, WPL records reserves for thosebelieves the regulatory assets that are no longer probablerecognized as of
future recovery. While WPL feels its remaining regulatory assets Dec. 31, 2009 in the above table are probable of future recovery,recovery. However, no assurance can be made that WPL will recover all of these regulatory assets in future rates. If future recovery of a regulatory asset ceases to be probable, the regulatory asset will be charged to expense in the period in which future recovery ceases to be probable.
Regulatory Liabilities - - At Dec. 31, regulatory liabilities were comprised of the following items (in millions):
| 2006 | 2005 | |||||
Cost of removal obligations | $ | 149.7 | $ | 148.0 | ||
Kewaunee decommissioning trust assets | 19.3 | 70.6 | ||||
Gas performance incentive (Note 1(h) and Note 2) | 16.3 | 12.0 | ||||
Tax-related (Note 1(c)) | 16.1 | 18.0 | ||||
Derivatives (Note 11(a)) | 6.6 | 17.1 | ||||
Fuel cost recovery (Note 1(h)) | 3.2 | 1.7 | ||||
Emission allowances | 1.6 | 1.6 | ||||
Other | 7.9 | 9.1 | ||||
| $ | 220.7 | $ | 278.1 | |||
| 2009 | 2008 | |||||
Cost of removal obligations | $ | 143.0 | $ | 150.6 | ||
Tax-related (Notes 1(c) and 5) | 12.2 | 12.0 | ||||
Derivatives (Note 11(a)) | 12.2 | 8.9 | ||||
Emission allowances (Note 15) | 6.2 | 7.3 | ||||
Commodity cost recovery (Notes 1(h) and 2) | 4.2 | 38.2 | ||||
Other | 14.3 | 8.0 | ||||
| $ | 192.1 | $ | 225.0 | |||
Regulatory liabilities related to cost of removal obligations, to the extent expensed through depreciation rates, reduce rate base. A significant portion of the remaining regulatory liabilities are not used to reduce rate base in the revenue requirement calculations utilized in WPL’s rate proceedings.
Cost of Removal Obligationsremoval obligations - WPL collects in rates future removal costs for many assets that do not have an associated legal ARO.asset retirement obligation. WPL records a regulatory liability for the estimated amounts it has collected in rates for these future removal costs less amounts spent on removal activities.
Kewaunee Decommissioning Trust AssetsDerivatives - PursuantWPL generally records unrealized gains from its derivative instruments with offsets to approvalregulatory liabilities based on its fuel and natural gas cost recovery mechanisms, which require gains from FERC, derivative instruments to be refunded to customers in the future when any gains are realized.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Emission allowances -WPL returnedhas entered into various transactions for the wholesale portionpurchase and sale or non-monetary exchange of sulfur dioxide (SO2) and nitrogen oxide (NOx) emission allowances. The emission allowances acquired in these transactions were recorded as intangible assets. The value received from these transactions was recorded as regulatory liabilities given the emission allowances relinquished had a zero-cost basis. The amortization of these intangible assets and regulatory liabilities are equal and offsetting and based on the amount of the Kewaunee-related non-qualified decommissioning trust assets of $21.5 million to its wholesale customers in 2006. In 2005, WPL received approval from the PSCW to return the retail portion of the Kewaunee-related non-qualified decommissioning trust assets to customers over a two-year period through reduced ratesemission allowances acquired that were effective beginningutilized each reporting period.
Commodity cost recovery -WPL’s wholesale electric rates and retail gas rates provide for subsequent adjustments to rates for changes in July 2005.prudently incurred commodity costs used to serve customers. The cumulative under/over collection of these commodity costs are recorded as regulatory assets/liabilities until they are automatically reflected in future billings to customers. Refer to Note 2 for discussion of certain rate refund reserves recorded as regulatory liabilities on the Consolidated Balance Sheets related to the commodity cost recovery mechanism used to determine WPL’s retail electric rates.
(c) Income Taxes - - WPL is subject to the provisions of SFAS 109, “Accounting for Income Taxes,” and follows the liability method of accounting for deferred income taxes, which requires the establishment of deferred income tax assets and liabilities, as appropriate, for temporary differences between the tax basis of assets and liabilities and the amounts reported in the consolidated financial statements. Deferred income taxes are recorded using currently enacted tax rates.
Except as noted below, income tax expense includes provisions for deferred taxes to reflect the tax effects of temporary differences between the time when certain costs are recorded in the accounts and when they are deducted for tax return purposes. As temporary differences reverse, the related deferred income taxes are reversed to income. Investment tax credits have been deferred and are subsequently credited to income over the average lives of the related property. Other tax credits reduce income tax expense in the year claimed and are generally related to research and development.
The PSCW has allowed rate recovery of deferred taxes on all temporary differences since August 1991.
WPL established a regulatory asset associated with those temporary differences occurring priorrecognizes positions taken, or expected to August 1991be taken, in income tax returns that are more-likely-than-not to be realized, assuming that the position will be recoveredexamined by tax authorities with full knowledge of all relevant information. If it is more-likely-than-not that a tax position, or some portion thereof, will not be sustained, the related tax benefits are not recognized in future rates through July 2007.
the consolidated financial statements. For the majority of uncertain tax positions, the ultimate deductibility is highly certain, but there is uncertainty about the timing of such deductibility. Uncertain tax positions may result in an increase in income taxes payable, a reduction of income tax refunds receivable or changes in deferred taxes. Also, when uncertainty about the deductibility of an amount is limited to the timing of such deductibility, the increase in taxes payable (or reduction in tax refunds receivable) is accompanied by a decrease in deferred tax liabilities. WPL recognizes current taxes payable related to uncertain tax positions in “Accrued taxes” and non-current taxes payable related to uncertain tax positions in “Other long-term liabilities and deferred credits” on the Consolidated Balance Sheets. WPL recognizes net interest and penalties related to uncertain tax positions in “Income taxes” in the Consolidated Statements of Income. Refer to Note 1(q)5 for further discussion of WPL’s adoptionuncertain tax positions.
WPL defers investment tax credits and amortizes the credits to income over the average lives of FIN 48, “Accountingthe related property. Other tax credits for UncertaintyWPL reduce income tax expense in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordanceyear claimed.
WPL has elected the alternative transition method to calculate its beginning pool of excess tax benefits available to absorb any tax deficiencies associated with SFAS 109.recognition of share-based payment awards.
(d) Cash and Cash Equivalents - - Cash and cash equivalents include short-term liquid investments that have original maturities of less than 90 days.
(e) Utility Property, Plant and Equipment -
General - Utility plantPlant in service is recorded at the original cost of construction, which includes material, labor, contractor services, AFUDC and allocable overheads, such as supervision, engineering, benefits, certain taxes and transportation. Repairs, replacements and renewals of items of property determined to be less than a unit of property or that do not increase the property’s life or functionality are charged to maintenance expense. Ordinary retirements of utility plant in service and salvage value are netted and charged to accumulated depreciation upon removal from utility plant in service accounts and no gain or loss is recognized. Removal costs incurred are charged to a regulatory liability.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Electric plant in service - Electric plant in service by functional category at Dec. 31 was as follows (in millions):
| 2006 | 2005 | 2009 | 2008 | |||||||||
Distribution | $ | 1,206.3 | $ | 1,143.1 | $ | 1,529.0 | $ | 1,402.2 | ||||
Generation | 855.6 | 840.3 | 1,138.9 | 1,043.7 | ||||||||
Other | 49.8 | 63.7 | 58.6 | 54.4 | ||||||||
| $ | 2,111.7 | $ | 2,047.1 | $ | 2,726.5 | $ | 2,500.3 | |||||
Wind Generation Projects -
Bent Tree Wind Project - In March 2009, WPL acquired approximately 400 MW of wind site capacity in Freeborn County, Minnesota, referred to as the Bent Tree wind project. The initial 200 MW of the wind project is expected to begin construction in 2010. Future development of the balance of the wind project will depend on numerous factors such as renewable portfolio standards, availability of wind turbines and transmission capabilities.
In 2009, WPL received approval from the Minnesota Public Utilities Commission and PSCW to construct the initial 200 MW of the wind project. The capitalized costs related to this 200 MW wind project were transferred from “Other property, plant and equipment” to “Construction work in progress - Bent Tree - Phase I wind project” on the Consolidated Balance Sheets in 2009 upon receiving regulatory approval for the project. As of Dec. 31, 2009, WPL incurred costs of $162 million and recognized $3 million of AFUDC related to the 200 MW wind project. The $162 million of incurred costs includes payments to Vestas-American Wind Technology, Inc. (Vestas) for 200 MW of wind turbine generator sets and related equipment and site acquisition costs.
As of Dec. 31, 2009, WPL’s capitalized costs related to the remaining approximately 200 MW of wind site capacity for the Bent Tree wind project were $14 million and were recorded in “Other property, plant and equipment” on the Consolidated Balance Sheet.
Green Lake and Fond du Lac Counties Wind Site - In March 2009, WPL purchased development rights to an approximately 100 MW wind site in Green Lake and Fond du Lac Counties in Wisconsin. As of Dec. 31, 2009, WPL’s capitalized costs related to this wind project were $5 million and were recorded in “Other property, plant and equipment” on the Consolidated Balance Sheet.
Acquisition of the Neenah Energy Facility -In June 2009, WPL acquired a 300 MW, simple-cycle, dual-fueled (natural gas/diesel) electric generating facility and related inventories (diesel fuel and materials and supplies) located in Neenah, Wisconsin from Alliant Energy Resources, LLC (Resources) for $92 million. The purchase price was allocated to property, plant and equipment ($90 million), production fuel ($1 million) and materials and supplies ($1 million) based on the net book value of the assets acquired. The Neenah Energy Facility is being depreciated using a group method of depreciation over a 30-year period.
Rock River and Blackhawk Generating Units -In 2009, WPL ceased operations and retired four of its gas-fired electric generating units known as Rock River Units 1 and 2, and Blackhawk Units 3 and 4 to reduce operating costs. These retirements were recorded as reductions of $58 million to “Electric plant in service” and “Accumulated depreciation” on the Consolidated Balance Sheets in 2009.
Depreciation - WPL uses a combination of remaining life and straight-line depreciation methods as approved by the PSCW and the Illinois Commerce Commission (ICC).PSCW. The composite or group method of depreciation is used, in which a single depreciation rate is applied to the gross investment in a particular class of property. This method pools similar assets and then depreciates each group as a whole. Periodic depreciation studies are performed to determine the appropriate group lives, net salvage and group deprecation rates. These depreciation studies are generally conducted by third party experts, analyzed by management and are subject to review and approval by the PSCW. Depreciation expense is included within the recoverable cost of service included incomponent of rates charged to customers. The average rates of depreciation for electric and gas properties, consistent with current rate making practices, were as follows:
| 2006 | 2005 | 2004 | 2009 | 2008 (a) | 2007 | |||||||||||||
Electric | 3.5 | % | 3.6 | % | 3.5 | % | 3.2 | % | 3.2 | % | 3.5 | % | ||||||
Gas | 3.7 | % | 3.8 | % | 4.0 | % | 2.8 | % | 3.1 | % | 3.6 | % | ||||||
| (a) | Effective July 1, 2008, WPL implemented updated depreciation rates as a result of a new depreciation study. These updated depreciation rates increased WPL’s earnings available for common stock in 2008 as compared to 2007 by approximately $5.3 million. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
AFUDC - AFUDC represents costs to finance construction additions including a return on equity component and cost of debt component as required by regulatory accounting. The concurrent credit for the amount of AFUDC capitalized is recorded as “Allowance for funds used during construction” in the Consolidated Statements of Income. The amount of AFUDC generated by equity and debt components was as follows (in millions):
| 2006 | 2005 | 2004 | 2009 | 2008 | 2007 | |||||||||||||
Equity | $ | 2.0 | $ | 2.7 | $ | 3.7 | $ | 4.0 | $ | 6.4 | $ | 1.5 | ||||||
Debt | 0.6 | 0.6 | 0.8 | 1.7 | 3.2 | 1.1 | ||||||||||||
| $ | 2.6 | $ | 3.3 | $ | 4.5 | $ | 5.7 | $ | 9.6 | $ | 2.6 | |||||||
WPL records a regulatory assetThe increase in WPL’s AFUDC in 2008 compared to 2009 and 2007 was primarily due to AFUDC recognized in 2008 for allWPL’s Cedar Ridge wind project. WPL’s Cedar Ridge wind project was placed in service in the fourth quarter of 2008.
AFUDC for WPL’s retail and wholesale jurisdiction construction projects equal to the difference between the AFUDCis calculated in accordance with PSCW and FERC guidelines, and the AFUDC authorized by FERC and amortizes the regulatory asset at a composite rate and time frame established during each rate case.respectively. The AFUDC recovery rates, computed in accordance with the prescribed regulatory formula, were as follows:
| 2006 | 2005 | 2004 | 2009 | 2008 | 2007 | |||||||||||||
PSCW formula - retail jurisdiction | 15.1 | % | 15.1 | % | 15.2 | % | 9.0 | % | 9.0 | % | 9.0 | % | ||||||
FERC formula - wholesale jurisdiction | 5.0 | % | 6.7 | % | 12.5 | % | 6.7 | % | 6.8 | % | 5.5 | % | ||||||
| (a) | Consistent with the PSCW’s most recent retail rate case order issued in December 2009, WPL will earn a current return on 50% of the estimated CWIP related to its Bent Tree - Phase I wind project for 2010 and accrue AFUDC on the remaining 50% beginning Jan. 1, 2010. In addition, the PSCW’s order changed WPL’s AFUDC recovery rate to 8.76% from 9.0% effective Jan. 1, 2010. |
(f) Other Property, Plant and Equipment - Other property, plant and equipment is recorded at the original cost of construction, which includes material, labor and contractor services. Repairs, replacements and renewals of items of property determined to be less than a unit of property or that do not increase the property’s life or functionality are charged to maintenance expense. The majority of other property plant and equipment is depreciated using the straight-line method primarily over periods ranging from five5 to 15 years. Upon retirement or sale of other property, plant and equipment, the original cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in the Consolidated Statements of Income.
(g) Operating Revenues -
General - Revenues are primarily from electricelectricity and natural gas sales and deliveriesare recognized on an accrual basis as services are rendered or commodities are delivered to customers. WPL recognizes unbilled revenues based on estimated amounts of electricity and are recorded undernatural gas delivered but not yet billed to customers at the accrual methodend of accountingeach reporting period.
WPL participates in bid/offer-based wholesale energy and recognized upon delivery. Effective April 1, 2005, the Midwest Independent System Operator (MISO) implemented the MISO Midwest Market, a bid-based energy market.ancillary services markets operated by MISO. The market requiresmarkets require that all market participants, including WPL, submit hourly day-ahead and/or real-time bids and offers for energy and ancillary services at locations across the MISO region. The day-ahead and real-time transactions are grouped together, resulting in a net supply to or net purchase from MISO of megawatt-hours (MWhs) for each hour of each day. The net supply to MISO is recorded in “Electric utility operating revenues” and the net purchase from MISO is recorded in “Electric production fuel and purchased power”energy purchases” in the Consolidated Statements of Income.
WPL accrues revenues for services rendered but unbilled at month-end.Taxes Collected from Customers - WPL serves as a collection agent for sales or various other taxes and recordrecords revenues on a net basis. TheOperating revenues do not include the collection of the aforementioned taxes.
(h) Utility Cost Recovery Mechanisms -
(h) UtilityElectric Production Fuel Cost Recoveryand Energy Purchases - - WPL burns coal and other fossil fuels to produce electricity at its generating facilities to meet the demand of its customers and charges the cost of fossil fuels used during each period to electric production fuel expense. WPL also purchases electricity to meet the demand of its customers and charges these costs to energy purchases expense.
The tariffs for WPL’s wholesale electric customers provide for subsequent adjustments to its electric rates for changes in electric production fuel and purchased energy expenses. Changes in the under/over collection of these expenses are also recognized in electric production fuel and energy purchases expense. The cumulative effects of the under/over collection of these costs are recorded on the Consolidated Balance Sheets as current regulatory assets or current regulatory liabilities until they are reflected in future billings to customers.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
WPL’s retail electric rates approved by the PSCW are based on forecasts of forward lookingforward-looking test year periods and include estimates of future electric production fuel and purchased energy costsexpenses (fuel-related costs) anticipated during the test year.period. During each electric retail rate proceeding, the PSCW sets fuel monitoring ranges based on the forecasted fuelfuel-related costs used to determine retail base rates. If WPL’s actual fuelfuel-related costs fall outside these fuel monitoring ranges during the test year period, WPL and/or other parties can request, and the PSCW can authorize, an adjustment to future retail electric rates based on changes in fuelfuel-related costs only. The PSCW may authorize an interim retail rate increase; however,increase. However, if the final retail rate increase is less than the interim retail rate increase, WPL must refund the excess collection to retail customers with interest at the current authorized return on common equity rate. Recovery of capacity-related charges associated with WPL’s
Purchased Electric Capacity -WPL enters into purchased power costs and network transmission chargesagreements (PPAs) to help meet the electricity demand of its customers. Certain of these PPAs include minimum payments for WPL’s rights to electric generating capacity, which are charged to purchased electric capacity expense. Purchased electric capacity expenses are recovered from WPL’s retail electric customers through changes in base rates.rates determined during periodic rate proceedings. Purchased electric capacity expenses are recovered from WPL’s wholesale electric customers through annual changes in base rates determined by a formula rate structure.
Electric Transmission Service -WPL incurs costs for the transmission of electricity to its customers and charges these costs to electric transmission service expense. Electric transmission service expenses are recovered from WPL’s retail electric customers through changes in base rates determined during periodic rate proceedings. Electric transmission service expenses are recovered from WPL’s wholesale electric customers through annual changes in base rates determined by a formula rate structure.
Cost of Gas Sold -WPL incurs costs for the purchase, transportation and storage of natural gas to serve its gas customers and charges these costs to cost of gas sold. The tariffs for WPL’s retail gas customers provide for subsequent adjustments to its rates for changes in the cost of fuel and purchased energy. WPL’s retail gas tariffs provide for subsequent adjustments to its natural gas rates for changessold. Changes in the under/over collection of these costs are also recognized in cost of gas sold. The cumulative effects of the under/over collection of these costs are recorded on the Consolidated Balance Sheets as current monthly natural gas commodity price index. Also,regulatory assets or current regulatory liabilities until they are reflected in 2006, 2005 and 2004,future billings to customers.
In 2007, WPL had a gas performance incentive whichthat included a sharing mechanism whereby 50%35% of gains or losses relative to current commodity prices and benchmarks were retained by WPL, with the remainder65% refunded to or recovered from customers. Effective Nov. 1, 2007, this gas performance incentive sharing mechanism was terminated. WPL’s gas performance incentive sharing mechanism resulted in gains of $5 million recorded as “Gas utility operating revenues” in the Consolidated Statement of Income in 2007.
Refer to NoteNotes 1(b) and 2 for additional information regarding fuelthese utility cost recovery.recovery mechanisms.
(i) Generating Facility Outages - Operating expenses incurred during refueling outages at Kewaunee were expensed as incurred. The maintenance costs incurred during outages for WPL’s various other generating facilities are also expensed as incurred.
(j) Derivative Financial Instruments - - WPL periodically uses derivative financial instruments to hedge exposures to fluctuations in certain commodity prices, and volatility in a portion of electricelectricity and natural gas sales volumes due to weather. WPL does not use such instruments for speculative purposes.weather, transmission congestion costs and currency exchange rates. The fair value of allthose financial instruments that are determined to be derivatives are recorded as assets or liabilities on the Consolidated Balance Sheets and gains and losses related to derivatives thatSheets. Derivative instruments representing unrealized gain positions are designated and qualify as cash flow hedges, are recognized in earnings when the underlying hedged item or physical transaction is recognized in income. Gains and losses related to derivatives that do not qualify for, or are not designated in hedge relationships, are recognized in earnings immediately. Based on the fuel and natural gas cost recovery mechanisms in place, as well as other specific regulatory authorizations, changes in fair market values of WPL’s derivatives generally have no impact on its results of operations, as they are generally reported as changes in regulatoryderivative assets, and liabilities.derivative instruments representing unrealized loss positions are reported as derivative liabilities at the end of each reporting period. WPL also has somecertain commodity purchase and sales contracts that have been designated, and qualify for, the normal purchase and sale exception and based on this designation, these contracts are accounted for on the accrual basis of accounting. WPL does not offset fair value amounts recognized for the right to reclaim cash collateral (receivable) or the obligation to return cash collateral (payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. Refer to Note 1(b) for discussion of the recognition of regulatory assets and regulatory liabilities related to the unrealized losses and unrealized gains on WPL’s derivative instruments. Refer to Notes 11 and 12(f) for further discussion of WPL’s derivative financial instrumentsderivatives and related credit risk, respectively.
(k)(j) Pension and Other Postretirement Benefits Plans - - For the defined benefit pension and other postretirement benefits plans sponsored by Alliant Energy Corporate Services, Inc. (Corporate Services), a subsidiary of Alliant Energy, Alliant Energy allocates costs and contributions to WPL based on labor costs of plan participants and any related obligations based on the funded status of the WPL group.participants.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(l)(k) Asset Valuations - - Long-lived assets to be held and used, excluding regulatory assets, are reviewed for possible impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Impairment is indicated if the carrying value of an asset exceeds its undiscounted future cash flows. An impairment charge is recognized equal to the amount the carrying value exceeds the asset’s fair value. The fair value is determined by the use of quoted market prices, appraisals, or the use of other valuation techniques such as expected discounted future cash flows. Refer to Note 1(b) for discussion of long-lived assets classified as regulatory assets.
