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. )
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| ¨ | 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)
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SEC 1913 (3-99)
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL MEETING OF SHAREOWNERS
DATE: | ||
TIME: | 2:00 p.m. (Central Daylight Time) | |
LOCATION: | Wisconsin Power and Light Company Alliant Energy
4902 North Biltmore Lane Madison, Wisconsin 53718 | |
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 14720
Madison, WI 53708-0720
Phone: 608-458-3110
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
Dear Wisconsin Power and Light Company Shareowner:
On Wednesday,Tuesday, May 21, 2008,17, 2011, Wisconsin Power and Light Company will hold its 20082011 Annual Meeting of Shareowners at the offices ofAlliant Energy Corporation, 4902 North Biltmore Lane, Mississippi MeetingSandy River Conference Room in Madison, Wisconsin. Wisconsin 53718.The meeting will begin at 2:00 p.m. (Central Daylight Time).
Only the sole common shareowner, Alliant Energy Corporation, and preferred shareowners who owned stock at the close of business on April 8, 2008March 30, 2011 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, our shareowners will be asked to:
| 1. | Elect |
| 2. | Consider an advisory vote on compensation of our named executive officers; |
| 3. | Consider an advisory vote on the frequency of the advisory vote on compensation of our named executive officers; |
| 4. | Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for |
| Attend to any other business properly presented at the meeting. |
Our Board of Directors presently knows of no other business to come before the meeting.
Please sign and return the enclosed proxy card as soon as possible.
A copy of our 20072010 Annual Report appears aswas included in 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 17, 2011. Our 20082011 Notice of Annual Meeting, Proxy Statement and the 20072010 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 20072010 Annual Report, 20082011 Notice of Annual Meeting and Proxy Statement may do so by calling our Shareowner Services Department at (800) 353-1089 or writing to us at the address shown above, or by visitingabove.The Alliant Energy Corporation proxy statement for the web site address above for additional information.
2011 Annual Meeting of Shareowners and the 2010 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, 2008.8, 2011.
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Appendix | A-1 | |||
| 1.Q: | Why am I receiving these materials? |
| A: | Our Board of Directors is providing these proxy materials to you in connection with our Annual Meeting of Shareowners (the “Annual Meeting”), which will take place on |
| 2. Q: | What is Wisconsin Power and Light |
| A: | We are a subsidiary of Alliant Energy Corporation (“Alliant Energy” or “AEC”), a public utility holding company whose |
| 3. Q: | Who is entitled to vote at the Annual Meeting? |
| A: | Only shareowners of record at the close of business on |
| 4. Q: | What may I vote on at the Annual Meeting? |
| A: | You may vote on: |
The election of threetwo nominees to serve on our Board of Directors for terms expiring at the 20112014 Annual Meeting;
A non-binding advisory vote to approve compensation of our named executive officers;
A non-binding advisory vote on the frequency of the advisory vote on compensation of our named executive officers; and
The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2008.2011.
| 5. Q: | How does the Board of Directors recommend I vote? |
| A: | Our Board of Directors recommends that you vote your shares FOR each of the listed director nominees; FOR approval of the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis section and accompanying compensation tables and narrative discussion contained in this proxy statement; for a frequency of 1 YEAR for future non-binding shareholder advisory votes on compensation of our named executive officers; and FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for |
| 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:
Election of directors — You may vote FOR all of the director nominees or you may WITHHOLD your vote with respect to one or more nominees.
Advisory vote on compensation of our named executive officers — You may vote FOR or AGAINST approval of the compensation of our named executive officers, or you may ABSTAIN.
Frequency of advisory vote on compensation of our named executive officers — You may vote to hold future advisory votes on the compensation of our named executive officers every 1 YEAR, 2 YEARS or 3 YEARS, or you may ABSTAIN.
Ratification of independent registered public accounting firm — You may vote FOR or AGAINST ratifying the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2011, or you may ABSTAIN.
If you return your signed proxy card but do not mark the boxes showing how you wish to vote, your shares will be voted FOR all listed director nominees, FOR approval of the compensation of our named executive officers, for a frequency of 1 YEAR for future advisory votes on compensation of our named executive officers and FOR ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2011. If your proxy card is not signed, your votes will not be counted.
If you hold your shares through a bank, broker or other record holder and you do not provide such bank, broker or other record holder with specific voting instructions on a timely basis, your shares will not be voted with respect to the election of directors, the advisory vote on compensation of our named executive officers or the advisory vote on the frequency of the advisory vote on compensation of our named executive officers. We urge you to carefully consider all of the proposals and direct your bank, broker or other record holder to vote your shares as you desire.
| 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 our Corporate Secretary 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. We encourage you to have all |
accounts registered in the same name and address (whenever possible). You can accomplish this by contacting Wells Fargo Shareowner Services at the shareowner information number shown at the front of this proxy statement. |
| 10. Q: | Who may attend the Annual Meeting? |
| A: | All shareowners who owned shares of our common stock and preferred stock on |
| 11. Q: | How will voting on any other business be conducted? |
| A: | Our Board of Directors does not know of any business to be considered at the Annual Meeting other than the four proposals set forth in this proxy statement. These consist of the election of directors, the advisory vote on compensation of our named executive officers, the advisory vote on the frequency of the advisory vote on compensation of our named executive officers and the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for |
| 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 us at the information number shown |
| 13. Q: | Are our 2010 Annual Report and these proxy materials available on the Internet? |
| A: | Yes. As required by rules adopted by the SEC, we are making our proxy statement and our annual report available to our shareowners electronically via the Internet. You can access these materials athttp://www.alliantenergy.com/WPLproxy. |
| 14. Q: | When are shareowner proposals for the |
| A: | All shareowner proposals to be considered for inclusion in our proxy statement for the |
In addition, any shareowner who intends to present a proposal from the floor at our 2012 Annual Meeting must submit the proposal to our Corporate Secretary no later than Feb. 23, 2012.
| Who is our independent registered public accounting firm and how is it appointed? |
| A: | Deloitte & Touche LLP audited our financial statements for the year ended Dec. 31, |
| Who will bear the cost of soliciting proxies for the Annual Meeting and how will these proxies be solicited? |
| A: | We will pay the cost of preparing, assembling, printing, mailing and distributing these proxy materials. In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our officers and employees who will not receive any additional compensation for these solicitation activities. We will pay banks, brokers, nominees and other fiduciaries reasonable charges and expenses incurred in forwarding the proxy materials to their principals. |
| 17. Q: | 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 our communications to shareowners that hold their stock through a bank, broker or other holder of record may deliver to multiple shareowners sharing the same address a single copy of our |
ELECTION OF DIRECTORS
At the Annual Meeting, threetwo directors will be elected forwith terms expiring in 2011.2014. The nominees for election as recommended by the Nominating and Governance Committee and selected by the Board of Directors are William D. Harvey James A. Leach and Singleton B. McAllister. Each of the nominees is currently serving on our Board of Directors. Each person elected as a director will serve until our Annual Meeting of Shareowners in 2011,2014, or until his or her successor has been duly qualified and elected.
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, including as a result of broker non-votes, 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, 2007),2010); an account of their specific business experience andexperience; the names of publicly held and certain other corporations of which they also 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
 | WILLIAM D. HARVEY Age | Director since 2005 Nominated Term expires in | ||
| Mr. Harvey has served as Chairman of the Board of the Company, AEC | ||||
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| SINGLETON B. MCALLISTER Age | Director since 2001 Nominated Term expires in | ||
| Ms. McAllister has been a partner in the Washington D. C. office of the law firm of Blank Rome LLP since June 2010. She previously served as a partner in the law firm of LeClair & Ryan LLP | ||||
The Board of Directors unanimously recommends a vote FOR“FOR” all nominees for election as directors.
CONTINUING DIRECTORS
 | MICHAEL L. BENNETT Age | Director since 2003 Term expires in | ||
| Mr. Bennett has been a private investor and consultant in Sioux City, Iowa since May 2010. He previously served as President and Chief Executive Officer of Terra Industries Inc., an international producer of nitrogen products | ||||
| DARRYL B. HAZEL Age | Director since 2006 Term expires in | ||
| Mr. Hazel has been the principal of Darryl B. 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 | ||||
 | 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 been | ||||
 | DAVID A. PERDUE Age | Director since 2001 Term expires in | ||
| Mr. Perdue has been the Chief Executive Officer of Aquila Group LLC based in Sea Island, Ga., a private investment firm involved with, among other investments, retail markets in India, since 2007. He retired in July 2007 from his position as Chairman of the Board and Chief Executive Officer of Dollar General Corporation, a retail organization headquartered in Goodlettsville, Tenn. | ||||
| JUDITH D. PYLE Age | Director since 1994 Term expires in | ||
| Ms. Pyle is President and Chief Executive Officer 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 | ||||
| CAROL P. SANDERS Age | Director since 2005 Term expires in | ||||
| Ms. Sanders has | ||||||
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;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 ourthe Alliant Energy web 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 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 sevensix joint meetings in 2007.2010. The Committee currently consists of C. P. Sanders (Chair), M. L. Bennett, D. B. Hazel, A. K. Newhall and D. A. 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 Ms. Sanders and two additionalthe other three 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 sixfive joint meetings in 2007.2010. The Committee currently consists of S. B. McAllisterA. K. Newhall (Chair), M. L. Bennett, D. B. Hazel, J. D. Pyle and D. C. Oestreich.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 officer compensation and the compensation of the other principal executive officers, evaluates the chief executive officer’s performance and determines and approves as a committee, or together with the other independent directors, the chief executive officer’s compensation level based on its evaluation of the chief 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 engageretain and terminate the services of outside advisors, experts and others to assist the Committee with the expense of such outside consultants provided for by us.Alliant Energy. For 2007,a portion of 2010, the Committee formally engaged Towers PerrinWatson as an outside compensation consultant to
serve as an advisor in evaluating the compensation of our chief executive officer, other named executive officers and our outside non-management directors. Towers PerrinWatson also provides assistance and serves as an advisor and 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 as well as assisting management with the implementation of these programs; and provides technical considerations and actuarial services.other consulting services at the request of the Committee. In October 2010, the Committee engaged Pay Governance LLC as an outside independent compensation consultant to perform the specific executive compensation consulting services previously provided by Towers Watson. Alliant Energy provides forwill pay the appropriate funding,fees as determined by the Committee for payment of fees and upon its request and related out of pocket expenses to Towers Perrin. The Committee has the authority to retainWatson and terminate the outsidePay Governance LLC. For executive compensation consultant. consulting services provided in 2010, these fees totaled approximately $57,000 for Towers Watson and approximately $37,000 for Pay Governance LLC.
During 2007 and previously,2010, Towers Perrin,Watson, through a separate part of its organization, also provided certain services for management purposes that are recommended and approved by members of management, including Alliant Energy’s chief executive
officer, Vice Presidentvice president — human resources, and the director 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, actuarial services, and business and technical insight,employee benefits consulting, but does not recommend pay program and pay level changes.
In 2010, Towers Watson was paid approximately $1,233,000 for services provided to management and Alliant Energy’s employee benefit plans. The Committee was aware of and acknowledged the services provided for management by Towers Watson when it engaged Towers Watson. The Committee determined that the measures taken to ensure the independence of the advice given by Towers Watson to the Committee were appropriate. The Committee took additional action during 2010 to ensure the independence of the advice provided by its compensation consultant by engaging Pay Governance LLC as its compensation consultant.
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 PerrinWatson 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 Committee made up of Vice Presidentsvice presidents of our energy delivery, generation, finance, shared serviceslegal and treasuryhuman resources business units. The Committee has delegated to the Total Compensation Committee has been delegated with various powers of design and administration associated with our employee benefit plans for salaried and hourly employees.
The Committee reviews the minutes and actions of the Total Compensation Committee. The Committee has also reviewed and approved the charter for our internal Investment Committee. The Investment Committee is made up of voting members and non-voting members. The voting members include officers in our finance/treasury, human resources, energy delivery and accounting business units. Non-voting members include an assistant treasurer, directors of business and financial performance for corporate services and energy delivery, a lead treasury analyst and the 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. The Committee reviews the investment policies related to these benefit and compensation plans on an annual basis.
Nominating and Governance Committee
The Nominating and Governance Committee held four joint meetings in 2007.2010. The Committee currently consists of M. L. Bennett (Chair), J. A. Leach, A. K. Newhall,S. B. McAllister, D. C. Oestreich and D. A. Perdue and J. D. Pyle.Perdue. 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 Committee will examine each director nominee on a case-by-case basis regardless of who recommended the nomineesource of the recommendation 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 Officerchief 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 a component of our core value of respect. We strive to create a workplace where people of diverse backgrounds, talents and perspectives support our mission. Diversity is reflected in our directors’ skills matrix, in the criteria specified for use in the evaluation of our director nominees by the Committee and 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 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.
The Committee has the responsibility to periodically review and make recommendations to the Board regarding policies and procedures for selection of the chief executive officer and succession planning in the event of an emergency or the retirement of the chief executive officer. The Committee, in conjunction with the full Board, discusses succession planning and other management development issues at least annually and more often, as necessary.
The Committee is responsible for ensuring that new Board members have an appropriate orientation to our company and their responsibilities as directors to permit them to become familiar with the industry, business units and corporate governance processes of our company. The Committee is also responsible for ensuring that a process is in place to provide educational opportunities on an ongoing basis to help assure that each director has the necessary skills to perform his or her responsibilities as a director. The Committee has established an aspirational continuing education guideline for approximately one half of the board members to attend a continuing education program every year.
Environmental, Nuclear, Health and Safety Committee
The Environmental, Nuclear, Health and Safety Committee held twothree joint meetings in 2007.2010. The Committee currently consists of D. C. Oestreich (Chair), J. A. Leach, S. B. McAllister, A. K. Newhall and J. D. Pyle, and C. P. Sanders.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 health and safety-safety 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 no meetings in 2007.2010. 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 2007.2010. The Committee currently consists of M. L. Bennett, S. B. McAllister,A. K. Newhall, D. C. Oestreich and C. P. Sanders.Sanders, each the Chairperson of a committee. 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.
The Committee meets only when a regular, or special, Board of Directors meeting, or a meeting of the Capital Approval Committee, would be impractical and an important need exists that requires action.
Attendance and Performance Evaluations
The Board of Directors held seven joint meetings during 2007.2010. Each director attended at least 75% of the aggregate number of meetings of the Board and Board committees on which he or she 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 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 20072010 Annual Meeting.
Corporate Governance Principles
TheOur 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 web 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 Ms. Pyle serve or(or served in the case of Mr. Perdue,during 2010) as executive officers and/or directors of companies that are customers or, in the case of us 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 us 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 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-ratapro 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) 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 holds 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 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 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, we had no related person transactions in 2007,2010, and no related person transactions 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. Bennett is currently designated as the 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. In 2010, this risk assessment was conducted in association with reviews by the chief audit executive and the director of strategy and communication. 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 conducted an assessment in 2010 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’ web 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 officer and chief accounting officer, as well as our Board of Directors. We make our Code of Conduct available free of charge, on the Alliant Energy web 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 web 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 Feb. 29, 200828, 2011 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 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 BENEFICIALLY OWNED(1) | |||
Executive Officers(2) | ||||
Thomas L. Aller | 90,208 | (3) | ||
Dundeana K. Doyle | 34,826 | (3) | ||
| 36,551 | (3) | ||
Barbara J. Swan | 80,777 | |||
Director Nominees | ||||
William D. Harvey | 337,061 | (3) | ||
| ||||
Singleton B. McAllister | 13,128 | (3) | ||
Directors | ||||
Michael L. Bennett | 21,123 | (3) | ||
Darryl B. Hazel | 10,098 | (3) | ||
Ann K. Newhall | 14,505 | (3) | ||
Dean C. Oestreich | 15,892 | (3) | ||
David A. Perdue | 17,195 | (3) | ||
Judith D. Pyle | 17,826 | |||
Carol P. Sanders | 12,436 | (3) | ||
All Executive Officers and Directors as a Group | 798,206 | (3) | ||
(1) | Total shares of Alliant |
(2) | Stock ownership of Mr. Harvey is shown with the director nominees. |
(3) | Included in the beneficially owned shares shown are indirect ownership interests with shared voting and investment powers: Mr. Harvey — |
(4) |
|
To our knowledge, no shareowner beneficially owned 5% or more of any class of our preferred stock as of Dec. 31, 2007. The following table sets forth information, as of Dec. 31, 2007,2010, regarding beneficial ownership by the only persons known to us 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 | 9,981,613 | 0 | 11,667,565 | 0 | 11,667,565 | 10.58 | % | ||||||||||||||||||||||||||||||
BlackRock, Inc. (and certain affiliates) 40 East 52nd Street New York, NY 10022 | 9,253,326 | 0 | 9,253,326 | 0 | 9,253,326 | 8.35 | % | ||||||||||||||||||||||||||||||
None of our directors or officers own any shares of preferred stock. To our knowledge, no shareowner beneficially owned 5% or more of any class of our preferred stock as of Dec. 31, 2010 other than the 4.96% series of preferred stock. The following table sets forth information, as of Dec. 31, 2010, regarding beneficial ownership by the only persons known to us
to own more than 5% of the 4.96% series of preferred 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 | |||||||||||||||||||||||
| Name and Address of Beneficial Owner | Sole | Shared | Sole | Shared | Aggregate | Percent of Class | ||||||||||||||||||
Wells Fargo and Company 420 Montgomery Street San Francisco, CA 94104 | 4,567 | 0 | 4,567 | 0 | 4,567 | 7.03 | % | |||||||||||||||||
COMPENSATION DISCUSSION AND ANALYSIS
Objectives of Compensation Programs:
The following is a discussion and analysis with respect toof 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 together unless the context indicates otherwise.
Executive Summary
We have designed our executive compensation program to motivate our executive officers to achieve results for our shareowners and customers and reward them for doing so. Our compensation program is designed to link a significant portion of the compensation of our named executive officers to defined performance standards that promote balance between the drive for near-term growth and long-term increase in shareowner value. The compensation we paid in the last three years demonstrates that our compensation program is consistent with our pay for performance philosophy.
In 2010, our financial results improved substantially over the results of 2009 and 2008. The following table shows the pay for performance linkage by displaying the results of our financial performance goals and incentive compensation payouts over the past three years.
| Year | Adjusted utility earnings per share from continuing operations | Short-term incentive payout as % of target | Relative Total Shareowner Return (three years) | Performance Share payout as % of target | Performance Contingent Restricted Stock vesting | |||||||||||
2008 | $ | 2.19 | 0 | % | 75th percentile | 162.5 | % | No | ||||||||
2009 | $ | 1.86 | 0 | % | 31st percentile | 0 | % | No | ||||||||
2010 | $ | 2.68 | 130 | % | 45th percentile | 75 | % | Yes | ||||||||
At the end of 2010, our relative total shareowner return compared to the S&P Midcap Utility Index performed at the 84th percentile for the last year and the 82nd percentile over the last five years. Adjusted utility earnings per share in 2010 were up 44% over 2009. We exceeded our adjusted utility earnings per share target by 9% in 2010, resulting in the first short-term incentive payment in three years. Adjusted cash flows from our utilities and service company exceeded the 2010 target by 46%. In addition, we met or exceeded performance goals related to customer satisfaction, safety and diversity. As a result of the improved financial performance of 2010, the total direct compensation we paid to our executive officers increased in 2010 over 2009 and 2008. Our compensation programs worked as designed by increasing compensation to our executive officers based on our higher earnings growth, operational performance and common stock price.
Our long-term incentive plan is entirely performance-based. The two types of equity awards that make up our long-term incentive plan, performance contingent restricted stock and performance shares, will not vest unless financial performance goals are met. The two financial goals are total shareowner return and earnings growth. In addition, we emphasize long-term incentives for our named executive officers, as they comprise on average, in the aggregate, 49% of their total direct compensation. This creates a strong link between the long-term financial performance for our shareowners and the compensation of our named executive officers.
We have implemented a policy to reduce the amount of perquisites paid to our executive officers. In 2009, we eliminated our flexible perquisite program, which paid an amount of perquisite commensurate with the position of the executive officer, and allowed the executive officer to determine on what to spend the perquisite. In 2010, we eliminated a health care benefit received by executive officers that was more generous than that paid to the balance of our non-bargaining employees, effective in 2011. Elimination of these perquisites strengthens the link between compensation and company performance.
The following discussion describes the elements of our compensation program and explains how it considers the results of our performance when determining our executive compensation.
Objectives of Compensation Programs
We are committed to maintaining a total compensation program for executive officers that:
furthers our strategic plan by strengthening the relationship between pay and performance by emphasizing variable at-risk compensation,
focuses and aligns executives’executive officers’ and employees’ interests with those of our company, our shareowners and our customers, and
is competitive with comparable employers to help ensureensures that we attract and retain talented employees andthrough competitive compensation that is comparable to other similar companies.
is equitable among executives.
We believe these objectives attract, retain and motivate a highly proficient workforce that workis actively engaged in the interests ofproducing results for our shareowners and customers.
We adhere to the following compensation principles, which are intended to facilitate the achievement of our business strategies:
| • | base salary levels should be targeted at the median (50th percentile) of base salaries paid by comparable companies, |
Executive officera substantial portion of our executive officers’ compensation (and in particular, long-term incentive compensation) should be closely and strongly alignedbased on achievement of performance goals, with long-term incentives comprising a majority of the long-term interests of our shareowners and customers.performance-based pay,
Totalrisks associated with our compensation plans 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.be minimized,
Base salary levels should be targeted at a competitive market range of base salaries paid to executive officers of comparable companies. 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, business unit and individual performance goals. We target incentive levels at the median (50th percentile) of incentive compensation at comparable companies.
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.plans, and
Executiveexecutive officers should have significant holdings of Alliant Energy’sEnergy common stock to align their interests with the interests of ourAlliant Energy shareowners.
Compensation Program Practices
We have many practices that help ensure that our compensation program is aligned with the interests of Alliant Energy shareowners and customers and are supportive of good compensation governance. These practices include:
a balance of short-term (adjusted utility earnings per share from continuing operations) and long-term (relative total shareholder return and adjusted net income growth) performance measures;
a balance of time horizons for our incentive awards, including an annual cash incentive program, a three-year performance share program and performance contingent restricted stock that may vest after two, three or four years;
share ownership guidelines requiring executive officers to hold a number of Alliant Energy shares valued at one-and-one-half to four times their annual salaries;
a long-standing insider trading policy for executive officers and non-employee directors that prohibits transactions involving shorting, puts, calls, options, warrants and certain other derivatives;
an annual incentive compensation repayment (“claw back”) policy;
employment of our executive officers is “at will,” without employment contracts that guarantee cash compensation for a set period of time; and
using other types of long-term equity incentives rather than stock options.
Alliant Energy’s compensation programs are subject to a thorough review process that includes Committee review and approval of all elements of our executive compensation program; the advice of an independent, third-party compensation consultant engaged by the Committee; and a Committee of independent directors that meets in executive session without management at every meeting.
Benchmarking
We utilizeAlliant Energy utilizes compensation data from companies comparable to Alliant Energy to assess our competitivenessgeneral industry and the energy services sector in base salary and incentivedetermining the appropriate levels of compensation for all officer level positionsour executive officers. 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 target the value of each component of compensation to the median level of comparable companies. We believe compensationenergy services industry, particularly for those executives who serve in a general management capacity. Compensation programs at these comparable companies shouldboth in general industry and the energy services industry therefore serve as a benchmark for what constitutes competitive compensation.
The comparable companies inbenchmark data from the energy and utility industry that
we used for benchmarking in 20072010 were drawn from Towers Perrin’s 2006Watson’s 2009 Energy Services Industry Executive Compensation Database (the “2006“2009 Energy Services database”), a survey which comprises nearly all U.S. utilities. The general industry data were obtained from Towers Perrin’s 2006Watson’s 2009 General Industry Executive Compensation Database, a survey of over 800 companies the majority of which are Fortune 1000(the “2009 General Industry database”). In using these broad-based surveys, we considered only aggregate data and did not select any individual companies (the “2006 General Services database”).for comparison. All of the survey data were agedupdated to January 1, 20072010 using a 3.75 %3% annual update factor.factor, as 3% was the anticipated average annual increase for the survey companies. The data from each of the companies in both databases were size-adjusted based on gross revenue. Our Compensation and Personnel Committee, or Committee, used this adjusted benchmark data, among other factors, to reflect howdetermine appropriate levels of pay in 2010 for our named executive officers. We refer to the data compare to companies of similar revenue size using regression analysis. median in these surveys as our “market reference point” throughout the following discussion.
For general management positions, including four of the named executive officers,Mr. Harvey’s, Ms. Kampling’s and staff positions,Ms. Swan’s, equally blended energy industry and general industry data from these databases are used as the targetour market reference point for compensation, reflecting the broader talent market for these jobs and the fact that we operateAlliant Energy operates in some diversified businesses. For utility-specific operating positions, including Mr. Aller, one of the named executive officers,Aller’s and Ms. Doyle’s, energy industry data are used as the target market.our market reference point. Overall,Alliant Energy’s revenue is ranked between the median and the average revenue of the companies in the 20062009 Energy Services database. We referTowers Watson provided market data to this data of companies comparable to Alliant Energy used by our Compensation and Personnel Committee to determine appropriate levelsCommittee. See “Meetings and Committees of pay to our executive officers as the “peer group” throughout the following discussion.Board — Compensation and Personnel Committee” for more details.
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), our market reference point, 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 within the peer group andsurvey companies. To achieve that goal, we target each element of compensation to the median levels withinof the peer group. Totalsurvey data.
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 2010, incentive pay (both short-term and long-term) that is weighted such that targeted incentive pay accountsaccounted for 46-76%54%-77% of target total direct compensation based upon the median of the peer group and other individual factors relating to the position and performance. Mr. Harvey’s targeted incentive pay is at the 76% of total direct compensation level. In establishing the 2007 compensation reported, in the aggregate,for our executives were paid base salaries 4% below market, target cash compensation 5% below market and total direct compensation 2% below market.named executive officers. The following table shows the breakdown for each of our named executive officers in 20072010 of the total direct compensation pay mix. The figures in this table were calculated using targeted compensation for 2010 and therefore may differ from the actual payments for 2010 as reported in the Summary Compensation Table below.
| Named Executive Officer | Title | Salary as a % of Total | MICP as a % of Total | Long Term % of Total | ||||
Harvey, William D. | Chairman & CEO | 24.4% | 23.2% | 52.4% | ||||
Protsch, Eliot G. | Chief Financial Officer | 32.8% | 23.0% | 44.2% | ||||
Swan, Barbara J. | President | 36.4% | 20.0% | 43.6% | ||||
Aller, Thomas L. | Senior VP Energy Delivery | 50.0% | 20.0% | 30.0% | ||||
Doyle, Dundeana K. | VP Strategy and Regulatory Affairs | 54.1% | 18.9% | 27.0% |
| Named Executive Officer | Title | Salary as a % of Total | Short-Term Incentive as a % of Total | Long-Term Incentive as a % of Total | ||||||||||
William D. Harvey | Chairman and CEO | 23 | % | 21 | % | 56 | % | |||||||
Patricia L. Kampling | Chief Operating Officer and CFO | 32 | % | 20 | % | 48 | % | |||||||
Barbara J. Swan | President and CAO | 35 | % | 21 | % | 44 | % | |||||||
Dundeana K. Doyle | SVP-Energy Delivery | 46 | % | 21 | % | 33 | % | |||||||
Thomas L. Aller | SVP-Energy Resource Development | 46 | % | 21 | % | 33 | % | |||||||
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, changes in responsibilities and performance against job expectations. Base salaries represent 24-54% of our executive officers’ total direct compensation.
The Committee generally seeks to set base salaries for all executive officers at approximately the 50th percentile of salaries for similar positions in the peer group. The Committee willWe also consider the nature of the position, the responsibilities, skills and experience of the officer, and his or her past and future expected performance. Adjustments
The Committee considers salaries that fall within 15% of our market reference point to be competitive. We may be made inadjust base salaries to keep current with the peer group,our market reference point, to recognize outstanding individual performance or to recognize an increase in responsibility.
For 2007, In 2010, aggregate base salaries forof our named executive officers were, on average, approximately 4%2% above our market reference point, which is within our target.
Mr. Harvey’s salary for 2010 was $875,000, which was slightly below the median of similarly situated executives at the peer group. Our belowblended energy industry and general industry market positioning was due in part to comparatively recent promotions of several executives including Mr. Harvey into the chief executive officer role in July 2005. The Committee set his base salary at that
time at $700,000, which was below the median base salary for chief executive officers at the peer group, in recognition of his recent promotion. When he became Chairman of the Board of Directors in February 2006, the Committee raised Mr. Harvey’s base salary to $750,000 in recognition of his additional responsibilities as Chairman. Mr. Harvey’s salary was adjusted by the Committee from $750,000 to $810,000 in 2007 based on a review of comparable chairman and chief executive officers within the peer group. The Committee adjusted base salaries in 2007 for our other named executive officers as reported in the Summary Compensation Table below based upon the review of market information on salaries within the peer group described in the Benchmarking section above. Each of the executive officers’ base salary increases were set to target their salaries to the median of similarly situated executive officers within the peer group with the exception of Mr. Harvey, whose salary was below median as discussed above. At the close of 2007, Mr. Harvey’s base salary was 22% below the peer group and 2% below the median of Towers Perrin’s 2007 Energy Services Industry Executive Compensation Database. We believe Mr. Harvey’s salary is competitive as it is near the median of the Energy Services database. In addition,reference point. Mr. Harvey’s incentive compensation elements are targeted to the median of the peer group,blended benchmark data, and they are generally higher than the 2009 Energy Services database.reference point but lower than the 2009 General Industry reference point. This causesresults in more emphasis on incentive pay for our CEO, andchief executive officer, which we believe creates a stronger link between pay and performance.
Ms. Kampling’s salary was set at $385,500 at the beginning of 2010 and raised to $500,000 later in 2010. The Committee considered the competitive market for chief financial officers, retention and succession planning objectives, and the additional responsibilities Ms. Kampling had been assigned when increasing her salary.
The salaries of the other named executive officers, which are reported in the Summary Compensation Table below, were near the median of our market reference point. The Committee considered the market data, the elimination of the flexible perquisite program and the salary freeze in 2009 when setting executive officers’ salaries for 2010.
Short-Term Incentives
Our executive officers, including our named executive officers, are eligible to participate in the Alliant Energy Management Incentive Compensation Plan, or MICP, which is Alliant Energy’sour short-term (annual) incentive plan. The MICP provides executive officers with direct financial incentives in the form ofopportunity for annual cash bonuses tied directly to the achievement of company financial, strategic 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 19–23% 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 and generally meets the median short-term incentive levels of the peer group.
The Committee seeks to set MICP opportunities at the median short-term incentive target levels compared to our benchmark data, measured as a percentage of base salary, for comparable positions in the peer group.salary. MICP targets in 2007 ranged from2010 were 95% of base salary for Mr. Harvey, 70%65% for Mr. Protsch, 55%Ms. Kampling, 60% for Ms. Swan, 40%and 45% for Mr. Aller and 35% for Ms. Doyle, to 35%Doyle. MICP target levels of base salary for otherall of our named executive officers.officers are within 2% of our market reference point. The maximum possible individual payout for all executive officers was two times the target percentage. This range aligns with our desire to emphasize variable at-risk compensation based on meeting predetermined company, subsidiary, business unit and individual performancecompensation.
We pay incentives from a pool of funds that Alliant Energy establishes for MICP payments. The Committee establishes company-wide goals, and is set to meet the median short-term incentive compensation levels of the peer group.
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 derivedwhich it derives from Alliant Energy’s strategic plan and from operational benchmarks thatintended to benefit ourshareowners, customers and employees. Our Committee believes that using our strategic plan to set individual performance goals aligns the executives’ incentive compensation with shareowner interests. Our Committee also believes that using operational benchmarks to set individual performance goals aligns the executives’ incentive compensation with customer interests.
Mr. Harvey’s performance goals for 2007 included financial goals of earnings per share from utility continuing operations of $2.32, Alliant Energy consolidated earnings per diluted share from continuing operations of $2.52, and achieving cash flows from operations at the utilities and Alliant Energy’s service company subsidiary of $500 million in aggregate. These financial goals were weighted at 60%. In addition, Mr. Harvey’s goals included monetization of IPL electric transmission assets, meeting certain regulatory milestones related to the proposed coal plants for us and IPL, meeting certain regulatory milestones related to the proposed wind farms of us and IPL, meeting milestones related to clean air compliance program and obtaining targeted savings from Lean Six Sigma and related process improvements. These goals, which are referred to as execution goals, were weighted at 25%. Mr. Harvey’s corporate well-being goals included achieving safety targets and employee and supplier diversity goals. Several targets were established for each of the safety and diversity goals and the Committee determined that the goals in each of the safety and diversity categories were to be graded on a pass/fail system whereby if one milestone for either safety or diversity were not met, then the whole category of safety or diversity could not be considered accomplished. The corporate well-being goals were weighted at 15%.
Mr. Harvey met all of his financial goals and nearly all of his execution goals. The IPL coal plant regulatory milestones, wind farm regulatory milestones and clean air compliance program milestones were partially, but not completely, met. In addition, both the safety and diversity corporate well-being goals while being partially met were not achieved based upon the
pass/fail method established. The Committee took into consideration that all of the financial goals had been exceeded. In addition, the Committee recognized Mr. Harvey for his leadership in the successful divestiture of the IPL transmission assets; overcoming the challenges of two significant ice storms in the service territory of IPL; his management of executive talent; and significant progress in our and IPL’s new generation initiative. The Committee determined that Mr. Harvey met his goals at a level of 100%.
Mr. Protsch’s goals for 2007 included the same financial goals as Mr. Harvey. In addition, Mr. Protsch had the financial goal to complete Alliant Energy’s share repurchase program. These financial goals were weighted at 50%. Mr. Protsch also had execution goals of monetizing the IPL transmission assets, meeting certain regulatory milestones related to the proposed wind farms of us and IPL, meeting certain regulatory milestones related to Resources’ proposed sale of the Neenah Energy Facility from Resources to us, obtaining targeted savings from Lean Six Sigma and related process improvements, receiving an unqualified opinion on Alliant Energy’s internal control over financial reporting from external auditors and completing the sale of Resources’ assets in Mexico. These execution goals were weighted at 40%. In addition, Mr. Protsch had corporate well-being goals similar to Mr. Harvey’s, which were weighted at 10%.
Mr. Protsch met all of his financial goals. Mr. Protsch met all of his execution goals, except for two. The regulatory milestones for the Neenah Energy Facility were not met because we determined that it was beneficial for us to take a different regulatory strategy and concentrate on the approval of the sale in 2008. The regulatory milestones for our and IPL’s wind farms were partially met. Both the safety and diversity corporate well-being goals were not achieved based on the pass/fail method established. The Committee took into consideration that all of the financial goals had been exceeded including significant savings from the Company’s Lean Six Sigma program. In addition, the Committee recognized Mr. Protsch for his leadership in the successful divestiture of the IPL electric transmission assets; his oversight of our environmental consulting business which exceeded projections; and his performance on investor relations initiatives. The Committee determined that Mr. Protsch met his goals at a level of 100%.
Ms. Swan’s financial goals for 2007 included the same financial goals as Mr. Harvey. These financial goals were weighted at 50%. Ms. Swan also had execution goals including monetization of IPL electric transmission assets, meeting certain regulatory milestones related to the proposed coal plants for us and IPL, meeting certain regulatory milestones related to the proposed wind farms for us and IPL, obtaining targeted savings from Lean Six Sigma and related process improvements, completing the sale of Resources’ assets in Mexico and achieving changes to Wisconsin’s fuel cost recovery rules. These execution goals were weighted at 40%. Finally, Ms. Swan had corporate well-being goals similar to Mr. Harvey’s weighted at 10%.
Ms. Swan met all of her financial goals. Ms. Swan also met most of her execution goals; however, the IPL coal plant regulatory milestones, wind farm regulatory milestones and fuel cost rule revisions were partially, but not completely, met. Both the safety and diversity corporate well-being goals were not achieved based on the pass/fail method established. The Committee took into consideration that all of the financial goals had been exceeded. In addition, the Committee recognized Ms. Swan for her leadership in the successful divestiture of Resources’ assets in Mexico; the legal and regulatory support of the sale of the IPL electric transmission assets; and her performance as our president. The Committee determined that Ms. Swan met her goals at a level of 100%.
Mr. Aller’s financial goals for 2007 included the same financial goals as Mr. Harvey. In addition, Mr. Aller had financial goals related to the consumer products, fleet services and transportation divisions he oversees. These financial goals were weighted at 50%. Mr. Aller also had execution goals including monetization of IPL electric transmission assets, meeting certain regulatory milestones related to the proposed coal plants at IPL, meeting certain regulatory milestones related to the proposed wind farms for us and IPL, obtaining targeted savings from Lean Six Sigma and related process improvements, and goals to achieve specified customer service and reliability standards. These execution goals were weighted at 25%. In addition, Mr. Aller had corporate well-being goals similar to Mr. Harvey’s, which were weighted at 25%.
Mr. Aller met all of his financial goals. Mr. Aller also met most of his execution goals; however, the IPL coal plant regulatory milestones and wind farm regulatory milestones were partially, but not completely, met. In addition, one customer service standard was not met. The Committee determined that the customer service standard was not met due solely to the two winter storms in IPL’s utility service territory in 2007 which caused large and long service outages. The Committee gave consideration to Mr. Aller’s leadership through these significant weather events and the successful outcomes in restoring service to IPL’s customers. Both the safety and diversity corporate well-being goals were not achieved based on the pass/fail method established. The Committee also considered Mr. Aller’s support of the successful sale of the IPL electric transmission assets; his service as an executive sponsor for the successful supplier diversity and minority/women owned
procurement initiatives; and his performance as the president of IPL. The Committee determined that Mr. Aller met his goals at a level of 100%.
Ms. Doyle’s financial goals for 2007 included achieving earnings per diluted share from utility continuing operations of $2.32, achieving cash flow of $500 million, and meeting a performance target related to gas asset optimization. These financial goals were weighted at 40%. Ms. Doyle’s execution goals included monetization of IPL electric transmission assets, meeting certain regulatory milestones related to the proposed coal plants for us and IPL, meeting certain regulatory milestones related to the proposed wind farms for us and IPL, meeting milestones related to the utilities’ clean air compliance program, meeting certain regulatory milestones related to Resources’ proposed sale of the Neenah Energy Facility from Resources to us, meeting certain regulatory milestones related to our base rate case, meeting certain regulatory milestones related to the FERC wholesale rate case, meeting certain milestones related to a comprehensive energy efficiency strategy, and obtaining targeted savings from Lean Six Sigma and related process improvements. These execution goals were weighted at 50%. Finally, Ms. Doyle had corporate well-being goals similar to Mr. Harvey’s weighted at 10%.
Ms. Doyle met all of her financial goals. Ms. Doyle also met most of her execution goals; however, the IPL coal plant regulatory milestones, wind farm regulatory milestones and clean air compliance milestones were partially, but not completely, met. The regulatory milestones for the Neenah Energy Facility were not met because we determined that it was beneficial for us to take a different regulatory strategy and concentrate on approval of the sale in 2008. In addition, both the safety and diversity corporate well-being goals were not achieved due to the pass/fail method established. In addition, the comprehensive energy efficiency strategy was only partially met. The Committee gave consideration to the changing regulatory landscape related to energy efficiency that made this goal substantially difficult to fully achieve in 2007. The Committee also gave consideration to Ms. Doyle’s strong regulatory support for the IPL electric transmission asset sale; her regulatory outcome achievements including the WPL wholesale rate case; and her responsibilities to facilitate strategic planning for the Company. The Committee determined that Ms. Doyle met her goals at a level of 107%.
To establish the performance goals 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 Alliant Energy strategic planning department is also responsible for initial drafting of the performance goals, which is done to ensure that the individual performance goals are closely aligned with the overall Alliant Energy 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 ultimately approves all of the individual performance goals of all of the executive officers. The goals are weighted. Individual performance goals are designed to be achievable but substantially challenging.
Incentives are paid from a pool of funds established for MICP payments. The Committee establishes threshold Alliant Energy company-wide goals which determine the funding level of an incentive pool. Diluted adjusted earnings per share from continuing operations of the utilitiesour Company and IPL determines the funding level of 85% ofwhether or not the incentive pool. For 2007,pool will be funded. If the thresholdadjusted utility earnings per share was $2.32, which was the midpoint of utility earnings per share guidance provided at the beginning of 2007. If the earnings per share targetthreshold is not met, then the incentive pool is not funded and no incentives are paid under the MICP. Cash flow from Alliant Energy’s utilities and its services company subsidiary, Alliant Energy Corporate Services, Inc., determinesAfter the funding level for 15% of the incentive pool. The cash flow target for 2007 was $500 million and the level of cash flow achieved was $506 million. If the cash flow targetadjusted utility earnings per share threshold is not met, the Committee is not required to fund the 15%then a percent of the incentive pool represented by cash flow.is funded based on the achievement of goals. If all goals are met at target level, the incentive pool is funded at 100% of target. The Committee determined thatsize of the company-wide goals were achieved at 88%incentive pool will vary, from 20% to 150% of target, based on the cash flow target being met and theadjusted utility earnings per share performance. As a result, the amount of $2.33 (excluding the gain on the sale of IPL’s electric transmission assets).short term incentive awards is tied directly to company financial performance.
The company-wide goals, targets and actual 2010 performance were:
| Goal | Percent of Incentive Pool | Threshold | Target | Maximum | Actual | Percent Payment Toward Incentive Pool | ||||||
| Adjusted earnings per share from continuing operations of Alliant Energy’s utilities | 60% | $2.20 | $2.45 | $2.81 | $2.68* | 78% | ||||||
| Adjusted cash flows from Alliant Energy’s utilities and service company | 10% | $625 million | $913 million** | 13% | ||||||||
| Customer satisfaction | 15% | Minimum rating of 4.3 out of 5.0 | 4.37 | 19.5% | ||||||||
| Safety | 10% | Maximum recordable rate of 3.72 | 3.64 | 13% | ||||||||
| Diversity (goal achieved if two of the three goals are met) | 5% | Minimum of 5.4% diverse employee population;
Minimum of 10% women in non-traditional jobs
$50 million sourceable spend to minority- and women-owned business | 5.4%
| 6.5% | ||||||||
TOTAL | 100% | 130% |
The level of individual
| * | This non-GAAP number excludes the effects of regulatory related charges and credits, a depreciation adjustment, healthcare legislation charges, and impairment charges. These excluded items are not reflective of on-going operations and are therefore excluded when determining executive compensation. |
| ** | This non-GAAP number excludes the effects of changes in sales of customer receivables, tax-effected qualified pension contributions and changes in net collateral held by or paid by the utilities and Alliant Energy’s service company. These items are not reflective of on-going management of operations and are therefore excluded when determining executive compensation. |
In addition to the company-wide performance as compared to thegoals, we consider individual performance goals is factored into individual award amounts after the pool has been funded.when determining an executive’s actual incentive payment amount. 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.officer’s achievement of individual performance goals. 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 amountCommittee approves the final assessment of individual achievement compared to performance goals and final payment of awards to all executive officers under the MICPMICP.
Individual performance goals are reviewed and established by the Committee early in the year. The Committee derives the goals from Alliant Energy’s strategic plan and from operational benchmarks intended to benefit our shareowners, customers and employees.
Mr. Harvey’s individual performance goals for 2010 included financial goals of achieving Alliant Energy consolidated adjusted earnings per diluted share from continuing operations of $2.60 and meeting financial targets for Alliant Energy’s subsidiary, RMT, Inc. Mr. Harvey’s goals included development and communication of a long-term strategic plan and management development and succession planning. The Committee determined that, in aggregate, Mr. Harvey achieved his goals at target level, or 100%.
Ms. Kampling’s individual performance goals for 2010 included achieving Alliant Energy consolidated adjusted earnings per diluted share from continuing operations of $2.60, development and communication of a long-term strategic plan, constructive outcomes for the Company and IPL base rate cases, and improvement of business unit efficiencies. Ms. Kampling was deemed to have achieved her goals in aggregate at target level, or 100%.
Ms. Swan’s individual performance goals for 2010 included achieving a constructive outcome in the Company’s base rate case, improving business unit efficiencies, advocating to achieve manageable new governmental rules and regulations, and managing litigation to achieve satisfactory or favorable outcomes. Ms. Swan was deemed to have achieved her goals in aggregate at target level, or 100%.
Ms. Doyle’s individual performance goals for 2010 included development and communication of a long-term strategic plan, achieving certain targets related to deployment of advanced metering infrastructure at the Company, meeting certain electric reliability targets, meeting certain business unit financial targets, and improvement of business unit efficiencies. Ms. Doyle was deemed to have achieved her goals in aggregate at target level, or 100%.
Mr. Aller’s individual performance goals for 2010 included meeting financial targets for certain of Alliant Energy’s non-regulated businesses, implementation of our wind strategy, meeting wind yield performance targets, achieving a constructive outcome in the IPL base rate case, meeting targets implementing our clean air compliance program, and divesting Alliant Energy’s subsidiary, Industrial Energy Applications, Inc. Mr. Aller was deemed to have achieved his goals in aggregate at target level, or 100%.
The company-wide goals and the individual goals are combined to determine the short term incentive payment for each executive officer. The company-wide performance of 130% was multiplied by each named executive officer’s individual performance scores to set their final annual incentive payments. The individual short-term incentive payments made for 2010 are reported below in the Summary Compensation Table belowTable.
Design changes for future awards
The 2011 short-term incentive plan does not include individual performance goals for executive officers. The executive officers’ incentive awards in 2011 will be based on achievement of company-wide goals of utility earnings per share from continuing operations as may be adjusted according to Alliant Energy’s 2010 Omnibus Incentive Plan, adjusted cash flows from utilities and service company, customer satisfaction, safety, diversity, availability and reliability. The Committee eliminated individual performance goals for the 2011 short-term incentive awards to preserve the tax deductibility of the awards, which were calculated by multiplyinggranted under Alliant Energy’s 2010 Omnibus Incentive Plan as performance-based compensation within the meaning of Internal Revenue Code Section 162(m). The Committee believes the company-wide achievement percentagegoals are objective and quantifiable. The Committee also believes that by paying incentives based on these specific financial and customer-driven goals, the short-term incentive plan is more closely aligned with the individual achievement percentage,interests of our customers and multiplying that amount by the target incentive compensation set by the Committee in February 2007.shareowners.
Long-Term Incentives
Alliant Energy awardsWe award long-term incentive compensation based on the achievement of longer-term, multi-year financial goals. We believeLong-term, at-risk incentive payments account for 33%-56% of our named executive officers’ total targeted compensation, appropriately reflecting our compensation program’s emphasis on the long-term financial strength of the company.
Long-term incentive compensation aligns executives’ interests with those of Alliant Energy’s shareowners by compensatingissued to executive officers for long-term achievement of financial goals. Long-term incentive compensationin 2010 and earlier, takes the form of Alliant Energy equity awards granted under Alliant Energy’s 2002 Equity Incentive Plan. Equity awards were granted under the Alliant Energy 2002 EquityCorporation’s 2010 Omnibus Incentive Plan. Long-termPlan, which was adopted by Alliant Energy’s shareowners at its last years’ annual meeting, beginning in 2011. All of the equity awards granted to executive officers under our long-term incentive compensation is targeted at 27-52% of our executive officers’ total direct compensationplans are performance based and along with the MICP, further emphasizes variable at-risk compensation based on meeting predetermined company, subsidiary, business unit and individualwill be forfeited if performance goals.results are not achieved.
Alliant Energy determinesWe determine the value of each executive officer’s long-term incentive amountsopportunity by benchmarking totargeting the median value of long-term incentives paid by the peer groupopportunities of our market reference point, assessing the individual performance of the executive officer and assessing internal equity among our executives, and considering the executives.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 executivesnamed executive officers for 2007: 215%2010: 250% for Mr. Harvey, 135%150% for Mr. Protsch, 120%Ms. Kampling, 125% for Ms. Swan, 60%70% for Mr. Aller and 50%70% for Ms. Doyle. These targets were setThe target levels of all of our named executive officers are within the target levels for similar positions compared to our market reference point. The Committee approves the dollar value of the long-term equity awards prior to the median of long-term incentive compensation targets at the peer group. We grant date. Alliant Energy grants the number of shares of Alliant Energy stock necessary to reachapproximate that dollar value based on the fair market value of Alliant Energy’sour share price on the grant date.
The long-term incentive awards consist of performance contingent restricted stock and performance shares. We believe these two types of long-term equity awards provide incentives for our executive officers to produce value for Alliant Energy’s shareowners over the long-term on both an absolute basis and a relative basis. Performance contingent restricted stock granted in 2007 vests if Alliant Energy’s earnings per shareconsolidated income from continuing operations achieves 5% compounded year-over-yearspecified growth whichin two, three or four years. This rewards absolute long-term growth. We set the rate of growth required for the performance contingent restricted stock to vest based on Alliant Energy’s strategic plan. Performance shares vest and pay-outpay out at varying levels depending on Alliant Energy’s relative total shareowner return as compared to the companies comprising the S&P Mid-CapMidcap Utilities index, whichIndex. This rewards long-term relative total shareowner return. The Committee granted long-term equity awards in 20072010 consisting of 50% performance shares and 50% performance contingent restricted stock to equally emphasize absolute and 50%relative long-term growth. We discontinued the use of Alliant Energy stock options in 2004 because we believe that performance shares.contingent restricted stock and performance shares provide equal incentive value and reduce potential dilution of our shareowners.
Performance Contingent Restricted Stock
TheAwards granted in 2010
In 2010, the Committee approves the value of the long-term equity awards prior to the grant date. The grant date of the awards madegranted performance contingent restricted stock to our executive officers that will vest in two, three or four years if Alliant Energy’s consolidated income from continuing operations grows 19% over 2009 Alliant Energy consolidated income from continuing operations. The growth contingency represents 6% compounded growth over three years. The 2009 adjusted base income from continuing operations is $213.9 million. This non-GAAP figure excludes the first business dayeffects of regulatory related charges, asset impairments and certain accounting charges which we believe are not reflective of on-going operations. Thus, the performance contingent restricted stock will vest in two, three or four years if our consolidated income from continuing operations in any year is $254.7 million. Consolidated income from continuing operations will be calculated excluding the effects of the year, which maximizesfollowing, if the time periodamount is over $4,000,000 on a pre-tax basis and is not considered in the annual budget approved by our Board of Directors: (i) charges for the incentives associated with the awards. The grant price used for accounting purposes is fair market value of Alliant Energy’s common stockreorganizing and restructuring; (ii) discontinued operations; (iii) asset write-downs; (iv) gains or losses on the grant date.disposition of an asset or business; (v) mergers, acquisitions or dispositions; and (vi) extraordinary, unusual and/or non-recurring items of gain or loss, that in all of the foregoing the Company identifies in its audited financial statements, including footnotes, or the Management’s Discussion and Analysis section of the Company’s periodic reports.
Awards paid in 2010
TheIn 2010, following the confirmation from our audited financial statements, the Committee made two changes todetermined that the performance contingent restricted stock granted in 2007 vested due to the successful achievement of Alliant Energy’s earnings per share growth target. The earnings per share growth goal for the 2007 performance contingent restricted stock was $2.55. Alliant Energy’s earnings per share from continuing operations for 2010 was $2.62. The amounts realized by our named executive officers as a result of this vesting can be found in 2008. First, the Option Exercises and Stock Vested table below.
Design changes for future grants
The Committee changed the projected growth rate for vesting performance criteriacontingent restricted stock from 119% to 116% for grants made in 2011. The growth rate represents 5% compounded growth for three years. The Committee made the change to align long-term incentive pay with Alliant Energy earnings per share to Alliant EnergyEnergy’s strategic plan.
Outstanding performance contingent restricted stock grants
The following list is all outstanding performance contingent restricted stock grants with performance targets.
2010 Grants: Adjusted net income from continuing operations. The change togrowth of 119% (6% annualized) — $254.7 million
2009 Grants: Adjusted net income was made to mitigate volatility in earnings per share that can be caused by increasing or decreasing the numbergrowth of shares outstanding; because119% (6% annualized) — $333.2 million
2008 Grants: Adjusted net income is usedgrowth of 119% (6% annualized) — $359.3 million
Performance Shares
Awards granted in corporate planning; it incorporates taxes, depreciation and amortization; it accounts for growth; and it captures operation and management expense efficiency. Second,2010
In 2010, the Committee increased the growth rategranted performance shares to our executive officers. The vesting of net income that must be earned for the performance criteria to be met from 5% to 6% compounded year over year growth. The Committee believes that the increase better aligns management’s interests with the high expected growth in earnings during the new generation build-out period.
The payout of performance shares granted in 2007 is based on Alliant Energy’s relative total shareowner return over three years.a three-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 20072010 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 above the 90th percentile of the total shareowner return ofas compared to the S&P Midcap Utilities Index. 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 the S&P Midcap Utilities Index. There would be no payout if Alliant Energy’s total shareowner return fell below the 40th percentile of the 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 officer to receive a payment in shares of Alliant EnergyEnergy’s common stock, cash, or a combination of Alliant EnergyEnergy’s common stock and cash, the value of which is equal to the number of shares awarded, adjusted by the performance multiplier. If the executive officer chooses to take the payment in cash, the amount of the payout is determined by multiplying the number of Alliant Energy 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.
Awards paid in 2010
In 2008, theThe Committee determined that Alliant Energy achieved the performance levelslevel for the performance shares granted in 2005. Alliant Energy’sissued for the 2008-2010 performance period caused those performance shares to vest. The relative total shareowner return performance of Alliant Energy for the three years ended Dec. 31, 20072010 was at the
72nd percentile. 45th percentile of the peer group. Due to thethat total shareowner return, goal being achieved,performance shares vested at 75% of target. The amounts realized by our named executive officers as a result of this vesting can be found in the Option Exercises and Stock Vested table below.
Design changes for future grants
The Committee changed the peer group for determining relative total shareowner return for the performance shares granted in 2011. The new peer group is the Edison Electric Institute (EEI) Stock Index, which currently includes 58 investor-owned utility companies. Alliant Energy had abecame the largest company by market capitalization in the S&P Midcap Utilities Index
during 2010, causing the S&P Midcap Utilities Index to no longer be an appropriate benchmark for performance share payoutfor us. The median market capitalization of 155% of target for the 2005 grant. Also in 2008, following the confirmation fromEEI Stock Index is slightly higher than Alliant Energy’s audited financial statements, the Committee determinedmarket capitalization. We believe that the performance contingentnew peer group is a better representation of our peers because we are closer to the median size of companies in the peer group.
Time-based Restricted Stock
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. No time-based restricted stock awards were made to named executive officers in 2010. In 2010, restricted stock granted to Mr. Harvey in 20062005 vested, and restricted stock granted to Ms. Swan vested due to her retirement. The amount of stock that vested can be found in the successful achievement of Alliant Energy’s long-term goal of earnings per share growth after two years. Alliant Energy’s 2006 diluted earnings per share growth goal was $2.68. Alliant Energy’s earnings per share from continuing operations for the year ended Dec. 31, 2007 was $2.68 (excluding the gain on the sale of IPL’s electric transmission assets).
The vesting of the performance contingent restricted stock granted in 2007 is based on Alliant Energy’s earnings per share growth using Alliant Energy’s final earnings per share from 2006 as the base, which was adjusted to remove the gain on the sale of Resources’ New Zealand assets, debt retirement chargesOption Exercises and foreign exchange losses in New Zealand as these were non-recurring events. The base Alliant Energy adjusted earnings per share was $2.20. The performance contingent restricted stock granted in 2007 vests if Alliant Energy achieves earnings per share growth of 16% from 2006, within a four year period. The target earnings per share is $2.55. 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 share target is not met at the end of the four-year period.
Alliant Energy no longer grants stock options as incentive compensation. Alliant Energy determined that performance contingent restricted stock and performance shares provide equally motivating forms of equity incentive compensation and reduce potential dilution of its shareowners because fewer shares need be granted. Alliant Energy’s last stock options were granted in 2004 and expire in 2014.
Stock Vested table below.
Other Benefits
Alliant Energy also offers benefit programs to our executive officers with a focus towards their retirement consistent with those of theour peer group. We provide these benefits to remain competitive with the general market for executives. These programs include a 401(k), savings plan, a deferred compensation plan and various pension benefits. The benefit programs are designed to be competitive in attracting, retaining and motivating key executives and employees by providing competitive retirement benefits. We apply the same peer 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. The retirement-related benefit plans were allare reviewed during 2007periodically by the Committee with severaland certain changes implemented.to the plans were adopted in 2010. A brief description of the plans with associated changes follows.
401(k) Savings Plan
All of our salaried employees, including our executive officers, are eligible to participate in the Alliant Energy’sEnergy 401(k) Savings Plan. We matchAlliant Energy matches $0.50 on each dollar for the first 6%8% of compensation deferred by the employee up to the IRS maximum. AfterBeginning Aug. 1,3, 2008, we plan to enhanceAlliant Energy enhanced benefits under the 401(k) Savings Plan to offset a freeze of the Alliant Energy Cash Balance Pension Plan. See: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 the company contribution ranges from 4% to 6% of an employee’s salary. The amount of the company contribution depends on the employee’s age and number of years of service at the company.
Alliant Energy Deferred Compensation Plan
The Alliant Energy Deferred Compensation Plan, or AEDCP, enables participants, including our executive officers, to defer up to 100% of base salary and annual incentive awards on a pre-tax basis and to receive earnings or incur losses on the deferrals until the date of distribution. The AEDCP provides tax deferred savings and post-retirement income to our executive officers. The shares of Alliant Energy common stock identified as obligations under the AEDCP are held in a rabbi trust. Alliant Energy offersWe offer the AEDCP as part of the executives’ competitive compensation package to permit executives to take advantage of the tax code in saving for their retirement. In 2010, the Committee approved amendments to the AEDCP to provide new investment options for participants, and permit participants to reallocate their account balances among investment options with the exception of not permitting participants to reallocate account balances out of the Alliant Energy believesstock investment option. These changes took effect in 2011. We believe the AEDCP is in line with offerings from the peer group. In 2007, we modified the Alliant Energy Key Employee Deferred Compensation Plan, or KEDCP, to comply with Section 409A regulations issued by the IRS and consolidated several of our existing plans into the AEDCP. The AEDCP became effective on Jan. 1, 2008. The new plan includes different investment options and different distribution rights. Because the changes to the new plan substantially alter the investment decision of participants in the plan, the Committee approved a one-time, transition year opportunity to allow participants to diversify their investments in the plan and/or elect a distribution from their accounts under their existing plans.comparable companies. See “Nonqualified Deferred Compensation” below for more information regarding the KEDCP.
AEDCP.
Cash Balance Pension Plan
Certain 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. Alliant Energy believes the terms of the plan are consistent with benefits that have been provided by others in the peer group. Future accruals to the Cash Balance Pension Plan will bewere frozen for participants effective Aug. 1,2, 2008. See “Pension Benefits” below for more information regarding the Alliant Energy Cash Balance Pension Plan.
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, and accruals earned on their deferrals into the AEDCP. 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 our service by providing additional retirement compensation in addition to the benefits provided by the pension plan and 401(k) Savings 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.Mr. Harvey and ProtschMses. Swan and Ms. Swan,Doyle, receive individually owned life insurance policies. Alliant Energy pays the premiums for this insurance and these payments are taxable to the individual officers. We reimburse these executive officers for taxes associated with certain of these policies. 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
In the past, Alliant Energy providesprovided our officers, including our named executive officers with certain perquisites. Alliant Energy provided these perquisites to maintain a Flexible Perquisite Program. Thecompetitive compensation program, provides 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 the peer group. The last review took place at our December 2007 Committee meeting where Towers Perrin provided an update on market trends for these programs. While it was noted that approximately 20% ofcommon practice for companies to provide perquisites. Alliant Energy has begun reducing the Fortune 200 were considering changes, the Committee determined that the Flexible Perquisite Program continuedperquisites paid to be comparable to continuing programs broadly found in the market and should continue as a component of total 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 Ms. Doyle based upon data from the market. Our executive officers are alsoas perquisites have become less common. In 2009, Alliant Energy eliminated our flexible perquisite program. In 2010, our executive officers remained eligible for executive physicals and moderately more generous health care benefits and dental insurance, accidental death insurance,long-term disability insurance vacation, and other similar benefit programs than the balance of ourAlliant Energy’s non-bargaining unit employees.
