SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934
------
For the quarterly period ended September 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
------ THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-337
WISCONSIN POWER AND LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Wisconsin 39-0714890
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
222 West Washington Avenue, Madison, Wisconsin 53703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 608-252-3311
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock Outstanding at September 30, 1996: 13,236,601 shares
<PAGE>
CONTENTS
PAGE
PART I. Financial Information:
Consolidated Financial Statements of Wisconsin
Power and Light Co.
Consolidated Balance Sheets as of September 30,
1996 and 1995 and December 31, 1995 . . . . . . . 2,3
Consolidated Statements of Income for the Three
and Twelve Months Ended September 30, 1996 and
1995 . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Three and Twelve Months Ended September 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 7
PART II. Other Information . . . . . . . . . . . . . . . . 17
Signature . . . . . . . . . . . . . . . . . . . . 18
Exhibit Index . . . . . . . . . . . . . . . . . . 19
<PAGE>
<TABLE>
WISCONSIN POWER AND LIGHT COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
September 30, September 30, December 31,
1996 1995 1995
(Thousands of Dollars)
<S> <C> <C> <C>
ASSETS
UTILITY PLANT:
Plant in service--
Electric..................................................... $ 1,700,226 $ 1,648,378 $ 1,666,134
Gas.......................................................... 223,889 212,475 217,678
Water........................................................ 23,818 22,192 22,518
Common....................................................... 144,567 130,954 136,943
---------- ---------- ----------
2,092,500 2,013,999 2,043,273
Less: Accumulated provision for depreciation................... 951,086 869,343 887,562
---------- ---------- ----------
1,141,414 1,144,656 1,155,711
Construction work in progress.................................. 71,360 34,758 36,996
Nuclear fuel, net.............................................. 18,191 15,209 18,867
---------- ---------- ----------
Total utility plant.......................................... 1,230,965 1,194,623 1,211,574
---------- ---------- ----------
OTHER PROPERTY AND EQUIPMENT, net................................ 1,391 19,047 22,275
---------- ---------- ----------
INVESTMENTS:
Nuclear decommissioning trust funds............................ 85,473 66,559 73,357
Other investments.............................................. 13,712 12,316 12,488
---------- ---------- ----------
99,185 78,875 85,845
CURRENT ASSETS:
Cash and equivalents........................................... 2,808 855 4,671
Accounts receivable less allowance for doubtful
accounts of $45, $ 209, and $ 0, respectively................ 13,393 9,886 33,971
Coal, at average cost.......................................... 18,337 17,106 14,625
Materials and supplies, at average cost........................ 21,202 20,481 20,611
Gas in storage, at average cost................................ 11,075 8,244 6,319
Prepayments and other.......................................... 23,773 23,744 21,190
---------- ---------- ----------
Total current assets......................................... 90,588 80,316 101,387
---------- ---------- ----------
OTHER ASSETS:
Regulatory assets........................................... 164,781 159,319 171,699
Deferred charges and other.................................. 50,007 60,685 48,385
---------- ---------- ----------
Total other assets...................................... 214,788 220,004 220,084
---------- ---------- ----------
TOTAL ASSETS..................................................... $ 1,636,917 $ 1,592,865 $ 1,641,165
========== ========== ==========
CAPITALIZATION AND LIABILITIES
Common stock, $5 par value, authorized--
18,000,000 shares; issued and
outstanding--13,236,601 shares............................... $ 66,183 $ 66,183 $ 66,183
Premium on capital stock and capital surplus................... 199,170 199,170 199,170
Reinvested earnings............................................ 321,008 287,392 297,717
---------- ---------- ----------
Total common equity........................................ 586,361 552,745 563,070
PREFERRED STOCK WITHOUT MANDATORY
REDEMPTION:
Cumulative, without par value, authorized
3,750,000 shares maximum aggregate
stated value $150,000,000;
Cumulative, without par value, $100 stated
value, 449,765 shares outstanding....................... 44,977 44,977 44,977
Cumulative, without par value, $25 stated
value, 599,460 shares outstanding....................... 14,986 14,986 14,986
---------- ---------- ----------
Total preferred stock..................................... 59,963 59,963 59,963
FIRST MORTGAGE BONDS, NET........................................ 313,645 318,585 318,599
---------- ---------- ----------
Total capitalization......................................... 959,969 931,293 941,632
---------- ---------- ----------
CURRENT LIABILITIES:
Variable rate demand bonds..................................... 56,975 56,975 56,975
Short-term debt................................................ 36,500 54,500 72,500
Accounts payable............................................... 74,694 69,112 82,428
Accrued payroll and vacation................................... 12,644 12,151 11,011
Accrued taxes.................................................. 7,230 9,681 7,795
Accrued interest............................................... 5,042 5,246 7,574
Other.......................................................... 37,463 17,831 22,356
---------- ---------- ----------
Total current liabilities.................................... 230,548 225,496 260,639
---------- ---------- ----------
OTHER LIABILITIES AND CREDITS:
Accumulated deferred income taxes ............................. 239,168 229,994 239,812
Accumulated deferred investment tax credits.................... 37,409 39,321 38,842
Accrued environmental remediation costs........................ 76,046 78,454 76,852
Other.......................................................... 93,777 88,307 83,388
---------- ---------- ----------
Total other liabilities and credits.......................... 446,400 436,076 438,894
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES............................. $ 1,636,917 $ 1,592,865 $ 1,641,165
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
WISCONSIN POWER AND LIGHT COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
<CAPTION>
Three Months Ended, Twelve Months Ended,
September 30, September 30,
1996 1995 1996 1995
(Thousands of Dollars)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric........................................ $ 153,587 $ 150,708 $ 577,545 $ 539,358