Long-lived assets held for sale are reviewed for possible impairment each reporting period and impairment charges are recorded if the carrying value of such asset exceeds the estimated fair value less cost to sell. The fair value is determined by the use of bid information from potential buyers, quoted market prices, appraisals, or the use of other valuation techniques such as expected discounted future cash flows.
If events or circumstances indicate the carrying value of investments accounted for under the equity method of accounting may not be recoverable, potential impairment is assessed by comparing the fair value of these investments to their carrying values as well as assessing if a decline in fair value is temporary. If an impairment is indicated, a charge is recognized equal to the amount the carrying value exceeds the investment’s fair value. Refer to Note 9(a) for additional discussion of investments accounted for under the equity method of accounting.
(m)(l) Operating Leases - WPL has certain purchased power agreements (PPAs)PPAs that provide it exclusive rights to all or a substantial portion of the output from the specific generating facility over the contract term and therefore are accounted for as operating leases. Costs associated with these PPAs are included in “Electric production fuel and purchased power”energy purchases” and “Purchased electric capacity” in the Consolidated Statements of Income based on monthly payments for these PPAs. Monthly capacity payments related to one of these PPAs is higher during the peak demand period from May 1 through Sep. 30 and lower in all other periods during each calendar year. These seasonal differences in capacity charges are consistent with expected market pricing and the expected usage of energy from the facility.
(n)(m) Emission Allowances - Emission allowances are granted by the U.S. Environmental Protection Agency (EPA) at zero cost and permit the holder of the allowances to sourcesemit certain gaseous by-products of pollution that allow the release of a prescribed amount of pollution each year.fossil fuel combustion, including SO2 and NOx. Unused emission allowances may be bought and sold or carried forward to be utilized in future years. Purchased emission allowances are recorded as intangible assets at their original cost and evaluated for impairment as long-lived assets to be held and used. Emission allowances grantedallocated to or acquired by the EPAWPL are valued at a zero-cost basis.held primarily for consumption. Amortization of emission allowances is based upon a weighted average cost for each category of vintage year utilized during the reporting period.period and is recorded in “Electric production fuel and energy purchases” in the Consolidated Statements of Income. Cash inflows and outflows related to sales and purchases of emission allowances are recorded as investing activities in the Consolidated Statements of Cash Flows. Refer to Note 15 for additional discussion of emission allowances and Note 1(b) for information regarding regulatory liabilities related to emission allowances.
(o)(n) Asset Retirement Obligations - - SFAS 143 requires that when an asset is placed in service the presentThe fair value of any retirement costs associated with thatan asset for which WPL has a legal obligation must beis recorded as a liability with an equivalent amount added to the asset cost.cost when an asset is placed in service or when sufficient information becomes available to determine a reasonable estimate of the fair value of future retirement costs. The fair value of asset retirement obligations is generally determined using discounted cash flow analyses. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. For WPL, accretion and depreciation expense related to its regulated operations is recorded to regulatory assets on the Consolidated Balance Sheets. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss. On Dec. 31, 2005,For WPL, adopted FIN 47, which clarifiesany gain or loss related to its regulated operations is recorded to regulatory liabilities or regulatory assets on the term “conditional AROs,” as discussed in SFAS 143, and when an entity would have sufficient informationConsolidated Balance Sheets. Refer to reasonably estimate the fair valueNote 17 for additional discussion of an ARO. FIN 47 concludes that conditional AROs are within the scope of SFAS 143.asset retirement obligations.
(p)(o) Debt Issuance and Retirement Costs - - - WPL defers and amortizes debt issuance costs and debt premiums or discounts over the expected lives of the respective debt issues, considering maturity dates and, if applicable, redemption rights held by others. ForRefer to Note 8(b) for details on long-term debt and Note 1(b) for information on regulatory assets related to debt retired early with no subsequent re-issuance, WPL amortizes over the remaining original life any unamortized debt issuance costs, premiums or discounts. As permitted by regulatory authorities, gains or losses resulting from the refinancing of debt by WPL is deferred and amortized over the life of the new debt issued.refinanced.
(p) New Accounting Pronouncements -
(q) New Accounting PronouncementsFair Value Measurements -
In February 2007,2008, the FASBFinancial Accounting Standards Board (FASB) issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115,” which provides companies with an option to report selected financial assets and liabilities atauthoritative guidance requiring fair value measurements and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributesdisclosures for similar typesall nonrecurring fair value measurements of nonfinancial assets and liabilities. WPL is required to adopt SFAS 159 byadopted this guidance on Jan. 1, 2008 and is evaluating the implications of SFAS 159 on its financial condition and results of operations.
In September 2006, the FASB issued SFAS 158, which requires an employer to recognize the overfunded or underfunded status of its benefit plans as an asset or liability on its balance sheet and to recognize the changes in the funded status of its benefit plans in the year in which they occur as a component of other comprehensive income. Refer to Note 1(b) for discussion of regulatory authorizations which allow WPL to record a portion of the changes in the funded status of its benefit plans as regulatory assets in lieu of other comprehensive loss. Refer to Note 6(a) for additional details of the impacts of WPL adopting SFAS 158 on Dec. 31, 2006. SFAS 158 also requires an employer to measure benefit plan assets and obligations as of the end of its fiscal year. WPL is required to adopt this provision of SFAS 158 by Dec. 31, 2008.
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. WPL is required to adopt SFAS 157 by Jan. 1, 2008 and is evaluating the implications of SFAS 1572009 with no material impact on its financial condition and results of operations.
In September 2006,April 2009, the Securities and Exchange Commission (SEC)FASB issued Staff Accounting Bulletin (SAB) 108 which provides interpretiveauthoritative guidance for determining fair values when there is no active market or where the price inputs being used represent distressed sales. WPL adopted this clarifying guidance on howJune 30, 2009 with no material impact on its financial condition and results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In August 2009, the effectsFASB issued authoritative guidance clarifying that the quoted price for an identical liability, when traded as an asset in an active market, is also a Level 1 measurement for that liability when no adjustment to the quoted price is required. In the absence of a Level 1 measurement, an entity must use one or more of the carryoverfollowing valuation techniques to estimate fair value, which can be classified into two categories: 1) a valuation technique that uses a quoted price; and 2) another valuation technique based on the amount an entity would pay to transfer the identical liability or reversal of prior year misstatements should be considered in quantifying a current year misstatement.based on the amount an entity would receive to enter into an identical liability. WPL adopted SAB 108this guidance on Dec. 31, 2006Oct. 1, 2009 with no material impact on its financial condition and results of operations.
Refer to Note 10 for disclosures about fair value measurements.
Redeemable Equity Instruments
In August 2009, the FASB issued authoritative guidance requiring preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (1) at a fixed or determinable price on a fixed or determinable date, (2) at the option of the holder, or (3) upon the occurrence of an event that is not solely within the control of the issuer. WPL adopted this guidance in August 2009 with no material impact on its financial condition and results of operations. Refer to Note 7(b) for disclosures about redeemable equity instruments.
Variable Interest Entities (VIEs)
In June 2009, the FASB issued authoritative guidance changing the approach to determine a VIE’s primary beneficiary and requiring ongoing assessments of whether an enterprise is the primary beneficiary of a VIE. This guidance also requires additional disclosures about a company’s involvement with VIEs and any significant changes in risk exposure due to that involvement. WPL adopted this guidance on Jan. 1, 2010. Prior to the adoption of this guidance, special purpose entities were excluded from the scope of the accounting guidance for VIEs. Under this new guidance, the scope exception for special purpose entities has been eliminated. Refer to Note 18 for disclosures about VIEs.
Transfers of Financial Assets
In June 2009, the FASB issued authoritative guidance requiring additional disclosures about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. This guidance also eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. WPL adopted this guidance on Jan. 1, 2010.
Subsequent Events
In May 2009, the FASB issued authoritative guidance establishing general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. In particular, this guidance sets forth: 1) the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. WPL adopted this guidance on June 30, 2009 with no material impact on its financial condition and results of operations.
Other-Than-Temporary Impairments
In April 2009, the FASB issued authoritative guidance intending to bring greater consistency to the timing of impairment recognition and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. This guidance requires additional disclosures regarding expected cash flows, credit losses and an aging of securities with unrealized losses. WPL adopted this guidance on June 30, 2009 with no material impact on its financial condition and results of operations.
Equity Method Investments
In November 2008, the FASB issued authoritative guidance intended to address questions that have arisen regarding the application of equity method accounting guidance because of the significant changes to the guidance on business combinations and subsidiary equity transactions and the increased use of fair value measurements as a result of this guidance. WPL adopted this guidance prospectively for transactions occurring on or after Jan. 1, 2009 with no material impact on its financial condition or results of operations.operations in 2009. Because the provisions of this guidance are only applied prospectively to transactions after adoption, the impact to WPL cannot be determined until any such transactions occur. Refer to Note 9(a) for disclosures about equity method investments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Business Combinations
In July 2006,December 2007, the FASB issued FIN 48 which clarifiesauthoritative guidance establishing principles and requirements for how the accounting for uncertaintyacquiring entity in income taxes recognizeda business combination: recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in accordance with SFAS 109. FIN 48, which is effective Jan. 1, 2007, establishes standards for measurementthe acquiree; recognizes and recognitionmeasures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements of tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Differences between the amounts recognized on the balance sheet prior to the adoption of FIN 48 and the amounts reported after adoption should be accounted for as a cumulative effect adjustment recorded to the beginning balance of retained
earnings. WPL continues to evaluate the impactnature and financial effects of the adoptionbusiness combination. In April 2009, the FASB issued revised authoritative guidance requiring an acquirer to recognize at fair value an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of FIN 48, including evaluationthat asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined then the acquirer follows the recognition criteria for contingencies to determine whether the contingency should be recognized as of certain mattersthe acquisition date or after it. WPL adopted this guidance prospectively for business combinations occurring on or after Jan. 1, 2009 with no material impact on its financial condition or results of operations in 2009.
Noncontrolling Interests
In December 2007, the FASB issued authoritative guidance amending accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance also clarifies that could significantlya noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This guidance also changes the way the consolidated income statement is presented, establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation, requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary. WPL adopted this guidance on Jan. 1, 2009 with retrospective application of the presentation and disclosure requirements. Adoption of this guidance had no material impact on its financial condition and results of operations.
(2) UTILITY RATE CASES
Retail Rate Case (2010 Test Year) -In December 2009, WPL received an order from the anticipated reduction in retained earnings resulting from adoption.
PSCW authorizing an annual retail electric rate increase of $59 million, or approximately 6%, and an annual retail natural gas increase of $6 million, or approximately 2%, effective January 2010. Refer to Note 6(b)1(b) for discussion of SFAS 123(R), “Share-Based Payment,” which was adoptedthe PSCW’s decision in the December 2009 order regarding recovery of previously incurred costs for the cancelled Nelson Dewey #3 base-load project.
Fuel-related Retail Rate Cases - Retail fuel-related costs incurred by WPL on Jan. 1, 2006.
in 2008 and 2007 were lower than retail fuel-related costs used to determine rates during such periods resulting in refunds owed to its retail electric customers. In January 2007,2009, WPL received approval from the PSCW to begin refunding $13refund $23 million to its natural gasretail electric customers in 2009 related to the 2008 fuel-related retail rate case and the remaining $2 million of refunds to retail electric customers in 2009 related to fuel-related costs in the 2007 retail rate case. WPL completed these refunds in 2009.
In August 2009, WPL notified the PSCW that its actual retail fuel-related costs incurred during the month of July 2009 were below the monthly monitoring range of plus or minus 8% and projected annual retail fuel-related costs for 2009 could fall outside the customers’ portionannual monitoring range of gains realized from its gas performance incentive programplus or minus 2%. In September 2009, the PSCW issued an order that set WPL’s retail electric fuel rates currently in effect subject to refund beginning Sep. 1, 2009. In January 2010, WPL filed a retail electric fuel refund report indicating retail fuel over collections of $4 million for the period from November 2005 to October 2006. In January and February of 2007, 80%, or $10 million, of the total expected refund amount was refunded to customers. The remainder of the refund will be completed later in 2007 after the PSCW completes its audit of the refund amount. AtSep. 1, 2009 through Dec. 31, 2006,2009. As of Dec. 31, 2009, WPL reserved $4 million, including interest, for all amounts relatedrefunds anticipated to these refunds. be paid to its retail electric customers.
Refer to Note 1(h) for further discussion of WPL’s fuel cost recovery and Note 1(b) for discussion of various other rate matters.
(3) LEASES
(a) Operating Leases - WPL has entered into various agreements related to property, plant and equipment rights that are accounted for as operating leases. WPL’s most significant operating leases relate to certain PPAs. These PPAs contain fixed rental payments related to capacity and transmission rights and contingent rental payments related to the energy portion (actual MWhs)MWh) of the respective agreements. Rental expenses associated with WPL’s operating leases were as follows (in millions):
| 2006 | 2005 | 2004 | 2009 | 2008 | 2007 | |||||||||||||
Operating lease rental expenses (excluding contingent rentals) | $ | 90 | $ | 91 | $ | 63 | $ | 68 | $ | 77 | $ | 96 | ||||||
Contingent rentals related to certain PPAs | 23 | 28 | 33 | 7 | 7 | 19 | ||||||||||||
Other contingent rentals | 1 | — | 1 | — | — | 1 | ||||||||||||
| $ | 114 | $ | 119 | $ | 97 | $ | 75 | $ | 84 | $ | 116 | |||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At Dec. 31, 2006,2009, WPL’s future minimum operating lease payments, excluding contingent rentals, were as follows (in millions):
| 2007 | 2008 | 2009 | 2010 | 2011 | Thereafter | Total | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | |||||||||||||||||||||||||||||
Certain PPAs | $ | 79 | $ | 72 | $ | 63 | $ | 57 | $ | 58 | $ | 76 | $ | 405 | ||||||||||||||||||||||||||||
Riverside Energy Center (Riverside) PPA | $ | 58 | $ | 59 | $ | 60 | $ | 17 | $ | — | $ | — | $ | 194 | ||||||||||||||||||||||||||||
Synthetic leases | 7 | 3 | 3 | 5 | 1 | 7 | 26 | 5 | 1 | 1 | 1 | 4 | 2 | 14 | ||||||||||||||||||||||||||||
Other | 2 | 1 | 1 | 2 | 1 | 4 | 11 | 2 | 5 | 1 | 2 | — | 1 | 11 | ||||||||||||||||||||||||||||
| $ | 88 | $ | 76 | $ | 67 | $ | 64 | $ | 60 | $ | 87 | $ | 442 | $ | 65 | $ | 65 | $ | 62 | $ | 20 | $ | 4 | $ | 3 | $ | 219 | |||||||||||||||
The PPAs meeting the criteria as operating leases are such that, over the contract term, Alliant Energy has exclusive rights to all or a substantial portion of the output from a specific generating facility. The PPAs total in the above table includes $357 million and $39 million related to the Riverside Energy Center (Riverside) and RockGen Energy Center (RockGen) PPAs, respectively. Alliant Energy’s PPAs with Calpine Corporation (Calpine) subsidiaries related to RockGen and Riverside provide Alliant Energy the option to purchase these two facilities in 2009 and 2013, respectively. Refer to Note 18 for additional information concerning the impacts of FIN 46R, “Consolidation of Variable Interest Entities,” on these two PPAs and Calpine’s bankruptcy filing.
The synthetic leases in the above table relate to the financing of utility railcars and a utility radio dispatch system. The entities that lease these assets to WPL do not meet the consolidation requirements per FIN 46R, and are not included on the Consolidated Balance Sheets. WPL has guaranteed the residual value of its synthetic leases which total $8 million in the aggregate. The guarantees extend through the maturity of each respective underlying lease with remaining terms up to nine years. Residual value guarantee amounts have been included in the above table.
| (a) | The synthetic leases relate to the financing of certain utility railcars. The entities that lease these assets to WPL are not required to be consolidated and are not included on the Consolidated Balance Sheets. WPL has guaranteed the residual value of the related assets, which total $7 million in the aggregate. The guarantees extend through the maturity of each respective underlying lease with remaining terms up to six years. Residual value guarantee amounts have been included in the future minimum operating lease payments. |
(b) Capital Lease - - In the second quarter of 2005, WPL entered into a 20-year agreement with Alliant Energy Resources, Inc.’s (Resources’)Resources’ Non-regulated Generation business to lease the Sheboygan Falls Energy Facility (SFEF), with an option for two lease renewal periods thereafter. The lease became effective in June 2005 when SFEF began commercial operations.operation. WPL is responsible for the operation of SFEF and has exclusive rights to its output. In May 2005, the PSCW approved this affiliated lease agreement with initial monthly payments of approximately $1.3 million. The lease payments were based on a 50% debt to capital ratio, a return on equity of 10.9%, a cost of debt based on the cost of senior notes issued by Resources’ Non-regulated Generation business in June 2005 and certain costs incurred to construct the facility. In accordance with its order approving the lease agreement, the PSCW will review the capital structure, return on equity and cost of debt every five years from the date of the final decision.order. The capital lease asset is amortized using the straight-line method over the 20-year lease term. Since the inception of the lease in 2005, WPL’s retail rate cases, beginning with the 2005/2006 retail rate case that became effective in July 2005, include
and wholesale rates have included recovery of the monthly SFEF lease payment amounts from WPL’s customers.payments. In 20062009, 2008 and 2005,2007, SFEF lease expenses were $19.3$18.5 million, $18.8 million and $11.3$19.0 million ($13.112.3 million, $12.6 million and $7.7$12.8 million included in “Interest expense” and $6.2 million, $6.2 million and $3.6$6.2 million included in “Depreciation and amortization” in the Consolidated Statements of Income), respectively. At Dec. 31, 2006,2009, WPL’s estimated future minimum capital lease payments for SFEF were as follows (in millions):
| 2007 | 2008 | 2009 | 2010 | 2011 | There- after | Total | Less: amount representing interest | Present value of net minimum capital lease payments | ||||||||||||||||
| $15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 203 | $ | 278 | $ | 157 | $ | 121 | ||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | Less: amount representing interest | Present value of net minimum capital lease payments | |||||||||||||||||
| $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 158 | $ | 233 | $ | 120 | $ | 113 | ||||||||
(4) RECEIVABLES
In March 2004,(a) Cash Collateral - As of Dec. 31, 2009 and 2008, WPL discontinuedhad entered into numerous agreements to purchase electricity and natural gas to serve its participationcustomers. Exposure under certain of these agreements exceeded contractual limits, requiring WPL to provide cash collateral to certain counterparties. At Dec. 31, 2009 and 2008, cash collateral of $2 million and $15 million, respectively, was recorded in “Accounts receivable—other” on the Consolidated Balance Sheets.
(b) Advances for Customer Energy Efficiency Projects - WPL offers energy efficiency programs to certain of its customers. The energy efficiency programs provide low-cost financing to help customers identify, purchase and install energy efficiency improvement projects. The customers repay WPL with monthly payments over a term up to five years. The advances for and collections of customer energy efficiency projects are recorded as investing activities in the utilityConsolidated Statements of Cash Flows. The current portion and non-current portion of outstanding advances for customer accounts receivable sales program.
