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, 1998

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

        For the transition period from ______ to _______

                  Name of Registrant, State of 
                  Incorporation, Address of               
Commission        Principal Executive                     IRS Employer          
File Number       Offices and Telephone Number            Identification Number
-----------       ----------------------------            ---------------------
1-9894            INTERSTATE ENERGY CORPORATION                       39-1380265
                  (a Wisconsin corporation)
                  222 West Washington Avenue
                  Madison, Wisconsin 53703
                  Telephone (608)252-3311

0-4117-1          IES UTILITIES INC.                                  42-0331370
                  (an Iowa corporation)
                  Alliant Tower
                  Cedar Rapids, Iowa 52401
                  Telephone (319)398-4411

0-337             WISCONSIN POWER AND LIGHT COMPANY                   39-0714890
                  (a Wisconsin corporation)
                  222 West Washington Avenue
                  Madison, Wisconsin 53703
                  Telephone (608)252-3311

Securities registered pursuant to Section 12 (b) of the Act:
<TABLE>
<CAPTION>

                                                                              Name of Each
                                 Title of Class                               Exchange on Which Registered
                                 --------------                               ----------------------------
<S>                              <C>                                          <C>         
Interstate Energy Corporation    Common Stock, $.01 Par Value                 New York Stock Exchange
Interstate Energy Corporation    Common Stock Purchase Rights                 New York Stock Exchange
IES Utilities Inc.               7-7/8% Quarterly Debt Capital Securities     New York Stock Exchange
                               (Subordinated Deferrable Interest Debentures)
</TABLE>

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

                                    Title of Class
                                    --------------
IES Utilities Inc.                  4.80% Cumulative Preferred Stock, Par Value 
                                    $50 per share
Wisconsin Power and Light Company   Preferred Stock (Accumulation without Par
                                    Value)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrants'   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in  Part  III of the  Form  10-K or any
amendment to this Form 10-K. [ ]
<PAGE>

This combined Form 10-K is separately  filed by Interstate  Energy  Corporation,
IES Utilities Inc. and Wisconsin Power and Light Company.  Information contained
herein relating to any individual  registrant is filed by such registrant on its
own behalf.  Each registrant makes no representation as to information  relating
to the other registrants.

The aggregate  market value of the voting and  non-voting  common equity held by
nonaffiliates as of January 31, 1999:

Interstate Energy Corporation         $2.24 billion
IES Utilities Inc.                    $0
Wisconsin Power and Light Company     $0

Number of shares  outstanding  of each class of common  stock as of January  31,
1999:

Interstate Energy Corporation         Common Stock, $.01 par value, 77,667,444 
                                      shares outstanding

IES Utilities Inc.                    Common Stock, $2.50 par value, 13,370,788 
                                      shares outstanding (all of which are owned
                                      beneficially and of record by  Interstate 
                                      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
                                      Interstate Energy Corporation)

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy  Statements  relating to Interstate  Energy  Corporation's
1999 Annual Meeting of Shareowners  and Wisconsin Power and Light Company's 1999
Annual Meeting of  Shareowners  are, or will upon filing with the Securities and
Exchange Commission, be incorporated by reference into Part III hereof.

                                       2
<PAGE>



                                TABLE OF CONTENTS

                                                                           Page
Part I                                                                    Number
                                                                          ------
         Item 1.      Business                                               4
         Item 2.      Properties                                             22
         Item 3.      Legal Proceedings                                      25
         Item 4.      Submission of Matters to a Vote of Security Holders    25
Part II
         Item 5.      Market for Registrant's Common Equity and Related
                      Stockholder Matters                                    26
         Item 6.      Selected Financial Data                                27
         Item 7.      Management's Discussion  and  Analysis of Financial
                      Condition and Results of Operations                    29
         Item 7A.     Quantitative and Qualitative Disclosures About
                       Market Risk                                           60
         Item 8.      Financial Statements and Supplementary Data            60
         Item 9.      Changes in and Disagreements with Accountants on
                      Accounting  and Financial Disclosure                  122
Part III
         Item 10.     Directors and Executive Officers of the Registrants   122
         Item 11.     Executive Compensation                                126
         Item 12.     Security Ownership of Certain Beneficial Owners
                      and Management                                        129
         Item 13.     Certain Relationships and Related Transactions        130
Part IV
         Item 14.     Exhibits, Financial Statement Schedules and
                      Reports on Form 8-K                                   131
                      Signatures                                            142





                                       3


<PAGE>



FORWARD-LOOKING STATEMENTS

Refer  to the  "Forward-Looking  Statements"  section  in Item 7.  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" (MD&A)
for information and disclaimers regarding  forward-looking  statements contained
in this Annual Report on Form 10-K.

                                     PART I

This Annual  Report on Form 10-K  includes  information  relating to  Interstate
Energy  Corporation  (IEC),  IES Utilities Inc.  (IESU) and Wisconsin  Power and
Light Company (WP&L) (as well as Interstate Power Company (IPC),  Alliant Energy
Resources,   Inc.  (Alliant  Energy  Resources)  and  Alliant  Energy  Corporate
Services,   Inc.  (Alliant  Energy  Corporate  Services)).   Where  appropriate,
information  relating to a specific  entity has been  segregated  and labeled as
such.

ITEM 1.  BUSINESS

A.  MERGER

On April 21, 1998, IES Industries Inc. (IES), WPL Holdings,  Inc. (WPLH) and IPC
completed a three-way  merger  (Merger)  forming  IEC.  IEC is  currently  doing
business as Alliant  Energy  Corporation.  As a result of the Merger,  the first
tier subsidiaries of IEC include:  IESU, WP&L, IPC, Alliant Energy Resources and
Alliant Energy Corporate Services.

As part of the  approval  process  for the  Merger,  IEC agreed to various  rate
freezes and rate caps  implemented in certain  jurisdictions  for periods not to
exceed four years  commencing on the effective date of the Merger (refer to Item
7. MD&A "Liquidity and Capital  Resources - Rates and Regulatory  Matters" for a
further discussion).

A brief description of the first-tier subsidiaries of IEC is as follows:

1) IESU -  incorporated  in Iowa in 1925 as Iowa Railway and Light  Corporation.
IESU is primarily a public utility operating company engaged  principally in the
generation,  transmission,   distribution  and  sale  of  electric  energy;  the
purchase,  distribution,  transportation  and  sale  of  natural  gas;  and  the
provision  of steam  services in  selective  markets,  in the State of Iowa.  At
December  31, 1998,  IESU  supplied  electric  and gas service to  approximately
341,000 and 179,000 customers, respectively. In 1998, 1997 and 1996, IESU had no
single customer for which electric and/or gas sales accounted for 10% or more of
IESU's consolidated revenues.  IESU also owns varying interests in several other
subsidiaries and investments which are not material to IESU's operations.

2) WP&L - incorporated  in Wisconsin in 1917 as the Eastern  Wisconsin  Electric
Company,   is  a  public  utility   engaged   principally  in  the   generation,
transmission,   distribution  and  sale  of  electric   energy;   the  purchase,
distribution, transportation and sale of natural gas; and the provision of water
services in selective  markets.  Nearly all of WP&L's  customers  are located in
south and central Wisconsin. WP&L operates in municipalities pursuant to permits
of indefinite  duration  which are  regulated by Wisconsin  law. At December 31,
1998,  WP&L  supplied  electric  and gas  service to  approximately  401,000 and
159,000  customers,  respectively.  WP&L  also has  approximately  35,000  water
customers.  In 1998,  1997 and  1996,  WP&L had no  single  customer  for  which
electric  and/or  gas sales  accounted  for 10% or more of  WP&L's  consolidated
revenues.

WP&L 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
in 1908.  WP&L also owns varying  interests in several  other  subsidiaries  and
investments which are not material to WP&L's operations.

3) IPC - a public  utility  incorporated  in 1925 under the laws of the State of
Delaware.   IPC  is  engaged   principally  in  the  generation,   transmission,
distribution  and  sale  of  electric  energy  and the  purchase,  distribution,
transportation


                                       4
<PAGE>

and sale of  natural  gas in the  States of Iowa,  Minnesota  and  Illinois.  At
December  31,  1998,  IPC  provided  electric  and gas service to  approximately
166,000 and 50,000 customers,  respectively.  In 1998, 1997 and 1996, IPC had no
single customer for which electric and/or gas sales accounted for 10% or more of
IPC's consolidated revenues.

4) ALLIANT ENERGY  RESOURCES - following the Merger,  the holding  companies for
the  nonregulated  businesses of the former WPLH and IES (Heartland  Development
Corporation  (HDC) and IES  Diversified  Inc.,  respectively)  were merged.  The
resulting company from this merger is Alliant Energy  Resources.  Alliant Energy
Resources  was  incorporated  in  1988 in  Wisconsin  as  Heartland  Development
Corporation.  The majority of IEC's nonregulated investments are organized under
Alliant Energy Resources.

Alliant  Energy  Resources'  wholly-owned  subsidiaries  include  Alliant Energy
Industrial   Services,   Inc.  (ISCO),   Alliant  Energy   International,   Inc.
(International),  Alliant Energy Investments, Inc. (Investments), Alliant Energy
Transportation,  Inc.  (Transportation),  Heartland  Properties,  Inc. (HPI) and
Capital Square Financial Corporation (Capital Square).

5)  ALLIANT   ENERGY   CORPORATE   SERVICES  -  subsidiary   formed  to  provide
administrative services to IEC and its subsidiaries as required under the Public
Utility Holding Company Act of 1935 (PUHCA).

Refer to Note 14 of the  "Notes  to  Consolidated  Financial  Statements"  for a
further discussion of IEC's business segments.

B.  INFORMATION RELATING TO IEC ON A CONSOLIDATED BASIS

EMPLOYEES

As of  December  31,  1998,  IEC  had the  following  employees  (full-time  and
part-time):
<TABLE>
<CAPTION>

                                                                 Number of
                                                                Bargaining        Number of
                                               Number of           Unit           Bargaining
                                               Employees         Employees        Agreements
                                              -------------    --------------    -------------
<S>                                                  <C>               <C>                 <C>
       IESU                                          1,834             1,117                6
       WP&L                                          1,684             1,547                1
       IPC                                             645               525                3
       Alliant Energy Resources                      1,001                88                5
       Alliant Energy Corporate Services             1,188                 -                -
                                              -------------    --------------    -------------
         IEC Total                                   6,352             3,277               15
                                              =============    ==============    =============
</TABLE>

Eight bargaining agreements at the utilities are scheduled to expire in 1999 and
represent  substantially  all  employees  covered  under  collective  bargaining
agreements.  These employees  represent  approximately 50% of all IEC employees.
IEC has not  experienced  any  significant  work stoppage  problems in the past.
While  negotiations  have  commenced,  IEC is  currently  unable to predict  the
outcome of these negotiations.

CAPITAL EXPENDITURE AND INVESTMENT AND FINANCING PLANS

Refer to the  "Liquidity  and Capital  Resources"  section in Item 7. MD&A for a
discussion  of  anticipated   construction  and  acquisition   expenditures  for
1999-2003 and details regarding the financing of future capital requirements.

REGULATION

IEC  operates  as  a  registered  public  utility  holding  company  subject  to
regulation by the Securities and Exchange  Commission (SEC) under the PUHCA. IEC
and  its  subsidiaries  are  subject  to the  regulatory  provisions  of  PUHCA,


                                       5
<PAGE>


including   provisions  relating  to  the  issuance  and  sales  of  securities,
acquisitions and sales of certain utility properties, acquisitions and retention
of  interests in  non-utility  businesses  and the services  provided by Alliant
Energy Corporate Services to IEC and its subsidiaries.

IEC is subject to  regulation  by the Public  Service  Commission  of  Wisconsin
(PSCW).  The PSCW  regulates,  among other things,  the type and amount of IEC's
investments in non-utility businesses. WP&L is also subject to regulation by the
PSCW as to retail  utility  rates and  service,  accounts,  issuance  and use of
proceeds of  securities,  certain  additions and extensions to facilities and in
other  respects.  WP&L is  generally  required to file a rate case with the PSCW
every two years with  requests for rate relief based on a  forward-looking  test
year period.  However,  as one of the conditions for approval of the Merger, the
PSCW has required WP&L to freeze on a post-merger basis retail electric, natural
gas, and water rates for a period of four years.

IESU and IPC operate under the  jurisdiction  of the Iowa Utilities Board (IUB).
The IUB has authority to regulate  rates and standards of service,  to prescribe
accounting requirements and to approve the location and construction of electric
generating  facilities  having a capacity  in excess of 25,000  kilowatts  (KW).
Requests for price relief are based on  historical  test  periods,  adjusted for
certain known and measurable changes.  The IUB must decide on requests for price
relief within 10 months of the date of the application for which relief is filed
or the interim prices granted become permanent.  Interim prices, if allowed, are
permitted to become  effective,  subject to refund,  no later than 90 days after
the price increase application is filed.  Notwithstanding this process, IESU and
IPC have agreed to a four-year  price cap  effective  with the Merger as part of
the Merger approval process.

In Iowa, non-exclusive franchises, which cover the use of streets and alleys for
public utility facilities in incorporated communities, are granted for a maximum
of  twenty-five  years by a  majority  vote of  local  qualified  residents.  In
addition,   the  IUB  defines  the  boundaries  of  mutually  exclusive  service
territories  for all electric  utilities.  The IUB has  jurisdiction  and grants
franchises  for the use of public  highway  rights-of-way  for  electric and gas
facilities outside corporate limits.

IPC is also subject to regulation by the Minnesota Public  Utilities  Commission
(MPUC). Requests for price relief can be based on either historical or projected
data. The MPUC must reach a final decision  within 10 months.  Interim rates are
permitted.  The MPUC also has jurisdiction to approve IPC's capital structure on
an annual basis.

In  addition,  South  Beloit and IPC are subject to  regulation  by the Illinois
Commerce  Commission  (ICC) for  retail  utility  rates and  service,  accounts,
issuance and use of proceeds of securities,  certain additions and extensions to
facilities  and in other  respects.  Requests  for rate  relief  must be decided
within 11 months.

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 WP&L, IESU and IPC, and
in certain other  respects.  In addition,  certain  natural gas  facilities  and
operations of the companies  are subject to the  jurisdiction  of the FERC under
the Natural Gas Act.

With  respect  to  environmental   matters,   the  United  States  Environmental
Protection  Agency  administers  certain federal  statutes and has delegated the
administration  of  other  environmental  initiatives  to the  applicable  state
environmental  agencies. In addition,  the state agencies have jurisdiction over
air and water  quality  standards  associated  with fossil  fuel fired  electric
generation and the level and flow of water,  safety and other matters pertaining
to hydroelectric generation.

WP&L  and  IESU  are  subject  to the  jurisdiction  of the  Nuclear  Regulatory
Commission (NRC), with respect to the Kewaunee Nuclear Power Plant (Kewaunee) in
the case of WP&L and the Duane Arnold  Energy Center (DAEC) in the case of IESU,
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 and the DAEC.

Refer to Item 7. MD&A for additional  information regarding regulation and IEC's
rate matters.


                                       6
<PAGE>

YEAR 2000

Refer  to the  "Other  Matters  - Year  2000"  section  in  Item 7.  MD&A  for a
discussion of IEC's Year 2000 initiatives.

C.  INFORMATION RELATING TO UTILITY OPERATIONS

IEC realized  56%,  39%, 3% and 2% of its electric  utility  revenues in 1998 in
Iowa, Wisconsin, Minnesota and Illinois, respectively.  Approximately 87% of the
electric  revenues were regulated by the respective state  commissions while the
other 13% were  regulated by the FERC.  IEC realized  58%, 36%, 3% and 3% of its
gas utility revenues in Iowa, Wisconsin,  Minnesota and Illinois,  respectively,
during the same period.

IESU  realized  100% of its electric  and gas utility  revenues in 1998 in Iowa.
Approximately  93% of the  electric  revenues in 1998 were  regulated by the IUB
while the other 7% were regulated by the FERC.

WP&L realized 98% of its electric  utility  revenues in 1998 in Wisconsin and 2%
in Illinois.  Approximately  79% of the electric revenues in 1998 were regulated
by the PSCW or the ICC  while the other  21% were  regulated  by the FERC.  WP&L
realized 96% of its gas utility revenues in 1998 in Wisconsin and 4% in Illinois
during the same period.

IPC realized 77%, 17% and 6% of its electric  utility  revenues in 1998 in Iowa,
Minnesota and Illinois, respectively. Approximately 92% of the electric revenues
were  regulated  by the  respective  state  commissions  while the other 8% were
regulated by the FERC. IPC realized 70%, 22% and 8% of its gas utility  revenues
in Iowa, Minnesota and Illinois, respectively, during the same period.

                            UTILITY INDUSTRY OUTLOOK

Refer to the "Utility Industry Outlook" section in Item 7. MD&A for a discussion
of various competitive issues impacting utility operations.

ELECTRIC UTILITY OPERATIONS

General

IESU  provides  electricity  in Iowa.  As of December  31, 1998,  IESU  provided
electricity to approximately  341,000 retail customers in approximately 525 Iowa
communities.   IESU  also  currently  provides  electricity  to  five  wholesale
customers.  WP&L  provides  electricity  in 34 counties in southern  and central
Wisconsin and four counties in northern Illinois.  As of December 31, 1998, WP&L
provided  retail  electric  service to  approximately  401,000  customers in 599
communities and wholesale service to 24 municipal utilities, one privately owned
utility,  three rural electric  cooperatives,  one Native American nation and to
the Wisconsin  Public Power,  Inc. system for the provision of retail service to
14 communities.  IPC provides electricity in portions of 22 counties in northern
and northeastern  Iowa, in portions of 22 counties in southern  Minnesota and in
portions of five counties in northwestern Illinois. As of December 31, 1998, IPC
provided  retail  electric  service to  approximately  166,000  customers in 234
communities and wholesale service to 10 small communities.

The percentages of utility operating  revenues and utility operating income from
electric  utility  operations  for each  individual  company  for the year ended
December 31, 1998 were as follows:

                              Percent of        Percent of
                               Operating        Operating
                               Revenues           Income
                             -------------     -------------
           IESU                 79.2%             92.5%
           WP&L                  84.0              94.3
           IPC                   88.0              89.5


                                       7
<PAGE>


Electric  sales are  seasonal  to some  extent  with the  annual  peak  normally
occurring in the summer  months.  In 1998, the maximum peak hour demand for IESU
was 1,965  megawatts  (MW) and occurred on June 26, 1998.  For WP&L and IPC, the
maximum  peak hour  demands  were  2,292 MW and 971 MW,  respectively,  and both
occurred on July 14, 1998.

IESU maintains and operates  transmission and substation  facilities  connecting
with  its  high  voltage  transmission  systems  pursuant  to  a  non-cancelable
operation   agreement  (the  Operating   Agreement)   with  Central  Iowa  Power
Cooperative (CIPCO).  The Operating Agreement,  which will terminate on December
31, 2035, provides for the joint use of certain transmission  facilities of IESU
and CIPCO.

IEC has  transmission  interconnections  at various  locations with eleven other
transmission owning utilities in the Midwest. These interconnections enhance the
overall  reliability  of the IEC  transmission  system  and  provide  access  to
multiple sources of economic and emergency power and energy.

IESU and IPC are full members of the Mid-Continent Area Power Pool (MAPP).  WP&L
is a member  of the MAPP  Regional  Transmission  Group.  MAPP is one of the ten
regional members of the North American Electric Reliability Council (NERC). Each
regional member of NERC is responsible  for maintaining  reliability in its area
through  coordination of planning and operations.  WP&L is also a full member of
the Mid-America  Interconnected Network, Inc. (MAIN), another regional member of
NERC.

In an effort to bring the  entire IEC system  under one  regional  organization,
while maintaining  flexibility in the face of rapid industry changes, IESU, WP&L
and IPC have  given  withdrawal  notices  to MAPP  and  WP&L  has  also  given a
withdrawal notice to MAIN. IEC's decision on what regional  organization to join
will be dependent upon the potential reorganization of some NERC regions and the
eventual  configuration of the independent  transmission company (ITC). Refer to
the "Utility Industry Outlook" section in Item 7. MD&A for a discussion of IEC's
ITC initiative.

Refer to Item 2.  "Properties"  for additional  information  regarding  electric
facilities.

Fuel

The average  cost of fuel per million  British  thermal  units  (Btu's) used for
electric  generation by IESU, WP&L and IPC for the years 1998, 1997 and 1996 was
as follows:

                           Nuclear        Coal        All Fuels
                         ------------  ------------  -------------
         IESU     - 1998   $ 0.605        $ 0.885     $  0.887
                  - 1997     0.650          0.958        0.945
                  - 1996     0.730          0.944        0.937
         WP&L     - 1998     0.450          1.171        1.085
                  - 1997     0.450          1.175        1.129
                  - 1996     0.469          1.155        1.077

         IPC      - 1998       N/A          1.287        1.344
                  - 1997       N/A          1.340        1.414
                  - 1996       N/A          1.437        1.484
                    

Refer to the Electric Operating Information tables for details on the sources of
electric energy for IEC, IESU, WP&L and IPC during 1994 to 1998.

Coal

IEC  estimates its 1999 coal  requirements  will be  approximately  12.3 million
tons. Alliant Energy Corporate


                                       8
<PAGE>

Services,  as an agent of IESU, WP&L and IPC, has negotiated  several agreements
with different  suppliers to ensure that a specified supply of coal is available
at known prices for the respective  utilities for calendar years 1999, 2000, and
2001. These contracts,  in combination with existing  agreements,  provide for a
portfolio  of coal  supplies  that cover  approximately  95%, 55% and 40% of the
three  utilities'  estimated  coal supply needs for the years 1999 through 2001,
respectively.  Management  believes this portfolio of coal supplies represents a
reasonable  balance  between  ensuring an adequate  supply and ensuring that the
prices paid for coal is at the then current  market  conditions.  Remaining coal
requirements  will be met from either future  contracts or purchases in the spot
market.

The majority of the coal utilized by IEC is from the Wyoming Powder River Basin.
A majority of this coal is  transported  by rail-car  directly  from  Wyoming to
IEC's generating facilities,  with the remainder transported from Wyoming to the
Mississippi River by rail-car and then via barges to the final  destination.  As
protection against interruptions in coal deliveries,  IEC maintains average coal
inventories at its generating stations of 44 to 71 days.

IEC  anticipates  that its average fossil fuel costs will likely increase in the
future due to cost  escalation  provisions in existing  coal and  transportation
contracts.  In  addition,  fuel  sulfur  restrictions  and  other  environmental
limitations have increased significantly and may increase further the difficulty
and cost of  obtaining an adequate  coal supply.  See Note 1(k) of the "Notes to
Consolidated  Financial  Statements"  for a discussion  of the  utilities'  rate
recovery of fuel costs.

Refer to Note  12(b) in the "Notes to  Consolidated  Financial  Statements"  for
details relating to IEC's coal purchase commitments.

Purchased Power

During the year ended December 31, 1998, approximately 26.7%, 26.8% and 41.7% of
IESU's,  WP&L's and IPC's total kilowatt-hour (KWH) requirements,  respectively,
were  met  through  purchased  power.  Refer  to Note  12(b)  in the  "Notes  to
Consolidated  Financial  Statements"  for details  relating  to  purchase  power
commitments.

Nuclear

General

IEC owns interests in two nuclear  facilities,  Kewaunee and DAEC.  Kewaunee,  a
532-megawatt  pressurized  water reactor plant, is operated by Wisconsin  Public
Service  Corporation  (WPSC) and is jointly owned by WPSC (41.2%),  WP&L (41.0%)
and Madison Gas & Electric  Company (MG&E) (17.8%).  See Item 7. MD&A "Liquidity
and Capital  Resources - Nuclear  Facilities"  for a discussion  of an agreement
between WPSC and MG&E  regarding  future  ownership  of  Kewaunee.  The Kewaunee
operating  license expires in 2013.  DAEC, a 535-megawatt  boiling water reactor
plant, is operated by IESU which has a 70% ownership  interest in the plant. The
DAEC operating license expires in 2014.

As  co-owners  of nuclear  generating  units,  IESU and WP&L are  subject to the
jurisdiction  of  the  NRC.  The  NRC  has  broad   supervisory  and  regulatory
jurisdiction   over  the  construction   and  operation  of  nuclear   reactors,
particularly   with   regard  to  public   health,   safety  and   environmental
considerations.

The operation and design of nuclear power plants is under constant review by the
NRC. IESU and WP&L have complied with and are currently  complying  with all NRC
requests  for data  relating  to these  reviews.  As a result  of such  reviews,
further changes in operations or modifications of equipment may be required, the
cost of which  cannot  currently  be  estimated.  IESU's and WP&L's  anticipated
nuclear-related  construction  expenditures for 1999-2003 are  approximately $46
million and $37 million, respectively. Refer to "Liquidity and Capital Resources
- Capital Requirements" in Item 7. MD&A for a further discussion.

DAEC received the highest score  possible (1 on a 3-point scale) in the areas of
plant  operations,  engineering and plant support and a "good" rating (2) in the
area of  maintenance  during the NRC's last  Systematic  Assessment  of Licensee
Performance (SALP) report in 1997.  Kewaunee received the highest score possible
(1) in the area of  maintenance  and 


                                       9
<PAGE>


a "good"  rating  (2) in the areas of plant  operations,  engineering  and plant
support during the NRC's last SALP report, which was also received in 1997.

Under  the  Price-Anderson  Amendments  Act of 1988  (1988  Act),  IESU and WP&L
currently have the benefit of public  liability  coverage which would compensate
the public in the event of an accident at a commercial  nuclear power plant. The
1988 Act permits such coverage to rise with  increased  availability  of nuclear
insurance  and the  changing  number of  operating  nuclear  plants  subject  to
retroactive  premium  assessments.  The 1988 Act provides for inflation indexing
(Consumer Price Index every fifth year) of the retroactive premium assessments.

As an outgrowth of the Three Mile Island Nuclear Power Plant experience, nuclear
plant owners have  initiated a cooperative  insurance  program  designed to help
cover business interruption expenses for participating  utilities arising from a
possible  nuclear plant event.  IESU and WP&L are  participants in this program.
This type of  insurance  is an  industry  response  intended  to lessen the cost
burden on customers in the event of a lengthy plant shutdown.

In the unlikely event of a catastrophic  loss at Kewaunee or DAEC, the amount of
insurance   available   may  not  be   adequate   to  cover   property   damage,
decontamination and premature  decommissioning.  Uninsured losses, to the extent
not  recovered  through  rates,  would be borne by WP&L or IESU and could have a
material  adverse effect on their financial  position and results of operations.
Refer to Note 12(e) of the "Notes to  Consolidated  Financial  Statements" for a
further discussion of the nuclear insurance issue.

Kewaunee

WPSC purchases uranium concentrates,  conversion services,  enrichment services,
and  fabrication  services for nuclear  fuel  assemblies  at Kewaunee.  New fuel
assemblies  replace used  assemblies  that are removed from the reactor every 18
months  and placed in  storage  at the plant  site  pending  removal by the DOE.
Uranium concentrates, conversion services, and enrichment services are purchased
at spot market prices,  through a bid process, or using existing contracts.  Two
contracts are in place to provide  conversion  services for nuclear fuel reloads
in 2000 and 2001. A fixed  quantity of enrichment  services are  contracted  for
through the year 2004.  Additional  enrichment services will be acquired under a
contract  which is in effect  for the life of the plant or by  purchases  on the
spot market. Fuel fabrication  services are contracted well into the next decade
and  contain   contractual   clauses  covering  force  majeure  and  termination
provisions.  A uranium inventory policy requires that sufficient inventory exist
for up to two reactor  reloads of fuel. As of December 31, 1998,  947,000 pounds
of yellowcake or its equivalent were held in inventory for the plant.

If, for any  reason,  the plant were forced to suspend  operations  permanently,
fuel-related  obligations  are as follows:  1) there are no financial  penalties
associated with the present uranium  supply,  conversion  service and enrichment
agreements,  and 2) the fuel  fabrication  contract  contains  force majeure and
termination for convenience  provisions.  As of the end of 1998,  WP&L's maximum
exposure would not be expected to exceed $273,000.  It is expected that, in such
a case, uranium inventories could be sold on the spot market.

DAEC

A contract for enrichment  services and enriched uranium product was signed with
the United  States  Enrichment  Corporation  (USEC) in 1995.  This  contract  is
effective  through 2003.  Fabrication of the nuclear fuel is being  performed by
General  Electric  Company for fuel  through the 2011  refueling  of DAEC.  IESU
believes  that an ample  supply  of  uranium  and  enrichment  services  will be
available  in the future and intends to  purchase  such  uranium and  enrichment
services as  necessary  on the spot market  and/or via medium  length (less than
five  years)  contracts  to  supplement  its  current  contracts  and  meet  its
generation requirements.

Additional  discussions of various other nuclear issues relating to Kewaunee and
DAEC are included in Item 7. MD&A and the "Notes to the  Consolidated  Financial
Statements."


                                       10
<PAGE>


Power Supply

Refer to "Other  Matters - Power  Supply"  in Item 7. MD&A for a  discussion  of
power supply concerns.

Electric Environmental Matters

IEC is regulated  in  environmental  protection  matters by a number of federal,
state  and  local  agencies.  Such  regulations  are the  result  of a number of
environmental  protection laws passed by the U.S.  Congress,  state legislatures
and local  governments and enforced by federal,  state and county agencies.  The
laws impacting IEC's  operations  include the Clean Water Act; Clean Air Act, as
amended by the Clean Air Act Amendments of 1990; National  Environmental  Policy
Act;   Toxic   Substances   Control  Act;   Emergency   Planning  and  Community
Right-to-Know  Act;  Resource  Conservation  and  Recovery  Act;   Comprehensive
Environmental  Response,  Compensation  and Liability Act of 1980  (CERCLA),  as
amended by the Superfund  Amendments and  Reauthorization  Act of 1986;  Nuclear
Waste Policy Act of 1982;  Occupational  Safety and Health Act;  National Energy
Policy Act of 1992;  and a number of others.  IEC  regularly  secures and renews
federal,  state and local  permits to comply with the  environmental  protection
laws and  regulations.  Costs  associated with such compliance have increased in
recent years and are expected to increase moderately in the future.

Refer to  "Other  Matters  -  Environmental"  in Item 7. MD&A and Note 12 of the
"Notes  to  Consolidated  Financial  Statements"  for a  further  discussion  of
electric environmental matters.


                                       11
<PAGE>

<TABLE>
<CAPTION>

Interstate Energy Corporation

-------------------------------------------------------------------------------------------------------------------------
                                                              1998         1997         1996         1995         1994
-------------------------------------------------------------------------------------------------------------------------
Electric Operating Information (Utility Only)
-------------------------------------------------------------------------------------------------------------------------
Operating Revenues (000s):
<S>                                                       <C>          <C>          <C>          <C>          <C>     
     Residential                                            $519,687     $509,207     $494,649     $498,071     $469,217
     Commercial                                              330,693      320,308      308,480      302,889      296,329
     Industrial                                              477,241      455,912      428,726      412,711      401,097
                                                        -----------------------------------------------------------------
       Total from ultimate customers                       1,327,621    1,285,427    1,231,855    1,213,671    1,166,643
     Sales for resale                                        199,128      192,346      181,365      143,726      136,839
     Other                                                    40,693       37,980       27,155       24,271       27,322
                                                        -----------------------------------------------------------------
       Total                                              $1,567,442   $1,515,753   $1,440,375   $1,381,668   $1,330,804
                                                        =================================================================
-------------------------------------------------------------------------------------------------------------------------
                                                        
Electric Sales (000s MWH) :
     Residential                                               6,674        6,699        6,668        6,705        6,276
     Commercial                                                5,095        4,996        4,878        4,816        4,578
     Industrial                                               12,718       12,320       11,666       11,360       10,870
                                                        -----------------------------------------------------------------
       Total from ultimate customers                          24,487       24,015       23,212       22,881       21,724
     Sales for resale                                          7,189        6,768        7,459        5,001        4,757
     Other                                                       158          161          161          163          182
                                                        -----------------------------------------------------------------
       Total                                                  31,834       30,944       30,832       28,045       26,663
                                                        =================================================================
-------------------------------------------------------------------------------------------------------------------------
Customers (End of Period):
     Residential                                             773,724      764,604      755,085      744,440      733,866
     Commercial                                              128,430      126,959      125,426      123,786      122,217
     Industrial                                                2,618        2,555        2,472        2,418        2,362
     Other                                                     3,267        3,281        3,207        2,749        2,734
                                                        -----------------------------------------------------------------
       Total                                                 908,039      897,399      886,190      873,393      861,179
                                                        =================================================================
-------------------------------------------------------------------------------------------------------------------------
Other Selected Electric Data:
     System capacity at time of peak demand (MW):
          Company-owned                                        5,231        5,257        5,192        5,077        4,960
          Firm purchases and sales (net)                         618          660          583          547          603
                                                        -----------------------------------------------------------------
            Total (1)                                          5,849        5,917        5,775        5,624        5,563
                                                        =================================================================
     Maximum peak hour demand (MW) (1)                         5,228        5,045        4,953        5,032        4,714
     Sources of electric energy (000s MWH):
          Steam                                               19,119       17,423       17,014       17,606       16,739
          Nuclear                                              4,201        3,874        4,054        4,166        4,501
          Purchases                                           10,033       10,660       10,895        7,416        6,454
          Other                                                  504          565          392          349          289
                                                        -----------------------------------------------------------------
            Total                                             33,857       32,522       32,355       29,537       27,983
                                                        =================================================================

     Revenue per KWH from ultimate customers (in
     cents)                                                     5.42        5.35          5.31         5.30         5.37
-------------------------------------------------------------------------------------------------------------------------

(1) Figures  represent a summation of the individual  peak demands of IESU, WP&L
    and IPC thus they do not  represent  the  coincident  peak of the entire IEC
    system.

</TABLE>

                                       12
<PAGE>

<TABLE>
<CAPTION>

IES Utilities Inc.

-----------------------------------------------------------------------------------------------------------------------
                                                           1998          1997         1996         1995         1994
-----------------------------------------------------------------------------------------------------------------------
Electric Operating Information
-----------------------------------------------------------------------------------------------------------------------
Operating Revenues (000s):
<S>                                                       <C>          <C>          <C>          <C>          <C>     
     Residential                                          $232,662     $227,496     $213,838     $217,351     $200,686
     Commercial                                            168,672      162,626      153,163      150,722      146,119
     Industrial                                            181,369      177,890      160,477      148,529      143,965
                                                     ------------------------------------------------------------------
       Total from ultimate customers                       582,703      568,012      527,478      516,602      490,770
     Sales for resale                                       45,453       25,719       37,384       35,356       37,271
     Other                                                  11,267       10,539        9,411        8,513        9,286
                                                     ------------------------------------------------------------------
       Total                                              $639,423     $604,270     $574,273     $560,471     $537,327
                                                     ==================================================================
-----------------------------------------------------------------------------------------------------------------------
Electric Sales (000s MWH):
     Residential                                             2,661        2,682        2,642        2,690        2,494
     Commercial                                              2,465        2,378        2,315        2,296        2,148
     Industrial                                              4,872        4,743        4,436        4,248        4,015
                                                     ------------------------------------------------------------------
       Total from ultimate customers                         9,998        9,803        9,393        9,234        8,657
     Sales for resale                                        1,763          794        1,746        1,586        1,705
     Other                                                      42           43           46           50           67
                                                     ------------------------------------------------------------------
       Total                                                11,803       10,640       11,185       10,870       10,429
                                                     ==================================================================
-----------------------------------------------------------------------------------------------------------------------
Customers (End of Period):
     Residential                                           290,348      288,387      286,315      284,154      281,653
     Commercial                                             49,489       48,962       48,593       48,196       47,595
     Industrial                                                705          711          703          695          706
     Other                                                     479          442          437          444          451
                                                     ------------------------------------------------------------------
       Total                                               341,021      338,502      336,048      333,489      330,405
                                                     ==================================================================
-----------------------------------------------------------------------------------------------------------------------
Other Selected Electric Data:
     System capacity at time of peak demand (MW):
          Company-owned                                      1,858        1,892        1,864        1,873        1,741
          Firm purchases and sales (net)                       241          232          232          207          280
                                                     ------------------------------------------------------------------
            Total                                            2,099        2,124        2,096        2,080        2,021
                                                     ==================================================================
     Maximum peak hour demand (MW)                           1,965        1,854        1,833        1,824        1,780
     Sources of electric energy (000s MWH):
          Steam                                              6,417        5,499        4,936        5,759        5,509
          Nuclear                                            2,682        2,904        2,753        2,611        2,876
          Purchases                                          3,385        2,789        4,177        3,013        2,647
          Other                                                199          164           44           24           22
                                                     ------------------------------------------------------------------
            Total                                           12,683       11,356       11,910       11,407       11,054
                                                     ==================================================================
     Revenue per KWH from ultimate customers (in                                                           
     cents)                                                   5.83         5.79         5.62         5.59         5.67
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       13
<PAGE>

<TABLE>
<CAPTION>

Wisconsin Power and Light Company

-----------------------------------------------------------------------------------------------------------------------------
                                                                 1998         1997         1996         1995          1994
-----------------------------------------------------------------------------------------------------------------------------
Electric Operating Information
-----------------------------------------------------------------------------------------------------------------------------
Operating Revenues (000s):
<S>                                                            <C>          <C>          <C>           <C>          <C>     
     Residential                                               $198,770     $199,633     $201,690      $199,850     $194,242
     Commercial                                                 108,724      107,132      105,319       102,129      101,382
     Industrial                                                 162,771      152,073      143,734       140,562      140,487
                                                           ------------------------------------------------------------------
       Total from ultimate customers                            470,265      458,838      450,743       442,541      436,111
     Sales for resale                                           128,536      160,917      131,836        97,350       86,400
     Other                                                       15,903       14,388        6,903         6,433        9,236
                                                           -----------------------------------------------------------------
       Total                                                    614,704     $634,143     $589,482      $546,324     $531,747
                                                           ==================================================================
-----------------------------------------------------------------------------------------------------------------------------
Electric Sales (000s MWH) :
     Residential                                                  2,964        2,974        2,980         2,938        2,777
     Commercial                                                   1,898        1,878        1,814         1,773        1,688
     Industrial                                                   4,493        4,256        3,986         3,873        3,765
                                                           ------------------------------------------------------------------
       Total from ultimate customers                              9,355        9,108        8,780         8,584        8,230
     Sales for resale                                             4,492        5,824        5,246         3,109        2,574
     Other                                                           59           60           57            54           55
                                                           ------------------------------------------------------------------
       Total                                                     13,906       14,992       14,083        11,747       10,859
                                                           ==================================================================
-----------------------------------------------------------------------------------------------------------------------------
Customers (End of Period):
     Residential                                                350,334      343,637      336,933       329,643      322,924
     Commercial                                                  47,857       46,823       45,669        44,730       43,793
     Industrial                                                     909          855          815           795          776
     Other                                                        1,860        1,875        1,820         1,342        1,298
                                                           ------------------------------------------------------------------
       Total                                                    400,960      393,190      385,237       376,510      368,791
                                                           ==================================================================
-----------------------------------------------------------------------------------------------------------------------------
Other Selected Electric Data:
     System capacity at time of peak demand (MW):
          Company-owned                                           2,345        2,337        2,300         2,176        2,193
          Firm purchases and sales (net)                            181          145           68            57           40
                                                           ------------------------------------------------------------------
            Total                                                 2,526        2,482        2,368         2,233        2,233
                                                           ==================================================================
     Maximum peak hour demand (MW)                                2,292        2,253        2,124         2,197        2,002
     Sources of electric energy (000s MWH):
          Steam                                                   8,916        8,587        8,687         8,323        7,821
          Nuclear                                                 1,519          970        1,301         1,555        1,625
          Purchases                                               3,923        5,744        4,494         2,227        1,786
          Other                                                     288          355          303           308          252
                                                           -------------------------------------------------------------------
            Total                                                14,646       15,656       14,785        12,413       11,484
                                                           ==================================================================

     Revenue per KWH from ultimate customers (in cents)            5.03         5.04         5.13          5.16         5.30
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       14
<PAGE>


GAS UTILITY OPERATIONS

General

As  of  December  31,  1998,   IESU  provided  retail  natural  gas  service  to
approximately  179,000 customers in approximately 212 communities in Iowa. As of
December 31, 1998,  WP&L provided  retail  natural gas service to  approximately
159,000  customers in 233 communities in southern and central  Wisconsin and one
county in northern  Illinois.  IPC  provides  natural gas service in 14 counties
located in northern and northeastern  Iowa,  southern Minnesota and northwestern
Illinois.  As of December 31, 1998,  IPC provided  retail natural gas service to
approximately 50,000 customers in 41 communities.

The percentages of utility operating  revenues and utility operating income from
gas utility  operations for each individual  company for the year ended December
31, 1998 were as follows:

                                    Percent of        Percent of
                                     Operating        Operating
                                     Revenues           Income
                                   -------------     -------------
                      IESU             17.5%              4.9%
                      WP&L             15.3               3.9
                      IPC              12.0              10.5

The gas  sales of IESU,  WP&L and IPC  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 winter heating season.

IESU Gas Supplies

Contracts  with  the  pipelines  subsequent  to FERC  Order  636  are  comprised
primarily of firm  transportation,  firm  storage and  no-notice  service.  Firm
transportation  contracts  grant IESU access to firm pipeline  capacity which is
used to  transport  gas supplies  from  non-pipeline  suppliers  and from leased
storage on peak days.  Firm storage  service  allows IESU to purchase gas during
off-peak  periods and place this gas in an account with the pipelines.  When the
gas is needed for peak day deliveries,  IESU requests and the pipelines  deliver
the gas back on a firm basis.  No-notice  service  grants IESU the right to take
more or less  gas  than is  actually  scheduled  up to the  level  of  no-notice
service. No-notice service takes the form of transportation balancing or storage
service depending on the pipeline.

IESU's firm transportation  contract portfolio provides a maximum daily delivery
capability of 278,852 dekatherms (Dth) per day of natural gas as follows:

         Northern Natural         Natural Gas Pipeline
           Gas Company                Co. of America
              (NNG)                      (NGPL)              ANR Pipeline (ANR)
         ----------------         --------------------       -----------------
           143,996 Dth                 74,119 Dth                60,737 Dth

Gas supply is purchased from a variety of non-pipeline  suppliers located in the
United  States and Canada  having  access to  virtually  all major  natural  gas
producing regions. IESU has firm gas supply agreements with various non-pipeline
suppliers.  These gas supply  contracts have expiration dates ranging from three
months to almost three years. IESU's tariffs provide for subsequent  adjustments
to its natural gas rates for  changes in the cost of natural gas  purchased  for
resale.

Refer to Note 12(b) of IESU's "Notes to Consolidated Financial Statements" for a
discussion of IESU's purchase gas commitments.


                                       15
<PAGE>

WP&L Gas Supplies

Prior to 1995,  WP&L passed on its costs incurred from natural gas suppliers and
pipeline companies on a dollar-for-dollar  basis to its customers.  In 1995, the
PSCW approved implementation of a performance-based rate mechanism for Wisconsin
gas customers.  Under this mechanism,  fluctuations in the commodity cost of gas
above or below a  prescribed  commodity  price  index will  increase or decrease
WP&L's margin on gas sales.  Both benefits and exposures are subject to customer
sharing  provisions.  Effective with the UR-110 rate order on April 29, 1997, to
the extent WP&L purchases its gas supply below the index price, WP&L will retain
40% of the  savings.  The balance of the savings is returned to  customers.  The
same  sharing  mechanism  exists for gas that is  purchased  at a cost above the
index price.

In providing gas commodity  service to retail gas customers,  WP&L administers a
diversified  portfolio  of  transportation  contracts  with ANR and NNG allowing
access  to gas  supplies  located  in  the  United  States  and  Canada.  WP&L's
transportation  contracts provide a maximum daily delivery capability of 242,580
Dth per day of natural gas as follows:

             ANR                   NNG             Non-Traditional
             ---                   ---             ---------------
           122,124 Dth          75,056 Dth            45,400 Dth

Two non-traditional arrangements provide WP&L with gas delivered directly to its
"city gate"  using the  vendors'  transportation  contract  with the  interstate
pipelines serving WP&L.

WP&L's  contracts also allow access to gas stored in underground  storage fields
in the states of Michigan,  New Mexico and Oklahoma. Gas purchased in the summer
and  delivered in the winter  comprise  approximately  24% of WP&L's  annual gas
requirements.

WP&L maintains  purchase  agreements  with over 50 suppliers of natural gas from
all gas  producing  regions of the U.S. and Canada.  These include six contracts
providing for long-term gas deliveries (i.e., with terms ranging from six months
to ten years). In addition to its direct purchase and sales of natural gas, WP&L
provided  transportation  service to 185 customers who purchased  their own gas,
pursuant to WP&L's transportation  tariffs. Refer to Note 12(b) of WP&L's "Notes
to  Consolidated  Financial  Statements" for a discussion of WP&L's purchase gas
commitments.

IPC Gas Supplies

Contracts  with  the  pipelines  subsequent  to FERC  Order  636  are  comprised
primarily of firm  transportation,  firm storage and firm no-notice service. IPC
purchases  pipeline  transportation  capacity from NNG, NGPL and Northern Border
Pipeline  Company (NBPL).  During 1998, IPC purchased  natural gas supplies from
non-pipeline suppliers at market responsive rates. FERC continues to approve the
tariffs of NNG,  NGPL, and NBPL  regarding  transportation  capacity and storage
rates, subject to change as rate cases are filed.

IPC's  portfolio  of firm  transportation  contracts  provide  a  maximum  daily
delivery capability of 79,745 Dth per day of natural gas as follows:

             NNG                          NGPL
             ---                          ----
          51,995 Dth                   27,750 Dth

IPC maintains gas supply agreements with various non-pipeline suppliers from all
gas  producing  areas of the U. S.  and  Canada.  These  include  two  long-term
contracts  for gas  deliveries  up to two years.  Gas is supplied by  producers,
marketers  and  brokers,  as well as from  storage  services,  to meet  the peak
heating season requirements.

IPC owns  propane-air  mix gas plants in Albert Lea,  Minnesota  and Clinton and
Mason City,  Iowa.  The daily output  capacities  are:  2,500 Dth, 4,000 Dth and
4,800 Dth, respectively.


                                       16
<PAGE>

IPC's tariffs  provide for  subsequent  adjustments to its natural gas rates for
changes in the cost of natural gas purchased for resale.

IESU's, WP&L's and IPC's gas supply commitments are all index-based.

Gas Environmental Matters

Refer to Note 12 of the  "Notes  to  Consolidated  Financial  Statements"  for a
discussion of gas environmental matters.




                                       17
<PAGE>

<TABLE>
<CAPTION>

Interstate Energy Corporation

------------------------------------------------------------------------------------------------------------------------------
                                                                  1998         1997         1996          1995         1994
------------------------------------------------------------------------------------------------------------------------------
Gas Operating Information (Utility Only)
------------------------------------------------------------------------------------------------------------------------------

Operating Revenues (000s):
<S>                                                             <C>          <C>           <C>          <C>          <C>     
     Residential                                                $175,603     $225,542      $216,268     $179,761     $179,694
     Commercial                                                   85,842      115,858       108,187       87,951       92,082
     Industrial                                                   20,204       27,393        27,569       30,462       40,427
     Transportation and other                                     13,941       25,114        23,931       21,952       12,396
                                                            ------------------------------------------------------------------
       Total                                                    $295,590     $393,907      $375,955     $320,126     $324,599
                                                            ==================================================================
------------------------------------------------------------------------------------------------------------------------------
Gas Sales (000s Dekatherms):
     Residential                                                  28,378       33,894        37,165       33,827       32,447
     Commercial                                                   17,760       21,142        22,613       20,599       20,219
     Industrial                                                    5,507        6,217         6,856        6,381        8,709
     Transportation and other                                     52,389       56,719        55,240       54,267      42,730
                                                            ------------------------------------------------------------------
       Total                                                     104,034      117,972       121,874      115,074      104,105
                                                                 
                                                            ==================================================================
------------------------------------------------------------------------------------------------------------------------------
Customers at End of Period (Excluding Transportation and Other):
     Residential                                                 342,586      337,956       331,919      326,005      319,628
     Commercial                                                   43,825       43,316        42,658       42,095       41,496
     Industrial                                                      982          963         1,022        1,059        1,058
                                                            ------------------------------------------------------------------
       Total                                                     387,393      382,235       375,599      369,159      362,182
                                                            ==================================================================
------------------------------------------------------------------------------------------------------------------------------
Other Selected Gas Data:
     Revenue per dekatherm sold
            (excluding transportation and other)                   $5.45        $6.02         $5.28        $4.90        $5.09
     Purchased gas costs per dekatherm sold
            (excluding transportation and other)                   $3.22        $4.23         $3.61        $3.31        $3.70
------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       18
<PAGE>

<TABLE>
<CAPTION>



IES Utilities Inc.

----------------------------------------------------------------------------------------------------------------------------
                                                                1998         1997         1996         1995          1994
----------------------------------------------------------------------------------------------------------------------------
Gas Operating Information
----------------------------------------------------------------------------------------------------------------------------
Operating Revenues (000s):
<S>                                                            <C>         <C>           <C>           <C>          <C>    
     Residential                                               $86,821     $110,663      $97,708       $84,562      $82,795
     Commercial                                                 39,928       54,383       46,966        40,390       40,912
     Industrial                                                 10,422       13,961       12,256         8,790       12,515
     Transportation and other                                    4,108        4,510        3,934         3,550        2,811
                                                          ------------------------------------------------------------------
       Total                                                  $141,279     $183,517     $160,864      $137,292     $139,033
                                                          ==================================================================
----------------------------------------------------------------------------------------------------------------------------
Gas Sales (000s Dekatherms):
     Residential                                                13,803       16,317       17,680        16,302       15,766
     Commercial                                                  8,272        9,602       10,323         9,534        9,298
     Industrial                                                  3,089        3,318        3,796         3,098        4,010
     Transportation and other                                   11,316       10,321       10,341        10,871        8,901
                                                          ------------------------------------------------------------------
       Total                                                    36,480       39,558       42,140        39,805       37,975
                                                          ==================================================================
---------------------------------------------------------------------------------------------------------------------------
Customers at End of Period (Excluding Transportation and Other):
     Residential                                               157,135      155,859      154,457       152,873      151,367
     Commercial                                                 21,530       21,431       21,364        21,193       21,053
     Industrial                                                    398          399          417           404          409
                                                          ------------------------------------------------------------------
        Total                                                  179,063      177,689      176,238       174,470      172,829
                                                          ==================================================================
----------------------------------------------------------------------------------------------------------------------------
Other Selected Gas Data:
     Revenue per dekatherm sold
          (excluding transportation and other)                   $5.45        $6.12        $4.94         $4.62        $4.69
     Purchased gas cost per dekatherm sold
          (excluding transportation and other)                   $3.36        $4.33        $3.27         $3.15        $3.28
----------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       19
<PAGE>

<TABLE>
<CAPTION>


Wisconsin Power and Light Company
                                                                               Years Ended December 31,
-----------------------------------------------------------------------------------------------------------------------------
                                                                 1998         1997         1996         1995          1994
-----------------------------------------------------------------------------------------------------------------------------
Gas Operating Information
-----------------------------------------------------------------------------------------------------------------------------
Operating Revenues (000s):
<S>                                                            <C>          <C>          <C>           <C>          <C>    
     Residential                                                $65,173      $84,513      $90,382       $70,382      $71,555
     Commercial                                                  33,898       45,456       46,703        35,411       38,516
     Industrial                                                   5,896        8,378       11,410        17,984       22,629
     Transportation and other                                     6,770       17,536       17,132        15,388        6,946
                                                           ------------------------------------------------------------------
       Total                                                   $111,737     $155,883     $165,627      $139,165     $139,646
                                                           ==================================================================
-----------------------------------------------------------------------------------------------------------------------------
Gas Sales (000s Dekatherms):
     Residential                                                 10,936       12,770       14,297        12,690       11,956
     Commercial                                                   7,285        8,592        9,167         8,245        8,128
     Industrial                                                   1,422        1,714        1,997         2,144        3,113
     Transportation and other                                    12,948       17,595       18,567        16,870        9,279
                                                           ------------------------------------------------------------------
       Total                                                     32,591       40,671       44,028        39,949       32,476
                                                           ==================================================================
-----------------------------------------------------------------------------------------------------------------------------
Customers at End of Period (Excluding Transportation and Other):
     Residential                                                141,065      137,827      133,580       129,576      124,938
     Commercial                                                  17,058       16,653       16,083        15,724       15,270
     Industrial                                                     506          488          529           566          561
                                                           ------------------------------------------------------------------
       Total                                                    158,629      154,968      150,192       145,866      140,769
                                                           ==================================================================
-----------------------------------------------------------------------------------------------------------------------------
Other Selected Gas Data:
     Revenue per dekatherm sold
           (excluding transportation and other)                   $5.34        $6.00        $5.83         $5.36        $5.72
     Purchased gas cost per dekatherm sold
           (excluding transportation and other)                   $3.13        $4.30        $4.12         $3.64        $3.82
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       20
<PAGE>



D. INFORMATION RELATING TO NONREGULATED OPERATIONS

A description of Alliant Energy Resources' businesses is as follows:

Alliant Energy  Resources is a holding company whose  wholly-owned  subsidiaries
include  ISCO,  International,  Investments,  Transportation,  HPI  and  Capital
Square.  Alliant Energy  Resources also has a 50% ownership  interest in a joint
venture with Cargill Incorporated, named Cargill-Alliant,  to market electricity
and risk management services to wholesale customers.

ISCO is a holding  company  for Alliant  Energy  Resources'  industrial  service
companies whose primary  wholly-owned  subsidiaries  include  Whiting  Petroleum
Corporation (Whiting),  Industrial Energy Applications, Inc. (IEA) and Heartland
Environmental Holding Company (HEHC). Whiting is organized to purchase,  develop
and  produce  crude  oil and  natural  gas.  IEA  offers  commodities-based  and
facilities-based energy services for customers,  including supplying natural gas
and electricity, standby generation,  cogeneration, steam production and propane
air systems. IEA also provides energy consulting services for customers and owns
a natural  gas  gathering  system  in Texas.  HEHC is the  holding  company  for
environmental and engineering services activities.  HEHC's primary subsidiary is
RMT, Inc. (RMT). RMT is a Madison, Wisconsin based environmental and engineering
consulting  company that serves  clients  nationwide  in a variety of industrial
market segments.  The most significant of these markets are chemical  companies,
pulp  and  paper  processors,  oil  and  gas  providers,   foundries  and  other
manufacturers.  RMT  specializes  in  consulting  on solid and  hazardous  waste
management,  ground  water  quality  protection,  industrial  design and hygiene
engineering, and air and water pollution control.

International is a holding company for Alliant Energy  Resources'  international
investments whose wholly-owned  subsidiaries  include Alliant  International New
Zealand  Limited  (New  Zealand),   Grandelight   Holding  Ltd.   (Grandelight),
Interstate  Energy  Corporation  Pte Ltd.  (IECP),  Alliant Energy Brazil,  Inc.
(Brazil) and Alliant  Energy de Mexico L.L.C.  (Mexico).  New Zealand has equity
investments  in several  New Zealand  utility  entities.  Grandelight  has a 65%
equity  investment in Peak Pacific  Investment  Company PTE Ltd. (Peak Pacific).
Peak Pacific has been formed to develop  investment  opportunities in generation
infrastructure  projects  in  China.  IECP has a 50%  equity  investment  in two
individual  cogeneration facilities in China. Brazil and Mexico have been formed
for the purposes of potential investments in these two respective countries.