Gas............................................. 10,827 13,601 158,476 130,855
Water........................................... 1,122 1,172 4,159 4,184
-------- -------- -------- --------
165,536 165,481 740,180 674,397
-------- -------- -------- --------
OPERATING EXPENSES:
Electric production fuels....................... 30,419 30,660 114,585 117,423
Purchased power................................. 22,201 14,936 67,698 39,664
Purchased gas................................... 6,398 8,108 97,104 81,111
Other operation................................. 34,887 32,069 134,397 147,647
Maintenance..................................... 10,746 9,793 39,439 42,903
Depreciation.................................... 21,111 20,329 85,215 77,434
Taxes --
Current federal income........................ 6,748 7,962 38,504 27,446
Deferred income taxes......................... 1,923 3,910 6,334 9,885
Investment tax credit (restored).............. (478) (479) (1,913) (1,919)
Current state income.......................... 1,665 2,223 9,258 7,032
Property, payroll & other..................... 7,149 6,908 29,276 27,620
-------- -------- -------- --------
142,769 136,419 619,897 576,246
-------- -------- -------- --------
OPERATING INCOME.................................. 22,767 29,062 120,283 98,151
-------- -------- -------- --------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during
construction.................................. 494 454 1,650 2,394
Other, net...................................... 640 511 6,644 (1,326)
Current income tax.............................. (381) (188) (5,033) 310
Deferred income tax............................. (42) 15 2,383 (104)
-------- -------- -------- --------
711 792 5,644 1,274
-------- -------- -------- --------
INCOME BEFORE INTEREST EXPENSE.................... 23,478 29,854 125,927 99,425
-------- -------- -------- --------
INTEREST EXPENSE:
Interest on bonds............................... 6,705 6,798 26,984 29,020
Allowance for borrowed funds used
during construction (credit).................. (247) (152) (971) (703)
Other........................................... 1,040 1,256 5,490 3,535
-------- -------- -------- --------
7,498 7,902 31,503 31,852
-------- -------- -------- --------
NET INCOME........................................ 15,980 21,952 94,424 67,573
PREFERRED STOCK DIVIDENDS......................... 828 828 3,310 3,311
-------- -------- -------- --------
NET INCOME AFTER PREFERRED STOCK
DIVIDENDS......................................... $ 15,152 $ 21,124 $ 91,114 $ 64,262
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
WISCONSIN POWER AND LIGHT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Three Months Ended Twelve Months Ended
September 30, September 30,
1996 1995 1996 1995
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Cash flows from (used for) operating activities:
Net income........................................... $ 15,980 $ 21,952 $ 94,424 $ 67,573
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation....................................... 21,111 20,329 85,215 77,434
Amortization of nuclear fuel....................... 1,727 2,165 8,274 7,538
Gain on sale of other property and
equipment....................................... - - (5,676) -
Deferred income tax and investment
tax credit ..................................... 1,403 3,374 4,405 8,071
Allowance for equity funds used during
construction.................................... (494) (454) (1,650) (2,394)
Changes in assets and liabilities:
Net accounts receivable and unbilled revenues...... 3,853 2,887 (3,507) 3,448
Production fuels, materials and
supplies........................................ (3,687) (3,857) (1,952) (1,033)
Gas in storage..................................... (6,460) (3,066) (2,831) 2,165
Prepayments and other.............................. 1,884 3,410 (28) (3,330)
Accounts payable and accruals...................... 12,669 2,402 5,871 15,800
Accrued taxes...................................... (7,470) 904 (2,451) (6,694)
Other, net......................................... (787) 9,853 1,911 44,728
-------- -------- -------- --------
Net cash generated from (used for)
operating activities.......................... 39,729 59,899 182,005 213,306
-------- -------- -------- --------
Cash flows from (used for)
financing activities:
Common stock cash dividends.......................... (14,367) (14,148) (57,497) (56,631)
Preferred stock dividends............................ (828) (828) (3,310) (3,311)
Net change in short term debt........................ 13,500 (13,500) (18,000) 22,500
Retirement of first mortgage bonds................... - - (5,011) (17,990)
Equity contribution from parent...................... - - - 182
-------- -------- -------- --------
Net cash from (used for) financing
activities...................................... (1,695) (28,476) (83,818) (55,250)
-------- -------- -------- --------
Cash flows from (used for) investing
activities:
Sale of other property and equipment................. - - 36,264 -
Additions to utility plant, excluding
AFUDC............................................ (34,202) (21,247) (125,158) (127,205)
Allowance for borrowed funds used
during construction.............................. (247) (152) (971) (703)
Dedicated decommissioning funds...................... (726) (2,217) (18,914) (14,656)
Other, net........................................... (6,917) (10,889) 12,545 (18,935)
-------- -------- -------- --------
Net cash from (used for) investing
activities....................................... (42,092) (34,505) (96,234) (161,499)
-------- -------- -------- --------
Net increase (decrease) in cash and
equivalents......................................... (4,058) (3,082) 1,953 (3,443)
Cash and equivalents at beginning of
period.............................................. 6,866 3,937 855 4,298
-------- -------- -------- --------
Cash and equivalents at end of
period.............................................. $ 2,808 $ 855 $ 2,808 $ 855
======== ======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest - debt.................................... $ 9,415 $ 9,131 $ 30,935 $ 30,675
Income taxes....................................... $ 2,005 $ 8,311 $ 26,683 $ 22,159
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have
been prepared by Wisconsin Power & Light Company (the "Company" or
"WP&L"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The
consolidated financial statements include the Company and its
wholly owned consolidated subsidiaries. The Company is a subsidiary
of WPL Holdings, Inc. These financial statements should be read in
conjunction with the financial statements and the notes thereto
included in the Company's latest Annual Report on Form 10-K.
