-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NaTvmB+EBsWciBQ4tT8C2sVTsC+tnN+xHmm316PN4jcSCYhLGbiNj+REDM6FEFfi lmSre2DSmvG/qd9ya0klvQ== 0000107832-01-500009.txt : 20010330 0000107832-01-500009.hdr.sgml : 20010330 ACCESSION NUMBER: 0000107832-01-500009 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IES UTILITIES INC CENTRAL INDEX KEY: 0000052485 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 420331370 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-04117 FILM NUMBER: 1584463 BUSINESS ADDRESS: STREET 1: 200 FIRST ST SE STREET 2: IES TOWER CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 BUSINESS PHONE: 3193984411 FORMER COMPANY: FORMER CONFORMED NAME: IOWA ELECTRIC LIGHT & POWER CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IOWA RAILWAY & LIGHT CORP DATE OF NAME CHANGE: 19670629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN POWER & LIGHT CO CENTRAL INDEX KEY: 0000107832 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 390714890 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-00337 FILM NUMBER: 1584464 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANT ENERGY CORP CENTRAL INDEX KEY: 0000352541 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 391380265 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09894 FILM NUMBER: 1584465 BUSINESS ADDRESS: STREET 1: 222 WEST WASHNGTON AVENUE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523110 MAIL ADDRESS: STREET 1: P O BOX 2568 CITY: MADISON STATE: WI ZIP: 53701-2568 FORMER COMPANY: FORMER CONFORMED NAME: INTERSTATE ENERGY CORP DATE OF NAME CHANGE: 19980427 FORMER COMPANY: FORMER CONFORMED NAME: WPL HOLDINGS INC DATE OF NAME CHANGE: 19920703 10-K405 1 mainbackup.txt 10-K 405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 ------------------ 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 Incorporation, IRS Employer File Number Address of Principal Executive Offices and Telephone Number Identification Number - ----------- ------------------------------------------------------------ -------------------------------------- 1-9894 ALLIANT ENERGY CORPORATION 39-1380265 (a Wisconsin corporation) 222 West Washington Avenue Madison, Wisconsin 53703 Telephone (608)252-3311 0-4117-1 IES UTILITIES INC. 42-0331370 (an Iowa corporation) Alliant Energy Tower Cedar Rapids, Iowa 52401 Telephone (319)398-4411 0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890 (a Wisconsin corporation) 222 West Washington Avenue Madison, Wisconsin 53703 Telephone (608)252-3311
Securities registered pursuant to Section 12 (b) of the Act: Name of Each Title of Class Exchange on Which Registered --------------- ---------------------------- Alliant Energy Corporation Common Stock, $.01 Par Value New York Stock Exchange Alliant Energy Corporation Common Stock Purchase Rights New York Stock Exchange IES Utilities Inc. 7-7/8% Quarterly Debt Capital Securities New York Stock Exchange (Subordinated Deferrable Interest Debentures) Wisconsin Power and Light Company 4.50% Preferred Stock, No Par Value American Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: Title of Class -------------- IES Utilities Inc. 4.80% Cumulative Preferred Stock, Par Value $50 per share Wisconsin Power and Light Company Preferred Stock (Accumulation without Par Value)
Indicate by check mark whether the registrants (1) have 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) have been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [X] This combined Form 10-K is separately filed by Alliant Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company. Information contained in the annual report relating to Wisconsin Power and Light Company and IES Utilities Inc. is filed by such registrant on its own behalf. Each of Wisconsin Power and Light Company and IES Utilities Inc. makes no representation as to information relating to registrants other than itself. The aggregate market value of the voting and non-voting common equity held by nonaffiliates as of January 31, 2001:
Alliant Energy Corporation $2.40 billion IES Utilities Inc. $-- Wisconsin Power and Light Company $-- Number of shares outstanding of each class of common stock as of January 31, 2001: Alliant Energy Corporation Common Stock, $.01 par value, 79,012,014 shares outstanding IES Utilities Inc. Common Stock, $2.50 par value, 13,370,788 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation) Wisconsin Power and Light Company Common Stock, $5 par value, 13,236,601 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation)
DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statements relating to Alliant Energy Corporation's 2001 Annual Meeting of Shareowners and Wisconsin Power and Light Company's 2001 Annual Meeting of Shareowners are, or will be upon filing with the Securities and Exchange Commission, incorporated by reference into Part III hereof. -2-
TABLE OF CONTENTS Page Number Part I Item 1. Business 6 Item 2. Properties 23 Item 3. Legal Proceedings 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Part II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters 27 Item 6. Selected Financial Data 28 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 49 Item 8. Financial Statements and Supplementary Data 49 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 122 Part III Item 10. Directors and Executive Officers of the Registrants 122 Item 11. Executive Compensation 125 Item 12. Security Ownership of Certain Beneficial Owners and Management 126 Item 13. Certain Relationships and Related Transactions 126 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 126 Signatures 135
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DEFINITIONS Certain abbreviations or acronyms used in the text and notes of this report are defined below: Abbreviation or Acronym Definition - ----------------------- ----------------------------------------------------- AFUDC Allowance for Funds Used During Construction Alliant Energy Alliant Energy Corporation ANR ANR Pipeline APB Accounting Principles Board Opinion ATC American Transmission Company, LLC Btu British Thermal Unit Capital Square Capital Square Financial Corporation Capstone Capstone Turbine Corporation Cargill Cargill Incorporated CIPCO Central Iowa Power Cooperative Corporate Services Alliant Energy Corporate Services, Inc. DAEC Duane Arnold Energy Center DOE United States Department of Energy Dth Dekatherm EAC Energy Adjustment Clause EDS Electronic Data Systems Corporation EITF Emerging Issues Task Force EPA United States Environmental Protection Agency FAC Fuel Adjustment Clause FERC Federal Energy Regulatory Commission ICC Illinois Commerce Commission IES IES Industries Inc. IESU IES Utilities Inc. International Alliant Energy International, Inc. Investments Alliant Energy Investments, Inc. IPC Interstate Power Company IRS Internal Revenue Service ISCO Alliant Energy Integrated Services Company ISO Independent System Operator IUB Iowa Utilities Board Kewaunee Kewaunee Nuclear Power Plant KW Kilowatt KWh Kilowatt-Hour LTEIP Long-Term Equity Incentive Plan MAIN Mid-America Interconnected Network, Inc. MAPP Mid-Continent Area Power Pool McLeod McLeodUSA Incorporated MD&A Management's Discussion and Analysis of Financial Condition and Results of Operations MG&E Madison Gas & Electric Company MGP Manufactured Gas Plants MPUC Minnesota Public Utilities Commission -4- Abbreviation or Acronym Definition - ----------------------- ----------------------------------------------------- MW Megawatt MWh Megawatt-Hour NEIL Nuclear Electric Insurance Limited NEPA National Energy Policy Act of 1992 NERC North American Electric Reliability Council NGPL Natural Gas Pipeline Co. of America NMC Nuclear Management Company, LLC NNG Northern Natural Gas Company NOx Nitrogen Oxides NRC Nuclear Regulatory Commission PGA Purchased Gas Adjustment PRP Potentially Responsible Party PSCW Public Service Commission of Wisconsin PUHCA Public Utility Holding Company Act of 1935 Resources Alliant Energy Resources, Inc. SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards SFAS 133 Accounting for Derivative Instruments and Hedging Activities SkyGen SkyGen Energy LLC South Beloit South Beloit Water, Gas and Electric Company STB U.S. Surface Transportation Board Transportation Alliant Energy Transportation, Inc. U.S. United States WDNR Wisconsin Department of Natural Resources WEPCO Wisconsin Electric Power Company Whiting Whiting Petroleum Corporation WNRB Wisconsin Natural Resources Board WP&L Wisconsin Power and Light Company WPLH WPL Holdings, Inc. WPSC Wisconsin Public Service Corporation WUHCA Wisconsin Utility Holding Company Act
-5- FORWARD-LOOKING STATEMENTS Refer to "Forward-Looking Statements" in Item 7. MD&A for information and disclaimers regarding forward-looking statements contained in this Annual Report on Form 10-K. PART I This Annual Report on Form 10-K includes information relating to Alliant Energy, IESU and WP&L (as well as IPC, Resources and Corporate Services). Where appropriate, information relating to a specific entity has been segregated and labeled as such. ITEM 1. BUSINESS A. GENERAL In April 1998, IES, WPLH and IPC completed a merger resulting in Alliant Energy. The primary first tier subsidiaries of Alliant Energy include: IESU, WP&L, IPC, Resources and Corporate Services. Among various other regulatory constraints, Alliant Energy is operating as a registered public utility holding company subject to the limitations imposed by PUHCA. Alliant Energy was incorporated in Wisconsin in 1981. Refer to "Utility Industry Outlook" in Item 7. MD&A for additional information regarding Alliant Energy's utility subsidiaries. A brief description of the primary first-tier subsidiaries of Alliant Energy is as follows: 1) IESU - incorporated in Iowa in 1925 as Iowa Railway and Light Corporation. IESU is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of steam services in selective markets, in the State of Iowa. In Iowa, non-exclusive franchises, which cover the use of streets and alleys for public utility facilities in incorporated communities, are granted for a maximum of twenty-five years by a majority vote of local qualified residents. At December 31, 2000, IESU supplied electric and gas service to approximately 347,000 and 182,000 customers, respectively. In 2000, 1999 and 1998, IESU had no single customer for which electric, gas and/steam sales accounted for 10% or more of IESU's consolidated revenues. Refer to Note 17 of IESU's "Notes to Consolidated Financial Statements" in Item 8. for information related to a merger agreement between IESU and IPC. 2) WP&L - incorporated in Wisconsin in 1917 as Eastern Wisconsin Electric Company, is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of water services in selective markets. Nearly all of WP&L's customers are located in south and central Wisconsin. WP&L operates in municipalities pursuant to permits of indefinite duration which are regulated by Wisconsin law. At December 31, 2000, WP&L supplied electric and gas service to approximately 414,000 and 165,000 customers, respectively. WP&L also had approximately 19,000 water customers. In 2000, 1999 and 1998, WP&L had no single customer for which electric, gas and/water sales accounted for 10% or more of WP&L's consolidated revenues. WPL Transco LLC was formed in Wisconsin in 2000 and is the wholly-owned subsidiary of WP&L which holds the investment in ATC. WP&L owns all of the outstanding capital stock of South Beloit, a public utility supplying electric, gas and water service, principally in Winnebago County, Illinois, which was incorporated in 1908. 3) IPC - incorporated in 1925 under the laws of the State of Delaware. IPC is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy and the purchase, distribution, transportation and sale of natural gas in the States of Iowa, Minnesota and Illinois. At December 31, 2000, IPC provided electric and gas service to approximately 169,000 and 51,000 customers, respectively. In 2000, 1999 and 1998, IPC had no single customer for which electric and/or gas sales accounted for 10% or more of IPC's consolidated revenues. 4) RESOURCES - incorporated in 1988 in Wisconsin, the majority of Alliant Energy's non-regulated investments are organized under Resources. Resources' wholly-owned subsidiaries at December 31, 2000 include ISCO, International, Investments, Transportation, Capital Square, EUA Cogenex Corporation and Energy Performance Services, Inc. Alliant Energy also has a 50% ownership interest in a joint venture, which is managed by Resources, with Cargill, named Cargill-Alliant LLC. Resources' -6- businesses include global partnerships to develop energy generation, delivery and infrastructure in growing international markets and domestic businesses including oil and gas operations, energy trading partnerships, energy and environmental services, transportation services and affordable housing companies. 5) CORPORATE SERVICES - subsidiary formed to provide administrative services to Alliant Energy and its subsidiaries as required under PUHCA. Refer to Note 13 of the "Notes to Consolidated Financial Statements" in Item 8. for further discussion of business segments, which information is incorporated herein by reference. B. INFORMATION RELATING TO ALLIANT ENERGY ON A CONSOLIDATED BASIS EMPLOYEES As of December 31, 2000, Alliant Energy had the following employees (full-time and part-time):
Percentage Number of Number of of Workforce Number of Bargaining Unit Bargaining Covered by Employees Employees Agreements Agreements --------------- --------------------- ----------------- ------------------ IESU 1,712 1,116 6 65% WP&L 1,555 1,452 1 93% IPC 581 499 3 86% Resources 2,648 84 5 3% Corporate Services 1,386 -- -- -- --------------- --------------------- ----------------- Alliant Energy Total 7,882 3,151 15 40% =============== ===================== =================
All bargaining agreements that expired in 2000 have been ratified and renewed and no significant bargaining agreements expire in 2001. CAPITAL EXPENDITURE AND INVESTMENT AND FINANCING PLANS Refer to "Liquidity and Capital Resources - Construction and Acquisition Expenditures" in Item 7. MD&A and Note 11(a) of the "Notes to Consolidated Financial Statements" in Item 8. for discussion of anticipated construction and acquisition expenditures for 2001-2005 and details regarding the financing of future capital requirements. Refer to "C. Information Relating to Utility Operations - Electric Utility Operations - Power Supply" for information related to IESU's and WP&L's plans for the development of new electric power generation in Iowa and Wisconsin, respectively. REGULATION Alliant Energy operates as a registered public utility holding company subject to regulation by the SEC under PUHCA. Alliant Energy and its subsidiaries are subject to the regulatory provisions of PUHCA, including provisions relating to the issuance and sales of securities, acquisitions and sales of certain utility properties, acquisitions and retention of interests in non-utility businesses and the services provided by Corporate Services to Alliant Energy and its subsidiaries. Alliant Energy is subject to regulation by the PSCW. The PSCW regulates, among other things, the type and amount of Alliant Energy's investments in non-utility businesses. WP&L is also subject to regulation by the PSCW as to retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. WP&L is generally required to file a rate case with the PSCW every two years based on a forward-looking test year period. However, as one of the conditions for approval of the 1998 merger which formed Alliant Energy, the PSCW has required, with certain exception, that WP&L freeze for four years on a post-merger basis retail electric, natural gas and water rates. WP&L expects to file a rate case with the PSCW in the third quarter of 2001. -7- IESU and IPC operate under the jurisdiction of the IUB. The IUB has authority to regulate rates and standards of service, to prescribe accounting requirements and to approve the location and construction of electric generating facilities having a capacity in excess of 25,000 KW. Requests for rate relief are based on historical test periods, adjusted for certain known and measurable changes. The IUB must decide on requests for rate relief within 10 months of the date of the application for which relief is filed or the interim prices granted become permanent. Interim rates, if allowed, are permitted to become effective, subject to refund, no later than 90 days after the rate increase application is filed. Notwithstanding this process, IESU and IPC agreed to a four-year price cap effective with the merger as part of the merger approval process. IPC is also subject to regulation by the MPUC. Requests for rate relief can be based on either historical or projected data. The MPUC must reach a final decision within 10 months. Interim rates are permitted. The MPUC also has jurisdiction to approve IPC's capital structure on an annual basis. In addition, IPC and South Beloit are subject to regulation by the ICC for retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. Requests for rate relief must be decided within 11 months. FERC has jurisdiction under the Federal Power Act over certain of the electric utility facilities and operations, wholesale rates and accounting practices of IESU, WP&L and IPC, and in certain other respects. In addition, certain natural gas facilities and operations of the companies are subject to the jurisdiction of FERC under the Natural Gas Act. With respect to environmental matters, the EPA administers certain federal statutes and has delegated the administration of other environmental initiatives to the applicable state environmental agencies. In addition, the state agencies have jurisdiction over air and water quality standards associated with fossil fuel fired electric generation and the level and flow of water, safety and other matters pertaining to hydroelectric generation. WP&L and IESU are indirectly and directly subject to the jurisdiction of the NRC, with respect to Kewaunee and DAEC, respectively, and to the jurisdiction of the DOE with respect to the disposal of nuclear fuel and other radioactive wastes from Kewaunee and DAEC. Refer to "Utility Industry Outlook" in Item 7. MD&A for additional information regarding regulation and utility rate matters. C. INFORMATION RELATING TO UTILITY OPERATIONS Alliant Energy realized 53%, 41%, 4% and 2% of its 2000 electric utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively. Approximately 89% of the electric revenues were regulated by the respective state commissions while the other 11% were regulated by FERC. Alliant Energy realized 56%, 38%, 3% and 3% of its 2000 gas utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively. IESU realized 100% of its 2000 electric and gas utility retail revenues in Iowa. Approximately 95% of the 2000 electric revenues were regulated by the IUB while the other 5% were regulated by FERC. WP&L realized 98% of its 2000 electric utility revenues in Wisconsin and 2% in Illinois. Approximately 83% of the 2000 electric revenues were regulated by the PSCW or the ICC while the other 17% were regulated by FERC. WP&L realized 96% of its 2000 gas utility revenues in Wisconsin and 4% in Illinois. IPC realized 73%, 21% and 6% of its 2000 electric utility revenues in Iowa, Minnesota and Illinois, respectively. Approximately 91% of the 2000 electric revenues were regulated by the respective state commissions while the other 9% were regulated by FERC. IPC realized 66%, 25% and 9% of its 2000 gas utility revenues in Iowa, Minnesota and Illinois, respectively. ELECTRIC UTILITY OPERATIONS General - As of December 31, 2000, Alliant Energy's utility subsidiaries provided electricity to approximately 930,000 retail customers in approximately 1,359 communities in Iowa, southern and central Wisconsin, northern and northwestern Illinois and southern Minnesota. The approximate number of electric retail customers, communities and wholesale customers served for each of the individual utilities at December 31, 2000 was as follows: -8- Retail Communities Wholesale Customers Served Customers ---------- ------------ -------------- IESU 347,000 525 5 WP&L 414,000 600 28 IPC 169,000 234 9 2000 electric utility operations accounted for 74%, 80% and 85% of operating revenues and 92%, 90% and 94% of operating income for IESU, WP&L and IPC, respectively. Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months. In 2000, the maximum peak hour demands for IESU, WP&L and IPC were 2,067 MW on August 31, 2000; 2,508 MW on August 31, 2000; and 996 MW on August 14, 2000, respectively. In 2000, the maximum peak hour demand for Alliant Energy was 5,397 MW on August 31, 2000, which was the coincident peak of the entire Alliant Energy system. IESU maintains and operates transmission and substation facilities connecting with its high voltage transmission systems pursuant to a non-cancelable operation agreement (the Operating Agreement) with CIPCO. The Operating Agreement, which will terminate on December 31, 2035, provides for the joint use of certain transmission facilities of IESU and CIPCO. Alliant Energy has transmission interconnections at various locations with twelve other transmission owning utilities in the Midwest. These interconnections enhance the overall reliability of the Alliant Energy transmission system and provide access to multiple sources of economic and emergency power and energy. In May 2000, IESU and IPC transferred their regional reliability memberships from the MAPP reliability region to the MAIN region. Because WP&L was already a member of MAIN, this transfer provided Alliant Energy additional operating flexibility and eliminated duplicate reporting requirements. MAIN is one of the ten regional members of NERC. Each regional member of NERC is responsible for maintaining reliability in its area through coordination of planning and operations. Refer to "Utility Industry Outlook" in Item 7. MD&A for additional information regarding Alliant Energy's transmission business. Refer to Item 2. Properties for additional information regarding electric facilities. Fuel - Refer to the Electric Operating Information tables for details on the sources of electric energy for Alliant Energy, IESU and WP&L from 1996 to 2000. The average cost of fuel per million Btu's used for electric generation was as follows:
Nuclear Coal All Fuels --------------- -------------- --------------- IESU - 2000 $0.594 $0.925 $0.953 - 1999 0.581 0.899 0.914 - 1998 0.605 0.885 0.887 WP&L - 2000 0.424 1.152 1.115 - 1999 0.431 1.144 1.034 - 1998 0.450 1.171 1.085 IPC - 2000 N/A 1.062 1.146 - 1999 N/A 1.273 1.320 - 1998 N/A 1.287 1.344
Coal - Corporate Services, as an agent of IESU, WP&L and IPC, has negotiated several agreements with different suppliers to ensure that a specified supply of coal is available at known prices for the respective utilities for calendar years 2001, 2002, and 2003. These contracts, in combination with existing agreements, provide for a portfolio of coal supplies that cover approximately 95%, 36% and 30% of the three utilities' estimated coal supply needs for the years 2001 through 2003, respectively. Management believes this portfolio of coal supplies represents a reasonable balance between the risks of insufficient supplies and those associated with larger open positions subject to price volatility in the coal markets. Remaining coal requirements will be met from either future contracts or purchases in the spot market. The majority of the coal utilized by the utility subsidiaries is from the Wyoming Powder River Basin. A majority of this -9- coal is transported by rail-car directly from Wyoming to the utility subsidiaries' generating facilities, with the remainder transported from Wyoming to the Mississippi River by rail-car and then via barges to the final destination. As protection against interruptions in coal deliveries, the utility subsidiaries maintain average coal inventories at their generating stations of 20 to 40 days for stations with year-round deliveries and 20 to 150 days (depending upon time of the year) for stations with seasonal deliveries. Average fossil fuel costs are expected to increase in the future due to price/rate adjustment provisions in existing coal and transportation contracts and recent coal market trends. Price adjustment provisions in existing coal contracts are primarily based on changes in various indices (e.g. U.S. Department of Labor Statistics Producer Price Indices and Consumer Price Indices). Other factors which impact coal price adjustment provisions are mine labor agreements and, if enacted, changes in various laws and regulations. Rate adjustment provisions in transportation contracts are primarily based on changes in the Rail Cost Adjustment Factor as published by the STB (refer to "Utility Industry Outlook - Rates and Regulatory Matters" in Item 7. MD&A for information regarding a case with the STB). In addition, fuel sulfur restrictions and other environmental limitations have increased significantly and will likely further increase the difficulty and cost of obtaining adequate coal supplies. Refer to the "Notes to Consolidated Financial Statements" in Item 8. for discussion of the utilities' rate recovery of fuel costs (Note 1(j)) and for details relating to coal purchase commitments (Note 11(b)). Purchased Power - During 2000, approximately 18%, 29% and 29% of IESU's, WP&L's and IPC's total MWh requirements, respectively, were met through purchased power. Refer to Note 11(b) of the "Notes to Consolidated Financial Statements" in Item 8. for details relating to purchased power and transmission commitments. Nuclear - Alliant Energy owns interests in two nuclear facilities, Kewaunee and DAEC. Kewaunee, a 532 MW (net capacity) pressurized water reactor plant, is operated by the NMC under contract to WPSC and is jointly owned by WPSC (41.2%), WP&L (41.0%) and MG&E (17.8%). In September 1998, WPSC and MG&E finalized an arrangement in which WPSC will acquire MG&E's 17.8% share of Kewaunee. This agreement, the closing of which is contingent upon regulatory approval and the steam generator replacement in the fall of 2001, will give WPSC 59.0% ownership in Kewaunee. After the change in ownership, WPSC and WP&L will be responsible for the decommissioning of the plant. WPSC and WP&L are discussing revisions to the joint power supply agreement which will govern operation of the plant after the ownership change takes place. The Kewaunee operating license expires in 2013. DAEC, a 535 MW (net capacity) boiling water reactor plant, is operated by the NMC under contract to IESU which has a 70% ownership interest in the plant. The DAEC operating license expires in 2014. The operations of the NMC are described in greater detail below. As co-owners of nuclear generating units, IESU and WP&L are subject to the jurisdiction of the NRC. The NRC has broad supervisory and regulatory jurisdiction over the construction and operation of nuclear reactors, particularly with regard to public health, safety and environmental considerations. The operation and design of nuclear power plants is under constant review by the NRC. IESU's and WP&L's anticipated nuclear-related construction expenditures for 2001-2005 are approximately $54 million and $29 million, respectively. Refer to "Utility Industry Outlook - Rates and Regulatory Matters" in Item 7. MD&A for additional information regarding the operations of Kewaunee. In April 1998, the PSCW approved WPSC's application for replacement of the two steam generators at Kewaunee. The total cost of replacing the steam generators will be approximately $120 million, with WP&L's share of the cost being approximately $49 million. Due to delays in the manufacture of the new steam generators, the replacement work originally planned for the spring of 2000 is now scheduled for the fall of 2001 and will take approximately 60 days. The remaining life of Kewaunee, of which WP&L is a co-owner, is based on the PSCW approved revised end-of-life of 2010. In 1999, Alliant Energy, Northern States Power Company, WPSC and WEPCO announced the formation of and their investment in a jointly-owned subsidiary, the NMC, the purpose of which was to consolidate operation of the nuclear plants owned by their utility subsidiaries and to provide similar capability for other nuclear plant operators and owners. Consolidation of -10- operation is expected to sustain long-term safety, optimize reliability and improve the operational performance of the nuclear generating plants. Alliant Energy, through its subsidiary, Alliant Energy Nuclear LLC, initially had a 25% ownership interest in the NMC. This ownership interest has been reduced to 20% with the recent addition of CMS Energy Corporation as an additional investor in the NMC. Combined, the NMC member utility subsidiaries operated seven nuclear generating units at five sites. The original four NMC members and their utility subsidiaries have received the required state and federal regulatory approvals for operation of their respective nuclear plants by the NMC. This transfer of operating responsibility was effective August 2000. The utilities continue to own their plants, are entitled to energy generated at the plants and retain the financial obligations for the safe operation, maintenance and decommissioning of the plants. All non-bargaining employees of IESU and Corporate Services at DAEC were transferred to the NMC on January 1, 2001. In 2000, CMS Energy Corporation announced plans to invest in the NMC in an equal share to the existing investors and declared its intention to transfer operating responsibility for the Palisades Nuclear Plant operated by its utility subsidiary, Consumers Energy Company, to the NMC upon receipt of regulatory approvals. Public liability for nuclear accidents is governed by the Price-Anderson Amendments Act of 1988, which sets a statutory limit of $9.5 billion for liability to the public for a single nuclear power plant incident and requires nuclear power plant operators to provide financial protection for this amount. As required, IESU provides this financial protection for a nuclear incident at DAEC through a combination of liability insurance ($200 million) and industry-wide retrospective payment plans ($9.3 billion). Under the industry-wide plan, each operating licensed nuclear reactor in the U.S. is subject to an assessment in the event of a nuclear incident at any nuclear plant in the U.S. The owners of DAEC could be assessed a maximum of $88.1 million per nuclear incident, with a maximum of $10 million per incident per year (of which IESU's 70% ownership portion would be approximately $61.7 million and $7 million, respectively) if losses relating to the incident exceeded $200 million. These limits are subject to adjustments for changes in the number of participants and inflation in future years. Similarly, WP&L, as a 41% owner of Kewaunee, is subject to an overall assessment of approximately $36.1 million per incident, not to exceed $4.1 million payable in any given year. IESU and WP&L are members of NEIL, which provides $1.9 billion of insurance coverage for IESU and $1.8 billion for WP&L on certain property losses for property damage, decontamination and premature decommissioning. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair and premature decommissioning. NEIL also provides separate coverage for additional expenses incurred during certain outages. Owners of nuclear generating stations insured through NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. NEIL's accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the primary and excess property damage or additional expense coverages. However, IESU could be assessed annually a maximum of $1.5 million for NEIL primary property, $2.8 million for NEIL excess property and $1.2 million for NEIL additional expenses if losses exceed the accumulated reserve funds. WP&L could be assessed annually a maximum of $1.1 million for NEIL primary property, $1.6 million for NEIL excess property and $0.4 million for NEIL additional expense coverage. IESU and WP&L are not currently aware of any losses that they believe are likely to result in an assessment. In the unlikely event of a catastrophic loss at Kewaunee or DAEC, the amount of insurance available may not be adequate to cover property damage, decontamination and premature decommissioning. Uninsured losses, to the extent not recovered through rates, would be borne by WP&L or IESU, as the case may be, and could have a material adverse effect on those entities' financial condition and results of operations. The Nuclear Waste Policy Act of 1982 assigned responsibility to the 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, in exchange for payments by contract holders. IESU and WP&L entered into such contracts and have made the agreed payments to the Nuclear Waste Fund held by the U.S. Treasury. The companies were subsequently -11- notified by the DOE that it was not able to begin acceptance of spent nuclear fuel by the January 31, 1998 deadline. Furthermore, the 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. Alliant Energy continues to monitor and evaluate its options for recovery of damages due to the DOE's delay in accepting spent nuclear fuel. The Nuclear Waste Policy Act of 1982 also assigned responsibility for interim storage of spent nuclear fuel to generators of such spent nuclear fuel, such as IESU and WP&L. In accordance with this responsibility, IESU and WP&L have been and will continue storing spent nuclear fuel on site at DAEC and Kewaunee, respectively, since plant operations began and until removal of all spent nuclear fuel by the DOE to its permanent repository occurs. Interim storage activities at reactor sites, regardless of DOE delays, will extend after final reactor shutdown. Planning has begun for construction of a dry cask storage facility by IESU at DAEC to provide assurance that both the operating and post-shutdown storage needs are satisfied. With minor modifications planned for 2001, Kewaunee would have sufficient fuel storage capacity to store all of the fuel it will generate through the end of the NRC license life in 2013, however, no decisions have been made concerning post-shutdown storage needs. 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. The States of Iowa and Wisconsin are members 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 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 due to increased operational efficiencies at nuclear facilities and continued access to existing disposal facilities were also reasons cited for the decision. Disposal facilities located near Barnwell, South Carolina and Clive, Utah continue to accept the low-level waste and IESU and WP&L currently ship the waste each produces to such sites, thereby minimizing the amount of low-level waste stored on-site. Given technological advances, waste compaction and the reduction in the amount of waste generated, DAEC and Kewaunee each have on-site storage capability sufficient to store low-level waste expected to be generated over at least the next ten years. While Alliant Energy is unable to predict how long these facilities will continue to accept its waste, continuing access to these facilities expands Alliant Energy's on-site storage capability indefinitely. WPSC purchases uranium concentrates, conversion services, enrichment services, and fabrication services for nuclear fuel assemblies at Kewaunee. New fuel assemblies replace used assemblies that are removed from the reactor every 18 months and placed in storage at the plant site pending removal by the DOE. Uranium concentrates, conversion services, and enrichment services are purchased at spot market prices, through a bid process, or using existing contracts. Conversion services are complete for nuclear fuel reloads in 2001 and 2003. A fixed quantity of enrichment services are contracted through the year 2004. Additional enrichment services will be acquired under an existing contract or by purchases on the spot market. Fuel fabrication services are contracted well into the next decade. WPSC's uranium inventory policy requires that sufficient inventory exist for up to two reactor reloads of fuel. As of December 31, 2000, approximately 884,000 pounds of yellowcake (a processed form of uranium ore) or its equivalent were held in inventory for the plant. A contract for enrichment services and enriched uranium product for DAEC with the U.S. Enrichment Corporation is effective through September 2001 and has been extended through the next delivery date, which is expected to be November 2002. Fabrication of the nuclear fuel is being performed by General Electric Company for fuel through the 2011 refueling of DAEC. IESU believes that an ample supply of uranium and enrichment services will be available in the future and intends to purchase such uranium and enrichment services as necessary on the spot market and/or via medium length (less than five years) contracts to supplement its current contracts and meet its generation requirements. Additional discussions of various other nuclear issues relating to Kewaunee and DAEC are included in Notes 1, 3, 9, 10, 11(f) and 12 of the "Notes to Consolidated Financial Statements" in Item 8. -12- Power Supply - Wisconsin enacted electric reliability legislation in 1998 (Wisconsin Reliability Act) with the goal of assuring reliable electric energy for Wisconsin. The law allows the construction of merchant power plants in the state and streamlines the regulatory approval process for building new generation and transmission facilities. As a requirement of the legislation, the PSCW completed a regional transmission constraint study. The PSCW is authorized to order construction of new transmission facilities, based on the findings of its constraint study, through December 31, 2004. WP&L notes that it may take time for new transmission and power plant projects to be approved and built in Wisconsin. In July 1998, Alliant Energy and SkyGen announced an agreement whereby SkyGen would build, own and operate a 450 MW power plant in Wisconsin. Under the agreement, Alliant Energy will purchase the capacity to meet the electric needs of its utility customers, as outlined by the Wisconsin Reliability Act. A December 2000 Wisconsin Supreme Court ruling, which upheld earlier PSCW and WDNR decisions, ends any potential legal challenges to this SkyGen project. The project is on target to be in service by June 2001. In December 2000, WP&L and SkyGen announced an agreement whereby SkyGen would build, own and operate a 600 MW natural gas fired power plant in Wisconsin at WP&L's Rock River plant. WP&L has entered into a purchased power agreement for 453 MW of the new plant's output. The plant is scheduled to be on-line by the summer of 2003. The construction of the facility is expected to assist WP&L in meeting its growing demands for electricity, to place a greater reliance on internal generation versus purchased power and to help WP&L maintain the required 18% reserve margin in Wisconsin. Alliant Energy expects the implementation of deregulation in its retail service territories will likely be delayed due to recent events related to California's restructured electric utility industry. While Illinois is preparing to make retail choice available to residential customers in 2002, participation in Alliant Energy's Illinois service territories is expected to be minimal. Iowa regulators are considering a bill to encourage construction of new generating facilities in Iowa and reduce the risk to utilities in contracting for power. Regulators in Minnesota are considering a bill to ensure adequate generation and transmission facilities. In Wisconsin, the PSCW hired a consultant to perform a market power analysis for Wisconsin and the Upper Peninsula of Michigan electric markets as part of the requirements of Reliability 2000 legislation. In December 2000, the PSCW issued a report indicating that the study "provides a useful starting point for the analysis of potential horizontal market power problems in Wisconsin." The PSCW agreed that complete and immediate wholesale and retail deregulation as simulated in the study is not in the public interest, especially in light of the developments in California. The PSCW also agreed that more transmission is needed and contracts between generators and customers may be an effective form of market power mitigation and that horizontal market power issues are a complex subject that will require further study before actions to mitigate market power are considered. In March 2001, Alliant Energy's subsidiaries announced their interest in developing new electric power generation capacity in Iowa and Wisconsin. In Iowa, IESU announced a willingness to develop up to 1,200 MW of new electric power generation over the next 10 years. In Wisconsin, WP&L filed plans with the PSCW to develop up to 800 MW of new electric power generation over the next 10 years. The Wisconsin plans include the addition of 500 MW of coal-fired and 100 MW of natural gas-fired generation by 2006 and an additional 200 MW of combined-cycle gas generation by 2011. Both the Iowa and Wisconsin proposals are subject to various conditions, including the receipt of applicable regulatory approval. At the present time, Alliant Energy's subsidiaries have not determined the expected costs or the associated financing of these proposals. -13- While Alliant Energy currently expects to meet utility customer demands in 2001, unanticipated reliability issues could still arise in the event of unexpected power plant outages, transmission system outages or extended periods of extremely hot weather. Refer to "Utility Industry Outlook - Rates and Regulatory Matters" in Item 7. MD&A for information on an IUB fuel investigation. Electric Environmental Matters - Alliant Energy is regulated in environmental matters by a number of federal, state and local agencies. Such regulations are the result of a number of environmental laws passed by the U.S. Congress, state legislatures and local governments and enforced by federal, state and local agencies. The laws impacting Alliant Energy's operations include, but are not limited to, the Safe Drinking Water Act; Clean Air Act, as amended by the Clean Air Act Amendments of 1990; National Environmental Policy Act; Toxic Substances Control Act; Emergency Planning and Community Right-to-Know Act; Resource Conservation and Recovery Act; Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986; Nuclear Waste Policy Act of 1982; Occupational Safety and Health Act; and the National Energy Policy Act of 1992. Alliant Energy regularly obtains federal, state and local permits to assure compliance with the environmental protection laws and regulations. Costs associated with such compliance have increased in recent years and are expected to increase moderately in the future. Refer to "Nuclear," "Liquidity and Capital Resources - Environmental" in Item 7. MD&A and Note 11(e) of the "Notes to Consolidated Financial Statements" in Item 8. for further discussion of electric environmental matters. -14-
Alliant Energy Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Electric Operating Information (Utility Only) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $567,283 $541,714 $532,676 $521,574 $506,784 Commercial 349,019 329,487 317,704 307,941 296,345 Industrial 501,155 476,140 477,241 455,912 428,726 ----------------------------------------------------------------------------------- Total from ultimate customers 1,417,457 1,347,341 1,327,621 1,285,427 1,231,855 Sales for resale 173,148 155,801 199,128 192,346 181,365 Other 57,431 45,796 40,693 37,980 27,155 ----------------------------------------------------------------------------------- Total $1,648,036 $1,548,938 $1,567,442 $1,515,753 $1,440,375 =================================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Electric Sales (000s MWh): Residential 7,161 7,024 6,826 6,851 6,826 Commercial 5,364 5,260 4,943 4,844 4,720 Industrial 13,092 13,036 12,718 12,320 11,666 ----------------------------------------------------------------------------------- Total from ultimate customers 25,617 25,320 24,487 24,015 23,212 Sales for resale 4,906 5,566 7,189 6,768 7,459 Other 174 162 158 161 161 ----------------------------------------------------------------------------------- Total 30,697 31,048 31,834 30,944 30,832 =================================================================================== ----------------------------------------------------------------------------------------------------------------------------------- Customers (End of Period): Residential 799,603 790,669 781,127 772,100 762,665 Commercial 123,833 122,509 121,027 119,463 117,846 Industrial 2,773 2,730 2,618 2,555 2,472 Other 3,316 3,282 3,267 3,281 3,207 ----------------------------------------------------------------------------------- Total 929,525 919,190 908,039 897,399 886,190 =================================================================================== ----------------------------------------------------------------------------------------------------------------------------------- Other Selected Electric Data: Maximum peak hour demand (MW) (1) 5,397 5,233 5,228 5,045 4,953 Sources of electric energy (000s MWh): Coal and gas 19,139 19,078 19,119 17,423 17,014 Purchased power 8,058 8,619 10,033 10,660 10,895 Nuclear 4,675 4,362 4,201 3,874 4,054 Other 427 528 504 565 392 ----------------------------------------------------------------------------------- Total 32,299 32,587 33,857 32,522 32,355 =================================================================================== Revenue per KWh from ultimate customers (cents) 5.53 5.32 5.42 5.35 5.31 - ------------------------------------------------------------------------------------------------------------------------------------ (1) 2000 and 1999 data represent the coincident peak of the entire Alliant Energy system. 1998 to 1996 data represent a summation of the individual peak demands of IESU, WP&L and IPC thus they do not represent the coincident peak of the entire Alliant Energy system.
-15-
IES Utilities Inc. - --------------------------------------------------------------------------------------------------------------------------------- Electric Operating Information 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $236,084 $230,422 $232,662 $227,496 $213,838 Commercial 182,068 176,251 168,672 162,626 153,163 Industrial 188,734 181,740 181,369 177,890 160,477 ------------------------------------------------------------------------------------ Total from ultimate customers 606,886 588,413 582,703 568,012 527,478 Sales for resale 31,046 28,479 45,453 25,719 37,384 Other 13,527 11,058 11,267 10,539 9,411 ------------------------------------------------------------------------------------ Total $651,459 $627,950 $639,423 $604,270 $574,273 ==================================================================================== - --------------------------------------------------------------------------------------------------------------------------------- Electric Sales (000s MWh): Residential 2,742 2,685 2,661 2,682 2,642 Commercial 2,701 2,658 2,465 2,378 2,315 Industrial 5,053 5,072 4,872 4,743 4,436 ------------------------------------------------------------------------------------ Total from ultimate customers 10,496 10,415 9,998 9,803 9,393 Sales for resale 1,044 1,392 1,763 794 1,746 Other 40 40 42 43 46 ------------------------------------------------------------------------------------ Total 11,580 11,847 11,803 10,640 11,185 =================================================================================== - --------------------------------------------------------------------------------------------------------------------------------- Customers (End of Period): Residential 295,747 293,433 290,348 288,387 286,315 Commercial 50,498 49,952 49,489 48,962 48,593 Industrial 706 715 705 711 703 Other 448 449 479 442 437 ---------------------------------------------------------------------------------- Total 347,399 344,549 341,021 338,502 336,048 ==================================================================================== - --------------------------------------------------------------------------------------------------------------------------------- Other Selected Electric Data: Maximum peak hour demand (MW) 2,067 1,990 1,965 1,854 1,833 Sources of electric energy (000s MWh): Coal and gas 6,675 6,543 6,417 5,499 4,936 Purchased power 2,243 3,104 3,385 2,789 4,177 Nuclear 3,117 2,548 2,682 2,904 2,753 Other 172 226 199 164 44 ----------------------------------------------------------------------------------- Total 12,207 12,421 12,683 11,356 11,910 =================================================================================== Revenue per KWh from ultimate customers (cents) 5.78 5.65 5.83 5.79 5.62 - ----------------------------------------------------------------------------------------------------------------------------------
-16-
Wisconsin Power and Light Company - ----------------------------------------------------------------------------------------------------------------------------------- Electric Operating Information 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $229,668 $213,496 $198,770 $199,633 $201,690 Commercial 127,199 116,947 108,724 107,132 105,319 Industrial 190,085 171,118 162,771 152,073 143,734 ------------------------------------------------------------------------------------ Total from ultimate customers 546,952 501,561 470,265 458,838 450,743 Sales for resale 115,715 102,751 128,536 160,917 131,836 Other 29,524 22,295 15,903 14,388 6,903 ------------------------------------------------------------------------------------ Total $692,191 $626,607 $614,704 $634,143 $589,482 ==================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- Electric Sales (000s MWh): Residential 3,151 3,111 2,964 2,974 2,980 Commercial 2,031 1,980 1,898 1,878 1,814 Industrial 4,688 4,570 4,493 4,256 3,986 ------------------------------------------------------------------------------------ Total from ultimate customers 9,870 9,661 9,355 9,108 8,780 Sales for resale 3,228 3,252 4,492 5,824 5,246 Other 63 54 59 60 57 ------------------------------------------------------------------------------------ Total 13,161 12,967 13,906 14,992 14,083 ==================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- Customers (End of Period): Residential 362,178 355,691 350,334 343,637 336,933 Commercial 49,350 48,696 47,857 46,823 45,669 Industrial 974 947 909 855 815 Other 1,923 1,893 1,860 1,875 1,820 ------------------------------------------------------------------------------------ Total 414,425 407,227 400,960 393,190 385,237 ==================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- Other Selected Electric Data: Maximum peak hour demand (MW) 2,508 2,397 2,292 2,253 2,124 Sources of electric energy (000s MWh): Coal and gas 8,074 8,186 8,916 8,587 8,687 Purchased power 4,017 3,436 3,923 5,744 4,494 Nuclear 1,558 1,814 1,519 970 1,301 Other 248 288 288 355 303 ------------------------------------------------------------------------------------ Total 13,897 13,724 14,646 15,656 14,785 ==================================================================================== Revenue per KWh from ultimate customers (cents) 5.54 5.19 5.03 5.04 5.13 - -----------------------------------------------------------------------------------------------------------------------------------
-17- GAS UTILITY OPERATIONS As of December 31, 2000, Alliant Energy's utility subsidiaries provided retail natural gas service to approximately 398,000 customers in approximately 486 communities in Iowa, southern and central Wisconsin, northern and northwestern Illinois and southern Minnesota. The approximate number of customers and communities served for each of the individual utilities at December 31, 2000 was as follows: Gas Communities Customers Served --------- ------------- IESU 182,000 212 WP&L 165,000 233 IPC 51,000 41 2000 gas utility operations accounted for 22%, 19% and 15% of operating revenues and 7%, 9% and 6% of operating income for IESU, WP&L and IPC, respectively. These operations include providing gas services to transportation and retail customers. In providing gas commodity service to retail customers, Corporate Services administers a diversified portfolio of transportation and storage contracts on behalf of each of the three utilities. Transportation contracts with NNG, NGPL and ANR allow access to gas supplies located in the U.S. and Canada. Non-traditional arrangements provide IESU and WP&L with gas delivered directly to their service territories. The maximum daily delivery capacity of the individual utilities for 2000 was as follows:
NNG NGPL ANR Non-Traditional Total ----------------- ----------------- ------------------ ------------------- ----------------- IESU 145,996 Dth 63,014 Dth 61,737 Dth 15,000 Dth 285,747 Dth WP&L 75,056 Dth -- 146,467 Dth 54,400 Dth 275,923 Dth IPC 53,595 Dth 29,750 Dth -- -- 83,345 Dth
IESU, WP&L and IPC maintain purchase agreements with over 50 suppliers of natural gas from all gas producing regions of the U.S. and Canada. The majority of the gas supply contracts are for terms of six months or less, with the remaining supply contracts having terms up to two years. The utilities' gas supply commitments are index-based. In addition to sales of natural gas to retail customers, IESU, WP&L and IPC provide transportation service to commercial and industrial customers by moving customer-owned gas through their distribution systems to the customers' meter. Revenues are collected for this service pursuant to transportation tariffs. The gas sales of the utility subsidiaries follow a seasonal pattern. There is an annual base load of gas used for cooking, heating and other purposes, with a large heating peak occurring during the winter season. Natural gas obtained from producers, marketers and brokers, as well as gas in storage, is utilized to meet the peak heating season requirements. Storage contracts allow the utilities to purchase gas in the summer, store the gas in underground storage fields and deliver it in the winter. Gas storage met approximately 24%, 29% and 17% of IESU's, WP&L's and IPC's annual gas requirements in 2000, respectively. Refer to the "Notes to Consolidated Statements" in Item 8. for discussion of rate recovery mechanisms for natural gas costs (Note 1(j)) and for discussion of gas commitments (Note 11(b)). Gas Environmental Matters - Refer to Note 11(e) of the "Notes to Consolidated Financial Statements" in Item 8. for discussion of gas environmental matters. -18-
Alliant Energy Corporation - ----------------------------------------------------------------------------------------------------------------------------------- Gas Operating Information (Utility Only) 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $245,697 $185,090 $175,603 $225,542 $216,268 Commercial 127,104 89,118 85,842 115,858 108,187 Industrial 27,752 21,855 20,204 27,393 27,569 Transportation/other 14,395 18,256 13,941 25,114 23,931 ------------------------------------------------------------------------------- Total $414,948 $314,319 $295,590 $393,907 $375,955 =============================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- Gas Sales (000s Dekatherms): Residential 32,026 30,309 28,378 33,894 37,165 Commercial 19,696 18,349 17,760 21,142 22,613 Industrial 5,350 5,963 5,507 6,217 6,856 Transportation/other 43,931 46,954 52,389 56,719 55,240 ------------------------------------------------------------------------------- Total 101,003 101,575 104,034 117,972 121,874 =============================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- Customers at End of Period (Excluding Transportation/Other): Residential 351,990 347,533 342,586 337,956 331,919 Commercial 44,654 44,289 43,825 43,316 42,658 Industrial 953 1,037 982 963 1,022 ------------------------------------------------------------------------------- Total 397,597 392,859 387,393 382,235 375,599 =============================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- Other Selected Gas Data: Revenue per Dth sold (excluding transportation/other) $7.02 $5.42 $5.45 $6.02 $5.28 Purchased gas costs per Dth sold (excluding transportation/other) $4.88 $3.30 $3.22 $4.23 $3.61 - -----------------------------------------------------------------------------------------------------------------------------------
-19-
IES Utilities Inc. - ---------------------------------------------------------------------------------------------------------------------------------- Gas Operating Information 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $117,132 $88,302 $86,821 $110,663 $97,708 Commercial 57,671 40,459 39,928 54,383 46,966 Industrial 15,377 11,543 10,422 13,961 12,256 Transportation/other 6,001 5,521 4,108 4,510 3,934 --------------------------------------------------------------------------- Total $196,181 $145,825 $141,279 $183,517 $160,864 =========================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Gas Sales (000s Dekatherms): Residential 14,829 13,778 13,803 16,317 17,680 Commercial 8,753 8,077 8,272 9,602 10,323 Industrial 3,063 3,291 3,089 3,318 3,796 Transportation/other 10,061 10,236 11,316 10,321 10,341 --------------------------------------------------------------------------- Total 36,706 35,382 36,480 39,558 42,140 =========================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Customers at End of Period (Excluding Transportation/Other): Residential 160,357 158,705 157,135 155,859 154,457 Commercial 21,751 21,661 21,530 21,431 21,364 Industrial 365 383 398 399 417 --------------------------------------------------------------------------- Total 182,473 180,749 179,063 177,689 176,238 =========================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Other Selected Gas Data: Revenue per Dth sold (excluding transportation/other) $7.14 $5.58 $5.45 $6.12 $4.94 Purchased gas cost per Dth sold (excluding transportation/other) $5.12 $3.51 $3.36 $4.33 $3.27 - ---------------------------------------------------------------------------------------------------------------------------------- Wisconsin Power and Light Company - ---------------------------------------------------------------------------------------------------------------------------------- Gas Operating Information 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $96,204 $69,662 $65,173 $84,513 $90,382 Commercial 54,512 35,570 33,898 45,456 46,703 Industrial 8,581 6,077 5,896 8,378 11,410 Transportation/other 5,855 9,461 6,770 17,536 17,132 -------------------------------------------------------------------------- Total $165,152 $120,770 $111,737 $155,883 $165,627 =========================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Gas Sales (000s Dekatherms): Residential 12,769 12,070 10,936 12,770 14,297 Commercial 8,595 7,771 7,285 8,592 9,167 Industrial 1,476 1,520 1,422 1,714 1,997 Transportation/other 13,680 13,237 12,948 17,595 18,567 --------------------------------------------------------------------------- Total 36,520 34,598 32,591 40,671 44,028 =========================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Customers at End of Period (Excluding Transportation/Other): Residential 146,690 144,015 141,065 137,827 133,580 Commercial 17,583 17,380 17,058 16,653 16,083 Industrial 513 576 506 488 529 --------------------------------------------------------------------------- Total 164,786 161,971 158,629 154,968 150,192 =========================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Other Selected Gas Data: Revenue per Dth sold (excluding transportation/other) $6.97 $5.21 $5.34 $6.00 $5.83 Purchased gas cost per Dth sold (excluding transportation/other) $4.69 $3.00 $3.13 $4.30 $4.12 - ----------------------------------------------------------------------------------------------------------------------------------
-20- D. INFORMATION RELATING TO NON-REGULATED OPERATIONS Resources manages its wholly-owned subsidiaries and additional investments through five distinct platforms: Integrated Services, International, Investments, Mass Marketing and Trading. Integrated Services - offers a wide range of energy and environmental services for businesses across the U.S. From on-site generation and waste-water treatment to energy management and indoor air quality, ISCO helps clients increase the productivity, profitability and efficiency of their operations. Alliant Energy Integrated Services Company, which changed its name from Alliant Energy Industrial Services, Inc. in early 2001, is executing its growth strategy as a full-service, national energy-services company. The new name reflects the breadth of services the group of companies provides as well as the strength of the partnerships it seeks to build with customers. In December 2000, Resources acquired EUA Cogenex Corporation and Energy Performance Services, Inc. These two companies are being merged with ISCO's wholly-owned subsidiary Industrial Energy Applications, Inc. to form a new company, Cogenex, to provide business customers with on-site energy services. In December 2000, Resources also invested in and developed a strategic partnership with Enermetrix.com, Inc., an Internet-based energy-procurement retailer for commercial and industrial customers, adding to the portfolio of services that ISCO provides. In addition to these recent acquisitions, ISCO is also a holding company for Heartland Energy Group, Inc. (HEG), RMT, Inc. (RMT) and Alliant Energy Integrated Services Company - Energy Solutions L.L.C. (Energy Solutions). HEG offers commodities-based energy services primarily related to supplying natural gas and owns several natural gas and oil gathering systems in Texas. RMT is a Madison, Wisconsin based environmental and engineering consulting company that serves clients nationwide in a variety of industrial market segments. RMT specializes in consulting on solid and hazardous waste management, ground water quality protection, industrial design and hygiene engineering, and air and water pollution control. Energy Solutions provides energy consulting services to commercial and industrial customers. International - has invested in energy generation and distribution companies and projects in developing markets throughout the world. Currently, International has utility operations in Brazil, New Zealand, Australia and China and an investment in debentures of a development project in Mexico. International has focused on these locations because of its belief that they offer a growing demand for energy and are receptive to foreign investment. International also has developed partnerships with other entities who have intimate knowledge of each local market's business trends and customs. International's subsidiaries include Alliant Energy Holdings do Brasil Ltda. (Brasil), Alliant International New Zealand Limited (New Zealand), Alliant Energy Australia Pty. Ltd. (Australia), Grandelight Holding Ltd. (Grandelight), Interstate Energy Corporation Pte Ltd. (IECP), Alliant Energy Renewable Resources Ltd. (AERR) and Alliant Energy de Mexico L.L.C. (Mexico). Brasil has non-controlling equity investments in several Brazilian utility entities. New Zealand holds a non-controlling equity investment in TrustPower Ltd., a New Zealand utility entity. Australia holds a non-controlling equity investment in Southern Hydro Partnership, a hydroelectric generation company in Australia. Grandelight holds an investment in Peak Pacific Investment Company Ltd. (Peak Pacific). Peak Pacific has been formed to develop investment opportunities in generation infrastructure projects in China. IECP holds a non-controlling equity investment in two individual cogeneration facilities in China. AERR has been formed for the purpose of investing in international renewable resource projects. Mexico is organized to provide utility-related services to a resort community in Mexico, of which International has an investment in debentures. (Although Mexico is a wholly-owned subsidiary of International, Mexico is managed by ISCO.) Refer to Note 9 of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for additional information related to Alliant Energy's investments in foreign entities. Investments - invests in businesses supporting Alliant Energy's strategic focus. Investments is a holding company whose primary wholly-owned subsidiaries include Heartland Properties, Inc. (HPI) and Iowa Land and Building Company (Iowa Land). HPI is responsible for performing asset management and facilitating the development and financing of high quality, affordable housing in Alliant Energy's utility service territory. Investments and HPI have an ownership interest in approximately 80 such properties. Capital Square provides mortgage-banking services to facilitate HPI's development and financing efforts in the affordable housing market. Iowa Land is organized to pursue real estate and economic development activities in -21- IESU's service territory. Investments also has direct and indirect equity interests in various real estate ventures, primarily concentrated in Cedar Rapids, and holds other passive investments including an equity interest in McLeod. Refer to Note 9 of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for further discussion of the McLeod investment. Investments also manages other wholly-owned subsidiaries of Resources including Whiting and Transportation. Whiting is organized to purchase, develop and produce crude oil and natural gas. Transportation is a holding company whose wholly-owned subsidiaries include the Cedar Rapids and Iowa City Railway Company (CRANDIC), Williams Bulk Transfer Inc. (Williams) and Transfer Services, Inc. (Transfer). CRANDIC is a short-line railway that renders freight service between Cedar Rapids and Iowa City. Williams' and Transfer's operations include transloading and storage services. Transportation also has a 75% equity investment in IEI Barge Services, Inc. (Barge) which provides barge terminal and hauling service on the Mississippi River. In 2000, Resources also invested in distributed resources by purchasing equity interests in Capstone and a venture capital fund specializing in emerging energy-technology companies called Nth Power Technologies Fund II, LP. While complementing Alliant Energy's successful core utility operations, these value-producing ventures allow Alliant Energy to stay on the cutting edge of energy industry technology. Mass Marketing - focused on developing and marketing energy-related products and services that enhance customers' comfort, security and lifestyles. Key programs include a home-appliance-repair protection plan, as well as home-protection and energy-efficiency products. In 2000, this division expanded its catalog business by opening an on-line storefront full of energy-smart products designed to help keep Alliant Energy's customers safe, warm and comfortable (powerhousecatalog.com). In addition, an investment in SmartEnergy, Inc., an Internet-based company that sells power to residential customers in deregulated states, positions Alliant Energy to deliver value from the evolving retail energy market. Trading - Resources and international commodity trader Cargill are partners in the joint venture Cargill-Alliant, L.L.C. (Cargill-Alliant), an energy-trading company. In an increasingly volatile market, this growing endeavor helps utilities, municipalities, cooperative wholesale customers and large retail customers in competitive markets reduce their electricity costs and better manage their energy risks. Additionally, Cargill-Alliant connects with another market segment by providing fuel supply management (coal, oil and natural gas), plant operations assistance and risk-management consultation. -22- ITEM 2. PROPERTIES WP&L WP&L's principal electric generating stations at December 31, 2000, were as follows:
Name and Location Primary Fuel 2000 Summer Capability of Station Type in Kilowatts - ------------------------------------------------------------ ----------------- ---------------------------------------------- Kewaunee Nuclear Power Plant, Kewaunee, WI Nuclear 207,050 (1) Nelson Dewey Generating Station, Cassville, WI Coal 227,470 Edgewater Generating Station #3, Sheboygan, WI Coal 76,000 Edgewater Generating Station #4, Sheboygan, WI Coal 231,880 (2) Edgewater Generating Station #5, Sheboygan, WI Coal 306,000 (3) Columbia Energy Center, Portage, WI Coal 489,720 (4) ---------------- Total Coal 1,331,070 Blackhawk Generating Station, Beloit, WI Gas 57,500 Rock River Generating Station, Beloit, WI Gas 162,000 Rock River Combustion Turbine, Beloit, WI Gas 159,500 South Fond du Lac Combustion Turbine Units 2 and 3, Fond du Lac, WI Gas 167,640 Sheepskin Combustion Turbine, Edgerton, WI Gas 37,000 ---------------- Total Gas 583,640 Kilbourn Hydro Plant, Wisconsin Dells, WI Hydro 9,000 Prairie du Sac Hydro Plant, Prairie du Sac, WI Hydro 30,000 Petenwell/Castle Rock Hydro Plants, Wisconsin Rapids, WI Hydro 13,300 (5) ---------------- Total Hydro 52,300 ---------------- Total generating capability 2,174,060 ================
All KWs shown below represent the 2000 summer generating capability. (1) Represents WP&L's 41% ownership interest in this 505,000 KW generating station, which is operated by WPSC. (2) Represents WP&L's 68.2% ownership interest in this 340,000 KW generating unit, which is operated by WP&L. (3) Represents WP&L's 75% ownership interest in this 408,000 KW generating unit, which is operated by WP&L. (4) Represents WP&L's 46.2% ownership interest in this 1,060,000 KW generating station, which is operated by WP&L. (5) Represents WP&L's 33.3% ownership interest in this 40,000 KW hydro plant, which is operated by Wisconsin River Power Company. WP&L owns 2,699 miles of electric transmission lines and 279 substations located adjacent to the communities served, of which substantially all are in Wisconsin. Substantially all of WP&L's facilities are subject to the lien of its First Mortgage Bond indenture and are suitable for their intended use. Refer to "Utility Industry Outlook" in Item 7. MD&A for information related to WP&L's investment in ATC. -23- IESU IESU's principal electric generating stations at December 31, 2000, were as follows:
Name and Location Primary Fuel 2000 Summer Capability of Station Type in Kilowatts - -------------------------------------------------------------------- ----------------- ---------------------------------------- Duane Arnold Energy Center, Palo, Iowa Nuclear 364,000 (1) Ottumwa Generating Station, Ottumwa, Iowa Coal 324,000 (2) Prairie Creek Station, Cedar Rapids, Iowa Coal 212,500 Sutherland Station, Marshalltown, Iowa Coal 137,000 Sixth Street Station, Cedar Rapids, Iowa Coal 65,000 Burlington Generating Station, Burlington, Iowa Coal 214,870 George Neal Unit 3, Sioux City, Iowa Coal 144,200 (3) -------------- Total Coal 1,097,570 Peaking Turbines, Marshalltown, Iowa Oil 216,400 Centerville Combustion Turbines, Centerville, Iowa Oil 62,000 Diesel Stations, all in Iowa Oil 8,300 -------------- Total Oil 286,700 Grinnell Station, Grinnell, Iowa Gas 30,000 Agency Street Combustion Turbines, West Burlington, Iowa Gas 76,700 Burlington Combustion Turbines, Burlington, Iowa Gas 68,000 Red Cedar Combustion Turbine, Cedar Rapids, IA Gas 22,700 -------------- Total Gas 197,400 ---------------- Total generating capability 1,945,670 ================
All KWs shown below represent the 2000 summer generating capability. (1) Represents IESU's 70% ownership interest in this 520,000 KW generating station, which is operated by IESU. (2) Represents IESU's 48% ownership interest in this 675,000 KW generating station, which is operated by IESU. (3) Represents IESU's 28% ownership interest in this 515,000 KW generating station, which is operated by MidAmerican Energy Company. IESU owns 4,448 miles of electric transmission lines and 577 substations, substantially all located in Iowa. IESU's principal properties are suitable for their intended use and are held subject to liens of indentures relating to its bonds. -24- IPC IPC's principal electric generating stations at December 31, 2000, were as follows:
Name and Location Primary Fuel 2000 Summer Capability of Station Type in Kilowatts - --------------------------------------------------------------- ----------------- ----------------------------------------- Dubuque Units 2, 3 and 4, Dubuque, IA Coal 81,500 M. L. Kapp Plant Units 1 and 2, Clinton, IA Coal 254,900 Lansing Units 1, 2, 3 and 4, Lansing, IA Coal 323,000 George Neal Unit 4, Sioux City, IA Coal 141,900 (1) Louisa Unit 1, Louisa, IA Coal 28,400 (2) --------------- Total Coal 829,700 Fox Lake Plant Units 1, 2 and 3, Sherburn, MN Gas 113,500 Montgomery Combustion Turbine Unit 1, Montgomery, MN Oil 22,200 Fox Lake Plant Combustion Turbine Unit 4, Sherburn, MN Oil 21,300 Lime Creek Plant Combustion Turbine Units 1 and 2, Mason City, IA Oil 70,400 Dubuque Diesel Units 1 and 2, Dubuque, IA Oil 4,600 Hills Diesel Units 1 and 2, Hills, MN Oil 4,000 Lansing Diesel Units 1 and 2, Lansing, IA Oil 2,000 --------------- Total Oil 124,500 --------------- Total generating capability 1,067,700 ==============
All KWs shown below represent the 2000 summer generating capability. (1) Represents IPC's 21.5% ownership interest in this 660,000 KW generating station, which is operated by MidAmerican Energy Company. (2) Represents IPC's 4% ownership interest in this 710,000 KW generating station, which is operated by MidAmerican Energy Company. IPC owns 2,600 miles of electric transmission lines and 222 substations located in Iowa, Illinois and Minnesota. Substantially all of IPC's facilities are subject to the lien of its bond indenture securing IPC's outstanding First Mortgage Bonds and are suitable for their intended use. Resources Resources' principal properties as of December 31, 2000 were as follows: Whiting - owns oil and gas properties in 19 states within the U.S. Proven developed reserves were 14.9 million barrels of oil and 134.4 million Dths of gas. Investments, including HPI - provides affordable housing in the Midwest and has a majority ownership in approximately 80 properties with a December 31, 2000 net book value of approximately $125 million and has a consolidated real estate venture with approximately 236,000 square feet of office space in Cedar Rapids, Iowa with a December 31, 2000 net book value of approximately $13 million. Peak Pacific - owns six combined heat and power plants located in China. IEA - offers standby generation, cogeneration, steam production and propane air systems. HEG (IEA at December 31, 2000) - owns an interest in natural gas gathering systems and an oil gathering system which had 200 miles and 198 miles, respectively, of pipeline in Texas. CRANDIC - has 112 railroad track miles all located within Iowa. -25- ITEM 3. LEGAL PROCEEDINGS Alliant Energy In an effort to grow and expand as a Wisconsin-based company, Alliant Energy and WP&L filed a federal lawsuit in October 2000, seeking declaratory relief regarding whether certain provisions of WUHCA are unconstitutional as a violation of the interstate commerce and equal protection provisions of the U.S. constitution. Alliant Energy and WP&L are challenging the provisions of WUHCA which restrict ownership in utility holding companies, limit the investments those companies can make and place significant restrictions on companies that invest in Wisconsin utility holding companies. Alliant Energy and WP&L also requested that the court consider the constitutionality of issues related to the asset cap on non-utility investments imposed by WUHCA. Alliant Energy and WP&L were seeking only declaratory relief and not damages in the litigation. In February 2001, the lawsuit was dismissed based on lack of allegations of "injury in fact." Alliant Energy and WP&L have filed a motion for reconsideration with the court, which is currently pending. In July 1999, the PSCW found that Alliant Energy was in violation of the PSCW's merger order because after Alliant Energy exercised its right to withdraw from the Midwest ISO, it had no proposal on file with the PSCW either to be in an ISO or to spin off its transmission assets (Alliant Energy has subsequently rejoined the Midwest ISO). The PSCW deferred consideration of any remedies. Both Alliant Energy and the intervenors in the proceeding had appealed the PSCW's decision to the Dane County Circuit Court. The Court consolidated the appeals into one proceeding and subsequently remanded the proceeding back to the PSCW on the grounds that the PSCW's order was not final. The PSCW has not taken any further action in this matter since the remand. Alliant Energy received an adverse ruling in 1999 from a U.S. district court judge dealing with an income tax refund claim Alliant Energy filed relating to capital losses disallowed under audit by the IRS. The district court judge also disallowed certain related deductions allowed by the IRS as an offset against a tax refund due to Alliant Energy. Alliant Energy has appealed the district court's ruling and such appeal is pending. The IRS has appealed the decision which led to the tax refund due to Alliant Energy and this appeal is also pending. Alliant Energy believes the resolution of these issues will not have a material adverse impact on its financial condition or results of operations. IESU IESU and IPC have appealed to the Iowa State Board of Tax Review, an agency of the State of Iowa, regarding assessments of Iowa property tax made by the Director of the Iowa Department of Revenue and Finance. The appeals involve assessments for the years 1994 through 1998 and seek reduction of the assessments reflecting the true value of the operating property of the companies. At the present time, IESU and IPC cannot predict what impact, if any, the appeals process will have on their financial condition or results of operations. WP&L In the second quarter of 1999, WP&L received a demand for arbitration from MG&E pursuant to the terms of joint plant operating agreements between the parties regarding issues of ownership and operation of the Columbia Energy Center. In March 2001, an arbitration panel issued its decision upholding WP&L's position that the plant was well-operated and maintained and in compliance with the terms of the joint plant operating agreements. Refer to "Liquidity and Capital Resources - Environmental" in Item 7. MD&A for information related to an EPA investigation regarding WP&L's major coal-fired generating units in Wisconsin. Environmental Matters The information required by Item 3 with regards to environmental matters is included in "C. Information Relating to Utility Operations - Electric Utility Operations - Nuclear" in Item 1. Business, "Liquidity and Capital Resources - Environmental" in Item 7. MD&A and Note 11(e) of the "Notes to Consolidated Financial Statements" in Item 8., which information is incorporated herein by reference. Rate Matters The information required by Item 3 with regards to rate matters is included in "Utility Industry Outlook - Rates and Regulatory Matters" in Item 7. MD&A, which information is incorporated herein by reference. -26- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANTS - ------------------------------------- Information relating to the executive officers of Alliant Energy, IESU and WP&L is included in Item 10. Directors and Executive Officers of the Registrants. PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Alliant Energy's common stock trades on the New York Stock Exchange under the symbol "LNT." Quarterly sales price ranges and dividends with respect to Alliant Energy's common stock were as follows:
2000 1999 ----------------------------------------------------- -------------------------------------------------------- Quarter High Low Dividend High Low Dividend First $37 3/4 $26 7/16 $0.50 $32 3/8 $26 3/8 $0.50 Second 31 7/8 25 3/4 0.50 30 7/8 26 1/2 0.50 Third 31 1/4 26 1/8 0.50 30 1/16 26 3/4 0.50 Fourth 32 1/8 28 5/8 0.50 28 13/16 25 3/16 0.50 ------------- ----------------- -------------- --------------- -------------- ----------------- Year $37 3/4 $25 3/4 $2.00 $32 3/8 $25 3/16 $2.00 ============= ================= ============== =============== ============== =================
Stock closing price at December 31, 2000: $31 7/8 Although Alliant Energy's practice has been to pay common stock dividends quarterly, the timing of payment and amount of future dividends are necessarily dependent upon earnings, financial requirements and other factors. At December 31, 2000, there were approximately 60,883 holders of record of Alliant Energy's stock including underlying holders in Alliant Energy's Shareowner Direct Plan. Alliant Energy is the sole common shareowner of all 13,370,788 shares of IESU Common Stock currently outstanding. During 2000, 1999 and 1998, IESU declared dividends on its common stock of $59 million, $88 million and $19 million, respectively, to its parent. No dividend payments were made in the last three quarters of 1998 due to merger-related tax considerations. As a result, the dividend payment in the first quarter of 1999 was larger than IESU's historical quarterly payment. Under certain circumstances, IESU has the right under terms of its debentures to extend interest payments for periods not to exceed 20 consecutive quarters. It is IESU's current intent not to exercise such right. In the event IESU did exercise this right, it would limit IESU's ability to pay dividends, among other things. Alliant Energy is the sole common shareowner of all 13,236,601 shares of WP&L common stock currently outstanding. WP&L did not declare common stock dividends during 2000 due to management of its capital structure. During 1999 and 1998, WP&L paid dividends on its common stock of $58 million each year to its parent. WP&L's common stock dividends are restricted to the extent that such dividends would reduce the common stock equity ratio to less than 25%. Under rate order UR-110, the PSCW ordered that it must approve the payment of dividends by WP&L to Alliant Energy 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. The dividends paid by WP&L to Alliant Energy since the rate order was issued have not exceeded the level forecasted in the rate order. Alliant Energy's utility subsidiaries each have common stock dividend restrictions based on their respective bond indentures and articles of incorporation. Each utility has restrictions on the payment of common stock dividends that are commonly found with preferred stock. In addition, IESU's and IPC's ability to pay common stock dividends is restricted based on requirements associated with sinking funds. -27-
ITEM 6. SELECTED FINANCIAL DATA Alliant Energy Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Financial Information 2000 (1) 1999 (2) 1998 (3) 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands except for per share data) Income Statement Data: Operating revenues (4) $2,404,984 $2,127,973 $2,130,874 $2,300,627 $2,232,840 Operating expenses (4) 2,023,928 1,751,438 1,847,572 1,964,244 1,867,401 Operating income 381,056 376,535 283,302 336,383 365,439 Income before discontinued operations and cumulative effect of a change in accounting principle, net of tax 381,954 196,581 96,675 144,578 157,088 Discontinued operations, net of tax -- -- -- -- (1,297) Cumulative effect of a change in accounting principle, net of tax 16,708 -- -- -- -- Net income 398,662 196,581 96,675 144,578 155,791 - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock Data: Weighted average common shares outstanding - basic (000s) 79,003 78,352 76,912 76,210 75,481 Weighted average common shares outstanding - diluted (000s) 79,193 78,395 76,929 76,212 75,484 Return on average common equity (5) 19.0% 10.5% 6.0% 9.5% 11.0% Per Share Data: Earnings per average common share - basic: Income before discontinued operations and cumulative effect of a change in accounting principle $4.84 $2.51 $1.26 $1.90 $2.08 Discontinued operations -- -- -- -- ($0.02) Cumulative effect of a change in accounting principle $0.21 -- -- -- -- Net income $5.05 $2.51 $1.26 $1.90 $2.06 Earnings per average common share - diluted: Income before discontinued operations and cumulative effect of a change in accounting principle $4.82 $2.51 $1.26 $1.90 $2.08 Discontinued operations -- -- -- -- ($0.02) Cumulative effect of a change in accounting principle $0.21 -- -- -- -- Net income $5.03 $2.51 $1.26 $1.90 $2.06 Dividends declared per common share $2.00 $2.00 $2.00 $2.00 $1.97 Book value at year-end (5) $25.79 $27.29 $20.69 $21.24 $18.91 Market value at year-end $31.88 $27.50 $32.25 $33.13 $28.13 - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Financial Data: Construction and acquisition expenditures $1,066,464 $478,573 $372,058 $328,040 $412,274 Total assets at year-end (5) $6,733,766 $6,075,683 $4,959,337 $4,923,550 $4,639,826 Long-term obligations, net $2,128,496 $1,660,558 $1,713,649 $1,604,305 $1,444,355 Times interest earned before income taxes (6) 4.61X 3.38X 2.25X 2.90X 3.38X Capitalization Ratios: Common equity (5) 50% 57% 49% 51% 52% Preferred stock 3% 3% 4% 3% 4% Long-term debt, excluding current portion 47% 40% 47% 46% 44% -------------------------------------------------------------------------- Total 100% 100% 100% 100% 100% ========================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- (1) Includes $204 million ($2.58 per diluted share) of non-cash income related to Alliant Energy's adoption of SFAS 133 on July 1, 2000 and $16 million ($0.20 per diluted share) of net income from gains on sales of McLeod stock in 2000. (2) Includes $25 million ($0.32 per diluted share) of net income from gains on sales of McLeod stock in 1999. (3) The 1998 financial results reflect the recording of $54 million of pre-tax merger-related charges. (4) The 1999 results have been reclassified on a basis consistent with current year presentation; such reclassifications had no impact on operating income or net income. (5) In the third quarter of 1997, Alliant Energy began adjusting the carrying value of its investments in McLeod to its estimated fair value, pursuant to the applicable accounting rules. At December 31, 2000, 1999, 1998 and 1997, the adjustment reflected an unrealized gain of approximately $543 million, $1.1 billion, $291 million and $299 million, respectively, with a net of tax increase to common equity of $317 million, $640 million, $170 million and $175 million, respectively. (6) Represents income before income taxes plus preferred dividend requirements of subsidiaries plus interest expense divided by interest expense.
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IESU Year Ended December 31, - ------ 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------ (in thousands) Operating revenues $876,006 $800,696 $806,930 $813,978 $754,979 Earnings available for common stock 73,509 65,532 60,996 57,879 62,815 Cash dividends declared on common stock 58,633 87,951 18,840 56,000 44,000 Total assets 1,819,306 1,755,808 1,788,978 1,768,929 1,765,044 Long-term obligations, net 597,167 641,559 677,804 688,719 560,199 The 1998 financial results reflect the recording of $17 million of pre-tax merger-related charges. WP&L Year Ended December 31, - ----- 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------- (in thousands) Operating revenues $862,381 $752,505 $731,448 $794,717 $759,275 Earnings available for common stock 68,126 67,520 32,264 67,924 79,175 Cash dividends declared on common stock -- 58,353 58,341 58,343 66,087 Total assets 1,857,024 1,766,135 1,685,150 1,664,604 1,677,814 Long-term obligations, net 569,309 471,648 471,554 420,414 370,634 The 1998 financial results reflect the recording of $17 million of pre-tax merger-related charges.
