-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MfaaggsYlS4CeWDcyKMBgaz8xyh8h06vSYZz//ZoOLLsuTnXeup9ObVb387pdRKP skC1ToUKC2GoHO4MBulrqw== 0000897069-95-000020.txt : 19950615 0000897069-95-000020.hdr.sgml : 19950615 ACCESSION NUMBER: 0000897069-95-000020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950315 SROS: NONE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-00337 FILM NUMBER: 95520928 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 10-K 1 WISCONSIN POWER & LIGHT FORM 10-K 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 (Fee Required) For the fiscal year ended December 31, 1994 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from __________ to __________ Commission file number 0-337 WISCONSIN POWER AND LIGHT COMPANY (Exact name of registrant as specified in its charter) Wisconsin 39-0714890 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 222 West Washington Avenue, Madison, Wisconsin 53703 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (608) 252-3311 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None Securities registered pursuant to Section 12(g) of the Act: Preferred Stock (Accumulation without Par Value) (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at January 31, 1995 Common Stock, $5 par value 13,236,601 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's 1995 Proxy Statement relating to its 1995 Annual Meeting of Shareowners (to be filed with the Commission under Regulation 14A within 120 days after the end of the registrant's fiscal year) are incorporated by reference into Part III hereof. WISCONSIN POWER AND LIGHT COMPANY FORM 10-K December 31, 1994 TABLE OF CONTENTS Part I. Business............................................2 Properties..........................................14 Legal Proceedings...................................15 Executive Officers..................................16 Part II. Financial Information...............................18 Part III. Directors and Executive Officers Information.....................................46 Part IV. Exhibits............................................47 Signatures...................................................50 Report of Independent Public Accountants on Schedules........51 PART I ITEM 1. BUSINESS THE COMPANY On March 1, 1988, after obtaining shareowner and all the necessary regulatory approvals, Wisconsin Power and Light Company (the "Company" or "WPL") effected a corporate restructuring which included the formation of a holding company, WPL Holdings, Inc. WPL Holdings, Inc. is the parent company of WPL and its utility subsidiaries and of Heartland Development Corporation, the parent corporation for nonregulated businesses. WPL, incorporated in Wisconsin on February 21, 1917 as the Eastern Wisconsin Electric Company, is a public utility predominately engaged in the transmission and distribution of electric energy and the generation and bulk purchase of electric energy for sale. It also transports, distributes and sells natural gas purchased from gas suppliers. Nearly all of WPL's customers are located in south and central Wisconsin. WPL operates in municipalities pursuant to permits of indefinite duration which are regulated by Wisconsin law. WPL does not derive a material portion of its revenues from any one customer. WPL owns all of the outstanding capital stock of South Beloit Water, Gas and Electric Company ("South Beloit"), a public utility supplying electric, gas and water service, principally in Winnebago County, Illinois, which was incorporated on July 23, 1908. WPL also owns varying interests in several other subsidiaries and investments which are not material to WPL's operations. Regulation WPL is subject to regulation by the Public Service Commission of Wisconsin ("PSCW") as to retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities, and in other respects. South Beloit is subject to regulation by the Illinois Commerce Commission ("ICC") for similar items. The Federal Energy Regulatory Commission ("FERC") has jurisdiction under the Federal Power Act over certain of the electric utility facilities and operations, wholesale rates and accounting practices of WPL and in certain other respects. Certain of WPL's natural gas facilities and operations are subject to the jurisdiction of the FERC under the Natural Gas Act. The Company is presently exempt from all provisions of the Public Utility Holding Company Act of 1935, except provisions relating to the acquisition of securities of other public utility companies. The PSCW has recently opened a formal docket initiating and inquiry into the future structure of the electric utility industry in Wisconsin. The goals of Wisconsin utility regulation and the principles to be used in choosing among alternative proposals have been identified. WPL has submitted its preferred structure which, in summary form, calls for open access to transmission and distribution systems and a competitive power generation market place. It is not possible at this time to predict the outcome of these proceedings. With respect to environmental matters, the United States Environmental Protection Agency administers certain federal statutes with administrative responsibility with respect to others being delegated to the Wisconsin Department of Natural Resources ("DNR"). In addition, the DNR has jurisdiction over air and water quality standards associated with fossil fuel fired electric generation and the level and flow of water, safety and other matters pertaining to hydroelectric generation. WPL is subject to the jurisdiction of the Nuclear Regulatory Commission ("NRC") with respect to the Kewaunee Nuclear Power Plant ("Kewaunee") and to the jurisdiction of the United States Department of Energy ("DOE") with respect to the disposal of nuclear fuel and other radioactive wastes from Kewaunee. Employees At year-end 1994, WPL employed 2,391 persons, of whom 1,924 were considered electric utility employees, 334 were considered gas utility employees and 133 were considered other utility employees. WPL has a three-year contract with members of the International Brotherhood of Electrical Workers, Local 965, that is in effect until June 1, 1996. The contract covers 1,647 of WPL's employees. ELECTRIC OPERATIONS: General WPL provides electricity in a service territory of approximately 16,000 square miles in 35 counties in southern and central Wisconsin and four counties in northern Illinois. As of December 31, 1994, WPL provided retail electric service to approximately 371,000 customers in 663 cities, villages and towns, and wholesale service to 27 municipal utilities, one privately owned utility, three rural electric cooperatives and to the Wisconsin Public Power, Inc. system, which provides retail service to nine communities. WPL owns 20,969 miles of electric transmission and distribution lines and 362 substations located adjacent to the communities served. WPL's electric sales are seasonal to some extent with the yearly peak normally occurring in the summer months. WPL also experiences a smaller winter peak in December or January. Fuel In 1994, approximately 80 percent of WPL's net kilowatthour generation of electricity was fueled by coal and 17 percent by nuclear fuel (provided by WPL's 41 percent ownership interest in Kewaunee). The remaining electricity generated was produced by hydroelectric, oil-fired and natural gas generation. Coal WPL anticipates that its average fuel costs will likely increase in the future, due to cost escalation provisions in existing coal and transportation contracts. The estimated coal requirements of WPL's generating units (including jointly-owned facilities) for the years 1995 through 2014 total about 167 million tons. Present coal supply contracts and transportation contracts (excluding extension options) cover approximately 14 percent and 21 percent, respectively, of this estimated requirement. WPL will seek renewals of existing contracts or additional sources of supply and negotiate new or additional transportation contracts to satisfy these requirements and to comply with environmental regulations. Nuclear Kewaunee is jointly-owned by WPL (41%), Wisconsin Public Service Corporation (41.2%) and Madison Gas & Electric Company (17.8%). Wisconsin Public Service Corporation (WPSC) is the operating partner. The plant began commercial operation in 1974. WPSC, the plant operator, is a member of the INPO, an organization of nuclear utilities which promotes excellence in all aspects of nuclear plant operations. INPO manages the accreditation process for industry training programs, which includes periodic accreditation of those training programs by an independent organization, the NNAB. All ten accredited training programs at Kewaunee are currently in good standing with the NNAB. The supply of nuclear fuel for the Kewaunee plant involves the mining and milling of uranium ore to uranium concentrates, the conversion of uranium concentrates to uranium hexafluoride, enrichment of the uranium hexafluoride and fabrication of the enriched uranium into usable fuel assemblies. After a region (approximately one-third of the nuclear fuel assemblies in the reactor) of spent fuel is removed from the reactor, it is placed in temporary storage for cooling in a spent fuel pool at the plant site. Permanent storage is addressed below. Presently, there are no operating facilities in the United States reprocessing commercial nuclear fuel. A discussion of the nuclear fuel supply for Kewaunee, which requires approximately 250,000 pounds of uranium concentrates per year follows: (a) Requirements for uranium are met through spot market purchases of uranium. In general, a four-year supply of uranium is maintained. (b) Uranium hexafluoride, from inventory and from spot market purchases, was used to satisfy converted material requirements in 1994. Conversion services relating to uranium hexafluoride will be purchased on the spot market in the future. (c) In 1994, enriched uranium was procured from COGEMA, Inc. pursuant to a contract last amended in 1993. Enrichment services were purchased from the DOE, under the terms of the utility services contract. This contract is in effect for the life of Kewaunee. The partnership is committed to take 70 percent of its annual requirements in 1995, and in alternate years thereafter, from the DOE. (d) Fuel fabrication requirements through June 15, 1995 are covered by contract. This contract contains an option to allow extension of the contract through 1998. WPSC is negotiating a contract for fuel fabrication extending through 2001. (e) Beyond the stated periods for Kewaunee, additional contracts for uranium concentrates, conversion to uranium hexafluoride, fabrication and spent fuel storage will have to be procured. The prices for the foregoing are expected to increase. The National Energy Policy Act of 1992 provides that both the Federal government and the nuclear utilities fund the decontamination and decommissioning of the three federal gaseous diffusion plants in the United States. This will require the owners of Kewaunee to pay approximately $15 million in current dollars over a period of 15 years. WPL's share amounts to an annual payment of approximately $410,000. The steam generator tubes at the Kewaunee plant are susceptible to corrosion characteristics, a condition that has been experienced throughout the nuclear industry. Annual inspections are performed to identify degraded tubes. Degraded tubes are either repaired by sleeving or are removed from service plugging. The steam generators were designed with approximately 15 percent heat transfer margin, meaning that full power should be sustainable with the equivalent of 15 percent of the steam generator tubes plugged. Tube plugging and the build-up of deposits on the tubes affect the heat-transfer capability of the steam generators to the point where eventually full power operation is not possible and there is a gradual decrease in the capacity of the plant. As a result of this process, Kewaunee's capacity could be reduced by as much as 20% by the year 2013 when the current operating license expires. Currently, the equivalent of approximately 12 percent of the tubes in the steam generator are plugged. WPL and the joint-owners recently completed studies evaluating the economics of replacing the two steam generators at Kewaunee. The studies resulted in the conclusion that the most prudent course of action is to continue operation of the existing steam generators. WPL and the other joint-owners continue to evaluate appropriate strategies, including replacement, as well as continued operation of the steam generator without replacement. WPL and the joint- owners also continue to fund the development of welded repair technology for steam generator tubes. The plant is expected to be operated until at least 2013. WPL and the joint-owners are also continuing to evaluate and implement initiatives to improve the performance of Kewaunee which already performs at above average levels for the industry. These initiatives include conversion from a 12-month to an 18-month fuel cycle and numerous other cost reduction measures. These initiatives have resulted in reductions in Kewaunee operating and maintenance costs since 1991. Physical decommissioning is expected to occur during the period 2014 to 2021 with additional expenditures being incurred during the period 2022 to 2050 related to the storage of spent nuclear fuel at the site. Wisconsin utilities operating nuclear generating plants are required by the PSCW to establish external trust funds to provide for the decommissioning of such plants. The market value of the investments in the funds established by WPL at December 31, 1994 totaled $51.8 million. Additionally, in July 1994, the PSCW issued a generic order covering utilities that have nuclear generation. This order standardizes the escalation assumptions to be used in determining nuclear decommissioning liabilities. WPL's share of the decommissioning costs is estimated to be $159 million (in 1994 dollars, assuming the plant is operating through 2013) based on a 1992 study, using the immediate dismantlement method of decommissioning. The undiscounted amount of decommissioning costs estimated to be expended between the years 2014 and 2050 is $1,016 million. After-tax earnings on the tax-qualified and nontax-qualified decommissioning funds are assumed to be 6.1% and 5.1%, respectively. The future escalation rate is assumed to be 6.5%. Pursuant to the Nuclear Waste Policy Act of 1982, the DOE has entered into a contract with WPL to accept, transport and dispose of spent nuclear fuel beginning no later than January 31, 1998. It is likely that the DOE will delay the acceptance of spent nuclear fuel beyond 1998. A fee to offset the costs of the DOE's disposal for all spent fuel used since April 7, 1983 has been assessed by the DOE at one mill per net kilowatthour of electricity generated and sold by the Kewaunee nuclear power plant. An additional one-time fee was paid for the disposal of spent nuclear fuel used to generate electricity prior to April 7, 1983. Spent fuel is currently stored at Kewaunee. The existing capacity of the spent fuel storage facility will enable storage of the projected quantities of spent fuel through April 2001. WPL is currently evaluating options for the storage of additional quantities beyond 2001. Several technologies are available. An investment of approximately $2.5 million in the early 2000's could provide additional storage sufficient to meet spent fuel storage needs until the expiration of the current operating license. The Low-Level Radioactive Waste Policy Act of 1980 as amended in 1985 provides that states may enter into compacts to provide for regional low-level waste disposal facilities. Wisconsin is a member of the Midwest Interstate Low-Level Radioactive Waste Compact. The state of Ohio has been selected as the host state for the Midwest Compact and is proceeding with the preliminary phases of site selection. In June of 1994, the Branwell, South Carolina disposal facility, which had been accepting Kewaunee low level radioactive waste materials, discontinued taking waste materials from outside its region. WPL expects to have sufficient storage space of its own to satisfy low level radioactive waste disposal needs until the Ohio facility accepts low level radioactive waste materials. Recovery of Electric Fuel Costs In 1994 WPL did not automatically pass changes in electric fuel costs through to its Wisconsin retail electric customers. Instead, rates were based on estimated per unit fuel costs established during rate proceedings and were not subject to change by fuel cost fluctuations unless actual costs were outside specified limits. If actual fuel costs had varied from the estimated costs by more than +10 percent in a month or by more than +3 percent for the test year to date, rates could have been adjusted based on the results of a special fuel cost hearing. During 1994, fuel costs remained within the aforementioned parameters. See Note 1F in Notes to Consolidated Financial Statements included as part of Item 8 hereto. WPL's wholesale rates and South Beloit's retail rates contain fuel adjustment clauses pursuant to which rates are adjusted monthly to reflect changes in the costs of fuel. WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED ELECTRIC STATISTICS
Year Ended December 31, 1994 1993 1992 1991 1990 Area served (end of period): Population--retail (estimated)(a).......... 822,000 818,000 807,000 799,000 777,000 Cities, villages and towns served--retail.. 607 609 611 611 604 Customers served (end of period): Residential and farm....................... 322,924 316,870 310,702 304,825 302,942 Industrial................................. 776 714 727 679 635 Commercial................................. 43,793 42,884 42,287 41,190 40,358 Wholesale.................................. 31 32 30 31 31 Class A.................................... 11 7 9 10 10 Other...................................... 1,256 1,236 950 1,173 1,147 --------- --------- --------- --------- --------- Total.................................... 368,791 361,743 354,705 347,908 345,123 ========= ========= ========= ========= ========= Sales--kilowatt-hours (in thousands): Residential and farm....................... 2,776,895 2,751,363 2,614,439 2,729,917 2,566,093 Industrial................................. 3,764,953 3,540,082 3,377,132 3,185,101 3,173,932 Commercial................................. 1,688,349 1,629,911 1,551,823 1,558,297 1,492,255 Wholesale.................................. 2,207,098 2,105,905 1,994,722 1,979,832 1,885,424 Class A.................................... 367,023 282,226 213,697 461,357 352,129 Other...................................... 54,217 51,073 55,230 54,376 55,101 --------- --------- --------- --------- --------- Total.................................... 10,858,535 10,360,560 9,807,043 9,968,880 9,524,934 ========= ========= ========= ========= ========= Electric operating revenues (in thousands): Residential and farm....................... 194,242 184,176 171,887 179,751 170,875 Industrial................................. 140,487 132,903 128,467 124,212 124,972 Commercial................................. 101,382 95,977 91,707 92,628 89,618 Wholesale.................................. 76,056 69,757 67,326 68,154 65,983 Class A.................................... 10,344 9,198 10,159 14,677 9,784 Other...................................... 9,236 11,176 8,189 9,130 9,587 --------- --------- --------- --------- --------- Total.................................... 531,747 503,187 477,735 488,552 470,819 ========= ========= ========= ========= ========= Percent of generation by fuel type: Coal....................................... 80.4% 80.3% 79.8% 81.1% 79.6% Nuclear.................................... 16.8% 16.5% 17.4% 15.7% 17.6% Hydroelectric.............................. 2.4% 2.9% 2.6% 2.6% 2.5% Natural gas................................ 0.3% 0.2% 0.1% 0.5% 0.2% Oil........................................ 0.1% 0.1% 0.1% 0.1% 0.1% --------- --------- --------- --------- --------- Total.................................... 100.0% 100.0% 100.0% 100.0% 100.0% ========= ========= ========= ========= ========= System capacity--at time of system peak: (kWh's) Company plants (including jointly owned)... 2,193,000 2,019,000 1,934,000 1,932,000 1,936,000 Firm purchased (sold) power................ 40,000 83,000 110,000 70,000 (55,000) --------- --------- --------- --------- --------- Total.................................... 2,233,000 2,102,000 2,044,000 2,002,000 1,881,000 System peak demand......................... 2,002,000 1,971,000 1,971,000 1,863,000 1,798,000 --------- --------- --------- --------- --------- Reserve margin at time of peak............. 231,000 131,000 73,000 139,000 83,000 ========= ========= ========= ========= ========= Fuel cost per kilowatt-hour (cents).......... 1.410 1.349 1.365 1.392 1.419 Cost per million BTU (all fuels) (cents)..... 124.76 128.69 130.80 132.70 134.86 BTU per kilowatthour generated (heat rate)... 10,451 10,483 10,438 10,493 10,519 Average annual electric bill per residential and farm customer.............. $607 $587 $558 $594 $573 Average annual kilowatt-hour use per residential and farm customer.............. 8,662 8,772 8,492 9,015 8,603 (a) The estimated population for towns served jointly with other electric utilities has been based upon a ratio of 2.5 population per retail electric customer.
