UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission Name of Registrant, State of IRS Employer
File Number Incorporation, Address of Principal Identification
Executive Offices and Telephone Number Number
0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (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 _____
Number of shares outstanding for each class of common stock as of April
30, 1998:
Common Stock, $5 par value, 13,236,601 shares
(all of which are owned beneficially and of
record by Interstate Energy Corporation)
<PAGE>
CONTENTS
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Income for the
Three Months Ended March 31, 1998 and
1997 4
Consolidated Balance Sheets as of March 31,
1998 and December 31, 1997 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and
1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21
Part II. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended March 31,
1998 1997
(in thousands)
Operating revenues:
Electric utility $151,310 $158,427
Gas utility 50,318 71,579
Water 1,175 999
-------- --------
202,803 231,005
-------- --------
Operating expenses:
Electric production fuels 28,897 30,074
Purchased power 28,602 33,390
Cost of gas sold 30,714 47,382
Other operation 34,003 32,203
Maintenance 9,967 10,280
Depreciation and amortization 29,258 24,837
Taxes other than income taxes 7,711 7,426
-------- --------
169,152 185,592
-------- --------
Operating income 33,651 45,413
-------- --------
Interest expense and other:
Interest expense 8,383 8,005
Allowance for funds used during
construction (656) (841)
Miscellaneous, net (1,867) (175)
-------- --------
5,860 6,989
-------- --------
Income before income taxes 27,791 38,424
-------- --------
Income taxes 10,193 15,073
-------- --------
Net income 17,598 23,351
-------- --------
Preferred dividend requirements 828 828
-------- --------
Earnings available for common
stock $16,770 $22,523
======== ========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
March 31,
1998 December 31,
ASSETS (Unaudited) 1997
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $1,798,378 $1,790,641
Gas 237,934 237,856
Water 25,795 24,864
Common 194,935 195,815
--------- ---------
2,257,042 2,249,176
Less - Accumulated depreciation 1,093,262 1,065,726
--------- ---------
1,163,780 1,183,450
Construction work in progress 43,028 42,312
Nuclear fuel, net of amortization 17,619 19,046
--------- ---------
1,224,427 1,244,808
Other property, plant and
equipment, net of accumulated
depreciation and amortization of
$44 1,024 684
--------- ---------
1,225,451 1,245,492
Current assets:
Cash and temporary cash investments 6,163 2,492
Accounts receivable:
Customer 12,628 20,928
Other 9,446 16,606
Production fuel, at average cost 13,968 18,857
Materials and supplies, at average
cost 19,306 19,274
Gas stored underground, at average
cost 3,736 12,504
Prepayments and other 20,256 26,977
--------- ---------
85,503 117,638
--------- ---------
Investments:
Nuclear decommissioning trust funds 129,865 112,356
Other 14,377 14,877
--------- ---------
144,242 127,233
--------- ---------
Other assets:
Regulatory assets 89,397 91,314
Deferred charges and other 82,201 82,927
--------- ---------
171,598 174,241
--------- ---------
$1,626,794 $1,664,604
========= =========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
March 31,
1998 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1997
(in thousands, except share
amounts)
Capitalization:
Common stock - par value $5 per
share - authorized 18,000,000
shares; 13,236,601 shares
oustanding $66,183 $66,183
Additional paid-in capital 199,170 199,170
Retained earnings 322,570 320,386
--------- ---------
Total common equity 587,923 585,739
--------- ---------
Preferred stock, not mandatorily
redeemable:
Cumulative, without par value -
authorized 3,750,000 shares,
maximum aggregate stated value
$150,000,000:
$100 stated value - 449,765
shares outstanding 44,977 44,977
$ 25 stated value - 599,460
shares outstanding 14,986 14,986
--------- ---------
Total preferred stock 59,963 59,963
--------- ---------
Long-term debt (excluding current
portion) 354,563 354,540
--------- ---------
1,002,449 1,000,242
--------- ---------
Current liabilities:
Short-term borrowings 38,500 81,000
Variable rate demand bonds 56,975 56,975
Maturities and sinking funds 8,899 8,899
Accounts payable 82,315 85,617
Accrued payroll and vacations 9,736 12,221
Accrued interest 6,550 6,317
Accrued taxes 10,396 -
Other 23,977 25,162
--------- ---------
237,348 276,191
--------- ---------
Long-term liabilities:
Customer advances 32,877 34,240
Environmental liabilities 9,125 9,238
Other 43,893 44,309
--------- ---------
85,895 87,787
--------- ---------
Deferred credits:
Accumulated deferred income taxes 250,137 251,709
Accumulated deferred investment tax
credits 34,572 35,039
Other 16,393 13,636
--------- ---------
301,102 300,384
--------- ---------
$1,626,794 $1,664,604
========= =========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended
March 31,
1998 1997
(in thousands)
Cash flows from operating activities:
Net income $17,598 $23,351
Adjustments to reconcile net income to
net cash flows from operating
activities:
Depreciation and amortization 29,258 24,837
Amortization of nuclear fuel 1,805 -
Deferred taxes and investment tax
credits (1,607) 2,074
Other (457) (632)
Other changes in assets and
liabilities:
Accounts receivable 15,460 14,678
Production fuel 4,889 1,135
Gas stored underground 8,768 7,920
Prepayments and other 6,721 5,034
Accounts payable (3,302) (4,379)
Accrued taxes 10,396 9,490
Other 1,491 7,218
--------- ---------
Net cash flows from operating
activities 91,020 90,726
--------- ---------
Cash flows used for financing activities:
Common stock dividends (14,586) (14,896)
Preferred stock dividends (828) (828)
Net change in short-term borrowings (42,500) (39,112)
-------- --------
Net cash flows used for financing
activities (57,914) (54,836)
-------- --------
Cash flows used for investing activities:
Utility construction expenditures (15,962) (25,508)
Nuclear decommissioning trust funds (12,140) (9,267)
Other (1,333) 562
--------- ---------
Net cash flows used for investing
activities (29,435) (34,213)
--------- ---------
Net increase in cash and temporary cash
investments 3,671 1,677
-------- --------
Cash and temporary cash investments at
beginning of period 2,492 4,167
-------- --------
Cash and temporary cash investments at
end of period $6,163 $5,844
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $8,150 $9,750
======== ========
Income taxes $1,668 $2,571
======== ========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The interim consolidated financial statements included herein have been
prepared by Wisconsin Power and Light Company (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, although management believes that the disclosures are adequate
to make the information presented not misleading. The consolidated
financial statements include WP&L and its consolidated subsidiary. WP&L
is a subsidiary of Interstate Energy Corporation (formerly WPL
Holdings, Inc). These financial statements should be read in
conjunction with the financial statements and the notes included in
WP&L's latest Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three months ended March 31,
1998 and 1997, (b) the consolidated financial position at March 31,
1998 and December 31, 1997, and (c) the consolidated statement of cash
flows for the three months ended March 31, 1998 and 1997, have been
made. Because of the seasonal nature of WP&L's operations, results for
the quarter ended March 31, 1998, are not necessarily indicative of
results that may be expected for the year ending December 31, 1998.