-29- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Statements contained in this report (including MD&A) that are not of historical fact are forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. 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; general economic conditions in the utility subsidiaries' service territories; federal, state and international regulatory or government actions, including issues associated with the deregulation of the domestic utility industry and the setting of rates and recovery of costs; unanticipated construction and acquisition expenditures; issues related to stranded costs and the recovery thereof; unanticipated issues related to the supply of purchased electricity and price thereof; unexpected issues related to the operations of Alliant Energy's nuclear facilities; unanticipated costs associated with certain environmental remediation efforts being undertaken by Alliant Energy; Alliant Energy's ability to successfully implement its growth strategy, including the acquisition and operation of foreign companies; unanticipated developments that adversely impact Alliant Energy's strategy to grow its non-regulated businesses; material changes in the value of Alliant Energy's investments in McLeod and Capstone; technological developments; employee workforce factors, including changes in key executives, collective bargaining agreements or work stoppages; political, legal, economic and exchange rate conditions in foreign countries Alliant Energy has investments in; and changes in the rate of inflation. UTILITY INDUSTRY OUTLOOK Overview - As a public utility holding company with significant - -------- utility assets, Alliant Energy competes in an ever-changing utility industry. Electric energy generation, transmission and distribution are in a period of fundamental change resulting from legislative, regulatory, economic and technological changes. These changes impact competition in the electric wholesale and retail markets as customers of electric utilities are being offered alternative suppliers. Such competitive pressures could result in electric utilities losing customers and incurring stranded costs (i.e., assets and other costs rendered unrecoverable as the result of competitive pricing) which would be borne by security holders if the costs cannot be recovered from customers. Alliant Energy's utility subsidiaries are currently subject to regulation by FERC, and state regulation in Iowa, Wisconsin, Minnesota and Illinois. FERC regulates competition in the electric wholesale power generation market and each state regulates 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. Alliant Energy cannot predict the timing of a restructured electric industry or the impact on its financial condition or results of operations but does believe it is well positioned to compete in a deregulated competitive market. Although Alliant Energy ultimately believes that the electric industry will be deregulated, the pace of deregulation in its retail electric service territories will likely be delayed due to recent events related to California's restructured electric utility industry. In 1999, Wisconsin enacted "Reliability 2000" legislation which included, among other items, the formation of a Wisconsin transmission company (American Transmission Company, or ATC) for those Wisconsin utility holding companies who elected to take advantage of the modified asset cap law and others who elected to join. ATC received all necessary regulatory approvals and began operations on January 1, 2001. WP&L, including South Beloit, transferred its transmission assets (approximate net book value of $177 million) to ATC on January 1, 2001. WP&L will receive cash of $88 million in 2001 and currently has an $89 million equity investment in ATC, resulting in no gain or loss for WP&L. WP&L does not expect this transfer to result in a significant impact on its financial condition or results of operations because it believes FERC will allow WP&L to earn a return on the contributed assets comparable to the return currently allowed by the PSCW and FERC. In addition to transferring its transmission assets, WP&L also transferred ownership of its System Operations Center to ATC. WP&L's ownership percentage -30- in ATC is approximately 26 percent and its investment is accounted for under the equity method. Although no assurance can be given, it is currently anticipated that ATC's dividend policy will support a return of a significant portion of these earnings to the equity holders. ATC is expected to realize its revenues from the provision of transmission services to both participants in ATC as well as nonparticipants. ATC's current rates are subject to refund pending final approval by FERC. ATC is a transmission-owning member of the Midwest ISO and the MAIN Regional Reliability Council. At this time, the decision has been made not to contribute IESU's and IPC's transmission assets to ATC. In March 2001, Alliant Energy announced discussions with several other utilities related to the viability of developing an independent transmission company for various Midwest utilities not included in ATC. The present schedule is to make the necessary filings with FERC and the various states by mid-2001, with a possible operational date of late 2002 or early 2003. Alliant Energy is working with Xcel Energy, Inc., MidAmerican Energy Holdings Company, Nebraska Public Power District and Omaha Public Power District. WP&L's transfer of its transmission assets to ATC and the participation of IESU, WP&L and IPC in the Midwest ISO are expected to comply with the provisions of a FERC order requiring utilities to turn over voluntarily the operational control of their transmission systems to a regional entity by the end of 2001. Rates and Regulatory Matters - As part of its merger approval, - ----------------------------- FERC accepted a proposal by Alliant Energy's utility subsidiaries which provides for a four-year freeze on wholesale electric prices beginning with the effective date of the April 1998 merger forming Alliant Energy. Each of the utilities also agreed with their respective state commissions to provide customers a four-year retail electric and gas price freeze (the ICC granted IPC and South Beloit a three-year rate freeze), excluding the electric FAC and PGA clause, which commenced on the effective date of the April 1998 merger. In Iowa, the retail rate freeze excludes price changes due to government-mandated programs (such as energy efficiency cost recovery) and unforeseen dramatic changes in operations. In Wisconsin, 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. Assuming capture of the merger-related synergies and no significant legislative or regulatory changes negatively affecting its utility subsidiaries, Alliant Energy does not expect the merger-related electric and gas price freezes to have a material adverse effect on its financial condition or results of operations. In January 2001, the IUB issued an order requiring IESU and IPC to file a joint fuel procurement plan in May 2001 for the purpose of evaluating the reasonableness of the Iowa utilities' fuel procurement contracts. While IESU and IPC cannot predict the outcome of this process, it will result in formal hearings for IESU and IPC in Iowa. These hearings may address fuel procurement practices, changes in the fuel cost recovery mechanism and contingency actions to ensure reliability for the Summer of 2001. In connection with a statewide docket to investigate compliance issues associated with the EPA's NOx emission reductions, in March 1999, the PSCW authorized deferral of all incremental NOx compliance costs excluding internal labor and replacement purchased-power costs. In March 2000, the PSCW issued an order approving WP&L's NOx compliance plans, including additional investments at several WP&L generating units. The order also approved a 10-year straight-line depreciation method for NOx compliance investments. Such depreciation is also being deferred and WP&L anticipates recovery of all deferred NOx compliance costs beginning with the first rate changes after the rate freeze expires. The depreciation lives will be reviewed every two years. Refer to "Liquidity and Capital Resources - Environmental" for further discussion of the NOx issue. WP&L's retail electric rates are based in part on forecasted fuel and purchased-power costs. Under PSCW rules, WP&L can seek emergency rate increases if the annual fuel and purchased-power costs are more than 3 percent higher than the estimated costs used to establish rates. If WP&L's earnings exceed its authorized return on equity, the incremental revenues collected causing the excessive return are subject to refund. -31- In December 2000, WP&L requested a $73 million (revised to $64 million) annual retail electric rate increase from the PSCW to cover increases in WP&L's 2001 fuel and purchased-power costs due to the continued increases in natural gas prices which impact WP&L's generation costs and the increased costs of purchased-power. The PSCW approved a $46 million interim retail electric rate increase effective February 9, 2001. A decision on a permanent rate increase is expected in the second quarter of 2001. The PSCW also granted WP&L annual retail electric rate increases of $14.8 million, $14.5 million and $16.5 million in July 1998, March 1999 and May 2000, respectively, due to higher fuel and purchased-power costs, some of which have been caused by the transmission constraints and electric reliability concerns in the Midwest. WP&L does not believe any revenues collected to date are subject to refund. In November 1999, the PSCW allowed WP&L rate recovery of $6.3 million of its Year 2000 (Y2K) program expenditures, but it denied rate recovery of the first $4.5 million. These costs were expensed in 1999. The PSCW's decision to allow rate recovery was appealed by certain intervenors in Dane County, Wisconsin district court. In April 2000, the intervenors withdrew their appeal. WP&L began recovering such costs in May 2000 and is amortizing the deferred costs as the amounts are recovered in rates. In February 2000, the PSCW issued an order allowing WP&L to defer certain incremental costs it incurred after February 16, 2000 relating to the development of ATC. In December 2000, the PSCW issued an order allowing WP&L to defer incremental operating costs associated with ATC. Recovery of such costs will be addressed in WP&L's next retail rate case. In 2000, the NRC raised several areas of concern with Kewaunee's operations. The concerns raised by the NRC are estimated to result in additional operating costs to WP&L in 2001 of approximately $5 million. Additional operating costs to WP&L over the period of 2002 through 2005 are estimated to be approximately $20 million and will be included in a future rate request. WP&L submitted a request to the PSCW for deferral of incremental costs associated with this issue. The NRC has acknowledged the safety record of Kewaunee and its ability to continue operations. WP&L is in the process of pursuing a rate complaint against Union Pacific Railroad with the STB. WP&L believes Union Pacific Railroad is charging an excessive rate for transporting low-sulfur coal from the Powder River Basin to the Edgewater Generating Station located in Sheboygan, Wisconsin. To contest the rate, WP&L filed a rate case with the STB and upon the expiration of the existing contract, began moving coal under a tariff rate beginning January 1, 2000. Final briefs were filed in December 2000 and the STB has until September 2001 to issue a final decision. If the STB rules in WP&L's favor, a refund to WP&L's customers will need to be considered in conjunction with the electric FAC in Wisconsin. Alliant Energy complies with the provisions of 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 rate making process in different periods than for non-regulated entities. These are deferred as regulatory assets or accrued as regulatory liabilities and are recognized in the Consolidated Statements of Income at the time they are reflected in rates. If a portion of the utility's operations no longer complies with SFAS 71, 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 meets the requirements under generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. In addition, each utility would be required to determine any impairment of other assets and write-down any impaired assets to their fair value. Alliant Energy believes its utility subsidiaries currently meet the requirements of SFAS 71. ALLIANT ENERGY RESULTS OF OPERATIONS Unless otherwise noted, all "per share" references in the Results of Operations section refer to earnings per diluted share. -32- Overview - Alliant Energy's earnings for 2000, 1999 and 1998 - -------- were as follows (in thousands, except per share amounts):
2000 1999 1998 ---------------- --------------- --------------- Net income $398,662 $196,581 $96,675 Average number of common shares outstanding (diluted) 79,193 78,395 76,929 Earnings per average common share (EPS) $5.03 $2.51 $1.26 EPS related to the adoption of SFAS 133 $2.58 -- -- EPS related to gains on sales of McLeod stock $0.20 $0.32 -- EPS related to merger expenses -- -- ($0.45)
Alliant Energy's 2000 earnings increase was primarily due to $204 million of non-cash net income ($2.58 per share) relating to Alliant Energy's adoption of a new accounting pronouncement, SFAS 133, on July 1, 2000. Earnings in 2000 also benefited from increased earnings at Alliant Energy's non-regulated oil and gas and electricity trading businesses. Partially offsetting these items were higher interest expense to fund Alliant Energy's strategic growth initiatives, the dilutive effect of Alliant Energy's January 2000 investment in several Brazilian utilities and lower gains from certain asset sales in 2000 compared to 1999. Within the utility business, increased electric margins were offset by higher operating expenses. The 2000 utility earnings were $167.8 million ($2.12 per share) compared to $161.1 million ($2.06 per share) for the same period in 1999. The increase resulted primarily from higher electric and gas margins ($0.28 and $0.03 per share, respectively) and interest income realized from a tax settlement at IESU ($0.03 per share). These items were offset by increases in operation and maintenance ($0.15 per share), depreciation and amortization ($0.15 per share) and interest ($0.04 per share) expenses. Lower taxes also contributed to the earnings increase in 2000. Resources reported net income of $236.8 million ($2.99 per share) in 2000, including $204 million related to the adoption of SFAS 133. Excluding the SFAS 133 income, earnings were $0.41 per share in 2000. Net income for 1999 was $37.8 million ($0.48 per share). The decrease in 2000 earnings was due to lower gains on sales of McLeod stock ($0.12 per share), the dilutive impact of Alliant Energy's January 2000 investment in several Brazilian utilities ($0.12 per share), a one-time charge ($0.03 per share) related to a loss on a contract at Alliant Energy's integrated services business and lower gains from asset sales in New Zealand ($0.03 and $0.05 per share in 2000 and 1999, respectively). These items were partially offset by significant earnings increases from Alliant Energy's oil and gas ($0.20 per share) and electricity trading ($0.08 per share) businesses. Increased interest expense to fund various other strategic growth initiatives also impacted the earnings comparison. The dilutive impact of the Brazil investment was higher than initially anticipated, largely due to unexpected regulatory delays in the implementation of tariff adjustments. Alliant Energy expects these delays to be resolved in the first half of 2001 and expects the earnings from the Brazil investments to be positive in 2001 and subsequent years. Alliant Energy's 1999 earnings increase was due to increased earnings from non-regulated operations of $0.60 per share (of which $0.32 per share was attributable to sales of McLeod stock), higher electric and natural gas margins from utility operations and lower utility operation and maintenance expenses. Higher depreciation (excluding hedge losses in WP&L's nuclear decommissioning trust fund) and interest expenses partially offset these items. The 1998 results also included approximately $54 million of pre-tax merger-related expenses ($0.45 per share). The 1999 utility earnings were $161.1 million ($2.06 per share) compared to $109.5 million ($1.42 per share) for 1998. The increase in utility earnings resulted primarily from higher electric and natural gas margins ($0.24 and $0.04 per share, respectively), lower operation and maintenance expenses ($0.09 per share) and income realized from weather hedges ($0.04 per share). Higher depreciation and interest expenses ($0.10 and -33- $0.02 per share, respectively) and a higher effective income tax rate ($0.02 per share) partially offset these items. The 1998 utility results included approximately $0.42 per share of merger-related expenses. Resources reported net income of $37.8 million ($0.48 per share) in 1999 compared to a net loss of $8.9 million (($0.12) per share) for 1998. The 1999 earnings included gains realized from several asset sales, including approximately 7 percent of Alliant Energy's investment in McLeod ($0.32 per share), oil and gas properties at Whiting ($0.08 per share) and certain New Zealand electric distribution investments ($0.05 per share). Earnings from Alliant Energy's electricity trading joint venture ($0.06 per share), improved operating results from Whiting ($0.03 per share) and improved earnings from Alliant Energy's other non-regulated businesses ($0.03 per share) also contributed to the increased earnings. The 1998 results for Resources also included merger-related expenses ($0.03 per share). Electric Utility Operations - Electric margins and MWh sales - ---------------------------- for Alliant Energy for 2000, 1999 and 1998 were as follows:
Revenues and Costs (in thousands) MWhs Sold (in thousands) ----------------------------------------------------------- ------------------------------------------------ 2000 1999 * 1998 ** 2000 1999 * 1998 ** ------------ ------------- ------- ------------ --------- --------- ---------- -------- --------- ------ Residential $567,283 $541,714 5% $532,676 2% 7,161 7,024 2% 6,826 3% Commercial 349,019 329,487 6% 317,704 4% 5,364 5,260 2% 4,943 6% Industrial 501,155 476,140 5% 477,241 -- 13,092 13,036 -- 12,718 3% ------------ ------------- ------------ --------- ---------- --------- Total from ultimate customers 1,417,457 1,347,341 5% 1,327,621 1% 25,617 25,320 1% 24,487 3% Sales for resale 173,148 155,801 11% 199,128 (22%) 4,906 5,566 (12%) 7,189 (23%) Other 57,431 45,796 25% 40,693 13% 174 162 7% 158 3% ------------ ------------- ------------ --------- ---------- --------- Total revenues/sales 1,648,036 1,548,938 6% 1,567,442 (1%) 30,697 31,048 (1%) 31,834 (2%) ========= ========== ========= Electric production fuels expense 271,073 247,136 10% 283,866 (13%) Purchased power expense 294,818 255,446 15% 255,332 -- ------------ ------------- ------------ Margin $1,082,145 $1,046,356 3% $1,028,244 2% ============ ============= ============
* Reflects the percent change from 1999 to 2000. ** Reflects the percent change from 1998 to 1999. Electric margin increased $35.8 million, or 3 percent, and $18.1 million, or 2 percent, for 2000 and 1999, respectively. The 2000 increase was primarily due to increased sales to retail customers due to continued economic growth in Alliant Energy's utility subsidiaries' service territories, a favorable $10 million change in estimate of WP&L's utility services rendered but unbilled at month-end, increased energy conservation revenues and increased capacity sales. These items were partially offset by higher purchased-power and fuel expenses and the impact of milder weather conditions (approximately $12 million) on electric margin in 2000 compared to 1999. The 1999 margin also included a favorable $9 million change in estimate of IESU's and IPC's utility services rendered but unbilled at month-end in Iowa. The 1999 increase was primarily due to separate $15 million annual rate adjustments implemented at WP&L in July 1998 and March 1999 to recover higher purchased-power and transmission costs, a favorable $9 million change in estimate of IESU's and IPC's utility services rendered but unbilled at month-end in Iowa, increased retail sales of 3 percent due to more favorable weather conditions in 1999 and economic growth in the service territory. Partially offsetting these increases were reduced recoveries of approximately $14 million in concurrent and previously deferred expenditures for Iowa-mandated energy efficiency programs, lower sales to off-system and wholesale customers, higher purchased-power capacity costs in Iowa and $3.2 million of revenues collected from WP&L customers in 1998 for a surcharge related to Kewaunee. The recovery for energy efficiency programs in Iowa is in accordance with IUB orders (a portion of these recoveries is offset as they are also amortized to expense in other operation and maintenance expense). The lower sales to off-system and wholesale customers were primarily due to lower wholesale customer contractual commitments and transmission constraints. -34- IESU's and IPC's electric tariffs include EACs that are designed to currently recover the costs of fuel and the energy portion of purchased-power billings (refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for discussion of the EAC). Refer to "Utility Industry Outlook - Rates and Regulatory Matters" for additional information on the IUB fuel investigation and the December 2000 FAC filing by WP&L. Gas Utility Operations - Gas margins and Dth sales for Alliant - ----------------------- Energy for 2000, 1999 and 1998 were as follows:
Revenues and Costs (in thousands) Dths Sold (in thousands) ---------------------------------------------------- ----------------------------------------------------- 2000 1999 * 1998 ** 2000 1999 * 1998 ** ------------ ------------------- ----------- ------ ----------- ---------- -------- ---------- --------- Residential $245,697 $185,090 33% $175,603 5% 32,026 30,309 6% 28,378 7% Commercial 127,104 89,118 43% 85,842 4% 19,696 18,349 7% 17,760 3% Industrial 27,752 21,855 27% 20,204 8% 5,350 5,963 (10%) 5,507 8% Transportation/other 14,395 18,256 (21%) 13,941 31% 43,931 46,954 (6%) 52,389 (10%) ------------ ------------ ----------- ----------- ---------- ---------- Total revenues/sales 414,948 314,319 32% 295,590 6% 101,003 101,575 (1%) 104,034 (2%) =========== ========== ========== Cost of utility gas sold 278,734 180,519 54% 166,453 8% ------------ ------------ ----------- Margin $136,214 $133,800 2% $129,137 4% ============ ============ ===========
* Reflects the percent change from 1999 to 2000. ** Reflects the percent change from 1998 to 1999. Gas margin increased $2.4 million, or 2 percent, and $4.7 million, or 4 percent, for 2000 and 1999, respectively. The 2000 increase was largely due to more favorable weather conditions in the 2000 heating season compared to 1999. Due to Alliant Energy's rate recovery mechanisms for gas costs, the significant increase in Alliant Energy's cost of gas sold during 2000 had little impact on gas margin. The 1999 increase was primarily due to higher retail sales due to customer growth and more favorable weather conditions in 1999. The 1999 sales increase was partially offset by decreased recoveries of $2.6 million of concurrent and previously deferred energy efficiency expenditures for Iowa-mandated energy efficiency program costs in accordance with IUB orders (portions of these recoveries offset as they are also amortized to expense in other operation and maintenance expense). IESU's and IPC's gas tariffs include PGA clauses that are designed to currently recover the cost of utility gas sold (refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for discussion of the PGA). Non-regulated and Other Revenues - Non-regulated and other - -------------------------------- revenues for 2000, 1999 and 1998 were as follows (in millions): 2000 1999 1998 -------- -------- ------- ISCO $172 $126 * $127 Oil and gas production 94 63 65 Steam 30 28 27 Transportation 20 22 22 Other 26 26 27 -------- -------- ------- $342 $265 $268 ======== ======== ======= * Refer to Note 1(a) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for additional information related to a reclassification. The 2000 ISCO increase was primarily due to various business acquisitions in 2000, increased activity in Alliant Energy's energy marketing business and greater demand for environmental and engineering services. Oil and gas production revenues increased in 2000 primarily due to higher oil and gas prices (partially offset by hedging) and oil volumes, partially offset by reduced gas volumes. The 1999 ISCO revenues decreased due to reduced activity in the energy marketing business, mostly -35- offset by greater demand for environmental and engineering services. Refer to Note 10(a) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for discussion of oil swaps and collars and natural gas swaps at Whiting. Other Operating Expenses - Other operation and maintenance - --------------------------- expenses for 2000, 1999 and 1998 were as follows (in millions): 2000 1999 1998 -------- -------- -------- Utility subsidiaries $497 $477 $540 ISCO 158 114 * 118 Oil and gas production 37 35 38 Transportation 11 10 10 Other 32 33 37 -------- -------- -------- $735 $669 $743 ======== ======== ======== * Refer to Note 1(a) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for additional information related to a reclassification. Other operation and maintenance expenses at the utility subsidiaries increased $20 million in 2000 primarily due to: (a) A planned refueling outage at Kewaunee. (b) Higher expenses in the utility subsidiaries' energy delivery and generation business units (including $3 million of one-time fees related to the transfer of the Iowa utility businesses from the MAPP reliability region to the MAIN region). (c) Increases in administrative and general expenses. (d) Higher energy conservation expenses. The 2000 increases were partially offset by expenses incurred in 1999 relating to Alliant Energy's Y2K program. Other operation and maintenance expenses at ISCO increased $44 million in 2000 primarily due to increased expenses: at the energy marketing business; from 2000 business acquisitions; and at Alliant Energy's environmental and engineering services business, including a one-time charge of $4 million related to a loss on a contract. Other operation and maintenance expenses at the utility subsidiaries decreased $63 million in 1999 primarily due to the following factors: (a) $34 million of merger-related expenses incurred in 1998, which were for employee retirements ($15 million), separations ($13 million), relocations ($4 million) and other ($2 million). (b) Reduced expenses in the energy delivery and generation business units. (c) Lower energy efficiency expenses of $17 million in Iowa. (d) A 1998 write-off of $9 million of certain employee benefits-related regulatory assets at IESU, which resulted from IESU's 1998 assessment regarding how certain employee benefit costs were recovered in the rate making process in Iowa. Based on such review, IESU concluded it could no longer meet the required "probable" standard for SFAS 71. (e) Reduced insurance-related expenses. (f) Lower costs in 1999 due to merger-related operating efficiencies. The 1999 decreases were partially offset by higher expenses for employee incentive compensation, Alliant Energy's Y2K program, energy conservation expense at WP&L and employee benefits. Other operation and maintenance expenses at ISCO decreased $4 million in 1999 primarily due to lower operation expenses in the energy marketing business, partially offset by increased demand for environmental and engineering services. -36- Depreciation and amortization expense increased $43.2 million and decreased $0.4 million in 2000 and 1999, respectively. The 2000 increase was primarily due to utility property additions and acquisitions at the non-regulated businesses, increased earnings in the WP&L nuclear decommissioning trust fund of approximately $20 million (offset entirely in "Miscellaneous, net") and increased amortization expenses. The 1999 decrease was primarily due to reduced earnings in WP&L's nuclear decommissioning trust fund, lower depletion expense at Whiting and the $3.2 million Kewaunee surcharge in 1998 at WP&L (recorded in depreciation and amortization expense with a corresponding increase in revenues resulting in no earnings impact). These items were largely offset by increases in depreciation expense due to utility property additions. Interest Expense and Other - Interest expense increased $37.4 - -------------------------- million and $6.9 million in 2000 and 1999, respectively. The 2000 increase was primarily due to higher non-regulated and utility borrowings to fund Alliant Energy's strategic growth initiatives, including Resources' $347 million investment in several Brazilian electric utilities in January 2000, and higher interest rates associated with short-term debt outstanding. The 1999 interest expense increase was primarily due to higher utility and non-regulated borrowings and higher nuclear decommissioning trust fund interest expense at IESU, which was offset entirely in "Miscellaneous, net." The accounting for earnings on the nuclear decommissioning trust funds results in no net income impact. Miscellaneous, net income increases for earnings on the nuclear decommissioning trust funds at both WP&L and IESU. In accordance with their respective regulatory requirements, the corresponding offset is recorded through depreciation expense at WP&L and interest expense at IESU. On July 1, 2000, Alliant Energy adopted SFAS 133. Related to the adoption, Alliant Energy recorded a $321.3 million gain related to the designation of a portion of Alliant Energy's McLeod holdings as "trading securities." This gain related to the unrealized appreciation in value of approximately 27 percent of Alliant Energy's McLeod holdings. Alliant Energy will reflect in earnings all future changes in the value of the shares of McLeod stock designated as trading, which is expected to substantially offset the earnings impact of corresponding changes in the value of the derivative component of the 30-year exchangeable senior notes issued by Resources in February 2000. In 2000, Alliant Energy continued to sell limited shares of its investment in McLeod to offset its start-up and growth-related interest expenses and re-deploy such proceeds into strategic earnings-generating investments. In 2000, Alliant Energy sold approximately 1.3 million shares (as adjusted for the 3-for-1 stock split effective April 2000) of its investment in McLeod, resulting in pre-tax gains of approximately $24 million. In 1999, Alliant Energy sold approximately 4.3 million shares (as adjusted for both the 2-for-1 stock split effective July 1999 and the 3-for-1 stock split effective April 2000), or 7 percent of its investment in McLeod, resulting in pre-tax gains of approximately $40 million, of which approximately $10 million was used for start-up expenses. As of December 31, 2000, Alliant Energy beneficially owned 56.1 million shares of McLeod common stock. Miscellaneous, net income increased $30.3 million and $35.2 million in 2000 and 1999, respectively. The 2000 increase was primarily due to a change of $102 million in the value of the derivative component of Resources' exchangeable senior notes, increased interest income (including nuclear decommissioning trust fund earnings and $4 million recognized from a tax settlement at IESU), increased earnings of $10 million from Alliant Energy's electricity trading business and improved operations from other Alliant Energy unconsolidated non-regulated businesses. These items were partially offset by a decrease of $103 million in value of the McLeod trading securities, a decrease of $4 million in gains from sales of certain investments at Whiting and New Zealand completed during both periods and reduced income of $2 million realized from weather hedges at WP&L. Refer to Note 10(b) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for discussion of WP&L's weather hedges. The 1999 increase in miscellaneous, net income was primarily due to the non-recurrence of $17 million of merger-related expenses incurred in 1998 for the services of Alliant Energy's advisors and costs related to Alliant Energy's merger-related -37- name change; gains of $10 million and $6 million realized from the sales of several oil and gas properties at Whiting and certain New Zealand electric distribution investments, respectively; a $7 million increase in pre-tax earnings from Alliant Energy's electricity trading joint venture; and $5 million of income realized from weather hedges at WP&L. The 1999 increase in miscellaneous, net income was partially offset by a decrease of $11 million in earnings in the nuclear decommissioning trust funds. Refer to Note 10(a) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for additional information related to the exchangeable senior notes derivative, the McLeod trading securities and the cumulative effect of a change in accounting principle. Income Taxes - The effective income tax rates for Alliant - ------------ Energy were 38.1 percent, 37.2 percent and 36.0 percent in 2000, 1999 and 1998, respectively. Refer to Note 5 of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for additional information. IESU RESULTS OF OPERATIONS Overview - IESU's earnings available for common stock increased - --------- $8.0 million and $4.5 million in 2000 and 1999, respectively. The 2000 increase was primarily due to reduced other operation and maintenance expenses, higher electric and gas margins and lower tax expense primarily due to a lower effective income tax rate. These items were partially offset by increased depreciation and amortization expense due to property additions. Higher interest income, largely due to a tax settlement realized in 2000, also contributed to the increase. The 1999 increase was primarily due to the nonrecurrence of $17 million of merger-related expenses in 1998, the nonrecurrence of a $9 million regulatory asset write-off in 1998, an approximate $5 million change in estimate of IESU's unbilled revenues in 1999 and reduced maintenance expenses. Such increases were partially offset by higher depreciation and amortization expense, increased administrative and general expenses and a higher effective income tax rate. Electric Utility Operations - Electric margins and MWh sales - --------------------------- for IESU for 2000, 1999 and 1998 were as follows:
Revenues and Costs (in thousands) MWhs Sold (in thousands) --------------------------------------------------------- ------------------------------------------------- 2000 1999 * 1998 ** 2000 1999 * 1998 ** ---------- ------------- -------- ------------- -------- -------- ---------- -------- --------- -------- Residential $236,084 $230,422 2% $232,662 (1%) 2,742 2,685 2% 2,661 1% Commercial 182,068 176,251 3% 168,672 4% 2,701 2,658 2% 2,465 8% Industrial 188,734 181,740 4% 181,369 -- 5,053 5,072 -- 4,872 4% ---------- ------------- ------------- -------- ---------- --------- Total from ultimate customers 606,886 588,413 3% 582,703 1% 10,496 10,415 1% 9,998 4% Sales for resale 31,046 28,479 9% 45,453 (37%) 1,044 1,392 (25%) 1,763 (21%) Other 13,527 11,058 22% 11,267 (2%) 40 40 -- 42 (5%) ---------- ------------- ------------- -------- ---------- --------- Total revenues/sales 651,459 627,950 4% 639,423 (2%) 11,580 11,847 (2%) 11,803 -- ======== ========== ========= Electric production fuels expense 100,816 80,079 26% 99,362 (19%) Purchased power expense 83,575 82,402 1% 71,637 15% ---------- ------------- ------------- Margin $467,068 $465,469 -- $468,424 (1%) ========== ============= =============
* Reflects the % change from 1999 to 2000. ** Reflects the % change from 1998 to 1999. Electric margin increased $1.6 million and decreased $3.0 million, or 1%, for 2000 and 1999, respectively. The 2000 increase was primarily due to increased sales to retail customers due to continued economic growth in IESU's service territory, partially offset by the impact of a 1999 change in estimate of utility services rendered but unbilled at month-end of approximately $5 million, milder weather conditions in 2000 compared to 1999 and reduced recoveries of $3.8 million in concurrent and previously deferred expenditures for Iowa-mandated energy efficiency programs. The recovery for energy efficiency programs in Iowa is in accordance with IUB orders (a portion of these recoveries is offset as they are also amortized to expense in other operation and maintenance expense). -38- The 1999 decrease was primarily due to reduced recoveries of $4.0 million in concurrent and previously deferred expenditures for Iowa-mandated energy efficiency programs and increased purchased-power capacity costs. Sales for resale decreased significantly in 1999 primarily due to various resale customers of IESU selecting another utility as their electricity provider effective in early 1999. The loss of such customers has not had a material impact on IESU's electric margins. Sales to retail customers increased primarily due to continued economic growth in IESU's service territory and more favorable weather conditions. The 1999 electric margin also benefited from the favorable $5 million change in estimate of IESU's utility services rendered but unbilled at month-end. IESU's electric tariffs include EAC's that are designed to currently recover the costs of fuel and the energy portion of purchased-power billings. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for discussion of the EAC and to "Utility Industry Outlook - Rates and Regulatory Matters" for information on an IUB fuel investigation. Gas Utility Operations - Gas margins and Dth sales for IESU for - ----------------------- 2000, 1999 and 1998 were as follows:
Revenues and Costs (in thousands) Dths Sold (in thousands) -------------------------------------------------------- -------------------------------------------------- 2000 1999 * 1998 ** 2000 1999 * 1998 ** ------------ ---------- ------ ------------ --------- --------- --------- --------- --------- -------- Residential $117,132 $88,302 33% $86,821 2% 14,829 13,778 8% 13,803 -- Commercial 57,671 40,459 43% 39,928 1% 8,753 8,077 8% 8,272 (2%) Industrial 15,377 11,543 33% 10,422 11% 3,063 3,291 (7%) 3,089 7% Transportation/other 6,001 5,521 9% 4,108 34% 10,061 10,236 (2%) 11,316 (10%) ------------ ---------- ------------ --------- --------- --------- Total revenues/sales 196,181 145,825 35% 141,279 3% 36,706 35,382 4% 36,480 (3%) ========= ========= ========= Cost of gas sold 136,352 88,308 54% 84,642 4% ------------ ---------- ------------ Margin $59,829 $57,517 4% $56,637 2% ============ ========== ============
* Reflects the % change from 1999 to 2000. ** Reflects the % change from 1998 to 1999. Gas margin increased $2.3 million, or 4%, and $0.9 million, or 2%, for 2000 and 1999, respectively. The increases were largely due to more favorable weather conditions. Due to IESU's rate recovery mechanisms for gas costs, the significant increase in IESU's cost of gas sold during 2000 had no impact on gas margin. IESU's gas tariffs include PGA clauses that are designed to currently recover the cost of utility gas sold. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for discussion of the PGA. Other Operating Expenses - IESU's other operation and - ------------------------ maintenance expenses decreased $7.2 million and $17.1 million for 2000 and 1999, respectively. The 2000 decrease was primarily due to a decrease of $3.5 million in energy efficiency expenses, expenses incurred in 1999 relating to IESU's Y2K program and lower employee benefits costs. These items were partially offset by higher nuclear operation expenses and one-time fees related to the transfer from the MAPP reliability region to the MAIN region in 2000. The 1999 decrease was primarily due to the nonrecurrence of $10.5 million of merger-related expenses in 1998, the nonrecurrence of a $9 million regulatory asset write-off in 1998, reduced nuclear maintenance expenses of $4.0 million, a $4.0 million decrease in energy efficiency expenses and merger-related operating efficiencies realized in 1999. The merger-related expenses were primarily for employee retirements, separations and relocations. The regulatory asset write-off resulted from IESU assessing in the fourth quarter of 1998 how certain employee benefit costs were recovered in the rate making process in Iowa. Based on such review, IESU concluded it could no longer meet the required "probable" standard for SFAS 71. Such decreases were partially offset by increased costs for employee incentive compensation, higher employee benefit costs and higher expenses for the Y2K program costs. Depreciation and amortization expenses increased $7.0 million and $7.1 million for 2000 and 1999, respectively, primarily due to property additions and amortization of software. -39- Interest Expense and Other - Miscellaneous, net income - --------------------------- increased $1.3 million and $6.4 million for 2000 and 1999, respectively. The 2000 increase was primarily due to $4.1 million of interest income recognized from a tax settlement in 2000, partially offset by lower other interest income. The increase in 1999 resulted primarily from $6.0 million of merger-related expenses in 1998 and higher nuclear decommissioning trust fund earnings, which were partially offset by a gain on an asset sale in 1998. Income Taxes - The effective income tax rates were 40.2%, 42.6% - ------------ and 40.1% in 2000, 1999 and 1998, respectively. Refer to Note 5 of IESU's "Notes to Consolidated Financial Statements" in Item 8. for additional information. WP&L RESULTS OF OPERATIONS Overview - WP&L's earnings available for common stock increased - --------- $0.6 million and $35.3 million in 2000 and 1999, respectively. The 2000 increase was primarily due to higher electric margins and a reduced effective income tax rate, largely offset by increased operation and maintenance, depreciation and amortization and interest expenses. The 1999 increase was primarily due to the nonrecurrence of $17.3 million of merger-related expenses in 1998, higher electric and natural gas margins, reduced other operation and maintenance expenses and income realized from weather hedges. Such increases were partially offset by increased depreciation and amortization expense (excluding hedge losses in WP&L's nuclear decommissioning trust fund) and higher interest expense. Electric Utility Operations - Electric margins and MWh sales - --------------------------- for WP&L for 2000, 1999 and 1998 were as follows:
Revenues and Costs (in thousands) MWhs Sold (in thousands) ---------------------------------------------------------- ----------------------------------------------- 2000 1999 * 1998 ** 2000 1999 * 1998 ** ----------- ------------ --------- ------------- --------- --------- --------- ------ --------- ------- Residential $229,668 $213,496 8% $198,770 7% 3,151 3,111 1% 2,964 5% Commercial 127,199 116,947 9% 108,724 8% 2,031 1,980 3% 1,898 4% Industrial 190,085 171,118 11% 162,771 5% 4,688 4,570 3% 4,493 2% ----------- ------------ ------------- --------- --------- --------- Total from ultimate customers 546,952 501,561 9% 470,265 7% 9,870 9,661 2% 9,355 3% Sales for resale 115,715 102,751 13% 128,536 (20%) 3,228 3,252 (1%) 4,492 (28%) Other 29,524 22,295 32% 15,903 40% 63 54 17% 59 (8%) ----------- ------------ ------------- --------- --------- --------- Total revenues/sales 692,191 626,607 10% 614,704 2% 13,161 12,967 1% 13,906 (7%) ========= ========= ========= Electric production fuels expense 113,208 110,521 2% 120,485 (8%) Purchased power expense 146,939 107,598 37% 113,936 (6%) ----------- ------------ ------------- Margin $432,044 $408,488 6% $380,283 7% =========== ============ =============
* Reflects the % change from 1999 to 2000. ** Reflects the % change from 1998 to 1999. Electric margin increased $23.6 million, or 6%, and $28.2 million, or 7%, during 2000 and 1999, respectively. The 2000 increase was primarily due to increased sales to retail customers due to continued economic growth in WP&L's service territory, a favorable $10 million change in estimate of utility services rendered but unbilled at month-end and increased energy conservation revenues. These items were partially offset by the impact of milder weather conditions in 2000 compared to 1999 and higher purchased-power and fuel expenses. The 1999 increase was primarily due to separate $15 million annual rate adjustments implemented at WP&L in July 1998 and March 1999 to recover higher purchased-power and transmission costs. An increase in retail sales of 3% due to more favorable weather and economic growth within WP&L's service territory also contributed to the increase. Partially offsetting the 1999 increase were lower sales to off-system and wholesale customers due to transmission constraints and decreased contractual commitments and $3.2 million of revenues collected in 1998 for a surcharge related to Kewaunee. -40- Refer to "Utility Industry Outlook - Rates and Regulatory Matters" for information on a WP&L FAC filing in December 2000. Gas Utility Operations - Gas margins and Dth sales for WP&L for - ---------------------- 2000, 1999 and 1998 were as follows:
Revenues and Costs (in thousands) Dths Sold (in thousands) ------------------------------------------------------- ------------------------------------------------ 2000 1999 * 1998 ** 2000 1999 * 1998 ** ---------- ------------ --------- ---------- --------- --------- --------- -------- --------- ------ Residential $96,204 $69,662 38% $65,173 7% 12,769 12,070 6% 10,936 10% Commercial 54,512 35,570 53% 33,898 5% 8,595 7,771 11% 7,285 7% Industrial 8,581 6,077 41% 5,896 3% 1,476 1,520 (3%) 1,422 7% Transportation/other 5,855 9,461 (38%) 6,770 40% 13,680 13,237 3% 12,948 2% ---------- ------------ ---------- --------- --------- --------- Total revenues/sales 165,152 120,770 37% 111,737 8% 36,520 34,598 6% 32,591 6% ========= ========= ========= Cost of gas sold 107,131 64,073 67% 61,409 4% ---------- ------------ ---------- Margin $58,021 $56,697 2% $50,328 13% ========== ============ ==========
* Reflects the % change from 1999 to 2000. ** Reflects the % change from 1998 to 1999. Gas margin increased $1.3 million, or 2%, and $6.4 million, or 13%, during 2000 and 1999, respectively. The 2000 increase was largely due to more favorable weather conditions in the 2000 heating season compared to 1999, partially offset by reduced energy conservation revenues. Due to WP&L's rate recovery mechanisms for gas costs, the significant increase in WP&L's cost of gas sold during 2000 had no adverse impact on gas margin. The 1999 increase was due to increased sales resulting from customer growth of approximately 2% and more favorable weather conditions in 1999. Refer to "Interest Expense and Other" for discussion of income realized from gas weather hedges in 2000 and 1999 and Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for discussion of a gas cost adjustment mechanism in place at WP&L. Other Operating Expenses - Other operation and maintenance - ------------------------- expenses increased $16.8 million and decreased $21.4 million for 2000 and 1999, respectively. The 2000 increase was primarily due to a planned refueling outage at Kewaunee, higher expenses in the energy delivery business unit, increased energy conservation expense and increased maintenance expenses. The 2000 increases were partially offset by expenses incurred in 1999 relating to WP&L's Y2K program. The 1999 decrease was primarily due to the nonrecurrence of $11.2 million of merger-related expenses in 1998 for employee retirements, separations and relocations, reduced expenses in the energy delivery and generation business units, reduced insurance-related expenses, lower nuclear expenses and lower costs due to merger-related operating efficiencies. The 1999 decreases were partially offset by increased costs for energy conservation, employee incentive compensation, expenses incurred in 1999 relating to the Y2K program and employee benefits expenses. Depreciation and amortization expense increased $26.9 million and decreased $6.2 million for 2000 and 1999, respectively. The 2000 increase was primarily due to increased earnings in the nuclear decommissioning trust fund of approximately $20 million, property additions and higher amortization expense. The 1999 decrease was due to reduced earnings in the nuclear decommissioning trust fund and the nonrecurrence of the $3.2 million Kewaunee surcharge in 1998. The 1999 decrease was partially offset by the impact of property additions. The accounting for earnings on the nuclear decommissioning trust funds results in no net income impact. Miscellaneous, net income is increased for earnings on the trust fund, which is offset in depreciation expense. Interest Expense and Other - Interest expense increased $3.7 - -------------------------- million and $4.4 million in 2000 and 1999, respectively. The 2000 increase was primarily due to higher interest rates and borrowings outstanding in 2000. The 1999 increase was primarily due to higher short-term borrowings. -41- Miscellaneous, net income increased $18.4 million and decreased $3.0 million in 2000 and 1999, respectively. The 2000 increase was primarily due to increased earnings in the nuclear decommissioning trust fund of approximately $20 million, partially offset by reduced income of $2 million realized from gas weather hedges. The 1999 decrease was primarily due to lower earnings on the nuclear decommissioning trust fund, partially offset by the nonrecurrence of $6.1 million of merger-related expenses in 1998 and $5 million recognized in 1999 associated with the settlement of gas weather hedges. Refer to Note 10(b) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for additional information relating to the gas weather hedges. Income Taxes - The effective income tax rates were 37.5%, 39.2% - ------------ and 41.0% in 2000, 1999 and 1998, respectively. Refer to Note 5 of WP&L's "Notes to Consolidated Financial Statements" in Item 8. for additional information. LIQUIDITY AND CAPITAL RESOURCES Overview - Given Alliant Energy's financing flexibility, - ---------- including access to both the debt and equity securities markets, management believes it has the necessary financing capabilities in place to adequately finance its capital requirements for the foreseeable future. Alliant Energy's capital requirements are primarily attributable to Resources' acquisition and investment opportunities, its utility subsidiaries' construction and acquisition programs and its debt maturities. Alliant Energy expects to meet its future capital requirements with cash generated from operations, sale of investments and external financing. The level of cash generated from operations is partially dependent on economic conditions, legislative activities, environmental matters and timely regulatory recovery of utility costs. Liquidity and capital resources will be affected by costs associated with environmental and regulatory issues. Changes in the utility industry could also impact Alliant Energy's liquidity and capital resources, as discussed in "Utility Industry Outlook." Cash Flows - In 2000, Alliant Energy's cash flows from - ---------- financing activities increased $507 million primarily as a result of $402.5 million of exchangeable senior notes issued in February 2000 used to fund investments in the non-regulated businesses, including a $347 million investment in Brazil in January 2000. In 1999, Alliant Energy's cash flows from operating activities decreased $45 million primarily due to changes in working capital; cash flows used for financing activities decreased $161 million largely due to changes in debt outstanding; and cash flows used for investing activities increased $39 million due to increased levels of construction and acquisition expenditures, primarily in the non-regulated businesses, partially offset by increased proceeds from sales of McLeod stock and other investments. In 2000, IESU's cash flows from operating activities increased $49 million due to changes in working capital. IESU's cash flows used for financing activities decreased $17 million in 2000 primarily due to increased common stock dividends in 1999 as no dividend payments were made in the last three quarters of 1998 due to merger-related tax considerations. As a result, the dividend payment in the first quarter of 1999 was larger than IESU's historical quarterly payment. Cash flows used for investing activities increased $13 million in 2000 due to increased levels of construction expenditures. In 1999, IESU's cash flows from operating activities decreased $44 million primarily due to changes in working capital; cash flows used for financing activities increased $71 million in 1999 due to the increased common stock dividends in 1999; and cash flows used for investing activities decreased $6 million in 1999 due to decreased construction expenditures. In 2000, WP&L's cash flows used for financing activities increased $20 million due to the reduction of short-term debt outstanding and a capital contribution of $30 million in 1999 from Alliant Energy, partially offset by the issuance of $100 million of senior unsecured debentures in 2000 and no common stock dividends declared in 2000 due to management of its capital structure. In 1999, WP&L's cash flows from operating activities decreased $14 million primarily due to changes in working capital, partially offset by higher net income primarily due to -42- merger-related expenses in 1998; cash flows used for financing activities decreased $34 million due to increased short-term borrowings in 1999 and the $30 million capital contribution from Alliant Energy, partially offset by the issuance of $60 million of debentures in 1998; and cash flows used for investing activities increased $17 million primarily due to increased construction expenditures. Environmental - Alliant Energy's pollution abatement programs - -------------- are subject to continuing review and are periodically revised due to changes in environmental regulations, construction plans and escalation of construction costs. While management cannot precisely forecast the effect of future environmental regulations on operations, it has taken steps to anticipate the future while also meeting the requirements of current environmental regulations. Wisconsin is subject to the Clean Air Act due to its non-attainment status with respect to the one-hour ozone standard in the Lake Michigan region. The WDNR has developed a rule that contains a plan for the state to meet the one-hour ozone attainment standard. The plan focuses on rate of progress requirements that are specified by the Clean Air Act for the years 2002, 2005 and 2007. The rule requires NOx reductions in counties that are currently in non-attainment of the one-hour ozone standard which includes WP&L's Edgewater power plant. Alliant Energy is currently evaluating various alternatives to achieve the proposed reductions and to reduce the emission levels at various power plants. Based on existing technology, preliminary estimates indicate that capital investments in the range of $30 to $40 million could be required. Revisions to the Wisconsin Administrative Code have been proposed that could have a significant impact on WP&L's operation of the Rock River Generating Station in Beloit, Wisconsin. The proposed revisions will affect the amount of heat that the generating station can discharge into the Rock River. WP&L cannot presently predict the final outcome of the rule, but believes that, as the rule is currently proposed, the capital investments and/or modifications required to meet the proposed discharge limits could be significant. In 1998, the EPA issued the final report to Congress on the Study of Hazardous Air Pollutant Emissions (HAPs) from Electric Utility Steam Generating Units regarding hazardous air pollutant emissions from electric utilities, which concluded that mercury emissions from coal-fired generating plants were a concern. The EPA is developing regulations that are expected to be in place by 2004. In December 2000, the EPA made a regulatory determination in favor of controlling HAPs (including mercury) from electric utilities, which is being challenged by utility industry groups in two lawsuits filed in February 2001. Although the control of mercury emissions from generating plants is uncertain at this time, Alliant Energy believes that the capital investments and/or modifications that may be required to control mercury emissions could be significant. Also in December 2000, the WNRB voted to allow the WDNR to proceed with mercury rulemaking. WP&L and the other Wisconsin Utility Association members have recommended to WNRB a workable mercury program that protects reliability and does not disadvantage Wisconsin when federal mercury rules are developed. The WDNR has indicated its desire to have the proposed rule written by the Spring of 2001. Alliant Energy cannot presently predict the final outcome of the regulation, but believes that capital investments and/or modifications required could be significant. WP&L has been notified by the EPA that it is a PRP with respect to the MIG/DeWane Landfill Superfund Site. WP&L is participating in the initiation of an alternate dispute resolution process to allocate liability associated with the investigation and remediation of the site. Management believes that any likely action resulting from this matter will not have a material adverse effect on WP&L's financial condition or results of operations. IPC has been notified by the EPA that it is a PRP with respect to the Missouri Electric Works, Inc. (MEW) site in Cape Girardeau, Missouri. IPC has been served with a complaint filed by the MEW Site Trust Fund, the PRP group involved in investigating and remediating the site, for response costs incurred by the PRP group. IPC believes that it is not liable as a PRP for this site because it did not arrange for the disposal of any waste materials at the site. IPC has filed an answer to the complaint and discovery is ongoing. -43- In 2000, WP&L was notified by Monroe County, Wisconsin that it does not have liability for costs associated with the Monroe County Interim Landfill in Sparta, Wisconsin. Monroe County has decided that it will pay for the investigation and cleanup of the landfill through community-wide funding. In December 2000 and February 2001, the EPA requested certain information relating to the historical operation of WP&L's major coal-fired generating units in Wisconsin. WP&L has responded to the December 2000 request and is in the process of preparing its response to the February 2001 request. In some cases involving similar EPA requests from other electric generating facilities, penalties and capital expenditures have resulted. WP&L cannot presently predict what impact, if any, the EPA's request may have on its financial condition or results of operations. However, any required remedial action resulting from this matter could be significant. A global treaty has been negotiated that could require reductions of greenhouse gas emissions from utility plants. In 1998, the U.S. signed the treaty and agreed with other countries to resolve all remaining issues by the end of 2000. That deadline has not been met and significant differences remain between the U.S. and other countries. At this time, management is unable to predict whether the U.S. Congress will ratify the treaty. Given the uncertainty of the treaty ratification and the ultimate terms of the final regulations, management cannot currently estimate the impact the implementation of the treaty would have on Alliant Energy's utility subsidiaries' operations. Refer to Note 11(e) of the "Notes to Consolidated Financial Statements" in Item 8. for further discussion of environmental matters. Long-Term Debt - At December 31, 2000, Resources had available - -------------- $450 million of committed bank lines of credit extending through October 2003 for direct borrowing or to support commercial paper, of which $321 million of commercial paper was outstanding and was classified as long-term debt. Commitment fees are paid to maintain this facility and there are no conditions restricting the unused credit. Currently, Resources anticipates that this facility will be renewed upon expiration. In March 2000, WP&L issued $100 million of senior unsecured debentures at a fixed interest rate of 7-5/8%, due 2010. The net proceeds were primarily used to repay short-term debt. In February 2000, Resources completed a private placement of exchangeable senior notes due 2030, which were issued in the original aggregate principal amount of $402.5 million. In March 2001, IESU issued $200 million of senior unsecured debentures at a fixed interest rate of 6-3/4%, due 2011. The net proceeds were primarily used to refinance $81.6 million of long-term debt maturing in 2001 and to repay short-term debt. Alliant Energy has $607 million of long-term debt that will mature prior to December 31, 2005. Depending on market conditions, it is anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities. Refer to Note 8(b) of the "Notes to Consolidated Financial Statements" in Item 8. for additional information on long-term debt. Short-Term Debt - At December 31, 2000, Resources had available - ---------------- $150 million of committed bank lines of credit extending through October 2001 for direct borrowing or to support commercial paper. Commitment fees are paid to maintain this facility and there are no conditions restricting the unused credit. Currently, Resources anticipates that this facility will be renewed upon expiration. -44- Alliant Energy also has $300 million of committed bank lines of credit extending through October 2001 available for direct borrowing or to support commercial paper, of which $284 million of commercial paper was outstanding at December 31, 2000. Commitment fees are paid to maintain these lines and there are no conditions restricting the unused lines of credit. Alliant Energy anticipates that this facility will be renewed upon expiration. Alliant Energy has agreements with several financial institutions to periodically borrow from uncommitted "as-offered" credit lines in lieu of commercial paper. There are no commitment fees associated with these agreements and $50 million of borrowings were outstanding under these agreements at December 31, 2000. In addition to funding working capital needs, the availability of short-term financing provides the companies 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. At December 31, 2000, IESU, WP&L and IPC were authorized by the applicable federal or state regulatory agency to issue short-term debt of $150 million, $128 million and $72 million, respectively. The utility subsidiaries participate in a utility money pool that is funded, as needed, through the issuance of commercial paper by Alliant Energy. Interest expense and other fees are allocated based on borrowing amounts. The PSCW has restricted WP&L from lending money to non-utility affiliates and non-Wisconsin utilities. As a result, WP&L can only borrow money from the utility money pool. Alliant Energy anticipates that short-term debt will continue to be available at reasonable costs due to current ratings by independent utility analysts and credit rating services. Refer to Note 8(a) of the "Notes to Consolidated Financial Statements" in Item 8. for additional information on short-term debt. Sale of Accounts Receivable - To maintain flexibility in its - --------------------------- capital structure and to take advantage of favorable short-term rates, IESU and WP&L use proceeds from the sale of accounts receivable and unbilled revenues to finance a portion of their long-term cash needs. Alliant Energy and the utility subsidiaries have filed applications with the SEC and various state regulatory agencies for approval of a combined accounts receivable sale program whereby each utility, including IPC, will sell their respective receivables through wholly-owned special purpose entities to an affiliated financing entity, which in turn will sell the receivables to an outside investor. The new program would replace the existing programs for IESU and WP&L, and would be substantially similar to the prior programs. All necessary approvals are expected by mid-2001. Financial Guarantees and Commitments - Alliant Energy had - ------------------------------------- certain off-balance sheet financial guarantees and commitments outstanding at December 31, 2000. These largely consisted of third-party borrowing arrangements and lending commitments, guarantees of financial performance of syndicated affordable housing properties and guarantees relating to Alliant Energy's electricity trading joint venture and EUA Cogenex Corporation. Refer to Note 11(d) of the "Notes to Consolidated Financial Statements" in Item 8. for additional information. Investments - Under PUHCA, certain investments of Alliant - ------------ Energy in exempt wholesale generators and foreign utility companies are limited to 50 percent of Alliant Energy's consolidated retained earnings. Alliant Energy is pursuing making the necessary regulatory filings requesting an increase in this limitation. Under WUHCA, there is an asset cap provision that limits certain non-utility assets in a utility holding company to 25 percent of utility assets. Under the provisions of the law, assets related to the provision of various energy-related, environmental engineering and telecommunications services are not included in the calculation of either utility or non-utility assets. Alliant Energy expects to pursue various potential business development opportunities, including international as well as domestic investments, and is devoting resources to such efforts. Foreign investments may carry a higher level of risk than Alliant Energy's traditional domestic utility or non-regulated investments. Such risks could include foreign government actions, economic and currency risks and others. However, Alliant Energy will strive to select investments where risks are both understood and manageable. -45- In January 2000, Resources acquired a stake in four Brazilian electric utilities for a total of approximately $347 million (and has closed on additional Brazilian investments in the first quarter of 2001). Refer to Note 9 of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for additional information related to Alliant Energy's investments in foreign entities. Alliant Energy expects its Brazil investments will be slightly accretive to earnings in 2001 and generate significant earnings growth beginning in 2002. Construction and Acquisition Expenditures - Capital expenditure - ------------------------------------------ and investment and financing plans are subject to change 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 and business combination 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. Refer to Note 11(a) of the "Notes to Consolidated Financial Statements" in Item 8. for information on anticipated construction and acquisition expenditures. Alliant Energy's utility subsidiaries anticipate financing utility construction expenditures during 2001-2005 through internally generated funds supplemented, when required, by outside financing. Funding of Resources' construction and acquisition expenditures over that same period of time is expected to be completed with a combination of external financings, sales of investments and internally generated funds. OTHER MATTERS Market Risk Sensitive Instruments and Positions Alliant Energy's primary market risk exposures are associated with interest rates, commodity prices, equity prices and currency exchange rates. Alliant Energy has risk management policies to monitor and assist in controlling these market risks and uses derivative instruments to manage some of the exposures. Interest Rate Risk - Alliant Energy is exposed to risk - ------------------- resulting from changes in interest rates as a result of its issuance of variable-rate debt. Alliant Energy manages its interest rate risk by limiting its variable interest rate exposure and by continuously monitoring the effects of market changes in interest rates. Alliant Energy has also historically used interest rate swap and interest rate forward agreements to assist in the management of its interest exposure. In the event of significant interest rate fluctuations, management would take actions to minimize the effect of such changes on Alliant Energy's results of operations. Assuming no change in Alliant Energy's financial structure, if variable interest rates were to average 1 percent higher (lower) in 2001 than in 2000, interest expense and pre-tax earnings would increase (decrease) by approximately $8.0 million. Comparatively, if variable interest rates had averaged 1 percent higher (lower) in 2000 than in 1999, interest expense and pre-tax earnings would have increased (decreased) by approximately $5.1 million. These amounts were determined by considering the impact of a hypothetical 1 percent increase (decrease) in interest rates on the variable-rate debt held by Alliant Energy as of December 31, 2000 and 1999. Commodity Risk - Non-trading - Alliant Energy is exposed to the - ----------------------------- impact of market fluctuations in the commodity price and transportation costs of electricity, natural gas and oil products it markets. Alliant Energy employs established policies and procedures to manage its risks associated with these market fluctuations including the use of various commodity derivatives. Alliant Energy's exposure to commodity price risks in its utility business is significantly mitigated by the current rate making structures in place for the recovery of its electric fuel and purchased energy costs as well as its cost of natural gas purchased for resale. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for further discussion. WP&L periodically utilizes gas commodity swap arrangements to reduce the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current market prices during the winter months. The gas commodity swaps in place approximate the forecasted storage withdrawal plan during this period. Therefore, market -46- price fluctuations that result in an increase or decrease in the value of the physical commodity are substantially offset by changes in the value of the gas commodity swaps. To the extent actual storage withdrawals vary from forecasted withdrawals, WP&L has physical commodity price exposure. A 10 percent increase (decrease) in the price of gas would have an insignificant impact on the combined fair market value of the gas in storage and related swap arrangements in place as of December 31, 2000 and 1999. Whiting is exposed to market risk in the pricing of its oil and gas production. Historically, prices received for oil and gas production have been volatile because of seasonal weather patterns, supply and demand factors, transportation availability and price, and general economic conditions. Worldwide political developments have historically also had an impact on oil prices. Alliant Energy periodically utilizes oil and gas swaps and forward contracts to mitigate the impact of oil and gas price fluctuations. Based on Whiting's estimated gas and crude oil sales in 2001, and the swaps and forward contracts outstanding for such period, a sustained 10 percent increase (decrease) in gas and crude oil prices would impact Alliant Energy's pre-tax 2001 earnings by approximately $14.5 million. A sustained 10 percent increase (decrease) in prices during 2000 would have impacted Alliant Energy's 2000 pre-tax earnings by approximately $3.8 million, based on Whiting's estimated gas and forward contracts outstanding at December 31, 1999. Commodity Risk - Trading - Alliant Energy is exposed to market - ------------------------ risks through its electricity commodity trading business, which is primarily conducted through Alliant Energy's 50/50 joint venture with Cargill. The joint venture's trading activities principally consist of marketing and trading over-the-counter forward contracts for the purchase and sale of electricity. The majority of the forward contracts represent commitments to purchase or sell electricity at fixed prices in the future and require settlement by physical delivery of electricity or are netted out in accordance with industry trading standards. The market prices used to determine fair values reflect the joint venture's best estimate considering various factors, including closing exchanges and over-the-counter quotations, time value, volatility and credit risk factors. The joint venture manages the market risks inherent in its trading activities through established trading and risk management policies and tools. The principal tool utilized is a one-day variance/covariance value-at-risk model with assessment adjustments made based on weather, transmission availability, generation outages and other factors. The estimated one-day market Value-at-Risk (VAR) for the joint venture as of December 31, 2000 and 1999 was $1.5 million and $0.3 million, respectively, which was calculated with a 99 percent confidence level. The low, average and high VAR in 2000 were $0.1 million, $0.9 million and $2.0 million, respectively, and in 1999 were $0.1 million, $0.3 million and $1.5 million, respectively. Equity Price Risk - IESU and WP&L maintain trust funds to fund - ------------------ their anticipated nuclear decommissioning costs. As of December 31, 2000 and 1999, these funds were invested primarily in domestic equity and debt instruments. Fluctuations in equity prices or interest rates will not affect Alliant Energy's consolidated results of operations as such fluctuations are recorded in equally offsetting amounts of investment income and depreciation (WP&L) or interest (IESU) expense when they are realized. In February 2001, WP&L entered into a four-year hedge on equity assets in its nuclear decommissioning trust fund. At December 31, 2000 and 1999, Alliant Energy had an investment in the stock of McLeod, a publicly traded telecommunications company, valued at $791 million and $1,124 million, respectively. In addition to the equity risk associated with the investment in McLeod, Alliant Energy also has equity risk related to the option liability embedded within Resources' exchangeable senior notes. Refer to Note 10(a) of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for further discussion. A 10 percent increase (decrease) in the quoted market price at December 31, 2000 would not have a significant impact on net income as any resulting increase (decrease) in the value of the option would be substantially offset by a corresponding increase (decrease) in the value of the McLeod shares classified as trading (valued at $221 million at December 31, 2000). At December 31, 2000, the McLeod available-for-sale securities were valued at $570 million. A 10 percent increase (decrease) in the quoted market price would have increased (decreased) the value of the investment by $57 million. A 10 percent increase (decrease) in the quoted market price at December 31, 1999 would have increased (decreased) the value of the investment by approximately $112 million. Refer to Note 9 of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for discussion of how Alliant Energy accounts for its investment in McLeod. -47- At December 31, 2000 and 1999, Alliant Energy had various investments, accounted for under the cost method of accounting, in publicly traded utility companies in New Zealand which were valued at $10 million and $97 million, respectively. A 10 percent increase (decrease) in the quoted market prices at December 31 would have increased (decreased) the value of the investments at December 31, 2000 and 1999 by approximately $1.0 million and $9.7 million, respectively. In the second quarter of 2000, Capstone completed its initial public offering and Alliant Energy's $10 million investment in Capstone was valued at $41 million at December 31, 2000. A 10 percent increase (decrease) in the quoted market price at December 31, 2000 would have increased (decreased) the value of the investment by approximately $4.1 million. Currency Risk - Alliant Energy has investments in various - -------------- countries where the net investments are not hedged, including Australia, Brazil, China and New Zealand (Alliant Energy also had investments in Singapore as of December 31, 1999). As a result, these investments are subject to currency exchange risk with fluctuations in currency exchange rates. At December 31, 2000 and 1999, Alliant Energy had a cumulative foreign currency translation loss of $60.0 million and $9.6 million, respectively, recorded in "Accumulated other comprehensive income" on its Consolidated Balance Sheets that primarily related to decreases in value of the Brazil currency (real) and New Zealand dollar in relation to the U.S. dollar. Based on Alliant Energy's investments at December 31, 2000 and 1999, a 10 percent sustained increase (decrease) over the next 12 months in the foreign exchange rates of Australia, Brazil, China and New Zealand (and Singapore as of December 31, 1999) would increase (decrease) the cumulative foreign currency translation gain/loss by $46.5 million and $17.2 million, respectively. The significant increase in currency risk at December 31, 2000 is primarily due to the increase in the amount of Resources' investment in Brazil at December 31, 2000 compared with December 31, 1999. Refer to Notes 1(n) and 10 of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 8. for further discussion of Alliant Energy's derivative financial instruments. Cargill The initial term of Alliant Energy's electricity commodity trading joint venture with Cargill expires in October 2002. At this time, Alliant Energy cannot predict if this agreement will be renewed upon expiration. OUTLOOK Assuming normal weather conditions, Alliant Energy's utility subsidiaries' ability to recover their purchased-power and fuel costs, continued economic growth in the utility subsidiaries' service territories, increased growth and profitability of Alliant Energy's non-regulated businesses and stable business conditions, Alliant Energy currently estimates that diluted earnings per share from continuing operations for 2001 will be within the $2.40 to $2.60 range. Alliant Energy's strategic plan includes aggressively investing in generation and other energy-related projects; better connecting with customers through enhanced service reliability and e-business initiatives; and growing the non-regulated side of its business through partnerships and acquisitions in generation projects, international markets and other strategic initiatives. Alliant Energy believes that successful implementation of these strategies will contribute significantly to Alliant Energy achieving its targeted annual growth rate in earnings from continued operations of 7 to 10 percent. Alliant Energy expects its non-regulated businesses to contribute 25 percent of such earnings within the next two to four years. -48- ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk are reported under "Other Matters - Market Risk Sensitive Instruments and Positions" in Item 7. MD&A. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Alliant Energy Page Number - ---------------- ------------- Report of Management 50 Report of Independent Public Accountants 51 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998 52 Consolidated Balance Sheets as of December 31, 2000 and 1999 53 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 55 Consolidated Statements of Capitalization as of December 31, 2000 and 1999 56 Consolidated Statements of Changes in Common Equity for the Years Ended December 31, 2000, 1999 and 1998 57 Notes to Consolidated Financial Statements 58 IESU - ---- Report of Independent Public Accountants 91 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998 92 Consolidated Balance Sheets as of December 31, 2000 and 1999 93 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 95 Consolidated Statements of Capitalization as of December 31, 2000 and 1999 96 Consolidated Statements of Changes in Common Equity for the Years Ended December 31, 2000, 1999 and 1998 97 Notes to Consolidated Financial Statements 98 WP&L - ---- Report of Independent Public Accountants 107 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998 108 Consolidated Balance Sheets as of December 31, 2000 and 1999 109 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 111 Consolidated Statements of Capitalization as of December 31, 2000 and 1999 112 Consolidated Statements of Changes in Common Equity for the Years Ended December 31, 2000, 1999 and 1998 113 Notes to Consolidated Financial Statements 114 Refer to Note 14 of Alliant Energy's, IESU's and WP&L's "Notes to Consolidated Financial Statements" for the quarterly financial data required by Item 8.
-49- ALLIANT ENERGY CORPORATION REPORT ON THE FINANCIAL INFORMATION Alliant Energy Corporation management is responsible for the information and representations contained in the financial statements and in other sections of this Annual Report. The consolidated financial statements that follow have been prepared in accordance with generally accepted accounting principles. In addition to selecting appropriate accounting principles, management is responsible for the manner of presentation and for the reliability of the financial information. In fulfilling that responsibility, it is necessary for management to make estimates based on currently available information and judgments of current conditions and circumstances. Through a well-developed system of internal controls, management seeks to ensure the integrity and objectivity of the financial information presented in this report. This system of internal controls is designed to provide reasonable assurance that the assets of the company are safeguarded and that the transactions are executed according to management's authorizations and are recorded in accordance with the appropriate accounting principles. The Board of Directors participates in the financial information reporting process through its Audit Committee. /s/ Erroll B. Davis, Jr. - ------------------------ Erroll B. Davis, Jr. Chairman, President and Chief Executive Officer /s/ Thomas M. Walker - -------------------- Thomas M. Walker Executive Vice President and Chief Financial Officer /s/ John E. Kratchmer - --------------------- John E. Kratchmer Corporate Controller and Chief Accounting Officer January 29, 2001 -50- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of Alliant Energy Corporation: We have audited the accompanying consolidated balance sheets and statements of capitalization of Alliant Energy Corporation (a Wisconsin Corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 2000. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Alliant Energy Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP - ----------------------- ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 29, 2001 -51-
ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Operating revenues: Electric utility $1,648,036 $1,548,938 $1,567,442 Gas utility 414,948 314,319 295,590 Non-regulated and other 342,000 264,716 267,842 ---------------- ---------------- ---------------- 2,404,984 2,127,973 2,130,874 ---------------- ---------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 288,621 262,305 297,685 Purchased power 294,818 255,446 255,332 Cost of utility gas sold 278,734 180,519 166,453 Other operation and maintenance 734,675 669,111 742,971 Depreciation and amortization 322,334 279,088 279,505 Taxes other than income taxes 104,746 104,969 105,626 ---------------- ---------------- ---------------- 2,023,928 1,751,438 1,847,572 ---------------- ---------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------- Operating income 381,056 376,535 283,302 ---------------- ---------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 173,614 136,229 129,363 Allowance for funds used during construction (8,761) (7,292) (6,812) Preferred dividend requirements of subsidiaries 6,713 6,706 6,699 Gain on reclassification of investments (321,349) - - Gains on sales of McLeodUSA Inc. stock (23,773) (40,272) - Miscellaneous, net (66,158) (35,903) (736) ---------------- ---------------- ---------------- (239,714) 59,468 128,514 ---------------- ---------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------- Income before income taxes 620,770 317,067 154,788 ---------------- ---------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------- Income taxes 238,816 120,486 58,113 ---------------- ---------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle, net of tax 381,954 196,581 96,675 ---------------- ---------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax 16,708 - - ---------------- ---------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------- Net income $398,662 $196,581 $96,675 ================ ================ ================ - ----------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding - basic 79,003 78,352 76,912 ================ ================ ================ - ----------------------------------------------------------------------------------------------------------------------- Earnings per average common share - basic: Income before cumulative effect of a change in accounting principle $4.84 $2.51 $1.26 Cumulative effect of a change in accounting principle 0.21 - - ---------------- ---------------- ---------------- Net income $5.05 $2.51 $1.26 ================ ================ ================ - ----------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding - diluted 79,193 78,395 76,929 ================ ================ ================ - ----------------------------------------------------------------------------------------------------------------------- Earnings per average common share - diluted: Income before cumulative effect of a change in accounting principle $4.82 $2.51 $1.26 Cumulative effect of a change in accounting principle 0.21 - - ---------------- ---------------- ---------------- Net income $5.03 $2.51 $1.26 ================ ================ ================ - ----------------------------------------------------------------------------------------------------------------------- Dividends declared per common share $2.00 $2.00 $2.00 ================ ================ ================ - ----------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS December 31, ASSETS 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $5,203,069 $5,032,675 Gas 574,390 540,874 Other 474,116 458,547 ------------------ ------------------ 6,251,575 6,032,096 Less - Accumulated depreciation 3,296,546 3,077,459 ------------------ ------------------ 2,955,029 2,954,637 Construction work in progress 130,856 119,276 Nuclear fuel, net of amortization 61,935 54,363 ------------------ ------------------ 3,147,820 3,128,276 Other property, plant and equipment, net of accumulated depreciation and amortization of $209,072 and $184,722, respectively 571,487 357,758 ------------------ ------------------ 3,719,307 3,486,034 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 148,415 113,669 Accounts receivable: Customer, less allowance for doubtful accounts of $3,762 and $2,253, respectively 122,895 67,299 Unbilled utility revenues 124,515 48,033 Other, less allowance for doubtful accounts of $484 and $954, respectively 45,829 30,095 Notes receivable, less allowance for doubtful accounts of $484 and $153, respectively 9,968 6,328 Production fuel, at average cost 46,627 49,657 Materials and supplies, at average cost 55,930 52,440 Gas stored underground, at average cost 41,359 23,151 Regulatory assets 29,348 33,439 Prepaid gross receipts tax 23,088 20,864 Other 63,007 41,011 ------------------ ------------------ 710,981 485,986 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Investments: Investment in available-for-sale securities of McLeodUSA Inc. 569,951 1,123,790 Investment in trading securities of McLeodUSA Inc. 220,912 - Investments in unconsolidated foreign entities 507,655 198,055 Nuclear decommissioning trust funds 307,940 271,258 Other 132,203 59,866 ------------------ ------------------ 1,738,661 1,652,969 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 270,779 263,610 Deferred charges and other 294,038 187,084 ------------------ ------------------ 564,817 450,694 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Total assets $6,733,766 $6,075,683 ================== ================== - ---------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Continued) December 31, CAPITALIZATION AND LIABILITIES 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $790 $790 Additional paid-in capital 947,504 942,408 Retained earnings 818,162 577,464 Accumulated other comprehensive income 271,867 634,903 Shares in deferred compensation trust (851) - ---------------------- ---------------------- Total common equity 2,037,472 2,155,565 ---------------------- ---------------------- Cumulative preferred stock of subsidiaries, net 113,790 113,638 Long-term debt (excluding current portion) 1,910,116 1,486,765 ---------------------- ---------------------- 4,061,378 3,755,968 ---------------------- ---------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 92,477 54,795 Variable rate demand bonds 55,100 55,100 Commercial paper 283,885 374,673 Notes payable 50,067 50,046 Other short-term borrowings 110,783 - Accounts payable 296,959 191,149 Accrued taxes 87,484 78,825 Other 177,580 129,037 ---------------------- ---------------------- 1,154,335 933,625 ---------------------- ---------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 931,675 1,018,482 Accumulated deferred investment tax credits 67,364 71,857 Derivative liability 181,925 - Environmental liabilities 64,532 65,327 Pension and other benefit obligations 65,399 61,988 Other 207,158 168,436 ---------------------- ---------------------- 1,518,053 1,386,090 ---------------------- ---------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 11) - ----------------------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $6,733,766 $6,075,683 ====================== ====================== - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Cash flows from operating activities: Net income $398,662 $196,581 $96,675 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 322,334 279,088 279,505 Amortization of nuclear fuel 18,933 17,494 17,869 Amortization of deferred energy efficiency expenditures 25,609 25,435 27,083 Deferred tax expense (benefits) and investment tax (credits) 115,045 (16,258) (27,720) Gains on dispositions of assets, net (43,148) (61,667) (6,505) Equity (income) loss from unconsolidated investments, net (19,138) (3,008) 1,339 Gain on reclassification of investments (321,349) - - Cumulative effect of a change in accounting principle, net of tax (16,708) - - Impairment of oil and gas properties - 3,276 9,678 Impairment of regulatory assets - - 8,969 Other (1,114) (1,240) (2,451) Other changes in assets and liabilities: Accounts receivable (147,812) (16,407) 15,349 Gas stored underground (18,208) 2,862 6,351 Accounts payable 105,810 (13,148) 11,663 Benefit obligations and other 12,933 10,121 29,957 -------------- ------------------ ------------------ Net cash flows from operating activities 431,849 423,129 467,762 -------------- ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from (used for) financing activities: Common stock dividends declared (157,964) (156,489) (140,679) Dividends payable (167) 13 (15,458) Proceeds from issuance of common stock 1,069 36,491 33,832 Net change in Resources' credit facility 181,652 (113,657) 70,492 Proceeds from issuance of exchangeable senior notes 402,500 - - Proceeds from issuance of other long-term debt 121,525 281,299 77,544 Reductions in other long-term debt (64,837) (95,520) (27,663) Net change in other short-term borrowings 156,990 169,587 (40,216) Other (31,077) (18,631) (15,583) -------------- ------------------ ------------------ Net cash flows from (used for) financing activities 609,691 103,093 (57,731) -------------- ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows used for investing activities: Construction and acquisition expenditures: Utility (304,656) (285,668) (269,133) Non-regulated businesses and other (761,808) (192,905) (102,925) Nuclear decommissioning trust funds (22,100) (22,100) (20,305) Proceeds from dispositions of assets 111,509 93,443 16,677 Other (29,739) (37,150) (29,847) -------------- ------------------ ------------------ Net cash flows used for investing activities (1,006,794) (444,380) (405,533) -------------- ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in cash and temporary cash investments 34,746 81,842 4,498 -------------- ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at beginning of period 113,669 31,827 27,329 -------------- ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at end of period $148,415 $113,669 $31,827 ============== ================== ================== - ------------------------------------------------------------------------------------------------------------------------------------ Supplemental cash flow information: Cash paid during the period for: Interest $163,728 $130,214 $126,376 ============== ================== ================== Income taxes $116,895 $141,150 $84,916 ============== ================== ================== Noncash investing and financing activities: Capital lease obligations incurred $20,419 $25,040 $1,426 ============== ================== ================== - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------------ (in thousands, except share amounts) Common equity: Common stock - $.01 par value - authorized 200,000,000 shares; outstanding 79,010,114 and 78,984,014 shares, respectively $790 $790 Additional paid-in capital 947,504 942,408 Retained earnings 818,162 577,464 Accumulated other comprehensive income 271,867 634,903 Shares in deferred compensation trust - 28,825 shares at an average cost of $29.52 per share (851) - ----------------- ----------------- Total common equity 2,037,472 2,155,565 ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------ Cumulative preferred stock of subsidiaries, net (Note 7(b)) 113,790 113,638 ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------ Long-term debt: First Mortgage Bonds: 4.75% variable rate at December 31, 1999, retired in 2000 - 1,875 8-5/8% to 9-1/8%, due 2001 81,000 81,000 7.75%, due 2004 62,000 62,000 4.85% variable rate at December 31, 2000 to 7.6%, due 2005 88,000 88,000 7-1/4% to 8%, due 2007 55,000 55,000 5% variable rate at December 31, 2000, due 2014 8,500 8,500 4.85% to 5.15% variable rate at December 31, 2000, due 2015 30,600 30,600 8-5/8%, due 2021 25,000 25,000 7-5/8%, due 2023 94,000 94,000 9.3%, due 2025 27,000 27,000 8.6%, due 2027 90,000 90,000 ----------------- ----------------- 561,100 562,975 Collateral Trust Bonds: 7.65%, retired in 2000 - 50,000 7.25%, due 2006 60,000 60,000 6-7/8%, due 2007 55,000 55,000 6%, due 2008 50,000 50,000 5.5% to 7.0%, due 2023 69,400 69,400 ----------------- ----------------- 234,400 284,400 Pollution Control Revenue Bonds: 5.45% to 5.75%, retired in 2000 - 1,196 5.75%, due 2001 to 2002 1,120 1,120 5.10% to 5.75% at December 31, 2000, due 2003 5,080 5,080 4.3% through 2003, due 2005 to 2008 4,950 4,950 6.25%, due 2009 1,000 1,000 4.05% through 2004 to 6.30% at December 31, 2000, due 2010 16,550 16,550 6.35%, due 2012 5,650 5,650 4.2% through 2004, due 2013 7,700 7,700 4.25% through 2003, due 2023 10,000 10,000 ----------------- ----------------- 52,050 53,246 Other long-term debt: Credit facility (6.37% to 6.65% at December 31, 2000) 320,500 - Debentures, 5.7% to 7.0%, due 2007 to 2008 165,000 165,000 Senior Debentures, 6-5/8% to 7-5/8%, due 2009 to 2010 235,000 135,000 Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000 Senior notes, 7-3/8% to 8.59%, due 2004 to 2009 274,000 274,000 Exchangeable senior notes, 7.25% through 2003, 2.5% thereafter, due 2030 402,500 - Multifamily Housing Revenue Bonds, 5.05% to 7.55%, due 2001 to 2036 33,366 34,095 Other, 0% to 11%, due 2001 to 2045 71,793 45,926 ----------------- ----------------- 2,399,709 1,604,642 ----------------- ----------------- Less: Current maturities (92,477) (54,795) Variable rate demand bonds (55,100) (55,100) Unamortized debt premium and (discount), net (342,016) (7,982) ----------------- ----------------- Total long-term debt (excluding current portion) 1,910,116 1,486,765 ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------ Total capitalization $4,061,378 $3,755,968 ================= ================= - ------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Shares in Additional Other Deferred Total Common Paid-In Retained Comprehensive Compensation Common Stock Capital Earnings Income (Loss) Trust Equity - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1998: Beginning balance (a) $765 $868,903 $581,376 $173,512 $- $1,624,556 Comprehensive income: Net income 96,675 96,675 Other comprehensive income (loss): Unrealized losses on securities, net of tax (b) (4,589) (4,589) Foreign currency translation adjustments (7,062) (7,062) Minimum pension liability adjustment, net of tax of $808 1,156 1,156 ----------- Total comprehensive income 86,180 Common stock dividends (140,679) (140,679) Common stock issued 11 36,263 36,274 Treasury stock (36) (36) ----------- ----------- ----------- ------------- ------------- ----------- Ending balance 776 905,130 537,372 163,017 - 1,606,295 1999: Comprehensive income: Net income 196,581 196,581 Other comprehensive income (loss): Unrealized gains on securities: Unrealized holding gains arising during period, net of tax (b) 499,668 499,668 Less: reclassification adjustmentfor gains included in net income, net of tax of $14,986 25,286 25,286 ------------- ----------- Net unrealized gains on securities 474,382 474,382 ------------- ----------- Foreign currency translation adjustments (2,496) (2,496) ------------- ----------- Total comprehensive income 668,467 Common stock dividends (156,489) (156,489) Common stock issued 14 37,278 37,292 ----------- ----------- ----------- ------------- ------------- ----------- Ending balance 790 942,408 577,464 634,903 - 2,155,565 2000: Comprehensive income: Net income 398,662 398,662 Other comprehensive income (loss): Unrealized losses on securities: Unrealized holding losses arising during period, net of tax (b) (105,292) (105,292) Less: adjustment for gain on reclassification of investments included in net income, net of tax of $134,053 187,296 187,296 Less: reclassification adjustment for other gains included in net income, net of tax of $8,426 16,370 16,370 ------------- ----------- Net unrealized losses on securities (308,958) (308,958) ------------- ----------- Foreign currency translation adjustments (50,400) (50,400) ------------- ----------- Unrealized losses on derivatives qualified as hedges: Unrealized holding losses arising during period due to cumulative effect of a change in accounting principle, net of tax of ($4,693) (6,582) (6,582) Other unrealized holding losses arising during period, net of tax of ($2,560) (3,427) (3,427) Less: reclassification adjustment for losses included in net income, net of tax of ($4,502) (6,331) (6,331) ------------- ----------- Net unrealized losses on qualifying derivatives (3,678) (3,678) ------------- ----------- Total comprehensive income 35,626 Common stock dividends (157,964) (157,964) Common stock issued 5,096 (851) 4,245 ----------- ----------- ----------- ------------- ------------- ----------- Ending balance $790 $947,504 $818,162 $271,867 ($851) $2,037,472 =========== =========== =========== ============= ============= =========== (a)The beginning accumulated other comprehensive income (loss) balance was related to:1) $174,688 of unrealized gains on securities, net of tax; 2)($20)of foreign currency translation adjustments; and 3)($1,156) of minimum pension liability adjustment, net of tax. (b) Net of tax expense (benefit) of ($3,218), $351,314, and ($77,853) in 1998, 1999 and 2000, respectively. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-57- ALLIANT ENERGY CORPORATION -------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The consolidated financial statements include the accounts of Alliant Energy and its consolidated subsidiaries. Alliant Energy is an investor-owned public utility holding company, whose primary subsidiaries are IESU, WP&L, IPC, Resources and Corporate Services. The utility subsidiaries are engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and water and steam services in Iowa, Wisconsin, Minnesota and Illinois. Resources (through its numerous direct and indirect subsidiaries) has established global partnerships to develop energy generation, delivery and infrastructure in growing international markets. Resources also has domestic businesses including oil and gas operations, energy trading partnerships, energy and environmental services, transportation services and affordable housing companies. Corporate Services is the subsidiary formed to provide administrative services to Alliant Energy and its subsidiaries as required under PUHCA. The consolidated financial statements reflect investments in controlled subsidiaries on a consolidated basis. All significant intercompany balances and transactions, other than certain energy-related transactions affecting the utility subsidiaries, have been eliminated from the consolidated financial statements. Such energy-related transactions are made at prices that approximate market value and the associated costs are recoverable from customers through the rate making process. The financial statements are prepared in conformity with accounting principles generally accepted in the U.S., which give recognition to the rate making and accounting practices of FERC and state commissions having regulatory jurisdiction. The preparation of the financial statements requires management to make estimates and assumptions that affect: a) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements; and b) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Unconsolidated investments for which Alliant Energy has at least a 20 percent non-controlling voting interest are generally accounted for under the equity method of accounting. These investments are stated at acquisition cost, increased or decreased for Alliant Energy's equity in net income or loss, which is included in "Miscellaneous, net" in the Consolidated Statements of Income and decreased for any dividends received. Investments that do not meet the criteria for consolidation or the equity method of accounting are accounted for under the cost method. Certain prior period amounts have been reclassified on a basis consistent with the current year presentation. The 1999 "Non-regulated and other" revenues and "Other operation and maintenance" expenses have been reclassified in accordance with EITF 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent," which was adopted in the fourth quarter of 2000. Such reclassifications had no impact on net income. (b) Regulation - Alliant Energy is a registered public utility holding company subject to regulation by the SEC under PUHCA. The utility subsidiaries are subject to regulation by FERC and their respective state regulatory commissions (IUB, PSCW, MPUC and ICC). (c) Regulatory Assets - Alliant Energy is subject to the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation," which provides that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for non-regulated entities. These are deferred as regulatory assets or accrued as regulatory liabilities and are recognized in the Consolidated Statements of Income at the time they are reflected in rates. At December 31, 2000 and 1999, regulatory assets of $300.1 million and $297.0 million, respectively, were comprised of the following items (in millions): -58- 2000 1999 ------ ------- Tax-related (Note 1(d)) $154.2 $156.1 Environmental liabilities (Note 11(e)) 66.8 67.2 Energy efficiency program costs 51.6 53.1 Other 27.5 20.6 ------ ------- $300.1 $297.0 ====== ======= If a portion of the utility subsidiaries' operations becomes no longer subject to the provisions of SFAS 71 as a result of competitive restructuring or otherwise, a write-down of related regulatory assets 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, each utility subsidiary would be required to determine any impairment of other assets and write-down such assets to their fair value. (d) Income Taxes - Alliant Energy follows the liability method of accounting for deferred income taxes, which requires the establishment of deferred tax assets and liabilities, as appropriate, for all temporary differences between the tax basis of assets and liabilities and the amounts reported in the financial statements. Deferred taxes are recorded using currently enacted tax rates. Except as noted below, income tax expense includes provisions for deferred taxes to reflect the tax effects of temporary differences between the time when certain costs are recorded in the accounts and when they are deducted for tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes are reversed to income. Investment tax credits have been deferred and are subsequently credited to income over the average lives of the related property. As part of the affordable housing and oil and gas production businesses, Alliant Energy is eligible to claim certain tax credits. Consistent with Iowa rate making practices for IESU and IPC, deferred tax expense is not recorded for certain temporary differences (primarily related to utility property, plant and equipment). As the deferred taxes become payable (over periods exceeding 30 years for some generating plant differences) they are recovered through rates. Accordingly, IESU and IPC have recorded deferred tax liabilities and regulatory assets for certain temporary differences, as identified in Note 1(c). In Wisconsin, the PSCW has allowed rate recovery of deferred taxes on all temporary differences since August 1991. WP&L established a regulatory asset associated with those temporary differences occurring prior to August 1991 that will be recovered in future rates. (e) Common Shares Outstanding - Weighted average common shares outstanding used to calculate basic and diluted earnings per share for 2000, 1999 and 1998 were as follows:
Weighted Average 2000 1999 1998 - ----------------------------------------------------------------------- --------------- --------------- --------------- Common shares outstanding - basic earnings per share calculation 79,002,643 78,352,186 76,912,219 Effect of dilutive securities 190,134 42,961 16,412 Common shares - diluted earnings per share calculation 79,192,777 78,395,147 76,928,631
In 2000, 1999 and 1998, 1,358,597, 1,275,355 and 151,803 options, respectively, to purchase shares of common stock, with average exercise prices of $30.27, $30.55 and $31.48, respectively, were excluded from the calculation of diluted earnings per share as the exercise prices were greater than the average market price. (f) Temporary Cash Investments - Temporary cash investments are stated at cost, which approximates market value, and are considered cash equivalents for the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows. These investments consist of short-term liquid investments that have maturities of less than 90 days from the date of acquisition. -59- (g) Depreciation of Utility Property, Plant and Equipment - The utility subsidiaries use a combination of remaining life and straight-line depreciation methods as approved by their respective regulatory commissions. The remaining life of DAEC, of which IESU is a co-owner, is based on the NRC license end-of-life of 2014. The remaining life of Kewaunee, of which WP&L is a co-owner, is based on the PSCW approved revised end-of-life of 2010. Depreciation expense related to the decommissioning of DAEC and Kewaunee is discussed in Note 11(f). The average rates of depreciation for electric and gas properties, consistent with current rate making practices, were as follows:
IESU WP&L IPC ------------------------------------- ---------------------------------------- ------------------------------------ 2000 1999 1998 2000 1999 1998 2000 1999 1998 ---------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ ---------- Electric 3.5% 3.5% 3.5% 3.6% 3.6% 3.6% 3.5% 3.6% 3.6% Gas 3.5% 3.5% 3.5% 4.1% 3.9% 3.8% 3.6% 3.6% 3.4%
(h) Property, Plant and Equipment - Utility plant (other than acquisition adjustments) is recorded at original cost, which includes overhead and administrative costs and AFUDC. At December 31, 2000 and 1999, IESU had $24.4 million and $25.6 million, respectively, of acquisition adjustments, net of accumulated amortization, included in utility plant ($5.5 million and $5.7 million, respectively, of such balances are currently being recovered in IESU's rates). The aggregate gross AFUDC recovery rates, computed in accordance with the prescribed regulatory formula, were as follows:
2000 1999 1998 ------------------ ------------------- ------------------- IESU 6.6% 7.9% 8.9% WP&L 10.8% 5.4% 5.2% IPC 6.5% 5.3% 7.0%
Other property, plant and equipment is recorded at original cost. Upon retirement or sale of other property and equipment, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in "Miscellaneous, net" in the Consolidated Statements of Income. Ordinary retirements of utility plant, including removal costs less salvage value, are charged to accumulated depreciation upon removal from utility plant accounts and no gain or loss is recognized. (i) Operating Revenues - Alliant Energy accrues revenues for services rendered but unbilled at month-end. In 2000 and 1999, Alliant Energy recorded increases of $10 million (WP&L) and $9 million (IESU and IPC), respectively, in the estimate of utility services rendered but unbilled at month-end due to the implementation of refined estimation processes. (j) Utility Fuel Cost Recovery - IESU's and IPC's tariffs provide for subsequent adjustments to their electric and natural gas rates for changes in the cost of fuel, purchased energy and natural gas purchased for resale. Changes in the under/over collection of these costs are reflected in "Electric and steam production fuels" and "Cost of utility gas sold" in the Consolidated Statements of Income. The cumulative effects are reflected on the Consolidated Balance Sheets as a current asset or current liability, pending automatic reflection in future billings to customers. At IESU and IPC, purchased-power capacity costs are not recovered from electric customers through EACs. Recovery of these costs must be addressed in base rates in a formal rate proceeding. WP&L's retail electric rates are based in part on forecasted fuel and purchased-power costs. Under PSCW rules, WP&L can seek emergency rate increases if the annual costs are more than 3 percent higher than the estimated costs used to establish rates. WP&L has a gas performance incentive which includes a sharing mechanism whereby 40 percent of all gains and losses relative to current commodity prices, as well as other benchmarks, are retained by WP&L, with the remainder refunded to or recovered from customers. -60- (k) Nuclear Refueling Outage Costs - The IUB allows IESU to collect, as part of its base revenues, funds to offset other operation and maintenance expenditures incurred during refueling outages at DAEC. As these revenues are collected, an equivalent amount is charged to other operation and maintenance expense with a corresponding credit to a reserve. During a refueling outage, the reserve is reversed to offset the refueling outage expenditures. Operating expenses incurred during refueling outages at Kewaunee are expensed by WP&L as incurred. The next scheduled refueling outages at DAEC and Kewaunee are anticipated to commence in Spring 2001 and Fall 2001, respectively. (l) Nuclear Fuel - Nuclear fuel for DAEC is leased. Annual nuclear fuel lease expenses include the cost of fuel, based on the quantity of heat produced for the generation of electricity, plus the lessor's interest costs related to fuel in the reactor and administrative expenses. Nuclear fuel for Kewaunee is recorded at its original cost and is amortized to expense based upon the quantity of heat produced for the generation of electricity. This accumulated amortization assumes spent nuclear fuel will have no residual value. Estimated future disposal costs of such fuel are expensed based on kilowatt-hours generated. (m) Translation of Foreign Currency - Assets and liabilities of international investments, where the local currency is the functional currency, have been translated at year-end exchange rates and related income statement results have been translated using average exchange rates prevailing during the year. Adjustments resulting from translation have been recorded in other comprehensive income. (n) Derivative Financial Instruments - Alliant Energy uses derivative financial instruments to hedge exposures to fluctuations in interest rates, certain commodity prices and volatility in a portion of natural gas sales volumes due to weather. Alliant Energy also utilizes derivatives to mitigate the equity price volatility associated with certain investments in equity securities. Alliant Energy does not use such instruments for speculative purposes. In accordance with SFAS 133, as amended by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of SFAS 133," the fair value of all derivatives are recorded as assets or liabilities on the Consolidated Balance Sheets and gains and losses related to derivatives that are designated as, and qualify as hedges, are recognized in earnings when the underlying hedged item or physical transaction is recognized in income. Gains and losses related to derivatives that do not qualify for, or are not designated in hedge relationships, are recognized in earnings immediately. Alliant Energy has a number of commodity purchase and sales contracts for both capacity and energy that have been designated, and qualify for, the normal purchase and sale exception in SFAS 138. Based on this designation, these contracts are not accounted for as derivative instruments. Alliant Energy is exposed to losses related to financial instruments in the event of counterparties' nonperformance. Alliant Energy has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate its exposure to counterparty credit risk. Alliant Energy is not aware of any counterparties that will fail to meet their obligations. Refer to Note 10 for further discussion of Alliant Energy's derivative financial instruments. (2) MERGER In April 1998, IES, WPLH and IPC completed a merger resulting in Alliant Energy. The merger was accounted for as a pooling of interests and the accompanying Consolidated Financial Statements, along with the related notes, are presented as if the companies were combined as of the earliest period presented. In association with the merger, Alliant Energy eliminated 167 positions in 1998 and recorded $15 million of expenses during 1998 in "Other operation and maintenance" expense related to the employee separation benefits to be paid to the impacted employees. The bulk of the positions eliminated were administrative in nature and resulted from no longer needing certain duplicative positions given the consolidation of the three companies. The departure dates for the impacted employees varied based on the need for their services during the transition period as well as certain other factors. The balance of the accrual at December 31, 2000 and 1999 was $0 and $1.0 million, respectively. As of December 31, 1999, all of the terminated employees had actually left the organization. The balance remaining in the accrued liability at December 31, 1999 related to payments to certain terminated executives -61- that were being paid out over an 18 to 36 month period pursuant to the terms of their respective severance agreements. The only significant adjustments made to the liability after the initial accrual were to reflect the actual payments of the employee separation benefits. In association with the merger, Alliant Energy entered into a three-year consulting agreement, which expires in the second quarter of 2001, with Wayne Stoppelmoor, the Chief Executive Officer of IPC prior to the consummation of the merger. Under the terms of the agreement, Mr. Stoppelmoor, who was also Vice Chairman of Alliant Energy's Board of Directors until April 2000, receives annual fees of $324,500, $324,500 and $200,000 for his services during the respective periods of the agreement. (3) LEASES IESU has a capital lease covering its 70 percent undivided interest in nuclear fuel purchased for DAEC. Annual nuclear fuel lease expenses (included in "Electric and steam production fuels" in the Consolidated Statements of Income) for 2000, 1999 and 1998 were $16.0 million, $12.7 million and $14.2 million, respectively. Alliant Energy's operating lease rental expenses for 2000, 1999 and 1998 were $25.2 million, $24.6 million and $21.6 million, respectively. Alliant Energy's future minimum lease payments are as follows (in millions):
Less: amount Present value of representing net minimum capital 2001 2002 2003 2004 2005 Thereafter Total interest lease payments --------- ---------- --------- --------- ---------- ------------- ----------- ----------------- ----------------- Operating leases $29.8 $33.3 $31.9 $29.6 $26.7 $99.4 $250.7 N/A N/A Capital leases 18.2 12.4 7.9 7.3 3.3 3.2 52.3 $6.2 $46.1
(4) UTILITY ACCOUNTS RECEIVABLE Utility customer accounts receivable, including unbilled revenues, arise primarily from the sale of electricity and natural gas. At December 31, 2000 and 1999, the utility subsidiaries were serving a diversified base of residential, commercial and industrial customers and did not have any significant concentrations of credit risk. Similar accounts receivable financing arrangements exist through 2001 for IESU and WP&L, in which they may sell up to a combined maximum amount of $215 million of accounts receivable to a financial institution on a limited recourse basis. Accounts receivable sold include receivables arising from sales to customers and to other public, municipal and cooperative utilities, as well as from billings to the co-owners of the jointly-owned electric generating plants operated by IESU and WP&L. Alliant Energy receives a fee for billing and collection functions, which remain the responsibility of the respective utilities, that approximates fair value. In 2000, 1999 and 1998, Alliant Energy received approximately $1.6 billion, $1.5 billion and $1.8 billion, respectively, in aggregate proceeds from these facilities. IESU and WP&L use proceeds from the sale of accounts receivable and unbilled revenues to finance a portion of their long-term cash needs. Included in the Consolidated Statements of Income for 2000, 1999 and 1998, were fees associated with these sales of $9.0 million, $7.1 million and $8.7 million, respectively. -62- (5) INCOME TAXES The components of federal and state income taxes for Alliant Energy for the years ended December 31 were as follows (in millions): 2000 1999 1998 --------- -------- -------- Current tax expense $136.9 $146.1 $95.0 Deferred tax expense (benefit) 119.5 (10.8) (22.2) Amortization of investment tax credits (4.5) (5.5) (5.6) Affordable housing tax credits (6.9) (5.9) (6.6) Oil, gas and alternative fuel credits (6.2) (3.4) (2.5) --------- -------- -------- $238.8 $120.5 $58.1 ========= ======== ======== Included in "Cumulative effect of a change in accounting principle, net of tax" in the Consolidated Statements of Income is $9.8 million of income tax expense related to the adoption of SFAS 133 on July 1, 2000. The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes and preferred dividend requirements of subsidiaries.
