UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549
                                FORM 10-K

(Mark One)
(X)   ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE  SECURITIES
      EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
                                    OR
( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
For the transition period from __________ to __________

 Commission    Registrant; State of Incorporation; Address;    IRS Employer
File  Number               and Telephone Number             Identification No.

1-9187          IES INDUSTRIES INC. (an Iowa Corporation)      42-1271452
                    IES Tower, Cedar Rapids, Iowa   52401        
                    319-398-4411                                
                                                                
0-4117-1        IES UTILITIES INC. (an Iowa Corporation)        42-0331370
                    IES Tower, Cedar Rapids, Iowa  52401
                    319-398-4411

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

                                                      Name of Each Exchange on
 Registrant                Title of Each Class            Which Registered  

IES Industries Inc.     Common Stock, no par value     New York Stock Exchange

IES Utilities Inc.         7-7/8% Quarterly Debt 
                             Capital Securities       New York Stock Exchange
                         (Subordinated Deferrable 
                           Interest Debentures)

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

    Registrant                           Title of Class

IES Industries Inc.   None

IES Utilities Inc.    Cumulative Preferred Stock  Par Value $50 per share 4.80%

Indicate  by  check  mark whether the registrants  (1)  have  filed  all
reports  required to be filed by Section 13 or 15(d) of  the  Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrants were required to file such reports), and (2)
have  been  subject  to  such  filing  requirements  for  the  past   90
days. Yes  X   No
         -----      -----
Indicate  by  check mark if disclosure of delinquent filers pursuant  to
Item  405  of  Regulation S-K is not contained herein, and will  not  be
contained,  to  the  best of the registrants' knowledge,  in  definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.  ______

The  aggregate  market value of the voting stock of IES Industries  Inc.
held  by  non-affiliates,  as  of January  31,  1997  was  approximately
$918,961,374 based upon the Composite Tape closing price as reported  in
The Wall Street Journal.  (For this purpose only, the individuals listed
under  "Security  Ownership  of  Management"  in  the  Definitive  Proxy
Statement  incorporated  herein  by  reference  are  considered  to   be
affiliates.)
The  aggregate  market value of the voting stock of IES  Utilities  Inc.
held by non-affiliates, as of January 31, 1997 was $0.

Indicate  the  number of shares outstanding of each of the  registrants'
classes of Common Stock, as of January 31, 1997.

    IES Industries Inc. Common Stock, no par value - 30,162,731 shares
   IES Utilities Inc. Common Stock, $2.50 par value - 13,370,788 shares

                   DOCUMENTS INCORPORATED BY REFERENCE

                                                 Part of this Form 10-K into
      Document                                  Which Document is Incorporated

Definitive proxy statement of IES Industries Inc. 
to be filed within 120 days of December 31, 1996                          III

               IES INDUSTRIES INC. and IES UTILITIES INC.
             Form 10-K for the Year Ended December 31, 1996
                                    
                            TABLE OF CONTENTS
                                    
PART I                                                          Page No.

Item 1.  Business                                                    3
           Proposed Merger of the Company                            6
           Construction and Acquisition Program and Financing        7
           Regulation                                                8
           Employees                                                 9
           Environmental Matters                                     9
           Competition                                              11
           Rate Matters                                             13
           Electric Operations                                      13
           Gas Operations                                           20
Item 2.  Properties                                                 23
Item 3.  Legal Proceedings                                          24
Item 4.  Submission of Matters to a Vote of Security Holders        25
                                                                   
                                                                   
PART II                                                            
                                                                   
Item 5.  Market for the Registrant's Common Stock and Related      
           Stockholder Matters                                      26
Item 6.  Selected Consolidated Financial Data                       27
Item 7.  Management's Discussion and Analysis of the Results
           of Operations and Financial Condition                    30
         Selected Consolidated Quarterly Financial 
           Data (unaudited)                                         43
Item 8.  Financial Statements and Supplementary Data
           IES Industries Inc. Consolidated Financial  
             Statements                                             44
           IES Industries Inc. Notes to Consolidated Financial 
             Statements                                             50
           IES Utilities Inc. Consolidated Financial Statements     73
           IES Utilities Inc. Notes to Consolidated Financial 
             Statements                                             79
Item 9.  Changes and Disagreements with Accountants on 
           Accounting and Financial Disclosure                      84
           
           
PART III   
           
Item 10. Directors, Executive Officers, Promoters and
           Control Persons of the Registrant                        85
Item 11. Executive Compensation                                     86
Item 12. Security Ownership of Certain Beneficial Owners
           and Management                                           87
Item 13. Certain Relationships and Related Transactions             87


PART IV

Item 14. Exhibits, Financial Statement Schedules and 
           Reports on Form 8-K                                      88
             Schedule II - Valuation and Qualifying 
               Accounts and Reserves                                95
             Unaudited Pro Forma Combined Financial 
               Information of Interstate Energy Corporation         96
             Signatures                                            105

      This  document contains the Annual Reports on Form  10-K  for  the
fiscal year ended December 31, 1996 for each of IES Industries Inc.  and
IES  Utilities  Inc.   Information  contained  herein  relating  to   an
individual  registrant is filed by such registrant on  its  own  behalf.
Accordingly,  except for its subsidiaries, IES Utilities Inc.  makes  no
representation as to information relating to IES Industries Inc.  or  to
any other companies affiliated with IES Industries Inc.  IES Industries
Inc. and its consolidated subsidiaries may collectively be referred to as
"the Company".

     From time to time, the Company may make forward-looking statements
within the meaning of the federal securities laws that involve judgments,
assumptions and other uncertainties beyond the control of the Company.
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 the Company's 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 of the
Company 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 Company's service territory, federal and state 
regulatory and government actions, the operating of a nuclear 
facility and changes in the rate of inflation.


                                    
                                 PART I

Item 1.  Business

     IES Industries Inc.

      IES  Industries  Inc. (Industries) is a holding company  which  is
incorporated   under   the   laws  of  Iowa.  Industries'   wholly-owned
subsidiaries are IES Utilities Inc. (Utilities) and IES Diversified Inc.
(Diversified).   Utilities is primarily an electric and natural gas utility 
company operating in the State of  Iowa and  serving  
approximately 336,000 electric and  176,000  natural  gas
retail  customers as well as 30 electric resale customers in  more  than
550  Iowa communities.  Diversified is a holding company for non-utility
subsidiaries   which  are  primarily  engaged  in  the   energy-related,
transportation  and  real  estate development  businesses.   Industries'
consolidated assets and earnings are predominantly those of Utilities.

     Utilities

      Utilities is primarily a public utility operating company  engaged
in  providing  electric energy, natural gas and, to  a  limited  extent,
steam used for industrial and heating purposes, in the State of Iowa.

      Utilities' only wholly-owned subsidiary as of December  31,  1996,
was  IES  Ventures  Inc.  (Ventures), which is  a  holding  company  for
unregulated   investments.    Ventures'   wholly-owned   subsidiary   at
December  31,  1996, was IES Midland Development Inc.  (Midland),  which
owns and operates a landfill in Ottumwa, Iowa.  Ventures also has a  35%
equity  investment  in  Aqua  Ventures L.C.,  which  is  an  aquaculture
facility formed to raise fish for human consumption.

      Utilities'  sales  of  electricity (in Kwh), excluding  off-system
sales,  increased  1.7%,  5.3%  and 4.3%, during  the  years  1996-1994,
respectively.  Under historically normal weather conditions, total sales
(excluding  off-system sales) would have increased 3.5%, 3.6%  and  4.8%
during  1996-1994,  respectively.  Total  gas  delivered  by  Utilities,
including transported volumes, increased or (decreased) 5.9%,  4.8%  and
(2.7)%  during  the  years 1996-1994, respectively.  Under  historically
normal  weather conditions, Utilities' gas sales and transported volumes
would have increased 1.9%, 3.5% and 0.7% during 1996-1994, respectively.

      There  are  seasonal  variations in Utilities'  electric  and  gas
businesses, which are principally related to the use of energy  for  air
conditioning  and  heating.   In  1996,  39.8%  of  Utilities'  electric
revenues  were earned in June through September, reflecting the  use  of
electricity  for  cooling,  and 72.0% of Utilities'  gas  revenues  were
earned  in  the  months  of  January -  March,  November  and  December,
reflecting the use of gas for heating.

      The  approximate percentages of Utilities' revenue  and  operating
income  derived  from the sale of electricity and gas during  the  years
1996-1994 are as follows:

                        1996        1995         1994    
Revenues:                                                 
  Electric               76%         79%          78%       
  Gas                    21%         19           20        
                                                          
Operating income:                                         
  Electric               86%         92%          93%       
  Gas                    11%          6            6         


       The  relationships  between  the  electric  and  gas  percentages
presented  above  are influenced by changes in energy sales,  timing  of
regulatory  price  proceedings and changes  in  the  costs  of  fuel  or
purchased gas billed to customers through related adjustment clauses.

      For additional information concerning electric and gas operations,
see  Item  1.  "Other Information Relating to Utilities Only",  Item  7.
"Management's  Discussion and Analysis of the Results of Operations  and
Financial Condition" and the "Electric Operations" and "Gas Operations"
sections of Item 1.

     Diversified

      Other  than  Utilities' unregulated investments,  the  non-utility
operations  of the Company are organized under Diversified.  Diversified
is  a  holding  company  whose  wholly-owned  subsidiaries  include  IES
Transportation Inc. (IES Transportation), IES Energy Inc. (IES  Energy),
IES  Investments Inc. (IES Investments) and IES International Inc.  (IES
International).

       IES  Transportation  is  a  holding  company  whose  wholly-owned
subsidiaries  at December 31, 1996, included 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.  IES Transportation also  has
a  75%  equity  investment  in IEI Barge Services,  Inc.  (Barge)  which
provides  barge  terminal and hauling service on the Mississippi  River.
In  addition,  IES Transportation has investments in two  Iowa  railroad
companies.  IES Transportation's 1996 operating revenues and  assets  at
December 31, 1996 were as follows:

                                      Operating         
                                      Revenues         Assets
                                              (in 000s)
     CRANDIC                          $ 17,375        $ 39,162
     Barge                               1,872           8,112
     Transfer                              415             838
     Other (including eliminations)        -               286
                                      $ 19,662        $ 48,398


      IES Energy is a holding company whose wholly-owned subsidiaries at
December  31, 1996, included Industrial Energy Applications, Inc.  (IEA)
and  Whiting  Petroleum Corporation (Whiting).  IEA offers  commodities-
based  and  facilities-based energy services  for  customers,  including
purchasing  energy, standby generation, cogeneration,  steam  production
and  propane air systems.  Whiting is organized to purchase, develop and
produce crude oil and natural gas.  IES Energy's 1996 operating revenues
and assets at December 31, 1996 were as follows:

                                         Operating         
                                         Revenues         Assets
                                                 (in 000s)
     IEA                                 $ 126,932      $  52,204
     Whiting                                65,724        129,227
     Other (including eliminations)         (1,670)        (1,255)
                                         $ 190,986      $ 180,176


      IES  Investments  is a holding company whose primary  wholly-owned
subsidiaries  at  December 31, 1996, included  Iowa  Land  and  Building
Company   (Iowa  Land),  IES  Investco  Inc.  (Investco)   and   Village
Lakeshares,  Inc. (Lakeshares).  Iowa Land is organized to  pursue  real
estate   and  economic  development  activities  in  Utilities'  service
territory.  Investco is a holding company for certain equity investments
and  currently has no operating revenues.  The gains and losses  on  the
sale  of  such investments are recorded in "Miscellaneous, net"  in  Industries'
Consolidated Statements of Income. Lakeshares is a holding  company  for
resort properties in Iowa.

      IES  Investments had a $29.2 million investment  in  McLeod,  Inc.
(McLeod),  a  holding company for various telecommunications businesses,
at  December  31,  1996.   The McLeod investment  is  not  consolidated,
therefore Industries does not include any of McLeod's operating revenues in
its  consolidated results.  IES Investments also has direct and indirect
equity interests in various real estate ventures, primarily concentrated
in  Cedar Rapids, and holds other passive investments.  IES Investments'
1996  operating  revenues  and  assets,  other  than  the  international
investments noted below, at December 31, 1996, were as follows:

                                      Operating         
                                      Revenues         Assets
                                              (in 000s)
     Iowa Land                        $  1,570        $ 11,969
     Investco                             -              2,941
     Lakeshares                          4,313          11,230
     Real estate ventures                3,863          24,893
     Investment in McLeod                 -             29,200
     Other (including eliminations)       -             13,535
                                      $  9,746        $ 93,768


       IES   International  is  a  holding  company  whose  wholly-owned
subsidiaries  are  IES  New  Zealand  Limited  (IES  New  Zealand)   and
Interstate  Energy  Corporation Pte Ltd. (IECP).  IES  New  Zealand  has
equity  investments  in two New Zealand electric distribution  entities.
IECP  has  a  50%  equity  investment in JIES Heat  and  Power  Ltd.,  a
cogeneration  facility  in  China.  None of the  investments  under  IES
International  are  consolidated, therefore  IES  International  has  no
operating  revenues.  (IES Investments also has several  investments  in
foreign  entities,  including a loan to a New  Zealand  company  and  an
investment  in an international venture capital fund.  These investments
are  considered  international investments for management  purposes  and
therefore  are included in the following schedule.)  IES International's
assets at December 31, 1996, were as follows:

                                                Assets
                                              (in 000s)
     IES New Zealand                           $ 19,819
     Investment in JIES Heat and Power Ltd.      13,598
     IES Investments' foreign investments        11,665
     Other (including eliminations)                (136)
                                               $ 44,946

      Refer  to  Note 15 of Industries' Notes to Consolidated  Financial
Statements for a further discussion of the Company's segments of business.


Other Information Relating to the Company

      PROPOSED  MERGER OF THE COMPANY.  Industries, WPL  Holdings,  Inc.
(WPLH)  and  Interstate  Power  Company  (IPC)   have  entered  into  an
Agreement  and  Plan  of Merger, as amended (Merger  Agreement),   dated
November  10,  1995,  which provides for the combination  of  all  three
companies (Proposed Merger).   The new company will be named Interstate Energy 
Corporation (IEC).

      WPLH is a holding company headquartered in Madison, Wisconsin, and
is  the  parent company of Wisconsin Power and Light Company (WP&L)  and
Heartland Development Corporation (HDC). WP&L supplies electric and  gas
service to approximately 385,000 and 150,000 customers, respectively, in
south  and  central Wisconsin.  HDC and its principal  subsidiaries  are
engaged  in  businesses in three major areas: environmental  engineering
and  consulting, affordable housing and energy services.  IPC, a  public
utility  headquartered  in  Dubuque, Iowa,  supplies  electric  and  gas
service to approximately 165,000 and 49,000 customers, respectively,  in
northeast Iowa, northwest Illinois and southern Minnesota.

      The  Proposed Merger, which will be accounted for as a pooling  of
interests,  has been approved by the respective Boards of Directors  and
shareholders.  The merger is conditioned on the receipt of approvals  of
several  federal  and state regulatory agencies.  The  status  of  these
approvals is as follows:

      On  January  15,  1997,  the Federal Energy Regulatory  Commission
(FERC)  issued an order in which it accepted several provisions  of  the
IEC  merger application without the need for public hearings.  The  FERC
has set limited issues for hearing, including generation market power in
the  transmission-constrained  Wisconsin Upper  Michigan  System  (WUMS)
subregion in Wisconsin. The FERC has also ordered the merger partners to
attempt  to  negotiate  a wholesale customer protection  mechanism  with
those  intervenors who are not satisfied with the four year rate  freeze
proposed  in  the  application.   If an  agreement  between  the  merger
partners  and the intervenors is not reached, the FERC will  decide  the
issue.   A final decision on the merger is expected to be issued by  the
FERC by the end of the third quarter of 1997.

