SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934
------
For the quarterly period ended March 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
------ THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-337
WISCONSIN POWER AND LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Wisconsin 39-0714890
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
222 West Washington Avenue, Madison, Wisconsin 53703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
608-252-3311
Indicate by check mark whether the registrant (1) has 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) has been
subject to such filing requirements for the past 90 days.
YES X NO
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock Outstanding at March 31, 1996: 13,236,601 shares
<PAGE>
CONTENTS
PAGE
PART I. Financial Information:
Consolidated Financial Statements of Wisconsin Power and
Light Co.
Consolidated Balance Sheets as of March 31, 1996
and 1995 and December 31, 1995 . . . . . . . . . . . . . . 2,3
Consolidated Statements of Income for the Three and Twelve
Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three and
Twelve Months Ended March 31, 1996 and 1995 . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 7
PART II. Other Information . . . . . . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
March 31 March 31, December 31,
1996 1995 1995
(Thousands of Dollars)
ASSETS
UTILITY PLANT:
Plant in service--
Electric................. $1,674,322 $1,627,437 $1,666,134
Gas...................... 218,973 207,581 217,678
Water.................... 23,072 21,929 22,518
Common................... 140,504 126,434 136,943
--------- --------- ---------
2,056,871 1,983,381 2,043,273
Less: Accumulated provision
for depreciation.......... 908,603 834,837 887,562
--------- --------- ---------
1,148,268 1,148,544 1,155,711
Construction work in
progress.................. 42,848 28,268 36,996
Nuclear fuel, net.......... 14,976 17,605 18,867
--------- --------- ---------
Total utility plant...... 1,206,092 1,194,417 1,211,574
--------- --------- ---------
OTHER PROPERTY AND EQUIPMENT,
net........................ 22,600 12,585 22,275
--------- --------- ---------
INVESTMENTS:
Nuclear decommissioning
trust funds.............. 82,523 63,480 73,357
Other investments......... 12,432 12,033 12,488
--------- --------- ---------
94,955 75,513 85,845
CURRENT ASSETS:
Cash and equivalents...... 4,744 5,620 4,671
Accounts receivable less
allowance for doubtful
accounts of $0, $ 209, and
$ 0, respectively........ 20,547 27,062 33,971
Coal, at average cost..... 12,285 12,061 14,625
Materials and supplies, at
average cost............. 20,826 22,914 20,611
Gas in storage, at average
cost..................... 1,048 1,944 6,319
Prepayments and other..... 18,823 19,087 21,190
--------- --------- ---------
Total current assets.... 78,273 88,688 101,387
--------- --------- ---------
OTHER ASSETS:
Regulatory assets...... 169,075 156,834 171,699
Deferred charges and
other................ 48,879 51,048 48,385
--------- --------- ---------
Total other assets. 217,954 207,882 220,084
--------- --------- ---------
TOTAL ASSETS................ 1,619,874 1,579,085 1,641,165
========= ========= =========
CAPITALIZATION AND LIABILITIES
Common stock, $5 par value,
authorized--18,000,000
shares; issued and
outstanding--13,236,601
shares................... 66,183 66,183 66,183
Premium on capital stock
and capital surplus...... 199,170 199,170 199,170
Reinvested earnings....... 315,052 285,718 297,717
--------- --------- ---------
Total common equity... 580,405 551,071 563,070
PREFERRED STOCK WITHOUT
MANDATORY REDEMPTION:
Cumulative, without par
value, authorized 3,750,000
shares maximum aggregate
stated value $150,000,000;
Cumulative, without par
value, $100 stated
value, 449,765 shares
outstanding.......... 44,977 44,977 44,977
