UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

| x      |   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|---------------------------------------------------------------------------------------------------|
|   | For the fiscal year ended **December 31, 2006**                                                   |  
or

 

[  ]  

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

       For the transition period from ______ to _______

 
 

Commission

Name of Registrant, State of Incorporation,

IRS Employer

File Number

Address of Principal Executive Offices and Telephone Number

Identification Number

1-9894

ALLIANT ENERGY CORPORATION

39-1380265

 

(a Wisconsin corporation)

 

 

4902 N. Biltmore Lane

 

 

Madison, Wisconsin 53718

 

 

Telephone (608)458-3311

 

 

 

 

0-4117-1

INTERSTATE POWER AND LIGHT COMPANY

42-0331370

 

(an Iowa corporation)

 

 

Alliant Energy Tower

 

 

Cedar Rapids, Iowa 52401

 

 

Telephone (319)786-4411

 

 

 

 

0-337

WISCONSIN POWER AND LIGHT COMPANY

39-0714890

 

(a Wisconsin corporation)

 

 

4902 N. Biltmore Lane

 

 

Madison, Wisconsin 53718

 

 

Telephone (608)458-3311

 

 

This combined Form 10-K is separately filed by Alliant Energy Corporation, Interstate Power and Light Company and Wisconsin Power and Light Company.  Information contained in the Form 10-K relating to Interstate Power and Light Company and Wisconsin Power and Light Company is filed by such registrant on its own behalf.  Each of Interstate Power and Light Company and Wisconsin Power and Light Company makes no representation as to information relating to registrants other than itself.

 

Securities registered pursuant to Section 12 (b) of the Act:

 

 

Name of Each Exchange

 

Title of Class

on Which Registered

Alliant Energy Corporation

Common Stock, $0.01 Par Value

New York Stock Exchange

Alliant Energy Corporation

Common Stock Purchase Rights

New York Stock Exchange

Interstate Power and Light Company

8.375% Series B Cumulative Preferred Stock,

New York Stock Exchange

 

$0.01 Par Value

 

Interstate Power and Light Company

7.10% Series C Cumulative Preferred Stock,

New York Stock Exchange

 

$0.01 Par Value

 

Wisconsin Power and Light Company

4.50% Preferred Stock, No Par Value

American Stock Exchange

 

Securities registered pursuant to Section 12 (g) of the Act:  Wisconsin Power and Light Company Preferred Stock

 

(Accumulation without Par Value)

 

Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act.

Alliant Energy Corporation - Yes x    No [  ]  

 

 
Interstate Power and Light Company - Yes [  ]  Nox

 

 
Wisconsin Power and Light Company - Yes [  ]   No x

 

 

Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o  No x

 

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and 

will not be contained, to the best of the registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Alliant Energy Corporation

Large accelerated filer x
 Accelerated filer [   ]

Non-accelerated filer [   ]

Interstate Power and Light Company

Large accelerated filer [   ]

Accelerated filer [   ]

Non-accelerated filer x

Wisconsin Power and Light Company

Large accelerated filer [   ]

Accelerated filer [   ]

Non-accelerated filer x

 

Indicate by checkmark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

 

The aggregate market value of the voting and non-voting common equity held by nonaffiliates as of June 30, 2006:

Alliant Energy Corporation

$4.0 billion

Interstate Power and Light Company

$--

Wisconsin Power and Light Company

$--

 

Number of shares outstanding of each class of common stock as of Jan. 31, 2007:

 

Alliant Energy Corporation

Common stock, $0.01 par value, 116,231,264 shares outstanding

Interstate Power and Light Company

Common stock, $2.50 par value, 13,370,788 shares outstanding (all of which

 

are owned beneficially and of record by Alliant Energy Corporation)

Wisconsin Power and Light Company

Common stock, $5 par value, 13,236,601 shares outstanding (all of which are

 

owned beneficially and of record by Alliant Energy Corporation)

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

Portions of the Proxy Statements relating to Alliant Energy Corporation’s and Wisconsin Power and Light Company’s 2007 Annual Meetings of Shareowners are, or will be upon filing with the Securities and Exchange Commission, incorporated by reference into Part III hereof.

**TABLE OF CONTENTS**

 

 

 

Page Number

Part I

Item 1.

Business

1

 

Item 1A.

Risk Factors

15

 

Item 1B.

Unresolved Staff Comments

18

 

Item 2.

Properties

19

 

Item 3.

Legal Proceedings

21

 

Item 4.

Submission of Matters to a Vote of Security Holders

21

 

 

Executive Officers of the Registrants

21

Part II

Item 5.

Market for Registrants’ Common Equity, Related Stockholder Matters and

 

 

 

Issuer Purchases of Equity Securities

22

 

Item 6.

Selected Financial Data

24

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and

 

 

 

Results of Operations

26

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

61

 

Item 8.