In 2011, Alliant Energy eliminated a portion of the executive health care perquisite that had been historically provided.
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 Ms. Swan, who retired effective Dec. 31, 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. We recognize that circumstances may arise in which weAlliant 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 triggeredpaid if, within a period of up to three years after a change in control for Mr. Harvey Mr. Protsch or Ms. SwanKampling and two years for Mr. Aller or Ms. Doyle, there has occurred both a change in control and loss of employment other than for cause, 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. SwanKampling and two times base salary and target bonus for Mr. Aller and Ms. Doyle.
The KEESAs for Mr. Aller and Ms. 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 KEESAsKEESA for Ms. Kampling provides that if any portion of the benefits under the KEESA or under any other agreement would constitute an excess parachute payment for purposes of the Internal Revenue Code, she may receive the better of either a payment $1 less than the maximum amount she may receive without becoming subject to the 20% excise tax, or receive the fully calculated payment subject to applicable excise taxes, for which she would be personally responsible.
The KEESA for Mr. Harvey Mr. Protsch and Ms. Swan provideprovides that if any payments constitute an excess parachute payment, Alliant Energy will pay to the appropriate officerMr. Harvey the amount necessary to offset the excise tax and any additional taxes on this additional payment. Mr. Harvey is the only executive officer with a gross-up provision in his KEESA.
We believe the level of the benefits provided by the KEESAs to each executive officer reflects the appropriate amount of work that would be required of them during a change in control transaction as well as the amount of lost 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 timecompensation necessary for
them to find comparable employment based on their attained career status. The elevated positions held by Messrs. Harvey and Protsch and Ms. Swan 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 believe the benefits provided in the KEESA to our executive officers are comparable with industry practice.
to consider our shareowners’ interests without interference of their own personal situation.
In consideration of the KEESA benefits, the executive agrees not to compete with Alliant Energy or us for a period of one year after the executive leaves us 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.positions. 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’s employee assistance program. All executive officer severance packages are approved by the 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
We no longerdo not have any other employment agreements with our executive officers.
However, in 2010, Alliant Energy entered into a Special Incentive Agreement with Ms. Swan which provided for the payment to Ms. Swan of a special incentive bonus of up to $275,000 provided she remained continuously employed until, and retired on, Nov. 30, 2010. The agreement also required Ms. Swan to achieve the following performance goals: (i) making substantial progress in assisting in the appointment of a successor General Counsel; (ii) making substantial progress and, if possible concluding, pending litigation related to certain environmental matters at the Company; (iii) making substantial progress and, if possible concluding, pending litigation against the Alliant Energy Cash Balance Plan; (iv) successfully transitioning all Strategic and Corporate Services leadership functions to successor leadership; (v) providing mentoring to the successor President of the Company, if such successor is identified prior to Ms. Swan’s retirement; and (vi) agreeing to be available to certain officers of Alliant Energy for consultation as an independent contractor on foregoing items for up to six months after retirement. The Committee determined that this agreement was needed to retain Ms. Swan to assist with the transition of her duties to her successors. Payment was not made to Ms. Swan under this agreement as she retired on Dec. 31, 2010, not Nov. 30, 2010 as provided for in the agreement.
Share Ownership Guidelines
Alliant Energy establishedhas had a share ownership guidelinesguideline for our executiveexecutives for many years. The guideline requires officers asto own a waycertain number of shares of Alliant Energy’s common stock to better align the financial interestsofficer’s interest with that of officers with thosethe shareowners. In 2010, we adopted a new guideline that determines the required number of shareowners. Under these guidelines,shares by taking the requisitefollowing multiples of the officer’s base salary as of the latest of Jan. 3, 2011 or the date of hire or promotion to a higher level of ownership numbers are 85,000 sharesrequirement: (1) chief executive officer, four times base salary; (2) president, three times base salary; (3) executive vice presidents, two-and-one-half times base salary; (4) senior vice presidents, two times base salary; and (5) vice presidents, one-and-one-half times base salary. The multiple of salary was divided by the closing price of Alliant Energy common stock for Mr. Harvey, 36,000on Jan. 3, 2011 (or the date of hire or promotion, if later) to determine the number of shares for Mr. Protschthat the officer is required to hold. That number of shares will not change unless the officer is promoted. By setting the number of shares this way, we mitigate the effect of short term volatility on compliance caused by changes in Alliant Energy’s stock price and Ms. Swan and 12,000 shares for Mr. Aller and Ms. Doyle. The executive officers are expected to make continuing progress toward compliance with these guidelines and achieve their designated levels withinby changes in salary. Officers have five years of being appointed as an officer. We monitor each officer’s progression towards achievement of these guidelines onfrom their hire date or date they were promoted into a semi-annual basis.new position with a higher
multiple to achieve the goal. Shares held outright, vested restricted stock, earned performance shares, and shares held in the AEDCP count toward the ownership guidelines; unvested restricted stock and unearned performance shares do not count for this purpose.
The share ownership guidelines have an impact upon the payout of awards for our performance shares. If executivesOfficers who have not yet met their share ownership level theyafter five years are required to receive at least 50% of any performance share payout made upon the vestingretain 100% of the performance shares in sharesafter-tax value of Alliant Energy common stock. In addition, oncevested long-term equity awards until 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.requirement is met. Our chief executive officer retains the right to grant special dispensation for hardship, promotions or new hires. All of our current named executive officers who have metheld their current positions for five years are in compliance with the share ownership guidelines. Their share holdingsThe shares owned by our named executive officers 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. We expect that short-term and long-term incentive compensation awarded under Alliant Energy’s 2010 Omnibus Incentive Plan will qualify for deductibility under Section 162(m). All of our equity compensation plans are accounted for under FAS123(R).
At this time, plan compliance under Internal Revenue Code Section 409A has been extended to Dec. 31, 2008. We have engaged outside legal counsel to assist in amending our executive compensation plans for impending changes as a result of Section 409A. Plan reviews are in progress and we expect all necessary plan modifications required for compliance to be recommended to the Committee for approval and implementation effective by the compliance deadline.
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 have structured our compensation program to participate in 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. Based on this information, the Committee is ableseeks to implement executive compensation that is appropriately tied to the performance of the executives on behalf of shareowners, employees and customers.
COMPENSATION AND PERSONNEL COMMITTEE REPORT
To Our Shareowners:
The Compensation and Personnel Committee (the “Committee”) of the Board of Directors of the Company has reviewed and discussed the Compensation and Discussion and Analysis with our Audit Committee and our management. 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, 2007,2010, 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 short- and long-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. OestreichJudith D. Pyle
Carol P. Sanders
The table below summarizes the compensation paid to or earned by our chief executive officer, our chief financial officer (which for all of 2010 was Ms. Kampling) and our next three highest paid Alliant Energy Corporation executive officers for all services rendered to us, Alliant Energy and Alliant Energy’s other subsidiaries in 2007for 2010, 2009 and 2006.2008. We refer to such individuals in this proxy statement collectively as our named executive officers.
Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Option Awards ($)(4) | Non-Equity Incentive Plan Compensation ($)(5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) | All Other Compensation ($)(7) | Total ($) | ||||||||||||||
William D. Harvey Chairman and Chief Executive Officer | 2007 | $ | 811,962 | $ | 0 | $ | 2,794,112 | $ | 0 | $677,160 | $3,844,938 | $226,340 | $ | 8,354,512 | |||||||||
| 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 | 2007 | $ | 477,427 | $ | 0 | $ | 1,170,638 | $ | 0 | $293,216 | $1,757,578 | $108,774 | $ | 3,807,633 | |||||||||
| 2006 | $ | 454,519 | $ | 65,213 | $ | 1,263,614 | $ | 17,856 | $369,540 | $ 191,983 | $109,941 | $ | 2,472,666 | ||||||||||
Barbara J. Swan President | 2007 | $ | 362,081 | $ | 0 | $ | 697,271 | $ | 0 | $174,724 | $ 245,478 | $ 63,289 | $ | 1,542,843 | |||||||||
| 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 | 2007 | $ | 258,346 | $ | 0 | $ | 304,690 | $ | 0 | $ 90,640 | $ 152,628 | $ 31,199 | $ | 837,503 | |||||||||
| 2006 | $ | 249,523 | $ | 23,625 | $ | 458,293 | $ | 9,356 | $133,875 | $ 188,916 | $ 28,179 | $ | 1,091,767 | ||||||||||
Dundeana K. Doyle Vice President Strategy and Regulatory Affairs | 2007 | $ | 236,696 | $ | 0 | $ | 229,758 | $ | 0 | $ 77,776 | $ 91,558 | $ 33,206 | $ | 668,994 | |||||||||
| 2006 | $ | 223,567 | $ | 17,719 | $ | 291,426 | $ | 4,638 | $100,406 | $ 65,785 | $ 38,118 | $ | 741,659 | ||||||||||
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 | 2010 | $ | 872,481 | $ | 0 | $ | 2,384,547 | $ | 0 | $ | 1,080,625 | $ | 403,922 | $ | 413,208 | $ | 5,154,783 | |||||||||||||||||||
| 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 | ||||||||||||||||||||
| Patricia L. Kampling Chief Operating Officer/Chief Financial Officer(6) | 2010 | $ | 403,212 | $ | 0 | $ | 630,329 | $ | 0 | $ | 422,500 | $ | 529,000 | $ | 70,236 | $ | 2,055,277 | |||||||||||||||||||
| 2009 | $ | 294,769 | $ | 0 | $ | 425,945 | $ | 0 | $ | 0 | $ | 93,000 | $ | 42,368 | $ | 856,082 | ||||||||||||||||||||
| Barbara J. Swan President/Chief Administrative Officer(6) | 2010 | $ | 467,481 | $ | 0 | $ | 639,769 | $ | 0 | $ | 366,210 | $ | 930,000 | $ | 120,452 | $ | 2,523,912 | |||||||||||||||||||
| 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 | ||||||||||||||||||||
| Dundeana K. Doyle Senior Vice President- Energy Delivery | 2010 | $ | 279,658 | $ | 0 | $ | 214,699 | $ | 0 | $ | 164,619 | $ | 246,917 | $ | 59,675 | $ | 965,568 | |||||||||||||||||||
| 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 | ||||||||||||||||||||
| Thomas L. Aller Senior Vice President- Energy Resource Development | 2010 | $ | 280,241 | $ | 0 | $ | 215,196 | $ | 0 | $ | 164,970 | $ | 170,000 | $ | 48,260 | $ | 878,667 | |||||||||||||||||||
| 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 | ||||||||||||||||||||
(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 Alliant Energy determined using the assumptions and methods set forth in footnote (1) to the Pension Benefits table below, which may include amounts that the named executive officer may not currently be entitled to receive because such amounts are not vested, and (b) amounts representing above market interest on |
|
officer: Mr. Harvey, |
| (6) | Ms. Kampling became a named executive officer in 2009. She was not a named executive officer in 2008. Ms. Swan was President through November 30, 2010, and Chief Administrative Officer thereafter. |
| (7) | The table below shows the components of the compensation reflected under this column for |
| Name | Perquisites and Other Personal Benefits (a) | Registrant Contributions to Defined Contribution Plans (b) | Life Insurance (c) | Tax Reimbursements (d) | Dividends (e) | Total | Perquisites and Other Personal Benefits (a) | Company Contributions to Defined Contribution Plans (b) | Life Insurance (c) | Tax Reimbursements (d) | Dividends (e) | Total | |||||||||||||||||||||||||
William D. Harvey | $16,366 | $11,682 | $64,524 | $28,807 | $104,961 | $ | 226,340 | $ | 18,982 | $ | 88,286 | $ | 80,542 | $ | 23,527 | $ | 201,871 | $ | 413,208 | ||||||||||||||||||
Eliot G. Protsch | $19,366 | $10,037 | $28,595 | $ 5,577 | $ 45,199 | $ | 108,774 | ||||||||||||||||||||||||||||||
Patricia L. Kampling | $ | 3,485 | $ | 35,691 | $ | 1,497 | $ | 0 | $ | 29,563 | $ | 70,236 | |||||||||||||||||||||||||
Barbara J. Swan | $20,866 | $ 6,750 | $13,473 | $ 8,356 | $ 13,844 | $ | 63,289 | $ | 9,521 | $ | 35,250 | $ | 15,825 | $ | 8,464 | $ | 51,392 | $ | 120,452 | ||||||||||||||||||
Dundeana K. Doyle | $ | 1,985 | $ | 25,334 | $ | 10,416 | $ | 6,248 | $ | 15,692 | $ | 59,675 | |||||||||||||||||||||||||
Thomas L. Aller | $18,259 | $ 6,750 | $ 627 | $ 0 | $ 5,563 | $ | 31,199 | $ | 4,485 | $ | 24,069 | $ | 2,922 | $ | 0 | $ | 16,784 | $ | 48,260 | ||||||||||||||||||
Dundeana K. Doyle | $ 5,713 | $ 6,750 | $ 9,976 | $ 6,647 | $ 4,120 | $ | 33,206 | ||||||||||||||||||||||||||||||
| business purposes, Alliant Energy does not incur additional direct operating cost in such situations. However, the personal use of the Alliant Energy owned aircraft is imputed income to the named executive officer and is calculated on Standard Industry Fare Level rates published periodically by the Internal Revenue Service. No |
| Matching contributions to |
| All life insurance premiums. |
| Tax reimbursements for reverse split |
| Dividends earned in |
The following table sets forth information regarding all incentive plan awards that Alliant Energy granted to our named executive officers in 2007.2010.
Estimated Possible Payouts Under Plan Awards(1) | Estimated Future Payouts Plan Awards(4) | Grant Date Fair Value of Stock Awards(5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name | Grant Date | Committee Approval Date | Threshold 20% | Target 100% | Maximum 200% | Threshold 50% | Target (#) 100% | Maximum 200% | Grant Date | Committee Approval Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards | Grant Date Fair Value of Stock Awards(4) | |||||||||||||||||||||||||||||||||||||||||
| Name | Threshold ($) 20% | Target ($) 100% | Maximum ($) 200% | Threshold (#) 50% | Target (#) 100% | Maximum (#) 200% | ||||||||||||||||||||||||||||||||||||||||||||||||
William D. Harvey | 1/3/2007(2) | 12/5/2006 | 11,491 | 22,981 | 45,962 | $870,750 | 2/22/2010 | (2) | 2/11/2010 | 16,799 | 33,597 | 67,194 | $ | 1,290,797 | ||||||||||||||||||||||||||||||||||||||||
| 1/3/2007(3) | 12/5/2006 | 22,981 | $870,750 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2007 | $153,900 | $769,500 | $1,539,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Eliot G. Protsch | 1/3/2007(2) | 12/5/2006 | 4,240 | 8,480 | 16,960 | $321,307 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 1/3/2007(3) | 12/5/2006 | 8,480 | $321,307 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2007 | $ 66,640 | $333,200 | $ 666,400 | |||||||||||||||||||||||||||||||||||||||||||||||||||
William D. Harvey | 2/22/2010 | (3) | 2/11/2010 | 33,597 | $ | 1,093,750 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2/11/2010 | $ | 166,250 | $ | 831,250 | $ | 1,662,500 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2/22/2010 | (2) | 2/11/2010 | 4,441 | 8,881 | 17,762 | $ | 341,208 | |||||||||||||||||||||||||||||||||||||||||||||||
Patricia L. Kampling | 2/22/2010 | (3) | 2/11/2010 | 8,881 | $ | 289,121 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2/11/2010 | $ | 65,000 | $ | 325,000 | $ | 650,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 1/3/2007(2) | 12/5/2006 | 2,859 | 5,717 | 11,434 | td16,617 | 2/22/2010 | (2) | 2/11/2010 | 4,507 | 9,014 | 18,028 | $ | 346,318 | |||||||||||||||||||||||||||||||||||||||||
| 1/3/2007(3) | 12/5/2006 | 5,717 | $216,617 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2007 | $ 39,710 | $198,550 | $ 397,100 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Barbara J. Swan | 2/22/2010 | (3) | 2/11/2010 | 9,014 | $ | 293,451 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2/11/2010 | $ | 56,340 | $ | 281,700 | $ | 563,400 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2/22/2010 | (2) | 2/11/2010 | 1,513 | 3,025 | 6,050 | $ | 116,221 | |||||||||||||||||||||||||||||||||||||||||||||||
Dundeana K. Doyle | 2/22/2010 | (3) | 2/11/2010 | 3,025 | $ | 98,479 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2/11/2010 | $ | 25,326 | $ | 126,630 | $ | 253,260 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 1/3/2007(2) | 12/5/2006 | 1,020 | 2,039 | 4,078 | $ 77,258 | 2/22/2010 | (2) | 2/11/2010 | 1,516 | 3,032 | 6,064 | $ | 116,489 | |||||||||||||||||||||||||||||||||||||||||
| 1/3/2007(3) | 12/5/2006 | 2,039 | $ 77,258 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2007 | $ 20,600 | $103,000 | $ 206,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Dundeana K. Doyle | 1/3/2007(2) | 12/5/2006 | 779 | 1,557 | 3,114 | $ 58,995 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 1/3/2007(3) | 12/5/2006 | 1,557 | $ 58,995 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/6/2007 | $ 16,520 | $ 82,600 | $ 165,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas L. Aller | 2/22/2010 | (3) | 2/11/2010 | 3,032 | $ | 98,707 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2/11/2010 | $ | 25,380 | $ | 126,900 | $ | 253,800 | ||||||||||||||||||||||||||||||||||||||||||||||||
(1) | The amounts shown represent the threshold, target and maximum awards that could have been earned by each of our named executive officers under |
(2) | The amounts shown represent the threshold, target and maximum amounts of performance shares |
(3) |
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| Performance contingent restricted stock awards granted in |
| (4) |
| 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, 2007.2010.
| Option Awards | Stock Awards | Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($)(1) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(2) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2)(3) | |||||||||||||||||||||||||||||||||||||||||||||||
| Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option ($)(1) | Option Expiration Date | Number (#) | Market Value ($) | Equity (#) | Equity ($)(2) | ||||||||||||||||||||||||||||||||||||||||||||||||
William D. Harvey | 21,798 | $ | 31.54 | 1/2/2011 | 11,258 | $ | 25.93 | 2/9/2014 | |||||||||||||||||||||||||||||||||||||||||||||||
| 11,258 | $ | 25.93 | 2/9/2014 | 27,357 | $ | 1,005,917 | (3) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 37,874 | $ | 1,541,093 | (4a) | 26,087 | $ | 959,219 | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 15,561 | $ | 633,177 | (5) | 30,118 | $ | 1,107,439 | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 22,692 | $ | 923,337 | (6) | 107,098 | $ | 3,937,993 | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 31,931 | $ | 1,299,272 | (7) | 39,041 | $ | 1,435,538 | (7) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 23,695 | $ | 964,150 | (8) | 67,194 | $ | 2,470,723 | (8) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 22,981 | $ | 935,097 | (9) | 34,731 | $ | 1,277,059 | (9) | ||||||||||||||||||||||||||||||||||||||||||||||||
Eliot G. Protsch | 18,937 | $ | 770,547 | (4b) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 9,509 | $ | 386,921 | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8,604 | $ | 350,097 | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 11,300 | $ | 459,797 | (7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8,744 | $ | 355,793 | (8) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8,480 | $ | 345,051 | (9) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Patricia L. Kampling | 1,798 | $ | 66,112 | (3) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 1,902 | $ | 69,937 | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,196 | $ | 80,747 | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 22,814 | $ | 838,871 | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8,317 | $ | 305,816 | (7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 17,762 | $ | 653,109 | (8) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9,181 | $ | 337,585 | (9) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Barbara J. Swan | 6,669 | $ | 271,362 | (5) | 6,806 | $ | 250,257 | (3) | |||||||||||||||||||||||||||||||||||||||||||||||
| 5,219 | $ | 212,361 | (6) | 5,788 | $ | 212,825 | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 7,344 | $ | 298,827 | (7) | 6,682 | $ | 245,697 | (5) (a) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 5,895 | $ | 239,868 | (8) | 28,518 | $ | 1,048,607 | (6) (b) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 5,717 | $ | 232,625 | (9) | 10,396 | $ | 382,261 | (7) (c) | ||||||||||||||||||||||||||||||||||||||||||||||||
Barbara J. Swan | 18,028 | $ | 662,890 | (8) (d) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 9,318 | $ | 342,623 | (9) (e) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1,853 | $ | 68,135 | (3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,204 | $ | 81,041 | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,545 | $ | 93,580 | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9,476 | $ | 348,433 | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3,454 | $ | 127,004 | (7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dundeana K. Doyle | 6,050 | $ | 222,459 | (8) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 3,127 | $ | 114,980 | (9) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 13,255 | $ | 29.88 | 6/1/2009 | 17,438 | $ | 27.79 | 5/16/2012 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 14,307 | $ | 28.59 | 1/19/2010 | 17,438 | $ | 16.82 | 1/21/2013 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 12,229 | $ | 31.54 | 1/2/2011 | 18,767 | $ | 24.90 | 1/2/2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 17,438 | $ | 27.79 | 5/16/2012 | 2,887 | $ | 25.93 | 2/9/2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 17,438 | $ | 16.82 | 1/21/2013 | 2,427 | $ | 89,241 | (3) | ||||||||||||||||||||||||||||||||||||||||||||||||
Thomas L. Aller | 18,767 | $ | 24.90 | 1/2/2014 | 2,312 | $ | 85,012 | (4) | |||||||||||||||||||||||||||||||||||||||||||||||
| 2,887 | $ | 25.93 | 2/9/2014 | 2,669 | $ | 98,139 | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 3,458 | $ | 140,706 | (5) | 9,494 | $ | 349,094 | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2,363 | $ | 96,150 | (6) | 3,460 | $ | 127,224 | (7) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 3,104 | $ | 126,302 | (7) | 6,064 | $ | 222,973 | (8) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2,102 | $ | 85,530 | (8) | 3,134 | $ | 115,237 | (9) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2,039 | $ | 82,967 | (9) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,593 | $ | 105,509 | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1,702 | $ | 69,254 | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2,394 | $ | 97,412 | (7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1,605 | $ | 65,307 | (8) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1,557 | $ | 63,354 | (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 |
(3) |
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| Performance contingent restricted stock granted on Jan. 3, 2007. Vesting occurs if the performance criterion is met in |
| (4) |
| Performance shares granted on Jan. |
| (5) | Performance contingent restricted stock granted on Jan. 2, 2008. Vesting occurs if the performance criterion is met in 4 years. The values in the table included credited dividend equivalents. |
| (6) | Performance shares granted on Feb. 26, 2009. Vesting occurs if the performance criterion is met in 3 years. The values in the table assume maximum level performance. |
| (7) | Performance contingent restricted stock granted on Feb. 26, 2009. Vesting occurs if the performance criterion is met in 3 or 4 years. The values in the table included credited dividend equivalents. |
| (8) | Performance shares granted on Feb. 22, 2010. Vesting occurs if the performance criterion is met in 3 years. The values in the table assume maximum level performance. |
| (9) | Performance contingent restricted stock granted on Feb. 22, 2010. Vesting occurs if the performance criterion is met in 2, 3 or 4 years. The values in the table included credited dividend equivalents. |
As a result of Ms. Swan’s retirement, the awards listed above will be prorated pursuant to the terms of her performance contingent restricted stock agreements and performance share agreements as follows:
| (a) | If the performance criterion is met, Ms. Swan’s award will be prorated at 36/48 or 5,011 shares. |
| (b) | If the performance criterion is met, Ms. Swan’s award will be prorated at 24/36 or 19,012 shares. |
| (c) | If the performance criterion is met, Ms. Swan’s award will be prorated by a fraction, the numerator of which is 24 and the denominator of which is 36 or 48 depending on whether the performance criterion is met in 3 or 4 years, respectively. |
| (d) | If the performance criterion is met, Ms. Swan’s award will be prorated at 12/36 or 6,009 shares. |
| (e) | If the performance criterion is met, Ms. Swan’s award will be prorated by a fraction, the numerator of which is 12 and the denominator of which is 24, 36, 48 depending on whether the performance criterion is met in 2, 3 or 4 years, respectively. |
OPTION EXERCISES AND STOCK VESTED
The following table shows a summary of the Alliant Energy stock options exercised by our named executive officers in 2007during 2010 and Alliant Energy stock awards vested for the named executive officers during 2007.2010.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Long-Term Incentive Plan | Number of Shares Acquired on Vesting (#) | Value Vesting | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Long-Term Incentive Plan | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(3)(6) | ||||||||||||||||||||||||
William D. Harvey | 115,480 | $ | 1,967,468 | Time-Based Restricted Stock | 4,319 | $ | 157,859 | 21,798 | $ | 101,677 | Time-Based Restricted Stock(2) | 17,116 | $ | 575,773 | ||||||||||||||||||||
Performance Shares | 24,120 | $ | 985,061 | 0 | $ | 0 | Performance Shares | 19,565 | $ | 733,785 | ||||||||||||||||||||||||
Performance Contingent Restricted Stock | 22,912 | $ | 805,481 | 0 | $ | 0 | Performance Contingent Restricted Stock | 27,653 | $ | 1,078,467 | ||||||||||||||||||||||||
Eliot G. Protsch | 114,212 | $ | 1,757,959 | Time-Based Restricted Stock | 4,319 | $ | 157,859 | |||||||||||||||||||||||||||
Performance Shares | 14,739 | $ | 601,941 | |||||||||||||||||||||||||||||||
Performance Contingent Restricted Stock | 8,688 | $ | 305,423 | |||||||||||||||||||||||||||||||
Patricia L. Kampling | 0 | $ | 0 | Performance Shares | 1,427 | $ | 53,520 | |||||||||||||||||||||||||||
| 0 | $ | 0 | Performance Contingent Restricted Stock | 1,817 | $ | 70,863 | ||||||||||||||||||||||||||||
Barbara J. Swan | 118,009 | $ | 1,346,393 | Time-Based Restricted Stock | 4,319 | $ | 157,859 | 0 | $ | 0 | Time-Based Restricted Stock(4) | 1,206 | $ | 37,035 | ||||||||||||||||||||
Performance Shares | 10,337 | $ | 422,163 | 0 | $ | 0 | Time-Based Restricted Stock(5) | 2,528 | $ | 93,435 | ||||||||||||||||||||||||
Performance Contingent Restricted Stock | 5,270 | $ | 185,252 | 0 | $ | 0 | Performance Shares | 4,341 | $ | 162,809 | ||||||||||||||||||||||||
Barbara J. Swan | 0 | $ | 0 | Performance Contingent Restricted Stock | 6,879 | $ | 268,281 | |||||||||||||||||||||||||||
| 0 | $ | 0 | Performance Shares | 1,653 | $ | 61,996 | ||||||||||||||||||||||||||||
| 0 | $ | 0 | Performance Contingent Restricted Stock | 1,874 | $ | 73,086 | ||||||||||||||||||||||||||||
| 10,063 | $ | 111,276 | Performance Shares | 5,360 | $ | 218,902 | 12,229 | $ | 59,311 | Performance Shares | 1,734 | $ | 65,034 | |||||||||||||||||||||
Thomas L. Aller | Performance Contingent Restricted Stock | 2,386 | $ | 83,885 | 0 | $ | 0 | Performance Contingent Restricted Stock | 2,454 | $ | 95,706 | |||||||||||||||||||||||
Dundeana K. Doyle | 47,889 | $ | 628,213 | Performance Shares | 4,019 | $ | 164,136 | |||||||||||||||||||||||||||
Performance Contingent Restricted Stock | 1,719 | $ | 60,426 | |||||||||||||||||||||||||||||||
(1) | Reflects the amount calculated by multiplying the number of options exercised by the difference between the market price of Alliant Energy’s common stock on the exercise date and the exercise price of options. |
(2) | Reflects an amount calculated |
| (3) | Reflects an amount calculated by (i) multiplying the vested number of |
| (4) | Reflects an amount calculated by multiplying the number of shares of time-based restricted stock which vested for Ms. Swan on Jan. 5, 2010, and the market price of Alliant Energy’s common stock on that date, which was $30.71, plus dividend equivalents on such shares. |
| (5) |
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| (6) | Executive officers receiving a payout of their performance shares |
The table below sets forth the number of years of credited service, the present value of accumulated benefits and payments during 20072010 for each of our named executive officers under the Alliant Energy Cash Balance Pension Plan, the Unfunded Excess Retirement Plan and the Supplemental Executive Retirement Plan, or SERP, which are each described below. The disclosed amounts are estimates only and do not necessarily reflect the actual amounts that will be paid to our named executive officers, which will only be known at the time that they become eligible for payment.
| Name | Plan Name | Number of (#) | Present Value of Accumulated Benefit ($)(1) | Payments ($) | Plan Name | Number of (#) | Present ($)(1) | Payments ($) | |||||||||||||||||||
William D. Harvey | Cash Balance Plan | 20.2 | $ | 596,000 | $ | 0 | Cash Balance Plan | 21.0 | $ | 805,000 | $ | 0 | |||||||||||||||
Excess Plan | 20.2 | $ | 1,449,000 | $ | 0 | Excess Plan | 23.4 | $ | 2,378,000 | $ | 0 | ||||||||||||||||
SERP | 20.2 | $ | 5,200,000 | $ | 0 | SERP | 23.4 | $ | 7,239,000 | $ | 0 | ||||||||||||||||
| Total | $ | 7,245,000 | $ | 0 | Total | $ | 10,422,000 | $ | 0 | ||||||||||||||||||
Eliot G. Protsch | Cash Balance Plan | 27.9 | $ | 626,000 | $ | 0 | |||||||||||||||||||||
Excess Plan | 27.9 | $ | 739,000 | $ | 0 | ||||||||||||||||||||||
SERP | 27.9 | $ | 3,260,000 | $ | 0 | ||||||||||||||||||||||
| Total | $ | 4,625,000 | $ | 0 | |||||||||||||||||||||||
Patricia L. Kampling | Cash Balance Plan | 2.9 | $ | 42,000 | $ | 0 | |||||||||||||||||||||
Excess Plan | 5.3 | $ | 16,000 | $ | 0 | ||||||||||||||||||||||
SERP | 5.3 | $ | 735,000 | $ | 0 | ||||||||||||||||||||||
| Total | $ | 793,000 | $ | 0 | |||||||||||||||||||||||
Barbara J. Swan | Cash Balance Plan | 18.8 | $ | 496,000 | $ | 0 | Cash Balance Plan | 19.7 | $ | 698,000 | $ | 0 | |||||||||||||||
Excess Plan | 18.8 | $ | 308,000 | $ | 0 | Excess Plan | 22.1 | $ | 467,000 | $ | 0 | ||||||||||||||||
SERP | 18.8 | $ | 2,317,000 | $ | 0 | SERP | 22.1 | $ | 3,546,000 | $ | 0 | ||||||||||||||||
| Total | $ | 3,121,000 | $ | 0 | Total | $ | 4,711,000 | $ | 0 | ||||||||||||||||||
Dundeana K. Doyle | Cash Balance Plan | 23.7 | $ | 438,000 | $ | 0 | |||||||||||||||||||||
Excess Plan | 26.1 | $ | 39,000 | $ | 0 | ||||||||||||||||||||||
SERP | 26.1 | $ | 731,000 | $ | 0 | ||||||||||||||||||||||
| Total | $ | 1,208,000 | $ | 0 | |||||||||||||||||||||||
Thomas L. Aller | Cash Balance Plan | 14.3 | $ | 139,000 | $ | 0 | Cash Balance Plan | 15.2 | $ | 179,000 | $ | 0 | |||||||||||||||
Excess Plan | 14.3 | $ | 18,000 | $ | 0 | Excess Plan | 17.7 | $ | 32,000 | $ | 0 | ||||||||||||||||
SERP | 14.3 | $ | 1,475,000 | $ | 0 | SERP | 17.7 | $ | 1,689,000 | $ | 0 | ||||||||||||||||
| Total | $ | 1,632,000 | $ | 0 | Total | $ | 1,900,000 | $ | 0 | ||||||||||||||||||
Dundeana K. Doyle | Cash Balance Plan | 22.8 | $ | 318,000 | $ | 0 | |||||||||||||||||||||
Excess Plan | 22.8 | $ | 13,000 | $ | 0 | ||||||||||||||||||||||
SERP | 22.8 | $ | 379,000 | $ | 0 | ||||||||||||||||||||||
| Total | $ | 710,000 | $ | 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 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 until Aug. 1, 2008 if they 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) Savings Plan.
WPL Plan A Prior Formula.One of the applicable prior plan formulas for us 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.Mr. 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.Table (subject to a limit of $245,000 specified by the Internal Revenue Code). 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. Harvey and Ms. SwanParticipants are eligible for early retirement becauseif 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.
Mr. Harvey is 61. Ms. Swan was 59 when she retired on Dec. 31, 2010.
IES Industries Pension Plan Prior Formula. Another applicable prior plan formula applies to 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 Ms. Doyle for service until the Aug. 1,2, 2008 freeze date is generally the benefit she 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 (subject to a limit of $245,000 specified by the Internal Revenue Code), with the final average compensation being calculated based on the three highest calendar 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
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 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.
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’sour service by providing additional compensation that is payable only if the executive remains with Alliant Energyus 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.
For Messrs.Mr. 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, the Alliant Energy 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. Harvey and Ms. Swan are currently eligible to electfor 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 usAlliant Energy on or after April 21, 1998. Mr. Harvey and Ms. Swan meet these waiver requirements. 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, the Alliant Energy 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, 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 Ms. Doyle, 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, the company 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. 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. 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.Mr. Harvey, and Protsch and Ms. Swan, if the lifetime benefit is selected, and for Mr. Aller and Ms.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.Mr. Harvey and Protsch and 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.
NONQUALIFIED DEFERRED COMPENSATION
The table below sets forth certain information as of Dec. 31, 2010 for each of our named executive officers with respect to the Alliant Energy Key Employee Deferred Compensation Plan, which is described below.
| Name | Executive
($)(1) | Registrant
($)(2) | Aggregate
($)(3) | Aggregate Balance ($) | Executive ($)(1) | Company ($)(2) | Aggregate Earnings in 2010 ($)(3) | Aggregate Distributions | Aggregate ($) | |||||||||||||||||||||||
William D. Harvey | $ 0 | $4,932 | $265,588 | $3,135,671 | $ | 306,120 | $ | 10,140 | $ | 528,552 | $ | 0 | $ | 5,228,509 | ||||||||||||||||||
Eliot G. Protsch | $ 4,752 | $3,287 | $255,049 | $3,034,128 | ||||||||||||||||||||||||||||
Patricia L. Kampling | $ | 32,719 | $ | 176 | $ | 5,900 | $ | 0 | $ | 49,275 | ||||||||||||||||||||||
Barbara J. Swan | $10,812 | $ 0 | $106,637 | $1,122,409 | $ | 0 | $ | 0 | $ | 244,599 | $ | 0 | $ | 1,217,686 | ||||||||||||||||||
Dundeana K. Doyle | $ | 0 | $ | 0 | $ | 86,644 | $ | 0 | $ | 495,314 | ||||||||||||||||||||||
Thomas L. Aller | $ 0 | $ 0 | $ 34,095 | $ 362,024 | $ | 0 | $ | 0 | $ | 75,750 | $ | 0 | $ | 381,198 | ||||||||||||||||||
Dundeana K. Doyle | $ 0 | $ 0 | $ 41,663 | $ 434,503 | ||||||||||||||||||||||||||||
(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. |
(3) | The following |
Prior to 2008, Alliant Energy maintained a Key Employee Deferred Compensation Plan, or KEDCP, under which participants, including our named executive officers, were able to defer up to 100% of base salary and annual incentive compensation. Participants who mademaintains the maximum allowed contribution to our 401(k) plan could receive an additional credit to the KEDCP. The credit was equal to 50% of the lesser of (a) the amount contributed to Alliant Energy’s 401(k) plan plus the amount deferred under the KEDCP or (b) 6% of base salary reduced by the amount of any matching contributions in our 401(k) plan. The participant could elect to have his or her deferrals credited to an Interest Account or an Alliant Energy Stock Account. Deferrals and matching contributions to the Interest Account received an annual return based on the A-Utility Bond Rate with a minimum return no less than the prime interest rate published inThe Wall Street Journal, provided that the return may not be greater than 12% or less than 6%. Deferrals and matching contributions credited to the Alliant Energy Stock Account were treated as though invested in Alliant Energy common stock and were credited with dividend equivalents, which were treated as if reinvested. The shares of Alliant Energy common stock identified as obligations under the KEDCP are held in a rabbi trust. Payments from the KEDCP could be made in a lump sum or in annual installments for up to 10 years at the election of the participant. Participants were selected by the chief executive officer of Alliant Energy. Messrs. Harvey, Protsch and Aller, and Mses. Swan and Doyle were participants in the KEDCP.
Effective Jan. 1, 2008, Alliant Energy adopted a new Alliant Energy Deferred Compensation Plan, or AEDCP, under which consolidated several non-qualified deferred compensation plans, including the KEDCP, and which complies with Section 409A of the Internal Revenue Code. Under the AEDCP, 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 Alliant Energy’sEnergy 401(k) planSavings Plan may receive an additional credit to the AEDCP. The credit made in January 20082010 was equal to 50% of (a), minus (b), where:
(a) is the lesser of:
(i) the sum of the amounts (if any) contributed by the participant to the Alliant Energy 401(k) Plan during
2007 which were eligible for matching contributions under the Alliant Energy 401(k) Plan, plus the amounts deferred by the participant during 2007 under the KEDCP; or
(ii) 6% of the Participant’s base salary for 2007; and
(b) is the amount of any matching contributions that were made to the Alliant Energy 401(k) Plan on behalf of the Participant for 2007.
The credit made in January 2009 and later will be equal to 50% of (c), minus (d), where:
(c) equals the lesser of (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 shall be the sum of 6% of base salary for 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
(d)(b) equals the amount of any matching contributions under the Alliant Energy 401(k) 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 10-year Treasury Bond Rate plus 1.50% as established by the Federal Reserve. Deferrals and matching contributions credited to the Equity Account are treated as invested in an S&P 500 index fund. Beginning in 2011, participants may have their deferrals credited to additional investment accounts, which will be treated as invested in a mutual fund or other investment vehicle offered under the Alliant Energy 401(k) Savings Plan as selected by our Investment Committee. Deferrals and matching contributions credited to the Alliant Energy Stock Account are treated as though invested in ourAlliant Energy’s common stock and are credited with dividend equivalents, which are treated as if reinvested. The shares of Alliant EnergyEnergy’s common stock identified as obligations under the AEDCP are held in a rabbi trust. Payments from the AEDCP 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 Mses. Kampling, Swan and Doyle are participants in the AEDCP.
Alliant Energy maintains a frozen 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 account at a rate of 11% for the balance in the account prior to July 1, 1993 and 9% on the 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 (with the exception of Ms. Swan) in each situation is listed in the tables below assuming that the termination and/or change in control of Alliant Energy occurred at Dec. 31, 20072010 and that Alliant Energy’s common stock is valued at $40.69,$36.77, which was the closing market price for Alliant Energy’s common stock on Dec. 31, 2007.2010. 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. The table below for Ms. Swan shows only the retirement amounts due to her retirement on Dec. 31, 2010.
| William D. Harvey | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination without Cause or for Good Reason | Change in Control without Termination | 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 | $ | — | $ | — | $ | 810,000 | $ | — | $ | 5,467,500 | $ | — | $ | — | $ | — | $ | 875,000 | $ | — | $ | 5,118,750 | $ | — | ||||||||||||||||||||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 4,788 | $ | — | $ | 222,301 | $ | — | $ | — | $ | — | $ | 5,930 | $ | — | $ | 277,204 | $ | — | ||||||||||||||||||||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | 1,010,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Unvested Stock Options | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Unvested Restricted Stock | $ | 1,541,093 | $ | 1,541,093 | $ | 1,541,093 | $ | 1,541,093 | $ | 1,541,093 | $ | 1,541,093 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Unearned Performance Contingent Restricted Stock | $ | 1,405,412 | $ | 1,405,412 | $ | 1,405,412 | $ | 1,405,412 | $ | 1,405,412 | $ | 1,405,412 | $ | 2,490,138 | $ | 2,490,138 | $ | 2,490,138 | $ | 2,490,138 | $ | 2,490,138 | $ | 2,490,138 | ||||||||||||||||||||||||
Unearned Performance Shares | $ | 1,173,903 | $ | 1,173,903 | $ | 1,173,903 | $ | 1,173,903 | $ | 1,173,903 | $ | 1,173,903 | $ | 1,724,452 | $ | 1,724,452 | $ | 1,724,452 | $ | 1,724,452 | $ | 1,724,452 | $ | 1,724,452 | ||||||||||||||||||||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 81,000 | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | $ | 87,500 | $ | — | ||||||||||||||||||||||||
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 | $ | 4,960,874 | $ | 1,266,961 | n/a | n/a | n/a | n/a | $ | 3,955,322 | $ | — | ||||||||||||||||||||||||||||||||
Life Insurance Proceeds | $ | 2,253,545 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 2,891,235 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Total Pre-tax Benefit | $ | 6,373,953 | $ | 4,120,408 | $ | 4,945,196 | $ | 4,120,408 | $ | 15,887,083 | $ | 5,387,369 | $ | 7,105,825 | $ | 4,214,590 | $ | 5,105,520 | $ | 4,214,590 | $ | 13,663,366 | $ | 4,214,590 | ||||||||||||||||||||||||
| Eliot G. Protsch | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination without Cause or for Good Reason | Change In Control | ||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | — | $ | — | $ | 476,000 | $ | — | $ | 2,732,259 | $ | — | $ | — | $ | — | $ | 500,000 | $ | — | $ | 2,475,000 | $ | — | ||||||||||||||||||||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 7,395 | $ | — | $ | 130,152 | $ | — | $ | — | $ | — | $ | 9,176 | $ | — | $ | 59,544 | $ | — | ||||||||||||||||||||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | 4,313,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 973,000 | $ | — | ||||||||||||||||||||||||
Unvested Stock Options | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Unvested Restricted Stock | $ | 770,547 | $ | 770,547 | $ | 770,547 | $ | 770,547 | $ | 770,547 | $ | 770,547 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Unearned Performance Contingent Restricted Stock | $ | 527,993 | $ | 527,993 | $ | 527,993 | $ | 527,993 | $ | 527,993 | $ | 527,993 | $ | 397,153 | $ | 397,153 | $ | 397,153 | $ | 397,153 | $ | 397,153 | $ | 397,153 | ||||||||||||||||||||||||
Unearned Performance Shares | $ | 420,111 | $ | 420,111 | $ | 420,111 | $ | 420,111 | $ | 420,111 | $ | 420,111 | $ | 388,475 | $ | 388,475 | $ | 388,475 | $ | 388,475 | $ | 388,475 | $ | 388,475 | ||||||||||||||||||||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 47,600 | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | $ | 50,000 | $ | — | ||||||||||||||||||||||||
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 | $ | 2,892,870 | $ | — | ||||||||||||||||||||||||||||||||||||||||
Excise Tax Cut Back | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||
Life Insurance Proceeds | $ | 1,625,281 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Total Pre-tax Benefit | $ | 3,343,932 | $ | 1,718,651 | $ | 2,212,046 | $ | 1,718,651 | $ | 11,859,532 | $ | 1,718,651 | $ | 785,628 | $ | 785,628 | $ | 1,304,804 | $ | 785,628 | $ | 4,353,172 | $ | 785,628 | ||||||||||||||||||||||||
| Barbara J. Swan | Death | Disability | Involuntary Termination Without Cause | Retirement | Change In Control and Termination without Cause or for Good Reason | Change In Control | ||||||||||||||||||
Triggered Payments | ||||||||||||||||||||||||
Cash Termination Payment | $ | — | $ | — | $ | 361,000 | $ | — | $ | 1,820,439 | $ | — | ||||||||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 7,395 | $ | — | $ | 84,786 | $ | — | ||||||||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | 701,000 | $ | — | ||||||||||||
Unvested Stock Options | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Unvested Restricted Stock | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Unearned Performance Contingent Restricted Stock | $ | 332,315 | $ | 332,315 | $ | 332,315 | $ | 332,315 | $ | 332,315 | $ | 332,315 | ||||||||||||
Unearned Performance Shares | $ | 275,808 | $ | 275,808 | $ | 275,808 | $ | 275,808 | $ | 275,808 | $ | 275,808 | ||||||||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 36,100 | $ | — | ||||||||||||
Tax Preparation Assistance | $ | — | $ | — | $ | — | $ | — | $ | 15,000 | $ | — | ||||||||||||
Legal and Accounting Advisor Services | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | ||||||||||||
Excise Tax Gross Up | n/a | n/a | n/a | n/a | $ | 1,487,531 | $ | — | ||||||||||||||||
Life Insurance Proceeds | $ | 375,885 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Total Pre-tax Benefit | $ | 984,008 | $ | 608,123 | $ | 986,518 | $ | 608,123 | $ | 4,762,979 | $ | 608,123 | ||||||||||||
| 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 | ||||||||||||||||||||||||||||||||||||||||||
Triggered Payouts | ||||||||||||||||||||||||||||||||||||||||||||||||
| Barbara J. Swan | Death | Disability | Involuntary Termination Without Cause | Retirement(1) | Change In Control and Termination without Cause or for Good Reason | Change In Control without Termination | ||||||||||||||||||||||||||||||||||||||||||
Triggered Payments | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||
Cash Termination Payment | $ | — | $ | — | $ | 257,500 | $ | — | $ | 830,000 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 4,788 | $ | — | $ | 20,406 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Unvested Stock Options | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Unvested Restricted Stock | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Unearned Performance Contingent Restricted Stock | $ | 138,915 | $ | 138,915 | $ | 138,915 | $ | 138,915 | $ | 138,915 | $ | 138,915 | $ | 614,758 | ||||||||||||||||||||||||||||||||||
Unearned Performance Shares | $ | 111,487 | $ | 111,487 | $ | 111,487 | $ | 111,487 | $ | 111,487 | $ | 111,487 | $ | 460,017 | ||||||||||||||||||||||||||||||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 25,750 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Tax Preparation Assistance | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Legal and Accounting Advisor Services | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Excise Tax Cut Back | n/a | n/a | n/a | n/a | $ | (45,661 | ) | n/a | ||||||||||||||||||||||||||||||||||||||||
Excise Tax Gross Up | N/A | |||||||||||||||||||||||||||||||||||||||||||||||
Life Insurance Proceeds | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
Total Pre-tax Benefit | $ | 250,402 | $ | 250,402 | $ | 522,690 | $ | 250,402 | $ | 1,090,897 | $ | 250,402 | $ | 1,074,775 | ||||||||||||||||||||||||||||||||||
| 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 | $ | — | $ | — | $ | 236,000 | $ | — | $ | 708,250 | $ | — | ||||||||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 7,395 | $ | — | $ | 49,530 | $ | — | ||||||||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | 1,050,000 | $ | — | ||||||||||||
Unvested Stock Options | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Unvested Restricted Stock | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Unearned Performance Contingent Restricted Stock | $ | 101,928 | $ | 101,928 | $ | 101,928 | $ | 101,928 | $ | 101,928 | $ | 101,928 | ||||||||||||
Unearned Performance Shares | $ | 85,776 | $ | 85,776 | $ | 85,776 | $ | 85,776 | $ | 85,776 | $ | 85,776 | ||||||||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 23,600 | $ | — | ||||||||||||
Tax Preparation Assistance | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Legal and Accounting Advisor Services | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | ||||||||||||
Excise Tax Cut Back | n/a | n/a | n/a | n/a | $ | (710,701 | ) | n/a | ||||||||||||||||
Life Insurance Proceeds | $ | 294,944 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Total Pre-tax Benefit | $ | 482,648 | $ | 187,704 | $ | 441,099 | $ | 187,704 | $ | 1,318,383 | $ | 187,704 | ||||||||||||
| (1) | Amounts in this column were calculated based on prorated shares at target performance. Ms. Swan is eligible to receive payments after the performance periods end if the performance criteria are met. |
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 BenefitDundeana 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 $ — $ — $ 281,400 $ — $ 816,060 $ — $ — $ — $ 9,176 $ — $ 57,535 $ — $ — $ — $ — $ — $ 659,000 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 216,575 $ 216,575 $ 216,575 $ 216,575 $ 216,575 $ 216,575 $ 153,221 $ 153,221 $ 153,221 $ 153,221 $ 153,221 $ 153,221 $ — $ — $ 10,000 $ — $ 28,140 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ 10,000 $ — n/a n/a n/a n/a $ (114,700 ) n/a $ 373,889 $ — $ — $ — $ — $ — $ 743,685 $ 369,796 $ 670,372 $ 369,796 $ 1,825,831 $ 369,796
| 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 | ||||||||||||||||||
Triggered Payouts | ||||||||||||||||||||||||
Cash Termination Payment | $ | — | $ | — | $ | 282,000 | $ | — | $ | 817,800 | $ | — | ||||||||||||
Life, Medical, Dental Insurance Continuation | $ | — | $ | — | $ | 5,930 | $ | — | $ | 29,562 | $ | — | ||||||||||||
Lump Sum SERP | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Unvested Stock Options | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Unvested Restricted Stock | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Unearned Performance Contingent Restricted Stock | $ | 221,392 | $ | 221,392 | $ | 221,392 | $ | 221,392 | $ | 221,392 | $ | 221,392 | ||||||||||||
Unearned Performance Shares | $ | 153,527 | $ | 153,527 | $ | 153,527 | $ | 153,527 | $ | 153,527 | $ | 153,527 | ||||||||||||
Outplacement Services | $ | — | $ | — | $ | 10,000 | $ | — | $ | 28,200 | $ | — | ||||||||||||
Tax Preparation Assistance | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Legal and Accounting Advisor Services | $ | — | $ | — | $ | — | $ | — | $ | 10,000 | $ | — | ||||||||||||
Excise Tax Cut Back | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||
Life Insurance Proceeds | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Total Pre-tax Benefit | $ | 374,919 | $ | 374,919 | $ | 672,849 | $ | 374,919 | $ | 1,260,481 | $ | 374,919 | ||||||||||||
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, and certain of our key employees.employees, except Ms. Swan who retired on Dec. 31, 2010. 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)Kampling) or two years (in the case of Mr. Aller orand Ms. 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)Kampling) or two years (in the case of Mr. Aller orand Ms. 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 20072010 lump sum interest rate of 4.79%3.21% 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)Kampling) or two times (in the case of Mr. Aller orand Ms. 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 which is immediately payable up to $460,000$490,000 (the limit provided in Section 409A of the Internal Revenue Code), with any amounts over $460,000$490,000 payable in six months after the termination date; and
reimbursement for up to $10,000 in legal or accounting advisor fees.
In addition, the KEESAsKEESA for Mr. Harvey Mr. Protsch and Ms. Swan provideprovides 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, weAlliant Energy 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;Harvey; 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 20072010 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 KEESA for Ms. Kampling provides that if any portion of the benefits under the KEESA or under any other agreement would constitute an excess parachute payment for purposes of the Internal Revenue Code, she may receive the better of either a payment $1 less than the maximum amount she may receive without becoming subject to the 20% excise tax, or receive the fully calculated payment subject to applicable excise taxes, for which she would be personally responsible. The KEESAs for Mr. Aller and Ms. 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 weAlliant Energy may pay without loss of deduction under the Internal Revenue Code. For Mr. Aller and Ms. Doyle, the potential payment and benefit amounts shown in the tables above reflect this cutback provision from their KEESAs.
her KEESA.
In consideration of the KEESA benefits, the executive officer agrees not to compete with Alliant Energy or us for a period of one year after the executive officer leaves usAlliant Energy and to keep in confidence any proprietary information or confidential information for a period of five years after the executive officer leaves us.Alliant Energy. Both of these conditions can be waived in writing by ourAlliant 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 usAlliant 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;
a material diminution in the officer’s base compensation;
a material diminution in the officer’s authority, duties, or responsibilities, including a material diminution in the budget over which he or she retains authority; or
a material diminution in the authority, duties, or responsibilities of the supervisor to whom the officer is required to report, including a requirement that he or she report to a corporate officer or employee instead of reporting directly to the board of directors.
Stock Option Agreements
The agreements under which Alliant Energy has awarded Alliant Energy 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 priceNone of Alliant Energy’s common stock on Dec. 31, 2007 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 Alliant Energy’s commonhave unvested stock on Dec. 31, 2007.options.
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 the performance period was already into its fourth year, in which case the denominator would be 48).36.
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. 31, 20072010 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.
satisfied at target level performance.
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. For 2007, theThe 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 $490,000) will be delayed for six months, payment of prorated 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. In 2008, the Committee adopted a severance plan with substantially similar benefits, except for a six month delay of any cash payment over the Code Section 409A limit (currently about $460,000), elimination of the bridge to retirement provision and providing six months of paid COBRA coverage.
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 or 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.”
Compensation Committee Risk Assessment
In December 2010, the Compensation and Personnel Committee undertook an assessment of our 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 2011 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:
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 our compensation programs for reasonableness by our state utility commission mitigates risk;
Claw-back policies that provide Alliant Energy with the ability to recoup short-term and long-term incentive awards under 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.
ADVISORY VOTE ON COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
We and Alliant Energy view executive compensation as an important matter both to us and to our shareowners. We are asking shareowners to vote, on a non-binding basis, on a resolution approving the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis section and the accompanying compensation tables and narrative discussion contained in this Proxy Statement.
Alliant Energy has in the past sought approval from its shareowners regarding incentive compensation plans. Those incentive plans, including the Alliant Energy 2010 Omnibus Incentive Plan approved by Alliant Energy’s shareowners at the Alliant Energy 2010 Annual Meeting of Shareowners, make up a significant amount of the pay that we and Alliant Energy provide to our executives. This incentive plan enables us to motivate our employees and focus them on our financial and strategic objectives. These financial and strategic objectives are important to executing Alliant Energy’s strategic plan, delivering long-term value to our shareowners and customers, and sustaining our credibility with investors.
The Compensation and Personnel Committee of our Board of Directors has overseen the development and implementation of the executive compensation programs. Alliant Energy has designed compensation programs to align management interests with the interests of our shareowners and customers by directly linking a significant portion of the compensation of our named executive officers to defined performance standards that promote balance between the drive for near-term growth and long-term increase in shareowner value. The Committee also designed our compensation programs to attract, retain and motivate key executives who are essential to the implementation of Alliant Energy’s strategic growth and development strategy. We are, therefore, as required by Section 14A of the Securities Exchange Act of 1934, asking shareowners to vote in favor of the resolution below.
The Committee bases its executive compensation decisions on the core compensation objectives as more fully described in the Compensation Discussion and Analysis, including the following:
furthering Alliant Energy’s strategic plan by strengthening the relationship between pay and performance by emphasizing variable at-risk compensation;
aligning executives’ and employees’ interests with those of our shareowners and our customers; and
ensuring that we attract and retain talented employees through competitive compensation that is comparable to other similar companies.
We believe that Alliant Energy’s existing compensation programs have been effective at motivating our key executives, including our named executive officers, to achieve enhanced performance and results for our company, effectively aligning compensation with performance results, giving our executives an ownership interest in Alliant Energy so their interests are aligned with its shareowners, and enabling us to attract and retain talented executives whose services are in key demand in our industry and market sectors.
With the core compensation objectives in mind, the Committee has taken compensation actions in recent years including the following:
maintaining Alliant Energy base salaries close to the median of our market reference point for similar positions;
maintaining the structure of Alliant Energy’s short-term and long-term incentive awards generally to provide compensation around the median of Alliant Energy’s market reference point for similar positions;
setting performance objectives which are consistent with our pay for performance philosophy resulting in the first corporate short-term incentive payment in three years for 2010;
structuring a new Alliant Energy change-in-control agreement for our newest executive vice president that does not include excise tax gross-ups;
structuring Alliant Energy’s short-term incentive plan for fiscal year 2010 on the basis of forecasted performance of our company rather than simply basing the awards on historical results;
establishing a claw-back policy for short-term incentives and designing incentive plan features that mitigate risk to shareowners; and
eliminating a flexible perquisite program and limiting the number and value of other perquisites.
As a reflection of our emphasis on performance standards and variable at-risk compensation, all of Alliant Energy’s short-term (annual) and equity-based awards in 2010 were granted contingent upon the achievement of performance goals. As a result, on average in the aggregate, approximately 70% of our named executive officers’ target total compensation for 2010 was dependent on performance. Alliant Energy did not grant any equity-based awards in 2010 that were subject only to time-based vesting conditions.
Alliant Energy will continue to design and implement our executive compensation programs and policies in line with our philosophy to promote superior performance results and generate greater value for our shareowners and customers.
The Board would like the support of our shareowners for the compensation of our named executive officers as disclosed in this Proxy Statement. This advisory vote on the compensation of our named executive officers allows our shareowners to express their opinions about our executive compensation programs. As we seek to align our executive compensation programs with our performance results and shareowners’ interests, we ask that our shareowners approve the compensation of our named executive officers. Accordingly, for the reasons we discuss above, the Board recommends that shareowners vote in favor of the following resolution:
“RESOLVED, that the shareowners approve, on an advisory basis, the compensation of the named executive officers as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis section and the compensation tables and narrative discussion contained in this Proxy Statement.”
The votes cast “for” must exceed the votes cast “against” the proposal at the Annual Meeting (assuming a quorum is present) to approve the compensation of our named executive officers as disclosed in this proxy statement. For purposes of determining the vote required for this proposal, abstentions and broker non-votes will have no impact on the vote. This advisory vote on the compensation of our named executive officers is not binding on us, our Board or the Compensation and Personnel Committee. However, our Board and the Committee will review and consider the outcome of this advisory vote when making future compensation decisions for our named executive officers.
The Board of Directors recommends a vote “FOR” approval of the compensation of our named executive officers as disclosed in this proxy statement.
ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE ON COMPENSATION
OF OUR NAMED EXECUTIVE OFFICERS
We are also seeking a vote, on a non-binding, advisory basis, on a resolution regarding the frequency of the advisory vote on the compensation of our named executive officers as disclosed pursuant to the executive compensation disclosure rules of the SEC. Shareowners may vote to approve holding an advisory vote on the compensation of our named executive officers, as required by Section 14A of the Securities Exchange Act of 1934, every one, two or three years.
After considering the benefits and consequences of each option for the frequency of submitting the advisory vote on the compensation of our named executive officers to shareowners, the Board recommends submitting the advisory vote on the compensation of our named executive officers to our shareowners annually.
We believe an annual advisory vote on the compensation of our named executive officers will allow us to obtain information on shareowners’ views of the compensation of our named executive officers on a more consistent basis. In addition, we believe an annual advisory vote on the compensation of our named executive officers will provide our and Alliant Energy’s Board and the Compensation and Personnel Committee with frequent input from shareowners on our compensation programs for our named executive officers. Finally, we believe an annual advisory vote on the compensation of our named executive officers promotes corporate transparency while also allowing shareowners frequent direct input on our and Alliant Energy’s compensation philosophy, policies and programs.
For the reasons discussed above, the Board recommends that shareowners vote in favor of holding an advisory vote on the compensation of our named executive officers at an annual meeting of shareowners every year. In voting on this advisory vote on the frequency of the advisory vote on the compensation of our named executive officers, shareowners should be aware that they are not voting “for” or “against” the Board’s recommendation to vote for a frequency of every year for holding future advisory votes on the compensation of our named executive officers. Rather, shareowners will be casting votes to recommend an advisory vote on the compensation of our named executive officers which may be every one, two or three years, or they may abstain entirely from voting on the proposal.
The particular frequency of the advisory vote on the compensation of our named executed officers receiving the greatest number of votes for such frequency at the Annual Meeting (assuming a quorum is present) will be the frequency of the advisory vote on the compensation of our named executive officers that shareowners approve. Abstentions and broker non-votes will not constitute a vote for any particular frequency. The option on the frequency of the advisory vote on the compensation of our named executive officers that receives the most votes from shareowners will be considered by the Board and Compensation and Personnel Committee as the shareowners’ recommendation as to the frequency of future advisory votes on the compensation of our named executive officers. However, the outcome of this advisory vote on the frequency of the advisory vote on the compensation of our named executive officers is not binding on us or our or Alliant Energy’s Board. Nevertheless, our Board will review and consider the outcome of this vote when making determinations as to when the advisory vote on the compensation of our named executive officers will again be submitted to shareowners for approval at an annual meeting of shareowners.