Cumulative, without
par value, $25 stated
value, 599,460 shares
outstanding.......... 14,986 14,986 14,986
--------- --------- ---------
Total preferred stock. 59,963 59,963 59,963
FIRST MORTGAGE BONDS,
NET....................... 318,615 336,553 318,599
--------- --------- ---------
Total capitalization.... 958,983 947,587 941,632
--------- --------- ---------
CURRENT LIABILITIES:
Variable rate demand
bonds.................. 56,975 56,975 56,975
Short-term debt.......... 26,000 19,000 72,500
Accounts payable......... 69,998 67,269 82,428
Accrued payroll and
vacation............... 10,477 12,201 11,011
Accrued taxes............ 20,997 20,696 7,795
Accrued interest......... 5,202 6,114 7,574
Other.................... 29,113 14,066 22,356
--------- --------- ---------
Total current
liabilities........... 218,762 196,321 260,639
--------- --------- ---------
OTHER LIABILITIES AND CREDITS:
Accumulated deferred
income taxes ........... 239,690 223,770 239,812
Accumulated deferred
investment tax credits.. 38,364 40,279 38,842
Accrued environmental
remediation costs....... 76,763 79,267 76,852
Other.................... 87,312 91,861 83,388
--------- --------- ---------
Total other liabilities
and credits........... 442,129 435,177 438,894
--------- --------- ---------
TOTAL CAPITALIZATION
AND LIABILITIES........... 1,619,874 1,579,085 1,641,165
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended, Twelve Months Ended,
March 31, March 31,
1996 1995 1996 1995
(Thousands of Dollars)
OPERATING REVENUES:
Electric.............. $ 148,500 $ 131,151 $ 563,672 $ 525,701
Gas................... 71,741 55,207 155,703 142,061
Water................. 993 984 4,189 4,140
-------- ------- -------- ---------
221,234 187,342 723,564 671,902
OPERATING EXPENSES:
Electric production
fuels............... 28,604 29,713 115,380 120,896
Purchased power....... 15,344 7,148 52,210 35,574
Purchased gas......... 45,364 33,882 95,483 91,137
Other operation....... 34,189 34,980 136,606 148,730
Maintenance........... 8,551 9,832 40,762 41,687
Depreciation.......... 21,667 19,495 83,336 73,194
Taxes --
Current federal
income............. 16,590 11,446 35,273 26,646
Deferred income
taxes.............. 440 1,721 9,383 10,210
Investment tax
credit (restored).. (478) (479) (1,915) (1,924)
Current state income 4,204 2,565 8,645 5,925
Property, payroll &
other.............. 7,557 7,160 28,732 27,244
-------- ------- -------- ---------
182,032 157,463 603,895 579,319
-------- ------- -------- ---------
OPERATING INCOME........ 39,202 29,879 119,669 92,583
-------- ------- -------- ---------
OTHER INCOME AND
(DEDUCTIONS):
Allowance for equity
funds used during
construction......... 530 271 1,684 2,831
Other, net............ 744 63 443 2,513
Current income tax.... (253) 32 44 1,037
Deferred income tax... 63 4 7 (2,127)
-------- ------- -------- ---------
1,084 370 2,178 4,254
-------- ------- -------- ---------
INCOME BEFORE INTEREST
EXPENSE................ 40,286 30,249 121,847 96,837
-------- ------- -------- ---------
INTEREST EXPENSE:
Interest on bonds..... 6,754 7,809 27,592 29,431
Allowance for borrowed
funds used during
construction (credit) (248) (90) (821) (930)
Other................. 1,002 803 5,373 2,575
-------- ------- -------- ---------
7,508 8,522 32,144 31,076
-------- ------- -------- ---------
NET INCOME.............. 32,778 21,727 89,703 65,761
PREFERRED STOCK
DIVIDENDS.............. 828 828 3,310 3,310
-------- ------- -------- ---------
NET INCOME AFTER
PREFERRED STOCK
DIVIDENDS............ . $ 31,950 $ 20,899 $ 86,393 $ 62,451
======== ======= ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended Twelve Months Ended
March 31, March 31,
1996 1995 1996 1995
(Thousands of Dollars)
Cash flows from (used
for) operating
activities:
Net income . . . . . 32,778 21,727 89,703 65,761