Financial Statements and Supplementary Data

61

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and

 

 

 

Financial Disclosure

148

 

Item 9A.

Controls and Procedures

148

 

Item 9B.

Other Information

148

Part III

Item 10.

Directors, Executive Officers and Corporate Governance

148

 

Item 11.

Executive Compensation

149

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and

 

 

 

Related Stockholder Matters

149

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

150

 

Item 14.

Principal Accounting Fees and Services

150

Part IV

Item 15.

Exhibits, Financial Statement Schedules

151

 

 

**FORWARD-LOOKING STATEMENTS**

Refer to “Forward-Looking Statements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MDA) for information and disclaimers regarding forward-looking statements contained in this Annual Report on Form 10-K.

 

**PART I**

 

This Annual Report on Form 10-K includes information relating to Alliant Energy Corporation (Alliant Energy), Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL) (as well as Alliant Energy Resources, Inc. (Resources) and Alliant Energy Corporate Services, Inc. (Corporate Services)).  Where appropriate, information relating to a specific entity has been segregated and labeled as such.  Unless otherwise noted, the information herein has been revised to exclude discontinued operations and assets and liabilities held for sale for all periods presented.  Refer to Note 17 of Alliant Energy’s “Notes to Consolidated Financial Statements” for additional information.

 

**ITEM 1.  BUSINESS**

 

**A.**

**GENERAL**

The primary first tier subsidiaries of Alliant Energy are: IPL, WPL, Resources and Corporate Services.  Alliant Energy operates as a regulated investor-owned public utility holding company.  Alliant Energy was incorporated in Wisconsin in 1981.  A brief description of the primary first tier subsidiaries of Alliant Energy is as follows:

 

**1)  IPL -**incorporated in 1925 in Iowa as Iowa Railway and Light Corporation.  IPL is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy; and the purchase, distribution, transportation and sale of natural gas in selective markets in Iowa and southern Minnesota.  Refer to Notes 17 and 22 of Alliant Energy’s “Notes to Consolidated Financial Statements” for discussion of IPL’s utility operations in Illinois which were sold in February 2007 and IPL’s proposed sale of its electric transmission assets, respectively.  In Iowa, IPL provides utility services to incorporated communities as directed by the Iowa Utilities Board (IUB) and utilizes non-exclusive franchises, which cover the use of public right-of-ways for utility facilities in incorporated communities for a maximum term of 25 years.  At Dec. 31,2006, IPL supplied electric and gas service to 538,409 and 239,372 retail customers, respectively.  IPL also provides steam services to certain customers in Cedar Rapids, Iowa and various other energy-related products and services.  In 2006, 2005 and 2004, IPL had no single customer for which electric, gas, steam and/or other sales accounted for 10% or more of IPL’s consolidated revenues.

 

**2)  WPL -**incorporated in 1917 in Wisconsin as Eastern Wisconsin Electric Company.  WPL is a public utility engaged principally in the generation, distribution and sale of electric energy; and the purchase, distribution, transportation and sale of natural gas in selective markets in south and central Wisconsin.  WPL operates in municipalities pursuant to permits of indefinite duration, which are regulated by Wisconsin law, and pursuant to state statutes authorizing utility operation in areas annexed by a municipality.  At Dec. 31, 2006, WPL supplied electric and gas service to 456,425 and 182,098 retail customers, respectively.  WPL also provides various other energy-related products and services.  In 2006, 2005 and 2004, WPL had no single customer for which electric, gas and/or other sales accounted for 10% or more of WPL’s consolidated revenues.  WPL Transco LLC is awholly-owned subsidiary of WPL and holds WPL’s investment in American Transmission Company LLC (ATC).  Refer to Note 17 of Alliant Energy’s “Notes to Consolidated Financial Statements” for discussion of WPL’s utility operations in Illinois which were sold in February 2007.

 

**3)  RESOURCES -**incorporated in 1988 in Wisconsin.  Alliant Energy’s non-regulated investments are organized under Resources.  Refer to “D. Information Relating to Non-regulated Operations” for additional details.

 

**4)  CORPORATE SERVICES -**incorporated in 1997 in Iowa.  Corporate Services provides administrative services to Alliant Energy and its subsidiaries.

 

Refer to Note 14 of the “Notes to Consolidated Financial Statements” for further discussion of business segments, which information is incorporated herein by reference.