The Board of Directors recommends a vote for submitting the advisory vote on the compensation of our named executive officers to shareowners every “1 YEAR.”
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 2007.2010.
| Name(1) | Fees Earned or Paid in Cash($)(2) | Nonqualified Deferred Compensation Above- Market Interest Earnings ($)(3) | All Other Compensation ($)(4) | Total ($) | Fees Earned or Paid in Cash ($)(2) | All Other Compensation ($)(3) | Total ($) | |||||||||||||||||
Michael L. Bennett | $ | 118,784 | $ | 0 | $ | 0 | $ | 118,784 | $ | 173,500 | $ | 12,462 | $ | 185,962 | ||||||||||
Darryl B. Hazel | $ | 103,500 | $ | 0 | $ | 0 | $ | 103,500 | $ | 148,500 | $ | 0 | $ | 148,500 | ||||||||||
James A. Leach(5) | $ | 64,600 | $ | 0 | $ | 0 | $ | 64,600 | ||||||||||||||||
Singleton B. McAllister | $ | 105,000 | $ | 1,242 | $ | 17,555 | $ | 123,797 | $ | 145,000 | $ | 17,555 | $ | 162,555 | ||||||||||
Ann K. Newhall | $ | 103,500 | $ | 1,330 | $ | 0 | $ | 104,830 | $ | 150,000 | $ | 12,462 | $ | 162,462 | ||||||||||
Dean C. Oestreich | $ | 105,000 | $ | 0 | $ | 0 | $ | 105,000 | $ | 150,000 | $ | 0 | $ | 150,000 | ||||||||||
David A. Perdue | $ | 103,500 | $ | 3,183 | $ | 21,892 | $ | 128,575 | $ | 148,500 | $ | 21,892 | $ | 170,392 | ||||||||||
Judith D. Pyle | $ | 100,000 | $ | 0 | $ | 5,437 | $ | 105,437 | $ | 145,000 | $ | 5,574 | $ | 150,574 | ||||||||||
Carol P. Sanders | $ | 107,293 | $ | 234 | $ | 0 | $ | 107,527 | $ | 158,500 | $ | 0 | $ | 158,500 | ||||||||||
Anthony R. Weiler(6) | $ | 52,100 | $ | 13,846 | $ | 42,581 | $ | 108,527 | ||||||||||||||||
(1) | Directors who also are employees, such as Mr. Harvey, receive no additional compensation for their service on our Board of Directors and are not included in this table. The compensation received by Mr. Harvey |
(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 the Alliant |
(3) |
|
| The amounts in this column reflect the |
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 | |||
A. R. Weiler | $ | 15,740 | $ | 26,841 | $ | 42,581 | |||
|
|
|
|
Retainer Fees—In 2007,2010, 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$145,000 in cash. Also in 2007,2010, 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 do
Meeting Fees —In 2010, directors did not receive any additional compensation for attendance at Board or Committee meetings.
Effective in 2008, the four Boards of Directors adopted the Compensation and Personnel Committee recommendations given to the Nominating and Governance Committee for an increase in the annual retainer for service on all four boards to $125,000 for non-employee directors. This increase is based upon a review of a blended analysis of utility and general industry benchmarking data provided from the Compensation and Personnel Committee’s advisor, Towers Perrin. The four Boards of Directors also adopted an increase to $13,500 for the cash retainer for the Chairperson of the Audit Committee based upon this same data. The Boards did not make any changes to any other elements of compensation for non-employee directors listed above for 2008.
Other —Pursuant to Alliant 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 Alliant Energy’sour travel accident and directors’ and officers’ indemnity insurance policies.
Receipt of Fees in Stock—For fees paid in 2007,2010, each director was encouraged to voluntarily elect to use not less than 50% of his or her cash retainer to purchase shares of Alliant EnergyEnergy’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. For fees paid in 2011, the Compensation and Personnel Committee and the Nominating and Governance Committee again recommended that each non-employee director voluntarily elect to use a portion of his or her cash retainer to purchase shares of Alliant Energy common stock. Under Alliant Energy’s 2002 Equity2010 Omnibus 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 thethat Plan. For fees paid in 2008, the Compensation and Personnel Committee recommended to the Nominating and Governance Committee that each non-employee director voluntarily elect to receive a portion of his or her cash retainer to purchase shares of Alliant Energy common stock.
Share Ownership Guidelines —Pursuant to Alliant Energy’s Articles of Incorporation, directors are required to be shareowners. In 2007, a target ownership level of 8,400 sharesshareowners of Alliant Energy’s common stock was to be achieved by each director within five years of joining the Board or as soon thereafter as practicable. Effective for 2008, upon the recommendation of the Compensation and Personnel and Nominating and Governance Committees, Alliant Energy’s Board amended theEnergy. The target share ownership level to beis the number of Alliant Energy common shares equal to the value of two times the annual retainer amount received by each of the non-employee directors. The achievement of this ownership level is to be accomplished by each director within five years of joining the Board or as soon thereafter as practicable. Shares held by directors in the Alliant Energy Shareowner Direct Plan and the Director’sAlliant Energy Deferred Compensation Plan are included in the target goal. As of Dec. 31, 2007,Feb. 28, 2011, all non-employeenon-management directors, with the exception of Ms. Sanders, who joined the Board in November 2005, Mr. Hazel, who joined the Board in 2006, and Mr. Leach, who joined the Board in 2007, had met the 2007 target ownership level. We will continue to monitor the status of the target ownership levels and review them with the Board of Directors.
Director’sAlliant Energy Deferred Compensation Plan— In 2007, underUnder 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 a 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. For 2011, the Plan was amended to permit deferrals into additional investment accounts. 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. Effective Jan. 1, 2008, the Director’s Deferred Compensation Plan was consolidated with the Alliant Energy Deferred Compensation Plan. See: “Nonqualified Deferred Compensation” above.years.
Director’sDirectors’ Charitable Award Program— Alliant EnergyEnergy’s maintains a Director’sDirectors’ 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.January 1, 2005. The participants in this Program currently are Mr. Bennett,
Ms. McAllister, Ms. Newhall, Mr. Perdue and Ms. Pyle, and Mr. Weiler.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. We takeAlliant Energy takes all deductions for charitable contributions, and Alliant Energy 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 20072010 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 2010, there was no cost to Alliant Energy ofincurred under the Programprogram for the individual directors in 2007 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 %100% of charitable donations over $25 to eligible charities up to a maximum of $10,000 per year for each individual. These limits apply to active employees, retirees and directors.director.
To Our Shareowners:
The Audit Committee of our Board of Directors is composed of four 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) as amended byAU Section 380 of the Public Company Accounting Oversight Board, AU Section 380, Communication with Audit Committees.
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 2007.2010.
The fees that were billed to usthe Company by ourits independent registered public accounting firm for work performed on behalf of our companyCompany and our subsidiaries for 20062009 and 20072010 were as follows:
| 2006 | 2007 | |||||
Audit Fees | $ | 770,000 | $ | 1,093,000 | ||
Audit-Related Fees | 29,000 | 76,000 | ||||
Tax Fees | 58,000 | 82,000 | ||||
All Other Fees | 29,000 | 2,000 | ||||
| 2009 | 2010 | |||||||
Audit Fees | $ | 925,000 | $ | 907,000 | ||||
Audit-Related Fees | 29,000 | 129,000 | ||||||
Tax Fees | 569,000 | 115,000 | ||||||
All Other Fees | 7,000 | 8,000 | ||||||
Audit Feesfees consisted of the fees billed for the auditaudits of the consolidated financial statements of our companyCompany and our subsidiaries;subsidiaries, for reviews of financial statements included in Form 10-Q filings;filings, and for services normally provided in connection with statutory and regulatory filings such as financialfinancing transactions. Audit Feesfees also included our company’sCompany’s portion of fees for the 2006 audit of management’s assessmentaudits of Alliant Energy’s consolidated financial statements and effectiveness of internal controls over financial reporting and for the 2007 audit of Alliant Energy’s effectiveness of internal controls overour financial reporting.
Audit-Related FeesAudit-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. Audit-related fees for 2010 also included the Company’s portion of the fees billed for an assessment of International Financial Reporting Standards.
Tax Feesfees 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 Feesother fees consisted of license fees for tax and accounting research software products.products, seminars and other 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, 20072010 for filing with the SEC.
AUDIT COMMITTEE
Carol P. Sanders (Chairperson)
Michael L. Bennett
Darryl B. Hazel
Ann K. Newhall
David A. Perdue
RATIFICATION OF THE APPOINTMENT
OF DELOITTE & TOUCHE LLP AS THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 20082011
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, 20082011, and is requesting that its shareowners ratify such appointment.
Representatives of Deloitte & Touche LLP are not expected to attend the annual meeting.Annual Meeting. Further information about the services of Deloitte & Touche LLP, including the fees paid in 20062009 and 2007,2010, is set forth in the “Report of the Audit Committee.”
Vote Required
The affirmative vote of a majority ofvotes cast “for” must exceed the votes cast on“against” 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 2008.2011. For purposes of determining the vote required for this proposal, abstentions and broker non-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 2008, 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 2008.2011.
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, Alliant 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 the filing requirements in 2007.
2010.
We will furnish to any shareowner, without charge, a copy of our Annual Report on Form 10-K for the year ended Dec. 31, 2007.2010. 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, 20072010
Contents | Page | |||
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| A-2 | ||
| A-3 | |||
| A-5 | |||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | A-5 | |||
Management’s Annual Report on Internal Control Over Financial Reporting | A-38 | |||
| A-39 | ||||
| A-40 | ||||
| A-40 | ||||
| A-41 | ||||
| A-43 | ||||
| A-44 | ||||
Notes to Consolidated Financial Statements | A-45 | |||
| A-81 | |||
| ||||
| A-82 | ||||
Wisconsin Power and Light Company (WPL) filed a combined Form 10-K for 20072010 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 February 28, 20082011 and was complete and accurate as of that date. WPL disclaims any responsibility to update that information in this Annual Report.
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. These forward-looking statements can be identified as such because the statements include words such as “expect,” “anticipate,” “plan” or other words of similar import. Similarly, statements that describe future financial performance or plans or strategies are forward-looking statements. 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 WPL’s risks and uncertainties include:
federal and state regulatory or governmental actions, including the impact of energy-relatedenergy, tax, financial and taxhealth care legislation, and of regulatory agency orders;
its ability to obtain adequate and timely rate relief to allow for, among other things, the recovery of operating costs, andfuel costs, transmission costs, deferred expenditures, capital expenditures, and remaining costs related to generating units that may be permanently closed, the earning of reasonable rates of return, and the paymentpayments to its parent of expected levels of dividends; current or future litigation, regulatory investigations, proceedings or inquiries;
the ability to continue cost controls and operational efficiencies;
the state of the economy in its service territory and resulting implications on sales, margins and ability to collect unpaid bills;
developments that adversely impact its ability to implement its strategic plan including unanticipated issues in connection with Alliant Energy’s construction and operation or regulatory approval of itsa new wind generating facility to utilize the remaining 100 megawatts (MW) of Vestas-American Wind Technology, Inc. (Vestas) wind turbine generator sets, new emission control equipment for various coal-fired generating facilities, and its proposed purchasepotential purchases of Resources’ electric generating facilitythe Riverside Energy Center (Riverside) and Wisconsin Electric Power Company’s (WEPCO’s) 25% interest in Neenah, Wisconsin; the Edgewater Generating Station Unit 5 (Edgewater Unit 5);
weather effects on results of operations;
successful resolution of the pending challenge by interveners of the approval by the Public Service Commission of Wisconsin (PSCW) of its Bent Tree - Phase I wind project;
issues related to the availability of its 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 that fuel and fuel-related prices and other economic conditions may have on customerits customers’ demand for utility services;
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;
issues associated with environmental remediation efforts and with environmental compliance generally; generally, including changing environmental laws and regulations;
the ability to recover through rates all environmental compliance costs, including costs for projects put on hold due to uncertainty of future environmental laws and regulations;
potential impacts of any future laws or regulations regarding global climate change or carbon emissions reductions; weather effectsreductions, including those that contain proposed regulations (including cap-and-trade) of greenhouse gas (GHG) emissions;
continued access to the capital markets on results of operations; competitive terms and rates;
inflation and interest rates;
financial impacts of risk hedging strategies, including the impact of weather hedges or the absence of weather hedges on its earnings;
changes to the creditworthiness of counterparties which WPL has contractual arrangements including participants in the energy markets and fuel suppliers and transporters;
issues related to electric transmission, including operating in Regional Transmission Organization (RTO) energy and ancillary services markets, the impacts of potential future billing adjustments and cost allocation changes from RTOs and recovery of costs incurred;
unplanned outages, at itstransmission constraints or operational issues impacting fossil or renewable generating facilities and risks related to recovery of resulting incremental costs through rates;
Alliant Energy’s ability to successfully pursue appropriate appeals with respect to, and any liabilities arising out of, the alleged violation of the Employee Retirement Income Security Act of 1974 by Alliant Energy’s Cash Balance Pension Plan;
Alliant Energy’s ability to successfully resolve with the Internal Revenue Service (IRS) issues related to Alliant Energy’s Cash Balance Pension Plan;
current or future litigation, regulatory investigations, proceedings or inquiries;
employee workforce factors, including changes in key executives, collective bargaining agreements and negotiations, work stoppages or additional restructurings;
impacts that storms or natural disasters in its service territory may have on its operations and recovery of and rate relief for costs associated with restoration activities;
access to technological developments;
any material post-closing adjustments related to any past asset divestitures;
increased retirement and benefit plan costs;
the impact of necessary accruals for the terms of incentive compensation plans;
the effect of accounting pronouncements issued periodically by standard-setting bodies;
the ability to utilize tax credits and net operating losses generated to date, and those that may be generated in the future, before they expire;
the ability to successfully complete tax audits and appeals with no material impact on earnings and cash flows;
the direct or indirect effects resulting from terrorist incidents or responses to such incidents; unanticipated impacts that storms or natural disasters in its service territory may have on its operations; economic and political conditions in its service territory; its ability to collect unpaid utility bills; any material post-closing adjustments related to any of its past asset divestitures; employee workforce factors, including changes in key executives, collective bargaining agreements or work stoppages; continued access to the capital markets; access to technological developments; issues related to electric transmission, including operating in the Midwest Independent System Operator (MISO) energy market, the impacts of potential future billing adjustments from MISO and recovery of costs incurred; inflation and interest rates; the impact of necessary accruals for the terms of its incentive compensation plans; the effect of accounting pronouncements issued periodically by standard-setting bodies; the ability to continue cost controls and operational efficiencies; the ability to successfully complete ongoing tax audits and appeals with no material impact on its earnings and cash flows; and
factors listed in “Other Matters - Other Future Considerations.” 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;electricity and the distribution and transportation of natural gas in selective markets in southsouthern 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, 2007,2010, WPL supplied electric and gas service to 450,920454,776 and 175,887178,570 retail customers, respectively. WPL also provides various other energy-related productsIn 2010, 2009 and services. In 2007, 2006 and 2005,2008, 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. Refer to Note 16 of the “Notes to Consolidated Financial Statements” for discussion of WPL’s utility operations in Illinois, which were sold in February 2007.LLC (ATC). At Dec.31, 2010, WPL had 1,244 full- and part-time employees.
Regulation-WPL is subject to regulation by the Public Service Commission of Wisconsin (PSCW)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 base rates include estimates of annual fuel-related costs (fuel and purchased power energy costs) anticipated during the test period. During each electric retail rate proceeding or in a separate fuel cost plan approval 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, WPL is authorized to defer the incremental over- or under-collection of fuel-related costs from electric retail customers that are outside the approved ranges. Any over- or under-collection of fuel-related costs for each year are reflected in future billings to retail customers. This cost recovery mechanism became effective for WPL on Jan. 1, 2011.
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.
Energy Efficiency Cost Recovery Mechanism -WPL contributes a certain percentage of its annual retail utility revenues to help fund Focus on Energy, Wisconsin’s statewide energy efficiency and renewable energy resource program. Contributions to Focus on Energy are recovered from WPL’s retail customers through changes in base rates determined during periodic rate proceedings and include a reconciliation to eliminate any over- or under-recovery of contributions from prior periods.
New Electric Generating Facilities- A Certificate of Authority (CA) application is required to be filed with the PSCW for construction approval of any new electric generating facility located in Wisconsin with a capacity of 99 megawatts (MW) or less.less than 100 MW. A Certificate of Public Convenience and Necessity (CPCN) application is required to be filed with the PSCW for construction approval of any new electric generating facility located in Wisconsin with a capacity of 100 MW or more. In addition, WPL’s ownership and operation of electric generating facilities (including those located outside the state of Wisconsin (including Minnesota)Wisconsin) to serve Wisconsin customers is subject to retail utility rate regulation by the PSCW. WPL is required to file retail rate cases with the PSCW using a forward-looking test period. There is no statutory time limit for the PSCW to decide retail rate cases. However, the PSCW attempts to process all base retail rate cases in 10 months or less and the PSCW has the ability to approve interim retail rate relief, subject to refund, if necessary. For fuel-only retail rate case increases, the PSCW attempts to
Advance Rate Making Principles- Wisconsin Statutes §196.371 provide interim retail rate relief within 21 days of notice to customers, subject to refund. There is no statutory time limit for final fuel-only retail rate relief decisions. Wisconsin’s Act 7 provides Wisconsin utilities with the necessaryopportunity to request rate making principles - and resulting, increased regulatory and investment certainty - 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 Act 7.Wisconsin Statutes §196.371. WPL can proceed with an approved project under traditional rate making if the terms of the rate making principles issued under Act 7 are viewed as unsatisfactory by WPL.terms.
Other -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),EPA, as well as various other federal, state and local agencies.
Electric Utility Operations-As of Dec. 31, 2007,2010, WPL provided electric service to 450,920454,776 retail, 2621 wholesale and 2,1052,245 other customers in 606 communities. 20072010 electric utility operations accounted for 81%85% of WPL’s operating revenues and 83%90% of WPL’s 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 2007,2010, the maximum peak hour demand for WPL was 2,8162,654 MW on Aug. 1, 2007.12, 2010.
Gas Utility Operations- As of Dec. 31, 2007,2010, WPL provided natural gas service to 175,887178,570 retail and 238226 transportation and other customers in 237 communities. 20072010 gas utility operations accounted for 19%14% of WPL’s operating revenues and 20%11% of WPL’s 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.
| 2007 (a) | 2006 (a) | 2005 (a) | 2004 | 2003 | 2010 (a) | 2009 (a) | 2008 (a) | 2007 | 2006 | ||||||||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
Operating revenues | $ | 1,416.8 | $ | 1,401.3 | $ | 1,409.6 | $ | 1,209.8 | $ | 1,217.0 | $ | 1,423.6 | $ | 1,386.1 | $ | 1,465.8 | $ | 1,416.8 | $ | 1,401.3 | |||||||||||||||
Net income | 152.3 | 89.5 | 118.4 | 113.5 | 105.3 | ||||||||||||||||||||||||||||||
Earnings available for common stock | 110.2 | 102.0 | 101.8 | 110.4 | 111.6 | 149.0 | 86.2 | 115.1 | 110.2 | 102.0 | |||||||||||||||||||||||||
Cash dividends declared on common stock | 191.1 | 92.2 | 89.8 | 89.0 | 70.6 | 109.5 | 91.0 | 91.3 | 191.1 | 92.2 | |||||||||||||||||||||||||
Cash flows from operating activities | 258.0 | 162.6 | 176.6 | 199.3 | 138.5 | 372.4 | 305.8 | 239.7 | 258.0 | 162.6 | |||||||||||||||||||||||||
Total assets | 2,788.6 | 2,699.1 | 2,667.6 | 2,656.1 | 2,469.3 | 3,889.6 | 3,681.4 | 3,265.5 | 2,788.6 | 2,699.1 | |||||||||||||||||||||||||
Long-term obligations, net | 715.7 | 524.5 | 526.4 | 491.3 | 453.5 | 1,193.7 | 1,146.3 | 899.0 | 715.7 | 524.5 | |||||||||||||||||||||||||
| (a) | Refer to “Results of Operations” in MDA for a discussion of the |
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
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;electricity and the distribution and transportation 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 450,000455,000 retail electric customers in Wisconsin. WPL also procures natural gas from various suppliers to provide service to approximately 175,000179,000 retail gas customers in 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 2007, 20062010, 2009 and 2005,2008, WPL’s earnings available for common stock were $110.2$149.0 million, $102.0$86.2 million and $101.8$115.1 million, respectively. Refer to “Results of Operations” for details regarding the various factors impacting earnings during 2007, 20062010, 2009 and 2005.2008.
Strategic Overview
The strategic plan for WPL focuses on construction of new wind generating facilities, purchasing newer and more-efficient coal and natural gas generating facilities and implementing emission controls and performance upgrades at its newer, larger and more-efficient generating facilities to enable it to continue to produce reliable and affordable energy for its customers. Key strategic plan developments impacting WPL during 2010 and early 2011 include:
April 2010 - WPL announced plans to purchase WEPCO’s 25% ownership interest in Edgewater Unit 5, subject to regulatory approval. WPL currently expects the transaction to close in the first half of 2011.
May 2010 - WPL received an order from the PSCW authorizing the installation of a selective catalytic reduction (SCR) system at Edgewater Unit 5 to reduce nitrogen oxide (NOx) emissions at the facility. Construction of the SCR system began in the third quarter of 2010.
February 2011 - WPL’s 200 MW Bent Tree - Phase I wind project in Freeborn County, Minnesota began full commercial operation.
February 2011 - WPL received approval from the PSCW to install scrubbers and baghouses at Columbia Units 1 and 2 to reduce sulfur dioxide (SO2) and mercury emissions, respectively, at the facility.
Refer to “Strategic Overview” for additional details regarding 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. Key regulatory developments impacting WPL during 2010 and early 2011 include:
December 2010 - WPL received an order from the PSCW authorizing an annual retail electric rate increase of $8 million, or approximately 1%, effective Jan. 1, 2011, related to WPL’s request to reopen the rate order for its 2010 test year. In addition, WPL received an order from the PSCW authorizing no increase in retail electric rates in 2010 related to fuel-related costs and required a 2010 interim rate increase of $9 million to terminate effective Dec. 31, 2010. These two items will result in a net $1 million decrease in annual electric retail rates charged to customers effective January 2011.
January 2011 - New electric fuel cost recovery rules in Wisconsin became effective, which allow WPL 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 its retail customers.
Refer to “Rate Matters” for additional details regarding regulatory developments.
Environmental Matters
WPL is subject to regulation of environmental matters by various federal, state and local authorities. Key environmental developments during 2010 and early 2011 that may impact WPL include:
January 2010 - The EPA issued an information collection request for coal- and oil-fired electric generating units (EGUs) over 25 MW in order to develop a proposed Utility Maximum Achievable Control Technology (MACT) Rule for the control of mercury and other federal hazardous air pollutants (HAPs). Compliance with a MACT Rule is currently expected to be required by November 2014.
June 2010 - The EPA issued a final rule that establishes new one-hour National Ambient Air Quality Standards (NAAQS) for SO2 at a level of 75 parts per billion (ppb). Compliance with the new SO2 NAAQS rule is currently expected to be required by 2017. The final rule is being challenged by several groups in the D.C. Circuit Court.
June 2010 - The EPA issued a proposed rule seeking comment regarding two potential regulatory options for management of Coal Combustion Residuals (CCRs): 1) regulate as a special waste under the hazardous waste regulations when the CCRs are destined for disposal, but continue to allow beneficial use of CCRs as a non-hazardous material; or 2) regulate as a non-hazardous waste for all applications subject to new national standards. The schedule for compliance with this rule has not yet been established.
July 2010 - The EPA issued its proposed Clean Air Interstate Rule (CAIR) replacement rule, referred to as the Clean Air Transport Rule (CATR), which would require SO2 and NOx emissions reductions beginning in 2012 from WPL’s fossil-fueled EGUs with greater than 25 MW of capacity.
September 2010 - The Sierra Club filed complaints in U.S. District Court against WPL alleging air permitting violations at WPL’s Nelson Dewey, Columbia and Edgewater generating facilities.
October 2010 - The EPA approved the Wisconsin State Thermal Rule. Compliance with this rule will be evaluated on a case-by-case basis as wastewater discharge permits for WPL’s generating facilities are renewed in the future.
December 2010 - The EPA announced the future issuance of GHG standards for electric utilities under the Clean Air Act (CAA). The GHG emission limits are to be established as New Source Performance Standards (NSPS) for new and existing fossil-fueled EGUs. The EPA is expected to propose NSPS by July 2011 and finalize NSPS by May 2012. The schedule for compliance with NSPS has not yet been established.
January 2011 - The EPA’s GHG Tailoring Rule became effective. The rule establishes a GHG threshold for major sources under the Prevention of Significant Deterioration (PSD) and Title V Operation Permit programs at 100,000 tons per year of CO2-equivalent (CO2e). The rule is subject to legal challenge.
February 2011 - The EPA promulgated a revised Industrial Boiler and Process Heater MACT Rule related to HAPs from fossil-fueled EGUs with less than 25 MW capacity as well as certain auxiliary boilers and process heaters operated at EGUs. The compliance deadline for this rule is currently expected to be 2014.
Refer to “Environmental Matters” for additional details regarding environmental developments.
Legislative Matters
WPL monitors various legislative developments, including those relating to energy, tax, financial and other matters. Key legislative developments impacting WPL during 2010 include:
March 2010 - Federal health care legislation was enacted. One of the most significant provisions of the federal health care legislation for WPL requires a reduction in its tax deductions for retiree health care costs beginning in 2013, to the extent its drug expenses are reimbursed under the Medicare Part D retiree drug subsidy program. The reduction in the future deductibility of retiree health care costs accrued as of Dec. 31, 2009 required WPL to record deferred income tax expense of $3 million in 2010.
July 2010 - The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was enacted. One of the most significant financial provisions of the Dodd-Frank Act for WPL is a commercial end-user exemption that is expected to allow utilities to continue trading derivatives “over-the-counter” without having to make such trades through cleared exchanges with collateral requirements.
September 2010 and December 2010 - The Small Business Jobs Act of 2010 (SBJA) and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the Act) were enacted. The most significant provisions of the SBJA and the Act for WPL provide an extension of the bonus depreciation deductions for certain expenditures for property that are incurred through Dec. 31, 2012.
Refer to “Legislative Matters” for additional details regarding 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 2010 include:
March 2010 - WPL paid at maturity $100 million of its 7.625% debentures.
June 2010 - WPL issued $150 million of 4.6% debentures due 2020. Proceeds from this issuance were used initially to repay short-term debt and invest in short-term assets, and thereafter to fund capital expenditures and for general working capital purposes.
December 2010 - The PSCW authorized WPL to issue up to $200 million of long-term debt securities in 2011.
December 2010 - At Dec. 31, 2010, WPL had $193 million of available capacity under its revolving credit facility.
Refer to “Liquidity and Capital Resources” for additional details regarding financing developments.
STRATEGIC OVERVIEW
SummaryStrategic Plan- WPL’s strategic plan focuses on its core business of delivering regulated electric and natural gas service in its Wisconsin service territory. The strategic plan is built upon three key elements: competitive costs, reliable service and balanced generation.
Competitive Costs -Providing competitive and predictable energy costs for customers is a key element of the strategic plan. WPL is aware that the majority of its costs become part of rates charged to its customers and any rate increase has an impact on its customers. Given that potential public policy changes and resulting increases in future energy cost are possible, WPL is focused on controlling its costs with the intent of providing competitive rates to its customers. Energy efficiency is also an important part of the strategic plan and is an option that provides customers with the opportunity to save on their energy bills. WPL’s approach to energy efficiency is based on regulations in Wisconsin. The objective is to meet prescribed goals in the most cost-effective manner. Additional details regarding energy efficiency programs used by WPL are included in “Energy Efficiency Programs” below.
Reliable Service- The strategic plan is intended to focus resources on providing reliable electricity and natural gas service. Investments are expected to be targeted in system improvements, replacing aging infrastructure and distribution grid efficiency to maintain strong reliability. WPL monitors system performance and takes the necessary steps to continually improve the reliability of its service for its customers. Providing exceptional customer service, including emergency and outage response, is part of WPL’s mission and commitment to the customers it serves.
Balanced Generation- WPL is committedbelieves a balanced and flexible generation portfolio provides long-term advantages to maintaining sustained, long-term strong financial performance withits customers and its parent company, Alliant Energy. The strategic plan calls for a strong balance sheetfocus on reducing overall fuel costs and credit ratings. WPL expects this strong financial performance will help ensure accessthe volatility of those costs by reducing reliance on purchased electricity and generation produced by older, smaller and less-efficient EGUs to capital markets at reasonable costs as it embarks on a substantial infrastructure investment program discussedmeet the demands of our customers. The strategic plan reflects the recent construction of new wind generating facilities and proposed acquisitions of newer and more-efficient coal and natural gas plants to replace the electricity from purchased power agreements (PPAs) and generation produced by less efficient EGUs. Additional details of changes to WPL’s generation portfolio are included in “Generation Plan” below and “Liquidity and Capital Resources - Environmental” later in MDA. WPL’sPlans” below. The 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.
Wisconsin law (Act 7) provides WPL with the ability to receive rate making principles - and resulting increased regulatory and investment certainty - prior to making certain significantalso includes investments in performance and reliability upgrades and new generation. This law has enabledemission controls at newer, larger, more-efficient EGUs to continue producing affordable energy for customers and to benefit the environment. Additional details regarding proposed new emission controls for WPL’s generating facilities are included in “Environmental Compliance Plans” below. WPL believes a diversified fuel mix for EGUs is important to pursue additional generation investments to servemeeting the needs of its customers, that may provide shareowners with greater certainty regardingits parent company and the returns on these investments. Refer to “Rates and Regulatory Matters”environment while preparing for additional information.a potentially carbon-constrained environment in the future.
Generation PlanPlans-WPL’s current generation plan for the 2008 to 2013 time period reflects the need to increase generation. The proposed new generation is expected to meet increasing customer demand and reduce reliance on purchased power agreements (PPAs). WPL will continue to purchase energy and capacity in the market and intends to remain a net purchaser of both, but at a reduced level assuming the successful completion of these generation projects. The plan also reflects continued commitments to WPL’s energy efficiency and environmental compliance programs. WPL continues to monitor developments related to renewable portfolio standards, environmental requirements for new generation and federal and state tax incentives. 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 the variousdifferent generation technologies, market conditions for obtaining financing, developments related to federal and state renewable energy technologiesportfolio standards, environmental requirements, such as future carbon and other alternatives to itsrenewable requirements, and federal and state tax incentives.
New Generation Projects -WPL’s new generation plan. WPL’s current generation planprojects through 2013 isare as follows (Not Applicable (N/A)):
Primary Generation Type | Project Name / Location | Capacity (MW) | Expected Date | Cost Estimate (a) | Current Capitalized Costs (b) | Actual / Expected Regulatory Decision Date | Project Name / Location | Capacity (MW) | Actual / Expected Date | Cost Estimate (a) | Current Capitalized Costs (b) | Actual / Expected Regulatory Decision Date | ||||||||||||||||||
Wind | Cedar Ridge Fond du Lac County, WI | 68 | Fourth quarter of 2008 | $ | 165 | $ | 43 | May 2007 | Bent Tree - Phase I Freeborn County, MN | 200 | Q4 2010 and Q1 2011 | $440 - $450 | $ | 406 | October 2009 | |||||||||||||||
Natural-gas | Neenah Energy Facility Neenah, WI | 300 | 2009 | 95 | N/A | First half of 2008 | ||||||||||||||||||||||||
Wind | Southern Minnesota | 200 | 2010 | 400 -450 | — | Second half of 2008 | ||||||||||||||||||||||||
Natural gas | Riverside Beloit, WI | 600 | 2013 | 365 - 375 | N/A | 2012 - 2013 | ||||||||||||||||||||||||
Coal | Nelson Dewey #3 Cassville, WI | 300 | 2013 | 850 - 950 | 17 | Fourth quarter of 2008 | 25% of Edgewater Unit 5 Sheboygan, WI | 95 | 2011 | 40 - 45 | N/A | First half of 2011 | ||||||||||||||||||
| $ | 60 | $ | 406 | |||||||||||||||||||||||||||
| (a) | Cost estimates represent WPL’s estimated portion of the total escalated construction and acquisition expenditures in millions of dollars and exclude allowance for funds used during construction (AFUDC), if applicable. |
| (b) | Costs represent capitalized expenditures in millions of dollars recorded in “Property, plant and equipment” on the Consolidated Balance Sheet as of Dec. 31, |
Cedar RidgeWind Generation Projects
Bent Tree - Phase I Wind Project - In May 2007,2009, WPL received approvalacquired approximately 400 MW of wind site capacity in Freeborn County, Minnesota. WPL used 200 MW of the capacity from this site for its Bent Tree - Phase I wind project. WPL also used 200 MW of wind turbine generator sets and related equipment under the PSCWmaster supply agreement entered into with Vestas in 2008 for the Bent Tree - Phase I wind project. Construction of Bent Tree - Phase I was completed and full commercial operation began in February 2011.
In 2009, Wisconsin Industrial Energy Group, Inc. (WIEG) and Citizens Utility Board (CUB) filed a Petition for Review with the Circuit Court of Dane County, Wisconsin seeking judicial review of: 1) the PSCW’s 2008 interim order that determined WPL’s application for the Bent Tree - Phase I wind project must be reviewed under the CA statute and not the Certificate of Public Convenience and Necessity statute; and 2) the PSCW’s 2009 final order that granted WPL a CA to construct the Bent Tree - Phase I wind project. In 2009, the PSCW filed a motion to dismiss the petition, which was subsequently denied in April 2010. In September 2010, WIEG’s and CUB’s Petition for Review was denied by the Circuit Court of Dane County,
Wisconsin. WIEG and CUB appealed the Circuit Court’s decision to the Appellate Court. In January 2011, WIEG and CUB filed briefs in support of their appeal. The PSCW, WPL and other interveners have the opportunity to file a brief in February 2011. WPL expects a decision on this matter in 2011.
Wind Turbine Generators - In 2008, Alliant Energy entered into a master supply agreement with Vestas to purchase 500 MW of wind turbine generator sets and related equipment. Alliant Energy utilized 400 MW of these wind turbine generator sets and related equipment to construct IPL’s Whispering Willow - East wind project however,and WPL’s Bent Tree - Phase I wind project. Alliant Energy believes the Whispering Willow wind site in Iowa is the best location to deploy the remaining 100 MW of wind turbine generator sets and related equipment and is currently evaluating which of its subsidiaries will construct the 100 MW wind project.
Refer to Note 1(e) of the “Notes to Consolidated Financial Statements” for discussion of an additional wind site expected to be used by WPL did not accept the PSCW’s Act 7 decision, which included a return on common equity of 10.50% compared to WPL’s requested return on common equity of 12.90%. Instead, WPL will proceed with applying traditional rate making procedures for the recovery of and return on its capital costs for thisdevelop future wind farm.projects.
Natural Gas-Fired Generation Projects
Neenah Energy Facility (NEF) - In April 2007, WPL filed for approval from the PSCW to purchase Resources’ 300 MW, simple cycle, natural gas-fired electric generating facility in Neenah, Wisconsin. WPL intends to replace the output currently obtained under the RockGen Energy Center (RockGen) PPA with output from NEF. WPL currently plans to acquire NEF effective June 1, 2009, which coincides with the expected termination of WPL’s RockGen PPA scheduled for May 31, 2009. WPL plans to file for approval from FERC for the NEF purchase in the first half of 2008 after receipt of PSCW approval.
Wind Project in Minnesota - WPL plans to file for approval from the PSCW and the Minnesota Public Utilities Commission in the first half of 2008 to construct a 200 MW wind farm in southern Minnesota. WPL expects to use traditional rate making procedures for the recovery of and return on its capital costs for this wind farm. The expected commercial operation date is subject to the timing of pending regulatory approvals and availability of wind turbines.
Nelson Dewey #3 - The preferred site of the new facility is adjacent to the existing Nelson Dewey Generating Station (Nelson Dewey) in Cassville, Wisconsin. In February 2007, WPL filed for approval from the PSCW to proceed with construction of the new facility and to specify in advance rate making principles. In its regulatory application, WPL requested a return on common equity of 12.95% along with a capital structure that includes a 50% common equity ratio. In December 2007, the PSCW determined WPL’s CPCN application was complete, thereby initiating the construction permitting process. By law, the PSCW has up to 360 days (180 days plus an optional 180 day extension) from the date the application was determined complete to make a final ruling on the proposed expansion. WPL has selected Washington Group International to provide engineering, procurement, and construction services for the proposed expansion. The current cost estimate includes expenditures for facilities that will be shared with the existing units at Cassville, Wisconsin. Of the total estimated expenditures for the shared facilities, $60 million is anticipated to be allocated to the existing units based on installed capacity. WPL plans to utilize circulating fluidized bed technology and biomass fuel capability for the new facility.
OtherRiverside - WPL has a PPA with a subsidiary of Calpine Corporation related to the Riverside Energy Center (Riverside) that extends through May 31, 2013 and provides WPL the option to purchase Riverside at the end of the PPA term. For planning purposes, WPL is currently assuminganticipates it will exercise its option to purchase Riverside, a 600 MW natural-gas firednatural gas-fired electric generating facility in Beloit, Wisconsin, to replace the output currently obtained under the PPA.
Coal-Fired Generation Projects
Edgewater Unit 5 - WPL and WEPCO entered into an agreement, which became effective in March 2010, for WPL to purchase WEPCO’s 25% ownership interest in Edgewater Unit 5 for WEPCO’s net book value, including working capital. The proposed transaction was approved by PSCW and FERC in 2010. WEPCO is currently working with the Michigan Public Service Commission to obtain satisfactory approval for the transaction. WPL currently expects the transaction to close in the first half of 2011 at an approximate purchase price of $40 million to $45 million depending on WEPCO’s working capital balances and level of capital investment in Edgewater Unit 5 prior to the sale. If the purchase is completed, WPL would own 100% of Edgewater Unit 5.
Environmental Compliance Plans- WPL has developed environmental compliance plans to help ensure cost effective compliance with current and proposed environmental regulations expected to significantly reduce future emissions of NOx, SO2 and mercury at its generating facilities. 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, outcomes of legal proceedings, 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. Refer to “Rates“Environmental Matters” for details of current and Regulatoryproposed environmental regulations, including regulations for which these plans are expected to support compliance obligations. The following provides details of capital expenditure estimates for 2011 through 2013 for emission control projects included in WPL’s current environmental compliance plans (in millions):
Generating Unit | Emissions Controlled | Technology (a) | 2011 | 2012 | 2013 | |||||||||||||
Edgewater Unit 5 (b) | NOx | SCR | $ | 55 | $ | 60 | $ | 15 | ||||||||||
Columbia Units 1 and 2 | SO2 and Mercury | Scrubber and Baghouse | 20 | 95 | 125 | |||||||||||||
| $ | 75 | $ | 155 | $ | 140 | |||||||||||||
| (a) | 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.
| (b) | Capital expenditure estimates above assume WPL acquires WEPCO’s 25% ownership interest in Edgewater Unit 5 in 2011. |
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 2014 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 informationdetails regarding regulatory mattersproposed environmental rules that may impact environmental compliance plans.
Emission Control Projects -WPL must file a CA 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 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 CAs for the following individual clean air compliance projects.
Edgewater Unit 5 - In May 2010, WPL received an order from the PSCW authorizing the installation of an SCR system at Edgewater Unit 5 to reduce NOx emissions at the facility. Construction began in the third quarter of 2010 and is expected to be completed prior to May 2013 when additional NOx emission reductions at Edgewater are required for WPL to comply with Wisconsin Reasonably Available Control Technology (RACT) Rule compliance deadlines. As of Dec. 31, 2010, WPL recorded $17 million of capitalized expenditures, excluding AFUDC, related to this project in “Construction work in progress - other” on the Generation PlanConsolidated Balance Sheet. Total capital expenditures, excluding AFUDC, for the Edgewater Unit 5 SCR are currently estimated to be approximately $155 million assuming WPL acquires WEPCO’s 25% ownership interest in Edgewater Unit 5 in 2011. The portion of these capital expenditures expected to be incurred in 2011 through 2013 are included in the above estimates for WPL’s environmental compliance plans. The SCR system at Edgewater Unit 5 is expected to support compliance obligations for current and anticipated air quality regulatory requirements, including the CATR and the Wisconsin RACT Rule.
Columbia Units 1 and 2 - In February 2011, WPL received approval from the PSCW to install scrubbers and baghouses at Columbia Units 1 and 2 to reduce SO2 and mercury emissions, respectively, at the generating facility. WPL’s portion of the capital expenditures, excluding AFUDC, for the Columbia Units 1 and 2 emission controls is currently estimated to be $290 million, a portion of which is included in the above estimates for WPL’s environmental compliance plans. The scrubbers and baghouses at Columbia Units 1 and 2 are expected to be placed into service in 2014 and support compliance obligations for current and anticipated air quality regulatory requirements, including CATR, the Utility MACT Rule and the Wisconsin State Mercury Rule.
Nelson Dewey - In 2007, WPL filed a CA 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 re-evaluating 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.
Energy Efficiency Programs- WPL has several energy efficiency programs and initiatives that help customers reduce their energy usage and related costs 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 systems. Advanced metering infrastructure (AMI) is expected to be the foundation for the Smart Grid in WPL’s service territory. WPL has substantially completed its AMI deployment by installing over 641,000 AMI electric meters and gas modules in its service territory as of Dec. 31, 2010. WPL anticipates its total capital expenditures for AMI will be approximately $115 million upon completion of the deployment. There is approximately $10 million of planned AMI investment remaining to be made for system and network enhancements at WPL through 2013.
Focus on Energy Program- In 2010, WPL contributed 1.2% of annual retail utility revenues to help fund Focus on Energy, Wisconsin’s statewide energy efficiency and renewable energy standards.resource program. This contribution level increased to approximately 1.5% of WPL’s revenues in 2011 with additional increases in succeeding years not to exceed 3.2% by 2014. 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 through base rates.
Shared Savings Programs- WPL offers energy efficiency programs to certain customers referred to as Shared Savings programs. These 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. Refer to “Liquidity and Capital Resources”Note 4 of the “Notes to Consolidated Financial Statements” for discussionadditional details of future capital expenditures estimates and financing plans for WPL’s infrastructure investment program.
Business Divestiture -In February 2007, WPL completed the sale of its electric distribution and gas properties in Illinois and received net proceeds of $24 million.shared savings programs.
RATES AND REGULATORYRATE MATTERS
Overview -WPL is 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.
UtilityRecent Retail Base Rate CasesFilings-Details of WPL’s recent retail base rate cases impacting its historical and future results of operations are as follows (dollars in millions; Electric (E); Gas (G); Not Applicable (N/A); To Be Determined (TBD); Fuel-related (F-R); Fourth Quarter (Q4)):
Utility Rate Case | Utility Type | Filing Date | Increase Requested | Interim Increase Granted (a) | Interim Effective Date | Final Increase Granted (a) | Final Effective Date | Return on Common Equity | |||||||||||||||
2009/2010 Retail | E/G | 2/08 | $ | 92 | N/A | N/A | TBD | TBD | TBD | ||||||||||||||
2008 Retail | E | 4/07 | 26 | N/A | N/A | $ | 26 | 1/08 | 10.80 | % | |||||||||||||
2007 Wholesale | E | 9/06 | (b | ) | (b | ) | (b | ) | TBD | TBD | TBD | ||||||||||||
2007 Retail | E/G | 3/06 | 96 | N/A | N/A | 34 | 1/07 | 10.80 | % | ||||||||||||||
2005 Retail (F-R) | E | 8/05 | 96 | $ | 96 | Q4 ‘05 | 54 | 9/06 | N/A | ||||||||||||||
2005 Retail (F-R) | E | 3/05 | 26 | 26 | 4/05 | 26 | 7/05 | N/A | |||||||||||||||
2005/2006 Retail | E/G | 9/04 | 63 | N/A | N/A | 21 | 7/05 | 11.50 | % | ||||||||||||||
2005 Wholesale | E | 8/04 | 12 | 12 | 1/05 | 8 | 1/05 | N/A | |||||||||||||||
Retail Base Rate Cases | Utility Type | Filing Date | Final Increase (Decrease) Granted (a) | Final Effective Date | ||||
2011 Test Year | E | Apr-10 | $8 | Jan-11 | ||||
2010 Test Year | E/G | May-09 | E-59; G-6 | Jan-10 | ||||
2009/2010 Test Period | E/G | Feb-08 | G-(4) | Jan-09 |
| (a) |
2009/Retail Electric Rate Case (2011 Test Year) -In April 2010, WPL filed a request with the PSCW to reopen the rate order for its 2010 test year to increase annual retail electric rates for 2011 by $35 million, or approximately 4%. The request was based on a forward-looking test period that included 2011. The key drivers for the filing include recovery of investments in WPL’s Bent Tree - Phase I wind project and expiring deferral credits, partially offset by lower variable fuel expenses. In August 2010, WPL revised its request for an annual retail electric rate increase to $19 million, or approximately 2%. The primary differences between WPL’s original request in April 2010 and its revised request filed in August 2010 relate to reduced variable fuel expenses, increased wind generation production tax credits and the impact of the $9 million annual rate increase implemented in June 2010 with the interim order in WPL’s 2010 test year retail fuel-related rate filing, which is discussed below.
In December 2010, WPL received an order from the PSCW authorizing an annual retail electric rate increase of $8 million, or approximately 1%, effective Jan. 1, 2011. This $8 million increase in annual rates effective Jan. 1, 2011 combined with the termination of the $9 million interim fuel-related rate increase effective Dec. 31, 2010 will result in a net $1 million decrease in annual electric retail rates charged to customers effective January 2011. Refer to “Retail Fuel-related Rate Filings - 2010 Test Year” below for additional details of the interim fuel-related rate increase implemented in 2010 and a $5 million reduction to the 2011 test year base rate increase for refunds owed to electric retail customers related to interim fuel cost collections in 2010.
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 300 MW coal-fired electric generating facility project, Nelson Dewey #3. 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 Jan. 1, 2010. The annual retail electric rate increase of $59 million reflects an increase in the non-fuel component of rates and a decrease in the fuel component of rates. 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” 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 test year retail electric rate increase approved by the PSCW included an amount that represented 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 accrued 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 iswas based on a 2009 forward-looking test year with approval to reopen the case to address limited cost drivers for 2010. The electric request reflectsreflected recovery for increased projected spending on electric generation infrastructure, environmental compliance and stewardship, enhanced investment in renewable energy purchasing and projects, stepped-up customer energy efficiency and conservation efforts, and related electric transmission and distribution costs. The gas request iswas 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.
In December 2008, WPL and major interveners in the case reached a stipulated agreement on electric and gas rate changes for 2009. The requestparties 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.
Planned Utility Rate Cases in 2011 -WPL currently expects to make a retail rate filing in the second quarter of 2011 based on a forward-looking test period that includes 2012 and 2013. The form and magnitude of such filing is currently being analyzed and could range from a future test year 2012 electric fuel plan to a full rate case for the previously authorized return on common equity2012 and 2013 test period. The rate filing is expected to include a new fuel cost recovery plan under Wisconsin’s new fuel rules, which allow for recovery of 10.80%.costs for emission control chemicals and emission allowances within the fuel recovery mechanism. The key drivers for the filing include partial recovery of the approved emission control project at Edgewater Unit 5 and the emission control projects at Columbia Units 1 and 2. Any rate changes granted are expected to be effective in early 2012.
2008 Retail Fuel-related Rate CaseFilings -
2010 Test Year -In April 2007,2010, WPL filed a request with the PSCW to reopenincrease annual retail electric rates by $9 million to recover anticipated increased electric production fuel and energy purchases (fuel-related costs) in 2010. Actual fuel-related costs through March 2010, combined with projections of continued higher fuel-related costs for the remainder of 2010, significantly exceeded the amounts being recovered in retail electric rates at the time of the filing. WPL received approval from the PSCW to implement an interim rate increase of $9 million, on an annual basis, effective in June 2010. As part of the interim decision, the PSCW also approved annual forecasted fuel-related costs per megawatt-hour (MWh) of $28.29 based on $389 million of variable fuel costs for WPL’s 2010 test period and left unchanged the annual fuel monitoring range of plus or minus 2%. Updated annual 2010 fuel-related costs during the proceeding resulted in WPL no longer qualifying for a fuel-related rate increase for 2010. In December 2010, the PSCW issued an order authorizing no increase in retail electric rates in 2010 related to fuel-related costs and requiring the interim rate increase to terminate at the end of 2010. The order also required WPL to refund to its 2007 retail electric customers the interim fuel rates collected in 2010 as a reduction to the 2011 test year base rate increase. As of Dec. 31, 2010, WPL reserved $5 million, including interest, for all interim fuel cost collections in 2010.
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 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 Sep. 1, 2009 through Dec. 31, 2009. In April 2010, WPL received approval from the PSCW to refund $4 million to its retail electric customers for retail fuel over collections for the period from Sep. 1, 2009 through Dec. 31, 2009. WPL refunded the $4 million to its retail electric customers in 2010.
2008 Test Year -In March 2008, WPL filed a request with the PSCW to increase annual retail electric rates by $16 million to recover anticipated increased electric production fuel and energy purchases (fuel-related costs). Actual fuel-related costs through February 2008, combined with projections of continued higher fuel-related costs for the remainder of 2008, significantly exceeded the amounts being recovered in retail electric rates 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 April 2008. Retail fuel-related costs incurred by WPL 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 $23 million to its retail electric customers in 2009.
Rule Changes -
Electric Fuel Cost Recovery Rule Changes in Wisconsin -In May 2010, Act 403 was enacted in Wisconsin to change statutes related to the process by which utilities recover electric fuel-related costs from their retail electric customers. On Jan. 1, 2011, revised new fuel rules issued by the PSCW became effective. The new fuel rules currently provide the following provisions and requirements for Wisconsin utilities:
PSCW approval of a future test year fuel cost plan resulting in changes in rates either as a separate proceeding or in a base rate case proceeding;
deferral of any change in unit fuel costs from the approved fuel cost plan outside a range established by the PSCW (initial range for WPL is between plus and minus 2%);
inclusion of selected other variable costs and revenues directly related to fuel costs in the limited purposefuel cost plan (costs for emission control chemicals and emission allowances are expected to be included in fuel costs for WPL beginning in 2012 with the approval of increasing electric retail ratesWPL’s next fuel cost plan);
reporting after completion of the plan year for comparison of actual plan year costs to those included in an amount equal to deferral credits that were fully amortizedthe fuel cost plan; and
restrictions on Dec. 31, 2007. WPL also requested clarification that it is authorized to record AFUDC on all CWIP balancesthe collection of deferred amounts if Wisconsin utilities earn in excess of their authorized return on common equity.
Refer to Note 1(h) of the CWIP balance included in the 2007 test year. In November 2007, the PSCW issued a final written order approving an annual“Notes to Consolidated Financial Statements” for additional details of WPL’s electric retail rate increase of $26 million effective Jan. 1, 2008 and approving WPL’s requested clarification regarding AFUDC and CWIP.fuel-related cost recovery mechanism.
2007 Wholesale Formula Rate CaseStructure - - In December 2006, WPL received an order from FERC authorizing an interim rate increase, subject to refund, effective in June 1, 2007 related to WPL’s request to implement a formula rate structure for its wholesale electric customers. The proposed rate structure uses formulas based on historical data for capacity-related costs, which adjust annually on June 1, and for energy costs, including fuel, which adjust monthly to determine applicable wholesale rates. Based on 2006 costs and usage, interim rates implemented on June 1, 2007 resulted in an annual revenue increase of approximately $22 million. This represents an increase of 14% from previously approved rates, whichIn February 2008, final written agreements were based on a 2005 forecasted test year. Final rates to be approved byfiled with FERC may result fromthat contained a settlement process or fully litigated process.between WPL and its wholesale customers are currently engaged in settlement discussions, which have resulted in a settlement of the issues identified in WPL’s filing requesting the formula rate structure. Final written agreements were filed in FebruaryIn August 2008, FERC approved the settlement and if approved by FERC, will result in an over-collectionthe implementation of revenues beginningsettlement rates effective June 1, 2007. WPL will refundDuring the over-collection, with interest, upon FERC approval in accordance with FERC requirements. Anticipated refunds of $4 million related to revenues collected duringperiod the interim rate increase was effective from June 1, 2007 through Dec.to May 31, 2007 time period have been fully accrued2008, WPL over-recovered $10 million, including interest, from its wholesale customers. In September 2008, WPL refunded the $10 million to its wholesale electric customers.
In 2009, WPL filed a request with FERC seeking approval of changes to WPL’s wholesale formula rates in order to implement for billing purposes the full impact of accounting for defined benefit pension and other postretirement benefits plans. In July 2010, FERC approved a settlement agreement reached earlier in 2010 between WPL and the wholesale customers regarding the formula rate change. WPL recorded an additional $4 million of electric revenues and regulatory assets in 2010 to reflect the settlement and is reducing the regulatory asset concurrently with collections from customers.
Rate Case Details -Details of the most recent rate orders in WPL’s key jurisdictions were as of Dec. 31, 2007.follows (Common Equity (CE); Preferred Equity (PE); Long-term Debt (LD); Short-term Debt (SD)):
Jurisdictions | Test Period | Authorized Return on Common Equity (a) | Capital Structure | After-tax Weighted- Average Cost of Capital | Average Rate Base (in millions) | |||||||||||||||||||||||||||
| CE | PE | LD | SD | |||||||||||||||||||||||||||||
Retail (PSCW): | ||||||||||||||||||||||||||||||||
Electric | 2011 | (b) | 10.40 | % | 50.4 | % | 2.4 | % | 43.3 | % | 3.9 | % | 8.18 | % | $ | 1,697 | (c) | |||||||||||||||
Gas | 2011 | (b) | 10.40 | % | 50.4 | % | 2.4 | % | 43.3 | % | 3.9 | % | 8.18 | % | $ | 215 | (c) | |||||||||||||||
Wholesale (FERC): | ||||||||||||||||||||||||||||||||
Electric | 2010 | 10.90 | % | 55.0 | % | N/A | 45.0 | % | N/A | 8.92 | % | $ | 169 | |||||||||||||||||||
| (a) | Authorized returns on common equity may not be indicative of actual returns earned or projections of future returns. |
| (b) | WPL’s 2011 rate order did not change the returns or capital structures approved in the prior rate order effective Jan. 1, 2010. |
| (c) | Retail rate base amounts do not include CWIP. The PSCW provides a return on selected CWIP by adjusting the percentage return on rate base. |
Other -
2007 Retail Rate CaseEconomic Development Program - In January 2007, WPL received an order from the PSCW approving a net increase in electric and gas retail rates of $34 million effective in January 2007. The final increase granted was lower than the increase requested largely due to a decrease in forecasted fuel and purchased energy costs for the 2007 test period. The PSCW approval included a regulatory capital structure with 54% equity (compared to 59% requested), a return on common equity of 10.80% (compared to 11.20% requested) and lengthened certain regulatory asset amortization periods. The regulatory capital structure approved by the PSCW was determined by adjusting WPL’s financial capital structure by approximately $200 million (compared to $330 million requested) of imputed debt largely from the Kewaunee Nuclear Power Plant (Kewaunee) and Riverside PPAs. The lower imputed debt adjustment than requested was primarily the result of the PSCW denying WPL’s request to include the Sheboygan Falls Energy Facility (SFEF) lease in the regulatory capital structure calculation. In addition, as a result of a
PSCW audit of plant costs, the PSCW determined that WPL should have used an after-tax AFUDC rate instead of a pre-tax AFUDC rate. WPL has made the required entries in 2007 to reflect this change and will record AFUDC at the after-tax rate for future retail jurisdiction construction projects.
Pursuant to the January 2007 order, WPL was allowed recovery of a portion of the previously deferred loss associated with the sale of Kewaunee in July 2005 and recovery of previously deferred costs associated with the extension of the unplanned outage at Kewaunee prior to the sale. The PSCW order included recovery of $23 million of these deferred costs through increased retail electric rates charged by WPL over a two-year recovery period.
The January 2007 PSCW order also approved modifications to WPL’s gas performance incentive sharing mechanism which included 35% of all gains and losses from WPL’s gas performance incentive sharing mechanism beginning in 2007 to be retained by WPL, with the remaining 65% refunded to or recovered from customers. The PSCW also directed WPL to work with PSCW staff to help the PSCW determine if it may be necessary to reevaluate the current benchmarks for WPL’s gas performance incentive sharing mechanism or explore a modified one-for-one pass through of gas costs to retail customers. In October 2007, the PSCW issued an order providing WPL the option to choose to utilize a modified gas performance incentive sharing mechanism or switch to a modified one-for-one pass through of gas costs to retail customers using benchmarks. WPL evaluated the alternatives and chose to implement the modified one-for-one pass through of gas costs, which was effective Nov. 1, 2007.
In May 2007, WPL notified the PSCW that its actual average fuel-related costs for the month of March 2007 had fallen below the monthly fuel monitoring range set in WPL’s 2007 retail rate case and that projected average fuel-related costs for 2007 could be below the annual monitoring range to an extent that would warrant a decrease in retail electric rates. WPL’s notification also included a request for the PSCW to set WPL’s retail electric rates subject to refund. In June 2007,2010, the PSCW issued an order approving an economic development program effective July 2010, which is intended to attract and retain industrial customers in WPL’s requestservice territory. The program permits WPL to set retail electric rates subjectprovide eligible industrial customers a discounted energy rate based upon specifically-defined conditions. To be eligible for the program, each customer needs to refund effective June 1, 2007.demonstrate that it is also eligible for direct governmental assistance through a local, state or federal economic development program, in addition to other criteria. The discount amounts are limited to ensure recovery of marginal costs and will be decreased over time until a customer is paying the full tariff rate. In August 2007, WPL received approval from the PSCW to refund to its retail electric customers any over-recovery of retail fuel-related costs during the period June 1, 2007 through Dec. 31, 2007. WPL estimates the over-recovery of retail fuel-related costs during this period to be $20 million, including interest. WPL refunded to its retail electric customers $4 million in 2007 and $3 million during the first two months of 2008. WPL plans to fileJuly 2010, CUB filed a petition for approvalreview with the PSCW by March 31, 2008, its final 2007 refund report. At Dec. 31, 2007, WPL reserved forCircuit Court of Dane County, Wisconsin (Circuit Court). CUB requested that the remaining amounts anticipated toorder be paid to retail electric customers related to these refunds.
2005 Fuel-related Retail Rate Case - In September 2006, the PSCW approved a settlement agreement submitted by WPL and interveners that established final fuel-related retail rates at a level reflective of actual fuel costs incurred from July 1, 2005 through June 30, 2006. The approval also allowed previously deferred, incremental purchased power energy costs associated with coal conservation efforts at WPL due to coal delivery disruptions to be included in the actual fuel costs and resolved all issues in the rate case regarding risk management activities and forecasting methodologies. WPL refunded $36 million to customers in October 2006 related to amounts collected in excess of final rates through June 2006. As part of the settlement, WPL also agreed to refund any over-collection of fuel costs in the second half of 2006. In June 2007, the PSCW approved a $3 million refund, including interest, to WPL’s retail customers related to the over-collection of retail fuel-related costs during the second half of 2006. WPL completed the refund in August 2007.
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 a reduction in the amortization of deferred creditsset aside, reversed or the recovery of increased costs incurred or expected to be incurred by WPL. Thus, these increases in revenues are not expected to result in a significant increase in net income.
Rate Making Principles for New Electric Generating Facilities- Wisconsin has a law (Act 7) that allows a public utility that proposes to purchase or construct an electric generating facility in Wisconsin to applyremanded to the PSCW for further deliberation and action. In February 2011, CUB’s petition for review was denied by the Circuit Court. WPL is currently unable to determine what action, if any, CUB may take in response to the Circuit Court’s decision or if any other legal action will occur. WPL is also unable to determine the level of participation in the program and the ultimate impact on its financial condition and results of operations.
