-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AwRiVLL5st9vkDM7l5V3Tdx4InSHueOIm6tZBZBglQp16YSWNCM44d6C40LGU6CW W3U4HkIyuxsEH26B4117ig== 0000897069-99-000197.txt : 19990402 0000897069-99-000197.hdr.sgml : 19990402 ACCESSION NUMBER: 0000897069-99-000197 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERSTATE ENERGY CORP CENTRAL INDEX KEY: 0000352541 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 391380265 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09894 FILM NUMBER: 99581273 BUSINESS ADDRESS: STREET 1: 222 WEST WSHNGTON AVENUE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523110 MAIL ADDRESS: STREET 1: P O BOX 2568 CITY: MADISON STATE: WI ZIP: 53701-2568 FORMER COMPANY: FORMER CONFORMED NAME: WPL HOLDINGS INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IES UTILITIES INC CENTRAL INDEX KEY: 0000052485 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 420331370 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04117 FILM NUMBER: 99581274 BUSINESS ADDRESS: STREET 1: 200 FIRST ST SE STREET 2: IES TOWER CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 BUSINESS PHONE: 3193984411 FORMER COMPANY: FORMER CONFORMED NAME: IOWA ELECTRIC LIGHT & POWER CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IOWA RAILWAY & LIGHT CORP DATE OF NAME CHANGE: 19670629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN POWER & LIGHT CO CENTRAL INDEX KEY: 0000107832 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 390714890 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-00337 FILM NUMBER: 99581275 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Name of Registrant, State of Incorporation, Address of Commission Principal Executive IRS Employer File Number Offices and Telephone Number Identification Number - ----------- ---------------------------- --------------------- 1-9894 INTERSTATE ENERGY CORPORATION 39-1380265 (a Wisconsin corporation) 222 West Washington Avenue Madison, Wisconsin 53703 Telephone (608)252-3311 0-4117-1 IES UTILITIES INC. 42-0331370 (an Iowa corporation) Alliant Tower Cedar Rapids, Iowa 52401 Telephone (319)398-4411 0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890 (a Wisconsin corporation) 222 West Washington Avenue Madison, Wisconsin 53703 Telephone (608)252-3311 Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Title of Class Exchange on Which Registered -------------- ---------------------------- Interstate Energy Corporation Common Stock, $.01 Par Value New York Stock Exchange Interstate Energy Corporation Common Stock Purchase Rights New York Stock Exchange IES Utilities Inc. 7-7/8% Quarterly Debt Capital Securities New York Stock Exchange (Subordinated Deferrable Interest Debentures)
Securities registered pursuant to Section 12 (g) of the Act: Title of Class -------------- IES Utilities Inc. 4.80% Cumulative Preferred Stock, Par Value $50 per share Wisconsin Power and Light Company Preferred Stock (Accumulation without Par Value) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] This combined Form 10-K is separately filed by Interstate Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. The aggregate market value of the voting and non-voting common equity held by nonaffiliates as of January 31, 1999: Interstate Energy Corporation $2.24 billion IES Utilities Inc. $0 Wisconsin Power and Light Company $0 Number of shares outstanding of each class of common stock as of January 31, 1999: Interstate Energy Corporation Common Stock, $.01 par value, 77,667,444 shares outstanding IES Utilities Inc. Common Stock, $2.50 par value, 13,370,788 shares outstanding (all of which are owned beneficially and of record by Interstate Energy Corporation) Wisconsin Power and Light Company Common Stock, $5 par value, 13,236,601 shares outstanding (all of which are owned beneficially and of record by Interstate Energy Corporation) DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statements relating to Interstate Energy Corporation's 1999 Annual Meeting of Shareowners and Wisconsin Power and Light Company's 1999 Annual Meeting of Shareowners are, or will upon filing with the Securities and Exchange Commission, be incorporated by reference into Part III hereof. 2 TABLE OF CONTENTS Page Part I Number ------ Item 1. Business 4 Item 2. Properties 22 Item 3. Legal Proceedings 25 Item 4. Submission of Matters to a Vote of Security Holders 25 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 26 Item 6. Selected Financial Data 27 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 29 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 60 Item 8. Financial Statements and Supplementary Data 60 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 122 Part III Item 10. Directors and Executive Officers of the Registrants 122 Item 11. Executive Compensation 126 Item 12. Security Ownership of Certain Beneficial Owners and Management 129 Item 13. Certain Relationships and Related Transactions 130 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 131 Signatures 142 3 FORWARD-LOOKING STATEMENTS Refer to the "Forward-Looking Statements" section in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) for information and disclaimers regarding forward-looking statements contained in this Annual Report on Form 10-K. PART I This Annual Report on Form 10-K includes information relating to Interstate Energy Corporation (IEC), IES Utilities Inc. (IESU) and Wisconsin Power and Light Company (WP&L) (as well as Interstate Power Company (IPC), Alliant Energy Resources, Inc. (Alliant Energy Resources) and Alliant Energy Corporate Services, Inc. (Alliant Energy Corporate Services)). Where appropriate, information relating to a specific entity has been segregated and labeled as such. ITEM 1. BUSINESS A. MERGER On April 21, 1998, IES Industries Inc. (IES), WPL Holdings, Inc. (WPLH) and IPC completed a three-way merger (Merger) forming IEC. IEC is currently doing business as Alliant Energy Corporation. As a result of the Merger, the first tier subsidiaries of IEC include: IESU, WP&L, IPC, Alliant Energy Resources and Alliant Energy Corporate Services. As part of the approval process for the Merger, IEC agreed to various rate freezes and rate caps implemented in certain jurisdictions for periods not to exceed four years commencing on the effective date of the Merger (refer to Item 7. MD&A "Liquidity and Capital Resources - Rates and Regulatory Matters" for a further discussion). A brief description of the first-tier subsidiaries of IEC is as follows: 1) IESU - incorporated in Iowa in 1925 as Iowa Railway and Light Corporation. IESU is primarily a public utility operating company engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of steam services in selective markets, in the State of Iowa. At December 31, 1998, IESU supplied electric and gas service to approximately 341,000 and 179,000 customers, respectively. In 1998, 1997 and 1996, IESU had no single customer for which electric and/or gas sales accounted for 10% or more of IESU's consolidated revenues. IESU also owns varying interests in several other subsidiaries and investments which are not material to IESU's operations. 2) WP&L - incorporated in Wisconsin in 1917 as the Eastern Wisconsin Electric Company, is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of water services in selective markets. Nearly all of WP&L's customers are located in south and central Wisconsin. WP&L operates in municipalities pursuant to permits of indefinite duration which are regulated by Wisconsin law. At December 31, 1998, WP&L supplied electric and gas service to approximately 401,000 and 159,000 customers, respectively. WP&L also has approximately 35,000 water customers. In 1998, 1997 and 1996, WP&L had no single customer for which electric and/or gas sales accounted for 10% or more of WP&L's consolidated revenues. WP&L owns all of the outstanding capital stock of South Beloit Water, Gas and Electric Company (South Beloit), a public utility supplying electric, gas and water service, principally in Winnebago County, Illinois, which was incorporated in 1908. WP&L also owns varying interests in several other subsidiaries and investments which are not material to WP&L's operations. 3) IPC - a public utility incorporated in 1925 under the laws of the State of Delaware. IPC is engaged principally in the generation, transmission, distribution and sale of electric energy and the purchase, distribution, transportation 4 and sale of natural gas in the States of Iowa, Minnesota and Illinois. At December 31, 1998, IPC provided electric and gas service to approximately 166,000 and 50,000 customers, respectively. In 1998, 1997 and 1996, IPC had no single customer for which electric and/or gas sales accounted for 10% or more of IPC's consolidated revenues. 4) ALLIANT ENERGY RESOURCES - following the Merger, the holding companies for the nonregulated businesses of the former WPLH and IES (Heartland Development Corporation (HDC) and IES Diversified Inc., respectively) were merged. The resulting company from this merger is Alliant Energy Resources. Alliant Energy Resources was incorporated in 1988 in Wisconsin as Heartland Development Corporation. The majority of IEC's nonregulated investments are organized under Alliant Energy Resources. Alliant Energy Resources' wholly-owned subsidiaries include Alliant Energy Industrial Services, Inc. (ISCO), Alliant Energy International, Inc. (International), Alliant Energy Investments, Inc. (Investments), Alliant Energy Transportation, Inc. (Transportation), Heartland Properties, Inc. (HPI) and Capital Square Financial Corporation (Capital Square). 5) ALLIANT ENERGY CORPORATE SERVICES - subsidiary formed to provide administrative services to IEC and its subsidiaries as required under the Public Utility Holding Company Act of 1935 (PUHCA). Refer to Note 14 of the "Notes to Consolidated Financial Statements" for a further discussion of IEC's business segments. B. INFORMATION RELATING TO IEC ON A CONSOLIDATED BASIS EMPLOYEES As of December 31, 1998, IEC had the following employees (full-time and part-time):
Number of Bargaining Number of Number of Unit Bargaining Employees Employees Agreements ------------- -------------- ------------- IESU 1,834 1,117 6 WP&L 1,684 1,547 1 IPC 645 525 3 Alliant Energy Resources 1,001 88 5 Alliant Energy Corporate Services 1,188 - - ------------- -------------- ------------- IEC Total 6,352 3,277 15 ============= ============== =============
Eight bargaining agreements at the utilities are scheduled to expire in 1999 and represent substantially all employees covered under collective bargaining agreements. These employees represent approximately 50% of all IEC employees. IEC has not experienced any significant work stoppage problems in the past. While negotiations have commenced, IEC is currently unable to predict the outcome of these negotiations. CAPITAL EXPENDITURE AND INVESTMENT AND FINANCING PLANS Refer to the "Liquidity and Capital Resources" section in Item 7. MD&A for a discussion of anticipated construction and acquisition expenditures for 1999-2003 and details regarding the financing of future capital requirements. REGULATION IEC operates as a registered public utility holding company subject to regulation by the Securities and Exchange Commission (SEC) under the PUHCA. IEC and its subsidiaries are subject to the regulatory provisions of PUHCA, 5 including provisions relating to the issuance and sales of securities, acquisitions and sales of certain utility properties, acquisitions and retention of interests in non-utility businesses and the services provided by Alliant Energy Corporate Services to IEC and its subsidiaries. IEC is subject to regulation by the Public Service Commission of Wisconsin (PSCW). The PSCW regulates, among other things, the type and amount of IEC's investments in non-utility businesses. WP&L is also subject to regulation by the PSCW as to retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. WP&L is generally required to file a rate case with the PSCW every two years with requests for rate relief based on a forward-looking test year period. However, as one of the conditions for approval of the Merger, the PSCW has required WP&L to freeze on a post-merger basis retail electric, natural gas, and water rates for a period of four years. IESU and IPC operate under the jurisdiction of the Iowa Utilities Board (IUB). The IUB has authority to regulate rates and standards of service, to prescribe accounting requirements and to approve the location and construction of electric generating facilities having a capacity in excess of 25,000 kilowatts (KW). Requests for price relief are based on historical test periods, adjusted for certain known and measurable changes. The IUB must decide on requests for price relief within 10 months of the date of the application for which relief is filed or the interim prices granted become permanent. Interim prices, if allowed, are permitted to become effective, subject to refund, no later than 90 days after the price increase application is filed. Notwithstanding this process, IESU and IPC have agreed to a four-year price cap effective with the Merger as part of the Merger approval process. In Iowa, non-exclusive franchises, which cover the use of streets and alleys for public utility facilities in incorporated communities, are granted for a maximum of twenty-five years by a majority vote of local qualified residents. In addition, the IUB defines the boundaries of mutually exclusive service territories for all electric utilities. The IUB has jurisdiction and grants franchises for the use of public highway rights-of-way for electric and gas facilities outside corporate limits. IPC is also subject to regulation by the Minnesota Public Utilities Commission (MPUC). Requests for price relief can be based on either historical or projected data. The MPUC must reach a final decision within 10 months. Interim rates are permitted. The MPUC also has jurisdiction to approve IPC's capital structure on an annual basis. In addition, South Beloit and IPC are subject to regulation by the Illinois Commerce Commission (ICC) for retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. Requests for rate relief must be decided within 11 months. The Federal Energy Regulatory Commission (FERC) has jurisdiction under the Federal Power Act over certain of the electric utility facilities and operations, wholesale rates and accounting practices of WP&L, IESU and IPC, and in certain other respects. In addition, certain natural gas facilities and operations of the companies are subject to the jurisdiction of the FERC under the Natural Gas Act. With respect to environmental matters, the United States Environmental Protection Agency administers certain federal statutes and has delegated the administration of other environmental initiatives to the applicable state environmental agencies. In addition, the state agencies have jurisdiction over air and water quality standards associated with fossil fuel fired electric generation and the level and flow of water, safety and other matters pertaining to hydroelectric generation. WP&L and IESU are subject to the jurisdiction of the Nuclear Regulatory Commission (NRC), with respect to the Kewaunee Nuclear Power Plant (Kewaunee) in the case of WP&L and the Duane Arnold Energy Center (DAEC) in the case of IESU, and to the jurisdiction of the United States Department of Energy (DOE) with respect to the disposal of nuclear fuel and other radioactive wastes from Kewaunee and the DAEC. Refer to Item 7. MD&A for additional information regarding regulation and IEC's rate matters. 6 YEAR 2000 Refer to the "Other Matters - Year 2000" section in Item 7. MD&A for a discussion of IEC's Year 2000 initiatives. C. INFORMATION RELATING TO UTILITY OPERATIONS IEC realized 56%, 39%, 3% and 2% of its electric utility revenues in 1998 in Iowa, Wisconsin, Minnesota and Illinois, respectively. Approximately 87% of the electric revenues were regulated by the respective state commissions while the other 13% were regulated by the FERC. IEC realized 58%, 36%, 3% and 3% of its gas utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively, during the same period. IESU realized 100% of its electric and gas utility revenues in 1998 in Iowa. Approximately 93% of the electric revenues in 1998 were regulated by the IUB while the other 7% were regulated by the FERC. WP&L realized 98% of its electric utility revenues in 1998 in Wisconsin and 2% in Illinois. Approximately 79% of the electric revenues in 1998 were regulated by the PSCW or the ICC while the other 21% were regulated by the FERC. WP&L realized 96% of its gas utility revenues in 1998 in Wisconsin and 4% in Illinois during the same period. IPC realized 77%, 17% and 6% of its electric utility revenues in 1998 in Iowa, Minnesota and Illinois, respectively. Approximately 92% of the electric revenues were regulated by the respective state commissions while the other 8% were regulated by the FERC. IPC realized 70%, 22% and 8% of its gas utility revenues in Iowa, Minnesota and Illinois, respectively, during the same period. UTILITY INDUSTRY OUTLOOK Refer to the "Utility Industry Outlook" section in Item 7. MD&A for a discussion of various competitive issues impacting utility operations. ELECTRIC UTILITY OPERATIONS General IESU provides electricity in Iowa. As of December 31, 1998, IESU provided electricity to approximately 341,000 retail customers in approximately 525 Iowa communities. IESU also currently provides electricity to five wholesale customers. WP&L provides electricity in 34 counties in southern and central Wisconsin and four counties in northern Illinois. As of December 31, 1998, WP&L provided retail electric service to approximately 401,000 customers in 599 communities and wholesale service to 24 municipal utilities, one privately owned utility, three rural electric cooperatives, one Native American nation and to the Wisconsin Public Power, Inc. system for the provision of retail service to 14 communities. IPC provides electricity in portions of 22 counties in northern and northeastern Iowa, in portions of 22 counties in southern Minnesota and in portions of five counties in northwestern Illinois. As of December 31, 1998, IPC provided retail electric service to approximately 166,000 customers in 234 communities and wholesale service to 10 small communities. The percentages of utility operating revenues and utility operating income from electric utility operations for each individual company for the year ended December 31, 1998 were as follows: Percent of Percent of Operating Operating Revenues Income ------------- ------------- IESU 79.2% 92.5% WP&L 84.0 94.3 IPC 88.0 89.5 7 Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months. In 1998, the maximum peak hour demand for IESU was 1,965 megawatts (MW) and occurred on June 26, 1998. For WP&L and IPC, the maximum peak hour demands were 2,292 MW and 971 MW, respectively, and both occurred on July 14, 1998. IESU maintains and operates transmission and substation facilities connecting with its high voltage transmission systems pursuant to a non-cancelable operation agreement (the Operating Agreement) with Central Iowa Power Cooperative (CIPCO). The Operating Agreement, which will terminate on December 31, 2035, provides for the joint use of certain transmission facilities of IESU and CIPCO. IEC has transmission interconnections at various locations with eleven other transmission owning utilities in the Midwest. These interconnections enhance the overall reliability of the IEC transmission system and provide access to multiple sources of economic and emergency power and energy. IESU and IPC are full members of the Mid-Continent Area Power Pool (MAPP). WP&L is a member of the MAPP Regional Transmission Group. MAPP is one of the ten regional members of the North American Electric Reliability Council (NERC). Each regional member of NERC is responsible for maintaining reliability in its area through coordination of planning and operations. WP&L is also a full member of the Mid-America Interconnected Network, Inc. (MAIN), another regional member of NERC. In an effort to bring the entire IEC system under one regional organization, while maintaining flexibility in the face of rapid industry changes, IESU, WP&L and IPC have given withdrawal notices to MAPP and WP&L has also given a withdrawal notice to MAIN. IEC's decision on what regional organization to join will be dependent upon the potential reorganization of some NERC regions and the eventual configuration of the independent transmission company (ITC). Refer to the "Utility Industry Outlook" section in Item 7. MD&A for a discussion of IEC's ITC initiative. Refer to Item 2. "Properties" for additional information regarding electric facilities. Fuel The average cost of fuel per million British thermal units (Btu's) used for electric generation by IESU, WP&L and IPC for the years 1998, 1997 and 1996 was as follows: Nuclear Coal All Fuels ------------ ------------ ------------- IESU - 1998 $ 0.605 $ 0.885 $ 0.887 - 1997 0.650 0.958 0.945 - 1996 0.730 0.944 0.937 WP&L - 1998 0.450 1.171 1.085 - 1997 0.450 1.175 1.129 - 1996 0.469 1.155 1.077 IPC - 1998 N/A 1.287 1.344 - 1997 N/A 1.340 1.414 - 1996 N/A 1.437 1.484 Refer to the Electric Operating Information tables for details on the sources of electric energy for IEC, IESU, WP&L and IPC during 1994 to 1998. Coal IEC estimates its 1999 coal requirements will be approximately 12.3 million tons. Alliant Energy Corporate 8 Services, as an agent of IESU, WP&L and IPC, has negotiated several agreements with different suppliers to ensure that a specified supply of coal is available at known prices for the respective utilities for calendar years 1999, 2000, and 2001. These contracts, in combination with existing agreements, provide for a portfolio of coal supplies that cover approximately 95%, 55% and 40% of the three utilities' estimated coal supply needs for the years 1999 through 2001, respectively. Management believes this portfolio of coal supplies represents a reasonable balance between ensuring an adequate supply and ensuring that the prices paid for coal is at the then current market conditions. Remaining coal requirements will be met from either future contracts or purchases in the spot market. The majority of the coal utilized by IEC is from the Wyoming Powder River Basin. A majority of this coal is transported by rail-car directly from Wyoming to IEC's generating facilities, with the remainder transported from Wyoming to the Mississippi River by rail-car and then via barges to the final destination. As protection against interruptions in coal deliveries, IEC maintains average coal inventories at its generating stations of 44 to 71 days. IEC anticipates that its average fossil fuel costs will likely increase in the future due to cost escalation provisions in existing coal and transportation contracts. In addition, fuel sulfur restrictions and other environmental limitations have increased significantly and may increase further the difficulty and cost of obtaining an adequate coal supply. See Note 1(k) of the "Notes to Consolidated Financial Statements" for a discussion of the utilities' rate recovery of fuel costs. Refer to Note 12(b) in the "Notes to Consolidated Financial Statements" for details relating to IEC's coal purchase commitments. Purchased Power During the year ended December 31, 1998, approximately 26.7%, 26.8% and 41.7% of IESU's, WP&L's and IPC's total kilowatt-hour (KWH) requirements, respectively, were met through purchased power. Refer to Note 12(b) in the "Notes to Consolidated Financial Statements" for details relating to purchase power commitments. Nuclear General IEC owns interests in two nuclear facilities, Kewaunee and DAEC. Kewaunee, a 532-megawatt pressurized water reactor plant, is operated by Wisconsin Public Service Corporation (WPSC) and is jointly owned by WPSC (41.2%), WP&L (41.0%) and Madison Gas & Electric Company (MG&E) (17.8%). See Item 7. MD&A "Liquidity and Capital Resources - Nuclear Facilities" for a discussion of an agreement between WPSC and MG&E regarding future ownership of Kewaunee. The Kewaunee operating license expires in 2013. DAEC, a 535-megawatt boiling water reactor plant, is operated by IESU which has a 70% ownership interest in the plant. The DAEC operating license expires in 2014. As co-owners of nuclear generating units, IESU and WP&L are subject to the jurisdiction of the NRC. The NRC has broad supervisory and regulatory jurisdiction over the construction and operation of nuclear reactors, particularly with regard to public health, safety and environmental considerations. The operation and design of nuclear power plants is under constant review by the NRC. IESU and WP&L have complied with and are currently complying with all NRC requests for data relating to these reviews. As a result of such reviews, further changes in operations or modifications of equipment may be required, the cost of which cannot currently be estimated. IESU's and WP&L's anticipated nuclear-related construction expenditures for 1999-2003 are approximately $46 million and $37 million, respectively. Refer to "Liquidity and Capital Resources - - Capital Requirements" in Item 7. MD&A for a further discussion. DAEC received the highest score possible (1 on a 3-point scale) in the areas of plant operations, engineering and plant support and a "good" rating (2) in the area of maintenance during the NRC's last Systematic Assessment of Licensee Performance (SALP) report in 1997. Kewaunee received the highest score possible (1) in the area of maintenance and 9 a "good" rating (2) in the areas of plant operations, engineering and plant support during the NRC's last SALP report, which was also received in 1997. Under the Price-Anderson Amendments Act of 1988 (1988 Act), IESU and WP&L currently have the benefit of public liability coverage which would compensate the public in the event of an accident at a commercial nuclear power plant. The 1988 Act permits such coverage to rise with increased availability of nuclear insurance and the changing number of operating nuclear plants subject to retroactive premium assessments. The 1988 Act provides for inflation indexing (Consumer Price Index every fifth year) of the retroactive premium assessments. As an outgrowth of the Three Mile Island Nuclear Power Plant experience, nuclear plant owners have initiated a cooperative insurance program designed to help cover business interruption expenses for participating utilities arising from a possible nuclear plant event. IESU and WP&L are participants in this program. This type of insurance is an industry response intended to lessen the cost burden on customers in the event of a lengthy plant shutdown. In the unlikely event of a catastrophic loss at Kewaunee or DAEC, the amount of insurance available may not be adequate to cover property damage, decontamination and premature decommissioning. Uninsured losses, to the extent not recovered through rates, would be borne by WP&L or IESU and could have a material adverse effect on their financial position and results of operations. Refer to Note 12(e) of the "Notes to Consolidated Financial Statements" for a further discussion of the nuclear insurance issue. Kewaunee WPSC purchases uranium concentrates, conversion services, enrichment services, and fabrication services for nuclear fuel assemblies at Kewaunee. New fuel assemblies replace used assemblies that are removed from the reactor every 18 months and placed in storage at the plant site pending removal by the DOE. Uranium concentrates, conversion services, and enrichment services are purchased at spot market prices, through a bid process, or using existing contracts. Two contracts are in place to provide conversion services for nuclear fuel reloads in 2000 and 2001. A fixed quantity of enrichment services are contracted for through the year 2004. Additional enrichment services will be acquired under a contract which is in effect for the life of the plant or by purchases on the spot market. Fuel fabrication services are contracted well into the next decade and contain contractual clauses covering force majeure and termination provisions. A uranium inventory policy requires that sufficient inventory exist for up to two reactor reloads of fuel. As of December 31, 1998, 947,000 pounds of yellowcake or its equivalent were held in inventory for the plant. If, for any reason, the plant were forced to suspend operations permanently, fuel-related obligations are as follows: 1) there are no financial penalties associated with the present uranium supply, conversion service and enrichment agreements, and 2) the fuel fabrication contract contains force majeure and termination for convenience provisions. As of the end of 1998, WP&L's maximum exposure would not be expected to exceed $273,000. It is expected that, in such a case, uranium inventories could be sold on the spot market. DAEC A contract for enrichment services and enriched uranium product was signed with the United States Enrichment Corporation (USEC) in 1995. This contract is effective through 2003. Fabrication of the nuclear fuel is being performed by General Electric Company for fuel through the 2011 refueling of DAEC. IESU believes that an ample supply of uranium and enrichment services will be available in the future and intends to purchase such uranium and enrichment services as necessary on the spot market and/or via medium length (less than five years) contracts to supplement its current contracts and meet its generation requirements. Additional discussions of various other nuclear issues relating to Kewaunee and DAEC are included in Item 7. MD&A and the "Notes to the Consolidated Financial Statements." 10 Power Supply Refer to "Other Matters - Power Supply" in Item 7. MD&A for a discussion of power supply concerns. Electric Environmental Matters IEC is regulated in environmental protection matters by a number of federal, state and local agencies. Such regulations are the result of a number of environmental protection laws passed by the U.S. Congress, state legislatures and local governments and enforced by federal, state and county agencies. The laws impacting IEC's operations include the Clean Water Act; Clean Air Act, as amended by the Clean Air Act Amendments of 1990; National Environmental Policy Act; Toxic Substances Control Act; Emergency Planning and Community Right-to-Know Act; Resource Conservation and Recovery Act; Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986; Nuclear Waste Policy Act of 1982; Occupational Safety and Health Act; National Energy Policy Act of 1992; and a number of others. IEC regularly secures and renews federal, state and local permits to comply with the environmental protection laws and regulations. Costs associated with such compliance have increased in recent years and are expected to increase moderately in the future. Refer to "Other Matters - Environmental" in Item 7. MD&A and Note 12 of the "Notes to Consolidated Financial Statements" for a further discussion of electric environmental matters. 11
Interstate Energy Corporation - ------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- Electric Operating Information (Utility Only) - ------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $519,687 $509,207 $494,649 $498,071 $469,217 Commercial 330,693 320,308 308,480 302,889 296,329 Industrial 477,241 455,912 428,726 412,711 401,097 ----------------------------------------------------------------- Total from ultimate customers 1,327,621 1,285,427 1,231,855 1,213,671 1,166,643 Sales for resale 199,128 192,346 181,365 143,726 136,839 Other 40,693 37,980 27,155 24,271 27,322 ----------------------------------------------------------------- Total $1,567,442 $1,515,753 $1,440,375 $1,381,668 $1,330,804 ================================================================= - ------------------------------------------------------------------------------------------------------------------------- Electric Sales (000s MWH) : Residential 6,674 6,699 6,668 6,705 6,276 Commercial 5,095 4,996 4,878 4,816 4,578 Industrial 12,718 12,320 11,666 11,360 10,870 ----------------------------------------------------------------- Total from ultimate customers 24,487 24,015 23,212 22,881 21,724 Sales for resale 7,189 6,768 7,459 5,001 4,757 Other 158 161 161 163 182 ----------------------------------------------------------------- Total 31,834 30,944 30,832 28,045 26,663 ================================================================= - ------------------------------------------------------------------------------------------------------------------------- Customers (End of Period): Residential 773,724 764,604 755,085 744,440 733,866 Commercial 128,430 126,959 125,426 123,786 122,217 Industrial 2,618 2,555 2,472 2,418 2,362 Other 3,267 3,281 3,207 2,749 2,734 ----------------------------------------------------------------- Total 908,039 897,399 886,190 873,393 861,179 ================================================================= - ------------------------------------------------------------------------------------------------------------------------- Other Selected Electric Data: System capacity at time of peak demand (MW): Company-owned 5,231 5,257 5,192 5,077 4,960 Firm purchases and sales (net) 618 660 583 547 603 ----------------------------------------------------------------- Total (1) 5,849 5,917 5,775 5,624 5,563 ================================================================= Maximum peak hour demand (MW) (1) 5,228 5,045 4,953 5,032 4,714 Sources of electric energy (000s MWH): Steam 19,119 17,423 17,014 17,606 16,739 Nuclear 4,201 3,874 4,054 4,166 4,501 Purchases 10,033 10,660 10,895 7,416 6,454 Other 504 565 392 349 289 ----------------------------------------------------------------- Total 33,857 32,522 32,355 29,537 27,983 ================================================================= Revenue per KWH from ultimate customers (in cents) 5.42 5.35 5.31 5.30 5.37 - ------------------------------------------------------------------------------------------------------------------------- (1) Figures represent a summation of the individual peak demands of IESU, WP&L and IPC thus they do not represent the coincident peak of the entire IEC system.
12
IES Utilities Inc. - ----------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Electric Operating Information - ----------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $232,662 $227,496 $213,838 $217,351 $200,686 Commercial 168,672 162,626 153,163 150,722 146,119 Industrial 181,369 177,890 160,477 148,529 143,965 ------------------------------------------------------------------ Total from ultimate customers 582,703 568,012 527,478 516,602 490,770 Sales for resale 45,453 25,719 37,384 35,356 37,271 Other 11,267 10,539 9,411 8,513 9,286 ------------------------------------------------------------------ Total $639,423 $604,270 $574,273 $560,471 $537,327 ================================================================== - ----------------------------------------------------------------------------------------------------------------------- Electric Sales (000s MWH): Residential 2,661 2,682 2,642 2,690 2,494 Commercial 2,465 2,378 2,315 2,296 2,148 Industrial 4,872 4,743 4,436 4,248 4,015 ------------------------------------------------------------------ Total from ultimate customers 9,998 9,803 9,393 9,234 8,657 Sales for resale 1,763 794 1,746 1,586 1,705 Other 42 43 46 50 67 ------------------------------------------------------------------ Total 11,803 10,640 11,185 10,870 10,429 ================================================================== - ----------------------------------------------------------------------------------------------------------------------- Customers (End of Period): Residential 290,348 288,387 286,315 284,154 281,653 Commercial 49,489 48,962 48,593 48,196 47,595 Industrial 705 711 703 695 706 Other 479 442 437 444 451 ------------------------------------------------------------------ Total 341,021 338,502 336,048 333,489 330,405 ================================================================== - ----------------------------------------------------------------------------------------------------------------------- Other Selected Electric Data: System capacity at time of peak demand (MW): Company-owned 1,858 1,892 1,864 1,873 1,741 Firm purchases and sales (net) 241 232 232 207 280 ------------------------------------------------------------------ Total 2,099 2,124 2,096 2,080 2,021 ================================================================== Maximum peak hour demand (MW) 1,965 1,854 1,833 1,824 1,780 Sources of electric energy (000s MWH): Steam 6,417 5,499 4,936 5,759 5,509 Nuclear 2,682 2,904 2,753 2,611 2,876 Purchases 3,385 2,789 4,177 3,013 2,647 Other 199 164 44 24 22 ------------------------------------------------------------------ Total 12,683 11,356 11,910 11,407 11,054 ================================================================== Revenue per KWH from ultimate customers (in cents) 5.83 5.79 5.62 5.59 5.67 - -----------------------------------------------------------------------------------------------------------------------
13
Wisconsin Power and Light Company - ----------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------- Electric Operating Information - ----------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $198,770 $199,633 $201,690 $199,850 $194,242 Commercial 108,724 107,132 105,319 102,129 101,382 Industrial 162,771 152,073 143,734 140,562 140,487 ------------------------------------------------------------------ Total from ultimate customers 470,265 458,838 450,743 442,541 436,111 Sales for resale 128,536 160,917 131,836 97,350 86,400 Other 15,903 14,388 6,903 6,433 9,236 ----------------------------------------------------------------- Total 614,704 $634,143 $589,482 $546,324 $531,747 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Electric Sales (000s MWH) : Residential 2,964 2,974 2,980 2,938 2,777 Commercial 1,898 1,878 1,814 1,773 1,688 Industrial 4,493 4,256 3,986 3,873 3,765 ------------------------------------------------------------------ Total from ultimate customers 9,355 9,108 8,780 8,584 8,230 Sales for resale 4,492 5,824 5,246 3,109 2,574 Other 59 60 57 54 55 ------------------------------------------------------------------ Total 13,906 14,992 14,083 11,747 10,859 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Customers (End of Period): Residential 350,334 343,637 336,933 329,643 322,924 Commercial 47,857 46,823 45,669 44,730 43,793 Industrial 909 855 815 795 776 Other 1,860 1,875 1,820 1,342 1,298 ------------------------------------------------------------------ Total 400,960 393,190 385,237 376,510 368,791 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Other Selected Electric Data: System capacity at time of peak demand (MW): Company-owned 2,345 2,337 2,300 2,176 2,193 Firm purchases and sales (net) 181 145 68 57 40 ------------------------------------------------------------------ Total 2,526 2,482 2,368 2,233 2,233 ================================================================== Maximum peak hour demand (MW) 2,292 2,253 2,124 2,197 2,002 Sources of electric energy (000s MWH): Steam 8,916 8,587 8,687 8,323 7,821 Nuclear 1,519 970 1,301 1,555 1,625 Purchases 3,923 5,744 4,494 2,227 1,786 Other 288 355 303 308 252 ------------------------------------------------------------------- Total 14,646 15,656 14,785 12,413 11,484 ================================================================== Revenue per KWH from ultimate customers (in cents) 5.03 5.04 5.13 5.16 5.30 - -----------------------------------------------------------------------------------------------------------------------------
14 GAS UTILITY OPERATIONS General As of December 31, 1998, IESU provided retail natural gas service to approximately 179,000 customers in approximately 212 communities in Iowa. As of December 31, 1998, WP&L provided retail natural gas service to approximately 159,000 customers in 233 communities in southern and central Wisconsin and one county in northern Illinois. IPC provides natural gas service in 14 counties located in northern and northeastern Iowa, southern Minnesota and northwestern Illinois. As of December 31, 1998, IPC provided retail natural gas service to approximately 50,000 customers in 41 communities. The percentages of utility operating revenues and utility operating income from gas utility operations for each individual company for the year ended December 31, 1998 were as follows: Percent of Percent of Operating Operating Revenues Income ------------- ------------- IESU 17.5% 4.9% WP&L 15.3 3.9 IPC 12.0 10.5 The gas sales of IESU, WP&L and IPC follow a seasonal pattern. There is an annual base load of gas used for heating, cooking, water heating and other purposes, with a large peak occurring during the winter heating season. IESU Gas Supplies Contracts with the pipelines subsequent to FERC Order 636 are comprised primarily of firm transportation, firm storage and no-notice service. Firm transportation contracts grant IESU access to firm pipeline capacity which is used to transport gas supplies from non-pipeline suppliers and from leased storage on peak days. Firm storage service allows IESU to purchase gas during off-peak periods and place this gas in an account with the pipelines. When the gas is needed for peak day deliveries, IESU requests and the pipelines deliver the gas back on a firm basis. No-notice service grants IESU the right to take more or less gas than is actually scheduled up to the level of no-notice service. No-notice service takes the form of transportation balancing or storage service depending on the pipeline. IESU's firm transportation contract portfolio provides a maximum daily delivery capability of 278,852 dekatherms (Dth) per day of natural gas as follows: Northern Natural Natural Gas Pipeline Gas Company Co. of America (NNG) (NGPL) ANR Pipeline (ANR) ---------------- -------------------- ----------------- 143,996 Dth 74,119 Dth 60,737 Dth Gas supply is purchased from a variety of non-pipeline suppliers located in the United States and Canada having access to virtually all major natural gas producing regions. IESU has firm gas supply agreements with various non-pipeline suppliers. These gas supply contracts have expiration dates ranging from three months to almost three years. IESU's tariffs provide for subsequent adjustments to its natural gas rates for changes in the cost of natural gas purchased for resale. Refer to Note 12(b) of IESU's "Notes to Consolidated Financial Statements" for a discussion of IESU's purchase gas commitments. 15 WP&L Gas Supplies Prior to 1995, WP&L passed on its costs incurred from natural gas suppliers and pipeline companies on a dollar-for-dollar basis to its customers. In 1995, the PSCW approved implementation of a performance-based rate mechanism for Wisconsin gas customers. Under this mechanism, fluctuations in the commodity cost of gas above or below a prescribed commodity price index will increase or decrease WP&L's margin on gas sales. Both benefits and exposures are subject to customer sharing provisions. Effective with the UR-110 rate order on April 29, 1997, to the extent WP&L purchases its gas supply below the index price, WP&L will retain 40% of the savings. The balance of the savings is returned to customers. The same sharing mechanism exists for gas that is purchased at a cost above the index price. In providing gas commodity service to retail gas customers, WP&L administers a diversified portfolio of transportation contracts with ANR and NNG allowing access to gas supplies located in the United States and Canada. WP&L's transportation contracts provide a maximum daily delivery capability of 242,580 Dth per day of natural gas as follows: ANR NNG Non-Traditional --- --- --------------- 122,124 Dth 75,056 Dth 45,400 Dth Two non-traditional arrangements provide WP&L with gas delivered directly to its "city gate" using the vendors' transportation contract with the interstate pipelines serving WP&L. WP&L's contracts also allow access to gas stored in underground storage fields in the states of Michigan, New Mexico and Oklahoma. Gas purchased in the summer and delivered in the winter comprise approximately 24% of WP&L's annual gas requirements. WP&L maintains purchase agreements with over 50 suppliers of natural gas from all gas producing regions of the U.S. and Canada. These include six contracts providing for long-term gas deliveries (i.e., with terms ranging from six months to ten years). In addition to its direct purchase and sales of natural gas, WP&L provided transportation service to 185 customers who purchased their own gas, pursuant to WP&L's transportation tariffs. Refer to Note 12(b) of WP&L's "Notes to Consolidated Financial Statements" for a discussion of WP&L's purchase gas commitments. IPC Gas Supplies Contracts with the pipelines subsequent to FERC Order 636 are comprised primarily of firm transportation, firm storage and firm no-notice service. IPC purchases pipeline transportation capacity from NNG, NGPL and Northern Border Pipeline Company (NBPL). During 1998, IPC purchased natural gas supplies from non-pipeline suppliers at market responsive rates. FERC continues to approve the tariffs of NNG, NGPL, and NBPL regarding transportation capacity and storage rates, subject to change as rate cases are filed. IPC's portfolio of firm transportation contracts provide a maximum daily delivery capability of 79,745 Dth per day of natural gas as follows: NNG NGPL --- ---- 51,995 Dth 27,750 Dth IPC maintains gas supply agreements with various non-pipeline suppliers from all gas producing areas of the U. S. and Canada. These include two long-term contracts for gas deliveries up to two years. Gas is supplied by producers, marketers and brokers, as well as from storage services, to meet the peak heating season requirements. IPC owns propane-air mix gas plants in Albert Lea, Minnesota and Clinton and Mason City, Iowa. The daily output capacities are: 2,500 Dth, 4,000 Dth and 4,800 Dth, respectively. 16 IPC's tariffs provide for subsequent adjustments to its natural gas rates for changes in the cost of natural gas purchased for resale. IESU's, WP&L's and IPC's gas supply commitments are all index-based. Gas Environmental Matters Refer to Note 12 of the "Notes to Consolidated Financial Statements" for a discussion of gas environmental matters. 17
Interstate Energy Corporation - ------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ Gas Operating Information (Utility Only) - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $175,603 $225,542 $216,268 $179,761 $179,694 Commercial 85,842 115,858 108,187 87,951 92,082 Industrial 20,204 27,393 27,569 30,462 40,427 Transportation and other 13,941 25,114 23,931 21,952 12,396 ------------------------------------------------------------------ Total $295,590 $393,907 $375,955 $320,126 $324,599 ================================================================== - ------------------------------------------------------------------------------------------------------------------------------ Gas Sales (000s Dekatherms): Residential 28,378 33,894 37,165 33,827 32,447 Commercial 17,760 21,142 22,613 20,599 20,219 Industrial 5,507 6,217 6,856 6,381 8,709 Transportation and other 52,389 56,719 55,240 54,267 42,730 ------------------------------------------------------------------ Total 104,034 117,972 121,874 115,074 104,105 ================================================================== - ------------------------------------------------------------------------------------------------------------------------------ Customers at End of Period (Excluding Transportation and Other): Residential 342,586 337,956 331,919 326,005 319,628 Commercial 43,825 43,316 42,658 42,095 41,496 Industrial 982 963 1,022 1,059 1,058 ------------------------------------------------------------------ Total 387,393 382,235 375,599 369,159 362,182 ================================================================== - ------------------------------------------------------------------------------------------------------------------------------ Other Selected Gas Data: Revenue per dekatherm sold (excluding transportation and other) $5.45 $6.02 $5.28 $4.90 $5.09 Purchased gas costs per dekatherm sold (excluding transportation and other) $3.22 $4.23 $3.61 $3.31 $3.70 - ------------------------------------------------------------------------------------------------------------------------------
18
IES Utilities Inc. - ---------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Gas Operating Information - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $86,821 $110,663 $97,708 $84,562 $82,795 Commercial 39,928 54,383 46,966 40,390 40,912 Industrial 10,422 13,961 12,256 8,790 12,515 Transportation and other 4,108 4,510 3,934 3,550 2,811 ------------------------------------------------------------------ Total $141,279 $183,517 $160,864 $137,292 $139,033 ================================================================== - ---------------------------------------------------------------------------------------------------------------------------- Gas Sales (000s Dekatherms): Residential 13,803 16,317 17,680 16,302 15,766 Commercial 8,272 9,602 10,323 9,534 9,298 Industrial 3,089 3,318 3,796 3,098 4,010 Transportation and other 11,316 10,321 10,341 10,871 8,901 ------------------------------------------------------------------ Total 36,480 39,558 42,140 39,805 37,975 ================================================================== - --------------------------------------------------------------------------------------------------------------------------- Customers at End of Period (Excluding Transportation and Other): Residential 157,135 155,859 154,457 152,873 151,367 Commercial 21,530 21,431 21,364 21,193 21,053 Industrial 398 399 417 404 409 ------------------------------------------------------------------ Total 179,063 177,689 176,238 174,470 172,829 ================================================================== - ---------------------------------------------------------------------------------------------------------------------------- Other Selected Gas Data: Revenue per dekatherm sold (excluding transportation and other) $5.45 $6.12 $4.94 $4.62 $4.69 Purchased gas cost per dekatherm sold (excluding transportation and other) $3.36 $4.33 $3.27 $3.15 $3.28 - ----------------------------------------------------------------------------------------------------------------------------
19
Wisconsin Power and Light Company Years Ended December 31, - ----------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------- Gas Operating Information - ----------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $65,173 $84,513 $90,382 $70,382 $71,555 Commercial 33,898 45,456 46,703 35,411 38,516 Industrial 5,896 8,378 11,410 17,984 22,629 Transportation and other 6,770 17,536 17,132 15,388 6,946 ------------------------------------------------------------------ Total $111,737 $155,883 $165,627 $139,165 $139,646 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Gas Sales (000s Dekatherms): Residential 10,936 12,770 14,297 12,690 11,956 Commercial 7,285 8,592 9,167 8,245 8,128 Industrial 1,422 1,714 1,997 2,144 3,113 Transportation and other 12,948 17,595 18,567 16,870 9,279 ------------------------------------------------------------------ Total 32,591 40,671 44,028 39,949 32,476 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Customers at End of Period (Excluding Transportation and Other): Residential 141,065 137,827 133,580 129,576 124,938 Commercial 17,058 16,653 16,083 15,724 15,270 Industrial 506 488 529 566 561 ------------------------------------------------------------------ Total 158,629 154,968 150,192 145,866 140,769 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Other Selected Gas Data: Revenue per dekatherm sold (excluding transportation and other) $5.34 $6.00 $5.83 $5.36 $5.72 Purchased gas cost per dekatherm sold (excluding transportation and other) $3.13 $4.30 $4.12 $3.64 $3.82 - -----------------------------------------------------------------------------------------------------------------------------
20 D. INFORMATION RELATING TO NONREGULATED OPERATIONS A description of Alliant Energy Resources' businesses is as follows: Alliant Energy Resources is a holding company whose wholly-owned subsidiaries include ISCO, International, Investments, Transportation, HPI and Capital Square. Alliant Energy Resources also has a 50% ownership interest in a joint venture with Cargill Incorporated, named Cargill-Alliant, to market electricity and risk management services to wholesale customers. ISCO is a holding company for Alliant Energy Resources' industrial service companies whose primary wholly-owned subsidiaries include Whiting Petroleum Corporation (Whiting), Industrial Energy Applications, Inc. (IEA) and Heartland Environmental Holding Company (HEHC). Whiting is organized to purchase, develop and produce crude oil and natural gas. IEA offers commodities-based and facilities-based energy services for customers, including supplying natural gas and electricity, standby generation, cogeneration, steam production and propane air systems. IEA also provides energy consulting services for customers and owns a natural gas gathering system in Texas. HEHC is the holding company for environmental and engineering services activities. HEHC's primary subsidiary is RMT, Inc. (RMT). RMT is a Madison, Wisconsin based environmental and engineering consulting company that serves clients nationwide in a variety of industrial market segments. The most significant of these markets are chemical companies, pulp and paper processors, oil and gas providers, foundries and other manufacturers. RMT specializes in consulting on solid and hazardous waste management, ground water quality protection, industrial design and hygiene engineering, and air and water pollution control. International is a holding company for Alliant Energy Resources' international investments whose wholly-owned subsidiaries include Alliant International New Zealand Limited (New Zealand), Grandelight Holding Ltd. (Grandelight), Interstate Energy Corporation Pte Ltd. (IECP), Alliant Energy Brazil, Inc. (Brazil) and Alliant Energy de Mexico L.L.C. (Mexico). New Zealand has equity investments in several New Zealand utility entities. Grandelight has a 65% equity investment in Peak Pacific Investment Company PTE Ltd. (Peak Pacific). Peak Pacific has been formed to develop investment opportunities in generation infrastructure projects in China. IECP has a 50% equity investment in two individual cogeneration facilities in China. Brazil and Mexico have been formed for the purposes of potential investments in these two respective countries. Investments is a holding company whose primary wholly-owned subsidiaries include Iowa Land and Building Company (Iowa Land) and Village Lakeshares, Inc. (Lakeshares). Iowa Land is organized to pursue real estate and economic development activities in IESU's service territory. Lakeshares is a holding company for resort properties in Iowa. Investments also has direct and indirect equity interests in various real estate ventures, primarily concentrated in Cedar Rapids, and holds other passive investments including an equity interest in McLeodUSA Inc. (McLeod). At December 31, 1998, IEC's investment in the stock of McLeod, a telecommunications company, was valued at $320.3 million (based on a December 31, 1998 closing price of $31.25 per share and compared to a cost basis of $29.1 million). Refer to Note 5 of the "Notes to Consolidated Financial Statements" for a further discussion of the McLeod investment. Transportation is a holding company whose wholly-owned subsidiaries include the Cedar Rapids and Iowa City Railway Company (CRANDIC) and IES Transfer Services Inc. (Transfer). CRANDIC is a short-line railway which renders freight service between Cedar Rapids and Iowa City. Transfer's operations include transloading and storage services. Transportation also has a 75% equity investment in IEI Barge Services, Inc. (Barge) which provides barge terminal and hauling service on the Mississippi River. HPI, formed in 1988, is responsible for performing asset management, facilitating the development of and financing of high quality, affordable housing in Wisconsin and the Midwest. HPI has a majority ownership interest in 60 such properties. Capital Square was incorporated in 1992 to provide mortgage banking services to facilitate HPI's development and financing efforts in the affordable housing market. 21 ITEM 2. PROPERTIES WP&L WP&L's principal electric generating stations at December 31, 1998, were as follows:
Name and Location Major Fuel 1998 Summer Capability of Station Type in Kilowatts - ----------------------------------------------------------- -------------- -------------------------------------- Kewaunee Nuclear Power Plant, Kewaunee, WI Nuclear 204,200 (1) Rock River Generating Station, Janesville, WI Coal 164,000 Nelson Dewey Generating Station, Cassville, WI Coal 226,000 Edgewater Generating Station #3, Sheboygan, WI Coal 76,000 Edgewater Generating Station #4, Sheboygan, WI Coal 237,300 (2) Edgewater Generating Station #5, Sheboygan, WI Coal 306,000 (3) Columbia Energy Center, Portage, WI Coal 494,400 (4) ------------- Total Coal 1,503,700 Blackhawk Generating Station, Beloit, WI Gas 58,000 Rock River Combustion Turbine, Janesville, WI Gas and Oil 148,000 South Fond du Lac Combustion Turbine Units 2 and 3, Fond du Lac, WI Gas and Oil 169,000 Sheepskin Combustion Turbine, Edgerton, WI Gas and Oil 37,000 ------------- Total Gas and Oil 412,000 Kilbourn Hydro Plant, Wisconsin Dells, WI Hydro 9,000 Prairie du Sac Hydro Plant, Prairie du Sac, WI Hydro 30,000 Petenwell/Castle Rock Hydro Plants, Wisconsin Rapids, WI Hydro 13,300 (5) Shawano Hydro, Shawano, WI Hydro 409 ------------- Total Hydro 52,709 ------------- Total generating capability 2,172,609 ============= (1) Represents WP&L's 41% ownership interest in this 498,000 Kw generating station. The plant is operated by WPSC. (2) Represents WP&L's 68.2% ownership interest in this 348,000 Kw generating station. The plant is operated by WP&L. (3) Represents WP&L's 75% ownership interest in this 408,000 Kw generating station. The plant is operated by WP&L. (4) Represents WP&L's 46.2% ownership interest in this 1,070,000 Kw generating station. The plant is operated by WP&L. (5) Represents WP&L's 33.3% ownership interest in this 40,000 Kw hydro plant. The plant is operated by Wisconsin River Power Company.
WP&L owns 2,771 miles of electric transmission lines and 375 substations located adjacent to the communities served, of which substantially all are in Wisconsin. Substantially all of WP&L's facilities are subject to the lien of its First Mortgage Bond indenture and are suitable for their intended use. 22 IESU IESU's principal electric generating stations at December 31, 1998, were as follows:
Name and Location Major Fuel 1998 Summer Capability of Station Type in Kilowatts - ----------------------------------------------------------- ------------- -------------------------------------- Duane Arnold Energy Center, Palo, Iowa Nuclear 364,000 (1) Ottumwa Generating Station, Ottumwa, Iowa Coal 324,000 (2) Prairie Creek Station, Cedar Rapids, Iowa Coal 212,500 Sutherland Station, Marshalltown, Iowa Coal 139,000 Sixth Street Station, Cedar Rapids, Iowa Coal 65,000 Burlington Generating Station, Burlington, Iowa Coal 200,000 George Neal Unit 3, Sioux City, Iowa Coal 144,200 (3) ------------- Total Coal 1,084,700 Peaking Turbines, Marshalltown, Iowa Oil 216,400 Centerville Combustion Turbines, Centerville, Iowa Oil 62,000 Diesel Stations, all in Iowa Oil 8,300 ------------- Total Oil 286,700 Grinnell Station, Grinnell, Iowa Gas 30,000 Agency Street Combustion Turbines, West Burlington, Iowa Gas 76,700 Burlington Combustion Turbines, Burlington, Iowa Gas 68,000 Red Cedar Combustion Turbine, Cedar Rapids, IA Gas 22,700 ------------- Total Gas 197,400 ------------- Total generating capability 1,932,800 ============= (1) Represents IESU's 70% ownership interest in this 520,000 Kw generating station. The plant is operated by IESU. (2) Represents IESU's 48% ownership interest in this 675,000 Kw generating station. The plant is operated by IESU. (3) Represents IESU's 28% ownership interest in this 515,000 Kw generating station which is operated by MidAmerican Energy Company.
The transmission lines of IESU, operating from 34,000 to 345,000 volts, approximated 4,440 circuit miles (substantially all located in Iowa). IESU owned 580 substations (substantially all located in Iowa). IESU's principal properties are suitable for their intended use and are held subject to liens of indentures relating to its bonds. 23 IPC IPC's principal electric generating stations at December 31, 1998, were as follows:
Name and Location Major Fuel 1998 Summer Capability of Station Type in Kilowatts - ----------------------------------------------------------- -------------- -------------------------------------- Dubuque Units 2, 3 and 4, Dubuque, IA Coal 78,000 M. L. Kapp Plant Units 1 and 2, Clinton, IA Coal 235,000 Lansing Units 1, 2, 3 and 4, Lansing, IA Coal 320,000 Fox Lake Plant Units 1, 2 and 3, Sherburn, MN Coal 108,000 George Neal Unit 4, Sioux City, IA Coal 141,900 (1) Louisa Unit 1, Louisa, IA Coal 28,400 (2) ------------- Total Coal 911,300 Montgomery Unit 1, Montgomery, MN Gas 22,200 Fox Lake Plant Unit 4, Sherburn, MN Gas 21,300 Lime Creek Plant Units 1 and 2, Mason City, IA Gas 70,000 ------------- Total Gas 113,500 Dubuque Units 1 and 2, Dubuque, IA Oil 4,600 Hills Units 1 and 2, Hills, MN Oil 4,000 Lansing Units 1 and 2, Lansing, IA Oil 2,000 New Albin Unit 1, New Albin, IA Oil 700 ------------- Total Oil 11,300 ------------- Total generating capability 1,036,100 ============= (1) Represents IPC's 21.5% ownership interest in this 660,000 Kw generating station. The plant is operated by MidAmerican Energy Company. (2) Represents IPC's 4% ownership interest in this 710,000 Kw generating station. The plant is operated by MidAmerican Energy Company.
