UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
[ ] 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 of I.R.S. Employer Identification
incorporation or organization) Number)
222 West Washington Avenue, Madison, Wisconsin 53703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (608) 252-3311
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Preferred Stock (Accumulation without Par Value)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be file 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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [X]
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Class Outstanding at January 31, 1996
Common Stock, $5 par value 13,326,601 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement relating to its 1996
Annual Meeting of Shareowners (to be filed with the Commission under
Regulation 14A within 120 days after the end of the registrant's fiscal
year) are incorporated by reference into Part III hereof.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
FORM 10-K
December 31, 1995
TABLE OF CONTENTS
Part I. Business . . . . . . . . . . . . . . . . . 1
Properties . . . . . . . . . . . . . . . 12
Legal Proceedings . . . . . . . . . . . . 12
Executive Officers . . . . . . . . . . . 14
Part II. Financial Information . . . . . . . . . . 15
Part III. Directors and Executive Officers
Information . . . . . . . . . . . . 51
Part IV. Exhibits . . . . . . . . . . . . . . . . 51
Signatures . . . . . . . . . . . . . . . . . . . . . . . 54
Report of Independent Public Accountants on Schedules . . 55
ITEM 1. BUSINESS
THE COMPANY
On March 1, 1988, after obtaining shareowner and all the
necessary regulatory approvals, Wisconsin Power and Light Company (the
"Company" or "WP&L") effected a corporate restructuring which included the
formation of a holding company, WPL Holdings, Inc ("WPLH"). WPL Holdings,
Inc. is the parent company of WP&L and its utility subsidiaries and of
Heartland Development Corporation, the parent corporation for nonregulated
businesses.
WP&L, incorporated in Wisconsin on February 21, 1917, as the
Eastern Wisconsin Electric Company, is a public utility predominately
engaged in the transmission and distribution of electric energy and the
generation and bulk purchase of electric energy for sale. It also
transports, distributes and sells natural gas purchased from gas
suppliers. Nearly all of WP&L's customers are located in south and
central Wisconsin. WP&L operates in municipalities pursuant to permits of
indefinite duration which are regulated by Wisconsin law. WP&L does not
derive a material portion of its revenues from any one customer.
WP&L owns all of the outstanding capital stock of South Beloit
Water, Gas and Electric Company ("South Beloit"), a public utility
supplying electric, gas and water service, principally in Winnebago
County, Illinois, which was incorporated on July 23, 1908.
WP&L also owns varying interests in several other subsidiaries
and investments which are not material to WP&L's operations.
On November 10, 1995, WPLH entered an agreement to merge with
IES Industries Inc. ("IES") of Cedar Rapids, Iowa, and Interstate Power
Company ("IPC") of Dubuque, Iowa, under a holding company that will be
known as Interstate Energy Corporation, headquartered in Madison,
Wisconsin. The merger is subject to the approval of the common
shareowners of all companies and various regulatory agencies. Interstate
Energy Corporation will be registered under the Public Utility Holding
Company Act of 1935, as amended. It is anticipated that WP&L will
continue to operate as a separate entity, headquartered in Madison, WI,
for a period of time following the merger. See Item 5. " Market for
Registrant's Common Equity and Related Stockholder Matters - Proposed
Merger" for additional information.
Regulation
WP&L is subject to regulation by the Public Service Commission
of Wisconsin ("PSCW") as to retail utility rates and service, accounts,
issuance and use of proceeds of securities, certain additions and
extensions to facilities, and in other respects. The PSCW is comprised of
three Commissioners appointed by the Governor and ratified by the State
Senate. WP&L is required to file a rate case with the PSCW every two
years with requests for rate relief based on a forward- looking test
year period. South Beloit is subject to regulation by the Illinois
Commerce Commission ("ICC") for retail utility rates and service,
accounts, issuance and use of proceeds of securities, certain additions
and extensions to facilities, and in other respects.
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 utility
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.
The Federal Energy Regulatory Commission ("FERC") has
jurisdiction under the Federal Power Act over certain of the electric
utility facilities and operations, wholesale rates and accounting
practices of WP&L and in certain other respects. Certain of WP&L's
natural gas facilities and operations are subject to the jurisdiction of
the FERC under the Natural Gas Act. WP&L is presently exempt from all
provisions of the Public Utility Holding Company Act of 1935, except
provisions relating to the acquisition of securities of other public
utility companies.
The FERC is currently developing regulation which will begin to
provide open access to electric utility transmission facilities for
wholesale customers subject to certain approved FERC tariffs. WP&L
believes its existing open access tariffs position it well to compete
under such market conditions.
With respect to environmental matters impacting WP&L and its
subsidiaries, the United States Environmental Protection Agency
administers certain federal statutes and has delegated the administration
of other environmental initiatives to the Wisconsin Department of Natural
Resources ("DNR"). In addition, the DNR has jurisdiction over air and
water quality standards associated with fossil fuel fired electric
generation and the level and flow of water, safety and other matters
pertaining to hydroelectric generation.
WP&L is subject to the jurisdiction of the Nuclear Regulatory
Commission ("NRC") with respect to the Kewaunee Nuclear Power Plant
("Kewaunee") and to the jurisdiction of the United States Department of
Energy ("DOE") with respect to the disposal of nuclear fuel and other
radioactive wastes from Kewaunee.
Employees
At year-end 1995, WP&L employed 2,332 persons, of whom 1,872
were considered electric utility employees, 319 were considered gas
utility employees and 141 were considered other utility employees. WP&L
has a three-year contract with members of the International Brotherhood of
Electrical Workers, Local 965, that is in effect until June 1, 1996. The
contract covers 1,601 of WP&L's employees. The Company entered
discussions concerning renegotiation of this contract in February 1996.
No assurance can be given regarding the outcome of these negotiations.
ELECTRIC OPERATIONS:
General
WP&L provides electricity in a service territory of
approximately 16,000 square miles in 35 counties in southern and central
Wisconsin and four counties in northern Illinois. As of December 31,
1995, WP&L provided retail electric service to approximately 377,000
customers in 610 cities, villages and towns, and wholesale service to 25
municipal utilities, one privately owned utility, three rural electric
cooperatives, one American Indian nation and to the Wisconsin Public
Power, Inc. system for the provision of retail service to nine
communities.
Electric operations represented 79.2 percent of WP&L's total
operating revenues and 87.8 percent of WP&L's total operating income for
the year ended December 31, 1995.
Electric sales are seasonal to some extent with the yearly peak
normally occurring in the summer months. WP&L also experiences a smaller
winter peak in December or January. The maximum net hourly peak load on
the electric system was 2,197 megawatts and occurred on July 31, 1995. A
new winter system peak of 1,913 megawatts occurred on December 11, 1995.
During the year ended December 31, 1995, about 82.1 percent of total
kilowatthour requirements were generated by company-owned and
jointly-owned facilities and the remaining 17.9 percent were purchased.
WP&L's electric generating facilities include: four coal-fired
generating stations (including nine units; four jointly owned), seven
natural-gas-fired peaking units, eight hydro-electric plants (two jointly
owned), one gas-fired steam generating plant and one nuclear power plant
(jointly owned). WP&L will have the ability to dispatch and include in
its reserve margin an 86 MW gas-fired peaking unit which will be
operational in 1996. Refer to Item 2. "Properties" for additional
information regarding electric generating facilities. WP&L owns
21,413 miles of electric transmission and distribution lines and 362
substations located adjacent to the communities served. WP&L is
interconnected with other utilities in Wisconsin and neighboring states
and is an associate member of the Mid-Continent Power Pool ("MAPP") and a
member of the Mid-America Interconnected Network, Inc. ("MAIN"). WP&L
officially notified the MAIN board of directors of its intentions to
withdraw from MAIN, effective December 31, 1997. WP&L believes that its
customers' financial interest will be better served by participation in a
regional organization that can reach consensus on transmission
restructuring issues. To date, MAIN has been unable to accomplish that
objective. Although WP&L would have until December 31, 1997, to join
another reliability region, WP&L is currently studying its options and
expects to make a final decision in 1996.
The Company projects electric sales to grow at a rate of 2.4
percent annually over the next five years. For a discussion regarding
the Company's future construction, capital requirements and financing, see
the "Liquidity and Capital Resources" section of Item 7. "Management's
Discussion and Analysis of Financial Condition and the Results of
Operations."
Fuel
In 1995, approximately 81.1 percent of WP&L's net kilowatthour
generation of electricity was fueled by coal and 15.3 percent by nuclear
fuel (provided by WP&L's 41 percent ownership interest in Kewaunee.) The
remaining electricity generated was produced by hydroelectric, oil-fired
and natural gas generation.
Coal
The Company's primary fuel source is coal. To ensure an
adequate supply of coal, WP&L has entered into certain long-term coal
contracts. These contracts include a demand or take-or-pay clause under
which payments are required if contracted quantities are not purchased.
Purchase obligations on these coal and related rail contracts total
approximately $168 million through December 31, 2002. WP&L's management
believes it will meet minimum coal and rail purchase obligations under the
contracts. Minimum purchase obligations on these contracts over the next
five years are estimated to be $37 million in 1996, 1997, 1998, $30
million in 1999 and $10 million in 2000. WP&L anticipates that its
average fuel costs will likely increase in the future, due to cost
escalation provisions in existing coal and transportation contracts.
WP&L's management believes that any increases in costs associated with
these contracts will be incorporated in future rates and as such will not
have a material effect on operating results.
The estimated coal requirements of WP&L's generating units
(including jointly-owned facilities) for the years 1996 through 2015 total
about 168 million tons. Present coal supply contracts and transportation
contracts (excluding extension options) cover approximately 16 percent and
19 percent, respectively, of this estimated requirement. WP&L will seek
renewals of existing contracts or additional sources of supply and
negotiate new or additional transportation contracts to satisfy these
requirements and to comply with environmental regulations.
Purchased Power
During the year ended December 31, 1995, about 17.9 percent of
WP&L's total kilowatthour requirements were met through purchased power.
Nuclear
Kewaunee is jointly-owned by WP&L (41 percent), Wisconsin Public
Service Corporation (41.2 percent) and Madison Gas & Electric Company
(17.8 percent). Wisconsin Public Service Corporation ("WPSC") is the
operator. The plant began commercial operation in 1974.
WPSC is a member of the Institute of Nuclear Power ("INPO").
All nuclear generating units in the U.S. belong to INPO and have made a
commitment to the standards of excellence promoted by this organization.
INPO was created by the nuclear utilities in the U.S. after the Three Mile
Island accident. INPO has negotiated with insurance carriers for lower
premiums for those utilities that meet the highest standards of excellence
and have attained a Category 1 rating. Kewaunee has attained this
Category 1 rating 5 times out of 6 ranking periods and has benefited with
reduced insurance premiums. The National Nuclear Accrediting Board
("NNAB") is a part of the INPO structure. The purpose of NNAB is to
monitor and accredit each utility's training program as established by
INPO standards. All ten accredited training programs at Kewaunee are
currently in good standing.
The supply of nuclear fuel for the Kewaunee plant involves the
mining and milling of uranium ore to uranium concentrates, the conversion
of uranium concentrates to uranium hexafluoride, the enrichment of the
uranium hexafluoride and the fabrication of the enriched uranium into
usable fuel assemblies. After a region (approximately one-third of the
nuclear fuel assemblies in the reactor) of spent fuel is removed from the
reactor, it is placed in temporary storage for cooling in a spent fuel
pool at the plant site. Permanent storage is addressed below. Presently,
there are no operating facilities in the United States reprocessing
commercial nuclear fuel. A discussion of the nuclear fuel supply for
Kewaunee, which requires approximately 300,000 pounds of uranium
concentrates per year follows:
(a) Requirements for uranium are met through spot market or
contract purchases of uranium. In general, a three-year
supply of uranium is maintained.
(b) Uranium hexafluoride, from inventory and from spot market
purchases, was used to satisfy converted material
requirements in 1995. Conversion services relating to
uranium hexafluoride are purchased on the spot market, as
the available supply in this market provides for
attractive pricing.
(c) In 1995, enrichment services were not required. Future
services will be procured from COGEMA, Inc. pursuant to a
contract last amended in October 1995. Enrichment
services are also purchased from the United States
Enrichment Corporation under the terms of the utility
services contract. This contract is in effect for the
life of Kewaunee. The Kewaunee owners over the next ten
years are committed to take 70 percent of their annual
enrichment services requirements in alternate years 1997,
1999, 2001, 2003, and 2005 from the United States
Enrichment Corporation.
(d) Fuel fabrication requirements through 2001 are covered by
contract with Siemens Power Corporation.
(e) Beyond the stated periods for Kewaunee, additional
contracts for uranium concentrates, conversion to uranium
hexafluoride, fabrication and spent fuel storage will have
to be procured. The prices for the foregoing are
currently expected to increase slightly.
The National Energy Policy Act of 1992 provides that both the
Federal government and the nuclear utilities fund the decontamination and
decommissioning of the three federal gaseous diffusion plants in the
United States. This will require the owners of Kewaunee to pay an
additional $15.7 million in current dollars over the next 12 years plus
an adjustment for inflation. WP&L's share including interest amounted to
an annual payment of approximately $537,000 in 1995.
The steam generator tubes at Kewaunee are susceptible to
corrosion characteristics seen throughout the nuclear industry. During
the first quarter of 1995, Kewaunee was shutdown for scheduled maintenance
and refueling. Inspection of the steam generators revealed increased
levels of tube degeneration. Prior to shutdown the equivalent of
approximately 12 percent of the tubes in the steam generators were
plugged, with no loss of capacity. When the plant was returned to
service in May 1995, approximately 21 percent of the tubes were plugged
resulting in an initial capacity reduction of approximately 4 percent.
Approximately half of this lost capacity has been recovered through
operating modifications. The ultimate small reduction in capacity did
not affect revenues or earnings in 1995 because of operating and
maintenance cost savings and reserve capacity recovery efforts at
Kewaunee. In addition, there was no impact on the Company's bulk power
sales due to the availability of attractive purchased power opportunities.
As a result of the need to address the repair or replacement of
the steam generators, the owners of Kewaunee have been, and are continuing
to, evaluate various alternatives to deal with capacity degradation of the
steam generator tubes. As part of this evaluation the owners have:
(a) submitted a request to the NRC to redefine the pressure
boundary point of the repaired steam generator tubes
(sleeved tubes) which have been removed from service by
plugging, in order to allow the return of many of the
sleeved tubes to service. If the request is granted, even
if additional degraded tubes would be discovered during
the next planned shutdown in the fall of 1996, the
requested redefinition of the pressure boundary point
should allow the plant to return to full output. Testing
of three tubes removed during the 1995 refueling outage
indicates structural soundness equal to the original tube
strength. Management believes the request will be granted
by the NRC;
(b) requested approval from the NRC to pursue welded repair
technologies to return plugged tubes to service. Although
welded tube repair technologies exist, the technology is
not presently approved by the NRC; and
(c) continued 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.
In the event none of the above alternatives is pursued (for
failure to obtain NRC approval or otherwise), the owners would continue to
evaluate the potential financial and regulatory implications of a change
in ownership (which would likely require, as a condition precedent,
authority to replace the steamm generator) or early shutdown of Kewaunee.
WP&L believes that the best near term economic alternative for the owners
of Kewaunee is to continue to pursue tube recovery and repair processes.
WP&L will reassess its views of available alternatives based on the
condition of steam generator tubes during the fall 1996 refueling outage.
If early shutdown is pursued, WP&L anticipates that it would receive full
recovery in rates of its undepreciated plant balance and decommissioning
expense. On December 31, 1995, the net book value of WP&L's share of
Kewaunee was $57.0 million.
Physical decommissioning is expected to occur during the period
2014 to 2021 with additional expenditures being incurred during the period
2022 to 2050 related to the storage of spent nuclear fuel at the site.
The undiscounted amount of decommissioning costs estimated to be expended
between the years 2014 and 2050 is $1,016 million. Wisconsin utilities
operating nuclear generating plants are required by the PSCW to establish
external trust funds to provide for the decommissioning of such plants.
WP&L's share of the decommissioning costs is estimated to be $169 million
(in 1995 dollars, assuming the plant is operating through 2013) based on a
1992 site-specific study, using the immediate dismantlement method of
decommissioning. WP&L's annual contribution to the external trust fund
for decommissioning was $10.7 million in 1995 and is expected to be $10.7
million in 1996. The market value of the investments in the funds
established by WP&L at December 31, 1995 totaled $73.4 million.
Additionally, in July 1994, the PSCW issued a generic order covering
utilities that have nuclear generation. This order standardizes the
escalation assumption to be used in determining nuclear decommissioning
liabilities. After-tax earnings on the tax-qualified and nontax-qualified
decommissioning funds are assumed to be 6.1 percent and 5.1 percent,
respectively. The future escalation rate is assumed to be 6.5 percent.
Pursuant to the Nuclear Waste Policy Act of 1982, the DOE has
entered into a contract with WP&L to accept, transport and dispose of
spent nuclear fuel beginning no later than January 31, 1998. It is likely
that the DOE will delay the acceptance of spent nuclear fuel beyond 1998.
A fee to offset the costs of the DOE's disposal for all spent fuel used
since April 7, 1983 has been assessed by the DOE at one mill per net
kilowatthour of electricity generated and sold by Kewaunee. An
additional one-time fee was paid for the disposal of spent nuclear fuel
used to generate electricity prior to April 7, 1983.
Spent fuel is currently stored at Kewaunee. The existing
capacity of the spent fuel storage facility will enable storage of the
projected quantities of spent fuel through April 2001. Kewaunee is
currently evaluating options for the storage of additional quantities
beyond 2001. Several technologies are available. An investment of
approximately $2.5 million could provide additional storage sufficient to
meet on-site spent fuel storage needs until 2013, the expiration of the
current operating license.
The Low-Level Radioactive Waste Policy Act of 1980, as amended,
provides that states may enter into compacts to provide for regional
low-level waste disposal facilities. Wisconsin is a member of the Midwest
Interstate Low-Level Radioactive Waste Compact. Ohio has been selected as
the host state for the Midwest Compact and is proceeding with the
preliminary phases of site selection. In July 1995, the Branwell, South
Carolina disposal facility again began accepting waste materials from
outside its region. The Kewaunee owners expect to have sufficient storage
space either on site or through shipments to Branwell to satisfy low
level radioactive waste disposal needs until the Ohio facility accepts low
level radioactive waste materials.
Recovery of Electric Fuel Costs
In WP&L's most recent rate case, the PSCW approved elimination
of the retail electric fuel adjustment clause for a two year trial period,
1995-1996. For this period, retail rates will remain unchanged even if
fuel costs vary from forecasted levels established in the rate proceeding.
WP&L's wholesale rates and South Beloit's retail rates contain
fuel adjustment clauses pursuant to which rates are adjusted monthly to
reflect changes in the costs of fuel.
Environmental Matters
WP&L cannot precisely forecast the effect of future
environmental regulations by federal, state and local authorities upon its
generating, transmission and other facilities, or its operations, but has
taken steps to anticipate the future while meeting the requirements of
current environmental regulations. The Clean Air Act Amendments of 1977
and subsequent amendments to the Clean Air Act, as well as the new laws
affecting the handling and disposal of solid and hazardous wastes, could
affect the siting, construction and operating costs of both present and
future generating units.
Under the Federal Clean Water Act, National Pollutant Discharge
Elimination System permits for generating station discharge into water
ways are required to be obtained from the DNR to which the permit program
has been delegated. These permits must be periodically renewed. WP&L has
obtained such permits for all of its generating stations or has filed
timely applications for renewals of such permits.
Air quality regulations promulgated by the DNR in accordance
with federal standards impose statewide restrictions on the emission of
particulates, sulfur dioxide, nitrogen oxides and other air pollutants and
require permits from the DNR for the operation of emission sources. WP&L
currently has the necessary permits to operate its fossil-fueled
generating facilities. While periodic exceedances in air emissions may
occur, management promptly responds to these events and works with the DNR
to resolve any permit compliance issues. With the passage of the new
Federal Clean Air Act Amendments, the state is required to include these
provisions into their permit requirements. WP&L has submitted timely
Title V permit applications in compliance with schedules set forth by the
regulators. WP&L has also completed application for Phase II permits
under the Clean Air Act in compliance with the time lines identified. The
state Title V operating permits, when issued, will consolidate all
existing air permit conditions and regulatory requirements into one permit
for each facility. Permits are expected to be issued in 1996. Until
such time, the facilities will continue to operate under their existing
permit conditions.
Pursuant to Section 144.386(2) of the Wisconsin Statutes, WP&L
has submitted data and plans for 1996 sulfur dioxide emissions compliance.
Actual 1995 emissions were reported to the DNR. WP&L is currently in
compliance with the state requirement. WP&L will continue to make any
necessary operational changes in fuel types and power plant dispatch to
comply with the system emissions limit of 1.2 pounds SO2 per million BTU.
WP&L's compliance strategy for Wisconsin's sulfur dioxide law
(discussed above) and the Federal Clean Air Act Amendments required plant
upgrades at its generating facilities. The majority of these projects
were completed in 1993. WP&L has installed continuous emission monitoring
systems at all of its coal-fired boilers in compliance with federal
requirements. Monitoring for sulfur dioxide was also required by Title IV
of the Federal Clean Air Act at WP&L's South Fond du Lac combustion
turbine site. These requirements were also met. Additional monitoring
systems for nitrogen oxides are required in 1996 at the combustion turbine
site. WP&L has installed these monitors, and will complete certification
tests for the equipment by May 1996. No significant investments are
anticipated at this time to meet the requirements of the Federal Clean Air
Act Amendments.