Edgewater Unit 5 Purchase Agreement -WPL and WEPCO entered into an agreement, which became effective in March 2010, for WPL to purchase WEPCO’s 25% ownership interest in Edgewater Unit 5 for WEPCO’s net book value, including working capital. In June 2010, FERC authorized the transaction. In November 2010, the PSCW approved the transaction and WPL’s request to defer all costs and benefits related to the purchase and operation of Edgewater Unit 5 between the time of the transaction and WPL’s next base rate case. WEPCO is currently working with the Michigan Public Service Commission to obtain satisfactory approval for the transaction. WPL currently expects the transaction to close in the first half of 2011.
Deferral Request for Federal Health Care Legislation Costs -In April 2010, WPL filed a request with the PSCW for authorization to defer the anticipated and potential incremental costs WPL expects to incur in order to comply with the federal health care legislation that specifieswas enacted in advanceMarch 2010. The vast majority of the incremental costs relate to changes in the taxability of Medicare Part D supplement reimbursements. In December 2010, the PSCW approved the deferral request for 2010 only. In order to obtain recovery of deferred amounts in a future rate making principlesproceeding, WPL must prove that the PSCWactual amounts incurred meet the deferral criteria.
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 for its operations. WPL anticipates future expenditures for environmental compliance will applybe material, including significant capital investments. WPL anticipates that prudent expenditures incurred to certain electric generating facility costscomply with environmental requirements likely would be recovered in future rate making proceedings. This law is designed to give utilities in Wisconsin more regulatory certainty, including providing utilities with a fixed rate of return and recovery period for these investments, when financing electric generation projects. WPL plans to utilize the rate making principles included in Act 7 for some of the electric generation facilities included inrates from its generation plan.
customers. Refer to “Strategic Overview - Generation Plan”Environmental Compliance Plans” for additional details of WPL’s generationenvironmental 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 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 utility 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 including(FIP). Areas that comply with NAAQS are considered to be in 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 reduce emissions. Additional emissions standards may also be applied under the CAA regulatory framework beyond NAAQS. The specific federal and state air quality regulations that may affect WPL’s operations include: CAIR, CATR, Clean Air Visibility Rule (CAVR), Utility MACT Rule, Wisconsin State Mercury Rule, Wisconsin RACT Rule, Industrial Boiler and Process Heater MACT Rule and NAAQS rules. WPL also monitors various other potential environmental matters related to air quality, including: litigation of various federal rules issued under the CAA statutory authority; revisions to the New Source Review/PSD permitting programs and NSPS; and proposed legislation or other regulatory actions to regulate the emission of GHG. Refer to the sections below the following tables for detailed discussion of the PSCW’s May 2007 decision regardingfollowing air quality regulations.
Environmental Regulation | Emissions | EGUs Potentially Affected | Actual/Anticipated Compliance Deadline | |||
| CAIR | SO2, NOx | Fossil fuel-fired EGUs | Phase I - NOx (2009); SO2 (2010) Phase II - 2015 | |||
| CATR | SO2, NOx | Fossil fuel-fired EGUs | Phase I - 2012 Phase II - 2014 (SO2 only) | |||
| CAVR | SO2, NOx, PM | Fossil fuel-fired EGUs | To Be Determined (TBD) | |||
| Utility MACT Rule | Mercury and | Coal- and oil-fired EGUs | 2014 | |||
| Wisconsin State Mercury Rule | Mercury | Coal-fired EGUs | Phase I - 2010 Phase II - 2015 | |||
| Wisconsin RACT Rule | NOx | Edgewater Units 3-5 | Phase I - 2009 Phase II - 2013 | |||
Industrial Boiler and Process Heater MACT Rule | Mercury and other HAPs | Fossil fuel-fired EGUs | 2014 | |||
| Ozone NAAQS Rule | NOx | Fossil fuel-fired EGUs | TBD | |||
| Fine Particle NAAQS Rule | SO2, NOx, PM | Fossil fuel-fired EGUs | TBD | |||
| NO2 NAAQS Rule | NO2 | Fossil fuel-fired EGUs | TBD | |||
| SO2 NAAQS Rule | SO2 | Fossil fuel-fired EGUs | 2017 | |||
The following table lists the fossil fuel-fired EGUs by primary fuel type that WPL currently owns or operates with greater than 25 MW of nameplate capacity, all of which are located in Wisconsin.
Coal | Natural Gas | |
| Columbia 1-2 | Sheboygan Falls 1-2 | |
| Edgewater 3-5 | Neenah 1-2 | |
| Nelson Dewey 1-2 | South Fond du Lac 1-4 Rock River 3,5-6 Sheepskin 1 |
CAIR- CAIR established new SO2 and NOx (both annual and ozone season) emission caps beginning in 2010 and 2009, respectively, with further reductions in SO2 and NOx emission caps effective in 2015. CAIR impacts WPL’s applicationfossil fuel-fired EGUs with greater than 25 MW of capacity. CAIR included a large regional cap-and-trade system, where compliance may be achieved by either adding emission controls and/or purchasing emission allowances. In 2008, the U.S. Court of Appeals for advance rate making principlesthe D.C. Circuit (D.C. Circuit Court) remanded CAIR to the EPA for its Cedar Ridge wind project (WPL subsequently did not acceptrevision to address flaws identified in a 2008 opinion issued in response to legal challenges to this rule. In the PSCW’s decision)interim, CAIR obligations became effective for NOx on Jan. 1, 2009 and WPL’s application for advance rate making principles forSO2 on Jan. 1, 2010 and remain in place until the EPA issues a final CAIR replacement rule.
CATR -In July 2010, the EPA issued its proposed coal-fired generating facility in Cassville, Wisconsin.
Under Act 7 in Wisconsin, a utility seeking to construct an electric generating facility has the option to seek advance rate making treatment for that facility. A Wisconsin utility therefore is not obligated to file for advance rate making principles. Also, under Act 7 a utility can proceed with an approved project under traditional rate making if the terms of the PSCW order on the advance rate making principles are viewed as unsatisfactory to the utility. A Certificate of Authority (CA) application is required for the construction approval of any new electric generating facility located in Wisconsin with 99 MW or less of capacity. A Certificate of Public Convenience and Necessity (CPCN) application is required for construction approval of any new electric generating facility located in Wisconsin with 100 MW or more of capacity. In both situations, construction may not commence until the PSCW has granted approval based on a finding that the project is in the public interest. In addition, WPL’s ownership and operation of electric generating facilities outside of Wisconsin (including Minnesota) to serve Wisconsin customers is subject to retail utility rate regulation by the PSCW.
AFUDC - New electric generating facilities require large outlays of capital and long periods of time to construct resulting in significant financing costs. Financing costs incurred by utilities during construction are generally included as part of the CWIP cost of the new generating facility through accruals of AFUDC. In November 2007, the PSCW issued its written order for WPL’s 2008 retail electric rate case which authorizes WPL to record AFUDC on all CWIP balances in excess of the CWIP balance used to determine base rates in the 2007 test year. General rate making principles provide WPL the ability to recover AFUDC after the asset is placed in service.
Pre-certification and Pre-construction Expenditures - 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 commonlyCAIR replacement rule, referred to as pre-certification coststhe CATR. The CATR would require SO2 and pre-construction costs. Pre-certification costs generally are characterized as incremental costs related to planning and investigation studies incurred to determineNOx emissions reductions from emission sources located in 31 states in the feasibility of utility projects under contemplation for construction and regulatory approval. Pre-construction costs generally are characterized as capital expenditures made prior to beginning construction of capital projects requiring regulatory approval. WPL recognizes these pre-certification and pre-construction costs as “Regulatory assets” on the Consolidated Balance Sheets prior to regulatory approvaleastern half of the projectU.S. as well as the District of Columbia. The CATR would affect WPL’s fossil-fueled EGUs with greater than 25 MW of capacity. Existing CAIR compliance requirements remain effective until the final CATR compliance requirements supersede them, which the EPA currently estimates will occur in 2012. Beginning in 2012, the CATR would establish state emission caps for SO2 and NOx (Phase I). These SO2 emission caps would be lowered further in 2014 (Phase II). While the NOx emission caps are not lowered further in the CATR, the EPA indicates that it will likely lower these caps in the final version of the CATR or priorsubsequent rulemakings.
In the CATR, the EPA identifies one preferred and two alternative approaches. All three approaches establish state emission caps; however, they allow varying degrees of limited, if any, emissions trading to management’s decision to proceedmeet compliance requirements. In addition, the emission allowances used for Acid Rain and CAIR program compliance cannot be used for compliance with the project if no regulatory approvals are required. Upon regulatory approval or when management decidesCATR.
WPL continues to proceed with a project that does not require regulatory approval, WPL’s cumulative pre-construction costsimplement its environmental compliance plans to meet the currently effective CAIR requirements, which include investments in emission controls for each project are transferred from “Regulatory Assets”EGUs as well as use of emission allowances. The final CATR is expected to “CWIP” onbe issued by the Consolidated Balance Sheets. WPL’s cumulative pre-certification costs for each project remainEPA in “Regulatory Assets” on the Consolidated Balance Sheets until recovered from customers through changes inmid-2011. WPL will monitor future base rates. WPL recognizes AFUDC on pre-construction costs and recovery of short-term debt carrying costs for pre-certification costs based on regulatory orders. WPL has received approval from the PSCW to defer pre-certification costs and pre-construction costs related to its Cedar Ridge wind project and Nelson Dewey #3 base-load coal project. Refer to “Strategic Overview - Generation Plan” and Note 1(b) of the “Notes to Consolidated Financial Statements” for additional details on these costs.
Utility Fuel Cost Recovery -WPL’s wholesale electric and retail gas tariffs provide for subsequent adjustments to its rates for changes in commodity costs thereby mitigating price risk for prudently incurred commodity costs. 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 exposeddevelopments relating to the impact of changes in commodity prices due largely to the current retail recovery mechanism in place in Wisconsin for fuel-related costsCATR and update its environmental compliance plans as discussed below.
Retail Electric Fuel-related Cost Recovery Mechanism - WPL’s retail electric rates are based on forecasts of forward-looking test periods and include estimates of future monthly fuel-related costs (includes fuel and purchased 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 include three different ranges based on monthly costs, cumulative costs and annual costs during the test period. In order for WPL to be authorized to file for a proceeding to change rates related to fuel-related costs during the test period, WPL 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. WPL, the PSCW or any other affected party 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; 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.
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 authorized return on common equity if final rates are determined to be lower than interim rates approved. Rate decreases due to decreases in fuel-related costs can be implemented without a hearing. The 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 retail rate cases.
Potential Changes to Electric Fuel-related Cost Recovery Mechanism - In February 2007, WPL and certain other investor-owned utilities jointly filed with the PSCW proposed changes to the current retail electric fuel-related cost recovery rules in Wisconsin. The proposal recommends each utility annually file a forecast of total fuel-related costs and sales for the upcoming 12-month period, which will be used to determine fuel-related rates for such period. Any under-or over-collection of actual fuel-related costs, in excess of plus or minus 1%, for a utility during such 12-month period would be reflected in an escrow account, with interest for that utility. The balance of the escrow account at the end of each year would be included in the forecast of total fuel-related costs for the following 12-month period allowing recovery of under-collected costs or refund of over-collected costs in each subsequent year. The proposal also provides the PSCW an opportunity to review the actual fuel-related costs for each 12-month period 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.
In May 2007, PSCW Commissioners directed PSCW staff to draft proposed new retail electric fuel-related cost recovery rules in Wisconsin similar to the joint utility proposal filed with the PSCW in February 2007. The major differences between the joint utility proposal and the current PSCW staff draft rules include: 1) the PSCW staff draft rules include a plus or minus 2% threshold for changes in rate recovery compared to the 1% level included in the joint utility proposal; 2) the PSCW staff draft rules propose an annual deferral accounting process instead of the monthly escrow accounting proposed by the joint utilities; and 3) the PSCW staff draft rules include an earnings test such that future collection of under collected amounts deferred under these rules may be limited if the individual utility is earning in excess of its authorized return on equity. The PSCW Commissioners have not yet indicated whether they will promulgate modifications to the fuel rules and, if so, whether these modifications will reflect the proposed PSCW staff draft rules. Formal action by the PSCW and subsequent legislative committee review are required before any changes to the current rules could become effective.needed. WPL is currently unable to predict the final outcome of this initiative.the EPA’s CATR as a replacement rule for CAIR, but expects that capital investments and/or modifications to meet compliance requirements of the rule could be significant.
Recent Regulatory-related Legislative DevelopmentsCAVR -
Greenhouse Gas (GHG) Emissions - In November 2007, several Midwest state Governors (including the Governor of Wisconsin) signed the Midwestern GHG Accord (GHG Accord). Under the GHG Accord, a working group isCAVR requires states to be formed to establish a Midwestern GHG Reduction Program that will: 1) establish GHG reduction targets and timeframes consistent with member state targets; 2) develop a market-based and multi-sector cap and trade program to help achieve GHG reductions; 3) establish a system to enable tracking, management, and crediting for entities that reduce GHG emissions; and 4) 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. A proposed CAVR SIP for Wisconsin has been submitted to the EPA for review and approval. This SIP includes Best Available Retrofit Technology Rule (BART) emission controls and other additional steps asmeasures needed for reducing state contributions to achieveregional haze. The EPA has not issued a response on this CAVR SIP. If the reduction targets, such asCAVR SIP is found to be deficient, then the EPA is required to promulgate a low-carbon fuel standardsCAVR FIP to address these requirements in the interim until the CAVR SIP is approved. The CAVR SIP will determine required compliance actions and deadlines.
There are uncertainties in the applicability of and compliance outcomes of BART control approaches that will be approved by the EPA for inclusion in CAVR SIPs. EGU emissions of primary concern for BART and regional incentiveshaze regulation include SO2, NOx and funding mechanisms. All undertakingsPM. There are pending obligations under the EPA’s CAVR to complete BART determinations that would evaluate control options to reduce these emissions at certain WPL EGUs that were built between 1962 and 1977. The D.C. Circuit Court remand of CAIR to the EPA in 2008 may have an indirect impact on the CAVR and BART SIP implementation approach because the EPA allowed BART obligations for SO2 and NOx emissions to be fulfilled by CAIR. The proposed CATR does not address the EPA’s prior decision related to CAIR being sufficient to meet compliance obligations for units subject to BART emissions reduction requirements for SO2 and NOx under the CAVR (often referred to as “CAIR equals BART”). The EPA’s revised assessment of the GHG Accordrelationship for the CAVR’s BART requirements and the proposed CATR remains pending, including whether the EPA’s compliance approach and final rule will allow for “CATR equals BART” for SO2 and NOx. In addition, there are uncertainties whether additional emission reductions could be required to be completed within 30 monthsaddress regional haze impacts beyond BART. WPL is unable to predict the impact that CAVR might have on the operations of its existing EGUs until the EPA final approval of state CAVR plans, which is currently expected in 2011.
Utility MACT Rule -In 2009, the EPA announced its intention to develop MACT rules for EGUs pursuant to Section 112 of the CAA. When developing a MACT rule, 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,” used in determination of the performance standards required under the new rule. Each regulated EGU must demonstrate performance with the standards adopted in the final rule. The CAA requirements of Section 112 state that these standards become effective upon promulgation of the final rule and that compliance is required no later than three years after the effective date of the GHG Accord, includingstandards. In January 2010, the development ofEPA issued an information collection request for coal- and oil-fired EGUs over 25 MW in order to develop a proposed capUtility MACT Rule for the control of mercury and trade agreement and model rule within 12 months. However, further legislative and/or regulatory action will beother federal HAPs. The purpose of the proposed information collection request was to collect data necessary to adoptidentify affected categories of EGUs that will be
subject to a model ruleUtility MACT Rule and to define the MACT floor. In February 2010, the EPA entered into a consent decree that requires the agency to propose Utility MACT Rules for coal- and oil-fired EGUs no later than March 2011 and promulgate final rules no later than November 2011. Based upon the timeline set forth in each state orthe consent decree, compliance with the Utility MACT Rule is expected to implement other mandatory mechanisms that may be proposed under the GHG Accord.required by November 2014. WPL is currently unable to determine what impactpredict the GHG Accord will have on its future financial condition, resultsfinal outcome of operations a Utility MACT Rule to regulate mercury and other federal HAPs from EGUs, but expects that capital investments and/or cash flows.modifications could be significant to comply with any such regulations.
Renewable StandardsWisconsin State Mercury Rule -The Wisconsin State Mercury Rule requires electric utility companies in Wisconsin to meet compliance requirements to reduce annual mercury emissions by 40% from a historic baseline beginning in 2010 (Phase I). In March 2006,addition, the Wisconsin State Mercury Rule requires large coal-fired EGUs with greater than 150 MW of capacity to either achieve a law (Act 141) governing renewable energy was enacted90% annual mercury emissions reduction standard or limit the annual concentration of mercury emissions to 0.008 pounds of mercury per gigawatt-hour beginning in Wisconsin. Act 141 commits2015 (Phase II). Small coal-fired EGUs between 25 MW and 150 MW of capacity must install Best Available Control Technology (BACT) by January 2015 to reduce mercury emissions. As an alternative, this rule allows large and small EGUs to achieve compliance through averaging. There is also an alternative multi-pollutant option that extends the time for compliance with the annual mercury reduction requirement until 2021. However, this requires the affected facilities to achieve NOx and SO2 reductions beyond those currently required by federal and state regulations. In December 2010, WPL filed its compliance plan with the Wisconsin utilitiesDepartment of Natural Resources (DNR). WPL’s plan states that WPL will utilize large and small EGU averaging to a Renewable Portfolio Standard (RPS) using a benchmarkcomply with the additional mercury rule emissions reduction requirements that commence in 2015 and not use the multi-pollutant option. WPL continues to evaluate the impact of average retail sales of renewable electricity in 2001, 2002this state mercury rule and 2003 which was approximately 3% for WPL. WPL must increase renewable retail electric sales as a percentage of total retail electric sales by two percentage pointsthe federal Utility MACT Rule discussed above this benchmark by 2010, and by six percentage points above this benchmark by 2015. Wisconsin utilities may meet the renewable energy requirements of the RPS with renewable energy generated by the utility, renewable energy acquired under PPAs or the use of renewable resource credits.
to determine further mercury emission reductions that will be required. Refer to “Strategic Overview - Generation Plan”Environmental Compliance Plans - Emission Control Projects” for discussion of WPL’s generation plan whichproposed WPL emission controls that support compliance with the requirements of this rule.
Wisconsin RACT Rule -In 2004, the EPA designated 10 counties in Southeastern Wisconsin as non-attainment areas for the ozone NAAQS. This designation includes additional supply from wind generationSheboygan County, where WPL operates the Sheboygan Falls Energy Facility and Edgewater. In 2007, the Wisconsin DNR issued a RACT Rule that will contribute towards WPL meeting the RPS in Wisconsin discussed above. The wind generation proposed by WPL was selected as an economic source of energyrequires NOx emission reductions at EGUs as part of a resource planning process. WPL will needthe federal ozone SIP submittal to add approximately 50 MW of incremental renewable electric supplyaddress non-attainment areas in Wisconsin. Facility modifications are not necessary at the Sheboygan Falls Energy Facility to its current electric supply portfolio to increase by 1% its sales from renewable energy sources as a percentagecomply with this rule. As part of its total electric sales.environmental compliance plan, WPL completed investments for installation of NOx emission control technologies at Edgewater to meet the 2009 to 2012 compliance requirements (Phase I). Additional investments will be needed at Edgewater to achieve compliance with the 2013 requirements that include facility boiler NOx rate limitations and a mass emissions cap (Phase II). Refer to “Strategic Overview - Environmental Compliance Plans - Emission Control Projects” for discussion of proposed emission controls for further NOx emission reductions at Edgewater to meet 2013 compliance deadlines.
Other LegislationOzone NAAQS Rule -In February 2008, the Economic Stimulus ActEPA announced reductions in the primary NAAQS for eight-hour ozone to a level of 2008 (ESA) was enacted.0.075 parts per million (ppm) from the previous standard of 0.08 ppm. In January 2010, the EPA issued a proposal to reduce the primary standard to a level within the range of 0.06 to 0.07 ppm and establish a new seasonal secondary standard. The ESA contains various provisions that are intendedfinal rule is expected to provide tax reliefbe issued by July 2011. Depending on the level and location of non-attainment areas, WPL may be subject to individuals and employers.additional NOx emissions reduction requirements to meet the new ozone standard. The most significant provisionschedule for WPL is a 50% bonus tax depreciation deduction for certain property that is acquired or constructed in 2008.compliance with this rule has not yet been established. WPL is currently evaluatingunable to predict the impactsimpact of any potential changes to the ESA will haveOzone NAAQS on its financial condition and results of operations.
Other Recent Regulatory DevelopmentsFine Particle NAAQS Rule -The EPA lowered the 24-hour fine particle primary NAAQS (PM2.5 NAAQS) from 65 micrograms per cubic meter (ug/m3) to 35 ug/m3 in 2006. In 2009, the EPA announced final designation of PM2.5 non-attainment areas. WPL does not have any generating facilities in the non-attainment areas announced in 2009. However, in 2009, the D.C. Circuit Court 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 additional areas not currently designated as non-attainment. The schedule for compliance with this rule has not yet been established. WPL is currently unable to predict the potential impact of the re-evaluation of the annual PM2.5 NAAQS on its financial condition and results of operations.
Nitrogen Dioxide (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 NAAQS for NO2 of 100 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 NAAQS by January 2012. The final rule is currently being challenged by several groups in the D.C. Circuit Court. The schedule for compliance with this rule has not yet been established. WPL is currently unable to predict the impact of any potential NO2 NAAQS changes on its financial condition or results of operations.
SO2 NAAQS Rule -In June 2010, the EPA issued a final rule that establishes a new one-hour NAAQS for SO2 at a level of 75 ppb. The final rule also revokes both the existing 24-hour and annual standards. The EPA is expected to designate non-attainment areas for the SO2 NAAQS by June 2012. Compliance with the new SO2 NAAQS rule is currently expected to be required by 2017 for non-attainment areas designated in 2012. The final rule is being challenged by several groups in the D.C. Circuit Court. WPL is currently unable to predict the impact of any potential SO2 NAAQS changes on its financial condition or results of operations.
Industrial Boiler and Process Heater MACT Rule - The initial Industrial Boiler and Process Heater MACT Rule issued by the EPA contained compliance requirements beginning in 2007 related to HAPs from fossil-fueled EGUs with less than 25 MW capacity as well as certain auxiliary boilers and process heaters operated at EGUs. In 2007, a court decision vacated the initial rule. In February 2011, the EPA promulgated a revised Industrial Boiler and Process Heater MACT Rule. The revised Industrial Boiler and Process Heater MACT Rule will be effective 60 days after it is published in the Federal Register. The CAA requirements of Section 112 state that the standards become effective upon promulgation of the final rule and that compliance is required no later than three years after the effective date of the standards. Based on this requirement, the anticipated deadline for compliance with this rule is 2014. 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 EGUs under this rule. Case-by-case MACT determinations are the compliance measures that are in effect 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 will monitor future developments relating to this rule and update its environmental compliance plans as needed. WPL is currently unable to predict the outcome of the Industrial Boiler and Process Heater MACT Rule, but expects that capital investments and/or modifications to meet compliance requirements of the rule could be significant.
Air Permit Renewal Challenges- 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 generating facilities. In some cases, the EPA has responded to these comments and petitions with orders to the Wisconsin DNR to reconsider the air operating permits of WPL’s generating facilities. WPL has received renewed air permits for Columbia, Edgewater and Nelson Dewey from the Wisconsin DNR, which considered all public comments received as part of the renewal process.
Clean Air Compliance ProjectsColumbia - In March 2007,2008, the PSCW approvedSierra Club submitted a notice of intent to sue the deferralEPA for failure to respond to its petition encouraging the EPA to challenge the air permit issued by the Wisconsin DNR for Columbia. In 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 retail portionpermit issued by the Wisconsin DNR. In July 2010, WPL received a copy of WPL’s incremental pre-certificationa notice of intent to file a civil lawsuit (NOI) by the Sierra Club against the EPA based on what the Sierra Club asserts is unreasonable delay in the EPA performing its duties related to the granting or denial of the Columbia air permit. Specifically, the Sierra Club alleges that because the Wisconsin DNR has exceeded its 90-day timeframe in which to respond to the EPA’s order, the EPA must now act on the permit. In September 2010, the Wisconsin DNR proposed a construction permit and pre-construction costsa revised operation permit for current or future cleanColumbia. In October 2010, WPL submitted comments objecting to the appropriateness of the proposed draft permits. In November 2010, the comment period closed, and in February 2011, the Wisconsin DNR made the determination not to issue either of the permits. WPL believes the previously issued air compliance rule projects requiring PSCW approval, effective withpermit for Columbia is still valid. WPL is currently unable to predict the request dateoutcome of November 2006. WPL currently anticipates that such deferred costs will be recovered in future ratesthis matter and therefore does not expect these costs to have anthe impact on its financial condition or results of operations.
Edgewater - In 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. In 2009, the Sierra Club filed a notice of intent to sue the EPA over its failure to act on the petition. In August 2010, the EPA issued an order to the Wisconsin DNR granting in part and denying in part the Sierra Club’s petition. The Wisconsin DNR has not yet acted on the EPA order. In December 2010, WPL received a copy of an NOI by the Sierra Club against the EPA based on what the Sierra Club asserts is unreasonable delay in the EPA performing its duties related to the reconsideration of the Edgewater Title V air permit. Specifically, the Sierra Club alleges that because the Wisconsin DNR has exceeded its 90-day timeframe in which to respond to the EPA’s order, the EPA must now act on the reconsideration of the permit. WPL is currently unable to predict the outcome of this matter and the impact on its financial condition or results of operations.
Nelson Dewey - In September 2010, the Sierra Club petitioned the EPA and the Wisconsin DNR to reopen a Nelson Dewey air permit. The Sierra Club alleges that the Nelson Dewey air permit issued by the Wisconsin DNR in 2008 should be corrected because certain modifications were made at the facility without complying with the PSD program requirements. In November 2010, WPL filed a response to the petition with the EPA and the Wisconsin DNR objecting to its claims and supporting the Wisconsin DNR’s issuance of the current permit. No action on this petition has been taken by the EPA or the
Wisconsin DNR. WPL is currently unable to predict the outcome of this petition and the impact on its financial condition or results of operations.
Air Permitting Violation Claims -Refer to Note 12(c) of the “Notes to Consolidated Financial Statements” for discussion of complaints filed by the Sierra Club in September 2010 and a notice of violation issued by the EPA in December 2009 regarding alleged air permitting violations at Nelson Dewey, Columbia and Edgewater.
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 is generally referred to as Section 316(b). Section 316(b) applies to existing cooling water intake structures at large steam EGUs. 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 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 2011 and a final rule is expected in 2012. WPL has identified two (Nelson Dewey Units 1-2 and Edgewater Units 3-5) generating facilities that may be impacted by the revised Section 316(b) rule. The schedule for compliance with this rule has not yet been established. 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 -Section 316(a) of the Federal Clean Water Act requires the EPA to regulate thermal impacts from wastewater discharges of industrial facilities, including those from EGUs. States have authority to establish standards for these discharges in order to minimize adverse environmental impacts to aquatic life. All WPL facilities are subject to these standards upon state promulgation, which become applicable upon their incorporation into a facility’s wastewater discharge permit. In January 2010, the Wisconsin Natural Resources Board adopted its state standard for regulating the amount of heat that facilities can discharge into Wisconsin waters. This rule was necessary because the EPA determined that Wisconsin had not developed a state thermal standard consistent with Section 316(a) of the Federal Clean Water Act. The Wisconsin State Thermal Rule was approved by the EPA in October 2010. Compliance with the thermal rule will be evaluated on a case-by-case basis as wastewater discharge permits for WPL’s generating facilities are renewed in the future. WPL continues to evaluate the thermal rule regulatory requirements and the compliance options available to meet the heat limitations for discharges from its EGUs. WPL is unable to predict the final requirements of this rule until wastewater discharge permits for impacted facilities are renewed. If capital investments and/or modifications are 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 by WPL regarding its Prairie du Sac hydro plant: 1) develop a detailed engineering and biological evaluation of potential fish passages for the facility; 2) install an agency-approved fish-protective device at the facility; and 3) install an agency-approved fish passage at the facility. In December 2009, WPL completed the installation of the agency-approved fish-protective device. WPL continues to work with the agencies to design and install the fish passage. The U.S. Fish and Wildlife Service and the Wisconsin DNR have requested additional information to support the conceptual plan for the fish passage and extended the required completion date to Dec. 31, 2012. WPL currently expects to request an additional extension from FERC in 2011. WPL believes the required capital investments and/or modifications to comply with the FERC order for the fish passage at its Prairie du Sac hydro plant could be significant.
Land and Solid Waste -
CCRs -WPL is monitoring potential regulatory changes that may affect the rules for operation and maintenance of ash surface impoundments (ash ponds) and/or landfills, in the wake of a structural failure in the containment berm of an ash surface impoundment at a different utility. In 2009, WPL responded to information collection requests from the EPA for data on coal ash surface impoundments at certain of its facilities. The EPA continues to evaluate the responses and conducted on-site follow-up inspections at certain WPL sites in 2010.
In June 2010, the EPA issued a proposed rule seeking comment regarding two potential regulatory options for management of CCRs: 1) regulate as a special waste under the federal hazardous waste regulations when the CCR is destined for disposal, but continue to allow beneficial use applications of CCRs as a non-hazardous material; or 2) regulate as a non-hazardous waste for all applications subject to new national standards. These proposed regulations include additional requirements with significant impact for CCR management, beneficial use applications and disposal. WPL has four current or former coal generating facilities with one or more existing ash surface impoundments. In addition, WPL has two active CCR company-
owned landfills. All of these CCR disposal units would be subject to the proposed rule anticipated to be final in 2012. The schedule for compliance with this rule has not yet been established. WPL is currently unable to predict the impact of these information collection requests, site inspections, or potential regulations resulting from such requests for the management of CCRs, but expects that capital investments, operating expenditures and/or modifications to comply with CCR rules could be significant.
Polychlorinated Biphenyls (PCB) -In April 2010, the EPA published an Advance Notice of Proposed Rulemaking (ANPRM) to support a re-evaluation of all existing use authorizations for PCB-containing equipment. Based on the EPA’s review of the information obtained by this ANPRM, significant changes in PCB regulations may be proposed, including a possible mandated phase out of all PCB-containing equipment. The EPA plans to issue a proposed PCB rule amendment for public comment in 2013. The schedule for compliance with this rule has not yet been established. Pending the development of a final rule, 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.
Manufactured Gas Plant (MGP) Sites -Refer to Note 12(e) of the “Notes to Consolidated Financial Statements” for discussion of WPL’s MGP sites.
GHG Emissions -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. The EPA is responding to a court ruling that requires issuance of federal rules to reduce GHG emissions under the existing CAA. Associated regulations to implement these federal GHG rules 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.
Significant uncertainty exists surrounding the final implementation of the EPA’s GHG regulations. Furthermore, while implementation of these regulations continues to proceed, the impacts of these regulations remain subject to change as a consequence of the complexity and magnitude of determining how to effectively control GHGs under the existing legal framework of the CAA, which may include the EPA and state agency interpretations of appropriate permitting and emission compliance requirements. The outcome of these regulations and challenges will determine whether and how GHG stationary sources, including electric utility operations, will be regulated under the CAA. WPL is currently unable to predict the timing and nature of stationary source rules for GHG emissions including future issuance of regulations that would mandate reductions of GHGs at electric utilities.
In 2009, the EPA issued a final Endangerment and Cause or Contribute Findings for GHG under the CAA with an effective date of January 2010. This final action 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 mandatory GHG reporting rule. Second, the combined emissions of CO2, methane (CH4), nitrous oxide (N2O), and hydrofluorocarbons (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. In April 2010, the EPA, under authority from the GHG Endangerment and Cause or Contribute Findings, also issued a final rule that regulates GHG emissions from motor vehicles as a pollutant under the CAA. This finding and rule are subject to legal challenges in the D.C. Circuit Court. These actions by the EPA enable it to regulate GHG stationary sources, including electric utility operations and natural gas distribution operations.
The primary GHG emitted from WPL’s operations is CO2 from the combustion of fossil fuels at its larger EGUs. WPL’s annual CO2 emissions from its larger EGUs, in terms of total mass, ranged from 8.4 million tons (or 7.6 million metric tons) to 9.6 million tons (or 8.7 million metric tons) during the 2006 through 2010 period. These amounts represent emissions from WPL’s ownership portion of fossil-fueled EGUs with a design nameplate of 25 MW or greater that are required to be equipped with continuous emissions monitoring systems.
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, CH4, N2O, sulfur hexafluoride, HFCs, perfluorocarbons and other fluorinated gases. Emissions of GHG will be reported at the facility level in 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 calendar year 2010, with the first GHG emissions reports due by March 31, 2011. WPL continues to maintain and update its emissions monitoring methodologies and data collection procedures to capture all the GHG emissions data required to comply with the EPA’s mandatory GHG reporting rule. This rule is subject to legal challenge in the D.C. Circuit Court.
EPA NSPS for GHG Emissions from Electric Utilities- In December 2010, the EPA announced the future issuance of GHG standards for electric utilities under the CAA. The GHG emission limits are to be established as NSPS for new and existing fossil-fueled EGUs. The EPA is expected to propose NSPS by July 2011 and finalize NSPS by May 2012. For existing EGUs, the NSPS issued by the EPA is expected to include emission guidelines that states must use to develop plans for reducing EGU GHG emissions. The guidelines will be established based on demonstrated controls, GHG emission reductions, costs and expected timeframes for installation and compliance. Under existing EPA regulations, states must submit their plans to the EPA within nine months after publication of the guidelines unless the EPA sets a different schedule. States have the ability to apply less or more stringent standards, or longer or shorter compliance schedules. The implications of the EPA’s NSPS rule for GHG emissions from EGUs are highly uncertain, including the nature of required emissions controls and compliance timeline for mandating reductions of GHGs. WPL is currently unable to predict the final outcome, but expects that expenditures to comply with any regulations to reduce GHG emissions could be significant.
EPA GHG Tailoring Rule -In June 2010, the EPA issued the GHG Tailoring Rule, which became effective on Jan. 2, 2011. The rule establishes a GHG emissions threshold for major sources under the PSD Construction Permit and Title V Operation Permit programs at 100,000 tons per year (tpy) of CO2e. The rule also establishes a threshold for what will be considered a significant increase in GHG emissions. New major sources and significantly modified existing sources of GHG will be required to obtain PSD construction permits that demonstrate BACT emissions measures to minimize GHG. The rule establishes a phased-in implementation schedule for compliance with these GHG permitting requirements. Through June 2011, GHG requirements only apply to sources that are already obtaining CAA permits for other (non-GHG) pollutants. In July 2011, GHG requirements will apply to all new major sources and modifications at existing major sources that would increase GHG emissions by at least 75,000 tpy for CO2e. The rule is subject to legal challenges in the D.C. Circuit Court. The implications of the EPA’s GHG Tailoring Rule are highly uncertain, and WPL is currently unable to predict the impact on its financial condition or results of operations, but expects that expenditures to comply with these regulations to reduce GHG emissions could be significant.
Refer to Note 12(e) of the “Notes to Consolidated Financial Statements,” “Strategic Overview” and “Liquidity and Capital Resources - Environmental”Cash Flows - Investing Activities - Construction and Acquisition Expenditures” for further discussion of WPL’s construction application filed with the PSCW in the second quarter of 2007 to install air pollution controls to reduce sulfur dioxide (SO2) emissions at Nelson Dewey.environmental matters.
LEGISLATIVE MATTERS
Advanced Metering Infrastructure (AMI)Recent Legislative Developments - In February 2008, the PSCW issued an order approving WPL’s CA application for construction authority for the installation of both the electric and gas portions of AMI in Wisconsin. WPL’s capital expenditures for AMI are currently estimated to be $95 million ($75 million for the electric portion and $20 million for the gas portion). Conditional upon success of a limited initial implementation phase involving approximately 40,000 meters, WPL currently plans to fully install AMI through a phased approach from 2008 through 2010. AMI technology is expected to improve customer service, enhance energy management initiatives and provide operational savings through increased efficiencies.
MISO Wholesale Energy MarketFederal Tax Legislation -In August 2007,2010, the PSCW issued an orderSBJA and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the Act) were enacted. The most significant provisions of the SBJA and the Act for WPL were related to the regulatory treatmentextension of bonus depreciation deductions for certain expenditures for property that are incurred through Dec. 31, 2012. Based on capital projects placed into service in 2010 and capital projects expected to be placed into service in 2011, WPL currently estimates its total bonus depreciation deductions to be claimed in its 2010 and 2011 U.S. federal income tax returns will be approximately $215 million and $280 million, respectively. WPL is currently unable to estimate its bonus depreciation deductions to be claimed on its 2012 U.S. federal income tax return but believes bonus depreciation deductions will likely contribute to annual federal net operating losses through 2012. WPL’s federal net operating losses carryforwards including mixed service costs incurred byare currently expected to offset future federal taxable income through 2015 resulting in minimal federal cash tax payments to the IRS through 2015. Refer to Note 5 of the “Notes to Consolidated Financial Statements” for further discussion of the SBJA and the Act.
Federal Health Care Legislation -In March 2010, the Patient Protection and Affordable Care Act, and Health Care and Education Reconciliation Act of 2010 (Federal Health Care Legislation) were enacted. One of the most significant provisions of the Federal Health Care Legislation for WPL requires a reduction in its tax deductions for retiree health care costs beginning in 2013, to participatethe extent its drug expenses are reimbursed under the Medicare Part D retiree drug subsidy program. The reduction in the MISO market. The orderfuture deductibility of retiree health care costs accrued as of Dec. 31, 2009 required WPL to discontinue the deferralrecord deferred income tax expense of MISO costs after Dec. 31, 2007.$3 million in 2010. In addition, the order requires WPL to provecurrently anticipates increased annual tax expense beginning in its next rate case that its retail electric customers were not harmed financially by excluding from its MISO deferrals certain costs/credits from MISO for the time period September 2007 through December 2007. WPL anticipates that it will be successful in proving this to be true in its next base rate case when it seeks recovery2010 of such deferred costs. WPL is working through the regulatory process to establish long-term recovery mechanisms for these costs.
Depreciation Study - In February 2008, the PSCW issued an order approving the implementation of updated depreciation rates for WPL effective July 1, 2008approximately $1 million as a result of a recently completed depreciation study.this legislation. The Federal Health Care Legislation also contains provisions that may impact future benefits costs for WPL. These provisions include the elimination of annual and lifetime caps for certain benefits beginning in 2011 and the implementation of an excise tax for health insurance plans with annual premiums in excess of certain thresholds beginning in 2018. Refer to “OtherNotes 5 and 6(a) of the “Notes to Consolidated Financial Statements” for further discussion of the Federal Health Care Legislation.
Federal Regulatory Reform Legislation -In July 2010, the Dodd-Frank Act was enacted. One of the most significant financial provisions of the Dodd-Frank Act for WPL is a commercial end-user exemption that is expected to allow utilities to continue trading derivatives “over-the-counter” without having to make such trades through cleared exchanges with collateral requirements. As a result of this commercial end-user exemption, WPL currently does not believe the Dodd-Frank Act will have a material impact on its financial condition and results of operations.
Electric Fuel Cost Recovery Rule Changes in Wisconsin -Refer to “Rate Matters - Other Future Considerations - - Depreciation Study”Rule Changes” for detailsdiscussion of new legislation enacted in May 2010 that changed the depreciation study.electric fuel cost recovery rules in Wisconsin effective Jan. 1, 2011.
RESULTS OF OPERATIONS
Overview - - WPL’s earnings available for common stock increased $8$63 million in 20072010 and were flatdecreased $29 million in 2006.2009. The 20072010 increase was primarily due to the impact of the electric and gas retail rate increases effective in January 2010 and higher electric margins and lower operating expenses, partially offsetsales in 2010 compared to 2009 caused by lower gas margins.weather conditions in WPL’s service territory. The 2006 results included lower operating expenses and higher gas margins offset by2009 decrease was primarily due to lower electric marginssales in 2009 compared to 2008 caused by weather and adverse economic conditions in WPL’s service territory, higher depreciation expense from its Cedar Ridge wind project and the acquisition of the Neenah Energy Facility, and higher interest expense.expense from the issuances of new debentures.
Electric Margins -Electric margins are defined as electric operating revenues less electric production fuel, energy purchases and megawatt-hour (MWh)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 MWh sales for WPL were as follows:
| Revenues and Costs (dollars in millions) | MWhs Sold (MWhs in thousands) | Revenues and Costs (dollars in millions) | MWhs Sold (MWhs in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2007 | 2006 | (a) | 2005 | (b) | 2007 | 2006 | (a) | 2005 | (b) | 2010 | 2009 | (a) | 2008 | (b) | 2010 | 2009 | (a) | 2008 | (b) | ||||||||||||||||||||||||||||||||||||||||||||||||
Residential | $ | 396.3 | $ | 385.9 | 3 | % | $ | 369.5 | 4 | % | 3,549 | 3,513 | 1 | % | 3,599 | (2 | )% | $ | 439.6 | $ | 389.7 | 13 | % | $ | 389.5 | — | 3,541 | 3,419 | 4 | % | 3,446 | (1 | %) | ||||||||||||||||||||||||||||||||||
Commercial | 219.0 | 212.4 | 3 | % | 197.4 | 8 | % | 2,310 | 2,277 | 1 | % | 2,274 | — | 240.3 | 220.0 | 9 | % | 218.1 | 1 | % | 2,275 | 2,257 | 1 | % | 2,270 | (1 | %) | ||||||||||||||||||||||||||||||||||||||||
Industrial | 329.9 | 323.0 | 2 | % | 288.2 | 12 | % | 4,942 | 4,948 | — | 4,825 | 3 | % | 320.9 | 298.2 | 8 | % | 327.7 | (9 | %) | 4,252 | 4,119 | 3 | % | 4,748 | (13 | %) | ||||||||||||||||||||||||||||||||||||||||
Retail subtotal | 945.2 | 921.3 | 3 | % | 855.1 | 8 | % | 10,801 | 10,738 | 1 | % | 10,698 | — | 1,000.8 | 907.9 | 10 | % | 935.3 | (3 | %) | 10,068 | 9,795 | 3 | % | 10,464 | (6 | %) | ||||||||||||||||||||||||||||||||||||||||
Sales for resale: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wholesale | 158.5 | 143.3 | 11 | % | 156.8 | (9 | )% | 3,141 | 3,029 | 4 | % | 3,120 | (3 | )% | 167.0 | 166.6 | — | 178.5 | (7 | %) | 2,900 | 2,848 | 2 | % | 3,364 | (15 | %) | ||||||||||||||||||||||||||||||||||||||||
Bulk power and other | 14.5 | 20.7 | (30 | )% | 41.1 | (50 | )% | 969 | 1,082 | (10 | )% | 1,251 | (14 | )% | 20.6 | 61.0 | (66 | %) | 10.0 | 510 | % | 695 | 1,682 | (59 | %) | 301 | 459 | % | |||||||||||||||||||||||||||||||||||||||
Other | 22.5 | 26.1 | (14 | )% | 20.9 | 25 | % | 74 | 72 | 3 | % | 75 | (4 | )% | 21.5 | 24.8 | (13 | %) | 29.2 | (15 | %) | 70 | 71 | (1 | %) | 74 | (4 | %) | |||||||||||||||||||||||||||||||||||||||
Total revenues/sales | 1,140.7 | 1,111.4 | 3 | % | 1,073.9 | 3 | % | 14,985 | 14,921 | — | 15,144 | (1 | )% | 1,209.9 | 1,160.3 | 4 | % | 1,153.0 | 1 | % | 13,733 | 14,396 | (5 | %) | 14,203 | 1 | % | ||||||||||||||||||||||||||||||||||||||||
Electric production fuel and purchased power expense | 665.1 | 649.5 | 2 | % | 600.8 | 8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Electric production fuel expense | 171.7 | 160.6 | 7 | % | 174.6 | (8 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Energy purchases expense | 229.5 | 290.7 | (21 | %) | 259.6 | 12 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchased electric capacity expense | 134.7 | 144.6 | (7 | %) | 145.1 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Margins | $ | 475.6 | $ | 461.9 | 3 | % | $ | 473.1 | (2 | )% | $ | 674.0 | $ | 564.4 | 19 | % | $ | 573.7 | (2 | %) | |||||||||||||||||||||||||||||||||||||||||||||||
| (a) | Reflects the % change from |
20072010 vs. 20062009 Summary -Electric margins increased $14$110 million, or 3%,19% in 2007,2010, primarily due to the impact of WPL’s 2007a non-fuel retail base rate increase effective January 2010, which beganincreased WPL’s electric revenues by $94 million in January 2007,2010, an estimated $23 million increase in weather-normalized retail sales volumes,electric margins from changes in the net impacts of weather conditions and WPL’s weather hedging
activities, $7 million of lower purchased electric capacity expenses related to the RockGen Energy Center (RockGen) PPA, which terminated in May 2009, and increased rates charged to wholesale customers including the impact of a wholesale formula rate change, which increased electric revenues by $4 million in 2010. These items were partially offset by an $11 million decrease in electric margins from the impact of WPL’s annual adjustments to unbilled revenue estimates and an $11 million decrease in electric margins from the impact of changes in the recovery of electric production fuel and energy purchases expense.
2009 vs. 2008 Summary- Electric margins decreased $9 million, or 2% in 2009, primarily due to an estimated $12 million reduction in electric margins from changes in the net impacts of weather conditions and WPL’s weather hedging activities. These increases were partially offset by the impact of annual adjustments to WPL’s unbilled revenue estimates during the second quarter and the impact of WPL’s sale of its electric distribution properties in Illinois in February 2007. The impact of WPL’s 2007 retail base rate increase resulted in retail fuel-related rates exceeding retail fuel-related costs by approximately $16 million in 2007. The increase in weather-normalized retail sales volumes was primarily due to the negative impact high electric prices during 2006 had on customer usage during that period.
2006 vs. 2005 Summary - Electric margins decreased $11 million, or 2%, in 2006, primarily due to $38activities, $12 million of higher purchased powerelectric capacity costsexpenses related to the Kewaunee Nuclear Power Plant (Kewaunee) PPA which began 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 costs in 2005 and an increasea decrease in weather-normalized retail sales in 2006. Refer to “Purchased Power Capacity Costs” for discussion of the impact the sale of Kewaunee had on WPL’s electric margins and operating expenses.
Fuel and Purchased Power Energy (Fuel-related) Cost Recoveries - WPL’s fuel-related costs increased $16 million, or 2%, and $49 million, or 8%, in 2007 and 2006, respectively. The change in fuel-related costs in 2007 was primarily due to higher generation and purchased power energy volumes and the PSCW approval to begin recovering in January 2007 previously deferred Kewaunee 2005 outage costs.volumes. These items were partially offset by the PSCW approval to record $20$9 million of previously deferred costs associated with coal conservation efforts due to the coal delivery disruptions in 2006 and lower commodity prices. Commodity prices in 2006 were higher than 2007 as well as historic averages largely due to natural gas disruption caused by hurricane activity in the Gulf of Mexico in the third quarter of 2005. WPL’s rate recovery mechanism for wholesale fuel-related costs provides for subsequent adjustments to its wholesalepurchased electric rates for changes in commodity costs, thereby mitigating impacts of changes to commodity costs on its wholesale electric margins.
WPL’s retail fuel-related costs incurred in 2007 were lower than the forecasted fuel-related costs used to set retail rates during such period. WPL estimates the lower than forecasted retail fuel-related costs increased electric margins by approximately $16 million in 2007, prior to the order regarding WPL’s retail fuel-related cost recoveries received from the PSCW in June 2007. In accordance with this order and a related settlement agreement approved by the PSCW in August 2007, WPL established reserves of $20 million for rate refund in 2007 for the estimated refund related to the over-recovery of retail fuel-related costs for the months of June 2007 through December 2007. WPL refunded approximately $4 million of the rate refund to its retail electric customers in 2007, refunded $3 million in the first two months of 2008 and plans to refund the remaining reserve of $13 million in 2008.
WPL’s recovery of fuel-related costs during 2006 did not have a significant impact on its electric margins.
WPL’s retail fuel-related costs incurred in 2005 were higher than the forecasted fuel-related costs used to set retail rates during such period. WPL estimates the higher than forecasted retail fuel-related costs decreased electric margins by approximately $40 million in 2005. The higher than forecasted retail fuel-related costs in 2005 were 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 Powder River Basin in 2005.
Refer to “Other Matters - Market Risk Sensitive Instruments and Positions - Commodity Price Risk” for discussion of risks associated with increased fuel and purchased power energy costs on WPL’s electric margins. Refer to “Rates and Regulatory Matters” and Note 1(h) of the “Notes to Consolidated Financial Statements” for additional information relating to recovery mechanisms for electric fuel and purchased power energy costs including proposed changes to the retail rate recovery mechanism in place in Wisconsin for fuel-related costs.
Purchased Power Capacity Costs - - WPL sold its interest in its Kewaunee nuclear facility in July 2005. Prior to the sale of this facility, the operatingcapacity expenses related to the facility consisted primarily of other operation and maintenance and depreciation and amortization expenses. Upon the sale of the facility, WPL entered intoRockGen 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 2006 and 2005 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 the application of the sale proceeds. In 2007, 2006 and 2005, purchased power capacity costs included in “Electric production fuel and purchased power expense” in the electric margin table above related to the Kewaunee PPA were $70 million, $68 million and $30 million, respectively.
Unbilled Revenue Estimates - In the second quarter of each year, when weather impacts 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. 2006) 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 recordedand a $3 million increase in electric margins from the impact of changes in the second quarterrecovery of 2007, 2006 and 2005 were ($4) million, $4 million and $0, respectively.
Wholesale Sales - Wholesale and retail sales volumes in 2007 were impacted by WPL’s sale of its electric distribution property in Illinois in February 2007. Prior to this asset sale, 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 this asset sale, WPL entered into separate wholesale agreements to continue to provide electric services to its former retail customers in Illinois. Electric revenues and MWhs sold under these wholesale agreements are included in wholesale sales in the electric margin table above. The lower pricing for wholesale customers as compared to retail customers resulted in a decrease to electric margins following the sale of the electric distribution property in Illinois.
Wholesale sales volumes were higher in 2005 compared to 2006 largely due to the impacts of weather conditions on wholesale sales demand. In addition, wholesale revenues were higher in 2005 compared to 2006 due to the impacts of higher fuel-related cost recovery revenues from wholesale customers in 2005. The changes in revenues caused by changes in fuel-related costs were largely offset by changes in electric production fuel and purchased power expense and therefore did not have a significant impact on electric margins.energy purchases expense.
Bulk Power and Other SalesNon-fuel Retail Rate Increases- Bulk power and other revenues changes were largely due Increases to changes inWPL’s electric revenues from salesthe impacts of non-fuel retail rate increases for 2010 were as follows (dollars in the wholesale energy market operated by MISO, which began on April 1, 2005. These changesmillions):
Retail Base Rate Cases | Percent Increase | Effective Date | Revenue Impact | |||||||||
2010 Test Year | 6 | % | Jan. 1, 2010 | $ | 94 | |||||||
Refer to “Rate Matters” for additional information relating to electric rate increases and an anticipated rate filing 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.2011.
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):
| 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | |||||||||||||||||||
Weather impacts on demand compared to normal weather | $ | 5 | $ | — | $ | 7 | $ | 11 | ($ | 11 | ) | ($ | 1 | ) | ||||||||||
Losses from weather derivatives (a) | (3 | ) | (2 | ) | (3 | ) | ||||||||||||||||||
Gains (losses) from weather derivatives (a) | — | (1 | ) | 1 | ||||||||||||||||||||
Net weather impact | $ | 2 | $ | (2 | ) | $ | 4 | $ | 11 | ($ | 12 | ) | $ | — | ||||||||||
| (a) | Recorded in “Other” revenues in the |
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, commercial and commercialwholesale 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 territoriesterritory were as follows:
| Actual | ||||||||||||||||||||||||
| Actual | 2010 | 2009 | 2008 | Normal (a) | ||||||||||||||||||||
| CDD (a): | 2007 | 2006 | 2005 | Normal (a) | ||||||||||||||||||||
Madison, Wisconsin | 336 | 284 | 421 | 259 | 829 | 368 | 538 | 623 | ||||||||||||||||
| (a) | CDD are calculated using a |
WPL periodically utilizes weather derivatives based on CDD and HDD to reduce the potential volatility on its margins during the summer months of June through August and the winter months of November through March, respectively. WPL entered into weather derivatives based on CDD in Madison, Wisconsin for the period June 1, 2007 through2008 to Aug. 31, 2007 and weather derivatives based on CDD in Chicago, Illinois for the periods June 1, 2006 through Aug. 31, 2006 and June 1, 2005 through Aug. 31, 2005.2008. WPL entered into weather derivatives based on HDD in Madison, Wisconsin for the periodperiods Nov. 1, 2008 to March 31, 2009 and Nov. 1, 2007 throughto March 31, 2008 and2008. WPL has not entered into any weather derivatives based on HDDsince March 31, 2009.
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 Chicago, Illinoiselectric 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 increased $11 million, or 7%, in 2010 and decreased $14 million, or 8%, in 2009. The 2010 increase was primarily due to higher coal volumes burned at its generating facilities
resulting from increased generation needed to serve the higher electricity demand in 2010. The 2009 decrease was primarily due to lower coal volumes burned at its generating facilities resulting from reduced generation needed to serve the lower electricity demand in 2009. WPL’s energy purchases expense decreased $61 million, or 21%, in 2010 and increased $31 million, or 12%, in 2009. The 2010 decrease was primarily due to lower energy volumes purchased and lower energy prices. 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 periods Nov. 1, 2006 through March 31, 2007 and Nov. 1, 2005 through March 31, 2006.
In addition, WPL estimatedelectricity purchased to supply to its customers. The impact of the changes in energy purchases volumes were 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 adjustments to its wholesale electric rates for changes in commodity costs, thereby mitigating impacts of changes to commodity costs on WPL’s electric margins.
WPL’s retail fuel-related costs incurred in 2010 were higher than the forecasted fuel-related costs used to set retail rates effective at the beginning of 2010. In April 2010, WPL filed a request with the PSCW to increase its annual fuel-related retail electric rates for the remainder of 2010 to recover anticipated increased fuel-related costs for 2010. In June 2010, WPL received approval from the PSCW to implement an interim rate increase of $9 million, on an annual basis, subject to refund, effective in June 2010. Updated annual 2010 fuel-related costs during the proceeding resulted in WPL no longer qualifying for a fuel-related rate increase for 2010. In December 2010, the PSCW issued an order authorizing no increase in retail electric rates in 2010 related to fuel expense and authorized continuation of the interim rates through the end of 2010. The order obligates WPL to return the $5 million of interim rate over-collections to its retail customers as an offset to rate increases requested for 2011 rather than refunding a lump sum to applicable customers in early 2011. As of Dec. 31, 2010, WPL fully reserved $5 million, including interest, for all interim rate over-collections in 2010.
WPL estimates the higher than forecasted retail fuel-related costs decreased electric margins by approximately $3 million in 2010. WPL’s retail fuel-related costs incurred in 2009 and 2008 were both 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 and $5 million in 2009 and 2008, 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 1(h) of the “Notes to Consolidated Financial Statements” for additional information relating to recovery mechanisms for electric production fuel and energy purchases expenses and changes to the retail rate recovery rules in Wisconsin for electric production fuel and energy purchases expenses beginning in 2011.
Purchased Electric Capacity Expense -WPL enters into 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. Details of purchased electric capacity expense included in the electric margins table above were as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||
Kewaunee PPA | $ | 72 | $ | 74 | $ | 62 | ||||||
Riverside PPA | 58 | 57 | 56 | |||||||||
RockGen PPA (Expired May 2009) | — | 7 | 16 | |||||||||
Other | 5 | 7 | 11 | |||||||||
| $ | 135 | $ | 145 | $ | 145 | |||||||
At Dec. 31, 2010, the future estimated purchased electric capacity expense related to the Kewaunee (expires in 2013) and Riverside (expires in 2013) PPAs was as follows (in millions):
| 2011 | 2012 | 2013 | Total | |||||||||||||
Kewaunee PPA | $ | 51 | $ | 59 | $ | 62 | $ | 172 | ||||||||
Riverside PPA | 59 | 60 | 17 | 136 | ||||||||||||
| $ | 110 | $ | 119 | $ | 79 | $ | 308 | |||||||||
Unbilled Revenue Estimates -In the second quarter of each year, when weather impacts on electric sales volumes are historically minimal, WPL refines its estimates of unbilled electric revenues. Adjustments resulting from these refined estimates can increase or decrease electric margins reported each year 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 2010, 2009 and 2008 were ($6) million, $5 million and $0, respectively.
Sales Trends -Retail sales volumes increased 3% and decreased 6% in 2010 and 2009, respectively. The 2010 increase was primarily due to higher usage per customer caused by changes in weather and economic conditions in WPL’s service territory in 2010 compared to normal weather during September 2007, 20062009, partially offset by the impact of the annual unbilled sales adjustments discussed above. The 2009 decrease was largely due to a 13% decrease in industrial sales, which was caused by plant closures and 2005 (such months were not coveredshift reductions as a result of economic conditions in 2009.
Wholesale sales volumes increased 2% and decreased 15% in 2010 and 2009, respectively. The 2010 increase was primarily due to higher sales caused by weather derivatives)conditions. The effect of the higher sales in 2010 was $1 million, ($2) millionpartially offset by lower sales to WPL’s partial-requirement wholesale customers that have contractual options to be served by WPL, other power supply sources or the Midwest Independent Transmission System Operator (MISO) market. The 2009 decrease was largely due to the impact of weather and $2 million, respectively.economic conditions in 2009 on the electric sales demand of WPL’s wholesale customers.
Bulk power and other sales volumes changes were largely due to changes in sales in the wholesale energy markets operated by MISO 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 bulk power and other sales revenues were largely offset by changes in energy purchases expense and therefore did not have a significant impact on electric margins.
Refer to “Rate Matters” for discussion of WPL’s retail electric rate filings, the wholesale formula rate change in 2010, changes to the retail cost recovery rules in Wisconsin for electric production fuel and energy purchases expenses beginning in 2011 and an anticipated rate filing in 2011. Refer to “Other Matters - Other Future Considerations” for discussion of retail electric sales projections expected to be influenced by 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 (dollars in millions) | Dths Sold (Dths in thousands) | Revenues and Costs (dollars in millions) | Dths Sold (Dths in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2007 | 2006 | (a) | 2005 | (b) | 2007 | 2006 | (a) | 2005 | (b) | 2010 | 2009 | (a) | 2008 | (b) | 2010 | 2009 | (a) | 2008 | (b) | ||||||||||||||||||||||||||||||||||||||||||||||||
Residential | $ | 145.2 | $ | 144.9 | — | $ | 156.4 | (7 | )% | 11,596 | 11,270 | 3 | % | 12,068 | (7 | )% | $ | 118.1 | $ | 122.2 | (3 | %) | $ | 165.7 | (26 | %) | 11,205 | 11,639 | (4 | %) | 12,520 | (7 | %) | ||||||||||||||||||||||||||||||||||
Commercial | 84.0 | 84.4 | — | 89.3 | (5 | )% | 8,337 | 8,155 | 2 | % | 8,187 | — | 65.8 | 73.9 | (11 | %) | 103.2 | (28 | %) | 8,095 | 9,274 | (13 | %) | 9,362 | (1 | %) | |||||||||||||||||||||||||||||||||||||||||
Industrial | 8.2 | 8.3 | (1 | )% | 10.0 | (17 | )% | 883 | 876 | 1 | % | 978 | (10 | )% | 8.9 | 5.7 | 56 | % | 10.7 | (47 | %) | 1,289 | 771 | 67 | % | 1,019 | (24 | %) | |||||||||||||||||||||||||||||||||||||||
Retail subtotal | 237.4 | 237.6 | — | 255.7 | (7 | )% | 20,816 | 20,301 | 3 | % | 21,233 | (4 | )% | 192.8 | 201.8 | (4 | %) | 279.6 | (28 | %) | 20,589 | 21,684 | (5 | %) | 22,901 | (5 | %) | ||||||||||||||||||||||||||||||||||||||||
Interdepartmental | 14.8 | 17.0 | (13 | )% | 50.8 | (67 | )% | 2,264 | 2,116 | 7 | % | 6,448 | (67 | )% | 0.5 | 2.0 | (75 | %) | 5.6 | (64 | %) | 739 | 464 | 59 | % | 1,156 | (60 | %) | |||||||||||||||||||||||||||||||||||||||
Transportation/other | 13.5 | 19.3 | (30 | )% | 15.8 | 22 | % | 24,478 | 21,094 | 16 | % | 25,200 | (16 | )% | 13.0 | 12.7 | 2 | % | 14.8 | (14 | %) | 21,598 | 23,656 | (9 | %) | 24,477 | (3 | %) | |||||||||||||||||||||||||||||||||||||||
Total revenues/sales | 265.7 | 273.9 | (3 | )% | 322.3 | (15 | )% | 47,558 | 43,511 | 9 | % | 52,881 | (18 | )% | 206.3 | 216.5 | (5 | %) | 300.0 | (28 | %) | 42,926 | 45,804 | (6 | %) | 48,534 | (6 | %) | |||||||||||||||||||||||||||||||||||||||
Cost of gas sold | 175.0 | 174.8 | — | 231.9 | (25 | )% | 125.3 | 138.1 | (9 | %) | 213.6 | (35 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Margins | $ | 90.7 | $ | 99.1 | (8 | )% | $ | 90.4 | 10 | % | $ | 81.0 | $ | 78.4 | 3 | % | $ | 86.4 | (9 | %) | |||||||||||||||||||||||||||||||||||||||||||||||
| (a) | Reflects the % change from |
20072010 vs. 20062009 Summary -Gas margins increased $3 million, or 3% in 2010, primarily due to the impact of the 2010 retail gas rate increase effective in January 2010, which increased gas revenues by $5 million in 2010. This item was partially offset by a 5% decrease in retail sales primarily due to lower usage per customer caused by weather conditions.