In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
presentation of (a) the consolidated results of operations for the
three and twelve month periods ended September 30, 1996 and 1995,
(b) the consolidated financial position at September 30, 1996 and
1995 and December 31, 1995, and (c) the consolidated statement of
cash flows for the three and twelve month periods ended
September 30, 1996 and 1995 have been made.
2. During the first quarter of 1996, the Financial Accounting
Standards Board issued an Exposure Draft on Accounting for
Liabilities Related to Closure and Removal of Long-Lived Assets
which deals with, among other issues, the accounting for
decommissioning costs. If current electric utility industry
accounting practices for such decommissioning are changed: (1)
annual provisions for decommissioning could increase, (2) the
estimated cost for decommissioning could be recorded as a liability
rather than as accumulated depreciation, with recognition of an
increase in the recorded amount of nuclear plant, and (3) trust
fund income from the external decommissioning trusts could be
reported as investment income rather than as a reduction to
decommissioning expense. Given the preliminary nature of the
process, the Company cannot currently determine what impact, if
any, this process may have on the Company's financial condition or
results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. SEPTEMBER 30, 1995:
The Company reported consolidated third quarter net income of
$16.0 million compared to $22.0 million for the same period in 1995. The
impact of cooler summer weather on higher-margin residential electric
sales combined with an increase in operations and maintenance expense
resulted in lower earnings compared with the same quarter in 1995.
<TABLE>
Electric Operations
<CAPTION>
Revenues
and Costs % kWhs Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and
Farm $50,863 $55,870 (9)% 758,394 843,617 (10)% 336,221 330,229 2%
Industrial 36,789 36,497 1% 1,025,866 1,001,149 2% 816 791 3%
Commercial 28,150 28,704 (2)% 493,528 502,534 (2)% 45,558 44,575 2%
Wholesale and
Class A 36,134 29,374 23% 1,371,639 831,530 65% 93 81 15%
Other 1,651 263 528% 13,193 12,065 9% 1,741 1,503 16%
------- ------- --------- --------- ------- -------
Total 153,587 150,708 2% 3,662,620 3,190,895 15% 384,429 377,179 2%
------- ------- ========= ========= ======= =======
Electric
Production
Fuels 30,419 30,660 (6%)
Purchased Power 22,201 14,936 49%
------- -------
Margin $100,967 $105,112 (4)%
======= =======
</TABLE>
Electric revenues increased $2.9 million, or 2 percent, as
compared to the third quarter of 1995. The increase was the result of a 15
percent increase in kWh sales primarily due to increased bulk power sales
and continued customer growth during the third quarter of 1996.
Electric margin decreased $4.1 million, or 4 percent, during the
third quarter of 1996 compared to the third quarter of 1995 primarily due
to a change in the mix of sales from higher margin residential customers
to lower margin bulk power sales. The decline in residential sales
reflects a much cooler summer in 1996 as compared to the extreme heat
experienced in the summer of 1995. The decrease in residential and
commercial revenues was offset somewhat by opportunities for the Company
to increase its sales of power to other utilities. The 49 percent increase
in purchased power expense reflects both increased sales and the
availability of competitively priced off-system power.
<TABLE>
Gas Operations
<CAPTION>
Revenues Therms Sold
and Costs % (In Thousands) % Customers at %
(In Thousands) Change Change End of Quarter Change
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and
Farm $5,576 $5,177 8% 7,564 7,761 (3)% 132,084 127,428 4%
Firm 3,625 3,474 4% 6,659 7,433 (10)% 16,169 15,698 3%
Interruptible 377 357 6% 987 1,134 (13)% 247 226 9%
Transport. and
Other 1,249 4,593 (73)% 38,044 36,319 5% 254 255 (0)%
------- ------- ------- ------- ------- -------
Total 10,827 13,601 (20)% 53,254 52,647 1% 148,754 143,607 4%
------- ------- ======= ======= ======= =======
Purchased Gas 6,398 8,108 (21)%
------- -------
Margin 4,429 5,493 (19)%
======= =======
</TABLE>
Gas revenues decreased $2.8 million, or 20 percent, in the third
quarter of 1996 as compared to 1995. A somewhat milder third quarter of
1996 resulted in a 3 percent decease in high margin residential sales. In
addition, a change in the sales mix, on a therms sold basis, resulted in a
10 and 13 percent decrease in firm and interruptible sales, respectively,
with a 5 percent increase in transportation sales. The gas incentive
program authorized by the Public Service Commission of Wisconsin (PSCW)
resulted in additional earnings of $0.2 million pre-tax during the third
quarter of 1996 compared with a slight loss for the same period in 1995.