GAS OPERATIONS: General As of December 31, 1994, WPL provided retail natural gas service to approximately 141,000 customers in 239 cities, villages and towns in 22 counties in southern and central Wisconsin and one county in northern Illinois. WPL's gas sales follow a seasonal pattern. There is an annual base load of gas used for heating, cooking, water heating and other purposes, with a large peak occurring during the heating season. In 1994, WPL continued to purchase significant volumes of lower cost gas directly from producers and marketers and transported those volumes over its two major pipeline supplier's systems. This replaced higher cost gas historically purchased directly from the major pipeline systems. Gas Supplies During 1993, both of the interstate pipelines which serve WPL, ANR Pipeline and Northern Natural Pipeline, completed their transition to providing unbundled services as mandated by the FERC in its Order 636. As a result, WPL now contracts with these two parties for various unbundled services such as firm and interruptible transportation, firm and interruptible storage service and "no-notice" service. WPL and its gas customers have benefited from enhanced access to competitively priced gas supplies, and from more flexible transportation services. As part of this restructuring, pipelines have sought and received authorization to recover from their customers certain transition costs associated with restructuring. WPL is passing these costs along to its retail gas customers pursuant to provisions of its retail gas tariffs. The gas industry, in general, was put to a severe test during the first quarter of 1994 in the wake of the coldest weather on record. On January 18, 1994, the temperature averaged -17F in Madison, Wisconsin and did not rise above -7F. WPL set a record peak day load of 251,194 MMBTU. Overall throughput for January was 23% above forecast. Through effective use of transportation, supply, and storage contracts and by invoking tariff language allowing interruption and constraint of gas supplies to WPL's large industrial and commercial customers, WPL was able to maintain gas flows within the parameters imposed by its pipeline contracts. By doing so, WPL avoided substantial penalty exposure from the pipeline companies for unauthorized use of gas. WPL's large industrial and commercial customers served under interruptible rates moved to alternate fuel supplies during the periods of interruption and constraint. These customers pay a discounted rate year round in exchange for WPL's right to interrupt service to their facilities. WPL's portfolio of natural gas contracts over the last several years is as follows:
ANR Pipeline Contract year 1990-91 1991-92 1992-93 1993-94 1994-1995 Maximum daily entitlement: (000's Dt per day) Contract demand 81.5 81.5 81.5 -- -- Firm transportation 25.9 25.9 25.9 79.0 79.0 Firm storage 40.1 40.1 40.1 85.5 85.5 ------ ------ ------ ------ ------- Total 147.5 147.5 147.5 163.5 163.5 ====== ====== ====== ====== ======= Maximum annual entitlement (000's Dt) 11,680 11,680 N/A N/A N/A Northern Natural Pipeline Contract year 1990-91 1991-92 1992-93 1993-94 1994-1995 (a) (a) (a) Maximum daily entitlement: (000's Dt per day) Contract demand 19.9 16.9 -- -- -- Firm transportation 13.7 26.5 53.6 53.6 53.6 Firm storage - 2.2 1.5 8.5 8.5 "Unbundled" sales - - 16.9 1.4 1.4 ------ ------ ------ ------ ------ Total 33.6 45.6 53.6 53.6 53.6 ====== ====== ====== ====== ====== Maximum annual entitlement (000's Dt) 5,815 N/A N/A N/A N/A (a) Total no longer equals sum of components. Currently, Northern Natural requires that WPL hold firm transportation equal to its total peak-day requirements. Firm storage, "unbundled" sales from Northern Natural, and third party gas supply (not shown) are all eligible gas sources to be moved to WPL's city gates via this firm transportation. Contract demand services from Northern Natural have been eliminated.
As the natural gas market continues to evolve, WPL continuously evaluates products and services provided by pipelines and gas suppliers to meet the changing needs of its firm and interruptible gas customers. WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED GAS STATISTICS
Year Ended December 31, 1994 1993 1992 1991 1990 Area served (end of period): Population -- retail (estimated)(a)...... 399,000 391,000 377,000 375,000 363,000 Cities, villages and towns served -- retail................................ 239 217 194 199 195 Customers served (end of period): Residential.............................. 124,938 120,829 116,642 113,475 110,606 Commercial firm.......................... 15,082 14,644 14,209 13,848 13,384 Industrial firm.......................... 449 444 447 443 438 Interruptible............................ 272 261 262 215 211 Transportation........................... 135 85 109 46 59 ------- ------- ------- ------- ------- Total................................ 140,876 136,263 131,669 128,027 124,698 ======= ======= ======= ======= ======= Sales - Therms (in thousands) (b): Residential.............................. 119,562 120,005 114,131 114,772 102,048 Commercial firm.......................... 70,702 69,389 66,272 67,015 59,123 Industrial firm.......................... 16,785 17,649 15,815 16,436 15,202 Interruptible............................ 24,809 27,872 25,497 26,025 35,434 Interdepartmental sales.................. 7,425 3,346 1,923 5,530 2,537 Transported gas.......................... 85,364 84,877 69,244 61,001 56,493 ------- ------- ------- ------- ------- Total................................ 324,647 323,138 292,882 290,779 270,837 ======= ======= ======= ======= ======= Gas operating revenues (in thousands): Residential.............................. $71,555 $71,632 $63,699 $63,521 $59,793 Commercial firm.......................... 34,644 33,456 30,486 29,640 27,509 Industrial firm.......................... 7,273 7,292 6,668 6,767 6,542 Interruptible............................ 8,777 10,685 14,589 12,051 11,563 Interdepartmental sales and other........ 2,779 400 281 1,469 883 Transported gas.......................... 15,112 14,919 3,639 4,327 4,133 ------- ------- ------- ------- ------- Total................................ $140,140 $138,384 $119,362 $117,775 $110,423 ======= ======= ======= ======= ======= Average annual residential heating use -- therms................................... 1,022 1,052 1,029 1,069 978 Average annual gas bill per residential heating customer......................... $613 $631 $573 $590 $572 (a) The estimated population for towns served jointly with other gas utilities has been based upon a ratio of 2.5 population per retail gas customer. (b) One therm equals 100,000 British Thermal Units and is a measure of the heat content of natural gas.
Environmental Matters WPL cannot precisely forecast the effect of future environmental regulations by Federal, state and local authorities upon its generating, transmission and other facilities, or its operations, but has taken steps to anticipate the future while meeting the requirements of current environmental regulations. The Clean Air Act Amendments of 1977 and subsequent amendments to the Clean Air Act, as well as the new laws affecting the handling and disposal of solid and hazardous wastes along with clean air legislation passed in 1990 by Congress, could affect the siting, construction and operating costs of both present and future generating units. Under the Federal Clean Water Act, National Pollutant Discharge Elimination System permits for generating station discharge into water ways are required to be obtained from the DNR to which the permit program has been delegated. These permits must be periodically renewed. WPL has obtained such permits for all of its generating stations or has filed timely applications for renewals of such permits. Air quality regulations promulgated by the DNR in accordance with Federal standards impose statewide restrictions on the emission of particulates, sulfur dioxide, nitrogen oxides and other air pollutants and require permits from the DNR for the operation of emission sources. WPL currently has the necessary permits to operate its fossil-fueled generating facilities. With the passage of the new Federal Clean Air Act Amendments, the state is required to include these provisions into their permit requirements. WPL has submitted timely Title V permit applications in compliance with schedules set forth by the regulators. The operating permits, when issued, will consolidate all existing air permit conditions and regulatory requirements into one permit for each facility. Permits may be issued in late 1995 and 1996. Until such time, the facilities will continue to operate under their existing permit conditions. Pursuant to Section 144.386(2) of the Wisconsin Statutes, WPL has submitted data and plans for 1995 sulfur dioxide emissions compliance. Actual 1994 emissions were reported to the DNR. WPL is currently in compliance with the state requirement. WPL will make any necessary operational changes in fuel types and power plant dispatch to comply with the system emissions limit of 1.2 pounds SO2 per million BTU. WPL's compliance strategy for Wisconsin's sulfur dioxide law (discussed above) and the Federal Clean Air Act Amendments required plant upgrades at its generating facilities. The majority of these projects were completed in 1993. WPL has installed continuous emission monitoring systems at all of its coal fired boilers in compliance with federal requirements. Monitoring for sulfur dioxide was also required by Title IV of the Federal Clean Air Act at WPL's South Fond du Lac Combustion Turbine Site. These requirements were also met. Additional monitoring systems for nitrogen oxides will be required by January 1, 1996 at the combustion turbine site. WPL will install these monitors in 1995. No significant investments are anticipated at this time to meet the requirements of the Federal Clean Air Act Amendments. Pursuant to Section 311(j)(5) of the Clean Water Act, WPL has submitted Facility Response Plans for the Rock River generating station and the South Fond du Lac combustion turbine site. The plans address pollution prevention and spill response activities for those facilities with capacity to store in excess of one million gallons of oil. WPL maintains licenses for all of its ash disposal facilities and regularly reports to the DNR groundwater data and quantities of ash landfilled or reused. The landfills are operated according to a plan of operation approved by the DNR. WPL's accumulated pollution abatement expenditures through December 31, 1994, totalled approximately $133 million. The major expenditures consist of about $60 million for the installation of electrostatic precipitators for the purpose of reducing particulate emissions from WPL's coal-fired generating stations and approximately $73 million for other pollution abatement equipment at the Columbia, Edge- water, Kewaunee, Nelson Dewey, Rock River and Blackhawk plants. Expenditures during 1994 totalled approximately $5.0 million. Estimated future pollution abatement expenditures total $1.5 million through 1996. WPL's estimated pollution abatement expenditures are subject to continuing review and are revised from time to time due to escalation of construction costs, changes in construction plans and changes in environmental regulations. See "Electric Operations - Fuel" for information concerning the disposal of spent nuclear fuel and high level nuclear waste. Manufactured Gas Plant Sites Historically, WPL has owned 11 properties that have been associated with the production of manufactured gas. Currently, WPL owns five of these sites, three are owned by municipalities, and the remaining three are owned by private companies. In 1989, WPL initiated investigation of these manufactured gas plant sites. The DNR has been involved in reviewing investigation plans and has received ongoing reports regarding these investigations. In 1992, and into the beginning of 1993, WPL continued its investigations and studies. WPL confirmed that there was no contamination at two of the sites and received a close out letter from the DNR related to one of those sites and requested a close out letter for the other site. Additionally, the investigation of historical records at a third site indicated a minimal likelihood of any significant environmental impacts. In February 1993, WPL completed cost estimates for the environmental remediation of the eight remaining sites. The results of this analysis indicate that during the next 34 years, WPL will expend approximately $81 million for feasibility studies, data collection, soil remediation activities, groundwater research and groundwater remediation activities, including construction of slurry containment walls and the installation of groundwater pump and treatment facilities. This estimate was based on various assumptions, and is subject to continuous review and revision by management. The cost estimate set forth above assumes 4 percent average inflation over a 34 year period. The cost estimate also contemplates that primarily groundwater pump and treatment activities will take place after 1998 through and including 2027. During this time, WPL estimates that it will incur average annual costs of $2.0 million to complete the planned groundwater remediation activities. With respect to rate recovery of these costs, the PSCW has approved a five year amortization of the unamortized balance of environmental costs expended to date. In addition, WPL is pursuing insurance recovery for the costs of remediating these sites and is investigating to determine whether there are other parties who may be responsible for some of the clean-up costs. Through 1994, management has continued its oversight of the issues related to the above manufactured gas plant sites without significant revision to the above estimates and assumptions. Based on the present regulatory record at the PSCW, management believes that future costs of remediating these manufactured gas plant sites will be recovered in rates. ITEM 2. PROPERTIES The following table gives information with respect to electric generating facilities of WPL (including WPL's portion of those facilities jointly-owned).
1994 Summer Capability WPL Portion Ownership Type/ in kilowatts Interest Location Name Fuel (kw) in Facility Steam Beloit, WI Blackhawk Natural Gas 54,500 100% Janesville, WI Rock River Coal 149,800 100% Cassville, WI Nelson Dewey Coal 211,800 100% Sheboygan, WI Edgewater #3 Coal 70,000 100% Sheboygan, WI Edgewater #4 Coal 221,500 68.2% Sheboygan, WI Edgewater #5 Coal 290,100 75% Kewaunee, WI Kewaunee Nuclear 215,700 41% Portage, WI Columbia Energy Coal 461,500 46.2% Center Hydro Wisconsin Dells, WI Kilbourn Hydro 5,800 100% Prairie du Sac, WI Prairie du Sac Hydro 14,200 100% Wisconsin River Petenwell/ Hydro 6,100 33% Power Co. Castle Rock 4 small units at various locations Hydro 1,500 100% Combustion Turbine Janesville, WI Rock River Natural Gas or Oil 130,300 100% Fond du Lac, WI South Fond du Lac Natural Gas Unit 2 and 3 or Oil 166,700 100% Edgerton, WI Sheepskin Natural Gas or Oil 37,500 100% --------- Total 2,037,000 =========
The maximum net hourly peak load on WPL's electric system was 2,002,000 kw and occurred on June 16, 1994. At the time of such peak load, 2,386,000 kw were produced by generating facilities operated by WPL (including other company shared jointly-owned facilities). WPL delivered 934,000 kw of power and received 540,000 kw of power from external sources. During the year ended December 31, 1994, about 84.4 percent of WPL's total kilowatthour requirements were generated by company-owned and jointly-owned facilities and the remaining 15.6 percent was purchased. Substantially all of WPL's facilities are subject to the lien of its first mortgage bond indenture. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the company or any of its subsidiaries is a party or to which any of their property is subject. ENVIRONMENTAL MATTERS The information required by Item 3 is included in this Form 10-K in Note 11c to Notes to Consolidated Financial Statements, which information is incorporated herein by reference. RATE MATTERS The information required by Item 3 is included in Items 6 & 7 of this Form 10-K within the Management's Discussion and Analysis of Financial Condition and Results of Operations narrative under the caption "Rates and Regulatory Matters." RECENT RATE CASE PROCEEDINGS
Increase Ordered or Increase (Decrease) Requested Negotiated Date (Decrease) Ordered or % Return on % Return on Increase Rate Case Type of Application Test Requested Negotiated Common Common (Decrease) Designation Service(a) Date Year ($ Millions) ($ Millions) Equity Equity Effective WPL Retail (PSC) 6680-UR-103 e,g,w 02-29-88 1988-89 14.7 5.5 13.25 13.10 10-18-88 6680-UR-104 e,g,w 12-30-88 1989-90 17.4 5.3 13.10 13.00 11-12-89 6680-UR-105 e,g,w 12-29-89 1990-91 9.0 (10.8) 13.10 12.90 08-01-90 6680-UR-106 e,g,w 12-28-90 1991-92 18.7 (0.1) 13.25 12.90 08-01-91 6680-UR-107 e,g,w 12-30-91 1992-93 17.8 (0.9) 13.10 12.40 01-01-93 6680-UR-108 e,g,w 01-04-93 1993-94 24.5 17.7 12.60 11.60 10-01-93 6680-UR-109 e,g,w 02-01-94 1995 3.8 (11.6) 12.20 11.50 01-01-95 WPL Wholesale (FERC) ER87-554 e 07-31-87 1987-88 (1.2) (.9) 13.00 (b) 01-01-88 ER93 e 05-28-93 1993-94 2.0 2.0 11.00 (b) 10-01-93 South Beloit (ICC) 85-0505 e,w 11-08-85 1985-86 1.4(c) .9 15.00 13.80 09-27-86 (a) e-electric, g-gas, w-water. (b) Return on equity was not specified in the negotiated settlement agreement. (c) On 05-07-86, South Beloit Water, Gas and Electric Co. adjusted the increase requested downward to $1.1 million.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1994. EXECUTIVE OFFICERS OF THE REGISTRANT Erroll B. Davis, Jr, 50, was elected President and Chief Executive Officer, effective August 1, 1988 and has been a board member since April 1984. He had been Executive Vice President since May 1984, Vice President - Finance and Public Affairs since November 1982 and Vice President - Finance since August 1978. Mr. Davis was elected President of WPL Holdings, Inc. on January 17, 1990 and Chief Executive Officer of WPL Holdings, Inc. effective July 1, 1990. He has served as a director of WPL Holdings, Inc. since March 1988. Edward M. Gleason, 54, was elected Vice President, Treasurer and Corporate Secretary of WPL Holdings, Inc. effective October 3, 1993. He previously served as Vice President-Finance and Treasurer of WPL since May 1986. Mr. Gleason functions as the principal financial officer of WPL Holdings, Inc. A.J. (Nino) Amato, 43, was appointed Senior Vice President effective October 3, 1993. He previously served as Vice President - Marketing and Strategic Planning since December 1992, Vice president - Marketing and Communications since January 1989 and Director of Electric Marketing and Customer Service since October 1988. He had been President of Forward Wisconsin, Inc. from 1987 to 1988. Norman E. Boys, 50, was elected Vice President of Power Production effective January 1, 1989. He previously served as the Director of Power Production since October 1987 and Generating Station Manager at the Edgewater Generating Station since August 1984. William D. Harvey, 45, was appointed Senior Vice President effective October 3, 1993. He previously served as Vice President-Natural Gas and General Counsel since August 1992, Vice President-General Counsel since October 1, 1990 and Vice President-Associate General Counsel since July 1986. Prior to joining the Company, he was a member of the law firm of Wheeler, Van Sickle, Anderson, Norman and Harvey. Eliot G. Protsch, 41, was appointed Senior Vice President effective October 3, 1993. He previously served as Vice President- Customer Services and Sales since August 1992, Vice President and General Manager-Energy Services since January 1989 and District Manager, Dane County, since October 1986. Daniel A. Doyle, 36, was appointed Vice President - Finance, Controller and Treasurer effective December 25, 1994. He previously served as Controller and Treasurer of WPL since October 3, 1993. Prior to joining the Company, he was Controller of Central Vermont Public Service Corporation since December 1988. David E. Ellestad, 54, was appointed Vice President-Electrical Engineering and Operations on August 1, 1992. He previously served as Vice President-Engineering and Operations since 1988; Vice President of Electrical Engineering and Procurement since January 1, 1986; Director of Electrical Engineering & Procurement since May 1985 and Director of Electrical Engineering since November 1979. Thomas J. Handziak, 31, was elected Assistant Controller on September 20, 1993. Prior to joining the Company, he was employed by Arthur Andersen & Co. as an Audit Staff Assistant, Audit Senior and Audit Manager with primary responsibilities of auditing and providing financial consulting services to large publicly held corporations. Thomas L. Hanson, 41, was elected Assistant Treasurer on May 17, 1989. He had been Financial Relations Supervisor in the Treasury Department since October 1987. Steven F. Price, 42, was appointed Assistant Corporate Secretary on April 15, 1992. He had been Cash Management Supervisor since December 1987. He was also appointed Assistant Corporate Secretary and Assistant Treasurer of WPL Holdings, Inc. on April 15, 1992. Joseph Shefchek, 38, was elected Assistant Vice President of Environmental Affairs and Research effective December 25, 1994. He previously served as Director of Environmental Affairs and Research since June 1991. Before joining the Company, he held various environmental engineering positions in private industry and government. Barbara Swan, 43, was elected Vice President-General Counsel effective December 25, 1994. She previously served as General Counsel since 1993 and Associate General Counsel from 1987 to 1993. Pamela J. Wegner, 47, was elected Vice President-Information Services and Administration on October 13, 1994. Prior to joining the Company, she was the Administrator of the Division of Finance and Program Management in the Wisconsin Department of Administration since 1987. She served as Administrator of the Division of Administrative Services in the Wisconsin Department of Revenue from 1983 to 1987. Kim K. Zuhlke, 41, was elected Vice President - Customer Services and Sales effective October 3, 1993. He previously served as Director of Marketing and Sales Services since 1991, Director of Market Research, Planning and Development since February 1990, Director of Customer Services since 1988 and District Manager at Beaver Dam since April 1984. NOTE: All ages are as of December 31, 1994. None of the executive officers listed above is related to any director of the Board or nominee for director of the Company. Executive officers of the Company have no definite terms of office and serve at the pleasure of the Board of Directors. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Effective with the formation of the holding company, all $5 par value common stock of the Company was converted into common stock of WPL Holdings, Inc. WPL Holdings is now the sole common shareowner of the Company. The Company's dividend payment for administrative allowance and other costs throughout 1994 and 1993 totalled $0 and $1,000,000, respectively, regular cash dividends paid per share of common stock during 1994 and 1993 to WPL Holdings, Inc. were .96 cents and .95 cents, respectively, for each quarter. ITEM 6 AND 7. SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION SELECTED FINANCIAL DATA