2000 1999 1998 ---------------- ---------------- --------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 6.7 6.4 8.0 Affordable housing tax credits (1.1) (1.9) (4.1) Amortization of investment tax credits (0.9) (1.7) (3.4) Adjustment of prior period taxes (1.0) (1.7) (0.4) Merger expenses -- -- 2.4 Oil, gas and alternative fuel credits (1.0) (1.0) (1.6) Property donation -- (0.3) (1.5) Effect of rate making on property related differences 0.8 2.2 1.8 Other items, net (0.4) 0.2 (0.2) ---------------- ---------------- --------------- Overall effective income tax rate 38.1% 37.2% 36.0% ================ ================ ===============
The accumulated deferred income tax (assets) and liabilities included on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 2000 1999 -------- --------- Property related $673.6 $669.5 McLeod investment 318.5 455.1 Other (60.4) (106.1) -------- --------- $931.7 $1,018.5 ======== ========= As of December 31, 2000 and 1999, Alliant Energy had not recorded U.S. tax provisions of approximately $4.4 million and $1.4 million, respectively, relating to approximately $12.6 million and $4.1 million, respectively, of unremitted earnings from foreign investments as these earnings are expected to be reinvested indefinitely. (6) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - Alliant Energy has several non-contributory defined benefit pension plans that cover substantially all of its employees. Benefits are based on the employees' years of service and compensation. Alliant Energy also provides certain postretirement health care and life benefits to eligible retirees. In general, the health care plans are contributory with participants' contributions adjusted annually and the life insurance plans are non-contributory. -63- The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------------- ------------------------------------------ 2000 1999 1998 2000 1999 1998 ------------ --------------- ------------ ------------ ------------- ------------- Discount rate 8.00% 7.75% 6.75% 8.00% 7.75% 6.75% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5-4.5% 3.5-4.5% 3.5-4.5% 3.5% 3.5% 3.5% Medical cost trend on covered charges: Initial trend range N/A N/A N/A 9% 7% 8% Ultimate trend range N/A N/A N/A 5% 5% 5-6%
The components of Alliant Energy's qualified pension benefits and other postretirement benefits costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------------- ---------------------------------------- 2000 1999 1998 2000 1999 1998 ------------- ------------ ---------- ---------- ---------- ---------- Service cost $11.1 $12.8 $13.8 $3.7 $5.5 $5.1 Interest cost 36.7 35.6 35.4 9.8 10.4 9.7 Expected return on plan assets (45.7) (46.2) (47.2) (5.3) (5.0) (3.7) Amortization of: Transition obligation (asset) (2.4) (2.4) (2.4) 3.9 4.3 4.7 Prior service cost 2.6 2.5 2.8 (0.3) (0.3) (0.3) Actuarial loss (gain) (1.0) 0.2 (0.9) (1.9) (0.8) (1.2) ------------- ------------ ---------- ---------- ---------- ---------- Total $1.3 $2.5 $1.5 $9.9 $14.1 $14.3 ============= ============ ========== ========== ========== ==========
During 1998, Alliant Energy recognized an additional $10.3 million of costs in accordance with SFAS 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," for severance and early retirement programs. In addition, during 1999 and 1998, Alliant Energy recognized $0.5 million and $10.2 million, respectively, of curtailment charges relating to Alliant Energy's other postretirement benefits. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 2000, holding all other assumptions constant, would have the following effects (in millions):
1 Percent 1 Percent Increase Decrease ------------- ------------- Effect on total of service and interest cost components $1.6 ($1.4) Effect on postretirement benefit obligation $11.4 ($10.3)
-64- A reconciliation of the funded status of Alliant Energy's plans to the amounts recognized on Alliant Energy's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits ---------------------------------- -------------------------------------- 2000 1999 2000 1999 -------------- --------------- ---------------- ----------------- Change in benefit obligation: Net benefit obligation at beginning of year $481.0 $528.4 $127.8 $153.3 Service cost 11.1 12.8 3.7 5.5 Interest cost 36.7 35.6 9.8 10.4 Plan participants' contributions -- -- 1.6 1.5 Plan amendments 3.6 -- (3.8) (2.5) Actuarial loss (gain) (13.8) (60.7) 2.4 (29.9) Curtailments -- -- -- (0.3) Gross benefits paid (35.0) (35.1) (10.8) (10.2) -------------- --------------- ---------------- ----------------- Net benefit obligation at end of year 483.6 481.0 130.7 127.8 -------------- --------------- ---------------- ----------------- Change in plan assets: Fair value of plan assets at beginning of year 525.9 506.3 68.3 55.1 Actual return on plan assets 63.1 54.7 8.7 8.2 Employer contributions 2.3 -- 15.2 13.6 Plan participants' contributions -- -- 1.6 1.6 Gross benefits paid (35.0) (35.1) (10.8) (10.2) -------------- --------------- ---------------- ----------------- Fair value of plan assets at end of year 556.3 525.9 83.0 68.3 -------------- --------------- ---------------- ----------------- Funded status at end of year 72.7 44.9 (47.7) (59.5) Unrecognized net actuarial gain (69.2) (39.0) (38.3) (39.3) Unrecognized prior service cost 24.2 23.2 (1.2) (1.5) Unrecognized net transition obligation (asset) (5.8) (8.2) 44.8 52.4 -------------- --------------- ---------------- ----------------- Net amount recognized at end of year $21.9 $20.9 ($42.4) ($47.9) ============== =============== ================ ================= Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $41.8 $39.1 $1.6 $0.6 Accrued benefit cost (19.9) (18.2) (44.0) (48.5) -------------- --------------- ---------------- ----------------- Net amount recognized at measurement date 21.9 20.9 (42.4) (47.9) -------------- --------------- ---------------- ----------------- Contributions paid after 9/30 and prior to 12/31 -- -- 1.5 6.9 -------------- --------------- ---------------- ----------------- Net amount recognized at 12/31 $21.9 $20.9 ($40.9) ($41.0) ============== =============== ================ =================
The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $124.5 million and $73.2 million, respectively, as of September 30, 2000 and $121.3 million and $58.7 million, respectively, as of September 30, 1999. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with benefit obligations in excess of plan assets were $231.4 million, $225.9 million and $219.8 million, respectively, as of September 30, 1999. As of September 30, 2000, there were no pension plans with benefit obligations in excess of plan assets. Alliant Energy sponsors several non-qualified pension plans that cover certain current and former officers. At December 31, 2000 and 1999, the funded balances of such plans totaled approximately $5 million. Alliant Energy's pension benefit obligation under these plans was $26.2 million and $28.0 million at December 31, 2000 and 1999, respectively. Alliant Energy's pension expense under these plans was $3.6 million, $2.5 million, and $4.5 million in 2000, 1999 and 1998, respectively. -65- In 2000, Alliant Energy revised its deferred compensation plans allowing certain key employees and directors to defer payment of part or all of their current compensation in that participants can now elect to allocate their deferred compensation among a company stock account or an interest account, which are held in grantor trusts. At December 31, 2000, the value of the trusts totaled approximately $1 million. A significant number of Alliant Energy employees also participate in defined contribution pension plans (401(k) plans). Alliant Energy's contributions to the plans, which are based on the participants' level of contribution, were $8.1 million, $7.4 million, and $7.7 million in 2000, 1999 and 1998, respectively. (b) Long-Term Equity Incentive Plan - Alliant Energy has a long-term equity incentive plan that permits the grant of non-qualified stock options, incentive stock options, restricted stock, performance shares and performance units to key employees. As of December 31, 2000, non-qualified stock options, restricted stock, performance shares and performance units had been granted. The maximum number of shares of Alliant Energy common stock that may be issued under the plan is 3.8 million. Options granted to date under the plan were granted at the fair market value of the shares on the date of grant, vest over three years and expire no later than 10 years after the grant date with the exception of participants that retire. Options become fully vested upon retirement and remain exercisable at any time prior to their expiration date, or for three years after the effective date of the retirement, whichever period is shorter. Participants' options that are not vested become forfeited when participants leave Alliant Energy and their vested options expire after three months. A summary of the stock option activity for 2000, 1999 and 1998 is as follows:
2000 1999 1998 ----------------------------- ----------------------------- ---------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------------------- ----------------------------- ---------------------------- Outstanding at beginning of year 1,543,028 $30.32 751,084 $30.83 191,800 $28.98 Options granted 899,094 28.59 824,564 29.88 636,451 31.32 Options exercised (15,486) 30.03 -- -- (8,900) 28.59 Options forfeited (160,774) 29.90 (32,620) 30.55 (68,267) 30.49 ----------------------------- ----------------------------- ---------------------------- Outstanding at end of year 2,265,862 $29.67 1,543,028 $30.32 751,084 $30.83 ============================= ============================= ============================ Exercisable at end of year 962,073 $30.12 333,782 $30.80 38,250 $27.50
The range of exercise prices for the options outstanding at December 31, 2000 was $27.50 to $31.56. The value of the options using the Black-Scholes pricing method was as follows:
2000 1999 1998 -------------- --------------- -------------- Value of options based on Black-Scholes model $7.71 $4.71 $4.93 Volatility 32.7% 20.2% 21% Risk free interest rate 5.7% 5.8% 5.8% Expected life 10 years 10 years 10 years Expected dividend yield 6.3% 6.7% 7.0%
Alliant Energy follows APB 25, "Accounting for Stock Issued to Employees," to account for stock options. No compensation cost is recognized because the option exercise price is equal to the market price of the underlying stock on the date of grant. Had compensation cost for the plan been determined based on the Black-Scholes value at the grant dates for awards as prescribed by SFAS 123 "Accounting for Stock-Based Compensation," pro forma net income and earnings per share would have been: -66-
2000 1999 1998 ------------- ------------- ------------- Pro forma net income (in millions) $391.7 $192.7 $93.5 Pro forma earnings per share (basic) 4.96 2.46 1.22 Pro forma earnings per share (diluted) 4.95 2.46 1.22
In 1999, 65,752 shares of restricted stock with a three-year restriction period were awarded, 62,490 of which were outstanding at December 31, 2000. Any unvested shares of restricted stock become fully vested upon retirement. Participants' unvested restricted stock becomes forfeited when the participant leaves Alliant Energy. Compensation cost, which is recognized over the three-year restriction period, was $0.6 million and $0.4 million in 2000 and 1999, respectively. The payout to key employees of Corporate Services for performance shares is contingent upon achievement over a three-year period of specified earnings per share growth and specified levels of total return to shareowners of Alliant Energy compared with an investor-owned utility peer group. The payout to key employees of Resources for performance shares is contingent upon achievement over a three-year period of specified earnings per share growth. Performance shares are paid out in shares of Alliant Energy's common stock or a combination of cash and stock and are modified by a performance multiplier, which ranges from 0 to 2, based on the three-year average performance criteria. Performance shares have an intrinsic value equal to the market price of a share on the date of grant. Prior to 1998, performance units had been granted which represent accumulated dividends on the shares underlying the non-qualified stock options based on the annual dividend rate at the grant date. As of December 31, 2000, there were no performance units outstanding. Pursuant to APB 25, Alliant Energy accrues expenses for performance shares and performance units over the three-year period the services are performed and recognized $0.4 million, $1.6 million and $0.2 million of expense in 2000, 1999 and 1998, respectively. (7) COMMON AND PREFERRED STOCK (a) Common Stock - During 2000, 1999 and 1998, Alliant Energy issued 26,100 shares; 1,353,971 shares and 890,035 shares, respectively, of common stock under its various stock plans. In addition, 260,039 shares were issued in 1998 in connection with the acquisition of oil and gas properties. Pursuant to the Shareowner Direct Plan, beginning in January 2000, Alliant Energy obtained shares of Alliant Energy common stock on the open market, rather than through original issue. At December 31, 2000 and 1999, Alliant Energy had a total of 5.0 million and 7.0 million shares, respectively, available for issuance pursuant to its Shareowner Direct Plan, LTEIP and 401(k) Savings Plan. Alliant Energy has a Shareowner Rights Plan whereby rights will be exercisable only if a person or group acquires, or announces a tender offer to acquire, 15 percent or more of Alliant Energy's common stock. Each right will initially entitle shareowners to buy one-half of one share of Alliant Energy's common stock. The rights will only be exercisable in multiples of two at an initial price of $95.00 per full share, subject to adjustment. If any shareowner acquires 15 percent or more of the outstanding common stock of Alliant Energy, each right (subject to limitations) will entitle its holder to purchase, at the right's then current exercise price, a number of common shares of Alliant Energy or of the acquirer having a market value at the time of twice the right's per full share exercise price. The Board of Directors is also authorized to reduce the 15 percent ownership threshold to not less than 10 percent. Alliant Energy's utility subsidiaries each have common stock dividend restrictions based on their respective bond indentures and articles of incorporation, and restrictions on the payment of common stock dividends commonly found with preferred stock. In addition, at IESU and IPC their ability to pay common stock dividends is restricted based on requirements associated with sinking funds. WP&L's common stock dividends are restricted to the extent that such dividend would reduce the common stock equity ratio to less than 25 percent. Also the PSCW ordered that it must approve the payment of dividends by WP&L to Alliant Energy 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 percent of total capitalization. The dividends paid by WP&L to Alliant Energy since the rate order was issued have not exceeded such level. -67- In 2000, 12 non-employee directors received up to $20,000 each in Alliant Energy common stock as part of the director's compensation program, for total of approximately $222,000. In 1999, matching contributions of $2,500 each were made to nine non-employee directors. (b) Preferred Stock - In 1993, IPC issued 545,000 shares of 6.40%, $50 par value preferred stock with a final redemption date of May 1, 2022. Under the provisions of the mandatory sinking fund, beginning in 2003, IPC is required to redeem annually $1.4 million, or 27,250 shares of the preferred stock. The carrying value of Alliant Energy's cumulative preferred stock at December 31, 2000 and 1999 was $114 million. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 2000 and 1999 was $90 million and $97 million, respectively. Information related to Alliant Energy's cumulative preferred stock of subsidiaries, net at December 31 was as follows:
2000 1999 -------------- --------------- (in thousands) Par/Stated Authorized Shares Mandatory Value Shares Outstanding Series Redemption $100 * 449,765 4.40% - 6.20% No $44,977 $44,977 $25 * 599,460 6.50% No 14,986 14,986 $50 466,406 366,406 4.30% - 6.10% No 18,320 18,320 $50 ** 216,381 4.36% - 7.76% No 10,819 10,819 $50 ** 545,000 6.40% $53.20 / share 27,250 27,250 -------------- --------------- 116,352 116,352 Less: unamortized expenses (2,562) (2,714) -------------- --------------- $113,790 $113,638 ============== ===============
* 3,750,000 authorized shares in total. ** 2,000,000 authorized shares in total. (8) DEBT (a) Short-Term Debt - To provide short-term borrowing flexibility and security for commercial paper outstanding, Alliant Energy and its subsidiaries maintain bank lines of credit, of which most require a fee. The utility subsidiaries participate in a utility money pool, which is funded, as needed, through the issuance of commercial paper by Alliant Energy. Interest expense and other fees are allocated based on borrowed amounts. The PSCW has restricted WP&L from lending money to non-utility affiliates and non-Wisconsin utilities. As a result, WP&L can only borrow money from the utility money pool. As of December 31, 2000, IESU, WP&L and IPC had money pool borrowings of $101.1 million, $29.2 million and $68.2 million, respectively. As of December 31, 1999, IESU, WP&L and IPC had money pool borrowings of $56.9 million, $125.7 million and $39.2 million, respectively. Information regarding short-term debt and lines of credit are as follows (dollars in millions):
2000 1999 1998 --------------- ----------------- ----------------- As of year end: Commercial paper outstanding $283.9 $374.7 $64.5 Discount rates on commercial paper 6.4-6.7% 5.6-6.5% 5.1-6.6% Notes payable outstanding $50.1 $50.0 $51.8 Interest rates on notes payable 6.5% 6.3% 5.4-7.0% For the year ended: Average amount of short-term debt (based on daily outstanding balances) $236.4 $185.9 $126.6 Average interest rate on short-term debt 6.5% 5.4% 5.6%
-68- (b) Long-Term Debt - IESU's indentures securing its First Mortgage Bonds and its Collateral Trust Bonds constitute direct first mortgage liens and a second lien while First Mortgage Bonds remain outstanding, respectively, upon substantially all tangible public utility property. Substantially all of WP&L's and IPC's utility plant is secured by their First Mortgage Bonds. WP&L and IESU also maintain unsecured indentures relating to the issuance of debt securities. Resources is party to a three-year credit agreement with various banking institutions that extends through October 2003, with one-year extensions available upon agreement by the parties. Unused borrowing availability under this agreement is also used to support Resources' commercial paper program. A combined maximum of $450 million of borrowings under this agreement and the commercial paper program may be outstanding at any one time. Interest rates are based on quoted market prices and maturities are set at the time of borrowing and are less than one year. At December 31, 2000, Resources had $321 million of commercial paper outstanding backed by this facility with interest rates ranging from 6.37%-6.65%. Resources intends to continue issuing commercial paper backed by this facility and no conditions existed at December 31, 2000 that would prevent the issuance of commercial paper or direct borrowings on its bank lines. In February 2000, Resources completed a private placement of $402.5 million of exchangeable senior notes due 2030, with a stated interest rate of 7.25% through February 2003 and 2.5% thereafter. The notes are exchangeable for cash based upon a percentage of the value of McLeod Class A Common Stock. Alliant Energy has agreed to fully and unconditionally guarantee the payment of principal and interest on the exchangeable senior notes. The proceeds were used to repay commercial paper issued to capitalize Resources' wholly-owned exempt telecommunications company and, indirectly through an internal transfer of assets, to assist in funding the January 2000 investment in Brazil, as well as for general corporate purposes. Debt maturities for 2001 to 2005 are $92.5 million, $3.8 million, $327.9 million, $89.4 million and $93.8 million, respectively. 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. The carrying value of Alliant Energy's long-term debt at December 31, 2000 and 1999 was $2.1 billion and $1.6 billion, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 2000 and 1999 was $2.4 billion and $1.6 billion, respectively. (9) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of Alliant Energy's current assets and current liabilities approximates fair value because of the short maturity of such financial instruments. Since the utility subsidiaries are subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of its financial instruments may not be realized by Alliant Energy's shareowners. Information relating to various investments held by Alliant Energy that are marked to market as a result of SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," were as follows (in millions): -69-
December 31, 2000 December 31, 1999 ------------------------------- ----------------------------- Net Unrealized Carrying/Fair Net Unrealized Carrying/Fair Gains/ Value Gains/ (Losses) Value (Losses) -------------- ---------------- ------------- --------------- Available-for-sale securities: Nuclear decommissioning trust funds: Equity securities $128 $50 $112 $57 Debt securities 180 3 159 (3) Total 308 53 271 54 Investment in McLeod 570 317 1,124 640 Investment in Capstone 41 20 -- -- Investments in New Zealand/Australia 10 (1) 97 4 Trading securities: Investment in McLeod 221 (a) -- --
(a) Adjustments to the trading securities are reflected in earnings in the "Miscellaneous, net" line in the Consolidated Statements of Income. Nuclear Decommissioning Trust Funds - As required by SFAS 115, IESU's and WP&L's debt and equity security investments in the nuclear decommissioning trust funds are classified as available-for-sale. As of December 31, 2000, $110 million, $24 million and $46 million of the debt securities mature in 2001-2010, 2011-2020 and 2021-2035, respectively. The fair market value of the nuclear decommissioning trust funds was as reported by the trustee, adjusted for the tax effect of unrealized gains and losses. Net unrealized holding gains were recorded as part of accumulated provision for depreciation. The funds realized gains/(losses) from the sales of securities of $5.0 million, ($7.9) million and $1.2 million in 2000, 1999 and 1998, respectively (cost of the investments based on specific identification were $213.4 million, $120.1 million and $71.9 million, respectively, and proceeds from the sales were $218.4 million, $112.2 million and $73.1 million, respectively). Investment in McLeod - At December 31, 2000 and 1999, Alliant Energy held beneficial ownership in 56.1 million and 57.4 million shares of common stock, respectively, (including 4.7 million and 7.8 million unexercised vested options, respectively) in McLeod, a telecommunications company. Alliant Energy had 40.5 million shares classified as available-for-sale and 15.6 million shares as trading at December 31, 2000. McLeod declared a 3-for-1 stock split effective April 2000 (the December 1999 shares have been adjusted for the split). The cost basis of the investment, including the cost to exercise the options, was $30.5 million and $30.7 million at December 31, 2000 and 1999, respectively. Pursuant to the provisions of SFAS 115, the carrying value of Alliant Energy's investment in McLeod is adjusted to the estimated fair value each quarter based on the closing price at the end of the quarter. Adjustments to the available-for-sale securities do not impact earnings as the unrealized gains or losses, net of taxes, are recorded directly to the common equity section of the Consolidated Balance Sheets as a component of "Accumulated other comprehensive income." In addition, any such gains or losses are reflected in current earnings only at the time they are realized through a sale. Adjustments to the trading securities are reflected in earnings in the "Miscellaneous, net" line in the Consolidated Statements of Income. Alliant Energy realized gains from the sales of McLeod available-for-sale securities of $23.8 million and $40.3 million in 2000 and 1999, respectively (cost of the investments based on the first-in-first-out method were $0.2 million and $0.6 million, respectively, and proceeds from the sales were $24.0 million and $40.9 million, respectively). Refer to Note 10(a) for information on the SFAS 133 impact of Alliant Energy's investment in McLeod. Alliant Energy's ability to sell the McLeod stock is subject to various restrictions. Alliant Energy has an agreement with McLeod which provides that until December 31, 2001, Alliant Energy and its affiliates generally may not sell or otherwise dispose of shares of McLeod stock beneficially owned by Alliant Energy and its affiliates, other than to a subsidiary of Alliant Energy, without the prior written consent of the Board of Directors of McLeod. However, the agreement provides that the -70- Board of Directors of McLeod may permit Alliant Energy and its affiliates to sell a specified number of shares of McLeod stock per quarter during specified time periods. In addition, if Alliant Energy and its affiliates are not provided the opportunity to sell, on an annual basis, an aggregate number of shares of McLeod stock equal to 15 percent of the shares of McLeod stock owned by Alliant Energy and its affiliates as of December 31, 1998, then Alliant Energy may terminate the agreement. Investments in Foreign Entities - At December 31, 2000 and 1999, Alliant Energy had investments in unconsolidated foreign entities that included investments in various New Zealand and Australian utility entities, various generation facilities in China and debentures of a development project in Mexico. Also at December 31, 2000, Alliant Energy had investments in various Brazilian utilities. At December 31, 2000, a portion of the New Zealand investments were accounted for under the cost method and the other unconsolidated equity investments were accounted for under the equity method. The carrying and fair values for the investments accounted for under SFAS 115 are listed in the previous table. Alliant Energy also had a generation investment of $50 million in China at December 31, 2000 that is consolidated. In January 2000, Resources acquired a non-controlling interest in four Brazilian electric utilities serving more than 820,000 customers for a total investment of approximately $347 million. As part of this investment, Resources acquired a 49.1 percent ownership interest in Companhia Forca E Luz Cataguazes-Leopoldina (Cataguazes), an electric utility. Cataguazes owns a majority stake in CENF, another electric utility company, as well as a majority interest in Energisa S.A., an energy development company. As part of the same investment, Resources directly acquired a 45.6 percent interest in Energisa S.A. itself, which holds majority stakes in two regulated utilities (Energipe and Celb). As part owner of Cataguazes, Resources holds both indirect and direct interests in Energisa S.A. The geographic concentration of Alliant Energy's unconsolidated foreign investments at December 31 was as follows (in millions): New Zealand Brazil /Australia China Mexico Other Total -------- --------------- ------- -------- ------- -------- 2000 $319 $140 $30 $18 $1 $508 1999 -- 125 62 10 1 198 (10) DERIVATIVE FINANCIAL INSTRUMENTS (a) Accounting for Derivative Instruments and Hedging Activities - Alliant Energy adopted SFAS 133 as of July 1, 2000. SFAS 133 requires that every derivative instrument be recorded on the balance sheet as an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS 133 requires that as of the date of initial adoption, the difference between the fair value of derivative instruments recorded on the balance sheet and the previous carrying amount of those derivatives be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle in accordance with APB 20, "Accounting Changes." In the third quarter of 2000, Alliant Energy recorded net income of $16.7 million for a cumulative effect of a change in accounting principle representing the impact of adopting SFAS 133 as of July 1, 2000. This transition adjustment was primarily the result of the difference between the carrying amount of Resources' exchangeable senior notes issued in February 2000 under the applicable accounting principles in effect at June 30, 2000, and the carrying values of the debt and derivative components of the notes as determined in accordance with SFAS 133 as of July 1, 2000. Transition adjustments relating to Alliant Energy's other derivative instruments had no material impact on net income. A limited number of Alliant Energy's fixed price commodity contracts are defined as derivatives under SFAS 133. The fair values of these derivative instruments have been recorded as assets and liabilities on the balance sheet and in the transition adjustment in accordance with the transition provisions of SFAS 133. Changes in the fair values of these instruments subsequent to July 1, 2000, to the extent that the derivatives are designated in cash flow hedging relationships and are effective at mitigating the underlying commodity risk, are recorded in other comprehensive income. At the date the underlying transaction occurs, the amounts accumulated in other comprehensive income are reported in the Consolidated Statements of Income. To the extent that the hedges are not effective, the ineffective portion of the changes in fair value is recorded directly in earnings. -71- The financial statement impact of recording the various SFAS 133 transactions at July 1, 2000 was as follows (in millions):
Amount Financial Statement Account Financial Statement Increase (Decrease) - ------------------------------------------------------------- -------------------------- -------------------------- Other assets Balance sheet $2.0 Other liabilities (a) Balance sheet 302.2 Cumulative effect of a change in accounting principle (other comprehensive income) Balance sheet (6.6) Other comprehensive income (b) Balance sheet (187.3) Long-term debt (c) Balance sheet (310.3) Cumulative effect of a change in accounting principle Income statement 16.7 Pre-tax gain on transfer to trading account (d) Income statement 321.4 Deferred tax expense (d) Income statement 134.1
(a) Includes the embedded derivative component of Resources' exchangeable senior notes of $283.7 million (b) Represents net of tax reduction to other comprehensive income resulting from classification of approximately 15.6 million shares of McLeod as trading securities (equal to net amount of two line items in (d)) (c) Adjustment to the debt component of Resources' exchangeable senior notes (d) Gain and tax expenses associated with the transfer of approximately 15.6 million shares of McLeod from available-for-sale securities to trading securities During 2000, $6.7 million of net losses included in the cumulative effect of a change in accounting principle component of accumulated other comprehensive income were reclassified into earnings, resulting in a remaining balance of $0.1 million as of December 31, 2000. As of December 31, 2000, Alliant Energy held derivative instruments designated as cash flow hedging instruments and other derivatives. The cash flow hedging instruments are comprised of natural gas swaps and coal purchase and sales contracts which are used to manage the price of anticipated coal purchases and sales. WP&L utilizes gas commodity swap arrangements to reduce the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current market prices during the winter months pursuant to the natural gas cost incentive sharing mechanism with customers in Wisconsin. The gas commodity swaps in place hedge the forecasted sales of natural gas withdrawn from storage during this period. In 2000, a net gain of approximately $0.4 million was recognized in earnings (recorded in gas revenues) representing the amount of hedge ineffectiveness. Alliant Energy did not exclude any components of the derivative instruments' gain or loss from the assessment of hedge effectiveness and there were no reclasses into earnings as a result of the discontinuance of hedges. As of December 31, 2000, the maximum length of time over which Alliant Energy is hedging its exposure to the variability in future cash flows for forecasted transactions is 18 months and Alliant Energy estimates that losses of $3.7 million will be reclassified from accumulated other comprehensive income into earnings within the 12 months between January 1, 2001 and December 31, 2001 as the hedged transactions affect earnings. Alliant Energy's derivatives that have not been designated in hedge relationships include the embedded derivative component of Resources' exchangeable senior notes, oil swaps and collars, natural gas swaps and electricity price collars. At maturity, the holders of Resources' exchangeable senior notes are paid the higher of the principal amount of the notes or an amount based on the value of McLeod common stock. SFAS 133 requires that Alliant -72- Energy split the value of the notes into a debt component and a derivative component. The payment feature tied to McLeod stock is considered an embedded derivative under SFAS 133 that must be accounted for as a separate derivative instrument. This component is classified as a "Derivative liability" on the Consolidated Balance Sheets. Subsequent changes in the fair value of the option are reflected as increases or decreases in Alliant Energy's reported net income. The carrying amount of the host debt security, classified as long-term debt, is adjusted for amortization of the debt discount in accordance with the interest method as prescribed by APB 21, "Interest on Receivables and Payables." Prior to the adoption of SFAS 133, changes in fair value of all of Alliant Energy's McLeod stock had been recorded in the accumulated other comprehensive income component of shareowners' equity on Alliant Energy's Consolidated Balance Sheets, as these securities had been classified as available-for-sale. With the adoption of SFAS 133 on July 1, 2000, Alliant Energy designated 15.6 million shares of its beneficial ownership in approximately 57 million shares of McLeod stock as trading securities. Subsequent changes in the fair value of the shares designated as trading are reflected as increases or decreases in Alliant Energy's net income. These trading gains or losses are expected to correspond with and substantially offset changes in the intrinsic value of the derivative component of Resources' exchangeable senior notes. Changes in the time value portion of the derivative component will result in non-cash increases or decreases to Alliant Energy's net income. Included in "Miscellaneous, net" in Alliant Energy's Consolidated Statements of Income for 2000 was expense of $102.5 million related to the change in value of the McLeod trading securities, largely offset by income of $101.8 million related to the change in value of the derivative component of the exchangeable senior notes. Whiting is exposed to commodity price risk in the pricing of its oil and gas production. Alliant Energy has previously utilized oil swaps and collars and natural gas swaps, which have not been designated in hedge relationships, to mitigate the impact of oil and gas price fluctuations. These derivatives are recorded at their fair value as a component of "Derivative liability" on the Consolidated Balance Sheets and as a component of "Non-regulated and other" revenues in the Consolidated Statements of Income. Alliant Energy's utility businesses use electricity price collars, which have not been designated in hedge relationships, to manage energy costs during supply/demand imbalances. As of December 31, 2000, these derivatives were recorded at their fair value as derivative assets, derivative liabilities and regulatory assets on the Consolidated Balance Sheets in Iowa, and as derivative assets and derivative liabilities on the Consolidated Balance Sheets and purchased-power expense in the Consolidated Statements of Income in Wisconsin. (b) Weather Derivatives - WP&L uses weather derivatives to reduce the impact of weather volatility on its natural gas sales volumes. EITF 99-2, "Accounting for Weather Derivatives," requires the use of the intrinsic value method to account for non-exchange traded weather derivatives. In August 2000, WP&L entered into a non-exchange traded weather floor with a contract period from November 1, 2000 to March 31, 2001 that requires the counterparty pay WP&L $11,000 per heating degree-day less than 5,600 during the contract period. The maximum payout amount by the counterparty on this floor is $7 million. WP&L paid a premium to enter into this contract, which is being amortized to expense over the contract period. In August 1999, WP&L entered into a non-exchange traded "weather collar" with a contract period from November 1, 1999 to March 31, 2000. The maximum payout amount was $5 million. (c) Nuclear Decommissioning Trust Fund Investments - WP&L previously entered into an equity collar that used written options to mitigate the effect of significant market fluctuations on its common stock investments in its nuclear decommissioning trust funds. The program was designed to protect the portfolio's value while allowing the funds to earn a total return modestly in excess of long-term expectations over the two-year hedge period, which was settled in December 2000. The notional amount of the options was $78 million at December 31, 1999. The options were reported at fair market value each reporting period. These fair value changes did not impact net income as they were recorded as equally offsetting changes in the investment in nuclear decommissioning trust funds and accumulated depreciation. The option liability fair value exceeded the premium received by $17.8 million at December 31, 1999, as reported by the trustee. -73- (11) COMMITMENTS AND CONTINGENCIES (a) Construction and Acquisition Program - Alliant Energy anticipates 2001 construction and acquisition expenditures will be approximately $851 million, consisting of $388 million for its utility subsidiaries' operations, $257 million for business development initiatives at Resources and $206 million for energy-related international investments. During 2002-2005, Alliant Energy expects to spend approximately $1.4 billion for its utility subsidiaries' operations, $667 million for business development initiatives at Resources and $358 million for energy-related international investments. (b) Purchased-Power and Transmission, Coal and Natural Gas Contracts - Corporate Services has entered into purchased-power and transmission, coal and natural gas supply, transportation and storage contracts. The natural gas supply commitments are all index-based. Alliant Energy expects to supplement its coal and natural gas supplies with spot market purchases as needed. Alliant Energy's minimum commitments are as follows (dollars and Dths in millions; MWhs and tons in thousands):
Natural gas supply, Purchased-power and Coal (including transportation and storage transmission transportation) contracts ---------------------------- ---------------------------- ----------------------------- Dollars MWhs Dollars Tons Dollars Dths ----------- ------------ ------------ ------------ ------------- ----------- 2001 $74.2 926 $59.6 15,890 $125.1 221 2002 47.0 280 21.8 8,470 74.4 192 2003 32.6 280 16.8 7,564 41.7 158 2004 16.2 219 10.4 5,257 11.9 58 2005 8.0 -- 5.0 2,300 11.3 57
(c) Information Technology Services - Corporate Services has an agreement, expiring in 2004, with EDS for information technology services. Alliant Energy's anticipated operating and capital expenditures under the agreement for 2001 are estimated to total approximately $14 million. Future costs under the agreement are variable and are dependent upon Alliant Energy's level of usage of technological services from EDS. (d) Financial Guarantees and Commitments - Alliant Energy has financial guarantees, which were generally issued to support third-party borrowing arrangements and similar transactions, amounting to approximately $27 million and $17 million outstanding at December 31, 2000 and 1999, respectively. Such guarantees are not reflected in the consolidated financial statements. Management believes that the likelihood of Alliant Energy having to make any material cash payments under these agreements is remote. As part of Alliant Energy's electricity trading joint venture with Cargill, both Alliant Energy and Cargill have made guarantees to certain counterparties regarding the performance of contracts entered into by the joint venture. Revocable guarantees of approximately $160 million and $95 million have been issued, of which approximately $42 million and $20 million were outstanding at December 31, 2000 and 1999, respectively. Under the terms of the joint venture agreement, any payments required under the guarantees would be shared by Alliant Energy and Cargill on a 50/50 basis to the extent the joint venture is not able to reimburse the guarantor for payments made under the guarantee. Alliant Energy has also made guarantees to certain counterparties regarding the performance of certain energy-related contracts. As of December 31, 2000, the amount of the guarantees outstanding was approximately $70 million. As of December 31, 2000 and 1999, Alliant Energy had extended commitments to provide $3.9 million and $6.1 million, respectively, in nonrecourse, permanent financing to developers which were secured by affordable housing properties. Alliant Energy anticipates other lenders will ultimately finance these properties. -74- During 2000, WP&L committed to transfer all of its transmission assets to ATC. This transfer occurred on January 1, 2001, at the net book value of the assets. WPL Transco LLC, a wholly-owned subsidiary of WP&L, will hold the resulting investment in ATC and follow the equity method of accounting. (e) Environmental Liabilities - Alliant Energy had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, as of December 31 (in millions):
Environmental liabilities 2000 1999 Regulatory assets 2000 1999 --------------- --------------- -------------- -------------- MGP sites $48.0 $48.0 MGP sites $54.3 $54.4 NEPA 10.4 11.1 NEPA 11.9 12.6 Oil and gas properties 13.0 13.0 Other 0.6 0.2 -------------- -------------- Other 0.5 1.0 $66.8 $67.2 ============== ============== --------------- --------------- $71.9 $73.1 =============== ===============
MGP Sites - IESU, WP&L and IPC have current or previous ownership - ---------- interests in 34, 14 and 9 sites, respectively, previously associated with the production of gas for which they may be liable for investigation, remediation and monitoring costs relating to the sites. IESU, WP&L and IPC have received letters from state environmental agencies requiring no further action at three, four and one site(s), respectively. The companies are 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. Each company records environmental liabilities based upon periodic studies, most recently updated in the third quarter of 2000, related to the MGP sites. Such amounts are based on the best current estimate of the remaining 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. It is possible that future cost estimates will be greater than current estimates as the investigation process proceeds and as additional facts become known. The amounts recognized as liabilities are reduced for expenditures made and are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their fair value. Management currently estimates the range of remaining costs to be incurred for the investigation, remediation and monitoring of all utility subsidiary sites to be approximately $33 million to $62 million. Under the current rate making treatment approved by the PSCW, the MGP expenditures of WP&L, net of any insurance proceeds, are deferred and collected from gas customers over a five-year period after new rates are implemented. The MPUC also allows the deferral of MGP-related costs applicable to the Minnesota sites and IPC has been successful in obtaining approval to recover such costs in rates in Minnesota. The IUB has permitted utilities to recover prudently incurred costs. Regulatory assets have been recorded by each of the utility subsidiaries, which reflect the probable future rate recovery, where applicable. Considering the current rate treatment, and assuming no material change therein, the utility subsidiaries believe that the clean-up costs incurred for these MGP sites will not have a material adverse effect on their respective financial conditions or results of operations. Settlement has been reached with all of IESU's and WP&L's insurance carriers regarding reimbursement for its MGP-related costs and all issues have been resolved. IPC has settled with all but one of its insurance carriers. Insurance recoveries available as of both December 31, 2000 and 1999 for IESU, WP&L and IPC were $18.5 million, $2.1 million and $5.3 million, respectively. Pursuant to their applicable rate making treatment, IESU and IPC have recorded their recoveries in "Other long-term liabilities and deferred credits" and WP&L has recorded its recoveries as an offset against its regulatory assets. -75- National Energy Policy Act of 1992 - NEPA 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. IESU and WP&L recover the costs associated with this assessment over the period the costs are assessed. Alliant Energy continues to pursue relief from this assessment through litigation. Oil and Gas Properties Dismantlement and Abandonment Costs - Whiting is - ----------------------------------------------------------- responsible for certain dismantlement and abandonment costs related to various off-shore oil and gas platforms (and related on-shore plants and equipment), the most significant of which is located off the coast of California. Whiting estimates the total costs for these properties to be approximately $13 million, which it has accrued. The most significant expenditures are not expected to be incurred until 2004. (f) Decommissioning of DAEC and Kewaunee - Pursuant to the most recent electric rate case orders, the IUB and PSCW allow IESU and WP&L to recover $6 million and $16 million annually for their share of the cost to decommission DAEC and Kewaunee, respectively. Decommissioning expense is included in "Depreciation and amortization" in the Consolidated Statements of Income and the cumulative amount is included in "Accumulated depreciation" on the Consolidated Balance Sheets to the extent recovered through rates. Additional information relating to the decommissioning of DAEC and Kewaunee included in the most recent electric rate orders was as follows (dollars in millions):
DAEC Kewaunee ----------------------------- -------------------------- Assumptions relating to current rate recovery amounts: Alliant Energy's share of estimated decommissioning cost $252.8 $212.5 Year dollars in 1993 2000 Method to develop estimate NRC minimum formula Site-specific study Annual inflation rate 4.91% 5.83% Decommissioning method Prompt dismantling Prompt dismantling and and removal removal Year decommissioning to commence 2014 2013 After-tax return on external investments: Qualified 7.34% 5.62% Non-qualified (DAEC rate adjusted annually) 5.80% 6.97% External trust fund balance at December 31, 2000 $112.2 $195.8 Internal reserve at December 31, 2000 $21.7 $-- After-tax earnings on external trust funds in 2000 $3.4 $11.3
The rate recovery amounts for DAEC only include an inflation estimate through 1997. Both IESU and WP&L are funding all rate recoveries for decommissioning into external trust funds and funding on a tax-qualified basis to the extent possible. All of the rate recovery assumptions are subject to change in future regulatory proceedings. In accordance with their respective regulatory requirements, IESU and WP&L record the earnings on the external trust funds as interest income with a corresponding entry to interest expense at IESU and to depreciation expense at WP&L. The earnings accumulate in the external trust fund balances and in accumulated depreciation on utility plant. IESU's 70 percent share of the estimated cost to decommission DAEC based on the most recent site-specific study completed in 1998 is $334.2 million, in 1998 dollars. This study includes the costs to terminate DAEC's NRC license and to return the site to a greenfield condition. IESU's 70 percent share of the estimated cost to decommission DAEC based on the most recent NRC minimum formula, using the direct disposal method, is $355.3 million in 1999 dollars. The NRC minimum formula is intended to apply only to the cost of terminating DAEC's NRC license. The additional decommissioning expense funding requirements which should result from these updated studies are not reflected in IESU's rates. -76- (g) Legal Proceedings - Alliant Energy is involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although unable to predict the outcome of these matters, Alliant Energy believes that appropriate reserves have been established and final disposition of these actions will not have a material adverse effect on its financial condition or results of operations. (12) JOINTLY-OWNED ELECTRIC UTILITY PLANT Under joint ownership agreements with other Iowa and Wisconsin utilities, the utility subsidiaries have undivided ownership interests in jointly-owned electric generating stations and related transmission facilities. Each of the respective owners is responsible for the financing of its portion of the construction costs. Kilowatt-hour generation and operating expenses are divided on the same basis as ownership with each owner reflecting its respective costs in its Consolidated Statements of Income. Information relative to the utility subsidiaries' ownership interest in these facilities at December 31, 2000 is as follows (dollars in millions):
Accumulated Construction Fuel Ownership Plant in Provision for Work-In- Type Interest % Service Depreciation Progress ------------ ----------------------- --------------- ------------------ ------------------- IESU Ottumwa Unit 1 Coal 48.0 $189.1 $107.3 $2.1 Neal Unit 3 Coal 28.0 59.5 33.7 0.1 DAEC Nuclear 70.0 510.6 281.7 18.3 --------------- ------------------ ------------------- $759.2 $422.7 $20.5 --------------- ------------------ ------------------- WP&L Columbia Energy Center Coal 46.2 $175.4 $103.6 $0.5 Edgewater Unit 4 Coal 68.2 53.0 33.6 1.6 Edgewater Unit 5 Coal 75.0 230.2 98.6 0.3 Kewaunee Nuclear 41.0 136.8 108.1 21.4 --------------- ------------------ ------------------- $595.4 $343.9 $23.8 --------------- ------------------ ------------------- IPC Neal Unit 4 Coal 21.5 $83.5 $53.9 $-- Louisa Unit 1 Coal 4.0 24.7 13.2 -- --------------- ------------------ ------------------- $108.2 $67.1 $-- --------------- ------------------ ------------------- $1,462.8 $833.7 $44.3 =============== ================== ===================
(13) SEGMENTS OF BUSINESS Alliant Energy's principal business segments are: o Regulated domestic utilities - consists of IESU, WP&L and IPC, serving customers in Iowa, Wisconsin, Minnesota and Illinois, and is broken down into three segments: a) electric operations; b) gas operations; and c) other, which includes the water and steam businesses and the unallocated portions of the utility business. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in "Other." o Non-regulated businesses - represents the operations of Resources and its subsidiaries. This includes global partnerships to develop energy generation, delivery and infrastructure in growing international markets and domestic businesses including oil and gas operations, energy trading partnerships, energy and environmental services, transportation services and affordable housing companies. o Other - includes the operations of Alliant Energy's parent company and Corporate Services, as well as any reconciling/eliminating entries. Various differences exist between segment reporting information for the non-regulated businesses and Resources' information in Alliant Energy's condensed consolidating financial statements in Note 15 due to Alliant Energy's investment in Cargill-Alliant, LLC being recorded on Alliant Energy's parent's book for legal reporting, but included with the non-regulated businesses information for segment reporting (Alliant -77- Energy considers this business as part of its non-regulated business for management reporting). The following segment reporting line items were impacted: net (income) loss from equity method subsidiaries; income tax expense (benefit); net income (loss); total assets; and investments in equity method subsidiaries. Intersegment revenues were not material to Alliant Energy's operations and there was no single customer whose revenues were 10 percent or more of Alliant Energy's consolidated revenues. Refer to Note 9 for a breakdown of Alliant Energy's international investments by country. Certain financial information relating to Alliant Energy's significant business segments and products and services is presented below:
Regulated Domestic Utilities --------------------------------------------------- Non-regulated Alliant Energy Electric Gas Other Total Businesses Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------------ (in millions) 2000 Operating revenues $1,648.0 $415.0 $33.4 $2,096.4 $311.3 ($2.7) $2,405.0 Depreciation and amortization expense 252.6 27.7 3.1 283.4 38.9 -- 322.3 Operating income 330.6 26.6 4.5 361.7 19.2 0.2 381.1 Interest expense, net of AFUDC 103.1 103.1 53.3 8.5 164.9 Preferred dividends 6.7 6.7 -- -- 6.7 Net income from equity method subsidiaries (0.5) (0.5) (18.6) -- (19.1) Gain on reclassification of investments -- -- (321.3) -- (321.3) Gains on sales of McLeod stock -- -- (23.8) -- (23.8) Miscellaneous, net (other than equity income) (23.3) (23.3) (21.1) (2.7) (47.1) Income tax expense 107.9 107.9 130.6 0.3 238.8 Cumulative effect of a change in accounting principle, net of tax -- -- 16.7 -- 16.7 Net income (loss) 167.8 167.8 236.8 (5.9) 398.7 Total assets 3,402.2 554.4 427.2 4,383.8 2,333.3 16.7 6,733.8 Investments in equity method subsidiaries 6.5 6.5 487.3 -- 493.8 Construction and acquisition expenditures 265.9 35.8 3.0 304.7 750.7 11.1 1,066.5 - ------------------------------------------------------------------------------------------------------------------------------------
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Regulated Domestic Utilities ---------------------------------------------------- Non-regulated Alliant Energy Electric Gas Other Total Businesses Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------------ (in millions) 1999 Operating revenues $1,548.9 $314.3 $32.1 $1,895.3 $235.0 ($2.3) $2,128.0 Depreciation and amortization expense 219.3 25.2 2.9 247.4 31.7 -- 279.1 Operating income (loss) 345.1 27.4 5.3 377.8 (1.3) -- 376.5 Interest expense, net of AFUDC 100.7 100.7 24.8 3.4 128.9 Preferred dividends 6.7 6.7 -- -- 6.7 Net (income) loss from equity method subsidiaries (0.3) (0.3) (2.9) 0.2 (3.0) Gains on sales of McLeod stock -- -- (40.3) -- (40.3) Miscellaneous, net (other than equity income/loss) (5.4) (5.4) (27.6) 0.1 (32.9) Income tax expense (benefit) 115.0 115.0 6.9 (1.4) 120.5 Net income (loss) 161.1 161.1 37.8 (2.3) 196.6 Total assets 3,321.8 477.6 385.2 4,184.6 1,855.6 35.5 6,075.7 Investments in equity method subsidiaries 5.7 5.7 74.0 -- 79.7 Construction and acquisition expenditures 246.9 35.5 3.3 285.7 192.1 0.8 478.6 - ----------------------------------------------------------------------------------------------------------------------------------- Regulated Domestic Utilities ---------------------------------------------------- Non-regulated Alliant Energy Electric Gas Other Total Businesses Other Consolidated - ---------------------------------------------------------------------------------------------------------------------------------- (in millions) 1998 Operating revenues $1,567.5 $295.6 $31.2 $1,894.3 $238.7 ($2.1) $2,130.9 Depreciation and amortization expense 219.4 23.7 2.6 245.7 33.8 -- 279.5 Operating income (loss) 271.5 16.0 5.6 293.1 (8.6) (1.2) 283.3 Interest expense, net of AFUDC 97.0 97.0 23.3 2.3 122.6 Preferred dividends 6.7 6.7 -- -- 6.7 Net (income) loss from equity method subsidiaries (0.9) (0.9) 2.2 -- 1.3 Miscellaneous, net (other than equity income/loss) 3.5 3.5 (8.0) 2.4 (2.1) Income tax expense (benefit) 77.2 77.2 (17.2) (1.9) 58.1 Net income (loss) 109.6 109.6 (8.9) (4.0) 96.7 Total assets 3,268.5 477.0 386.0 4,131.5 869.2 (41.4) 4,959.3 Investments in equity method subsidiaries 5.2 5.2 49.4 -- 54.6 Construction and acquisition expenditures 233.7 33.2 2.3 269.2 102.9 -- 372.1 - ------------------------------------------------------------------------------------------------------------------------------------
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Products and Services - --------------------- Revenues - ------------------------------------------------------------------------------------------------------------------------------------ Regulated Non-regulated - ----------------------------------------------- ---------------------------------------------------------------------------------- Total Integrated Oil and Gas Non-regulated Year Electric Gas Other Services Production Transportation Other Businesses - ----------------------------------------------- ---------------------------------------------------------------------------------- (in millions) 2000 $1,648.0 $415.0 $33.4 $172.2 $94.1 $20.1 $24.9 $311.3 1999 1,548.9 314.3 32.1 126.0 62.6 21.6 24.8 235.0 1998 1,567.5 295.6 31.2 127.2 64.6 22.0 24.9 238.7 - ------------------------------------------------------------------------------------------------------------------------------------
(14) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended -------------------------------------------------------------------------- March 31 June 30 September 30 December 31 ---------------- ------------------ -------------------- -------------- (in millions, except per share data) 2000 - ---- Operating revenues $574.1 $523.9 $603.2 $703.8 Operating income 88.4 60.2 140.0 92.5 Income before cumulative effect of a change in accounting principle, net of tax (a) 19.3 42.3 259.5 60.9 Cumulative effect of a change in accounting principle, net of tax (a) -- -- 16.7 -- Net income (a) 19.3 42.3 276.2 60.9 Earnings per average common share - diluted: (a) Income before cumulative effect of a change in accounting principle 0.24 0.54 3.28 0.76 Cumulative effect of a change in accounting principle -- -- 0.21 -- Net income 0.24 0.54 3.49 0.76 1999 - ---- Operating revenues $546.9 $477.9 $571.5 $531.7 Operating income 93.0 60.2 130.8 92.5 Net income (b) 41.7 38.6 71.5 44.8 Earnings per average common share (basic and diluted) (b) 0.54 0.49 0.91 0.57
(a) The third quarter of 2000 includes $204 million ($2.58 per diluted share) of non-cash income related to Alliant Energy's adoption of SFAS 133 on July 1, 2000. The first and fourth quarters of 2000 include $7 million ($0.09 per diluted share) and $9 million ($0.11 per diluted share), respectively, of net income from gains on sales of McLeod stock. (b) The second and fourth quarters of 1999 include $21 million ($0.27 per diluted share) and $4 million ($0.05 per diluted share), respectively, of net income from gains on sales of McLeod stock. (15) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Alliant Energy has fully and unconditionally guaranteed the payment of principal and interest on various debt issued by Resources and, as a result, is required to present condensed consolidating financial statements. All other Alliant Energy subsidiaries are non-guarantors of Resources' senior notes. Alliant Energy's condensed consolidating financial statements are as follows: -80-
Alliant Energy Corporation Condensed Consolidating Statement of Income Year Ended December 31, 2000 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ----------------------------------------------------------------------------- Operating revenues: Electric utility $-- $-- $1,648,036 $-- $1,648,036 Gas utility -- -- 414,948 -- 414,948 Non-regulated and other -- 311,262 294,507 (263,769) 342,000 ----------------------------------------------------------------------------- -- 311,262 2,357,491 (263,769) 2,404,984 ----------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels -- -- 288,621 -- 288,621 Purchased power -- -- 294,818 -- 294,818 Cost of utility gas sold -- -- 278,734 -- 278,734 Other operation and maintenance 703 240,171 751,888 (258,087) 734,675 Depreciation and amortization -- 38,952 283,382 -- 322,334 Taxes other than income taxes -- 12,992 98,379 (6,625) 104,746 ----------------------------------------------------------------------------- 703 292,115 1,995,822 (264,712) 2,023,928 ----------------------------------------------------------------------------- Operating income (loss) (703) 19,147 361,669 943 381,056 ----------------------------------------------------------------------------- Interest expense and other: Interest expense 17,350 53,297 121,250 (18,283) 173,614 Allowance for funds used during construction -- -- (8,761) -- (8,761) Preferred dividend requirements of subsidiaries -- -- 6,713 -- 6,713 Gain on reclassification of investments -- (321,349) -- -- (321,349) Gains on sales of McLeodUSA Inc. stock -- (23,773) -- -- (23,773) Miscellaneous, net (422,137) (25,021) (32,294) 413,294 (66,158) ----------------------------------------------------------------------------- (404,787) (316,846) 86,908 395,011 (239,714) ----------------------------------------------------------------------------- Income (loss) before income taxes 404,084 335,993 274,761 (394,068) 620,770 ----------------------------------------------------------------------------- Income taxes 5,422 125,456 106,996 942 238,816 ----------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle, net of tax 398,662 210,537 167,765 (395,010) 381,954 ----------------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax -- 16,673 35 -- 16,708 ----------------------------------------------------------------------------- Net income (loss) $398,662 $227,210 $167,800 ($395,010) $398,662 =============================================================================
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Alliant Energy Corporation Condensed Consolidating Statement of Income Year Ended December 31, 1999 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ---------------------------------------------------------------------------------- Operating revenues: Electric utility $-- $-- $1,548,938 $-- $1,548,938 Gas utility -- -- 314,319 -- 314,319 Non-regulated and other -- 235,039 274,616 (244,939) 264,716 ---------------------------------------------------------------------------------- -- 235,039 2,137,873 (244,939) 2,127,973 ---------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels -- -- 262,305 -- 262,305 Purchased power -- -- 255,446 -- 255,446 Cost of utility gas sold -- -- 180,519 -- 180,519 Other operation and maintenance 286 194,577 712,943 (238,695) 669,111 Depreciation and amortization -- 31,692 247,396 -- 279,088 Taxes other than income taxes -- 9,979 100,479 (5,489) 104,969 ---------------------------------------------------------------------------------- 286 236,248 1,759,088 (244,184) 1,751,438 ---------------------------------------------------------------------------------- Operating income (loss) (286) (1,209) 378,785 (755) 376,535 ---------------------------------------------------------------------------------- Interest expense and other: Interest expense 8,230 24,871 113,177 (10,049) 136,229 Allowance for funds used during construction -- -- (7,292) -- (7,292) Preferred dividend requirements of subsidiaries -- -- 6,706 -- 6,706 Gains on sales of McLeodUSA Inc. stock -- (40,272) -- -- (40,272) Miscellaneous, net (203,972) (30,702) (10,316) 209,087 (35,903) ---------------------------------------------------------------------------------- (195,742) (46,103) 102,275 199,038 59,468 ---------------------------------------------------------------------------------- Income (loss) before income taxes 195,456 44,894 276,510 (199,793) 317,067 ---------------------------------------------------------------------------------- Income tax expense (benefit) (1,125) 6,562 115,805 (756) 120,486 ---------------------------------------------------------------------------------- Net income (loss) $196,581 $38,332 $160,705 ($199,037) $196,581 ==================================================================================
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Alliant Energy Corporation Condensed Consolidating Statement of Income Year Ended December 31, 1998 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------------------- Operating revenues: Electric utility $-- $-- $1,567,442 $-- $1,567,442 Gas utility -- -- 295,590 -- 295,590 Non-regulated and other -- 238,676 175,627 (146,461) 267,842 ------------------------------------------------------------------------------- -- 238,676 2,038,659 (146,461) 2,130,874 ------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels -- -- 297,685 -- 297,685 Purchased power -- -- 255,332 -- 255,332 Cost of utility gas sold -- -- 166,453 -- 166,453 Other operation and maintenance 2,304 203,925 679,503 (142,761) 742,971 Depreciation and amortization -- 33,835 245,670 -- 279,505 Taxes other than income taxes -- 9,525 99,801 (3,700) 105,626 ------------------------------------------------------------------------------- 2,304 247,285 1,744,444 (146,461) 1,847,572 ------------------------------------------------------------------------------- Operating income (loss) (2,304) (8,609) 294,215 -- 283,302 ------------------------------------------------------------------------------- Interest expense and other: Interest expense 6,016 23,298 106,681 (6,632) 129,363 Allowance for funds used during construction -- -- (6,812) -- (6,812) Preferred dividend requirements of subsidiaries -- -- 6,699 -- 6,699 Miscellaneous, net (101,341) (5,777) 849 105,533 (736) ------------------------------------------------------------------------------- (95,325) 17,521 107,417 98,901 128,514 ------------------------------------------------------------------------------- Income (loss) before income taxes 93,021 (26,130) 186,798 (98,901) 154,788 ------------------------------------------------------------------------------- Income tax expense (benefit) (1,911) (17,232) 77,256 -- 58,113 ------------------------------------------------------------------------------- Net income (loss) $94,932 ($8,898) $109,542 ($98,901) $96,675 ===============================================================================
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Alliant Energy Corporation Condensed Consolidating Balance Sheet As of December 31, 2000 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------------------ ASSETS Property, plant and equipment: Utility - Plant in service - Electric $-- $-- $5,203,069 $-- $5,203,069 Other -- -- 1,048,506 -- 1,048,506 ------------------------------------------------------------------------------ -- -- 6,251,575 -- 6,251,575 Less - Accumulated depreciation -- -- 3,296,546 -- 3,296,546 Construction work in progress -- -- 130,856 -- 130,856 Nuclear fuel, net of amortization -- -- 61,935 -- 61,935 Other property, plant and equipment, net -- 553,911 17,687 (111) 571,487 ------------------------------------------------------------------------------ -- 553,911 3,165,507 (111) 3,719,307 ------------------------------------------------------------------------------ Current assets: Cash and temporary cash investments 574 133,957 13,884 -- 148,415 Accounts receivable, net 224 98,932 194,083 -- 293,239 Production fuel, at average cost -- 1,379 45,248 -- 46,627 Materials and supplies, at average cost -- 2,086 53,844 -- 55,930 Gas stored underground, at average cost -- 2,983 38,376 -- 41,359 Other 223,359 44,504 170,193 (312,645) 125,411 ------------------------------------------------------------------------------ 224,157 283,841 515,628 (312,645) 710,981 ------------------------------------------------------------------------------ Investments: Consolidated subsidiaries 1,884,976 -- -- (1,884,976) -- Investment in available-for-sale securities of McLeodUSA Inc. -- 569,951 -- -- 569,951 Investment in trading securities of McLeodUSA Inc. -- 220,912 -- -- 220,912 Investments in unconsolidated foreign entities -- 507,655 -- -- 507,655 Other 30,511 72,148 337,484 -- 440,143 ------------------------------------------------------------------------------ 1,915,487 1,370,666 337,484 (1,884,976) 1,738,661 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Deferred charges and other -- 104,339 460,478 -- 564,817 ------------------------------------------------------------------------------ Total assets $2,139,644 $2,312,757 $4,479,097 ($2,197,732) $6,733,766 ==============================================================================
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Alliant Energy Corporation Condensed Consolidating Balance Sheet (Continued) As of December 31, 2000 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES Capitalization: Common stock and additional paid-in capital $948,294 $232,684 $753,392 ($986,076) $948,294 Retained earnings 818,266 174,012 724,889 (899,005) 818,162 Accumulated other comprehensive income -- 276,591 (4,724) -- 271,867 Shares in deferred compensation trust (851) -- -- -- (851) ------------------------------------------------------------------------------- Total common equity 1,765,709 683,287 1,473,557 (1,885,081) 2,037,472 ------------------------------------------------------------------------------- Cumulative preferred stock of subsidiaries, net -- -- 113,790 -- 113,790 Long-term debt (excluding current portion) 24,000 731,736 1,154,380 -- 1,910,116 ------------------------------------------------------------------------------- 1,789,709 1,415,023 2,741,727 (1,885,081) 4,061,378 ------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds -- 10,917 81,560 -- 92,477 Commercial paper 283,885 -- -- -- 283,885 Other short-term borrowings -- 110,783 -- -- 110,783 Accounts payable -- 51,231 245,728 -- 296,959 Other 63,681 73,474 545,721 (312,645) 370,231 ------------------------------------------------------------------------------- 347,566 246,405 873,009 (312,645) 1,154,335 ------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes (6,415) 411,614 526,476 -- 931,675 Derivative liability -- 181,925 -- -- 181,925 Other 8,784 57,790 337,885 (6) 404,453 ------------------------------------------------------------------------------- 2,369 651,329 864,361 (6) 1,518,053 ------------------------------------------------------------------------------- Total capitalization and liabilities $2,139,644 $2,312,757 $4,479,097 ($2,197,732) $6,733,766 ===============================================================================
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Alliant Energy Corporation Condensed Consolidating Balance Sheet As of December 31, 1999 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------------------- ASSETS Property, plant and equipment: Utility - Plant in service - Electric $-- $-- $5,032,675 $-- $5,032,675 Other -- -- 999,421 -- 999,421 ------------------------------------------------------------------------------- -- -- 6,032,096 -- 6,032,096 Less - Accumulated depreciation -- -- 3,077,459 -- 3,077,459 Construction work in progress -- -- 119,276 -- 119,276 Nuclear fuel, net of amortization -- -- 54,363 -- 54,363 Other property, plant and equipment, net -- 350,681 7,188 (111) 357,758 ------------------------------------------------------------------------------- -- 350,681 3,135,464 (111) 3,486,034 ------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 28,647 65,086 19,936 -- 113,669 Accounts receivable, net 150 47,278 97,999 -- 145,427 Production fuel, at average cost -- -- 49,657 -- 49,657 Materials and supplies, at average cost -- 1,313 51,127 -- 52,440 Gas stored underground, at average cost -- -- 23,151 -- 23,151 Other 222,313 18,724 151,681 (291,076) 101,642 ------------------------------------------------------------------------------- 251,110 132,401 393,551 (291,076) 485,986 ------------------------------------------------------------------------------- Investments: Consolidated subsidiaries 1,568,848 -- -- (1,568,848) -- Investment in available-for-sale securities of McLeodUSA Inc. -- 1,123,790 -- -- 1,123,790 Investments in unconsolidated foreign entities -- 198,055 -- -- 198,055 Other 16,218 15,061 299,845 -- 331,124 ------------------------------------------------------------------------------- 1,585,066 1,336,906 299,845 (1,568,848) 1,652,969 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Deferred charges and other -- 28,561 422,133 -- 450,694 ------------------------------------------------------------------------------- Total assets $1,836,176 $1,848,549 $4,250,993 ($1,860,035) $6,075,683 ===============================================================================
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Alliant Energy Corporation Condensed Consolidating Balance Sheet (Continued) As of December 31, 1999 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES Capitalization: Common stock and additional paid-in capital $943,198 $232,508 $752,109 ($984,617) $943,198 Retained earnings 577,568 (53,198) 637,429 (584,335) 577,464 Accumulated other comprehensive income -- 634,903 -- -- 634,903 ------------------------------------------------------------------------------- Total common equity 1,520,766 814,213 1,389,538 (1,568,952) 2,155,565 ------------------------------------------------------------------------------- Cumulative preferred stock of subsidiaries, net -- -- 113,638 -- 113,638 Long-term debt (excluding current portion) 24,000 326,700 1,136,065 -- 1,486,765 ------------------------------------------------------------------------------- 1,544,766 1,140,913 2,639,241 (1,568,952) 3,755,968 ------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds -- 1,724 53,071 -- 54,795 Commercial paper 235,825 138,848 -- -- 374,673 Accounts payable 65 23,116 167,968 -- 191,149 Other 51,744 33,981 518,360 (291,077) 313,008 ------------------------------------------------------------------------------- 287,634 197,669 739,399 (291,077) 933,625 ------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes (5,988) 480,489 543,981 -- 1,018,482 Other 9,764 29,478 328,372 (6) 367,608 ------------------------------------------------------------------------------- 3,776 509,967 872,353 (6) 1,386,090 ------------------------------------------------------------------------------- Total capitalization and liabilities $1,836,176 $1,848,549 $4,250,993 ($1,860,035) $6,075,683 ===============================================================================
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Alliant Energy Corporation Condensed Consolidating Statement of Cash Flows Year Ended December 31, 2000 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ---------------------------------------------------------------------- Net cash flows from (used for) operating activities $390,155 $15,222 $428,195 ($401,723) $431,849 ---------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends declared (157,964) -- (80,340) 80,340 (157,964) Net change in Resources' credit facility -- 181,652 -- -- 181,652 Proceeds from issuance of exchangeable senior notes -- 402,500 -- -- 402,500 Proceeds from issuance of other long-term debt -- 21,525 100,000 -- 121,525 Reductions in other long-term debt -- (13,641) (51,196) -- (64,837) Net change in other short-term borrowings 48,060 110,805 (1,875) -- 156,990 Other 4,454 (13,962) (25,922) 5,255 (30,175) ---------------------------------------------------------------------- Net cash flows from (used for) financing activities (105,450) 688,879 (59,333) 85,595 609,691 ---------------------------------------------------------------------- Cash flows from (used for) investing activities: Construction and acquisition expenditures: Utility -- -- (304,656) -- (304,656) Non-regulated businesses -- (750,687) (11,121) -- (761,808) Proceeds from dispositions of assets 2,281 105,892 3,336 -- 111,509 Other (315,059) 9,565 (62,473) 316,128 (51,839) ---------------------------------------------------------------------- Net cash flows from (used for) investing activities (312,778) (635,230) (374,914) 316,128 (1,006,794) ---------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments (28,073) 68,871 (6,052) -- 34,746 ---------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 28,647 65,086 19,936 -- 113,669 ---------------------------------------------------------------------- Cash and temporary cash investments at end of period $574 $133,957 $13,884 $-- $148,415 ====================================================================== Supplemental cash flow information: Cash paid (refunded) during the period for: Interest $17,220 $49,013 $97,495 $-- $163,728 ====================================================================== Income taxes ($2,350) ($20,891) $140,136 $-- $116,895 ====================================================================== Noncash investing and financing activities: Capital lease obligations incurred $-- $-- $20,419 $-- $20,419 ======================================================================
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Alliant Energy Corporation Condensed Consolidating Statement of Cash Flows Year Ended December 31, 1999 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------------ Net cash flows from (used for) operating activities $198,525 $32,561 $402,622 ($210,579) $423,129 ------------------------------------------------------------------------ Cash flows from (used for) financing activities: Common stock dividends declared (156,489) (8,161) (178,699) 186,860 (156,489) Net change in Resources' credit facility -- (113,657) -- -- (113,657) Proceeds from issuance of other long-term debt -- 270,349 10,950 -- 281,299 Reductions in other long-term debt -- (34,430) (61,090) -- (95,520) Net change in other short-term borrowings 221,325 (1,738) (50,000) -- 169,587 Other (179,656) (579) 168,829 29,279 17,873 ------------------------------------------------------------------------ Net cash flows from (used for) financing activities (114,820) 111,784 (110,010) 216,139 103,093 ------------------------------------------------------------------------ Cash flows from (used for) investing activities: Construction and acquisition expenditures: Utility -- -- (285,668) -- (285,668) Non-regulated businesses -- (192,067) (838) -- (192,905) Proceeds from dispositions of assets -- 90,145 3,298 -- 93,443 Other (55,170) 9,731 (61,980) 48,169 (59,250) ------------------------------------------------------------------------ Net cash flows from (used for) investing activities (55,170) (92,191) (345,188) 48,169 (444,380) ------------------------------------------------------------------------ Net increase (decrease) in cash and temporary cash investments 28,535 52,154 (52,576) 53,729 81,842 ------------------------------------------------------------------------ Cash and temporary cash investments at beginning of period 112 12,932 72,512 (53,729) 31,827 ------------------------------------------------------------------------ Cash and temporary cash investments at end of period $28,647 $65,086 $19,936 $-- $113,669 ======================================================================== Supplemental cash flow information: Cash paid (refunded) during the period for: Interest $8,079 $22,658 $99,477 $-- $130,214 ======================================================================== Income taxes ($2,993) ($3,612) $147,755 $-- $141,150 ======================================================================== Noncash investing and financing activities: Capital lease obligations incurred $-- $-- $25,040 $-- $25,040 ========================================================================
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Alliant Energy Corporation Condensed Consolidating Statement of Cash Flows Year Ended December 31, 1998 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ----------------------------------------------------------------------- Net cash flows from (used for) operating activities $61,753 $49,265 $444,602 ($87,858) $467,762 ----------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends declared (140,679) (2,011) (85,953) 87,964 (140,679) Net change in Resources' credit facility -- 70,492 -- -- 70,492 Proceeds from issuance of other long-term debt -- 2,594 74,950 -- 77,544 Other 71,270 (34,001) (48,522) (53,835) (65,088) ----------------------------------------------------------------------- Net cash flows from (used for) financing activities (69,409) 37,074 (59,525) 34,129 (57,731) ----------------------------------------------------------------------- Cash flows from (used for) investing activities: Construction and acquisition expenditures: Utility -- -- (269,133) -- (269,133) Non-regulated businesses -- (102,585) (340) -- (102,925) Other 1,746 13,490 (48,711) -- (33,475) ----------------------------------------------------------------------- Net cash flows from (used for) investing activities 1,746 (89,095) (318,184) -- (405,533) ----------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments (5,910) (2,756) 66,893 (53,729) 4,498 ----------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 6,022 15,688 5,619 -- 27,329 ----------------------------------------------------------------------- Cash and temporary cash investments at end of period $112 $12,932 $72,512 ($53,729) $31,827 ======================================================================= Supplemental cash flow information: Cash paid (refunded) during the period for: Interest $5,992 $22,275 $98,109 $-- $126,376 ======================================================================= Income taxes ($2,430) ($21,943) $109,289 $-- $84,916 ======================================================================= Noncash investing and financing activities: Capital lease obligations incurred $-- $-- $1,426 $-- $1,426 =======================================================================
-90- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of IES Utilities Inc.: We have audited the accompanying consolidated balance sheets and statements of capitalization of IES Utilities Inc. (an Iowa corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 2000. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IES Utilities Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP - ----------------------- ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 29, 2001 -91-
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $651,459 $627,950 $639,423 Gas utility 196,181 145,825 141,279 Steam and other 28,366 26,921 26,228 -------------------- -------------------- -------------------- 876,006 800,696 806,930 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 118,364 95,247 113,181 Purchased power 83,575 82,402 71,637 Cost of gas sold 136,352 88,308 84,642 Other operation and maintenance 215,741 222,921 239,972 Depreciation and amortization 108,064 101,053 93,965 Taxes other than income taxes 46,117 49,266 48,537 -------------------- -------------------- -------------------- 708,213 639,197 651,934 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Operating income 167,793 161,499 154,996 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 50,962 51,852 52,354 Allowance for funds used during construction (2,572) (2,366) (3,351) Miscellaneous, net (5,070) (3,818) 2,589 -------------------- -------------------- -------------------- 43,320 45,668 51,592 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 124,473 115,831 103,404 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Income taxes 50,050 49,385 41,494 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Net income 74,423 66,446 61,910 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Preferred dividend requirements 914 914 914 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Earnings available for common stock $73,509 $65,532 $60,996 ==================== ==================== ==================== - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS December 31, ASSETS 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $2,253,695 $2,196,895 Gas 221,949 207,769 Steam 59,416 59,929 Common 146,536 147,845 -------------------- ------------------- 2,681,596 2,612,438 Less - Accumulated depreciation 1,392,766 1,311,996 -------------------- ------------------- 1,288,830 1,300,442 Construction work in progress 58,352 37,572 Leased nuclear fuel, net of amortization 45,836 39,284 -------------------- ------------------- 1,393,018 1,377,298 Other property, plant and equipment, net of accumulated depreciation and amortization of $2,239 and $2,094, respectively 6,189 5,481 -------------------- ------------------- 1,399,207 1,382,779 -------------------- ------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Current assets: Cash and temporary cash investments 6,755 5,720 Accounts receivable: Customer, less allowance for doubtful accounts of $587 and $824, respectively 54,660 14,130 Associated companies 2,696 5,696 Other, less allowance for doubtful accounts of $373 and $817, respectively 17,329 12,864 Production fuel, at average cost 11,088 12,312 Materials and supplies, at average cost 26,232 24,722 Gas stored underground, at average cost 19,290 11,462 Adjustment clause balances 14,776 11,099 Regulatory assets 14,839 18,569 Prepayments and other 3,442 8,928 -------------------- ------------------- 171,107 125,502 -------------------- ------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Investments: Nuclear decommissioning trust funds 112,172 105,056 Other 6,276 6,119 -------------------- ------------------- 118,448 111,175 -------------------- ------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Other assets: Regulatory assets 117,574 123,031 Deferred charges and other 12,970 13,321 -------------------- ------------------- 130,544 136,352 -------------------- ------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Total assets $1,819,306 $1,755,808 ==================== =================== - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS (Continued) December 31, CAPITALIZATION AND LIABILITIES 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $33,427 $33,427 Additional paid-in capital 279,042 279,042 Retained earnings 267,829 252,953 Accumulated other comprehensive loss (18) - -------------------- -------------------- Total common equity 580,280 565,422 -------------------- -------------------- Cumulative preferred stock 18,320 18,320 Long-term debt (excluding current portion) 469,771 551,079 -------------------- -------------------- 1,068,371 1,134,821 -------------------- -------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 81,560 51,196 Capital lease obligations 12,651 13,307 Notes payable to associated companies 101,095 56,946 Accounts payable 65,898 41,273 Accounts payable to associated companies 30,375 17,438 Accrued interest 10,843 10,833 Accrued taxes 48,069 44,259 Other 28,921 23,618 -------------------- -------------------- 379,412 258,870 -------------------- -------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 224,164 225,961 Accumulated deferred investment tax credits 25,063 26,682 Environmental liabilities 29,521 26,292 Pension and other benefit obligations 26,884 27,734 Capital lease obligations 33,185 25,977 Other 32,706 29,471 -------------------- -------------------- 371,523 362,117 -------------------- -------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 11) - ---------------------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $1,819,306 $1,755,808 ==================== ==================== - ---------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $74,423 $66,446 $61,910 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 108,064 101,053 93,965 Amortization of leased nuclear fuel 13,867 11,400 12,513 Amortization of deferred energy efficiency expenditures 14,320 16,000 18,707 Deferred taxes and investment tax credits (13,253) (6,399) (17,921) Refueling outage provision 7,787 (5,150) (4,001) Impairment of regulatory assets - - 8,969 Other 714 1,355 (346) Other changes in assets and liabilities: Accounts receivable (41,995) (2,979) 9,690 Accounts payable 37,562 (7,729) 3,158 Accrued taxes 3,810 (11,036) (3,701) Adjustment clause balances (3,677) (14,530) 8,829 Benefit obligations and other 9,366 13,272 14,341 ----------------- ------------------ ------------------ Net cash flows from operating activities 210,988 161,703 206,113 ----------------- ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows used for financing activities: Common stock dividends declared (58,633) (87,951) (18,840) Dividends payable - (4,840) 4,840 Preferred stock dividends (914) (914) (914) Proceeds from issuance of long-term debt - - 10,000 Reductions in long-term debt (51,196) (50,140) (10,140) Net change in short-term borrowings 44,149 56,946 - Principal payments under capital lease obligations (15,813) (12,887) (13,250) Other - (20) (137) ----------------- ------------------ ------------------ Net cash flows used for financing activities (82,407) (99,806) (28,441) ----------------- ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Utility construction expenditures (121,116) (107,342) (115,371) Nuclear decommissioning trust funds (6,008) (6,008) (6,008) Other (422) (731) 1,381 ----------------- ------------------ ------------------ Net cash flows used for investing activities (127,546) (114,081) (119,998) ----------------- ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 1,035 (52,184) 57,674 ----------------- ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 5,720 57,904 230 ----------------- ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $6,755 $5,720 $57,904 ================= ================== ================== - ----------------------------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Cash paid during the period for: Interest $43,678 $47,307 $50,177 ================= ================== ================== Income taxes $60,255 $70,779 $64,738 ================= ================== ================== Noncash investing and financing activities - Capital lease obligations incurred $20,419 $25,040 $1,426 ================= ================== ================== - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity: Common stock - $2.50 par value - authorized 24,000,000 shares; 13,370,788 shares outstanding $33,427 $33,427 Additional paid-in capital 279,042 279,042 Retained earnings 267,829 252,953 Accumulated other comprehensive loss (18) - --------------------- --------------------- 580,280 565,422 --------------------- --------------------- - -------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Cumulative, par value $50 per share, not mandatorily redeemable - authorized 466,406 shares; 366,406 shares outstanding: 6.10% series, 100,000 shares outstanding 5,000 5,000 4.80% series, 146,406 shares outstanding 7,320 7,320 4.30% series, 120,000 shares outstanding 6,000 6,000 --------------------- --------------------- 18,320 18,320 --------------------- --------------------- - -------------------------------------------------------------------------------------------------------------------------------- Long-term debt: Collateral Trust Bonds: 7.65% series, retired in 2000 - 50,000 7.25% series, due 2006 60,000 60,000 6-7/8% series, due 2007 55,000 55,000 6% series, due 2008 50,000 50,000 7% series, due 2023 50,000 50,000 5.5% series, due 2023 19,400 19,400 --------------------- --------------------- 234,400 284,400 First Mortgage Bonds: Series Y, 8-5/8%, due 2001 60,000 60,000 9-1/8% series, due 2001 21,000 21,000 7-1/4% series, due 2007 30,000 30,000 --------------------- --------------------- 111,000 111,000 Pollution Control Revenue Bonds: 5.75%, due serially 2001 to 2003 2,800 2,996 Variable rate (5.1% at December 31, 2000), due 2003 to 2010 10,100 11,100 Variable/fixed rate series 1998 (4.25% through 2003), due 2023 10,000 10,000 --------------------- --------------------- 22,900 24,096 Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000 Senior Debentures, 6-5/8%, due 2009 135,000 135,000 --------------------- --------------------- 553,300 604,496 --------------------- --------------------- Less: Current maturities (81,560) (51,196) Unamortized debt premium and (discount), net (1,969) (2,221) --------------------- --------------------- 469,771 551,079 --------------------- --------------------- - -------------------------------------------------------------------------------------------------------------------------------- Total capitalization $1,068,371 $1,134,821 ===================== ===================== - -------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Additional Other Total Common Paid-In Retained Comprehensive Common Stock Capital Earnings Income (Loss) Equity - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) 1998: Beginning balance $33,427 $279,042 $233,216 $ - $545,685 Earnings available for common stock 60,996 60,996 Common stock dividends (18,840) (18,840) ----------- ------------ ------------- ---------- --------------- Ending balance 33,427 279,042 275,372 - 587,841 1999: Earnings available for common stock 65,532 65,532 Common stock dividends (87,951) (87,951) ----------- ------------ ------------- ---------- --------------- Ending balance 33,427 279,042 252,953 - 565,422 2000: Comprehensive income: Earnings available for common stock 73,509 73,509 Other comprehensive income (loss): Unrealized losses on derivatives qualified as hedges: Unrealized holding gains arising during period due to cumulative effect of a change in accounting principle, net of tax of $36 51 51 Other unrealized holding gains arising during period, net of tax of $153 215 215 Less: reclassification adjustment for gains included in net income, net of tax of $201 284 284 ---------- --------------- Net unrealized losses on qualifying derivatives (18) (18) ---------- --------------- Total comprehensive income 73,491 Common stock dividends (58,633) (58,633) ----------- ------------ ------------- ---------- --------------- Ending balance $33,427 $279,042 $267,829 ($18) $580,280 =========== ============ ============= ========== =============== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-97- IES UTILITIES INC. ------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Except as modified below, the Alliant Energy Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to IESU. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The consolidated financial statements include the accounts of IESU and its consolidated subsidiaries. In the fourth quarter of 1999, IESU's subsidiaries were merged into IESU. IESU is a subsidiary of Alliant Energy and is engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and steam services. All of IESU's retail customers are located in Iowa. (c) Regulatory Assets - At December 31, 2000 and 1999, regulatory assets of $132.4 million and $141.6 million, respectively, were comprised of the following items (in millions): 2000 1999 ----------- ------------ Tax-related (Note 1(d)) $84.7 $83.0 Environmental liabilities (Note 11(e)) 35.6 32.4 Energy efficiency program costs 8.8 22.2 Other 3.3 4.0 ----------- ------------ $132.4 $141.6 =========== ============ (d) Income Taxes - Alliant Energy files a consolidated federal income tax return. Under the terms of an agreement between Alliant Energy and its subsidiaries, the subsidiaries calculate their respective federal income tax provisions and make payments to or receive payments from Alliant Energy as if they were separate taxable entities. (i) Operating Revenues - IESU accrues revenues for services rendered but unbilled at month-end. In 1999, IESU recorded a $5 million increase in the estimate of utility services rendered but unbilled at month-end due to the implementation of a refined estimation process. (3) LEASES IESU's operating lease rental expenses for 2000, 1999 and 1998 were $9.6 million, $8.9 million and $9.0 million, respectively. IESU's future minimum lease payments by year are as follows (in millions): Capital Operating Year Leases Leases - ------------------------------------ ------------------ -------------------- 2001 $18.0 $8.7 2002 12.4 6.8 2003 7.8 6.5 2004 7.3 6.3 2005 3.3 4.3 Thereafter 3.2 22.2 ------------------ -------------------- 52.0 $54.8 ==================== Less: Amount representing interest 6.2 ------------------ Present value of net minimum capital lease payments $45.8 ================== -98- (4) UTILITY ACCOUNTS RECEIVABLE An accounts receivable financing arrangement exists through 2001 for IESU, in which it may sell up to a maximum amount of $65 million of accounts receivable to a financial institution on a limited recourse basis. Accounts receivable sold include receivables arising from sales to customers and to other public, municipal and cooperative utilities, as well as from billings to the co-owners of the jointly-owned electric generating plants operated by IESU. IESU receives a fee for billing and collection functions, which remain IESU's responsibility, that approximates fair value. In 2000, 1999 and 1998, IESU received approximately $0.7 billion, $0.6 billion and $0.8 billion, respectively, in aggregate proceeds from this facility. IESU uses proceeds from the sale of accounts receivable and unbilled revenues to finance a portion of its long-term cash needs. Included in IESU's Consolidated Statements of Income for 2000, 1999 and 1998, were fees associated with these sales of $4.0 million, $3.1 million and $3.8 million, respectively. (5) INCOME TAXES The components of federal and state income taxes for IESU for the years ended December 31 were as follows (in millions): 2000 1999 1998 ------------ ------------- ---------- Current tax expense $63.3 $55.8 $59.4 Deferred tax expense (11.6) (3.8) (15.3) Amortization of investment tax credits (1.6) (2.6) (2.6) ------------ ------------- ---------- $50.1 $49.4 $41.5 ============= ============ ========== The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes.