     Utilities and IPC announced in 1996 their intentions to hold retail
electric prices to their current levels until at least January 1,  2000.
The  companies made the proposal as part of their testimony in  the  IEC
merger  application  filed  with the Iowa Utilities  Board  (IUB).   The
proposal  excludes  price  changes due to government-mandated  programs,
such  as energy efficiency cost recovery, or unforeseen dramatic changes
in  operations. Hearings before the IUB are expected to be held  in  the
summer  of 1997 with a decision expected by the end of the third quarter
of 1997.

      In March of 1996, an application requesting approval of the merger
was  filed  with  the  Public Service Commission  of  Wisconsin  (PSCW).
Hearings  are  currently scheduled for June 4,  1997,  with  a  decision
anticipated in the third quarter of 1997. Legislation was introduced  in
the  Wisconsin State Senate in February 1997 which could delay the  PSCW
approval of the merger.  Industries cannot predict the outcome  of  such
legislation.

      In March of 1996, an application requesting approval of the merger
was  also submitted to the Illinois Commerce Commission (ICC).  The  ICC
conducted hearings on November 12, 1996 and final briefs were  filed  on
December 23, 1996.  A decision is pending.

      On  January  15,  1997, the Minnesota Public Utilities  Commission
(MPUC)  announced that it had approved the IEC merger without  hearings,
subject   to   a  number  of  technical  conditions,  which   Industries
anticipates  will  not be opposed by the merger partners.   Included  in
these  conditions is a four year rate freeze for IEC's electric and  gas
customers in the state of Minnesota.

      An  application  to establish IEC as a registered holding  company
under  the  Public Utility Holding Company Act of 1935  (1935  Act)  was
submitted  to the Securities and Exchange Commission (SEC).  The  period
for  comments  by  interested parties closed  on  November  5,  1996.  A
decision on the application is expected at the end of the third  quarter
of  1997.  The SEC historically has interpreted the 1935 Act to preclude
registered holding companies, with limited exceptions, from owning  both
electric  and  gas  utility systems.  In addition, the  SEC  could  also
require  that IEC divest certain non-utility ventures of Industries  and
WPLH.   As  part  of  the application, IEC has requested  permission  to
retain its existing gas utility properties and non-utility ventures.

      An  impact review of the merger on market power, which is required
by  the  Hart-Scott-Rodino Antitrust Improvements Act, was completed  by
the  U.S. Department of Justice (DOJ).  All requirements of this  review
have  been satisfied.  If the merger is not consummated before  July  7,
1997, the merger partners will be required to submit new information  to
the DOJ.  The merger partners do not believe that any such resubmission
would cause a material delay in approval.

      An  application  was filed with the Nuclear Regulatory  Commission
(NRC)  to approve the transfer of indirect control over the licenses  of
Utilities  and  WP&L for the Duane Arnold Energy Center (DAEC)  nuclear
facility  and Kewaunee Nuclear Power Plant, respectively, to IEC.   Both
plants  are jointly owned with other companies.  The application,  which
was filed on October 1, 1996, is pending.

       See  Note  2  of  Industries'  Notes  to  Consolidated  Financial
Statements  and  Item 14 for further information and the  unaudited  pro
forma financial statements of IEC, respectively.

      CONSTRUCTION AND ACQUISITION PROGRAM AND FINANCING. 
The Company's construction and acquisition program 
anticipates expenditures of approximately $225 million 
for 1997, of which approximately $147 million represents 
expenditures at Utilities and approximately $78 million 
represents expenditures at Diversified.  Of the $147 million 
of Utilities' expenditures, 39% represents expenditures for
electric transmission and distribution facilities, 21%
represents electric generation expenditures, 21% represents
information technology expenditures and 5% represents
gas expenditures.  The remaining 14% represents 
miscellaneous electric, steam and general expenditures. 
Diversified's anticipated expenditures include approximately
$75 million for domestic and international energy-related
construction and acquisition expenditures.

     The Company's levels of construction and acquisition 
expenditures are projected to be $208 million in 1998,
$212 million in 1999, $182 million in 2000 and $198
million in 2001.  It is estimated that virtually all of Utilities' 
construction and acquisition expenditures will be provided by
cash from operating activities (after payment of dividends)
for the five-year period 1997 - 2001.  Financing plans for 
Diversified's construction and acquisition program will 
vary, depending primarily on the level of energy-related 
acquisitions.

     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.

     Under provisions of the Merger Agreement, there are
restrictions on the amount of construction and acquisition 
expenditures the Company can make pending the merger.
The Company does not expect the restrictions to have a 
material effect on its ability to implement its anticipated 
construction and acquisition program.

     Other than Utilities' periodic sinking fund requirements, 
which Utilities intends to meet by pledging additional 
property, the following long-term debt will mature prior 
to December 31, 2001:

                                                      (in millions)
Utilities                                           $207.2
Diversified's credit facility                        172.1
Other subsidiaries' debt                              11.2
                                                    $390.5

     The Company intends to refinance the majority of the
 debt maturities with long-term securities.

      For  a discussion regarding the Company's assumptions in financing
future  capital requirements, see the "Liquidity and Capital  Resources"
section  of Item 7. "Management's Discussion and Analysis of the Results
of Operations and Financial Condition."

     REGULATION.  Because of its ownership of Utilities, Industries is a
"holding  company"  as  defined by the 1935  Act.   However,  Industries
claims  exemption from regulation under the 1935 Act (except for Section
9(a)2  thereof, which requires that any acquisition of securities  of  a
utility company by Industries be approved by the SEC) on the basis  that
Industries  and  Utilities are both organized  in  the  same  state  and
Utilities conducts its business in that state.  Congress began examining
repeal  of PUHCA during 1995 and is expected to continue reviewing  this
issue.  No assurance can be given as to when or if such legislation will
be considered or enacted.

     Utilities operates pursuant to the laws of the State of Iowa and is
thereby  subject to the jurisdiction of the IUB.  The IUB has  authority
to  regulate  rates  and standards of service, to  prescribe  accounting
requirements  and to approve the location and construction  of  electric
generating facilities having a capacity in excess of 25,000 Kw.  The IUB
is  comprised  of  three Commissioners appointed  by  the  Governor  and
ratified  by the State Senate.  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.

      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.

      Utilities is subject to the jurisdiction of the FERC with  respect
to  wholesale electric sales, its accounting practices and the  issuance
of  securities.   Revenues derived from Utilities'  wholesale  and  off-
system  sales  amounted to 6.5%, 6.3% and 6.9% of electric revenues  for
1996-1994,  respectively. Utilities' consolidated subsidiaries  are  not
subject to regulation by the IUB or the FERC.

      Following  consummation of the Proposed Merger, Interstate  Energy
will be subject to regulation by the PSCW, as WPLH and 
WP&L are currently. The PSCW regulates, among  otherthings,
 the  type and amount of investments in non-utility  businesses.
The Company does not expect such regulation to have a materially adverse
effect upon Interstate Energy following the Proposed Merger.

       See   the   "Environmental  Matters",  "Competition",   "Electric
Operations" and "Gas Operations" sections of Item 1 for a discussion  of
various other regulatory issues.

      EMPLOYEES.  At December 31, 1996, the Company had a total of 2,406
(2,016 at Utilities) regular full-time employees.  At December 31, 1996,
Utilities  had  1,081  employees  subject  to  6  collective  bargaining
agreements (776 of these employees were part of one agreement),  CRANDIC
had 71 employees subject to 4 collective bargaining agreements and Barge
had  6 employees subject to 1 collective bargaining agreement.  None  of
Utilities' bargaining agreements expires in 1997.

      ENVIRONMENTAL MATTERS.  The Company 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  legislature  and  local
governments  and  enforced by federal, state and county  agencies.   The
laws  impacting  the Company's operations include the Clean  Water  Act;
Clean  Air  Act,  as  amended by the Clean Air Act Amendments  of  1990;
National  Environmental Policy 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;  Occupational  Safety  and  Health  Act;
National Energy Policy Act of 1992 and a number of others.  The  Company
regularly secures and renews federal, state and local permits to  comply
with   the   environmental  protection  laws  and  regulations.    Costs
associated with such compliances have increased in recent years and  are
expected to increase moderately in the future.

      Utilities has been named as a Potentially Responsible Party  (PRP)
by  various  federal  and  state environmental agencies  for  28  Former
Manufactured   Gas   Plant   (FMGP)  sites.   Utilities   has   recorded
environmental liabilities related to the FMGP sites of approximately $36
million (including $4.7 million as current liabilities) at December  31,
1996.  Regulatory assets of approximately $36 million, which reflect the
future  recovery that is being provided through Utilities'  rates,  have
been  recorded  in  the  Consolidated Balance Sheets.   Considering  the
current rate treatment allowed by the IUB, management believes that  the
clean-up costs incurred by Utilities for these FMGP sites will not  have
a  material  adverse  effect on its financial  position  or  results  of
operations.   Refer to Note 13(f) of Industries' Notes  to  Consolidated
Financial Statements for a further discussion, including a discussion of
a lawsuit filed by Utilities seeking recovery of FMGP-related costs from
its insurance carriers.

      The  Clean  Air  Act  Amendments of 1990 (Act)  requires  emission
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to  achieve
reductions  of atmospheric chemicals believed to cause acid  rain. The  Act
and  other  federal  laws also require the United  States  Environmental
Protection  Agency (EPA) to study and regulate, if necessary, additional
issues  that potentially affect the electric utility industry, including
emissions  relating  to  NOx, ozone transport, mercury  and  particulate
control; toxic release inventories and modifications to the PCB rules.

     In 1995, the EPA published the Sulfur Dioxide Network Design Review
for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst-
case  modeling  method  suggests that the Cedar  Rapids  area  could  be
classified  as  "nonattainment" for the  National  Ambient  Air  Quality
Standards  established for SO2.  The worst-case modeling study suggested
that  two of Utilities' generating facilities contribute to the  modeled
exceedences.

      Pursuant  to a routine review of operations, Utilities  determined
that  certain changes undertaken during the previous three years at  one
of   its  power  plants  may  have  required  a  federal  Prevention  of
Significant  Deterioration  (PSD)  permit.   Refer  to  Note  13(g)   of
Industries'  Notes to Consolidated Financial Statements  for  a  further
discussion of the above mentioned air quality issues.

      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."  Refer  to  Note  13(f)  of
Industries'  Notes to Consolidated Financial Statements  for  a  further
discussion.

     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.  Utilities  entered  into  such  a
contract  and  has  made the agreed payments to the Nuclear  Waste  Fund
(NWF)  held  by  the U.S. Treasury.  The DOE, however,  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.  Utilities has been storing spent nuclear fuel  on-
site  since  plant  operations began in 1974  and  has  current  on-site
capability  to  store spent fuel until 2001.  Utilities is  aggressively
reviewing  options  for expanding on-site storage.  Utilities  has  been
formally notified by the DOE that they anticipate being unable to  begin
acceptance  of  spent nuclear fuel by January 31,  1998.   Utilities  is
evaluating  courses of action to protect the interests of its  customers
and  its  rights  under the DOE contract.  Utilities is also  evaluating
legislation  proposed to the Congress addressing this  issue.   In  July
1996, the IUB initiated a Notice of Inquiry (NOI) on spent nuclear fuel.
One purpose of the NOI was to evaluate whether the current collection of
money  from Utilities' customers for payment to the NWF should be placed
in  an  escrow  account  in lieu of being paid to  the  NWF.   Utilities
believes that the issue of using an escrow account should be decided  at
the federal level rather than the state level.  Utilities cannot predict
the outcome of this NOI.

      The  Low-Level  Radioactive Waste Policy Amendments  Act  of  1985
mandated that each state must take responsibility for the storage of low-
level radioactive waste produced within its borders.  The State of  Iowa
has  joined  the Midwest Interstate Low-Level Radioactive Waste  Compact
Commission (Compact), which is planning a storage facility to be located
in Ohio to store waste generated by the Compact's six member states.  At
December   31,  1996,  Utilities  has  prepaid  costs  of  approximately
$1.1  million  to the Compact for the building of such  a  facility.   A
Compact  disposal  facility  is  anticipated  to  be  in  operation   in
approximately  ten years after approval of new enabling  legislation  by
the  member  states.  Such legislation was approved in 1996 by  all  six
states  that  are members of the Compact.  Final approval  by  the  U.S.
Congress  is now required.  On-site storage capability currently  exists
for  low-level  radioactive waste expected to  be  generated  until  the
Compact  facility is able to accept waste materials.  In  addition,  the
Barnwell,  South  Carolina  disposal  facility  has  reopened   for   an
indefinite  time period and Utilities is in the process of  shipping  to
Barnwell  the  majority  of  the  low-level  radioactive  waste  it  has
accumulated on-site, and currently intends to ship the waste it produces
in  the  future  as  long  as the Barnwell site  remains  open,  thereby
minimizing  the  amount  of  low-level waste stored  on-site.   However,
management  of  the  Barnwell  site has modified  its  fee  schedule  to
emphasize  total  radioactivity  content  and  weight,  instead  of  the
historical volume related fees.  Utilities is evaluating the outcome  of
these  changes  on its potential future disposal costs at  the  Barnwell
site;  such  changes  could result in a revision  to  Utilities'  future
disposal plans.

     The possibility that exposure to electric and magnetic fields (EMF)
emanating  from  power lines, household appliances  and  other  electric
sources  may  result in adverse health effects has been the  subject  of
increased public, governmental, industry and media attention.  A  recent
study  completed  by  the National Research Council concluded  that  the
current  body of evidence does not support the notion that  exposure  to
these  fields  may  result  in adverse health effects.   Utilities  will
continue to monitor the events in this area, including future scientific
research.

      Whiting  is  responsible for certain dismantlement and abandonment
costs  related  to various off-shore oil and gas properties.   Refer  to
Note 13(f) of Industries' Notes to Consolidated Financial Statements for
a further discussion.

     Utilities was notified in 1986 that it was designated by the EPA as
a  PRP (there are 832 in total) for the investigation and cleanup of the
Maxey Flats Nuclear Disposal site at Morehead, Kentucky.  The EPA notice
encouraged  all PRPs to undertake voluntary clean up activities  at  the
site.  A Steering Committee was organized and Utilities is participating
in its activities.  The Steering Committee has reached settlement of the
issues  with  the  EPA,  the State of Kentucky  and  deminimis  parties.
Consent Decrees have been finalized and Utilities' share of the cost  is
estimated  at  $250,000,  which  is  included  in  the  $53  million  of
environmental liabilities the Company has recorded at December 31, 1996.

      Refer  to  Note 13 of Industries' Notes to Consolidated  Financial
Statements for further discussion of environmental matters.


Other Information Relating to Utilities Only

      COMPETITION.   Utilities  and its predominant  business,  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  faced
with  increasing  pressure to become more competitive. Such  competitive
pressures  could  result  in  loss of customers  and  an  incurrence  of
stranded costs (i.e., the cost of assets 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.