Pursuant to Section 311(j)(5) of the Clean Water Act, WP&L has
submitted a facility response plan for the South Fond du Lac combustion
turbine site. The plans addresses pollution prevention and spill response
activities for those facilities with capacity to store in excess of one
million gallons of oil.
WP&L maintains licenses for all of its ash disposal facilities
and regularly reports to the DNR groundwater data and quantities of ash
landfilled or reused. The landfills are operated according to a Plan of
Operation approved by the DNR. WP&L monitors hazardous materials use and
hazardous waste generation at its facilities. Annual reports are filed
with the DNR on quantities stored and generated as required by the
Superfund Amendments and Reauthorizaton Act and the Resource Conservation
Recovery Act.
WP&L's accumulated pollution abatement expenditures adjusted for
accumulated retirements totaled $132.7 million as of December 31, 1995.
The major expenditures consist of about $60 million for the installation
of electrostatic precipitators for the purpose of reducing particulate
emissions from WP&L's coal-fired generating stations and approximately $73
million for other pollution abatement equipment at the Columbia, Edge-
water, Kewaunee, Nelson Dewey, Rock River and Blackhawk plants.
Expenditures during 1995 totalled approximately $.5 million. Estimated
future pollution abatement expenditures total $3.7 million through 1997.
WP&L's estimated pollution abatement expenditures are subject to
continuing review and are revised from time to time due to escalation of
construction costs, changes in construction plans and changes in
environmental regulations.
See "Electric Operations - Nuclear" for information concerning
the disposal of spent nuclear fuel and high level nuclear waste.
<TABLE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED ELECTRIC STATISTICS
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Area served (end of period):
Population--retail
(estimated)(a) . . . . . . 826,000 822,000 818,000 807,000 799,000
Cities, villages and towns
served --retail . . . . . . 610 607 609 611 611
Customers served (end of
period):
Residential and Farm . . . . 329,643 322,924 316,870 310,702 304,825
Industrial . . . . . . . . . 795 776 714 727 679
Commercial . . . . . . . . . 44,730 43,793 42,884 42,287 41,190
Wholesale and Class A . . . . 48 42 39 39 41
Other . . . . . . . . . . . . 1,294 1,256 1,236 950 1,173
------- ------- ------- ------- -------
Total . . . . . . . . . . . 376,510 368,791 361,743 354,705 347,908
======= ======= ======= ======= =======
Sales--kilowatt-hours (in
thousands):
Residential and Farm . . . . 2,937,825 2,776,895 2,751,363 2,614,439 2,729,917
Industrial . . . . . . . . . 3,872,520 3,764,953 3,540,082 3,377,132 3,185,101
Commercial . . . . . . . . . 1,773,406 1,688,349 1,629,911 1,551,823 1,558,297
Wholesale and Class A . . . . 3,109,385 2,574,121 2,388,131 2,208,419 2,441,189
Other . . . . . . . . . . . . 54,042 54,518 51,073 55,230 54,376
--------- --------- --------- --------- ---------
Total . . . . . . . . . . . 11,747,178 10,858,836 10,360,560 9,807,043 9,968,880
========== ========== ========== ========= =========
Electric operating revenues (in
thousands):
Residential and Farm . . . . $199,850 $194,242 $184,176 $171,887 $179,751
Industrial . . . . . . . . . 140,562 140,487 132,903 128,467 124,212
Commercial . . . . . . . . . 102,129 101,382 95,977 91,707 92,628
Wholesale and Class A . . . . 97,350 86,400 78,955 77,485 82,831
Other . . . . . . . . . . . . 6,433 9,236 11,176 8,189 9,130
-------- -------- -------- -------- --------
Total . . . . . . . . . . . $546,324 $531,747 $503,187 $477,735 $488,552
======= ======= ======= ======= =======
Percent of generation by fuel
type:
Coal . . . . . . . . . . . . 81.1% 80.4% 80.3% 79.8% 81.1%
Nuclear . . . . . . . . . . . 15.3% 16.8% 16.5% 17.4% 15.7%
Hydroelectric . . . . . . . . 2.2% 2.4% 2.9% 2.6% 2.6%
Natural gas . . . . . . . . . 1.3% 0.3% 0.2% 0.1% 0.5%
Oil . . . . . . . . . . . . . 0.1% 0.1% 0.1% 0.1% 0.1%
----- ----- ----- ----- -----
Total . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
System capacity--at time of
system peak: (kWh's)
Company plants (including
jointly owned) . . . . . . 2,176,000 2,193,000 2,019,000 1,934,000 1,932,000
Firm purchased (sold) power . 57,000 40,000 83,000 110,000 70,000
--------- --------- --------- --------- ---------
Total . . . . . . . . . . . 2,233,000 2,233,000 2,102,000 2,044,000 2,002,000
System peak demand . . . . . 2,197,000 2,002,000 1,971,000 1,782,000 1,863,000
--------- --------- --------- --------- ---------
Reserve margin at time of
peak . . . . . . . . . . . 36,000 231,000 131,000 262,000 139,000
======= ======== ======== ========= ========
Average annual electric bill
per residential and farm
customer . . . . . . . . . . $613 $607 $587 $558 $594
Average annual kilowatt-hour
use per residential and farm
customer . . . . . . . . . . 9,005 8,662 8,772 8,492 9,015
<FN>
(a) The estimated population for towns served jointly with other electric
utilities has been based upon a ratio of 2.5 population per retail electric
customer.
</TABLE>
GAS OPERATIONS:
General
As of December 31, 1995, WP&L provided retail natural gas
service to approximately 146,000 customers in 242 cities, villages and
towns in 22 counties in southern and central Wisconsin and one county in
northern Illinois. Gas operations represented 20.2 percent of WP&L's
total operating revenues and 11.1 percent of WP&L's total operating income
for the year ended December 31, 1995.
WP&L's gas sales follow a seasonal pattern. There is an annual
base load of gas used for heating, cooking, water heating and other
purposes, with a large peak occurring during the heating season. WP&L set
a new record for natural gas peak-demand of 258,000 dekatherms on
January 30-31, 1996. The previous record of 256,000 dekatherms was set
on January 14-15, 1995.
Gas Supplies
Prior to 1995, WP&L passed on its cost incurred from natural gas
suppliers and pipeline companies on a dollar-for-dollar basis to its
customers. In 1995, the PSCW approved implementation of a performance-
based rate mechanism for Wisconsin gas customers. Under this mechanism,
fluctuations in the commodity cost of gas above or below a prescribed
commodity price index will serve to increase or decrease WP&L's margin on
gas sales. Both benefits and exposures are subject to customer sharing
provisions. Specifically, to the extent WP&L purchases its gas supply
below the index price, it will retain 50 percent of the first $1.151
million in savings; 25 percent of the next $1.151 million; and 10 percent
of the next $2.878 million. WP&L's share of the incentive is capped at
$1.1 million on a pre-tax basis. The balance of the savings is returned
to customers.
During 1995, the Company paid the two pipeline companies serving
WP&L (ANR Pipeline and Northern Natural Gas Company) $2.6 million in Order
636 transition costs representing costs incurred by these pipelines in
transitioning from full service natural gas commodity providers to open
access gas transmission companies. In addition, WP&L incurred $.8 million
of take-or-pay costs paid to pipelines to reform its gas contracts from
the pre-Order 636 time period. Both categories of costs were recovered
100 percent from the Company's gas customers.
Customers served under South Beloit's gas rate schedules
continue to pay for gas on a traditional purchase gas adjustment basis.
In providing gas commodity service to retail gas customers, WP&L
administers a diversified portfolio of transportation contracts with ANR
Pipeline and Northern Natural Gas Company allowing access to gas supplies
from the states of Oklahoma, Louisiana, Texas, and the province of
Alberta, Canada. WP&L's transportation contracts provide a maximum daily
delivery capability of 234,081 dekatherms per day of natural gas as
follows:
ANR Pipeline Northern Natural Gas Company Non-Traditional
148,075 Dt 73,556 Dt 12,450 Dt
Two non-traditional arrangements provide WP&L with gas delivered
directly to its "city gate" using the vendors' transportation contract
with ANR Pipeline.
WP&L's contracts also allow access to gas stored in underground
storage fields in the states of Michigan, New Mexico and Oklahoma. Gas
purchased in the summer and delivered in the winter comprise 25 percent of
the Company's annual gas requirements.
The Company maintains purchase agreements with over 60 suppliers
of natural gas from all gas producing regions of the U.S. and Canada.
These include 9 contracts providing for long-term gas deliveries (i.e.,
with terms ranging from 6 months to 10 years). These contracts provided
42 percent of WP&L's annual gas purchases in 1995. In addition to its
direct purchase and sales of natural gas, the Company provided
transportation service to 154 customers who purchased their own gas,
pursuant to the Company's transportation tariffs. These customers
represent 30 percent of total gas moved through WP&L's natural gas
distribution pipe.
Manufactured Gas Plant Sites
Historically, WP&L has owned 11 properties that have been
associated with the production of manufactured gas. Currently, WP&L owns
five of these sites, three are owned by municipalities, and the remaining
three are owned by private companies. In 1989, WP&L initiated
environmental investigations of these manufactured gas plant sites. The
DNR has been involved in reviewing investigation plans and has received
ongoing reports regarding these investigations.
Through ongoing investigation and studies, WP&L confirmed that
there was no contamination at two of the sites and has now received a
close out letter from the DNR related to each of those sites.
Additionally, the investigation of historical records at a third site
indicated a minimal likelihood of any significant environmental impacts.
In 1995, WP&L requested and received a close out letter for the third
site.
In February 1993, WP&L completed cost estimates for the
environmental remediation of the eight remaining sites. The results of
this analysis indicate that, during the next 32 years, WP&L will expend
approximately $77 million for feasibility studies, data collection, soil
remediation activities, groundwater research and groundwater remediation
activities, including construction of slurry containment walls and the
installation of groundwater pump and treatment facilities. This estimate
was based on various assumptions, and is subject to continuous review and
revision by management.
The cost estimate set forth above assumes 4 percent average
inflation over the period. The cost estimate also contemplates that
primarily groundwater pump and treatment activities will take place after
1998 through and including 2027. During this time, WP&L estimates that it
will incur average annual costs of $2 million to complete the planned
groundwater remediation activities.
Through 1995, management has continued its oversight of the
issues related to the above manufactured gas plant sites without
significant revision to the above estimates and assumptions. With
respect to rate recovery of these costs, the PSCW has approved a five-year
amortization of the unamortized balance of environmental costs expended to
date. Based on the present regulatory record at the PSCW, management
believes that future costs of remediating these manufactured gas plant
sites will be recovered in rates.
See "Item 3. Legal Proceedings" for information related to the
manufactured gas plant sites.
<TABLE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED GAS STATISTICS
<CAPTION> Year Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Area served (end of period):
Population -- retail
(estimated) (a) . . . . . 408,000 399,000 391,000 377,000 375,000
Cities, villages and towns
served -- retail . . . . 242 239 217 194 199
Customers served (end of
period):
Residential and Farm . . . 129,576 124,938 120,829 116,642 113,475
Firm . . . . . . . . . . . 15,976 15,531 15,088 14,656 14,291
Interruptible . . . . . . . 257 272 261 262 215
Transport. and Other . . . 284 240 85 109 46
------- ------- ------- ------- ------
Total . . . . . . . . . . 146,093 140,981 136,263 131,669 128,027
======= ======= ======= ======= =======
Sales - Therms (in thousands)
(b):
Residential and Farm . . . 126,903 119,562 120,005 114,131 114,772
Firm . . . . . . . . . . . 91,316 87,487 87,038 82,087 83,451
Interruptible . . . . . . . 12,148 24,809 27,872 25,497 26,025
Tranport. and Other . . . . 169,121 142,252 84,877 71,167 66,531
------- ------- ------- ------- -------
Total . . . . . . . . . . 399,488 374,110 319,792 292,882 290,779
======= ======= ======= ======= =======
Gas operating revenues (in
thousands):
Residential and Farm . . . $70,382 $71,555 $71,632 $63,699 $63,521
Firm . . . . . . . . . . . 39,456 41,918 40,748 37,154 36,407
Interruptible . . . . . . . 3,708 8,777 11,247 14,589 12,051
Transport. and Other . . . 25,619 29,681 13,643 3,920 5,796
------- ------- ------- ------- -------
Total . . . . . . . . . . $139,165 $151,931 $137,270 $119,362 $117,775
======= ======= ======= ======= =======
Average annual residential
heating use -- therms . . . 971 1,022 1,052 1,029 1,069
Average annual gas bill per
residential heating
customer . . . . . . . . . $556 $613 $631 $573 $590
<FN>
(a) The estimated population for towns served jointly with other gas utilities has been based
upon a ratio of 2.8 population per retail gas customer.
(b) One therm equals 100,000 British Thermal Units and is a measure of the heat
content of natural gas.
</TABLE>
ITEM 2. PROPERTIES
The following table gives information with respect to electric
generating facilities of WP&L (including WP&L's portion of those
facilities jointly-owned).
<TABLE>
<CAPTION>
1995 Summer
Capability Ownership
Type/ WP&L Portion Interest
Location Name Fuel In Kilowatts in Facility
<S> <C> <C> <C> <C>
Steam
Beloit, WI Blackhawk Natural Gas 54,500 100%
Janesville, WI Rock River Coal 156,000 100%
Cassville, WI Nelson Dewey Coal 226,000 100%
Sheboygan, WI Edgewater #3 Coal 74,000 100%
Sheboygan, WI Edgewater #4 Coal 224,370 68.2%
Sheboygan, WI Edgewater #5 Coal 301,500 75.0%
Kewaunee, WI Kewaunee Nuclear 212,700 41%
Portage, WI Columbia Energy Coal 485,100 46.2%
Center
Hydro
Wisconsin Dells, WI Kilbourn Hydro 9,500 100%
Prairie du Sac, WI Prairie du Sac Hydro 30,000 100%
Wisconsin River Power Co. Petenwell/ Hydro 13,300 33%
Castle Rock
4 small units at
various locations Hydro 2,050 100%
Combustion Turbine
Janesville, WI Rock River Natural
or Oil 135,200 100%
Fond du Lac, WI South Fond du Lac Natural Gas
Unit 2 and 3 or Oil 169,700 100%
Edgerton, WI Sheepskin Natural Gas
or Oil 36,700 100%
--------
Total 2,130,620
=========
</TABLE>
WP&L owns 21,413 miles of electric transmission and distribution
lines and 362 substations located adjacent to the communities served.
Substantially all of WP&L's facilities are subject to the lien of its
first mortgage bond indenture.
ITEM 3. LEGAL PROCEEDINGS
On July 20, 1995, the City of Beloit ("Beloit") filed a suit
against WP&L in the Circuit Court of Rock County, Wisconsin alleging that,
based on negligence, nuisance and trespass, WP&L caused damage to Beloit
through the contamination of property owned by Beloit as a result of the
historical operation of manufactured gas plants on the property prior to
Beloit's acquisition of the property. The suit seeks damages equal to the
cost of cleaning up the property, for decrease in the value of the
property, and to compensate Beloit for lost development opportunities for
the property as well as consequential damages and costs of the action.
Beloit and WP&L entered into a Stipulation upon which the Court
issued an Order staying further proceedings in the action pending further
environmental investigation of the property and pending WP&L's
determination of the extent of liability insurance coverage for the
claims.
In management's judgement, the probability is remote that this
action will have a material adverse impact on the Company's financial
condition.
ENVIRONMENTAL MATTERS
The information required by Item 3 is included in this Form 10-K
as Item 8-Notes to Consolidated Financial Statements, Note 11c,
incorporated herein by reference.
RATE MATTERS
The information required by Item 3 is included in Item 7 of this
Form 10-K within the Management's Discussion and Analysis of Financial
Condition and Results of Operations narrative under the caption "Rates and
Regulatory Matters."
RECENT RATE CASE PROCEEDINGS (a)
<TABLE>
<CAPTION>
Increase Ordered or
Increase (Decrease) Requested Negotiated Date
Type of (Decrease) Ordered or % Return on % Return on Increase
Rate Case Service Application Test Requested Negotiated Common Common (Decrease)
Designation (b) Date Year ($ Millions) ($ Millions) Equity Equity Effective
<C> <c. <C> <C> <C> <C> <C> <C> <C>
WP&L Retail
(PSCW)
6680-UR-103 e,g,w 02-29-88 1988-89 14.7 5.5 13.25 13.10 10-18-88
6680-UR-104 e,g,w 12-30-88 1989-90 17.4 5.3 13.10 13.00 11-12-89
6680-UR-105 e,g,w 12-29-89 1990-91 9.0 (10.8) 13.10 12.90 08-01-90
6680-UR-106 e,g,w 12-28-90 1991-92 18.7 (0.1) 13.25 12.90 08-01-91
6680-UR-107 e,g,w 12-30-91 1992-93 17.8 (0.9) 13.10 12.40 01-01-93
6680-UR-108 e,g,w 01-04-93 1993-94 24.5 17.7 12.60 11.60 10-01-93
6680-UR-109 e,g,w 02-01-94 1995-96 3.8 (11.6) 12.20 11.50 01-01-95
WP&L Wholesale
(FERC)
ER87-554 e 07-31-87 1987-88 (1.2) (.9) 13.00 (c) 01-01-88
ER93 e 05-28-93 1993-94 2.0 2.0 11.00 (c) 10-01-93
South Beloit
(ICC)
85-0505 e,w 11-08-85 1985-86 1.4 (d) .9 15.00 13.80 09-27-86
<FN>
(a) See "Item 3. Legal Proceedings" for additional information
regarding rate matters.
(b) e-electric, g-gas, w-water.
(c) Return on equity was not specified in the negotiated
settlement agreement.
(d) On May 7, 1986, South Beloit Water, Gas and Electric Co.
adjusted the increase requested downward to $1.1 million.
</TABLE>
On November 6, 1995, WP&L filed the 1994 Depreciation Study
(Docket 6680-DU-102) with the PSCW. The study is presently under review.
It is anticipated that the study will result in a $4 to $8 million pre-tax
increase in depreciation expense effective in 1997. The revised
depreciation rates are expected to be fully recoverable in WP&L's next
retail rate order which is scheduled to be effective on January 1, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Erroll B. Davis, Jr, 51, was elected President and Chief
Executive Officer effective August 1, 1988 and has been a board member
since April 1984. He had been Executive Vice President since May 1984,
Vice President - Finance and Public Affairs since November 1982 and Vice
President - Finance since August 1978. Mr. Davis was elected President of
WPL Holdings, Inc. on January 17, 1990 and Chief Executive Officer of WPL
Holdings, Inc. effective July 1, 1990. He has served as a director of WPL
Holdings, Inc. since March 1988.
Edward M. Gleason, 55, was elected Corporate Secretary of WP&L
and WPL Holdings, Inc. effective December 15, 1993. He was elected Vice
President and Treasurer of WPL Holdings, Inc. effective October 3, 1993.
He previously served as Vice President - Finance and Treasurer of WP&L
since May 1986. Mr. Gleason functions as principal financial officer of
WPL Holdings, Inc.
A.J. (Nino) Amato, 44, was appointed Senior Vice President
effective October 3, 1993. He previously served as Vice President -
Marketing and Strategic Planning since December 1992, Vice President -
Marketing and Communications since January 1989 and Director of Electric
Marketing and Customer Service since October 1988. He had been President
of Forward Wisconsin, Inc. from 1987 to 1988.
Norman E. Boys, 51, was elected Vice President of Power
Production effective January 1, 1989. He previously served as the
Director of Power Production since October 1987 and Generating Station
Manager at the Edgewater Generating Station since August 1984.
William D. Harvey, 46, was appointed Senior Vice President
effective October 3, 1993. He previously served as Vice President-Natural
Gas and General Counsel since August 1992, Vice President-General Counsel
since October 1, 1990 and Vice President-Associate General Counsel since
July 1986. Prior to joining the Company, he was a member of the law firm
of Wheeler, Van Sickle, Anderson, Norman and Harvey.
Eliot G. Protsch, 42, was appointed Senior Vice President
effective October 3, 1993. He previously served as Vice President-
Customer Services and Sales since August 1992, Vice President and General
Manager-Energy Services since January 1989 and District Manager, Dane
County, since October 1986.
Daniel A. Doyle, 37, was appointed Vice President - Finance,
Controller and Treasurer in December 1994. He previously served as
Controller and Treasurer of WP&L since October 3, 1993. He served as
Controller since July, 1992. Prior to joining the Company, he was
Controller of Central Vermont Public Service Corporation since December
1988. Mr Doyle functions as the principal accounting officer of WPL
Holdings, Inc.
David E. Ellestad, 55, Vice President, was appointed Scholar in
Residence at the University-Wisconsin-Platteville, effective January 15,
1995. His appointment is for a two year period. He previously served as
Vice President-Electrical Engineering and Operations since August 1,
1992. He served as Vice President-Engineering and Operations since 1988;
Vice President of Electrical Engineering and Procurement since January 1,
1986; Director of Electrical Engineering & Procurement since May 1985 and
Director of Electrical Engineering since November 1979.