 

1 
**B.  INFORMATION RELATING TO ALLIANT ENERGY ON A CONSOLIDATED BASIS**

 

**1)  EMPLOYEES**

At Dec. 31, 2006, Alliant Energy’s consolidated subsidiaries that are included in its continuing operations had the following full- and part-time employees:

 

Number of

 

Number of

 

Total

 

Percentage of Employees

 

Bargaining Unit

 

Other

 

Number of

 

Covered by Collective

 

Employees

 

Employees

 

Employees

 

Bargaining Agreements

IPL

1,280

 

291

 

1,571

 

81%

WPL

1,312

 

106

 

1,418

 

93%

Resources

76

 

580

 

656

 

12%

Corporate Services

--

 

1,506

 

1,506

 

--

 

2,668

 

2,483

 

5,151

 

52%

 

At Dec. 31, 2006, Alliant Energy employees covered by collective bargaining agreements were as follows (IBEW=International Brotherhood of Electrical Workers; IUOE=International Union of Operating Engineers):

 

 

Number of

 

Contract

 

Employees

 

Expiration Date

IPL:

 

 

 

IBEW Local 949

256

 

9/30/08

IBEW Local 204 (Dubuque)

120

 

9/30/08

IBEW Local 204 (Mason City)

54

 

9/30/08

IUOE Local 275

48

 

12/01/08

IBEW Local 204 (Cedar Rapids)

773

 

8/31/10

IBEW Local 1439

22

 

6/30/11

IBEW Local 1455

7

 

6/30/11

 

1,280

 

 

WPL - IBEW Local 965

1,312

 

5/31/07

Resources - Various

76

 

Various

 

2,668

 

 

 

In May 2007, WPL’s collective bargaining agreement with IBEW Local 965 expires representing approximately 49% of employees covered under bargaining agreements and 25% of total Alliant Energy employees.  While negotiations to renew the contract with IBEW Local 965 are underway, Alliant Energy and WPL are currently unable to predict the outcome.  Alliant Energy, IPL and WPL have not experienced any significant work stoppages in the past.

 

**2)  CAPITAL EXPENDITURE AND INVESTMENT PLANS**

Refer to “Liquidity and Capital Resources” in MDA for discussion of anticipated construction and acquisition expenditures for 2007 and 2008.

 

**3)  REGULATION -**Alliant Energy, IPL and WPL are subject to regulation by various federal, state and local agencies.  The following includes the primary regulations impacting Alliant Energy’s, IPL’s and WPL’s businesses.

 

**Federal Energy Regulatory Commission (FERC) -** In 2005, the Energy Policy Act was enacted which resulted in the repeals of the Public Utility Holding Company Act of 1935 and the Public Utility Regulatory Policy Act of 1978 and additional authority being granted to FERC under the PublicUtility Holding Company Act of 2005 (PUHCA 2005).  Alliant Energy is registered with FERC as a public utility holding company, pursuant to PUHCA 2005, and is required to maintain certain records and to report certain transactions involving its public utilities and other entities regulated by FERC.  IPL and WPL are subject to regulation by FERC under PUHCA 2005 for various issues including affiliate transactions, public utility mergers, acquisitions and dispositions, and books and records requirements.  In addition, the Energy Policy Act requires creation of an Electric Reliability Organization (ERO) tobe overseen by FERC.  FERC designated the North American Electric Reliability Council (NERC) as the overarching ERO.  IPL and WPL have joined the Midwest Reliability Organization (MRO), which is a regional member of NERC and has direct responsibility for mandatory electric reliability standards for IPL and WPL.  FERC also has jurisdiction under the Federal Power Act over certain electric utility facilities and operations, electric wholesale rates and accounting practices of IPL and WPL, and in certain other respects.  Lastly, FERC has jurisdiction under the Natural Gas Act over certain natural gas facilities and operations of IPL and WPL.

2 
 

**Environmental -** The United States of America (U.S.) Environmental Protection Agency (EPA) administers certain federal regulatory programs and has delegated the administration of other environmental regulatory programs to the applicable state environmental agencies.  In general, the state agencies have jurisdiction over air and water quality, hazardous substances management and transportation, and solid waste management requirements.  In certain cases, the state environmental agencies have delegated the administration of environmental programs to local agencies.  Alliant Energy, IPL and WPL are subject to these environmental regulations as a result of their current and past operations.

 

**IUB -** IPL is subject to regulation by the IUB related to its Iowa service territory for retail utility rates and standards of service, accounting requirements, approval of the location and construction of electric generating facilities having a capacity in excess of 25,000 kilowatts (KW), and in other respects.  Requests for rate relief are based on historical test periods, adjusted for certain known and measurable changes occurring up to nine months from the end of the historical test year.  The IUB must decide on requests for rate relief within 10 months of the date of the application for which relief is filed, or the interim rates granted become permanent.  Interim rates can be placed in effect after 10 days of the rate application filing, subject to refund, and must be based on past precedent.  In 2001, Iowa enacted HF 577, which provides Iowa companies with the necessary ratemaking principles - and resulting, increased regulatory and investment certainty - prior to making certain generation investments in Iowa.