2009 vs. 2008 Summary - Gas margins decreased $8 million, or 8%,9% in 2007,2009, primarily due to lower resultsthe 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 WPL’s performance-based gas commodity cost recovery program (benefits were allocated between ratepayers and WPL) andchanges in the net impacts of weather conditions and WPL’s weather hedging activities. These items were partially offset by an increase in weather-normalized retail sales volumes largely caused by the negative impact high natural gas prices in the first quarter of 2006 had on customer usage during that period.
2006 vs. 2005 SummaryNatural Gas Cost Recoveries - Gas margins increased $9In 2010 and 2009, WPL’s cost of gas sold decreased $13 million, or 10% in 2006,9%, and $76 million, or 35%, respectively. The 2010 and 2009 decreases were primarily due to the net impacts of weather conditions and WPL’s weather hedging activities, the impacts of a rate increase implementeddecrease in 2005Dths sold to retail customers and a modest increasedecrease in weather-normalized retail salesnatural gas prices. Due to WPL’s rate recovery mechanisms for natural gas costs, these changes in 2006. These increases were partially offset by the negativecost of gas sold resulted in comparable changes in gas revenues and, therefore, did not have a significant impact on margins from lower interdepartmental sales.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):
| 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | |||||||||||||||||||
Weather impacts on demand compared to normal weather | $ | (1 | ) | $ | (5 | ) | $ | (3 | ) | ($ | 2 | ) | $ | 1 | $ | 4 | ||||||||
Gains (losses) from weather derivatives (a) | (2 | ) | 4 | (1 | ) | |||||||||||||||||||
Losses from weather derivatives (a) | — | (1 | ) | (2 | ) | |||||||||||||||||||
Net weather impact | $ | (3 | ) | $ | (1 | ) | $ | (4 | ) | ($ | 2 | ) | $ | — | $ | 2 | ||||||||
| (a) | Recorded in “Transportation/other” revenues in the |
WPL’s gas sales demand follows a seasonal pattern with an annual base-loadbase load of gas and a large heating peak occurring during the winter season. 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 | 2010 | 2009 | 2008 | Normal (a) | ||||||||||||||||||||
| HDD (a): | 2007 | 2006 | 2005 | Normal (a) | ||||||||||||||||||||
Madison, Wisconsin | 6,914 | 6,499 | 6,796 | 7,148 | 6,798 | 7,356 | 7,714 | 7,105 | ||||||||||||||||
| (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 and 2005, WPL had a 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 remainder refunded or recovered from customers. Starting in 2007, the program was modified such that 35% of all gains and losses from WPL’s gas performance incentive sharing mechanism were retained by WPL, with 65% 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 $5 million, $13 million and $13 million in 2007, 2006 and 2005, respectively. Refer to Note 1(h) of the “Notes to Consolidated Financial Statements” for additional details of the new gas commodity recovery program implemented in the fourth quarter of 2007.
Interdepartmental Sales - WPL supplies natural gas to the natural gas-fired generating facilities it owns and operates and accounts for these sales as interdepartmental gas sales. Interdepartmental gas sales volumes were higher in 2005 as compared to 2007 and 2006 due largely to increased usage of natural gas-fired generating facilities in 2005 to meet electric demand as a result of very warm summer weather conditions in 2005.
Transportation/other Sales - Transportation/other sales volumes were higher in 2007 as compared to 2006 largely due to the impact of WPL’s sale of its gas distribution properties in Illinois in February 2007. Prior to these asset sales, gas revenues and Dths sold to retail customers in Illinois were included in residential, commercial and industrial sales in the gas margin table above. Upon completion of these asset sales, WPL entered into a separate agreement to continue to provide services to its former retail customers in Illinois. Gas revenues and Dths sold under this agreement is included in transportation/other sales in the gas margin table above. The lower pricing for transportation/other customers as compared to retail customers resulted in a decrease to gas margins following the sale of the electric distribution properties in Illinois.
Refer to “Rates and Regulatory“Rate Matters” for discussion of WPL’s 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 natural gas cost recovery. Refer to Note 10(b) of the “Notes to Consolidated Financial Statements” for additional information regarding weather derivatives entered into by WPL in the fourth quarter of 2007 to reduce potential volatility on its margins from Jan. 1, 2008 through March 31, 2008.
Other RevenuesElectric Transmission Service Expenses -
20072010 vs. 20062009 Summary - Other revenues decreasedElectric transmission service expenses increased $6 million in 2007, primarily2010, largely due to lower third-party commodity sales. Changes in other revenues were largely offsetincreased transmission rates billed to WPL by changes in other operation and maintenance expenses.ATC.
Other Operation and Maintenance Expenses -
20072010 vs. 20062009 Summary -Other operation and maintenance expenses decreased $9$2 million in 2007,2010, primarily due to $11 million of regulatory-related charges in 2009 related to the Nelson Dewey #3 project, $7 million of restructuring charges incurred in 2009 related to the elimination of certain corporate and operations positions, $7 million of lower pension and other postretirement benefits expenses largely duecosts, a $2 million loss contingency reserve recorded in 2009 related to the impact of benefit plan contributions in 2006, $5 million of lower incentive-related compensation expenseAlliant Energy Cash Balance Pension Plan lawsuit and lower expenses related to third-party commodity sales.other energy-related products and services. These decreasesitems were partially offset by a $4$12 million regulatory-related chargedeferral of retail pension and benefits costs recorded in 2007.
2006 vs. 2005 - Other operation and maintenance expenses decreased $14 million2009 in 2006, primarily dueaccordance with the stipulation agreement approved by the PSCW related to a reduction in nuclear generation-related expenses as a result of the Kewaunee sale (such expenses totaled $21 million in 2005) and a $7 million regulatory-related charge in 2005. These decreases were partially offset by $9WPL’s 2009 retail rate case, $12 million of higher incentive-related compensation expenses and $2 million of restructuring charges incurred in 2010 related to the elimination of certain corporate and operations positions.
2009 vs. 2008 Summary -Other operation and maintenance expenses increased $2 million in 2009, primarily due to $15 million of higher transmissionpension and distributionother postretirement benefits costs, $11 million of regulatory-related charges in 2009 related to the Nelson Dewey #3 project, $7 million of restructuring charges incurred in 2009 related to the elimination of certain corporate and operations positions and a $2 million loss contingency reserve recorded in 2009 related to the Alliant Energy Cash Balance Pension Plan lawsuit. These items were substantially offset by a $12 million deferral of retail pension and benefits costs recorded in 2009 in accordance with the stipulation agreement approved by the PSCW related to WPL’s 2009 retail rate case, $4 million of regulatory-related charges in 2008 related to the Nelson Dewey #3 project, $3 million of lower incentive-related compensation expenses and increasesthe impact of cost saving initiatives implemented by WPL in other administrative and general expenses.2009.
Refer to “Other Matters - Other Future Considerations” for discussion of the potential impacts on future operationanticipated decreases in pension and other postretirement benefits costs in 2011 resulting from increases in retirement plan assets during 2010 and anticipated increases in maintenance expenses from incentive compensation plans.in 2011 for WPL’s Bent Tree - Phase I wind project, which began generating electricity in late 2010.
Depreciation and Amortization Expenses -
20072010 vs. 20062009 Summary -Depreciation and amortization expense increased $3expenses decreased $7 million in 2007,2010, primarily due to a depreciation adjustment recorded in 2010, which is not anticipated to have a material impact on future periods. This item was partially offset by additional depreciation from the impact of property additions related to AMI placed into service in 2009 and the June 2009 acquisition of the Neenah Energy Facility.
2009 vs. 2008 Summary -Depreciation and amortization expenses increased $14 million in 2009, primarily due to the impact of property additions partially offset by lower software amortization.
2006 vs. 2005 - Depreciationrelated to WPL’s Cedar Ridge wind project, which began generating electricity in late 2008, AMI placed into service in 2009 and amortization expense decreased $1 million in 2006, primarily due to lower nuclear depreciation of $5 million as a resultthe June 2009 acquisition of the Kewaunee sale in July 2005 and lower software amortization. These decreases were substantially offset by the impact of property additions including SFEF.Neenah Energy Facility.
Refer to “Other MattersNote 1(e) of the “Notes to Consolidated Financial Statements” for details of WPL’s Bent Tree - Other Future Considerations” for the anticipated impacts of new depreciation ratesPhase I wind project, which is expected to be implemented by WPLresult in 2008 and expected decreasesa material increase in future software amortization expenses.
Taxes Other than Income Taxes -
2006 vs. 2005 - Taxes other than income taxes increased $4 milliondepreciation expense in 2006, primarily due to increased gross receipts taxes resulting from increased revenues.2011.
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. Refer to “Electric Margins - Purchased Power Capacity Costs” for discussion of the impact the sale of Kewaunee had on WPL’s electric margins and operating expenses.
Interest Expense -
20072010 vs. 20062009 Summary -Interest expense increased $1$4 million in 2007,2010, primarily due to the impactinterest expense from WPL’s issuances of WPL’s 6.375%$250 million of 5% debentures issued in 2007, substantiallyJuly 2009 and $150 million of 4.6% debentures in June 2010. These items were partially offset by the impact of WPL’s 7%retirement of $100 million of 7.625% debentures retired in 2007 and interest expense accrued in 2006 on the regulatory liability related to the reserve for rate refund associated with WPL’s fuel-related rate case.March 2010.
20062009 vs. 20052008 Summary -Interest expense increased $8$13 million in 2006,2009, primarily due to $5interest expense from WPL’s issuances of $250 million of higher affiliated interest expense associated with7.6% debentures in October 2008 and $250 million of 5% debentures in July 2009. These items were partially offset by the SFEF capital lease WPL entered intoimpact of WPL’s retirement of $60 million of 5.7% debentures 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.
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.
AFUDC -
2010 vs. 2009 Summary -AFUDC increased $7 million in 2010 primarily due to $7 million of higher AFUDC recognized in 2010 as compared to 2009 for the SFEF capital lease.Bent Tree - Phase I wind project.
2009 vs. 2008 Summary -AFUDC decreased $4 million in 2009, primarily due to AFUDC recognized in 2008 related to the construction of the Cedar Ridge wind project, partially offset by AFUDC recognized in 2009 related to the construction of the Bent Tree - Phase I wind project.
Income Taxes - TheWPL’s effective income tax rates were 34.3%39.2%, 37.1%,33.9% and 36.7%36.6% in 2007, 20062010, 2009 and 2005,2008, respectively. Details of the effective income tax rates were as follows:
| 2010 | 2009 | 2008 | ||||||||||
Statutory federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Federal Health Care Legislation enacted in March 2010 | 1.2 | — | — | |||||||||
State filing changes due to Wisconsin Senate Bill 62 (SB 62) enacted in February 2009 | — | (1.8 | ) | — | ||||||||
Production tax credits | (1.4 | ) | (2.9 | ) | (0.2 | ) | ||||||
Other items, net | 4.4 | 3.6 | 1.8 | |||||||||
Overall income tax rate | 39.2 | % | 33.9 | % | 36.6 | % | ||||||
2010 vs. 2009 Summary -The decreasedincrease in the effective income tax rate for 2007 compared to 20062010 was primarily due to lower state taxes, amortization$3 million of prior years deferred manufacturing production deductionincome tax expense recognized in 2010 related to the impacts of the Federal Health Care Legislation enacted in March 2010, which is expected to reduce WPL’s tax deductions for retiree health care costs beginning in 2013, to the extent prescription drug expenses are reimbursed under the Medicare Part D retiree drug subsidy program, and $2 million of income tax benefits recognized in 2009 related to the net impacts of SB 62 enacted in February 2009 and increased current year manufacturinga 2009 decision to allow WPL to do business in Iowa thus requiring WPL to file as part of the Iowa consolidated tax return.
2009 vs. 2008 Summary -The decrease in the effective income tax rate for 2009 was primarily due to $4 million of production deductions. tax credits in 2009 from the Cedar Ridge wind project, which began generating electricity 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.
Refer to Note 45 of the “Notes to Consolidated Financial Statements” for additional information.information regarding 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, 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 and meet its long-term contractual obligations. Access by WPL to capital markets to fund its future capital requirements at reasonable terms is largely dependent on theits credit quality of WPL and credit market developments.on developments in those capital markets.
Liquidity Position -At Dec. 31, 2007,2010, WPL had $168$193 million of available capacity under its revolving credit facility. Refer to “Cash Flows - Financing Activities - Short-term Debt” and Note 8(a) of the “Notes to Consolidated Financial Statements” for further discussion of the credit facility.
Capital Structure - WPL plans to maintain 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 capital structure at Dec. 31, 20072010 was as follows (dollars in millions):
Common equity | $ | 1,036.8 | 58.4 | % | ||
Preferred equity | 60.0 | 3.4 | % | |||
Long-term debt (incl. current maturities) | 597.0 | 33.6 | % | |||
Short-term debt | 81.8 | 4.6 | % | |||
| $ | 1,775.6 | 100.0 | % | |||
Common equity Preferred stock Long-term debt Short-term debt $ 1,369.3 53.5 % 60.0 2.3 % 1,081.7 42.3 % 47.4 1.9 % $ 2,558.4 100.0 %
In addition to capital structure, other important financial considerations used to determine the characteristics of future financings include financial coverage ratios, flexibility forregarding WPL’s generation plan,plans, state regulations and the levels of debt imputed by rating agencies. The most stringentsignificant debt imputations include operating leases, a portion of the Kewaunee and Riverside PPAs, and RockGen PPAs. Refer to “Rates and Regulatory Matters” for details ofpostretirement benefits obligations. The PSCW explicitly factors certain imputed debt adjustments approved by the PSCW in establishing a regulatory capital structure as part of WPL’s 2007 retail rate case.cases, particularly those related to operating leases and PPAs.
WPL intends to manage its capital structure and liquidity position 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 a reasonable cost.costs, while maintaining financial capital structure targets consistent with those approved by regulators. Key considerations include maintaining access to the financial markets on the terms, in the amounts and within the timeframes required to fund WPL’s strategic plan, retaining a prudent level of financial flexibility and maintaining its investment-grade credit rating.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%45% to 45%50%, and preferred stock would not exceed 5% to 10%, of total capital. These targets may be adjusted depending on subsequent developments and thetheir potential impact on WPL’s investment-grade credit rating.ratings.
Credit and Capital Market Developments - WPL’s ability to provide reliable and cost-effective utility services depends on its access to cost-effective capital. Financial markets have been underthat were subjected to considerable strain recently, resulting in negative impacts onsince 2007 have shown signs of selective recovery. Certain sectors of the availabilityequity and termsdebt capital markets, including the regulated utility sector, have attracted and retained investor interest. However, areas of credit available toconcern remain, including certain businesses. The recent downturnissues in the U.S. housing market has adversely affected domestic consumer demandand overseas, which have impacted the availability of credit and the liquidity of financial markets, particularly lendingassets. There is also concern about the level of spending by the U.S. federal government and underwriting institutions activethe temporary monetary policies of the Federal Reserve System intended to spur economic growth, with potential implications over time for inflation and interest rate levels. The evolving profile and impact of financial market re-regulation, both in the mortgageU.S. and asset-backed obligation markets. Financial market conditions are sensitiveoverseas, contributes to the evolving economic outlook, as investors tryunsettled tone of the various market sectors. These developments translate into uncertainties regarding the availability of capital and for the terms and conditions of capital raised to assess the implications of economic information for future earnings and asset values.meet funding requirements.
WPL is aware of the potential implications that these credit and capital market developments might have on its ability to raise the external funding required for its operations and capital expenditure plan.plans. The strategic implications include protecting its liquidity position and avoiding over-reliance on short-term funding to meet its long-term asset profile. WPL has taken several measures over the past several years to improve its financial strength including: reducing debt; securingmaintains a multi-year committed revolving credit facility to provide backstop liquidity to its commercial paper program and a committed source of alternative liquidity in the event the commercial paper market isbecomes disrupted; and extending WPL’sextended its long-term debt maturity profile, and avoiding undue concentrations of maturities over the next few years.years as WPL executes its capital investment program. 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 plan.
Primary Sources and Uses of Cash -WPL’s most significant source of cash is from electric and gas sales to its utility customers. Cash from these sales reimburses WPL for prudently incurred expenses to provide service to its utility customers and provides WPL a return on the rate base assets required to provide such services. Operating cash flows are expected to cover the majority of WPL’s 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 for utility rate base growth related to environmental compliance programs and new generating facilities and environmental compliance programs, are expected to be financedmet primarily through external 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 debt-to-total capitalization ratios that are consistent with investment-grade ratings, WPL may periodically fund such capital requirements with additional debt and equity.
Cash Flows- Selected information from the Consolidated Statements of Cash Flows is as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
Cash and cash equivalents at Jan. 1 | $ | 18.5 | $ | 4.5 | $ | 0.4 | ||||||||||||||||||
| Cash flows from (used for): | 2007 | 2006 | 2005 | |||||||||||||||||||||
Operating activities | $ | 258.0 | $ | 162.6 | $ | 176.6 | 372.4 | 305.8 | 239.7 | |||||||||||||||
Investing activities | (207.0 | ) | (149.0 | ) | (42.9 | ) | (449.3 | ) | (493.4 | ) | (376.0 | ) | ||||||||||||
Financing activities | (52.2 | ) | (12.0 | ) | (133.8 | ) | 58.5 | 201.6 | 140.4 | |||||||||||||||
Net increase (decrease) | (18.4 | ) | 14.0 | 4.1 | ||||||||||||||||||||
Cash and cash equivalents at Dec. 31 | $ | 0.1 | $ | 18.5 | $ | 4.5 | ||||||||||||||||||
Cash Flows From Operating Activities -
Historical Changes in Cash Flows From Operating Activities -
20072010 vs. 20062009 - WPL’s cash flows from operating activities increased $95$67 million primarily due to lowerincreased collections from WPL’s customers during 2010 caused by the impacts of rate increases and higher electric sales, $47 million of pension plan contributions collateral paymentsduring 2009 and $23 million of refunds paid by WPL to counterparties of derivative contractsits retail customers during 2009 for over-collected fuel-related costs in 2006, the impact of improved retail fuel-related cost recoveries and other changes in working capital.2008. These items were partially offset by higher$72 million of lower income tax payments.refunds.
20062009 vs. 20052008 - WPL’s cash flows from operating activities decreased $14increased $66 million primarily due to $107 million of higher cash flows from changes in 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 paymentspaid 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 2006, higher2008 related to over-recovered fuel-related costs in 2007. These items were partially offset by $47 million of pension plan contributions and other changes in working capital, partially offset2009, $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 improvedlower electric sales due to weather and economic conditions in 2009.
Electric and Gas Rate Increases - WPL implemented rate increases in 2010 that resulted in higher collections from its retail fuel-relatedcustomers. A portion of these higher collections was used to reimburse WPL for prudently incurred expenses to provide service to its customers resulting in limited impacts on cash flows from operations. Another portion of these rate recoveries.increases provided WPL returns on new rate base additions (e.g. returns on new wind projects), which significantly increased cash flows from operations for WPL in 2010. Refer to “Rate Matters” for additional details of retail rate increases implemented by WPL in 2010.
Income Tax Payments and Refunds - Income tax payments and refunds resulted in higher cash flows from operations for WPL in 2010 and 2009 compared to 2008 primarily due to income tax refunds received in 2010 and 2009 related to claims filed with the IRS to carryback net operating losses to prior years. Refer to “Legislative Matters - Federal Tax Legislation” and “Other Matters - Other Future Considerations - Tax Accounting for Mixed Service Costs” for additional discussion of anticipated future trends in federal income tax payments and refunds impacted by bonus tax depreciation deductions for 2010 and 2009 and potential deductions for mixed service costs.
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 sponsored by Corporate Services and were $0, $47 million and $0 for 2010, 2009 and 2008, respectively. Estimates of pension plan contributions currently expected to be made in 2011, 2012 and 2013 are $0, $0 and $5 million, respectively, and are based on the funded status and assumed return on assets as of the
Pension Plan Contributions -In August 2006,Dec. 31, 2010 measurement date for the Pension Protection Act of 2006 was enacted. This legislation includes changesplans and are subject to minimum funding level requirements of pension plans beginning in 2008. In 2006, WPL contributed to its pension plans with the intention of satisfying the minimum funding level requirements through 2008 and does not currently intend to make any additional significant contributions prior to 2009.change. Refer to Note 5(a)6(a) of the “Notes to Consolidated Financial Statements” for discussion of the current funded levels of WPL’s pension plans.plan.
Cash Collateral - WPL has entered into various commodity contracts that contain provisions requiring it to provide cash collateral if its liability position under the contract exceeds certain limitations. Refer to “Legislative Matters - Federal Regulatory Reform Legislation” for additional details of legislation enacted in 2010, which WPL currently does not believe will have a material impact on its financial condition and results of operations.
Cash Flows Used For Investing Activities -
Historical Changes in Cash Flows Used For Investing Activities -
20072010 vs. 20062009 - WPL’s cash flows used for investing activities decreased $44 million primarily due to $58 million of lower construction and acquisition expenditures resulting from expenditures during 2009 for the acquisition of the Neenah Energy Facility and implementation of AMI, partially offset by higher expenditures during 2010 for its Bent Tree - Phase I wind project. The lower construction and acquisition expenditures were partially offset by changes in the collection of and advances for customer energy efficiency projects.
2009 vs. 2008 - WPL’s cash flows used for investing activities increased $58$117 million primarily due to $145 million of higher construction and acquisition expenditures related toincluding expenditures in 2009 for the Cedar RidgeBent Tree - Phase I wind farm project, in 2007the Neenah Energy Facility and proceeds from the liquidationimplementation of nuclear decommissioning trust fund assets in 2006. These increases wereAMI. This item was partially offset by proceeds fromchanges in the salecollection of its Illinois properties in 2007.and advances for customer energy efficiency projects.
2006 vs. 2005 - WPL’s cash flows used for investing activities increased $106 million primarily due to proceeds from the sale of its interest in Kewaunee in 2005 and lower proceeds from the liquidations of nuclear decommissioning trust fund assets in 2006 compared to 2005. These increases were partially offset by lower construction expenditures.
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 cross-functional review prior to approval. Changes in WPL’s anticipated construction and acquisition expenditures may result from a number of reasons including economic conditions, regulatory requirements, ability to obtain adequate and timely rate relief, changing market conditions and new opportunities. WPL currently anticipates construction and acquisition expenditures during 2008, 2009 and 2010 as follows (in millions):
| 2008 | 2009 | 2010 | |||||||
Generation - new facilities: | |||||||||
Coal - Nelson Dewey #3 | $ | 35 | $ | 250 | $ | 400 | |||
Wind - Cedar Ridge | 125 | — | — | ||||||
Wind - Minnesota | 100 | 20 | 305 | ||||||
Gas - NEF (a) | — | 95 | — | ||||||
Total generation - new facilities | 260 | 365 | 705 | ||||||
Environmental | 50 | 150 | 180 | ||||||
Advanced metering infrastructure | 20 | 50 | 5 | ||||||
Other capital expenditures | 195 | 175 | 165 | ||||||
| $ | 525 | $ | 740 | $ | 1,055 | ||||
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, it does havehas some discretion with regard to the level, and timing of, capital expenditures eventually incurred and closely monitors and frequently updates such estimates based on numerous economic and other factors. Refer to “Strategic Overview”WPL currently anticipates construction and “Environmental” for further discussion of the generation plan and environmental compliance plans.acquisition expenditures during 2011 through 2013 as follows (in millions):
| 2011 | 2012 | 2013 | ||||||||||
Generation - new facilities: | ||||||||||||
Coal - 25% of Edgewater Unit 5 | $ | 45 | $ | — | $ | — | ||||||
Wind - Bent Tree - Phase I (b) | 35 | — | — | |||||||||
Gas - Riverside | — | — | 375 | |||||||||
Total generation - new facilities | 80 | — | 375 | |||||||||
Environmental | 75 | 155 | 140 | |||||||||
Other utility capital expenditures | 205 | 225 | 225 | |||||||||
Total utility business | $ | 360 | $ | 380 | $ | 740 | ||||||
| (a) | Cost estimates represent WPL’s estimated portion of total escalated construction and acquisition expenditures in millions of dollars and exclude AFUDC, if applicable. Refer to “Strategic Overview” for further discussion of the generation plans and environmental compliance plans. |
| (b) | Refer to “Certain Financial Commitments - Contractual Obligations” for long-term capital purchase obligations related to wind projects. 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. |
WPL expects to finance its 2008 to 20102011 through 2013 capital expenditure plans in a manner that allows it to adhere to the capital structure targets discussed in the “Capital Structure” section above. 20082011 capital expenditures are expected to be funded with a combination of internally-generated cash and short-term debt and internally generated cash. Such short-term debt is expected to be refinanced with approximately $300 million of incremental long-term debt issuances and capital contributions from WPL’s parent in 2008.debt. The precise characteristics of the financing for the 20092012 and 20102013 capital expenditures and any potential changes to the revolving credit facilities will be determined closer to the time that the financing is required but is currently anticipated to include a combination of issuances of long-term debt, preferred stock and capital contributions from WPL’s parent.needs are required. Flexibility will be required in implementing the long-term financing for capital expenditure plan’s long-term financingplans 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- Net proceeds from asset sales have been used for debt reduction, funding capital expenditures and general corporate purposes. Proceeds from assets sales for WPL during 2007, 2006 and 2005 were as follows (in millions):
Assets Sold: | 2007 | 2006 | 2005 | ||||||
Electric and gas utility assets in Illinois | $ | 24 | $ | — | $ | — | |||
Interest in Kewaunee | — | — | 75 | ||||||
Other | — | 4 | 5 | ||||||
| $ | 24 | $ | 4 | $ | 80 | ||||
Refer to “Strategic Overview - Business Divestiture” for discussion of WPL’s recent asset divesture activity.
Cash Flows Used For Financing Activities -
Historical Changes in Cash Flows Used For Financing Activities -
20072010 vs. 20062009 - WPL’s cash flows used forfrom financing activities increased $40decreased $143 million primarily due to higher common stock dividendsimpacts of long-term debt issued and aretired during 2010 and 2009 discussed below and $100 million of capital contributioncontributions received during 2009 from its parent company, Alliant Energy in 2006,Energy. These items were partially offset by changes in the amount of debt issuedcommercial paper outstanding and retired.$75 million of capital contributions received during 2010 from WPL’s parent company.
WPL’s increases (decreases) in financing cash flows due to changes in long-term debt for 2010 vs. 2009 were as follows (in millions):
Proceeds from issuances: | ||||
4.6% debentures issued in June 2010 | $ | 150 | ||
5% debentures issued in July 2009 | (250 | ) | ||
Payments to retire: | ||||
7.625% debentures retired in March 2010 | (100 | ) | ||
| ($ | 200 | ) | ||
20062009 vs. 20052008 - WPL’s cash flows used forfrom financing activities decreased $122increased $61 million primarily due to changes in the amountimpacts of long-term debt issued and retired during 2009 and a capital contribution from Alliant Energy in 2006.2008 discussed below.
WPL’s increases (decreases) in financing cash flows due to changes in long-term debt for 2009 vs. 2008 were as follows (in millions):
Proceeds from issuances: | ||||
5% debentures issued in July 2009 | $ | 250 | ||
7.6% debentures issued in October 2008 | (250 | ) | ||
Payments to retire: | ||||
5.7% debentures retired in October 2008 | 60 | |||
| $ | 60 | |||
State Regulatory Financing AuthorizationAuthorizations- In December 2010, WPL received authorization from the PSCW to issue up to $200 million of long-term debt securities in 2011. WPL is also authorized by the PSCW to have up to $250 million of short-term borrowings and letters of credit outstanding.
Shelf Registrations - WPL has state regulatory financing authorization for short-term borrowings of $250 million.a current shelf registration statement with the SEC as follows:
Shelf Registration- WPL does not have any remaining authority under its latest shelf registration.
Aggregate amount available as of Dec. 31, 2010 | $300 million | |
Time period available | Jun-2009 - Jun-2012 | |
Securities available to be issued | Preferred stock and un- secured debt securities |
Common Stock Dividends- In the third quarter of 2007, WPL paid a dividend of $100 million to Alliant Energy to realign WPL’s capital structure. Refer to Note 6(a)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 applicable regulatory limitations.
Short-Capital Contributions - Refer to Note 7(a) of the “Notes to Consolidated Financial Statements” for discussion of capital contributions from Alliant Energy to WPL and Long-termpayments of common stock dividends by WPL to its parent company in 2010.
Short-term Debt- In October 2007, WPL extended the terms of its revolving credit facility to November 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 expenditures, and capital market conditions. At Dec. 31, 2007,2010, WPL’s short-term borrowing arrangements included a revolving credit facility of $240 million. There are currently 13 lenders that participate in the credit facility, with aggregate respective commitments ranging from $8 million to $45 million. At Dec. 31, 2010, additional credit facility information was as follows (dollars in millions):
Commercial paper: | ||||||||
Amount outstanding | $ | 81.8 | $ | 47 | ||||
Weighted average maturity | 2 days | |||||||
Weighted average interest rates | 4.7 | % | ||||||
Remaining maturity | 3 days | |||||||
Interest rate | 0.3 | % | ||||||
Available credit facility capacity | $ | 168.2 | $ | 193 | ||||
During 2010, WPL issued commercial paper to meet short-term financing requirements and did not borrow directly under its credit facility.
WPL’s credit facility agreement contains a financial covenant whichthat requires WPL to maintain a debt-to-capital ratio of less than 58% in order to borrow under the facility. At Dec. 31, 2010, WPL’s actual debt-to-capital ratio was 46%. 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).
WPL’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, non-recourse project financing and purchase money liens.
WPL’sThe 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 its 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, 2010, 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, 2007,2010, WPL was in compliance with all covenants and other provisions of itsthe credit facility.facility agreement.
Refer to Note 78(a) of the “Notes to Consolidated Financial Statements” for additional information on short-short-term debt.
Long-term Debt- In 2010 and 2009, significant issuances of long-term debt were as follows (dollars in millions):
Year | Principal Amount | Type | Interest Rate | Due Date | Use of Proceeds | |||||||
2010 | $ | 150.0 | Debentures | 4.6% | Jun-2020 | Repay short-term debt, fund capital expenditures and for general working capital purposes | ||||||
2009 | $ | 250.0 | Debentures | 5% | Jul-2019 | Repay short-term debt and invest in short-term assets | ||||||
In 2010, WPL retired its $100 million 7.625% debentures, which were due March 2010.
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:
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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 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. In addition, a downgrade in the various agreements withcredit ratings triggers.of WPL could also result in it paying higher interest rates in future financings, reduce its pool of potential lenders, increase its borrowing costs under the existing credit facility or limit its access to the commercial paper market. 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 | Moody’s Investors Service | |||
Corporate/issuer | A- | A2 | ||
Commercial paper | A-2 | P-1 | ||
Senior unsecured long-term debt | 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. Refer to Note 11(a) of the “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 of its utility 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 11(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, 20072010 were as follows (in millions):
| 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||||||||||||||||
Operating expense purchase obligations (Note 11(b)): | |||||||||||||||||||||||||||||||||||||||||||||||||
Operating expense purchase obligations (Note 12(b)): | |||||||||||||||||||||||||||||||||||||||||||||||||
Purchased power and fuel commitments | $ | 341 | $ | 248 | $ | 116 | $ | 91 | $ | 102 | $ | 157 | $ | 1,055 | $ | 160 | $ | 125 | $ | 111 | $ | 25 | $ | 13 | $ | 21 | $ | 455 | |||||||||||||||||||||
Other | 6 | — | — | — | — | — | 6 | 9 | 8 | 7 | 1 | — | — | 25 | |||||||||||||||||||||||||||||||||||
Long-term debt maturities (Note 7(b)) | 60 | — | 100 | — | — | 439 | 599 | ||||||||||||||||||||||||||||||||||||||||||
Long-term debt maturities (Note 8(b)) | — | — | — | 8 | 31 | 1,050 | 1,089 | ||||||||||||||||||||||||||||||||||||||||||
Interest - long-term debt obligations | 38 | 35 | 31 | 27 | 27 | 620 | 778 | 66 | 66 | 66 | 66 | 65 | 1,056 | 1,385 | |||||||||||||||||||||||||||||||||||
Contractual obligations for wind turbines and wind sites | 81 | — | — | — | — | — | 81 | ||||||||||||||||||||||||||||||||||||||||||
Wind generation capital purchase obligations (Note 12(a))(c) | 25 | — | — | — | — | — | 25 | ||||||||||||||||||||||||||||||||||||||||||
Operating leases (Note 3(a)) | 77 | 68 | 64 | 61 | 62 | 31 | 363 | 63 | 67 | 20 | 5 | 1 | 1 | 157 | |||||||||||||||||||||||||||||||||||
Capital lease (Note 3(b)) | 15 | 15 | 15 | 15 | 15 | 188 | 263 | ||||||||||||||||||||||||||||||||||||||||||
Capital lease - Sheboygan Falls Energy Facility (Note 3(b)) | 15 | 15 | 15 | 15 | 15 | 143 | 218 | ||||||||||||||||||||||||||||||||||||||||||
Capital leases - other | — | — | — | — | — | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||
| $ | 618 | $ | 366 | $ | 326 | $ | 194 | $ | 206 | $ | 1,435 | $ | 3,145 | $ | 338 | $ | 281 | $ | 219 | $ | 120 | $ | 125 | $ | 2,273 | $ | 3,356 | ||||||||||||||||||||||
| (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, 2010. |
| (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 wind generation plans. WPL’s wind generation plans are described in more detail in “Strategic Overview - Generation Plans.” |
At Dec. 31, 2010, WPL and IPL. Such commitmentshad $34 million of uncertain tax positions recorded as liabilities, which are not included in WPL’s purchased power and fuel commitments. Other operating expense purchase obligations represent individual commitments incurred during the normal course of business that exceeded $1 million at Dec. 31, 2007. Included in WPL’s long-term debt obligations was variable rate debt of $39 million, which represented 7% of total long-term debt outstanding. Interest on variable rate debt in the above table was calculated using rates as of Dec. 31, 2007. Contractual obligations for wind turbinestable. It is uncertain if, and wind sites represent commitments under contracts entered into by WPL to acquire turbines and sites for certain wind projects that are described in more detail in “Strategic Overview - Generation Plan.” Refer to “Cash Flows Used For Investing Activities - Construction and Acquisition Expenditures” for additional information on WPL’s construction and acquisition program. when, such amounts may be settled with the respective taxing authorities.
Refer to Note 5(a)6(a) of the “Notes to Consolidated Financial Statements” for anticipated pension and other postretirement benefits funding amounts, which are not included in the above table.
At Dec. 31, 2007, WPL had $2.4 million of unrecognized tax benefits recorded as liabilities in accordance with Financial Accounting Standards Board Interpretation No. (FIN) 48, “Accounting Refer to “Cash Flows - Investing Activities - Construction and Acquisition Expenditures” for Uncertainty in Income Taxes,” which are not included in the above table. It is uncertain if,additional information on WPL’s construction and when, such amounts may be settled with the respective taxing authorities. Related to these unrecognized tax benefits, WPL also recorded liabilities for potential interest of $0.5 million at Dec. 31, 2007 which are also not included in the above table.
acquisition programs. In addition, at Dec. 31, 2007,2010, 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.
Environmental -
Overview -WPL is subject to regulation of environmental matters by various federal, state and local authorities as a result of its current and past operations. WPL addresses these environmental matters with pollution abatement programs, which are subject to continuing review and are periodically revised due to various factors, including changes in environmental regulations, construction plans and compliance costs. 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. As part of WPL’s integrated planning process, significant environmental projects are approved by WPL’s Board of Directors. WPL anticipates future expenditures for environmental compliance will be material and will require significant capital investments. WPL anticipates that prudent expenditures incurred to comply with environmental requirements likely would be recovered in rates from its customers. The following are major environmental matters that could potentially have a significant impact on WPL’s financial condition, results of operations and cash flows.
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 National Ambient Air Quality Standards (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 utility operations, including nitrogen oxides (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.
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. Areas that comply with NAAQS are considered to be in 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 reduce emissions. Additional emissions standards may also be applied under the CAA regulatory framework beyond the NAAQS. The specific federal and state regulations that may affect WPL’s operations include: Clean Air Interstate Rule (CAIR), Wisconsin Reasonably Available Control Technology (RACT) Rule, Clean Air Mercury Rule (CAMR), Wisconsin State Mercury Rule and Clean Air Visibility Rule (CAVR) Standards. WPL also monitors various other potential environmental matters related to air quality, including: litigation of various federal rules issued under the CAA statutory authority; revisions to the New Source Review/Prevention of Significant Deterioration permitting programs and New Source Performance Standards; federal proposals to further strengthen the NAAQS for PM and ozone; and proposed legislation or other regulatory actions intended to reduce GHG emissions.
Compliance Costs - WPL completes periodic evaluations of compliance costs for air quality rules. These evaluations were most recently updated in 2007 based on information available regarding CAIR and CAMR SIPs and the costs and performance of control options. Furthermore, WPL’s updated multi-emissions compliance plan includes actions to address anticipated rule outcomes related to RACT, Best Available Retrofit Technology (BART) and regional haze as discussed in the paragraphs below. The updated multi-emissions compliance plan for WPL include investments in air pollution controls for its electric generating facilities as well as purchases of emission allowances. WPL’s current estimated capital expenditures required to implement its updated multi-emissions compliance plan are $50 million for 2008, $150 million for 2009, $180 million for 2010, and $300 million to $400 million for 2011 to 2018.
These 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 air pollution control technologies, outcomes of SIPs for current air rules and any additional requirements based on new air rules. In addition, the selection and timing of installation of air pollution controls for compliance may change as a result of these and other considerations.
In the second quarter of 2007, WPL filed a construction application with the PSCW to install air pollution controls to reduce SO2 emissions at the two existing units at Nelson Dewey. Capital expenditures for the Nelson Dewey SO2 air pollution controls are estimated to be $116 million and are included in the above estimates for WPL’s multi-emissions compliance plan.
Clean Air Interstate Rule (CAIR) - In 2005, the EPA issued CAIR, which requires reductions of SO2 and NOx emissions from existing and new electric generating units with greater than 25 MW of capacity. CAIR is a cap-and-trade market-based program that is expected to reduce the regional transport of electric utility emissions to non-attainment areas in the eastern U.S. Electric generating units covered by CAIR will receive authorizations to emit SO2 and NOx in the form of allowances, with the total amount available for actual emissions limited by the cap. Individual control requirements are not specified under a cap-and-trade program, but each company can design its own compliance strategy to meet the overall reduction requirement through installation of air pollution controls or purchase of allowances. There is a two-phase compliance schedule for CAIR. The Phase I compliance deadline is Jan. 1, 2009 for NOx and Jan. 1, 2010 for SO2. The Phase 2 compliance deadline is Jan. 1, 2015 for both NOx and SO2. When fully implemented, CAIR is expected to result in overall SO2 and NOx emissions reductions by over 70% and 60% from 2003 levels, respectively. Affected states under CAIR include Wisconsin. EPA has issued final SIP approvals for the CAIR regulations adopted in Wisconsin. While WPL expects to comply through a combination of additional capital investments in emissions controls at various facilities and purchases of emissions allowances, it is continuing to review these alternatives.
Wisconsin Reasonably Available Control Technology (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 SFEF and the Edgewater generating facility (Edgewater). In the second quarter of 2007, the Wisconsin Department of Natural Resources (DNR) approved the RACT rule for NOx as part of the federal ozone SIP submittal to address non-attainment areas in Wisconsin. Modifications are not necessary at SFEF to comply with this rule. WPL expects that RACT compliance at Edgewater will result in accelerating NOx emission reductions beyond the CAIR requirements through installation of emission controls earlier than required to meet CAIR requirements. WPL is evaluating the RACT rules to develop an approach to meet the 2009 and 2013 compliance deadlines at Edgewater. However, final compliance requirements cannot be certain until final EPA approval of the RACT rule has been received, which is currently expected later in 2008.
Clean Air Mercury Rule (CAMR) - In 2005, the EPA issued CAMR, which would require reductions of mercury emissions from existing and new U.S. coal-fired electric generating units with greater than 25 MW of capacity in a two-phased approach. The first phase of compliance was required by Jan. 1, 2010 and the second phase by Jan. 1, 2018. Similar to the CAIR program, CAMR would use a national cap-and-trade system, where compliance may be achieved by either adding mercury controls and/or purchasing allowances. In February 2008, a court decision vacated and remanded CAMR to the EPA for reconsideration. The EPA’s response to this court decision and associated implications to WPL are uncertain at this time. There are also uncertainties regarding the applicability of state regulations that would implement the EPA rules and state responses in the interim until the EPA issues revised rules. WPL is currently unable to predict the final outcome, but expects that capital investments and/or modifications resulting from the reconsidered rule could be significant. Furthermore, estimated compliance costs for CAMR currently included in “Compliance Costs” will be reviewed and may be revised when additional information becomes available regarding the EPA’s rule reconsideration.
Wisconsin State Mercury Rule - In 2004, the Wisconsin DNR independently issued a state-only mercury emission control rule that affects electric utility companies in Wisconsin. The rule explicitly recognizes an underlying state statutory restriction that state regulations cannot be more stringent than those included in any federal mercury program unless there is a demonstration that more stringent requirements are necessary to provide adequate protection for public health or welfare. The rule states that the Wisconsin DNR must adopt state rule changes within 18 months of publication of any federal rules. However, the Wisconsin CAMR regulation has not yet been adopted. The Wisconsin mercury rule includes a requirement to cap mercury emissions beginning on Jan. 1, 2008. WPL believes its current multi-emissions compliance plan includes sufficient controls to meet this cap. Further impacts remain uncertain until the EPA responds to the court decision to vacate and remand the federal CAMR.
Clean Air Visibility Rule (CAVR) - The EPA issued CAVR in 2005 to address regional haze. 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 SIP to the EPA by December 2007 to include BART air pollution controls and other additional measures needed for reducing state contributions to regional haze. The implementation of CAVR SIP reductions are scheduled to begin to take effect in 2014 with full implementation before 2018. Generating facility emissions of primary concern for BART and regional haze regulation include SO2, NOx and PM. Under CAVR, states participating in CAIR’s cap-and-trade program can determine that CAIR has precedence over BART. Therefore, BART requirements will be deemed to be met through compliance with CAIR requirements. In addition to BART, individual states are required to identify additional regional haze control measures needed to address visibility protection at designated areas. Wisconsin DNR submission of a SIP remains outstanding. The Wisconsin Natural Resources Board has adopted a Wisconsin BART regulation that will accept CAIR controls for generating facilities, although legislative review is pending as a component of the CAVR SIP. In addition, Wisconsin DNR will complete a subsequent assessment of the need for supplemental regional haze regulations. WPL is unable to predict the impact that CAVR might have on the operations of its existing coal-fired generating facilities until Wisconsin has received final EPA approval of CAVR SIP submittals, which is currently expected in late 2008.
Third Party Excess Emission Claims - WPL is aware that certain citizen groups have begun pursuing claims against owners of utility generating facilities 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 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 are expected to 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.
Third Party Alleged Air Permitting Violation Claims - 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, it is aware of certain public comments that have been submitted to the Wisconsin DNR regarding the renewal of air operating permits. WPL has learned from discussions with the Wisconsin DNR that one of WPL’s generating facilities will need to lower its opacity and PM emissions as part of its air operating permit renewal process. WPL is developing a compliance schedule to submit to the Wisconsin DNR that will detail how this will be done in a timely manner. WPL is also aware that a 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 any public comments and petitions.
GHG Emissions - Public awareness of climate change continues to grow 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. State and regional initiatives to address GHG emissions are also underway in Wisconsin. Specifically, governors from nine Midwest states, including Wisconsin, signed the Midwestern GHG Accord in November 2007. The participants are expected to develop a proposed cap-and-trade agreement and a model rule within 12 months of the date of this accord. The accord also provides for an 18-month implementation period following completion of the cap-and-trade agreement and model rule.
WPL continues to take voluntary measures to reduce its emissions including CO2 and other GHG as prudent steps to address potential climate change regulation. Strategically, WPL focuses on the following areas to reduce GHG: 1) installation of commercially proven controls for air emissions and continued operational excellence to achieve further generating facility efficiency improvements; 2) demand-side management including energy conservation programs; 3) expansion of company-owned renewable energy sources; 4) continued use of PPAs and investments that focus on lower or non-emitting generation resources; and 5) development of technology solutions through funding of collaborative research programs for advanced clean coal generation as well as potential options for carbon sequestration.
WPL’s Board of Directors has assigned oversight of environmental policy and planning issues, including climate change, to the Environmental, Nuclear, Health and Safety (ENHS) Committee. The ENHS committee is comprised solely of independent directors. The ENHS Committee reports on its reviews and, as appropriate, makes recommendations to WPL’s Board of Directors.
Given the highly uncertain outcome and timing of future regulations regarding the control of GHG emissions and the lack of established technology that will significantly reduce GHG emissions, WPL currently cannot predict the financial impact of any future climate change regulations on its operations but the capital expenditures to comply with any new emissions controls could be significant. Refer to “Rates and Regulatory Matters” for discussion of the Midwestern GHG Accord.
Chicago Climate Exchange (CCX) - In the third quarter of 2007, Alliant Energy issued a letter of commitment for WPL to participate in the CCX for the Phase I membership period covering 2003 through 2006. CCX members voluntarily agree to a CO2 emissions baseline level and subsequent annual CO2 emission reduction targets from this baseline level during the membership period covered with their commitment to the CCX. If members reduce their CO2 emissions by less than the reduction targets, they must buy allowances from other CCX members to cover their shortfall. On the other hand, if members reduce their CO2 emissions by more than the reduction targets, they may sell their excess allowances to other CCX members or carry forward their excess allowances for use in future periods. Allowance sales and purchases occur at a market price determined by CCX members through their participation in the market administered by CCX. WPL anticipates completion of the formal application process for participation in the Phase I period of CCX in the first quarter of 2008. WPL does not anticipate any material adverse impact on its financial condition or results of operations as a result of participating in the CCX for the Phase I period.
Water Quality -
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. In 2004, the second phase of this EPA rule became effective and is generally referred to as “316(b).” 316(b) applies to existing cooling water intake structures at large steam-electric generating facilities. WPL has identified three 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. It is unclear whether the EPA will stay the deadlines in the rule until the remanded rulemaking is finished. As a result, 316(b)’s compliance requirements and associated deadlines are currently unknown. WPL is currently unable to predict the final outcome, however expect that required capital investments and/or modifications resulting from this regulation could be significant.
Wisconsin State Thermal Rule - WPL is currently evaluating proposed revisions to the Wisconsin Administrative Code concerning the amount of heat that WPL’s generating facilities can discharge into Wisconsin waters. Hearings on proposed revisions to thermal water quality rules were held during January 2008 and a final rule is not expected to be completed until late 2008. At this time, WPL is unable to predict the final outcome of the proposed rules, but believes that required capital investments and/or modifications resulting from this regulation could be significant.
Hydroelectric Fish Passages and Fish Protective Devices - In 2004, FERC issued an order requiring WPL to take the following actions regarding one of WPL’s hydroelectric generating facilities: 1) develop a detailed engineering and biological evaluation of potential fish passages for the facility; 2) install an agency-approved fish-protective device at the facility within one year and 3) install an agency-approved fish passage at the facility within three years. In 2005, WPL filed an 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 2006, FERC approved extending the evaluation and installation for the downstream fish passage to April 2008 and upstream fish passage to April 2009. In January 2007, the U.S. Fish and Wildlife Service and Wisconsin DNR requested additional changes and further analysis on the fish passage design, delaying the construction plan. Once WPL receives these agencies’ approvals, WPL will file a new construction plan with FERC. The fish protection equipment construction and installation plans were approved by the U.S. Fish and Wildlife Service and Wisconsin DNR in December 2007. FERC approval is pending. WPL believes that required capital investments and/or modifications resulting from this issue could be significant.
Land 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 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. Refer to Note 11(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.
Land and Solid Waste Regulatory Issues - WPL is also monitoring various 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 has drafted a new rule related to flammable, combustible and hazardous liquids stored in above ground storage tanks. This draft rule has not yet been finalized. The primary financial impact of this new rule would be from a secondary containment requirement for all new hazardous materials tanks and for new 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 11(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 1011 of the “Notes to Consolidated Financial Statements” for further discussion of WPL’s derivative 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. 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 wholesale electric tariffs and retail gas tariffs provide for subsequent adjustments to its rates for material changes in commodity costs thereby significantly mitigating any price risk for prudently incurred commodity costs. WPL’s 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.costs, which became effective on Jan. 1, 2011. The cost recovery mechanism applicable for WPL’s retail electric rates arecustomers is based on forecasts of fuel-related costs expected to be incurred during forward-looking test year periods and include estimates of future fuel-related costs per MWh anticipatedfuel monitoring ranges determined by the PSCW during the test periods. During each electric retail rate proceeding for WPL, the PSCW setsor in a separate fuel monitoring ranges based on the forecasted fuel-related costs per MWh used to determine rates. If WPL’s actual fuel-related costs fall outside these fuel monitoring ranges during the test period, WPL can request and the PSCW can authorize an adjustment to future retail electric rates. As part of this process, the PSCW may authorize an interim fuel-related rate increase or decrease until final rates are determined. However, if an interim rate increase is granted and the final rate increase is less than the interim rate increase, WPL would refund the excess collection to customers, including interest, at the current authorized return on equity rate. As part of WPL’s January 2007 retail rate case decision,cost plan approval proceeding. In December 2010, the PSCW approved annual forecasted fuel-related costs per MWh of $29.65$25.12 based on $445$346 million of variable fuel costs for WPL’s 2011 test period and setleft unchanged the annual fuel monitoring rangesrange of plus or minus 2%. Under the new cost recovery mechanism, if WPL’s actual fuel-related costs fall outside this fuel monitoring range during the test period, WPL is authorized to defer the incremental over- or under-collection of fuel-related costs from electric retail customers that are outside the approved ranges. Any over- or under-collection of fuel-related costs for each year are reflected in future billings to customers. Based on the current retailthis new cost recovery mechanism in Wisconsin and the annual forecasted fuel-related costs and fuel monitoring range approved by the PSCW in December 2010, WPL hascurrently estimates the commodity risk 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-recovered costs from ratepayers in the future.2011 is approximately $5 million.
Refer to “Rates“Rate Matters” and Regulatory Matters - Utility Fuel Cost Recovery”Note 1(h) of the “Notes to Consolidated Financial Statements” for additional details of the retail rateutility cost recovery mechanism in Wisconsin for electric fuel-related costs. mechanisms that significantly reduce WPL’s commodity risk.
Investment Price -WPL is unableexposed to determine the anticipated impactinvestment price risk as a result of changesits investments in commodity prices ondebt and equity securities, largely related to securities held by its future electric margins given the uncertainty of how future fuel-related costs will correlate with the retail electric rates in placepension and the outcomeother postretirement benefits plans. Refer to Note 6(a) of the proposed changes“Notes to Consolidated Financial Statements” for details of the current retail electric fuel-related cost recovery rules in Wisconsin.debt and equity securities held by its 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. WPL manages this interest rate risk by limiting its variable interest rate exposure.short-term borrowings. Assuming no change in WPL’s consolidated financial structure, if variable interest rates were to average 100 basis points higher (lower) in 2008 than in 2007, expense would increase (decrease) by approximately $1.2 million. This amount was determined by considering 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 balancesshort-term borrowings at Dec. 31, 2007.
Equity Price Risk - WPL is exposed2010, WPL’s annual pre-tax expense would increase by approximately $0.5 million. Refer to equity price risk as a resultNote 8(a) of its investments in debt and equity securities held by its pension and other postretirement benefits plans.the “Notes to Consolidated Financial Statements” for additional information on variable-rate short-term borrowings.
New Accounting Pronouncements -Refer to Note 1(q)1(r) 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 each reporting period regarding the future outcome of contingent events and records loss contingency amounts for any contingent events that are both probable and reasonably estimated 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. Note 12 of the “Notes to Consolidated Financial Statements” provides discussion of contingencies assessed at Dec. 31, 2010 including various pending legal proceedings that may have a material impact on WPL’s financial condition or results of operations.
Regulatory Assets and Regulatory 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 regulatory 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 regulatory 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’s regulatory assets and regulatory liabilities.
WPL periodically assessesmakes assumptions and judgments each reporting period regarding whether theits regulatory assets are probable of future recovery and its regulatory liabilities are probable of future obligations by considering factors such as regulatory environment changes, and recent rate orders issued by the applicable regulatory agencies.agencies and historical decisions by applicable regulatory agencies regarding similar regulatory assets and regulatory 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. Refer tooperations and the amount of assets and liabilities in its financial statements. Note 1(b) of the “Notes to Consolidated Financial Statements” forprovides details of the nature and amounts of WPL’s regulatory assets and liabilities.regulatory liabilities assessed at Dec. 31, 2010.
Long-Lived Assets -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 its 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 to 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, and significant negative industry, regulatory or economic trends. When an impairment review is deemed necessary, a comparison is made between the expected 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 the amount the carrying amount of the asset exceeds the fair value of the 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 makes assumptions and judgments each reporting period regarding the recoverability of certain long-lived assets including assets held for sale and assets not yet being recovered from its customers. WPL’s assets assessed at Dec. 31, 2010 include the wind sites and wind turbine generators currently expected to be used to develop future wind projects. Note 1(e) of the “Notes to Consolidated Financial Statements” and “Strategic Overview- Generation Plans” provide details of wind sites and wind turbine generators currently expected to be used to develop future wind projects.
Unbilled Revenues- Energy sales to individual customers are based on the reading of theircustomers’ meters, which occurs on a systematic basis throughout the month. At the end of each month, amountsAmounts of energy delivered to customers since the date of the last meter reading are estimated at the end of each reporting period 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, 20072010 and 2006,2009, WPL’s unbilled revenues were $86$82 million and $74$87 million, respectively. Refer to “Results of Operations—Operations - Electric Margins—Margins- Unbilled Revenue Estimates” forprovides discussion of annual adjustments to unbilled electric revenue estimates in the second quarters of 2007, 20062010, 2009 and 2005.2008.
Accounting for Pensions and Other Postretirement Benefits -WPL accounts for pensionssponsors various defined benefit pension and other postretirement benefits under SFAS 87, “Employers’ Accounting for Pensions,” SFAS 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,”plans that provide benefits to a significant portion of its employees. WPL makes assumptions and SFAS 158, “Employers’ Accounting for Defined Benefit Pensionjudgments periodically to estimate the obligations 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.costs related to its retirement plans. 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 pension and other postretirement benefits costs. WPL’sJudgments and assumptions are supported by historical data and reasonable projections and are reviewed annually. As of Sep. 30, 2007 (WPL’s most recent measurement date), future assumptions included a 6.2% discount rate to calculate benefit obligations and a 8.5% annual expected rate of return on investments. In selecting an assumed discount rate, WPL reviews various corporate Aa bond indices. The 8.5% annual expected rate of return is consistent with the historical returns of WPL’s plan assets and is based on projected long-term equity and bond returns, maturities and asset allocations. Refer to
Note 5(a)6(a) of the “Notes to Consolidated Financial Statements” forprovides additional discussiondetails of the accounting for pensionspension and other postretirement benefits.benefits plans. “Other Future Considerations - Retirement Plan Costs” provides discussion of anticipated decreases in pension and other postretirement benefits costs in 2011 due to lower amortization of actuarial losses and higher expected returns on plan assets resulting from increases in retirement plan assets during 2010. Note 12(c) of the “Notes to Consolidated Financial Statements” provides 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.
Income Taxes -WPL accounts foris subject to income taxes under FIN 48, “Accounting for Uncertainty in Income Taxes,”various jurisdictions. WPL makes assumptions and SFAS 109, “Accounting for Income Taxes.” Under these rules, certain assumptions are made which represent significant estimates usedjudgments each reporting period to determine an entity’sestimate its income tax assets, liabilities, benefits and expenses each period. These assumptions include projections of the impacts from the completion of audits of the tax treatment of certain transactions. WPL’sexpenses. Judgments and assumptions are supported by historical data and reasonable projections and are reviewed quarterly by management.projections. Significant changes in these judgments and assumptions could have a material impact on WPL’s financial condition and results of operations. WPL’s critical assumptions and judgments for 2010 include projections of its future taxable income used to determine its ability to utilize loss and credit carryforwards prior to their expiration and the interpretation of tax laws regarding uncertain tax positions.
Refer to Note 4Notes 1(c) and 5 of the “Notes to Consolidated Financial Statements” for additionalfurther discussion of regulatory accounting for taxes and details regarding unrecognizedof uncertain tax benefitspositions, respectively. Refer to “Other Future Considerations - Tax Accounting for Mixed Service Costs” for discussion of a proposed change in tax accounting for mixed service costs that may result in significant tax deductions for WPL.
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:
Electric Transmission Service Charges -
MISO Transmission Cost Allocation - In July 2010, MISO filed a proposed revised tariff with FERC for a new category of transmission projects called Multi-Value Projects (MVPs). MVPs include new large scale transmission projects that enable the reliable and economic delivery of energy in support of documented energy policy mandates or provide economic value across multiple pricing zones within MISO. The MVP category is intended to facilitate the integration of large amounts of location-constrained resources including renewable resources, support MISO member and customer compliance with evolving state and federal energy policy requirements, enable MISO to address multiple reliability needs and provide economic opportunities through regional transmission development. The proposed revised tariff would allow certain costs of MVPs to be socialized across the entire MISO footprint based on energy usage by the MISO participants to ensure that areas within the MISO footprint that have large amounts of generation and a small share of load are not allocated a disproportionate amount of the costs for MVPs. In December 2010, FERC conditionally approved MISO’s proposal for the MVP transmission cost allocation. WPL is currently unable to determine the ultimate impact that the revised tariff may have on its financial condition and results of operations, but believes the outcome could be material to its future electric transmission service expense.
Government Incentives for Wind Projects -WPL’s corporate strategy includes building and owning wind projects to produce electricity to meet customer demand and renewable portfolio standards. In addition to producing electricity, these wind projects may also generate material incentives depending on when they begin generating electricity. The American Recovery and Reinvestment Act of 2009 (ARRA) enacted in February 2009 provided incentives to owners of wind projects placed into service between Jan. 1, 2009 and Dec. 31, 2012. The incentive options 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. In December 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 modified the requirements for the government grant incentive. The government grant incentive is now available for qualified wind projects that are placed into service in 2009, 2010 or 2011 and qualified wind projects that began construction in 2009, 2010 and 2011 and are placed into service by Dec. 31, 2012.