1994 1993 1992 1991 1990 (in millions) Operating revenues................... $ 674 $ 645 $ 601 $ 610 $ 585 Net income........................... $ 68 $ 60 $ 55 $ 64 $ 61 Total assets (at December 31)........ $1,585 $1,551 $1,414 $1,250 $1,213 Long-term debt, net (at December 31). $ 337 $ 336 $ 336 $ 291 $ 328
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1994 COMPARED WITH 1993 OVERVIEW Net income of Wisconsin Power and Light Company ("WPL" or the "Company") increased to $68.2 million in 1994 compared with $60.2 million in 1993. Net income for 1994 was significantly affected by two non-recurring items. These items were the reversal of a coal contract penalty in the 1st quarter and costs associated with early retirement and severance programs which primarily occurred in the 4th quarter. Both of these items are discussed in the "Other Events" section of Management's Discussion and Analysis. The following breakout presents the recurring aspects of 1994's operations. 1994 1993 (in millions) Net Income, as reported $68.2 $60.2 Less: Increase in Net Income from reversal of coal contract penalty (5.3) ( - ) Add: Decrease in Net Income from costs associated with early retirement and severance programs 8.2 1.1 ----- ----- Net Income before the above non-recurring items $71.9 $61.3 ===== ===== The increase in the "Net income before the above non-recurring items" primarily reflects an increase in operating earnings. Electric Operations
Revenues & Costs Per kWh's Sold, kWh Sold Revenues % Generated % Generated Customers at and Costs Change and Purchased Change & Purch. End of Year 1994 1993 1994 1993 1994 1993 1994 1993 (in thousands) (in thousands) Residential and farm $194,242 $184,176 5% 2,776,895 2,751,363 1% $.070 $.067 325,063 316,870 Industrial 140,487 132,903 6% 3,764,953 3,540,082 6% .037 .038 776 714 Commercial 101,382 95,977 6% 1,688,349 1,629,911 4% .060 .059 43,868 42,884 Wholesale and Class A 86,400 78,955 9% 2,574,121 2,388,131 8% .034 .033 81 39 Other 9,236 11,176 -17% 54,518 51,073 7% .169 .219 1,477 1,236 -------- -------- ---- ---------- ---------- ---- ----- ----- ------- ------- Total 531,747 503,187 6% 10,858,836 10,360,560 5% $.049 $.049 371,265 361,743 ========== ========== ==== ===== ===== ======= ======= Elec. production fuels 123,469 123,919 0% 9,445,950 9,180,484 3% $.013 $.013 ========== ========== ==== ===== ===== Purchased power 37,913 28,574 33% 1,780,451 1,481,993 20% $.021 $.019 -------- -------- ---- ========== ========== ==== ===== ===== Margin $370,365 $350,694 6% ======== ======== ====
WPL's electric margin increased during 1994 compared to 1993. The primary factor was a 3.8 percent retail rate increase effective October 1, 1993. Strong economic conditions in the industrial and commercial customer classes contributed higher sales and customer growth. A colder than normal January and a very warm mid-September offset relatively mild summer conditions in July and August making 1994 a relatively average year in terms of impacts on sales volumes. Electric production fuel costs were reasonably stable for 1994. The volume of purchased power increased as a result of WPL's efforts to conserve coal inventories during a rail strike in the 3rd quarter of 1994. See "Other Events" for details. Gas Operations
Revenues & Revenues % Therms Sold % Costs Per Therm Customers at and Costs Change & Purchased Change Sold, & Purch. End of Year 1994 1993 1994 1993 1994 1993 1994 1993 (in thousands) (in thousands) Residential $ 71,555 $ 71,632 0% 119,562 120,005 0% $.60 $.60 124,938 120,829 Firm 41,918 40,748 3% 87,487 87,038 1% .48 .47 15,531 15,088 Interruptible 8,777 10,685 -22% 24,809 27,872 -11% .35 .38 272 261 Transportation 15,112 14,205 5% 85,364 84,877 1% .18 .18 135 85 Other 213 -- -% -- -- -% -- -- 90 -- -------- -------- ----- -------- -------- ----- ---- ---- ------- ------- Total 137,575 137,270 1% 317,222 319,792 0% $.43 $.43 140,966 136,263 ======== ======== ===== ==== ==== ======= ======= Purchased gas 86,586 90,505 -4% 293,547 285,531 4% $.29 $.32 -------- -------- ----- ======== ======== ===== ==== ==== Margin $ 50,989 $ 46,765 10% ======== ======== =====
Gas margin increased in 1994 from 1993 primarily based on two factors: 1) a 1.4 percent retail rate increase effective October 1, 1993 and, 2) an increase in customers in the higher rate firm service which improved the sales mix. The overall cost of purchased gas declined reflecting WPL's effective use of opportunities on the gas spot market. Other Operation Other operation expense increased due to the early retirement and severance programs discussed in the "Other Events" section. Maintenance Maintenance expense decreased between years due to variation in the timing and extent of maintenance on its generating facilities between years. Secondarily, a severe storm in the summer of 1993 increased 1993's maintenance expense related to service restoration. Depreciation and Amortization Depreciation expense increased, principally reflecting increased property additions and increased decommissioning costs. Other Income and (Deductions) Other income increased resulting from the reversal of a coal contract penalty discussed later in the "Other Events" section. Income Taxes Income taxes increased between years primarily due to higher taxable income. 1993 COMPARED WITH 1992 OVERVIEW Net income of the Company increased to $60.2 million in 1993 compared with $55.4 million in 1992. The principle factors leading to increased earnings included warmer summer weather and lower electric fuel costs per kWh which yielded higher electric margins. These increases were somewhat offset by increased depreciation expense resulting from additional investment in utility plant and property additions, a change in the mix of gas sales from higher margin sales to lower margin sales, the increase in the Federal corporate tax rate from 34 percent to 35 percent and a one- time 4-cent-per-share charge associated with a voluntary separation program for the executive management group. Electric Operations
Revenues & Costs Per kWh's Sold, kWh Sold Revenues % Generated % Generated Customers at and Costs Change and Purchased Change & Purch. End of Year 1993 1992 1993 1992 1993 1992 1993 1992 (in thousands) (in thousands) Residential and farm $184,176 $171,887 7% 2,751,363 2,614,439 5% $.067 $.066 316,870 310,702 Industrial 132,903 128,467 3% 3,540,082 3,377,132 5% .038 .038 714 727 Commercial 95,977 91,707 5% 1,629,911 1,551,823 5% .059 .059 42,884 42,287 Wholesale and Class A 78,955 77,485 2% 2,388,131 2,208,419 8% .033 .035 39 39 Other 11,176 8,189 36% 51,073 55,230 -8% .219 .148 1,236 950 -------- -------- ---- ---------- --------- ---- ----- ----- ------- ------- Total 503,187 477,735 5% 10,360,560 9,807,043 6% $.049 $.049 361,743 354,705 ========== ========= ==== ===== ===== ======= ======= Elec. production fuels 123,919 123,440 .4% 9,186,134 9,041,317 2% $.014 $.014 ========== ========= ==== ===== ===== Purchased power 28,574 24,427 17% 1,481,993 1,124,667 32% $.019 $.022 -------- -------- ---- ========== ========= ==== ===== ===== Margin $350,694 $329,868 6% ======== ======== ====
Electric margin in dollars increased during 1993 compared with 1992 due to increased demand for electricity brought on by warmer summer weather. Residential customers, being the most weather sensitive, experienced the most significant increases. Wisconsin's strong economy kept the commercial and industrial classes growing steadily. These increases were coupled with declining electric production fuel costs per kWh. The decrease in electric production fuel cost per kWh was due to WPL's aggressive pursuit of additional spot coal purchase opportunities as its longer term contracts began to expire. Additionally, a highly competitive rail transportation environment significantly reduced the cost of transporting the coal. Also, lower cost purchased power became available due to excess capacity in the bulk power market. Gas Operations
Revenues & Revenues % Therms Sold % Costs Per Therm Customers at and Costs Change & Purchased Change Sold, & Purch. End of Year 1993 1992 1993 1992 1993 1992 1993 1992 (in thousands) (in thousands) Residential $ 71,632 $ 63,699 12% 120,005 114,131 5% $.60 $.56 120,829 116,642 Firm 40,748 37,154 10% 87,038 82,087 6% .47 .45 15,088 14,656 Interruptible 10,685 9,554 12% 27,872 25,497 9% .38 .37 261 262 Transportation 14,205 8,674 72% 84,877 69,244 23% .18 .13 85 109 Other -- 281 -% -- 1,923 -% -- .15 -- -- -------- -------- ---- -------- -------- ---- ---- ---- ------- ------- Total 137,270 119,362 16% 319,792 292,882 10% $.43 $.41 136,263 131,669 ======== ======== ==== ==== ==== ======= ======= Purchased gas 90,505 77,112 18% 285,531 260,354 11% $.32 $.30 -------- -------- ----- ======== ======== ==== ==== ==== Margin $ 46,765 $ 42,250 11% ======== ======== =====
Gas revenues for 1992 were affected by the recognition of a $4.9 million before-tax refund to its natural gas customers resulting from an adjustment in the calculation of the purchased gas adjustment clause. Without the impact of this revenue adjustment, comparative gas margins would have declined for 1993 compared with 1992. The overall increases in gas revenues and purchased gas costs between years resulted primarily from increased volumes procured on behalf of transportation customers. This had the impact of decreasing margins as a percentage of total revenues. A change in the mix of gas sales from higher margin residential sales to lower margin sales also moved margins downward. Offsetting this decline, Wisconsin's strong economy enabled growth in the Commercial and Industrial classes, and there was also some overall increase in the demand for natural gas due to colder weather. Other Operation Expense An increase in other operation expense resulted from higher WPL employee benefit expense (see Notes to Consolidated Financial Statements, Note 7). These increases were offset somewhat by decreases in conservation program expenditures and decreases in fees associated with the sale of accounts receivable due to a decline in interest rates. Additionally, cost management efforts have helped control annual inflationary pressures on general and administrative costs. Depreciation and Amortization Depreciation and amortization expense increased, principally reflecting increased property additions and the commencement of deferred charge amortizations approved in WPL's rate orders received in December 1992 and October 1993. The most significant amortizations include the amortization related to an acquisition adjustment which resulted from the purchase of transmission facilities and the amortization of costs incurred related to the remediation of former manufactured gas plant sites (see Notes to the Consolidated Financial Statements, Note 11). Allowance for Funds Used During Construction ("AFUDC") Total AFUDC increased in 1993 compared with 1992, reflecting the greater amounts of construction work in progress including the costs associated with WPL's construction of two 86-megawatt combustion-turbine generators. LIQUIDITY AND CAPITAL RESOURCES Rates and Regulatory Matters On December 9, 1994, the Public Service Commission of Wisconsin (PSCW) issued rate order UR-109, effective for a two-year period beginning January 1, 1995. The order included the following decisions on WPL's retail rate application as filed on February 4, 1994: 1) electric revenues will be decreased by approximately $12.3 million (2.8 percent) annually, 2) natural gas revenues will be increased by approximately $.7 million (.5 percent) annually, 3) return on common equity will be 11.5 percent versus WPL's previously allowed return on equity of 11.6 percent. Further, the PSCW approved certain incentive programs described below: 1. The electric fuel adjustment mechanism was eliminated. In its absence, WPL will benefit from reductions in fuel cost. Conversely, WPL will be exposed to increases in fuel costs. 2. The automatic purchased gas adjustment clause was also eliminated. In the future, the fluctuations in the commodity cost of gas above or below a prescribed commodity price index will serve to increase or decrease WPL's margin on gas sales. Fixed demand costs are excluded from the incentive program. Both benefits and exposures are subject to ratepayer sharing provisions, which are capped at $1.1 million. 3. In order to promote air quality and reliability, there are SO2 emissions and service reliability incentive clauses. Positive incentive available under these clauses is $1.5 million for the SO2 emissions and $.5 million for the service reliability. WPL's earnings are also negatively exposed for equal amounts. Since WPL is allowed to collect all revenues under these programs in advance, up to $4.0 million annually of pre-tax revenue may be collected subject to refund upon final determination of performance under this program. Industry Outlook The PSCW has recently opened a formal docket initiating an inquiry into the future structure of the electric utility industry in Wisconsin. The goals of Wisconsin utility regulation and the principles to be used in choosing among alternative proposals have been identified. WPL has submitted its preferred structure which, in summary form, calls for open access to transmission and distribution systems and a competitive power generation market place. It is not possible at this time to predict the outcome of these proceedings. Financing and Capital Structure The level of short-term borrowings fluctuates based on seasonal corporate needs, the timing of long-term financing and capital market conditions. WPL generally issues short-term debt to provide interim financing of construction and capital expenditures in excess of available internally generated funds. WPL periodically reduces its outstanding short-term debt through the issuance of long-term debt and through equity contributions from its parent, WPL Holdings, Inc. To maintain flexibility in its capital structure and to take advantage of favorable short-term rates WPL also uses proceeds from the sales of accounts receivable and unbilled revenues to finance a portion of its long-term cash needs. The Company also anticipates that short-term debt funds will continue to be available at reasonable costs due to strong ratings by independent utility analysts and rating services. Commercial paper has been rated A-1+ by Standard & Poor's Corp. and P-1 by Moody's Investors Service. Bank lines of credit of $70 million at December 31, 1994 are available to support these borrowings. The Company's capitalization at December 31, 1994, including the current maturities of long-term debt, variable rate demand bonds and short-term debt, consisted of 52 percent common equity, 6 percent preferred stock and 42 percent long-term debt. The common equity to total capitalization ratio at December 31, 1994 increased to 52 percent from 51 percent at December 31, 1993. The retail rate order effective January 1, 1995, requires WPL to maintain a utility common equity level of 51.93 percent of total utility capitalization during the two-year test year ending December 31, 1996. In addition, the PSCW ordered that it must approve the payment of dividends by WPL that are in excess of the level forecasted for 1995 ($58.1 million), if such dividends would reduce WPL's average common equity ratio below 51.93 percent. Capital Requirements WPL is a capital-intensive business and requires large investments in long-lived assets. Therefore, the Company's most significant capital requirements relate to construction expenditures. Estimated capital requirements for the next five years are as follows:
Capital Requirements 1995 1996 1997 1998 1999 (in millions) Construction expenditures $131.2 $100.4 $132.2 $119.6 $130.6 Changes in working capital and other (4.6) (5.5) 67.0 16.3 (3.8) ------ ------ ------ ------ ------ Construction and operating capital $126.6 $ 94.9 $199.2 $135.9 $126.8 Manufactured gas plant site remediation expenditures 2.0 9.2 10.5 9.6 .6 ------ ------ ------ ------ ------ Total capital requirements $128.6 $104.1 $209.7 $145.5 $127.4 ====== ====== ====== ====== ======
Included in the construction expenditure estimates, in addition to the recurring additions and improvements to the distribution and transmission systems, are the following: 1) expenditures for managing and controlling electric line losses and for the electric delivery system that will reduce electric line losses and enhance WPL's interconnection capability with other utilities; 2) expenditures related to environmental compliance issues including the installation of additional emissions monitoring equipment and coal handling equipment; 3) expenditures associated with the construction of an 86-megawatt combustion-turbine generator expected to become operational in 1996. The Company's capital requirements may also be impacted by decisions relating to the Kewaunee Nuclear Power Plant ("Kewaunee"). The steam generator tubes at Kewaunee are susceptible to corrosion characteristics, a condition that has been experienced throughout the nuclear industry. Annual inspections are performed to identify degraded tubes. Degraded tubes are either repaired by sleeving or are removed from service plugging. The steam generators were designed with an approximately 15 percent heat transfer margin, meaning that full power should be sustainable with the equivalent of 15 percent of the steam generator tubes plugged. Tube plugging and the build-up of deposits on the tubes affect the heat-transfer capability of the steam generators to the point where eventually full-power operation is not possible and there is a gradual decrease in the capacity of the plant. The plant's capacity could be reduced by as much as 20% by the year 2013 when the current operating license expires. Currently, the equivalent of approximately 12 percent of the tubes in the steam generators are plugged. WPL and the joint-owners recently completed studies evaluating the economics of replacing the two steam generators at Kewaunee. The studies resulted in the conclusion that the most prudent course of action is to continue operation of the existing steam generators. WPL and the other joint-owners continue to evaluate appropriate strategies, including replacement, as well as continued operation of the steam generators without replacement. WPL and the joint-owners also continue to fund the development of welded repair technology for steam generator tubes. The plant is expected to be operated until at least 2013. WPL and the joint-owners are also continuing to evaluate and implement initiatives to improve the performance of Kewaunee, which already performs at above average levels for the industry. These initiatives include conversion from a 12-month to an 18-month fuel cycle and numerous other cost reduction measures. These initiatives have resulted in reductions in Kewaunee operating and maintenance costs since 1991. Capital Resources One of the Company's objectives is to finance construction expenditures through internally generated funds supplemented, when required, by outside financing. With this objective in place, the Company has financed an average of 79 percent of its construction expenditures during the last five years from internal sources. However, during the next five years, the Company expects this percentage to be reduced primarily due to the continuation of major construction expenditures and the maturity of $64 million of WPL first mortgage bonds. External financing sources such as the issuance of long-term debt, short-term borrowings and equity contributions from its parent, WPL Holdings, Inc. will be used by the Company to finance the remaining construction expenditure requirements for this period. Expectations are that $65 million of long-term debt will be issued over the next three years. INFLATION Under current rate-making methodologies prescribed by the various commissions that regulate WPL, projected or forecasted operating costs, including the impacts of inflation, are incorporated into WPL revenue requirements. Accordingly, the impacts of inflation on WPL are currently mitigated. Although rates will be held flat until at least 1997, management expects that any impact of inflation will be mitigated by customer growth and productivity improvements. Inflationary impacts on the non-regulated businesses are not anticipated to be material to the Company. OTHER EVENTS Coal Contract Penalty In November 1989, the PSCW concluded that WPL did not properly administer a coal contract, resulting in an assessment to compensate ratepayers for excess fuel costs having been incurred. As a result, WPL recorded a reserve in 1989 that had an after-tax affect of reducing 1989 net income by $4.9 million. The PSCW decision was found to represent unlawful retroactive rate-making by both the Dane County Circuit Court and the Wisconsin Court of Appeals. The case was then appealed to the Wisconsin Supreme Court. In January, 1994, the Wisconsin Supreme Court affirmed the decisions of the Dane County Circuit Court and Wisconsin Court of Appeals. In management's opinion, all avenues for appeal have been exhausted. As a result, WPL reversed the entire reserve and was also allowed to collect interest