Susan J. Kosmo, 49, was elected Assistant Controller on
September 20, 1995. She had been Trust Investments and Investor Relations
Supervisor in the Treasury Department since 1992 and Financial Relations
Supervisor since 1989.
David A. Ramos, 39, was elected Assistant Controller on January
23, 1995. He previously served the Company as Manager of Budgets, Rates
and Cost Accounting since January 1994, Manager of Budgets and Rates since
October 1992 and Manager of Rates and Financial Planning since January
1990.
Robert A. Rusch, 33, was elected Assistant Treasurer on
September 20, 1995. He had been Financial Analyst in the Finance
Department since April 1989.
Steven F. Price, 43, was appointed Assistant Corporate Secretary
on April 15, 1992. He had been Cash Management Supervisor since December
1987. He was also appointed Assistant Corporate Secretary and Assistant
Treasurer of WPL Holdings, Inc. on April 15, 1992.
Joseph Shefchek, 39, was elected Assistant Vice President of
Environmental Affairs and Research effective December 25, 1994. He
previously served as Director of Environmental Affairs and Research since
June 1991. Before joining the Company, he held various environmental
engineering positions in private industry and government.
Barbara Swan, 44, was elected Vice President-General Counsel
effective December 25, 1994. She previously served as General Counsel
since 1993 and Associate General Counsel from 1987 to 1993.
Pamela J. Wegner, 48, was elected Vice President-Information
Services and Administration on October 13, 1994. Prior to joining the
Company, she was the Administrator of the Division of Finance and Program
Management in the Wisconsin Department of Administration since 1987.
Kim K. Zuhlke, 42, was elected Vice President - Customer
Services and Sales effective October 3, 1993. He previously served as
Director of Marketing and Sales Services since 1991, Director of Market
Research, Planning and Development since February 1990, Director of
Customer Services since 1988 and District Manager at Beaver Dam since
April 1984.
NOTE: All ages are as of December 31, 1995. None of the executive
officers listed above is related to any member of the Board of
Directors or nominee for director of the Company.
Executive officers of the Company have no definite terms of
office and serve at the pleasure of the Board of Directors.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER
MATTERS
Effective with the formation of the holding company, all $5 par
value common stock of the Company was converted into common stock of WPL
Holdings, Inc. WPL Holdings is now the sole common shareowner of the
Company. The Common Stock outstanding at December 31, 1995 was
13,326,601 shares.
Cash dividends paid per share of common stock during 1995 and
1994 to WPL Holdings, Inc. were $1.07 and 96 cents, respectively, for each
quarter.
In accordance with the terms of the Merger Agreement (see
"Proposed Merger", below), WPLH is not permitted to declare or pay any
dividends on any of its capital stock other than the obligations that
exist with respect to WP&L's cumulative preferred stock, and regular
quarterly dividends to be paid on WPLH's common stock may not exceed 105
percent of the dividends from the prior year.
In the retail rate order effective January 1, 1995, the PSCW
ordered that no dividend payment in excess of the level forecasted for
1995 ($58.1 million) may be paid, if such dividend payments would reduce
WP&L's average common equity ratio below the test year forecasted level
of 51.93 percent.
Proposed Merger
WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES"), and
Interstate Power Company ("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, has been approved by the
respective Boards of Directors. It is still subject to approval by the
shareholders of each company as well as several federal and state
regulatory agencies. The companies expect to receive the shareholder
approvals in the second quarter of 1996 and regulatory approvals by the
second quarter of 1997.
The operating revenues, net income from continuing operations
and total assets of the companies were as follows:
PRO FORMA
COMBINED
WPLH IES IPC (Unaudited)
(in thousands)
1995 Operating revenues $807,255 $851,010 $318,542 $1,976,807
1995 Net income from
continued operations $71,618 $64,176 $25,198 $160,992
Assets at December 31,
1995 $1,872,414 $1,985,591 $634,316 $4,492,321
Under the terms of the Merger Agreement, the outstanding shares
of WPLH's common stock will remain unchanged and outstanding as shares of
Interstate Energy. Each outstanding share of IES common stock will be
converted to .98 shares of Interstate Energy's common stock. Each share
of IPC's common stock will be converted to 1.11 shares of Interstate
Energy's common stock. It is anticipated that Interstate Energy will
retain WPLH's common share dividend payment level as of the effective time
of the merger. On January 24, 1996, the Board of Directors of WPLH
declared a quarterly dividend of 49.25 cents per share. This represents
an equivalent annual rate of $1.97 per share.
IES is a holding company headquartered in Cedar Rapids, Iowa,
and is the parent company of IES Utilities Inc. ("IES Utilities") and IES
Diversified Inc. ("IES Diversified"). IES Utilities supplies electric and
gas service to approximately 333,000 and 174,000 customers, respectively,
in Iowa. IES Diversified and its principal subsidiaries are primarily
engaged in the energy-related, transportation and real estate development
businesses. IPC, an operating public utility headquartered in Dubuque,
Iowa, supplies electric and gas service to approximately 163,000 and
49,000 customers, respectively, in northeast Iowa, northwest Illinois and
southern Minnesota.
Interstate Energy will be the parent company of WP&L, IES
Utilities and IPC and will be registered under the Public Utility Holding
Company Act of 1935, as amended, ("1935 Act"). The Merger Agreement
provides that these operating utility companies will continue to operate
as separate entities for a minimum of three years beyond the effective
date of the merger. In addition, the non-utility operations of WPLH and
IES Diversified will be combined shortly after the effective date of the
merger under one entity to manage the diversified operations of Interstate
Energy. The corporate headquarters of Interstate Energy will be in
Madison, Wisconsin.
The SEC historically has interpreted the 1935 Act to preclude
registered holding companies, with limited exceptions, from owning both
electric and gas utility systems. Although the SEC has recently
recommended that registered holding companies be allowed to hold both gas
and electric utility operations if the affected states agree, it remains
possible that the SEC may require as a condition to its approval of the
Proposed Merger that WPLH, IES and IPC divest their gas utility
properties, and possibly certain non-utility ventures of WPLH and IES,
within a reasonable time after the effective date of the Proposed Merger.
ITEMS 6 AND 7. SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
(in millions)
<S> <C> <C> <C> <C> <C>
Operating revenues . . . . . $690 $688 $644 $601 $610
Net income available for
common stockholders . . . . $75 $68 $60 $55 $64
Total assets (at December 31) $1,641 $1,585 $1,551 $1,414 $1,250
Long-term debt, net (at
December 31) . . . . . . . . $319 $337 $336 $336 $291
</TABLE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
OVERVIEW
Net income of Wisconsin Power and Light Company ("WP&L" or the
"Company") increased to $75.3 million in 1995 compared with $68.2 million
in 1994. Net income for 1994 was significantly affected by two non-
recurring items. These items were the reversal of a coal contract penalty
and costs associated with early retirement and severance programs. The
coal contract item is discussed in the "Other Events" section of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A"). The following break out (dollars in millions) presents
the recurring aspects of 1995 and 1994 operations.
1995 1994
Net income, as reported $75.3 $68.2
Less: increase in net income from
reversal of coal contract penalty (-) (5.3)
Add: decrease in net income from cost
associated with early retirement and
severance programs (-) 8.2
----- -----
Net income before non-recurring items $75.3 $71.1
===== =====
The increase in the "net income before non-recurring items"
primarily reflects higher electric and gas margins, resulting from an
increase in weather related sales, and aggressive cost management:
<TABLE>
Electric Operations
<CAPTION>
Revenues and Costs (In kWhs Sold Customers at
Thousands) % Change (In Thousands) % Change End of Year % Change
1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and Farm $199,850 $194,242 3% 2,937,825 2,776,895 6% 329,643 322,924 2%
Industrial 140,562 140,487 0% 3,872,520 3,764,953 3% 795 776 2%
Commercial 102,129 101,382 1% 1,773,406 1,688,349 5% 44,730 43,793 2%
Wholesale and Class A 97,350 86,400 13% 3,109,385 2,574,121 21% 48 42 14%
Other 6,433 9,236 (30%) 54,042 54,518 (1%) 1,294 1,256 3%
------- ------- ---------- ---------- ------- -------
Total 546,324 531,747 3% 11,747,178 10,858,836 8% 376,510 368,791 2%
======= ======= === ========== ========== === ======= ======= ===
Electric Production
Fuels 116,488 123,469 (6%)
Purchased Power 44,015 37,913 16%
Margin $385,821 $370,365 4%
======= ======= ===
</TABLE>
Electric margin increased 4 percent during 1995 compared with 1994
primarily due to higher sales combined with reduced aggregate costs per
kWh for electric production fuels and purchased power. Kilowatthour sales
increased 8 percent due to a much warmer summer than normal, increased
sales to other utilities, a 2 percent growth in customers, and continued
economic strength in the service territory. Partially offsetting these
sales increases was a 2.8 percent decrease in retail electric rates
effective January 1, 1995.
A record setting heat wave resulted in WP&L setting a system peak of
2,197 megawatts on July 31, 1995. This reflects a 9.7 percent increase
over the previous record system peak of 2,002 megawatts set in 1994.
While overall kWh sales increased, the aggregate costs of electric
production fuels and purchased power remained relatively unchanged. The
stability of these costs reflects lower coal and transportation costs at
the Company's generating units in 1995 as well as the availability of
attractive purchased power opportunities in the bulk power market.
<TABLE>
Gas Operations
<CAPTION>
Revenues and Costs Therms Sold Customers at
(In Thousands) % Change (In Thousands) % Change End of Year % Change
1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and $70,382 $71,555 (2%) 126,903 119,562 6% 129,576 124,938 4%
Firm 39,456 41,918 (6%) 91,316 87,487 4% 15,976 15,531 3%
Interruptible 3,708 8,777 (58%) 12,148 24,809 (51%) 257 272 (6%)
Transport. and
Other 25,619 29,681 (14%) 169,121 142,252 19% 284 240 18%
------- ------- ------- ------- ------- -------
Total 139,165 151,931 (8%) 399,488 374,110 7% 146,093 140,981 4%
======= ======= ==== ====== ======= === ======= ======= ===
Purchased Gas 84,002 100,942 (17%)
------ -------
Margin 55,163 50,989 8%
====== ====== ===
</TABLE>
Gas margin increased 8 percent during 1995 compared with 1994
primarily as a result higher sales volumes and favorable gas procurement
strategies. Therm sales increased 7 percent principally due to
residential customer growth reflecting the favorable economic conditions
in the Company's service territory and colder than normal weather in the
fourth quarter, offsetting a mild January and February. The 8 percent
decrease in gas revenues was the result of a pass through to customers of
the lower cost of purchased gas. Under the current rate structure, future
reductions in revenues resulting solely from such pass through would not
be expected to have a material impact on earnings. The gas incentive
program authorized by the Public Service Commission of Wisconsin ("PSCW")
also resulted in additional pre-tax earnings of $750,000 in 1995.
Operating Expenses
The decline in operations expense principally reflects the impact of
a $13.7 million charge for early retirement and severance costs in 1994.
While the Company was able to achieve savings in 1995 from its continued
reengineering of operations, these savings were offset somewhat by higher
conservation expenses. The increase in depreciation expense in 1995 is
primarily the result of property additions at the utility and higher
contributions to WP&L's external nuclear decommissioning trust. Despite
higher operating income in 1995, the income tax expense was unchanged due
to prior years' tax adjustments resolved in 1995.
Other Income And Deductions
Other income and deductions in 1994 includes after-tax income of
$5.3 million related to the reversal of a coal contract penalty as
discussed in the "Other Events" section of the MD&A. In addition, income
associated with the allowance for funds used during construction ("AFUDC")
decreased in 1995 due to significantly lower construction work in progress
amounts and a lower Federal Energy Regulatory Commission ("FERC") AFUDC
rate.
Interest Expense
Interest expense increased due to the higher levels of short-term
debt and higher short-term interest rates. During the second quarter of
1995, WP&L repurchased $18 million of its Series V bonds from private
investors. WP&L applied revenue neutral treatment to these reacquired
bonds which are anticipated to be refinanced in 1996.
1994 COMPARED WITH 1993
OVERVIEW
Net income of WP&L increased to $68.2 million in 1994 compared with
$60.2 million in 1993. Net income for 1994 was significantly affected by
two non-recurring items. These items were the reversal of a coal contract
penalty, and costs associated with early retirement and severance
programs which primarily occurred in the fourth quarter. The reversal of
the coal contract penalty is discussed in the "Other Events" section of
the MD&A. The following break out (dollars in millions) presents the
recurring aspects of 1994 and 1993 operations.
1994 1993
Net Income, as reported $68.2 $60.2
Less: increase in net income from
reversal of coal contract penalty (5.3) (-)
Add: decrease in net income from costs
associated with early retirement and
severance programs 8.2 1.1
---- ----
Net Income before non-recurring items $71.1 $61.3
==== ====
The increase in the "net income before non-recurring items" primarily
reflects an increase in operating earnings.
<TABLE>
Electric Operations
<CAPTION>
Revenues and Cost % kWh Sold % Customers at %
(In Thousands) Change (in Thousands) Change End of Year Change
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and Farm $194,242 $184,176 5% 2,776,895 2,751,363 1% 322,924 316,870 2%
Industrial 140,487 132,903 6% 3,764,953 3,540,082 6% 776 714 9%
Commercial 101,382 95,977 6% 1,688,349 1,629,911 4% 43,793 42,884 2%
Wholesale and Class A 86,400 78,955 9% 2,574,121 2,388,131 8% 42 39 8%
Other 9,236 11,176 (17%) 54,518 51,073 7% 1,256 1,236 2%
------- ------- ---------- ---------- ------- -------
Total 531,747 503,187 6% 10,858,836 10,360,560 5% 368,791 361,743 2%
======= ======= ==== ========== ========== ==== ======= ======= ===
Electric production
fuels 123,469 123,919 0%
Purchased Power 37,913 28,574 33%
------- ------- ----
Margin $370,365 $350,694 6%
======== ======== ====
</TABLE>
WP&L's electric margin increased 6 percent during 1994
compared to 1993. The primary factor was a 3.8 percent retail rate
increase effective October 1, 1993. Strong economic conditions in the
industrial and commercial customer classes and residential customer growth
contributed to higher sales. Electric production fuel costs were
reasonably stable for 1994. The volume of purchased power increased as a
result of WP&L's efforts to conserve coal inventories during a rail strike
in the third quarter of 1994. The financial impact on WP&L's operating
results was not material.
<TABLE>
Gas Operations
<CAPTION>
Revenues and Costs % Therms Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Year Change
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and Farm $71,555 $71,632 0% 119,562 120,005 0%-100% 124,938 120,829 3%
Firm 41,918 40,748 3% 87,487 87,038 1% 15,531 15,088 3%
Interruptible 8,777 11,247 (22%) 24,809 27,872 (11%) 272 261 4%
Transport. and Other 29,681 13,643 118% 142,252 84,877 68% 240 85 182%
------- ------- ------- ------- ------- -------
Total 151,931 137,270 11% 374,110 319,792 17% 140,981 136,263 3%
======= ======= ==== ======= ======= === ======= ======= ===
Purchased Gas 100,942 90,505 12%
------- ------ ----
Margin $50,989 $46,765 9%
======= ====== ===
</TABLE>
Gas margin increased 9 percent in 1994 from 1993 primarily due to a
1.4 percent retail rate increase effective October 1, 1993, and higher
sales to firm service customers. The overall cost of purchased gas
declined reflecting WP&L's effective use of opportunities on the gas spot
market.
Operating Expenses
Other operation expense increase primarily due to several early
retirement and severance programs offered in 1994. The increase in
depreciation expense in 1995 is primarily the result of increased property
additions at the utility and higher contributions to the Company's
external nuclear decommissioning trust. Income taxes increased between
years primarily due to higher taxable income. Partially offsetting these
costs were reductions in operating costs resulting from the ongoing
reengineering of processes. Maintenance expense decreased between years
due to variation in the timing and extent of maintenance on generating
facilities between years. Secondarily, a severe storm in the summer of
1993 increased 1993's maintenance expense related to service restoration.
Other Income and (Deductions)
Other income increased resulting from the reversal of a coal
contract penalty which is discussed in the "Other Events" section of the
MD&A.
Interest Expense
Interest expense decreased primarily due to the lower short-term
debt interest.
LIQUIDITY AND CAPITAL RESOURCES
During 1995 and 1994 the Company generated sufficient cash flows
from operations and short-term borrowings to cover operating expenses,
cash dividends, and investment activities. In 1993, cash flows from
operations covered a portion of investing activities, the remainder was
generated through the issuance of common stock and long and short-term
debt. Cash flows from operations increased to $196 million in 1995
compared with $187 million and $153 million in 1994 and 1993,
respectively.
Rates and Regulatory Matters
Effective January 1, 1995, for the two-year period ended December
31, 1996, the PSCW in rate order UR-109, authorized a 2.8 percent annual
decrease in electric rates, a .5 percent annual increase in gas rates and
a decline in the allowed return on common equity to 11.5 percent from the
previous 11.6 percent. None of these events is expected to have a
material impact on earnings. Further, the PSCW approved certain incentive
programs described below:
1. The retail electric fuel adjustment mechanism, which allowed costs
to fluctuate within a 3 percent band width, was eliminated. The
elimination of the adjustment mechanism did not have a material effect on
1995 earnings and is not expected to materially impact 1996 results.
2. The automatic purchased gas adjustment clause was also eliminated.
The fluctuations in the commodity cost of gas above or below a prescribed
commodity price index will serve to 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 1995,
WP&L earned $750,000 pre-tax under this incentive mechanism. The
customers' share of this program is $1.1 million pre-tax which will be
refunded to customers in April 1996. The refund has been fully reserved
in the 1995 financial results. The Company uses gas commodity swaps to
hedge the price risks associated with the purchase and sale of stored gas.
3. In order to promote air quality and delivery system reliability,
there are SO2 emissions and service reliability incentive clauses.
Positive incentives available under these clauses include $1.5 million
pre-tax for the SO2 emissions and $.5 million pre-tax for the service
reliability. WP&L's earnings are also negatively exposed for equal
amounts. For calendar year 1995, WP&L collected $2.0 million pre-tax in
revenues and also deferred $2.1 million pre-tax in revenues. WP&L plans
to refund this amount to customers in April 1996, resulting in no
material impact on 1995 revenues.
Industry Outlook
WP&L is subject to regulation by the PSCW and the FERC. The
stated goal of the PSCW in its 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 utility 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. The Company cannot currently
predict what impact, if any, these proceedings may have on its future
financial condition or results of operations. The Company believes,
however, that it is well positioned to compete in a deregulated
environment. WP&L's rates to all customer classes are competitive
within the state of Wisconsin and below the average in the Midwest region.
The FERC is developing regulation which will begin to provide
open access to utility transmission facilities for wholesale electric
customers subject to certain approved FERC tariffs. WP&L believes its
existing open access tariffs position it well to compete under such market
conditions.
Financing and Capital Structure
The level of short-term borrowings fluctuates based 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. WP&L periodically reduces its
outstanding short-term borrowings through the issuance of long-term debt
and through WPL Holdings, Inc.'s additional investment in its common
equity. To maintain flexibility in its capital structure and to take
advantage of favorable short-term rates, WP&L also uses proceeds from the
sales of accounts receivable and unbilled revenues to finance a portion of
its long-term cash needs. The Company also anticipates that short-term
debt funds will continue to be available at reasonable costs due to strong
ratings by independent utility analysts and rating services. Commercial
paper has been rated A-1+ by Standard & Poor's Corp. and P-1 by Moody's
Investors Service. Bank lines of credit of $70 million at December 31,
1995, are available to support these borrowings.
The Company has only limited involvement with derivative
financial instruments and does not use them for trading purposes. They are
used to manage well-defined interest rate and gas commodity price risks.
The Company enters into interest rate swap agreements to reduce the impact
of changes in interest rates on its floating-rate long-term debt, short-
term debt and the sales of its accounts receivable. The total notional
amount of interest rate swaps was $123 million and $150 million,
respectively, for the years ended December 31, 1995 and 1994. The Company
uses gas commodity swaps to hedge the price risks associated with the
purchase and sale of stored gas.
The Company's capitalization at December 31, 1995, including the
current maturities of long-term debt, variable rate demand bonds and
short-term debt, consisted of 53 percent common equity, 6 percent
preferred stock and 41 percent debt. The common equity to total
capitalization ratio at December 31, 1995, increased to 53 percent from 52
percent at December 31, 1994.
In accordance with the terms of the Merger Agreement (See "Other
Events" section of the MD&A.), WPLH may not declare or pay any dividends
on any of its capital stock other than the obligations that exist with
respect to cumulative preferred stock, and regular quarterly dividends on
common stock may not to exceed 105 percent of the common stock dividends
from the prior year.
The retail rate order received effective January 1, 1995,
requires WP&L to maintain a utility common equity level of 51.93 percent
of total utility capitalization during the two-year period ending December
31, 1996. In addition, the PSCW ordered that it must approve the payment
of dividends by WP&L to WPLH that are in excess of the level forecasted
for 1995 ($58.1 million), if such dividends would reduce WP&L's average
common equity ratio below 51.93 percent. At December 31, 1995, WP&L's
common equity ratio was 52.6 percent.
Capital Requirements
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.