Adjustments to
reconcile net
income to net cash
from operating
activities:
Depreciation . . . . 21,667 19,495 83,336 73,193
Amortization of
nuclear fuel . . . 2,169 2,208 7,748 7,090
Deferred income tax
and investment tax
credit . . . . . . (101) 1,238 7,561 10,243
Allowance for equity
funds used during
construction . . . (530) (271) (1,684) (2,831)
Changes in assets and
liabilities:
Net accounts
receivable and
unbilled revenues 13,423 (5,372) 6,514 (4,537)
Production fuels,
materials and
supplies . . . . . 2,125 1,684 1,864 (30)
Gas in storage . . . 5,271 6,031 896 (98)
Prepayments and other 2,367 3,224 264 (2,417)
Accounts payable and
accruals . . . . . (15,337) (6,013) 3,879 3,709
Accrued taxes . . . 13,202 13,398 300 (6,038)
Other, net . . . . . 12,874 24,180 4,268 42,644
-------- ------- -------- --------
Net cash generated
from operating
activities . . . . 89,908 81,529 204,649 186,689
-------- ------- -------- --------
Cash flows from (used
for) financing
activities:
Common stock cash
dividends . . . . (14,615) (14,334) (57,059) (56,219)
Preferred stock
dividends . . . . (828) (828) (3,310) (3,310)
Net change in short
term debt . . . . (46,500) (31,500) 7,000 12,000
Retirement of first
mortgage bonds . . - - (18,000) -
Equity contribution
from parent . . . - - - 6,052
-------- ------- -------- --------
Net cash (used for)
financing
activities . . . . (61,943) (46,662) (71,369) (41,477)
Cash flows from (used
for) investing
activities:
Additions to utility
plant, excluding
AFUDC . . . . . . (22,253) (17,089) (99,021) (123,286)
Allowance for
borrowed funds used
during construction (248) (90) (821) (930)
Dedicated
decommissioning
funds . . . . . . (9,166) (11,689) (19,043) (11,939)
Other, net . . . . . 3,775 (2,613) (15,271) (9,518)
-------- ------- -------- --------
Net cash (used for)
investing
activities . . . (27,892) (31,481) (134,156) (145,673)
-------- ------- -------- --------
Net increase in cash and
equivalents . . . . 73 3,386 (876) (461)
Cash and equivalents at
beginning of period 4,671 2,234 5,620 6,081
-------- ------- -------- --------
Cash and equivalents at
end of period . . . $ 4,744 $ 5,620 $ 4,744 $ 5,620
======= ======= ======= =======
Supplemental disclosures
of cash flow
information:
Cash paid during the
period for:
Interest - debt . $ 9,931 $ 9,488 $ 32,284 $ 30,268
Income taxes . . . $ 2,803 $ 1,864 $ 38,907 $ 29,761
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have been
prepared by Wisconsin Power & Light (the "Company" or "WP&L"),
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The consolidated financial
statements include the Company and its wholly owned consolidated
subsidiaries. The Company is a subsidiary of WPL Holdings, Inc. These
financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's latest
Annual Report on Form 10-K.
In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of (a)
the consolidated results of operations for the three and twelve month
periods ended March 31, 1996 and 1995, (b) the consolidated financial
position at March 31, 1996 and 1995 and December 31, 1995, and (c) the
consolidated statement of cash flows for the three and twelve month
periods ended March 31, 1996 and 1995 have been made.
2. In anticipation of an expected offering of $60 million of long-term
debt securities in 1996, the Company entered into an interest rate
forward contract in 1995. As a result of favorable cash flow during
the first quarter of 1996, the Company now anticipates that it will
defer its offering of long-term debt securities until 1997, and has
consequently closed its interest rate forward contract position. The
gain realized on closing this position will be deferred and
recognized as an adjustment to interest expense over the life of the
long-term debt securities expected to be issued in 1997.