Investments is a holding company whose primary wholly-owned subsidiaries include
Iowa  Land and  Building  Company  (Iowa  Land)  and  Village  Lakeshares,  Inc.
(Lakeshares).  Iowa  Land is  organized  to  pursue  real  estate  and  economic
development  activities  in IESU's  service  territory.  Lakeshares is a holding
company for resort properties in Iowa.  Investments also has direct and indirect
equity  interests in various real estate  ventures,  primarily  concentrated  in
Cedar Rapids, and holds other passive  investments  including an equity interest
in McLeodUSA Inc. (McLeod).  At December 31, 1998, IEC's investment in the stock
of McLeod, a telecommunications  company, was valued at $320.3 million (based on
a December  31, 1998  closing  price of $31.25 per share and  compared to a cost
basis of $29.1 million). Refer to Note 5 of the "Notes to Consolidated Financial
Statements" for a further discussion of the McLeod investment.

Transportation is a holding company whose wholly-owned  subsidiaries include the
Cedar Rapids and Iowa City Railway Company  (CRANDIC) and IES Transfer  Services
Inc.  (Transfer).  CRANDIC is a short-line railway which renders freight service
between Cedar Rapids and Iowa City.  Transfer's  operations include transloading
and storage  services.  Transportation  also has a 75% equity  investment in IEI
Barge Services,  Inc.  (Barge) which provides barge terminal and hauling service
on the Mississippi River.

HPI,   formed  in  1988,  is  responsible  for  performing   asset   management,
facilitating  the  development  of and  financing  of high  quality,  affordable
housing in Wisconsin and the Midwest.  HPI has a majority  ownership interest in
60 such properties.

Capital Square was  incorporated in 1992 to provide mortgage banking services to
facilitate  HPI's  development and financing  efforts in the affordable  housing
market.


                                       21
<PAGE>


ITEM 2.  PROPERTIES

WP&L

WP&L's  principal  electric  generating  stations at December 31, 1998,  were as
follows:
<TABLE>
<CAPTION>

                    Name and Location                          Major Fuel              1998 Summer Capability
                        of Station                                Type                      in Kilowatts
-----------------------------------------------------------   --------------    --------------------------------------
<S>                                                           <C>                    <C>              <C>
    Kewaunee Nuclear Power Plant, Kewaunee, WI                Nuclear                                   204,200   (1)

    Rock River Generating Station, Janesville, WI             Coal                   164,000
    Nelson Dewey Generating Station, Cassville, WI            Coal                   226,000
    Edgewater Generating Station #3, Sheboygan, WI            Coal                    76,000
    Edgewater Generating Station #4, Sheboygan, WI            Coal                   237,300  (2)
    Edgewater Generating Station #5, Sheboygan, WI            Coal                   306,000  (3)
    Columbia Energy Center, Portage, WI                       Coal                   494,400  (4)
                                                                                -------------
          Total Coal                                                                                  1,503,700

    Blackhawk Generating Station, Beloit, WI                  Gas                     58,000
    Rock River Combustion Turbine, Janesville, WI             Gas and Oil            148,000
    South Fond du Lac Combustion Turbine
        Units 2 and 3, Fond du Lac, WI                        Gas and Oil            169,000
    Sheepskin Combustion Turbine, Edgerton, WI                Gas and Oil             37,000
                                                                                -------------
          Total Gas and Oil                                                                             412,000

    Kilbourn Hydro Plant, Wisconsin Dells, WI                 Hydro                    9,000
    Prairie du Sac Hydro Plant, Prairie du Sac, WI            Hydro                   30,000
    Petenwell/Castle Rock Hydro Plants,
        Wisconsin Rapids, WI                                  Hydro                   13,300  (5)
    Shawano Hydro, Shawano, WI                                Hydro                      409
                                                                                -------------
          Total Hydro                                                                                    52,709
                                                                                                    -------------

        Total generating capability                                                                   2,172,609
                                                                                                    =============

        (1) Represents  WP&L's  41%  ownership   interest  in  this  498,000  Kw
            generating station. The plant is operated by WPSC.
        (2) Represents  WP&L's  68.2%  ownership  interest  in this  348,000  Kw
            generating station. The plant is operated by WP&L.
        (3) Represents  WP&L's  75%  ownership   interest  in  this  408,000  Kw
            generating station. The plant is operated by WP&L.
        (4) Represents  WP&L's  46.2%  ownership  interest in this  1,070,000 Kw
            generating station. The plant is operated by WP&L.
        (5) Represents  WP&L's 33.3% ownership  interest in this 40,000 Kw hydro
            plant. The plant is operated by Wisconsin River Power Company.
</TABLE>

WP&L owns 2,771 miles of electric transmission lines and 375 substations located
adjacent to the communities served, of which substantially all are in Wisconsin.
Substantially  all of WP&L's  facilities  are  subject  to the lien of its First
Mortgage Bond indenture and are suitable for their intended use.



                                       22
<PAGE>



IESU

IESU's  principal  electric  generating  stations at December 31, 1998,  were as
follows:
<TABLE>
<CAPTION>

                    Name and Location                          Major Fuel              1998 Summer Capability
                        of Station                                Type                      in Kilowatts
-----------------------------------------------------------   -------------     --------------------------------------
<S>                                                           <C>                    <C>              <C>
    Duane Arnold Energy Center, Palo, Iowa                    Nuclear                                   364,000   (1)

    Ottumwa Generating Station, Ottumwa, Iowa                 Coal                   324,000  (2)
    Prairie Creek Station, Cedar Rapids, Iowa                 Coal                   212,500
    Sutherland Station, Marshalltown, Iowa                    Coal                   139,000
    Sixth Street Station, Cedar Rapids, Iowa                  Coal                    65,000
    Burlington Generating Station, Burlington, Iowa           Coal                   200,000
    George Neal Unit 3, Sioux City, Iowa                      Coal                   144,200  (3)
                                                                                -------------
          Total Coal                                                                                  1,084,700

    Peaking Turbines, Marshalltown, Iowa                      Oil                    216,400
    Centerville Combustion Turbines, Centerville, Iowa        Oil                     62,000
    Diesel Stations, all in Iowa                              Oil                      8,300
                                                                                -------------
          Total Oil                                                                                     286,700

    Grinnell Station, Grinnell, Iowa                          Gas                     30,000
    Agency Street Combustion Turbines,
        West Burlington, Iowa                                 Gas                     76,700
    Burlington Combustion Turbines, Burlington, Iowa          Gas                     68,000
    Red Cedar Combustion Turbine, Cedar Rapids, IA            Gas                     22,700
                                                                                -------------
          Total Gas                                                                                     197,400
                                                                                                    -------------

        Total generating capability                                                                   1,932,800
                                                                                                    =============

        (1) Represents  IESU's  70%  ownership   interest  in  this  520,000  Kw
            generating station. The plant is operated by IESU.
        (2) Represents  IESU's  48%  ownership   interest  in  this  675,000  Kw
            generating station. The plant is operated by IESU.
        (3) Represents  IESU's  28%  ownership   interest  in  this  515,000  Kw
            generating station which is operated by MidAmerican Energy Company.
</TABLE>

The  transmission  lines  of IESU,  operating  from  34,000  to  345,000  volts,
approximated 4,440 circuit miles (substantially all located in Iowa). IESU owned
580 substations (substantially all located in Iowa).

IESU's  principal  properties  are suitable for their  intended use and are held
subject to liens of indentures relating to its bonds.


                                       23
<PAGE>


IPC

IPC's  principal  electric  generating  stations at December 31,  1998,  were as
follows:
<TABLE>
<CAPTION>

                    Name and Location                          Major Fuel              1998 Summer Capability
                        of Station                                Type                      in Kilowatts
-----------------------------------------------------------   --------------    --------------------------------------
<S>                                                           <C>                    <C>              <C>
    Dubuque Units 2, 3 and 4, Dubuque, IA                     Coal                    78,000
    M. L. Kapp Plant Units 1 and 2, Clinton, IA               Coal                   235,000
    Lansing Units 1, 2, 3 and 4, Lansing, IA                  Coal                   320,000
    Fox Lake Plant Units 1, 2 and 3, Sherburn, MN             Coal                   108,000
    George Neal Unit 4, Sioux City, IA                        Coal                   141,900  (1)
    Louisa Unit 1, Louisa, IA                                 Coal                    28,400  (2)
                                                                                -------------
          Total Coal                                                                                    911,300

    Montgomery Unit 1, Montgomery, MN                         Gas                     22,200
    Fox Lake Plant Unit 4, Sherburn, MN                       Gas                     21,300
    Lime Creek Plant Units 1 and 2, Mason City, IA            Gas                     70,000
                                                                                -------------
          Total Gas                                                                                     113,500

    Dubuque Units 1 and 2, Dubuque, IA                        Oil                      4,600
    Hills Units 1 and 2, Hills, MN                            Oil                      4,000
    Lansing Units 1 and 2, Lansing, IA                        Oil                      2,000
    New Albin Unit 1, New Albin, IA                           Oil                        700
                                                                                -------------
          Total Oil                                                                                      11,300
                                                                                                    -------------

        Total generating capability                                                                   1,036,100
                                                                                                    =============

        (1) Represents  IPC's  21.5%  ownership  interest  in  this  660,000  Kw
            generating  station.  The plant is  operated by  MidAmerican  Energy
            Company.
        (2) Represents IPC's 4% ownership interest in this 710,000 Kw generating
            station. The plant is operated by MidAmerican Energy Company.
</TABLE>

IPC owns 2,598 miles of electric  transmission lines and 224 substations located
in Iowa,  Illinois and  Minnesota.  Substantially  all of IPC's  facilities  are
subject  to the lien of its bond  indenture  securing  IPC's  outstanding  First
Mortgage Bonds and are suitable for their intended use.

Alliant Energy Resources

Alliant   Energy   Resources   owns   property   which   primarily    represents
transportation, energy-related, affordable housing project developments and real
estate properties.


                                       24
<PAGE>




ITEM 3.  LEGAL PROCEEDINGS

IEC

On April 17, 1998, MG&E and Citizens  Utility Board appealed the decision of the
Securities and Exchange  Commission (SEC) approving the Merger,  Madison Gas and
Electric   Company  and  Citizens  Utility  Board  v.  Securities  and  Exchange
Commission.  On May 15,  1998,  IEC moved to  intervene  in this  appeal and the
United States Court of Appeals for the District of Columbia District granted the
motion. Briefs were filed with the court and oral arguments were held on January
13, 1999.  The court issued its decision on March 16, 1999  upholding  the SEC's
decision in approving the Merger and denying the petition for review.

IESU

On October 9, 1996, IES filed a civil suit in the Iowa District Court in and for
Linn County against Lambda Energy Marketing Company,  L.C., Robert Latham, Louie
Ervin,   and  David  Charles   (three   former   employees  of  IES  and/or  its
subsidiaries),  collectively the "Defendants",  alleging, inter alia, violations
of Iowa's  trade  secret act and  interference  with  existing  and  prospective
business  advantage.  On November 1, 1996, the Defendants filed their Answer and
Counterclaims alleging,  inter alia, violation of Iowa competition law, tortious
interference and commercial disparagement. The Defendants therewith also filed a
Third-Party  Petition  against IESU, IEA and Lee Liu, then Chairman of the Board
and Chief  Executive  Officer of IES and IESU,  alleging,  inter alia,  tortious
interference  and  commercial  disparagement.  The case was  dismissed by mutual
consent on December 31, 1998.

IESU  is  in  discussions  with  environmental   regulators   regarding  certain
environmental  permit  issues.  For a discussion of these  matters,  see Item 7.
MD&A, "Other Matters - Environmental,"  which information is incorporated herein
by reference.

IPC

IPC is in discussions with environmental  regulators regarding various issues at
generating facilities in Clinton,  Iowa, Dubuque, Iowa and Lansing,  Iowa. For a
discussion of these matters,  see Item 7. MD&A,  "Other Matters  Environmental,"
which information is incorporated herein by reference.

Environmental Matters

The information required by Item 3 is included in Item 8. "Notes to Consolidated
Financial  Statements,"  Note 12 and "Other Matters - Environmental"  in Item 7.
MD&A, which information is incorporated herein by reference.

Rate Matters

The  information  required  by Item 3 is  included  in  "Liquidity  and  Capital
Resources - Rates and Regulatory  Matters" in Item 7. MD&A, which information is
incorporated herein by reference.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


                                       25
<PAGE>



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

IEC's common stock trades on the New York Stock Exchange under the symbol "LNT."
Quarterly  price ranges and dividends with respect to IEC's common stock were as
follows  (amounts for periods prior to the  consummation of the Merger represent
data for WPL Holdings, Inc.):
<TABLE>
<CAPTION>

                                 1998                                             1997
               ------------------------------------------      -------------------------------------------
    Quarter       High            Low          Dividend           High            Low           Dividend
    -------       ----            ---          --------           ----            ---           --------
<S>              <C>              <C>             <C>            <C>             <C>              <C>  
 First           $33 7/8          $31 1/2         $0.50          $28 7/8         $27 3/8          $0.50
 Second           35 3/8           29 5/8          0.50           28 1/4          26 3/4           0.50
 Third            32 1/8           28              0.50           29              27               0.50
 Fourth           34               29 3/4          0.50           34 7/16         28 3/8           0.50
               ===========     ===========    ============     ===========     ===========     ===========
 Year            $35 3/8          $28             $2.00          $34 7/16        $26 3/4          $2.00
               ===========     ===========    ============     ===========     ===========     ===========
</TABLE>

Stock price at December 31, 1998:  $32 1/4

Although IEC's practice has been to pay common stock  dividends  quarterly,  the
timing of payment and amount of future dividends are necessarily  dependent upon
earnings, financial requirements and other factors.

At December 31, 1998, there were approximately 76,943 holders of record of IEC's
stock including underlying holders in IEC's Shareowner Direct Plan.

IEC is the sole common  shareowner of all 13,370,788 shares of IESU Common Stock
currently  outstanding.  During 1998, 1997 and 1996, IESU declared  dividends on
its common stock of $19 million, $56 million and $44 million,  respectively,  to
its parent.  IESU has the right under the terms of its  Subordinated  Deferrable
Interest Debentures, so long as an Event of Default (as defined therein) has not
occurred and is not  continuing,  to extend the interest  payment  period at any
time and from time to time on the Subordinated Deferrable Interest Debentures to
a period not exceeding 20 consecutive  quarters.  If IESU exercises its right to
extend the  interest  payment  period,  IESU may not,  during any such  extended
interest  payment  period,  declare or pay dividends on, or redeem,  purchase or
acquire,  or make any  liquidation  payment  with respect to, any of its capital
stock or make any guarantee payment with respect to the foregoing. IESU does not
intend to exercise its right to extend the interest payment period.

IEC is the sole common  shareowner of all 13,236,601 shares of WP&L common stock
currently  outstanding.  During 1998,  1997 and 1996, WP&L paid dividends on its
common stock of $58 million, $58 million and $66 million,  respectively,  to its
parent.  Under rate order  UR-110,  the PSCW  ordered  that it must  approve the
payment of dividends  by WP&L to IEC that are in excess of the level  forecasted
in the rate order ($58.3 million), if such dividends would reduce WP&L's average
common equity ratio below 52.00% of total capitalization.  The dividends paid by
WP&L to IEC  since  the rate  order  was  issued  have not  exceeded  the  level
forecasted in the rate order.

On December 29, 1998,  IEC issued  260,039 shares of IEC common stock to Alan R.
Staab in exchange for all the issued and outstanding  common stock of Golden Gas
Production  Company.  The common stock issued by IEC was issued in a transaction
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended.


                                       26
<PAGE>




ITEM 6.  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

Interstate Energy Corporation

----------------------------------------------------------------------------------------------------------------------------
                                                              1998*        1997**       1996**       1995**        1994**
----------------------------------------------------------------------------------------------------------------------------
Financial Information
 (Dollars in thousands except for per share data)
----------------------------------------------------------------------------------------------------------------------------
Income Statement Data:
<S>                                                         <C>          <C>          <C>           <C>          <C>       
     Operating revenues                                     $2,130,874   $2,300,627   $2,232,840    $1,976,807   $1,889,231
     Operating expenses                                      1,847,572    1,964,244    1,867,401     1,611,875    1,575,723
     Operating income                                          283,302      336,383      365,439       364,932      313,508
     Income from continuing operations                          96,675      144,578      157,088       159,157      147,064
     Discontinued operations                                         -            -       (1,297)      (13,186)      (1,174)
     Net income                                                 96,675      144,578      155,791       145,971      145,890
----------------------------------------------------------------------------------------------------------------------------
Common Stock Data:
     Weighted average common shares outstanding (000s)          76,912       76,210       75,481        74,680       73,751
     Return on average common equity (1)                          6.0%         9.5%        11.0%         10.5%        10.7%
     Per Share Data:
          Income from continuing operations                      $1.26        $1.90        $2.08         $2.13        $1.99
          Discontinued operations                                    -            -       ($0.02)       ($0.18)      ($0.01)
          Earnings per average common share (basic and
             diluted)                                            $1.26        $1.90        $2.06         $1.95        $1.98
          Dividends declared per common share (2)                $2.00        $2.00        $1.97         $1.94        $1.92
          Book value at year-end (1)                            $20.69       $21.24       $18.91        $18.70       $18.60
          Market value at year-end (2)                          $32.25       $33.13       $28.13        $30.63       $27.38
----------------------------------------------------------------------------------------------------------------------------
Other Selected Financial Data:
     Construction and acquisition expenditures                $372,058     $328,040     $412,274      $375,184     $390,875
     Total assets at year-end (1)                           $4,959,337   $4,923,550   $4,639,826    $4,476,406   $4,269,637
     Long-term obligations, net                             $1,713,649   $1,604,305   $1,444,355    $1,357,755   $1,358,258
     Times interest earned before income taxes                   2.25X        2.90X        3.38X         3.36X        3.43X
     Capitalization Ratios:
          Common stock (1)                                         49%          51%          52%           51%          51%
          Preferred and preference stock                            4%           3%           4%            4%           4%
          Long-term debt                                           47%          46%          44%           45%          45%
                                                          ------------------------------------------------------------------
            Total                                                 100%         100%         100%          100%         100%
                                                          ==================================================================

----------------------------------------------------------------------------------------------------------------------------

*   The 1998 financial  results  reflect the recording of $54 million of pre-tax
    merger-related charges.

**  Financial  results  have been  restated  to  reflect a change in  accounting
    method for IEC's oil and gas properties  implemented in the third quarter of
    1998 from the full cost method to the successful  efforts  method.  Refer to
    IEC's  Note 1(i) of the "Notes to  Consolidated  Financial  Statements"  for
    additional information regarding the restatement.

(1) In the third quarter of 1997, IEC began  adjusting the carrying value of its
    investments in McLeodUSA  Inc. to its estimated fair value,  pursuant to the
    applicable  accounting rules. At December 31, 1998, the adjustment reflected
    an an  unrealized  gain  of  approximately  $291  million  with a net of tax
    increase to common equity of $170 million.

(2) Represents data for WPL Holdings, Inc. for periods prior to the consummation
    of the Merger.
</TABLE>


                                       27
<PAGE>

<TABLE>
<CAPTION>


IES Utilities Inc.
                                                                          Year Ended December 31,
                                                  1998             1997             1996            1995            1994
                                              --------------------------------------------------------------------------------
                                                                               (in thousands)
<S>                                             <C>              <C>             <C>             <C>             <C>       
Operating revenues                              $  806,930       $  813,978      $  754,979      $  709,826      $  685,366
Earnings available for common stock                 60,996           57,879          62,815          58,364          60,296
Cash dividends declared on common stock             18,840           56,000          44,000          43,000          52,000
Total assets                                     1,788,978        1,768,929       1,765,044       1,697,803       1,634,733
Long-term obligations, net                         677,804          688,719         560,199         517,538         530,275

The 1998  financial  results  reflect  the  recording  of $17 million of pre-tax
merger-related charges.

Wisconsin Power and Light Company

<CAPTION>

                                                                         Year Ended December 31,
                                                   1998            1997            1996             1995           1994
                                              -------------------------------------------------------------------------------
                                                                              (in thousands)
<S>                                             <C>             <C>             <C>              <C>             <C>       
Operating revenues                              $  731,448      $  794,717      $  759,275       $  689,672      $  687,811
Earnings available for common stock                 32,264          67,924          79,175           75,342          68,185
Cash dividends declared on common stock             58,341          58,343          66,087           56,778          55,911
Total assets                                     1,685,150       1,664,604       1,677,814        1,641,165       1,585,124
Long-term obligations, net                         471,554         420,414         370,634          375,574         393,513

The 1998  financial  results  reflect  the  recording  of $17 million of pre-tax
merger-related charges.
</TABLE>


                                       28
<PAGE>



     ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                          RESULTS OF OPERATIONS (MD&A)

                                     MERGER

On April 21, 1998, IES Industries  Inc.  (IES),  WPL Holdings,  Inc.  (WPLH) and
Interstate  Power Company (IPC) completed a three-way  merger  (Merger)  forming
Interstate Energy  Corporation (IEC). IEC is currently doing business as Alliant
Energy  Corporation.  As a result of the Merger,  the first tier subsidiaries of
IEC include:  Wisconsin  Power and Light  Company  (WP&L),  IES  Utilities  Inc.
(IESU),  IPC,  Alliant Energy  Resources,  Inc.  (Alliant Energy  Resources) and
Alliant Energy Corporate Services, Inc. (Alliant Energy Corporate Services) (the
subsidiary  formed to provide  administrative  services  as  required  under the
Public  Utility  Holding  Company  Act of 1935  (PUHCA)).  Among  various  other
regulatory constraints,  IEC is operating as a registered public utility holding
company subject to the limitations imposed by PUHCA.

As part of the  approval  process  for the  Merger,  IEC agreed to various  rate
freezes and rate caps  implemented in certain  jurisdictions  for periods not to
exceed four years commencing on the effective date of the Merger (see "Liquidity
and Capital Resources - Rates and Regulatory Matters" for a further discussion).

This MD&A  includes  information  relating to IEC, IESU and WP&L (as well as IPC
and Alliant Energy  Resources).  Where  appropriate,  information  relating to a
specific entity has been  segregated and labeled as such. The financial  results
described  below  reflect  the  consummation  of the Merger  accounted  for as a
pooling of interests.

                           FORWARD-LOOKING STATEMENTS

Statements  contained in this report (including MD&A) that are not of historical
fact are  forward-looking  statements  intended to qualify for the safe  harbors
from liability  established by the Private  Securities  Litigation Reform Act of
1995.  From  time to time,  IEC,  IESU or WP&L may  make  other  forward-looking
statements  within  the  meaning of the  federal  securities  laws that  involve
judgments,  assumptions  and other  uncertainties  beyond  the  control  of such
companies.   These  forward-looking   statements  may  include,   among  others,
statements  concerning  revenue and cost trends,  cost recovery,  cost reduction
strategies and anticipated outcomes, pricing strategies,  changes in the utility
industry,  planned  capital  expenditures,  financing  needs  and  availability,
statements of expectations,  beliefs,  future plans and strategies,  anticipated
events or trends and similar comments concerning matters that are not historical
facts. Investors and other users of the forward-looking statements are cautioned
that such  statements  are not a guarantee of future  performance  and that such
forward-looking  statements  are subject to risks and  uncertainties  that could
cause actual results to differ  materially  from those  expressed in, or implied
by, such statements.  Some, but not all, of the risks and uncertainties  include
weather effects on sales and revenues,  competitive  factors,  general  economic
conditions in the relevant  service  territory,  federal and state regulatory or
government  actions,  unanticipated  construction and acquisition  expenditures,
issues  related to stranded  costs and the recovery  thereof,  the operations of
IEC's  nuclear  facilities,   unanticipated  issues  or  costs  associated  with
achieving Year 2000 compliance, the ability of IEC to successfully integrate the
operations  of the  parties  to the Merger and  unanticipated  costs  associated
therewith,  unanticipated  difficulties in achieving expected synergies from the
Merger,  unanticipated costs associated with certain  environmental  remediation
efforts being undertaken by IEC, technological developments,  employee workforce
factors,  including changes in key executives,  collective bargaining agreements
or work stoppages, political, legal and economic conditions in foreign countries
IEC has investments in and changes in the rate of inflation.

                            UTILITY INDUSTRY OUTLOOK

IEC  competes  in an  ever-changing  utility  industry.  Set  forth  below is an
overview of this evolving marketplace.

Electric energy  generation,  transmission  and  distribution are in a period of
fundamental change in the manner in which customers obtain, and energy suppliers
provide, energy services. As legislative, regulatory, economic and technological
changes occur,  electric  utilities are facing increased  numbers of alternative
suppliers.  Such 


                                       29
<PAGE>

competitive  pressures  could result in loss of customers  and an  incurrence of
stranded  costs  (i.e.,  assets and other costs  rendered  unrecoverable  as the
result of competitive pricing). To the extent stranded costs cannot be recovered
from customers, they would be borne by security holders.

Legislation which would allow customers to choose their electric energy supplier
is  expected  to be  introduced  in Iowa and  Minnesota  in  1999.  IEC does not
currently  expect  similar  legislation to be introduced in Wisconsin this year.
Nationwide,  16 states (including Illinois and Michigan) have decided to provide
for customer choice.

IEC realized  56%, 39%, 3% and 2% of its electric  utility  revenues in 1998, in
Iowa, Wisconsin, Minnesota and Illinois, respectively.  Approximately 87% of the
electric  revenues were regulated by the respective state  commissions while the
other 13% were regulated by the Federal Energy Regulatory Commission (FERC). IEC
realized  58%,  36%, 3% and 3% of its gas utility  revenues in Iowa,  Wisconsin,
Minnesota and Illinois, respectively, during the same period.

IESU  realized 100% of its electric and gas utility  retail  revenues in 1998 in
Iowa.  Approximately  93% of the electric revenues in 1998 were regulated by the
Iowa Utilities Board (IUB) while the other 7% were regulated by the FERC.

WP&L realized 98% of its electric  utility  revenues in 1998 in Wisconsin and 2%
in Illinois.  Approximately  79% of the electric revenues in 1998 were regulated
by the Public Service  Commission of Wisconsin  (PSCW) or the Illinois  Commerce
Commission  (ICC) while the other 21% were regulated by the FERC.  WP&L realized
96% of its gas utility revenues in 1998 in Wisconsin and 4% in Illinois.

Federal Regulation

WP&L,  IESU and IPC are subject to regulation by the FERC.  The National  Energy
Policy Act of 1992 addresses several matters designed to promote  competition in
the electric wholesale power generation market. In 1996, FERC issued final rules
(FERC  Orders  888  and  889)  requiring   electric   utilities  to  open  their
transmission  lines to other  wholesale  buyers and sellers of  electricity.  In
March 1997, FERC issued orders on rehearing for Orders 888 and 889 (Orders 888-A
and 889-A).  In response to FERC Orders 888 and 888-A,  Alliant Energy Corporate
Services,  on behalf of WP&L,  IESU and IPC,  filed an Open Access  Transmission
Tariff that complies with the orders.  Upon  receiving the final  merger-related
regulatory  order,  a compliance  tariff was filed by Alliant  Energy  Corporate
Services  with the FERC.  This filing was made to comply with the FERC's  merger
order.  In  response  to FERC  Orders  889 and  889-A,  WP&L,  IESU  and IPC are
participating in a regional Open Access Same-Time Information System.

FERC Order 888 permits  utilities to seek  recovery of  legitimate,  prudent and
verifiable  stranded costs  associated  with providing open access  transmission
services.  FERC  does  not  have  jurisdiction  over  retail  distribution  and,
consequently,  the final FERC rules do not provide for the  recovery of stranded
costs resulting from retail competition.  The various states retain jurisdiction
over the  question of whether to permit  retail  competition,  the terms of such
retail  competition,  and the recovery of any portion of stranded costs that are
ultimately determined to have resulted from retail competition.

IEC and the utility  subsidiaries  cannot predict the long-term  consequences of
these rules on their results of operations or financial condition.

In November 1998,  IEC and Northern  States Power Co. (NSP)  announced  plans to
develop  an  independent   transmission   company  (ITC)  to  provide   electric
transmission  services to the Upper Midwest.  The two companies are developing a
relationship by which NSP will create an independent  transmission  entity that,
in turn, will lease the  transmission  assets of IEC. The independent  entity is
expected to be publicly  traded and have its own board of directors,  management
and employees.  In February 1999, the Nebraska  Public Power District  signed an
agreement  with IEC and NSP to share  information  and  discuss  how they  might
participate in the proposed ITC.


                                       30
<PAGE>


IEC  expects  to file  with  the  PSCW,  FERC  and  Minnesota  Public  Utilities
Commission  (MPUC) in the  second  quarter of 1999 for  permission  to lease its
transmission  assets to the ITC. Filings will also be made at the IUB and ICC at
a later time. The first FERC filing will also include a tariff designed to allow
for open and economical  delivery of electric power  throughout the region.  The
tariff  will be  available  to  non-ITC  participants  as  well as ITC  members.
Although no assurance can be given, IEC and NSP currently  believe they can have
the ITC established in the year 2000.

IEC had  originally  filed to  participate  in the  Midwest  Independent  System
Operator (Midwest ISO) which was conditionally approved by the FERC on September
16, 1998.  However,  as a result of the ITC announcement,  IEC has withdrawn its
Midwest ISO membership.

State Regulation

Iowa 

IESU and IPC are subject to  regulation  by the IUB. The IUB has issued an order
covering  unbundling of natural gas rates for all Iowa  customers.  In the first
quarter of 1999, the IUB conducted workshops  concerning this unbundling as well
as allowing  choice of the  supplier  of the  natural  gas for the small  volume
natural gas customers.  Inasmuch as gas is a flow-through cost item in Iowa, and
IEC would  retain the margins on the  delivery of the natural gas, the impact on
IEC of these potential changes is not expected to be material.

The IUB has been  reviewing  all forms of  competition  in the electric  utility
industry  for several  years.  A group  comprised of the IUB,  IEC,  MidAmerican
Energy Company (MAEC), the rural electric cooperatives,  the municipal utilities
and Iowans for Choice in Electricity  (a diverse group of industrial  customers,
marketers,  such as  Enron,  and a low  income  customer  representative,  among
others) has endorsed a bill that was agreed upon in February  1999.  IEC expects
the bill to be introduced  in the Iowa  Legislature  in March 1999.  The bill is
opposed by the Office of  Consumer  Advocate,  which is charged by Iowa law with
representation of all consumers generally.

The bill would allow choice of electric  suppliers  for all  customers on May 1,
2002.  It would freeze  IESU's and IPC's Iowa  regulated  prices at January 1999
levels.  The IUB could not order any rate  reductions  subsequent  to the bill's
proposed  effective  date  of  June  1,  1999.  It  would  allow,  however,  for
investor-owned  utilities to propose  increases  due to  exogenous  factors (for
example,  environmental  compliance  costs) in the  generation  cost  component.
Assigned  service  territories  would be maintained  for the delivery  function.
Delivery  prices  would be  regulated,  with the  option  available  to  propose
performance  based rate making.  Prices for generation and other retail services
would not be regulated, except for Standard Offer Service (SOS) pricing starting
May 2002 for all residential customers and non-residential customers with annual
usage of less than 25,000  kilowatt-hours (KWH). Pricing for SOS would initially
be at levels  equivalent to prices as they exist today. SOS would continue until
at least December 31, 2005. The IUB would be able to terminate SOS if it were to
determine several conditions exist, including, most importantly,  that effective
competition  exists  such that  regulation  is no longer  necessary.  If the IUB
continues  SOS  past  December  31,  2005,  then  prices  would  be  based  upon
competitive bids. There are no price protections for  non-residential  customers
with usage greater than 25,000 KWH annually,  with the exception of transitional
service. Transitional service would exist for no longer than one year, until May
1, 2003,  at prices the IUB  determines to be "just and  reasonable."  Currently
existing  automatic fuel adjustment  clauses for recovery of fuel costs would be
eliminated no later than May 2002. A  "nuclear-only"  fuel  adjustment  would be
permitted with increased prices effective  immediately if an electric  company's
nuclear plant is not operational due to exogenous factors.

Transition  cost is the  difference  between the  revenues  that would have been
collected pursuant to an electric company's revenue  requirement  existing as of
January 1, 1999,  and market  prices for the period  2002  through  2005.  These
differences would be afforded 80% recovery in 2002, 70% in 2003, 60% in 2004 and
50% in 2005.  Effective January 1, 2006,  transition cost recovery would end. In
lieu of accepting this transition cost recovery  mechanism,  an electric utility
may elect to divest  itself of its  generation  assets,  including  power supply
contracts.  In such case,  the utility would be given an opportunity to be "made
whole" for recovery of embedded costs with the  possibility  for  shareowners to
retain  the  amount  realized  from the  sale of the  assets  beyond  the sum of
depreciated book value


                                       31
<PAGE>

and unfunded decommissioning.  A divestiture plan would be filed with the IUB no
later than January 1, 2000,  with IUB approval or  modification by July 1, 2000.
The utility would have until September 30, 2000, to revoke its election.

Costs of start-up,  including  computer systems and employee  transition  costs,
would be  recoverable  over a  ten-year  period,  as  approved  by the IUB.  The
difference  between regulatory assets and liabilities would be fully recoverable
as a delivery charge. Nuclear decommissioning costs would be fully recoverable.

IEC is unable to  predict  if this  legislation  will be enacted in 1999 or what
modifications, if any, may be made to the proposed bill.

Wisconsin

WP&L is subject to regulation by the PSCW. The PSCW's  inquiries into the future
structure of the natural gas and electric  utility  industries are ongoing.  The
stated goal of the PSCW in the natural gas docket is "to accommodate competition
but not create it." The PSCW has followed a measured  approach to  restructuring
the natural gas industry in  Wisconsin.  The PSCW has  determined  that customer
classes  will be  deregulated  (i.e.,  the gas  utility  would no longer have an
obligation  to procure  gas  commodity  for  customers,  but would  still have a
delivery   obligation)  in  a  step-wise  manner,  after  each  class  has  been
demonstrated to have a sufficient number of gas suppliers available. A number of
working  groups have been  established  by the PSCW and these working groups are
addressing  numerous  issues which need to be resolved before  deregulation  may
proceed.

The  short-term  goals  of the  electric  restructuring  process  are to  ensure
reliability of the state's electric system and development of a robust wholesale
electric market. The longer-term goal is to establish prerequisite safeguards to
protect customers prior to allowing retail customer choice.

The PSCW has issued an order  outlining its policies and  principles  for Public
Benefits  (low-income  assistance,  energy efficiency,  renewable generation and
environmental research and development) including funding levels, administration
of the funds and how funds  should be  collected  from  customers.  The PSCW has
proposed increasing annual funding levels primarily through utility rates by $50
to $75 million statewide.

In May 1998, the PSCW reactivated  Docket No.  05-BU-101,  with the objective of
examining  the degree of  separation  which  should be  required  as a matter of
policy between  utility and non-utility  activities  involving the various state
utilities. Hearings were held in the fourth quarter of 1998 but a final decision
by the  PSCW  has not been  issued  yet.  A  future  phase  of the  docket  will
investigate  the  standards  of conduct  that should  govern  relationships  and
transactions between a utility and its affiliates.

It is  anticipated  that there will be legislative  proposals  introduced in the
1999-2000  legislative session on issues dealing with  restructuring,  including
affiliated interest,  public benefits,  competition and others. It is impossible
to  predict  at this  time the scope or the  possibility  of  enactment  of such
proposals.

Minnesota

IPC is subject to  regulation  by the MPUC.  The MPUC  established  an  Electric
Competition  Working Group in April 1995. On October 28, 1997, the Working Group
issued a report and recommendations on retail competition. The MPUC reviewed the
report and directed its staff to develop an electric utility  restructuring plan
and  timeline.  It does not appear that any  restructuring  legislation  will be
passed in 1999.

Illinois

IPC and WP&L are subject to regulation by the ICC. In December  1997,  the State
of Illinois passed electric  deregulation  legislation requiring customer choice
of electric suppliers for non-residential customers with loads of four megawatts
or larger and for approximately one-third of all other non-residential customers
starting  October 1,  1999.  All  remaining  non-residential  customers  will be
eligible for customer  choice  beginning  December 31, 2000 


                                       32
<PAGE>

and all residential customers will be eligible for customer choice beginning May
1, 2002.  The new  legislation  is not expected to have a significant  impact on
IEC's results of operations or financial  condition  given the relatively  small
size of IEC's Illinois operations.

Accounting Implications

Each of the  utilities  complies  with the  provisions of Statement of Financial
Accounting  Standards (SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation."  SFAS 71  provides  that  rate-regulated  public  utilities  record
certain  costs and  credits  allowed in the rate  making  process  in  different
periods than for nonregulated 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.  If a portion  of the  utility
subsidiaries'  operations becomes no longer subject to the provisions of SFAS 71
as a result of competitive  restructurings or otherwise, a write-down of related
regulatory assets and possibly other charges would be required, unless some form
of transition  cost recovery is established by the  appropriate  regulatory body
that would meet the requirements under generally accepted accounting  principles
for continued  accounting as regulatory  assets during such recovery period.  In
addition,  each utility subsidiary would be required to determine any impairment
of other  assets and  write-down  any impaired  assets to their fair value.  The
utility subsidiaries believe they currently meet the requirements of SFAS 71.

Positioning for a Competitive Environment

IEC and its subsidiaries cannot currently predict the long-term  consequences of
the competitive  and  restructuring  issues  described above on their results of
operations or financial  condition.  The major objective is to allow the company
to compete  successfully in a competitive,  deregulated  utility  industry.  The
strategy  for  dealing  with  these  emerging  issues  includes  seeking  growth
opportunities, forming strategic alliances with other energy-related businesses,
continuing to offer quality customer service, initiating ongoing cost reductions
and productivity enhancements and developing new products and services.

As competitive forces shape the energy-services  industry, energy providers will
face challenges to continued growth. Since consumption of electricity or natural
gas is expected to grow only modestly  within IEC's utility  service  territory,
IEC has entered  several markets that provide  opportunities  for new sources of
earnings growth.

In addition to Alliant Energy Resources' existing  businesses,  IEC has launched
four distinct  platforms designed to meet customer needs throughout the Midwest,
the nation and the world. These platforms include:

         Alliant  Energy   Industrial   Services,   a  provider  of  energy  and
         environmental services designed to maximize productivity for industrial
         and large commercial customers;

         Alliant Energy International, a partner in developing energy generation
         and infrastructure in growing markets throughout the world;

         Alliant Energy Retail  Services,  encompassing a wide array of products
         and services  designed to meet the comfort,  security and  productivity
         needs of residential and small commercial customers; and

         Cargill-Alliant  Energy, an energy-trading  joint venture that combines
         the superior risk-management and commodity trading expertise of Cargill
         Incorporated (Cargill), one of the world's largest and most established
         commodity  trading firms, with IEC's low-cost  electric-generation  and
         transmission business experience.

IEC believes that each of these four  platforms  provides  unique  prospects for
growth both  individually  and  collectively as the competitive  energy-services
marketplace evolves.


                                       33
<PAGE>


                            IEC RESULTS OF OPERATIONS

Overview

IEC's net income for each of the last three years was as follows:
<TABLE>
<CAPTION>

                                                      1998            1997           1996
                                                      ----            ----           ----
<S>                                                 <C>            <C>            <C>    
Earnings excluding merger-related charges -
     Net income (in thousands)                      $131,264       $146,169       $159,250
     Earnings per share                                $1.71          $1.92          $2.11

Pre-tax merger-related charges (in thousands)        $54,045         $2,448         $5,670

Earnings as reported -
     Net income (in thousands)                       $96,675       $144,578       $155,791
     Earnings per share                                $1.26          $1.90          $2.06
</TABLE>

The above financial information reflects the consummation of the Merger on April
21, 1998, as a pooling of interests.  The merger-related  charges were primarily
for employee retirements and separations,  the services of IEC's advisors, costs
related  to IEC's name  change  and other  miscellaneous  costs.  IEC's  utility
operations  reported net income of $109.5  million in 1998,  $152.5  million for
1997 and $167.9 million in 1996. Excluding  merger-related expenses, the utility
earnings were approximately $140.7 million, $153.8 million and $170.8 million in
1998, 1997 and 1996,  respectively.  The decrease in utility earnings (excluding
merger-related  expenses) in 1998 resulted primarily from higher purchased-power
and  transmission  costs at WP&L, a 15.7 percent  decrease in retail natural gas
sales  largely due to milder  weather  conditions in 1998 compared to 1997, a $9
million  regulatory  asset write-off at IESU,  increased  expenses for Year 2000
readiness   efforts,   higher  injuries  and  damages   expenses  and  increased
depreciation  expenses.  These  decreases were  partially  offset by a 2 percent
increase in retail electricity sales volumes,  largely due to continued economic
growth within IEC's service territory,  lower purchased-power  capacity costs at
IESU and IPC,  reduced  employee  pension and benefits costs, and lower costs in
1998  due to  merger-related  operating  efficiencies.  A loss  incurred  on the
disposition  of an  investment  in 1997 at IESU also  enhanced the 1998 earnings
compared to 1997.

IEC's nonregulated  operations (Alliant Energy Resources) reported net losses of
approximately  $8.9  million,  $4.0 million and $3.1  million in 1998,  1997 and
1996,   respectively.   Excluding   merger-related  expenses,  the  nonregulated
operations  net losses were  approximately  $6.3 million,  $3.9 million and $2.6
million in 1998,  1997 and 1996,  respectively.  The  decrease in 1998  earnings
(excluding  merger-related  expenses)  was due to lower  oil and gas  prices  at
Whiting Petroleum Corp.  (Whiting),  IEC's  Denver-based oil and gas subsidiary,
continuing  expenses for new business  development in international and domestic
markets,  higher interest  expense to fund IEC's growth and the pursuit of other
business  opportunities,  and a modest loss from IEC's electricity trading joint
venture.  A tax benefit  realized in 1997 from a donation of securities to IEC's
charitable foundation also contributed to the lower earnings in 1998 compared to
1997.  Increased earnings from IEC's industrial  services  businesses as well as
gains realized on asset sales partially offset these items.

The 1997 decrease in utility  earnings was primarily due to increased  operating
expenses, higher interest expense, rate decreases implemented at WP&L and IPC in
1997, the loss on the investment disposition at IESU in 1997 and the recognition
of a gain on the  sale of a  combustion  turbine  in  1996  at  WP&L.  Partially
offsetting this decrease were increased retail electric sales and costs incurred
in 1996 relating to the successful  defense of a hostile takeover attempt of IES
by MAEC.

The  decrease  in  nonregulated  earnings  in 1997  was  primarily  due to lower
earnings at Whiting, business development expenses in international and domestic
growth  areas and a 1996 gain on the sale of an  investment  in assisted  living
properties.  Partially  offsetting these items were improved  performance in the
energy marketing businesses and the 1997 tax benefit resulting from the donation
of securities.


                                       34
<PAGE>

Electric Utility Operations

Electric margins and megawatt-hour (MWH) sales for IEC for 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>

                                         Revenues and Costs                             MWHs Sold
                                           (in thousands)                            (in thousands)
                                    ------------------------------             ----------------------------
                                         1998            1997       Change         1998           1997       Change
                                    ---------------  ------------- ---------   -------------  ------------- ---------
<S>                                      <C>            <C>            <C>            <C>            <C>         <C>
Residential                              $ 519,687      $ 509,207      2%             6,674          6,699        -
Commercial                                 330,693        320,308      3%             5,095          4,996        2%
Industrial                                 477,241        455,912      5%            12,718         12,320        3%
                                    ---------------  -------------             -------------  -------------
   Total from ultimate customers         1,327,621      1,285,427      3%            24,487         24,015        2%
Sales for resale                           199,128        192,346      4%             7,189          6,768        6%
Other                                       40,693         37,980      7%               158            161       (2%)
                                    ---------------  -------------             -------------  -------------
   Total                                 1,567,442      1,515,753      3%            31,834         30,944        3%
                                                                               =============  ============= =========
Electric production fuels                  283,866        265,105      7%
Purchased-power                            255,332        256,306      -
                                    ---------------  -------------            
   Margin                              $ 1,028,244      $ 994,342      3%     
                                    ===============  ============= =========
<CAPTION>

Electric margins and MWH sales for IEC for 1997 and 1996 were as follows:

<CAPTION>

                                         Revenues and Costs                             MWHs Sold
                                           (in thousands)                            (in thousands)
                                    ------------------------------             ----------------------------
                                         1997            1996       Change         1997           1996       Change
                                    ---------------  ------------- ---------   -------------  ------------- ---------
<S>                                     <C>             <C>              <C>          <C>            <C>         <C>
Residential                             $  509,207      $ 494,649        3%           6,699          6,668        -
Commercial                                 320,308        308,480        4%           4,996          4,878        2%
Industrial                                 455,912        428,726        6%          12,320         11,666        6%
                                    ---------------  -------------             -------------  -------------
   Total from ultimate customers         1,285,427      1,231,855        4%          24,015         23,212        3%
Sales for resale                           192,346        181,365        6%           6,768          7,459       (9%)
Other                                       37,980         27,155       40%             161            161        -
                                    ---------------  -------------             -------------  -------------
   Total                                 1,515,753      1,440,375        5%          30,944         30,832        -
                                                                               =============  ============= =========
Electric production fuels                  265,105        246,638        7%
                                           
Purchased-power                            256,306        231,014       11%
                                    ---------------  -------------
   Margin                               $  994,342      $ 962,723        3%
                                    ===============  ============= =========
</TABLE>

Electric margin  increased $33.9 million,  or 3%, and $31.6 million,  or 3%, for
1998 and 1997, respectively.  The increase for both periods was primarily due to
the  recovery  of  concurrent   and   previously   deferred   expenditures   for
Iowa-mandated energy efficiency programs, reduced purchased-power capacity costs
at IESU and IPC and higher sales volumes to ultimate customers. The recovery for
energy  efficiency  programs in Iowa is in accordance with IUB orders (a portion
of these  recoveries is also amortized to expense in other operation  expenses).
Electric revenues included  increased  recoveries for energy efficiency  program
costs  in  Iowa  of  $25.8   million  and  $16.8  million  for  1998  and  1997,
respectively.  The  increased  sales  volumes  were  primarily  due to continued
economic  growth  within the IEC service  territory.  Weather  normalized  sales
volumes  (excluding  off-system  sales)  increased  approximately  2.4%  in 1998
compared to an actual increase of 1.7%.

The 1998 increase in margin was  partially  offset by a lower margin at WP&L and
rate  decreases  implemented  at WP&L and IPC in 1997. The lower margin at WP&L,
which was partially offset by an increase in retail sales, was also due to:

a)  Purchased-power   and  transmission   costs  -  such  costs  have  increased
    significantly  because  of  stricter 


                                       35
<PAGE>


    reliability  requirements  and  higher  transmission  costs  due  to  system
    constraints  in  Wisconsin.  Recovery of such  increased  costs in Wisconsin
    generally involves  regulatory lag between the time of the cost increase and
    the time a rate  increase is  implemented.  The PSCW  granted WP&L an annual
    rate  increase of $15 million in July 1998 related to these cost  increases.
    In  addition,  WP&L made a filing  with the PSCW in  November  1998  seeking
    another rate increase for higher  purchased-power  and  transmission  costs.
    (Refer to "Rates and  Regulatory  Matters" for a further  discussion of this
    filing).  The effect of these 1998 cost  increases was  partially  offset by
    WP&L's  reliance on more costly  purchased-power  in the first six months of
    1997 due to various power plant outages,  particularly  the Kewaunee Nuclear
    Power Plant (Kewaunee).

b)  Lower  off-system  sales  income  - due  to  the  transmission  constraints,
    increased native demand, a more active bulk power market,  which resulted in
    lower bulk power margins,  and the implementation of a merger-related  joint
    sales agreement  (effective with the consummation of the Merger, the margins
    resulting  from IEC's  off-system  sales are allocated  among IESU,  IPC and
    WP&L).  Pursuant to rate making  provisions,  bulk power margins at IESU and
    IPC are returned to ratepayers through their fuel adjustment clauses.

An increase in  off-system  sales at WP&L in 1997 also  contributed  to the 1997
margin  increase.  The impact of the power plant outages at WP&L in 1997 and the
rate decreases  implemented  at WP&L and IPC in 1997  partially  offset the 1997
margin increase.

IESU's and IPC's electric tariffs include energy  adjustment  clauses (EAC) that
are  designed to currently  recover the costs of fuel and the energy  portion of
purchased-power  billings (see Note 1(k) of the "Notes to Consolidated Financial
Statements" for discussion of the EAC).

Gas Utility Operations

Gas margins and dekatherm (Dth) sales for IEC for 1998 and 1997 were as follows:
<TABLE>

<CAPTION>

                                        Revenues and Costs                       Dekatherms Sold
                                          (in thousands)                          (in thousands)
                                    ---------------------------             ---------------------------
                                        1998          1997        Change       1998           1997       Change
                                    ------------- -------------  ---------  ------------  ------------- ---------
<S>                                    <C>           <C>            <C>          <C>            <C>       <C>  
Residential                            $ 175,603     $ 225,542      (22%)        28,378         33,894    (16%)
Commercial                                85,842       115,858      (26%)        17,760         21,142    (16%)
Industrial                                20,204        27,393      (26%)         5,507          6,217    (11%)
Transportation and other                  13,941        25,114      (44%)        52,389         56,719     (8%)
                                    ------------- -------------             -----------   -------------
   Total                                 295,590       393,907      (25%)       104,034        117,972    (12%)
                                                                            ============  ============= =========
Cost of gas sold                         166,453       259,222      (36%)
                                    ------------- -------------
   Margin                              $ 129,137     $ 134,685       (4%)
                                    ============= =============  =========

Gas margins and Dth sales for IEC for 1997 and 1996 were as follows:
<CAPTION>

                                        Revenues and Costs                       Dekatherms Sold
                                          (in thousands)                          (in thousands)
                                    ---------------------------             ---------------------------
                                        1997          1996        Change       1997           1996       Change
                                    ------------- -------------  ---------  ------------  ------------- ---------
<S>                                    <C>           <C>              <C>       <C>            <C>         <C> 
Residential                            $ 225,542     $ 216,268         4%        33,894         37,165      (9%)
Commercial                               115,858       108,187         7%        21,142         22,613      (7%)
Industrial                                27,393        27,569        (1%)        6,217          6,856      (9%)
Transportation and other                  25,114        23,931         5%        56,719         55,240       3%
                                    ------------- -------------             ---------------------------
   Total                                 393,907       375,955         5%       117,972        121,874      (3%)
                                                                            ============  ============= =========
Cost of gas sold                         259,222       240,324        8%
                                    ------------- -------------
   Margin                              $ 134,685     $ 135,631       (1%)
                                    ============= =============  =========
</TABLE>

                                       36
<PAGE>

Gas margin decreased $5.5 million, or 4%, and decreased $0.9 million, or 1%, for
1998 and 1997, respectively. Dth sales declined by 12% and 3% for 1998 and 1997,
respectively,  largely due to milder  weather.  A rate reduction  implemented in
April 1997 at WP&L also contributed to the decrease in margin for 1998 and 1997.
Partially  offsetting  the  decline  in  margin  for 1998 and 1997  were  higher
revenues  from  the  recovery  of  concurrent  and  previously  deferred  energy
efficiency  expenditures for Iowa-mandated  energy  efficiency  program costs in
accordance  with IUB orders (a portion of these  recoveries is also amortized to
expense  in other  operation  expenses)  and gas cost  adjustments  at IPC.  Gas
revenues included  increased  recoveries for energy efficiency  program costs in
Iowa of $6.3 million and $4.0 million for 1998 and 1997, respectively.

IESU's and IPC's gas tariffs include purchased gas adjustment (PGA) clauses that
are designed to currently recover the cost of utility gas sold (see Note 1(k) of
the "Notes to Consolidated Financial Statements" for a discussion of the PGA).

Nonregulated and Other Revenues

Nonregulated  and other  revenues  for 1998,  1997 and 1996 were as follows  (in
millions):

                                            1998         1997        1996
                                        ------------- ----------- ------------
Environmental and engineering services      $  73        $ 78        $  85
Oil and gas production                         65          69           66
Transportation, rents and other                46          46           35
Nonregulated energy                            40         151          192
Steam                                          27          29           24
Affordable housing                             12          13           11
Water                                           5           5            4
                                        ------------- ----------- ------------
                                            $268         $391        $417
                                        ============= =========== ============

The revenues for  nonregulated  energy declined  significantly in 1998 primarily
due to decreased  low-margin  gas marketing  activities  and the transfer of the
electricity  trading  business to the Cargill joint venture in July 1997,  which
markets electricity and risk management services to wholesale  customers.  IEC's
investment  in the joint  venture is  accounted  for under the equity  method of
accounting.  Oil and gas production  revenues  declined in 1998 primarily due to
significantly lower oil and gas prices, largely offset by a significant increase
in gas volumes sold.

In 1997, nonregulated energy revenues declined primarily due to the formation of
the joint  venture with Cargill as described  above.  Transportation,  rents and
other  revenues  increased  primarily  as a result of the  acquisition  of a gas
gathering  system  in Texas  in 1997.  Environmental  and  engineering  services
revenues declined due to a softening market.

Operating Expenses

Other operation expenses for 1998, 1997 and 1996 were as follows (in millions):

                                            1998         1997        1996
                                       --------------------------------------
           Utility-WP&L/IESU/IPC           $421          $358        $340
           Nonregulated and other           199           324         357
                                       --------------------------------------
                                           $620          $682        $697
                                       ======================================

Other operation  expenses at the utility  subsidiaries  increased $63 million in
1998,  including  $34 million of  merger-related  expenses.  The  merger-related
expenses were primarily for employee  retirements,  separations and relocations.
In addition,  increased  energy  efficiency  expenses in Iowa, a write-off of $9
million of certain  employee  benefits related  regulatory  assets at IESU which
were deemed no longer probable of recovery,  higher  administrative  and general
expenses at WP&L,  higher injuries and damages  expenses and increased  expenses
for Year 2000 readiness  efforts also contributed to the increase.  The increase
was partially offset by reduced employee pension


                                       37
<PAGE>

and  benefit  expenses,  reduced  conservation  expense  at  WP&L,  lower  costs
resulting  from  merger-related   operating  efficiencies  and  reduced  nuclear
operation  expenses at IESU. In 1997,  other  operation  expenses at the utility
subsidiaries  increased $18 million  primarily due to increased  amortization of
previously deferred energy efficiency  expenditures in Iowa. These expenses were
partially  offset by a reduction in  conservation  expense at WP&L in accordance
with an April 1997 rate order.

Other operation expenses at the nonregulated  businesses  decreased $125 million
in 1998  primarily  due to the  formation of the Cargill  joint  venture.  These
reductions in other  operation  expenses were partially  offset by $3 million of
merger-related  costs and  continuing  expenses for new business  development in
international  and domestic  markets.  Other  operation  expenses  decreased $33
million in 1997 primarily due to the joint venture with Cargill and also reduced
activity in the environmental and engineering services businesses and the energy
marketing  business.  These decreases were partially  offset by higher operating
expenses at Whiting.

