SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934
------
For the quarterly period ended June 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 1-9894
WPL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1380265
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
222 West Washington Avenue, Madison, Wisconsin 53703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 608-252-3311
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 June 30, 1996: 30,795,260 shares
<PAGE>
The registrant hereby amends Item 2 of Part I of its Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996 to provide in
its entirety as follows:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED June 30, 1996 VS. June 30, 1995:
OVERVIEW
The Company reported consolidated second quarter net income from
continuing operations of $16.5 million or 54 cents per share compared to
$7.8 million or 26 cents per share for the same period in 1995. The
increase in earnings primarily reflects the operation of the Company's
utility subsidiary, WP&L. During the second quarter a $3.4 million after-
tax gain was recognized on the sale of a combustion turbine. Weather-
driven natural gas sales growth, increased electric sales to other
utilities, and continued customer growth contributed to higher margins as
compared with the second quarter of last year.
Electric margin increased by $5.4 million due to increased sales and
lower aggregate costs per kWh. Gas margin increased $2.2 million due to a
change in the mix of sales from lower margin to higher margin customer
classes. WP&L operations and maintenance declined during the second quarter
due primarily to the timing of nuclear plant refueling.
Heartland Development Corporation, ("HDC"), parent company of the
Company's non-regulated operations, reported a loss from continuing
operations of $2.2 million for the second quarter of 1996 compared with a
loss from continuing operations of $1.3 million for the same period in
1995. The second quarter performance was primarily the result of losses on
commodity transactions incurred by the energy services subsidiary.
<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 $43,776 $43,247 1% 633,695 622,251 2% 334,035 327,319 2%
Industrial 36,450 36,080 1% 1,003,872 991,595 1% 810 778 4%
Commercial 24,519 24,168 1% 421,098 412,304 2% 45,300 44,227 2%
Wholesale and
Class A 31,367 20,319 54% 1,290,219 628,782 105% 92 83 11%
Other 972 2,279 (30%) 15,591 14,856 5% 1,742 1,497 16%
------- ------- --------- --------- ------- -------
Total 137,084 126,093 9% 3,364,475 2,669,788 26% 381,979 373,904 2%
------- ------- ========= ========= === ======= ======= ===
Electric
Production Fuels 27,339 27,898 (6%)
Purchased Power 16,429 10,234 66%
------ ------
Margin $93,316 $87,961 6%
====== ====== ===
</TABLE>
Electric revenues increased $11.0 million, or 9 percent, as compared to
the second quarter of 1995. The increase was the result of a 26 percent
increase in kWh sales primarily due to increased bulk power sales during
the second quarter 1996.
Electric margin increased $5.4 million, or 6 percent, during the second
quarter of 1996 compared to the second quarter of 1995 primarily due to
higher sales (as discussed above). Aggregate costs of production fuels and
purchased power increased as a result of a 26 percent increase in kWh
sales. Because of this increase in sales and the availability of
competitively priced off-system power, purchased power increased 66
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 $14,703 $10,697 37% 23,245 18,843 23% 131,093 126,581 4%
Firm 7,855 5,839 35% 15,493 13,419 15% 16,160 15,733 3%
Interruptible 611 606 1% 1,659 1,942 -15% 258 236 9%
Transport. and
Other 4,833 5,308 -9% 34,342 40,188 -15% 266 243 9%
------- ------- ------- ------- ------- -------
Total 28,002 22,450 25% 74,739 74,392 0% 147,777 142,793 3%
------- ------- ======= ======= === ======= ====== ===
Purchased Gas 15,690 12,359 27%
------- ------- ---
Margin 12,312 10,091 22%
======= ======= ===
</TABLE>
Gas revenues increased $5.6 million, or 25 percent, in the second
quarter of 1996 as compared to 1995. The increased revenues were the
result of higher commodity costs passed on to customers and a change in
the sales mix while total therm sales remained relatively unchanged, the
mix of these sales indicates a decline of 15 percent in transportation and
interruptible sales with a corresponding increase of 23 percent and 15
percent in higher margin residential and firm sales, respectively. The
gas incentive program authorized by the Public Service Commission of
Wisconsin also resulted in a loss of $0.1 million pre-tax during the
second quarter of 1996 compared with additional savings of $0.3 million
pre-tax for the same period in 1995.