on amounts of the penalty previously refunded to ratepayers. The reversal of the reserve plus interest had an after-tax affect of increasing net income in 1994 by $5.3 million. Early Retirement and Severance Programs Given the expectation of increasing competition, WPL has continued to reengineer its processes to implement cost efficiencies in its operations. In connection with these efforts, WPL offered voluntary early retirement programs and voluntary severance programs to affected employees in 1994 and 1993. These programs primarily closed late in the fourth quarter of 1994 and 1993. For 1994, in terms of cost, the early retirement programs totalled $9.8 million and the severance programs totalled $3.9 million for a grand total of $13.7 million. For 1993, program costs totalled $1.8 million. Coal Transporter's Strike One of WPL's major coal transporters experienced a labor strike during the third quarter of 1994. During the term of the strike (55 days), WPL's ability to receive coal from its suppliers was impaired, which required WPL to use some of its existing coal reserves and to purchase additional power. On August 29, 1994, President Clinton, acting under the Railway Labor Act, forced a temporary end (the "cooling off period") to the strike by ordering the railroad union employees back to work and establishing a three member Presidential Emergency Board to draft a recommended settlement. Railroad management and the United Transportation Union have subsequently settled on a contract. As of December 31, 1994, the existing and anticipated financial impact on WPL's operating results was not material. Environmental WPL cannot precisely forecast the effect of future environmental regulations by federal, state and local authorities upon its generating, transmission and other facilities, or its operations, but has taken steps to anticipate the future while meeting the requirements of current environmental regulations. The Clean Air Act Amendments of 1977 and subsequent amendments to the Clean Air Act, as well as the new laws affecting the handling and disposal of solid and hazardous wastes along with the clean air legislation passed in 1990 by Congress, could affect the siting, construction and operating costs of both present and future generating units. Under the Federal Clean Water Act, National Pollutant Discharge Elimination System permits for generating station discharge into water ways are required to be obtained from the Wisconsin Department of Natural Resources (DNR). WPL has obtained such permits for all of its generating stations or has filed timely applications for renewals. Air quality regulations promulgated by the DNR in accordance with federal standards impose statewide restrictions on the emission of particulates, sulfur dioxide, nitrogen oxides and other air pollutants and require permits from the DNR for the operation of emission sources. WPL currently has the necessary permits to operate its fossil-fueled generating facilities. However, beginning in 1994, new permits were required for all major facilities in Wisconsin. WPL's Columbia Generating facility submitted a permit application on May 1, 1994. The remaining facilities will be addressed in early 1995. WPL's compliance strategy for Wisconsin's 1993 sulfur dioxide law and the Federal Clean Air Act Amendments required plant upgrades at its generating facilities. The majority of these projects were completed in 1993 and 1994. WPL has installed continuous emissions monitoring systems at all of its coal fired boilers. No additional costs for compliance with these acid-rain-prevention requirements are anticipated at this time. Also see Note 11c in the Notes to the Consolidated Financial Statements for a discussion of WPL's manufactured gas plant sites. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Wisconsin Power and Light Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of Wisconsin Power and Light Company (a Wisconsin corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, common shareowners' investment and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wisconsin Power and Light Company and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, February 1, 1995 WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS
Year Ended December 31, 1994 1993 (dollars in thousands) Utility plant: Plant in service -- Electric....................................... $1,611,351 $1,518,701 Gas............................................ 204,514 194,283 Water.......................................... 22,070 20,437 Common......................................... 123,255 106,803 ---------- ---------- 1,961,190 1,840,224 Dedicated decommissioning funds.................. 51,791 49,803 ---------- ---------- 2,012,981 1,890,027 Less-Accumulated provision for depreciation...... 808,853 763,027 ---------- ---------- 1,204,128 1,127,000 Construction work in progress.................... 42,731 75,732 Nuclear fuel, net................................ 19,396 18,000 ---------- ---------- Total utility plant............................ 1,266,255 1,220,732 Other property and equipment,net................... 9,133 652 ---------- ---------- Investments........................................ 12,228 12,537 ---------- ---------- Current assets: Cash and equivalents............................. 2,234 5,930 Net accounts receivable and unbilled revenue, less allowance for doubtful accounts of $209 and $259,respectively.......................... 21,689 30,572 Accounts receivable from parent for income taxes.......................................... -- 2,117 Coal, at average cost............................ 15,824 16,042 Materials and supplies, at average cost.......... 20,835 21,679 Gas in storage, at average cost.................. 7,975 8,754 Prepayments and other............................ 22,310 21,677 ---------- ---------- Total current assets........................... 90,867 106,771 ---------- ---------- Deferred charges: Regulatory assets................................ 144,476 148,805 Other............................................ 62,165 61,160 ---------- ---------- Total deferred charges......................... 206,641 209,965 ---------- ---------- Total Assets................................. $1,585,124 $1,550,657 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS
Year Ended December 31, 1994 1993 (dollars in thousands) Capitalization: Common shareowner's investment................. $544,506 $522,703 Preferred stock not mandatorily redeemable..... 59,963 59,963 First mortgage bonds, net...................... 336,538 336,477 ---------- ---------- Total capitalization......................... 941,007 919,143 ---------- ---------- Current liabilities: Variable rate demand bonds..................... 56,975 56,975 Short-term debt................................ 50,500 59,000 Accounts payable and accruals.................. 67,518 72,430 Accrued payroll and vacation................... 12,624 12,092 Accrued taxes.................................. 7,299 804 Accrued interest............................... 7,669 7,695 Other.......................................... 12,456 16,431 ---------- ---------- Total current liabilities.................... 215,041 225,427 ---------- ---------- Other credits: Accumulated deferred income taxes.............. 222,373 210,762 Accumulated deferred investment tax credits.... 40,758 42,684 Accrued environmental remediation costs........ 79,280 80,973 Deferred credits and other..................... 86,665 71,668 ---------- ---------- 429,076 406,087 ---------- ---------- Contingencies (Notes 2 and 11) Total Capitalization and Liabilities......... $1,585,124 $1,550,657 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1994 1993 1992 (dollars in thousands) Operating revenues: Electric...................................... $531,747 $503,187 $477,735 Gas........................................... 137,575 137,270 119,362 Water......................................... 4,133 3,927 3,722 -------- -------- -------- 673,455 644,384 600,819 Operating expenses: Electric production fuels...................... 123,469 123,919 123,440 Purchased power................................ 37,913 28,574 24,427 Purchased gas.................................. 86,586 90,505 77,112 Other operation................................ 148,361 139,075 128,992 Maintenance.................................... 41,227 44,763 45,081 Depreciation................................... 73,194 61,197 56,416 Taxes -- Current federal income....................... 26,727 25,063 21,641 Deferred income............................ 10,270 5,053 6,270 Investment tax credit (restored)........... (1,926) (1,967) (2,125) Current state income ...................... 6,147 6,580 5,160 Other...................................... 27,100 26,145 26,170 -------- -------- -------- 579,068 548,907 512,584 -------- -------- -------- Net operating income............................. 94,387 95,477 88,235 -------- -------- -------- Other income and (deductions): Allowance for equity funds used during construction................................. 3,009 2,977 2,351 Other,net.. .................................. 7,726 (2,188) 299 Current federal income tax..................... (1,480) (519) 274 Deferred income tax............................ (2,029) (419) 131 -------- -------- -------- 7,226 (149) 3,055 -------- -------- -------- Income before interest expense................... 101,613 95,328 91,290 -------- -------- -------- Interest expense: Interest on bonds.............................. 28,796 28,422 29,254 Allowance for borrowed funds used during construction................................. (1,029) (1,053) (1,329) Other.......................................... 2,352 3,854 4,146 -------- -------- -------- 30,119 31,223 32,071 -------- -------- -------- Income before preferred dividends................ 71,494 64,105 59,219 Preferred stock dividends........................ 3,310 3,928 3,811 -------- -------- -------- Net income....................................... $68,184 $60,177 $55,408 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1994 1993 1992 (dollars in thousands) Cash flows generated from (used for) operating activities: Income before preferred stock dividends...... $71,494 $64,105 $59,219 Adjustments to reconcile net income to net cash generated from operating activities: Depreciation............................. 73,194 61,197 56,416 Deferred income taxes and other.......... 10,270 5,053 6,139 Investment tax credit restored........... (1,926) (1,967) (2,125) Amortization of nuclear fuel............. 6,707 7,049 7,961 Allowance for equity funds used during construction........................... (3,009) (2,977) (2,351) Other,net................................ 6,561 7,201 252 Changes in assets and liabilities: Net accounts receivable and unbilled revenue.................................. 16,335 4,124 (9,162) Coal....................................... 218 2,943 2,666 Materials and supplies..................... 884 (6) 1,769 Gas in storage............................. 779 (4,463) 1,403 Prepayments and other...................... (634) (383) (1,895) Accounts payable and accruals.............. (4,912) 640 6,901 Accrued taxes.............................. (3,775) (538) (1,680) Other, net................................. 14,571 11,222 (9,029) -------- -------- -------- Net cash generated from operating activities............................. 186,757 153,200 116,484 Cash flows generated from (used for) financing activities: Common stock cash dividends.................. (55,911) (54,327) (51,166) Issuance of first mortgage bonds............. -- -- 279,000 Issuance of variable rate demand bonds....... -- -- -- Issuance of preferred stock.................. -- 29,986 -- Redemption of preferred stock................ -- (29,986) -- Preferred stock issuance expense............. -- (1,083) -- Preferred stock dividends.................... (3,310) (3,928) (3,811) Net change in short-term debt................ (8,500) 8,000 14,000 Current bond maturities and sinking fund retirements................................ -- (100) (239,031) Equity contribution from parent.............. 9,649 61,399 10,002 -------- -------- -------- Net cash (used for) generated from financing activities................... (58,072) 9,961 8,994 -------- -------- -------- Cash flows generated from (used for) investing activities: Additions to utility plant, excluding AFUDC.. (123,959) (149,333) (123,321) Allowance for borrowed funds used during construction............................... (1,029) (1,053) (1,329) Dedicated decommissioning funds.............. (1,988) (9,426) (3,737) Other,net.................................... (5,405) 2,200 1,974 --------- -------- -------- Net cash used for investing activities..... (132,381) (157,612) (126,413) Net (decrease) increase in cash and equivalents................................... (3,696) 5,549 (935) Cash and equivalents at beginning of year...... 5,930 381 1,316 -------- -------- -------- Cash and equivalents at end of year............ $2,234 $5,930 $381 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest on debt......................... $30,156 $32,246 $32,254 Income taxes............................. $29,642 $32,465 $31,766
The accompanying notes are an integral part of the consolidated financial statements. WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION
Year Ended December 31, 1994 1993 (dollars in thousands) Common shareowner's investment: Common stock, $5 par value, authorized - 18,000,000 shares; issued and outstanding - 13,236,601 shares.. $66,183 $66,183 Premium on capital stock.............................. 197,423 187,773 Capital surplus....................................... 1,747 1,747 Reinvested earnings................................... 279,153 267,000 -------- -------- Total common shareowner's investment................ 544,506 522,703 Preferred stock not mandatorily redeemable: Cumulative, without par value, $100 stated value, authorized 3,750,000 shares, maximum aggregate stated value $150,000,000 4.50% series, 99,970 shares outstanding.......... 9,997 9,997 4.80% series, 74,912 shares outstanding.......... 7,491 7,491 4.96% series, 64,979 shares outstanding.......... 6,498 6,498 4.40% series, 29,957 shares outstanding.......... 2,996 2,996 4.76% series, 29,947 shares outstanding.......... 2,995 2,995 6.20% series, 150,000 shares outstanding.......... 15,000 15,000 Cumulative, without par value, $25 stated value, 6.50% series, 599,460 shares outstanding............ 14,986 14,986 -------- -------- Total preferred stock............................. 59,963 59,963 First mortgage bonds: Series L, 6.25%, due 1998............................. 8,899 8,899 1984 Series A, variable rate, due 2014 (5.40% at December 31, 1994).................................. 8,500 8,500 1988 Series A, variable rate, due 2015 (5.80% at December 31, 1994).................................. 14,600 14,600 1990 Series V, 9.3%, due 2025......................... 50,000 50,000 1991 Series A, variable rate, due 2015 (5.95% at December 31, 1994).................................. 16,000 16,000 1991 Series B, variable rate, due 2005 (5.95% at December 31, 1994).................................. 16,000 16,000 1991 Series C, variable rate, due 2000 (5.95% at December 31, 1994).................................. 1,000 1,000 1991 Series D, variable rate, due 2000 (5.95% at December 31, 1994).................................. 875 875 Series W, 8.6%, due 2027.............................. 90,000 90,000 Series X, 7.75%, due 2004............................. 62,000 62,000 Series Y, 7.6%, due 2005.............................. 72,000 72,000 Series Z, 6.125%, due 1997............................ 55,000 55,000 -------- -------- 394,874 394,874 Less -- Variable rate demand bonds............................ (56,975) (56,975) Unamortized discount.................................. (1,361) (1,422) -------- -------- Total first mortgage bonds, net..................... 336,538 336,477 -------- -------- TOTAL CAPITALIZATION.................................... $941,007 $919,143 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF COMMON SHAREOWNER'S INVESTMENT
Year Ended December 31, 1994 1993 1992 (dollars in thousands) Common stock: Balance at beginning and end of year......... $66,183 $66,183 $66,183 Premium on capital stock: Balance at beginning of year................. 187,774 126,374 116,372 Equity contribution from parent.............. 9,649 61,399 10,002 -------- -------- -------- Balance at end of year....................... 197,423 187,773 126,374 Capital surplus: Balance at beginning and end of year......... 1,747 1,747 1,747 -------- -------- -------- Reinvested earnings: Balance at beginning of year................. 267,000 262,233 257,991 Add - Income before preferred dividends.... 71,494 64,105 59,219 Deduct - Cash dividends on preferred stock........ (3,310) (3,928) (3,811) Cash dividends to parent on common stock. (55,911) (54,327) (51,166) Preferred stock issuance expense......... -- (1,083) -- Other.................................... (120) -- -- -------- -------- -------- Balance at end of year....................... 279,153 267,000 262,233 Total Common Shareowner's Investment........... $544,506 $522,703 $456,537 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. WISCONSIN POWER AND LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except as otherwise indicated) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: a. Business and Consolidation: Wisconsin Power and Light Company ("WPL" or the "Company") is a wholly- owned subsidiary of WPL Holdings, Inc. ("WPLH"). WPL is a public utility predominantly engaged in the transmission and distribution of electric energy and the generation and bulk purchase of electric energy for sale. WPL also transports, distributes and sells natural gas purchased from gas suppliers. Nearly all of WPL's retail customers are located in south and central Wisconsin. WPL's principal consolidated subsidiary is South Beloit Water, Gas and Electric Company. Certain amounts from prior years have been reclassified to conform with the current year presentation. b. Regulation: WPL's financial records are maintained in accordance with the uniform system of accounts prescribed by its regulators. The Public Service Commission of Wisconsin ("PSCW") and the Illinois Commerce Commission have jurisdiction over retail rates, which represent approximately 83 percent of electric revenues plus all gas revenues. The Federal Energy Regulatory Commission ("FERC") has jurisdiction over wholesale electric rates representing the balance of electric revenues. Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of Certain Types of Regulation" provides that rate-regulated public utilities such as WPL record certain costs and credits allowed in the ratemaking process in different periods than for unregulated entities. These are deferred as regulatory assets or regulatory liabilities and are recognized in the Consolidated Statements of Income at the time they are reflected in rates. c. Utility Plant and Other Property and Equipment: Utility plant and other property and equipment are recorded at original cost and cost, respectively. Utility plant costs include financing costs that are capitalized through the PSCW-approved allowance for funds used during construction ("AFUDC"). The AFUDC capitalization rates approximate WPL's cost of capital. These capitalized costs are recovered in rates as the cost of the utility plant is depreciated. Normal repairs, maintenance and minor items of utility plant and other property and equipment are expensed. Ordinary utility plant retirements, including removal costs less salvage value, are charged to accumulated depreciation upon removal from utility plant accounts, and no gain or loss is recognized. Upon retirement or sale of other property and equipment, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in other income and deductions. d. Nuclear Fuel: Nuclear fuel is recorded at its original cost and is amortized to expense based upon the quantity of heat produced for the generation of electricity. This accumulated amortization assumes spent nuclear fuel will have no residual value. Estimated future disposal costs of such fuel are expensed based on kilowatthours generated. e. Revenue: WPL accrues utility revenues for services provided but not yet billed. f. Electric Production Fuels and Purchased Gas: (1) Electric Production Fuels: Through 1994, the PSCW retail electric rates provided a range from which actual fuel costs could vary in relation to costs forecasted and used in rates. If actual fuel costs fell outside this range, a hearing could be held to determine if a rate change was necessary, and a rate increase or decrease could result. Beginning with WPL's latest rate order UR-109, effective January 1, 1995, the automatic fuel adjustment clause was eliminated. In its absence, WPL will benefit from reductions in fuel cost. Conversely, WPL will be exposed to increases in fuel costs. An automatic fuel adjustment clause for the FERC wholesale portion of WPL's electric business operates to increase or decrease monthly rates based on changes in fuel costs. (2) Purchased Gas: Through 1994, WPL's base gas cost recovery rates permitted the recovery of or refund to all customers for any increases or decreases in the cost of gas purchased from WPL's suppliers through a monthly purchased gas adjustment clause. Beginning with UR-109, the monthly purchased gas adjustment clause was also eliminated. In the future, the fluctuations in the commodity cost of gas above or below a prescribed commodity price index will serve to increase or decrease WPL's margin on gas sales. Fixed demand costs are excluded from the incentive program. Both benefits and exposures are subject to ratepayer sharing provisions, which are capped at $1.1 million. g. Cash and Equivalents: The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The carrying amount approximates fair value because of the short maturity of these items. h. Income Taxes: Under the terms of an agreement with WPLH, the Company calculates its federal tax provisions and makes payments to WPLH as if it were a separate taxable entity. Beginning in 1993, WPL fully provides deferred income taxes in accordance with SFAS No.109, "Accounting for Income Taxes," to reflect tax effects of reporting book and tax items in different periods. NOTE 2. PROPERTY: a. Jointly-Owned Utility Plants: WPL participates with other Wisconsin utilities in the construction and operation of several jointly-owned utility generating plants. The chart below represents WPL's proportionate share of such plants as reflected in the Consolidated Balance Sheets at December 31, 1994 and 1993