IPC owns 2,598 miles of electric transmission lines and 224 substations located in Iowa, Illinois and Minnesota. Substantially all of IPC's facilities are subject to the lien of its bond indenture securing IPC's outstanding First Mortgage Bonds and are suitable for their intended use. Alliant Energy Resources Alliant Energy Resources owns property which primarily represents transportation, energy-related, affordable housing project developments and real estate properties. 24 ITEM 3. LEGAL PROCEEDINGS IEC On April 17, 1998, MG&E and Citizens Utility Board appealed the decision of the Securities and Exchange Commission (SEC) approving the Merger, Madison Gas and Electric Company and Citizens Utility Board v. Securities and Exchange Commission. On May 15, 1998, IEC moved to intervene in this appeal and the United States Court of Appeals for the District of Columbia District granted the motion. Briefs were filed with the court and oral arguments were held on January 13, 1999. The court issued its decision on March 16, 1999 upholding the SEC's decision in approving the Merger and denying the petition for review. IESU On October 9, 1996, IES filed a civil suit in the Iowa District Court in and for Linn County against Lambda Energy Marketing Company, L.C., Robert Latham, Louie Ervin, and David Charles (three former employees of IES and/or its subsidiaries), collectively the "Defendants", alleging, inter alia, violations of Iowa's trade secret act and interference with existing and prospective business advantage. On November 1, 1996, the Defendants filed their Answer and Counterclaims alleging, inter alia, violation of Iowa competition law, tortious interference and commercial disparagement. The Defendants therewith also filed a Third-Party Petition against IESU, IEA and Lee Liu, then Chairman of the Board and Chief Executive Officer of IES and IESU, alleging, inter alia, tortious interference and commercial disparagement. The case was dismissed by mutual consent on December 31, 1998. IESU is in discussions with environmental regulators regarding certain environmental permit issues. For a discussion of these matters, see Item 7. MD&A, "Other Matters - Environmental," which information is incorporated herein by reference. IPC IPC is in discussions with environmental regulators regarding various issues at generating facilities in Clinton, Iowa, Dubuque, Iowa and Lansing, Iowa. For a discussion of these matters, see Item 7. MD&A, "Other Matters Environmental," which information is incorporated herein by reference. Environmental Matters The information required by Item 3 is included in Item 8. "Notes to Consolidated Financial Statements," Note 12 and "Other Matters - Environmental" in Item 7. MD&A, which information is incorporated herein by reference. Rate Matters The information required by Item 3 is included in "Liquidity and Capital Resources - Rates and Regulatory Matters" in Item 7. MD&A, which information is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 25 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS IEC's common stock trades on the New York Stock Exchange under the symbol "LNT." Quarterly price ranges and dividends with respect to IEC's common stock were as follows (amounts for periods prior to the consummation of the Merger represent data for WPL Holdings, Inc.):
1998 1997 ------------------------------------------ ------------------------------------------- Quarter High Low Dividend High Low Dividend ------- ---- --- -------- ---- --- -------- First $33 7/8 $31 1/2 $0.50 $28 7/8 $27 3/8 $0.50 Second 35 3/8 29 5/8 0.50 28 1/4 26 3/4 0.50 Third 32 1/8 28 0.50 29 27 0.50 Fourth 34 29 3/4 0.50 34 7/16 28 3/8 0.50 =========== =========== ============ =========== =========== =========== Year $35 3/8 $28 $2.00 $34 7/16 $26 3/4 $2.00 =========== =========== ============ =========== =========== ===========
Stock price at December 31, 1998: $32 1/4 Although IEC's practice has been to pay common stock dividends quarterly, the timing of payment and amount of future dividends are necessarily dependent upon earnings, financial requirements and other factors. At December 31, 1998, there were approximately 76,943 holders of record of IEC's stock including underlying holders in IEC's Shareowner Direct Plan. IEC is the sole common shareowner of all 13,370,788 shares of IESU Common Stock currently outstanding. During 1998, 1997 and 1996, IESU declared dividends on its common stock of $19 million, $56 million and $44 million, respectively, to its parent. IESU has the right under the terms of its Subordinated Deferrable Interest Debentures, so long as an Event of Default (as defined therein) has not occurred and is not continuing, to extend the interest payment period at any time and from time to time on the Subordinated Deferrable Interest Debentures to a period not exceeding 20 consecutive quarters. If IESU exercises its right to extend the interest payment period, IESU may not, during any such extended interest payment period, declare or pay dividends on, or redeem, purchase or acquire, or make any liquidation payment with respect to, any of its capital stock or make any guarantee payment with respect to the foregoing. IESU does not intend to exercise its right to extend the interest payment period. IEC is the sole common shareowner of all 13,236,601 shares of WP&L common stock currently outstanding. During 1998, 1997 and 1996, WP&L paid dividends on its common stock of $58 million, $58 million and $66 million, respectively, to its parent. Under rate order UR-110, the PSCW ordered that it must approve the payment of dividends by WP&L to IEC that are in excess of the level forecasted in the rate order ($58.3 million), if such dividends would reduce WP&L's average common equity ratio below 52.00% of total capitalization. The dividends paid by WP&L to IEC since the rate order was issued have not exceeded the level forecasted in the rate order. On December 29, 1998, IEC issued 260,039 shares of IEC common stock to Alan R. Staab in exchange for all the issued and outstanding common stock of Golden Gas Production Company. The common stock issued by IEC was issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. 26 ITEM 6. SELECTED FINANCIAL DATA
Interstate Energy Corporation - ---------------------------------------------------------------------------------------------------------------------------- 1998* 1997** 1996** 1995** 1994** - ---------------------------------------------------------------------------------------------------------------------------- Financial Information (Dollars in thousands except for per share data) - ---------------------------------------------------------------------------------------------------------------------------- Income Statement Data: Operating revenues $2,130,874 $2,300,627 $2,232,840 $1,976,807 $1,889,231 Operating expenses 1,847,572 1,964,244 1,867,401 1,611,875 1,575,723 Operating income 283,302 336,383 365,439 364,932 313,508 Income from continuing operations 96,675 144,578 157,088 159,157 147,064 Discontinued operations - - (1,297) (13,186) (1,174) Net income 96,675 144,578 155,791 145,971 145,890 - ---------------------------------------------------------------------------------------------------------------------------- Common Stock Data: Weighted average common shares outstanding (000s) 76,912 76,210 75,481 74,680 73,751 Return on average common equity (1) 6.0% 9.5% 11.0% 10.5% 10.7% Per Share Data: Income from continuing operations $1.26 $1.90 $2.08 $2.13 $1.99 Discontinued operations - - ($0.02) ($0.18) ($0.01) Earnings per average common share (basic and diluted) $1.26 $1.90 $2.06 $1.95 $1.98 Dividends declared per common share (2) $2.00 $2.00 $1.97 $1.94 $1.92 Book value at year-end (1) $20.69 $21.24 $18.91 $18.70 $18.60 Market value at year-end (2) $32.25 $33.13 $28.13 $30.63 $27.38 - ---------------------------------------------------------------------------------------------------------------------------- Other Selected Financial Data: Construction and acquisition expenditures $372,058 $328,040 $412,274 $375,184 $390,875 Total assets at year-end (1) $4,959,337 $4,923,550 $4,639,826 $4,476,406 $4,269,637 Long-term obligations, net $1,713,649 $1,604,305 $1,444,355 $1,357,755 $1,358,258 Times interest earned before income taxes 2.25X 2.90X 3.38X 3.36X 3.43X Capitalization Ratios: Common stock (1) 49% 51% 52% 51% 51% Preferred and preference stock 4% 3% 4% 4% 4% Long-term debt 47% 46% 44% 45% 45% ------------------------------------------------------------------ Total 100% 100% 100% 100% 100% ================================================================== - ---------------------------------------------------------------------------------------------------------------------------- * The 1998 financial results reflect the recording of $54 million of pre-tax merger-related charges. ** Financial results have been restated to reflect a change in accounting method for IEC's oil and gas properties implemented in the third quarter of 1998 from the full cost method to the successful efforts method. Refer to IEC's Note 1(i) of the "Notes to Consolidated Financial Statements" for additional information regarding the restatement. (1) In the third quarter of 1997, IEC began adjusting the carrying value of its investments in McLeodUSA Inc. to its estimated fair value, pursuant to the applicable accounting rules. At December 31, 1998, the adjustment reflected an an unrealized gain of approximately $291 million with a net of tax increase to common equity of $170 million. (2) Represents data for WPL Holdings, Inc. for periods prior to the consummation of the Merger.
27
IES Utilities Inc. Year Ended December 31, 1998 1997 1996 1995 1994 -------------------------------------------------------------------------------- (in thousands) Operating revenues $ 806,930 $ 813,978 $ 754,979 $ 709,826 $ 685,366 Earnings available for common stock 60,996 57,879 62,815 58,364 60,296 Cash dividends declared on common stock 18,840 56,000 44,000 43,000 52,000 Total assets 1,788,978 1,768,929 1,765,044 1,697,803 1,634,733 Long-term obligations, net 677,804 688,719 560,199 517,538 530,275 The 1998 financial results reflect the recording of $17 million of pre-tax merger-related charges. Wisconsin Power and Light Company Year Ended December 31, 1998 1997 1996 1995 1994 ------------------------------------------------------------------------------- (in thousands) Operating revenues $ 731,448 $ 794,717 $ 759,275 $ 689,672 $ 687,811 Earnings available for common stock 32,264 67,924 79,175 75,342 68,185 Cash dividends declared on common stock 58,341 58,343 66,087 56,778 55,911 Total assets 1,685,150 1,664,604 1,677,814 1,641,165 1,585,124 Long-term obligations, net 471,554 420,414 370,634 375,574 393,513 The 1998 financial results reflect the recording of $17 million of pre-tax merger-related charges.
28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) MERGER On April 21, 1998, IES Industries Inc. (IES), WPL Holdings, Inc. (WPLH) and Interstate Power Company (IPC) completed a three-way merger (Merger) forming Interstate Energy Corporation (IEC). IEC is currently doing business as Alliant Energy Corporation. As a result of the Merger, the first tier subsidiaries of IEC include: Wisconsin Power and Light Company (WP&L), IES Utilities Inc. (IESU), IPC, Alliant Energy Resources, Inc. (Alliant Energy Resources) and Alliant Energy Corporate Services, Inc. (Alliant Energy Corporate Services) (the subsidiary formed to provide administrative services as required under the Public Utility Holding Company Act of 1935 (PUHCA)). Among various other regulatory constraints, IEC is operating as a registered public utility holding company subject to the limitations imposed by PUHCA. As part of the approval process for the Merger, IEC agreed to various rate freezes and rate caps implemented in certain jurisdictions for periods not to exceed four years commencing on the effective date of the Merger (see "Liquidity and Capital Resources - Rates and Regulatory Matters" for a further discussion). This MD&A includes information relating to IEC, IESU and WP&L (as well as IPC and Alliant Energy Resources). Where appropriate, information relating to a specific entity has been segregated and labeled as such. The financial results described below reflect the consummation of the Merger accounted for as a pooling of interests. FORWARD-LOOKING STATEMENTS Statements contained in this report (including MD&A) that are not of historical fact are forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. From time to time, IEC, IESU or WP&L may make other forward-looking statements within the meaning of the federal securities laws that involve judgments, assumptions and other uncertainties beyond the control of such companies. These forward-looking statements may include, among others, statements concerning revenue and cost trends, cost recovery, cost reduction strategies and anticipated outcomes, pricing strategies, changes in the utility industry, planned capital expenditures, financing needs and availability, statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar comments concerning matters that are not historical facts. Investors and other users of the forward-looking statements are cautioned that such statements are not a guarantee of future performance and that such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements. Some, but not all, of the risks and uncertainties include weather effects on sales and revenues, competitive factors, general economic conditions in the relevant service territory, federal and state regulatory or government actions, unanticipated construction and acquisition expenditures, issues related to stranded costs and the recovery thereof, the operations of IEC's nuclear facilities, unanticipated issues or costs associated with achieving Year 2000 compliance, the ability of IEC to successfully integrate the operations of the parties to the Merger and unanticipated costs associated therewith, unanticipated difficulties in achieving expected synergies from the Merger, unanticipated costs associated with certain environmental remediation efforts being undertaken by IEC, technological developments, employee workforce factors, including changes in key executives, collective bargaining agreements or work stoppages, political, legal and economic conditions in foreign countries IEC has investments in and changes in the rate of inflation. UTILITY INDUSTRY OUTLOOK IEC competes in an ever-changing utility industry. Set forth below is an overview of this evolving marketplace. Electric energy generation, transmission and distribution are in a period of fundamental change in the manner in which customers obtain, and energy suppliers provide, energy services. As legislative, regulatory, economic and technological changes occur, electric utilities are facing increased numbers of alternative suppliers. Such 29 competitive pressures could result in loss of customers and an incurrence of stranded costs (i.e., assets and other costs rendered unrecoverable as the result of competitive pricing). To the extent stranded costs cannot be recovered from customers, they would be borne by security holders. Legislation which would allow customers to choose their electric energy supplier is expected to be introduced in Iowa and Minnesota in 1999. IEC does not currently expect similar legislation to be introduced in Wisconsin this year. Nationwide, 16 states (including Illinois and Michigan) have decided to provide for customer choice. IEC realized 56%, 39%, 3% and 2% of its electric utility revenues in 1998, in Iowa, Wisconsin, Minnesota and Illinois, respectively. Approximately 87% of the electric revenues were regulated by the respective state commissions while the other 13% were regulated by the Federal Energy Regulatory Commission (FERC). IEC realized 58%, 36%, 3% and 3% of its gas utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively, during the same period. IESU realized 100% of its electric and gas utility retail revenues in 1998 in Iowa. Approximately 93% of the electric revenues in 1998 were regulated by the Iowa Utilities Board (IUB) while the other 7% were regulated by the FERC. WP&L realized 98% of its electric utility revenues in 1998 in Wisconsin and 2% in Illinois. Approximately 79% of the electric revenues in 1998 were regulated by the Public Service Commission of Wisconsin (PSCW) or the Illinois Commerce Commission (ICC) while the other 21% were regulated by the FERC. WP&L realized 96% of its gas utility revenues in 1998 in Wisconsin and 4% in Illinois. Federal Regulation WP&L, IESU and IPC are subject to regulation by the FERC. The National Energy Policy Act of 1992 addresses several matters designed to promote competition in the electric wholesale power generation market. In 1996, FERC issued final rules (FERC Orders 888 and 889) requiring electric utilities to open their transmission lines to other wholesale buyers and sellers of electricity. In March 1997, FERC issued orders on rehearing for Orders 888 and 889 (Orders 888-A and 889-A). In response to FERC Orders 888 and 888-A, Alliant Energy Corporate Services, on behalf of WP&L, IESU and IPC, filed an Open Access Transmission Tariff that complies with the orders. Upon receiving the final merger-related regulatory order, a compliance tariff was filed by Alliant Energy Corporate Services with the FERC. This filing was made to comply with the FERC's merger order. In response to FERC Orders 889 and 889-A, WP&L, IESU and IPC are participating in a regional Open Access Same-Time Information System. FERC Order 888 permits utilities to seek recovery of legitimate, prudent and verifiable stranded costs associated with providing open access transmission services. FERC does not have jurisdiction over retail distribution and, consequently, the final FERC rules do not provide for the recovery of stranded costs resulting from retail competition. The various states retain jurisdiction over the question of whether to permit retail competition, the terms of such retail competition, and the recovery of any portion of stranded costs that are ultimately determined to have resulted from retail competition. IEC and the utility subsidiaries cannot predict the long-term consequences of these rules on their results of operations or financial condition. In November 1998, IEC and Northern States Power Co. (NSP) announced plans to develop an independent transmission company (ITC) to provide electric transmission services to the Upper Midwest. The two companies are developing a relationship by which NSP will create an independent transmission entity that, in turn, will lease the transmission assets of IEC. The independent entity is expected to be publicly traded and have its own board of directors, management and employees. In February 1999, the Nebraska Public Power District signed an agreement with IEC and NSP to share information and discuss how they might participate in the proposed ITC. 30 IEC expects to file with the PSCW, FERC and Minnesota Public Utilities Commission (MPUC) in the second quarter of 1999 for permission to lease its transmission assets to the ITC. Filings will also be made at the IUB and ICC at a later time. The first FERC filing will also include a tariff designed to allow for open and economical delivery of electric power throughout the region. The tariff will be available to non-ITC participants as well as ITC members. Although no assurance can be given, IEC and NSP currently believe they can have the ITC established in the year 2000. IEC had originally filed to participate in the Midwest Independent System Operator (Midwest ISO) which was conditionally approved by the FERC on September 16, 1998. However, as a result of the ITC announcement, IEC has withdrawn its Midwest ISO membership. State Regulation Iowa IESU and IPC are subject to regulation by the IUB. The IUB has issued an order covering unbundling of natural gas rates for all Iowa customers. In the first quarter of 1999, the IUB conducted workshops concerning this unbundling as well as allowing choice of the supplier of the natural gas for the small volume natural gas customers. Inasmuch as gas is a flow-through cost item in Iowa, and IEC would retain the margins on the delivery of the natural gas, the impact on IEC of these potential changes is not expected to be material. The IUB has been reviewing all forms of competition in the electric utility industry for several years. A group comprised of the IUB, IEC, MidAmerican Energy Company (MAEC), the rural electric cooperatives, the municipal utilities and Iowans for Choice in Electricity (a diverse group of industrial customers, marketers, such as Enron, and a low income customer representative, among others) has endorsed a bill that was agreed upon in February 1999. IEC expects the bill to be introduced in the Iowa Legislature in March 1999. The bill is opposed by the Office of Consumer Advocate, which is charged by Iowa law with representation of all consumers generally. The bill would allow choice of electric suppliers for all customers on May 1, 2002. It would freeze IESU's and IPC's Iowa regulated prices at January 1999 levels. The IUB could not order any rate reductions subsequent to the bill's proposed effective date of June 1, 1999. It would allow, however, for investor-owned utilities to propose increases due to exogenous factors (for example, environmental compliance costs) in the generation cost component. Assigned service territories would be maintained for the delivery function. Delivery prices would be regulated, with the option available to propose performance based rate making. Prices for generation and other retail services would not be regulated, except for Standard Offer Service (SOS) pricing starting May 2002 for all residential customers and non-residential customers with annual usage of less than 25,000 kilowatt-hours (KWH). Pricing for SOS would initially be at levels equivalent to prices as they exist today. SOS would continue until at least December 31, 2005. The IUB would be able to terminate SOS if it were to determine several conditions exist, including, most importantly, that effective competition exists such that regulation is no longer necessary. If the IUB continues SOS past December 31, 2005, then prices would be based upon competitive bids. There are no price protections for non-residential customers with usage greater than 25,000 KWH annually, with the exception of transitional service. Transitional service would exist for no longer than one year, until May 1, 2003, at prices the IUB determines to be "just and reasonable." Currently existing automatic fuel adjustment clauses for recovery of fuel costs would be eliminated no later than May 2002. A "nuclear-only" fuel adjustment would be permitted with increased prices effective immediately if an electric company's nuclear plant is not operational due to exogenous factors. Transition cost is the difference between the revenues that would have been collected pursuant to an electric company's revenue requirement existing as of January 1, 1999, and market prices for the period 2002 through 2005. These differences would be afforded 80% recovery in 2002, 70% in 2003, 60% in 2004 and 50% in 2005. Effective January 1, 2006, transition cost recovery would end. In lieu of accepting this transition cost recovery mechanism, an electric utility may elect to divest itself of its generation assets, including power supply contracts. In such case, the utility would be given an opportunity to be "made whole" for recovery of embedded costs with the possibility for shareowners to retain the amount realized from the sale of the assets beyond the sum of depreciated book value 31 and unfunded decommissioning. A divestiture plan would be filed with the IUB no later than January 1, 2000, with IUB approval or modification by July 1, 2000. The utility would have until September 30, 2000, to revoke its election. Costs of start-up, including computer systems and employee transition costs, would be recoverable over a ten-year period, as approved by the IUB. The difference between regulatory assets and liabilities would be fully recoverable as a delivery charge. Nuclear decommissioning costs would be fully recoverable. IEC is unable to predict if this legislation will be enacted in 1999 or what modifications, if any, may be made to the proposed bill. Wisconsin WP&L is subject to regulation by the PSCW. The PSCW's inquiries into the future structure of the natural gas and electric utility industries are ongoing. The stated goal of the PSCW in the natural gas docket is "to accommodate competition but not create it." The PSCW has followed a measured approach to restructuring the natural gas industry in Wisconsin. The PSCW has determined that customer classes will be deregulated (i.e., the gas utility would no longer have an obligation to procure gas commodity for customers, but would still have a delivery obligation) in a step-wise manner, after each class has been demonstrated to have a sufficient number of gas suppliers available. A number of working groups have been established by the PSCW and these working groups are addressing numerous issues which need to be resolved before deregulation may proceed. The short-term goals of the electric restructuring process are to ensure reliability of the state's electric system and development of a robust wholesale electric market. The longer-term goal is to establish prerequisite safeguards to protect customers prior to allowing retail customer choice. The PSCW has issued an order outlining its policies and principles for Public Benefits (low-income assistance, energy efficiency, renewable generation and environmental research and development) including funding levels, administration of the funds and how funds should be collected from customers. The PSCW has proposed increasing annual funding levels primarily through utility rates by $50 to $75 million statewide. In May 1998, the PSCW reactivated Docket No. 05-BU-101, with the objective of examining the degree of separation which should be required as a matter of policy between utility and non-utility activities involving the various state utilities. Hearings were held in the fourth quarter of 1998 but a final decision by the PSCW has not been issued yet. A future phase of the docket will investigate the standards of conduct that should govern relationships and transactions between a utility and its affiliates. It is anticipated that there will be legislative proposals introduced in the 1999-2000 legislative session on issues dealing with restructuring, including affiliated interest, public benefits, competition and others. It is impossible to predict at this time the scope or the possibility of enactment of such proposals. Minnesota IPC is subject to regulation by the MPUC. The MPUC established an Electric Competition Working Group in April 1995. On October 28, 1997, the Working Group issued a report and recommendations on retail competition. The MPUC reviewed the report and directed its staff to develop an electric utility restructuring plan and timeline. It does not appear that any restructuring legislation will be passed in 1999. Illinois IPC and WP&L are subject to regulation by the ICC. In December 1997, the State of Illinois passed electric deregulation legislation requiring customer choice of electric suppliers for non-residential customers with loads of four megawatts or larger and for approximately one-third of all other non-residential customers starting October 1, 1999. All remaining non-residential customers will be eligible for customer choice beginning December 31, 2000 32 and all residential customers will be eligible for customer choice beginning May 1, 2002. The new legislation is not expected to have a significant impact on IEC's results of operations or financial condition given the relatively small size of IEC's Illinois operations. Accounting Implications Each of the utilities complies with the provisions of Statement of Financial Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain Types of Regulation." SFAS 71 provides that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for nonregulated entities. These are deferred as regulatory assets or regulatory liabilities and are recognized in the consolidated statements of income at the time they are reflected in rates. If a portion of the utility subsidiaries' operations becomes no longer subject to the provisions of SFAS 71 as a result of competitive restructurings or otherwise, a write-down of related regulatory assets and possibly other charges would be required, unless some form of transition cost recovery is established by the appropriate regulatory body that would meet the requirements under generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. In addition, each utility subsidiary would be required to determine any impairment of other assets and write-down any impaired assets to their fair value. The utility subsidiaries believe they currently meet the requirements of SFAS 71. Positioning for a Competitive Environment IEC and its subsidiaries cannot currently predict the long-term consequences of the competitive and restructuring issues described above on their results of operations or financial condition. The major objective is to allow the company to compete successfully in a competitive, deregulated utility industry. The strategy for dealing with these emerging issues includes seeking growth opportunities, forming strategic alliances with other energy-related businesses, continuing to offer quality customer service, initiating ongoing cost reductions and productivity enhancements and developing new products and services. As competitive forces shape the energy-services industry, energy providers will face challenges to continued growth. Since consumption of electricity or natural gas is expected to grow only modestly within IEC's utility service territory, IEC has entered several markets that provide opportunities for new sources of earnings growth. In addition to Alliant Energy Resources' existing businesses, IEC has launched four distinct platforms designed to meet customer needs throughout the Midwest, the nation and the world. These platforms include: Alliant Energy Industrial Services, a provider of energy and environmental services designed to maximize productivity for industrial and large commercial customers; Alliant Energy International, a partner in developing energy generation and infrastructure in growing markets throughout the world; Alliant Energy Retail Services, encompassing a wide array of products and services designed to meet the comfort, security and productivity needs of residential and small commercial customers; and Cargill-Alliant Energy, an energy-trading joint venture that combines the superior risk-management and commodity trading expertise of Cargill Incorporated (Cargill), one of the world's largest and most established commodity trading firms, with IEC's low-cost electric-generation and transmission business experience. IEC believes that each of these four platforms provides unique prospects for growth both individually and collectively as the competitive energy-services marketplace evolves. 33 IEC RESULTS OF OPERATIONS Overview IEC's net income for each of the last three years was as follows:
1998 1997 1996 ---- ---- ---- Earnings excluding merger-related charges - Net income (in thousands) $131,264 $146,169 $159,250 Earnings per share $1.71 $1.92 $2.11 Pre-tax merger-related charges (in thousands) $54,045 $2,448 $5,670 Earnings as reported - Net income (in thousands) $96,675 $144,578 $155,791 Earnings per share $1.26 $1.90 $2.06
The above financial information reflects the consummation of the Merger on April 21, 1998, as a pooling of interests. The merger-related charges were primarily for employee retirements and separations, the services of IEC's advisors, costs related to IEC's name change and other miscellaneous costs. IEC's utility operations reported net income of $109.5 million in 1998, $152.5 million for 1997 and $167.9 million in 1996. Excluding merger-related expenses, the utility earnings were approximately $140.7 million, $153.8 million and $170.8 million in 1998, 1997 and 1996, respectively. The decrease in utility earnings (excluding merger-related expenses) in 1998 resulted primarily from higher purchased-power and transmission costs at WP&L, a 15.7 percent decrease in retail natural gas sales largely due to milder weather conditions in 1998 compared to 1997, a $9 million regulatory asset write-off at IESU, increased expenses for Year 2000 readiness efforts, higher injuries and damages expenses and increased depreciation expenses. These decreases were partially offset by a 2 percent increase in retail electricity sales volumes, largely due to continued economic growth within IEC's service territory, lower purchased-power capacity costs at IESU and IPC, reduced employee pension and benefits costs, and lower costs in 1998 due to merger-related operating efficiencies. A loss incurred on the disposition of an investment in 1997 at IESU also enhanced the 1998 earnings compared to 1997. IEC's nonregulated operations (Alliant Energy Resources) reported net losses of approximately $8.9 million, $4.0 million and $3.1 million in 1998, 1997 and 1996, respectively. Excluding merger-related expenses, the nonregulated operations net losses were approximately $6.3 million, $3.9 million and $2.6 million in 1998, 1997 and 1996, respectively. The decrease in 1998 earnings (excluding merger-related expenses) was due to lower oil and gas prices at Whiting Petroleum Corp. (Whiting), IEC's Denver-based oil and gas subsidiary, continuing expenses for new business development in international and domestic markets, higher interest expense to fund IEC's growth and the pursuit of other business opportunities, and a modest loss from IEC's electricity trading joint venture. A tax benefit realized in 1997 from a donation of securities to IEC's charitable foundation also contributed to the lower earnings in 1998 compared to 1997. Increased earnings from IEC's industrial services businesses as well as gains realized on asset sales partially offset these items. The 1997 decrease in utility earnings was primarily due to increased operating expenses, higher interest expense, rate decreases implemented at WP&L and IPC in 1997, the loss on the investment disposition at IESU in 1997 and the recognition of a gain on the sale of a combustion turbine in 1996 at WP&L. Partially offsetting this decrease were increased retail electric sales and costs incurred in 1996 relating to the successful defense of a hostile takeover attempt of IES by MAEC. The decrease in nonregulated earnings in 1997 was primarily due to lower earnings at Whiting, business development expenses in international and domestic growth areas and a 1996 gain on the sale of an investment in assisted living properties. Partially offsetting these items were improved performance in the energy marketing businesses and the 1997 tax benefit resulting from the donation of securities. 34 Electric Utility Operations Electric margins and megawatt-hour (MWH) sales for IEC for 1998 and 1997 were as follows:
Revenues and Costs MWHs Sold (in thousands) (in thousands) ------------------------------ ---------------------------- 1998 1997 Change 1998 1997 Change --------------- ------------- --------- ------------- ------------- --------- Residential $ 519,687 $ 509,207 2% 6,674 6,699 - Commercial 330,693 320,308 3% 5,095 4,996 2% Industrial 477,241 455,912 5% 12,718 12,320 3% --------------- ------------- ------------- ------------- Total from ultimate customers 1,327,621 1,285,427 3% 24,487 24,015 2% Sales for resale 199,128 192,346 4% 7,189 6,768 6% Other 40,693 37,980 7% 158 161 (2%) --------------- ------------- ------------- ------------- Total 1,567,442 1,515,753 3% 31,834 30,944 3% ============= ============= ========= Electric production fuels 283,866 265,105 7% Purchased-power 255,332 256,306 - --------------- ------------- Margin $ 1,028,244 $ 994,342 3% =============== ============= ========= Electric margins and MWH sales for IEC for 1997 and 1996 were as follows: Revenues and Costs MWHs Sold (in thousands) (in thousands) ------------------------------ ---------------------------- 1997 1996 Change 1997 1996 Change --------------- ------------- --------- ------------- ------------- --------- Residential $ 509,207 $ 494,649 3% 6,699 6,668 - Commercial 320,308 308,480 4% 4,996 4,878 2% Industrial 455,912 428,726 6% 12,320 11,666 6% --------------- ------------- ------------- ------------- Total from ultimate customers 1,285,427 1,231,855 4% 24,015 23,212 3% Sales for resale 192,346 181,365 6% 6,768 7,459 (9%) Other 37,980 27,155 40% 161 161 - --------------- ------------- ------------- ------------- Total 1,515,753 1,440,375 5% 30,944 30,832 - ============= ============= ========= Electric production fuels 265,105 246,638 7% Purchased-power 256,306 231,014 11% --------------- ------------- Margin $ 994,342 $ 962,723 3% =============== ============= =========
Electric margin increased $33.9 million, or 3%, and $31.6 million, or 3%, for 1998 and 1997, respectively. The increase for both periods was primarily due to the recovery of concurrent and previously deferred expenditures for Iowa-mandated energy efficiency programs, reduced purchased-power capacity costs at IESU and IPC and higher sales volumes to ultimate customers. The recovery for energy efficiency programs in Iowa is in accordance with IUB orders (a portion of these recoveries is also amortized to expense in other operation expenses). Electric revenues included increased recoveries for energy efficiency program costs in Iowa of $25.8 million and $16.8 million for 1998 and 1997, respectively. The increased sales volumes were primarily due to continued economic growth within the IEC service territory. Weather normalized sales volumes (excluding off-system sales) increased approximately 2.4% in 1998 compared to an actual increase of 1.7%. The 1998 increase in margin was partially offset by a lower margin at WP&L and rate decreases implemented at WP&L and IPC in 1997. The lower margin at WP&L, which was partially offset by an increase in retail sales, was also due to: a) Purchased-power and transmission costs - such costs have increased significantly because of stricter 35 reliability requirements and higher transmission costs due to system constraints in Wisconsin. Recovery of such increased costs in Wisconsin generally involves regulatory lag between the time of the cost increase and the time a rate increase is implemented. The PSCW granted WP&L an annual rate increase of $15 million in July 1998 related to these cost increases. In addition, WP&L made a filing with the PSCW in November 1998 seeking another rate increase for higher purchased-power and transmission costs. (Refer to "Rates and Regulatory Matters" for a further discussion of this filing). The effect of these 1998 cost increases was partially offset by WP&L's reliance on more costly purchased-power in the first six months of 1997 due to various power plant outages, particularly the Kewaunee Nuclear Power Plant (Kewaunee). b) Lower off-system sales income - due to the transmission constraints, increased native demand, a more active bulk power market, which resulted in lower bulk power margins, and the implementation of a merger-related joint sales agreement (effective with the consummation of the Merger, the margins resulting from IEC's off-system sales are allocated among IESU, IPC and WP&L). Pursuant to rate making provisions, bulk power margins at IESU and IPC are returned to ratepayers through their fuel adjustment clauses. An increase in off-system sales at WP&L in 1997 also contributed to the 1997 margin increase. The impact of the power plant outages at WP&L in 1997 and the rate decreases implemented at WP&L and IPC in 1997 partially offset the 1997 margin increase. IESU's and IPC's electric tariffs include energy adjustment clauses (EAC) that are designed to currently recover the costs of fuel and the energy portion of purchased-power billings (see Note 1(k) of the "Notes to Consolidated Financial Statements" for discussion of the EAC). Gas Utility Operations Gas margins and dekatherm (Dth) sales for IEC for 1998 and 1997 were as follows:
Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1998 1997 Change 1998 1997 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 175,603 $ 225,542 (22%) 28,378 33,894 (16%) Commercial 85,842 115,858 (26%) 17,760 21,142 (16%) Industrial 20,204 27,393 (26%) 5,507 6,217 (11%) Transportation and other 13,941 25,114 (44%) 52,389 56,719 (8%) ------------- ------------- ----------- ------------- Total 295,590 393,907 (25%) 104,034 117,972 (12%) ============ ============= ========= Cost of gas sold 166,453 259,222 (36%) ------------- ------------- Margin $ 129,137 $ 134,685 (4%) ============= ============= ========= Gas margins and Dth sales for IEC for 1997 and 1996 were as follows: Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1997 1996 Change 1997 1996 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 225,542 $ 216,268 4% 33,894 37,165 (9%) Commercial 115,858 108,187 7% 21,142 22,613 (7%) Industrial 27,393 27,569 (1%) 6,217 6,856 (9%) Transportation and other 25,114 23,931 5% 56,719 55,240 3% ------------- ------------- --------------------------- Total 393,907 375,955 5% 117,972 121,874 (3%) ============ ============= ========= Cost of gas sold 259,222 240,324 8% ------------- ------------- Margin $ 134,685 $ 135,631 (1%) ============= ============= =========
36 Gas margin decreased $5.5 million, or 4%, and decreased $0.9 million, or 1%, for 1998 and 1997, respectively. Dth sales declined by 12% and 3% for 1998 and 1997, respectively, largely due to milder weather. A rate reduction implemented in April 1997 at WP&L also contributed to the decrease in margin for 1998 and 1997. Partially offsetting the decline in margin for 1998 and 1997 were higher revenues from the recovery of concurrent and previously deferred energy efficiency expenditures for Iowa-mandated energy efficiency program costs in accordance with IUB orders (a portion of these recoveries is also amortized to expense in other operation expenses) and gas cost adjustments at IPC. Gas revenues included increased recoveries for energy efficiency program costs in Iowa of $6.3 million and $4.0 million for 1998 and 1997, respectively. IESU's and IPC's gas tariffs include purchased gas adjustment (PGA) clauses that are designed to currently recover the cost of utility gas sold (see Note 1(k) of the "Notes to Consolidated Financial Statements" for a discussion of the PGA). Nonregulated and Other Revenues Nonregulated and other revenues for 1998, 1997 and 1996 were as follows (in millions): 1998 1997 1996 ------------- ----------- ------------ Environmental and engineering services $ 73 $ 78 $ 85 Oil and gas production 65 69 66 Transportation, rents and other 46 46 35 Nonregulated energy 40 151 192 Steam 27 29 24 Affordable housing 12 13 11 Water 5 5 4 ------------- ----------- ------------ $268 $391 $417 ============= =========== ============ The revenues for nonregulated energy declined significantly in 1998 primarily due to decreased low-margin gas marketing activities and the transfer of the electricity trading business to the Cargill joint venture in July 1997, which markets electricity and risk management services to wholesale customers. IEC's investment in the joint venture is accounted for under the equity method of accounting. Oil and gas production revenues declined in 1998 primarily due to significantly lower oil and gas prices, largely offset by a significant increase in gas volumes sold. In 1997, nonregulated energy revenues declined primarily due to the formation of the joint venture with Cargill as described above. Transportation, rents and other revenues increased primarily as a result of the acquisition of a gas gathering system in Texas in 1997. Environmental and engineering services revenues declined due to a softening market. Operating Expenses Other operation expenses for 1998, 1997 and 1996 were as follows (in millions): 1998 1997 1996 -------------------------------------- Utility-WP&L/IESU/IPC $421 $358 $340 Nonregulated and other 199 324 357 -------------------------------------- $620 $682 $697 ====================================== Other operation expenses at the utility subsidiaries increased $63 million in 1998, including $34 million of merger-related expenses. The merger-related expenses were primarily for employee retirements, separations and relocations. In addition, increased energy efficiency expenses in Iowa, a write-off of $9 million of certain employee benefits related regulatory assets at IESU which were deemed no longer probable of recovery, higher administrative and general expenses at WP&L, higher injuries and damages expenses and increased expenses for Year 2000 readiness efforts also contributed to the increase. The increase was partially offset by reduced employee pension 37 and benefit expenses, reduced conservation expense at WP&L, lower costs resulting from merger-related operating efficiencies and reduced nuclear operation expenses at IESU. In 1997, other operation expenses at the utility subsidiaries increased $18 million primarily due to increased amortization of previously deferred energy efficiency expenditures in Iowa. These expenses were partially offset by a reduction in conservation expense at WP&L in accordance with an April 1997 rate order. Other operation expenses at the nonregulated businesses decreased $125 million in 1998 primarily due to the formation of the Cargill joint venture. These reductions in other operation expenses were partially offset by $3 million of merger-related costs and continuing expenses for new business development in international and domestic markets. Other operation expenses decreased $33 million in 1997 primarily due to the joint venture with Cargill and also reduced activity in the environmental and engineering services businesses and the energy marketing business. These decreases were partially offset by higher operating expenses at Whiting. Maintenance expenses decreased slightly in 1998 primarily due to reduced expenses at fossil-fueled plants, which was virtually offset by increased maintenance at the nuclear plants. Maintenance expenses increased $11.5 million in 1997 primarily due to increased nuclear maintenance expenses, higher transmission and distribution expenses at IESU and increased maintenance at fossil-fueled plants. Depreciation and amortization expense increased $19.8 million and $27.3 million in 1998 and 1997, respectively, primarily as a result of utility property additions. The increase in 1998 was also due to a Kewaunee surcharge (which is recorded in depreciation and amortization expense with a corresponding increase in revenues resulting in no impact on earnings). Higher depreciation rates implemented at WP&L in January 1997 and higher depreciation and amortization expenses at Whiting also contributed to the 1997 increase. Interest Expense and Other Interest expense increased $6.8 million in 1998 due to higher utility and nonregulated borrowings during 1998 and an adjustment to decrease interest expense in 1997 relating to a tax audit settlement at WP&L. Interest expense increased $9.2 million in 1997 primarily due to the change in the amount of debt outstanding. Miscellaneous, net income decreased $13.2 million in 1998 primarily due to $17 million of merger-related expenses, for the services of IEC's advisors and costs related to IEC's name change, and a modest loss from IEC's electricity trading joint venture. Gains realized on asset sales in 1998 partially offset these items. The 1997 results included a loss incurred on the disposition of an investment at IESU. The increase in income in 1997 was due to costs incurred in 1996 related to the successful defense of the hostile takeover attempt at IES. This was partially offset by the investment disposition loss at IESU in 1997, a gain on the sale of a combustion turbine at WP&L in 1996 and the gain on a sale of an investment in assisted living properties in 1996. Income Taxes IEC's income tax expense decreased $23.6 million and $24.0 million in 1998 and 1997, respectively, primarily due to lower pre-tax income. See Note 6 of the "Notes to Consolidated Financial Statements" for details on the effective tax rate changes. IESU RESULTS OF OPERATIONS Overview IESU's earnings available for common stock increased $3.1 million and decreased $4.9 million in 1998 and 1997, respectively. The increased earnings for 1998 were primarily due to a 2 percent increase in retail electricity sales volumes, largely due to continued economic growth in IESU's service territory, lower purchased-power capacity costs, reduced employee pension and benefits costs and lower costs in 1998 due to merger-related operating efficiencies. A loss incurred on the disposition of an asset in 1997 also improved 1998 earnings compared to 1997. Partially offsetting 38 the higher 1998 earnings were merger-related expenses, a $9 million write-off of a regulatory asset, decreased gas sales resulting from milder weather, increased depreciation and amortization expenses and increased expenses for Year 2000 readiness efforts. The decreased earnings for 1997 were primarily due to increased operating expenses, higher interest expense and a loss on the investment disposition in 1997. Such items were partially offset by increased electric sales (excluding off-system sales) resulting from continuing growth in IESU's service territory and the nonrecurrence of costs incurred in 1996 related to the successful defense of a hostile takeover attempt of IES by MAEC. Electric Utility Operations - ---------------------------
Electric margins and MWH sales for IESU for 1998 and 1997 were as follows: Revenues and Costs MWHs Sold (in thousands) (in thousands) --------------------------- --------------------------- 1998 1997 Change 1998 1997 Change ------------- ------------- --------- ------------ ------------- --------- Residential $232,662 $ 227,496 2% 2,661 2,682 (1%) Commercial 168,672 162,626 4% 2,465 2,378 4% Industrial 181,369 177,890 2% 4,872 4,743 3% ------------- ------------- ------------ ------------- Total from ultimate customers 582,703 568,012 3% 9,998 9,803 2% Sales for resale 45,453 25,719 77% 1,763 794 122% Other 11,267 10,539 7% 42 43 (2%) ------------- ------------- ------------ ------------- Total 639,423 604,270 6% 11,803 10,640 11% ============ ============= ========= Electric production fuels 99,362 92,891 7% Purchased-power 71,637 74,098 (3%) ------------- ------------- Margin $468,424 $ 437,281 7% ============= ============= ========= Electric margins and MWH sales for IESU for 1997 and 1996 were as follows: Revenues and Costs MWHs Sold (in thousands) (in thousands) --------------------------- --------------------------- 1997 1996 Change 1997 1996 Change ------------- ------------- --------- ------------ ------------- -------- Residential $ 227,496 $ 213,838 6% 2,682 2,642 2% Commercial 162,626 153,163 6% 2,378 2,315 3% Industrial 177,890 160,477 11% 4,743 4,436 7% ------------- ------------- ------------ ------------- Total from ultimate customers 568,012 527,478 8% 9,803 9,393 4% Sales for resale 25,719 37,384 (31%) 794 1,746 (55%) Other 10,539 9,411 12% 43 46 (7%) ------------- ------------- ------------ ------------- Total 604,270 574,273 5% 10,640 11,185 (5%) ============ ============= ======== Electric production fuels 92,891 74,608 25% Purchased-power 74,098 88,350 (16%) ------------- ------------- Margin $ 437,281 $ 411,315 6% ============= ============= =========
Electric margin increased $31.1 million, or 7%, and $26.0 million, or 6%, for 1998 and 1997, respectively, primarily due to the recovery of concurrent and previously deferred expenditures for Iowa-mandated energy efficiency programs, increases in sales volumes to ultimate customers due to economic growth in the service territory and reduced purchased-power capacity costs. The recovery for energy efficiency programs in Iowa is in accordance with IUB orders (a portion of these recoveries is also amortized to expense in other operation expense). Electric revenues included increased recoveries for energy efficiency program costs of approximately $15 million and $11 million for 1998 and 1997, respectively. Sales for resale increased significantly for 1998 as a result of the implementation of a 39 merger-related joint sales agreement during the second quarter of 1998 (off-system sales revenues are passed through IESU's energy adjustment clause and therefore have no impact on electric margin). Refer to "Rates and Regulatory Matters" for a further discussion. The decrease in sales for resale in 1997 was primarily due to the implementation of FERC Orders 888 and 888-A. Weather normalized sales volumes (excluding off-system sales) increased approximately 3.0% and 3.1% in 1998 and 1997, respectively, compared to actual increases of 2.2% and 3.8% for the same periods. IESU's electric tariffs include EAC's that are designed to currently recover the costs of fuel and the energy portion of purchased-power billings. Refer to Note 1(k) of IEC's "Notes to Consolidated Financial Statements" for discussion of the EAC. Gas Utility Operations Gas margins and Dth sales for IESU for 1998 and 1997 were as follows:
Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1998 1997 Change 1998 1997 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 86,821 $ 110,663 (22%) 13,803 16,317 (15%) Commercial 39,928 54,383 (27%) 8,272 9,602 (14%) Industrial 10,422 13,961 (25%) 3,089 3,318 (7%) Transportation and other 4,108 4,510 (9%) 11,316 10,321 10% ------------- ------------- ------------ ------------- Total 141,279 183,517 (23%) 36,480 39,558 (8%) ============ ============= ========= Cost of gas sold 84,642 126,631 (33%) ------------- ------------- Margin $ 56,637 $ 56,886 - ============= ============= ========= Gas margins and Dth sales for IESU for 1997 and 1996 were as follows: Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1997 1996 Change 1997 1996 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 110,663 $ 97,708 13% 16,317 17,680 (8%) Commercial 54,383 46,966 16% 9,602 10,323 (7%) Industrial 13,961 12,256 14% 3,318 3,796 (13%) Transportation and other 4,510 3,934 15% 10,321 10,341 - ------------- ------------- ------------ ------------- Total 183,517 160,864 14% 39,558 42,140 (6%) Cost of gas sold 126,631 103,877 22% ============ ============= ========= ------------- ------------- Margin $ 56,886 $ 56,987 - ============= ============= =========
Gas margin decreased by $0.2 million and $0.1 million for 1998 and 1997, respectively, primarily from reduced sales as a result of milder weather which were substantially offset by the recovery of concurrent and previously deferred energy efficiency expenditures for Iowa-mandated energy efficiency program costs in accordance with IUB orders (a portion of these recoveries is also amortized to expense in other operation expenses). Gas revenues included increased recoveries for energy efficient program costs of $4.2 million and $2.4 million for 1998 and 1997, respectively. Lower grain drying related sales also contributed to the decrease in sales in 1997. IESU's gas tariffs include PGA clauses that are designed to currently recover the cost of gas sold. Refer to IEC's Note 1(k) of the "Notes to Consolidated Financial Statements" for discussion of the PGA. 40 Operating Expenses IESU's other operation expenses increased $26.5 million and $13.4 million for 1998 and 1997, respectively. The 1998 increases were primarily due to $10.5 million of merger-related expenses, increased amortization of previously deferred energy efficiency expenditures, a $9 million regulatory asset write-off and increased Year 2000 compliance costs. The merger-related expenses were primarily for employee retirements, separations and relocations. The regulatory asset write-off stemmed from management no longer being able to assert that rate recovery of certain employee benefits costs was probable given the existing merger-related price freeze in effect as well as other factors. These items were partially offset by lower nuclear operation expenses, reduced employee pension and benefit costs and lower costs resulting from merger-related operating efficiencies. The increase in 1997 was primarily due to increased amortization of previously deferred energy efficiency expenditures and costs related to an early retirement program, which were partially offset by lower employee labor and benefit costs. Maintenance expenses decreased $1.8 million and increased $8.0 million in 1998 and 1997, respectively. The decrease in 1998 was due to reduced fossil-fueled maintenance expenses, which were partially offset by higher nuclear maintenance expenses. The increase in 1997 was primarily due to increased nuclear maintenance expenses, higher transmission and distribution maintenance expenditures and increased maintenance at the fossil-fueled generating stations. Depreciation and amortization expenses increased $4.2 million and $4.8 million for 1998 and 1997, respectively, primarily due to property additions. Interest Expense and Other Interest expense decreased $0.4 million and increased $9.1 million in 1998 and 1997, respectively. The 1997 increase was primarily due to increases in the average amount of debt outstanding and changes in interest accruals related to income tax audits. Miscellaneous, net expense increased $0.3 million and decreased $5.0 million for 1998 and 1997, respectively. The increase in 1998 resulted primarily from $6.0 million of merger-related expenses which were substantially offset by the write-off of an investment in 1997 and a gain on an asset sale in 1998. The decrease in 1997 was also due to costs incurred in 1996 related to the successful defense of the hostile takeover attempt of IES. Income Taxes The effective income tax rates were 40.1%, 41.8% and 40.3% in 1998, 1997 and 1996, respectively (see Note 6 of the "Notes to Consolidated Financial Statements" for a discussion of the changes). WP&L RESULTS OF OPERATIONS Overview WP&L's earnings available for common stock decreased $35.7 million and $11.3 million in 1998 and 1997, respectively. The decreased earnings for 1998 were primarily due to merger-related expenses, higher purchased-power and transmission costs, higher depreciation and amortization expenses, decreased retail natural gas sales largely due to milder weather, higher injuries and damages expenses, higher interest expense and a higher effective tax rate. These decreases were partially offset by a 3 percent increase in retail electricity sales volumes, largely due to continued economic growth within WP&L's service territory, reduced employee pension and benefit costs and lower costs in 1998 due to merger-related operating efficiencies. The decreased earnings for 1997 were primarily due to lower gas and electric margins, higher depreciation expense, higher interest expense and the recognition of a gain on the sale of a combustion turbine in 1996. 41 Electric Utility Operations - ---------------------------
Electric margins and MWH sales for WP&L for 1998 and 1997 were as follows: Revenues and Costs MWHs Sold (in thousands) (in thousands) --------------------------- --------------------------- 1998 1997 Change 1998 1997 Change ------------- ------------- --------- ------------ ------------- --------- Residential $198,770 $ 199,633 - 2,964 2,974 - Commercial 108,724 107,132 1% 1,898 1,878 1% Industrial 162,771 152,073 7% 4,493 4,256 6% ------------- ------------- ------------ ------------- Total from ultimate customers 470,265 458,838 2% 9,355 9,108 3% Sales for resale 128,536 160,917 (20%) 4,492 5,824 (23%) Other 15,903 14,388 11% 59 60 (2%) ------------- ------------- ------------ ------------- Total 614,704 634,143 (3%) 13,906 14,992 (7%) ============ ============= ========= Electric production fuels 120,485 116,812 3% Purchased-power 113,936 125,438 (9%) ------------- ------------- Margin $380,283 $ 391,893 (3%) ============= ============= ========= Electric margins and MWH sales for WP&L for 1997 and 1996 were as follows: Revenues and Costs MWHs Sold (in thousands) (in thousands) --------------------------- --------------------------- 1997 1996 Change 1997 1996 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 199,633 $ 201,690 (1%) 2,974 2,980 - Commercial 107,132 105,319 2% 1,878 1,814 4% Industrial 152,073 143,734 6% 4,256 3,986 7% ------------- ------------- ------------ ------------- Total from ultimate customers 458,838 450,743 2% 9,108 8,780 4% Sales for resale 160,917 131,836 22% 5,824 5,246 11% Other 14,388 6,903 108% 60 57 5% ------------- ------------- ------------ ------------- Total 634,143 589,482 8% 14,992 14,083 6% ============ ============= ========= Electric production fuels 116,812 114,470 2% Purchased-power 125,438 81,108 55% ------------- ------------- Margin $ 391,893 $ 393,904 (1%) ============= ============= =========
Electric margin decreased $11.6 million, or 3%, and $2.0 million, or 1%, during 1998 and 1997, respectively. The 1998 decline in margin was due to: a) Purchased-power and transmission costs - such costs have increased significantly because of stricter reliability requirements and higher transmission costs due to system constraints in Wisconsin. Recovery of such increased costs in Wisconsin generally involves regulatory lag between the time of the cost increase and the time a rate increase is implemented. The PSCW granted WP&L an annual rate increase of $15 million in July 1998 related to these cost increases. In addition, WP&L made a filing with the PSCW in November 1998 seeking another rate increase for higher purchased-power and transmission costs. (Refer to "Rates and Regulatory Matters" for a further discussion of this filing). The effect of these 1998 cost increases was partially offset by WP&L's reliance on more costly purchased-power in the first six months of 1997 due to various power plant outages, particularly Kewaunee. b) Lower off-system sales income - due to the transmission constraints, increased native demand, a more active bulk power market, which resulted in lower bulk power margins, and the implementation of a merger-related 42 joint sales agreement (effective with the consummation of the Merger, the margins resulting from IEC's off-system sales are allocated among IESU, IPC and WP&L). A 2.4% retail rate decrease implemented at WP&L in April 1997 also contributed to the lower electric margin in 1998. The increased sales to ultimate customers, largely due to economic growth in WP&L's service territory, partially offset these items. Weather normalized sales volumes (excluding off-system sales) increased approximately 2.2% in 1998 compared to an actual increase of 1.3%. The decrease in margin in 1997 was due to the rate decrease, milder weather conditions in 1997 as compared to 1996 and WP&L's reliance on more costly purchased power in 1997 due to the various power plant outages. These items were partially offset by the increased commercial and industrial sales, an increase in off-system sales in 1997 and higher revenues from conservation services. Gas Utility Operations - ---------------------- Gas margins and Dth sales for WP&L for 1998 and 1997 were as follows:
Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1998 1997 Change 1998 1997 Change ------------- ------------- --------- ------------ ------------- ------- Residential $ 65,173 $ 84,513 (23%) 10,936 12,770 (14%) Commercial 33,898 45,456 (25%) 7,285 8,592 (15%) Industrial 5,896 8,378 (30%) 1,422 1,714 (17%) Transportation and other 6,770 17,536 (61%) 12,948 17,595 (26%) ------------- ------------- ------------ ------------- Total 111,737 155,883 (28%) 32,591 40,671 (20%) ============ ============= ========= Cost of gas sold 61,409 99,267 (38%) ------------- ------------- Margin $ 50,328 $ 56,616 (11%) ============= ============= ========= Gas margins and Dth sales for WP&L for 1997 and 1996 were as follows: Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1997 1996 Change 1997 1996 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 84,513 $ 90,382 (6%) 12,770 14,297 (11%) Commercial 45,456 46,703 (3%) 8,592 9,167 (6%) Industrial 8,378 11,410 (27%) 1,714 1,997 (14%) Transportation and other 17,536 17,132 2% 17,595 18,567 (5%) ------------- ------------- ------------ ------------ Total 155,883 165,627 (6%) 40,671 44,028 (8%) ============ ============= ========= Cost of gas sold 99,267 104,830 (5%) ------------- ------------- Margin $ 56,616 $ 60,797 (7%) ============= ============= =========
Gas margin declined $6.3 million, or 11%, and $4.2 million, or 7%, during 1998 and 1997, respectively, due to a reduction in Dth sales resulting from milder weather and an average retail rate reduction of 2.2% implemented in April 1997. In 1998, the significant decline in transportation and other revenues and sales reflects an accounting change for off-system sales as required by the PSCW effective January 1, 1998. The accounting change requires that beginning in 1998 off-system gas sales be reported as a reduction of the cost of gas sold rather than as gas revenue. In 1997, off-system gas revenues were $11.1 million. Refer to "Rates and Regulatory Matters" for a discussion of a gas cost adjustment mechanism in place at WP&L. The impact on the results of operations from such mechanism was not significant in any of the periods presented. 43 Operating Expenses Other operation expense increased $12.3 million and decreased $8.9 million for 1998 and 1997, respectively. The 1998 increase was primarily due to $11.2 million of merger-related expenses for employee retirements, separations and relocations. Higher injuries and damages expenses and an increase in other administrative and general expenses also contributed to the increase. Such items were partially offset by reduced employee pension and benefits expenses, reduced conservation expense and lower costs from merger-related operating efficiencies. The 1997 decrease was primarily due to a reduction in conservation expense, which was partially offset by costs associated with an early retirement program in 1997 for eligible bargaining unit employees. Depreciation and amortization expense increased $14.9 million and $19.4 million for 1998 and 1997, respectively. The 1998 increase was due to property additions, higher Kewaunee depreciation (refer to "Capital Requirements Nuclear Facilities" for additional information) and a Kewaunee surcharge of $3.2 million (which has been recorded in depreciation and amortization expense with a corresponding increase in revenues resulting in no impact on earnings). The 1997 increase was due to higher depreciation rates approved by the PSCW, effective January 1, 1997, and property additions. Interest Expense and Other Interest expense increased $4.0 million in 1998 primarily due to unusually low interest expense in the second quarter of 1997, resulting from an adjustment to decrease interest expense relating to a tax audit settlement, and increased borrowings during 1998. Miscellaneous, net income decreased $2.7 million and $2.9 million in 1998 and 1997, respectively. The 1998 decrease was primarily due to $6.1 million of merger-related expenses which was partially offset by higher earnings on the nuclear decommissioning trust fund. The 1997 decrease was primarily due to the recognition of a gain on the sale of a combustion turbine in 1996. Income Taxes Income taxes decreased $17.2 million and $12.0 million in 1998 and 1997, respectively, due to lower pre-tax income. See Note 6 of the "Notes to Consolidated Financial Statements" for details on the effective tax rate changes. LIQUIDITY AND CAPITAL RESOURCES Historical IEC Analysis Cash flows from operating activities at IEC increased $4 million and $12 million for 1998 and 1997, respectively. The increases were primarily due to changes in working capital and additional depreciation and amortization expense partially offset by lower net income and lower deferred taxes and investment tax credits. Cash flows used for financing activities decreased $39 million and increased $55 million in 1998 and 1997, respectively. The changes were primarily a result of the net changes in the amount of debt outstanding. Cash flows used for investing activities increased $43 million and decreased $44 million in 1998 and 1997, respectively, primarily due to changes in the levels of construction and acquisition expenditures. The decrease in 1997 was partially offset by higher proceeds from the disposition of assets in 1996. Historical IESU Analysis Cash flows generated from operating activities increased $16 million and $20 million in 1998 and 1997, respectively. Cash flows used for financing activities decreased $50 million and increased $84 million for 1998 and 44 1997, respectively. The decrease in 1998 was primarily a result of reduced common stock dividends and the increase in 1997 was due to the net change in borrowings in 1997. Cash flows used for investing activities decreased $3 million and $45 million in 1998 and 1997, respectively. The decrease in 1997 was primarily a result of reduced construction expenditures. Historical WP&L Analysis Cash flows generated from operations increased $27 million and decreased $42 million in 1998 and 1997, respectively. The 1998 increase was primarily a result of changes in working capital and higher depreciation and amortization expenses partially offset by lower net income. The decrease in 1997 was mainly attributable to the change in working capital. Cash flows used for financing activities increased $14 million and decreased $75 million in 1998 and 1997, respectively, primarily due to changes in the amount of debt outstanding. Cash flows used for investing activities increased $12 million and $34 million in 1998 and 1997, respectively. The increase in 1998 was primarily due to higher shared savings expenditures and the increase in 1997 was mainly due to the proceeds from the sale of other property and equipment in 1996. Future Considerations The capital requirements of IEC are primarily attributable to its utility subsidiaries' construction and acquisition programs, its debt maturities and business opportunities of Alliant Energy Resources. It is anticipated that future capital requirements of IEC will be met by cash generated from operations and external financing. The level of cash generated from operations is partially dependent upon economic conditions, legislative activities, environmental matters and timely regulatory recovery of utility costs. IEC's liquidity and capital resources will be affected by costs associated with environmental and regulatory issues. Emerging competition in the utility industry could also impact IEC's liquidity and capital resources, as discussed previously in the "Utility Industry Outlook" section. At December 31, 1998, Alliant Energy Resources had approximately $69 million of investments in foreign entities. At December 31, 1998, IESU, WP&L and IPC did not have any foreign investments. IEC continues to explore additional international investment opportunities. Such investments may carry a higher level of risk than IEC's traditional domestic utility investments or Alliant Energy Resources' domestic investments. Such risks could include foreign government actions, foreign economic and currency risks and others. IEC is expected to pursue various potential business development opportunities, including international as well as domestic investments, and is devoting resources to such efforts. It is anticipated that IEC will strive to select investments where the international and other risks are both understood and manageable. Under PUHCA, IEC's investments in exempt wholesale generators (EWG's) and foreign utility companies (FUCO's) is limited to 50% of IEC's consolidated retained earnings. In addition, there are limitations on the amount of non-utility investments IEC can make under the Wisconsin Utility Holding Company Act (WUHCA) as well. At December 31, 1998, IEC had an investment in the stock of McLeodUSA Inc. (McLeod), a telecommunications company, valued at $320.3 million (based on a December 31, 1998 closing price of $31.25 per share and compared to a cost basis of $29.1 million). Pursuant to the applicable accounting rules, the carrying value of the investments are adjusted to the estimated fair value each quarter based on the closing price at the end of the quarter. The adjustments do not impact net income as the unrealized gains or losses, net of taxes, are recorded directly to the common equity section of the balance sheet and are a component of other comprehensive income. In addition, any such gains or losses are reflected in current earnings only at the time they are realized through a sale. IEC entered into an agreement in November 1998 with McLeod whereby IEC's ability to sell the McLeod stock is subject to various restrictions. IEC had certain off-balance sheet financial guarantees and commitments outstanding at December 31, 1998. They generally consist of third-party borrowing arrangements and lending commitments, guarantees of financial performance of syndicated affordable housing properties and guarantees relating to IEC's electricity trading joint venture. Refer to Note 12(d) of the "Notes to the Consolidated Financial Statements" for additional details. 45 Financing and Capital Structure Access to the long-term and short-term capital and credit markets, and costs of external financing, are dependent on creditworthiness. The debt ratings of IEC and certain subsidiaries by Moody's and Standard & Poor's are as follows:
Standard & Moody's Poor's ----------------- ----------------- IESU - Secured long-term debt A2 A+ - Unsecured long-term debt A3 A WP&L - Secured long-term debt Aa2 AA - Unsecured long-term debt Aa3 A+ IPC - Secured long-term debt A1 A+ - Unsecured long-term debt A2 A Alliant Energy Resources - Commercial paper P2 A1 IEC - Commercial paper (a) P1 A1 (a) IESU, WP&L and IPC participate in a utility money pool which is funded, as needed, through the issuance of commercial paper by IEC. The PSCW has restricted WP&L from lending money to non-utility affiliates and non-Wisconsin utilities. As a result, WP&L is restricted from lending money to the utility money pool but is able to borrow money from the utility money pool.