Maintenance  expenses  decreased  slightly  in  1998  primarily  due to  reduced
expenses  at  fossil-fueled  plants,  which was  virtually  offset by  increased
maintenance at the nuclear plants.  Maintenance expenses increased $11.5 million
in  1997  primarily  due  to  increased  nuclear  maintenance  expenses,  higher
transmission  and  distribution  expenses at IESU and increased  maintenance  at
fossil-fueled plants.

Depreciation and amortization  expense increased $19.8 million and $27.3 million
in 1998 and  1997,  respectively,  primarily  as a result  of  utility  property
additions.  The increase in 1998 was also due to a Kewaunee  surcharge (which is
recorded in depreciation and amortization expense with a corresponding  increase
in revenues  resulting  in no impact on  earnings).  Higher  depreciation  rates
implemented  at WP&L in January 1997 and higher  depreciation  and  amortization
expenses at Whiting also contributed to the 1997 increase.

Interest Expense and Other

Interest  expense  increased  $6.8  million  in 1998 due to higher  utility  and
nonregulated  borrowings  during 1998 and an  adjustment  to  decrease  interest
expense in 1997  relating to a tax audit  settlement at WP&L.  Interest  expense
increased $9.2 million in 1997 primarily due to the change in the amount of debt
outstanding.

Miscellaneous,  net income  decreased $13.2 million in 1998 primarily due to $17
million of merger-related expenses, for the services of IEC's advisors and costs
related to IEC's name change,  and a modest loss from IEC's electricity  trading
joint  venture.  Gains  realized on asset sales in 1998  partially  offset these
items.  The 1997  results  included a loss  incurred  on the  disposition  of an
investment at IESU.  The increase in income in 1997 was due to costs incurred in
1996 related to the successful  defense of the hostile  takeover attempt at IES.
This was partially offset by the investment  disposition loss at IESU in 1997, a
gain on the sale of a combustion  turbine at WP&L in 1996 and the gain on a sale
of an investment in assisted living properties in 1996.

Income Taxes

IEC's income tax expense  decreased  $23.6 million and $24.0 million in 1998 and
1997,  respectively,  primarily due to lower pre-tax  income.  See Note 6 of the
"Notes to  Consolidated  Financial  Statements" for details on the effective tax
rate changes.

                           IESU RESULTS OF OPERATIONS

Overview

IESU's earnings  available for common stock increased $3.1 million and decreased
$4.9 million in 1998 and 1997,  respectively.  The  increased  earnings for 1998
were primarily due to a 2 percent increase in retail  electricity sales volumes,
largely due to continued  economic  growth in IESU's  service  territory,  lower
purchased-power  capacity costs, reduced employee pension and benefits costs and
lower  costs  in  1998  due to  merger-related  operating  efficiencies.  A loss
incurred on the  disposition  of an asset in 1997 also  improved  1998  earnings
compared  to  1997.   Partially   offsetting


                                       38
<PAGE>

the higher 1998 earnings were merger-related expenses, a $9 million write-off of
a regulatory asset, decreased gas sales resulting from milder weather, increased
depreciation  and  amortization  expenses and  increased  expenses for Year 2000
readiness  efforts.  The  decreased  earnings  for 1997  were  primarily  due to
increased  operating  expenses,  higher  interest  expense  and a  loss  on  the
investment  disposition in 1997.  Such items were partially  offset by increased
electric sales (excluding  off-system sales) resulting from continuing growth in
IESU's service territory and the nonrecurrence of costs incurred in 1996 related
to the successful defense of a hostile takeover attempt of IES by MAEC.

Electric Utility Operations
---------------------------
<TABLE>
<CAPTION>

Electric margins and MWH sales for IESU for 1998 and 1997 were as follows:

                                        Revenues and Costs                          MWHs Sold
                                          (in thousands)                          (in thousands)
                                    ---------------------------             ---------------------------
                                        1998          1997         Change      1998           1997        Change
                                    ------------- -------------  ---------  ------------  ------------- ---------
<S>                                     <C>          <C>              <C>       <C>            <C>         <C> 
Residential                             $232,662     $ 227,496         2%         2,661          2,682      (1%)
Commercial                               168,672       162,626         4%         2,465          2,378       4%
Industrial                               181,369       177,890         2%         4,872          4,743       3%
                                    ------------- -------------             ------------  -------------
   Total from ultimate customers         582,703       568,012         3%         9,998          9,803       2%
Sales for resale                          45,453        25,719        77%         1,763            794     122%
Other                                     11,267        10,539         7%            42             43      (2%)
                                    ------------- -------------             ------------  -------------
   Total                                 639,423       604,270         6%       11,803         10,640        11%
                                                                            ============  ============= =========

Electric production fuels                 99,362        92,891         7%
Purchased-power                           71,637        74,098        (3%)
                                    ------------- -------------
   Margin                               $468,424     $ 437,281         7%
                                    ============= =============  =========

Electric margins and MWH sales for IESU for 1997 and 1996 were as follows:
<CAPTION>

                                        Revenues and Costs                          MWHs Sold
                                          (in thousands)                          (in thousands)
                                    ---------------------------             ---------------------------
                                        1997          1996         Change      1997           1996        Change
                                    ------------- -------------  ---------  ------------  -------------  --------
<S>                                    <C>           <C>             <C>         <C>            <C>         <C>
Residential                            $ 227,496     $ 213,838         6%         2,682          2,642        2%
Commercial                               162,626       153,163         6%         2,378          2,315        3%
Industrial                               177,890       160,477        11%         4,743          4,436        7%
                                    ------------- -------------             ------------  -------------
   Total from ultimate customers         568,012       527,478         8%         9,803          9,393        4%
Sales for resale                          25,719        37,384       (31%)          794          1,746      (55%)
Other                                     10,539         9,411        12%            43             46       (7%)
                                    ------------- -------------             ------------  -------------
   Total                                 604,270       574,273         5%        10,640         11,185       (5%)
                                                                            ============  =============  ========
Electric production fuels                 92,891        74,608        25%
Purchased-power                           74,098        88,350       (16%)
                                    ------------- -------------
   Margin                              $ 437,281     $ 411,315         6%
                                    ============= =============  =========
</TABLE>

Electric margin  increased $31.1 million,  or 7%, and $26.0 million,  or 6%, for
1998 and 1997,  respectively,  primarily due to the recovery of  concurrent  and
previously deferred  expenditures for Iowa-mandated  energy efficiency programs,
increases in sales volumes to ultimate  customers due to economic  growth in the
service territory and reduced  purchased-power  capacity costs. The recovery for
energy  efficiency  programs in Iowa is in accordance with IUB orders (a portion
of these  recoveries is also amortized to expense in other  operation  expense).
Electric revenues included  increased  recoveries for energy efficiency  program
costs  of  approximately  $15  million  and  $11  million  for  1998  and  1997,
respectively.  Sales for resale increased  significantly for 1998 as a result of
the  implementation of a 


                                       39
<PAGE>

merger-related   joint  sales  agreement  during  the  second  quarter  of  1998
(off-system  sales revenues are passed through IESU's energy  adjustment  clause
and therefore have no impact on electric margin). Refer to "Rates and Regulatory
Matters" for a further discussion.  The decrease in sales for resale in 1997 was
primarily due to the implementation of FERC Orders 888 and 888-A.

Weather  normalized  sales  volumes   (excluding   off-system  sales)  increased
approximately 3.0% and 3.1% in 1998 and 1997,  respectively,  compared to actual
increases of 2.2% and 3.8% for the same periods.

IESU's electric tariffs include EAC's that are designed to currently recover the
costs of fuel and the energy portion of purchased-power  billings. Refer to Note
1(k) of IEC's "Notes to Consolidated Financial Statements" for discussion of the
EAC.

Gas Utility Operations

Gas margins and Dth sales for IESU for 1998 and 1997 were as follows:
<TABLE>
<CAPTION>

                                        Revenues and Costs                       Dekatherms Sold
                                          (in thousands)                          (in thousands)
                                    ---------------------------             ---------------------------
                                        1998          1997        Change       1998           1997       Change
                                    ------------- -------------  ---------  ------------  ------------- ---------
<S>                                     <C>          <C>            <C>          <C>            <C>        <C>  
Residential                             $ 86,821     $ 110,663      (22%)        13,803         16,317     (15%)
Commercial                                39,928        54,383      (27%)         8,272          9,602     (14%)
Industrial                                10,422        13,961      (25%)         3,089          3,318      (7%)
Transportation and other                   4,108         4,510       (9%)        11,316         10,321      10%
                                    ------------- -------------             ------------  -------------
   Total                                 141,279       183,517      (23%)        36,480         39,558      (8%)
                                                                            ============  ============= =========
Cost of gas sold                          84,642       126,631      (33%)
                                    ------------- -------------
   Margin                               $ 56,637      $ 56,886         -
                                    ============= =============  =========

Gas margins and Dth sales for IESU for 1997 and 1996 were as follows:
<CAPTION>

                                        Revenues and Costs                       Dekatherms Sold
                                          (in thousands)                          (in thousands)
                                    ---------------------------             ---------------------------
                                        1997          1996         Change      1997           1996       Change
                                    ------------- -------------  ---------  ------------  ------------- ---------
<S>                                    <C>            <C>             <C>        <C>            <C>        <C> 
Residential                            $ 110,663      $ 97,708        13%        16,317         17,680      (8%)
Commercial                                54,383        46,966        16%         9,602         10,323      (7%)
Industrial                                13,961        12,256        14%         3,318          3,796     (13%)
Transportation and other                   4,510         3,934        15%        10,321         10,341       -
                                    ------------- -------------             ------------  -------------
   Total                                 183,517       160,864        14%        39,558         42,140      (6%)
Cost of gas sold                         126,631       103,877        22%   ============  ============= =========

                                    ------------- -------------
   Margin                               $ 56,886      $ 56,987         -
                                    ============= =============  =========
</TABLE>

Gas  margin  decreased  by $0.2  million  and $0.1  million  for 1998 and  1997,
respectively,  primarily  from reduced sales as a result of milder weather which
were substantially  offset by the recovery of concurrent and previously deferred
energy efficiency expenditures for Iowa-mandated energy efficiency program costs
in accordance  with IUB orders (a portion of these  recoveries is also amortized
to  expense  in other  operation  expenses).  Gas  revenues  included  increased
recoveries for energy  efficient  program costs of $4.2 million and $2.4 million
for  1998  and  1997,  respectively.  Lower  grain  drying  related  sales  also
contributed to the decrease in sales in 1997.

IESU's gas tariffs  include PGA clauses that are  designed to currently  recover
the cost of gas sold.  Refer to IEC's  Note 1(k) of the  "Notes to  Consolidated
Financial Statements" for discussion of the PGA.

                                       40
<PAGE>

Operating Expenses

IESU's other  operation  expenses  increased $26.5 million and $13.4 million for
1998 and 1997,  respectively.  The 1998  increases  were  primarily due to $10.5
million  of  merger-related  expenses,   increased  amortization  of  previously
deferred energy efficiency expenditures, a $9 million regulatory asset write-off
and increased  Year 2000  compliance  costs.  The  merger-related  expenses were
primarily for employee retirements,  separations and relocations. The regulatory
asset write-off stemmed from management no longer being able to assert that rate
recovery of certain  employee  benefits  costs was  probable  given the existing
merger-related price freeze in effect as well as other factors. These items were
partially offset by lower nuclear operation  expenses,  reduced employee pension
and  benefit  costs and lower  costs  resulting  from  merger-related  operating
efficiencies.  The increase in 1997 was primarily due to increased  amortization
of previously  deferred energy  efficiency  expenditures and costs related to an
early  retirement  program,  which were partially offset by lower employee labor
and benefit costs.

Maintenance  expenses  decreased $1.8 million and increased $8.0 million in 1998
and 1997,  respectively.  The decrease in 1998 was due to reduced  fossil-fueled
maintenance expenses,  which were partially offset by higher nuclear maintenance
expenses.   The  increase  in  1997  was  primarily  due  to  increased  nuclear
maintenance   expenses,   higher   transmission  and  distribution   maintenance
expenditures and increased maintenance at the fossil-fueled generating stations.

Depreciation and amortization  expenses  increased $4.2 million and $4.8 million
for 1998 and 1997, respectively, primarily due to property additions.

Interest Expense and Other

Interest  expense  decreased $0.4 million and increased $9.1 million in 1998 and
1997,  respectively.  The 1997  increase was  primarily  due to increases in the
average amount of debt  outstanding and changes in interest  accruals related to
income tax audits.

Miscellaneous, net expense increased $0.3 million and decreased $5.0 million for
1998 and 1997,  respectively.  The increase in 1998 resulted primarily from $6.0
million  of  merger-related  expenses  which  were  substantially  offset by the
write-off  of an  investment  in 1997 and a gain on an asset  sale in 1998.  The
decrease  in  1997  was  also  due to  costs  incurred  in 1996  related  to the
successful defense of the hostile takeover attempt of IES.

Income Taxes

The  effective  income tax rates were 40.1%,  41.8% and 40.3% in 1998,  1997 and
1996,  respectively  (see  Note  6  of  the  "Notes  to  Consolidated  Financial
Statements" for a discussion of the changes).

                           WP&L RESULTS OF OPERATIONS

Overview

WP&L's  earnings  available for common stock  decreased  $35.7 million and $11.3
million in 1998 and 1997,  respectively.  The  decreased  earnings for 1998 were
primarily  due  to   merger-related   expenses,   higher   purchased-power   and
transmission  costs, higher  depreciation and amortization  expenses,  decreased
retail  natural gas sales  largely due to milder  weather,  higher  injuries and
damages expenses, higher interest expense and a higher effective tax rate. These
decreases were partially  offset by a 3 percent  increase in retail  electricity
sales volumes,  largely due to continued  economic  growth within WP&L's service
territory,  reduced  employee  pension and benefit costs and lower costs in 1998
due to merger-related  operating  efficiencies.  The decreased earnings for 1997
were  primarily  due to lower  gas and  electric  margins,  higher  depreciation
expense,  higher interest expense and the recognition of a gain on the sale of a
combustion turbine in 1996.


                                       41
<PAGE>


Electric Utility Operations
---------------------------
<TABLE>
<CAPTION>

Electric margins and MWH sales for WP&L for 1998 and 1997 were as follows:

                                        Revenues and Costs                          MWHs Sold
                                          (in thousands)                          (in thousands)
                                    ---------------------------             ---------------------------
                                        1998          1997         Change      1998           1997        Change
                                    ------------- -------------  ---------  ------------  ------------- ---------
<S>                                     <C>          <C>             <C>          <C>           <C>         <C>
Residential                             $198,770     $ 199,633         -          2,964          2,974        -
Commercial                               108,724       107,132         1%         1,898          1,878        1%
Industrial                               162,771       152,073         7%         4,493          4,256        6%
                                    ------------- -------------             ------------  -------------
   Total from ultimate customers         470,265       458,838         2%         9,355          9,108        3%
Sales for resale                         128,536       160,917       (20%)        4,492          5,824      (23%)
Other                                     15,903        14,388        11%            59             60       (2%)
                                    ------------- -------------             ------------  -------------
   Total                                 614,704       634,143        (3%)       13,906         14,992       (7%)
                                                                            ============  ============= =========
Electric production fuels                120,485       116,812         3%
Purchased-power                          113,936       125,438        (9%)
                                    ------------- -------------
   Margin                               $380,283     $ 391,893       (3%)
                                    ============= =============  =========

Electric margins and MWH sales for WP&L for 1997 and 1996 were as follows:
<CAPTION>

                                        Revenues and Costs                          MWHs Sold
                                          (in thousands)                          (in thousands)
                                    ---------------------------             ---------------------------
                                        1997          1996         Change      1997           1996        Change
                                    ------------- -------------  ---------  ------------  ------------- ---------
<S>                                    <C>           <C>            <C>          <C>            <C>          <C> 
Residential                            $ 199,633     $ 201,690       (1%)         2,974          2,980        -
Commercial                               107,132       105,319        2%          1,878          1,814        4%
Industrial                               152,073       143,734        6%          4,256          3,986        7%
                                    ------------- -------------             ------------  -------------
   Total from ultimate customers         458,838       450,743        2%          9,108          8,780        4%
Sales for resale                         160,917       131,836       22%          5,824          5,246       11%
Other                                     14,388         6,903      108%             60             57        5%
                                    ------------- -------------             ------------  -------------
   Total                                 634,143       589,482        8%         14,992         14,083        6%
                                                                            ============  ============= =========
Electric production fuels                116,812       114,470        2%
Purchased-power                          125,438        81,108       55%
                                    ------------- -------------
   Margin                              $ 391,893     $ 393,904       (1%)
                                    ============= =============  =========
</TABLE>

Electric margin decreased $11.6 million,  or 3%, and $2.0 million, or 1%, during
1998 and 1997, respectively. The 1998 decline in margin was due to:

a)  Purchased-power   and  transmission   costs  -  such  costs  have  increased
    significantly  because  of  stricter  reliability  requirements  and  higher
    transmission costs due to system constraints in Wisconsin.  Recovery of such
    increased costs in Wisconsin  generally involves  regulatory lag between the
    time of the cost increase and the time a rate increase is  implemented.  The
    PSCW  granted  WP&L an annual  rate  increase  of $15  million  in July 1998
    related to these cost  increases.  In addition,  WP&L made a filing with the
    PSCW  in  November   1998   seeking   another   rate   increase  for  higher
    purchased-power  and  transmission  costs.  (Refer to "Rates and  Regulatory
    Matters" for a further discussion of this filing).  The effect of these 1998
    cost  increases  was  partially  offset by WP&L's  reliance  on more  costly
    purchased-power  in the first six months of 1997 due to various  power plant
    outages, particularly Kewaunee.
b)  Lower  off-system  sales  income  - due  to  the  transmission  constraints,
    increased native demand, a more active bulk power market,  which resulted in
    lower bulk power margins,  and the implementation of a merger-related 

                                       42
<PAGE>

    joint sales agreement  (effective with the  consummation of the Merger,  the
    margins  resulting from IEC's off-system sales are allocated among IESU, IPC
    and WP&L).

A 2.4% retail rate decrease  implemented at WP&L in April 1997 also  contributed
to the lower electric margin in 1998. The increased sales to ultimate customers,
largely due to economic  growth in WP&L's service  territory,  partially  offset
these items.  Weather  normalized  sales volumes  (excluding  off-system  sales)
increased approximately 2.2% in 1998 compared to an actual increase of 1.3%.

The  decrease  in margin in 1997 was due to the rate  decrease,  milder  weather
conditions  in 1997 as  compared  to 1996 and  WP&L's  reliance  on more  costly
purchased power in 1997 due to the various power plant outages. These items were
partially offset by the increased  commercial and industrial  sales, an increase
in off-system sales in 1997 and higher revenues from conservation services.

Gas Utility Operations
----------------------

Gas margins and Dth sales for WP&L for 1998 and 1997 were as follows:
<TABLE>
<CAPTION>

                                        Revenues and Costs                       Dekatherms Sold
                                          (in thousands)                          (in thousands)
                                    ---------------------------             ---------------------------
                                        1998          1997         Change      1998           1997        Change
                                    ------------- -------------  ---------  ------------  -------------  -------
<S>                                     <C>           <C>           <C>          <C>            <C>        <C>  
Residential                             $ 65,173      $ 84,513      (23%)        10,936         12,770     (14%)
Commercial                                33,898        45,456      (25%)         7,285          8,592     (15%)
Industrial                                 5,896         8,378      (30%)         1,422          1,714     (17%)
Transportation and other                   6,770        17,536      (61%)        12,948         17,595     (26%)
                                    ------------- -------------             ------------  -------------
   Total                                 111,737       155,883      (28%)        32,591         40,671     (20%)
                                                                            ============  ============= =========
Cost of gas sold                          61,409        99,267      (38%)
                                    ------------- -------------
   Margin                               $ 50,328      $ 56,616      (11%)
                                    ============= =============  =========

Gas margins and Dth sales for WP&L for 1997 and 1996 were as follows:
<CAPTION>

                                        Revenues and Costs                       Dekatherms Sold
                                          (in thousands)                          (in thousands)
                                    ---------------------------             ---------------------------
                                        1997          1996         Change      1997           1996        Change
                                    ------------- -------------  ---------  ------------  ------------- ---------
<S>                                     <C>           <C>            <C>         <C>            <C>        <C>  
Residential                             $ 84,513      $ 90,382       (6%)        12,770         14,297     (11%)
Commercial                                45,456        46,703       (3%)         8,592          9,167      (6%)
Industrial                                 8,378        11,410      (27%)         1,714          1,997     (14%)
Transportation and other                  17,536        17,132        2%         17,595         18,567      (5%)
                                    ------------- -------------             ------------  ------------
   Total                                 155,883       165,627       (6%)        40,671         44,028      (8%)
                                                                            ============  ============= =========
Cost of gas sold                          99,267       104,830       (5%)
                                    ------------- -------------
   Margin                               $ 56,616      $ 60,797       (7%)
                                    ============= =============  =========
</TABLE>

Gas margin declined $6.3 million,  or 11%, and $4.2 million,  or 7%, during 1998
and 1997,  respectively,  due to a reduction in Dth sales  resulting from milder
weather and an average retail rate reduction of 2.2%  implemented in April 1997.
In 1998, the significant  decline in transportation and other revenues and sales
reflects  an  accounting  change for  off-system  sales as  required by the PSCW
effective January 1, 1998. The accounting change requires that beginning in 1998
off-system  gas sales be reported as a reduction  of the cost of gas sold rather
than as gas revenue. In 1997, off-system gas revenues were $11.1 million.

Refer  to  "Rates  and  Regulatory  Matters"  for a  discussion  of a  gas  cost
adjustment  mechanism in place at WP&L.  The impact on the results of operations
from such mechanism was not significant in any of the periods presented.


                                       43
<PAGE>

Operating Expenses

Other operation  expense  increased $12.3 million and decreased $8.9 million for
1998 and  1997,  respectively.  The 1998  increase  was  primarily  due to $11.2
million of  merger-related  expenses for employee  retirements,  separations and
relocations.  Higher  injuries  and  damages  expenses  and an increase in other
administrative and general expenses also contributed to the increase. Such items
were partially offset by reduced employee pension and benefits expenses, reduced
conservation expense and lower costs from merger-related operating efficiencies.
The 1997  decrease was  primarily  due to a reduction in  conservation  expense,
which was partially offset by costs associated with an early retirement  program
in 1997 for eligible bargaining unit employees.

Depreciation and amortization  expense increased $14.9 million and $19.4 million
for  1998  and  1997,  respectively.  The  1998  increase  was  due to  property
additions,  higher Kewaunee depreciation (refer to "Capital Requirements Nuclear
Facilities" for additional information) and a Kewaunee surcharge of $3.2 million
(which  has been  recorded  in  depreciation  and  amortization  expense  with a
corresponding increase in revenues resulting in no impact on earnings). The 1997
increase was due to higher  depreciation  rates approved by the PSCW,  effective
January 1, 1997, and property additions.

Interest Expense and Other

Interest  expense  increased $4.0 million in 1998 primarily due to unusually low
interest expense in the second quarter of 1997,  resulting from an adjustment to
decrease  interest  expense  relating to a tax audit  settlement,  and increased
borrowings during 1998.

Miscellaneous,  net income  decreased  $2.7 million and $2.9 million in 1998 and
1997,  respectively.  The 1998  decrease  was  primarily  due to $6.1 million of
merger-related  expenses  which was partially  offset by higher  earnings on the
nuclear  decommissioning  trust fund. The 1997 decrease was primarily due to the
recognition of a gain on the sale of a combustion turbine in 1996.

Income Taxes

Income  taxes  decreased  $17.2  million  and  $12.0  million  in 1998 and 1997,
respectively,  due  to  lower  pre-tax  income.  See  Note 6 of  the  "Notes  to
Consolidated  Financial  Statements"  for  details  on the  effective  tax  rate
changes.

                         LIQUIDITY AND CAPITAL RESOURCES

Historical IEC Analysis

Cash flows from operating activities at IEC increased $4 million and $12 million
for 1998 and 1997, respectively.  The increases were primarily due to changes in
working capital and additional  depreciation and amortization  expense partially
offset by lower net income and lower  deferred taxes and investment tax credits.
Cash flows used for financing activities decreased $39 million and increased $55
million in 1998 and 1997,  respectively.  The changes were primarily a result of
the net changes in the amount of debt outstanding. Cash flows used for investing
activities  increased  $43 million and  decreased  $44 million in 1998 and 1997,
respectively,  primarily  due to  changes  in the  levels  of  construction  and
acquisition  expenditures.  The decrease in 1997 was partially  offset by higher
proceeds from the disposition of assets in 1996.

Historical IESU Analysis

Cash flows  generated  from operating  activities  increased $16 million and $20
million in 1998 and 1997, respectively. Cash flows used for financing activities
decreased $50 million and increased $84 million for 1998 and 


                                       44
<PAGE>

1997,  respectively.  The  decrease  in 1998 was  primarily  a result of reduced
common  stock  dividends  and the  increase in 1997 was due to the net change in
borrowings  in 1997.  Cash  flows used for  investing  activities  decreased  $3
million and $45 million in 1998 and 1997, respectively. The decrease in 1997 was
primarily a result of reduced construction expenditures.

Historical WP&L Analysis

Cash flows  generated  from  operations  increased $27 million and decreased $42
million in 1998 and 1997, respectively. The 1998 increase was primarily a result
of changes in working capital and higher depreciation and amortization  expenses
partially  offset  by  lower  net  income.  The  decrease  in  1997  was  mainly
attributable  to the change in working  capital.  Cash flows used for  financing
activities  increased  $14 million and  decreased  $75 million in 1998 and 1997,
respectively,  primarily due to changes in the amount of debt outstanding.  Cash
flows used for  investing  activities  increased  $12 million and $34 million in
1998 and 1997,  respectively.  The increase in 1998 was  primarily due to higher
shared  savings  expenditures  and the  increase  in 1997 was  mainly due to the
proceeds from the sale of other property and equipment in 1996.

Future Considerations

The  capital  requirements  of IEC are  primarily  attributable  to its  utility
subsidiaries'  construction  and acquisition  programs,  its debt maturities and
business  opportunities  of Alliant Energy  Resources.  It is  anticipated  that
future capital requirements of IEC will be met by cash generated from operations
and external financing. The level of cash generated from operations is partially
dependent  upon  economic  conditions,  legislative  activities,   environmental
matters and timely  regulatory  recovery of utility costs.  IEC's  liquidity and
capital  resources will be affected by costs associated with  environmental  and
regulatory  issues.  Emerging  competition  in the utility  industry  could also
impact IEC's  liquidity and capital  resources,  as discussed  previously in the
"Utility Industry Outlook" section.

At December 31, 1998,  Alliant Energy Resources had approximately $69 million of
investments in foreign  entities.  At December 31, 1998,  IESU, WP&L and IPC did
not  have  any  foreign   investments.   IEC  continues  to  explore  additional
international  investment  opportunities.  Such  investments  may carry a higher
level of risk than IEC's  traditional  domestic  utility  investments or Alliant
Energy  Resources'  domestic  investments.  Such  risks  could  include  foreign
government actions, foreign economic and currency risks and others.

IEC is expected to pursue various potential business development  opportunities,
including  international  as  well  as  domestic  investments,  and is  devoting
resources  to such  efforts.  It is  anticipated  that IEC will strive to select
investments  where the  international  and other risks are both  understood  and
manageable.  Under  PUHCA,  IEC's  investments  in exempt  wholesale  generators
(EWG's)  and  foreign  utility  companies  (FUCO's)  is  limited to 50% of IEC's
consolidated retained earnings. In addition, there are limitations on the amount
of  non-utility  investments  IEC can make under the Wisconsin  Utility  Holding
Company Act (WUHCA) as well.

At December  31, 1998,  IEC had an  investment  in the stock of  McLeodUSA  Inc.
(McLeod),  a  telecommunications  company,  valued at $320.3 million (based on a
December 31, 1998 closing price of $31.25 per share and compared to a cost basis
of $29.1 million).  Pursuant to the applicable  accounting  rules,  the carrying
value of the  investments  are adjusted to the estimated fair value each quarter
based on the closing  price at the end of the quarter.  The  adjustments  do not
impact net income as the unrealized gains or losses,  net of taxes, are recorded
directly to the common  equity  section of the balance sheet and are a component
of other  comprehensive  income.  In  addition,  any such  gains or  losses  are
reflected in current earnings only at the time they are realized through a sale.
IEC entered into an agreement in November 1998 with McLeod whereby IEC's ability
to sell the McLeod stock is subject to various restrictions.

IEC  had  certain   off-balance  sheet  financial   guarantees  and  commitments
outstanding  at  December  31,  1998.  They  generally  consist  of  third-party
borrowing   arrangements  and  lending  commitments,   guarantees  of  financial
performance of syndicated  affordable housing properties and guarantees relating
to IEC's electricity trading joint venture. Refer to Note 12(d) of the "Notes to
the Consolidated Financial Statements" for additional details.


                                       45
<PAGE>


Financing and Capital Structure

Access to the long-term and short-term capital and credit markets,  and costs of
external financing,  are dependent on creditworthiness.  The debt ratings of IEC
and certain subsidiaries by Moody's and Standard & Poor's are as follows:
<TABLE>
<CAPTION>

                                                                                         Standard &
                                                                     Moody's               Poor's
                                                                 -----------------    -----------------
<S>                               <C>                                  <C>                   <C>
      IESU                        - Secured long-term debt              A2                   A+
                                  - Unsecured long-term debt            A3                   A
      WP&L                        - Secured long-term debt             Aa2                   AA
                                  - Unsecured long-term debt           Aa3                   A+
      IPC                         - Secured long-term debt              A1                   A+
                                  - Unsecured long-term debt            A2                   A
      Alliant Energy Resources    - Commercial paper                    P2                   A1
      IEC                         - Commercial paper (a)                P1                   A1

(a) IESU, WP&L and IPC  participate in a utility money pool which is funded,  as
    needed,  through  the  issuance  of  commercial  paper by IEC.  The PSCW has
    restricted   WP&L  from  lending  money  to   non-utility   affiliates   and
    non-Wisconsin  utilities. As a result, WP&L is restricted from lending money
    to the utility money pool but is able to borrow money from the utility money
    pool.
</TABLE>

Alliant  Energy  Resources is a party to a 3-Year Credit  Agreement with various
banking institutions.  The agreement extends through October 2000, with one-year
extensions   available   upon  agreement  by  the  parties.   Unused   borrowing
availability  under  this  agreement  is also  used to  support  Alliant  Energy
Resources'  commercial  paper  program.  A combined  maximum of $450  million of
borrowings  under  this  agreement  and  the  commercial  paper  program  may be
outstanding  at any one time.  Interest rates and maturities are set at the time
of borrowing.  The rates are based upon quoted market prices and the  maturities
are less than one year. At December 31, 1998,  Alliant Energy Resources had $253
million  of  commercial  paper  outstanding  and  backed by this  facility  with
interest  rates ranging from  5.15%-5.85%.  (See Note 11(a) of the "Notes to the
Consolidated  Financial  Statements"  for a  discussion  of interest  rate swaps
Alliant Energy Resources has entered into relative to $200 million of short-term
borrowings  under,  or backed by,  this  agreement.)  Alliant  Energy  Resources
intends to continue  issuing  commercial  paper  backed by this  facility and no
conditions  existed at  December  31, 1998 that would  prevent  the  issuance of
commercial paper or direct borrowings on its bank lines. Accordingly,  this debt
is classified as long-term. In addition, Alliant Energy Resources has in place a
$150 million 364-Day Credit Agreement which is described below.

Other than periodic sinking fund requirements, which will not require additional
cash expenditures,  the following long-term debt (in millions) will mature prior
to December 31, 2003:

             IESU                                              $187.5
             IPC                                                  3.3
             WP&L                                                 1.9
             Alliant Energy Resources                           279.2
                                                     -----------------
             IEC                                               $471.9
                                                     =================

Depending upon market conditions, it is currently anticipated that a majority of
the maturing debt will be refinanced with the issuance of long-term securities.

WP&L  currently has no authority  from the PSCW or the  Securities  and Exchange
Commission (SEC) to issue additional  long-term debt. On November 25, 1998, IESU
and IPC  received  authority  from the SEC under PUHCA to issue $200 million and
$80  million  of  long-term  debt   securities,   respectively.   The  companies
continually  evaluate their future  financing  needs and will make any necessary
regulatory filings as needed.



                                       46
<PAGE>

Under the most restrictive terms of their respective indentures,  IESU, WP&L and
IPC could have issued at least $241  million,  $309  million and $182 million of
long-term debt at December 31, 1998, respectively.

On October 30, 1998,  WP&L issued $60 million of  debentures at a coupon rate of
5.70% maturing on October 15, 2008. The net proceeds from the debt offering were
used to pay down  short-term  debt,  including  short-term  debt  used to retire
maturing long-term debt.

On November  30, 1998,  IPC issued  $2.65  million and $2.3 million of pollution
control  revenue bonds due November 1, 2005 and November 1, 2008,  respectively.
The proceeds were used to retire at maturity  $5.85  million of 5.95%  pollution
control  revenue  bonds.  The bonds have a fixed  interest rate of 4.30% for the
first five  years.  Thereafter,  IPC will have the option to reset the  interest
rate at one of three  variable  short-term  interest rates or at a new long-term
interest rate, based on the then prevailing market conditions, provided the rate
does not exceed 12% per annum.

On November 30, 1998, IESU issued $10 million of pollution control revenue bonds
due November 1, 2023.  The proceeds  were used to refinance $10 million of 5.95%
pollution  control  revenue bonds that were due serially 2000 through 2007.  The
bonds have a fixed rate of 4.25% for the first five years. Thereafter, IESU will
have the option to reset the interest rate at one of three  variable  short-term
interest rates or at a new long-term interest rate, based on the then prevailing
market conditions, provided the rate does not exceed 12% per annum.

The various charter  provisions of the entities  identified  below authorize and
limit the aggregate  amount of additional  shares of Cumulative  Preferred Stock
and Cumulative  Preference  Stock that may be issued.  At December 31, 1998, the
companies  could  have  issued the  following  additional  shares of  Cumulative
Preferred or Preference Stock:

                                        IESU          WP&L            IPC
         Cumulative Preferred            -          2,700,775      1,238,619
         Cumulative Preference        700,000           -          2,000,000

For interim  financing,  IESU,  WP&L and IPC were  authorized by the  applicable
federal or state  regulatory  agency to issue  short-term  debt as  follows  (in
millions) at December 31, 1998:

                                                     IESU       WP&L         IPC
Regulatory authorization                             $150       $128         $72
Short-term debt outstanding - external parties          -        $50           -
Short-term debt outstanding - money pool                -        $27         $22

In addition to the short-term debt outstanding at its utility subsidiaries,  IEC
had an additional  $66 million of short-term  debt  outstanding  at December 31,
1998.  In  addition  to  providing  for  ongoing  working  capital  needs,  this
availability of short-term  financing provides the companies  flexibility in the
issuance of long-term  securities.  The level of short-term borrowing fluctuates
based on  seasonal  corporate  needs,  the timing of  long-term  financing,  and
capital market conditions.  To maintain flexibility in its capital structure and
to take advantage of favorable short-term rates, IESU and WP&L also use proceeds
from the sale of accounts  receivable and unbilled revenues to finance a portion
of their  long-term  cash  needs.  IEC  anticipates  that  short-term  debt will
continue  to be  available  at  reasonable  costs  due  to  current  ratings  by
independent utility analysts and rating services.

Alliant  Energy  Resources is also a party to a 364-Day  Credit  Agreement  with
various banking  institutions.  The agreement  extends through October 18, 1999,
with 364 day extensions  available upon agreement by the parties. The unborrowed
portion of this  agreement  is also used to support  Alliant  Energy  Resources'
commercial paper program. A combined maximum of $150 million of borrowings under
this agreement and  commercial  paper backed by this facility may be outstanding
at any one time. Interest rates and maturities are set at the time of borrowing.
The rates are based upon quoted market prices and the  maturities  are less than
one year. There were no borrowings under this facility at December 31, 1998.



                                       47
<PAGE>

In addition to the  aforementioned  borrowing  capability  under Alliant  Energy
Resources Credit  Agreements,  IEC has $150 million of bank lines of credit,  of
which none was utilized at December 31, 1998,  available for direct borrowing or
to support  commercial  paper.  Commitment fees are paid to maintain these lines
and there are no conditions which restrict the unused lines of credit.

From time to time, IEC may borrow from banks and other financial institutions on
"as-offered"  credit lines in lieu of commercial  paper, and has agreements with
several financial institutions for such borrowings. There are no commitment fees
associated with these agreements and there were no borrowings  outstanding under
these agreements at December 31, 1998.

IEC made a filing with the SEC in February 1999 under PUHCA to provide IEC with,
among other things, broad authorization over the next three years to issue stock
and debt,  provide  guarantees,  acquire  energy-related  assets  and enter into
interest rate hedging transactions.

Given the above financing  flexibility,  including IEC's access to both the debt
and  equity  securities  markets,  management  believes  it  has  the  necessary
financing  capabilities in place to adequately finance its capital  requirements
for the foreseeable future.

Capital Requirements

General

Capital  expenditure and investment and financing plans are subject to continual
review and change.  The  capital  expenditure  and  investment  programs  may be
revised  significantly as a result of many considerations,  including changes in
economic  conditions,  variations  in actual  sales and load growth  compared to
forecasts,   requirements  of   environmental,   nuclear  and  other  regulatory
authorities,   acquisition   and   business   combination   opportunities,   the
availability of alternate  energy and  purchased-power  sources,  the ability to
obtain adequate and timely rate relief,  escalations in  construction  costs and
conservation and energy efficiency programs.

Construction  and acquisition  expenditures  for IEC for the year ended December
31,  1998 were $372  million,  compared  with $328  million  for the year  ended
December 31, 1997. IEC's anticipated  construction and acquisition  expenditures
for  1999  are  estimated  to  be  approximately  $495  million,  consisting  of
approximately  $275  million  in  its  utility  operations,   $100  million  for
energy-related  international  investments  and $120  million  for new  business
development  initiatives at Alliant Energy Resources.  IEC's anticipated utility
construction  and  acquisition  expenditures  for  1999  is  made  up of 53% for
electric  transmission and distribution,  18% for electric  generation,  10% for
information technology and 19% for miscellaneous  electric, gas, water and steam
projects.  The level of 1999 domestic and  international  investments could vary
significantly  from the  estimates  noted here  depending  on actual  investment
opportunities,  timing  of the  opportunities  and  the  receipt  of  regulatory
approvals to exceed  limitations in place under WUHCA and PUHCA on the amount of
IEC's non-utility investments.  It is expected that IEC will spend approximately
$1.3  billion  on  utility  construction  and  acquisition  expenditures  during
2000-2003, including expenditures to comply with nitrogen oxides (NOx) emissions
reductions in Wisconsin as discussed in "Other Matters -  Environmental."  It is
expected  that  Alliant  Energy  Resources  will invest in energy  products  and
services in domestic and international markets,  industrial services initiatives
and other strategic initiatives during 2000-2003.

IESU's  construction  and acquisition  expenditures for the years ended December
31,  1998 and 1997 were $115  million  and $109  million,  respectively.  IESU's
anticipated  construction and acquisition expenditures for 1999 are estimated to
be approximately $109 million, of which 56% represents expenditures for electric
transmission   and   distribution   facilities,    21%   represents   generation
expenditures,   8%  represents  information  technology   expenditures  and  the
remaining  15%  represents   miscellaneous  electric,  gas,  steam  and  general
expenditures. IESU's levels of utility construction and acquisition expenditures
are projected to be $122 million in 2000,  $119 million in 2001, $115 million in
2002 and $113 million in 2003.

                                       48
<PAGE>

WP&L's  construction  and acquisition  expenditures for the years ended December
31, 1998 and 1997 were $117 and $119 million,  respectively.  WP&L's anticipated
construction  and  acquisition   expenditures  for  1999  are  estimated  to  be
approximately  $126 million,  of which 50% represents  expenditures for electric
transmission   and   distribution   facilities,    17%   represents   generation
expenditures,   10%  represents  information  technology  expenditures  and  the
remaining  23%  represents   miscellaneous  electric,  gas,  water  and  general
expenditures.  WP&L's construction and acquisition expenditures are projected to
be $162  million in 2000,  $130  million in 2001,  $155 million in 2002 and $185
million in 2003 which include  expenditures to comply with nitrogen oxides (NOx)
emissions reductions as discussed in "Other Matters-Environmental."

IEC anticipates  financing utility  construction  expenditures  during 1999-2003
through  internally  generated  funds  supplemented,  when required,  by outside
financing.  Funding of a majority of the Alliant Energy  Resources  construction
and  acquisition   expenditures  is  expected  to  be  completed  with  external
financings.

Nuclear Facilities

IEC owns  interests  in two nuclear  facilities,  Kewaunee  and the Duane Arnold
Energy  Center  (DAEC).  Set forth  below is a  discussion  of  certain  matters
impacting these facilities.

Kewaunee,  a  532-megawatt  pressurized  water  reactor  plant,  is  operated by
Wisconsin  Public  Service  Corporation  (WPSC)  and is  jointly  owned  by WPSC
(41.2%), WP&L (41.0%), and Madison Gas and Electric Company (MG&E) (17.8%).
The Kewaunee operating license expires in 2013.

On April 7, 1998, the PSCW approved  WPSC's  application  for replacement of the
two  steam  generators  at  Kewaunee.  The  total  cost of  replacing  the steam
generators would be approximately  $90.7 million,  with WP&L's share of the cost
being approximately  $37.2 million.  The replacement work is tentatively planned
for the spring of 2000 and will take approximately 60 days. On July 2, 1998, the
PSCW  approved an agreement  between the owners of Kewaunee  which  provides for
WPSC to assume the 17.8% Kewaunee  ownership  share currently held by MG&E prior
to work beginning on the replacement of steam generators. On September 29, 1998,
WPSC and MG&E  finalized an  arrangement in which WPSC will acquire MG&E's 17.8%
share of Kewaunee.  This agreement,  the closing of which is contingent upon the
steam generator replacement,  will give WPSC 59.0% ownership in Kewaunee.  After
the  change  in  ownership,   WPSC  and  WP&L  will  be   responsible   for  the
decommissioning  of the plant.  WPSC and WP&L are  discussing  revisions  to the
joint power supply  agreement which will govern operation of the plant after the
ownership change takes place.

On  October  17,  1998,  Kewaunee  was shut down for a planned  maintenance  and
refueling outage.  Inspection of the plant's two steam generators shows that the
repairs made in 1997 are holding up well and few additional repairs were needed.
In  addition  to the  inspection  and  repairs of the steam  generator,  a major
overhaul  was  performed on the main  turbine  generator.  The plant was back in
operation on November 27, 1998.

Prior to the July 2, 1998 PSCW  decision,  the PSCW had  directed  the owners of
Kewaunee to record  depreciation  and  decommissioning  cost levels  based on an
expected plant  end-of-life of 2002 versus a license  end-of-life of 2013.  This
was prompted by the uncertainty  regarding the expected useful life of the plant
without steam generator replacement. The revised end-of life of 2002 resulted in
higher depreciation and  decommissioning  expense at WP&L beginning in May 1997,
in accordance with the PSCW rate order UR-110.  This level of depreciation  will
remain in effect  until the steam  generator  replacement  is completed at which
time the entire plant will be  depreciated  over 8.5 years using an  accelerated
method.  At December 31, 1998, the net carrying  amount of WP&L's  investment in
Kewaunee was approximately  $44.9 million.  WP&L's retail customers in Wisconsin
are  responsible  for  approximately  80% of WP&L's share of Kewaunee costs (see
Note 12 (h) of the "Notes to Consolidated  Financial  Statements" for additional
information).

DAEC, a 535-megawatt  boiling water reactor plant, is operated by IESU which has
a 70% ownership  interest in the plant.  The DAEC operating  license  expires in
2014.  Pursuant to the most recent electric rate case order, the IUB allows IESU
to currently  recover $6.0 million  annually for IESU's 70% share of the cost to
decommission  DAEC. The current recovery figures are based on an assumed cost to
decommission  DAEC of  $252.8  million,  which is 


                                       49
<PAGE>

IESU's 70% portion in 1993 dollars,  based on the Nuclear Regulatory  Commission
(NRC)  minimum  formula  (which  exceeds the amount in the  site-specific  study
completed in 1994).  At December 31, 1998,  IESU had $91.7  million  invested in
external  decommissioning  trust funds and also had an internal  decommissioning
reserve of $21.7 million recorded as accumulated depreciation.

IESU's 70% share of the estimated  cost to  decommission  DAEC based on the most
recent site-specific study completed in 1998 is $334.2 million, in 1998 dollars.
This study includes the costs to terminate  DAEC's NRC license and to return the
site to a  greenfield  condition.  IESU's  70%  share of the  estimated  cost to
decommission DAEC based on the most recent NRC minimum formula is $347.0 in 1997
dollars.  The NRC  minimum  formula  is  intended  to apply  only to the cost of
terminating DAEC's NRC license. The additional  decommissioning  expense funding
requirements which should result from these updated studies are not reflected in
IESU's rates.

In February 1999, IEC, NSP, WPSC and Wisconsin  Electric Power Co. announced the
formation of a nuclear  management  company (NMC) to sustain  long-term  safety,
optimize  reliability and improve the  operational  performance of their nuclear
generating plants. Combined, the four utilities operate seven nuclear generating
plants  at five  locations.  IEC's  participation  in the NMC is  contingent  on
approval  from the SEC under  PUHCA.  Each  utility  will be  required to obtain
various other state or federal  regulatory  approvals prior to its participation
in the NMC. In  addition,  NRC approval is required if any  utilities  choose to
transfer their operating license to the new company. As presently proposed,  the
utilities would continue to own their plants, be entitled to energy generated at
the  plants  and  retain the  financial  obligations  for their safe  operation,
maintenance and decommissioning.

Refer to the "Other Matters - Environmental" section for a discussion of various
issues impacting IEC's future capital requirements.

Rates and Regulatory Matters

In November  1997, as part of its Merger  approval,  FERC accepted a proposal by
IESU, WP&L, and IPC, which provides for a four-year freeze on wholesale electric
prices beginning with the effective date of the Merger.

In  association  with  the  Merger,  IESU,  WP&L and IPC  entered  into a System
Coordination   and  Operating   Agreement   which  became   effective  with  the
consummation of the Merger. The agreement,  which has been approved by the FERC,
provides a contractual basis for coordinated planning,  construction,  operation
and  maintenance of the  interconnected  electric  generation  and  transmission
systems of the three utility  companies.  In addition,  the agreement allows the
interconnected  system to be operated as a single  control area with  off-system
capacity sales and purchases made to market excess system  capability or to meet
system capability deficiencies. Such sales and purchases are allocated among the
three utility  companies  based on  procedures  included in the  agreement.  The
procedures were approved by both the FERC and all state regulatory bodies having
jurisdiction over these sales.

IESU

In  September  1997,  IESU  agreed  with the IUB to  provide  Iowa  customers  a
four-year retail electric and gas price freeze  commencing on the effective date
of the Merger. The agreement  excluded price changes due to  government-mandated
programs (such as energy efficiency cost recovery), the electric fuel adjustment
clause  and PGA  clause  and  unforeseen  dramatic  changes  in  operations.  In
addition,  the price  freeze  does not  preclude  a review by either  the IUB or
Office of Consumer  Advocate  (OCA) into  whether IESU is exceeding a reasonable
return on common equity.  Refer to the "Utility  Industry Outlook" section for a
discussion  of  possible   legislation   to  be  introduced  in  Iowa  regarding
restructuring the electric utility industry.

Under provisions of the IUB rules, IESU is currently recovering the costs it has
incurred  for its energy  efficiency  programs.  Generally,  the costs  incurred
through July 1997 are being recovered over various four-year periods.  Statutory
changes implemented by the IUB in 1997 allowed IESU to begin concurrent recovery
of its prospective  expenditures on August 1, 1997. The  implementation of these
changes will gradually eliminate the regulatory asset that was created under the
prior rate making mechanism as these costs are recovered.

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<PAGE>

WP&L

In connection with its approval of the Merger, the PSCW accepted a WP&L proposal
to freeze rates for four years following the date of the Merger. A re-opening of
an investigation  into WP&L's rates during the rate freeze period, for both cost
increases  and  decreases,  may  occur  only  for  single  events  that  are not
merger-related and have a revenue requirement impact of $4.5 million or more. In
addition, the electric fuel adjustment clause and PGA clause are not affected by
the rate freezes.

In rate order UR-110,  the PSCW approved new rates  effective April 29, 1997. On
average,  WP&L's retail electric rates under the new rate order declined by 2.4%
and retail gas rates  declined by 2.2%.  In  addition,  the PSCW ordered that it
must  approve the payment of  dividends by WP&L to IEC that are in excess of the
level  forecasted in the rate order ($58.3  million),  if such  dividends  would
reduce WP&L's average common equity ratio below 52.00% of total  capitalization.
The  dividends  paid by WP&L to IEC since the rate  order  was  issued  have not
exceeded the level forecasted in the rate order.

The  retail   electric   rates  are  based  in  part  on  forecasted   fuel  and
purchased-power  costs. Under PSCW rules, Wisconsin utilities can seek emergency
rate  increases if the annual  costs are more than 3% higher than the  estimated
costs used to establish  rates.  In March 1998,  WP&L requested an electric rate
increase to cover purchased-power and transmission costs that have increased due
to transmission constraints and electric reliability concerns in the Midwest. On
July 14, 1998, the PSCW granted a retail electric rate increase of $14.8 million
annually that was effective on July 16, 1998. In November  1998,  WP&L requested
another electric rate increase to cover additional  increases in purchased-power
and transmission  costs. In early March 1999, the PSCW granted a retail electric
rate increase of $14.5 million. The additional revenues collected are subject to
refund if WP&L's earnings exceed its authorized return on equity.

The gas performance  incentive includes a sharing mechanism,  whereby 40% of all
gains  and  losses  relative  to  current  commodity  prices  as well  as  other
benchmarks  are  retained  by WP&L rather than  refunded  to or  recovered  from
customers.

Rate order UR-110 also provided for the recovery of costs associated with WP&L's
energy  efficiency  programs,  including  the  recovery  of the cost of  capital
associated   with  advances  made  to  customers  to  install   energy-efficient
equipment.

In May 1998, the PSCW approved the deferral of certain costs associated with the
Year 2000 issue and in  November  1998,  WP&L filed for rate  recovery  of $16.1
million  related  to  the  Wisconsin  retail  portion  of  Year  2000  costs.  A
pre-hearing  conference  was held in January 1999 and hearings are scheduled for
May 1999.  Management  anticipates  receiving  an order by the end of the second
quarter of 1999.

In January 1999, WP&L made a filing with the PSCW proposing to begin  deferring,
on January 1, 1999, all costs  associated  with the United States  Environmental
Protection Agency's (EPA) required NOx emission  reductions.  WP&L has requested
recovery of all the NOx  reduction  costs  through a surcharge  mechanism.  WP&L
anticipates  receiving  a final order in this  proceeding  in late 1999 or early
2000.  Refer to the  "Other  Matters  -  Environmental"  section  for a  further
discussion of the NOx issue.

Refer to "Nuclear Facilities" for a discussion of several PSCW rulings regarding
Kewaunee.

IPC

In September 1997, IPC agreed with the IUB to provide Iowa customers a four-year
retail  electric and gas price freeze  commencing on the  effective  date of the
Merger. The agreement excluded price changes due to government-mandated programs
(such as energy  efficiency cost recovery),  the electric fuel adjustment clause
and PGA clause and unforeseen dramatic changes in operations.  In addition,  the
price  freeze does not  preclude a review by either the IUB or OCA into  whether
IPC is exceeding a reasonable return on common equity.  IPC also agreed with the
MPUC and ICC to four-year and three-year rate freezes, respectively,  commencing
on the effective  date of the 


                                       51
<PAGE>


Merger.  Refer to the "Utility  Industry  Outlook"  section for a discussion  of
possible  legislation  to be  introduced  in Iowa  regarding  restructuring  the
electric utility industry.

On  September  30, 1997,  the IUB approved a settlement  between IPC and the OCA
which   provided  for  an  electric  rate   reduction  in  annual   revenues  of
approximately  $3.2 million.  The reduction applied to all bills rendered on and
after October 7, 1997.

IPC is also recovering its energy  efficiency  costs in Iowa in a similar manner
as IESU and began its concurrent cost recovery in October 1997.

Assuming capture of the merger-related  synergies and no significant legislative
or regulatory changes negatively  affecting its utility  subsidiaries,  IEC does
not expect the merger-related  electric and gas price freezes to have a material
adverse effect on its financial position or results of operations.

                                  OTHER MATTERS

Year 2000

Overview  IEC  utilizes  software,  embedded  systems and  related  technologies
throughout  its  business  that will be  affected by the date change in the Year
2000. The Year 2000 problem exists because many computerized  operating systems,
applications, databases and embedded systems use a standard two digit year field
instead of four digits to reference a given year. For example,  "00" in the date
field would actually  represent  1900. As a result,  information  technology and
embedded  systems  may not  properly  recognize  the Year 2000 or  process  data
correctly,  potentially causing data inaccuracies,  operational  malfunctions or
operational failures.

Following up on earlier work, IEC formally  established a  company-wide  project
team in 1997 to assess,  remediate and  communicate its Year 2000 issues as well
as develop the necessary contingency plans. Expertise on the team has been drawn
from  various  areas,  including,  but not limited to,  information  technology,
engineering,  communications,  internal audits, legal, facilities, supply chain,
finance, and project management.  A full-time project manager heads up a team of
approximately  50 employees who are dedicated to the team  full-time and another
475  employees  are working on the project on a part-time  basis.  In  addition,
there are approximately  135 individuals from external  consulting firms who are
also providing various Year  2000-related  services for the project team. Status
reports are provided to senior management  monthly and at every meeting of IEC's
Board of Directors. Auditing of the Year 2000 inventory, remediation efforts and
contingency  planning is being done by the Internal Audits  Department.  IEC has
also  retained  an  outside  third  party to assess and  evaluate  its Year 2000
project.

The various  phases of and other  matters  relating to the Year 2000 project are
described below.

Assessment  A  company-wide   inventory  has  been  completed  for   information
technology (hardware,  software,  databases,  network  infrastructure  operating
systems) and embedded systems (computers or microprocessors that run specialized
software).  Inventoried  devices and systems have been assessed and  prioritized
into three  categories  based on the relative  critical nature of their business
function:     safety-related;     critical-business-continuity-related;      and
non-critical.

Remediation  and Testing IEC's approach to remediation is to repair,  replace or
retire  the   affected   devices  and  systems.   Remediation   and  testing  of
safety-related and  critical-business-continuity-related  devices and systems is
underway in all business  units.  In some cases IEC's ability to meet its target
date for  remediation  is  dependent  upon the  timely  provision  of  necessary
upgrades and modifications by its software vendors. As of December 31, 1998, IEC
was  expecting  upgrades  from 48 embedded  system  vendors  and 14  information
technology  vendors.  Should  these  upgrades be delayed it would  impact  IEC's
ability to meet its target  date.  At this time,  IEC does not expect that these
upgrades  will  be  delayed.  As  part  of the  testing  process,  client/server
applications  are being  tested in an isolated  test lab on Year 2000  compliant
hardware and software.  Also,  IEC intends to implement a process to protect the
integrity of the data once it is year 2000 compliant.