Additions to utility plant decreased in 1995 by $29.6 million and in 1994
by $25.9 million primarily due to the completion of two 86-megawatt
combustion-turbine generators in 1994. Estimated capital requirements for
the next five years are as follows:
<TABLE>
<CAPTION>
Capital Requirements
1996 1997 1998 1999 2000
(in millions)
<S> <C> <C> <C> <C> <C>
Construction expenditures
Electric $81.5 $79.5 $75.3 $77.9 $72.0
Gas, water and common 41.7 38.9 31.1 31.4 32.1
Nuclear fuel 8.3 10.0 8.2 9.7 13.7
Decommissioning fund 15.4 16.3 17.2 18.3 18.7
AFUDC 2.5 2.2 1.3 1.4 1.4
----- ----- ----- ----- -----
Total construction
expenditures 149.4 146.9 133.1 138.7 137.9
Changes in working
capital and other (8.3) 7.1 (16.3) 0.2 (6.1)
----- ----- ----- ----- -----
Total construction and
operating capital 141.1 154.0 116.8 138.9 131.8
Long-term debt maturities -- 55.0 8.9 -- 1.9
Manufactured gas plant
remediation 6.8 11.4 8.6 0.6 0.6
------ ----- ----- ----- -----
Total capital
requirements $147.9 $220.4 $134.3 $139.5 $134.3
===== ===== ====== ====== ======
</TABLE>
Included in the construction expenditure estimates, in addition to the
recurring additions and improvements to the distribution and transmission
systems, are the following: 1) expenditures for managing and controlling
electric line losses and for the electric delivery system to enhance
WP&L's interconnection capability with other utilities; 2) expenditures
related to upgrading computer systems to improve productivity and customer
service; and 3) expenditures associated with the construction of an
86-megawatt combustion-turbine generator expected to become operational in
1996. The decommissioning expenditures represent both the amount of
annual contribution to external trust funds and the income earned on the
external trust funds. These amounts are recorded in depreciation expense
and recovered in rates. WP&L expects to contribute $10.7 million annually
to this fund.
The steam generator tubes at Kewaunee are susceptible to corrosion
characteristics seen throughout the nuclear industry. During the first
quarter of 1995, Kewaunee was shutdown for scheduled maintenance and
refueling. Inspection of the steam generators revealed increased levels
of tube degeneration. Prior to shutdown the equivalent of approximately
12 percent of the tubes in the steam generators were plugged, with no loss
of capacity. When the plant was returned to service in May 1995
approximately 21 percent of the tubes were plugged.
As a result of the need to address the repair or replacement of the
steam generators, the owners of Kewaunee have been, and are continuing to,
evaluate various alternatives to deal with the loss of capacity resulting
from the continuing degradation of the steam generator tubes. As part of
this evaluation the owners have:
(a) submitted a request to the NRC to redefine the pressure boundary
point of the repaired steam generator tubes (sleeved tubes) which
have been removed from service by plugging, in order to allow the
return of many of the sleeved tubes to service. If the request
is granted, even if additional degraded tubes would be discovered
during the next planned shutdown in the fall of 1996, the
requested redefinition of the pressure boundary point should
allow the plant to return to full output. Testing of three tubes
removed during the 1995 refueling outage indicates structural
soundness equal to the original tube strength. Management
believes the request will be granted by the NRC;
(b) requested approval from the NRC to pursue welded repair
technologies to return plugged tubes to service. Although welded
tube repair technologies exist, the technology is not presently
approved by the NRC; and
(c) continued 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.
The owners continue to evaluate the potential financial and
regulatory implications of a change in ownership (which would likely
require, as a condition precedent, authority to replace the steam
generator) or early shutdown of Kewaunee. WP&L believes that the best
near term economic alternative for the owners of Kewaunee 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. On December 31,
1995, the net book value of WP&L's share of Kewaunee was $57.0 million.
Physical decommissioning of Kewaunee is expected to occur during the
period 2014 to 2021 with additional expenditures being incurred during the
period 2022 to 2050 related to the storage of spent nuclear fuel at the
site. The undiscounted amount of decommissioning costs estimated to be
expended between the years 2014 and 2050 is $1,016 million. Wisconsin
utilities operating nuclear generating plants are required by the PSCW to
establish external trust funds to provide for the decommissioning of such
plants. WP&L's share of the decommissioning costs is estimated to be $169
million in 1995 dollars, assuming the plant is operating through 2013,
based on a 1992 site-specific study, using the immediate dismantlement
method of decommissioning. The market value of the investments in the
funds established by WP&L at December 31, 1995, totaled $73.4 million.
Capital Resources
One of the Company's objectives is to finance construction
expenditures through internally generated funds supplemented, when
required, by outside financing. With this objective in place, the Company
has financed an average of 68 percent of its construction expenditures
during the past five years from internal sources. However, during the
next five years, the Company expects this percentage to increase primarily
due to relatively stable level of construction expenditures and higher
depreciation rates beginning in 1997. External financing sources such as
the issuance of long-term debt, short-term borrowings and equity
contributions from its parent, WPL Holdings, Inc. will be used by the
Company to finance the remaining construction expenditure requirements for
this period. Expectations are that approximately $60 million of long-term
debt will be issued in 1996.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation Plans" which establishes
standards of financial accounting and reporting for stock based
compensation plans. As allowed under SFAS No. 123, WP&L will continue to
apply APB No. 25, "Accounting for Stock Issued to Employees," in
accounting for stock based compensation plans when the statement becomes
effective in 1996. As a result, this statement will have no impact on the
financial position or results of operations of WP&L.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
This statement imposes stricter criteria for evaluating the recoverability
of regulatory assets. WP&L adopted this standard on January 1, 1996, and
does not expect that adoption will have a material impact on the financial
position or results of operations of the Company. This conclusion may
change in the future as competitive factors influence wholesale and retail
pricing in the utility.
INFLATION
The impacts of inflation on WP&L are currently mitigated through
current ratemaking 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 EVENTS
Coal Contract Penalty
In November 1989, the PSCW concluded that WP&L did not properly
administer a coal contract, resulting in an assessment to compensate
ratepayers for excess fuel costs having been incurred. As a result, WP&L
recorded a reserve in 1989 that had an after-tax effect of reducing 1989
net income by $4.9 million. The PSCW decision was found to represent
unlawful retroactive rate-making by both the Dane County Circuit Court and
the Wisconsin Court of Appeals. The case was then appealed to the
Wisconsin Supreme Court.
In January 1994, the Wisconsin Supreme Court affirmed the
decisions of the Dane County Circuit Court and Wisconsin Court of Appeals.
In management's opinion, all avenues for appeal have been exhausted. As a
result, WP&L reversed the entire reserve and was also allowed to collect
interest on amounts of the penalty previously refunded to ratepayers. The
reversal of the reserve plus interest had an after-tax affect of
increasing net income in 1994 by $5.3 million.
Merger Proposal
WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES"), and
Interstate Power Company ("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, has been approved by the
respective Board of Directors. It is still subject to approval by the
shareholders of each company as well as several federal and state
regulatory agencies. The companies expect to receive the shareholder
approvals in the second quarter of 1996 and regulatory approvals by the
second quarter of 1997. The corporate headquarters of Interstate Energy
will be in Madison.
The business of Interstate Energy will consist of utility
operations and various non-utility enterprises, and it is expected that
its utility subsidiaries will serve more than 870,000 electric customers
and 360,000 natural gas customers in Iowa, Illinois, Minnesota and
Wisconsin.
The operating revenues, net income from continuing operations
and total assets of the companies were as follows:
PRO FORMA
COMBINED
WPLH IES IPC (Unaudited)
(in thousands)
1995 Operating revenues $807,255 $851,010 $318,542 $1,976,807
1995 Net income from
continued operations $71,618 $64,176 $25,198 $160,992
Assets at December 31,
1995 $1,872,414 $1,985,591 $634,316 $4,492,321
Under the terms of the Merger Agreement, the outstanding shares
of WPLH's common stock will remain unchanged and outstanding as shares of
Interstate Energy. Each outstanding share of IES common stock will be
converted to .98 shares of Interstate Energy's common stock. Each share
of IPC's common stock will be converted to 1.11 shares of Interstate
Energy's common stock. It is anticipated that Interstate Energy will
retain WPLH's common share dividend payment level as of the effective time
of the merger. On January 24, 1996, the Board of Directors of WPL
Holdings, Inc. declared a quarterly dividend of 49.25 cents. This
represents an equivalent annual rate of $1.97 per share.
Interstate Energy will be the parent company of Wisconsin Power
and Light Company, IES Utilities and IPC and will be registered under the
Public Utility Holding Company Act of 1935, as amended ("1935 Act"). The
Merger Agreement provides that these operating utility companies will
continue to operate as separate entities for a minimum of three years
beyond the effective date of the merger. In addition, the non-utility
operations of WPLH and IES Diversified will be combined shortly after the
effective date of the merger under one entity to manage the diversified
operations of Interstate Energy.
The SEC historically has interpreted the 1935 Act to preclude
registered holding companies, with limited exceptions, from owning both
electric and gas utility systems. Although the SEC has recently
recommended that registered holding companies be allowed to hold both gas
and electric utility operations if the affected states agree, it remains
possible that the SEC may require as a condition to its approval of the
Proposed Merger that WPLH, IES and IPC divest their gas utility
properties, and possibly certain non-utility ventures of WPLH and IES,
within a reasonable time after the effective date of the Proposed Merger.
Legislation to repeal the 1935 Act was introduced in Congress in
1995 and is pending. No assurance can be given as to when or if such
legislation will be considered or enacted. The Staff of the SEC has also
recommended that the SEC "permit combination systems by registered holding
companies if the affected states concur," and the SEC has proposed rules
that would relax current restrictions on investment by registered holding
companies in certain "energy related," non-utility businesses. No
prediction can be made as to the outcome of these legislative and
regulatory proposals.
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. The contract covers 1,601 of WP&L's employees which represents
approximately 69 percent of the total employees at December 31, 1995. At
this time the results of negotiations cannot be estimated.
Environmental
WP&L cannot precisely forecast the effect of future
environmental regulations by federal, state and local authorities upon its
generating, transmission and other facilities, or its operations, but has
taken steps to anticipate the future while meeting the requirements of
current environmental regulations. The Clean Air Act Amendments of 1977
and subsequent amendments to the Clean Air Act, as well as the new laws
affecting the handling and disposal of solid and hazardous wastes, could
affect the siting, construction and operating costs of both present and
future generating units.
Under the Federal Clean Water Act, National Pollutant Discharge
Elimination System permits for generating station discharge into water
ways are required to be obtained from the Wisconsin Department of Natural
Resources ("DNR") to which the permit program has been delegated. These
permits must be periodically reviewed. WP&L has obtained such permits for
all of its generating stations or has filed timely applications for
renewals of such permits.
Air quality regulations promulgated by the DNR in accordance
with Federal standards impose statewide restrictions on the emission of
particulates, sulfur dioxide, nitrogen oxides and other air pollutants and
require permits from the DNR for the operation of emission sources. WP&L
currently has the necessary permits to operate its fossil-fueled
generating facilities. While periodic exceedances in air emissions may
occur, management promptly acts on these excursions and works with the DNR
to resolve any permit compliance issues. With the passage of the new
Federal Clean Air Act Amendments, the state is required to include these
provisions in its permit requirements. WP&L has submitted timely Title V
permit applications in compliance with schedules set forth by the
regulators. WP&L has also completed application for Phase II permits
under the Clean Air Act in compliance with the time lines identified. The
state Title V operating permits, when issued, will consolidate all
existing air permit conditions and regulatory requirements into one permit
for each facility. Permits are expected to be issued in 1996. Until such
time, the facilities will continue to operate under their existing permit
conditions.
WP&L's compliance strategy for Wisconsin's sulfur dioxide law
(discussed above) and the Federal Clean Air Act Amendments required plant
upgrades at its generating facilities. The majority of these projects
were completed in 1993. WP&L has installed continuous emission monitoring
systems at all of its coal fired boilers in compliance with federal
requirements. Monitoring for sulfur dioxide was also required by Title IV
of the Federal Clean Air Act at WP&L's South Fond du Lac combustion
turbine site. These requirements were also met. Additional monitoring
systems for nitrogen oxides are required in 1996 at the combustion-turbine
site. WP&L has installed these monitors, and will complete
certification tests for the equipment by May 1996. No significant
investments are anticipated at this time to meet the requirements of the
Federal Clean Air Act Amendments.
For a discussion of the Company's liability regarding
environmental remediation at certain manufactured gas plant sites formerly
operated by WP&L, see Note 11 of "Notes to Consolidated Financial
Statements."
Dividend Declaration
On January 24, 1996, the Board of Directors of WPL Holdings,
Inc. declared a quarterly dividend on common stock. The dividend is 49.25
cents per share payable February 15 to shareowners of record on February
2, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wisconsin Power and Light Company:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of Wisconsin Power and Light Company (a
Wisconsin corporation) and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, common shareowners'
investment and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wisconsin Power and
Light Company and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Milwaukee, Wisconsin, ARTHUR ANDERSEN LLP
January 26, 1996
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
Year Ended December 31,
1995 1994
Utility plant: (dollars in thousands)
Plant in Service--
Electric . . . . . . . . . . . . $1,681,093 $1,611,351
Gas . . . . . . . . . . . . . . 217,678 204,514
Water . . . . . . . . . . . . . 22,518 22,070
Common . . . . . . . . . . . . . 136,943 123,255
--------- ---------
2,058,232 1,961,190
Dedicated decommissioning
funds, at market . . . . . . . . 73,357 51,791
--------- ---------
2,131,589 2,012,981
Less-Accumulated provision for
depreciation . . . . . . . . . . 887,562 808,853
--------- ---------
1,244,027 1,204,128
Construction work in progress . . 36,996 42,731
Nuclear fuel, net . . . . . . . . 18,867 19,396
--------- ---------
Total utility plant . . . . . . 1,299,890 1,266,255
Other property and equipment, net . . 22,275 9,133
Investments . . . . . . . . . . . . . 12,488 12,228
Current assets:
Cash and equivalents . . . . . . . 4,671 2,234
Net accounts receivable and
unbilled revenue, less allowance
for doubtful accounts of $0 and
$209, respectively . . . . . . . 33,971 21,689
Coal, at average cost . . . . . . 14,625 15,824
Materials and supplies, at average
cost . . . . . . . . . . . . . . 20,611 20,835
Gas in storage, at average cost . 6,319 7,975
Prepayments and other . . . . . . 21,190 22,310
-------- --------
Total current assets . . . . . . 101,387 90,867
-------- --------
Deferred charges:
Regulatory assets . . . . . . . . 156,740 144,476
Other . . . . . . . . . . . . . . 48,385 62,165
-------- --------
Total deferred charges . . . . 205,125 206,641
-------- ---------
Total assets . . . . . . . $1,641,165 $1,585,124
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
Year Ended December 31,
1995 1994
(dollars in thousands)
Capitalization:
Common shareowners' investment . . . . $563,070 $544,506
Preferred stock not mandatorily
redeemable . . . . . . . . . . . . . 59,963 59,963
First mortgage bonds, net . . . . . . 318,599 336,538
------- -------
Total capitalization . . . . . . . 941,632 941,007
------- -------
Current liabilities:
Variable rate demand bonds . . . . . . 56,975 56,975
Short-term debt . . . . . . . . . . . 72,500 50,500
Accounts payable and accruals . . . . 82,428 67,518
Accrued payroll and vacation . . . . . 11,011 12,624
Accrued taxes . . . . . . . . . . . . 7,795 7,299
Accrued interest . . . . . . . . . . . 7,574 7,669
Other . . . . . . . . . . . . . . . . 22,356 12,456
------- -------
Total current liabilities . . . . 260,639 215,041
------- -------
Other credits:
Accumulated deferred income taxes . . 239,812 222,373
Accumulated deferred investment tax
credits . . . . . . . . . . . . . . . 38,842 40,758
Accrued environmental remediation
costs . . . . . . . . . . . . . . . . 76,852 79,280
Deferred credits and other . . . . . . 83,388 86,665
------- -------
438,894 429,076
------- -------
Commitments and contingencies
(Note 11)
Total capitalization and
liabilities . . . . . . . . . . $1,641,165 $1,585,124
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1995 1994 1993
(dollars in thousands)
Operating revenues:
Electric . . . . . . . . . . . . $546,324 $531,747 $503,187
Gas . . . . . . . . . . . . . . 139,165 151,931 137,270
Water . . . . . . . . . . . . . 4,183 4,133 3,927
------- ------- -------
689,672 687,811 644,384
------- ------- -------
Operating expenses:
Electric production fuels . . . 116,488 123,469 123,919
Purchased power . . . . . . . . 44,015 37,913 28,574
Purchased gas . . . . . . . . . 84,002 100,942 90,505
Other operation . . . . . . . . 137,396 148,360 139,075
Maintenance . . . . . . . . . . 42,043 41,227 44,763
Depreciation . . . . . . . . . . 81,164 73,194 61,197
Taxes--
Current federal income . . . . . 30,129 26,727 25,063
Deferred income . . . . . . . . 10,664 10,270 5,053
Investment tax credit
(restored) . . . . . . . . . . (1,916) (1,926) (1,967)
Current state income . . . . . . 7,006 6,147 6,580
Other . . . . . . . . . . . . . 28,335 27,100 26,145
------- ------- -------
579,326 593,423 548,907
------- ------- -------
Net operating income . . . . . . . 110,346 94,388 95,477
Other income and (deductions):
Allowance for equity funds used
during construction. . . . . . 1,425 3,009 2,977
Other, net . . . . . . . . . . . (238) 7,726 (2,188)
Current income tax . . . . . . . 329 (1,480) (519)
Deferred income tax . . . . . . (52) (2,029) (419)
------- ------- -------
1,464 7,226 (149)
------- ------- -------
Income before interest expense . . 111,810 101,614 95,328
------- ------- -------
Interest expense:
Interest on bonds . . . . . . . 28,647 28,796 28,422
Allowance for borrowed funds
used during construction. . . (663) (1,029) (1,053)
Other . . . . . . . . . . . . . 5,174 2,352 3,854
------- ------- -------
33,158 30,119 31,223
------- ------- -------
Net income . . . . . . . . . . . . 78,652 71,495 64,105
------- ------- -------
Preferred stock dividends . . . . . 3,310 3,310 3,928
------- ------- -------
Net income for common stock . . . . $75,342 $68,185 $60,177
====== ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1995 1994 1993
Cash flows generated from (used
for) operating activities: (dollars in thousands)
Net income . . . . . . . . . . . $78,652 $71,495 $64,105
Adjustments to reconcile net
income to net cash generated
from operating activities:
Depreciation . . . . . . . . 81,164 73,194 61,197
Deferred income taxes . . . . 10,716 12,299 5,472
Investment tax credit
restored . . . . . . . . . (1,916) (1,926) (1,967)
Amortization of nuclear
fuel . . . . . . . . . . . 7,787 6,707 7,049
Allowance for equity funds
using during construction . (1,425) (3,009) (2,977)
Changes in assets and
liabilities:
Net accounts receivable and
unbilled revenue . . . . . (12,281) 16,335 4,124
Coal . . . . . . . . . . . . 1,199 218 2,943
Materials and supplies . . . 224 884 (6)
Gas in storage . . . . . . . 1,656 779 (4,463)
Prepayments and other . . . . 1,121 (634) (383)
Accounts payable and
accruals . . . . . . . . . 13,203 (4,912) 640
Accrued taxes . . . . . . . . 496 (3,775) (538)
Other, net . . . . . . . . . 15,674 19,102 18,004
------- ------- -------
Net cash generated from
operating activities . . . 196,270 186,757 153,200
------- ------- -------
Cash flows generated from (used
for) financing activities:
Common stock cash dividends . (56,778) (55,911) (54,327)
Retirement of first mortgage
bonds . . . . . . . . . . . (18,000) --- ---
Issuance of preferred stock . --- --- 29,986
Redemption of preferred stock --- --- (29,986)
Preferred stock issuance
expense . . . . . . . . . . --- --- (1,083)
Preferred stock dividends . . (3,310) (3,310) (3,928)
Net change in short-term debt 22,000 (8,500) 8,000
Current bond maturities and
sinking fund requirements . --- --- (100)
Equity contribution from
parent . . . . . . . . . . --- 9,649 61,399
------- ------- -------
Net cash (used for)
generated from financing
activities . . . . . . . . (56,088) (58,072) 9,961
------- ------- -------
Cash flows generated from (used
for) investing activities:
Additions to utility plant,
excluding AFUDC . . . . . . (97,938) (123,959) (149,333)
Allowance for borrowed funds
used during construction . (663) (1,029) (1,053)
Dedicated decommissioning
funds . . . . . . . . . . . (21,566) (1,988) (9,426)
Other, net . . . . . . . . . . (17,578) (5,405) 2,200
-------- -------- --------
Net cash used for investing
activities . . . . . . . (137,745) (132,381) (157,612)
-------- -------- --------
Net increase (decrease) in cash
and equivalents . . . . . . . . 2,437 (3,696) 5,549
Cash and equivalents at beginning
of year . . . . . . . . . . . . 2,234 5,930 381
----- ----- -----
Cash and equivalents at end of
year . . . . . . . . . . . . . . $4,671 $2,234 $5,930
===== ===== =====
Supplemental disclosures of cash
flow information:
Cash paid during the year
for:
Interest on debt . . . . $30,841 $30,156 $32,246
Income taxes . . . . . . $37,968 $29,642 $32,465
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
Year Ended December 31,
1995 1994
Common shareowners investment: (dollars in thousands)
Common stock, $5 par value, authorized
- 18,000,000 shares; issued and
outstanding - 13,236,601 shares . . $66,183 $66,183
Premium on capital stock . . . . . . . 197,423 197,423
Capital surplus . . . . . . . . . . . . 1,747 1,747
Reinvested earnings . . . . . . . . . . 297,717 279,153
------- -------
Total common shareowner's
investment . . . . . . . . . . . . 563,070 544,506
Preferred stock not mandatorily
redeemable:
Cumulative, without par value, $100
stated value, authorized 3,750,000
shares, maximum aggregate stated
value $150,000,000;
4.50% series, 99,970 shares
outstanding . . . . . . . . . . . 9,997 9,997
4.80% series, 74,912 shares
outstanding . . . . . . . . . . 7,491 7,491
4.96% series, 64,979 shares
outstanding . . . . . . . . . . . 6,498 6,498
4.40% series, 29,957 shares
outstanding . . . . . . . . . . . 2,996 2,996
4.76% series, 29,947 shares
outstanding . . . . . . . . . . . 2,995 2,995
6.20% series, 150,000 shares
outstanding . . . . . . . . . . . 15,000 15,000
Cumulative, without par value, $25
stated value, 6.50% series, 599,460
shares outstanding . . . . . . . 14,986 14,986
------- -------
Total preferred stock . . . . 59,963 59,963
First mortgage bonds:
Series L, 6.25%, due 1998 . . . . . . 8,899 8,899
1984 Series A, variable rate, due
2014 (5.25% at 12/ 31/95) . . . . . 8,500 8,500
1988 Series A, variable rate, due
2015 (5.15% at 12/31/95) . . . . . 14,600 14,600
1990 Series V, 9.3%, due 2025 . . . 32,000 50,000
1991 Series A, variable rate, due
2015 (6.10% at 12/31/95) . . . . . 16,000 16,000
1991 Series B, variable rate, due
2005 (6.10% at 12/ 31/95) . . . . . 16,000 16,000
1991 Series C, variable rate, due
2000 (6.10% at 12/ 31/95) . . . . . 1,000 1,000
1991 Series D, variable rate, due
2000 (6.10% at 12/ 31/95) . . . . . 875 875
1992 Series W, 8.6%, due 2027 . . . . 90,000 90,000
1992 Series X, 7.75%, due 2004 . . . 62,000 62,000
1992 Series Y, 7.6%, due 2005 . . . . 72,000 72,000
1992 Series Z, 6.125%, due 1997 . . . 55,000 55,000
-------- --------
Total first mortgage bonds . 376,874 394,874
Less:
Variable rate demand bonds . . . . . (56,975) (56,975)
Unamortized discount . . . . . . . . (1,300) (1,361)
------- -------
Total first mortgage bonds, net 318,599 336,538
------- -------
Total capitalization . . . . . . . . . . $941,632 $941,007
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF
COMMON SHAREOWNER'S INVESTMENT
Year Ended December 31,
1995 1994 1993
(dollars in thousands)
Common stock:
Balance at beginning and end
of year . . . . . . . . . . $66,183 $66,183 $66,183
Premium on capital stock:
Balance at beginning of year . 197,423 187,774 126,374
Equity contribution from
parent . . . . . . . . . . --- 9,649 61,399
------- ------- --------
Balance at end of year . . . . 197,423 197,423 187,773
Capital surplus:
Balance at beginning and end
of year . . . . . . . . . . 1,747 1,747 1,747
Reinvested earnings:
Balance at beginning of year . 279,153 267,000 262,233
Add - Income before preferred
dividends . . . . . . . . . 78,652 71,494 64,105
Deduct -
Cash dividends on
preferred stock . . . . . . (3,310) (3,310) (3,928)
Cash dividends to parent
on common stock . . . . . . (56,778) (55,911) (54,327)
Preferred stock issuance
expense . . . . . . . . . . --- --- (1,083)
Other . . . . . . . . . . . . --- (120) ---
------- ------- -------
Balance at end of year . . . 297,717 279,153 267,000
Total common shareowner's
investment . . . . . . . . . . . $563,070 $544,506 $522,703
======== ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands except as otherwise indicated)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES:
a. Business and Consolidation:
Wisconsin Power and Light Company ("WP&L" or the "Company") is a
subsidiary of WPL Holdings, Inc. ("WPLH").