The components of income tax expense (benefit)energy efficiency projects are recorded in “Accounts receivable—other” and “Deferred charges and other,” respectively, on the Consolidated Balance Sheets. At Dec. 31, 2009 and 2008, WPL’s outstanding advances for WPLcustomer energy efficiency projects were as follows (in millions):
| 2006 | 2005 | 2004 | ||||||||||
Current tax expense: | ||||||||||||
Federal | $ | 18.9 | $ | 53.0 | $ | 45.2 | ||||||
State | 2.4 | 13.4 | 13.3 | |||||||||
Deferred tax expense (benefit): | ||||||||||||
Federal | 36.6 | (3.5 | ) | 9.7 | ||||||||
State | 6.6 | 1.4 | 0.4 | |||||||||
Investment tax credits | (1.5 | ) | (1.5 | ) | (1.6 | ) | ||||||
Research and development tax credits | (0.8 | ) | (1.9 | ) | (0.7 | ) | ||||||
| $ | 62.2 | $ | 60.9 | $ | 66.3 | |||||||
| 2009 | 2008 | |||||
Current portion | $ | 29.0 | $ | 36.4 | ||
Non-current portion | 54.0 | 77.1 | ||||
| $ | 83.0 | $ | 113.5 | |||
Alliant Energy files a consolidated federal income tax return. Under the terms
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(5) INCOME TAXES
Income Tax Expense (Benefit) - The components of an agreement between Alliant Energy and its subsidiaries, the subsidiaries calculate their respective federal income tax provisions and make payments to or receive payments from Alliant Energy as if they were separate taxable entities. Separate return amounts are adjusted for state apportionment benefits net of federal tax and the impact of the Public Utility Holding Company Act of 1935, which prohibited the retention of tax benefits at the parent level prior to its repeal“Income taxes” in the first quarterConsolidated Statements of 2006. Any difference between the separate return methodology and the actual consolidated return is allocatedIncome were as prescribed in Alliant Energy’s tax allocation agreement. In 2006, 2005 and 2004, WPL realized net benefits of $0.1 million, $1.5 million and $1.2 million, respectively, related to state apportionment and allocation of parent tax benefits.follows (in millions):
| 2009 | 2008 | 2007 | ||||||||||
Current tax expense (benefit): | ||||||||||||
Federal | $ | (137.7 | ) | $ | 22.4 | $ | 55.8 | |||||
State | (14.3 | ) | 10.5 | 10.2 | ||||||||
Deferred tax expense (benefit): | ||||||||||||
Federal | 153.6 | 34.2 | (4.0 | ) | ||||||||
State | 9.3 | 3.3 | (1.3 | ) | ||||||||
Production tax credit | (3.9 | ) | (0.3 | ) | — | |||||||
Investment tax credits | (1.3 | ) | (1.4 | ) | (1.5 | ) | ||||||
Provision recorded as a change in uncertain tax positions | 39.7 | 0.1 | — | |||||||||
Provision recorded as a change in accrued interest | 0.4 | (0.4 | ) | 0.1 | ||||||||
| $ | 45.8 | $ | 68.4 | $ | 59.3 | |||||||
Income Tax Rates - The overall effective income tax rates shown in the following table were computed by dividing total income tax expense by income before income taxes.
| 2006 | 2005 | 2004 | 2009 | 2008 | 2007 | |||||||||||||
Statutory federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes, net of federal benefits | 5.6 | 7.5 | 6.2 | 4.4 | 4.6 | 4.8 | ||||||||||||
Adjustment of prior period taxes | — | (0.7 | ) | (1.5 | ) | 0.7 | 0.2 | (0.1 | ) | |||||||||
Research and development tax credits | (0.5 | ) | (1.2 | ) | (0.4 | ) | ||||||||||||
Amortization of excess deferred taxes | (0.6 | ) | (0.9 | ) | (0.5 | ) | (0.2 | ) | (0.7 | ) | (1.0 | ) | ||||||
Amortization of investment tax credits | (0.9 | ) | (0.9 | ) | (0.9 | ) | (1.0 | ) | (0.7 | ) | (0.8 | ) | ||||||
State filing changes | (1.8 | ) | — | — | ||||||||||||||
Production tax credits | (2.9 | ) | (0.2 | ) | — | |||||||||||||
Other items, net | (1.5 | ) | (2.1 | ) | (1.1 | ) | (0.3 | ) | (1.6 | ) | (3.6 | ) | ||||||
Overall effective income tax rate | 37.1 | % | 36.7 | % | 36.8 | % | 33.9 | % | 36.6 | % | 34.3 | % | ||||||
State filing changes -In February 2009, the Wisconsin Senate Bill 62 (SB 62) was enacted. The most significant provision of SB 62 for WPL requires combined reporting for corporate income taxation in Wisconsin beginning with tax returns filed for the calendar year 2009. This provision requires all legal entities in which Alliant Energy owns a 50% or more interest to file as members of a unitary return in Wisconsin. As a result of this provision in SB 62 and in order to take advantage of efficiencies that may be available as a result of WPL and Interstate Power and Light Company (IPL) sharing resources and facilities, WPL plans to file as a member of Iowa consolidated tax returns beginning with calendar year 2009. Changes in state apportioned income tax rates resulting from Wisconsin combined reporting requirements and WPL’s plans to be included in Iowa consolidated tax returns required WPL to adjust the carrying value of its deferred income tax assets and liabilities in 2009. WPL recognized net income tax benefits in 2009 of $2.4 million related to these impacts.
Deferred Tax Assets and Liabilities - Consistent with rate making treatment, deferred taxes are offset in the table below for temporary differences which have related regulatory assets and liabilities. The deferred income tax (assets) and liabilities included on the Consolidated Balance Sheets at Dec. 31 arise from the following temporary differences (in millions):
| 2006 | 2005 | 2009 | 2008 | |||||||||||||||||||||||||||||||||||||||||
| Deferred Tax Assets | Deferred Tax Liabilities | Net | Deferred Tax Assets | Deferred Tax Liabilities | Net | Deferred Tax Assets | Deferred Tax Liabilities | Net | Deferred Tax Assets | Deferred Tax Liabilities | Net | |||||||||||||||||||||||||||||||||
Property | $ | — | $ | 212.2 | $ | 212.2 | $ | — | $ | 214.2 | $ | 214.2 | $ | — | $ | 389.0 | $ | 389.0 | $ | — | $ | 232.5 | $ | 232.5 | ||||||||||||||||||||
Investment in American Transmission Co. LLC (ATC) | — | 46.3 | 46.3 | — | 43.7 | 43.7 | — | 71.5 | 71.5 | — | 52.2 | 52.2 | ||||||||||||||||||||||||||||||||
Pension and other postretirement benefits obligations | — | 31.4 | 31.4 | — | 33.5 | 33.5 | ||||||||||||||||||||||||||||||||||||||
Prepaid gross receipts tax | — | 14.1 | 14.1 | — | — | — | — | 15.3 | 15.3 | — | 15.1 | 15.1 | ||||||||||||||||||||||||||||||||
Pension and other benefit obligations | — | 7.9 | 7.9 | — | 7.8 | 7.8 | ||||||||||||||||||||||||||||||||||||||
Regulatory liability - decommissioning | (8.6 | ) | — | (8.6 | ) | (28.3 | ) | — | (28.3 | ) | ||||||||||||||||||||||||||||||||||
Regulatory asset - base-load project | — | 5.1 | 5.1 | — | 11.0 | 11.0 | ||||||||||||||||||||||||||||||||||||||
Regulatory asset/(liability) - commodity cost recovery | — | 1.6 | 1.6 | (18.1 | ) | — | (18.1 | ) | ||||||||||||||||||||||||||||||||||||
Investment tax credits | (11.0 | ) | — | (11.0 | ) | (12.0 | ) | — | (12.0 | ) | (8.2 | ) | — | (8.2 | ) | (9.0 | ) | — | (9.0 | ) | ||||||||||||||||||||||||
Net operating losses carryforward - state | (9.2 | ) | — | (9.2 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||
Federal credit carryforward | (11.2 | ) | — | (11.2 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||
Customer advances | (12.8 | ) | — | (12.8 | ) | (12.7 | ) | — | (12.7 | ) | (14.6 | ) | — | (14.6 | ) | (13.6 | ) | — | (13.6 | ) | ||||||||||||||||||||||||
Net operating losses carryforward - federal | (15.4 | ) | — | (15.4 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||
Other | (20.6 | ) | 21.4 | 0.8 | (17.8 | ) | 22.7 | 4.9 | (13.0 | ) | 23.8 | 10.8 | (8.2 | ) | 13.0 | 4.8 | ||||||||||||||||||||||||||||
| ($53.0 | ) | $ | 301.9 | $ | 248.9 | ($70.8 | ) | $ | 288.4 | $ | 217.6 | $ | (71.6 | ) | $ | 537.7 | $ | 466.1 | $ | (48.9 | ) | $ | 357.3 | $ | 308.4 | |||||||||||||||||||
| 2006 | 2005 | 2009 | 2008 | |||||||||||||||||||||||||||||||||||||||||
Other current assets | ($6.6 | ) | ($7.2 | ) | $ | (24.7 | ) | $ | (20.9 | ) | ||||||||||||||||||||||||||||||||||
Deferred income taxes | 255.5 | 224.8 | 490.8 | 329.3 | ||||||||||||||||||||||||||||||||||||||||
Total deferred tax (assets) and liabilities | $ | 248.9 | $ | 217.6 | $ | 466.1 | $ | 308.4 | ||||||||||||||||||||||||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Property -The increases in deferred tax liabilities during 2009 were primarily due to additional temporary differences resulting from bonus tax depreciation deductions eligible for assets placed in service in 2009 under the American Recovery and Reinvestment Act of 2009 and a recent change in method of accounting for tax purposes related to repair expenditures. The change in tax method of accounting for repairs expenditures allows a current tax deduction for certain repair expenditures that are capitalized for book purposes and was included in the federal and state income tax returns for calendar year 2008 filed in the second half of 2009.
Income Tax Refunds Receivable - In 2009, “Income tax refunds receivable” on the Consolidated Balance Sheets increased $73 million primarily due to tax deductions for repair expenditures discussed above and current deductions from bonus tax depreciation in 2009.
Uncertain Tax Positions - WPL adopted new authoritative guidance related to accounting for uncertainty in income taxes on Jan. 1, 2007. WPL’s cumulative effect of the adoption was an increase in its net liability for uncertain tax positions and a reduction to its Jan. 1, 2007 balance of retained earnings of $0.8 million.
A reconciliation of the beginning and ending amounts of uncertain tax positions, excluding interest, for WPL for 2009, 2008 and 2007 is as follows (in millions):
| 2009 | 2008 | 2007 | ||||||||||
Balance, Jan. 1 | $ | 2.5 | $ | 2.4 | $ | 2.4 | ||||||
Additions based on tax positions related to the current year | 2.5 | 0.4 | 0.1 | |||||||||
Reductions based on tax positions related to the current year | — | — | — | |||||||||
Additions for tax positions of prior years (a) | 37.3 | 2.5 | — | |||||||||
Reductions for tax positions of prior years | �� | (0.2 | ) | (0.3 | ) | (0.1 | ) | |||||
Settlements with taxing authorities | — | (2.5 | ) | — | ||||||||
Lapse of statute of limitations | — | — | — | |||||||||
Balance, Dec. 31 | $ | 42.1 | $ | 2.5 | $ | 2.4 | ||||||
| (a) | The additions of tax positions of prior years were primarily related to positions taken by WPL on its federal and state tax returns related to the capitalization and dispositions of property. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Dec. 31, 2009 | Dec. 31, 2008 | Dec. 31, 2007 | |||||||
Tax positions favorably impacting future effective tax rates | $ | 1.4 | $ | 1.7 | $ | 1.5 | |||
Interest accrued | 2.1 | 0.3 | 0.5 | ||||||
Penalties accrued | — | — | — | ||||||
Open tax years -Tax years that remain subject to examination by major jurisdictions are as follows:
| ||
| Consolidated Federal income tax returns | 2005-2008 | |
| Wisconsin income tax returns | 2005-2008 |
Reasonably possible changes to uncertain tax positions in 2010 -In 2010, statutes of limitations will expire for WPL’s tax returns in multiple state jurisdictions. The impact of the statutes of limitations expiring is not anticipated to be material. In addition, it is anticipated that Alliant Energy will finalize its U.S. federal income tax audit for calendars years 2005 through 2008 in 2010 except for the audit of the repairs expenditure change in method of tax accounting. The federal income tax return for calendar year 2009 is part of the Compliance Assurance Program of the Internal Revenue Service (IRS) and as a result, the audit of such return is anticipated to be completed by the end of 2010. Based on the anticipated timing of completing these audits, WPL recognized $5 million in “Accrued taxes” on the Consolidated Balance Sheets for the expected resolution of a portion of its uncertain tax positions in 2010 primarily related to the capitalization and dispositions of property.
Other Income Tax Matters - Alliant Energy files a consolidated federal income tax return, which includes the aggregate taxable income or loss of Alliant Energy and its subsidiaries. In addition, a combined return including Alliant Energy and all of its subsidiaries will be filed in Wisconsin beginning with the tax return for calendar year 2009. Under the terms of a tax sharing agreement signed in 2009 between Alliant Energy and its subsidiaries, the subsidiaries now calculate state income tax using consolidated apportionment rates applied to separate company taxable income. Prior to 2009, WPL calculated income tax provisions using the separate return methodology. Separate return amounts prior to 2009 were adjusted for state apportionment benefits, net of federal tax with any difference between the separate return methodology and the actual consolidated return allocated as prescribed in the prior tax allocation agreement. In 2009, 2008 and 2007, WPL’s foreign sources of income were not material.
(6) BENEFIT PLANS
(a) Pension Plans and Other Postretirement Benefits Plans - - SubstantiallyWPL provides retirement benefits to substantially all of WPL’sits employees are covered bythrough various non-contributory defined benefit pension plans.plans and a defined contribution plan (401(k) savings plan). Benefits of the non-contributory defined benefit pension plans are based on the employees’plan participant’s years of service, age and compensation. Benefits of the defined contribution plan are based on the plan participant’s years of service, age, compensation and contributions. WPL also provides certain defined benefit postretirement health care and life benefits to eligible retirees. In general, the health care plans are contributory with participants’ contributions adjusted regularly and the life insurance plans are non-contributory.
Assumptions - The assumptions for WPL’s qualified defined benefit pension and other postretirement benefits plans at the measurement datedates of Dec. 31, 2009, Dec. 31, 2008 and Sep. 30, 2007 were as follows (Not Applicable (N/A=Not Applicable)A)):
| Qualified Pension Benefits | Other Postretirement Benefits | Qualified Defined Benefit Pension Plan | Other Postretirement Benefits Plans | |||||||||||||||||||||||||||||||||
| 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||
Discount rate for benefit obligations | 5.85 | % | 5.5 | % | 6 | % | 5.85 | % | 5.5 | % | 6 | % | 5.8 | % | 6.15 | % | 6.2 | % | 5.55 | % | 6.15 | % | 6.2 | % | ||||||||||||
Discount rate for net periodic cost | 5.5 | % | 6 | % | 6 | % | 5.5 | % | 6 | % | 6 | % | 6.15 | % | 6.2 | % | 5.85 | % | 6.15 | % | 6.2 | % | 5.85 | % | ||||||||||||
Expected return on plan assets | 8.5 | % | 9 | % | 9 | % | 8.5 | % | 9 | % | 9 | % | ||||||||||||||||||||||||
Expected rate of return on plan assets | 8.25 | % | 8.5 | % | 8.5 | % | 8.25 | % | 8.5 | % | 8.5 | % | ||||||||||||||||||||||||
Rate of compensation increase | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | 3.5 | % | ||||||||||||
Medical cost trend on covered charges: | ||||||||||||||||||||||||||||||||||||
Initial trend rate | N/A | N/A | N/A | 9 | % | 9 | % | 10 | % | N/A | N/A | N/A | 7.5 | % | 8 | % | 8 | % | ||||||||||||||||||
Ultimate trend rate | N/A | N/A | N/A | 5 | % | 5 | % | 5 | % | N/A | N/A | N/A | 5 | % | 5 | % | 5 | % | ||||||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Expected rate of return on plan assets -The expected rate of return on plan assets is determined by analysis of forecastedprojected asset class returns as well as actualbased on the target asset class allocations. WPL uses a portfolio return simulator and also reviews historical returns, for the plan over the past 10 years. An adjustmentsurvey information and capital market information to the returns to account for active management of the assets is also made in the analysis. The obligations are viewed as long-term commitments. A long-term approach is also used when determiningsupport the expected rate of return on plan assets assumption. Refer to “Investment Policy and Strategy for Plan Assets” below for additional information related to WPL’s investment policy and strategy and mix of assets for the pension and other postretirement benefits plans.
Medical cost trend on covered charges -The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to other postretirement benefits costs. A 1% change in the medical trend rates for 2009, holding all other assumptions constant, would have the following effects (in millions):
| 1% Increase | 1% Decrease | ||||||
Effect on total of service and interest cost components | $ | 0.5 | $ | (0.5 | ) | ||
Effect on postretirement benefit obligation | 4.5 | (4.7 | ) | ||||
Measurement dates -In September 2006, the FASB issued authoritative guidance requiring an employer to measure benefit plan assets and obligations as of the end of its fiscal year. WPL adopted this guidance in 2008 and changed its measurement date from Sep. 30 to Dec. 31, which is reviewed on an annual basis.
Net Periodic Benefit Costs - The components of WPL’s net periodic benefit costs for its qualified defined benefit pension benefits and other postretirement benefits costsplans were as follows (in millions):
| Qualified Pension Benefits | Other Postretirement Benefits | Qualified Defined Benefit Pension Plan | Other Postretirement Benefits Plans | |||||||||||||||||||||||||||||||||||||||||||||
| 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||||||
Service cost | $ | 6.1 | $ | 5.3 | $ | 5.0 | $ | 4.2 | $ | 4.4 | $ | 4.0 | $ | 4.9 | $ | 5.3 | $ | 5.6 | $ | 3.4 | $ | 3.3 | $ | 3.3 | ||||||||||||||||||||||||
Interest cost | 13.2 | 12.2 | 11.2 | 5.4 | 6.3 | 5.4 | 15.5 | 15.0 | 13.7 | 5.5 | 5.5 | 5.2 | ||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (17.9 | ) | (17.0 | ) | (15.9 | ) | (1.8 | ) | (1.8 | ) | (1.7 | ) | (14.1 | ) | (21.4 | ) | (19.2 | ) | (1.1 | ) | (1.9 | ) | (1.8 | ) | ||||||||||||||||||||||||
Amortization of (a): | ||||||||||||||||||||||||||||||||||||||||||||||||
Transition obligation | — | — | — | 0.8 | 1.1 | 1.1 | ||||||||||||||||||||||||||||||||||||||||||
Amortization of (b): | ||||||||||||||||||||||||||||||||||||||||||||||||
Prior service cost (credit) | 0.8 | 0.8 | 0.6 | (0.1 | ) | — | — | 0.5 | 0.8 | 0.8 | (0.9 | ) | (1.0 | ) | (1.0 | ) | ||||||||||||||||||||||||||||||||
Actuarial loss | 4.5 | 3.4 | 3.0 | 1.2 | 2.4 | 1.4 | 10.4 | 1.0 | 2.9 | 1.3 | 1.0 | 1.1 | ||||||||||||||||||||||||||||||||||||
Special termination benefits | — | — | — | — | 0.1 | — | ||||||||||||||||||||||||||||||||||||||||||
Income statement impacts | 6.7 | 4.7 | 3.9 | 9.7 | 12.5 | 10.2 | ||||||||||||||||||||||||||||||||||||||||||
Special termination benefits | — | — | — | — | 1.0 | — | ||||||||||||||||||||||||||||||||||||||||||
Curtailment loss (c) | 0.7 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Special termination benefits costs (d) | 0.9 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| $ | 6.7 | $ | 4.7 | $ | 3.9 | $ | 9.7 | $ | 13.5 | $ | 10.2 | $ | 18.8 | $ | 0.7 | $ | 3.8 | $ | 8.2 | $ | 6.9 | $ | 6.8 | |||||||||||||||||||||||||
| (a) | The expected return on plan assets is based on the expected rate of return on plan assets and the fair value approach to the market-related value of plan assets. |
| (b) | Unrecognized net actuarial losses in excess of 10% of the projected benefit obligation and unrecognized prior service costs (credits) are amortized over the average future service lives of the |
| (c) | In 2007, members of the International Brotherhood of Electrical Workers Local 965 ratified a four-year collective bargaining agreement reached with WPL, resulting in changes to WPL’s qualified pension plan (Plan). One of these changes provided Plan participants a one-time option to cease participating in the Plan and begin participating in the Alliant Energy 401(k) Savings Plan with increased levels of contribution by Alliant Energy. The election of this option did not impact a participant’s eligibility for benefits previously vested under the Plan. In 2009, certain of these employees elected to cease participating in the Plan, resulting in WPL recognizing a one-time curtailment loss related to |
| (d) | In 2009, WPL recognized special termination benefits |
WPL’s net periodic benefit cost is primarily included in “Other operation and maintenance” in the Consolidated Statements of Income.
In the above table, the qualified defined benefit pension benefitsplan costs represent only those respective costs for bargaining unit employees of WPL covered under the bargaining unit pension plan that is sponsored by WPL. The other postretirement benefits costs represent costs for all WPL employees. Corporate Services provides services to WPL.WPL, and as a result, WPL is allocated pension and other postretirement benefits costs associated with Corporate Services. The following table includes qualified pension benefits costs (credits) for WPL’s non-bargaining employees who are participants in other Alliant Energy plans, and the allocated pension and other postretirement benefits costs associated with Corporate Services for WPL as follows (Not Applicable (N/A); in millions):
| Pension Benefits Costs (Credits) | Other Postretirement Benefits Costs | |||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||
Non-bargaining WPL employees participating in other plans | $ | 3.4 | $ | (2.9 | ) | $ | (0.8 | ) | N/A | N/A | N/A | |||||||||
Allocated Corporate Services costs | 1.1 | 0.7 | 2.8 | $ | 1.2 | $ | 1.0 | $ | 0.8 | |||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Alliant Energy sponsors several non-qualified defined benefit pension plans that cover certain current and former key employees. In 2009, 2008 and 2007, the pension expense allocated to WPL for these plans was $2.1 million, $2.0 million and $2.7 million, respectively. Included for 2007 was the settlement loss of $0.8 million related to payments made to a retired executive.
The estimated amortization from “Regulatory assets” on the Consolidated Balance Sheet into net periodic benefit cost in 2010 is as follows (in millions):
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||
| 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||
Non-bargaining WPL employees participating in other plans | $ | 0.9 | $ | 0.8 | $ | 0.5 | N/A | N/A | N/A | |||||||||
Allocated Corporate Services costs | 2.2 | 2.2 | 2.1 | $ | 1.3 | $ | 2.9 | $ | 1.6 | |||||||||
| Qualified Defined Benefit Pension Plan | Other Postretirement Benefits Plans | ||||||
Actuarial loss | $ | 8.5 | $ | 2.0 | |||
Prior service cost (credit) | 0.5 | (0.9 | ) | ||||
| $ | 9.0 | $ | 1.1 | ||||
The assumed medical trend rates are critical assumptions in determiningIn addition to the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefits costs. A 1% changeestimated amortizations from “Regulatory assets” in the medical trend rates for 2006, holding all other assumptions constant, would haveabove table, $4 million of amortizations are expected in 2010 from “Regulatory assets” associated with Corporate Services employees participating in Alliant Energy sponsored plans allocated to WPL.