2000 1999 1998 ---------------- ---------------- -------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 7.2 7.0 6.6 Effect of rate making on property related differences 4.6 5.1 1.5 Amortization of investment tax credits (2.2) (2.2) (2.5) Adjustment of prior period taxes (4.0) (2.7) (1.4) Other items, net (0.4) 0.4 0.9 ---------------- ---------------- -------------- Overall effective income tax rate 40.2% 42.6% 40.1% ================ ================ ==============
The accumulated deferred income tax (assets) and liabilities included on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 2000 1999 --------- --------- Property related $269.8 $276.2 Investment tax credit related (17.0) (18.9) Other (28.6) (31.3) --------- --------- $224.2 $226.0 ========= ========= -99- (6) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - IESU has two non-contributory defined benefit pension plans that cover substantially all of its employees. Benefits are based on the employees' years of service and compensation. IESU also provides certain postretirement health care and life benefits to eligible retirees. In general, the health care plans are contributory with participants' contributions adjusted annually and the life insurance plans are non-contributory. The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------------ ---------------------------------------- 2000 1999 1998 2000 1999 1998 ------------- ---------------------------- ------------- -------------- ----------- Discount rate 8.00% 7.75% 6.75% 8.00% 7.75% 6.75% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 3.5% 3.5% N/A N/A N/A Medical cost trend on covered charges: Initial trend range N/A N/A N/A 9% 7% 8% Ultimate trend range N/A N/A N/A 5% 5% 6%
The components of IESU's qualified pension benefits and other postretirement benefits costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits -------------------------------------------- ------------------------------------- 2000 1999 1998 2000 1999 1998 ----------- ------------ ----------- ---------- ---------- -------- Service cost $2.4 $2.6 $2.9 $0.9 $1.5 $1.5 Interest cost 7.9 7.6 8.0 3.6 4.4 4.2 Expected return on plan assets (11.0) (10.3) (11.3) (2.6) (2.0) (1.1) Amortization of: Transition obligation (asset) (0.2) (0.2) (0.2) 1.8 1.8 1.9 Prior service cost 1.0 0.9 0.9 -- -- -- Actuarial gain (1.0) -- (0.4) (0.9) -- -- ----------- ------------ ----------- ---------- ---------- -------- Total ($0.9) $0.6 ($0.1) $2.8 $5.7 $6.5 =========== ============ =========== ========== ========== ========
During 1998, IESU recognized $1.2 million of curtailment charges relating to IESU's other postretirement benefits. The pension benefit cost shown above (and in the following tables) represents only the pension benefit cost for bargaining unit employees of IESU covered under the bargaining unit pension plan that is sponsored by IESU. The pension benefit cost for IESU's non-bargaining employees who are now participants in other Alliant Energy plans was $1.2 million, $0.9 million and $2.7 million for 2000, 1999 and 1998, respectively, including a special charge of $1.9 million in 1998 for severance and early retirement window programs. In addition, Corporate Services provides services to IESU. The allocated pension benefit costs associated with these services was $1.3 million, $1.2 million and $0.5 million for 2000, 1999 and 1998, respectively. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all IESU employees. The allocated other postretirement benefit cost associated with Corporate Services for IESU was $0.3 million, $0.4 million and $0.2 million for 2000, 1999 and 1998, respectively. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 2000, holding all other assumptions constant, would have the following effects (in millions): 1 Percent 1 Percent Increase Decrease ------------- -------------- Effect on total of service and interest cost components $0.7 ($0.6) Effect on postretirement benefit obligation $5.1 ($4.9) -100- A reconciliation of the funded status of IESU's plans to the amounts recognized on IESU's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits --------------------------------- ------------------------------------ 2000 1999 2000 1999 -------------- -------------- --------------- --------------- Change in benefit obligation: Net benefit obligation at beginning of year $102.3 $113.1 $46.8 $65.2 Service cost 2.4 2.6 0.9 1.5 Interest cost 7.9 7.6 3.6 4.4 Plan participants' contributions -- -- 0.4 0.4 Plan amendments 2.3 -- (0.6) (1.0) Actuarial loss (gain) (6.0) (14.3) 1.0 (20.1) Gross benefits paid (6.4) (6.7) (3.4) (3.6) -------------- -------------- --------------- --------------- Net benefit obligation at end of year 102.5 102.3 48.7 46.8 -------------- -------------- --------------- --------------- Change in plan assets: Fair value of plan assets at beginning of year 126.1 118.7 30.3 21.7 Actual return on plan assets 11.5 14.1 6.2 5.6 Employer contributions -- -- 6.9 6.2 Plan participants' contributions -- -- 0.4 0.4 Gross benefits paid (6.4) (6.7) (3.4) (3.6) -------------- -------------- --------------- --------------- Fair value of plan assets at end of year 131.2 126.1 40.4 30.3 -------------- -------------- --------------- --------------- Funded status at end of year 28.7 23.8 (8.3) (16.5) Unrecognized net actuarial gain (30.8) (25.4) (20.3) (18.6) Unrecognized prior service cost 10.1 8.9 (0.2) (0.3) Unrecognized net transition obligation (asset) (1.2) (1.4) 21.2 23.6 -------------- -------------- --------------- --------------- Net amount recognized at end of year $6.8 $5.9 ($7.6) ($11.8) ============== ============== =============== =============== Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $6.8 $5.9 $-- $-- Accrued benefit cost -- -- (7.6) (11.8) -------------- -------------- --------------- --------------- Net amount recognized at measurement date 6.8 5.9 (7.6) (11.8) -------------- -------------- --------------- --------------- Contributions paid after 9/30 and prior to 12/31 -- -- 0.1 3.4 -------------- -------------- --------------- --------------- Net amount recognized at 12/31 $6.8 $5.9 ($7.5) ($8.4) ============== ============== =============== ===============
Alliant Energy sponsors several non-qualified pension plans which cover certain current and former officers. The pension expense allocated to IESU for these plans was $1.4 million, $0.8 million and $1.4 million in 2000, 1999 and 1998, respectively. A significant number of IESU employees also participate in defined contribution pension plans (401(k) plans). IESU's contributions to the plans, which are based on the participants' level of contribution, were $2.1 million, $2.0 million and $2.8 million in 2000, 1999 and 1998, respectively. (7) COMMON AND PREFERRED STOCK (b) Preferred Stock - The carrying values of IESU's cumulative preferred stock at December 31, 2000 and 1999 was $18 million. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 2000 and 1999 was $13 million and $12 million, respectively. -101- (8) DEBT (a) Short-Term Debt - Information regarding IESU's short-term debt was as follows (dollars in millions):
2000 1999 1998 --------------- --------------- ---------------- As of year end: Money pool borrowings $101.1 $56.9 $-- Interest rate on money pool borrowings 6.6% 5.8% N/A For the year ended: Average amount of short-term debt (based on daily outstanding balances) $70.3 $15.5 $-- Average interest rate on short-term debt 6.5% 5.3% N/A
(b) Long-Term Debt - IESU's debt maturities for 2001 to 2005 are $81.6 million, $0.5 million, $4.1 million, $0 and $0, respectively. The carrying value of IESU's long-term debt at December 31, 2000 and 1999 was $551 million and $602 million, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 2000 and 1999 was $542 million and $573 million, respectively. (9) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS Information relating to investments held by IESU that are marked to market as a result of SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," were as follows (in millions):
December 31, 2000 December 31, 1999 ------------------------------- ------------------------------ Net Net Unrealized Carrying/Fair Unrealized Carrying/Fair Gains/ Value Gains Value (Losses) --------------- --------------- ------------- --------------- Available-for-sale securities: Nuclear decommissioning trust funds: Equity securities $47 $24 $47 $28 Debt securities 65 1 58 (1) --------------- --------------- ------------- --------------- Total $112 $25 $105 $27 =============== =============== ============= ===============
Nuclear Decommissioning Trust Funds - As required by SFAS 115, IESU's debt and equity security investments in the nuclear decommissioning trust funds are classified as available-for-sale. As of December 31, 2000, $35 million, $10 million and $20 million of the debt securities mature in 2001-2010, 2011-2020 and 2021-2030, respectively. The fair market value of the nuclear decommissioning trust funds was as reported by the trustee, adjusted for the tax effect of unrealized gains and losses. Net unrealized holding gains were recorded as part of accumulated provision for depreciation. The funds realized gains/(losses) from the sales of securities of ($0.2) million, $2.5 million and $0.4 million in 2000, 1999 and 1998, respectively (cost of the investments based on specific identification were $11.3 million, $25.5 million and $14.3 million, respectively, and proceeds from the sales were $11.1 million, $28.0 million and $14.7 million, respectively). (11) COMMITMENTS AND CONTINGENCIES (a) Construction and Acquisition Program - IESU anticipates 2001 utility construction and acquisition expenditures will be approximately $152 million. During 2002-2005, IESU expects to spend approximately $466 million for utility construction and acquisition expenditures. (b) Purchased-Power and Transmission, Coal and Natural Gas Contracts - Corporate Services has entered into purchased-power and transmission, coal, and natural gas supply, transportation and storage contracts as agent for IESU, WP&L and IPC. The gas supply commitments are all index-based. Based on the System Coordination and Operating Agreement, Alliant Energy annually -102- allocates purchased-power contracts to the individual utilities. Such process considers factors such as resource mix, load growth and resource availability. Refer to Note 16 for additional information. In addition, Corporate Services has entered into various coal contracts as agent for IESU, WP&L and IPC. Contract quantities are allocated to specific plants at the individual utilities based on various factors including projected heat input requirements, combustion compatibility and efficiency. However, for 2001, 2002 and 2003, system-wide contracts of $21.3 million (5.1 million tons), $1.7 million (0.5 million tons), and $1.7 million (0.5 million tons), respectively, have not yet been allocated to the individual utilities due to the need for additional analysis of combustion compatibility and efficiency. Corporate Services expects to supplement its coal and natural gas supplies with spot market purchases as needed. The minimum commitments directly assigned to IESU are as follows (dollars and Dths in millions; MWhs and tons in thousands):
Natural gas supply, Purchased-power and Coal (including transportation and storage transmission transportation) contracts -------------------------- --------------------------- ------------------------------ Dollars MWhs Dollars Tons Dollars Dths ----------- ----------- ----------- ----------- ------------- ------------ 2001 $11.2 -- $16.0 4,096 $69.3 101 2002 7.7 -- 5.6 2,473 42.3 85 2003 7.7 -- 5.4 2,401 16.0 64 2004 2.2 -- 3.6 1,767 0.7 2 2005 -- -- 3.6 1,767 0.2 2
(c) Information Technology Services - Corporate Services has an agreement, expiring in 2004, with EDS for information technology services. IESU's anticipated operating and capital expenditures under the agreement for 2001 are estimated to total approximately $11 million. Future costs under the agreement are variable and are dependent upon IESU's level of usage of technological services from EDS. (d) Financial Guarantees - IESU had financial guarantees, which were generally issued to support third-party borrowing arrangements and similar transactions, amounting to $17 million outstanding at December 31, 2000 and 1999. Such guarantees were not reflected in the consolidated financial statements. Management believes that the likelihood of IESU having to make any material cash payments under these agreements is remote. (e) Environmental Liabilities - IESU had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, as of December 31 (in millions):
Environmental liabilities 2000 1999 Regulatory assets 2000 1999 - ------------------------- --------------- --------------- ------------------ -------------- -------------- MGP sites $28.0 $24.5 MGP sites $27.9 $24.5 NEPA 6.8 7.0 NEPA 7.5 7.7 Other 0.3 0.3 Other 0.2 0.2 --------------- --------------- -------------- -------------- $35.1 $31.8 $35.6 $32.4 =============== =============== ============== ==============
MGP Sites - Management currently estimates the range of remaining costs to be incurred for the investigation, remediation and monitoring of all IESU's sites to be approximately $18 million to $37 million. (13) SEGMENTS OF BUSINESS IESU is a regulated domestic utility, serving customers in Iowa, and is broken down into three segments: a) electric operations; b) gas operations; and c) other, which includes the steam business and the unallocated portions of the utility business. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in "Other." Intersegment revenues were not material to IESU's operations and there was no single customer whose revenues exceeded 10 percent or more of IESU's consolidated revenues. Certain financial information relating to IESU's significant business segments is presented below: -103-
Electric Gas Other Total - --------------------------------------------------------------------------------------------------------------- (in millions) 2000 Operating revenue $651.4 $196.2 $28.4 $876.0 Depreciation and amortization expense 97.0 9.1 2.0 108.1 Operating income 153.7 11.3 2.8 167.8 Interest expense, net of AFUDC 48.4 48.4 Miscellaneous, net (5.1) (5.1) Income tax expense 50.1 50.1 Net income 74.4 74.4 Preferred dividends 0.9 0.9 Earnings available for common stock 73.5 73.5 Total assets 1,465.3 239.6 114.4 1,819.3 Construction and acquisition expenditures 104.7 15.7 0.7 121.1 - --------------------------------------------------------------------------------------------------------------- 1999 Operating revenue $628.0 $145.8 $26.9 $800.7 Depreciation and amortization expense 91.0 8.2 1.9 101.1 Operating income 149.6 8.4 3.5 161.5 Interest expense, net of AFUDC 49.5 49.5 Miscellaneous, net (3.8) (3.8) Income tax expense 49.4 49.4 Net income 66.4 66.4 Preferred dividends 0.9 0.9 Earnings available for common stock 65.5 65.5 Total assets 1,449.2 201.1 105.5 1,755.8 Construction and acquisition expenditures 92.7 13.8 0.8 107.3 - --------------------------------------------------------------------------------------------------------------- 1998 Operating revenue $639.4 $141.3 $26.2 $806.9 Depreciation and amortization expense 84.7 7.6 1.7 94.0 Operating income 143.4 7.6 4.0 155.0 Interest expense, net of AFUDC 49.0 49.0 Miscellaneous, net 2.6 2.6 Income tax expense 41.5 41.5 Net income 61.9 61.9 Preferred dividends 0.9 0.9 Earnings available for common stock 61.0 61.0 Total assets 1,440.8 201.2 147.0 1,789.0 Construction and acquisition expenditures 100.5 14.1 0.8 115.4 - ---------------------------------------------------------------------------------------------------------------
-104- (14) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended ----------------------------------------------------------------------------------- March 31 June 30 September 30 December 31 -------------------- ------------------ -------------------- -------------------- (in millions) 2000 Operating revenues $212.1 $182.0 $230.9 $251.0 Operating income 35.5 22.4 75.9 34.0 Net income 16.1 6.5 37.4 14.4 Earnings available for common stock 15.9 6.3 37.1 14.2 1999 Operating revenues $209.3 $170.8 $228.3 $192.3 Operating income 36.2 24.1 72.1 29.1 Net income 14.4 7.0 35.5 9.5 Earnings available for common stock 14.2 6.8 35.3 9.2
(16) RELATED PARTY ISSUES In association with the 1998 merger that resulted in the formation of Alliant Energy, IESU, WP&L and IPC entered into a System Coordination and Operating Agreement which became effective with the merger. The agreement, which has been approved by FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and transmission systems of the three utility companies. In addition, the agreement allows the interconnected system to be operated as a single entity with off-system capacity sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among the three utility companies based on procedures included in the agreement. The sales amounts allocated to IESU were $15.4 million, $18.1 million and $18.0 million for 2000, 1999 and 1998, respectively. The purchases allocated to IESU were $70.6 million, $71.3 million and $56.0 million for 2000, 1999 and 1998, respectively. The procedures were approved by both FERC and all state regulatory bodies having jurisdiction over these sales. Under the agreement, IESU, WP&L and IPC are fully reimbursed for any generation expense incurred to support the sale to an affiliate or to a non-affiliate. Any margins on sales to non-affiliates are distributed to the three utilities in proportion to each utility's share of electric production at the time of sale. Pursuant to a service agreement approved by the SEC under PUHCA, IESU receives various administrative and general services from an affiliate, Corporate Services. These services are billed to IESU at cost based on payroll and other expenses incurred by Corporate Services for the benefit of IESU. These costs totaled $100.0 million, $93.9 million and $59.3 million for 2000, 1999 and 1998, respectively, and consisted primarily of employee compensation, benefits and fees associated with various professional services. Corporate Services began operations in May 1998 upon the consummation of the merger. At December 31, 2000 and 1999, IESU had an intercompany payable to Corporate Services of $27.9 million and $16.4 million, respectively. -105- (17) INTERSTATE POWER AND LIGHT COMPANY MERGER On March 15, 2000, the boards of directors of IESU and IPC approved a merger agreement (as amended on November 29, 2000) that will result in IPC merging with and into IESU (the "Agreement"). Completion of the merger is subject to attaining the necessary regulatory approvals and the affirmative vote of the IPC common and preferred shareowners voting together as a single class and the IESU common shareowners and preferred shareowners of each series voting separately as individual classes. The vote is expected in the second quarter of 2001. Under the Agreement, each share of IPC common stock outstanding will be cancelled without payment and each share of IPC preferred stock outstanding will be cancelled and converted into the right to receive one share of a new class of IESU Class A preferred stock with substantially identical designations, rights and preferences as the previously outstanding IPC preferred stock. IPC and IESU are both wholly-owned operating subsidiaries of Alliant Energy. As such, the transaction will be accounted for as a common control merger. The following illustrates the impact of the merger if it had occurred as of January 1, 1998 (in thousands):
2000 1999 1998 ------------------ ------------------- ------------------- Operating revenues $1,234,007 $1,142,801 $1,162,819 Earnings available for common stock 99,724 93,896 77,278
-106- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of Wisconsin Power and Light Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of Wisconsin Power and Light Company (a Wisconsin corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 2000. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wisconsin Power and Light Company and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP - ----------------------- ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 29, 2001 -107-
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $692,191 $626,607 $614,704 Gas utility 165,152 120,770 111,737 Water 5,038 5,128 5,007 -------------------- -------------------- -------------------- 862,381 752,505 731,448 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric production fuels 113,208 110,521 120,485 Purchased power 146,939 107,598 113,936 Cost of gas sold 107,131 64,073 61,409 Other operation and maintenance 188,967 172,131 193,578 Depreciation and amortization 139,911 113,037 119,221 Taxes other than income taxes 29,163 30,240 30,169 -------------------- -------------------- -------------------- 725,319 597,600 638,798 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Operating income 137,062 154,905 92,650 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 44,644 40,992 36,584 Allowance for funds used during construction (5,365) (4,511) (3,049) Miscellaneous, net (16,536) 1,836 (1,129) -------------------- -------------------- -------------------- 22,743 38,317 32,406 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 114,319 116,588 60,244 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Income taxes 42,918 45,758 24,670 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle, net of tax 71,401 70,830 35,574 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax 35 - - -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Net income 71,436 70,830 35,574 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Preferred dividend requirements 3,310 3,310 3,310 -------------------- -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Earnings available for common stock $68,126 $67,520 $32,264 ==================== ==================== ==================== - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS December 31, ASSETS 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $2,007,974 $1,921,624 Gas 273,457 258,132 Water 29,869 27,770 Common 223,921 218,607 -------------------- -------------------- 2,535,221 2,426,133 Less - Accumulated depreciation 1,380,723 1,266,366 -------------------- -------------------- 1,154,498 1,159,767 Construction work in progress 59,133 66,784 Nuclear fuel, net of amortization 16,099 15,079 -------------------- -------------------- 1,229,730 1,241,630 Other property, plant and equipment, net of accumulated depreciation and amortization of $195 and $169, respectively 369 608 -------------------- -------------------- 1,230,099 1,242,238 -------------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 2,584 3,555 Accounts receivable: Customer 51,769 22,061 Associated companies 2,211 5,067 Other 13,865 10,984 Production fuel, at average cost 17,811 20,663 Materials and supplies, at average cost 21,639 20,439 Gas stored underground, at average cost 13,876 8,624 Prepaid gross receipts tax 23,088 20,864 Other 6,397 9,275 -------------------- -------------------- 153,240 121,532 -------------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 195,768 166,202 Other 14,362 15,272 -------------------- -------------------- 210,130 181,474 -------------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 88,721 82,161 Deferred charges and other 174,834 138,730 -------------------- -------------------- 263,555 220,891 -------------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------------- Total assets $1,857,024 $1,766,135 ==================== ==================== - --------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (Continued) December 31, CAPITALIZATION AND LIABILITIES 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $66,183 $66,183 Additional paid-in capital 229,516 229,438 Retained earnings 371,602 303,476 Accumulated other comprehensive loss (4,708) - -------------------- -------------------- Total common equity 662,593 599,097 -------------------- -------------------- Cumulative preferred stock 59,963 59,963 Long-term debt (excluding current portion) 514,209 414,673 -------------------- -------------------- 1,236,765 1,073,733 -------------------- -------------------- - ------------------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities - 1,875 Variable rate demand bonds 55,100 55,100 Notes payable to associated companies 29,244 125,749 Accounts payable 120,155 88,245 Accounts payable to associated companies 32,442 25,306 Other 36,266 30,283 -------------------- -------------------- 273,207 326,558 -------------------- -------------------- - ------------------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 222,819 235,838 Accumulated deferred investment tax credits 29,472 31,311 Customer advances 34,815 34,643 Environmental liabilities 7,564 10,861 Other 52,382 53,191 -------------------- -------------------- 347,052 365,844 -------------------- -------------------- - ------------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 11) - ------------------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $1,857,024 $1,766,135 ==================== ==================== - ------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Cash flows from operating activities: Net income $71,436 $70,830 $35,574 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 139,911 113,037 119,221 Amortization of nuclear fuel 5,066 6,094 5,356 Deferred taxes and investment tax credits (12,077) (12,618) (7,529) Other (16,003) 2,432 (2,089) Other changes in assets and liabilities: Accounts receivable (29,733) (13,423) 12,845 Accounts payable 39,046 8,482 19,452 Benefit obligations and other (21,797) (11,854) (5,509) ------------------ ------------------ ------------------- Net cash flows from operating activities 175,849 162,980 177,321 ------------------ ------------------ ------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from (used for) financing activities: Common stock dividends - (58,353) (58,341) Preferred stock dividends (3,310) (3,310) (3,310) Proceeds from issuance of long-term debt 100,000 - 60,000 Reductions in long-term debt (1,875) - (8,899) Net change in short-term borrowings (96,505) 48,950 (4,201) Capital contribution from parent - 30,000 - Other (1,242) - (1,966) ------------------ ------------------ ------------------- Net cash flows from (used for) financing activities (2,932) 17,287 (16,717) ------------------ ------------------ ------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows used for investing activities: Utility construction expenditures (131,640) (131,915) (117,143) Nuclear decommissioning trust funds (16,092) (16,092) (14,297) Other (26,156) (30,516) (29,845) ------------------ ------------------ ------------------- Net cash flows used for investing activities (173,888) (178,523) (161,285) ------------------ ------------------ ------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and temporary cash investments (971) 1,744 (681) ------------------ ------------------ ------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at beginning of period 3,555 1,811 2,492 ------------------ ------------------ ------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at end of period $2,584 $3,555 $1,811 ================== ================== =================== - ------------------------------------------------------------------------------------------------------------------------------------ Supplemental cash flow information: Cash paid during the period for: Interest $40,455 $38,330 $33,368 ================== ================== =================== Income taxes $54,676 $47,164 $31,951 ================== ================== =================== - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity: Common stock - $5.00 par value - authorized 18,000,000 shares; 13,236,601 shares outstanding $66,183 $66,183 Additional paid-in capital 229,516 229,438 Retained earnings 371,602 303,476 Accumulated other comprehensive loss (4,708) - --------------------- --------------------- 662,593 599,097 --------------------- --------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Cumulative, without par value, not mandatorily redeemable - authorized 3,750,000 shares, maximum aggregate stated value $150,000,000: $100 stated value - 4.50% series, 99,970 shares outstanding 9,997 9,997 $100 stated value - 4.80% series, 74,912 shares outstanding 7,491 7,491 $100 stated value - 4.96% series, 64,979 shares outstanding 6,498 6,498 $100 stated value - 4.40% series, 29,957 shares outstanding 2,996 2,996 $100 stated value - 4.76% series, 29,947 shares outstanding 2,995 2,995 $100 stated value - 6.20% series, 150,000 shares outstanding 15,000 15,000 $25 stated value - 6.50% series, 599,460 shares outstanding 14,986 14,986 --------------------- --------------------- 59,963 59,963 --------------------- --------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Long-term debt: First Mortgage Bonds: 1984 Series A, variable rate (5% at December 31, 2000), due 2014 8,500 8,500 1988 Series A, variable rate (5.15% at December 31, 2000), due 2015 14,600 14,600 1990 Series V, 9.3%, due 2025 27,000 27,000 1991 Series A, variable rate (4.85% at December 31, 2000), due 2015 16,000 16,000 1991 Series B, variable rate (4.85% at December 31, 2000), due 2005 16,000 16,000 1991 Series C, retired in 2000 - 1,000 1991 Series D, retired in 2000 - 875 1992 Series W, 8.6%, due 2027 90,000 90,000 1992 Series X, 7.75%, due 2004 62,000 62,000 1992 Series Y, 7.6%, due 2005 72,000 72,000 --------------------- --------------------- 306,100 307,975 Debentures, 7%, due 2007 105,000 105,000 Debentures, 5.7%, due 2008 60,000 60,000 Debentures, 7-5/8%, due 2010 100,000 - --------------------- --------------------- 571,100 472,975 --------------------- --------------------- Less: Current maturities - (1,875) Variable rate demand bonds (55,100) (55,100) Unamortized debt premium and (discount), net (1,791) (1,327) --------------------- --------------------- 514,209 414,673 --------------------- --------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Total capitalization $1,236,765 $1,073,733 ===================== ===================== - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Additional Other Total Common Paid-In Retained Comprehensive Common Stock Capital Earnings Income (Loss) Equity - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1998: Beginning balance $66,183 $199,170 $320,386 $ - $585,739 Earnings available for common stock 32,264 32,264 Common stock dividends (58,341) (58,341) Common stock issued 268 268 ------------ ------------ ------------ ------------- ------------ Ending balance 66,183 199,438 294,309 - 559,930 1999: Earnings available for common stock 67,520 67,520 Common stock dividends (58,353) (58,353) Capital contribution from parent 30,000 30,000 ------------ ------------ ------------ ------------- ------------ Ending balance 66,183 229,438 303,476 - 599,097 2000: Comprehensive income: Earnings available for common stock 68,126 68,126 Other comprehensive income (loss): Unrealized losses on derivatives qualified as hedges: Unrealized holding losses arising during period due to cumulative effect of a change in accounting principle, net of tax of ($430) (642) (642) Other unrealized holding losses arising during period, net of tax of ($3,634) (5,151) (5,151) Less: reclassification adjustment for losses included in net income, net of tax of ($769) (1,085) (1,085) ------------- ------------ Net unrealized losses on qualifying derivatives (4,708) (4,708) ------------- ------------ Total comprehensive income 63,418 Common stock issued 78 78 ------------ ------------ ------------ ------------- ------------ Ending balance $66,183 $229,516 $371,602 ($4,708) $662,593 ============ ============ ============ =============== ============ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-113- WISCONSIN POWER AND LIGHT COMPANY --------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Except as modified below, the Alliant Energy Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to WP&L. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The consolidated financial statements include the accounts of WP&L and its consolidated subsidiaries. WP&L is a subsidiary of Alliant Energy and is engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and water services. Nearly all of WP&L's retail customers are located in south and central Wisconsin. WP&L's principal consolidated subsidiaries are WPL Transco LLC and South Beloit. (c) Regulatory Assets - At December 31, 2000 and 1999, regulatory assets of $92.4 million and $85.9 million, respectively, were comprised of the following items (in millions): 2000 1999 ------ ------- Tax-related (Note 1(d)) $37.6 $43.4 Energy efficiency program costs 19.8 7.0 Environmental liabilities (Note 11(e)) 16.6 19.1 Other 18.4 16.4 ------- ------ $92.4 $85.9 ======= ====== (d) Income Taxes - Alliant Energy files a consolidated federal income tax return. Under the terms of an agreement between Alliant Energy and its subsidiaries, the subsidiaries calculate their respective federal income tax provisions and make payments to or receive payments from Alliant Energy as if they were separate taxable entities. (3) LEASES WP&L's operating lease rental expenses for 2000, 1999 and 1998 were $7.9 million, $7.7 million and $6.4 million, respectively. WP&L's future minimum lease payments by year are as follows (in millions): Operating Year Leases - -------------- ----------- 2001 $14.0 2002 16.5 2003 15.5 2004 15.1 2005 15.2 Thereafter 64.2 ----------- $140.5 =========== (4) UTILITY ACCOUNTS RECEIVABLE An accounts receivable financing arrangement exists through 2001 for WP&L, in which it may sell up to a maximum amount of $150 million of accounts receivable to a financial institution on a limited recourse basis. Accounts receivable sold include receivables arising from sales to customers and to other public, municipal and cooperative utilities, as well as from billings to the co-owners of the jointly-owned electric generating plants operated by WP&L. WP&L receives a fee for billing and collection functions, which remain WP&L's responsibility, that approximates fair value. In 2000, 1999 and 1998, WP&L received approximately $0.9 billion, $0.9 billion and $1.0 billion, respectively, in aggregate proceeds from this facility. WP&L uses proceeds from the sale of accounts receivable and unbilled revenues to finance a portion of its long-term cash needs. Included in WP&L's Consolidated Statements of Income for 2000, 1999 and 1998, were fees associated with these sales of $5.0 million, $4.0 million and $4.9 million, respectively. -114- (5) INCOME TAXES The components of federal and state income taxes for WP&L for the years ended December 31 were as follows (in millions):
2000 1999 1998 ---------- --------- --------- Current tax expense $55.0 $58.4 $32.2 Deferred tax expense (10.2) (10.7) (5.6) Amortization of investment tax credits (1.9) (1.9) (1.9) ---------- --------- --------- $42.9 $45.8 $24.7 ========== ========= =========
The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes.
2000 1999 1998 ---------------- ----------------- ---------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 6.0 6.3 7.8 Amortization of investment tax credits (1.6) (1.6) (3.1) Adjustment of prior period taxes (0.8) (0.3) -- Merger expenses -- -- 2.5 Amortization of excess deferred taxes (1.3) (1.3) (2.5) Other items, net 0.2 1.1 1.3 ---------------- ----------------- ---------------- Overall effective income tax rate 37.5% 39.2% 41.0% ================ ================= ================
The accumulated deferred income tax (assets) and liabilities included on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 2000 1999 --------- --------- Property related $260.5 $271.9 Investment tax credit related (19.7) (21.0) Other (18.0) (15.1) --------- --------- $222.8 $235.8 ========= ========= (6) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - WP&L has two non-contributory defined benefit pension plans that cover substantially all of its employees. Benefits are based on the employees' years of service and compensation. WP&L also provides certain postretirement health care and life benefits to eligible retirees. In general, the health care plans are contributory with participants' contributions adjusted annually and the life insurance plans are non-contributory. The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------------- ----------------------------------------------- 2000 1999 1998 2000 1999 1998 -------------- -------------- ------------- -------------- -------------- ----------------- Discount rate 8.00% 7.75% 6.75% 8.00% 7.75% 6.75% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% Medical cost trend on covered charges: Initial trend range N/A N/A N/A 9% 7% 8% Ultimate trend range N/A N/A N/A 5% 5% 5%
-115- The components of WP&L's qualified pension benefits and other postretirement benefits costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------------- ---------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------- ----------- ---------- ---------- ----------- Service cost $3.0 $3.8 $3.2 $1.4 $1.6 $1.7 Interest cost 8.9 8.9 8.5 3.3 2.7 2.6 Expected return on plan assets (12.9) (12.9) (12.8) (1.6) (1.5) (1.5) Amortization of: Transition obligation (asset) (2.1) (2.1) (2.1) 1.2 1.2 1.3 Prior service cost 0.4 0.4 0.5 -- -- -- Actuarial loss (gain) -- 0.2 -- (0.8) (0.9) (1.1) ------------ ------------- ----------- ---------- ---------- ----------- Total ($2.7) ($1.7) ($2.7) $3.5 $3.1 $3.0 ============ ============= =========== ========== ========== ===========
During 1998, WP&L recognized an additional $0.6 million of costs in accordance with SFAS 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," for severance and early retirement programs. In addition, during 1998, WP&L recognized $3.6 million of curtailment charges relating to WP&L's other postretirement benefits. The pension benefit cost shown above (and in the following tables) represents only the pension benefit cost for bargaining unit employees of WP&L covered under the bargaining unit pension plan that is sponsored by WP&L. The pension benefit cost for WP&L's non-bargaining employees who are now participants in other Alliant Energy plans was ($1.3) million, ($1.8) million and $3.0 million for 2000, 1999 and 1998, respectively, including a special charge of $3.6 million in 1998 for severance and early retirement window programs. In addition, Corporate Services provides services to WP&L. The allocated pension benefit costs associated with these services was $1.3 million, $1.2 million and $0.6 million for 2000, 1999 and 1998, respectively. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all WP&L employees. The allocated other postretirement benefit cost associated with Corporate Services for WP&L was $0.3 million, $0.4 million and $0.2 million for 2000, 1999 and 1998, respectively. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 2000, holding all other assumptions constant, would have the following effects (in millions):
1 Percent Increase 1 Percent Decrease ----------------------- ------------------------- Effect on total of service and interest cost components $0.4 ($0.4) Effect on postretirement benefit obligation $3.0 ($2.9)
-116- A reconciliation of the funded status of WP&L's plans to the amounts recognized on WP&L's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits --------------------------------- ------------------------------------- 2000 1999 2000 1999 -------------- -------------- ---------------- -------------- Change in benefit obligation: Net benefit obligation at beginning of year $117.2 $132.3 $42.4 $40.3 Service cost 3.0 3.8 1.4 1.6 Interest cost 8.9 8.9 3.3 2.7 Plan participants' contributions -- -- 1.2 1.2 Actuarial loss (gain) (6.2) (20.8) (1.3) 0.8 Gross benefits paid (7.0) (7.0) (4.7) (4.2) -------------- -------------- ---------------- -------------- Net benefit obligation at end of year 115.9 117.2 42.3 42.4 -------------- -------------- ---------------- -------------- Change in plan assets: Fair value of plan assets at beginning of year 147.6 137.5 17.9 15.1 Actual return on plan assets 15.7 17.1 1.5 1.8 Employer contributions -- -- 3.5 4.0 Plan participants' contributions -- -- 1.2 1.2 Gross benefits paid (7.0) (7.0) (4.7) (4.2) -------------- -------------- ---------------- -------------- Fair value of plan assets at end of year 156.3 147.6 19.4 17.9 -------------- -------------- ---------------- -------------- Funded status at end of year 40.4 30.4 (22.9) (24.5) Unrecognized net actuarial loss (gain) (8.2) 0.8 (15.0) (14.5) Unrecognized prior service cost 4.3 4.7 (0.2) (0.2) Unrecognized net transition obligation (asset) (3.7) (5.8) 13.8 14.9 -------------- -------------- ---------------- -------------- Net amount recognized at end of year $32.8 $30.1 ($24.3) ($24.3) ============== ============== ================ ============== Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $32.8 $30.1 $0.9 $0.6 Accrued benefit cost -- -- (25.2) (24.9) -------------- -------------- ---------------- -------------- Net amount recognized at measurement date 32.8 30.1 (24.3) (24.3) -------------- -------------- ---------------- -------------- Contributions paid after 9/30 and prior to 12/31 -- -- 0.6 1.0 -------------- -------------- ---------------- -------------- Net amount recognized at 12/31 $32.8 $30.1 ($23.7) ($23.3) ============== ============== ================ ==============
The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $37.1 million and $9.5 million as of September 30, 2000 and $36.5 million and $8.4 million, respectively, as of September 30, 1999. Alliant Energy sponsors several non-qualified pension plans that cover certain current and former officers. The pension expense allocated to WP&L for these plans was $1.2 million, $0.8 million and $0.8 million in 2000, 1999 and 1998, respectively. A significant number of WP&L employees also participate in defined contribution pension plans (401(k) plans). WP&L's contributions to the plans, which are based on the participants' level of contribution, were $2.1 million, $2.0 million and $2.4 million in 2000, 1999 and 1998, respectively. -117- (7) COMMON AND PREFERRED STOCK (b) Preferred Stock - The carrying value of WP&L's cumulative preferred stock at December 31, 2000 and 1999 was $60 million. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 2000 and 1999 was $44 million and $49 million, respectively. (8) DEBT (a) Short-Term Debt - Information regarding WP&L's short-term debt was as follows (dollars in millions):
2000 1999 1998 ----------------- ---------------- ----------------- As of year end: Notes payable outstanding $-- $-- $50.0 Interest rate on notes payable N/A N/A 5.4% Money pool borrowings $29.2 $125.7 $26.8 Interest rate on money pool borrowings 6.6% 5.8% 5.2% For the year ended: Average amount of short-term debt (based on daily outstanding balances) $25.5 $77.1 $48.4 Average interest rate on short-term debt 6.2% 5.2% 5.6%
(b) Long-Term Debt - WP&L's debt maturities for 2001 to 2005 are $0, $0, $0, $62.0 million and $88.0 million, respectively. The carrying value of WP&L's long-term debt at December 31, 2000 and 1999 was $569 million and $472 million, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 2000 and 1999 was $584 million and $469 million, respectively. (9) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS Information relating to investments held by WP&L that are marked to market as a result of SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," were as follows (in millions):
December 31, 2000 December 31, 1999 ------------------------------- ------------------------------ Net Net Unrealized Carrying/Fair Unrealized Carrying/Fair Gains/ Value Gains Value (Losses) --------------- --------------- ------------- --------------- Available-for-sale securities: Nuclear decommissioning trust funds: Equity securities $81 $26 $65 $29 Debt securities 115 2 101 (2) --------------- --------------- ------------- --------------- Total $196 $28 $166 $27 =============== =============== ============= ===============
Nuclear Decommissioning Trust Funds - As required by SFAS 115, WP&L's debt and equity security investments in the nuclear decommissioning trust funds are classified as available-for-sale. As of December 31, 2000, $75 million, $14 million and $26 million of the debt securities mature in 2001-2010, 2011-2020 and 2021-2035, respectively. The fair market value of the nuclear decommissioning trust funds was as reported by the trustee, adjusted for the tax effect of unrealized gains and losses. Net unrealized holding gains were recorded as part of accumulated provision for depreciation. The funds realized gains/(losses) from the sales of securities of $5.2 million, ($10.4) million and $0.8 million in 2000, 1999 and 1998, respectively (cost of the investments based on specific identification were $202.1 million, $94.6 million and $57.6 million, respectively, and proceeds from the sales were $207.3 million, $84.2 million and $58.4 million, respectively). -118- (11) COMMITMENTS AND CONTINGENCIES (a) Construction and Acquisition Program - WP&L anticipates 2001 utility construction and acquisition expenditures will be approximately $138 million. During 2002-2005, WP&L expects to spend approximately $667 million for utility construction and acquisition expenditures. (b) Purchased-Power and Transmission, Coal and Natural Gas Contracts - Corporate Services has entered into purchased-power and transmission, coal, and natural gas supply, transportation and storage contracts as agent for WP&L, IESU and IPC. The gas supply commitments are all index-based. Based on the System Coordination and Operating Agreement, Alliant Energy annually allocates purchased-power contracts to the individual utilities. Such process considers factors such as resource mix, load growth and resource availability. Refer to Note 16 for additional information. In addition, Corporate Services has entered into various coal contracts as agent for WP&L, IESU and IPC. Contract quantities are allocated to specific plants at the individual utilities based on various factors including projected heat input requirements, combustion compatibility and efficiency. However, for 2001, 2002 and 2003, system-wide contracts of $21.3 million (5.1 million tons), $1.7 million (0.5 million tons) and $1.7 million (0.5 million tons), respectively, have not yet been allocated to the individual utilities due to the need for additional analysis of combustion compatibility and efficiency. Corporate Services expects to supplement its coal and natural gas supplies with spot market purchases as needed. The minimum commitments directly assigned to WP&L are as follows (dollars and Dths in millions; MWhs and tons in thousands):
Natural gas supply, Purchased-power and Coal (including transportation and storage transmission transportation) contracts ---------------------------- ---------------------------- ----------------------------- Dollars MWhs Dollars Tons Dollars Dths ----------- ------------ ------------ ------------ ------------- ----------- 2001 $53.2 864 $14.0 4,523 $39.6 93 2002 34.3 219 9.8 3,673 26.9 88 2003 21.8 219 5.5 2,957 22.9 79 2004 14.0 219 5.5 2,957 11.2 56 2005 8.0 -- -- -- 11.1 55
(c) Information Technology Services - Corporate Services has an agreement, expiring in 2004, with EDS for information technology services. WP&L's anticipated operating and capital expenditures under the agreement for 2001 are estimated to total approximately $2 million. Future costs under the agreement are variable and are dependent upon WP&L's level of usage of technological services from EDS. (e) Environmental Liabilities - WP&L had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, as of December 31 (in millions):
Environmental liabilities 2000 1999 Regulatory assets 2000 1999 - ------------------------- --------------- --------------- ----------------- -------------- -------------- MGP sites $4.5 $7.3 MGP sites $11.7 $14.2 NEPA 3.6 4.1 NEPA 4.4 4.9 Other 0.1 0.1 Other 0.5 -- --------------- --------------- -------------- -------------- $8.2 $11.5 $16.6 $19.1 =============== =============== ============== ==============
MGP Sites - Management currently estimates the range of remaining - --------- costs to be incurred for the investigation, remediation and monitoring of all WP&L's sites to be approximately $4 million to $5 million. (13) SEGMENTS OF BUSINESS WP&L is a regulated domestic utility, serving customers in Wisconsin and Illinois, and is broken down into three segments: a) electric operations; b) gas operations; and c) other, which includes the water business and the unallocated portions of the utility business. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in "Other." Intersegment revenues were not material to WP&L's operations and there was no single customer whose revenues exceeded 10 percent or more of WP&L's consolidated revenues. Certain financial information relating to WP&L's significant business segments is presented below: -119-
Electric Gas Other Total - ------------------------------------------------------------------------------------------------------------------- (in millions) 2000 Operating revenue $692.2 $165.2 $5.0 $862.4 Depreciation and amortization expense 122.9 15.9 1.1 139.9 Operating income 123.2 12.2 1.7 137.1 Interest expense, net of AFUDC 39.3 39.3 Net income from equity method subsidiaries (0.5) (0.5) Miscellaneous, net (other than equity income) (16.0) (16.0) Income tax expense 42.9 42.9 Net income 71.4 71.4 Preferred dividends 3.3 3.3 Earnings available for common stock 68.1 68.1 Total assets 1,344.9 226.1 286.0 1,857.0 Investments in equity method subsidiaries 4.8 4.8 Construction and acquisition expenditures 114.2 15.1 2.3 131.6 - ------------------------------------------------------------------------------------------------------------------- 1999 Operating revenue $626.6 $120.8 $5.1 $752.5 Depreciation and amortization expense 97.5 14.5 1.0 113.0 Operating income 139.3 13.8 1.8 154.9 Interest expense, net of AFUDC 36.5 36.5 Net income from equity method subsidiaries (0.7) (0.7) Miscellaneous, net (other than equity income) 2.5 2.5 Income tax expense 45.8 45.8 Net income 70.8 70.8 Preferred dividends 3.3 3.3 Earnings available for common stock 67.5 67.5 Total assets 1,310.5 200.3 255.3 1,766.1 Investments in equity method subsidiaries 5.2 5.2 Construction and acquisition expenditures 111.2 18.2 2.5 131.9 - ------------------------------------------------------------------------------------------------------------------- 1998 Operating revenue $614.7 $111.7 $5.0 $731.4 Depreciation and amortization expense 104.7 13.6 0.9 119.2 Operating income 87.4 3.6 1.7 92.7 Interest expense, net of AFUDC 33.5 33.5 Net income from equity method subsidiaries (0.8) (0.8) Miscellaneous, net (other than equity income) (0.3) (0.3) Income tax expense 24.7 24.7 Net income 35.6 35.6 Preferred dividends 3.3 3.3 Earnings available for common stock 32.3 32.3 Total assets 1,276.4 195.9 212.9 1,685.2 Investments in equity method subsidiaries 5.2 5.2 Construction and acquisition expenditures 99.6 16.0 1.5 117.1
-120- (14) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended ----------------------------------------------------------------------------------- March 31 June 30 September 30 December 31 ------------------- ------------------ --------------------- -------------------- (in millions) 2000 Operating revenues $218.8 $193.9 $199.6 $250.1 Operating income 40.5 25.1 36.9 34.6 Net income 21.9 11.3 17.6 20.6 Earnings available for common stock 21.0 10.5 16.8 19.8 1999 Operating revenues $203.0 $167.1 $186.8 $195.6 Operating income 46.4 21.9 32.5 54.1 Net income 26.3 6.9 14.2 23.4 Earnings available for common stock 25.4 6.1 13.4 22.6
(16) RELATED PARTY ISSUES In association with the 1998 merger that resulted in the formation of Alliant Energy, IESU, WP&L and IPC entered into a System Coordination and Operating Agreement which became effective with the merger. The agreement, which has been approved by FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and transmission systems of the three utility companies. In addition, the agreement allows the interconnected system to be operated as a single entity with off-system capacity sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among the three utility companies based on procedures included in the agreement. The sales amounts allocated to WP&L were $28.6 million, $23.8 million and $23.6 million for 2000, 1999 and 1998, respectively. The purchases allocated to WP&L were $130.7 million, $101.0 million and $70.0 million for 2000, 1999 and 1998, respectively. The procedures were approved by both the FERC and all state regulatory bodies having jurisdiction over these sales. Under the agreement, IESU, WP&L and IPC are fully reimbursed for any generation expense incurred to support a sale to an affiliate or to a non-affiliate. Any margins on sales to non-affiliates are distributed to the three utilities in proportion to each utility's share of electric production at the time of the sale. Pursuant to a service agreement approved by the SEC under PUHCA, WP&L received various administrative and general services from an affiliate, Corporate Services. These services are billed to WP&L at cost based on payroll and other expenses incurred by Corporate Services for the benefit of WP&L. These costs totaled $103.4 million, $96.5 million and $53.9 million for 2000, 1999 and 1998, respectively, and consisted primarily of employee compensation, benefits and fees associated with various professional services. Corporate Services began operations in May 1998 upon the consummation of the merger. At December 31, 2000 and 1999, WP&L had an intercompany payable to Corporate Services of $30.6 million and $24.7 million, respectively. -121- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS ALLIANT ENERGY The information required by Item 10 relating to directors and nominees for election of directors at the 2001 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information under the caption "Election of Directors" in Alliant Energy's Proxy Statement for the 2001 Annual Meeting of Shareowners (the 2001 Alliant Energy Proxy Statement), which will be filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. The information required by Item 10 relating to the timely filing of reports under Section 16 of the Securities Exchange Act of 1934 is incorporated herein by reference to the relevant information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2001 Alliant Energy Proxy Statement. The executive officers of Alliant Energy as of the date of this filing are as follows (figures following the names represent the officer's age as of December 31, 2000): Executive Officers of Alliant Energy Erroll B. Davis, Jr., 56, was elected Chairman of the Board - --------------------- effective April 2000, has served as President and Chief Executive Officer (CEO) since 1990 and has been a board member since 1988. William D. Harvey, 51, was elected Executive Vice - ------------------ President-Generation effective April 1998. Prior thereto, he served as Senior Vice President since 1993 at WP&L. James E. Hoffman, 47, was elected Executive Vice - ---------------- President-Business Development effective April 1998. Prior thereto, he served as Executive Vice President since 1996 at IES and Executive Vice President-Customer Service & Energy Delivery from 1995 to 1997 at IESU. Eliot G. Protsch, 47, was elected Executive Vice - ----------------- President-Energy Delivery effective April 1998. Prior thereto, he served as Senior Vice President since 1993 at WP&L. Barbara J. Swan, 49, was elected Executive Vice President and - --------------- General Counsel effective October 1998. She previously served as Vice President-General Counsel from 1994 to 1998 at WP&L. Thomas M. Walker, 53, was elected Executive Vice President and - ----------------- Chief Financial Officer (CFO) effective April 1998. Prior thereto, he served as Executive Vice President and CFO since 1996 at IES and IESU. Pamela J. Wegner, 53, was elected Executive Vice - ----------------- President-Corporate Services effective October 1998. She previously served as Vice President-Information Services and Administration from 1994 to 1998 at WP&L. Edward M. Gleason, 60, has served as Vice President-Treasurer - ------------------- and Corporate Secretary since 1993. John E. Kratchmer, 38, was elected Corporate Controller and - ------------------- Chief Accounting Officer effective October 2000. He previously served as Assistant Controller since April 1998 and as Manager of Financial Reporting and Property from 1996 to 1998 at IES. NOTE: None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. -122- Additional Officers of Alliant Energy Joan M. Thompson, 43, was elected Assistant Controller - ----------------- effective June 2000. She previously served as Manager-IESU and IPC Accounting since February 1999, Manager-IESU Accounting from 1998 to 1999, and Manager of Taxes and Payroll from 1994 to 1998 at IES. Linda J. Wentzel, 52, was elected Assistant Corporate Secretary - ---------------- effective May 1998. She previously served as Executive Administrative Assistant since 1995 at Alliant Energy. Enrique Bacalao, 51, was elected Assistant Treasurer effective - ---------------- November 1998. Prior to joining Alliant Energy, he was Vice President, Corporate Banking from 1995 to 1998 at the Chicago Branch of The Industrial Bank of Japan, Limited. IESU IESU's directors are identical to Alliant Energy, but are elected by consent action. The information required by Item 10 relating to directors and nominees for election of directors at the 2001 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information included under the caption "Election of Directors" in the 2001 Alliant Energy Proxy Statement, which will be filed with the SEC within 120 days after the end of IESU's fiscal year. The information required by Item 10 relating to the timely filing of reports under Section 16 of the Securities Exchange Act of 1934 is incorporated herein by reference to the relevant information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2001 Alliant Energy Proxy Statement. The executive officers of IESU as of the date of this filing are as follows (figures following the names represent the officer's age as of December 31, 2000): Executive Officers of IESU Erroll B. Davis, Jr., 56, was elected Chairman of the Board - -------------------- effective April 2000 and CEO effective April 1998. Mr. Davis is also an officer of Alliant Energy and WP&L. Eliot G. Protsch, 47, was elected President effective April - ------------------ 1998. Mr. Protsch is also an officer of Alliant Energy and WP&L. William D. Harvey, 51, was elected Executive Vice - ------------------ President-Generation effective October 1998. Mr. Harvey is also an officer of Alliant Energy and WP&L. Barbara J. Swan, 49, was elected Executive Vice President and - ---------------- General Counsel effective October 1998. Ms. Swan is also an officer of Alliant Energy and WP&L. Thomas M. Walker, 53, was elected Executive Vice President and - ---------------- CFO in 1996. Mr. Walker is also an officer of Alliant Energy and WP&L. Pamela J. Wegner, 53, was elected Executive Vice - ----------------- President-Corporate Services effective October 1998. Ms. Wegner is also an officer of Alliant Energy and WP&L. Edward M. Gleason, 60, was elected Vice President-Treasurer and - ----------------- Corporate Secretary effective April 1998. Mr. Gleason is also an officer of Alliant Energy and WP&L. Dundeana K. Langer, 42, was elected Vice President-Customer - ------------------ Operations effective December 2000. She previously served as Vice President-Customer Services and Operations since September 1999 at IESU and WP&L, Vice President-Customer Operations from 1998 to 1999 at IESU, Vice President-Customer Services from 1998 to 1999 at WP&L, Assistant Vice President-Field Operations from 1997 to 1998 and General Manager-Operations & Director Process Redesign Implementation from 1996 to 1997 at IESU. Ms. Langer is also an officer of WP&L. Daniel L. Mineck, 52, was elected Vice President-Performance - ----------------- Engineering and Environmental effective October 1998. He previously served as Assistant Vice President-Corporate Engineering since 1996. Mr. Mineck is also an officer of WP&L. -123- Kim K. Zuhlke, 47, was elected Vice President-Engineering, - -------------- Sales and Marketing effective September 1999. He previously served as Vice President-Customer Operations since October 1998. Mr. Zuhlke is also an officer of WP&L. John E. Kratchmer, 38, was elected Corporate Controller and - ----------------- Chief Accounting Officer effective October 2000. Mr. Kratchmer is also an officer of Alliant Energy and WP&L. NOTE: None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. Additional Officers of IESU Daniel L. Siegfried, 41, was elected Assistant Corporate - -------------------- Secretary effective April 1998. He also serves as Senior Attorney for Alliant Energy. Previously he served as Senior Environmental Counsel from 1992 to 1998 at IES. Linda J. Wentzel, 52, was elected Assistant Corporate Secretary - ----------------- effective May 1998. Ms. Wentzel is also an officer of Alliant Energy and WP&L. Enrique Bacalao, 51, was elected Assistant Treasurer effective - --------------- November 1998. Mr. Bacalao is also an officer of Alliant Energy and WP&L. Steven F. Price, 48, was elected Assistant Treasurer effective - --------------- April 1998. Mr. Price is also an officer of WP&L. WP&L The information required by Item 10 relating to directors and nominees for election of directors at the 2001 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information under the caption "Election of Directors" in WP&L's Proxy Statement for the 2001 Annual Meeting of Shareowners (the 2001 WP&L Proxy Statement), which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. The information required by Item 10 relating to the timely filing of reports under Section 16 of the Securities Exchange Act of 1934 is incorporated herein by reference to the relevant information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2001 WP&L Proxy Statement. The executive officers of WP&L as of the date of this filing are as follows (figures following the names represent the officer's age as of December 31, 2000): Executive Officers of WP&L Erroll B. Davis, Jr., 56, was elected Chairman of the Board - -------------------- effective April 2000 and CEO effective April 1998. He previously served as President and CEO of WP&L since 1988 and has been a board member of WP&L since 1984. Mr. Davis is also an officer of Alliant Energy and IESU. William D. Harvey, 51, was elected President effective April - ----------------- 1998. He previously served as Senior Vice President since 1993 at WP&L. Mr. Harvey is also an officer of Alliant Energy and IESU. Eliot G. Protsch, 47, was elected Executive Vice - ----------------- President-Energy Delivery effective October 1998. He previously served as Senior Vice President from 1993 to 1998 at WP&L. Mr. Protsch is also an officer of Alliant Energy and IESU. Barbara J. Swan, 49, was elected Executive Vice President and - ---------------- General Counsel effective October 1998. She previously served as Vice President-General Counsel from 1994 to 1998 at WP&L. Ms. Swan is also an officer of Alliant Energy and IESU. Thomas M. Walker, 53, was elected Executive Vice President and - ----------------- CFO effective October 1998. Mr. Walker is also an officer of Alliant Energy and IESU. -124- Pamela J. Wegner, 53, was elected Executive Vice - ----------------- President-Corporate Services effective October 1998. She previously served as Vice President-Information Services and Administration from 1994 to 1998 at WP&L. Ms. Wegner is also an officer of Alliant Energy and IESU. Edward M. Gleason, 60, was elected Vice President-Treasurer and - ------------------ Corporate Secretary effective April 1998. He previously served as Controller, Treasurer, and Corporate Secretary since 1996. Mr. Gleason is also an officer of Alliant Energy and IESU. Dundeana K. Langer, 42, was elected Vice President-Customer - ------------------- Operations effective December 2000. She has previously served as Vice President-Customer Services and Operations since September 1999 and Vice President-Customer Services from 1998 to 1999. Ms. Langer is also an officer of IESU. Daniel L. Mineck, 52, was elected Vice President-Performance - ---------------- Engineering and Environmental effective April 1998. Mr. Mineck is also an officer of IESU. Kim K. Zuhlke, 47, was elected Vice President-Engineering, - -------------- Sales & Marketing effective September 1999. He previously served as Vice President-Customer Operations since April 1998 at WP&L and since October 1998 at IESU and as Vice President-Customer Services and Sales from 1993 to 1998 at WP&L. Mr. Zuhlke is also an officer of IESU. John E. Kratchmer, 38, was elected Corporate Controller and - ------------------ Chief Accounting Officer effective October 2000. Mr. Kratchmer is also an officer of Alliant Energy and IESU. NOTE: None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. Additional Officers of WP&L Linda J. Wentzel, 52, was elected Assistant Corporate Secretary - ----------------- effective May 1998. She previously served as Executive Administrative Assistant since 1995 at Alliant Energy. Ms. Wentzel is also an officer of Alliant Energy and IESU. Enrique Bacalao, 51, was elected Assistant Treasurer effective - ---------------- November 1998. Mr. Bacalao is also an officer of Alliant Energy and IESU. Steven F. Price, 48, was elected Assistant Treasurer effective - ---------------- April 1998. He previously served as Assistant Corporate Secretary since 1992 at Alliant Energy and WP&L and as Assistant Treasurer since 1992 at Alliant Energy. Mr. Price is also an officer of IESU. ITEM 11. EXECUTIVE COMPENSATION ALLIANT ENERGY The information required by Item 11 is incorporated herein by reference to the relevant information under the captions "Compensation of Directors," "Compensation of Executive Officers," "Stock Options," "Long-Term Incentive Awards," "Certain Agreements and Transactions" and "Retirement and Employee Benefit Plans" in the 2001 Alliant Energy Proxy Statement, which will be filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. IESU The directors as well as the CEO and the four other most highly compensated executive officers for IESU are the same as for WP&L. Therefore, the information required by Item 11 is incorporated herein by reference to the relevant information under the captions "Compensation of Directors," "Compensation of Executive Officers," "Stock Options," "Long-Term Incentive Awards," "Certain Agreements and Transactions" and "Retirement and Employee Benefit Plans" in the 2001 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of IESU's fiscal year. -125- WP&L The information required by Item 11 is incorporated herein by reference to the relevant information under the captions "Compensation of Directors," "Compensation of Executive Officers," "Stock Options," "Long-Term Incentive Awards," "Certain Agreements and Transactions" and "Retirement and Employee Benefit Plans" in the 2001 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ALLIANT ENERGY The information required by Item 12 is incorporated herein by reference to the relevant information under the caption "Ownership of Voting Securities" in the 2001 Alliant Energy Proxy Statement, which will be filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. IESU To IESU's knowledge, no shareowner beneficially owned five percent or more of IESU's 4.80% Cumulative Preferred Stock as of December 31, 2000. None of the directors or executive officers of IESU own any shares of IESU's 4.80% Cumulative Preferred Stock. WP&L The information required by Item 12 is incorporated herein by reference to the relevant information under the caption "Ownership of Voting Securities" in the 2001 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Consolidated Financial Statements --------------------------------- Refer to "Index to Financial Statements" in Item 8. Financial Statements and Supplementary Data. (a) (2) Financial Statement Schedules ------------------------------ Report of Independent Public Accountants on Schedules Schedule II. Valuation and Qualifying Accounts and Reserves NOTE: All other schedules are omitted because they are not applicable or not required, or because that required information is shown either in the consolidated financial statements or in the notes thereto. (a) (3) Exhibits Required by Securities and Exchange Commission - --------------------------------------------------------------- Regulation S-K - -------------- The following Exhibits are filed herewith or incorporated herein by reference. Documents indicated by an asterisk (*) are incorporated herein by reference. 2.1* Agreement and Plan of Merger, dated as of November 10, 1995, by and among WPLH, IES, IPC and AMW Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to Alliant Energy's Form 8-K, dated November 10, 1995) 2.2* Amendment No. 1 to Agreement and Plan of Merger and Stock Option Agreements, dated May 22, 1996, by and among WPLH, IES, IPC, a Delaware corporation, AMW Acquisition, Inc., WPLH Acquisition Co. and IPC, a Wisconsin corporation (incorporated by reference to Exhibit 2.1 to Alliant Energy's Form 8-K, dated May 22, 1996) 2.3* Amendment No. 2 to Agreement and Plan of Merger, dated August 16, 1996, by and among WPLH, IES, IPC, a Delaware corporation, WPLH Acquisition Co. and IPC, a Wisconsin corporation (incorporated by reference to Exhibit 2.1 to Alliant Energy's Form 8-K, dated August 15, 1996) -126- 2.4* Agreement and Plan of Merger, dated as of March 15, 2000, as amended on November 29, 2000, between IESU and IPC (incorporated by reference to Appendix A to the joint proxy statement/prospectus of IESU, dated February 13, 2001 (Registration No. 333-53846)) 3.1* Restated Articles of Incorporation of Alliant Energy, as amended (incorporated by reference to Exhibit 3.2 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1999) 3.2 Bylaws of Alliant Energy, as amended, effective as of January 30, 2001 3.3* Restated Articles of Incorporation of WP&L, as amended (incorporated by reference to Exhibit 3.1 to WP&L's Form 10-Q for the quarter ended June 30, 1994) 3.4 Bylaws of WP&L, as amended, effective as of January 30, 2001 3.5* Amended and Restated Articles of Incorporation of IESU (incorporated by reference to Exhibit 3.5 to IESU's Form 10-Q for the quarter ended June 30, 1998) 3.6 Bylaws of IESU, as amended, effective as of January 30, 2001 4.1* Indenture of Mortgage or Deed of Trust dated August 1, 1941, between WP&L and First Wisconsin Trust Company (Firstar Bank, N.A., successor) and George B. Luhman (Brian J. Gardner, successor), as Trustees, filed as Exhibit 7(a) in File No. 2-6409, and the indentures supplemental thereto dated, respectively, January 1, 1948, September 1, 1948, June 1, 1950, April 1, 1951, April 1, 1952, September 1, 1953, October 1, 1954, March 1, 1959, May 1, 1962, August 1, 1968, June 1, 1969, October 1, 1970, July 1, 1971, April 1, 1974, December 1, 1975, May 1, 1976, May 15, 1978, August 1, 1980, January 15, 1981, August 1, 1984, January 15, 1986, June 1, 1986, August 1, 1988, December 1, 1990, September 1, 1991, October 1, 1991, March 1, 1992, May 1, 1992, June 1, 1992 and July 1, 1992 (Second Amended Exhibit 7(b) in File No. 2-7361; Amended Exhibit 7(c) in File No. 2-7628; Amended Exhibit 7.02 in File No. 2-8462; Amended Exhibit 7.02 in File No. 2-8882; Second Amendment Exhibit 4.03 in File No. 2-9526; Amended Exhibit 4.03 in File No. 2-10406; Amended Exhibit 2.02 in File No. 2-11130; Amended Exhibit 2.02 in File No. 2-14816; Amended Exhibit 2.02 in File No. 2-20372; Amended Exhibit 2.02 in File No. 2-29738; Amended Exhibit 2.02 in File No. 2-32947; Amended Exhibit 2.02 in File No. 2-38304; Amended Exhibit 2.02 in File No. 2-40802; Amended Exhibit 2.02 in File No. 2-50308; Exhibit 2.01(a) in File No. 2-57775; Amended Exhibit 2.02 in File No. 2-56036; Amended Exhibit 2.02 in File No. 2-61439; Exhibit 4.02 in File No. 2-70534; Amended Exhibit 4.03 in File No. 2-70534; Exhibit 4.02 in File No. 33-2579; Amended Exhibit 4.03 in File No. 33-2579; Amended Exhibit 4.02 in File No. 33-4961; Exhibit 4.24 in File No. 33-45726, Exhibit 4.25 in File No. 33-45726, Exhibit 4.26 in File No. 33-45726, Exhibit 4.27 in File No.33-45726, Exhibit 4.1 to WP&L's Form 8-K dated March 9, 1992, Exhibit 4.1 to WP&L's Form 8-K dated May 12, 1992, Exhibit 4.1 to WP&L's Form 8-K dated June 29, 1992 and Exhibit 4.1 to WP&L's Form 8-K dated July 20, 1992) 4.2* Rights Agreement, dated January 20, 1999, between Alliant Energy and Firstar Bank Milwaukee, N.A. (incorporated by reference to Exhibit 4.1 to Alliant Energy's Registration Statement on Form 8-A, dated January 20, 1999) 4.3* Indenture, dated as of June 20, 1997, between WP&L and Firstar Trust Company (Firstar Bank, N.A., successor), as Trustee, relating to debt securities (incorporated by reference to Exhibit 4.33 to Amendment No. 2 to WP&L's Registration Statement on Form S-3 (Registration No. 33-60917)) 4.4* Officers' Certificate, dated as of June 25, 1997, creating WP&L's 7% debentures due June 15, 2007 (incorporated by reference to Exhibit 4 to WP&L's Form 8-K, dated June 25, 1997) -127- 4.5* Officers' Certificate, dated as of October 27, 1998, creating WP&L's 5.70% debentures due October 15, 2008 (incorporated by reference to Exhibit 4 to WP&L's Form 8-K, dated October 27, 1998) 4.6* Officers' Certificate, dated as of March 1, 2000, creating WP&L's 7-5/8% debentures due March 1, 2010 (incorporated by reference to Exhibit 4 to WP&L's Form 8-K, dated March 1, 2000) 4.7* Indenture of Mortgage and Deed of Trust, dated as of September 1, 1993, between IESU (formerly Iowa Electric Light and Power Company (IE)) and The First National Bank of Chicago (Bank One Trust Company, National Association, successor), as Trustee (Mortgage) (incorporated by reference to Exhibit 4(c) to IESU's Form 10-Q for the quarter ended September 30, 1993), and the indentures supplemental thereto dated, respectively, October 1, 1993, November 1, 1993, March 1, 1995, September 1, 1996 and April 1, 1997 (Exhibit 4(d) in IESU's Form 10-Q dated November 12, 1993, Exhibit 4(e) in IESU's Form 10-Q dated November 12, 1993, Exhibit 4(b) in IESU's Form 10-Q dated May 12, 1995, Exhibit 4(c)(i) in IESU's Form 8-K dated September 19, 1996 and Exhibit 4(a) in IESU's Form 10-Q dated May 14, 1997) 4.8* Indenture of Mortgage and Deed of Trust, dated as of August 1, 1940, between IESU (formerly IE) and The First National Bank of Chicago (Bank One Trust Company, National Association, successor), Trustee (1940 Indenture) (incorporated by reference to Exhibit 2(a) to IESU's Registration Statement, File No. 2-25347), and the indentures supplemental thereto dated, respectively, March 1, 1941, July 15, 1942, August 2, 1943, August 10, 1944, November 10, 1944, August 8, 1945, July 1, 1946, July 1, 1947, December 15, 1948, November 1, 1949, November 10, 1950, October 1, 1951, March 1, 1952, November 5, 1952, February 1, 1953, May 1, 1953, November 3, 1953, November 8, 1954, January 1, 1955, November 1, 1955, November 9, 1956, November 6, 1957, November 4, 1958, November 3, 1959, November 1, 1960, January 1, 1961, November 7, 1961, November 6, 1962, November 5, 1963, November 4, 1964, November 2, 1965, September 1, 1966, November 30, 1966, November 7, 1967, November 5, 1968, November 1, 1969, December 1, 1970, November 2, 1971, May 1, 1972, November 7, 1972, November 7, 1973, September 10, 1974, November 5, 1975, July 1, 1976, November 1, 1976, December 1, 1977, November 1, 1978, December 1, 1979, November 1, 1981, December 1, 1980, December 1, 1982, December 1, 1983, December 1, 1984, March 1, 1985, March 1, 1988, October 1, 1988, May 1, 1991, March 1, 1992, October 1, 1993, November 1, 1993, March 1, 1995, September 1, 1996 and April 1, 1997 (Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 4.10 in IESU's Form 10-K for the year 1966, Exhibit 4.10 in IESU's Form 10-K for the year 1966, Exhibit 4.10 in IESU's Form 10-K for the year 1967, Exhibit 4.10 in IESU's Form 10-K for the year 1968, Exhibit 4.10 in IESU's Form 10-K for the year 1969, Exhibit 1 in IESU's Form 8-K dated December 1970, Exhibit 2(g) in File No. 2-43131, Exhibit 1 in IESU's Form 8-K dated May 1972, Exhibit 2(i) in File No. 2-56078, Exhibit 2(j) in File No. 2-56078, Exhibit 2(k) in File No. 2-56078, Exhibit 2(l) in File No. 2-56078, Exhibit 1 in IESU's Form 8-K dated July 1976, Exhibit 1 in IESU's Form 8-K dated December 1976, Exhibit 2(o) in File No. 2-60040, Exhibit 1 in IESU's Form -128- 10-Q dated June 30, 1979, Exhibit 2(q) in Form S-16 in File No. 2-65996, Exhibit 2 in IESU's Form 10-Q dated March 31, 1982, Exhibit 4(s) in IESU's Form 10-K for the year 1981, Exhibit 4(t) in IESU's Form 10-K for the year 1982, Exhibit 4(u) in IESU's Form 10-K for the year 1983, Exhibit 4(v) in IESU's Form 10-K for the year 1984, Exhibit 4(w) in IESU's Form 10-K for the year 1984, Exhibit 4(b) in IESU's Form 10-Q dated May 12, 1988, Exhibit 4(c) in IESU's Form 10-Q dated November 10, 1988, Exhibit 4(d) in IESU's Form 10-Q dated August 13, 1991, Exhibit 4(c) in IESU's Form 10-K for the year 1991, Exhibit 4(a) in IESU's Form 10-Q dated November 12, 1993, Exhibit 4(b) in IESU's Form 10-Q dated November 12, 1993, Exhibit 4(a) in IESU's Form 10-Q dated May 12, 1995, Exhibit 4(f) in IESU's Form 8-K dated September 19, 1996 and Exhibit 4(b) in IESU's Form 10-Q dated May 14, 1997) 4.9* Indenture or Deed of Trust dated as of February 1, 1923, between IESU (successor to Iowa Southern Utilities Company (IS) as result of merger of IS and IE) and The Northern Trust Company (Bank One Trust Company, National Association, successor) and Harold H. Rockwell (Lawrence Dillard, successor), as Trustees (1923 Indenture) (incorporated by reference to Exhibit B-1 to File No. 2-1719), and the indentures supplemental thereto dated, respectively, May 1, 1940, May 2, 1940, October 1, 1945, October 2, 1945, January 1, 1948, September 1, 1950, February 1, 1953, October 2, 1953, August 1, 1957, September 1, 1962, June 1, 1967, February 1, 1973, February 1, 1975, July 1, 1975, September 2, 1975, March 10, 1976, February 1, 1977, January 1, 1978, March 1, 1979, March 1, 1980, May 31, 1986, July 1, 1991, September 1, 1992 and December 1, 1994 (Exhibit B-1-k in File No. 2-4921, Exhibit B-1-l in File No. 2-4921, Exhibit 7(m) in File No. 2-8053, Exhibit 7(n) in File No. 2-8053, Exhibit 7(o) in File No. 2-8053, Exhibit 4(e) in File No. 33-3995, Exhibit 4(b) in File No. 2-10543, Exhibit 4(q) in File No. 2-10543, Exhibit 2(b) in File No. 2-13496, Exhibit 2(b) in File No. 2-20667, Exhibit 2(b) in File No. 2-26478, Exhibit 2(b) in File No. 2-46530, Exhibit 2(aa) in File No. 2-53860, Exhibit 2(bb) in File No. 2-54285, Exhibit 2(bb) in File No. 2-57510, Exhibit 2(cc) in File No. 2-57510, Exhibit 2(ee) in File No. 2-60276, Exhibit 2 in File No. 0-849, Exhibit 2 in File No. 0-849, Exhibit 2 in File No. 0-849, Exhibit 4(g) in File No. 33-3995, Exhibit 4(h) in File No. 0-849, Exhibit 4(m) in File No. 0-849 and Exhibit 4(f) in File No. 0-4117-1) 4.10* Indenture (For Unsecured Subordinated Debt Securities), dated as of December 1, 1995, between IESU and The First National Bank of Chicago (Bank One Trust Company, National Association, successor), as Trustee (Subordinated Indenture) (incorporated by reference to Exhibit 4(i) to IESU's Amendment No. 1 to Registration Statement, File No. 33-62259) 4.11* Indenture (For Senior Unsecured Debt Securities), dated as of August 1, 1997, between IESU and The First National Bank of Chicago (Bank One Trust Company, National Association, successor), as Trustee (incorporated by reference to Exhibit 4(j) to IESU's Registration Statement, File No. 333-32097) 4.12 Officer's Certificate, dated as of August 4, 1997, creating IESU's 6-5/8% Senior Debentures, Series A, due 2009 4.13* Officers' Certificate, dated as of March 6, 2001, creating IESU's 6-3/4% Series B Senior Debentures due 2011 (incorporated by reference to Exhibit 4 to IESU's Form 8-K, dated March 6, 2001) 4.14* The Original through the Nineteenth Supplemental Indentures of IPC to The Chase Manhattan Bank and Carl E. Buckley and C. J. Heinzelmann, as Trustees (James P. Freeman, successor, as Trustee), dated January 1, 1948 securing First Mortgage Bonds (incorporated by reference to Exhibits 4(b) through 4(t) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) -129- 4.15* Twentieth Supplemental Indenture of IPC to The Chase Manhattan Bank and C. J. Heinzelmann (James P. Freeman, successor), as Trustees, dated May 15, 1993 (incorporated by reference to Exhibit 4(u) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 4.16* Indenture, relating to Resources' debt securities, dated as of November 4, 1999, among Resources, Alliant Energy, as Guarantor, and Firstar Bank, N.A., as Trustee, (incorporated by reference to Exhibit 4.1 to Resources' and Alliant Energy's Registration Statement on Form S-4 (Registration No. 333-92859), and the indentures supplemental thereto dated, respectively, November 4, 1999 and February 1, 2000 (Exhibit 4.2 in File No. 33-92859 and Exhibit 99.4 in Alliant Energy's Form 8-K dated February 1, 2000) 4.17* Registration Rights Agreement, related to Resources' exchangeable senior notes due 2030, dated as of February 1, 2000, among Resources, Alliant Energy and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 99.5 to Alliant Energy's Form 8-K dated February 1, 2000) 4.18* Purchase Agreement, relating to Resources' exchangeable senior notes due 2030, dated as of January 26, 1999, among Resources, Alliant Energy and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 99.2 to Alliant Energy's Form 8-K dated February 1, 2000) 10.1* Service Agreement by and among WP&L, South Beloit, IESU, IPC, and Corporate Services (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.2* Service Agreement by and among Resources, IPC Development Company, Inc. and Corporate Services (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.3* System Coordination and Operating Agreement dated April 11, 1997, among IESU, IPC, WP&L and Corporate Services (incorporated by reference to Exhibit 10.3 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.4* Joint Power Supply Agreement among WPSC, WP&L, and MG&E, dated February 2, 1967 (incorporated by reference to Exhibit 4.09 of WPSC in File No. 2-27308) 10.5* Joint Power Supply Agreement among WPSC, WP&L, and MG&E, dated July 26, 1973 (incorporated by reference to Exhibit 5.04A of WPSC in File No. 2-48781) 10.6* Basic Generating Agreement, Unit 4, Edgewater Generating Station, dated June 5, 1967, between WP&L and WPSC (incorporated by reference to Exhibit 4.10 of WPSC in File No. 2-27308) 10.7* Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated February 24, 1983, between WP&L, WEPCO and WPSC (incorporated by reference to Exhibit 10C-1 to WPSC's Form 10-K for the year 1983 (File No. 1-3016)) 10.7a* Amendment No. 1 to Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated December 1, 1988 (incorporated by reference to Exhibit 10C-2 to WPSC's Form 10-K for the year 1988 (File No. 1-3016)) 10.8* Revised Agreement for Construction and Operation of Columbia Generating Plant among WPSC, WP&L, and MG&E, dated July 26, 1973 (incorporated by reference to Exhibit 5.07 of WPSC in File No. 2-48781) 10.9* Operating and Transmission Agreement between CIPCO and IESU (incorporated by reference to Exhibit 10(q) to IESU's Form 10-K for the year 1990) 10.10* DAEC Ownership Participation Agreement dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(kk) to IESU's Registration Statement, File No. 2-38674) -130- 10.11* DAEC Operating Agreement dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(ll) to IESU's Registration Statement, File No. 2-38674) 10.12* DAEC Agreement for Transmission, Transformation, Switching, and Related Facilities dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(mm) to IESU's Registration Statement, File No. 2-38674) 10.13* Basic Generating Agreement dated April 16, 1975 between Iowa Public Service Company, Iowa Power and Light Company, Iowa-Illinois Gas and Electric Company and IESU for the joint ownership of Ottumwa Generating Station-Unit 1 (OGS-1) (incorporated by reference to Exhibit 1 to IESU's Form 10-K for the year 1977) 10.13a* Addendum Agreement to the Basic Generating Agreement for OGS-1 dated December 7, 1977 between Iowa Public Service Company, Iowa-Illinois Gas and Electric Company, Iowa Power and Light Company and IESU for the purchase of 15% ownership in OGS-1 (incorporated by reference to Exhibit 3 to IESU's Form 10-K for the year 1977) 10.14* Second Amended and Restated Credit Agreement dated as of September 17, 1987 between Arnold Fuel, Inc. and the First National Bank of Chicago and the Amended and Restated Consent and Agreement dated as of September 17, 1987 by IESU (incorporated by reference to Exhibit 10(j) to IESU's Form 10-K for the year 1987) 10.15 Asset Contribution Agreement between ATC and WEPCO, WP&L, WPSC, MG&E, Edison Sault Electric Company and South Beloit, dated as of December 15, 2000 10.15a Addenda to the Asset Contribution Agreement between ATC and WEPCO, WP&L, WPSC, MG&E, Edison Sault Electric Company and South Beloit, dated as of December 15, 2000 10.16 Operating Agreement of ATC, dated as of January 1, 2001 10.17* Third Amended and Restated November 1998 Stockholders' Agreement entered into as of March 10, 2000, by and among McLeod, Alliant Energy, Investments and certain other principal stockholders of McLeod (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended March 31, 2000) 10.18* Third Amended and Restated January 1999 Stockholders' Agreement entered into as of March 10, 2000, by and among McLeod, Alliant Energy, Investments and certain other principal stockholders of McLeod (incorporated by reference to Exhibit 10.3 to Alliant Energy's Form 10-Q for the quarter ended March 31, 2000) 10.19* Amendment No. 1 to Third Amended and Restated November 1998 Stockholders' Agreement entered into as of March 10, 2000, by and among McLeod, Alliant Energy, Investments and certain other principal stockholders of McLeod, dated as of July 7, 2000 (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended September 30, 2000) 10.20* Amendment No. 1 to Third Amended and Restated January 1999 Stockholders' Agreement entered into as of March 10, 2000, by and among McLeod, Alliant Energy, Investments and certain other principal stockholders of McLeod, dated as of July 7, 2000 (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended September 30, 2000) 10.21#* Alliant Energy LTEIP, as amended (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1999) -131- 10.22#* Alliant Energy 1998 Officer Incentive Compensation Plan (incorporated by reference to Exhibit 10.16 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.23#* Restricted Stock Agreement pursuant to the Alliant Energy LTEIP (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.24#* Alliant Energy Key Employee Deferred Compensation Plan (incorporated by reference to Exhibit 4.2 to Alliant Energy's Registration Statement on Form S-8 dated December 1, 2000) 10.25#* Key Employee Deferred Compensation Plan (incorporated by reference to Exhibit 10(n) to IES's Form 10-K for the year 1987) 10.25a#* Amendments to Key Employee Deferred Compensation Agreement for Key Employees (incorporated by reference to Exhibit 10(v) to IES's Form 10-Q for the quarter ended March 31, 1990) 10.26#* Alliant Energy Deferred Compensation Plan for Directors (incorporated by reference to Exhibit 4.1 to Alliant Energy's Registration Statement on Form S-8 dated December 1, 2000) 10.27#* IPC Irrevocable Trust Agreement dated April 30, 1990 (incorporated by reference to Exhibit 99.f to IPC's Form 10-K for the year 1993) 10.28#* IPC Irrevocable Trust Agreement dated December 1997 (incorporated by reference to Exhibit 99.7 to IPC's Form 10-K for the year 1997) 10.29#* Alliant Energy Grantor Trust for Deferred Compensation Agreements (Key Employees) (incorporated by reference to Exhibit 4.4 to Alliant Energy's Registration Statement on Form S-8 (Registration No. 33-51126)) 10.30#* Alliant Energy Grantor Trust for Deferred Compensation Agreements (Directors) (incorporated by reference to Exhibit 4.3 to Alliant Energy's Registration Statement on Form S-8 (Registration No. 33-51126)) 10.31#* Form of Supplemental Retirement Agreement (incorporated by reference to Exhibit 10.15 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.32#* Supplemental Retirement Plan (incorporated by reference to Exhibit 10(l) to IES's Form 10-K for the year 1987) 10.33# Alliant Energy Excess Plan 10.34#* Supplemental Retirement Agreement by and between Alliant Energy and E.B. Davis, Jr., W.D. Harvey, J.E. Hoffman, E.G. Protsch, B.J. Swan, P.J. Wegner and T.M. Walker (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended March 31, 2000) 10.35#* Key Executive Employment and Severance Agreement, dated March 29, 1999, by and between Alliant Energy and Erroll B. Davis, Jr. (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.36#* Key Executive Employment and Severance Agreement, dated March 29, 1999, by and between Alliant Energy and each of J.E. Hoffman, W.D. Harvey, E.G. Protsch, P.J. Wegner, T.M. Walker and B.J. Swan (incorporated by reference to Exhibit 10.3 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) -132- 10.37#* Key Executive Employment and Severance Agreement, dated March 29, 1999, by and between Alliant Energy and each of T.L. Aller, E.M. Gleason, D.K. Langer, D.L. Mineck, D.R. Sharp and K.K. Zuhlke (incorporated by reference to Exhibit 10.4 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.38#* Employment Agreement by and between Alliant Energy and Erroll B. Davis, Jr., amended and restated as of March 29, 1999 (incorporated by reference to Exhibit 10.5 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.39#* Severance Agreement by and between Alliant Energy and Anthony J. Amato (incorporated by reference to Exhibit 10.28 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.40#* Consulting Agreement by and between Alliant Energy and Wayne H. Stoppelmoor (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1999) 10.41# Severance Agreement and Release by and among Alliant Energy, ATC and John Ebright 10.42#* Executive Tenure Compensation Plan as revised November 1992 (incorporated by reference to Exhibit 10A to Alliant Energy's Form 10-K for the year 1992) 10.42a#* Amendment to Executive Tenure Compensation Plan adopted February 23, 1998 (incorporated by reference to Exhibit 10.19a to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 21 Subsidiaries of Alliant Energy and WP&L 23.1 Consent of Independent Public Accountants for Alliant Energy 23.2 Consent of Independent Public Accountants for IESU Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrants agree to furnish to the SEC, upon request, any instrument defining the rights of holders of unregistered long-term debt not filed as an exhibit to this Form 10-K. No such instrument authorizes securities in excess of 10% of the total assets of Alliant Energy, WP&L or IESU, as the case may be. Documents incorporated by reference to filings made by Alliant Energy under the Securities Exchange Act of 1934, as amended, are under File No. 1-9894. Documents incorporated by reference to filings made by WP&L under the Securities Exchange Act of 1934, as amended, are under File No. 0-337. Documents incorporated by reference to filings made by IES under the Securities Exchange Act of 1934, as amended, are under File No. 1-9187. Documents incorporated by reference to filings made by IESU under the Securities Exchange Act of 1934, as amended, are under File No. 0-4117-1. Documents incorporated by reference to filings made by IPC under the Securities Exchange Act of 1934, as amended, are under File No. 1-3632. # - A management contract or compensatory plan or arrangement. (b) Reports on Form 8-K -------------------- Alliant Energy - None. IESU - None. WP&L - None. -133-
SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Additions ------------------------------- Balance, Charged to Charged to Other Balance, Description January 1 Expense Accounts (1) Deductions (2) December 31 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) Valuation and Qualifying Accounts Which are Deducted in the Balance Sheet From the Assets to Which They Apply: Accumulated Provision for Uncollectible Accounts: Alliant Energy Year ended December 31, 2000 $3,360 $3,779 $1,616 $4,025 $4,730 Year ended December 31, 1999 3,128 2,909 -- 2,677 3,360 Year ended December 31, 1998 2,636 3,740 -- 3,248 3,128 IESU Year ended December 31, 2000 $1,641 $1,730 $-- $2,411 $960 Year ended December 31, 1999 1,415 2,268 -- 2,042 1,641 Year ended December 31, 1998 854 2,840 -- 2,279 1,415 WP&L Year ended December 31, 2000 $6 $2 $-- $-- $8 Year ended December 31, 1999 8 -- -- 2 6 Year ended December 31, 1998 12 -- -- 4 8 Note: The above provisions relate to various customer, notes and other receivable balances included in various line items on the respective Consolidated Balance Sheets. Other Reserves: Accumulated Provision for Injuries & Damages, Workers' Compensation, Litigation and Other Miscellaneous Reserves: Alliant Energy Year ended December 31, 2000 $7,995 $8,505 $-- $4,011 $12,489 Year ended December 31, 1999 7,458 5,479 -- 4,942 7,995 Year ended December 31, 1998 6,400 7,738 -- 6,680 7,458 IESU Year ended December 31, 2000 $2,618 $2,234 $-- $1,121 $3,731 Year ended December 31, 1999 3,129 2,036 -- 2,547 2,618 Year ended December 31, 1998 5,033 215 -- 2,119 3,129 WP&L Year ended December 31, 2000 $2,994 $1,282 $-- $1,587 $2,689 Year ended December 31, 1999 2,799 1,937 -- 1,742 2,994 Year ended December 31, 1998 1 2,798 -- -- 2,799 Reserve for Merger-Related Employee Separation Charges: Alliant Energy Year ended December 31, 2000 $968 $-- $-- $968 $-- Year ended December 31, 1999 5,712 -- -- 4,744 968 Year ended December 31, 1998 -- 9,950 -- 4,238 5,712 IESU Year ended December 31, 2000 $678 $-- $-- $678 $-- Year ended December 31, 1999 1,893 -- -- 1,215 678 Year ended December 31, 1998 -- 3,551 -- 1,658 1,893 WP&L Year ended December 31, 2000 $-- $-- $-- $-- $-- Year ended December 31, 1999 766 -- -- 766 -- Year ended December 31, 1998 -- 867 -- 101 766 (1) In 2000, Alliant Energy acquired EUA Cogenex Corporation and assumed an accumulated provision for uncollectible accounts of $1.6 million. (2) Deductions are of the nature for which the reserves were created. In the case of the accumulated provision for uncollectible accounts, deductions from this reserve are reduced by recoveries of amounts previously written off.