Alliant Energy Resources is a party to a 3-Year Credit Agreement with various banking institutions. The agreement extends through October 2000, with one-year extensions available upon agreement by the parties. Unused borrowing availability under this agreement is also used to support Alliant Energy Resources' commercial paper program. A combined maximum of $450 million of borrowings under this agreement and the commercial paper program may be outstanding at any one time. Interest rates and maturities are set at the time of borrowing. The rates are based upon quoted market prices and the maturities are less than one year. At December 31, 1998, Alliant Energy Resources had $253 million of commercial paper outstanding and backed by this facility with interest rates ranging from 5.15%-5.85%. (See Note 11(a) of the "Notes to the Consolidated Financial Statements" for a discussion of interest rate swaps Alliant Energy Resources has entered into relative to $200 million of short-term borrowings under, or backed by, this agreement.) Alliant Energy Resources intends to continue issuing commercial paper backed by this facility and no conditions existed at December 31, 1998 that would prevent the issuance of commercial paper or direct borrowings on its bank lines. Accordingly, this debt is classified as long-term. In addition, Alliant Energy Resources has in place a $150 million 364-Day Credit Agreement which is described below. Other than periodic sinking fund requirements, which will not require additional cash expenditures, the following long-term debt (in millions) will mature prior to December 31, 2003: IESU $187.5 IPC 3.3 WP&L 1.9 Alliant Energy Resources 279.2 ----------------- IEC $471.9 ================= Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities. WP&L currently has no authority from the PSCW or the Securities and Exchange Commission (SEC) to issue additional long-term debt. On November 25, 1998, IESU and IPC received authority from the SEC under PUHCA to issue $200 million and $80 million of long-term debt securities, respectively. The companies continually evaluate their future financing needs and will make any necessary regulatory filings as needed. 46 Under the most restrictive terms of their respective indentures, IESU, WP&L and IPC could have issued at least $241 million, $309 million and $182 million of long-term debt at December 31, 1998, respectively. On October 30, 1998, WP&L issued $60 million of debentures at a coupon rate of 5.70% maturing on October 15, 2008. The net proceeds from the debt offering were used to pay down short-term debt, including short-term debt used to retire maturing long-term debt. On November 30, 1998, IPC issued $2.65 million and $2.3 million of pollution control revenue bonds due November 1, 2005 and November 1, 2008, respectively. The proceeds were used to retire at maturity $5.85 million of 5.95% pollution control revenue bonds. The bonds have a fixed interest rate of 4.30% for the first five years. Thereafter, IPC will have the option to reset the interest rate at one of three variable short-term interest rates or at a new long-term interest rate, based on the then prevailing market conditions, provided the rate does not exceed 12% per annum. On November 30, 1998, IESU issued $10 million of pollution control revenue bonds due November 1, 2023. The proceeds were used to refinance $10 million of 5.95% pollution control revenue bonds that were due serially 2000 through 2007. The bonds have a fixed rate of 4.25% for the first five years. Thereafter, IESU will have the option to reset the interest rate at one of three variable short-term interest rates or at a new long-term interest rate, based on the then prevailing market conditions, provided the rate does not exceed 12% per annum. The various charter provisions of the entities identified below authorize and limit the aggregate amount of additional shares of Cumulative Preferred Stock and Cumulative Preference Stock that may be issued. At December 31, 1998, the companies could have issued the following additional shares of Cumulative Preferred or Preference Stock: IESU WP&L IPC Cumulative Preferred - 2,700,775 1,238,619 Cumulative Preference 700,000 - 2,000,000 For interim financing, IESU, WP&L and IPC were authorized by the applicable federal or state regulatory agency to issue short-term debt as follows (in millions) at December 31, 1998: IESU WP&L IPC Regulatory authorization $150 $128 $72 Short-term debt outstanding - external parties - $50 - Short-term debt outstanding - money pool - $27 $22 In addition to the short-term debt outstanding at its utility subsidiaries, IEC had an additional $66 million of short-term debt outstanding at December 31, 1998. In addition to providing for ongoing working capital needs, this availability of short-term financing provides the companies flexibility in the issuance of long-term securities. The level of short-term borrowing fluctuates based on seasonal corporate needs, the timing of long-term financing, and capital market conditions. To maintain flexibility in its capital structure and to take advantage of favorable short-term rates, IESU and WP&L also use proceeds from the sale of accounts receivable and unbilled revenues to finance a portion of their long-term cash needs. IEC anticipates that short-term debt will continue to be available at reasonable costs due to current ratings by independent utility analysts and rating services. Alliant Energy Resources is also a party to a 364-Day Credit Agreement with various banking institutions. The agreement extends through October 18, 1999, with 364 day extensions available upon agreement by the parties. The unborrowed portion of this agreement is also used to support Alliant Energy Resources' commercial paper program. A combined maximum of $150 million of borrowings under this agreement and commercial paper backed by this facility may be outstanding at any one time. Interest rates and maturities are set at the time of borrowing. The rates are based upon quoted market prices and the maturities are less than one year. There were no borrowings under this facility at December 31, 1998. 47 In addition to the aforementioned borrowing capability under Alliant Energy Resources Credit Agreements, IEC has $150 million of bank lines of credit, of which none was utilized at December 31, 1998, available for direct borrowing or to support commercial paper. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. From time to time, IEC may borrow from banks and other financial institutions on "as-offered" credit lines in lieu of commercial paper, and has agreements with several financial institutions for such borrowings. There are no commitment fees associated with these agreements and there were no borrowings outstanding under these agreements at December 31, 1998. IEC made a filing with the SEC in February 1999 under PUHCA to provide IEC with, among other things, broad authorization over the next three years to issue stock and debt, provide guarantees, acquire energy-related assets and enter into interest rate hedging transactions. Given the above financing flexibility, including IEC's access to both the debt and equity securities markets, management believes it has the necessary financing capabilities in place to adequately finance its capital requirements for the foreseeable future. Capital Requirements General Capital expenditure and investment and financing plans are subject to continual review and change. The capital expenditure and investment programs may be revised significantly as a result of many considerations, including changes in economic conditions, variations in actual sales and load growth compared to forecasts, requirements of environmental, nuclear and other regulatory authorities, acquisition and business combination opportunities, the availability of alternate energy and purchased-power sources, the ability to obtain adequate and timely rate relief, escalations in construction costs and conservation and energy efficiency programs. Construction and acquisition expenditures for IEC for the year ended December 31, 1998 were $372 million, compared with $328 million for the year ended December 31, 1997. IEC's anticipated construction and acquisition expenditures for 1999 are estimated to be approximately $495 million, consisting of approximately $275 million in its utility operations, $100 million for energy-related international investments and $120 million for new business development initiatives at Alliant Energy Resources. IEC's anticipated utility construction and acquisition expenditures for 1999 is made up of 53% for electric transmission and distribution, 18% for electric generation, 10% for information technology and 19% for miscellaneous electric, gas, water and steam projects. The level of 1999 domestic and international investments could vary significantly from the estimates noted here depending on actual investment opportunities, timing of the opportunities and the receipt of regulatory approvals to exceed limitations in place under WUHCA and PUHCA on the amount of IEC's non-utility investments. It is expected that IEC will spend approximately $1.3 billion on utility construction and acquisition expenditures during 2000-2003, including expenditures to comply with nitrogen oxides (NOx) emissions reductions in Wisconsin as discussed in "Other Matters - Environmental." It is expected that Alliant Energy Resources will invest in energy products and services in domestic and international markets, industrial services initiatives and other strategic initiatives during 2000-2003. IESU's construction and acquisition expenditures for the years ended December 31, 1998 and 1997 were $115 million and $109 million, respectively. IESU's anticipated construction and acquisition expenditures for 1999 are estimated to be approximately $109 million, of which 56% represents expenditures for electric transmission and distribution facilities, 21% represents generation expenditures, 8% represents information technology expenditures and the remaining 15% represents miscellaneous electric, gas, steam and general expenditures. IESU's levels of utility construction and acquisition expenditures are projected to be $122 million in 2000, $119 million in 2001, $115 million in 2002 and $113 million in 2003. 48 WP&L's construction and acquisition expenditures for the years ended December 31, 1998 and 1997 were $117 and $119 million, respectively. WP&L's anticipated construction and acquisition expenditures for 1999 are estimated to be approximately $126 million, of which 50% represents expenditures for electric transmission and distribution facilities, 17% represents generation expenditures, 10% represents information technology expenditures and the remaining 23% represents miscellaneous electric, gas, water and general expenditures. WP&L's construction and acquisition expenditures are projected to be $162 million in 2000, $130 million in 2001, $155 million in 2002 and $185 million in 2003 which include expenditures to comply with nitrogen oxides (NOx) emissions reductions as discussed in "Other Matters-Environmental." IEC anticipates financing utility construction expenditures during 1999-2003 through internally generated funds supplemented, when required, by outside financing. Funding of a majority of the Alliant Energy Resources construction and acquisition expenditures is expected to be completed with external financings. Nuclear Facilities IEC owns interests in two nuclear facilities, Kewaunee and the Duane Arnold Energy Center (DAEC). Set forth below is a discussion of certain matters impacting these facilities. Kewaunee, a 532-megawatt pressurized water reactor plant, is operated by Wisconsin Public Service Corporation (WPSC) and is jointly owned by WPSC (41.2%), WP&L (41.0%), and Madison Gas and Electric Company (MG&E) (17.8%). The Kewaunee operating license expires in 2013. On April 7, 1998, the PSCW approved WPSC's application for replacement of the two steam generators at Kewaunee. The total cost of replacing the steam generators would be approximately $90.7 million, with WP&L's share of the cost being approximately $37.2 million. The replacement work is tentatively planned for the spring of 2000 and will take approximately 60 days. On July 2, 1998, the PSCW approved an agreement between the owners of Kewaunee which provides for WPSC to assume the 17.8% Kewaunee ownership share currently held by MG&E prior to work beginning on the replacement of steam generators. On September 29, 1998, WPSC and MG&E finalized an arrangement in which WPSC will acquire MG&E's 17.8% share of Kewaunee. This agreement, the closing of which is contingent upon the steam generator replacement, will give WPSC 59.0% ownership in Kewaunee. After the change in ownership, WPSC and WP&L will be responsible for the decommissioning of the plant. WPSC and WP&L are discussing revisions to the joint power supply agreement which will govern operation of the plant after the ownership change takes place. On October 17, 1998, Kewaunee was shut down for a planned maintenance and refueling outage. Inspection of the plant's two steam generators shows that the repairs made in 1997 are holding up well and few additional repairs were needed. In addition to the inspection and repairs of the steam generator, a major overhaul was performed on the main turbine generator. The plant was back in operation on November 27, 1998. Prior to the July 2, 1998 PSCW decision, the PSCW had directed the owners of Kewaunee to record depreciation and decommissioning cost levels based on an expected plant end-of-life of 2002 versus a license end-of-life of 2013. This was prompted by the uncertainty regarding the expected useful life of the plant without steam generator replacement. The revised end-of life of 2002 resulted in higher depreciation and decommissioning expense at WP&L beginning in May 1997, in accordance with the PSCW rate order UR-110. This level of depreciation will remain in effect until the steam generator replacement is completed at which time the entire plant will be depreciated over 8.5 years using an accelerated method. At December 31, 1998, the net carrying amount of WP&L's investment in Kewaunee was approximately $44.9 million. WP&L's retail customers in Wisconsin are responsible for approximately 80% of WP&L's share of Kewaunee costs (see Note 12 (h) of the "Notes to Consolidated Financial Statements" for additional information). DAEC, a 535-megawatt boiling water reactor plant, is operated by IESU which has a 70% ownership interest in the plant. The DAEC operating license expires in 2014. Pursuant to the most recent electric rate case order, the IUB allows IESU to currently recover $6.0 million annually for IESU's 70% share of the cost to decommission DAEC. The current recovery figures are based on an assumed cost to decommission DAEC of $252.8 million, which is 49 IESU's 70% portion in 1993 dollars, based on the Nuclear Regulatory Commission (NRC) minimum formula (which exceeds the amount in the site-specific study completed in 1994). At December 31, 1998, IESU had $91.7 million invested in external decommissioning trust funds and also had an internal decommissioning reserve of $21.7 million recorded as accumulated depreciation. IESU's 70% share of the estimated cost to decommission DAEC based on the most recent site-specific study completed in 1998 is $334.2 million, in 1998 dollars. This study includes the costs to terminate DAEC's NRC license and to return the site to a greenfield condition. IESU's 70% share of the estimated cost to decommission DAEC based on the most recent NRC minimum formula is $347.0 in 1997 dollars. The NRC minimum formula is intended to apply only to the cost of terminating DAEC's NRC license. The additional decommissioning expense funding requirements which should result from these updated studies are not reflected in IESU's rates. In February 1999, IEC, NSP, WPSC and Wisconsin Electric Power Co. announced the formation of a nuclear management company (NMC) to sustain long-term safety, optimize reliability and improve the operational performance of their nuclear generating plants. Combined, the four utilities operate seven nuclear generating plants at five locations. IEC's participation in the NMC is contingent on approval from the SEC under PUHCA. Each utility will be required to obtain various other state or federal regulatory approvals prior to its participation in the NMC. In addition, NRC approval is required if any utilities choose to transfer their operating license to the new company. As presently proposed, the utilities would continue to own their plants, be entitled to energy generated at the plants and retain the financial obligations for their safe operation, maintenance and decommissioning. Refer to the "Other Matters - Environmental" section for a discussion of various issues impacting IEC's future capital requirements. Rates and Regulatory Matters In November 1997, as part of its Merger approval, FERC accepted a proposal by IESU, WP&L, and IPC, which provides for a four-year freeze on wholesale electric prices beginning with the effective date of the Merger. In association with the Merger, IESU, WP&L and IPC entered into a System Coordination and Operating Agreement which became effective with the consummation of the Merger. The agreement, which has been approved by the FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and transmission systems of the three utility companies. In addition, the agreement allows the interconnected system to be operated as a single control area with off-system capacity sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among the three utility companies based on procedures included in the agreement. The procedures were approved by both the FERC and all state regulatory bodies having jurisdiction over these sales. IESU In September 1997, IESU agreed with the IUB to provide Iowa customers a four-year retail electric and gas price freeze commencing on the effective date of the Merger. The agreement excluded price changes due to government-mandated programs (such as energy efficiency cost recovery), the electric fuel adjustment clause and PGA clause and unforeseen dramatic changes in operations. In addition, the price freeze does not preclude a review by either the IUB or Office of Consumer Advocate (OCA) into whether IESU is exceeding a reasonable return on common equity. Refer to the "Utility Industry Outlook" section for a discussion of possible legislation to be introduced in Iowa regarding restructuring the electric utility industry. Under provisions of the IUB rules, IESU is currently recovering the costs it has incurred for its energy efficiency programs. Generally, the costs incurred through July 1997 are being recovered over various four-year periods. Statutory changes implemented by the IUB in 1997 allowed IESU to begin concurrent recovery of its prospective expenditures on August 1, 1997. The implementation of these changes will gradually eliminate the regulatory asset that was created under the prior rate making mechanism as these costs are recovered. 50 WP&L In connection with its approval of the Merger, the PSCW accepted a WP&L proposal to freeze rates for four years following the date of the Merger. A re-opening of an investigation into WP&L's rates during the rate freeze period, for both cost increases and decreases, may occur only for single events that are not merger-related and have a revenue requirement impact of $4.5 million or more. In addition, the electric fuel adjustment clause and PGA clause are not affected by the rate freezes. In rate order UR-110, the PSCW approved new rates effective April 29, 1997. On average, WP&L's retail electric rates under the new rate order declined by 2.4% and retail gas rates declined by 2.2%. In addition, the PSCW ordered that it must approve the payment of dividends by WP&L to IEC that are in excess of the level forecasted in the rate order ($58.3 million), if such dividends would reduce WP&L's average common equity ratio below 52.00% of total capitalization. The dividends paid by WP&L to IEC since the rate order was issued have not exceeded the level forecasted in the rate order. The retail electric rates are based in part on forecasted fuel and purchased-power costs. Under PSCW rules, Wisconsin utilities can seek emergency rate increases if the annual costs are more than 3% higher than the estimated costs used to establish rates. In March 1998, WP&L requested an electric rate increase to cover purchased-power and transmission costs that have increased due to transmission constraints and electric reliability concerns in the Midwest. On July 14, 1998, the PSCW granted a retail electric rate increase of $14.8 million annually that was effective on July 16, 1998. In November 1998, WP&L requested another electric rate increase to cover additional increases in purchased-power and transmission costs. In early March 1999, the PSCW granted a retail electric rate increase of $14.5 million. The additional revenues collected are subject to refund if WP&L's earnings exceed its authorized return on equity. The gas performance incentive includes a sharing mechanism, whereby 40% of all gains and losses relative to current commodity prices as well as other benchmarks are retained by WP&L rather than refunded to or recovered from customers. Rate order UR-110 also provided for the recovery of costs associated with WP&L's energy efficiency programs, including the recovery of the cost of capital associated with advances made to customers to install energy-efficient equipment. In May 1998, the PSCW approved the deferral of certain costs associated with the Year 2000 issue and in November 1998, WP&L filed for rate recovery of $16.1 million related to the Wisconsin retail portion of Year 2000 costs. A pre-hearing conference was held in January 1999 and hearings are scheduled for May 1999. Management anticipates receiving an order by the end of the second quarter of 1999. In January 1999, WP&L made a filing with the PSCW proposing to begin deferring, on January 1, 1999, all costs associated with the United States Environmental Protection Agency's (EPA) required NOx emission reductions. WP&L has requested recovery of all the NOx reduction costs through a surcharge mechanism. WP&L anticipates receiving a final order in this proceeding in late 1999 or early 2000. Refer to the "Other Matters - Environmental" section for a further discussion of the NOx issue. Refer to "Nuclear Facilities" for a discussion of several PSCW rulings regarding Kewaunee. IPC In September 1997, IPC agreed with the IUB to provide Iowa customers a four-year retail electric and gas price freeze commencing on the effective date of the Merger. The agreement excluded price changes due to government-mandated programs (such as energy efficiency cost recovery), the electric fuel adjustment clause and PGA clause and unforeseen dramatic changes in operations. In addition, the price freeze does not preclude a review by either the IUB or OCA into whether IPC is exceeding a reasonable return on common equity. IPC also agreed with the MPUC and ICC to four-year and three-year rate freezes, respectively, commencing on the effective date of the 51 Merger. Refer to the "Utility Industry Outlook" section for a discussion of possible legislation to be introduced in Iowa regarding restructuring the electric utility industry. On September 30, 1997, the IUB approved a settlement between IPC and the OCA which provided for an electric rate reduction in annual revenues of approximately $3.2 million. The reduction applied to all bills rendered on and after October 7, 1997. IPC is also recovering its energy efficiency costs in Iowa in a similar manner as IESU and began its concurrent cost recovery in October 1997. Assuming capture of the merger-related synergies and no significant legislative or regulatory changes negatively affecting its utility subsidiaries, IEC does not expect the merger-related electric and gas price freezes to have a material adverse effect on its financial position or results of operations. OTHER MATTERS Year 2000 Overview IEC utilizes software, embedded systems and related technologies throughout its business that will be affected by the date change in the Year 2000. The Year 2000 problem exists because many computerized operating systems, applications, databases and embedded systems use a standard two digit year field instead of four digits to reference a given year. For example, "00" in the date field would actually represent 1900. As a result, information technology and embedded systems may not properly recognize the Year 2000 or process data correctly, potentially causing data inaccuracies, operational malfunctions or operational failures. Following up on earlier work, IEC formally established a company-wide project team in 1997 to assess, remediate and communicate its Year 2000 issues as well as develop the necessary contingency plans. Expertise on the team has been drawn from various areas, including, but not limited to, information technology, engineering, communications, internal audits, legal, facilities, supply chain, finance, and project management. A full-time project manager heads up a team of approximately 50 employees who are dedicated to the team full-time and another 475 employees are working on the project on a part-time basis. In addition, there are approximately 135 individuals from external consulting firms who are also providing various Year 2000-related services for the project team. Status reports are provided to senior management monthly and at every meeting of IEC's Board of Directors. Auditing of the Year 2000 inventory, remediation efforts and contingency planning is being done by the Internal Audits Department. IEC has also retained an outside third party to assess and evaluate its Year 2000 project. The various phases of and other matters relating to the Year 2000 project are described below. Assessment A company-wide inventory has been completed for information technology (hardware, software, databases, network infrastructure operating systems) and embedded systems (computers or microprocessors that run specialized software). Inventoried devices and systems have been assessed and prioritized into three categories based on the relative critical nature of their business function: safety-related; critical-business-continuity-related; and non-critical. Remediation and Testing IEC's approach to remediation is to repair, replace or retire the affected devices and systems. Remediation and testing of safety-related and critical-business-continuity-related devices and systems is underway in all business units. In some cases IEC's ability to meet its target date for remediation is dependent upon the timely provision of necessary upgrades and modifications by its software vendors. As of December 31, 1998, IEC was expecting upgrades from 48 embedded system vendors and 14 information technology vendors. Should these upgrades be delayed it would impact IEC's ability to meet its target date. At this time, IEC does not expect that these upgrades will be delayed. As part of the testing process, client/server applications are being tested in an isolated test lab on Year 2000 compliant hardware and software. Also, IEC intends to implement a process to protect the integrity of the data once it is year 2000 compliant. 52 A. Embedded Systems - The project team is using testing standards and procedures based on those developed in the national electric utility industry effort led by the Electric Power Research Institute (EPRI). The team is also using information and testing guidance received from IEC's vendors. IEC is participating in EPRI's Year 2000 collaborative effort to share information about test procedures, test results and vendor information. The project team is also working with equipment vendors to ascertain Year 2000 compliance with systems and devices. Testing methodology includes a power on/off test and testing for 13 critical dates including 12/31/99, 1/1/2000 and 2/29/2000. All testing for assessing Year 2000 compliance has been completed. The only testing remaining is post-remediation testing. The goal is to complete remediation/testing work for the embedded systems by March 31, 1999; approximately 85% of this remediation/testing work has been completed as of the end of 1998. Experience to date suggests that Year 2000 problems in embedded systems are occurring at a lower rate than originally anticipated. For IEC, 1-2% of embedded systems have been identified as Year 2000 problematic. This rate is generally consistent in both volume and by type of device with other similar sized electric utilities participating in EPRI's Year 2000 Embedded System Program. B. Information Technology - IEC's information technology Year 2000 readiness project consists of both application and operating systems, and infrastructure (PC, servers, printers, etc.) components. The inventory and assessment of both the systems and the infrastructure has been completed. IEC's goal is to complete the remediation and testing of the systems by March 31, 1999 and the infrastructure components by June 30, 1999. At the end of 1998, approximately 65% of the systems and 40% of the infrastructure components have been remediated and tested. IEC's customer information systems and financial systems make up the majority of the remediation and testing effort remaining. The remediation and testing of the customer information systems was 70% complete at the end of 1998 with an anticipated completion date of May 31, 1999. The financial systems have been remediated with final roll-forward-testing scheduled to be completed by mid-year 1999. Therefore, it is anticipated that IEC will have its information technology remediation and testing efforts 90% complete by March 31, 1999 with work completed and into production by mid-year 1999. Costs to Address Year 2000 Compliance IEC's historical Year 2000 project expenditures as well as CURRENT ESTIMATES for the remaining costs to be incurred on the project are as follows (incremental costs, in millions): Description Total IESU WP&L Other ----------- ----- ---- ---- ----- Costs incurred from 1/1/98 - 12/31/98 $8.7 $4.8 $3.2 $0.7 Current estimate of remaining modifications $32 $10 $14 $8 In addition, the company estimates it incurred $3 million in costs for internal labor and associated overheads in 1998 and anticipates expenditures of $8 million in 1999. While work was done on the Year 2000 project prior to 1998, IEC did not begin tracking the costs separately until 1998. In accordance with an order received from the PSCW, WP&L began deferring its Year 2000 project costs, other than internal labor and associated overheads, in May 1998 (approximately $2.7 million of the expenditures incurred at WP&L for the 12 months ended December 31, 1998 have been deferred.) (Refer to "Liquidity and Capital Resources - Rates and Regulatory Matters" for a further discussion.) IEC expects to fund its Year 2000 expenditures through internal sources. Other than the costs being deferred by WP&L pursuant to the PSCW order, IEC is expensing all the Year 2000 costs noted above. Communications / Third Party Assessment IEC is heavily dependent on other utilities (including electric, gas, telecommunications and water utilities) and its suppliers. An effort is underway to communicate with such parties to increase their awareness of Year 2000 issues and monitor and assess, to the extent possible, their Year 2000 readiness. IEC has sought written assurance that third parties with significant relationships with IEC will be Year 53 2000 ready. As part of an extensive awareness effort, IEC is also communicating with its utility customers, regulatory agencies, elected and appointed government officials, and industry groups. IEC executives and account managers are also having discussions with IEC's largest customers to review their initiatives for Year 2000 readiness. IEC is also working closely with the North American Electric Reliability Council (NERC) and the Natural Gas Council to assist their efforts to make certain all system interconnections across regional areas are Year 2000 compliant. Risks and Contingency Planning The systems which pose the greatest Year 2000 risks for IEC if the Year 2000 project is not successful are the telecommunications facilities and network systems as well as the information technology systems. The potential problems related to these systems include service interruptions, service order and billing delays and the resulting customer relations and cash flow issues. IEC is currently unable to quantify the financial impact of such contingencies if in fact they were to occur. Even though IEC intends to complete the bulk of its Year 2000 remediation and testing activities by the end of March 1999 and has initiated Year 2000 communications with significant customers, key vendors, suppliers, and other parties material to IEC's operation, failures or delay in achieving Year 2000 compliance could significantly disrupt IEC's business. Therefore, IEC has initiated contingency planning to address alternatives in the event of a Year 2000 failure that occurs within IEC or where IEC is impacted by an external Year 2000 failure. The plan will address mission-critical processes, devices and systems and will include training, testing and rehearsal of procedures, and the need for installation of backup equipment as necessary. The goal is to have the contingency plan completed by mid-year 1999. As a member of Mid-America Interconnected Network, Inc. (MAIN), IEC is also working with the Operating Committee Y2K Task Force which will expand existing emergency operating strategies for member company control centers to ensure rapid responses to any Year 2000-related electric system disturbances and will coordinate those strategies with other reliability organizations. MAIN is one of the 10 regional coordinating councils that make up NERC. IEC also belongs to the Mid-Continent Area Power Pool (MAPP), another one of the 10 NERC councils, and will be coordinating Year 2000 contingency planning with MAPP as well. As part of its contingency planning process, NERC has scheduled two nation-wide electric utility industry drills in April 1999 and September 1999. These drills will focus on safe and reliable electrical system operations with the partial loss of telecommunications. In addition to these NERC drills, IEC will be conducting three additional internal drills. These will include a March 1999 table-top drill, a June 1999 functional drill and an August 1999 full-scale development drill where key employees will test and critique IEC's contingency plans. Since early 1998, IEC has devoted a significant portion of its information technology resources to the Year 2000 project given the importance of such project to the continued operations of IEC. As a result, there have been some delays in implementing other information technology projects. The delays are simply a matter of timing and IEC does not currently believe that such delays will have a material adverse impact on its results of operations or financial position. Summary Based on IEC's current schedule for completion of its Year 2000 tasks, IEC believes its plan is adequate to secure Year 2000 readiness of its critical systems. Nevertheless, achieving Year 2000 readiness is subject to many risks and uncertainties, as described above. If IEC, or third parties, fail to achieve Year 2000 readiness with respect to critical systems and, as such, there are systematic problems, there could be a material adverse effect on IEC's results of operations and financial condition. Labor Issues The status of the collective bargaining agreements at each of the utilities is as follows at December 31, 1998: IESU WP&L IPC Number of collective bargaining agreements 6 1 3 Percentage of workforce covered by agreements 61 92 81 54 Eight agreements are scheduled to expire in 1999 and represent substantially all employees covered under collective bargaining agreements. These employees represent approximately 50% of all IEC employees. IEC has not experienced any significant work stoppage problems in the past. While negotiations have commenced, IEC is currently unable to predict the outcome of these negotiations. Market Risk Sensitive Instruments and Positions IEC, through its consolidated subsidiaries, has historically had only limited involvement with derivative financial instruments and has not used them for speculative purposes. They have been used to manage well-defined interest rate and commodity price risks. WP&L and Alliant Energy Resources have historically entered into interest rate swap agreements to reduce the impact of changes in interest rates on its variable-rate debt. The total notional amount of interest rate swaps outstanding at WP&L and Alliant Energy Resources at December 31, 1998, was $30 million and $200 million, respectively. See Note 11(a) of the "Notes to Consolidated Financial Statements" for additional information. Whiting is exposed to market risk in the pricing of its oil and gas production. Historically, prices received for oil and gas production have been volatile because of seasonal weather patterns, supply and demand factors, transportation availability and price, and general economic conditions. Worldwide political developments have historically also had an impact on oil prices. In the past, IEC generally has not utilized derivative instruments designed to reduce its exposure to these price fluctuations and no such positions were outstanding at December 31, 1998. However, during 1999, IEC has entered into a limited amount of transactions involving a collar strategy for a portion of Whiting's gas production. As discussed in Note 11(a) of the "Notes to Consolidated Financial Statements," from time to time WP&L utilizes gas commodity swap arrangements to mitigate the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current prices during the winter months. While it is not WP&L's intent to terminate the contracts currently in place, the impact of a termination of all the agreements outstanding at December 31, 1998, would have been an estimated gain of $0.8 million. WP&L has entered into a weather insurance agreement which terminates March 31, 1999, for the purpose of hedging a portion of the risk associated with the changes in weather from normal conditions. Under this agreement, a payment will be made or received if the heating degree days from November 1, 1998 to March 31, 1999, fall outside certain pre-determined heating degree levels. The payment is limited to a maximum of $5 million. At December 31, 1998, the fair value of this agreement if it were terminated would have resulted in a payment to WP&L of an estimated $1.8 million. In the course of Alliant Energy Resource's gas marketing activities, it enters into fixed-price sales commitments to customers and purchases the corresponding physical supplies at fixed prices from a third party provider to lock in the related margin on the sale. The risk associated with gas price fluctuations is managed by closely matching purchases from suppliers with the sales commitments to the customers. There were no derivative positions outstanding at December 31, 1998. While IEC is exposed to credit risk when it enters into a hedging transaction, it has established procedures and policies designed to mitigate such risks due to a counterparty default. IEC utilizes a listing of approved counterparties and monitors the creditworthiness on an ongoing basis. IEC's investments in China and New Zealand are valued in renminbi (RMB) and in New Zealand (NZ) dollars, respectively. As a result, these investments are subject to currency exchange risk when the investments are translated into U.S. dollars. During 1998, the RMB remained stable as compared to the U.S. dollar, however, the NZ dollar decreased in value in relation to the U.S. dollar. At December 31, 1998, IEC had a cumulative $7.9 million foreign currency translation loss recorded in "Accumulated other comprehensive income" on its Consolidated Balance Sheets which primarily related to decreases in the NZ dollar in relation to the U.S. dollar. 55 At December 31, 1998, IEC had an investment in the stock of McLeod, a telecommunications company, valued at $320.3 million (based on a December 31, 1998 closing price of $31.25 per share and compared to a cost basis of $29.1 million). Pursuant to the applicable accounting rules, the carrying value of the investments are adjusted to the estimated fair value each quarter based on the closing price at the end of the quarter. IEC entered into an agreement in November 1998 with McLeod whereby IEC's ability to sell the McLeod stock is subject to various restrictions. IEC has a 50% interest in an electricity trading joint venture with Cargill which is accounted for under the equity method of accounting. The joint venture's trading activities principally consist of marketing and trading over-the-counter contracts for the purchase and sale of electricity. The majority of the forward contracts represent commitments to purchase or sell electricity at fixed prices in the future and require settlement by physical delivery of electricity or are netted out in accordance with industry trading standards. The market risk exposure of the joint venture for its forward contracts outstanding at December 31, 1998, was not significant. In addition, Cargill has made guarantees to certain counterparties regarding the performance of contracts entered into by the joint venture. Guarantees of approximately $50 million have been issued of which approximately $5 million were outstanding at December 31, 1998. Under the terms of the joint venture agreement, any payments required under the guarantees would be shared by IEC and Cargill on a 50/50 basis to the extent the joint venture is not able to reimburse the guarantor for payments made under the guarantee. Accounting Pronouncements In February 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 addresses, among other things, expensing versus capitalization of costs, accounting for the costs incurred in the upgrading of the software and amortizing the capitalized cost of software. This statement is effective for fiscal years beginning after December 15, 1998. IEC adopted the requirements of this statement in 1999 and such adoption did not have any significant impact on its financial statements. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities." This SOP provides guidance on the financial reporting of start-up costs and organization costs. Costs of start-up activities and organization costs are required to be expensed as incurred. The statement is effective for periods beginning after December 15, 1998. IEC adopted the requirements of this statement in 1999 and such adoption did not have any significant impact on its financial statements. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 1999. SFAS 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997. IEC has not yet quantified the impacts of SFAS 133 on the financial statements and has not determined the timing of or method of adoption of SFAS 133. However, the Statement could increase volatility in earnings and other comprehensive income. In December 1998, the Emerging Issues Task Force reached consensus on Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" (EITF Issue 98-10). EITF Issue 98-10 is effective for fiscal years beginning after December 15, 1998 and requires energy trading contracts to be recorded at fair value on the balance sheet, with the changes in fair value included in earnings. IEC anticipates that the adoption of EITF Issue 98-10 will not have a significant impact on IEC's financial statements based on its current operations. 56 Accounting for Obligations Associated with the Retirement of Long-Lived Assets The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry, including IESU and WP&L, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements of electric utilities. In response to these questions, the FASB is reviewing the accounting for closure and removal costs, including decommissioning of nuclear power plants. If current electric utility industry accounting practices for nuclear power plant decommissioning are changed, the annual provision for decommissioning could increase relative to 1998, and the estimated cost for decommissioning could be recorded as a liability (rather than as accumulated depreciation), with recognition of an increase in the cost of the related nuclear power plant. Assuming no significant change in regulatory treatment, IESU and WP&L do not believe that such changes, if required, would have an adverse effect on their financial position or results of operations due to their ability to recover decommissioning costs through rates. Inflation IEC, IESU and WP&L do not expect the effects of inflation at current levels to have a significant effect on their financial position or results of operations. Environmental The pollution abatement programs of IESU, WP&L, IPC and Alliant Energy Resources are subject to continuing review and are revised from time to time due to changes in environmental regulations, changes in construction plans and escalation of construction costs. While management cannot precisely forecast the effect of future environmental regulations on IEC's operations, it has taken steps to anticipate the future while also meeting the requirements of current environmental regulations. The Clean Air Act Amendments of 1990 (Act) require emission reductions of sulfur dioxide (SO2), NOx and other air pollutants to achieve reductions of atmospheric chemicals believed to cause acid rain. IESU, WP&L and IPC have met the provisions of Phase I of the Act and are in the process of meeting the requirements of Phase II of the Act (effective in the year 2000). The Act also governs SO2 allowances, which are defined as an authorization for an owner to emit one ton of SO2 into the atmosphere. The companies are reviewing their options to ensure they will have sufficient allowances to offset their emissions in the future. The companies believe that the potential costs of complying with these provisions of Title IV of the Act will not have a material adverse impact on their financial position or results of operations. The Act and other federal laws also require the EPA to study and regulate, if necessary, additional issues that potentially affect the electric utility industry, including emissions relating to ozone transport, mercury and particulate control as well as modifications to the polychlorinated biphenyl (PCB) rules. In July 1997, the EPA issued final rules that would tighten the National Ambient Air Quality Standards for ozone and particulate matter emissions and in June 1998, the EPA modified the PCB rules. IEC cannot predict the long-term consequences of these rules on its results of operations or financial condition. In October 1998, the EPA issued a final rule requiring 22 states, including Wisconsin, to modify their State Implementation Plans (SIPs) to address the ozone transport issue. The implementation of the rule will likely require WP&L to reduce its NOx emissions at all of its plants to .15 lbs/mmbtu by 2003. WP&L is currently evaluating various options to meet the emission levels. These options include fuel switching, operational modifications and capital investments. Based on existing technology, the preliminary estimates indicate that capital investments will be approximately $150 million. Refer to the "Rates and Regulatory Matters" section for a discussion of a filing WP&L made with the PSCW regarding rate recovery of these costs. Revisions to the Wisconsin Administrative Code have been proposed that could have a significant impact on WP&L's operation of the Rock River Generating Station in Beloit, Wisconsin. The proposed revisions will affect 57 the amount of heat that the Generating Station can discharge into the Rock River. WP&L cannot presently predict the final outcome of the rule, but believes that, as the rule is currently proposed, the capital investments and/or modifications required to meet the proposed discharge limits could be significant. Pursuant to a routine internal review of documents, IESU determined that certain changes undertaken during previous years at one of its generating facilities may have required a federal prevention of significant deterioration (PSD) permit. IESU initiated discussions with its regulators on the matter, resulting in the submittal of a PSD permit application in February 1997. IESU received the permit in the second quarter of 1998. IESU may be subject to a penalty for not having obtained the permit previously; however, IESU believes that any likely actions resulting from this matter will not have a material adverse effect on its financial position or results of operation. Pursuant to a separate routine internal review of plant operations, IESU determined that certain permit limits were exceeded in 1997 at one of its generating facilities in Cedar Rapids, Iowa. IESU has initiated discussions with its regulators on the matter and has proposed a compliance plan which includes equipment modifications and contemplates operational changes. On May 13, 1998, IESU received a citation from the Linn County Health Department alleging violations at the facility. IESU has negotiated a settlement agreement with the Linn County Health Department, resolving the matter for $30,000. The settlement was reviewed and approved by a local court with appropriate jurisdiction during the third quarter of 1998. On February 16, 1999, IESU received a letter from the Iowa Department of Natural Resources (IDNR) stating that IDNR will require the IESU customer served by this facility to obtain a PSD permit for the facility. IESU is currently evaluating the ramifications of this IDNR decision, and formulating a response. However, management believes that any likely actions resulting from this matter will not have a material adverse effect on IESU's financial position or results of operations. In March 1998 and January 1999, IPC received Notices of Intent to Sue from an environmental group alleging certain violations of effluent limits, established pursuant to the Clean Water Act, at IPC's generating facility in Clinton, Iowa. On May 14, 1998, IPC received from the IDNR an inspection report and notice of violation addressing the same and other concerns as were raised by the environmental group. IPC responded to the environmental group on May 19, 1998, providing an evaluation of the alleged violations. IPC responded to the IDNR on June 26, 1998 with a plan of action addressing the IDNR's concerns. IPC responded to the environmental group again on February 22, 1999, stating that all of the alleged violations were either already resolved or invalid. While IPC believes that it has satisfied IDNR's concerns, it may be subject to a penalty for exceeding permit limits established for this facility, however, management believes that any likely actions resulting from this matter will not have a material adverse effect on IPC's financial position or results of operations. Pursuant to an internal review of operations, IPC discovered that Unit No. 6 at its generating facility in Dubuque, Iowa, may require a Clean Air Act Acid Rain permit and continuous emissions monitoring system (CEMS). IPC has initiated discussions with the regulators, has discontinued operation of the unit pending resolution of the issues, and will be installing a CEMS on the unit and will be applying for an Acid Rain permit. Pursuant to its internal review, IPC also identified and disclosed to regulators a potentially similar situation at its Lansing, Iowa generating facility, and will potentially be installing CEMS and applying for Acid Rain permits for these units as well, pending the outcome of regulatory review. IPC may be subject to a penalty for not having installed the CEMS and for not having obtained the permit previously. However, IPC believes that any likely actions resulting from this matter will not have a material adverse effect on its financial position or results of operations. A global treaty has been negotiated that could require reductions of greenhouse gas emissions from utility plants. In November 1998, the United States signed the treaty and agreed with the other countries to resolve all remaining issues by the end of 2000. At this time, management is unable to predict whether the United States Congress will ratify the treaty. Given the uncertainty of the treaty ratification and the ultimate terms of the final regulations, management cannot currently estimate the impact the implementation of the treaty would have on IEC's operations. The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates that each state must take responsibility for the storage of low-level radioactive waste produced within its borders. The States of Iowa and Wisconsin are members of the six-state Midwest Interstate Low-Level Radioactive Waste Compact (Compact) which is responsible for development of any new disposal capability within the Compact member states. In June 58 1997, the Compact commissioners voted to discontinue work on a proposed waste disposal facility in the State of Ohio because the expected cost of such a facility was comparably higher than other options currently available. Dwindling waste volumes and continued access to existing disposal facilities were also reasons cited for the decision. A disposal facility located near Barnwell, South Carolina continues to accept the low-level waste and IESU and WP&L currently ship the waste each produces to such site, thereby minimizing the amount of low-level waste stored on-site. In addition, given technological advances, waste compaction and the reduction in the amount of waste generated, DAEC and Kewaunee each have on-site storage capability sufficient to store low-level waste expected to be generated over at least the next ten years, with continuing access to the Barnwell disposal facility extending that on-site storage capability indefinitely. See Notes 12(f) and 12(g) of the "Notes to Consolidated Financial Statements" for a further discussion of IEC's environmental issues. Power Supply The power supply concerns of 1997 have raised awareness of the electric system reliability challenges facing Wisconsin and the Midwest region. As a result, Wisconsin enacted electric reliability legislation in April 1998 (Wisconsin Reliability Act). The legislation has the goal of assuring reliable electric energy for Wisconsin. The new law, effective May 12, 1998, requires Wisconsin utilities to join a regional independent system operator for transmission by the year 2000, allows the construction of merchant power plants in the state and streamlines the regulatory approval process for building new generation and transmission facilities. As a requirement of the legislation, the PSCW completed a regional transmission constraint study. The PSCW is authorized to order construction of new transmission facilities, based on the findings of its constraint study, through December 31, 2004. On September 24, 1997, the PSCW ordered WP&L and two other Wisconsin utilities to arrange for additional electric capacity to help maintain reliable service for their customers. In July 1998, IEC and Polsky Energy Corp. (Polsky) announced an agreement whereby Polsky would build, own and operate a power plant in southeastern Wisconsin capable of producing up to 450 megawatts (MW) of electricity (reduced from earlier estimates of 525 MW due to NOx emissions limitations imposed by the Wisconsin Department of Natural Resources (WDNR)). Under the agreement, IEC will purchase the capacity to meet the electric needs of its utility customers, as outlined by the Wisconsin Reliability Act. It is expected that this new power plant will be operational in June 2000. The PSCW issued an order dated December 18, 1998 approving the project. Utility officials noted that it will take time for new transmission and power plant projects to be approved and built. While utility officials fully expect to meet customer demands in 1999, problems still could arise if there are unexpected power plant outages, transmission system outages or extended periods of extremely hot weather. 59 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk are reported under Item 7. MD&A "Other Matters - Market Risk Sensitive Instruments and Positions" and in the "Notes to Consolidated Financial Statements" under Notes 1(p), 10, 11 and 12(d). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Interstate Energy Corporation Page Number Report of Management 62 Report of Independent Public Accountants 63 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 64 Consolidated Balance Sheets, December 31, 1998 and 1997 65 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 67 Consolidated Statements of Capitalization, December 31, 1998 and 1997 68 Consolidated Statements of Changes in Common Equity for the Years Ended December 31, 1998, 1997 and 1996 70 Notes to Consolidated Financial Statements 71 IES Utilities Inc. Report of Independent Public Accountants 95 Consolidated Statements of Income and Retained Earnings for the Years Ended December 31, 1998, 1997 and 1996 96 Consolidated Balance Sheets, December 31, 1998 and 1997 97 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 99 Consolidated Statements of Capitalization, December 31, 1998 and 1997 100 Notes to Consolidated Financial Statements 101 Wisconsin Power and Light Company Report of Independent Public Accountants 109 Consolidated Statements of Income and Retained Earnings for the Years Ended December 31, 1998, 1997 and 1996 110 Consolidated Balance Sheets, December 31, 1998 and 1997 111 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 113 Consolidated Statements of Capitalization, December 31, 1998 and 1997 114 Notes to Consolidated Financial Statements 115 Refer to Note 16 of IEC's, IESU's and WP&L's "Notes to Consolidated Financial Statements" for the quarterly financial data required by this Item. 60 INTERSTATE ENERGY CORPORATION FINANCIAL SECTION 61 INTERSTATE ENERGY CORPORATION REPORT ON THE FINANCIAL INFORMATION Interstate Energy Corporation management is responsible for the information and representations contained in the financial statements and in certain other sections of this Annual Report. The consolidated financial statements that follow have been prepared in accordance with generally accepted accounting principles. In addition to selecting appropriate accounting principles, management is responsible for the manner of presentation and for the reliability of the financial information. In fulfilling that responsibility, it is necessary for management to make estimates based on currently available information and judgments of current conditions and circumstances. Through a well-developed system of internal controls, management seeks to ensure the integrity and objectivity of the financial information presented in this report. This system of internal controls is designed to provide reasonable assurance that the assets of the company are safeguarded and that the transactions are executed according to management's authorizations and are recorded in accordance with the appropriate accounting principles. The Board of Directors participates in the financial information reporting process through its Audit Committee. Erroll B. Davis Jr. President and Chief Executive Officer Interstate Energy Corporation Thomas M. Walker Executive Vice President and Chief Financial Officer Interstate Energy Corporation John E. Ebright Vice President - Controller Interstate Energy Corporation January 29, 1999 62 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of Interstate Energy Corporation: We have audited the accompanying consolidated balance sheets and statements of capitalization of Interstate Energy Corporation (a Wisconsin Corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 1998. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Interstate Energy Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1998, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, January 29, 1999 63
INTERSTATE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Operating revenues: Electric utility $ 1,567,442 $ 1,515,753 $ 1,440,375 Gas utility 295,590 393,907 375,955 Nonregulated and other 267,842 390,967 416,510 ----------------- ----------------- ---------------- 2,130,874 2,300,627 2,232,840 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 297,685 280,558 256,609 Purchased power 255,332 256,306 231,014 Cost of utility gas sold 166,453 259,222 240,324 Other operation 620,234 681,977 696,596 Maintenance 122,737 123,121 111,657 Depreciation and amortization 279,505 259,663 232,363 Taxes other than income taxes 105,626 103,397 98,838 ----------------- ----------------- ---------------- 1,847,572 1,964,244 1,867,401 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Operating income 283,302 336,383 365,439 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 129,363 122,563 113,321 Allowance for funds used during construction (6,812) (5,274) (5,574) Preferred dividend requirements of subsidiaries 6,699 6,693 6,687 Miscellaneous, net (736) (13,910) (11,843) ----------------- ----------------- ---------------- 128,514 110,072 102,591 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Income before income taxes 154,788 226,311 262,848 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Income taxes 58,113 81,733 105,760 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Income from continuing operations 96,675 144,578 157,088 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Discontinued operations: Loss on disposal of subsidiary, net of applicable tax benefit of $575 - - (1,297) ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Net income $ 96,675 $ 144,578 $ 155,791 ================= ================= ================ - -------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding 76,912 76,210 75,481 ================= ================= ================ - -------------------------------------------------------------------------------------------------------------------- Earnings per average common share (basic and diluted): Income from continuing operations $ 1.26 $ 1.90 $ 2.08 Discontinued operations - - (0.02) ----------------- ----------------- ---------------- Net income $ 1.26 $ 1.90 $ 2.06 ================= ================= ================ - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
64
INTERSTATE ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1998 1997 - ----------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $ 4,866,152 $ 4,733,222 Gas 515,074 495,155 Other 409,711 366,395 ----------------- ----------------- 5,790,937 5,594,772 Less - Accumulated depreciation 2,852,605 2,631,582 ----------------- ----------------- 2,938,332 2,963,190 Construction work in progress 119,032 86,511 Nuclear fuel, net of amortization 44,316 55,777 ----------------- ----------------- 3,101,680 3,105,478 Other property, plant and equipment, net of accumulated depreciation and amortization of $178,248 and $139,920, respectively 355,100 329,264 ----------------- ----------------- 3,456,780 3,434,742 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 31,827 27,329 Accounts receivable: Customer, less allowance for doubtful accounts of $2,518 and $2,400, respectively 102,966 123,545 Other, less allowance for doubtful accounts of $490 and $224, respectively 26,054 20,824 Notes receivable 13,392 23,410 Production fuel, at average cost 54,140 40,656 Materials and supplies, at average cost 53,490 49,845 Gas stored underground, at average cost 26,013 32,364 Regulatory assets 27,089 36,330 Prepaid gross receipts tax 22,222 22,153 Other 30,767 35,786 ----------------- ----------------- 387,960 412,242 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Investments: Investment in McLeodUSA Inc. 320,280 328,022 Nuclear decommissioning trust funds 225,803 190,238 Investment in foreign entities 68,882 57,072 Other 54,776 49,319 ----------------- ----------------- 669,741 624,651 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 341,684 352,365 Deferred charges and other 103,172 99,550 ----------------- ----------------- 444,856 451,915 ----------------- ----------------- Total assets $ 4,959,337 $ 4,923,550 ================= ================= - ----------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
65
INTERSTATE ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, CAPITALIZATION AND LIABILITIES 1998 1997 - ----------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $ 776 $ 765 Additional paid-in capital 905,130 868,903 Retained earnings 537,372 581,376 Accumulated other comprehensive income 163,017 173,512 ------------------ ------------------ Total common equity 1,606,295 1,624,556 ------------------ ------------------ Cumulative preferred stock of subsidiaries, net 113,498 113,369 Long-term debt (excluding current portion) 1,543,131 1,467,903 ------------------ ------------------ 3,262,924 3,205,828 ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 63,414 18,329 Variable rate demand bonds 56,975 56,975 Commercial paper 64,500 114,500 Notes payable 51,784 42,000 Capital lease obligations 11,978 13,197 Accounts payable 204,297 192,634 Accrued taxes 84,921 78,923 Other 111,685 133,233 ------------------ ------------------ 649,554 649,791 ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 691,624 719,899 Accumulated deferred investment tax credits 77,313 82,862 Environmental liabilities 68,399 70,955 Customer advances 37,171 36,619 Capital lease obligations 13,755 23,634 Other 158,597 133,962 ------------------ ------------------ 1,046,859 1,067,931 ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------- Commitments and Contingencies (Note 12) - ----------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $ 4,959,337 $ 4,923,550 ================== ================== - ----------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
66
INTERSTATE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $ 96,675 $ 144,578 $ 155,791 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 279,505 259,663 232,363 Amortization of nuclear fuel 17,869 18,308 21,336 Amortization of deferred energy efficiency expenditures 27,083 15,786 6,669 Deferred taxes and investment tax credits (27,720) (11,661) 14,715 Refueling outage provision (4,001) 9,290 (6,374) Impairment of oil and gas properties 9,678 9,902 - Impairment of regulatory assets 8,969 - - Other (3,616) 5,468 (6,777) Other changes in assets and liabilities: Accounts receivable 15,349 18,638 (13,935) Notes receivable 10,018 (3,621) 14,663 Production fuel (13,484) 2,814 271 Materials and supplies (3,645) (874) 5,615 Gas stored underground 6,351 (6,603) (4,170) Accounts payable 11,663 (27,726) 33,505 Accrued taxes 5,998 13,375 (11,676) Benefit obligations and other 31,070 16,152 9,280 --------------- -------------- -------------- Net cash flows from operating activities 467,762 463,489 451,276 --------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------- Cash flows used for financing activities: Common stock dividends declared (140,679) (145,631) (143,344) Dividends payable (15,458) 285 310 Proceeds from issuance of common stock 33,832 15,535 17,393 Net change in Alliant Energy Resources, Inc. credit facility 70,492 9,908 47,860 Proceeds from issuance of other long-term debt 77,544 295,000 61,370 Reductions in other long-term debt (27,663) (146,590) (20,679) Net change in short-term borrowings (40,216) (109,884) 16,654 Principal payments under capital lease obligations (13,250) (12,964) (19,108) Other (2,333) (2,410) (2,336) --------------- -------------- -------------- Net cash flows used for financing activities (57,731) (96,751) (41,880) --------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------- Cashflows used for investing activities: Construction and acquisition expenditures: Utility (269,133) (256,760) (297,196) Other (102,925) (71,280) (115,078) Deferred energy efficiency expenditures - (13,344) (24,792) Nuclear decommissioning trust funds (20,305) (17,435) (15,994) Proceeds from disposition of assets 16,677 15,993 69,838 Shared savings expenditures (27,780) (17,610) (5,196) Other (2,067) (1,790) (18,026) --------------- -------------- -------------- Net cash flows used for investing activities (405,533) (362,226) (406,444) --------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------- Net increase in cash and temporary cash investments 4,498 4,512 2,952 --------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 27,329 22,817 19,865 --------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $ 31,827 $ 27,329 $ 22,817 =============== ============== ============== - -------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Cash paid during the period for: Interest $ 126,376 $ 117,255 $ 107,970 =============== ============== ============== Income taxes $ 84,916 $ 69,272 $ 111,006 =============== ============== ============== Noncash investing and financing activities: Capital lease obligations incurred $ 1,426 $ 16,781 $ 14,281 =============== ============== ============== - -------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
67
INTERSTATE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1998 1997 - --------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity: Common stock - $.01 par value - authorized 200,000,000 shares; outstanding 77,630,043 and 76,481,102 shares, respectively $ 776 $ 765 Additional paid-in capital 905,130 868,903 Retained earnings 537,372 581,376 Accumulated other comprehensive income 163,017 173,512 ---------------- ---------------- 1,606,295 1,624,556 ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------- Cumulative preferred stock of subsidiaries: Par/Stated Authorized Shares Mandatory Value Shares Outstanding Series Redemption $ 100 * 449,765 4.40% - 6.20% No 44,977 44,977 $ 25 * 599,460 6.50% No 14,986 14,986 $ 50 466,406 366,406 4.30% - 6.10% No 18,320 18,320 $ 50 ** 216,381 4.36% - 7.76% No 10,819 10,819 $ 50 ** 545,000 6.40% Yes *** 27,250 27,250 ---------------- ---------------- 116,352 116,352 Less: unamortized expenses (2,854) (2,983) ---------------- ---------------- 113,498 113,369 ---------------- ---------------- * 3,750,000 authorized shares in total ** 2,000,000 authorized shares in total *** $53.20 mandatory redemption price - --------------------------------------------------------------------------------------------------------------- Long-term debt: IES Utilities Inc. - Collateral Trust Bonds: 7.65% series, due 2000 50,000 50,000 7.25% series, due 2006 60,000 60,000 6-7/8% series, due 2007 55,000 55,000 6% series, due 2008 50,000 50,000 7% series, due 2023 50,000 50,000 5.5% series, due 2023 19,400 19,400 ---------------- ---------------- 284,400 284,400 First Mortgage Bonds: Series Y, 8-5/8%, due 2001 60,000 60,000 Series Z, 7.6%, due 1999 50,000 50,000 9-1/8% series, due 2001 21,000 21,000 7-1/4% series, due 2007 30,000 30,000 ---------------- ---------------- 161,000 161,000 Pollution control obligations: 5.75%, due serially 1999 to 2003 3,136 3,276 5.95%, retired in 1998 - 10,000 Variable rate (4.20% at December 31, 1998), due 2000 to 2010 11,100 11,100 Variable/fixed rate series 1998 (4.25% through 2003), due 2023 10,000 - ---------------- ---------------- 24,236 24,376 Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000 Senior Debentures, 6-5/8%, due 2009 135,000 135,000 ---------------- ---------------- Total IES Utilities Inc. 654,636 654,776 ---------------- ----------------
68
INTERSTATE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CAPITALIZATION (Continued) December 31, 1998 1997 - --------------------------------------------------------------------------------------------------------------- (in thousands) Wisconsin Power and Light Company - First Mortgage Bonds: Series L, 6.25%, retired in 1998 $ - $ 8,899 1984 Series A, variable rate (3.85% at December 31, 1998), due 2014 8,500 8,500 1988 Series A, variable rate (4.20% at December 31, 1998), due 2015 14,600 14,600 1990 Series V, 9.3%, due 2025 27,000 27,000 1991 Series A-D, variable rate (5.15% at December 31, 1998), due 2000 to 2015 33,875 33,875 1992 Series W, 8.6%, due 2027 90,000 90,000 1992 Series X, 7.75%, due 2004 62,000 62,000 1992 Series Y, 7.6%, due 2005 72,000 72,000 ---------------- ---------------- 307,975 316,874 Unsecured Debt: Debentures, 7%, due 2007 105,000 105,000 Debentures, 5.7%, due 2008 60,000 - ---------------- ---------------- Total Wisconsin Power and Light Company 472,975 421,874 ---------------- ---------------- Interstate Power Company - First Mortgage Bonds: 8% series, due 2007 25,000 25,000 8-5/8% series, due 2021 25,000 25,000 7-5/8% series, due 2023 94,000 94,000 ---------------- ---------------- 144,000 144,000 Pollution Control Revenue Bonds: 5.95%, retired in 1998 - 5,850 6-3/8%, due serially 1999 to 2007 10,950 11,400 5.75%, due 2003 1,000 1,000 6.25%, due 2009 1,000 1,000 6.30%, due 2010 5,600 5,600 6.35%, due 2012 5,650 5,650 Variable/fixed rate series 1998 (4.30% through 2003), due 2005 to 2008 4,950 - ---------------- ---------------- 29,150 30,500 ---------------- ---------------- Total Interstate Power Company 173,150 174,500 ---------------- ---------------- Alliant Energy Resources, Inc. - Credit facility (5.15% - 5.85% at December 31, 1998) 252,505 182,013 Multifamily Housing Revenue Bonds issued by various housing and community development authorities, 4.20% - 7.55%, due 2004 to 2024 35,494 36,503 Other subsidiaries' debt, 0% - 10.75%, due 1999 to 2042 57,579 56,795 ---------------- ---------------- Total Alliant Energy Resources, Inc. 345,578 275,311 ---------------- ---------------- Interstate Energy Corporation - 8.59% Senior notes, due 2004 24,000 24,000 ---------------- ---------------- 1,670,339 1,550,461 ---------------- ---------------- Less: Current maturities (63,414) (18,329) Variable rate demand bonds (56,975) (56,975) Unamortized debt premium and (discount), net (6,819) (7,254) ---------------- ---------------- Total long-term debt 1,543,131 1,467,903 ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------- Total capitalization $ 3,262,924 $ 3,205,828 ================ ================ - --------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
69
INTERSTATE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Additional Other Total Common Paid-In Retained Comprehensive Common Stock Capital Earnings Income (Loss) Equity - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1996: Beginning balance $ 750 $ 832,670 $ 569,982 $ - $ 1,403,402 Comprehensive income: Net income 155,791 155,791 Other comprehensive loss net of tax: Minimum pension liability adjustment (a) (809) (809) ------------- Total comprehensive income 154,982 Common stock dividends (143,344) (143,344) Common stock issued 8 18,447 18,455 Treasury stock (269) (269) -------------- ------------- -------------- --------------- ------------- Ending balance 758 850,848 582,429 (809) 1,433,226 1997: Comprehensive income: Net income 144,578 144,578 Other comprehensive income (loss): Unrealized gain on securities, net of tax (b) 174,688 174,688 Foreign currency translation adjustment (20) (20) Minimum pension liability adjustment, net of tax (a) (347) (347) ------------- Total comprehensive income 318,899 Common stock dividends (145,631) (145,631) Common stock issued 7 18,138 18,145 Treasury stock (83) (83) -------------- ------------- -------------- --------------- ------------- Ending balance 765 868,903 581,376 173,512 1,624,556 1998: Comprehensive income: Net income 96,675 96,675 Other comprehensive income (loss): Unrealized loss on securities, net of tax (b) (4,589) (4,589) Foreign currency translation adjustment (7,062) (7,062) Minimum pension liability adjustment, net of tax (a) 1,156 1,156 ------------- Total comprehensive income 86,180 Common stock dividends (140,679) (140,679) Common stock issued 11 36,263 36,274 Treasury stock (36) (36) -------------- ------------- -------------- --------------- ------------- Ending balance $ 776 $ 905,130 $ 537,372 $ 163,017 $ 1,606,295 ============== ============= ============== =============== ============= - ---------------------------------------------------------------------------------------------------------------------------------- (a) Net of tax expense (benefit) of $(565), $(243) and $808 in 1996, 1997 and 1998, respectively. (b) Net of tax expense (benefit) of $124,271 and $(3,218) in 1997 and 1998, respectively. The accompanying Notes to Condolidated Financial Statements are an intergral part of these statements.