WPL’s net periodic benefit costs are primarily included in “Other operation and maintenance” in the following effects (in millions):Consolidated Statements of Income.
| 1% Increase | 1% Decrease | |||||
Effect on total of service and interest cost components | $ | 0.8 | ($0.7 | ) | ||
Effect on postretirement benefit obligation | $ | 5.1 | ($5.1 | ) | ||
Benefit Plan Assets and Obligations - The benefit obligationsplan assets and assetsobligations associated with WPL’s non-bargaining employees who are participants in other Alliant Energy plans are reported in Alliant Energy’s Consolidated Financial Statements and are not reported in the following tables. A reconciliation of the funded status of WPL’s qualified defined benefit pension benefits and other postretirement benefits plans to the amounts recognized on the Consolidated Balance Sheets at Dec. 31 was as follows (in millions):
| Qualified Pension Benefits | Other Postretirement | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
Change in projected benefit obligation: | ||||||||||||||||
Net projected benefit obligation at beginning of year | $ | 237.3 | $ | 202.5 | $ | 98.3 | $ | 105.3 | ||||||||
Service cost | 6.1 | 5.3 | 4.2 | 4.4 | ||||||||||||
Interest cost | 13.2 | 12.2 | 5.4 | 6.3 | ||||||||||||
Plan participants’ contributions | — | — | 1.9 | 1.8 | ||||||||||||
Plan amendments | — | — | (12.2 | ) | — | |||||||||||
Actuarial (gain) loss | (15.0 | ) | 24.9 | (1.1 | ) | (12.7 | ) | |||||||||
Special termination benefits | — | — | — | 1.1 | ||||||||||||
Gross benefits paid | (8.2 | ) | (7.6 | ) | (7.9 | ) | (7.9 | ) | ||||||||
Federal subsidy on other postretirement benefits paid | — | — | 0.4 | — | ||||||||||||
Net projected benefit obligation at measurement date | 233.4 | 237.3 | 89.0 | 98.3 | ||||||||||||
Change in plan assets (a): | ||||||||||||||||
Fair value of plan assets at beginning of year | 214.7 | 192.9 | 20.6 | 20.7 | ||||||||||||
Actual return on plan assets | 18.8 | 22.4 | 1.6 | 1.9 | ||||||||||||
Employer contributions | — | 7.0 | 5.3 | 4.1 | ||||||||||||
Plan participants’ contributions | — | — | 1.9 | 1.8 | ||||||||||||
Gross benefits paid | (8.2 | ) | (7.6 | ) | (7.9 | ) | (7.9 | ) | ||||||||
Fair value of plan assets at measurement date | 225.3 | 214.7 | 21.5 | 20.6 | ||||||||||||
Funded status at measurement date | (8.1 | ) | (22.6 | ) | (67.5 | ) | (77.7 | ) | ||||||||
Unrecognized net actuarial loss (b) | n/a | 78.1 | n/a | 21.3 | ||||||||||||
Unrecognized prior service cost (credit) (b) | n/a | 7.3 | n/a | (0.1 | ) | |||||||||||
Unrecognized net transition obligation (b) | n/a | — | n/a | 8.0 | ||||||||||||
Net amount recognized at measurement date | (8.1 | ) | 62.8 | (67.5 | ) | (48.5 | ) | |||||||||
Contributions paid after Sep. 30 and prior to Dec. 31 | 6.0 | — | 2.2 | 1.7 | ||||||||||||
Federal subsidy on other postretirement benefits paid | — | — | (0.2 | ) | — | |||||||||||
Net amount recognized at Dec. 31 | ($2.1 | ) | $ | 62.8 | ($65.5 | ) | ($ | 46.8 | ) | |||||||
Amounts recognized on the Consolidated Balance Sheets consist of: | ||||||||||||||||
Prepaid pension costs (c) | n/a | $ | 62.8 | n/a | $ | 1.8 | ||||||||||
Accrued benefit cost (c) | n/a | — | n/a | (48.6 | ) | |||||||||||
Deferred charges and other | $ | — | n/a | $ | 2.3 | n/a | ||||||||||
Other current liabilities | — | n/a | (5.8 | ) | n/a | |||||||||||
Pension and other benefit obligations | (2.1 | ) | n/a | (62.0 | ) | n/a | ||||||||||
Net amount recognized at Dec. 31 | ($2.1 | ) | $ | 62.8 | ($65.5 | ) | ($ | 46.8 | ) | |||||||
Amounts recognized in Regulatory Assets and Accumulated Other Comprehensive Loss (AOCL) consist of: | ||||||||||||||||
Net actuarial loss | $ | 57.7 | n/a | $ | 19.4 | n/a | ||||||||||
Prior service cost (credit) | 6.5 | n/a | (5.2 | ) | n/a | |||||||||||
| $ | 64.2 | n/a | $ | 14.2 | n/a | |||||||||||
| Qualified Defined Benefit Pension Plan | Other Postretirement Benefits Plans | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Change in projected benefit obligation: | ||||||||||||||||
Net projected benefit obligation at measurement date | $ | 252.9 | $ | 238.6 | $ | 89.3 | $ | 87.7 | ||||||||
Effect of change from Sep. 30 to Dec. 31 measurement date | — | 2.8 | — | 0.4 | ||||||||||||
Service cost | 4.9 | 5.3 | 3.4 | 3.3 | ||||||||||||
Interest cost | 15.5 | 15.0 | 5.5 | 5.5 | ||||||||||||
Plan participants’ contributions | — | — | 2.9 | 3.0 | ||||||||||||
Actuarial (gain) loss | 7.5 | 0.7 | 7.9 | (0.1 | ) | |||||||||||
Gross benefits paid | (10.1 | ) | (9.5 | ) | (10.4 | ) | (11.0 | ) | ||||||||
Federal subsidy on other postretirement benefits paid | — | — | 0.5 | 0.5 | ||||||||||||
Special termination benefits | 0.9 | — | — | — | ||||||||||||
Net projected benefit obligation at Dec. 31 | 271.6 | 252.9 | 99.1 | 89.3 | ||||||||||||
Change in plan assets: | ||||||||||||||||
Fair value of plan assets at measurement date | 164.6 | 253.3 | 14.6 | 20.9 | ||||||||||||
Effect of change from Sep. 30 to Dec. 31 measurement date | — | 3.0 | — | 0.1 | ||||||||||||
Actual return on plan assets | 39.7 | (82.2 | ) | 3.2 | (5.9 | ) | ||||||||||
Employer contributions | 42.4 | — | 8.5 | 7.5 | ||||||||||||
Plan participants’ contributions | — | — | 2.9 | 3.0 | ||||||||||||
Gross benefits paid | (10.1 | ) | (9.5 | ) | (10.4 | ) | (11.0 | ) | ||||||||
Fair value of plan assets at Dec. 31 | 236.6 | 164.6 | 18.8 | 14.6 | ||||||||||||
Under funded status at Dec. 31 | $ | (35.0 | ) | $ | (88.3 | ) | $ | (80.3 | ) | $ | (74.7 | ) | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Qualified Defined Benefit Pension Plan | Other Postretirement Benefits Plans | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
Amounts recognized on the Consolidated Balance Sheets consist of: | ||||||||||||||||
Other current liabilities | $ | — | $ | — | $ | (3.5 | ) | $ | (4.5 | ) | ||||||
Pension and other benefit obligations | (35.0 | ) | (88.3 | ) | (76.8 | ) | (70.2 | ) | ||||||||
Net amount recognized at Dec. 31 | $ | (35.0 | ) | $ | (88.3 | ) | $ | (80.3 | ) | $ | (74.7 | ) | ||||
Amounts recognized in Regulatory Assets (a): | ||||||||||||||||
Net actuarial loss | $ | 112.5 | $ | 140.9 | $ | 28.6 | $ | 23.7 | ||||||||
Prior service cost (credit) | 3.4 | 4.7 | (1.7 | ) | (2.6 | ) | ||||||||||
| $ | 115.9 | $ | 145.6 | $ | 26.9 | $ | 21.1 | |||||||||
| (a) |
Refer to Note 1(b) of the “Notes to Consolidated Financial Statements” for discussion of regulatory authorizations which allow WPL to record the retail portion of its previously unrecognized net actuarial loss, prior service costs and credits, and
transition assets and obligations in “Regulatory assets” in lieu of “Accumulated other comprehensive loss” on its Consolidated Balance Sheets.
In addition to the amounts recognized in “Regulatory assets” and “AOCL” in the previousabove table, $79 million and $100 million of “Regulatory assets” were recognized for amounts associated with Corporate Services employees participating in Alliant Energy sponsored benefit plans that were allocated to WPL at Dec. 31, 20062009 and 2005, Corporate Services allocated Regulatory Assets and AOCL of $48 million and $51 million, respectively, to WPL.2008, respectively.
The incremental effect of applying SFAS 158 on individual line items on the Consolidated Balance Sheet at Dec. 31, 2006 was as follows (in millions):
| Before Application of SFAS 158 | Increase (Decrease) | After Application of SFAS 158 | |||||||||
Long-term pension and other benefit assets (a) | $ | 78.9 | ($67.1 | ) | $ | 11.8 | |||||
Long-term regulatory assets | 137.5 | 74.3 | 211.8 | ||||||||
Intangible assets (a) | 0.4 | (0.4 | ) | — | |||||||
Current benefit liability (b) | — | 5.8 | 5.8 | ||||||||
Long-term intercompany payable related to pension obligations (c) | 8.0 | 5.9 | 13.9 | ||||||||
Deferred income tax liabilities | 265.9 | (10.4 | ) | 255.5 | |||||||
Pension and other benefit obligations | 59.9 | 10.7 | 70.6 | ||||||||
Accumulated other comprehensive loss, before tax | (3.8 | ) | (9.4 | ) | (13.2 | ) | |||||
Accumulated other comprehensive loss, after tax | (2.3 | ) | (5.2 | ) | (7.5 | ) | |||||
Total common equity | 1,116.0 | (5.2 | ) | 1,110.8 | |||||||
Included in the following table are WPL’s accumulated benefit obligations, amounts applicable to qualified defined benefit pension and other postretirement benefits plans with accumulated benefit obligations in excess of plan assets, as well as the qualified defined benefit pension plansplan with projected benefit obligations in excess of plan assets as of the Dec. 31 measurement date of Sep. 30 (in(Not Applicable (N/A); in millions):
| Qualified Pension Benefits | Other Postretirement Benefits | Qualified Defined Benefit Pension Plan | Other Postretirement Benefits Plans | |||||||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
Accumulated benefit obligation | $ | 212.7 | $ | 211.7 | $ | 89.0 | $ | 98.3 | ||||||||||||||||
Accumulated benefit obligations | $ | 253.2 | $ | 230.1 | $ | 99.1 | $ | 89.3 | ||||||||||||||||
Plans with accumulated benefit obligations in excess of plan assets: | ||||||||||||||||||||||||
Accumulated benefit obligations | — | — | 88.2 | 96.9 | 253.2 | 230.1 | 99.1 | 89.3 | ||||||||||||||||
Fair value of plan assets | — | — | 17.9 | 17.1 | 236.6 | 164.6 | 18.8 | 14.6 | ||||||||||||||||
Plans with projected benefit obligations in excess of plan assets: | ||||||||||||||||||||||||
Projected benefit obligations | 233.4 | 237.3 | N/A | N/A | 271.6 | 252.9 | N/A | N/A | ||||||||||||||||
Fair value of plan assets | 225.3 | 214.7 | N/A | N/A | 236.6 | 164.6 | N/A | N/A | ||||||||||||||||
Postretirement benefit plans are funded via specific assets within certain retirement plans (401(h) assets) as well as a Voluntary Employees’ Beneficiary Association (VEBA) trust. The asset allocation of the 401(h) assets mirrorEstimated Future Employer Contributions and Benefit Payments - WPL estimates that funding for the qualified defined benefit pension plan assets and the asset allocation of the VEBA trust are reflected in the following table under “Other Postretirement Benefits Plans.” The asset allocation for WPL’s qualified pensionits bargaining unit employees and other postretirement benefits plans at Sep. 30, 2006during 2010 will be $0 and 2005,$9 million, respectively.
The expected benefit payments and the qualified pension plan target allocation for 2006 wereMedicare subsidies, which reflect expected future service, as follows:appropriate, are as follows (in millions):
| Qualified Pension Plan | Other Postretirement Benefits Plans | ||||||||||||||
| Target Allocation | Percentage of Plan Assets at Sep. 30, | Percentage of Plan Assets at Sep. 30, | |||||||||||||
Asset Category | 2006 | 2006 | 2005 | 2006 | 2005 | ||||||||||
Equity securities | 65-75 | % | 73 | % | 72 | % | 57 | % | 63 | % | |||||
Debt securities | 20-35 | % | 27 | % | 28 | % | 23 | % | 18 | % | |||||
Other | 0-5 | % | — | — | 20 | % | 19 | % | |||||||
| 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 - 2019 | |||||||||||||||||||
Pension benefits | $ | 10.5 | $ | 11.0 | $ | 11.8 | $ | 12.7 | $ | 13.9 | $ | 89.6 | ||||||||||||
Other postretirement benefits | 7.3 | 7.4 | 7.4 | 7.5 | 8.0 | 46.3 | ||||||||||||||||||
Medicare subsidies | (0.5 | ) | (0.6 | ) | (0.6 | ) | (0.7 | ) | (0.8 | ) | (4.8 | ) | ||||||||||||
| $ | 17.3 | $ | 17.8 | $ | 18.6 | $ | 19.5 | $ | 21.1 | $ | 131.1 | |||||||||||||
WPL’s plan assets are managed by outside investment managers. Investment Policy and Strategy for Plan Assets -WPL’s investment strategy and its policies employed with respect to assets of defined benefit pension and other postretirement benefits assets isplans are to combine both preservation of principal and prudent and reasonable risk-taking to protect the integrity of theplan assets, in meetingorder to meet the obligations to theplan participants while achieving the optimal return possible over the long-term.long-term to minimize benefit costs. It is recognized that risk and volatility are present to some degree with all types of investments; however, high levels of risk are minimized at the total fund level. This is accomplished through diversification by asset class including both U.S. and international equity exposure,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the number of individual investments, and sector and industry limits when applicable. WPL believes that any risk associated with the various plan assets is minimized by this diversification. WPL also uses an overlay management service to help maintain target allocations, liquidity needs and intended exposures to the plan assets. The overlay manager is authorized to use derivative financial instruments to facilitate this service.
For theassets of defined benefit pension plans, the mix among asset classes is controlled by long-term asset allocation targets. The assets are viewed as long-term with moderate liquidity needs. Historical performance results and future expectations suggest that equity securities will provide higher total investment returns than debt securities over a long-term investment horizon. Consistent with the goals to maximizeof maximizing returns and minimize riskminimizing risks over the long-term, the defined benefit pension plans have a long-term investment posture more heavily weighted towards equity holdings. The current target range allocations for defined benefit pension plan assets are 60-80% equity securities and 20-40% fixed income securities. Equity holdings include investments in large-cap (26-52% target range), small-cap (0-10% target range) and international securities (12-30% target range). Fixed income holdings include corporate bonds, government and government agency obligations and fixed income funds. The asset allocation mix is monitored quarterlyregularly and appropriate action is taken as needed to rebalance the assets within the prescribed range. Assets relatedProhibited investment vehicles include, but may not be limited to, direct ownership of real estate, options and futures (unless specifically approved as is the case of the overlay manager), margin trading, oil and gas limited partnerships, commodities, short selling and securities of the managers’ firms or affiliate firms.
Other postretirement benefits plans assets are comprised of specific assets within certain defined benefit pension plans (401(h) assets) as well as assets held in Voluntary Employees’ Beneficiary Association (VEBA) trusts. The investment policy and strategy of the 401(h) assets mirrors those of the defined benefit pension plans, which is discussed above. The assets in the VEBA trusts are viewed as long-term. A mix of both equity and debt securities are utilized to maximize returns and minimize risk over the long-term. ProhibitedEquity holdings within the VEBA trusts include investments in large-cap, mid-cap and small-cap securities. Fixed income holdings within the VEBA trusts include corporate bonds, government and agency obligations and fixed income funds. There are no specific target allocations for the VEBA trusts as a whole. Separate investment vehicles relatedguidelines have been established for the VEBA trusts, which are actively managed. At Dec. 31, 2009, the other postretirement benefits plan assets consisted of 52% equity securities and 22% fixed income securities.
Securities Lending Program - WPL has a securities lending program with the trustee that allows the trustee to thelend certain securities from WPL’s qualified defined benefit pension and other postretirement benefits plans include, but may not be limited to direct ownershipselected entities against receipt of real estate, optionscollateral (in the form of cash, government securities or letters of credit) as provided for and futures unless specifically approved, margin trading, oildetermined in accordance with its securities loan agreement. Initial collateral levels are no less than 102% and gas limited partnerships, commodities, short selling and securities105% of the managers’ firms or affiliate firms.
WPL estimates that fundingmarket value of the borrowed securities for collateral denominated in U.S. and foreign currency, respectively. At Dec. 31, 2009, the fair value of the invested collateral and the amount due to borrowers for the qualified pension plan for the bargaining unit and other postretirement benefits plans during 2007 will be $0 and $6.6 million, respectively.
The expected benefit payments and Medicare subsidies, which reflect expected future service, as appropriate, aresecurities lending program was as follows (in millions):
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 - 2016 | |||||||||||||||||||
Pension benefits | $ | 8.6 | $ | 8.7 | $ | 8.9 | $ | 9.4 | $ | 10.3 | $ | 69.0 | ||||||||||||
Other benefits | 7.1 | 7.6 | 7.9 | 7.3 | 7.6 | 45.2 | ||||||||||||||||||
Medicare subsidies | (0.6 | ) | (0.6 | ) | (0.6 | ) | (0.6 | ) | (0.6 | ) | (3.7 | ) | ||||||||||||
| $ | 15.1 | $ | 15.7 | $ | 16.2 | $ | 16.1 | $ | 17.3 | $ | 110.5 | |||||||||||||
| Defined Benefit Pension Plans | Other Postretirement Benefits Plans | |||||
Fair value of invested collateral | $ | 7.6 | $ | 0.2 | ||
Amount due to borrowers | 10.0 | 0.3 | ||||
Fair Value Measurements -The estimated amortizationfollowing tables report a framework for measuring fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:
Level 1 - Pricing inputs are unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date. WPL’s investments in registered investment companies and common and preferred stocks are valued at the closing price reported in the active market in which the individual securities are traded. Level 1 plan assets also include interest-bearing cash, which is held in money market accounts managed by an affiliate of the trustee.
Level 2 - Pricing inputs are quoted prices for similar asset or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from “Regulatory assets”or corroborated by observable market data by correlation or other means. WPL’s investments in corporate bonds and “Accumulated other comprehensive loss”government and agency obligations are valued at the closing price reported in the active market for similar assets in which the individual securities are traded or based on yields currently available on comparable securities of issuers with similar credit ratings. WPL’s investments in common/collective trusts are valued at the net asset value of shares held by the plans, which is based on the Consolidated Balance Sheets into net periodic benefit costfair market value of the underlying investments in 2007 are as follows (in millions):equity and fixed income securities of the common/collective trusts. Level 2 plan assets also consist of asset backed securities, certificates of deposit, commercial paper and repurchase agreements within its securities lending invested collateral.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Qualified Pension Benefits | Other Postretirement Benefits | ||||||
Actuarial loss | $ | 2.9 | $ | 1.1 | |||
Prior service cost (credit) | 0.8 | (1.0 | ) | ||||
| $ | 3.7 | $ | 0.1 | ||||
Level 3 - Pricing inputs are unobservable inputs for assets or liabilities for which little or no market data exist and require significant management judgment or estimation. WPL’s Level 3 plan assets include certain asset backed securities and corporate bonds within its securities lending invested collateral.
The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In 2004, WPL adopted FASB Staff Position No. SFAS (FSP) 106-2, “Accounting and Disclosure Requirements Relatedsome cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the Medicare Prescription Drug, Improvement and Modernization Actfair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.
The methods described above may produce a fair value calculation that may not be indicative of 2003.” In 2005, the U.S. Departmentnet realizable value or reflective of Health and Human Services (Centers for Medicare & Medicaid Services) published regulations regarding actuarial equivalence.future fair values. Furthermore, while WPL believes thatits valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a substantial portiondifferent fair value measurement at the reporting date.