      The  National Energy Policy Act of 1992 addresses several  matters
designed  to  promote  competition  in  the  electric  wholesale   power
generation  market.  In April 1996, the FERC issued  final  rules  (FERC
Orders  888  and  889), largely confirming earlier proposals,  requiring
electric  utilities to open their transmission lines to other  wholesale
buyers  and sellers of electricity.  The rules became effective on  July
9,  1996.  Utilities filed conforming pro-forma open access transmission
tariffs  with  the  FERC which became effective  October  1,  1995.   In
response to FERC Order 888, Utilities filed its final pro-forma  tariffs
with  FERC on July 9, 1996.  The non-rate provisions of the tariffs were
approved  on  November  13, 1996. FERC has not yet  ruled  on  the  rate
provisions  of  the  tariffs.   The geographic  position  of  Utilities'
transmission  system  could provide revenue opportunities  in  the  open
access  environment.  The  Company  cannot predict  the  long-term 
consequences of these rules on  its  results  ofoperations or financial 
condition.

      FERC does not have jurisdiction over the retail jurisdiction,  and
thus  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 by FERC and the states  to
have resulted from retail competition.

      The  IUB  initiated a Notice of Inquiry (Docket No.  NOI-95-1)  in
early  1995  on  the subject of "Emerging Competition  in  the  Electric
Utility  Industry" to address all forms of competition in  the  electric
utility  industry and to gather information and perspectives on electric
competition  from all persons or entities with an interest or  stake  in
the  issues.   In  January 1996, the IUB created its  own  timeline  for
evaluating  industry  restructuring in  Iowa.   Included  in  the  IUB's
process  was  the  creation  of a 22-member  advisory  panel,  of  which
Utilities  is  a member.  The IUB conducted public information  meetings
around  the State of Iowa.  A draft report was created by the IUB  staff
and is expected to be finalized in the first quarter of 1997.  The draft
report  indicated  that  the IUB is of the  opinion  that  there  is  no
compelling  reason  to  move  quickly into  restructuring  the  electric
utility industry in Iowa.  However, they will continue the analysis  and
debate on restructuring and retail competition in Iowa.

      As  part  of  Utilities' strategy for the emerging and competitive
power markets, Utilities, IPC, WP&L and a number of other utilities have
proposed  the creation of an independent system operator (ISO)  for  the
companies'   power  transmission  grid.   The  companies  would   retain
ownership and control of the facilities, but the ISO would set rates for
access and assure fair treatment for all companies seeking access.   The
proposal  requires approval from state regulators and the FERC.  Various
other  proposals  for  ISO's  have been  made  by  other  companies  and
Utilities is monitoring all such proposals.  Membership in an ISO  could
become a condition of merger approval by the various regulatory bodies.

      Utilities  is subject to the provisions of Statement of  Financial
Accounting  Standards  No. 71, "Accounting for the  Effects  of  Certain
Types  of  Regulation" (SFAS 71).  If a portion of Utilities' operations
become  no  longer subject to the provisions of SFAS 71, as a result  of
competitive  restructurings  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.    In
addition,  the Company would be required to determine any impairment  to
other  assets and write-down such assets to their fair value.  Utilities
believes that it still meets the requirements of SFAS 71.

      The  Company  cannot predict the long-term consequences  of  these
competitive issues on its results of operations or financial  condition.
The  Company's strategy for dealing with these emerging issues  includes
seeking  growth  opportunities, continuing  to  offer  quality  customer
service,  ongoing  cost  reductions and productivity  enhancements,  the
major  objective of which is to allow Utilities to better prepare for  a
competitive, deregulated electric utility industry.  In this connection,
Utilities  is  in the final stages of a significant process  improvement
program  to  improve its service levels, reduce its cost  structure  and
become  more  market-focused  and  customer  oriented.   (The  Company's
continuous  improvement efforts, in general, will be an ongoing  effort,
however).

      Examples of the process improvement changes being implemented are,
but  are  not limited to: managing the business in business  unit  form,
rather than functionally; formation of alliances with vendors of certain
types of material and/or services rather than opening most purchases  to
a  bidding  process;  changing standards and construction  practices  in
transmission and distribution areas; changing certain work practices  in
power plants; making investments in information technology upgrades; and
improving the method by which service is delivered to customers  in  all
customer  classes.  The specific changes range from simple  improvements
in  current  operations to radical changes in the way work is  performed
and  service  is  delivered.  Some of the changes are currently  in  the
pilot  stage  thus  the  results  from this  evaluation  period  or  the
potential  effects of the pending merger could prove that  some  of  the
changes  are  not  efficient  or  effective  and  must  be  revised   or
eliminated.   Subject  to  delays  caused  by  implementing   any   such
revisions, implementation of the changes began in 1996 and will continue
into 1997; however, certain results will not be realized until 1997.  In
addition,  the Company must give consideration to the potential  effects
of  the  pending  merger as part of the implementation process  so  that
duplication of efforts are avoided.

     RATE MATTERS.  Refer to Note 3 of Industries' Notes to Consolidated
Financial  Statements  for  a  discussion of  Utilities'  rate  matters,
including its electric price freeze proposals.

     ELECTRIC OPERATIONS -

General   Utilities' net peak load (60 minutes integrated) of  1,833,203
kilowatts occurred on August 6, 1996, and represented a new energy  peak
demand record.  At the time of the peak load, 75 interruptible customers
were  interrupted  representing approximately  206,000  kilowatts  of  a
possible  382,259  kilowatts  available  for  interruption.   Utilities'
additional  reserve  obligation at the time  of  the  peak  was  262,980
kilowatts  and the net capability of Utilities' generating stations  was
1,864,390   kilowatts,  with  an  additional  232,000  kilowatts   being
available  under  purchase  contracts, thereby  providing  an  aggregate
capability of 2,096,390 kilowatts.

     Utilities projects an electric sales growth rate of approximately 2
to  3 percent per year over the next five years, which will be met by  a
mix of its existing generation, capacity purchases and new construction.
The  construction activities will be undertaken in a fashion  that  best
meets the needs of individual customers and the system as a whole.   See
Note 13(b) of Industries' Notes to Consolidated Financial Statements for
a discussion of Utilities' firm contracts for the purchase of capacity.

     Utilities' electric facilities are interconnected with certain Iowa
and   neighboring  utilities.  Also,  Utilities  is  a  member  of   the
Mid-Continent  Area  Power Pool (MAPP).  This pool is  comprised  of  18
utilities  which are Transmission Owning Members (TOMs) and 58  energy-
related companies providing services in the upper midwest region of  the
United States, and operates pursuant to an agreement which provides  for
the  interchange of electric energy, the sharing of responsibilities for
production capacity and reserve and the supply of electric energy.

      Utilities  is  a party to the Twin Cities-Iowa-St.  Louis  345  Kv
Interconnection Coordinating Agreement (the Coordinating Agreement) with
five other midwestern utilities, three of which operate in the State  of
Iowa.   The  Coordinating Agreement provides for the interconnection  of
the  respective  systems of the companies through a 345 Kv  transmission
line and for the interchange of power on various bases.  The rates under
the Coordinating Agreement are primarily determined by agreement between
the delivering and receiving companies.

      Utilities  maintains  and  operates  transmission  and  substation
facilities  connecting  with  its  high  voltage  transmission   systems
pursuant   to  a  non-cancelable  operating  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 Utilities and CIPCO.

      The Resale Power Group of Iowa (RPGI), consisting of virtually all
of  Utilities' wholesale customers, has notified Utilities that it  will
not  purchase its power supply from Utilities after December  31,  1998.
It  is  possible that certain RPGI customers will drop out  of  RPGI  in
order to remain as Utilities' customers.  RPGI will continue to purchase
transmission services from Utilities after December 31, 1998.  While the
Company  cannot  determine the outcome of this issue at this  time,  the
result will not have a material adverse effect on its financial position
or  results  of  operations  given 1) Utilities'  wholesale  sales  only
accounted for approximately 5% of Utilities' total 1996 electric  sales,
excluding off-system sales; 2) Utilities currently has to supplement its
generating capability with purchased power to meet its sales  load;  and
3) Utilities' annual electric sales growth rate continues to be strong.

      Upon  consummation  of the Proposed Merger, Utilities  expects  to
realize reduced electric production costs through the joint dispatch  of
systems  and  increased marketing opportunities  in  the  wholesale  and
interchange  markets  through  electric  interconnections   with   other
utilities.

      For  comments  relating to agreements between  Utilities  and  its
partners  for  the  joint ownership of the DAEC, the Ottumwa  Generating
Station (OGS) and Neal Unit No. 3, see Item 2. "Properties" and Note  14
of Industries' Notes to Consolidated Financial Statements.

Fuel  Supply  The following table details the sources of the electricity
sold  by  Utilities during 1996 and expected sources for  the  following
three years:

                         Actual     /------------ Expected ------------/
                          1996        1997          1998          1999
                                                          
Fossil, primarily coal     42%         63%           64%           63%
Nuclear                    23          26            23            23
Purchases                  35          11            13            14
                          100%        100%          100%          100%


      The  1996 fossil percentage was lower than anticipated because  of
several  maintenance  outages  at the various  fossil-fueled  generating
facilities.   Utilities expects its off-system sales in 1997-1999 to be 
significantly lower than they were in 1996 as the result of the 
implementation of FERC Order 888.  This results in a significant
reduction in the purchases figures in 1997-1999.  Utilities  is  
currently on an  eighteen-month  cycle  for nuclear refueling 
outages and the above percentages assume outages  will
occur  during both 1998 and 1999.  There was also a refueling outage  in
1996.

      Utilities' primary fuel source is coal and the generation  mix  is
influenced directly by refueling outages at the DAEC.  The average  cost
of  fuel  used  for generation by Utilities for the years  1996-1994  is
presented below:

                                              1996      1995       1994
                                                   
Average cost of fuel:                              
                                                   
  Nuclear, per million Btu's                 $ .73     $ .76      $ .67
  Coal, per million Btu's                      .95       .97        .97
  Average for all fuels, per million Btu's     .94       .95        .89


      The decrease in the average cost of coal during 1996 was primarily
due  to  a decline in Wyoming coal prices and burning more lower  priced
Wyoming  coal and less higher priced Illinois Basin coal.  The  increase
in  the  average  cost of nuclear fuel during 1995  was  the  result  of
compounded  interest charges on uranium acquired during the  mid-1980's.
Utilities  used  the  last  of this uranium during  the  1996  refueling
outage.   Utilities has entered into a contract to meet its  nuclear
fuel needs beyond 1996 and the average cost of such fuel is expected  to
be significantly lower than the prior periods.

      The  following table summarizes Utilities' minimum  coal  contract
commitments at December 31, 1996:
<TABLE>
<CAPTION>
                         Average                          
                          Annual                            Maximum estimated base price
                         Quantity    Termination   Sulfur    per ton of coal delivered 
                        (000s Tons)      Date      Content     1997     1998    1999
<S>                    <C>          <C>          <C>       <C>      <C>      <C> 
Cordero Mining Co.                                                              
  (OGS) (1)                 774        12/31/01      0.6%    $ 18.86  $ 19.40  $ 19.99
                                                                                
Koch Carbon Inc.                                                                
  (Sutherland)              100        12/31/99      6.2%    $ 19.77  $ 20.07  $ 20.37
 
Powder River Coal Co. 
  (OGS or BGS) (2)        1,200        12/31/97      0.4%    $ 13.19  $  N/A   $  N/A
                                                                            
Caballo Coal Co.                                                            
  (Sutherland)              450        12/31/97      0.5%    $ 12.66  $  N/A   $  N/A
                                                                            
Caballo Rojo / Ft. Union
  (BGS) (3)                 714        12/31/97      0.3%    $ 14.83  $  N/A   $  N/A

Caballo Rojo / Ft. Union
  (Prairie Creek) (3)       986        12/31/97      0.3%    $ 16.43  $  N/A   $  N/A
                                                                            
Franklin Coal Sales Co.
  (OGS)                     225         9/30/97      0.5%    $ 12.68  $  N/A   $  N/A

</TABLE>

    (1)   Cost  under the contract is comprised of  base  contract
          prices  plus specifically contracted periodic adjustments  for
          increases  in  certain specific costs of producing  the  coal.
          The effect of such adjustments to the base contract prices  of
          future coal cannot currently be predicted with any certainty.

    (2)   The  contract covers 1,200,000 annual tons delivered  to
          either  the  OGS  or the Burlington Generating Station  (BGS).
          Utilities anticipates that 100% of the total 1997  contract
          tons  will be delivered to OGS.  The price listed in the table
          is for OGS, with the BGS price being $16.04 per ton.

     (3)  The contract covers 1,700,000 annual tons to be delivered
          to  either  the Prairie Creek Generating Station (PC)  or  the
          BGS,  from either Caballo Rojo or Ft. Union.  The price listed
          in  the  table  for BGS is for Ft. Union coal  and  the  price
          listed  in  the  table for PC is for Caballo Rojo  coal.   Utilities
          anticipates  that  100% of  PC's  shipments  will  be
          Caballo  Rojo coal, with BGS shipments being 35% from  Caballo
          Rojo  and  the  remaining 65% from Ft. Union.  The  price  for
          Caballo Rojo coal to BGS is $15.39 per ton.

      During 1996, Utilities purchased a total of 3,518,000 tons of coal
for  its  generating  plants.  At December 31,  1996,  Utilities  had  a
weighted  average of approximately 60 days' usage of coal  inventory  at
its principal generating stations based upon the 1997 expected usage.

      Utilities estimates that its existing coal fired generating  units
will require approximately 12,837,000 tons of coal to operate during the
period 1997-1999.  The average annual quantities listed in the preceding
table  represent Utilities' minimum commitments.  Many of the  contracts
contain  provisions  allowing Utilities to purchase additional  tons  of
coal.  Utilities estimates that it has the capability to purchase almost
50%  of  its 1997-1999 coal requirements under these contracts and  will
meet  the remainder of its requirements from either future contracts  or
purchases in the spot market. Utilities believes that an ample supply of
coal is available in the spot market to meet its needs.

      Some  of Utilities' contracted coal supply is provided by  surface
mining  operations which are regulated by the Federal  Strip  Mine  Act.
Most  of  the surface mining coal contracts contain clauses  which  pass
reclamation  and royalty costs through to the respective  utility;  such
costs  billed to Utilities are recoverable through its Energy Adjustment
Clauses  (EAC).   See  Note 1(k) of Industries'  Notes  to  Consolidated
Financial Statements for discussion of the EAC.

     A contract for enrichment services and enriched uranium product was
signed  with  the United States Enrichment Corporation (USEC)  in  1995,
which  will  reduce  Utilities'  enrichment  and  uranium  costs.   This
contract  will be effective through 2001 and may extend beyond  2001  if
certain  conditions  occur.  Fabrication of the nuclear  fuel  is  being
performed  by  General  Electric  Company  for  fuel  through  the  2008
refueling  of  the  DAEC.  Utilities 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.   See  Note  13(f) of Industries'  Notes  to  Consolidated
Financial Statements for a discussion of Utilities' assessment under the
National   Energy  Policy  Act  of  1992  for  the  "Uranium  Enrichment
Decontamination  and Decommissioning Fund," which is  based  upon  prior
nuclear fuel purchases.

      Refer  to  Item  1. "Environmental Matters" for  a  discussion  of
nuclear waste disposal issues.

Nuclear   As an owner and the operator of a nuclear generating  unit  at
the  DAEC, Utilities is 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.  Utilities' current NRC
license for DAEC expires in 2014.