3. During the first quarter of 1996, the Financial Accounting
Standards Board issued an Exposure Draft on Accounting for
Liabilities Related to Closure and Removal of Long-Lived Assets which
deals with, among other issues the accounting for decommissioning
costs. If current electric utility industry accounting practices for
such decommissioning are changed: (1) annual provisions for
decommissioning could increase, (2) the estimated cost for
decommissioning could be recorded as a liability rather than as
accumulated depreciation, with recognition of an increase in the
recorded amount of nuclear plant, and (3) trust fund income from the
external decommissioning trusts could be reported as investment
income rather than as a reduction to decommissioning expense. Given
the preliminary nature of the process, the Company cannot currently
determine what impact, if any, this process may have on the Company's
financial condition or results of operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995:
OVERVIEW
The Company reported consolidated first quarter net income of $32.0
million compared to $20.9 million for the same period in 1995. Weather-
driven sales growth, increased sales to other utilities, and continued
customer growth contributed to higher electric and gas margins as
compared with the first quarter of last year.
Electric margin increased by $10.3 million due to increased sales and
lower aggregate costs per kWh. Gas margins increased $5.1 million as a
result of higher sales. In addition, operations and maintenance expenses
declined during the first quarter due to lower steam plant maintenance
costs.
Partially offsetting the higher electric and gas margins was an
increase in depreciation expense and income tax expense.
<TABLE>
Electric Operations
<CAPTION>
Revenues
and Costs % kWhs Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
and Farm $55,651 $51,890 7% 833,669 769,610 8% 332,335 325,971 2%
Industrial 34,112 31,555 8% 931,586 883,174 5% 809 776 4%
Commercial 26,399 24,290 9% 447,966 421,040 6% 45,035 44,035 2%
Wholesale and
Class A 30,911 21,739 42% 1,192,342 685,138 74% 88 81 9%
Other 1,427 1,677 (30%) 14,680 13,247 11% 1,717 1,496 15%
----- ------- ------- ------ ----- -------
Total 148,500 131,151 13% 3,420,243 2,772,209 23% 379,984 372,359 2%
-------- -------- ========= ========= === ======== ======= ====
Electric
Production
Fuels 28,604 29,713 (6%)
Purchased
Power 15,344 7,148 115%
------ -----
Margin $104,552 $94,290 11%
======= ======= ====
</TABLE>
Electric revenues increased $17.3 million, or 13 percent, as compared
to the first quarter of 1995. The increase was the result of a 23 percent
increase in kWh sales primarily due to colder winter weather in 1996.
Electric margin increased $10.3 million, or 11 percent, during the
first quarter of 1996 compared to the first quarter of 1995 primarily due
to higher sales (as discussed above) combined with lower production fuels
expense and the availability of competitively priced purchased power to
supplement internal generation. The decrease in production fuel costs was
the result of slightly lower coal and transportation costs.
<TABLE>
Gas Operations
<CAPTION>
Revenues
and Costs % Therms Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and
Farm $39,434 $28,866 37% 65,866 54,950 20% 130,555 126,098 4%
Firm 21,787 15,777 38% 44,863 38,481 17% 16,198 15,689 3%
Interruptible 1,064 1,171 (9)% 2,968 4,160 (29)% 288 237 22%
Transport. and
Other 9,456 9,393 1% 65,417 53,963 21% 161 153 5%
------ ----- ------ ------ ------ -------
Total 71,741 55,207 30% 179,114 151,554 18% 147,202 142,177 4%
------ ------ ======= ======= ==== ======= ======= ===
Purchased Gas 45,364 33,882 34%
------ ------ ----
Margin 26,377 21,325 24%
====== ====== ====
</TABLE>
Gas revenues increased $16.5 million, or 30 percent, in the first
quarter of 1996 as compared to 1995. The higher revenues were the result
of an 18 percent rise in therm sales primarily due to colder weather in
the first quarter and residential and firm customer growth. The higher
sales volumes as well as favorable management of gas supply costs resulted
in a $5.1 million, or 24 percent, increase in gas margin. The gas
incentive program authorized by the Public Service Commission of Wisconsin
also resulted in additional pre-tax savings of $1 million during the first
quarter of 1996 compared with $0.3 million for the same period in 1995.
