SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27930; 70-10249)
Alliant Energy Corporation, et al.
Order Authorizing Various Financing Transactions, Money Pool
December 28, 2004
Alliant Energy Corporation ("Alliant Energy"), a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"), Madison, Wisconsin; Wisconsin Power and Light Company ("WP&L"),Madison Wisconsin; Interstate Power and Light Company ("IP&L"), Cedar Rapids, Iowa and Wisconsin River Power Company ("WRP"), Wisconsin Rapids, Wisconsin, public-utility subsidiaries of Alliant Energy; Alliant Energy Corporate Services, Inc. ("Alliant Services"), Cedar Rapids, Iowa, Alliant Energy's subsidiary service company; and the following non-utility subsidiaries of Alliant Energy: Alliant Energy Resources, Inc. ("AER"), Alliant Energy Nuclear LLC and its subsidiary, Alliant Energy Synfuel LLC and its subsidiaries, Alliant Energy EPC, LLC, Alliant Energy TransCo LLC and its subsidiary, Distribution Vision 2010, WPL Transco, LLC, all of Madison, Wisconsin; AER Holding Company, Las Vegas, Nevada; AEG Worldwide, Inc. and its subsidiaries, and Alliant Energy Neenah, LLC, both of Oak Brook, Illinois; Alliant Energy Transportation, Inc. and its subsidiaries, Alliant Energy Investments, Inc. and its subsidiaries, Alliant Energy International, Inc., and Alliant Energy Integrated Services Company and its subsidiaries, all of Cedar Rapids, Iowa, (collectively, "Applicants"), have filed an application/declaration ("Application") with the Commission in this proceeding under to sections 6(a), 7, 9(a), 10, 12(b), 13(b), 32, 33 and 34 of the Act and rules 43, 45(a), 46(a), 53, 54, 58 and 80 - 92 under the Act. The Securities and Exchange Commission ("Commission") issued a notice of the filing on November 19, 2004 (HCAR No. 35-27913). The Commission did not receive any requests for hearing.
The Applicants request approval for a program of external financing, credit support arrangements, and other related proposals for the period commencing January 1, 2005 and extending through December 31, 2007 ("Authorization Period"). Specifically, the Applicants are requesting authorization for:
I. The Alliant Energy System
According to the Application, Alliant Energy's principal public-utility subsidiaries are IP&L, WP&L and South Beloit Water, Gas and Electric Company ("SBWG&E"). Together, IP&L, WP&L and SBWG&E provide public-utility service to approximately 970,000 electric and 409,000 retail gas customers in parts of Wisconsin, Iowa, Minnesota, and Illinois. WP&L also owns 50% of the issued and outstanding common stock of WRP, which owns and operates hydroelectric generating facilities in Wisconsin. For purposes of this Application, IP&L, WP&L, SBWG&E, and WRP are referred to collectively as the "Utility Subsidiaries."
In addition to Alliant Services, the Application states that Alliant Energy's principal non-utility subsidiary is AER, which serves as the holding company for substantially all of Alliant Energy's non-utility investments and subsidiaries. AER has ten direct wholly-owned non-utility subsidiaries (Alliant Energy Transportation, Inc., Alliant Energy International, Inc., Alliant Energy Investments, Inc., Alliant Energy Integrated Services Company, AER Holding Company, AEG Worldwide, Inc., Alliant Energy Synfuel LLC, Alliant Energy Neenah, LLC, Alliant Energy EPC, LLC, and LNT Communications L.L.C.) that are engaged, directly and indirectly through other non-utility subsidiaries, principally in (i) rail transportation, barge terminal and hauling, and fuel transportation and handling operations; (ii) developing, owning and operating domestic generation projects and foreign utility systems and providing technical and operational services to owners of wind power projects; (iii) various other unregulated energy-related businesses, including steam production, fuel management services and energy management services; (iv) providing environmental consulting and engineering services; (v) synthetic fuels processing; and (vi) management of investments in telecommunications operations, undeveloped real estate, and affordable housing projects. Alliant Services, AER, AER's direct non-utility subsidiaries named above, and the other direct and indirect non-utility subsidiaries of Alliant Energy named in the application/declaration, and their respective non-utility subsidiaries, are referred to as the "Non-Utility Subsidiaries."
The Utility Subsidiaries and Non-Utility Subsidiaries are referred to collectively as the "Subsidiaries." The term Subsidiaries also includes any other subsidiaries acquired after the date of this Application, directly or indirectly, by Alliant Energy in a transaction that is exempt under the Act or rules (in particular, rule 58) or in a transaction that has been approved by the Commission either in this proceeding (e.g., a "Financing Subsidiary" or "Intermediate Subsidiary," as described below) or in a separate proceeding.
II. Requests for Authority
Applicants request authority to engage in a program of external financing by Alliant Energy, IP&L and WRP, credit support arrangements, continuation of the Non-Utility Money Pool, interest rate hedging transactions, and other related proposals for the period commencing January 1, 2005 and extending through December 31, 2007 (the "Authorization Period").2 Specifically, Applicants seek authority for the following:
A. General Terms and Conditions.
Applicant proposes to make the following general terms applicable where appropriate to the proposed external financing activities of Alliant Energy, IP&L and WRP as described below:
The Applicants state that the proceeds from the financings authorized by the Commission as a result of this Application will be used for general corporate purposes, including (i) financing, in part, investments by and capital expenditures of Alliant Energy and its Subsidiaries, (ii) funding of future investments in EWGs, FUCOs, and "energy-related companies" under rule 58 ("rule 58 Companies"), (iii) the acquisition, retirement or redemption by Alliant Energy or any Subsidiary of any of its own securities in accordance with rule 42 or as authorized by the Commission in this proceeding, (iv) financing working capital requirements of Alliant Energy and its Subsidiaries, including by making contributions to the Non-Utility Money Pool, and/or (v) the acquisition of the securities or assets of other companies, as authorized in this proceeding or as may be authorized by the Commission in a separate proceeding. The Applicants represent that no financing proceeds will be used to acquire the equity securities of any new subsidiary unless that acquisition has been approved by the Commission in this proceeding or in a separate proceeding or in accordance with an available exemption under the Act or rules promulgated in accordance with the Act, including sections 32 and 33 and rule 58. Alliant Energy states that the aggregate amount of the proceeds of securities (including guarantees) issued by Alliant Energy to fund investments in EWGs and FUCOs will not, when added to Alliant Energy's "aggregate investment" in all EWGs and FUCOs at any point in time, exceed the EWG/FUCO Investment Authority authorized under the October 2001 Order. Alliant Energy requests the Commission to continue its reservation of jurisdiction over Alliant Energy's use of financing proceeds to fund investments in EWGs and FUCOs in an amount which, when added to Alliant Energy's "aggregate investment" in those entities from time to time, would equal $1.75 billion. The Applicants further represents that the proceeds of securities (including guarantees) used by Alliant Energy or any Subsidiary to fund investments in rule 58 Companies will be subject to the limitations of that rule.
B. External Financing by Alliant Energy, IP&L and WRP
1. Alliant Energy. Alliant Energy requests authorization to issue and sell, from time to time during the Authorization Period, any combination of the following types of securities: (A) common stock ("Common Stock") (including options and warrants exercisable for Common Stock), forward stock purchase contracts ("Stock Purchase Contracts") and stock units consisting of a Stock Purchase Contract coupled with an intermediate-term debt security of Alliant Energy ("Stock Purchase Units"), (B) preferred securities (including without limitation monthly income preferred trust securities) ("Preferred Securities"), (C) long-term debt securities having maturities of one to fifty years ("Long-term Debt"), and (D) and short-term debt securities having maturities of less than one year ("Short-term Debt"), provided that the aggregate amount of all the new securities issued during the Authorization Period shall not exceed $500 million at any time outstanding, and, provided further, that any shares of Common Stock sold in accordance with to Alliant Energy's Rights Agreement (as separately authorized by the Commission) will not count against this limit.
Alliant Energy contemplates that these securities would be issued and sold directly to the public in one or more offerings registered under the Securities Act of 1933, as amended (the "1933 Act") either (i) through underwriters selected by negotiation or competitive bidding or (ii) through a selling agent acting either as agent or as principal for resale to the public either directly or through dealers, or to one or more purchasers in privately-negotiated transactions or to one or more investment banking or underwriting firms or other entities who would resell those securities without registration under the 1933 Act in reliance upon one or more applicable exemptions from registration under the 1933 Act. All these securities sales will be at rates or prices and under conditions negotiated or based upon, or otherwise determined by, competitive capital markets.
Alliant Energy may issue and sell Common Stock, Stock Purchase Contracts and Stock Purchase Units in accordance with underwriting agreements of a type generally standard in the industry. Public distributions may be accomplished through private negotiation with underwriters, dealers or agents, as discussed below, or effected through competitive bidding among underwriters. In addition, sales may be made through private placements or other non-public offerings to one or more persons. If underwriters are used in the sale of these securities, these securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. These securities may be offered to the public either through underwriting syndicates (which may be represented by a managing underwriter or underwriters designated by Alliant Energy) or directly by one or more underwriters acting alone, or may be sold directly by Alliant Energy or through agents designated by Alliant Energy from time to time. If dealers are used in the sale of these securities, Alliant Energy will sell these securities to the dealers, as principals. Any dealer may then resell the securities to the public at varying prices to be determined by the dealer at the time of resale. If Common Stock is being sold in an underwritten offering, Alliant Energy may grant the underwriters of that offering a "green shoe" option permitting the purchase from Alliant Energy at the same price additional shares then being offered.
Alliant Energy also requests authorization to issue Common Stock or options, warrants or other stock purchase rights exercisable for Common Stock in public or privately-negotiated transactions in exchange for the equity securities or assets of other companies, provided that the acquisition of any those equity securities or assets has been authorized in a separate proceeding or is exempt under the Act or the rules, including but not limited to , rule 58).
Stock Purchase Contracts would obligate holders to purchase from Alliant Energy, and Alliant Energy to sell to the holders, a specified number of shares of Common Stock at a future date or dates (typically between three and five years after the date of issuance). The price per share of Common Stock may be fixed at the time the Stock Purchase Contracts are issued or may be determined by reference to a specific formula set forth in the Stock Purchase Contracts. Stock Purchase Contracts may be issued separately or as a part of Stock Purchase Units (a form of "equity-linked" security), which would consist of a Stock Purchase Contract and either Long-term Debt, debt securities of a Non-Utility Subsidiary or debt obligations of third parties, including U.S. Treasury securities, securing the holders' obligations to purchase the Common Stock under the Stock Purchase Contracts. Stock Purchase Contracts may require Alliant Energy and/or AER to make periodic payments to the holders of some or all of the Stock Purchase Units or vice versa. Those payments may be unsecured or prefunded on some basis. The Stock Purchase Contracts may require holders to secure their obligations under these Stock Purchase Contracts in a specified manner.
Preferred Securities (including but not limited to monthly income preferred securities) may be issued in one or more series with those rights, preferences, and priorities as may be designated in the instrument creating each series, as determined by Alliant Energy's board of directors. Dividends or distributions on Preferred Securities will be made periodically and to the extent funds are legally available for that purpose, but may be made subject to terms which allow the issuer to defer dividend payments or distributions for specified periods. Preferred Securities may be convertible or exchangeable into shares of Common Stock or other securities that Alliant Energy is authorized to issue.