Certain prior period amounts have been reclassified on a basis
consistent with the 1998 presentation.
2. On January 1, 1998 WP&L adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), Reporting Comprehensive Income. SFAS 130
establishes standards for reporting of comprehensive income and its
components in a full set of general purpose financial statements. SFAS
130 requires reporting a total for comprehensive income which
includes: (a) unrealized holding gains/losses on securities classified
as available-for-sale under SFAS 115, (b) foreign currency translation
adjustments accounted for under SFAS 52, and (c) minimum pension
liability adjustments made pursuant to SFAS 87. WP&L reported no
comprehensive income in the periods presented.
3. In accordance with an order from the Public Service Commission of
Wisconsin (PSCW), effective January 1, 1998, off-system gas sales are
included in the Consolidated Statements of Income as a reduction of
the cost of gas sold rather than as gas revenue. In 1997, off-system
gas sales were included in the Consolidated Statements of Income as
gas revenue.
4. In April 1998, the three-way business combination between WPL
Holdings, Inc., IES Industries Inc. and Interstate Power Company was
consummated. WP&L is now a subsidiary of Interstate Energy Corporation
which is doing business as Alliant Corporation. See Item 2, "Merger"
for additional information.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (MD&A)
MERGER
In April 1998, IES Industries Inc. (IES), WPL Holdings, Inc. (WPLH), the
parent company of Wisconsin Power and Light Company (WP&L), and Interstate
Power Company (IPC) completed a three-way merger (Merger) forming
Interstate Energy Corporation. Interstate Energy Corporation is currently
doing business as Alliant Corporation (Alliant). In connection with the
Merger, IES was merged with and into WPLH forming Alliant and IPC became a
subsidiary of Alliant. In addition, following the Merger, the holding
companies for the nonregulated businesses of the former WPLH and IES
(Heartland Development Corporation (HDC) and IES Diversified Inc.
(Diversified), respectively) were merged. The resulting company from this
merger was Alliant Industries, Inc. As a result of the Merger, the first
tier subsidiaries of Alliant include: WP&L, IES Utilities Inc. (IESU),
IPC, Alliant Industries, Inc. and Alliant Services Company (the
subsidiary formed to provide administrative services as required under the
Public Utility Holding Company Act of 1935). Among various other
regulatory constraints, Alliant is operating as a registered public
utility holding company subject to the limitations imposed by the Public
Utility Holding Company Act of 1935. For additional information regarding
the terms of the Merger, refer to Note 2 of the "Notes to Consolidated
Financial Statements" of WP&L's 1997 Annual Report on Form 10-K.
Alliant currently anticipates cost savings resulting from the Merger of
approximately $749 million over a ten-year period, net of transaction
costs and costs to achieve the savings of approximately $78 million.
Approximately $32 million of costs had been incurred by the merger
partners through March 31, 1998. Alliant estimates it will record an
additional $32 million to $37 million of expenses in the second
quarter of 1998. Such expenses are primarily for, among other items,
employee retirements and separations, the services of financial advisors,
attorneys and accountants, and costs relating to the various regulatory
approvals needed to complete the Merger. The remainder of the $78 million
will be incurred over the course of the next several years. The estimate
of potential cost savings constitutes a forward-looking statement and
actual results may differ materially from this estimate. The estimate is
necessarily based upon various assumptions that involve judgments with
respect to, among other things, future national and regional economic and
competitive conditions, technological developments, inflation rates,
regulatory treatments, weather conditions, financial market conditions,
future business decisions and other uncertainties. No assurance can be
given that the entire amount of estimated cost savings will actually be
realized. In addition, the allocation between the Alliant companies and
their customers of the estimated cost savings of approximately $749
million over ten years resulting from the Merger, net of costs incurred to
achieve such savings, will be subject to regulatory review and approval.
As part of the approval process for the Merger, WP&L agreed to various
rate freezes not to exceed four years commencing on the effective date of
the Merger (see "Liquidity and Capital Resources - Rates and Regulatory
Matters" for a further discussion). Assuming capture of the anticipated
Merger-related synergies and no significant legislative or regulatory
changes affecting WP&L, WP&L does not expect the Merger-related electric
and natural gas price freezes to have a material adverse effect on its
financial position or results of operations.
FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q (including
MD&A) that are not of historical fact are forward-looking statements
intended to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. From time to time, WP&L
(including its consolidated subsidiary) may make other forward-looking
statements within the meaning of the federal securities laws that involve
judgments, assumptions and other uncertainties beyond the control of WP&L.
These forward-looking statements may include, among others, statements
concerning revenue and cost trends, cost recovery, cost reduction
strategies and anticipated outcomes, pricing strategies, changes in the
utility industry, planned capital expenditures, financing needs and
availability, statements of WP&L's expectations, beliefs, future plans and
strategies, anticipated events or trends and similar comments concerning
matters that are not historical facts. Investors and other users of the
forward-looking statements are cautioned that such statements are not a
guarantee of future performance of WP&L and that such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in, or implied by, such
statements. Some, but not all, of the risks and uncertainties include
weather effects on sales and revenues, competitive factors, general
economic conditions in WP&L's service territory, federal and state
regulatory or government actions, unanticipated construction and
acquisition expenditures, issues related to stranded costs and the
recovery thereof, the operations of the Kewaunee Nuclear Power Plant
(Kewaunee), unanticipated issues or costs associated with achieving Year
2000 compliance, the ability of Alliant to successfully integrate the
operations of the parties to the Merger, unanticipated costs associated
with certain environmental remediation efforts being undertaken by WP&L
and changes in the rate of inflation.