Fees, Rents and Other Revenues
Fees, rents and other revenues primarily reflect sales and revenues
of the Company's non-regulated subsidiaries, consolidated under HDC, as
adjusted for discontinued operations. The increase in fees, rents and
other revenues of $15.8 million is primarily due to higher energy
marketing revenues of $14.3 million due to an increase in power marketing
activity at the energy marketing company.
In addition to the revenues of the non-regulated businesses, fees,
rents and other revenues also include revenue from the water utility
operations of WP&L. These revenues represent $1 million for the three
months ended June 30, 1996 and 1995.
Other Operation and Maintenance
The increase in other operation and maintenance expense of $12.9
million is primarily due to the increased activity in the energy marketing
business. In addition, losses were incurred in gas and electric marketing
transactions in the energy services subsidiary.
Depreciation and Amortization
Depreciation and amortization expense increased $1.2 million as a
result of property additions.
Income Taxes
Income taxes increased between second quarters consistent with
higher taxable income.
Other (Income) and Deductions, Net
Other (income) and deductions, net increased $6.3 million due to the
$5.7 million pre-tax gain on the sale of a combustion turbine.
TWELVE MONTHS ENDED June 30, 1996 VS. June 30, 1995:
OVERVIEW
The Company reported consolidated net income from continuing
operations of $91.9 million or $2.99 per share for the twelve months
ended June 30, 1996 as compared to $57.0 million or $1.85 per share for
the same period in 1995. Earnings per share for the twelve month periods
ended June 30, 1996 and June 30, 1995 were $2.60 and $1.79, respectively,
reflecting the impact of the discontinued operation of A&C Enercom
Consultants, Inc. The increase in earnings primarily reflects the
operations of the Company's utility subsidiary, WP&L. 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 June 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 June 30, 1996.
Electric margin increased by $26.6 million, or 7 percent, from
increased sales and lower costs per kWh for both electric production fuels
and purchased power. Gas margins increased $10.7 million, or 21 percent,
as a result of increased therm sales. In addition, other operation and
maintenance expenses at the utility decreased primarily due to higher
early retirement and severance expenses during the twelve month period
ended June 30, 1995 and a shift in the refueling cycle at the Kewaunee
Nuclear Power Plant from the second quarter of 1995 to the fourth quarter
of 1996.
Partially offsetting the increases to income was a $6.6 million
increase in depreciation expense primarily resulting from property
additions and higher decommissioning related expenses.
HDC reported a loss from continuing operations of $0.9 million for
the twelve months ended June 30, 1996 compared with a loss from continuing
operations of $3.7 million for the same period in 1995. The change is due
to the gains on the sales of Heartland Retirement Services during the
first quarter of 1996 and Heartland Fuels Corporation during the last
quarter of 1995. During the fourth quarter of 1995, a $13.2 million loss
on discontinued operations resulted from the sale of A&C Enercom
Consultants, Inc. which is discussed in the "Discontinued Operations"
section of the MD&A.
<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 $204,141 $192,023 6% 3,013,326 2,779,130 9% 334,035 327,319 2%
Industrial 143,488 140,133 2% 3,933,209 3,816,898 3% 810 778 4%
Commercial 104,590 100,234 4% 1,809,125 1,700,213 6% 45,300 44,227 2%
Wholesale and
Class A 117,570 85,219 38% 4,278,026 2,575,668 66% 92 83 11%
Other 4,875 8,914 (45)% 56,209 53,636 5% 1,742 1,497 16%
------- ------- ---------- ---------- ------- -------
Total 574,664 526,523 7% 13,089,895 10,925,545 20% 381,979 373,904 2%
------- ------- ========== ========== === ======= ======= ===
Electric
production fuels 114,820 116,148 (1)%
Purchased Power 58,406 37,368 61%
------- -------
Margin $401,438 $373,007 8%
======= ======= ===
</TABLE>
Electric revenues increased $48.1 million, or 7 percent, as compared to
the twelve months ended June 30, 1995. The increase was the result of a 20
percent increase in kWh sales primarily due to a much warmer summer in
1995, colder winter weather in 1996, higher sales to other utilities and
customer growth.