Long-term Debt may be issued in one or more series in the form of unsecured notes or debentures with those rights, preferences, and priorities as may be designated in the instrument creating each series, as determined by Alliant Energy's board of directors. Long-term Debt of a particular series (a) may be convertible into any other securities that Alliant Energy is authorized to issue, (b) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the principal amount , (c) may be entitled to mandatory or optional sinking fund provisions, (d) may provide for reset of the coupon under a remarketing arrangement, and (e) may be called from existing investors by a third party. The maturity dates, interest rates, redemption and sinking fund provisions and conversion features, if any, with respect to the Long-term Debt of a particular series, as well as any associated placement, underwriting or selling agent fees, commissions and discounts, if any, will be established by negotiation or competitive bidding.
Short-term Debt may include commercial paper, unsecured bank notes and other forms of unsecured short-term indebtedness having maturities of less than one year from the date of issuance. Commercial paper may be sold in established domestic or European commercial paper markets. That commercial paper would typically be sold to dealers at the discount rate per annum prevailing at the date of issuance for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. Applicants expect that the dealers acquiring the commercial paper will reoffer it at a discount to corporate, institutional and, with respect to European commercial paper, individual investors. Applicants anticipate that the commercial paper will be reoffered to investors such as commercial banks, insurance companies, pension funds, investment trusts, foundations, colleges and universities, finance companies and nonfinancial corporations.
Alliant Energy may also establish and maintain back-up credit lines with banks or other institutional lenders to support its commercial paper program and other credit arrangements and/or borrowing facilities generally available to borrowers with comparable credit ratings as they may deem appropriate in light of their needs and existing market conditions providing for revolving credit or other loans and having commitment periods not longer than the Authorization Period. Only the amounts drawn and outstanding under these agreements and facilities will be counted against the proposed limit on new financing by Alliant Energy.
In addition to the requested authorizations already described, Alliant Energy also requests authorization to issue, from time to time during the Authorization Period, up to 8.5 million shares of Common Stock in accordance with its dividend reinvestment plan and incentive compensation and stock-purchase plans maintained for its and its Subsidiaries' officers and employees and non-management directors.
2. IP&L. IP&L requests authorization to issue and sell, from time to time during the Authorization Period, any combination of the following types of securities: (A) through direct sale preferred stock ("Preferred Stock") or Short-term debt, (B) through direct, or indirect through one or more Financing Subsidiaries, Preferred Securities and Long-term Debt, provided that the aggregate amount of all new securities issued during the Authorization Period shall not exceed $700 million at any time outstanding or a lesser amount as may be authorized from time to time by the MPUC.
IP&L requests authorization to issue Preferred Securities directly or indirectly through on or more Financing Subsidiaries and to issue Preferred Stock directly. Preferred Stock or Preferred Securities may be issued in one or more series with those rights, preferences, and priorities as may be designated in the instrument creating each series, as determined by IP&L's board of directors. Dividends or distributions on Preferred Stock or Preferred Securities will be made periodically and to the extent funds are legally available for that purpose, but may be made subject to terms which allow the issuer to defer dividend payments or distributions for specified periods.
IP&L requests authorization to issue Long-term Debt directly or indirectly through one or more Financing Subsidiaries. Long-term Debt of IP&L may be in the form of (a) one or more series of collateral trust bonds ("Trust Bonds") issued under an Indenture of Mortgage and Deed of Trust, dated as of September 1, 1993, between IP&L and J.P. Morgan Trust Company, National Association, successor, as Trustee, as supplemented from time to time, (b) one or more series of senior unsecured debentures ("Senior Debentures") issued under an Indenture, dated as of August 20, 2003, between IP&L and J.P. Morgan Trust Company, National Association, successor, as Trustee, or (c) agreements with issuing authorities for the issuance and sale of one or more series of tax-exempt bonds ("Tax-Exempt Bonds") for the financing or refinancing of air and water pollution control facilities and sewage and solid waste disposal facilities ("Facilities"). As security for IP&L's obligations under any agreement relating to any series of Tax-Exempt Bonds, IP&L requests authority to (1) issue its promissory note or notes to evidence the loan to IP&L of the proceeds of the Tax-Exempt Bonds by the issuer of those bonds, (2) convey a subordinated security interest in any Facilities that are financed through the issuance of Tax-Exempt Bonds, (3) issue and pledge one or more new series of Trust Bonds ("Tax-Exempt Collateral Bonds"), (4) acquire and deliver letters of credit guaranteeing payment of the Tax-Exempt Bonds and enter into reimbursement agreements with respect to any these letters of credit, (5) acquire insurance policies guaranteeing payment of the Tax-Exempt Bonds, and (6) provide a direct guarantee of payment of the principal of and premium, if any, and interest on the Tax-Exempt Bonds. To avoid double counting and consistent with the terms of the IP&L Long-term Debt Order,4 IP&L proposes that the principal amount of any Tax-Exempt Collateral Bonds issued by IP&L as collateral security for Tax-Exempt Bond obligations and any other forms of collateral related to the Tax-Exempt Bonds be excluded from the proposed overall financing limit on long-term financing by IP&L.
IP&L requests authority to issue Short-term Debt directly. Short-term Debt of IP&L may include commercial paper notes and secured or unsecured bank notes or other forms of secured or unsecured short-term indebtedness having maturities of less than one year from the date of issuance. Commercial paper may be sold in established domestic or European commercial paper markets. That commercial paper would typically be sold to dealers at the discount rate per annum prevailing at the date of issuance for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. Applicant expect that the dealers acquiring this commercial paper will reoffer it at a discount to corporate, institutional and, with respect to European commercial paper, individual investors. Applicants anticipate that this commercial paper will be reoffered to investors such as commercial banks, insurance companies, pension funds, investment trusts, foundations, colleges and universities, finance companies and nonfinancial corporations.