UTILITY INDUSTRY OUTLOOK
WP&L competes in an ever-changing utility industry. Set forth below is an
overview of this evolving marketplace.
Electric energy generation, transmission and distribution are in a period
of fundamental change in the manner in which customers obtain, and energy
suppliers provide, energy services. As legislative, regulatory, economic
and technological changes occur, electric utilities are faced with
increasing pressure to become more competitive. Such competitive pressures
could result in loss of customers and an incurrence of stranded costs
(i.e., assets and other costs rendered unrecoverable as the result of
competitive pricing). To the extent stranded costs cannot be recovered
from customers, they would be borne by security holders.
WP&L realized 98% of its electric utility revenues in the first quarter of
1998 in Wisconsin and 2% in Illinois. Approximately 76% of the electric
revenues in the first quarter of 1998 were regulated by the Public Service
Commission of Wisconsin (PSCW) while the other 24% were regulated by the
Federal Energy Regulatory Commission (FERC). WP&L realized 95% of its gas
utility revenues in the first quarter of 1998 in Wisconsin and 5% in
Illinois.
Legislative action which would allow customers to choose their electric
energy supplier is not expected in Wisconsin this year. Nationwide,
however, 18 states (including Illinois and Michigan) have adopted
legislative or regulatory plans to implement electric utility competition.
In March 1998, the Clinton Administration unveiled its electric utility
competition plan, proposing that states implement customer choice by
January 1, 2003.
Federal Regulation
WP&L is subject to regulation by the FERC. The National Energy Policy Act
of 1992 addresses several matters designed to promote competition in the
electric wholesale power generation market. In 1996, FERC issued final
rules (FERC Orders 888 and 889) requiring electric utilities to open their
transmission lines to other wholesale buyers and sellers of electricity.
In March 1997, FERC issued orders on rehearing for Orders 888 and 889
(Orders 888-A and 889-A). In response to FERC Orders 888 and 888-A,
Alliant Services Company, on behalf of WP&L, IESU and IPC, filed an Open
Access Transmission Tariff (Tariff) that complies with the orders. The
Tariff supersedes the transmission tariffs previously filed by the three
utilities. Upon receiving the final Merger-related regulatory order, a
compliance tariff was filed by Alliant Services Company with the FERC.
This filing was made to comply with the FERC's merger order. In response
to FERC Orders 889 and 889-A, WP&L is participating in a regional Open
Access Same-Time Information System.
FERC Order 888 permits utilities to seek recovery of legitimate, prudent
and verifiable stranded costs associated with providing open access
transmission services. FERC does not have jurisdiction over retail
distribution and, consequently, the final FERC rules do not provide for
the recovery of stranded costs resulting from retail competition. The
various states retain jurisdiction over the question of whether to permit
retail competition, the terms of such retail competition, and the recovery
of any portion of stranded costs that are ultimately determined to have
resulted from retail competition.
WP&L cannot predict the long-term consequences of these rules on its
results of operations or financial condition.
In April 1998, Alliant joined the Midwest Independent System Operator
(Midwest ISO) for electric transmission and advised the FERC of its
decision. The Midwest ISO initially was filed with the FERC by nine
energy companies in January 1998. It would establish independent
operation and control of the electric transmission system across a broad
geographic area spanning from West Virginia to Missouri. All buyers and
sellers of electricity would have open access to the transmission system
governed by the Midwest ISO.
The FERC must review and approve the Midwest ISO proposal. As part of its
Merger proceedings, the FERC accepted Alliant's offer to file an ISO
proposal in early 1998. Alliant believes that its decision to join the
Midwest ISO satisfies this agreement with the FERC. Alliant also filed
with the FERC a copy of a Wisconsin-only ISO proposal developed by
Wisconsin Public Power Inc. (WPPI). Alliant was ordered to include the
WPPI proposal in its FERC filing by the PSCW, which reviewed and commented
upon Alliant's ISO filing with the FERC as a condition of merger approval
in Wisconsin. Alliant's decision to join the Midwest ISO also responds to
electric-reliability legislation that was enacted in Wisconsin.
Wisconsin Regulation
WP&L is subject to regulation by the PSCW. The PSCW's inquiries into the
future structure of the natural gas and electric utility industries are
ongoing. The stated goal of the PSCW in the natural gas docket is "to
accommodate competition but not create it." The PSCW has followed a
measured approach to restructuring the natural gas industry in Wisconsin.
The PSCW has determined that customer classes will be deregulated (i.e.,
the gas utility would no longer have an obligation to procure gas
commodity for customers, but would still have a delivery obligation) in a
step-wise manner, after each class has been demonstrated to have a
sufficient number of gas suppliers available. A number of working groups
have been established by the PSCW and these working groups are addressing
numerous subjects which need to be resolved before deregulation may
proceed.
The short-term goals of the electric restructuring process are to ensure
reliability of the state's electric system and development of a robust
wholesale electric market. The longer-term goal is to establish
prerequisite safeguards to protect customers prior to allowing retail
customer choice. The PSCW is following a timetable to make this latter
determination on allowing customer choice in 1999-2000.
The PSCW has issued an order outlining its policies and principles for
Public Benefits (low-income assistance, energy efficiency, renewable
generation and environmental research and development) including funding
levels, administration of the funds and how funds should be collected from
customers. The PSCW has proposed increasing funding levels primarily
through utility rates by $50 to $75 million statewide. Legislation to
implement this proposal is being developed and likely will be introduced
in 1998.
Illinois Regulation
WP&L is subject to regulation by the Illinois Commerce Commission. The
State of Illinois has passed electric deregulation legislation requiring
customer choice of electric supplier for all customers by May 1, 2002.