WP&L is a public utility predominantly engaged in the transmission
and distribution of electric energy and the generation and bulk purchase
of electric energy for sale. WP&L also transports, distributes and sells
natural gas purchased from gas suppliers. Nearly all of WP&L's retail
customers are located in south and central Wisconsin. WP&L's principal
consolidated subsidiary is South Beloit Water, Gas and Electric Company.
Certain amounts from prior years have been reclassified to conform with
the current year presentation.
b. Regulation:
WP&L's financial records are maintained in accordance with the
uniform system of accounts prescribed by its regulators. The Public
Service Commission of Wisconsin ("PSCW") and the Illinois Commerce
Commission have jurisdiction over retail rates, which represent
approximately 82 percent of electric revenues plus all gas revenues. The
Federal Energy Regulatory Commission ("FERC") has jurisdiction over
wholesale electric rates representing the balance of electric revenues.
Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting
for the Effects of Certain Types of Regulation" provides that rate-
regulated public utilities such as WP&L record certain costs and credits
allowed in the ratemaking process in different periods than for
unregulated entities. These are deferred as regulatory assets or
regulatory liabilities and are recognized in the Consolidated Statements
of Income at the time they are reflected in rates.
c. Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results will, in most cases,
differ from those estimates.
d. Utility Plant and Other Property and Equipment:
Utility plant and other property and equipment are recorded at
original cost and cost, respectively. Utility plant costs include
financing costs that are capitalized using the FERC method for allowance
for funds used during construction ("AFUDC"). The AFUDC capitalization
rate for 1995 was 6.68 percent. These capitalized costs are recovered in
rates as the cost of the utility plant is depreciated.
Normal repairs, maintenance and minor items of utility plant and
other property and equipment are expensed. Ordinary utility plant
retirements, including removal costs less salvage value, are charged to
accumulated depreciation upon removal from utility plant accounts, and no
gain or loss is recognized. Upon retirement or sale of other property and
equipment, the cost and related accumulated depreciation are removed from
the accounts and any gain or loss is included in other income and
deductions.
e. Depreciation:
The Company uses the straight-line method of depreciation. For
utility plant, straight-line depreciation is computed on the average
balance of depreciable property at individual straight-line PSCW approved
rates that consider the estimated useful life and removal cost or salvage
value as follows:
Electric Gas Water Common
1995 3.3% 3.7% 2.5% 7.9%
1994 3.2% 3.7% 2.5% 7.2%
1993 3.2% 3.7% 2.5% 7.3%
Depreciation expense related to WP&L's share of the
decommissioning of the Kewaunee Nuclear Power Plant is discussed in "Note
11 Commitments and Contingencies." WP&L has filed a depreciation rate
case with the PSCW requesting higher depreciation rates, which if
approved, will be effective in 1997.
Estimated useful lives related to other property and equipment are
from 3 to 12 years for equipment and 31.5 to 40 years for buildings.
f. Nuclear Fuel:
Nuclear fuel is recorded at its original cost and is amortized to
expense based upon the quantity of heat produced for the generation of
electricity. This accumulated amortization assumes spent nuclear fuel
will have no residual value. Estimated future disposal costs of such fuel
are expensed based on kilowatthours generated.
g. Revenue:
WP&L accrues utility revenues for services provided but not yet
billed.
h. Electric Production Fuels and Purchased Gas:
(1) Electric Production Fuels:
Through 1994, the PSCW retail electric rates provided a range from
which actual fuel costs could vary in relation to costs forecasted
and used in rates. If actual fuel costs fell outside this range, a
hearing could be held to determine if a rate change was necessary,
and a rate increase or decrease could result.
Beginning with WP&L's latest rate order UR-109, effective January
1, 1995, the automatic fuel adjustment clause was eliminated. In
its absence, WP&L will benefit from reductions in fuel cost.
Conversely, WP&L will be exposed to increases in fuel costs.
An automatic fuel adjustment clause for the FERC wholesale portion
of WP&L's electric business and South Beloit's retail rates
operates to increase or decrease monthly rates based on changes in
fuel costs.
(2) Purchased Gas:
Through 1994, WP&L's base gas cost recovery rates permitted the
recovery of, or refund to, all customers for any increases or
decreases in the cost of gas purchased from WP&L's suppliers
through a monthly purchased gas adjustment clause.
Beginning with UR-109, the monthly purchased gas adjustment clause
was also eliminated. Thus, the fluctuations in the commodity cost
of gas above or below a prescribed commodity price index will serve
to increase or decrease WP&L's margin on gas sales. Fixed demand
costs are excluded from the incentive program. Both benefits and
exposures are subject to customer sharing provisions. WP&L's share
is capped at $1.1 million pre-tax.
i. Cash and Equivalents:
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. The
carrying amount approximates fair value because of the short maturity of
these items.
j. Income Taxes:
Under the terms of an agreement with WPLH, the Company calculates
its federal tax provisions and makes payments to WPLH as if it were a
separate taxable entity.
Beginning in 1993, WP&L fully provides deferred income taxes in
accordance with SFAS No.109, "Accounting for Income Taxes", to reflect tax
effects of reporting book and tax items in different periods. Investment
tax credits are accounted for on a deferred basis and reflected in income
ratably over the life of related property.
NOTE 2. JOINTLY OWNED UTILITY PLANTS:
WP&L participates with other Wisconsin utilities in the construction
and operation of several jointly owned utility generating plants. The
chart below represents WP&L's proportionate share of such plants as
reflected in the Consolidated Balance Sheets at December 31, 1995 and
1994.
<TABLE>
<CAPTION>
1995 1994
Plant Accumulated Plant Accumulated
Ownership Inservice Plant MW in Provision for In Provision for
Interest % Date Capacity Service Depreciation CWIP Service Depreciation CWIP
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal:
Columbia Energy
Center 46.2 1975 & 1978 1,023 $160,348 $79,521 $881 $159,650 $78,573 $1,484
Edgewater Unit 4 68.2 1969 330 50,762 26,759 216 50,206 25,394 181
Edgewater Unit 5 75.0 1985 380 229,429 68,515 0 225,336 63,324 26
Nuclear:
Kewaunee Nuclear
Power Plant 41.0 1974 535 132,211 76,096 836 132,726 72,367 452
-------- -------- -------- -------- ------- -------
Total $572,750 $250,891 $1,933 $567,918 $239,658 $2,143
======= ======= ======= ======= ======= ======
</TABLE>
Each of the respective joint owners finances its portion of
construction costs. WP&L's share of operation and maintenance expenses is
included in the Consolidated Statements of Income.
NOTE 3. NET ACCOUNTS RECEIVABLE:
WP&L has a contract with a financial organization to sell, with
limited recourse, certain accounts receivable and unbilled revenues.
These receivables include customer receivables, sales to other public
utilities and billings to the co-owners of the jointly owned electric
generating plants that WP&L operates.
The contract allows WP&L to sell up to $150 million of receivables at
any time. Expenses related to the sale of receivables are paid to the
financial organization under this contract and include, along with various
other fees, a monthly discount charge on the outstanding balance of
receivables sold that approximated a 5.94 percent annual rate during 1995.
These costs are recovered in retail utility rates as an operating expense.
All billing and collection functions remain the responsibility of WP&L.
The contract expires August 16, 1998, unless extended by mutual agreement.
As of December 31, 1995 and 1994, the balance of sold accounts
receivable that had not been collected totaled $79.5 million and $76.5
million, respectively. During 1995, the monthly proceeds from the sale of
accounts receivable averaged $77.5 million, compared with $82.3 million in
1994.
The Company does not have any significant concentrations of
credit risk in the December 31, 1995 and 1994 net accounts receivable
balances.
NOTE 4. REGULATORY ASSETS AND REGULATORY LIABILITIES:
Certain costs and credits are deferred and amortized in
accordance with authorized or expected ratemaking treatment. As of
December 31, 1995 and 1994, regulatory created assets include the
following:
1995 1994
Environmental remediation costs $81,431 $ 82,179
Tax related (See note 6) 47,837 43,736
Jurisdictional plant differences 7,517 7,173
Decontamination and decommissioning
costs of federal enrichment
facilities 6,555 7,100
Other 13,400 4,288
------- -------
$156,740 $144,476
======== ========
The PSCW, in rate case UR-108, ordered the recovery of
environmental remediation costs incurred be deferred and amortized over a
five-year period with no recovery of the carrying costs on the
unamortized balance.
As of December 31, 1995 and 1994, WP&L had recorded regulatory
related liabilities of $37,898 and $42,803, respectively. These
liabilities are primarily tax related.
In March 1995, the Financial Accounting Standards Board issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." This statement imposes stricter
criteria for regulatory assets by requiring that such assets be probable
of future recovery at each balance sheet date. The Company adopted this
standard on January 1, 1996, and does not expect that adoption will have a
material impact on the financial position or results of operations of the
Company based on the current regulatory structure in which the Company
operates. This conclusion may change in the future as competitive factors
influence wholesale and retail pricing in this industry.
NOTE 5. EMPLOYEE BENEFIT PLANS:
a. Pension Plans:
WP&L has noncontributory, defined benefit retirement plans
covering substantially all employees. The benefits are based upon years
of service and levels of compensation. WP&L's funding policy is to
contribute at least the statutory minimum to a trust.
The projected unit credit actuarial cost method was used to
compute net pension costs and the accumulated and projected benefit
obligations. The discount rate used in determining those benefit
obligations was 7.25, 8.25 and 7.25 percent for 1995, 1994 and 1993,
respectively. The long-term rate of return on assets used in determining
those benefit obligations was 9.00, 9.00 and 9.75 percent for 1995, 1994,
and 1993, respectively.
The following table sets forth the funded status of the WP&L
plans and amounts recognized in the Company's Consolidated Balance Sheets
at December 31, 1995 and 1994:
1995 1994
Accumulated benefit obligation--
Vested benefits $(157,111) $(134,829)
Non-vested benefits (2,755) (3,295)
-------- --------
Total benefits $(159,866) $(138,124)
======== ========
Projected benefit obligation (184,937) (154,283)
Plan assets at fair value, primarily common
stocks and fixed income securities 202,343 178,095
-------- --------
Plan assets in excess of projected benefit
obligation 17,406 23,812
Unrecognized net transition asset (16,928) (19,376)
Unrecognized prior service cost 4,022 5,679
Unrecognized net loss 24,685 14,737
------- -------
Pre-paid pension costs, included in other
deferred charges $29,185 $24,852
======= =======
The net pension cost (benefit) recognized in the Consolidated
Statements of Income for 1995, 1994 and 1993 included the following
components:
1995 1994 1993
Service Cost $3,879 $5,123 $4,263
Interest Cost on projected
benefit obligation 12,911 12,051 11,614
Actual return on assets (31,548) 1,016 (24,759)
Amortization and deferral 15,103 (17,795) 8,430
-------- -------- --------
Net Pension cost (benefit) $345 $395 ($452)
======== ======== ========
b. Postretirement Health Care and Life Insurance:
Effective January 1, 1993, the Company prospectively adopted
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions". SFAS No. 106 establishes standards of financial
accounting and reporting for the Company's postretirement health care and
life insurance benefits. SFAS No. 106 requires the accrual of the
expected cost of such benefits during the employees' years of service
based on actuarial methodologies that closely parallel pension accounting
requirements. WP&L has elected delayed recognition of the transition
obligation and is amortizing the discounted present value of the
transition obligation to expense over 20 years. The cost of providing
postretirement benefits, including the transition obligation, is being
recovered in retail rates under current regulatory practices.
The following table sets forth the plans' funded status:
1995 1994
Accumulated benefit
obligation--
Retirees $(35,639) $(29,273)
Fully eligible
active plan
participants (6,261) (5,998)
Other active plan
participants (8,091) (7,675)
-------- --------
Total (49,991) (42,946)
Plan assets at fair
value 11,768 9,767
-------- --------
Accumulated benefit
obligation in excess
of plan assets (38,223) (33,179)
Unrecognized transition
obligation 25,003 26,474
Unrecognized loss 1,166 (2,570)
-------- -------
Accrued postretirement
benefits liability $(12,054) $(9,275)
======== =======
The net postretirement benefits cost recognized in the Consolidated
Statements of Income for 1995, 1994 and 1993 included the following
components:
1995 1994 1993
Service cost $1,495 $1,739 $1,463
Interest cost on
projected benefit
obligation 3,567 3,135 3,151
Actual return on assets (2,051) (253) (696)
Amortization of
transition obligation 1,471 1,527 1,560
Amortization and
deferral 1,313 (381) (27)
------- ------ -----
Net postretirement
benefits cost $5,795 $5,767 $5,451
====== ====== ======
The postretirement benefits cost components for 1995 were
calculated assuming health-care cost trend rates ranging from 11.5 percent
for 1995 and decreasing to 5.0 percent by the year 2002. The health-care
cost trend rate considers estimates of health care inflation, changes in
utilization or delivery, technological advances, and changes in the health
status of the plan participants. Increasing the health-care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1995, by $2.8
million and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost for the year by $.5 million.
The assumed discount rate used in determining the accumulated
postretirement obligation was 7.25, 8.25 and 7.25 percent in 1995, 1994
and 1993, respectively. The long-term rate of return on assets was 9.00,
9.00 and 9.50 percent in 1995, 1994 and 1993, respectively. Plan assets
are primarily invested in common stock, bonds and fixed income securities.
The Company's funding policy is to contribute the tax-advantaged maximum
to a trust.
c. Other Post-employment Benefits:
In November 1992, the Financial Accounting Standards Board
issued SFAS No. 112, "Employers' Accounting for Post-employment Benefits."
SFAS No. 112, which was effective January 1, 1994, establishes standards
of financial accounting and reporting for the estimated cost of benefits
provided by an employer to former or inactive employees after employment
but before retirement. The effect of adopting SFAS No. 112 was not
material to the Company's financial position and results of operations.
d. Long-Term Equity Incentive Plan
On January 23, 1994, the Company adopted the "WPL Holdings, Inc.
Long-Term Equity Incentive Plan" (the "Plan") which permits the grant of
non-qualified stock options and performance units. To date, 41,900 non-
qualified stock options and equivalent performance units have been
granted. The non-qualified stock options have a per-share option price of
$27.50. There were no options exercised during the year nor exercisable
at year-end.
NOTE 6. INCOME TAXES:
The following table reconciles the statutory federal income tax
rate to the effective income tax rate:
1995 1994 1993
Statutory federal income
tax rate 35.0 % 35.0 % 35.0 %
State income taxes, net of
federal benefit 5.8 5.6 6.1
Investment tax credits
restored (1.5) (1.7) (2.0)
Amortization of excess
deferred taxes (1.4) (1.5) (1.5)
Adjustment for prior period
taxes (1.5) 1.3 (2.3)
Other differences, net 0.3 (0.2) 0.4
----- ----- -----
Effective income tax rate 36.7 % 38.5 % 35.7 %
===== ===== =====
The temporary differences that resulted in accumulated deferred
income tax (assets) and liabilities as of December 31, 1995 and 1994, are
as follows:
1995 1994
Accelerated depreciation
and other plant related $226,647 $213,447
Unamortized investment tax
credits (20,762) (21,784)
Regulatory liability 19,202 17,553
Other 14,725 13,157
------- -------
$239,812 $222,373
======= =======
Changes in WP&L's deferred income taxes arising from the
adoption of SFAS No. 109 represent amounts recoverable or refundable
through future rates and have been recorded as net regulatory assets on
the Consolidated Balance Sheets. These net regulatory assets are being
recovered in rates over the estimated remaining useful lives of the assets
to which they pertain.
NOTE 7. SHORT-TERM DEBT AND LINES OF CREDIT:
The Company maintains committed bank lines of credit, most of
which are at the bank prime rates, to obtain short-term borrowing
flexibility, including pledging lines of credit as security for any
commercial paper outstanding. Amounts available under these lines of
credit totaled $70 million as of December 31, 1995. Information regarding
short-term debt and lines of credit is as follows:
1995 1994 1993
As of end of year--
Commercial paper
outstanding . . $56,500 $50,500 $49,000
Notes payable
outstanding . . $16,000 --- $10,000
Discount rates on
commercial paper 5.73%-5.95% 5.64% - 6.12% 3.24% - 3.40%
Interest rates on
notes payable . 5.80%-5.83% --- 3.34%
For the year ended--
Maximum month-end
amount of short-
term debt . . . $80,000 $50,500 $59,000
Average amount of
short-term debt
(based on daily
outstanding
balances) . . . $48,760 $25,374 $30,423
Average interest
rate on short-
term debt . . . 5.90% 4.39% 3.29%
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative
financial instruments and does not use them for trading purposes. They
are used to manage well-defined interest rate and gas commodity price
risks.
