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, 2005**         |  
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 [  ]  No x

 

 
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, 2005:

Alliant Energy Corporation

$3.3 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, 2006:

 

Alliant Energy Corporation

Common stock, $0.01 par value, 117,209,615 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 2006 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

14

 

Item 1B.

Unresolved Staff Comments

17

 

Item 2.

Properties

18

 

Item 3.

Legal Proceedings

20

 

Item 4.

Submission of Matters to a Vote of Security Holders

20

 

 

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

23

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and

 

 

 

Results of Operations

25

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

54

 

Item 8.

Financial Statements and Supplementary Data

54

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and

 

 

 

Financial Disclosure

134

 

Item 9A.

Controls and Procedures

134

 

Item 9B.

Other Information

134

Part III

Item 10.

Directors and Executive Officers of the Registrants

134

 

Item 11.

Executive Compensation

135

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and

 

 

 

Related Stockholder Matters

135

 

Item 13.

Certain Relationships and Related Transactions

135

 

Item 14.

Principal Accounting Fees and Services

135

Part IV

Item 15.

Exhibits, Financial Statement Schedules

136

 

 

**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 16 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 is operating as an investor-owned public utility holding company under various regulatory constraints.  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 Minnesota, as well as the utility operations of Illinois properties that Alliant Energy is divesting.****In Iowa, non-exclusive franchises, which cover the use of streets and alleys for public utility facilities in incorporated communities, are granted for a maximum of 25 years by a majority vote of local qualified residents.  At Dec. 31, 2005, IPL supplied electric and gas service to 537,727 and 238,999 (excluding transportation and other) customers, respectively.  IPL also provides steam services to certain customers in one community in Iowaand various other energy-related products and services.  In 2005, 2004 and 2003, 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.  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.  At Dec. 31, 2005, WPL supplied electric and gas service to 452,679 and 179,289 (excluding transportation and other) customers, respectively.  WPL also provides various other energy-related products and services.  In 2005, 2004 and 2003, 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 a wholly-owned subsidiary ofWPL and holds WPL’s investment in American Transmission Company LLC (ATC).  WPL also owns all of the outstanding capital stock of South Beloit Water, Gas and Electric Company (South Beloit), which was incorporated in 1908. South Beloit is a public utility supplying electric, gas and water service, principally in Winnebago County, Illinois, and which Alliant Energy is divesting.

 

**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 13 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, 2005, Alliant Energy’s consolidated subsidiaries that are included in its continuing operations had the following full- and part-time employees.

 

Number of

 

Number of

 

 

 

Percentage of Employees

 

Bargaining Unit

 

Other

 

Total Number

 

Covered by Collective

 

Employees

 

Employees

 

of Employees

 

Bargaining Agreements

IPL

1,292

 

286

 

1,578

 

82%

WPL

1,358

 

101

 

1,459

 

93%

Resources

75

 

617

 

692

 

11%

Corporate Services

--

 

1,510

 

1,510

 

--

Total Alliant Energy

2,725

 

2,514

 

5,239

 

52%

 

At Dec. 31, 2005, 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 1439

22

 

6/30/06

IBEW Local 1455

7

 

6/30/06

IBEW Local 949

257

 

9/30/08

IBEW Local 204 (Dubuque)

120

 

9/30/08

IBEW Local 204 (Mason City)

58

 

9/30/08

IUOE Local 275

51

 

12/01/08

IBEW Local 204 (Cedar Rapids)

777

 

8/31/10

 

1,292

 

 

WPL - IBEW Local 965

1,358

 

5/31/07

Resources - Various

75

 

Various

 

2,725

 

 

 

**2)  CAPITAL EXPENDITURE AND INVESTMENT PLANS**

Refer to “Liquidity and Capital Resources” in MDA for discussion of anticipated construction and acquisition expenditures for 2006 and 2007.