Electric margin increased 8 percent during the twelve months ended June
30, 1996 compared to the same period in 1995 primarily due to higher
sales combined with reduced costs per kWh for electric production fuels
and purchased power. Although total fuel and purchased power costs
declined on a per kWh basis, total purchased power expense increased by 61
percent. This increase is due to the Company's higher level of bulk power
sales 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.
<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 $84,954 $66,029 29% 142,221 114,956 24% 131,093 126,581 4%
Firm 47,481 37,474 27% 99,772 82,297 21% 16,160 15,733 3%
Interruptible 3,607 6,246 (42)% 10,673 19,148 (44)% 258 236 9%
Transport. and
Other 25,208 30,135 (16)% 174,725 159,560 10% 266 243 9%
------- ------- ------- ------- ------- -------
Total 161,250 139,884 15% 427,391 375,961 14% 147,777 142,793 3%
======= ======= ======= ======= === ======= ======= ===
Purchased Gas 98,815 88,138 12%
------- -------
Margin $62,435 $51,746 21%
======= ======= ===
</TABLE>
Gas revenues increased $21.4 million, or 15 percent, during the twelve
months ended June 30, 1996 as compared to the twelve months ended June 30,
1995. The higher revenues were the result of a 14 percent rise in therm
sales primarily due to colder weather and residential and firm customer
growth. The higher sales volumes as well as favorable management of gas
supply costs resulted in a $10.7 million, or 21 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 June 1996, the gas incentive program resulted in
additional savings of $1.0 million pre-tax.
Fees, Rents and Other Revenues
Fees, rents and other revenues primarily reflect sales and revenues of
the Company's non-regulated subsidiaries, consolidated under HDC, as
adjusted for discontinued operations.
The increase in fees, rents and other revenues is primarily due to
higher energy marketing revenues. The increase was partially offset by
lower revenues in the environmental, engineering business and housing
subsidiary.
In addition to the revenues of the non-regulated businesses, fees, rents
and other revenues also include revenue from the water utility operations
of WP&L. These revenues represent $4.2 and $4.1 million for the twelve
months ended June 30, 1996 and 1995, respectively.
Other Operation and Maintenance
The increase in other operation and maintenance expense of $24.2 million
is primarily due to the increased activity in the energy marketing
business and losses incurred in gas and electric marketing transactions in
the energy services subsidiary. The increase in expenses at HDC was
offset by a $22.0 million reduction in expense at the utility company.
The decrease in the utility operations is a result of higher early
retirement and severance expenses during the twelve months ended June 30,
1995, related to the Company's reengineering efforts. In addition, nuclear
plant refueling costs which occurred during the twelve month period ending
June 30, 1995 are not expected to occur until the fourth quarter of 1996.
Depreciation and Amortization
Depreciation and amortization expense increased $6.6 million as a
result of property additions, and greater amortization of contributions in
aid of construction (a reduction of expense) in the second quarter of
1995 compared with the same period in 1996.
Interest on Debt
The increase in interest expense is primarily due to the increase in
debt at the housing subsidiary relating to construction projects during
the second half of 1995.
Income Taxes
Income taxes increased for the twelve month period ended June 30, 1996,
as a result of higher taxable income.
Other (Income) and Deductions, Net
Other (income) and deductions, net increased primarily as a result two
significant gains recognized during the twelve months ended June 30, 1996.
In the second quarter of 1996 the sale of a combustion turbine resulted in
a pre-tax gain of $5.7 million and in the first quarter of 1996 a $3.3
million pre-tax gain resulted from the sale of a HDC real estate
investment, Heartland Retirement Services.
Discontinued Operations
During the fourth quarter of 1995, the Company sold A&C Enercom
Consultants, Inc. ("A&C"), its utility energy and marketing consulting
business. For the twelve months ended June 30, 1996, the loss from
operations of A&C was $.9 million, net of tax, and the loss on the
disposal of A&C was $11.0 million, net of tax. For the twelve months ended
June 30, 1995, the loss from operations was $1.8 million, net of tax, and
there was no loss on the disposal of A&C.