                                       52
<PAGE>

A.  Embedded Systems -
The  project  team is using  testing  standards  and  procedures  based on those
developed in the national  electric  utility industry effort led by the Electric
Power Research  Institute (EPRI). The team is also using information and testing
guidance  received from IEC's vendors.  IEC is participating in EPRI's Year 2000
collaborative  effort to share information  about test procedures,  test results
and vendor information.  The project team is also working with equipment vendors
to ascertain Year 2000 compliance with systems and devices.  Testing methodology
includes  a power  on/off  test and  testing  for 13  critical  dates  including
12/31/99, 1/1/2000 and 2/29/2000. All testing for assessing Year 2000 compliance
has been completed. The only testing remaining is post-remediation  testing. The
goal is to complete  remediation/testing  work for the embedded systems by March
31, 1999;  approximately 85% of this remediation/testing work has been completed
as of the end of 1998.

Experience  to date  suggests  that Year 2000  problems in embedded  systems are
occurring at a lower rate than originally anticipated. For IEC, 1-2% of embedded
systems have been  identified as Year 2000  problematic.  This rate is generally
consistent  in both  volume  and by type of  device  with  other  similar  sized
electric utilities participating in EPRI's Year 2000 Embedded System Program.

B. Information Technology -
IEC's  information  technology  Year 2000  readiness  project  consists  of both
application and operating systems,  and infrastructure  (PC, servers,  printers,
etc.)  components.  The  inventory  and  assessment  of both the systems and the
infrastructure has been completed. IEC's goal is to complete the remediation and
testing of the systems by March 31, 1999 and the  infrastructure  components  by
June 30, 1999. At the end of 1998,  approximately  65% of the systems and 40% of
the infrastructure components have been remediated and tested.

IEC's customer information systems and financial systems make up the majority of
the remediation and testing effort remaining. The remediation and testing of the
customer  information  systems  was 70%  complete  at the  end of  1998  with an
anticipated  completion  date of May 31, 1999.  The financial  systems have been
remediated with final roll-forward-testing scheduled to be completed by mid-year
1999. Therefore, it is anticipated that IEC will have its information technology
remediation  and  testing  efforts  90%  complete  by March  31,  1999 with work
completed and into production by mid-year 1999.

Costs to  Address  Year 2000  Compliance  IEC's  historical  Year  2000  project
expenditures as well as CURRENT ESTIMATES for the remaining costs to be incurred
on the project are as follows (incremental costs, in millions):

                     Description                 Total     IESU     WP&L   Other
                     -----------                 -----     ----     ----   -----
  Costs incurred from 1/1/98 - 12/31/98          $8.7      $4.8     $3.2    $0.7
  Current estimate of remaining modifications     $32       $10     $14      $8

In addition,  the company estimates it incurred $3 million in costs for internal
labor  and  associated  overheads  in 1998 and  anticipates  expenditures  of $8
million in 1999.

While work was done on the Year 2000  project  prior to 1998,  IEC did not begin
tracking the costs  separately  until 1998. In accordance with an order received
from the PSCW,  WP&L began  deferring  its Year 2000 project  costs,  other than
internal labor and associated overheads, in May 1998 (approximately $2.7 million
of the  expenditures  incurred at WP&L for the 12 months ended December 31, 1998
have been  deferred.)  (Refer to  "Liquidity  and Capital  Resources - Rates and
Regulatory Matters" for a further discussion.) IEC expects to fund its Year 2000
expenditures  through internal  sources.  Other than the costs being deferred by
WP&L pursuant to the PSCW order,  IEC is expensing all the Year 2000 costs noted
above.

Communications  / Third  Party  Assessment  IEC is  heavily  dependent  on other
utilities (including electric, gas,  telecommunications and water utilities) and
its  suppliers.  An effort is  underway  to  communicate  with such  parties  to
increase  their  awareness  of Year 2000 issues and  monitor and assess,  to the
extent  possible,  their Year 2000 readiness.  IEC has sought written  assurance
that third  parties with  significant  relationships  with IEC will be Year


                                       53
<PAGE>

2000 ready. As part of an extensive  awareness effort, IEC is also communicating
with  its  utility  customers,   regulatory  agencies,   elected  and  appointed
government  officials,  and industry groups. IEC executives and account managers
are also  having  discussions  with  IEC's  largest  customers  to review  their
initiatives for Year 2000 readiness.  IEC is also working closely with the North
American  Electric  Reliability  Council  (NERC) and the  Natural Gas Council to
assist their efforts to make certain all system interconnections across regional
areas are Year 2000 compliant.

Risks and  Contingency  Planning The systems  which pose the greatest  Year 2000
risks  for  IEC  if  the  Year  2000   project   is  not   successful   are  the
telecommunications  facilities  and network  systems as well as the  information
technology  systems.  The potential  problems  related to these systems  include
service  interruptions,  service  order and  billing  delays  and the  resulting
customer relations and cash flow issues. IEC is currently unable to quantify the
financial impact of such contingencies if in fact they were to occur.

Even though IEC intends to complete  the bulk of its Year 2000  remediation  and
testing  activities  by the end of  March  1999  and  has  initiated  Year  2000
communications with significant  customers,  key vendors,  suppliers,  and other
parties  material to IEC's  operation,  failures or delay in achieving Year 2000
compliance  could  significantly  disrupt  IEC's  business.  Therefore,  IEC has
initiated  contingency  planning to address  alternatives in the event of a Year
2000 failure that occurs within IEC or where IEC is impacted by an external Year
2000  failure.  The plan will address  mission-critical  processes,  devices and
systems and will include training,  testing and rehearsal of procedures, and the
need for installation of backup equipment as necessary.  The goal is to have the
contingency  plan  completed  by  mid-year  1999.  As a  member  of  Mid-America
Interconnected  Network,  Inc.  (MAIN),  IEC is also working with the  Operating
Committee  Y2K  Task  Force  which  will  expand  existing  emergency  operating
strategies for member company  control  centers to ensure rapid responses to any
Year  2000-related  electric  system  disturbances  and  will  coordinate  those
strategies with other reliability organizations.  MAIN is one of the 10 regional
coordinating  councils that make up NERC. IEC also belongs to the  Mid-Continent
Area  Power  Pool  (MAPP),  another  one of the 10 NERC  councils,  and  will be
coordinating Year 2000 contingency planning with MAPP as well.

As part of its contingency planning process,  NERC has scheduled two nation-wide
electric  utility industry drills in April 1999 and September 1999. These drills
will focus on safe and reliable  electrical  system  operations with the partial
loss of  telecommunications.  In  addition  to these  NERC  drills,  IEC will be
conducting  three additional  internal  drills.  These will include a March 1999
table-top  drill,  a June 1999  functional  drill and an August 1999  full-scale
development  drill where key employees will test and critique IEC's  contingency
plans.

Since  early  1998,  IEC has devoted a  significant  portion of its  information
technology  resources  to the Year 2000  project  given the  importance  of such
project to the continued  operations  of IEC. As a result,  there have been some
delays in implementing  other information  technology  projects.  The delays are
simply a matter of timing and IEC does not  currently  believe  that such delays
will have a material  adverse  impact on its results of  operations or financial
position.

Summary Based on IEC's current  schedule for  completion of its Year 2000 tasks,
IEC believes its plan is adequate to secure Year 2000  readiness of its critical
systems.  Nevertheless,  achieving  Year 2000 readiness is subject to many risks
and uncertainties, as described above. If IEC, or third parties, fail to achieve
Year 2000  readiness  with respect to critical  systems and, as such,  there are
systematic  problems,  there could be a material adverse effect on IEC's results
of operations and financial condition.

Labor Issues

The status of the collective  bargaining  agreements at each of the utilities is
as follows at December 31, 1998:

                                                    IESU        WP&L        IPC
Number of collective bargaining agreements            6           1           3
Percentage of workforce covered by agreements        61          92          81


                                       54
<PAGE>

Eight agreements are scheduled to expire in 1999 and represent substantially all
employees  covered  under  collective  bargaining  agreements.  These  employees
represent  approximately  50% of all IEC employees.  IEC has not experienced any
significant  work  stoppage  problems  in  the  past.  While  negotiations  have
commenced, IEC is currently unable to predict the outcome of these negotiations.

Market Risk Sensitive Instruments and Positions

IEC,  through its consolidated  subsidiaries,  has historically had only limited
involvement  with  derivative  financial  instruments  and has not used them for
speculative  purposes.  They have been used to manage well-defined interest rate
and commodity price risks.

WP&L and Alliant Energy Resources have  historically  entered into interest rate
swap  agreements  to reduce  the  impact of  changes  in  interest  rates on its
variable-rate debt. The total notional amount of interest rate swaps outstanding
at WP&L and Alliant  Energy  Resources at December 31, 1998, was $30 million and
$200  million,  respectively.  See Note  11(a)  of the  "Notes  to  Consolidated
Financial Statements" for additional information.

Whiting is exposed to market risk in the pricing of its oil and gas  production.
Historically,  prices  received for oil and gas  production  have been  volatile
because of seasonal weather patterns, supply and demand factors,  transportation
availability  and price, and general economic  conditions.  Worldwide  political
developments  have  historically  also had an impact on oil prices. In the past,
IEC generally  has not utilized  derivative  instruments  designed to reduce its
exposure to these price  fluctuations  and no such positions were outstanding at
December 31, 1998.  However,  during 1999, IEC has entered into a limited amount
of  transactions  involving a collar  strategy  for a portion of  Whiting's  gas
production.

As discussed in Note 11(a) of the "Notes to Consolidated  Financial Statements,"
from time to time WP&L utilizes gas commodity swap  arrangements to mitigate the
impact of price  fluctuations  on gas purchased and injected into storage during
the summer  months and  withdrawn  and sold at current  prices during the winter
months.  While it is not WP&L's intent to terminate  the contracts  currently in
place, the impact of a termination of all the agreements outstanding at December
31, 1998, would have been an estimated gain of $0.8 million.

WP&L has entered into a weather  insurance  agreement which terminates March 31,
1999,  for the  purpose  of hedging a portion  of the risk  associated  with the
changes in weather from normal conditions.  Under this agreement, a payment will
be made or received if the  heating  degree days from  November 1, 1998 to March
31, 1999, fall outside certain pre-determined heating degree levels. The payment
is limited to a maximum of $5 million.  At December 31, 1998,  the fair value of
this agreement if it were terminated would have resulted in a payment to WP&L of
an estimated $1.8 million.

In the course of Alliant Energy Resource's gas marketing  activities,  it enters
into fixed-price  sales commitments to customers and purchases the corresponding
physical  supplies at fixed  prices  from a third party  provider to lock in the
related margin on the sale. The risk associated  with gas price  fluctuations is
managed by closely matching  purchases from suppliers with the sales commitments
to the customers. There were no derivative positions outstanding at December 31,
1998.

While IEC is exposed to credit risk when it enters  into a hedging  transaction,
it has established  procedures and policies  designed to mitigate such risks due
to a counterparty default. IEC utilizes a listing of approved counterparties and
monitors the creditworthiness on an ongoing basis.

IEC's  investments  in China and New Zealand are valued in renminbi (RMB) and in
New Zealand (NZ)  dollars,  respectively.  As a result,  these  investments  are
subject to currency  exchange risk when the investments are translated into U.S.
dollars.  During 1998, the RMB remained  stable as compared to the U.S.  dollar,
however,  the NZ dollar  decreased in value in relation to the U.S.  dollar.  At
December  31,  1998,  IEC  had  a  cumulative  $7.9  million  foreign   currency
translation  loss recorded in "Accumulated  other  comprehensive  income" on its
Consolidated  Balance  Sheets  which  primarily  related to  decreases in the NZ
dollar in relation to the U.S. dollar.

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<PAGE>


At  December  31,  1998,  IEC  had an  investment  in the  stock  of  McLeod,  a
telecommunications  company,  valued at $320.3  million (based on a December 31,
1998  closing  price of $31.25 per share and  compared  to a cost basis of $29.1
million). Pursuant to the applicable accounting rules, the carrying value of the
investments  are adjusted to the estimated  fair value each quarter based on the
closing  price at the end of the  quarter.  IEC  entered  into an  agreement  in
November  1998 with McLeod  whereby  IEC's  ability to sell the McLeod  stock is
subject to various restrictions.

IEC has a 50%  interest in an  electricity  trading  joint  venture with Cargill
which is  accounted  for  under  the  equity  method  of  accounting.  The joint
venture's  trading  activities  principally  consist of  marketing  and  trading
over-the-counter  contracts  for  the  purchase  and  sale of  electricity.  The
majority  of the forward  contracts  represent  commitments  to purchase or sell
electricity  at fixed  prices in the future and require  settlement  by physical
delivery of  electricity or are netted out in accordance  with industry  trading
standards.  The  market  risk  exposure  of the joint  venture  for its  forward
contracts  outstanding at December 31, 1998, was not  significant.  In addition,
Cargill has made guarantees to certain counterparties  regarding the performance
of contracts entered into by the joint venture.  Guarantees of approximately $50
million have been issued of which  approximately  $5 million were outstanding at
December 31, 1998. Under the terms of the joint venture agreement,  any payments
required  under the  guarantees  would be shared by IEC and  Cargill  on a 50/50
basis to the extent the joint venture is not able to reimburse the guarantor for
payments made under the guarantee.

Accounting Pronouncements

In February 1998, the American Institute of Certified Public Accountants (AICPA)
issued  Statement of Position (SOP) 98-1,  "Accounting for the Costs of Computer
Software  Developed  or Obtained for Internal  Use." SOP 98-1  addresses,  among
other things, expensing versus capitalization of costs, accounting for the costs
incurred in the upgrading of the software and amortizing the capitalized cost of
software.  This statement is effective for fiscal years beginning after December
15,  1998.  IEC  adopted the  requirements  of this  statement  in 1999 and such
adoption did not have any significant impact on its financial statements.

In April 1998,  the AICPA issued SOP 98-5,  "Reporting  on the Costs of Start-up
Activities." This SOP provides  guidance on the financial  reporting of start-up
costs and  organization  costs.  Costs of start-up  activities and  organization
costs are required to be expensed as incurred.  The  statement is effective  for
periods  beginning after December 15, 1998. IEC adopted the requirements of this
statement in 1999 and such adoption did not have any  significant  impact on its
financial statements.

In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS 133,
"Accounting for Derivative  Instruments and Hedging  Activities."  The Statement
establishes  accounting and reporting  standards requiring that every derivative
instrument   (including  certain  derivative   instruments   embedded  in  other
contracts)  be  recorded on the  balance  sheet as either an asset or  liability
measured  at  its  fair  value.  The  Statement  requires  that  changes  in the
derivative's  fair value be  recognized  currently in earnings  unless  specific
hedge  accounting  criteria are met.  Special  accounting for qualifying  hedges
allows a derivative's  gains and losses to offset related  results on the hedged
item  in the  income  statement,  and  requires  that a  company  must  formally
document,  designate,  and assess the effectiveness of transactions that receive
hedge accounting.

SFAS 133 is effective for fiscal years  beginning  after June 15, 1999. SFAS 133
must  be  applied  to (a)  derivative  instruments  and (b)  certain  derivative
instruments  embedded  in  hybrid  contracts  that  were  issued,  acquired,  or
substantively  modified  after December 31, 1997. IEC has not yet quantified the
impacts  of SFAS 133 on the  financial  statements  and has not  determined  the
timing of or method  of  adoption  of SFAS 133.  However,  the  Statement  could
increase volatility in earnings and other comprehensive income.

In December 1998, the Emerging Issues Task Force reached  consensus on Issue No.
98-10,  "Accounting for Contracts Involved in Energy Trading and Risk Management
Activities"  (EITF Issue 98-10).  EITF Issue 98-10 is effective for fiscal years
beginning  after December 15, 1998 and requires  energy trading  contracts to be
recorded  at fair value on the  balance  sheet,  with the  changes in fair value
included in earnings. IEC anticipates that the adoption of EITF Issue 98-10 will
not have a significant impact on IEC's financial statements based on its current
operations.


                                       56
<PAGE>


Accounting for Obligations Associated with the Retirement of Long-Lived Assets

The staff of the SEC has questioned certain of the current accounting  practices
of the  electric  utility  industry,  including  IESU and  WP&L,  regarding  the
recognition, measurement and classification of decommissioning costs for nuclear
generating stations in financial  statements of electric utilities.  In response
to these questions, the FASB is reviewing the accounting for closure and removal
costs,  including  decommissioning  of nuclear power plants. If current electric
utility industry  accounting  practices for nuclear power plant  decommissioning
are changed, the annual provision for decommissioning could increase relative to
1998,  and the  estimated  cost  for  decommissioning  could  be  recorded  as a
liability  (rather than as  accumulated  depreciation),  with  recognition of an
increase in the cost of the related nuclear power plant. Assuming no significant
change in regulatory treatment,  IESU and WP&L do not believe that such changes,
if required, would have an adverse effect on their financial position or results
of  operations  due to their  ability to recover  decommissioning  costs through
rates.

Inflation

IEC,  IESU and WP&L do not expect the effects of inflation at current  levels to
have a significant effect on their financial position or results of operations.

Environmental

The pollution abatement programs of IESU, WP&L, IPC and Alliant Energy Resources
are  subject  to  continuing  review  and are  revised  from time to time due to
changes  in  environmental  regulations,   changes  in  construction  plans  and
escalation of construction costs. While management cannot precisely forecast the
effect of future  environmental  regulations on IEC's  operations,  it has taken
steps to anticipate  the future while also meeting the  requirements  of current
environmental regulations.

The Clean Air Act Amendments of 1990 (Act) require emission reductions of sulfur
dioxide (SO2), NOx and other air pollutants to achieve reductions of atmospheric
chemicals  believed  to  cause  acid  rain.  IESU,  WP&L  and IPC  have  met the
provisions  of  Phase  I of the  Act  and  are in the  process  of  meeting  the
requirements  of Phase II of the Act (effective in the year 2000).  The Act also
governs SO2 allowances,  which are defined as an  authorization  for an owner to
emit one ton of SO2 into the  atmosphere.  The  companies  are  reviewing  their
options to ensure they will have sufficient allowances to offset their emissions
in the future.  The companies believe that the potential costs of complying with
these  provisions of Title IV of the Act will not have a material adverse impact
on their financial position or results of operations.

The Act and other  federal laws also require the EPA to study and  regulate,  if
necessary,  additional  issues  that  potentially  affect the  electric  utility
industry,   including  emissions  relating  to  ozone  transport,   mercury  and
particulate  control as well as  modifications to the  polychlorinated  biphenyl
(PCB) rules.  In July 1997,  the EPA issued  final rules that would  tighten the
National  Ambient  Air  Quality  Standards  for  ozone  and  particulate  matter
emissions and in June 1998,  the EPA modified the PCB rules.  IEC cannot predict
the  long-term  consequences  of these  rules on its  results of  operations  or
financial condition.

In October  1998,  the EPA issued a final rule  requiring  22 states,  including
Wisconsin,  to modify  their State  Implementation  Plans  (SIPs) to address the
ozone transport issue. The  implementation  of the rule will likely require WP&L
to reduce its NOx emissions at all of its plants to .15 lbs/mmbtu by 2003.  WP&L
is  currently  evaluating  various  options to meet the emission  levels.  These
options  include  fuel   switching,   operational   modifications   and  capital
investments.  Based on existing technology,  the preliminary  estimates indicate
that capital investments will be approximately $150 million. Refer to the "Rates
and Regulatory  Matters" section for a discussion of a filing WP&L made with the
PSCW regarding rate recovery of these costs.

Revisions to the  Wisconsin  Administrative  Code have been  proposed that could
have a  significant  impact on WP&L's  operation  of the Rock  River  Generating
Station in Beloit,  Wisconsin.  The proposed revisions will affect


                                       57
<PAGE>

the  amount of heat that the  Generating  Station  can  discharge  into the Rock
River. WP&L cannot presently predict the final outcome of the rule, but believes
that,  as the  rule  is  currently  proposed,  the  capital  investments  and/or
modifications   required  to  meet  the  proposed   discharge  limits  could  be
significant.

Pursuant to a routine internal review of documents, IESU determined that certain
changes undertaken during previous years at one of its generating facilities may
have required a federal  prevention of significant  deterioration  (PSD) permit.
IESU initiated  discussions with its regulators on the matter,  resulting in the
submittal of a PSD permit application in February 1997. IESU received the permit
in the second  quarter of 1998.  IESU may be subject to a penalty for not having
obtained the permit previously;  however,  IESU believes that any likely actions
resulting  from  this  matter  will not have a  material  adverse  effect on its
financial position or results of operation.

Pursuant  to a  separate  routine  internal  review  of plant  operations,  IESU
determined  that  certain  permit  limits  were  exceeded  in 1997 at one of its
generating facilities in Cedar Rapids, Iowa. IESU has initiated discussions with
its  regulators on the matter and has proposed a compliance  plan which includes
equipment  modifications and contemplates  operational changes. On May 13, 1998,
IESU  received  a  citation  from the Linn  County  Health  Department  alleging
violations at the facility.  IESU has negotiated a settlement agreement with the
Linn County Health Department,  resolving the matter for $30,000. The settlement
was reviewed and approved by a local court with appropriate  jurisdiction during
the third quarter of 1998. On February 16, 1999, IESU received a letter from the
Iowa Department of Natural  Resources  (IDNR) stating that IDNR will require the
IESU  customer  served by this facility to obtain a PSD permit for the facility.
IESU is  currently  evaluating  the  ramifications  of this IDNR  decision,  and
formulating a response.  However,  management  believes that any likely  actions
resulting  from this  matter will not have a material  adverse  effect on IESU's
financial position or results of operations.

In March 1998 and January  1999,  IPC received  Notices of Intent to Sue from an
environmental group alleging certain violations of effluent limits,  established
pursuant to the Clean Water Act, at IPC's generating facility in Clinton,  Iowa.
On May 14, 1998,  IPC received from the IDNR an inspection  report and notice of
violation  addressing  the  same  and  other  concerns  as  were  raised  by the
environmental  group. IPC responded to the environmental  group on May 19, 1998,
providing an evaluation of the alleged violations.  IPC responded to the IDNR on
June  26,  1998  with a plan of  action  addressing  the  IDNR's  concerns.  IPC
responded to the  environmental  group again on February 22, 1999,  stating that
all of the alleged violations were either already resolved or invalid. While IPC
believes that it has satisfied IDNR's  concerns,  it may be subject to a penalty
for exceeding permit limits established for this facility,  however,  management
believes  that any likely  actions  resulting  from this  matter will not have a
material adverse effect on IPC's financial position or results of operations.

Pursuant to an internal review of operations,  IPC discovered that Unit No. 6 at
its generating facility in Dubuque,  Iowa, may require a Clean Air Act Acid Rain
permit and continuous  emissions  monitoring  system  (CEMS).  IPC has initiated
discussions with the regulators,  has discontinued operation of the unit pending
resolution of the issues,  and will be installing a CEMS on the unit and will be
applying for an Acid Rain  permit.  Pursuant to its  internal  review,  IPC also
identified  and disclosed to regulators a potentially  similar  situation at its
Lansing,  Iowa generating facility,  and will potentially be installing CEMS and
applying for Acid Rain  permits for these units as well,  pending the outcome of
regulatory  review. IPC may be subject to a penalty for not having installed the
CEMS and for not having obtained the permit  previously.  However,  IPC believes
that any likely  actions  resulting  from this  matter  will not have a material
adverse effect on its financial position or results of operations.

A global treaty has been negotiated that could require  reductions of greenhouse
gas emissions  from utility  plants.  In November 1998, the United States signed
the treaty and agreed with the other  countries to resolve all remaining  issues
by the end of 2000. At this time,  management  is unable to predict  whether the
United States  Congress  will ratify the treaty.  Given the  uncertainty  of the
treaty ratification and the ultimate terms of the final regulations,  management
cannot currently estimate the impact the implementation of the treaty would have
on IEC's operations.

The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates that each
state must take  responsibility  for the storage of low-level  radioactive waste
produced within its borders. The States of Iowa and Wisconsin are members of the
six-state Midwest Interstate Low-Level Radioactive Waste Compact (Compact) which
is responsible for development of any new disposal capability within the Compact
member states. In June 


                                       58
<PAGE>

1997, the Compact  commissioners  voted to discontinue  work on a proposed waste
disposal  facility  in the State of Ohio  because  the  expected  cost of such a
facility was comparably higher than other options currently available. Dwindling
waste volumes and continued  access to existing  disposal  facilities  were also
reasons cited for the decision. A disposal facility located near Barnwell, South
Carolina  continues to accept the  low-level  waste and IESU and WP&L  currently
ship the waste each  produces  to such site,  thereby  minimizing  the amount of
low-level waste stored on-site. In addition, given technological advances, waste
compaction and the reduction in the amount of waste generated, DAEC and Kewaunee
each  have  on-site  storage  capability  sufficient  to store  low-level  waste
expected  to be  generated  over at least the next ten  years,  with  continuing
access  to  the  Barnwell  disposal  facility  extending  that  on-site  storage
capability indefinitely.

See Notes 12(f) and 12(g) of the "Notes to  Consolidated  Financial  Statements"
for a further discussion of IEC's environmental issues.

Power Supply

The power supply  concerns of 1997 have raised  awareness of the electric system
reliability  challenges  facing  Wisconsin and the Midwest region.  As a result,
Wisconsin  enacted  electric  reliability  legislation in April 1998  (Wisconsin
Reliability  Act). The  legislation has the goal of assuring  reliable  electric
energy for Wisconsin.  The new law,  effective May 12, 1998,  requires Wisconsin
utilities to join a regional independent system operator for transmission by the
year 2000,  allows the  construction  of merchant  power plants in the state and
streamlines  the  regulatory  approval  process for building new  generation and
transmission facilities. As a requirement of the legislation, the PSCW completed
a  regional  transmission  constraint  study.  The PSCW is  authorized  to order
construction  of new  transmission  facilities,  based  on the  findings  of its
constraint study, through December 31, 2004.

On September 24, 1997, the PSCW ordered WP&L and two other  Wisconsin  utilities
to arrange for additional  electric  capacity to help maintain  reliable service
for  their  customers.  In July  1998,  IEC and  Polsky  Energy  Corp.  (Polsky)
announced an agreement whereby Polsky would build, own and operate a power plant
in  southeastern  Wisconsin  capable of  producing up to 450  megawatts  (MW) of
electricity  (reduced  from  earlier  estimates  of 525 MW due to NOx  emissions
limitations  imposed by the Wisconsin  Department of Natural Resources  (WDNR)).
Under the  agreement,  IEC will purchase the capacity to meet the electric needs
of its utility  customers,  as outlined by the Wisconsin  Reliability Act. It is
expected that this new power plant will be  operational  in June 2000.  The PSCW
issued an order dated December 18, 1998 approving the project.

Utility  officials noted that it will take time for new  transmission  and power
plant projects to be approved and built. While utility officials fully expect to
meet  customer  demands  in 1999,  problems  still  could  arise  if  there  are
unexpected power plant outages,  transmission system outages or extended periods
of extremely hot weather.



                                       59
<PAGE>

  

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative  and Qualitative  Disclosures  About Market Risk are reported under
Item 7. MD&A "Other Matters - Market Risk Sensitive  Instruments  and Positions"
and in the "Notes to Consolidated Financial Statements" under Notes 1(p), 10, 11
and 12(d).

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

Interstate Energy Corporation                                       Page Number
        Report of Management                                           62
        Report of Independent Public Accountants                       63
        Consolidated Statements of Income for the Years Ended
           December 31, 1998, 1997 and 1996                            64
        Consolidated Balance Sheets, December 31, 1998 and 1997        65
        Consolidated Statements of Cash Flows for the Years Ended
           December 31, 1998, 1997 and 1996                            67
        Consolidated Statements of Capitalization, December 31,
           1998 and 1997                                               68
        Consolidated Statements of Changes in Common Equity for the 
           Years Ended December 31, 1998, 1997 and 1996                70
        Notes to Consolidated Financial Statements                     71

IES Utilities Inc.
        Report of Independent Public Accountants                       95
        Consolidated Statements of Income and Retained Earnings 
           for the Years Ended December 31, 1998, 1997 and 1996        96
        Consolidated Balance Sheets, December 31, 1998 and 1997        97
        Consolidated Statements of Cash Flows for the Years Ended
           December 31, 1998, 1997 and 1996                            99
        Consolidated Statements of Capitalization, December 31,
           1998 and 1997                                               100
        Notes to Consolidated Financial Statements                     101

Wisconsin Power and Light Company
        Report of Independent Public Accountants                       109
        Consolidated Statements of Income and Retained Earnings for
           the Years Ended December 31, 1998, 1997 and 1996            110
        Consolidated Balance Sheets, December 31, 1998 and 1997        111
        Consolidated Statements of Cash Flows for the Years Ended
           December 31, 1998, 1997 and 1996                            113
        Consolidated Statements of Capitalization, December 31, 1998
           and 1997                                                    114
        Notes to Consolidated Financial Statements                     115

Refer to Note 16 of IEC's,  IESU's and WP&L's "Notes to  Consolidated  Financial
Statements" for the quarterly financial data required by this Item.




                                       60
<PAGE>





                          INTERSTATE ENERGY CORPORATION

                                FINANCIAL SECTION



                                       61
<PAGE>



        INTERSTATE ENERGY CORPORATION REPORT ON THE FINANCIAL INFORMATION

Interstate Energy Corporation  management is responsible for the information and
representations  contained  in the  financial  statements  and in certain  other
sections of this Annual  Report.  The  consolidated  financial  statements  that
follow have been  prepared in  accordance  with  generally  accepted  accounting
principles.   In  addition  to  selecting  appropriate   accounting  principles,
management is responsible for the manner of presentation and for the reliability
of the financial information. In fulfilling that responsibility, it is necessary
for management to make estimates  based on currently  available  information and
judgments of current conditions and circumstances.

Through a well-developed system of internal controls, management seeks to ensure
the integrity and  objectivity  of the financial  information  presented in this
report.  This  system of internal  controls  is  designed to provide  reasonable
assurance  that  the  assets  of  the  company  are  safeguarded  and  that  the
transactions  are executed  according  to  management's  authorizations  and are
recorded in accordance with the appropriate accounting principles.

The Board of  Directors  participates  in the  financial  information  reporting
process through its Audit Committee.






Erroll B. Davis Jr.
President and Chief Executive Officer
Interstate Energy Corporation




Thomas M. Walker
Executive Vice President and Chief Financial Officer
Interstate Energy Corporation




John E. Ebright
Vice President - Controller
Interstate Energy Corporation




January 29, 1999




                                       62
<PAGE>




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareowners of Interstate Energy Corporation:

We have audited the accompanying  consolidated  balance sheets and statements of
capitalization  of Interstate Energy  Corporation (a Wisconsin  Corporation) and
subsidiaries  as of  December  31, 1998 and 1997,  and the related  consolidated
statements  of income,  cash flows and changes in common  equity for each of the
three years in the period ended December 31, 1998.  These  financial  statements
and the supplemental  schedule  referred to below are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and supplemental schedule based on our audits.

We  conducted  our  audits  in  accordance  with  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 Interstate Energy Corporation
and  subsidiaries  as of December  31,  1998 and 1997,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31,1998, in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements  taken as a whole.  The schedule listed in Item 14(a)(2) is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and is not  part of the  basic  financial  statements.  This  schedule  has been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
financial statements taken as a whole.




ARTHUR ANDERSEN LLP




Milwaukee, Wisconsin,
January 29, 1999


                                       63
<PAGE>

<TABLE>
<CAPTION>
                          INTERSTATE ENERGY CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                                                           Year Ended December 31,
                                                                 1998                1997                1996
--------------------------------------------------------------------------------------------------------------------
                                                                   (in thousands, except per share amounts)
Operating revenues:
<S>                                                             <C>                 <C>                 <C>        
  Electric utility                                              $ 1,567,442         $ 1,515,753         $ 1,440,375
  Gas utility                                                       295,590             393,907             375,955
  Nonregulated and other                                            267,842             390,967             416,510
                                                           -----------------   -----------------    ----------------
                                                                  2,130,874           2,300,627           2,232,840
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Operating expenses:
  Electric and steam production fuels                               297,685             280,558             256,609
  Purchased power                                                   255,332             256,306             231,014
  Cost of utility gas sold                                          166,453             259,222             240,324
  Other operation                                                   620,234             681,977             696,596
  Maintenance                                                       122,737             123,121             111,657
  Depreciation and amortization                                     279,505             259,663             232,363
  Taxes other than income taxes                                     105,626             103,397              98,838
                                                           -----------------   -----------------    ----------------
                                                                  1,847,572           1,964,244           1,867,401
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Operating income                                                    283,302             336,383             365,439
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------

Interest expense and other:
  Interest expense                                                  129,363             122,563             113,321
  Allowance for funds used during construction                       (6,812)             (5,274)             (5,574)
  Preferred dividend requirements of subsidiaries                     6,699               6,693               6,687
  Miscellaneous, net                                                   (736)            (13,910)            (11,843)
                                                           -----------------   -----------------    ----------------
                                                                    128,514             110,072             102,591
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Income before income taxes                                          154,788             226,311             262,848
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Income taxes                                                         58,113              81,733             105,760
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Income from continuing operations                                    96,675             144,578             157,088
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Discontinued operations:
  Loss on disposal of subsidiary, net of applicable
  tax benefit of $575                                                     -                   -              (1,297)
                                                           -----------------   -----------------    ----------------
--------------------------------------------------------------------------------------------------------------------
Net income                                                         $ 96,675           $ 144,578           $ 155,791
                                                           =================   =================    ================
--------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding                          76,912              76,210              75,481
                                                           =================   =================    ================
--------------------------------------------------------------------------------------------------------------------
Earnings per average common share (basic and diluted):
  Income from continuing operations                                  $ 1.26              $ 1.90              $ 2.08
  Discontinued operations                                                 -                   -               (0.02)
                                                           -----------------   -----------------    ----------------
  Net income                                                         $ 1.26              $ 1.90              $ 2.06
                                                           =================   =================    ================
--------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>




                                       64
<PAGE>

<TABLE>
<CAPTION>

                          INTERSTATE ENERGY CORPORATION
                           CONSOLIDATED BALANCE SHEETS

                                                                                       December 31,
ASSETS                                                                           1998                 1997
-----------------------------------------------------------------------------------------------------------------
                                                                                      (in thousands)
<S>                                                                             <C>                  <C>        
Property, plant and equipment:
  Utility -
    Plant in service -
      Electric                                                                  $ 4,866,152          $ 4,733,222
      Gas                                                                           515,074              495,155
      Other                                                                         409,711              366,395
                                                                           -----------------    -----------------
                                                                                  5,790,937            5,594,772
    Less - Accumulated depreciation                                               2,852,605            2,631,582
                                                                           -----------------    -----------------
                                                                                  2,938,332            2,963,190
    Construction work in progress                                                   119,032               86,511
    Nuclear fuel, net of amortization                                                44,316               55,777
                                                                           -----------------    -----------------
                                                                                  3,101,680            3,105,478
  Other property, plant and equipment, net of accumulated
    depreciation and amortization of $178,248 and $139,920, respectively            355,100              329,264
                                                                           -----------------    -----------------
                                                                                  3,456,780            3,434,742
                                                                           -----------------    -----------------
-----------------------------------------------------------------------------------------------------------------
Current assets:
  Cash and temporary cash investments                                                31,827               27,329
  Accounts receivable:
    Customer, less allowance for doubtful accounts
      of $2,518 and $2,400, respectively                                            102,966              123,545
    Other, less allowance for doubtful accounts
      of $490 and $224, respectively                                                 26,054               20,824
  Notes receivable                                                                   13,392               23,410
  Production fuel, at average cost                                                   54,140               40,656
  Materials and supplies, at average cost                                            53,490               49,845
  Gas stored underground, at average cost                                            26,013               32,364
  Regulatory assets                                                                  27,089               36,330
  Prepaid gross receipts tax                                                         22,222               22,153
  Other                                                                              30,767               35,786
                                                                           -----------------    -----------------
                                                                                    387,960              412,242
                                                                           -----------------    -----------------
-----------------------------------------------------------------------------------------------------------------
Investments:
  Investment in McLeodUSA Inc.                                                      320,280              328,022
  Nuclear decommissioning trust funds                                               225,803              190,238
  Investment in foreign entities                                                     68,882               57,072
  Other                                                                              54,776               49,319
                                                                           -----------------    -----------------
                                                                                    669,741              624,651
                                                                           -----------------    -----------------
-----------------------------------------------------------------------------------------------------------------
Other assets:
  Regulatory assets                                                                 341,684              352,365
  Deferred charges and other                                                        103,172               99,550
                                                                           -----------------    -----------------
                                                                                    444,856              451,915
                                                                           -----------------    -----------------
Total assets                                                                    $ 4,959,337          $ 4,923,550
                                                                           =================    =================
-----------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>



                                       65
<PAGE>

<TABLE>
<CAPTION>


                          INTERSTATE ENERGY CORPORATION
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                                                                December 31,
CAPITALIZATION AND LIABILITIES                                           1998                  1997
-----------------------------------------------------------------------------------------------------------
                                                                               (in thousands)
Capitalization (See Consolidated Statements of Capitalization):
<S>                                                                      <C>                   <C>  
  Common stock                                                                 $ 776                 $ 765
  Additional paid-in capital                                                 905,130               868,903
  Retained earnings                                                          537,372               581,376
  Accumulated other comprehensive income                                     163,017               173,512
                                                                   ------------------    ------------------
    Total common equity                                                    1,606,295             1,624,556
                                                                   ------------------    ------------------

  Cumulative preferred stock of subsidiaries, net                            113,498               113,369
  Long-term debt (excluding current portion)                               1,543,131             1,467,903
                                                                   ------------------    ------------------
                                                                           3,262,924             3,205,828
                                                                   ------------------    ------------------
-----------------------------------------------------------------------------------------------------------
Current liabilities:
  Current maturities and sinking funds                                        63,414                18,329
  Variable rate demand bonds                                                  56,975                56,975
  Commercial paper                                                            64,500               114,500
  Notes payable                                                               51,784                42,000
  Capital lease obligations                                                   11,978                13,197
  Accounts payable                                                           204,297               192,634
  Accrued taxes                                                               84,921                78,923
  Other                                                                      111,685               133,233
                                                                   ------------------    ------------------
                                                                             649,554               649,791
                                                                   ------------------    ------------------

-----------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
  Accumulated deferred income taxes                                          691,624               719,899
  Accumulated deferred investment tax credits                                 77,313                82,862
  Environmental liabilities                                                   68,399                70,955
  Customer advances                                                           37,171                36,619
  Capital lease obligations                                                   13,755                23,634
  Other                                                                      158,597               133,962
                                                                   ------------------    ------------------
                                                                           1,046,859             1,067,931
                                                                   ------------------    ------------------
-----------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 12)
-----------------------------------------------------------------------------------------------------------
Total capitalization and liabilities                                     $ 4,959,337           $ 4,923,550
                                                                   ==================    ==================
-----------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>


                                       66
<PAGE>
<TABLE>
<CAPTION>
                          INTERSTATE ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                          Year Ended December 31,
                                                                  1998             1997             1996
--------------------------------------------------------------------------------------------------------------
                                                                              (in thousands)
Cash flows from operating activities:
<S>                                                                <C>             <C>              <C>      
  Net income                                                       $ 96,675        $ 144,578        $ 155,791
  Adjustments to reconcile net income to net cash flows  
  from operating activities:
    Depreciation and amortization                                   279,505          259,663          232,363
    Amortization of nuclear fuel                                     17,869           18,308           21,336
    Amortization of deferred energy efficiency expenditures          27,083           15,786            6,669
    Deferred taxes and investment tax credits                       (27,720)         (11,661)          14,715
    Refueling outage provision                                       (4,001)           9,290           (6,374)
    Impairment of oil and gas properties                              9,678            9,902                -
    Impairment of regulatory assets                                   8,969                -                -
    Other                                                            (3,616)           5,468           (6,777)
  Other changes in assets and liabilities:
    Accounts receivable                                              15,349           18,638          (13,935)
    Notes receivable                                                 10,018           (3,621)          14,663
    Production fuel                                                 (13,484)           2,814              271
    Materials and supplies                                           (3,645)            (874)           5,615
    Gas stored underground                                            6,351           (6,603)          (4,170)
    Accounts payable                                                 11,663          (27,726)          33,505
    Accrued taxes                                                     5,998           13,375          (11,676)
    Benefit obligations and other                                    31,070           16,152            9,280
                                                             ---------------   --------------   --------------
       Net cash flows from operating activities                     467,762          463,489          451,276
                                                             ---------------   --------------   --------------
--------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
    Common stock dividends declared                                (140,679)        (145,631)        (143,344)
    Dividends payable                                               (15,458)             285              310
    Proceeds from issuance of common stock                           33,832           15,535           17,393
    Net change in Alliant Energy Resources, Inc. credit 
     facility                                                        70,492            9,908           47,860
    Proceeds from issuance of other long-term debt                   77,544          295,000           61,370
    Reductions in other long-term debt                              (27,663)        (146,590)         (20,679)
    Net change in short-term borrowings                             (40,216)        (109,884)          16,654
    Principal payments under capital lease obligations              (13,250)         (12,964)         (19,108)
    Other                                                            (2,333)          (2,410)          (2,336)
                                                             ---------------   --------------   --------------
        Net cash flows used for financing activities                (57,731)         (96,751)         (41,880)
                                                             ---------------   --------------   --------------
--------------------------------------------------------------------------------------------------------------
Cashflows used for investing activities:
   Construction and acquisition
    expenditures:
       Utility                                                     (269,133)        (256,760)        (297,196)
       Other                                                       (102,925)         (71,280)        (115,078)
    Deferred energy efficiency expenditures                               -          (13,344)         (24,792)
    Nuclear decommissioning trust funds                             (20,305)         (17,435)         (15,994)
    Proceeds from disposition of assets                              16,677           15,993           69,838
    Shared savings expenditures                                     (27,780)         (17,610)          (5,196)
    Other                                                            (2,067)          (1,790)         (18,026)
                                                             ---------------   --------------   --------------
       Net cash flows used for investing activities                (405,533)        (362,226)        (406,444)
                                                             ---------------   --------------   --------------
--------------------------------------------------------------------------------------------------------------
Net increase in cash and temporary cash investments                   4,498            4,512            2,952
                                                             ---------------   --------------   --------------
--------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period           27,329           22,817           19,865
                                                             ---------------   --------------   --------------
--------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period               $ 31,827         $ 27,329         $ 22,817
                                                             ===============   ==============   ==============
--------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
   Cash paid during the period for:
       Interest                                                   $ 126,376        $ 117,255        $ 107,970
                                                             ===============   ==============   ==============
       Income taxes                                                $ 84,916         $ 69,272        $ 111,006
                                                             ===============   ==============   ==============
    Noncash investing and financing activities:
       Capital lease obligations incurred                           $ 1,426         $ 16,781         $ 14,281
                                                             ===============   ==============   ==============
--------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.


</TABLE>

                                       67
<PAGE>
<TABLE>
<CAPTION>


                          INTERSTATE ENERGY CORPORATION
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION

                                                                                      December 31,
                                                                                1998                1997
---------------------------------------------------------------------------------------------------------------
                                                                           (in thousands, except share amounts)
<S>                                                                              <C>                 <C>  
Common equity:
  Common stock - $.01 par value - authorized 200,000,000 shares;
    outstanding 77,630,043 and 76,481,102 shares, respectively                       $ 776               $ 765
  Additional paid-in capital                                                       905,130             868,903
  Retained earnings                                                                537,372             581,376
  Accumulated other comprehensive income                                           163,017             173,512
                                                                           ----------------    ----------------
                                                                                 1,606,295           1,624,556
                                                                           ----------------    ----------------
<CAPTION>

---------------------------------------------------------------------------------------------------------------
Cumulative preferred stock of subsidiaries:
  Par/Stated      Authorized       Shares                     Mandatory
     Value          Shares      Outstanding      Series       Redemption
<S>                <C>            <C>         <C>                 <C>              <C>                 <C>   
     $ 100            *           449,765     4.40% - 6.20%       No                44,977              44,977
     $ 25             *           599,460         6.50%           No                14,986              14,986
     $ 50          466,406        366,406     4.30% - 6.10%       No                18,320              18,320
     $ 50             **          216,381     4.36% - 7.76%       No                10,819              10,819
     $ 50             **          545,000         6.40%           Yes ***           27,250              27,250
                                                                           ----------------    ----------------
                                                                                   116,352             116,352
    Less:  unamortized expenses                                                     (2,854)             (2,983)
                                                                           ----------------    ----------------
                                                                                   113,498             113,369
                                                                           ----------------    ----------------
*    3,750,000 authorized shares in total
**   2,000,000 authorized shares in total
***  $53.20 mandatory redemption price
<CAPTION>

---------------------------------------------------------------------------------------------------------------
Long-term debt:
  IES Utilities Inc. -
    Collateral Trust Bonds:
<S>                                                                                <C>                 <C>   
      7.65% series, due 2000                                                        50,000              50,000
      7.25% series, due 2006                                                        60,000              60,000
      6-7/8% series, due 2007                                                       55,000              55,000
      6% series, due 2008                                                           50,000              50,000
      7% series, due 2023                                                           50,000              50,000
      5.5% series, due 2023                                                         19,400              19,400
                                                                           ----------------    ----------------
                                                                                   284,400             284,400
    First Mortgage Bonds:
      Series Y, 8-5/8%, due 2001                                                    60,000              60,000
      Series Z, 7.6%, due 1999                                                      50,000              50,000
      9-1/8% series, due 2001                                                       21,000              21,000
      7-1/4% series, due 2007                                                       30,000              30,000
                                                                           ----------------    ----------------
                                                                                   161,000             161,000
    Pollution control obligations:
      5.75%, due serially 1999 to 2003                                               3,136               3,276
      5.95%, retired in 1998                                                             -              10,000
      Variable rate (4.20% at December 31, 1998), due 2000 to 2010                  11,100              11,100
      Variable/fixed rate series 1998 (4.25% through 2003), due 2023                10,000                   -
                                                                           ----------------    ----------------
                                                                                    24,236              24,376
    Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025                   50,000              50,000
    Senior Debentures, 6-5/8%, due 2009                                            135,000             135,000
                                                                           ----------------    ----------------
        Total IES Utilities Inc.                                                   654,636             654,776
                                                                           ----------------    ----------------

</TABLE>



                                       68
<PAGE>

<TABLE>
<CAPTION>
                          INTERSTATE ENERGY CORPORATION
              CONSOLIDATED STATEMENTS OF CAPITALIZATION (Continued)

                                                                                      December 31,
                                                                                1998                1997
---------------------------------------------------------------------------------------------------------------
                                                                                     (in thousands)
  Wisconsin Power and Light Company -
    First Mortgage Bonds:
<S>                                                                                <C>                 <C>    
      Series L, 6.25%, retired in 1998                                                 $ -             $ 8,899
      1984 Series A, variable rate (3.85% at December 31, 1998), due 2014            8,500               8,500
      1988 Series A, variable rate (4.20% at December 31, 1998), due 2015           14,600              14,600
      1990 Series V, 9.3%, due 2025                                                 27,000              27,000
      1991 Series A-D, variable rate (5.15% at December 31, 1998), 
        due 2000 to 2015                                                            33,875              33,875
      1992 Series W, 8.6%, due 2027                                                 90,000              90,000
      1992 Series X, 7.75%, due 2004                                                62,000              62,000
      1992 Series Y, 7.6%, due 2005                                                 72,000              72,000
                                                                           ----------------    ----------------
                                                                                   307,975             316,874
    Unsecured Debt:
      Debentures, 7%, due 2007                                                     105,000             105,000
      Debentures, 5.7%, due 2008                                                    60,000                   -
                                                                           ----------------    ----------------
        Total Wisconsin Power and Light Company                                    472,975             421,874
                                                                           ----------------    ----------------

  Interstate Power Company -
    First Mortgage Bonds:
      8% series, due 2007                                                           25,000              25,000
      8-5/8% series, due 2021                                                       25,000              25,000
      7-5/8% series, due 2023                                                       94,000              94,000
                                                                           ----------------    ----------------
                                                                                   144,000             144,000
    Pollution Control Revenue Bonds:
      5.95%, retired in 1998                                                             -               5,850
      6-3/8%, due serially 1999 to 2007                                             10,950              11,400
      5.75%, due 2003                                                                1,000               1,000
      6.25%, due 2009                                                                1,000               1,000
      6.30%, due 2010                                                                5,600               5,600
      6.35%, due 2012                                                                5,650               5,650
      Variable/fixed rate series 1998 (4.30% through 2003), 
       due 2005 to 2008                                                              4,950                   -
                                                                           ----------------    ----------------
                                                                                    29,150              30,500
                                                                           ----------------    ----------------
        Total Interstate Power Company                                             173,150             174,500
                                                                           ----------------    ----------------

  Alliant Energy Resources, Inc. -
    Credit facility (5.15% - 5.85% at December 31, 1998)                           252,505             182,013
    Multifamily Housing Revenue Bonds issued by various housing and
      community development authorities, 4.20% - 7.55%, due 2004 to 2024            35,494              36,503
    Other subsidiaries' debt, 0% - 10.75%, due 1999 to 2042                         57,579              56,795
                                                                           ----------------    ----------------
        Total Alliant Energy Resources, Inc.                                       345,578             275,311
                                                                           ----------------    ----------------

  Interstate Energy Corporation -
    8.59% Senior notes, due 2004                                                    24,000              24,000
                                                                           ----------------    ----------------
                                                                                 1,670,339           1,550,461
                                                                           ----------------    ----------------
  Less:
    Current maturities                                                             (63,414)            (18,329)
    Variable rate demand bonds                                                     (56,975)            (56,975)
    Unamortized debt premium and (discount), net                                    (6,819)             (7,254)
                                                                           ----------------    ----------------
Total long-term debt                                                             1,543,131           1,467,903
                                                                           ----------------    ----------------

---------------------------------------------------------------------------------------------------------------

Total capitalization                                                           $ 3,262,924         $ 3,205,828
                                                                           ================    ================

---------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>

                                       69
<PAGE>
<TABLE>
<CAPTION>


                          INTERSTATE ENERGY CORPORATION
               CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY

                                                                                                     Accumulated
                                                                      Additional                        Other           Total
                                                        Common         Paid-In        Retained       Comprehensive      Common
                                                         Stock         Capital        Earnings      Income (Loss)       Equity
----------------------------------------------------------------------------------------------------------------------------------
                                                                                    (in thousands)
1996:
<S>                                                          <C>        <C>             <C>                <C>        <C>        
Beginning balance                                            $ 750      $ 832,670       $ 569,982              $ -    $ 1,403,402

 Comprehensive income:
   Net income                                                                             155,791                         155,791
   Other comprehensive loss net of tax:
       Minimum pension liability adjustment (a)                                                               (809)          (809)
                                                                                                                     -------------
   Total comprehensive income                                                                                             154,982

 Common stock dividends                                                                  (143,344)                       (143,344)
 Common stock issued                                             8         18,447                                          18,455
 Treasury stock                                                              (269)                                           (269)
                                                     --------------  -------------  --------------  ---------------  -------------
Ending balance                                                 758        850,848         582,429             (809)     1,433,226

1997: Comprehensive income:
   Net income                                                                             144,578                         144,578
   Other comprehensive income (loss):
       Unrealized gain on securities, net of tax (b)                                                       174,688        174,688
       Foreign currency translation adjustment                                                                 (20)           (20)
       Minimum pension liability adjustment, net of tax (a)                                                   (347)          (347)
                                                                                                                     -------------
   Total comprehensive income                                                                                             318,899

 Common stock dividends                                                                  (145,631)                       (145,631)
 Common stock issued                                             7         18,138                                          18,145
 Treasury stock                                                               (83)                                            (83)
                                                     --------------  -------------  --------------  ---------------  -------------
Ending balance                                                 765        868,903         581,376          173,512      1,624,556

1998: Comprehensive income:
   Net income                                                                              96,675                          96,675
   Other comprehensive income (loss):
       Unrealized loss on securities, net of tax (b)                                                        (4,589)        (4,589)
       Foreign currency translation adjustment                                                              (7,062)        (7,062)
       Minimum pension liability adjustment, net of tax (a)                                                  1,156          1,156
                                                                                                                     -------------
   Total comprehensive income                                                                                              86,180

 Common stock dividends                                                                  (140,679)                       (140,679)
 Common stock issued                                            11         36,263                                          36,274
 Treasury stock                                                               (36)                                            (36)
                                                     --------------  -------------  --------------  ---------------  -------------
Ending balance                                               $ 776      $ 905,130       $ 537,372        $ 163,017    $ 1,606,295
                                                     ==============  =============  ==============  ===============  =============

----------------------------------------------------------------------------------------------------------------------------------

(a) Net of tax expense  (benefit) of $(565),  $(243) and $808 in 1996,  1997 and
    1998, respectively.
(b) Net of tax  expense  (benefit)  of $124,271  and  $(3,218) in 1997 and 1998,
    respectively.


The  accompanying  Notes to Condolidated  Financial  Statements are an intergral
part of these statements.

</TABLE>

                                       70
<PAGE>



                          INTERSTATE ENERGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    (a) General -

The Consolidated  Financial Statements include the accounts of Interstate Energy
Corporation (IEC) and its consolidated subsidiaries. IEC resulted from the April
1998 merger between WPL Holdings,  Inc.  (WPLH),  IES Industries  Inc. (IES) and
Interstate Power Company (IPC) (refer to Note 2 for a discussion of the merger).
IEC is an  investor-owned  holding  company  currently doing business as Alliant
Energy Corporation whose  subsidiaries are IES Utilities Inc. (IESU),  Wisconsin
Power and Light Company (WP&L),  IPC, Alliant Energy  Resources,  Inc.  (Alliant
Energy  Resources) and Alliant Energy Corporate  Services,  Inc. (Alliant Energy
Corporate  Services).  IESU,  WP&L  and  IPC  are  engaged  principally  in  the
generation,  transmission,   distribution  and  sale  of  electric  energy;  the
purchase,  distribution,  transportation  and sale of natural gas; and water and
steam services in selective markets. The principal markets of IESU, WP&L and IPC
are located in Iowa, Wisconsin, Minnesota and Illinois. Alliant Energy Resources
(through its numerous direct and indirect subsidiaries) provides energy products
and services to domestic and international markets; provides industrial services
including  environmental,  engineering and transportation  services;  invests in
affordable  housing   initiatives;   and  invests  in  various  other  strategic
initiatives.  Alliant  Energy  Corporate  Services is the  subsidiary  formed to
provide  administrative  services to IEC and its  subsidiaries as required under
the Public Utility Holding Company Act of 1935 (PUHCA).