The legislation also requires WP&L to file a plan for the assignment of
its transmission assets in Illinois to an ISO by June 1998.
Summary
WP&L complies with the provisions of Statement of Financial Accounting
Standards No. 71 (SFAS 71) "Accounting for the Effects of Certain Types of
Regulation." SFAS 71 provides that rate-regulated public utilities record
certain costs and credits allowed in the ratemaking process in different
periods than for nonregulated entities. These are deferred as regulatory
assets or regulatory liabilities and are recognized in the consolidated
statements of income at the time they are reflected in rates. If a
portion of WP&L's operations becomes no longer subject to the provisions
of SFAS 71 as a result of competitive restructurings or otherwise, a
write-down of related regulatory assets and possibly other charges would
be required, unless some form of transition cost recovery is established
by the appropriate regulatory body that would meet the requirements under
generally accepted accounting principles for continued accounting as
regulatory assets during such recovery period. In addition, WP&L would be
required to determine any impairment of other assets and write-down any
impaired assets to their fair value. WP&L believes it currently meets the
requirements of SFAS 71.
WP&L cannot currently predict the long-term consequences of the
competitive and restructuring issues described above on its results of
operations or financial condition. The major objective is to allow WP&L
to better prepare for a competitive, deregulated utility industry. The
strategy for dealing with these emerging issues includes seeking growth
opportunities, continuing to offer quality customer service, ongoing cost
reductions and productivity enhancements.
RESULTS OF OPERATIONS -
THREE MONTHS ENDED MARCH 31, 1998 VS. MARCH 31, 1997
Overview
WP&L reported consolidated first quarter 1998 earnings available for
common stock of $16.8 million, compared with $22.5 million for the same
period in 1997. Electric margin declined slightly due to a rate decrease
and warmer weather which was partially offset by the positive impact on
electric margin of reduced purchased power costs. Gas margin declined due
a rate decrease and warmer weather. In addition to lower margins,
depreciation expense also increased due to property additions and higher
depreciation and decommissioning expense associated with Kewaunee, of which
WP&L has an ownership interest.
Electric Operations
Electric margins and megawatt-hour (MWH) sales for WP&L for the three
months ended March 31 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs MWHs Sold
(In Thousands) Change (In Thousands) Change
1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Residential $ 49,755 $ 54,804 (9%) 758 811 (7%)
Commercial 25,604 26,799 (4%) 459 467 (2%)
Industrial 37,069 35,282 5% 1,041 995 5%
-------- -------- -------- -------
Total from
ultimate customers 112,428 116,885 (4%) 2,258 2,273 (1%)
Sales for resale 35,626 38,504 (7%) 1,415 1,387 2%
Other 3,256 3,038 7% 17 20 (15%)
--------- -------- -------- -------
Total 151,310 158,427 (4%) 3,690 3,680 -
======== ======= =====
Electric
production fuels 28,897 30,074 (4%)
Purchased power 28,602 33,390 (14%)
--------- --------
Margin $ 93,811 $ 94,963 (1%)
========= ======== =====
</TABLE>
Electric margin decreased $1.2 million, or 1%, during the first quarter of
1998 compared with the first quarter of 1997 due to an average retail rate
reduction of 2.4% effective April 29, 1997 and reduced residential and
commercial sales. The sales decline was due primarily to warmer weather
in the first quarter of 1998 compared with the same period in 1997.
Partially offsetting the decline in margin was the favorable impact of
reduced purchased power costs and reduced electric production fuel costs
per MWH in the first quarter of 1998 compared with the same period in
1997. Purchased power costs declined due to Kewaunee being operational
in the first quarter of 1998. Kewaunee experienced outages for steam
generator repairs for most of the first six months of 1997. Electric
production fuel costs per MWH were higher in the first quarter of 1997 due
to the increased use of higher-cost peaking plants. Various temporary
plant outages, including at Kewaunee, during the first quarter of 1997
resulted in increased use of the peaking units.
Gas Operations
Gas margins and dekatherm (Dth) sales for WP&L for the three months ended
March 31 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(In Thousands) Change (In Thousands) Change
1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Residential $ 31,010 $ 41,633 (26%) 5,227 6,053 (14%)
Commercial 15,237 21,039 (28%) 3,121 3,678 (15%)
Industrial 2,675 3,956 (32%) 602 730 (18%)
Transportation and
other 1,396 4,951 (72%) 3,829 6,178 (38%)
-------- -------- -------- --------
Total 50,318 71,579 (30%) 12,779 16,639 (23%)
======== ======== =======
Cost of gas sold 30,714 47,382 (35%)
-------- --------
Margin $ 19,604 $ 24,197 (19%)
======== ======== =====
</TABLE>
Gas margin declined $4.6 million, or 19%, in the first quarter of 1998 as
compared with the first quarter of 1997 primarily due to a reduction in
dekatherm sales and an average retail rate reduction of 2.2% effective
April 29, 1997. Sales declined 23% primarily as a result of warmer weather
in the first quarter of 1998 compared with the first quarter of 1997. The
significant decline in transportation and other revenues resulted from
both reduced dekatherm sales and an accounting change for off-system sales
as required by the PSCW effective January 1, 1998. The accounting change
requires that beginning in 1998 off-system gas sales are reported as a
reduction of the cost of gas sold rather than as gas revenue. Off-system
gas sales were $6.9 million and $5.4 million in the first quarter of 1998
and 1997, respectively.
Effective January 1, 1995, the PSCW approved the replacement of the
purchased gas adjustment clause with an adjustment mechanism based on a
prescribed commodity price index. Fluctuations in WP&L's commodity cost
of gas as compared with the price index are subject to a customer sharing
mechanism, with WP&L's gains or losses limited to $1.1 million. The gas
incentive mechanism was modified effective April 29, 1997 with Rate Order
UR-110 to include a revised sharing mechanism. Under the revised sharing
mechanism, 40% of all gains and losses relative to current commodity
prices as well as other benchmarks are recognized by WP&L rather than
refunded to or recovered from customers. Due to favorable gas procurement
activities, WP&L realized favorable contributions to gas margin of $0.2
million for the first quarter of 1998 and $0.9 million for the first
quarter of 1997.