TWELVE MONTHS ENDED JUNE 30, 1996 VS. TWELVE MONTHS ENDED DECEMBER 31,
1995:
OVERVIEW
The Company reported consolidated net income from continuing
operations of $91.9 million or $2.99 per share for the twelve months
ended June 30, 1996 as compared to $71.6 million or $2.33 per share for
the twelve months ended December 31, 1995. Earnings per share for the
twelve month periods ended June 30, 1996 and December 31, 1995 were $2.60
and $1.90, respectively, reflecting the impact of the discontinued
operation of A&C Enercom Consultants, Inc. The increase in earnings
primarily reflects the operations of the Company's utility subsidiary,
WP&L. Weather-driven sales growth contributed to increased electric and
gas margins. In addition a $3.4 million after-tax gain on the sale of a
combustion turbine was recognized during the twelve months ended June 30,
1996.
Electric margin increased by $15.6 million, or 4 percent, from
increased sales and lower costs per kWh for both electric production fuels
and purchased power. Gas margins increased $7.3 million, or 13 percent, as
a result of increased therm sales. In addition, other operation and
maintenance expenses at the utility decreased $9.4 million. Partially
offsetting the increases to income was a $3.3 million increase in
depreciation expense at the utility.
<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>
Residential
and Farm $204,141 $199,850 2% 3,013,326 2,937,825 3% 334,035 329,643 1%
Industrial 143,488 140,562 2% 3,933,209 3,872,520 2% 810 795 2%
Commercial 104,590 102,129 2% 1,809,125 1,773,406 2% 45,300 44,730 1%
Wholesale and
Class A 117,570 97,350 21% 4,278,026 3,109,385 38% 92 48 92%
Other 4,875 6,433 (24)% 56,209 54,042 4% 1,742 1,294 35%
------- ------- ---------- ---------- ------- -------
Total 574,664 546,324 5% 13,089,895 11,747,178 11% 381,979 376,510 1%
------- ------- ========== ========== ======= =======
Electric
production fuels 114,820 116,488 (1)%
Purchased Power 58,406 44,015 33%
------- -------
Margin $401,438 $385,821 4%
======= =======
</TABLE>
Electric revenues increased $28.3 million, or 5 percent, as compared to
the twelve months ended December 31, 1995. The increase was the result of
an 11 percent increase in kWh sales primarily due to a colder winter in
1996 and higher sales to other utilities.
Electric margin increased $15.6 million or 4 percent during the twelve
months ended June 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
11 percent increase in kWh sales. Because of this increase in sales and
the availability of competitively priced off-system power, purchased power
increased 33 percent.
<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 $84,954 $70,382 21% 142,221 126,903 12% 131,093 129,576 1%
Firm 47,481 39,456 20% 99,772 91,316 9% 16,160 15,976 1%
Interruptible 3,607 3,708 (3)% 10,673 12,148 (12)% 258 257 0%
Transport. and
Other 25,208 25,619 (2)% 174,725 169,121 3% 266 284 (6)%
------- ------- ------- ------- ------- -------
Total 161,250 139,165 16% 427,391 399,488 7% 147,777 146,093 1%
======= ======= ======= ======= ======= =======
Purchased Gas 98,815 84,002 18%
------ ------
Margin $62,435 $55,163 13%
====== ====== ===
</TABLE>
Gas revenues increased $22.1 million, or 16 percent, during the twelve
months ended June 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 weather during the first six months of 1996
as compared to the same period in 1995. The sales mix indicates a decline
of 12 percent in interruptible sales with a corresponding increase of 12
percent and 9 percent in higher margin residential and firm sales,
respectively.
Fees, Rents and Other Revenues
Fees, rents and other revenues primarily reflect sales and revenues of
the Company's non-regulated subsidiaries, consolidated under HDC, as
adjusted for discontinued operations. The increase in fees, rents and
other revenues is primarily due to higher sales at Heartland Energy Group,
a subsidiary engaged in energy marketing services.
In addition to the revenues of the non-regulated businesses, fees, rents
and other revenues also include revenue from the water utility operations
of WP&L. These revenues represent $4.2 million for both the twelve months
ended June 30, 1996 and December 31, 1995.