Growth in the economic service territory resulted in a 4 percent increase
in customers.
The review of the gas incentive program for 1995 by the PSCW
was completed and will result in a November 1996 refund to residential
natural gas customers of $3.3 million. The full amount of the refund will
be reflected in the financial results in the fourth quarter 1996, which is
expected to have no material impact on earnings.
Other Operation and Maintenance
Other operations and maintenance expense increased $3.8 million.
Merger expenses of $1.6 million were recorded in the third quarter of
1996. In addition, both employee welfare plan expense and Kewaunee
maintenance expenses increased in the third quarter of 1996 compared with
the same period in 1995.
Income Taxes
Income taxes decreased between third quarters consistent with
lower taxable income.
TWELVE MONTHS ENDED SEPTEMBER 30, 1996 VS. SEPTEMBER 30, 1995:
The Company reported consolidated net income of $94.4 million
for the twelve months ended September 30, 1996, as compared to $67.6
million for the same period in 1995. Weather-driven sales growth along
with continued customer growth in the service territory contributed to
increased electric and gas margins as compared with the twelve months
ended September 30, 1995. In addition, a $3.4 million after-tax gain on
the sale of a combustion turbine was recognized during the twelve months
ended September 30, 1996. Other operation expense decreased primarily due
to higher early retirement and severance expenses during the twelve-month
period ended September 30, 1995, and a shift in the refueling cycle at
Kewaunee from the second quarter of 1995 to the end of the third quarter
of 1996.
<TABLE>
Electric Operations
<CAPTION>
Revenues
and Cost % kWh Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and
Farm $199,134 $199,344 - 2,928,103 2,918,306 - 336,221 330,229 2%
Industrial 143,780 140,867 2% 3,957,926 3,868,308 2% 816 791 3%
Commercial 104,037 101,852 2% 1,800,120 1,744,523 3% 45,558 44,575 2%
Wholesale and
Class A 124,330 89,937 38% 4,818,134 2,747,997 75% 93 81 15%
Other 6,264 7,358 (15)% 57,338 53,459 7% 1,741 1,503 16%
------- ------- ---------- ---------- ------- -------
Total 577,545 539,358 7% 13,561,621 11,332,593 20% 384,429 377,179 2%
------- ------- ========== ========== ======= =======
Electric
production
fuels 114,585 117,423 (2)%
Purchased Power 67,698 39,664 71%
------- -------
Margin $395,262 $382,271 3%
======= =======
</TABLE>
Electric revenues increased $38.2 million, or 7 percent, as
compared to the twelve months ended September 30, 1995. The increase was
the result of a 20 percent increase in kWh sales primarily due to higher
sales to other utilities, colder winter weather in 1996, and customer
growth.
Electric margin increased $13.0 million, during the twelve
months ended September 30, 1996, compared to the same period in 1995.
Higher sales to commercial and industrial customers as well as other
utilities combined with reduced costs per kWh for electric production
fuels and purchased power resulted in a 3 percent increase in electric
margin. Although total fuel and purchased power costs declined on a per
kWh basis, purchased power expense increased by 71 percent. This increase
is due to the Company's higher level of sales to other utilities as well
as the opportunity to purchase low cost energy. Partially offsetting
increased purchased power costs are slightly lower delivered coal and
nuclear fuel costs per kWh.
<TABLE>
Gas Operations
<CAPTION>
Revenues Therms Sold
and Costs % (In Thousands) % Customers at %
(In Thousands) Change Change End of Quarter Change
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and $85,354 $64,562 32% 142,024 115,591 23% 132,084 127,428 4%
Firm 47,632 36,031 32% 98,997 82,706 20% 16,169 15,698 3%
Interruptible 3,626 4,730 (23)% 10,526 14,990 (30)% 247 226 9%
Transport. and
Other 21,864 25,532 (14)% 176,450 160,382 10% 254 255 (0)%
------- ------- ------- ------- ------- -------
Total 158,476 130,855 21% 427,997 373,669 15% 148,754 143,607 4%
======= ======= ======= ======= ======= =======
Purchased Gas 97,104 81,111 20%
------- -------
Margin $61,372 $49,744 23%
======= =======
</TABLE>
Gas revenues increased $27.6 million, or 21 percent, during the
twelve months ended September 30, 1996, as compared to the twelve months
ended September 30, 1995. The higher revenues were the result of a 15
percent rise in therm sales primarily due to colder winter weather and
residential and firm customer growth. The higher sales volumes as well as
favorable management of gas supply costs resulted in a $11.6 million, or
23 percent, increase in gas margin.