IP&L may also establish and maintain back-up credit lines with banks or other institutional lenders to support its commercial paper program and other credit arrangements and/or borrowing facilities generally available to borrowers with comparable credit ratings as it may deem appropriate in light of its needs and existing market conditions providing for revolving credit or other loans and having commitment periods not longer than the Authorization Period. Only the amounts drawn and outstanding under these agreements and facilities will be counted against the proposed limit on new financing by IP&L.
Issuance of secured Short-term Debt by IP&L will be limited to those circumstances in which IP&L can expect a lower effective cost of borrowing compared to issuing unsecured Short-term Debt or in which unsecured credit is unavailable, except at a higher cost than secured Short-term Debt. IP&L anticipates that the collateral offered as security for any secured Short-term Debt will be limited to accounts receivable.
3. WRP. WRP requests authorization to issue and sell, from time to time during the Authorization Period, Long-term Debt and Short-term Debt, provided that the aggregate principal amount of all new securities issued during the Authorization Period shall not exceed $2.5 million at any time outstanding. These securities would be subject to the same general limitations and restrictions described above applicable to Long-term Debt and Short-term Debt of IP&L.
C. Guarantees and Other Forms of Credit Support.
Alliant Energy requests authorization to issue guarantees and provide other forms of credit support ("Alliant Energy Guarantees") with respect to securities issued by or other obligations of its Subsidiaries in an aggregate principal or nominal amount not to exceed $3.0 billion at any time outstanding. Alliant Energy Guarantees may be in the form of, among other things, direct parent guarantees, reimbursement obligations in respect of letters of credit, indemnities, and capital maintenance or "keep well" agreements. Alliant Energy requests authority to charge each Subsidiary a fee for providing credit support that is determined by multiplying the amount of the Alliant Energy Guarantee provided by the cost of obtaining the liquidity necessary to perform the guarantee (for example, bank line commitment fees or letter of credit fees, plus other transactional expenses) for the period of time the guarantee remains outstanding.
As part of normal business activities, Alliant Energy from time to time enters into various agreements on behalf of its Subsidiaries to provide financial or performance assurances to third parties. At September 30, 2004, Alliant Energy had outstanding guarantees and other forms of credit support in respect of obligations of its Subsidiaries totaling approximately $1.55 billion, of which approximately $1.22 billion represented guarantees of indebtedness of AER and Alliant Services and the remainder, approximately $331.4 million, guarantees and other credit support in respect of non-financial obligations, e.g., guarantees of certain lease obligations, including, among others, the lease of Alliant Services' headquarters building and various equipment leases, title guarantees, and guarantees in connection with certain snyfuels tax credits.
Alliant Energy Guarantees may, in some cases, be provided to support obligations of Subsidiaries that are not readily susceptible of exact quantification or that may be subject to varying quantification. In these cases, Alliant Energy will determine the exposure under the guarantee for purposes of measuring compliance with the proposed limitation on Alliant Energy Guarantees by appropriate means, including estimation of exposure based on loss experience or projected potential payment amounts. If appropriate, these estimates will be made in accordance with U. S. Generally Accepted Accounting Principles ("U. S. GAAP"). Each estimation will be reevaluated periodically.AER and other Non-Utility Subsidiaries also request authorization to provide guarantees and other forms of credit support ("Non-Utility Guarantees") with respect to securities issued by and other obligations of other Non-Utility Subsidiaries in an aggregate principal or nominal amount not to exceed $600 million at any time outstanding, in addition to any guarantees that are exempt under rule 45(b) and rule 52. The types and terms of any Non-Utility Guarantee would be the same as described immediately above.
D. Interest Rate Hedging Transactions.
Alliant Energy and, to the extent not exempt under rule 52, any Subsidiary requests authorization to enter into hedging transactions ("Interest Rate Hedges") with respect to existing indebtedness of Alliant Energy or the Subsidiary in order to manage and minimize interest costs, and to enter into hedging transactions with respect to anticipatory debt issuances ("Anticipatory Hedges") in order to lock-in current interest rates and/or manage interest rate risk exposure.
Applicants state that Interest Rate Hedges will be used as a means of prudently managing the risk associated with outstanding debt issued under the authorization requested in this Application or an applicable exemption by, in effect, synthetically (i) converting variable-rate debt to fixed-rate debt, (ii) converting fixed-rate debt to variable-rate debt, and (iii) limiting the impact of changes in interest rates resulting from variable-rate debt. In no case will the notional principal amount of any interest rate swap exceed the face value of the underlying debt instrument and related interest rate exposure. Transactions will be entered into for a fixed or determinable period. Thus, the Applicants will not engage in speculative transactions. Interest Rate Hedges (other than exchange-traded Interest Rate Hedges) will only be entered into with counterparties ("Approved Counterparties") whose senior unsecured debt ratings, or the senior unsecured debt ratings of the parent companies of the counterparties, as published by S&P, are equal to or greater than BBB, or an equivalent rating from Moody's or Fitch Inc.
Anticipatory Hedges (other than exchange-traded Anticipatory Hedges) will only be entered into with Approved Counterparties, and will be utilized to fix and/or limit the interest rate risk associated with any new issuance through (i) a forward sale of exchange-traded U.S. Treasury futures contracts, U.S. Treasury Securities and/or a forward swap (each a "Forward Sale"), (ii) the purchase of put options on U.S. Treasury Securities (a "Put Options Purchase"), (iii) a Put Options Purchase in combination with the sale of call options on U.S. Treasury Securities (a "Zero Cost Collar"), (iv) transactions involving the purchase or sale, including short sales, of U.S. Treasury Securities, or (v) some combination of a Forward Sale, Put Options Purchase, Zero Cost Collar and/or other derivative or cash transactions, including, but not limited to structured notes, caps and collars, appropriate for the Anticipatory Hedges.