-134- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March 2001. ALLIANT ENERGY CORPORATION By: /s/ Erroll B. Davis, Jr. ---------------------------- Erroll B. Davis, Jr. Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of March 2001.
/s/ Erroll B. Davis, Jr. Chairman, President, Chief Executive Officer and Director (Principal Executive Officer) - ------------------------ Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) - -------------------- Thomas M. Walker /s/ John E. Kratchmer Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) - ---------------------- John E. Kratchmer /s/ Alan B. Arends Director /s/ Milton E. Neshek Director - ------------------ --------------------- Alan B. Arends Milton E. Neshek /s/ Jack B. Evans Director /s/ David A. Perdue Director - ----------------- --------------------- Jack B. Evans David A. Perdue /s/ Rockne G. Flowers Director /s/ Judith D. Pyle Director - --------------------- ------------------- Rockne G. Flowers Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director - ------------------ --------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director - ------------ ------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director - ----------------------- --------------------- Katharine C. Lyall Anthony R. Weiler /s/ Arnold M. Nemirow Director - --------------------- Arnold M. Nemirow
-135- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March 2001. IES UTILITIES INC. By: /s/ Erroll B. Davis, Jr. ---------------------------- Erroll B. Davis, Jr. Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of March 2001.
/s/ Erroll B. Davis, Jr. Chairman, Chief Executive Officer and Director (Principal Executive Officer) - ------------------------ Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) - -------------------- Thomas M. Walker /s/ John E. Kratchmer Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) - ---------------------- John E. Kratchmer /s/ Alan B. Arends Director /s/ Milton E. Neshek Director - ------------------ --------------------- Alan B. Arends Milton E. Neshek /s/ Jack B. Evans Director /s/ David A. Perdue Director - ----------------- --------------------- Jack B. Evans David A. Perdue /s/ Rockne G. Flowers Director /s/ Judith D. Pyle Director - --------------------- ------------------- Rockne G. Flowers Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director - ------------------ --------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director - ------------ ------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director - ----------------------- --------------------- Katharine C. Lyall Anthony R. Weiler /s/ Arnold M. Nemirow Director - --------------------- Arnold M. Nemirow
-136- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March 2001. WISCONSIN POWER AND LIGHT COMPANY By: /s/ Erroll B. Davis, Jr. ---------------------------- Erroll B. Davis, Jr. Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of March 2001.
/s/ Erroll B. Davis, Jr. Chairman, Chief Executive Officer and Director (Principal Executive Officer) - ------------------------ Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) - -------------------- Thomas M. Walker /s/ John E. Kratchmer Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) - ---------------------- John E. Kratchmer /s/ Alan B. Arends Director /s/ Milton E. Neshek Director - ------------------ --------------------- Alan B. Arends Milton E. Neshek /s/ Jack B. Evans Director /s/ David A. Perdue Director - ----------------- --------------------- Jack B. Evans David A. Perdue /s/ Rockne G. Flowers Director /s/ Judith D. Pyle Director - --------------------- ------------------- Rockne G. Flowers Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director - ------------------ --------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director - ------------ ------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director - ----------------------- --------------------- Katharine C. Lyall Anthony R. Weiler /s/ Arnold M. Nemirow Director - --------------------- Arnold M. Nemirow
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EXHIBIT INDEX Exhibit Description ------- ----------- 3.2 Bylaws of Alliant Energy, as amended, effective as of January 30, 2001 3.4 Bylaws of WP&L, as amended, effective as of January 30, 2001 3.6 Bylaws of IESU, as amended, effective as of January 30, 2001 4.12 Officer's Certificate, dated as of August 4, 1997, creating IESU's 6-5/8% Senior Debentures, Series A, due 2009 10.15 Asset Contribution Agreement between ATC and WEPCO, WP&L, WPSC, MG&E, Edison Sault Electric Company and South Beloit, dated as of December 15, 2000 10.15a Addenda to the Asset Contribution Agreement between ATC and WEPCO, WP&L, WPSC, MG&E, Edison Sault Electric Company and South Beloit, dated as of December 15, 2000 10.16 Operating Agreement of ATC, dated as of January 1, 2001 10.33 Alliant Energy Excess Plan 10.41 Severance Agreement and Release by and among Alliant Energy, ATC and John Ebright 21 Subsidiaries of Alliant Energy and WP&L 23.1 Consent of Independent Public Accountants for Alliant Energy 23.2 Consent of Independent Public Accountants for IESU
EX-3.2 2 aecbylaws.txt BYLAWS EXHIBIT 3.2 BYLAWS OF ALLIANT ENERGY CORPORATION Effective as of January 30, 2001 ARTICLE I OFFICES Section 1.1 PRINCIPAL AND BUSINESS OFFICES. - The Corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. Section 1.2 REGISTERED OFFICE. - The registered office of the Corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office. ARTICLE II SEAL Section 2.1 CORPORATE SEAL. - The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL, WISCONSIN." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. ARTICLE III SHAREOWNERS Section 3.1 ANNUAL MEETING. - The annual meeting of the shareowners (the "Annual Meeting") shall be held at such date and time as the Board of Directors may determine. In fixing a meeting date for any Annual Meeting, the Board of Directors may consider such factors as it deems relevant within the good faith exercise of its business judgment. At each Annual Meeting, the shareowners shall elect that number of directors equal to the number of directors in the class whose term expires at the time of such meeting. At any such Annual Meeting, only other business properly brought before the meeting in accordance with Section 3.14 of these Bylaws may be transacted. If the election of directors shall not be held on the date fixed as herein provided, for any Annual Meeting, or any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of shareowners (a "Special Meeting") as soon thereafter as is practicable. Section 3.2 SPECIAL MEETINGS. - A Special Meeting may be called only by (i) the Board of Directors or (ii) the Chief Executive Officer and shall be called by the Chief Executive Officer upon the demand, in accordance with this Section 3.2, of the holders of record of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting. (a) In order that the Corporation may determine the shareowners entitled to demand a Special Meeting, the Board of Directors may fix a record date to determine the shareowners entitled to make such a demand (the "Demand Record Date"). The Demand Record Date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors and shall not be more than ten days after the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors. Any shareowner of record seeking to have shareowners demand a Special Meeting shall, by sending written notice to the Secretary of the Corporation by hand or by certified or registered mail, return receipt requested, request the Board of Directors to fix a Demand Record Date. The Board of Directors shall promptly, but in all events within ten days after the date on which a valid request to fix a Demand Record Date is received, adopt a resolution fixing the Demand Record Date and shall make a public announcement of such Demand Record Date. If no Demand Record Date has been fixed by the Board of Directors within ten days after the date on which such request is received by the Secretary, the Demand Record Date shall be the 10th day after the first date on which a valid written request to set a Demand Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the Special Meeting is to be held, shall be signed by one or more shareowners of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareowner (or proxy or other representative) and shall set forth all information about each such shareowner and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a shareowner's notice described in paragraph (a) (ii) of Section 3.14 of these Bylaws. (b) In order for a shareowner or shareowners to demand a Special Meeting, a written demand or demands for a Special Meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting must be delivered to the Corporation. To be valid, each written demand by a shareowner for a Special Meeting shall set forth the specific purpose or purposes for which the Special Meeting is to be held (which purpose or purposes shall be limited to the purpose or purposes set forth in the written request to set a Demand Record Date received by the Corporation pursuant to paragraph (b) of this Section 3.2), shall be signed by one or more persons who as of the Demand Record Date are shareowners of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareowner (or proxy or other representative), and shall set forth the name and address, as they appear in the Corporation's books, of each shareowner signing such demand and the class and number of shares of the Corporation which are owned of record and beneficially by each such shareowner, shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested, and shall be received by the Secretary within seventy days after the Demand Record Date. (c) The Corporation shall not be required to call a Special Meeting upon shareowner demand unless, in addition to the documents required by paragraph (c) of this Section 3.2, the Secretary receives a written agreement signed by each Soliciting Shareowner (as defined below), pursuant to which each Soliciting Shareowner, jointly and severally, agrees to pay the Corporation's costs of holding the Special Meeting, including the costs of preparing and mailing proxy materials for the Corporation's own solicitation, provided that if each of the resolutions introduced by any Soliciting Shareowner at such meeting is adopted, and each of the individuals nominated by or on behalf of any Soliciting Shareowner for election as a director at such meeting is elected, then the Soliciting Shareowners shall not be required to pay such costs. For purposes of this paragraph (d), the following terms shall have the meanings set forth below: (i) "Affiliate" of any Person (as defined herein) shall mean any Person controlling, controlled by or under common control with such first Person. (ii) "Participant" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (iii) "Person" shall mean any individual, firm, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity. (iv) "Proxy" shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act. (v) "Solicitation" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act. (vi) "Soliciting Shareowner" shall mean, with respect to any Special Meeting demanded by a shareowner or shareowners, any of the following Persons: (A) if the number of shareowners signing the demand or demands of meeting delivered to the Corporation pursuant to paragraph (c) of this Section 3.2 is ten or fewer, each shareowner signing any such demand; (B) if the number of shareowners signing the demand or demands of meeting delivered to the Corporation pursuant to paragraph (c) of this Section 3.2 is more than ten, each Person who either (I) was a Participant in any Solicitation of such demand or demands or (II) at the time of the delivery to the Corporation of the documents described in paragraph (c) of this Section 3.2 had engaged or intends to engage in any Solicitation of Proxies for use at such Special Meeting (other than a Solicitation of Proxies on behalf of the Corporation); or (C) any Affiliate of a Soliciting Shareowner, if a majority of the directors then in office determine, reasonably and in good faith, that such Affiliate should be required to sign the written notice described in paragraph (c) of this Section 3.2 and/or the written agreement described in this paragraph (d) in order to prevent the purposes of this Section 3.2 from being evaded. (d) Except as provided in the following sentence, any Special Meeting shall be held at such hour and day as may be designated by whichever of the Board of Directors or the Chief Executive Officer shall have called such meeting. In the case of any Special Meeting called by the Chief Executive Officer upon the demand of shareowners (a "Demand Special Meeting"), such meeting shall be held at such hour and day as may be designated by the Board of Directors; provided, however, that the date of any Demand Special Meeting shall be not more than seventy days after the Meeting Record Date (as defined in Section 3.6 hereof); and provided further that in the event that the directors then in office fail to designate an hour and date for a Demand Special Meeting within ten days after the date that valid written demands for such meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting are delivered to the Corporation (the "Delivery Date"), then such meeting shall be held at 2:00 P.M. local time on the 100th day after the Delivery Date or, if such 100th day is not a Business Day (as defined below), on the first preceding Business Day. In fixing a meeting date for any Special Meeting, the Board of Directors or the Chief Executive Officer may consider such factors as it or he deems relevant within the good faith exercise of its or his business judgment, including, without limitation, the nature of the action proposed to be taken, the facts and circumstances surrounding any demand for such meeting, and any plan of the Board of Directors to call an Annual Meeting or a Special Meeting for the conduct of related business. (e) The Corporation may engage regionally or nationally recognized independent inspectors of elections to act as an agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported written demand or demands for a Special Meeting received by the Secretary. For the purpose of permitting the inspectors to perform such review, no purported demand shall be deemed to have been delivered to the Corporation until the earlier of (i) five Business Days following receipt by the Secretary of such purported demand and (ii) such date as the independent inspectors certify to the Corporation that the valid demands received by the Secretary represent at least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting. Nothing contained in this paragraph (f) shall in any way be construed to suggest or imply that the Board of Directors or any shareowner shall not be entitled to contest the validity of any demand, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto). (f) For purposes of these Bylaws, "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Wisconsin are authorized or obligated by law or executive order to close. Section 3.3 PLACE OF MEETING. - The Board of Directors or the Chief Executive Officer may designate any place, either within or without the State of Wisconsin, as the place for any Annual Meeting or any Special Meeting, or for any postponement thereof. If no designation is made, the place of meeting shall be the principal office of the Corporation. Any meeting may be adjourned to reconvene at any place designated by vote of the Board of Directors or determined by the Chief Executive Officer. Section 3.4 NOTICE OF MEETINGS - Written notice stating the date, time and place of any meeting of shareowners shall be delivered not less than ten days nor more than seventy days before the date of the meeting (unless a different time period is provided by the Wisconsin Business Corporation Law or the Articles of Incorporation), either personally or by mail, by or at the direction of the Chief Executive Officer or the Secretary, to each shareowner of record entitled to vote at such meeting and to such other persons as required by the Wisconsin Business Corporation Law. In the event of any Demand Special Meeting, such notice of meeting shall be sent not more than thirty days after the Delivery Date. For purposes of this Section 3.4, notice by "electronic transmission" (as such term is defined in Section 180.0103(7m) of the Wisconsin Business Corporation Law") shall be deemed to constitute written notice. Written notice pursuant to this Section 3.4 shall be deemed to be effective (a) when mailed, if mailed postpaid and addressed to the shareowner's address shown in the Corporation's current record of shareowners or (b) when electronically transmitted to the shareowner in a manner authorized by the shareowner. Unless otherwise required by the Wisconsin Business Corporation Law or the Articles of Incorporation, a notice of an Annual Meeting need not include a description of the purpose for which the meeting is called. In the case of any Special Meeting, (i) the notice of meeting shall describe any business that the Board of Directors shall have theretofore determined to bring before the meeting and (ii) in the case of a Demand Special Meeting, the notice of meeting (A) shall describe any business set forth in the statement of purpose of the demands received by the Corporation in accordance with Section 3.2 of these Bylaws and (B) shall contain all of the information required in the notice received by the Corporation in accordance with Section 3.14(b) of these Bylaws. If an Annual Meeting or Special Meeting is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new Meeting Record Date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareowners as of the new Meeting Record Date. Section 3.5 WAIVER OF NOTICE - A shareowner may waive any notice required by the Wisconsin Business Corporation Law, the Articles of Incorporation or these Bylaws before or after the date and time stated in the notice. The waiver shall be in writing and signed by the shareowner entitled to the notice, contain the same information that would have been required in the notice under applicable provisions of the Wisconsin Business Corporation Law (except that the time and place of meeting need not be stated) and be delivered to the Corporation for inclusion in the corporate records. A shareowner's attendance at any Annual Meeting or Special Meeting, in person or by proxy, waives objection to all of the following: (a) lack of notice or defective notice of the meeting, unless the shareowner at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting; and (b) consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareowner objects to considering the matter when it is presented. Section 3.6 FIXING OF RECORD DATE. - The Board of Directors may fix in advance a date not less than ten days and not more than seventy days prior to the date of an Annual Meeting or Special Meeting as the record date for the determination of shareowners entitled to notice of, or to vote at, such meeting (the "Meeting Record Date"). In the case of any Demand Special Meeting, (i) the Meeting Record Date shall be not later than the 30th day after the Delivery Date and (ii) if the Board of Directors fails to fix the Meeting Record Date within thirty days after the Delivery Date, then the close of business on such 30th day shall be the Meeting Record Date. The shareowners of record on the Meeting Record Date shall be the shareowners entitled to notice of and to vote at the meeting. Except as provided by the Wisconsin Business Corporation Law for a court-ordered adjournment, a determination of shareowners entitled to notice of and to vote at an Annual Meeting or Special Meeting is effective for any adjournment of such meeting unless the Board of Directors fixes a new Meeting Record Date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. The Board of Directors may also fix in advance a date as the record date for the purpose of determining shareowners entitled to take any other action or determining shareowners for any other purpose. Such record date shall be not more than seventy days prior to the date on which the particular action, requiring such determination of shareowners, is to be taken. The record date for determining shareowners entitled to a distribution (other than a distribution involving a purchase, redemption or other acquisition of the Corporation's shares) or a share dividend is the date on which the Board of Directors authorizes the distribution or share dividend, as the case may be, unless the Board of Directors fixes a different record date. Section 3.7 SHAREOWNER LIST. - The Corporation shall have available, beginning two (2) days after the notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, a complete record of each shareowner entitled to vote at such meeting, or any adjournment thereof, showing the address of and number of shares held by each shareowner. The shareowner list shall be available for inspection by any shareowner during normal business hours at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareowners' list available at the meeting and any shareowner or his agent or attorney may inspect the list at any time the meeting or any adjournment thereof. Section 3.8 QUORUM AND VOTING REQUIREMENTS. (a) Shares entitled to vote as a separate voting group may take action on a matter at any Annual Meeting or Special Meeting only if a quorum of those shares exists with respect to that matter. If the Corporation has only one class of stock outstanding, such class shall constitute a separate voting group for purposes of this Section 3.8. Except as otherwise provided in the Articles of Incorporation or the Wisconsin Business Corporation Law, a majority of the votes entitled to be cast on the matter shall constitute a quorum of the voting group for action on that matter. Once a share is represented for any purpose at any Annual Meeting or Special Meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new Meeting Record Date is or must be set for the adjourned meeting. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the Wisconsin Business Corporation Law requires a greater number of affirmative votes. Unless otherwise provided in the Articles of Incorporation, each director to be elected shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at an Annual Meeting or Special Meeting at which a quorum is present. (b) The Board of Directors acting by resolution may postpone and reschedule any previously scheduled Annual Meeting or Special Meeting; provided, however, that a Demand Special Meeting shall not be postponed beyond the 100th day following the Delivery Date. Any Annual Meeting or Special Meeting may be adjourned from time to time, whether or not there is a quorum, (i) at any time, upon a resolution by shareowners if the votes cast in favor of such resolution by the holders of shares of each voting group entitled to vote on any matter theretofore properly brought before the meeting exceed the number of votes cast against such resolution by the holders of shares of each such voting group or (ii) at any time prior to the transaction of any business at such meeting, by the Chairperson of the Board or pursuant to a resolution of the Board of Directors. No notice of the time and place of adjourned meetings need be given except as required by the Wisconsin Business Corporation Law. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.9 CONDUCT OF MEETING. - The Chairperson of the Board shall preside at each meeting of shareowners. In the absence of the Chairperson of the Board, such persons, in the following order, shall act as chair of the meeting; the Vice Chairperson of the Board, the Chief Executive Officer, the President, any Vice President, and the Director in attendance with the longest tenure in that office. The Secretary, or if absent, an Assistant Secretary, of the Company shall act as Secretary of each shareowner meeting. Section 3.10 PROXIES. - At any Annual Meeting or Special Meeting, a shareowner entitled to vote may vote his or her shares in person or by proxy. A shareowner entitled to vote at an Annual Meeting or Special Meeting may authorize another person to act for the shareowner by appointing the person as proxy. Without limiting the manner in which a shareowner may appoint a proxy, a shareowner or the shareowner's authorized officer, director, employee, agent or attorney-in-fact may use any of the following as a valid means to make such an appointment: (a) Appointment of a proxy in writing by signing or causing the shareowner's signature to be affixed to an appointment form by any reasonable means, including, but not limited to, by facsimile signature. (b) Appointment of a proxy by transmitting or authorizing the transmission of an electronic transmission of the appointment to the person who will be appointed as proxy or to a proxy solicitation firm, proxy support service organization or like agent authorized to receive the transmission by the person who will be appointed as proxy. Every electronic transmission shall contain, or be accompanied by, information that can be used to reasonably determine that the shareowner transmitted or authorized the transmission of the electronic transmission. Any person charged with determining whether a shareholder transmitted or authorized the transmission of the electronic transmission shall specify the information upon which the determination is made. An appointment of a proxy is effective when a signed appointment form or an electronic transmission of the appointment is received by the inspector of election or the officer or agent of the Corporation authorized to tabulate votes. An appointment is valid for eleven months unless a different period is expressly provided in the appointment. Unless otherwise provided, a proxy may be revoked any time before it is voted, either by appointing a new proxy in accordance with the Wisconsin Business Corporation Law or by oral notice given by the shareowner to the presiding officer during the meeting. The presence of a shareowner who has made an effective proxy appointment shall not itself constitute a revocation. The Board of Directors shall have the power and authority to make rules establishing presumptions as to the validity and sufficiency of proxies. Section 3.11 VOTING OF SHARES. - Except as provided in the Articles of Incorporation or statute, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareowners. Section 3.12 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. Section 3.13 ACTION WITHOUT MEETING. - Any action required or permitted by the Articles of Incorporation or these Bylaws or any provision of the Wisconsin Business Corporation Law to be taken at an Annual Meeting or Special Meeting may be taken without a meeting if a written consent or consents, describing the action so taken, is signed by all of the shareowners entitled to vote with respect to the subject matter thereof and delivered to the Corporation for inclusion in the corporate records. Section 3.14 NOTICE OF SHAREOWNER BUSINESS AND NOMINATI0ON OF DIRECTORS. (a) Annual Meetings. ----------------- (i) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareowners may be made at an Annual Meeting (A) pursuant to the Corporation's notice of meeting, (B) by or at the direction of the Board of Directors or (C) by any shareowner of the Corporation who is a shareowner of record at the time of giving of notice provided for in this Bylaw and who is entitled to vote at the meeting and complies with the notice procedures set forth in this Section 3.14. (ii) For nominations or other business to be properly brought before an Annual Meeting by a shareowner pursuant to clause (C) of paragraph (a)(i) of this Section 3.14, the shareowner must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareowner's notice shall be received by the Secretary of the Corporation at the principal offices of the Corporation not later than the earlier of (A) 45 days in advance of the first annual anniversary (the "Anniversary Date") of the date set forth in the Corporation's proxy statement for the prior year's Annual Meeting as the date on which the Corporation first mailed definitive proxy materials for the prior year's Annual Meeting and (B) the later of (x) the 70th day prior to such Annual Meeting and (y) the 10th day following the day on which public announcement of the date of such meeting is first made. Such shareowner's notice shall be signed by the shareowner of record who intends to make the nomination or introduce the other business (or his duly authorized proxy or other representative), shall bear the date of signature of such shareowner (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on this Corporation's books, of such shareowner and the beneficial owner or owners, if any, on whose behalf the nomination or proposal is made; (B) the class and number of shares of the Corporation which are beneficially owned by such shareowner or beneficial owner or owners; (C) a representation that such shareowner is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination or introduce the other business specified in the notice; (D) in the case of any proposed nomination for election or re-election as a director, (I) the name and residence address of the person or persons to be nominated, (II) a description of all arrangements or understandings between such shareowner or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareowner, (III) such other information regarding each nominee proposed by such shareowner as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors and (IV) the written consent of each nominee to be named in a proxy statement and to serve as a director of the Corporation if so elected; and (E) in the case of any other business that such shareowner proposes to bring before the meeting, (I) a brief description of the business desired to be brought before the meeting and, if such business includes a proposal to amend these Bylaws, the language of the proposed amendment, (II) such shareowner's and beneficial owner's or owners' reasons for conducting such business at the meeting and (III) any material interest in such business of such shareowner and beneficial owner or owners. (iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Section 3.14 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 45 days prior to the Anniversary Date, a shareowner's notice required by this Section 3.14 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary at the principal offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (b) Special Meetings. Only such business shall be conducted at ------------------ a Special Meeting as shall have been described in the notice of meeting sent to shareowners pursuant to Section 3.4 of these Bylaws. Nominations of persons for election to the Board of Directors may be made at a Special Meeting at which directors are to be elected pursuant to such notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any shareowner of the Corporation who (A) is a shareowner of record at the time of giving of such notice of meeting, (B) is entitled to vote at the meeting and (C) complies with the notice procedures set forth in this Section 3.14. Any shareowner desiring to nominate persons for election to the Board of Directors at such a Special Meeting shall cause a written notice to be received by the Secretary of the Corporation at the principal offices of the Corporation not earlier than ninety days prior to such Special Meeting and not later than the close of business on the later of (x) the 60th day prior to such Special Meeting and (y) the 10th day following the day on which public announcement is first made of the date of such Special Meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Such written notice shall be signed by the shareowner of record who intends to make the nomination (or his duly authorized proxy or other representative), shall bear the date of signature of such shareowner (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on the Corporation's books, of such shareowner and the beneficial owner or owners, if any, on whose behalf the nomination is made; (B) the class and number of shares of the Corporation which are beneficially owned by such shareowner or beneficial owner or owners; (C) a representation that such shareowner is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination specified in the notice; (D) the name and residence address of the person or persons to be nominated; (E) a description of all arrangements or understandings between such shareowner or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareowner; (F) such other information regarding each nominee proposed by such shareowner as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors; and (G) the written consent of each nominee to be named in a proxy statement and to serve as a director of the Corporation if so elected. (c) General. -------- (i) Only persons who are nominated in accordance with the procedures set forth in this Section 3.14 shall be eligible to serve as directors. Only such business shall be conducted at an Annual Meeting or Special Meeting as shall have been brought before such meeting in accordance with the procedures set forth in this Section 3.14. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 3.14 and, if any proposed nomination or business is not in compliance with this Section 3.14, to declare that such defective proposal shall be disregarded. (ii) For purposes of this Section 3.14, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 3.14, a shareowner shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.14. Nothing in this Section 3.14 shall be deemed to limit the Corporation's obligation to include shareowner proposals in its proxy statement if such inclusion is required by Rule 14a-8 under the Exchange Act. ARTICLE IV BOARD OF DIRECTORS Section 4.1 GENERAL POWER. - The business and affairs of the Corporation shall be managed by its Board of Directors. Section 4.2 NUMBER. CLASSES & TERM. - The number of Directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the total number of Directors that the Corporation would have if there were no vacancies, but shall not be less than nine (9) nor more than sixteen (16). The Directors of the Corporation shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible. At each Annual Meeting, the successors to the class of Directors whose terms shall expire at the time of such Annual Meeting shall be elected to hold office until the third succeeding Annual Meeting, and until their successors are duly elected and qualified. Section 4.3 CHAIRPERSON OF THE BOARD. - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available for consultation and advice. Section 4.4 VICE CHAIRPERSON OF THE BOARD. - The Vice Chairperson of the Board shall assist the Board in the formulation of policies and make recommendations therefore. The Vice Chairperson shall have such other powers and duties as may be prescribed for him or her by the Chairperson of the Board or the Board of Directors. In the absence of or the inability of the Chairperson of the Board to act as Chairperson of the Board, the Vice Chairperson of the Board shall assume the powers and duties of the Chairperson of the Board. Section 4.5 QUALIFICATIONS AND REMOVAL. - No person who has attained 70 years of age shall be eligible for election or re-election to the Board of Directors. Any Director who has attained seventy (70) years of age shall resign from the Board of Directors effective as of the next Annual Meeting. For a period of five (5) years following April 21, 1998, no person, except any of the initial Directors serving as such on April 21, 1998, who is an executive officer or employee of the Corporation or any of its subsidiaries shall be eligible to serve as a Director of the Corporation; provided, however, that any individual serving as Chief Executive Officer of the Corporation shall be eligible to serve as a Director of the Corporation. In the event the Chief Executive Officer resigns or retires from his or her office or employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that the Chief Executive Officer is removed from his or her office by the Board of Directors, or is involuntarily terminated from employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that a Director experiences a change in their principal occupation or primary business affiliation, the Director must submit their resignation from the Board to the Nominating and Governance Committee. The Nominating and Governance Committee shall recommend to the Board of Directors whether the Board should accept such resignation. If the Nominating and Governance Committee recommends acceptance of the resignation, an affirmative vote of two-thirds of the remaining Directors holding office is required to affirm the Nominating and Governance Committee's recommendation. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. Section 4.6 REGULAR MEETINGS. - Regular meetings of the Board of Directors shall be held at such time and place as may be determined by the Board of Directors, but in no event shall the Board meet less than once a year. Section 4.7 SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any two (2) Directors. The Chief Executive Officer or Secretary may fix any place, either within or without the State of Wisconsin, whether in person or by telecommunications, as the place for holding any special meeting. Section 4.8 NOTICE; WAIVER. - Notice of any meeting of the Board of Directors, unless otherwise provided pursuant to Section 4.6, shall be given at least forty-eight (48) hours prior to the meeting by written notice delivered personally or mailed to each Director at such address designed by each Director, by telegram or other form of wire or wireless communication. The notice need not describe the purpose of the meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage prepared. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened. Section 4.9 QUORUM. - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting to some other day without further notice. Section 4.10 MEETING PARTICIPATION. (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through, the use of any means of communication by which any of the following occurs: (i) All participating directors may simultaneously hear each other during the meeting. (ii) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 4.11 ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the Committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. The action taken is effective when the last Director signs the consent unless the consent specifies a different effective date. Section 4.12 PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent or abstention shall be entered in the minutes of the meeting, (c) the Director shall file a written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting, or (d) the Director shall file a written notice to the Secretary of the Corporation promptly after receiving the minutes of the meeting that the minutes failed to show the Director's dissention or abstention from the action taken. Such right to dissent or abstain shall not apply to a Director who voted in favor of such action. Section 4.13 VACANCIES. - Except as provided below, any vacancy occurring in the Board of Directors or on any Committee of the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. For a period of time commencing on formation of Interstate Energy Corporation and expiring on the date of the third annual meeting of shareowners of the Corporation, the initially appointed IES, IPC and WPLH directors, each as a separate group, shall be entitled to nominate those persons who will be eligible to be appointed, elected or re-elected as IES, IPC and WPLH Directors. The Director or Directors so chosen shall hold office until the next election of the Class for which such Director or Directors shall have been chosen and until their successors shall have been duly elected and qualified. Section 4.14 COMPENSATION. - Compensation and expenses for attendance at a regular or special meeting of the Board of Directors, or at any committee meeting, shall be payable in such amounts as determined from time to time by the Board of Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors who are full time employees or officers of the Corporation shall not receive any compensation. ARTICLE V COMMITTEES Section 5.1 COMMITTEES. - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number various Committees from time to time as corporate needs may dictate. The Committees may make their own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The Committee may be authorized by the Board of Directors to perform specified functions, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareowners action that the Wisconsin Business Corporation Law requires to be approved by shareowners; (c) fill vacancies on the Board of Directors, or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the Corporation's Articles of Incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareowner approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Section 5.2 EXECUTIVE COMMITTEE. - An Executive Committee is hereby established and shall consist of at least three (3) members, including the Chairman of the Board. The Executive Committee shall possess all the powers and authority of the Board of Directors when said Board of Directors is not in session, except for the powers and authorities set forth in Section 5.1. Section 5.3 AUDIT COMMITTEE. - An Audit Committee is hereby established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The members of the Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.4 COMPENSATION AND PERSONNEL COMMITTEE. - A Compensation and Personnel Committee is hereby established and shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chairman of the Board, the Chief Executive Officer, or any Committee member. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.5 NOMINATING AND GOVERNANCE COMMITTEE. - A Nominating and Governance Committee shall be established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Nominating and Governance Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. ARTICLE VI OFFICERS Section 6.1 OFFICERS. - The Board of Directors shall elect a Chief Executive Officer, a President, such number of Vice Presidents with such designations as the Board of Directors at the time may decide upon, a Secretary, a Treasurer and a Controller. The Chief Executive Officer may appoint such other officers and assistant officers as may be deemed necessary. The same person may simultaneously hold more than one such office. Section 6.2 TERM OF OFFICERS. - All Officers, unless sooner removed, shall hold their respective offices until their successors, willing to serve, shall have been elected but any Officer may be removed from Office at any time by the Board of Directors. Section 6.3 REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. Section 6.4 CHIEF EXECUTIVE OFFICER. - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Corporation, shall establish the lines of authority and supervision of the Officers and employees of the Corporation, shall have the power to appoint and remove and discharge any and all agents and employees of the Corporation not elected or appointed directly by the Board of Directors. and shall assist the Board in the formulation of policies of the Corporation. The Chairperson of the Board, if Chief Executive Officer, may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Corporation. Section 6.5 PRESIDENT. - The President, when he or she is not designated as and does not have the powers of the Chief Executive Officer, shall have such other powers and duties as may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board or the Chief Executive Officer. Section 6.6 VICE PRESIDENTS. - The Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and the Chief Executive Officer. In the absence of or in the event of the death of the Chief Executive Officer and the President, the inability or refusal to act, or in the event for any reason it shall be impracticable for Chief Executive Officer and the President to act personally, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chief Executive Officer and the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and the President. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the Chief Executive Officer and the President. Section 6.7 SECRETARY. - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Corporation, and of all other books, documents and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Corporation and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.8 TREASURER. - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks or trust companies as he or she shall designate and shall keep a proper record of cash receipts and disbursements. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the President, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Corporation for operating purposes in the usual course or business. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. The Treasurer shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.9 CONTROLLER. - The Controller shall be the principal accounting Officer of the Corporation. He or she shall have general supervision over the books of accounts of the Corporation. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Corporation relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the President or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.10 ASSISTANT OFFICERS. - The Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and other Assistant Officers shall respectively assist the Secretary, Treasurer, Controller, and other Officers of the Corporation in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1 CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the face (a) that the Corporation is organized under the laws of the State of Wisconsin, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, or the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent and registrar. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person where an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2 TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 3.12 of Article III of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 3.12 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. Section 7.3 LOST, DESTROYED OR STOLEN CERTIFICATES. - When the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond if required by the Corporation and (c) satisfies such other reasonable requirements as may be provided by the Corporation. Section 7.4 STOCK REGULATIONS. - The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the Corporation. ARTICLE VIII INDEMNIFICATION AND LIABILITY OF DIRECTOR AND OFFICERS Section 8.1 INDEMNIFICATION. - The Corporation shall, to the fullest extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business Corporation Law, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors, Officers, employees and agents against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director, Officer, employee or agent is a Party because he or she is or was a Director, Officer, employee or agent of the Corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer, employee or agent may be entitled under any written agreement, Board resolution, vote of shareowners, the Wisconsin Business Corporation Law or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.1 by the purchase of insurance on behalf of any one or more of such Directors, Officers, employees or agents, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director, Officer, employee or agent under this Section 8.1. All capitalized terms used in this Article VIII and not otherwise defined herein shall have the meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law. ARTICLE IX MISCELLANEOUS Section 9.1 FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. Section 9.2 DIVIDENDS. - Subject to the provisions of law or the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. Section 9.3 CONTRACTS, CHECKS, DRAFTS, DEEDS, LEASES AND OTHER INSTRUMENTS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation, and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Treasurer may authorize. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the Corporation to be affixed thereto shall be signed by the President or a Vice President, and by the Secretary, or an Assistant Secretary, or by such other officer or officers, or person or persons, as the Board of Directors may be resolution prescribe. Section 9.4 VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the Chief Executive Officer of the Corporation, if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the Chief Executive Officer, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chief Executive Officer or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. ARTICLE X AMENDMENT OR REPEAL OF BYLAWS Section 10.1 AMENDMENTS BY BOARD OF DIRECTORS. - Except as otherwise provided by the Wisconsin Business Corporation Law or the Articles of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; provided, however, that the shareowners in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. Section 10.2 IMPLIED AMENDMENT. - Any action taken or authorized by the shareowners or by the Board of Directors which would be inconsistent with the Bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. - ------------------------------------------------------------------- I,________________________________________________, do hereby certify that I am the duly elected and acting _______________ Corporate Secretary of Alliant Energy Corporation, a Wisconsin corporation, organized under the laws of the State, and that I have access to the corporate records of said Company, and as such officer, I do further certify that the foregoing Bylaws were adopted as of January 30, 2001. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Company this ____________ day of ___________________, _______. ___________________________________ EX-3.4 3 wplbylaws.txt BYLAWS EXHIBIT 3.4 BYLAWS OF WISCONSIN POWER AND LIGHT COMPANY Effective as of January 30, 2001 ARTICLE I OFFICES Section 1.1 PRINCIPAL AND BUSINESS OFFICES. - The Corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. Section 1.2 REGISTERED OFFICE. - The registered office of the Corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office. ARTICLE II SEAL Section 2.1 CORPORATE SEAL. - The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL, WISCONSIN." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. ARTICLE III SHAREOWNERS Section 3.1. ANNUAL MEETING. - The Annual Meeting of Shareowners shall be held at such date and time as the Board of Directors may determine. The Board of Directors may designate any place, either within or without the State of Wisconsin, as the place for the Annual Meeting. If no designation is made, the place of the Annual Meeting shall be the principal office of the Corporation. The Annual Meeting shall be held for the purposes of electing Directors and of transacting such other business as may properly come before the meeting. Section 3.2 SPECIAL MEETINGS. - Special Meetings of the Shareowners may be called by the Board of Directors or the Chief Executive Officer. The Corporation shall call a Special Meeting of Shareowners in the event that the holders of at least ten percent (10%) of all of the votes entitled to be cast on any issue request a special meeting be held. Section 3.3 NOTICE OF MEETINGS - WAIVER. - Notice of the time and place of each Annual or Special Meeting of Shareowners shall be sent by mail to the recorded address of each shareowner not less than ten (10) days nor more than sixty (60) days before the date of the meeting, except in cases where other special method of notice may be required by statute, in which case the statutory method shall be followed. For purposes of this Section 3.3, notice by "electronic transmission" (as such term is defined in Section 180.0103(7m) of the Wisconsin Business Corporation Law") shall be deemed to constitute written notice. Written notice pursuant to this Section 3.3 shall be deemed to be effective (a) when mailed, if mailed postpaid and addressed to the shareowner's address shown in the Corporation's current record of shareowners or (b) when electronically transmitted to the shareowner in a manner authorized by the shareowner. The notice of a Special Meeting shall state the purpose of the meeting. If an Annual or Special Meeting of shareowners is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new record date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareowners as of the new record date. Notice of any meeting of the shareowners may be waived by any shareowner Section 3.4 FIXING OF RECORD DATE. - For the purpose of determining shareowners entitled to notice of, or to vote at, any meeting of shareowners, or at any adjournment thereof, or shareowners entitled to receive payment of any dividend, or in order to make a determination of shareowners for any other lawful action, the Board of Directors may fix, in advance, a record date for such determination of shareowners. Such date in case of a meeting of shareowners or other lawful action shall not be more than seventy (70) days prior to the date of such meeting or lawful action. If no record date is fixed by the Board of Directors or by statute for the determination of shareowners entitled to demand a special meeting as contemplated in Section 3.2 hereof, the record date shall be the date that the first shareowner signs the demand. When a determination of shareowners entitled to vote at any meeting of shareowners has been made as provided in this section, such determination shall apply to any adjournment thereof unless the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting in which event the Board of Directors must fix a new record date. Section 3.5 SHAREOWNER LIST. - The Corporation shall have available, beginning two (2) days after the notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, a complete record of each shareowner entitled to vote at such meeting, or any adjournment thereof, showing the address of and number of shares held by each shareowner. The shareowner list shall be available for inspection by any shareowner during normal business hours at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareowners' list available at the meeting and any shareowner or his agent or attorney may inspect the list at any time the meeting or any adjournment thereof. Section 3.6 QUORUM AND VOTING REQUIREMENTS. - Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the outstanding shares entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for action on that matter. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the Corporation's Articles of Incorporation, any Bylaw adopted under authority granted in the Articles of Incorporation or statute requires a greater number of affirmative votes. Directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. Though less than a quorum of the outstanding votes are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.7 CONDUCT OF MEETING. - The Chairperson of the Board shall preside at each meeting of shareowners. In the absence of the Chairperson of the Board, such persons, in the following order, shall act as chair of the meeting; the Vice Chairperson of the Board, the Chief Executive Officer, the President, any Vice President, the Director in attendance with the longest tenure in that office. The Secretary, or if absent, an Assistant Secretary, of the Company shall act as Secretary of each shareowner. Section 3.8 PROXIES. - At any Annual Meeting or Special Meeting, a shareowner entitled to vote may vote his or her shares in person or by proxy. A shareowner entitled to vote at an Annual Meeting or Special Meeting may authorize another person to act for the shareowner by appointing the person as proxy. Without limiting the manner in which a shareowner may appoint a proxy, a shareowner or the shareowner's authorized officer, director, employee, agent or attorney-in-fact may use any of the following as a valid means to make such an appointment: (a) Appointment of a proxy in writing by signing or causing the shareowner's signature to be affixed to an appointment form by any reasonable means, including, but not limited to, by facsimile signature. (b) Appointment of a proxy by transmitting or authorizing the transmission of an electronic transmission of the appointment to the person who will be appointed as proxy or to a proxy solicitation firm, proxy support service organization or like agent authorized to receive the transmission by the person who will be appointed as proxy. Every electronic transmission shall contain, or be accompanied by, information that can be used to reasonably determine that the shareowner transmitted or authorized the transmission of the electronic transmission. Any person charged with determining whether a shareholder transmitted or authorized the transmission of the electronic transmission shall specify the information upon which the determination is made. An appointment of a proxy is effective when a signed appointment form or an electronic transmission of the appointment is received by the inspector of election or the officer or agent of the Corporation authorized to tabulate votes. An appointment is valid for eleven months unless a different period is expressly provided in the appointment. Unless otherwise provided, a proxy may be revoked any time before it is voted, either by appointing a new proxy in accordance with the Wisconsin Business Corporation Law or by oral notice given by the shareowner to the presiding officer during the meeting. The presence of a shareowner who has made an effective proxy appointment shall not itself constitute a revocation. The Board of Directors shall have the power and authority to make rules establishing presumptions as to the validity and sufficiency of proxies. Section 3.9 VOTING OF SHARES. - Except as provided in the Articles of Incorporation or statute, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareowners. Section 3.10 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. ARTICLE IV BOARD OF DIRECTORS Section 4.1 GENERAL POWER. - The business and affairs of the Corporation shall be managed by its Board of Directors. Section 4.2 NUMBER. CLASSES & TERM. - The number of Directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the total number of Directors that the Corporation would have if there were no vacancies, but shall not be less than nine (9) nor more than sixteen (16). The Directors of the Corporation shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible. At each Annual Meeting, the successors to the class of Directors whose terms shall expire at the time of such Annual Meeting shall be elected to hold office until the third succeeding Annual Meeting, and until their successors are duly elected and qualified. Section 4.3 CHAIRPERSON OF THE BOARD. - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available for consultation and advice. Section 4.4 VICE CHAIRPERSON OF THE BOARD. - The Vice Chairperson of the Board shall assist the Board in the formulation of policies and make recommendations therefore. The Vice Chairperson shall have such other powers and duties as may be prescribed for him or her by the Chairperson of the Board or the Board of Directors. In the absence of or the inability of the Chairperson of the Board to act as Chairperson of the Board, the Vice Chairperson of the Board shall assume the powers and duties of the Chairperson of the Board. Section 4.5 QUALIFICATIONS AND REMOVAL. - No person who has attained seventy (70) years of age shall be eligible for election or re-election to the Board of Directors. Any Director who has attained seventy (70) years of age shall resign from the Board of Directors effective as of the next Annual Meeting. For a period of five (5) years following April 21, 1998, no person, except any of the initial Directors serving as such on April 21, 1998, who is an executive officer or employee of the Corporation or any of its subsidiaries shall be eligible to serve as a Director of the Corporation; provided, however, that any individual serving as Chief Executive Officer of the Corporation shall be eligible to serve as a Director of the Corporation. In the event the Chief Executive Officer resigns or retires from his or her office or employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that the Chief Executive Officer is removed from his or her office by the Board of Directors, or is involuntarily terminated from employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that a Director experiences a change in their principal occupation or primary business affiliation, the Director must submit their resignation from the Board to the Nominating and Governance Committee. The Nominating and Governance Committee shall recommend to the Board of Directors whether the Board should accept such resignation. If the Nominating and Governance Committee recommends acceptance of the resignation, an affirmative vote of two-thirds of the remaining Directors holding office is required to affirm the Nominating and Governance Committee's recommendation. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. Section 4.6 REGULAR MEETINGS. - Regular meetings of the Board of Directors shall be held at such time and place as may be determined by the Board of Directors, but in no event shall the Board meet less than once a year. Section 4.7 SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any two (2) Directors. The Chief Executive Officer or Secretary may fix any place, either within or without the State of Wisconsin, whether in person or by telecommunications, as the place for holding any special meeting. Section 4.8 NOTICE; WAIVER. - Notice of any meeting of the Board of Directors, unless otherwise provided pursuant to Section 4.6, shall be given at least forty-eight (48) hours prior to the meeting by written notice delivered personally or mailed to each Director at such address designed by each Director, by telegram or other form of wire or wireless communication. The notice need not describe the purpose of the meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage prepared. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened. Section 4.9 QUORUM. - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting to some other day without further notice. Section 4.10 MEETING PARTICIPATION. - (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through, the use of any means of communication by which any of the following occurs: 1) All participating directors may simultaneously hear each other during the meeting. 2) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 4.11 ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the Committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. The action taken is effective when the last Director signs the consent unless the consent specifies a different effective date. Section 4.12 PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent or abstention shall be entered in the minutes of the meeting, (c) the Director shall file a written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting, or (d) the Director shall file a written notice to the Secretary of the Corporation promptly after receiving the minutes of the meeting that the minutes failed to show the Director's dissention or abstention from the action taken. Such right to dissent or abstain shall not apply to a Director who voted in favor of such action. Section 4.13 VACANCIES. - Except as provided below, any vacancy occurring in the Board of Directors or on any Committee of the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. For a period of time commencing on formation of Interstate Energy Corporation and expiring on the date of the third annual meeting of shareowners of the Corporation, the initially appointed IES, IPC and WPLH directors, each as a separate group, shall be entitled to nominate those persons who will be eligible to be appointed, elected or re-elected as IES, IPC and WPLH Directors. The Director or Directors so chosen shall hold office until the next election of the Class for which such Director or Directors shall have been chosen and until their successors shall have been duly elected and qualified. Section 4.14 COMPENSATION. - Compensation and expenses for attendance at a regular or special meeting of the Board of Directors, or at any committee meeting, shall be payable in such amounts as determined from time to time by the Board of Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors who are full time employees or officers of the Corporation shall not receive any compensation. ARTICLE V COMMITTEES Section 5.1 COMMITTEES. - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number various Committees from time to time as corporate needs may dictate. The Committees may make their own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The Committee may be authorized by the Board of Directors to perform specified functions, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareowners action that the Wisconsin Business Corporation Law requires to be approved by shareowners; (c) fill vacancies on the Board of Directors, or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the Corporation's Articles of Incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareowner approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Section 5.2 EXECUTIVE COMMITTEE. An Executive Committee is hereby established and shall consist of at least three (3) members, including the Chairman of the Board. The Executive Committee shall possess all the powers and authority of the Board of Directors when said Board of Directors is not in session, except for the powers and authorities set forth in Section 5.1. Section 5.3 AUDIT COMMITTEE. - An Audit Committee is hereby established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The members of the Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.4 COMPENSATION AND PERSONNEL COMMITTEE - A Compensation and Personnel Committee is hereby established and shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chairman of the Board, the Chief Executive Officer, or any Committee member. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.5 NOMINATING AND GOVERNANCE COMMITTEE. - A Nominating and Governance Committee shall be established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Nominating and Governance Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. ARTICLE VI OFFICERS Section 6.1 OFFICERS. - The Board of Directors shall elect a Chief Executive Officer, a President, such number of Vice Presidents with such designations as the Board of Directors at the time may decide upon, a Secretary, a Treasurer and a Controller. The Chief Executive Officer may appoint such other officers and assistant officers as may be deemed necessary. The same person may simultaneously hold more than one such office. Section 6.2 TERM OF OFFICERS. - All Officers, unless sooner removed, shall hold their respective offices until their successors, willing to serve, shall have been elected but any Officer may be removed from Office at any time by the Board of Directors. Section 6.3 REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. Section 6.4 CHIEF EXECUTIVE OFFICER. - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Corporation, shall establish the lines of authority and supervision of the Officers and employees of the Corporation, shall have the power to appoint and remove and discharge any and all agents and employees of the Corporation not elected or appointed directly by the Board of Directors, and shall assist the Board in the formulation of policies of the Corporation. The Chairperson of the Board, if Chief Executive Officer, may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Corporation. Section 6.5 PRESIDENT. - The President, when he or she is not designated as and does not have the powers of the Chief Executive Officer, shall have such other powers and duties as may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board or the Chief Executive Officer. Section 6.6 VICE PRESIDENTS. - The Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and the Chief Executive Officer. In the absence of or in the event of the death of the Chief Executive Officer and the President, the inability or refusal to act, or in the event for any reason it shall be impracticable for the Chief Executive officer and the President to act personally, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chief Executive Officer and the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and the President. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the Chief Executive Officer and the President. Section 6.7 SECRETARY. - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Corporation, and of all other books, documents and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Corporation and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.8 TREASURER. - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks or trust companies as he or she shall designate and shall keep a proper record of cash receipts and disbursements. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the President, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Corporation for operating purposes in the usual course or business. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. The Treasurer shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.9 CONTROLLER. - The Controller shall be the principal accounting Officer of the Corporation. He or she shall have general supervision over the books of accounts of the Corporation. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Corporation relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the President or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.10 ASSISTANT OFFICERS. - The Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and other Assistant Officers shall respectively assist the Secretary, Treasurer, Controller, and other Officers of the Corporation in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1 CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the face (a) that the Corporation is organized under the laws of the State of Wisconsin, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, or the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent and registrar. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person where an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2. TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 3.10 of Article III of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 3.10 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. Section 7.3 LOST, DESTROYED OR STOLEN CERTIFICATES. - When the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond if required by the Corporation and (c) satisfies such other reasonable requirements as may be provided by the Corporation. Section 7.4 STOCK REGULATIONS. - The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the Corporation. ARTICLE VIII INDEMNIFICATION AND LIABILITY OF DIRECTOR AND OFFICERS Section 8.1 INDEMNIFICATION. - The Corporation shall, to the fullest extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business Corporation Law, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors, Officers, employees and agents against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director, Officer, employee or agent is a Party because he or she is or was a Director, Officer, employee or agent of the Corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer, employee or agent may be entitled under any written agreement, Board resolution, vote of shareowners, the Wisconsin Business Corporation Law or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.1 by the purchase of insurance on behalf of any one or more of such Directors, Officers, employees or agents, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director, Officer, employee or agent under this Section 8.1. All capitalized terms used in this Article VIII and not otherwise defined herein shall have the meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law. ARTICLE IX MISCELLANEOUS Section 9.1 FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. Section 9.2 DIVIDENDS. - Subject to the provisions of law or the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. Section 9.3 CONTRACTS, CHECKS, DRAFTS, DEEDS, LEASES AND OTHER INSTRUMENTS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation, and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Treasurer may authorize. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the Corporation to be affixed thereto shall be signed by the President or a Vice President, and by the Secretary, or an Assistant Secretary, or by such other officer or officers, or person or persons, as the Board of Directors may be resolution prescribe. Section 9.4 VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the Chief Executive Officer of the Corporation, if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the Chief Executive Officer, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chief Executive Officer or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. ARTICLE X AMENDMENT OR REPEAL OF BYLAWS Section 10.1 AMENDMENTS BY BOARD OF DIRECTORS. - Except as otherwise provided by the Wisconsin Business Corporation Law or the Articles of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; provided, however, that the shareowners in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. Section 10.2 IMPLIED AMENDMENT. - Any action taken or authorized by the shareowners or by the Board of Directors which would be inconsistent with the Bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. - -------------------------------------------------------------------------- I, _________________________, do hereby certify that I am the duly elected and acting __________________ Corporate Secretary of Wisconsin Power and Light Company, a Wisconsin corporation, organized under the laws of the State, and that I have access to the corporate records of said Company, and as such officer, I do further certify that the foregoing Bylaws were adopted as of January 30, 2001. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Company this ________ day of __________________, ______. ________________________________ EX-3.6 4 iesubylaws.txt BYLAWS EXHIBIT 3.6 BYLAWS OF IES UTILITIES INC. Effective as of January 30, 2001 ARTICLE I OFFICES Section 1.1 PRINCIPAL AND BUSINESS OFFICES. - The principal office shall be in the City of Cedar Rapids, County of Linn, State of Iowa. The Corporation may have other offices, either within or without the State of Iowa, at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may require. Section 1.2 REGISTERED OFFICE. - The registered office of the Corporation required by the Iowa Business Corporation Act to be maintained in the State of Iowa may be, but need not be identical with the principal office in the State of Iowa, and the address of the registered office may be changed from time to time by the Board of Directors ARTICLE II SEAL Section 2.1 CORPORATE SEAL. - The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL, IOWA." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. ARTICLE III SHAREOWNERS Section 3.1. ANNUAL MEETING. - The Annual Meeting of Shareowners shall be held at such date and time as the Board of Directors may determine. The Board of Directors may designate any place for the Annual Meeting. If no designation is made, the place of the Annual Meeting shall be the principal office of the Corporation. The Annual Meeting shall be held for the purposes of electing Directors and of transacting such other business as may properly come before the meeting. Section 3.2 SPECIAL MEETINGS. - Special Meetings of the Shareowners may be called by the Board of Directors or the Chief Executive Officer. The Corporation shall call a Special Meeting of Shareowners in the event that the holders of at least ten percent (10%) of all of the votes entitled to be cast on any issue request a special meeting be held. Section 3.3 NOTICE OF MEETINGS - WAIVER. - Notice of the time and place of each Annual or Special Meeting of Shareowners shall be sent by mail to the recorded address of each shareowner not less than ten (10) days nor more than sixty (60) days before the date of the meeting, except in cases where other special method of notice may be required by statute, in which case the statutory method shall be followed. The notice of a Special Meeting shall state the purpose of the meeting. If an Annual or Special Meeting of shareowners is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new record date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareowners as of the new record date. Notice of any meeting of the shareowners may be waived by any shareowner. Section 3.4 FIXING OF RECORD DATE. - For the purpose of determining shareowners entitled to notice of, or to vote at, any meeting of shareowners, or at any adjournment thereof, or shareowners entitled to receive payment of any dividend, or in order to make a determination of shareowners for any other lawful action, the Board of Directors may fix, in advance, a record date for such determination of shareowners. Such date in case of a meeting of shareowners or other lawful action shall not be less than ten (10) days nor more than seventy (70) days prior to the date of such meeting or lawful action. If no record date is fixed by the Board of Directors or by statute for the determination of shareowners entitled to demand a special meeting as contemplated in Section 3.2 hereof, the record date shall be the date that the first shareowner signs the demand. When a determination of shareowners entitled to vote at any meeting of shareowners has been made as provided in this section, such determination shall apply to any adjournment thereof unless the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting in which event the Board of Directors must fix a new record date. Section 3.5 SHAREOWNER LIST. - The Corporation shall have available, beginning two (2) days after the notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, a complete record of each shareowner entitled to vote at such meeting, or any adjournment thereof, showing the address of and number of shares held by each shareowner. The shareowner list shall be available for inspection by any shareowner during normal business hours at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareowners' list available at the meeting and any shareowner or his/her agent or attorney may inspect the list at any time the meeting or any adjournment thereof. Section 3.6 QUORUM AND VOTING REQUIREMENTS. - Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the outstanding shares entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for action on that matter. If a quorum exists, except in the case of the election of Directors, action on a matter shall be approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the Corporation's Articles of Incorporation, any Bylaw adopted under authority granted in the Articles of Incorporation or statute requires a greater number of affirmative votes. Directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. Though less than a quorum of the outstanding votes are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.7 CONDUCT OF MEETING. - The Chairperson of the Board shall preside at each meeting of shareowners. In the absence of the Chairperson of the Board, such persons, in the following order, shall act as chair of the meeting; the Vice Chairperson of the Board, the Chief Executive Officer, the President, any Vice President, the Director in attendance with the longest tenure in that office. The Secretary, or if absent, an Assistant Secretary, of the company shall act as Secretary of each shareowner meeting. Section 3.8 PROXIES. - Any shareowner having the right to vote at a meeting of shareowners may exercise such right by voting in person or by proxy at such meeting. Such proxies shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Section 3.9 VOTING OF SHARES. - Except as provided in the Articles of Incorporation or statute, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareowners. Section 3.10 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. ARTICLE IV BOARD OF DIRECTORS Section 4.1 GENERAL POWER. - The business and affairs of the Corporation shall be managed by its Board of Directors. Section 4.2 NUMBER. CLASSES & TERM. - The number of Directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the total number of Directors that the Corporation would have if there were no vacancies, but shall not be less than nine (9) nor more than sixteen (16). The Directors of the Corporation shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible. At each Annual Meeting, the successors to the class of Directors whose terms shall expire at the time of such Annual Meeting shall be elected to hold office until the third succeeding Annual Meeting, and until their successors are duly elected and qualified. Section 4.3 CHAIRPERSON OF THE BOARD. - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available for consultation and advice. Section 4.4 VICE CHAIRPERSON OF THE BOARD. - The Vice Chairperson of the Board shall assist the Board in the formulation of policies and make recommendations therefore. The Vice Chairperson shall have such other powers and duties as may be prescribed for him or her by the Chairperson of the Board or the Board of Directors. In the absence of or the inability of the Chairperson of the Board to act as Chairperson of the Board, the Vice Chairperson of the Board shall assume the powers and duties of the Chairperson of the Board. Section 4.5 QUALIFICATIONS AND REMOVAL. - No person who has attained seventy (70) years of age shall be eligible for election or re-election to the Board of Directors. Any Director who has attained seventy (70) years of age shall resign from the Board of Directors effective as of the next Annual Meeting. For a period of five (5) years following April 21, 1998, no person, except any of the initial Directors serving as such on April 21, 1998, who is an executive officer or employee of the Corporation or any of its subsidiaries shall be eligible to serve as a Director of the Corporation; provided, however, that any individual serving as Chief Executive Officer of the Corporation shall be eligible to serve as a Director of the Corporation. In the event the Chief Executive Officer resigns or retires from his or her office or employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that the Chief Executive Officer is removed from his or her office by the Board of Directors, or is involuntarily terminated from employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that a Director experiences a change in their principal occupation or primary business affiliation, the Director must submit their resignation from the Board to the Nominating and Governance Committee. The Nominating and Governance Committee shall recommend to the Board of Directors whether the Board should accept such resignation. If the Nominating and Governance Committee recommends acceptance of the resignation, an affirmative vote of two-thirds of the remaining Directors holding office is required to affirm the Nominating and Governance Committee's recommendation. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. Section 4.6 REGULAR MEETINGS. - Regular meetings of the Board of Directors shall be held at such time and place as may be determined by the Board of Directors, but in no event shall the Board meet less than once a year. Section 4.7 SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any two (2) Directors. The Chief Executive Officer or Secretary may fix any place, either within or without the State of Iowa, whether in person or by telecommunications, as the place for holding any special meeting. Section 4.8 NOTICE; WAIVER. - Notice of any meeting of the Board of Directors, unless otherwise provided pursuant to Section 4.6, shall be given at least forty-eight (48) hours prior to the meeting by written notice delivered personally or mailed to each Director at such address designed by each Director, by telegram or other form of wire or wireless communication. The notice need not describe the purpose of the meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage prepared. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened. Section 4.9 QUORUM. - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting to some other day without further notice. Section 4.10 MEETING PARTICIPATION. - (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through, the use of any means of communication by which any of the following occurs: 1) All participating directors may simultaneously hear each other during the meeting. 2) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 4.11 ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the Committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. The action taken is effective when the last Director signs the consent unless the consent specifies a different effective date. Section 4.12 PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent or abstention shall be entered in the minutes of the meeting, (c) the Director shall file a written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting, or (d) the Director shall file a written notice to the Secretary of the Corporation promptly after receiving the minutes of the meeting that the minutes failed to show the Director's dissention or abstention from the action taken. Such right to dissent or abstain shall not apply to a Director who voted in favor of such action. Section 4.13 VACANCIES. - Except as provided below, any vacancy occurring in the Board of Directors or on any Committee of the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. For a period of time commencing on formation of Interstate Energy Corporation and expiring on the date of the third annual meeting of shareowners of the Corporation, the initially appointed IES, IPC and WPLH directors, each as a separate group, shall be entitled to nominate those persons who will be eligible to be appointed, elected or re-elected as IES, IPC and WPLH Directors. The Director or Directors so chosen shall hold office until the next election of the Class for which such Director or Directors shall have been chosen and until their successors shall have been duly elected and qualified. Section 4.14 COMPENSATION. - Compensation and expenses for attendance at a regular or special meeting of the Board of Directors, or at any committee meeting, shall be payable in such amounts as determined from time to time by the Board of Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors who are full time employees or officers of the Corporation shall not receive any compensation. ARTICLE V COMMITTEES Section 5.1 COMMITTEES. - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number various Committees from time to time as corporate needs may dictate. The Committees may make their own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The Committee may be authorized by the Board of Directors to perform specified functions, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareowners action that the Iowa Business Corporation Act requires to be approved by shareowners; (c) fill vacancies on the Board of Directors, or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the Corporation's Articles of Incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareowner approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Section 5.2 EXECUTIVE COMMITTEE. An Executive Committee is hereby established and shall consist of at least three (3) members, including the Chairman of the Board. The Executive Committee shall possess all the powers and authority of the Board of Directors when said Board of Directors is not in session, except for the powers and authorities set forth in Section 5.1. Section 5.3 AUDIT COMMITTEE. - An Audit Committee is hereby established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The members of the Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.4 COMPENSATION AND PERSONNEL COMMITTEE - A Compensation and Personnel Committee is hereby established and shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chairman of the Board, the Chief Executive Officer, or any Committee member. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.5 NOMINATING AND GOVERNANCE COMMITTEE. - A Nominating and Governance Committee shall be established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Nominating and Governance Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. ARTICLE VI OFFICERS Section 6.1 OFFICERS. - The Board of Directors shall elect a Chief Executive Officer, a President, such number of Vice Presidents with such designations as the Board of Directors at the time may decide upon, a Secretary, a Treasurer and a Controller. The Chief Executive Officer may appoint such other officers and assistant officers as may be deemed necessary. The same person may simultaneously hold more than one such office. Section 6.2 TERM OF OFFICERS. - All officers, unless sooner removed, shall hold their respective offices until their successors, willing to serve, shall have been elected but any officer may be removed from Office at any time by the Board of Directors. Section 6.3 REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. Section 6.4 CHIEF EXECUTIVE OFFICER. - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Corporation, shall establish the lines of authority and supervision of the Officers and employees of the Corporation, shall have the power to appoint and remove and discharge any and all agents and employees of the Corporation not elected or appointed directly by the Board of Directors, and shall assist the Board in the formulation of policies of the Corporation. The Chairperson of the Board, if Chief Executive Officer, may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Corporation. Section 6.5 PRESIDENT. - The President, when he or she is not designated as and does not have the powers of the Chief Executive Officer, shall have such other powers and duties may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board or the Chief Executive Officer. Section 6.6 VICE PRESIDENTS. - The Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and the Chief Executive Officer. In the absence of or in the event of the death of the Chief Executive officer and the President, the , inability or refusal to act, or in the event for any reason it shall be impracticable for the Chief Executive Officer and the President to act personally, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chief Executive Officer and the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and the President. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the Chief Executive Officer and the President. Section 6.7 SECRETARY. - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Corporation, and of all other books, documents and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these Bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Corporation and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.8 TREASURER. - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks or trust companies as he or she shall designate and shall keep a proper record of cash receipts and disbursements. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the President, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Corporation for operating purposes in the usual course or business. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. The Treasurer shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.9 CONTROLLER. - The Controller shall be the principal accounting Officer of the Corporation. He or she shall have general supervision over the books of accounts of the Corporation. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Corporation relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the President or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.10 ASSISTANT OFFICERS. - The Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and other Assistant Officers shall respectively assist the Secretary, Treasurer, Controller, and other Officers of the Corporation in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1 CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the face (a) that the Corporation is organized under the laws of the State of Iowa, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, or the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent and registrar. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person where an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2. TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 3.10 of Article III of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 3.10 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. Section 7.3 LOST, DESTROYED OR STOLEN CERTIFICATES. - When the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond if required by the Corporation and (c) satisfies such other reasonable requirements as may be provided by the Corporation. Section 7.4 STOCK REGULATIONS. - The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the Corporation. ARTICLE VIII INDEMNIFICATION AND LIABILITY OF DIRECTOR AND OFFICERS Section 8.1 INDEMNIFICATION. - The Corporation shall, to the fullest extent permitted or required by the Iowa Business Corporation Act, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors, Officers, employees and agents against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director, Officer, employee or agent is a Party because he or she is or was a Director, Officer, employee or agent of the Corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer, employee or agent may be entitled under any written agreement, Board resolution, vote of shareowners, the Iowa Business Corporation Act or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.1 by the purchase of insurance on behalf of any one or more of such Directors, Officers, employees or agents, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director, Officer, employee or agent under this Section 8.1. ARTICLE IX MISCELLANEOUS Section 9.1 FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. Section 9.2 DIVIDENDS. - Subject to the provisions of law or the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. Section 9.3 CONTRACTS, CHECKS, DRAFTS, DEEDS, LEASES AND OTHER INSTRUMENTS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation, and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Treasurer may authorize. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the Corporation to be affixed thereto shall be signed by the President or a Vice President, and by the Secretary, or an Assistant Secretary, or by such other officer or officers, or person or persons, as the Board of Directors may by resolution prescribe. Section 9.4 VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the Chief Executive Officer of the Corporation, if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the Chief Executive Officer, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chief Executive Officer or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. ARTICLE X AMENDMENT OR REPEAL OF BYLAWS Section 10.1 AMENDMENTS BY BOARD OF DIRECTORS. - Except as otherwise provided by the Iowa Business Corporation Law or the Articles of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; provided, however, that the shareowners in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. Section 10.2 IMPLIED AMENDMENT. - Any action taken or authorized by the shareowners or by the Board of Directors which would be inconsistent with the Bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. I, __________________, do hereby certify that I am the duly elected and acting __________ Corporate Secretary of IES Utilities Inc., an Iowa corporation, organized under the laws of the State, and that I have access to the corporate records of said Company, and as such officer, I do further certify that the foregoing Bylaws were adopted as of January 30 2001. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Company this __________ day of ___________________, _____. ________________________________ EX-4.12 5 officerscert.txt OFFICER'S CERTIFICATE EXHIBIT 4.12 OFFICER'S CERTIFICATE AND AUTHENTICATION ORDER Pursuant to the Indenture (For Senior Unsecured Debt Securities) dated as of August 1, 1997 (the "Indenture") between IES Utilities Inc. (the "Company") and The First National Bank of Chicago, as trustee (the "Trustee"), and resolutions adopted by the Board of Directors of the Company on July 23, 1997, this Officer's Certificate and Authentication Order is being delivered to the Trustee to establish the terms of a series of Securities in accordance with Section 301 of the Indenture, to establish the form of the Securities of such series in accordance with Section 201 of the Indenture and to request the authentication and delivery of the Securities of such series pursuant to Section 303 of the Indenture. Capitalized terms used but not defined herein and defined in the Indenture shall have the respective meanings ascribed to them in the Indenture. A. Establishment of Series Pursuant to Section 301 of --------------------------------------------------------- Indenture. There is hereby established pursuant to Section 301 - ---------- of the Indenture a series of Securities which shall have the following terms (the lettered clauses set forth below correspond to the lettered subsections of Section 301 of the Indenture): (a) the title of the series of Securities shall be "6 5/8% Senior Debentures, Series A, Due 2009" (referred to herein as the "Debentures"); (b) the aggregate principal amount of Debentures which may be authenticated and delivered under the Indenture (except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures pursuant to Section 304, 305, 306, 406 or 1206 thereof and, except for any Debentures which, pursuant to Section 3.3 thereof, are deemed never to have been authenticated and delivered thereunder) shall be limited to $135,000,000; (c) each installment of interest on a Debenture shall be payable to the Person in whose name such Debenture is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 and July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date for the Debentures. Any installment of interest on a Debenture not punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name the Debenture is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to the Holders of the Debentures not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, or any book-entry system which may be applicable to this Debenture and upon such notice as may be required by such exchange or system, all as more fully provided in the Indenture; (d) the Debentures shall mature and the principal thereof shall be due and payable on August 1, 2009, together with all accrued and unpaid interest thereon to, but not including, such date; (e) the Debentures shall bear interest from the date of original issuance (which is anticipated to be August 4, 1997) at the rate of 6 5/8% per annum payable semi-annually in arrears on February 1 and August 1 of each year (each, an "Interest Payment Date") commencing February 1, 1998. The amount of interest payable for any such period will be computed on the basis of a 360-day year of twelve 30-day months and on the basis of the actual number of days elapsed within any month in relation to the deemed 30 days of such month. Interest on the Debentures will accrue from the date of original issuance but if interest has been paid on such Debentures, then from the most recent interest payment date through which interest has been paid. In the event that any Interest Payment Date is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such Interest Payment Date; (f) the principal of and each installment of interest on each Debenture that is not a global Security shall be payable, and registration of transfer and exchanges of such Debentures may be effected, at the office or agency of the Company in The City of New York. Payment of principal of and interest on each Debenture represented by a global Security shall be made to The Depository Trust Company ("DTC") or its nominee, as the case may be, as the sole registered owner and the sole Holder of the Securities represented thereby for all purposes under the Indenture. Notices and demands to or upon the Company with respect to the Debentures and the Indenture may be served at the Corporate Trust Office of the Trustee or at the Company at the address of its principal office specified in the Indenture. The Trustee will initially be the Paying Agent and the Security Registrar for the Debentures; (h) there are no sinking fund or mandatory redemption provisions applicable to the Debentures, and the Company will not be subject to any obligation to redeem or repurchase the Debentures at the option of a Holder; (i) the Debentures shall be issuable in denominations of $1,000 and any integral multiple thereof; (o) so long as any Debentures are Outstanding, the failure of the Company to pay interest on any Debentures within sixty (60) days after the same becomes due and payable shall constitute an Event of Default; (r) the Debentures will be originally issued in global form registered in the name of DTC or its nominee and will, unless and until the Debentures are exchanged in whole or in part for certificated Debentures registered in the names of various beneficial holders thereof, contain restrictions on transfer, substantially as described in the form of Debentures, hereto attached as Exhibit A. A global Debenture shall be exchangeable for certificated Debentures registered in the names of persons other than DTC or its nominee only if (i) DTC notifies the Company that it is unwilling or unable to continue as a depositary for such global Security and no successor depositary shall have been appointed, or at any time DTC ceases to be a clearing agency registered under the Securities Exchange Act of 1934, at a time when DTC is required to be so registered to act as such depositary, (ii) the Company in its sole discretion determines that such global Debenture shall be so exchangeable or (iii) there shall have occurred and be continuing an Event of Default with respect to the Debentures. Any global Debenture that is exchangeable pursuant to the preceding sentence shall be exchangeable for certificated Debentures registered in such names as DTC shall direct; (v) the Debentures shall have such other terms and provisions as are provided in the form set forth in Exhibit A hereto. B. Establishment of Form of Debt Security Pursuant to - --------------------------------------------------------------- Section 201 of Indenture. It is hereby established pursuant to - ------------------------- Section 201 of the Indenture that the Debentures shall be substantially in the form attached as Exhibit A hereto. C. Order for the Authentication and Delivery of Debt - --------------------------------------------------------------- Securities Pursuant to Section 303 of the Indenture. It is - ---------------------------------------------------------- hereby ordered pursuant to Section 303 of the Indenture, that the Trustee authenticate, in the manner provided by the Indenture, one Debenture in the aggregate principal amount of $135,000,000 registered in the name of Cede & Co., which Debenture has been heretofore duly executed by the proper officers of the Company and delivered to you as provided in the Indenture, and to deliver said authenticated Debenture to or upon the order of Chase Securities Inc., as representative, on August 4, 1997. The undersigned has read the pertinent sections of the Indenture including the related definitions contained therein. The undersigned has examined the resolutions adopted by the Board of Directors of the Company on July 23, 1997. In the opinion of the undersigned, the undersigned has made such examination or investigation as is necessary to enable the undersigned to express an informed opinion as to whether or not the conditions precedent to the establishment of (i) a series of Securities, (ii) the forms of such Securities and (iii) authentication of such series of Securities, contained in the Indenture have been complied with. In the opinion of the undersigned, such conditions have been complied with. * * * * * IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Company this 4th day of August, 1997. ____________________________________ Name: Larry D. Root Title: President & Chief Operating Officer EX-10.15 6 atcasset.txt ASSET CONTRIBUTION AGREEMENT EXHIBIT 10.15 ASSET CONTRIBUTION AGREEMENT between American Transmission Company LLC and [Wisconsin Electric Power Company] [Wisconsin Power and Light Company] [Wisconsin Public Service Corp.] [Madison Gas & Electric Co.] [Edison Sault Electric Company] [South Beloit Water, Gas and Electric Company] Dated as of December 15, 2000