At Dec. 31, 2009, the fair values of its postretirement medical plans will be actuarially equivalent to the Medicare Prescription Drug Plan. WPL anticipates continuing its current prescription drug coverage for currently covered retireesWPL’s qualified defined benefit pension plan assets by asset category and therefore should be eligible for the subsidy available from Medicare. As a result of the adoption of FSP 106-2, the estimated reductions in WPL’s accumulated projected benefit obligation and other postretirement benefits costsfair value hierarchy level were as follows (in millions):
| 2006 | 2005 | 2004 | |||||||
Accumulated projected benefit obligation | $ | 14.4 | $ | 13.9 | $ | 6.8 | |||
Other postretirement benefits costs | 2.1 | 2.1 | 1.0 | ||||||
| Fair Value Measurements at Dec. 31, 2009 | Level 1 | Level 2 | Level 3 | ||||||||||
Cash and equivalents | $ | 11.0 | $ | 11.0 | $ | — | $ | — | |||||
Equity securities: | |||||||||||||
U.S. large cap core | 31.8 | 31.8 | — | — | |||||||||
U.S. large cap value | 26.6 | — | 26.6 | — | |||||||||
U.S. large cap growth | 26.4 | — | 26.4 | — | |||||||||
U.S. small cap value | 7.1 | — | 7.1 | — | |||||||||
U.S. small cap growth | 4.2 | 4.2 | — | — | |||||||||
International - developed markets | 39.9 | 20.8 | 19.1 | — | |||||||||
International - emerging markets | 12.0 | 12.0 | — | — | |||||||||
Fixed income securities: | |||||||||||||
Corporate bonds | 18.9 | — | 18.9 | — | |||||||||
Government and agency obligations | 21.6 | — | 21.6 | — | |||||||||
Fixed income funds | 40.0 | 0.5 | 39.5 | — | |||||||||
Securities lending invested collateral | 7.6 | 2.0 | 4.6 | 1.0 | |||||||||
| 247.1 | $ | 82.3 | $ | 163.8 | $ | 1.0 | |||||||
Accrued investment income | 0.5 | ||||||||||||
Due to brokers, net (a) | (1.0 | ) | |||||||||||
Due to borrowers for securities lending program | (10.0 | ) | |||||||||||
Total pension plan assets | $ | 236.6 | |||||||||||
Alliant Energy sponsors several non-qualified pension plans that cover certain current and former key employees. In 2006, 2005 and 2004, the pension expense allocated to WPL
| (a) | This category represents pending trades with brokers. |
Additional information for these plans was $2.1 million, $1.9 million and $1.8 million, respectively. A significant number of WPL employees also participate in aWPL’s qualified defined contributionbenefit pension plan (401(k) plan).assets fair value measurements using significant unobservable inputs (Level 3 inputs) for 2009 is as follows (in millions):
| Securities Lending Invested Collateral | ||||
Beginning balance, Jan. 1, 2009 | $ | 2.2 | ||
Actual return on plan assets: | ||||
Relating to assets still held at the reporting date | (0.1 | ) | ||
Relating to assets sold during the period | 0.1 | |||
Purchases, sales and settlements, net | (1.3 | ) | ||
Transfers in and/or out of Level 3 | 0.1 | |||
Ending balance, Dec. 31, 2009 | $ | 1.0 | ||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At Dec. 31, 2009, the fair value of WPL’s contributions toother postretirement benefits plans assets by asset category and fair value hierarchy level were as follows (in millions):
| Fair Value Measurements at Dec. 31, 2009 | Level 1 | Level 2 | Level 3 | ||||||||||
Cash and equivalents | $ | 5.0 | $ | 5.0 | $ | — | $ | — | |||||
Equity securities: | |||||||||||||
U.S. large cap core | 1.1 | 1.1 | — | — | |||||||||
U.S. large cap value | 0.9 | — | 0.9 | — | |||||||||
U.S. large cap growth | 0.9 | — | 0.9 | — | |||||||||
U.S. small cap core | 4.7 | 4.7 | — | — | |||||||||
U.S. small cap value | 0.2 | — | 0.2 | — | |||||||||
U.S. small cap growth | 0.1 | 0.1 | — | — | |||||||||
International - developed markets | 1.4 | 0.7 | 0.7 | — | |||||||||
International - emerging markets | 0.4 | 0.4 | — | — | |||||||||
Fixed income securities: | |||||||||||||
Corporate bonds | 1.3 | — | 1.3 | — | |||||||||
Government and agency obligations | 1.1 | — | 1.1 | — | |||||||||
Fixed income funds | 1.8 | 0.4 | 1.4 | — | |||||||||
Securities lending invested collateral | 0.2 | 0.1 | 0.1 | — | |||||||||
| 19.1 | $ | 12.5 | $ | 6.6 | $ | — | |||||||
Due to borrowers for securities lending program | (0.3 | ) | |||||||||||
Total other postretirement plan assets | $ | 18.8 | |||||||||||
Additional information for WPL’s other postretirement benefits plans assets fair value measurements using significant unobservable inputs (Level 3 inputs) for 2009 is as follows (in millions):
| Securities Lending Invested Collateral | ||||
Beginning balance, Jan. 1, 2009 | $ | 0.1 | ||
Purchases, sales and settlements, net | (0.1 | ) | ||
Ending balance, Dec. 31, 2009 | $ | — | ||
For the 401(k)various defined benefit pension and other postretirement benefits plans, Alliant Energy’s common stock represented less than 1% of total plan which are partially based on the participants’ level of contribution, were $2.5 million, $2.4 millionassets at Dec. 31, 2009 and $2.3 million in 2006, 2005 and 2004, respectively.
Cash Balance Pension Plan -Alliant Energy’s defined benefit pension plans include a cash balance plan that coversprovides benefits for substantially all of its non-bargaining unit employees, including non-bargaining unit employees of WPL. In 2006,employees. Effective August 2008, Alliant Energy announced amendments toamended the cash balance plan which include freezing plan participation at its current level andby discontinuing additional contributions into employee’semployees’ cash balance plan accountsaccounts. Also effective August 2008.2008, Alliant Energy also announced plans to increaseincreased its level of contributions to theits 401(k) plan effective in August 2008Savings Plan, which will offset the impact of discontinuing additional contributions into the employee’semployees’ cash balance plan accounts. These amendments are designed to provide employees portability and self-directed flexibility of their retirement benefits. WPL is currently assessing the future impacts of theseThese changes and doesdid not currently expect these changes will have a significant impact on its futureWPL’s results of operations. Refer to Note 12(c) for discussion of a class action lawsuit filed against the Alliant Energy Cash Balance Pension Plan in 2008 and the IRS review of the tax qualified status of the Plan.
In 2009, Alliant Energy amended the cash balance plan by changing the participants’ future interest credit formula to use the annual change in consumer price index as the interest credit. This amendment is designed to provide participants an interest crediting rate that will always be 3% more than the annual change in the cost of living.
401(k) Savings Plans -A significant number of WPL employees participate in a defined contribution retirement plan (401(k) Savings Plan). In 2009, 2008 and 2007, WPL’s contributions to the 401(k) plan, which are partially based on the participants’ level of contribution, were $4.3 million, $3.7 million and $2.5 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(b) Equity Incentive Plans - - - On Jan. 1, 2006, WPL adopted SFAS 123(R), which requires share-based payments to employees to be recognized in the financial statements based on their fair values. WPL used the modified prospective transition method for the adoption, which resulted in no changes to its financial statements for prior periods. The impacts of adoption did not have a material impact on WPL’s financial condition or results of operations. The impact to WPL in periods subsequent to the adoption of SFAS 123(R) will largely be dependent upon the nature of any new share-based compensation awards issued to employees and the achievement of certain performance and market conditions related to such awards. WPL has elected the alternative transition method described in FSP 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” to calculate its beginning pool of excess tax benefits available to absorb any tax deficiencies associated with share-based payment awards recognized in accordance with SFAS 123(R).
Alliant Energy’s 2002 Equity Incentive Plan (EIP) permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units to key employees. At Dec. 31, 2006,2009, non-qualified stock options, restricted stock and performance shares were outstanding under the EIP and a predecessor plan under which new awards can no longer be granted. At Dec. 31, 2006, approximately 3.2 million shares remained available for grants under
In February 2010, Alliant Energy’s Board of Directors adopted the EIP. Alliant Energy satisfies payouts related2010 Omnibus Incentive Plan (OIP), which permits the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, performance shares, performance units and other stock-based awards to equity awards underkey employees. The OIP would authorize issuance of 4,500,000 shares, would terminate the EIP throughand is subject to shareowner approval. If shareowners do not approve the issuance of new shares of its common stock.OIP, the EIP will remain effective.
In 2006, WPL recognized $4.5 millionA summary of share-based compensation expense related to grants under the EIP that was allocated to WPL and $1.8 million ofthe related income tax benefits. benefits recognized was as follows (in millions):
| 2009 | 2008 | 2007 | |||||||
Share-based compensation expense | $ | 1.1 | $ | 1.2 | $ | 3.6 | |||
Income tax benefits | 0.4 | 0.5 | 1.4 | ||||||
Share-based compensation expense is recognized on a straight-line basis over the requisite service periods.
(7) COMMON EQUITY AND PREFERRED STOCK
(a) Common StockEquity
Dividend Restrictions - WPL has common stock dividend payment restrictions based on the terms of its outstanding preferred stock and stateapplicable regulatory limitations applicablelimitations. At Dec. 31, 2009, WPL was in compliance with all such dividend restrictions.
WPL is restricted from paying common stock dividends to it. In its July 2005 rateparent company, Alliant Energy, if for any past or current dividend period, dividends on its preferred stock have not been paid, or declared and set apart for payment. WPL has paid all dividends on its respective preferred stock through 2009.
WPL’s most significant regulatory limitation on distributions to its parent company is included in an order issued by the PSCW statedin December 2009 that prohibits WPL may not payfrom paying annual common stock dividends including pass-through of subsidiary dividends, in excess of $92$112 million to Alliant Energy if WPL’s actual average common stock equity ratio on a financial basis, is or will fall below the test year authorized level of 53.14%51.01%. WPL’s dividends are also restricted to the extent that such dividend would reduce theWPL’s common stock equity ratio to less than 25%. AtAs of Dec. 31, 2006, 2009, WPL’s amount of retained earnings that were free of restrictions was $118 million.
Restricted Net Assets -WPL does not have regulatory authority to lend or advance any amounts to its parent company. As of Dec. 31, 2009 and 2008, the amount of WPL’s net assets that were not available to be transferred to its parent company in the form of loans, advances or cash dividends without the consent of WPL’s regulatory authorities was in compliance with all such dividend restrictions. $1.1 billion and $1.0 billion, respectively.
Capital Transactions -In its January2009, 2008 and 2007, rate order, the PSCW stated WPL may not pay annualpaid common stock dividends including pass-through of subsidiary dividends, in excess of $91 million, $91 million and $191 million, respectively, to its parent. In 2007, WPL’s common stock dividends to Alliant Energy ifincluded a $100 million dividend to realign WPL’s actual average common equity ratio, on a financial basis, is or will fall below the test year authorized levelcapital structure. In 2009, 2008 and 2007, WPL received capital contributions of 51.0%.$100 million, $100 million and $0, respectively, from its parent.
(b) Preferred Stock - TheInformation related to the carrying value of WPL’s cumulative preferred stock (none are mandatorily redeemable) at both Dec. 31 2006 and 2005, was $60 million. The fair value, based upon the market yield of similar securities and quoted market prices, at both Dec. 31, 2006 and 2005 was $54 million.as follows (dollars in millions):
Liquidation Preference/ Stated Value | Authorized Shares | Shares Outstanding | Series | Redemption | 2009 | 2008 | ||||||||||
| $100 | (a | ) | 99,970 | 4.50 | % | Any time | $ | 10.0 | $ | 10.0 | ||||||
| $100 | (a | ) | 74,912 | 4.80 | % | Any time | 7.5 | 7.5 | ||||||||
| $100 | (a | ) | 64,979 | 4.96 | % | Any time | 6.5 | 6.5 | ||||||||
| $100 | (a | ) | 29,957 | 4.40 | % | Any time | 3.0 | 3.0 | ||||||||
| $100 | (a | ) | 29,947 | 4.76 | % | Any time | 3.0 | 3.0 | ||||||||
| $100 | (a | ) | 150,000 | 6.20 | % | Any time | 15.0 | 15.0 | ||||||||
| $25 | (a | ) | 599,460 | 6.50 | % | Any time | 15.0 | 15.0 | ||||||||
| $ | 60.0 | $ | 60.0 | |||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The articles of incorporation of WPL contain a provision that grants the holders of its preferred stock voting rights to elect a majority of WPL’s Board of Directors if preferred dividends equal to the annual dividend requirements are in arrears. The exercise of such voting rights would provide the holders of WPL’s preferred stock control of the decision on redemption of WPL’s preferred stock and could force WPL to exercise its call option. Therefore, the contingent control right and the embedded call option cause WPL’s preferred stock to be presented outside of total equity on the Consolidated Balance Sheet in a manner consistent with temporary equity.
Refer to Note 10 for information on the fair value of WPL’s cumulative preferred stock.
(8) DEBT
(a) Short-Term Debt - WPL maintains committed bank lines of credit to provide short-term borrowing flexibility and securitybackstop liquidity for commercial paper outstanding. At Dec. 31, 2006,2009, WPL’s short-term borrowing arrangements included a $250$240 million revolving credit facility, which expires in November 2011.2012. Information regarding commercial paper and other short-term debt issued under this facility was as follows (Not Applicable (N/A); dollars in millions):
| 2009 | 2008 | |||||||
At Dec. 31: | ||||||||
Commercial paper outstanding | $ | — | $ | 43.7 | ||||
Weighted average interest rates - commercial paper | N/A | 1.4 | % | |||||
For the year ended: | ||||||||
Maximum amount of total short-term debt outstanding (based on daily outstanding balances) | $ | 103.1 | $ | 138.0 | ||||
Average amount of total short-term debt outstanding (based on daily outstanding balances) | $ | 26.4 | $ | 63.7 | ||||
Weighted average interest rates - total short-term debt | 0.5 | % | 3.0 | % | ||||
(b) Long-Term Debt - WPL’s long-term debt, net as of Dec. 31 was as follows (dollars in millions):
| 2006 | 2005 | |||||||
At Dec. 31: | ||||||||
Commercial paper outstanding | $ | 134.9 | $ | 93.5 | ||||
Average interest rates - commercial paper | 5.4 | % | 4.4 | % | ||||
For the year ended: | ||||||||
Average amount of total short-term debt (based on daily outstanding balances) | $ | 77.2 | $ | 18.4 | ||||
Average interest rates - total short-term debt | 5.1 | % | 3.4 | % | ||||
| 2009 | 2008 | |||||||
Debentures: | ||||||||
7.625%, due 2010 | $ | 100.0 | $ | 100.0 | ||||
5%, due 2019 (a) | 250.0 | — | ||||||
6.25%, due 2034 | 100.0 | 100.0 | ||||||
6.375%, due 2037 | 300.0 | 300.0 | ||||||
7.6%, due 2038 | 250.0 | 250.0 | ||||||
| 1,000.0 | 750.0 | |||||||
Pollution Control Revenue Bonds: | ||||||||
5%, due 2014 and 2015 | 24.5 | 24.5 | ||||||
5.375%, due 2015 | 14.6 | 14.6 | ||||||
| 39.1 | 39.1 | |||||||
Subtotal | 1,039.1 | 789.1 | ||||||
Current maturities | (100.0 | ) | — | |||||
Unamortized debt (discount) and premium, net | (7.5 | ) | (6.2 | ) | ||||
Long-term debt, net | $ | 931.6 | $ | 782.9 | ||||
| (a) | In July 2009, WPL issued $250 million of 5% debentures due 2019 and used the proceeds initially to repay short-term debt and invest in short-term assets, and thereafter to fund capital expenditures and for general working capital purposes. |
Five-Year Schedule of Debt Maturities - At Dec. 31, 2009, WPL’s debt maturities for 2010 to 2014 were $100 million, $0, $0, $0 and $9 million, respectively. At Dec. 31, 2009, there were no significant sinking fund requirements related to the long-term debt on the Consolidated Balance Sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(b) Long-Term DebtIndentures - WPL maintains indenturesan indenture related to the issuance of unsecured debt securities. its debentures due 2010 through 2038.
Optional Redemption Provisions -WPL has certain issuances of long-term debt that contain optional redemption provisions which, if elected by WPL,the issuer at its sole discretion, could require material redemption premium payments by WPL.the issuer. The redemption premium payments under these optional redemption provisions are variable and dependent on applicable treasuryU.S. Treasury rates at the time of redemption. At Dec. 31, 2006,2009, the debt issuances that contained these optional redemption provisions included WPL’s debentures due 2034.2019 through 2038.
In March 2006, WPL issued $39.1 million of unsecured variable rate pollution control revenue bonds due 2014 through 2015 and used the proceeds in April 2006 to retire its remaining $39.1 million of first mortgage bonds due 2014 through 2015.
At Dec. 31, 2006, WPL’s debt maturities for 2007 to 2011 were $105 million, $60 million, $0, $100 million and $0, respectively. The carrying value of WPL’s long-term debt (including current maturities and variable rate demand bonds) at Dec. 31, 2006 and 2005 was $404 million and $403 million, respectively. The fair value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2006 and 2005 was $418 million and $425 million, respectively.Unamortized Debt Issuance Costs - WPL’s unamortized debt issuance costs recorded in “Deferred charges and other” on the Consolidated Balance Sheets were $2.5 million and $3.0 million at Dec. 31, 20062009 and 2005,2008 were $8.5 million and $7.1 million, respectively. At
Carrying Amount and Fair Value of Long-term Debt - Refer to Note 10 for information on the carrying amount and fair value of WPL’s long-term debt outstanding at Dec. 31, 2006, there were no significant sinking fund requirements related to the long-term term debt on the Consolidated Balance Sheets.2009 and 2008.
(9) INVESTMENTS
(a) Unconsolidated Equity Investments - - WPL’s unconsolidated investments accounted for under the equity method of accounting are as follows (dollars in millions):
Ownership Dec. 31, 2006 | Carrying Value at Dec. 31, | Equity Income | Ownership Interest at Dec. 31, 2009 | Carrying Value at Dec. 31, | Equity Income | |||||||||||||||||||||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | 2004 | 2009 | 2008 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||
ATC (a) | 18 | % | $ | 166 | $ | 152 | ($24 | ) | ($ | 21 | ) | ($19 | ) | 16 | % | $ | 219 | $ | 195 | $ | (36 | ) | $ | (32 | ) | $ | (27 | ) | ||||||||||||
Wisconsin River Power Company | 50 | % | 9 | 10 | (3 | ) | (5 | ) | (6 | ) | 50 | % | 8 | 9 | (1 | ) | (2 | ) | (1 | ) | ||||||||||||||||||||
| $ | 175 | $ | 162 | ($27 | ) | ($26 | ) | ($25 | ) | $ | 227 | $ | 204 | $ | (37 | ) | $ | (34 | ) | $ | (28 | ) | ||||||||||||||||||
(a) WPL has the ability to exercise significant influence over ATC’s financial and operating policies through its participation on ATC’s Board of Directors.
Summary financial information from the financial statements of these investments is as follows (in millions):
| 2006 | 2005 | 2004 | |||||||
Operating revenues | $ | 347 | $ | 303 | $ | 270 | |||
Operating income | 163 | 131 | 107 | ||||||
Net income | 128 | 106 | 91 | ||||||
As of Dec. 31: | |||||||||
Current assets | 36 | 34 | |||||||
Non-current assets | 1,873 | 1,536 | |||||||
Current liabilities | 306 | 142 | |||||||
Non-current liabilities | 777 | 757 | |||||||
Refer to Note 19 for information regarding related party transactions with ATC.
Operating revenues Operating income Net income As of Dec. 31: Current assets Non-current assets Current liabilities Non-current liabilities 2009 2008 2007 $ 529 $ 474 $ 416 294 260 213 215 192 157 54 53 2,786 2,499 286 253 1,340 1,233
(b) Cash Surrender Value of Life Insurance Policies - WPL has various life insurance policies that cover certain keycurrent and former employees and directors. At Dec. 31, 20062009 and 2005,2008, the cash surrender value of these investments was $12.1$14.0 million and $11.2$13.4 million, respectively.
(10) FAIR VALUE MEASUREMENTS
(c) Nuclear Decommissioning Trust Funds - At Dec. 31, 2005, WPL held $23 millionFair Value of non-qualified nuclear decommissioning trust funds which were excluded from the Kewaunee sale agreement and as a result are reported as “Other Investments” on the Consolidated Balance Sheet. In 2006, WPL liquidated its remaining nuclear decommissioning trust funds and used the proceeds to provide a refund to its wholesale customers. In 2005 and 2004, WPL’s non-qualified nuclear decommissioning trust funds realized pre-tax gains (losses) from the sales of securities of $23 million and ($3) million, respectively (cost of the investments based on specific identification was $110 million and $14 million and pre-tax proceeds from the sales were $133 million and $11 million, respectively).
Financial Instruments -The carrying amountamounts of WPL’s current assets and current liabilities approximatesapproximate fair value because of the short maturity of such financial instruments. Refer to Notes 7(b), 8(b)Carrying amounts and 11(a) for information regarding the related estimated fair values of other financial instruments at Dec. 31, 2009 and 2008 are as follows (in millions):
| Carrying Amount | Fair Value | |||||
Dec. 31, 2009 | ||||||
Assets: | ||||||
Derivative assets (Note 11(a)) | $ | 15.3 | $ | 15.3 | ||
Capitalization and liabilities: | ||||||
Long-term debt (including current maturities) (Note 8(b)) | 1,031.6 | 1,125.9 | ||||
Cumulative preferred stock (Note 7(b)) | 60.0 | 50.6 | ||||
Derivative liabilities (Note 11(a)) | 66.3 | 66.3 | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Carrying Amount | Fair Value | |||||
Dec. 31, 2008 | ||||||
Assets: | ||||||
Derivative assets (Note 11(a)) | $ | 19.6 | $ | 19.6 | ||
Capitalization and liabilities: | ||||||
Long-term debt (including current maturities) (Note 8(b)) | 782.9 | 861.7 | ||||
Cumulative preferred stock (Note 7(b)) | 60.0 | 49.8 | ||||
Derivative liabilities (Note 11(a)) | 14.8 | 14.8 | ||||
Valuation Techniques -
Derivative assets and liabilities - Derivative assets and liabilities include swap contracts, option contracts and physical forward purchase and sale contracts for electricity and natural gas, financial transmission rights (FTRs) and embedded foreign currency derivatives. WPL’s swap, option and physical forward commodity contracts are non-exchange-based derivative instruments valued using indicative price quotations available through a pricing vendor that provides daily exchange forward price settlements, from broker or dealer quotations or from on-line exchanges. The indicative price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources believed to provide the most liquid market for the commodity. WPL corroborates a portion of these indicative price quotations using quoted prices for similar assets or liabilities in active markets and categorizes derivative instruments based on such indicative price quotations as Level 2. WPL’s commodity contracts that are valued using indicative price quotations based on significant assumptions such as seasonal or monthly shaping and indicative price quotations that cannot be readily corroborated are categorized as Level 3. WPL’s swap, option and physical forward commodity contracts are predominately at liquid trading points. WPL’s FTRs are measured at fair value each reporting period using monthly or annual auction shadow prices from relevant auctions. The embedded foreign currency derivatives related to Euro-denominated payment terms included in the wind turbine supply contract with Vestas are measured at fair value each reporting period using an extrapolation of forward currency rates. Refer to Note 11(a) for additional details of WPL’s derivative assets and liabilities.