The Applicants represent that they will comply with Statement of Financial Accounting Standards ("SFAS") 133 ("Accounting for Derivative Instruments and Hedging Activities") and SFAS 138 ("Accounting for Certain Derivative Instruments and Certain Hedging Activities") or other standards relating to accounting for derivative transactions as are adopted and implemented by the Financial Accounting Standards Board ("FASB"). The Applicants represent that each Interest Rate Hedge and each Anticipatory Hedge will qualify for hedge accounting treatment under the current FASB standards in effect and as determined as of the date the Interest Rate Hedge or Anticipatory Hedge is entered into. The Applicants will also comply with any future FASB financial disclosure requirements associated with hedging transactions.
E. Continuation of Non-Utility Money Pool.
Alliant Energy, AER and certain other Non-Utility Subsidiaries request authorization to continue their participation in the Non-Utility Money Pool as previously authorized.5 Under the terms of the Amended and Restated Non-Utility Money Pool Agreement, funds would be available from the following sources for short-term loans to the Non-Utility Money Pool participants (other than Alliant Energy) from time to time: (1) surplus funds in the treasuries of any of the Non-Utility Money Pool participants ("Internal Funds"), and (2) proceeds received by any of the Non-Utility Money Pool participants from the issuance of Short-term Debt ("External Funds"), in each case to the extent permitted by applicable laws and regulatory orders. Funds would be made available from these sources in the order that Alliant Services, as the administrator of the Non-Utility Money Pool, may determine will result in a lower cost of borrowing, consistent with the individual borrowing needs and financial standing of Non-Utility Money Pool participants that invest funds in the Non-Utility Money Pool.
Each Non-Utility Money Pool participant that is authorized or permitted to borrow from the Non-Utility Money Pool will borrow pro rata from each Non-Utility Money Pool participant that advances funds to the Non-Utility Money Pool in the proportion that the total amount advanced by that participant bears to the total amount then advanced to the Non-Utility Money Pool by all participants. On any day when more than one source of funds (i.e., both Internal Funds and External Funds), with different rates of interest, are used to fund loans through the Non-Utility Money Pool, each borrowing participant will borrow pro rata from each funding source in the same proportion that the amount of funds provided by that funding source bears to the total amount of funds advanced to the Non-Utility Money Pool.
The cost of compensating balances, if any, and fees paid to banks to maintain credit lines by Alliant Energy that are used to fund loans to the Non-Utility Money Pool will initially be paid by Alliant Energy. These costs will be retroactively allocated every month among the Non-Utility Money Pool borrowers in proportion to each borrowers' estimated peak short-term borrowing requirements.
The daily outstanding balance of all loans to the Non-Utility Money Pool participants shall accrue interest as follows: (a) if only Internal Funds comprise the daily outstanding balance of all loans outstanding during a calendar month, the interest rate applicable to the daily balances shall be the average for the month of the CD yield equivalent of the 30-day Federal Reserve "AA" Industrial Commercial Paper Composite Rate (the daily rate, "Composite," and the monthly average of the Composite, the "Average Composite"), or, if no Composite was established for that particular day, then the applicable rate will be the Composite for the next preceding day for which the Composite was established, and (b) if only External Funds comprise the daily outstanding balance of all loans outstanding during a calendar month, the interest rate applicable to the daily outstanding balance shall be the lending participant's cost for those External Funds or, if more than one participant had made available External Funds at any time during the month, the applicable interest rate shall be a composite rate, equal to the weighted average of the costs incurred by the respective participants for those External Funds. In cases where the daily outstanding balances of all loans outstanding at any time during the month include both Internal Funds and External Funds, the interest rate applicable to the daily outstanding balances for the month shall be the weighted average of the (i) cost of all Internal Funds contributed by participants, and (ii) the cost of all External Funds. The interest rate paid on funds advanced to the Non-Utility Money Pool by any participant will be equal to the cost of borrowing from the Non-Utility Money Pool. That is, the applicable rate will be the Composite rate in the case of Internal Funds, the lending company's cost of borrowing in the case of External Funds, and a weighted average cost of funds if funds advanced to the Non-Utility Money Pool at any one time consist of both Internal Funds and External Funds.
Funds not required by the Non-Utility Money Pool participants to make loans (with the exception of funds required to satisfy the Non-Utility Money Pool's liquidity requirements) will be invested in one or more short-term investments: (i) interest-bearing accounts with banks; (ii) obligations issued or guaranteed by the U.S. government and/or its agencies and instrumentalities, including obligations under repurchase agreements; (iii) commercial paper rated not less than A-1 by S&P or P-1 by Moody's, or their equivalent by a nationally recognized rating agency; (iv) obligations issued or guaranteed by any state or political subdivision of a state, provided that the obligations are rated not less than "A" by a nationally recognized rating agency; (v) bankers' acceptances; (vi) money market funds; (vii) bank certificates of deposit; (viii) Eurodollar funds; and (ix) any other investments permitted by section 9(c) of the Act and rule 40.
Any income earned on investments of surplus funds will be allocated at the end of each calendar month among those Non-Utility Money Pool participants that have invested funds in accordance with the proportion that each participant's average contribution of funds in the Non-Utility Money Pool for the month bears to the average total amount of funds invested in the Non-Utility Money Pool for the month.
Each participant receiving a loan through the Non-Utility Money Pool will be required to repay the principal amount of that loan, together with all accrued interest on that loan, on demand and in any event within 365 days of the date of that loan. All loans made through the Non-Utility Money Pool may be prepaid by the borrower without premium or penalty and without prior notice. All loans to, and borrowings from, the Non-Utility Money Pool to finance the existing businesses of the Non-Utility Money Pool participants will be exempt under to the terms of rule 52 under the Act. No loans through the Non-Utility Money Pool would be made to, and no borrowings through the Non-Utility Money Pool would be made by, Alliant Energy.