Other Operation and Maintenance
The increase in other operation and maintenance expense of $28.2 million
is primarily due to the increased activity in the energy services business
and costs incurred in gas and electric marketing transactions. The
increase in expenses at HDC was offset by a $9.4 million reduction in
expense at the utility company. The decrease in the utility operations is
due to continued reengineering processes and the timing of nuclear plant
refueling costs which occurred during the twelve month period ended
December 31, 1995 and are not scheduled to occur until the fourth quarter
of 1996.
Depreciation and Amortization
Depreciation and amortization expense increased $3.0 million as a
result of property additions, and greater amortization of contributions in
aid of construction (a reduction of expense).
Income Taxes
Income taxes increased for the twelve month period ended June 30, 1996,
as a result of higher taxable income.
Other (Income) and Deductions, Net
Other (income) and deductions increased primarily as a result two
significant gains recognized during the twelve months ended June 30, 1996.
The sale of a combustion turbine resulted in a pre-tax gain of $5.7
million and a $3.3 million pre-tax gain resulted from the sale of an HDC
real estate investment, Heartland Retirement Services.
Discontinued Operations
During the fourth quarter of 1995, the Company sold A&C Enercom
Consultants, Inc. ("A&C"), its utility energy and marketing consulting
business. For the twelve months ended June 30, 1996, the loss from
operations of A&C was $0.9 million, net of tax, and the loss on disposal
of A&C was $11.0 million, net of tax. For the twelve months ended December
31, 1995 the loss from operations was $2.2 million, net of tax, and the
loss on the disposal of A&C was $11.0 million, net of tax.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is primarily determined by the level of cash
generated from operations and the funding requirements of WP&L's ongoing
construction and maintenance programs. WP&L finances its construction
expenditures through internally generated funds supplemented, and when
required, by outside financing. (Also see: Note 2 in the "Notes to
Financial Statements," page 6.)
During the three and twelve months ended June 30, 1996 and June 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 $(6.5) million for the three months ended
June 30, 1996, compared to $(9.4) million for the same period last year.
For the twelve month period ended June 30, 1996, cash flows from operations
decreased to $177.0 million from $177.4 million during the same period in
1995. During the twelve months ended June 30, 1996, the Company received
$58.4 million from sales of a combustion turbine and several non-
regulated investments.
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 June 30, 1996 are available to support
these borrowings.
The Company's capitalization at June 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 long-term debt.
Capital Expenditures
The Company's largest subsidiary, 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 June
30, 1996 were $29.3 million. The estimated construction expenditures for
the remainder of 1996 are $99.2 million.
The Company has a 41.0 percent ownership interest in the Kewaunee
Nuclear Power Plant (KNPP). The operating partner of this plant is
Wisconsin Public Service Corporation (WPSC). The steam generator tubes at
KNPP are susceptible to corrosion and cracking phenomena seen throughout
the nuclear industry. Steam Generator A is currently 24.94% effectively
plugged and Steam Generator B is 17.69% effectively plugged for an average
of 21.32%. The current Kewaunee safety analysis report allows an
effective tube plugging limit of up to 25% average for both steam
generators, not to exceed 25% in either steam generator. Analyses are
currently being performed which the operating partner believes will
increase the effective plugging limit to 30%. The small reduction in
capacity which has resulted from this tube plugging has not had a material
impact on the financial performance of the Company.
As a result of the need to address the repair or replacement of the
steam generators, the owners of KNPP have been evaluating, and are con-
tinuing to evaluate, various alternatives to deal with the degradation of
the steam generator tubes. As part of this evaluation, the owners have or
will take the following actions:
(a) The Nuclear Regulatory Commission ("NRC") has been requested to
redefine the pressure boundary point of the repaired steam
generator tubes, which have been removed from service by plugging,
in order to allow the return of many of the tubes to service; thus,
permitting KNPP to return to full licensed power.
(b) The NRC will be requested to increase the steam generator effective
plugging limit from 25% to 30%.
(c) A request will be submitted to the NRC to allow the owners to
pursue welded repair technologies to repair existing sleeved tubes
in an effort to return plugged tubes to service.