1994 1993 ---------------------------- ----------------------------- Plant Accumulated Plant Accumulated Ownership Inservice Plant MW in Provision for in Provision for Interest % Date Capacity Service Depreciation CWIP Service Depreciation CWIP Coal: Columbia Energy Center 46.2 1975 & 1978 1,023 $159,650 $ 78,573 $1,484 $159,818 $ 76,602 $1,986 Edgewater Unit 4 68.2 1969 330 50,206 25,394 181 49,631 24,160 83 Edgewater Unit 5 75.0 1985 380 225,336 63,324 26 224,902 58,338 21 Nuclear: Kewaunee Nuclear Power Plant 41.0 1974 535 132,726 72,637 452 133,342 69,647 848 -------- -------- ------ -------- ------- ------ Total $567,918 $239,928 $2,143 $567,693 $228,747 $2,938 ======= ======== ====== ======== ======== ======
Each of the respective joint owners finances its portion of construction costs. WPL's share of operation and maintenance expenses is included in the Consolidated Statements of Income. b. Capital Expenditures: The Company's capital expenditures for 1995 are estimated to total $128.6 million. Substantial commitments have been incurred for such expenditures. NOTE 3. DEPRECIATION: The Company uses the straight-line method of depreciation. For utility plant, straight-line depreciation is computed on the average balance of depreciable property at individual straight-line PSCW approved rates that consider the estimated useful life and removal cost or salvage value as follows: Electric Gas Water Common 1994 3.2% 3.7% 2.5% 7.2% 1993 3.2% 3.7% 2.5% 7.3% 1992 3.2% 3.7% 2.6% 7.1% NOTE 4. NUCLEAR OPERATIONS: Depreciation expense related to the Kewaunee Nuclear Power Plant ("Kewaunee") includes a provision to accrue for the cost of decommissioning over the life of the plant, which totalled $13.4 million, $6.1 million and $3.9 million in 1994, 1993 and 1992, respectively. Wisconsin utilities with ownership of nuclear generating plants are required by the PSCW to establish and make annual contributions to external trust funds to provide for plant decommissioning. Additionally, in July 1994, the PSCW issued a generic order covering utilities that have nuclear generation. This order standardizes the escalation assumptions to be used in determining nuclear decommissioning liabilities. WPL's share of the decommissioning costs is estimated to be $159 million (in 1994 dollars, assuming the plant is operating through 2013) based on a 1992 study, using the immediate dismantlement method of decommissioning. The undiscounted amount of decommissioning costs estimated to be expended between the years 2014 and 2050 is $1.016 billion. After-tax earnings on the tax-qualified and nontax-qualified decommissioning funds are assumed to be 6.1 percent and 5.1 percent, respectively. The future escalation rate is assumed to be 6.5 percent. Decommissioning costs and a charge to offset earnings on the external trusts are recorded as portions of depreciation expense and accumulated provision for depreciation on the Statements of Consolidated Income and the Consolidated Balance Sheets, respectively. As of December 31, 1994, the total decommissioning costs included in the accumulated provision for depreciation were approximately $62.8 million. WPL has established external trusts to hold decommissioning funds, and the PSCW has approved WPL's funding plan which provides for annual contributions of current accruals over the remaining service lives of the nuclear plants. The earnings on the external trusts accumulate in the fund balance and in the accumulated provision for depreciation. Such earnings on the external trust funds, which have been offset by a charge to depreciation expense on the Statements of Consolidated Income, were $2.7, $1.1 and $1.2 for the years ended December 31, 1994, 1993 and 1992, respectively. Under the Nuclear Waste Policy Act of 1982, the U.S. Department of Energy ("DOE") is responsible for the ultimate storage and disposal of spent nuclear fuel removed from nuclear reactors. Interim storage space for spent nuclear fuel is currently provided at the Kewaunee Nuclear Power Plant. Currently there is on-site storage capacity for spent fuel through the year 1999. Nuclear fuel, net, at December 31, consists of: 1994 1993 Original cost of nuclear fuel $155,190 $147,325 Less--Accumulated amortization 135,794 129,325 -------- -------- Nuclear fuel, net $ 19,396 $ 18,000 ======== ======== The Price Anderson Act provides for the payment of funds for public liability claims arising from a nuclear incident. Accordingly, in the event of a nuclear incident, WPL, as a 41-percent owner of the Kewaunee Nuclear Power Plant, is subject to an overall assessment of approximately $32.5 million per incident for its ownership share of this reactor, not to exceed $4.1 million payable in any given year. Through its membership in Nuclear Electric Insurance Limited, WPL has obtained property damage and decontamination insurance totalling $1.5 billion for loss from damage at the Kewaunee Nuclear Power Plant. In addition, WPL maintains outage and replacement power insurance coverage totalling $101.4 million in the event an outage exceeds 21 weeks. NOTE 5. NET ACCOUNTS RECEIVABLE: WPL has a contract with a financial organization to sell, with limited recourse, certain accounts receivable and unbilled revenues. These receivables include customer receivables resulting from sales to other public utilities as well as from billings to the co-owners of the jointly- owned electric generating plants that WPL operates. The contract allows WPL to sell up to $150 million of receivables at any time. Expenses related to the sale of receivables are paid to the financial organization under this contract and include, along with various other fees, a monthly discount charge on the outstanding balance of receivables sold that approximated a 4.86 percent annual rate during 1994. These costs are recovered in retail utility rates as an operating expense. All billing and collection functions remain the responsibility of WPL. The contract expires August 19, 1995, unless extended by mutual agreement. As of December 31, 1994 and 1993, proceeds from the sale of accounts receivable totalled $76.5 million and $74 million, respectively. During 1994, WPL sold an average of $82.3 million of accounts receivable per month, compared with $75.9 million in 1993. As a result of its diversified customer base and WPL's sale of receivables, the Company does not have any significant concentrations of credit risk in the December 31, 1994, net accounts receivable balance. NOTE 6. REGULATORY ASSETS AND REGULATORY LIABILITIES: Certain costs and credits are deferred and amortized in accordance with authorized or expected rate-making treatment. As of December 31, 1994 and 1993, regulatory created assets include the following: 1994 1993 Environmental remediation costs $ 82,179 $ 82,380 Tax related (see Note 8) 43,736 47,787 Jurisdictional plant differences 7,173 6,533 Decontamination and decommissioning costs of federal enrichment facilities 7,100 6,181 Other 4,288 5,924 -------- -------- $144,476 $148,805 ======== ======== As of December 31, 1994 and 1993, regulatory created liabilities included $6,738 and $6,618, respectively, for amounts due to customers related to the sale of air emissions credits. NOTE 7. EMPLOYEE BENEFIT PLANS: a. Pension Plans: WPL has non-contributory, defined benefit retirement plans covering substantially all employees. The benefits are based upon years of service and levels of compensation. WPL's funding policy is to contribute at least the statutory minimum to a trust. The projected unit credit actuarial cost method was used to compute net pension costs and the accumulated and projected benefit obligations. The discount rate used in determining those benefit obligations was 8.25, 7.25 and 8.00 percent for 1994, 1993 and 1992, respectively. The long-term rate of return on assets used in determining those benefit obligations 9.00, 9.75, and 10.00 percent for 1994, 1993, and 1992, respectively. The following table sets forth the funded status of the WPL plans and amounts recognized in the Company's Consolidated Balance Sheets at December 31, 1994 and 1993: 1994 1993 Accumulated benefit obligation-- Vested benefits $(134,829) $(135,303) Non-vested benefits (3,295) (2,962) --------- ---------- $(138,124) $(138,265) --------- ---------- Projected benefit obligation $(154,283) $(164,271) Plan assets at fair value, primarily common stocks and fixed income securities 178,095 183,881 --------- ---------- Plan assets in excess of projected benefit obligation 23,812 19,610 Unrecognized net transition asset (19,376) (21,823) Unrecognized prior service cost 5,679 7,691 Unrecognized net loss 14,737 20,650 --------- ---------- Pre-paid pension costs, included in deferred charges and other $ 24,852 $ 26,128 ========= ========== The net pension (benefit) recognized in the Consolidated Statements of Income for 1994, 1993 and 1992 included the following components: 1994 1993 1992 Service cost $ 5,123 $ 4,263 $ 3,912 Interest cost on projected benefit obligation 12,051 11,614 10,615 Actual return on assets 1,016 (24,759) (12,143) Amortization and deferral (17,795) 8,430 (5,317) -------- -------- -------- Net pension (benefit) $ 395 $ (452) $ (2,933) ======== ======== ======== b. Postretirement Health Care and Life Insurance: Effective January 1, 1993, the Company prospectively adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS No. 106 establishes standards of financial accounting and reporting for the company's postretirement health care and life insurance benefits. SFAS No. 106 requires the accrual of the expected cost of such benefits during the employees' years of service based on actuarial methodologies that closely parallel pension accounting requirements. WPL has elected delayed recognition of the transition obligation and is amortizing the discounted present value of the transition obligation to expense over 20 years. The cost of providing postretirement benefits, including the transition obligation, is being recovered in retail rates under current regulatory practices. The following table sets forth the plans' funded status: 1994 1993 Accumulated postretirement benefit obligation-- Retirees $(29,273) $(27,358) Fully eligible active plan participants (5,998) (5,429) Other active plan participants (7,675) (9,980) -------- -------- Accumulated benefit obligation (42,946) (42,767) Plan assets at fair value 9,767 7,073 -------- -------- Accumulated benefit obligation in excess of plan assets $(33,179) $(35,694) Unrecognized transition obligation 26,474 29,638 Unrecognized loss (2,570) 2,025 -------- -------- Accrued postretirement benefits liability $ (9,275) $ (4,031) ======== ======== For 1994 and 1993, the annual net postretirement benefits costs recognized in the Consolidated Statements of Income consist of the following components: 1994 1993 Service cost $ 1,739 $ 1,463 Interest cost on projected benefit obligation 3,135 3,151 Actual return on plan assets (253) (696) Amortization of transition obligation 1,527 1,560 Amortization and deferral (381) (27) ------- ------- Net postretirement benefits cost $ 5,767 $ 5,451 ======= ======= The postretirement benefits cost components for 1994 were calculated assuming health care cost trend rates ranging from 11.5 percent for 1994 and decreasing to 5 percent by the year 2002. The health care cost trend rate considers estimates of health care inflation, changes in utilization or delivery, technological advances, and changes in the health status of the plan participants. Increasing the health care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by $2.5 million and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for the year by $.4 million. The assumed discount rate used in determining the accumulated postretirement obligation was 8.25 and 7.25 percent in 1994 and 1993, respectively. The long-term rate of return on assets was 9.00 and 9.50 percent in 1994 and 1993, respectively. Plan assets are primarily invested in common stock, bonds and fixed income securities. The Company's funding policy is to contribute the tax-advantaged maximum to a trust. The costs for the postretirement health care and life insurance benefits, based on an actuarial determination were $1.3 million in 1992. c. Other Postemployment Benefits: In November 1992, the Financial Accounting Standards Board issued No. 112, "Employers' Accounting for Postemployment Benefits". SFAS No. 112, which was effective January 1, 1994, establishes standards of financial accounting and reporting for the estimated cost of benefits provided by an employer to former or inactive employees after employment but before retirement. The effect of adopting SFAS No. 112 was not material. NOTE 8. INCOME TAXES: The following table reconciles the statutory federal income tax rate to the effective income tax rate: 1994 1993 1992 Statutory federal income tax rate 35.0% 35.0% 34.0% State income taxes, net of federal benefit 5.6 6.1 6.0 Investment tax credits restored (1.7) (2.0) (2.4) Amortization of excess deferred taxes (1.5) (1.5) (1.6) Other differences, net 1.1 (1.9) (2.0) ---- ---- ---- Effective income tax rate 38.5% 35.7% 34.0% ==== ==== ==== In 1992, deferred taxes arising from utility plant timing differences, the qualified nuclear decommissioning trust contribution, employee benefits and other totalled $4,104, $709, $2,081, and ($755), respectively. The temporary differences that resulted in accumulated deferred income tax (assets) and liabilities as of December 31 are as follows: 1994 1993 Accelerated depreciation and other plant related $186,565 $171,993 Excess deferred taxes 21,215 22,744 Unamortized investment tax credits (21,784) (22,812) Allowance for equity funds used during construction 14,384 13,518 Regulatory liability 17,553 19,179 Other 4,440 6,140 -------- -------- $222,373 $210,762 ======== ======== Changes in WPL's deferred income taxes arising from the adoption of SFAS No. 109 represent amounts recoverable or refundable through future rates and have been recorded as net regulatory assets totalling approximately $26 million and $29 million in 1994 and 1993, respectively, on the Consolidated Balance Sheets. These net regulatory assets are being recovered in rates over the estimated remaining useful lives of the assets to which they pertain. NOTE 9. SHORT-TERM DEBT AND LINES OF CREDIT: The Company maintains bank lines of credit, most of which are at the bank prime rates, to obtain short-term borrowing flexibility, including pledging lines of credit as security for any commercial paper outstanding. Amounts available under these lines of credit totalled $70 million as of December 31, 1994. Information regarding short-term debt and lines of credit is as follows: 1994 1993 1992 As of end of year-- Commercial paper outstanding $50,500 $49,000 $26,000 Notes payable outstanding $ -- $10,000 $25,000 Discount rates on commercial paper 5.64%-6.12% 3.24%-3.40% 3.15%-3.90% Interest rates on notes payable -- % 3.34% 3.46%-3.62% For the year ended-- Maximum month-end amount of short-term debt $50,500 $59,000 $51,000 Average amount of short-term debt (based on daily outstanding balances) $25,374 $30,423 $22,160 Average interest rate on short-term debt 5.89% 3.29% 3.63% NOTE 10. CAPITALIZATION: a. Common Shareowners' Investment: A retail rate order effective January 1, 1995, requires WPL to maintain a utility common equity level of 51.93 percent of total utility capitalization during the test year January 1, 1995 to December 31, 1996. In addition, the PSCW ordered that it must approve the payment of dividends by WPL to WPLH that are in excess of the level forecasted in the rate order ($58.1 million), if such dividends would reduce WPL's average common equity ratio below 51.93 percent. b. Preferred Stock: On October 27, 1993, WPL issued two new series of preferred stock through two separate public offerings. The 6.2 percent Series is non-redeemable for ten years and the 6.5 percent Series is non-redeemable for five years. The proceeds from the sale were used to retire 150,000 shares of 7.56 percent Series and 149,865 shares of 8.48 percent Series preferred stock. c. Long-term Debt: Substantially all of WPL's utility plant is secured by its first mortgage bonds. Current maturities of long-term debt are as follows: $0 in 1995 and 1996, $55 million in 1997, $8.9 million in 1998 and $0 in 1999. The Company has $130 million of notional principal under interest rate swap contracts. The fair value of these contracts was not material as of December 31, 1994. The fair value of the Company's long-term debt based on quoted market prices for similar issues at December 31, 1994 and 1993 was $386,520 and $428,841, respectively. NOTE 11. COMMITMENTS AND CONTINGENCIES: a. Coal Contract Commitments: To ensure an adequate supply of coal, WPL has entered into certain long-term coal contracts. These contracts include a demand or take-or-pay clause under which payments are required if contracted quantities are not purchased. Purchase obligations on these coal and related rail contracts total approximately $149 million through December 31, 2003. WPL's management believes it will meet minimum coal and rail purchase obligations under the contracts. Minimum purchase obligations on these contracts over the next five years are estimated to be $25 million in 1995 and $26 million in 1996, 1997, 1998 and 1999. b. Purchased Power and Gas: Under firm purchase power and gas contracts, WPL is obligated as follows (dollars in millions): Purchased Power Purchased Gas ------------------- -------------------------- Purchase Purchase Decatherms Obligation MW's Obligation (in millions) 1995 $ 8.3 1,920 $ 67 89 1996 8.1 1,830 67 90 1997 10.9 1,944 55 78 1998 15.6 2,505 45 66 1999 18.8 2,910 41 53 Thereafter 106.5 12,720 77 101 ----- ------ ---- --- $ 168.2 23,829 $352 477 ====== ====== ==== === c. Manufactured Gas Plant Sites: Historically, WPL has owned 11 properties that have been associated with the production of manufactured gas. Currently, WPL owns five of these sites, three are owned by municipalities, and the remaining three are owned by private companies. In 1989, WPL initiated investigation of these manufactured gas plant sites. The Wisconsin Department of Natural Resources ("DNR") has been involved in reviewing investigation plans and has received ongoing reports regarding these investigations. In 1992, and into the beginning of 1993, WPL continued its investigations and studies. WPL confirmed that there was no contamination at two of the sites. WPL received a close-out letter from the DNR related to one of those sites and requested a close-out letter for the other site. Additionally, the investigation of historical records at a third site indicated a minimal likelihood of any significant environmental impacts. In February 1993, WPL completed cost estimates for the environmental remediation of the eight remaining sites. The results of this analysis indicate that during the next 35 years, WPL will expend approximately $81 million for feasibility studies, data collection, soil remediation activities, groundwater research and groundwater remediation activities, including construction of slurry containment walls and the installation of groundwater pump and treatment facilities. This estimate was based on various assumptions, and is subject to continuous review and revision by management. The cost estimate set forth above assumes 4 percent average inflation over a 35 year period. The cost estimate also contemplates that primarily groundwater pump and treatment activities will take place after 1998 through and including 2027. During this time, WPL estimates that it will incur average annual costs of $2.0 million to complete the planned groundwater remediation activities. With respect to rate recovery of these costs, the PSCW has approved a five year amortization of the unamortized balance of environmental costs expended to date. In addition, WPL is pursuing insurance recovery for the costs of remediating these sites and is investigating to determine whether there are other parties who may be responsible for some of the clean-up costs. Through 1994, management has continued its oversight of the issues related to the above manufactured gas plant sites without significant revision to the above estimates and assumptions. Based on the present regulatory record at the PSCW, management believes that future costs of remediating these manufactured gas plant sites will be recovered in rates. NOTE 12. SEGMENT INFORMATION: The following table sets forth certain information relating to the Company's consolidated operations: Year Ended December 31, 1994 1993 1992 Operation information: Customer revenues-- Electric $ 531,747 $ 503,187 $ 477,735 Gas 137,575 137,270 119,362 Water 4,133 3,927 3,722 ---------- ---------- ---------- Total operating revenues $ 673,455 $ 644,384 $ 600,819 ========== ========== ========== Operating income (loss)-- Electric $ 121,136 $ 118,785 $ 109,459 Gas 13,334 10,431 8,724 Water 1,134 990 998 Income taxes, current and deferred (44,726) (35,667) (30,541) Other income and (deductions), net 10,735 789 2,650 Interest expense, net (30,119) (31,223) (32,071) Preferred dividends (3,310) (3,928) (3,811) ---------- ---------- ---------- Net income $ 68,184 $ 60,177 $ 55,408 ========== ========== ========== Investment information: Identifiable assets, including allocated common plant at December 31-- Electric $1,176,670 $1,170,010 $1,064,418 Gas 234,815 228,257 210,965 Water 18,791 17,703 14,464 Assets not allocated 154,848 134,687 123,803 ---------- ---------- ---------- Total assets $1,585,124 $1,550,657 $1,413,650 ========== ========== ========== Other information: Construction and nuclear fuel expenditures-- Electric $ 103,420 $ 139,805 $ 113,252 Gas 20,319 18,876 13,974 Water 2,149 1,908 1,538 ---------- ---------- ---------- Total construction and nuclear fuel expenditures $ 125,888 $ 160,589 $ 128,764 ========== ========== ========== Provision for depreciation and amortization-- Electric $ 64,695 $ 53,398 $ 49,554 Gas 8,082 7,329 6,578 Water 417 470 284 ---------- ---------- ---------- Total provision for depreciation $ 73,194 $ 61,197 $ 56,416 ========== ========== ========== NOTE 13. CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited): Seasonal factors significantly affect WPL and, therefore, the data presented below should not be expected to be comparable between quarters nor necessarily indicative of the results to be expected for an annual period. The amounts below were not audited by independent public accountants, but reflect all adjustments necessary, in the opinion of the Company, for a fair presentation of the data. Operating Operating Quarter Ended Revenues Income Net Income 1994: (in thousands) March 31 $201,309 $31,684 $26,633 June 30 148,425 15,838 11,231 September 30 156,483 24,470 16,927 December 31 169,803 22,395 13,393 1993: March 31 $182,023 $26,405 $17,740 June 30 141,049 16,936 8,237 September 30 144,440 21,045 13,096 December 31 177,986 31,091 21,104 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 relating to directors and nominees for election as directors at the Company's 1995 Annual Meeting of Shareowners is incorporated herein by reference to the information under the caption "Election of Directors" in the Company's Proxy Statement for its 1995 Annual Meeting of Shareowners (the "1995 Proxy Statement"). The 1995 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the Company's fiscal year. The information required by Item 10 relating to executive officers is set forth in Part I of this Annual Report on Form 10-K. The information required by Item 10 relating to delinquent filers is incorporated herein by reference to the information under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the 1995 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the information under the captions "Compensation of Executive Officers" and "Compensation of Directors" (but not including the Report of the Compensation and Personnel Committee on Executive Compensation) in the 1995 Proxy Statement. The 1995 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the Company's fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the information under the caption "Ownership of Voting Securities" in the 1995 Proxy Statement. The 1995 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the Company's fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Consolidated Financial Statements Included in Part II of this report: Report of Independent Public Accountants Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992 Consolidated Balance Sheets, December 31, 1994 and 1993 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 Consolidated Statements of Capitalization, December 31, 1994 and 1993 Consolidated Statements of Common Shareowners' Investment Notes to Consolidated Financial Statements (a) (2) Financial Statement Schedules For each of the years ended December 31, 1994, 1993 and 1992 Schedule II. Valuation and Qualifying Accounts and Reserves All other schedules are omitted because they are not applicable or not required, or because that required information is shown either in the consolidated financial statements or in the notes thereto. (a) (3) Exhibits The following Exhibits are filed herewith or incorporated herein by reference. Documents indicated by an asterisk (*) are incorporated herein by reference. 3A* Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10Q for the quarter ended June 30, 1994) 3B By-Laws of the Company as revised to February 23, 1994 4A* Indenture of Mortgage or Deed of Trust dated August 1, 1941, between WPL and First Wisconsin Trust Company and George B. Luhman, as Trustees, incorporated by reference to Exhibit 7(a) in File No. 2-6409, and the indentures supplemental thereto dated, respectively, January 1, 1948, September 1, 1948, June 1, 1950, April 1, 1951, April 1, 1952, September 1, 1953, October 1, 1954, March 1, 1959, May 1, 1962, August 1, 1968, June 1, 1969, October 1, 1970, July 1, 1971, April 1, 1974, December 1, 1975, May 1, 1976, May 15, 1978, August 1, 1980, January 15, 1981, August 1, 1984, January 15, 1986, June 1, 1986, August 1, 1988, December 1, 1990, September 1, 1991, October 1, 1991, March 1, 1992, May 1, 1992, June 1, 1992 and July 1, 1992 (incorporated by reference to Second Amended Exhibit 7(b) in File No. 2-7361; Amended Exhibit 7(c) incorporated by reference to File No. 2-7628; Amended Exhibit 7.02 in File No. 2-8462; Amended Exhibit 7.02 in File No. 2-8882; Second Amendment Exhibit 4.03 in File No. 2-9526; Amended Exhibit 4.03 in File No. 2-10406; Amended Exhibit 2.02 in File No. 2-11130; Amended Exhibit 2.02 in File No. 2-14816; Amended Exhibit 2.02 in File No. 2-20372; Amended Exhibit 2.02 in File No. 2-29738; Amended Exhibit 2.02 in File No. 2-32947; Amended Exhibit 2.02 in File No. 2-38304; Amended Exhibit 2.02 in File No. 2-40802; Amended Exhibit 2.02 in File No. 2-50308; Exhibit 2.01(a) in File No. 2-57775; Amended Exhibit 2.02 in File No. 2-56036; Amended Exhibit 2.02 in File No. 2-61439; Exhibit 4.02 in File No. 2-70534; Amended Exhibit 4.03 File No. 2-70534; Exhibit 4.02 in File No. 33-2579; Amended Exhibit 4.03 in File No. 33-2579; Amended Exhibit 4.02 in File No. 33-4961; Exhibit 4B to WPL's Form 10-K for the year ended December 31, 1988, Exhibit 4.1 to WPL's Form 8-K dated December 10, 1990, Amended Exhibit 4.26 in File No. 33-45726, Amended Exhibit 4.27 in File No.33-45726, Exhibit 4.1 to WPL's Form 8-K dated March 9, 1992, Exhibit 4.1 to WPL's Form 8-K dated May 12, 1992, Exhibit 4.1 to WPL's Form 8-K dated June 29, 1992 and Exhibit 4.1 to WPL's Form 8-K dated July 20, 1992) 10A*# Executive Tenure Compensation Plan, as revised November 1992 (incorporated by reference to Exhibit 10A to the Company's Form 10-K for the year ended December 31, 1992) 10B*# Form of Supplemental Retirement Plan, as revised November 1992 (incorporated by reference to Exhibit 10B to the Company's Form 10-K for the year ended December 31, 1992) 10C*# Forms of Deferred Compensation Plans, as amended June, 1990 (incorporated by reference to Exhibit 10C to the Company's Form 10-K for the year ended December 31, 1990) 10C.1*# Officer's Deferred Compensation Plan II, as adopted September 1992 (incorporated by reference to Exhibit 10C.1 to the Company's Form 10-K for the year ended December 31, 1992) 10C.2*# Officer's Deferred Compensation Plan III, as adopted January 1993 (incorporated by reference to Exhibit 10C.2 to the Company's Form 10-K for the year ended December 31, 1992) 10D*# Pre-Retirement Survivor's Income Supplemental Plan, as revised November 1992 (incorporated by reference to Exhibit 10F to the Company's Form 10-K for the year ended December 31, 1992) 10E*# Wisconsin Power and Light Company Management Incentive Plan (incorporated by reference to Exhibit 10H to the Company's Form 10-K for the year ended December 31, 1992) 10F# Deferred Compensation Plan for Directors, as amended January 17, 1995 10G*# WPL Holdings, Inc. Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994) 10H*# Key Executive Employment and Severance Agreement by and between WPL Holdings, Inc., and E.B. Davis, Jr. (incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994) 10I*# Form of Key Executive Employment and Severance Agreement by and between WPL Holdings, Inc. and each of W.D. Harvey, E.G. Protsch and A.J. Amato (incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994) 10J*# Form of Key Executive Employment and Severance Agreement by and between WPL Holdings, Inc. and each of E.M. Gleason, B.J. Swan, D.A. Doyle, N.E. Boys, D.E. Ellestad, P.J. Wegner and K.K. Zuhlke (incorporated by reference to Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994) 21 Subsidiaries of the company 99* 1995 Proxy Statement for the Annual Meeting of Shareowners to be held May 17, 1995 [The Proxy Statement for the 1995 Annual Meeting of Shareowners will be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the Company's fiscal year; except to the extent incorporated by reference, the Proxy Statement for the 1995 Annual Meeting of Shareowners shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K] Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company hereby agrees to furnish to the Securities and Exchange Commission, upon request, any instrument defining the rights of holders of unregistered long-term debt not filed as an exhibit to this Form 10-K. No such instrument authorizes securities in excess of 10 percent of the total assets of the Company. # - A management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. None. 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 22nd of February 1995. WISCONSIN POWER AND LIGHT COMPANY By:/s/ Erroll B. Davis, Jr. Erroll B. Davis, Jr. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 22nd day of February 1995. /s/ Erroll B. Davis, Jr. President, Chief Executive Officer Erroll B. Davis, Jr. and Director (principal executive officer) /s/ Daniel A. Doyle Vice President-Finance, Controller Daniel A. Doyle and Treasurer (principal financial and accounting officer) /s/ Les Aspin Director /s/ Milton E. Neshek Director Les Aspin Milton E. Neshek /s/ L. David Carley Director /s/ Henry C. Prange Director L. David Carley Henry C. Prange /s/ Rockne G. Flowers Director /s/ Judith D. Pyle Director Rockne G. Flowers Judith D. Pyle /s/ Donald R. Haldeman Director /s/ Henry F. Scheig Director Donald R. Haldeman Henry F. Scheig /s/ Katharine C. Lyall Director /s/ Carol T. Toussaint Director Katharine C. Lyall Carol T. Toussaint /s/ Arnold M. Nemirow Director Arnold M. Nemirow REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To WISCONSIN POWER AND LIGHT COMPANY: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in the 1994 Form 10-K of Wisconsin Power and Light Company and have issued our report thereon dated February 1, 1995. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Supplemental Schedule II is the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Milwaukee, Wisconsin, ARTHUR ANDERSEN LLP February 1, 1995 WISCONSIN POWER AND LIGHT COMPANY INDEX TO FINANCIAL STATEMENT SCHEDULES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 FINANCIAL STATEMENT SCHEDULES: II. Valuation and Qualifying Accounts and Reserves NOTE: All other schedules are omitted because they are not applicable or not required, or because that required information is shown either in the financial statements or in the notes thereto. SCHEDULE II WISCONSIN POWER AND LIGHT COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ($ In Thousands)
Additions Balance at Charged to Balance a beginning costs and end of Description of period expenses Deductions period Year ended December 31, 1994: Allowance for doubtful accounts... $259 $150 $200 [1] $209 ======= ====== ====== ====== Year ended December 31, 1993: Allowance for doubtful accounts... $226 $114 $81 [1] $259 ======= ====== ====== ====== Year ended December 31, 1992: Allowance for doubtful accounts... $261 $90 $125 [1] $226 ======= ====== ====== ====== [1] Uncollectible accounts written off, net of recoveries.
EXHIBIT INDEX Exhibit No. Description 3B By-Laws of as revised to February 23, 1994 10F Deferred Compensation Plan for Directors, as amended January 17, 1995 21 Subsidiaries of the Company 27 Financial Data Schedule EX-3 2 WISCONSIN POWER & LIGHT EXHIBIT 3B TO FORM 10-K BYLAWS OF WISCONSIN POWER AND LIGHT COMPANY Revised at February 23, 1994 ARTICLE I SEAL The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Wisconsin". ARTICLE II Stocks and Transfers Section 1 - Each holder of fully paid stock shall be entitled to a certificate or certificates of stock, stating the number of shares owned by such shareowner and the designation of the Class and Series in which issued. All stock certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary of the Company, and be sealed with the corporate seal of the Company, which seal may be facsimile, engraved or printed. If and when a Transfer Agent and/or a Registrar shall have been appointed by the Board with respect to the shares of any class of stock, or series thereof, of the Company, the certificates representing such shares shall also be countersigned by such Transfer Agent and/or countersigned and registered by such Registrar, as the case may be. Certificates which have been countersigned by a Transfer Agent and countersigned and registered by a Registrar, in both cases duly appointed by the Board of Directors for such purpose, may bear the signatures of the President or a Vice President and the Secretary or an Assistant Secretary of the Company in facsimile, engraved or printed; provided, that no certificate bearing the facsimile signatures of the Officers of the Company shall be valid or effective for any purpose unless and until it shall have been so countersigned and registered. In case any such Officer who has signed any stock certificate, or whose facsimile signature has been placed thereon, shall have ceased to be such Officer before such certificate is issued, such certificate may be issued by the Company with the same effect as if such Officer had not ceased to be such at the date of its issue. Section 2 - The stock of the Company shall be divided into such Classes, with such relative rights and preferences, as shall be provided by the Articles of Organization of the Company as the same may from time to time be amended in accordance with the laws of Wisconsin. Section 3 - Shares of stock shall be transferable only on the books of the Company; and upon proper endorsement and surrender of the outstanding certificates representing the same. Subject to such conditions as the Board of Directors may, by Resolution, establish: (a) If an outstanding certificate of stock shall be lost, destroyed or stolen, the holder thereof may have a new certificate issued, upon producing evidence satisfactory to the Officers of the Company, of such loss, destruction or theft; and upon furnishing to the Company a bond of indemnity, surety bond, or such other assurance as the Officers may require. (b) Where any outstanding certificates of stock are deemed abandoned by the holder thereof, pursuant to the unclaimed property or escheatment laws of any state having jurisdiction thereof, the Officers of the Company are authorized and directed to cause the transfer and delivery of said certificates or to cause the issuance of replacement certificates, to such person or persons as may be entitled thereto in accordance with such escheatment laws. Section 4 - Transfer books may be closed by order of the Board of Directors for short periods, not exceeding forty days at any one time, for any legal purpose, as the Board of Directors shall deem advisable. ARTICLE III Meetings of Shareowners Section 1 - The Annual Meeting of the Shareowners shall be held on the fourth Wednesday in May of each year (or if such day be a legal holiday in Wisconsin, then upon the following day); or on such other day of each year as the Board of Directors may determine. Each such meeting shall be held at the hour of 10:00 o'clock A.M. at the office of the Company in Madison, Wisconsin, unless the Board of Directors shall otherwise order. The Annual Meeting shall be held for the purposes of electing Directors, selecting the Company's independent auditors and of transacting such other business as may properly come before the meeting. Section 2 - Special Meetings of the shareowners may be called by the Chairperson of the Board, the Chief Executive Officer; or by the Board of Directors; or by the Secretary when requested by the owners of shares of outstanding voting stock having in the aggregate a number of votes at least equal to one-fifth of the aggregate number of votes possessed by all such owners; or in such other manner as may be provided by statute. Section 3 - Notice of the time and place of each Annual or Special Meeting of Shareowners shall be sent by mail to the recorded address of each shareowner not less than ten days before the date of the meeting, except in cases where other special method of notice may be required by statute, in which case the statutory method shall be followed. The notice of a special meeting shall state the object of the meeting. Notice of any meeting of the shareowners may be waived by any shareowners. Section 4 - At all meetings of shareowners, the representation of owners of that number of shares of stock entitled to vote at such meeting having in the aggregate a number of votes at least equal to a majority of the aggregate number of votes entitled to vote at such meeting shall be necessary to constitute a quorum for the transaction of any business, other than (a) adjourning from time to time until a quorum shall be obtained, or (b) adjourning sine die, and for any such adjournment a majority vote of whatever shares of stock shall be represented shall be sufficient. Section 5 - The Chairperson of the Board when he or she is the Chief Executive Officer, and when he or she is not the Chief Executive Officer, or in his or her absence or at his or her request the President, and in an absence of both the Chairperson of the Board and the President, then a Vice President, and if no Vice President be in attendance at the meeting, then a Director selected by the Directors attending the meeting, or if no selection is made, then the Director in attendance with the longest tenure in such office, shall preside at each meeting of shareowners, and the Secretary or an Assistant Secretary of the Company shall act as secretary of each shareowner meeting. Section 6 - Any shareowner having the right to vote at a meeting of shareowners may exercise such right by voting in person or by proxy at such meeting. ARTICLE IV Board of Directors Section 1 - The number of Directors constituting the Board of Directors shall be a minimum of nine (9) and a maximum of thirteen (13). Whenever a vacancy(ies) occurs on the Board of Directors such that there are less than nine (9) Directors remaining, the remaining Directors shall constitute the Board of Directors until the vacancy(ies) are filled by a vote of the majority of the Directors remaining in office, even if less than a quorum, said vacancy(ies) to be filled as soon as reasonably possible. When there are nine (9) or more Directors and a vacancy occurs, including a vacancy created by an increase in the number of Directors, it shall be filled or not filled at the discretion of the Board of Directors. Section 2 - 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 70 years of age shall resign from the Board of Directors effective as of the next Annual Meeting of Shareowners. Except for the Chief Executive Officer, any Officer or employee of the Company serving as a Director who retires or resigns from his or her office or employment with the Company shall simultaneously resign from the Board of Directors. Any Director who is unavailable for reasonably regular attendance at meetings of the Board shall resign as a Director. Section 3 - The Board of Directors may hold regular or special meetings in or outside the State of Wisconsin. Section 4 - A regular meeting of the Board of Directors shall be held within 30 days after the Annual Meeting of Shareowners in each year, provided a quorum for such meeting can be obtained, and thereafter regular meetings of the Board of Directors shall be held at such time and place and in such manner as may be determined by the Board, at such hour as the notice of meeting may provide. Section 5 - Special meetings of the Board may be called at any time by the Chairperson of the Board, or the Chief Executive Officer, or in the absence of the Chairperson when Chief Executive Officer, by the President, or by a Vice President when acting as Chief Executive Officer, or by any two Directors, by mailing to each Director, not less than three days before the time of such meeting, a written notice stating the time and place and manner of holding such meeting. Section 6 - (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through the use of any means of communication by which any of the following occurs: 1) All participating directors may simultaneously hear each other during the meeting. 2) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 7 - Notice of any meeting of the Board may be waived by any Director. Section 8 - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board, but a fewer number may adjourn the meeting to some other day or sine die. The person designated by Section 5 of Article III above shall preside at meetings of the Board of Directors, and the Secretary or an Assistant Secretary shall act as Secretary. The members of the Board who are Officers or employees of the Company shall receive no separate fee for serving as a Director of the Company. Other members of the Board shall be paid such fees as the Board shall from time to time determine by resolution. ARTICLE V Committees Section 1 - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number an Executive Committee of such number, not less than three, as the Board may fix from time to time. The Executive Committee may make its own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. During the intervals between the meetings of the Board of Directors, the Executive Committee shall have all the powers of the Board in the management of the business and affairs of the Company, including power to authorize the seal of the Company to be affixed to all papers which may require it, and, by majority vote of all its members, exercise any and all such powers in such manner as such Committee shall deem best for the interests of the Company, in all cases in which specific directions shall not have been given by the Board of Directors. Section 2 - The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board when required. Section 3 - A Compensation and Personnel Committee is hereby established. Said Committee shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected by a majority vote of the members of the Board of Directors at the Annual Board meeting following the Annual Meeting of Shareowners, except that any vacancies on said Committee may be filled at any time by action of the Board of Directors. The Committee shall have the following powers and responsibilities: 1. Review and recommend to the Board new employee benefit plans or changes, i.e. pension, life, hospital, disability, etc. 2. Review major provisions of any negotiated union contracts prior to or during negotiations. 