With the elimination of the purchased gas adjustment clause
effective January 1, 1995, the fluctuations in the commodity cost of gas
above or below a prescribed commodity price index will increase or
decrease WP&L's margin on gas sales. Both benefits and exposures are
subject to customer sharing provisions. WP&L's share is capped at $1.1
million, pre-tax. For the twelve months ended September 30, 1996, the gas
incentive program resulted in additional earnings of $1.0 million pre-tax
compared with additional earnings of $0.6 million pre-tax for the same
period in 1995.
Other Operation and Maintenance
Other operation and maintenance expense declined by $16.7
million primarily due to higher early retirement and severance expenses
during the twelve-month period ended September 30, 1995, related to the
Company's reengineering efforts. In addition, refueling costs at Kewaunee
which occurred during the twelve-month period ended September 30, 1995 did
not begin to occur until late in the third quarter of 1996.
Depreciation
Depreciation expense increased $7.8 million as a result of
property additions and greater amortization of contributions in aid of
construction (a reduction of expense) during the twelve months ended
September 30, 1995.
Income Taxes
Income taxes increased for the twelve month period ended
September 30, 1996, as a result of higher taxable income.
Other Income and Deductions
Other income and deductions increased $4.4 million for the
twelve months ended September 30, 1996 primarily as a result of the
recognition of a $3.4 million after-tax gain on the sale of a combustion
turbine during the twelve months ended September 30, 1996.
TWELVE MONTHS ENDED SEPTEMBER 30, 1996 VS. TWELVE MONTHS ENDED
DECEMBER 31, 1995:
The Company reported consolidated net income of $94.4 million for the
twelve months ended September 30, 1996 as compared to $78.7 million for
the twelve months ended December 31, 1995. Weather-driven sales growth and
increased electric sales to other utilities contributed to increased
electric and gas margins as compared with the twelve months ended December
31, 1995. In addition, a $3.4 million after-tax gain on the sale of a
combustion turbine was recognized during the twelve months ended September
30, 1996. Other operation and maintenance expenses decreased $5.6
million. Partially offsetting the increases to income was a $4.1 million
increase in depreciation expense.
<TABLE>
Electric Operations
<CAPTION>
Revenues
and Costs % kWh Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and
Farm $199,134 $199,850 - 2,928,103 2,937,825 - 336,221 329,643 2%
Industrial 143,780 140,562 2% 3,957,926 3,872,520 2% 816 795 3%
Commercial 104,037 102,129 2% 1,800,120 1,773,406 2% 45,558 44,730 2%
Wholesale and
Class A 124,330 97,350 28% 4,818,134 3,109,385 55% 93 48 94%
Other 6,264 6,433 (3)% 57,338 54,042 6% 1,741 1,294 35%
------- ------- ---------- ---------- ------- -------
Total 577,545 546,324 6% 13,561,621 11,747,178 15% 384,429 376,510 2%
======= ======= ========== ========== ======= =======
Electric
production
fuels 114,585 116,488 (2)%
Purchased Power 67,698 44,940 51%
------- -------
Margin $395,262 $384,896 3%
======= =======
</TABLE>
Electric revenues increased $31.2 million, or 6 percent, as compared
to the twelve months ended December 31, 1995. The increase was the result
of a 55 percent increase in kWh sales to other utilities, and higher
commercial and industrial sales.
Electric margin increased $10.4 million, or 3 percent, during the
twelve months ended September 30, 1996, compared to the twelve months
ended December 31, 1995, primarily due to higher sales (as discussed
above). Aggregate costs of production fuels and purchased power increased
as a result of an 15 percent increase in kWh sales. Because of this
increase in sales and the availability of competitively priced off-system
power, purchased power increased 51 percent.
<TABLE>
Gas Operations
<CAPTION>
Revenues
and Costs % Therms Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and
Farm $85,354 $70,382 21% 142,024 126,903 12% 132,084 129,576 2%
Firm 47,632 39,456 21% 98,997 91,316 8% 16,169 15,976 1%
Interruptible 3,626 3,708 (2)% 10,526 12,148 (13)% 247 257 (4)%
Transport. and
Other 21,864 25,619 (15)% 176,450 169,121 4% 254 284 (11)%
------- ------- ------- ------- ------- -------
Total 158,476 139,165 14% 427,997 399,488 7% 148,754 146,093 2%
======= ======= ======= ======= ======= =======
Purchased Gas 97,104 84,002 16%
------- -------
Margin $61,372 $55,163 11%
======= =======
</TABLE>
Gas revenues increased $19.3 million, or 14 percent, during the
twelve months ended September 30, 1996, as compared to the twelve months
ended December 31, 1995. The higher revenues were the result of a 7
percent rise in therm sales primarily due to colder winter weather in the
first quarter of 1996.
Gas margin increased $6.2 million or 11 percent during the twelve
months ended September 30, 1996, compared with the period ended December
31, 1995, primarily due to a change in the mix of customer sales. The
sales mix indicates a decline of 13 percent in interruptible sales with a
corresponding increase of 12 percent and 8 percent in higher margin
residential and firm sales, respectively.