 

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

 

**Federal Energy Regulatory Commission (FERC) and the Public Utility Holding Company Act -** FERC has jurisdiction under the Federal Power Act over certain electric utility facilities and operations, wholesale rates and accounting practices of IPL and WPL, and in certain other respects.  In addition, certain natural gas facilities and operations of IPL and WPL are subject to the jurisdiction of FERC under the Natural Gas Act.  Refer to “Rates and Regulatory Matters” and “Liquidity and Capital Resources” in MDA for discussion of the Energy Policy Act that was enacted in 2005 and the repeal of the Public Utility Holding Company Act of 1935 (PUHCA 1935).

 

**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 safety, air and water quality, and waste handling standards associated with electric power generation, including the level and flow of water pertaining to hydroelectric generation.  In certain cases, the state environmental agencies have delegated the administration of environmental programs to local agencies.  In addition, Alliant Energy has international investments that are subject to environmental regulations in the countries in which it operates.

 

2

**Iowa Utilities Board (IUB) -** IPL is subject to regulation by the IUB for Iowa service territories 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, the Iowa General Assembly understood the importance ofattracting the development of electric power generating and transmission facilities within the state in sufficient quantity to ensure reliable electric service to Iowa consumers and provide economic benefits to the state.  Consistent with this legislative intent, Iowa enacted HF 577, which provides companies with the necessary rate making 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.  The PSCW regulates, among other things, the type and amount of Alliant Energy’s investments in non-utility businesses and other affiliated interest activities.  WPL is also subject to regulation by the PSCW for Wisconsin service territories 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.  Refer to “Rates and Regulatory Matters” in MDA for further discussion, including recent progressive legislation passed in Wisconsin which provides increased regulatory andinvestment certainty prior to making certain generation investments.

 

**Minnesota Public Utilities Commission (MPUC) -** IPL is subject to regulation by the MPUC for Minnesota service territories for retail utility rates and standards of service, accounting requirements, issuance and use of proceeds of securities, 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.  The MPUC also has jurisdiction to annually approve IPL’s capital structure.

 

**Illinois Commerce Commission (ICC) -** IPL and South Beloit are subject to regulation by the ICC for Illinois service territories for retail utility rates and standards of service, accounting requirements, issuance and use of proceeds of securities, certain additions and extensions to facilities, and in other respects.  Requests for rate relief must be decided within 11 months of filing.

 

**New Zealand -** Alliant Energy has an equity investment in TrustPower Ltd., a hydro and wind generation utility company, which is regulated by the Electricity Commission (Commission).  The Commission is appointed by, and reports to, the Minister of Energy.  The Commission has the authority to recommend new regulations directly to the Minister of Energy and has the responsibility for monitoring compliance, investigating alleged breaches, and taking necessary enforcement action with respect to rules and regulations.  The Commission has established rules governing wholesale, retail, security, transmission and distribution in the form of a multilateral contract among electricity generators, retailers, distribution companies, transmission companies and end-consumers and has contracted for reserve energy to be used in periods of extreme energy shortages.

 

Refer to Notes 1(c), 1(i) and 2 of Alliant Energy’s “Notes to Consolidated Financial Statements” and “Rates and Regulatory Matters” 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.

 

3

**C.  INFORMATION RELATING TO UTILITY OPERATIONS**

Alliant Energy realized 50%, 46%, 3% and 1% of its 2005 electric utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively.  Approximately 88% was regulated by the respective state commissions while the other 12% was regulated by FERC.  Alliant Energy realized 49%, 45%, 3% and 3% of its 2005 gas utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively.

 

IPL realized 92%, 6% and 2% of its 2005 electric utility revenues in Iowa, Minnesota and Illinois, respectively.  Approximately 94% was regulated by the respective state commissions while the other 6% was regulated by FERC.  IPL realized 93%, 5% and 2% of its 2005 gas utility revenues in Iowa, Minnesota and Illinois, respectively.  WPL realized 99% of its 2005 electric utility revenues in Wisconsin and 1% in Illinois.  Approximately 82% was regulated by the PSCW or the ICC while the other 18% was regulated by FERC.  WPL realized 96% of its 2005 gas utility revenues in Wisconsin and 4% in Illinois.