TABLE OF CONTENTS PAGE ---- ARTICLE I DEFINITIONS.....................................................................................................1 SECTION 1.1 Definitions.......................................................................................1 ARTICLE II CLASSIFICATION OF CERTAIN CONTRIBUTED ASSETS...................................................................7 SECTION 2.1 Classification of Contributed Assets..............................................................7 SECTION 2.2 Classification of Transmission Line Land Rights by Circuit Method.................................7 SECTION 2.3 Classification of Transmission Line Land Rights by Parcel-by-Parcel Method........................8 SECTION 2.4 Classification of Transmission Substation Land Rights.............................................8 SECTION 2.5 Classification and Disputes.......................................................................8 ARTICLE III CONTRIBUTION OF ASSETS........................................................................................9 SECTION 3.1 Contribution of Assets............................................................................9 SECTION 3.2 Transmission Lines................................................................................9 SECTION 3.3 Transmission Substations.........................................................................10 SECTION 3.4 Permits..........................................................................................11 SECTION 3.5 Contracts........................................................................................12 SECTION 3.6 Construction Work In Progress....................................................................12 SECTION 3.7 Personal Property................................................................................12 SECTION 3.8 Inventory........................................................................................12 SECTION 3.9 Warranties.......................................................................................13 SECTION 3.10 Allocation of Liability..........................................................................13 SECTION 3.11 Title Insurance, Surveys and Subdivision.........................................................13 SECTION 3.12 Documented Construction Projects.................................................................14 SECTION 3.13 [Stoughton Operations Center.....................................................................15 ARTICLE IV ISSUANCE OF MEMBER UNITS TO CONTRIBUTOR.......................................................................15 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR..............................................................15 SECTION 5.1 Organization of the Contributor..................................................................15 SECTION 5.2 Authority Relative to this Agreement.............................................................15 SECTION 5.3 Enforceability...................................................................................16 SECTION 5.4 Consents and Approvals; No Violations............................................................16 SECTION 5.5 Legal Proceedings................................................................................16 SECTION 5.6 Interests In Certain Contributed Assets..........................................................17 SECTION 5.7 Environmental Matters............................................................................17 SECTION 5.8 Adequacy of Contributed Assets...................................................................17 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF ATCLLC......................................................................17 SECTION 6.1 Organization and Authority of ATCLLC.............................................................18 SECTION 6.2 Authority Relative to this Agreement.............................................................18 SECTION 6.3 Enforceability...................................................................................18 SECTION 6.4 Consents and Approvals; No Violations............................................................18 SECTION 6.5 Litigation.......................................................................................19 ARTICLE VII COVENANTS....................................................................................................19 SECTION 7.1 Conduct of the Business of the Contributor.......................................................19 SECTION 7.2 Project Map......................................................................................19 SECTION 7.3 Consents and Approvals...........................................................................19 SECTION 7.4 Casualty.........................................................................................20 SECTION 7.5 Access to Contributed Assets.....................................................................20 SECTION 7.6 Continued Environmental Reporting................................................................20 SECTION 7.7 Continued Conveyance.............................................................................20 ARTICLE VIII CONDITIONS PRECEDENT........................................................................................21 SECTION 8.1 Mutual Conditions Precedent......................................................................21 SECTION 8.2 Conditions Precedent to Obligations of ATCLLC....................................................21 SECTION 8.3 Conditions Precedent to Obligations of the Contributor...........................................22 ARTICLE IX INDEMNIFICATION...............................................................................................23 SECTION 9.1 Indemnification..................................................................................23 SECTION 9.2 Notice of Proceedings............................................................................24 SECTION 9.3 Defense of Claims................................................................................25 SECTION 9.4 Subrogation......................................................................................26 ARTICLE X CLOSING........................................................................................................26 SECTION 10.1 The Closing Date.................................................................................26 SECTION 10.2 Closing Costs....................................................................................26 SECTION 10.3 Prorations.......................................................................................26 SECTION 10.4 Default and Remedies.............................................................................27 ARTICLE XI POST CLOSING..................................................................................................27 SECTION 11.1 Further Assurances...............................................................................27 SECTION 11.2 Survival of Representations, Warranties and Agreement............................................27 SECTION 11.3 Access to Records................................................................................27 ARTICLE XII MISCELLANEOUS................................................................................................28 SECTION 12.1 Notices..........................................................................................28 SECTION 12.2 Entire Agreement.................................................................................29 SECTION 12.3 Interpretation and Construction..................................................................29 SECTION 12.4 Counterparts.....................................................................................29 SECTION 12.5 Binding on Successors and Assignment.............................................................29 SECTION 12.6 Governing Law....................................................................................29 SECTION 12.7 Severability.....................................................................................29 SECTION 12.8 Amendments and Waivers...........................................................................29
ASSET CONTRIBUTION AGREEMENT ---------------------------- THIS ASSET CONTRIBUTION AGREEMENT is executed as of December 15, 2000, by and between American Transmission Company LLC, a Wisconsin limited liability company ("ATCLLC"), and [Name of Contributing Utility], a __________________ corporation (the "Contributor"). R E C I T A L S A. 1999 Wisconsin Act 9 includes provisions commonly referred to as the Reliability 2000 Legislation, which authorized the organization of a new company to provide electric transmission service; B. ATCLLC has been formed in accordance with the provisions of the Reliability 2000 Legislation; C. Pursuant to the provisions of the Reliability 2000 Legislation, companies with transmission assets have been authorized to contribute their transmission assets to ATCLLC; D. The Contributor desires to divest its interest in its transmission facilities and associated land rights and to transfer ownership of such facilities and rights to ATCLLC in exchange for an ownership interest therein, all upon the terms and conditions set forth herein; E. It is anticipated that certain other electric companies will contribute their transmission assets to ATCLLC pursuant to separate but substantially similar Asset Contribution Agreements between ATCLLC and such electric companies. NOW, THEREFORE, in consideration of the mutual premises and covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definitions ------------ Capitalized terms used and not otherwise defined herein shall have the respective meanings assigned to such terms as set forth below, or if not so defined, as set forth in the Operating Agreement. "Agreement" means this Asset Contribution Agreement, together with all Schedules and Exhibits hereto. "ATCLLC" means American Transmission Company LLC, a Wisconsin limited liability company. "Circuit" means: (i) a line commencing at one substation and extending to another substation, (ii) a line commencing at one substation and returning to the same substation or (iii) a line commencing at a substation and terminating other than at a substation. "Circuit Method" means the method of classifying the Transmission Line Land Rights set forth in Section 2.2. "Closing" has the meaning provided in Article X. "Closing Date" has the meaning provided in Article X. "Construction Work In Progress" means, as of the Operations Date, any construction project which is not a Documented Construction Project and that is, as of the Operations Date, under construction. Such term shall include, with respect to each construction project, the land right on which such construction project is being built, all personal property and fixtures to which the Contributor has title that are or are anticipated to be a part of such construction project and all contracts for the construction of such construction project to which the Contributor is a party. "Contracts" means agreements, contracts, memoranda of understanding, joint ventures, letters of intent and any other form of agreement. "Contributed Assets" has the meaning provided in Section 3.1. "Contributor" has the meaning provided in the preamble to this Agreement. "Dispute Resolution Provisions" means those provisions for resolving disputes among the Members and between the Members and the Company set forth as Exhibit B to the Operating Agreement. "Distribution" means (i) the distribution of electricity at nominal voltages that are lower than 50 kV, or (ii) the distribution of electricity regardless of the nominal voltage at which such distribution facility is designed to operate or does operate, if the facilities are designated by the PSCW as used for distribution. "Distribution Facility" means (i) an electrical facility used for Distribution or (ii) a natural gas pipeline and related facilities used for the distribution of natural gas. "Distribution Line" means (i) an electrical line used for Distribution; or (ii) a natural gas pipeline used for the distribution of natural gas. "Documented Construction Project" means a construction project for which a certificate of authority or public convenience and necessity has been applied for or issued by the PSCW under Wis. Stat. Sections 196.49 or 196.491. "Encumbrance" means any mortgage, pledge, lien, option, conditional sale agreement, encumbrance, security interest, claim or charge of any kind. "Environmental Claim" means any and all administrative, regulatory or judicial actions, actions arising under local, state or federal law including without limitation, claims of trespass, public or private nuisance, waste, and breach of standards of care, suits, including citizen suits, demands, demand letters, claims, directives, proceedings or notices by any Governmental Authority or other person alleging in writing violations of or liability under, or seeking to enjoin any activity as inconsistent with, or demanding remediation of conditions which, with notice, the passage of time, or both would constitute violations of, any Environmental Laws or any other local, state or federal law, statute, ordinance, rule, code, regulation, administrative interpretation, guidance document or memorandum, decree or order, contractual obligation or common-law doctrine including without limitation Chapters 59, 60, 61, 62, 66, and 87 of the Wisconsin Statutes, arising out of, based on or resulting from the presence, use, generation, treatment, storage, recycling, management, deposit, disposal, leakage, burial, discharge, emission, injection, spillage, seepage, leaching, escaping, emptying, dumping, pumping, pouring, placement or release of any Hazardous Material from, at, in, on or under, or the transport to or from, any Contributed Asset, and by any Person, or any loss of or damage to any property, natural resource or the environment, or death of or injury to any person, resulting from or relating in any way to any Contributed Asset or to any Hazardous Material that is or was present, used, generated, treated, stored, recycled, managed, transported, deposited, disposed of, buried, discharged, emitted, injected, emptied, dumped, pumped, poured, placed or Released, or that leaked, spilled, seeped, leached or escaped, at, on, in, under, to or from any Contributed Asset. Environmental Claim shall exclude those claims arising from action, inaction or a condition first existing after the Operations Date or arising out of an action, inaction or condition occurring after the Operations Date. In the event that an Environmental Claim is aggravated or exacerbated by action, inaction or condition occurring after the Operations Date it will still be an Environmental Claim but ATCLLC will contribute to any Environmental liabilities in proportion to the actual harm caused by events occurring after the Operations Date. Environmental Claim includes any environmental claim made against ATCLLC as a successor in interest to Contributor. "Environmental Information" means any communications or written material from or to any local, state or federal regulatory agency or an adjacent or nearby landowner (if such landowner asserts a material environmental claim) or internal memorandum relating to the status of the assets under applicable Environmental Laws, or any investigations, audits, reviews, studies or other analyses (including Phase I or Phase II reports) concerning the Contributed Assets. "Environmental Laws" means any local, state or federal law or other statute, law, ordinance, rule, code, regulation, administrative interpretation, guidance document or memorandum, decree or order, and all common law relating to pollution or protection of human health or the environment, or governing, regulating or imposing liability or standards of conduct concerning the manufacture, use, treatment, generation, distribution, transportation, storage, labeling, testing, processing, discharge, disposal or other handling, release or threatened release, control, or cleanup of any Hazardous Material, including without limitation, the Clean Air Act, 42 U.S.C. Sections 7401 to 7671q, the Clean Water Act, also known as the Federal Water Pollution Act, 33 U.S.C. Sections 1251 to 1387, as amended by the Water Quality Act of 1987 Pub. L. No. 100-4 (Feb. 4, 1987), the Toxic Substance Control Act of 1976 ("TSCA"), as amended, 15 U.S.C. Sections 2601 to 2692, the Federal Insecticide, Fungicide and Rodenticide Act, Section 7 U.S.C. Sections 136 to 136y, the Safe Drinking Water Act, 42 U.S.C. Sections 300f et seq., the Surface Mining Control and Reclamation Act, 30 U.S.C. Section 1201, 1202, and 1211, the Comprehensive Environmental Response, Compensation and Liability Act, of 1980 ("CERCLA"), 42 U.S.C. Sections 9061 to 9675, as amended by the Superfund Amendment and Reauthorization Act of 1986, ("SARA"), Public Law 99-499, 100 Stat. 1613, the Emergency Planning and Community Right to Know Act ("EPCRA"), 42 U.S.C. Sections 11001 to 11050, the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, ("RCRA"), 42 U.S.C. Section 6901 to 6992k, the Occupational Safety and Health Act as amended, ("OSHA"), 29 U.S.C. Section 655 and Section 657, the National Historic Preservation Act ("NHPA"), 16 U.S.C. Sections 470 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1802, Chapters 30, 31, 160, 254, 280, 281, 283, 285, 287, 289, 291, 292, 293, 295, 299, and 823 of the Wisconsin Statutes, and including any amendment of any of the above, together with any other statute, rule, regulation or order of any Government Authority having jurisdiction over the protection of human health or the environment or the control of Hazardous Materials, wastes or substances, including without limitation the United States Environmental Protection Agency, the United States Nuclear Regulatory Commission, the States of Wisconsin, Michigan or Illinois and the Department of Health of Milwaukee County, Wisconsin, or their agencies or municipalities. "Environmental Liabilities" means those liabilities, losses, damages and expenses (including the reasonable costs of investigation, testing, containment, removal, clean-up, abatement or remediation and attorneys fees and costs) incurred in order to defend against or comply with Environmental Laws or other legally enforceable obligation relating to an Environmental Claim. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Attachment Agreements" means those agreements existing on the date hereof between the Contributor and a third party and which grant the third party the right to attach wires or other devices to, on or under the Contributed Assets. "Expansion" means any proposed use of land for a Transmission Facility that is, as of the Closing Date: (i) under construction, (ii) the subject of a contract for construction thereof, (iii) the subject of any written plans for the construction thereof, or (iv) is specifically agreed in writing by ATCLLC and the Contributor based on the particular facts and circumstances. "Good Utility Practice" means any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather to be acceptable practices, methods, or acts generally accepted in the region. "Governmental Authority" means any federal, state or local governmental or regulatory authority, administrative agency, commission, department, board or court that has jurisdiction over any of the parties to this Agreement or any Contributed Asset. "Hazardous Materials" means any pollutant, contaminant, waste, toxic or hazardous chemical, waste or substance, including, without limitation, asbestos in any form that is or could become friable, urea formaldehyde insulation, petroleum or petroleum products, manufactured gas waste, polychlorinated biphenyls (PCBs) and any item, article, substance, waste, equipment, or container containing or whose surfaces have been in direct contact with PCBs, air pollutants, water pollutants, and other substances defined or listed as a hazardous, extremely hazardous, toxic, dangerous restricted, nuisance, or otherwise harmful to human health or the environment under any Environmental Law or the manufacture, use, treatment, generation, distribution, transportation, storage, labeling, testing, processing, discharge, disposal or other handling, release or threatened release, control, or cleanup of which is prohibited, limited, or regulated pursuant to any Environmental Law or determined to be hazardous, extremely hazardous, toxic, dangerous, restricted, nuisance, or otherwise harmful to human health or the environment under any Environmental Law. "Intended Distribution Facility" means any Distribution Facility that, as of the Closing Date, is: (i) under construction, (ii) the subject of a contract for construction thereof, (iii) the subject of any written plans for the construction thereof, or (iv) as specifically agreed in writing by ATCLLC and the Contributor based on the particular facts and circumstances. "Operating Agreement" means the operating agreement of American Transmission Company LLC, as it may be amended from time to time. "Organizational Documents" means, with respect to any corporation, its articles of incorporation and by-laws, with respect to any limited liability company, its articles of organization and operating agreement, and with respect to any cooperative, its [articles of association and by-laws]. "Parcel-by-Parcel Method" means the method of classifying Transmission Line Land Rights set forth in Section 2.3. "Permitted Encumbrances" means such minor imperfections of title as do not restrict or interfere with the intended use of the subject parcel. "Person" means an individual, corporation, general or limited partnership, joint venture, trust, unincorporated association, limited liability company or any other legal or commercial entity. "Personal Property" has the meaning provided in Section 3.7. "Project Map" has the meaning provided in Section 7.2. "SEC" means the United States Securities and Exchange Commission. "Survey" means a survey drawing of a parcel showing all boundaries and locating the perimeter security fence, improvements, including driveways, that are outside the fence, and encroachments, if any, onto or off of the parcel, and containing a certificate by the surveyor reasonably acceptable to the Contributor and ATCLLC, which in all events must contain details necessary for the issuance of title insurance without an exception for matters that would be disclosed by a survey. "Transmission" means (i) the transmission of electricity at nominal voltages that are greater than or equal to 50 kV or (ii) the transmission of electricity regardless of the nominal voltage at which such facility is designed to operate or does operate, if the facilities are designated by PSCW as transmission. "Transmission Line" means a line composed of one or more Transmission Line Facilities and the Transmission Line Land Rights that underlie those Transmission Line Facilities. "Transmission Line Easement" means any easement in which a Contributor has any right, title or interest upon which a Transmission Line Facility is located. "Transmission Line Facility" means one or more pieces of equipment including, without limitation, any pipe, pipeline, duct, wire, line, conduit, pole, tower, equipment or other structure used for Transmission that are part of a Transmission Line, including, without limitation, all towers and poles to which any Transmission Line is attached, but excluding "spanner" towers and poles to which only Distribution Lines are attached. "Transmission Line Fee Interest" means real property owned in fee simple by a Contributor upon which a Transmission Line Facility is located. "Transmission Line Land Right" means an individual Transmission Line Fee Interest, Transmission Line Easement or Transmission Line Lease. "Transmission Line Lease" means a lease, license or contract pursuant to which a Contributor, as lessee, licensee or contract party leases, licenses or otherwise obtains a contract right to the possession and/or use of a parcel of real property upon which a Transmission Line Facility is located. "Transmission Substation" means a Transmission Substation Facility, together with the underlying Transmission Substation Land Rights and all the rights, benefits, privileges, easements, tenements, hereditaments, appurtenances and interests in and to such underlying Transmission Substation Land Rights. "Transmission Substation Easement" means any easement in which the Contributor has any right, title or interest upon which a Transmission Substation Facility owned by a Contributor is located. "Transmission Substation Facility" means any and all equipment, including, without limitation, towers, poles, transformers, circuit breakers, meters, and wires located at any substation that are used for Transmission. "Transmission Substation Fee Interest" means any real property owned in fee simple by a Contributor and upon which a Transmission Substation Facility is located. "Transmission Substation Lease" means a lease, license or contract pursuant to which a Contributor, as lessee, licensee or contract party leases, licenses or otherwise obtains a contract right to the possession and/or use of a parcel of real property upon which a Transmission Substation Facility is located. "Transmission Substation Land Right" means an individual Transmission Substation Fee Interest, Transmission Substation Easement or Transmission Substation Lease. ARTICLE II CLASSIFICATION OF CERTAIN CONTRIBUTED ASSETS SECTION 2.1 Classification of Contributed Assets. ------------------------------------- The Transmission Line Land Rights and Transmission Substation Land Rights to be contributed hereunder shall be classified according to this Article II. Transmission Line Land Rights shall be classified pursuant to either Section 2.2 or 2.3. Transmission Substation Land Rights shall be classified pursuant to Section 2.4. The Contributor shall elect, by giving written notice to ATCLLC upon execution of this Agreement, either the Circuit Method or the Parcel-by-Parcel Method for classifying the Transmission Line Land Rights. Once a method is selected it will be the only method used to classify all of the Transmission Line Land Rights that shall be contributed under this Agreement. SECTION 2.2 Classification of Transmission Line Land Rights by Circuit Method. --------------------------------------------------------------- If the Circuit Method is selected each Transmission Line Land Right that shall be contributed under this Agreement shall be individually classified according to the Circuit of which it is a part under the following rules: (a) Transmission Only. A specific Transmission Line Land Right ------------------- shall be classified as "Transmission Only" if, as of the Closing Date and assuming the completion of construction of all Intended Distribution Facilities, no part of the Circuit of which the Transmission Line Land Right being classified is a component, is used for Distribution or is paralleled by a Distribution Line. (b) Incidental Use. A specific Transmission Line Land Right --------------- shall be classified as "Incidental Use" if, as of the Closing Date and assuming the completion of construction of all Intended Distribution Facilities, the Circuit of which the Transmission Line Land Right is a component is used for Distribution on 25% or less of the length of the Circuit; provided, however, that the Contributor may request that ATCLLC treat a specific Circuit (and the component Transmission Line Land Rights) as "Joint Use," based on facts and circumstances specific to such Circuit, notwithstanding its objective classification as "Incidental Use." (c) Joint Use. A specific Transmission Line Land Right shall be ---------- classified as "Joint Use" if, as of the Closing Date and assuming the completion of construction of all Intended Distribution Facilities, the Circuit of which the Transmission Line Land Right is a component is used for Distribution on more than 25% of the length of the Circuit. SECTION 2.3 Classification of Transmission Line Land Rights by -------------------------------------------------- Parcel-by-Parcel Method. ------------------------ If the Parcel-by-Parcel Method is selected, each Transmission Line Land Right shall be classified according to the following rules: (a) Transmission Only. A specific Transmission Line Land Right ------------------ shall be classified as "Transmission Only" if, as of the Closing Date and assuming the completion of construction of all Intended Distribution Facilities, one or more Transmission Lines are located on the Transmission Line Land Right and no Distribution Line is located on the Transmission Line Land Right. (b) Joint Use. A specific Transmission Line Land Right shall be ---------- classified as "Joint Use" if, as of the Closing Date and assuming the completion of construction of all Intended Distribution Facilities, one or more Transmission Lines and one or more Distribution Lines are located on the Transmission Line Land Right. SECTION 2.4 Classification of Transmission Substation Land Rights. ------------------------------------------------------ Transmission Substations and the Transmission Substation Land Rights that are a part of such Transmission Substations shall be classified individually according to the following rules: (a) Transmission Only. A specific Transmission Substation --------------------- shall be classified as "Transmission Only" if, as of the Closing Date and assuming the completion of construction of all Intended Distribution Facilities, it is used solely for Transmission and no part, or portion of the electrical capacity thereof, is used for Distribution or in connection with the generation of electricity; provided, however, that Distribution to any part of the substation itself shall be deemed not to be Distribution for the purposes of this sentence. (b) Joint Use. A specific Transmission Substation shall be ----------- classified as "Joint Use" if, as of the Closing Date and assuming the completion of construction of all Intended Distribution Facilities: (i) the Transmission Substation or any portion of the electrical capacity is used for Distribution as well as Transmission; provided, however, that Distribution to any part of the substation itself shall be deemed not to be Distribution for the purposes of this sentence; or (ii) the Transmission Substation is used in connection with the generation of electricity. SECTION 2.5 Classification and Disputes. ---------------------------- The classification of each of the Transmission Line Land Rights and Transmission Substation Land Rights, as determined in accordance with Sections 2.1 through 2.4, shall be listed on Schedule 3.2 and Schedule 3.3, respectively. If ATCLLC and the - ------------- ------------- Contributor are unable to agree on the classification of a particular item, either party shall have the right to request that the dispute be resolved by the PSCW. ARTICLE III CONTRIBUTION OF ASSETS SECTION 3.1 Contribution of Assets. ----------------------- Subject to the terms and conditions of this Agreement, as of the Closing Date, the Contributor shall assign, transfer, convey and deliver to ATCLLC as a capital contribution, free and clear of all Encumbrances other than Permitted Encumbrances, certain right, title and interest of the Contributor specified in Sections 3.2 through 3.10 hereof in and to the assets identified in Sections 3.2 through 3.10 hereof (collectively the "Contributed Assets" and each individually a "Contributed Asset") in the manner specified in Sections 3.2 through 3.10 hereof. SECTION 3.2 Transmission Lines. ------------------- The Contributor shall contribute the Transmission Lines identified in Schedule 3.2 as follows: ------------ (a) Transmission Only Transmission Line Land Rights. ------------------------------------------------------------- Transmission Only Transmission Line Land Rights shall be contributed as follows: (i) Transmission Only Transmission Line Fee Interests. Subject --------------------------------------------------- to the provisions of Section 3.12, all Transmission Only Transmission Line Fee Interests identified in Schedule --------- 3.2(a)(i) shall be conveyed to ATCLLC pursuant to a deed --------- substantially in the form of the deed attached as Exhibit ------- 3.2(a)(i); ---------- (ii) Transmission Only Transmission Line Easements. All ----------------------------------------------------- Transmission Only Transmission Line Easements identified in Schedule 3.2(a)(ii) shall be assigned to ATCLLC pursuant to -------------------- an assignment substantially in the form of the assignment attached as Exhibit 3.2(a)(ii); ------------------ (iii) Transmission Only Transmission Line Leases. All ------------------------------------------------------ Transmission Only Transmission Line Leases identified in Schedule 3.2(a)(iii) shall be assigned to ATCLLC pursuant to ---------------------- an assignment substantially in the form of the assignment attached as Exhibit 3.2(a)(iii). ------------------- (b) Incidental Use Transmission Line Land Rights. Incidental ------------------------------------------------- Use Transmission Line Land Rights shall be contributed as follows: (i) Incidental Use Transmission Line Fee Interests. All ------------------------------------------------------- Incidental Use Transmission Line Fee Interests identified in Schedule 3.2(b)(i) shall be conveyed to ATCLLC pursuant to a ------------------- deed substantially in the form of the deed attached as Exhibit 3.2(b)(i); ------------------ (ii) Incidental Use Transmission Line Easements. All Incidental --------------------------------------------- Use Transmission Line Easements identified in Schedule -------- 3.2(b)(ii) shall be assigned to ATCLLC pursuant to an ---------- assignment substantially in the form of the assignment attached as Exhibit 3.2(b)(ii); ------------------- (iii) Incidental Use Transmission Line Leases. All Incidental Use ----------------------------------------- Transmission Line Leases identified in Schedule 3.2(b)(iii) --------------------- shall be assigned to ATCLLC pursuant to an assignment substantially in the form of the assignment attached as Exhibit 3.2(b)(iii). -------------------- (c) Joint Use Transmission Line Land Rights. Joint Use ------------------------------------------------ Transmission Line Land Rights shall be contributed as follows: (i) Joint Use Transmission Line Fee Interests. The Contributor -------------------------------------------- shall grant to ATCLLC an easement over and across all of the Joint Use Transmission Line Fee Interests identified in Schedule 3.2(c)(i) pursuant to a grant of easement --------------------- substantially in the form of the grant of easement attached as Exhibit 3.2(c)(i); ------------------ (ii) Joint Use Transmission Line Easements. The Contributor ------------------------------------------- shall assign certain rights to and under the Joint Use Transmission Line Easements identified in Schedule -------- 3.2(c)(ii) to ATCLLC pursuant to an assignment substantially ---------- in the form of the assignment attached as Exhibit 3.2(c)(ii); -------------------- (iii) Joint Use Transmission Line Leases. The Contributor shall ------------------------------------- assign certain rights to and under the Joint Use Transmission Line Leases identified in Schedule 3.2(c)(iii) -------------------- to ATCLLC pursuant to an assignment substantially in the form of the assignment attached as Exhibit 3.2(c)(iii). -------------------- (d) Transmission Line Facilities. All Transmission Line --------------------------------- Facilities that are a component of Transmission Lines that are Contributed Assets and that are not transferred with the Transmission Line Land Rights upon which they are located shall be contributed, transferred, conveyed and assigned to ATCLLC pursuant to a Bill of Sale substantially in the form of the Bill of Sale attached as Exhibit 3.2(d). --------------- SECTION 3.3 Transmission Substations. ------------------------- The Contributor shall contribute the Transmission Substations as follows: (a) Transmission Only Transmission Substation Land Rights. The -------------------------------------------------------- Contributor shall contribute its Transmission Only Transmission Substation Land Rights as follows: (i) Transmission Only Transmission Substation Fee Interests. ------------------------------------------------------------- Subject to the provisions of Section 3.12, Transmission Only Transmission Substation Fee Interests identified in Schedule -------- 3.3(a)(i) shall be conveyed to ATCLLC pursuant to a deed -------- substantially in the form of the deed attached as Exhibit ------- 3.3(a)(i); ---------- (ii) Transmission Only Transmission Substation Easements. All ------------------------------------------------------- Transmission Only Transmission Substation Easements identified in Schedule 3.3(a)(ii) shall be assigned to -------------------- of the assignment attached as Exhibit 3.3(a)(ii). ------------------- (iii) Transmission Only Transmission Substation Leases. All ----------------------------------------------------- Transmission Only Transmission Substation Leases identified in Schedule 3.3(a)(iii) shall be assigned to ATCLLC pursuant --------------------- to an assignment substantially in the form of the assignment attached hereto as Exhibit 3.3(a)(iii). -------------------- (b) Joint Use Transmission Substations. The Contributor shall ------------------------------------- contribute Joint Use Transmission Substation Land Rights as follows: (i) Joint Use Transmission Substation Fee Interests. The ------------------------------------------------------- Contributor shall grant an easement over and upon the Joint Use Transmission Substation Fee Interests identified in Schedule 3.3(b)(i) pursuant to a grant of easement -------------------- substantially in the form attached as Exhibit 3.3(b)(i); ------------------- (ii) Joint Use Transmission Substation Easements. The ------------------------------------------------------- Contributor shall assign certain easement rights to and under any Joint Use Transmission Substation Easements identified in Schedule 3.3(b)(ii) to ATCLLC pursuant to an -------------------- assignment substantially in the form attached hereto as Exhibit 3.3(b)(ii). ------------------- (iii) Joint Use Transmission Substation Leases. The Contributor -------------------------------------------- shall sublease certain of its leasehold rights to and under all Joint Use Transmission Substation Leases identified in Schedule 3.3(b)(iii) pursuant to a sublease substantially in -------------------- the form attached hereto as Exhibit 3.3(b)(iii). -------------------- (c) Substation Facilities. All Transmission Substation ------------------------- Facilities that are a component of a Transmission Substation that is a Contributed Asset and that are not transferred with the Transmission Substation Land Rights upon which they are located shall be contributed, transferred, conveyed and assigned to ATCLLC pursuant to a bill of sale substantially in the form of the document attached as Exhibit 3.3(c). --------------- SECTION 3.4 Permits. -------- To the extent permitted by law, the Contributor shall assign to ATCLLC, substantially in the form of the assignment attached hereto as Exhibit 3.4 (unless another form of assignment is ------------- required by the other party to such agreement, e.g. railroads), and to the extent necessary for the operation of the Contributed Assets, all building permits, certificates of occupancy, utility reservations or allocations, certificates of compliance, railroad licenses, permits and crossing agreements and any other licenses, permits, authorizations or approvals (collectively, the "Permits"), which Permits are listed on Schedule 3.4. Such -------------- assignment shall be non-exclusive to the extent that a Permit relates to other assets owned, leased or operated by the Contributor. SECTION 3.5 Contracts. ---------- (a) The Contributor shall assign to ATCLLC, in substantially the form of the assignment attached hereto as Exhibit 3.5(a), all --------------------- contracts necessary for the operation of the Contributed Assets (excluding those being used by Contributor to continue to provide future goods or services to ATCLLC under an interconnection or other agreement), together with any contracts relating to Transmission Only Transmission Lines and Transmission Only Transmission Substations, excluding, however, any Existing Attachment Agreements (collectively, the "Contracts"), which Contracts are listed on Schedule 3.5. -------------- (b) ATCLLC and the Contributor shall execute a Pole Attachment Agreement, substantially in the form of Exhibit 3.5(b), with ---------------- respect to any Existing Attachment Agreements. (c) ATCLLC and the Contributor shall enter into an agreement, substantially in the form of Exhibit 3.5(c), with respect to ---------------- fiber optic cable attachments. SECTION 3.6 Construction Work In Progress. ------------------------------ (a) All Construction Work In Progress identified in Schedule 3.6 ------------ shall be conveyed, assigned and transferred to ATCLLC pursuant to a deed substantially in the form attached as Exhibit 3.6(a), a --------------- bill of sale substantially in the form attached as Exhibit 3.6(b) -------------- and/or an assignment substantially in the form attached as Exhibit 3.6(c). - --------------- (b) The Contributor shall assign to ATCLLC all rights and contracts pertaining to the Construction Work in Progress to enable ATCLLC to continue the Construction Work in Progress. (c) If so requested by the Contributor, the Contributor and ATCLLC shall negotiate in good faith an agreement whereby the Contributor shall be obligated to complete the Construction Work in Progress in exchange for cash payments. SECTION 3.7 Personal Property. ------------------ The equipment and other items of personal property of the Contributor that are owned or leased by the Contributor that are identified in Schedule 3.7, either generically or specifically (provided, however, that all such items with a Contribution Value of over $25,000 shall be identified specifically) shall be transferred to ATCLLC pursuant to a bill of sale substantially in the form attached hereto as Exhibit 3.7 (the "Personal Property"). SECTION 3.8 Inventory. ---------- The inventory of the Contributor that is identified in Schedule 3.8 will be transferred to ATCLLC pursuant to a Bill of - ------------- Sale substantially in the form attached hereto as Exhibit 3.8. ------------- It is the parties' intention that most, if not all, of the inventory will remain with the Contributor and be purchased by ATCLLC, as needed, for cash. At ATCLLC's request, items used and useful in the operation of the Transmission Line Facilities or Transmission Substation Facilities, or in managing Transmission Line Land Rights or Transmission Substation Land Rights, and not otherwise used or useful in the Contributor's business shall be transferred to ATCLLC at their Contribution Value for cash. Prior to the end of the three year period following the Operations Date, the parties to this Agreement will meet and negotiate the transfer of any remaining inventory which is useful for transmission, but not distribution or generation. If there is a disagreement, the Contributor has the right to put items to ATCLLC. If ATCLLC rejects such items, the issue will be subject to the Dispute Resolution Provisions. Items transferred pursuant to the Dispute Resolution Provisions or by agreement will be transferred at their Contribution Value. SECTION 3.9 Warranties. ----------- Schedule 3.9 sets forth any warranties pertaining directly ----------- to the Contributed Assets. All right, title and interest of the Contributor in such warranties shall be assigned to ATCLLC pursuant to an assignment substantially in the form attached as Exhibit 3.9. - ------------ SECTION 3.10 Allocation of Liability. ------------------------ (a) Prior to the Operations Date, the Contributor shall be responsible and liable for the operation of the Contributed Assets and all obligations associated therewith. (b) From and after the Operations Date, ATCLLC shall be responsible and liable for the operation of the Contributed Assets and for the performance of all obligations associated therewith, except as otherwise provided herein. (c) To the extent that any obligations under any instrument of conveyance, Permit, Contract or Lease are not exclusive to ATCLLC, then ATCLLC shall have the responsibility and liability for such obligation to the extent that it relates to the operation of the transmission system, and the Contributor shall otherwise have such responsibility or liability. SECTION 3.11 Title Insurance, Surveys and Subdivision. ----------------------------------------- (a) Title & Survey. The Contributor shall obtain at its expense: --------------- (i) for each Transmission Only Transmission Substation Fee Interest: (x) one or more commitments for title insurance to be issued at Closing and one or more title policies, all of which together (A) set forth the status of the title of the parcel and all liens, claims, encumbrances, easements, rights-of-way, encroachments, reservations, restrictions and other matters affecting the parcel and (B) cover the value of the land, exclusive of the value of any improvements thereon; (y) a Survey of the parcel; and (z) a list of equipment located on the Transmission Substation parcel; (ii) for each Transmission Only Transmission Substation on an easement or lease, a report of title and a survey; and (iii) for each Joint Use Transmission Substation, a copy of each site plan that is in the Contributor's possession or control. (b) Subdivision of Parcels. In the event that the Contributor ------------------------- reasonably determines that a Transmission Only Transmission Substation Fee Interest or Transmission Only Transmission Line Fee Interest contains more land than is necessary for the operation, use, maintenance and replacement of the Transmission Substation Facility and/or Transmission Facility located thereon, together with ingress and egress thereto, the Contributor may upon written notice to ATCLLC no later than 30 days before filing for subdivision approval, and at the cost and expense of the Contributor, subdivide the Transmission Only Transmission Substation Fee Interest or Transmission Only Transmission Line Fee Interest into two or more parcels so that the parcel to be conveyed, which shall, for the purposes of Sections 3.2(a)(i) and 3.3(a)(i), be deemed to be the Transmission Only Transmission Substation Fee Interest or Transmission Only Transmission Line Fee Interest being contributed, as the case may be, contains only the land actually necessary for the operation, use, maintenance, Expansion and replacement of the Transmission Substation Facility and/or Transmission Facility located thereon, together with ingress and egress thereto. In the event that: the Contributor has determined that a parcel should be subdivided, and in spite of the efforts of the parties hereto, the parcel has not, as of the Closing Date, been subdivided because the Contributor was unable to obtain all necessary governmental approvals prior to the Closing Date, then on the Closing Date at the Contributor's sole election, a document escrow shall be established with the title company coordinating document recordation pursuant to the terms of an escrow agreement substantially in the form of the "Escrow Agreement-Subdivided Parcel" attached as Exhibit 3.11(b). ---------------- Pursuant to such escrow agreement, the Contributor shall place in escrow two signed and acknowledged deeds. One deed shall be to the entire undivided parcel and the second deed shall identify the subdivided parcel with the projected legal description following governmental approval and recordation of the subdivided parcel but with blanks for the recording information to be obtained following recordation of the certified survey map. The two deeds shall be held by the title company under the escrow agreement, which shall direct that the title company (x) complete and record the deed to the subdivided parcel following governmental approval of the certified survey map and the assignment of a map number and other information necessary for recordation or (y) if such map has not been recorded within six months of the Closing, to record the deed to the larger undivided parcel, whereupon an equitable adjustment shall be made between the Contributor and ATCLLC. SECTION 3.12 Documented Construction Projects. --------------------------------- (a) Schedule 3.12 identifies all Documented Construction --------------- Projects of the Contributor, their location and anticipated completion date and cost. The Contributor shall, upon the completion of any such Documented Construction Projects, contribute, or cause to be contributed, such Transmission Line to ATCLLC using the same Circuit Method or the Parcel-by-Parcel Method as it used in connection with the contribution of Contributed Assets on the Operations Date, and shall use the corresponding instruments of transfer identified in Article III to effect the transfer. (b) If the Contribution Value of a Documented Construction Project exceeds $3,000,000 in any running 12-month period, the Contributor shall comply with the provisions of Section 3.5(d) of the Operating Agreement. (c) The representations, warranties, covenants and indemnities set forth in this Agreement shall be applicable, as appropriate, to the subsequent transfer of Documented Construction Projects. SECTION 3.13 [Stoughton Operations Center.1 ------------------------------- The Stoughton Operations Center, as identified in Schedule -------- 3.13 and including real and personal property specified in - ----- Schedule 3.13, shall be conveyed to ATCLLC by the Contributor - --------------- pursuant to the documents attached as Exhibit 3.13. ------------- ARTICLE IV ISSUANCE OF MEMBER UNITS TO CONTRIBUTOR In exchange for the contribution of the Contributed Assets, ATCLLC shall issue to Contributor or an Affiliate designated by it on the Operations Date that number of Member Units set forth in Schedule A to the Operating Agreement. The methodology for calculating the value of the Contributed Assets shall be as set forth in the Operating Agreement, and the number of Member Units owned by the Contributor shall be adjusted following the Operations Date, all as set forth in Section 3.2(f) of the Operating Agreement. Upon the contribution of any Documented Construction Project, ATCLLC shall issue to the Contributor thereof or an Affiliate designated by it that number of Member Units determined in accordance with the Operating Agreement. [__________ hereby designates ________ as its Affiliate to which the Member Units are to be issued on its behalf.]2 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR The Contributor represents and warrants to ATCLLC as follows: SECTION 5.1 Organization of the Contributor. -------------------------------- The Contributor is duly organized and validly existing under the laws of the jurisdiction of incorporation, has full corporate power to carry on its business as it is now being conducted and to own, operate and hold under lease its assets and properties as and where such properties and assets now are owned, operated or held. The copies of the Contributor's Organizational Documents which have been delivered to ATCLLC are complete and correct and in full force and effect on the date hereof. SECTION 5.2 Authority Relative to this Agreement. ------------------------------------- The execution, delivery and performance of this Agreement and of all of the other documents and instruments required hereby by the Contributor are within the corporate power of the Contributor. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Contributor and no other corporate proceedings on the part of the Contributor are necessary to authorize this Agreement or to consummate the transactions contemplated herein. SECTION 5.3 Enforceability. --------------- This Agreement and all of the other documents and instruments required hereby have been or will be (in the case of documents and instruments permitted to be delivered after the date hereof) duly and validly executed and delivered by the Contributor and (assuming the due authorization, execution and delivery hereof and thereof by ATCLLC) constitute or will constitute valid and binding agreements of the Contributor, enforceable against the Contributor in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally or equitable principles. SECTION 5.4 Consents and Approvals; No Violations. -------------------------------------- Except for any required filings with and approvals of applicable Federal, state or local authority, no filing or registration with, and no permit, authorization, consent, order or approval of, any Governmental Authority is necessary or required in connection with the execution and delivery of this Agreement by the Contributor or for the consummation by the Contributor of the transactions contemplated by this Agreement. Upon obtaining any required approvals, neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated hereby by the Contributor will (i) conflict with or result in any breach of any provision of the Organizational Documents of the Contributor, (ii) subject to obtaining the third party consents identified in Schedule 5.4 ------------- hereto, result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, acceleration or increased cost) under, or otherwise result in any diminution of any of the rights of the Contributor with respect to, any of the terms, conditions or provisions of any security, note, bond, mortgage, indenture, license, contract or other instrument or obligation to which the Contributor is a party or by which it or any of them or any of their properties or assets may be bound or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Contributor or any of its properties or assets except, in the case of clauses (ii) or (iii) above, for violations, breaches or defaults that, individually or in the aggregate, may not reasonably be expected to have a material adverse effect on the closing of the transactions contemplated by this Agreement, ATCLLC or the Contributor and that will not prevent or delay the consummation of the transactions contemplated hereby. SECTION 5.5 Legal Proceedings. ------------------ Except as specifically disclosed in Schedule 5.5 hereto, ------------- there are no complaints, claims, suits, actions, mediations, arbitrations, proceedings or investigations pending or, to the knowledge of the Contributor, threatened against or affecting the Contributor that relate to any Contributed Asset or would, if adversely determined, have a material adverse effect on the Contributor's ability to perform its obligations hereunder, or on the validity or enforceability of this Agreement. SECTION 5.6 Interests In Certain Contributed Assets. ---------------------------------------- (a) The Transmission Facilities have been maintained in accordance with Good Utility Practice, and will be so maintained through the Operations Date. (b) Except for ATCLLC, pursuant to the terms of this Agreement and the parties to Existing Attachment Agreements, no person, firm or entity has any rights to acquire or lease all or any portion of the Contributed Assets, or otherwise to obtain any interest therein, and there are no outstanding options, rights of first refusal or negotiation, rights of reverter or rights of first offer relating to the Contributed Assets or any interest therein. SECTION 5.7 Environmental Matters. ---------------------- No later than June 30, 2001, Contributor will provide ATCLLC with all Environmental Information in its possession or under its control concerning the Contributed Assets. Any proprietary or confidential information contained in such Environmental Information will be conveyed pursuant to a joint defense agreement to be entered into between ATCLLC and the Contributor. SECTION 5.8 Adequacy of Contributed Assets. ------------------------------- All of the Contributed Assets are suitable for Transmission as owned or used. The Contributed Assets comprise all of the Transmission Lines, Transmission Substations and other physical assets (other than Inventory) that are necessary for: (i) Transmission over the Transmission Lines identified in Schedule -------- 3.2 on a commercially reasonable basis and (ii) for the - ---- interconnection of such Transmission Lines with all other Transmission Lines, Transmission Facilities, Distribution Facilities, generation facilities and other electrical equipment to which such Transmission Lines are currently interconnected. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS ARTICLE V AND THE INDEMNITIES AND OTHER TERMS OF THIS AGREEMENT, THE CONTRIBUTED ASSETS ARE BEING CONTRIBUTED AND TRANSFERRED "AS IS, WHERE IS," AND CONTRIBUTOR IS NOT MAKING ANY OTHER REPRESENTATIONS OR WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH CONTRIBUTED ASSETS, INCLUDING, IN PARTICULAR, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF ATCLLC ATCLLC represents and warrants to the Contributor as follows: SECTION 6.1 Organization and Authority of ATCLLC. ------------------------------------- ATCLLC is duly organized and validly existing as a limited liability company under the laws of Wisconsin, has full limited liability company power to carry on its business as it is proposed to be conducted and to own, operate and hold under lease its assets and properties as and where such properties and assets now are, or are proposed to be, owned, operated or held. The copies of ATCLLC's Organizational Documents which have been delivered to the Contributor are complete and correct and will be in full force and effect on the Operations Date. SECTION 6.2 Authority Relative to this Agreement. ------------------------------------- The execution, delivery and performance of this Agreement, and of all of the other documents and instruments required hereby by ATCLLC are within the limited liability company power of ATCLLC. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by ATCLLC Management Inc., its managing member, and by ATC Management Inc.'s board of directors, and no other corporate proceedings on the part of ATC or ATC Management Inc. are necessary to authorize this Agreement or to consummate the transactions contemplated herein. SECTION 6.3 Enforceability. --------------- This Agreement and all of the other documents and instruments required hereby have been or will be (in the case of documents and instruments permitted to be delivered after the date hereof) duly and validly executed and delivered by ATCLLC and (assuming the due authorization, execution and delivery hereof and thereof by the Contributor) constitute or will constitute valid and binding agreements of ATCLLC, enforceable against ATCLLC in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally or equitable principles. SECTION 6.4 Consents and Approvals; No Violations. -------------------------------------- Except for any required filings with and approvals of the applicable Federal, state or local authority, no filing or registration with, and no permit, authorization, consent, order or approval of, any Governmental Authority is necessary or required in connection with the execution and delivery of this Agreement by ATCLLC or for the consummation by ATCLLC of the transactions contemplated by this Agreement. Upon obtaining any required approvals, neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated hereby by ATCLLC will (i) conflict with or result in any breach of any provision of the Organizational Documents of ATCLLC, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, acceleration or increased cost) under, or otherwise result in any diminution of any of the rights of ATCLLC with respect to, any of the terms, conditions or provisions of any security, note, bond, mortgage, indenture, license, contract or other instrument or obligation to which ATCLLC is a party or by which it or any of its properties or assets may be bound or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to ATCLLC or any of its properties or assets except, in the case of clauses (ii) or (iii) above, for violations, breaches or defaults that, individually or in the aggregate, may not reasonably be expected to have a material adverse effect on the closing of the transactions contemplated by this Agreement, the Contributor, or ATCLLC and that will not prevent or delay the consummation of the transactions contemplated hereby. SECTION 6.5 Litigation. ----------- There are no complaints, claims, suits, actions, mediations, arbitrations or proceedings or investigations pending or, to the knowledge of ATCLLC, threatened against or affecting ATCLLC that would, if adversely determined, have a material adverse effect on ATCLLC's ability to perform its obligations hereunder, or on the validity or enforceability of this Agreement. ARTICLE VII COVENANTS SECTION 7.1 Conduct of the Business of the Contributor. ------------------------------------------- (a) During the period from the date of this Agreement to the Operations Date, the Contributor shall conduct all of its operations that concern any of the Contributed Assets in the ordinary and usual course of business consistent with Good Utility Practice. (b) The Contributor and ATCLLC agree that, during the period from the date of this Agreement to the Closing Date: (i) the Contributor will confer and coordinate on a regular and frequent basis with one or more representatives of ATCLLC to discuss the general status of the Contributed Assets and the operation of same; and (ii) the Contributor will promptly notify ATCLLC of any significant changes in the Contributed Assets or the Contributor's operation of same. SECTION 7.2 Project Map. ------------ The Contributor shall prepare a map showing the location of all Transmission Lines, and Transmission Substations (a "Project Map") and attach it as Schedule 7.2. SECTION 7.3 Consents and Approvals. ----------------------- (a) The Contributor and ATCLLC shall cooperate and use all commercially reasonable efforts to promptly prepare and file all necessary documentation to effect all necessary applications, notices, petitions, filings and other documents, and to use all commercially reasonable efforts to obtain (and will cooperate with each other in obtaining) any consent, acquiescence, authorization, order or approval of, or any exemption or nonopposition by, any Governmental Authority required to be obtained or made by the Contributor or ATCLLC in connection with this Agreement or the taking of any action contemplated by this Agreement. ATCLLC shall have the right to review and approve in advance all characterizations of the information relating to ATCLLC, on the one hand, and the Contributor shall have the right to review and approve in advance all characterizations of the information relating to it, on the other hand, which appear in any filing made in connection with the transactions contemplated by this Agreement, such approvals not to be unreasonably withheld. The Contributor and ATCLLC shall consult with the other with respect to the obtaining of all such necessary approvals of Governmental Authorities and shall keep each other informed of the status thereof. (b) The Contributor and ATCLLC will use all commercially reasonable efforts to obtain consents of all other third parties necessary to the consummation of the transactions contemplated by this Agreement. The Contributor shall promptly notify ATCLLC of any failure or anticipated failure to obtain any such consents and, if requested by ATCLLC, shall provide copies of all such consents obtained by the Contributor to ATCLLC. SECTION 7.4 Casualty. --------- The Contributor shall bear the risk of all loss or damage to the Contributed Assets from all causes through the Operations Date. If any of the Contributed Assets is damaged by fire or other casualty prior to the Operations Date, then the parties shall proceed to Closing without a reduction in the number of Member Units to be issued to the Contributor pursuant to Article IV hereof and ATCLLC shall receive an assignment of all right, title and interest in and to any insurance proceeds relating to such casualty but the Contributor shall remain liable to pay ATCLLC the amount of cash necessary to complete restoration to the extent the insurance proceeds are not sufficient. SECTION 7.5 Access to Contributed Assets. ----------------------------- The Contributor shall, from the date of the execution of this Agreement, until the Closing Date, allow ATCLLC and its designees access at reasonable times and places to any and all of the Contributed Assets for the purpose of inspecting same. SECTION 7.6 Continued Environmental Reporting. ---------------------------------- To the extent that Environmental Information is not available prior to June 30, 2001, the Contributor shall provide ATCLLC with any Environmental Information with respect to the Contributed Assets as such information is received or completed by the Contributor. SECTION 7.7 Continued Conveyance. --------------------- The parties intend that the Contributed Assets are all of the assets that the Contributor is required to convey to ATCLLC pursuant to the Reliability 2000 Legislation and PSCW Docket Number 05-EI-119. To the extent the Contributor retains any assets required to be conveyed under such legislation and related regulatory orders, the Contributor shall convey such assets to ATCLLC, and to the extent ATCLLC receives any assets not required to be transferred, ATCLLC shall re-convey such assets to the Contributor. ARTICLE VIII CONDITIONS PRECEDENT SECTION 8.1 Mutual Conditions Precedent. ---------------------------- Each party's obligation to consummate the Closing of this Agreement is conditioned upon each of the following: (a) No action, suit, proceeding or investigation by or before any Governmental Authority shall have been instituted or threatened which may restrain, prohibit or invalidate any of the transactions contemplated by this Agreement or which may affect the rights of ATCLLC to operate or control the Contributed Assets or any part thereof on and after the Operations Date. (b) All required consents or approvals relating to any Contract, Lease or other agreement of the Contributor or ATCLLC having been obtained, other than those which if not obtained, would not, in the aggregate, have a material adverse effect on ATCLLC, the Contributor or any of the Contributed Assets. (c) The Contributor and ATCLLC shall have received (i) required authorization from the PSCW approving by an order the terms of the transfer of the Contributed Assets as specified in Section 196.485(5)(b) of the Wisconsin Statutes, and (ii) similar approval from the appropriate regulatory authority of the jurisdiction in which a Contributed Asset is located, if required. SECTION 8.2 Conditions Precedent to Obligations of ATCLLC. ---------------------------------------------- All obligations of ATCLLC under this Agreement to be performed on and after the Closing Date are, at the option of ATCLLC, subject to the satisfaction of the following conditions precedent on or before the Closing Date, as indicated below: (a) Proceedings Satisfactory. All actions, proceedings, ------------------------- instruments, opinions and documents required to carry out this Agreement or incidental hereto, and all other related legal matters, shall be reasonably satisfactory to ATCLLC and to counsel for ATCLLC. The Contributor shall have delivered to ATCLLC on the Closing Date such documents and other evidence as it may reasonably request in order to establish the consummation of transactions relating to the execution, delivery and performance by the Contributor of this Agreement, the transfer and conveyance of the Contributed Assets, the execution of all other documents or instruments required hereby, and the compliance with the conditions set forth in this Article VIII, in form and substance reasonably satisfactory to ATCLLC. (b) Instruments of Transfer and Other Instruments. The ------------------------------------------------------- Contributor shall have delivered to ATCLLC, on or prior to the Closing Date, the following: (i) the documents and instruments required by Article III; (ii) title insurance policies meeting the requirements of Section 3.11(a)(i) insuring the Transmission Only Transmission Line Fee Interests and Transmission Only Transmission Substation Fee Interests, subject only to Permitted Encumbrances, and Surveys with respect to the Transmission Substation Land Rights; and (iii) such other documents as may reasonably be requested to consummate the transfer of the Contributed Assets to ATCLLC. (c) Representations and Warranties of the Contributor Correct. ------------------------------------------------------------- The representations and warranties made by the Contributor in Article V shall be (and tender by the Contributor of any documents required to be delivered of the Closing Date shall constitute a representation by the Contributor as of the Closing Date and the Operations Date that, except as otherwise specifically approved in writing by ATCLLC, such representations and warranties of the Contributor are) true and correct in all material respects on and as of the Closing Date and the Operations Date with the same force and effect as though all such representations and warranties had been made on and as of the Closing Date and the Operations Date. (d) Compliance with Terms and Conditions. All the terms, ------------------------------------------- covenants, agreements and conditions of this Agreement to be complied with and performed by the Contributor on or before the Closing Date shall have been (and tender by the Contributor of any documents required to be delivered at the Closing by the Contributor shall constitute a representation by the Contributor as of the Closing Date that, except as otherwise specifically approved in writing by ATCLLC, they have been) complied with and performed in all material respects. (e) Investment Banking Opinion. ATCLLC shall have received an ----------------------------- opinion from a nationally recognized investment banking firm of its choice that ATCLLC is able to finance, at a reasonable cost, its start-up costs, working capital and operating expenses and the cost of any new facilities that are planned. (f) Certificates. The Contributor shall have delivered or ------------- caused to be delivered to ATCLLC all such certificates, dated as of the Closing Date, as ATCLLC shall reasonably request to evidence the fulfillment by the Contributor as of the Closing Date, of the terms and conditions of this Agreement, including the Foreign Investment in Real Property Tax Act certification and affidavit substantially in the form of Exhibit 8.2(f) hereto. -------------- (g) Legal Opinion of the Contributor's Counsel. ATCLLC shall ---------------------------------------------- receive the favorable opinion of [___________________], counsel for the Contributor, addressed to ATCLLC and dated as of the Closing Date, in form and substance satisfactory to ATCLLC and substantially in the form of Exhibit 8.2(g) hereto. -------------- SECTION 8.3 Conditions Precedent to Obligations of the Contributor. ------------------------------------------------------- All obligations of the Contributor hereunder to be performed on or after the Closing Date are, at the option of the Contributor, subject to the satisfaction of the following conditions on or before the Closing Date, as indicated below: (a) Proceedings Satisfactory. All actions, proceedings, --------------------------- instruments, opinions and documents required to carry out this Agreement or incidental hereto and all other related legal matters shall be reasonably satisfactory to the Contributor and counsel for the Contributor. ATCLLC shall have delivered to the Contributor on the Closing Date such documents and other evidence as the Contributor may reasonably request in order to establish the consummation of transactions relating to the execution, delivery and performance by ATCLLC of this Agreement, the acquisition and transfer of the Contributed Assets and the compliance with the conditions set forth in this Article VIII, in form and substance reasonably satisfactory to the Contributor. (b) Compliance with Terms and Conditions. All the terms, ------------------------------------------ covenants and conditions of this Agreement to be complied with and performed by ATCLLC on or before the Closing Date shall have been (and the issuance by ATCLLC of Member Units or any documents required to be delivered at the Closing by ATCLLC shall constitute a representation by ATCLLC as of the Closing Date that, except as otherwise specifically approved in writing by the Contributor, they have been) complied with and performed in all material respects. (c) Representations and Warranties of ATCLLC Correct. All the ---------------------------------------------------- representations and warranties made by ATCLLC in Article VI hereinabove shall be (and the issuance by ATCLLC of Member Units or any documents required to be delivered at the Closing shall constitute a representation by ATCLLC as of the Closing Date and Operations Date that, except as otherwise specifically approved in writing by the Contributor, such representations and warranties of ATCLLC is) true and correct in all material respects on and as of the Closing Date and Operations Date with the same force and effect as though all such representations and warranties had been made on and as of the Closing Date. (d) Certificates. ATCLLC shall have delivered to the ------------- Contributor all such certificates, dated as of the Closing Date, as the Contributor shall reasonably request to evidence the fulfillment by ATCLLC, as of the Closing Date, of the terms and conditions of this Agreement. (e) Legal Opinion of ATCLLC's Counsel. The Contributor shall ------------------------------------ receive the favorable opinions of: (i) Michael Best & Friedrich, LLP, special counsel for ATCLLC, addressed to the Contributor and dated the Closing Date, in form and substance reasonably satisfactory to the Contributor, substantially in the form set forth in Exhibit 8.3(e)(i) hereto and (ii) Hunton & Williams, ------------------ special counsel to ATCLLC, addressed to the Contributor and dated the Closing Date, in form and substance reasonably satisfactory to the Contributor, substantially in the form set forth in Exhibit 8.3(e)(ii) hereto. - ------------------- ARTICLE IX INDEMNIFICATION SECTION 9.1 Indemnification. ---------------- (a) General. -------- (i) Except as otherwise provided in Section 9.1(a)(ii), (b) or (d), each party shall indemnify and hold the other harmless for any liabilities, losses, damages and expenses (including attorneys fees and expenses) relating to such party's breach of any representation or warranty or failure to fulfill any covenant or agreement contained herein; provided, however, that neither party shall be liable under this Section 9.1(a)(i) to the other party in contract, tort, warranty, strict liability or any other legal theory for any indirect, consequential, incidental, punitive or exemplary damages. (ii) Further, each party shall indemnify and hold the other harmless from and against any liabilities, losses, damages and expenses (including attorney fees and expenses) caused by the indemnifying party's negligent or wrongful act on or related to a Joint Use Transmission Substation Land Right or Joint Use Transmission Line Land Right or related to any joint use facility, and incurred by the other party hereto. This reciprocal hold harmless and indemnity shall apply to any wrongful act or negligence of the indemnifying party, or its agents, contractors, employees or invitees. Acts "related to" in this paragraph means acts which occur not only on the property or at the facility but in the course of ingress or egress on or over the lands of the other party or adjacent lands. (b) Environmental. The Contributor agrees to indemnify ATCLLC -------------- and each Person potentially liable through ATCLLC, including its officers, directors, shareholders, employees and agents, from and against all Environmental Liabilities relating to Environmental Claims. (c) Burden of Proof. The Contributor shall bear the burden of ---------------- proving that an Environmental Claim did not arise from an action or omission that occurred prior to the Operations Date. (d) Land Rights. The Contributor agrees to indemnify ATCLLC ------------- with respect to any bona fide dispute regarding (i) the Contributor's right to assign or convey any parcel or right therein; (ii) the validity or assignability of any easement or lease; or (iii) the validity of any deed, but only where the Contributor does not cause title insurance to be provided with respect thereto; in each case where it would be reasonable and prudent for ATCLLC to exercise its condemnation power and where such defect has not previously been resolved through the exercise of prescriptive rights. The indemnification obligation hereunder shall be limited to the reasonable costs incurred by ATCLLC to condemn the applicable parcel, including without limitation, the condemnation award, attorneys fees and other costs incurred relative to such condemnation award and shall include reasonable internal costs (e.g., ATCLLC staff or internal ATCLLC counsel expense). SECTION 9.2 Notice of Proceedings. ---------------------- Each party shall promptly notify the other party of any loss or proceeding in respect of which such notifying party is or may be entitled to indemnification pursuant to Section 9.1. Such notice shall be given as soon as reasonably practicable after the relevant party becomes aware of the claim or proceeding and that such claim or proceeding may give rise to an indemnification obligation. The delay or failure of such indemnified party to provide the notice required pursuant to this Section 9.2 shall not release the other party from any indemnification obligation which it may have to such indemnified party except (i) to the extent that such failure or delay materially and adversely affected the indemnifying party's ability to defend such action or increased the amount of the claim, and (ii) that the indemnifying party shall not be liable for any costs or expenses of the indemnified party in the defense of the claim, suit, action or proceeding during such period of failure or delay. SECTION 9.3 Defense of Claims. ------------------ (a) Unless and until the indemnifying party acknowledges in writing its obligation to indemnify the indemnified party to the extent required pursuant to this Article IX, and assumes control of the defense of a claim, suit, action or proceeding in accordance with Section 9.3(b), the indemnified party shall have the right, but not the obligation, to contest, defend and litigate, with counsel of its own selection, any claim, action, suit or proceeding by any third party alleged or asserted against such party in respect of, resulting from, related to or arising out of any matter for which it is entitled to be indemnified hereunder, and the reasonable costs and expenses thereof shall be subject to the indemnification obligations of the indemnifying party hereunder. (b) Upon acknowledging in writing its obligation to indemnify an indemnified party to the extent required pursuant to this Article IX and paying all reasonable costs incurred by an indemnified party in its defense, including, without limitation, legal fees, the indemnifying party shall be entitled, at its option (subject to Section 9.3(d)), to assume and control the defense of such claim, action, suit or proceeding at its expense with counsel of its selection, subject to the prior reasonable approval of the indemnified party. (c) Neither the indemnifying party nor the indemnified party shall be entitled to settle or compromise any such claim, action, suit or proceeding without the prior written consent of the other; provided, however, that after agreeing in writing to indemnify the indemnified party, the indemnifying party may, subject to Section 9.3(d), settle or compromise any claim without the approval of the indemnified party. Except where such consent is unreasonably withheld, if a party settles or compromises any claim, action, suit or proceeding in respect of which it would otherwise be entitled to be indemnified by the other party, without the prior written consent of the other party, the other party shall be excused from any obligation to indemnify the party making such settlement or compromise in respect of such settlement or compromise. (d) Following the acknowledgment of the indemnification and the assumption of the defense by the indemnifying party pursuant to Section 9.3(b), the indemnified party shall have the right to employ its own counsel and such counsel may participate in such action, but the fees and expenses of such counsel shall be at the expense of such indemnified party, when and as incurred, unless: (i) the employment of counsel by such indemnified party has been authorized in writing by the indemnifying party; (ii) the indemnified party shall have reasonably concluded and specifically notified the indemnifying party that there may be a conflict of interest between the indemnifying party and the indemnified party in the conduct of the defense of such action; (iii) the indemnifying party shall not in fact have employed independent counsel reasonably satisfactory to the indemnified party to assume the defense of such action and shall have been so notified by the indemnified party; or (iv) the indemnified party shall have reasonably concluded and specifically notified the indemnifying party that there may be specific defenses available to it which are different from or additional to those available to the indemnifying party or that such claim, action, suit or proceeding involves or could have a material adverse effect upon the indemnified party beyond the scope of this Agreement. If clause (ii), (iii) or (iv) of the preceding sentence shall be applicable, then counsel for the indemnified party shall have the right to direct the defense of such claim, action, suit or proceeding on behalf of the indemnified party and the reasonable fees and disbursements of such counsel shall constitute reimbursable legal or other expenses hereunder. SECTION 9.4 Subrogation. ------------ Upon payment of any indemnification by a party pursuant to Section 9.1, the indemnifying party, without any further action, shall be subrogated to any and all claims that the indemnified party may have relating thereto, and such indemnified party shall at the request and expense of the indemnifying party cooperate with the indemnifying party and give at the request and expense of the indemnifying party such further assurances as are necessary or advisable to enable the indemnifying party vigorously to pursue such claims. ARTICLE X CLOSING SECTION 10.1 The Closing Date. ----------------- The closing (the "Closing") shall occur on December 29, 2000 (the "Closing Date") at the offices of Michael Best & Friedrich, LLP, which are located at One South Pinckney Street, Madison, Wisconsin 53701-1806 at 9:00 a.m. or as soon thereafter as is practicable. The effective date of the contribution and transfer of the Contributed Assets shall be 12:01 a.m. Central Time on the Operations Date. On the Closing Date, the parties agree to take the actions required by this Agreement and all such actions shall be deemed to have occurred simultaneously. SECTION 10.2 Closing Costs. -------------- (a) ATCLLC shall pay the cost of recording the deeds and other instruments conveying any real property to ATCLLC and the fees of any title company for handling the Closing. (b) The Contributor shall pay all state, county and, if applicable, municipal transfer taxes levied on the Contributed Assets; the costs and expenses of any title insurance and surveys required hereunder; and all costs and expenses of releasing liens and security interests on any of the Contributed Assets. (c) Each party shall pay the fees and expenses of its own legal counsel. SECTION 10.3 Prorations. ----------- The following items shall be prorated and adjusted between the parties or paid at Closing: (i) ad valorem taxes on real property shall be prorated on a calendar year basis to the Operations Date; (ii) ad valorem taxes on personal property, if any, shall be prorated on a calendar year basis to the Operations Date; and (iii) rents and other charges due under a Transmission Substation Lease, Transmission Line Lease or other leased property that is a Contributed Asset shall be prorated to the Operations Date. If the Closing shall occur before the tax rates are fixed for any ad valorem taxes to be prorated hereunder, the apportionment of such taxes shall be upon the basis of the most recent ascertainable taxes, and shall be re-prorated and adjusted between the parties upon availability of the actual bills therefor. SECTION 10.4 Default and Remedies. --------------------- In the event that the Contributor fails to consummate the transactions described in this Agreement for any reason other than ATCLLC's default, such Contributor shall be in default and ATCLLC may obtain specific performance of this Agreement. If ATCLLC shall fail to consummate the transaction described in this Agreement in accordance with its terms, except by reason of the Contributor's default, ATCLLC shall be in default and the Contributor shall be entitled, as its own exclusive remedies, to obtain specific performance of this Agreement. ARTICLE XI POST CLOSING SECTION 11.1 Further Assurances. ------------------- Subject to the terms of this Agreement, each of the Contributor and ATCLLC will use its reasonable efforts to take, or cause to be taken, all action to do, or cause to be done, all things or execute any documents necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. On and after the Closing Date the Contributor and ATCLLC will take all reasonably appropriate action and execute any documents, instruments or conveyances of any kind which may be reasonably necessary to carry out any of the provisions hereof and correct patent errors and omissions. SECTION 11.2 Survival of Representations, Warranties and Agreement. ------------------------------------------------------ Regardless of any investigation at any time made by or on behalf of a party or of any information any party may have, all representations and warranties shall be unaffected and the parties may rely fully on such representations and warranties. This Agreement shall survive the Operations Date for a period of three years; provided, however, that (i) any indemnification obligation pursuant to Section 9.1(a)(ii) shall survive the Closing indefinitely, (ii) any indemnification obligation pursuant to Section 9.1(b) shall survive the Closing for a period of 25 years, and (iii) any indemnification obligation pursuant to Section 9.1(d) shall survive the Closing for a period of ten years. SECTION 11.3 Access to Records. ------------------ (a) The Contributor shall provide ATCLLC with originals or copies of all design drawings, electrical diagrams, maps, operations and maintenance records, materials standards, and manuals regarding employee safety and equipment operation in its possession and necessary or useful for ATCLLC to operate and maintain the Contributed Assets consistent with Good Utility Practice. (b) Each party may review other information and records relating to the Contributed Assets in the other party's possession at the business locations where such other information is normally located, during normal business hours, and upon reasonable notice. In the alternative, such other information and records may be provided in electronic form or hard copy, as the parties may agree. (c) Neither party shall charge the other for any costs associated with complying with this Section 11.3 during the first four years following the Operations Date except as the parties may otherwise agree. Thereafter, the party seeking information and records of the other party shall pay the reasonable costs of the other party for providing such information and records or access thereto. ARTICLE XII MISCELLANEOUS SECTION 12.1 Notices. -------- All notices, consents, requests, demands, offers, reports or other communications required or permitted to be given pursuant to this Agreement shall be in writing and considered properly given or made when personally delivered to the person entitled thereto when sent by certified or registered United States mail in a sealed envelope, with postage prepaid, or when sent by overnight courier, addressed as set forth below. Any party may change its address by given notice to the other party as aforesaid. If to ATCLLC: American Transmission Company LLC c/o ATC Management Inc. N16 W23217 Stone Ridge Drive Waukesha, WI 53187 Attention: Walter Woelfle If to the Contributor: _____________________________ _____________________________ _____________________________ Attention: _____________________________ With a copy to: _____________________________ _____________________________ _____________________________ Attention: _____________________________ SECTION 12.2 Entire Agreement. ----------------- This Agreement embodies the entire understanding and agreement between the parties concerning the Contributed Assets, and supersedes any and all prior negotiations, understandings or agreements with respect thereto. SECTION 12.3 Interpretation and Construction. -------------------------------- The headings and captions in this Agreement are inserted for convenience and identification only and are in no way intended to define, limit or expand the scope and intent of this Agreement or any provision hereof. The references to Sections or Articles in this Agreement are to Sections and Articles of this Agreement, except where otherwise indicated. Where the context so requires, the masculine shall include the feminine and the neuter, and singular shall include the plural. SECTION 12.4 Counterparts. ------------- This Agreement may be executed in multiple counterpart copies, each of which shall be considered an original and all of which shall constitute one and the same instrument. SECTION 12.5 Binding on Successors and Assignment. ------------------------------------- This Agreement and all of the terms and provisions hereof shall be binding upon, and inure to the benefit of, the parties and their respective successors and assigns. ATCLLC shall be entitled to assign this Agreement to any Person that acquires the Contributed Assets. SECTION 12.6 Governing Law. -------------- This Agreement, and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the laws of the State of Wisconsin, except insofar as the laws of another jurisdiction require the application of such jurisdiction's laws with respect to matters affecting real property located in such other jurisdiction. SECTION 12.7 Severability. ------------- If any provision of this Agreement or the application thereof to any Person or circumstance shall, to any extent, be held to be invalid or unenforceable in any jurisdiction, the validity and enforceability of the Agreement or the application of such provision to any other Persons or circumstances shall not be affected thereby, and each provision of this Agreement shall be valid and enforceable to the extent permitted by law in every jurisdiction. SECTION 12.8 Amendments and Waivers. ----------------------- This Agreement may be amended only by a written instrument executed by ATCLLC and the Contributor. Either party may extend the time for or waive the performance of any obligation of the other party, waive any inaccuracies in the representations or warranties of such party, or waive compliance by such party with any of the terms and conditions contained in this Agreement. Any such extension or waiver shall be in writing and executed by the party granting the waiver. [remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first set forth above. American Transmission Company LLC By: ATC Management Inc., its Manager By:____________________________________ Name: Title: [Contributor] By:_____________________________________ Name: Title: SCHEDULES 3.2 Identification of Transmission Lines (a) Transmission Only Transmission Lines (i) Fee Interests (ii) Easements (iii)Leases (b) Incidental Use Transmission Lines (i) Fee Interests (ii) Easements (iii)Leases (c) Joint Use Transmission Lines (i) Fee Interests (ii) Easements (iii) Leases 3.3 Identification of Transmission Substations (a) Transmission Only (i) Fee Interests (ii) Easements (iii) Leases (b) Joint Use Transmission Substations (i) Fee Interests (ii) Easements (iii) Leases 3.4 Permits 3.5(a) Contracts 3.5(b) Pole Attachments 3.5(c) Agreements regarding Fiber Optic Cable 3.6 Construction Work In Progress 3.7 Personal Property 3.8 Inventory 3.9 Warranties 3.12 Documented Construction Projects 3.13 [Stoughton Operations Center] 5.4 Third Party Consents 5.5 Litigation 5.7 Leases other than Transmission Line Easements and Transmission Substation Easements 7.2 Project Map EXHIBITS 3.2 Transmission Line Conveyance Instruments (a) Transmission Only (i) Form of Deed (ii) Form of Easement Assignment (iii) Form of Lease Assignment (b) Incidental Use (i) Form of Deed (ii) Form of Easement Assignment (iii) Form of Lease Assignment (c) Joint Use (i) Form of Grant of Easement (ii) Form of Easement Assignment (iii) Form of Lease Assignment (d) Bill of Sale for Transmission Facilities 3.3 Transmission Substation Conveyance Instruments (a) Transmission Only (i) Form of Deed (ii) Form of Easement Assignment (iii) Form of Lease Assignment (b) Joint Use (i) Form of Grant of Easement (ii) Form of Easement Assignment (iii) Form of Lease Assignment (c) Bill of Sale for Substation Transmission Facilities 3.4 Assignment of Permits 3.5(a) Assignment of Contracts 3.5(b) Form of Pole Attachment Agreement 3.5(c) Form of Agreement regarding Fiber Optic Cable 3.6 Construction Work in Progress (a) Form of Deed (b) Form of Bill of Sale (c) Form of Assignment 3.7 Bill of Sale for Personal Property 3.8 Bill of Sale for Inventory 3.9 Form of Warranty Assignment 3.11(b) Form of Escrow Agreement-Subdivided Parcel 3.13 [Deed and Bill of Sale for Stoughton Operations Center] 8.2(f) FIRPTA Certificate 8.2(g) Opinion of Contributor's Counsel 8.3(e)(i) Opinion of Michael Best Friedrich, LLP 8.3(e)(ii) Opinion of Hunton & Williams EX-10.15A 7 atcadd.txt ADDENDA TO THE ASSET CONTRIBUTION AGREEMENT EXHIBIT 10.15a ADDENDA TO THE ASSET CONTRIBUTION AGREEMENT ------------------------------------------- ADDENDUM 1: As amended in Page 3 and Tab C10 of the First Supplement to the Comprehensive Application dated September 26, 2000 in Docket No. 137-NC-100: SECTION 3.5 Contracts. ---------- (a) The Contributor shall assign to ATCLLC, in substantially the form of the assignment attached hereto as Exhibit 3.5(a), all contracts necessary for the operation of the Contributed Assets (excluding those being used by Contributor to continue to provide future goods or services to ATCLLC under an interconnection or other agreement), together with any contracts relating to Transmission Only Transmission Lines and Transmission Only Transmission Substations, excluding, however, any Existing Attachment Agreements (collectively, the "Contracts"), which Contracts are listed on Schedule 3.5(b). (b) ATCLLC and the Contributor shall execute a separate Attachment Agreement that will govern the treatment of Contributor's existing contracts for pole attachments and fiber-optic-cable attachments. Contributor's existing contracts for pole attachments and fiber optic cable attachments are listed on Schedule 3.5(b). ************** ADDENDUM 2: As amended in Paragraph 5 of Attachment B of the First Supplement to the Comprehensive Application dated September 26, 2000 in Docket No. 137-NC-100: SECTION 5.6 Interests In Certain Contributed Assets. ---------------------------------------- (a) The Transmission Facilities have been maintained in accordance with Good Utility Practice, and will be so maintained through the Operations Date. (b) Except for ATCLLC and those tenants identified in the lease schedule attached as Schedule 5.6(b), pursuant to the terms of this Agreement and the parties to Existing Attachment Agreements, no person, firm or entity has any rights to acquire or lease all or any portion of the Contributed Assets, or otherwise to obtain any interest therein, and there are no outstanding options, rights of first refusal or negotiation, rights of reverter or rights of first offer relating to the Contributed Assets or any interest therein. ************** ADDENDUM 3: As amended in Paragraph 6 of Attachment B of the First Supplement to the Comprehensive Application dated September 26, 2000 in Docket No. 137-NC-100: SECTION 8.2 Conditions Precedent to Obligations of ATCLLC. ---------------------------------------------- .... (b) Instruments of Transfer and Other Instruments. The Contributor shall have delivered to ATCLLC, on or prior to the Closing Date, the following: (i) the documents and instruments required by Article III; (ii) title insurance policies meeting the requirements of Section 3.11(a)(i) insuring the Transmission Only Transmission Substation Fee Interests, subject only to Permitted Encumbrances, and Surveys with respect to the Transmission Substation Land Rights; and (iii)such other documents as may reasonably be requested to consummate the transfer of the Contributed Assets to ATCLLC. ************** ADDENDUM 4: As amended in Page 3 and Tab C10 of the First Supplement to the Comprehensive Application dated September 26, 2000, and Paragraph 8 of Attachment B to that First Supplement in Docket No. 137-NC-100: SCHEDULES --------- 3.2 Identification of Transmission Lines (a) Transmission Only Transmission Lines (i) Fee Interests (ii) Easements (iii)Leases (b) Incidental Use Transmission Lines (i) Fee Interests (ii) Easements (iii)Leases (c) Joint Use Transmission Lines (i) Fee Interests (ii) Easements (iii)Leases 3.3 Identification of Transmission Substations (a) Transmission Only (i) Fee Interests (ii) Easements (iii) Leases (b) Joint Use Transmission Substations (i) Fee Interests (ii) Easements (iii) Leases 3.4 Permits 3.5(a)Contracts 3.5(b)Existing Contracts for Pole Attachments and Fiber-Optic Cable 3.6 Construction Work In Progress 3.7 Personal Property 3.8 Inventory 3.9 Warranties 3.12 Documented Construction Projects 5.4 Third Party Consents 5.5 Litigation 5.6(b) Leases other than Transmission Line Easements and Transmission Substation Easements 7.2 Project Map EX-10.16 8 atcoperate.txt OPERATING AGREEMENT EXHIBIT 10.16 ______________________________________________ OPERATING AGREEMENT OF AMERICAN TRANSMISSION COMPANY LLC ______________________________________________ Dated as of January 1, 2001
TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS....................................................................................................1 SECTION 1.1 Definitions......................................................................................1 ARTICLE II FORMATION OF COMPANY.........................................................................................12 SECTION 2.1 Name, Office, Registered Agent and Continuance..................................................12 SECTION 2.2 Governing Law...................................................................................13 SECTION 2.3 Purpose.........................................................................................13 SECTION 2.4 Powers..........................................................................................14 SECTION 2.5 Restrictions....................................................................................14 SECTION 2.6 Term............................................................................................15 SECTION 2.7 Adequacy........................................................................................15 SECTION 2.8 Operating Protocols.............................................................................16 ARTICLE III MEMBERS AND CAPITAL CONTRIBUTIONS...........................................................................16 SECTION 3.1 Members and Schedule A..........................................................................16 SECTION 3.2 Initial Capital Contributions...................................................................16 SECTION 3.3 Additional Members by Right.....................................................................17 SECTION 3.4 Pre-emptive Rights..............................................................................18 SECTION 3.5 Contribution of Additional Transmission Assets..................................................19 SECTION 3.6 Voluntary Additional Capital Contributions......................................................20 SECTION 3.7 Issuance to Corporate Manager...................................................................21 SECTION 3.8 Adjustment of Tax-Exempt Members' Capital.......................................................23 SECTION 3.9 Capital Accounts................................................................................24 SECTION 3.10 Initial Debt Financing..........................................................................25 SECTION 3.11 No Interest.....................................................................................25 SECTION 3.12 No Third Party Beneficiary......................................................................25 SECTION 3.13 Membership Units as Securities..................................................................26 SECTION 3.14 Month-End Convention............................................................................26 ARTICLE IV RIGHTS, OBLIGATIONS AND POWERS OF THE CORPORATE MANAGER......................................................26 SECTION 4.1 Management of the Company.......................................................................26 SECTION 4.2 Authority of Corporate Manager..................................................................27 SECTION 4.3 Indemnification and Exculpation of Indemnitees..................................................27 SECTION 4.4 Liability of the Corporate Manager..............................................................28 SECTION 4.5 Corporate Expenses and Administrative Expenses..................................................29 SECTION 4.6 Outside Activities..............................................................................30 SECTION 4.7 Title to Company Assets.........................................................................30 ARTICLE V ACCOUNTING, TAX AND FISCAL MATTERS............................................................................30 SECTION 5.1 Fiscal and Taxable Year.........................................................................30 SECTION 5.2 Books...........................................................................................30 SECTION 5.3 Records.........................................................................................30 SECTION 5.4 Company Funds...................................................................................31 SECTION 5.5 Tax Returns.....................................................................................31 SECTION 5.6 Tax Elections...................................................................................32 SECTION 5.7 Tax Matters, Tax Elections and Special Basis Adjustments........................................32 SECTION 5.8 Access to Records...............................................................................32 ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS................................................................................33 SECTION 6.1 Allocations.....................................................................................33 SECTION 6.2 Cash Available for Distribution.................................................................34 SECTION 6.3 No Right to Distributions in Kind...............................................................36 SECTION 6.4 Limitations on Distributions....................................................................36 SECTION 6.5 Distributions Upon Liquidation..................................................................36 SECTION 6.6 Substantial Economic Effect.....................................................................37 SECTION 6.7 Quarter-End Convention..........................................................................37 ARTICLE VII CHANGES IN CORPORATE MANAGER................................................................................37 SECTION 7.1 Transfer of the Corporate Manager's Member Interest.............................................37 SECTION 7.2 Admission of a Substitute or Additional Corporate Manager.......................................39 SECTION 7.3 Effect of Bankruptcy, Withdrawal or Liquidation of the Corporate Manager........................39 SECTION 7.4 Removal of a Corporate Manager..................................................................40 ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE NON-MANAGING MEMBERS.........................................................41 SECTION 8.1 Management of the Company.......................................................................41 SECTION 8.2 Power of Attorney...............................................................................41 SECTION 8.3 Limitation on Liability of Non-Managing Members.................................................41 SECTION 8.4 Redemption Right................................................................................41 SECTION 8.5 Registration....................................................................................43 ARTICLE IX TRANSFER.....................................................................................................47 SECTION 9.1 Purchase Not for Distribution...................................................................47 SECTION 9.2 Restrictions on Transfer of Member Interests....................................................47 SECTION 9.3 Permitted Transfers.............................................................................49 SECTION 9.4 Admission of Substitute Member..................................................................49 SECTION 9.5 Rights of Assignees of Members Interests........................................................50 SECTION 9.6 Effect of Bankruptcy or Termination of a Non-Managing Member....................................51 SECTION 9.7 Month-End Convention............................................................................51 ARTICLE X AMENDMENTS; MERGER............................................................................................51 SECTION 10.1 Amendments......................................................................................51 SECTION 10.2 Merger..........................................................................................52 ARTICLE XI MISCELLANEOUS................................................................................................52 SECTION 11.1 Notices.........................................................................................52 SECTION 11.2 Entire Agreement................................................................................52 SECTION 11.3 Interpretation and Construction.................................................................52 SECTION 11.4 Counterparts....................................................................................53 SECTION 11.5 Binding on Successors...........................................................................53 SECTION 11.6 Severability....................................................................................53 SECTION 11.7 Rights and Remedies.............................................................................53 SECTION 11.8 Economic Benefit................................................................................53 Schedules and Exhibits Schedule A List of Members and Member Units Schedule B Illustrative TEIA Calculations Schedule C 1999 Load Ratio Shares Exhibit A Notice of Exercise of Redemption Right Exhibit B Dispute Resolution Provisions