Maintenance Expense
The decrease in maintenance expense is primarily due to lower steam
plant maintenance costs.
Depreciation
Depreciation expense increased as a result of increased property
additions, amortization of contributions in aid of construction ( a
reduction of expense) during the first quarter of 1995 and higher income
on the decommissioning funds.
Income Taxes
Income taxes increased between first quarters consistent with higher
taxable income.
TWELVE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995:
OVERVIEW
The Company reported consolidated net income of $86.4 million for the
twelve months ended March 31, 1996 as compared to $62.5 million for the
same period in 1995. Weather-driven sales growth along with continued
customer growth in the service territory contributed to increased electric
and gas margins as compared with the twelve months ended March 31, 1995.
Electric margin increased by $26.9 million , or 7 percent, from
increased sales and lower costs per kWh for both electric production fuels
and purchased power. Gas margins increased $9.3 million, or 18 percent, as
a result of increased therm sales and reduced gas cost per therm. In
addition, other operation expense decreased primarily due to higher early
retirement and severance expenses during the twelve month period ended
March 31, 1995.
Partially offsetting the increases to income was a $10.1 million
increase in depreciation expense resulting from higher decommissioning
related expenses and property additions.
<TABLE>
Electric Operations
<CAPTION>
Revenues
and Cost % kWh Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and
Farm $203,611 $191,577 6% 3,001,882 2,759,640 9% 332,335 325,971 2%
Industrial 143,118 139,830 2% 3,920,932 3,781,084 4% 809 776 4%
Commercial 104,238 100,122 4% 1,800,332 1,681,405 7% 45,035 44,035 2%
Wholesale and
Class A 106,522 85,778 24% 3,616,589 2,553,141 42% 88 81 9%
Other 6,183 8,394 (26)% 55,474 50,982 9% 1,717 1,496 15%
------ ------ ------- -------- ------- -------
Total 563,672 525,701 7% 12,395,209 10,826,252 14% 379,984 372,359 2%
-------- ------- ========== ========== ==== ======= ======= ===
Electric
production fuels 115,380 120,896 (5)%
Purchased Power 52,210 35,574 47%
------- ------
Margin $396,082 $369,231 7%
======= ======== ====
</TABLE>
Electric revenues increased $38 million, or 7 percent, as compared to
the twelve months ended March 31, 1995. The increase was the result of a
14 percent increase in kWh sales primarily due to colder winter weather in
1996, higher sales to other utilities and customer growth.
Electric margin increased 7 percent during the twelve months ended
March 31, 1996 compared to the same period in 1995 primarily due to
higher sales combined with reduced costs per kWh for electric production
fuels and purchased power. While the cost on a per kWh basis, including
fuel expense and purchased power, declined, total purchased power expense
increased by 47 percent. The increase reflects the Company's increased
level of activity in the bulk power sales market as well as the
opportunity to secure attractively priced energy purchases. Partially
offsetting increased purchased power costs are slightly lower electric
production fuel costs resulting from lower coal and transportation costs.
<TABLE>
Gas Operations
<CAPTION>
Revenues
and Costs % Therms Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and
Farm $80,949 $65,668 23% 137,818 114,267 21% 130,555 126,098 4%
Firm 45,466 37,565 21% 97,698 81,901 19% 16,198 15,689 3%
Interruptible 3,602 7,103 (49)% 10,956 21,975 (50)% 288 237 22%
Transport. and
Other 25,686 31,725 (19)% 180,575 156,852 15% 161 153 5%
------- ------- ------- ------- ------- -------
Total 155,703 142,061 10% 427,047 374,995 14% 147,202 142,177 4%
======= ======= ======= ======= === ======= ======= ====
Purchased Gas 95,483 91,137 5%
------- -------
Margin $60,220 $50,924 18%
======= ========
</TABLE>
Gas revenues increased $13.6 million, or 10 percent, during the
twelve months ended March 31, 1996 as compared to the twelve months ended
March 31, 1995. The higher revenues were the result of a 14 percent rise
in therm sales primarily due to colder weather in the first quarter of
1996 and residential and firm customer growth. The higher sales volumes as
well as favorable management of gas supply costs resulted in a $9.3
million, or 18 percent, increase in gas margin.