70 INTERSTATE ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (a) General - The Consolidated Financial Statements include the accounts of Interstate Energy Corporation (IEC) and its consolidated subsidiaries. IEC resulted from the April 1998 merger between WPL Holdings, Inc. (WPLH), IES Industries Inc. (IES) and Interstate Power Company (IPC) (refer to Note 2 for a discussion of the merger). IEC is an investor-owned holding company currently doing business as Alliant Energy Corporation whose subsidiaries are IES Utilities Inc. (IESU), Wisconsin Power and Light Company (WP&L), IPC, Alliant Energy Resources, Inc. (Alliant Energy Resources) and Alliant Energy Corporate Services, Inc. (Alliant Energy Corporate Services). IESU, WP&L and IPC are engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and water and steam services in selective markets. The principal markets of IESU, WP&L and IPC are located in Iowa, Wisconsin, Minnesota and Illinois. Alliant Energy Resources (through its numerous direct and indirect subsidiaries) provides energy products and services to domestic and international markets; provides industrial services including environmental, engineering and transportation services; invests in affordable housing initiatives; and invests in various other strategic initiatives. Alliant Energy Corporate Services is the subsidiary formed to provide administrative services to IEC and its subsidiaries as required under the Public Utility Holding Company Act of 1935 (PUHCA). The consolidated financial statements reflect investments in controlled subsidiaries on a consolidated basis. All significant intercompany balances and transactions, other than certain energy-related transactions affecting IESU, WP&L and IPC, have been eliminated from the Consolidated Financial Statements. Such energy-related transactions are made at prices that approximate market value and the associated costs are recoverable from customers through the rate making process. The financial statements are prepared in conformity with generally accepted accounting principles, which give recognition to the rate making and accounting practices of the Federal Energy Regulatory Commission (FERC) and state commissions having regulatory jurisdiction. Unconsolidated investments for which IEC has at least a 20% voting interest are generally accounted for under the equity method of accounting. These investments are stated at acquisition cost, increased or decreased for IEC's equity in net income or loss, which is included in "Miscellaneous, net" in the Consolidated Statements of Income and decreased for any dividends received. Investments that do not meet the criteria for consolidation or the equity method of accounting are accounted for under the cost method. The preparation of the financial statements requires management to make estimates and assumptions that affect: 1) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and 2) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior period amounts have been reclassified on a basis consistent with the current year presentation. (b) Regulation - IEC is a registered public utility holding company subject to regulation by the Securities and Exchange Commission (SEC) under the PUHCA. IESU, WP&L and IPC are subject to regulation by the FERC and their respective state regulatory commissions (Iowa Utilities Board (IUB), Public Service Commission of Wisconsin (PSCW), Minnesota Public Utilities Commission (MPUC) and Illinois Commerce Commission (ICC)). (c) Regulatory Assets - IESU, WP&L and IPC are subject to the provisions of Statement of Financial Accounting Standards, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). SFAS 71 provides that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for unregulated entities. These are 71 deferred as regulatory assets or regulatory liabilities and are recognized in the Consolidated Statements of Income at the time they are reflected in rates. At December 31, 1998 and 1997, regulatory assets of $368.8 million and $388.7 million, respectively, were comprised of the following items (in millions):
IESU WP&L IPC -------------------- --------------------- ------------------ 1998 1997 1998 1997 1998 1997 ---------- --------- ---------- ---------- -------- --------- Tax-related (Note 1(d)) $81.4 $80.3 $49.3 $55.5 $29.8 $29.7 Energy efficiency program costs 39.8 59.4 53.5 29.5 25.9 30.0 Environmental liabilities (Note 12(f)) 35.2 42.9 19.5 22.2 17.5 6.2 Other 5.0 17.0 11.2 13.6 0.7 2.4 ---------- --------- ---------- ---------- -------- --------- Total $161.4 $199.6 $133.5 $120.8 $73.9 $68.3 ========== ========= ========== ========== ======== =========
Refer to the individual notes referenced above for a further discussion of certain items reflected in regulatory assets. Regulators allow IESU and IPC to earn a return on energy efficiency program costs but not on the other regulatory assets. In Wisconsin, WP&L is allowed to earn a return on all regulatory assets other than those associated with manufactured gas plants (MGP). If a portion of IESU's, WP&L's or IPC's operations become no longer subject to the provisions of SFAS 71 as a result of competitive restructuring or otherwise, a write-down of related regulatory assets would be required, unless some form of transition cost recovery is established by the appropriate regulatory body that would meet the requirements under generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. In addition, IESU, WP&L or IPC would be required to determine any impairment to other assets and write-down such assets to their fair value. (d) Income Taxes - IEC follows the liability method of accounting for deferred income taxes, which requires the establishment of deferred tax assets and liabilities, as appropriate, for all temporary differences between the tax basis of assets and liabilities and the amounts reported in the financial statements. Deferred taxes are recorded using currently enacted tax rates as shown in Note 6. Except as noted below, income tax expense includes provisions for deferred taxes to reflect the tax effects of temporary differences between the time when certain costs are recorded in the accounts and when they are deducted for tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes are reversed to income. Investment tax credits have been deferred and are subsequently credited to income over the average lives of the related property. As part of the affordable housing business, IEC is eligible to claim affordable housing credits. These tax credits reduce current federal taxes to the extent IEC has consolidated taxes payable. Consistent with Iowa rate making practices for IESU and IPC, deferred tax expense is not recorded for certain temporary differences (primarily related to utility property, plant and equipment). As the deferred taxes become payable (over periods exceeding 30 years for some generating plant differences) they are recovered through rates. Accordingly, IESU and IPC have recorded deferred tax liabilities and regulatory assets for certain temporary differences, as identified in Note 1(c). In Wisconsin, the PSCW has allowed rate recovery of deferred taxes on all temporary differences since August 1991. WP&L established a regulatory asset associated with temporary differences occurring prior to August 1991, which is recovered through rates. (e) Common Shares Outstanding - The weighted average common shares outstanding used in the calculation of basic earnings per share for IEC were 76,912,219; 76,209,935 and 75,480,539 for 1998, 1997 and 1996, respectively. The common stock shares used for calculating diluted earnings per share for IEC were 76,928,631; 76,212,073 and 75,484,281 for 1998, 1997 and 1996, respectively. 72 (f) Temporary Cash Investments - Temporary cash investments are stated at cost, which approximates market value, and are considered cash equivalents for the Consolidated Statements of Cash Flows. These investments consist of short-term liquid investments that have maturities of less than 90 days from the date of acquisition. (g) Depreciation of Utility Property, Plant and Equipment - IESU, WP&L and IPC use a combination of remaining life and straight-line depreciation methods as approved by their respective regulatory commissions. The remaining life of the Duane Arnold Energy Center (DAEC), IESU's nuclear generating facility, is based on the Nuclear Regulatory Commission (NRC) license life of 2014. The remaining life of the Kewaunee Nuclear Power Plant (Kewaunee), of which WP&L is a co-owner, is based on the PSCW approved revised end-of-life of 2002 (prior to May 1997 the calculation was based on the NRC license life of 2013). Depreciation expense related to the decommissioning of DAEC and Kewaunee is discussed in Note 12(h). WP&L implemented higher depreciation rates effective January 1, 1997. The average rates of depreciation for electric and gas properties of IESU, WP&L and IPC, consistent with current rate making practices, were as follows:
IESU WP&L IPC ---------------------------------- ---------------------------------- --------------------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 ---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ---------- Electric 3.5% 3.5% 3.5% 3.6% 3.6% 3.3% 3.6% 3.6% 3.6% Gas 3.5% 3.5% 3.5% 3.8% 3.8% 3.7% 3.4% 3.4% 3.4%
(h) Property, Plant and Equipment - Utility plant (other than acquisition adjustments at IESU of $26.8 million, net of accumulated amortization, recorded at cost) is recorded at original cost, which includes overhead and administrative costs and an allowance for funds used during construction (AFUDC). The AFUDC, which represents the cost during the construction period of funds used for construction purposes, is capitalized as a component of the cost of utility plant. The amount of AFUDC applicable to debt funds and to other (equity) funds, a non-cash item, is computed in accordance with the prescribed FERC formula. These capitalized costs are recovered in rates as the cost of the utility plant is depreciated. The aggregate gross rates used were as follows: 1998 1997 1996 ------------------- ------------------ ------------------- IESU 8.9% 6.7% 5.5% WP&L 5.2% 6.2% 10.2% IPC 7.0% 6.0% 5.8% Other property, plant and equipment is recorded at original cost. Upon retirement or sale of other property and equipment, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in "Miscellaneous, net" in the Consolidated Statements of Income. Normal repairs, maintenance and minor items of utility plant and other property, plant and equipment are expensed. Ordinary retirements of utility plant, including removal costs less salvage value, are charged to accumulated depreciation upon removal from utility plant accounts and no gain or loss is recognized. (i) Restatement of Consolidated Financial Statements / Oil and Gas Properties - During the third quarter of 1998, IEC's oil and gas subsidiary, Whiting Petroleum Corporation (Whiting), changed its accounting method for oil and gas properties from the full cost method to the successful efforts method. While both methods are acceptable under generally accepted accounting principles, successful efforts is the preferred method. Management believes that the successful efforts method more accurately presents the results of Whiting's exploration, development and production activities and minimizes asset impairments caused by temporary declines in oil and gas prices, which may not be representative of overall or long-term markets or management's estimate of fair market value. As a result, impairments will only be recognized under the successful efforts method when there has been a permanent decline in the fair value of the oil and gas properties. As required by generally accepted accounting principles, all prior period financial statements of IEC presented herein have been restated to reflect the change in accounting method. 73 Under the successful efforts method of accounting, Whiting capitalizes all costs related to property acquisitions and successful exploratory wells, all development costs and the costs of support equipment and facilities. Unproved leasehold costs are capitalized and are reviewed periodically for impairment. All costs related to unsuccessful exploratory wells are expensed when such wells are determined to be non-productive and other exploration costs, including geological and geophysical costs, are expensed as incurred. Depreciation, depletion and amortization of proved oil and gas properties is determined on a field-by-field basis using the unit-of-production method over the life of the remaining proved reserves. Estimated costs (net of salvage value) of site remediation, including offshore platform dismantlement, are included in the depreciation and depletion calculation. Proved oil and gas properties are reviewed on a field-by-field basis whenever events or circumstances indicate that the carrying value of such properties may be impaired. The cumulative effect of the restatement at January 1, 1994, was an after-tax reduction in retained earnings of $2.7 million. The restated net income amounts for 1994 through 1997 are as follows (in thousands): 1997 1996 1995 1994 ------------ ------------ ------------ ------------ Net income prior to restatement $ 154,290 $ 158,675 $ 147,806 $ 150,281 Adjustment for change in accounting method for oil and gas properties from the full cost method to the successful efforts method (9,712) (2,884) (1,835) (4,391) ------------ ------------ ------------ ------------ Restated net income $ 144,578 $ 155,791 $ 145,971 $ 145,890 ============ ============ ============ ============ The restated earnings per average common share (basic and diluted) for 1994 through 1997 are as follows:
1997 1996 1995 1994 ------------ ------------ ------------ ------------ Earnings per average common share prior to restatement (basic and diluted) $ 2.02 $ 2.10 $ 1.97 $ 2.04 Adjustment for change in accounting method for oil and gas properties from the full cost method to the successful efforts method (0.12) (0.04) (0.02) (0.06) ------------ ------------ ------------ ------------ Restated earnings per average common share (basic and diluted) $ 1.90 $ 2.06 $ 1.95 $ 1.98 ============ ============ ============ ============
(j) Operating Revenues - IEC accrues revenues for services rendered but unbilled at month-end in order to more properly match revenues with expenses. In accordance with an order from the PSCW, effective January 1, 1998, off-system gas sales for WP&L are included in the Consolidated Statements of Income as a reduction of the cost of gas sold rather than as gas revenues. In 1997, off-system gas sales were included in the Consolidated Statements of Income as gas revenue. (k) Utility Fuel Cost Recovery - IESU's and IPC's tariffs provide for subsequent adjustments to its electric and natural gas rates for changes in the cost of fuel and purchased energy and in the cost of natural gas purchased for resale. Changes in the under/over collection of these costs are reflected in "Electric and steam production fuels" and "Cost of utility gas sold" in the Consolidated Statements of Income. The cumulative effects are reflected on the Consolidated Balance Sheets as a current asset or current liability, pending automatic reflection in future billings to customers. At IESU and IPC, purchased capacity costs are not recovered from electric customers through energy adjustment clauses. Recovery of these costs must be addressed in base rates in a formal rate proceeding. WP&L's retail electric rates are based in part on forecasted fuel and purchased-power costs. Under PSCW rules, 74 Wisconsin utilities can seek emergency rate increases if the annual costs are more than 3% higher than the estimated costs used to establish rates. WP&L has a gas performance incentive which includes a sharing mechanism whereby 40% of all gains and losses relative to current commodity prices, as well as other benchmarks, are retained by WP&L rather than refunded to or recovered from customers. (l) Nuclear Refueling Outage Costs - The IUB allows IESU to collect, as part of its base revenues, funds to offset other operating and maintenance expenditures incurred during refueling outages at DAEC. As these revenues are collected, an equivalent amount is charged to other operating and maintenance expenses with a corresponding credit to a reserve. During a refueling outage, the reserve is reversed to offset the refueling outage expenditures. Operating expenses incurred during refueling outages at Kewaunee are expensed by WP&L as incurred. (m) Nuclear Fuel - Nuclear fuel for DAEC is leased. Annual nuclear fuel lease expenses include the cost of fuel, based on the quantity of heat produced for the generation of electric energy, plus the lessor's interest costs related to fuel in the reactor and administrative expenses. Nuclear fuel for Kewaunee is recorded at its original cost and is amortized to expense based upon the quantity of heat produced for the generation of electricity. This accumulated amortization assumes spent nuclear fuel will have no residual value. Estimated future disposal costs of such fuel are expensed based on kilowatt-hours generated. (n) Translation of Foreign Currency - Assets and liabilities of international investments where the local currency is the functional currency have been translated at year-end exchange rates and related income statement results have been translated using average exchange rates prevailing during the year. Adjustments resulting from translation have been recorded in other comprehensive income. (o) Comprehensive Income - On January 1, 1998, IEC adopted SFAS 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting of comprehensive income and its components in a full set of general purpose financial statements. SFAS 130 requires reporting a total for comprehensive income which includes, in addition to net income: (1) unrealized holding gains/losses on securities classified as available-for-sale under SFAS 115; (2) foreign currency translation adjustments accounted for under SFAS 52; and (3) minimum pension liability adjustments made pursuant to SFAS 87. Refer to the "Consolidated Statements of Changes in Common Equity" for additional information regarding comprehensive income. (p) Derivative Financial Instruments - From time to time, IEC enters into interest rate swaps to reduce exposure to interest rate fluctuations in connection with short and variable rate long-term debt issues. The swap's cash flows correspond with those of the underlying exposures. The related costs associated with these agreements are amortized over their respective lives as components of interest expense. IEC, through its consolidated subsidiaries, currently utilizes derivative financial and commodity instruments to reduce price risk inherent in its gas and electric activities on a very limited basis and such instruments may not be used for trading purposes. The costs or benefits associated with any such hedging activities are recognized when the related purchase or sale transactions are completed. (2) MERGER: On April 21, 1998, IES, WPLH and IPC completed a three-way merger (Merger) forming IEC. Each outstanding share of common stock of IES, WPLH and IPC was exchanged for 1.14, 1.0 and 1.11 shares, respectively, of IEC 75 common stock resulting in the issuance of approximately 77 million shares of IEC common stock, $.01 par value per share. The outstanding debt and preferred stock securities of IEC and its subsidiaries were not affected by the Merger. In connection with the Merger, the number of authorized shares of IEC common stock was increased to 200,000,000. The Merger was accounted for as a pooling of interests and the accompanying Consolidated Financial Statements, along with the related notes, are presented as if the companies were combined as of the earliest period presented. As part of the pooling, the accrued pension liability (and offsetting regulatory asset), of IES was recomputed using the method used by WPLH and IPC to recognize deferred asset gains. In addition, IPC adopted unbilled revenues as part of the pooling to conform to the revenue accounting method used by WPLH and IES. Neither of these adjustments had any income statement impact for the periods presented in this report. Operating revenues and net income for the three months ended March 31, 1998, and for the years ended December 31, 1997, and December 31, 1996, were as follows (in millions):
WPLH IES IPC IEC ------------ ------------ ------------ ------------- Three months ended March 31, 1998 Operating revenues $229.5 $241.7 $85.1 $556.3 Net income $15.8 $8.1 $5.0 $28.9 Year ended December 31, 1997 Operating revenues $978.7 $990.1 $331.8 $2,300.6 Net income $61.3 $56.6 $26.7 $144.6 Year ended December 31, 1996 Operating revenues $932.8 $973.9 $326.1 $2,232.8 Net income $71.9 $58.0 $25.9 $155.8
The financial results of IES have been restated for all periods presented to reflect a change in accounting method for Whiting's oil and gas properties implemented in the third quarter of 1998 from the full cost method to the successful efforts method. See Note 1(i) for additional information. In addition, the operating revenues of WPLH and IES for the 1998 and 1997 periods presented have been adjusted to reflect the financial results of a joint venture between the two companies as a consolidated subsidiary. (3) LEASES: IESU has a capital lease covering its 70% undivided interest in nuclear fuel purchased for DAEC. Future purchases of fuel may also be added to the fuel lease. This lease provides for annual one-year extensions and IESU intends to continue exercising such extensions. Interest costs under the lease are based on commercial paper costs incurred by the lessor. IESU is responsible for the payment of taxes, maintenance, operating cost, risk of loss and insurance relating to the leased fuel. The lessor has a $45 million credit agreement with a bank supporting the nuclear fuel lease. The agreement continues on a year-to-year basis, unless either party provides at least a three-year notice of termination; no such notice of termination has been provided by either party. Annual nuclear fuel lease expenses (included in "Electric and steam production fuels" in the Consolidated Statements of Income) for 1998, 1997 and 1996 were $14.2 million, $16.6 million and $18.2 million, respectively. IEC's operating lease rental expenses for 1998, 1997 and 1996 were $21.6 million, $20.3 million and $20.0 million, respectively. IEC's future minimum lease payments by year are as follows (in thousands): 76 Capital Operating Year Leases Leases ------------------------------------- --------------- --------------- 1999 $ 12,293 $ 23,075 2000 8,051 19,743 2001 4,338 14,183 2002 2,674 9,649 2003 561 7,333 Thereafter 141 29,961 --------------- --------------- 28,058 $ 103,944 =============== Less: Amount representing interest 2,325 --------------- Present value of net minimum capital lease payments $ 25,733 =============== (4) UTILITY ACCOUNTS RECEIVABLE: Utility customer accounts receivable, including unbilled revenues, arise primarily from the sale of electricity and natural gas. At December 31, 1998, IEC was serving a diversified base of residential, commercial and industrial customers and did not have any significant concentrations of credit risk. Separate accounts receivable financing arrangements exist for two of IEC's utility subsidiaries, IESU and WP&L, which are similar in most important aspects. In both cases, the utility subsidiaries sell up to a pre-determined maximum amount of accounts receivable to a financial institution on a limited recourse basis, including sales to customers and to other public, municipal and cooperative utilities, as well as billings to the co-owners of the jointly-owned electric generating plants that the utility subsidiaries operate. The amounts are discounted at the then-prevailing market rate and additional administrative fees are payable according to the activity levels undertaken. All billing and collection functions remain the responsibility of the respective utilities. Specifics of the two agreements include (dollars in millions): IESU WP&L -------------- ----------- Year agreement expires 1999 1999 Maximum amount of receivables that can be sold $65 $150 Effective 1998 all-in cost 6.02% 5.95% Average monthly sale of receivables - 1998 $63 $83 - 1997 $65 $92 Receivables sold at December 31, 1998 $55 $75 (5) INVESTMENTS: (a) McLeodUSA Inc. (McLeod) - At December 31, 1998, IEC had the following investment in McLeod, a telecommunications company (in millions): Shares Cost Fair Market Value ----------- ---------- ------------------- Class A common stock 9.0 $ 29.1 $ 282.0 Unexercised vested options, net of cost to exercise 1.3 - 38.3 ----------- ---------- ------------------- 10.3 $ 29.1 $ 320.3 =========== ========== =================== Pursuant to the provisions of SFAS 115, IEC's investment in McLeod is considered an available-for-sale security thus the carrying value of the investment is adjusted to the estimated fair value each quarter based on the closing price at the end of the quarter. The adjustment does not impact earnings as the unrealized gains or losses, net of taxes, are recorded directly to the common equity section of the Consolidated Balance Sheets. In addition, any such gains or losses are reflected in current earnings only at the time they are realized through a sale. IEC entered into an agreement in November 1998 with McLeod whereby IEC's ability to sell the McLeod stock is subject to various restrictions. 77 (b) Foreign Entities - At December 31, 1998, IEC had $68.9 million of investments in foreign entities on its Consolidated Balance Sheets that included: 1) investments in several generation facilities in China; 2) investments in several New Zealand utility entities; and 3) an investment in an international venture capital fund. IEC accounts for the China investments under the equity method and the other investments under the cost method. The geographic concentration of IEC's investments in foreign entities at December 31, 1998, included investments of approximately $36.1 million in China, $32.3 million in New Zealand and $0.5 million in other countries. (6) INCOME TAXES: The components of federal and state income taxes for IEC for the years ended December 31 were as follows (in millions):
1998 1997 1996 --------------- -------------- --------------- Current tax expense $ 92.5 $ 99.6 $ 96.9 Deferred tax expense (22.2) (6.1) 20.3 Amortization of investment tax credits (5.6) (5.6) (5.6) Affordable housing tax credits (6.6) (6.2) (5.8) --------------- -------------- --------------- $ 58.1 $ 81.7 $ 105.8 =============== ============== ===============
The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes and preferred dividend requirements of subsidiaries.
1998 1997 1996 -------------- -------------- ------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 8.0 6.4 6.5 Affordable housing tax credits (4.1) (2.7) (2.2) Amortization of investment tax credits (3.4) (2.4) (2.1) Adjustment of prior period taxes (0.4) (2.2) 1.0 Merger expenses 2.4 0.5 1.2 Oil and gas production credits (1.6) (0.6) (0.5) Other items, net 0.1 1.1 0.3 -------------- -------------- ------------- Overall effective income tax rate 36.0% 35.1% 39.2% ============== ============== =============
The accumulated deferred income taxes (assets) and liabilities as set forth below on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 1998 1997 --------------- -------------- Property related $ 677.7 $ 654.7 McLeod investment 121.1 124.3 Investment tax credit related (43.0) (46.1) Decommissioning related (33.4) (31.7) Other (30.8) 18.7 --------------- -------------- $ 691.6 $ 719.9 =============== ============== (7) BENEFIT PLANS: (a) Pension Plans and Other Postretirement Benefits - IEC adopted SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" in 1998. IEC has several non-contributory defined benefit pension plans that cover substantially all of its employees who are subject to a collective bargaining agreement. Plan benefits are generally based on years of service and compensation during the employees' latter years of employment. Eligible employees of IEC that are not subject to a collective bargaining agreement are covered by the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit pension 78 plan. During each year of service, IEC credits each participant's account with a benefit credit equal to 5% of base pay as well as a guaranteed minimum interest credit equal to 4%. The projected unit credit actuarial cost method was used to compute pension cost and the accumulated and projected benefit obligations. IEC's policy is to fund all of the pension plans at an amount that is at least equal to the minimum funding requirements mandated by the Employee Retirement Income Security Act of 1974, as amended (ERISA), and that does not exceed the maximum tax deductible amount for the year. IEC also provides certain other postretirement benefits to retirees, including medical benefits for retirees and their spouses (and Medicare Part B reimbursement for certain retirees) and, in some cases, retiree life insurance. IESU's and IPC's funding of other postretirement benefits generally approximates the annual rate recovery of such costs, while WP&L's funding generally approximates the maximum tax deductible amount on an annual basis. The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ----------------------------------- -------------------------------------- 1998 1997 1996 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- -------------- Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50% Expected return on plan assets 9% 8-9% 8-9% 9% 8-9% 8-9% Rate of compensation increase 3.5-4.5% 3.5-5.0% 3.5-5.0% 3.5% 3.5% 3.5%-4.5% Medical cost trend on covered charges: Initial trend range N/A N/A N/A 8% 8% 8-9% Ultimate trend range N/A N/A N/A 5.0-6.0% 5.0-6.5% 5.0-6.5% The components of IEC's qualified pension benefits and other postretirement benefits costs are as follows (in millions): Qualified Pension Benefits Other Postretirement Benefits ------------------------------------ --------------------------------- 1998 1997 1996 1998 1997 1996 ---------- ---------- --------- ------- -------- --------- Service cost $ 13.8 $ 13.1 $ 13.4 $ 5.1 $ 4.7 $ 4.9 Interest cost 35.4 32.2 30.0 9.7 9.8 9.6 Expected return on plan assets (47.2) (39.0) (36.8) (3.7) (2.6) (1.9) Amortization of: Transition obligation (asset) (2.4) (2.4) (2.4) 4.7 4.9 5.0 Prior service cost 2.8 2.5 1.7 (0.3) (0.3) (0.3) Actuarial (gain) / loss (0.9) - 0.4 (1.2) (0.2) (0.1) ---------- ----------- --------- ------- -------- --------- Total $ 1.5 $ 6.4 $ 6.3 $ 14.3 $ 16.3 $ 17.2 ========== ========== ========= ======= ======== =========
During 1998, 1997 and 1996, IEC recognized an additional $10.3 million, $5.1 million and $4.7 million, respectively, of costs in accordance with SFAS 88. The charges were for severance and early retirement programs in the respective years. In addition, during 1998 and 1997, IEC recognized $10.2 million and $1.7 million, respectively, of curtailment charges relating to IEC's other postretirement benefits. The amounts include a December 1998 early retirement program. The measurement date for accounting purposes is September 30 for IEC as disclosed above. Prior to the Merger, WPLH, IPC and IES used December 31, November 1 and September 30 measurement dates, respectively. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 1998, holding all other assumptions constant, would have the following effects (in millions):
1 Percent Increase 1 Percent Decrease --------------------- --------------------- Effect on total of service and interest cost components $2.3 ($1.8) Effect on postretirement benefit obligation $15.6 ($13.0)
79 A reconciliation of the funded status of IEC's plans to the amounts recognized on IEC's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits ---------------------------- -------------------------------- 1998 1997 1998 1997 ----------- ------------ ------------ -------------- Change in benefit obligation: Net benefit obligation at beginning of year $ 474.2 $ 426.6 $ 146.4 $ 136.5 Service cost 13.8 13.1 5.1 4.7 Interest cost 35.4 32.2 9.7 9.8 Plan participants' contributions - - 1.3 1.4 Plan amendments (2.5) 11.8 - - Actuarial (gain) / loss 24.8 13.7 (3.6) 1.0 Curtailments (3.0) 2.5 1.9 0.7 Special termination benefits 10.7 5.1 - - Gross benefits paid (25.0) (30.8) (7.5) (7.7) ----------- ------------ ------------ -------------- Net benefit obligation at end of year 528.4 474.2 153.3 146.4 ----------- ------------ ------------ -------------- Change in plan assets: Fair value of plan assets at beginning of year 529.1 482.6 50.7 37.2 Actual return on plan assets 2.2 72.5 2.5 3.7 Employer contributions - 4.8 7.0 16.1 Plan participants' contributions - - 1.3 1.4 401(h) assets recognized - - 1.1 - Gross benefits paid (25.0) (30.8) (7.5) (7.7) ----------- ------------ ------------ -------------- Fair value of plan assets at end of year 506.3 529.1 55.1 50.7 ----------- ------------ ------------ -------------- Funded status at end of year (22.1) 54.9 (98.2) (95.7) Unrecognized net actuarial (gain) / loss 30.3 (56.9) (7.5) (4.0) Unrecognized prior service cost 25.8 32.1 (1.7) (2.3) Unrecognized net transition obligation (asset) (10.6) (13.0) 60.6 73.2 ----------- ------------ ------------ -------------- Net amount recognized at end of year $ 23.4 $ 17.1 $ (46.8) $ (28.8) =========== ============ ============ ============== Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $ 38.9 $ 42.7 $ 0.9 $ 0.9 Accrued benefit cost (15.5) (25.6) (47.7) (29.7) Additional minimum liability (7.7) - - - Intangible asset 7.7 - - - ----------- ------------ ------------ -------------- Net amount recognized at measurement date 23.4 17.1 (46.8) (28.8) ----------- ------------ ------------ -------------- Contributions paid after 9/30 and prior to 12/31 - - 6.8 - ----------- ------------ ------------ -------------- Net amount recognized at 12/31/98 $ 23.4 $ 17.1 $ (40.0) $ (28.8) =========== ============ ============ ==============
The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $146.5 million and $45.3 million, respectively, as of September 30, 1998 and $139.8 million and $46.3 million, respectively, as of the prior measurement date. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with benefit obligations in excess of plan assets were $250.5 million, $241.1 million and $217.9 million, respectively, as of September 30, 1998. IEC also sponsors several non-qualified pension plans which cover certain current and former officers. Funding of such plans at December 31, 1998, totaled approximately $4 million. IEC's pension benefit obligation under these plans was $25.8 million and $18.7 million at December 31, 1998 and 1997, respectively. IEC's pension expense under these plans was $4.5 million, $3.7 million, and $2.0 million in 1998, 1997 and 1996, respectively. 80 A significant number of IEC employees also participate in defined contribution pension plans (401(k) plans). IEC's contributions to the plans, which are based on the participants' level of contribution, were $7.7 million, $5.5 million and $4.9 million in 1998, 1997 and 1996, respectively. (b) Long-Term Equity Incentive Plan - IEC has a long-term equity incentive plan which permits the grant of non-qualified stock options, incentive stock options, restricted stock, performance shares and performance units to key employees. As of December 31, 1998, only non-qualified stock options and performance units had been granted to key employees. The maximum number of shares of IEC common stock that may be issued under the plan may not exceed one million. Options are granted at the fair market value of the shares on the date of grant and vest over three years. Options outstanding will expire no later than 10 years after the grant date. The first options were granted in 1995 and became exercisable in January 1998. All options granted prior to the consummation of the Merger were issued by WPLH. A summary of the stock option activity for 1998, 1997 and 1996 is as follows:
1998 1997 1996 ----------------------- ----------------------- ----------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------------- ----------------------- ----------------------- Outstanding at beginning of year 191,800 $28.98 114,150 $29.56 41,900 $27.50 Options granted 636,451 31.32 77,650 28.12 72,250 30.75 Options exercised (8,900) 28.59 - - - - Options forfeited (68,267) 30.49 - - - - ----------------------- ----------------------- ----------------------- Outstanding at end of year 751,084 $30.83 191,800 $28.98 114,150 $29.56 ======================= ======================= ======================= Exercisable at end of year 38,250 $27.50 - -
The range of exercise prices for the options outstanding at December 31, 1998 was $27.50 to $31.56. The value of the options at the grant date using the Black-Scholes pricing method is as follows:
1998 1997 1996 ------------ ------------ ------------ Value of options based on Black-Scholes model $4.93 $3.30 $3.47 Volatility 21% 15% 16% Risk free interest rate 5.75% 6.43% 5.56% Expected life 10 years 10 years 10 years Expected dividend yield 7.0% 7.0% 7.0%
IEC follows Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees," to account for stock options. No compensation cost is recognized because the option exercise price is equal to the market price of the underlying stock on the date of grant. Had compensation cost for the plan been determined based on the Black-Scholes value at the grant dates for awards as prescribed by SFAS 123 "Accounting for Stock-Based Compensation," pro forma net income and earnings per share would have been: 1998 1997 1996 ----------- ----------- ----------- Net income (in millions) $93.5 $144.3 $155.5 Earnings per share (basic and diluted) $1.22 $1.89 $2.06 The performance units represent accumulated dividends on the shares underlying the non-qualified stock options and are expensed over a three-year vesting period based on the annual dividend rate at the grant date. The performance unit payout is contingent upon three-year performance criteria. The cost of this program in 1998, 1997 and 1996 was not significant. 81 (8) COMMON, PREFERRED AND PREFERENCE STOCK: (a) Common Stock - During 1998, 1997 and 1996, IEC issued 890,035; 687,962 and 777,649 shares of common stock under its various stock plans, respectively. Shares issued prior to the Merger consummation by IES and IPC have been adjusted for the applicable conversion ratios. In addition, 260,039 shares were issued in 1998 in connection with the acquisition of oil and gas properties. At December 31, 1998, IEC had a total of 4.0 million shares available for issuance pursuant to its Shareowner Direct Plan, Long-Term Equity Incentive Plan and 401(k) Savings Plan. IEC has declared a quarterly dividend of 50 cents per share each quarter since the consummation of the Merger. During 1998, 1997 and 1996, IEC reacquired 1,133 shares, 3,278 shares and 10,771 shares, respectively, of its common stock on the open market. Such shares were reacquired by IES prior to the consummation of the Merger and have been adjusted for the IES conversion ratio. These shares were subsequently issued to various IEC directors and employees. At December 31, 1998, no shares remained held as treasury stock. In October 1998, the Board of Directors of IEC adopted a new Shareowner Rights Plan (new plan) to replace IEC's former plan that expired on February 22, 1999. The new plan was approved on January 15, 1999 by the SEC. On January 20, 1999, the Board of Directors declared a dividend of one common share purchase right (right) on each outstanding share of IEC's common stock which was issued on February 22, 1999 to coincide with the expiration of the former plan. Rights under the new plan will be exercisable only if a person or group acquires, or announces a tender offer to acquire, 15% or more of IEC's common stock. Each right will initially entitle shareowners to buy one-half of one share of IEC's common stock. The rights will only be exercisable in multiples of two at an initial price of $95.00 per full share, subject to adjustment. If any shareowner acquires 15% or more of the outstanding common stock of IEC, each right (subject to limitations) will entitle its holder to purchase, at the right's then current exercise price, a number of common shares of IEC or of the acquirer having a market value at the time of twice the right's per full share exercise price. The Board of Directors is also authorized to reduce the 15% thresholds to not less than 10%. In rate order UR-110, the PSCW ordered that it must approve the payment of dividends by WP&L to IEC that are in excess of the level forecasted in the rate order ($58.3 million), if such dividends would reduce WP&L's average common equity ratio below 52.00% of total capitalization. The dividends paid by WP&L to IEC since the rate order was issued have not exceeded the level forecasted in the rate order. (b) Preferred and Preference Stock - In 1993, IPC issued 545,000 shares of 6.40%, $50 par value preferred stock with a final redemption date of May 1, 2022. Under the provisions of the mandatory sinking fund, beginning in 2003, IPC is required to redeem annually $1.4 million of 6.40% preferred stock (27,250 shares). (9) DEBT: (a) Short-Term Debt IEC maintains committed bank lines of credit, most of which are at the bank prime rates, to obtain short-term borrowing flexibility, including pledging lines of credit as security for any commercial paper outstanding. Amounts available under these lines of credit totaled $150 million as of December 31, 1998. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. Alliant Energy Resources also maintains a credit agreement with various banking institutions. The unborrowed portion of this agreement is also used to support Alliant Energy Resources' commercial paper program. The amount available under this agreement as of December 31, 1998, was $150 million. Information regarding short-term debt and lines of credit is as follows (in millions): 82
1998 1997 1996 ---------------- --------------- --------------- As of year end-- Commercial paper outstanding $64.5 $114.5 $198.2 Notes payable outstanding $51.8 $42.0 $68.3 Discount rates on commercial paper 5.10-6.55% 5.82-5.90% 5.35-6.05% Interest rates on notes payable 5.44-7.00% 5.00-5.90% 5.28-6.59% For the year ended-- Average amount of short-term debt (based on daily outstanding balances) $126.6 $211.0 $207.9 Average interest rate on short-term debt 5.55% 5.61% 5.57%
(b) Long-Term Debt IESU's Indentures and Deeds of Trust securing its First Mortgage Bonds constitute direct first mortgage liens upon substantially all tangible public utility property. IESU's Indenture and Deed of Trust securing its Collateral Trust Bonds constitutes a second lien on substantially all tangible public utility property while First Mortgage Bonds remain outstanding. Substantially all of WP&L's and IPC's utility plant is secured by its First Mortgage Bonds. WP&L also maintains an unsecured indenture relating to the issuance of debt securities. In addition, IEC's long-term debt includes unsecured debentures, notes payable and revenue bonds related to its affordable housing properties. Alliant Energy Resources is a party to a 3-Year Credit Agreement with various banking institutions. The agreement extends through October 2000, with one-year extensions available upon agreement by the parties. Unused borrowing availability under this agreement is also used to support Alliant Energy Resources' commercial paper program. A combined maximum of $450 million of borrowings under this agreement and the commercial paper program may be outstanding at any one time. Interest rates and maturities are set at the time of borrowing. The rates are based upon quoted market prices and the maturities are less than one year. At December 31, 1998, Alliant Energy Resources had $253 million of commercial paper outstanding backed by this facility with interest rates ranging from 5.15%-5.85%. (See Note 11(a) for a discussion of several interest rate swaps Alliant Energy Resources has entered into relative to $200 million of short-term borrowings under, or backed by, this agreement). Alliant Energy Resources intends to continue issuing commercial paper backed by this facility and no conditions existed at December 31, 1998 that would prevent the issuance of commercial paper or direct borrowings on its bank lines. Accordingly, this debt is classified as long-term. Debt maturities (excluding periodic sinking fund requirements, which will not require additional cash expenditures) for 1999 to 2003 are $318.1 million, $56.0 million, $84.7 million, $3.8 million and $9.3 million, respectively. Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) for a further discussion of IEC's debt. (10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: o Current Assets and Current Liabilities - The carrying amount approximates fair value because of the short maturity of such financial instruments. o Nuclear Decommissioning Trust Funds - The carrying amount represents the fair value of these trust funds, as reported by the trustee. The balance of the "Nuclear decommissioning trust funds" as shown on the Consolidated Balance Sheets included $43.0 million and $35.7 million of net unrealized gains at December 31, 1998 and December 31, 1997, respectively, on the investments held in the trust funds. The accumulated reserve for decommissioning costs was adjusted by a corresponding amount. o Cumulative Preferred Stock - Based upon the market yield of similar securities and quoted market prices. 83 o Long-Term Debt - Based upon the market yield of similar securities and quoted market prices. o Investment in McLeod - Pursuant to the provisions of SFAS 115, the carrying value of the McLeod investment is adjusted to estimated fair value based on the closing price at the end of the quarter. o Investments in New Zealand - Fair value of the New Zealand investments are generally based on quoted market prices. The following table presents the carrying amount and estimated fair value of certain financial instruments for IEC as of December 31 (in millions):
1998 1997 --------------------------- ---------------------------- Carrying Fair Carrying Fair Value Value Value Value ------------ ----------- ------------ ----------- Nuclear decommissioning trust funds $ 226 $ 226 $ 190 $ 190 Cumulative preferred stock 113 109 113 105 Long-term debt, including current portion 1,664 1,753 1,543 1,600 Investment in McLeod (Note 5(a)) 320 320 328 328 Investments in New Zealand (Note 5(b)) 32 44 34 33
Since IESU, WP&L and IPC are subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of its financial instruments may not be realized by IEC's shareowners. (11) DERIVATIVE FINANCIAL INSTRUMENTS: IEC, through its consolidated subsidiaries, has historically had only limited involvement with derivative financial instruments and has not used them for speculative purposes. They have been used to manage well-defined interest rate and commodity price risks. (a) Interest Rate Swaps and Forward Contracts - At December 31, 1998, Alliant Energy Resources had two interest rate swap agreements outstanding (both expiring in April 2000 with the bank having a 1-year extension option for one of the agreements) each with a notional amount of $100 million. WP&L also had two interest rate swap agreements outstanding (both expiring in 2000) at December 31, 1998, and the combined notional amount of the two agreements was $30 million. These agreements were entered into in order to reduce the impact of changes in variable interest rates by converting variable rate borrowings into fixed rate borrowings thus all agreements require Alliant Energy Resources and WP&L to pay a fixed rate and receive a variable rate. Had Alliant Energy Resources and WP&L terminated the agreements at December 31, 1998, they would have had to make payments of $2.9 million and $0.3 million, respectively. On September 14, 1998, WP&L entered into an interest rate forward contract related to the anticipated issuance of $60 million of debentures. The securities were issued on October 30, 1998, and the forward contract was settled, which resulted in a cash payment of $1.5 million by WP&L. (b) Gas Commodities Instruments - WP&L uses gas commodity swaps to reduce the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current market prices during the winter months. The notional amount of gas commodity swaps outstanding as of December 31, 1998, was 5.8 million dekatherms. Had WP&L terminated all of the agreements existing at December 31, 1998, it would have realized an estimated gain of $0.8 million. (c) Electricity Trading Joint Venture - IEC has a 50% interest in an electricity trading joint venture with Cargill Incorporated (Cargill) which is accounted for under the equity method of accounting. The joint venture's trading activities principally consist of marketing 84 and trading over-the-counter contracts for the purchase and sale of electricity. The majority of the forward contracts represent commitments to purchase or sell electricity at fixed prices in the future and require settlement by physical delivery of electricity or are netted out in accordance with industry trading standards. The value-at-risk of the joint venture for its forward contracts outstanding at December 31, 1998, was not significant. (12) COMMITMENTS AND CONTINGENCIES: (a) Construction and Acquisition Program - Plans for IEC's construction and acquisition program can be found elsewhere in this report in the "Liquidity and Capital Resources - Capital Requirements" section of MD&A. (b) Purchased-Power, Coal and Natural Gas Contracts IEC has entered into purchased-power capacity and coal contracts and its minimum commitments are as follows (dollars in millions, megawatt-hours (MWHs) and tons in thousands): Coal (including transportation Purchased-Power costs) --------------------------- -------------------------------- Dollars MWHs Dollars Tons ----------- ------------ ------------- --------------- 1999 $ 104.0 1,691 $ 49.2 11,560 2000 102.4 1,571 24.6 4,457 2001 71.0 925 15.7 2,695 2002 43.5 280 5.4 1,036 2003 36.2 280 0.3 95 IEC is in the process of negotiating several new coal contracts. In addition, it expects to supplement its coal contracts with spot market purchases to fulfill its future fossil fuel needs. IEC also has various natural gas supply, transportation and storage contracts outstanding. The minimum dekatherm commitments, in millions, for 1999-2003 are 194.8, 162.8, 146.8, 122.3 and 95.1, respectively. The minimum dollar commitments for 1999-2003, in millions, are $158.7, $95.9, $83.5, $58.8 and $46.1, respectively. The gas supply commitments are all index-based. IEC expects to supplement its natural gas supply with spot market purchases as needed. (c) Information Technology Services - In May 1998, IEC entered into an agreement, expiring in 2004, with Electronic Data Systems Corporation (EDS) for information technology services. IEC's anticipated operating and capital expenditures under the agreement for 1999 are estimated to total approximately $21 million. Future costs under the agreement are variable and are dependent upon IEC's level of usage of technological services from EDS. (d) Financial Guarantees and Commitments IEC has financial guarantees, which were generally issued to support third-party borrowing arrangements and similar transactions, amounting to $18.1 million outstanding at December 31, 1998. Such guarantees are not reflected in the consolidated financial statements. Management believes that the likelihood of IEC having to make any material cash payments under these agreements is remote. In addition, as part of IEC's electricity trading joint venture with Cargill, Cargill has made guarantees to certain counterparties regarding the performance of contracts entered into by the joint venture. Guarantees of approximately $50 million have been issued of which approximately $5 million were outstanding at December 31, 1998. Under the terms of the joint venture agreement, any payments required under the guarantees would be shared by IEC and Cargill on a 50/50 basis to the extent the joint venture is not able to reimburse the guarantor for payments made under the guarantee. 85 As of December 31, 1998, Alliant Energy Resources had extended commitments to provide $7.2 million in nonrecourse, fixed rate, permanent financing to developers which are secured by affordable housing properties. IEC anticipates other lenders will ultimately finance these properties. (e) Nuclear Insurance Programs- Public liability for nuclear accidents is governed by the Price Anderson Act of 1988, which sets a statutory limit of $9.8 billion for liability to the public for a single nuclear power plant incident and requires nuclear power plant operators to provide financial protection for this amount. As required, IESU provides this financial protection for a nuclear incident at DAEC through a combination of liability insurance ($200 million) and industry-wide retrospective payment plans ($9.6 billion). Under the industry-wide plan, each operating licensed nuclear reactor in the United States is subject to an assessment in the event of a nuclear incident at any nuclear plant in the United States. The owners of DAEC could be assessed a maximum of $88.1 million per nuclear incident, with a maximum of $10 million per incident per year (of which IESU's 70 % ownership portion would be approximately $61.7 million and $7 million, respectively) if losses relating to the incident exceeded $200 million. These limits are subject to adjustments for changes in the number of participants and inflation in future years. On a similar note, WP&L, as a 41% owner of Kewaunee, is subject to an overall assessment of approximately $36.1 million per incident, not to exceed $4.1 million payable in any given year. IESU and WP&L are members of Nuclear Electric Insurance Limited (NEIL). NEIL provides $1.9 billion of insurance coverage for IESU and $1.8 billion for WP&L on certain property losses for property damage, decontamination and premature decommissioning. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair and premature decommissioning. NEIL also provides separate coverage for additional expense incurred during certain outages. Owners of nuclear generating stations insured through NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. NEIL's accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the primary and excess property damage or additional expense coverages. However, IESU could be assessed annually a maximum of $1.9 million for NEIL primary property, $3.5 million for NEIL excess property and $0.7 million for NEIL additional expenses if losses exceed the accumulated reserve funds. WP&L could be assessed annually a maximum of $1.1 million for NEIL primary property, $2.0 million for NEIL excess property and $0.6 million for NEIL additional expense coverage. IESU and WP&L are not aware of any losses that they believe are likely to result in an assessment. In the unlikely event of a catastrophic loss at Kewaunee or DAEC, the amount of insurance available may not be adequate to cover property damage, decontamination and premature decommissioning. Uninsured losses, to the extent not recovered through rates, would be borne by IEC and could have a material adverse effect on IEC's financial position and results of operations. (f) Environmental Liabilities - IEC has recorded environmental liabilities of approximately $78.4 million on its Consolidated Balance Sheets at December 31, 1998. IEC's significant environmental liabilities are discussed below. Manufactured Gas Plant Sites IESU, WP&L and IPC all have current or previous ownership interests in properties previously associated with the production of gas at MGP sites for which they may be liable for investigation, remediation and monitoring costs relating to the sites. A summary of information relating to the sites is as follows:
IESU WP&L IPC Number of known sites for which liability may exist 34 14 9 Liability recorded at December 31, 1998 (millions) $26.6 $7.7 $17.5 Regulatory asset recorded at December 31, 1998 (millions) $26.6 $14.1 $17.5
86 The companies are working pursuant to the requirements of various federal and state agencies to investigate, mitigate, prevent and remediate, where necessary, the environmental impacts to property, including natural resources, at and around the sites in order to protect public health and the environment. The companies each believe that they have completed the remediation at various sites, although they are still in the process of obtaining final approval from the applicable environmental agencies for some of these sites. Each company records environmental liabilities based upon periodic studies, most recently updated in the fourth quarter of 1998, related to the MGP sites. Such amounts are based on the best current estimate of the remaining amount to be incurred for investigation, remediation and monitoring costs for those sites where the investigation process has been or is substantially completed, and the minimum of the estimated cost range for those sites where the investigation is in its earlier stages. It is possible that future cost estimates will be greater than current estimates as the investigation process proceeds and as additional facts become known. The amounts recognized as liabilities are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their fair value. Management currently estimates the range of remaining costs to be incurred for the investigation, remediation and monitoring of all IEC sites to be approximately $35 million to $66 million. IESU, WP&L and IPC currently estimate their share of the remaining costs to be incurred to be approximately $17 million to $36 million, $5 million to $9 million and $13 million to $21 million, respectively. Under the current rate making treatment approved by the PSCW, the MGP expenditures of WP&L, net of any insurance proceeds, are deferred and collected from gas customers over a five-year period after new rates are implemented. The MPUC also allows the deferral of MGP-related costs applicable to the Minnesota sites and IPC has been successful in obtaining approval to recover such costs in rates in Minnesota. While the IUB does not allow for the deferral of MGP-related costs, it has permitted utilities to recover prudently incurred costs. As a result, regulatory assets have been recorded by each company which reflect the probable future rate recovery, where applicable. Considering the current rate treatment, and assuming no material change therein, IESU, WP&L and IPC believe that the clean-up costs incurred for these MGP sites will not have a material adverse effect on their respective financial positions or results of operations. In April 1996, IESU filed a lawsuit against certain of its insurance carriers seeking reimbursement for its MGP-related costs. Settlement has been reached with all its carriers and all issues have been resolved. In 1994, IPC filed a lawsuit against certain of its insurance carriers to recover its MGP-related costs. Settlements have been reached with eight carriers. IPC is continuing its pursuit of additional recoveries but is unable to predict the amount of any additional recoveries they may realize. Amounts received from insurance carriers are being deferred by IESU and IPC pending a determination of the regulatory treatment of such recoveries. WP&L has settled with all of its carriers. National Energy Policy Act of 1992 The National Energy Policy Act of 1992 requires owners of nuclear power plants to pay a special assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases. IESU is recovering the costs associated with this assessment through its electric fuel adjustment clauses over the period the costs are assessed. IESU's 70% share of the future assessment at December 31, 1998 was $7.8 million and has been recorded as a liability with a related regulatory asset for the unrecovered amount. WP&L had a regulatory asset and a liability of $5.4 million and $4.6 million recorded at December 31, 1998, respectively. IEC continues to pursue relief from this assessment through litigation. Oil and Gas Properties Dismantlement and Abandonment Costs Whiting is responsible for certain dismantlement and abandonment costs related to various off-shore oil and gas platforms (and related on-shore plants and equipment), the most significant of which is located off the coast of California. Whiting estimates the total costs for these properties to be approximately $13 million and the most 87 significant expenditures are not expected to be incurred until 2004. In accordance with applicable accounting requirements, Whiting has accrued these costs resulting in a recorded liability of $13 million at December 31, 1998. (g) Spent Nuclear Fuel - The Nuclear Waste Policy Act of 1982 assigned responsibility to the U.S. Department of Energy (DOE) to establish a facility for the ultimate disposition of high level waste and spent nuclear fuel and authorized the DOE to enter into contracts with parties for the disposal of such material beginning in January 1998. IESU and WP&L entered into such contracts and have made the agreed payments to the Nuclear Waste Fund held by the U.S. Treasury. The companies were subsequently notified by the DOE that it was not able to begin acceptance of spent nuclear fuel by the January 31, 1998 deadline. Furthermore, the DOE has experienced significant delays in its efforts and material acceptance is now expected to occur no earlier than 2010 with the possibility of further delay being likely. IEC has participated in several litigation proceedings against the DOE on this issue and the respective courts have affirmed the DOE's responsibility for spent nuclear fuel acceptance. IEC is evaluating its options for recovery of damages due to the DOE's delay in accepting spent nuclear fuel. The Nuclear Waste Policy Act of 1982 assigns responsibility for interim storage of spent nuclear fuel to generators of such spent nuclear fuel, such as IESU and WP&L. In accordance with this responsibility, IESU and WP&L have been storing spent nuclear fuel on site at DAEC and Kewaunee, respectively, since plant operations began. IESU will have to increase its spent fuel storage capacity at DAEC to store all of the spent fuel that will be produced before the current license expires in 2014. To provide assurance that both the operating and post-shutdown storage needs are satisfied, construction of a dry cask modular facility is being contemplated. With minor modifications, Kewaunee would have sufficient fuel storage capacity to store all of the fuel it will generate through the end of the license life in 2013. No decisions have been made concerning post-shutdown storage needs. Legislation is being considered on the federal level that would, among other provisions, expand the DOE's permanent spent nuclear fuel storage to include interim storage for spent nuclear fuel as early as 2002. This legislation has been submitted in the U.S. House. The prospects for passage by the U.S. Congress, and subsequent successful implementation by the DOE, are uncertain at this time. (h) Decommissioning of DAEC and Kewaunee - Pursuant to the most recent electric rate case order, the IUB and PSCW allow IESU and WP&L to recover $6 million and $16 million annually for their share of the cost to decommission DAEC and Kewaunee, respectively. Decommissioning expense is included in "Depreciation and amortization" in the Consolidated Statements of Income and the cumulative amount is included in "Accumulated depreciation" on the Consolidated Balance Sheets to the extent recovered through rates. Additional information relating to the decommissioning of DAEC and Kewaunee includes (dollars in millions):
DAEC Kewaunee ------------------------- -------------------------- Assumptions relating to current rate recovery figures: IEC's share of estimated decommissioning cost $252.8 $189.7 Year dollars in 1993 1998 Method to develop estimate NRC minimum formula Site-specific study Annual inflation rate 4.91% 5.83% Decommissioning method Prompt dismantling and Prompt dismantling and removal removal Year decommissioning to commence 2014 2013 Average after-tax return on external investments 6.82% 6.21% External trust fund balance at December 31, 1998 $91.7 $134.1 Internal reserve at December 31, 1998 $21.7 - After-tax earnings on external trust funds in 1998 $2.7 $5.2
The rate recovery figures for DAEC only included an inflation estimate through 1997. Both IESU and WP&L are funding all rate recoveries for decommissioning into external trust funds and funding on a tax-qualified basis to the 88 extent possible. All of the rate recovery assumptions are subject to change in future regulatory proceedings. In accordance with their respective regulatory requirements, IESU and WP&L record the earnings on the external trust funds as interest income with a corresponding entry to interest expense at IESU and to depreciation expense at WP&L. The earnings accumulate in the external trust fund balances and in accumulated depreciation on utility plant. IESU's 70% share of the estimated cost to decommission DAEC based on the most recent site-specific study completed in 1998 is $334.2 million, in 1998 dollars. This study includes the costs to terminate DAEC's NRC license and to return the site to a greenfield condition. IESU's 70% share of the estimated cost to decommission DAEC based on the most recent NRC minimum formula is $347.0 in 1997 dollars. The NRC minimum formula is intended to apply only to the cost of terminating DAEC's NRC license. The additional decommissioning expense funding requirements which should result from these updated studies are not reflected in IESU's rates. (i) Legal Proceedings - IEC is involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although unable to predict the outcome of these matters, IEC believes that appropriate reserves have been established and final disposition of these actions will not have a material adverse effect on its financial position or results of operations. (13) JOINTLY-OWNED ELECTRIC UTILITY PLANT: Under joint ownership agreements with other Iowa and Wisconsin utilities, IESU, WP&L and IPC have undivided ownership interests in jointly-owned electric generating stations and related transmission facilities. Each of the respective owners is responsible for the financing of its portion of the construction costs. Kilowatt-hour generation and operating expenses are divided on the same basis as ownership with each owner reflecting its respective costs in its Consolidated Statements of Income. Information relative to IESU's, WP&L's and IPC's ownership interest in these facilities at December 31, 1998 is as follows (dollars in millions): 89
1998 1997 --------- ------------- -------- -------- ------------- ------- Accumulated Accumulated In-service Plant Provision Plant Provision Ownership Date MW Plant in for in for Interest % Capacity Service Depreciation CWIP Service Depreciation CWIP - -------------------- ----------- --------- --------- -- --------- ------------- -------- -- -------- ------------- ------- IESU Coal: Ottumwa Unit 1 48.0 1981 716 $193.1 $102.7 $0.8 $191.6 $96.6 $ - Neal Unit 3 28.0 1975 515 59.0 32.4 0.1 60.8 30.6 0.1 Nuclear: DAEC 70.0 1974 520 507.1 247.2 1.4 500.6 230.8 2.8 --------- ------------- -------- -------- ------------- ------- Total IESU $759.2 $382.3 $2.3 $753.0 $358.0 $2.9 WP&L Coal: Columbia Energy 1975 & Center 46.2 1978 1,023 $161.5 $93.8 $1.4 $161.4 $89.2 $0.8 Edgewater Unit 4 68.2 1969 330 52.4 30.8 0.4 51.5 29.5 1.0 Edgewater Unit 5 75.0 1985 380 229.0 85.9 0.2 229.4 79.8 0.1 Nuclear: Kewaunee Nuclear Power Plant 41.0 1974 535 132.2 93.7 6.4 132.0 86.6 0.3 --------- ------------- ------- --------- ------------ ------- Total WP&L $575.1 $304.2 $8.4 $574.3 $285.1 $2.2 IPC Coal: Neal Unit 4 21.5 1979 640 $82.1 $48.4 $1.5 $82.2 $45.8 $ - Louisa Unit 1 4.0 1983 738 24.7 11.7 - 24.7 10.9 - --------- ------------- ------- --------- ------------ ------- Total IPC $106.8 $60.1 $1.5 $106.9 $56.7 $ - --------- ------------- ------- --------- ------------ ------- Total IEC $1,441.1 $746.6 $12.2 $1,434.2 $699.8 $5.1 ========= ============= ======= ========= ============ =======
(14) SEGMENTS OF BUSINESS: In 1998, IEC adopted SFAS 131, "Disclosures About Segments of an Enterprise and Related Information." IEC's principal business segments are: o Regulated domestic utilities - consists of IEC's three regulated utility operating companies (IESU, WP&L, and IPC) serving customers in Iowa, Wisconsin, Minnesota and Illinois. The regulated domestic utility business is broken down into three segments which are: 1) electric operations; 2) gas operations; and 3) other, which includes the water and steam businesses as well as the unallocated portions of the utility business. o Nonregulated businesses - represents the operations of Alliant Energy Resources and its subsidiaries. This includes the company's domestic and international energy products and services businesses; industrial services, which includes environmental, engineering and transportation services; investments in affordable housing initiatives; and investments in various other strategic initiatives. o Other - includes the operations of IEC's parent company and Alliant Energy Corporate Services, as well as any reconciling/eliminating entries. Intersegment revenues were not material to IEC's operations and there was no single customer whose revenues exceeded 10% or more of IEC's consolidated revenues. Refer to Note 5(b) for a breakdown of IEC's international investments by country. 90 Certain financial information relating to IEC's significant business segments and products and services is presented below:
Regulated Domestic Utilities ----------------------------------------------- Nonregulated IEC Electric Gas Other Total Businesses Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1998 Operating revenues $1,567,442 $295,590 $31,235 $1,894,267 $238,676 ($2,069) $2,130,874 Depreciation and amortization expense 219,364 23,683 2,623 245,670 33,835 - 279,505 Operating income (loss) 271,511 16,027 5,598 293,136 (8,608) (1,226) 283,302 Interest expense, net 96,951 96,951 23,298 2,302 122,551 Preferred and preference 6,699 6,699 - - 6,699 dividends Net (income) loss from equity (858) (858) 2,197 - 1,339 method subsidiaries Miscellaneous, net (other than equity income/loss) 3,545 3,545 (7,973) 2,353 (2,075) Income tax expense (benefit) 77,257 77,257 (17,232) (1,912) 58,113 Net income (loss) 109,542 109,542 (8,898) (3,969) 96,675 Total assets 3,202,837 458,832 469,822 4,131,491 869,261 (41,415) 4,959,337 Investments in equity method subsidiaries 5,189 5,189 49,446 - 54,635 Construction and acquisition expenditures 233,638 33,200 2,295 269,133 102,925 - 372,058 - ------------------------------------------------------------------------------------------------------------------------------- 1997 - ---- Operating revenues $1,515,753 $393,907 $30,882 $1,940,542 $361,961 ($1,876) $2,300,627 Depreciation and amortization expense 201,742 21,553 2,432 225,727 33,936 - 259,663 Operating income (loss) 316,880 29,330 2,169 348,379 (6,818) (5,178) 336,383 Interest expense, net 95,734 95,734 23,197 (1,642) 117,289 Preferred and preference dividends 6,693 6,693 - - 6,693 Net (income) loss from equity method subsidiaries (32) (32) 849 - 817 Miscellaneous, net (other than equity income/loss) (8,257) (8,257) (8,282) 1,812 (14,727) Income tax expense (benefit) 101,739 101,739 (18,616) (1,390) 81,733 Net income (loss) 152,502 152,502 (3,966) (3,958) 144,578 Total assets 3,142,910 448,845 485,225 4,076,980 838,504 8,066 4,923,550 Investments in equity method subsidiaries 5,694 5,694 39,175 - 44,869 Construction and acquisition expenditures 217,023 33,984 5,753 256,760 71,280 - 328,040
91
Regulated Domestic Utilities ----------------------------------------------- Nonregulated IEC Electric Gas Other Total Businesses Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1996 - ---- Operating revenues $1,440,375 $375,955 $24,008 $1,840,338 $393,963 ($1,461) $2,232,840 Depreciation and amortization expense 180,989 18,124 1,891 201,004 31,359 - 232,363 Operating income (loss) 326,370 40,521 7,001 373,892 (6,666) (1,787) 365,439 Interest expense, net 86,084 86,084 17,859 3,804 107,747 Preferred and preference dividends 6,687 6,687 - - 6,687 Net (income) loss from equity method subsidiaries (372) (372) 18 - (354) Miscellaneous, net (other than equity income/loss) (1,390) (1,390) (9,968) (131) (11,489) Income tax expense (benefit) 115,033 115,033 (12,724) 3,451 105,760 Net income (loss) from continuing operations 167,850 167,850 (1,851) (8,911) 157,088 Discontinued operations - - (1,297) - (1,297) Net income (loss) 167,850 167,850 (3,148) (8,911) 155,791 Total assets 3,122,761 511,110 452,885 4,086,756 546,690 6,380 4,639,826 Investments in equity method subsidiaries 6,110 6,110 11,163 - 17,273 Construction and acquisition expenditures 247,323 34,738 15,135 297,196 115,078 - 412,274 Products and Services - --------------------- Revenues ---------------------------------------------------------------------------------------------------------------------- Regulated Domestic Utilities Nonregulated Businesses ------------------------------------ --------------------------------------------------------------------------------- Environmental Total Transportation, and Engineering Oil and Nonregulated Rents and Nonregulated Gas Year Electric Gas Other Services Production Energy Other Businesses - -------------------------------------------- --------------------------------------------------------------------------------- (in thousands) 1998 $1,567,442 $295,590 $31,235 $72,616 $64,622 $40,536 $60,902 $238,676 1997 1,515,753 393,907 30,882 78,105 68,922 151,128 63,806 361,961 1996 1,440,375 375,955 24,008 84,859 65,724 192,217 51,163 393,963
(15) DISCONTINUED OPERATIONS: IEC's financial statements reflect the discontinuance of operations of its utility energy and marketing consulting business in 1995. During 1996, IEC recognized a loss of $1.3 million, net of applicable income tax benefit, associated with the final disposition of the business. 92 (16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
Quarter Ended * ------------------------------------------------------------------------ March 31 June 30 September 30 December 31 ----------------- ---------------- ------------------ ----------------- (in thousands, except per share data) 1998** - ------ Operating revenues $556,283 $491,012 $555,313 $528,266 Operating income 73,880 32,627 122,196 54,599 Net income (loss) 28,875 (9,098) 51,704 25,194 Earnings per average common share (basic and diluted) 0.38 (0.12) 0.67 0.33 1997 - ---- Operating revenues $663,650 $493,842 $556,858 $586,277 Operating income 92,319 56,987 120,297 66,780 Net income 40,688 19,799 54,969 29,122 Earnings per average common share (basic and diluted) 0.54 0.26 0.72 0.38 * Financial results have been restated for all quarters presented with the exception of the third and fourth quarter of 1998 to reflect a change in accounting method for IEC's oil and gas properties implemented in the third quarter of 1998 from the full cost method to the successful efforts method. See Note 1(i) for additional information. **Net income for 1998 was impacted by the recording of approximately $10 million, $35 million, $6 million and $3 million of pre-tax merger-related expenses in the first, second, third and fourth quarters, respectively.