      The operation and design of nuclear power plants is under constant
review  by  the  NRC.  Utilities  has complied  with  and  is  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.  Utilities' anticipated  nuclear-
related  construction expenditures for 1997-2001 are  approximately  $33
million.

     The DAEC received the highest ratings in its history in the
NRC's  last Systematic Assessment of Licensee Performance (SALP)  report
by  earning  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.  The SALP evaluation process  is
being reviewed along with an overall rebaselining of regulatory strategy
and  initiatives by the NRC.  The results of this NRC effort  appear  to
include an overall reduction in SALP scores across the nuclear industry.
The  effect  on  the  DAEC will be clearer after the current  evaluation
period closes in the second quarter of 1997.

      Utilities conducted an inspection during the 1996 refueling outage
of  the  DAEC reactor core internals.  No cracks were identified and  no
related  repairs  were  required.  Utilities continues  its  efforts  to
monitor and maintain the reactor core internals.

     The large number of design documents, drawings, specifications, 
license documents, analyses, evaluations, reports, procedures, 
instructions and other documents related to nuclear plant design and 
operation present a particular challenge to Utilities to make sure all 
affected plant documents are updated when changes are made to 
a nuclear plant's design or operating practice.  The NRC is currently 
applying new, and more exacting, interpretations to existing 
regulations that result in increased expectations relating to the
level of detail and the scope of the information to be documented.  
Utilities has made significant efforts through its configuration 
management and design basis programs, and expects to continue 
such efforts in the future, to meet the NRC's expectations.

      Under  the  Price-Anderson Amendments  Act  of  1988  (1988  Act),
Utilities  currently has the benefit of $8.9 billion 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 (TMI)
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.
Utilities  is a participant 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.

      To  provide  this  coverage, a nuclear  utility  mutual  insurance
company  known as Nuclear Electric Insurance Limited (NEIL) was  formed.
Under  Utilities' policy, following a 21 week waiting  period  from  the
time  of  an  accident, coverage of up to 100% of estimated  replacement
power costs for an ensuing one year period is provided and up to 80%  of
that  amount will be provided for a second and third year.   The  annual
premium  cost  to  Utilities is estimated to be less than  the  cost  of
replacement power for one week.

      Utilities currently carries primary property insurance coverage on
the  DAEC  facility of $500 million with Nuclear Mutual  Limited  (NML).
Following  the TMI incident, it became apparent to nuclear plant  owners
that  the  commercially  available  property  insurance  was  inadequate
considering   the  cost  of  decontamination.  Consequently,   Utilities
obtained excess property insurance through NEIL, providing an additional
$1.4  billion  of  coverage  after losses exceed  $500  million.   These
policies bring the total property coverage to $1.9 billion.

      For information concerning the potential assessment of retroactive
premiums  relating to the above described public liability,  replacement
power  and excess property insurance coverages, refer to Note  13(e)  of
Industries'  Notes  to  Consolidated  Financial  Statements.   The   NRC
established  requirements with respect to guaranteeing  the  ability  of
owners to make such retroactive payments on the public liability policy.
Of  the  various  alternatives available, Utilities  elected  to  submit
certified  financial statements showing that sufficient cash flow  could
be  generated  and  would  be  available for  payment  of  the  required
assessments  within  a three month period.  The maximum  of  the  annual
retroactive premiums was approximately $7 million at December 31, 1996.

     In the unlikely event of catastrophic loss at 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 Utilities
and could have a material adverse effect on Utilities' financial position 
and results of operations.

      Refer  to  Item  1. "Environmental Matters" for  a  discussion  of
nuclear  waste  disposal issues and Note 1(g) of  Industries'  Notes  to
Consolidated   Financial   Statements   for   a   discussion   of    the
decommissioning of the DAEC.


<TABLE>
                                            ELECTRIC OPERATING COMPARISON
<CAPTION>
                                           1996        1995         1994         1993         1992         1986
<S>                                  <C>         <C>          <C>          <C>          <C>          <C>
Operating revenues (000's):
  Residential and rural                $   212,799 $   216,270  $   199,587  $   203,870  $   176,811  $   160,267
  General service                           98,196      97,496       97,454       99,221       87,202       75,649
  Large general service                    213,223     199,840      191,601      184,657      140,496      127,034
  Street lighting                            8,778       8,810        8,521        8,404        7,241        7,194
    Total from ultimate consumers          532,996     522,416      497,163      496,152      411,750      370,144
  Sales for resale                          17,894      17,554       19,195       20,254       18,602       14,963
  Off-system                                19,490      17,802       18,077       29,400       28,304       34,397
  Other                                      3,893       2,699        2,892        4,715        4,343        2,091
                                       $   574,273 $   560,471  $   537,327  $   550,521  $   462,999  $   421,595


Energy sales (000's Kwh):
  Residential and rural                  2,633,704   2,680,340    2,484,089    2,518,580    2,146,079    2,122,204
  General service                        1,231,115   1,242,373    1,170,923    1,166,072    1,061,444      914,665
  Large general service                  5,500,606   5,283,694    4,990,890    4,581,590    3,320,439    2,629,046
  Street lighting                           73,381      77,388       77,952       78,004       75,957       78,754
    Total to ultimate consumers          9,438,806   9,283,795    8,723,854    8,344,246    6,603,919    5,744,669
  Sales for resale                         514,398     499,719      567,721      561,276      528,752      411,043
    Sales of electricity to customers    9,953,204   9,783,514    9,291,575    8,905,522    7,132,671    6,155,712
  Off-system                             1,231,298   1,086,121    1,137,219    2,068,015    2,275,616    2,349,985
                                        11,184,502  10,869,635   10,428,794   10,973,537    9,408,287    8,505,697


Sources of electric energy (000's Kwh):
  Generation:
    Fossil, primarily coal               4,972,736   5,775,002    5,522,966    5,356,930    4,317,154    3,983,607
    Nuclear  (1)                         2,753,542   2,610,979    2,875,867    2,264,507    2,402,501    2,095,334
    Hydro                                    7,081       7,690        8,205        7,201        7,579        5,595
                                         7,733,359   8,393,671    8,407,038    7,628,638    6,727,234    6,084,536
    Purchases                            4,176,700   3,012,934    2,646,673    3,949,296    3,322,182    2,930,845
                                        11,910,059  11,406,605   11,053,711   11,577,934   10,049,416    9,015,381


Net capability at time of peak load (Kw):
    Generating capability                1,864,390   1,873,300    1,741,100    1,733,700    1,718,600    1,626,600
    Purchase capability                    232,000     207,100      280,000      248,000      207,000      100,000
                                         2,096,390   2,080,400    2,021,100    1,981,700    1,925,600    1,726,600

    Net peak load (Kw) (2)               1,833,203   1,824,100    1,779,627    1,716,380    1,425,441    1,380,391


Cooling degree days as
     percentage of normal                      89%        128%          99%          89%          72%         106%


Number of customers at year-end            336,048     333,489      330,405      327,265      325,172      299,506


Revenue per Kwh (excluding
  off-system) in cents                        5.57        5.55         5.59         5.85         6.09         6.29


(1) Represents IES Utilities' 70% undivided interest in the 
    Duane Arnold Energy Center, which is operated by IES Utilities Inc.
(2) 60 minutes integrated.
</TABLE>

      GAS  OPERATIONS.  With the advent of FERC Order 636  (Order  636),
issued  in  1992,  the  nature of Utilities' gas  supply  portfolio  has
changed.   Order  636,  among  other things, eliminated  the  interstate
pipelines'  obligation to serve and now requires Utilities  to  purchase
virtually   100%  of  its  gas  supply  requirements  from  non-pipeline
suppliers.  Utilities  has enhanced access to competitively  priced  gas
supply  and more flexible transportation services as a result  of  Order
636.   However,  under Order 636, Utilities is required to  pay  certain
transition costs incurred and billed by its pipeline suppliers.

     Utilities began paying the transition costs in 1993 and at December
31,  1996, has recorded a liability of $4.2 million for those transition
costs  that have been incurred, but not yet billed, by the pipelines  to
date,  including  $2.1  million expected  to  be  billed  through  1997.
Utilities  is  currently  recovering  the  transition  costs  from   its
customers through its Purchased Gas Adjustment Clauses as such costs are
billed  by the pipelines.  Transition costs, in addition to the recorded
liability, that may ultimately be charged to Utilities could approximate
$3.8  million.   The ultimate level of costs to be billed  to  Utilities
depends on the pipelines' future filings with the FERC and other  future
events,  including the market price of natural gas.  However,  Utilities
believes any transition costs that the FERC would allow the pipelines to
collect from Utilities would be recovered from its customers, based upon
regulatory treatment of these costs currently and similar past costs  by
the  IUB.   Accordingly, regulatory assets, in amounts corresponding  to
the  recorded liabilities, have been recorded to reflect the anticipated
recovery.

      Contracts with the pipelines subsequent to Order 636 are comprised
primarily  of  firm transportation, firm storage and no-notice  service.
Firm  transportation contracts grant Utilities access to  firm  pipeline
capacity  which  is  used  to transport gas supplies  from  non-pipeline
suppliers  on  peak  day.   Firm  storage service  allows  Utilities  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,
Utilities  requests and the pipelines deliver the gas  back  on  a  firm
basis.   No-notice service grants Utilities 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.

      Utilities' portfolio of firm transportation, firm storage and  no-
notice service from pipelines is as follows:

                                      Firm           Firm            
                                 Transportation     Storage       No-Notice
                                                              
     Northern:                                                
       Volume (Dekatherm/day)        142,996        48,218         10,000
       Expiration date              10/31/97       10/31/97       10/31/97
                                                                   
     Natural:                                                      
       Volume (Dekatherm/day)        28,605         34,014          996
       Expiration date             11/30/2000      11/30/98       11/30/98
                                                              
     ANR:                                                     
       Volume (Dekatherm/day)        60,737         19,180         5,000
       Expiration date             10/31/2003     10/31/2003     10/31/2003


      In  addition  to  firm  storage  with  pipelines,  Utilities  also
contracts for firm storage from Llano, Inc. This contract calls for peak
day deliveries of 18,667 Dekatherm(Dth)/day and expires May 31, 1997.

      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.  For  the  calendar  year  1996,
Utilities'  maximum daily load occurred on February 2, 1996  with  total
system  flow  of approximately 290,987 dekatherms, including transported
volumes,  and a total  contract  availability  of  approximately  276,352
dekatherms.

      As a result of Order 636, Utilities accepted assignment of certain
gas  supply contracts previously held by Northern.  Accepting assignment
of  these contracts resulted in lower costs to Utilities than would have
been  incurred  had  Northern  bought  out  the  agreements  and  billed
Utilities for its share of such costs.

     Contracts assigned to Utilities from Northern have maximum delivery
requirements of 13,631 Dth, and minimum take requirements of 2,726  Dth.
Additional  firm gas supply agreements were independently negotiated  by
Utilities  with  various  non-pipeline  suppliers.   These  gas   supply
agreements have maximum and minimum obligations  and  will
be delivered through gas transmission pipelines as follows:


                                   Maximum           Minimum
                                Daily Quantity    Daily Quantity
                                   (Dth/day)         (Dth/day)
                                                 
                 Northern           57,569            28,358
                 Natural            26,575            18,575
                 ANR                41,000            25,500


     These gas supply contracts have expiration dates
ranging from a few months to almost seven years. 
Rates charged by Utilities' suppliers are subject to 
regulation by the  FERC.  Utilities' tariffs provide for 
subsequent adjustments to its natural gas rates for changes in the
cost of natural gas purchased for resale.  See Note 1(k) of 
Industries' Notes to Consolidated Financial
Statements for discussion of the PGA.



<TABLE>

                                               GAS OPERATING COMPARISON
<CAPTION>

                                            1996        1995        1994        1993        1992        1986
<S>                                      <C>         <C>         <C>         <C>         <C>         <C>

Operating revenues (000's):
    IES Utilities Inc.:
       Residential                         $  97,708   $  84,562   $  82,795   $  90,462   $  78,685   $  79,176
       Commercial                             46,966      40,390      40,912      45,528      39,780      42,608
       Industrial                             12,256       8,790      12,515      15,593      18,649      39,485
                                             156,930     133,742     136,222     151,583     137,114     161,269
       Other                                   3,934       3,550       2,811       2,735       2,341         881
           Total revenues                    160,864     137,292     139,033     154,318     139,455     162,150
    Industrial Energy Applications, Inc.     113,115      53,047      26,536      27,605      27,627           0
                                           $ 273,979   $ 190,339   $ 165,569   $ 181,923   $ 167,082   $ 162,150


Energy sales (000's dekatherms):
   IES Utilities Inc.:
      Residential                             17,680      16,302      15,766      16,971      15,098      15,825
      Commercial                              10,323       9,534       9,298      10,133       8,479       9,707
      Industrial                               3,796       3,098       4,010       4,618       6,175      11,722
                                              31,799      28,934      29,074      31,722      29,752      37,254
      Industrial - transported volumes *      10,341      10,871       8,901       7,284       7,283       1,031
          Total volumes delivered             42,140      39,805      37,975      39,006      37,035      38,285
   Industrial Energy Applications, Inc. *     43,055      31,916      14,443      12,493      14,830           0
                                              85,195      71,721      52,418      51,499      51,865      38,285

   *IEA energy sales that are also 
    included as transported volumes 
    of IES Utilities Inc.                      4,383       4,232       3,134       2,883       2,955           0

Operating statistics for 
IES Utilities Inc.:
    Cost per dekatherm of gas
        purchased for resale               $    3.29   $    3.13   $    3.31   $    3.49   $    3.36   $    3.62

    Peak daily sendout in dekatherms         290,987     269,545     288,352     268,419     254,989     282,956


Heating degree days as
     percentage of normal                       109%        101%         96%        103%         93%         94%


Number of customers at year-end              176,238     174,470     172,829     170,719     167,813     164,670


Revenue per dekatherm sold
  for IES Utilities Inc.
  (excluding transported volumes)          $    4.94   $    4.62   $    4.69   $    4.78   $    4.61   $    4.33
</TABLE>

Item 2.  Properties

     Industries has no significant properties other than common stock of
affiliates,  temporary  cash investments and  cash  surrender  value  of
corporate life insurance policies.

      Utilities'  principal electric generating stations at December 31,
1996, are as follows:

<TABLE>
<CAPTION>
            Name and Location                     Major Fuel    Minimum Net Kilowatts Accredited
                of Station                           Type            Generating Capability
<S>                                              <C>           <C>              <C> 
Duane Arnold Energy Center, Palo, Iowa               Nuclear                       364,000 (1)
                                                                                        
Ottumwa Generating Station, Ottumwa, Iowa            Coal         343,440 (2)
Prairie Creek Station, Cedar Rapids, Iowa            Coal         205,500
Sutherland Station, Marshalltown, Iowa               Coal         143,000
Sixth Street Station, Cedar Rapids, Iowa             Coal          65,000                    
Burlington Generating Station, Burlington, Iowa      Coal         211,800                   
George Neal Unit 3, Sioux City, Iowa                 Coal         144,200 (3)            
  Total Coal                                                                     1,112,940
                                                                        
Peaking Turbines, Marshalltown, Iowa                 Oil          162,500                   
Centerville Combustion Turbines, Centerville, Iowa   Oil           48,600 
Diesel Stations, all in Iowa                         Oil           12,200                    
  Total Oil                                                                        223,300
                                                                                        
Grinnell Station, Grinnell, Iowa                     Gas           45,300                    
Agency Street Combustion Turbines,                                                  
  West Burlington, Iowa                              Gas           57,700                    
Burlington Combustion Turbines, Burlington, Iowa     Gas           63,100 (4)
Red Cedar Combustion Turbine, Cedar Rapids, Iowa    Gas           18,800 (5)
    Total Gas                                                                      184,900
                                                                                        
Total generating capability                                                      1,885,140

</TABLE>

     (1)  Represents  Utilities' 70% ownership interest in this  520,000
          Kw generating station.  The plant is operated by Utilities.
     