Operating Expenses
Other operation expense increased due to early retirement and employee
separation expenses recorded in the first quarter of 1998.
Depreciation and amortization expense increased due to property additions
and higher depreciation and decommissioning expense associated with
Kewaunee which were effective in May 1997 (see "Capital Requirements -
Nuclear Facilities" for additional information).
Interest Expense and Other
Interest expense and other decreased in the first quarter of 1998 compared
with the first quarter of 1997 due to increased income on the nuclear
decommissioning trust funds. Earnings on the nuclear decommissioning
funds are also recorded as additional depreciation expense.
Income Taxes
Income taxes decreased between first quarters consistent with lower
taxable income. The effective rate was 37% for the first quarter of 1998
and 39% for the first quarter of 1997. The lower effective rate in the
first quarter of 1998 is primarily a result of an adjustment to prior
period taxes.
LIQUIDITY AND CAPITAL RESOURCES
The capital requirements of WP&L are primarily attributable to its
construction program and its debt maturities. WP&L anticipates that
future capital requirements will be met by cash generated from operations
and external financing. The level of cash generated from operations is
partially dependent upon economic conditions, legislative activities,
environmental matters and timely regulatory recovery of utility costs.
WP&L's liquidity and capital resources will be affected by costs
associated with environmental and regulatory issues. Emerging competition
in the utility industry could also impact WP&L's liquidity and capital
resources, as discussed previously in the "Utility Industry Outlook"
section.
Cash flows generated from operations were $91 million for both the first
quarter of 1998 and the first quarter of 1997. Cash flows used for
financing activities were slightly higher in the first quarter of 1998
primarily due to the net change in short-term debt. Cash flows used for
investing activities were lower in the first quarter of 1998 due to
reduced additions to utility plant which were partially offset by higher
nuclear decommissioning funding levels.
Financing and Capital Structure
Access to the long-term and short-term capital and credit markets, and
costs of external financing, are dependent on creditworthiness. The debt
ratings of WP&L are as follows:
Standard &
Moody's Poor's
Secured long-term debt Aa2 AA
Unsecured long-term debt Aa3 A+
Commercial paper P1 A1+
WP&L will participate in a utility money pool which will be funded, as
needed, by Alliant through the issuance of commercial paper. This utility
money pool will replace the commercial paper program currently in effect
at WP&L.
Other than periodic sinking fund requirements which will not require
additional cash expenditures, WP&L has $10.8 million of long-term debt
that will mature prior to December 31, 2002. Depending upon market
conditions, it is currently anticipated that a majority of the maturing
debt will be refinanced with the issuance of long-term securities. WP&L
currently has no authority from the PSCW or the Securities and Exchange
Commission (SEC) to issue additional long-term debt but is evaluating its
future financing needs and will make the necessary regulatory filings as
needed.
WP&L's capitalization ratios were as follows:
March 31, December 31,
1998 1997
Common equity 59% 59%
Preferred stock 6 6
Long-term debt 35 35
--- ---
100% 100%
==== ====
For interim financing, WP&L is authorized by the PSCW to issue $138
million of short-term debt and at March 31, 1998 had $38.5 million
outstanding. In addition to providing for ongoing working capital needs,
this availability of short-term financing provides WP&L flexibility in the
issuance of long-term securities. The level of short-term borrowing
fluctuates based on seasonal corporate needs, the timing of long-term
financing, and capital market conditions. To maintain flexibility in its
capital structure and to take advantage of favorable short-term rates,
WP&L also uses the proceeds from the sale of accounts receivable and
unbilled revenues to finance a portion of its long-term cash needs. WP&L
anticipates that short-term debt will continue to be available at
reasonable costs due to current ratings by independent utility analysts
and rating services.
WP&L had bank lines of credit of $40 million at March 31, 1998 under which
no amount was outstanding on that date. Commitment fees are paid to
maintain these lines and there are no conditions which restrict the unused
lines of credit. From time to time, WP&L may borrow from banks and other
financial institutions in lieu of commercial paper, and has agreements
with several financial institutions for such borrowings. There are no
commitment fees associated with these agreements and there were no
borrowings outstanding under these agreements at March 31, 1998.
Given the above financing flexibility available to WP&L, management
believes it has the necessary financing capabilities in place to
adequately finance its capital requirements for the foreseeable future.
Capital Requirements
General
Capital expenditure and investment and financing plans are subject to
continual review and change. The capital expenditure and investment
programs may be revised significantly as a result of many considerations,
including changes in economic conditions, variations in actual sales and
load growth compared to forecasts, requirements of environmental, nuclear
and other regulatory authorities, acquisition opportunities, the
availability of alternate energy and purchased power sources, the ability
to obtain adequate and timely rate relief, escalations in construction
costs and conservation and energy efficiency programs.
Construction expenditures for the three months ended March 31,1998 were
$16.0 million. WP&L's levels of utility construction and acquisition
expenditures are projected to be $133 million in 1998, $136 million in
1999, $138 million in 2000, $141 million in 2001 and $144 million in 2002.
WP&L anticipates funding the large majority of its utility construction
and acquisition expenditures during 1998-2002 through internally generated
funds, supplemented by external financings as needed.
Nuclear Facilities
Kewaunee, a 535-megawatt (nameplate capacity) pressurized water reactor
plant, is operated by Wisconsin Public Service Corporation (WPSC) and is
jointly owned by WPSC (41.2%), WP&L (41.0%), and Madison Gas & Electric
Company (MG&E) (17.8%). The Kewaunee operating license expires in 2013.
In accordance with PSCW authorization, WP&L had deferred $3.1 million at
March 31, 1998 associated with Kewaunee steam generator repair costs. In
March 1998, the PSCW approved recovery of these costs through a customer
surcharge effective April 1, 1998 through May 31, 1998.
On April 7, 1998, the PSCW approved WPSC's application for replacement of
the two steam generators at Kewaunee. The total cost of replacing the
steam generators would be approximately $90.7 million with WP&L's share of
the cost being approximately $37.2 million. The replacement work is
tentatively planned for the spring of 2000 and will take approximately 60
days.