93 IES UTILITIES INC. FINANCIAL SECTION 94 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of IES Utilities Inc.: We have audited the accompanying consolidated balance sheets and statements of capitalization of IES Utilities Inc. (an Iowa corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IES Utilities Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 29, 1999 95
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $ 639,423 $ 604,270 $ 574,273 Gas utility 141,279 183,517 160,864 Steam and other 26,228 26,191 19,842 ---------------- ---------------- ---------------- 806,930 813,978 754,979 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 113,181 108,344 84,579 Purchased power 71,637 74,098 88,350 Cost of gas sold 84,642 126,631 103,877 Other operation 187,932 161,418 148,051 Maintenance 52,040 53,833 45,869 Depreciation and amortization 93,965 89,754 84,975 Taxes other than income taxes 48,537 46,130 43,603 ---------------- ---------------- ---------------- 651,934 660,208 599,304 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Operating income 154,996 153,770 155,675 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 52,354 52,791 43,714 Allowance for funds used during construction (3,351) (2,309) (2,103) Miscellaneous, net 2,589 2,279 7,243 ---------------- ---------------- ---------------- 51,592 52,761 48,854 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Income before income taxes 103,404 101,009 106,821 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Income taxes 41,494 42,216 43,092 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Net income 61,910 58,793 63,729 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Preferred dividend requirements 914 914 914 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Earnings available for common stock $ 60,996 $ 57,879 $ 62,815 ================ ================ ================ - -------------------------------------------------------------------------------------------------------- IES UTILITIES INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Year Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------- (in thousands) Balance at beginning of year $ 233,216 $ 231,337 $ 212,522 Net income 61,910 58,793 63,729 Cash dividends declared on common stock (18,840) (56,000) (44,000) Cash dividends declared on preferred stock (914) (914) (914) ---------------- ---------------- ---------------- Balance at end of year $ 275,372 $ 233,216 $ 231,337 ================ ================ ================ - -------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
96
IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1998 1997 - ----------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $ 2,140,322 $2,072,866 Gas 198,488 187,098 Steam 55,797 55,374 Common 106,940 90,342 ----------------- ----------------- 2,501,547 2,405,680 Less - Accumulated depreciation 1,209,204 1,115,261 ----------------- ----------------- 1,292,343 1,290,419 Construction work in progress 48,991 38,923 Leased nuclear fuel, net of amortization 25,644 36,731 ----------------- ----------------- 1,366,978 1,366,073 Other property, plant and equipment, net of accumulated depreciation and amortization of $1,948 and $1,709, respectively 5,623 5,762 ----------------- ----------------- 1,372,601 1,371,835 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 4,175 230 Temporary cash investments with associated companies 53,729 - Accounts receivable: Customer, less allowance for doubtful accounts of $1,058 and $630, respectively 16,703 29,259 Associated companies 2,662 907 Other, less allowance for doubtful accounts of $357 and $224, respectively 10,346 9,235 Production fuel, at average cost 11,863 10,579 Materials and supplies, at average cost 25,591 22,976 Gas stored underground, at average cost 12,284 17,192 Regulatory assets 23,487 36,330 Prepayments and other 4,185 11,680 ----------------- ----------------- 165,025 138,388 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 91,691 77,882 Other 6,019 5,167 ----------------- ----------------- 97,710 83,049 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 137,908 163,264 Deferred charges and other 15,734 12,393 ----------------- ----------------- 153,642 175,657 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- $ 1,788,978 $1,768,929 ================= ================= - ----------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
97
IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, CAPITALIZATION AND LIABILITIES 1998 1997 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $ 33,427 $ 33,427 Additional paid-in capital 279,042 279,042 Retained earnings 275,372 233,216 ------------------ ----------------- Total common equity 587,841 545,685 Cumulative preferred stock, not mandatorily redeemable 18,320 18,320 Long-term debt (excluding current portion) 602,020 651,848 ------------------ ----------------- 1,208,181 1,215,853 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 50,140 140 Capital lease obligations 11,965 13,183 Accounts payable 43,953 60,546 Accounts payable to associated companies 22,487 2,736 Accrued payroll and vacations 6,365 7,615 Accrued interest 12,045 12,230 Accrued taxes 55,295 58,996 Accumulated refueling outage provision 6,605 10,606 Environmental liabilities 5,660 4,054 Other 17,617 11,533 ------------------ ----------------- 232,132 181,639 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 224,510 238,829 Accumulated deferred investment tax credits 29,243 31,838 Environmental liabilities 29,195 38,256 Pension and other benefit obligations 25,655 17,334 Capital lease obligations 13,679 23,548 Other 26,383 21,632 ------------------ ----------------- 348,665 371,437 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 12) - -------------------------------------------------------------------------------------------------------------------- $ 1,788,978 $ 1,768,929 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
98
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) Cash flows from operating activities: Net income $ 61,910 $ 58,793 $ 63,729 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 93,965 89,754 84,975 Amortization of leased nuclear fuel 12,513 14,774 16,491 Amortization of deferred energy efficiency expenditures 18,707 10,987 5,453 Deferred taxes and investment tax credits (17,921) (16,059) 7,763 Refueling outage provision (4,001) 9,290 (6,374) Impairment of regulatory assets 8,969 - - Other (346) 3,952 4,602 Other changes in assets and liabilities: Accounts receivable 9,690 (5,670) (6,200) Production fuel (1,284) 2,743 (1,168) Materials and supplies (2,615) (1,261) 4,811 Gas stored underground 4,908 (3,740) (551) Accounts payable 3,158 (11,198) 12,147 Accrued taxes (3,701) 18,043 (9,416) Adjustment clause balances 8,829 5,354 (13,900) Benefit obligations and other 13,332 14,538 8,293 ----------------- ----------------- ----------------- Net cash flows from operating activities 206,113 190,300 170,655 ----------------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from (used for) financing activities: Common stock dividends declared (18,840) (56,000) (44,000) Dividends payable 4,840 - - Preferred stock dividends (914) (914) (914) Proceeds from issuance of long-term debt 10,000 190,000 60,000 Reductions in long-term debt (10,140) (63,140) (15,140) Net change in short-term borrowings - (135,000) 25,112 Principal payments under capital lease obligations (13,250) (12,964) (19,108) Other (137) (871) (420) ----------------- ----------------- ----------------- Net cash flows from (used for) financing activities (28,441) (78,889) 5,530 ----------------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash flows used for investing activities: Construction expenditures (115,371) (108,966) (143,648) Deferred energy efficiency expenditures - (8,450) (16,857) Nuclear decommissioning trust funds (6,008) (6,008) (6,008) Other 1,381 635 (798) ----------------- ----------------- ----------------- Net cash flows used for investing activities (119,998) (122,789) (167,311) ----------------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and temporary cash investments 57,674 (11,378) 8,874 ----------------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at beginning of period 230 11,608 2,734 ----------------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at end of period $ 57,904 $ 230 $ 11,608 ================= ================= ================= - ------------------------------------------------------------------------------------------------------------------------------ Supplemental cash flow information: Cash paid during the period for: Interest $ 50,177 $ 46,377 $ 44,275 ================= ================= ================= Income taxes $ 41,017 $ 41,422 $ 45,383 ================= ================= ================= Noncash investing and financing activities - Capital lease obligations incurred $ 1,426 $ 16,781 $ 14,281 ================= ================= ================= - ------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
99
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity: Common stock - $2.50 par value - authorized 24,000,000 shares; 13,370,788 shares outstanding $ 33,427 $ 33,427 Additional paid-in capital 279,042 279,042 Retained earnings 275,372 233,216 ------------------ ------------------ 587,841 545,685 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Cumulative, par value $50 per share, not mandatorily redeemable - authorized 466,406 shares; 366,406 shares outstanding: 6.10% series, 100,000 shares outstanding 5,000 5,000 4.80% series, 146,406 shares outstanding 7,320 7,320 4.30% series, 120,000 shares outstanding 6,000 6,000 ------------------ ------------------ 18,320 18,320 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt: Collateral Trust Bonds: 7.65% series, due 2000 50,000 50,000 7.25% series, due 2006 60,000 60,000 6-7/8% series, due 2007 55,000 55,000 6% series, due 2008 50,000 50,000 7% series, due 2023 50,000 50,000 5.5% series, due 2023 19,400 19,400 ------------------ ------------------ 284,400 284,400 First Mortgage Bonds: Series Y, 8-5/8%, due 2001 60,000 60,000 Series Z, 7.6%, due 1999 50,000 50,000 9-1/8% series, due 2001 21,000 21,000 7-1/4% series, due 2007 30,000 30,000 ------------------ ------------------ 161,000 161,000 Pollution control obligations: 5.75%, due serially 1999 to 2003 3,136 3,276 5.95%, retired in 1998 - 10,000 Variable rate (4.20% at December 31, 1998), due 2000 to 2010 11,100 11,100 Variable/fixed rate series 1998 (4.25% through 2003), due 2023 10,000 - ------------------ ------------------ 24,236 24,376 Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000 Senior Debentures, 6-5/8%, due 2009 135,000 135,000 ------------------ ------------------ 654,636 654,776 ------------------ ------------------ Less: Current maturities (50,140) (140) Unamortized debt premium and (discount), net (2,476) (2,788) ------------------ ------------------ 602,020 651,848 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- $ 1,208,181 $ 1,215,853 ================== ================== - ---------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
100 IES UTILITIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Interstate Energy Corporation (IEC) Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to IES Utilities Inc. (IESU). IEC Notes 1(e), 1(i), 1(n), 5, 8, 11 and 15 do not relate to IESU and, therefore, are not incorporated by reference. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (a) General - The Consolidated Financial Statements include the accounts of IESU and its consolidated subsidiaries. IESU is a subsidiary of IEC. IEC is currently doing business as Alliant Energy Corporation. IESU is engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and steam services. All of IESU's retail customers are located in Iowa. IESU's principal consolidated subsidiary is IES Ventures Inc. (o) Comprehensive Income - IESU had no other comprehensive income in the periods presented. (3) LEASES: IESU's operating lease rental expenses for 1998, 1997 and 1996 were $9.0 million, $8.3 million and $9.0 million, respectively. IESU's future minimum lease payments by year are as follows (in thousands): Capital Operating Year Leases Leases ------------------------------------ --------------- ---------------- 1999 $ 12,278 $ 9,053 2000 8,037 7,750 2001 4,324 4,852 2002 2,660 2,511 2003 547 1,868 Thereafter 108 2,325 --------------- ---------------- 27,954 $ 28,359 ================ Less: Amount representing interest 2,310 Present value of net minimum --------------- capital lease payments $ 25,644 =============== (6) INCOME TAXES: The components of federal and state income taxes for IESU for the years ended December 31 were as follows (in millions):
1998 1997 1996 ---------------- -------------- --------------- Current tax expense $ 59.4 $ 58.3 $ 35.3 Deferred tax expense (15.3) (13.5) 10.4 Amortization of investment tax credits (2.6) (2.6) (2.6) ---------------- -------------- --------------- $ 41.5 $ 42.2 $ 43.1 ================ ============== ===============
101 The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes.
1998 1997 1996 ------------- ------------- ------------ Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 6.6 7.0 6.9 Effect of ratemaking on property related differences 1.5 3.5 2.9 Amortization of investment tax credits (2.5) (2.6) (2.5) Adjustment of prior period taxes (1.4) (1.4) (3.3) Other items, net 0.9 0.3 1.3 ------------- ------------- ------------ Overall effective income tax rate 40.1% 41.8% 40.3% ============= ============= ============
The accumulated deferred income taxes (assets) and liabilities as set forth below on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 1998 1997 --------------- -------------- Property related $ 275.7 $ 269.9 Investment tax credit related (20.8) (22.7) Decommissioning related (15.9) (15.7) Other (14.5) 7.3 --------------- -------------- $ 224.5 $ 238.8 =============== ============== (7) BENEFIT PLANS: (a) Pension Plans and Other Postretirement Benefits IESU adopted Statement of Financial Accounting Standards (SFAS) 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" in 1998. IESU has a non-contributory defined benefit pension plan that covers substantially all of its employees who are subject to a collective bargaining agreement. Plan benefits are generally based on years of service and compensation during the employees' latter years of employment. Effective in 1998, eligible employees of IESU that are not subject to a collective bargaining agreement are covered by the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit pension plan. The projected unit credit actuarial cost method was used to compute pension cost and the accumulated and projected benefit obligations. IESU's policy is to fund the pension plan at an amount that is at least equal to the minimum funding requirements mandated by the Employee Retirement Income Security Act of 1974 (ERISA) and that does not exceed the maximum tax deductible amount for the year. IESU also provides certain other postretirement benefits to retirees, including medical benefits for retirees and their spouses (and Medicare Part B reimbursement for certain retirees) and, in some cases, retiree life insurance. IESU's funding of other postretirement benefits generally approximates the annual rate recovery of such costs. The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------ --------------------------------------- 1998 1997 1996 1998 1997 1996 ----------- ------------------------ ----------- --------------------------- Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 4.75% 4.75% N/A N/A N/A Medical cost trend on covered charges: Initial trend range N/A N/A N/A 8% 8% 9% Ultimate trend range N/A N/A N/A 6.0% 6.5% 6.5%
102 The components of IESU's qualified pension benefits and other postretirement benefits costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------- 1998 1997 1996 1998 1997 1996 ---------- ---------- --------- -------- -------- --------- Service cost $ 2.9 $ 5.4 $ 5.4 $ 1.5 $ 1.5 $ 1.7 Interest cost 8.0 14.1 12.4 4.2 3.5 3.6 Expected return on plan assets (11.3) (15.1) (14.6) (1.1) (0.7) (0.4) Amortization of: Transition obligation (asset) (0.2) (0.3) (0.3) 1.9 1.9 2.0 Prior service cost 0.9 1.8 1.3 - - - Actuarial gain (0.4) - (0.1) - - - ---------- ---------- --------- -------- -------- --------- Total $ (0.1) $ 5.9 $ 4.1 $ 6.5 $ 6.2 $ 6.9 ========== ========== ========= ======== ======== =========
During 1997 and 1996, IESU recognized an additional $3.8 million and $4.5 million, respectively, of costs in accordance with SFAS 88. The charges were for severance and early retirement programs in the respective years. In addition, during 1998, IESU recognized $1.2 million of curtailment charges relating to IESU's other postretirement benefits. The amounts include a December 1998 early retirement program. The pension benefit cost shown above (and in the following tables) for 1998 represents only the pension benefit cost for bargaining unit employees of IESU covered under the bargaining unit pension plan that is sponsored by IESU. The pension benefit cost for IESU's non-bargaining employees who are now participants in other IEC plans was $2.7 million for 1998, including a special charge of $1.9 million for severance and early retirement window programs. In addition, Alliant Energy Corporate Services, Inc. (Alliant Energy Corporate Services) provides services to IESU. The allocated pension benefit costs associated with these services was $0.5 million for 1998. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all IESU employees. The allocated other postretirement benefit cost associated with Alliant Energy Corporate Services for IESU was $0.2 million for 1998. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 1998, holding all other assumptions constant, would have the following effects (in millions):
1 Percent 1 Percent Increase Decrease --------------- --------------- Effect on total of service and interest cost components $1.2 ($0.9) Effect on postretirement benefit obligation $9.2 ($7.4)
103 A reconciliation of the funded status of IESU's plans to the amounts recognized on IESU's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits ----------------------------- ------------------------------- 1998 1997 1998 1997 ------------ ------------ ------------- ------------- Change in benefit obligation: Net benefit obligation at beginning of year $ 206.1 $ 179.4 $ 50.8 $ 48.0 Transfer of obligation (to)/from other IEC plans (99.1) - 2.3 - Service cost 2.9 5.4 1.5 1.5 Interest cost 8.0 14.1 4.2 3.5 Plan participants' contributions - - 0.4 0.3 Plan amendments - 7.4 - - Actuarial (gain) / loss 2.2 6.2 8.2 - Curtailments - 2.5 0.4 - Special termination benefits - 3.8 - - Gross benefits paid (7.0) (12.7) (2.6) (2.5) ------------ ------------ ------------- ------------- Net benefit obligation at end of year 113.1 206.1 65.2 50.8 ------------ ------------ ------------- ------------- Change in plan assets: Fair value of plan assets at beginning of year 225.7 205.7 19.9 12.3 Transfer of assets to other IEC plans (97.5) - - - Actual return on plan assets (2.5) 32.7 0.1 2.4 Employer contributions - - 2.7 7.4 Plan participants' contributions - - 0.4 0.3 401(h) assets recognized - - 1.2 - Gross benefits paid (7.0) (12.7) (2.6) (2.5) ------------ ------------ ------------- ------------- Fair value of plan assets at end of year 118.7 225.7 21.7 19.9 ------------ ------------ ------------- ------------- Funded status at end of year 5.6 19.6 (43.5) (30.9) Unrecognized net actuarial (gain) / loss (7.3) (41.7) 5.7 (4.3) Unrecognized prior service cost 9.8 20.1 (0.3) - Unrecognized net transition obligation (asset) (1.6) (2.6) 25.9 29.1 ------------ ------------ ------------- ------------- Net amount recognized at end of year $ 6.5 $ (4.6) $ (12.2) $ (6.1) ============ ============ ============= ============= Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $ 6.5 $ - $ - $ - Accrued benefit cost - (4.6) (12.2) (6.1) ------------ ------------ ------------- ------------- Net amount recognized at measurement date 6.5 (4.6) (12.2) (6.1) ------------ ------------ ------------- ------------- Contributions paid after 9/30 and prior to 12/31 - - 3.6 - ------------ ------------ ------------- ------------- Net amount recognized at 12/31/98 $ 6.5 $ (4.6) $ (8.6) $ (6.1) ============ ============ ============= =============
IEC sponsors a non-qualified pension plan which covers certain current and former officers. The pension expense allocated to IESU for this plan was $1.4 million, $2.3 million and $0.8 million in 1998, 1997 and 1996, respectively. IESU employees also participate in defined contribution pension plans (401(k) plans) covering substantially all employees. IESU's contributions to the plans, which are based on the participants' level of contribution, were $2.8 million, $1.2 million and $1.5 million in 1998, 1997 and 1996, respectively. 104 (9) DEBT: (a) Short-Term Debt - Information regarding short-term debt is as follows (dollars in millions):
1998 1997 1996 --------------- --------------- --------------- As of end of year - Commercial paper outstanding - - $ 110.0 Notes payable outstanding - - $ 25.0 Discount rates on commercial paper N/A N/A 5.37-6.05% Interest rates on notes payable N/A N/A 6.20-6.59% For the year ended - Average amount of short-term debt (based on daily outstanding balances) - $ 88.4 $ 120.1 Average interest rate on short-term debt N/A 5.58% 5.52%
(b) Long-Term Debt - Debt maturities (excluding periodic sinking fund requirements, which will not require additional cash expenditures) for 1999 to 2003 are $50.1 million, $51.2 million, $81.5 million, $0.6 million and $4.1 million, respectively. Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) for a further discussion of IESU's debt. (10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: o Current Assets and Current Liabilities - The carrying amount approximates fair value because of the short maturity of such financial instruments. o Nuclear Decommissioning Trust Funds - The carrying amount represents the fair value of these trust funds, as reported by the trustee. The balance of the "Nuclear decommissioning trust funds" as shown on the Consolidated Balance Sheets included $24.3 million and $19.3 million of net unrealized gains at December 31, 1998 and December 31, 1997, respectively, on the investments held in the trust funds. The accumulated reserve for decommissioning costs was adjusted by a corresponding amount. o Cumulative Preferred Stock - Based upon the market yield of similar securities and quoted market prices. o Long-Term Debt - Based upon the market yield of similar securities and quoted market prices. The following table presents the carrying amount and estimated fair value of certain financial instruments for IESU as of December 31 (in millions):
1998 1997 --------------------------- ---------------------------- Carrying Fair Carrying Fair Value Value Value Value ------------ ----------- ------------ ----------- Nuclear decommissioning trust funds $ 92 $ 92 $ 78 $ 78 Cumulative preferred stock 18 15 18 13 Long-term debt, including current portion 652 687 652 678
105 Since IESU is subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of its financial instruments may not be realized by IESU's parent. (12) COMMITMENTS AND CONTINGENCIES: (b) Purchased-Power, Coal and Natural Gas Contracts IESU has entered into purchased-power capacity and coal contracts and its minimum commitments are as follows (dollars in millions, megawatt-hours (MWHs) and tons in thousands): Coal Purchased-Power (including transportation costs) --------------------------- -------------------------------- Dollars MWHs Dollars Tons ----------- ------------ ------------- --------------- 1999 $ 6.9 220 $ 14.1 2,028 2000 4.8 - 9.9 1,162 2001 5.0 - 6.4 885 2002 2.8 - 0.5 135 2003 2.9 - 0.2 45 IESU is in the process of negotiating several new coal contracts. In addition, it expects to supplement its coal contracts with spot market purchases to fulfill its future fossil fuel needs. IESU also has various natural gas supply, transportation and storage contracts outstanding. The minimum dekatherm commitments, in millions, for 1999-2003 are 90.0, 79.5, 78.8, 75.0 and 70.0, respectively. The minimum dollar commitments for 1999-2003, in millions, are $56.4, $35.9, $33.6, $27.6 and $26.2, respectively. The gas supply commitments are all index-based. IESU expects to supplement its natural gas supply with spot market purchases as needed. (c) Information Technology Services - In May 1998, IEC entered into an agreement, expiring in 2004, with Electronic Data Systems Corporation (EDS) for information technology services. IESU's anticipated operating and capital expenditures under the agreement for 1999 are estimated to total approximately $17.6 million. Future costs under the agreement are variable and are dependent upon IESU's level of usage of technological services from EDS. (d) Financial Guarantees and Commitments IESU has financial guarantees, which were generally issued to support third-party borrowing arrangements and similar transactions, amounting to $17.9 million outstanding at December 31, 1998. Such guarantees are not reflected in the consolidated financial statements. Management believes that the likelihood of IESU having to make any material cash payments under these agreements is remote. 106 (16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
Quarter Ended ------------------------------------------------------------------------ March 31 June 30 September 30 December 31 ----------------- --------------- ----------------- ------------------ (in thousands) 1998 * Operating revenues $208,278 $174,733 $222,190 $201,729 Operating income 34,289 21,756 69,940 29,011 Net income 11,660 2,961 30,637 16,652 Earnings available for common stock 11,431 2,732 30,408 16,425 1997 Operating revenues $226,398 $169,623 $205,711 $212,246 Operating income 32,588 26,574 63,987 30,621 Net income 11,851 6,891 28,636 11,415 Earnings available for common stock 11,622 6,662 28,407 11,188 * Earnings in 1998 were impacted by the recording of approximately $2 million, $10 million, $3 million and $2 million of pre-tax merger-related expenses in the first, second, third and fourth quarters, respectively.
107 WISCONSIN POWER AND LIGHT COMPANY FINANCIAL SECTION 108 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of Wisconsin Power and Light Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of Wisconsin Power and Light Company (a Wisconsin corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wisconsin Power and Light Company and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 29, 1999 109
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $ 614,704 $ 634,143 $ 589,482 Gas utility 111,737 155,883 165,627 Water 5,007 4,691 4,166 ---------------- ---------------- ---------------- 731,448 794,717 759,275 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Operating expenses: Electric production fuels 120,485 116,812 114,470 Purchased power 113,936 125,438 81,108 Cost of gas sold 61,409 99,267 104,830 Other operation 143,666 131,398 140,339 Maintenance 49,912 48,058 46,492 Depreciation and amortization 119,221 104,297 84,942 Taxes other than income taxes 30,169 30,338 29,206 ---------------- ---------------- ---------------- 638,798 655,608 601,387 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Operating income 92,650 139,109 157,888 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 36,584 32,607 31,472 Allowance for funds used during construction (3,049) (2,775) (3,208) Miscellaneous, net (1,129) (3,796) (6,669) ---------------- ---------------- ---------------- 32,406 26,036 21,595 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Income before income taxes 60,244 113,073 136,293 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Income taxes 24,670 41,839 53,808 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Net income 35,574 71,234 82,485 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Preferred dividend requirements 3,310 3,310 3,310 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Earnings available for common stock $ 32,264 $ 67,924 $ 79,175 ================ ================ ================ - --------------------------------------------------------------------------------------------------------- WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Year Ended December 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- (in thousands) Balance at beginning of year $ 320,386 $ 310,805 $ 297,717 Net income 35,574 71,234 82,485 Cash dividends declared on common stock (58,341) (58,343) (66,087) Cash dividends declared on preferred stock (3,310) (3,310) (3,310) ---------------- ---------------- ---------------- Balance at end of year $ 294,309 $ 320,386 $ 310,805 ================ ================ ================ - --------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
110
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1998 1997 - -------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $ 1,839,545 $ 1,790,641 Gas 244,518 237,856 Water 26,567 24,864 Common 219,268 195,815 ---------------- ---------------- 2,329,898 2,249,176 Less - Accumulated depreciation 1,168,830 1,065,726 ---------------- ---------------- 1,161,068 1,183,450 Construction work in progress 56,994 42,312 Nuclear fuel, net of amortization 18,671 19,046 ---------------- ---------------- 1,236,733 1,244,808 Other property, plant and equipment, net of accumulated depreciation and amortization of $44 for both years 630 684 ---------------- ---------------- 1,237,363 1,245,492 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 1,811 2,492 Accounts receivable: Customer 13,372 20,928 Associated companies 3,019 5,017 Other 8,298 11,589 Production fuel, at average cost 20,105 18,857 Materials and supplies, at average cost 20,025 19,274 Gas stored underground, at average cost 10,738 12,504 Prepaid gross receipts tax 22,222 22,153 Other 6,987 4,824 ---------------- ---------------- 106,577 117,638 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 134,112 112,356 Other 15,960 14,877 ---------------- ---------------- 150,072 127,233 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 133,501 120,826 Deferred charges and other 57,637 53,415 ---------------- ---------------- 191,138 174,241 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- $ 1,685,150 $ 1,664,604 ================ ================ - -------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
111
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, CAPITALIZATION AND LIABILITIES 1998 1997 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $ 66,183 $ 66,183 Additional paid-in capital 199,438 199,170 Retained earnings 294,309 320,386 ------------------ ----------------- Total common equity 559,930 585,739 ------------------ ----------------- Cumulative preferred stock, not mandatorily redeemable 59,963 59,963 Long-term debt (excluding current portion) 414,579 354,540 ------------------ ----------------- 1,034,472 1,000,242 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities - 8,899 Variable rate demand bonds 56,975 56,975 Commercial paper - 81,000 Notes payable 50,000 - Notes payable to associated companies 26,799 - Accounts payable 84,754 85,617 Accounts payable to associated companies 20,315 - Accrued payroll and vacations 5,276 12,221 Accrued interest 6,863 6,317 Other 14,600 25,162 ------------------ ----------------- 265,582 276,191 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 245,489 251,709 Accumulated deferred investment tax credits 33,170 35,039 Customer advances 34,367 34,240 Environmental liabilities 11,683 13,738 Other 60,387 53,445 ------------------ ----------------- 385,096 388,171 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 12) - -------------------------------------------------------------------------------------------------------------------- $ 1,685,150 $ 1,664,604 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
112
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $ 35,574 $ 71,234 $ 82,485 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 119,221 104,297 84,942 Amortization of nuclear fuel 5,356 3,534 4,845 Deferred taxes and investment tax credits (7,529) 3,065 6,306 (Gain) loss on disposition of other property and equipment 38 710 (5,676) Other (2,127) (2,033) (2,270) Other changes in assets and liabilities: Accounts receivable 12,845 (3,314) (250) Production fuel (1,248) (3,016) (1,216) Materials and supplies (751) 641 696 Gas stored underground 1,766 (2,512) (3,673) Prepaid gross receipts tax (69) (2,764) (1,087) Accounts payable 19,452 (7,102) 10,291 Benefit obligations and other (5,207) (12,809) 16,834 ---------------- ---------------- ---------------- Net cash flows from operating activities 177,321 149,931 192,227 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Cash flows used for financing activities: Common stock dividends (58,341) (58,343) (66,087) Preferred stock dividends (3,310) (3,310) (3,310) Proceeds from issuance of long-term debt 60,000 105,000 - Reductions in long-term debt (8,899) (55,000) (5,000) Net change in short-term borrowings (4,201) 11,500 (3,000) Other (1,966) (2,601) - ---------------- ---------------- ---------------- Net cash flows used for financing activities (16,717) (2,754) (77,397) ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Construction expenditures (117,143) (119,232) (123,942) Nuclear decommissioning trust funds (14,297) (11,427) (9,986) Additions to nuclear fuel (4,981) (3,212) (5,344) Proceeds from sale of other property and equipment 53 4 36,613 Shared savings expenditures (24,355) (17,610) (5,196) Other (562) 2,625 (7,479) ---------------- ---------------- ---------------- Net cash flows used for investing activities (161,285) (148,852) (115,334) ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Net decrease in cash and temporary cash investments (681) (1,675) (504) ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 2,492 4,167 4,671 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $ 1,811 $ 2,492 $ 4,167 ================ ================ ================ - --------------------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Cash paid during the period for: Interest $ 33,368 $ 32,955 $ 29,092 ================ ================ ================ Income taxes $ 31,951 $ 37,407 $ 48,622 ================ ================ ================ - --------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
113
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity: Common stock - $5.00 par value - authorized 18,000,000 shares; 13,236,601 shares outstanding $ 66,183 $ 66,183 Additional paid-in capital 199,438 199,170 Retained earnings 294,309 320,386 ------------------ ------------------ 559,930 585,739 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Cumulative, without par value, not mandatorily redeemable - authorized 3,750,000 shares, maximum aggregate stated value $150,000,000: $100 stated value - 4.50% series, 99,970 shares outstanding 9,997 9,997 $100 stated value - 4.80% series, 74,912 shares outstanding 7,491 7,491 $100 stated value - 4.96% series, 64,979 shares outstanding 6,498 6,498 $100 stated value - 4.40% series, 29,957 shares outstanding 2,996 2,996 $100 stated value - 4.76% series, 29,947 shares outstanding 2,995 2,995 $100 stated value - 6.20% series, 150,000 shares outstanding 15,000 15,000 $25 stated value - 6.50% series, 599,460 shares outstanding 14,986 14,986 ------------------ ------------------ 59,963 59,963 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt: First Mortgage Bonds: Series L, 6.25%, retired in 1998 - 8,899 1984 Series A, variable rate (3.85% at December 31, 1998), due 2014 8,500 8,500 1988 Series A, variable rate (4.20% at December 31, 1998), due 2015 14,600 14,600 1990 Series V, 9.3%, due 2025 27,000 27,000 1991 Series A, variable rate (5.15% at December 31, 1998), due 2015 16,000 16,000 1991 Series B, variable rate (5.15% at December 31, 1998), due 2005 16,000 16,000 1991 Series C, variable rate (5.15% at December 31, 1998), due 2000 1,000 1,000 1991 Series D, variable rate (5.15% at December 31, 1998), due 2000 875 875 1992 Series W, 8.6%, due 2027 90,000 90,000 1992 Series X, 7.75%, due 2004 62,000 62,000 1992 Series Y, 7.6%, due 2005 72,000 72,000 ------------------ ------------------ 307,975 316,874 Debentures, 7%, due 2007 105,000 105,000 Debentures, 5.7%, due 2008 60,000 - ------------------ ------------------ 472,975 421,874 ------------------ ------------------ Less: Current maturities - (8,899) Variable rate demand bonds (56,975) (56,975) Unamortized debt premium and (discount), net (1,421) (1,460) ------------------ ------------------ 414,579 354,540 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- $ 1,034,472 $ 1,000,242 ================== ================== - ---------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
114 WISCONSIN POWER AND LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Interstate Energy Corporation (IEC) Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to Wisconsin Power and Light Company (WP&L). IEC Notes 1(e), 1(i), 1(n), 5, 8(b), 11(c), and 15 do not relate to WP&L and, therefore, are not incorporated by reference. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (a) General - The Consolidated Financial Statements include the accounts of WP&L and its consolidated subsidiaries. WP&L is a subsidiary of IEC. IEC is currently doing business as Alliant Energy Corporation. WP&L is engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and water services. Nearly all of WP&L's retail customers are located in south and central Wisconsin. WP&L's principal consolidated subsidiary is South Beloit Water, Gas and Electric Company. (o) Comprehensive Income - WP&L had no other comprehensive income in the periods presented. (3) LEASES: WP&L's operating lease rental expenses for 1998, 1997 and 1996 were $6.4 million, $5.5 million and $5.3 million, respectively. WP&L's future minimum lease payments by year are as follows (in thousands): Operating Year Leases ---------------------- ------------------ 1999 $ 7,772 2000 6,948 2001 5,925 2002 5,303 2003 4,146 Thereafter 26,042 ------------------ $ 56,136 ================== (6) INCOME TAXES: The components of federal and state income taxes for WP&L for the years ended December 31 were as follows (in millions):
1998 1997 1996 ---------------- -------------- --------------- Current tax expense $ 32.2 $ 38.8 $ 47.5 Deferred tax expense (5.6) 4.9 8.2 Amortization of investment tax credits (1.9) (1.9) (1.9) ---------------- -------------- --------------- $ 24.7 $ 41.8 $ 53.8 ================ ============== ===============
115 The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes.
1998 1997 1996 -------------- -------------- ------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 7.8 5.7 6.1 Amortization of investment tax credits (3.1) (1.7) (1.4) Adjustment of prior period taxes - (2.1) 0.4 Merger expenses 2.5 0.3 0.4 Amortization of excess deferred taxes (2.5) (1.3) (1.3) Other items, net 1.3 1.1 0.3 -------------- -------------- ------------- Overall effective income tax rate 41.0% 37.0% 39.5% ============== ============== =============
The accumulated deferred income taxes (assets) and liabilities as set forth below on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 1998 1997 --------------- -------------- Property related $ 282.7 $ 287.2 Investment tax credit related (22.2) (23.5) Decommissioning related (17.5) (16.0) Other 2.5 4.0 --------------- -------------- $ 245.5 $ 251.7 =============== ============== (7) BENEFIT PLANS: (a) Pension Plans and Other Postretirement Benefits WP&L adopted Statement of Financial Accounting Standard (SFAS) 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" in 1998. WP&L has a noncontributory, defined benefit pension plan covering substantially all employees who are subject to a collective bargaining agreement. The benefits are based upon years of service and levels of compensation. Effective in 1998, eligible employees of WP&L that are not subject to a collective bargaining agreement are covered by the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit pension plan. The projected unit credit actuarial cost method was used to compute pension cost and the accumulated and projected benefit obligations. WP&L's policy is to fund the pension cost in an amount that is at least equal to the minimum funding requirements mandated by the Employee Retirement Income Security Act of 1974 (ERISA), and that does not exceed the maximum tax deductible amount for the year. WP&L also provides certain other postretirement benefits to retirees, including medical benefits for retirees and their spouses (and Medicare Part B reimbursement for certain retirees) and, in some cases, retiree life insurance. WP&L's funding of other postretirement benefits generally approximates the maximum tax deductible amount on an annual basis. The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------------- 1998 1997 1996 1998 1997 1996 ------------ ----------- ------------ ------------------------ --------------- Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 3.5-4.5% 3.5-4.5% 3.5% 3.5% 3.5-4.5% Medical cost trend on covered charges: Initial trend range N/A N/A N/A 8% 8% 9% Ultimate trend range N/A N/A N/A 5% 5% 5%
116 The components of WP&L's qualified pension benefits and other postretirement benefits costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------- 1998 1997 1996 1998 1997 1996 ---------- ----------- --------- -------- -------- --------- Service cost $ 3.2 $ 4.8 $ 5.1 $ 1.7 $ 1.8 $ 1.8 Interest cost 8.5 13.9 13.6 2.6 3.3 3.4 Expected return on plan assets (12.8) (19.2) (17.9) (1.5) (1.1) (1.0) Amortization of: Transition obligation (asset) (2.1) (2.4) (2.4) 1.3 1.5 1.5 Prior service cost 0.5 0.4 0.3 - - - Actuarial (gain)/loss - - 0.5 (1.1) (0.3) - ---------- ----------- --------- -------- -------- --------- Total $ (2.7) $ (2.5) $ (0.8) $ 3.0 $ 5.2 $ 5.7 ========== =========== ========= ======== ======== =========
During 1998 and 1997, WP&L recognized an additional $0.6 million and $1.3 million, respectively, of costs in accordance with SFAS 88. The charges were for severance and early retirement programs in the respective years. In addition, during 1998 and 1997, WP&L recognized $3.6 million and $1.7 million, respectively, of curtailment charges relating to WP&L's other postretirement benefits. The amounts include a December 1998 early retirement program. The pension benefit cost shown above (and in the following table) for 1998 represents only the pension benefit cost for bargaining unit employees of WP&L covered under the bargaining unit pension plan that is sponsored by WP&L. The pension benefit cost for WP&L's non-bargaining employees who are now participants in other IEC plans was $3.0 million for 1998, including a special charge of $3.6 for severance and early retirement window programs. In addition, Alliant Energy Corporate Services, Inc. (Alliant Energy Corporate Services) provides services to WP&L. The allocated pension benefit costs associated with these services was $0.6 million for 1998. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all WP&L employees. The allocated other postretirement benefit cost associated with Alliant Energy Corporate Services for WP&L was $0.2 million for 1998. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 1998, holding all other assumptions constant, would have the following effects (in millions):
1 Percent 1 Percent Decrease Increase ------------------- ---------------------- Effect on total of service and interest cost components $0.3 ($0.3) Effect on postretirement benefit obligation $1.7 ($1.7)
117 A reconciliation of the funded status of WP&L's plans to the amounts recognized on WP&L's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits ---------------------------- ------------------------------- 1998 1997 1998 1997 ----------- ------------ -------------- ------------ Change in benefit obligation: Net benefit obligation at beginning of year $ 205.1 $ 189.6 $ 47.1 $ 46.6 Transfer of obligations to other IEC plans (91.9) - - - Service cost 3.2 4.8 1.7 1.8 Interest cost 8.5 13.9 2.6 3.3 Plan participants' contributions - - 0.8 1.0 Plan amendments - 4.4 - - Actuarial (gain) / loss 12.2 2.9 (9.7) (2.7) Curtailments - - 0.7 0.6 Special termination benefits 0.6 1.3 - - Gross benefits paid (5.4) (11.8) (2.9) (3.5) ----------- ------------ -------------- ------------ Net benefit obligation at end of year 132.3 205.1 40.3 47.1 ----------- ------------ -------------- ------------ Change in plan assets: Fair value of plan assets at beginning of year 244.4 218.9 16.1 13.8 Transfer of assets to other IEC plans (100.2) - - - Actual return on plan assets (1.3) 36.2 1.1 1.9 Employer contributions - 1.1 - 2.9 Plan participants' contributions - - 0.8 1.0 Gross benefits paid (5.4) (11.8) (2.9) (3.5) ----------- ------------ -------------- ------------ Fair value of plan assets at end of year 137.5 244.4 15.1 16.1 ----------- ------------ -------------- ------------ Funded status at end of year 5.2 39.3 (25.2) (31.0) Unrecognized net actuarial (gain) / loss 26.0 0.8 (17.0) (8.3) Unrecognized prior service cost 5.1 7.8 (0.2) (0.3) Unrecognized net transition obligation (asset) (7.9) (12.0) 17.2 21.0 ----------- ------------ -------------- ------------ Net amount recognized at end of year $ 28.4 $ 35.9 $ (25.2) $ (18.6) =========== ============ ============== ============ Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $ 28.4 $ 35.9 $ 0.4 $ 0.3 Accrued benefit cost - - (25.6) (18.9) ----------- ------------ -------------- ------------ Net amount recognized at measurement date 28.4 35.9 (25.2) (18.6) ----------- ------------ -------------- ------------ Contributions paid after 9/30 and prior to 12/31 - - 2.1 - ----------- ------------ -------------- ------------ Net amount recognized at 12/31/98 $ 28.4 $ 35.9 $ (23.1) $ (18.6) =========== ============ ============== ============
IEC sponsors a non-qualified pension plan which covers certain current and former officers. The pension expense allocated to WP&L for this plan was $0.8 million, $0.5 million and $0.5 million in 1998, 1997 and 1996, respectively. WP&L employees also participate in defined contribution pension plans (401(k) plans) covering substantially all employees. WP&L's contributions to the plans, which are based on the participants' level of contribution, were $2.4 million, $2.8 million and $1.8 million in 1998, 1997 and 1996, respectively. The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $33.4 million and $6.2 million as of September 31, 1998 and $40.6 million and $7.7 million, respectively, as of the prior measurement date. 118 (9) DEBT: (a) Short-Term Debt - Information regarding short-term debt is as follows (in millions):
1998 1997 1996 -------------- -------------- -------------- As of year end-- Commercial paper outstanding - $81.0 $59.5 Notes payable outstanding $50.0 - $10.0 Money pool borrowings $26.8 - - Discount rates on commercial paper N/A 5.82-5.90% 5.35-5.65% Interest rates on notes payable 5.44% N/A 5.95% Interest rate on money pool borrowings 5.17% N/A N/A For the year ended-- Average amount of short-term debt (based on daily outstanding balances) $48.4 $49.2 $33.9 Average interest rate on short-term debt 5.55% 5.64% 5.86%
(b) Long-Term Debt - Debt maturities (excluding periodic sinking fund requirements, which will not require additional cash expenditures) for 1999 to 2003 are $0, $1.9 million, $0, $0 and $0, respectively. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) for a further discussion of WP&L's debt. (10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: o Current Assets and Current Liabilities - The carrying amount approximates fair value because of the short maturity of such financial instruments. o Nuclear Decommissioning Trust Funds - The carrying amount represents the fair value of these trust funds, as reported by the trustee. The balance of the "Nuclear decommissioning trust funds" as shown on the Consolidated Balance Sheets included $18.7 million and $16.4 million of net unrealized gains at December 31, 1998 and December 31, 1997, respectively, on the investments held in the trust funds. The accumulated reserve for decommissioning costs was adjusted by a corresponding amount. o Cumulative Preferred Stock - Based upon the market yield of similar securities and quoted market prices. o Long-Term Debt - Based upon the market yield of similar securities and quoted market prices. The following table presents the carrying amount and estimated fair value of certain financial instruments for WP&L as of December 31 (in millions):
1998 1997 --------------------------- ---------------------------- Carrying Fair Carrying Fair Value Value Value Value ------------ ----------- ------------ ----------- Nuclear decommissioning trust funds $ 134 $ 134 $ 112 $ 112 Cumulative preferred stock 60 55 60 52 Long-term debt, including current portion 472 513 420 449
Since WP&L is subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of its financial instruments may not be realized by WP&L's parent. 119 (12) COMMITMENTS AND CONTINGENCIES: (b) Purchased-Power, Coal and Natural Gas Contracts WP&L has entered into purchased-power capacity and coal contracts and its minimum commitments are as follows (dollars in millions, megawatt-hours (MWHs) and tons in thousands): Coal Purchased-Power (including transportation costs) --------------------------- -------------------------------- Dollars MWHs Dollars Tons ----------- ------------ ------------- --------------- 1999 $ 62.3 1,290 $ 22.2 6,124 2000 66.0 1,509 10.1 2,986 2001 52.4 864 8.4 1,600 2002 31.8 219 4.4 750 2003 24.3 219 - - WP&L is in the process of negotiating several new coal contracts. In addition, it expects to supplement its coal contracts with spot market purchases to fulfill its future fossil fuel needs. WP&L also has various natural gas supply, transportation and storage contracts outstanding. The minimum dekatherm commitments, in millions, for 1999-2003 are 70.3, 59.7, 45.4, 31.5 and 24.5, respectively. The minimum dollar commitments for 1999-2003, in millions, are $42.8, $32.5, $27.1, $24.7 and $17.0, respectively. The gas supply commitments are all index-based. WP&L expects to supplement its natural gas supply with spot market purchases as needed. (c) Information Technology Services - In May 1998, IEC entered into an agreement, expiring in 2004, with Electronic Data Systems Corporation (EDS) for information technology services. WP&L's anticipated operating and capital expenditures under the agreement for 1999 are estimated to total approximately $2.8 million. Future costs under the agreement are variable and are dependent upon WP&L's level of usage of technological services from EDS. 120 (16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
------------------------------------------------------------------------ Quarter Ended ------------------------------------------------------------------------ March 31 June 30 September 30 December 31 ----------------- --------------- ----------------- ------------------ (in thousands) 1998* Operating revenues $202,803 $172,509 $176,130 $180,006 Operating income 33,651 10,828 29,696 18,475 Net income (loss) 17,598 (1,233) 12,677 6,532 Earnings available for common stock 16,770 (2,061) 11,850 5,705 1997 Operating revenues $231,005 $176,065 $180,192 $207,455 Operating income 45,413 20,882 34,158 38,656 Net income 23,351 11,044 15,236 21,603 Earnings available for common stock 22,523 10,216 14,409 20,776 *Earnings for 1998 were impacted by the recording of approximately $3 million, $11 million, $2 million and $1 million of pre-tax merger-related expenses in the first, second, third and fourth quarters, respectively.