     (2)  Represents  Utilities' 48% ownership interest in this  715,500
          Kw generating station.  The plant is operated by Utilities.
          
     (3)  Represents  Utilities' 28% ownership interest in this  515,000
          Kw  generating  station which is operated by  an  unaffiliated
          utility.
     
     (4)  Burlington  Combustion Turbine Unit 3 became operational  June
          28, 1996.
     
     (5)  Red Cedar Cogeneration Station became operational December 13,
          1996.
     
      At  December  31,  1996,  the  transmission  lines  of  Utilities,
operating from 34,000 to 345,000 volts, approximated 4,436 circuit miles
(substantially  all  located  in Iowa).  Utilities  owned  108  transmission
substations  (all  located in Iowa) with a total installed  capacity  of
8,647 MVa and 468 distribution substations (all located in Iowa) with  a
total installed capacity of 2,626 MVa.

     Subsidiaries other than Utilities also own property which primarily
represents investments in transportation, energy-related, telecommunications
and real estate properties.

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


Item 3.  Legal Proceedings

     On April 30, 1996, Utilities filed suit, IES Utilities Inc. v. Home
Ins.  Co.,  et al., No. 4-96-CV-10343 (S.D. Iowa filed Apr.  30,  1996),
against  various  insurers who had sold comprehensive general  liability
policies  to  Iowa  Southern Utilities Company (ISU) and  Iowa  Electric
Light  and Power Company (IE) (Utilities was formed as the result  of  a
merger  of  ISU and IE).  The suit seeks judicial determination  of  the
respective  rights  of the parties, a judgment that  each  defendant  is
obligated  under its respective insurance policies to pay  in  full  all
sums  that  Utilities has become or may become obligated  to  pay  in
connection  with  its  defense  against  allegations  of  liability  for
property  damage at and around FMGP sites, and indemnification  for  all
sums  that  it has or may become obligated to pay for the investigation,
mitigation,  prevention,  remediation  and  monitoring  of   damage   to
property, including damage to natural resources like groundwater, at and
around  the  FMGP  sites. Settlement discussions are proceeding  between
Utilities  and  its insurance carriers regarding the recovery  of  these
FMGP-related  costs.  Settlement has been reached with two carriers  and
an  agreement  in principle has been reached with three  other  carriers
thus far.  Any amounts received from insurance carriers will be deferred
pending a determination of the regulatory treatment of such recoveries.

      Industries,  Diversified, IES Energy, MicroFuel  Corporation  (the
Corporation)  now known as Ely, Inc. in which IES Energy  has  a  69.40%
equity  ownership,  and  other parties have been  sued  in  Linn  County
District  Court  in Cedar Rapids, Iowa, by Allen C.  Wiley.   Mr.  Wiley
claims  money damages on various tort and contract theories arising  out
of  the  1992 sale of the assets of the Corporation, of which Mr.  Wiley
was  a  director and shareholder.  All of the defendants in Mr.  Wiley's
suit  answered  the  complaint  and denied  liability.   Industries  and
Diversified  were  dismissed  from the suit  in  a  motion  for  summary
judgment.   In  addition, a grant of summary judgment  has  reduced  Mr.
Wiley's  claims  against the remaining parties to  breach  of  fiduciary
duty.   A  separate motion for summary judgment, which was filed seeking
dismissal  of  the remaining claims against the remaining  parties,  was
overruled  on September 20, 1996, and the trial has been set for May 1998.
All of the defendants are vigorously contesting  the claims.

      The  Corporation commenced a separate suit to determine  the  fair
value of Mr. Wiley's shares under Iowa Code section 490.  A decision was
issued on August 31, 1994, by the Linn County District Court ruling that
the  value  of Mr. Wiley's shares was $377,600 based on a  40  cent  per
share valuation. The Corporation contended that the value of Mr. Wiley's
shares  was 2.5 cents per share.  The Decision was appealed to the  Iowa
Supreme  Court  by the Corporation on a number of issues, including  the
Corporation's position that the trial court erred as a matter of law  in
discounting the testimony of the Corporation's expert witness.  The Iowa
Supreme  Court  assigned  the case to the Iowa  Court  of  Appeals.   On
February 2, 1996, the Iowa Court of Appeals reversed the District  Court
ruling  after  determining the District Court erred in  discounting  the
expert testimony.  The case was remanded back to the District Court  for
consideration  of the expert testimony, but with no additional  evidence
taken.   The District Court re-affirmed its original decision on  August
28,  1996,  and the Corporation has again appealed to the  Iowa  Supreme
Court.

     On October 3, 1996, Lambda Energy Marketing Company, L. C. (Lambda)
filed  a  request  with the IUB that the IUB initiate  formal  complaint
proceedings  against  Utilities.   Lambda  alleges  that  Utilities   is
discriminating  against it by refusing to enter into contracts  with  it
for remote displacement service and by favoring IEA in such matters.  On
October   17,  1996,  Utilities  filed  a  Response  which  denied   the
allegations,  and  alleged,  inter  alia,  that  Lambda  is   unlawfully
attempting to provide retail electrical services in Utilities' exclusive
service territory.  The IUB has set the matter for hearing on March  17,
1997.  A decision is expected in the second quarter of 1997.

      On  October  9, 1996, the Company filed a civil suit in  the  Iowa
District  Court  in and for Linn County against Lambda,  Robert  Latham,
Louie Ervin, and David Charles (collectively the "Defendants", including
three former employees of the Company and/or its subsidiaries) 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  Utilities,  IEA and Lee  Liu, Chairman of the Board & 
Chief Executive Officer of Industries and Utilities,  alleging,  inter  alia,
tortious interference and commercial disparagement.

      Reference  is  made  to  Notes 3 and 13 of  Industries'  Notes  to
Consolidated  Financial Statements for a discussion of  Utilities'  rate
proceedings and the Company's environmental matters, respectively.  Also
see   Item   1.   "Business  -  Environmental  Matters"  and   Item   7.
"Management's  Discussion and Analysis of the Results of Operations  and
Financial Condition - Environmental Matters."


Item 4.  Submission of Matters to a Vote of Security Holders

     None.


                                 PART II

Item   5.    Market  for  the  Registrant's  Common  Stock  and  Related
             Stockholder Matters


IES Industries Inc.

          (a)   Price  Range of Industries' Common Stock  and  Dividends
                Declared

      Industries' Common Stock is listed on the New York Stock  Exchange
(NYSE)  under  the symbol "IES."  The table below sets  forth,  for  the
calendar  quarters indicated, the reported high and low sales prices  of
Industries' Common Stock as reported on the NYSE Composite Tape based on
published  financial sources, and the dividends declared  per  share  on
Industries' Common Stock.

Industries' Common stock
                          High Sale      Low Sale      Dividend (i)
1996                                                   
     First Quarter        $  29 5/8     $  26 1/2      $   .525     
     Second Quarter          30 1/8        25 1/2          .525     
     Third Quarter           34 3/4        29              .525     
     Fourth Quarter          31 1/2        29              .525     
     Year                 $  34 3/4     $  25 1/2      $  2.10     
                                                            
1995                                                       
     First Quarter        $  27 5/8     $  24 5/8      $   .525     
     Second Quarter          26 3/8        20 3/8          .525     
     Third Quarter           26 3/4        21 3/8          .525     
     Fourth Quarter          28 1/2        25 7/8          .525     
     Year                 $  28 1/2     $  20 3/8      $  2.10     

      The closing price of Industries' common stock on December 31, 1996
was $29 7/8.

    (i)   Industries has paid regular quarterly dividends  on  its
          common  stock  since  April  1,  1950.   Although  Industries'
          practice  has been to pay dividends quarterly, the  timing  of
          payment   and  amount  of  future  dividends  are  necessarily
          dependent  upon  earnings, financial  requirements  and  other
          factors.

     (b)  Approximate Number of Equity Security Holders of Industries

                                          Approximate Number of Record
               Title of Class           Holders (as of December 31, 1996)
                             
          Common Stock, no par value                27,468


     (c)  Restriction on Payment of Dividends by Industries

      Under  provisions  of  the  Merger Agreement,  Industries'  annual
dividend  payment  cannot  exceed $2.10 per share,  the  current  annual
payment level, pending the Proposed Merger.

      See  Item  1,  "Proposed  Merger of the  Company"  for  a  further
discussion of Industries' pending merger.

IES Utilities Inc.

    (a)   Price  Range  of Utilities' Common Stock  and  Dividends
          Declared

      All  outstanding common stock of Utilities is held by  its  parent
(Industries),  and is not traded. 

     (b)  Approximate Number of Equity Security Holders of Utilities

      All  outstanding common stock of Utilities is held by  its  parent
(Industries).

     (c)  Restriction on Payment of Dividends by Utilities

      Utilities  has  the  right  under the terms  of  the  Subordinated
Deferrable Interest Debentures, so long as an Event of Default  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
Utilities  exercises  its right to extend the interest  payment  period,
Utilities  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.  Utilities does not
intend to exercise its right to extend the interest payment period.


Item 6.  Selected Consolidated Financial Data

      The following selected consolidated financial data, in the opinion
of  the Company, includes adjustments, which are normal and recurring in
nature, necessary for the fair presentation of the results of operations
and  financial  position.   See  Item 7.  "Management's  Discussion  and
Analysis  of  the Results of Operations and Financial Condition"  for  a
discussion  of transactions that affect the comparability of  the  years
1996-1994.

      The  1996 results were affected by costs incurred relating to  the
successful   defense  of  the  hostile  takeover  attempt   mounted   by
MidAmerican  Energy  Company.  The 1995 results  were  affected  by  the
impact of the IUB price reduction order in Utilities' last electric rate
case  and  significantly warmer than normal weather.  The  1993  results
were  affected  by  the acquisition of the Iowa service  territory  from
Union Electric Company on December 31, 1992.

      The  Selected  Consolidated  Financial  Data  should  be  read  in
conjunction  with the Consolidated Financial Statements,  the  Notes  to
Consolidated  Financial  Statements  and  Management's  Discussion   and
Analysis  of the Results of Operations and Financial Condition contained
elsewhere in this report.


<TABLE>
                IES INDUSTRIES INC. SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>

                                                     1996          1995         1994         1993         1992
<S>                                          <C>           <C>          <C>          <C>          <C>
Income statement data (000's):
    Operating revenues                         $   973,912   $   851,010  $   785,864  $   801,266  $   678,296
    Operating income                               164,308       151,712      147,933      151,269      109,024
    Net income                                      60,907        64,176       66,818       67,938       48,711

Common stock data (per share
except percentages):
    Earnings                                   $      2.04   $      2.20  $      2.34  $      2.45  $      1.92
    Dividends declared                                2.10          2.10         2.10         2.10         2.10
    Return on average common equity                   9.9%         10.7%        11.5%        12.4%        10.3%
    Market price at year-end                   $     29.88   $     26.50  $     25.25  $     31.25  $     29.50
    Book value at year-end                           20.84         20.75        20.56        20.21        18.89
    Ratio of market price to book value
       at year-end                                    143%          128%         123%         155%         156%

Capitalization:
    Common equity                                      47%           49%          50%          51%          48%
    Preferred and preference stock                       1             2            2            2            2
    Long-term debt                                      52            49           48           47           50
                                                      100%          100%         100%         100%         100%


Other selected financial data:
    Total assets (000's)                       $ 2,125,562   $ 1,985,591  $ 1,849,093  $ 1,699,819  $ 1,594,382
    Non-utility assets (000's) (1)                 352,824       282,433      206,411      153,853      153,491
    Long-term obligations, net (000's)             744,298       654,090      623,359      574,488      551,335
    Construction and acquisition
       expenditures (000's)                        238,378       218,099      206,548      169,017      192,520 (2)
    Times interest earned before
       income taxes                                   2.99          3.12         3.38         3.38         2.63

Selected financial data for
IES Utilities Inc.:
    Utility plant in service (000's)           $ 2,310,161   $ 2,172,378  $ 2,042,179  $ 1,932,558  $ 1,852,733
    Accumulated depreciation of
       utility plant in service (000's)          1,030,390       950,324      880,888      813,312      759,754
    Construction and acquisition
       expenditures (000's) (3)                    143,648       129,444      148,103      113,212      171,013 (2)
    Times interest earned before
       income taxes                                   3.44          3.26         3.39         3.64         2.67
    Electric Kwh sales
       (excluding off-system) (000's)            9,953,204     9,783,514    9,291,575    8,905,522    7,132,671
    Gas Dth sales (including
       transported volumes) (000's)                 42,140        39,805       37,975       39,006       37,035


(1)  Includes non-utility assets of IES Utilities Inc.
(2)  Includes $61 million for the acquisition of the Iowa
       service territory from Union Electric Company.
(3)  Includes acquisitions from affiliated companies and
       Utilities' non-utility expenditures. 

</TABLE>

<TABLE>
                IES UTILITIES INC. SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>

                                                                  Year Ended December 31
                                                 1996         1995         1994         1993         1992
                                                                    ($ in thousands)
<S>                                       <C>          <C>          <C>          <C>          <C>

Operating revenues                          $   754,979  $   709,826  $   685,366  $   713,750  $   610,262

Operating income                                153,725      142,265      135,591      143,329      100,361

Net income                                       63,729       59,278       61,210       67,970       45,291

Net income available for common stock            62,815       58,364       60,296       67,056       43,562

Cash dividends declared on common stock          44,000       43,000       52,000       31,300       24,721

Total assets                                  1,778,610    1,708,635    1,645,368    1,546,978    1,440,891

Long-term obligations                           560,199      517,538      530,275      531,979      490,251

Times interest earned before income taxes          3.44         3.26         3.39         3.64         2.67

Capitalization ratios:
   Common equity                                     50%          51%          50%          50%          48%  
   Preferred and preference stock                     2            2            2            2            2
   Long-term debt                                    48           47           48           48           50
                                                    100%         100%         100%         100%         100%

</TABLE>

Item 7.
                                    
                  MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
                                    

      IES Industries Inc.'s  Consolidated Financial Statements include 
the accounts of  IES Industries   Inc.   (Industries)  and  its   consolidated
subsidiaries (collectively  the Company).  Industries'
 wholly-owned subsidiaries  are IES  Utilities  Inc. (Utilities)
 and IES Diversified Inc. (Diversified).  The  information
 presented in this management's discussion and  analysis
addresses  the  financial  statements of  Industries  and  Utilities  as
presented  in this joint filing.  Information related to Utilities  also
relates to Industries' Consolidated Financial Statements.
Information related to Diversified does not pertain
to  the  discussion of the financial condition and results of operations
of  Utilities.  The references to various Notes to Consolidated Financial
Statements are all to Industries' Notes to Consolidated Financial 
Statements.


                               COMPETITION

     Utilities and its predominant business, 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 faced with increasing pressure  to
become more competitive. Such competitive pressures could result in loss
of  customers  and an incurrence of stranded costs (i.e.,  the  cost  of
assets 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.