Notwithstanding PSCW approval of the steam generator replacement, issues
related to the continued operation and future ownership of Kewaunee must
be resolved before the replacement proceeds. The owners of Kewaunee have
differing views on the desirability of proceeding with the steam generator
replacement project. WPSC favors replacement at the earliest possible
date because of reliability and cost concerns related to steam generator
repairs. The co-owners are continuing to discuss resolution of the
issues. Background information regarding Kewaunee steam generator repairs
is set forth in WP&L's Annual Report on Form 10-K for the year ended
December 31, 1997, to which reference is hereby made.
The PSCW has directed the owners of Kewaunee to develop depreciation and
decommissioning cost levels based on an expected plant end-of-life of 2002
versus a license end-of-life of 2013. This was prompted by the
uncertainty regarding the expected useful life of the plant without steam
generator replacement. The revised end-of-life of 2002 resulted in higher
depreciation and decommissioning expense at WP&L beginning in May 1997,
in accordance with the PSCW rate order UR-110. At March 31, 1998, the net
carrying amount of WP&L's investment in Kewaunee was approximately $45.9
million. The current cost of WP&L's share of the estimated costs to
decommission Kewaunee is $181.3 million and exceeds the trust assets at
March 31, 1998 by $51.4 million. The costs of decommissioning are assumed
to escalate at an annual rate of 5.83%. WP&L's retail customers in the
Wisconsin jurisdiction are responsible for approximately 80% of WP&L's
share of Kewaunee costs.
Refer to the "Other Matters - Environmental" section for a discussion of
various issues impacting WP&L's future capital requirements.
Rates and Regulatory Matters
In November 1997, as part of its merger approval, FERC accepted a proposal
by WP&L which provides for a four-year freeze on wholesale electric prices
beginning with the effective date of the Merger.
In connection with its approval of the Merger, the PSCW accepted a WP&L
proposal to freeze rates for four years following the date of the Merger.
A re-opening of an investigation into WP&L's rates during the rate freeze
period, for both cost increases and decreases, may occur only for single
events that are not Merger-related and have a revenue requirement impact
of $4.5 million or more. In addition, the electric fuel adjustment clause
and purchase gas adjustment clause are not affected by the rate freezes.
In rate order UR-110, the PSCW approved new rates effective April 29,
1997. On average, WP&L's retail electric rates under the new rate order
declined by 2.4% and retail gas rates declined by 2.2%. Other items
included in the rate order were: authorization of a surcharge to collect
replacement power costs while Kewaunee remained out of service for the
period effective April 29, 1997 through July 1, 1997; authorization of an
increase in the return on equity to 11.7% from 11.5%; reinstatement of the
electric fuel adjustment clause; continuation of a modified gas
performance based ratemaking incentive mechanism; and a modified SO2
incentive. In addition, the PSCW ordered that it must approve the payment
of dividends by WP&L to its parent company that are in excess of the level
forecasted in the rate order ($58.3 million), if such dividends would
reduce WP&L's average common equity ratio below 52.00% of total
capitalization. Based on the PSCW method approved for calculating return
on average common equity, the 13-month average for the period ending March
31, 1998 was 50.07%.
The retail electric rates are based in part on forecasted fuel and
purchased power costs. Under PSCW rules, Wisconsin utilities can seek
emergency rate increases if these costs are more than three percent higher
than the estimated costs used to establish rates. In WP&L's case, actual
fuel costs since May 1997 have been higher than estimated and are expected
to remain well above the estimated levels in 1998. As a result, WP&L has
asked the PSCW to approve a rate increase. It is expected that the PSCW
will issue a decision in the second quarter of 1998. Any increase
approved by the PSCW will be implemented on a prospective basis.
The gas performance incentive was modified to eliminate the maximum gain
or loss to be recognized by WP&L. Previously, this incentive was limited
to $1.1 million to WP&L. The incentive includes a sharing mechanism,
whereby 40% of all gains and losses relative to current commodity prices
as well as other benchmarks are recognized by WP&L rather than refunded to
or recovered from customers.
OTHER MATTERS
Year 2000
WP&L utilizes software, embedded systems and related technologies
throughout its business that will be affected by the date change in the
Year 2000. An internal task force has been assembled to review and
develop the full scope, work plan and cost estimates to ensure that WP&L's
systems continue to meet its internal and customer needs.
Phase I of the project, which encompassed a review of the necessary
software modifications that will need to be made to WP&L's financial and
customer systems, has been completed. WP&L currently estimates that the
remaining costs to be incurred on this phase of the project will be
approximately $2 million to $5 million in the aggregate.
The task force has also begun Phase II of the project which is an
extensive review of WP&L's embedded systems for Year 2000 conversion
issues. The task force has inventoried critical embedded operating
systems and is working with the system vendors to ascertain Year 2000
compliance of these systems. The task force is also developing detailed
plans for testing and remediating critical systems (i.e., systems whose
failure could affect employee safety or business operations).
As part of an awareness effort, WP&L has also notified its utility
customers of its Year 2000 project efforts. Key suppliers are also being
contacted to confirm their Year 2000 readiness plans. Efforts are also
underway to develop contingency plans for critical embedded operating
systems. WP&L is currently unable to estimate the costs to be incurred on
this phase of the project but does believe that the costs will be
significant. An estimate of the expenses to be incurred on this phase of
the project is expected to be available by the third quarter of 1998.
The goal of WP&L is to have all the material Year 2000 conversions made
sufficiently in advance of December 31, 1999 to allow for unanticipated
issues. At this time, management is unable to determine if the Year 2000
issue will have a material adverse effect on WP&L's financial position or
results of operations.
In April 1998, WP&L filed a request with the PSCW requesting deferral
treatment of all Year 2000 costs provided those costs exceed $4.5 million.
In May 1998, the PSCW approved the deferral of certain costs associated
with the Year 2000 issue and required WP&L to submit a request and support
for the rate recovery of these costs by November 1, 1998.
Labor Issues
WP&L and the International Brotherhood of Electrical Workers, Local 965,
reached agreement on a new three-year collective bargaining contract on
June 14, 1996. As of March 31, 1998 the contract covered approximately
68% of the total employees at WP&L.