The  consolidated   financial   statements  reflect  investments  in  controlled
subsidiaries on a consolidated basis. All significant  intercompany balances and
transactions,  other than certain  energy-related  transactions  affecting IESU,
WP&L and IPC, have been eliminated from the Consolidated  Financial  Statements.
Such  energy-related  transactions  are made at prices that  approximate  market
value and the associated costs are recoverable  from customers  through the rate
making  process.  The  financial  statements  are  prepared in  conformity  with
generally  accepted  accounting  principles,  which give recognition to the rate
making and  accounting  practices of the Federal  Energy  Regulatory  Commission
(FERC) and state commissions having regulatory jurisdiction.

Unconsolidated  investments for which IEC has at least a 20% voting interest are
generally accounted for under the equity method of accounting. These investments
are stated at acquisition  cost,  increased or decreased for IEC's equity in net
income or loss,  which is included in  "Miscellaneous,  net" in the Consolidated
Statements of Income and decreased for any dividends received.  Investments that
do not meet the criteria for  consolidation  or the equity  method of accounting
are accounted for under the cost method.

The  preparation  of  the  financial  statements  requires  management  to  make
estimates and  assumptions  that affect:  1) the reported  amounts of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the  financial  statements,  and 2) the  reported  amounts  of  revenues  and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Certain prior period amounts have been  reclassified on a basis  consistent with
the current year presentation.

    (b) Regulation -

IEC is a registered  public utility holding company subject to regulation by the
Securities and Exchange Commission (SEC) under the PUHCA. IESU, WP&L and IPC are
subject  to  regulation  by the  FERC  and  their  respective  state  regulatory
commissions (Iowa Utilities Board (IUB),  Public Service Commission of Wisconsin
(PSCW),  Minnesota  Public  Utilities  Commission  (MPUC) and Illinois  Commerce
Commission (ICC)).

    (c) Regulatory Assets -

IESU,  WP&L and IPC are subject to the  provisions  of  Statement  of  Financial
Accounting   Standards,   "Accounting  for  the  Effects  of  Certain  Types  of
Regulation"  (SFAS 71). SFAS 71 provides that  rate-regulated  public  utilities
record certain costs and credits allowed in the rate making process in different
periods than for unregulated  entities.  These are


                                       71
<PAGE>

deferred as regulatory  assets or regulatory  liabilities  and are recognized in
the  Consolidated  Statements of Income at the time they are reflected in rates.
At December 31, 1998 and 1997,  regulatory  assets of $368.8  million and $388.7
million, respectively, were comprised of the following items (in millions):
<TABLE>
<CAPTION>

                                                  IESU                     WP&L                     IPC
                                           --------------------    ---------------------    ------------------
                                             1998       1997         1998       1997         1998      1997
                                           ---------- ---------    ---------- ----------    -------- ---------
<S>                                          <C>        <C>         <C>         <C>          <C>      <C>  
Tax-related (Note 1(d))                       $81.4      $80.3       $49.3       $55.5        $29.8    $29.7
Energy efficiency program costs                39.8       59.4        53.5        29.5         25.9     30.0
Environmental liabilities (Note 12(f))         35.2       42.9        19.5        22.2         17.5      6.2
Other                                           5.0       17.0        11.2        13.6          0.7      2.4
                                           ---------- ---------    ---------- ----------    -------- ---------
Total                                        $161.4     $199.6      $133.5      $120.8        $73.9    $68.3

                                           ========== =========    ========== ==========    ======== =========
</TABLE>

Refer to the  individual  notes  referenced  above for a further  discussion  of
certain items reflected in regulatory  assets.  Regulators allow IESU and IPC to
earn a return on energy efficiency program costs but not on the other regulatory
assets. In Wisconsin,  WP&L is allowed to earn a return on all regulatory assets
other than those associated with manufactured gas plants (MGP).

If a portion of IESU's,  WP&L's or IPC's operations  become no longer subject to
the provisions of SFAS 71 as a result of competitive restructuring or otherwise,
a write-down of related regulatory assets would be required, unless some form of
transition cost recovery is established by the appropriate  regulatory body that
would meet the requirements under generally accepted  accounting  principles for
continued  accounting as  regulatory  assets  during such  recovery  period.  In
addition,  IESU,  WP&L or IPC would be required to determine  any  impairment to
other assets and write-down such assets to their fair value.

    (d) Income Taxes -

IEC follows the liability method of accounting for deferred income taxes,  which
requires  the   establishment  of  deferred  tax  assets  and  liabilities,   as
appropriate,  for all temporary  differences between the tax basis of assets and
liabilities and the amounts reported in the financial statements. Deferred taxes
are recorded using currently enacted tax rates as shown in Note 6.

Except as noted below, income tax expense includes provisions for deferred taxes
to  reflect  the tax  effects of  temporary  differences  between  the time when
certain  costs are  recorded in the  accounts and when they are deducted for tax
return  purposes.  As temporary  differences  reverse,  the related  accumulated
deferred  income taxes are reversed to income.  Investment tax credits have been
deferred and are  subsequently  credited to income over the average lives of the
related property. As part of the affordable housing business, IEC is eligible to
claim affordable housing credits. These tax credits reduce current federal taxes
to the extent IEC has consolidated taxes payable.

Consistent  with Iowa  rate  making  practices  for IESU and IPC,  deferred  tax
expense is not recorded for certain temporary differences  (primarily related to
utility  property,  plant and  equipment).  As the deferred taxes become payable
(over periods exceeding 30 years for some generating plant differences) they are
recovered  through rates.  Accordingly,  IESU and IPC have recorded deferred tax
liabilities  and  regulatory  assets  for  certain  temporary  differences,   as
identified  in Note 1(c).  In  Wisconsin,  the PSCW has allowed rate recovery of
deferred taxes on all temporary  differences since August 1991. WP&L established
a regulatory  asset  associated  with temporary  differences  occurring prior to
August 1991, which is recovered through rates.

    (e) Common Shares Outstanding -

The weighted average common shares  outstanding used in the calculation of basic
earnings per share for IEC were 76,912,219;  76,209,935 and 75,480,539 for 1998,
1997 and 1996,  respectively.  The  common  stock  shares  used for  calculating
diluted  earnings per share for IEC were  76,928,631;  76,212,073 and 75,484,281
for 1998, 1997 and 1996, respectively.


                                       72
<PAGE>

    (f) Temporary Cash Investments -

Temporary cash investments are stated at cost, which approximates  market value,
and are considered  cash  equivalents  for the  Consolidated  Statements of Cash
Flows.  These  investments  consist of short-term  liquid  investments that have
maturities of less than 90 days from the date of acquisition.

    (g) Depreciation of Utility Property, Plant and Equipment -

IESU,  WP&L  and IPC use a  combination  of  remaining  life  and  straight-line
depreciation methods as approved by their respective regulatory commissions. The
remaining  life  of the  Duane  Arnold  Energy  Center  (DAEC),  IESU's  nuclear
generating facility, is based on the Nuclear Regulatory Commission (NRC) license
life of 2014. The remaining life of the Kewaunee Nuclear Power Plant (Kewaunee),
of which WP&L is a co-owner,  is based on the PSCW approved revised  end-of-life
of 2002 (prior to May 1997 the  calculation was based on the NRC license life of
2013).  Depreciation expense related to the decommissioning of DAEC and Kewaunee
is discussed in Note 12(h). WP&L implemented higher depreciation rates effective
January  1,  1997.  The  average  rates of  depreciation  for  electric  and gas
properties of IESU, WP&L and IPC, consistent with current rate making practices,
were as follows:
<TABLE>
<CAPTION>

                            IESU                                 WP&L                                  IPC
              ----------------------------------   ----------------------------------    ---------------------------------
                1998        1997        1996         1998        1997        1996           1998       1997       1996
              ---------- ----------- -----------   ---------- ----------- -----------    ----------- ---------- ----------
<S>             <C>         <C>         <C>          <C>          <C>        <C>            <C>        <C>        <C> 
Electric        3.5%        3.5%        3.5%         3.6%         3.6%       3.3%           3.6%       3.6%       3.6%
Gas             3.5%        3.5%        3.5%         3.8%         3.8%       3.7%           3.4%       3.4%       3.4%
</TABLE>

    (h) Property, Plant and Equipment -

Utility plant (other than acquisition  adjustments at IESU of $26.8 million, net
of  accumulated  amortization,  recorded at cost) is recorded at original  cost,
which includes overhead and administrative costs and an allowance for funds used
during  construction  (AFUDC).  The AFUDC,  which represents the cost during the
construction period of funds used for construction purposes, is capitalized as a
component of the cost of utility plant.  The amount of AFUDC  applicable to debt
funds and to other  (equity)  funds,  a non-cash item, is computed in accordance
with the prescribed FERC formula. These capitalized costs are recovered in rates
as the cost of the utility plant is depreciated.  The aggregate gross rates used
were as follows:
                        1998                 1997                 1996
                 -------------------   ------------------  -------------------
         IESU           8.9%                 6.7%                 5.5%
         WP&L           5.2%                 6.2%                10.2%
         IPC            7.0%                 6.0%                 5.8%

Other  property,  plant  and  equipment  is  recorded  at  original  cost.  Upon
retirement  or sale of other  property  and  equipment,  the  cost  and  related
accumulated  depreciation  are removed from the accounts and any gain or loss is
included  in  "Miscellaneous,  net" in the  Consolidated  Statements  of Income.
Normal repairs, maintenance and minor items of utility plant and other property,
plant and  equipment  are  expensed.  Ordinary  retirements  of  utility  plant,
including   removal  costs  less  salvage  value,  are  charged  to  accumulated
depreciation  upon removal from  utility  plant  accounts and no gain or loss is
recognized.

    (i) Restatement  of  Consolidated   Financial   Statements  /  Oil  and  Gas
        Properties -

During  the  third  quarter  of  1998,  IEC's  oil and gas  subsidiary,  Whiting
Petroleum Corporation  (Whiting),  changed its accounting method for oil and gas
properties  from the full cost method to the successful  efforts  method.  While
both methods are acceptable  under  generally  accepted  accounting  principles,
successful  efforts  is the  preferred  method.  Management  believes  that  the
successful  efforts  method more  accurately  presents  the results of Whiting's
exploration,   development   and  production   activities  and  minimizes  asset
impairments caused by temporary declines in oil and gas prices, which may not be
representative of overall or long-term markets or management's  estimate of fair
market  value.  As a  result,  impairments  will  only be  recognized  under the
successful  efforts  method when there has been a permanent  decline in the fair
value  of the  oil  and  gas  properties.  As  required  by  generally  accepted
accounting  principles,  all prior period financial  statements of IEC presented
herein have been restated to reflect the change in accounting method.


                                       73
<PAGE>

Under the successful efforts method of accounting, Whiting capitalizes all costs
related  to  property   acquisitions  and  successful   exploratory  wells,  all
development  costs and the costs of support  equipment and facilities.  Unproved
leasehold costs are capitalized  and are reviewed  periodically  for impairment.
All costs related to unsuccessful exploratory wells are expensed when such wells
are  determined to be  non-productive  and other  exploration  costs,  including
geological  and  geophysical  costs,  are  expensed as  incurred.  Depreciation,
depletion and  amortization  of proved oil and gas properties is determined on a
field-by-field  basis using the  unit-of-production  method over the life of the
remaining  proved  reserves.  Estimated  costs  (net of  salvage  value) of site
remediation,  including  offshore  platform  dismantlement,  are included in the
depreciation  and  depletion  calculation.  Proved  oil and gas  properties  are
reviewed on a  field-by-field  basis whenever events or  circumstances  indicate
that the carrying value of such properties may be impaired.

The  cumulative  effect of the  restatement at January 1, 1994, was an after-tax
reduction in retained earnings of $2.7 million.  The restated net income amounts
for 1994 through 1997 are as follows (in thousands):
<TABLE>

                                                          1997         1996         1995         1994
                                                       ------------ ------------ ------------ ------------
<S>                                                      <C>          <C>          <C>          <C>      
Net income prior to restatement                          $ 154,290    $ 158,675    $ 147,806    $ 150,281
Adjustment for change in accounting method for
   oil and gas properties from the full cost method
   to the successful efforts method                                                            
                                                           (9,712)      (2,884)      (1,835)      (4,391)
                                                       ------------ ------------ ------------ ------------
Restated net income                                      $ 144,578    $ 155,791    $ 145,971    $ 145,890
                                                       ============ ============ ============ ============

The  restated  earnings  per average  common  share (basic and diluted) for 1994
through 1997 are as follows:
<CAPTION>

                                                          1997         1996         1995         1994
                                                       ------------ ------------ ------------ ------------
<S>                                                         <C>          <C>          <C>          <C>   
Earnings per average common share prior
   to restatement (basic and diluted)                       $ 2.02       $ 2.10       $ 1.97       $ 2.04
Adjustment for change in accounting method for
   oil and gas properties from the full cost method
   to the successful efforts method                         (0.12)       (0.04)       (0.02)       (0.06)
                                                       ------------ ------------ ------------ ------------
Restated earnings per average common
   share (basic and diluted)                                $ 1.90       $ 2.06       $ 1.95       $ 1.98
                                                       ============ ============ ============ ============
</TABLE>

    (j) Operating Revenues -

IEC accrues revenues for services rendered but unbilled at month-end in order to
more properly match revenues with expenses.

In accordance with an order from the PSCW, effective January 1, 1998, off-system
gas sales for WP&L are included in the  Consolidated  Statements  of Income as a
reduction  of the  cost of gas  sold  rather  than  as gas  revenues.  In  1997,
off-system gas sales were included in the  Consolidated  Statements of Income as
gas revenue.

    (k) Utility Fuel Cost Recovery -

IESU's and IPC's tariffs provide for subsequent  adjustments to its electric and
natural  gas rates for changes in the cost of fuel and  purchased  energy and in
the  cost of  natural  gas  purchased  for  resale.  Changes  in the  under/over
collection of these costs are reflected in "Electric and steam production fuels"
and "Cost of utility gas sold" in the  Consolidated  Statements  of Income.  The
cumulative effects are reflected on the Consolidated Balance Sheets as a current
asset or current liability,  pending automatic  reflection in future billings to
customers.  At IESU and IPC,  purchased  capacity  costs are not recovered  from
electric  customers through energy adjustment  clauses.  Recovery of these costs
must be addressed in base rates in a formal rate proceeding.

WP&L's  retail  electric  rates  are  based  in  part  on  forecasted  fuel  and
purchased-power  costs. Under PSCW rules, 


                                       74
<PAGE>

Wisconsin  utilities can seek  emergency  rate increases if the annual costs are
more than 3% higher than the estimated costs used to establish rates. WP&L has a
gas performance  incentive which includes a sharing mechanism whereby 40% of all
gains  and  losses  relative  to  current  commodity  prices,  as well as  other
benchmarks,  are  retained  by WP&L rather than  refunded to or  recovered  from
customers.

    (l) Nuclear Refueling Outage Costs -

The IUB allows IESU to collect,  as part of its base  revenues,  funds to offset
other operating and maintenance  expenditures  incurred during refueling outages
at DAEC. As these  revenues are  collected,  an equivalent  amount is charged to
other  operating  and  maintenance  expenses  with a  corresponding  credit to a
reserve.  During a  refueling  outage,  the  reserve is  reversed  to offset the
refueling  outage  expenditures.  Operating  expenses  incurred during refueling
outages at Kewaunee are expensed by WP&L as incurred.

    (m) Nuclear Fuel -

Nuclear fuel for DAEC is leased.  Annual nuclear fuel lease expenses include the
cost of fuel,  based on the  quantity of heat  produced  for the  generation  of
electric energy, plus the lessor's interest costs related to fuel in the reactor
and  administrative  expenses.  Nuclear  fuel for  Kewaunee  is  recorded at its
original  cost and is  amortized  to  expense  based upon the  quantity  of heat
produced  for the  generation  of  electricity.  This  accumulated  amortization
assumes  spent  nuclear  fuel  will have no  residual  value.  Estimated  future
disposal costs of such fuel are expensed based on kilowatt-hours generated.

    (n) Translation of Foreign Currency -

Assets and liabilities of international  investments where the local currency is
the  functional  currency have been  translated at year-end  exchange  rates and
related income  statement  results have been translated  using average  exchange
rates prevailing  during the year.  Adjustments  resulting from translation have
been recorded in other comprehensive income.

    (o) Comprehensive Income -

On January 1, 1998, IEC adopted SFAS 130, "Reporting Comprehensive Income." SFAS
130  establishes  standards  for  reporting  of  comprehensive  income  and  its
components  in a full set of  general  purpose  financial  statements.  SFAS 130
requires reporting a total for comprehensive income which includes,  in addition
to net income: (1) unrealized holding  gains/losses on securities  classified as
available-for-sale  under SFAS 115; (2) foreign currency translation adjustments
accounted for under SFAS 52; and (3) minimum pension liability  adjustments made
pursuant to SFAS 87. Refer to the "Consolidated  Statements of Changes in Common
Equity" for additional information regarding comprehensive income.

    (p) Derivative Financial Instruments -

From time to time,  IEC enters into  interest  rate swaps to reduce  exposure to
interest rate  fluctuations in connection with short and variable rate long-term
debt  issues.  The swap's  cash flows  correspond  with those of the  underlying
exposures. The related costs associated with these agreements are amortized over
their respective lives as components of interest expense.

IEC,  through  its  consolidated  subsidiaries,  currently  utilizes  derivative
financial and commodity instruments to reduce price risk inherent in its gas and
electric activities on a very limited basis and such instruments may not be used
for trading  purposes.  The costs or benefits  associated  with any such hedging
activities are recognized  when the related  purchase or sale  transactions  are
completed.

(2) MERGER:

On April 21,  1998,  IES,  WPLH and IPC  completed a three-way  merger  (Merger)
forming IEC.  Each  outstanding  share of common stock of IES,  WPLH and IPC was
exchanged  for 1.14,  1.0 and 1.11  shares,  respectively,  of IEC


                                       75
<PAGE>

common stock resulting in the issuance of approximately 77 million shares of IEC
common stock, $.01 par value per share. The outstanding debt and preferred stock
securities  of IEC and its  subsidiaries  were not  affected by the  Merger.  In
connection with the Merger,  the number of authorized shares of IEC common stock
was increased to 200,000,000.

The Merger was  accounted  for as a pooling of  interests  and the  accompanying
Consolidated  Financial Statements,  along with the related notes, are presented
as if the companies were combined as of the earliest period  presented.  As part
of the pooling, the accrued pension liability (and offsetting regulatory asset),
of IES was  recomputed  using  the  method  used by  WPLH  and IPC to  recognize
deferred asset gains. In addition,  IPC adopted unbilled revenues as part of the
pooling  to  conform  to the  revenue  accounting  method  used by WPLH and IES.
Neither of these  adjustments  had any income  statement  impact for the periods
presented in this report.

Operating revenues and net income for the three months ended March 31, 1998, and
for the years ended  December 31, 1997,  and December 31, 1996,  were as follows
(in millions):
<TABLE>
<CAPTION>

                                              WPLH              IES             IPC             IEC
                                           ------------     ------------    ------------    -------------
Three months ended March 31, 1998
<S>                                           <C>              <C>              <C>             <C>   
   Operating revenues                         $229.5           $241.7           $85.1           $556.3
   Net income                                  $15.8             $8.1            $5.0            $28.9

Year ended December 31, 1997
   Operating revenues                         $978.7           $990.1          $331.8         $2,300.6
   Net income                                  $61.3            $56.6           $26.7           $144.6

Year ended December 31, 1996
   Operating revenues                         $932.8           $973.9          $326.1         $2,232.8
   Net income                                  $71.9            $58.0           $25.9           $155.8
</TABLE>

The  financial  results of IES have been  restated for all periods  presented to
reflect a change in  accounting  method  for  Whiting's  oil and gas  properties
implemented  in the  third  quarter  of 1998  from the full  cost  method to the
successful  efforts  method.  See  Note  1(i)  for  additional  information.  In
addition,  the operating  revenues of WPLH and IES for the 1998 and 1997 periods
presented have been adjusted to reflect the financial results of a joint venture
between the two companies as a consolidated subsidiary.

(3) LEASES:

IESU has a capital  lease  covering its 70%  undivided  interest in nuclear fuel
purchased  for  DAEC.  Future  purchases  of fuel  may also be added to the fuel
lease.  This lease provides for annual  one-year  extensions and IESU intends to
continue exercising such extensions. Interest costs under the lease are based on
commercial  paper  costs  incurred by the lessor.  IESU is  responsible  for the
payment  of  taxes,  maintenance,  operating  cost,  risk of loss and  insurance
relating to the leased fuel. The lessor has a $45 million credit  agreement with
a  bank  supporting  the  nuclear  fuel  lease.  The  agreement  continues  on a
year-to-year basis, unless either party provides at least a three-year notice of
termination;  no such notice of  termination  has been provided by either party.
Annual nuclear fuel lease expenses  (included in "Electric and steam  production
fuels" in the  Consolidated  Statements of Income) for 1998,  1997 and 1996 were
$14.2 million, $16.6 million and $18.2 million, respectively.

IEC's  operating  lease  rental  expenses  for 1998,  1997 and 1996  were  $21.6
million,  $20.3 million and $20.0  million,  respectively.  IEC's future minimum
lease payments by year are as follows (in thousands):


                                       76
<PAGE>



                                                  Capital            Operating
      Year                                         Leases             Leases
      -------------------------------------    ---------------   ---------------
      1999                                     $      12,293     $       23,075
      2000                                             8,051             19,743
      2001                                             4,338             14,183
      2002                                             2,674              9,649
      2003                                               561              7,333
      Thereafter                                         141             29,961
                                               ---------------
                                                                 ---------------
                                                      28,058     $       103,944
                                                                 ===============
      Less:  Amount representing interest              2,325
                                               ---------------
      Present value of net minimum
          capital lease payments               $      25,733
                                               ===============

(4) UTILITY ACCOUNTS RECEIVABLE:

Utility  customer  accounts  receivable,   including  unbilled  revenues,  arise
primarily  from the sale of  electricity  and natural gas. At December 31, 1998,
IEC was serving a diversified  base of  residential,  commercial  and industrial
customers and did not have any significant concentrations of credit risk.

Separate  accounts  receivable  financing  arrangements  exist  for two of IEC's
utility  subsidiaries,  IESU and  WP&L,  which  are  similar  in most  important
aspects.  In both cases,  the utility  subsidiaries  sell up to a pre-determined
maximum  amount of accounts  receivable to a financial  institution on a limited
recourse basis, including sales to customers and to other public,  municipal and
cooperative utilities, as well as billings to the co-owners of the jointly-owned
electric generating plants that the utility  subsidiaries  operate.  The amounts
are discounted at the then-prevailing market rate and additional  administrative
fees are payable  according to the activity levels  undertaken.  All billing and
collection  functions  remain the  responsibility  of the respective  utilities.
Specifics of the two agreements include (dollars in millions):

                                                        IESU            WP&L
                                                    --------------   -----------
   Year agreement expires                               1999            1999
   Maximum amount of receivables that can be sold        $65            $150
   Effective 1998 all-in cost                           6.02%          5.95%
   Average monthly sale of receivables    - 1998         $63            $83
                                          - 1997         $65            $92
   Receivables sold at December 31, 1998                 $55            $75

(5) INVESTMENTS:

    (a) McLeodUSA Inc. (McLeod) -

At  December  31,  1998,  IEC  had  the  following   investment  in  McLeod,   a
telecommunications company (in millions):

                                   Shares      Cost       Fair Market Value
                                 ----------- ---------- -------------------
   Class A common stock              9.0       $ 29.1          $ 282.0
   Unexercised vested options,                
       net of cost to exercise       1.3            -             38.3
                                 ----------- ---------- -------------------
                                    10.3        $ 29.1          $ 320.3
                                 =========== ========== ===================

Pursuant to the provisions of SFAS 115, IEC's investment in McLeod is considered
an  available-for-sale  security  thus the carrying  value of the  investment is
adjusted to the estimated  fair value each quarter based on the closing price at
the  end  of the  quarter.  The  adjustment  does  not  impact  earnings  as the
unrealized gains or losses,  net of taxes,  are recorded  directly to the common
equity section of the Consolidated  Balance Sheets. In addition,  any such gains
or losses are  reflected in current  earnings only at the time they are realized
through a sale.  IEC entered  into an  agreement  in  November  1998 with McLeod
whereby   IEC's  ability  to  sell  the  McLeod  stock  is  subject  to  various
restrictions.

                                       77
<PAGE>

    (b) Foreign Entities -

At December 31, 1998, IEC had $68.9 million of  investments in foreign  entities
on its  Consolidated  Balance  Sheets that  included:  1) investments in several
generation  facilities in China;  2) investments in several New Zealand  utility
entities;  and 3) an investment in an  international  venture  capital fund. IEC
accounts  for the  China  investments  under  the  equity  method  and the other
investments  under  the  cost  method.  The  geographic  concentration  of IEC's
investments in foreign  entities at December 31, 1998,  included  investments of
approximately  $36.1  million in China,  $32.3  million in New  Zealand and $0.5
million in other countries.

(6) INCOME TAXES:

The  components  of federal and state  income  taxes for IEC for the years ended
December 31 were as follows (in millions):
<TABLE>
<CAPTION>

                                                1998                1997                1996
                                           ---------------      --------------     ---------------
<S>                                        <C>                  <C>                <C>       
Current tax expense                        $     92.5           $   99.6           $     96.9
Deferred tax expense                            (22.2)              (6.1)                20.3
Amortization of investment tax credits           (5.6)              (5.6)                (5.6)
Affordable housing tax credits                   (6.6)              (6.2)                (5.8)
                                           ---------------      --------------     ---------------
                                           $     58.1           $   81.7           $    105.8
                                           ===============      ==============     ===============
</TABLE>

The overall  effective income tax rates shown below for the years ended December
31 were  computed by dividing  total income tax expense by income  before income
taxes and preferred dividend requirements of subsidiaries.
<TABLE>
<CAPTION>

                                                            1998               1997                1996
                                                        --------------     --------------      -------------
<S>                                                         <C>                 <C>                <C>  
Statutory federal income tax rate                           35.0%               35.0%              35.0%
    State income taxes, net of federal benefits              8.0                 6.4                6.5
    Affordable housing tax credits                          (4.1)               (2.7)              (2.2)
    Amortization of investment tax credits                  (3.4)               (2.4)              (2.1)
    Adjustment of prior period taxes                        (0.4)               (2.2)               1.0
    Merger expenses                                          2.4                 0.5                1.2
    Oil and gas production credits                          (1.6)               (0.6)              (0.5)
    Other items, net                                         0.1                 1.1                0.3
                                                        --------------     --------------      -------------
Overall effective income tax rate                           36.0%               35.1%              39.2%
                                                        ==============     ==============      =============
</TABLE>

The  accumulated  deferred  income taxes  (assets) and  liabilities as set forth
below on the Consolidated Balance Sheets at December 31 arise from the following
temporary differences (in millions):

                                                  1998              1997
                                             ---------------    --------------
        Property related                  $        677.7     $       654.7
        McLeod investment                          121.1             124.3
        Investment tax credit related              (43.0)            (46.1)
        Decommissioning related                    (33.4)            (31.7)
        Other                                      (30.8)             18.7
                                             ---------------    --------------
                                          $        691.6     $       719.9
                                             ===============    ==============

(7) BENEFIT PLANS:

    (a) Pension Plans and Other Postretirement Benefits -

IEC  adopted  SFAS  132,  "Employers'   Disclosures  about  Pensions  and  Other
Postretirement  Benefits"  in 1998.  IEC has  several  non-contributory  defined
benefit  pension  plans that cover  substantially  all of its  employees who are
subject to a collective bargaining agreement.  Plan benefits are generally based
on years of service  and  compensation  during the  employees'  latter  years of
employment.  Eligible  employees  of IEC that are not  subject  to a  collective
bargaining  agreement  are covered by the Alliant  Energy Cash  Balance  Pension
Plan, a  non-contributory  defined  benefit  pension


                                       78
<PAGE>

plan. During each year of service, IEC credits each participant's account with a
benefit credit equal to 5% of base pay as well as a guaranteed  minimum interest
credit equal to 4%. The projected unit credit  actuarial cost method was used to
compute  pension cost and the  accumulated  and projected  benefit  obligations.
IEC's  policy is to fund all of the pension  plans at an amount that is at least
equal to the minimum funding  requirements  mandated by the Employee  Retirement
Income  Security Act of 1974, as amended  (ERISA),  and that does not exceed the
maximum tax deductible amount for the year.

IEC also provides certain other postretirement  benefits to retirees,  including
medical   benefits  for  retirees  and  their   spouses  (and  Medicare  Part  B
reimbursement for certain retirees) and, in some cases,  retiree life insurance.
IESU's and IPC's funding of other postretirement benefits generally approximates
the  annual  rate  recovery  of  such  costs,  while  WP&L's  funding  generally
approximates the maximum tax deductible amount on an annual basis.

The weighted-average  assumptions as of the measurement date of September 30 are
as follows:
<TABLE>
<CAPTION>

                                                  Qualified Pension Benefits          Other Postretirement Benefits
                                              ----------------------------------- --------------------------------------
                                                 1998        1997        1996        1998        1997         1996
                                              ----------- ----------- ----------- ----------- ----------- --------------
<S>                                             <C>         <C>         <C>         <C>         <C>           <C>  
Discount rate                                   6.75%       7.25%       7.50%       6.75%       7.25%         7.50%
Expected return on plan assets                    9%         8-9%        8-9%         9%         8-9%         8-9%
Rate of compensation increase                  3.5-4.5%    3.5-5.0%    3.5-5.0%      3.5%        3.5%       3.5%-4.5%
Medical cost trend on covered charges:
      Initial trend range                        N/A         N/A         N/A          8%          8%          8-9%
      Ultimate trend range                       N/A         N/A         N/A       5.0-6.0%    5.0-6.5%     5.0-6.5%

The  components of IEC's  qualified  pension  benefits and other  postretirement
benefits costs are as follows (in millions):
<CAPTION>

                                                 Qualified Pension Benefits           Other Postretirement Benefits
                                             ------------------------------------    ---------------------------------
                                               1998          1997          1996        1998       1997         1996
                                             ----------    ----------    ---------    -------    --------    ---------
<S>                                       <C>           <C>           <C>          <C>        <C>         <C>       
Service cost                              $       13.8  $       13.1  $      13.4  $   5.1    $    4.7    $      4.9
Interest cost                                     35.4          32.2         30.0      9.7         9.8           9.6
Expected return on plan assets                   (47.2)        (39.0)       (36.8)    (3.7)       (2.6)         (1.9)
Amortization of:
   Transition obligation (asset)                  (2.4)         (2.4)        (2.4)     4.7         4.9           5.0
   Prior service cost                              2.8           2.5          1.7     (0.3)       (0.3)         (0.3)
   Actuarial (gain) / loss                        (0.9)          -            0.4     (1.2)       (0.2)         (0.1)
                                             ----------   -----------    ---------    -------    --------    ---------
Total                                     $        1.5  $        6.4  $       6.3  $   14.3   $   16.3    $     17.2
                                             ==========    ==========    =========    =======    ========    =========
</TABLE>

During 1998,  1997 and 1996,  IEC recognized an additional  $10.3 million,  $5.1
million and $4.7 million, respectively, of costs in accordance with SFAS 88. The
charges  were for  severance  and early  retirement  programs in the  respective
years. In addition,  during 1998 and 1997, IEC recognized $10.2 million and $1.7
million,   respectively,   of  curtailment   charges  relating  to  IEC's  other
postretirement  benefits.  The amounts include a December 1998 early  retirement
program.

The  measurement  date  for  accounting  purposes  is  September  30 for  IEC as
disclosed  above.  Prior to the  Merger,  WPLH,  IPC and IES used  December  31,
November 1 and September 30 measurement dates, respectively.

The assumed  medical trend rates are critical  assumptions  in  determining  the
service and interest  cost and  accumulated  postretirement  benefit  obligation
related to  postretirement  benefit  costs.  A one percent change in the medical
trend rates for 1998,  holding all other  assumptions  constant,  would have the
following effects (in millions):
<TABLE>
<CAPTION>

                                                                1 Percent Increase       1 Percent Decrease
                                                               ---------------------    ---------------------
<S>                                                                     <C>                    <C>   
Effect on total of service and interest cost components                 $2.3                   ($1.8)
Effect on postretirement benefit obligation                            $15.6                  ($13.0)
</TABLE>


                                       79
<PAGE>



A reconciliation  of the funded status of IEC's plans to the amounts  recognized
on IEC's  Consolidated  Balance  Sheets at  December 31 is  presented  below (in
millions):
<TABLE>
<CAPTION>

                                                       Qualified Pension Benefits        Other Postretirement Benefits
                                                       ----------------------------     --------------------------------
                                                          1998            1997             1998               1997
                                                       -----------     ------------     ------------      --------------
Change in benefit obligation:
<S>                                                 <C>            <C>              <C>              <C>               
  Net benefit obligation at beginning of year       $       474.2  $        426.6   $        146.4   $            136.5
  Service cost                                               13.8            13.1              5.1                  4.7
  Interest cost                                              35.4            32.2              9.7                  9.8
  Plan participants' contributions                            -               -                1.3                  1.4
  Plan amendments                                            (2.5)           11.8              -                    -
  Actuarial (gain) / loss                                    24.8            13.7             (3.6)                 1.0
  Curtailments                                               (3.0)            2.5              1.9                  0.7
  Special termination benefits                               10.7             5.1              -                    -
  Gross benefits paid                                       (25.0)          (30.8)            (7.5)                (7.7)
                                                       -----------     ------------     ------------      --------------
    Net benefit obligation at end of year                   528.4           474.2            153.3                146.4
                                                       -----------     ------------     ------------      --------------

Change in plan assets:
  Fair value of plan assets at beginning of year            529.1           482.6             50.7                 37.2
  Actual return on plan assets                                2.2            72.5              2.5                  3.7
  Employer contributions                                      -               4.8              7.0                 16.1
  Plan participants' contributions                            -               -                1.3                  1.4
  401(h) assets recognized                                    -               -                1.1                  -
  Gross benefits paid                                       (25.0)          (30.8)            (7.5)                (7.7)
                                                       -----------     ------------     ------------      --------------
    Fair value of plan assets at end of year                506.3           529.1             55.1                 50.7
                                                       -----------     ------------     ------------      --------------

Funded status at end of year                                (22.1)           54.9            (98.2)               (95.7)
Unrecognized net actuarial (gain) / loss                     30.3           (56.9)            (7.5)                (4.0)
Unrecognized prior service cost                              25.8            32.1             (1.7)                (2.3)
Unrecognized net transition obligation (asset)              (10.6)          (13.0)            60.6                 73.2
                                                       -----------     ------------     ------------      --------------
    Net amount recognized at end of year            $        23.4  $         17.1   $        (46.8)  $            (28.8)
                                                       ===========     ============     ============      ==============

Amounts recognized on the Consolidated 
 Balance Sheets consist of:
    Prepaid benefit cost                            $        38.9  $         42.7   $          0.9   $              0.9
    Accrued benefit cost                                    (15.5)          (25.6)           (47.7)               (29.7)
    Additional minimum liability                             (7.7)            -                -                    -
    Intangible asset                                          7.7             -                -                    -
                                                       -----------     ------------     ------------      --------------
    Net amount recognized at measurement date                23.4            17.1            (46.8)               (28.8)
                                                       -----------     ------------     ------------      --------------

Contributions paid after 9/30 and prior to 12/31              -               -                6.8                  -
                                                       -----------     ------------     ------------      --------------
    Net amount recognized at 12/31/98               $        23.4  $         17.1   $        (40.0)  $            (28.8)
                                                       ===========     ============     ============      ==============
</TABLE>

The  benefit  obligation  and fair value of plan  assets for the  postretirement
welfare  plans with  benefit  obligations  in excess of plan  assets were $146.5
million and $45.3  million,  respectively,  as of September  30, 1998 and $139.8
million and $46.3 million,  respectively,  as of the prior measurement date. The
projected benefit  obligation,  accumulated benefit obligation and fair value of
plan assets for the pension  plans with  benefit  obligations  in excess of plan
assets were $250.5 million, $241.1 million and $217.9 million,  respectively, as
of September 30, 1998.

IEC also  sponsors  several  non-qualified  pension  plans which  cover  certain
current and former officers. Funding of such plans at December 31, 1998, totaled
approximately $4 million. IEC's pension benefit obligation under these plans was
$25.8  million and $18.7  million at December  31, 1998 and 1997,  respectively.
IEC's pension expense under these plans was $4.5 million, $3.7 million, and $2.0
million in 1998, 1997 and 1996, respectively.

                                       80
<PAGE>

A significant  number of IEC employees also participate in defined  contribution
pension plans (401(k) plans).  IEC's contributions to the plans, which are based
on the participants' level of contribution,  were $7.7 million, $5.5 million and
$4.9 million in 1998, 1997 and 1996, respectively.

    (b) Long-Term Equity Incentive Plan -

IEC  has  a  long-term   equity  incentive  plan  which  permits  the  grant  of
non-qualified  stock  options,   incentive  stock  options,   restricted  stock,
performance  shares and performance  units to key employees.  As of December 31,
1998, only non-qualified stock options and performance units had been granted to
key  employees.  The  maximum  number of shares of IEC common  stock that may be
issued  under the plan may not exceed one  million.  Options  are granted at the
fair market  value of the shares on the date of grant and vest over three years.
Options outstanding will expire no later than 10 years after the grant date. The
first options were granted in 1995 and became  exercisable  in January 1998. All
options  granted prior to the  consummation of the Merger were issued by WPLH. A
summary of the stock option activity for 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>

                                                  1998                       1997                      1996
                                         -----------------------    -----------------------   -----------------------
                                                      Weighted                  Weighted                   Weighted
                                                      Average                    Average                   Average
                                                      Exercise                  Exercise                   Exercise
                                           Shares      Price          Shares      Price         Shares      Price
                                         -----------------------    -----------------------   -----------------------
<S>                                          <C>        <C>           <C>        <C>              <C>        <C>   
Outstanding at beginning of year             191,800    $28.98        114,150    $29.56           41,900     $27.50
Options granted                              636,451     31.32         77,650     28.12           72,250      30.75
Options exercised                            (8,900)     28.59              -      -                -           -
Options forfeited                           (68,267)     30.49              -      -                -           -
                                        -----------------------    -----------------------   -----------------------
Outstanding at end of year                   751,084    $30.83         191,800   $28.98          114,150     $29.56
                                         =======================    =======================   =======================
Exercisable at end of year                    38,250    $27.50               -                         -
                                                                                                
</TABLE>

The range of exercise  prices for the options  outstanding  at December 31, 1998
was $27.50 to $31.56.

The value of the  options  at the grant  date  using the  Black-Scholes  pricing
method is as follows:
<TABLE>
<CAPTION>

                                                             1998             1997            1996
                                                          ------------     ------------    ------------
<S>                                                        <C>              <C>             <C>  
Value of options based on Black-Scholes model                $4.93            $3.30           $3.47
Volatility                                                    21%              15%             16%
Risk free interest rate                                      5.75%            6.43%           5.56%
Expected life                                              10 years         10 years        10 years
Expected dividend yield                                      7.0%             7.0%            7.0%
</TABLE>

IEC follows Accounting  Principles Board (APB) Opinion 25, "Accounting for Stock
Issued to  Employees,"  to account for stock options.  No  compensation  cost is
recognized because the option exercise price is equal to the market price of the
underlying stock on the date of grant.  Had compensation  cost for the plan been
determined  based on the  Black-Scholes  value at the grant  dates for awards as
prescribed by SFAS 123 "Accounting for Stock-Based  Compensation," pro forma net
income and earnings per share would have been:

                                             1998          1997         1996
                                          -----------   -----------  -----------
  Net income (in millions)                  $93.5         $144.3       $155.5
  Earnings per share (basic and diluted)    $1.22         $1.89        $2.06

The performance units represent  accumulated  dividends on the shares underlying
the  non-qualified  stock  options and are expensed  over a  three-year  vesting
period based on the annual dividend rate at the grant date. The performance unit
payout is contingent  upon  three-year  performance  criteria.  The cost of this
program in 1998, 1997 and 1996 was not significant.

                                       81
<PAGE>

(8) COMMON, PREFERRED AND PREFERENCE STOCK:

    (a) Common Stock -

During 1998,  1997 and 1996, IEC issued  890,035;  687,962 and 777,649 shares of
common stock under its various stock plans, respectively. Shares issued prior to
the Merger  consummation  by IES and IPC have been  adjusted for the  applicable
conversion ratios. In addition, 260,039 shares were issued in 1998 in connection
with the acquisition of oil and gas properties.  At December 31, 1998, IEC had a
total of 4.0 million  shares  available for issuance  pursuant to its Shareowner
Direct Plan,  Long-Term  Equity  Incentive Plan and 401(k) Savings Plan. IEC has
declared  a  quarterly  dividend  of 50 cents per share each  quarter  since the
consummation of the Merger.

During 1998, 1997 and 1996, IEC reacquired 1,133 shares, 3,278 shares and 10,771
shares,  respectively,  of its common stock on the open market. Such shares were
reacquired by IES prior to the consummation of the Merger and have been adjusted
for the IES conversion ratio.  These shares were subsequently  issued to various
IEC directors and  employees.  At December 31, 1998, no shares  remained held as
treasury stock.

In October 1998, the Board of Directors of IEC adopted a new  Shareowner  Rights
Plan (new plan) to replace  IEC's former plan that expired on February 22, 1999.
The new plan was  approved on January 15, 1999 by the SEC. On January 20,  1999,
the Board of Directors  declared a dividend of one common share  purchase  right
(right) on each  outstanding  share of IEC's  common  stock  which was issued on
February 22, 1999 to coincide  with the  expiration  of the former plan.  Rights
under the new plan will be exercisable  only if a person or group  acquires,  or
announces a tender  offer to acquire,  15% or more of IEC's common  stock.  Each
right will initially  entitle  shareowners to buy one-half of one share of IEC's
common  stock.  The rights will only be  exercisable  in  multiples of two at an
initial price of $95.00 per full share, subject to adjustment. If any shareowner
acquires 15% or more of the outstanding common stock of IEC, each right (subject
to limitations) will entitle its holder to purchase, at the right's then current
exercise  price,  a number of common  shares of IEC or of the acquirer  having a
market value at the time of twice the right's per full share exercise price. The
Board of Directors is also  authorized to reduce the 15%  thresholds to not less
than 10%.

In rate order  UR-110,  the PSCW  ordered  that it must  approve  the payment of
dividends by WP&L to IEC that are in excess of the level  forecasted in the rate
order ($58.3  million),  if such  dividends  would reduce WP&L's  average common
equity ratio below 52.00% of total capitalization. The dividends paid by WP&L to
IEC since the rate order was issued have not  exceeded the level  forecasted  in
the rate order.

    (b) Preferred and Preference Stock -

In 1993, IPC issued 545,000 shares of 6.40%,  $50 par value preferred stock with
a final  redemption  date of May 1, 2022.  Under the provisions of the mandatory
sinking fund, beginning in 2003, IPC is required to redeem annually $1.4 million
of 6.40% preferred stock (27,250 shares).

(9) DEBT:

    (a) Short-Term Debt

IEC  maintains  committed  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  totaled  $150 million as of December 31,
1998.  Commitment  fees  are paid to  maintain  these  lines  and  there  are no
conditions  which restrict the unused lines of credit.  Alliant Energy Resources
also  maintains  a credit  agreement  with  various  banking  institutions.  The
unborrowed  portion of this  agreement  is also used to support  Alliant  Energy
Resources'  commercial paper program.  The amount available under this agreement
as of December 31, 1998, was $150 million. Information regarding short-term debt
and lines of credit is as follows (in millions):


                                       82
<PAGE>

<TABLE>
<CAPTION>



                                                         1998                1997               1996
                                              ----------------     ---------------    ---------------
As of year end--
<S>                                                <C>                 <C>                <C>   
   Commercial paper outstanding                         $64.5              $114.5             $198.2
   Notes payable outstanding                            $51.8               $42.0              $68.3
   Discount rates on commercial paper              5.10-6.55%          5.82-5.90%         5.35-6.05%
   Interest rates on notes payable                 5.44-7.00%          5.00-5.90%         5.28-6.59%

For the year ended--
   Average amount of short-term debt
      (based on daily outstanding balances)            $126.6              $211.0             $207.9
   Average interest rate on short-term debt             5.55%               5.61%              5.57%
</TABLE>

    (b) Long-Term Debt

IESU's  Indentures  and  Deeds  of  Trust  securing  its  First  Mortgage  Bonds
constitute  direct first mortgage liens upon  substantially  all tangible public
utility  property.  IESU's  Indenture and Deed of Trust  securing its Collateral
Trust Bonds  constitutes  a second lien on  substantially  all  tangible  public
utility  property while First Mortgage Bonds remain  outstanding.  Substantially
all of WP&L's and IPC's  utility plant is secured by its First  Mortgage  Bonds.
WP&L also  maintains  an  unsecured  indenture  relating to the issuance of debt
securities.  In addition,  IEC's long-term debt includes  unsecured  debentures,
notes payable and revenue bonds related to its affordable housing properties.

Alliant  Energy  Resources is a party to a 3-Year Credit  Agreement with various
banking institutions.  The agreement extends through October 2000, with one-year
extensions   available   upon  agreement  by  the  parties.   Unused   borrowing
availability  under  this  agreement  is also  used to  support  Alliant  Energy
Resources'  commercial  paper  program.  A combined  maximum of $450  million of
borrowings  under  this  agreement  and  the  commercial  paper  program  may be
outstanding  at any one time.  Interest rates and maturities are set at the time
of borrowing.  The rates are based upon quoted market prices and the  maturities
are less than one year. At December 31, 1998,  Alliant Energy Resources had $253
million of commercial  paper  outstanding  backed by this facility with interest
rates  ranging from  5.15%-5.85%.  (See Note 11(a) for a  discussion  of several
interest rate swaps Alliant  Energy  Resources has entered into relative to $200
million of short-term  borrowings under, or backed by, this agreement).  Alliant
Energy  Resources  intends to continue  issuing  commercial paper backed by this
facility and no  conditions  existed at December 31, 1998 that would prevent the
issuance of commercial paper or direct borrowings on its bank lines.
Accordingly, this debt is classified as long-term.

Debt maturities  (excluding  periodic sinking fund requirements,  which will not
require additional cash expenditures) for 1999 to 2003 are $318.1 million, $56.0
million, $84.7 million, $3.8 million and $9.3 million,  respectively.  Depending
upon  market  conditions,  it is  currently  anticipated  that a majority of the
maturing debt will be refinanced with the issuance of long-term securities.

Refer to  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" (MD&A) for a further discussion of IEC's debt.

(10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments:

o   Current Assets and Current  Liabilities - The carrying  amount  approximates
    fair value because of the short maturity of such financial instruments.
o   Nuclear  Decommissioning  Trust Funds - The carrying  amount  represents the
    fair value of these trust funds, as reported by the trustee.  The balance of
    the  "Nuclear  decommissioning  trust  funds"  as shown on the  Consolidated
    Balance  Sheets  included  $43.0 million and $35.7 million of net unrealized
    gains at December  31, 1998 and  December  31,  1997,  respectively,  on the
    investments   held  in  the  trust  funds.   The  accumulated   reserve  for
    decommissioning costs was adjusted by a corresponding amount.
o   Cumulative  Preferred  Stock  - Based  upon  the  market  yield  of  similar
    securities  and quoted  market  prices. 

                                       83
<PAGE>

o   Long-Term  Debt - Based upon the  market  yield of  similar  securities  and
    quoted market prices.
o   Investment in McLeod - Pursuant to the  provisions of SFAS 115, the carrying
    value of the McLeod  investment is adjusted to estimated fair value based on
    the closing price at the end of the quarter.
o   Investments in New Zealand - Fair value of the New Zealand  investments  are
    generally based on quoted market prices.

The following  table  presents the carrying  amount and estimated  fair value of
certain financial instruments for IEC as of December 31 (in millions):
<TABLE>
<CAPTION>

                                                               1998                           1997
                                                    ---------------------------    ----------------------------
                                                     Carrying          Fair         Carrying           Fair
                                                       Value          Value           Value           Value
                                                    ------------    -----------    ------------     -----------

<S>                                              <C>             <C>            <C>             <C>        
Nuclear decommissioning trust funds              $      226      $      226     $      190      $       190
Cumulative preferred stock                              113             109            113              105
Long-term debt, including current portion             1,664           1,753          1,543            1,600
Investment in McLeod (Note 5(a))                        320             320            328              328
Investments in New Zealand (Note 5(b))                   32              44             34               33
</TABLE>

Since IESU, WP&L and IPC are subject to regulation,  any gains or losses related
to the  difference  between  the  carrying  amount  and the  fair  value  of its
financial instruments may not be realized by IEC's shareowners.


(11) DERIVATIVE FINANCIAL INSTRUMENTS:

IEC,  through its consolidated  subsidiaries,  has historically had only limited
involvement  with  derivative  financial  instruments  and has not used them for
speculative  purposes.  They have been used to manage well-defined interest rate
and commodity price risks.

    (a) Interest Rate Swaps and Forward Contracts -

At December 31,  1998,  Alliant  Energy  Resources  had two  interest  rate swap
agreements  outstanding  (both  expiring  in April  2000 with the bank  having a
1-year  extension  option for one of the agreements) each with a notional amount
of $100  million.  WP&L also had two interest rate swap  agreements  outstanding
(both expiring in 2000) at December 31, 1998, and the combined  notional  amount
of the two agreements  was $30 million.  These  agreements  were entered into in
order to reduce the impact of changes in variable  interest  rates by converting
variable rate borrowings into fixed rate borrowings thus all agreements  require
Alliant  Energy  Resources  and WP&L to pay a fixed rate and  receive a variable
rate.  Had Alliant  Energy  Resources  and WP&L  terminated  the  agreements  at
December 31, 1998, they would have had to make payments of $2.9 million and $0.3
million, respectively.

On September  14, 1998,  WP&L  entered  into an interest  rate forward  contract
related to the anticipated issuance of $60 million of debentures. The securities
were issued on October 30, 1998,  and the forward  contract  was settled,  which
resulted in a cash payment of $1.5 million by WP&L.

    (b) Gas Commodities Instruments -

WP&L uses gas commodity swaps to reduce the impact of price  fluctuations on gas
purchased and injected  into storage  during the summer months and withdrawn and
sold at current market prices during the winter months.  The notional  amount of
gas  commodity  swaps  outstanding  as of  December  31,  1998,  was 5.8 million
dekatherms.  Had WP&L terminated all of the agreements  existing at December 31,
1998, it would have realized an estimated gain of $0.8 million.

    (c) Electricity Trading Joint Venture -

IEC has a 50%  interest in an  electricity  trading  joint  venture with Cargill
Incorporated  (Cargill)  which is  accounted  for  under  the  equity  method of
accounting.  The joint  venture's  trading  activities  principally  consist  of
marketing 


                                       84
<PAGE>

and trading over-the-counter contracts for the purchase and sale of electricity.
The majority of the forward contracts represent  commitments to purchase or sell
electricity  at fixed  prices in the future and require  settlement  by physical
delivery of  electricity or are netted out in accordance  with industry  trading
standards.  The  value-at-risk  of the joint  venture for its forward  contracts
outstanding at December 31, 1998, was not significant.

(12) COMMITMENTS AND CONTINGENCIES:

    (a) Construction and Acquisition Program -

Plans for IEC's  construction and acquisition  program can be found elsewhere in
this  report in the  "Liquidity  and Capital  Resources - Capital  Requirements"
section of MD&A.

    (b) Purchased-Power, Coal and Natural Gas Contracts

IEC has entered into purchased-power capacity and coal contracts and its minimum
commitments are as follows (dollars in millions,  megawatt-hours (MWHs) and tons
in thousands):

                                                           Coal
                                                 (including transportation
                      Purchased-Power                     costs)
                ---------------------------   --------------------------------
                 Dollars          MWHs          Dollars             Tons
                -----------    ------------   -------------    ---------------
1999              $ 104.0         1,691          $ 49.2            11,560
2000                102.4         1,571            24.6             4,457
2001                 71.0           925            15.7             2,695
2002                 43.5           280             5.4             1,036
2003                 36.2           280             0.3                95

IEC is in the process of negotiating several new coal contracts. In addition, it
expects to supplement its coal  contracts with spot market  purchases to fulfill
its future fossil fuel needs.

IEC also has various natural gas supply,  transportation  and storage  contracts
outstanding.  The minimum dekatherm commitments,  in millions, for 1999-2003 are
194.8,  162.8,  146.8,  122.3  and  95.1,   respectively.   The  minimum  dollar
commitments for 1999-2003,  in millions,  are $158.7,  $95.9,  $83.5,  $58.8 and
$46.1, respectively. The gas supply commitments are all index-based. IEC expects
to supplement its natural gas supply with spot market purchases as needed.

    (c) Information Technology Services -

In May 1998, IEC entered into an agreement,  expiring in 2004,  with  Electronic
Data  Systems  Corporation  (EDS) for  information  technology  services.  IEC's
anticipated  operating and capital expenditures under the agreement for 1999 are
estimated to total  approximately $21 million.  Future costs under the agreement
are  variable  and are  dependent  upon  IEC's  level of usage of  technological
services from EDS.

    (d) Financial Guarantees and Commitments

IEC has financial guarantees, which were generally issued to support third-party
borrowing  arrangements  and similar  transactions,  amounting to $18.1  million
outstanding  at December  31, 1998.  Such  guarantees  are not  reflected in the
consolidated  financial  statements.  Management believes that the likelihood of
IEC having to make any material cash payments under these agreements is remote.

In addition,  as part of IEC's  electricity  trading joint venture with Cargill,
Cargill has made guarantees to certain counterparties  regarding the performance
of contracts entered into by the joint venture.  Guarantees of approximately $50
million have been issued of which  approximately  $5 million were outstanding at
December 31, 1998. Under the terms of the joint venture agreement,  any payments
required  under the  guarantees  would be shared by IEC and  Cargill  on a 50/50
basis to the extent the joint venture is not able to reimburse the guarantor for
payments made under the guarantee.

                                       85
<PAGE>

As of December 31, 1998,  Alliant Energy  Resources had extended  commitments to
provide  $7.2  million  in  nonrecourse,  fixed  rate,  permanent  financing  to
developers which are secured by affordable housing  properties.  IEC anticipates
other lenders will ultimately finance these properties.

    (e) Nuclear Insurance Programs-

Public liability for nuclear  accidents is governed by the Price Anderson Act of
1988,  which sets a statutory  limit of $9.8 billion for liability to the public
for a single  nuclear  power plant  incident  and requires  nuclear  power plant
operators to provide  financial  protection for this amount.  As required,  IESU
provides  this  financial  protection  for a nuclear  incident at DAEC through a
combination   of  liability   insurance   ($200   million)   and   industry-wide
retrospective  payment plans ($9.6 billion).  Under the industry-wide plan, each
operating  licensed  nuclear  reactor  in the  United  States is  subject  to an
assessment in the event of a nuclear incident at any nuclear plant in the United
States.  The owners of DAEC could be  assessed  a maximum of $88.1  million  per
nuclear incident,  with a maximum of $10 million per incident per year (of which
IESU's 70 %  ownership  portion  would be  approximately  $61.7  million  and $7
million, respectively) if losses relating to the incident exceeded $200 million.
These  limits  are  subject  to  adjustments   for  changes  in  the  number  of
participants  and inflation in future years.  On a similar note,  WP&L, as a 41%
owner of Kewaunee,  is subject to an overall  assessment of approximately  $36.1
million per incident, not to exceed $4.1 million payable in any given year.