 

The electric energy markets in Iowa and Wisconsin continue to be regulated by the IUB and PSCW, respectively.  Retail electric customers in these markets currently do not have the ability to choose their electric supplier.  However, in order to increase sales, IPL and WPL work to attract new customers into their service territories.  As a result, there is competition among utilities to keep energy rates low.  Although Iowa and Wisconsin electric energy markets are regulated, IPL and WPL also still face competition from other energy sources.

 

Federal and state regulators continue to implement policies to bring more competition to the gas industry.  While the gas utility distribution function is expected to remain a regulated function, sales of the natural gas commodity and related services are expected to become increasingly subject to competition from third parties.  However, it remains uncertain if and when the current economic disincentives for small customers to choose an alternative gas commodity supplier may be removed such that the utility business begins to face competition for the sale of gas to those customers.

 

**1)  ELECTRIC UTILITY OPERATIONS**

**General****-** IPL and WPL provide electric service in Iowa, southern and central Wisconsin, southern Minnesota and northern and northwestern Illinois.  The number of electric customers and communities served at Dec. 31, 2005 was as follows:

 

 

Retail Customers

 

Wholesale Customers

 

Other Customers

 

Communities Served

 
IPL

536,410

 

8

 

1,309

 

760

WPL

450,628

 

31

 

2,020

 

610

 

987,038

 

39

 

3,329

 

1,370

 

Wholesale customers in the above table are billed per standardized pricing mechanisms that are detailed in tariffs 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, which are approved by FERC on an individual basis.

 

2005 electric utility operations accounted for 74% and 76% of operating revenues and 96% and 84% of operating income for IPL and WPL, respectively.

 

Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months.  In 2005, the maximum peak hour demands for IPL and WPL were 3,077 megawatts (MW) and 2,854 MW, respectively, both on Aug. 9, 2005.  In 2005, the maximum peak hour demand for Alliant Energy was 5,932 MW on Aug. 9, 2005, which was the coincident peak of the entire Alliant Energy system.

 

**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 existing 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 2001 to 2005.  Alliant Energy’s mix of electric supply has experienced changes as a result of the recent 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 Generation Plan” in MDA fordiscussion 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 extremely hot weather.

 

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.

 

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

 

IPL

 

WPL

 

**2005**

 

2004

 

2003

 

**2005**

 

2004

 

2003

Coal

**$1.17**

 

$1.08

 

$1.07

 

**$1.32**

 

$1.26

 

$1.22

Natural Gas

**7.86**

 

6.65

 

5.88

 

**8.49**

 

6.65

 

6.82

Nuclear

**0.57**

 

0.55

 

0.55

 

**0.53**

 

0.46

 

0.44

All Fuels

**1.73**

 

1.15

 

1.09

 

**1.72**

 

1.30

 

1.37

 

Coal **-** Coal is the primary fuel source for Alliant Energy’s internally generated electric supply.  Electric supply from coal-fired generating facilities represented 52%, 58% and 57% of IPL’s total sources of electric energy and 49%, 55% and 54% of WPL’s total sources of electric energy during 2005, 2004 and 2003, respectively.  Alliant Energy, through Corporate Services, 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 2006 through 2010.  As of Dec. 31, 2005, these contracts provide for a portfolio of coal supplies that cover approximately 95%, 74%, 49%, 21% and 7% of IPL’s and WPL’s estimated coal supply needs for 2006 through 2010, respectively.  Management believes this portfolio of coal supplies represents a reasonablebalance between the risks of insufficient supplies and those associated with larger open positions subject to price volatility in the coal markets.  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 averages for 2005 were 39 days for generating stations with year-round deliveries and 83 days for generating stations with seasonal deliveries.  Refer to “Other Matters - Other Future Considerations - Coal Delivery Disruptions” in MDA for discussion of coal deliverydisruptions caused by railroad train derailments in 2005.