 

**Public Service Commission of Wisconsin (PSCW) -** Alliant Energy is subject to regulation by the PSCW for the type and amount of Alliant Energy’s investments in non-utility businesses, other affiliated interest activities, and in other respects.  WPL is also subject to regulation by the PSCW related to its Wisconsin service territory for retail utility rates and standards of service, accounting requirements, issuance and use of proceeds of securities, approval of the location and construction of electric generating facilities, certain other additions and extensions to facilities, and in other respects.  WPL is required to file rate cases with the PSCW using a forward-looking test year period.  There is no statutory time limit for the PSCW to decide rate cases.  However, the PSCW attempts to process all base rate cases in 10 months or less and the PSCW has the ability to approveinterim rate relief, subject to refund, if necessary.  For fuel-only rate case increases, the PSCW attempts to provide interim rate relief within 21 days of notice to customers, subject to refund.  There is no statutory time limit for final fuel-only rate relief decisions.  In 2005, Wisconsin enacted Act 7, which provides Wisconsin companies with the necessary rate making principles - and resulting, increased regulatory and investment certainty - prior to making certain generation investments in Wisconsin.

 

**Minnesota Public Utilities Commission (MPUC) -** IPL is subject to regulation by the MPUC related to its Minnesota service territory for retail utility rates and standards of service, accounting requirements, issuance and use of proceeds of securities, annual approval of IPL’s capital structure, and in other respects.  Requests for rate relief can be based on either historical or projected data and interim rates are permitted.  The MPUC must reach a final decision within 10 months of filing for rate relief.

 

Refer to Notes 1(b), 1(j), 2 and 12(e) of Alliant Energy’s “Notes to Consolidated Financial Statements” and “Rates and Regulatory Matters” and “Liquidity and Capital Resources - Environmental” in MDA for additional information regarding regulation and utility rate matters.

 

**4)  STRATEGIC OVERVIEW**

Refer to “Strategic Overview” in MDA for discussion of various strategic actions Alliant Energy has taken to strengthen its financial profile and information regarding Alliant Energy’s strategic plan.

 

**C.**

**INFORMATION RELATING TO UTILITY OPERATIONS**

 

**1)  ELECTRIC UTILITY OPERATIONS**

**General****-** Electric utility operations represent the largest operating segment for Alliant Energy, IPL and WPL.  In 2006, electric utility operations accounted for 73%, 76% and 79% of operating revenues and 87%, 93% and 78% of operating income for Alliant Energy, IPL and WPL, respectively.  Alliant Energy’s electric utility operations are located in the Midwest with IPL and WPL providing electric service in Iowa, southern and central Wisconsin and southern Minnesota.  Electric utility revenues by state were as follows (dollars in millions):

3 
 

**2006**

 

2005

 

2004

 

**Amount**

 

**Percent**

 

Amount

 

Percent

 

Amount

 

Percent

IPL:

 

 

 

 

 

 

 

 

 

 

 

Iowa

**$1,229.0**

 

**50%**

 

$1,152.1

 

50%

 

$983.0

 

49%

Minnesota

**78.2**

 

**3%**

 

72.9

 

3%

 

65.2

 

3%

Illinois (a)

**24.4**

 

**1%**

 

21.7

 

1%

 

21.0

 

1%

Subtotal

**1,331.6**

 

**54%**

 

1,246.7

 

54%

 

1,069.2

 

53%

WPL:

 

 

 

 

 

 

 

 

 

 

 

Wisconsin

**1,098.0**

 

**45%**

 

1,061.6

 

45%

 

927.1

 

46%

Illinois (a)

**13.4**

 

**1%**

 

12.3

 

1%

 

12.7

 

1%

Subtotal

**1,111.4**

 

**46%**

 

1,073.9

 

46%

 

939.8

 

47%

 

**$2,443.0**

 

**100%**

 

$2,320.6

 

100%

 

$2,009.0

 

100%

(a)

Refer to Note 17 of Alliant Energy’s “Notes to Consolidated Financial Statements” for discussion of IPL’s and WPL’s utility operations in Illinois which were sold in February 2007.

 

The percentage of electric utility revenues regulated by their respective state commissions and FERC were as follows:

 

 

Alliant Energy

 

IPL

 

WPL

 

**2006**

 

2005

 

2004

 

**2006**

 

2005

 

2004

 

**2006**

 

2005

 

2004

Respective state

commissions

**91%**

 

88%

 

91%

 

**96%**

 

94%

 

96%

 

**85%**

 

82%

 

85%

FERC

**9%**

 

12%

 

9%

 

**4%**

 

6%

 

4%

 

**15%**

 

18%

 

15%

 

**100%**

 

100%

 

100%

 

**100%**

 

100%

 

100%

 

**100%**

 

100%

 

100%

 

The number of electric customers and communities served at Dec. 31, 2006 was as follows:

 

 

Retail Customers

 

Wholesale Customers

 

Other Customers

 

Total Customers

 

Communities Served

IPL

538,409

 

6

 

1,293

 

539,708

 

766

WPL

456,425

 

26

 

2,066

 

458,517

 

611

 

994,834

 

32

 

3,359

 

998,225

 

1,377

 

Wholesale customers in the above table are billed underwholesale service agreements, which include standardized pricing mechanisms that are detailed intariffs approved by FERC through wholesale rate case proceedings.  In addition, IPL and WPL have bulk power customers, included in “Other customers” in the above table, that are billed according to negotiated, long-term customer-specific contracts, pursuant to FERC approved tariffs.  Refer to the “Electric Operating Information” tables for additional details regarding electric utility operations.