Financial Instruments
WP&L has historically had only limited involvement with derivative
financial instruments and has not used them for trading purposes. They
have been used to manage well-defined interest rate and commodity price
risks. WP&L historically has entered 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 outstanding was $30
million at March 31, 1998. WP&L has used swaps, futures and options to
hedge the price risks associated with the purchase and sale of stored gas
at WP&L.
Accounting Pronouncements
In February 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This SOP
provides authoritative guidance for determining whether computer software
is in fact internal-use software, citing specific examples and situations
that answer that preliminary question. Further, it provides guidelines on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public.
Additionally, SOP 98-1 addresses specifics of accounting by discussing
expensing versus capitalization of costs, accounting for the costs
incurred in the upgrading of the software and amortizing the capitalized
cost of software. This statement is effective for fiscal years beginning
after December 15, 1998 and is not expected to have a material adverse
impact on WP&L's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." This SOP provides guidance on the financial
reporting of start-up costs and organization costs. Costs of start-up
activities and organization costs are required to be expensed as incurred.
The statement is effective for periods beginning after December 15, 1998.
WP&L will be adopting the requirements of this statement in 1999 and does
not anticipate any material impact on its financial statements upon
adoption.
Accounting for Obligations Associated with the Retirement of Long-Lived
Assets
The staff of the Securities and Exchange Commission has questioned certain
of the current accounting practices of the electric utility industry,
including WP&L, regarding the recognition, measurement and classification
of decommissioning costs for nuclear generating stations in financial
statements of electric utilities. In response to these questions, the
FASB is reviewing the accounting for closure and removal costs, including
decommissioning of nuclear power plants. If current electric utility
industry accounting practices for nuclear power plant decommissioning are
changed, the annual provision for decommissioning could increase relative
to 1997, and the estimated cost for decommissioning could be recorded as a
liability (rather than as accumulated depreciation), with recognition of
an increase in the cost of the related nuclear power plant. Assuming no
significant change in regulatory treatment, WP&L does not believe that such
changes, if required, would have an adverse effect on its financial
position or results of operations due to its ability to recover
decommissioning costs through rates.
Inflation
WP&L does not expect the effects of inflation at current levels to have a
significant effect on its financial position or results of operations.
Environmental
The pollution abatement programs of WP&L are subject to continuing review
and are revised from time to time due to changes in environmental
regulations, changes in construction plans and escalation of construction
costs. While WP&L cannot precisely forecast the effect of future
environmental regulations on its operations, it has taken steps to
anticipate the future while also meeting the requirements of current
environmental regulations.
WP&L has current or previous ownership interests in 14 properties
previously associated with the production of gas at manufactured gas
plants (MGP) for which it may be liable for investigation, remediation and
monitoring costs relating to the sites.
WP&L is working pursuant to the requirements of various federal and state
agencies to investigate, mitigate, prevent and remediate, where necessary,
the environmental impacts to property, including natural resources, at and
around the sites in order to protect public health and the environment.
WP&L believes it has completed the remediaton at various sites, although
it is still in the process of obtaining final approval from the applicable
environmental agencies for some of these sites.
WP&L has recorded an environmental liability of $9.1 million at March 31,
1998 related to the MGP sites; such amount is based on the best current
estimate of the amount to be incurred for investigation, remediation and
monitoring costs for those sites where the investigation process has been
or is substantially completed, and the minimum of the estimated cost range
for those sites where the investigation is in its earlier stages.
Management currently estimates the range of costs to be incurred for the
investigation, remediation and monitoring of the sites to be approximately
$7 million to $12 million. It is possible that future cost estimates will
be greater than the current estimates as the investigation process
proceeds and as additional facts become known.
Under the current rate making treatment approved by the PSCW, the MGP
expenditures, net of any insurance proceeds, are deferred and collected
from gas customers over a five-year period after new rates are
implemented. As a result, a regulatory asset of $16.1 million at March
31, 1998 has been recorded which reflects the probable future rate
recovery. Considering the current rate treatment, and assuming no
material change therein, WP&L believes that the clean-up costs incurred
for these MGP sites will not have a material adverse effect on its
financial position or results of operations.
The Clean Air Act Amendments of 1990 (Act) require emission reductions of
sulfur dioxide (SO2), nitrogen oxides (NOx) and other air pollutants to
achieve reductions of atmospheric chemicals believed to cause acid rain.
WP&L has met the provisions of Phase I of the Act and is in the process of
meeting the requirements of Phase II of the Act (effective in the year
2000). The Act also governs SO2 allowances, which are defined as an
authorization for an owner to emit one ton of SO2 into the atmosphere.
WP&L is reviewing its options to ensure it will have sufficient allowances
to offset its emissions in the future. WP&L believes that the potential
costs of complying with these provisions of Title IV of the Act will not
have a material adverse impact on its financial position or results of
operations.
The Act and other federal laws also require the United States
Environmental Protection Agency (EPA) to study and regulate, if necessary,
additional issues that potentially affect the electric utility industry,
including emissions relating to ozone transport, mercury and particulate
control as well as modifications to the Polychlorinated Biphenyl (PCB)
rules. In July 1997, the EPA issued final rules that would tighten the
National Ambient Air Quality Standards (NAAQS) for ozone and particulate
matter emissions. WP&L is currently reviewing the rules to determine what
impact they may have on operations.
In October 1997, the EPA issued a proposed rule to require 22 states,
including Wisconsin, to modify their State Implementation Plans (SIPs) to
address the ozone transport issue. The proposed rule would require WP&L
to reduce its NOx emissions at all of its plants to .15 lbs/mmbtu. WP&L
cannot presently predict the final outcome of this proposal but believes
that, under the terms of the proposed rule, it would be required to
install controls at its plants and that the costs related thereto would be
significant.
A global treaty has been negotiated that could require reductions of
greenhouse gas emissions from utility plants. Negotiators left
significant implementation and compliance questions open to resolution at
meetings to be held starting in November 1998. At this time, WP&L is
unable to predict whether the United States Congress will ratify the
treaty. Given the uncertainty of the treaty ratification and the ultimate
terms of the final regulations, WP&L cannot currently estimate the impact
the implementation of the treaty would have on its operations.