3. Review and approve any executive officer employment contract. 4. Review human resource development programs. 5. Review management development programs. 6. Review the internal equity and external competitiveness of all executive, management and salary pay grades. 7. Review and authorize salary adjustments for all management payroll and non-executive officers' pay grades as a group. All salary ranges and performance for executive officers shall be reviewed individually by the Committee. 8. Review as a group overall adjustments for all non-management payroll salary grades. 9. Review personnel budgets. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chief Executive Officer, President or any Committee member. Such meeting may be held on a day separate from or the same as the regular monthly meeting of the Board of Directors. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 4 - An Audit Committee is hereby established and shall consist of at least three (3) members all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Committee shall be elected by a majority vote of the members of the Board of Directors at the Annual Board Meeting following the Annual Meeting of Shareowners, except that any vacancies on said Committee may be filled at any time by action of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Such meeting may be held on a day separate from or the same as the regular monthly meeting of the Board of Directors. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. The functions of said Committee shall be to: 1. Recommend to the shareowners the independent auditors of the Company. 2. Discuss with the independent auditors the scope of their audit. 3. Discuss with the independent auditors and the management the Company's accounting principles, policies and practices and its reporting policies and practices. 4. Discuss with the independent auditors the results of their audit. 5. Discuss with the independent auditors the adequacy of the Company's or any of its subsidiaries accounting, financial and operating controls. 6. Discuss with the Company's Director of Internal Audits the scope and results of internal audits and initiate such accounting principles, policies and practices, and reporting policies and practices as it may deem necessary or proper. 7. Approve or disapprove annually, each defined group of non-audit services performed by the independent auditors, which consideration may occur before or after performance, giving due regard to the possible effect of such performance upon the independence of the independent auditors; and, if considered prior to such performance, shall include a limitation upon the magnitude of such services. Section 5 - A Corporate Operations Review Committee is hereby established. Such Committee shall consist of at least three members of the Board of Directors. The Chairperson and the members of the Committee shall be elected by a majority vote of the Board of Directors at the Annual Board Meeting following the Annual Meeting of Shareowners, except any vacancies on said Committee may be filled at any time by action of the Board of Directors. Said Committee shall meet at least once annually at such time and place as it determines, and at other times upon the call of the Chairperson or any other member of the Committee. Such meeting may be held on a day separate from or the same as the regular meeting of the Board of Directors. The functions of said Committee shall be to: 1. Review proposed operating and construction budgets, financing plans and other significant project plans and make recommendations to the Board of Directors. 2. Examine corporate operations and performance against established budgets, plans and objectives. 3. Review corporate policies as required and make recommendations to the Board of Directors concerning policy changes and the establishment of new policies. 4. Periodically review selected operating issues and processes. Section 6 - A Nominating Committee shall be established and shall consist of at least three (3) members, all of whom shall be outside members of the Board. The Chairperson and the members of the Committee shall be elected by a majority vote of the members of the Board of Directors at the Annual Board Meeting following the Annual Meeting of Shareowners, except that any vacancies on said Committee may be filled at any time by action of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year for the express purpose of recommending nominees for election to the Board at the Annual Meeting of Shareowners. The function of this Committee shall be to recommend to the Board of Directors nominations for election to the Board of Directors and to review the appropriateness of continued membership on the Board of present Board members. Section 7 - A Special Finance Committee shall be established to act on behalf of the board with respect to the issuance of securities by the Company. The members of the Committee shall be the President and Chief Executive Officer, the Chief Financial Officer, and the Vice President and General Counsel. The Committee shall act only in accordance with such specific instructions as the Board shall, by resolution, prescribe. The Committee shall meet as it shall determine. The act of a majority of the members shall be the act of the Committee. Section 8 - An Environmental Affairs Committee is hereby established. Such Committee shall consist of three to five members of the Board of Directors. The Chairperson of the Committee shall be elected by a majority vote of the Board of Directors at the Annual Board meeting following the Annual Meeting of Shareowners, except a vacancy in said position may be filled at any time by action of the Board of Directors. The Chairperson, the Chief Executive Officer and the President of the Company shall be ex officio members serving in an advisory capacity. Said Committee shall meet at least once annually at such time and place as it determines, and at other times upon the call of the Chairperson or any other member of the Committee. Such meeting may be held on a day separate from or the same as the regular monthly meeting of the Board of Directors. The Committee shall report on its reviews, and, as appropriate, make recommendations to the Board of Directors. The responsibility of said Committee shall be to review environmental policy and planning issues of interest to the Company, including matters involving the Company before environmental regulatory agencies and compliance with air, water, and waste regulations. Section 9 - A majority of the members of a committee shall constitute a quorum for the transaction of business at any meeting of a committee of the Board, but a fewer number may adjourn the meeting to some other day or sine die. Each committee shall arrange for the keeping of its own minutes. ARTICLE VI Officers Section 1 - There shall be elected by the Board of Directors at its first regular meeting after the Annual Meeting of Shareowners in each year, a Chief Executive Officer, who may be designated either Chairperson of the Board or President or both. The Board may elect a Chairperson of the Board who is not designated the Chief Executive Officer. At the same meeting the Board shall elect the following principal Officers, namely, 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. Any two of such offices, except those of President and Vice President, those of Chairperson of the Board and Secretary, and except those of President and Secretary, may be held and the duties thereof may be performed by one person. The Board of Directors in its discretion may also elect for any year one or more Assistant Secretaries, one or more Assistant Treasurers, one or more Assistant Controllers, and such other Officers as may from time to time be provided for by the Board of Directors. All Officers unless sooner removed shall hold their respective offices until the first regular meeting of the Board of Directors after the next succeeding Annual Meeting of Shareowners and until their successors, willing to serve, shall have been elected, but any Officer may be removed from office at any time at the pleasure of the Board of Directors. All Officers shall be bonded in such form, in such amounts, and with such sureties as determined by the Board of Directors. Section 2 - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Company, shall establish the lines of authority and supervision of the Officers and employees of the Company, shall have the power to appoint and remove and discharge any and all agents and employees of the Company not elected or appointed directly by the Board of Directors, and shall assist the Board in the formulation of policies of the Company. The Chairperson of the Board if the Chief Executive Officer may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Company. Section 3 - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available to the Chief Executive Officer for consultation and advice. Section 4 - The President when he or she is not designated as and does not have the powers of the Chief Executive Officer shall have such other powers and duties as usually devolve upon the President of a Company and such other and further powers and duties as may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board. In the absence or inability to act of the Chairperson of the Board to act as Chief Executive Officer the powers and duties of the Chief Executive Officer shall temporarily devolve upon the President. Section 5 - Each of the Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and by the Chief Executive Officer. Section 6 - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Company, and of all other books, documents and papers as in the practical business operation of the Company shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Company and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the Chief Executive Officer or by the Board of Directors. Section 7 - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Company, and shall deposit its funds in the name of the Company in such banks, trust companies, or safety vaults as the Board of Directors may direct, and shall keep a proper record of cash receipts and disbursements. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Company shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the Chief Executive Officer, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Company for operating purposes in the usual course of business, and shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the Chief Executive Officer or by the Board of Directors. Section 8 - The Controller shall be the principal accounting Officer of the Company. He or she shall have general supervision over the books of accounts of the Company. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Company relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the Chief Executive Officer or by the Board of Directors. Section 9 - The Assistant Secretaries, Assistant Treasurers and Assistant Controllers shall respectively assist the Secretary, Treasurer and Controller of the Company in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. Section 10 - In the event of the untimely death or absence or inability to act of the Chief Executive Officer, his or her powers and duties shall devolve temporarily in the following manner: first to any former Chief Executive Officer who is a member of the Board, next, to the Board member with the longest tenure on the Board. Within sixty (60) days, the temporary Chief Executive Officer shall notify the outside members of the Board of the absence or inability to act of the Chief Executive Officer and shall convene a meeting of the outside members of the Board, who shall act as a Committee. The Committee shall determine and evaluate all the facts pertinent to the Chief Executive Officer's absence or inability to act, and then make such recommendations to the Board of Directors as it deems appropriate under the circumstances. The Board of Directors shall meet and act upon said recommendations within thirty (30) days following the determinations of said Committee. ARTICLE VII Cash Management Section 1 - Deposits - The funds of the Company shall be deposited to its credit in such banks or trust companies ("depositories") as the Treasurer and Vice President-Finance shall designate or in the manner provided in Paragraph 5 of Section 2 of this Article. All deposits in any depository shall be made initially to the general account of the Company and not to any special account, fund or deposit. All special accounts, funds or deposits shall be created and maintained solely by transfers of funds from the general account. Section 2 - Withdrawals and Check Signing - 1. Funds shall be withdrawn only by Company check or draft except: a. to effect transfers of funds between Company accounts maintained at one or more depositories; b. as provided in paragraph 5 of this Section 2 and Section 3 of this Article; or c. as provided by resolution of the Board of Directors. 2. No debts shall be contracted except for current expenses unless authorized by the Board of Directors or the Executive Committee, and no invoices shall be paid by the Treasurer unless audited and approved by the Controller or by a person or committee specifically authorized by the Board of Directors or the Executive Committee to audit and approve invoices for payment. 3. Checks, drafts and notes drawn on any account or deposit of the Company (except those special purpose accounts specified in paragraphs 5 and 6 of this Section and except drafts specified in paragraph 7 of this Section) shall be valid instruments when signed on behalf of the Company by the Vice President-Finance, the Treasurer or an Assistant Treasurer. Instruments may be signed by the facsimile signature of the Vice President-Finance or the Treasurer. 4. For the purposes of this Section, a facsimile signature of any Officer of the Company shall mean a stamp or perforation of that Officer's signature. Each depository is authorized to honor instruments signed in this manner provided the facsimile resembles a specimen on file which has been certified by the Secretary or other duly authorized Officer of the Company. 5. In addition to the provisions of Section 1 of this Article VII, the Treasurer of the Company is authorized to establish petty cash funds, on an imprest basis. Each such account shall be designated as a "Cashier's Trust Account" and shall be separately maintained and accounted for by the cashier or other employee assigned such responsibility by the Treasurer. a. Checks drawn on a Cashier's Trust Account may be signed and countersigned on behalf of the Company by such employees as the Treasurer or Vice President-Finance may from time to time authorize and designate; provided, however, that no such check shall be signed and countersigned by the same person. b. No payment out of petty cash funds, whether by cash or check, shall exceed $2,500 in the case of payments by district offices, area offices or the Treasury Department, or $1,000 in the case of payments by generating stations. 6. Checks drawn on special accounts which the Company creates or maintains for the payment of dividends may be signed by the manual or facsimile signature of its Chief Executive Officer or President and shall not require any countersignature. 7. Sight drafts may be drawn on the Treasury of the Company as follows: a. Any employee authorized by the treasurer of the Company may draw such sight drafts in amounts not exceeding $10,000 payable to any one person in exchange for release of the Company from claims for personal injury and/or property damage. b. Any employee or agent authorized by the treasurer of the Company may draw such sight drafts in amounts not exceeding $7,500 payable to any one person or in any transaction for right-of-way easements, reimbursements for damages to land, payments to bind agreements for purchases of real estate and payments of document recording fees. 8. All bonds and notes issued under an indenture or mortgage shall be executed on behalf of the Company by the manual or facsimile signature of its Chief Executive Officer, President or a Vice President and its Secretary or an Assistant Secretary, unless otherwise provided by resolution of the Board of Directors. Section 3 - Special Withdrawals - The President, any Vice President, the Treasurer, or any Assistant Treasurer of the Company, or any person authorized in writing by any of the foregoing Officers, is authorized to direct any depository: 1. to charge amounts directly to the account of the Company without the issuance of a check or draft of the Company, for the purpose of paying principal of and interest on bonds and notes issued by the Company, and 2. to accept and process data submitted via electronic means or by wire transfer for purposes of receipt or disbursement of funds; provided that such direction is in writing and describes the type of such transactions permitted to be made by such depository. ARTICLE VIII Miscellaneous Section 1 - All dividends shall be declared by a vote of the Board of Directors. Section 2 - The fiscal year of the Company shall close at the end of December of each calendar year. Section 3 - All or any shares of stock of any corporation owned by this Company may be voted at any meeting of the shareowners of such corporation by the Chief Executive Officer of this Company or such other person as may be designated by the Chief Executive Officer for that purpose, upon any question that may be presented at such meeting, and the Chief Executive Officer or such other person may, on behalf of the Company, waive any notice of the calling of such meeting required by any statute or by-law and consent to the holding of any such meeting without notice. The Chief Executive Officer or such other person as may be designated by the Board of Directors to vote stock owned by this Company shall have authority to give to any person a written proxy, in the name of this Company and under its corporate seal, to vote at any meeting of the shareowners of any corporation all or any shares of stock of such corporation owned by this Company, upon any question that may be presented at such meeting, with full power to waive any notice of the calling of such meeting required by any statute or by-law and to consent to the holding of any such meeting without notice. ARTICLE IX Amendment or Repeal of Bylaws These bylaws may be altered, amended or repealed by the Board of Directors at any regular or special meeting of the Board, or at any Annual Meeting or Special Meeting of Shareowners by the affirmative vote of owners of shares of outstanding voting stock of the Company having in the aggregate a number of votes at least equal to a majority of the aggregate number of votes possessed by all such owners (provided it shall have been stated in the notice calling any such Special Meeting of Shareowners that it is proposed at such meeting to alter, amend or rescind the bylaws), or in such other manner as may be provided by law or in the Restated Articles of Organization. ARTICLE X Indemnification and Liability of Corporate Directors and Officers Section 1 - Definitions Applicable to Article X - In this Article X: 1. "Corporation" means Wisconsin Power and Light Company. 2. "Director or Officer" means any of the following: a. A natural person who is or was a Director or Officer of the Corporation. b. A natural person who, while a Director or Officer of the Corporation, is or was serving at the Corporation's request as a Director, Officer, partner, trustee, member of any governing or decision-making committee, employee or agent of another corporation or foreign corporation, partnership, joint venture, trust or other enterprise. c. A natural person who, while a Director or Officer of the Corporation, is or was serving an employee benefit plan because his or her duties to the Corporation also impose duties on, or otherwise involve services by, the person to the plan or to participants in or beneficiaries of the plan. d. Unless the context requires otherwise, the estate or personal representative of a Director or Officer. 3. "Expenses" include fees, costs, charges, disbursements, attorney fees and any other expenses incurred in connection with a proceeding. 4. "Liability" includes the obligation to pay a judgment, settlement, penalty, assessment, forfeiture or fine, including an excise tax assessed with respect to an employee benefit plan, and reasonable expenses. 5. "Party" includes a natural person who was or is, or who is threatened to be made, a named defendant or respondent in a proceeding. 6. "Proceeding" means any threatened, pending or completed civil, criminal, administrative or investigative action, suit, arbitration or other proceeding, whether formal or informal, which involves foreign, federal, state or local law and which is brought by or in the right of the Corporation or by any other person. Section 2 - Mandatory Indemnification - 1. The Corporation shall indemnify a Director or Officer, to the extent he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses incurred in the proceeding if the Director or Officer was a party because he or she is a Director or Officer of the Corporation. 2. a. In cases not included under sub. 1., the Corporation shall indemnify a Director or Officer against liability incurred by the Director or Officer in a proceeding to which the Director or Officer was a party because he or she is a Director or Officer of the Corporation, unless liability was incurred because the Director or Officer breached or failed to perform a duty he or she owes to the Corporation and the breach or failure to perform constitutes any of the following: 1) A willful failure to deal fairly with the Corporation or its shareholders in connection with a matter in which the Director or Officer has a material conflict of interest. 2) A violation of criminal law, unless the Director or Officer had reasonable cause to believe his or her conduct was lawful or no reasonable cause to believe his or her conduct was unlawful. 3) A transaction from which the Director or Officer derived an improper personal profit. 