121 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS IEC The information required by Item 10 relating to directors and nominees for election of directors at the 1999 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information included under the caption "Election of Directors" in IEC's Proxy Statement for the 1999 Annual Meeting of Shareowners (the 1999 IEC Proxy Statement). The 1999 IEC Proxy Statement has been filed with the Securities and Exchange Commission within 120 days after the end of IEC's fiscal year. The executive officers of IEC as of the date of this filing are as follows (figures following the names represent the officer's age as of December 31, 1998): Executive Officers of IEC Erroll B. Davis, Jr., 54, has served as President and Chief Executive Officer since 1990 and has been a board member since 1988. William D. Harvey, 49, was elected Executive Vice President-Generation effective April 1998. Prior thereto, he served as Senior Vice President since 1993 at WP&L. James E. Hoffman, 45, was elected Executive Vice President-Business Development effective April 1998. Prior thereto, he served as Executive Vice President since 1996 at IES and Executive Vice President-Customer Service & Energy Delivery from 1995 to 1997 at IESU. Prior to joining IEC, he was Chief Information Officer from 1990 to 1995 at MCI Communications. Eliot G. Protsch, 45, was elected Executive Vice President-Energy Delivery effective April 1998. Prior thereto, he served as Senior Vice President since 1993 at WP&L. Barbara J. Swan, 47, was elected Executive Vice President and General Counsel effective October 1998. She previously served as Vice President-General Counsel from 1994 to 1998 at WP&L. Thomas M. Walker, 51, was elected Executive Vice President and Chief Financial Officer effective April 1998. Prior thereto, he served as Executive Vice President and Chief Financial Officer since 1996 at IES and IESU. Prior to joining IEC, he was Executive Vice President-Chief Financial and Administrative Officer and member of the Board of Directors from 1990 to 1995 at Information Resources, Inc. Pamela J. Wegner, 51, was elected Executive Vice President-Corporate Services effective October 1998. She previously served as Vice President-Information Services and Administration from 1994 to 1998 at WP&L. John E. Ebright, 55, was elected Vice President-Controller effective April 1998. Prior thereto, he served as Controller and Chief Accounting Officer since 1996 at IES and IESU. Prior to joining IEC, he was Vice President and Controller from 1987 to 1996 at MidCon Corp., a subsidiary of Occidental Petroleum Corporation. Edward M. Gleason, 58, has served as Vice President-Treasurer and Corporate Secretary since 1993. He has also served as Controller, Treasurer and Corporate Secretary of WP&L since 1996 and Corporate Secretary of WP&L from 1993 to 1996. 122 Susan J. Kosmo, 52, was elected Assistant Controller effective April 1998. She previously served as Assistant Controller since 1995 and Trust Investments and Investor Relations Supervisor from 1992 to 1995 at WP&L. John E. Kratchmer, 36, was elected Assistant Controller effective April 1998. He previously served as Manager of Financial Reporting and Property since 1996 and Manager of Financial Reporting from 1994 to 1996 at IES. Linda J. Wentzel, 50, was appointed Assistant Corporate Secretary effective May 1998. She previously served as Executive Administrative Assistant since 1995 and Administrative Assistant from 1992 to 1995 at IEC. Enrique Bacalao, 49, was appointed Assistant Treasurer effective November 1998. Prior to joining IEC, he was Vice President, Corporate Banking at the Chicago Branch from 1995 to 1998, and Manager and Head of the Customer Dealing Group at the London Branch from 1993 to 1995, of The Industrial Bank of Japan, Limited. NOTE: None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Messrs. Liu and Davis have employment agreements with IEC pursuant to which their terms of office are established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. IESU IESU's directors are identical to IEC, but are elected by consent action. The information required by Item 10 relating to directors and nominees for election of directors at the 1999 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information included under the caption "Election of Directors" in the 1999 IEC Proxy Statement. The 1999 IEC Proxy Statement has been filed with the Securities and Exchange Commission within 120 days after the end of IESU's fiscal year. The executive officers of IESU as of the date of this filing are as follows (figures following the names represent the officer's age as of December 31, 1998): Executive Officers of IESU Erroll B. Davis, Jr., 54, was elected Chief Executive Officer effective April 1998. Mr. Davis is also an officer of IEC and WP&L. Eliot G. Protsch, 45, was elected President effective April 1998. Mr. Protsch is also an officer of IEC and WP&L. William D. Harvey, 49, was elected Executive Vice President-Generation effective October 1998. Mr. Harvey is also an officer of IEC and WP&L. Barbara J. Swan, 47, was elected Executive Vice President and General Counsel effective October 1998. Ms. Swan is also an officer of IEC and WP&L. Thomas M. Walker, 51, was elected Executive Vice President and Chief Financial Officer since 1996. Prior to joining IESU, he was Executive Vice President-Chief Financial and Administrative Officer and member of the Board of Directors from 1990 to 1995 at Information Resources, Inc. Mr. Walker is also an officer of IEC and WP&L. Pamela J. Wegner, 51, was elected Executive Vice President-Corporate Services effective October 1998. Ms. Wegner is also an officer of IEC and WP&L. Dale R. Sharp, 58, was elected Senior Vice President-Engineering and Standards effective October 1998. He previously served as Vice President-Engineering since 1996, Vice President-Power Production from 1995 to 1996 and Director-Electrical Engineering from 1980 to 1995 at IPC. Mr. Sharp is also an officer of WP&L. 123 Daniel A. Doyle, 40, was elected Vice President-Manufacturing and Energy Portfolio Services effective October 1998. Mr. Doyle is also an officer of WP&L. John E. Ebright, 55, was elected Vice President-Controller effective April 1998. He previously served as Controller and Chief Accounting Officer since 1996. Prior to joining IESU, he was Vice President and Controller from 1987 to 1996 at MidCon Corp., a subsidiary of Occidental Petroleum Corporation. Mr. Ebright is also an officer of IEC and WP&L. Dean E. Ekstrom, 51, was elected Vice President-Sales and Services effective April 1998. He previously served as Vice President-Administration since 1996 and Vice President-Management Systems from 1994 to 1996 at IES. Mr. Ekstrom is also an officer of WP&L. John F. Franz, Jr., 59, has served as Vice President-Nuclear since 1992. Mr. Franz is also an officer of WP&L. Edward M. Gleason, 58, was elected Vice President-Treasurer and Corporate Secretary effective April 1998. Mr. Gleason is also an officer of IEC and WP&L. Dundeana K. Langer, 40, was elected Vice President-Customer Operations effective April 1998. She previously served as Assistant Vice President-Field Operations since 1997, General Manager-Operations & Director Process Redesign Implementation from 1996 to 1997, Team Leader-Energy Delivery Process Redesign Team from 1995 to 1996, and District Manger from 1988 to 1995. Ms. Langer is also an officer of WP&L. Daniel L. Mineck, 50, was elected Vice President-Performance Engineering and Environmental effective October 1998. He previously served as Assistant Vice President-Corporate Engineering since 1996, Assistant Vice President-Nuclear from 1995 to 1996 and Manager-Economic Development from 1992 to 1995. Mr. Mineck is also an officer of WP&L. Kim K. Zuhlke, 45, was elected Vice President-Customer Operations effective October 1998. Mr. Zuhlke is also an officer of WP&L. David L. Wilson, 52, has served as Assistant Vice President-Nuclear since 1997, Facility Leader from 1996 to 1997, Plant Manager from 1995 to 1996 and Pllant Supervisor-Nuclear from 1991 to 1995. Mr. Wilson is also an officer of WP&L. Linda J. Wentzel, 50, was appointed Assistant Corporate Secretary effective May 1998. Ms. Wentzel is also an officer of IEC and WP&L. Enrique Bacalao, 49, was appointed Assistant Treasurer effective November 1998. Prior to joining IESU, he was Vice President, Corporate Banking at the Chicago Branch from 1995 to 1998, and Manager and Head of the Customer Dealing Group at the London Branch from 1993 to 1995, of The Industrial Bank of Japan, Limited. Mr. Bacalao is also an officer of IEC and WP&L. Steven F. Price, 46, was elected Assistant Treasurer effective April 1998. Mr. Price is also an officer of WP&L. Robert A. Rusch, 36, was elected Assistant Treasurer effective April 1998. Mr. Rusch is also an officer of WP&L. Daniel L. Siegfried, 39, was elected Assistant Secretary effective April 1998. He also serves as Senior Attorney for IEC. Previously he served as Senior Environmental Counsel from 1992 to 1998 at IES. NOTE: None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. 124 Messrs. Liu and Davis have employment agreements with IEC pursuant to which their terms of office are established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. WP&L The information required by Item 10 relating to directors and nominees for election of directors at the 1999 Annual Meeting of Shareowners will be incorporated herein by reference to the relevant information in WP&L's Proxy Statement for the 1999 Annual Meeting of Shareowners (the 1999 WP&L Proxy Statement). The 1999 WP&L Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of WP&L's fiscal year. The executive officers of WP&L as of the date of this filing are as follows (figures following the names represent the officer's age as of December 31, 1998): Executive Officers of WP&L Erroll B. Davis, Jr., 54, was elected Chief Executive Officer effective April 1998. He previously served as President and Chief Executive Officer of WP&L since 1988 and has been a board member of WP&L since 1984. Mr. Davis is also an officer of IEC and IESU. William D. Harvey, 49, was elected President effective April 1998. He previously served as Senior Vice President since 1993 at WP&L. Mr. Harvey is also an officer of IEC and IESU. Eliot G. Protsch, 45, was elected Executive Vice President-Energy Delivery effective October 1998. He previously served as Senior Vice President from 1993 to 1998 at WP&L. Mr. Protsch is also an officer of IEC and IESU. Barbara J. Swan, 47, was elected Executive Vice President and General Counsel effective October 1998. She previously served as Vice President-General Counsel from 1994 to 1998 at WP&L. Ms. Swan is also an officer of IEC and IESU. Thomas M. Walker, 51, was elected Executive Vice President and Chief Financial Officer effective October 1998. Mr. Walker is also on officer of IEC and IESU. Pamela J. Wegner, 51, was elected Executive Vice President-Corporate Services effective October 1998. She previously served as Vice President-Information Services and Administration from 1994 to 1998 at WP&L. Ms. Wegner is also an officer of IEC and IESU. Dale R. Sharp, 58, was elected Senior Vice President-Engineering and Standards effective October 1998. He previously served as Vice President-Engineering since 1996, Vice President-Power Production from 1995 to 1996 and Director-Electrical Engineering from 1980 to 1995 at IPC. Mr. Sharp is also an officer of IESU. Daniel A. Doyle, 40, was elected Vice President-Manufacturing and Energy Portfolio Services effective October 1998. He previously served as Vice President-Fossil Plants since April 1998, Vice President-Power Production from 1996 to 1998 and Vice President-Finance, Controller and Treasurer from 1994 to 1996 at WP&L. Mr. Doyle is also an officer of IESU. John E. Ebright, 55, was elected Vice President-Controller effective April 1998. Mr. Ebright is also an officer of IEC and IESU. Dean E. Ekstrom, 51, was elected Vice President-Sales and Services effective April 1998. Mr. Ekstrom is also an officer of IESU. John F. Franz, Jr., 59, was elected Vice President-Nuclear effective April 1998. Mr. Franz is also an officer of IESU. 125 Edward M. Gleason, 58, was elected Vice President-Treasurer and Corporate Secretary effective April 1998. He previously served as Controller, Treasurer, and Corporate Secretary of WP&L since 1996 and Corporate Secretary of WP&L from 1993 to 1996. Mr. Gleason is also an officer of IEC and IESU. Dundeana K. Langer, 40, was elected Vice President-Customer Services effective October 1998. Ms. Langer is also an officer of IESU. Daniel L. Mineck, 50, was elected Vice President-Performance Engineering and Environmental effective April 1998. Mr. Mineck is also an officer of IESU. Kim K. Zuhlke, 45, was elected Vice President-Customer Operations effective April 1998. He previously served as Vice President-Customer Services and Sales since 1993 at WP&L. Mr. Zuhlke is also an officer of IESU. David L. Wilson, 52, was elected Assistant Vice President-Nuclear effective April 1998. Mr. Wilson is also an officer of IESU. Linda J. Wentzel, 50, was appointed Assistant Corporate Secretary effective May 1998. She previously served as Executive Administrative Assistant since 1995 and Administrative Assistant from 1992 to 1995 at IEC. Ms. Wentzel is also an officer of IEC and IESU. Enrique Bacalao, 49, was appointed Assistant Treasurer effective November 1998. Prior to joining WP&L, he was Vice President, Corporate Banking at the Chicago Branch from 1995 to 1998, and Manager and Head of the Customer Dealing Group at the London Branch from 1993 to 1995, of The Industrial Bank of Japan, Limited. Mr. Bacalao is also an officer of IEC and IESU. Steven F. Price, 46, was elected Assistant Treasurer effective April 1998. He previously served as Assistant Corporate Secretary since 1992 at IEC and WP&L and as Assistant Treasurer since 1992 at IEC. Mr. Price is also an officer of IESU. Robert A. Rusch, 36, was elected Assistant Treasurer effective April 1998. He previously served as Assistant Treasurer since 1995 and Financial Analyst from 1989 to 1995 at WP&L. Mr. Rusch is also an officer of IESU. NOTE: None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Messrs. Liu and Davis have employment agreements with IEC pursuant to which their terms of office are established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. ITEM 11. EXECUTIVE COMPENSATION IEC The information required by Item 11 is incorporated herein by reference to the relevant information in the 1999 IEC Proxy Statement. The 1999 IEC Proxy Statement has been filed with the Securities and Exchange Commission within 120 days after the end of IEC's fiscal year. 126 IESU EXECUTIVE OFFICERS' COMPENSATION TABLE The following Summary Compensation Table sets forth the total compensation paid by IEC and its subsidiaries for all services rendered during 1998, 1997, and 1996 to the Chief Executive Officer and the four other most highly compensated executive officers of IESU at December 31, 1998.
Long-Term Annual Compensation Compensation Awards --------------------------------------------- ------------------------------- Securities Underlying Other Annual Restricted Options/SARs All Other Name and Principal Position Year Salary Bonus 1 Compensation 2 Stock Awards 3 (Shares) 4 Compensation 5 - ----------------------------- ------ ---------- ---------- ---------------- --------------- --------------- ----------------- Erroll B. Davis, Jr. 1998 $540,000 $ - $13,045 $ - 36,752 $57,996 Chief Executive Officer 1997 450,000 200,800 19,982 - 13,800 60,261 1996 450,000 297,862 23,438 - 12,600 66,711 Lee Liu 1998 400,000 - - 337,241 25,347 52,073 Chairman of the Board 1997 400,000 189,000 5,956 176,391 - 13,277 1996 380,000 175,000 2,578 253,475 - 13,956 William D. Harvey 1998 233,846 - 4,699 - 11,406 28,642 Executive Vice President 1997 220,000 43,986 14,944 - 5,100 33,043 1996 220,000 92,104 10,765 - 4,650 29,343 Eliot T. Protsch 1998 233,846 - 2,443 - 11,406 20,398 Executive Vice President 1997 220,000 51,400 11,444 - 5,100 30,057 1996 220,000 101,224 7,657 - 4,650 25,890 Thomas M. Walker 6 1998 229,846 - 814 - 11,406 13,263 Executive Vice President 1997 230,000 62,100 38,138 - - 2,367 and Chief Financial Officer 1996 9,583 - - 30,000 - 119 1 No bonuses were paid for 1998. 2 Other Annual Compensation for 1998 consists of: income tax gross-ups for reverse split-dollar life insurance for Messrs. Davis, Harvey and Protsch; and relocation expense reimbursement for Mr. Walker. 3 Prior to the Merger, IES had historically made awards of restricted stock. Such awards (to the extent not previously vested) vested automatically upon the consummation of the Merger. The number of shares of restricted stock reflected in this table that were subject to such automatic vesting are as follows: Mr. Liu - 8,703 shares awarded for 1998, 5,004 shares awarded for 1997 and 8,703 shares awarded for 1996; Mr. Walker - 1,000 shares awarded for 1996. Restricted stock was considered outstanding upon the award date and dividends were paid to the eligible officers on these shares while restricted. The amounts shown in the table above represent the value of the awards based upon the closing price of IES common stock on the award date. 4 Awards made in 1998 were in combination with performance share awards as described in the table entitled "Long-Term Incentive Awards in 1998." 5 All Other Compensation for 1998 consists of: matching contributions to 401(k) Plan and Deferred Compensation Plan, Mr. Davis - $16,200, Mr. Liu - $4,754, Mr. Harvey - $7,015, Mr. Protsch - $7,015 and Mr. Walker - $5,000; financial counseling benefit, Mr. Davis - $7,000, Mr. Liu - $4,448, Mr. Harvey - $7,000, Mr. Protsch - $2,333 and Mr. Walker - $7,000; split dollar life insurance premiums, Mr. Davis - $20,653, Mr. Harvey - $8,738 and Mr. Protsch - $7,989; reverse split dollar life insurance, Mr. Davis - $14,143, Mr. Harvey - $5,889 and Mr. Protsch - $3,061; life insurance coverage in excess of $50,000, Mr. Liu - $9,910; and dividends on restricted stock, Mr. Liu - $32,961 and Mr. Walker - $1,263. The split dollar insurance premiums are calculated using the "foregone interest" method. 6 Mr. Walker's employment with the company began in 1996.
127 IEC STOCK OPTIONS The following table sets forth certain information concerning stock options granted by IEC during 1998 to the executives named below:
OPTION/SAR GRANTS IN 1998 - -------------------------- ---------------------------------------------------------- ---------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Individual Grants Appreciation for Option Term2 - -------------------------- ---------------------------------------------------------- ---------------------------- Number of % of Total Securities Options/SARs Underlying Granted to Exercise or Options/ Employees in Base Price Expiration Name SARs Granted 1 Fiscal Year ($/Share) Date 5% 10% - -------------------------- -------------- ---------------- ------------- ------------ ------------- -------------- Erroll B. Davis, Jr. 36,752 5.8% $31.5625 6/30/08 $729,527 $1,848,993 - -------------------------- -------------- ---------------- ------------- ------------ ------------- -------------- Lee Liu 25,347 4.0% 31.5625 6/30/08 503,138 1,275,208 - -------------------------- -------------- ---------------- ------------- ------------ ------------- -------------- William D. Harvey 11,406 1.8% 31.5625 6/30/08 226,409 573,836 - -------------------------- -------------- ---------------- ------------- ------------ ------------- -------------- Eliot G. Protsch 11,406 1.8% 31.5625 6/30/08 226,409 573,836 - -------------------------- -------------- ---------------- ------------- ------------ ------------- -------------- Thomas M. Walker 11,406 1.8% 31.5625 6/30/08 226,409 573,836 - -------------------------- -------------- ---------------- ------------- ------------ ------------- -------------- 1 Consists of non-qualified stock options to purchase shares of IEC common stock granted pursuant to IEC's Long Term Equity Incentive Plan. Options were granted on July 1, 1998, and will fully vest on January 2, 2001. Upon a "change in control" of IEC as defined in the Plan or upon retirement, disability or death of the option holder, these options shall become immediately exercisable. Upon exercise of an option, the executive purchases all or a portion of the shares covered by the option by paying the exercise price multiplied by the number of shares as to which the option is exercised, either in cash or by surrendering common shares already owned by the executive. 2 The hypothetical potential appreciation shown for the named executives is required by the SEC rules. The amounts shown do not represent either the historical or expected future performance of IEC's common stock level of appreciation. For example, in order for the named executives to realize the potential values set forth in the 5% and 10% columns in the table above, the price per share of IEC's common stock would be $51.41 and $81.87, respectively, as of the expiration date of the options.
The following table provides information for the executives named below regarding the number and value of exercisable and unexercised options. None of these executives exercised options in fiscal 1998.
OPTION/SAR VALUES AT DECEMBER 31, 1998 - -------------------------- ------------------------------------- --------------------------------------- Number of Securities Underlying Unexercised Value of Unexercised In-the-Money Options/SARs at Fiscal Year End Options/SARs at Year End1 - -------------------------- ------------------------------------- --------------------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - -------------------------- ----------------- ------------------- ----------------- --------------------- Erroll B. Davis, Jr. 13,100 63,152 $62,225 $102,817 - -------------------------- ----------------- ------------------- ----------------- --------------------- Lee Liu - 25,347 - 17,426 - -------------------------- ----------------- ------------------- ----------------- --------------------- William D. Harvey 4,700 21,156 22,325 36,492 - -------------------------- ----------------- ------------------- ----------------- --------------------- Eliot G. Protsch 4,700 21,156 22,325 36,492 - -------------------------- ----------------- ------------------- ----------------- --------------------- Thomas M. Walker - 11,406 - 7,842 - -------------------------- ----------------- ------------------- ----------------- --------------------- 128 1 Based on the closing per share price on December 31, 1998 of IEC common stock of $32.25.
The following table provides information concerning long-term incentive awards made by IEC to the executives named below in 1998.
LONG-TERM INCENTIVE AWARDS IN 1998 - ------------------------ ----------------------- ----------------------- ----------------------------------------- Estimated Future Payouts Under Non-Stock Price-Based Plans - ------------------------ ----------------------- ----------------------- ----------------------------------------- Performance or Other Number of Shares, Period Until Name Units or Other Rights Maturation or Payout Threshold Target Maximum - ------------------------ ----------------------- ----------------------- ------------- -------------- ------------ (#)1 (#) (#) (#) - ------------------------ ----------------------- ----------------------- ------------- -------------- ------------ Erroll B. Davis, Jr. 11,026 1/2/01 5,513 11,026 22,052 - ------------------------ ----------------------- ----------------------- ------------- -------------- ------------ Lee Liu 7,604 1/2/01 3,802 7,604 15,208 - ------------------------ ----------------------- ----------------------- ------------- -------------- ------------ William D. Harvey 2,661 1/2/01 1,330 2,661 5,322 - ------------------------ ----------------------- ----------------------- ------------- -------------- ------------ Eliot G. Protsch 2,661 1/2/01 1,330 2,661 5,322 - ------------------------ ----------------------- ----------------------- ------------- -------------- ------------ Thomas M. Walker 2,661 1/2/01 1,330 2,661 5,322 - ------------------------ ----------------------- ----------------------- ------------- -------------- ------------ 1 Consists of performance shares awarded under IEC's Long-Term Equity Incentive Plan. These performance shares will vest based on achievement of specified Total Shareholder Return (TSR) levels as compared with an investor-owned utility peer group over the period ending January 2, 2001. Payouts will be in shares of IEC common stock, but will be modified by a performance multiplier which ranges from 0 to 2.00.
The following information required by Item 10 for IESU is incorporated herein by reference to the relevant information in the 1999 IEC Proxy Statement, which has been filed with the Securities and Exchange Commission within 120 days after the end of IESU's fiscal year: Compensation of Directors, Certain Agreements and Transactions, and Retirement and Employee Benefit Plans. Mr. Walker participates in the Alliant Energy Corporate Services Retirement Plan and the Alliant Energy Corporate Services Supplemental Executive Retirement Plan and has two years credited service under such plans. WP&L The information required by Item 11 will be incorporated herein by reference to the relevant information in the 1999 WP&L Proxy Statement. The 1999 WP&L Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of WP&L's fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT IEC The information required by Item 12 is incorporated herein by reference to the relevant information under the caption "Ownership of Voting Securities" in the 1999 IEC Proxy Statement. The 1999 IEC Proxy Statement has been filed with the Securities and Exchange Commission within 120 days after the end of IEC's fiscal year. IESU OWNERSHIP OF VOTING SECURITIES Listed in the following table are the shares of IEC's common stock owned by the executive officers listed in the Summary Compensation Table and all directors of IESU, as well as the number of shares owned by directors and 129 executive officers as a group as of December 31, 1998. The directors and executive officers of IEC as a group owned less than one percent of the outstanding shares of common stock on that date. To IEC's knowledge, no shareowner beneficially owned 5 percent or more of IEC's outstanding common stock as of December 31, 1998. Shares Beneficially Name of Beneficial Owner Owned(1) ------------ Executives(2) William D. Harvey.................................... 23,759 (3) Eliot G. Protsch..................................... 23,817 (3) Thomas M. Walker..................................... 5,105 (3) Director Nominees Alan B. Arends....................................... 2,202 Rockne G. Flowers.................................... 10,189 Katharine C. Lyall................................... 7,715 Robert D. Ray........................................ 4,032 Anthony R. Weiler.................................... 4,603 (3) Continuing Directors Erroll B. Davis, Jr.................................. 59,292 (3) Joyce L. Hanes....................................... 2,858 (3) Lee Liu.............................................. 66,247 (3) Arnold M. Nemirow.................................... 10,387 Milton E. Neshek..................................... 12,315 Jack R. Newman....................................... 2,027 Judith D. Pyle....................................... 6,297 David Q. Reed........................................ 6,043 (3) Robert W. Schlutz.................................... 4,185 Wayne H. Stoppelmoor................................. 12,424 All Executives and Directors as a Group 35 people, including those listed above.............. 399,672 (3) (1) Total shares of IEC common stock outstanding as of December 31, 1998 were 77,630,043. (2) Stock ownership of Mr. Davis and Mr. Liu are shown with continuing directors. (3) Included in the beneficially owned shares shown are: indirect ownership interests with shared voting and investment powers: Mr. Harvey - 1,897, Mr. Protsch - 573, Mr. Davis - 5,866, Ms. Hanes - 541, Mr. Liu - 9,755, Mr. Reed - 353 and Mr. Weiler - 1,037; and exercisable stock options: Mr. Davis - 37,950, Mr. Harvey - 13,152, Mr. Protsch - 13,152, Mr. Walker - 3,802, Mr. Liu - 8,449 and Mr. Stoppelmoor - 6,336 (all executive officers and directors as a group - 148,072). WP&L The information required by Item 12 will be incorporated herein by reference to the relevant information in the 1999 WP&L Proxy Statement. The 1999 WP&L Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of WP&L's fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS IEC The information required by Item 13 is incorporated herein by reference to the relevant information under the caption "Certain Agreements and Transactions" in the 1999 IEC Proxy Statement. The 1999 IEC Proxy Statement has been filed with the Securities and Exchange Commission within 120 days after the end of IEC's fiscal year. 130 IESU The information required by Item 13 is incorporated herein by reference to the relevant information under the caption "Certain Agreements and Transactions" in the 1999 IEC Proxy Statement. The 1999 IEC Proxy Statement has been filed with the Securities and Exchange Commission within 120 days after the end of IESU's fiscal year. WP&L The information required by Item 13 will be incorporated herein by reference to the relevant information in the 1999 WP&L Proxy Statement. The 1999 WP&L Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of WP&L's fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Consolidated Financial Statements Refer to Index to Financial Statements at Item 8. "Financial Statements and Supplementary Data." (a) (2) Financial Statement Schedules Report of Independent Public Accountants on Schedules Schedule II. Valuation and Qualifying Accounts and Reserves NOTE: All other schedules are omitted because they are not applicable or not required, or because that required information is shown either in the consolidated financial statements or in the notes thereto. (a) (3) Exhibits Required by Securities and Exchange Commission Regulation S-K The following Exhibits are filed herewith or incorporated herein by reference. Documents indicated by an asterisk (*) are incorporated herein by reference. 2.1* Agreement and Plan of Merger, dated as of November 10, 1995, by and among WPL Holdings, Inc., IES Industries Inc., Interstate Power Company and AMW Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to IEC's Current Report on Form 8-K, dated November 10, 1995) 2.2* Amendment No. 1 to Agreement and Plan of Merger and Stock Option Agreements, dated May 22, 1996, by and among WPL Holdings, Inc., IES Industries Inc., Interstate Power Company, a Delaware corporation, AMW Acquisition, Inc., WPLH Acquisition Co. and Interstate Power Company, a Wisconsin corporation (incorporated by reference to Exhibit 2.1 to IEC's Current Report on Form 8-K, dated May 22, 1996) 2.3* Amendment No. 2 to Agreement and Plan of Merger, dated August 16, 1996, by and among WPL Holdings, Inc., IES Industries Inc., Interstate Power Company, a Delaware corporation, WPLH Acquisition Co. and Interstate Power Company, a Wisconsin corporation (incorporated by reference to Exhibit 2.1 to IEC's Current Report on Form 8-K, dated August 15, 1996) 3.1* Restated Articles of Incorporation of Interstate Energy Corporation, as amended (incorporated by reference to Exhibit 3.2 to IEC's Current Report on Form 8-K, dated April 21, 1998) 3.2 Bylaws of Interstate Energy Corporation, effective as of January 20, 1999 131 3.3* Restated Articles of Incorporation of Wisconsin Power & Light Company, as amended (incorporated by reference to Exhibit 3.1 to WP&L's Form 10-Q for the quarter ended June 30, 1994) 3.4 Bylaws of Wisconsin Power and Light Company, effective as of January 20, 1999 3.5* Amended and Restated Articles of Incorporation of IES Utilities Inc. (incorporated by reference to Exhibit 3.5 to IESU's Form 10-Q for the quarter ended June 30, 1998) 3.6 Bylaws of IES Utilities Inc., effective as of January 20, 1999 4.1* Indenture of Mortgage or Deed of Trust dated August 1, 1941, between WP&L and First Wisconsin Trust Company and George B. Luhman, as Trustees, filed as Exhibit 7(a) in File No. 2-6409, and the indentures supplemental thereto dated, respectively, January 1, 1948, September 1, 1948, June 1, 1950, April 1, 1951, April 1, 1952, September 1, 1953, October 1, 1954, March 1, 1959, May 1, 1962, August 1, 1968, June 1, 1969, October 1, 1970, July 1, 1971, April 1, 1974, December 1, 1975, May 1, 1976, May 15, 1978, August 1, 1980, January 15, 1981, August 1, 1984, January 15, 1986, June 1, 1986, August 1, 1988, December 1, 1990, September 1, 1991, October 1, 1991, March 1, 1992, May 1, 1992, June 1, 1992 and July 1, 1992 (Second Amended Exhibit 7(b) in File No. 2-7361; Amended Exhibit 7(c) in File No. 2-7628; Amended Exhibit 7.02 in File No. 2-8462; Amended Exhibit 7.02 in File No. 2-8882; Second Amendment Exhibit 4.03 in File No. 2-9526; Amended Exhibit 4.03 in File No. 2-10406; Amended Exhibit 2.02 in File No. 2-11130; Amended Exhibit 2.02 in File No. 2-14816; Amended Exhibit 2.02 in File No. 2-20372; Amended Exhibit 2.02 in File No. 2-29738; Amended Exhibit 2.02 in File No. 2-32947; Amended Exhibit 2.02 in File No. 2-38304; Amended Exhibit 2.02 in File No. 2-40802; Amended Exhibit 2.02 in File No. 2-50308; Exhibit 2.01(a) in File No. 2-57775; Amended Exhibit 2.02 in File No. 2-56036; Amended Exhibit 2.02 in File No. 2-61439; Exhibit 4.02 in File No. 2-70534; Amended Exhibit 4.03 File No. 2-70534; Exhibit 4.02 in File No. 33-2579; Amended Exhibit 4.03 in File No. 33-2579; Amended Exhibit 4.02 in File No. 33-4961; Exhibit 4B to WP&L's Form 10-K for the year ended December 31, 1988, Exhibit 4.1 to WP&L's Form 8-K dated December 10, 1990, Amended Exhibit 4.26 in File No. 33-45726, Amended Exhibit 4.27 in File No.33-45726, Exhibit 4.1 to WP&L's Form 8-K dated March 9, 1992, Exhibit 4.1 to WP&L's Form 8-K dated May 12, 1992, Exhibit 4.1 to WP&L's Form 8-K dated June 29, 1992 and Exhibit 4.1 to WP&L's Form 8-K dated July 20, 1992) 4.2* Rights Agreement, dated January 20, 1999, between Interstate Energy Corporation and Firstar Bank Milwaukee, N.A. (incorporated by reference to Exhibit 4.1 to IEC's Registration Statement on Form 8-A, dated January 20, 1999) 4.3* Indenture, dated as of June 20, 1997, between WP&L and Firstar Trust Company, as Trustee, relating to debt securities (incorporated by reference to Exhibit 4.33 to Amendment No. 2 to WP&L's Registration Statement on Form S-3 (Registration No. 33-60917)) 4.4* Officers' Certificate, dated as of June 25, 1997, creating the 7% debentures due June 15, 2007 of WP&L (incorporated by reference to Exhibit 4 to WP&L's Current Report on Form 8-K, dated June 25, 1997) 4.5* Officers' Certificate, dated as of October 27, 1998, creating the 5.70% debentures due October 15, 2008 of WP&L (incorporated by reference to Exhibit 4 to WP&L's Current Report on Form 8-K, dated October 27, 1998) 132 4.6* Indenture of Mortgage and Deed of Trust, dated as of September 1, 1993, between IES Utilities Inc. (formerly Iowa Electric Light and Power Company (IE)) and The First National Bank of Chicago, as Trustee (Mortgage) (incorporated by reference to Exhibit 4(c) to IESU's Form 10-Q for the quarter ended September 30, 1993) 4.7* Supplemental Indentures to the Mortgage: IESU/IES Number Dated as of File Reference Exhibit ---------- --------------------- -------------------------- --------- First October 1, 1993 Form 10-Q, 11/12/93 4(d) Second November 1, 1993 Form 10-Q, 11/12/93 4(e) Third March 1, 1995 Form 10-Q, 5/12/95 4(b) Fourth September 1, 1996 Form 8-K, 9/19/96 4(c)(i) Fifth April 1, 1997 Form 10-Q, 5/14/97 4(a) 4.8* Indenture of Mortgage and Deed of Trust, dated as of August 1, 1940, between IES Utilities Inc. (formerly IE) and The First National Bank of Chicago, Trustee (1940 Indenture) (incorporated by reference to Exhibit 2(a) to IESU's Registration Statement, File No. 2-25347) 4.9* Supplemental Indentures to the 1940 Indenture:
IESU Number Dated as of File Reference Exhibit ------------------- ---------------------- --------------------------- --------- First March 1, 1941 2-25347 2(a) Second July 15, 1942 2-25347 2(a) Third August 2, 1943 2-25347 2(a) Fourth August 10, 1944 2-25347 2(a) Fifth November 10, 1944 2-25347 2(a) Sixth August 8, 1945 2-25347 2(a) Seventh July 1, 1946 2-25347 2(a) Eighth July 1, 1947 2-25347 2(a) Ninth December 15, 1948 2-25347 2(a) Tenth November 1, 1949 2-25347 2(a) Eleventh November 10, 1950 2-25347 2(a) Twelfth October 1, 1951 2-25347 2(a) Thirteenth March 1, 1952 2-25347 2(a) Fourteenth November 5, 1952 2-25347 2(a) Fifteenth February 1, 1953 2-25347 2(a) Sixteenth May 1, 1953 2-25347 2(a) Seventeenth November 3, 1953 2-25347 2(a) Eighteenth November 8, 1954 2-25347 2(a) Nineteenth January 1, 1955 2-25347 2(a) Twentieth November 1, 1955 2-25347 2(a) Twenty-first November 9, 1956 2-25347 2(a) Twenty-second November 6, 1957 2-25347 2(a) Twenty-third November 4, 1958 2-25347 2(a) Twenty-fourth November 3, 1959 2-25347 2(a) Twenty-fifth November 1, 1960 2-25347 2(a) Twenty-sixth January 1, 1961 2-25347 2(a) Twenty-seventh November 7, 1961 2-25347 2(a) Twenty-eighth November 6, 1962 2-25347 2(a) Twenty-ninth November 5, 1963 2-25347 2(a) 133 Thirtieth November 4, 1964 2-25347 2(a) Thirty-first November 2, 1965 2-25347 2(a) Thirty-second September 1, 1966 Form 10-K, 1966 4.10 Thirty-third November 30, 1966 Form 10-K, 1966 4.10 Thirty-fourth November 7, 1967 Form 10-K, 1967 4.10 Thirty-fifth November 5, 1968 Form 10-K, 1968 4.10 Thirty-sixth November 1, 1969 Form 10-K, 1969 4.10 Thirty-seventh December 1, 1970 Form 8-K, 12/70 1 Thirty-eighth November 2, 1971 2-43131 2(g) Thirty-ninth May 1, 1972 Form 8-K, 5/72 1 Fortieth November 7, 1972 2-56078 2(i) Forty-first November 7, 1973 2-56078 2(j) Forty-second September 10, 1974 2-56078 2(k) Forty-third November 5, 1975 2-56078 2(l) Forty-fourth July 1, 1976 Form 8-K, 7/76 1 Forty-fifth November 1, 1976 Form 8-K, 12/76 1 Forty-sixth December 1, 1977 2-60040 2(o) Forty-seventh November 1, 1978 Form 10-Q, 6/30/79 1 Forty-eighth December 1, 1979 Form S-16, 2-65996 2(q) Forty-ninth November 1, 1981 Form 10-Q, 3/31/82 2 Fiftieth December 1, 1980 Form 10-K, 1981 4(s) Fifty-first December 1, 1982 Form 10-K, 1982 4(t) Fifty-second December 1, 1983 Form 10-K, 1983 4(u) Fifty-third December 1, 1984 Form 10-K, 1984 4(v) Fifty-fourth March 1, 1985 Form 10-K, 1984 4(w) Fifty-fifth March 1, 1988 Form 10-Q, 5/12/88 4(b) Fifty-sixth October 1, 1988 Form 10-Q, 11/10/88 4(c) Fifty-seventh May 1, 1991 Form 10-Q, 8/13/91 4(d) Fifty-eighth March 1, 1992 Form 10-K, 1991 4(c) Fifty-ninth October 1, 1993 Form 10-Q, 11/12/93 4(a) Sixtieth November 1, 1993 Form 10-Q, 11/12/93 4(b) Sixty-first March 1, 1995 Form 10-Q, 5/12/95 4(a) Sixty-second September 1, 1996 Form 8-K, 9/19/96 4(f) Sixty-third April 1, 1997 Form 10-Q, 5/14/97 4(b)
4.10* Indenture or Deed of Trust dated as of February 1, 1923, between IES Utilities Inc. (successor to Iowa Southern Utilities Company (IS) as result of merger of IS and IE) and The Northern Trust Company (The First National Bank of Chicago, successor) and Harold H. Rockwell (Richard D. Manella, successor), as Trustees (1923 Indenture) (incorporated by reference to Exhibit B-1 to File No. 2-1719) 4.11* Supplemental Indentures to the 1923 Indenture: Dated as of File Reference Exhibit ------------------------ ----------------- ----------- May 1, 1940 2-4921 B-1-k May 2, 1940 2-4921 B-1-l October 1, 1945 2-8053 7(m) October 2, 1945 2-8053 7(n) January 1, 1948 2-8053 7(o) September 1, 1950 33-3995 4(e) February 1, 1953 2-10543 4(b) October 2, 1953 2-10543 4(q) August 1, 1957 2-13496 2(b) September 1, 1962 2-20667 2(b) 134 June 1, 1967 2-26478 2(b) February 1, 1973 2-46530 2(b) February 1, 1975 2-53860 2(aa) July 1, 1975 2-54285 2(bb) September 2, 1975 2-57510 2(bb) March 10, 1976 2-57510 2(cc) February 1, 1977 2-60276 2(ee) January 1, 1978 0-849 2 March 1, 1979 0-849 2 March 1, 1980 0-849 2 May 31, 1986 33-3995 4(g) July 1, 1991 0-849 4(h) September 1, 1992 0-849 4(m) December 1, 1994 0-4117-1 4(f) 4.12* Indenture (For Unsecured Subordinated Debt Securities), dated as of December 1, 1995, between IES Utilities Inc. and The First National Bank of Chicago, as Trustee (Subordinated Indenture) (incorporated by reference to Exhibit 4(i) to IESU's Amendment No. 1 to Registration Statement, File No. 33-62259) 4.13* Indenture (For Senior Unsecured Debt Securities), dated as of August 1, 1997, between IES Utilities Inc. and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4(j) to IESU's Registration Statement, File No. 333-32097) 4.14* The Original through the Nineteenth Supplemental Indentures of Interstate Power Company to The Chase Manhattan Bank and Carl E. Buckley and C. J. Heinzelmann, as Trustees, dated January 1, 1948 securing First Mortgage Bonds (incorporated by reference to Exhibits 4(b) through 4(t) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 4.15* Twentieth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank and C. J. Heinzelmann, as Trustees, dated May 15, 1993 (incorporated by reference to Exhibit 4(u) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 10.1* Service Agreement by and among Wisconsin Power & Light Company, South Beloit Water, Gas and Electric Company, IES Utilities Inc., Interstate Power Company, and Alliant Services Company (incorporated by reference to Exhibit 10.1 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.2* Service Agreement by and among Alliant Industries, Inc., IPC Development Company, Inc. and Alliant Services Company (incorporated by reference to Exhibit 10.2 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.3* System Coordination and Operating Agreement dated April 11, 1997, among IES Utilities Inc., Interstate Power Company, Wisconsin Power & Light Company and Alliant Services, Inc. (incorporated by reference to Exhibit 10.3 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.4* Joint Power Supply Agreement among Wisconsin Public Service Corporation, Wisconsin Power and Light Company, and Madison Gas and Electric Company, dated February 2, 1967 (incorporated by reference to Exhibit 4.09 of Wisconsin Public Service Corporation in File No. 2-27308) 10.5* Joint Power Supply Agreement among Wisconsin Public Service Corporation, Wisconsin Power and Light Company, and Madison Gas and Electric Company, dated July 26, 1973 (incorporated by 135 reference to Exhibit 5.04A of Wisconsin Public Service Corporation in File No. 2-48781) 10.6* Basic Generating Agreement, Unit 4, Edgewater Generating Station, dated June 5, 1967, between Wisconsin Power and Light Company and Wisconsin Public Service Corporation (incorporated by reference to Exhibit 4.10 of Wisconsin Public Service Corporation in File No. 2-27308) 10.7* Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated February 24, 1983, between Wisconsin Power and Light Company, Wisconsin Electric Power Company and Wisconsin Public Service Corporation (incorporated by reference to Exhibit 10C-1 to Wisconsin Public Service Corporation's Form 10-K for the year ended December 31, 1983 (File No. 1-3016)) 10.7a* Amendment No. 1 to Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated December 1, 1988 (incorporated by reference to Exhibit 10C-2 to Wisconsin Public Service Corporation's Form 10-K for the year ended December 31, 1988 (File No. 1-3016)) 10.8* Revised Agreement for Construction and Operation of Columbia Generating Plant among Wisconsin Public Service Corporation, Wisconsin Power and Light Company, and Madison Gas and Electric Company, dated July 26, 1973 (incorporated by reference to Exhibit 5.07 of Wisconsin Public Service Corporation in File No. 2-48781) 10.9* Operating and Transmission Agreement between Central Iowa Power Cooperative and IESU (incorporated by reference to Exhibit 10(q) to IESU's Form 10-K for the year 1990) 10.10* Duane Arnold Energy Center Ownership Participation Agreement dated June 1, 1970 between Central Iowa Power Cooperative, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(kk) to IESU's Registration Statement, File No. 2-38674) 10.11* Duane Arnold Energy Center Operating Agreement dated June 1, 1970 between Central Iowa Power Cooperative, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(ll) to IESU's Registration Statement, File No. 2-38674) 10.12* Duane Arnold Energy Center Agreement for Transmission, Transformation, Switching, and Related Facilities dated June 1, 1970 between Central Iowa Power Cooperative, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(mm) to IESU's Registration Statement, File No. 2-38674) 10.13* Basic Generating Agreement dated April 16, 1975 between Iowa Public Service Company, Iowa Power and Light Company, Iowa-Illinois Gas and Electric Company and IESU for the joint ownership of Ottumwa Generating Station-Unit 1 (OGS-1) (incorporated by reference to Exhibit 1 to IESU's Form 10-K for the year 1977) 10.13a* Addendum Agreement to the Basic Generating Agreement for OGS-1 dated December 7, 1977 between Iowa Public Service Company, Iowa-Illinois Gas and Electric Company, Iowa Power and Light Company and IESU for the purchase of 15% ownership in OGS-1 (incorporated by reference to Exhibit 3 to IESU's Form 10-K for the year 1977) 10.14* Second Amended and Restated Credit Agreement dated as of September 17, 1987 between Arnold Fuel, Inc. and the First National Bank of Chicago and the Amended and Restated Consent and Agreement dated as of September 17, 1987 by IESU (incorporated by reference to Exhibit 10(j) to IESU's Form 10-K for the year 1987) 10.15#* Form of Supplemental Retirement Agreement (incorporated by reference to Exhibit 10.15 to IEC's Form 10-Q for the quarter ended June 30, 1998) 136 10.16#* Interstate Energy Corporation 1998 Officer Incentive Compensation Plan (incorporated by reference to Exhibit 10.16 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.17#* Interstate Energy Corporation Long-Term Incentive Program, revised July 1, 1998 (incorporated by reference to Exhibit 10.17 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.18#* Alliant Services Company Key Employee Deferred Compensation Plan (incorporated by reference to Exhibit 10.18 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.19#* Executive Tenure Compensation Plan as revised November 1992 (incorporated by reference to Exhibit 10A to IEC's Form 10-K for the year ended December 31, 1992) 10.19a#* Amendment to Executive Tenure Compensation Plan adopted February 23, 1998 (incorporated by reference to Exhibit 10.19a to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.20#* Forms of Deferred Compensation Plans, as amended June, 1990 (incorporated by reference to Exhibit 10C to IEC's Form 10-K for the year ended December 31, 1990) 10.20a#* Officer's Deferred Compensation Plan II, as adopted September 1992 (incorporated by reference to Exhibit 10C.1 to IEC's Form 10-K for the year ended December 31, 1992) 10.20b#* Officer's Deferred Compensation Plan III, as adopted January 1993 (incorporated by reference to Exhibit 10C.2 to IEC's Form 10-K for the year ended December 31, 1993) 10.21#* Deferred Compensation Plan for Directors, as amended January 17, 1995 (incorporated by reference to Exhibit 10I to IEC's Form 10-K for the year ended December 31, 1995) 10.22#* Interstate Energy Corporation Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to IEC's Form 10-Q for the quarter ended June 30, 1994) 10.23#* Key Executive Employment and Severance Agreement by and between Interstate Energy Corporation and Erroll B. Davis, Jr. (incorporated by reference to Exhibit 4.2 to IEC's Form 10-Q for the quarter ended June 30, 1994) 10.23a#* Key Executive Employment and Severance Agreement by and between Interstate Energy Corporation and each of W.D. Harvey and E.G. Protsch (incorporated by reference to Exhibit 4.3 to IEC's Form 10-Q for the quarter ended June 30, 1994) 10.24#* Key Executive Employment and Severance Agreement by and between Interstate Energy Corporation and each of E.M. Gleason, B.J. Swan, D.A. Doyle, P.J. Wegner, C. Fulenwider and K.K. Zuhlke (incorporated by reference to Exhibit 4.4 to IEC's Form 10-Q for the quarter ended June 30, 1994) 10.25#* Severance Agreement by and between Interstate Energy Corporation and Lance W. Ahearn (incorporated by reference to Exhibit 10N to IEC's Form 10-K for the year ended December 31, 1997) 10.26#* Severance Agreement by and between Interstate Energy Corporation and Anthony J. Amato (incorporated by reference to Exhibit 10.28 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.27#* Early Retirement Agreement, dated as of October 7, 1998, by and between Interstate Energy Corporation et al. and Michael R. Chase (incorporated by reference to Exhibit 10.1 to IEC's Form 10-Q for the quarter ended September 30, 1998) 10.28#* Employment Agreement, dated as of April 21, 1998, by and between Interstate Energy Corporation and Erroll B. Davis, Jr. (incorporated by reference to Exhibit 10.1 to IEC's Form 8-K dated April 21, 1998) 137 10.29#* Employment Agreement, dated as of April 21, 1998, by and between Interstate Energy Corporation and Lee Liu (incorporated by reference to Exhibit 10.2 to IEC's Form 8-K dated April 21, 1998) 10.30#* Supplemental Retirement Plan (incorporated by reference to Exhibit 10(l) to IES's Form 10-K for the year ended December 31, 1987) 10.31#* Key Employee Deferred Compensation Plan (incorporated by reference to Exhibit 10(n) to IES's Form 10-K for the year ended December 31, 1987) 10.31a#* Amendments to Key Employee Deferred Compensation Agreement for Key Employees (incorporated by reference to Exhibit 10(v) to IES's Form 10-Q for the quarter ended March 31, 1990) 10.32#* Executive Guaranty Plan (incorporated by reference to Exhibit 10(p) to IES's Form 10-K for the year ended December 31, 1987) 10.33#* Executive Change of Control Severance Agreement - CEO (incorporated by reference to Exhibit 10(a) to IES's Form 10-Q for the quarter ended September 30, 1996) 10.34#* Executive Change of Control Severance Agreement - Vice Presidents (incorporated by reference to Exhibit 10(b) to IES's Form 10-Q for the quarter ended September 30, 1996) 10.35#* Executive Change of Control Severance Agreement - Other Officers (incorporated by reference to Exhibit 10(c) to IES's Form 10-Q for the quarter ended September 30, 1996) 10.36#* Amendments to Key Employee Deferred Compensation Agreement for Directors (incorporated by reference to Exhibit 10(u) to IES's Form 10-Q for the quarter ended March 31, 1990) 10.37#* IES Industries Inc. Grantor Trust for Director Retirement Plan (incorporated by reference to Exhibit 10(c) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.38#* IES Industries Inc. Grantor Trust for Deferred Compensation Agreements (incorporated by reference to Exhibit 10(d) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.39#* IES Industries Inc. Grantor Trust for Supplemental Retirement Agreements (incorporated by reference to Exhibit 10(e) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.40#* IES Utilities Inc. Grantor Trust for Deferred Compensation Agreements (incorporated by reference to Exhibit 10(f) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.41#* IES Utilities Inc. Grantor Trust for Supplemental Retirement Agreements (incorporated by reference to Exhibit 10(g) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.42#* Interstate Power Company Irrevocable Trust Agreement dated April 30, 1990 (incorporated by reference to Exhibit 99.f to IPC's Form 10-K for the year ended December 31, 1993) 10.43#* Interstate Power Company Amended Deferred Compensation Plan as amended through January 30, 1990 (incorporated by reference to Exhibit 99.e to IPC's Form 10-K for the year ended December 31, 1993) 10.44#* Interstate Power Company Supplemental Retirement Plan as amended and restated November 10, 1995 and December 9, 1997 (incorporated by reference to Exhibit 99.5 to IPC's Form 10-K for the year ended December 31, 1997) 138 10.45#* Interstate Power Company Irrevocable Trust Agreement dated December 1997 (incorporated by reference to Exhibit 99.7 to IPC's Form 10-K for the year ended December 31, 1997) 10.46# Early Retirement Agreement, dated as of December 4, 1998, by and between Interstate Energy Corporation et al. and Richard R. Ewers 10.47 Stockholders' Agreement entered into as of November 18, 1998, by and among McLeodUSA Incorporated, Alliant Energy Investments, Inc. (formerly known as IES Investments Inc.) and certain other principal stockholders of McLeodUSA Incorporated 21 Subsidiaries of Interstate Energy Corporation 23 Consent of Independent Public Accountants for Interstate Energy Corporation 27.1 Financial Data Schedule for Interstate Energy Corporation at and for the period ended December 31, 1998 27.2 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended June 30, 1998 27.3 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended March 31, 1998 27.4 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended June 30, 1997 27.5 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended March 31, 1997 27.6 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended December 31, 1996 27.7 Financial Data Schedule for IES Utilities Inc. at and for the period ended December 31, 1998 27.8 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended March 31, 1998 27.9 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended December 31, 1997 27.10 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended March 31, 1997 27.11 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended December 31, 1996 27.12 Financial Data Schedule for Wisconsin Power and Light Company at and for the period ended December 31, 1998 Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrants agree to furnish to the Securities and Exchange Commission, upon request, any instrument defining the rights of holders of unregistered long-term debt not filed as an exhibit to this Form 10-K. No such instrument authorizes securities in excess of 10% of the total assets of IEC, WP&L or IESU, as the case may be. Documents incorporated by reference to filings made by IEC under the Securities Exchange Act of 1934, as 139 amended, are under File No. 1-9894. Documents incorporated by reference to filings made by WP&L under the Securities Exchange Act of 1934, as amended, are under File No. 0-337. Documents incorporated by reference to filings made by IES under the Securities Exchange Act of 1934, as amended, are under File No. 1-9187. Documents incorporated by reference to filings made by IESU under the Securities Exchange Act of 1934, as amended, are under File No. 0-4117-1. Documents incorporated by reference to filings made by IPC under the Securities Exchange Act of 1934, as amended, are under File No. 1-3632. # - A management contract or compensatory plan or arrangement. (b) Reports on Form 8-K Wisconsin Power and Light Company filed a Current Report on Form 8-K, dated October 27, 1998, reporting (under Item 5) that on October 27, 1998, Wisconsin Power and Light Company agreed to sell $60,000,000 principal amount of its 5.70% Debentures due October 15, 2008 in a public offering. Interstate Energy Corporation filed a Current Report on Form 8-K, dated January 20, 1999, reporting (under Item 5) that on January 20, 1999 the Board of Directors of Interstate Energy Corporation adopted a series of amendments to the Bylaws of Interstate Energy Corporation. Interstate Energy Corporation filed a Current Report on Form 8-K, dated January 20, 1999, reporting (under Item 5) that on January 20, 1999, the Board of Directors of Interstate Energy Corporation declared a dividend of one common share purchase right for each outstanding share of common stock, $.01 par value, of Interstate Energy Corporation. The description and terms of the common share purchase rights are set forth in a Rights Agreement dated January 20, 1999 between Interstate Energy Corporation and Firstar Bank Milwaukee, N.A., as Rights Agent. IESU - none. 140 INTERSTATE ENERGY CORPORATION, IES UTILITIES INC. AND WISCONSIN POWER AND LIGHT COMPANY
SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Description Balance, January 1 Balance, December 31 (in thousands) Valuation and Qualifying Accounts Which are Deducted in the Balance Sheet From the Assets to Which They Apply: Accumulated Provision for Uncollectible Accounts: Interstate Energy Corporation Year ended December 31, 1998 $ 2,624 $ 3,008 ======== ======== Year ended December 31, 1997 $ 3,319 $ 2,624 ======== ======== Year ended December 31, 1996 $ 3,341 $ 3,319 ======== ======== IES Utilities Inc. Year ended December 31, 1998 $ 854 $ 1,415 ======== ======== Year ended December 31, 1997 $ 757 $ 854 ======== ======== Year ended December 31, 1996 $ 676 $ 757 ======== ======== Wisconsin Power and Light Company Year ended December 31, 1998 $ 12 $ 8 ======== ======== Year ended December 31, 1997 $ 45 $ 12 ======== ======== Year ended December 31, 1996 $ 45 $ 45 ======== ======== Note: The above provisions relate to various customer and other receivable balances included in various line items on the respective Consolidated Balance Sheets. Other Reserves: Accumulated Provision for Injuries and Damages, Workers' Compensation and Other Miscellaneous Reserves: Interstate Energy Corporation Year ended December 31, 1998 $ 6,400 $ 7,458 ======== ======== Year ended December 31, 1997 $ 4,616 $ 6,400 ======== ======== Year ended December 31, 1996 $ 4,311 $ 4,616 ======== ======== IES Utilities Inc. Year ended December 31, 1998 $ 5,033 $ 3,129 ======== ======== Year ended December 31, 1997 $ 3,219 $ 5,033 ======== ======== Year ended December 31, 1996 $ 3,076 $ 3,219 ======== ======== Wisconsin Power and Light Company Year ended December 31, 1998 $ 1 $ 2,799 ======== ======== Year ended December 31, 1997 $ - $ 1 ======== ======== Year ended December 31, 1996 $ - $ - ======== ======== Reserve for Merger-Related Employee Separation Charges: Interstate Energy Corporation Year ended December 31, 1998 $ - $ 5,712 ======== ======== Year ended December 31, 1997 $ - $ - ======== ======== Year ended December 31, 1996 $ - $ - ======== ======== IES Utilities Inc. Year ended December 31, 1998 $ - $ 1,893 ======== ======== Year ended December 31, 1997 $ - $ - ======== ======== Year ended December 31, 1996 $ - $ - ======== ======== Wisconsin Power and Light Company Year ended December 31, 1998 $ - $ 766 ======== ======== Year ended December 31, 1997 $ - $ - ======== ======== Year ended December 31, 1996 $ - $ - ======== ========
141 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March 1999. INTERSTATE ENERGY CORPORATION By: /s/ Erroll B. Davis, Jr. Erroll B. Davis, Jr. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of March 1999. /s/ Erroll B. Davis, Jr. President, Chief Executive Officer and Director Erroll B. Davis, Jr. (Principal Executive Officer) /s/ Thomas M. Walker Executive Vice President and Chief Financial Thomas M. Walker Officer (Principal Financial Officer) /s/ John E. Ebright Vice President-Controller (Principal Accounting John E. Ebright Officer) /s/ Alan B. Arends Director /s/ Jack R. Newman Director Alan B. Arends Jack R. Newman Director /s/ Judith D. Pyle Director Rockne G. Flowers Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert D. Ray Director Joyce L. Hanes Robert D. Ray /s/ Lee Liu Director /s/ David Q. Reed Director Lee Liu David Q. Reed /s/ Katharine C. Lyall Director Director Katharine C. Lyall Robert W. Schlutz Director /s/ Wayne H. Stoppelmoor Director Arnold M. Nemirow Wayne H. Stoppelmoor /s/ Milton E. Neshek Director /s/ Anthony R. Weiler Director Milton E. Neshek Anthony R. Weiler 142 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March 1999. IES UTILITIES INC. By: /s/ Erroll B. Davis, Jr. Erroll B. Davis, Jr. Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of March 1999. /s/ Erroll B. Davis, Jr. President, Chief Executive Officer and Director Erroll B. Davis, Jr. (Principal Executive Officer) /s/ Thomas M. Walker Executive Vice President and Chief Financial Thomas M. Walker Officer (Principal Financial Officer) /s/ John E. Ebright Vice President-Controller (Principal Accounting John E. Ebright Officer) /s/ Alan B. Arends Director /s/ Jack R. Newman Director Alan B. Arends Jack R. Newman Director /s/ Judith D. Pyle Director Rockne G. Flowers Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert D. Ray Director Joyce L. Hanes Robert D. Ray /s/ Lee Liu Director /s/ David Q. Reed Director Lee Liu David Q. Reed /s/ Katharine C. Lyall Director Director Katharine C. Lyall Robert W. Schlutz Director /s/ Wayne H. Stoppelmoor Director Arnold M. Nemirow Wayne H. Stoppelmoor /s/ Milton E. Neshek Director /s/ Anthony R. Weiler Director Milton E. Neshek Anthony R. Weiler 143 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March 1999. WISCONSIN POWER AND LIGHT COMPANY By: /s/ Erroll B. Davis, Jr. Erroll B. Davis, Jr. Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of March 1999. /s/ Erroll B. Davis, Jr. President, Chief Executive Officer and Director Erroll B. Davis, Jr. (Principal Executive Officer) /s/ Thomas M. Walker Executive Vice President and Chief Financial Thomas M. Walker Officer (Principal Financial Officer) /s/ John E. Ebright Vice President-Controller (Principal Accounting John E. Ebright Officer) /s/ Alan B. Arends Director /s/ Jack R. Newman Director Alan B. Arends Jack R. Newman Director /s/ Judith D. Pyle Director Rockne G. Flowers Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert D. Ray Director Joyce L. Hanes Robert D. Ray /s/ Lee Liu Director /s/ David Q. Reed Director Lee Liu David Q. Reed /s/ Katharine C. Lyall Director Director Katharine C. Lyall Robert W. Schlutz Director /s/ Wayne H. Stoppelmoor Director Arnold M. Nemirow Wayne H. Stoppelmoor /s/ Milton E. Neshek Director /s/ Anthony R. Weiler Director Milton E. Neshek Anthony R. Weiler 144 EXHIBIT INDEX Exhibit Description 3.2 Bylaws of Interstate Energy Corporation, effective as of January 20, 1999 3.4 Bylaws of Wisconsin Power and Light Company, effective as of January 20, 1999 3.6 Bylaws of IES Utilities Inc., effective as of January 20, 1999 10.46 Early Retirement Agreement, dated as of December 4, 1998, by and between Interstate Energy Corporation et al. and Richard R. Ewers 10.47 Stockholders' Agreement entered into as of November 18, 1998, by and among McLeodUSA Incorporated, Alliant Energy Investments, Inc. (formerly known as IES Investments Inc.) and certain other principal stockholders of McLeodUSA Incorporated 21 Subsidiaries of Interstate Energy Corporation 23 Consent of Independent Public Accountants for Interstate Energy Corporation 27.1 Financial Data Schedule for Interstate Energy Corporation at and for the period ended December 31, 1998 27.2 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended June 30, 1998 27.3 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended March 31, 1998 27.4 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended June 30, 1997 27.5 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended March 31, 1997 27.6 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended December 31, 1996 27.7 Financial Data Schedule for IES Utilities Inc. at and for the period ended December 31, 1998 27.8 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended March 31, 1998 27.9 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended December 31, 1997 27.10 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended March 31, 1997 27.11 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended December 31, 1996 27.12 Financial Data Schedule for Wisconsin Power and Light Company at and for the period ended December 31, 1998 145 EX-3.2 2 BYLAWS Exhibit 3.2 BYLAWS OF INTERSTATE ENERGY CORPORATION Effective as of January 20, 1999 ARTICLE I OFFICES Section 1.1 PRINCIPAL AND BUSINESS OFFICES. - The Corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. Section 1.2 REGISTERED OFFICE. - The registered office of the Corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office. ARTICLE II SEAL Section 2.1 CORPORATE SEAL. - The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL, WISCONSIN." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. ARTICLE III SHAREOWNERS Section 3.1 ANNUAL MEETING. - The annual meeting of the shareowners (the "Annual Meeting") shall be held at such date and time as the Board of Directors may determine. In fixing a meeting date for any Annual Meeting, the Board of Directors may consider such factors as it deems relevant within the good faith exercise of its business judgment. At each Annual Meeting, the shareowners shall elect that number of directors equal to the number of directors in the class whose term expires at the time of such meeting. At any such Annual Meeting, only other business properly brought before the meeting in accordance with Section 3.14 of these Bylaws may be transacted. If the election of directors shall not be held on the date fixed as herein provided, for any Annual Meeting, or any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of shareowners (a "Special Meeting") as soon thereafter as is practicable. Section 3.2 SPECIAL MEETINGS. (a) A Special Meeting may be called only by (i) the Board of Directors or (ii) the Chief Executive Officer and shall be called by the Chief Executive Officer upon the demand, in accordance with this Section 3.2, of the holders of record of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting. (b) In order that the Corporation may determine the shareowners entitled to demand a Special Meeting, the Board of Directors may fix a record date to determine the shareowners entitled to make such a demand (the "Demand Record Date"). The Demand Record Date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors and shall not be more than ten days after the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors. Any shareowner of record seeking to have shareowners demand a Special Meeting shall, by sending written notice to the Secretary of the Corporation by hand or by certified or registered mail, return receipt requested, request the Board of Directors to fix a Demand Record Date. The Board of Directors shall promptly, but in all events within ten days after the date on which a valid request to fix a Demand Record Date is received, adopt a resolution fixing the Demand Record Date and shall make a public announcement of such Demand Record Date. If no Demand Record Date has been fixed by the Board of Directors within ten days after the date on which such request is received by the Secretary, the Demand Record Date shall be the 10th day after the first date on which a valid written request to set a Demand Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the Special Meeting is to be held, shall be signed by one or more shareowners of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareowner (or proxy or other representative) and shall set forth all information about each such shareowner and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a shareowner's notice described in paragraph (a) (ii) of Section 3.14 of these Bylaws. (c) In order for a shareowner or shareowners to demand a Special Meeting, a written demand or demands for a Special Meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting must be delivered to the Corporation. To be valid, each written demand by a shareowner for a Special Meeting shall set forth the specific purpose or purposes for which the Special Meeting is to be held (which purpose or purposes shall be limited to the purpose or purposes set forth in the written request to set a Demand Record Date received by the Corporation pursuant to paragraph (b) of this Section 3.2), shall be signed by one or more persons who as of the Demand Record Date are shareowners of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareowner (or proxy or other representative), and shall set forth the name and address, as they appear in the Corporation's books, of each shareowner signing such 2 demand and the class and number of shares of the Corporation which are owned of record and beneficially by each such shareowner, shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested, and shall be received by the Secretary within seventy days after the Demand Record Date. (d) The Corporation shall not be required to call a Special Meeting upon shareowner demand unless, in addition to the documents required by paragraph (c) of this Section 3.2, the Secretary receives a written agreement signed by each Soliciting Shareowner (as defined below), pursuant to which each Soliciting Shareowner, jointly and severally, agrees to pay the Corporation's costs of holding the Special Meeting, including the costs of preparing and mailing proxy materials for the Corporation's own solicitation, provided that if each of the resolutions introduced by any Soliciting Shareowner at such meeting is adopted, and each of the individuals nominated by or on behalf of any Soliciting Shareowner for election as a director at such meeting is elected, then the Soliciting Shareowners shall not be required to pay such costs. For purposes of this paragraph (d), the following terms shall have the meanings set forth below: (i) "Affiliate" of any Person (as defined herein) shall mean any Person controlling, controlled by or under common control with such first Person. (ii) "Participant" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (iii) "Person" shall mean any individual, firm, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity. (iv) "Proxy" shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act. (v) "Solicitation" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act. (vi) "Soliciting Shareowner" shall mean, with respect to any Special Meeting demanded by a shareowner or shareowners, any of the following Persons: (A) if the number of shareowners signing the demand or demands of meeting delivered to the Corporation pursuant to paragraph (c) of this Section 3.2 is ten or fewer, each shareowner signing any such demand; (B) if the number of shareowners signing the demand or demands of meeting delivered to the Corporation 3 pursuant to paragraph (c) of this Section 3.2 is more than ten, each Person who either (I) was a Participant in any Solicitation of such demand or demands or (II) at the time of the delivery to the Corporation of the documents described in paragraph (c) of this Section 3.2 had engaged or intends to engage in any Solicitation of Proxies for use at such Special Meeting (other than a Solicitation of Proxies on behalf of the Corporation); or (C) any Affiliate of a Soliciting Shareowner, if a majority of the directors then in office determine, reasonably and in good faith, that such Affiliate should be required to sign the written notice described in paragraph (c) of this Section 3.2 and/or the written agreement described in this paragraph (d) in order to prevent the purposes of this Section 3.2 from being evaded. (e) Except as provided in the following sentence, any Special Meeting shall be held at such hour and day as may be designated by whichever of the Board of Directors or the Chief Executive Officer shall have called such meeting. In the case of any Special Meeting called by the Chief Executive Officer upon the demand of shareowners (a "Demand Special Meeting"), such meeting shall be held at such hour and day as may be designated by the Board of Directors; provided, however, that the date of any Demand Special Meeting shall be not more than seventy days after the Meeting Record Date (as defined in Section 3.6 hereof); and provided further that in the event that the directors then in office fail to designate an hour and date for a Demand Special Meeting within ten days after the date that valid written demands for such meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting are delivered to the Corporation (the "Delivery Date"), then such meeting shall be held at 2:00 P.M. local time on the 100th day after the Delivery Date or, if such 100th day is not a Business Day (as defined below), on the first preceding Business Day. In fixing a meeting date for any Special Meeting, the Board of Directors or the Chief Executive Officer may consider such factors as it or he deems relevant within the good faith exercise of its or his business judgment, including, without limitation, the nature of the action proposed to be taken, the facts and circumstances surrounding any demand for such meeting, and any plan of the Board of Directors to call an Annual Meeting or a Special Meeting for the conduct of related business. (f) The Corporation may engage regionally or nationally recognized independent inspectors of elections to act as an agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported written demand or demands for a Special Meeting received by the Secretary. For the purpose of permitting the inspectors to perform such review, no purported demand shall be deemed to have been delivered to the Corporation until the earlier of (i) five Business Days following receipt by the Secretary of such purported demand and (ii) such date as the independent inspectors certify to the Corporation that the valid demands received by the Secretary represent at least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting. 4 Nothing contained in this paragraph (f) shall in any way be construed to suggest or imply that the Board of Directors or any shareowner shall not be entitled to contest the validity of any demand, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto). (g) For purposes of these Bylaws, "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Wisconsin are authorized or obligated by law or executive order to close. Section 3.3 PLACE OF MEETING. - The Board of Directors or the Chief Executive Officer may designate any place, either within or without the State of Wisconsin, as the place for any Annual Meeting or any Special Meeting, or for any postponement thereof. If no designation is made, the place of meeting shall be the principal office of the Corporation. Any meeting may be adjourned to reconvene at any place designated by vote of the Board of Directors or determined by the Chief Executive Officer. Section 3.4 NOTICE OF MEETINGS - Written notice stating the date, time and place of any meeting of shareowners shall be delivered not less than ten days nor more than seventy days before the date of the meeting (unless a different time period is provided by the Wisconsin Business Corporation Law or the Articles of Incorporation), either personally or by mail, by or at the direction of the Chief Executive Officer or the Secretary, to each shareowner of record entitled to vote at such meeting and to such other persons as required by the Wisconsin Business Corporation Law. In the event of any Demand Special Meeting, such notice of meeting shall be sent not more than thirty days after the Delivery Date. If mailed, notice pursuant to this Section 3.4 shall be deemed to be effective when deposited in the United States mail, addressed to the shareowner at his or her address as it appears on the stock record books of the Corporation, with postage thereon prepaid. Unless otherwise required by the Wisconsin Business Corporation Law or the Articles of Incorporation, a notice of an Annual Meeting need not include a description of the purpose for which the meeting is called. In the case of any Special Meeting, (a) the notice of meeting shall describe any business that the Board of Directors shall have theretofore determined to bring before the meeting and (b) in the case of a Demand Special Meeting, the notice of meeting (i) shall describe any business set forth in the statement of purpose of the demands received by the Corporation in accordance with Section 3.2 of these Bylaws and (ii) shall contain all of the information required in the notice received by the Corporation in accordance with Section 3.14(b) of these Bylaws. If an Annual Meeting or Special Meeting is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new Meeting Record Date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareowners as of the new Meeting Record Date. Section 3.5 WAIVER OF NOTICE - A shareowner may waive any notice required by the Wisconsin Business Corporation Law, the Articles of Incorporation or these Bylaws before or after the date and time stated in the notice. The waiver shall be in writing 5 and signed by the shareowner entitled to the notice, contain the same information that would have been required in the notice under applicable provisions of the Wisconsin Business Corporation Law (except that the time and place of meeting need not be stated) and be delivered to the Corporation for inclusion in the corporate records. A shareowner's attendance at any Annual Meeting or Special Meeting, in person or by proxy, waives objection to all of the following: (a) lack of notice or defective notice of the meeting, unless the shareowner at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting; and (b) consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareowner objects to considering the matter when it is presented. Section 3.6 FIXING OF RECORD DATE. - The Board of Directors may fix in advance a date not less than ten days and not more than seventy days prior to the date of an Annual Meeting or Special Meeting as the record date for the determination of shareowners entitled to notice of, or to vote at, such meeting (the "Meeting Record Date"). In the case of any Demand Special Meeting, (i) the Meeting Record Date shall be not later than the 30th day after the Delivery Date and (ii) if the Board of Directors fails to fix the Meeting Record Date within thirty days after the Delivery Date, then the close of business on such 30th day shall be the Meeting Record Date. The shareowners of record on the Meeting Record Date shall be the shareowners entitled to notice of and to vote at the meeting. Except as provided by the Wisconsin Business Corporation Law for a court-ordered adjournment, a determination of shareowners entitled to notice of and to vote at an Annual Meeting or Special Meeting is effective for any adjournment of such meeting unless the Board of Directors fixes a new Meeting Record Date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. The Board of Directors may also fix in advance a date as the record date for the purpose of determining shareowners entitled to take any other action or determining shareowners for any other purpose. Such record date shall be not more than seventy days prior to the date on which the particular action, requiring such determination of shareowners, is to be taken. The record date for determining shareowners entitled to a distribution (other than a distribution involving a purchase, redemption or other acquisition of the Corporation's shares) or a share dividend is the date on which the Board of Directors authorizes the distribution or share dividend, as the case may be, unless the Board of Directors fixes a different record date. Section 3.7 SHAREOWNER LIST. - The Corporation shall have available, beginning two (2) days after the notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, a complete record of each shareowner entitled to vote at such meeting, or any adjournment thereof, showing the address of and number of shares held by each shareowner. The shareowner list shall be available for inspection by any shareowner during normal business hours at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareowners' list available at the meeting and any shareowner or his agent or attorney may inspect the list at any time the meeting or any adjournment thereof. 