      The  National Energy Policy Act of 1992 addresses several  matters
designed  to  promote  competition  in  the  electric  wholesale   power
generation  market.   In  April  1996,  the  Federal  Energy  Regulatory
Commission (FERC) issued final rules (FERC Orders 888 and 889),  largely
confirming earlier proposals, requiring electric utilities to open their
transmission lines to other wholesale buyers and sellers of electricity.
The  rules became effective on July 9, 1996.  Utilities filed conforming
pro-forma  open access transmission tariffs with the FERC  which  became
effective  October  1, 1995.  In response to FERC Order  888,  Utilities
filed  its final pro-forma tariffs with FERC on July 9, 1996.  The  non-
rate  provisions of the tariffs were approved on November 13, 1996. FERC
has not yet ruled on the rate provisions of the tariffs.  The geographic
position  of  Utilities'  transmission  system  could  provide   revenue
opportunities  in  the  open  access  environment.   Industrial   Energy
Applications,  Inc. (IEA), a wholly-owned subsidiary under  Diversified,
received  approval in the 1995 FERC proceeding to market electric  power
at  market  based  rates.   The  Company cannot  predict  the  long-term
consequences  of these rules on its results of operations  or  financial
condition.

      FERC does not have jurisdiction over the retail jurisdiction,  and
thus  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 by FERC and the states  to
have resulted from retail competition.

      The  Iowa  Utilities  Board (IUB) initiated a  Notice  of  Inquiry
(Docket  No.  NOI-95-1)  in  early 1995  on  the  subject  of  "Emerging
Competition  in the Electric Utility Industry" to address all  forms  of
competition  in the electric utility industry and to gather  information
and  perspectives on electric competition from all persons  or  entities
with  an  interest  or stake in the issues.  In January  1996,  the  IUB
created its own timeline for evaluating industry restructuring in  Iowa.
Included  in the IUB's process was the creation of a 22-member  advisory
panel,  of  which  Utilities  is a member.   The  IUB  conducted  public
information  meetings  around the State of Iowa.   A  draft  report  was
created  by the IUB staff and is expected to be finalized in  the  first
quarter  of  1997.  The draft report indicated that the IUB  is  of  the
opinion  that  there  is  no  compelling reason  to  move  quickly  into
restructuring the electric utility industry in Iowa.  However, they will
continue the analysis and debate on restructuring and retail competition
in Iowa.

      As  part  of  Utilities' strategy for the emerging and competitive
power  markets, Utilities, Interstate Power Company (IPC) and  Wisconsin
Power  and  Light Company (the utility subsidiary of WPL Holdings,  Inc.
(WPLH)),  and a number of other utilities have proposed the creation  of
an   independent   system  operator  (ISO)  for  the  companies'   power
transmission  grid.   (The Company, WPLH and IPC  have  entered  into  a
merger  agreement,  as  discussed later).  The  companies  would  retain
ownership and control of the facilities, but the ISO would set rates for
access and assure fair treatment for all companies seeking access.   The
proposal requires approval from state regulators and the FERC.   Various
other  proposals  for  ISO's  have been  made  by  other  companies  and
Utilities is monitoring all such proposals.  Membership in an ISO  could
become a condition of merger approval by the various regulatory bodies.

      Utilities  is subject to the provisions of Statement of  Financial
Accounting  Standards  No. 71, "Accounting for the  Effects  of  Certain
Types  of  Regulation" (SFAS 71).  If a portion of Utilities' operations
become  no  longer subject to the provisions of SFAS 71, as a result  of
competitive  restructurings  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.    In
addition,  the Company would be required to determine any impairment  to
other  assets and write-down such assets to their fair value.  Utilities
believes that it still meets the requirements of SFAS 71.

      The  Company  cannot predict the long-term consequences  of  these
competitive issues on its results of operations or financial  condition.
The  Company's strategy for dealing with these emerging issues  includes
seeking  growth  opportunities, continuing  to  offer  quality  customer
service,  ongoing  cost  reductions and productivity  enhancements,  the
major  objective of which is to allow Utilities to better prepare for  a
competitive, deregulated electric utility industry.  In this connection,
Utilities  is  in the final stages of a significant process  improvement
program  to  improve its service levels, reduce its cost  structure  and
become  more  market-focused  and  customer  oriented.   (The  Company's
continuous  improvement efforts, in general, will be an ongoing  effort,
however).

      Examples of the process improvement changes being implemented are,
but  are  not limited to: managing the business in business  unit  form,
rather than functionally; formation of alliances with vendors of certain
types of material and/or services rather than opening most purchases  to
a  bidding  process;  changing standards and construction  practices  in
transmission and distribution areas; changing certain work practices  in
power plants; making investments in information technology upgrades; and
improving the method by which service is delivered to customers  in  all
customer  classes.  The specific changes range from simple  improvements
in  current  operations to radical changes in the way work is  performed
and  service  is  delivered.  Some of the changes are currently  in  the
pilot  stage  thus  the  results  from this  evaluation  period  or  the
potential  effects of the pending merger could prove that  some  of  the
changes  are  not  efficient  or  effective  and  must  be  revised   or
eliminated.   Subject  to  delays  caused  by  implementing   any   such
revisions, implementation of the changes began in 1996 and will continue
into 1997; however, certain results will not be realized until 1997.  In
addition,  the Company must give consideration to the potential  effects
of  the  pending  merger as part of the implementation process  so  that
duplication of efforts are avoided.


                     PROPOSED MERGER OF THE COMPANY

      The  Company, WPLH and IPC have entered into an Agreement and Plan
of Merger, as amended (Merger Agreement), dated November 10, 1995.  As a
result  of  the  transactions contemplated by the Merger Agreement,  the
combined  company,  Interstate Energy Corporation  (Interstate  Energy),
anticipates cost savings of approximately $749 million over  a  ten-year
period,  net  of transaction costs and costs to achieve the  savings  of
approximately $14 million and $64 million, respectively.   The  estimate
of  potential  cost savings constitutes a forward-looking statement  and
actual  results may differ materially from this estimate.  The  estimate
is  necessarily  based upon various assumptions that  involve  judgments
with  respect  to,  among  other things, future  national  and  regional
economic   and   competitive  conditions,  technological   developments,
inflation  rates,  regulatory treatments, weather conditions,  financial
market  conditions,  future business decisions and other  uncertainties.
No  assurance can be given that the estimated cost savings will actually
be realized.

      The merger, which is conditioned upon, among other things, receipt
of  certain regulatory and governmental approvals, is expected to  close
by  the  end  of  the third quarter of 1997.  As part  of  the  approval
process,  management has proposed retail and wholesale price freezes  to
be  implemented in certain jurisdictions.  Refer to Notes 2 and 3 of the
Notes  to  Consolidated Financial Statements for additional  information
regarding the proposed merger and the proposed price freezes.


                  RESULTS OF OPERATIONS OF THE COMPANY
                                    
      The  following  discussion  analyzes significant  changes  in  the
components of net income and financial condition from the prior  periods
for the Company.

      The  Company's  net  income decreased ($3.3)  million  and  ($2.6)
million during 1996 and 1995, respectively.  Earnings per average common
share  declined to $2.04 in 1996 from $2.20 in 1995.  The 1996  decrease
in  earnings  was  primarily  due  to costs  incurred  relating  to  the
successful   defense  of  the  hostile  takeover  attempt   mounted   by
MidAmerican  Energy  Company  (MAEC) and  preparing  for  the  Company's
pending  three-way  merger.   The Company  estimates  that  the  hostile
takeover  defense and merger costs reduced 1996 earnings  by  $0.15  per
share  and  $0.11 per share, respectively.  The 1996 earnings  benefited
from increased electric, gas and steam sales at Utilities, the impact of
a natural gas pricing increase implemented in the fourth quarter of 1995
and  increased earnings at the Company's oil and gas subsidiary, Whiting
Petroleum  Corporation (Whiting).  Increased operating expenses,  higher
interest expense and a higher effective income tax rate also contributed
to  the  decrease  in  earnings in 1996.  The 1995 results  reflect  the
impact  of  the IUB price reduction order in Utilities' latest  electric
rate  case.   The  effect  of the lower electric prices,  including  the
required  refund,  reduced  the 1995 net income  by  approximately  $9.7
million ($0.33 per share).  Warmer than normal weather conditions during
the summer months, which added $0.18 to earnings, and an aggressive cost
containment  program partially offset the negative effects  of  the  IUB
order.   The  1994 results were affected by milder than normal  weather,
particularly during the summer months.

      The  Company's operating income increased $12.6 million  and  $3.8
million   during   1996   and  1995,  respectively.    The   contrasting
relationship between the change in operating income and net  income  for
1996  was  due  to the hostile takeover defense costs of  $7.8  million,
which   are   included  in  "Miscellaneous,  net"  in  the  Consolidated
Statements  of  Income, higher interest expense and a  higher  effective
income tax rate.  The 1995 difference was also due to increased interest
expense and a higher effective income tax rate.  Reasons for the changes
in the results of operations are explained in the following discussion.

Electric Operations

Electric margins and Kwh sales for Utilities were as follows:

<TABLE>
<CAPTION>
                                  Revenues and Costs                               Kwhs Sold
                                    (In thousands)                              (In thousands)
                             1996        1995        1994              1996          1995          1994
<S>                    <C>         <C>         <C>             <C>           <C>           <C>
Residential and rural    $ 212,799   $ 216,270   $ 199,587       $ 2,633,704   $ 2,680,340   $ 2,484,089
General service             98,196      97,496      97,454         1,231,115     1,242,373     1,170,923
Large general service      213,223     199,840     191,601         5,500,606     5,283,694     4,990,890
Sales for resale                                                                    
  and other                 30,565      29,063      30,608           587,779       577,107       645,673
Total, excluding off-                                                               
  system sales             554,783     542,669     519,250         9,953,204     9,783,514     9,291,575
Off-system sales            19,490      17,802      18,077         1,231,298     1,086,121     1,137,219
    Total                  574,273     560,471     537,327        11,184,502    10,869,635    10,428,794
  
Fuel for production                                                                 
  (excluding steam)         74,608      90,558      81,567  
Purchased power             88,350      66,874      68,794  
Margin                   $ 411,315   $ 403,039   $ 386,966 
</TABLE>

      Electric  margins increased $8.3 million and $16.1 million  during
1996 and 1995, respectively. The increase during 1996 was primarily  due
to  higher  sales  relating  to continuing sales  growth  in  Utilities'
service  territory, lower purchased power capacity costs  and  increased
revenues  due  to the recovery of previously deferred energy  efficiency
expenditures.   These  increases  were partially  offset  by  a  true-up
adjustment to Utilities' unbilled sales recorded in 1995 and lower sales
to  residential and rural customers during 1996, primarily due to cooler
weather  conditions during the summer of 1996 as compared to the  summer
of  1995.  The 1995 electric margin increase was primarily due to higher
sales  due to a significantly warmer summer in 1995 as compared to 1994,
sales  growth,  the  unbilled sales adjustment,  lower  purchased  power
capacity  costs  and  the  recovery of energy efficiency  costs.   These
increases   were  partially  offset  by  a  reduction  in  revenues   of
approximately $17 million as a result of the IUB price reduction  order,
of which approximately $3.5 million related to revenues collected in the
fourth  quarter of 1994.  Refer to Notes 3(a) and 3(b) of the  Notes  to
Consolidated  Financial  Statements for a discussion  of  merger-related
retail  and  wholesale  electric  price  proposals  that  Utilities  has
announced and the energy efficiency cost recoveries, respectively.

       Under   historically  normal  weather  conditions,  total   sales
(excluding  off-system sales) during 1996 and 1995 would have  increased
3.5%  and  3.6%,  as  compared to actual increases  of  1.7%  and  5.3%,
respectively.

     Utilities' 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 to customers.  See Note 1(k) of  the
Notes to Consolidated Financial Statements for discussion of the EAC.

Gas Operations

      Gas margins and dekatherm sales for Utilities and IEA were as 
follows:

                         Revenues and Costs                   Dths Sold
                           (In thousands)                  (In thousands)
                       1996      1995     1994         1996     1995     1994
Utilities -                                                         
  Residential      $  97,708  $ 84,562  $ 82,795      17,680   16,302   15,766
  Commercial          46,966    40,390    40,912      10,323    9,534    9,298
  Industrial          12,256     8,790    12,515       3,796    3,098    4,010
                                                                    
Transportation
  and other            3,934     3,550     2,811      10,341   10,871    8,901
    Total Utilities  160,864   137,292   139,033      42,140   39,805   37,975
IEA                  113,115    53,047    26,536      43,055   31,916   14,443
    Total            273,979   190,339   165,569      85,195   71,721   52,418
                                                                    
Gas purchased                                                       
  for resale         217,351   141,716   120,795 
Margin             $  56,628 $  48,623 $  44,774 


      Total  gas margins increased $8.0 million and $3.8 million  during
1996  and 1995, respectively. The 1996 increase was primarily due to  an
annual  increase  of  $6.3  million in Utilities'  gas  rates  that  was
implemented  in  the  fourth  quarter of 1995,  recovery  of  Utilities'
previously  deferred energy efficiency expenditures  and  the  increased
sales, largely the result of more favorable weather conditions in  1996.
While  IEA's  gas  sales were up significantly in  1996,  their  margins
actually   decreased  due  to  fluctuations  in  gas  prices   and   the
competitiveness of the gas marketing business.  Therefore, this decrease
partially  offset the increase in Utilities' margin.   The  1995  margin
increase  was primarily due to the price increase at Utilities mentioned
above,  recovery  of  Utilities' previously deferred  energy  efficiency
expenditures and higher IEA gas margins resulting from increased volumes
sold  due  to  heightened marketing efforts as well  as  expanding  into
additional regional markets.

      Under historically normal weather conditions, Utilities' gas sales
and  transported volumes would have increased 1.9% and 3.5% in 1996  and
1995, as compared to actual increases of 5.9% and 4.8%, respectively.

      Utilities'  gas  tariffs include purchased gas adjustment  clauses
(PGA) that are designed to currently recover the cost of gas sold.   See
Note  1(k)  of  the  Notes  to  Consolidated  Financial  Statements  for
discussion of the PGA.

Other   Revenues     Other   revenues  increased   $25.5   million   and
$17.2  million during 1996 and 1995, respectively, primarily because  of
increased revenues at Whiting due to increases in oil and gas prices and
increased  gas volumes sold during 1996, and increases in  oil  and  gas
volumes  sold  in 1995.  An increase in Utilities' steam  revenues  also
contributed  to  the  increase in both years.  The  steam  volumes  sold
increased  significantly  during 1996 and  1995  primarily  due  to  the
addition  of a new industrial customer.  The 1995 increase was partially
offset  as a result of the sale of several of Diversified's subsidiaries
during 1995 and 1994.  The operations of the subsidiaries that were sold
were  not significant to the results of operations or financial position
of the Company.

Operating  Expenses   Other operating expenses increased  $13.4  million
and  $24.5 million in 1996 and 1995, respectively.  Contributing to  the
increase in both periods were increased operating activities at  Whiting
and  IEA, increased labor and benefits costs at Utilities, increases  in
the  amortization of previously deferred energy efficiency  expenditures
at  Utilities  (which are currently being recovered through  rates)  and
costs  relating to the pending merger.  The 1996 increase was  partially
offset by decreased operating expenses at the Duane Arnold Energy Center
(DAEC),  Utilities' nuclear generating facility.  The 1995 increase  was
also due to costs relating to the Company's process improvement program,
partially  offset  by  lower nuclear operating and  insurance  costs  at
Utilities,  decreased costs resulting from the sale of  the  Diversified
subsidiaries and a cost-cutting effort implemented after the receipt  of
the IUB electric price reduction order earlier in 1995.