WPL’s generation plan has two wind projects that currently qualify for one of the government incentives. The two wind projects are the Cedar Ridge wind project (68 MW capacity) that began generating electricity in late 2008 and the Bent Tree - Phase I wind project (200 MW capacity) that began generating electricity in the fourth quarter of 2010. Based on an evaluation of the most beneficial alternative for customers, WPL has chosen to recognize production tax credits for the two eligible wind projects that are already generating electricity. The amount of production tax credits is dependent on the level of electricity output generated by each wind project, which is impacted by a variety of operating and economic parameters including transmission availability. Any incentives for WPL’s wind projects are expected to be utilized in determining customers’ rates. Production tax credits earned for 2009 and 2010 along with estimates of production tax credits currently expected to be earned in 2011 for these wind projects are as follows (in millions):
| 2009 | 2010 | 2011 | ||||||||
Cedar Ridge | $ | 4 | $ | 3 | $3 - $4 | |||||
Bent Tree - Phase I | — | 1 | 7 - 8 | |||||||
| $ | 4 | $ | 4 | $10 - $12 | ||||||
Tax Accounting for Mixed Service Costs -In September 2010, Alliant Energy, on behalf of WPL, filed a request with the IRS for a change in its tax method of accounting for mixed service costs. The requested change would allow WPL to currently deduct a portion of its mixed service costs, which have historically been capitalized for tax purposes. If approved by the IRS, this proposed change could be applied retroactively to mixed service costs incurred since 1987. WPL recently completed an assessment of its eligible mixed service costs for the period from 1987 through 2009 and currently believes it will include approximately $190 million of mixed service costs deductions for these years in its 2010 federal income tax return if the proposed change is approved by the IRS. These mixed service cost deductions are expected to contribute to a federal net operating loss in 2010. WPL’s federal net operating losses incurred through 2010 (including the impacts of mixed service costs deductions) are currently expected to offset future federal taxable income resulting in minimal federal cash tax payments to the IRS by WPL through 2015. In accordance with accounting rules, WPL will not reflect the impact of this proposed change to mixed service costs in its financial statements until Alliant Energy receives consent from the IRS for the change in tax method of accounting for mixed service costs.
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 2011 than 2010 by approximately $4 million. The decrease in expected net periodic benefit costs is primarily due to lower amortization of actuarial losses and higher expected returns on plan assets resulting from increases in retirement plan assets during 2010. 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. 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 (approximately 1% to 1.5%) increases in weather-normalized retail electric sales in 2011 compared to 2010 largely due to a slow economic recovery and low customer growth.
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 these services for its Bent Tree - Phase I wind project. WPL currently estimates approximately $7 million to $8 million of annual maintenance expenses for its Bent Tree - Phase I wind project after it begins generating electricity.
Incentive Compensation Plans -Alliant Energy’s total compensation programpackage includes an incentive compensation program, (ICP) which provides substantially all of itsAlliant Energy’s non-bargaining employees and certain bargaining unit employees (including WPL employees) an opportunity to receive annual short-term incentive cash payments based on the achievement of specific annual corporate goalsoperational and financial performance measures. The operational performance measures for Alliant Energy including, among others,2011 relate to diversity, safety, customer satisfaction, service reliability and generating facilities’ availability, and the financial performance measures for 2011 relate to utility earnings per share from continuing operations and cash flows from operations. Funding of the ICP is designed so that Alliant Energy retains all earnings up to a pre-established earnings target. After achieving such target, there is a sharing mechanism of earnings between Alliant Energyoperations generated by WPL, IPL 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).equity incentive plan. Alliant Energy allocates a portion of incentive compensation plan costs to WPL. Refer to “Results of Operations - Other Operation and Maintenance Expenses” for discussion of higher incentive-related compensation expenses in 2010 and Note 5(b)6(b) of the “Notes to Consolidated Financial Statements” for additional discussion of outstanding awards issued under the EIP.long-term incentive awards. WPL is currently unable to determine what impacts these incentive compensation plans will have on its future financial condition or results of operations.
Depreciation Study - In February 2008, the PSCW issued an order approving the implementation of updated depreciation rates for WPL effective July 1, 2008 as a result of a recently completed depreciation study. The updated depreciation rates are lower than WPL’s current depreciation rates. WPL currently expects its 2008 annual depreciation expense will decrease approximately $9 million compared to its 2007 annual depreciation expense amounts as a result of the implementation of the updated depreciation rates. The impacts of this depreciation study will be considered in WPL’s future rate proceedings. Due to uncertainties such as when, and to what extent, the new depreciation estimates from the study will be reflected in its future rates, WPL is unable to determine the future impacts on its financial condition or results of operations.
Enterprise Resource Planning (ERP) Software - WPL uses an ERP software system to record, process and report human resources, finance and supply chain transactions. The initial implementation costs for the ERP software were fully amortized as of Aug. 31, 2007. As a result, WPL currently expects its 2008 annual amortization expense amount will be approximately $3.5 million lower than its 2007 annual amortization expense amount.
MISO Wholesale Energy Market - MISO is currently developing an ancillary services market, which includes systems and business processes, to complement the existing wholesale energy market that MISO implemented in April 2005. The ancillary services market is currently projected to begin operation in June 2008. In September 2007, MISO filed an amended tariff with FERC and plans to secure approval of the tariff in time to meet the 2008 planned implementation. WPL continues to prepare for the start of the ancillary services market. WPL is monitoring the development of the market to ensure that the rules associated with the market are reasonable and that costs and revenues associated with the market receive appropriate regulatory cost recovery treatment. WPL is currently unable to determine what impacts this new market will have on its future financial condition or results of operations.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Wisconsin Power and Light Company and subsidiaries (WPL) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities 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 accounting principles.in the United States of America.
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 subject to the risk 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 itsWPL’s internal control over financial reporting as of December 31, 20072010 using the criteria set forth inInternal Control—Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, WPL’s management believesconcluded that, as of December 31, 2007, its2010, WPL’s internal control over financial reporting was effective based on those criteria.effective.
William D. Harvey
Chairman and Chief Executive Officer
Thomas L. Hanson Vice President-Chief Financial Officer and Treasurer
Robert J. Durian Controller and Chief Accounting Officer February 28, 2011 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareowners of Wisconsin Power and Light Company
Madison, Wisconsin: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, 20072010 and 2006,2009, and the related consolidated statements of income, changes in common equity, and cash flows for each of the three years in the period ended December 31, 2007.2010. 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, 20072010 and 2006,2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007,2010, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1(q) to the consolidated financial statements, as a result of the adoption of new accounting standards the Company changed its method of accounting for defined benefit pension and other postretirement benefits plans on December 31, 2006, and for uncertainty in income taxes on January 1, 2007.
/s/ DELOITTE & TOUCHE LLP
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DELOITTE & TOUCHE LLP |
| Milwaukee, Wisconsin |
| February 28, 2011 |
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
| 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | |||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
| Operating revenues: | ||||||||||||||||||||||||
Electric utility | $ | 1,140.7 | $ | 1,111.4 | $ | 1,073.9 | $ | 1,209.9 | $ | 1,160.3 | $ | 1,153.0 | ||||||||||||
Gas utility | 265.7 | 273.9 | 322.3 | 206.3 | 216.5 | 300.0 | ||||||||||||||||||
Other | 10.4 | 16.0 | 13.4 | 7.4 | 9.3 | 12.8 | ||||||||||||||||||
Total operating revenues | 1,423.6 | 1,386.1 | 1,465.8 | |||||||||||||||||||||
| 1,416.8 | 1,401.3 | 1,409.6 | ||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Electric production fuel and purchased power | 665.1 | 649.5 | 600.8 | |||||||||||||||||||||
Electric production fuel and energy purchases | 401.2 | 451.3 | 434.2 | |||||||||||||||||||||
Purchased electric capacity | 134.7 | 144.6 | 145.1 | |||||||||||||||||||||
Electric transmission service | 100.4 | 94.2 | 93.2 | |||||||||||||||||||||
Cost of gas sold | 175.0 | 174.8 | 231.9 | 125.3 | 138.1 | 213.6 | ||||||||||||||||||
Other operation and maintenance | 236.2 | 245.3 | 259.1 | 232.7 | 234.3 | 232.3 | ||||||||||||||||||
Depreciation and amortization | 109.9 | 107.3 | 107.9 | 108.6 | 115.4 | 101.7 | ||||||||||||||||||
Taxes other than income taxes | 39.9 | 39.5 | 35.3 | 41.9 | 41.2 | 40.8 | ||||||||||||||||||
Total operating expenses | 1,144.8 | 1,219.1 | 1,260.9 | |||||||||||||||||||||
| 1,226.1 | 1,216.4 | 1,235.0 | ||||||||||||||||||||||
Operating income | 190.7 | 184.9 | 174.6 | 278.8 | 167.0 | 204.9 | ||||||||||||||||||
Interest expense and other: | ||||||||||||||||||||||||
Interest expense | 49.6 | 48.3 | 40.4 | 78.6 | 74.8 | 62.2 | ||||||||||||||||||
Equity income from unconsolidated investments | (28.4 | ) | (27.0 | ) | (26.3 | ) | (37.8 | ) | (37.0 | ) | (33.9 | ) | ||||||||||||
Allowance for funds used during construction | (2.6 | ) | (2.6 | ) | (3.3 | ) | (12.5 | ) | (5.7 | ) | (9.6 | ) | ||||||||||||
Interest income and other | (0.7 | ) | (1.3 | ) | (2.2 | ) | (0.1 | ) | (0.4 | ) | (0.6 | ) | ||||||||||||
Total interest expense and other | 28.2 | 31.7 | 18.1 | |||||||||||||||||||||
| 17.9 | 17.4 | 8.6 | ||||||||||||||||||||||
Income before income taxes | 172.8 | 167.5 | 166.0 | 250.6 | 135.3 | 186.8 | ||||||||||||||||||
Income taxes | 59.3 | 62.2 | 60.9 | 98.3 | 45.8 | 68.4 | ||||||||||||||||||
Net income | 113.5 | 105.3 | 105.1 | 152.3 | 89.5 | 118.4 | ||||||||||||||||||
Preferred dividend requirements | 3.3 | 3.3 | 3.3 | 3.3 | 3.3 | 3.3 | ||||||||||||||||||
Earnings available for common stock | $ | 110.2 | $ | 102.0 | $ | 101.8 | $ | 149.0 | $ | 86.2 | $ | 115.1 | ||||||||||||
Earnings per share data is not disclosed given Alliant Energy Corporation is the sole shareowner of all shares of WPL's common stock outstanding during the periods presented.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
| December 31, | December 31, | |||||||||||||||
ASSETS | 2007 | 2006 | 2010 | 2009 | ||||||||||||
| (in millions) | (in millions) | |||||||||||||||
Property, plant and equipment: | ||||||||||||||||
Electric plant in service | $ | 2,214.4 | $ | 2,111.7 | $ | 3,114.6 | $ | 2,726.5 | ||||||||
Gas plant in service | 347.6 | 325.6 | 411.4 | 393.8 | ||||||||||||
Other plant in service | 184.8 | 189.3 | 219.0 | 219.8 | ||||||||||||
Accumulated depreciation | (1,108.2 | ) | (1,054.7 | ) | (1,243.8 | ) | (1,185.8 | ) | ||||||||
Net plant | 1,638.6 | 1,571.9 | 2,501.2 | 2,154.3 | ||||||||||||
Leased Sheboygan Falls Energy Facility, less accumulated amortization of $15.9 and $9.8 | 107.9 | 114.0 | ||||||||||||||
Construction work in progress | 102.6 | 66.7 | ||||||||||||||
Other, less accumulated depreciation of $0.8 and $0.6 | 2.6 | 2.7 | ||||||||||||||
Leased Sheboygan Falls Energy Facility, less accumulated amortization of $34.4 and $28.2 | 89.4 | 95.5 | ||||||||||||||
Construction work in progress: | ||||||||||||||||
Bent Tree - Phase I wind project | 154.5 | 165.5 | ||||||||||||||
Other | 81.0 | 39.4 | ||||||||||||||
Other, less accumulated depreciation of $2.2 and $1.6 | 20.0 | 21.0 | ||||||||||||||
Total property, plant and equipment | 2,846.1 | 2,475.7 | ||||||||||||||
| 1,851.7 | 1,755.3 | |||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | 0.4 | 1.6 | 0.1 | 18.5 | ||||||||||||
Accounts receivable: | ||||||||||||||||
Customer, less allowance for doubtful accounts of $1.3 and $1.5 | 168.6 | 153.1 | ||||||||||||||
Other, less allowance for doubtful accounts of $0.1 for both periods | 14.5 | 49.6 | ||||||||||||||
Customer, less allowance for doubtful accounts | 84.2 | 80.8 | ||||||||||||||
Unbilled utility revenues | 82.3 | 86.7 | ||||||||||||||
Other, less allowance for doubtful accounts | 38.1 | 45.7 | ||||||||||||||
Income tax refunds receivable | 40.6 | 81.3 | ||||||||||||||
Production fuel, at weighted average cost | 37.0 | 26.7 | 42.7 | 39.1 | ||||||||||||
Materials and supplies, at weighted average cost | 21.5 | 19.8 | 25.7 | 22.7 | ||||||||||||
Gas stored underground, at weighted average cost | 37.9 | 28.6 | 26.8 | 27.4 | ||||||||||||
Regulatory assets | 27.3 | 66.4 | 50.0 | 78.6 | ||||||||||||
Prepaid gross receipts tax | 36.7 | 35.6 | 38.6 | 38.5 | ||||||||||||
Derivative assets | 14.9 | 6.2 | 6.5 | 11.2 | ||||||||||||
Assets held for sale | — | 24.3 | ||||||||||||||
Other | 24.5 | 18.9 | 9.4 | 30.3 | ||||||||||||
Total current assets | 445.0 | 560.8 | ||||||||||||||
| 383.3 | 430.8 | |||||||||||||||
Investments: | ||||||||||||||||
Investment in American Transmission Company LLC | 172.2 | 166.2 | 227.9 | 218.6 | ||||||||||||
Other | 23.1 | 21.4 | 20.8 | 22.7 | ||||||||||||
Total investments | 248.7 | 241.3 | ||||||||||||||
| 195.3 | 187.6 | |||||||||||||||
Other assets: | ||||||||||||||||
Regulatory assets | 196.9 | 211.8 | 292.1 | 331.3 | ||||||||||||
Deferred charges and other | 161.4 | 113.6 | 57.7 | 72.3 | ||||||||||||
Total other assets | 349.8 | 403.6 | ||||||||||||||
| 358.3 | 325.4 | |||||||||||||||
Total assets | $ | 2,788.6 | $ | 2,699.1 | $ | 3,889.6 | $ | 3,681.4 | ||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS (Continued)
| December 31, | December 31, | ||||||||||||||
CAPITALIZATION AND LIABILITIES | 2007 | 2006 | 2010 | 2009 | |||||||||||
| (in millions, except per share and share amounts) | (in millions, except per | ||||||||||||||
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 | |||||||||||
| 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 | 568.8 | 568.6 | 844.0 | 768.9 | |||||||||||
Retained earnings | 401.8 | 483.5 | 459.1 | 419.6 | |||||||||||
Accumulated other comprehensive loss | — | (7.5 | ) | ||||||||||||
Total common equity | 1,036.8 | 1,110.8 | |||||||||||||
Total Wisconsin Power and Light Company common equity | 1,369.3 | 1,254.7 | |||||||||||||
Cumulative preferred stock | 60.0 | 60.0 | 60.0 | 60.0 | |||||||||||
Long-term debt, net (excluding current portion) | 537.0 | 298.6 | 1,081.7 | 931.6 | |||||||||||
Total capitalization | 2,511.0 | 2,246.3 | |||||||||||||
| 1,633.8 | 1,469.4 | ||||||||||||||
Current liabilities: | |||||||||||||||
Current maturities | 60.0 | 105.0 | |||||||||||||
Current maturities of long-term debt | — | 100.0 | |||||||||||||
Commercial paper | 81.8 | 134.9 | 47.4 | — | |||||||||||
Accounts payable | 109.6 | 91.4 | 118.5 | 99.6 | |||||||||||
Accounts payable to associated companies | 38.3 | 39.6 | 16.0 | 15.7 | |||||||||||
Regulatory liabilities | 49.2 | 52.0 | 17.9 | 32.5 | |||||||||||
Accrued interest | 21.6 | 24.1 | |||||||||||||
Derivative liabilities | 7.7 | 44.4 | 32.3 | 51.0 | |||||||||||
Liabilities held for sale | — | 1.3 | |||||||||||||
Other | 34.4 | 30.3 | 38.9 | 39.5 | |||||||||||
Total current liabilities | 292.6 | 362.4 | |||||||||||||
| 381.0 | 498.9 | ||||||||||||||
Other long-term liabilities and deferred credits: | |||||||||||||||
Deferred income taxes | 269.9 | 255.5 | 570.4 | 490.8 | |||||||||||
Regulatory liabilities | 173.9 | 168.7 | 154.3 | 159.6 | |||||||||||
Capital lease obligations—Sheboygan Falls Energy Facility | 116.1 | 118.6 | |||||||||||||
Capital lease obligations - Sheboygan Falls Energy Facility | 107.0 | 110.4 | |||||||||||||
Pension and other benefit obligations | 71.0 | 70.6 | 119.2 | 121.7 | |||||||||||
Other | 142.9 | 117.4 | 135.1 | 190.2 | |||||||||||
Total long-term liabilities and deferred credits | 1,086.0 | 1,072.7 | |||||||||||||
| 773.8 | 730.8 | ||||||||||||||
Commitments and contingencies (Note 11) | |||||||||||||||
Commitments and contingencies (Note 12) | |||||||||||||||
Total capitalization and liabilities | $ | 2,788.6 | $ | 2,699.1 | $ | 3,889.6 | $ | 3,681.4 | |||||||
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, | |||||||||||||||||||||||
| 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | |||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income | $ | 113.5 | $ | 105.3 | $ | 105.1 | $ | 152.3 | $ | 89.5 | $ | 118.4 | ||||||||||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 109.9 | 107.3 | 107.9 | 108.6 | 115.4 | 101.7 | ||||||||||||||||||
Other amortizations | 38.7 | 33.5 | 35.7 | 39.5 | 35.2 | 38.4 | ||||||||||||||||||
Deferred tax expense (benefit) and investment tax credits | (6.9 | ) | 41.6 | (3.5 | ) | |||||||||||||||||||
Deferred tax expense and investment tax credits | 98.5 | 157.7 | 36.1 | |||||||||||||||||||||
Equity income from unconsolidated investments | (28.4 | ) | (27.0 | ) | (26.3 | ) | (37.8 | ) | (37.0 | ) | (33.9 | ) | ||||||||||||
Distributions from equity method investments | 21.7 | 23.2 | 24.7 | 32.2 | 29.9 | 27.8 | ||||||||||||||||||
Other | (1.6 | ) | (1.4 | ) | (1.0 | ) | ||||||||||||||||||
Equity component of allowance for funds used during construction | (8.2 | ) | (4.0 | ) | (6.4 | ) | ||||||||||||||||||
Non-cash valuation and regulated-related charges and other | — | 12.5 | (0.2 | ) | ||||||||||||||||||||
Other changes in assets and liabilities: | ||||||||||||||||||||||||
Accounts receivable | 19.6 | 4.8 | (37.3 | ) | 4.6 | 31.3 | (68.7 | ) | ||||||||||||||||
Income tax refunds receivable | 40.7 | (72.9 | ) | (5.8 | ) | |||||||||||||||||||
Prepaid pension costs | (24.2 | ) | (11.1 | ) | (1.7 | ) | — | — | 37.2 | |||||||||||||||
Regulatory assets | 44.3 | (39.7 | ) | (91.5 | ) | 28.7 | (54.2 | ) | (192.3 | ) | ||||||||||||||
Accounts payable | 2.6 | (17.6 | ) | 36.4 | (0.4 | ) | (16.0 | ) | 27.2 | |||||||||||||||
Regulatory liabilities | 3.7 | (58.1 | ) | 23.2 | (9.1 | ) | (22.2 | ) | 2.3 | |||||||||||||||
Derivative liabilities | (38.8 | ) | 26.0 | 13.8 | (23.0 | ) | 51.5 | 7.1 | ||||||||||||||||
Deferred income taxes | (20.0 | ) | 2.5 | 22.4 | ||||||||||||||||||||
Non-current taxes payable | (38.5 | ) | 36.2 | (0.2 | ) | |||||||||||||||||||
Pension and other benefit obligations | 0.4 | (15.3 | ) | 15.4 | (2.5 | ) | (63.4 | ) | 112.3 | |||||||||||||||
Other | 3.5 | (8.9 | ) | (24.3 | ) | 6.8 | 13.8 | 16.3 | ||||||||||||||||
Net cash flows from operating activities | 258.0 | 162.6 | 176.6 | 372.4 | 305.8 | 239.7 | ||||||||||||||||||
Cash flows used for investing activities: | ||||||||||||||||||||||||
Utility construction and acquisition expenditures | (203.1 | ) | (162.5 | ) | (185.3 | ) | ||||||||||||||||||
Proceeds from asset sales | 23.6 | 4.1 | 80.1 | |||||||||||||||||||||
Purchases of securities within nuclear decommissioning trusts | — | — | (6.1 | ) | ||||||||||||||||||||
Sales of securities within nuclear decommissioning trusts | — | — | 83.4 | |||||||||||||||||||||
Changes in restricted cash within nuclear decommissioning trusts | — | 23.5 | (17.3 | ) | ||||||||||||||||||||
Utility construction and acquisition expenditures: | ||||||||||||||||||||||||
Neenah Energy Facility and related assets | — | (92.4 | ) | — | ||||||||||||||||||||
Other | (450.5 | ) | (416.0 | ) | (363.1 | ) | ||||||||||||||||||
Advances for customer energy efficiency projects | (16.0 | ) | (28.1 | ) | (34.5 | ) | ||||||||||||||||||
Collections of advances for customer energy efficiency projects | 30.3 | 58.6 | 33.1 | |||||||||||||||||||||
Other | (27.5 | ) | (14.1 | ) | 2.3 | (13.1 | ) | (15.5 | ) | (11.5 | ) | |||||||||||||
Net cash flows used for investing activities | (207.0 | ) | (149.0 | ) | (42.9 | ) | (449.3 | ) | (493.4 | ) | (376.0 | ) | ||||||||||||
Cash flows used for financing activities: | ||||||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Common stock dividends | (191.1 | ) | (92.2 | ) | (89.8 | ) | (109.5 | ) | (91.0 | ) | (91.3 | ) | ||||||||||||
Preferred stock dividends | (3.3 | ) | (3.3 | ) | (3.3 | ) | (3.3 | ) | (3.3 | ) | (3.3 | ) | ||||||||||||
Capital contribution from parent | — | 42.6 | — | |||||||||||||||||||||
Capital contributions from parent | 75.0 | 100.0 | 100.0 | |||||||||||||||||||||
Proceeds from issuance of long-term debt | 300.0 | 39.1 | — | 150.0 | 250.0 | 250.0 | ||||||||||||||||||
Reductions in long-term debt | (105.0 | ) | (39.1 | ) | (88.0 | ) | ||||||||||||||||||
Payments to retire long-term debt | (100.0 | ) | — | (60.0 | ) | |||||||||||||||||||
Net change in short-term borrowings | (53.1 | ) | 41.4 | 46.5 | 47.4 | (43.7 | ) | (38.1 | ) | |||||||||||||||
Other | 0.3 | (0.5 | ) | 0.8 | (1.1 | ) | (10.4 | ) | (16.9 | ) | ||||||||||||||
Net cash flows used for financing activities | (52.2 | ) | (12.0 | ) | (133.8 | ) | ||||||||||||||||||
Net cash flows from financing activities | 58.5 | 201.6 | 140.4 | |||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (1.2 | ) | 1.6 | (0.1 | ) | (18.4 | ) | 14.0 | 4.1 | |||||||||||||||
Cash and cash equivalents at beginning of period | 1.6 | — | 0.1 | 18.5 | 4.5 | 0.4 | ||||||||||||||||||
Cash and cash equivalents at end of period | $ | 0.4 | $ | 1.6 | $ | — | $ | 0.1 | $ | 18.5 | $ | 4.5 | ||||||||||||
Supplemental cash flows information: | ||||||||||||||||||||||||
Cash paid during the period for: | ||||||||||||||||||||||||
Cash paid (refunded) during the period for: | ||||||||||||||||||||||||
Interest | $ | 42.5 | $ | 48.7 | $ | 41.9 | $ | 80.9 | $ | 69.6 | $ | 57.6 | ||||||||||||
Income taxes, net of refunds | $ | 62.5 | $ | 31.4 | $ | 64.1 | ($ | 3.8 | ) | ($ | 76.1 | ) | $ | 30.7 | ||||||||||
Noncash investing and financing activities: | ||||||||||||||||||||||||
Capital lease obligations incurred | $ | — | $ | — | $ | 123.8 | ||||||||||||||||||
Significant noncash investing and financing activities: | ||||||||||||||||||||||||
Accrued capital expenditures | $ | 27.4 | $ | 16.4 | $ | 19.8 | ||||||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CAPITALIZATIONCOMMON EQUITY
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| (dollars in millions, except per share amounts) | ||||||||
Common equity (Refer to Consolidated Balance Sheets) | $ | 1,036.8 | $ | 1,110.8 | ||||
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: | ||||||||
Debentures: | ||||||||
5.7%, due 2008 | 60.0 | 60.0 | ||||||
7.625%, due 2010 | 100.0 | 100.0 | ||||||
6.25%, due 2034 | 100.0 | 100.0 | ||||||
6.375%, due 2037 | 300.0 | — | ||||||
7%, matured in 2007 | — | 105.0 | ||||||
| 560.0 | 365.0 | |||||||
Pollution Control Revenue Bonds: | ||||||||
2006 Series A, variable rate (4.6% at Dec. 31, 2007), due 2015 | 14.6 | 14.6 | ||||||
2006 Series B, variable rate (4.5% at Dec. 31, 2007), due 2014 and 2015 | 24.5 | 24.5 | ||||||
| 39.1 | 39.1 | |||||||
Total, gross | 599.1 | 404.1 | ||||||
Less: | ||||||||
Current maturities | (60.0 | ) | (105.0 | ) | ||||
Unamortized debt discount, net | (2.1 | ) | (0.5 | ) | ||||
Total long-term debt, net | 537.0 | 298.6 | ||||||
Total capitalization | $ | 1,633.8 | $ | 1,469.4 | ||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Total WPL Common Equity | |||||||||||||
| (in millions) | ||||||||||||||||
2008: | ||||||||||||||||
Beginning balance | $ | 66.2 | $ | 568.8 | $ | 401.8 | $ | 1,036.8 | ||||||||
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 | ||||||||||||
2010: | ||||||||||||||||
Earnings available for common stock | 149.0 | 149.0 | ||||||||||||||
Common stock dividends | (109.5 | ) | (109.5 | ) | ||||||||||||
Capital contribution from parent | 75.0 | 75.0 | ||||||||||||||
Other | 0.1 | 0.1 | ||||||||||||||
Ending balance | $ | 66.2 | $ | 844.0 | $ | 459.1 | $ | 1,369.3 | ||||||||
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) | ||||||||||||||||||
2005: | ||||||||||||||||||
Beginning balance (a) | $ | 66.2 | $ | 525.7 | $ | 461.7 | $ | (2.7 | ) | $ | 1,050.9 | |||||||
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 1(q)) | (5.2 | ) | (5.2 | ) | ||||||||||||||
Other | 0.2 | 0.2 | ||||||||||||||||
Ending balance | 66.2 | 568.6 | 483.5 | (7.5 | ) | 1,110.8 | ||||||||||||
2007: | ||||||||||||||||||
Earnings available for common stock | 110.2 | 110.2 | ||||||||||||||||
Pension and other postretirement benefits amortizations and reclassification to regulatory assets, net of tax of $5.7 | 7.5 | 7.5 | ||||||||||||||||
Total comprehensive income | 117.7 | |||||||||||||||||
Common stock dividends | (191.1 | ) | (191.1 | ) | ||||||||||||||
Adoption of FIN 48 (Note 4) | (0.8 | ) | (0.8 | ) | ||||||||||||||
Other | 0.2 | 0.2 | ||||||||||||||||
Ending balance | $ | 66.2 | $ | 568.8 | $ | 401.8 | $ | — | $ | 1,036.8 | ||||||||
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 -
Description of Business- The consolidated financial statements include the accounts of Wisconsin Power and Light Company (WPL) and its consolidated subsidiary, WPL Transco LLC. In February 2007, WPL completedLLC, which holds WPL’s investment in the sale of its Illinois electric distribution and gas properties within South Beloit Water, Gas and ElectricAmerican Transmission Company (South Beloit), WPL’s former subsidiary. Refer to Note 16 for further discussion.LLC (ATC). WPL is a direct subsidiary of Alliant Energy Corporation (Alliant Energy) and is engaged principally in the generation and distribution of electric energy;electricity and the distribution and transportation of natural gas; and various other energy-related services.gas. WPL’s service territories are located in southsouthern 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, (generally, 20% to 50% voting interest), are accounted for under the equity method of accounting. These equity method 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 equity method 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. WPL did not reflect any variable interest entities on a consolidated basis in its 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 include costs that 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.the Public Service Commission of Wisconsin (PSCW). Certain prior period amounts have been reclassified on a basis consistent with the current period financial statement presentation. Unless otherwise noted, the notes herein have been revised to exclude assets and liabilities held for sale for all periods presented.
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.
(b) Regulatory Assets and Liabilities -WPL is subject to regulation by FERC and the Public Service Commission of Wisconsin (PSCW).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 (Midwest Independent System Operator (MISO); Kewaunee Nuclear Power Plant (Kewaunee); in(in millions):
| 2007 | 2006 | |||||
Pension and other postretirement benefits (Note 5(a)) | $ | 91.8 | $ | 107.1 | ||
Costs for proposed base-load, wind and clean air compliance projects | 23.4 | 7.6 | ||||
Asset retirement obligations (Note 17) | 12.6 | 12.0 | ||||
MISO-related | 11.1 | 7.7 | ||||
Tax-related | 10.9 | 11.0 | ||||
Kewaunee outage in 2005 | 10.6 | 20.1 | ||||
Kewaunee sale | 9.5 | 10.9 | ||||
Debt redemption costs (Note 1(p)) | 8.6 | 9.1 | ||||
Environmental-related (Note 11(e)) | 8.4 | 8.1 | ||||
Derivatives (Note 10(a)) | 7.7 | 46.5 | ||||
Other | 29.6 | 38.1 | ||||
| $ | 224.2 | $ | 278.2 | |||
Pension and other postretirement benefits costs Derivatives Tax-related Asset retirement obligations (AROs) Benefits costs Proposed base-load project costs Proposed clean air compliance projects costs Wholesale customer rate recovery Debt redemption costs Environmental-related costs Midwest Independent Transmission System Operator (MISO)-related costs Other 2010 2009 $ 201.5 $ 222.3 42.8 65.1 18.7 11.8 16.4 14.7 8.8 12.0 8.4 12.7 8.4 10.3 7.9 6.5 7.2 7.7 6.3 6.5 — 5.0 15.7 35.3 $ 342.1 $ 409.9
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. At Dec. 31, the2010, WPL had $22 million of regulatory assets representing past expenditures that were not earning returns were as follows (dollarsa return, which consisted primarily of amounts related to wholesale customer rate recovery, debt redemption costs and the wholesale portion of costs for clean air compliance projects. The 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.
| 2007 | 2006 | |||||
Other regulatory assets not earning returns | $ | 1 | $ | 8 | ||
Weighted average remaining life (in years) | 2 | 5 | ||||
Pension and Other Postretirement Benefitsother postretirement benefits -The 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 the Consolidated Balance Sheets. Beginning in 2007, WPL also recognizedrecognizes 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”regulatory assets on the Consolidated Balance Sheets because these 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
Pension and other postretirement benefits costs are included within the recoverable cost of service component of rates charged to Note 5(a) for additional information regardingWPL’s customers. The recoverable costs included in customers’ rates are based upon pension and other postretirement benefits.
Costs for Proposed Base-load, Windbenefits costs determined in accordance with GAAP and Clean Air Compliance Projects - WPL has incurred expenditures requiredare calculated using different methods for the planningvarious regulatory jurisdictions in which WPL operates. The methods for WPL’s primary regulatory jurisdictions are described below. The PSCW authorized WPL in its most recent retail rate case order to recover from its electric and siting (commonly referredgas retail customers an allocated portion of annual costs equal to as pre-certificationthe estimated costs expected during its forward-looking test year (2010). WPL is authorized to recover from its wholesale customers an allocated portion of actual pension costs incurred each year. In accordance with FERC-approved formula rates, any over- or pre-construction costs)under-collection of certain proposed base-load, windthese costs each year are refunded to or recovered from customers through subsequent changes to wholesale customer rates. WPL is authorized to recover from its wholesale customers an allocated portion of other postretirement benefits costs based on the amount of other postretirement benefits costs incurred in 2006.
Refer to Note 6(a) for additional details regarding WPL’s pension and clean air compliance projects. Pre-certificationother postretirement benefits costs.
Derivatives- In accordance with WPL’s fuel and natural gas recovery mechanisms, prudently incurred costs generallyfrom derivative instruments are characterized as incremental costs relatedrecovered from customers in the future when any losses are realized. Based on these recovery mechanisms, the changes in the fair value of derivative liabilities resulted in comparable changes to planning and investigation studies incurred to determine the feasibility of utility projects under contemplation for construction and regulatory approval. Pre-construction costs generally are characterized as capital expenditures made prior to beginning construction of capital projects requiring regulatory approval. WPL recognizes these pre-certification and pre-construction costs as “Regulatory assets”assets on the Consolidated Balance Sheets priorduring 2010. Refer to regulatory approvalNote 11(a) for additional details of the project or prior to management’s decision to proceed with the project if no regulatory approvals are required. Upon regulatory approval or when management decides to proceed with a project that does not require regulatory approval, WPL’s cumulative pre-construction costs for each project are transferred from “Regulatory Assets” to “Construction work in progress” on the Consolidated Balance Sheets. WPL’s cumulative pre-certification costs for each project remain in “Regulatory Assets” on the Consolidated Balance Sheets until recovered from customers through changes in future base rates. At Dec. 31, the cumulative costs for these projects were as follows (in millions):derivative liabilities.
| 2007 | 2006 | |||||
Base-load project (a) | $ | 17.3 | $ | 6.7 | ||
Wind projects | 1.4 | 0.7 | ||||
Clean air compliance projects | 4.7 | 0.2 | ||||
| $ | 23.4 | $ | 7.6 | |||
WPL recognizes allowance for funds used during construction (AFUDC) on pre-construction costs and recovery of short-term debt carrying costs for pre-certification costs based on regulatory orders.
Asset Retirement Obligations (AROs)AROs- WPL believes it is probable that any differences between expenses accrued for legal AROs calculated under SFAS 143, “Accounting for Asset Retirement Obligations,” and Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 47, “Accounting for Conditional Asset Retirement Obligations - an interpretation of SFAS 143,”related to its regulated operations and expenses recovered currently in rates will be recoverable in future rates, and is deferring the differencedifferences as a regulatory asset.assets. Refer to Note 17 for additional details of WPL’s AROs.
Kewaunee Outage in 2005Benefits costs- In 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 in 2009 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.
Proposed base-load project -In 2008, the PSCW issued an order denying WPL’s application to construct a 300 MW coal-fired electric generating facility in Cassville, 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.
Kewaunee SaleRetail portion - In 2009, WPL received approval from the PSCW to defer all gains, losses, and transactionrecover $11 million of project costs associated withfrom its retail customers over a five-year period ending December 2014. In 2009, the sale of Kewaunee. In July 2005,PSCW also denied WPL completed the sale of its interest in Kewaunee and recognized a loss (including transaction costs but excluding the benefitsrecovery of the non-qualified decommissioning trustremaining 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 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 allowed 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.
Proposed clean air compliance plan (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 discussedon the Consolidated Balance Sheets in “Regulatory Liabilities”)accordance with FERC regulations. The retail portion of $16these 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 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 2009, WPL received approval from the PSCW to recover $4 million from the sale. At both Dec. 31, 2007 and 2006, WPL recorded regulatory asset reserves of $5 million 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 regulatory assets table above. The reduction in the Kewaunee Sale regulatory asset during 2007 reflects the impacts of 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.
In May 2010, WPL received an order from its retail customers. WPL will seek recoverythe PSCW authorizing the installation of a selective catalytic reduction (SCR) system at the Edgewater Generating Station Unit 5 (Edgewater Unit 5) to reduce nitrogen oxide (NOx) emissions at the facility. Upon regulatory approval of the project, $4 million of project costs incurred to-date including all pre-construction expenditures and the wholesale portion of deferred preliminary survey and investigation charges were transferred from “Regulatory assets” to “Construction work in progress” on the Consolidated Balance Sheets in 2010.
WPL anticipates that all remaining losscosts for proposed CACP projects are probable of recovery from its retail customersfuture rates charged to customers. The recovery period for these remaining costs will generally be determined by regulators in future rate cases.proceedings.
Wholesale customer rate recovery- WPL accrues revenues from its wholesale customers to the extent that the actual net revenue requirements calculated in accordance with FERC-approved formula rates for the reporting period are higher than the amounts billed to wholesale customers during such period. In accordance with authoritative guidance, regulatory assets are recorded as the offset for these accrued revenues under formulaic rate making programs. WPL’s estimated recovery amount is recorded in the current period of service and subject to final adjustments after a customer audit period in the subsequent year. Final settled recovery amounts are reflected in WPL’s customer bills within two years under the provisions of approved formula rates.
In 2009, WPL filed a request with FERC seeking 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 July 2010, FERC approved a settlement agreement reached between WPL and the wholesale customers regarding the formula rate change. WPL recorded an additional $4 million of electric revenues and regulatory assets in 2010 to reflect the settlement and is reducing the regulatory asset concurrently with collections from customers.
Debt redemption costs -For debt retired early with no subsequent re-issuance, WPL defers any debt repayment premiums and unamortized debt issuance costs and discounts as regulatory assets. These regulatory assets are amortized over the remaining original life of the debt retired early. Debt repayment premiums and other losses resulting from the refinancing of debt are deferred as regulatory assets and amortized over the life of the new debt issued.
OtherEnvironmental-related costs- Under the current rate making treatment approved by the PSCW, the manufactured gas plants (MGP) expenditures of WPL periodicallyare 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. Refer to Note 12(e) for additional details of WPL’s environmental-related costs.
MISO-related costs- In 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 2008, WPL received approval from the PSCW to recover the $10 million of deferred retail costs 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 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 thatrecognized as of Dec. 31, 2010 in the above table are no longer probable of future recovery. While WPL feels its remaining regulatory assets are probable of future 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):
| 2007 | 2006 | |||||
Cost of removal obligations | $ | 149.8 | $ | 149.7 | ||
Fuel cost recovery (Note 1(h)) | 16.9 | 3.2 | ||||
Derivatives (Note 10(a)) | 14.9 | 6.6 | ||||
Tax-related | 13.5 | 16.1 | ||||
Gas performance incentive (Notes 1(h) and 2) | 12.3 | 16.3 | ||||
Emission allowances (Note 14) | 8.1 | 1.6 | ||||
Kewaunee decommissioning trust assets | — | 19.3 | ||||
Other | 7.6 | 7.9 | ||||
| $ | 223.1 | $ | 220.7 | |||
| 2010 | 2009 | |||||||
Cost of removal obligations | $ | 137.8 | $ | 143.0 | ||||
Tax-related | 12.2 | 12.2 | ||||||
Derivatives | 6.7 | 12.2 | ||||||
Commodity cost recovery | 5.2 | 4.2 | ||||||
Emission allowances | 0.5 | 6.2 | ||||||
Other | 9.8 | 14.3 | ||||||
| $ | 172.2 | $ | 192.1 | |||||
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.AROs. 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.
Derivatives- In accordance with WPL’s fuel and natural gas recovery mechanisms, gains from derivative instruments are refunded to customers in the future when any gains are realized. Based on these recovery mechanisms, the changes in the fair value of derivative assets resulted in comparable changes to regulatory liabilities on the Consolidated Balance Sheets during 2010. Refer to Note 11(a) for additional details of WPL’s derivative assets.
Commodity cost recovery -WPL’s wholesale electric rates and retail gas rates provide for subsequent adjustments to rates for changes in prudently incurred commodity costs used to serve customers. The cumulative under-/over-collection of these commodity costs are recorded as regulatory assets/regulatory liabilities until they are automatically reflected in future billings to customers. Refer to Note 1(h) for additional details of WPL’s cost recovery mechanisms. 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.
Emission Allowancesallowances - In April 2007, WPL has entered into avarious transactions for the purchase and sale or non-monetary exchange of sulfur dioxide (SO2) and NOx emission allowances. The emission allowances valued at $7.2 million.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 emission allowances acquired that were utilized each reporting period. Refer to Note 1415 for additional information on the related intangible asset.
Kewaunee Decommissioning Trust Assets - Pursuant to approval from the PSCW, in 2007, WPL completed the return of the retail portion of the Kewaunee-related non-qualified decommissioning trust assets to customers through reduced rates that were effective beginning in July 2005.details regarding WPL’s emission allowances.
(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. WPL is also subject to the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 establishes standards for measurement and recognition in financial statements of tax positions taken or expected to be taken in a tax return. WPL recognizes net interest and penalties related to unrecognized tax benefits in “Income taxes” in the Consolidated Statements of Income. Refer to Notes 1(q) and 4 for discussion of WPL’s adoption of FIN 48.
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 recognizes positions taken, or expected to be taken, in income tax returns that are more-likely-than-not to be realized, assuming that the position will be examined 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 the 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. Generally 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. However, if the uncertain tax position would be settled through the reduction of a net operating loss rather than through the payment of cash, the uncertain tax position is reflected in “Deferred income taxes” on the Consolidated Balance Sheets. Refer to Note 5 for further discussion of uncertain tax positions.
WPL defers investment tax credits and amortizes the credits to income over the average lives of the related property. Other tax credits for WPL reduce income tax expense in the year 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 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 - Plant in service is recorded at the original cost of acquisition or 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 plant in service and salvage value are netted and charged to accumulated depreciation upon removal from plant in service accounts and no gain or loss is recognized. Removal costs incurred are charged to areduce the regulatory liability.
Electric plant in service - Electric plant in service by functional category at Dec. 31 was as follows (in millions):
| 2007 | 2006 | 2010 | 2009 | |||||||||||
Distribution | $ | 1,297.4 | $ | 1,206.3 | $ | 1,621.5 | $ | 1,529.0 | ||||||
Generation | 882.2 | 855.6 | 1,431.2 | 1,138.9 | ||||||||||
Other | 34.8 | 49.8 | 61.9 | 58.6 | ||||||||||
| $ | 2,214.4 | $ | 2,111.7 | $ | 3,114.6 | $ | 2,726.5 | |||||||
The increase in WPL’s generation portion of electric plant in service during 2010 was primarily due to the impact of placing a portion of the Bent Tree - Phase I wind project into service in 2010.
Wind Generation Projects -
Bent Tree Wind Site - In 2009, WPL acquired approximately 400 megawatts (MW) of wind site capacity in Freeborn County, Minnesota, referred to as the Bent Tree wind site. The initial 200 MW of the wind site was utilized to construct the Bent Tree - Phase I wind project, which began generating electricity in 2010. Future development of the balance of the wind site will depend on numerous factors such as renewable portfolio standards, availability of wind turbines and transmission capabilities. As of Dec. 31, 2010, WPL’s capitalized costs related to the remaining approximately 200 MW of wind site capacity at Bent Tree were $13 million and were recorded in “Other property, plant and equipment” on the Consolidated Balance Sheet.
Bent Tree - Phase I Wind Project - In 2009, WPL received approval from the Minnesota Public Utilities Commission and PSCW to construct the initial 200 MW of the wind project. As of Dec. 31, 2010, WPL incurred capitalized expenditures of $406 million and recognized $13 million of AFUDC related to the 200 MW wind project. WPL placed a portion of the project into service in 2010, which resulted in a transfer of $265 million of capitalized project costs from “Construction work in progress - Bent Tree - Phase I wind project” to “Electric plant in service” on the Consolidated Balance Sheets in 2010. These capitalized costs for the project are being depreciated using a straight-line method of depreciation over a 30-year period. The remainder of the capitalized expenditures and AFUDC are recorded in “Construction work in progress - Bent Tree - Phase I wind project” on the Consolidated Balance Sheets at Dec. 31, 2010 and 2009. Refer to Note 17 for discussion of AROs recorded by WPL in 2010 related to its Bent Tree - Phase I wind project.
Green Lake and Fond du Lac Counties Wind Site - In 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, 2010, 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.
Wind Turbine Generators - In 2008, Alliant Energy entered into a master supply agreement with Vestas-American Wind Technology, Inc. (Vestas) to purchase 500 MW of wind turbine generator sets and related equipment. Alliant Energy utilized 400 MW of these wind turbine generator sets and related equipment to construct IPL’s Whispering Willow - East wind project and WPL’s Bent Tree - Phase I wind project. Alliant Energy believes the Whispering Willow wind site in Iowa is the best location to deploy the remaining 100 MW of wind turbine generator sets and related equipment and is currently evaluating which of its subsidiaries will construct the 100 MW wind project. Refer to Note 12(a) for WPL’s remaining future obligations under the master supply agreement with Vestas.
Environmental Compliance Plans Projects -
Edgewater Unit 5 Emission Controls - In 2010, WPL began construction on the installation of an SCR system at Edgewater Unit 5 to reduce NOx emissions at the generating facility. As of Dec. 31, 2010, WPL recorded $17 million of capitalized expenditures related to this project in “Construction work in progress - other” on the Consolidated Balance Sheet.
Depreciation - WPL uses a combination of remaining life and straight-line depreciation methods as approved by the 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 deprecationdepreciation rates. These depreciation studies 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, gas and gasother properties, consistent with current rate making practices, were as follows:
| 2007 | 2006 | 2005 | |||||||
Electric | 3.5 | % | 3.5 | % | 3.6 | % | |||
Gas | 3.6 | % | 3.7 | % | 3.8 | % |
In February 2008, the PSCW issued an order approving the implementation of updated depreciation rates for WPL effective July 1, 2008 as a result of a recently completed depreciation study. WPL estimates that the new average rates of depreciation for electric and gas properties will be approximately 2.6% and 2.4% respectively, during the second half of 2008.
| 2010 | 2009 | 2008 | ||||||||||
Electric: | ||||||||||||
Generation | 2.9 | % | 3.2 | % | 3.0 | % | ||||||
Distribution | 2.6 | % | 3.0 | % | 3.1 | % | ||||||
Gas | 2.2 | % | 2.8 | % | 3.1 | % | ||||||
Other | 6.5 | % | 6.4 | % | 5.4 | % | ||||||
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):
| 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | ||||||||||||||||
Equity | $ | 1.5 | $ | 2.0 | $ | 2.7 | $ | 8.2 | $ | 4.0 | $ | 6.4 | |||||||||
Debt | 1.1 | 0.6 | 0.6 | 4.3 | 1.7 | 3.2 | |||||||||||||||
| $ | 2.6 | $ | 2.6 | $ | 3.3 | $ | 12.5 | $ | 5.7 | $ | 9.6 | ||||||||||
WPL recognized $10 million and $3 million of AFUDC in 2010 and 2009, respectively, for its Bent Tree - Phase I wind project, a portion of which was placed in service in 2010. WPL recognized $6 million of AFUDC in 2008 for its Cedar Ridge wind project, which was placed in service in 2008.
AFUDC for WPL’s retail and wholesale jurisdiction construction projects is calculated in accordance with PSCW and FERC guidelines, respectively. The AFUDC recovery rates, computed in accordance with the prescribed regulatory formula, were as follows:
| 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | ||||||||||||||||
PSCW formula - retail jurisdiction | 9.0 | % | 15.1 | % | 15.1 | % | 8.8 | % | 9.0 | % | 9.0 | % | |||||||||
FERC formula - wholesale jurisdiction | 5.5 | % | 5.0 | % | 6.7 | % | 7.2 | % | 6.7 | % | 6.8 | % | |||||||||
| (a) | Consistent with the PSCW’s retail rate case order issued in December 2009, WPL earned a current return on 50% of the estimated CWIP related to its Bent Tree - Phase I wind project for 2010 and accrued AFUDC on the remaining 50% in 2010. In addition, the PSCW’s order changed WPL’s AFUDC recovery rate to 8.8% 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 acquisition or 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 is depreciated using the straight-line method over periods ranging from five 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. Refer to Note 1(e) for discussion of wind site costs recorded in “Other property, plant and equipment” on the Consolidated Balance Sheets.
(g) Operating Revenues -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. Energy sales to individual customers are based on the reading of customers’ meters, which occurs on a systematic basis throughout each reporting period. Amounts of energy delivered to customers since the date of the last meter reading are estimated at the end of each reporting period 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.
WPL participates in bid/offer-based wholesale energy and ancillary services markets operated by MISO. WPL’s customers and generating resources are recorded under the accrual method of accounting and recognized upon delivery. Effective April 1, 2005, MISO implementedlocated in the MISO Midwest Market, a bid-based energy market. The marketregion. MISO requires that all market participants,load serving entities and generation owners, including WPL, submit hourly day-ahead and/or real-time bids and offers for energy at locations across theand ancillary services. 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 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 also periodically engages in related transactions in PJM Interconnection, LLC’s bid/offer-based wholesale energy market, which are accounted for similar to the MISO transactions.
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 recordsrecord 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 and energy purchases” in the Consolidated Statements of Income. WPL also purchases electricity to meet the demand of its customers and charges the costs to purchase the electricity during each period to “Electric production fuel and energy purchases” in the Consolidated Statements of Income.
The cost recovery mechanisms applicable for WPL’s wholesale electric customers provide for subsequent adjustments to its electric rates for changes in electric production fuel and purchased energy expenses (fuel-related costs). Changes in the under-/over-collection of these costs each period are also recognized in “Electric production fuel and energy purchases” in the Consolidated Statements of Income. The cumulative effects of the under-/over-collection of these costs are recorded in current “Regulatory assets” or current “Regulatory liabilities” on the Consolidated Balance Sheets until they are reflected in future billings to customers.
The cost recovery mechanism applicable for WPL’s retail electric customers was changed effective Jan. 1, 2011. For periods prior to Jan. 1, 2011, WPL’s retail electric rates approved by the PSCW arewere based on forecasts of forward-looking test periods and includeincluded estimates of future fuel and purchased energyfuel-related costs anticipated during the test period. During each electric retail rate proceeding, the PSCW setsset fuel monitoring ranges based on the forecasted fuelfuel-related costs used to determine retail base rates. If WPL’s actual fuelfuel-related costs fallfell outside these fuel monitoring ranges during the test period, WPL and/or other parties cancould request, and the PSCW cancould authorize, an adjustment to future retail electric rates based on changes in fuelfuel-related costs only. The PSCW may authorizealso could have authorized an interim retail rate increase; however,increase. However, if the final retail rate increase iswas less than the monitoring range threshold required to be met in order to request interim retail rate increase, WPL mustrelief, all interim rates collected would be subject to refund the excess collection to WPL’s retail customers with interest at the current authorized return on common equity rate. RecoveryIn addition, if the final retail rate increase was less than the interim retail rate increase, WPL must refund any excess collections above the final rate increase to its retail customers with interest at the current authorized return on common equity rate.
For periods after Dec. 31, 2010, the cost recovery mechanism applicable for WPL’s retail electric customers will continue to be based on forecasts of capacity-related charges associated withfuel-related costs expected to be incurred during forward-looking test year periods and fuel monitoring ranges determined by the PSCW during each electric retail rate proceeding or in a separate fuel cost plan approval
proceeding. However, under the new cost recovery mechanism if WPL’s actual fuel-related costs fall outside these fuel monitoring ranges during the test period, WPL is authorized to defer the incremental over- or under-collection of fuel costs that are outside the approved ranges. Such deferred amounts will be recognized in “Electric production fuel and energy purchases” in the Consolidated Statements of Income each period. The cumulative effects of these deferred amounts will be recorded in current “Regulatory assets” or current “Regulatory liabilities” on the Consolidated Balance Sheets until they are reflected in future billings to customers.
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 each period to “Purchased electric capacity” in the Consolidated Statements of Income. Purchased electric capacity expenses are recovered from WPL’s retail electric customers through changes in retail 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 each period to “Electric transmission service” in the Consolidated Statements of Income. 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 the costs associated with the natural gas delivered to customers during each period to “Cost of gas sold” in the Consolidated Statements of Income. 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 current monthly natural gas commodity price index.
During 2006 and 2005, WPL had a gas performance incentive which included a sharing mechanism whereby 50%under-/over-collection of gains or losses relative to current commodity prices and benchmarks were retained by WPL, with the remainder refunded to or recovered from customers. Startingthese costs are also recognized in 2007, the program was modified by the PSCW such that 35% of all gains and losses from WPL’s gas performance incentive sharing mechanism were retained by WPL, with 65% refunded to or recovered from customers. In January 2007, the PSCW also directed WPL to work with PSCW staff to help the PSCW determine if it may be necessary to reevaluate the current benchmarks for WPL’s gas performance incentive sharing mechanism or explore a modified one-for-one pass through“Cost of gas costs to retail customers. In October 2007, the PSCW issued an order providing WPL the option to choose to utilize a modified gas performance incentive sharing mechanism or switch to a modified one-for-one pass through of gas costs to retail customers using benchmarks. WPL evaluated the alternatives and chose to implement the modified one-for-one pass through of gas costs. This change was effective Nov. 1, 2007. WPL’s gas performance incentive sharing mechanism resulted in gains recorded as “Gas operating revenues”sold” in the Consolidated Statements of IncomeIncome. The cumulative effects of $5 million, $13 millionthe under-/over-collection of these costs are recorded in current “Regulatory assets” or current “Regulatory liabilities” on the Consolidated Balance Sheets until they are reflected in future billings to customers.
Energy Efficiency Costs -WPL incurs costs to fund energy efficiency programs and $13 millioninitiatives that help customers reduce their energy usage and charges these costs incurred each period to “Other operation and maintenance” in 2007, 2006the Consolidated Statements of Income. Energy efficiency costs incurred by WPL are recovered from retail electric and 2005, respectively.gas customers through changes in base rates determined during periodic rate proceedings and include a reconciliation to eliminate any over-/under-collection of energy efficiency costs from prior periods. Changes in the under-/over-collection of energy efficiency costs each period are recognized in “Other operation and maintenance” in the Consolidated Statements of Income. The cumulative effects of the under-/over-collection of these costs are recorded in current “Regulatory assets” or current “Regulatory liabilities” on the Consolidated Balance Sheets until they are reflected in future billings to customers.
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 by WPL as incurred. WPL sold its interest in Kewaunee in July 2005. The maintenance costs incurred during outages for WPL’s various other generating facilities are also expensed as incurred.
(j) DerivativeFinancial Instruments -WPL periodically uses derivativefinancial instruments for risk management purposes to hedgemitigate exposures to fluctuations in certain commodity prices, volatility in a portion of electric and natural gas sales volumes due to weather, and transmission congestion costs.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 SheetsSheets. Derivative instruments representing unrealized gain positions are reported as derivative assets, and gainsderivative instruments representing unrealized loss positions are reported as derivative liabilities at the end of each reporting period. WPL also has certain commodity purchase and losses related to derivativessales contracts that arehave been designated, and qualify as cash flow hedges,for, the normal purchase and sale exception and based on this designation, these contracts are recognized in earnings whenaccounted for on 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.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.
Based on Refer to Note 1(b) for discussion of the fuel and natural gas cost recovery mechanisms in place, as well as other specific regulatory authorizations, changes in fair market valuesrecognition of WPL’s derivatives generally have no impact on its results of operations, as they are generally reported as changes in regulatory assets and liabilities. WPL has some commodity purchaseregulatory liabilities related to the unrealized losses and sales contracts that have been designated, and qualify for, the normal purchase and sale exception and basedunrealized gains on this designation, these contracts are accounted for on the accrual basis of accounting.WPL’s derivative instruments. Refer to Notes 1011 and 11(f)12(f) for further discussion of WPL’s derivative 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), Alliant Energy allocates costs and contributions to WPL based on labor costs of plan participants and any related obligations based WPL’s funded status.participants.
(k) Asset Impairments -
(l) Asset ValuationsProperty, Plant and Equipment of Regulated Operations -Long-livedProperty, plant and equipment of regulated operations are reviewed for possible impairment whenever events or changes in circumstances indicate all or a portion of the carrying value of the assets may be disallowed for rate-making purposes. If WPL is diasallowed recovery of any portion of the carrying value of its regulated property, plant and equipment, an impairment charge is recognized equal to be heldthe amount of the carrying value that was disallowed. If WPL is disallowed a full or partial return on the carrying value of its regulated property, plant and used, excluding regulatoryequipment, an impairment charge is recognized equal to the difference between the carrying value and the present value of the future revenues expected from its regulated property, plant and equipment.
Property, Plant and Equipment of Non-regulated Operations and Intangible Assets -Property, plant and equipment of non-regulated operations and intangible 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 or the use of other valuation techniques such as expected discounted future cash flows. Refer to Note 1(b)15 for additional discussion of regulatoryintangible 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.
Unconsolidated Equity Investments -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 trends 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 in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-lived Assets.”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) Asset Retirement Obligations(n) AROs -The presentfair value of any retirement costs associated with an asset for which WPL has a legal obligation is recorded as a liability with an equivalent amount added to the asset cost when an asset is placed in service.service or when sufficient information becomes available to determine a reasonable estimate of the fair value of future retirement costs. The fair value of AROs 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. For WPL, any gain or loss related to its regulated operations is recorded to regulatory liabilities or regulatory assets on the Consolidated Balance Sheets. Refer to Note 17 for additional discussion of AROs.
(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,or refinanced.
(p) Allowance for Doubtful Accounts- WPL defers any unamortized debt issuance costs, premiums or discounts as regulatory assets or regulatory liabilities, which are amortized over the remaining original life of the debt retired early. Gains ormaintains allowances for doubtful accounts for estimated losses resulting from the refinancinginability of debt byits customers to make required payments. WPL is deferredestimates the allowance for doubtful accounts based on historical write-offs, customer arrears and other economic factors within its service territory. Allowance for doubtful accounts at Dec. 31 was as regulatory liabilities or regulatory assetsfollows (in millions):
| 2010 | 2009 | |||||||
Customer | $ | 1.4 | $ | 1.6 | ||||
Other | 0.3 | 0.4 | ||||||
| $ | 1.7 | $ | 2.0 | |||||
(q) Comprehensive Income -In 2010, 2009 and amortized over the life of the new debt issued.2008, WPL had no other comprehensive income; therefore its comprehensive income was equal to its earnings available for common stock for such periods.
(q)(r) New Accounting Pronouncements -
Variable Interest Entities (VIEs)
In December 2007,2009, the FASBFinancial Accounting Standards Board (FASB) issued SFAS 141(R), “Business Combinations.” SFAS 141(R) establishes principlesauthoritative guidance changing the approach to determine a VIE’s primary beneficiary and requirements for howrequiring ongoing assessments of whether an enterprise is the acquiring entity inprimary beneficiary of a business combination: recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed,VIE. This guidance also requires additional disclosures about a company’s involvement with VIEs and any noncontrolling interestsignificant changes in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what informationrisk exposure due to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.that involvement. WPL is required to adopt SFAS 141(R)adopted this guidance on Jan. 1, 2009. Because the provisions of SFAS 141(R) are only applied prospectively to business combinations after adoption, the2010 with no material impact to WPL cannot be determined until any business combinations occur.
In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements—Including an amendment of Accounting Research Bulletin (ARB) No. 51.” SFAS 160 amends ARB No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 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 is required to adopt SFAS 160 by Jan. 1, 2009 and is evaluating the implications of SFAS 160 on its financial condition and results of operations. Refer to Note 18 for disclosures about VIEs.