 

**Seasonality** - Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months due to air conditioning requirements.  In 2006, the maximum peak hour demands for Alliant Energy, IPL and WPL were 5,989 megawatts (MW), 3,070 MW and 2,941 MW, respectively, all on July 17, 2006.

 

**Competition**- Retail electric customers in Iowa and Wisconsin currently do not have the ability to choose their electric supplier.  However, in order to increase sales, IPL and WPL attempt to attract new customers into their service territories.  As a result, there is competition among utilities to keep energy rates low.  Although electric service in Iowa and Wisconsin is regulated, IPL and WPL also still face competition from self generation by large industrial customers, alternative energy sources, and petitions to municipalize (Iowa) as well as service territory expansions by municipal utilities through annexations (Wisconsin).

 

**Electric Supply****-** Alliant Energy has met historical customer demand of electricity and expects to continue meeting future demand through internally generated electric supply, purchased power contracts utilizing existing firm transmission rights, and additional power purchases from generating units located within and outside of Alliant Energy’s service territory.  Refer to the “Electric Operating Information” tables for details on the sources of electric supply for Alliant Energy, IPL and WPL from 2002 to 2006.  Alliant Energy’s mix of electric supply has experienced changes in the past couple of years as a result of the sales of its interests in its nuclear generating facilities and the addition of natural-gas fired generating facilities to its generation portfolio.  Refer to “Strategic Overview - Utility GenerationPlan” in MDA for discussion of Alliant Energy’s 

utility generation plan.  While Alliant Energy currently expects to meet utility customer demands in the future, unanticipated regional or local reliability issues could still arise in the event of unexpected delays in the construction of new generating and/or transmission facilities, power plant outages, transmission system outages or extended periods of extreme weather conditions.

 

4 
**Generation -**IPL and WPL own a portfolio of electric generating facilities with a diversified fuel mix including coal, natural gas and renewable resources.  Refer to Item 2. Properties for information on IPL’s and WPL’s electric generating stations.

 

Fuel Costs**-** The average cost of delivered fuel per million British Thermal Units used for electric generation was as follows:

 

 

IPL

 

WPL

 

**2006**

 

2005

 

2004

 

**2006**

 

2005

 

2004

Coal

**$1.25**

 

$1.17

 

$1.08

 

**$1.52**

 

$1.32

 

$1.26

Natural Gas

**10.45**

 

7.86

 

6.65

 

**14.28**

 

8.49

 

6.65

Nuclear

**0.56**

 

0.57

 

0.55

 

**--**

 

0.53

 

0.46

All Fuels

**2.18**

 

1.73

 

1.15

 

**1.80**

 

1.72

 

1.30

 

Coal **-** Coal is the primary fuel source for Alliant Energy’s internally generated electric supply.  Electric supply from coal-fired generating facilities represented 53%, 52% and 58% of IPL’s total sources of electric energy and 51%, 49% and 55% of WPL’s total sources of electric energy during 2006, 2005 and 2004, respectively.  Alliant Energy, through Corporate Services as agent for IPL and WPL, has entered into contracts with different suppliers to help ensure that a specified supply of coal is available at known prices for IPL and WPL for 2007 through 2012.  As of Dec. 31, 2006, these contracts provide for a portfolio of coal supplies that cover approximately 95%, 74%, 51%, 27%, 14% and 5% of Alliant Energy’s estimated coal supply needs for 2007 through 2012, respectively.  Management believes this portfolio of coal supplies representsa reasonable balance between the risks of insufficient supplies and those associated with being unable to respond to future coal market changes.  Alliant Energy expects to meet remaining coal requirements from either future contracts or purchases in the spot market.

 

The majority of the coal utilized by IPL and WPL is from the Wyoming Powder River Basin.  A majority of this coal is transported by rail-car directly from Wyoming to IPL’s and WPL’s generating stations, with the remainder transported from Wyoming to the Mississippi River by rail-car and then via barges to the final destination.  As protection against interruptions in coal deliveries, IPL and WPL strive to maintain average coal inventory supply targets of 25 to 50 days for generating stations with year-round deliveries and 30 to 150 days (depending upon the time of year) for generating stations with seasonal deliveries.  Actual inventory averages for 2006 were 49 days for generating stations with year-round deliveries and 111 days for generating stations with seasonal deliveries.