The Company enters into interest rate swap agreements to reduce
the impact of changes in interest rates on its floating-rate debt and fees
associated with the sale of its accounts receivable. The notional
principal amount of interest rate swaps outstanding as of December 31,
1995, was $123 million. Average variable rates are based on rates implied
in the forward yield curve at the reporting date. The average pay and
receive rates associated with these agreements are 5.27 percent and 5.31
percent, respectively. The swap agreements have contract maturities from
one-and-a half to five years. It is not the Company's intent to terminate
these contracts, however, the total cost to the Company if it were to
terminate all of the agreements existing at December 31, 1995, is $.8
million. In addition, the Company entered into an interest rate forward
contract related to the anticipated issuance of $60 million of long-term
debt securities. At December 31, 1995, the forward contract, if settled
on that date, would have required a payment by the Company of
approximately $6.7 million. The financial impact of this contract, which
will result in either a cash payment or cash receipt, will be deferred and
recognized as an adjustment to interest expense over the life of the new
bonds to effect the interest rate implicit in the forward contract.
The Company uses gas commodity swaps to reduce the impact of
price fluctuations on gas purchased and injected into storage during the
summer months and withdrawn and sold at current market prices during the
winter months. Variances between underlying commodity prices and
financial contracts on these agreements are deferred and recognized as
increases or decreases in the cost of gas at the time the storage gas is
sold. At December 31, 1995 and 1994, the commodity swap agreements
outstanding were immaterial.
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, "Disclosure about Fair Value of
Financial Instruments," all financial instruments of the Company for which
the carrying amount does not approximate fair value, must be disclosed.
At December 31, 1995, the fair value of long-term debt was $408.4 million
and the carrying amount was $375.6 million. At December 31, 1994, the
fair value of long-term debt was $385.1 million and the carrying amount
was $393.5 million.
NOTE 10. CAPITALIZATION:
a. Common Shareowner's Investment:
A retail rate order effective January 1, 1995, requires WP&L to
maintain a utility common equity level of 51.93 percent of total utility
capitalization during the test years January 1, 1995 to December 31, 1996.
In addition, the PSCW ordered that it must approve the payment of
dividends by WP&L to WPLH that are in excess of the level forecasted in
the rate order ($58.1 million), if such dividends would reduce WP&L's
average common equity ratio below 51.93 percent. At December 31, 1995,
WP&L's common equity ratio was 52.6 percent.
b. Long-term Debt:
Substantially all of WP&L's utility plant is secured by its
first mortgage bonds. Current maturities of long-term debt are as
follows: $0 in 1996, $55 million in 1997, $8.9 million in 1998, $0 in 1999
and $1.9 million in 2000.
On September 14, 1995, the Company received an order from the
PSCW authorizing the sale of up to $60 million of long-term debt
securities. The Company currently expects to make an offering of the
long-term debt securities before December 31, 1996, unless the PSCW grants
a request for extension. The Company intends to use the net proceeds from
the sale of these securities first to repay short-term debt which was
incurred in June 1995 to repurchase in private transactions $18 million
aggregate principal amount of the Company's 9.30 percent first mortgage
bonds, Series V, due December 1, 2025. The remainder of the net proceeds
will be used to repay other short-term debt incurred by the Company to
finance utility construction expenditures and for general corporate
purposes.
NOTE 11. COMMITMENTS AND CONTINGENCIES:
a. Coal Contract Commitments:
To ensure an adequate supply of coal, WP&L has entered into
certain long-term coal contracts. These contracts include a demand or
take-or-pay clause under which payments are required if contracted
quantities are not purchased. Purchase obligations on these coal and
related rail contracts total approximately $168 million through December
31, 2002. WP&L's management believes it will meet minimum coal and rail
purchase obligations under the contracts. Minimum purchase obligations on
these contracts over the next five years are estimated to be $37 million
in 1996, 1997, and 1998, $30 million in 1999 and $10 million in 2000.
b. Purchased Power and Gas:
Under firm purchased power and gas contracts, WP&L is obligated
as follows (dollars in millions):
Purchased Power Purchased Gas
Purchase Purchase Dekatherms
Obligation MW's Obligation (in millions)
1996 $23.4 2,893 $73 94
1997 14.1 4,212 62 82
1998 17.7 4,041 52 69
1999 19.8 4,050 43 54
2000 27.7 4,796 39 52
Thereafter 104.6 11,510 108 163
c. Manufactured Gas Plant Sites:
Historically, WP&L has owned 11 properties that have been
associated with the production of manufactured gas. Currently, WP&L owns
five of these sites, three are owned by municipalities, and the remaining
three are owned by private companies. In 1989, WP&L initiated
investigation of these manufactured gas plant sites. The Wisconsin
Department of Natural Resources ("DNR") has been involved in reviewing
investigation plans and has received ongoing reports regarding these
investigations.
WP&L has continued its investigations and studies. WP&L
confirmed that there was no contamination at two of the sites and has now
received a close out letter from the DNR related to each of those sites.
Additionally, the investigation of historical records at a third site
indicated a minimal likelihood of any significant environmental impacts.
In 1995, WP&L requested and received a close out letter for the third
site.
In February 1993, WP&L completed cost estimated for the
environmental remediation of the eight remaining sites. The result of
this analysis indicate that during the next 32 years, WP&L will expend
approximately $77 million for feasibility studies, data collection, soil
remediation activities, groundwater research and groundwater remediation
activities, including construction of slurry containment walls and the
installation of groundwater pump and treatment facilitates. This estimate
was based on various assumptions, and is subject to continuous review and
revision by management.
The cost estimate set forth above assumes 4 percent average
inflation over the period. The cost estimate also contemplates that
primarily groundwater pump and treatment activities will take place after
1998 through and including 2027. During this time, WP&L estimates that it
will incur average annual costs of $2 million to complete the planned
groundwater remediation activities.
Through 1995, management has continued its oversight of the
issues related to the above manufactured gas plant sites without
significant revision to the above estimates and assumptions. With respect
to rate recovery of these costs, the PSCW has approved a five-year
amortization of the unamortized balance of environmental costs expended to
date. Based on the present regulatory record at the PSCW, management
believes that future costs of remediating these manufactured gas plant
sites will be recovered in rates.
d. Spent Nuclear Fuel and Decommissioning Costs:
Wisconsin utilities with ownership of nuclear generating plants
are required by the PSCW to establish and make annual contributions to
external trust funds to provide for plant decommissioning over the
remaining life of the Kewaunee Nuclear Power Plant ("Kewaunee"). In July
1994, the PSCW issued a generic order covering utilities that have nuclear
generation, which standardizes the escalation assumptions to be used in
determining nuclear decommissioning liabilities.
WP&L's share of the decommissioning costs of Kewaunee is
estimated to be $169 million (in 1995 dollars, assuming the plant is
operating through 2013) based on a 1992 site-specific study, using the
immediate dismantlement method of decommissioning. The costs of
decommissioning are assumed to escalate at an annual rate of 6.5 percent.
The undiscounted amount of decommissioning costs estimated to be expended
between the years 2014 and 2050 is $1,016 million.
WP&L has established external trusts to custody decommissioning
funds. The Company's current annual contribution is $10.7 million. This
amount is fully recovered in rates. The after-tax income of the external
trust funds was $2.8 million, $2.7 million and $1.1 million for the years
ended December 31, 1995, 1994 and 1993, respectively. In accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the fair value of the external trusts as of December 31, 1995
and 1994, is reported as $73.4 million and $51.8 million, respectively.
Decommissioning costs, which include the annual contribution
and earnings on the assets of the trust, are recorded as depreciation
expense in the Consolidated Statements of Income with the cumulative
amount included in the accumulated provision for depreciation on the
Consolidated Balance Sheets. Depreciation expense related to Kewaunee
totaled $13.6 million, $13.4 million and $6.1 million in 1995, 1994 and
1993, respectively. As of December 31, 1995, the total decommissioning
costs included in the accumulated provision for depreciation were $73.4
million.
Under the Nuclear Waste Policy Act of 1982, the U.S. Department
of Energy ("DOE") is responsible for the ultimate storage and disposal of
spent nuclear fuel removed from nuclear reactors. Interim storage space
for spent nuclear fuel is currently provided at Kewaunee. Currently there
is on-site storage capacity for spent fuel through the year 2001. An
investment of approximately $2.5 million could provide additional storage
sufficient to meet spent fuel storage needs until the expiration of the
current operating license. The following summarizes the investment at
December 31, 1995 and 1994:
1995 1994
Original cost of
nuclear fuel $160,997 $155,190
Less--Accumulated
amortization 142,130 135,794
------- -------
Nuclear fuel, net $18,867 $19,396
======= =======
e. Nuclear Insurance:
The Price Anderson Act provides for the payment of funds for
public liability claims arising from a nuclear incident. Accordingly, in
the event of a nuclear incident, WP&L, as a 41-percent owner of Kewaunee,
is subject to an overall assessment of approximately $32.5 million per
incident for its ownership of this factor, not to exceed $4.1 million
payable in any given year.
Through its membership in Nuclear Electric Insurance Limited,
WP&L has obtained property damage and decontamination insurance totaling
$1.5 billion for loss from damage at Kewaunee. In addition, WP&L
maintains outage and replacement power insurance coverage totaling $101.4
million in the event an outage exceeds 21 weeks.
f. Planned Capital Expenditures:
Plans for the construction and financing of future additions to
utility plant can be found elsewhere in this report in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NOTE 12. PROPOSED MERGER OF THE COMPANY:
WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES"), and
Interstate Power Company ("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, has been approved by the
respective Boards of Directors. It is still subject to approval by the
shareholders of each company as well as several federal and state
regulatory agencies. The companies expect to receive the shareholder
approvals in the second quarter of 1996 and the regulatory approvals by
the second quarter of 1997.
The operating revenues, net income from continuing operations and total
assets of the companies were as follows:
PRO FORMA
COMBINED
WPLH IES IPC (Unaudited)
1995 Operating revenues $807,255 $851,010 $318,542 $1,976,807
1995 Income from
continuing operations $71,618 $64,176 $25,198 $160,992
Assets at December 31,
1995 $1,872,414 $1,985,591 $634,316 $4,492,321
Under the terms of the Merger Agreement, the outstanding shares
of WPLH's common stock will remain unchanged and outstanding as shares of
Interstate Energy. Each outstanding share of IES common stock will be
converted to .98 shares of Interstate Energy's common stock. Each share
of IPC's common stock will be converted to 1.11 shares of Interstate
Energy's common stock. It is anticipated that Interstate Energy will
retain WPLH's common share dividend payment level as of the effective time
of the merger. On January 24, 1996, the Board of Directors of WPLH
declared a quarterly dividend of 49.25 cents per share. This represents
an annual rate of $1.97 per share.
IES is a holding company headquartered in Cedar Rapids, Iowa,
and is the parent company of IES Utilities Inc. ("IES Utilities") and IES
Diversified Inc. ("IES Diversified"). IES Utilities supplies electric and
gas service to approximately 333,000 and 174,000 customers, respectively,
in Iowa. IES Diversified and its principal subsidiaries are primarily
engaged in the energy-related, transportation and real estate development
businesses. IPC, an operating public utility headquartered in Dubuque,
Iowa, supplies electric and gas service to approximately 163,000 and
49,000 customers, respectively, in northeast Iowa, northwest Illinois and
southern Minnesota.
Interstate Energy will be the parent company of WP&L, IES
Utilities and IPC and will be registered under the Public Utility Holding
Company Act of 1935, as amended ("1935 Act"). The Merger Agreement
provides that these operating utility companies will continue to operate
as separate entities for a minimum of three years beyond the effective
date of the merger. In addition, the non-utility operations of WPLH and
IES Diversified will be combined shortly after the effective date of the
merger under one entity to manage the diversified operations of Interstate
Energy. The corporate headquarters of Interstate Energy will be in
Madison.
The SEC historically has interpreted the 1935 Act to preclude
registered holding companies, with limited exceptions, from owning both
electric and gas utility systems. Although the SEC has recently
recommended that registered holding companies be allowed to hold both gas
and electric utility operations if the affected states agree, it remains
possible that the SEC may require as a condition to its approval of the
Proposed Merger that WPLH, IES and IPC divest their gas utility
properties, and possibly certain non-utility ventures of WPLH and IES,
within a reasonable time after the effective date of the Proposed Merger.
NOTE 13. SEGMENT INFORMATION:
The following table sets forth certain information relating to
the Company's consolidated operations:
Year Ended December 31,
1995 1994 1993
Operation information:
Customer revenues--
Electric $546,324 $531,747 $503,187
Gas 139,165 151,931 137,270
Water 4,183 4,133 3,927
Operating income
(loss)--
Electric $137,171 $121,136 $118,785
Gas 17,341 13,334 10,431
Water 1,718 1,134 990
Investment
information:
Identifiable assets,
including allocated
common plant at
December 31--
Electric $1,226,789 $1,176,670 $1,170,010
Gas 250,643 234,815 228,257
Water 20,211 18,791 17,703
Assets not allocated 143,522 154,848 134,687
Other information:
Construction and
nuclear fuel
expenditures--
Electric $122,297 $103,420 $139,805
Gas 16,905 20,319 18,876
Water 2,124 2,149 1,908
Provision for
depreciation and
amortization--
Electric $71,379 $64,695 $53,398
Gas 9,629 8,082 7,329
Water 156 417 470
NOTE 14. CONSOLIDATED QUARTERLY FINANCIAL DATA
(Unaudited):
The summarized quarterly financial data below were not audited
by independent public accountants, but reflect all adjustments necessary,
in the opinion of the Company, for a fair presentation of the data.
Operating Operating Net Income
Revenues Income
1995:
March 31 $187,342 $29,879 $20,899
June 30 149,557 16,814 8,846
September 30 165,481 29,062 21,124
December 31 187,292 34,591 24,473
1994:
March 31 $203,251 $31,684 $26,633
June 30 150,924 15,838 11,231
September 30 161,620 24,470 16,927
December 31 172,016 22,396 13,394
The Company's business is influenced by seasonal weather
conditions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 relating to directors and
nominees for election as directors at the Company's 1996 Annual Meeting of
Shareowners is incorporated herein by reference to the information under
the caption "Election of Directors" in the Company's Proxy Statement for
its 1996 Annual Meeting of Shareowners (the "1996 Proxy Statement"). The
1996 Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days after the end of the Company's fiscal year.
The information required by Item 10 relating to executive officers is set
forth in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by
reference to the information under the captions "Compensation of Executive
Officers" and "Meetings and Committees of the WPL Board-Compensation of
Directors" (but not including the Report of the Compensation and Personnel
Committee on Executive Compensation) in the 1996 Proxy Statement. The
1996 Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days after the end of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by
reference to the information under the caption "Ownership of Voting
Securities" in the 1996 Proxy Statement. The 1996 Proxy Statement will be
filed with the Securities and Exchange Commission within 120 days after
the end of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED REGULATORY TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) (1) Consolidated Financial Statements
Included in Part II of this report:
Report of Independent Public Accountants on Schedules
Consolidated Statements of Income for the Years Ended December
31, 1995, 1994 and 1993
Consolidated Balance Sheets, December 31, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Capitalization, December 31, 1995 and
1994
Consolidated Statements of Common Shareowners' Investment
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules
For each of the years ended December 31, 1995, 1994 and 1993
Schedule II. Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not applicable or
not required, or because that required information is shown either in
the consolidated financial statements or in the notes thereto.
(a) (3) Exhibits
The following Exhibits are filed herewith or incorporated herein by
reference. Documents indicated by an asterisk (*) are incorporated
herein by reference.
2A* Agreement and Plan of Merger, dated as of November 10,
1995, by and among WPL Holdings, Inc., IES Industries
Inc., Interstate Power Company and AMW Acquisition, Inc.
(incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated November 10, 1995)
3A* Restated Articles of Incorporation, as amended (incorporated
by reference to Exhibit 3.1 the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994)
3B Amendments to By-Laws of the Company
3C By-Laws of the Company as revised to January 24, 1996
4A* Indenture of Mortgage or Deed of Trust dated August 1,
1941, between WP&L and First Wisconsin Trust Company and
George B. Luhman, as Trustees, incorporated by reference to
Exhibit 7(a) in File No. 2-6409, and the indentures
supplemental thereto dated, respectively, January 1, 1948,
September 1, 1948, June 1, 1950, April 1, 1951, April 1,
1952, September 1, 1953, October 1, 1954, March 1, 1959,
May 1, 1962, August 1, 1968, June 1, 1969, October 1, 1970,
July 1, 1971, April 1, 1974, December 1, 1975, May 1, 1976,
May 15, 1978, August 1, 1980, January 15, 1981, August 1,
1984, January 15, 1986, June 1, 1986, August 1, 1988,
December 1, 1990, September 1, 1991, October 1, 1991, March
1, 1992, May 1, 1992, June 1, 1992 and July 1, 1992
(incorporated by reference to Second Amended Exhibit 7(b)
in File No. 2-7361; Amended Exhibit 7(c) incorporated by
reference to File No. 2-7628; Amended Exhibit 7.02 in File
No. 2-8462; Amended Exhibit 7.02 in File No. 2-8882; Second
Amendment Exhibit 4.03 in File No. 2-9526; Amended
Exhibit 4.03 in File No. 2-10406; Amended Exhibit 2.02 in
File No. 2-11130; Amended Exhibit 2.02 in File No. 2-14816;
Amended Exhibit 2.02 in File No. 2-20372; Amended
Exhibit 2.02 in File No. 2-29738; Amended Exhibit 2.02 in
File No. 2-32947; Amended Exhibit 2.02 in File No. 2-38304;
Amended Exhibit 2.02 in File No. 2-40802; Amended
Exhibit 2.02 in File No. 2-50308; Exhibit 2.01(a) in File
No. 2-57775; Amended Exhibit 2.02 in File No. 2-56036;
Amended Exhibit 2.02 in File No. 2-61439; Exhibit 4.02 in
File No. 2-70534; Amended Exhibit 4.03 File No. 2-70534;
Exhibit 4.02 in File No. 33-2579; Amended Exhibit 4.03 in
File No. 33-2579; Amended Exhibit 4.02 in File No. 33-4961;
Exhibit 4B to WP&L's Form 10-K for the year ended December
31, 1988, Exhibit 4.1 to WP&L's Form 8-K dated December 10,
1990, Amended Exhibit 4.26 in File No. 33-45726, Amended
Exhibit 4.27 in File No.33-45726, Exhibit 4.1 to WP&L's
Form 8-K dated March 9, 1992, Exhibit 4.1 to WP&L's
Form 8-K dated May 12, 1992, Exhibit 4.1 to WP&L's Form 8-K
dated June 29, 1992 and Exhibit 4.1 to WP&L's Form 8-K
dated July 20, 1992)
10A*# Executive Tenure Compensation Plan, as revised November
1992 (incorporated by reference to Exhibit 10A to the
Company's Form 10-K for the year ended December 31, 1992)
10B*# Form of Supplemental Retirement Plan, as revised November
1992 (incorporated by reference to Exhibit 10B to the
Company's Form 10-K for the year ended December 31, 1992)
10C*# Forms of Deferred Compensation Plans, as amended June, 1990
(incorporated by reference to Exhibit 10C to the Company's
Form 10-K for the year ended December 31, 1990)
10C.1*# Officer's Deferred Compensation Plan II, as adopted
September 1992 (incorporated by reference to Exhibit 10C.1
to the Company's Form 10-K for the year ended December 31,
1992)
10C.2*# Officer's Deferred Compensation Plan III, as adopted
January 1993 (incorporated by reference to Exhibit 10C.2 to
the Company's Form 10-K for the year ended December 31,
1992)
10D*# Pre-Retirement Survivor's Income Supplemental Plan, as
revised November 1992 (incorporated by reference to Exhibit
10F to the Company's Form 10-K for the year ended December
31, 1992)
10E*# Wisconsin Power and Light Company Management Incentive Plan
(incorporated by reference to Exhibit 10H to the Company's
Form 10-K for the year ended December 31, 1992)
10F*# Deferred Compensation Plan for Directors, as amended
January 17, 1995 (incorporated by reference to Exhibit 10F
to the Company's Form 10-K for the year ended December 31,
1994)
10G*# WPL Holdings, Inc. Long-Term Equity Incentive Plan
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1994)
10H*# Key Executive Employment and Severance Agreement by and
between WPL Holdings, Inc., and E.B. Davis, Jr.
(incorporated by reference to Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1994)
10I*# Form of Key Executive Employment and Severance Agreement by
and between WPL Holdings, Inc. and each of W.D. Harvey,
E.G. Protsch and A.J. Amato (incorporated by reference to
Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994)
10J*# Form of Key Executive Employment and Severance Agreement by
and between WPL Holdings, Inc. and each of E.M. Gleason,
B.J. Swan, D.A. Doyle, N.E. Boys, D.E. Ellestad, P.J.
Wegner and K.K. Zuhlke (incorporated by reference to
Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994)
21 Subsidiaries of the Company
99* 1996 Proxy Statement for the Annual Meeting of Shareowners
to be held April 23, 1996 [The Proxy Statement for the 1996
Annual Meeting of Shareowners will be filed with the
Securities and Exchange Commission under Regulation 14A
within 120 days after the end of the Company's fiscal year;
except to the extent incorporated by reference, the Proxy
Statement for the 1996 Annual Meeting of Shareowners shall
not be deemed to be filed with the Securities and Exchange
Commission as part of this Annual Report on Form 10-K]
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company hereby
agrees to furnish to the Securities and Exchange Commission, upon
request, any instrument defining the rights of holders of
unregistered long-term debt not filed as an exhibit to this
Form 10-K. No such instrument authorizes securities in excess of
10 percent of the total assets of the Company.