Transfers of Financial Assets
In April 2007,2009, the FASB issued FASB Staff Position (FSP) No. FIN 39-1, “Amendmentauthoritative guidance requiring additional disclosures about transfers of FIN 39, Offsettingfinancial 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 Amounts Related to Certain Contracts.” FSP FIN 39-1 amends FIN 39 to permita “qualifying special-purpose entity” and changes the offsetting of amounts recognizedrequirements for the right to reclaim cash collateral or the obligation to return cash collateral against amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that have been offset.derecognizing financial assets. WPL adopted FSP FIN 39-1this guidance on Jan. 1, 20082010 with no material impact on its financial condition and results of operations.
(2) UTILITY RATE CASES
Retail Electric Rate Case (2011 Test Year) -In February 2007,April 2010, WPL filed a request with the FASB issued SFAS 159, “The Fair Value OptionPSCW to reopen the rate order for Financial Assetsits 2010 test year to increase annual retail electric rates for 2011 by $35 million, or approximately 4%. The request was based on a forward-looking test period that included 2011. The key drivers for the filing include recovery of investments in WPL’s Bent Tree - Phase I wind project and Financial Liabilities—Includingexpiring deferral credits, partially offset by lower variable fuel expenses.
In August 2010, WPL revised its request for an amendmentannual retail electric rate increase to $19 million, or approximately 2%. The primary differences between WPL’s original request in April 2010 and its revised request filed in August 2010 relates to reduced variable fuel expenses, increased wind generation production tax credits and the impact of FASB Statement No. 115,”the $9 million annual rate increase implemented in June 2010 with the interim order in WPL’s 2010 test year retail fuel-related rate filing, which provides companies withis discussed below.
In December 2010, WPL received an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar typesorder from the PSCW authorizing an annual retail electric rate increase of assets and liabilities. WPL adopted SFAS 159 on$8 million, or approximately 1%, effective Jan. 1, 2008 with no impact on its financial condition and results of operations.
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value2011. This $8 million increase in GAAP and expands disclosures about fair value measurements. WPL adopted SFAS 157 onannual rates effective Jan. 1, 20082011 combined with no material impact on its financial conditionthe termination of the $9 million interim fuel-related rate increase effective Dec. 31, 2010 will result in a net $1 million decrease in annual electric retail rates charged to customers effective January 2011. Refer to “Retail Fuel-related Rate Case (2010 Test Year)” below for additional details of the interim fuel-related rate increase implemented in 2010 and resultsa $5 million reduction to the 2011 test year base rate increase for refunds owed to electric retail customers related to interim fuel cost collections in 2010.
Retail Rate Case (2010 Test Year) -In December 2009, WPL received an order from the PSCW authorizing an annual retail electric rate increase of operations.
In September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension$59 million, or approximately 6%, and Other Postretirement Plans - an amendmentannual retail natural gas rate increase of FASB Statements No. 87, 88, 106, and 132(R),” which requires an employer to recognize the overfunded$6 million, 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 their benefit plans in the year in which they occur as a component of other comprehensive income.approximately 2%, effective January 2010. Refer to Note 1(b) for discussion of regulatory considerations which allow WPL to record the changesPSCW’s decision in the funded statusDecember 2009 order regarding recovery of its benefit plans as regulatory assetspreviously incurred costs for the cancelled Nelson Dewey #3 base-load project.
Retail Fuel-related Rate Case (2010 Test Year)- In April 2010, WPL filed a request with the PSCW to increase annual retail electric rates by $9 million to recover anticipated increased electric production fuel and energy purchases (fuel-related costs) in lieu2010. Actual fuel-related costs through March 2010, combined with projections of other comprehensive loss. WPL adoptedcontinued higher fuel-related costs for the recognition provisionremainder of SFAS 1582010, significantly exceeded the amounts being recovered in 2006 which resulted in reductions to its Dec. 31, 2006 balanceretail electric rates at the time of accumulated other comprehensive loss of $5.2 million. SFAS 158 also requires an employer to measure benefit plan assets and obligations as of the end of its fiscal year. WPL adopted the measurement date transition provision of SFAS 158 in 2008 which resulted in reductions to its Jan. 1, 2008 balance of retained earnings of $1.2 million.
In July 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS 109. FIN 48 establishes standards for measurement and recognition in 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. Refer to Note 4 for additional details of the impacts of the adoption by WPL of FIN 48 on Jan. 1, 2007.
(2) UTILITY RATE MATTERS
In December 2007,filing. WPL received approval from the PSCW to begin refunding $10implement an interim rate increase of $9 million, on an annual basis, effective in June 2010. Updated annual 2010 fuel-related costs during the proceeding resulted in WPL no longer qualifying for a fuel-related rate increase for 2010. In December 2010, the PSCW issued an order authorizing no increase in retail electric rates in 2010 related to fuel-related costs and required the interim rate increase to terminate at the end of 2010. The order also authorized WPL to use $5 million of the interim fuel rates collected in 2010 as a reduction to the 2011 test year base rate increase. As of Dec. 31, 2010, WPL reserved $5 million, including interest, for interim fuel cost collections in 2010.
Retail Fuel-related Rate Case (2009 Test Year) -Retail fuel-related costs incurred by WPL during the period from Sep. 1, 2009 through Dec. 31, 2009 were lower than retail fuel-related costs used to determine rates during such period resulting in refunds owed to its retail natural gas customerselectric customers. As of Dec. 31, 2009, WPL reserved $4 million, including interest, for the customers’ portion of gains realized from the gas performance incentive program in place for the period from November 2006refunds to October 2007. During the first two months of 2008, 80%, or $8be paid to its retail electric customers. In 2010, WPL refunded $4 million, of the total expected refund amount was refundedincluding interest, to its retail natural gas customers. The remainder will be refunded to retail natural gaselectric customers after the PSCW completes its audit of the gas performance incentive program performance for the period.
In August 2007, WPL receivedreceiving approval from the PSCW to refund to its retail electric customers any over-recovery of retail fuel-related costs duringcomplete the period June 1, 2007 through Dec. 31, 2007. WPL estimates the over-recovery of retail fuel-related costs during this period to be $20 million. WPL refunded to its retail electric customers $4 million in 2007 and $3 million during the first two months of 2008. WPL plans to file for approval with the PSCW by March 31, 2008, its final 2007 refund report.refund.
At Dec. 31, 2007, WPL reserved for all amounts related to these refunds. Refer to Note 1(h) for further discussion of WPL’s fuel cost recovery mechanism 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 megawatt-hours)MWhs) of the respective agreements.PPAs. Rental expenses associated with WPL’s operating leases were as follows (in millions):
| 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | ||||||||||||||||
Operating lease rental expenses (excluding contingent rentals) | $ | 96 | $ | 90 | $ | 91 | $ | 63 | $ | 68 | $ | 77 | |||||||||
Contingent rentals related to certain PPAs | 19 | 23 | 28 | 4 | 7 | 7 | |||||||||||||||
Other contingent rentals | 1 | 1 | — | ||||||||||||||||||
| $ | 116 | $ | 114 | $ | 119 | $ | 67 | $ | 75 | $ | 84 | ||||||||||
At Dec. 31, 2007, WPL’s2010, future minimum operating lease payments, excluding contingent rentals, were as follows (in millions):
| 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||||||||||||||||
Certain PPAs | $ | 72 | $ | 63 | $ | 58 | $ | 58 | $ | 59 | $ | 18 | $ | 328 | |||||||||||||||||||||||||||||||||||
Riverside Energy Center (Riverside) PPA (a) | $ | 59 | $ | 60 | $ | 17 | $ | — | $ | — | $ | — | $ | 136 | |||||||||||||||||||||||||||||||||||
Synthetic leases | 3 | 3 | 5 | 1 | 1 | 6 | 19 | 1 | 1 | 2 | 4 | 1 | — | 9 | |||||||||||||||||||||||||||||||||||
Other | 2 | 2 | 1 | 2 | 2 | 7 | 16 | 3 | 6 | 1 | 1 | — | 1 | 12 | |||||||||||||||||||||||||||||||||||
| $ | 77 | $ | 68 | $ | 64 | $ | 61 | $ | 62 | $ | 31 | $ | 363 | $ | 63 | $ | 67 | $ | 20 | $ | 5 | $ | 1 | $ | 1 | $ | 157 | ||||||||||||||||||||||
The PPAs meeting the criteria as operating leases are such that, over the contract term, WPL has exclusive rights to all or a substantial portion of the output from the specific generating facility. The Certain PPAs total in the above table reflects $305 million and $23 million related to the Riverside Energy Center (Riverside) and RockGen Energy Center (RockGen) PPAs, respectively. WPL’s PPAs with Calpine Corporation (Calpine) subsidiaries related to RockGen and Riverside provide WPL 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.
The synthetic leases in the above table relate to the financing of certain utility railcars. 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 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 eight years. Residual value guarantee amounts have been included in the above table.
| (a) | The Riverside PPA contains a provision granting WPL the option to purchase this facility in 2013. Refer to Note 18 for additional information on this PPA. |
| (b) | The synthetic leases relate to the financing of certain utility railcars. The entities that lease these assets to WPL do not meet consolidation requirements and are not included on the Consolidated Balance Sheets. WPL has guaranteed the residual value of the related assets, which total $4 million in the aggregate. The guarantees extend through the maturity of each respective underlying lease with remaining terms up to five years. Residual value guarantee amounts have been included in the future minimum operating lease payments. |
(b) Capital LeaseLeases -In the second quarter of 2005, WPL entered into a 20-year agreement with Alliant Energy Resources, Inc.’sLLC’s (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 willreserved the right to review the capital structure, return on equity and cost of debt every five years from the date of the final decision.order. No revisions to the lease were made in 2010. 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, includeand wholesale rates have included recovery of the monthly SFEF lease payment amounts from WPL’s customers.payments. In 2007, 20062010, 2009 and 2005,2008, SFEF lease expenses were $19.0$18.2 million, $19.3$18.5 million and $11.3$18.8 million ($12.812.0 million, $13.1$12.3 million and $7.7$12.6 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, 2007,2010, WPL’s estimated future minimum capital lease payments for SFEF were as follows (in millions):
2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | Less: amount representing interest | Present value of net minimum capital lease payments | ||||||||||||||||
| $15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 188 | $ | 263 | $ | 144 | $ | 119 | ||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | Less: amount representing interest | Present value of net minimum capital lease payments | ||||||||||||||||||||||||||||
SFEF | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 143 | $ | 218 | $ | 108 | $ | 110 | ||||||||||||||||||
(4) INCOME TAXESRECEIVABLES
Income Tax Expense (Benefit)Advances for Customer Energy Efficiency Projects- WPL offers energy efficiency programs to certain of its customers. The componentsenergy 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 income tax expense (benefit)customer energy efficiency projects are recorded as investing activities in the Consolidated Statements of Cash Flows. The current portion and non-current portion of outstanding advances for WPLcustomer energy efficiency projects are recorded in “Other accounts receivable” and “Deferred charges and other,” respectively, on the Consolidated Balance Sheets. At Dec. 31, 2010 and 2009, outstanding advances for customer energy efficiency projects were as follows (in millions):
| 2007 | 2006 | 2005 | ||||||||||
Current tax expense: | ||||||||||||
Federal | $ | 56.1 | $ | 18.9 | $ | 53.0 | ||||||
State | 10.4 | 2.4 | 13.4 | |||||||||
Deferred tax expense (benefit): | ||||||||||||
Federal | (4.0 | ) | 36.6 | (3.5 | ) | |||||||
State | (1.3 | ) | 6.6 | 1.4 | ||||||||
Investment tax credits | (1.5 | ) | (1.5 | ) | (1.5 | ) | ||||||
Research and development tax credits | (0.5 | ) | (0.8 | ) | (1.9 | ) | ||||||
Provision recorded as a change in uncertain tax benefits | — | — | — | |||||||||
Provision recorded as a change in accrued interest | 0.1 | — | — | |||||||||
| $ | 59.3 | $ | 62.2 | $ | 60.9 | |||||||
| 2010 | 2009 | |||||||
Current portion | $ | 25.0 | $ | 29.0 | ||||
Non-current portion | 43.7 | 54.0 | ||||||
| $ | 68.7 | $ | 83.0 | |||||
(5) INCOME TAXES
Income Taxes -The components of “Income taxes” in the Consolidated Statements of Income were as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||
Current tax expense (benefit): | ||||||||||||
Federal | $ | 26.8 | ($ | 137.7 | ) | $ | 22.4 | |||||
State | 14.7 | (14.3 | ) | 10.5 | ||||||||
Deferred tax expense: | ||||||||||||
Federal | 63.3 | 153.6 | 34.2 | |||||||||
State | 6.6 | 9.3 | 3.3 | |||||||||
Production tax credits | (3.5 | ) | (3.9 | ) | (0.3 | ) | ||||||
Investment tax credits | (1.2 | ) | (1.3 | ) | (1.4 | ) | ||||||
Provision recorded as a change in uncertain tax positions: | ||||||||||||
Current | (41.7 | ) | 39.7 | 0.1 | ||||||||
Deferred | 33.3 | — | — | |||||||||
Provision recorded as a change in accrued interest | — | 0.4 | (0.4 | ) | ||||||||
| $ | 98.3 | $ | 45.8 | $ | 68.4 | |||||||
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.
| 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | ||||||||||||||||
Statutory federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | |||||||||
State income taxes, net of federal benefits | 4.8 | 5.6 | 7.5 | 5.0 | 4.4 | 4.6 | |||||||||||||||
Federal health care legislation | 1.2 | — | — | ||||||||||||||||||
Adjustment of prior period taxes | (0.1 | ) | — | (0.7 | ) | 2.0 | 0.7 | 0.2 | |||||||||||||
Research and development tax credits | (0.3 | ) | (0.5 | ) | (1.2 | ) | |||||||||||||||
State filing changes | — | (1.8 | ) | — | |||||||||||||||||
Amortization of excess deferred taxes | (0.2 | ) | (0.2 | ) | (0.7 | ) | |||||||||||||||
Amortization of investment tax credits | (0.8 | ) | (0.9 | ) | (0.9 | ) | (0.5 | ) | (1.0 | ) | (0.7 | ) | |||||||||
Amortization of excess deferred taxes | (1.0 | ) | (0.6 | ) | (0.9 | ) | |||||||||||||||
Effect of rate making on property related differences | (1.0 | ) | (0.8 | ) | (0.9 | ) | |||||||||||||||
Production tax credits | (1.4 | ) | (2.9 | ) | (0.2 | ) | |||||||||||||||
Other items, net | (3.3 | ) | (1.5 | ) | (2.1 | ) | (0.9 | ) | 0.5 | (0.7 | ) | ||||||||||
Overall effective income tax rate | 34.3 | % | 37.1 | % | 36.7 | % | |||||||||||||||
Overall income tax rate | 39.2 | % | 33.9 | % | 36.6 | % | |||||||||||||||
Federal Health Care Legislation -In March 2010, the Patient Protection and Affordable Care Act, and Health Care and Education Reconciliation Act of 2010 (Federal Health Care Legislation) were enacted. One of the most significant provisions
of the Federal Health Care Legislation for WPL requires a reduction in its tax deductions for retiree health care costs beginning in 2013, to the extent its drug expenses are reimbursed under the Medicare Part D retiree drug subsidy program. The reduction in the future deductibility of retiree health care costs accrued as of Dec. 31, 2009 required WPL to record deferred income tax expense of $3 million in 2010.
State filing changes - In 2009, the Wisconsin Senate Bill 62 (SB 62) was enacted. The most significant provision of SB 62 for WPL required 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 filed 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 million from the changes in state apportioned income tax rates and additional valuation allowances.
Production tax credits - WPL earns production tax credits from the wind projects it owns and operates. Production tax credits are generated during the first 10 years of operations and are based on the electricity output generated by each wind project. WPL has two wind projects that are currently generating production tax credits including the 68 MW Cedar Ridge wind project, which began generating electricity in late 2008, and the 200 MW Bent Tree - Phase I wind project, which began generating electricity in late 2010. Production tax credits (net of state tax impacts) generated during 2010, 2009 and 2008 by these wind projects were as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||
Cedar Ridge | $ | 3 | $ | 4 | $ | — | ||||||
Bent Tree - Phase I | 1 | — | — | |||||||||
| 4 | 4 | — | ||||||||||
Deferral (a) | (1 | ) | — | — | ||||||||
| $ | 3 | $ | 4 | $ | — | |||||||
| (a) | In accordance with its December 2009 order, the PSCW authorized WPL to defer any production tax credits generated from its Bent Tree - Phase I wind project in 2010. |
Deferred Tax Assets and Liabilities- Consistent with rate making treatment, deferred taxes are offset in the tabletables below for temporary differences whichthat have related regulatory assets and regulatory 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):
| 2010 | 2009 | |||||||||||||||||||||||
| Deferred Tax Assets | Deferred Tax Liabilities | Net | Deferred Tax Assets | Deferred Tax Liabilities | Net | |||||||||||||||||||
Property | $ | — | $ | 494.8 | $ | 494.8 | $ | — | $ | 389.0 | $ | 389.0 | ||||||||||||
Investment in ATC | — | 83.9 | 83.9 | — | 71.5 | 71.5 | ||||||||||||||||||
Pension and other postretirement benefits obligations | — | 32.1 | 32.1 | — | 31.4 | 31.4 | ||||||||||||||||||
Net operating losses carryforward - state | — | — | — | (9.2 | ) | — | (9.2 | ) | ||||||||||||||||
Investment tax credits | (7.4 | ) | — | (7.4 | ) | (8.2 | ) | — | (8.2 | ) | ||||||||||||||
Federal credit carryforward (a) | (11.5 | ) | — | (11.5 | ) | (11.2 | ) | — | (11.2 | ) | ||||||||||||||
Customer advances | (13.1 | ) | — | (13.1 | ) | (14.6 | ) | — | (14.6 | ) | ||||||||||||||
Net operating losses carryforward - federal (b) | (38.2 | ) | — | (38.2 | ) | (15.4 | ) | — | (15.4 | ) | ||||||||||||||
Other | (12.0 | ) | 37.2 | 25.2 | (13.0 | ) | 45.8 | 32.8 | ||||||||||||||||
| ($ | 82.2 | ) | $ | 648.0 | $ | 565.8 | ($ | 71.6 | ) | $ | 537.7 | $ | 466.1 | �� | ||||||||||
| 2010 | 2009 | |||||||||||||||||||||||
Other current assets | ($ | 4.6 | ) | ($ | 24.7 | ) | ||||||||||||||||||
Deferred income taxes | 570.4 | 490.8 | ||||||||||||||||||||||
Total deferred tax (assets) and liabilities | $ | 565.8 | $ | 466.1 | ||||||||||||||||||||
| (a) | Earliest expiration date is 2022 |
Property Investment in American Transmission Co. LLC (ATC) Pension and other benefit obligations Prepaid gross receipts tax Regulatory liability - decommissioning Investment tax credits Customer advances Other Other current assets Deferred income taxes Total deferred tax (assets) and liabilities 2007 2006 Deferred
Tax Assets Deferred Tax
Liabilities Net Deferred
Tax Assets Deferred Tax
Liabilities Net $ — $ 205.3 $ 205.3 $ — $ 212.2 $ 212.2 — 47.3 47.3 — 46.3 46.3 — 17.5 17.5 — 7.9 7.9 — 15.5 15.5 — 14.1 14.1 — — — (8.6 ) — (8.6 ) (10.0 ) — (10.0 ) (11.0 ) — (11.0 ) (14.3 ) — (14.3 ) (12.8 ) — (12.8 ) (24.3 ) 21.5 (2.8 ) (20.6 ) 21.4 0.8 $ (48.6 ) $ 307.1 $ 258.5 $ (53.0 ) $ 301.9 $ 248.9 2007 2006 $ (11.4 ) $ (6.6 ) 269.9 255.5 $ 258.5 $ 248.9
| (b) | Earliest expiration date is 2029 |
Unrecognized Tax BenefitsProperty - WPL adopted In September 2010, the Small Business Jobs Act of 2010 (SBJA) was enacted. One of the most significant provisions of FIN 48the SBJA for WPL provides a one-year extension of the 50% bonus depreciation deduction for certain expenditures for property that is acquired or constructed in 2010. In December 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the Act) was enacted. One of the most significant provisions of the Act for WPL provides 100% bonus depreciation on Jan. 1, 2007. WPL’s cumulative effect of adopting FIN 48qualifying expenditures through 2011 for property placed in service by Dec. 31, 2012. In addition, 50% bonus depreciation will be allowed on qualifying expenditures through 2012 for property that is placed in service by Dec. 31, 2013. Based on capital projects placed into service in 2010, WPL estimates its total 2010 bonus tax depreciation deduction under the SBJA and the Act to be approximately $215 million. This 2010 bonus tax depreciation deduction was anthe primary reason for the increase in its net liability for unrecognizeddeferred tax benefits and a reductionliabilities related to its Jan. 1, 2007 balance of retained earnings of $0.8 million. The $0.8 million increaseproperty in the net liability for unrecognized tax benefits was recorded as a $2.8 million increase in other long-term liabilities, a $1.1 million decrease in deferred income taxes, a $0.6 million decrease in accrued taxes and a $0.3 million increase in non-current regulatory assets on the Consolidated Balance Sheet. At the date of adoption, WPL’s unrecognized tax benefits and related interest were $2.8 million ($2.4 million of unrecognized tax benefits and $0.4 million of interest) including $1.5 million of tax benefits that, if recognized, would favorably impact WPL’s effective income tax rate.2010.
At Dec. 31, 2007, WPL’s unrecognized tax benefits were $2.4 million including $1.5 million of unrecognized tax benefits that, if recognized, would favorably impact WPL’s effective income tax rate.Uncertain Tax Positions - A reconciliation of the beginning and ending amounts of unrecognizeduncertain tax benefits,positions, excluding interest, for WPL is as follows (in millions):
Balance at Jan. 1, 2007 | $ | 2.4 | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||
Balance, Jan. 1 | $ | 42.1 | $ | 2.5 | $ | 2.4 | ||||||||||
Additions based on tax positions related to the current year | 0.1 | 1.3 | 2.5 | 0.4 | ||||||||||||
Reductions based on tax positions related to the current year | — | — | — | — | ||||||||||||
Additions for tax positions of prior years | — | |||||||||||||||
Reductions for tax positions of prior years | (0.1 | ) | ||||||||||||||
Additions for tax positions of prior years (a) | 5.2 | 37.3 | 2.5 | |||||||||||||
Reductions for tax positions of prior years (b) | (8.0 | ) | (0.2 | ) | (0.3 | ) | ||||||||||
Settlements with taxing authorities | — | (6.9 | ) | — | (2.5 | ) | ||||||||||
Lapse of statute of limitations | — | — | — | — | ||||||||||||
Balance at Dec. 31, 2007 | $ | 2.4 | ||||||||||||||
Balance, Dec. 31 | $ | 33.7 | $ | 42.1 | $ | 2.5 | ||||||||||
WPL recognizes interest and penalties related to unrecognized
| (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. |
| (b) | The reductions of tax positions of prior years during 2010 were primarily related to deductions taken by WPL on its federal and state tax returns that were settled under audit for amounts less than the recorded amounts. |
| Dec. 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Tax positions favorably impacting future effective tax rates for continuing operations | $ | — | $ | 1.4 | $ | 1.7 | ||||||
Interest accrued | — | 2.1 | 0.3 | |||||||||
Penalties accrued | — | — | — | |||||||||
Open tax benefits in “Income taxes” in the Consolidated Statements of Income. At Dec. 31, 2007 and Jan. 1, 2007, accrued interest was $0.5 million and $0.4 million, respectively. There were no penalties accrued by WPL as of Dec. 31, 2007 or Jan. 1, 2007.
WPL isyears -Tax years that remain subject to U.S.examination by major jurisdictions are as follows:
Major Jurisdiction | Open Years | |||
Consolidated federal income tax returns | 2005-2009 | (a) | ||
Consolidated Iowa income tax returns | 2009 | |||
Wisconsin income tax returns | 2005-2008 | |||
Wisconsin combined tax return | 2009 | |||
| (a) | The statute of limitations for 2005 through 2007 has been extended to the end of 2011. |
Reasonably possible changes to uncertain tax as well as incomepositions in 2011 -In 2011, statutes of limitations will expire for WPL’s tax returns in multiple state jurisdictions, includingjurisdictions. The impact of the statestatutes of Wisconsin. WPL has concluded all U.S. federal and state income tax matters for calendar years through 1998 and has reached settlement withlimitations expiring is not anticipated to be material. In September 2010, the Internal Revenue Service (IRS) regardingcompleted the auditaudits of itsAlliant Energy’s U.S. federal income tax returns for calendar years 19992005 through 2001.2008. Alliant Energy agreed to all the IRS’ proposed adjustments for deductions and credits included in the 2005 through 2008 income tax returns with the exception of the deduction for the repairs expenditure change in method of tax accounting included in Alliant Energy’s 2008 income tax return. The IRS denied the full amount ($301 million for WPL) of the deduction for the repairs expenditures included in Alliant Energy’s 2008 income tax return given the absence of current IRS guidelines regarding this deduction. Alliant Energy is currently auditing WPL’s U.S.appealing the IRS’ denial of this deduction. The federal income tax return for calendar year 2009 is part of the Compliance Assurance Program of the IRS and as a result, the IRS audit of such return is expected to be completed in 2011. The IRS has consented to a majority of the deductions and credits included by Alliant Energy in its 2009 income tax return. Based on the effective settlement with the IRS of various deductions and credits included in Alliant Energy’s federal income tax returns for calendar years 20022005 through 2004. Audit adjustments2009, WPL reversed certain uncertain tax positions in 2010. Unrecognized tax benefits for U.S. federalWPL are expected to increase within the next
12 months upon receipt of consent from the IRS related to a change in tax method of accounting for mixed service costs. In accordance with accounting rules, WPL will not reflect the impact of this proposed change to mixed service costs in its financial statements until consent is rendered by the IRS. In addition, unrecognized tax benefits for WPL will decrease within the next 12 months if an expected revenue procedure clarifying the treatment of repairs for distribution property is published. An estimate of the expected changes for 2011 cannot be determined at this time.
Income Tax Refunds Receivable- WPL received $37 million of income tax returns are requiredrefunds from the IRS in the fourth quarter of 2010 related to be reportedclaims filed with the IRS to carryback net operating losses to prior years. These refunds were the Wisconsin state taxing authorities within prescribed timelines following the completion of each U.S. federal income tax audit. Except for any audit adjustments for U.S. federal income tax returns, the Wisconsin statute of limitations is closed for calendar years through 2002. U.S. federal and state income tax returnsprimary reason for the remaining calendar years are still subject to examination bydecrease in “Income tax refunds receivable” on the respective taxing authorities.
In 2008, WPL does not anticipate any material changes will be made to its unrecognized tax benefits.Consolidated Balance Sheets of $41 million during 2010.
Other Income Tax Matters- Alliant Energy files a consolidated federal income tax return.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 was filed in Wisconsin beginning with the tax return for calendar year 2009. Alliant Energy subsidiaries with a presence in Iowa file as part of a consolidated return in Iowa. Under the terms of ana tax sharing agreement signed in 2009 between Alliant Energy and its subsidiaries, the subsidiaries calculate their respective federalbegan calculating state income tax using consolidated apportionment rates applied to separate company taxable income in 2009. Prior to 2009, WPL calculated income tax provisions and make paymentsusing the separate return methodology. Separate return amounts prior to or receive payments from Alliant Energy as if they2009 were separate taxable entities.
In 2007, 2006 and 2005, WPL realized net benefits of $0, $0.1 million and $1.5 million, respectively, related toadjusted 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 2010, 2009 and 2008, WPL’s foreign sources of parent tax benefits. Due to the repeal of Public Utility Holding Company Act of 1935 in 2006, no parent tax benefitsincome were required to be distributed in 2007.not material.
(5)(6) BENEFIT PLANS
(a) Pension 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 through a defined contribution plan (401(k) savings plan). WPL’s non-contributory defined benefit pension plans are currently closed to new hires. 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 plans 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 and non-qualifieddefined benefit pension benefits and other postretirement benefits plans at the measurement date of Sep. 30Dec. 31 were as follows (Not Applicable (N/A)):
| Pension Benefits | Other Postretirement Benefits | Qualified Defined Benefit Pension Plan | Other Postretirement Benefits Plans | |||||||||||||||||||||||||||||||||||||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||||||||||||||
Discount rate for benefit obligations | 6.2 | % | 5.85 | % | 5.5 | % | 6.2 | % | 5.85 | % | 5.5 | % | 5.7 | % | 5.8 | % | 6.15 | % | 5.25 | % | 5.55 | % | 6.15 | % | ||||||||||||||||||
Discount rate for net periodic cost | 5.85 | % | 5.5 | % | 6 | % | 5.85 | % | 5.5 | % | 6 | % | 5.8 | % | 6.15 | % | 6.2 | % | 5.55 | % | 6.15 | % | 6.2 | % | ||||||||||||||||||
Expected return on plan assets (a) | 8.5 | % | 8.5 | % | 9 | % | 8.5 | % | 8.5 | % | 9 | % | ||||||||||||||||||||||||||||||
Expected rate of return on plan assets | 8 | % | 8.25 | % | 8.5 | % | 6.3 | % | 8.25 | % | 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 | 8 | % | 9 | % | 9 | % | N/A | N/A | N/A | 7.5 | % | 7.5 | % | 8 | % | ||||||||||||||||||||||||
Ultimate trend rate | N/A | N/A | N/A | 5 | % | 5 | % | 5 | % | N/A | N/A | N/A | 5 | % | 5 | % | 5 | % | ||||||||||||||||||||||||
Expected rate of return on plan assets - The expected rate of return on plan assets is determined by analysis of projected asset class returns based on the target asset class allocations. WPL uses a portfolio return simulator and also reviews historical returns, survey information and capital market information to support 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 postretirement benefits costs. A 1% change in the medical trend rates for 2010, 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 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 resulted in a reduction to its Jan. 1, 2008 balance of retained earnings of $1.2 million.
Net Periodic Benefit Costs- The components of WPL’s net periodic benefit costs for its qualified defined benefit pension and other postretirement benefits plans were as follows (in millions):
| Qualified Defined Benefit Pension Plan | Other Postretirement Benefits Plans | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
Service cost | $ | 4.9 | $ | 4.9 | $ | 5.3 | $ | 3.6 | $ | 3.4 | $ | 3.3 | ||||||||||||
Interest cost | 15.7 | 15.5 | 15.0 | 5.5 | 5.5 | 5.5 | ||||||||||||||||||
Expected return on plan assets (a) | (19.1 | ) | (14.1 | ) | (21.4 | ) | (1.3 | ) | (1.1 | ) | (1.9 | ) | ||||||||||||
Amortization of (b): | ||||||||||||||||||||||||
Prior service cost (credit) | 0.5 | 0.5 | 0.8 | (0.7 | ) | (0.9 | ) | (1.0 | ) | |||||||||||||||
Actuarial loss | 8.5 | 10.4 | 1.0 | 2.5 | 1.3 | 1.0 | ||||||||||||||||||
Curtailment loss (c) | — | 0.7 | — | — | — | — | ||||||||||||||||||
Special termination benefits costs (d) | — | 0.9 | — | — | — | — | ||||||||||||||||||
| $ | 10.5 | $ | 18.8 | $ | 0.7 | $ | 9.6 | $ | 8.2 | $ | 6.9 | |||||||||||||
| (a) | The expected return on plan assets is |
Refer to Note 1(q) for discussion of WPL’s adoption of the recognition provision of SFAS 158 in 2006 and the change in WPL’s measurement date from Sept. 30 to Dec. 31 effective in 2008.
The components of WPL’s qualified pension benefits and other postretirement benefits costs were as follows (in millions):
| Qualified Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
Service cost | $ | 5.6 | $ | 6.1 | $ | 5.3 | $ | 3.3 | $ | 4.2 | $ | 4.4 | ||||||||||||
Interest cost | 13.7 | 13.2 | 12.2 | 5.2 | 5.4 | 6.3 | ||||||||||||||||||
Expected return on plan assets | (19.2 | ) | (17.9 | ) | (17.0 | ) | (1.8 | ) | (1.8 | ) | (1.8 | ) | ||||||||||||
Amortization of (a): | ||||||||||||||||||||||||
Transition obligation | — | — | — | — | 0.8 | 1.1 | ||||||||||||||||||
Prior service cost (credit) | 0.8 | 0.8 | 0.8 | (1.0 | ) | (0.1 | ) | — | ||||||||||||||||
Actuarial loss | 2.9 | 4.5 | 3.4 | 1.1 | 1.2 | 2.4 | ||||||||||||||||||
Special termination benefits | — | — | — | — | — | 0.1 | ||||||||||||||||||
Income statement impacts | 3.8 | 6.7 | 4.7 | 6.8 | 9.7 | 12.5 | ||||||||||||||||||
Special termination benefits | — | — | — | — | — | 1.0 | ||||||||||||||||||
| $ | 3.8 | $ | 6.7 | $ | 4.7 | $ | 6.8 | $ | 9.7 | $ | 13.5 | |||||||||||||
| Unrecognized net actuarial losses in excess of 10% of the projected benefit obligation and unrecognized prior service costs (credits) are generally amortized over the average future service lives of the |
WPL’s net periodic benefit cost is primarily included in “Other operation and maintenance” in the Consolidated Statements of Income.
| (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 an 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 curtailment loss related to the Plan of $0.7 million in 2009. |
| (d) | WPL recognized special termination benefits costs related to the qualified defined benefit pension plan that is sponsored by WPL of $0.9 million in 2009 as a result of the elimination of certain operations positions in 2009. |
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. Alliant Energy Corporate Services Inc. (Corporate Services) provides services to WPL.WPL, and as a result, WPL is allocated pension and other postretirement benefits costs (credits) associated with Corporate Services employees. 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 qualified pension and other postretirement benefits costs (credits) associated with Corporate Services foremployees providing services to WPL as follows (in millions):
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | ||||||||||||||
Non-bargaining WPL employees participating in other plans | $ | (0.8 | ) | $ | 0.9 | $ | 0.8 | N/A | N/A | N/A | |||||||||
Allocated Corporate Services costs (a) | 2.8 | 2.2 | 2.2 | $ | 0.8 | $ | 1.3 | $ | 2.9 | ||||||||||
| Qualified Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
Costs (credits) | $ | 0.7 | $ | 4.5 | ($ | 2.2 | ) | $ | 1.3 | $ | 1.2 | $ | 1.0 | |||||||||||
Alliant Energy sponsors several non-qualified defined benefit pension plans that cover certain current and former key employees. In 2010, 2009 and 2008, the pension costs allocated to WPL for these plans were $2.1 million, $2.1 million and $2.0 million, respectively.
The assumed medical trend rates are critical assumptionsestimated amortization from “Regulatory assets” on the Consolidated Balance Sheets into net periodic benefit cost 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 2007, holding all other assumptions constant, would have the following effects2011 is as follows (in millions):
| 1% Increase | 1% Decrease | ||||||
Effect on total of service and interest cost components | $ | 0.7 | $ | (0.6 | ) | ||
Effect on postretirement benefit obligation | 4.9 | (4.6 | ) | ||||
| Qualified Defined Benefit | Other Postretirement | |||||||
| Pension Plan | Benefits Plans | |||||||
Actuarial loss | $ | 7.1 | $ | 2.1 | ||||
Prior service cost (credit) | 0.5 | (1.1 | ) | |||||
| $ | 7.6 | $ | 1.0 | |||||
In addition to the estimated amortizations from “Regulatory assets” in the above table, $3.6 million of amortizations are expected in 2011 from “Regulatory assets” associated with WPL’s non-bargaining employees who are participants in other Alliant Energy plans and 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 Consolidated Statements of Income.
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.table. 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 Benefits | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Change in projected benefit obligation: | ||||||||||||||||
Net projected benefit obligation at beginning of year | $ | 233.4 | $ | 237.3 | $ | 89.0 | $ | 98.3 | ||||||||
Service cost | 5.6 | 6.1 | 3.3 | 4.2 | ||||||||||||
Interest cost | 13.7 | 13.2 | 5.2 | 5.4 | ||||||||||||
Plan participants’ contributions | — | — | 2.2 | 1.9 | ||||||||||||
Plan amendments | — | — | 0.3 | (12.2 | ) | |||||||||||
Actuarial (gain) loss | (5.4 | ) | (15.0 | ) | 1.0 | (1.1 | ) | |||||||||
Transfer to other Alliant Energy plans | — | — | (4.5 | ) | — | |||||||||||
Gross benefits paid | (8.7 | ) | (8.2 | ) | (9.4 | ) | (7.9 | ) | ||||||||
Federal subsidy on other postretirement benefits paid | — | — | 0.6 | 0.4 | ||||||||||||
Net projected benefit obligation at measurement date | 238.6 | 233.4 | 87.7 | 89.0 | ||||||||||||
Change in plan assets (a): | ||||||||||||||||
Fair value of plan assets at beginning of year | 225.3 | 214.7 | 21.5 | 20.6 | ||||||||||||
Actual return on plan assets | 30.7 | 18.8 | 3.2 | 1.6 | ||||||||||||
Employer contributions | 6.0 | — | 7.9 | 5.3 | ||||||||||||
Plan participants’ contributions | — | — | 2.2 | 1.9 | ||||||||||||
Transfer to other Alliant Energy plans | — | — | (4.5 | ) | — | |||||||||||
Gross benefits paid | (8.7 | ) | (8.2 | ) | (9.4 | ) | (7.9 | ) | ||||||||
Fair value of plan assets at measurement date | 253.3 | 225.3 | 20.9 | 21.5 | ||||||||||||
Over/(under) funded status at measurement date | 14.7 | (8.1 | ) | (66.8 | ) | (67.5 | ) | |||||||||
Contributions paid after Sep. 30 and prior to Dec. 31 | — | 6.0 | 1.5 | 2.2 | ||||||||||||
Federal subsidy on other postretirement benefits paid | — | — | (0.1 | ) | (0.2 | ) | ||||||||||
Net amount recognized at Dec. 31 | $ | 14.7 | $ | (2.1 | ) | $ | (65.4 | ) | $ | (65.5 | ) | |||||
| Qualified Pension Benefits | Other Postretirement Benefits | Qualified Defined Benefit Pension Plan | Other Postretirement Benefits Plans | ||||||||||||||||||||||||||||
| 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||||||||
Change in projected benefit obligation: | |||||||||||||||||||||||||||||||
Net projected benefit obligation at Jan. 1 | $ | 271.6 | $ | 252.9 | $ | 99.1 | $ | 89.3 | |||||||||||||||||||||||
Service cost | 4.9 | 4.9 | 3.6 | 3.4 | |||||||||||||||||||||||||||
Interest cost | 15.7 | 15.5 | 5.5 | 5.5 | |||||||||||||||||||||||||||
Plan participants’ contributions | — | — | 3.2 | 2.9 | |||||||||||||||||||||||||||
Plan amendments (a) | — | — | (1.5 | ) | — | ||||||||||||||||||||||||||
Actuarial loss | 2.5 | 7.5 | 1.9 | 7.9 | |||||||||||||||||||||||||||
Gross benefits paid | (11.4 | ) | (10.1 | ) | (9.0 | ) | (10.4 | ) | |||||||||||||||||||||||
Federal subsidy on other postretirement benefits paid | — | — | 0.5 | 0.5 | |||||||||||||||||||||||||||
Special termination benefits | — | 0.9 | — | — | |||||||||||||||||||||||||||
Net projected benefit obligation at Dec. 31 | 283.3 | 271.6 | 103.3 | 99.1 | |||||||||||||||||||||||||||
Change in plan assets: | |||||||||||||||||||||||||||||||
Fair value of plan assets at Jan. 1 | 236.6 | 164.6 | 18.8 | 14.6 | |||||||||||||||||||||||||||
Actual return on plan assets | 30.0 | 39.7 | 2.1 | 3.2 | |||||||||||||||||||||||||||
Employer contributions | — | 42.4 | 9.9 | 8.5 | |||||||||||||||||||||||||||
Plan participants’ contributions | — | — | 3.2 | 2.9 | |||||||||||||||||||||||||||
Gross benefits paid | (11.4 | ) | (10.1 | ) | (9.0 | ) | (10.4 | ) | |||||||||||||||||||||||
Fair value of plan assets at Dec. 31 | 255.2 | 236.6 | 25.0 | 18.8 | |||||||||||||||||||||||||||
Under funded status at Dec. 31 | ($ | 28.1 | ) | ($ | 35.0 | ) | ($ | 78.3 | ) | ($ | 80.3 | ) | |||||||||||||||||||
Amounts recognized on the Consolidated Balance Sheets consist of: | |||||||||||||||||||||||||||||||
Deferred charges and other | $ | 14.7 | $ | — | $ | 3.0 | $ | 2.3 | |||||||||||||||||||||||
Other current liabilities | — | — | (3.9 | ) | (5.8 | ) | $ | — | $ | — | $ | — | ($ | 3.5 | ) | ||||||||||||||||
Pension and other benefit obligations | — | (2.1 | ) | (64.5 | ) | (62.0 | ) | (28.1 | ) | (35.0 | ) | (78.3 | ) | (76.8 | ) | ||||||||||||||||
Net amount recognized at Dec. 31 | $ | 14.7 | $ | (2.1 | ) | $ | (65.4 | ) | $ | (65.5 | ) | ($ | 28.1 | ) | ($ | 35.0 | ) | ($ | 78.3 | ) | ($ | 80.3 | ) | ||||||||
Amounts recognized in Regulatory Assets and Accumulated Other Comprehensive Loss (AOCL) consist of (b): | |||||||||||||||||||||||||||||||
Amounts recognized in Regulatory Assets (b): | |||||||||||||||||||||||||||||||
Net actuarial loss | $ | 37.9 | $ | 57.7 | $ | 17.2 | $ | 19.4 | $ | 95.6 | $ | 112.5 | $ | 27.2 | $ | 28.6 | |||||||||||||||
Prior service cost (credit) | 5.6 | 6.5 | (3.8 | ) | (5.2 | ) | 2.9 | 3.4 | (2.5 | ) | (1.7 | ) | |||||||||||||||||||
| $ | 43.5 | $ | 64.2 | $ | 13.4 | $ | 14.2 | $ | 98.5 | $ | 115.9 | $ | 24.7 | $ | 26.9 | ||||||||||||||||
| (a) |
| (b) | Refer to |
In addition to the amounts recognized in “Regulatory assets” and “AOCL” in the previousabove table, $78 million and $79 million of “Regulatory assets” were recognized for amounts associated with WPL’s non-bargaining employees who are participants in other Alliant Energy plans and Corporate Services employees participating in Alliant Energy sponsored benefit plans that were allocated to WPL at Dec. 31, 20072010 and 2006, Corporate Services allocated Regulatory Assets and AOCL of $39 million and $48 million, respectively, to WPL.2009, respectively.
Included in the following table are WPL’s accumulated benefit obligations, aggregate 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 | |||||||||||||||||||||||||
| 2007 | 2006 | 2007 | 2006 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
Accumulated benefit obligations | $ | 218.9 | $ | 212.7 | $ | 87.7 | $ | 89.0 | $ | 270.2 | $ | 253.2 | $ | 103.3 | $ | 99.1 | ||||||||||||
Plans with accumulated benefit obligations in excess of plan assets: | ||||||||||||||||||||||||||||
Accumulated benefit obligations | — | — | 80.4 | 88.2 | 270.2 | 253.2 | 103.3 | 99.1 | ||||||||||||||||||||
Fair value of plan assets | — | — | 10.6 | 17.9 | 255.2 | 236.6 | 25.0 | 18.8 | ||||||||||||||||||||
Plans with projected benefit obligations in excess of plan assets: | ||||||||||||||||||||||||||||
Projected benefit obligations | — | 233.4 | N/A | N/A | 283.3 | 271.6 | N/A | N/A | ||||||||||||||||||||
Fair value of plan assets | — | 225.3 | N/A | N/A | 255.2 | 236.6 | N/A | N/A | ||||||||||||||||||||
Other postretirement benefits 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 pension and other postretirement benefits plans at Sep. 30, 2007during 2011 will be $0 and 2006,$8 million, respectively.
WPL’s expected benefit payments and the qualified pension plan target allocation for 2007 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 | 2007 | 2007 | 2006 | 2007 | 2006 | ||||||||||
Equity securities | 65-75 | % | 73 | % | 73 | % | 49 | % | 57 | % | |||||
Debt securities | 20-35 | % | 27 | % | 27 | % | 20 | % | 23 | % | |||||
Other | 0-5 | % | — | — | 31 | % | 20 | % | |||||||
| 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 - 2020 | |||||||||||||||||||
Qualified defined benefit pension benefits | $ | 11.8 | $ | 12.5 | $ | 13.3 | $ | 14.3 | $ | 15.3 | $ | 93.7 | ||||||||||||
Other postretirement benefits | 7.1 | 7.1 | 7.5 | 7.9 | 8.3 | 46.7 | ||||||||||||||||||
Medicare subsidies | (0.5 | ) | (0.6 | ) | (0.6 | ) | (0.7 | ) | (0.7 | ) | (4.8 | ) | ||||||||||||
| $ | 18.4 | $ | 19.0 | $ | 20.2 | $ | 21.5 | $ | 22.9 | $ | 135.6 | |||||||||||||
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, 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.
Defined Benefit Pension Plans Assets -For theassets of defined benefit pension plan,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 plan hasplans have a long-term investment posture more heavily weighted towards equity holdings. The asset allocation mix is monitored regularly and appropriate action is taken as needed to rebalance the assets within the prescribed range. Prohibited 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. At Dec. 31, 2010, the current target range and actual allocations for WPL’s defined benefit pension plan assets were as follows:
| Target Range Allocation | Actual Allocation | |||||
Cash and equivalents | 0%-5% | 1 | % | |||
Equity securities: | ||||||
U.S. large cap core | 10%-20% | 14 | % | |||
U.S. large cap value | 8%-16% | 12 | % | |||
U.S. large cap growth | 8%-16% | 12 | % | |||
U.S. small cap value | 0%-6% | 4 | % | |||
U.S. small cap growth | 0%-4% | 2 | % | |||
International - developed markets | 12%-24% | 17 | % | |||
International - emerging markets | 0%-8% | 4 | % | |||
Fixed income securities | 20%-40% | 34 | % | |||
Other Postretirement Benefits Plans Assets related to other-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 are 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. ProhibitedThere 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, 2010, WPL’s other postretirement benefits plan assets consisted of 39% equity securities, 19% fixed income securities and 42% cash and equivalents.
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 to selected entities against receipt of collateral (in the form of cash, government securities or letters of credit) as provided for and determined in accordance with its securities loan agreement. Initial collateral levels are no less than 102% and 105% of the market value of the borrowed securities for collateral denominated in U.S. and foreign currency, respectively. Refer to “Fair Value Measurements” below for details of WPL’s fair value of invested collateral and amounts due to borrowers for the securities lending program.
Fair Value Measurements -The following 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 butinterest-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 or corroborated by observable market data by correlation or other means. WPL’s investments in corporate bonds and 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 fair market value of the underlying investments in equity and fixed income securities of the common/collective trusts. Level 2 plan assets also consist of asset backed securities, commercial paper and repurchase agreements within their securities lending invested collateral.
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 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.
The methods described above may produce a fair value calculation that may not be limitedindicative of net realizable value or reflective of future fair values. Furthermore, while WPL believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to direct ownershipdetermine the fair value of real estate, optionscertain financial instruments could result in a different fair value measurement at the reporting date.
At Dec. 31, 2010 and futures unless specifically approved, margin trading, oil and gas limited partnerships, commodities, short selling and securities2009, the fair values of the managers’ firms or affiliate firms.
Alliant Energy sponsors several non-qualified pension plans that cover certain current and former key employees. In 2007, 2006 and 2005, the pension expense allocated to WPL for these plans was $2.7 million, $2.1 million and $1.9 million, respectively. Included for 2007 was the settlement loss of $0.8 million related to payments made to a retired executive.
WPL estimates that funding for theWPL’s qualified defined benefit pension plan for its bargaining unit employeesassets by asset category and other postretirement benefits plans during 2008 will be $0 and $7 million, respectively.
The expected benefit payments and Medicare subsidies, which reflect expected future service, as appropriate, arefair value hierarchy level were as follows (in millions):
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 - 2017 | |||||||||||||||||||
Pension benefits | $ | 9.2 | $ | 9.4 | $ | 10.0 | $ | 10.7 | $ | 11.6 | $ | 77.3 | ||||||||||||
Other postretirement benefits | 6.8 | 7.0 | 7.3 | 6.6 | 6.8 | 40.2 | ||||||||||||||||||
Medicare subsidies | (0.5 | ) | (0.6 | ) | (0.6 | ) | (0.6 | ) | (0.5 | ) | (3.3 | ) | ||||||||||||
| $ | 15.5 | $ | 15.8 | $ | 16.7 | $ | 16.7 | $ | 17.9 | $ | 114.2 | |||||||||||||
| Dec. 31, 2010 | Dec. 31, 2009 | |||||||||||||||||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Cash and equivalents | $ | 3.4 | $ | 3.4 | $ | — | $ | — | $ | 11.0 | $ | 11.0 | $ | — | $ | — | ||||||||||||||||
Equity securities: | ||||||||||||||||||||||||||||||||
U.S. large cap core | 36.7 | 36.7 | — | — | 31.8 | 31.8 | — | — | ||||||||||||||||||||||||
U.S. large cap value | 31.2 | — | 31.2 | — | 26.6 | — | 26.6 | — | ||||||||||||||||||||||||
U.S. large cap growth | 31.3 | — | 31.3 | — | 26.4 | — | 26.4 | — | ||||||||||||||||||||||||
U.S. small cap value | 9.0 | — | 9.0 | — | 7.1 | — | 7.1 | — | ||||||||||||||||||||||||
U.S. small cap growth | 5.2 | 5.2 | — | — | 4.2 | 4.2 | — | — | ||||||||||||||||||||||||
International - developed markets | 44.1 | 23.6 | 20.5 | — | 39.9 | 20.8 | 19.1 | — | ||||||||||||||||||||||||
International - emerging markets | 10.6 | 10.6 | — | — | 12.0 | 12.0 | — | — | ||||||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||||||||||||||
Corporate bonds | 16.8 | — | 16.8 | — | 18.9 | — | 18.9 | — | ||||||||||||||||||||||||
Government and agency obligations | 24.5 | — | 24.5 | — | 21.6 | — | 21.6 | — | ||||||||||||||||||||||||
Fixed income funds | 44.2 | — | 44.2 | — | 40.0 | 0.5 | 39.5 | — | ||||||||||||||||||||||||
Securities lending invested collateral | 5.4 | 1.0 | 3.5 | 0.9 | 7.6 | 2.0 | 4.6 | 1.0 | ||||||||||||||||||||||||
| 262.4 | $ | 80.5 | $ | 181.0 | $ | 0.9 | 247.1 | $ | 82.3 | $ | 163.8 | $ | 1.0 | |||||||||||||||||||
Accrued investment income | 0.3 | 0.5 | ||||||||||||||||||||||||||||||
Due to brokers, net (a) | (0.2 | ) | (1.0 | ) | ||||||||||||||||||||||||||||
Due to borrowers for securities lending program | (7.3 | ) | (10.0 | ) | ||||||||||||||||||||||||||||
Total pension plan assets | $ | 255.2 | $ | 236.6 | ||||||||||||||||||||||||||||
The estimated amortization from “Regulatory assets” on the Consolidated Balance Sheet into net periodic
| (a) | This category represents pending trades with brokers. |
Additional information for fair value measurements of WPL’s qualified defined benefit cost in 2008pension plans assets using significant unobservable inputs (Level 3 inputs) for 2010 and 2009 is as follows (in millions):
| Qualified Pension Benefits | Other Postretirement Benefits | ||||||
Actuarial loss | $ | 1.0 | $ | 1.0 | |||
Prior service cost (credit) | 0.8 | (1.0 | ) | ||||
| $ | 1.8 | $ | — | ||||
Securities Lending Invested Collateral | 2010 | 2009 | ||||||
Beginning balance, Jan. 1 | $ | 1.0 | $ | 2.2 | ||||
Actual return on plan assets: | ||||||||
Relating to assets still held at the reporting date | 0.2 | (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 | (0.3 | ) | 0.1 | |||||
Ending balance, Dec. 31 | $ | 0.9 | $ | 1.0 | ||||
At Dec. 31, 2010 and 2009, the fair values of WPL’s other postretirement benefits plans assets by asset category and fair value hierarchy level were as follows (in millions):
| Dec. 31, 2010 | Dec. 31, 2009 | |||||||||||||||||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Cash and equivalents | $ | 10.7 | $ | 10.7 | $ | — | $ | — | $ | 5.0 | $ | 5.0 | $ | — | $ | — | ||||||||||||||||
Equity securities: | ||||||||||||||||||||||||||||||||
U.S. large cap core | 1.3 | 1.3 | — | — | 1.1 | 1.1 | — | — | ||||||||||||||||||||||||
U.S. large cap value | 1.1 | — | 1.1 | — | 0.9 | — | 0.9 | — | ||||||||||||||||||||||||
U.S. large cap growth | 1.1 | — | 1.1 | — | 0.9 | — | 0.9 | — | ||||||||||||||||||||||||
U.S. small cap core | 3.8 | 3.8 | — | — | 4.7 | 4.7 | — | — | ||||||||||||||||||||||||
U.S. small cap value | 0.3 | — | 0.3 | — | 0.2 | — | 0.2 | — | ||||||||||||||||||||||||
U.S. small cap growth | 0.2 | 0.2 | — | — | 0.1 | 0.1 | — | — | ||||||||||||||||||||||||
International - developed markets | 1.6 | 0.8 | 0.8 | — | 1.4 | 0.7 | 0.7 | — | ||||||||||||||||||||||||
International - emerging markets | 0.4 | 0.4 | — | — | 0.4 | 0.4 | — | — | ||||||||||||||||||||||||
Fixed income securities: | ||||||||||||||||||||||||||||||||
Corporate bonds | 1.4 | — | 1.4 | — | 1.3 | — | 1.3 | — | ||||||||||||||||||||||||
Government and agency obligations | 1.0 | — | 1.0 | — | 1.1 | — | 1.1 | — | ||||||||||||||||||||||||
Fixed income funds | 2.3 | 0.7 | 1.6 | — | 1.8 | 0.4 | 1.4 | — | ||||||||||||||||||||||||
Securities lending invested collateral | 0.2 | 0.1 | 0.1 | — | 0.2 | 0.1 | 0.1 | — | ||||||||||||||||||||||||
| 25.4 | $ | 18.0 | $ | 7.4 | $ | — | 19.1 | $ | 12.5 | $ | 6.6 | $ | — | |||||||||||||||||||
Due to brokers, net (a) | (0.1 | ) | — | |||||||||||||||||||||||||||||
Due to borrowers for securities lending program | (0.3 | ) | (0.3 | ) | ||||||||||||||||||||||||||||
Total other postretirement benefits plan assets | $ | 25.0 | $ | 18.8 | ||||||||||||||||||||||||||||
| (a) | This category represents pending trades with brokers. |
Additional information for WPL’s fair value measurements of other postretirement benefits plans assets using significant unobservable inputs (Level 3 inputs) for 2010 and 2009 is as follows (in millions):
Securities Lending Invested Collateral | 2010 | 2009 | ||||||
Beginning balance, Jan. 1 | $ | — | $ | 0.1 | ||||
Purchases, sales and settlements, net | — | (0.1 | ) | |||||
Ending balance, Dec. 31 | $ | — | $ | — | ||||
For the various defined benefit pension and other postretirement benefits plans, Alliant Energy’s common stock represented less than 1% of total plan assets at Dec. 31, 2010 and 2009.
Cash Balance Pension Plan -Alliant Energy’s defined benefit pension plans include a cash balance plan that provides benefits for certain non-bargaining unit employees. The cash balance plan has been closed to new hires since 2005. Effective August 2008, Alliant Energy amended the cash balance plan by discontinuing additional contributions into employees’ cash balance plan accounts. Also effective August 2008, Alliant Energy increased its level of contributions to its 401(k) Savings Plan, which offset the impact of discontinuing additional contributions into the employees’ cash balance plan accounts. These amendments are designed to provide employees portability and self-directed flexibility of their retirement benefits. These changes did not have a significant impact on WPL’s results of operations. 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. 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.
401(k) Savings Plan -A significant number of WPL employees participate in a defined contribution retirement plan (401(k) savings plan). The number of employees participating in this plan has increased recently as certain bargaining unit employees have elected to participate in defined contribution retirement plans instead of defined benefit pension plans. In 2009, WPL implemented several cost saving initiatives to reduce other operation and maintenance expenses, including suspension of a portion of 401(k) savings plan contributions during the second half of 2009. In 2010, 2009 and 2008, WPL’s costs related to
the 401(k) savings plan, which are partially based on the participants’ level of contribution, were $8.9 million, $4.3 million and $3.7 million, respectively.
(b) Equity Incentive Plans -On Jan. 1, 2006, WPL adopted SFAS 123(R), “Share-Based Payment,” 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 its 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).
In May 2010, Alliant Energy’s 2002 Equityshareowners approved the Alliant Energy 2010 Omnibus Incentive Plan (EIP)(OIP), which permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and performance units, and other stock-based awards and cash incentive awards to key employees. The OIP authorizes the issuance of up to 4,500,000 shares of Alliant Energy’s common stock. As of Dec. 31, 2010, there were no grants issued under the OIP. Upon shareowner approval of the OIP, the Alliant Energy 2002 Equity Incentive Plan (EIP) terminated resulting in no new awards authorized to be granted under the EIP. All awards previously granted under the EIP that are still outstanding remain valid and continue to be subject to all of the terms and conditions of the EIP. At Dec. 31, 2007,2010, non-qualified stock options, restricted stock and performance shares were outstanding under the EIP and aanother predecessor plan under which new awards can no longer be granted. At Dec. 31, 2007, approximately 3.0 million shares remained available for grants under the EIP. Alliant Energy satisfies payouts related to equity awards under the EIP through the issuance of new shares of its common stock.
A summary of share-based compensation expense related to grants under the EIP that was allocated to WPL and the related income tax benefits recognized werefor share-based compensation awards was as follows (in millions):
| 2007 | 2006 | 2010 | 2009 | 2008 | ||||||||||||||
Share-based compensation expense | $ | 3.6 | $ | 4.5 | $ | 3.0 | $ | 1.1 | $ | 1.2 | ||||||||
Income tax benefits | 1.4 | 1.8 | 1.2 | 0.4 | 0.5 | |||||||||||||
Share-based compensation expense is recognized on a straight-line basis over the requisite service periods.
(6)(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 applicable regulatory limitations. InAt Dec. 31, 2010, WPL was in compliance with all such dividend restrictions.
WPL is restricted from paying common stock dividends to its January 2007 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 preferred stock through 2010.
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 $91$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 51.0%51.01%. In the third quarter of 2007, WPL paid a dividend of $100 million to Alliant Energy to realign WPL’s capital structure. 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, 2007, 2010, WPL’s amount of retained earnings that were free of restrictions was $112 million for 2011.
Restricted Net Assets -WPL does not have regulatory authority to lend or advance any amounts to its parent company. As of Dec. 31, 2010 and 2009, 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.$1.3 billion and $1.1 billion, respectively.
Capital Transactions -In 2010, 2009 and 2008, WPL paid common stock dividends of $110 million, $91 million and $91 million, respectively, to its parent. In 2010, 2009 and 2008, WPL received capital contributions of $75 million, $100 million and $100 million, respectively, from its parent.
(b) Preferred Stock- TheInformation related to the carrying value of WPL’s cumulative preferred stock at both Dec. 31, 2007 and 2006 was $60 million. The fair value, based upon the market yield of similar securities and quoted market prices,(none are mandatorily redeemable) at Dec. 31 2007was as follows (dollars in millions):
Liquidation Preference/ | Authorized Shares | Shares Outstanding | Series | Redemption | 2010 | 2009 | ||||||||||||||||||||
| $ | 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 | |||||||||||||||||||||||
| (a) | WPL has 3,750,000 authorized shares in total. |
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 2006 was $55 millioncould force WPL to exercise its call option. Therefore, the contingent control right and $54 million, respectively.the embedded call option cause WPL’s preferred stock to be presented outside of total equity on the Consolidated Balance Sheets in a manner consistent with temporary equity.
Refer to Note 10 for information on the fair value of WPL’s cumulative preferred stock.