IESU and WP&L are members of Nuclear  Electric  Insurance  Limited (NEIL).  NEIL
provides  $1.9 billion of insurance  coverage for IESU and $1.8 billion for WP&L
on certain  property losses for property damage,  decontamination  and premature
decommissioning.  The proceeds from such insurance,  however, must first be used
for reactor  stabilization and site decontamination  before they can be used for
plant repair and premature decommissioning. NEIL also provides separate coverage
for  additional  expense  incurred  during  certain  outages.  Owners of nuclear
generating  stations  insured  through NEIL are subject to  retroactive  premium
adjustments  if losses exceed  accumulated  reserve  funds.  NEIL's  accumulated
reserve  funds are  currently  sufficient to more than cover its exposure in the
event of a single  incident  under the  primary  and excess  property  damage or
additional expense coverages. However, IESU could be assessed annually a maximum
of $1.9 million for NEIL primary property, $3.5 million for NEIL excess property
and $0.7 million for NEIL  additional  expenses if losses exceed the accumulated
reserve  funds.  WP&L could be assessed  annually a maximum of $1.1  million for
NEIL primary  property,  $2.0 million for NEIL excess  property and $0.6 million
for NEIL additional expense coverage.  IESU and WP&L are not aware of any losses
that they believe are likely to result in an assessment.

In the unlikely event of a catastrophic  loss at Kewaunee or DAEC, the amount of
insurance   available   may  not  be   adequate   to  cover   property   damage,
decontamination and premature  decommissioning.  Uninsured losses, to the extent
not  recovered  through  rates,  would be borne by IEC and could have a material
adverse effect on IEC's financial position and results of operations.

    (f) Environmental Liabilities -

IEC has recorded environmental liabilities of approximately $78.4 million on its
Consolidated   Balance   Sheets  at  December   31,  1998.   IEC's   significant
environmental liabilities are discussed below.

    Manufactured Gas Plant Sites

IESU,  WP&L  and IPC  all  have  current  or  previous  ownership  interests  in
properties  previously  associated  with the  production of gas at MGP sites for
which they may be liable for  investigation,  remediation  and monitoring  costs
relating to the sites.
A summary of information relating to the sites is as follows:
<TABLE>
<CAPTION>

                                                               IESU         WP&L         IPC
<S>                                                           <C>          <C>          <C>
Number of known sites for which liability may exist              34           14           9
Liability recorded at December 31, 1998 (millions)            $26.6         $7.7       $17.5
Regulatory asset recorded at December 31, 1998 (millions)     $26.6        $14.1       $17.5
</TABLE>

                                       86
<PAGE>

The companies are working  pursuant to the  requirements  of various federal and
state agencies to investigate, mitigate, prevent and remediate, where necessary,
the  environmental  impacts to property,  including  natural  resources,  at and
around the sites in order to protect  public  health  and the  environment.  The
companies  each  believe that they have  completed  the  remediation  at various
sites,  although they are still in the process of obtaining  final approval from
the applicable environmental agencies for some of these sites.

Each company records environmental liabilities based upon periodic studies, most
recently updated in the fourth quarter of 1998,  related to the MGP sites.  Such
amounts are based on the best  current  estimate of the  remaining  amount to be
incurred for  investigation,  remediation  and monitoring  costs for those sites
where the investigation process has been or is substantially  completed, and the
minimum of the estimated cost range for those sites where the  investigation  is
in its earlier stages. It is possible that future cost estimates will be greater
than current estimates as the  investigation  process proceeds and as additional
facts  become  known.  The amounts  recognized  as  liabilities  are adjusted as
further  information   develops  or  circumstances   change.   Costs  of  future
expenditures  for  environmental  remediation  obligations are not discounted to
their fair value.

Management  currently  estimates the range of remaining costs to be incurred for
the   investigation,   remediation  and  monitoring  of  all  IEC  sites  to  be
approximately $35 million to $66 million.  IESU, WP&L and IPC currently estimate
their  share of the  remaining  costs to be  incurred  to be  approximately  $17
million to $36 million, $5 million to $9 million and $13 million to $21 million,
respectively.

Under  the  current  rate  making  treatment  approved  by  the  PSCW,  the  MGP
expenditures of WP&L, net of any insurance proceeds,  are deferred and collected
from gas customers over a five-year period after new rates are implemented.  The
MPUC also allows the deferral of MGP-related  costs  applicable to the Minnesota
sites and IPC has been successful in obtaining approval to recover such costs in
rates in Minnesota. While the IUB does not allow for the deferral of MGP-related
costs,  it has permitted  utilities to recover  prudently  incurred  costs. As a
result,  regulatory  assets have been recorded by each company which reflect the
probable future rate recovery,  where  applicable.  Considering the current rate
treatment,  and assuming no material change therein,  IESU, WP&L and IPC believe
that the  clean-up  costs  incurred for these MGP sites will not have a material
adverse effect on their respective financial positions or results of operations.

In April 1996, IESU filed a lawsuit  against  certain of its insurance  carriers
seeking  reimbursement  for its MGP-related  costs.  Settlement has been reached
with all its carriers and all issues have been  resolved.  In 1994,  IPC filed a
lawsuit  against  certain of its insurance  carriers to recover its  MGP-related
costs.  Settlements have been reached with eight carriers. IPC is continuing its
pursuit of  additional  recoveries  but is unable to  predict  the amount of any
additional recoveries they may realize. Amounts received from insurance carriers
are being  deferred by IESU and IPC pending a  determination  of the  regulatory
treatment of such recoveries. WP&L has settled with all of its carriers.

    National Energy Policy Act of 1992

The National  Energy Policy Act of 1992 requires  owners of nuclear power plants
to pay a special  assessment  into a  "Uranium  Enrichment  Decontamination  and
Decommissioning   Fund."  The  assessment  is  based  upon  prior  nuclear  fuel
purchases.  IESU is recovering the costs associated with this assessment through
its electric  fuel  adjustment  clauses over the period the costs are  assessed.
IESU's 70% share of the future  assessment at December 31, 1998 was $7.8 million
and has been  recorded as a liability  with a related  regulatory  asset for the
unrecovered  amount. WP&L had a regulatory asset and a liability of $5.4 million
and $4.6 million recorded at December 31, 1998,  respectively.  IEC continues to
pursue relief from this assessment through litigation.

    Oil and Gas Properties Dismantlement and Abandonment Costs

Whiting is responsible for certain  dismantlement  and abandonment costs related
to various  off-shore oil and gas  platforms  (and related  on-shore  plants and
equipment),  the  most  significant  of  which  is  located  off  the  coast  of
California.  Whiting  estimates  the  total  costs for  these  properties  to be
approximately $13 million and the most 


                                       87
<PAGE>

significant  expenditures  are  not  expected  to be  incurred  until  2004.  In
accordance with applicable  accounting  requirements,  Whiting has accrued these
costs resulting in a recorded liability of $13 million at December 31, 1998.

    (g) Spent Nuclear Fuel -

The  Nuclear  Waste  Policy  Act of 1982  assigned  responsibility  to the  U.S.
Department of Energy (DOE) to establish a facility for the ultimate  disposition
of high level waste and spent nuclear fuel and  authorized the DOE to enter into
contracts  with parties for the disposal of such  material  beginning in January
1998.  IESU and WP&L  entered  into  such  contracts  and have  made the  agreed
payments to the Nuclear Waste Fund held by the U.S. Treasury. The companies were
subsequently  notified  by the DOE that it was not able to begin  acceptance  of
spent nuclear fuel by the January 31, 1998  deadline.  Furthermore,  the DOE has
experienced  significant  delays in its efforts and material  acceptance  is now
expected to occur no earlier  than 2010 with the  possibility  of further  delay
being likely. IEC has participated in several litigation proceedings against the
DOE  on  this  issue  and  the   respective   courts  have  affirmed  the  DOE's
responsibility for spent nuclear fuel acceptance.  IEC is evaluating its options
for recovery of damages due to the DOE's delay in accepting spent nuclear fuel.

The Nuclear Waste Policy Act of 1982 assigns  responsibility for interim storage
of spent nuclear fuel to generators of such spent nuclear fuel, such as IESU and
WP&L. In accordance  with this  responsibility,  IESU and WP&L have been storing
spent  nuclear  fuel on site at DAEC and  Kewaunee,  respectively,  since  plant
operations  began. IESU will have to increase its spent fuel storage capacity at
DAEC to store all of the spent fuel that will be  produced  before  the  current
license  expires  in 2014.  To provide  assurance  that both the  operating  and
post-shutdown  storage needs are satisfied,  construction  of a dry cask modular
facility is being contemplated.  With minor  modifications,  Kewaunee would have
sufficient  fuel  storage  capacity  to store  all of the fuel it will  generate
through  the end of the  license  life in 2013.  No  decisions  have  been  made
concerning  post-shutdown storage needs.  Legislation is being considered on the
federal level that would,  among other  provisions,  expand the DOE's  permanent
spent nuclear fuel storage to include  interim storage for spent nuclear fuel as
early as 2002.  This  legislation  has been  submitted  in the U.S.  House.  The
prospects  for  passage  by  the  U.S.  Congress,   and  subsequent   successful
implementation by the DOE, are uncertain at this time.

    (h) Decommissioning of DAEC and Kewaunee -

Pursuant to the most  recent  electric  rate case order,  the IUB and PSCW allow
IESU and WP&L to recover $6 million and $16 million  annually for their share of
the  cost to  decommission  DAEC  and  Kewaunee,  respectively.  Decommissioning
expense is included  in  "Depreciation  and  amortization"  in the  Consolidated
Statements  of Income and the  cumulative  amount is  included  in  "Accumulated
depreciation" on the Consolidated Balance Sheets to the extent recovered through
rates.

Additional  information  relating to the  decommissioning  of DAEC and  Kewaunee
includes (dollars in millions):
<TABLE>
<CAPTION>

                                                                       DAEC                        Kewaunee
                                                             -------------------------     --------------------------
Assumptions relating to current rate recovery figures:
<S>                                                           <C>                           <C>   
     IEC's share of estimated decommissioning cost                    $252.8                        $189.7
     Year dollars in                                                   1993                          1998
     Method to develop estimate                                NRC minimum formula            Site-specific study
     Annual inflation rate                                            4.91%                          5.83%
     Decommissioning method                                   Prompt dismantling and        Prompt dismantling and
                                                                     removal                        removal
     Year decommissioning to commence                                  2014                          2013
     Average after-tax return on external investments                 6.82%                          6.21%
External trust fund balance at December 31, 1998                      $91.7                         $134.1
Internal reserve at December 31, 1998                                 $21.7                            -
After-tax earnings on external trust funds in 1998                     $2.7                          $5.2
</TABLE>

The rate recovery  figures for DAEC only included an inflation  estimate through
1997.  Both IESU and WP&L are funding all rate  recoveries  for  decommissioning
into  external  trust funds and funding on a  tax-qualified  basis to the


                                       88
<PAGE>

extent possible.  All of the rate recovery  assumptions are subject to change in
future regulatory  proceedings.  In accordance with their respective  regulatory
requirements,  IESU and WP&L record the earnings on the external  trust funds as
interest  income with a corresponding  entry to interest  expense at IESU and to
depreciation expense at WP&L. The earnings accumulate in the external trust fund
balances and in accumulated depreciation on utility plant.

IESU's 70% share of the estimated  cost to  decommission  DAEC based on the most
recent site-specific study completed in 1998 is $334.2 million, in 1998 dollars.
This study includes the costs to terminate  DAEC's NRC license and to return the
site to a  greenfield  condition.  IESU's  70%  share of the  estimated  cost to
decommission DAEC based on the most recent NRC minimum formula is $347.0 in 1997
dollars.  The NRC  minimum  formula  is  intended  to apply  only to the cost of
terminating DAEC's NRC license. The additional  decommissioning  expense funding
requirements which should result from these updated studies are not reflected in
IESU's rates.

    (i) Legal Proceedings -

IEC is involved in legal and  administrative  proceedings  before various courts
and agencies with respect to matters arising in the ordinary course of business.
Although  unable to predict  the outcome of these  matters,  IEC  believes  that
appropriate  reserves  have  been  established  and final  disposition  of these
actions will not have a material  adverse  effect on its  financial  position or
results of operations.

(13) JOINTLY-OWNED ELECTRIC UTILITY PLANT:

Under joint ownership agreements with other Iowa and Wisconsin utilities,  IESU,
WP&L  and IPC have  undivided  ownership  interests  in  jointly-owned  electric
generating stations and related transmission facilities.  Each of the respective
owners is  responsible  for the  financing  of its  portion of the  construction
costs.  Kilowatt-hour  generation and operating expenses are divided on the same
basis as  ownership  with each  owner  reflecting  its  respective  costs in its
Consolidated  Statements of Income.  Information relative to IESU's,  WP&L's and
IPC's ownership  interest in these facilities at December 31, 1998 is as follows
(dollars in millions):


                                       89
<PAGE>

<TABLE>
<CAPTION>



                                                                      1998                               1997
                                                        --------- ------------- --------    -------- ------------- -------
                                                                   Accumulated                        Accumulated
                                  In-service Plant                 Provision                  Plant     Provision
                      Ownership     Date       MW        Plant in     for                      in         for        
                      Interest %            Capacity     Service   Depreciation  CWIP        Service  Depreciation   CWIP
-------------------- ----------- --------- --------- -- --------- ------------- -------- -- -------- ------------- -------
IESU
Coal:
<S>                      <C>       <C>        <C>       <C>           <C>        <C>       <C>         <C>         <C>
  Ottumwa Unit 1         48.0      1981       716         $193.1      $102.7      $0.8       $191.6     $96.6      $  -
  Neal Unit 3            28.0      1975       515           59.0        32.4       0.1         60.8      30.6       0.1
Nuclear:
    DAEC                 70.0      1974       520          507.1       247.2       1.4        500.6     230.8       2.8
                                                        --------- ------------- --------    -------- ------------- -------
Total IESU                                                $759.2      $382.3      $2.3       $753.0    $358.0      $2.9

WP&L
Coal:
    Columbia Energy                1975 &
      Center             46.2      1978     1,023         $161.5       $93.8      $1.4       $161.4     $89.2      $0.8
    Edgewater Unit 4     68.2      1969       330           52.4        30.8       0.4         51.5      29.5       1.0
    Edgewater Unit 5     75.0      1985       380          229.0        85.9       0.2        229.4      79.8       0.1
Nuclear:
    Kewaunee Nuclear
      Power Plant        41.0      1974       535          132.2        93.7       6.4        132.0      86.6       0.3
                                                        --------- ------------- -------    --------- ------------ -------
Total WP&L                                                $575.1      $304.2      $8.4       $574.3    $285.1      $2.2

IPC
Coal:
     Neal Unit 4         21.5      1979       640          $82.1       $48.4      $1.5        $82.2     $45.8      $  -
     Louisa Unit 1        4.0      1983       738           24.7        11.7       -           24.7      10.9         -
                                                        --------- ------------- -------    --------- ------------ -------
Total IPC                                                 $106.8       $60.1      $1.5       $106.9     $56.7      $  -

                                                        --------- ------------- -------    --------- ------------ -------
Total IEC                                               $1,441.1      $746.6     $12.2     $1,434.2    $699.8      $5.1
                                                        ========= ============= =======    ========= ============ =======
</TABLE>

(14) SEGMENTS OF BUSINESS:

In 1998, IEC adopted SFAS 131,  "Disclosures About Segments of an Enterprise and
Related Information." IEC's principal business segments are:

o    Regulated  domestic  utilities - consists of IEC's three regulated  utility
     operating  companies  (IESU,  WP&L,  and IPC)  serving  customers  in Iowa,
     Wisconsin,  Minnesota and Illinois. The regulated domestic utility business
     is broken down into three  segments which are: 1) electric  operations;  2)
     gas operations; and 3) other, which includes the water and steam businesses
     as well as the unallocated portions of the utility business.
o    Nonregulated  businesses  - represents  the  operations  of Alliant  Energy
     Resources and its  subsidiaries.  This includes the company's  domestic and
     international energy products and services businesses; industrial services,
     which includes  environmental,  engineering  and  transportation  services;
     investments in affordable housing  initiatives;  and investments in various
     other strategic initiatives.
o    Other - includes the  operations of IEC's parent company and Alliant Energy
     Corporate Services, as well as any reconciling/eliminating entries.

Intersegment  revenues  were not material to IEC's  operations  and there was no
single  customer  whose  revenues  exceeded  10% or more of  IEC's  consolidated
revenues. Refer to Note 5(b) for a breakdown of IEC's international  investments
by country.

                                       90
<PAGE>



Certain financial  information  relating to IEC's significant  business segments
and products and services is presented below:

<TABLE>
<CAPTION>

                                           Regulated Domestic Utilities                                        
                                  -----------------------------------------------  Nonregulated                       IEC
                                   Electric      Gas       Other       Total        Businesses        Other      Consolidated
-------------------------------------------------------------------------------------------------------------------------------
                                                                         (in thousands)
1998
<S>                                <C>          <C>         <C>       <C>               <C>             <C>         <C>       
Operating revenues                 $1,567,442   $295,590    $31,235   $1,894,267        $238,676        ($2,069)    $2,130,874
Depreciation and                                                                                                  
   amortization expense               219,364     23,683      2,623      245,670          33,835              -        279,505
Operating income (loss)               271,511     16,027      5,598      293,136         (8,608)         (1,226)       283,302
Interest expense, net                                        96,951       96,951          23,298          2,302        122,551
Preferred and preference                                      6,699        6,699               -              -          6,699 
   dividends
Net (income) loss from equity                                  (858)        (858)          2,197              -          1,339 
   method subsidiaries
Miscellaneous, net (other than                                                                                    
   equity income/loss)                                        3,545        3,545          (7,973)         2,353         (2,075)
Income tax expense (benefit)                                 77,257       77,257         (17,232)        (1,912)        58,113
Net income (loss)                                           109,542      109,542          (8,898)        (3,969)        96,675
Total assets                        3,202,837    458,832    469,822    4,131,491         869,261        (41,415)     4,959,337
Investments in equity method                                                                                      
   subsidiaries                                               5,189        5,189          49,446              -         54,635
Construction and acquisition                                                                                      
   expenditures                       233,638     33,200      2,295      269,133         102,925              -        372,058
                                                                                         
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

1997
----
<S>                                <C>          <C>         <C>       <C>               <C>             <C>         <C>       
Operating revenues                 $1,515,753   $393,907    $30,882   $1,940,542        $361,961        ($1,876)    $2,300,627
Depreciation and amortization                                                                                     
   expense                            201,742     21,553      2,432      225,727          33,936              -        259,663
Operating income (loss)               316,880     29,330      2,169      348,379          (6,818)        (5,178)       336,383
Interest expense, net                                        95,734       95,734          23,197         (1,642)       117,289
Preferred and preference                                                                                          
   dividends                                                  6,693        6,693               -              -          6,693
Net (income) loss from equity                                  
   method subsidiaries                                          (32)         (32)            849              -            817
Miscellaneous, net (other than                                                                                    
   equity income/loss)                                       (8,257)      (8,257)         (8,282)         1,812        (14,727)
Income tax expense (benefit)                                101,739      101,739         (18,616)        (1,390)        81,733
Net income (loss)                                           152,502      152,502          (3,966)        (3,958)       144,578
Total assets                        3,142,910    448,845    485,225    4,076,980         838,504          8,066      4,923,550
Investments in equity method                                                                                      
  subsidiaries                                                5,694        5,694          39,175              -         44,869
Construction and acquisition                                                                                      
   expenditures                       217,023     33,984      5,753      256,760          71,280              -        328,040
                                                                                                               
</TABLE>


                                       91
<PAGE>

<TABLE>
<CAPTION>


                                           Regulated Domestic Utilities                                   
                                  ----------------------------------------------- Nonregulated                        IEC
                                   Electric      Gas       Other       Total        Businesses        Other      Consolidated
-------------------------------------------------------------------------------------------------------------------------------
                                                                         (in thousands)
1996
----
<S>                                <C>          <C>         <C>       <C>               <C>             <C>         <C>       
Operating revenues                 $1,440,375   $375,955    $24,008   $1,840,338        $393,963        ($1,461)    $2,232,840
Depreciation and amortization                                                                                     
   expense                            180,989     18,124      1,891      201,004          31,359              -        232,363
Operating income (loss)               326,370     40,521      7,001      373,892          (6,666)        (1,787)       365,439
Interest expense, net                                        86,084       86,084          17,859          3,804        107,747
Preferred and preference                                                                                          
   dividends                                                  6,687        6,687               -              -          6,687
Net (income) loss from equity                                                                                     
   method subsidiaries                                         (372)        (372)             18              -           (354)
Miscellaneous, net (other than                                                                                    
   equity income/loss)                                       (1,390)      (1,390)         (9,968)          (131)       (11,489)
Income tax expense (benefit)                                115,033      115,033         (12,724)         3,451        105,760
Net income (loss) from
   continuing operations                                    167,850      167,850          (1,851)        (8,911)       157,088
Discontinued operations                                           -            -          (1,297)             -         (1,297)
Net income (loss)                                           167,850      167,850          (3,148)        (8,911)       155,791
Total assets                        3,122,761    511,110    452,885    4,086,756         546,690          6,380      4,639,826
Investments in equity method                                                                                      
   subsidiaries                                               6,110        6,110          11,163              -         17,273
Construction and acquisition                                                                                      
   expenditures                       247,323     34,738     15,135      297,196         115,078              -        412,274
                                                                                                            
<CAPTION>                                                                                                   

Products and Services
---------------------
                                                                 Revenues
        ----------------------------------------------------------------------------------------------------------------------
            Regulated Domestic Utilities                                  Nonregulated Businesses
        ------------------------------------ ---------------------------------------------------------------------------------
                                               Environmental                                                      Total
                                                                                           Transportation,
                                              and Engineering     Oil and    Nonregulated      Rents and       Nonregulated
                                                                   Gas
Year       Electric       Gas       Other         Services      Production      Energy           Other          Businesses
-------------------------------------------- ---------------------------------------------------------------------------------
                                                            (in thousands)
<C>        <C>          <C>         <C>                <C>          <C>            <C>              <C>              <C>     
1998       $1,567,442   $295,590    $31,235            $72,616      $64,622        $40,536          $60,902          $238,676

1997        1,515,753    393,907     30,882             78,105       68,922        151,128           63,806           361,961

1996        1,440,375    375,955     24,008             84,859       65,724        192,217           51,163           393,963
</TABLE>

(15) DISCONTINUED OPERATIONS:

IEC's  financial  statements  reflect the  discontinuance  of  operations of its
utility  energy and  marketing  consulting  business in 1995.  During 1996,  IEC
recognized  a loss  of $1.3  million,  net of  applicable  income  tax  benefit,
associated with the final disposition of the business.


                                       92
<PAGE>


(16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
<TABLE>
<CAPTION>

                                                                      Quarter Ended *

                                          ------------------------------------------------------------------------
                                              March 31          June 30         September 30       December 31
                                          ----------------- ----------------  ------------------ -----------------
                                                           (in thousands, except per share data)
1998**
------
<S>                                           <C>              <C>                <C>                <C>     
  Operating revenues                          $556,283         $491,012           $555,313           $528,266
  Operating income                              73,880           32,627            122,196             54,599
  Net income (loss)                             28,875           (9,098)            51,704             25,194
  Earnings per average common
     share (basic and diluted)                    0.38            (0.12)              0.67               0.33

1997
----
  Operating revenues                          $663,650         $493,842           $556,858           $586,277
  Operating income                              92,319           56,987            120,297             66,780
  Net income                                    40,688           19,799             54,969             29,122
  Earnings per average common
     share (basic and diluted)                    0.54             0.26               0.72               0.38

* Financial  results  have been  restated for all  quarters  presented  with the
exception  of the  third  and  fourth  quarter  of 1998 to  reflect  a change in
accounting  method  for IEC's oil and gas  properties  implemented  in the third
quarter of 1998 from the full cost method to the successful  efforts method. See
Note 1(i) for additional information.

**Net  income  for 1998 was  impacted  by the  recording  of  approximately  $10
million,  $35  million,  $6 million  and $3  million  of pre-tax  merger-related
expenses in the first, second, third and fourth quarters, respectively.

</TABLE>


                                       93
<PAGE>




                               IES UTILITIES INC.

                                FINANCIAL SECTION






                                       94
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareowners of IES Utilities Inc.:

We have audited the accompanying  consolidated  balance sheets and statements of
capitalization  of IES Utilities Inc. (an Iowa  corporation) and subsidiaries as
of  December  31,  1998 and 1997,  and the related  consolidated  statements  of
income,  retained  earnings  and cash  flows for each of the three  years in the
period ended December 31, 1998. These financial  statements and the supplemental
schedule referred to below are the  responsibility of the Company's  management.
Our  responsibility  is to express an opinion on these financial  statements and
supplemental schedule based on our audits.

We  conducted  our  audits  in  accordance  with  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 IES  Utilities  Inc.  and
subsidiaries  as of  December  31,  1998  and  1997,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements  taken as a whole.  The schedule listed in Item 14(a)(2) is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and is not  part of the  basic  financial  statements.  This  schedule  has been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
financial statements taken as a whole.





ARTHUR ANDERSEN LLP


Milwaukee, Wisconsin
January 29, 1999


                                       95
<PAGE>


<TABLE>
<CAPTION>


                               IES UTILITIES INC.
                        CONSOLIDATED STATEMENTS OF INCOME

                                                                 Year Ended December 31,
                                                       1998               1997               1996
--------------------------------------------------------------------------------------------------------
                                                                     (in thousands)
Operating revenues:
<S>                                                     <C>                <C>                <C>      
  Electric utility                                      $ 639,423          $ 604,270          $ 574,273
  Gas utility                                             141,279            183,517            160,864
  Steam and other                                          26,228             26,191             19,842
                                                  ----------------   ----------------   ----------------
                                                          806,930            813,978            754,979
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Operating expenses:
  Electric and steam production fuels                     113,181            108,344             84,579
  Purchased power                                          71,637             74,098             88,350
  Cost of gas sold                                         84,642            126,631            103,877
  Other operation                                         187,932            161,418            148,051
  Maintenance                                              52,040             53,833             45,869
  Depreciation and amortization                            93,965             89,754             84,975
  Taxes other than income taxes                            48,537             46,130             43,603
                                                  ----------------   ----------------   ----------------
                                                          651,934            660,208            599,304
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Operating income                                          154,996            153,770            155,675
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Interest expense and other:
  Interest expense                                         52,354             52,791             43,714
  Allowance for funds used during construction             (3,351)            (2,309)            (2,103)
  Miscellaneous, net                                        2,589              2,279              7,243
                                                  ----------------   ----------------   ----------------
                                                           51,592             52,761             48,854
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Income before income taxes                                103,404            101,009            106,821
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Income taxes                                               41,494             42,216             43,092
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Net income                                                 61,910             58,793             63,729
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Preferred dividend requirements                               914                914                914
                                                  ----------------   ----------------   ----------------
--------------------------------------------------------------------------------------------------------
Earnings available for common stock                      $ 60,996           $ 57,879           $ 62,815
                                                  ================   ================   ================
--------------------------------------------------------------------------------------------------------
<CAPTION>

                               IES UTILITIES INC.
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

                                                                 Year Ended December 31,
                                                       1998               1997               1996
--------------------------------------------------------------------------------------------------------
                                                                     (in thousands)
<S>                                                     <C>                <C>                <C>      
Balance at beginning of year                            $ 233,216          $ 231,337          $ 212,522
Net income                                                 61,910             58,793             63,729
Cash dividends declared on common stock                   (18,840)           (56,000)           (44,000)
Cash dividends declared on preferred stock                   (914)              (914)              (914)
                                                  ----------------   ----------------   ----------------
Balance at end of year                                  $ 275,372          $ 233,216          $ 231,337
                                                  ================   ================   ================

--------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>

                                       96
<PAGE>
<TABLE>
<CAPTION>


                               IES UTILITIES INC.
                           CONSOLIDATED BALANCE SHEETS

                                                                                        December 31,
ASSETS                                                                            1998                1997
-----------------------------------------------------------------------------------------------------------------
                                                                                        (in thousands)
<S>                                                                              <C>                  <C>     
Property, plant and equipment:
  Utility -
    Plant in service -
      Electric                                                                   $ 2,140,322          $2,072,866
      Gas                                                                            198,488             187,098
      Steam                                                                           55,797              55,374
      Common                                                                         106,940              90,342
                                                                            -----------------   -----------------
                                                                                   2,501,547           2,405,680
    Less - Accumulated depreciation                                                1,209,204           1,115,261
                                                                            -----------------   -----------------
                                                                                   1,292,343           1,290,419
    Construction work in progress                                                     48,991              38,923
    Leased nuclear fuel, net of amortization                                          25,644              36,731
                                                                            -----------------   -----------------
                                                                                   1,366,978           1,366,073
  Other property, plant and equipment, net of accumulated
    depreciation and amortization of $1,948 and $1,709, respectively                   5,623               5,762
                                                                            -----------------   -----------------
                                                                                   1,372,601           1,371,835
                                                                            -----------------   -----------------
-----------------------------------------------------------------------------------------------------------------
Current assets:
  Cash and temporary cash investments                                                  4,175                 230
  Temporary cash investments with associated companies                                53,729                   -
  Accounts receivable:
    Customer, less allowance for doubtful accounts
      of $1,058 and $630, respectively                                                16,703              29,259
    Associated companies                                                               2,662                 907
    Other, less allowance for doubtful accounts
      of $357 and $224, respectively                                                  10,346               9,235
  Production fuel, at average cost                                                    11,863              10,579
  Materials and supplies, at average cost                                             25,591              22,976
  Gas stored underground, at average cost                                             12,284              17,192
  Regulatory assets                                                                   23,487              36,330
  Prepayments and other                                                                4,185              11,680
                                                                            -----------------   -----------------
                                                                                     165,025             138,388
                                                                            -----------------   -----------------
-----------------------------------------------------------------------------------------------------------------
Investments:
  Nuclear decommissioning trust funds                                                 91,691              77,882
  Other                                                                                6,019               5,167
                                                                            -----------------   -----------------
                                                                                      97,710              83,049
                                                                            -----------------   -----------------
-----------------------------------------------------------------------------------------------------------------
Other assets:
  Regulatory assets                                                                  137,908             163,264
  Deferred charges and other                                                          15,734              12,393
                                                                            -----------------   -----------------
                                                                                     153,642             175,657
                                                                            -----------------   -----------------
-----------------------------------------------------------------------------------------------------------------
                                                                                 $ 1,788,978          $1,768,929
                                                                            =================   =================
-----------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                       97
<PAGE>
<TABLE>
<CAPTION>



                               IES UTILITIES INC.
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                                                                         December 31,
CAPITALIZATION AND LIABILITIES                                                    1998                   1997
--------------------------------------------------------------------------------------------------------------------
                                                                                        (in thousands)
Capitalization (See Consolidated Statements of Capitalization):
<S>                                                                               <C>                   <C>     
  Common stock                                                                       $ 33,427              $ 33,427
  Additional paid-in capital                                                          279,042               279,042
  Retained earnings                                                                   275,372               233,216
                                                                            ------------------     -----------------
    Total common equity                                                               587,841               545,685
  Cumulative preferred stock, not mandatorily redeemable                               18,320                18,320
  Long-term debt (excluding current portion)                                          602,020               651,848
                                                                            ------------------     -----------------
                                                                                    1,208,181             1,215,853
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Current liabilities:
  Current maturities and sinking funds                                                 50,140                   140
  Capital lease obligations                                                            11,965                13,183
  Accounts payable                                                                     43,953                60,546
  Accounts payable to associated companies                                             22,487                 2,736
  Accrued payroll and vacations                                                         6,365                 7,615
  Accrued interest                                                                     12,045                12,230
  Accrued taxes                                                                        55,295                58,996
  Accumulated refueling outage provision                                                6,605                10,606
  Environmental liabilities                                                             5,660                 4,054
  Other                                                                                17,617                11,533
                                                                            ------------------     -----------------
                                                                                      232,132               181,639
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
  Accumulated deferred income taxes                                                   224,510               238,829
  Accumulated deferred investment tax credits                                          29,243                31,838
  Environmental liabilities                                                            29,195                38,256
  Pension and other benefit obligations                                                25,655                17,334
  Capital lease obligations                                                            13,679                23,548
  Other                                                                                26,383                21,632
                                                                            ------------------     -----------------
                                                                                      348,665               371,437
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
--------------------------------------------------------------------------------------------------------------------
                                                                                  $ 1,788,978           $ 1,768,929
                                                                            ==================     =================
--------------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                       98
<PAGE>
<TABLE>
<CAPTION>


                               IES UTILITIES INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                          Year Ended December 31,
                                                                               1998                 1997                1996
------------------------------------------------------------------------------------------------------------------------------
                                                                                         (in thousands)
Cash flows from operating activities:
<S>                                                                         <C>                  <C>                 <C>     
  Net income                                                                $ 61,910             $ 58,793            $ 63,729
  Adjustments to reconcile net income to net cash
   flows from operating activities:
     Depreciation and amortization                                            93,965               89,754              84,975
     Amortization of leased nuclear fuel                                      12,513               14,774              16,491
     Amortization of deferred energy efficiency expenditures                  18,707               10,987               5,453
     Deferred taxes and investment tax credits                               (17,921)             (16,059)              7,763
     Refueling outage provision                                               (4,001)               9,290              (6,374)
     Impairment of regulatory assets                                           8,969                    -                   -
     Other                                                                      (346)               3,952               4,602
  Other changes in assets and liabilities:
     Accounts receivable                                                       9,690               (5,670)             (6,200)
     Production fuel                                                          (1,284)               2,743              (1,168)
     Materials and supplies                                                   (2,615)              (1,261)              4,811
     Gas stored underground                                                    4,908               (3,740)               (551)
     Accounts payable                                                          3,158              (11,198)             12,147
     Accrued taxes                                                            (3,701)              18,043              (9,416)
     Adjustment clause balances                                                8,829                5,354             (13,900)
     Benefit obligations and other                                            13,332               14,538               8,293
                                                                    -----------------    -----------------   -----------------
       Net cash flows from operating activities                              206,113              190,300             170,655
                                                                    -----------------    -----------------   -----------------
------------------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) financing activities:
    Common stock dividends declared                                          (18,840)             (56,000)            (44,000)
    Dividends payable                                                          4,840                    -                   -
    Preferred stock dividends                                                   (914)                (914)               (914)
    Proceeds from issuance of long-term debt                                  10,000              190,000              60,000
    Reductions in long-term debt                                             (10,140)             (63,140)            (15,140)
    Net change in short-term borrowings                                            -             (135,000)             25,112
    Principal payments under capital lease obligations                       (13,250)             (12,964)            (19,108)
    Other                                                                       (137)                (871)               (420)
                                                                    -----------------    -----------------   -----------------
      Net cash flows from (used for) financing activities                    (28,441)             (78,889)              5,530
                                                                    -----------------    -----------------   -----------------
------------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
    Construction expenditures                                               (115,371)            (108,966)           (143,648)
    Deferred energy efficiency expenditures                                        -               (8,450)            (16,857)
    Nuclear decommissioning trust funds                                       (6,008)              (6,008)             (6,008)
    Other                                                                      1,381                  635                (798)
                                                                    -----------------    -----------------   -----------------
      Net cash flows used for investing activities                          (119,998)            (122,789)           (167,311)
                                                                    -----------------    -----------------   -----------------
------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments                57,674              (11,378)              8,874
                                                                    -----------------    -----------------   -----------------
------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period                       230               11,608               2,734
                                                                    -----------------    -----------------   -----------------
------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period                        $ 57,904                $ 230            $ 11,608
                                                                    =================    =================   =================
------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information: Cash paid during
 the period for:
    Interest                                                                $ 50,177             $ 46,377            $ 44,275
                                                                    =================    =================   =================
    Income taxes                                                            $ 41,017             $ 41,422            $ 45,383
                                                                    =================    =================   =================
  Noncash investing and financing activities - 
 Capital lease obligations incurred                                          $ 1,426             $ 16,781            $ 14,281
                                                                    =================    =================   =================
------------------------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.


</TABLE>

                                       99
<PAGE>
<TABLE>
<CAPTION>


                               IES UTILITIES INC.
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                                                                                                 December 31,
                                                                                           1998                  1997
----------------------------------------------------------------------------------------------------------------------------
                                                                                     (in thousands, except share amounts)
Common equity:
  Common stock - $2.50 par value - authorized 24,000,000 shares;
<S>                                                                                      <C>                   <C>     
    13,370,788 shares outstanding                                                            $ 33,427              $ 33,427
  Additional paid-in capital                                                                  279,042               279,042
  Retained earnings                                                                           275,372               233,216
                                                                                    ------------------    ------------------
                                                                                              587,841               545,685
                                                                                    ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
Cumulative preferred stock:
  Cumulative,  par value $50 per share, not mandatorily  redeemable - authorized
      466,406 shares; 366,406 shares outstanding:
          6.10% series, 100,000 shares outstanding                                              5,000                 5,000
          4.80% series, 146,406 shares outstanding                                              7,320                 7,320
          4.30% series, 120,000 shares outstanding                                              6,000                 6,000
                                                                                    ------------------    ------------------
                                                                                               18,320                18,320
                                                                                    ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
Long-term debt:
  Collateral Trust Bonds:
      7.65% series, due 2000                                                                   50,000                50,000
      7.25% series, due 2006                                                                   60,000                60,000
      6-7/8% series, due 2007                                                                  55,000                55,000
      6% series, due 2008                                                                      50,000                50,000
      7% series, due 2023                                                                      50,000                50,000
      5.5% series, due 2023                                                                    19,400                19,400
                                                                                    ------------------    ------------------
                                                                                              284,400               284,400
  First Mortgage Bonds:
      Series Y, 8-5/8%, due 2001                                                               60,000                60,000
      Series Z, 7.6%, due 1999                                                                 50,000                50,000
      9-1/8% series, due 2001                                                                  21,000                21,000
      7-1/4% series, due 2007                                                                  30,000                30,000
                                                                                    ------------------    ------------------
                                                                                              161,000               161,000
  Pollution control obligations:
      5.75%, due serially 1999 to 2003                                                          3,136                 3,276
      5.95%, retired in 1998                                                                        -                10,000
      Variable rate (4.20% at December 31, 1998), due 2000 to 2010                             11,100                11,100
      Variable/fixed rate series 1998 (4.25% through 2003), due 2023                           10,000                     -
                                                                                    ------------------    ------------------
                                                                                               24,236                24,376
  Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025                                50,000                50,000
  Senior Debentures, 6-5/8%, due 2009                                                         135,000               135,000
                                                                                    ------------------    ------------------
                                                                                              654,636               654,776
                                                                                    ------------------    ------------------
  Less:
    Current maturities                                                                        (50,140)                 (140)
    Unamortized debt premium and (discount), net                                               (2,476)               (2,788)
                                                                                    ------------------    ------------------
                                                                                              602,020               651,848
                                                                                    ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
                                                                                          $ 1,208,181           $ 1,215,853
                                                                                    ==================    ==================
----------------------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                      100

<PAGE>



                               IES UTILITIES INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Except as modified  below,  the  Interstate  Energy  Corporation  (IEC) Notes to
Consolidated  Financial Statements are incorporated by reference insofar as they
relate to IES Utilities Inc. (IESU). IEC Notes 1(e), 1(i), 1(n), 5, 8, 11 and 15
do not relate to IESU and, therefore, are not incorporated by reference.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    (a) General -

The  Consolidated  Financial  Statements  include  the  accounts of IESU and its
consolidated  subsidiaries.  IESU is a subsidiary of IEC. IEC is currently doing
business  as Alliant  Energy  Corporation.  IESU is engaged  principally  in the
generation,  transmission,   distribution  and  sale  of  electric  energy;  the
purchase,  distribution,  transportation  and sale of  natural  gas;  and  steam
services.  All of IESU's retail customers are located in Iowa.  IESU's principal
consolidated subsidiary is IES Ventures Inc.

    (o) Comprehensive Income -

IESU had no other comprehensive income in the periods presented.

(3) LEASES:

IESU's  operating  lease  rental  expenses  for  1998,  1997 and 1996  were $9.0
million,  $8.3 million and $9.0 million,  respectively.  IESU's  future  minimum
lease payments by year are as follows (in thousands):

                                               Capital             Operating
    Year                                        Leases               Leases
    ------------------------------------    ---------------     ----------------
    1999                                    $      12,278        $         9,053
    2000                                            8,037                  7,750
    2001                                            4,324                  4,852
    2002                                            2,660                  2,511
    2003                                              547                  1,868
    Thereafter                                        108                  2,325
                                            ---------------     ----------------
                                                   27,954       $         28,359
                                                                ================
    Less:  Amount representing interest             2,310
    Present value of net minimum            ---------------
    capital lease payments                  $      25,644   
                                            =============== 
                                            

(6)  INCOME TAXES:

The  components  of federal and state  income taxes for IESU for the years ended
December 31 were as follows (in millions):

<TABLE>
<CAPTION>

                                                      1998                1997                1996
                                                 ----------------     --------------     ---------------
<S>                                              <C>                  <C>                <C>       
Current tax expense                              $     59.4           $    58.3          $     35.3
Deferred tax expense                                  (15.3)              (13.5)               10.4
Amortization of investment tax credits                 (2.6)               (2.6)               (2.6)
                                                 ----------------     --------------     ---------------
                                                 $     41.5           $    42.2          $     43.1
                                                 ================     ==============     ===============

</TABLE>

                                      101
<PAGE>


The overall  effective income tax rates shown below for the years ended December
31 were  computed by dividing  total income tax expense by income  before income
taxes.
<TABLE>
<CAPTION>

                                                                   1998              1997            1996
                                                               -------------     -------------    ------------
<S>                                                                 <C>               <C>              <C>  
Statutory federal income tax rate                                   35.0%             35.0%            35.0%
    State income taxes, net of federal benefits                      6.6               7.0              6.9
    Effect of ratemaking on property related differences             1.5               3.5              2.9
    Amortization of investment tax credits                          (2.5)             (2.6)            (2.5)
    Adjustment of prior period taxes                                (1.4)             (1.4)            (3.3)
    Other items, net                                                 0.9               0.3              1.3
                                                               -------------     -------------    ------------
Overall effective income tax rate                                   40.1%             41.8%            40.3%
                                                               =============     =============    ============
</TABLE>

The  accumulated  deferred  income taxes  (assets) and  liabilities as set forth
below on the Consolidated Balance Sheets at December 31 arise from the following
temporary differences (in millions):

                                                  1998              1997
                                             ---------------    --------------
        Property related                  $       275.7      $       269.9
        Investment tax credit related             (20.8)             (22.7)
        Decommissioning related                   (15.9)             (15.7)
        Other                                     (14.5)               7.3
                                             ---------------    --------------
                                          $       224.5      $       238.8
                                             ===============    ==============

(7) BENEFIT PLANS:

(a) Pension Plans and Other Postretirement Benefits

IESU adopted Statement of Financial Accounting Standards (SFAS) 132, "Employers'
Disclosures about Pensions and Other Postretirement  Benefits" in 1998. IESU has
a non-contributory defined benefit pension plan that covers substantially all of
its  employees  who are  subject  to a  collective  bargaining  agreement.  Plan
benefits are  generally  based on years of service and  compensation  during the
employees' latter years of employment.  Effective in 1998, eligible employees of
IESU that are not subject to a collective  bargaining  agreement  are covered by
the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit
pension  plan.  The  projected  unit  credit  actuarial  cost method was used to
compute  pension cost and the  accumulated  and projected  benefit  obligations.
IESU's policy is to fund the pension plan at an amount that is at least equal to
the minimum  funding  requirements  mandated by the Employee  Retirement  Income
Security Act of 1974 (ERISA) and that does not exceed the maximum tax deductible
amount for the year.

IESU also provides certain other postretirement benefits to retirees,  including
medical   benefits  for  retirees  and  their   spouses  (and  Medicare  Part  B
reimbursement for certain retirees) and, in some cases,  retiree life insurance.
IESU's  funding of other  postretirement  benefits  generally  approximates  the
annual rate recovery of such costs.

The weighted-average  assumptions as of the measurement date of September 30 are
as follows:
<TABLE>
<CAPTION>

                                                Qualified Pension Benefits           Other Postretirement Benefits
                                            ------------------------------------ ---------------------------------------
                                               1998        1997        1996         1998        1997          1996
                                            ----------- ------------------------ ----------- ---------------------------
<S>                                           <C>          <C>         <C>         <C>          <C>          <C>  
   Discount rate                              6.75%        7.25%       7.50%       6.75%        7.25%        7.50%
   Expected return on plan assets               9%          9%          9%           9%          9%            9%
   Rate of compensation increase               3.5%        4.75%       4.75%        N/A          N/A          N/A
   Medical cost trend on covered charges:
         Initial trend range                   N/A          N/A         N/A          8%          8%            9%
         Ultimate trend range                  N/A          N/A         N/A         6.0%        6.5%          6.5%

</TABLE>

                                      102
<PAGE>

The components of IESU's  qualified  pension  benefits and other  postretirement
benefits costs are as follows (in millions):
<TABLE>
<CAPTION>

                                                Qualified Pension Benefits            Other Postretirement Benefits
                                           -------------------------------------    ----------------------------------
                                             1998           1997          1996        1998        1997          1996
                                           ----------     ----------    ---------    --------    --------     ---------
<S>                                     <C>           <C>            <C>          <C>         <C>         <C>        
    Service cost                        $      2.9    $       5.4    $      5.4   $    1.5    $    1.5    $       1.7
    Interest cost                              8.0           14.1          12.4        4.2         3.5            3.6
    Expected return on plan assets           (11.3)         (15.1)        (14.6)      (1.1)       (0.7)          (0.4)
    Amortization of:
       Transition obligation (asset)          (0.2)          (0.3)         (0.3)       1.9         1.9            2.0
       Prior service cost                      0.9            1.8           1.3         -           -             -
       Actuarial gain                         (0.4)           -            (0.1)        -           -             -
                                           ----------     ----------    ---------    --------    --------     ---------
    Total                               $     (0.1)   $       5.9    $      4.1   $    6.5    $    6.2    $       6.9
                                           ==========     ==========    =========    ========    ========     =========
</TABLE>

During  1997 and 1996,  IESU  recognized  an  additional  $3.8  million and $4.5
million, respectively, of costs in accordance with SFAS 88. The charges were for
severance and early  retirement  programs in the respective  years. In addition,
during 1998,  IESU recognized  $1.2 million of curtailment  charges  relating to
IESU's other postretirement  benefits. The amounts include a December 1998 early
retirement program.

The  pension  benefit  cost shown above (and in the  following  tables) for 1998
represents  only the pension  benefit cost for bargaining unit employees of IESU
covered under the  bargaining  unit pension plan that is sponsored by IESU.  The
pension   benefit  cost  for  IESU's   non-bargaining   employees  who  are  now
participants  in other IEC plans was $2.7 million for 1998,  including a special
charge of $1.9 million for severance and early retirement  window  programs.  In
addition,  Alliant Energy  Corporate  Services,  Inc.  (Alliant Energy Corporate
Services)  provides  services  to IESU.  The  allocated  pension  benefit  costs
associated   with  these   services  was  $0.5  million  for  1998.   The  other
postretirement  benefit  cost shown above for each period (and in the  following
tables) represents the other postretirement benefit cost for all IESU employees.
The allocated other  postretirement  benefit cost associated with Alliant Energy
Corporate Services for IESU was $0.2 million for 1998.

The assumed  medical trend rates are critical  assumptions  in  determining  the
service and interest  cost and  accumulated  postretirement  benefit  obligation
related to  postretirement  benefit  costs.  A one percent change in the medical
trend rates for 1998,  holding all other  assumptions  constant,  would have the
following effects (in millions):
<TABLE>
<CAPTION>

                                                                 1 Percent            1 Percent
                                                                  Increase            Decrease
                                                               ---------------     ---------------
<S>                                                                  <C>               <C>   
Effect on total of service and interest cost components              $1.2              ($0.9)
Effect on postretirement benefit obligation                          $9.2              ($7.4)

</TABLE>

                                      103

<PAGE>

A reconciliation of the funded status of IESU's plans to the amounts  recognized
on IESU's  Consolidated  Balance  Sheets at December 31 is  presented  below (in
millions):
<TABLE>
<CAPTION>

                                                         Qualified Pension Benefits      Other Postretirement Benefits
                                                        -----------------------------    -------------------------------
                                                           1998             1997             1998              1997
                                                        ------------     ------------    -------------     -------------
Change in benefit obligation:
<S>                                                  <C>             <C>              <C>              <C>         
  Net benefit obligation at beginning of year        $      206.1    $       179.4    $      50.8      $       48.0
  Transfer of obligation (to)/from other IEC plans          (99.1)             -              2.3               -
  Service cost                                                2.9              5.4            1.5               1.5
  Interest cost                                               8.0             14.1            4.2               3.5
  Plan participants' contributions                            -                -              0.4               0.3
  Plan amendments                                             -                7.4            -                 -
  Actuarial (gain) / loss                                     2.2              6.2            8.2               -
  Curtailments                                                -                2.5            0.4               -
  Special termination benefits                                -                3.8            -                 -
  Gross benefits paid                                        (7.0)           (12.7)          (2.6)             (2.5)
                                                        ------------     ------------    -------------     -------------
     Net benefit obligation at end of year                  113.1            206.1           65.2              50.8
                                                        ------------     ------------    -------------     -------------

Change in plan assets:
  Fair value of plan assets at beginning of year            225.7            205.7           19.9              12.3
  Transfer of assets to other IEC plans                     (97.5)             -              -                 -
  Actual return on plan assets                               (2.5)            32.7            0.1               2.4
  Employer contributions                                      -                -              2.7               7.4
  Plan participants' contributions                            -                -              0.4               0.3
  401(h) assets recognized                                    -                -              1.2               -
  Gross benefits paid                                        (7.0)           (12.7)          (2.6)             (2.5)
                                                        ------------     ------------    -------------     -------------
     Fair value of plan assets at end of year               118.7            225.7           21.7              19.9
                                                        ------------     ------------    -------------     -------------

Funded status at end of year                                  5.6             19.6          (43.5)            (30.9)
Unrecognized net actuarial (gain) / loss                     (7.3)           (41.7)           5.7              (4.3)
Unrecognized prior service cost                               9.8             20.1           (0.3)              -
Unrecognized net transition obligation (asset)               (1.6)            (2.6)          25.9              29.1
                                                        ------------     ------------    -------------     -------------
     Net amount recognized at end of year            $        6.5    $        (4.6)   $     (12.2)     $       (6.1)
                                                        ============     ============    =============     =============

Amounts recognized on the Consolidated Balance 
 Sheets consist of:
     Prepaid benefit cost                            $        6.5    $         -      $       -        $        -
     Accrued benefit cost                                     -               (4.6)         (12.2)             (6.1)
                                                        ------------     ------------    -------------     -------------
     Net amount recognized at measurement date                6.5             (4.6)         (12.2)             (6.1)
                                                        ------------     ------------    -------------     -------------

Contributions paid after 9/30 and prior to 12/31              -                -              3.6               -
                                                        ------------     ------------    -------------     -------------
     Net amount recognized at 12/31/98               $        6.5    $        (4.6)   $      (8.6)     $       (6.1)
                                                        ============     ============    =============     =============
</TABLE>

IEC  sponsors a  non-qualified  pension plan which  covers  certain  current and
former  officers.  The pension expense  allocated to IESU for this plan was $1.4
million, $2.3 million and $0.8 million in 1998, 1997 and 1996, respectively.

IESU employees also  participate in defined  contribution  pension plans (401(k)
plans) covering substantially all employees.  IESU's contributions to the plans,
which are based on the participants'  level of contribution,  were $2.8 million,
$1.2 million and $1.5 million in 1998, 1997 and 1996, respectively.

                                      104
<PAGE>


(9) DEBT:

    (a) Short-Term Debt -

Information regarding short-term debt is as follows (dollars in millions):

<TABLE>
<CAPTION>
                                                         1998                 1997                 1996
                                                    ---------------      ---------------      ---------------
As of end of year -
<S>                                                     <C>              <C>               <C>          
    Commercial paper outstanding                           -                     -           $       110.0
    Notes payable outstanding                              -                     -           $        25.0
    Discount rates on commercial paper                   N/A                   N/A               5.37-6.05%
    Interest rates on notes payable                      N/A                   N/A               6.20-6.59%
                                                                                               
For the year ended -                                                                           
    Average amount of short-term debt                                                          
        (based on daily outstanding balances)              -             $    88.4           $       120.1
    Average interest rate on short-term debt             N/A                  5.58%                   5.52%
</TABLE>

                                                                           
    (b) Long-Term Debt -

Debt maturities  (excluding  periodic sinking fund requirements,  which will not
require additional cash expenditures) for 1999 to 2003 are $50.1 million,  $51.2
million, $81.5 million, $0.6 million and $4.1 million,  respectively.  Depending
upon  market  conditions,  it is  currently  anticipated  that a majority of the
maturing debt will be refinanced with the issuance of long-term securities.

Refer to  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" (MD&A) for a further discussion of IESU's debt.

(10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments:

o   Current Assets and Current  Liabilities - The carrying  amount  approximates
    fair value because of the short maturity of such financial instruments.
o   Nuclear  Decommissioning  Trust Funds - The carrying  amount  represents the
    fair value of these trust funds, as reported by the trustee.  The balance of
    the  "Nuclear  decommissioning  trust  funds"  as shown on the  Consolidated
    Balance  Sheets  included  $24.3 million and $19.3 million of net unrealized
    gains at December  31, 1998 and  December  31,  1997,  respectively,  on the
    investments   held  in  the  trust  funds.   The  accumulated   reserve  for
    decommissioning costs was adjusted by a corresponding amount.
o   Cumulative  Preferred  Stock  - Based  upon  the  market  yield  of  similar
    securities and quoted market prices.
o   Long-Term  Debt - Based upon the  market  yield of  similar  securities  and
    quoted market prices.

The following  table  presents the carrying  amount and estimated  fair value of
certain financial instruments for IESU as of December 31 (in millions):

<TABLE>
<CAPTION>

                                                               1998                           1997
                                                    ---------------------------    ----------------------------
                                                     Carrying          Fair         Carrying           Fair
                                                       Value          Value           Value           Value
                                                    ------------    -----------    ------------     -----------
<S>                                              <C>             <C>            <C>             <C>        
Nuclear decommissioning trust funds              $       92      $       92     $       78      $        78
Cumulative preferred stock                               18              15             18               13
Long-term debt, including current portion               652             687            652              678
</TABLE>

                                      105

<PAGE>

Since  IESU is  subject  to  regulation,  any  gains or  losses  related  to the
difference  between  the  carrying  amount and the fair  value of its  financial
instruments may not be realized by IESU's parent.