Other Operation and Maintenance
The decrease in other operation and maintenance expense of $5.6
million is primarily due to the timing of nuclear plant refueling costs.
The refueling costs which occurred during the twelve-month period ended
December 31, 1995 did not begin to occur until late in the third quarter
of 1996.
Depreciation
Depreciation expense increased $4.1 million as a result of property
additions, and a greater amortization of contributions in aid of
construction ( a reduction of expense) during the twelve months ended
December 31, 1995.
Income Taxes
Income taxes increased for the twelve-month period ended September
30, 1996 as a result of higher taxable income.
Other Income and Deductions
Other income and deductions increased $4.2 million primarily as a
result of a $3.4 million after-tax gain on the sale of a combustion
turbine during the twelve months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is primarily determined by the level of cash
generated from operations and the funding requirements of its ongoing
construction and maintenance programs. WP&L finances its construction
expenditures through internally generated funds supplemented, when
required, by outside financing.
During the three and twelve months ended September 30, 1996, and
September 30, 1995, the Company generated sufficient cash flows from
operations, the sale of other property and equipment and short-term
borrowings to cover operating expenses, cash dividends and investing
activities. Cash flows from operations decreased to $39.7 million for the
three months ended September 30, 1996, compared to $59.9 million for the
same period last year. For the twelve-month period ended September 30,
1996, cash flows from operations decreased to $182.0 million from $213.3
million during the same period in 1995. During the twelve-months ended
September 30, 1996, the Company received $36.3 million from the sale of a
combustion turbine. For the twelve-month period ended September 30, 1996,
cash flows from operations decreased to $182.0 million from $196.3 million
for the twelve months ended December 31, 1995.
Financing and Capital Structure
The level of short-term borrowing fluctuates based primarily on
seasonal corporate needs, the timing of long-term financing and capital
market conditions. WP&L generally borrows on a short-term basis to
provide interim financing of construction and capital expenditures in
excess of available internally-generated funds. To maintain flexibility in
its capital structure and to take advantage of favorable short-term rates,
the Company also uses proceeds from the sales of accounts receivable and
unbilled revenues to finance a portion of its long-term cash needs. Bank
lines of credit of $70 million at September 30, 1996 are available to
support these borrowings.
The Company's capitalization at September 30, 1996, including the
current maturities of long-term debt, variable rate demand bonds and
short-term debt, consisted of 56 percent common equity, 6 percent
preferred stock and 38 percent total debt.
Capital Expenditures
WP&L is a capital-intensive business and requires large investments
in long-lived assets. Therefore, the Company's most significant capital
requirements relate to construction expenditures. Construction
expenditures for the three months ended September 30, 1996 were $37.3
million. The estimated construction expenditures for the remainder of
1996 are $34.1 million.
The Company has a 41.0 percent ownership interest in the Kewaunee
Nuclear Power Plant (Kewaunee). The operating partner of this plant is
Wisconsin Public Service Corporation (WPSC).
Kewaunee was taken out of service on September 21, 1996, for a
scheduled refueling and maintenance outage which was originally projected
to be of five weeks duration (i.e., Kewaunee was scheduled to return to
service on October 25, 1996). During the outage, however, electronic
inspection of previously sleeved steam generator tubes disclosed continued
degradation of steam generator tube sleeve joints. There were 907 new
indications of corrosion in Steam Generator A and 587 new indications in
Steam Generator B which would require plugging, except for the impact of
two technical specification changes described below. Plugging of these
tubes would result in the aggregate number of effectively plugged Steam
Generator A tubes of approximately 49% of total tubes and the aggregate
number of effectively plugged Steam Generator B tubes of approximately 34%
of total tubes (each steam generator has a total of 3,388 tubes). In each
instance, this would exceed the currently effective 25% average plugging
limit for each of the two steam generators established by the current
Kewaunee safety analysis report and would prevent further operation of
Kewaunee unless and until the tubes are repaired or the two steam
generators are replaced. WPSC has successfully performed the safety
analyses necessary to increase the steam generator effective plugging
margin from 25% to 30%.
Paragraphs which included forward looking information are preceded by an
asterisk ("*").
*As anticipated in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, the owners of Kewaunee have submitted
requests to the Nuclear Regulatory Commission (NRC) for two technical
specification changes: (1) The first technical specification change,
which was approved in September 1996, relocates the sleeve pressure
boundary and allows leaving in service or unplugging 74 tubes in Steam
Generator A and 52 tubes in Steam Generator B; (2) The second technical
specification change, approval of which is still pending, would allow the
laser weld repair of the remaining sleeve joints thereby allowing the
steam generator tubes with the new indications to remain in service.