(7)(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, 2007,2010, WPL’s short-term borrowing arrangements included a $250$240 million revolving credit facility, which expires in November 2012. Information regarding commercial paper issued under this facility was as follows (dollars(Not Applicable (N/A); dollars in millions):
| 2007 | 2006 | 2010 | 2009 | |||||||||||||
At Dec. 31: | ||||||||||||||||
Commercial paper outstanding | $ | 81.8 | $ | 134.9 | $ | 47.4 | $ | — | ||||||||
Weighted average interest rates - commercial paper | 4.7 | % | 5.4 | % | 0.3% | N/A | ||||||||||
For the year ended: | ||||||||||||||||
Average amount of total short-term debt (based on daily outstanding balances) | $ | 68.0 | $ | 77.2 | ||||||||||||
Maximum amount of total short-term debt outstanding | $ | 170.2 | $ | 103.1 | ||||||||||||
Average amount of total short-term debt outstanding | $ | 36.6 | $ | 26.4 | ||||||||||||
Weighted average interest rates - total short-term debt | 5.4 | % | 5.1 | % | 0.3% | 0.5% | ||||||||||
WPL’s credit facility agreement contains a financial covenant that requires it to maintain a debt-to-capital ratio of less than 58% in order to borrow under the credit facility. At Dec. 31, 2010, WPL’s actual debt-to-capital ratio was 46%.
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).
(b) Long-Term Debt -
WPL’s long-term debt, net as of Dec. 31 was as follows (dollars in millions):
| 2010 | 2009 | |||||||
Debentures: | ||||||||
5%, due 2019 | $ | 250.0 | $ | 250.0 | ||||
4.6%, due 2020 (a) | 150.0 | — | ||||||
6.25%, due 2034 | 100.0 | 100.0 | ||||||
6.375%, due 2037 | 300.0 | 300.0 | ||||||
7.6%, due 2038 | 250.0 | 250.0 | ||||||
7.625% (b) | — | 100.0 | ||||||
| 1,050.0 | 1,000.0 | |||||||
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 | 1,089.1 | 1,039.1 | ||||||
Current maturities | — | (100.0 | ) | |||||
Unamortized debt (discount) and premium, net | (7.4 | ) | (7.5 | ) | ||||
Long-term debt, net | $ | 1,081.7 | $ | 931.6 | ||||
| (a) | In June 2010, WPL issued $150 million of 4.6% debentures due 2020. The proceeds from the June 2010 debt issuance were used initially to repay short-term debt and invest in short-term assets, and thereafter to fund capital expenditures and for general working capital purposes. |
| (b) | In March 2010, WPL retired $100 million of its 7.625% debentures. |
Five-Year Schedule of Debt Maturities - At Dec. 31, 2010, WPL’s debt maturities for 2011 to 2015 were $0, $0, $0, $8 million and $31 million, respectively.
Indentures- WPL maintains indenturesan indenture related to the issuance of unsecured debt securities. its debentures due 2019 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 U.S. Treasury rates at the time of redemption. At Dec. 31, 2007,2010, the debt issuances that contained these optional redemption provisions included WPL’s debentures due 2034 and 2037.2019 through 2038.
In August 2007, WPL issued $300 million of 6.375% debentures due 2037 and used the proceeds to repay short-term debt, to pay a $100 million common stock dividend to Alliant Energy to realign WPL’s capital structure and for working capital purposes. In June 2007, WPL repaid at maturity its $105 million, 7% debentures with proceeds from the issuance of short-term debt.
At Dec. 31, 2007, WPL’s debt maturities for 2008 to 2012 were $60 million, $0, $100 million, $0 and $0, respectively. The carrying value of WPL’s long-term debt (including current maturities) at Dec. 31, 2007 and 2006 was $597 million and $404 million, respectively. The fair value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2007 and 2006 was $621 million and $418 million, respectively.Unamortized Debt Issuance Costs - WPL’s unamortized debt issuance costs recorded in “Deferred charges and other” on the Consolidated Balance Sheets were $4.8 million and $2.5 million at Dec. 31, 20072010 and 2006,2009 were $9.1 million and $8.5 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, 2007, there were no significant sinking fund requirements related to the long-term term debt on the Consolidated Balance Sheet.2010 and 2009.
(8)(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 Interest at Dec. 31, 2007 | Carrying Value at Dec. 31, | Ownership | Carrying Value | ||||||||||||||||||||||||||||||||||||||||||
| Equity Income | Interest at | at Dec. 31, | Equity (Income) / Loss | ||||||||||||||||||||||||||||||||||||||||||
| 2007 | 2006 | 2007 | 2006 | 2005 | Dec. 31, 2010 | 2010 | 2009 | 2010 | 2009 | 2008 | |||||||||||||||||||||||||||||||||||
ATC (a) | 17 | % | $ | 172 | $ | 166 | $ | (27 | ) | $ | (24 | ) | $ | (21 | ) | 16% | $ | 228 | $ | 219 | ($ | 37 | ) | ($ | 36 | ) | ($ | 32 | ) | ||||||||||||||||
Wisconsin River Power Company | 50 | % | 10 | 9 | (1 | ) | (3 | ) | (5 | ) | 50% | 8 | 8 | (1 | ) | (1 | ) | (2 | ) | ||||||||||||||||||||||||||
| $ | 182 | $ | 175 | $ | (28 | ) | $ | (27 | ) | $ | (26 | ) | $ | 236 | $ | 227 | ($ | 38 | ) | ($ | 37 | ) | ($ | 34 | ) | ||||||||||||||||||||
| (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. Refer to Note 19 for information regarding related party transactions with ATC. |
Summary financial information from the financial statements of these investments is as follows (in millions):
| 2007 | 2006 | 2005 | |||||||
Operating revenues | $ | 416 | $ | 347 | $ | 303 | |||
Operating income | 213 | 163 | 131 | ||||||
Net income | 157 | 128 | 106 | ||||||
As of Dec. 31: | |||||||||
Current assets | 52 | 36 | |||||||
Non-current assets | 2,208 | 1,873 | |||||||
Current liabilities | 318 | 306 | |||||||
Non-current liabilities | 1,010 | 777 | |||||||
Refer to Note 19 for information regarding related party transactions with ATC.
| 2010 | 2009 | 2008 | ||||||||||
Operating revenues | $ | 564 | $ | 529 | $ | 474 | ||||||
Operating income | 308 | 294 | 260 | |||||||||
Net income | 221 | 215 | 192 | |||||||||
As of Dec. 31: | ||||||||||||
Current assets | 63 | 54 | ||||||||||
Non-current assets | 2,906 | 2,786 | ||||||||||
Current liabilities | 429 | 286 | ||||||||||
Non-current liabilities | 1,263 | 1,340 | ||||||||||
(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, 20072010 and 2006,2009, the cash surrender value of these investments was $13.1$12.4 million and $12.1$14.0 million, respectively.
(c) Nuclear Decommissioning Trust Funds - -In 2006, WPL liquidated its remaining nuclear decommissioning trust funds and used the proceeds to provide a refund to its wholesale customers. In 2005, WPL’s non-qualified nuclear decommissioning trust funds realized pre-tax gains from the sales of securities of $23 million (cost of the investments based on specific identification was $110 million and pre-tax proceeds from the sales were $133 million).(10) FAIR VALUE MEASUREMENTS
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value of 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 5(a), 6(b), 7(b)Carrying amounts and 10(a) for information regarding the related estimated fair values of pensionother financial instruments at Dec. 31, 2010 and other postretirement benefits plan2009 were as follows (in millions):
Dec. 31, 2010 Assets: Derivative assets (Note 11(a)) Capitalization and liabilities: Long-term debt (Note 8(b)) Cumulative preferred stock (Note 7(b)) Derivative liabilities (Note 11(a)) Dec. 31, 2009 Assets: Cash equivalents Derivative assets (Note 11(a)) Capitalization and liabilities: Long-term debt (including current maturities) (Note 8(b)) Cumulative preferred stock (Note 7(b)) Derivative liabilities (Note 11(a)) Carrying
Amount Fair
Value $ 8.0 $ 8.0 1,081.7 1,219.6 60.0 56.0 43.3 43.3 18.1 18.1 15.3 15.3 1,031.6 1,125.9 60.0 50.6 66.3 66.3
Valuation Techniques -
Cash equivalents- Cash equivalents include money market fund investments, which are measured at fair value each reporting date using quoted market prices on listed exchanges.
Derivative assets preferred stock,and derivative liabilities -As of Dec. 31, 2010 and 2009, derivative assets and derivative liabilities included 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 were 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 reflected the average of the bid-ask mid-point prices and were obtained from sources believed to provide the most liquid market for the commodity. WPL corroborated a portion of these indicative price quotations using quoted prices for similar assets or liabilities in active markets and categorized derivative instruments based on such indicative price quotations as Level 2. WPL’s commodity contracts that were valued using indicative price quotations based on significant assumptions such as seasonal or monthly shaping and indicative price quotations that could not be readily corroborated were categorized as Level 3. WPL’s swap, option and physical forward commodity contracts were predominately at liquid trading points. WPL’s FTRs were measured at fair value each reporting date 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 were measured at fair value using an extrapolation of forward currency rates. Refer to Note 11(a) for additional details of WPL’s derivative assets and derivative liabilities.
Long-term debt (including current maturities) -For long-term debt and derivatives, respectively. Since WPL is subject to regulation, any gains or losses related to the difference between the carrying amount andinstruments that are actively traded, the fair value was based upon quoted market prices each reporting date. For long-term debt instruments that are not actively traded, the fair value was based on discounted cash flow methodology and utilizes assumptions of its financial instruments may not be realizedcurrent market pricing curves. Refer to Note 8(b) for additional information regarding long-term debt.
Cumulative preferred stock -The fair value of WPL’s 4.50% cumulative preferred stock was based on the closing market prices quoted by WPL.the NYSE Amex LLC each reporting date. The fair value of WPL’s remaining preferred stock was calculated based on the market yield of similar securities. Refer to Note 7(b) for additional information regarding cumulative preferred stock.
Valuation Hierarchy -Fair value measurement accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy and examples of each 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 1 assets as of Dec. 31, 2009 included cash equivalents.
(10)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 active as of the reporting date. Level 2 assets and liabilities as of Dec. 31, 2010 and 2009 included 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 as of Dec. 31, 2010 and 2009 included 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.
Recurring Fair Value Measurements -Disclosure requirements for WPL’s recurring items subject to fair value measurements at Dec. 31, 2010 and 2009 were as follows (in millions):
| Dec. 31, 2010 | Dec. 31, 2009 | |||||||||||||||||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Cash equivalents | $ | — | $ | — | $ | — | $ | — | $ | 18.1 | $ | 18.1 | $ | — | $ | — | ||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||
Commodity contracts | 8.0 | — | 6.4 | 1.6 | 15.3 | — | 11.5 | 3.8 | ||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Derivative liabilities: | ||||||||||||||||||||||||||||||||
Commodity contracts | 43.2 | — | 40.1 | 3.1 | 64.8 | — | 62.2 | 2.6 | ||||||||||||||||||||||||
Foreign exchange contracts | 0.1 | — | — | 0.1 | 1.5 | — | — | 1.5 | ||||||||||||||||||||||||
Total derivative liabilities | 43.3 | — | 40.1 | 3.2 | 66.3 | — | 62.2 | 4.1 | ||||||||||||||||||||||||
Additional information for WPL’s recurring fair value measurements using significant unobservable inputs (Level 3 inputs) for 2010 and 2009 was follows (in millions):
| Derivative Assets and (Liabilities), net | ||||||||||||||||
| Commodity Contracts | Foreign Contracts | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Beginning balance, Jan. 1 | $ | 1.2 | $ | 8.9 | ($ | 1.5 | ) | $ | 5.5 | |||||||
Total gains or (losses) (realized/unrealized) included in changes in net assets (a) | (1.3 | ) | (0.3 | ) | — | (0.4 | ) | |||||||||
Transfers in and/or out of Level 3 (b) | (0.3 | ) | — | — | — | |||||||||||
Purchases, sales, issuances and settlements, net | (1.1 | ) | (7.4 | ) | 1.4 | (6.6 | ) | |||||||||
Ending balance, Dec. 31 | ($ | 1.5 | ) | $ | 1.2 | ($ | 0.1 | ) | ($ | 1.5 | ) | |||||
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) | ($ | 1.3 | ) | ($ | 0.3 | ) | $ | — | ($ | 0.4 | ) | |||||
| (a) | Gains and losses related to derivative assets and derivative liabilities are recorded in “Regulatory assets” and “Regulatory liabilities” on the Consolidated Balance Sheets. |
| (b) | Observable market inputs became available for certain commodity contracts previously classified as Level 3. The transfers were valued as of the beginning of the period. |
(11) DERIVATIVE INSTRUMENTS
(a) AccountingCommodity and Foreign Exhange Derivatives -
Purpose - WPL periodically uses derivative instruments for Derivative Instrumentsrisk management purposes to mitigate exposures to fluctuations in certain commodity prices, transmission congestion costs and Hedging Activitiescurrency exchange rates. WPL’s derivative instruments as of Dec. 31, 2010 and 2009 were not designated as hedging instruments. WPL’s derivative instruments as of Dec. 31, 2010 and 2009 included 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 physical forward purchase and 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, 2010, WPL had notional amounts related to outstanding swap contracts, option contracts, physical forward contracts and FTRs that were accounted for as derivative instruments as follows (units in thousands):
| 2011 | 2012 | 2013 | Total | |||||||||||||
Commodity: | ||||||||||||||||
Electricity (MWhs) | 2,062 | 248 | 204 | 2,514 | ||||||||||||
FTRs (MWs) | 12 | — | — | 12 | ||||||||||||
Natural gas (dekatherms) | 16,736 | 9,832 | 1,060 | 27,628 | ||||||||||||
The notional amounts in the above table were computed by aggregating the absolute value of purchase and sale positions within commodities for each year. In 2010, Euro-denominated payment terms included in the wind turbine supply contract with Vestas were converted to U.S. dollars.
Financial Statement Presentation -WPL records derivative instruments at fair value each reporting date on the balance sheet as assets or liabilitiesliabilities. At Dec. 31, 2010 and changes in2009, 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. At Dec. 31,of current derivative assets were included in “Derivative assets,” non-current derivative assets were included in “Deferred charges and other,” current derivative liabilities were included in “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):
| 2007 | 2006 | 2010 | 2009 | |||||||||||
Current derivative assets | $ | 14.9 | $ | 6.2 | ||||||||||
Commodity contracts | $ | 6.5 | $ | 11.2 | ||||||||||
Non-current derivative assets | — | 0.4 | ||||||||||||
Commodity contracts | $ | 1.5 | $ | 4.1 | ||||||||||
Current derivative liabilities | 7.7 | 44.4 | ||||||||||||
Commodity contracts | $ | 32.2 | $ | 49.5 | ||||||||||
Foreign exchange contracts | 0.1 | 1.5 | ||||||||||||
| $ | 32.3 | $ | 51.0 | |||||||||||
Non-current derivative liabilities | — | 2.1 | ||||||||||||
Commodity contracts | $ | 11.0 | $ | 15.3 | ||||||||||
Derivatives Not Designated in Hedge Relationships- DerivativesWPL generally records gains and losses from its derivative instruments utilized by WPL during 2007 and 2006, which were not designated in hedge relationships, include financial transmission rights, electric contractswith offsets to regulatory assets or regulatory liabilities, based on its fuel and natural gas contracts. Financial transmission rightscost recovery mechanisms, as well as other specific regulatory authorizations. Gains and losses from derivative instruments not designated as hedging instruments were used by WPLrecorded as follows (in millions):
Location Recorded on Balance Sheets | Gains (Losses) | |||||||||
| 2010 | 2009 | |||||||||
Commodity contracts | Regulatory assets | ($ | 30.6 | ) | ($ | 68.1 | ) | |||
Commodity contracts | Regulatory liabilities | 0.9 | 12.7 | |||||||
Foreign exchange contracts | Regulatory liabilities | — | (0.4 | ) | ||||||
Losses from commodity contracts during 2010 and 2009 were primarily due to manage transmission congestion costs. WPL used electric contracts to manage utility energy costs during supply/demand imbalances.
WPL used several purchase contracts to supply fixed-price natural gas for the natural gas-fired electric generating facilities it operates and several swap contracts to mitigate pricing volatility for natural gas supplied to its retail customers. Significantimpacts of decreases in electricity and natural gas prices during such periods.
Credit Risk-related Contingent Features -WPL has entered into various 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 based upon its credit ratings. In the event of a downgrade in 2006 changedits 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 unwind the contracts and pay the underlying liability positions.
Certain of these agreements with credit risk-related contingency features are accounted for as derivative instruments. The aggregate fair value of these contracts and resultedall derivatives with credit risk-related contingent features that were in material increases in current derivative liabilities. As a result, the counterparties to certain of these contracts required WPL to provide cash collateral of $22 million, which collateral was primarily recorded in “Other accounts receivable”net liability position on the Consolidated Balance Sheet at Dec. 31, 2006.2010 was $43.3 million. At Dec. 31, 2007, counterparties2010, WPL had investment-grade credit ratings. If the most restrictive credit risk-related contingent features for derivative agreements in a net liability position were triggered on Dec. 31, 2010, WPL would be required to WPL’s derivative contracts did not require WPLpost $43.3 million of credit support to provide any cash collateral due to the decreases in the value of its derivative liabilities during 2007.counterparties.
(b) Weather Derivatives -WPL periodically uses non-exchange traded swap agreements based on cooling degree days (CDD) and heating degree days (HDD) measured in or near 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 these 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.
Summer weather derivatives- WPL periodically utilizes weather derivatives based on CDD to reduce the impact of weather volatility on its electric margins for the period June 1 through AugustAug. 31 each year. Beginning in the second quarter of 2007, the weatherWeather derivatives wereare based on CDD measured in Madison, Wisconsin. Previously, the weather derivatives were based on CDD measured in Chicago, Illinois. The actual CDD measured during these periods resulted in settlements with the counterparties under the agreements, which included paymentsreceipts of $2.0 million $2.9 millionin 2008. WPL did not enter into CDD swap agreements in 2010 and $3.5 million in the third quarter of 2007, 2006 and 2005, respectively.2009.
Winter weather derivatives- WPL periodically utilizes weather derivatives based on HDD to reduce the impact of weather volatility on its electric and gas margins for the periods JanuaryJan. 1 through March 31 and NovemberNov. 1 through DecemberDec. 31 each calendar year. Beginning in the fourth quarter of 2006, the weatherWeather derivatives wereare based on HDD measured in Madison, Wisconsin. Previously, the weather derivatives were based on HDD measured in Chicago, Illinois. The actual HDD measured during these periods resulted in settlements with the counterparties under the agreements, which included a paymentpayments of $0.1$3.4 million and receipts of $3.2 million and $0.4$3.6 million in the first half of 2007, 20062009 and 2005,2008, respectively. The actualWPL did not enter into any HDD for the period Nov. 1, 2007 to Dec. 31, 2007 were higher than those specifiedswap agreements in the contracts, resulting in WPL paying the counterparty $1.4 million in January 2008. In addition, WPL will receive/pay up to $2.2 million from/to the counterparty in the second quarter of 2008 if actual HDD for January 2008 through March 2008 are less/greater than the HDD specified in the contracts.2010.
Summary information relating to the summer and winter weather derivatives was as follows (in millions):
| 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | |||||||||||||||||||
Gains (losses): | ||||||||||||||||||||||||
Electric utility operating revenues | $ | (3.0 | ) | $ | (1.4 | ) | $ | (3.5 | ) | $ | — | ($ | 0.8 | ) | $ | 0.6 | ||||||||
Gas utility operating revenues | (1.9 | ) | 3.8 | (1.0 | ) | — | (1.2 | ) | (2.2 | ) | ||||||||||||||
Settlements (paid to) / received from counterparties, net | (2.1 | ) | 0.3 | (3.1 | ) | — | (3.4 | ) | (1.6 | ) | ||||||||||||||
Premiums expensed | 0.5 | 0.3 | 1.1 | — | — | — | ||||||||||||||||||
Premiums paid to counterparties | 0.5 | 0.5 | 0.5 | — | — | — | ||||||||||||||||||
(11)(12) COMMITMENTS AND CONTINGENCIES
(a) Capital Purchase Obligations-WPL has madeentered into capital purchase obligations that contain minimum future commitments related to certain capital expenditures for its wind projects. The obligations are 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 wind generation plans. At Dec. 31, 2010, WPL’s minimum future commitments in connection with its 2008related to these capital expenditures.expenditures were $25 million for 2011.
(b) Operating Expense Purchase Obligations- Alliant Energy, through its subsidiaries Corporate Services, Interstate Power and Light Company (IPL) and WPL entershas entered into various commodity supply, transportation and storage contracts to meet its obligationobligations to deliver energyelectricity and natural gas to its utility customers. Based on a system coordination and operating agreement, Alliant Energy annually allocates purchased power contracts to WPL and IPL, based on various factors such as resource mix, load growth and resource availability. The amounts in the table below reflect these allocated contracts. The purchased power amounts are primarily related to capacity payments under the Kewaunee PPA, which expires in 2013. 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 table below. In addition, Corporate Services entered into system-wide coal contracts on behalf of WPL and IPL of $73 million, $57 million, $29 million, $17 million, and $6 million for 2008 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 yet 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 below. WPL also enters into other operating expense purchase obligations with various vendors for other goods and services. The other operating expense purchase obligations amounts represent individual commitments incurred during the normal course of business that exceeded $1 million at Dec. 31, 2007. At Dec. 31, 2007,2010, WPL’s minimum future commitments fromrelated to these operating expense purchase obligations were as follows (in millions):
Purchased power (a): Kewaunee Nuclear Power Plant (Kewaunee) Other Natural gas Coal (b) Other (c) 2011 2012 2013 2014 2015 Thereafter Total $ 61 $ 72 $ 77 $ — $ — $ — $ 210 16 3 — — — — 19 77 75 77 — — — 229 76 43 27 17 13 21 197 7 7 7 8 — — 29 9 8 7 1 — — 25 $ 169 $ 133 $ 118 $ 26 $ 13 $ 21 $ 480
| 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | |||||||||||||||
Purchased power | $ | 150 | $ | 133 | $ | 84 | $ | 63 | $ | 75 | $ | 79 | $ | 584 | |||||||
Natural gas | 184 | 108 | 25 | 21 | 20 | 64 | 422 | ||||||||||||||
Coal | 7 | 7 | 7 | 7 | 7 | 14 | 49 | ||||||||||||||
Other | 6 | — | — | — | — | — | 6 | ||||||||||||||
| $ | 347 | $ | 248 | $ | 116 | $ | 91 | $ | 102 | $ | 157 | $ | 1,061 | ||||||||
| (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 $119 million, $48 million and $39 million for 2011 to 2013, 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 were not yet known as of Dec. 31, 2010 and therefore are excluded from the table. |
| (c) | Includes individual commitments incurred during the normal course of business that exceeded $1 million at Dec. 31, 2010. |
WPL enters into certain contracts that are considered leases and are therefore not included here, but are included in Note 3.
| (c) | Legal Proceedings - |
(c) Legal ProceedingsAir Permitting Violation Claims -In September 2010, Sierra Club filed in U.S. District Court for the Western District of Wisconsin a complaint against WPL, as owner and operator of the Nelson Dewey Generating Station (Nelson Dewey) and the Columbia Energy Center (Columbia), based on allegations that modifications were made at the 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 (SIPs) designed to implement the CAA. In October 2010, WPL responded to these claims related to Nelson Dewey and Columbia by filing with the U.S. District Court an answer denying the Columbia allegations and a motion to dismiss the Nelson Dewey allegations based on statute of limitations arguments. In November 2010, WPL filed a motion to dismiss the Nelson Dewey and Columbia allegations based on lack of jurisdiction. Sierra Club has responded to the motions. WPL and Sierra Club are currently exchanging and responding to discovery requests. In February 2011, WPL and Sierra Club filed a joint motion for stay of proceedings for 90 days to explore settlement options, which the U.S. District Court granted in part and denied in part. The trial date has been rescheduled to April 2012. In September 2010, Sierra Club filed in U.S. District Court for the Eastern District of Wisconsin a complaint against WPL, as owner and operator of the Edgewater Generating Station (Edgewater), which contained similar allegations regarding air permitting violations at Edgewater. In February 2011, WPL responded to these claims related to Edgewater by filing with the U.S. District Court an answer denying the allegations and a motion to dismiss the allegations based on lack of jurisdiction. In February 2011, WPL and Sierra Club filed a joint motion for stay of proceedings for 90 days to explore settlement options, of which the U.S. District Court has not yet ruled. No trial date or scheduling order has yet been set. The complaints filed by Sierra Club allege that various projects performed at Nelson Dewey, Columbia and Edgewater in the 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 complaint, 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 Edgewater, Nelson Dewey and Columbia. 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 Wisconsin SIP.
In response to similar EPA CAA enforcement initiatives, certain utilities have elected to settle with the EPA, while others have elected to litigate. If the EPA and/or Sierra Club successfully prove their claims that projects completed in the past at Edgewater, Nelson Dewey and Columbia required either a state or federal CAA permit, WPL may, under the applicable statutes, be required to pay civil penalties in amounts of up to $37,500 per day for each violation and/or complete actions for injunctive relief. Payment of fines and/or injunctive relief could be included in a settlement outcome. Injunctive relief contained in settlements or court-ordered remedies for other utilities required the installation of pollution control technology, changed operating conditions including use of alternative fuels other than coal, caps for emissions and limitations on generation including retirement of generating units, and other supplemental environmental projects. Should similar remedies be required for final resolution of these matters at Edgewater, Nelson Dewey and Columbia, WPL would incur additional capital and operating expenditures. WPL is currently reviewing the allegations and is unable to predict the impact of the allegations on its financial condition or results of operations, but believes that an adverse outcome could be significant. WPL and the other owners of Edgewater and Columbia are exploring settlement options while simultaneously defending against these allegations. WPL believes the projects at Edgewater, Nelson Dewey and Columbia were routine or not projected to increase emissions and 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 estimated and therefore has not recognized any related loss contingency amounts as of Dec. 31, 2010.
Alliant Energy Cash Balance Pension Plan (Plan) -In February 2008, a class action lawsuit was filed against the Plan in U.S. District Court for the Western District of Wisconsin (Court). 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, prior to normal retirement age, 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 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. In June 2010, the Court issued an opinion and order that granted the plaintiffs’ motion for summary judgment on liability in the lawsuit and decided with respect to damages that prejudgment interest on damages will be allowed at the prime rate at the time of the judgment. A bench trial on the issue of damages was held in June 2010, at which the Court heard evidence on issues related to the amount of damages. In December 2010, the Court issued an opinion and order that decided the interest crediting rate that the Plan used to project the cash balance accounts of the plaintiffs during the class period should have been 8.2% and a pre-retirement mortality discount will not apply to the damages calculation. Based on this opinion and order, the Plan currently believes that the final judgment of damages by the Court may be up to $23 million, which does not include any award for plantiff’s attorney’s fees or costs. The Plan is contesting the Court’s decision and intends to pursue appropriate appeals after the final judgment is rendered by the Court. WPL has not recognized any potential liability for damages from the lawsuit while this matter is being contested. WPL is currently unable to predict the final outcome of the class action lawsuit or the ultimate impact on its financial condition or results of operations but believes an adverse outcome could have a material effect on its retirement plan funding and expense.
The interest crediting rate used to project the cash balance account to participants’ normal retirement age has also been 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. Alliant Energy has reached an agreement with the IRS, which is expected to result in a favorable determination letter for the Plan. The agreement with the IRS is expected to require an amendment to the Plan, which will likely result in future payments to certain Plan participants. Any future payments to Plan participants resulting from an amendment to the Plan will be recognized in the period the amendment is executed.
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 or cash flows.operations.
(d)Guarantees and Indemnifications- WPL provided indemnifications associated with the sale of its electric and gas utility assets in Illinois in the first quarter of 2007 (maximum limit of $3 million and expires in February 2008) and with the sale of its water utility in South Beloit, Illinois in the third quarter of 2006 (maximum limit of $1 million and expires in July 2008) for losses resulting from potential breach of the representations and warranties made by WPL on the sale dates and for the breach of its obligations under the sale agreements. WPL believes the likelihood of having to make any material cash payments under these indemnifications is remote. WPL has not recorded liabilities any material liabilities related to these indemnifications as of Dec. 31, 2007. 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, 2007, WPL had a $3 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 Matters-WPL is subject to environmental regulations as a result of its current and past operations. These regulations are designed to protect humanpublic health and the environment and have resulted in compliance, remediation, containment and monitoring obligations, which are recorded as environmental liabilities. At Dec. 31, current environmental liabilities were 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):
| 2007 | 2006 | 2010 | 2009 | |||||||||||
Current environmental liabilities | $ | 0.7 | $ | 0.7 | $ | 0.3 | $ | 0.5 | ||||||
Non-current environmental liabilities | 5.5 | 5.0 | 4.1 | 4.0 | ||||||||||
| $ | 6.2 | $ | 5.7 | $ | 4.4 | $ | 4.5 | |||||||
Manufactured gas plant (MGP)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 seveneight 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 2007.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 $6$3 million to $8$5 million. At Dec. 31, 2007,2010, WPL had recorded $6$4 million in current and non-current environmental liabilities for its remaining costs to be incurred for these MGP sites.
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 is also monitorsmonitoring various environmental regulations whichthat may have a significant impact on its future operations. Given uncertainties regarding the ultimate 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), Clean Air Mercury Rule (CAMR), Section 316(b) of the Clean Water Act (316(b)), Wisconsin State Thermal Rule (WI Thermal Rule) and proposed legislation to regulate the emission of greenhouse gases (GHG). The following providesare included below along with a brief description of these environmental regulations.
Air Quality -
CAIRClean Air Interstate Rule (CAIR) is expected to require emission control upgrades to certain ofan emissions trading program that requires SO2 and NOx emissions reductions at WPL’s existingfossil fuel-fired electric generating units (EGUs) with greater than 25 MW capacity through installation of emission controls and/or purchases of allowances. The requirements for NOx and SO2 reductions started in 2009 and 2010, respectively. The requirements of CAIR remain subject to further review by the federal courts and the EPA.
Clean Air Transport Rule (CATR)is the EPA’s proposed CAIR replacement rule that would require SO2 and NOx emissions reductions from WPL’s fossil-fueled EGUs with greater than 25 MW of capacitycapacity. Existing CAIR compliance requirements remain effective until the final CATR compliance requirements supersedes them, which the EPA currently estimates will occur in 2012. The compliance deadline for CATR is expected to begin in 2012.
Clean Air Visibility Rule (CAVR) addresses regional haze at national parks and reducewilderness areas and is expected to require reductions in visibility-impairing emissions, including SO2, NOx and nitrogen oxides (NOx) emissions in 28 states (including Wisconsin).particulate matter, from certain EGUs by installing emission controls including those determined to be Best Available Retrofit Technology. The requirements of CAVR remain subject to further review by the federal courts and the EPA. The CAVR SIPs will determine required compliance actions and deadlines.
CAMRUtility Maximum Achievable Control Technology (MACT) Rule is expected to require emissionstandards for the control upgrades to certain of WPL’s existing electric generating unitsmercury and other federal hazardous air pollutants for coal- and oil-fired EGUs with greater than 25 MW capacity. The final rule has not been issued; however, compliance is currently expected to be required by 2014.
Wisconsin State Mercury Rule requires WPL’s existing coal-fired EGUs to reduce annual mercury emissions by 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 Reasonably Available Control Technology Rule requires NOx emissions reductions at Edgewater to achieve compliance with 2013 requirements since it is located in Sheboygan County, which is currently designated as a non-attainment area for Oxone National Ambient Air Quality Standard (NAAQS). WPL installed NOx emission control technologies at Edgewater to meet 2009 to 2012 compliance requirements under this rule.
Ozone NAAQS Rule is expected to reduce the primary standard to a level within a range of 0.06 to 0.07 parts per million and establish a new seasonal secondary standard for EGUs located in areas designated as non-attainment. The final rule is expected to be issued by July 2011 and the schedule for compliance with the Ozone NAAQS Rule has not yet been established.
Fine Particle NAAQS Rule is expected to 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 court decision, the EPA is reviewing whether the annual fine particulate matter standard should also be lowered. The schedule for compliance with the Fine Particle NAAQS Rule has not yet been established.
Nitrogen Dioxide (NO2) NAAQS Rule requires a new one-hour NAAQS for NO2 at a level 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 NO2 NAAQS are expected to be issued in 2012. The requirements of the NO2 NAAQS Rule remain subject to further review by the federal courts and the EPA and the schedule for compliance has not yet been established.
SO2 NAAQS Rule requires a new one-hour NAAQS for SO2 at a level of 75 ppb. The EPA’s final designations identifying non-attainment areas for the SO2 NAAQS are expected to be issued in 2012. The compliance deadline for SO2 NAAQS is currently expected to be required by 2017 for non-attainment areas.
Industrial Boiler and Process Heater MACT Rule requires reductions of emissions of hazardous air pollutants at EGUs with less than 25 MW capacity, and reduce U.S. utility (including WPL) mercury emissions.auxiliary boilers and process heaters located at EGUs. The requirements of this rule remain subject to further review by the federal courts, the EPA and state environmental agencies. The compliance deadline for the Industrial Boiler and Process Heater MACT rule is currently expected to be 2014.
Water Quality -
Section 316(b) of the Federal Clean Water Act is expected to require modifications to cooling 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 and the schedule for compliance has not yet been established. The EPA expects to issue a proposed rule in 2011 and a final rule in 2012.
WIWisconsin State Thermal Rule is expected tomay require modifications to certain of WPL’s electric generating facilitiesEGUs to limit the amount of heat those facilities can discharge into Wisconsin waters. Compliance with the thermal rule will be evaluated on a case-by-case basis as discharge permits for WPL’s EGUs are renewed.
Hydroelectric Fish Passages and Fish Protective Devices - FERC issued an order requiring WPL’s Prairie du Sac hydro plant to install an agency-approved fish passage at the facility by December 2012. WPL currently expects to request an extension from FERC in 2011.
Land and Solid Waste -
ProposedCoal Combustion Residuals (CCR)could impose additional requirements for CCR management, beneficial use applications and disposal including operation and maintenance of active surface impoundments (ash ponds) and/or landfills. The EPA issued a proposed regulation for public comment in 2010, and a final rule is expected by early 2012. The schedule for compliance with the CCR Rule has not yet been established.
Polychlorinated Biphenyls (PCB) - The EPA is re-examining the current authorized uses of PCB in electrical equipment and other applications to determine if these uses present an unreasonable risk of injury to health and the environment. The EPA is expected to issue proposed PCB rules for public comment in 2012 and could include a possible mandate to phase out all PCB-containing equipment. The schedule for compliance with the PCB Rule has not yet been established.
Greenhouse Gas (GHG) Emissions -
EPA Mandatory GHG emission legislationReporting Rule-Public awareness of climate change continues to grow along requires that sources above certain threshold levels monitor and report GHG emissions. The annual reporting compliance requirement begins for the calendar year 2010 with support for policymakers to take action to mitigate global warming. Several members of Congress have proposed legislation to regulatethe first GHG emissions primarily targeting reductions of carbon dioxide (CO2) emissions. State and regional initiativesreports due by March 2011.
EPA New Source Performance Standard (NSPS) for GHG Emissions from Electric Utilities is expected to addressrequire performance standards for GHG emissions arefrom new and existing fossil fuel-fired EGUs. The EPA is expected to propose NSPS by July 2011 and finalize NSPS by May 2012. For existing EGUs, state agencies must submit their plans for reducing EGU GHG emissions to the EPA within nine months after publication of the NSPS. The schedule for compliance with the NSPS has not yet been established.
EPA GHG Tailoring Rule establishes GHG emissions thresholds for construction and operation of facilities emitting GHG incorporated with air permits applied for after January 2011. The rule also underway in states covering WPL’s service territory. WPL continuesrequires new and significantly modified facilities to take voluntarydemonstrate use of the Best Available Control Technologies and energy efficiency measures to reduce itsminimize GHG emissions, including CO2, as prudent steps to address potential climate change regulations.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 the Midwest region of the U.S. 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.
Refer to Notes 1(p) and 11(a) for details of allowances for doubtful accounts and credit risk-related contingent features, respectively.
(g) Edgewater Unit 5 Purchase Agreement -WPL and Wisconsin Electric Power Company (WEPCO) entered into an agreement, which became effective in March 2010, for WPL to purchase WEPCO’s 25% ownership interest in Edgewater Unit 5 for WEPCO’s net book value, including working capital. In June 2010, FERC authorized the transaction. In
November 2010, the PSCW approved the transaction and WPL’s request to defer all costs and benefits related to the purchase and operation of Edgewater Unit 5 between the time of the transaction and WPL’s next base rate case. WEPCO is currently working with the Michigan Public Service Commission to obtain satisfactory approval for the transaction. WPL currently expects the transaction to close in the first half of 2011 at an approximate purchase price of $40 million to $45 million depending on WEPCO’s working capital balances and level of capital investment in Edgewater Unit 5 prior to the sale. If the purchase is completed, WPL would own 100% of Edgewater Unit 5.
(h) Collective Bargaining Agreements -In May 2011, WPL’s only collective bargaining agreement, International Brotherhood of Electrical Workers (IBEW) Local 965, expires representing 92% of WPL’s total employees at Dec. 31, 2010. While negotiations to renew the contract with IBEW Local 965 are underway, WPL is currently unable to predict the outcome.
(12) JOINTLY-OWNED ELECTRIC UTILITY PLANT
| (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 share of expenses from jointly-owned electric generating facilities is included in the corresponding operating expenses (e.g. electric production fuel, other operation and maintenance, etc.) in its 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, 20072010 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 | $ | 246.1 | $ | 144.8 | $ | 5.5 | $ | 11.2 | 1985 | Coal | 75.0 | % | $ | 260.4 | $ | 147.8 | $ | 17.4 | $ | 11.8 | ||||||||||||||||||||||
Columbia Energy Center | Coal | 46.2 | 224.3 | 121.7 | 6.0 | 9.9 | ||||||||||||||||||||||||||||||||||||||
Columbia Units 1-2 | 1975-1978 | Coal | 46.2 | % | 241.4 | 148.3 | 2.7 | 9.7 | ||||||||||||||||||||||||||||||||||||
Edgewater Unit 4 | Coal | 68.2 | 73.7 | 41.4 | 2.6 | 2.6 | 1969 | Coal | 68.2 | % | 86.7 | 44.6 | 0.3 | 2.6 | ||||||||||||||||||||||||||||||
| $ | 544.1 | $ | 307.9 | $ | 14.1 | $ | 23.7 | $ | 588.5 | $ | 340.7 | $ | 20.4 | $ | 24.1 | |||||||||||||||||||||||||||||
| (a) | Refer to Note 12(g) for discussion of WPL’s agreement to purchase the remaining 25% ownership interest in Edgewater Unit 5 from WEPCO. |
(13)(14) SEGMENTS OF BUSINESS
WPL is a utility serving customers in Wisconsin and includes three reportable 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 only in “Total.” In 2007, 2006 and 2005, gas revenues included $15 million, $17 million and $51 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 | |||||||||||||
2010 | ||||||||||||||||
Operating revenues | $ | 1,209.9 | $ | 206.3 | $ | 7.4 | $ | 1,423.6 | ||||||||
Depreciation and amortization | 98.0 | 10.6 | — | 108.6 | ||||||||||||
Operating income (loss) | 250.1 | 29.8 | (1.1 | ) | 278.8 | |||||||||||
Interest expense, net of AFUDC | 66.1 | |||||||||||||||
Equity income from unconsolidated investments | (37.8 | ) | — | — | (37.8 | ) | ||||||||||
Interest income and other | (0.1 | ) | ||||||||||||||
Income taxes | 98.3 | |||||||||||||||
Net income | 152.3 | |||||||||||||||
Preferred dividends | 3.3 | |||||||||||||||
Earnings available for common stock | 149.0 | |||||||||||||||
Total assets | 3,201.9 | 357.3 | 330.4 | 3,889.6 | ||||||||||||
Investments in equity method subsidiaries | 236.0 | — | — | 236.0 | ||||||||||||
Construction and acquisition expenditures | 430.3 | 19.9 | 0.3 | 450.5 | ||||||||||||
| Electric | Gas | Other | Total | Electric | Gas | Other | Total | ||||||||||||||||||||||||
2007 | |||||||||||||||||||||||||||||||
2009 | |||||||||||||||||||||||||||||||
Operating revenues | $ | 1,140.7 | $ | 265.7 | $ | 10.4 | $ | 1,416.8 | $ | 1,160.3 | $ | 216.5 | $ | 9.3 | $ | 1,386.1 | |||||||||||||||
Depreciation and amortization | 95.7 | 14.2 | — | 109.9 | 103.2 | 12.2 | — | 115.4 | |||||||||||||||||||||||
Operating income (loss) | 157.7 | 37.9 | (4.9 | ) | 190.7 | 145.4 | 24.6 | (3.0 | ) | 167.0 | |||||||||||||||||||||
Interest expense, net of AFUDC | 47.0 | 69.1 | |||||||||||||||||||||||||||||
Equity income from unconsolidated investments | (28.4 | ) | — | — | (28.4 | ) | (37.0 | ) | — | — | (37.0 | ) | |||||||||||||||||||
Interest income and other | (0.7 | ) | (0.4 | ) | |||||||||||||||||||||||||||
Income taxes | 59.3 | 45.8 | |||||||||||||||||||||||||||||
Net income | 113.5 | 89.5 | |||||||||||||||||||||||||||||
Preferred dividends | 3.3 | 3.3 | |||||||||||||||||||||||||||||
Earnings available for common stock | 110.2 | 86.2 | |||||||||||||||||||||||||||||
Total assets | 2,215.5 | 341.1 | 232.0 | 2,788.6 | 2,891.0 | 341.7 | 448.7 | 3,681.4 | |||||||||||||||||||||||
Investments in equity method subsidiaries | 182.0 | — | — | 182.0 | 227.1 | — | — | 227.1 | |||||||||||||||||||||||
Construction and acquisition expenditures | 179.8 | 23.1 | 0.2 | 203.1 | 480.5 | 27.7 | 0.2 | 508.4 | |||||||||||||||||||||||
| Electric | Gas | Other | Total | ||||||||||||||||||||||||||||
2006 | |||||||||||||||||||||||||||||||
Operating revenues | $ | 1,111.4 | $ | 273.9 | $ | 16.0 | $ | 1,401.3 | |||||||||||||||||||||||
Depreciation and amortization | 92.8 | 14.5 | — | 107.3 | |||||||||||||||||||||||||||
Operating income | 143.9 | 40.0 | 1.0 | 184.9 | |||||||||||||||||||||||||||
Interest expense, net of AFUDC | 45.7 | ||||||||||||||||||||||||||||||
Equity income from unconsolidated investments | (27.0 | ) | — | — | (27.0 | ) | |||||||||||||||||||||||||
Interest income and other | (1.3 | ) | |||||||||||||||||||||||||||||
Income taxes | 62.2 | ||||||||||||||||||||||||||||||
Net income | 105.3 | ||||||||||||||||||||||||||||||
Preferred dividends | 3.3 | ||||||||||||||||||||||||||||||
Earnings available for common stock | 102.0 | ||||||||||||||||||||||||||||||
Total assets | 2,131.4 | 351.9 | 215.8 | 2,699.1 | |||||||||||||||||||||||||||
Investments in equity method subsidiaries | 175.3 | — | — | 175.3 | |||||||||||||||||||||||||||
Construction and acquisition expenditures | 141.8 | 18.9 | 1.8 | 162.5 | |||||||||||||||||||||||||||
| Electric | Gas | Other | Total | ||||||||||||||||||||||||||||
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 taxes | 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 | |||||||||||||||||||||||||||
| Electric | Gas | Other | Total | |||||||||||||
2008 | ||||||||||||||||
Operating revenues | $ | 1,153.0 | $ | 300.0 | $ | 12.8 | $ | 1,465.8 | ||||||||
Depreciation and amortization | 89.3 | 12.4 | — | 101.7 | ||||||||||||
Operating income | 167.1 | 35.6 | 2.2 | 204.9 | ||||||||||||
Interest expense, net of AFUDC | 52.6 | |||||||||||||||
Equity income from unconsolidated investments | (33.9 | ) | — | — | (33.9 | ) | ||||||||||
Interest income and other | (0.6 | ) | ||||||||||||||
Income taxes | 68.4 | |||||||||||||||
Net income | 118.4 | |||||||||||||||
Preferred dividends | 3.3 | |||||||||||||||
Earnings available for common stock | 115.1 | |||||||||||||||
Total assets | 2,492.5 | 367.1 | 405.9 | 3,265.5 | ||||||||||||
Investments in equity method subsidiaries | 203.6 | — | — | 203.6 | ||||||||||||
Construction and acquisition expenditures | 336.3 | 25.3 | 1.5 | 363.1 | ||||||||||||
(14)(15) OTHER INTANGIBLE ASSETS
Emission Allowances -- At Dec. 31, 2007, purchasedThe gross carrying amount and accumulated amortization of emission allowances were $7 million and were recorded as intangible assets in “Other assets - deferred charges and other” on the Consolidated Balance Sheets.Sheets at Dec. 31 as follows (in millions):
| 2010 | 2009 | |||||||
Gross carrying amount | $ | 3.9 | $ | 9.0 | ||||
Accumulated amortization | 3.4 | 4.9 | ||||||
Amortization expense for emission allowances was recorded in “Electric production fuel and energy purchases” in the Consolidated Statements of Income. In 2007, 20062010, 2009 and 2005, there was no2008, amortization expense for purchased emission allowances.allowances was $3.4 million, $4.9 million and $0. At Dec. 31, 2007,2010, estimated amortization expense for 20082011 to 20122015 for purchased emission allowances was $0, $5 million, $2$0.5 million, $0, $0, $0 and $0, respectively. Refer to Note 1(b) for further discussion of the regulatory treatment WPL’s SO2 emission allowances.
(15)(16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
| 2007 | 2006 | |||||||||||||||||||||||
| March 31 | June 30 | Sep. 30 | Dec. 31 | March 31 | June 30 | Sep. 30 | Dec. 31 | |||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Operating revenues | $ | 398.6 | $ | 312.3 | $ | 357.6 | $ | 348.3 | $ | 380.8 | $ | 301.4 | $ | 368.4 | $ | 350.7 | ||||||||
Operating income | 56.7 | 33.1 | 52.4 | 48.5 | 56.9 | 34.1 | 38.8 | 55.1 | ||||||||||||||||
Net income | 34.6 | 18.6 | 30.8 | 29.5 | 32.7 | 17.9 | 22.6 | 32.1 | ||||||||||||||||
Earnings available for common stock | 33.8 | 17.7 | 30.0 | 28.7 | 31.9 | 17.0 | 21.8 | 31.3 | ||||||||||||||||
Operating revenues Operating income Net income Earnings available for common stock(16) ASSETS AND LIABILITIES HELD FOR SALE 2010 2009 March 31 June 30 Sep. 30 Dec. 31 March 31 June 30 Sep. 30 Dec. 31 (in millions) $ 392.9 $ 312.9 $ 369.6 $ 348.2 $ 411.3 $ 300.4 $ 326.6 $ 347.8 69.7 52.3 86.7 70.1 52.1 25.7 41.5 47.7 37.0 30.2 50.0 35.1 31.3 11.6 21.0 25.6 36.2 29.3 49.2 34.3 30.5 10.7 20.2 24.8
In February 2007, WPL completed the sale of its Illinois electric distribution and gas properties held within South Beloit and received net proceeds of $24 million. WPL has applied the provisions of SFAS 144 to the South Beloit assets and liabilities, which were recorded as held for sale at Dec. 31, 2006. The operating results of South Beloit were not reported as discontinued operations due to WPL’s continuing involvement in the operations of this business after the disposal transaction. The assets and liabilities held for sale on the Consolidated Balance Sheet at Dec. 31, 2006 were as follows (in millions):
Assets held for sale: | ||||
Property, plant and equipment: | ||||
Electric plant in service | $ | 21.6 | ||
Gas plant in service | 13.8 | |||
Accumulated depreciation | (13.2 | ) | ||
Net plant | 22.2 | |||
Construction work in progress | 2.1 | |||
Property, plant and equipment, net | 24.3 | |||
Liabilities held for sale: | ||||
Long-term liabilities | 1.3 | |||
Net assets held for sale | $ | 23.0 | ||
(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, wind projects 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.PCB. 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 is as follows (in millions):
| 2007 | 2006 | |||||||
Balance at Jan. 1 | $ | 11.4 | $ | 10.9 | ||||
Accretion expense | 0.7 | 0.6 | ||||||
Revisions in estimated cash flows | 0.1 | (0.3 | ) | |||||
Liabilities incurred | — | 0.9 | ||||||
Liabilities settled | (0.3 | ) | (0.7 | ) | ||||
Balance at Dec. 31 | $ | 11.9 | $ | 11.4 | ||||
| 2010 | 2009 | |||||||
Balance, Jan. 1 | $ | 21.4 | $ | 17.9 | ||||
Liabilities incurred (a) | 9.8 | — | ||||||
Accretion expense | 1.3 | 1.1 | ||||||
Liabilities settled | (0.2 | ) | (0.3 | ) | ||||
Revisions in estimated cash flows (b) | — | 2.7 | ||||||
Balance, Dec. 31 | $ | 32.3 | $ | 21.4 | ||||
| (a) | In 2010, WPL recorded AROs of $9.8 million related to its Bent Tree - Phase I wind project. |
| (b) | In 2009, WPL recorded revisions in estimated cash flows of $2.7 million based on revised remediation timing and cost information for its Columbia landfill ARO. |
(18) VARIABLE INTEREST ENTITIES
FIN 46R requires consolidation where thereAn 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) power, through voting rights or similar rights, to direct the activities of the entity that most significantly impact the entity’s economic performance; (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 PPAsPPA for WPL to determine whether the counterparties are variable interest entities per FIN 46Rcounterparty 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 2007, 20062010, 2009 and 2005,2008, Alliant Energy’s (primarily WPL’s) costs, excluding fuel costs, related to the Riverside PPA were $64 million, $61 million, and $65 million, respectively. In 2007, 2006 and 2005, WPL’s costs, excluding fuel costs, related to the RockGen PPA were $16 million, $16$63 million and $18$63 million, respectively.
In December 2005, Calpine filed voluntary petitionsRefer to restructure under Chapter 11Note 1(r) for discussion of new accounting standards effective Jan. 1, 2010 that impact the U.S. Bankruptcy Code. RockGen was part of the bankruptcy proceedings but Riverside was excluded. WPL utilizes RockGen primarilyaccounting for capacity. In January 2008, Calpine emerged from bankruptcy and the RockGen PPA will continue in force through May 2009, the end of the PPA term.VIEs.
(19) RELATED PARTIES
System Coordination and Operating Agreement -WPL and IPL are parties to a system coordination and operating agreement.agreement whereby Corporate Services serves as agent on behalf of WPL and IPL. The agreement, which has been approved by FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation systems of WPL and IPL. In addition,As agent of the agreement, allows the interconnected system to be operated as a single entity with off-systemCorporate Services enters into energy, capacity, ancillary services, and transmission sale and purchase transactions. Corporate Services allocates such sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among WPL and IPL based on procedures included in the agreement. The sales allocated to WPL were $16 million, $24 million and $40 million for 2007, 2006 and 2005, respectively. The purchases allocated to WPL were $449 million, $444 million and $466 million for 2007, 2006 and 2005, respectively. The procedures were approved by FERC and all state regulatory bodies having jurisdiction over these sales. Under the agreement, WPL and IPL are fully reimbursed for any generation expense incurred to support the sale to an affiliate or to a non-affiliate. Any margins onjurisdiction. The sales to non-affiliates are distributedcredited to WPL were $24 million, $72 million and IPL in proportion$22 million for 2010, 2009 and 2008, respectively. The purchases billed to each utility’s share of electric production at the time of the sale.WPL were $73 million, $121 million and $371 million for 2010, 2009 and 2008, 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 $135$127 million, $124$112 million and $113$120 million for 2007, 20062010, 2009 and 2005,2008, respectively, and consisted primarily of employee compensation, benefits and fees associated with various professional services. AtAs of Dec. 31, 20072010 and 2006,2009, WPL had a net intercompany payablepayables to Corporate Services of $74$42 million and $61$45 million, respectively.
Refer to Note 3(b) for discussion of WPL’s capital lease related to SFEF.
ATC - -PursuantPursuant 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 $72 million, $59 million and $52 million in 2007, 2006 and 2005, respectively. WPL billed ATC $8.6 million, $9.9 million and $9.3 million in 2007, 2006 and 2005, respectively. Atbetween the parties were as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||
ATC billings to WPL | $ | 92 | $ | 83 | $ | 82 | ||||||
WPL billings to ATC | 11 | 13 | 9 | |||||||||
As of Dec. 31, 20072010 and 2006,2009, WPL owed ATC net amounts of $5.3$7 million and $4.4$5 million, respectively.
Acquisition of the Neenah Energy Facility -In 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 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.
NMCSheboygan Falls Energy Facility Lease -- WPL received services from NMCRefer to Note 3(b) for the management and operationdiscussion of Kewaunee. NMC billed WPL indirectly, through Wisconsin Public Service Corporation, $18 million in 2005 for its allocated portion for Kewaunee. As a result of the Kewaunee sale, WPL no longer receives services from NMC.WPL’s Sheboygan Falls Energy Facility lease.
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, 2007, 67%2010, 71% of WPL’s individual preferred shareowners were Wisconsin residents.
Dividend Information --PreferredPreferred stock dividends paid per share for each quarter during 20072010 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 20082011 are as follows:
Record Date | Payment Date | |
| February | March 15 | |
| May | June | |
| August | September 15 | |
| November | 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, 20072010 as filed with the SEC will be provided without charge upon request. Requests may be directed to Alliant Energy Shareowner Services, P.O. Box 14720, Madison, Wisconsin 53708-0720.
EXECUTIVE OFFICERS AND DIRECTORS
Executive Officers - - Numbers following the names represent the officer’s age as of Dec. 31, 2007.2010.
William D. Harvey, 58,61, was elected Chairman of the Board effective February 2006 and Chief Executive Officer effective July 2005 and has been a board memberdirector since January 2005.
John O. Larsen, 47, was elected President effective December 2010. He previously served as Senior Vice President-Generation since January 2010, as Vice President-Generation from August 2008 to January 2010 and as Vice President-Technical and Integrated Services from January 2004 to August 2008.
Patricia L. Kampling, 51, was elected Chief Operating Officer since 2004 and President from 1998 to 2003.
Barbara J. Swan, 56, was elected President effective January 2004.February 2011. She previously served as Executive Vice President and General Counsel since 1998.
Eliot G. Protsch, 54, was elected Chief Financial Officer effective January 2004. He previously served as Executive Vice President and Chief Financial Officer since September 2003 and2010, as Executive Vice President-Energy DeliveryPresident-Chief Financial Officer and Treasurer from 1998January 2010 to September 2003.2010, as Vice President-Chief Financial Officer and Treasurer from January 2009 to January 2010, as Vice President and Treasurer from January 2007 to January 2009, and as Vice President-Finance from August 2005 to January 2007.
Thomas L. Aller, 58,61, 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, 52, 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, 49, 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 and Vice President-Infrastructure Security from 2002 to May 2003.January 2007.
Thomas L. HansonJames H. Gallegos, 54,50, was elected Vice President-ControllerPresident and Chief Accounting OfficerGeneral Counsel effective January 2007.November 2010. He previously served as Vice President and Treasurer sinceCorporate General Counsel of BNSF Railway Company, a subsidiary of Burlington Northern and Santa Fe Corporation from April 2002.2003 to April 2010.
PatriciaThomas L. Kampling, 48, 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.
Peggy Howard MooreHanson, 57, was elected Vice President-FinancePresident-Chief Financial Officer and Treasurer effective January 2007. SheFebruary 2011. He previously served as Vice President-Customer ServicePresident-Chief Accounting Officer and Operations SupportTreasurer since 2004September 2010, as Vice President-Controller and Chief Accounting Officer from January 2007 to September 2010 and as Managing Director-Customer InformationVice President and ServicesTreasurer from April 2002 to 2004.January 2007.
Wayne A. Reschke, 55, was elected Vice President-Human Resources effective September 2009. He was previously a Partner of the Center for Organization Effectiveness, Inc. since 1996.
Joel J. Schmidt, 47, was elected Vice President-Regulatory and Financial Planning effective September 2010. He previously served as Director-Financial Planning and Analysis since May 2009, as Regional Director-Customer Service Operations from March 2008 to May 2009, as Chief Audit Executive from January 2008 to March 2008, as Chief Audit, Ethics, Risk and Compliance Officer from January 2007 to January 2008 and as Chief Audit and Risk Officer from January 2005 to January 2007.
Robert J. Durian, 40, was elected Controller and Chief Accounting Officer effective February 2011. He previously served as Controller since September 2010, as Assistant Controller from March 2009 to September 2010 and as Director of Financial Reporting from February 2006 to March 2009.
Directors - - Refer to WPL’s Proxy Statement for information on WPL’s board members.
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The Board of Directors recommends a vote “FOR” all nominees listed in Proposal 1, “FOR” Proposal 2, for | ||||||||||||||||||||
1. Election of directors: | Nominees for terms ending in 2014: | ¨ | FOR all nominees (except as marked to the contrary below) | ¨ | WITHHOLD AUTHORITY (to vote for all nominees) | |||||||||||||||
| (01) William D. Harvey | ||||||||||||||||||||
| (02) Singleton B. McAllister | ||||||||||||||||||||
(Instructions: To withhold authority to vote for any individual nominee, write that nominee’s number in the box.) | ||||||||||||||||||||
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2. Advisory vote on approval of the compensation of the Company’s named executive officers. | ¨ | For | ¨ | Against | ¨ | Abstain | �� | |||||||||||||||||
3. Advisory vote on the frequency of advisory votes on the compensation of the Company’s named executive officers. | ¨ | 1 Year | ¨ | 2 Years | ¨ | 3 Years | ¨ | Abstain | ||||||||||||||||
4. Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2011. | ¨ | For | ¨ | Against | ¨ | Abstain | ||||||||||||||||||
| 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, then the proxy will be voted “FOR” all nominees listed in Proposal 1, “FOR” Proposal 2, for “1 YEAR” on Proposal 3, “FOR” Proposal 4 and in the discretion of the proxies upon such other matters what may properly come before the meeting or any adjournment or postponement thereof. | ||||||||||||||||||||||||
| (Important information contained on reverse side; please read.) | ||||||||||||||||||||||||
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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. | ||||||||||||||||||
2011 Annual Meeting of Shareowners
Tuesday, May 17, 2011,
at 2:00 p.m.(Central Daylight Time)
Alliant Energy Corporate Headquarters
Sandy River Conference Room
4902 N. Biltmore Lane
Madison, Wisconsin
Photo ID required for entry.
www. wellsfargo.com/www.wellsfargo.com/shareownerservices
1-800-356-5343
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 go towww.alliantenergy.com/WPLproxy. We encourage you to check out Alliant Energy’s website to see how easy and convenient it is. You may print or just view these materials.
È Please fold here – Do not separateÈ
Wells Fargo Shareowner Services | ||||
P.O. Box 64873 | ||||
St. Paul, MN 55164-0873 | proxy |
The undersigned appoints John O. Larsen 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 March 30, 2011, at the Annual Meeting of Shareowners of the Company to be held at 4902 N. Biltmore Lane, Madison, Wisconsin on May 17, 2011 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 8, 2011, subject to any directions indicated on the reverse side of this card.
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 20, 2008.16, 2011.
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WISCONSIN POWER AND LIGHT COMPANY
2008 ANNUAL MEETING OF SHAREOWNERS
Wednesday, May 21, 2008
2:00 p.m.(Central Daylight Time)
Alliant Energy Corporate Headquarters
Mississippi 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 go towww.alliantenergy.com/WPLproxy.We encourage you to check out Alliant Energy’s website to see how easy and convenient it is. You may print or just view these materials.
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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 8, 2008, at the Annual Meeting of Shareowners of the Company to be held at 4902 N. Biltmore Lane, Madison, Wisconsin on May 21, 2008 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, 2008, 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 2008.
See reverse for voting instructions.ECRM158493 REV. 4 03/11