 

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 and recent coal market trends.  Existing coal commodity contracts with terms of greater than one year have fixed future year prices that generally reflect recent upward 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 increasing costs for supplier mineral rights, increasing costs to mine the coal andchanges 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.  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. 31,2005, existing coal transportation agreements cover 100% of IPL’s and WPL’s estimated needs through 2006, approximately 91% for 2007 and 64% for 2008 through 2010.  Refer to Note 1(i) for discussion of IPL’s and WPL’s rate recovery of fuel costs and Note 11(b) for details relating to coal purchase commitments in the “Notes to Consolidated Financial Statements.”

 

5

Natural Gas - Alliant Energy owns several natural gas-fired generating facilities that help meet customer demand for electricity especially during peak hour demands.  Electric supply from natural gas-fired generating facilities represented 6%, 2% and 2% of Alliant Energy’s total sources of electric energy for its electric customers during 2005, 2004 and 2003, respectively.  Increased electric supply from natural gas-fired generating facilities during 2005 was primarily due to generation from 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.  Refer to “Gas Utility Operations” for discussion ofcontracts for the supply and transportation of natural gas required for natural gas-fired generating facilities.

 

Nuclear**-**Electric supply from nuclear generating facilities represented 17%, 19% and 16% of IPL’s total sources of electric energy and 2%, 11% and 11% of WPL’s total sources of electric energy during 2005, 2004 and 2003, respectively.  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 purchased power agreement with Dominion to purchase energy and capacity from Kewaunee.  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 purchased power agreement with FPL to purchase energy and capacity from DAEC.  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.  For additional information regarding these sales refer to Notes 17 and 18 of Alliant Energy’s “Notes to Consolidated Financial Statements.”

 

**Purchased Power -** Alliant Energy enters into purchased power commitments to meet a portion of its customer demand of electricity.  Purchased power represented 21%, 20% and 25% of IPL’s total sources of electric energy and 46%, 32% and 31% of WPL’s total sources of electric energy during 2005, 2004 and 2003, respectively.  IPL’s level of purchased power during these periods was impacted by scheduled refueling outages at DAEC in 2005 and 2003 and Emery being placed into service in May 2004.  WPL’s level of purchased power during these periods was impacted by the sale of its interest in Kewaunee in July 2005.  Refer to Notes 17 and 18 of Alliant Energy’s “Notes to Consolidated Financial Statements for additional details regarding recent purchased power agreements related to Kewaunee and DAEC, respectively, and Notes 3(a) and11(b) of Alliant Energy’s “Notes to Consolidated Financial Statements” for details relating to purchased power commitments.  Refer to “Other Matters - Other Future Considerations - Calpine Bankruptcy” in MDA for discussion of WPL’s purchased power agreements with Calpine Corporation subsidiaries related to the RockGen and Riverside generating facilities.

 

**Electric Transmission Business and Energy Markets**-  

**WPL** - In 2001, WPL transferred its transmission assets to ATC in exchange for an ownership interest in ATC.  As of Dec. 31, 2005, WPL held a 21% ownership interest in ATC with a carrying value of $152 million.  ATC is an independent for-profit, transmission-only company and is a transmission-owning member of the Midwest Independent System Operator (MISO) and Reliability First Corporation Regional Reliability Council (Reliability First).  Reliability First is the successor organization to the Mid-American Interconnected Network, Inc., which ceased operations Dec. 31, 2005.  ATC realizes its revenues from the provision of transmission services to both participants in ATC as well as non-participants.  During 2005, ATC distributed in the form of dividends approximately 80% of its earnings to the equity holders and, although no assurance can be given, Alliant Energy anticipates ATCwill 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, they will serve to enhance Alliant Energy’s 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’s anticipated capital contributions to ATC in 2006 and 2007 are $12 million and $11 million, respectively.