 

Average delivered fossil fuel costs are expected to continue to increase in the future due to price structures and adjustment provisions in existing coal contracts, rate structures and adjustment provisions in existing transportation contracts, expiration of existing transportation contracts, fuel-related surcharges incorporated by transportation carriers and recent coal and transportation market trends.  Existing coal commodity contracts with terms of greater than one year have fixed future year prices that generally reflect recent market trends.  A few of the existing coal contracts have provisions for price adjustments should specific indices change.  Rate adjustment provisions in transportation contracts are primarily based on changes in the Rail Cost Adjustment Factor as published by the U.S. Surface Transportation Board.  Other factors which may impact coal prices for future commitments are increasingcosts for supplier mineral rights, increasing costs to mine the coal and changes in various associated laws and regulations.  For example, emission restrictions related to sulfur dioxide, nitrogen oxide and mercury along with other environmental limitations on generating stations continue to increase and will likely limit the ability to obtain, and further increase the cost of, adequate coal supplies.  Factors which may impact transportation rates for future commitments upon expiration of existing contracts include: the need for railroads to enhance/expand infrastructure for demand growth, corresponding investments in locomotives and crews and the desire to improve margins on coal commensurate with margins on non-coal movements.  Alliant Energy believes that, given its current coal procurement process, the specific coal market in its primary purchase region, and regulatory cost-recovery mechanisms, it is reasonably insulated against the present volatile coal price environment.Alliant Energy’s coal procurement process stresses periodic purchases, staggering of contract terms, stair-stepped levels of coverage going forward for five to six years and supplier diversity.  Similarly, given the term lengths of its transportation agreements, Alliant Energy believes it is reasonably insulated against future higher base coal transportation rates from the major railroads.  As of Dec. 31, 2006, existing coal transportation agreements cover approximately 91% of IPL’s and WPL’s estimated needs through 2007, approximately 66% for 2008 through 2009 and approximately 46% for 2010 through 2014.

5 
Natural Gas - Alliant Energy owns several natural gas-fired generating facilities including IPL’s 565 MW, natural gas-fired Emery Generating Facility (Emery) that was placed in service in May 2004 and Resources’ 300 MW, natural gas-fired Sheboygan Falls Energy Facility (SFEF) that began commercial operations in June 2005.  WPL has exclusive rights to the output of SFEF under an affiliated lease agreement.  These facilities help meet customer demand for electricity generally during peak hour demands.  Electric supply from owned natural gas-fired generating facilities represented 5%, 6% and 2% of Alliant Energy’s total sources of electric energy during 2006, 2005 and 2004, respectively.  Increased electric supply from natural gas-fired generating facilities during 2006 and 2005 was primarily due to generation from Emery and SFEF.

 

Alliant Energy has responsibility to supply natural gas to certain generating facilities under purchased power agreements (PPAs), which include the Riverside Energy Center (Riverside) and the RockGen Energy Center (RockGen), as well as the generating facilities it owns.  IPL and WPL have contracts with several companies to provide fixed-price natural gas supply for these generating facilities with the longest contracts having terms through December 2008.  WPL has also contracted with ANR Pipeline to provide firm pipeline transportation of 60,000 dekatherms (Dths) per day for Riverside and 52,800 Dths per day (June to September) for SFEF.  In addition to entering into fixed-price supply contracts, IPL and WPL have hedging programs reviewed by the IUB and PSCW, respectively, to help protect against the impacts of volatile natural gas prices.  IPL and WPL expect these hedging programs will mitigate the impact ontheir electric customers of volatile natural gas costs for these generating facilities through 2008.

 

Nuclear**-**Electric supply from owned nuclear generating facilities represented 1%, 17% and 19% of IPL’s total sources of electric energy and 0%, 2% and 11% of WPL’s total sources of electric energy during 2006, 2005 and 2004, respectively.  In January 2006, IPL sold its interest in the Duane Arnold Energy Center (DAEC) to a subsidiary of FPL Group, Inc. (FPL) and upon closing of the sale entered into a PPA with FPL to purchase energy and capacity from DAEC through February 2014.  In July 2005, WPL sold its interest in the Kewaunee Nuclear Power Plant (Kewaunee) to a subsidiary of Dominion Resources, Inc. (Dominion) and upon closing of the sale entered into a long-term PPA with Dominion to purchase energy and capacity from Kewaunee through December 2013.  As a result of these transactions, Alliant Energy no longer has an ownership interest in anynuclear generating facilities.  Alliant Energy entered into these transactions to reduce the financial and operational uncertainty associated with nuclear generating facility ownership and operations while still retaining the benefit of the output from such nuclear generating facilities.  Refer to Note 18 of Alliant Energy’s “Notes to Consolidated Financial Statements” for additional information regarding the DAEC sale.