AMERICAN TRANSMISSION COMPANY LLC OPERATING AGREEMENT THIS OPERATING AGREEMENT of AMERICAN TRANSMISSION COMPANY LLC, a Wisconsin limited liability company (the "Company"), is made and entered into as of January 1, 2001, by and among the parties listed on Schedule A, for the regulation of the affairs and conduct of the Company and certain relationships with and among its Members. RECITALS 1. 1999 Wisconsin Act 9 includes provisions commonly referred to as the Reliability 2000 Legislation, which authorized the organization of a new company to provide electric transmission service. 2. Pursuant to the provisions of the Reliability 2000 Legislation, electric transmission utilities were authorized to contribute their transmission assets to such company, and certain other electric utilities were authorized to make cash contributions to such company. 3. The initial parties listed on Schedule A have ----------- determined to establish the Company for such purpose and have entered into this Operating Agreement to govern the affairs of the Company and certain relationships with and among its Members. ARTICLE I DEFINITIONS SECTION 1.1 Definitions. ------------ In addition to the definitions contained in this Agreement, the following terms used herein shall have the following meanings assigned to them. "Act" means the Wisconsin Limited Liability Company Act, Chapter 183 of the Wisconsin Statutes, as amended from time to time. "Additional Securities" means any additional Corporate Shares (other than Corporate Shares issued in connection with an exchange pursuant to Section 8.4 hereof) or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase Corporate Shares, as set forth in Section 3.7(a)(ii). "Administrative Expenses" means (i) all administrative and operating costs and expenses incurred by the Company, (ii) those administrative costs and expenses of the Corporate Manager, including any salaries or other payments to directors, officers or employees of the Corporate Manager, and any accounting and legal expenses of the Corporate Manager, which expenses, the Members have agreed, are expenses of the Company and not the Corporate Manager, and (iii) to the extent not included in clause (ii) above, Corporate Expenses. "Affiliate" means, with respect to any Person: (a) Any Person owning or holding directly or indirectly 5% or more of the voting securities of such Person; (b) Any Person in any chain of successive ownership of 5% or more of the voting securities of such Person; (c) Any corporation 5% or more of whose voting securities are owned by any Person owning 5% or more of the voting securities of such Person or by any Person in any chain of successive ownership of 5% or more of the voting securities of such Person; (d) Any Person who is an officer or director of such Person or of any corporation in any chain of successive ownership of 5% or more of the voting securities of such Person; (e) Any corporation operating a servicing organization for furnishing supervisory, construction, engineering, accounting, legal or similar services to such Person, which corporation has one or more officers or one or more directors in common with such Person, and any other corporation which has directors in common with such Person if the number of directors of the corporation is more than one-third of the total number of such Person's directors; or (f) Any subsidiary of such Person. "Agreement" means this Operating Agreement, as it may be amended from time to time in accordance with its terms. "Article 8" means Article 8 of the Uniform Commercial Code as codified at Chapter 408 of the Wisconsin Statutes. "Asset Contribution Agreement" means any of the asset contribution agreements to be entered into between the Company and each of the Transmission Utilities, which agreements provide for the contribution of such Transmission Utility's Transmission Assets in exchange for Member Units. "Capital Account" has the meaning provided in Section 3.9. "Capital Contributions" means the aggregate contributions by a Member to the capital of the Company as set forth on Schedule A, ----------- as amended from time to time. "Capital Event" means (i) any Company transaction that does not result in a carry-over of a Tax-Exempt Member's Capital Account, such as a liquidation of the Company, sale of all or substantially all of its assets or a merger of the Company into a corporation, (ii) the sale of all or a portion of the Units held by a Tax-Exempt Member to a Member that directly or indirectly is a Person whose share of taxable income or loss of the Company is subject to tax under Code Section 11, (iii) the exchange of all or a portion of the Units held by a Tax-Exempt Member for Corporate Shares, (iv) any change of more than 20% of the total Tax-Exempt Members' Percentage Interests, or (v) any other event or occurrence where the adjustment of Tax-Exempt Member's capital pursuant to Section 3.8 is no longer necessary to prevent diminution of the non-Tax-Exempt Members' returns on the equity portion of the rate base in the rate-making process. "Cash Amount" means an amount of cash per Member Unit equal to the Value of the Corporate Shares Amount on the date of receipt by the Corporate Manager of a Notice of Redemption. "Cash Available for Distribution" shall mean, for any period, the excess, if any, of (i) the cash receipts of the Company (other than from (A) the Initial Financing, (B) financing pursuant to Section 3.5(d), or (C) a Terminating Capital Transaction), receipts from the sale, exchange or other disposition of Company assets, and amounts withdrawn from Reserves, over (ii) disbursements of cash by the Company (other than distributions to Members and amounts paid with receipts from (A) the Initial Financing, (B) financing pursuant to Section 3.5(d), or (C) a Terminating Capital Transaction), including the payment of operating expenses, debt service on loans, capital expenditures, and amounts set aside for Reserves. The foregoing amounts are intended not to exceed "operating cash flow distributions," as defined in Section 1.707-4(b) of the Regulations. "Chapter 196" means Chapter 196 of the Wisconsin Statutes, Regulation of Public Utilities. "Charter" means the Articles of Incorporation of the Corporate Manager filed with the Wisconsin Department of Financial Institutions, as such Articles may be amended or restated from time to time. "Code" means the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law). "Commission" means the United States Securities and Exchange Commission. "Company" means American Transmission Company LLC, and its successors and assigns. "Company Minimum Gain" has the meaning set forth in Regulations Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of Company Minimum Gain is determined by first computing, for each Company nonrecourse liability, any gain the Company would realize if it disposed of the property subject to that liability for no consideration other than full satisfaction of the liability, and then aggregating the separately computed gains. A Member's share of Company Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(g)(1). "Company Record Date" has the meaning provided in Section 6.2(g). "Contribution Value" means the value, as of the date of contribution, of the Transmission Assets contributed by a Member pursuant to its Asset Contribution Agreement, as reflected on the FERC Books of Account of the Member (or with respect to a Member without an OATT, its regulatory books of account relating to the Transmission Assets being contributed), as adjusted on a dollar-for-dollar basis for (i) Deferred Taxes, and (ii) Deferred Investment Tax Credits associated with those Transmission Assets. The Members agree that the Contribution Values of the Transmission Assets contributed by MG&E, WEPCO, WPL and WPS as of the Operations Date shall be further adjusted by increasing the number of Member Units to be received by MG&E by 2/3 of the difference between (A) the Contribution Value that MG&E would have had if Deferred Investment Tax Credits had not been taken into account and (B) such Contribution Value taking Deferred Investment Tax Credits into account, subject to a maximum aggregate reallocation of $708,727 of Contribution Value (prior to the Initial Financing). The Member Units to be received by WEPCO and WPL shall each be reduced by 45% of the amount reallocated, and the number of Member Units to be received by WPS shall be reduced by 10% of the amount reallocated. Contribution Value shall not otherwise be adjusted for the effect of any Code Section 704(c) allocations, unless such amount would cause a reallocation of annual income of more than $250,000 for any Member, in which case the Members shall endeavor to agree on alternative arrangements. "Conversion Factor" means 1.0, provided that in the event that the Corporate Manager (i) declares or pays a dividend on its outstanding Corporate Shares in Corporate Shares or makes a distribution to all holders of its outstanding Corporate Shares in Corporate Shares, (ii) subdivides its outstanding Corporate Shares or (iii) combines its outstanding Corporate Shares into a smaller number of Corporate Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of Corporate Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time), and the denominator of which shall be the actual number of Corporate Shares (determined without the above assumption) issued and outstanding on such date and, provided further, that in the event that an entity other than an Affiliate of the Corporate Manager shall become Corporate Manager pursuant to any merger, consolidation or combination of the Corporate Manager with or into another entity (the "Successor Entity"), the Conversion Factor shall be adjusted by multiplying the Conversion Factor by the number of shares of the Successor Entity into which one Corporate Share is converted pursuant to such merger, consolidation or combination, determined as of the date of such merger, consolidation or combination. Any adjustment to the Conversion Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event; provided, however, that if the Corporate Manager receives a Notice of Redemption after the record date, but prior to the effective date of such dividend, distribution, subdivision or combination, the Conversion Factor shall be determined as if the Corporate Manager had received the Notice of Redemption immediately prior to the record date for such dividend, distribution, subdivision or combination. "Corporate Expenses" means (i) costs and expenses relating to the formation and continuity of existence and operation of the Corporate Manager and any Subsidiaries thereof (which Subsidiaries shall, for purposes hereof, be included within the definition of Corporate Manager), including taxes, fees and assessments associated therewith, any and all costs, expenses or fees payable to any director, officer or employee of the Corporate Manager, (ii) costs and expenses relating to any public offering and registration of securities by the Corporate Manager and all statements, reports, fees and expenses incidental thereto, including, without limitation, underwriting discounts and selling commissions applicable to any such offering of securities, and any costs and expenses associated with any claims made by any holders of such securities or any underwriters or placement agents thereof, (iii) costs and expenses associated with any repurchase of any securities by the Corporate Manager, (iv) costs and expenses associated with the preparation and filing of any periodic or other reports and communications by the Corporate Manager under federal, state or local laws or regulations, including filings with the Commission, (v) costs and expenses associated with compliance by the Corporate Manager with laws, rules and regulations promulgated by any regulatory body, including the Commission and any securities exchange, (vi) costs and expenses associated with any 401(k) plan, incentive plan, bonus plan or other plan providing for compensation for the employees of the Corporate Manager, (vii) costs and expenses incurred by the Corporate Manager relating to any issuing or redemption of Member Interests and (viii) all other operating or administrative costs of the Corporate Manager incurred in the ordinary course of its business on behalf of or in connection with the Company. "Corporate Manager" means ATC Management Inc., a Wisconsin corporation, and any Person who becomes a substitute or additional Corporate Manager as provided herein, and any of their successors as Corporate Manager. "Corporate Share" means one share of common stock, Class A or Class B, of the Corporate Manager. "Corporate Shares Amount" means a number of Corporate Shares equal to the product of the number of Member Units offered for redemption by a Redeeming Member pursuant to a completed Notice of Redemption submitted by such Redeeming Member to the Corporate Manager, multiplied by the Conversion Factor as adjusted to and including the Specified Redemption Date; provided that in the event the Corporate Manager issues to all holders of Corporate Shares rights, options, warrants or convertible or exchangeable securities entitling the shareholders to subscribe for or purchase Corporate Shares, or any other securities or property (collectively, the "rights"), and the rights have not expired at the Specified Redemption Date, then the Corporate Shares Amount shall also include the rights issuable to a holder of the Corporate Shares Amount on the record date fixed for purposes of determining the holders of Corporate Shares entitled to rights. "Deferred Investment Tax Credits" means those unamortized deferred investment tax credits (as defined in the Code) associated with the Transmission Assets that are reflected on the FERC Books of Account (with respect to any Member with an OATT) or regulatory books of account (with respect to all other Members) of the Member contributing such assets, as adjusted to the Operations Date or date of contribution of the Transmission Assets, if other than the Operations Date. "Deferred Taxes" means the income tax liability or benefit associated with the contributed Transmission Assets that are reflected on the FERC Books of Account (with respect to any Member with an OATT) or regulatory books of account (with respect to all other Members) of the Member contributing such Transmission Assets, as adjusted to the Operations Date or date of contribution of the Transmission Assets, if other than the Operations Date, that has been deferred as a result of the difference for regulatory accounting and tax purposes between depreciation or other plant-related items and reflects the historic tax rates in effect at the time that the difference arose. "Dispute Resolution Provisions" means those provisions for resolving disputes among the Members and the Company and Corporate Manager set forth as Exhibit B to this Agreement. --------- "Effective Date" means June 12, 2000, the date the Company's articles of organization were accepted for filing by the Wisconsin Department of Financial Institutions. "Effective Period" has the meaning provided in Section 8.5(a)(ii). "Electric Utility" means (i) a public utility as defined in Section 196.01 of the Wisconsin Statutes, that is involved in the generation, transmission, distribution or sale of electric energy, (ii) a municipal electric company organized under Section 66.073 of the Wisconsin Statutes, (iii) a wholesale electric cooperative as defined in Section 196.485(1)(k) of the Wisconsin Statutes, or (iv) a Retail Electric Cooperative. "Equity Accounting" means the accounting standard that allows a Member, subject to certain conditions, to report its investment in the Company on such Member's balance sheet and its allocable share of the Company's profits on such Member's income statement, as such standard is applied on the Effective Date. "Equity Value" means the equity of the Company attributable to Members other than Tax-Exempt Members, determined by reference to a balance sheet prepared in accordance with FERC Books of Account. For this purpose, the Tax-Exempt Investment Amount attributable to the Tax-Exempt Members shall be excluded. "ESE" means Edison Sault Electric Company, a Michigan corporation. "Event of Bankruptcy" as to any Person means the filing of a petition for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978 or similar provision of law of any jurisdiction (except if such petition is contested by such Person and has been dismissed within 90 days); insolvency or bankruptcy of such Person as finally determined by a court proceeding; filing by such Person of a petition or application to accomplish the same or for the appointment of a receiver or a trustee for such Person or a substantial part of its assets; commencement of any proceedings relating to such Person as a debtor under any other reorganization, arrangement, insolvency, adjustment of debt or liquidation law of any jurisdiction, whether now in existence or hereinafter in effect, either by such Person or by another, provided that if such proceeding is commenced by another, such Person indicates its approval of such proceeding, consents thereto or acquiesces therein, or such proceeding is contested by such Person and has not been finally dismissed within 90 days. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "FERC" means the Federal Energy Regulatory Commission, or its successor in interest. "FERC Books of Account" means those books of account pertaining to transmission that are required by FERC to be maintained by companies that have filed transmission tariffs with FERC. "GAAP" means United States generally accepted accounting principles consistently applied. "Indemnitee" means (i) any Person made a party to a proceeding by reason of its status as the Corporate Manager or a director, officer or employee of the Corporate Manager or the Company and (ii) such other Persons (including Affiliates of the Company or the Corporate Manager) as the Corporate Manager may designate from time to time, in its sole and absolute discretion. "Initial Financing" means the Company's initial debt financing contemplated in Section 3.10. "IPO" means the closing of an offering of Corporate Shares that has the effect of listing the Corporate Shares on the New York Stock Exchange, American Stock Exchange, NASDAQ, or any of their successors in interest. "Jurisdictional Area" means the geographic area that is currently served by the Mid-America Inter-connected Network, Inc., or the Mid-Continent Area Power Pool reliability council of the North American Electric Reliability Council. "Land Right" means any right in real property, including fee simple ownership easement, lease or other right, that has been acquired for a Transmission Facility that is located or intended to be located on the real property. "Load Ratio Share" means, with respect to any Person, such Person's firm electric usage in Wisconsin during 1999, as determined by dividing such Person's kWh sales shown in Schedule C ---------- by the total kWh sales in Wisconsin shown in Schedule C, ------------ converting the quotient to a percentage and carrying such percentage to two decimal places using standard rounding conventions. "Losses" has the meaning provided in Section 6.1(f). "Majority in Interest" means the affirmative vote or consent of Members holding Percentage Interests aggregating greater than 50%. "Member Interest" means an ownership interest in the Company held by a Member and includes any and all benefits to which the holder of such a Member Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. "Member Nonrecourse Debt Minimum Gain" means "partner nonrecourse debt minimum gain" as set forth in Regulations Section 1.704-2(i). A Member's share of Member Nonrecourse Debt Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(i)(5). "Member Unit" means a Member Interest in the Company having an initial value of $10. The number of Member Units owned by each Member shall be as set forth on Schedule A, as it may be ----------- amended from time to time. "Members" means the Persons identified on Schedule A from ---------- time to time and their successors and permitted assigns. "MG&E" means Madison Gas and Electric Company, a Wisconsin corporation. "MISO" means the Midwest Independent Transmission System Operator, Inc., the establishment of which FERC has conditionally authorized in an order issued on September 16, 1998, or any independent system operator or regional transmission organization that has been approved under federal law to succeed the MISO. "NASDAQ" means the Nasdaq National Market System. "Net Book Value" means the aggregate Capital Accounts of all the Members kept in accordance with Section 3.9, less, with respect to the Tax-Exempt Members, an amount equal to the excess, if any, of the Tax-Exempt Investment Amount over the Tax-Exempt Ownership Interest. "Net Contribution" shall have the meaning set forth in Section 3.8. "Non-Managing Member" means any Person named as a Member on Schedule A other than the Corporate Manager, and any Person who - ---------- becomes a Substitute or additional Non-Managing Member, in such Person's capacity as a Non-Managing Member in the Company. "Notice of Redemption" means the Notice of Exercise of Redemption Right substantially in the form attached as Exhibit A. ---------- "OATT" means Open Access Transmission Tariff. "Operations Date" means the date that the Company commences operations, as determined by the PSCW. "Percentage Interest" means the percentage interest of each Member in the Company, as determined by dividing the Member Units owned by such Member by the total number of Member Units then outstanding. "Person" means an individual, corporation, general or limited partnership, joint venture, trust, unincorporated association, limited liability company or any other legal or commercial entity. "Profits" has the meaning provided in Section 6.1(f). "PSCW" means the Public Service Commission of Wisconsin, or its successor in interest. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended. "Redeeming Member" has the meaning provided in Section 8.4(a). "Redemption Amount" means either the Cash Amount or the Corporate Shares Amount, as selected by the Corporate Manager pursuant to Section 8.4(b) hereof. "Redemption Right" has the meaning provided in Section 8.4(a). "Redemption Shares" has the meaning provided in Section 8.5(a). "Registrable Securities" means (i) any issued and outstanding Corporate Shares, and (ii) any Corporate Shares issued or issuable directly or indirectly with respect to the outstanding Corporate Shares by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular shares constituting Registrable Securities, such shares will cease to be Registrable Securities when they have been (x) effectively registered under the Securities Act and disposed of in accordance with a registration statement covering them or (y) sold to the public pursuant to Rule 144 (or by other similar provision under the Securities Act). "Registration Statement" has the meaning provided in Section 8.5(a). "Regulations" means the Income Tax Regulations promulgated under the Code, as such Regulations may be amended from time to time (including corresponding provisions of succeeding Regulations). "Reliability 2000 Legislation" means that portion of Wisconsin Act 9 (the 1999-2001 Biennial Budget Act) relating to public utility holding companies, electric power transmission, public benefits and other aspects of electric utility regulation. "Reserves" means the amount of cash determined from time to time by the Corporate Manager to be required by the Company for its operations, including the construction of additional Transmission Facilities. "Retail Electric Cooperative" means a cooperative organized under Chapter 185 of the Wisconsin Statutes that provides retail electric service to its members. "SBWGE" means South Beloit Water, Gas and Electric Company, an Illinois corporation. "Securities Act" means the Securities Act of 1933, as amended. "Service" means the Internal Revenue Service. "Specified Redemption Date" means the first business day of the month that is at least 60 calendar days after the receipt by the Corporate Manager of a Notice of Redemption. "Subscription Agreement" means either of the subscription agreements to be entered into between the Company and any Member that is not a Transmission Utility, which agreements provide for the contribution of cash in exchange for Member Units. "Substitute Members" means those Persons admitted as Members in accordance with Section 9.4. "Successor Entity" has the meaning provided in the definition of "Conversion Factor" contained herein. "Tax-Exempt Investment Amount" means, with respect to a Tax-Exempt Member, an amount determined as follows: TEOI x TEIP , where TEOI is the Tax-Exempt Ownership Interest and TEIP is the Tax-Exempt Investment Percentage. "Tax-Exempt Investment Percentage" means a percentage determined as follows: RIOUER% ------- IIOUER% , where RIOUER% is the Reduced IOU Equity Return Percentage and IIOUER% is the Increased IOU Equity Return Percentage. The Reduced IOU Equity Return Percentage means a percentage determined as follows: ER%-((ER% - ((ER% - AMORT/IOUCRB] ) x TEPI X EITR%)) x (1 -TEPI))/ IOUOI/IOUCRB , where ER% is equal to an equity return percentage calculated using the most recently approved FERC authorized equity return; AMORT is equal to the amount of Deferred Investment Tax Credit and excess deferred income taxes; EITR% is equal to the effective income tax rate applied to the Company by FERC; TEPI is equal to the aggregate Percentage Interests of all the Tax-Exempt Members; IOUOI is equal to the Equity Value attributable to Members other than Tax-Exempt Members; and IOUCRB is equal to the equity amount of the rate base contributed by, and allocable to, all Members other than Tax-Exempt Members. The Increased IOU Equity Return Percentage means a percentage determined as follows: (ER% - (ER% x TEPI x EITR%)) x TEPI , where ER%, EITR% and TEPI are defined above. "Tax-Exempt Member" means a Member whose share of income or loss of the Company is exempt from federal income taxation. "Tax Matters Member" has the meaning provided in Section 5.7. "Tax-Exempt Ownership Interest" means, with respect to a Tax-Exempt Member, an amount determined as follows: IOUOI x (?TEPI/ 1 - TEPI) , where IOUOI and TEP are defined above and ?TEPI is equal to the Percentage Interest of the Tax-Exempt Member in question. "Terminating Capital Transaction" means the sale, exchange or other disposition of all or substantially all of the assets of the Company, after which transaction the Company is dissolved and terminated. "Trading Day" means a day on which the principal national securities exchange on which a security is listed or admitted to trading is open for the transaction of business or, if a security is not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Transfer" has the meaning provided in Section 9.2. "Transmission Area" means the area of Wisconsin that, on January 1, 1997, was served by the Mid-America Interconnected Network, Inc. reliability council of the North American Electric Reliability Council. "Transmission Assets" means the Transmission Facilities and associated Land Rights. "Transmission-Dependent Utility" means an Electric Utility that is not a Transmission Utility and that is dependent on the transmission system of another Person for delivering electricity to the electric utility's customers. "Transmission Facility" means any pipe, pipeline, duct, wire, line, conduit, pole, tower, equipment or other structure used for the transmission of electric power that is contributed to or owned or leased by the Company. "Transmission Utility" means a cooperative organized under Chapter 185 of the Wisconsin Statutes or a public utility (as defined in Section 196.01 of the Wisconsin Statutes) that owns a Transmission Facility in Wisconsin and that provides transmission service in Wisconsin. "Value" means, with respect to any security, the average of the daily market price of such security for the ten consecutive Trading Days immediately preceding the date of such valuation. The market price for each such Trading Day shall be: (i) if such security is listed or admitted to trading on any securities exchange or the NASDAQ, the closing sale price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices, regular way, on such day, (ii) if such security is not listed or admitted to trading on any securities exchange or the NASDAQ, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the Company, or (iii) if such security is not listed or admitted to trading on any securities exchange or the NASDAQ and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten days prior to the date in question) for which prices have been so reported; provided that if there are no bid and asked prices reported during the ten days prior to the date in question, the value of the security shall be determined by the Corporate Manager acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate; and provided that the Value of a share of Class B Common Stock (as defined in the Charter) shall be deemed to be equal to the Value of a share of Class A Common Stock (as defined in the Charter). In the event the security includes any additional rights, then the value of such rights shall be determined by the Corporate Manager acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. "Voting Members" means the Corporate Manager and those Persons who, in accordance with Wisconsin Statutes Section 196.485(3)(c)(3), own a Class B Corporate Share of the Corporate Manager. "WEPCO" means Wisconsin Electric Power Company, a Wisconsin corporation. "WPL" means Wisconsin Power and Light Company, a Wisconsin corporation. "WPL LLC" means WPL Transco LLC, a Wisconsin limited liability company wholly owned by WPL. "WPPI" means Wisconsin Public Power Inc., a Wisconsin municipal electric company organized under Section 66.073 of the Wisconsin Statutes. "WPS" means Wisconsin Public Service Corporation, a Wisconsin corporation. "WPS LLC" means WPS Investments, LLC, a Wisconsin limited liability company wholly owned by WPS. ARTICLE II FORMATION OF COMPANY SECTION 2.1 Name, Office, Registered Agent and Continuance. ----------------------------------------------- (a) The name of the Company shall be AMERICAN TRANSMISSION COMPANY LLC. The Company's initial registered office is located at N16 W23217 Stone Ridge Drive, Waukesha, Wisconsin 53187, and its registered agent is Walter T. Woelfle, whose business office is identical with the Company's registered office. The Company's principal office and place of business is located at N16 W23217 Stone Ridge Drive, Waukesha, Wisconsin 53187, or such other places as the Corporate Manager may determine. (b) Prior to the Operations Date, the Company has been operated in accordance with the Act and with various Consents entered into by the Members from time to time. From and after the Operations Date, this Agreement shall supercede such Consents with respect to the operation of the Company, provided, however, that this Agreement shall not negate or overrule any approvals contained in such Consents, which shall be deemed ratified by Members' signatures to this Agreement. SECTION 2.2 Governing Law. -------------- This Agreement and all questions with respect to the rights and obligations of the Members, the construction, enforcement and interpretation hereof, and the formation, administration and termination of the Company shall be governed by the provisions of the Act and other applicable laws of the State of Wisconsin and the Federal Power Act. SECTION 2.3 Purpose. -------- (a) The sole purpose of the Company is the planning, constructing, operating, maintaining and expanding of Transmission Facilities to provide for an adequate and reliable transmission system that meets the needs of all users that are dependent on the transmission system, and that supports effective competition in energy markets without favoring any market participant, and to engage in any and all other activities incidental or appropriate thereto. (b) Subject to obtaining appropriate federal or state regulatory approvals and to the extent not inconsistent with the obligations set forth in Section 2.3(c), the Company may acquire, own, lease, construct and expand Transmission Assets in any jurisdiction and may conduct operations in any jurisdiction where it owns, operates, leases or otherwise acquires Transmission Assets. (c) The Company undertakes and acknowledges that it shall: (i) Apply for any approvals under federal law that are necessary for the Company to begin operations no later than January 1, 2001; (ii) Have the exclusive duty to provide transmission service in those areas where it owns or leases Transmission Assets, which service shall be under the authority of MISO when it shall begin operations, as determined by the PSCW; (iii) (A) contract with each Member that is a Transmission Utility to provide reasonable and cost-effective operation and maintenance services with respect to the Transmission Assets contributed by it for three years following the Operations Date; and (B) agree to an extension of such three-year period if the Company and the contracting Transmission Utility deem appropriate; (iv) Assume the obligations of a Transmission Utility under any agreement of such Transmission Utility to provide transmission service over its Transmission Facilities or credits for the use of Transmission Facilities, provided that the Company may modify any such agreement to the extent allowed under the agreement and to the extent allowed under state or federal law; (v) Apply for membership in MISO as a single zone for pricing purposes that includes the Transmission Area and, upon a determination by the PSCW that MISO has begun operations, transfer operational control of its Transmission Facilities to MISO and use reasonable efforts to ensure that the Transmission Facilities in the Transmission Area, the control of which are transferred to MISO, are planned, constructed, operated, maintained and controlled as part of a single transmission system; (vi) Remain a member of MISO for at least the six-year transition period that is specified in the agreement establishing MISO that was conditionally approved by FERC; (vii) Elect to be included in a single zone for the purpose of any tariff administered by MISO; provided, however, that if the transmission charges or rates of any Transmission Utility in the Transmission Area are 10% or more below the average transmission charges or rates of the Transmission Utilities in the Transmission Area on November 5, 1999, the Company shall, after consulting with each Transmission Utility, prepare a plan for phasing in a combined single zone rate for the purpose of pricing network use by users of the transmission system operated by MISO, and shall seek plan approval by FERC and MISO. Such plan shall phase in an average cost-price for the combined single zone in equal increments over a five-year period, except that transmission service shall be provided to all users of the transmission system on a single-zone basis during the phase-in period. SECTION 2.4 Powers. ------- The Company shall have all the powers incident and appropriate to the performance of its purposes as set forth in Section 2.3, and all other powers of limited liability companies under the Act. Without limiting the foregoing, the Company shall have all the powers of a transmission company under Chapter 196, and as appropriate, under analogous provisions of other states' laws where the Company is conducting business. SECTION 2.5 Restrictions. ------------- (a) The Company may not: (i) Sell or transfer its Transmission Assets located in the Transmission Area to, or merge such Transmission Assets with, another Person, unless (A) such Transmission Assets are sold, transferred or merged on an integrated basis and in a manner that ensures that the Company's Transmission Facilities in the Transmission Area are planned, constructed, operated, maintained and controlled as a single transmission system and (B) the successor agrees to be bound by the provisions of Section 2.7; (ii) Bypass the distribution facilities of an Electric Utility or provide service directly to a retail customer or member of a retail cooperative; (iii) Own electric generation facilities, or sell, market or broker electric capacity or energy in a relevant wholesale or retail market, or as determined by the PSCW, except that, if authorized or required by FERC, the Company may purchase or resell ancillary services obtained from third parties and engage in redispatch activities that are necessary to relieve transmission constraints or operate a control area. (b) Notwithstanding Section 2.3, the Company may not begin operations until it provides an opinion to PSCW from a nationally recognized investment banking firm that the Company is able to finance, at a reasonable cost, its start-up costs, working capital and operating expenses, and the cost of any new facilities that are planned. SECTION 2.6 Term. ----- (a) The Company shall have perpetual existence unless sooner dissolved or terminated as provided herein. Subject to any approvals required under state or federal law, the Company shall be dissolved upon the first to occur of the following events: (i) The determination by the Corporate Manager to dissolve and terminate the Company in accordance with Section 183.0901(1) of the Act; or (ii) The entry of a decree of judicial dissolution under Section 183.0902 of the Act. (b) The bankruptcy, insolvency, dissociation or dissolution of one or more of the Non-Managing Members shall not dissolve the Company. (c) Upon the dissolution of the Company for any reason, the Corporate Manager shall proceed promptly to wind up the affairs of and liquidate the Company. The Corporate Manager shall have reasonable discretion to determine the time, manner and terms of any sale or sales of the Company's property pursuant to such liquidation. SECTION 2.7 Adequacy. --------- (a) Subject to applicable regulatory approvals, including adherence to least-cost planning requirements and principles, and subject to the oversight and direction of MISO where applicable, the Company shall have a public utility duty to operate, maintain, plan and construct its transmission system so that the system is adequate: (i) (A) to support effective competition in energy markets without favoring any market participant; (B) to deliver on a reliable basis the reasonable, projected needs of all of the loads on the electric distribution systems connected to and dependent upon the Company's facilities for delivery of reliable, low-cost and competitively-priced electricity to such distribution systems; and (C) to provide needed support to the distribution systems interconnected to the Company's system, where a transmission addition is the least-cost electric solution to an improvement need, including but not limited to, the reliability needs of the distribution systems that are owned by the initial Non-Managing Members or their members. (ii) to receive energy from both existing and new generating facilities connected to and dependent upon the Company's transmission of such energy. (b) In meeting these obligations, the Company shall treat the needs of each electric distribution system interconnected to the Company's system, the electric loads on each system and interconnected generation facilities, in a non-discriminatory manner. The costs of additions to the Company's transmission system to meet this adequacy obligation shall not be directly assigned or charged to a distribution system, to end users or to generating facilities separately, except in circumstances where approved or required by the appropriate regulatory agency. SECTION 2.8 Operating Protocols. -------------------- (a) The Company has established certain operating protocols that have been incorporated into its OATT. (b) If the Company provides terms in any of its agreements with a Member that are more favorable to a Member than those granted to any other Member, all Members similarly situated (including any member of a Member) shall be entitled to such terms. A term is not more favorable if each Member is offered cost-based terms. (c) The Company has established certain other operating protocols that will become part of the Forming Party Agreement or other agreements as appropriate: Transmission Loss Calculations and Allocation, Transmission Reservation Queue, Transition of Operational Control (and sample agreements related thereto), Control Area Operations, Planning Memo on Project Prioritization, and Calculations of Available Transmission Capacity. ARTICLE III MEMBERS AND CAPITAL CONTRIBUTIONS SECTION 3.1 Members and Schedule A. ----------------------- (a) The name and address of each of the initial Members are listed on Schedule A. ----------- (b) The Company may, upon approval of the Board of Directors of the Corporate Manager, admit such additional Persons as Members after the Operations Date upon such terms and conditions as the Corporate Manager deems appropriate, provided, however, that with respect to the issuance of Member Units for cash, it shall first have complied with the provisions of Section 3.6, except to the extent contemplated in Section 3.2. (c) The Corporate Manager shall amend Schedule A upon the ----------- admission of additional Members and upon any adjustment in the Members' Capital Contributions, number of Member Units and Percentage Interests. SECTION 3.2 Initial Capital Contributions. ------------------------------ (a) Each of MG&E, WEPCO, WPL, ESE, SBWGE and WPS agrees to transfer to the Company, on or before the Operations Date, all Transmission Assets owned by it, all pursuant to separate Asset Contribution Agreements with the Company, which Agreements may provide for the issuance of Units directly to an Affiliate of the transferor. (b) The Corporate Manager agrees to purchase for $10 each the number of Units set forth in its Subscription Agreement. (c) WPPI and other Tax-Exempt Members shall each purchase that number of Member Units that would enable it to receive a Percentage Interest, upon completion of the Initial Financing and the distribution of proceeds therefrom, equal to its Load Ratio Share. The purchase price for each Unit shall equal the product of $10 and the Tax-Exempt Investment Percentage. (d) If a member of WPPI contributes Transmission Assets to the Company in accordance with Section 3.3, the Company shall notify WPS, and WPS will have the option, within 30 days of the date that such Transmission Assets are contributed, to purchase additional Member Units in the Company at a price equal to $10 per Member Unit so as to enable it to obtain a Percentage Interest in the Company equal to what it would have had had such WPPI members not been allowed to contribute such Transmission Assets. WPS's failure to purchase additional Member Units within the time specified shall terminate its rights pursuant to this Section 3.2(d). (e) The number of Units initially issued to each Member, the amount of each Member's Capital Contribution or Contribution Value, and the Percentage Interest of each Member is set forth by each Member's name on Schedule A. ----------- (f) The Members acknowledge that WPL and WEPCO have previously paid $1,000 to the capital of the Company, and the Company shall return such funds, without interest thereon, on the Operations Date. The Members further acknowledge that WPPI and the Corporate Manager have previously paid $1,000 to the capital of the Company, and the Company shall credit such amounts against the amounts otherwise payable by such Members. (g) The Members agree that the exact number of Member Units issued to each Member may not be determinable as of the Operations Date. Within 150 days after the Operations Date, the Company shall make such investigations and examine and audit such records as it deems necessary or appropriate in order to determine the definitive Contribution Value of the Transmission Assets, the corresponding Percentage Interests and the Tax-Exempt Investment Amount. Upon completion of such investigation and audit, the Company shall (i) provide Members with work papers and the results of such investigation and audit, and (ii) notify Members of the correct number of Member Units held by each Member, and the records of the Company shall be retroactively adjusted. Any disputes with respect to the correct allocation of Percentage Interests shall be resolved pursuant to the Dispute Resolution Provisions. SECTION 3.3 Additional Members by Right. ---------------------------- (a) A Transmission-Dependent Utility or transmission-dependent rural electric cooperative that has (i) made all required filings with federal and state regulatory authorities, and (ii) provided the Company with evidence of such Person's corporate (or comparable) authorization to acquire Member Units, in form and substance reasonably satisfactory to the Company, may purchase prior to January 1, 2001, a Percentage Interest in the Company that is no greater than such Person's Load Ratio Share. If such Person owns incidental Transmission Assets, it may contribute them in accordance with the last sentence of this Section 3.3(a), and pay cash prior to January 1, 2001, to acquire additional Member Units up to its Load Ratio Share. Notwithstanding the foregoing, if the members of a Transmission-Dependent Utility that is a municipal electric company have authorized it to invest cash based upon the Load Ratio Shares of its members, the members may not individually purchase interests based upon their Load Ratio Shares. However, any such member may contribute its incidental Transmission Assets in exchange for Member Units (on substantially similar terms to those set out in the Asset Contribution Agreement) prior to July 1, 2001, if it has, prior to January 1, 2001, (i) made all required filings with federal and state regulatory authorities, (ii) provided the Company with evidence of such Person's corporate (or comparable) authorization to convey Transmission Assets in exchange for Member Units, in form and substance reasonably satisfactory to the Company, and (iii) identified the Transmission Facilities and their Contribution Value. (b) If prior to January 1, 2001, any Electric Utility that owns more than incidental Transmission Facilities and provides transmission service (other than a public utility Affiliate or owner or operator of a wholesale merchant plant (as defined in Wisconsin Statutes Section 196.491(1)(w))) and that has (i) made all required filings with federal and state regulatory authorities, (ii) provided the Company with evidence of such Person's corporate (or comparable) authorization to convey Transmission Assets in exchange for Member Units, in form and substance reasonably satisfactory to the Company, and (iii) identified the Transmission Facilities and their Contribution Value, shall have the right to transfer, prior to July 1, 2001, all of its Transmission Assets located in the Jurisdictional Area and become a Member on the same terms and conditions as a contribution of Transmission Assets by a public utility Affiliate under the Asset Contribution Agreements and pursuant to Chapter 196.485(5)(b) and (c) of the Wisconsin Statutes. The retail distribution cooperative members of any such Electric Utility may likewise contribute their incidental Transmission Assets, but neither such Electric Utilities, nor their members will be permitted to purchase interests individually based upon their Load Ratio Shares. However, any such member may contribute its incidental Transmission Assets in exchange for Member Units in accordance with the last sentence of Section 3.3(a). (c) The value ascribed to any Transmission Assets contributed pursuant to this Section 3.3 shall be their Contribution Value. The purchase price for each Member Unit issued in exchange pursuant to this Section 3.3 shall equal $10; provided, however, that if the Transmission-Dependent Utility is a Tax-Exempt Member, the purchase price for each Member Unit shall equal the product of $10 and the Tax-Exempt Investment Percentage. The portion of the purchase price in excess of $10 per Unit may be payable by the contribution of Transmission Assets (if appropriate) or cash. SECTION 3.4 Pre-emptive Rights. ------------------- (a) Purchase of Right. (i) Any Member that has elected to receive distributions approximating 100% of its allocable share of Company Profits pursuant to Section 6.2(c) may, in such Member's sole discretion, contribute cash to the Company in an amount equal to the amount determined in 6.2(d) for additional Member Units. (ii) Until the IPO, any Transmission-Dependent Utility shall have the right to maintain its initial Percentage Interest by paying cash for additional Member Units upon the contribution of additional Transmission Assets located in the State of Wisconsin after the Operations Date. (b) Member Unit Price. (i) The price for Member Units issued pursuant to Section 3.4(a)(i) shall equal the price at which such Member's Member Units were redeemed. (ii) The price for Member Units issued pursuant to Section 3.4(a)(ii) shall equal the price at which the Company is then issuing Member Units to others that is causing the dilution; provided, however, that if the Transmission-Dependent Utility is a Tax-Exempt Member, it shall pay a price equal to the product of the price at which the Company is then issuing Member Units that is causing the dilution and the Tax-Exempt Investment Percentage, unless the price at which the Company is then issuing Member Units already includes the Tax-Exempt Investment Percentage, in which case the price to the Tax-Exempt Member shall equal the price at which the Company is then issuing Member Units. (c) Notice. Until the IPO, the Corporate Manager shall give prompt notice to each Tax-Exempt Member of any proposed contribution of Transmission Assets that would dilute a Tax-Exempt Member's interest and permit it to maintain its Percentage Interest in accordance with Section 3.4(a)(ii). If it desires to maintain its Percentage Interest, such Tax-Exempt Member shall, within 30 days thereafter, advise the Corporate Manager of its intention to purchase additional Member Units. (d) Payment of Purchase Price. Any additional Member Units purchased shall be paid for within 30 days following the contribution giving rise to such right to purchase additional Units, but not earlier than 60 days after notice to the Tax-Exempt Members as provided for in Section 3.4(c) hereof. Failure to purchase additional Member Units within the time specified shall terminate a Member's rights pursuant to this Section 3.4. Payment shall be made by wire transfer of clearing house funds, if so specified by the Company, and otherwise by check payable to the order of the Company. SECTION 3.5 Contribution of Additional Transmission Assets. ----------------------------------------------- (a) Under Construction. Certain Transmission Utilities have conveyed Transmission Assets under construction to the Company pursuant to the Asset Contribution Agreement. (i) The Company hereby undertakes to use its best commercial efforts to complete such projects in a timely manner following the Operations Date. (ii) If the contributing Member desires to complete any such project on behalf of the Company, the Company and the contributing Member agree to negotiate in good faith the terms and conditions upon which the project would be completed by the contributing Member. (b) Subsequent Contributions. Each Transmission Utility Member shall contribute or cause to be contributed to the Company any Transmission Assets under construction as of the Operations Date, but not contributed as of such date. The Transmission Assets shall be valued at their Contribution Value, and Member Units issued in exchange therefor at a price equal to the Company's Net Book Value per Member Unit as of the end of the calendar month preceding such conveyance. (c) Outside Wisconsin. Each Transmission Utility Member or Affiliate shall have the right, within one year after the Operations Date, to contribute to the Company Transmission Assets located in jurisdictions outside Wisconsin, provided that such Transmission Utility Member or Affiliate contributes all of its Transmission Assets in such other jurisdiction. The Transmission Assets shall be valued at their Contribution Value, and Member Units issued in exchange therefor at a price of $10 per Member Unit. As a condition to exercising such right, the contributing Member shall cause to be issued an opinion of counsel recognized as experts with respect to PUHCA (which may be counsel to the Company) that the contribution of such assets would not cause any of the Members to lose its exemption under PUHCA; provided, however, that this condition shall not be required following the effective date of any repeal of PUHCA. (d) Nature of Contribution. The parties intend that any contribution of Transmission Assets after the Operations Date with an unleveraged Contribution Value in excess of $3 million in any running 12-month period shall be credited as if it were subject to indebtedness in an amount equal to approximately 50% of the unleveraged Contribution Value of the Transmission Assets being contributed. To that end, the Company and the contributing Member shall endeavor to agree on an arrangement whereby either (i) the contributing Member incurs indebtedness and assigns such indebtedness to the Company, which shall assume such indebtedness, or (ii) the Company issues indebtedness and distributes, within 90 days thereafter, the proceeds to the contributing Member. The contributing Member shall be permitted to guarantee such indebtedness, but shall not receive any compensation therefor. (e) Dispute. Any dispute regarding Contribution Value shall be resolved pursuant to the Dispute Resolution Provisions. SECTION 3.6 Voluntary Additional Capital Contributions. ------------------------------------------- (a) No Member may be required at any time to contribute any additional amounts or assets to the Company in excess of that set forth in Section 3.2, 3.5(b) or 3.8. (b) If the Corporate Manager determines that additional equity capital is required for Company operations and activities, and shall determine not to effect an IPO at that time or otherwise obtain funding in accordance with the provisions of Section 3.7, the Corporate Manager shall issue a call notice to the Members advising them of the total funding that the Company seeks, each Member's pro rata share thereof (based upon its Percentage Interest), the price per Member Unit and the date upon which such voluntary contributions are to be payable, which shall be a date not less than 45 days subsequent to the date of such notice. (c) Each Member shall have the right, but not the obligation, to contribute its pro rata share for additional Member Units thereof by giving notice to the Company within 30 days following receipt of such call notice from the Corporate Manager. If fewer than all the Members agree to contribute their pro rata amounts, then the other Members that do contribute their pro rata amounts shall have the right to contribute such additional amounts for additional Member Units in accordance with their Percentage Interests (excluding the Percentage Interests of the non-participating Members). (d) Each Member shall make payment of its portion of the capital call on or before 11:00 a.m., central time, on the due date. Payment shall be made by wire transfer of clearing house funds, if so designated in the call notice, and otherwise by check payable to the order of the Company. (e) Except as provided in Section 3.4, 3.6(c) or Section 3.7, no Member shall have the right to make additional cash contributions to the Company after the Operations Date. SECTION 3.7 Issuance to Corporate Manager. ------------------------------ The Corporate Manager may contribute additional capital to the Company, from time to time, and receive additional Member Interests in respect thereof, in the manner contemplated in this Section 3.7. (a) Issuances of Additional Company Interests. (i) General. The Corporate Manager is hereby authorized to -------- cause the Company to issue such additional Member Interests in the form of Member Units for any Company purpose at any time or from time to time to the Members (including the Corporate Manager) for such consideration and on such terms and conditions as shall be established by the Corporate Manager in its sole and absolute discretion, all without the approval of any Members. Any additional Member Interests issued thereby may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to Member Interests, all as shall be determined by the Corporate Manager in its sole and absolute discretion and without the approval of any Member, including without limitation, (i) the allocations of items of Company income, gain, loss, deduction and credit to each such class or series of Member Interests; (ii) the right of each such class or series of Member Interests to share in Company distributions; and (iii) the rights of each such class or series of Member Interests upon dissolution and liquidation of the Company; provided, however, that no additional Member Interests shall --------- -------- be issued to the Corporate Manager unless: A. the additional Member Interests are issued in connection with an issuance of Corporate Shares of or other interests in the Corporate Manager, which shares or interests have designations, preferences and other rights, all such that the economic interests are substantially similar to the designations, preferences and other rights of the additional Member Interests issued to the Corporate Manager by the Company in accordance with this Section 3.7 and (B) the Corporate Manager shall make a Capital Contribution to the Company in an amount equal to the proceeds raised in connection with the issuance of such shares of stock of or other interests in the Corporate Manager; B. the additional Member Interests are issued in exchange for property owned by the Corporate Manager with a fair market value, as determined by the Corporate Manager, in good faith, equal to the value of the Member Interests; or C. additional Member Interests are issued to all Members in proportion to their respective Percentage Interests. Without limiting the foregoing, the Corporate Manager is expressly authorized to cause the Company to issue Member Units for less than fair market value, so long as the Corporate Manager concludes in good faith that such issuance is in the best interests of the Corporate Manager and the Company. (ii) Upon Issuance of Additional Securities. The Corporate -------------------------------------------- Manager shall not issue any additional Corporate Shares (other than Corporate Shares issued in connection with an exchange pursuant to Section 8.4 hereof) or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase Corporate Shares (collectively, "Additional Securities") other than to all holders of Corporate Shares, unless (A) the Corporate Manager shall cause the Company to issue to the Corporate Manager Member Interests or rights, options, warrants or convertible or exchangeable securities of the Company having designations, preferences and other rights, all such that the economic interests are substantially similar to those of the Additional Securities, and (B) the Corporate Manager contributes the proceeds from the issuance of such Additional Securities and from any exercise of rights contained in such Additional Securities to the Company. Without limiting the foregoing, the Corporate Manager is expressly authorized to issue Additional Securities for less than fair market value, and to cause the Company to issue to the Corporate Manager corresponding Member Interests, so long as (x) the Corporate Manager concludes in good faith that such issuance is in the best interests of the Corporate Manager and the Company, including without limitation, the issuance of Corporate Shares and corresponding Member Units pursuant to an employee share purchase plan providing for employee purchases of Corporate Shares at a discount from fair market value or employee stock options that have an exercise price that is less than the fair market value of the Corporate Shares, either at the time of issuance or at the time of exercise, and (y) the Corporate Manager contributes all proceeds from such issuance to the Company. For example, in the event the Corporate Manager issues Corporate Shares for a cash purchase price and contributes all of the proceeds of such issuance to the Company as required hereunder, the Corporate Manager shall be issued a number of additional Member Units equal to the product of (A) the number of such Corporate Shares issued by the Corporate Manager, the proceeds of which were so contributed, multiplied by (B) a fraction, the numerator of which is 100%, and the denominator of which is the Conversion Factor in effect on the date of such contribution. (b) Certain Contributions of Proceeds of Issuance of Corporate Shares. In connection with any and all issuances of Corporate Shares, the Corporate Manager shall make Capital Contributions to the Company of the proceeds therefrom, provided that if the proceeds actually received and contributed by the Corporate Manager are less than the gross proceeds of such issuance as a result of any underwriter's discount or other expenses paid or incurred in connection with such issuance, then the Corporate Manager shall make a Capital Contribution of such net proceeds to the Company but shall receive additional Member Units with a value equal to the aggregate amount of the gross proceeds of such issuance pursuant to Section 3.7(a) hereof. Upon any such Capital Contribution by the Corporate Member, the Corporate Manager's Capital Account shall be increased by the actual amount of its Capital Contribution pursuant to Section 3.9 hereof. (c) Redemption of Corporate Shares. In the event the Corporate Manager redeems any Corporate Shares, then the Corporate Manager shall cause the Company to purchase from the Corporate Manager a number of Member Units as determined based on the application of the Conversion Factor on the same terms that the Corporate Manager redeemed such Corporate Shares. Moreover, if the Corporate Manager makes a cash tender offer or other offer to acquire Corporate Shares, then the Corporate Manager shall cause the Company to make a corresponding offer to the Corporate Manager to acquire an equal number of Member Units held by the Corporate Manager. In the event any Corporate Shares are redeemed by the Corporate Manager pursuant to such offer, the Company shall redeem an equivalent number of the Corporate Manager's Member Units for an equivalent purchase price based on the application of the Conversion Factor. SECTION 3.8 Adjustment of Tax-Exempt Members' Capital. ------------------------------------------ (a) Whenever the Company changes the rate that it charges its customers or upon the occurrence of a Capital Event with respect to a Tax-Exempt Member, but at least annually by June 1 of each year, the Company shall calculate the Tax-Exempt Investment Amount for each Tax-Exempt Member, as well as such Tax-Exempt Member's aggregate Capital Contributions (including the Contribution Value of any Transmission Assets contributed by it and any amounts previously paid pursuant to this Section 3.8), reduced by any distributions pursuant to this Section 3.8 and the Tax-Exempt Ownership Interest corresponding to any reduction in the number of Member Units held by such Tax-Exempt Member ("Net Contribution"), and (i) If a Member's Net Contribution is less than its Tax-Exempt Investment Amount, the Member shall pay the difference to the Company within 30 days of such Notice. (ii) If a Member's Net Contribution exceeds its Tax-Exempt Investment Amount, the Company shall pay the difference to the Member within 30 days of such notice and prior to any other distributions pursuant to Section 6.2. (iii) The Company may set off any amounts owed to it by a Tax-Exempt Member against amounts otherwise distributable to it pursuant to Section 6.2. (b) The Company shall provide each Tax-Exempt Member with all necessary work papers used to compute the Tax-Exempt Investment Amount and Net Contribution of each Member. Such amounts shall be determined consistent with the terms of this Agreement, as illustrated in Schedule B. The Tax-Exempt Investment Amount for ----------- each Tax-Exempt Member shall be determined by multiplying each Member's Tax-Exempt Ownership Interest by the Tax-Exempt Investment Percentage. (c) If a Tax-Exempt Member does not make a payment required of it in accordance with this Section, and arrangements are not made with respect to the set-off of such amounts due, the Company shall reduce the Percentage Interest of the Tax-Exempt Member to reflect its Net Contribution. SECTION 3.9 Capital Accounts. ----------------- (a) A separate capital account (a "Capital Account") shall be established and maintained for each Member in accordance with Regulations Section 1.704-1(b)(2)(iv). Without limiting the foregoing, Capital Accounts shall be maintained in accordance with the following provisions: (i) to each Member's Capital Account there shall be credited such Member's cash Capital Contributions, the Contribution Value of any Transmission Assets contributed by it, such Member's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Section 6.1(b), (c) or (d) hereof, and the amount of any Company liabilities assumed by such Member or which are secured by any Company asset distributed to such Member, (ii) to each Member's Capital Account there shall be debited the amount of cash and the fair market value as determined by the Corporate Manager, of any Company asset distributed to such Member pursuant to any provision of this Agreement, such Member's distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Section 6.1(b), (c) or (d) hereof, and the amount of any liabilities of such Member assumed by the Company or that are secured by any asset contributed by such Member to the Company. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations, and any dispute among the Company and the Members shall be resolved pursuant to the Dispute Resolution Provisions. (b) When a new or existing Member acquires an additional Membership Interest, the Corporate Manager shall determine the potential "Adjustment in Value" by multiplying the Company's unrealized gain or loss (calculated by multiplying (x) the difference between (A) the Net Book Value and (B) the implied value of the Company, based upon the price per Member Unit of Member Units issued in exchange for such additional Membership Interest times the total number of Member Units outstanding, by (y) the difference between the contributing Member's new Percentage Interest and its previous Percentage Interest, if any). (i) If a new or existing Member acquires an additional Membership Interest, and (A) the resulting potential Adjustment in Value exceeds 3% of the Net Book Value, or (B) if the aggregate Adjustment in Value measured from the time of the most recent adjustment exceeds 3% of the Net Book Value, the Corporate Manager shall revalue the property of the Company to its fair market value (as determined by the Corporate Manager, and taking into account Code Section 7701(g)) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). (ii) If (A) a new or existing Member acquires an additional Membership Interest in exchange for more than a de minimis ---------- Capital Contribution that is not covered by 3.9(b)(i), (B) the Company distributes to a Member more than a de -- minimis amount of Company property as consideration for a ------- the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), the Corporate Manager may, in its sole and absolute discretion, revalue the property of the Company to its fair market value (as determined by the Corporate Manager, in its sole and absolute discretion, and taking into account Code Section 7701(g)) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). (iii) When the Company's property is revalued by the Corporate Manager, the Capital Accounts of the Members shall be adjusted in accordance with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital Accounts to be adjusted to reflect the manner in which the unrealized gain or loss inherent in such property (that has not been reflected in the Capital Accounts previously) would be allocated among the Members pursuant to Section 6.1 if there were a taxable disposition of such property for its fair market value (as determined by the Corporate Manager, in its sole and absolute discretion, and taking into account Code Section 7701(g)) on the date of the revaluation. SECTION 3.10 Initial Debt Financing. ------------------------ (a) The Company shall use its best efforts to issue, within 90 days following the Operations Date, long-term debt in an amount equal to approximately 50% of its total initial capitalization. (b) Within 90 days of the closing of such financing, the net proceeds of such financing shall be distributed to the Members that contributed Transmission Assets in accordance with their respective Percentage Interests, exclusive of the Percentage Interests held by Members that did not contribute Transmission Assets, and the Corporate Manager shall redeem Member Units with such proceeds and shall revise Schedule A to reflect such ----------- distribution. Member Units redeemed shall be valued at the initial value, as set forth in the definition of Member Unit. SECTION 3.11 No Interest. ------------ No interest shall be paid on Capital Contributions or on the balance in each Member's Capital Account. SECTION 3.12 No Third Party Beneficiary. ---------------------------- No creditor or other third party having dealings with the Company shall have the right to enforce the right or obligation of any Member to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Members herein set forth to make Capital Contributions shall be deemed an asset of the Company for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Company or pledged or encumbered by the Company to secure any debt or other obligation of the Company or of any of the Members. In addition, it is the intent of the parties hereto that no distribution to any Member shall be deemed a return of money or other property in violation of the Act. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to return such money or property, such obligation shall be the obligation of such Member and not of the Corporate Manager. Without limiting the generality of the foregoing, a deficit Capital Account of a Member shall not be deemed to be a liability of such Member or an asset or property of the Company. SECTION 3.13 Membership Units as Securities. ------------------------------- Membership Units will not be evidenced by certificates, writings, instruments or other documents. Membership Units shall be deemed to be "securities" as that term is defined in Article 8. The creation and perfection of a security interest in Membership Units will be governed by Article 8. SECTION 3.14 Month-End Convention. ---------------------- For purposes of this Agreement, all Capital Contributions, other than the initial Capital Contributions, shall be deemed to be received at the end of the month in which they actually are received by the Company. ARTICLE IV RIGHTS, OBLIGATIONS AND POWERS OF THE CORPORATE MANAGER SECTION 4.1 Management of the Company. -------------------------- (a) Except as otherwise expressly provided in this Agreement, the Corporate Manager shall have full, complete and exclusive discretion to manage and control the business of the Company for the purposes herein stated, and shall make all decisions affecting the business and assets of the Company. Subject to the restrictions specifically contained in this Agreement, the powers of the Corporate Manager shall include, without limitation, the authority to take all actions on behalf of the Company as provided in Section 2.4 and to take such other action, execute, acknowledge, swear to or deliver such other documents and instruments, and perform any and all other acts that the Corporate Manager deems necessary or appropriate for the formation, continuation and conduct of the business and affairs of the Company. The Corporate Manager shall have all powers as a manager under the Act to do all things necessary and convenient to carry out the Company's business to the fullest extent provided by the Act. (b) Except as otherwise provided herein, to the extent the duties of the Corporate Manager require expenditures of funds to be paid to third parties, the Corporate Manager shall not have any obligations hereunder except to the extent that Company funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to authorize or require the Corporate Manager, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Company. SECTION 4.2 Authority of Corporate Manager. ------------------------------- Subject to applicable regulatory approvals, the Corporate Manager may appoint, employ, contract or otherwise deal with any Person for the transaction of the business of the Company, which Person may, under supervision of the Corporate Manager, perform any acts or services for the Company as the Corporate Manager may approve. Without limiting the foregoing, the Corporate Manager is specifically authorized to execute on behalf of the Company various agreements with the Members, including Closing Escrow Agreements, Asset Contribution Agreements, Subscription Agreements, Attachment Agreements, Service Agreements for Network Integration Transmission Service, Operation and Maintenance Agreements, Transitional Services Agreements, Network Operating Agreements, Bills of Sale, Bill of Sale and Right of Repurchase, Generation-Transmission Interconnection Agreements, Transmission-Distribution Interconnection Agreements, and any other agreements relating to the acquisition, ownership, operation and maintenance of the Transmission Assets, and any amendments thereto as the Corporate Manager deems appropriate. SECTION 4.3 Indemnification and Exculpation of Indemnitees. ----------------------------------------------- (a) The Company shall indemnify an Indemnitee from and against any and all expenses (including fees, costs charges, disbursements, attorneys fees and any other expenses incurred in connection with a proceeding) and liabilities (including any obligation to pay a judgment, settlement, penalty, assessment, forfeiture or fine, including an excise tax assessed with respect to an employee benefit plan, and reasonable expenses) arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Company in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established that: (i) the Indemnitee failed to deal fairly with the Company or its Members in connection with a matter in which the Indemnitee has a material conflict of interest; (ii) the Indemnitee violated criminal law, unless the Indemnitee had reasonable cause to believe that its conduct was lawful or had no reasonable cause to believe that the conduct was unlawful; (iii) the matter relates to a transaction from which the Indemnitee derived an improper personal profit; or (iv) the Indemnitee engaged in willful misconduct. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 4.3(a). The termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the Indemnitee acted in a manner contrary to that specified in this Section 4.3(a). Any indemnification pursuant to this Section 4.3(a) shall be made only out of the assets of the Company. (b) The Company may reimburse an Indemnitee for reasonable expenses incurred by an Indemnitee who is a party to a proceeding in advance of the final disposition of the proceeding upon receipt by the Company of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Company as authorized in this Section 4.3 has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. (c) The indemnification provided by this Section 4.3 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Members, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity. (d) The Company may purchase and maintain insurance, on behalf of the Indemnitees and such other Persons as the Corporate Manager shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Company's activities, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement. (e) For purposes of this Section 4.3, the Company shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Company or the Corporate Manager also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of this Section 4.3; and actions taken or omitted by the Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose that is not opposed to the best interests of the Company. (f) In no event may an Indemnitee subject the Non-Managing Members to personal liability by reason of the indemnification provisions set forth in this Agreement. (g) An Indemnitee shall not be denied indemnification in whole or in part under this Section 4.3 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. (h) The provisions of this Section 4.3 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. (i) Any amendment, modification or repeal of this Section 4.3 or any provision hereof shall be prospective only and shall not in any way affect the indemnification of an Indemnitee by the Company under this Section 4.3 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or be asserted. SECTION 4.4 Liability of the Corporate Manager. ----------------------------------- (a) Notwithstanding anything to the contrary set forth in this Agreement, the Corporate Manager shall not be liable for monetary damages to the Company or any Members for losses sustained or liabilities incurred as a result of actions or omissions consistent with the standard to which directors of a Wisconsin corporation are held. The Corporate Manager shall not be in breach of any duty that the Corporate Manager may owe to the Non-Managing Members or the Company or any other Persons under this Agreement or of any duty stated or implied by law or equity provided the Corporate Manager, acting in good faith, abides by the terms of this Agreement. (b) The Non-Managing Members expressly acknowledge that the Corporate Manager is acting on behalf of the Company and the Corporate Manager's shareholders collectively, that the Corporate Manager is under no obligation to consider the separate interests of the Non-Managing Members (including, without limitation, the tax consequences to Non-Managing Members or the tax consequences of some, but not all, of the Non-Managing Members) in deciding whether to cause the Company to take (or decline to take) any actions. In the event of a conflict between the interests of the shareholders of the Corporate Manager on one hand and the Non-Managing Members on the other, the Corporate Manager shall endeavor in good faith to resolve the conflict. The Corporate Manager shall not be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by Non-Managing Members in connection with such decisions, provided that the Corporate Manager has acted in good faith. (c) Subject to its obligations and duties as Corporate Manager set forth in Section 4.1 hereof, the Corporate Manager may exercise any of the powers granted to it under this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The Corporate Manager shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith. (d) Notwithstanding any other provisions of this Agreement or the Act, any action of the Corporate Manager on behalf of the Company or any decision of the Corporate Manager to refrain from acting on behalf of the Company, undertaken in the good faith belief that such action or omission is necessary or advisable in order to protect the ability of the Company to continue to be classified as a partnership for federal, state and local income tax purposes, is expressly authorized under this Agreement and is deemed approved by all of the Non-Managing Members. (e) Any amendment, modification or repeal of this Section 4.4 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Corporate Manager's liability to the Company and the Non-Managing Members under this Section 4.4 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when claims relating to such matters may arise or be asserted. SECTION 4.5 Corporate Expenses and Administrative Expenses. ----------------------------------------------- (a) Except as provided in this Section 4.5 and elsewhere in this Agreement (including the provisions of Article VI regarding distributions, payments and allocations to which it may be entitled), the Corporate Manager shall not be compensated for its services as Corporate Manager of the Company. (b) Subject to Section 4.6, all Corporate Expenses and Administrative Expenses shall be obligations of the Company, and the Corporate Manager shall be entitled to reimbursement by the Company for any expenditure (including Corporate Expenses and Administrative Expenses) incurred by it on behalf of the Company that shall be made other than out of the funds of the Company. SECTION 4.6 Outside Activities. -------------------- The Corporate Manager's activities shall be limited to serving as Corporate Manager of the Company and its Subsidiaries. SECTION 4.7 Title to Company Assets. ------------------------ Except to the extent that the Corporate Manager may possess a nominal fractional undivided interest in the Transmission Assets, title to Company assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Company as an entity, and no Member, individually or collectively, shall have any ownership interest in such Company assets or any portion thereof. Title to any or all of the Company assets may be acquired and held in the name of the Company or for the account of the Company, by the Corporate Manager or one or more nominees, as the Corporate Manager may determine. The Corporate Manager hereby declares and warrants that any Company assets for which legal title is held in the name of the Corporate Manager or any nominee or Affiliate of the Corporate Manager shall be property of the Company under Section 183.0701 of the Act and shall be held by the Corporate Manager for the exclusive use and benefit of the Company in accordance with the provisions of this Agreement. All Company assets shall be recorded as the property of the Company in its books and records, irrespective of the names in which legal title to such Company assets are held. ARTICLE V ACCOUNTING, TAX AND FISCAL MATTERS SECTION 5.1 Fiscal and Taxable Year. ------------------------ The Company hereby adopts the calendar year, January 1 through and including December 31, as its fiscal and tax year, except as otherwise may be required by Code Section 706. SECTION 5.2 Books. ------ The books and records of the Company shall be kept in accordance with usual and customary accounting practices on the accrual method and in accordance with GAAP, FERC's Uniform System of Accounts, and applicable tax requirements. SECTION 5.3 Records. -------- (a) The Company shall keep at its principal place of business all of the following: (i) A list, kept in alphabetical order, of each past and present Member and manager. The list shall include the full name and last-known mailing address of each Member or manager, the date on which the person became a Member or manager and the date, if applicable, on which the Person ceased to be a Member or manager. (ii) A copy of the Company's articles of organization and all amendments to the articles. (iii) Copies of the Company's federal, state and local income or franchise tax returns and financial statements, if any, for the four most recent years or, if such returns and statements are not prepared for any reason, copies of the information and statements provided to, or which should have been provided to, the Members to enable them to prepare their federal, state and local income tax returns for the four most recent years. (iv) Copies of this Agreement, all amendments hereto and any operating agreements no longer in effect. (b) Upon reasonable request, a Member may, at the Member's own expense, inspect and copy during ordinary business hours (i) any Company record required to be kept under Section 5.3(a); and (ii) Company work papers pertaining to the determination of the (A) number of Member Units to be issued to each Member as of the Operations Date, and (B) Tax-Exempt Investment Amount. (c) The Corporate Manager shall provide, to the extent that the circumstances render it just and reasonable, true and full information of all things affecting the Members, including any records relating to the Transmission Assets contributed by such Member, to any Member or to the legal representative of any Member upon reasonable request of the Member or the legal representative. (d) The failure of the Company to keep or maintain any of the records or information required under this Section shall not be grounds for imposing liability on any Person for the debts and obligations of the Company. SECTION 5.4 Company Funds. -------------- The funds of the Company shall be kept in the name of the Company in one or more separate bank accounts with banks or trust companies as selected by the Corporate Manager. Withdrawals from such bank accounts shall be made only by Persons approved by the Corporate Manager. SECTION 5.5 Tax Returns. ------------- (a) The Corporate Manager shall cause the Company to timely file all Company income tax returns required to be filed by the jurisdictions in which the Company conducts business or derives income. By June 30 of each year, the Corporate Manager shall cause to be furnished to each Person who was a Member during the prior fiscal year all available information necessary for inclusion in such person's income tax returns for such year. (b) Within 45 days following the end of each fiscal quarter, the Corporate Manager shall cause to be forwarded to each Person who was a Member during such quarter, a statement setting forth such Member's share of taxable income for such quarter, it being understood that all such numbers shall be estimates and subject to year-end adjustment, and the Corporate Manager shall have no liability with respect to such numbers as long as they were provided in good faith. SECTION 5.6 Tax Elections. -------------- (a) The Members intend that the Company be treated as a partnership for U.S. federal income tax purposes. Absent the unanimous vote of the Non-Managing Members, no election shall be made by the Company or any Member for the Company to be treated as a corporation, or an association taxable as a corporation, under the Code or any provisions of any state or local laws. (b) Subject to Section 5.6(a), the Corporate Manager shall have the right, in its sole discretion but after consultation with the Members affected thereby, at any time to make or not to make elections for income tax purposes that are authorized or permitted by any law or regulation (including Code Section 754). SECTION 5.7 Tax Matters, Tax Elections and Special Basis --------------------------------------------------- Adjustments. - ------------ ATC Management Inc. shall be the initial tax matters member (the "Tax Matters Member") of the Company within the meaning of Code Section 6231. The Tax Matters Member shall have the right and obligation to take all actions authorized and required, respectively, by the Code for the Tax Matters Member, and shall manage any administrative tax proceedings conducted at the Company level by the Internal Revenue Service with respect to Company matters. All expenses and fees incurred by the Tax Matters Member on behalf of the Company not otherwise reimbursed shall constitute Corporate Expenses. Subject to the provisions of Section 5.6, all other elections required or permitted to be made by the Company under the Code may be made by the Tax Matters Member in accordance with any tax agreement among the Members or in the absence of such agreement, in such manner as determined by the Tax Matters Member, in the exercise of its reasonable discretion, and permitted by the provisions of the Code. SECTION 5.8 Access to Records. ------------------- Each Member agrees to provide the Company with reasonable access to such Member's books and records as they pertain to the Transmission Assets contributed by such Member. ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS SECTION 6.1 Allocations. ------------ (a) Profit and Loss. Profit and Loss of the Company of each ------------------ fiscal year of the Company shall be allocated to the Members in accordance with their respective Percentage Interests. (b) Minimum Gain Chargeback. Notwithstanding any provision to ------------------------- the contrary, (i) any expense of the Company that is a "nonrecourse deduction" within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in accordance with the Members' respective Percentage Interests, (ii) any expense of the Company that is a "partner nonrecourse deduction" within the meaning of Regulations Section 1.704-2(i)(2) shall be allocated to the Member that bears the "economic risk of loss" of such deduction in accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in Company Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1) for any Company taxable year, then, subject to the exceptions set forth in Regulations Section 1.704-2(f)(2),(3), (4) and (5), items of gain and income shall be allocated among the Members in accordance with Regulations Section 1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is a net decrease in Member Nonrecourse Debt Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any Company taxable year, then, subject to the exceptions set forth in Regulations Section 1.704(2)(g), items of gain and income shall be allocated among the Members in accordance with Regulations Section 1.704-2(i)(4) and the ordering rules contained in Regulations Section 1.704-2(j). A Member's "interest in partnership profits" for purposes of determining its share of the nonrecourse liabilities of the Company within the meaning of Regulations Section 1.752-3(a)(3) shall be such Member's Percentage Interest. (c) Qualified Income Offset. If a Member receives in any -------------------------- taxable year an adjustment, allocation or distribution described in subparagraphs (4), (5) or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or increases a deficit balance in such Member's Capital Account that exceeds the sum of such Member's shares of Company Minimum Gain and Member Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations Sections 1.704-2(g) and 1.704-2(i), such Member shall be allocated specially for such taxable year (and, if necessary, later taxable years) items of income and gain in an amount and manner sufficient to eliminate such deficit Capital Account balance as quickly as possible as provided in Regulations Section 1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a Member in accordance with this Section 6.1(c), to the extent permitted by Regulations Section 1.704-1(b), items of expense or loss shall be allocated to such Member in an amount necessary to offset the income or gain previously allocated to such Member under this Section 6.1(c). (d) Capital Account Deficits. Loss shall not be allocated to a --------------------------- Member to the extent that such allocation would cause a deficit in such Member's Capital Account (after reduction to reflect the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Member's shares of Company Minimum Gain and Member Nonrecourse Debt Minimum Gain. Any Loss in excess of that limitation shall be allocated to the other Members in accordance with their respective Percentage Interests. After the occurrence of an allocation of Loss to a Member in accordance with this Section 6.1(d), to the extent permitted by Regulations Section 1.704-1(b), Profit shall be allocated to such Member in an amount necessary to offset the Loss previously allocated to each Member under this Section 6.1(d). (e) Varying Interests. If a Member transfers any part or all of ------------------- its Membership Interest during a fiscal year of the Company, the distributive shares of the various items of Profit and Loss allocable among the Members during such fiscal year shall be allocated between the transferor and the transferee Member either (i) as if the Company's fiscal year had ended on the date of the transfer or (ii) based on the number of days of such fiscal year that each was a Member. If the Members' Percentage Interests are adjusted during a fiscal year of the Company, the Profits and Losses for such fiscal year shall be allocated between the part of the year ending on the day when the adjustment occurs and the part of the year beginning on the following day either (i) as if the taxable year had ended on the date of the adjustment or (ii) based on the number of days in each part. The allocation of Profits and Losses for the earlier part of the year shall be based on the Percentage Interests before adjustment, and the allocation of Profits and Losses for the later part shall be based on the adjusted Percentage Interests. The Corporate Manager, in its sole and absolute discretion, shall determine which method shall be used to allocate the distributive shares of the various items of Profit and Loss. (f) Definition of Profit and Loss. "Profit" and "Loss" and any ------------------------------- items of income, gain, expense or loss referred to in this Agreement shall mean the Company's book income or loss, as determined in accordance with FERC Books of Accounts and consistent with the principles of maintaining Capital Accounts in accordance with Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss shall not include items of income, gain and expense that are specially allocated pursuant to Sections 6.1(b), 6.1(c) or 6.1(d). All allocations of income, profit, gain, loss and expense (and all items contained therein) for federal income tax purposes shall be identical to all allocations of such items set forth in this Section 6.1, except as otherwise required by Code Section 704(c) and Regulations Section 1.704-1(b)(4). The Corporate Manager, in consultation with the Members, shall elect the initial methods for allocating items of income, gain and expense as required by Code Section 704(c) with respect to the properties acquired by the Company pursuant to the Asset Contribution Agreements. With respect to (i) other properties acquired by the Company and (ii) any amounts required to be taken into account using Code Section 704(c) principles due to a revaluation of Company assets pursuant to Section 3.9(b), the Corporate Manager shall have the authority, as provided in Section 5.6, to elect the method to be used by the Company for allocating items of income, gain and expense as required by Code Section 704(c) with respect to such properties, and such election shall be binding on all Members. SECTION 6.2 Cash Available for Distribution. -------------------------------- (a) Distributions of Cash Available for Distribution to the Members shall be made in accordance with their respective Percentage Interests and at such times and in such amounts as the Corporate Manager shall determine. (i) The Corporate Manager hereby declares its intention, subject to the requirements of the Act, to distribute Cash Available for Distribution to the Members on a quarterly basis in an amount approximating 80% of the Company's Profits for such quarter. (ii) Until the IPO, the record date for a distribution shall be at the end of a quarter of a fiscal year of the Company, and the payment date within 15 days thereafter. Upon an IPO, the Corporate Manager shall set such record dates and payment dates as may be required or appropriate, consistent with the distribution of cash on a quarterly basis. (b) Any Member that loses the right to use Equity Accounting may, prior to October 1 of any year, notify the Corporate Manager that such Member has elected to receive a distribution of Cash Available for Distribution equal to 100% of its allocable share of the Company's Profits for that year. Any Member may provide the Corporate Manager with standing instructions to that effect that shall prevail unless and until revoked by such Member. (c) For any year during which a Member's election pursuant to Section 6.2(b) is in effect, the Corporate Manager will, subject to the requirements of the Act and Section 6.2(f), distribute Cash Available for Distribution to such Member during that year in an amount approximating 100% of such Member's allocable share of Profits for the year. (d) Any amounts received by a Member pursuant to Section 6.2(c) that are in excess of amounts distributed pursuant to Section 6.2(a) shall be applied in redemption of all or a portion of the Member Units held by such Member, effective as of the end of the preceding calendar quarter. For purposes of this Section 6.2(d), each Member Unit shall be valued based upon the aggregate Net Book Value as of the end of the preceding calendar quarter, divided by the number of Member Units outstanding as of the end of the preceding calendar quarter. (e) The Members acknowledge that the Corporate Manager's estimate of quarterly Profits of the Company may not be precise, and consequently, recognize the right and obligation of the Corporate Manager to make an adjusting distribution annually once the Company's audited financial statements have been prepared. (f) If the Company has insufficient Cash Available for Distribution to pay all amounts pursuant to Section 6.2(a) and Section 6.2(c), it shall pay amounts pursuant to Section 6.2(a) before paying any amounts pursuant to Section 6.2(c). The Company shall use its best efforts to pay amounts pursuant to Section 6.2(c), but shall not be obligated to borrow funds to enable it to do so. The Company shall pay such amounts as soon as it is able to do so, subject to the prior obligation to make distributions pursuant to Section 6.2(a). (g) If a new or existing Member acquires an additional Membership Interest in exchange for a Capital Contribution on any date other than the record date for a Company distribution (the "Company Record Date"), the cash distribution attributable to such additional Membership Interest relating to the Company Record Date next following the issuance of such additional Membership Interest shall be reduced in the proportion to (i) the number of days that such additional Membership Interest is not held by such Member bears to (ii) the number of days between such Company Record Date and the immediately preceding Company Record Date. (h) In no event may a Member receive a distribution of cash with respect to a Member Unit if such Member is entitled to receive a cash dividend as the holder of record of a Company Share for which all or part of such Member Unit has been or will be redeemed. SECTION 6.3 No Right to Distributions in Kind. ----------------------------------- No Member shall be entitled to demand property other than cash in connection with any distributions by the Company. No Member shall be entitled to withdraw from the Company in accordance with Section 183.0802(3)(a) of the Act, and except as provided in Section 6.2(c), no Member shall be entitled to obtain the return of any part of its Capital Contribution in the Company. SECTION 6.4 Limitations on Distributions. ----------------------------- Notwithstanding any of the provisions of this Article VI, no Member shall have the right to receive from the Company, and the Company shall not have the right to make, a distribution to any Member, if after giving effect to the distribution, any of the following would occur: (a) The Company would be unable to pay its debts as they become due in the usual course of business; or (b) The fair value of the Company's total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the Company were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of Members, if any, whose preferential rights are superior to those of the Members receiving the distribution. SECTION 6.5 Distributions Upon Liquidation. ------------------------------- Upon liquidation of the Company in connection with a Terminating Capital Transaction or otherwise, after payment of, or adequate provision for, debts and obligations of the Company, any remaining assets of the Company shall be distributed to the Members in the following order of priority: (a) First, toward satisfaction of all outstanding debts and other obligations of the Company; (b) Second, to return to each Tax-Exempt Member the difference, if any, between its Tax-Exempt Investment Amount and its Tax-Exempt Ownership Interest; and (c) Third, the balance, if any, to the Members with positive Capital Accounts in accordance with, and proportional to, their respective positive Capital Account balances. For purposes of this Section 6.5, the Capital Account of each Member shall be determined after the following adjustments: (i) all adjustments made in accordance with Sections 6.1 and 6.2 resulting from Company operations and from all sales and dispositions of all or any part of the Company's assets, (ii) the distribution to Tax-Exempt Members as provided in Section 6.5(b), and (iii) allocating to the Corporate Manager an amount equal to the excess of (A) the value of the Member Units it received in exchange for Capital Contributions of the proceeds of an issuance of Company Shares over (B) the actual amount of its Capital Contributions (i.e., as a result of any underwriters' discount or other expenses paid or incurred in connection with such issuance). Any distributions pursuant to this Section 6.5 shall be made by the end of the Company's taxable year in which the liquidation occurs (or, if later, within 90 days after the date of the liquidation). To the extent deemed advisable by the Corporate Manager, appropriate arrangements (including the use of a liquidating trust) may be made to assure that adequate funds are available to pay any contingent debts or obligations. The distributions set forth in this Section 6.5 are intended to comply with the requirement of Regulations Section 1.704-1(b)(2)(ii)(b)(2) that liquidating distributions be made in accordance with positive Capital Accounts. It is intended that such distributions will result in the Members receiving aggregate distributions equal to the amount of distributions that would have been received if the liquidating distributions were made pursuant to Section 6.2. However, if the balances in the Capital Accounts do not result in such intention being satisfied, items of income, gain, loss, deduction and credit will be reallocated among the Members for the fiscal year of the liquidation so as to cause the balances in the Capital Accounts to be, to the extent possible, in the amounts necessary so that such result is achieved. SECTION 6.6 Substantial Economic Effect. ---------------------------- It is the intent of the Members that the allocations of Profit and Loss under the Agreement have substantial economic effect within the meaning of Code Section 704(b) as interpreted by the Regulations promulgated pursuant thereto. Article VI and other relevant provisions of this Agreement shall be interpreted in a manner consistent with such intent. SECTION 6.7 Quarter-End Convention. ----------------------- For purposes of this Agreement, all distributions (other than a distribution in complete redemption of a Member's Member Interest) shall be deemed to be made at the end of the quarter to which they relate; provided, however, that the proceeds from any debt financing shall be deemed to be made at the end of the month to which they relate. ARTICLE VII CHANGES IN CORPORATE MANAGER SECTION 7.1 Transfer of the Corporate Manager's Member ------------------------------------------------- Interest. - --------- (a) The Corporate Manager shall not transfer all or any portion of its Member Interest or withdraw as Corporate Manager except as provided in or in connection with a transaction contemplated by Section 7.1(b). (b) Except as otherwise provided in Section 7.1(c) hereof, the Corporate Manager shall not engage in any merger, consolidation or other combination with or into another Person or sale of all or substantially all of its assets, in each case which results in a change of control of the Corporate Manager (a "Transaction"), unless: (i) With respect to a Transaction during the first three years following the Operations Date, the consent of all the Non-Managing Members that are Voting Members is obtained, and with respect to a Transaction occurring subsequent to the third anniversary of the Operations Date, the consent of Non-Managing Members that are Voting Members holding more than 50% of the Percentage Interests of the Non-Managing Members that are Voting Members is obtained; (ii) as a result of such Transaction all Non-Managing Members will receive for each Member Unit an amount of cash, securities or other property equal to the product of the Conversion Factor and the greatest amount of cash, securities or other property paid in the Transaction to a holder of one Corporate Share in consideration of one Corporate Share, provided that if, in connection with the Transaction, a purchase, tender or exchange offer ("Offer") shall have been made to and accepted by the holders of more than 50% of the outstanding Corporate Shares, each holder of Member Units shall be given the option to exchange its Member Units for the greatest amount of cash, securities or other property that a Non-Managing Member would have received had it (A) exercised its Redemption Right and (B) sold, tendered or exchanged pursuant to the Offer the Corporate Shares received upon exercise of the Redemption Right immediately prior to the expiration of the Offer; or (iii) the Corporate Manager is the surviving entity in the Transaction and either (A) the holders of Corporate Shares do not receive cash, securities or other property in the Transaction or (B) all Non-Managing Members (other than the Corporate Manager or any subsidiary) receive an amount of cash, securities or other property (expressed as an amount per Corporate Share) that is no less than the product of the Conversion Factor and the greatest amount of cash, securities or other property (expressed as an amount per Corporate Share) received in the Transaction by any holder of Corporate Shares. (c) Notwithstanding Section 7.1(b), the Corporate Manager may merge with or into or consolidate with another entity if immediately after such merger or consolidation (i) substantially all of the assets of the successor or surviving entity (the "Survivor"), other than Member Units held by the Corporate Manager, are contributed, directly or indirectly, to the Company as a Capital Contribution in exchange for Member Units with a fair market value equal to the value of the assets so contributed as determined by the Survivor in good faith and (ii) the Survivor expressly agrees to assume all obligations of the Corporate Manager hereunder. Upon such contribution and assumption, the Survivor shall have the right and duty to amend this Agreement as set forth in this Section 7.1(c). The Survivor shall in good faith arrive at a new method for the calculation of the Cash Amount, the Corporate Shares Amount and Conversion Factor for a Member Unit after any such merger or consolidation so as to approximate the existing method for such calculation as closely as reasonably possible. Such calculation shall take into account, among other things, the kind and amount of securities, cash and other property that was receivable upon such merger or consolidation by a holder of Corporate Shares or options, warrants or other rights relating thereto, and to which a holder of Member Units could have acquired had such Member Units been exchanged immediately prior to such merger or consolidation. Such amendment to this Agreement shall provide for adjustment to such method of calculation, which shall be as nearly equivalent as may be practicable to the adjustments provided for with respect to the Conversion Factor. The Survivor also shall in good faith modify the definition of Corporate Shares and make such amendments to Section 8.4 hereof so as to approximate the existing rights and obligations set forth in Section 8.4 as closely as reasonably possible. The above provisions of this Section 7.1 shall similarly apply to successive mergers or consolidations permitted hereunder. In respect of any transaction described in the preceding paragraph, the Corporate Manager is required to use its commercially reasonable efforts to structure such transaction to avoid causing the Non-Managing Members to recognize income or gain for federal income tax purposes by virtue of the occurrence of or their participation in such transaction, provided such efforts are consistent with the exercise of the board of the Corporate Manager's fiduciary duties to the shareholders of the Corporate Manager under applicable law. (d) Notwithstanding Section 7.1(b), (i) a Corporate Manager may transfer all or any portion of its Member Interest to (A) a wholly-owned subsidiary of such Corporate Manager or (B) the owners of all of the ownership interests of such Corporate Manager and following a transfer of all of its Member Interest, may withdraw as Corporate Manager; and (ii) the Corporate Manager may engage in a transaction required by law or by the rules of any national securities exchange on which the Corporate Shares are listed to be submitted to the vote of the holders of the Corporate Shares. SECTION 7.2 Admission of a Substitute or Additional Corporate --------------------------------------------------- Manager. -------- A Person shall be admitted as a substitute or additional Corporate Manager of the Company only if the following terms and conditions are satisfied: (a) the Person to be admitted as a substitute or additional Corporate Manager shall have accepted and agreed to be bound by all the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments as may be required or appropriate in order to effect the admission of such Person as a Corporate Manager and all other actions required by herein in connection with such admission shall have been performed; and (b) if the Person to be admitted as a substitute or additional Corporate Manager is an entity, it shall have provided the Company with evidence satisfactory to counsel for the Company of such Person's authority to become a Corporate Manager and to be bound by the terms and provisions of this Agreement. SECTION 7.3 Effect of Bankruptcy, Withdrawal or Liquidation of -------------------------------------------------- the Corporate Manager. ---------------------- (a) Upon the occurrence of an Event of Bankruptcy as to the Corporate Manager (and its removal pursuant to Section 7.4(a) hereof) or the withdrawal, removal or liquidation of the Corporate Manager, the Company shall be dissolved and terminated unless the Company is continued pursuant to Section 7.3(b) hereof. The merger of the Corporate Manager with or into any entity that is admitted as a substitute or successor Corporate Manager pursuant to Section 7.2 hereof shall not be deemed to be the withdrawal, liquidation or removal of the Corporate Manager. (b) Following the occurrence of an Event of Bankruptcy as to the Corporate Manager (and its removal pursuant to Section 7.4(a) hereof) or the withdrawal, removal or liquidation of the Corporate Manager, the Non-Managing Members that are Voting Members, within 90 days after such occurrence, may elect to continue the business of the Company by selecting, subject to Section 7.2 hereof and any other provisions of this Agreement, a substitute Corporate Manager by consent of a majority in interest of the Non-Managing Members that are Voting Members. If the Non-Managing Members elect to continue the business of the Company and admit a substitute Corporate Manager, the relationship with the Members and of any Person who has acquired an interest of a Member in the Company shall be governed by this Agreement. SECTION 7.4 Removal of a Corporate Manager. ------------------------------- (a) Except upon unanimous agreement of the Members, the Non-Managing Members may not remove the Corporate Manager, with or without cause. Upon the occurrence of an Event of Bankruptcy as to the Corporate Manager, the Corporate Manager shall be deemed to be removed automatically. (b) If a Corporate Manager has been removed pursuant to this Section 7.4 and the Company is continued pursuant to Section 7.3 hereof, such Corporate Manager shall promptly transfer and assign its Member Interest in the Company to the substitute Corporate Manager approved by a majority in interest of the Non-Managing Members that are Voting Members in accordance with Section 7.3(b) hereof and otherwise admitted to the Company in accordance with Section 7.2 hereof. At the time of assignment, the removed Corporate Manager shall be entitled to receive from the substitute Corporate Manager the fair market value of the Member Interest of such removed Corporate Manager as reduced by any damages caused to the Company by such Corporate Manager. Such fair market value shall be determined by an appraiser mutually agreed upon by the Corporate Manager and a majority in interest of the Non-Managing Members that are Voting Members within 10 days following the removal of the Corporate Manager. In the event that the parties are unable to agree upon an appraiser, the removed Corporate Manager and a majority in interest of the Non-Managing Members that are Voting Members each shall select an appraiser. Each such appraiser shall complete an appraisal of the fair market value of the removed Corporate Manager's Member Interest within 30 days of the Corporate Manager's removal, and the fair market value of the removed Corporate Manager's Member Interest shall be the average of the two appraisals; provided, however, that if the higher appraisal exceeds the lower appraisal by more than 20% of the amount of the lower appraisal, the two appraisers, no later than 40 days after the removal of the Corporate Manager, shall select a third appraiser who shall complete an appraisal of the fair market value of the removed Corporate Manager's Member Interest no later than 60 days after the removal of the Corporate Manager. In such case, the fair market value of the removed Corporate Manager's Member Interest shall be the average of the two appraisals closest in value. (c) The Member Interest of a removed Corporate Manager, during the time after bankruptcy until transfer under Section 7.4(b), shall be converted to that of a special Non-Managing Member; provided, however, such removed Corporate Manager shall not have any rights to participate in the management and affairs of the Company, and shall not be entitled to any portion of the income, expense, profit, gain or loss allocations or cash distributions allocable or payable, as the case may be, to the Non-Managing Member. Instead, such removed Corporate Manager shall receive and be entitled only to retain distributions or allocations of such items that it would have been entitled to receive in its capacity as Corporate Manager, until the transfer is effective pursuant to Section 7.4(b). (d) All Members shall have given and hereby do give such consents, shall take such actions and shall execute such documents as shall be legally necessary and sufficient to effect all the foregoing provisions of this Section. ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE NON-MANAGING MEMBERS SECTION 8.1 Management of the Company. -------------------------- Except to the extent provided in Section 10.1, the Non-Managing Members shall not participate in the management or control of Company business nor shall they transact any business for the Company, nor shall they have the power to sign for or bind the Company, such powers being vested solely and exclusively in the Corporate Manager. SECTION 8.2 Power of Attorney. ------------------ Each Non-Managing Member hereby irrevocably appoints the Corporate Manager its true and lawful attorney-in-fact, who may act for each Member and in its name, place and stead, and for its use and benefit, to sign, acknowledge, swear to, deliver, file or record, at the appropriate public offices, any and all documents, certificates and instruments as may be deemed necessary or desirable by the Corporate Manager to carry out fully the provisions of this Agreement and the Act in accordance with their terms, which power of attorney is coupled with an interest and shall survive the death, dissolution or legal incapacity of the Non-Managing Member, or the transfer by the Member of any part or all of its Member Interest. SECTION 8.3 Limitation on Liability of Non-Managing Members. ------------------------------------------------ No Non-Managing Member shall be liable for any debts, liabilities, contracts or obligations of the Company. A Non-Managing Member shall be liable to the Company only to make payments of its Capital Contribution, if any, as and when due hereunder. After its Capital Contribution is fully paid, no Non-Managing Member shall, except as otherwise required by the Act, be required to make any further Capital Contributions or other payments or lend any funds to the Company. SECTION 8.4 Redemption Right. ----------------- (a) Subject to Sections 8.4(b), 8.4(c), and 8.4(d), each Non-Managing Member shall have the right, commencing on the third anniversary of the Operations Date (the "Redemption Right"), to require the Company to redeem on a Specified Redemption Date all or a portion of the Member Units held by such Non-Managing Member at a redemption price equal to and in the form of the Cash Amount to be paid by the Company, provided that such Member Units shall have been outstanding for at least twelve months immediately prior to such third anniversary. The Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the Company (with a copy to the Corporate Manager) by the Non-Managing Member who is exercising the Redemption Right (the "Redeeming Member"); provided, however, that the Company shall not be obligated to satisfy such Redemption Right if the Corporate Manager elects to purchase the Member Units subject to the Notice of Redemption; and provided, further, that no Non-Managing Member may deliver more than two Notices of Redemption during each calendar year. A Non-Managing Member may not exercise the Redemption Right for less than 5,000 Member Units or, if such Non-Managing Members holds less than 5,000 Member Units, all of the Member Units held by such Member. The Redeeming Member shall have no right, with respect to any Member Units so redeemed, to receive any distribution paid with respect to Member Units if the record date for such distribution is on or after the Specified Redemption Date. (b) Notwithstanding the provisions of Section 8.4(a), a Non-Managing Member that exercises the Redemption Right shall be deemed to have offered to sell the Member Units described in the Notice of Redemption to the Corporate Manager, and the Corporate Manager may, in its sole and absolute discretion, elect to purchase directly and acquire such Member Units by paying to the Redeeming Member either the Cash Amount or the Corporate Shares Amount, as elected by the Corporate Manager (in its sole and absolute discretion), on the Specified Redemption Date, whereupon the Corporate Manager shall acquire the Member Units offered for redemption by the Redeeming Member and shall be treated for all purposes of this Agreement as the owner of such Member Units. If the Corporate Manager shall elect to exercise its right to purchase Member Units under this Section 8.4(b) with respect to a Notice of Redemption, it shall so notify the Redeeming Member within five Business Days after the receipt by the Corporate Manager of such Notice of Redemption. In the event the Corporate Manager shall exercise its right to purchase Member Units with respect to the exercise of a Redemption Right in the manner described in the first sentence of this Section 8.4(b), the Company shall have no obligation to pay any amount to the Redeeming Member with respect to such Redeeming Member's exercise of such Redemption Right, and each of the Redeeming Member, the Company and the Corporate Manager shall treat the transaction between the Corporate Manager and the Redeeming Member for federal income tax purposes as a sale of the Redeeming Member's Units to the Corporate Manager. Each Redeeming Member agrees to execute such documents as the Corporate Manager may reasonably require in connection with the issuance of Corporate Shares upon exercise of the Redemption Right. (c) Any Cash Amount to be paid to a Redeeming Member pursuant to this Section 8.4 shall be paid on the Specified Redemption Date; provided, however, that the Corporate Manager may elect to cause the Specified Redemption Date to be delayed for up to an additional 180 days to the extent required for the Corporate Manager to cause additional Corporate Shares to be issued to provide financing to be used to make such payment of the Cash Amount. Notwithstanding the foregoing, the Corporate Manager agrees to use its best efforts to cause the closing of the acquisition of redeemed Member Units hereunder to occur as quickly as reasonably possible. (d) The exercise by Members of their Redemption Rights shall be subject to the provisions of Section 9.2(c). The rights provided by this Section 8.4 shall be in lieu of any rights provided to the Members under Wisconsin Statutes Section 196.485(3m)(c)4. SECTION 8.5 Registration. ------------- (a) Registration of the Corporate Shares. Upon the earlier of the fourth anniversary of the Operations Date or the one-year anniversary of the IPO, the Corporate Manager agrees to file with the Commission a registration statement under the Securities Act (a "Registration Statement") covering the resale of all of the Corporate Shares that may be issued upon redemption of such Member Units pursuant to Section 8.4 ("Redemption Shares") in the event that the Non-Managing Members, as a group, request registration covering the resale of at least 1,000,000 Corporate Shares; provided however, that only two such registrations may occur each year. Notwithstanding the foregoing, the Corporate Manager shall not be obligated to effect a registration pursuant to this Section 8.5(a) during the period starting with the date 45 days prior to the Corporate Manager's estimated date of filing of, and ending on a date 180 days following the effective date of, a registration statement pertaining to an underwritten public offering of Corporate Shares for the account of the Corporate Manager. If, while a registration request is pending pursuant to this Section 8.5(a), the Corporate Manager has determined in good faith that (i) the filing of a registration statement could jeopardize or delay any contemplated material transaction other than a financing plan involving the Corporate Manager or would require the disclosure of material information that the Corporate Manager had a bona fide business purpose for preserving as confidential; (ii) the Corporate Manager then is unable to comply with requirements of the Commission applicable to the requested registration (notwithstanding its best efforts to so comply) or (iii) or the Corporate Manager has not received any state approval, the Corporate Manager shall not be required to effect a registration pursuant to this Section 8.5(a) until the earlier of (x) the date upon which such contemplated transaction is completed or abandoned or such material information is otherwise disclosed to the public or ceases to be material or the Corporate Manager is able to so comply with applicable Commission requirements or received state approvals, as the case may be, or (y) 45 days after the Corporate Manager makes such good-faith determination. The Non-Managing Members also may request "piggyback" registration of their Redemption Shares. Upon any of such requests, the Corporate Manager will: (A) provide written notice of such request within 10 days of the receipt of such request to the Non-Managing Members not a party to the request; (B) use its best efforts to have such Registration Statement declared effective by the Commission and to keep it effective for a period of 180 days (the "Effective Period"); (C) give each holder of Redemption Shares, their underwriters, if any, and their counsel and accountants a reasonable opportunity to participate in the preparation of the Registration Statement and give such persons reasonable access to its books, records, officers and independent public accountants; (D) furnish to each holder of Redemption Shares such numbers of copies of prospectuses, and supplements or amendments thereto, and such other documents as such holder reasonably requests; (E) register or qualify the securities covered by the Registration Statement under the securities or blue sky laws of such jurisdictions within the United States as any holder of Redemption Shares shall reasonably request, and do such other reasonable acts and things as may be required of it to enable such holders to consummate the sale or other disposition in such jurisdictions of the Redemption Shares; provided, however, that the Corporate Manager shall not be required to (i) qualify as a foreign corporation or consent to a general or unlimited service or process in any jurisdictions in which it would not otherwise be required to be qualified or so consent or (ii) qualify as a dealer in securities; (F) furnish, at the request of the holders of Redemption Shares, on the date Redemption Shares are delivered to the underwriters for sale pursuant to such registration, or, if such Redemption Shares are not being sold through underwriters, on the date the Registration Statement with respect to such Redemption Shares becomes effective, (A) a securities opinion of counsel representing the Corporate Manager for the purposes of such registration covering such legal matters as are customarily included in such opinions and (B) letters of the firm of independent public accountants that certified the financial statements included in the Registration Statement, addressed to the underwriters, covering substantially the same matters as are customarily covered in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other financial matters as such holders (or the underwriters, if any) may reasonably request; (G) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission; (H) enter into and perform an underwriting agreement with the managing underwriter, if any, selected as provided herein, containing customary (A) terms of offer and sale of the securities, payment provisions, underwriting discounts and commissions and (B) representations, warranties, covenants, indemnities, terms and conditions; and (I) keep the holders of the Redemption Shares advised as to the initiation and progress of the Registration Statement. The Corporate Manager further agrees to supplement or make amendments to each Registration Statement, if required by the Commission's rules, regulations or instructions applicable to the registration form utilized by the Corporate Manager or by the Securities Act or rules and regulations thereunder for such Registration Statement. Notwithstanding the foregoing, if for any reason the effectiveness of a Registration Statement is delayed or suspended or it ceases to be available for sales of Redemption Shares thereunder, the Effective Period shall be extended by the aggregate number of days of such delay, suspension or unavailability. (b) Listing on Securities Exchange. If the Corporate Manager shall list or maintain the listing of any Corporate Shares on any securities exchange or national market system, it will at its expense and as necessary to permit the registration and sale of the Redemption Shares hereunder, list thereon, maintain and, when necessary, increase such listing to include such Redemption Shares. (c) Registration Not Required. Notwithstanding the foregoing, the Corporate Manager shall not be required to file or maintain the effectiveness of a registration statement relating to Redemption Shares after the first date upon which, in the opinion of counsel to the Corporate Manager, all of the Redemption Shares covered thereby could be sold by the holders thereof in any period of three months pursuant to Rule 144 under the Securities Act, or any successor rule thereto. (d) Allocation of Expenses. The Company shall pay all expenses in connection with the Registration Statement, including without limitation (i) all expenses incident to filing with the National Association of Securities Dealers, Inc., (ii) registration fees, (iii) printing expenses, (iv) accounting and legal fees and expenses, except to the extent holders of Redemption Shares elect to engage accountants or attorneys in addition to the accountants and attorneys engaged by the Corporate Manager or the Company, (v) accounting expenses incident to or required by any such registration or qualification and (vi) expenses of complying with the securities or blue sky laws of any jurisdictions in connection with such registration or qualification; provided, however, the Company shall not be liable for (A) any discounts or commissions to any underwriter or broker attributable to the sale of Redemption Shares, (B) the fees and expenses of counsel to the Non-Managing Members or (C) any fees or expenses incurred by holders of Redemption Shares in connection with such registration that, according to the written instructions of any regulatory authority, the Company is not permitted to pay. (e) It shall be a condition precedent to the obligations of the Corporate Manager to take any action pursuant to this Section 8.5 that the Non-Managing Members proposing to sell Corporate Shares shall furnish to the Corporate Manager such information regarding them, the Corporate Shares held by them, and the intended method of disposition of such securities and such other matters as may be required by the 1933 Act and other applicable laws and regulations as the Corporate Manager shall request and as shall be required in connection with the action to be taken by the Corporate Manager. (f) Indemnification. (i) In connection with the Registration Statement, the Corporate Manager and the Company agree to indemnify holders of Redemption Shares within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) caused by any untrue, or alleged untrue, statement of a material fact contained in the Registration Statement, preliminary prospectus or prospectus (as amended or supplemented if the Corporate Manager shall have furnished any amendments or supplements thereto) or caused by any omission or alleged omission, to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by any untrue statement, alleged untrue statement, omission, or alleged omission based upon information furnished to the Corporate Manager expressly for use therein. The Corporate Manager and each officer, director and controlling person of the Corporate Manager shall be indemnified by each holder of Redemption Shares covered by the Registration Statement for all such losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) caused by any such untrue, or alleged untrue, statement or any such omission, or alleged omission, based upon information furnished to the Corporate Manager expressly for use therein in a writing signed by the holder. (ii) Promptly upon receipt by a party indemnified under this Section 8.6(f) of notice of the commencement of any action against such indemnified party in respect of which indemnity or reimbursement may be sought against any indemnifying party under this Section 8.5(f), such indemnified party shall notify the Corporate Manager in writing of the commencement of such action, but the failure to so notify the Corporate Manager shall not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 8.5(f) unless such failure shall materially adversely affect the defense of such action. In case notice of commencement of any such action shall be given to the Corporate Manager as above provided, the Corporate Manager shall be entitled to participate in and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such indemnified party. The indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be paid by the indemnified party unless (i) the Corporate Manager or the Company agrees to pay the same, (ii) the Corporate Manager fails to assume the defense of such action with counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) have been advised by such counsel that representation of such indemnified party and the Corporate Manager by the same counsel would be inappropriate under applicable standards of professional conduct (in which case the Corporate Manager shall not have the right to assume the defense of such action on behalf of such indemnified party). No indemnifying party shall be liable for any settlement entered into without its consent. (g) Contribution. (i) If for any reason the indemnification provisions contemplated by Section 8.5(f) are either unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities referred to therein, then the party that would otherwise be required to provide indemnification or the indemnifying party (in either case, for purposes of this Section 8.5(g), the "Indemnifying Party") in respect of such losses, claims, damages or liabilities, shall contribute to the amount paid or payable by the party that would otherwise be entitled to indemnification or the indemnified party (in either case, for purposes of this Section 8.5(g), the "Indemnified Party") as a result of such losses, claims, damages, liabilities or expense, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact related to information supplied by the Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party. In no event shall any holder of Redemption Shares covered by the Registration Statement be required to contribute an amount greater than the dollar amount of the proceeds received by such holder from the sale of Redemption Shares pursuant to the registration giving rise to the liability. (ii) The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 8.5(g) were determined by pro rata allocation (even if the holders or any underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person or entity determined to have committed a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (iii) The contribution provided for in this Section 8.5(g) shall survive the termination of this Agreement and shall remain in full force and effect regardless of any investigation made by or on behalf of any Indemnified Party. ARTICLE IX TRANSFER SECTION 9.1 Purchase Not for Distribution. ------------------------------ (a) Each Member hereby represents and warrants to the Company that the acquisition of its Member Interest is made as a principal for its account and not with a view to the resale or distribution of such Member Interest. (b) Each Member agrees that it will not sell, assign or otherwise transfer its Member Interest or any fraction thereof, whether voluntarily or by operation of law or at judicial sale or otherwise, to any Person who does not make the representations and warranties to the Company set forth in Section 9.1(a) above and similarly agree not to sell, assign or transfer such Member Interest or fraction thereof to any Person who does not similarly represent, warrant and agree. SECTION 9.2 Restrictions on Transfer of Member Interests. --------------------------------------------- (a) Except as permitted pursuant to Section 9.3, no Member may offer, sell, assign, or otherwise transfer all or any portion of its Member Interest, whether voluntarily or by operation of law or at judicial sale or otherwise (collectively, a "Transfer"), until the third anniversary of the Operations Date; provided, however, that the foregoing shall not prohibit the pledge or hypothecation of any Member's interest for financing purposes. Any such purported Transfer shall be considered to be null and void ab initio and shall not be given effect. (b) Prior to the consummation of any Transfer under this Article IX, the transferor and/or the transferee shall deliver to the Corporate Manager such opinions, certificates and other documents as the Corporate Manager shall reasonably request in connection with such Transfer. (c) Notwithstanding any other provision of this Agreement, including the provisions of Section 8.4 and Section 9.3, no Member may effect a Transfer of its Member Interest, in whole or in part: (i) If, in the opinion of legal counsel for the Company, such proposed Transfer would require the registration of the Member Interest under the Securities Act or would otherwise violate any applicable federal or state securities or blue sky law (including investment suitability standards); (ii) If in the opinion of legal counsel for the Company, such Transfer would cause the Company to be regarded as a publicly-traded partnership under Code Section 7704; or (iii) If such proposed Transfer would cause a termination of the partnership for tax purposes under Code Section 708(b)(1)(B) (because of the Transfer in any 12-month period of 50% or more of the capital and profits of the Company). (d) Any Member that desires to Transfer all or any portion of its Member Interest other than a pledge or hypothecation of Member Interests for financing purposes (including exchanging Member Units for Corporate Shares) shall notify the Corporate Manager of its intention to Transfer, the number of Member Units proposed to be sold, and the date on which the Transfer is proposed to occur, which shall be at least 45 days after the date of such notice. The Corporate Manager shall thereupon promptly provide such information to the other Members. Any Member that proposes to sell its Members Interests within the ensuing 12 months after the proposed date of sale shall notify the Corporate Manager of the number of Member Units proposed to be sold by such Member. (i) If the total number of Member Units proposed to be transferred by all the Members is less than 50% of the total number of outstanding Member Units, then all such Members shall be entitled to Transfer the Member Units proposed to be transferred by them. (ii) If the total number of Member Units proposed to be transferred by all the Members equals or exceeds 50% of the total number of outstanding Member Units, then each such Member shall be entitled to Transfer that number of Units proposed to be transferred by it multiplied by a fraction the numerator of which is such Member's Percentage Interest and the denominator of which is all such Members' Percentage Interests. (iii) If any Member does not Transfer at least one-half the number of Units proposed to be transferred by it within 90 days of the date specified in such Member's notice to the Corporate Manager, such Member will not be permitted to sell any Member Units owned by it for the 12-month period commencing on the date specified in such Member's notice to the Corporate Manager. SECTION 9.3 Permitted Transfers. -------------------- (a) During the first three years following the Operations Date, any Member may offer all or any portion of its Member Interest to other Members at a price per Member Unit equal to the quotient of the Net Book Value as of the end of the most recent calendar quarter divided by the number of Member Units outstanding as of such date. (i) Upon the request of any Member specifying the number of Member Units proposed to be sold (which shall be irrevocable), the Company shall advise the other Members of the proposed sale and the number of Member Units allocated for purchase by each Member based upon their Percentage Interests, exclusive of the selling Member. Each Member shall have 30 days to indicate its interest in purchasing all or a portion of the number of Member Units allocated to it. If any Member Units remain unsold, the Company shall advise the remaining Members, which shall have the right to purchase the remaining Member Units in accordance with their respective Percentage Interests exclusive of the selling Member and non-purchasing Members. (ii) The closing for any such sale shall occur within 45 days following the initial notice to the Members of the sale. (b) Subject to any required regulatory approvals, (i) any Member may transfer its Member Interest, at any time, to a Person, so long as such Person is and remains 100% directly or indirectly owned by the Member, the related Electric Utility (if different than the Member) or the related holding company. In the event that prior to the third anniversary of the Operations Date, such Person, or any other direct or indirect parent of such Person, is proposed to be sold, the interest of such Person in the Company shall first be transferred to a Person 100% directly or indirectly owned by the related Electric Utility or holding company; and (ii) with respect to a Member that has members, such Member may transfer its Membership Interest to its members or to another entity owned by such Members. (c) A Member may Transfer its Member Interest in connection with such Member's merger, consolidation, or sale of all or substantially all of its assets, so long as the surviving or purchasing entity shall execute a counterpart of this Agreement to evidence its assent hereto. SECTION 9.4 Admission of Substitute Member. -------------------------------- (a) Subject to the other provisions of this Article IX, an assignee of the Member Interest of a Non-Managing Member (which shall be understood to include any purchaser, transferee, donee or other recipient of any disposition of such Member Interest) shall be deemed admitted as a Member of the Company only with the consent of the Corporate Manager (which shall not be unreasonably withheld) and upon the satisfactory completion of the following: (i) The assignee shall have accepted and agreed to be bound by the terms and provisions of this Agreement by executing a counterpart or an amendment thereof, including a revised Schedule A, and such other documents or instruments as the ------------ Corporate Manager may require in order to effect the admission of such Person as a Member. (ii) To the extent required, an amended certificate evidencing the admission of such Person as a Member shall have been signed, acknowledged and filed for record to the extent required by the Act. (iii) The assignee shall have delivered a letter containing the representation set forth in Section 9.1(a) hereof and the agreement set forth in Section 9.1(b) hereof. (iv) If the assignee is an entity, the assignee shall have provided the Corporate Manager with evidence satisfactory to counsel for the Company of the assignee's authority to become a Member under the terms and provisions of this Agreement. (v) The assignee shall have executed a power of attorney containing the terms and provisions set forth in Section 8.2 hereof. (vi) The assignee shall have paid all legal fees and other expenses of the Company and the Corporate Manager and filing and publication costs in connection with its substitution as a Member. (b) For the purpose of allocating Profits and Losses and distributing cash received by the Company, a Substitute Member shall be treated as having become, and appearing in the records of the Company as, a Member at the end of the month in which the filing of the certificate described in Section 9.4(a)(ii) hereof occur or if no such filing is required, the later of the date specified in the transfer documents or the date on which the Corporate Manager has received all necessary instruments of transfer and substitution. (c) The Corporate Manager shall cooperate with the Person seeking to become a Substitute Member by preparing the documentation required by this Section and making all official filings and publications. The Company shall take all such action as promptly as practicable after the satisfaction of the conditions in this Article IX to the admission of such Person as a Member of the Company. SECTION 9.5 Rights of Assignees of Members Interests. ----------------------------------------- (a) Subject to the provisions of Sections 9.2 and 9.3 hereof, except as required by operation of law, the Company shall not be obligated for any purposes whatsoever to recognize the assignment by any Member of its Member Interest until the Company has received notice thereof. (b) Any Person who is the assignee of all or any portion of a Member Interest, but does not become a Substitute Member and desires to make a further assignment of such Member Interest, shall be subject to all the provisions of this Article IX to the same extent and in the same manner as any Member desiring to make an assignment of its Member Interest. SECTION 9.6 Effect of Bankruptcy or Termination of a ------------------------------------------------- Non-Managing Member. -------------------- The occurrence of an Event of Bankruptcy as to a Non-Managing Member or the dissolution or termination of a Non-Managing Member shall not cause the termination or dissolution of the Company, and the business of the Company shall continue. The trustee or receiver of a bankrupt Non-Managing Member, or its representative shall have the rights of such Member for the purpose of settling or managing its property and such power as the bankrupt, dissolved or terminated Member possessed to assign all or any part of its Member Interest and to join with the assignee in satisfying conditions precedent to the admission of the assignee as a Substitute Member. SECTION 9.7 Month-End Convention. --------------------- For purposes of this Agreement, all transfers of Member Interests shall be deemed to take place at the end of the month in which the transfer actually occurs. ARTICLE X AMENDMENTS; MERGER SECTION 10.1 Amendments. ------------ This Agreement may be amended with the consent of a majority of the Voting Members per capita; provided, however, that the Wisconsin public utility Affiliates of WPSLLC and WPLLLC shall exercise all voting rights with respect to the interests held by such Persons and their Affiliates; and provided further that the following amendments shall require the consent of all of the Voting Members and, if any proposed amendment pursuant to Sections 10.1(b), (c) or (g) would accord different treatment to the Members who are not Voting Members than those who are Voting Members, the consent of a majority of Members (by Percentage Interest) who are not Voting Members: (a) any amendment to modify the provisions of Section 3.2(g), 3.3, 3.4, 3.5, 3.6, or 9.3(a) with respect to the ability of a Member to increase its Percentage Interest in the Company; (b) any amendment to modify the provisions of Article VI relating to the allocation of Profits and Losses and the distribution of cash to Members, except in accordance with Section 3.7; provided, however, the dividend rate shall be subject to adjustment by a majority vote of the board of directors of the Corporate Manager; (c) any amendment of Section 3.8 or the method of determining the Tax-Exempt Investment Amount (including the methodology used in Schedule B); (d) any amendment that would impose on the Members any obligation to make additional Capital Contributions to the Company; (e) any amendment that would remove the Corporate Manager; (f) any amendment to Section 2.7; or (g) any amendment to this Article X. (h) any amendment of a provision hereto that incorporates or embodies a provision of the Reliability 2000 Legislation. SECTION 10.2 Merger. -------- Subject to any applicable regulatory approvals, the Corporate Manager, without the consent of the Members, may (i) merge or consolidate the Company with or into any other domestic or foreign partnership, limited partnership, limited liability company or corporation in a transaction pursuant to Section 7.1(b), (c) or (d) hereof, or (ii) sell the assets of the Company; provided, however, that, until the third anniversary of the Operations Date, any merger, consolidation, or sale of all or substantially all of the assets of the Company shall require the consent of all the Voting Members. ARTICLE XI MISCELLANEOUS SECTION 11.1 Notices. --------- All notices, consents, requests, demands, offers, reports or other communications required or permitted to be given pursuant to this Agreement shall be in writing and considered properly given or made when personally delivered to the person entitled thereto, when sent by certified or registered United States mail in a sealed envelope, with postage prepaid, or when sent by overnight courier, addressed, if to the Company, at its address set forth in Section 2.1, and if to a Member, to the address set forth opposite such member's name on Schedule A. Any Member may ---------- change his address by giving notice to the Corporate Manager. The Company may change its address by giving notice to each of its Members. SECTION 11.2 Entire Agreement. ----------------- This Agreement embodies the entire understanding and agreement among the Members concerning the Company, and supersedes any and all prior negotiations, understandings or agreements with respect thereto. SECTION 11.3 Interpretation and Construction. -------------------------------- The headings and captions in this Agreement are inserted for convenience and identification only and are in no way intended to define, limit or expand the scope and intent of this Agreement or any provision hereof. The references to Sections and Articles in this Agreement are to the Sections and Articles of this Agreement, except where otherwise indicated. Where the context so requires, the masculine shall include the feminine and the neuter, and singular shall include the plural. SECTION 11.4 Counterparts. ------------- This Agreement may be executed in multiple counterpart copies, each of which shall be considered an original and all of which shall constitute one and the same instrument. SECTION 11.5 Binding on Successors. ---------------------- This Agreement and all of the terms and provisions hereof shall be binding upon, and inure to the benefit of, the Members and their respective successors and assigns. SECTION 11.6 Severability. ------------- If any provision of this Agreement or the application thereof to any Person or circumstance shall, to any extent, be held invalid or unenforceable in any jurisdiction, the validity and enforceability of the remainder of this Agreement or the application of such provision to any other Persons or circumstances shall not be affected thereby, and each provision of this Agreement shall be valid and enforceable to the extent permitted by law in every jurisdiction. SECTION 11.7 Rights and Remedies. -------------------- The rights and remedies provided this Agreement are cumulative, and the use of any one right or remedy by any party shall not preclude or waive its right to the use of any or all other rights and remedies. Such rights and remedies are given to such party in addition to any other rights and remedies such party may have by law, rule, regulation or otherwise. SECTION 11.8 Economic Benefit. ----------------- (a) This Agreement evidences the intent of the Members with respect to the matters covered hereby, and reflects the agreed allocation of benefits and burdens among the Members. If, as a consequence of regulatory reviews or approvals, certain changes are required, the Members agree to negotiate in good faith so as to restore, as much as practically feasible, the original allocation of benefits and burdens among the Members. (b) Each Member agrees that the agreements set forth herein and in the other documents pertaining to the formation of the Company and the Corporate Manager reflect extensive negotiations and compromises among the Members. To that end, each Member agrees that any filings or communications by it with any regulatory authority will not contradict the positions set forth herein, in the Asset Contribution Agreement and Subscription Agreement, the Amended and Restated Articles of Incorporation and By-laws of the Corporate Manager and the Shareholders Agreement, and further, that any filings or communications by it with any regulatory authority will support, to the extent applicable, the positions set forth herein and in such other documents, excluding issues concerning the Company's tariff and rates. Each Member shall retain its right to take independent legal or regulatory positions regarding any other aspect of the Company, including its tariff and rates. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. ATC Management, Inc. By: ____________________________________ Name: Title: Wisconsin Electric Power Company By: ____________________________________ Name: Title: Wisconsin Power and Light Company, for itself and as manager of WPL TRANSCO LLC By: ____________________________________ Name: Title: Wisconsin Public Service Corporation, for itself and as the sole member of WPS INVESTMENTS, LLC By: ____________________________________ Name: Title: Madison Gas and Electric Company By: ____________________________________ Name: Title: Wisconsin Public Power Inc. By: ____________________________________ Name: Title: Edison Sault Electric Company By: ____________________________________ Name: Title: South Beloit Water, Gas and Electric Company By: ____________________________________ Name: Title:
Schedule A Member Initial Capital Contribution Number of Units Percentage Interest ------- or Contribution Value --------------- ------------------- -------------------------- ATC Management Inc. $______ _____ _____% N16 W23217 Stone Ridge Dr. Waukesha, WI 53187 Edison Sault Electric Company $______ _____ _____% 725 East Portage Avenue Sault Ste. Marie, MI 49783 South Beloit Water, Gas and Electric Company $______ _____ _____% 222 West Washington Madison, WI 53703 Wisconsin Electric Power Company $______ _____ _____% 231 West Michigan Street Milwaukee, WI 53203 WPLLLC $______ _____ _____% c/o Wisconsin Power and Light Company 222 West Washington Madison, WI 53703 WPS Investments, LLC $______ _____ _____% c/o Wisconsin Public Service Corporation 700 North Adams Street [P.O. Box 19001, 54307] Green Bay, WI 54034 Madison Gas and Electric Company $______ _____ _____% P.O. Box 1231 Madison, WI 53701-1231 Wisconsin Public Power Inc. $______ _____ _____% 1425 Corporate Center Drive Sun Prairie, WI 53590-9109
EXHIBIT A --------- NOTICE OF EXERCISE OF REDEMPTION RIGHT In accordance with Section 8.4 of the Operating Agreement (the "Agreement") of American Transmission Company LLC (the "Company"), the undersigned hereby irrevocably (i) presents for redemption ________ Member Units in the Company in accordance with the terms of the Agreement and the Redemption Right referred to in Section 8.4 thereof, (ii) surrenders such Member Units and all right, title and interest therein and (iii) directs that the Cash Amount or Corporate Shares Amount (as defined in the Agreement), as determined by the Corporate Manager (as defined in the Agreement), deliverable upon exercise of the Redemption Right, be delivered to the address specified below, and if Corporate Shares (as defined in the Agreement) are to be delivered, such Corporate Shares be registered or placed in the name(s) and at the address(es) specified below. Dated:________ __, _____ Name of Member: ______________________________ (Signature of Member) ______________________________ (Mailing Address) ______________________________ (City) (State) (Zip Code) Signature Guaranteed by: ______________________________ If Corporate Shares are to be issued, issue to: ______________________________ Please insert social security or identifying number: __________________________ Name:______________________________________________________________ EXHIBIT B --------- DISPUTE RESOLUTION PROVISIONS ARTICLE I APPLICABILITY AND DEFINITIONS SECTION 1.1 Applicability. --------------- The dispute resolution procedures set forth herein shall be applicable, under the conditions hereinafter provided, to all disputes relating to the interpretation and application of the terms and conditions of the Transco Agreements arising between or among the Members (whether as Members or as a party to a Transco Agreement), between the Members and the Company; provided, however, that these dispute resolution procedures do not apply to any matters covered by the dispute resolution procedures of the OATT. Nothing in this Exhibit is intended to restrict or expand existing state or federal laws or regulatory authorities. SECTION 1.2 Definitions. ------------- Capitalized terms used herein and not defined herein shall have the respective meanings assigned to such terms in the Operating Agreement to which these Dispute Resolution Provisions are attached. The following terms shall have the meanings set forth below: "Committee" means the Alternative Dispute Resolution Committee established by the Board of Directors of the Corporate Manager in accordance with Article V to this Exhibit. "Corporate Manager Governing Documents" means the Amended and Restated Articles of Incorporation and Amended and Restated By-laws of the Corporate Manager, and the Shareholders Agreement between the Corporate Manager and the Class B Shareholders named therein, as the same may be amended from time to time. "FPA" means the Federal Power Act, as amended. "Members" means the Members of the Company, including the Corporate Manager acting in its capacity as manager. "OATT" means open access transmission tariff of the Company currently approved by FERC. "Transco Agreements" means the Operating Agreement, the Asset Contribution Agreements, the Subscription Agreements, the Corporate Manager Governing Documents, the Service Agreements for Network Integration Transmission Service, Operations & Maintenance Agreements, Attachment Agreements, Transitional Services Agreement, Network Operating Agreements, Generation-Transmission Interconnection Agreements, Transmission-Distribution Interconnection Agreements, Alliant Operating Agreement, Forming Party Agreement, and all Schedules, Exhibits and Appendices to such Agreements. ARTICLE II INFORMAL DISPUTE RESOLUTION PROCEDURES SECTION 2.1 When Required. -------------- Any dispute subject to the procedures specified in this Exhibit shall be subject first to the informal dispute resolution procedures specified herein. SECTION 2.2 Procedures. ----------- (a) The Company and each Member shall designate an employee or representative who shall be its initial contact for resolving disputes involving them as to matters governed by the Transco Agreements. Each party to such a dispute shall first raise all issues regarding the dispute with the designated representative of the other party or parties to such dispute. The designated representatives shall work together to resolve the relevant issues in a manner that meets the interests of such parties, or until the issues are referred to the designated officers of the parties as set forth in Section 2.2(b). (b) The Company and each Member shall designate a representative who shall review disputes subject to this Exhibit that its designated representatives are unable to resolve. In the case of the Company, this officer shall be designated by the Board of Directors of the Corporate Manager. The applicable officers of the parties involved in such dispute shall work together to resolve the disputes so referred in a manner that meets the interests of such parties, either until such resolution is reached, or until an impasse is declared by any party to such dispute. ARTICLE III MEDIATION SECTION 3.1 When Available. --------------- If the parties agree, any dispute subject to this Exhibit may be subject to non-binding mediation subsequent to informal dispute resolution, but prior to the initiation of arbitration, regulatory, judicial, or other dispute resolution proceedings. The parties that elect mediation shall notify the Committee in writing of the election to mediate. SECTION 3.2 Procedures. ------------ (a) A neutral mediator shall be selected by the Chair of the Committee after consultation with the parties involved in the dispute. The Chair of the Committee also may consult with the other representatives on the Committee concerning the selection of a mediator. The mediator selected shall (i) be knowledgeable in the subject matter of the dispute, and (ii) have no official, financial, or personal conflict of interest with respect to the parties or the issues involved in the dispute, unless such interest is fully disclosed in writing to all parties involved in the dispute and all such parties waive in writing any objection to the interest. (b) The parties involved in the dispute shall attempt in good faith to resolve their dispute in accordance with the procedures and timetable established by the mediator. In furtherance of the mediation efforts, the mediator may, among other actions: (i) Require representatives of such parties who have the authority to settle such dispute to meet for face-to-face discussions, with or without the mediator; (ii) Act as an intermediary between such parties; (iii) Require such parties to submit written statements of issues and positions; (iv) Require such parties to exchange relevant information with respect to the dispute; and (v) If requested by such parties at any time in the mediation process, provide a written recommendation on resolution of the dispute including, if requested, the mediator's assessment of the merits of the principal positions being advanced by each such party. (c) If the parties are unable to resolve the dispute at or in connection with this meeting, then, (i) any party involved in the dispute may commence such arbitration proceedings, or such judicial, regulatory, or other proceedings as may be appropriate as permitted by the provisions of Section 4.1 of this Exhibit; (ii) the statements made by any party in connection with such mediation shall not be admissible for any purpose in any subsequent arbitration, administrative, judicial or other proceeding; (iii) the recommendation of the mediator shall have no further force or effect and shall not be admissible for any purpose in any subsequent arbitration, administrative, judicial, or other proceeding; and (iv) the mediator may not be compelled to testify concerning the mediation in any subsequent arbitration, judicial, or other proceeding. SECTION 3.3 Costs. ------- The costs of the time, expenses, and other charges of the mediator and common costs of the mediation process shall be borne by the parties involved in the dispute, with each side (treating all parties as aligned with either the plaintiff side or the defendant side of the dispute) in the mediated matter bearing one-half of such costs. Each party involved in the dispute shall bear its own costs and attorney's fees incurred in connection with any mediation under this Article III. ARTICLE IV ARBITRATION SECTION 4.1 When Required. -------------- Any dispute subject to this Exhibit that has not been resolved through the informal or mediation procedures specified herein shall be resolved by arbitration in accordance with the procedures specified herein; provided, however, that unless all parties agree to arbitrate, (a) any dispute subject to the jurisdiction of any regulatory authority shall only be heard by such regulatory authority, and (b) any dispute wherein one party seeks an injunction or other equitable relief shall be heard only by a court having jurisdiction over the matter. SECTION 4.2 Initiation. ------------ (a) A party to a dispute that wishes to commence arbitration proceedings shall send a written demand for arbitration to an officer or managing or general agent (or other agent authorized by appointment or law to receive service of process) of each party to the dispute, and to the secretary of the Committee. The demand for arbitration shall state each claim for which arbitration is being demanded, the relief being sought, a brief summary of the grounds for such relief, and the basis for the claim, and shall identify all other parties to the dispute. (b) Any party receiving such notice may, if the proviso in Section 4.1 is applicable, notify the parties to the dispute within 14 days of receiving the demand for arbitration, that it intends to have the matter heard by a regulatory or judicial authority and shall thereafter have a further 60 days in which to make the necessary filing to commence proceedings at such regulatory or judicial authority. If the filing necessary to commence proceedings before such regulatory or judicial authority is not made within the foregoing 60-day period, then the party seeking to invoke jurisdiction of a regulatory authority shall be deemed to have consented to arbitration, and the dispute shall revert to arbitration. SECTION 4.3 Selection of Arbitrator. ------------------------- The Committee shall maintain a list of arbitrators that contains an odd number of names, and contains at least five names of Persons whom the Committee believes are generally qualified, by reason of their temperament and experience, to resolve disputes among the parties. Upon an arbitration demand being made by one or more parties, the Committee shall provide the list to the parties to the dispute. The party or parties demanding arbitration on the one hand, and the party or parties responding to the demand for arbitration on the other, shall each (treating all parties as aligned with either the plaintiff side or the defendant side of the dispute) take turns (with the plaintiff proceeding first) crossing names off the list until one arbitrator remains, who shall thereupon be engaged as arbitrator with respect to the dispute. SECTION 4.4 Procedures. ----------- The Committee shall compile and make available to the arbitrator and the parties standard procedures for the arbitration of disputes, which may be modified or adopted for use in a particular proceeding as the parties mutually agree or as the arbitrator deem appropriate. Upon selection of the arbitrator, arbitration shall go forward in accordance with applicable procedures. SECTION 4.5 Intervention. ------------- The arbitrator may permit any Member to intervene in the proceeding upon the filing of a timely application which demonstrates that the Member has a direct interest that will be materially affected by the decision of the arbitrator and that it will not be represented adequately by an existing party to the proceeding. Any Member seeking to intervene in a dispute shall indicate in its intervention papers whether it believes that it should be aligned with either the plaintiff side or the defendant side of the dispute. Any party to the dispute may challenge such proposed alignment. The arbitrator shall determine the actual alignment of the parties to a dispute based upon the comparability of the specific positions advanced by each party concerning the issues involved in the dispute. SECTION 4.6 Summary Disposition and Interim Measures. ----------------------------------------- (a) The procedures for arbitration of a dispute shall provide a means for summary disposition of a demand for arbitration, or response to a demand for arbitration, that in the reasoned opinion of the arbitrator does not have a good faith basis either in law or fact. If the arbitrator determines that a demand for arbitration, or response to a demand for arbitration, does not have a good faith basis either in law or fact, the arbitrator shall have discretion to award the costs of the time, expenses, and other charges of the arbitrator to the prevailing party. (b) The procedures for the arbitration of a dispute shall provide a means for summary disposition without discovery if there is no dispute as to any material fact, or with such limited discovery as the arbitrator shall determine is reasonably likely to lead to the prompt resolution of any disputed issues of material fact. (c) The procedures for arbitration of a dispute shall permit any party to a dispute to request the arbitrator to render a written interim decision requiring that any action or decision that is the subject of a dispute not be put into effect, or imposing such other interim measures as the arbitrator deem necessary or appropriate, to preserve the rights and obligations secured by the Transco Agreements during the pendency of the arbitration proceeding. The arbitrator may grant or deny, in whole or in part, a request for such a written interim decision. Members and the Company shall be bound by any such written decision pending the outcome of the arbitration proceeding. SECTION 4.7 Discovery of Facts. -------------------- (a) The arbitration procedures for the resolution of a dispute shall include adequate provision for the discovery of relevant facts, including the taking of testimony under oath, production of documents and things, and inspection of land and tangible items. The nature and extent of such discovery shall be determined as provided herein and shall take into account (i) the complexity of the dispute, (ii) the extent to which facts are disputed, and (iii) the amount of money in controversy. (b) The arbitrator shall be responsible for establishing the timing, amount, and means of discovery, and for resolving discovery and other pre-hearing disputes. If a dispute involves contested issues of fact, promptly after the selection of the arbitrator, the arbitrator shall convene a meeting of the parties for the purpose of establishing a schedule and plan of discovery and other pre-hearing actions. SECTION 4.8 Evidentiary Hearing. -------------------- The procedures established by the arbitrator shall provide for an evidentiary hearing, with provision for the cross-examination of witnesses, unless all parties consent to the resolution of the matter on the basis of a written record. The forms and methods for taking evidence shall be as agreed by the parties, or if the parties cannot agree, as established by the arbitrator. The arbitrator may require such written or other submissions from the parties as shall be deemed appropriate, including submission of the direct testimony of witnesses in written form. The arbitrator may exclude any evidence that is irrelevant, immaterial, or unduly repetitious, and, except to the extent hereinafter otherwise provided, shall exclude any material which is covered by the attorney-client privilege, the accountant-client privilege, other evidentiary privileges, or the attorney-work product doctrine. Any party or parties may arrange for the preparation of a record of the hearing and, except to the extent otherwise provided, shall pay the costs thereof. Such party or parties shall have no obligation to provide, or to agree to the provision of, a copy of the record of the hearing to any party that does not pay a proportionate share of the cost of the record. At the request of any party, the arbitrator shall determine a fair and equitable allocation of the cost of the preparation of a record between or among the parties to the proceeding who are willing to share such costs. SECTION 4.9 Confidentiality. ----------------- (a) Any information requested from another party in the course of an arbitration proceeding, and not otherwise available to the receiving party, including any such information contained in documents or other means of recording information created during the course of the proceeding, may be designated "Confidential" by the producing party to the extent that such information is of a proprietary nature. The party designating documents or other information as "Confidential" shall have 20 days from the request for such material to submit a request to the arbitrator to establish such requirements for the protection of such documents or other information designated as "Confidential" as may be reasonable and necessary to protect the confidentiality and commercial value of such information and the rights of the parties. Prior to the decision of the arbitrator on a request for confidential treatment, documents or other information designated as "Confidential" need not be produced. "Confidential" information shall not be used by the arbitrator, or anyone working for or on behalf of any of the foregoing, for any purpose other than the arbitration proceeding, and shall not be disclosed in any form to any Person not involved in the arbitration proceeding without the prior written consent of the party producing the information, or as permitted by the arbitrator or as required by law. (b) Any Person receiving a request or demand for disclosure, whether by compulsory process, discovery request, or otherwise, of documents or information obtained in the course of an arbitration proceeding that have been designated "Confidential" and that are subject to a non-disclosure requirement under this Exhibit, or that are subject to a decision of the arbitrator, shall immediately inform the Person from which the information was obtained, and shall take all reasonable steps to afford the Person from which the information was obtained an opportunity to protect the information from disclosure. Any person disclosing information in violation of this Exhibit or requirements established by the arbitrator shall be deemed to waive any right to introduce or otherwise use such information in any judicial, regulatory, or other legal or dispute resolution proceeding, including the proceeding in which the information was obtained. (c) Nothing in this Exhibit shall preclude any Person from using documents or information properly and previously obtained outside of an arbitration proceeding, or otherwise public, for any legitimate purpose, notwithstanding that the information was also obtained in the course of the arbitration proceeding. SECTION 4.10 Timetable. ---------- Promptly after the selection of the arbitrator, the arbitrator shall set a date for resolution of the dispute, which shall be not later than eight months (or such earlier date as may be agreed to by the parties) from the date of the selection of the arbitrator, with other dates, including the dates for an evidentiary hearing, or other final submissions of evidence, set in light of this date. The date for the evidentiary hearing, or other final submission of evidence, shall not be changed absent extraordinary circumstances. The arbitrator shall have the power to impose sanctions for dilatory tactics or undue delay in completing the arbitration proceedings. SECTION 4.11 Decisions. The arbitrator shall issue either an oral decision that is transcribed or a written decision, which may, at the arbitrator's discretion, include findings of fact. The arbitration decision shall be based on (i) the evidence in the record; (ii) the terms of the relevant Transco Agreements, including any principle, standard, requirement, procedure, plan, or other right or obligation established by or pursuant to those Transco Agreements; (iii) applicable federal and state legal standards, including the FPA and any applicable state and FERC regulations and decisions; and, (iv) relevant decisions in previous arbitration proceedings under the Transco Agreements which shall be available subject to applicable confidentiality provisions. All decisions of the arbitrator shall be maintained by the Committee and shall, subject to any applicable confidentiality provisions, be made available on request to all Members, to the Company and to federal and state regulatory authorities. The arbitrator shall have no authority to revise or alter any provision of any Transco Agreement. Any arbitration decision that affects matters subject to the jurisdiction of the FERC under section 205 or section 206 of the FPA shall be filed with the FERC and any arbitration decision that affect matters subject to the jurisdiction of a state authority shall be filed with that authority. SECTION 4.12 Costs. ------ Unless the arbitrator shall decide otherwise, the costs of the time, expenses, and other charges of the arbitrator shall be borne by the parties to the dispute, with each side on an arbitrated issue bearing one-half of such costs, and each party to an arbitration proceeding shall bear its own costs and fees. The arbitrator may require all of the costs of the time, expenses, and other charges of the arbitrator, plus all or a portion of the costs of arbitration, attorneys' fees, and the costs of mediation, if any, to be paid by any party that substantially loses on an issue determined by the arbitrator to have been raised without a substantial basis. SECTION 4.13 Enforcement. ------------ The decision of the arbitrator shall be final, binding and not appealable, except to the extent reviewable by FERC (as permitted or required by law) or as provided in Chapter 788 of the Wisconsin Statutes. Any party may petition any state or federal court having jurisdiction to enter judgment upon the arbitration award. SECTION 4.14 Regulatory Jurisdiction. ------------------------ If a party fails to invoke regulatory jurisdiction of a dispute involving matters subject to FERC or state regulatory jurisdiction within 60 days in accordance with Section 4.1 of this Exhibit, the party shall be deemed to have waived its right to invoke such jurisdiction; provided, however, that this waiver only applies to the party and does not affect any right that the FERC or state regulatory authority may have to act on its own. If such party nonetheless invokes FERC or applicable state regulatory jurisdiction following the arbitration proceedings provided for herein, that party shall be responsible for all attorneys' fees incurred by other parties to the dispute and the Company, whether or not the FERC or state regulatory authority concludes that such party has waived its right to invoke FERC or state regulatory jurisdiction. ARTICLE V ALTERNATE DISPUTE RESOLUTION COMMITTEE SECTION 5.1 Membership. ----------- (a) The Committee shall be composed of six representatives selected by the Board of Directors of the Corporate Manager, which shall use its best efforts to select a Committee that reflects the diversity, in terms of size, type of entity, and geographic location, of the Members. No more than one representative on the Committee may be a representative of the same Member. (b) Representatives on the Committee shall serve for terms of three years, beginning on the first day of the month following the annual meeting of the Board of Directors, and may serve additional terms, except that, of the representatives first elected to the Committee, two representatives shall serve terms of one year, and two representatives shall serve terms of two years. SECTION 5.2 Voting Requirements. --------------------- Approval of adoption of measures by the Committee shall require two-thirds of the votes of the representatives present and voting, but in no event less than three votes. Two-thirds of the representatives on the Committee shall constitute a quorum for the conduct of the business of the Committee. SECTION 5.3 Officers. --------- At the first meeting of the Committee following the annual meeting of the Board of Directors, the representatives on the Committee shall choose a Chair and Vice Chair from among the representatives on the Committee. The Chair and the Vice Chair shall each serve a term of three years, unless earlier terminated by a two-thirds vote of the representatives of the Committee. The Chair of the Committee shall preside at meetings of the Committee, and shall have the power to call meetings of the Committee and to exercise such other powers as are specified in this Exhibit or authorized by the Committee. SECTION 5.4 Meetings. ---------- The Committee shall meet at such times and places as determined by the Committee, or at the call of the Chair. The Chair shall call a meeting of the Committee upon the request of two or more members of the Committee. SECTION 5.5 Responsibilities. ----------------- The duties of the Committee include, but are not limited to, the following: (a) Maintain a pool of persons qualified by temperament and experience, and with technical or legal expertise in matters likely to be the subject of disputes, to serve a mediators and arbitrators under this Exhibit; (b) Determine the rates and other costs and charges that shall be paid to mediators and arbitrators for, or in connection with, their services; (c) Select mediators for disputes; (d) Determine if mediation is not warranted in a particular dispute; (e) Provide to the parties involved in a dispute lists of arbitrators qualified by temperament and experience, and with appropriate technical or legal expertise, to resolve particular disputes, such lists to include only neutral persons who have no official, financial, or personal interest or conflict of interest with respect to the parties or the issues involved in the dispute; (f) Compile and make available to Members, arbitrators, and other interested parties suggested procedures for the arbitration of disputes in accordance with Section 4.4 of this Exhibit; (g) Maintain and make available to Members, mediators, arbitrators, and other interested parties, subject to any applicable confidentiality provisions, the written decisions required by Section 4.11 of this Exhibit; (h) Establish such procedures and schedules, in addition to those specified herein, as it shall deem appropriate to further the prompt, efficient, fair, and equitable resolution of disputes; and (i) Provide such oversight and supervision of the dispute resolution processes and procedures instituted pursuant to this Exhibit as may be appropriate to facilitate the prompt, efficient, fair, and equitable resolution of disputes. SECTION 5.6 American Arbitration Association. ---------------------------------- Whenever the Company is a party to any dispute, any party whose interests are not aligned with the Company may demand that the Committee instruct the American Arbitration Association to provide the parties with a list of arbitrators pursuant to Section 4.3 in lieu of the Company supplying such list. In addition, in connection with such dispute, the Committee shall not perform any of those responsibilities charged to it pursuant to Section 5.5 and the dispute shall instead be resolved in accordance with the arbitration rules of the American Arbitration Association for the resolution of commercial disputes. EX-10.33 9 pensionex.txt ALLIANT ENERGY EXCESS PLAN EXHIBIT 10.33 ALLIANT ENERGY EXCESS PLAN November 2000 01/25/01 ALLIANT ENERGY EXCESS PLAN ----------- PREAMBLE -------- The Alliant Energy Excess Plan (the "Excess Plan") is designed to attract, retain and motivate key executives and employees by providing competitive retirement benefits. The Plan compensates Participants for the loss in benefits payable from the Alliant Energy Cash Balance Pension Plan (the "Qualified Plan") resulting from application of Internal Revenue Code sections 401(a) (17) and 415, and exclusion of amounts deferred under "Key Employee Deferred Compensation Plans" from the compensation used for determining benefits under the Qualified Plan. The Excess Plan is an unfunded plan for purposes of the Employee Retirement Income Security Act of 1974, as amended; however, nothing herein shall prevent the Company, in its sole discretion, from establishing a trust of the type commonly known as a "rabbi trust" to assist in meeting its obligations under the Plan. It is a nonqualified plan for purposes of Section 401 of the Internal Revenue Code of 1986, as amended. This plan is effective on August 1, 1998. ALLIANT ENERGY EXCESS PLAN ----------- ARTICLE I --------- DEFINITIONS ----------- Whenever used herein with the initial letter capitalized, words and phrases shall have the meanings stated below unless a different meaning is plainly required by the context. All masculine terms shall include the feminine and all singular terms shall include the plural in all cases in which they could thus be applied unless the context clearly indicates the gender or the number. 1.1 "Accrued Normal Retirement Benefit" means the amount of a Participant's Retirement Benefit, determined as of the date of his termination of employment, commencing as soon as administratively practicable following that date, and payable as an annuity in the normal form of payment available to the Participant under the Qualified Plan (or the Actuarial Equivalent of such amount when payable in another form). The amount of the Accrued Normal Retirement Benefit is defined in section 3.1. 1.2 "Actuarial Equivalent" means the procedure for converting a Participant's Accrued Normal Retirement Benefit to a single lump sum or to an optional form of payment, as defined in the Alliant Energy Cash Balance Pension Plan. 1.3 "Administrator" means the Employee Total Compensation Committee, as authorized by the Company to control and manage the operation and administration of this Plan under the definition and applicable provisions set forth in the Alliant Energy Cash Balance Pension Plan. 1.4 "Affiliate" means any entity that meets the definition of "Affiliate" set forth in the Alliant Energy Cash Balance Pension Plan. 1.5 "Board" or "Board of Directors" means the Board of Directors of the Company. 1.6 "Code" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. 1.7 "Committee" means the Compensation and Personnel Committee of the Board. 1.8 "Company" means Alliant Energy Corporate Services, Inc. and any successor or successors thereto. 1.9 "Compensation" means an employee's wages from a Participating Employer, as defined in the Cash Balance Pension Plan, but also including amounts excluded from the Cash Balance Pension Plan's definition of compensation by the operation of Code section 401(a)(17) and due to deferrals under the Key Employee Deferred Compensation Plans. (1) For purposes of calculating Average Monthly Compensation under the continuing provisions of the IES Pension Plan set forth in Appendix D of the Cash Balance Pension Plan, "Compensation" shall have the same meaning as provided under those provisions, except that any amounts excluded by operation of Code section 401(a)(17) or due to deferrals under the Key Employee Deferred Compensation Plans will be included as "Compensation." (2) For purposes of calculating "Average Monthly Compensation" under the continuing provisions of the of the Interstate Power Company Retirement Income Plan set forth in Appendix E of the Cash Balance Pension Plan, "Compensation" shall have the same meaning as provided under those provisions, except that any amounts excluded by operation of Code section 401(a)(17) or due to deferrals under the Key Employee Deferred Compensation Plans will be included as "Compensation." (3) For purposes of calculating "Pension Wages" under the continuing provisions of the Wisconsin Power and Light Company Retirement Plan A set forth in Appendix C of the Cash Balance Pension Plan, "Compensation" shall have the same meaning as provided under those provisions, except that any amounts excluded by operation of Code section 401(a)(17) or due to deferrals under the Key Employee Deferred Compensation Plans will be included as "Compensation." 1.10 "Excess Plan Cash Balance Account" means the notational accounts established for all Participants strictly for purposes of determining benefits under this Excess Plan. 1.11 "Key Employee Deferred Compensation Plans" means the Alliant Energy Key Employee Deferred Compensation Plan, the Wisconsin Power & Light Company Deferred Compensation Plans, and the IES Utilities Key Employee Deferred Compensation Plan. 1.12 "Normal Retirement Age" has the same meaning that appears in the Alliant Energy Cash Balance Pension Plan. 1.13 "Normal Retirement Date" has the same meaning that appears in the Alliant Energy Cash Balance Pension Plan. 1.14 "Participant" means an employee who has been determined by the Participating Employer to be eligible to participate in the Plan in accordance with Article II or who has entered into the Plan, and who has not ceased to have rights to a Retirement Benefit hereunder. 1.15 "Participating Employer" has the same meaning that appears in the Alliant Energy Cash Balance Pension Plan. The term also includes any successor corporation or firm which shall, by written agreement, assume the obligations of this Plan. 1.16 "Plan" means the Alliant Energy Excess Plan, as set forth herein, and as it may be amended from time to time. 1.17 "Plan Effective Date" means August 1, 1998. 1.18 "Plan Year" means August 1 through December 31, 1998, and every calendar year (January 1 through December 31) thereafter. 1.19 "Qualified Plan" means the Alliant Energy Cash Balance Pension Plan, which is qualified under Code Section 401(a). 1.20 "Retirement Benefit" means a pension or any other payment or payments payable under the terms of this Plan to a Participant or the Participant's Spouse. 1.21 "Retirement Date" means the date on which a Participant's Retirement Benefit commences. 1.22 "Spouse" means an individual who is legally married to a Participant as of the earlier of the date of the Participant's death or the Participant's Retirement Date. ARTICLE II ---------- PARTICIPATION ------------- 2.1 Participating Employees. Each employee: (1) who is a ------------------------ Participant in the Qualified Plan on or after January 1, 1999 and (2) whose benefits or compensation under the Qualified Plan are limited due to the application of Code sections 401(a)(17), 415(b), or 415(e) or due to deferrals under the Key Employee Deferred Compensation Plans. Each Participant's right to benefits under this Plan shall vest in accordance with Article V hereof. 2.2 Cessation of Participation. A Participant shall cease to be --------------------------- an active Participant in this Plan and such Participant shall become an inactive Participant as of the date such Participant ceases to be an Employee of a Participating Employer, if they are not vested in accordance with Article V. ARTICLE III ----------- FORM AND AMOUNT OF PLAN BENEFITS -------------------------------- 3.1 Accrued Normal Retirement Benefit. The Accrued Normal ---------------------------------- Retirement Benefit payable to a Participant shall be a single lump sum distribution, payable as soon as administratively practicable after the Participant's date of termination of employment. The Accrued Normal Retirement Benefit shall equal the excess, if any of (a) over (b), where: (a) equals the total benefit otherwise payable to a Participant under the terms of the Qualified Plan, but such benefit shall be based on the definition of Compensation that appears in this Excess Plan and without regard to the Code section 415 or the requirements set forth in article 8 of the Qualified Plan, and (b) equals the actual benefit payable to the Participant under the Qualified Plan. 3.2 No Duplication between Excess Plan and Supplement Retirement ------------------------------------------------------------- Agreement. Strictly for purposes of determining the amount, ----------- if any, of benefit payable to an employee in accordance with a Supplemental Retirement Agreement between such employee and the Company, benefits payable to such employee from this Excess Plan will be combined with benefits payable from the Qualified Plan and any other offsets, if any, with the effect that there shall be no duplication of benefits between the Excess Plan and any Supplemental Retirement Agreement. 3.3 Notational Excess Plan Cash Balance Accounts. Strictly for --------------------------------------------- purposes of determining benefits under the Excess Plan, notational Excess Plan Cash Balance Accounts shall be established for all Participants. No Company funds or assets shall be used to fund these accounts. Benefit payments will be made from the Company's general assets when due. 3.4 Timing of Payment. All payments shall begin as soon as ------------------ administratively practical following a Participant's termination of employment with a Participating Employer. 3.5 Normal Form of Retirement Benefit Payment. A Participant's ----------------------------------------- Accrued Normal Retirement Benefit shall be paid as a lump sum distribution unless the Participant elects one of the Optional Forms of Benefit at least 12 months before the Participant's date of termination of employment. Notwithstanding anything to the contrary herein, the Employee Total Compensation Committee, may in its sole discretion, authorize or decline Optional Forms of Benefit where the election of such Optional Form of Benefit is received on or before December 1, 2000. Notwithstanding anything to the contrary herein, the Employee Total Compensation Committee, may in its sole discretion, determine that a lump sum payment shall be made in lieu of any small annuity payments. 3.6 Optional Forms of Benefit. In lieu of the normal form of ------------------------- to receive the Actuarial Equivalent of his benefit under any of the Normal or Optional Forms of Benefit available to the Participant under the Qualified Plan. 3.7 Treatment of Payments Under Other Plans. Benefits earned by ---------------------------------------- a Participant under this Plan shall not be considered "Compensation" as that term is defined in other Alliant Energy Plans. ARTICLE IV ---------- DEATH BENEFITS BEFORE RETIREMENT -------------------------------- 4.1 Preretirement Death Benefits. If the Participant dies ----------------------------- before retirement, the Plan provides a Preretirement Death Benefit to his surviving Spouse or designated Beneficiary. This benefit shall be equal to the Actuarial Equivalent present value of the Participant's Excess Plan Cash Balance Account and payable in a single lump sum as soon as administratively feasible following the Participant's death. 4.2 Beneficiary Designation. A Participant may designate any ------------------------ person or persons, including a trust, as the Beneficiary or Contingent Beneficiary to receive this Preretirement Death Benefit. A beneficiary designation shall be made in a manner approved by the Administrator. The Participant may change or cancel this designation at any time prior to death. If a Participant fails to designate a Beneficiary, the benefits payable on account of the Participant's death shall be paid to the Participant's surviving Spouse, or, if none, to the Participant's estate. ARTICLE V --------- VESTING ------- 5.1 Vesting. A Participant shall vest in his entire Accrued -------- Normal Retirement Benefit according to the vesting provisions set forth in Article 3 of the Qualified Plan. ARTICLE VI ---------- PAYMENT OF RETIREMENT BENEFIT ----------------------------- 6.1 Survival. Payment of any Retirement Benefit hereunder which --------- is contingent upon the survival of the payee shall cease with the last payment due the payee before the payee's death. 6.2 Administrative Powers Relating to Payments. If a ------------------------------------------- Participant or Spouse is under a legal disability or, by reason of illness or mental or physical disability, is unable, in the opinion of the Committee, to attend properly to such Participant's personal financial matters, the Committee may make such payments in such of the following ways as the Committee shall direct: (a) Directly to such Participant or Spouse; (b) To the legal representative of such Participant or Spouse; or (c) To some relative by blood or marriage, or friend, for the benefit of such Participant or Spouse. Any payment made pursuant to this section 6.2 shall be in complete discharge of the obligation for such payment under the Plan. 6.3 Restrictions Upon Assignments and Creditors' Claims. Except ----------------------------------------------------- as otherwise provided in the Plan, no Participant, former Participant or any Spouse, or the estate of any such person, shall have the power to assign, pledge, encumber or transfer any interest in the Plan while the same shall be possession of the Company. Any such attempt at alienation shall be void. No such interest shall be subject to attachment, garnishment, execution, levy or any other legal equitable proceeding or process and any such attempt shall be void. 6.4 Incompetency. If a person receiving payments under this ------------- Plan is determined mentally to be incompetent by a court of competent jurisdiction, any remaining benefit payments under this Plan will be made to the court-appointed guardian or conservator. 6.5 Claim for Benefits. To receive benefits, the Participant or ------------------ Beneficiary must file a written claim with the Committee on forms provided by the Committee. The Participant shall be subject to the same application procedures that apply to the Alliant Energy Cash Balance Plan. If a claim for benefits is denied, in whole or in part, the claimant will receive a notice that states (1) the specific reason or reasons for the denial; (2) refers to relevant provisions of the Plan documents on which the denial is based; (3) describes and explains the needs for any additional material or information that the claim must supply to validate his claim; and (4) explains the steps that the claimant must take to submit his claim for review. 6.6 Right to Appeal. If a Participant's request for benefits is ---------------- denied, the Participant has the right to appeal the denial in writing by following the Claim Appeal Procedures outlined in section 11.3 of the Alliant Energy Cash Balance Plan. ARTICLE VII ----------- GENERAL PROVISIONS ------------------ 7.1 Continuation of the Plan. The Plan shall be binding upon -------------------------- the Company and any successors or assigns of the Company including any corporation with or into which the Company or its successors or assigns shall consolidate or merge and any transferred of substantially all of the assets of the Company or its successors or assigns. 7.2 Right to Amend, Suspend or Terminate. The Company reserves -------------------------------------- the right at any time and from time to time to amend, suspend or terminate the Plan by action of its Board of Directors without the consent of any Participant, Spouse, or other persons claiming a right under the Plan. No amendment of the Plan shall reduce the benefits of any Participant below the amount to which such Participant has become vested pursuant to section 5.1 prior to the date of amendment. 7.3 Rights to Benefits and Possible Forfeitures. No person -------------------------------------------- shall have any right to a benefit under the Plan except as such benefit has accrued to such person in accordance with the terms of the Plan, and such right shall be no greater than the rights of any unsecured general creditors of the Company. Notwithstanding any other provisions of this Plan, if a Participant shall be terminated for cause, all of such Participant's rights to benefits under this Plan shall be forfeited. The Board of Directors shall determine whether a Participant has been terminated for cause. For purposes of this Plan, "cause" includes, but is not limited to (i) embezzlement of company funds; (ii) fraud; and (iii) acts that cause harm to the company or its reputation. 7.4 Titles. The titles of the Articles and sections herein are -------- included for convenience of reference only and shall not be construed as part of this Plan, or have any effect upon the meaning of the provisions hereof. 7.5 Separability. If any term or provision of this Plan as ------------- presently in effect or as amended from time to time, or the application thereof to any payments or circumstances, shall to any extent be invalid or unenforceable, the remainder of the Plan, and the application of such term or provisions to payments or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term or provision of the Plan shall be valid and enforced to the fullest extent permitted by law. 7.6 Authorized Officers. Whenever the Company under the terms -------------------- of the Plan is permitted or required to do or to perform any act or matter or thing, it shall be done and performed by any officer duly authorized by the Board of Directors of the Company, provided that the authority to approve Participants shall be bested in the Committee. 7.7 No Contract of Employment. Nothing herein contained shall ------------------------- be construed to constitute a contract of employment between any Participating Employer and any Employee. The employment records of the Participating Employers and the Company's records shall be final and binding upon all Employees as to liability and participation. 7.8 Data. It shall be a condition precedent to the payment of ------ all benefits under the Plan that each Participant, former Participant and Spouse must furnish to the Company such documents, evidence or information as the Company considers necessary or desirable for the purpose of administering the Plan, or to protect the Company. 7.9 Applicable Law. The Plan shall be construed and --------------- administered in accordance with the laws of Wisconsin to the extent such laws are not preempted by ERISA. EX-10.41 10 severance.txt SEVERANCE AGREEMENT AND RELEASE EXHIBIT 10.41 SEVERANCE AGREEMENT AND RELEASE This SEVERANCE AGREEMENT AND RELEASE ("Agreement") is entered into by and among ALLIANT ENERGY CORPORATION ("Alliant Energy"), American Transmission Company, LLC ("ATC"), (collectively referred to as the "Companies"), and John Ebright ("Ebright"). NOW, THEREFORE, in consideration for the mutual promises set forth herein, the parties agree as follows: 1. Severance. Ebright's employment with the Companies will terminate ---------- effective March 31, 2001 ("Severance Date"). Ebright shall receive his current salary and benefits through the Severance Date. Except as expressly provided herein, all obligations of the Companies to Ebright will terminate as of the Severance Date. Ebright agrees to cooperate in the transition at the Companies as necessitated by his severance, will make himself available for reasonable questions from representatives of the Companies to aid in the transition, and will cooperate in turning over his files to successor employees. 2. Severance Benefits. In consideration for the release set forth in -------------------- Paragraph 5 of this Agreement, the Companies will pay to Ebright the total sum of $330,000 base salary and $99,000 incentive pay, subject to appropriate federal and state withholdings. This sum represents twenty-four (24) months of pay at Ebright's base salary plus two years' target incentive compensation. Payment to employee shall be made within fifteen days following March 31, 2001. 3. Outplacement Services. In further consideration for the release set ----------------------- forth in Paragraph 5 of this Agreement, Ebright will be eligible to receive up to nine (9) months of outplacement services through a provider of the Companies' choice. 4. Other Benefits. Ebright will cease to be eligible to participate under -------------- any stock option, bonus, equity, incentive compensation, medical, dental, life insurance, retirement, pension, and other compensation or benefit plans of the Companies following the Severance Date in accordance with the terms of those plans, except as set forth below. Thereafter, Ebright will have no rights under such plans, except as follows: a. Ebright will retain any vested rights under all qualified retirement plans of the Companies in which Ebright is a participant and all rights associated with such benefits, as determined by the official terms of those plans. b. All vested stock options held by Ebright as of the Severance Date may be exercised in accordance with the official terms of any stock option plan in which Ebright is a participant. All options not vested as of the Severance Date shall be forfeited. c. Ebright may elect continued coverage under a medical plan and/or dental plan of the Companies in which he participates, in accordance with federal COBRA provisions, for up to 18 months. If Ebright elects such continued coverage, the Companies will pay for 18 months of COBRA coverage. 5. Release. In exchange for the promises made by the --------- Companies contained in this Agreement, Ebright hereby releases and forever discharges the Companies and their respective subsidiaries, affiliates, agents, employees, officers, directors, shareholders, partners, successors, and assigns from all claims, liabilities, demands and causes of action whether known or unknown, fixed or contingent, arising out of or in any way connected with Ebright's employment with the Companies or the termination thereof. This Agreement includes, but is not limited to, all matters in law, in equity, in contract, or in tort, pursuant to statute, including any claim for discrimination arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, or any other applicable federal, state, or local law or ordinance. This agreement does not apply to any claim or rights that may arise under the Age Discrimination in Employment Act after the date this Agreement is executed. It is expressly agreed Ebright will not institute, cause to be instituted, prosecute, or take any award of money or other damages from any action, lawsuit, complaint, or proceeding against the Companies which relates to, or arises out of, Ebright's employment with the Companies or the termination thereof; provided, however, that this provision shall not prohibit either party from taking such steps as are necessary to enforce the terms and conditions of this Agreement. 6. Proprietary and Confidential Information. Ebright ----------------------------------------- agrees to hold in strictest of confidence, and not use to compete with the Companies or disclose to anyone except as expressly authorized in writing by the Companies, any proprietary or confidential information of the Companies or other information and data pertaining to the activities and operations of the Companies and not made available to the general public by the Companies or with the Companies' consent. Proprietary and confidential information includes, but is not limited to, trade secrets, information relating to the business, financial, legal, and personnel matters of the Companies, information relating to the internal operations of the Companies such as operations methods, equipment, and quality control procedures, information relating to development projects, all technical information, information relating to actual or potential customers or suppliers, marketing plans, price and cost data, and proprietary information of other companies or individuals which has been disclosed to the Companies under a requirement of secrecy. Proprietary and confidential information may or may not be in documentary form and includes computer software programs, drawings, plans, letters, and databases. This obligation shall remain in effect for so long as Ebright has knowledge or possession of information that remains confidential and secret. Ebright shall promptly return to the Companies, and not deliver to anyone else, all documents and materials containing proprietary and confidential information, including the original and all copies and summaries of such documents and materials. Ebright shall not keep any copies or make or retain any abstracts or notes of such information. 7. Repayment of Severance Benefits. The parties ------------------------------- acknowledge that if Ebright is rehired by the Companies or one of their respective subsidiaries or affiliates within a period of time which is less than the number of months of severance pay received by him, Ebright will be required to repay a portion of the severance pay to be calculated based on the number of months of severance pay received by Ebright less the number of days he was separated from the Companies. 8. Deductions. Ebright agrees that any money which he ----------- owes the Companies as the result of credit card charges, personal advances, or other similar items will be deducted from his paycheck or from any severance payments made under this Severance Agreement and Release. 9. Voluntary Agreement; Advice of Counsel; 21-Day Period. ------------------------------------------------------ Ebright acknowledges and states that: a. He has read this Agreement, understands its legal and binding effect, and is acting voluntarily and freely in executing this Agreement. b. He has had an opportunity to seek, and was advised in writing to seek, legal counsel prior to signing this Agreement. c. He was given at least 21 days to consider the terms of this Agreement prior to signing it. 10. Revocation. Ebright and the Companies expressly agree ----------- that Ebright has the right to revoke this Agreement by informing Tom Walker of his intent to revoke this Agreement within 7 calendar days after he signs it, and that this Agreement shall not become effective or enforceable if revoked. Any revocation, however, does not affect Ebright's separation from employment effective as of the Severance Date set forth in Paragraph 1. 11. Choice of Law. This Agreement shall be construed under ---------------- the laws of the State of Wisconsin. In the event of any necessary action, the prevailing party shall be entitled to reasonable costs and attorneys' fees as the court may adjudge reasonable. 12. Binding Effect. This Agreement shall inure to the --------------- benefit of and is binding upon the parties hereto and their respective heirs, executors, estates, personal representatives, legal representatives, parents, subsidiaries, affiliates, successors, and assigns. 13. Confidential Agreement. Ebright agrees to keep the ----------------------- nature, terms, and conditions of this Agreement confidential, except that he may share information concerning the Agreement with his spouse, legal counsel, and tax advisors. Ebright agrees to instruct all individuals who may be informed of the nature, terms, and conditions of this Agreement, of the confidential nature of this Agreement and to obtain a pledge from those individuals to maintain confidentiality. 14. Entire Agreement. This Agreement contains the entire ----------------- agreement between Ebright and the parties, and there are no other understandings or terms, either express or implied. This Agreement shall be amended only by a written agreement signed by all parties. Ebright agrees that this Agreement supersedes and satisfies all agreements and obligations previously entered into between him and the Companies, including, but not limited to, the December 15, 1999 letter agreement between Ebright and Alliant Energy Corporation. 15. Severability. If any provision of this Agreement is ------------- held invalid or unenforceable, the remainder of this Agreement shall remain in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. I HAVE CAREFULLY READ THIS AGREEMENT. I HAVE BEEN ADVISED IN WRITING TO TAKE THIS AGREEMENT TO AN ATTORNEY OF MY CHOOSING FOR REVIEW AND EXPLANATION. I FULLY UNDERSTAND THE BINDING EFFECT OF THIS AGREEMENT AND THAT IT CONTAINS A VOLUNTARY RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS RELATING TO OR ARISING OUT OF EMPLOYMENT WITH THE COMPANIES OR THE TERMINATION OF THAT EMPLOYMENT. I AM SIGNING THIS AGREEMENT VOLUNTARILY AND WITH THE FULL INTENT OF RELEASING THE COMPANIES FROM ALL CLAIMS RELATING TO OR ARISING OUT OF MY EMPLOYMENT OR THE TERMINATION OF THAT EMPLOYMENT. Date: By: - ---------------------------- ------------------------------------ John Ebright ALLIANT ENERGY CORPORATION Date: By: - ---------------------------- ------------------------------------ Tom Walker AMERICAN TRANSMISSION COMPANY, LLC Date: By: - ---------------------------- ------------------------------------ Jose Delgado EX-21 11 exhibit21.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 ALLIANT ENERGY CORPORATION SUBSIDIARIES OF THE REGISTRANT The following are deemed to be significant subsidiaries of Alliant Energy Corporation as of December 31, 2000: Name of Subsidiary State of Incorporation - ------------------ ----------------------- IES Utilities Inc. Iowa Wisconsin Power and Light Company Wisconsin Interstate Power Company Delaware Alliant Energy Resources, Inc. Wisconsin Alliant Energy Investments, Inc. Iowa WISCONSIN POWER AND LIGHT COMPANY SUBSIDIARIES OF THE REGISTRANT The following is deemed to be a significant subsidiary of Wisconsin Power and Light Company as of December 31, 2000: Name of Subsidiary State of Incorporation - ------------------ ----------------------- WPL Transco LLC Wisconsin EX-23.1 12 exhibit231.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our report on the consolidated financial statements of Alliant Energy Corporation included in this Alliant Energy Corporation Form 10-K into Alliant Energy Corporation's previously filed Registration Statements on Form S-8 (Nos. 333-41485, 333-46735, 333-51126 and 333-92783) and Form S-3 (No. 333-26627). /s/ ARTHUR ANDERSEN LLP - ----------------------- ARTHUR ANDERSEN LLP Milwaukee, Wisconsin March 29, 2001 EX-23.2 13 exhibit232.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our report on the consolidated financial statements of IES Utilities Inc. included in this IES Utilities Inc. Form 10-K into IES Utilities Inc.'s previously filed Registration Statement on Form S-4 (No. 333-53846). /s/ ARTHUR ANDERSEN LLP - ----------------------- ARTHUR ANDERSEN LLP Milwaukee, Wisconsin March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----