Although the Company cannot predict the exact nature and timing of the
NRC's response to the request for the second technical specification
change, the Company currently expects the request to be approved by the
NRC in mid-November of 1996. It is estimated that the repair of the steam
generators will extend the outage six to nine weeks beyond the original
five week period. Based on current estimates, Kewaunee is expected to be
returned to service prior to the end of the year. It is estimated that the
total cost of repairing corroded sleeved tubes utilizing laser welding
repair technology would be $3,000,000 to $5,000,000, WP&L's share being
$1,230,000 to $2,050,000. The current estimated cost to WP&L of purchasing
replacement power is in the range of $430,000 per week more than the cost
of Kewaunee generated power. For 1997, WP&L is pursuing regulatory
approval of one of several alternative cost recovery mechanisms which
would reduce the financial exposure of either an extended Kewaunee outage
or a mid-operating cycle outage.
*Prior to the current refueling outage, Kewaunee was operating at 98%
of full rated capacity due to the plugging of tubes. After the
anticipated repairs to be made during this outage, Kewaunee could be
operating at approximately the same 98% level.
*The duration of the current Kewaunee outage will depend upon a
number of steam generator repair related factors, including: (1) whether
or not the NRC will permit the use of the laser welding repair technology,
(2) the length of time it takes the NRC to respond to Kewaunee's request
for use of the laser welding repair technology, (3) the availability of
the necessary welding equipment and trained personnel to operate the
equipment, (4) the number of tubes to be repaired, (5) the level of
satisfaction the NRC has that the tubes that remain unplugged will perform
safely during the next operating cycle, and (6) the tube repair success
rate. If for any reason the steam generators cannot be repaired, the
ability of the Kewaunee owners to reach consensus on steam generator
replacement and to secure the approval of the PSCW for such replacement
would become critical factors affecting the duration of the current outage
because in that case replacement of steam generators is essential for the
continued operations of Kewaunee.
*If the repairs are made using laser welding technology, such repairs
would only be temporary because corrosion will continue at a rate which
cannot be forecasted accurately. Although WPSC believes that the repairs
could extend the useful life of the steam generators for a period of three
or more years, there has been minimal field experience with this repair
technology, and there can be no assurance that such repairs will be
effective or, once effective, remain effective for any given period of
time. If it should become necessary to retire Kewaunee permanently, WP&L
would replace the Kewaunee generation through a combination of power
purchases, increased generation at existing WP&L generating units and new
generating unit additions if necessary.
Currently, the owners of Kewaunee have different views of the future
market value of energy which impact on the desirability of replacing the
steam generators. During the first quarter of 1996 WPSC filed an
application with the PSCW seeking approval to replace the steam generators
in 1999. WP&L believes that analysis and final action on this application
will take approximately two years to complete. The joint owners continue
to analyze and discuss various options related to the future of Kewaunee,
including various ownership transfer alternatives. The net book value of
WP&L's share of Kewaunee as of September 30, 1996, was $56.2 million.
WP&L has applied to the PSCW for accelerated depreciation of the
remaining book value of Kewaunee such that by the end of the year 2002
there would be full recovery of all plant investment. The request for this
acceleration reflects the condition of the present steam generators and
the evolution of the electric generation marketplace towards a more
competitive model.
Certain matters as identified above are "forward-looking statements"
intended to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to certain risks and uncertainties which could
cause actual results and outcomes to differ materially from those
currently anticipated. In addition to the matters specifically described
in the forward-looking statements, factors that could affect actual
results or outcomes include the timing and nature of regulatory responses
and approvals, technological developments and advancements regarding
repair of the steam generator tubes, the time needed to complete necessary
repairs, the useful life of any repairs effected, and the cost of
purchased electric power or additional generating facilities to replace
the power generated by Kewaunee. Shareholders, potential investors and
other readers are urged to consider these factors in evaluating the
forward-looking statements and are cautioned not to place undue reliance
on such forward-looking statements. The forward-looking statements
included herein are only made as of the date of this Quarterly Report on
Form 10-Q and the Company undertakes no obligation to update publicly such
forward-looking statements to reflect subsequent events or circumstances.
Rates and Regulatory Matters
In the PSCW rate order UR-109, effective January 1, 1995, the PSCW
approved certain incentive programs. In 1995, WP&L collected $2.0 million
pre-tax in revenues for SO2 emissions and service reliability incentive
clauses. Based on the 1995 performance of the SO2 emissions and service
reliability incentive programs a $2.5 million refund was approved by the
PSCW to retail electric customers and was made during the third quarter of
1996.
The gas incentive program for 1995 resulted in a additional earnings
of $1.0 million and a refund to residential natural gas customers of $3.3
million. The refund is expected to occur in November 1996.
WP&L made its required biennial rate case filing with the PSCW on
April 1, 1996. Technical hearings will are anticipated to take place from
November 18, 1996, through November 27, 1996. A final order is expected in
early 1997.
INDUSTRY OUTLOOK
The PSCW's inquiries into the future structure of the natural gas and
electric utility industries are ongoing. The stated goal of the PSCW in
the natural gas docket is to move all gas supply activities out of the
existing regulated distribution utilities and allow independent units to
compete for the business. The goal of the electric restructuring process
is to create open access transmission and distribution services for all
customers with competitive generation and customer service markets.
Additional proceedings as well as consultation with the legislature are
planned prior to a target implementation date after the year 2000.