With the elimination of the purchased gas adjustment clause, the
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. WP&L's share is capped at $1.1 million, pre-tax. For the first
quarter of 1996 the gas incentive program resulted in additional pre-tax
savings of $1 million compared with $0.3 million for the same period in
1995.
Other Operation
Other operations expense declined by $12.1 million primarily due to
higher early retirement and severance expenses during the twelve month
period ended March 31, 1995, related to the Company's reengineering
efforts.
Depreciation
Depreciation expense increased $10.1 million as a result of property
additions, greater amortization of contributions in aid of construction (
a reduction of expense) in the first quarter of 1995 compared with the
same period in 1996 and higher income on the decommissioning funds.
Income Taxes
Income taxes increased for the twelve month period ended March 31,
1996, as a result of higher taxable income.
Other Income and Deductions
Other income and deductions decreased $2.1 million for the twelve
months ended March 31, 1996. The decrease represents a combination of a
favorable court decision, affecting the period ended March 31, 1995, which
allowed the Company to collect from customers amounts previously refunded
associated with the administration of a coal contract and lower income in
the current period associated with the allowance for equity funds used
during construction.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is primarily determined by the level of cash
generated from operations and the funding requirements of WP&L's ongoing
construction and maintenance programs. WP&L finances its construction
expenditures through internally generated funds supplemented, when
required, by outside financing. (Also see: Note 2 in the "Notes to
Financial Statements," page 6.)
During the three and twelve months ended March 31, 1996 and March 31,
1995, the Company generated sufficient cash flows from operations and
short-term borrowings to cover operating expenses, cash dividends and
investing activities. Cash flows from operations increased to $89.9
million for the three months ended March 31, 1996, compared to $81.5
million for the same period last year. For the twelve month period ended
March 31, 1996, cash flows from operations increased to $204.6 million
from $186.7 million during the same period in 1995.
Financing and Capital Structure
The level of short-term borrowing fluctuates based primarily on
seasonal corporate needs, the timing of long-term financing and capital
market conditions. WP&L generally borrows on a short-term basis to
provide interim financing of construction and capital expenditures in
excess of available internally-generated funds. To maintain flexibility in
its capital structure and to take advantage of favorable short-term rates,
the Company also uses proceeds from the sales of accounts receivable and
unbilled revenues to finance a portion of its long-term cash needs. Bank
lines of credit of $70 million at March 31, 1996 are available to support
these borrowings.
The Company's capitalization at March 31,1996, including the current
maturities of long-term debt, variable rate demand bonds and short-term
debt, consisted of 56 percent common equity, 6 percent preferred stock and
38 percent long-term debt.
Capital Expenditures
WP&L is a capital-intensive business and requires large investments
in long-lived assets. Therefore, the Company's most significant capital
requirements relate to construction expenditures. Construction
expenditures for the three months ended March 31, 1996 were $20.9 million.
The estimated construction expenditures for the remainder of 1996 are
$128.5 million.
The Company has a 41.0 percent ownership interest in the Kewaunee
Nuclear Power Plant (KNPP). The operating partner of this plant is
Wisconsin Public Service Corporation (WPSC). The steam generator tubes at
KNPP are susceptible to corrosion and cracking phenomena seen throughout
the nuclear industry. Steam Generator A is currently 24.94% effectively
plugged and Steam Generator B is 17.69% effectively plugged for an average
of 21.32%. The current Kewaunee safety analysis report allows an
effective tube plugging limit of up to 25% average for both steam
generators, not to exceed 25% in either steam generator. Analyses are
currently being performed which the operating partner believes will
increase the effective plugging limit to 30%. The small reduction in
capacity which has resulted from this tube plugging has not had a material
impact on the financial performance of the Company.