 

**Purchased Power -** Alliant Energy enters into PPAs to meet a portion of its customer demand of electricity.  Purchased power represented 38%, 21% and 20% of IPL’s total sources of electric energy and 47%, 46% and 32% of WPL’s total sources of electric energy during 2006, 2005 and 2004, respectively.  IPL’s and WPL’s level of purchased power during these periods was impacted by the sale of IPL’s interest in DAEC in January 2006 and the sale of WPL’s interest in Kewaunee in July 2005, respectively.  Refer to “Other Matters - Other Future Considerations - Calpine Bankruptcy” in MDA for discussion of WPL’s PPAs with Calpine Corporation subsidiaries related to RockGen and Riverside.

 

Refer to Note 1(j) for discussion of IPL’s and WPL’s rate recovery of fuel costs, Note 3(a) for details regarding purchased power commitments accounted for as operating leases and Note 12(b) for details relating to IPL’s and WPL’s coal, natural gas and other purchased power commitments in Alliant Energy’s “Notes to Consolidated Financial Statements.”

 

**Electric Transmission Business****-**

**IPL** - IPL maintains and operates its own electric transmission assets, which had a book value of approximately $434 million as of Dec. 31, 2006.  Refer to Note 22 of Alliant Energy’s “Notes to Consolidated Financial Statements” for discussion of the proposed sale of IPL’s electric transmission assets.Refer to Item 2. Properties for additional information regarding IPL’s electric transmission properties.  IPL has a non-cancelable operation agreement, which will terminate on Dec. 31, 2035, with Central Iowa Power Cooperative (CIPCO) that provides for the joint use of certain transmission facilities of IPL and CIPCO.  IPL has transmission interconnections at various locations with nine other transmission owning utilities in the Midwest.  These interconnections, along with the interconnections of ATC, enhance the overall reliability of the Alliant Energytransmission system and provide access to multiple sources of economic and emergency energy.

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**WPL** - In 2001, WPL transferred its transmission assets to ATC in exchange for an ownership interest in ATC.  As of Dec. 31, 2006, WPL held an 18% ownership interest in ATC with a carrying value of $166 million.  ATC is an independent for-profit, transmission-only company and is a transmission-owning member of the Midwest Independent System Operator (MISO),the MRO and Reliability First Corporation Regional Reliability Council.  ATC realizes its revenues from the provision of transmission services to both participants in ATC as well as non-participants.  During 2006, ATC distributed to WPL, in the form of dividends, $19 million or approximately 80% of WPL’s equity earnings from ATC.  Although no assurance can be given, WPL anticipates ATC will continue this dividend payout ratio in the future.  ATC is continuing its efforts to improve transmission reliability and import capabilities into Wisconsin, including construction of a 345-kilovolt transmission line, which is expected to be in service in 2008.  As these facilities are constructed, Alliant Energy expects they will serve to enhance its operating flexibility and its access to lower-cost energy. ATC also has various transmission interconnections with four other transmission owning utilities in the Midwest.  WPL anticipates no capital contributions to ATC in 2007 and $25 million of capital contributions

 

**Regional Transmission Participation** -****IPL and WPL are members of the MRO, which is a regional member of NERC.  Each regional member of NERC is responsible for setting policies to ensure reliability in its area through coordination of planning and operations.

 

**MISO Wholesale Energy Market** - IPL and WPL are also members of MISO, a FERC-approved Regional Transmission Organization, which is responsible for monitoring and ensuring equal access to the transmission system in its service territory.In April 2005, IPL and WPL began participation in the restructured wholesale energy market operated by MISO.  The implementation of this restructured market marked a significant change in the way IPL and WPL buy and sell wholesale electricity, obtain transmission services and schedule generation.  In the restructured market, IPL and WPL submit day-ahead and/or real-time bids and offers for energy at locations across the MISO region.  MISO evaluates IPL’s, WPL’s and other market participants’ energy injections into, and withdrawals from, the system to economically dispatch the entire MISOsystem on an hourly basis.  MISO settles these hourly offers and bids based on locational marginal prices, which are market-driven values based on the specific time and location of the purchase and/or sale of energy.  The restructured market is intended to send price signals to stakeholders where generation or transmission system expansion is needed.  This market-based approach is expected to result in lower overall costs in areas with abundant transmission capacity.  In addition, MISO may dispatch generators that support reliability needs, but which would not have operated based on economic needs.  In these cases, MISO’s settlement assures that these generators are made whole financially.  In areas of constrained transmission capacity, such as Wisconsin, costs could be higher due to the congestion and its impact on locational marginal prices.  As part of the MISO market restructuring, physical transmission rights of IPL and WPL were replaced with Financial Transmission Rights(FTRs).  FTRs provide a hedge for congestion costs that incur in the MISO day-ahead energy market.  Both IPL and WPL have been awarded FTRs by MISO that are in place through May 31, 2007.  Based on the FTRs awarded to IPL and WPL to date and future expected allocations, along with the regulatory recovery treatment of MISO costs, the financial impacts associated with FTRs have not differed significantly from the financial impacts associated with physical transmission rights that existed prior to the MISO market.