Long-term debt (including current maturities) - The fair value was based upon quoted market prices each year-end. Refer to Note 8(b) for additional details of WPL’s long-term debt.
Cumulative preferred stock - The fair value of WPL’s 4.50% cumulative preferred stock long term debt and derivatives, respectively. Since WPL is subjectwas based on the closing market prices quoted by the NYSE Amex LLC each reporting period. The fair value of WPL’s remaining preferred stock was calculated based on the market yield of similar securities. Refer to regulation, any gains or losses relatedNote 7(b) for additional details of WPL’s cumulative preferred stock.
Valuation Hierarchy - Fair value measurement accounting establishes a fair value hierarchy that prioritizes the inputs to the difference between the carrying amount andvaluation techniques used to measure fair value. The three levels of the fair value hierarchy and examples of their financial instruments mayeach are as follows:
Level 1 - Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2 - Pricing inputs are quoted prices for similar asset or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not be realized by Alliant Energy.active as of the reporting date. Level 2 assets and liabilities include WPL’s non-exchange traded commodity contracts valued using indicative price quotations that are corroborated with quoted prices for similar assets or liabilities in active markets.
Level 3 - Pricing inputs are unobservable inputs for assets or liabilities for which little or no market data exist and require significant management judgment or estimation. Level 3 assets and liabilities include WPL’s FTRs, natural gas option contracts, embedded foreign currency derivatives and certain commodity contracts that are valued using indicative price quotations based on significant assumptions such as seasonal or monthly shaping.
The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Recurring Fair Value Measurements -WPL’s recurring items subject to fair value measurements disclosure requirements at Dec. 31, 2009 and 2008 were as follows (in millions):
| Fair Value Measurements | Level 1 | Level 2 | Level 3 | |||||||||
Dec. 31, 2009 | ||||||||||||
Derivative assets | $ | 15.3 | $ | — | $ | 11.5 | $ | 3.8 | ||||
Derivative liabilities | 66.3 | — | 62.2 | 4.1 | ||||||||
Dec. 31, 2008 | ||||||||||||
Derivative assets | 19.6 | — | 1.0 | 18.6 | ||||||||
Derivative liabilities | 14.8 | — | 10.6 | 4.2 | ||||||||
Additional information for WPL’s recurring fair value measurements using significant unobservable inputs (Level 3 inputs) for 2009 and 2008 is as follows (in millions):
| Derivative Assets and Liabilities, net | ||||||||
| 2009 | 2008 | |||||||
Beginning balance, Jan. 1 | $ | 14.4 | $ | 12.7 | ||||
Total gains or (losses) (realized/unrealized) included in changes in net assets (a) | (0.7 | ) | 20.6 | |||||
Purchases, sales, issuances and settlements, net | (14.0 | ) | (18.9 | ) | ||||
Ending balance, Dec. 31 | ($ | 0.3 | ) | $ | 14.4 | |||
The amount of total gains or (losses) for the period included in changes in net assets attributable to the change in unrealized gains or (losses) relating to assets and liabilities held at Dec. 31 (a) | ($ | 0.7 | ) | $ | 14.4 | |||
(11) DERIVATIVE INSTRUMENTS
(a) Accounting for Derivative Instruments -
Purpose -WPL periodically uses derivative instruments for risk management purposes to mitigate exposures to fluctuations in interest rates, certain commodity prices, transmission congestion costs and Hedging Activitiescurrency exchange rates. WPL’s current derivative instruments have not been designated as hedging instruments. WPL’s derivative instruments include electric physical forward purchase contracts and swap contracts to mitigate pricing volatility for the electricity purchased to supply to its customers, electric physical forward sale contracts to offset long positions created by reductions in electricity demand forecasts, natural gas swap contracts to mitigate pricing volatility for the fuel used to supply to the natural gas-fired electric generating facilities it operates, natural gas options to mitigate price increases during periods of high demand or lack of supply, FTRs acquired to manage transmission congestion costs, natural gas swap contracts to mitigate pricing volatility for natural gas supplied to its retail customers and embedded foreign currency derivatives related to Euro-denominated payment terms included in the wind turbine supply contract with Vestas.
Notional Amounts -As of Dec. 31, 2009, WPL had notional amounts related to outstanding swap contracts, options, physical forward contracts and FTRs that were accounted for as derivative instruments as follows (units in thousands):
| 2010 | 2011 | 2012 | 2013 | Total | ||||||
Commodity: | ||||||||||
Electricity (MWhs) | 3,126 | 1,820 | 73 | 204 | 5,223 | |||||
FTRs (MWs) | 5 | — | — | — | 5 | |||||
Natural gas (dekatherms) | 18,623 | 9,210 | 6,798 | — | 34,631 |
The notional amounts in the above table were computed by aggregating the absolute value of purchase and sale positions within commodities for each year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Financial Statement Presentation -WPL records derivative instruments at fair value on the balance sheet as assets or liabilities and changes in the derivatives’ fair values with offsets to regulatory assets or liabilities, based on the fuel and natural gas cost recovery mechanisms in place, as well as other specific regulatory authorizations.liabilities. At Dec. 31, 20062009 and 2005,2008, the fair values of current derivative assets were included in “Other current“Derivative assets,” non-current derivative assets were included in “Deferred charges and other,” current derivative liabilities were included in “Current derivative“Derivative liabilities” and non-current derivative liabilities were included in “Other long-term liabilities and deferred credits” on the Consolidated Balance Sheets as follows (in millions):
| 2006 | 2005 | 2009 | 2008 | |||||||||
Current derivative assets | $ | 6.2 | $ | 12.7 | ||||||||
Commodity contracts | $ | 11.2 | $ | 10.7 | ||||||||
Non-current derivative assets | 0.4 | 4.4 | ||||||||||
Commodity contracts | $ | 4.1 | $ | 1.0 | ||||||||
Foreign exchange contracts | — | 7.9 | ||||||||||
| $ | 4.1 | $ | 8.9 | |||||||||
Current derivative liabilities | 44.4 | 19.0 | ||||||||||
Commodity contracts | $ | 49.5 | $ | 7.8 | ||||||||
Foreign exchange contracts | 1.5 | 0.8 | ||||||||||
| $ | 51.0 | $ | 8.6 | |||||||||
Non-current derivative liabilities | 2.1 | 1.5 | ||||||||||
Commodity contracts | $ | 15.3 | $ | 4.6 | ||||||||
Foreign exchange contracts | — | 1.6 | ||||||||||
| $ | 15.3 | $ | 6.2 | |||||||||
WPL generally records gains and losses from its derivative instruments with offsets to regulatory assets or liabilities, based on its fuel and natural gas cost recovery mechanisms, as well as other specific regulatory authorizations. Gains and losses from derivative instruments not designated as hedging instruments were recorded in 2009 as follows (in millions):
Location of Gain (Loss) in Balance Sheet | Gain (Loss) | |||||
Commodity contracts | Regulatory assets | ($ | 68.1 | ) | ||
| Regulatory liabilities | 12.7 | |||||
Foreign exchange contracts | Regulatory liabilities | (0.4 | ) | |||
Losses from commodity contracts in 2009 were primarily due to impacts of significant decreases in electricity and natural gas prices.
Credit Risk-related Contingent Features -WPL has entered into several purchasevarious agreements that contain credit risk-related contingent features including requirements for it to maintain certain credit ratings from each of the major credit rating agencies and limitations on its liability positions under the various agreements. In the event of a downgrade in its credit ratings or if its liability positions exceed certain contractual limits, WPL may need to provide credit support in the form of letters of credit or cash collateral up to the amount of its exposure under the contracts, or may need to supply fixed-price natural gasunwind the contracts and pay the underlying liability positions.
Certain of these agreements with credit risk-related contingency features are accounted for its natural gas-fired electric generating facilities. Significant decreases in natural gas prices in 2006 have changed theas derivative instruments. The aggregate fair value of these contracts and resultedall derivatives with credit risk-related contingent features that were in decreasesa net liability position on Dec. 31, 2009 was $66.3 million. At Dec. 31, 2009, WPL had investment-grade credit ratings. However, WPL exceeded its liability position with one counterparty requiring it to post cash collateral. If the most restrictive credit risk-related contingent features for derivative agreements in derivative assets and increases in derivative liabilities. As a result of changes in the fair value of these contracts, the counterpartiesnet liability position were triggered on Dec. 31, 2009, WPL would be required to these contracts have required WPL to provide $22post an additional $64.8 million of credit support to its counterparties. Refer to Note 4(a) for additional details of total cash collateral which is primarily recorded in “Other accounts receivable” on the Consolidated Balance Sheet as ofposted by WPL at Dec. 31, 2006.
WPL’s derivatives that were not designated in hedge relationships during 2006 and/or 2005 included electric, coal2009 and gas contracts. Electric contracts were used to manage utility energy costs during supply/demand imbalances. Coal and gas contracts were used to manage the price of anticipated purchases and sales.2008.
(b) Weather Derivatives - - WPL periodically uses weather derivativesnon-exchange traded swap agreements based on cooling degree days (CDD) and heating degree days (HDD) measured in its service territory to reduce the impact of weather volatility on its electric and natural gas sales volumes. These weather derivatives are accounted for using the intrinsic value method. Any premiums paid related to thethese weather derivative agreements are expensed over each respective contract period. WPL’s ratepayers do not pay any of the premiums nor do they share in the gains/gains or losses realized from these weather derivatives. Information relating to the electric and gas weather derivatives was as follows (in millions):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 2006 | 2005 | 2004 | |||||||||
Gains (losses): | |||||||||||
Electric utility operating revenues | ($ | 1.4 | ) | ($ | 3.5 | ) | $ | — | |||
Gas utility operating revenues | 3.8 | (1.0 | ) | — | |||||||
Settlements (paid to) / received from counterparties, net | 0.3 | (3.1 | ) | — | |||||||
Premiums expensed | 0.3 | 1.1 | 1.0 | ||||||||
Premiums paid to counterparties | 0.5 | 0.5 | 1.2 | ||||||||
In 2006,Summer weather derivatives - WPL entered into a non-exchange traded swap agreementperiodically utilizes weather derivatives based on heating degree days (HDD) measured in Madison to reduce the impact of weather volatility on WPL’s margins for the period Nov. 1, 2006 to March 31, 2007. The actual HDD for November 2006 and December 2006 were lower than those specified in the contract resulting in WPL receiving from the counterparty the maximum amount under the agreement of $1.4 million in January 2007. In addition, WPL will receive/pay up to $2.2 million from/to the counterparty in the second quarter of 2007 if actual HDD for January 2007 through March 2007 are less/greater than the HDD specified in the contract.
In 2006, Corporate Services, as agent for WPL, entered into a non-exchange traded swap agreement based on cooling degree days (CDD) measured in Chicago to reduce the impact of weather volatility on WPL’s electric margins for the period June 1, 2006 to Aug. 31, 2006. The actual CDD during this period were higher than those specified in the contract resulting in WPL paying the counterparty the maximum amount under the agreements of $2.9 million in 2006.
In 2005, Corporate Services, as agent for WPL, and WPL on behalf of itself, entered into a combination of put options and non-exchange traded swap agreements based on HDD measured in Chicago to reduce the impact of weather volatility on WPL’s margins for the period Nov. 1, 2005 to March 31, 2006. The actual HDD during this period were lower than those specified in the contracts resulting in WPL receiving payments from the counterparty of $3.2 million in 2006.
In 2005, WPL entered into a non-exchange traded swap agreement based on CDD measured in Chicago to reduce the impact of weather volatility on its electric margins for the period June 1 2005 tothrough Aug. 31 2005.each year. Weather derivatives are based on CDD measured in Madison, Wisconsin. The actual CDD measured during this period were higher than those specifiedthese periods resulted in settlements with the contract resulting in WPL paying the counterparty the maximum amountcounterparties under the agreementagreements, which included receipts of $3.5$2.0 million and payments of $2.0 million in 2005.2008 and 2007, respectively. WPL did not enter into CDD swap agreements in 2009.
In 2004, Corporate Services, as agentWinter weather derivatives - WPL periodically utilizes weather derivatives based on HDD to reduce the impact of weather volatility on WPL’s electric and gas margins for WPL, entered into a non-exchange traded optionJan. 1 through March 31 and Nov. 1 through Dec. 31 each calendar year. Weather derivatives are based on HDD measured in ChicagoMadison, Wisconsin. The actual HDD measured during these periods resulted in settlements with the counterparties under the agreements, which Corporate Services hadincluded payments of $3.4 million, $3.6 million and $0.1 million in the rightfirst half of 2009, 2008 and 2007, respectively. As of Dec. 31, 2009, WPL did not enter into HDD swap agreements for Nov. 1 through Dec. 31, 2009 and Jan. 1 through March 31, 2010.
The counterparties to receive payment fromcertain of these contracts were required to provide cash collateral to WPL. As of Dec. 31, 2008, the outstanding cash collateral received by WPL of $1.4 million was recorded in “Accounts payable” on the Consolidated Balance Sheet. All remaining cash collateral related to weather derivatives was returned to the counterparty if actual HDD were less thanin 2009.
Summary information relating to the HDD specified in the contract.summer and winter weather derivatives was as follows (in millions):
| 2009 | 2008 | 2007 | ||||||||||
Gains (losses): | ||||||||||||
Electric utility operating revenues | ($ | 0.8 | ) | $ | 0.6 | ($ | 3.0 | ) | ||||
Gas utility operating revenues | (1.2 | ) | (2.2 | ) | (1.9 | ) | ||||||
Settlements paid to counterparties, net | (3.4 | ) | (1.6 | ) | (2.1 | ) | ||||||
Premiums expensed | — | — | 0.5 | |||||||||
Premiums paid to counterparties | — | — | 0.5 | |||||||||
(12) COMMITMENTS AND CONTINGENCIES
(a) Construction and Acquisition ExpendituresCapital Purchase Obligations - - WPL has madeentered into capital purchase obligations that contain minimum future commitments related to certain capital expenditures for its proposed wind projects. The obligations are primarily related to capital purchase obligations under a master supply agreement executed in 2008 with Vestas for the purchase of 500 MW of wind turbine generator sets and related equipment to support IPL’s and WPL’s wind generation plans. At Dec. 31, 2009, WPL’s minimum future commitments in connection with its 2007related to these capital expenditures.expenditures were $174 million for 2010.
(b) Operating Expense Purchase Obligations - - Alliant Energy, through its subsidiaries Corporate Services, IPL and WPL has entered into various commodity supply, transportation and storage contracts. Certain purchased power contracts to meet its obligations to deliver electricity and natural gas to its customers. WPL also enters into other operating expense purchase obligations with various vendors for other goods and services. At Dec. 31, 2009, WPL’s minimum commitments related to these operating expense purchase obligations were as follows (in millions):
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | |||||||||||||||
Purchased power (a): | |||||||||||||||||||||
Kewaunee Nuclear Power Plant | $ | 83 | $ | 62 | $ | 73 | $ | 79 | $ | — | $ | — | $ | 297 | |||||||
Other | 68 | 17 | 2 | — | — | — | 87 | ||||||||||||||
| 151 | 79 | 75 | 79 | — | — | 384 | |||||||||||||||
Natural gas | 90 | 35 | 22 | 20 | 17 | 34 | 218 | ||||||||||||||
Coal (b) | 11 | 7 | 7 | 7 | 7 | — | 39 | ||||||||||||||
Other (c) | 3 | 8 | 8 | 7 | — | — | 26 | ||||||||||||||
| $ | 255 | $ | 129 | $ | 112 | $ | 113 | $ | 24 | $ | 34 | $ | 667 | ||||||||
| (a) | Includes payments required by PPAs for capacity rights and minimum quantities of MWh required to be purchased. Refer to Note 19 for additional information on purchased power transactions. |
| (b) | WPL enters into coal transportation contracts that are directly assigned to its specific generating stations, the amounts of which are included in the table. In addition, Corporate Services entered into system-wide coal contracts on behalf of WPL and IPL of $103 million, $95 million and $7 million for 2010 to 2012, respectively, to allow flexibility for the changing needs of the quantity of coal consumed by each. Coal contract quantities are allocated to specific WPL or IPL generating stations at or before the time of delivery based on various factors including projected heat input requirements, combustion compatibility and efficiency. These system-wide coal contracts have not been directly assigned to WPL and IPL since the specific needs of each utility are not yet known and therefore are excluded from the table. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| (c) | Includes individual commitments incurred during the normal course of business that exceeded $1 million at Dec. 31, 2009. |
WPL enters into certain contracts that are considered operating leases and are therefore not included here, but are included in Note 3(a). The natural gas supply and purchased power contracts are either fixed price in nature or market-based. Most of the coal supply contracts are fixed price, however some of the recent contracts are index-based. Nearly all of the coal transportation contracts are index-based. Alliant Energy expects to supplement its coal and natural gas supplies with spot market purchases as needed. The table below includes commitments for “take-or-pay” contracts which result in dollar commitments with no associated tons or dekatherms (Dths).
Based on the System Coordination and Operating Agreement, Alliant Energy annually allocates purchased power contracts to IPL and WPL, based on various factors such as resource mix, load growth and resource availability. The amounts in the following table reflect these allocated contracts. However, for 2007, system-wide purchased power contracts of $75.1 million (1.5 million MWhs) have not yet been directly assigned to IPL and WPL since the specific needs of each utility are not yet known. Refer to Note 19 for additional information regarding the allocation of purchased power transactions. WPL enters into coal transportation contracts that are directly assigned to its specific generating stations, the amounts of which are included in the following table. In addition, Corporate Services entered into system-wide coal contracts on behalf of IPL and WPL of $89.7 million (10.3 million tons) for 2007, $72.3 million (7.9 million tons) for 2008, $56.5 million (5.6 million tons) for 2009, $29.6 million (2.8 million tons) for 2010, $16.9 million (1.4 million tons) for 2011, and $7.0 million (0.4 million tons) for 2012 and beyond, to allow flexibility for the changing needs of the quantity of coal consumed by each. Coal
contract quantities are allocated to specific IPL or WPL generating stations at or before the time of delivery based on various factors including projected heat input requirements, combustion compatibility and efficiency. These system-wide coal contracts have not yet been directly assigned to IPL and WPL since the specific needs of each utility are not yet known. At Dec. 31, 2006, WPL’s minimum commitments were as follows (dollars and Dths in millions; MWhs and tons in thousands):
| Purchased Power | Coal | Natural Gas | |||||||||||||
| Dollars | MWhs | Dollars | Tons | Dollars | Dths | ||||||||||
2007 | $ | 106.8 | 2,309 | $ | 9.1 | — | $ | 64.0 | 6 | ||||||
2008 | 145.3 | 2,849 | 6.6 | — | 27.7 | — | |||||||||
2009 | 90.3 | 1,831 | 6.6 | — | 24.7 | — | |||||||||
2010 | 90.0 | 2,001 | 6.6 | — | 21.7 | — | |||||||||
2011 | 68.8 | 1,830 | 6.6 | — | 16.9 | — | |||||||||
Thereafter | 161.7 | 3,836 | 19.6 | — | 77.2 | — | |||||||||
| $ | 662.9 | 14,656 | $ | 55.1 | — | $ | 232.2 | 6 | |||||||
The amounts related to WPL’s Kewaunee PPA are included in the above table. Also, at Dec. 31, 2006, WPL’s other purchase obligations, which represent individual commitments incurred during the normal course of business which exceeded $1.0 million at Dec. 31, 2006, were $3 million for 2007 and $1 million for 2008. This excludes lease obligations which are included in Note 3.
(c) Legal Proceedings -
Air Permitting Violation Claims -In October 2009, WPL, as an owner and the operator of the Nelson Dewey Generating Station (Nelson Dewey) and the Columbia Energy Center (Columbia), received from the Sierra Club a notice of intent to file a civil lawsuit (NOI) based on allegations that modifications were made at those facilities without complying with the Prevention of Significant Deterioration (PSD) program requirements, Title V Operating Permit requirements of the Clean Air Act (CAA) and state regulatory counterparts contained within the Wisconsin State Implementation Plans (SIP) designed to implement the CAA. In December 2009, WPL received from the Sierra Club a separate NOI, which contained similar allegations regarding the Edgewater Generating Station (Edgewater). The NOIs allege that various projects performed at Nelson Dewey, Columbia and Edgewater in years past were major modifications, as defined in the CAA, and that the owners violated the CAA when they undertook those projects without obtaining permits and installing the best available emission controls for SO2, NOx and particulate matter. In the Edgewater NOI, additional allegations were made regarding violations of emission limits for visible emissions.
In December 2009, the EPA sent a Notice of Violation (NOV) to WPL as an owner and the operator of Nelson Dewey, Columbia and Edgewater. The NOV alleges that the owners failed to comply with appropriate pre-construction review and permitting requirements and as a result violated the PSD program requirements, Title V Operating Permit requirements of the CAA and the SIP.
If pursued successfully by the EPA and/or the Sierra Club, these actions could result in civil penalties in amounts of up to $37,500 per day for each violation and/or injunctive relief to require installation of pollution control technology at Nelson Dewey, Columbia and Edgewater, which would increase WPL’s future capital and operating expenditures. WPL is currently reviewing the allegations and is unable to predict the impact of the allegations on its financial conditions or results of operations, but believes that an adverse outcome could be significant. WPL and the other owners of Columbia and Edgewater are exploring settlement options with each of the EPA and the Sierra Club while simultaneously defending against these actions. WPL believes the projects at Nelson Dewey, Columbia and Edgewater were routine or not projected to increase emissions therefore did not violate the permitting requirements of the CAA. WPL does not currently believe any losses from these allegations are both probable and reasonably estimable and therefore has not recognized any related loss contingency amounts as of Dec. 31, 2009.