      Maintenance  expenses increased or (decreased)  $2.9  million  and
($6.7)  million during 1996 and 1995, respectively.  The  1996  increase
was  due to increased maintenance activities at Utilities' fossil-fueled
generating  stations, partially offset by lower maintenance expenses  at
the  DAEC.   The 1995 decrease was due to lower maintenance expenses  at
the DAEC and at Utilities' fossil-fueled generating stations as well  as
the cost containment actions discussed above.

      Depreciation  and  amortization increased $9.4 million  and  $11.6
million  in 1996 and 1995, respectively, because of increases in utility
plant  in  service, the acquisition of oil and gas operating  properties
and   amortization  costs  relating  to  the  future  dismantlement  and
abandonment  of  Whiting's offshore oil and gas properties.   (See  Note
13(f)  of  the Notes to Consolidated Financial Statements for a  further
discussion  of  the  dismantlement and  abandonment  costs).   The  1995
increase was partially offset by lower depreciation rates implemented at
Utilities  as  a  result  of  the IUB electric  price  reduction  order.
Depreciation  and  amortization  expenses  for  all  periods  include  a
provision  for  decommissioning the DAEC,  which  is  collected  through
rates.  The current annual recovery level is $6.0 million.

      During  the  first  quarter  of  1996,  the  Financial  Accounting
Standards  Board  (FASB)  issued an Exposure  Draft  on  Accounting  for
Liabilities  Related to Closure and Removal of Long-Lived  Assets  which
deals  with,  among  other  issues, the accounting  for  decommissioning
costs.   If  current electric utility industry accounting practices  for
such   decommissioning   are  changed:   (1)   annual   provisions   for
decommissioning could increase relative to 1996 and, (2)  the  estimated
cost  for decommissioning could be recorded as a liability, rather  than
as  accumulated  depreciation, with recognition of an  increase  in  the
recorded  amount  of  the  related DAEC  plant.   If  such  changes  are
required,  Utilities believes that there would not be an adverse  effect
on its financial position or results of operations based on current rate
making  practices.  See Note 1(g) of the Notes to Consolidated Financial
Statements  for  a  discussion of the recovery of decommissioning  costs
allowed in Utilities' most recent rate case.

       Taxes   other   than  income  taxes  increased   or   (decreased)
($0.8)  million  and  $2.7 million during 1996 and  1995,  respectively,
largely  due  to  changes  in  property taxes  at  Utilities  caused  by
fluctuations  in  assessed  property  values.   The  1996  decrease  was
partially offset by an increase in production taxes at Whiting.

Interest Expense and Other   Interest expense increased $4.1 million and
$4.7  million  in  1996  and 1995, respectively,  primarily  because  of
increases  in  the  average  amount of short-term  debt  outstanding  at
Utilities  and  the  average  amount of borrowings  under  Diversified's
credit  facility.  Lower average interest rates, partially  attributable
to  refinancing long-term debt at lower rates and the mix  of  long-term
and  short-term debt, partially offset the increases for  both  periods.
The  increase in interest expense during 1996 was also due to  a  higher
amount  of long-term debt outstanding at Utilities, partially offset  by
rate  refund interest recorded in 1995 at Utilities and the  effects  of
the interest rate swap agreement discussed in Note 12(a) of the Notes to
Consolidated Financial Statements.

      Miscellaneous,  net reflects comparative decreases  in  income  of
($5.5)  million  and ($0.3) million during 1996 and 1995,  respectively.
The  1996  decrease was primarily due to approximately $7.8  million  in
costs  incurred  relating  to  the successful  defense  of  the  hostile
takeover  attempt  mounted by MAEC and certain property  write-downs  at
Diversified.   The  decrease was partially offset by dividends  received
from  the  two  New  Zealand entities in which the  company  has  equity
investments  and  various gains realized on the disposition  of  assets.
The  1995 decrease was primarily because of higher fees associated  with
an  increase in the average amount of utility accounts receivable  sold,
partially  offset  by  various gains realized on  the  sale  of  several
investments by Diversified.

Federal  and  State  Income  Taxes    Federal  and  state  income  taxes
increased  $4.9 million and $0.9 million in 1996 and 1995, respectively.
The  increase  for both periods was due to a higher effective  tax  rate
resulting from:  1) the effect of property related temporary differences
for  which  deferred  taxes had not previously been provided  in  rates,
pursuant  to  rate making principles, that are now becoming payable  and
are  being recovered from ratepayers and 2) adjustments to tax reserves.
The  1996  increase in effective tax rate was also due to recording  the
impacts of a tentative Internal Revenue Service audit settlement for tax
years  1991-1993  as  well as the incurrence of  certain  merger-related
expenses, which are not tax deductible.


                     LIQUIDITY AND CAPITAL RESOURCES

      The  Company's capital requirements are primarily attributable  to
Utilities' construction programs, its debt maturities and the  level  of
Diversified's  business opportunities.  The Company's  pretax  ratio  of
times   interest   earned  was  2.99,  3.12  and  3.38   in   1996-1994,
respectively.   Cash flows from operating activities were $183  million,
$200  million  and  $217  million in 1996-1994, respectively.  The  1996
decrease  was  primarily due to the timing of income  tax  payments  and
other  changes in working capital.  The 1995 decrease was primarily  due
to  expenditures  related to the 1995 DAEC refueling  outage  and  other
changes in working capital.

      The  Company anticipates that future capital requirements 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 Utilities' costs.  See Notes 3  and  13  of  the
Notes to Consolidated Financial Statements.

      Access to the long-term and short-term capital and credit markets,
and  costs  of  external  financing,  are  dependent  on  the  Company's
creditworthiness.  The Company's debt ratings are as follows:

                                         Moody's       Standard & Poor's
                                                
     Utilities   - Long-term debt          A2                 A
                 - Commercial paper        P1                 A1
                                               
     Diversified - Commercial paper        P2                 A2


      Utilities'  credit ratings are under review for potential  upgrade
related to the pending merger.

      The Company's liquidity and capital resources will be affected  by
environmental, regulatory and competitive issues, including the ultimate
disposition   of   remediation   issues   surrounding   the    Company's
environmental liabilities and the Clean Air Act as amended, as discussed
in  Note  13  of  the  Notes to Consolidated Financial  Statements,  and
emerging  competition in the electric utility industry as  discussed  in
the  Competition section.  Consistent with rate making principles of the
IUB,  management believes that the costs incurred for the above  matters
will  not  have a material adverse effect on the financial  position  or
results of operations of the Company.

      At  December 31, 1996, Utilities had approximately $61 million  of
energy efficiency program costs recorded as regulatory assets.  See Note
3(b)  of the Notes to Consolidated Financial Statements for a discussion
of  the timing of the filings for the recovery of these costs under  IUB
rules  and  Iowa  statutory changes recently enacted relating  to  these
programs.

     At December 31, 1996, the Company had a $20.0 million investment in
Class A common stock of McLeod, Inc. (McLeod), a $9.2 million investment
in  Class  B  common stock and vested options that, if exercised,  would
represent  an  additional  investment  of  approximately  $2.3  million.
McLeod   provides  local,  long-distance  and  other  telecommunications
services.   See Notes 6(b) and 11 of the Notes to Consolidated Financial
Statements  for  further  information on  the  Company's  investment  in
McLeod.

      The  Company  has financial guarantees amounting to $22.9  million
outstanding  at  December  31, 1996, which  are  not  reflected  in  the
consolidated financial statements.  Such guarantees are generally issued
to  support third-party borrowing arrangements and similar transactions.
The  Company  believes that the likelihood of material cash payments  by
the Company under these agreements is remote.

      The  Company  increased  its investments in  foreign  entities  by
approximately  $20  million  in 1996 (see Note  6(a)  of  the  Notes  to
Consolidated  Financial  Statements  for  a  further  discussion).   The
Company   also  continues  to  explore  other  international  investment
opportunities.  Such investments carry a higher level of risk  than  the
Company's  traditional  utility investments  or  Diversified's  domestic
investments.   Such  risks  could include  foreign  government  actions,
foreign  economic and currency risks and others.  The Company  may  also
incur  business development expenses for potential projects  pursued  by
the  Company  that may never materialize.  The Company  is  striving  to
select  international investments where these risks are both  understood
and minimized.

      The Resale Power Group of Iowa (RPGI), consisting of virtually all
of  Utilities' wholesale customers, has notified Utilities that it  will
not  purchase its power supply from Utilities after December  31,  1998.
It  is  possible that certain RPGI customers will drop out  of  RPGI  in
order to remain as Utilities' customers.  RPGI will continue to purchase
transmission services from Utilities after December 31, 1998.  While the
Company  cannot  determine the outcome of this issue at this  time,  the
result will not have a material adverse effect on its financial position
or  results  of  operations  given 1) Utilities'  wholesale  sales  only
accounted for approximately 5% of Utilities' total 1996 electric  sales,
excluding off-system sales; 2) Utilities currently has to supplement its
generating capability with purchased power to meet its sales  load;  and
3) Utilities' annual electric sales growth rate continues to be strong.

     Under provisions of the Merger Agreement, there are restrictions on
the  amount  of  common stock and long-term debt the Company  can  issue
pending  the  merger.  The Company does not expect the  restrictions  to
have  a  material  effect  on its ability to  meet  its  future  capital
requirements.


                  CONSTRUCTION AND ACQUISITION PROGRAM

      The  Company's  construction and acquisition  program  anticipates
expenditures   of  approximately  $225  million  for  1997,   of   which
approximately  $147  million represents expenditures  at  Utilities  and
approximately  $78 million represents expenditures at  Diversified.   Of
the $147 million of Utilities' expenditures, 39% represents expenditures
for  electric  transmission and distribution facilities, 21%  represents
electric  generation expenditures, 21% represents information technology
expenditures  and  5% represents gas expenditures.   The  remaining  14%
represents  miscellaneous  electric,  steam  and  general  expenditures.
Diversified's anticipated expenditures include approximately $75 million
for   domestic   and   international  energy-related  construction   and
acquisition expenditures.

      The  Company's levels of construction and acquisition expenditures
are  projected  to  be  $208  million in 1998,  $212  million  in  1999,
$182  million  in 2000 and $198 million in 2001.  It is  estimated  that
virtually  all  of Utilities' construction and acquisition  expenditures
will  be  provided by cash from operating activities (after  payment  of
dividends)  for  the  five-year period 1997-2001.  Financing  plans  for
Diversified's construction and acquisition program will vary,  depending
primarily on the level of energy-related acquisitions.

      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.

     Under provisions of the Merger Agreement, there are restrictions on
the  amount of construction and acquisition expenditures the Company can
make  pending  the merger.  The Company does not expect the restrictions
to  have  a  material effect on its ability to implement its anticipated
construction and acquisition program.


                           LONG-TERM FINANCING

      Other  than  Utilities' periodic sinking fund requirements,  which
Utilities intends to meet by pledging additional property, the following
long-term debt will mature prior to December 31, 2001:

                                          (in millions)
         Utilities                           $ 207.2
         Diversified's credit facility         172.1
         Other subsidiaries' debt               11.2
                                             $ 390.5

      The  Company  intends  to  refinance  the  majority  of  the  debt
maturities with long-term securities.

      In  September  1996, Utilities repaid at maturity $15  million  of
Series  J,  6.25%  First Mortgage Bonds and, in a separate  transaction,
issued $60 million of Collateral Trust Bonds, 7.25%, due 2006.

      Utilities  has entered into an Indenture of Mortgage and  Deed  of
Trust dated September 1, 1993 (New Mortgage).  The New Mortgage provides
for, among other things, the issuance of Collateral Trust Bonds upon the
basis  of First Mortgage Bonds being issued by Utilities.  The  lien  of
the  New  Mortgage  is  subordinate to  the  lien  of  Utilities'  first
mortgages  until such time as all bonds issued under the first mortgages
have  been  retired and such mortgages satisfied.  Accordingly,  to  the
extent  that  Utilities issues Collateral Trust Bonds on  the  basis  of
First  Mortgage  Bonds,  it must comply with the  requirements  for  the
issuance  of  First  Mortgage  Bonds under Utilities'  first  mortgages.
Under  the  terms of the New Mortgage, Utilities has covenanted  not  to
issue  any  additional First Mortgage Bonds under  its  first  mortgages
except to provide the basis for issuance of Collateral Trust Bonds.

      The  indentures pursuant to which Utilities issues First  Mortgage
Bonds  constitute  direct first mortgage liens  upon  substantially  all
tangible  public utility property and contain covenants  which  restrict
the   amount   of   additional  bonds   which   may   be   issued.    At
December  31,  1996, such restrictions would have allowed  Utilities  to
issue at least $241 million of additional First Mortgage Bonds.

      In  order  to provide an instrument for the issuance of  unsecured
subordinated debt securities, Utilities entered into an Indenture  dated
December  1,  1995 (Subordinated Indenture). The Subordinated  Indenture
provides for, among other things, the issuance of unsecured subordinated
debt  securities.   Any  debt securities issued under  the  Subordinated
Indenture  are  subordinate  to all senior  indebtedness  of  Utilities,
including First Mortgage Bonds and Collateral Trust Bonds.

     Utilities has received authority from the FERC and the SEC to issue
up  to $250 million of long-term debt, and has $190 million of remaining
authority  under the current FERC docket through April  1998,  and  $140
million of remaining authority under the current SEC shelf registration.

      Diversified  has  a  variable rate credit  facility  that  extends
through  November  20,  1999, with two one-year  extensions  potentially
available  to  Diversified.   Refer  to  Note  10(a)  of  the  Notes  to
Consolidated  Financial  Statements for a  further  discussion  of  this
credit facility.

      The Articles of Incorporation of Utilities authorize and limit the
aggregate amount of additional shares of Cumulative Preference Stock and
Cumulative  Preferred Stock that may be issued.  At December  31,  1996,
Utilities  could have issued an additional 700,000 shares of  Cumulative
Preference  Stock and 100,000 additional shares of Cumulative  Preferred
Stock.   In  addition,  Industries had 5,000,000  shares  of  Cumulative
Preferred  Stock, no par value, authorized for issuance, none  of  which
were outstanding at December 31, 1996.

     The Company's capitalization ratios at year-end were as follows:
                          
                          1996          1995
                                      
     Long-term debt        52%           49%
     Preferred stock        1             2
     Common equity         47            49
                          100%          100%


     Under provisions of the Merger Agreement, there are restrictions on
the  amount  of  common stock and long-term debt the Company  can  issue
pending  the  merger.  The Company does not expect the  restrictions  to
have  a  material  effect  on its ability to  meet  its  future  capital
requirements.


                          SHORT-TERM FINANCING

      For  interim  financing, Utilities is authorized by  the  FERC  to
issue,  through  1998,  up  to $200 million  of  short-term  notes.   In
addition   to   providing  for  ongoing  working  capital  needs,   this
availability  of short-term financing provides Utilities flexibility  in
the  issuance of long-term securities.  At December 31, 1996,  Utilities
had outstanding short-term borrowings of $135 million.

     Utilities has an agreement, which expires in 1999, with a financial
institution  to  sell,  with limited recourse, an  undivided  fractional
interest  of  up  to  $65  million  in  its  pool  of  utility  accounts
receivable.  At December 31, 1996, Utilities had sold $65 million  under
the  agreement.  Refer to Note 5 of the Notes to Consolidated  Financial
Statements  for  a further discussion of this agreement,  including  the
issuance  of a new accounting standard which impacts the accounting  for
the sales.