On April 24, 1996, the Federal Energy Regulatory Commission (FERC)
issued two rules (No. 888 and 889) that will promote competition by
opening access to the nation's wholesale power market. The new rules
require public utilities that own, control or operate transmission
systems to provide other companies with the same transmission
access/service that they provide to themselves. The Company presently has
on file with the FERC a pro forma open access transmission tariff, filed
on July 8, 1996, in compliance with FERC order no. 888. On September 20,
1996, the FERC extended the deadline for compliance with order no. 889 to
January 3, 1997. WP&L will fulfill its requirements through participation
in a regional Open Access Same-time Information System administered by the
Mid-America Interconnected Network, Inc.
On September 26, 1996, the PSCW issued an order which establishes the
minimum Standards for a Wisconsin Independent System Operator (Standards).
The Standards will be applied by the PSCW in Advance Plan proceedings,
merger review cases, transmission construction cases, and other
proceedings as appropriate. The order provides that the Standards will be
reviewed and revised as necessary in light of ongoing regional and
national events such as FERC requirements or policy, regional
institutions, or relevant actions of neighboring states.
INFLATION
The impacts of inflation on WP&L are currently mitigated through
current rate making methodologies. Although rates will be held flat
until at least 1997, management expects that any impact of inflation will
be mitigated by customer growth and productivity improvements.
OTHER
Proposed Merger
WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES"), and
Interstate Power Co. ("IPC") have entered into an Agreement and Plan of
Merger ("Merger Agreement"), dated November 10, 1995, as amended,
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. The holding
company will be renamed Interstate Energy Corporation. Under 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 1.14 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.
WPLH, IES and IPC held separate shareowner meetings on September 5,
1996. At the annual meetings, the shareowners of all three companies
approved the Merger Agreement. In addition to shareholder approval ,
approvals must be secured from regulatory agencies at the federal and
state level.
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareowners held on September 5,
1996, Rockne G. Flowers, Katharine C. Lyall and Henry C. Prange were
elected as directors whose terms will expire in 1999. The following table
sets forth certain information with respect to the election of directors at
the annual meeting.
Shares Withholding
Name of Nominee Shares Voted For Authority
Rockne G. Flowers 13,684,724 3,184
Katharine C. Lyall 13,680,358 7,550
Henry C. Prange 13,679,975 7,933
The following table sets forth the other directors of the Company
whose terms of office continued after the 1996 annual meeting.
Name of Director Year In Which Terms Expires
Erroll B. Davis, Jr. 1997
Milton E. Neshek 1997
Carol T. Toussaint 1997
L. David Carley 1998
Donald R. Haldeman 1998
Arnold M. Nemirow 1998
Judith D. Pyle 1998
At the annual meeting, shareowners approved the appointment of Arthur
Andersen LLP as the Company's independent auditors for the 1996 calendar
year. With respect to such matter, the number of shares voted for and
against were 13,680,666 and 1,643, respectively. The number of
shares abstaining were 5,599.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits
27 Financial Data Schedule
2. Reports on Form 8-K: The Company filed a Current Report on
Form 8-K, dated August 15, 1996 reporting under Item 5 that at the Boards
of Directors of WPLH, IES and IPC authorized the execution and delivery of
a second amendment to the Agreement and Plan of Merger among the parties
increasing the IES exchange ratio from 1.01 to 1.14.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Wisconsin Power and Light Company
Date: November 14, 1996
/s/ Edward M. Gleason
Edward M. Gleason, Controller, Treasurer and
Corporate Secretary (principal accounting officer
and officer authorized to sign on behalf of the
registrant)
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF WISCONSIN POWER AND LIGHT COMPANY AS OF
AND FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996 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-31-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1230965
<OTHER-PROPERTY-AND-INVEST> 100576
<TOTAL-CURRENT-ASSETS> 90588
<TOTAL-DEFERRED-CHARGES> 214788
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1636917
<COMMON> 66183
<CAPITAL-SURPLUS-PAID-IN> 199170
<RETAINED-EARNINGS> 321008
<TOTAL-COMMON-STOCKHOLDERS-EQ> 586361
0
59963
<LONG-TERM-DEBT-NET> 313645
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 56975
<COMMERCIAL-PAPER-OBLIGATIONS> 36500
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 583473
<TOT-CAPITALIZATION-AND-LIAB> 1636917
<GROSS-OPERATING-REVENUE> 740180
<INCOME-TAX-EXPENSE> 54833
<OTHER-OPERATING-EXPENSES> 134397
<TOTAL-OPERATING-EXPENSES> 619897
<OPERATING-INCOME-LOSS> 120283
<OTHER-INCOME-NET> 8294
<INCOME-BEFORE-INTEREST-EXPEN> 125927
<TOTAL-INTEREST-EXPENSE> 31503
<NET-INCOME> 94424
3310
<EARNINGS-AVAILABLE-FOR-COMM> 91114
<COMMON-STOCK-DIVIDENDS> 57497
<TOTAL-INTEREST-ON-BONDS> 30935
<CASH-FLOW-OPERATIONS> 182005
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
<F1>Earnings per share of common stock is not reflected because all of such shares
are held by WPL Holdings, Inc.
</FN>
</TABLE>