The Nuclear Waste Policy Act of 1982 (NWPA) assigned responsibility to the
U.S. Department of Energy (DOE) to establish a facility for the ultimate
disposition of high level waste and spent nuclear fuel and authorized the
DOE to enter into contracts with parties for the disposal of such material
beginning in January 1998. WP&L entered into such contract and has made
the agreed payments to the Nuclear Waste Fund (NWF) held by the U.S.
Treasury. WP&L was subsequently notified by the DOE that it was not able
to begin acceptance of spent nuclear fuel by the January 31, 1998
deadline. Furthermore, DOE has experienced significant delays in its
efforts and material acceptance is now expected to occur no earlier than
2010 with the possibility of further delay being likely. WP&L is
evaluating and pursuing multiple options, including litigation and
legislation to protect its customers and its contractual and statutory
rights that are diminished by delays in the DOE program.
The NWPA assigns responsibility for interim storage of spent nuclear fuel
to generators of such spent nuclear fuel, such as WP&L. In accordance
with this responsibility, WP&L has been storing spent nuclear fuel on site
at Kewaunee since plant operations began. With minor modifications,
Kewaunee would have sufficient fuel storage capacity to the end of the
license life in 2013. Legislation is being considered on the federal
level to provide for the establishment of an interim storage facility as
early as 2002.
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates
that each state must take responsibility for the storage of low-level
radioactive waste produced within its borders. Wisconsin is a member of
the six-state Midwest Interstate Low-Level Radioactive Waste Compact
(Compact) which is responsible for development of any new disposal
capability within the Compact member states. In June 1997, the Compact
commissioners voted to discontinue work on a proposed waste disposal
facility in the State of Ohio because the expected cost of such a facility
was comparably higher than other options currently available. Dwindling
waste volumes and continued access to existing disposal facilities were
also reasons cited for the decision. A disposal facility located near
Barnwell, South Carolina continues to accept the low-level waste and the
waste produced at Kewaunee is currently shipped to such site, thereby
minimizing the amount of low-level waste stored on-site. In addition,
given technological advances, waste compaction and the reduction in the
amount of waste generated, Kewaunee has on-site storage capability
sufficient to store low-level waste expected to be generated over at least
the next ten years, with continuing access to the Barnwell disposal
facility extending that on-site storage capability indefinitely.
The National Energy Policy Act of 1992 requires owners of nuclear power
plants to pay a special assessment into a "Uranium Enrichment
Decontamination and Decommissioning Fund." The assessment is based upon
prior nuclear fuel purchases. WP&L is recovering these costs from its
customers and at March 31, 1998 had a regulatory asset and a liability of
$5.9 million and $5.1 million recorded, respectively.
Power Supply
The power supply concerns of 1997 have raised awareness of the electric
system reliability challenges facing Wisconsin and the Midwest region.
WP&L was among an 11-member group of Wisconsin energy suppliers that, on
October 1, 1997, recommended to the Governor of Wisconsin a series of
steps to improve electric reliability in the state. Wisconsin enacted
electric reliability legislation in April 1998. The legislation has the
goal of assuring reliable electric energy for Wisconsin. The new law,
effective September 1, 1998, requires Wisconsin utilities to join a
regional independent system operator for transmission by the year 2000,
allows the construction of merchant power plants in the state and
streamlines the regulatory approval process for building new generation
and transmission facilities.
On September 24, 1997, the PSCW ordered WP&L and two other Wisconsin
utilities to arrange for additional electric capacity to help maintain
reliable service for their customers. In response to this order, WP&L has
issued a Request for Proposal (RFP) for contracts to provide WP&L with an
additional 150 megawatts of electric capacity beginning as early as June
1, 1999. WP&L anticipates its RFP will result in a purchased power
arrangement with a contract period of three to eight years and contract
extension or "rollover" options. WP&L expects to award the contract at
the end of the second quarter of 1998.
Utility officials noted that it will take time to get new transmission and
power plant projects approved and built. While utility officials fully
expect to meet customer demands in 1998 and 1999, problems still could
arise if there are unexpected power plant outages, transmission system
outages or extended periods of extremely hot weather.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit:
27 Financial Data Schedule
(b) Reports on Form 8-K:
WP&L filed a Current Report on Form 8-K, dated April 21, 1998, reporting
(pursuant to Items 5 and 7) that the three-way business combination
between WPL Holdings, Inc., IES Industries Inc. and Interstate Power
Company was consummated on April 21, 1998.
<PAGE>
SIGNATURES
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 on the 14th day of May 1998.
Wisconsin Power and Light Company
By: /s/ Edward M. Gleason Vice President-Treasurer and
Edward M. Gleason Corporate Secretary (Principal
Financial Officer)
By: /s/ John E. Ebright Vice President-Controller
John E. Ebright (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE MARCH
31, 1998 FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,224,427
<OTHER-PROPERTY-AND-INVEST> 145,266
<TOTAL-CURRENT-ASSETS> 85,503
<TOTAL-DEFERRED-CHARGES> 82,201
<OTHER-ASSETS> 89,397
<TOTAL-ASSETS> 1,626,794
<COMMON> 66,183
<CAPITAL-SURPLUS-PAID-IN> 199,170
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 587,923
0
59,963
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0
<CAPITAL-LEASE-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 519,971
<TOT-CAPITALIZATION-AND-LIAB> 1,626,794
<GROSS-OPERATING-REVENUE> 202,803
<INCOME-TAX-EXPENSE> 10,193<F1>
<OTHER-OPERATING-EXPENSES> 169,152
<TOTAL-OPERATING-EXPENSES> 169,152<F1>
<OPERATING-INCOME-LOSS> 33,651
<OTHER-INCOME-NET> 2,523
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828
<EARNINGS-AVAILABLE-FOR-COMM> 16,770
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<EPS-PRIMARY> 0<F2>
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<FN>
<F1>Income tax expense is not included in Operating Expense in the Consolidated
Statements of Income.
<F2>Earnings per share of common stock is not reflected because all common
shares are held by Interstate Energy Corporation (formerly WPL Holdings, Inc.).
</FN>
</TABLE>