Applicants request authorization for the following direct and indirect Non-Utility Subsidiaries of Alliant Energy to participate in the Non-Utility Money Pool: 1) Direct Subsidiaries of Alliant Energy: Alliant Services, AER and Alliant Energy Nuclear LLC; 2) Direct Subsidiaries of AER: Alliant Energy Integrated Services Company, Alliant Energy Investments, Inc., Alliant Energy International, Inc., Alliant Energy Transportation Inc., Alliant Energy Synfuel LLC, Alliant Energy Generation, Inc., Alliant Energy Neenah, LLC and Alliant Energy EPC, LLC; 3. Direct and Indirect Subsidiaries of Alliant Energy Integrated Services Company: Alliant Energy Field Services, LLC, Alliant Energy Integrated Services - Energy Management LLC, Alliant Energy Integrated Services - Energy Solutions LLC, Cogenex Corporation, Energy Performance Services, Inc., Heartland Energy Group, Inc., Industrial Energy Applications, Inc., Industrial Energy Applications Delaware Inc. and RMT, Inc; 4) Direct and Indirect Subsidiaries of Alliant Energy Investments, Inc.: Heartland Energy Services, Inc., Iowa Land and Building Company and Prairie Ridge Business Park, L.C.; 5) Direct Subsidiaries of Alliant Energy Transportation, Inc.: Transfer Services, Inc., Cedar Rapids and Iowa City Railway Company, IEI Barge Services, Inc. and Williams Bulk Transfer Inc.; 6) Direct Subsidiary of Alliant Energy Generation, Inc.: Sheboygan Power, LLC.
Alliant Energy requests that the Commission reserve jurisdiction over the participation of any other direct or indirect, current or future, Non-Utility Subsidiary of Alliant Energy as a borrower under the Non-Utility Money Pool.
F. Certain Intercompany Loans.
Alliant Energy and Non-Utility Subsidiaries request authorization to make loans to any other Non-Utility Subsidiary of Alliant Energy that is less than wholly-owned at interest rates and maturities designed to provide a return to the lending company of not less than its effective cost of capital, provided that the borrowing Non-Utility Subsidiary may not sell any services to any associate Non-Utility Subsidiary unless that company falls within one of the categories of companies to which goods and services may be sold on a basis other than "at cost," as described below.
G. Changes to Capital Structure of Subsidiaries.
Alliant Energy and the Subsidiaries request authorization to change the terms of the authorized capitalization of any other majority-owned Subsidiary, provided that, if the Subsidiary is less than wholly-owned, all other equity owners consent to the change. Thus, a Subsidiary will be able to change the par value, or change between par value and no-par stock, or change the form of equity from common stock to limited partnership or limited liability company interests or similar instruments, or from those instruments to common stock, without additional Commission approval. This action by a Utility Subsidiary is subject to and will only be taken upon the receipt of any necessary approvals by the state commission in the state or states where the Utility Subsidiary is incorporated and doing business.
H. Acquisition of Securities of Financing Subsidiaries.
Alliant Energy, IP&L, WP&L and the Non-Utility Subsidiaries request authorization to acquire the equity securities of one or more entities organized exclusively for the purpose of facilitating the issuance of securities ("Financing Subsidiaries") and to guarantee the securities issued by those Financing Subsidiaries, to the extent not exempt pursuant to rule 45(b) and rule 52, and Financing Subsidiaries to transfer the proceeds of any financing to its parent or as directed by its parent. Financing Subsidiaries would be organized specifically for the purpose of facilitating the financing of the authorized and exempt activities (including exempt and authorized acquisitions) of Alliant Energy and the Subsidiaries through the issuance of Long-term Debt or Preferred Securities (including but not limited to monthly income preferred securities) to third parties, and to transfer the proceeds of those financings to or as directed by the Financing Subsidiary's parent. Alliant Energy may, if required, guarantee or enter into expense agreements in respect of the obligations of any Financing Subsidiary that it organizes. IP&L, WP&L or any Non-Utility Subsidiary may also provide guarantees and enter into expense agreements, if required, on behalf of any of its Financing Subsidiaries in accordance with rules 45(b)(7) and 52. The amount of any securities issued by a Financing Subsidiary of Alliant Energy would be counted against the limitation on the amounts of similar types of securities that Alliant Energy is authorized to issue directly, as set forth above. To avoid double counting, however, that credit support provided by Alliant Energy will not also be counted against the limitation on Alliant Energy Guarantees. Similarly, the amount of any securities issued by a Financing Subsidiary of IP&L will be counted against the limitation on the amounts of similar types of securities that IP&L is authorized to issue directly, as set forth above.
In cases where it is necessary or desirable to ensure legal separation for purposes of isolating a Financing Subsidiary from its parent or another subsidiary for bankruptcy purposes, the ratings agencies may require the parent to provide services related to the financing to the Financing Subsidiary at a price, not to exceed a market price, consistent with similar services for parties with comparable credit quality and terms entered into by other companies so that a successor service provider could assume the duties of the parent in the event of the bankruptcy of the parent without interruption or an increase of fees ("Expense Agreement"). Therefore, Applicants seek approval under section 13(b) of the Act and rules 87 and 90 to provide the services described in this paragraph at a market price but only for so long as the Expense Agreement established by the Financing Subsidiary is in place.
I. Acquisition of Securities of Intermediate Subsidiaries; Certain Reorganizations.
Alliant Energy and AER request authorization to acquire, directly or indirectly, the securities of one or more Intermediate Subsidiaries, which would be organized exclusively for the purpose of acquiring, financing, and holding the securities of one or more existing or future Non-Utility Subsidiaries, including, but not limited to, EWGs, FUCOs, "energy-related companies" under rule 58 ("rule 58 Companies"), and "exempt telecommunications companies" ("ETCs") under section 34 of the Act, provided that Alliant Energy and AER may also engage in preliminary development and administrative activities relating to investments in those entities.