Alliant Energy Cash Balance Pension Plan (Plan) -In February 2008, a class action lawsuit was filed against the Plan. The complaint alleges that certain Plan participants who received distributions prior to their normal retirement age did not receive the full benefit to which they were entitled in violation of the Employee Retirement Income Security Act of 1974 because the Plan applied an improper interest crediting rate to project the cash balance account to their normal retirement age. These Plan participants are limited to individuals who received a lump sum distribution and/or received any form of distribution calculated under the Plan’s prior formula after that benefit was determined to be more valuable than their benefit calculated under the Plan’s cash balance formula. The court has certified two subclasses of plaintiffs that in aggregate include all persons vested or partially vested in the Plan who received these distributions of the cash balance formula benefit from Jan. 1, 1998 through Aug. 17, 2006 including: 1) persons who received distributions from Jan. 1, 1998 through Feb. 28, 2002; and 2) persons who received distributions from Feb. 29, 2002 through Aug. 17, 2006. Alliant Energy is contesting the case and the parties are proceeding with discovery. In September 2009, the plaintiffs submitted reports by their expert witnesses that quantified the alleged underpayments owed to plaintiffs between $24 million and $54 million, including interest. Alliant Energy disputes these amounts. Trial is scheduled for June 2010. Alliant Energy is currently unable to predict the final outcome of the class action lawsuit or the ultimate impact on WPL’s financial condition or results of operations but believes an adverse outcome could have a material effect on WPL’s retirement plan funding and expense.
During 2009, the interest crediting rate used to project the cash balance account to participant’s normal retirement age was also being considered by the IRS as part of its review of Alliant Energy’s request for a favorable determination letter with respect to the tax-qualified status of the Plan. In December 2009, Alliant Energy reached a tentative agreement with the IRS, which is expected to result in Alliant Energy obtaining a favorable determination letter for the Plan. The agreement with the IRS will require an amendment to the Plan, which is expected to result in future payments to certain Plan participants.
As of Dec. 31, 2009, WPL recognized a loss contingency of $2 million related to the class action lawsuit and the anticipated Plan amendment resulting from the tentative agreement reached with the IRS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other - WPL is involved in other legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although unable to predict the outcome of these matters, WPL believes that appropriate reserves have been established and final disposition of these actions will not have a material adverse effect on its financial condition or results of operations.
(d)Guarantees and Indemnifications - WPL provided an indemnification associated with the sale of its water utility in South Beloit, Illinois in the third quarter of 2006 for losses resulting from potential breach of the representations and warranties made by WPL on the sale date and for the breach of its obligations under the sale agreement. The indemnification has a maximum limit of $1 million and expires in July 2008. WPL believes the likelihood of having to make any material cash payments under this indemnification is remote. WPL has not recorded any material liabilities related to this indemnification as of Dec. 31, 2006. WPL also issued an indemnity to the buyer of Kewaunee to cover certain potential costs the buyer may incur related to the outage at Kewaunee in 2005. At Dec. 31, 2006, WPL had a $4 million obligation recognized related to this indemnity, which represents WPL’s remaining maximum exposure. Refer to Note 3(a) for discussion of WPL’s residual value guarantees of its synthetic leases.
(e) Environmental LiabilitiesMatters - - WPL hadis subject to environmental regulations as a result of its current and past operations. These regulations are designed to protect public health and the environment and have resulted in compliance, remediation, containment and monitoring obligations which are recorded the followingas environmental liabilities. At Dec. 31, current environmental liabilities at Dec. 31were included in “Other current liabilities” and non-current environmental liabilities were included in “Other long-term liabilities and deferred credits” on the Consolidated Balance Sheets as follows (in millions):
| 2006 | 2005 | |||||
Manufactured gas plants (MGP) sites | $ | 5.7 | $ | 5.7 | ||
Other | — | 0.7 | ||||
| $ | 5.7 | $ | 6.4 | |||
| 2009 | 2008 | |||||
Current environmental liabilities | $ | 0.5 | $ | 0.7 | ||
Non-current environmental liabilities | 4.0 | 5.2 | ||||
| $ | 4.5 | $ | 5.9 | |||
MGP Sites - - WPL has current or previous ownership interests in 14 sites previously associated with the production of gas for which it may be liable for investigation, remediation and monitoring costs relating to the sites. WPL has received letters from state environmental agencies requiring no further action at sixeight sites. WPL is working pursuant to the requirements of various federal and state agencies to investigate, mitigate, prevent and remediate, where necessary, the environmental impacts to property, including natural resources, at and around the sites in order to protect public health and the environment.
WPL records environmental liabilities related to these MGP sites based upon periodic studies, most recently updated in the third quarter of 2006, related to the MGP sites.studies. Such amounts are based on the best current estimate of the remaining amount to be incurred for investigation, remediation and monitoring costs for those sites where the investigation process has been or is substantially completed, and the minimum of the estimated cost range for those sites where the investigation is in its earlier stages. There are inherent uncertainties associated with the estimated remaining costs for MGP projects primarily due to unknown site conditions and potential changes in regulatory agency requirements. It is possible that future cost estimates will be greater than current estimates as the investigation process proceeds and as additional facts become known. The amounts recognized as liabilities are reduced for expenditures madeincurred and are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their fair value. Management currently estimates the range of remaining costs to be incurred for the investigation, remediation and monitoring of WPL’s sites to be $5 million to $7$6 million.
Under the current rate making treatment approved by the PSCW, the MGP expendituresRefer to Note 1(b) for discussion of WPL, net of any insurance proceeds, are deferred and collected from gas customers over a five-year period after new rates are implemented. Regulatoryregulatory assets have been recorded by WPL, which reflect the probable future rate recovery where applicable.of MGP expenditures. Considering the current rate treatment, and assuming no material change therein, WPL believes that the clean-up costs incurred for these MGP sites will not have a material adverse effect on its financial condition or results of operations. Settlement has been reached with all of WPL’s insurance carriers regarding reimbursement for its MGP-related costs and such amounts have been accounted for as directed by the applicable regulatory jurisdiction.
Other Environmental Contingencies -In addition to the environmental liabilities discussed above, WPL also monitors various environmental regulations that may have a significant impact on its future operations. Given uncertainties regarding the outcome, timing and compliance plans for these environmental regulations, WPL is currently not able to determine the complete financial impact of these regulations but does believe that future capital investments and/or modifications to its electric generating facilities to comply with these regulations could be significant. Specific current, proposed or potential environmental regulations that may require significant future expenditures by WPL include, among others: Clean Air Interstate Rule (CAIR) and, Clean Air Visibility Rule (CAVR), Utility Maximum Available Control Technology (MACT) Rule, Wisconsin State Mercury Rule, (CAMR) - In 2005,Wisconsin Reasonably Available Control Technology (RACT) Rule, Ozone National Ambient Air Quality Standard (NAAQS) Rule, Fine Particle NAAQS Rule, Nitrogen Dioxide (NO2) NAAQS Rule, SO2 NAAQS Rule, Industrial Boiler and Process Heater MACT Rule, Federal Clean Water Act including Section 316(b), Wisconsin State Thermal Rule, Coal Combustion By-products (CCB) and various legislation and EPA regulations to monitor and regulate the emission of greenhouse gases (GHG) including the EPA finalized CAIRMandatory GHG Reporting Rule, GHG Endangerment and CAMR, which both may require emission control upgrades to existingCause or Contribute Finding and GHG Tailoring Rule. The following provides a brief description of these environmental regulations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Air Quality -
CAIR is an emissions trading program that requires SO2 and NOx emissions reductions at WPL’s electric generating units with greater than 25 MW capacity. CAIR will capcapacity through installation of emission controls or purchases of allowances. The requirements of this rule remain subject to further review by the federal courts and the EPA.
CAVR addresses regional haze at national parks and wilderness areas and is expected to require reductions in visibility-impairing emissions, of sulfur dioxide (SO2) and nitrogen oxides (NOx) in 28 states (including Wisconsin) in the eastern U.S. and, when fully implemented, reduceincluding particulate matter, SO2, and NOx, emissions in these statesfrom certain electric generating units by installing emission controls including those determined to be Best Available Retrofit Technology. The requirements of this rule remain subject to further review by the federal courts and the EPA.
Utility MACT Standard is expected to require standards for the control of mercury and other federal hazardous air pollutants for coal- and oil-fired electric utility steam generating units over 70% and 60% from 2003 levels, respectively. CAMR will25 MW.
Wisconsin State Mercury Rule requires WPL’s existing coal-fired electric generating facilities to reduce U.S. utility (including WPL)annual mercury emissions by approximately 70% when fully implemented. WPL believes that future capital investments and/40% from a historic baseline beginning in 2010, and to either achieve a 90% annual mercury emissions reduction standard or limit the annual concentration of mercury emissions to 0.008 pounds of mercury per gigawatt-hour beginning in 2015.
Wisconsin RACT Rule requires NOx emissions reductions at WPL’s Edgewater generating facility since it is located in Sheboygan County, which is currently designated as a non-attainment area for the existing eight-hour ozone standard.
Ozone NAAQS Rule is expected to require NOx emissions reductions from electric generating units located in areas designated as non-attainment with a more stringent eight-hour ozone standard adopted in 2008 and is under review by the EPA to be further strengthened in 2010. The EPA’s final designations identifying non-attainment areas for the revised ozone standard are expected to be issued in 2011.
Fine Particle NAAQS Rule may require SO2 and NOx emission reductions in areas designated as non-attainment. The EPA lowered the 24-hour standard and left the annual standard unchanged. In response to a February 2009 court decision, the EPA is reviewing whether the annual fine particulate matter (PM2.5) standard should also be lowered.
NO2 NAAQS Rule requires a new one-hour NO2 standard of 100 parts per billion (ppb) and associated ambient air monitoring requirements, while maintaining the current annual standard of 53 ppb. The EPA’s final designations identifying non-attainment areas for the revised NO2 standard are expected to be issued in 2012.
SO2 NAAQS Rule is expected to establish a new one-hour SO2 standard and associated monitoring requirements. The proposed rule would revise the primary SO2 standard to a one-hour level of between 50 and 100 ppb. The EPA is under a court order to issue a final SO2 standard by June 2010.
Industrial Boiler and Process Heater MACT Rule may require reductions of emissions of hazardous air pollutants at smaller electric generating units less than 25 MW, auxiliary boilers and process heaters located at electric generating facilities. The requirements of this rule remain subject to further review by the federal courts, the EPA and state environmental agencies.
Water Quality -
Section 316(b) of the Federal Clean Water Act is expected to require modifications to complycooling water intake structures at three of WPL’s electric generating facilities to assure that these structures reflect the “best technology available” for minimizing adverse environmental impacts to fish and other aquatic life. The requirements of this rule remain subject to further review by the federal courts and the EPA.
Wisconsin State Thermal Rule is expected to require modifications to certain of WPL’s electric generating facilities to limit the amount of heat those facilities can discharge into Wisconsin waters. The requirements of this state adopted rule remain subject to further review and approval by the EPA.
Land and Solid Waste -
CCB could impose additional requirements for CCB management, beneficial use applications and disposal.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
GHG Emissions -
Proposed GHG Emission Legislation and EPA Regulations - Public awareness of climate change may result in policymakers taking action to mitigate global warming. Several members of Congress have proposed legislation to regulate GHG emissions, primarily targeting reductions of carbon dioxide (CO2) emissions. State and regional initiatives to address GHG emissions are also underway in Wisconsin. WPL continues to take voluntary measures to reduce its GHG emissions, including CO2, as prudent steps to address potential climate change regulations.
EPA Mandatory GHG Reporting Rule requires that sources above certain threshold levels monitor and report GHG emissions. The annual reporting compliance requirement begins for the calendar year 2010 with the first GHG emissions reports due by March 2011.
GHG Endangerment and Cause or Contribute Finding is an EPA rule establishing that current and projected concentrations of GHG emissions in the atmosphere threaten the public health and welfare. The finalization of these rules will be significant.findings is requisite to EPA’s future issuance of regulations to reduce GHG emissions from motor vehicles or other emissions sources, which could include electric utility operations.
GHG Tailoring Rule is an EPA rule proposal to establish CAA permit applicability thresholds for construction and operation of facilities emitting GHG. The proposal would also require new and significantly modified facilities to demonstrate use of the Best Available Control Technologies and energy efficiency measures to minimize GHG emissions.
(f) Credit Risk - WPL serves a diversified baseis subject to credit risk related to the ability of counterparties to meet their contractual payment obligations or the potential non-performance of counterparties to deliver contracted commodities, other goods or services at the contracted price.
WPL provides regulated electricity and natural gas services to residential, commercial, industrial and wholesale customers andin Wisconsin. The geographic concentration of its customers did not contribute significantly to its overall exposure to credit risk. In addition, as a result of its diverse customer base, WPL did not have any significant concentration of credit risk for receivables arising from the sale of electricity and natural gas services.
WPL is typically a net buyer of commodities (primarily electricity, coal and natural gas) required to provide regulated electricity and natural gas services to its customers. As a result, WPL is also subject to credit risk related to its counterparties’ failures to deliver commodities at the contracted price.
WPL maintains credit policies to minimize its credit risk. These credit policies include evaluation of the financial condition of counterparties, use of credit risk-related contingent provisions in certain commodity agreements that require credit support from counterparties that exceed certain exposure limits, diversification of counterparties to minimize concentrations of credit risk. In addition, WPL has limitedrisk and the use of standardized agreements that facilitate the netting of cash flows associated with a single counterparty. Based on these credit exposure from non-performancepolicies, it is unlikely that a material adverse effect on WPL’s financial condition or results of contractual obligations by its counterparties. WPL maintains credit risk oversight and sets limits and policies with regards to its counterparties, which management believes minimizes its overall credit risk exposure.operations would occur as a result of counterparty non-performance. However, there is no assurance that such policies will protect WPL against all losses from non-performance by counterparties.
(g) Collective Bargaining AgreementsContingent Purchase Agreement for Edgewater Generating Station Unit 5 (Edgewater Unit 5) - - At Dec. 31, 2006, employees covered byIn 2009, WPL and Wisconsin Electric Power Company (WEPCO) entered into a collective bargainingcontingent agreement International Brotherhood of Electrical Workers (IBEW) Local 965, represented 93% of total employees of WPL. In May 2007, thisfor WPL to purchase WEPCO’s 25% ownership interest in Edgewater Unit 5. The agreement expires. While negotiations to renew the contract with IBEW Local 965 are underway, WPLwill become binding if WEPCO is currently unable to predictreach an agreement with a third party to sell its interest. The transaction is subject to customary closing conditions, including the outcome.receipt of applicable regulatory approvals. If the purchase is completed, WPL would own 100% of Edgewater Unit 5.
(13) JOINTLY-OWNED ELECTRIC UTILITY PLANT
Under joint ownership agreements with other utilities, WPL has undivided ownership interests in jointly-owned electric generating facilities. Each of the respective owners is responsible for the financing of its portion of the construction costs. Kilowatt-hour generation and operating expenses are primarily divided between the joint owners on the same basis as ownership with each owner reflecting its respective costsownership. WPL’s shares of expenses from jointly-owned electric generating facilities are included in itsthe corresponding operating expenses (e.g. electric production fuel, other operation and maintenance, etc.) on the Consolidated Statements of Income. Refer to Note 1(b) for further discussion of cost of removal obligations. Information relative to WPL’s ownership interest in these jointly-owned electric generating facilities at Dec. 31, 20062009 was as follows (dollars in millions):
| Fuel Type | Ownership Interest % | Plant in Service | Accumulated Provision for Depreciation | Construction Work in Progress | Cost of Removal Obligations Included in Regulatory Liabilities | In-service Dates | Fuel Type | Ownership Interest % | Plant in Service | Accumulated Provision for Depreciation | Construction Work in Progress | Cost of Removal Obligations Included in Regulatory Liabilities | ||||||||||||||||||||||
Edgewater Unit 5 | Coal | 75.0 | $ | 241.7 | $ | 134.4 | $ | 12.6 | $ | 6.5 | 1985 | Coal | 75.0 | $ | 256.6 | $ | 144.5 | $ | 0.2 | $ | 11.7 | |||||||||||||
Columbia Energy Center | Coal | 46.2 | 224.8 | 123.3 | 4.3 | 10.5 | ||||||||||||||||||||||||||||
Columbia | 1975-1978 | Coal | 46.2 | 238.8 | 144.2 | 2.8 | 9.3 | |||||||||||||||||||||||||||
Edgewater Unit 4 | Coal | 68.2 | 75.3 | 42.7 | 0.7 | 4.3 | 1969 | Coal | 68.2 | 84.4 | 43.3 | 0.6 | 2.6 | |||||||||||||||||||||
| $ | 541.8 | $ | 300.4 | $ | 17.6 | $ | 21.3 | $ | 579.8 | $ | 332.0 | $ | 3.6 | $ | 23.6 | |||||||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(14) SEGMENTS OF BUSINESS
WPL is a utility serving customers in Wisconsin and includes three segments: a) electric operations; b) gas operations; and c) other, which includes various other energy-related products and services and the unallocated portions of the utility business. Refer to Note 16 for discussion of WPL’s utility operations in Illinois which were sold in February 2007. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in “Total.” In 2006, 2005 and 2004, gas revenues included $17 million, $51 million and $20 million, respectively, for sales to the electric segment. All other intersegmentIntersegment revenues were not material to WPL’s operations and there was no single customer whose revenues were 10% or more of WPL’s consolidated revenues. Certain financial information relating to WPL’s significant business segments was as follows (in millions):
| Electric | Gas | Other | Total | Electric | Gas | Other | Total | |||||||||||||||||||||||
2006 | ||||||||||||||||||||||||||||||
2009 | ||||||||||||||||||||||||||||||
Operating revenues | $ | 1,160.3 | $ | 216.5 | $ | 9.3 | $ | 1,386.1 | ||||||||||||||||||||||
Depreciation and amortization | 103.2 | 12.2 | — | 115.4 | ||||||||||||||||||||||||||
Operating income (loss) | 145.4 | 24.6 | (3.0 | ) | 167.0 | |||||||||||||||||||||||||
Interest expense, net of AFUDC | 69.1 | |||||||||||||||||||||||||||||
Equity income from unconsolidated investments | (37.0 | ) | — | — | (37.0 | ) | ||||||||||||||||||||||||
Interest income and other | (0.4 | ) | ||||||||||||||||||||||||||||
Income taxes | 45.8 | |||||||||||||||||||||||||||||
Net income | 89.5 | |||||||||||||||||||||||||||||
Preferred dividends | 3.3 | |||||||||||||||||||||||||||||
Earnings available for common stock | 86.2 | |||||||||||||||||||||||||||||
Total assets | 2,891.0 | 341.7 | 448.7 | 3,681.4 | ||||||||||||||||||||||||||
Investments in equity method subsidiaries | 227.1 | — | — | 227.1 | ||||||||||||||||||||||||||
Construction and acquisition expenditures | 480.5 | 27.7 | 0.2 | 508.4 | ||||||||||||||||||||||||||
2008 | ||||||||||||||||||||||||||||||
Operating revenues | $ | 1,111.4 | $ | 273.9 | $ | 16.0 | $ | 1,401.3 | 1,153.0 | 300.0 | 12.8 | 1,465.8 | ||||||||||||||||||
Depreciation and amortization | 92.8 | 14.5 | — | 107.3 | 89.3 | 12.4 | — | 101.7 | ||||||||||||||||||||||
Operating income | 143.9 | 40.0 | 1.0 | 184.9 | 167.1 | 35.6 | 2.2 | 204.9 | ||||||||||||||||||||||
Interest expense, net of AFUDC | 45.7 | 52.6 | ||||||||||||||||||||||||||||
Equity income from unconsolidated investments | (27.0 | ) | — | — | (27.0 | ) | (33.9 | ) | — | — | (33.9 | ) | ||||||||||||||||||
Interest income and other | (1.3 | ) | (0.6 | ) | ||||||||||||||||||||||||||
Income tax expense | 62.2 | |||||||||||||||||||||||||||||
Income taxes | 68.4 | |||||||||||||||||||||||||||||
Net income | 105.3 | 118.4 | ||||||||||||||||||||||||||||
Preferred dividends | 3.3 | 3.3 | ||||||||||||||||||||||||||||
Earnings available for common stock | 102.0 | 115.1 | ||||||||||||||||||||||||||||
Total assets | 2,131.4 | 351.9 | 215.8 | 2,699.1 | 2,492.5 | 367.1 | 405.9 | 3,265.5 | ||||||||||||||||||||||
Investments in equity method subsidiaries | 175.3 | — | — | 175.3 | 203.6 | — | — | 203.6 | ||||||||||||||||||||||
Construction and acquisition expenditures | 141.8 | 18.9 | 1.8 | 162.5 | 336.3 | 25.3 | 1.5 | 363.1 | ||||||||||||||||||||||
2005 | ||||||||||||||||||||||||||||||
Operating revenues | 1,073.9 | 322.3 | 13.4 | 1,409.6 | ||||||||||||||||||||||||||
Depreciation and amortization | 92.7 | 14.6 | 0.6 | 107.9 | ||||||||||||||||||||||||||
Operating income (loss) | 146.5 | 33.4 | (5.3 | ) | 174.6 | |||||||||||||||||||||||||
Interest expense, net of AFUDC | 37.1 | |||||||||||||||||||||||||||||
Equity income from unconsolidated investments | (26.3 | ) | — | — | (26.3 | ) | ||||||||||||||||||||||||
Interest income and other | (2.2 | ) | ||||||||||||||||||||||||||||
Income tax expense | 60.9 | |||||||||||||||||||||||||||||
Net income | 105.1 | |||||||||||||||||||||||||||||
Preferred dividends | 3.3 | |||||||||||||||||||||||||||||
Earnings available for common stock | 101.8 | |||||||||||||||||||||||||||||
Total assets | 2,070.2 | 380.2 | 217.2 | 2,667.6 | ||||||||||||||||||||||||||
Investments in equity method subsidiaries | 162.5 | — | — | 162.5 | ||||||||||||||||||||||||||
Construction and acquisition expenditures | 164.5 | 20.2 | 0.6 | 185.3 | ||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||
Operating revenues | 939.8 | 253.8 | 16.2 | 1,209.8 | ||||||||||||||||||||||||||
Depreciation and amortization | 95.7 | 14.8 | 0.5 | 111.0 | ||||||||||||||||||||||||||
Operating income (loss) | 164.9 | 24.8 | (6.9 | ) | 182.8 | |||||||||||||||||||||||||
Interest expense, net of AFUDC | 29.0 | |||||||||||||||||||||||||||||
Equity income from unconsolidated investments | (25.0 | ) | — | — | (25.0 | ) | ||||||||||||||||||||||||
Interest income and other | (1.2 | ) | ||||||||||||||||||||||||||||
Income tax expense | 66.3 | |||||||||||||||||||||||||||||
Net income | 113.7 | |||||||||||||||||||||||||||||
Preferred dividends | 3.3 | |||||||||||||||||||||||||||||
Earnings available for common stock | 110.4 | |||||||||||||||||||||||||||||
Total assets | 2,097.5 | 333.3 | 225.3 | 2,656.1 | ||||||||||||||||||||||||||
Investments in equity method subsidiaries | 154.3 | — | — | 154.3 | ||||||||||||||||||||||||||
Construction and acquisition expenditures | 189.1 | 20.2 | 2.2 | 211.5 | ||||||||||||||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(15) OTHER INTANGIBLE ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2006 | 2005 | |||||||||||||||||||||||
| March 31 | June 30 | Sep. 30 | Dec. 31 | March 31 | June 30 | Sep. 30 | Dec. 31 | |||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Operating revenues | $ | 380.8 | $ | 301.4 | $ | 368.4 | $ | 350.7 | $ | 341.1 | $ | 303.1 | $ | 368.4 | $ | 397.0 | ||||||||
Operating income | 56.9 | 34.1 | 38.8 | 55.1 | 40.5 | 27.4 | 55.1 | 51.6 | ||||||||||||||||
Net income | 32.7 | 17.9 | 22.6 | 32.1 | 23.9 | 15.6 | 34.4 | 31.2 | ||||||||||||||||
Earnings available for common stock | 31.9 | 17.0 | 21.8 | 31.3 | 23.1 | 14.7 | 33.6 | 30.4 | ||||||||||||||||
In February 2007, WPL completed the saleEmission Allowances -The gross carrying amount and accumulated amortization of its Illinois electric distribution and gas properties within South Beloit and received net proceeds of $23 million. In July 2006, WPL completed the sale of the water utility within South Beloit for $4 million. WPL has applied the provisions of SFAS 144 to the South Beloit assets and liabilities, which areemission allowances were recorded as held for sale. The operating results of South Beloit were not reported as discontinued operations at Dec. 31, 2006. Theintangible assets in “Deferred charges and liabilities held for saleother” on the Consolidated Balance Sheets at Dec. 31 were as follows (in millions):
| 2006 | 2005 | |||||||
Assets held for sale: | ||||||||
Property, plant and equipment: | ||||||||
Electric plant in service | $ | 21.6 | $ | 20.3 | ||||
Gas plant in service | 13.8 | 12.7 | ||||||
Other plant in service | — | 6.7 | ||||||
Accumulated depreciation | (13.2 | ) | (14.2 | ) | ||||
Net plant | 22.2 | 25.5 | ||||||
Construction work in progress | 2.1 | 0.6 | ||||||
Property, plant and equipment, net | 24.3 | 26.1 | ||||||
Liabilities held for sale: | ||||||||
Long-term liabilities | 1.3 | 2.2 | ||||||
Net assets held for sale | $ | 23.0 | $ | 23.9 | ||||
| 2009 | 2008 | |||||
Gross carrying amount | $ | 9.0 | $ | 7.2 | ||
Accumulated amortization | 4.9 | — | ||||
Amortization expense for emission allowances is recorded in “Electric production fuel and energy purchases” in the Consolidated Statements of Income. In 2009, 2008 and 2007, amortization expense for emission allowances was $4.9 million, $0 and $0. At Dec. 31, 2009, estimated amortization expense for 2010 to 2014 for emission allowances was $3.6 million, $0.4 million, $0.1 million, $0 and $0.