# - A management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K, dated November
10, 1995, reporting (under Item 5) that its parent, WPL Holdings,
Inc., had entered into an Agreeent and Plan of Merger with IES
Industries Inc. and Interstate Power Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 29th of March 1996.
WISCONSIN POWER AND LIGHT COMPANY
By:/s/ Erroll B. Davis, Jr.
Erroll B. Davis, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 29th day of
March 1996.
/s/ Erroll B. Davis, Jr. President, Chief Executive Officer
Erroll B. Davis, Jr. and Director (principal executive officer)
/s/ Daniel A. Doyle Vice President-Finance, Controller
Daniel A. Doyle and Treasurer (principal financial and
accounting officer)
/s/ L. David Carley Director /s/ Milton E. Neshek Director
L. David Carley Milton E. Neshek
/s/ Rockne G. Flowers Director /s/ Henry C. Prange Director
Rockne G. Flowers Henry C. Prange
/s/ Donald R. Haldeman Director /s/ Judith D. Pyle Director
Donald R. Haldeman Judith D. Pyle
/s/ Katharine C. Lyall Director /s/ Carol T. Toussaint Director
Katharine C. Lyall Carol T. Toussaint
/s/ Arnold M. Nemirow Director
Arnold M. Nemirow
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To WISCONSIN POWER AND LIGHT COMPANY:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in the 1995 Form 10-K of
Wisconsin Power and Light Company and have issued our report thereon dated
January 26, 1996. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. Supplemental Schedule II is
the responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in the
audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be
set forth therein in relation to the basic consolidated financial
statements taken as a whole.
Milwaukee, Wisconsin, ARTHUR ANDERSEN LLP
January 26, 1996
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
INDEX TO FINANCIAL STATEMENT SCHEDULES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
FINANCIAL STATEMENT SCHEDULES:
II. Valuation and Qualifying Accounts and Reserves
NOTE: All other schedules are omitted because they are not applicable or
not required, or because that required information is shown either
in the financial statements or in the notes thereto.
<PAGE>
SCHEDULE II
WISCONSIN POWER AND LIGHT COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($ In Thousands)
Additions
Balance at Charged to Balance
beginning costs and at end of
Description of period expenses Deductions period
Year ended
December 31, 1995:
Allowance for
doubtful
accounts . . . . $209 $0 $209 [1] $0
==== ==== ==== ====
Year ended
December 31, 1994:
Allowance for
doubtful
accounts . . . . $259 $150 $200 [1] $209
==== ==== ==== ====
Year ended
December 31, 1993:
Allowance for
doubtful
accounts . . . . $226 $114 $81 [1] $259
==== ==== ==== ====
[1] Uncollectible accounts written off, net of recoveries.
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
3B Amendments to By-Laws of the Company
3C By-Laws of Company as Revised to September 20, 1995 and
January 24, 1996
21 Subsidiaries of the Company
27 Financial Data Schedule
EXHIBIT 3B
AMENDMENTS TO BY-LAWS
OF WISCONSIN POWER AND LIGHT COMPANY
(Effective September 20, 1995)
1. Section 2, paragraph 7b of Article VII was amended in its entirety to
provide as follows:
7b. Any employee or agent authorized by the treasurer of the Company
may draw such sight drafts in amounts not exceeding $10,000
payable to any one person or in any transaction for right-of-way
easements, reimbursements for damages to land, payments to bind
agreements for purchases of real estate and payments of document
recording fees.
(Effective January 24, 1996)
2. Section 6 of Article V was amended in its entirety to provide as
follows:
A Nominating and Governance Committee shall be established and
shall consist of at least three (3) members, all of whom shall
be outside members of the Board of Directors. The Chairperson
and the members of the Committee shall be elected annually by a
majority vote of members of the Board of Directors. Vacancies
on said Committee may be filled at any time by action of the
Board of Directors. Said Committee shall meet at the call of
any one of its members, but in no event shall it meet less than
once a year for the express purpose of recommending nominees for
election to the Board at the Annual Meeting of Shareowners. The
Committee shall have the following responsibilities:
1. Nomination of Directors for membership on the Board.
2. Selection of new Board members.
3. Selection of Board committee members and chairpersons.
4. Evaluation of overall Board effectiveness.
5. Develop recommendations on Director compensation.
6. Prepare CEO Performance report.
7. Consider and develop recommendations on specific governance
matters.
BYLAWS OF
WISCONSIN POWER AND LIGHT COMPANY
Revised At January 24, 1996
ARTICLE I
Seal
The corporate seal shall have inscribed thereon the name of the
corporation and the words "Corporate Seal, Wisconsin".
ARTICLE II
Stocks and Transfers
Section 1 - Each holder of fully paid stock shall be entitled to a
certificate or certificates of stock, stating the number of shares owned
by such shareowner and the designation of the Class and Series in which
issued. All stock certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary of the Company,
and be sealed with the corporate seal of the Company, which seal may be
facsimile, engraved or printed. If and when a Transfer Agent and/or a
Registrar shall have been appointed by the Board with respect to the
shares of any class of stock, or series thereof, of the Company, the
certificates representing such shares shall also be countersigned by such
Transfer Agent and/or countersigned and registered by such Registrar, as
the case may be. Certificates which have been countersigned by a Transfer
Agent and countersigned and registered by a Registrar, in both cases duly
appointed by the Board of Directors for such purpose, may bear the
signatures of the President or a Vice President and the Secretary or an
Assistant Secretary of the Company in facsimile, engraved or printed;
provided, that no certificate bearing the facsimile signatures of the
Officers of the Company shall be valid or effective for any purpose unless
and until it shall have been so countersigned and registered. In case any
such Officer who has signed any stock certificate, or whose facsimile
signature has been placed thereon, shall have ceased to be such Officer
before such certificate is issued, such certificate may be issued by the
Company with the same effect as if such Officer had not ceased to be such
at the date of its issue.
Section 2 - The stock of the Company shall be divided into such
Classes, with such relative rights and preferences, as shall be provided
by the Articles of Organization of the Company as the same may from time
to time be amended in accordance with the laws of Wisconsin.
Section 3 - Shares of stock shall be transferable only on the books
of the Company; and upon proper endorsement and surrender of the
outstanding certificates representing the same. Subject to such
conditions as the Board of Directors may, by Resolution, establish: (a)
If an outstanding certificate of stock shall be lost, destroyed or stolen,
the holder thereof may have a new certificate issued, upon producing
evidence satisfactory to the Officers of the Company, of such loss,
destruction or theft; and upon furnishing to the Company a bond of
indemnity, surety bond, or such other assurance as the Officers may
require. (b) Where any outstanding certificates of stock are deemed
abandoned by the holder thereof, pursuant to the unclaimed property or
escheatment laws of any state having jurisdiction thereof, the Officers of
the Company are authorized and directed to cause the transfer and delivery
of said certificates or to cause the issuance of replacement certificates,
to such person or persons as may be entitled thereto in accordance with
such escheatment laws.
Section 4 - Transfer books may be closed by order of the Board of
Directors for short periods, not exceeding forty days at any one time, for
any legal purpose, as the Board of Directors shall deem advisable.
ARTICLE III
Meetings of Shareowners
Section 1 - The Annual Meeting of the Shareowners shall be held on
the fourth Wednesday in May of each year (or if such day be a legal
holiday in Wisconsin, then upon the following day); or on such other day
of each year as the Board of Directors may determine. Each such meeting
shall be held at the hour of 10:00 o'clock A.M. at the office of the
Company in Madison, Wisconsin, unless the Board of Directors shall
otherwise order. The Annual Meeting shall be held for the purposes of
electing Directors, selecting the Company's independent auditors and of
transacting such other business as may properly come before the meeting.
Section 2 - Special Meetings of the shareowners may be called by the
Chairperson of the Board, the Chief Executive Officer; or by the Board of
Directors; or by the Secretary when requested by the owners of shares of
outstanding voting stock having in the aggregate a number of votes at
least equal to one-fifth of the aggregate number of votes possessed by all
such owners; or in such other manner as may be provided by statute.
Section 3 - Notice of the time and place of each Annual or Special
Meeting of Shareowners shall be sent by mail to the recorded address of
each shareowner not less than ten days before the date of the meeting,
except in cases where other special method of notice may be required by
statute, in which case the statutory method shall be followed. The notice
of a special meeting shall state the object of the meeting. Notice of any
meeting of the shareowners may be waived by any shareowners.
Section 4 - At all meetings of shareowners, the representation of
owners of that number of shares of stock entitled to vote at such meeting
having in the aggregate a number of votes at least equal to a majority of
the aggregate number of votes entitled to vote at such meeting shall be
necessary to constitute a quorum for the transaction of any business,
other than (a) adjourning from time to time until a quorum shall be
obtained, or (b) adjourning sine die, and for any such adjournment a
majority vote of whatever shares of stock shall be represented shall be
sufficient.
Section 5 - The Chairperson of the Board when he or she is the Chief
Executive Officer, and when he or she is not the Chief Executive Officer,
or in his or her absence or at his or her request the President, and in an
absence of both the Chairperson of the Board and the President, then a
Vice President, and if no Vice President be in attendance at the meeting,
then a Director selected by the Directors attending the meeting, or if no
selection is made, then the Director in attendance with the longest tenure
in such office, shall preside at each meeting of shareowners, and the
Secretary or an Assistant Secretary of the Company shall act as secretary
of each shareowner meeting.
Section 6 - Any shareowner having the right to vote at a meeting of
shareowners may exercise such right by voting in person or by proxy at
such meeting.
ARTICLE IV
Board of Directors
Section 1 - The number of Directors constituting the Board of
Directors shall be a minimum of nine (9) and a maximum of thirteen (13).
Whenever a vacancy(ies) occurs on the Board of Directors such that there
are less than nine (9) Directors remaining, the remaining Directors shall
constitute the Board of Directors until the vacancy(ies) are filled by a
vote of the majority of the Directors remaining in office, even if less
than a quorum, said vacancy(ies) to be filled as soon as reasonably
possible. When there are nine (9) or more Directors and a vacancy occurs,
including a vacancy created by an increase in the number of Directors, it
shall be filled or not filled at the discretion of the Board of Directors.
The Board may elect a Chairperson of the Board, who may be the same person
as the Chief Executive Officer or the President.
Section 2 - No person who has attained 70 years of age shall be
eligible for election or reelection to the Board of Directors. Any
Director who has attained 70 years of age shall resign from the Board of
Directors effective as of the next Annual Meeting of Shareowners. Except
for the Chief Executive Officer, any Officer or employee of the Company
serving as a Director who retires, resigns or is removed or terminated
from his or her office or employment with the Company shall simultaneously
resign from the Board of Directors. In the event the CEO resigns or
retires from his or her office or employment with the Company, he or she
shall simultaneously submit his or her resignation from the Board of
Directors if requested by the Nominating Committee. In the event that the
CEO is removed from his or her office by the Board of Directors, or is
involuntarily terminated from employment with the Company, he or she shall
simultaneously submit his or her resignation from the Board of Directors.
Any Director who is unavailable for reasonably regular attendance at
meetings of the Board shall resign as a Director.
Section 3 - The Board of Directors may hold regular or special
meetings in or outside the State of Wisconsin.
Section 4 - Regular meetings of the Board of Directors shall be held
at such time and place and in such manner as may be determined by the
Board, at such hour as the notice of meeting may provide, but in no event
shall the Board meet less than once a year.
Section 5 - Special meetings of the Board may be called at any time
by the Chairperson of the Board, or the Chief Executive Officer, or in the
absence of the Chairperson when Chief Executive Officer, by the President,
or by a Vice President when acting as Chief Executive Officer, or by any
two Directors, by mailing to each Director, not less than three days
before the time of such meeting, a written notice stating the time and
place and manner of holding such meeting.
Section 6 - (a) Any or all members of the Board of Directors, or any
committee thereof, may participate in a regular or special meeting by, or
to conduct the meeting through the use of any means of communication by
which any of the following occurs:
1) All participating directors may simultaneously hear each
other during the meeting.
2) All communication during the meeting is immediately
transmitted to each participating director, and each
participating director is able to immediately send
messages to all other participating directors.
(b) If a meeting is conducted by the means of communication
described herein, all participating directors shall be informed
that a meeting is taking place at which official business may be
transacted.
(c) A director participating in a meeting by means of such
communication is deemed to be present in person at the meeting.
Section 7 - Notice of any meeting of the Board may be waived by any
Director.
Section 8 - A majority of the Board of Directors shall constitute a
quorum for the transaction of business at any meeting of the Board, but a
fewer number may adjourn the meeting to some other day or sine die. The
person designated by Section 5 of Article III above shall preside at
meetings of the Board of Directors, and the Secretary or an Assistant
Secretary shall act as Secretary. The members of the Board who are
Officers or employees of the Company shall receive no separate fee for
serving as a Director of the Company. Other members of the Board shall be
paid such fees as the Board shall from time to time determine by
resolution.
ARTICLE V
Committees
Section 1 - The Board of Directors may, by resolution passed by a
majority of the whole Board, designate from their number an Executive
Committee of such number, not less than three, as the Board may fix from
time to time. The Executive Committee may make its own rules of procedure
and shall meet where and as provided by such rules, or by resolution of
the Board of Directors. A majority of the members of the Committee shall
constitute a quorum for the transaction of business. During the intervals
between the meetings of the Board of Directors, the Executive Committee
shall have all the powers of the Board in the management of the business
and affairs of the Company, including power to authorize the seal of the
Company to be affixed to all papers which may require it, and, by majority
vote of all its members, exercise any and all such powers in such manner
as such Committee shall deem best for the interests of the Company, in all
cases in which specific directions shall not have been given by the Board
of Directors.
Section 2 - The Executive Committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
Section 3 - A Compensation and Personnel Committee is hereby
established. Said Committee shall consist of at least three (3) Directors
who are not and never have been officers, employees or legal counsel of
the Company. The Chairperson and the members of the Compensation and
Personnel Committee shall be elected annually by a majority vote of the
members of the Board of Directors. Vacancies on said Committee may be
filled at any time by action of the Board of Directors. The Committee
shall have the following powers and responsibilities:
1. Review and recommend to the Board new employee benefit plans
or changes, i.e. pension, life, hospital, disability, etc.
2. Review major provisions of any negotiated union contracts
prior to or during negotiations.
3. Review and approve any executive officer employment
contract.
4. Review human resource development programs.
5. Review management development programs.
6. Review the internal equity and external competitiveness of
all executive, management and salary pay grades.
7. Review and authorize salary adjustments for all management
payroll and non-executive officers' pay grades as a group.
All salary ranges and performance for executive officers
shall be reviewed individually by the Committee.
8. Review as a group overall adjustments for all non-management
payroll salary grades.
9. Review personnel budgets.
Said Committee shall meet at such times as it determines, but at least
twice each year, and shall meet at the request of the Chief Executive
Officer, President or any Committee member. Such meeting may be held on a
day separate from or the same as the regular monthly meeting of the Board
of Directors. Subsequent to each such Committee meeting, a report of the
actions taken by such Committee shall be made to the Board of Directors.
Section 4 - An Audit Committee is hereby established and shall
consist of at least three (3) members all of whom shall be outside members
of the Board of Directors. The Chairperson and the members of the
Committee shall be elected annually by a majority vote of the members of
the Board of Directors. Vacancies on said Committee may be filled at any
time by action of the Board of Directors. Said Committee shall meet at
the call of any one of its members, but in no event shall it meet less
than once a year. Such meeting may be held on a day separate from or the
same as the regular monthly meeting of the Board of Directors. Subsequent
to each such Committee meeting, a report of the actions taken by such
Committee shall be made to the Board of Directors.
The functions of said Committee shall be to:
1. Recommend to the shareowners the independent auditors of the
Company.
2. Discuss with the independent auditors the scope of their audit.
3. Discuss with the independent auditors and the management the
Company's accounting principles, policies and practices and its
reporting policies and practices.
4. Discuss with the independent auditors the results of their audit.
5. Discuss with the independent auditors the adequacy of the
Company's or any of its subsidiaries accounting, financial and
operating controls.
6. Discuss with the Company's Director of Internal Audits the scope
and results of internal audits and initiate such accounting
principles, policies and practices, and reporting policies and
practices as it may deem necessary or proper.
7. Approve or disapprove annually, each defined group of non-audit
services performed by the independent auditors, which
consideration may occur before or after performance, giving due
regard to the possible effect of such performance upon the
independence of the independent auditors; and, if considered
prior to such performance, shall include a limitation upon the
magnitude of such services.
Section 5 - A Corporate Operations Review Committee is hereby
established. Such Committee shall consist of at least three members of
the Board of Directors. The Chairperson and the members of the Committee
shall be elected annually by a majority vote of the Board of Directors.
Vacancies on said Committee may be filled at any time by action of the
Board of Directors. Said Committee shall meet at least once annually at
such time and place as it determines, and at other times upon the call of
the Chairperson or any other member of the Committee. Such meeting may be
held on a day separate from or the same as the regular meeting of the
Board of Directors.
The functions of said Committee shall be to:
1. Review proposed operating and construction budgets, financing
plans and other significant project plans and make
recommendations to the Board of Directors.
2. Examine corporate operations and performance against established
budgets, plans and objectives.
3. Review corporate policies as required and make recommendations to
the Board of Directors concerning policy changes and the
establishment of new policies.
4. Periodically review selected operating issues and processes.
Section 6 - A Nominating and Governance Committee shall be
established and shall consist of at least three (3) members, all of whom
shall be outside members of the Board of Directors. The Chairperson and
the members of the Committee shall be elected annually by a majority vote
of the members of the Board of Directors. Vacancies on said Committee may
be filled at any time by action of the Board of Directors. Said Committee
shall meet at the call of any one of its members, but in no event shall it
meet less than once a year for the express purpose of recommending
nominees for election to the Board at the Annual Meeting of Shareowners.
The Committee shall have the following responsibilities:
1. Nomination of Directors for membership on the Board.
2. Selection of new Board members.
3. Selection of Board committee members and chairpersons.
4. Evaluation of overall Board effectiveness.
5. Develop recommendations on Director compensation.
6. Prepare CEO Performance report.
7. Consider and develop recommendations on specific governance
matters.
Section 7 - An Environmental Affairs Committee is hereby established.
Such Committee shall consist of three to five members of the Board of
Directors. The Chairperson and members of the Committee shall be elected
annually by a majority vote of the Board of Directors. Vacancies on said
Committee may be filled at any time by action of the Board of Directors.
The Chairperson, the Chief Executive Officer and the President of the
Company shall be ex officio members serving in an advisory capacity. Said
Committee shall meet at least once annually at such time and place as it
determines, and at other times upon the call of the Chairperson or any
other member of the Committee. Such meeting may be held on a day separate
from or the same as the regular monthly meeting of the Board of Directors.
The Committee shall report on its reviews, and, as appropriate, make
recommendations to the Board of Directors.
The responsibility of said Committee shall be to review environmental
policy and planning issues of interest to the Company, including matters
involving the Company before environmental regulatory agencies and
compliance with air, water, and waste regulations.
Section 8 - A majority of the members of a committee shall constitute
a quorum for the transaction of business at any meeting of a committee of
the Board, but a fewer number may adjourn the meeting to some other day or
sine die. Each committee shall arrange for the keeping of its
own minutes.
ARTICLE VI
Officers
Section 1 - The Board of Directors shall elect a Chief Executive
Officer, a President, such number of Vice Presidents with such
designations as the Board of Directors at the time may decide upon, a
Secretary, a Treasurer and a Controller. The same person may
simultaneously hold more than one office. The Board of Directors in its
discretion may also elect one or more Assistant Secretaries, one or more
Assistant Treasurers, one or more Assistant Controllers and such other
Officers as may from time to time be provided for by the Board of
Directors. All Officers unless sooner removed shall hold their respective
offices until their successors, willing to serve, shall have been elected
but any Officer may be removed from office at any time at the pleasure of
the Board of Directors. All Officers shall be bonded in such form, in
such amounts, and with such sureties as determined by the Board of
Directors.
Section 2 - Subject to the control of the Board of Directors the
Chief Executive Officer designated by the Board of Directors shall have
and be responsible for the general management and direction of the
business of the Company, shall establish the lines of authority and
supervision of the Officers and employees of the Company, shall have the
power to appoint and remove and discharge any and all agents and employees
of the Company not elected or appointed directly by the Board of
Directors, and shall assist the Board in the formulation of policies of
the Company. The Chairperson of the Board if the Chief Executive Officer
may delegate any part of his or her duties to the President, or to one or
more of the Vice Presidents of the Company.
Section 3 - The Chairperson of the Board if not designated as the
Chief Executive Officer of the Company shall assist the Board in the
formulation of policies and may make recommendations therefore.
Information as to the affairs of the Company in addition to that contained
in the regular reports shall be furnished to him or her on request. He or
she may make suggestions and recommendations to the Chief Executive
Officer regarding any matters relating to the affairs of the Company and
shall be available to the Chief Executive Officer for consultation and
advice.
Section 4 - The President when he or she is not designated as and
does not have the powers of the Chief Executive Officer shall have such
other powers and duties as usually devolve upon the President of a Company
and such other and further powers and duties as may from time to time be
prescribed by the Board of Directors or be delegated to him or her by the
Chairperson of the Board. In the absence or inability to act of the
Chairperson of the Board to act as Chief Executive Officer the powers and
duties of the Chief Executive Officer shall temporarily devolve upon the
President.