AER, Intermediate Subsidiaries and other Non-Utility Subsidiaries further request authorization to make expenditures of up to $200 million at any time outstanding during the Authorization Period on preliminary development activities.6
Investments in intermediate Subsidiaries may take the form of any combination of the following: (1) purchases of capital shares, partnerships interests, member interests in limited liability companies, trust certificates or other forms of equity interests; (2) capital contributions; (3) open account advances with or without interest; (4) loans; and (5) guarantees issued, provided or arranged in respect of the securities or other obligations of any Intermediate Subsidiaries. Funds for any direct or indirect investment in any Intermediate Subsidiary will be derived from (1) financings authorized in this proceeding; (2) any appropriate future debt or equity securities issuance authorization obtained by Alliant Energy from the Commission; and (3) other available cash resources, including proceeds of securities sales by AER or other Non-Utility Subsidiary pursuant to rule 52. To the extent Alliant Energy provides funds or guarantees directly or indirectly to an Intermediate Subsidiary which are used for the purpose of making an investment in any EWG or FUCO or rule 58 Company, the amount of the funds or guarantees will be included in Alliant Energy's "aggregate investment" in such entities, as calculated in accordance with rule 53 or rule 58, as applicable.
In addition, to the extent that these transactions are not otherwise exempt under the Act or rules, Alliant Energy requests authorization to consolidate or otherwise reorganize all or any part of its direct and indirect ownership interests in Non-Utility Subsidiaries, and the activities and functions related to those investments. To effect a consolidation or other reorganization, Alliant Energy or AER may wish to either contribute the equity securities of one Non-Utility Subsidiary to another Non-Utility Subsidiary (including a newly formed Intermediate Subsidiary) or sell (or cause a Non-Utility Subsidiary to sell) the equity securities or all or part of the assets of one Non-Utility Subsidiary to another one. These transactions may also take the form of a Non-Utility Subsidiary selling or transferring the equity securities of a subsidiary or all or part of that subsidiary's assets as a dividend to an Intermediate Subsidiary or to another Non-Utility Subsidiary, and the acquisition, directly or indirectly, of the equity securities or assets of that subsidiary, either by purchase or by receipt of a dividend. The purchasing Non-Utility Subsidiary in any transaction structured as an intrasystem sale of equity securities or assets may execute and deliver its promissory note evidencing all or a portion of the consideration given. Each transaction would be carried out in compliance with all applicable U.S. or foreign laws and accounting requirements, and any transaction structured as a sale would be carried out for a consideration equal to the book value of the equity securities being sold. Applicants state that they will seek authorization under the Act for the sale or transfer of a Non-Utility Subsidiary held by a FUCO to another company in the Alliant Energy system, unless the associate company's acquisition of the Non-Utility Subsidiary being sold or transferred by the FUCO would otherwise be exempt under the Act or under rule 58.
J. New Investments in Energy Assets.
AER and other Non-Utility Subsidiaries request authorization to expend up to $100 million at any time outstanding during the Authorization Period to construct or acquire certain categories of non-utility, energy-related, assets ("Energy Assets") in the United States and Canada that are incidental and related to the energy marketing and oil and gas production operations of its subsidiaries, and/or the securities of one or more existing or new companies substantially all of whose physical properties consist or will consist of Energy Assets, provided that the acquisition and ownership of those Energy Assets will not cause AER or any other Non-Utility Subsidiary to be or become an "electric utility company" or "gas utility company," as defined in sections 2(a)(3) and 2(a)(4), respectively.
K. Exemption from section 13(b).
To the extent that rule 90(d) does not otherwise apply, AER and other Non-Utility Subsidiaries request authorization to provide services and sell goods to each other at fair market prices, in any case in which the Non-Utility Subsidiary purchasing those goods or services is:
L. Activities of Non-Utility Subsidiaries Outside the United States.
The Applicants, on behalf of any current or future Non-Utility Subsidiaries, request authorization to engage in certain energy-related, non-utility, activities outside the United States. These activities include:
The Applicants request that the Commission (i) authorize Non-Utility Subsidiaries to engage in Energy Marketing activities in Canada and reserve jurisdiction over Energy Marketing activities outside of Canada pending completion of the record in this proceeding, (ii) authorize Non-Utility Subsidiaries to provide Energy Management Services and Consulting Services anywhere outside the United States, and (iii) reserve jurisdiction over other energy-related, non-utility, activities of Non-Utility Subsidiaries outside the United States, pending completion of the record.
M. Dividends Out of Capital and Unearned Surplus.
AER and other Non-Utility Subsidiaries request authorization to pay dividends out of capital and unearned surplus and/or acquire, retire or redeem securities that AER or any Non-Utility Subsidiary has issued to associate companies to the extent allowed under applicable law and the terms of any credit or security instruments to which they may be parties, provided that a Non-Utility Subsidiary will not declare or pay any dividend out of capital or unearned surplus unless it: i) has received excess cash as a result of the sale of its assets; (ii) has engaged in a restructuring or reorganization; and/or (iii) is returning capital to an associate company. Likewise, AER or other Non-Utility Subsidiary also request authorization to utilize freely distributable cash to acquire, retire or redeem any securities of which it is the issuer that are held by any associate company. Applicants state that these transactions are a means to reduce the capitalization of a company and serve essentially the same purpose as a dividend paid out of capital or unearned surplus.
The proposed transactions are also generally subject to Section 32 of the Act and rules 53 and 54. Under rule 53(a), the Commission shall not make certain specified findings under Sections 7 and 12 in connection with a proposal by a holding company to issue securities for the purpose of acquiring the securities of, or other interest in, an EWG, or to guarantee the securities of an EWG, if each of the conditions in paragraphs (a)(1) through (a)(4) thereof are met, provided that none of the conditions specified in paragraphs (b)(1) through (b)(3) of rule 53 exists. Rule 54 provides that the Commission shall not consider the effect of the capitalization or earnings of subsidiaries of a registered holding company that are EWGs or FUCOs in determining whether to approve other transactions if rule 53(a), (b) and (c) are satisfied.