(16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
| 2009 | 2008 | |||||||||||||||||||||||
| March 31 | June 30 | Sep. 30 | Dec. 31 | March 31 | June 30 | Sep. 30 | Dec. 31 | |||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Operating revenues | $ | 411.3 | $ | 300.4 | $ | 326.6 | $ | 347.8 | $ | 420.8 | $ | 328.0 | $ | 353.9 | $ | 363.1 | ||||||||
Operating income | 52.1 | 25.7 | 41.5 | 47.7 | 54.4 | 36.3 | 69.6 | 44.6 | ||||||||||||||||
Net income | 31.3 | 11.6 | 21.0 | 25.6 | 31.1 | 20.4 | 42.6 | 24.3 | ||||||||||||||||
Earnings available for common stock | 30.5 | 10.7 | 20.2 | 24.8 | 30.3 | 19.5 | 41.8 | 23.5 | ||||||||||||||||
(17) ASSET RETIREMENT OBLIGATIONS (AROs)
WPL’s AROs relate to legal obligations for the removal, closure or dismantlement of several assets including, but not limited to, active ash landfills, water intake facilities, above ground and under ground storage tanks, groundwater wells, distribution equipment, easement improvements, leasehold improvements and certain hydro facilities. WPL’s AROs also include legal obligations for the management and final disposition of asbestos, lead-based paint and polychlorinated biphenyls (PCB) and closure of coal yards and ash ponds. WPL’s AROs are recorded in “Other long-term liabilities and deferred credits” on the Consolidated Balance Sheets. Refer to Note 1(b) for information regarding regulatory assets related to AROs. A reconciliation of the changes in AROs associated with long-lived assets wasis as follows (in millions):
| 2006 | 2005 | 2009 | 2008 | ||||||||||||
Balance at Jan. 1 | $ | 10.9 | $ | 0.9 | $ | 17.9 | $ | 11.9 | |||||||
Liabilities incurred (a) | — | 4.6 | |||||||||||||
Accretion expense | 0.6 | — | 1.1 | 0.7 | |||||||||||
Liabilities incurred | 0.9 | — | |||||||||||||
Revisions in estimated cash flows | (0.3 | ) | — | 2.7 | 1.1 | ||||||||||
Liabilities settled | (0.7 | ) | — | (0.3 | ) | (0.4 | ) | ||||||||
Adoption of FIN 47 (a) | — | 10.0 | |||||||||||||
Balance at Dec. 31 | $ | 11.4 | $ | 10.9 | $ | 21.4 | $ | 17.9 | |||||||
| (a) |
If FIN 47 had been adopted as of Jan. 1, 2004, WPL would have recorded FIN 47 ARO liabilities of $9.3 million at Dec. 31, 2004.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
FIN 46R requires consolidation where there(18) VARIABLE INTEREST ENTITIES (VIEs)
An entity is considered a controlling financial interest in a variable interest entity or where the variable interest entity doesVIE if its equity investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. parties or its equity investors lack any one of the following three characteristics: (1) control of the entity through voting rights; (2) the obligation to absorb expected losses of the entity; or (3) the right to receive expected benefits of the entity. The primary beneficiary of a VIE is required to consolidate the financial statements of the VIE.
After making an ongoing exhaustive effort, WPL concluded it was unable to obtain the information necessary from the counterparties (subsidiariescounterparty (subsidiary of Calpine)Calpine Corporation) for the Riverside and RockGen PPAs,PPA for WPL to determine whether the counterparties are variable interest entities per FIN 46R,counterparty is a VIE and if WPL is the primary beneficiary. These PPAs areThis PPA is currently accounted for as an operating leases.lease. The counterparties sell some or allcounterparty for the Riverside PPA sells a portion of theirits generating capacity to WPL and can sell theirits energy output to WPL. WPL’s maximum exposure to loss from these PPAsthis PPA is undeterminable due to the inability to obtain the necessary information to complete such evaluation. In 2006, 20052009, 2008 and 2004,2007, Alliant Energy’s (primarily WPL’s) costs, excluding fuel costs, related to the Riverside PPA were $61$63 million, $65$63 million and $39$64 million, respectively. Riverside was placed in service in June 2004. In 2006, 2005
(19) RELATED PARTIES
System Coordination and 2004, WPL’s costs, excluding fuel costs, related to the RockGen PPA were $16 million, $18 million and $33 million, respectively.
In December 2005, Calpine filed voluntary petitions to restructure under Chapter 11 of the U.S. Bankruptcy Code. RockGen is part of the bankruptcy proceedings but Riverside is excluded. WPL utilizes RockGen primarily for capacity. WPL is currently evaluating its options should the PPA be terminated by the bankruptcy trustees.
Operating Agreement -WPL and IPL are parties to a System Coordinationsystem coordination and Operating Agreement.operating agreement. The agreement, which has been approved by FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and transmission (IPL only) systems of WPL and IPL. In addition,Prior to June 1, 2008, the agreement allowsallowed the interconnected system to be operated as a single entity with off-system sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases arewere allocated among WPL and IPL based on procedures included in the agreement. The sales allocated to WPL were $24 million, $40 million and $25 million for 2006, 2005 and 2004, respectively. The purchases allocated to WPL were $444 million, $466 million and $279 million for 2006, 2005 and 2004, respectively. The procedures were approved by both FERC and all state regulatory bodies having jurisdiction over these sales. Under the agreement prior to June 1, 2008, WPL and IPL arewere fully reimbursed for any generation expense incurred to support the sale to an affiliate or to a non-affiliate. Any margins on sales to non-affiliates arewere distributed to WPL and IPL in proportion to each utility’s share of electric production at the time of the sale. The procedures were approved by FERC and all state regulatory bodies having jurisdiction over these sales. Effective June 1, 2008, a change was made to designate WPL and IPL as two separate entities transacting with MISO. This change eliminated the need for internal allocations based on procedures in the agreement and resulted in separate statements from MISO of sales and purchases for WPL and IPL. The sales credited to WPL were $72 million, $22 million and $16 million for 2009, 2008 and 2007, respectively. The purchases billed to WPL were $121 million, $371 million and $449 million for 2009, 2008 and 2007, respectively.
Service Agreement -Pursuant to a service agreement, WPL receives various administrative and general services from an affiliate, Corporate Services. These services are billed to WPL at cost based on payroll and other expenses incurred by Corporate Services for the benefit of WPL. These costs totaled $124$112 million, $113$120 million and $129$135 million for 2006, 20052009, 2008 and 2004,2007, respectively, and consisted primarily of employee compensation, benefits and fees associated with various professional services. AtAs of Dec. 31, 20062009 and 2005,2008, WPL had a net intercompany payable to Corporate Services of $61$45 million and $45$68 million, respectively.
In 2004, Resources’ Non-regulated Generation business billed WPL $7 million related to the construction of SFEF, which WPL leases from Resources. Refer to Note 3(b) for discussion of WPL’s capital lease related to SFEF.
ATC - - Pursuant to various agreements, WPL receives a range of transmission services from ATC. WPL provides operation, maintenance, and construction services to ATC. WPL and ATC also bill each other for use of shared facilities owned by each party. ATCThe related amounts billed WPL $59 million, $52 million and $48 million in 2006, 2005 and 2004, respectively. WPL billed ATC $9.9 million, $9.3 million and $13 million in 2006, 2005 and 2004, respectively. Atbetween the parties were as follows (in millions):
| 2009 | 2008 | 2007 | |||||||
ATC billings to WPL | $ | 83 | $ | 82 | $ | 72 | |||
WPL billings to ATC | 13 | 9 | 9 | ||||||
As of Dec. 31, 20062009 and 2005,2008, WPL owed ATC net amounts of $4.4$5 million and $3.7$6 million, respectively.
Sheboygan Falls Energy Facility Lease -Refer to Note 3(b) for discussion of WPL’s Sheboygan Falls Energy Facility lease.
Nuclear Management Company, LLC (NMC) - WPL received services from NMC for the management and operation of Kewaunee. NMC billed WPL indirectly, through Wisconsin Public Service Corporation, $18 million and $34 million in 2005 and 2004, respectively, for its allocated portion for Kewaunee. As a resultAcquisition of the Kewaunee sale, WPL no longer receives servicesNeenah Energy Facility -Refer to Note 1(e) for details of WPL’s acquisition of the Neenah Energy Facility and related assets from NMC.Resources in June 2009.
Market Information - The 4.50% series of preferred stock is listed on the American Stock Exchange,NYSE Amex LLC, with the trading symbol of WIS_PR. All other series of preferred stock are traded on the over-the-counter market. As of Dec. 31, 2006, 69%2009, 70% of WPL’s individual preferred shareowners were Wisconsin residents.
Dividend Information - - Preferred stock dividends paid per share for each quarter during 20062009 were as follows:
Series | Dividend | ||
4.40% | $ | 1.10 | |
4.50% | $ | 1.125 | |
4.76% | $ | 1.19 | |
4.80% | $ | 1.20 | |
4.96% | $ | 1.24 | |
6.20% | $ | 1.55 | |
6.50% | $ | 0.40625 | |
As authorized by the WPL Board of Directors, preferred stock dividend record and payment dates for 20072010 are as follows:
Record Date | Payment Date | |
February | March 15 | |
May | June 15 | |
August 31 | September 15 | |
November 30 | December 15 |
Stock Transfer Agent and Registrar
Wells Fargo Shareowner Services
161 North Concord Exchange
P.O. Box 64854
St. Paul, MN 55164-0854
Form 10-K Information -A copy of the combined Annual Report on Form 10-K for the year ended Dec. 31, 20062009 as filed with the SEC will be provided without charge upon request. Requests may be directed to Alliant Energy Shareowner Services, P.O. Box 2568,14720, Madison, WI 53701-2568.Wisconsin 53708-0720.
EXECUTIVE OFFICERS AND DIRECTORS
Executive Officers - Numbers following the names represent the officer’s age as of Dec. 31, 2006.2009.
William D. Harvey,, 57, 60, was elected Chairman of the Board effective February 2006 and Chief Executive Officer effective July 2005 and has been a board member since January 2005. He previously served as Chief Operating Officer sincefrom January 2004 and President from 1998 to 2003.July 2005.
Barbara J. Swan,, 55,58, was elected President effective January 2004.
Patricia L. Kampling, 50, was elected Executive Vice President-Chief Financial Officer and Treasurer effective January 2010. She previously served as ExecutiveVice President-Chief Financial Officer and Treasurer since January 2009, as Vice President and General Counsel since 1998.
Eliot G. Protsch, 53, was elected Chief Financial Officer effectiveTreasurer from January 2004. He previously2007 to January 2009 and as Vice President-Finance from August 2005 to January 2007. From September 2004 to August 2005, she served as Executive Vice President and Chief Financial Officer since September 2003 and Executive Vice President-Energy Delivery from 1998 to September 2003.Treasurer of IPSCO Inc.
Thomas L. Aller, 60, was elected Senior Vice President-Energy Resource Development effective January 2009. He previously served as Senior Vice President-Energy Delivery since January 2004.
Dundeana K. Doyle, 57,51, was elected Senior Vice President-Energy Delivery effective January 2004. He previously served as interim Executive Vice President-Energy Delivery since September 2003 and Vice President-Investments at Resources from 1998 to 2003.
Dundeana K. Doyle, 48, was elected Vice President-Strategy and Regulatory Affairs effective January 2007.2009. She previously served as Vice President-Strategy and Regulatory Affairs since January 2007 and as Vice President-Strategy and Risk sincefrom May 2003 to January 2007.
John O. Larsen, 46, was elected Senior Vice President-Generation effective January 2010. He previously served as Vice President-Generation since August 2008 and as Vice President-Infrastructure SecurityPresident-Technical and Integrated Services from 2002January 2004 to May 2003.August 2008.
Thomas L. Hanson,, 53, 56, was elected Vice President-Controller and Chief Accounting Officer effective January 2007. He previously served as Vice President and Treasurer since April 2002 and Managing Director-Generation Services from 2001 to April 2002.
Patricia L. Kampling, 47, was elected Vice President and Treasurer effective January 2007. She previously served as Vice President-Finance since August 2005 and as Treasurer of IPSCO Inc. from September 2004 to August 2005 and Senior Vice President and Chief Financial Officer of Exelon Enterprises Company, LLC (a subsidiary of Exelon Corporation) from 2000 to 2002.
John E. Kratchmer, 44, was elected Vice President-Customer Service Operations-East effective January 2007. He previously served as Vice President-Controller and Chief Accounting Officer since October 2002 and Corporate Controller and Chief Accounting Officer from 2000 to October 2002.
Peggy Howard Moore, 56, was elected Vice President-Finance effective January 2007. She previously served as Vice President-Customer Service and Operations Support since 2004 and as Managing Director-Customer Information and Services from 2002 to 2004.
Directors - - Refer to WPL’s Proxy Statement for information on WPL’s board members.
www. wellsfargo.com/shareownerservices
1-800-356-5343
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we’ve provided. Your proxy card must be received by May 25, 2010.
È Please detach hereÈ
The Board of Directors Recommends a Vote FOR All Listed Director Nominees and FOR Proposal 2. | ||||||||||||||||||||||
1. Election of directors: | Nominees for terms ending in 2013: | ¨ | FOR all nominees (except as marked) | ¨ | WITHHOLD authority to vote for all nominees | |||||||||||||||||
| (01) Michael L. Bennett | (02) Darryl B. Hazel | |||||||||||||||||||||
| (03) David A. Perdue | (04) Judith D. Pyle | |||||||||||||||||||||
(Instructions: To withhold authority to vote for any individual nominee, write the number(s) of the nominee(s) in the box provided to the right.) | ||||||||||||||||||||||
2. Proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2010. | ¨ | FOR | ¨ | AGAINST | ¨ | ABSTAIN | ||||||||||||||||
| THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN, THE NAMED PROXIES WILL VOTE AS RECOMMENDED BY THE BOARD OF DIRECTORS. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL LISTED DIRECTOR NOMINEES AND “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT PUBLIC ACCOUNTING FIRM FOR 2010. | ||||||||||||||||||||||
| Address Change? Mark Box | ¨ | Indicate changes below: | Date | |||||||||||||||||||
Signature(s) in Box Please sign exactly as name appears on Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy. | ||||||||||||||||||||||
WISCONSIN POWER AND LIGHT COMPANY
20072010 ANNUAL MEETING OF SHAREOWNERS
Wednesday, May 23, 200726, 2010
2:00 p.m. (Central(Central Daylight Time)
Alliant Energy Corporate Headquarters
YangtzeMississippi Meeting Room
4902 N. Biltmore Lane
Madison, Wisconsin
To access the Wisconsin Power and Light Company Annual Report and Proxy Statement, as well as the Alliant Energy Corporation Annual Report and Proxy Statement, on the Internet, please open Alliant Energy’s website at go towww.alliantenergy.com/annualreports. WPLproxy.We encourage you to check out Alliant Energy’s website to see how easy and convenient it is. Click on the Annual Report link for the Annual Report and Proxy Statement. You may print or just view these materials.
Wells Fargo Shareowner Services
Wells Fargo Shareowner Services | ||
P.O. Box 64873 | ||
St. Paul, MN 55164-0873 | proxy |
P.O. Box 64873
St. Paul, MN 55164-0873 proxy
The undersigned appoints Barbara J. Swan and F. J. Buri, or either of them, attorneys and proxies with the power of substitution to vote all shares of stock of Wisconsin Power and Light Company (the “Company”), held of record in the name of the undersigned at the close of business on April 10, 2007,6, 2010, at the Annual Meeting of Shareowners of the Company to be held at 4902 N. Biltmore Lane, Madison, Wisconsin on May 23, 200726, 2010 at 2:00 p.m., and at all adjournments thereof, upon all matters that properly come before the meeting, including the matters described in the Company’s Notice of Annual Meeting, Proxy Statement and Annual Report, dated April 17, 2007,15, 2010, subject to any directions indicated on the reverse side of this card.
This proxy is solicited on behalf of the Board of Directors of Wisconsin Power and Light Company. This proxy, when properly executed, will be voted in the manner directed herein by the shareowner. If no direction is made, the proxies will vote as recommended by the Board of Directors. The Board of Directors recommends a vote “FOR” all listed director nominees, and “FOR” the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2007.2010.
See reverse for voting instructions.
ECRM158493 REV. 3 03/10
ALLIANT ENERGY®
Wisconsin Power and Light
www.wellsfargo.com/shareownerservices
1-800-356-5343
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we’ve provided.
Your proxy card must be received by May 22, 2007.
Please detach here
The Board of Directors Recommends a Vote FOR all Listed Director Nominees and FOR Proposal 2.
1. Election of directors: Nominee for terms ending in 2008:
01 James A. Leach
Nominees for terms ending in 2010:
02 Michael L. Bennett 03 Darryl B. Hazel 04 David A. Perdue 05 Judith D. Pyle
FOR all nominees (except as marked)
WITHHOLD authority to vote for all nominees
(Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.)
2. Proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2007.
For Against Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED “FOR” ALL LISTED DIRECTOR NOMINEES AND “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT PUBLIC ACCOUNTING FIRM FOR 2007.
Address Change? Mark Box Indicate changes below: Date
Signature(s) in Box
Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.