 

**IPL** - IPL maintains and operates its own transmission assets which had a book value of $442 million as of Dec. 31, 2005.  Refer to “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 Energy transmission system and provide access to multiple sources of economic and emergency energy.  Refer to “Strategic Overview - Transmission Business” in MDA for discussion of the options IPL isevaluating related to the future of its transmission assets.

 

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**Regional Transmission Participation** -****IPL and WPL are members of the Midwest Reliability Organization and Reliability First, both of which are regional members of the North American Electric Reliability Council (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.On April 1, 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 offer their generation and bid their demand into the market on an hourly basis.  MISO evaluates IPL’s, WPL’s and other market participants’ energy injections into, and withdrawals from, the system to economically dispatch the entire MISO system on anhourly 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 toresult in lower overall costs in areas with abundant transmission capacity.  In areas of constrained transmission capacity, such as Wisconsin, costs could be higher due to the congestion and marginal loss pricing components.  Refer to “Rates and Regulatory Matters” in MDA for discussion of the regulatory impacts of costs related to MISO.

 

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 during the period Sep. 1, 2005 through May 31, 2006.  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.

 

**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;Nuclear Waste Policy Act of 1982, as amended in 1987; 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 for further discussion of electric environmental matters.

 

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**Alliant Energy Corporation**** ** **Electric Operating Information****2005**2004200320022001**Operating Revenues (in millions):** ****** **         Residential **$823.4**** **$716.7 $684.6 $626.9 $599.1      Commercial **497.4**** **437.8 409.7 376.4 373.1      Industrial **675.2**** **609.9 571.6 526.8 543.5         Total from retail customers **1,996.0**** **1,764.4 1,665.9 1,530.1 1,515.7      Sales for resale **273.3**** **185.8 195.8 160.3 184.5      Other **51.3**** **58.8 55.4 62.1 56.4         Total **$2,320.6**** **$2,009.0 $1,917.1 $1,752.5 $1,756.6  **Electric Sales (000s MWh):**      Residential **7,881**** **7,354 7,565 7,616 7,344      Commercial **6,110**** **5,702 5,663 5,542 5,464      Industrial **12,830**** **12,596 12,345 12,297 12,469         Total from retail customers **26,821**** **25,652 25,573 25,455 25,277      Sales for resale **6,094**** **5,102 5,495 4,805 4,936      Other **173**** **178 184 197 168         Total **33,088**** **30,932 31,252 30,457 30,381  **Customers (End of Period):**      Residential **849,845**** **839,745 830,559 822,229 807,754      Commercial **134,149**** **131,152 129,130 128,212 125,539      Industrial **3,044**** **2,916 2,902 2,905 2,826      Other **3,368**** **3,312 3,362 3,344 3,324         Total **990,406**** **977,125 965,953 956,690 939,443  **Other Selected Electric Data:**      Maximum peak hour demand (MW) **5,932**** **5,644 5,887 5,729 5,677      Cooling degree days (1):           Cedar Rapids (IPL) (normal - 379) **406**** **139 276 397 347           Madison (WPL) (normal - 242) **421**** **138 224 356 305      Sources of electric energy (000s MWh):           Coal **17,360**** **18,472 18,451 17,674 18,190           Purchased power (2) **10,893**** **8,289 9,155 8,596 8,727           Nuclear (2) **3,461**** **5,018 4,498 5,012 4,116           Gas (3) **2,052**** **792 631 675 472           Other **297**** **262 240 379 452              Total **34,063**** **32,833 32,975 32,336 31,957       Revenue per kilowatt-hour (KWh) from retail         customers (cents) **7.44**** **6.88 6.51 6.01 6.00 (1)    Coolingdegree days are calculated using a 70 degree base.  Normal degree days are calculatedusing a fixed 30-year       average most recently updated in February 2002. (2)    InJuly 2005, WPL sold its interest in Kewaunee and upon closing of the sale entered into along-term purchased       power agreement to purchase energy and capacity from Kewaunee. (3)    Includesgeneration from SFEF that began commerical operation in June 2005, which WPL leases fromResources'        Non-regulated Generation business. |