Alliant Energy currently does not meet all of the conditions of rule 53(a). As of September 30, 2004, Alliant Energy's "aggregate investment," as defined in rule 53(a)(1), in EWGs and FUCOs was approximately $549.6 million, or approximately 65.6% of Alliant Energy's average "consolidated retained earnings," also as defined in rule 53(a)(1), for the four quarters ended September 30, 2004 ($838.2 million). Although this exceeds the 50% "safe harbor" limitation contained in rule 53(a), the Commission authorized Alliant Energy under the terms of the October 2001 Order to increase its "aggregate investment" in EWGs and FUCOs to an amount equal to 100% of Alliant Energy's average "consolidated retained earnings."
With regard to capitalization, Alliant Energy has experienced an increase in consolidated common stock equity since September 30, 2001, the end of the quarterly period immediately preceding the issuance of the October 2001 Order, due in part to the sale of certain non-regulated businesses (including Alliant Energy's FUCO investments in Australia in April 2003, the sale of its affordable housing and SmartEnergy businesses in mid-2003, and the sale of approximately 94% of its oil and gas exploration and production business in November 2003) and the application of the proceeds to retire more than $800 million of debt; halving the targeted dividend on common stock from $2.00 per share to $1.00 per share; reducing anticipated capital expenditures in 2002 and 2003 (including no new investments in Brazil through 2003); completion of a public offering of 17,250,000 shares of common stock in July 2003, the net proceeds of which (approximately $318 million) were used to make capital contributions to IP&L and WP&L; and implementation of other cost control measures.7
Finally, Applicants assert that the proposed external financing transactions are not expected to have an adverse impact on Alliant Energy's consolidated capitalization.
In the two fiscal years ending after the issuance of the October 2001 Order, Applicants assert that Alliant Energy experienced a modest increase in its level of losses from its portfolio of EWGs and FUCOs. As described in the Application/Declaration in File No. 70-9891, Alliant Energy's share of losses associated with its portfolio of EWGs and FUCOs in fiscal year 2000 (the last fiscal year prior to issuance of the October 2001 Order) totaled approximately $17.7 million, after interest expense, taxes and currency transaction losses. In fiscal years 2001 and 2002, Alliant Energy's share of losses totaled approximately $25.3 million and $26.7 million, respectively. Alliant Energy's losses on its Brazil investments were unexpectedly large in 2002, resulting primarily from the impact of a decline in currency conversion rates, as well as from charges related to recovery of the impacts of electricity rationing in Brazil and other prior costs. Since then, energy demand has increased and several rate increases have been approved. In fiscal year 2003, Alliant Energy's share of income was approximately $3.8 million (not including gain from sale of Australian FUCO investments). Alliant Energy satisfies all of the other conditions of paragraphs (a) and (b) of rule 53. With reference to rule 53(a)(2), Alliant Energy maintains books and records in conformity with, and otherwise adheres to, the requirements thereof.
Fees, commissions and expenses incurred in connection with the preparation and filing of this Application are estimated not to exceed $35,000. Applicants state that no state commission and no federal commission, other than this Commission, has jurisdiction over the proposed transactions insofar as they relate to Alliant Energy or any Non-Utility Subsidiary. Issuance and sale of long-term debt securities by IP&L are subject to approval by the MPUC and the ICC. Issuance of Short-term Debt by IP&L requires approval by the MPUC. Further, Applicants state that approval of the ICC and the MPUC is also required in order for IP&L to acquire the equity securities of any Financial Subsidiary and that the approval of the Public Service Commission of Wisconsin is required in order for WP&L to acquire the equity securities of any Financing Subsidiary. The Applicants request that the Commission reserve jurisdiction over acquisition of the securities of any Financing Subsidiary by IP&L or WP&L pending the receipt of the required state commission authorization, filing of that authorization as a supplement to the record in this proceeding and issuance of a supplemental order of the Commission approving the state-jurisdictional acquisition. Finally, Applicants state that no other state commission and no federal commission, other than this Commission, has jurisdiction over the proposed transactions as they relate to any of the Utility Subsidiaries.
Due notice of the filing of the Application has been given in the manner prescribed in rule 23 under the Act and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that the applicable standards of the Act and rules are satisfied and that no adverse findings are necessary.
IT IS ORDERED, under the applicable provisions of the Act and the rules under the Act, that the authorizations requested in the Application as amended, are granted and permitted to become effective January 1, 2005 subject to the terms and conditions prescribed in rule 24 under the Act, except that Alliant Energy will file certificates of notification within 60 days after the end of the first three calendar quarters, and 90 days after the end of the last calendar quarter, in which transactions occur and the rule 24 certificates will contain the following information for the quarterly reporting period:
IT IS FURTHER ORDERED, that jurisdiction is reserved pending completion of the record over the following transactions: (1) the issuance of any guarantee or other securities in reliance upon the authorization granted by the Commission at any time that certain conditions are not satisfied; (2) Alliant Energy's use of financing proceeds to fund investments in EWGs and FUCOs in an amount which, when added to Alliant Energy's "aggregate investment" in those entities from time to time would equal $1.75 billion; (3) participation of any direct or indirect, current or future, Non-Utility Subsidiary of Alliant Energy as a borrower under the Non-Utility Money Pool; (4) Energy Marketing activities outside Canada; (5) other energy-related, non-utility activities of Non-Utility Subsidiaries outside the United States; (6) acquisition of the securities of any Financing Subsidiary by IP&L or WP&L any time that certain conditions are not satisfied.
For the Commission, by the Division of Investment Management, under delegated authority.
Margaret H. McFarland
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