(12) COMMITMENTS AND CONTINGENCIES:

    (b) Purchased-Power, Coal and Natural Gas Contracts

IESU has  entered  into  purchased-power  capacity  and coal  contracts  and its
minimum commitments are as follows (dollars in millions,  megawatt-hours  (MWHs)
and tons in thousands):

                                                          Coal
                    Purchased-Power             (including transportation
                                                         costs)
               ---------------------------   --------------------------------
                Dollars          MWHs          Dollars             Tons
               -----------    ------------   -------------    ---------------
1999               $ 6.9          220           $ 14.1             2,028
2000                 4.8           -               9.9             1,162
2001                 5.0           -               6.4               885
2002                 2.8           -               0.5               135
2003                 2.9            -              0.2                45

IESU is in the process of negotiating  several new coal contracts.  In addition,
it expects to  supplement  its coal  contracts  with spot  market  purchases  to
fulfill its future fossil fuel needs.

IESU also has various natural gas supply,  transportation  and storage contracts
outstanding.  The minimum dekatherm commitments,  in millions, for 1999-2003 are
90.0, 79.5, 78.8, 75.0 and 70.0,  respectively.  The minimum dollar  commitments
for  1999-2003,   in  millions,  are  $56.4,  $35.9,  $33.6,  $27.6  and  $26.2,
respectively.  The gas supply  commitments are all index-based.  IESU expects to
supplement its natural gas supply with spot market purchases as needed.

    (c) Information Technology Services -

In May 1998, IEC entered into an agreement,  expiring in 2004,  with  Electronic
Data Systems  Corporation  (EDS) for  information  technology  services.  IESU's
anticipated  operating and capital expenditures under the agreement for 1999 are
estimated to total approximately $17.6 million. Future costs under the agreement
are  variable  and are  dependent  upon IESU's  level of usage of  technological
services from EDS.

    (d) Financial Guarantees and Commitments

IESU  has  financial   guarantees,   which  were  generally  issued  to  support
third-party borrowing arrangements and similar transactions,  amounting to $17.9
million  outstanding at December 31, 1998.  Such guarantees are not reflected in
the consolidated  financial statements.  Management believes that the likelihood
of IESU having to make any material  cash  payments  under these  agreements  is
remote.

                                      106

<PAGE>



(16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
<TABLE>
<CAPTION>

                                                                       Quarter Ended
                                          ------------------------------------------------------------------------
                                              March 31         June 30          September 30       December 31
                                          ----------------- ---------------   ----------------- ------------------
                                                                      (in thousands)
1998 *
<S>                                            <C>              <C>                <C>               <C>     
  Operating revenues                           $208,278         $174,733           $222,190          $201,729
  Operating income                               34,289           21,756             69,940            29,011
  Net income                                     11,660            2,961             30,637            16,652
  Earnings available for common stock            11,431            2,732             30,408            16,425

1997
  Operating revenues                           $226,398         $169,623           $205,711          $212,246


  Operating income                               32,588           26,574             63,987            30,621
  Net income                                     11,851             6,891            28,636            11,415
  Earnings available for common stock            11,622             6,662            28,407            11,188

* Earnings in 1998 were impacted by the recording of  approximately  $2 million,
$10 million, $3 million and $2 million of pre-tax merger-related expenses in the
first, second, third and fourth quarters, respectively.
</TABLE>



                                      107


<PAGE>





                        WISCONSIN POWER AND LIGHT COMPANY

                                FINANCIAL SECTION



                                      108
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareowners of Wisconsin Power and Light Company:

We have audited the accompanying  consolidated  balance sheets and statements of
capitalization  of Wisconsin  Power and Light Company (a Wisconsin  corporation)
and subsidiaries as of December 31, 1998 and 1997, and the related  consolidated
statements  of income,  retained  earnings  and cash flows for each of the three
years in the period ended December 31, 1998. These financial  statements and the
supplemental  schedule referred to below are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and supplemental schedule based on our audits.

We  conducted  our  audits  in  accordance  with  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, 1998 and 1997,  and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements  taken as a whole.  The schedule listed in Item 14(a)(2) is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and is not  part of the  basic  financial  statements.  This  schedule  has been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
financial statements taken as a whole.





ARTHUR ANDERSEN LLP


Milwaukee, Wisconsin
January 29, 1999
                                      109

<PAGE>

<TABLE>
<CAPTION>


                        WISCONSIN POWER AND LIGHT COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME

                                                                 Year Ended December 31,
                                                       1998                1997               1996
---------------------------------------------------------------------------------------------------------
                                                                      (in thousands)
Operating revenues:
<S>                                                     <C>                 <C>                <C>      
  Electric utility                                      $ 614,704           $ 634,143          $ 589,482
  Gas utility                                             111,737             155,883            165,627
  Water                                                     5,007               4,691              4,166
                                                  ----------------    ----------------   ----------------
                                                          731,448             794,717            759,275
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Operating expenses:
  Electric production fuels                               120,485             116,812            114,470
  Purchased power                                         113,936             125,438             81,108
  Cost of gas sold                                         61,409              99,267            104,830
  Other operation                                         143,666             131,398            140,339
  Maintenance                                              49,912              48,058             46,492
  Depreciation and amortization                           119,221             104,297             84,942
  Taxes other than income taxes                            30,169              30,338             29,206
                                                  ----------------    ----------------   ----------------
                                                          638,798             655,608            601,387
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Operating income                                           92,650             139,109            157,888
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Interest expense and other:
  Interest expense                                         36,584              32,607             31,472
  Allowance for funds used during construction             (3,049)             (2,775)            (3,208)
  Miscellaneous, net                                       (1,129)             (3,796)            (6,669)
                                                  ----------------    ----------------   ----------------
                                                           32,406              26,036             21,595
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Income before income taxes                                 60,244             113,073            136,293
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Income taxes                                               24,670              41,839             53,808
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Net income                                                 35,574              71,234             82,485
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Preferred dividend requirements                             3,310               3,310              3,310
                                                  ----------------    ----------------   ----------------
---------------------------------------------------------------------------------------------------------
Earnings available for common stock                      $ 32,264            $ 67,924           $ 79,175
                                                  ================    ================   ================
---------------------------------------------------------------------------------------------------------
<CAPTION>

                        WISCONSIN POWER AND LIGHT COMPANY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

                                                                 Year Ended December 31,
                                                       1998                1997               1996
---------------------------------------------------------------------------------------------------------
                                                                      (in thousands)
<S>                                                     <C>                 <C>                <C>      
Balance at beginning of year                            $ 320,386           $ 310,805          $ 297,717
Net income                                                 35,574              71,234             82,485
Cash dividends declared on common stock                   (58,341)            (58,343)           (66,087)
Cash dividends declared on preferred stock                 (3,310)             (3,310)            (3,310)
                                                  ----------------    ----------------   ----------------
Balance at end of year                                  $ 294,309           $ 320,386          $ 310,805
                                                  ================    ================   ================
---------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>

                                      110
<PAGE>
<TABLE>
<CAPTION>



                        WISCONSIN POWER AND LIGHT COMPANY
                           CONSOLIDATED BALANCE SHEETS

                                                                               December 31,
ASSETS                                                                   1998                1997
--------------------------------------------------------------------------------------------------------
                                                                              (in thousands)
Property, plant and equipment:
  Utility -
    Plant in service -
<S>                                                                     <C>                 <C>        
      Electric                                                          $ 1,839,545         $ 1,790,641
      Gas                                                                   244,518             237,856
      Water                                                                  26,567              24,864
      Common                                                                219,268             195,815
                                                                    ----------------    ----------------
                                                                          2,329,898           2,249,176
    Less - Accumulated depreciation                                       1,168,830           1,065,726
                                                                    ----------------    ----------------
                                                                          1,161,068           1,183,450
    Construction work in progress                                            56,994              42,312
    Nuclear fuel, net of amortization                                        18,671              19,046
                                                                    ----------------    ----------------
                                                                          1,236,733           1,244,808
  Other property, plant and equipment, net of accumulated
    depreciation and amortization of $44 for both years                         630                 684
                                                                    ----------------    ----------------
                                                                          1,237,363           1,245,492
                                                                    ----------------    ----------------
--------------------------------------------------------------------------------------------------------
Current assets:
  Cash and temporary cash investments                                         1,811               2,492
  Accounts receivable:
    Customer                                                                 13,372              20,928
    Associated companies                                                      3,019               5,017
    Other                                                                     8,298              11,589
  Production fuel, at average cost                                           20,105              18,857
  Materials and supplies, at average cost                                    20,025              19,274
  Gas stored underground, at average cost                                    10,738              12,504
  Prepaid gross receipts tax                                                 22,222              22,153
  Other                                                                       6,987               4,824
                                                                    ----------------    ----------------
                                                                            106,577             117,638
                                                                    ----------------    ----------------
--------------------------------------------------------------------------------------------------------
Investments:
  Nuclear decommissioning trust funds                                       134,112             112,356
  Other                                                                      15,960              14,877
                                                                    ----------------    ----------------
                                                                            150,072             127,233
                                                                    ----------------    ----------------
--------------------------------------------------------------------------------------------------------
Other assets:
  Regulatory assets                                                         133,501             120,826
  Deferred charges and other                                                 57,637              53,415
                                                                    ----------------    ----------------
                                                                            191,138             174,241
                                                                    ----------------    ----------------
--------------------------------------------------------------------------------------------------------
                                                                        $ 1,685,150         $ 1,664,604
                                                                    ================    ================
--------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.


</TABLE>
                                      111
<PAGE>
<TABLE>
<CAPTION>


                        WISCONSIN POWER AND LIGHT COMPANY
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                                                                         December 31,
CAPITALIZATION AND LIABILITIES                                                    1998                   1997
--------------------------------------------------------------------------------------------------------------------
                                                                                        (in thousands)
Capitalization (See Consolidated Statements of Capitalization):
<S>                                                                               <C>                   <C>     
  Common stock                                                                       $ 66,183              $ 66,183
  Additional paid-in capital                                                          199,438               199,170
  Retained earnings                                                                   294,309               320,386
                                                                            ------------------     -----------------
    Total common equity                                                               559,930               585,739
                                                                            ------------------     -----------------
  Cumulative preferred stock, not mandatorily redeemable                               59,963                59,963
  Long-term debt (excluding current portion)                                          414,579               354,540
                                                                            ------------------     -----------------
                                                                                    1,034,472             1,000,242
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Current liabilities:
  Current maturities                                                                        -                 8,899
  Variable rate demand bonds                                                           56,975                56,975
  Commercial paper                                                                          -                81,000
  Notes payable                                                                        50,000                     -
  Notes payable to associated companies                                                26,799                     -
  Accounts payable                                                                     84,754                85,617
  Accounts payable to associated companies                                             20,315                     -
  Accrued payroll and vacations                                                         5,276                12,221
  Accrued interest                                                                      6,863                 6,317
  Other                                                                                14,600                25,162
                                                                            ------------------     -----------------
                                                                                      265,582               276,191
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
  Accumulated deferred income taxes                                                   245,489               251,709
  Accumulated deferred investment tax credits                                          33,170                35,039
  Customer advances                                                                    34,367                34,240
  Environmental liabilities                                                            11,683                13,738
  Other                                                                                60,387                53,445
                                                                            ------------------     -----------------
                                                                                      385,096               388,171
                                                                            ------------------     -----------------
--------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
--------------------------------------------------------------------------------------------------------------------

                                                                                  $ 1,685,150           $ 1,664,604
                                                                            ==================     =================

--------------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>
                                      112


<PAGE>
<TABLE>
<CAPTION>


                        WISCONSIN POWER AND LIGHT COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                    Year Ended December 31,
                                                                              1998               1997               1996
---------------------------------------------------------------------------------------------------------------------------
                                                                                        (in thousands)
Cash flows from operating activities:
<S>                                                                         <C>                <C>                <C>     
  Net income                                                                $ 35,574           $ 71,234           $ 82,485
  Adjustments to reconcile net income to net cash
   flows from operating activities:
     Depreciation and amortization                                           119,221            104,297             84,942
     Amortization of nuclear fuel                                              5,356              3,534              4,845
     Deferred taxes and investment tax credits                                (7,529)             3,065              6,306
     (Gain) loss on disposition of other property and equipment                   38                710             (5,676)
     Other                                                                    (2,127)            (2,033)            (2,270)
  Other changes in assets and liabilities:
     Accounts receivable                                                      12,845             (3,314)              (250)
     Production fuel                                                          (1,248)            (3,016)            (1,216)
     Materials and supplies                                                     (751)               641                696
     Gas stored underground                                                    1,766             (2,512)            (3,673)
     Prepaid gross receipts tax                                                  (69)            (2,764)            (1,087)
     Accounts payable                                                         19,452             (7,102)            10,291
     Benefit obligations and other                                            (5,207)           (12,809)            16,834
                                                                     ----------------   ----------------   ----------------
       Net cash flows from operating activities                              177,321            149,931            192,227
                                                                     ----------------   ----------------   ----------------
---------------------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
    Common stock dividends                                                   (58,341)           (58,343)           (66,087)
    Preferred stock dividends                                                 (3,310)            (3,310)            (3,310)
    Proceeds from issuance of long-term debt                                  60,000            105,000                  -
    Reductions in long-term debt                                              (8,899)           (55,000)            (5,000)
    Net change in short-term borrowings                                       (4,201)            11,500             (3,000)
    Other                                                                     (1,966)            (2,601)                 -
                                                                     ----------------   ----------------   ----------------
      Net cash flows used for financing activities                           (16,717)            (2,754)           (77,397)
                                                                     ----------------   ----------------   ----------------
---------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
    Construction expenditures                                               (117,143)          (119,232)          (123,942)
    Nuclear decommissioning trust funds                                      (14,297)           (11,427)            (9,986)
    Additions to nuclear fuel                                                 (4,981)            (3,212)            (5,344)
    Proceeds from sale of other property and equipment                            53                  4             36,613
    Shared savings expenditures                                              (24,355)           (17,610)            (5,196)
    Other                                                                       (562)             2,625             (7,479)
                                                                     ----------------   ----------------   ----------------
      Net cash flows used for investing activities                          (161,285)          (148,852)          (115,334)
                                                                     ----------------   ----------------   ----------------
---------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and temporary cash investments                             (681)            (1,675)              (504)
                                                                     ----------------   ----------------   ----------------
---------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period                     2,492              4,167              4,671
                                                                     ----------------   ----------------   ----------------
---------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period                         $ 1,811            $ 2,492            $ 4,167
                                                                     ================   ================   ================
---------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information: Cash paid during the period for:
    Interest                                                                $ 33,368           $ 32,955           $ 29,092
                                                                     ================   ================   ================
    Income taxes                                                            $ 31,951           $ 37,407           $ 48,622
                                                                     ================   ================   ================
---------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>
                                      113
<PAGE>
<TABLE>
<CAPTION>


                        WISCONSIN POWER AND LIGHT COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                                                                                                 December 31,
                                                                                          1998                  1997
----------------------------------------------------------------------------------------------------------------------------
                                                                                     (in thousands, except share amounts)
<S>                                                                                       <C>                   <C>     
Common equity:
    Common stock - $5.00 par value - authorized 18,000,000 shares;
      13,236,601 shares outstanding                                                          $ 66,183              $ 66,183
    Additional paid-in capital                                                                199,438               199,170
    Retained earnings                                                                         294,309               320,386
                                                                                    ------------------    ------------------
                                                                                              559,930               585,739
                                                                                    ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
Cumulative preferred stock:
    Cumulative,  without par value,  not  mandatorily  redeemable  -  authorized
      3,750,000 shares, maximum aggregate stated value $150,000,000:
        $100 stated value - 4.50% series, 99,970 shares outstanding                             9,997                 9,997
        $100 stated value - 4.80% series, 74,912 shares outstanding                             7,491                 7,491
        $100 stated value - 4.96% series, 64,979 shares outstanding                             6,498                 6,498
        $100 stated value - 4.40% series, 29,957 shares outstanding                             2,996                 2,996
        $100 stated value - 4.76% series, 29,947 shares outstanding                             2,995                 2,995
        $100 stated value - 6.20% series, 150,000 shares outstanding                           15,000                15,000
          $25 stated value - 6.50% series, 599,460 shares outstanding                          14,986                14,986
                                                                                    ------------------    ------------------
                                                                                               59,963                59,963
                                                                                    ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
Long-term debt:
    First Mortgage Bonds:
      Series L, 6.25%, retired in 1998                                                              -                 8,899
      1984 Series A, variable rate (3.85% at December 31, 1998), due 2014                       8,500                 8,500
      1988 Series A, variable rate (4.20% at December 31, 1998), due 2015                      14,600                14,600
      1990 Series V, 9.3%, due 2025                                                            27,000                27,000
      1991 Series A, variable rate (5.15% at December 31, 1998), due 2015                      16,000                16,000
      1991 Series B, variable rate (5.15% at December 31, 1998), due 2005                      16,000                16,000
      1991 Series C, variable rate (5.15% at December 31, 1998), due 2000                       1,000                 1,000
      1991 Series D, variable rate (5.15% at December 31, 1998), due 2000                         875                   875
      1992 Series W, 8.6%, due 2027                                                            90,000                90,000
      1992 Series X, 7.75%, due 2004                                                           62,000                62,000
      1992 Series Y, 7.6%, due 2005                                                            72,000                72,000
                                                                                    ------------------    ------------------
                                                                                              307,975               316,874
    Debentures, 7%, due 2007                                                                  105,000               105,000
    Debentures, 5.7%, due 2008                                                                 60,000                     -
                                                                                    ------------------    ------------------
                                                                                              472,975               421,874
                                                                                    ------------------    ------------------
    Less:
       Current maturities                                                                           -                (8,899)
       Variable rate demand bonds                                                             (56,975)              (56,975)
       Unamortized debt premium and (discount), net                                            (1,421)               (1,460)
                                                                                    ------------------    ------------------
                                                                                              414,579               354,540
                                                                                   ------------------    ------------------
----------------------------------------------------------------------------------------------------------------------------
                                                                                          $ 1,034,472           $ 1,000,242
                                                                                    ==================    ==================
----------------------------------------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.

</TABLE>
                                      114


<PAGE>

                                                        

                        WISCONSIN POWER AND LIGHT COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Except as modified  below,  the  Interstate  Energy  Corporation  (IEC) Notes to
Consolidated  Financial Statements are incorporated by reference insofar as they
relate to Wisconsin Power and Light Company (WP&L).  IEC Notes 1(e), 1(i), 1(n),
5,  8(b),  11(c),  and  15 do  not  relate  to  WP&L  and,  therefore,  are  not
incorporated by reference.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    (a) General -

The  Consolidated  Financial  Statements  include  the  accounts of WP&L and its
consolidated  subsidiaries.  WP&L is a subsidiary of IEC. IEC is currently doing
business  as Alliant  Energy  Corporation.  WP&L is engaged  principally  in the
generation,  transmission,   distribution  and  sale  of  electric  energy;  the
purchase,  distribution,  transportation  and sale of  natural  gas;  and  water
services. Nearly all of WP&L's retail customers are located in south and central
Wisconsin.  WP&L's principal consolidated  subsidiary is South Beloit Water, Gas
and Electric Company.

    (o) Comprehensive Income -

WP&L had no other comprehensive income in the periods presented.

(3) LEASES:

WP&L's  operating  lease  rental  expenses  for  1998,  1997 and 1996  were $6.4
million,  $5.5 million and $5.3 million,  respectively.  WP&L's  future  minimum
lease payments by year are as follows (in thousands):

                                             Operating
               Year                           Leases
               ----------------------    ------------------
               1999                   $             7,772
               2000                                 6,948
               2001                                 5,925
               2002                                 5,303
               2003                                 4,146
               Thereafter                          26,042
                                         ------------------
                                      $            56,136
                                         ==================

(6)  INCOME TAXES:

The  components  of federal and state  income taxes for WP&L for the years ended
December 31 were as follows (in millions):
<TABLE>
<CAPTION>


                                                      1998                1997                   1996
                                                 ----------------     --------------        ---------------
<S>                                         <C>                   <C>                <C>              
Current tax expense                         $          32.2       $        38.8      $            47.5
Deferred tax expense                                   (5.6)                4.9                    8.2
Amortization of investment tax credits                 (1.9)               (1.9)                  (1.9)
                                                 ----------------     --------------        ---------------
                                            $          24.7       $        41.8      $            53.8
                                                 ================     ==============        ===============
</TABLE>

                                      115
<PAGE>


The overall  effective income tax rates shown below for the years ended December
31 were  computed by dividing  total income tax expense by income  before income
taxes.
<TABLE>
<CAPTION>

                                                        1998               1997                1996
                                                    --------------     --------------      -------------
<S>                                                      <C>                <C>                <C>  
Statutory federal income tax rate                        35.0%              35.0%              35.0%
    State income taxes, net of federal benefits           7.8                5.7                6.1
    Amortization of investment tax credits               (3.1)              (1.7)              (1.4)
    Adjustment of prior period taxes                      -                 (2.1)               0.4
    Merger expenses                                       2.5                0.3                0.4
    Amortization of excess deferred taxes                (2.5)              (1.3)              (1.3)
    Other items, net                                      1.3                1.1                0.3
                                                    --------------     --------------      -------------
Overall effective income tax rate                        41.0%              37.0%              39.5%
                                                    ==============     ==============      =============
</TABLE>

The  accumulated  deferred  income taxes  (assets) and  liabilities as set forth
below on the Consolidated Balance Sheets at December 31 arise from the following
temporary differences (in millions):

                                                   1998              1997
                                              ---------------    --------------
         Property related                  $        282.7     $       287.2
         Investment tax credit related              (22.2)            (23.5)
         Decommissioning related                    (17.5)            (16.0)
         Other                                        2.5               4.0
                                              ---------------    --------------
                                           $        245.5     $       251.7
                                              ===============    ==============

(7) BENEFIT PLANS:

(a) Pension Plans and Other Postretirement Benefits

WP&L adopted Statement of Financial  Accounting Standard (SFAS) 132, "Employers'
Disclosures about Pensions and Other Postretirement  Benefits" in 1998. WP&L has
a  noncontributory,  defined  benefit  pension plan covering  substantially  all
employees who are subject to a collective bargaining agreement. The benefits are
based upon  years of service  and  levels of  compensation.  Effective  in 1998,
eligible  employees  of WP&L that are not  subject  to a  collective  bargaining
agreement  are  covered by the Alliant  Energy  Cash  Balance  Pension  Plan,  a
non-contributory  defined  benefit  pension  plan.  The  projected  unit  credit
actuarial cost method was used to compute  pension cost and the  accumulated and
projected benefit  obligations.  WP&L's policy is to fund the pension cost in an
amount that is at least equal to the minimum  funding  requirements  mandated by
the Employee  Retirement Income Security Act of 1974 (ERISA),  and that does not
exceed the maximum tax deductible amount for the year.

WP&L also provides certain other postretirement benefits to retirees,  including
medical   benefits  for  retirees  and  their   spouses  (and  Medicare  Part  B
reimbursement for certain retirees) and, in some cases,  retiree life insurance.
WP&L's  funding of other  postretirement  benefits  generally  approximates  the
maximum tax deductible amount on an annual basis.

The weighted-average  assumptions as of the measurement date of September 30 are
as follows:
<TABLE>
<CAPTION>

                                               Qualified Pension Benefits            Other Postretirement Benefits
                                          ------------------------------------- ----------------------------------------
                                             1998         1997        1996         1998        1997           1996
                                          ------------ ----------- ------------ ------------------------ ---------------
<S>                                          <C>        <C>         <C>            <C>         <C>         <C>  
Discount rate                                6.75%       7.25%        7.50%        6.75%       7.25%         7.50%
Expected return on plan assets                9%           9%          9%           9%          9%             9%
Rate of compensation increase                3.5%       3.5-4.5%    3.5-4.5%       3.5%        3.5%         3.5-4.5%
Medical cost trend on covered charges:
      Initial trend range                     N/A         N/A          N/A          8%          8%             9%
      Ultimate trend range                    N/A         N/A          N/A          5%          5%             5%

</TABLE>

                                      116
<PAGE>


The components of WP&L's  qualified  pension  benefits and other  postretirement
benefits costs are as follows (in millions):

<TABLE>
<CAPTION>
                                                Qualified Pension Benefits            Other Postretirement Benefits
                                           -------------------------------------    ----------------------------------
                                             1998           1997         1996        1998        1997          1996
                                           ----------    -----------   ---------    --------    --------     ---------
<S>                                     <C>           <C>            <C>         <C>         <C>         <C>        
Service cost                            $      3.2    $      4.8     $     5.1   $    1.7    $    1.8    $       1.8
Interest cost                                  8.5          13.9          13.6        2.6         3.3            3.4
Expected return on plan assets               (12.8)        (19.2)        (17.9)      (1.5)       (1.1)          (1.0)
Amortization of:
   Transition obligation (asset)              (2.1)         (2.4)         (2.4)       1.3         1.5            1.5
   Prior service cost                          0.5           0.4           0.3         -           -             -
   Actuarial (gain)/loss                       -             -             0.5       (1.1)       (0.3)           -
                                           ----------    -----------   ---------    --------    --------     ---------
Total                                   $     (2.7)   $     (2.5)    $    (0.8)  $    3.0    $    5.2    $       5.7
                                           ==========    ===========   =========    ========    ========     =========
</TABLE>

During  1998 and 1997,  WP&L  recognized  an  additional  $0.6  million and $1.3
million, respectively, of costs in accordance with SFAS 88. The charges were for
severance and early  retirement  programs in the respective  years. In addition,
during  1998  and  1997,   WP&L   recognized  $3.6  million  and  $1.7  million,
respectively,  of curtailment  charges  relating to WP&L's other  postretirement
benefits. The amounts include a December 1998 early retirement program.

The  pension  benefit  cost shown  above (and in the  following  table) for 1998
represents  only the pension  benefit cost for bargaining unit employees of WP&L
covered under the  bargaining  unit pension plan that is sponsored by WP&L.  The
pension   benefit  cost  for  WP&L's   non-bargaining   employees  who  are  now
participants  in other IEC plans was $3.0 million for 1998,  including a special
charge of $3.6 for severance and early retirement window programs.  In addition,
Alliant Energy Corporate  Services,  Inc.  (Alliant Energy  Corporate  Services)
provides  services to WP&L. The allocated  pension benefit costs associated with
these services was $0.6 million for 1998. The other postretirement  benefit cost
shown above for each period (and in the following  tables)  represents the other
postretirement  benefit  cost  for  all  WP&L  employees.  The  allocated  other
postretirement  benefit cost associated with Alliant Energy  Corporate  Services
for WP&L was $0.2 million for 1998.

The assumed  medical trend rates are critical  assumptions  in  determining  the
service and interest  cost and  accumulated  postretirement  benefit  obligation
related to  postretirement  benefit  costs.  A one percent change in the medical
trend rates for 1998,  holding all other  assumptions  constant,  would have the
following effects (in millions):
<TABLE>
<CAPTION>

                                                               1 Percent            1 Percent Decrease
                                                                Increase
                                                           -------------------    ----------------------
<S>                                                               <C>                    <C>   
Effect on total of service and interest cost components           $0.3                   ($0.3)
Effect on postretirement benefit obligation                       $1.7                   ($1.7)
</TABLE>

                                       117
<PAGE>


A reconciliation of the funded status of WP&L's plans to the amounts  recognized
on WP&L's  Consolidated  Balance  Sheets at December 31 is  presented  below (in
millions):
<TABLE>
<CAPTION>

                                                        Qualified Pension Benefits      Other Postretirement Benefits
                                                        ----------------------------    -------------------------------
                                                           1998            1997             1998              1997
                                                        -----------     ------------    --------------     ------------
Change in benefit obligation:
<S>                                                 <C>             <C>              <C>               <C>         
  Net benefit obligation at beginning of year       $       205.1   $       189.6    $      47.1       $       46.6
  Transfer of obligations to other IEC plans                (91.9)            -              -                  -
  Service cost                                                3.2             4.8            1.7                1.8
  Interest cost                                               8.5            13.9            2.6                3.3
  Plan participants' contributions                            -               -              0.8                1.0
  Plan amendments                                             -               4.4            -                  -
  Actuarial (gain) / loss                                    12.2             2.9           (9.7)              (2.7)
  Curtailments                                                -               -              0.7                0.6
  Special termination benefits                                0.6             1.3            -                  -
  Gross benefits paid                                        (5.4)          (11.8)          (2.9)              (3.5)
                                                        -----------     ------------    --------------     ------------
     Net benefit obligation at end of year                  132.3           205.1           40.3               47.1
                                                        -----------     ------------    --------------     ------------

Change in plan assets:
  Fair value of plan assets at beginning of year            244.4           218.9           16.1               13.8
  Transfer of assets to other IEC plans                    (100.2)            -              -                  -
  Actual return on plan assets                               (1.3)           36.2            1.1                1.9
  Employer contributions                                      -               1.1            -                  2.9
  Plan participants' contributions                            -               -              0.8                1.0
  Gross benefits paid                                        (5.4)          (11.8)          (2.9)              (3.5)
                                                        -----------     ------------    --------------     ------------
     Fair value of plan assets at end of year               137.5           244.4           15.1               16.1
                                                        -----------     ------------    --------------     ------------

Funded status at end of year                                  5.2            39.3          (25.2)             (31.0)
Unrecognized net actuarial (gain) / loss                     26.0             0.8          (17.0)              (8.3)
Unrecognized prior service cost                               5.1             7.8           (0.2)              (0.3)
Unrecognized net transition obligation (asset)               (7.9)          (12.0)          17.2               21.0
                                                        -----------     ------------    --------------     ------------
     Net amount recognized at end of year           $        28.4   $        35.9    $     (25.2)      $      (18.6)
                                                        ===========     ============    ==============     ============

Amounts recognized on the Consolidated Balance 
Sheets consist of:
     Prepaid benefit cost                           $        28.4   $        35.9    $       0.4       $        0.3
     Accrued benefit cost                                     -               -            (25.6)             (18.9)
                                                        -----------     ------------    --------------     ------------
     Net amount recognized at measurement date               28.4            35.9          (25.2)             (18.6)
                                                        -----------     ------------    --------------     ------------

Contributions paid after 9/30 and prior to 12/31              -               -              2.1                -
                                                        -----------     ------------    --------------     ------------
     Net amount recognized at 12/31/98              $        28.4   $        35.9    $     (23.1)      $      (18.6)
                                                        ===========     ============    ==============     ============
</TABLE>

IEC  sponsors a  non-qualified  pension plan which  covers  certain  current and
former  officers.  The pension expense  allocated to WP&L for this plan was $0.8
million, $0.5 million and $0.5 million in 1998, 1997 and 1996, respectively.

WP&L employees also  participate in defined  contribution  pension plans (401(k)
plans) covering substantially all employees.  WP&L's contributions to the plans,
which are based on the participants'  level of contribution,  were $2.4 million,
$2.8 million and $1.8 million in 1998, 1997 and 1996, respectively.

The  benefit  obligation  and fair value of plan  assets for the  postretirement
welfare  plans with  benefit  obligations  in excess of plan  assets  were $33.4
million and $6.2  million as of  September  31, 1998 and $40.6  million and $7.7
million, respectively, as of the prior measurement date.

                                      118
<PAGE>


(9) DEBT:

    (a) Short-Term Debt -

Information regarding short-term debt is as follows (in millions):
<TABLE>
<CAPTION>


                                                         1998              1997              1996
                                                --------------    --------------    --------------
As of year end--
<S>                                                    <C>           <C>               <C>
   Commercial paper outstanding                             -             $81.0             $59.5
   Notes payable outstanding                            $50.0                 -             $10.0
   Money pool borrowings                                $26.8                 -                 -
   Discount rates on commercial paper                     N/A        5.82-5.90%        5.35-5.65%
   Interest rates on notes payable                      5.44%               N/A             5.95%
   Interest rate on money pool borrowings               5.17%               N/A               N/A

For the year ended--
   Average amount of short-term debt
      (based on daily outstanding balances)             $48.4             $49.2             $33.9
   Average interest rate on short-term debt             5.55%             5.64%             5.86%
</TABLE>

    (b) Long-Term Debt -

Debt maturities  (excluding  periodic sinking fund requirements,  which will not
require additional cash expenditures) for 1999 to 2003 are $0, $1.9 million, $0,
$0 and $0, respectively.

Refer to  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" (MD&A) for a further discussion of WP&L's debt.

(10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments:

o   Current Assets and Current  Liabilities - The carrying  amount  approximates
    fair value because of the short maturity of such financial instruments.

o   Nuclear  Decommissioning  Trust Funds - The carrying  amount  represents the
    fair value of these trust funds, as reported by the trustee.  The balance of
    the  "Nuclear  decommissioning  trust  funds"  as shown on the  Consolidated
    Balance  Sheets  included  $18.7 million and $16.4 million of net unrealized
    gains at December  31, 1998 and  December  31,  1997,  respectively,  on the
    investments   held  in  the  trust  funds.   The  accumulated   reserve  for
    decommissioning costs was adjusted by a corresponding amount.

o   Cumulative  Preferred  Stock  - Based  upon  the  market  yield  of  similar
    securities and quoted market prices.

o   Long-Term  Debt - Based upon the  market  yield of  similar  securities  and
    quoted market prices.

The following  table  presents the carrying  amount and estimated  fair value of
certain financial instruments for WP&L as of December 31 (in millions):

<TABLE>
<CAPTION>

                                                               1998                           1997
                                                    ---------------------------    ----------------------------
                                                     Carrying          Fair         Carrying           Fair
                                                       Value          Value           Value           Value
                                                    ------------    -----------    ------------     -----------
<S>                                              <C>             <C>            <C>             <C>        
Nuclear decommissioning trust funds              $      134      $      134     $      112      $       112
Cumulative preferred stock                               60              55             60               52
Long-term debt, including current portion               472             513            420              449
</TABLE>

Since  WP&L is  subject  to  regulation,  any  gains or  losses  related  to the
difference  between  the  carrying  amount and the fair  value of its  financial
instruments may not be realized by WP&L's parent.

                                      119
<PAGE>


(12) COMMITMENTS AND CONTINGENCIES:

    (b) Purchased-Power, Coal and Natural Gas Contracts

WP&L has  entered  into  purchased-power  capacity  and coal  contracts  and its
minimum commitments are as follows (dollars in millions,  megawatt-hours  (MWHs)
and tons in thousands):

                                                     Coal
               Purchased-Power             (including transportation
                                                    costs)
          ---------------------------   --------------------------------
           Dollars          MWHs          Dollars             Tons
          -----------    ------------   -------------    ---------------
1999         $ 62.3         1,290          $ 22.2            6,124
2000           66.0         1,509            10.1            2,986
2001           52.4           864             8.4            1,600
2002           31.8           219             4.4              750
2003           24.3           219             -                -

WP&L is in the process of negotiating  several new coal contracts.  In addition,
it expects to  supplement  its coal  contracts  with spot  market  purchases  to
fulfill its future fossil fuel needs.

WP&L also has various natural gas supply,  transportation  and storage contracts
outstanding.  The minimum dekatherm commitments,  in millions, for 1999-2003 are
70.3, 59.7, 45.4, 31.5 and 24.5,  respectively.  The minimum dollar  commitments
for  1999-2003,   in  millions,  are  $42.8,  $32.5,  $27.1,  $24.7  and  $17.0,
respectively.  The gas supply  commitments are all index-based.  WP&L expects to
supplement its natural gas supply with spot market purchases as needed.

    (c) Information Technology Services -

In May 1998, IEC entered into an agreement,  expiring in 2004,  with  Electronic
Data Systems  Corporation  (EDS) for  information  technology  services.  WP&L's
anticipated  operating and capital expenditures under the agreement for 1999 are
estimated to total approximately $2.8 million.  Future costs under the agreement
are  variable  and are  dependent  upon WP&L's  level of usage of  technological
services from EDS.


                                      120


<PAGE>

(16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
<TABLE>
<CAPTION>

                                          ------------------------------------------------------------------------
                                                                       Quarter Ended
                                          ------------------------------------------------------------------------
                                              March 31         June 30          September 30       December 31
                                          ----------------- ---------------   ----------------- ------------------
                                                                      (in thousands)
1998*
<S>                                            <C>              <C>                <C>               <C>     
  Operating revenues                           $202,803         $172,509           $176,130          $180,006
  Operating income                               33,651           10,828             29,696            18,475
  Net income (loss)                              17,598           (1,233)            12,677             6,532
  Earnings available for common stock            16,770           (2,061)            11,850             5,705

1997
  Operating revenues                           $231,005         $176,065           $180,192          $207,455
  Operating income                               45,413           20,882             34,158            38,656
  Net income                                     23,351           11,044             15,236            21,603
  Earnings available for common stock            22,523           10,216             14,409            20,776

*Earnings for 1998 were impacted by the recording of  approximately  $3 million,
$11 million, $2 million and $1 million of pre-tax merger-related expenses in the
first, second, third and fourth quarters, respectively.

</TABLE>

                                      121
<PAGE>


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

IEC

The  information  required by Item 10 relating to  directors  and  nominees  for
election of directors at the 1999 Annual Meeting of Shareowners is  incorporated
herein by  reference  to the  relevant  information  included  under the caption
"Election of Directors" in IEC's Proxy  Statement for the 1999 Annual Meeting of
Shareowners  (the 1999 IEC Proxy  Statement).  The 1999 IEC Proxy  Statement has
been filed with the Securities and Exchange Commission within 120 days after the
end of IEC's fiscal year.  The executive  officers of IEC as of the date of this
filing are as follows  (figures  following the names represent the officer's age
as of December 31, 1998):

Executive Officers of IEC

Erroll B. Davis,  Jr., 54, has served as President and Chief  Executive  Officer
since 1990 and has been a board member since 1988.

William D. Harvey, 49, was elected Executive Vice President-Generation effective
April 1998.  Prior  thereto,  he served as Senior Vice  President  since 1993 at
WP&L.

James E. Hoffman, 45, was elected Executive Vice President-Business  Development
effective April 1998. Prior thereto, he served as Executive Vice President since
1996 at IES and Executive Vice President-Customer Service & Energy Delivery from
1995 to 1997 at IESU.  Prior to joining  IEC, he was Chief  Information  Officer
from 1990 to 1995 at MCI Communications.

Eliot G.  Protsch,  45, was elected  Executive  Vice  President-Energy  Delivery
effective  April 1998.  Prior thereto,  he served as Senior Vice President since
1993 at WP&L.

Barbara J. Swan, 47, was elected  Executive  Vice President and General  Counsel
effective October 1998. She previously served as Vice President-General  Counsel
from 1994 to 1998 at WP&L.

Thomas M. Walker,  51, was elected  Executive Vice President and Chief Financial
Officer  effective  April  1998.  Prior  thereto,  he served as  Executive  Vice
President  and Chief  Financial  Officer  since  1996 at IES and IESU.  Prior to
joining IEC, he was Executive Vice President-Chief  Financial and Administrative
Officer and member of the Board of  Directors  from 1990 to 1995 at  Information
Resources, Inc.

Pamela J. Wegner,  51, was elected Executive Vice  President-Corporate  Services
effective  October 1998.  She  previously  served as Vice  President-Information
Services and Administration from 1994 to 1998 at WP&L.

John E. Ebright, 55, was elected Vice President-Controller effective April 1998.
Prior thereto,  he served as Controller and Chief Accounting  Officer since 1996
at IES and IESU. Prior to joining IEC, he was Vice President and Controller from
1987 to 1996 at MidCon Corp., a subsidiary of Occidental Petroleum Corporation.

Edward M.  Gleason,  58, has served as Vice  President-Treasurer  and  Corporate
Secretary since 1993. He has also served as Controller,  Treasurer and Corporate
Secretary of WP&L since 1996 and Corporate Secretary of WP&L from 1993 to 1996.

                                      122
<PAGE>


Susan J. Kosmo, 52, was elected Assistant  Controller  effective April 1998. She
previously  served as Assistant  Controller since 1995 and Trust Investments and
Investor Relations Supervisor from 1992 to 1995 at WP&L.

John E. Kratchmer, 36, was elected Assistant Controller effective April 1998. He
previously served as Manager of Financial  Reporting and Property since 1996 and
Manager of Financial Reporting from 1994 to 1996 at IES.

Linda J. Wentzel,  50, was appointed Assistant Corporate Secretary effective May
1998. She previously served as Executive Administrative Assistant since 1995 and
Administrative Assistant from 1992 to 1995 at IEC.

Enrique Bacalao,  49, was appointed Assistant Treasurer effective November 1998.
Prior to joining IEC, he was Vice  President,  Corporate  Banking at the Chicago
Branch from 1995 to 1998, and Manager and Head of the Customer  Dealing Group at
the London Branch from 1993 to 1995, of The Industrial Bank of Japan, Limited.

NOTE:  None of the executive  officers  listed above is related to any member of
the Board of Directors or nominee for director or any other executive officer.

Messrs.  Liu and Davis have  employment  agreements  with IEC  pursuant to which
their terms of office are  established.  All other  executive  officers  have no
definite terms of office and serve at the pleasure of the Board of Directors.

IESU

IESU's  directors are identical to IEC, but are elected by consent  action.  The
information  required by Item 10 relating to directors and nominees for election
of directors at the 1999 Annual Meeting of Shareowners is incorporated herein by
reference to the relevant  information  included under the caption  "Election of
Directors"  in the 1999 IEC Proxy  Statement.  The 1999 IEC Proxy  Statement has
been filed with the Securities and Exchange Commission within 120 days after the
end of IESU's fiscal year. The executive officers of IESU as of the date of this
filing are as follows  (figures  following the names represent the officer's age
as of December 31, 1998):

Executive Officers of IESU

Erroll B. Davis,  Jr., 54, was elected Chief Executive  Officer  effective April
1998. Mr. Davis is also an officer of IEC and WP&L.

Eliot G. Protsch, 45, was elected President effective April 1998. Mr. Protsch is
also an officer of IEC and WP&L.

William D. Harvey, 49, was elected Executive Vice President-Generation effective
October 1998. Mr. Harvey is also an officer of IEC and WP&L.

Barbara J. Swan, 47, was elected  Executive  Vice President and General  Counsel
effective October 1998. Ms. Swan is also an officer of IEC and WP&L.

Thomas M. Walker,  51, was elected  Executive Vice President and Chief Financial
Officer since 1996. Prior to joining IESU, he was Executive Vice President-Chief
Financial and  Administrative  Officer and member of the Board of Directors from
1990 to 1995 at Information Resources, Inc. Mr. Walker is also an officer of IEC
and WP&L.

Pamela J. Wegner,  51, was elected Executive Vice  President-Corporate  Services
effective October 1998. Ms. Wegner is also an officer of IEC and WP&L.

Dale R. Sharp, 58, was elected Senior Vice  President-Engineering  and Standards
effective October 1998. He previously served as Vice President-Engineering since
1996, Vice President-Power  Production from 1995 to 1996 and Director-Electrical
Engineering from 1980 to 1995 at IPC. Mr. Sharp is also an officer of WP&L.

                                      123
<PAGE>

Daniel A.  Doyle,  40,  was  elected  Vice  President-Manufacturing  and  Energy
Portfolio Services effective October 1998. Mr. Doyle is also an officer of WP&L.

John E. Ebright, 55, was elected Vice President-Controller effective April 1998.
He previously  served as  Controller  and Chief  Accounting  Officer since 1996.
Prior to joining IESU, he was Vice President and Controller from 1987 to 1996 at
MidCon Corp., a subsidiary of Occidental Petroleum  Corporation.  Mr. Ebright is
also an officer of IEC and WP&L.

Dean E. Ekstrom,  51, was elected Vice  President-Sales  and Services  effective
April 1998. He previously served as Vice President-Administration since 1996 and
Vice President-Management  Systems from 1994 to 1996 at IES. Mr. Ekstrom is also
an officer of WP&L.

John F. Franz,  Jr., 59, has served as Vice  President-Nuclear  since 1992.  Mr.
Franz is also an officer of WP&L.

Edward M.  Gleason,  58, was  elected  Vice  President-Treasurer  and  Corporate
Secretary effective April 1998. Mr. Gleason is also an officer of IEC and WP&L.

Dundeana K. Langer, 40, was elected Vice President-Customer Operations effective
April 1998. She previously served as Assistant Vice  President-Field  Operations
since   1997,   General   Manager-Operations   &   Director   Process   Redesign
Implementation  from 1996 to 1997, Team Leader-Energy  Delivery Process Redesign
Team from 1995 to 1996,  and District  Manger from 1988 to 1995.  Ms.  Langer is
also an officer of WP&L.

Daniel L. Mineck,  50, was elected Vice  President-Performance  Engineering  and
Environmental  effective  October 1998. He previously  served as Assistant  Vice
President-Corporate  Engineering  since 1996,  Assistant Vice  President-Nuclear
from 1995 to 1996 and Manager-Economic Development from 1992 to 1995. Mr. Mineck
is also an officer of WP&L.

Kim K. Zuhlke,  45, was elected  Vice  President-Customer  Operations  effective
October 1998. Mr. Zuhlke is also an officer of WP&L.

David L. Wilson, 52, has served as Assistant Vice President-Nuclear  since 1997,
Facility  Leader from 1996 to 1997,  Plant  Manager from 1995 to 1996 and Pllant
Supervisor-Nuclear from 1991 to 1995. Mr. Wilson is also an officer of WP&L.

Linda J. Wentzel,  50, was appointed Assistant Corporate Secretary effective May
1998. Ms. Wentzel is also an officer of IEC and WP&L.

Enrique Bacalao,  49, was appointed Assistant Treasurer effective November 1998.
Prior to joining IESU, he was Vice President,  Corporate  Banking at the Chicago
Branch from 1995 to 1998, and Manager and Head of the Customer  Dealing Group at
the London Branch from 1993 to 1995, of The Industrial  Bank of Japan,  Limited.
Mr. Bacalao is also an officer of IEC and WP&L.

Steven F. Price, 46, was elected Assistant  Treasurer  effective April 1998. Mr.
Price is also an officer of WP&L.

Robert A. Rusch, 36, was elected Assistant  Treasurer  effective April 1998. Mr.
Rusch is also an officer of WP&L.

Daniel L. Siegfried,  39, was elected Assistant  Secretary effective April 1998.
He also  serves  as  Senior  Attorney  for IEC.  Previously  he served as Senior
Environmental Counsel from 1992 to 1998 at IES.

NOTE:  None of the executive  officers  listed above is related to any member of
the Board of Directors or nominee for director or any other executive officer.

                                      124
<PAGE>




Messrs.  Liu and Davis have  employment  agreements  with IEC  pursuant to which
their terms of office are  established.  All other  executive  officers  have no
definite terms of office and serve at the pleasure of the Board of Directors.

WP&L

The  information  required by Item 10 relating to  directors  and  nominees  for
election  of  directors  at the  1999  Annual  Meeting  of  Shareowners  will be
incorporated  herein by reference to the  relevant  information  in WP&L's Proxy
Statement  for the 1999  Annual  Meeting  of  Shareowners  (the 1999 WP&L  Proxy
Statement).  The 1999 WP&L Proxy Statement will be filed with the Securities and
Exchange  Commission  within 120 days after the end of WP&L's  fiscal year.  The
executive officers of WP&L as of the date of this filing are as follows (figures
following the names represent the officer's age as of December 31, 1998):

Executive Officers of WP&L

Erroll B. Davis,  Jr., 54, was elected Chief Executive  Officer  effective April
1998. He  previously  served as President  and Chief  Executive  Officer of WP&L
since 1988 and has been a board member of WP&L since 1984.
Mr. Davis is also an officer of IEC and IESU.

William D. Harvey, 49, was elected President effective April 1998. He previously
served  as Senior  Vice  President  since  1993 at WP&L.  Mr.  Harvey is also an
officer of IEC and IESU.

Eliot G.  Protsch,  45, was elected  Executive  Vice  President-Energy  Delivery
effective  October 1998. He previously served as Senior Vice President from 1993
to 1998 at WP&L. Mr. Protsch is also an officer of IEC and IESU.

Barbara J. Swan, 47, was elected  Executive  Vice President and General  Counsel
effective October 1998. She previously served as Vice President-General  Counsel
from 1994 to 1998 at WP&L. Ms. Swan is also an officer of IEC and IESU.

Thomas M. Walker,  51, was elected  Executive Vice President and Chief Financial
Officer effective October 1998. Mr. Walker is also on officer of IEC and IESU.

Pamela J. Wegner,  51, was elected Executive Vice  President-Corporate  Services
effective  October 1998.  She  previously  served as Vice  President-Information
Services and  Administration  from 1994 to 1998 at WP&L.  Ms.  Wegner is also an
officer of IEC and IESU.

Dale R. Sharp, 58, was elected Senior Vice  President-Engineering  and Standards
effective October 1998. He previously served as Vice President-Engineering since
1996, Vice President-Power  Production from 1995 to 1996 and Director-Electrical
Engineering from 1980 to 1995 at IPC. Mr. Sharp is also an officer of IESU.

Daniel A.  Doyle,  40,  was  elected  Vice  President-Manufacturing  and  Energy
Portfolio  Services  effective  October  1998.  He  previously  served  as  Vice
President-Fossil  Plants since April 1998, Vice President-Power  Production from
1996 to 1998 and Vice  President-Finance,  Controller and Treasurer from 1994 to
1996 at WP&L. Mr. Doyle is also an officer of IESU.

John E. Ebright, 55, was elected Vice President-Controller effective April 1998.
Mr. Ebright is also an officer of IEC and IESU.

Dean E. Ekstrom,  51, was elected Vice  President-Sales  and Services  effective
April 1998. Mr. Ekstrom is also an officer of IESU.

John F. Franz, Jr., 59, was elected Vice President-Nuclear effective April 1998.
Mr. Franz is also an officer of IESU.

                                      125
<PAGE>

Edward M.  Gleason,  58, was  elected  Vice  President-Treasurer  and  Corporate
Secretary  effective April 1998. He previously served as Controller,  Treasurer,
and Corporate  Secretary of WP&L since 1996 and Corporate Secretary of WP&L from
1993 to 1996. Mr. Gleason is also an officer of IEC and IESU.

Dundeana K. Langer, 40, was elected Vice  President-Customer  Services effective
October 1998. Ms. Langer is also an officer of IESU.

Daniel L. Mineck,  50, was elected Vice  President-Performance  Engineering  and
Environmental effective April 1998. Mr. Mineck is also an officer of IESU.

Kim K. Zuhlke,  45, was elected  Vice  President-Customer  Operations  effective
April 1998. He previously served as Vice  President-Customer  Services and Sales
since 1993 at WP&L. Mr. Zuhlke is also an officer of IESU.

David L. Wilson,  52, was elected  Assistant  Vice  President-Nuclear  effective
April 1998. Mr. Wilson is also an officer of IESU.

Linda J. Wentzel,  50, was appointed Assistant Corporate Secretary effective May
1998. She previously served as Executive Administrative Assistant since 1995 and
Administrative  Assistant  from  1992 to 1995 at  IEC.  Ms.  Wentzel  is also an
officer of IEC and IESU.

Enrique Bacalao,  49, was appointed Assistant Treasurer effective November 1998.
Prior to joining WP&L, he was Vice President,  Corporate  Banking at the Chicago
Branch from 1995 to 1998, and Manager and Head of the Customer  Dealing Group at
the London Branch from 1993 to 1995, of The Industrial  Bank of Japan,  Limited.
Mr. Bacalao is also an officer of IEC and IESU.

Steven F. Price, 46, was elected  Assistant  Treasurer  effective April 1998. He
previously  served as Assistant  Corporate  Secretary since 1992 at IEC and WP&L
and as  Assistant  Treasurer  since 1992 at IEC. Mr. Price is also an officer of
IESU.

Robert A. Rusch, 36, was elected  Assistant  Treasurer  effective April 1998. He
previously  served as Assistant  Treasurer since 1995 and Financial Analyst from
1989 to 1995 at WP&L. Mr. Rusch is also an officer of IESU.

NOTE:  None of the executive  officers  listed above is related to any member of
the Board of Directors or nominee for director or any other executive officer.

Messrs.  Liu and Davis have  employment  agreements  with IEC  pursuant to which
their terms of office are  established.  All other  executive  officers  have no
definite terms of office and serve at the pleasure of the Board of Directors.

ITEM 11. EXECUTIVE COMPENSATION

IEC

The information  required by Item 11 is incorporated  herein by reference to the
relevant  information  in the  1999 IEC  Proxy  Statement.  The  1999 IEC  Proxy
Statement has been filed with the Securities and Exchange  Commission within 120
days after the end of IEC's fiscal year.