 

Refer to “Rates and Regulatory Matters” in MDA for discussion of the regulatory impacts of costs related to MISO and “Other Future Considerations - MISO Wholesale Energy Market” in MDA for discussion of the ancillary services market MISO is currently developing.

 

**Electric Environmental Matters****-**Alliant Energy is regulated in environmental matters by federal, state and local agencies.  Such regulations are the result of a number of environmental laws passed by the U.S. Congress, state legislatures and local governments and enforced by federal, state and local regulatory agencies.  The laws impacting Alliant Energy’s operations include, but are not limited to, the Safe Drinking Water Act; Clean Water Act; Clean Air Act (CAA), as amended by the CAA Amendments of 1990; National Environmental Policy Act of 1969; Toxic Substances Control Act; Resource Conservation and Recovery Act; Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act and Emergency Planning and Community Right-to-Know Act of 1986; Endangered Species Act;Occupational Safety and Health Act; National Energy Policy Act of 1992; Federal Insecticide, Fungicide and Rodenticide Act; Hazardous Materials Transportation Act; and Pollution Prevention Act.  Alliant Energy regularly obtains federal, state and local permits to assure compliance with the environmental protection laws and regulations.  Costs associated with such compliance have increased in recent years and are expected to continue to increase in the future.  Alliant Energy anticipates these prudently incurred costs for IPL and WPL will be recoverable through future rate case proceedings.  Refer to “Liquidity and Capital Resources” in MDA and Note 12(e) of Alliant Energy’s Notes to Consolidated Financial Statements for further discussion of electric environmental matters including new environmental regulations under the Clean Air Interstate Rule and Clean Air Mercury Rule.

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**Alliant Energy Corporation**
**Electric Operating Information****2006**2005200420032002**Operating Revenues (in millions):**      Residential **$857.1**** **$823.4 $716.7 $684.6 $626.9      Commercial **549.8**** **497.4 437.8 409.7 376.4      Industrial **763.7**** **675.2 609.9 571.6 526.8         Retail subtotal **2,170.6**** **1,996.0 1,764.4 1,665.9 1,530.1      Sales for resale:        Wholesale **145.2**** **158.7 116.8 108.4 93.2        Bulk power and other **68.5**** **114.6 69.0 87.4 67.1      Other **58.7**** **51.3 58.8 55.4 62.1            Total **$2,443.0**** **$2,320.6 $2,009.0 $1,917.1 $1,752.5  **Electric Sales (000s MWh):**      Residential **7,670**** **7,881 7,354 7,565 7,616      Commercial **6,187**** **6,110 5,702 5,663 5,542      Industrial **12,808**** **12,830 12,596 12,345 12,297         Retail subtotal **26,665**** **26,821 25,652 25,573 25,455      Sales for resale:        Wholesale **3,064**** **3,161 2,943 2,835 2,636        Bulk power and other **2,632**** **2,933 2,159 2,660 2,169      Other **171**** **173 178 184 197            Total **32,532**** **33,088 30,932 31,252 30,457  **Customers (End of Period):**      Residential **855,948**** **849,845 839,745 830,559 822,229      Commercial **135,822**** **134,149 131,152 129,130 128,212      Industrial **3,064**** **3,044 2,916 2,902 2,905      Other **3,391**** **3,368 3,312 3,362 3,344            Total **998,225**** **990,406 977,125 965,953 956,690  **Other Selected Electric Data:**      Maximum peak hour demand (MW) **5,989**** **5,932 5,644 5,887 5,729      Cooling degree days (a):           Cedar Rapids (IPL) (normal - 379) **332**** **406 139 276 397           Madison (WPL) (normal - 248) **284**** **421 138 224 356      Sources of electric energy (000s MWh):           Coal **17,578**** **17,360 18,472 18,451 17,674           Purchased power:             Nuclear (b) **5,128**** **1,008 - - -             Other **8,928**** **9,885 8,289 9,155 8,596           Gas (c) **1,541**** **2,052 792 631 675           Nuclear (b) **264**** **3,461 5,018 4,498 5,012           Other **263**** **297 262 240 379              Total **33,702**** **34,063 32,833 32,975 32,336       Revenue per kilowatt-hour (KWh) sold to retail         customers (cents) **8.14**** **7.44 6.88 6.51 6.01 (a)    Coolingdegree days are calculated using a 70 degree base.  Normal degree days are calculated forCedar Rapids         using a fixed 30-year average and for Madison using a rolling20-year average. (b)    InJanuary 2006 and July 2005, IPL and WPL sold their respective interests in DAEC andKewaunee and upon closing       of the sales entered into long-term purchased poweragreements to purchase energy and capacity from DAEC and       Kewaunee, respectively. (c)    Includesgeneration from SFEF that began commercial operation in June 2005, which WPL leases fromResources'       Non-regulated Generation business. |