4) Willful misconduct. b. Determination of whether indemnification is required under this subsection shall be made under Section 3. c. The termination of a proceeding by judgment, order, settlement or conviction, or upon a plea of no contest or an equivalent plea, does not, by itself, create a presumption that indemnification of the Director or Officer is not required under this subsection. 3. A Director or Officer who seeks indemnification under this section shall make a written request to the Corporation. 4. a. Indemnification under this Article X is not required to the extent limited by the articles of incorporation under Section 180.048, Wis. Stats. b. Indemnification under this Article X is not required if the Director or Officer has previously received indemnification or allowance of expenses from any person, including the Corporation, in connection with the same proceeding. Section 3 - Determination of Right to Indemnification - Unless otherwise provided by the articles of incorporation or bylaws or by written agreement between the Director or Officer and the Corporation, the Director or Officer seeks indemnification under Section 2, 2. shall select one of the following means for determining his or her right to indemnification: 1. By a majority vote of a quorum of the Board of Directors consisting of Directors not at the time parties to the same or related proceedings. If a quorum of disinterested Directors cannot be obtained, by majority vote of a committee duly appointed by the Board of Directors and consisting solely of 2 or more Directors not at the time parties to the same or related proceedings. Directors who are parties to the same or related proceedings may participate in the designation of members of the committee. 2. By independent legal counsel selected by a quorum of the Board of Directors or its committee in the manner prescribed in 1., above, if unable to obtain such a quorum or committee, by a majority vote of the full Board of Directors, including Directors who are parties to the same or related proceedings. 3. By a panel of three arbitrators consisting of one arbitrator selected by those Directors entitled under 2., above, to select independent legal counsel, one arbitrator selected by the Director or Officer seeking indemnification and one arbitrator selected by the two arbitrators previously selected. 4. By an affirmative vote of shares as provided in Section 180.28, Wis. Stats., shares owned by, or voted under the control of, persons who are at the time parties to the same or related proceedings, whether as plaintiffs or defendants or in any other capacity, may not be voted in making the determination. 5. By a court under Section 180.051, Wis. Stats., as created by 1987 Wisconsin Act 13. 6. By any other method provided for in any additional right to indemnification permitted under Section 5, below. Section 4 - Allowance of Expenses as Incurred - Upon written request by a Director or Officer who is a party to a proceeding, the Corporation may pay or reimburse his or her reasonable expenses as incurred if the Director or Officer provides the Corporation with all of the following: 1. A written affirmation of his or her good faith belief that he or she has not breached or failed to perform his or her duties to the Corporation. 2. A written undertaking, executed personally or on his or her behalf, to repay the allowance and/if required by the Corporation, to pay reasonable interest on the allowance to the extent that it is ultimately determined under Section 3, above, that indemnification under Section 2, above, is not required and that indemnification is not ordered by a court. The undertaking under this subsection shall be an unlimited general obligation of the Director or Officer and may be accepted without reference to his or her ability to repay the allowance. The undertaking may be secured or unsecured. Section 5 - Additional Rights to Indemnification and Allowance of Expenses 1. Except as provided in 2. below, Sections 2 and 4 above, do not preclude any additional right to indemnification or allowance of expenses that a Director or Officer may have under any of the following: a. The articles of incorporation or bylaws. b. A written agreement between the Director or Officer and the Corporation. c. A resolution of the Board of Directors. d. A resolution, after notice, adopted by a majority vote of all the Corporation's voting shares then issued and outstanding. 2. Regardless of the existence of an additional right under subsection 1., above, the Corporation may not indemnify a Director or Officer, or permit a Director or Officer to retain any allowance of expenses unless it is determined by or on behalf of the Corporation that the Director or Officer did not breach or fail to perform a duty he or she owes to the Corporation which constitutes conduct under Section 2, 2. a. 1), 2), 3) or 4). A Director or Officer who is a party to the same or related proceeding for which indemnification or an allowance of expenses is sought may not participate in a determination under this subsection. 3. No provision of this Article X shall affect the Corporation's power to pay or reimburse expenses incurred by a Director or Officer in any of the following circumstances: a. As a witness in a proceeding to which he or she is not a party. b. As a plaintiff or petitioner in a proceeding because he or she is or was an employee, agent, Director or Officer of the Corporation. Section 6 - Insurance - The Corporation may purchase and maintain insurance on behalf of an individual who is an employee, agent, Director or Officer of the Corporation against liability asserted against or incurred by the individual in his or her capacity as an employee, agent, Director or Officer or arising from his or her status as an employee, agent, Director or Officer, regardless of whether the Corporation is required or authorized to indemnify or allow expenses to the individual against the same liability under Sections 2, 3, 4 or 5 of this Article X. Section 7 - Indemnification and Insurance Against Securities Law Claims - Sections 1 through 6, inclusive, apply to the extent applicable to any other proceeding, to any proceeding involving a federal or state statute, rule or regulation regulating the offer, sale or purchase of securities, securities brokers or dealers, or investment companies or investment advisers. Section 8 - Reliance by Directors or Officers - 1. Unless the Director or Officer has knowledge that makes reliance unwarranted, a Director or Officer, in discharging his or her duties to the Corporation, may rely on information, opinions, reports or statements, any of which may be written or oral, formal or informal, including financial statements and other financial data, if prepared or presented by any of the following: a. An Officer or employee of the Corporation whom the Director or Officer believes in good faith to be reliable and competent in the matters presented. b. Legal counsel, public accountants or other persons as to matters the Director or Officer believes in good faith are within the person's professional or expert competence. c. In the case of reliance by a Director, a committee of the Board of Directors of which the Director is not a member if the Director believes in good faith that the committee merits confidence. 2. This section does not apply to a Director's reliance under Section 180.40(3), Wis. Stats., as in effect on the date of adoption hereof. Section 9 - Consideration of Interests in Addition to Shareholders' Interests - In discharging his or her duties to the Corporation and in determining what he or she believes to be in the best interests of the Corporation, a Director or Officer may, in addition to considering the effects of any action on shareholders, consider the following: 1. The effects of the action on employees, suppliers and customers of the Corporation. 2. The effects of the action on communities in which the Corporation operates. 3. Any other factors the Director or Officer considers pertinent. EX-10 3 WISCONSIN POWER & LIGHT EXHIBIT 10F TO FORM 10-K WPL HOLDINGS, INC. WISCONSIN POWER AND LIGHT COMPANY HEARTLAND DEVELOPMENT CORPORATION DEFERRED COMPENSATION PLAN FOR DIRECTORS Adopted June 27, 1990 Amended January 17, 1995 WPL HOLDINGS, INC. WISCONSIN POWER AND LIGHT COMPANY HEARTLAND DEVELOPMENT CORPORATION DEFERRED COMPENSATION PLAN FOR DIRECTORS Section I - Definitions The following definitions shall be applicable throughout the Deferred Compensation Plan: 1.1 "Company" shall mean either WPL Holdings, Inc., Wisconsin Power and Light Company, or Heartland Development Corporation. 1.2 "Board" shall mean the Board of Directors of the Company. 1.3 "Director Fees" shall mean any fees received during the Plan Year for services rendered as a Director. 1.4 "Effective Date" shall mean June 27, 1990. 1.5 "Participant" shall mean any Director designated as eligible under Section 3.1 who has elected, under the terms and conditions of the Plan, to defer payments of all or allowable portions of Director Fees. 1.6 "Participant Account" shall mean the participant's account established pursuant to Section 4.1. 1.7 "Compensation and Personnel Committee" shall mean the Compensation and Personnel Committee, or its equivalent, of the Board or its designated appointee. 1.8 "Personal Representative" shall mean the person or persons who upon the death, disability or incompetency of a Participant shall have acquired, by will, by laws of decent and distribution or by other legal proceedings, the right to the Participant's Account. 1.9 "Plan" shall mean this Deferred Compensation Plan. 1.10 "Plan Year" shall be the calendar year. 1.11 "Unforeseeable Emergency" means an unanticipated emergency that is caused by an event beyond the control of the Participant or beneficiary. Section II - General 2.1 The purpose of this Deferred Compensation Plan is to provide flexibility to members of the Company's Board of Directors, who are not employees of the Company, in their receipt of Director Fees. Section III - Eligibility and Selection of Participants 3.1 Participation in the Plan shall be limited to members of the Board of Directors, except those Directors who are employees of the Company. Section IV - Election to Defer 4.1 An eligible Director may elect, under the terms and conditions of the Plan, to defer all or an allowable portion specified under Section 5.2 of Director Fees. Such election shall be made by written notice in the manner specified by the Compensation and Personnel Committee and shall be irrevocable when made except as provided in Section 12.1. 4.2 Election to defer Director Fees shall be made prior to the first day of each Plan Year. 4.3 In the first year in which a Participant becomes eligible to participate in the Plan, the newly eligible Participant shall make an election to defer compensation for services to be performed subsequent to the election within 30 days after the date the Participant becomes eligible. Section V - Deferral Amount Selection 5.1 Participants of the Plan may elect to defer a percentage amount (if any) of Director Fees. 5.2 If deferral is elected, any percentage deferral from 1% to 100% shall be permitted. Section VI - Intentionally Left Blank Section VII - Manner and Timing of Distribution 7.1 Plan Participants may choose to receive payment of deferred amounts and investment earnings by one of the alternative methods stated hereunder: (a) (i) one lump sum payment in any year between the current year and the anticipated year of conclusion of membership on the Board as specified by the Participant. (ii) annual installments (not to exceed 10), the first of which shall be paid commencing in the year so specified by the Participant. (b) Upon the anticipated conclusion of membership on the Board (or one tax year thereafter) in either: (i) one lump sum payment in the year so specified by the Participant. (ii) annual installments (not to exceed 10), the first of which shall be paid commencing in the year so specified by the Participant. 7.2 Plan Participants electing to receive payments of deferred amounts and investment earnings in the manner specified in paragraph 7.1(a)(i) and (ii) will receive the lump sum payment or installment payment on the fourth Friday in January in the calendar year so designated by the Participant. 7.3 Plan participants electing to receive payments of deferred amounts and investment earnings in the manner specified in paragraph 7.1(b) (i) and (ii) will receive payments as follows: (a) One lump sum payment shall be paid either the fourth Friday following the date of conclusion of membership on the Board or on the fourth Friday of January following the year of conclusion of membership on the Board as specified by the Participant. (b) Annual installments, the first of which shall be paid either on the fourth Friday following the date of conclusion of membership on the Board or the fourth Friday of January following the year of conclusion of membership on the Board as specified by the Participant. Installment payments for subsequent years will be made on the fourth Friday in January until all such installments have been paid. 7.4 Notwithstanding the provisions outlined in 7.1 - 7.3 above, Participants who die or are involuntarily terminated as a member of the Board shall receive a distribution equal to the value of their account in a lump sum payment. Such distributions shall be made on the fourth Friday of the month following the month in which the Participant ceases to be a member of the Board. Section VIII - Interest Credit to Participant Accounts 8.1 All deferred amounts credited to a Participant's Account shall be credited interest on December 31 at a rate equivalent to the A-Utility Bond yield (as reported in the Federal Reserve statistical release H.15) using the average of the rates reported for the last Friday of each month for the preceding twelve (12) calendar months. Interest shall continue to be credited and compounded in this manner until the final payment shall have been made from the Participant's Account. Partial year interest accruals for Participants who because of financial hardship, termination or death during the Plan Year will also be computed at a rate equivalent to the A-Utility Bond yield (in the manner prescribed above) using the average rates from the January 1 preceding the Participant's termination date through the fourth Friday of the month preceding the Participant's termination date. Interest payments will apply to amounts deferred up to the date the plan distribution is made. 8.2 The interest credit rate determined in Section 8.1 will be applied to the average Participant Account balance for that period. Section IX - Rights of Participants and Forfeiture 9.1 Nothing contained in the Plan shall (a) confer upon any Director the right to continue on the Board of Directors, or (b) require the Company to pay any Director Fees, except as provided for herein, or (c) confer upon any Director or other person any claim or right to any distribution under the Plan except in accordance with its terms. 9.2 No right or interest of any Participant in the Plan shall, prior to actual payment or distribution to such Participant, be assignable or transferable in whole or in part, either voluntarily or by operation of law or otherwise, or be subject to payment of debts of any Participant by execution, levy, garnishment, attachment, pledge, bankruptcy of in any other manner. 9.3 If a Participant has elected to defer pursuant to Section 4.1 and his or her services as a member of the Board are terminated voluntarily or involuntarily, the Participant shall retain all rights to the undistributed amounts credited to his or her Participant Account. 9.4 The deferral amount and investment earnings of the plan is and shall remain at all times subject to the claims of the general creditors of the Company. As such, the Plan Participants have the status of general unsecured creditors of the Company and this Plan constitutes a mere promise by the Company to make benefit payments to Participants in the future. 9.5 It is the intention of all parties involved that the arrangements be unfunded for tax purposes and for purposes of title I of ERISA. Section X - Death of Participant 10.1 Should a Participant die, the amount of such Participant's Account shall be distributed to the Participant's Personal Representative. Such distributions shall be made in a lump sum pursuant to Sections 7.4, 8.1 and 8.2. Section XI - Distribution in the Event of Financial Hardship 11.1 The Compensation and Personnel Committee may allow a partial or total distribution of amounts in a Participant's Account upon the Participant's request and a demonstration by the Participant of financial hardship as a result of an Unforeseeable Emergency. The amount of any such distribution shall be limited to the amount deemed necessary by the Compensation and Personnel Committee to alleviate or remedy the Participant's hardship. Such distributions shall be made in a lump sum pursuant to Sections 8.1 and 8.2 on the fourth Friday of the month following the month of committee approval. Section XII - Stopping Deferral 12.1 The Compensation and Personnel Committee may allow a Participant to cease deferrals during the plan year on the Board meeting date following the committee approval in response to an Unforeseeable Emergency. Section XIII - Distribution in the Event of Significant Change in Tax Law 13.1 Under the terms of the Deferred Compensation Plan for Directors, the Compensation and Personnel Committee may allow payments to a Participant before any payments would otherwise be due if the Compensation and Personnel Committee determines, based on changes in the Federal tax or revenue laws, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury, a decision by a court of competent jurisdiction involving a Participant or a beneficiary, or a closing agreement made under section 7121 of the Internal Revenue Code which has been approved by the Internal Revenue Service and involves a Participant, that a Participant has or will recognize income for Federal income tax purposes with respect to amounts that are or will be payable under the Plan before such amounts are to be paid. Section XIV - Administration 14.1 The Compensation and Personnel Committee may from time to time amend, suspend, terminate or reinstate any or all of the provisions of the Plan as may seem necessary or advisable for the administration of the Plan. 14.2 The Compensation and Personnel Committee shall, subject to express provisions of the Plan, have power to construe the Plan, to prescribe rules and regulations relating to the Plan and to make all other determinations necessary or advisable for the administration of the Plan. The Compensation and Personnel Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent it shall deem expedient to carry it into effect. 14.3 Manner of Election - The Compensation and Personnel Committee shall ensure that all individuals entitled to make the election to defer are provided an election form at least thirty (30) days before such election must be made in accordance with Section 4.1 and received in writing in order to be effective. This election form shall include the following items, which must be completed in full in order to be effective: (a) The amount to be deferred, expressed as a percentage of Director Fees to become payable during the calendar year in question; (b) The number of installments for the payment of the deferred compensation; and (c) The date of the first installment payment. 14.4 All expenses and costs incurred in connection with the administration and operation of the Plan shall be borne by the Company. Section XV - Funding 15.1 Benefits under this Plan shall be paid from the general assets of the Company. This Plan shall be administered as an unfunded plan which is not intended to meet the qualification requirements of Section 401 of the Internal Revenue Code. WPL HOLDINGS, INC. DEFERRED COMPENSATION PLAN FOR DIRECTORS ELECTION OF DEFERMENT In accordance with the provisions of the Deferred Compensation Plan, I hereby elect to defer Director Fees earned by me for my services from January 1, 19__ to December 31, 19__ as follows: AMOUNT OF DEFERRAL Amount of Deferral: _________________% (Percentage of Director Fees) PAYMENT OPTIONS (Specify One) (a) Payment in _____ (any year subsequent to the current year) according to: (i) lump sum payment (ii) ____ annual installments (not to exceed 10) (b) Upon the anticipated conclusion of my membership on the Board of Directors (or one tax year thereafter) according to: (i) lump sum payment in the year of anticipated conclusion of my membership on the Board of Directors _____, or one tax year thereafter_____ (check one). (ii) ______ annual installments (not to exceed 10) the first of which shall be paid commencing in the year of anticipated conclusion of my membership on the Board of Directors ____, or one tax year thereafter _____ (check one). I hereby agree to be bound by the terms of the Plan, including any amendment thereof, and recognize that the foregoing election is irrevocable and may not be altered by me. ___________________________________ Signature of Director Date Received on behalf of WPL Holdings, Inc. By: _________________________________ Date: ______________________ Return to Corporate Secretary by December 31. EX-21 4 WISCONSIN POWER & LIGHT EXHIBIT 21 TO FORM 10-K EXHIBIT 21 WISCONSIN POWER AND LIGHT AND SUBSIDIARIES The material subsidiaries of WPL as of December 31, 1994, are as follows: % of Voting Stock Owned Directly or State of Indirectly by Name of Subsidiary Incorp. WPL 1. South Beloit Water, Gas and Electric Company Illinois 100% 2. REAC, Inc Wisconsin 100% 3. NUFUS Resources, Inc Wisconsin 100% 4. Wisconsin River Power Company Wisconsin 33-1/3% 5. Wisconsin Valley Improvement Company Wisconsin 13% EX-27 5 WISCONSIN POWER & LIGHT EXHIBIT 27 TO FORM 10-K
UT THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-K FILED BY WISCONSIN POWER AND LIGHT COMPANY FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 PER-BOOK 1,266,255 21,361 90,867 206,641 0 1,585,124 66,183 199,170 279,153 544,506 0 59,963 336,538 56,975 0 50,500 0 0 0 0 536,642 1,585,124 673,455 44,727 148,361 579,068 94,387 7,226 101,613 30,119 71,494 3,310 68,184 55,911 30,156 186,757 0 0 Earnings per share of common stock is not reflected because all of such shares are held by WPL Holdings, Inc.
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