As a result of the need to address the repair or replacement of the
steam generators, the owners of KNPP have been, and are continuing to,
evaluate various alternatives to deal with the degradation of the steam
generator tubes. As part of this evaluation, the owners have or will take
the following actions:
(a) The Nuclear Regulatory Commission ("NRC") has been requested to
redefine the pressure boundary point of the repaired steam
generator tubes, which have been removed from service by
plugging, in order to allow the return of many of the tubes to
service; thus, permitting KNPP to return to full licensed power.
(b) The NRC will be requested to increase the steam generator
effective plugging limit from 25% to 30%.
(c) A request will be submitted to the NRC to allow the owners to
pursue welded repair technologies to repair existing sleeved
tubes in an effort to return plugged tubes to service.
(d) The partners continue to evaluate the economics of replacement
of the steam generators. The replacement of steam generators is
estimated to cost approximately $100 million, exclusive of
additional purchased power costs associated with an extended
shutdown.
WP&L believes that the best near term economic alternative for the
owners of KNPP is to continue to pursue tube recovery and repair
processes. WP&L will reassess its views of available alternatives based
on the condition of the steam generator tubes during the fall 1996
refueling outage.
Currently, the owners of KNPP have different views of the future
market value of energy which impact on the desirability of replacing the
steam generators. During the first quarter of 1996 WPSC filed an
application with the Public Service Commission of Wisconsin seeking
approval to replace the steam generators in 1999. WP&L believes that
analysis and final action on this application will take approximately two
years to complete. The joint owners continue to analyze and discuss
various options related to the future of KNPP, including various ownership
transfer alternatives. The net book value of WP&L's share of KNPP as of
March 31, 1996 was $57 million.
Rates and Regulatory Matters
On April 1, 1996, the Company filed an application with the Public
Service Commission of Wisconsin ("PSCW") requesting an increase in
electric, natural gas and water service rates. The application requests a
13.4 million (3.0 percent) increase in electric revenue and a $2.4 million
(1.6 percent) increase in natural gas revenue to be effective for the
period January 1, 1997, through December 31, 1998. An increase of
$102,000 in water revenues was also requested. General inflation and
increased depreciation expense associated with customer service related
investments are the primary factors supporting the proposed increase in
electric and gas rates. The application is based on a regulatory return on
common equity of 11.9 percent and an average common equity ratio of 51.6
percent. The Company cannot currently predict the outcome of this rate
proceeding.
Industry Outlook
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 move all gas supply activities out of the
existing regulated distribution utilities and allow independent units to
compete for the business. The goal of the electric restructuring process
is to create open access transmission and distribution services for all
customers with competitive generation and customer service markets.
Additional proceedings as well as consultation with the legislature are
planned prior to a target implementation date after the year 2000.
On April 24, 1996, the Federal Energy Regulatory Commission ("FERC")
issued two rules ( No. 888 and 889) that will promote competition by
opening access to the nation's wholesale power market. The new rules
require public utilities that own, control or operate transmission
systems to provide other companies with the same transmission
access/service that they provide to themselves. To meet the requirement,
affected utilities must file a single tariff within 60 days. The tariff
must apply to all wholesale power sales and purchases over the utility's
lines. In the case of power pools, public utility holding companies and
bilateral coordination arrangements, the single transmission tariff must
be filed by December 31, 1996. The FERC proposes that each public utility
replace its soon-to-be- filed single open access tariff with a capacity
reservation tariff by December 31, 1997. The Company presently has on file
with the FERC a network and point to point tariff and is evaluating if a
new single tariff is required to be filed within 60 days.
The Open Access Same-Time Information System (OASIS) Rule 889
requires all public utilities to post their available transmission
capacity on an Internet electronic bulletin board, providing access to all
interested parties. This will ensure that transmission owners and their
affiliates do not have an unfair competitive advantage in selling power.
Rule 888 provides for the full recovery of stranded wholesale costs
incurred in wholesale power contracts executed before July 11, 1994.
States are given jurisdiction over the recovery of stranded retail costs.