                                      126
<PAGE>


IESU
                     EXECUTIVE OFFICERS' COMPENSATION TABLE

The following Summary  Compensation Table sets forth the total compensation paid
by IEC and its  subsidiaries  for all services  rendered during 1998,  1997, and
1996 to the Chief Executive  Officer and the four other most highly  compensated
executive officers of IESU at December 31, 1998.
<TABLE>
<CAPTION>

                                                                                         Long-Term
                                    Annual Compensation                               Compensation Awards
                              ---------------------------------------------    -------------------------------
                                                                                                  Securities
                                                                                                  Underlying
                                                            Other Annual         Restricted      Options/SARs      All Other
Name and Principal Position   Year    Salary     Bonus 1    Compensation 2     Stock Awards 3     (Shares) 4     Compensation 5
----------------------------- ------ ---------- ---------- ----------------    --------------- --------------- -----------------
<S>                           <C>     <C>        <C>               <C>            <C>                  <C>              <C>    
Erroll B. Davis, Jr.          1998    $540,000   $    -            $13,045        $       -            36,752           $57,996
Chief Executive Officer       1997     450,000    200,800           19,982                -            13,800            60,261
                              1996     450,000    297,862           23,438                -            12,600            66,711

Lee Liu                       1998     400,000         -               -            337,241            25,347            52,073
                                                                       
Chairman of the Board         1997     400,000    189,000            5,956          176,391               -              13,277
                              1996     380,000    175,000            2,578          253,475               -              13,956

William D. Harvey             1998     233,846         -             4,699                -            11,406            28,642
Executive Vice President      1997     220,000     43,986           14,944                -             5,100            33,043
                              1996     220,000     92,104           10,765                -             4,650            29,343

Eliot T. Protsch              1998     233,846         -             2,443                -            11,406            20,398
Executive Vice President      1997     220,000     51,400           11,444                -             5,100            30,057
                              1996     220,000    101,224            7,657                -             4,650            25,890

Thomas M. Walker 6            1998     229,846         -               814                -            11,406            13,263
Executive Vice President      1997     230,000     62,100           38,138                -                 -             2,367
and Chief Financial Officer   1996       9,583         -               -             30,000                 -               119
                                                                  

1   No bonuses were paid for 1998.
2   Other Annual  Compensation  for 1998  consists of:  income tax gross-ups for
    reverse  split-dollar life insurance for Messrs.  Davis, Harvey and Protsch;
    and relocation expense reimbursement for Mr. Walker.
3   Prior to the Merger,  IES had historically  made awards of restricted stock.
    Such awards (to the extent not previously vested) vested  automatically upon
    the  consummation  of the Merger.  The number of shares of restricted  stock
    reflected in this table that were subject to such  automatic  vesting are as
    follows:  Mr. Liu - 8,703 shares awarded for 1998,  5,004 shares awarded for
    1997 and 8,703 shares  awarded for 1996;  Mr. Walker - 1,000 shares  awarded
    for 1996.  Restricted  stock was considered  outstanding upon the award date
    and  dividends  were paid to the  eligible  officers on these  shares  while
    restricted.  The amounts shown in the table above represent the value of the
    awards based upon the closing price of IES common stock on the award date.
4   Awards made in 1998 were in  combination  with  performance  share awards as
    described in the table entitled "Long-Term Incentive Awards in 1998."
5   All Other  Compensation  for 1998  consists of:  matching  contributions  to
    401(k) Plan and Deferred  Compensation Plan, Mr. Davis - $16,200,  Mr. Liu -
    $4,754,  Mr. Harvey - $7,015,  Mr. Protsch - $7,015 and Mr. Walker - $5,000;
    financial  counseling  benefit,  Mr. Davis - $7,000,  Mr. Liu - $4,448,  Mr.
    Harvey - $7,000, Mr. Protsch - $2,333 and Mr. Walker - $7,000;  split dollar
    life insurance  premiums,  Mr. Davis - $20,653,  Mr. Harvey - $8,738 and Mr.
    Protsch - $7,989; reverse split dollar life insurance,  Mr. Davis - $14,143,
    Mr. Harvey - $5,889 and Mr.  Protsch - $3,061;  life  insurance  coverage in
    excess of $50,000,  Mr. Liu - $9,910; and dividends on restricted stock, Mr.
    Liu - $32,961 and Mr. Walker - $1,263.  The split dollar insurance  premiums
    are calculated using the "foregone interest" method.
6   Mr. Walker's employment with the company began in 1996.
</TABLE>
                                      127
<PAGE>



                                IEC STOCK OPTIONS

The following  table sets forth  certain  information  concerning  stock options
granted by IEC during 1998 to the executives named below:

<TABLE>
<CAPTION>

                   OPTION/SAR GRANTS IN 1998
-------------------------- ---------------------------------------------------------- ----------------------------
                                                                                         Potential Realizable
                                                                                        Value at Assumed Annual
                                                                                            Rates of Stock
                                               Individual Grants                        Appreciation for Option
                                                                                                 Term2
-------------------------- ---------------------------------------------------------- ----------------------------
                             Number of       % of Total
                            Securities      Options/SARs
                            Underlying       Granted to     Exercise or
                             Options/       Employees in     Base Price   Expiration
          Name             SARs Granted 1    Fiscal Year     ($/Share)       Date           5%            10%
-------------------------- -------------- ---------------- ------------- ------------ ------------- --------------

<S>                            <C>              <C>          <C>           <C>         <C>           <C>       
Erroll B. Davis, Jr.           36,752           5.8%         $31.5625      6/30/08     $729,527      $1,848,993
-------------------------- -------------- ---------------- ------------- ------------ ------------- --------------
Lee Liu                        25,347           4.0%          31.5625      6/30/08       503,138      1,275,208
-------------------------- -------------- ---------------- ------------- ------------ ------------- --------------
William D. Harvey              11,406           1.8%          31.5625      6/30/08       226,409        573,836
-------------------------- -------------- ---------------- ------------- ------------ ------------- --------------
Eliot G. Protsch               11,406           1.8%          31.5625      6/30/08       226,409        573,836
-------------------------- -------------- ---------------- ------------- ------------ ------------- --------------
Thomas M. Walker               11,406           1.8%          31.5625      6/30/08       226,409        573,836
-------------------------- -------------- ---------------- ------------- ------------ ------------- --------------

1   Consists of  non-qualified  stock  options to purchase  shares of IEC common
    stock granted  pursuant to IEC's Long Term Equity  Incentive  Plan.  Options
    were granted on July 1, 1998, and will fully vest on January 2, 2001. Upon a
    "change  in  control"  of IEC as  defined  in the  Plan or upon  retirement,
    disability  or  death of the  option  holder,  these  options  shall  become
    immediately exercisable. Upon exercise of an option, the executive purchases
    all or a portion of the shares  covered by the option by paying the exercise
    price  multiplied  by the  number  of  shares  as to  which  the  option  is
    exercised,  either in cash or by surrendering common shares already owned by
    the executive.

2   The hypothetical  potential  appreciation  shown for the named executives is
    required by the SEC rules.  The amounts  shown do not  represent  either the
    historical  or expected  future  performance  of IEC's common stock level of
    appreciation.  For example, in order for the named executives to realize the
    potential values set forth in the 5% and 10% columns in the table above, the
    price  per  share  of  IEC's  common  stock  would  be  $51.41  and  $81.87,
    respectively, as of the expiration date of the options.
</TABLE>

The  following  table  provides  information  for  the  executives  named  below
regarding the number and value of exercisable and unexercised  options.  None of
these executives exercised options in fiscal 1998.
<TABLE>
<CAPTION>

        OPTION/SAR VALUES AT DECEMBER 31, 1998
-------------------------- ------------------------------------- ---------------------------------------
                                   Number of Securities
                                  Underlying Unexercised           Value of Unexercised In-the-Money
                              Options/SARs at Fiscal Year End          Options/SARs at Year End1
-------------------------- ------------------------------------- ---------------------------------------
          Name               Exercisable       Unexercisable       Exercisable        Unexercisable
-------------------------- ----------------- ------------------- ----------------- ---------------------
<S>                             <C>                <C>               <C>                 <C>     
Erroll B. Davis, Jr.            13,100             63,152            $62,225             $102,817
-------------------------- ----------------- ------------------- ----------------- ---------------------
Lee Liu                            -               25,347               -                  17,426
-------------------------- ----------------- ------------------- ----------------- ---------------------
William D. Harvey                4,700             21,156             22,325               36,492
-------------------------- ----------------- ------------------- ----------------- ---------------------
Eliot G. Protsch                 4,700             21,156             22,325               36,492
-------------------------- ----------------- ------------------- ----------------- ---------------------
Thomas M. Walker                   -               11,406               -                   7,842
-------------------------- ----------------- ------------------- ----------------- ---------------------

                                      128
<PAGE>

1   Based on the  closing  per share  price on  December  31, 1998 of IEC common
    stock of $32.25.
</TABLE>

The following table provides  information  concerning long-term incentive awards
made by IEC to the executives named below in 1998.
<TABLE>
<CAPTION>

             LONG-TERM INCENTIVE AWARDS IN 1998
------------------------ ----------------------- ----------------------- -----------------------------------------
                                                                              Estimated Future Payouts Under
                                                                                Non-Stock Price-Based Plans
------------------------ ----------------------- ----------------------- -----------------------------------------
                                                  Performance or Other
                           Number of Shares,          Period Until
         Name            Units or Other Rights    Maturation or Payout    Threshold       Target        Maximum
------------------------ ----------------------- ----------------------- ------------- -------------- ------------
                                  (#)1                                       (#)            (#)           (#)
------------------------ ----------------------- ----------------------- ------------- -------------- ------------
<S>                              <C>                     <C>                <C>           <C>           <C>   
Erroll B. Davis, Jr.             11,026                  1/2/01             5,513         11,026        22,052
------------------------ ----------------------- ----------------------- ------------- -------------- ------------
Lee Liu                          7,604                   1/2/01             3,802          7,604        15,208
------------------------ ----------------------- ----------------------- ------------- -------------- ------------
William D. Harvey                2,661                   1/2/01             1,330          2,661         5,322
------------------------ ----------------------- ----------------------- ------------- -------------- ------------
Eliot G. Protsch                 2,661                   1/2/01             1,330          2,661         5,322
------------------------ ----------------------- ----------------------- ------------- -------------- ------------
Thomas M. Walker                 2,661                   1/2/01             1,330          2,661         5,322
------------------------ ----------------------- ----------------------- ------------- -------------- ------------

1   Consists  of  performance   shares  awarded  under  IEC's  Long-Term  Equity
    Incentive Plan. These  performance  shares will vest based on achievement of
    specified  Total  Shareholder  Return  (TSR)  levels  as  compared  with  an
    investor-owned  utility peer group over the period  ending  January 2, 2001.
    Payouts  will be in shares of IEC common  stock,  but will be  modified by a
    performance multiplier which ranges from 0 to 2.00.
</TABLE>

The following information required by Item 10 for IESU is incorporated herein by
reference to the relevant information in the 1999 IEC Proxy Statement, which has
been filed with the Securities and Exchange Commission within 120 days after the
end of IESU's fiscal year:  Compensation  of Directors,  Certain  Agreements and
Transactions, and Retirement and Employee Benefit Plans. Mr. Walker participates
in the Alliant Energy Corporate Services  Retirement Plan and the Alliant Energy
Corporate  Services  Supplemental  Executive  Retirement  Plan and has two years
credited service under such plans.

WP&L

The information  required by Item 11 will be incorporated herein by reference to
the relevant  information in the 1999 WP&L Proxy Statement.  The 1999 WP&L Proxy
Statement will be filed with the Securities and Exchange  Commission  within 120
days after the end of WP&L's fiscal year.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

IEC

The information  required by Item 12 is incorporated  herein by reference to the
relevant  information under the caption  "Ownership of Voting Securities" in the
1999 IEC Proxy  Statement.  The 1999 IEC Proxy Statement has been filed with the
Securities and Exchange Commission within 120 days after the end of IEC's fiscal
year.

IESU
                         OWNERSHIP OF VOTING SECURITIES

Listed in the following  table are the shares of IEC's common stock owned by the
executive officers listed in the Summary Compensation Table and all directors of
IESU, as well as the number of shares owned by directors and 

                                      129
<PAGE>

executive  officers  as a group as of  December  31,  1998.  The  directors  and
executive  officers  of IEC as a  group  owned  less  than  one  percent  of the
outstanding  shares  of  common  stock  on that  date.  To IEC's  knowledge,  no
shareowner  beneficially  owned 5 percent  or more of IEC's  outstanding  common
stock as of December 31, 1998.

                                                                  Shares
                                                               Beneficially
 Name of Beneficial Owner                                         Owned(1) 
                                                               ------------
 Executives(2)
      William D. Harvey....................................       23,759  (3)
      Eliot G. Protsch.....................................       23,817  (3)
      Thomas M. Walker.....................................        5,105  (3)
 Director Nominees
      Alan B. Arends.......................................        2,202
      Rockne G. Flowers....................................       10,189
      Katharine C. Lyall...................................        7,715
      Robert D. Ray........................................        4,032
      Anthony R. Weiler....................................        4,603  (3)
 Continuing Directors
      Erroll B. Davis, Jr..................................       59,292  (3)
      Joyce L. Hanes.......................................        2,858  (3)
      Lee Liu..............................................       66,247  (3)
      Arnold M. Nemirow....................................       10,387
      Milton E. Neshek.....................................       12,315
      Jack R. Newman.......................................        2,027
      Judith D. Pyle.......................................        6,297
      David Q. Reed........................................        6,043  (3)
      Robert W. Schlutz....................................        4,185
      Wayne H. Stoppelmoor.................................       12,424
 All Executives and Directors as a Group
      35 people, including those listed above..............      399,672  (3)

(1) Total  shares of IEC common stock  outstanding  as of December 31, 1998 were
    77,630,043.
(2) Stock  ownership  of Mr.  Davis  and  Mr.  Liu  are  shown  with  continuing
    directors.
(3) Included in the  beneficially  owned  shares shown are:  indirect  ownership
    interests with shared voting and investment  powers: Mr. Harvey - 1,897, Mr.
    Protsch - 573, Mr. Davis - 5,866, Ms. Hanes - 541, Mr. Liu - 9,755, Mr. Reed
    - 353 and Mr. Weiler - 1,037;  and  exercisable  stock options:  Mr. Davis -
    37,950,  Mr. Harvey - 13,152,  Mr. Protsch - 13,152, Mr. Walker - 3,802, Mr.
    Liu - 8,449  and  Mr.  Stoppelmoor  -  6,336  (all  executive  officers  and
    directors as a group - 148,072).

WP&L

The information  required by Item 12 will be incorporated herein by reference to
the relevant  information in the 1999 WP&L Proxy Statement.  The 1999 WP&L Proxy
Statement will be filed with the Securities and Exchange  Commission  within 120
days after the end of WP&L's fiscal year.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

IEC

The information  required by Item 13 is incorporated  herein by reference to the
relevant  information under the caption "Certain Agreements and Transactions" in
the 1999 IEC Proxy  Statement.  The 1999 IEC Proxy Statement has been filed with
the  Securities and Exchange  Commission  within 120 days after the end of IEC's
fiscal year.

                                      130
<PAGE>

IESU

The information  required by Item 13 is incorporated  herein by reference to the
relevant  information under the caption "Certain Agreements and Transactions" in
the 1999 IEC Proxy  Statement.  The 1999 IEC Proxy Statement has been filed with
the Securities and Exchange  Commission  within 120 days after the end of IESU's
fiscal year.

WP&L

The information  required by Item 13 will be incorporated herein by reference to
the relevant  information in the 1999 WP&L Proxy Statement.  The 1999 WP&L Proxy
Statement will be filed with the Securities and Exchange  Commission  within 120
days after the end of WP&L's fiscal year.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1)      Consolidated Financial Statements

        Refer to Index to Financial Statements at Item 8. "Financial  Statements
        and Supplementary Data."

(a) (2)      Financial Statement Schedules

             Report of Independent Public Accountants on Schedules
             Schedule II.  Valuation and Qualifying Accounts and Reserves

        NOTE: All other schedules are omitted because they are not applicable or
        not required,  or because that required  information  is shown either in
        the consolidated financial statements or in the notes thereto.

(a) (3) Exhibits Required by Securities and Exchange Commission Regulation S-K

        The  following  Exhibits are filed  herewith or  incorporated  herein by
        reference.  Documents  indicated  by an  asterisk  (*) are  incorporated
        herein by reference.

     2.1*       Agreement and Plan of Merger,  dated as of November 10, 1995, by
                and among WPL Holdings,  Inc., IES Industries  Inc.,  Interstate
                Power  Company  and  AMW  Acquisition,   Inc.  (incorporated  by
                reference  to Exhibit 2.1 to IEC's  Current  Report on Form 8-K,
                dated November 10, 1995)

     2.2*       Amendment No. 1 to Agreement and Plan of Merger and Stock Option
                Agreements, dated May 22, 1996, by and among WPL Holdings, Inc.,
                IES  Industries  Inc.,  Interstate  Power  Company,  a  Delaware
                corporation,  AMW  Acquisition,  Inc., WPLH  Acquisition Co. and
                Interstate Power Company, a Wisconsin corporation  (incorporated
                by reference to Exhibit 2.1 to IEC's Current Report on Form 8-K,
                dated May 22, 1996)

     2.3*       Amendment  No. 2 to Agreement  and Plan of Merger,  dated August
                16, 1996, by and among WPL Holdings,  Inc., IES Industries Inc.,
                Interstate   Power  Company,   a  Delaware   corporation,   WPLH
                Acquisition  Co.  and  Interstate  Power  Company,  a  Wisconsin
                corporation  (incorporated  by reference to Exhibit 2.1 to IEC's
                Current Report on Form 8-K, dated August 15, 1996)

     3.1*       Restated   Articles  of  Incorporation   of  Interstate   Energy
                Corporation,  as amended  (incorporated  by reference to Exhibit
                3.2 to IEC's Current Report on Form 8-K, dated April 21, 1998)

     3.2        Bylaws of Interstate Energy Corporation, effective as of January
                20, 1999
                                      131
<PAGE>

     3.3*       Restated  Articles of  Incorporation  of Wisconsin Power & Light
                Company, as amended (incorporated by reference to Exhibit 3.1 to
                WP&L's Form 10-Q for the quarter ended June 30, 1994)

     3.4        Bylaws of  Wisconsin  Power and Light  Company,  effective as of
                January 20, 1999

     3.5*       Amended and Restated  Articles of Incorporation of IES Utilities
                Inc.  (incorporated  by  reference to Exhibit 3.5 to IESU's Form
                10-Q for the quarter ended June 30, 1998)

     3.6         Bylaws of IES Utilities Inc., effective as of January 20, 1999

     4.1*       Indenture  of Mortgage  or Deed of Trust  dated  August 1, 1941,
                between  WP&L and First  Wisconsin  Trust  Company and George B.
                Luhman,  as Trustees,  filed as Exhibit 7(a) in File No. 2-6409,
                and the indentures  supplemental  thereto  dated,  respectively,
                January 1, 1948, September 1, 1948, June 1, 1950, April 1, 1951,
                April 1,  1952,  September  1, 1953,  October 1, 1954,  March 1,
                1959,  May 1,  1962,  August 1, 1968,  June 1, 1969,  October 1,
                1970,  July 1, 1971,  April 1, 1974,  December  1, 1975,  May 1,
                1976, May 15, 1978, August 1, 1980,  January 15, 1981, August 1,
                1984,  January 15, 1986, June 1, 1986, August 1, 1988,  December
                1, 1990,  September 1, 1991, October 1, 1991, March 1, 1992, May
                1, 1992,  June 1, 1992 and July 1, 1992 (Second  Amended Exhibit
                7(b)  in File  No.  2-7361;  Amended  Exhibit  7(c) in File  No.
                2-7628; Amended Exhibit 7.02 in File No. 2-8462; Amended Exhibit
                7.02 in File No. 2-8882;  Second Amendment  Exhibit 4.03 in File
                No. 2-9526;  Amended Exhibit 4.03 in File No.  2-10406;  Amended
                Exhibit 2.02 in File No.  2-11130;  Amended Exhibit 2.02 in File
                No. 2-14816;  Amended Exhibit 2.02 in File No. 2-20372;  Amended
                Exhibit 2.02 in File No.  2-29738;  Amended Exhibit 2.02 in File
                No. 2-32947;  Amended Exhibit 2.02 in File No. 2-38304;  Amended
                Exhibit 2.02 in File No.  2-40802;  Amended Exhibit 2.02 in File
                No.  2-50308;  Exhibit  2.01(a)  in File  No.  2-57775;  Amended
                Exhibit 2.02 in File No.  2-56036;  Amended Exhibit 2.02 in File
                No. 2-61439;  Exhibit 4.02 in File No. 2-70534;  Amended Exhibit
                4.03 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 WP&L's Form 10-K for the year ended
                December 31, 1988, Exhibit 4.1 to WP&L'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 WP&L's Form 8-K
                dated  March 9, 1992,  Exhibit  4.1 to WP&L's Form 8-K dated May
                12, 1992, Exhibit 4.1 to WP&L's Form 8-K dated June 29, 1992 and
                Exhibit 4.1 to WP&L's Form 8-K dated July 20, 1992)

     4.2*       Rights  Agreement,  dated January 20, 1999,  between  Interstate
                Energy   Corporation   and   Firstar   Bank   Milwaukee,    N.A.
                (incorporated by reference to Exhibit 4.1 to IEC's  Registration
                Statement on Form 8-A, dated January 20, 1999)

     4.3*       Indenture,  dated as of June 20, 1997,  between WP&L and Firstar
                Trust  Company,   as  Trustee,   relating  to  debt   securities
                (incorporated by reference to Exhibit 4.33 to Amendment No. 2 to
                WP&L's  Registration  Statement  on Form S-3  (Registration  No.
                33-60917))

     4.4*       Officers'  Certificate,  dated as of June 25, 1997, creating the
                7%  debentures  due  June  15,  2007  of WP&L  (incorporated  by
                reference  to  Exhibit 4 to WP&L's  Current  Report on Form 8-K,
                dated June 25, 1997)

     4.5*       Officers'  Certificate,  dated as of October 27, 1998,  creating
                the 5.70% debentures due October 15, 2008 of WP&L  (incorporated
                by reference to Exhibit 4 to WP&L's  Current Report on Form 8-K,
                dated October 27, 1998)

                                      132
<PAGE>


     4.6*       Indenture of Mortgage  and Deed of Trust,  dated as of September
                1, 1993,  between IES  Utilities  Inc.  (formerly  Iowa Electric
                Light and Power  Company  (IE)) and The First  National  Bank of
                Chicago,  as Trustee  (Mortgage)  (incorporated  by reference to
                Exhibit 4(c) to IESU's Form 10-Q for the quarter ended September
                30, 1993)

     4.7*       Supplemental Indentures to the Mortgage:

                                                IESU/IES
      Number         Dated as of              File Reference          Exhibit

     ----------  ---------------------  --------------------------    ---------

     First       October 1, 1993        Form 10-Q, 11/12/93           4(d)
     Second      November 1, 1993       Form 10-Q, 11/12/93           4(e)
     Third       March 1, 1995          Form 10-Q, 5/12/95            4(b)
     Fourth      September 1, 1996      Form 8-K, 9/19/96             4(c)(i)
     Fifth       April 1, 1997          Form 10-Q, 5/14/97            4(a)

     4.8*        Indenture of Mortgage and Deed of Trust,  dated as of August 1,
                 1940,  between IES Utilities  Inc.  (formerly IE) and The First
                 National   Bank   of   Chicago,    Trustee   (1940   Indenture)
                 (incorporated   by   reference   to  Exhibit   2(a)  to  IESU's
                 Registration Statement, File No. 2-25347)

     4.9*        Supplemental Indentures to the 1940 Indenture:
<TABLE>
<CAPTION>

                                                                    IESU
               Number               Dated as of                File Reference           Exhibit
         -------------------   ----------------------    ---------------------------    ---------

<S>                            <C>                       <C>                            <C> 
         First                 March 1, 1941             2-25347                        2(a)
         Second                July 15, 1942             2-25347                        2(a)
         Third                 August 2, 1943            2-25347                        2(a)
         Fourth                August 10, 1944           2-25347                        2(a)
         Fifth                 November 10, 1944         2-25347                        2(a)
         Sixth                 August 8, 1945            2-25347                        2(a)
         Seventh                July 1, 1946             2-25347                        2(a)
         Eighth                July 1, 1947              2-25347                        2(a)
         Ninth                 December 15, 1948         2-25347                        2(a)
         Tenth                 November 1, 1949          2-25347                        2(a)
         Eleventh              November 10, 1950         2-25347                        2(a)
         Twelfth               October 1, 1951           2-25347                        2(a)
         Thirteenth            March 1, 1952             2-25347                        2(a)
         Fourteenth            November 5, 1952          2-25347                        2(a)
         Fifteenth             February 1, 1953          2-25347                        2(a)
         Sixteenth             May 1, 1953               2-25347                        2(a)
         Seventeenth           November 3, 1953          2-25347                        2(a)
         Eighteenth            November 8, 1954          2-25347                        2(a)
         Nineteenth            January 1, 1955           2-25347                        2(a)
         Twentieth             November 1, 1955          2-25347                        2(a)
         Twenty-first          November 9, 1956          2-25347                        2(a)
         Twenty-second         November 6, 1957          2-25347                        2(a)
         Twenty-third          November 4, 1958          2-25347                        2(a)
         Twenty-fourth         November 3, 1959          2-25347                        2(a)
         Twenty-fifth          November 1, 1960          2-25347                        2(a)
         Twenty-sixth          January 1, 1961           2-25347                        2(a)
         Twenty-seventh        November 7, 1961          2-25347                        2(a)
         Twenty-eighth         November 6, 1962          2-25347                        2(a)
         Twenty-ninth          November 5, 1963          2-25347                        2(a)

                                      133
<PAGE>

         Thirtieth             November 4, 1964          2-25347                        2(a)
         Thirty-first          November 2, 1965          2-25347                        2(a)
         Thirty-second         September 1, 1966         Form 10-K, 1966                4.10
         Thirty-third          November 30, 1966         Form 10-K, 1966                4.10
         Thirty-fourth         November 7, 1967          Form 10-K, 1967                4.10
         Thirty-fifth          November 5, 1968          Form 10-K, 1968                4.10
         Thirty-sixth          November 1, 1969          Form 10-K, 1969                4.10
         Thirty-seventh        December 1, 1970          Form 8-K, 12/70                1
         Thirty-eighth         November 2, 1971          2-43131                        2(g)
         Thirty-ninth          May 1, 1972               Form 8-K, 5/72                 1
         Fortieth              November 7, 1972          2-56078                        2(i)
         Forty-first           November 7, 1973          2-56078                        2(j)
         Forty-second          September 10, 1974        2-56078                        2(k)
         Forty-third           November 5, 1975          2-56078                        2(l)
         Forty-fourth          July 1, 1976              Form 8-K, 7/76                 1
         Forty-fifth           November 1, 1976          Form 8-K, 12/76                1
         Forty-sixth           December 1, 1977          2-60040                        2(o)
         Forty-seventh         November 1, 1978          Form 10-Q, 6/30/79             1
         Forty-eighth          December 1, 1979          Form S-16, 2-65996             2(q)
         Forty-ninth           November 1, 1981          Form 10-Q, 3/31/82             2
         Fiftieth              December 1, 1980          Form 10-K, 1981                4(s)
         Fifty-first           December 1, 1982          Form 10-K, 1982                4(t)
         Fifty-second          December 1, 1983          Form 10-K, 1983                4(u)
         Fifty-third           December 1, 1984          Form 10-K, 1984                4(v)
         Fifty-fourth          March 1, 1985             Form 10-K, 1984                4(w)
         Fifty-fifth           March 1, 1988             Form 10-Q, 5/12/88             4(b)
         Fifty-sixth           October 1, 1988           Form 10-Q, 11/10/88            4(c)
         Fifty-seventh         May 1, 1991               Form 10-Q, 8/13/91             4(d)
         Fifty-eighth          March 1, 1992             Form 10-K, 1991                4(c)
         Fifty-ninth           October 1, 1993           Form 10-Q, 11/12/93            4(a)
         Sixtieth              November 1, 1993          Form 10-Q, 11/12/93            4(b)
         Sixty-first           March 1, 1995             Form 10-Q, 5/12/95             4(a)
         Sixty-second          September 1, 1996         Form 8-K, 9/19/96              4(f)
         Sixty-third           April 1, 1997             Form 10-Q, 5/14/97             4(b)
</TABLE>

      4.10*     Indenture or Deed of Trust dated as of February 1, 1923, between
                IES Utilities Inc. (successor to Iowa Southern Utilities Company
                (IS) as result of  merger of IS and IE) and The  Northern  Trust
                Company  (The First  National  Bank of Chicago,  successor)  and
                Harold H. Rockwell (Richard D. Manella,  successor), as Trustees
                (1923  Indenture)  (incorporated  by reference to Exhibit B-1 to
                File No. 2-1719)

      4.11*     Supplemental Indentures to the 1923 Indenture:

                       Dated as of             File Reference          Exhibit
                 ------------------------     -----------------      -----------

                 May 1, 1940                  2-4921                 B-1-k
                 May 2, 1940                  2-4921                 B-1-l
                 October 1, 1945              2-8053                 7(m)
                 October 2, 1945              2-8053                 7(n)
                 January 1, 1948              2-8053                 7(o)
                 September 1, 1950            33-3995                4(e)
                 February 1, 1953             2-10543                4(b)
                 October 2, 1953              2-10543                4(q)
                 August 1, 1957               2-13496                2(b)
                 September 1, 1962            2-20667                2(b)

                                      134
<PAGE>

                 June 1, 1967                 2-26478                2(b)
                 February 1, 1973             2-46530                2(b)
                 February 1, 1975             2-53860                2(aa)
                 July 1, 1975                 2-54285                2(bb)
                 September 2, 1975            2-57510                2(bb)
                 March 10, 1976               2-57510                2(cc)
                 February 1, 1977             2-60276                2(ee)
                 January 1, 1978              0-849                  2
                 March 1, 1979                0-849                  2
                 March 1, 1980                0-849                  2
                 May 31, 1986                 33-3995                4(g)
                 July 1, 1991                 0-849                  4(h)
                 September 1, 1992            0-849                  4(m)
                 December 1, 1994             0-4117-1               4(f)

     4.12*      Indenture (For Unsecured Subordinated Debt Securities), dated as
                of December 1, 1995,  between IES  Utilities  Inc. and The First
                National Bank of Chicago,  as Trustee  (Subordinated  Indenture)
                (incorporated  by reference to Exhibit 4(i) to IESU's  Amendment
                No. 1 to Registration Statement, File No. 33-62259)

     4.13*      Indenture (For Senior  Unsecured Debt  Securities),  dated as of
                August  1,  1997,  between  IES  Utilities  Inc.  and The  First
                National Bank of Chicago, as Trustee  (incorporated by reference
                to  Exhibit  4(j) to  IESU's  Registration  Statement,  File No.
                333-32097)

     4.14*      The Original through the Nineteenth  Supplemental  Indentures of
                Interstate Power Company to The Chase Manhattan Bank and Carl E.
                Buckley and C. J.  Heinzelmann,  as Trustees,  dated  January 1,
                1948 securing First Mortgage Bonds (incorporated by reference to
                Exhibits 4(b) through 4(t) to IPC's  Registration  Statement No.
                33-59352 dated March 11, 1993)

     4.15*      Twentieth  Supplemental Indenture of Interstate Power Company to
                The Chase  Manhattan  Bank and C. J.  Heinzelmann,  as Trustees,
                dated May 15, 1993 (incorporated by reference to Exhibit 4(u) to
                IPC's Registration Statement No. 33-59352 dated March 11, 1993)

     10.1*      Service  Agreement by and among Wisconsin Power & Light Company,
                South Beloit  Water,  Gas and Electric  Company,  IES  Utilities
                Inc.,  Interstate  Power Company,  and Alliant  Services Company
                (incorporated  by  reference  to Exhibit 10.1 to IEC's Form 10-Q
                for the quarter ended June 30, 1998)

     10.2*      Service  Agreement by and among Alliant  Industries,  Inc.,  IPC
                Development   Company,   Inc.  and  Alliant   Services   Company
                (incorporated  by  reference  to Exhibit 10.2 to IEC's Form 10-Q
                for the quarter ended June 30, 1998)

     10.3*      System  Coordination  and  Operating  Agreement  dated April 11,
                1997,  among  IES  Utilities  Inc.,  Interstate  Power  Company,
                Wisconsin  Power & Light  Company  and  Alliant  Services,  Inc.
                (incorporated  by  reference  to Exhibit 10.3 to IEC's Form 10-Q
                for the quarter ended June 30, 1998)

     10.4*      Joint Power Supply  Agreement  among  Wisconsin  Public  Service
                Corporation,  Wisconsin Power and Light Company, and Madison Gas
                and Electric  Company,  dated February 2, 1967  (incorporated by
                reference   to  Exhibit  4.09  of   Wisconsin   Public   Service
                Corporation in File No. 2-27308)

     10.5*      Joint Power Supply  Agreement  among  Wisconsin  Public  Service
                Corporation,  Wisconsin Power and Light Company, and Madison Gas
                and  Electric  Company,  dated July 26,  1973  (incorporated  by

                                      135
<PAGE>


                reference  to  Exhibit   5.04A  of  Wisconsin   Public   Service
                Corporation in File No. 2-48781)

     10.6*      Basic  Generating   Agreement,   Unit  4,  Edgewater  Generating
                Station,  dated June 5, 1967,  between Wisconsin Power and Light
                Company and Wisconsin Public Service  Corporation  (incorporated
                by  reference  to  Exhibit  4.10  of  Wisconsin  Public  Service
                Corporation in File No. 2-27308)

     10.7*      Agreement  for   Construction   and  Operation  of  Edgewater  5
                Generating  Unit,  dated  February 24, 1983,  between  Wisconsin
                Power and Light  Company,  Wisconsin  Electric Power Company and
                Wisconsin Public Service Corporation  (incorporated by reference
                to Exhibit 10C-1 to Wisconsin Public Service  Corporation's Form
                10-K for the year ended December 31, 1983 (File No. 1-3016))

     10.7a*     Amendment No. 1 to Agreement for  Construction  and Operation of
                Edgewater   5   Generating   Unit,   dated   December   1,  1988
                (incorporated  by reference to Exhibit 10C-2 to Wisconsin Public
                Service  Corporation's Form 10-K for the year ended December 31,
                1988 (File No. 1-3016))

     10.8*      Revised  Agreement  for  Construction  and Operation of Columbia
                Generating  Plant among  Wisconsin  Public Service  Corporation,
                Wisconsin Power and Light Company,  and Madison Gas and Electric
                Company,  dated July 26,  1973  (incorporated  by  reference  to
                Exhibit 5.07 of Wisconsin Public Service Corporation in File No.
                2-48781)

     10.9*      Operating and Transmission  Agreement between Central Iowa Power
                Cooperative and IESU (incorporated by reference to Exhibit 10(q)
                to IESU's Form 10-K for the year 1990)

     10.10*     Duane Arnold Energy  Center  Ownership  Participation  Agreement
                dated June 1, 1970 between Central Iowa Power Cooperative,  Corn
                Belt Power  Cooperative and IESU  (incorporated  by reference to
                Exhibit  5(kk)  to  IESU's  Registration  Statement,   File  No.
                2-38674)

     10.11*     Duane Arnold Energy  Center  Operating  Agreement  dated June 1,
                1970  between  Central Iowa Power  Cooperative,  Corn Belt Power
                Cooperative and IESU (incorporated by reference to Exhibit 5(ll)
                to IESU's Registration Statement, File No. 2-38674)

     10.12*     Duane  Arnold   Energy  Center   Agreement   for   Transmission,
                Transformation,  Switching, and Related Facilities dated June 1,
                1970  between  Central Iowa Power  Cooperative,  Corn Belt Power
                Cooperative and IESU (incorporated by reference to Exhibit 5(mm)
                to IESU's Registration Statement, File No. 2-38674)

     10.13*     Basic  Generating  Agreement  dated April 16, 1975  between Iowa
                Public   Service   Company,   Iowa  Power  and  Light   Company,
                Iowa-Illinois  Gas and  Electric  Company and IESU for the joint
                ownership   of  Ottumwa   Generating   Station-Unit   1  (OGS-1)
                (incorporated  by reference to Exhibit 1 to IESU's Form 10-K for
                the year 1977)

     10.13a*    Addendum  Agreement to the Basic Generating  Agreement for OGS-1
                dated  December 7, 1977  between  Iowa Public  Service  Company,
                Iowa-Illinois  Gas and  Electric  Company,  Iowa Power and Light
                Company  and IESU for the  purchase  of 15%  ownership  in OGS-1
                (incorporated  by reference to Exhibit 3 to IESU's Form 10-K for
                the year 1977)

     10.14*     Second  Amended  and  Restated  Credit  Agreement  dated  as  of
                September  17, 1987  between  Arnold  Fuel,  Inc.  and the First
                National  Bank of Chicago and the Amended and  Restated  Consent
                and   Agreement   dated  as  of  September   17,  1987  by  IESU
                (incorporated  by reference to Exhibit 10(j) to IESU's Form 10-K
                for the year 1987)

     10.15#*    Form  of  Supplemental  Retirement  Agreement  (incorporated  by
                reference  to Exhibit  10.15 to IEC's Form 10-Q for the  quarter
                ended June 30, 1998)
                                       136
<PAGE>

     10.16#*    Interstate    Energy    Corporation   1998   Officer   Incentive
                Compensation Plan (incorporated by reference to Exhibit 10.16 to
                IEC's Form 10-Q for the quarter ended June 30, 1998)

     10.17#*    Interstate  Energy  Corporation   Long-Term  Incentive  Program,
                revised July 1, 1998 (incorporated by reference to Exhibit 10.17
                to IEC's Form 10-Q for the quarter ended June 30, 1998)

     10.18#*    Alliant Services Company Key Employee Deferred Compensation Plan
                (incorporated  by reference to Exhibit  10.18 to IEC's Form 10-Q
                for the quarter ended June 30, 1998)

     10.19#*    Executive  Tenure  Compensation  Plan as revised  November  1992
                (incorporated by reference to Exhibit 10A to IEC's Form 10-K for
                the year ended December 31, 1992)

     10.19a#*   Amendment to Executive Tenure Compensation Plan adopted February
                23, 1998  (incorporated  by reference to Exhibit 10.19a to IEC's
                Form 10-Q for the quarter ended June 30, 1998)

     10.20#*    Forms of Deferred  Compensation  Plans,  as amended  June,  1990
                (incorporated by reference to Exhibit 10C to IEC's Form 10-K for
                the year ended December 31, 1990)

     10.20a#*   Officer's  Deferred  Compensation  Plan II, as adopted September
                1992  (incorporated  by reference to Exhibit 10C.1 to IEC's Form
                10-K for the year ended December 31, 1992)

     10.20b#*   Officer's  Deferred  Compensation  Plan III, as adopted  January
                1993  (incorporated  by reference to Exhibit 10C.2 to IEC's Form
                10-K for the year ended December 31, 1993)

     10.21#*    Deferred Compensation Plan for Directors, as amended January 17,
                1995  (incorporated  by  reference  to Exhibit 10I to IEC's Form
                10-K for the year ended December 31, 1995)

     10.22#*    Interstate  Energy  Corporation  Long-Term Equity Incentive Plan
                (incorporated by reference to Exhibit 4.1 to IEC's Form 10-Q for
                the quarter ended June 30, 1994)

     10.23#*    Key Executive  Employment and Severance Agreement by and between
                Interstate   Energy   Corporation  and  Erroll  B.  Davis,   Jr.
                (incorporated by reference to Exhibit 4.2 to IEC's Form 10-Q for
                the quarter ended June 30, 1994)

     10.23a#*   Key Executive  Employment and Severance Agreement by and between
                Interstate  Energy  Corporation and each of W.D. Harvey and E.G.
                Protsch  (incorporated by reference to Exhibit 4.3 to IEC's Form
                10-Q for the quarter ended June 30, 1994)

     10.24#*    Key Executive  Employment and Severance Agreement by and between
                Interstate  Energy  Corporation and each of E.M.  Gleason,  B.J.
                Swan, D.A.  Doyle,  P.J.  Wegner,  C. Fulenwider and K.K. Zuhlke
                (incorporated by reference to Exhibit 4.4 to IEC's Form 10-Q for
                the quarter ended June 30, 1994)

     10.25#*    Severance Agreement by and between Interstate Energy Corporation
                and Lance W. Ahearn (incorporated by reference to Exhibit 10N to
                IEC's Form 10-K for the year ended December 31, 1997)

     10.26#*    Severance Agreement by and between Interstate Energy Corporation
                and Anthony J. Amato (incorporated by reference to Exhibit 10.28
                to IEC's Form 10-Q for the quarter ended June 30, 1998)

     10.27#*    Early Retirement Agreement,  dated as of October 7, 1998, by and
                between  Interstate  Energy  Corporation  et al. and  Michael R.
                Chase  (incorporated  by reference to Exhibit 10.1 to IEC's Form
                10-Q for the quarter ended September 30, 1998)

     10.28#*    Employment Agreement, dated as of April 21, 1998, by and between
                Interstate   Energy   Corporation  and  Erroll  B.  Davis,   Jr.
                (incorporated  by  reference  to Exhibit  10.1 to IEC's Form 8-K
                dated April 21, 1998)

                                      137
<PAGE>


     10.29#*    Employment Agreement, dated as of April 21, 1998, by and between
                Interstate  Energy  Corporation  and  Lee Liu  (incorporated  by
                reference  to  Exhibit  10.2 to IEC's  Form 8-K dated  April 21,
                1998)

     10.30#*    Supplemental  Retirement  Plan  (incorporated  by  reference  to
                Exhibit 10(l) to IES's Form 10-K for the year ended December 31,
                1987)

     10.31#*    Key  Employee  Deferred   Compensation  Plan   (incorporated  by
                reference to Exhibit 10(n) to IES's Form 10-K for the year ended
                December 31, 1987)

     10.31a#*   Amendments to Key Employee Deferred  Compensation  Agreement for
                Key  Employees  (incorporated  by reference to Exhibit  10(v) to
                IES's Form 10-Q for the quarter ended March 31, 1990)

     10.32#*    Executive  Guaranty Plan  (incorporated  by reference to Exhibit
                10(p) to IES's Form 10-K for the year ended December 31, 1987)

     10.33#*    Executive   Change  of  Control   Severance   Agreement   -  CEO
                (incorporated  by reference to Exhibit  10(a) to IES's Form 10-Q
                for the quarter ended September 30, 1996)

     10.34#*    Executive   Change  of  Control   Severance   Agreement  -  Vice
                Presidents  (incorporated by reference to Exhibit 10(b) to IES's
                Form 10-Q for the quarter ended September 30, 1996)

     10.35#*    Executive Change of Control Severance Agreement - Other Officers
                (incorporated  by reference to Exhibit  10(c) to IES's Form 10-Q
                for the quarter ended September 30, 1996)

     10.36#*    Amendments to Key Employee Deferred  Compensation  Agreement for
                Directors  (incorporated  by reference to Exhibit 10(u) to IES's
                Form 10-Q for the quarter ended March 31, 1990)

     10.37#*    IES Industries Inc.  Grantor Trust for Director  Retirement Plan
                (incorporated  by reference to Exhibit  10(c) to IES's Form 10-Q
                for the quarter ended September 30, 1997)

     10.38#*    IES  Industries  Inc.  Grantor  Trust for Deferred  Compensation
                Agreements  (incorporated by reference to Exhibit 10(d) to IES's
                Form 10-Q for the quarter ended September 30, 1997)

     10.39#*    IES Industries Inc.  Grantor Trust for  Supplemental  Retirement
                Agreements  (incorporated by reference to Exhibit 10(e) to IES's
                Form 10-Q for the quarter ended September 30, 1997)

     10.40#*    IES  Utilities  Inc.  Grantor  Trust for  Deferred  Compensation
                Agreements  (incorporated by reference to Exhibit 10(f) to IES's
                Form 10-Q for the quarter ended September 30, 1997)

     10.41#*    IES Utilities  Inc.  Grantor Trust for  Supplemental  Retirement
                Agreements  (incorporated by reference to Exhibit 10(g) to IES's
                Form 10-Q for the quarter ended September 30, 1997)

     10.42#*    Interstate Power Company Irrevocable Trust Agreement dated April
                30, 1990  (incorporated  by  reference  to Exhibit 99.f to IPC's
                Form 10-K for the year ended December 31, 1993)

     10.43#*    Interstate Power Company Amended Deferred  Compensation  Plan as
                amended through January 30, 1990  (incorporated  by reference to
                Exhibit 99.e to IPC's Form 10-K for the year ended  December 31,
                1993)

     10.44#*    Interstate Power Company Supplemental Retirement Plan as amended
                and   restated   November   10,   1995  and   December  9,  1997
                (incorporated  by  reference  to Exhibit 99.5 to IPC's Form 10-K
                for the year ended December 31, 1997)

                                      138
<PAGE>

     10.45#*    Interstate  Power  Company  Irrevocable  Trust  Agreement  dated
                December  1997  (incorporated  by  reference  to Exhibit 99.7 to
                IPC's Form 10-K for the year ended December 31, 1997)

     10.46#     Early Retirement Agreement, dated as of December 4, 1998, by and
                between  Interstate  Energy  Corporation  et al. and  Richard R.
                Ewers

     10.47      Stockholders' Agreement entered into as of November 18, 1998, by
                and among McLeodUSA  Incorporated,  Alliant Energy  Investments,
                Inc.  (formerly known as IES Investments Inc.) and certain other
                principal stockholders of McLeodUSA Incorporated

     21         Subsidiaries of Interstate Energy Corporation

     23         Consent of Independent  Public Accountants for Interstate Energy
                Corporation

     27.1       Financial Data Schedule for Interstate Energy Corporation at and
                for the period ended December 31, 1998

     27.2       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended June 30, 1998

     27.3       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended March 31, 1998

     27.4       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended June 30, 1997

     27.5       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended March 31, 1997

     27.6       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended December 31, 1996

     27.7       Financial  Data Schedule for IES  Utilities  Inc. at and for the
                period ended December 31, 1998

     27.8       Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended March 31, 1998

     27.9       Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended December 31, 1997

     27.10      Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended March 31, 1997

     27.11      Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended December 31, 1996

     27.12      Financial Data Schedule for Wisconsin Power and Light Company at
                and for the period ended December 31, 1998

Pursuant to Item  601(b)(4)(iii)  of Regulation  S-K, the  registrants  agree 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% of the total assets of IEC, WP&L or IESU, as the case may be.

Documents  incorporated by reference to filings made by IEC under the Securities
Exchange  Act of  1934,  as

                                      139
<PAGE>

amended,  are under File No.  1-9894.  Documents  incorporated  by  reference to
filings made by WP&L under the Securities Exchange Act of 1934, as amended,  are
under File No. 0-337. Documents incorporated by reference to filings made by IES
under the  Securities  Exchange  Act of 1934,  as  amended,  are under  File No.
1-9187.  Documents  incorporated  by reference to filings made by IESU under the
Securities  Exchange  Act of 1934,  as  amended,  are under  File No.  0-4117-1.
Documents  incorporated by reference to filings made by IPC under the Securities
Exchange Act of 1934, as amended, are under File No. 1-3632.

# - A management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

Wisconsin  Power and Light  Company  filed a Current  Report on Form 8-K,  dated
October 27, 1998,  reporting (under Item 5) that on October 27, 1998,  Wisconsin
Power and Light Company agreed to sell $60,000,000 principal amount of its 5.70%
Debentures due October 15, 2008 in a public offering.

Interstate Energy  Corporation filed a Current Report on Form 8-K, dated January
20,  1999,  reporting  (under  Item 5) that on  January  20,  1999 the  Board of
Directors of Interstate Energy Corporation adopted a series of amendments to the
Bylaws of Interstate Energy Corporation.

Interstate Energy  Corporation filed a Current Report on Form 8-K, dated January
20,  1999,  reporting  (under  Item 5) that on January  20,  1999,  the Board of
Directors of  Interstate  Energy  Corporation  declared a dividend of one common
share purchase right for each outstanding share of common stock, $.01 par value,
of Interstate Energy Corporation.  The description and terms of the common share
purchase  rights are set forth in a Rights  Agreement  dated  January  20,  1999
between  Interstate  Energy  Corporation  and Firstar Bank  Milwaukee,  N.A., as
Rights Agent.

IESU - none.


                                      140



<PAGE>

                INTERSTATE ENERGY CORPORATION, IES UTILITIES INC.
                      AND WISCONSIN POWER AND LIGHT COMPANY
<TABLE>
<CAPTION>
           SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Description                                                               Balance, January 1    Balance, December 31
                                                                                      (in thousands)

Valuation and  Qualifying  Accounts Which are Deducted in the
Balance Sheet From the Assets to Which They Apply:
Accumulated Provision for Uncollectible Accounts:
      Interstate Energy Corporation
<S>                                                                           <C>                   <C>      
         Year ended December 31, 1998                                         $   2,624             $   3,008
                                                                               ========              ========
         Year ended December 31, 1997                                         $   3,319             $   2,624
                                                                               ========              ========
         Year ended December 31, 1996                                         $   3,341             $   3,319
                                                                               ========              ========
      IES Utilities Inc.
         Year ended December 31, 1998                                         $     854             $   1,415
                                                                               ========              ========
         Year ended December 31, 1997                                         $     757             $     854
                                                                               ========              ========
         Year ended December 31, 1996                                         $     676             $     757
                                                                               ========              ========
      Wisconsin Power and Light Company
         Year ended December 31, 1998                                         $      12             $       8
                                                                               ========              ========
         Year ended December 31, 1997                                         $      45             $      12
                                                                               ========              ========
         Year ended December 31, 1996                                         $      45             $      45
                                                                               ========              ========
Note:  The above  provisions  relate to various  customer  and other 
receivable balances included in various line items on the respective 
Consolidated  Balance Sheets.

Other Reserves:
Accumulated Provision for Injuries and Damages, Workers' Compensation
 and Other Miscellaneous Reserves:
      Interstate Energy Corporation
         Year ended December 31, 1998                                         $   6,400             $   7,458
                                                                               ========              ========
         Year ended December 31, 1997                                         $   4,616             $   6,400
                                                                               ========              ========
         Year ended December 31, 1996                                         $   4,311             $   4,616
                                                                               ========              ========
      IES Utilities Inc.
         Year ended December 31, 1998                                         $   5,033             $   3,129
                                                                               ========              ========
         Year ended December 31, 1997                                         $   3,219             $   5,033
                                                                               ========              ========
         Year ended December 31, 1996                                         $   3,076             $   3,219
                                                                               ========              ========
      Wisconsin Power and Light Company
         Year ended December 31, 1998                                         $      1              $   2,799
                                                                               ========              ========
         Year ended December 31, 1997                                         $      -              $       1
                                                                               ========              ========
         Year ended December 31, 1996                                         $      -              $       - 
                                                                               ========              ========

Reserve for Merger-Related Employee Separation Charges:
      Interstate Energy Corporation
         Year ended December 31, 1998                                         $      -              $   5,712
                                                                               ========              ========
         Year ended December 31, 1997                                         $      -              $       -     
                                                                               ========              ========
         Year ended December 31, 1996                                         $       -             $       -     
                                                                               ========              ========
      IES Utilities Inc.
         Year ended December 31, 1998                                         $       -             $   1,893
                                                                               ========              ========
         Year ended December 31, 1997                                         $       -             $      -     
                                                                               ========              ========
         Year ended December 31, 1996                                         $       -             $      -     
                                                                               ========              ========
      Wisconsin Power and Light Company
         Year ended December 31, 1998                                         $       -             $     766
                                                                               ========              ========
         Year ended December 31, 1997                                         $       -             $       -     
                                                                               ========              ========
         Year ended December 31, 1996                                         $       -             $       -     
                                                                               ========              ========
</TABLE>

                                      141

<PAGE>



                                   SIGNATURES

       Pursuant  to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 29th day of
March 1999.
                                 INTERSTATE ENERGY CORPORATION

                                 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 29th day of March 1999.


/s/ Erroll B. Davis, Jr.        President, Chief Executive Officer and Director 
Erroll B. Davis, Jr.            (Principal Executive Officer)


/s/ Thomas M. Walker            Executive Vice President and Chief Financial 
Thomas M. Walker                Officer (Principal Financial Officer)


/s/ John E. Ebright             Vice President-Controller (Principal Accounting 
John E. Ebright                 Officer)


/s/ Alan B. Arends              Director     /s/ Jack R. Newman         Director
Alan B. Arends                               Jack R. Newman          
                                          

                                Director     /s/ Judith D. Pyle         Director
Rockne G. Flowers                            Judith D. Pyle


/s/ Joyce L. Hanes              Director     /s/ Robert D. Ray          Director
Joyce L. Hanes                               Robert D. Ray


/s/ Lee Liu                     Director     /s/ David Q. Reed          Director
Lee Liu                                      David Q. Reed


/s/ Katharine C. Lyall          Director                                Director
Katharine C. Lyall                           Robert W. Schlutz


                                Director     /s/ Wayne H. Stoppelmoor   Director
Arnold M. Nemirow                            Wayne H. Stoppelmoor


/s/ Milton E. Neshek            Director     /s/ Anthony R. Weiler      Director
Milton E. Neshek                              Anthony R. Weiler

                                      142

<PAGE>



                                   SIGNATURES

       Pursuant  to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 29th day of
March 1999.
              
                                IES UTILITIES INC.

                                By: /s/ Erroll B. Davis, Jr.
                                    Erroll B. Davis, Jr.
                                Chief Executive Officer

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities indicated on the 29th day of March 1999.


/s/ Erroll B. Davis, Jr.        President, Chief Executive Officer and Director 
Erroll B. Davis, Jr.            (Principal Executive Officer)


/s/ Thomas M. Walker            Executive Vice President and Chief Financial 
Thomas M. Walker                Officer (Principal Financial Officer)


/s/ John E. Ebright             Vice President-Controller (Principal Accounting 
John E. Ebright                 Officer)


/s/ Alan B. Arends              Director     /s/ Jack R. Newman         Director
Alan B. Arends                               Jack R. Newman          
                                          

                                Director     /s/ Judith D. Pyle         Director
Rockne G. Flowers                            Judith D. Pyle


/s/ Joyce L. Hanes              Director     /s/ Robert D. Ray          Director
Joyce L. Hanes                               Robert D. Ray


/s/ Lee Liu                     Director     /s/ David Q. Reed          Director
Lee Liu                                      David Q. Reed


/s/ Katharine C. Lyall          Director                                Director
Katharine C. Lyall                           Robert W. Schlutz


                                Director     /s/ Wayne H. Stoppelmoor   Director
Arnold M. Nemirow                            Wayne H. Stoppelmoor


/s/ Milton E. Neshek            Director     /s/ Anthony R. Weiler      Director
Milton E. Neshek                              Anthony R. Weiler

                                      143
<PAGE>



                                   SIGNATURES

       Pursuant  to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 29th day of
March 1999.

                        WISCONSIN POWER AND LIGHT COMPANY

                        By: /s/ Erroll B. Davis, Jr.
                            Erroll B. Davis, Jr.
                            Chief Executive Officer

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities indicated on the 29th day of March 1999.


/s/ Erroll B. Davis, Jr.        President, Chief Executive Officer and Director 
Erroll B. Davis, Jr.            (Principal Executive Officer)


/s/ Thomas M. Walker            Executive Vice President and Chief Financial 
Thomas M. Walker                Officer (Principal Financial Officer)


/s/ John E. Ebright             Vice President-Controller (Principal Accounting 
John E. Ebright                 Officer)


/s/ Alan B. Arends              Director     /s/ Jack R. Newman         Director
Alan B. Arends                               Jack R. Newman          
                                          

                                Director     /s/ Judith D. Pyle         Director
Rockne G. Flowers                            Judith D. Pyle


/s/ Joyce L. Hanes              Director     /s/ Robert D. Ray          Director
Joyce L. Hanes                               Robert D. Ray


/s/ Lee Liu                     Director     /s/ David Q. Reed          Director
Lee Liu                                      David Q. Reed


/s/ Katharine C. Lyall          Director                                Director
Katharine C. Lyall                           Robert W. Schlutz


                                Director     /s/ Wayne H. Stoppelmoor   Director
Arnold M. Nemirow                            Wayne H. Stoppelmoor


/s/ Milton E. Neshek            Director     /s/ Anthony R. Weiler      Director
Milton E. Neshek                              Anthony R. Weiler

                                      144


<PAGE>

                                 EXHIBIT INDEX

Exhibit             Description

     3.2        Bylaws of Interstate Energy Corporation, effective as of January
                20, 1999

     3.4        Bylaws of  Wisconsin  Power and Light  Company,  effective as of
                January 20, 1999

     3.6        Bylaws of IES Utilities Inc., effective as of January 20, 1999

     10.46      Early Retirement Agreement, dated as of December 4, 1998, by and
                between  Interstate  Energy  Corporation  et al. and  Richard R.
                Ewers

     10.47      Stockholders' Agreement entered into as of November 18, 1998, by
                and among McLeodUSA  Incorporated,  Alliant Energy  Investments,
                Inc.  (formerly known as IES Investments Inc.) and certain other
                principal stockholders of McLeodUSA Incorporated

     21         Subsidiaries of Interstate Energy Corporation

     23         Consent of Independent  Public Accountants for Interstate Energy
                Corporation

     27.1       Financial Data Schedule for Interstate Energy Corporation at and
                for the period ended December 31, 1998

     27.2       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended June 30, 1998

     27.3       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended March 31, 1998

     27.4       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended June 30, 1997

     27.5       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended March 31, 1997

     27.6       Restated   Financial   Data  Schedule  for   Interstate   Energy
                Corporation at and for the period ended December 31, 1996

     27.7       Financial  Data Schedule for IES  Utilities  Inc. at and for the
                period ended December 31, 1998

     27.8       Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended March 31, 1998

     27.9       Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended December 31, 1997

     27.10      Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended March 31, 1997

     27.11      Restated  Financial  Data Schedule for IES Utilities Inc. at and
                for the period ended December 31, 1996

     27.12      Financial Data Schedule for Wisconsin Power and Light Company at
                and for the period ended December 31, 1998


                                      145
<PAGE>