(d) The partners continue to evaluate the economics of replacement of
the steam generators. The replacement of steam generators is
estimated to cost approximately $100 million, exclusive of
additional purchased power costs associated with an extended
shutdown.
WP&L believes that the best near term economic alternative for the
owners of KNPP is to continue to pursue tube recovery and repair
processes. WP&L will reassess its views of available alternatives based
on the condition of the steam generator tubes during the fall 1996
refueling outage.
Currently, the owners of KNPP have different views of the future
market value of energy which impact on the desirability of replacing the
steam generators. During the first quarter of 1996 WPSC filed an
application with the Public Service Commission of Wisconsin (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 KNPP, including various ownership
transfer alternatives. The net book value of WP&L's share of KNPP as of
June 30, 1996 was $57 million.
WP&L has applied to the PSCW for accelerated depreciation of this
remaining book value of KNPP 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.
Rates and Regulatory Matters
In the PSCW rate order UR-109, effective January 1, 1995, the PSCW
approved certain incentive programs. Based on the 1995 performance of the
SO2 emissions and service reliability incentive programs a $2.5 million
refund to retail electric customers was made after the second quarter of
1996. The refund associated with the gas portion of the program has not
been approved by the PSCW.
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 FERC proposes that
each public utility replace its soon-to-be- filed single open access
tariff with a capacity reservation tariff by December 31, 1997. The
Company presently has on file with the FERC a pro forma open access
transmission tariff, filed on July 8, 1996, in compliance with FERC order
No. 888.
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
The Company, 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 the Company, and b) the merger
of IES with and into the Company, which merger will result in the combina-
tion of IES and the Company as a single holding company (collectively, the
"Proposed Merger"). The holding company will be renamed Interstate Energy
Corporation ("Interstate Energy)".
The Joint Proxy Statement/Prospectus of the Company, IES and IPC was
filed with the Securities and Exchange Commission on July 11, 1996. The
Merger Agreement contemplated an adjustment of the IES Ratio to 1.01 shares
of Interstate Energy Common Stock from the initial ratio of 0.98 in the event
that prior to the consummation of the transaction, McLeod, Inc., a Delaware
corporation in which IES has a significant ownership interest ("McLeod"),
(a) completed a firm commitment underwritten initial public offering of
its Class A common stock at a per share price of at least $13.00 in which
McLeod received gross proceeds of at least $75 million and (b)
immediately following the public offering the Class A common stock was
registered under Section 12 of the Exchange Act. On June 14,1996, McLeod
completed an initial public offering of 13.8 million shares of its Class A
common stock at a price of $20 per share. The McLeod offering satisfied
the conditions of the McLeod contingency and the IES Ratio was adjusted to
the 1.01.
The shareowner vote on the merger is expected to occur at annual
meetings to be held by each of the Company, IES and IPC on September 5,
1996. The corporate headquarters of Interstate Energy will be in Madison,
Wisconsin.
On August 5, 1996, MidAmerican Energy Company, an electric and natural
gas utility company based in Des Moines, Iowa, announced that it had made
an unsolicited bid to acquire IES in a cash and stock transaction. On
August 16, 1996, the Company, IES and IPC announced an agreement to increase
the IES Ratio to 1.14 as well as the decision of the IES Board to reject
the unsolicited offer made by MidAmerican. The Company cannot currently
determine what, if any, impact the unsolicited bid of MidAmerican may have
on the transaction contemplated by the Merger Agreement.
Union Contract
WP&L and International Brotherhood of Electrical Workers, Local 965
reached agreement on a new three year collective bargaining contract on
June 14. The new agreement includes increases in the base wage during the
first, second and third years of the contract of 3 percent, 3 percent and
3.25 percent, respectively. The new agreement is effective retroactive to
June 1, 1996, with wages retroactive to May 26, which is the beginning of
a pay period. At the end of the second quarter, the contract covered 1,587
of WP&L's employees which represents approximately 69 percent of the total
employees at WP&L.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
WPL Holdings, Inc.
Date: August 16, 1996 /s/ Edward M. Gleason
Edward M. Gleason, Vice President -
Treasurer, and Corporate Secretary
(principal financial officer and
officer authorized to sign on behalf
of the registrant)