The FERC will assume this jurisdiction in cases where a state lacks the
authority to become involved. Approximately 69 percent of the WP&L's
annual wholesale revenues were covered by such contracts.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" imposes stricter criteria for evaluating the recoverability
of regulatory assets and real estate investments. The Company adopted
this standard on January 1, 1996. This statement has not had a material
impact on the financial position or results of operations of the Company,
which may change in the future as competitive factors influence wholesale
and retail pricing in the utility industry.
INFLATION
The impacts of inflation on WP&L are currently mitigated
through current rate making methodologies. Although rates will be held
flat until at least 1997, management expects that any impact of inflation
will be mitigated by customer growth and productivity improvements.
OTHER
Proposed Merger
WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES"), and
Interstate Power Co. ("IPC") have entered into an Agreement and Plan of
Merger ("Merger Agreement"), dated November 10, 1995, providing for: a)
IPC becoming a wholly-owned subsidiary of WPLH, and b) the merger of IES
with and into WPLH, which merger will result in the combination of IES and
WPLH as a single holding company (collectively, the "Proposed Merger").
The new holding company will be named Interstate Energy Corporation
("Interstate Energy"). The Proposed Merger, which will be accounted for
as a pooling of interests, is still subject to approval by the
shareholders of each company as well as several federal and state
regulatory agencies. The corporate headquarters of Interstate Energy will
be in Madison, Wisconsin.
The business of Interstate Energy will consist of utility
operations and various non-utility enterprises. The utility subsidiaries
currently serve approximately 870,000 electric customers and 360,000
natural gas customers in Iowa, Illinois, Minnesota and Wisconsin.
Union Contract
The three year contract WP&L has with the International
Brotherhood of Electrical Workers, Local 965 is in effect until June 1,
1996. At the end of the first quarter, the contract covered 1,587 of
WP&L's employees which represents approximately 69 percent of the total
employees at WP&L. On May 1, 1996, tentative agreement was reached on a
revised three year collective bargaining agreement which is subject to
ratification by the union. The ratification process is expected to begin
May 20. The Company cannot predict whether the contract will be ratified.
<PAGE>
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits:
27 Financial Data Schedule
2. Reports on Form 8-K: None
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Wisconsin Power and Light Company
Date: May 15, 1996 /s/ Edward M. Gleason
Edward M. Gleason, Controller,
Treasurer and Corporate Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF WISCONSIN POWER AND LIGHT COMPANY
AS OF AND FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,206,092
<OTHER-PROPERTY-AND-INVEST> 117,555
<TOTAL-CURRENT-ASSETS> 78,273
<TOTAL-DEFERRED-CHARGES> 217,954
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,619,874
<COMMON> 66,183
<CAPITAL-SURPLUS-PAID-IN> 199,170
<RETAINED-EARNINGS> 315,052
<TOTAL-COMMON-STOCKHOLDERS-EQ> 580,405
0
59,963
<LONG-TERM-DEBT-NET> 318,615
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 56,975
<COMMERCIAL-PAPER-OBLIGATIONS> 26,000
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 577,916
<TOT-CAPITALIZATION-AND-LIAB> 1,619,874
<GROSS-OPERATING-REVENUE> 221,234
<INCOME-TAX-EXPENSE> 20,946
<OTHER-OPERATING-EXPENSES> 34,189
<TOTAL-OPERATING-EXPENSES> 182,032
<OPERATING-INCOME-LOSS> 39,202
<OTHER-INCOME-NET> 1,274
<INCOME-BEFORE-INTEREST-EXPEN> 40,286
<TOTAL-INTEREST-EXPENSE> 7,508
<NET-INCOME> 32,778
828
<EARNINGS-AVAILABLE-FOR-COMM> 31,950
<COMMON-STOCK-DIVIDENDS> 14,615
<TOTAL-INTEREST-ON-BONDS> 9,931
<CASH-FLOW-OPERATIONS> 89,908
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Earnings per share of common stock is not reflected because all of such
shares are held by WPL Holdings, Inc.
</FN>
</TABLE>