Section 5 - Each of the Vice Presidents shall have such powers and
duties as may be prescribed for him or her by the Board of Directors and
by the Chief Executive Officer.
Section 6 - The Secretary shall attend all meetings of the Board of
Directors, shall keep a true and faithful record thereof in proper books
to be provided for that purpose, and shall be responsible for the custody
and care of the corporate seal, corporate records and minute books of the
Company, and of all other books, documents and papers as in the practical
business operation of the Company shall naturally belong in the office or
custody of the Secretary, or shall be placed in his or her custody by the
Chief Executive Officer or by the Board of Directors.
He or she shall also act as Secretary of all shareowners' meetings,
and keep a record thereof. He or she shall, except as may be otherwise
required by statute or by these bylaws, sign, issue and publish all
notices required for meetings of shareowners and of the Board of
Directors. He or she shall be responsible for the custody of the stock
books of the Company and shall keep a suitable record of the addresses of
shareowners. He or she shall also be responsible for the collection,
custody and disbursement of the funds received for dividend reinvestment.
He or she shall sign stock certificates, bonds and mortgages, and all
other documents and papers to which his or her signature may be necessary
or appropriate, shall affix the seal of the corporation to all instruments
requiring the seal, and shall have such other powers and duties as are
commonly incidental to the office of Secretary, or as may be prescribed
for him or her by the Chief Executive Officer or by the Board of
Directors.
Section 7 - The Treasurer shall have charge of, and be responsible
for, the collection, receipt, custody and disbursement of the funds of the
Company, and shall deposit its funds in the name of the Company in such
banks, trust companies, or safety vaults as the Board of Directors may
direct, and shall keep a proper record of cash receipts and disbursements.
He or she may, in the absence of the Secretary and Assistant Secretaries
sign stock certificates. He or she shall be responsible for the custody
of such books, receipted vouchers and other books and papers as in the
practical business operation of the Company shall naturally belong in the
office or custody of the Treasurer, or shall be placed in his or her
custody by the Chief Executive Officer, or by the Board of Directors. He
or she shall sign checks, drafts, and other paper providing for the
payment of money by the Company for operating purposes in the usual course
of business, and shall have such other powers and duties as are commonly
incidental to the office of Treasurer, or as may be prescribed for him or
her by the Chief Executive Officer or by the Board of Directors.
Section 8 - The Controller shall be the principal accounting Officer
of the Company. He or she shall have general supervision over the books
of accounts of the Company. He or she shall examine the accounts of all
Officers and employees from time to time and as often as practicable, and
shall see that proper returns are made of all receipts from all sources.
All bills, properly made in detail and certified, shall be submitted to
him or her, and he or she shall audit and approve the same if found
satisfactory and correct, but he or she shall not approve any voucher
unless charges covered by the voucher have been previously approved
through work orders, requisition or otherwise by the head of the
department in which it originated, or unless he or she shall be otherwise
satisfied of its propriety and correctness. He or she shall have full
access to all minutes, contracts, correspondence and other papers and
records of the Company relating to its business matters, and shall be
responsible for the custody of such books and documents as shall naturally
belong in the custody of the Controller and as shall be placed in his or
her custody by the Chief Executive Officer or by the Board of Directors.
The Controller shall have such other powers and duties as are commonly
incidental to the office of Controller, or as may be prescribed for him or
her by the Chief Executive Officer or by the Board of Directors.
Section 9 - The Assistant Secretaries, Assistant Treasurers and
Assistant Controllers shall respectively assist the Secretary, Treasurer
and Controller of the Company in the performance of the respective duties
assigned to such principal Officer, and in assisting his or her principal
Officer each assistant Officer shall to that extent and for such purpose
have the same powers as his or her principal Officer. The powers and
duties of any such principal Officer shall temporarily devolve upon an
assistant Officer in case of the absence, disability, death, resignation
or removal from office of such principal Officer.
Section 10 - In the event of the untimely death or absence or
inability to act of the Chief Executive Officer, his or her powers and
duties shall devolve temporarily in the following manner: first to any
former Chief Executive Officer who is a member of the Board, next, to the
Board member with the longest tenure on the Board. Within sixty (60)
days, the temporary Chief Executive Officer shall notify the outside
members of the Board of the absence or inability to act of the Chief
Executive Officer and shall convene a meeting of the outside members of
the Board, who shall act as a Committee. The Committee shall determine
and evaluate all the facts pertinent to the Chief Executive Officer's
absence or inability to act, and then make such recommendations to the
Board of Directors as it deems appropriate under the circumstances. The
Board of Directors shall meet and act upon said recommendations within
thirty (30) days following the determinations of said Committee.
ARTICLE VII
Cash Management
Section 1 - Deposits - The funds of the Company shall be deposited to
its credit in such banks or trust companies ("depositories") as the
Treasurer and Vice President-Finance shall designate or in the manner
provided in Paragraph 5 of Section 2 of this Article. All deposits in any
depository shall be made initially to the general account of the Company
and not to any special account, fund or deposit. All special accounts,
funds or deposits shall be created and maintained solely by transfers of
funds from the general account.
Section 2 - Withdrawals and Check Signing -
1. Funds shall be withdrawn only by Company check or draft except:
a. to effect transfers of funds between Company accounts
maintained at one or more depositories;
b. as provided in paragraph 5 of this Section 2 and Section 3 of
this Article; or
c. as provided by resolution of the Board of Directors.
2. No debts shall be contracted except for current expenses unless
authorized by the Board of Directors or the Executive Committee,
and no invoices shall be paid by the Treasurer unless audited and
approved by the Controller or by a person or committee
specifically authorized by the Board of Directors or the
Executive Committee to audit and approve invoices for payment.
3. Checks, drafts and notes drawn on any account or deposit of the
Company (except those special purpose accounts specified in
paragraphs 5 and 6 of this Section and except drafts specified in
paragraph 7 of this Section) shall be valid instruments when
signed on behalf of the Company by the Vice President-Finance,
the Treasurer or an Assistant Treasurer. Instruments may be
signed by the facsimile signature of the Vice President-Finance
or the Treasurer.
4. For the purposes of this Section, a facsimile signature of any
Officer of the Company shall mean a stamp or perforation of that
Officer's signature. Each depository is authorized to honor
instruments signed in this manner provided the facsimile
resembles a specimen on file which has been certified by the
Secretary or other duly authorized Officer of the Company.
5. In addition to the provisions of Section 1 of this Article VII,
the Treasurer of the Company is authorized to establish petty
cash funds, on an imprest basis. Each such account shall be
designated as a "Cashier's Trust Account" and shall be separately
maintained and accounted for by the cashier or other employee
assigned such responsibility by the Treasurer.
a. Checks drawn on a Cashier's Trust Account may be signed and
countersigned on behalf of the Company by such employees as
the Treasurer or Vice President-Finance may from time to time
authorize and designate; provided, however, that no such
check shall be signed and countersigned by the same person.
b. No payment out of petty cash funds, whether by cash or check,
shall exceed $2,500 in the case of payments by district
offices, area offices or the Treasury Department, or $1,000
in the case of payments by generating stations.
6. Checks drawn on special accounts which the Company creates or
maintains for the payment of dividends may be signed by the
manual or facsimile signature of its Chief Executive Officer
or President and shall not require any countersignature.
7. Sight drafts may be drawn on the Treasury of the Company as
follows:
a. Any employee authorized by the treasurer of the Company may
draw such sight drafts in amounts not exceeding $10,000
payable to any one person in exchange for release of the
Company from claims for personal injury and/or property
damage.
b. Any employee or agent authorized by the treasurer of the
Company may draw such sight drafts in amounts not exceeding
$10,000 payable to any one person or in any transaction for
right-of-way easements, reimbursements for damages to land,
payments to bind agreements for purchases of real estate and
payments of document recording fees.
8. All bonds and notes issued under an indenture or mortgage shall
be executed on behalf of the Company by the manual or facsimile
signature of its Chief Executive Officer, President or a Vice
President and its Secretary or an Assistant Secretary, unless
otherwise provided by resolution of the Board of Directors.
Section 3 - Special Withdrawals - The President, any Vice President,
the Treasurer, or any Assistant Treasurer of the Company, or any person
authorized in writing by any of the foregoing Officers, is authorized to
direct any depository:
1. to charge amounts directly to the account of the Company without
the issuance of a check or draft of the Company, for the purpose
of paying principal of and interest on bonds and notes issued by
the Company, and
2. to accept and process data submitted via electronic means or by
wire transfer for purposes of receipt or disbursement of funds;
provided that such direction is in writing and describes the type of such
transactions permitted to be made by such depository.
ARTICLE VIII
Miscellaneous
Section 1 - All dividends shall be declared by a vote of the Board of
Directors.
Section 2 - The fiscal year of the Company shall close at the end of
December of each calendar year.
Section 3 - All or any shares of stock of any corporation owned by
this Company may be voted at any meeting of the shareowners of such
corporation by the Chief Executive Officer of this Company or such other
person as may be designated by the Chief Executive Officer for that
purpose, upon any question that may be presented at such meeting, and the
Chief Executive Officer or such other person may, on behalf of the
Company, waive any notice of the calling of such meeting required by any
statute or by-law and consent to the holding of any such meeting without
notice. The Chief Executive Officer or such other person as may be
designated by the Board of Directors to vote stock owned by this Company
shall have authority to give to any person a written proxy, in the name of
this Company and under its corporate seal, to vote at any meeting of the
shareowners of any corporation all or any shares of stock of such
corporation owned by this Company, upon any question that may be presented
at such meeting, with full power to waive any notice of the calling of
such meeting required by any statute or by-law and to consent to the
holding of any such meeting without notice.
ARTICLE IX
Amendment or Repeal of Bylaws
These bylaws may be altered, amended or repealed by the Board of
Directors at any regular or special meeting of the Board, or at any Annual
Meeting or Special Meeting of Shareowners by the affirmative vote of
owners of shares of outstanding voting stock of the Company having in the
aggregate a number of votes at least equal to a majority of the aggregate
number of votes possessed by all such owners (provided it shall have been
stated in the notice calling any such Special Meeting of Shareowners that
it is proposed at such meeting to alter, amend or rescind the bylaws), or
in such other manner as may be provided by law or in the Restated Articles
of Organization.
ARTICLE X
Indemnification and Liability of
Corporate Directors and Officers
Section 1 - Definitions Applicable to Article X - In this
Article X:
1. "Corporation" means Wisconsin Power and Light Company.
2. "Director or Officer" means any of the following:
a. A natural person who is or was a Director or Officer of the
Corporation.
b. A natural person who, while a Director or Officer of the
Corporation, is or was serving at the Corporation's request
as a Director, Officer, partner, trustee, member of any
governing or decision-making committee, employee or agent of
another corporation or foreign corporation, partnership,
joint venture, trust or other enterprise.
c. A natural person who, while a Director or Officer of the
Corporation, is or was serving an employee benefit plan
because his or her duties to the Corporation also impose
duties on, or otherwise involve services by, the person to
the plan or to participants in or beneficiaries of the plan.
d. Unless the context requires otherwise, the estate or personal
representative of a Director or Officer.
3. "Expenses" include fees, costs, charges, disbursements, attorney
fees and any other expenses incurred in connection with a
proceeding.
4. "Liability" includes the obligation to pay a judgment,
settlement, penalty, assessment, forfeiture or fine, including an
excise tax assessed with respect to an employee benefit plan, and
reasonable expenses.
5. "Party" includes a natural person who was or is, or who is
threatened to be made, a named defendant or respondent in a
proceeding.
6. "Proceeding" means any threatened, pending or completed civil,
criminal, administrative or investigative action, suit,
arbitration or other proceeding, whether formal or informal,
which involves foreign, federal, state or local law and which is
brought by or in the right of the Corporation or by any other
person.
Section 2 - Mandatory Indemnification -
1. The Corporation shall indemnify a Director or Officer, to the
extent he or she has been successful on the merits or
otherwise in the defense of a proceeding, for all reasonable
expenses incurred in the proceeding if the Director or
Officer was a party because he or she is a Director or
Officer of the Corporation.
2. a. In cases not included under sub. 1., the Corporation shall
indemnify a Director or Officer against liability incurred by
the Director or Officer in a proceeding to which the Director
or Officer was a party because he or she is a Director or
Officer of the Corporation, unless liability was incurred
because the Director or Officer breached or failed to perform
a duty he or she owes to the Corporation and the breach or
failure to perform constitutes any of the following:
1) A willful failure to deal fairly with the Corporation or
its shareholders in connection with a matter in which the
Director or Officer has a material conflict of interest.
2) A violation of criminal law, unless the Director or
Officer had reasonable cause to believe his or her
conduct was lawful or no reasonable cause to believe his
or her conduct was unlawful.
3) A transaction from which the Director or Officer derived
an improper personal profit.
4) Willful misconduct.
b. Determination of whether indemnification is required under
this subsection shall be made under Section 3.
c. The termination of a proceeding by judgment, order,
settlement or conviction, or upon a plea of no contest or an
equivalent plea, does not, by itself, create a presumption
that indemnification of the Director or Officer is not
required under this subsection.
3. A Director or Officer who seeks indemnification under this
section shall make a written request to the Corporation.
4. a. Indemnification under this Article X is not required to the
extent limited by the articles of incorporation under
Section 180.048, Wis. Stats.
b. Indemnification under this Article X is not required if the
Director or Officer has previously received indemnification
or allowance of expenses from any person, including the
Corporation, in connection with the same proceeding.
Section 3 - Determination of Right to Indemnification - Unless
otherwise provided by the articles of incorporation or bylaws or by
written agreement between the Director or Officer and the Corporation, the
Director or Officer seeks indemnification under Section 2, 2. shall select
one of the following means for determining his or her right to
indemnification:
1. By a majority vote of a quorum of the Board of Directors
consisting of Directors not at the time parties to the same or
related proceedings. If a quorum of disinterested Directors
cannot be obtained, by majority vote of a committee duly
appointed by the Board of Directors and consisting solely of 2 or
more Directors not at the time parties to the same or related
proceedings. Directors who are parties to the same or related
proceedings may participate in the designation of members of the
committee.
2. By independent legal counsel selected by a quorum of the Board of
Directors or its committee in the manner prescribed in 1., above,
if unable to obtain such a quorum or committee, by a majority
vote of the full Board of Directors, including Directors who are
parties to the same or related proceedings.
3. By a panel of three arbitrators consisting of one arbitrator
selected by those Directors entitled under 2., above, to select
independent legal counsel, one arbitrator selected by the
Director or Officer seeking indemnification and one arbitrator
selected by the two arbitrators previously selected.
4. By an affirmative vote of shares as provided in Section 180.28,
Wis. Stats., shares owned by, or voted under the control of,
persons who are at the time parties to the same or related
proceedings, whether as plaintiffs or defendants or in any other
capacity, may not be voted in making the determination.
5. By a court under Section 180.051, Wis. Stats., as created by 1987
Wisconsin Act 13.
6. By any other method provided for in any additional right to
indemnification permitted under Section 5, below.
Section 4 - Allowance of Expenses as Incurred - Upon written request
by a Director or Officer who is a party to a proceeding, the Corporation
may pay or reimburse his or her reasonable expenses as incurred if the
Director or Officer provides the Corporation with all of the following:
1. A written affirmation of his or her good faith belief that he or
she has not breached or failed to perform his or her duties to
the Corporation.
2. A written undertaking, executed personally or on his or her
behalf, to repay the allowance and/if required by the
Corporation, to pay reasonable interest on the allowance to the
extent that it is ultimately determined under Section 3, above,
that indemnification under Section 2, above, is not required and
that indemnification is not ordered by a court. The undertaking
under this subsection shall be an unlimited general obligation of
the Director or Officer and may be accepted without reference to
his or her ability to repay the allowance. The undertaking may
be secured or unsecured.
Section 5 - Additional Rights to Indemnification and Allowance of
Expenses
1. Except as provided in 2. below, Sections 2 and 4 above, do not
preclude any additional right to indemnification or allowance of
expenses that a Director or Officer may have under any of the
following:
a. The articles of incorporation or bylaws.
b. A written agreement between the Director or Officer and the
Corporation.
c. A resolution of the Board of Directors.
d. A resolution, after notice, adopted by a majority vote of all
the Corporation's voting shares then issued and outstanding.
2. Regardless of the existence of an additional right under
subsection 1., above, the Corporation may not indemnify a
Director or Officer, or permit a Director or Officer to retain
any allowance of expenses unless it is determined by or on behalf
of the Corporation that the Director or Officer did not breach or
fail to perform a duty he or she owes to the Corporation which
constitutes conduct under Section 2, 2. a. 1), 2), 3) or 4). A
Director or Officer who is a party to the same or related
proceeding for which indemnification or an allowance of expenses
is sought may not participate in a determination under this
subsection.
3. No provision of this Article X shall affect the Corporation's
power to pay or reimburse expenses incurred by a Director or
Officer in any of the following circumstances:
a. As a witness in a proceeding to which he or she is not a
party.
b. As a plaintiff or petitioner in a proceeding because he or
she is or was an employee, agent, Director or Officer of the
Corporation.
Section 6 - Insurance - The Corporation may purchase and maintain
insurance on behalf of an individual who is an employee, agent, Director
or Officer of the Corporation against liability asserted against or
incurred by the individual in his or her capacity as an employee, agent,
Director or Officer or arising from his or her status as an employee,
agent, Director or Officer, regardless of whether the Corporation is
required or authorized to indemnify or allow expenses to the individual
against the same liability under Sections 2, 3, 4 or 5 of this Article X.
Section 7 - Indemnification and Insurance Against Securities
Law Claims - Sections 1 through 6, inclusive, apply to the extent
applicable to any other proceeding, to any proceeding involving a federal
or state statute, rule or regulation regulating the offer, sale or
purchase of securities, securities brokers or dealers, or investment
companies or investment advisers.
Section 8 - Reliance by Directors or Officers -
1. Unless the Director or Officer has knowledge that makes reliance
unwarranted, a Director or Officer, in discharging his or her
duties to the Corporation, may rely on information, opinions,
reports or statements, any of which may be written or oral,
formal or informal, including financial statements and other
financial data, if prepared or presented by any of the following:
a. An Officer or employee of the Corporation whom the Director
or Officer believes in good faith to be reliable and
competent in the matters presented.
b. Legal counsel, public accountants or other persons as to
matters the Director or Officer believes in good faith are
within the person's professional or expert competence.
c. In the case of reliance by a Director, a committee of the
Board of Directors of which the Director is not a member if
the Director believes in good faith that the committee merits
confidence.
2. This section does not apply to a Director's reliance under
Section 180.40(3), Wis. Stats., as in effect on the date of
adoption hereof.
Section 9 - Consideration of Interests in Addition to Shareholders'
Interests - In discharging his or her duties to the Corporation and in
determining what he or she believes to be in the best interests of the
Corporation, a Director or Officer may, in addition to considering the
effects of any action on shareholders, consider the following:
1. The effects of the action on employees, suppliers and customers
of the Corporation.
2. The effects of the action on communities in which the Corporation
operates.
3. Any other factors the Director or Officer considers pertinent.
EXHIBIT 21
WISCONSIN POWER AND LIGHT AND SUBSIDIARIES
The material subsidiaries of WP&L as of December 31, 1995, are as follows:
% of Voting
Stock Owned
Directly or
State of Indirectly by
Name of Subsidiary Incorp. WP&L
1. South Beloit Water, Gas
and Electric Company Illinois 100%
2. REAC, Inc Wisconsin 100%
3. Wisconsin River Power Company Wisconsin 33-1/3%
4. Wisconsin Valley Improvement
Company Wisconsin 13%
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-K FILED BY WISCONSIN POWER AND
LIGHT COMPANY FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1299890
<OTHER-PROPERTY-AND-INVEST> 34763
<TOTAL-CURRENT-ASSETS> 101387
<TOTAL-DEFERRED-CHARGES> 205125
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1641165
<COMMON> 66183
<CAPITAL-SURPLUS-PAID-IN> 199170
<RETAINED-EARNINGS> 297717
<TOTAL-COMMON-STOCKHOLDERS-EQ> 563070
0
59963
<LONG-TERM-DEBT-NET> 318599
<SHORT-TERM-NOTES> 16000
<LONG-TERM-NOTES-PAYABLE> 56975
<COMMERCIAL-PAPER-OBLIGATIONS> 56500
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 570058
<TOT-CAPITALIZATION-AND-LIAB> 1641165
<GROSS-OPERATING-REVENUE> 689672
<INCOME-TAX-EXPENSE> 45606
<OTHER-OPERATING-EXPENSES> 197396
<TOTAL-OPERATING-EXPENSES> 579326
<OPERATING-INCOME-LOSS> 110346
<OTHER-INCOME-NET> 1187
<INCOME-BEFORE-INTEREST-EXPEN> 111810
<TOTAL-INTEREST-EXPENSE> 33158
<NET-INCOME> 78652
3310
<EARNINGS-AVAILABLE-FOR-COMM> 75342
<COMMON-STOCK-DIVIDENDS> 56778
<TOTAL-INTEREST-ON-BONDS> 30841
<CASH-FLOW-OPERATIONS> 196270
<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>