6 Section 3.8 QUORUM AND VOTING REQUIREMENTS. (a) Shares entitled to vote as a separate voting group may take action on a matter at any Annual Meeting or Special Meeting only if a quorum of those shares exists with respect to that matter. If the Corporation has only one class of stock outstanding, such class shall constitute a separate voting group for purposes of this Section 3.8. Except as otherwise provided in the Articles of Incorporation or the Wisconsin Business Corporation Law, a majority of the votes entitled to be cast on the matter shall constitute a quorum of the voting group for action on that matter. Once a share is represented for any purpose at any Annual Meeting or Special Meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new Meeting Record Date is or must be set for the adjourned meeting. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the Wisconsin Business Corporation Law requires a greater number of affirmative votes. Unless otherwise provided in the Articles of Incorporation, each director to be elected shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at an Annual Meeting or Special Meeting at which a quorum is present. (b) The Board of Directors acting by resolution may postpone and reschedule any previously scheduled Annual Meeting or Special Meeting; provided, however, that a Demand Special Meeting shall not be postponed beyond the 100th day following the Delivery Date. Any Annual Meeting or Special Meeting may be adjourned from time to time, whether or not there is a quorum, (i) at any time, upon a resolution by shareowners if the votes cast in favor of such resolution by the holders of shares of each voting group entitled to vote on any matter theretofore properly brought before the meeting exceed the number of votes cast against such resolution by the holders of shares of each such voting group or (ii) at any time prior to the transaction of any business at such meeting, by the Chairperson of the Board or pursuant to a resolution of the Board of Directors. No notice of the time and place of adjourned meetings need be given except as required by the Wisconsin Business Corporation Law. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.9 CONDUCT OF MEETING. - The Chairperson of the Board shall preside at each meeting of shareowners. In the absence of the Chairperson of the Board, such persons, in the following order, shall act as chair of the meeting; the Vice Chairperson of the Board, the Chief Executive Officer, the President, any Vice President, and the Director in attendance with the longest tenure in that office. The Secretary, or if absent, an Assistant Secretary, of the Company shall act as Secretary of each shareowner meeting. Section 3.10 PROXIES. - Any shareowner having the right to vote at a meeting of shareowners may exercise such right by voting in person or by proxy at such meeting. Such proxies shall be filed with the Secretary of the Corporation before or at the 7 time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Section 3.11 VOTING OF SHARES. - Except as provided in the Articles of Incorporation or statute, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareowners. Section 3.12 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. Section 3.13 Action without Meeting. - Any action required or permitted by the Articles of Incorporation or these Bylaws or any provision of the Wisconsin Business Corporation Law to be taken at an Annual Meeting or Special Meeting may be taken without a meeting if a written consent or consents, describing the action so taken, is signed by all of the shareowners entitled to vote with respect to the subject matter thereof and delivered to the Corporation for inclusion in the corporate records. 8 Section 3.14 Notice of Shareowner Business and Nomination of Directors. (a) Annual Meetings. (i) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareowners may be made at an Annual Meeting (A) pursuant to the Corporation's notice of meeting, (B) by or at the direction of the Board of Directors or (C) by any shareowner of the Corporation who is a shareowner of record at the time of giving of notice provided for in this Bylaw and who is entitled to vote at the meeting and complies with the notice procedures set forth in this Section 3.14. (ii) For nominations or other business to be properly brought before an Annual Meeting by a shareowner pursuant to clause (C) of paragraph (a)(i) of this Section 3.14, the shareowner must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareowner's notice shall be received by the Secretary of the Corporation at the principal offices of the Corporation not later than the earlier of (A) 45 days in advance of the first annual anniversary (the "Anniversary Date") of the date set forth in the Corporation's proxy statement for the prior year's Annual Meeting as the date on which the Corporation first mailed definitive proxy materials for the prior year's Annual Meeting and (B) the later of (x) the 70th day prior to such Annual Meeting and (y) the 10th day following the day on which public announcement of the date of such meeting is first made. Such shareowner's notice shall be signed by the shareowner of record who intends to make the nomination or introduce the other business (or his duly authorized proxy or other representative), shall bear the date of signature of such shareowner (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on this Corporation's books, of such shareowner and the beneficial owner or owners, if any, on whose behalf the nomination or proposal is made; (B) the class and number of shares of the Corporation which are beneficially owned by such shareowner or beneficial owner or owners; (C) a representation that such shareowner is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination or introduce the other business specified in the notice; (D) in the case of any proposed nomination for election or re-election as a director, (I) the name and residence address of the person or persons to be nominated, (II) a description of all arrangements or understandings between such shareowner or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareowner, (III) such other information regarding each nominee proposed by such shareowner as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A 9 under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors and (IV) the written consent of each nominee to be named in a proxy statement and to serve as a director of the Corporation if so elected; and (E) in the case of any other business that such shareowner proposes to bring before the meeting, (I) a brief description of the business desired to be brought before the meeting and, if such business includes a proposal to amend these Bylaws, the language of the proposed amendment, (II) such shareowner's and beneficial owner's or owners' reasons for conducting such business at the meeting and (III) any material interest in such business of such shareowner and beneficial owner or owners. (iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Section 3.14 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 45 days prior to the Anniversary Date, a shareowner's notice required by this Section 3.14 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary at the principal offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (b) Special Meetings. Only such business shall be conducted at a Special Meeting as shall have been described in the notice of meeting sent to shareowners pursuant to Section 3.4 of these Bylaws. Nominations of persons for election to the Board of Directors may be made at a Special Meeting at which directors are to be elected pursuant to such notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any shareowner of the Corporation who (A) is a shareowner of record at the time of giving of such notice of meeting, (B) is entitled to vote at the meeting and (C) complies with the notice procedures set forth in this Section 3.14. Any shareowner desiring to nominate persons for election to the Board of Directors at such a Special Meeting shall cause a written notice to be received by the Secretary of the Corporation at the principal offices of the Corporation not earlier than ninety days prior to such Special Meeting and not later than the close of business on the later of (x) the 60th day prior to such Special Meeting and (y) the 10th day following the day on which public announcement is first made of the date of such Special Meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Such written notice shall be signed by the shareowner of record who intends to make the nomination (or his duly authorized proxy or other representative), shall bear the date of signature of such shareowner (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on the Corporation's books, of such shareowner and the beneficial owner or owners, if any, on whose behalf the nomination is made; (B) the class and number of shares of the Corporation which are beneficially owned by such shareowner or beneficial owner or owners; (C) a representation that such shareowner is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the 10 nomination specified in the notice; (D) the name and residence address of the person or persons to be nominated; (E) a description of all arrangements or understandings between such shareowner or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareowner; (F) such other information regarding each nominee proposed by such shareowner as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors; and (G) the written consent of each nominee to be named in a proxy statement and to serve as a director of the Corporation if so elected. (c) General. (i) Only persons who are nominated in accordance with the procedures set forth in this Section 3.14 shall be eligible to serve as directors. Only such business shall be conducted at an Annual Meeting or Special Meeting as shall have been brought before such meeting in accordance with the procedures set forth in this Section 3.14. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 3.14 and, if any proposed nomination or business is not in compliance with this Section 3.14, to declare that such defective proposal shall be disregarded. (ii) For purposes of this Section 3.14, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 3.14, a shareowner shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.14. Nothing in this Section 3.14 shall be deemed to limit the Corporation's obligation to include shareowner proposals in its proxy statement if such inclusion is required by Rule 14a-8 under the Exchange Act. ARTICLE IV BOARD OF DIRECTORS Section 4.1 GENERAL POWER. - The business and affairs of the Corporation shall be managed by its Board of Directors. 11 Section 4.2 NUMBER. CLASSES & TERM. - The number of Directors of the Corporation shall be fifteen (15). The Directors of the Corporation shall be divided into three classes, hereinafter referred to as "Class I," "Class II," and "Class III" with each class having five (5) Directors. The initial Class I Directors shall consist of two (2) directors selected by each of IES Industries Inc. ("IES") and WPL Holdings Inc. ("WPLH") and one (1) selected by Interstate Power Company ("IPC"); the initial Class II Directors shall consist of two (2) directors selected by each of IES and WPLH and one (1) selected by IPC; and the initial Class III Directors shall consist of two (2) directors selected by each of IES and WPLH and one (1) selected from IPC. The initial term of Class I Directors shall expire at the first annual meeting of Shareowners of the Corporation, the initial term of Class II Directors shall expire at the second annual meeting of Shareowners of the Corporation and the initial term of Class III Directors shall expire at the third annual meeting of Shareowners of the Corporation. At each annual shareowner meeting after the first annual shareowner meeting, directors to replace those of a Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly qualified and elected. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. Section 4.3 CHAIRPERSON OF THE BOARD. - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available for consultation and advice. Section 4.4 VICE CHAIRPERSON OF THE BOARD. - The Vice Chairperson of the Board shall assist the Board in the formulation of policies and make recommendations therefore. The Vice Chairperson shall have such other powers and duties as may be prescribed for him or her by the Chairperson of the Board or the Board of Directors. In the absence of or the inability of the Chairperson of the Board to act as Chairperson of the Board, the Vice Chairperson of the Board shall assume the powers and duties of the Chairperson of the Board. Section 4.5 QUALIFICATIONS AND REMOVAL. - No person who has attained 71 years of age shall be eligible for election or re-election to the Board of Directors. Any Director who has attained seventy-one (71) years of age shall resign from the Board of Directors effective as of the next annual Meeting of Shareowners. For a period of five (5) years following the formation of the Corporation, no person, except any of the initial Directors selected pursuant to Section 4.2 hereof, who is an executive officer or employee of the Corporation or any of its subsidiaries shall be eligible to serve as a Director of the Corporation; provided, however, that any individual serving as Chief Executive Officer of the Corporation shall be eligible to serve as a Director of the Corporation. In the event the Chief Executive Officer resigns or retires from his or her office or employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that the Chief Executive Officer is removed from his or her office by the Board of Directors, or is involuntarily terminated from employment with the 12 Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that a Director experiences a change in their principal occupation or primary business affiliation, the Director must submit their resignation from the Board to the Nominating and Governance Committee. The Nominating and Governance Committee shall recommend to the Board of Directors whether the Board should accept such resignation. If the Nominating and Governance Committee recommends acceptance of the resignation, an affirmative vote of two-thirds of the remaining Directors holding office is required to affirm the Nominating and Governance Committee's recommendation. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. Section 4.6 REGULAR MEETINGS. - Regular meetings of the Board of Directors shall be held at such time and place as may be determined by the Board of Directors, but in no event shall the Board meet less than once a year. Section 4.7 SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any two (2) Directors. The Chief Executive Officer or Secretary may fix any place, either within or without the State of Wisconsin, whether in person or by telecommunications, as the place for holding any special meeting. Section 4.8 NOTICE; WAIVER. - Notice of any meeting of the Board of Directors, unless otherwise provided pursuant to Section 4.6, shall be given at least forty-eight (48) hours prior to the meeting by written notice delivered personally or mailed to each Director at such address designed by each Director, by telegram or other form of wire or wireless communication. The notice need not describe the purpose of the meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage prepared. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened. Section 4.9 QUORUM. - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting to some other day without further notice. Section 4.10 MEETING PARTICIPATION. (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through, the use of any means of communication by which any of the following occurs: 13 (i) All participating directors may simultaneously hear each other during the meeting. (ii) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 4.11 ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the Committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. The action taken is effective when the last Director signs the consent unless the consent specifies a different effective date. Section 4.12 PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent or abstention shall be entered in the minutes of the meeting, (c) the Director shall file a written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting, or (d) the Director shall file a written notice to the Secretary of the Corporation promptly after receiving the minutes of the meeting that the minutes failed to show the Director's dissention or abstention from the action taken. Such right to dissent or abstain shall not apply to a Director who voted in favor of such action. Section 4.13 VACANCIES. - Except as provided below, any vacancy occurring in the Board of Directors or on any Committee of the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. For a period of time commencing on formation of Interstate Energy Corporation and expiring on the date of the third annual meeting of shareowners of the Corporation, the initially appointed IES, IPC and WPLH directors, each as a separate group, shall be entitled to nominate those persons who will be eligible to be appointed, elected or re-elected as IES, IPC and WPLH Directors. The Director or Directors so chosen shall hold 14 office until the next election of the Class for which such Director or Directors shall have been chosen and until their successors shall have been duly elected and qualified. Section 4.14 COMPENSATION. - Compensation and expenses for attendance at a regular or special meeting of the Board of Directors, or at any committee meeting, shall be payable in such amounts as determined from time to time by the Board of Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors who are full time employees or officers of the Corporation shall not receive any compensation. ARTICLE V COMMITTEES Section 5.1 COMMITTEES. - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number various Committees from time to time as corporate needs may dictate. The Committees may make their own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The Committee may be authorized by the Board of Directors to perform specified functions, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareowners action that the Wisconsin Business Corporation Law requires to be approved by shareowners; (c) fill vacancies on the Board of Directors, or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the Corporation's Articles of Incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareowner approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Section 5.2 EXECUTIVE COMMITTEE. - An Executive Committee is hereby established and shall consist of at least three (3) members, including the Chairman of the Board. The Executive Committee shall possess all the powers and authority of the Board of Directors when said Board of Directors is not in session, except for the powers and authorities set forth in Section 5.1. Section 5.3 AUDIT COMMITTEE. - An Audit Committee is hereby established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The members of the Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. 15 Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.4 COMPENSATION AND PERSONNEL COMMITTEE. - A Compensation and Personnel Committee is hereby established and shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chairman of the Board, the Chief Executive Officer, or any Committee member. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.5 NOMINATING AND GOVERNANCE COMMITTEE. - A Nominating and Governance Committee shall be established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Nominating and Governance Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. ARTICLE VI OFFICERS Section 6.1 OFFICERS. - The Board of Directors shall elect a Chief Executive Officer, a President, such number of Vice Presidents with such designations as the Board of Directors at the time may decide upon, a Secretary, a Treasurer and a Controller. The Chief Executive Officer may appoint such other officers and assistant officers as may be deemed necessary. The same person may simultaneously hold more than one such office. Section 6.2 TERM OF OFFICERS. - All Officers, unless sooner removed, shall hold their respective offices until their successors, willing to serve, shall have been elected but any Officer may be removed from Office at any time by the Board of Directors. Section 6.3 REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. Section 6.4 CHIEF EXECUTIVE OFFICER. - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Corporation, shall establish the lines of authority and supervision of the Officers and 16 employees of the Corporation, shall have the power to appoint and remove and discharge any and all agents and employees of the Corporation not elected or appointed directly by the Board of Directors. and shall assist the Board in the formulation of policies of the Corporation. The Chairperson of the Board, if Chief Executive Officer, may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Corporation. Section 6.5 PRESIDENT. - The President, when he or she is not designated as and does not have the powers of the Chief Executive Officer, shall have such other powers and duties as may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board or the Chief Executive Officer. Section 6.6 VICE PRESIDENTS. - The Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and the Chief Executive Officer. In the absence of or in the event of the death of the Chief Executive Officer and the President, the inability or refusal to act, or in the event for any reason it shall be impracticable for Chief Executive Officer and the President to act personally, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chief Executive Officer and the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and the President. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the Chief Executive Officer and the President. Section 6.7 SECRETARY. - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Corporation, and of all other books, documents and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Corporation and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.8 TREASURER. - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks or trust 17 companies as he or she shall designate and shall keep a proper record of cash receipts and disbursements. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the President, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Corporation for operating purposes in the usual course or business. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. The Treasurer shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.9 CONTROLLER. - The Controller shall be the principal accounting Officer of the Corporation. He or she shall have general supervision over the books of accounts of the Corporation. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Corporation relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the President or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.10 ASSISTANT OFFICERS. - The Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and other Assistant Officers shall respectively assist the Secretary, Treasurer, Controller, and other Officers of the Corporation in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1 CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the fact (a) that the Corporation is organized under the laws of the State of Wisconsin, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such 18 certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, or the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent and registrar. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person where an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2 TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 3.12 of Article III of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 3.12 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. Section 7.3 LOST, DESTROYED OR STOLEN CERTIFICATES. - When the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond if required by the Corporation and (c) satisfies such other reasonable requirements as may be provided by the Corporation. 19 Section 7.4 STOCK REGULATIONS. - The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the Corporation. ARTICLE VIII INDEMNIFICATION AND LIABILITY OF DIRECTOR AND OFFICERS Section 8.1 INDEMNIFICATION. - The Corporation shall, to the fullest extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business Corporation Law, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors, Officers, employees and agents against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director, Officer, employee or agent is a Party because he or she is or was a Director, Officer, employee or agent of the Corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer, employee or agent may be entitled under any written agreement, Board resolution, vote of shareowners, the Wisconsin Business Corporation Law or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.1 by the purchase of insurance on behalf of any one or more of such Directors, Officers, employees or agents, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director, Officer, employee or agent under this Section 8.1. All capitalized terms used in this Article VIII and not otherwise defined herein shall have the meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law. ARTICLE IX MISCELLANEOUS Section 9.1 FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. Section 9.2 DIVIDENDS. - Subject to the provisions of law or the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. 20 Section 9.3 CONTRACTS, CHECKS, DRAFTS, DEEDS, LEASES AND OTHER INSTRUMENTS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation, and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Treasurer may authorize. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the Corporation to be affixed thereto shall be signed by the President or a Vice President, and by the Secretary, or an Assistant Secretary, or by such other officer or officers, or person or persons, as the Board of Directors may be resolution prescribe. Section 9.4 VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the Chief Executive Officer of the Corporation, if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the Chief Executive Officer, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chief Executive Officer or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. ARTICLE X AMENDMENT OR REPEAL OF BYLAWS Section 10.1 AMENDMENTS BY BOARD OF DIRECTORS. - Except as otherwise provided by the Wisconsin Business Corporation Law or the Articles of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; provided, however, that the shareowners in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. 21 Section 10.2 IMPLIED AMENDMENT. - Any action taken or authorized by the shareowners or by the Board of Directors which would be inconsistent with the Bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. 22 EX-3.4 3 BYLAWS EXHIBIT 3.4 BYLAWS OF WISCONSIN POWER AND LIGHT COMPANY Effective as of January 20, 1999 ARTICLE I OFFICES Section 1.1 PRINCIPAL AND BUSINESS OFFICES. - The Corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. Section 1.2 REGISTERED OFFICE. - The registered office of the Corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office. ARTICLE II SEAL Section 2.1 CORPORATE SEAL. - The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL, WISCONSIN." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. ARTICLE III SHAREOWNERS Section 3.1. ANNUAL MEETING. - The Annual Meeting of Shareowners shall be held at such date and time as the Board of Directors may determine. The Board of Directors may designate any place, either within or without the State of Wisconsin, as the place for the Annual Meeting. If no designation is made, the place of the Annual Meeting shall be the principal office of the Corporation. The Annual Meeting shall be held for the purposes of electing Directors and of transacting such other business as may properly come before the meeting. Section 3.2 SPECIAL MEETINGS. - Special Meetings of the Shareowners may be called by the Board of Directors or the Chief Executive Officer. The Corporation shall call a Special Meeting of Shareowners in the event that the holders of at least ten percent (10%) of all of the votes entitled to be cast on any issue request a special meeting be held. Section 3.3 NOTICE OF MEETINGS - WAIVER. - Notice of the time and place of each Annual or Special Meeting of Shareowners shall be sent by mail to the recorded address of each shareowner not less than ten (10) days nor more than sixty (60) days before the date of the meeting, except in cases where other special method of notice may be required by statute, in which case the statutory method shall be followed. The notice of a Special Meeting shall state the purpose of the meeting. If an Annual or Special Meeting of shareowners is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new record date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareowners as of the new record date. Notice of any meeting of the shareowners may be waived by any shareowner. Section 3.4 FIXING OF RECORD DATE. - For the purpose of determining shareowners entitled to notice of, or to vote at, any meeting of shareowners, or at any adjournment thereof, or shareowners entitled to receive payment of any dividend, or in order to make a determination of shareowners for any other lawful action, the Board of Directors may fix, in advance, a record date for such determination of shareowners. Such date in case of a meeting of shareowners or other lawful action shall not be more than seventy (70) days prior to the date of such meeting or lawful action. If no record date is fixed by the Board of Directors or by statute for the determination of shareowners entitled to demand a special meeting as contemplated in Section 3.2 hereof, the record date shall be the date that the first shareowner signs the demand. When a determination of shareowners entitled to vote at any meeting of shareowners has been made as provided in this section, such determination shall apply to any adjournment thereof unless the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting in which event the Board of Directors must fix a new record date. Section 3.5 SHAREOWNER LIST. - The Corporation shall have available, beginning two (2) days after the notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, a complete record of each shareowner entitled to vote at such meeting, or any adjournment thereof, showing the address of and number of shares held by each shareowner. The shareowner list shall be available for inspection by any shareowner during normal business hours at the Corporation's principal office or 2 at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareowners' list available at the meeting and any shareowner or his agent or attorney may inspect the list at any time the meeting or any adjournment thereof. Section 3.6 QUORUM AND VOTING REQUIREMENTS. - Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the outstanding shares entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for action on that matter. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the Corporation's Articles of Incorporation, any Bylaw adopted under authority granted in the Articles of Incorporation or statute requires a greater number of affirmative votes. Directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. Though less than a quorum of the outstanding votes are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.7 CONDUCT OF MEETING. - The Chairperson of the Board shall preside at each meeting of shareowners. In the absence of the Chairperson of the Board, such persons, in the following order, shall act as chair of the meeting; the Vice Chairperson of the Board, the Chief Executive Officer, the President, any Vice President, the Director in attendance with the longest tenure in that office. The Secretary, or if absent, an Assistant Secretary, of the Company shall act as Secretary of each shareowner. Section 3.8 PROXIES. - Any shareowner having the right to vote at a meeting of shareowners may exercise such right by voting in person or by proxy at such meeting. Such proxies shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Section 3.9 VOTING OF SHARES. - Except as provided in the Articles of Incorporation or statute, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareowners. Section 3.10 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent 3 or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. ARTICLE IV BOARD OF DIRECTORS Section 4.1 GENERAL POWER. - The business and affairs of the Corporation shall be managed by its Board of Directors. Section 4.2 NUMBER. CLASSES & TERM. - The number of Directors of the Corporation shall be fifteen (15). The Directors of the Corporation shall be divided into three classes, hereinafter referred to as "Class I," "Class II," and "Class III" with each class having five (5) Directors. The initial Class I Directors shall consist of two (2) directors selected by each of IES Industries Inc. ("IES") and WPL Holdings Inc. ("WPLH") and one (1) selected by Interstate Power Company ("IPC"); the initial Class II Directors shall consist of two (2) directors selected by each of IES and WPLH and one (1) selected by IPC; and the initial Class III Directors shall consist of two (2) directors selected by each of IES and WPLH and one (1) selected from IPC. The initial term of Class I Directors shall expire at the first annual meeting of Shareowners of the Corporation, the initial term of Class II Directors shall expire at the second annual meeting of 4 Shareowners of the Corporation and the initial term of Class III Directors shall expire at the third annual meeting of Shareowners of the Corporation. At each annual shareowner meeting after the first annual shareowner meeting, directors to replace those of a Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly qualified and elected. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. Section 4.3 CHAIRPERSON OF THE BOARD. - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available for consultation and advice. Section 4.4 VICE CHAIRPERSON OF THE BOARD. - The Vice Chairperson of the Board shall assist the Board in the formulation of policies and make recommendations therefore. The Vice Chairperson shall have such other powers and duties as may be prescribed for him or her by the Chairperson of the Board or the Board of Directors. In the absence of or the inability of the Chairperson of the Board to act as Chairperson of the Board, the Vice Chairperson of the Board shall assume the powers and duties of the Chairperson of the Board. Section 4.5 QUALIFICATIONS AND REMOVAL. - No person who has attained 71 years of age shall be eligible for election or re-election to the Board of Directors. Any Director who has attained seventy-one (71) years of age shall resign from the Board of Directors effective as of the next annual Meeting of Shareowners. For a period of five (5) years following the formation of the Corporation, no person, except any of the initial Directors selected pursuant to Section 4.2 hereof, who is an executive officer or employee of the Corporation or any of its subsidiaries shall be eligible to serve as a Director of the Corporation; provided, however, that any individual serving as Chief Executive Officer of the Corporation shall be eligible to serve as a Director of the Corporation. In the event the Chief Executive Officer resigns or retires from his or her office or employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that the Chief Executive Officer is removed from his or her office by the Board of Directors, or is involuntarily terminated from employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the 5 event that a Director experiences a change in their principal occupation or primary business affiliation, the Director must submit their resignation from the Board to the Nominating and Governance Committee. The Nominating and Governance Committee shall recommend to the Board of Directors whether the Board shall accept such resignation. If the Nominating and Governance Committee recommends acceptance of the resignation, an affirmative vote of two-thirds of the remaining Directors holding office is required to affirm the Nominating and Governance Committee's recommendation. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. Section 4.6 REGULAR MEETINGS. - Regular meetings of the Board of Directors shall be held at such time and place as may be determined by the Board of Directors, but in no event shall the Board meet less than once a year. Section 4.7 SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any two (2) Directors. The Chief Executive Officer or Secretary may fix any place, either within or without the State of Wisconsin, whether in person or by telecommunications, as the place for holding any special meeting. Section 4.8 NOTICE; WAIVER. - Notice of any meeting of the Board of Directors, unless otherwise provided pursuant to Section 4.6, shall be given at least forty-eight (48) hours prior to the meeting by written notice delivered personally or mailed to each Director at such address designed by each Director, by telegram or other form of wire or wireless communication. The notice need not describe the purpose of the meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage prepared. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened. Section 4.9 QUORUM. - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting to some other day without further notice. Section 4.10 MEETING PARTICIPATION. - (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through, the use of any means of communication by which any of the following occurs: 6 1) All participating directors may simultaneously hear each other during the meeting. 2) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 4.11 ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the Committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. The action taken is effective when the last Director signs the consent unless the consent specifies a different effective date. Section 4.12 PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent or abstention shall be entered in the minutes of the meeting, (c) the Director shall file a written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting, or (d) the Director shall file a written notice to the Secretary of the Corporation promptly after receiving the minutes of the meeting that the minutes failed to show the Director's dissention or abstention from the action taken. Such right to dissent or abstain shall not apply to a Director who voted in favor of such action. Section 4.13 VACANCIES. - Except as provided below, any vacancy occurring in the Board of Directors or on any Committee of the Board of Directors and any directorship to be filled by reason of an increase in the number of 7 Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. For a period of time commencing on formation of Interstate Energy Corporation and expiring on the date of the third annual meeting of shareowners of the Corporation, the initially appointed IES, IPC and WPLH directors, each as a separate group, shall be entitled to nominate those persons who will be eligible to be appointed, elected or re-elected as IES, IPC and WPLH Directors. The Director or Directors so chosen shall hold office until the next election of the Class for which such Director or Directors shall have been chosen and until their successors shall have been duly elected and qualified. Section 4.14 COMPENSATION. - Compensation and expenses for attendance at a regular or special meeting of the Board of Directors, or at any committee meeting, shall be payable in such amounts as determined from time to time by the Board of Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors who are full time employees or officers of the Corporation shall not receive any compensation. ARTICLE V COMMITTEES Section 5.1 COMMITTEES. - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number various Committees from time to time as corporate needs may dictate. The Committees may make their own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The Committee may be authorized by the Board of Directors to perform specified functions, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareowners action that the Wisconsin Business Corporation Law requires to be approved by shareowners; (c) fill vacancies on the Board of Directors, or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the Corporation's Articles of Incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareowner approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. 8 Section 5.2 EXECUTIVE COMMITTEE. An Executive Committee is hereby established and shall consist of at least three (3) members, including the Chairman of the Board. The Executive Committee shall possess all the powers and authority of the Board of Directors when said Board of Directors is not in session, except for the powers and authorities set forth in Section 5.1. Section 5.3 AUDIT COMMITTEE. - An Audit Committee is hereby established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The members of the Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.4 COMPENSATION AND PERSONNEL COMMITTEE - A Compensation and Personnel Committee is hereby established and shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chairman of the Board, the Chief Executive Officer, or any Committee member. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.5 NOMINATING AND GOVERNANCE COMMITTEE. - A Nominating and Governance Committee shall be established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Nominating and Governance Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. 9 ARTICLE VI OFFICERS Section 6.1 OFFICERS. - The Board of Directors shall elect a Chief Executive Officer, a President, such number of Vice Presidents with such designations as the Board of Directors at the time may decide upon, a Secretary, a Treasurer and a Controller. The Chief Executive Officer may appoint such other officers and assistant officers as may be deemed necessary. The same person may simultaneously hold more than one such office. Section 6.2 TERM OF OFFICERS. - All Officers, unless sooner removed, shall hold their respective offices until their successors, willing to serve, shall have been elected but any Officer may be removed from Office at any time by the Board of Directors. Section 6.3 REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. Section 6.4 CHIEF EXECUTIVE OFFICER. - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Corporation, shall establish the lines of authority and supervision of the Officers and employees of the Corporation, shall have the power to appoint and remove and discharge any and all agents and employees of the Corporation not elected or appointed directly by the Board of Directors, and shall assist the Board in the formulation of policies of the Corporation. The Chairperson of the Board, if Chief Executive Officer, may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Corporation. Section 6.5 PRESIDENT. - The President, when he or she is not designated as and does not have the powers of the Chief Executive Officer, shall have such other powers and duties as may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board or the Chief Executive Officer. Section 6.6 VICE PRESIDENTS. - The Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and the Chief Executive Officer. In the absence of or in the event of the death of the Chief Executive Officer and the President, the inability or refusal to act, or in the event for any reason it shall be impracticable for the Chief Executive officer and the President to act personally, the Vice President (or in the event there be 10 more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chief Executive Officer and the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and the President. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the Chief Executive Officer and the President. Section 6.7 SECRETARY. - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Corporation, and of all other books, documents and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Corporation and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.8 TREASURER. - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks or trust companies as he or she shall designate and shall keep a proper record of cash receipts and disbursements. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the President, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Corporation for operating purposes in the usual course or business. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. The Treasurer shall have such other powers and duties as are 11 commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.9 CONTROLLER. - The Controller shall be the principal accounting Officer of the Corporation. He or she shall have general supervision over the books of accounts of the Corporation. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Corporation relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the President or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.10 ASSISTANT OFFICERS. - The Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and other Assistant Officers shall respectively assist the Secretary, Treasurer, Controller, and other Officers of the Corporation in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1 CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the fact (a) that the Corporation is organized under the laws of the State of Wisconsin, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, or the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary and shall be sealed 12 with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent and registrar. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person where an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2. TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 3.10 of Article III of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 3.10 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. Section 7.3 LOST, DESTROYED OR STOLEN CERTIFICATES. - When the owner claims that certificates for shares have been lost, destroyed or 13 wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond if required by the Corporation and (c) satisfies such other reasonable requirements as may be provided by the Corporation. Section 7.4 STOCK REGULATIONS. - The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the Corporation. ARTICLE VIII INDEMNIFICATION AND LIABILITY OF DIRECTOR AND OFFICERS Section 8.1 INDEMNIFICATION. - The Corporation shall, to the fullest extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business Corporation Law, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors, Officers, employees and agents against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director, Officer, employee or agent is a Party because he or she is or was a Director, Officer, employee or agent of the Corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer, employee or agent may be entitled under any written agreement, Board resolution, vote of shareowners, the Wisconsin Business Corporation Law or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.1 by the purchase of insurance on behalf of any one or more of such Directors, Officers, employees or agents, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director, Officer, employee or agent under this Section 8.1. All capitalized terms used in this Article VIII and not otherwise defined herein shall have the meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law. ARTICLE IX MISCELLANEOUS Section 9.1 FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. Section 9.2 DIVIDENDS. - Subject to the provisions of law or the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, 14 declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. Section 9.3 CONTRACTS, CHECKS, DRAFTS, DEEDS, LEASES AND OTHER INSTRUMENTS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation, and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Treasurer may authorize. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the Corporation to be affixed thereto shall be signed by the President or a Vice President, and by the Secretary, or an Assistant Secretary, or by such other officer or officers, or person or persons, as the Board of Directors may be resolution prescribe. Section 9.4 VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the Chief Executive Officer of the Corporation, if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the Chief Executive Officer, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chief Executive Officer or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. 15 ARTICLE X AMENDMENT OR REPEAL OF BYLAWS Section 10.1 AMENDMENTS BY BOARD OF DIRECTORS. - Except as otherwise provided by the Wisconsin Business Corporation Law or the Articles of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; provided, however, that the shareowners in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. Section 10.2 IMPLIED AMENDMENT. - Any action taken or authorized by the shareowners or by the Board of Directors which would be inconsistent with the Bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. Wplbylws.doc 2/9/99 - -------------------------------------------------------------------------------- I, , do hereby certify that I am the duly elected and acting _______________ Corporate Secretary of Wisconsin Power and Light Company, a Wisconsin corporation, organized under the laws of the State, and that I have access to the corporate records of said Company, and as such officer, I do further certify that the foregoing Bylaws were adopted as of January 20, 1999. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Company this ____________ day of ___________________, 19____. -------------------------------- 16 EX-3.6 4 BYLAWS EXHIBIT 3.6 BYLAWS OF IES UTILITIES INC. Effective as of January 20, 1999 ARTICLE I OFFICES Section 1.1 PRINCIPAL AND BUSINESS OFFICES. - The principal office shall be in the City of Cedar Rapids, County of Linn, State of Iowa. The Corporation may have other offices, either within or without the State of Iowa, at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may require. Section 1.2 REGISTERED OFFICE. - The registered office of the Corporation required by the Iowa Business Corporation Act to be maintained in the State of Iowa may be, but need not be identical with the principal office in the State of Iowa, and the address of the registered office may be changed from time to time by the Board of Directors ARTICLE II SEAL Section 2.1 CORPORATE SEAL. - The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL, IOWA." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. ARTICLE III SHAREOWNERS Section 3.1. ANNUAL MEETING. - The Annual Meeting of Shareowners shall be held at such date and time as the Board of Directors may determine. The Board of Directors may designate any place for the Annual Meeting. If no designation is made, the place of the Annual Meeting shall be the principal office of the Corporation. The Annual Meeting shall be held for the purposes of electing Directors and of transacting such other business as may properly come before the meeting. Section 3.2 SPECIAL MEETINGS. - Special Meetings of the Shareowners may be called by the Board of Directors or the Chief Executive Officer. The Corporation shall call a Special Meeting of Shareowners in the event that the holders of at least ten percent (10%) of all of the votes entitled to be cast on any issue request a special meeting be held. Section 3.3 NOTICE OF MEETINGS - WAIVER. - Notice of the time and place of each Annual or Special Meeting of Shareowners shall be sent by mail to the recorded address of each shareowner not less than ten (10) days nor more than sixty (60) days before the date of the meeting, except in cases where other special method of notice may be required by statute, in which case the statutory method shall be followed. The notice of a Special Meeting shall state the purpose of the meeting. If an Annual or Special Meeting of shareowners is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new record date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareowners as of the new record date. Notice of any meeting of the shareowners may be waived by any shareowner. Section 3.4 FIXING OF RECORD DATE. - For the purpose of determining shareowners entitled to notice of, or to vote at, any meeting of shareowners, or at any adjournment thereof, or shareowners entitled to receive payment of any dividend, or in order to make a determination of shareowners for any other lawful action, the Board of Directors may fix, in advance, a record date for such determination of shareowners. Such date in case of a meeting of shareowners or other lawful action shall not be less than ten (10) days nor more than seventy (70) days prior to the date of such meeting or lawful action. If no record date is fixed by the Board of Directors or by statute for the determination of shareowners entitled to demand a special meeting as contemplated in Section 3.2 hereof, the record date shall be the date that the first shareowner signs the demand. When a determination of shareowners entitled to vote at any meeting of shareowners has been made as provided in this section, such determination shall apply to any adjournment thereof unless the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting in which event the Board of Directors must fix a new record date. Section 3.5 SHAREOWNER LIST. - The Corporation shall have available, beginning two (2) days after the notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, a complete record of each shareowner entitled to vote at such meeting, or any adjournment thereof, showing the address of and number of shares held by each shareowner. The shareowner list shall be available for inspection by any shareowner during normal business hours at the Corporation's principal office or 2 at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareowners' list available at the meeting and any shareowner or his/her agent or attorney may inspect the list at any time the meeting or any adjournment thereof. Section 3.6 QUORUM AND VOTING REQUIREMENTS. - Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the outstanding shares entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for action on that matter. If a quorum exists, except in the case of the election of Directors, action on a matter shall be approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the Corporation's Articles of Incorporation, any Bylaw adopted under authority granted in the Articles of Incorporation or statute requires a greater number of affirmative votes. Directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. Though less than a quorum of the outstanding votes are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.7 CONDUCT OF MEETING. - The Chairperson of the Board shall preside at each meeting of shareowners. In the absence of the Chairperson of the Board, such persons, in the following order, shall act as chair of the meeting; the Vice Chairperson of the Board, the Chief Executive Officer, the President, any Vice President, the Director in attendance with the longest tenure in that office. The Secretary, or if absent, an Assistant Secretary, of the company shall act as Secretary of each shareowner meeting. Section 3.8 PROXIES. - Any shareowner having the right to vote at a meeting of shareowners may exercise such right by voting in person or by proxy at such meeting. Such proxies shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Section 3.9 VOTING OF SHARES. - Except as provided in the Articles of Incorporation or statute, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareowners. Section 3.10 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent 3 or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. ARTICLE IV BOARD OF DIRECTORS Section 4.1 GENERAL POWER. - The business and affairs of the Corporation shall be managed by its Board of Directors. Section 4.2 NUMBER. CLASSES & TERM. - The number of Directors of the Corporation shall be fifteen (15). The Directors of the Corporation shall be divided into three classes, hereinafter referred to as "Class I," "Class II," and "Class III" with each class having five (5) Directors. The initial Class I Directors shall consist of two (2) directors selected by each of IES Industries Inc. ("IES") and WPL Holdings Inc. ("WPLH") and one (1) selected by Interstate Power Company ("IPC"); the initial Class II Directors shall consist of two (2) directors selected by each of IES and WPLH and one (1) selected by IPC; and the initial Class III Directors shall consist of two (2) directors selected by each of IES and WPLH and one (1) selected from IPC. The initial term of Class I Directors shall expire at the first annual meeting of 4 Shareowners of the Corporation, the initial term of Class II Directors shall expire at the second annual meeting of Shareowners of the Corporation and the initial term of Class III Directors shall expire at the third annual meeting of Shareowners of the Corporation. At each annual shareowner meeting after the first annual shareowner meeting, directors to replace those of a Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly qualified and elected. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. Section 4.3 CHAIRPERSON OF THE BOARD. - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available for consultation and advice. Section 4.4 VICE CHAIRPERSON OF THE BOARD. - The Vice Chairperson of the Board shall assist the Board in the formulation of policies and make recommendations therefore. The Vice Chairperson shall have such other powers and duties as may be prescribed for him or her by the Chairperson of the Board or the Board of Directors. In the absence of or the inability of the Chairperson of the Board to act as Chairperson of the Board, the Vice Chairperson of the Board shall assume the powers and duties of the Chairperson of the Board. Section 4.5 QUALIFICATIONS AND REMOVAL. - No person who has attained 71 years of age shall be eligible for election or re-election to the Board of Directors. Any Director who has attained seventy-one (71) years of age shall resign from the Board of Directors effective as of the next annual Meeting of Shareowners. For a period of five (5) years following the formation of the Corporation, no person, except any of the initial Directors selected pursuant to Section 4.2 hereof, who is an executive officer or employee of the Corporation or any of its subsidiaries shall be eligible to serve as a Director of the Corporation; provided, however, that any individual serving as Chief Executive Officer of the Corporation shall be eligible to serve as a Director of the Corporation. In the event the Chief Executive Officer resigns or retires from his or her office or employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that the Chief Executive Officer is removed from his or her office by the Board of Directors, or is involuntarily terminated from employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the 5 event that a Director experiences a change in their principal occupation or primary business affiliation, the Director must submit their resignation from the Board to the Nominating and Governance Committee. The Nominating and Governance Committee shall recommend to the Board of Directors whether the Board should accept such resignation. If the Nominating and Governance Committee recommends acceptance of the resignation, an affirmative vote of two-thirds of the remaining Directors holding office is required to affirm the Nominating and Governance Committee's recommendation. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. Section 4.6 REGULAR MEETINGS. - Regular meetings of the Board of Directors shall be held at such time and place as may be determined by the Board of Directors, but in no event shall the Board meet less than once a year. Section 4.7 SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any two (2) Directors. The Chief Executive Officer or Secretary may fix any place, either within or without the State of Iowa, whether in person or by telecommunications, as the place for holding any special meeting. Section 4.8 NOTICE; WAIVER. - Notice of any meeting of the Board of Directors, unless otherwise provided pursuant to Section 4.6, shall be given at least forty-eight (48) hours prior to the meeting by written notice delivered personally or mailed to each Director at such address designed by each Director, by telegram or other form of wire or wireless communication. The notice need not describe the purpose of the meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage prepared. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened. Section 4.9 QUORUM. - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting to some other day without further notice. Section 4.10 MEETING PARTICIPATION. - (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through, the use of any means of communication by which any of the following occurs: 6 1) All participating directors may simultaneously hear each other during the meeting. 2) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 4.11 ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the Committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. The action taken is effective when the last Director signs the consent unless the consent specifies a different effective date. Section 4.12 PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent or abstention shall be entered in the minutes of the meeting, (c) the Director shall file a written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting, or (d) the Director shall file a written notice to the Secretary of the Corporation promptly after receiving the minutes of the meeting that the minutes failed to show the Director's dissention or abstention from the action taken. Such right to dissent or abstain shall not apply to a Director who voted in favor of such action. Section 4.13 VACANCIES. - Except as provided below, any vacancy occurring in the Board of Directors or on any Committee of the Board of Directors and any directorship to be filled by reason of an increase in the number of 7 Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. For a period of time commencing on formation of Interstate Energy Corporation and expiring on the date of the third annual meeting of shareowners of the Corporation, the initially appointed IES, IPC and WPLH directors, each as a separate group, shall be entitled to nominate those persons who will be eligible to be appointed, elected or re-elected as IES, IPC and WPLH Directors. The Director or Directors so chosen shall hold office until the next election of the Class for which such Director or Directors shall have been chosen and until their successors shall have been duly elected and qualified. Section 4.14 COMPENSATION. - Compensation and expenses for attendance at a regular or special meeting of the Board of Directors, or at any committee meeting, shall be payable in such amounts as determined from time to time by the Board of Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors who are full time employees or officers of the Corporation shall not receive any compensation. ARTICLE V COMMITTEES Section 5.1 COMMITTEES. - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number various Committees from time to time as corporate needs may dictate. The Committees may make their own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The Committee may be authorized by the Board of Directors to perform specified functions, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareowners action that the Iowa Business Corporation Act requires to be approved by shareowners; (c) fill vacancies on the Board of Directors, or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the Corporation's Articles of Incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareowner approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. 8 Section 5.2 EXECUTIVE COMMITTEE. An Executive Committee is hereby established and shall consist of at least three (3) members, including the Chairman of the Board. The Executive Committee shall possess all the powers and authority of the Board of Directors when said Board of Directors is not in session, except for the powers and authorities set forth in Section 5.1. Section 5.3 AUDIT COMMITTEE. - An Audit Committee is hereby established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The members of the Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.4 COMPENSATION AND PERSONNEL COMMITTEE - A Compensation and Personnel Committee is hereby established and shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chairman of the Board, the Chief Executive Officer, or any Committee member. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.5 NOMINATING AND GOVERNANCE COMMITTEE. - A Nominating and Governance Committee shall be established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Nominating and Governance Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. 9 ARTICLE VI OFFICERS Section 6.1 OFFICERS. - The Board of Directors shall elect a Chief Executive Officer, a President, such number of Vice Presidents with such designations as the Board of Directors at the time may decide upon, a Secretary, a Treasurer and a Controller. The Chief Executive Officer may appoint such other officers and assistant officers as may be deemed necessary. The same person may simultaneously hold more than one such office. Section 6.2 TERM OF OFFICERS. - All officers, unless sooner removed, shall hold their respective offices until their successors, willing to serve, shall have been elected but any officer may be removed from Office at any time by the Board of Directors. Section 6.3 REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. Section 6.4 CHIEF EXECUTIVE OFFICER. - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Corporation, shall establish the lines of authority and supervision of the Officers and employees of the Corporation, shall have the power to appoint and remove and discharge any and all agents and employees of the Corporation not elected or appointed directly by the Board of Directors, and shall assist the Board in the formulation of policies of the Corporation. The Chairperson of the Board, if Chief Executive Officer, may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Corporation. Section 6.5 PRESIDENT. - The President, when he or she is not designated as and does not have the powers of the Chief Executive Officer, shall have such other powers and duties may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board or the Chief Executive Officer. Section 6.6 VICE PRESIDENTS. - The Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and the Chief Executive Officer. In the absence of or in the event of the death of the Chief Executive officer and the President, the , inability or refusal to act, or in the event for any reason it shall be impracticable for the Chief Executive Officer and the President to act personally, the Vice President (or in the event there be 10 more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chief Executive Officer and the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and the President. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the Chief Executive Officer and the President. Section 6.7 SECRETARY. - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Corporation, and of all other books, documents and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these Bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Corporation and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.8 TREASURER. - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks or trust companies as he or she shall designate and shall keep a proper record of cash receipts and disbursements. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the President, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Corporation for operating purposes in the usual course or business. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. The Treasurer shall have such other powers and duties as are 11 commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.9 CONTROLLER. - The Controller shall be the principal accounting Officer of the Corporation. He or she shall have general supervision over the books of accounts of the Corporation. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Corporation relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the President or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.10 ASSISTANT OFFICERS. - The Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and other Assistant Officers shall respectively assist the Secretary, Treasurer, Controller, and other Officers of the Corporation in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1 CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the fact (a) that the Corporation is organized under the laws of the State of Iowa, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, or the Chief Executive Officer or the President 12 and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent and registrar. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person where an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2. TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 3.10 of Article III of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 3.10 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. 13 Section 7.3 LOST, DESTROYED OR STOLEN CERTIFICATES. - When the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond if required by the Corporation and (c) satisfies such other reasonable requirements as may be provided by the Corporation. Section 7.4 STOCK REGULATIONS. - The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the Corporation. ARTICLE VIII INDEMNIFICATION AND LIABILITY OF DIRECTOR AND OFFICERS Section 8.1 INDEMNIFICATION. - The Corporation shall, to the fullest extent permitted or required by the Iowa Business Corporation Act, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors, Officers, employees and agents against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director, Officer, employee or agent is a Party because he or she is or was a Director, Officer, employee or agent of the Corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer, employee or agent may be entitled under any written agreement, Board resolution, vote of shareowners, the Iowa Business Corporation Act or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.1 by the purchase of insurance on behalf of any one or more of such Directors, Officers, employees or agents, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director, Officer, employee or agent under this Section 8.1. ARTICLE IX MISCELLANEOUS Section 9.1 FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. 14 Section 9.2 DIVIDENDS. - Subject to the provisions of law or the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. Section 9.3 CONTRACTS, CHECKS, DRAFTS, DEEDS, LEASES AND OTHER INSTRUMENTS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation, and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Treasurer may authorize. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the Corporation to be affixed thereto shall be signed by the President or a Vice President, and by the Secretary, or an Assistant Secretary, or by such other officer or officers, or person or persons, as the Board of Directors may by resolution prescribe. Section 9.4 VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the Chief Executive Officer of the Corporation, if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the Chief Executive Officer, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chief Executive Officer or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the 15 Corporation in the same manner as such share or shares might be voted by the Corporation. ARTICLE X AMENDMENT OR REPEAL OF BYLAWS Section 10.1 AMENDMENTS BY BOARD OF DIRECTORS. - Except as otherwise provided by the Iowa Business Corporation Law or the Articles of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; provided, however, that the shareowners in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. Section 10.2 IMPLIED AMENDMENT. - Any action taken or authorized by the shareowners or by the Board of Directors which would be inconsistent with the Bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. Iesubylw.doc 2/9/99 - -------------------------------------------------------------------------------- I, , do hereby certify that I am the duly elected and acting _______________ Corporate Secretary of IES Utilities Inc., an Iowa corporation, organized under the laws of the State, and that I have access to the corporate records of said Company, and as such officer, I do further certify that the foregoing Bylaws were adopted as of January 20, 1999. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Company this ____________ day of ___________________, 19____. -------------------------------- 16 EX-10.46 5 EARLY RETIREMENT AGREEMENT Exhibit 10.46 EARLY RETIREMENT AGREEMENT BETWEEN INTERSTATE ENERGY CORPORATION ET AL. AND RICHARD R. EWERS This Agreement is entered into between Interstate Energy Corporation, on behalf of itself, its subsidiary Interstate Power Company, and any of their affiliates (collectively referred to herein as the "Company") and Richard R. Ewers ("Officer"), this 4th day of December, 1998 (the "Agreement Date"). In consideration of this mutual Agreement, Officer and the Company hereby agree as follows: 1. Retirement. Officer hereby retires and resigns, as an employee and officer, from the service of the Company effective August 1, 1999 (the "Retirement Date"). Officer acknowledges and agrees that he will, from the Agreement Date through February 18, 1999, continue in the regular performance of his duties and take all of his accrued vacation days; from February 19, 1999, to his Retirement Date, the Officer will actively assist in the transition of his duties to any successor(s) and perform additional transitional assistance and special projects as requested by the Chief Executive Officer of the Company. Officer agrees to provide written resignations from any ancillary positions as the Company deems necessary. 2. Financial and Benefit Matters. a. Officer shall continue to be paid his annual salary of One Hundred Twenty-six Thousand Dollars ($126,000) through February 18, 1999, and will be paid Five Thousand Dollars ($5,000) on each of the following dates in 1999: March 5, March 19, April 2, April 16, April 30, May 14, May 28, June 11, June 25, July 9, and July 23. Officer will continue to be provided senior executive welfare benefits and continue to participate in all retirement plans and supplemental retirement plans on the same basis as other senior executives until the Retirement Date, and will be paid any earned Management Incentive Compensation Program bonus for 1998 at the regular time. This Agreement does not affect or restrict in any way the entitlement of Officer to pension and welfare benefits while an employee, post-retirement welfare benefits, supplemental retirement benefits, or qualified retirement plan benefits that are provided to Officer on account of his prior service with the Company and which are not financial accommodations pertaining to his early retirement. As of Officer's Retirement Date, Officer shall be eligible to receive benefits under all of the Company's retiree welfare benefit plans available to retired senior executives of the Company as in effect on October 1, 1998. Any changes in welfare benefit plans available for retired senior executives of the Company retiring on or before August 1, 1999, that are adopted after October 1, 1998, and are generally applicable to senior executives retiring on or before August 1, 1999, shall apply to the Officer. It is mutually understood that the Officer is provided supplemental retirement benefits pursuant to his Interstate Energy Corporation Supplemental Retirement Agreement and that, effective commencing on the Retirement Date, the Officer shall be entitled to the full benefits available to him under such agreement. All calculations 1 under such agreement shall be made in accordance with its terms as it was interpreted in 1998 immediately prior to the Agreement Date. b. In consideration for the release provided in Section 6 below and for the agreements in Section 4 below, the Company shall make a lump sum payment to Officer, provided the Officer is living on March 5, 1999, equal to Two Hundred Thirty-eight Thousand Four Hundred Four Dollars ($238,404), less applicable federal and state income tax withholding and payroll tax amounts. The payment will be made to Officer coincident with the Company's March 5, 1999, payroll. The lump sum amount is not compensation for purposes of the Company's retirement or pretax savings plans. c. It is mutually agreed that any common stock options to purchase shares of Interstate Energy Corporation issued to Officer under the Company's Long Term Equity Incentive Plan are canceled effective on the Agreement Date, and that no additional common stock options shall be issued by the Company to the Officer after the Agreement Date. Officer acknowledges that the considerations contained in this Agreement fully incorporate all considerations and accruals of such Long Term Equity Incentive Plan. d. Officer recognizes that consideration provided under this Agreement may result in taxable income to the Officer and that the Company will report such taxable income to the appropriate taxing authorities. 3. Tax Adjustment. It is the mutual intent of Officer and the Company that the payments hereunder, together with any other amounts required to be taken into account for this purpose, should not be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code") or any successor provision. If it is determined that any portion of the payments hereunder would be subject to the Excise Tax but for retroactive correction of an overpayment to the Company by the Officer, the Officer shall make the necessary repayment to the Company. If, however, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue service that any portion of the payments hereunder is subject to the Excise Tax, and retroactive correction is not available or would be ineffective, the Company shall pay to the Officer an additional amount (the "Gross-up Payment") such that the net amount retained by the Officer after deduction of any Excise Tax and any interest charges or penalties in respect of the imposition of such Excise Tax (but not any federal, state or local income tax) on the payments hereunder, and any federal, state, and local income tax and Excise Tax upon the payment provided for by this Section 3, shall be equal to the payments hereunder. For purposes of determining the amount of the Gross-up Payment, the Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Executive's domicile for income tax purposes on the date the Gross-up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. 2 4. Certain Agreements. This Agreement does not limit or restrict in any way Officer's rights under the Company's employee benefit plans. All the terms of agreement relating to Officer's early retirement from employment with the Company are embodied in this Agreement. This Agreement fully supersedes any and all prior agreements or understandings between Officer and the Company regarding the Officer's termination of employment with the Company. It is mutually agreed that the agreement dated November 8, 1995, between Officer and Interstate Power Company, entitled "Agreement," is null and void on the Agreement Date and of no further effect as of such date and that any other employment agreements or severance agreements previously agreed to by or between the Officer and the Company are null and void and of no further effect as of the Agreement Date. The following agreements, however, are entered into and/or continued in effect as part of this Agreement: a. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Officer's continuing or future participation in any plan, program, policy or practice provided by the Company for which the Officer may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Officer may have under any contract or agreement with the Company or any of its affiliates relating to such subject matter other than that specifically addressed herein. Vested benefits and other amounts that the Officer is otherwise entitled to receive under any plan, policy, practice, or program of, or any contract or agreement with, the Company or any of its affiliates on or after the Retirement Date shall be payable in accordance with the terms of each such plan, policy, practice, program, contract or agreement, as the case may be, except as specifically modified by this Agreement. b. Full Settlement. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Officer under any of the provisions of this Agreement. The amounts payable by the Company under this Agreement shall not be offset or reduced by any amounts otherwise receivable or received by the Officer from any source. c. Confidential Information and Noncompetition. The Noncompetition and Nondisclosure Agreement between Officer and the Company dated November 23, 1997, is incorporated herein by this reference and remains fully effective according to its terms. Furthermore, the Officer shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Officer obtains during the Officer's employment by the Company or any of its affiliated companies and that is not public knowledge (other than as a result of the Officer's violation of this subsection ("Confidential Information"). The Officer shall not communicate, divulge or disseminate Confidential Information at any time during or for not less than five (5) years after the Officer's employment with the Company, except with the prior written consent of the Company or as otherwise required by law or legal process. In no event shall any asserted violation of the provisions of this subsection constitute a basis for deferring or withholding any 3 amounts otherwise payable to the Officer under this Agreement. Any provision of any other agreement between the Officer and Interstate Energy Corporation or Interstate Power Company relating to noncompetition and nondisclosure of information is null and void and of no further effect. 5. Attorney's Fees. The Company agrees to reimburse the Officer for his reasonable legal fees and expenses incurred in good faith by Officer in the preparation and review of this agreement and as the result of any dispute with the Company regarding the payment of any benefit provided for in this Agreement (including but not limited to all such fees and expenses incurred in disputing any termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 499 of the Code) plus in each case interest on any delayed payment at the applicable Federal rate in Section 7872(f)(2)(A) of the Code. Such payments shall, in the aggregate, not exceed Ten Thousand Dollars ($10,000) and shall be made within ten (10) business days after delivery of the Officer's written request for such reimbursement in accordance with established Company procedures for the reimbursement of business expenses. 6. Release and Covenants. a. Officer, on behalf of himself, his spouse, heirs, executors, administrators, agents, successors, assigns and representatives of any kind (hereinafter collectively referred to as the "Releasors") confirm that Releasors have released the Interstate Energy Corporation and each of its subsidiaries and affiliates, the employees, successors, assigns, executors, trustees, directors, advisors, agents and representatives of Interstate Energy Corporation and each subsidiary or affiliate, and all their respective predecessors and successors (hereinafter collectively referred to as the "Releasees"), from any and all actions, causes of action, charges, debts, liabilities, accounts, demands, damages and claims of any kind whatsoever including, but not limited to, those arising out of the changes in the terms and conditions of Officer's relationship with the Company described in this Agreement and those arising under any labor, employment discrimination (including, without limitation, the Age Discrimination in Employment Act of 1967, as amended, Title VII of the Civil Rights of Act of 1964, as amended, applicable State fair employment legislation), contract or tort laws, equity or public policy, or negligence standard, whether known or unknown, certain or speculative, which against any of the Releasees, any of the Releasors ever had, now has, or hereafter shall have or can have. Officer further covenants that he will not initiate any action, claim or proceeding against any of the Releasees for any of the foregoing, will not participate, assist, or cooperate in any such action, claim, or proceeding unless required to do so by law, and will not apply for employment with the Company at any time. Officer acknowledges that the considerations contained in this Agreement fully compensate him for the release provided in this Section. b. Notwithstanding the foregoing, this Agreement does not waive rights, if any, Officer or his successors and assigns may have under or pursuant to, or release any member of Releasees from obligations, if any, it may have to Officer or to Officer's 4 successors and assigns on claims arising out of, related to or asserted under or pursuant to, this Agreement or any indemnity agreement or obligation contained in or adopted or acquired pursuant to any provision of the charter or by-laws of Interstate Energy Corporation, a Wisconsin corporation, or Interstate Power Company, a Delaware corporation, or in any applicable insurance policy carried by the Company or its affiliates for any matter which has arisen, or which arises or which may arise in the future in connection with Officer's employment with the Company. c. In accordance with the requirements of Title II of the Older Workers Benefit Protection Act (P. L. 101-433, 10/16/90), Officer hereby acknowledges that he has at least twenty-one (21) days to review this Agreement from the date he first received it and he has been advised to review it with an attorney of his choice. Officer further understands that the twenty-one (21) day review period ends when Officer signs this Agreement. Officer also has seven (7) days after signing this Agreement to revoke by so notifying the Company in writing. Any revocation by Officer under this Section 6(c), however, does not revoke the resignations provided under Section 1 and Officer's resignation from employment with the Company shall remain in effect as set forth therein. Officer further acknowledges that he has carefully read this Agreement, knows and understands the contents thereof and its binding legal effect. Officer signs the same of his own free will and act, and it is his intention that he be legally bound thereby. d. Officer agrees to keep this Agreement confidential and not to reveal its contents to anyone other than his attorney, financial consultant, immediate family members, and representatives of any governmental tax agency. The provisions of this Section 6(d) shall not apply to any truthful statement required to be made by Officer in any legal proceeding or government or regulatory investigation; provided, however, that prior to making such statement (other than to tax authorities), Officer will give the Company reasonable notice and, to the extent he is legally entitled to do so, afford the Company the ability to seek a confidentiality order. 7. Severability. In the event any one or more of the terms of this Agreement shall for any reason be held to be invalid, illegal or unenforceable, the remaining terms of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable term shall be replaced by a term, which, being valid, legal and enforceable, comes closest to the intention of the parties underlying the invalid, illegal or unenforceable terms. However, in the event that any such term of this Agreement is adjudged by a court of competent jurisdiction to be invalid, illegal or unenforceable, but that the other terms are adjudged to be valid, legal and enforceable if such invalid, illegal or unenforceable term were deleted or modified, then this Agreement shall apply with only such deletions or modifications, or both, as the case may be, as are necessary to permit the remaining separate terms to be valid, legal and enforceable. 8. Company Property. Officer shall, not later than March 1, 1999, deliver to the Company the original and all copies of all documents, records, electronic files, and property of any nature whatsoever which are in Officer's possession or control and which are the property of the Company or which relate to the business activities, facilities, or customers 5 of the Company, its subsidiaries, or its affiliates, including any records, documents or property created by Officer and, where such records may be maintained on hard disk files on computers owned by Officer, such files shall be purged and eliminated; provided, however, Officer shall be provided access to information and material appropriate to fulfillment of his duties as described in Section 1, above. To the extent Company property is in possession or control of the Officer on his Retirement Date it shall then be similarly returned or purged, as described above. 9. Governing Law and Dispute Resolution. Except with regard to subsection (b) of Section 6, this Agreement shall be governed by the substantive laws of the State of Iowa without regard to its conflict of laws provisions. The parties agree that any proceeding to resolve any dispute arising hereunder will be brought only in the courts of the State of Iowa or in the courts of the United States of America for the District of Iowa, and that each party irrevocably submits to such jurisdiction, and hereby waives any and all objections as to venue, inconvenient forum and the like. It is the intention of the parties hereto, however, that to the extent practicable, the parties will endeavor to settle any dispute arising hereunder first through the process of non-binding mediation to be conducted in Madison, Wisconsin. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. Section 6(b) shall be governed by the laws of the State of Delaware, as to Interstate Power Company, and the State of Wisconsin, as to Interstate Energy Corporation. 10. Successors. This Agreement is personal to the Officer and shall not be assignable by the Officer. This Agreement shall inure to the benefit of and be enforceable by the Officer's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. INTERSTATE ENERGY CORPORATION /s/ Erroll B. Davis Erroll B. Davis, Jr., President and CEO /s/ Richard R. Ewers Richard R. Ewers, Officer EX-10.47 6 STOCKHOLDERS' AGREEMENT EXHIBIT 10.47 STOCKHOLDERS' AGREEMENT This Stockholders' Agreement (this "Agreement") is entered into as of November 18, 1998, by and among McLeodUSA Incorporated, a Delaware corporation (the "Company"); IES Investments Inc., an Iowa corporation ("IES"); Clark E. McLeod ("McLeod"); Mary E. McLeod (together with McLeod, the "McLeods"); and Richard A. Lumpkin ("Lumpkin") and each of the former shareholders of Consolidated Communications Inc. ("CCI") and certain permitted transferees of the former CCI shareholders in each case who are listed in Schedule I hereto (the "CCI Shareholders"). IES, the McLeods, Lumpkin and the CCI Shareholders are referred to herein collectively as the "Principal Stockholders" and individually as a "Principal Stockholder." WHEREAS, the Company, the Principal Stockholders and certain other stockholders are parties to a Stockholders' Agreement entered into as of June 14, 1997, as amended on September 19, 1997 (the "Original Stockholders' Agreement"); WHEREAS, Section 3 of the Original Stockholders' Agreement has expired in accordance with its terms and certain other provisions thereof will expire in accordance with their terms; and WHEREAS, the Company and the Principal Stockholders deem it to be in the best interests of the Company and its stockholders to enter into a new agreement to continue to provide for the continuity and stability of the business and policies of the Company on the terms and conditions hereinafter set forth; NOW, THEREFORE, for and in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. VOTING AGREEMENT 1.1 Board of Directors For the period commencing on the Voting Agreement Effective Date (as defined in Section 1.2) and ending on the Expiration Date (as defined in Section 1.2), each Principal Stockholder, for so long as such Principal Stockholder beneficially and continuously owns at least four million (4,000,000) shares of the Company's Class A common stock, $.01 par value per share (the "Class A Common Stock"), subject to adjustment pursuant to Section 5.1, shall take or cause to be taken all such action within their respective power and authority as may be required: (a) to establish and maintain the authorized size of the Board of Directors of the Company (the "Board of Directors" or the "Board") at up to eleven (11) directors; (b) to cause to be elected to the Board one (1) director designated by IES, for so long as IES beneficially and continuously owns at least four million (4,000,000) shares of the Class A Common Stock (subject to adjustment pursuant to Section 5.1); (c) to cause Lumpkin to be elected to the Board, for so long as Lumpkin and the CCI Shareholders collectively beneficially and continuously own at least four million (4,000,000) shares of the Class A Common Stock (subject to adjustment pursuant to Section 5.1); (d) to cause to be elected to the Board three (3) directors who are executive officers of the Company designated by McLeod, for so long as the McLeods collectively beneficially and continuously own at least four million (4,000,000) shares of the Class A Common Stock (subject to adjustment pursuant to Section 5.1); (e) to cause to be elected to the Board a director or directors nominated by the Board to replace a director or directors designated pursuant to paragraphs (b) through (d) above upon the earlier to occur of such designated director's or directors' resignation (and the acceptance of such resignation by the Board) and the expiration of such director's or directors' term as a result of any party or parties identified in paragraphs (b) through (d) above no longer beneficially owning at least four million (4,000,000) shares -2- of the Class A Common Stock (subject to adjustment pursuant to Section 5.1) at any time during the period commencing on the Voting Agreement Effective Date and ending on the Expiration Date; it being understood that within three (3) business days following such time as the party or parties identified in paragraphs (b) through (d) above no longer beneficially and continuously own at least four million (4,000,000) shares of the Class A Common Stock (subject to adjustment pursuant to Section 5.1) during such period, such party or parties shall use its or their respective best efforts to cause the director or directors designated by such party or parties to tender their immediate resignation to the Board which the Board may accept or reject; and (f) to cause to be elected to the Board, if and as nominated by the Board, up to six (6) non-employee directors; provided, however, notwithstanding any other provision of this Agreement, if any Principal Stockholder hereto would not be entitled to have a director elected to the Board with respect to such Principal Stockholder under the Original Stockholders' Agreement but would be entitled to have a director elected to the Board with respect to such Principal Stockholder pursuant to Section 1.1 of this Agreement except that the Voting Agreement Effective Date hereunder has not occurred, then this Agreement shall be applied with respect to the election of the director of such Principal Stockholder as if the Voting Agreement Effective Date has occurred and each party hereto shall act under this Agreement to cause the election of the director of such Principal Stockholder. The parties hereto agree that Section 1.1 and Section 1.2 of the Original Stockholders' Agreement shall terminate and be of no force or effect with respect to the rights and obligations of the parties hereto amongst each other as of the Voting Agreement Effective Date. For purposes of Section 1.1, Lumpkin and all of the CCI Shareholders shall be deemed to be a single Principal Stockholder, and a CCI Shareholder shall be deemed to own shares "continuously" as long as the shares of such CCI Shareholder are owned by such CCI Shareholder or by a CCI Permitted Transferee (as defined in Section 3.1). 1.2 Definitions For purposes of this Agreement, the following terms have the meanings indicated: (a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (b) A person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any securities: -3- (i) which such person or any of such person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; (ii) which such person or any of such person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; or (iii) which are beneficially owned, directly or indirectly, by any other person (or any Affiliate or Associate thereof) with which such person or any of such person's Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting or disposing of any voting securities of the Company. For purposes of the definition of "Beneficial Owner" and "beneficially own," the terms "agreement," "arrangement" and "understanding" shall not include this Agreement or the Original Stockholders' Agreement. (c) "Expiration Date" shall mean December 31, 2001. (d) "Voting Agreement Effective Date" shall mean the date which falls on the earliest to occur of (i) the termination of the Original Stockholders' Agreement, (ii) the expiration of Section 1.1 of the Original Stockholders' Agreement in accordance with its terms and (iii) MWR Investments Inc. ("MWR") no longer being entitled to have a director designated by MWR elected to the Board in accordance with the terms and conditions of Section 1.1 of the Original Stockholders' Agreement. 2. STANDSTILL IES hereby agrees that, prior to the Expiration Date, neither IES nor any Affiliate of IES will (and IES will not assist or encourage others to), directly or -4- indirectly, acquire or agree, offer, seek or propose to acquire, or cause to be acquired, ownership (including, but not limited to, beneficial ownership) of any securities issued by the Company or any of its subsidiaries, or any rights or options to acquire such ownership (including from a third party), except (a) to the extent expressly set forth in this Agreement, (b) as consented prior thereto in writing by the Board of Directors, (c) upon conversion of any Class B common stock, $.01 par value per share, of the Company into Class A Common Stock pursuant to the terms thereof, (d) with respect to transfers of equity securities between or among IES and IES's wholly owned subsidiaries, parent corporation, or other wholly owned subsidiaries of such parent corporation, or (e) with respect to the grant, vesting or exercise of stock options. 3. TRANSFERS OF SECURITIES 3.1 Restrictions on Transfers (a) Except as otherwise provided in this Section 3.1 or Section 3.2, each Principal Stockholder hereby severally agrees that until the Expiration Date, such Principal Stockholder will not offer, sell, contract to sell, grant any option to purchase, or otherwise dispose of, directly or indirectly, ("Transfer"), any equity securities of the Company or any other securities convertible into or exercisable for such equity securities ("Securities") beneficially owned by such Principal Stockholder without submitting a written request to, and receiving the prior written consent of, the Board of Directors, provided, however, that any CCI Shareholder may transfer Securities to any other CCI Shareholder, the spouse of a CCI Shareholder, or a lineal descendant of a CCI Shareholder (or a trust for the primary benefit of any one or more of a CCI Shareholder, the spouse of a CCI Shareholder, or a lineal descendant of a CCI Shareholder or a partnership or limited liability company owned and managed solely by one or more CCI Shareholders, spouses of CCI Shareholders and lineal descendants of CCI Shareholders), or, in the case of a CCI Shareholder that is a trust, to any beneficiary of such trust (or a trust for the primary benefit of such beneficiary or a partnership or limited liability company owned and managed solely by one or more CCI Shareholders, spouses of CCI Shareholders and lineal descendants of CCI Shareholders), in each case provided that (i) such transfer is done in accordance with the transfer restrictions applicable to such Securities under federal and state securities laws and (ii) the transferee agrees to be bound by the terms hereof as a Principal Stockholder with respect to the shares being transferred pursuant to this Section, and any such transfer shall not constitute a "Transfer" for purposes of this Agreement (any such CCI transferee pursuant to this proviso, a "CCI Permitted Transferee"). In the event that the Board of Directors consents to any Transfer of Securities by a Principal Stockholder pursuant to the written request of such Principal Stockholder (a "Transferring Stockholder") and except as otherwise provided in Section 3.1(b) and Section 3.2, each other Principal Stockholder shall, -5- notwithstanding the provisions of this Section 3.1(a), have the right to Transfer a percentage of the total number of Securities beneficially owned by such Principal Stockholder equal to the percentage of the total number of Securities beneficially owned by the Transferring Stockholder that the Board of Directors has consented may be Transferred by such Transferring Stockholder. The parties acknowledge that any Transfer pursuant to this Section 3.1(a) to which the Board of Directors has consented may be in connection with, or as part of, a private placement by the Company of, or other transaction involving, its Securities. (b) In addition to the provisions of Section 3.1(a), commencing for the quarter ending December 31, 1998 and ending on the Expiration Date, the Board shall determine prior to the public release of the Company's consolidated financial results with respect to the end of each financial reporting quarter, the aggregate number, if any, of shares of Class A Common Stock (not to exceed in the aggregate one hundred fifty thousand (150,000) shares of Class A Common Stock per quarter, subject to adjustment pursuant to Section 5.1) that may be Transferred by the Principal Stockholders (the "Transfer Amount") during the period commencing on the third (3rd) business day and ending on the twenty-third (23rd) business day following such public release of the Company's quarterly or annual financial results or such other trading period designated or permitted by the Board with respect to the purchase and sale of its Securities (each such period, a "Transfer Period"). Notwithstanding the provisions of Section 3.1(a), each Principal Stockholder shall be entitled to Transfer during each Transfer Period, provided such Transfer is effected in accordance with all applicable federal and state securities laws, a number of shares of Class A Common Stock equal to thirty-three and one-third percent (33 1/3%) of the Transfer Amount, if any, for such Transfer Period (rounding down in the case of any fractional amount). Any portion of any Principal Stockholder's share of the Transfer Amount that such Principal Stockholder elects not to transfer during a Transfer Period shall be reallocated equally among the remaining Principal Stockholders who intend to Transfer shares of Class A Common Stock during such Transfer Period, and such remaining Principal Stockholders shall be entitled to Transfer such additional shares of Class A Common Stock during the Transfer Period, provided such Transfer is effected in accordance with all applicable federal and state securities laws. In no event shall any portion of a Transfer Amount that is not utilized by a Principal Stockholder during a Transfer Period be reallocated or otherwise credited to any subsequent Transfer Periods. The parties acknowledge that the Company has determined that the Transfer Amount that may be Transferred by the Principal Stockholders during the Transfer Period for the quarter ended September 30, 1998 pursuant to this Section 3.1(b) shall be an aggregate of one hundred fifty thousand (150,000) shares of Class A Common Stock. (c) Commencing for the quarter ending December 31, 1998 and ending on the Expiration Date, the Company shall give each Principal Stockholder prompt written notice (in any event no later than fifty (50) days prior to the -6- beginning of the applicable Transfer Period) of its determination of any Transfer Amount. Within seven (7) days of receipt of such notice, any Principal Stockholder that desires to Transfer shares of Class A Common Stock during such Transfer Period pursuant to Section 3.1(b) shall provide written notice to the Company of the number of shares such Principal Stockholder desires to Transfer. Not later than seven (7) days after receipt of such responses, the Company shall notify all remaining Principal Stockholders of any Principal Stockholder's election not to Transfer the total number of shares of Class A Common Stock that such Principal Stockholder is entitled to Transfer during such Transfer Period. Any Principal Stockholder that desires to Transfer additional shares of Class A Common Stock equal to all or part of the remaining Transfer Amount shall notify the Company within seven (7) days of receipt of the Company's second notice. The Company shall allocate the remaining Transfer Amount in accordance with the provisions of Section 3.1(b) and shall notify the appropriate Principal Stockholders of such allocation no later than ten (10) days prior to the beginning of the Transfer Period. (d) For purposes of this Section 3.1, Lumpkin and all of the CCI Shareholders shall be deemed to be a single Principal Stockholder. 3.2 Registration Rights (a) In the event that the Board of Directors consents pursuant to Section 3.1(a) to a Principal Stockholder's request for a Transfer and in connection therewith, the Company agrees to register Securities with respect to such Transfer under the Securities Act of 1933, as amended (the "Securities Act"), the Company shall grant each other Principal Stockholder the opportunity (subject to reduction in the event the registered Transfer is underwritten) to register for Transfer under the Securities Act a percentage of the total number of Securities beneficially owned by such Principal Stockholder equal to the percentage of the total number of Securities beneficially owned by the Transferring Stockholder that such Transferring Stockholder is registering for Transfer under the Securities Act, on the same terms and conditions as the Transferring Stockholder (each Principal Stockholder registering, or indicating a desire to register, any Securities for Transfer under the Securities Act pursuant to this Section 3.2 being a "Registering Transferor"). (b) To the extent that the Company grants pursuant to Section 3.1(b) a Principal Stockholder the opportunity to register shares of Class A Common Stock for Transfer under the Securities Act, the Company shall grant each other Principal Stockholder the opportunity (subject to reduction in the event the registered Transfer is underwritten) to register an equal number of shares of Class A Common Stock for Transfer under the Securities Act on the same terms and conditions. (c) In the event the Company proposes to register any shares of Class A Common Stock under the Securities Act pursuant to an underwritten -7- primary offering (other than pursuant to a registration statement on Form S-4 or Form S-8 or any successor forms thereto or other form which would not permit the inclusion of the shares of Class A Common Stock of the Principal Stockholders), the Company, as determined by the Board of Directors, shall give written notice to all Principal Stockholders of its intention to effect such a registration. Following any such notice, the Board of Directors shall undertake to determine the aggregate number, if any, of shares of Class A Common Stock held by the Principal Stockholders (not to exceed in the aggregate on a per year basis a number of shares of Class A Common Stock equal to fifteen percent (15%) of the total number of shares of Class A Common Stock beneficially owned by the Principal Stockholders as of December 31, 1998, subject to adjustment pursuant to Section 5.1) to be registered by the Company under the Securities Act (the "Registrable Amount") for Transfer by the Principal Stockholders in connection with such offering. If the Board determines to register shares of Class A Common Stock held by the Principal Stockholders pursuant to this Section 3.2(c), the Company will promptly give written notice of such determination to all Principal Stockholders, and thereupon the Company will use commercially reasonable efforts to effect the registration of that portion of the Registrable Amount that the Registering Transferors indicate a desire to register. In the event the Registering Transferors indicate a desire to register a number of shares of Class A Common Stock that, in the aggregate, exceeds the Registrable Amount, the number of shares of Class A Common Stock that each Registering Transferor shall be entitled to register shall be reduced to the extent such number exceeds such Registering Transferor's pro rata share of the Registrable Amount based upon the ratio of the total number of Securities beneficially owned by such Registering Transferor to the total number of Securities beneficially owned by all Principal Shareholders. To the extent any portion of the Registrable Amount remains unallocated after such reductions, each Registering Transferor who has indicated a desire to register additional shares of Class A Common Stock shall be entitled to register an additional amount of Class A Common Stock equal to such Registering Transferor's pro rata portion of the remaining Registrable Amount based upon the ratio of the total number of Securities beneficially owned by such Registering Transferor to the total number of Securities beneficially owned by all Registering Transferors who have indicated a desire to register additional shares of Class A Common Stock. The reallocation procedure described in the preceding sentence shall be repeated until the entire Registrable Amount is allocated. All terms, conditions and rights with respect to such registration (including but not limited to any determination to reduce the Registrable Amount) shall be determined by the Board, provided that (i) the representations and warranties of a Principal Stockholder shall be customary taking into account, among other things, the nature of the offering and such Principal Stockholder's relationship with the Company, and (ii) the Company shall be responsible for all expenses with respect to such registration other than underwriting discounts and commissions allocable to the Class A Common Stock of the Registering Transferors, which underwriting discounts and commissions shall be the responsibility of the Registering Transferors. -8- (d) In addition to the registration rights granted pursuant to Sections 3.2(a), (b) and (c), no more frequently than once during each of the calendar years ending December 31, 1999, 2000 and 2001 (each such year, an "Annual Period"), and upon either (i) the receipt of a written request of one or more Principal Stockholders or (ii) a determination by the Board of Directors, the Board shall undertake to determine the Registrable Amount, if any, for Transfer by the Principal Stockholders. If the Board determines to register shares of Class A Common Stock held by the Principal Stockholders pursuant to this Section 3.2(d), the Company will promptly give written notice of such determination to all Principal Stockholders, and thereupon the Company will use commercially reasonable efforts to effect the registration of that portion of the Registrable Amount that the Registering Transferors indicate a desire to register. In the event the Registering Transferors indicate a desire to register a number of shares of Class A Common Stock that, in the aggregate, exceeds the Registrable Amount, the number of shares of Class A Common Stock that each Registering Transferor shall be entitled to register shall be reduced to the extent such number exceeds such Registering Transferor's pro rata share of the Registrable Amount based upon the ratio of the total number of Securities beneficially owned by such Registering Transferor to the total number of Securities beneficially owned by all Principal Stockholders. To the extent any portion of the Registrable Amount remains unallocated after such reductions, each Registering Transferor who has indicated a desire to register additional shares of Class A Common Stock shall be entitled to register an additional amount of Class A Common Stock equal to such Registering Transferor's pro rata portion of the remaining Registrable Amount based upon the ratio of the total number of Securities beneficially owned by such Registering Transferor to the total number of Securities beneficially owned by all Registering Transferors who have indicated a desire to register additional shares of Class A Common Stock. The reallocation procedure described in the preceding sentence shall be repeated until the entire Registrable Amount is allocated. All terms, conditions and rights with respect to such registration (including but not limited to any determination to reduce the Registrable Amount) shall be determined by the Board, provided that (i) the representations and warranties of a Principal Stockholder shall be customary taking into account, among other things, the nature of the offering and such Principal Stockholder's relationship with the Company, and (ii) the Company shall be responsible for all expenses with respect to such registration other than underwriting discounts and commissions, which underwriting discounts and commissions shall be the responsibility of the Registering Transferors. (e) If the Board establishes a committee (a "Pricing Committee") to authorize and approve the price and any other terms of any Transfer of Securities registered under the Securities Act pursuant to this Section 3.2 in which Lumpkin or any CCI Shareholder is participating as a Registering Transferor, the Company will use its best efforts to cause Lumpkin to be nominated to such Pricing -9- Committee. Notwithstanding any other provision of this Agreement, to the extent the Company has undertaken to register Securities of the Principal Stockholders pursuant to this Section 3.2, the Company may subsequently determine not to register such Securities and may either not file a registration statement or otherwise withdraw or abandon a registration statement previously filed with respect to the registration of such Securities. (f) For purposes of this Section 3.2, Lumpkin and all of the CCI Shareholders shall be deemed to be a single Principal Stockholder. 4. REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of Non-individual Stockholders Each non-individual Principal Stockholder hereby represents and warrants, as of the date of this Agreement, to the Company and to each other Principal Stockholder as follows: 4.1.1 Authorization Such Principal Stockholder has taken all action necessary for it to enter into this Agreement and to consummate the transactions contemplated hereby. 4.1.2 Binding Obligation This Agreement constitutes a valid and binding obligation of such Principal Stockholder, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, and similar laws affecting the rights and remedies of creditors generally, and by general principles of equity and public policy; and each document and instrument to be executed by such Principal Stockholder pursuant hereto, when executed and delivered in accordance with the provisions hereof, shall be a valid and binding obligation of such Principal Stockholder, enforceable in accordance with its terms (with the aforesaid exceptions). 4.2 Representations and Warranties of Individual Stockholders Each Principal Stockholder who is an individual hereby represents and warrants, as of the date of this Agreement, to the Company and to each other Principal Stockholder as follows: -10- 4.2.1 Power and Authority Such Principal Stockholder has the legal capacity and all other necessary power and authority necessary to enter into this Agreement and to consummate the transactions contemplated hereby. 4.2.2 Binding Obligation This Agreement constitutes a valid and binding obligation of such Principal Stockholder, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, and similar laws affecting the rights and remedies of creditors generally, and by general principles of equity and public policy; and each document and instrument to be executed by such Principal Stockholder pursuant hereto, when executed and delivered in accordance with the provisions hereof, shall be a valid and binding obligation of such Principal Stockholder, enforceable in accordance with its terms (with the aforesaid exceptions). 4.3 Representations and Warranties of the Company The Company hereby represents and warrants, as of the date of this Agreement, to each Principal Stockholder as follows: 4.3.1 Authorization The Company has taken all corporate action necessary for it to enter into this Agreement and to consummate the transactions contemplated hereby. 4.3.2 Binding Obligation This Agreement constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, and similar laws affecting the rights and remedies of creditors generally, and by general principles of equity and public policy; and each document and instrument to be executed by the Company pursuant hereto, when executed and delivered in accordance with the provisions hereof, shall be a valid and binding obligation of the Company, enforceable in accordance with its terms (with the aforesaid exceptions). 5. MISCELLANEOUS 5.1 Effect of Changes in Capitalization All share amounts of the Company's capital stock referred to in this Agreement shall be appropriately and proportionally adjusted for any -11- recapitalization, reclassification, stock split-up, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company, occurring after the date of this Agreement. 5.2 Additional Actions and Documents Each of the parties hereto hereby agrees to take or cause to be taken such further actions, to execute, deliver and file or cause to be executed, delivered and filed such further documents and instruments, and to obtain such consents, as may be necessary or as may be reasonably requested in order to fully effectuate the purposes, terms and conditions of this Agreement, whether before, at or after the effective time of this Agreement. 5.3 Entire Agreement; Amendment This Agreement constitutes the entire agreement among the parties hereto as of the date hereof with respect to the matters contemplated herein, except with respect to Sections 1.1, 1.2.1, 1.2.2, 1.2.3 and to the extent applicable Section 1.2.4 of the Original Stockholders' Agreement which Sections shall be superseded on the terms contemplated hereby with respect to the rights and obligations of the parties hereto amongst each other as of the Voting Agreement Effective Date. No amendment, modification or discharge of this Agreement shall be valid or binding unless set forth in writing and duly executed by the party against whom enforcement of the amendment, modification, or discharge is sought. 5.4 Limitation on Benefit It is the explicit intention of the parties hereto that no person or entity other than the parties hereto is or shall be entitled to bring any action to enforce any provision of this Agreement against any of the parties hereto, and the covenants, undertakings and agreements set forth in this Agreement shall be solely for the benefit of, and shall be enforceable only by, the parties hereto or their respective successors, heirs, executors, administrators, legal representatives and permitted assigns. 5.5 Binding Effect; Specific Performance This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs, executors, administrators, legal representatives and permitted assigns. No party shall assign this Agreement without the written consent of the other parties hereto; and such consent shall not be unreasonably withheld. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance -12- with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. 5.6 Governing Law This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of Delaware (excluding the choice of law rules thereof). 5.7 Notices All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be hand-delivered or mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by telegram, telecopy, facsimile transmission or telex, addressed as follows: (i) If to the Company or to the McLeods: McLeodUSA Incorporated McLeodUSA Technology Park 6400 C Street, SW, P.O. Box 3177 Cedar Rapids, IA 52406-3177 Attention: Randall Rings Facsimile: (319) 298-7901 (ii) If to IES: IES Investments Inc. 200 1st Street SE Cedar Rapids, IA 52401 Attention: James E. Hoffman Facsimile: (319) 398-4204 (iii) If to Lumpkin or any CCI Shareholder: P.O. Box 1234 Mattoon, IL 61938 Attention: Richard A. Lumpkin Facsimile: (217) 234-9934 -13- with a copy to : Schiff Hardin & Waite 6600 Sears Tower Chicago, Illinois 60606 Attention: David R. Hodgman, Esq. Facsimile: (312) 258-5600 Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request, or communication which shall be hand-delivered, mailed, transmitted, telecopied or telexed in the manner described above, or which shall be delivered to a telegraph company, shall be deemed sufficiently given, served, sent, received or delivered for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, or the answerback being deemed conclusive, but not exclusive, evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 5.8 Termination Notwithstanding any other provision of this Agreement, if during any Annual Period the Board of Directors has not provided a Principal Stockholder a reasonable opportunity to Transfer Securities pursuant to Section 3.2 or consented to the written request of such Principal Stockholder or otherwise provided such Principal Stockholder a reasonable opportunity to Transfer (other than a transfer by a CCI Shareholder to a CCI Permitted Transferee) pursuant to Section 3.1(a) an aggregate number of shares of Class A Common Stock equal to not less than fifteen percent (15%) of the total number of shares of Class A Common Stock beneficially owned by such Principal Stockholder as of December 31, 1998, subject to adjustment pursuant to Section 5.1, then such Principal Stockholder may terminate this Agreement as it applies to such terminating party by providing written notice of termination to all other parties no later than ten (10) business days following the end of such Annual Period, such that all rights and obligations hereunder shall cease, and this Agreement shall be of no further force or effect, with respect to the terminating party. Unless otherwise previously terminated by the Principal Stockholders pursuant to this Section 5.8, this Agreement shall terminate on the Expiration Date. For purposes of this Section 5.8, Lumpkin and all of the CCI Shareholders shall be deemed to be a single Principal Stockholder. 5.9 Publicity Each of the Principal Stockholders will use its reasonable best efforts to consult with the Company prior to issuing any press release, making any filing -14- with any governmental entity or national securities exchange or making any other public dissemination of information by such Principal Stockholder within which this Agreement or the contents hereof are referenced or described. 5.10 Appointment of Representative Each of the CCI Shareholders hereby appoints Lumpkin, with power of substitution, as its exclusive agent to act on its behalf with respect to any and all actions to be taken under or amendments or modifications to be made to this Agreement (the "Representative"). The Representative shall take, and the CCI Shareholders agree that the Representative shall take, any and all actions which the Representative believes are necessary or advisable under this Agreement for and on behalf of each of the CCI Shareholders, as fully as if each of the CCI Shareholders were acting on its own behalf, including, without limitation, dealing with the Company and the other parties hereto with respect to all matters arising under this Agreement, entering into any amendment or modification to this Agreement deemed advisable by the Representative and taking any and all other actions specified in or contemplated by this Agreement. The Company and the other parties hereto shall have the right to rely upon all actions taken or not taken by the Representative pursuant to this Agreement, all of which actions or omissions shall be legally binding upon each of the CCI Shareholders. 5.11 Execution in Counterparts To facilitate execution, this Agreement may be executed in as many counterparts as may be required; and it shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. -15- IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement, or have caused this Agreement to be duly executed and delivered on their behalf, as of the day and year first hereinabove set forth. MCLEODUSA INCORPORATED IES INVESTMENTS INC. By: /s/ J. Lyle Patrick By: /s/ James E. Hoffman Name: J. Lyle Patrick Name: James E. Hoffman Title: Group Vice President, Title: President Chief Financial Officer and Treasurer /s/ Clark E. McLeod /s/ Mary E. McLeod Clark E. McLeod Mary E. McLeod /s/ Richard A. Lumpkin /s/ Gail G. Lumpkin Richard A. Lumpkin Gail G. Lumpkin Margaret Lumpkin Keon Trust Mary Lee Sparks Trust dated May 13, 1978 dated May 13, 1978 /s/ Margaret Lumpkin Keon /s/ Mary Lee Sparks Margaret Lumpkin Keon, as Trustee Mary Lee Sparks, as Trustee /s/ Steve L. Grissom Steven L. Grissom, as Trustee /s/ Mary Lee Sparks Mary Lee Sparks -16- The twelve trusts created under the Mary Green Lumpkin Gallo Trust Agreement dated December 29, 1989 one for the benefit of each of: Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks Bank One, Texas, N.A., Trustee /s/ Frank A. Glispin By: Frank A. Glispin, Vice President The twelve trusts created under the Richard Adamson Lumpkin Grandchildren's Trust dated September 5, 1980, one for the benefit of each of: Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks Bank One, Texas, N.A., Trustee /s/ Frank A. Glispin By: Frank A. Glispin, Vice President -17- The three trusts established by Richard Adamson Lumpkin under Trust Agreement dated February 6, 1970, one for the benefit of each of: Richard Anthony Lumpkin, Margaret Anne Keon, and Mary Lee Sparks Bank One, Texas, N.A., Trustee /s/ Frank A. Glispin By: Frank A. Glispin, Vice President The twelve 1990 Personal Income Trusts established by Margaret L. Keon, Mary Lee Sparks, and Richard A. Lumpkin, each dated April 20, 1990, one for the benefit of each of: Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks /s/ David R. Hodgman David R. Hodgman, Trustee /s/ Steve L. Grissom Steven L. Grissom, Trustee -18- SCHEDULE I Richard A. Lumpkin Gail G. Lumpkin Margaret Lumpkin Keon, as Trustee under the Margaret Lumpkin Keon Trust dated May 13, 1978 Mary Lee Sparks and Steven L. Grissom, as Trustees of the Mary Lee Sparks Trust dated May 13, 1978 Bank One, Texas, N.A., as Trustee of the twelve trusts created under the Mary Green Lumpkin Gallo Trust Agreement dated December 29, 1989, one for the benefit of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks Bank One, Texas, N.A., as Trustee of the twelve trusts created under the Richard Adamson Lumpkin Grandchildren's Trust dated September 5, 1980, one for the benefit of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks Bank One, Texas, N.A., as Trustee of the three trusts established by Richard Adamson Lumpkin under the Trust Agreement dated February 6, 1970, one for the benefit of each of Richard Anthony Lumpkin, Margaret Anne Keon, and Mary Lee Sparks David R. Hodgman and Steven L. Grissom, as Trustees of the twelve 1990 Personal Income Trusts established by Margaret L. Keon, Mary Lee Sparks, and Richard A. Lumpkin, each dated April 20, 1990, one for the benefit of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks -19- EX-21 7 SUBSIDIARIES EXHIBIT 21 INTERSTATE ENERGY CORPORATION SUBSIDIARIES OF THE REGISTRANT The following are deemed to be significant subsidiaries of Interstate Energy Corporation as of December 31, 1998: Name of Subsidiary State of Incorporation - ------------------ ---------------------- IES Utilities Inc. Iowa Wisconsin Power and Light Company Wisconsin Interstate Power Company Delaware Alliant Energy Resources, Inc. Wisconsin EX-23 8 CONSENT OF INDEPENDANT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports on the consolidated financial statements of Interstate Energy Corporation included in this Interstate Energy Corporation Form 10-K into Interstate Energy Corporation's previously filed Registration Statements on Form S-8 (Nos. 333-41485 and 333-46735) and Form S-3 (No. 333-26627). ARTHUR ANDERSEN LLP Milwaukee, Wisconsin March 29, 1999 EX-27.1 9 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1998 FINANCIAL STATEMENTS INCLUDED IN THE INTERSTATE ENERGY CORPORATION'S FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000352541 INTERSTATE ENERGY CORPOPRATION 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 PER-BOOK 3,101,680 1,024,841 387,960 103,172 341,684 4,959,337 776 905,130 700,389 1,606,295 24,396 89,102 1,543,131 51,784 56,975 64,500 63,414 0 13,755 11,978 1,434,007 4,959,337 2,130,874 58,113 1,847,572 1,847,572 283,302 7,548 290,850 129,363 103,374 6,699 96,675 140,679 95,551 467,762 1.26 1.26 Includes $163,017 of Accumulated Other Comprehensive Income. Income tax expense is not included in Operating Expense in the Consolidated Statements of Income
EX-27.2 10 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1998 FINANCIAL STATEMENTS OF INTERSTATE ENERGY CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. CERTAIN ADJUSTMENTS HAVE BEEN MADE TO THE PRIOR PERIOD AMOUNTS AS PART OF THE RESTATEMENT TO REFLECT THE CHANGE IN ACCOUNTING METHOD FOR OIL AND GAS PROPERTIES FROM THE FULL COST METHOD TO THE SUCCESSFUL EFFORTS METHOD. 0000352541 INTERSTATE ENERGY CORPORATION 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 PER-BOOK 3,057,117 1,074,216 364,315 91,771 326,635 4,914,054 769 881,734 752,543 1,635,046 24,331 89,102 1,489,369 36,324 56,975 77,651 68,985 0 19,338 13,211 1,403,722 4,914,054 1,047,295 16,208 940,788 940,788 106,507 (4,018) 102,489 63,155 23,126 3,349 19,777 63,649 92,333 221,328 0.26 0.26 Includes $215,039 of Accumulated Other Comprehensive Income. Income tax expense is not included in Operating Expense in the Consolidated Statements of Income.
EX-27.3 11 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1998 FINANCIAL STATEMENTS OF INTERSTATE ENERGY CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. CERTAIN ADJUSTMENTS HAVE BEEN MADE TO THE PRIOR PERIOD AMOUNTS AS PART OF THE RESTATEMENT TO REFLECT THE POOLING OF INTERESTS TRANSACTION, AND A CHANGE IN ACCOUNTING METHOD FOR OIL AND GAS PROPERTIES FROM THE FULL COST METHOD TO THE SUCCESSFUL EFFORTS METHOD. 0000352541 INTERSTATE ENERGY CORPORATION 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 PER-BOOK 3,071,516 1,082,362 383,214 123,062 329,032 4,989,186 766 872,464 809,067 1,682,297 24,298 89,102 1,447,432 44,524 56,975 44,300 67,532 0 20,729 13,129 1,498,868 4,989,186 556,283 17,787 482,403 482,403 73,880 5,380 79,260 30,924 30,549 1,674 28,875 36,580 92,370 182,273 0.38 0.38 Includes $235,396 of Accumulated Other Comprehensive Income. Income tax expense is not included in Operating Expense in the Consolidated Statements of Income.
EX-27.4 12 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1997 FINANCIAL STATEMENTS OF INTERSTATE ENERGY CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. CERTAIN ADJUSTMENTS HAVE BEEN MADE TO THE PRIOR PERIOD AMOUNTS AS PART OF THE RESTATEMENT TO REFLECT THE POOLING OF INTERESTS TRANSACTION, AND A CHANGE IN ACCOUNTING METHOD FOR OIL AND GAS PROPERTIES FROM THE FULL COST METHOD TO THE SUCCESSFUL EFFORTS METHOD. 0000352541 INTERSTATE ENERGY CORPORATION 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 PER-BOOK 3,086,472 627,880 420,725 159,384 378,050 4,672,511 762 861,265 569,458 1,431,485 24,205 89,102 1,358,897 55,005 56,975 207,200 74,470 0 13,816 13,937 1,347,419 4,672,511 1,157,491 36,116 1,008,185 1,008,185 149,306 7,577 156,883 56,934 63,833 3,346 60,487 72,492 88,295 200,443 0.80 0.80 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income.
EX-27.5 13 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1997 FINANCIAL STATEMENTS OF INTERSTATE ENERGY CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. CERTAIN ADJUSTMENTS HAVE BEEN MADE TO THE PRIOR PERIOD AMOUNTS AS PART OF THE RESTATEMENT TO REFLECT THE POOLING OF INTERESTS TRANSACTION, AND A CHANGE IN ACCOUNTING METHOD FOR OIL AND GAS PROPERTIES FROM THE FULL COST METHOD TO THE SUCCESSFUL EFFORTS METHOD. 0000352541 INTERSTATE ENERGY CORPORATION 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 PER-BOOK 3,085,323 603,567 377,312 117,598 408,461 4,592,261 760 856,633 586,033 1,443,426 24,176 89,102 1,186,349 37,122 56,975 169,788 137,370 0 17,421 14,061 1,416,471 4,592,261 663,650 26,185 571,331 571,331 92,319 4,110 96,429 27,882 42,362 1,674 40,688 36,275 81,620 194,495 0.54 0.54 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income.
EX-27.6 14 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 FINANCIAL STATEMENTS OF INTERSTATE ENERGY CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. CERTAIN ADJUSTMENTS HAVE BEEN MADE TO THE PRIOR PERIOD AMOUNTS AS PART OF THE RESTATEMENT TO REFLECT THE POOLING OF INTERESTS TRANSACTION, AND A CHANGE IN ACCOUNTING METHOD FOR OIL AND GAS PROPERTIES FROM THE FULL COST METHOD TO THE SUCCESSFUL EFFORTS METHOD. 0000352541 INTERSTATE ENERGY CORPORATION 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 PER-BOOK 3,096,496 592,592 420,328 115,184 415,226 4,639,826 758 850,848 581,620 1,433,226 24,147 89,102 1,235,075 68,279 56,975 198,200 93,324 0 19,695 15,139 1,406,664 4,639,826 2,232,840 105,760 1,867,401 1,867,401 365,439 16,120 381,559 113,321 162,478 6,687 155,791 143,344 82,245 451,276 2.06 2.06 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Includes Discontinued Operations loss of $1,297. Includes Discontinued Operations loss of $0.02.
EX-27.7 15 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1998 FINANCIAL STATEMENTS INCLUDED IN IES UTILITIES INC.'S FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000052485 IES UTILITIES INC. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 PER-BOOK 1,366,978 103,333 165,025 15,734 137,908 1,788,978 33,427 279,042 275,372 587,841 0 18,320 602,020 0 0 0 50,140 0 13,679 11,965 505,013 1,788,978 806,930 41,494 651,934 651,934 154,996 762 155,758 52,354 61,910 914 60,996 18,840 46,542 206,113 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Earnings per share of common stock is not reflected because all common shares are held by Interstate Energy Corporation.
EX-27.8 16 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the March 31, 1998 Financial Statements of IES Utilities Inc. and is qualified in its entirety by reference to such Financial Statements. Certain adjustments have been made to the prior period amounts as part of the restatement to reflect the pooling of interests transaction. 0000052485 IES UTILITIES INC. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 PER-BOOK 1,356,361 91,542 162,552 11,850 156,178 1,778,483 33,427 279,042 230,647 543,116 0 18,320 601,915 0 0 0 50,140 0 20,646 13,115 531,231 1,778,483 208,278 10,040 173,989 173,989 34,289 486 34,775 13,075 11,660 229 11,431 14,000 46,672 67,009 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Earnings per share of common stock is not reflected because all common shares are held by Interstate Energy Corporation.
EX-27.9 17 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1997 FINANCIAL STATEMENTS OF IES UTILITIES INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. CERTAIN ADJUSTMENTS HAVE BEEN MADE TO THE PRIOR PERIOD AMOUNTS AS PART OF THE RESTATEMENT TO REFLECT THE POOLING OF INTERESTS TRANSACTION. 0000052485 IES UTILITIES INC. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 PER-BOOK 1,366,073 88,811 138,388 12,393 163,264 1,768,929 33,427 279,042 233,216 545,685 0 18,320 651,848 0 0 0 140 0 23,548 13,183 516,205 1,768,929 813,978 42,216 660,208 660,208 153,770 30 153,800 52,791 58,793 914 57,879 56,000 46,683 190,300 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Earnings per share of common stock is not reflected because all common shares are held by Interstate Energy Corporation.
EX-27.10 18 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1997 FINANCIAL STATEMENTS OF IES UTILITIES INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. CERTAIN ADJUSTMENTS HAVE BEEN MADE TO THE PRIOR PERIOD AMOUNTS AS PART OF THE RESTATEMENT TO REFLECT THE POOLING OF INTERESTS TRANSACTION. 0000052485 IES UTILITIES INC. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 PER-BOOK 1,350,093 71,852 137,544 10,808 181,447 1,751,744 33,427 279,042 228,959 541,428 0 18,320 462,389 0 0 126,000 63,140 0 17,421 14,047 508,999 1,751,744 226,398 9,245 193,810 193,810 32,588 814 33,402 12,306 11,851 229 11,622 14,000 38,631 61,272 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Earnings per share of common stock is not reflected because all common shares are held by Interstate Energy Corporation.
EX-27.11 19 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the December 31, 1996 Financial Statements of IES Utilities Inc. and is qualified in its entirety by reference to such Financial Statements. Certain adjustments have been made to the prior period amounts as part of the restatement to reflect the pooling of interests transaction. 0000052485 IES UTILITIES INC. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 PER-BOOK 1,358,215 69,791 139,038 10,437 187,563 1,765,044 33,427 279,042 231,337 543,806 0 18,320 517,334 25,000 0 110,000 8,140 0 19,600 15,125 507,719 1,765,044 754,979 43,092 599,304 599,304 155,675 (5,140) 150,535 43,714 63,729 914 62,815 44,000 38,709 170,655 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Earnings per share of common stock is not reflected because all common shares are held by Interstate Energy Corporation.
EX-27.12 20 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1998 FINANCIAL STATEMENTS INCLUDED IN WISCONSIN POWER AND LIGHT COMPANY'S FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000107832 WISCONSIN POWER AND LIGHT COMPANY 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 PER-BOOK 1,236,733 150,702 106,577 57,637 133,501 1,685,150 66,183 199,438 294,309 559,930 0 59,963 414,579 76,799 56,975 0 0 0 0 0 516,904 1,685,150 731,448 24,670 638,798 638,798 92,650 4,178 96,828 36,584 35,574 3,310 32,264 58,341 33,983 177,321 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Earnings per share of common stock is not reflected because all common shares are held by Interstate Energy Corporation.
-----END PRIVACY-ENHANCED MESSAGE-----