      At  December  31,  1996,  the Company had  bank  lines  of  credit
aggregating $136.1 million. Utilities was using $110 million to  support
commercial   paper  (weighted  average  interest  rate  of  5.70%)   and
$11.1   million  to  support  certain  pollution  control   obligations.
Commitment  fees  are  paid to maintain these lines  and  there  are  no
conditions  which restrict the unused lines of credit.  In  addition  to
the above, Utilities has an uncommitted credit facility with a financial
institution whereby it can borrow up to $40 million.  Rates are  set  at
the time of borrowing and no fees are paid to maintain this facility. At
December 31, 1996, there was $25 million outstanding under this facility
(weighted average interest rate of 6.28%).


                          ENVIRONMENTAL MATTERS
                                    
      Utilities has been named as a Potentially Responsible Party  (PRP)
by  various  federal  and  state environmental agencies  for  28  Former
Manufactured   Gas   Plant   (FMGP)  sites.   Utilities   has   recorded
environmental liabilities related to the FMGP sites of approximately $36
million (including $4.7 million as current liabilities) at December  31,
1996.  Regulatory assets of approximately $36 million, which reflect the
future  recovery that is being provided through Utilities'  rates,  have
been  recorded  in  the  Consolidated Balance Sheets.   Considering  the
current rate treatment allowed by the IUB, management believes that  the
clean-up costs incurred by Utilities for these FMGP sites will not  have
a  material  adverse  effect on its financial  position  or  results  of
operations.  Refer to Note 13(f) of the Notes to Consolidated  Financial
Statements for a further discussion, including a discussion of a lawsuit
filed  by  Utilities  seeking recovery of FMGP-related  costs  from  its
insurance carriers.

      The  Clean  Air  Act  Amendments of 1990 (Act)  requires  emission
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to  achieve
reductions  of atmospheric chemicals believed to cause acid  rain.   The
acid  rain program under the Act also governs SO2 allowances.   The  Act
and  other  federal  laws also require the United  States  Environmental
Protection  Agency (EPA) to study and regulate, if necessary, additional
issues  that potentially affect the electric utility industry, including
emissions  relating  to  NOx, ozone transport, mercury  and  particulate
control; toxic release inventories and modifications to the PCB rules.

     In 1995, the EPA published the Sulfur Dioxide Network Design Review
for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst-
case  modeling  method  suggests that the Cedar  Rapids  area  could  be
classified  as  "nonattainment" for the  National  Ambient  Air  Quality
Standards  established for SO2.  The worst-case modeling study suggested
that  two of Utilities' generating facilities contribute to the  modeled
exceedences.

      Pursuant  to a routine review of operations, Utilities  determined
that  certain changes undertaken during the previous three years at  one
of   its  power  plants  may  have  required  a  federal  Prevention  of
Significant  Deterioration (PSD) permit.  Refer to  Note  13(g)  of  the
Notes  to Consolidated Financial Statements for a further discussion  of
the above mentioned air quality issues.

      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."  Refer to Note 13(f)  of  the
Notes to Consolidated Financial Statements for a further discussion.

     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.  Utilities  entered  into  such  a
contract  and  has  made the agreed payments to the Nuclear  Waste  Fund
(NWF)  held  by  the U.S. Treasury.  The DOE, however,  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.  Utilities has been storing spent nuclear fuel  on-
site  since  plant  operations began in 1974  and  has  current  on-site
capability  to  store spent fuel until 2001.  Utilities is  aggressively
reviewing  options  for expanding on-site storage.  Utilities  has  been
formally notified by the DOE that they anticipate being unable to  begin
acceptance  of  spent nuclear fuel by January 31,  1998.   Utilities  is
evaluating  courses of action to protect the interests of its  customers
and  its  rights  under the DOE contract.  Utilities is also  evaluating
legislation  proposed to the Congress addressing this  issue.   In  July
1996, the IUB initiated a Notice of Inquiry (NOI) on spent nuclear fuel.
One purpose of the NOI was to evaluate whether the current collection of
money  from Utilities' customers for payment to the NWF should be placed
in  an  escrow  account  in lieu of being paid to  the  NWF.   Utilities
believes that the issue of using an escrow account should be decided  at
the federal level rather than the state level.  Utilities cannot predict
the outcome of this NOI.

      The  Low-Level  Radioactive Waste Policy Amendments  Act  of  1985
mandated that each state must take responsibility for the storage of low-
level radioactive waste produced within its borders.  The State of  Iowa
has  joined  the Midwest Interstate Low-Level Radioactive Waste  Compact
Commission (Compact), which is planning a storage facility to be located
in Ohio to store waste generated by the Compact's six member states.  At
December   31,  1996,  Utilities  has  prepaid  costs  of  approximately
$1.1  million  to the Compact for the building of such  a  facility.   A
Compact  disposal  facility  is  anticipated  to  be  in  operation   in
approximately  ten years after approval of new enabling  legislation  by
the  member  states.  Such legislation was approved in 1996 by  all  six
states  that  are members of the Compact.  Final approval  by  the  U.S.
Congress  is now required.  On-site storage capability currently  exists
for  low-level  radioactive waste expected to  be  generated  until  the
Compact  facility is able to accept waste materials.  In  addition,  the
Barnwell,  South  Carolina  disposal  facility  has  reopened   for   an
indefinite  time period and Utilities is in the process of  shipping  to
Barnwell  the  majority  of  the  low-level  radioactive  waste  it  has
accumulated on-site, and currently intends to ship the waste it produces
in  the  future  as  long  as the Barnwell site  remains  open,  thereby
minimizing  the  amount  of  low-level waste stored  on-site.   However,
management  of  the  Barnwell  site has modified  its  fee  schedule  to
emphasize  total  radioactivity  content  and  weight,  instead  of  the
historical volume related fees.  Utilities is evaluating the outcome  of
these  changes  on its potential future disposal costs at  the  Barnwell
site;  such  changes  could result in a revision  to  Utilities'  future
disposal plans.

     The possibility that exposure to electric and magnetic fields (EMF)
emanating  from  power lines, household appliances  and  other  electric
sources  may  result in adverse health effects has been the  subject  of
increased public, governmental, industry and media attention.  A  recent
study  completed  by  the National Research Council concluded  that  the
current  body of evidence does not support the notion that  exposure  to
these  fields  may  result  in adverse health effects.   Utilities  will
continue to monitor the events in this area, including future scientific
research.

      Whiting  is  responsible for certain dismantlement and abandonment
costs  related  to various off-shore oil and gas properties.   Refer  to
Note  13(f)  of  the Notes to Consolidated Financial  Statements  for  a
further discussion.


                              OTHER MATTERS

Labor  Issues   Utilities  has  six  collective  bargaining  agreements,
covering  approximately 54% of its workforce.  None  of  the  agreements
expires in 1997.

Financial   Derivatives    The  Company  has  a  policy  that  financial
derivatives are to be used only to mitigate business risks and  not  for
speculative  purposes.  Derivatives have been used by the Company  on  a
very  limited basis.  At December 31, 1996, the only material  financial
derivatives  outstanding for the Company were  the  interest  rate  swap
agreement and gas futures contracts described in Note 12 of the Notes to
Consolidated Financial Statements.

Inflation    The Company  does  not expect the  effects  of  inflation  at
current levels to have a significant effect on its financial position or
results of operations.




       Selected Consolidated Quarterly Financial Data (unaudited)

     The following unaudited consolidated quarterly data, in the opinion
of  the Company, includes adjustments, which are normal and recurring in
nature, necessary for the fair presentation of the results of operations
and  financial  position.   Utilities'  results  of  operations  are   a
significant portion of Industries' consolidated results.  The  quarterly
amounts were affected by, among other items, Utilities' rate activities,
seasonal weather conditions, changes in sales and operating expenses and
costs  incurred  relating  to  the successful  defense  of  the  hostile
takeover  attempt  mounted  by MidAmerican  Energy  Company.   Refer  to
Management's  Discussion and Analysis of the Results of  Operations  and
Financial Condition for a discussion of these items.  The fourth quarter
of  1996  net income benefited from lower than anticipated costs  for  a
refueling outage at Utilities' nuclear power plant.


IES INDUSTRIES INC.
                                              Quarter Ended
                           March 31      June 30    September 30   December 31
                                (in thousands, except per share amounts)
1996                                                                         
  Operating revenues       $ 243,197    $ 210,648    $ 233,907      $ 286,160
  Operating income            36,995       26,770       55,701         44,842
  Net income                  14,095        8,056       20,889         17,867
  Earnings per average
    common share                0.48         0.27         0.70           0.59
                 
1995                                                                         
  Operating revenues       $ 206,392    $ 189,447    $ 238,467      $ 216,704
  Operating income            22,115       33,456       63,710         32,431
  Net income                   6,740       12,508       31,120         13,808
  Earnings per average
    common share                0.23         0.43         1.06           0.48


IES UTILITIES INC.
                                              Quarter Ended
                           March 31      June 30    September 30   December 31
                                              (in thousands)
1996                                                               
  Operating revenues       $ 198,768    $ 164,240    $ 190,170      $ 201,801
  Operating income            34,204       23,009       53,253         43,259
  Net income                  14,128        7,230       20,013         22,358
  Net income available
    for common stock          13,899        7,001       19,784         22,131
                                                                              
1995                                                                          
  Operating revenues       $ 172,839    $ 157,671    $ 200,448      $ 178,868
  Operating income            19,896       30,444       61,360         30,565
  Net income                   6,161       11,067       29,842         12,208
  Net income available
    for common stock           5,932       10,838       29,613         11,981


Item 8.  Financial Statements and Supplementary Data

      Information  required by Item 8.  begins on page 44 for Industries
and page 73 for Utilities.

            REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
IES Industries Inc.:

We  have  audited  the  accompanying  consolidated  balance  sheets  and
statements   of   capitalization  of  IES  Industries  Inc.   (an   Iowa
corporation) and subsidiary companies as of December 31, 1996 and  1995,
and the related consolidated statements of income, retained earnings and
cash   flows   for  each  of  the  three  years  in  the  period   ended
December  31,  1996.   These  financial  statements  and  the  financial
statement  schedule  referred to below are  the  responsibility  of  the
Company's  management.  Our responsibility is to express an  opinion  on
these financial statements and 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
Industries  Inc. and subsidiary companies as of December  31,  1996  and
1995, and the results of their operations and their cash flows for  each
of  the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.

Our  audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The financial statement 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 audits 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

Chicago, Illinois
January 31, 1997



<TABLE>
                       IES INDUSTRIES INC. CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
                                                               Year Ended December 31
                                                           1996         1995         1994
                                                       (in thousands, except per share amounts)
<S>                                                    <C>          <C>          <C>
Operating revenues:
  Electric                                               $ 574,273    $ 560,471    $ 537,327
  Gas                                                      273,979      190,339      165,569
  Other                                                    125,660      100,200       82,968
                                                           973,912      851,010      785,864


Operating expenses:
  Fuel for production                                       84,579       96,256       85,952
  Purchased power                                           88,350       66,874       68,794
  Gas purchased for resale                                 217,351      141,716      120,795
  Other operating expenses                                 214,759      201,390      176,863
  Maintenance                                               49,001       46,093       52,841
  Depreciation and amortization                            107,393       97,958       86,378
  Taxes other than income taxes                             48,171       49,011       46,308
                                                           809,604      699,298      637,931


Operating income                                           164,308      151,712      147,933


Interest expense and other:
  Interest expense                                          54,822       50,727       46,010
  Allowance for funds used during construction              -2,103       -3,424       -3,910
  Preferred dividend requirements of IES Utilities Inc.        914          914          914
  Miscellaneous, net                                         2,333       -3,170       -3,472
                                                            55,966       45,047       39,542


Income before income taxes                                 108,342      106,665      108,391


Federal and state income taxes                              47,435       42,489       41,573


Net income                                               $  60,907    $  64,176    $  66,818


Average number of common shares outstanding                 29,861       29,202       28,560


Earnings per average common share                        $    2.04    $    2.20    $    2.34
</TABLE>

<TABLE>
           IES INDUSTRIES INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

<CAPTION>
                                                               Year Ended December 31
                                                           1996         1995         1994
                                                                   (in thousands)

<S>                                                    <C>          <C>          <C>
Balance at beginning of year                             $ 221,077    $ 218,293    $ 211,750
Net income                                                  60,907       64,176       66,818
Cash dividends declared on common stock, at a per
    share rate of $2.10 for all years                      -62,738      -61,392      -60,065
Other                                                            0            0         -210
Balance at end of year                                   $ 219,246    $ 221,077    $ 218,293


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

</TABLE>

<TABLE>
                           IES INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS
<CAPTION>
                                                                   December 31
ASSETS (in thousands)                                         1996             1995
<S>                                                     <C>              <C>
Property, plant and equipment:
    Utility -
        Plant in service -
           Electric                                       $ 2,007,839      $ 1,900,157
           Gas                                                175,472          165,825
           Other                                              126,850          106,396
                                                            2,310,161        2,172,378
        Less - Accumulated depreciation                     1,030,390          950,324
                                                            1,279,771        1,222,054
        Leased nuclear fuel, net of amortization               34,725           36,935
        Construction work in progress                          43,719           52,772
                                                            1,358,215        1,311,761
    Other, net of accumulated depreciation and 
    amortization of $70,031 and $53,026, respectively         223,805          193,215
                                                            1,582,020        1,504,976


Current assets:
    Cash and temporary cash investments                         8,675            6,942
    Accounts receivable -
        Customer, less allowance for doubtful accounts
             of $1,087 and $1,145, respectively                50,821           37,214
        Other                                                  12,040           10,493
    Income tax refunds receivable                               8,890              982
    Production fuel, at average cost                           13,323           12,155
    Materials and supplies, at average cost                    22,842           28,354
    Adjustment clause balances                                 10,752                0
    Regulatory assets                                          26,539           22,791
    Oil and gas properties held for resale                          0            9,843
    Prepayments and other                                      24,169           23,099
                                                              178,051          151,873


Investments:
    Nuclear decommissioning trust funds                        59,325           47,028
    Investment in foreign entities                             44,946           24,770
    Investment in McLeod, Inc.                                 29,200            9,200
    Cash surrender value of life insurance policies            11,217            9,838
    Other                                                       4,903            3,897
                                                              149,591           94,733


Other assets:
    Regulatory assets                                         201,129          207,202
    Deferred charges and other                                 14,771           26,807
                                                              215,900          234,009
                                                          $ 2,125,562      $ 1,985,591




                                                                   December 31
CAPITALIZATION AND LIABILITIES (in thousands)                 1996             1995

Capitalization (See Consolidated Statements of Capitalization):
    Common stock                                          $   407,635      $   391,269
    Retained earnings                                         219,246          221,077
        Total common equity                                   626,881          612,346
    Cumulative preferred stock of IES Utilities Inc.           18,320           18,320
    Long-term debt (excluding current portion)                701,100          601,708
                                                            1,346,301        1,232,374


Current liabilities:
    Short-term borrowings                                     135,000          101,000
    Capital lease obligations                                  15,125           15,717
    Maturities and sinking funds                                8,473           15,447
    Accounts payable                                           99,861           80,089
    Dividends payable                                          16,431           16,244
    Accrued interest                                            8,985            8,051
    Accrued taxes                                              43,926           53,983
    Accumulated refueling outage provision                      1,316            7,690
    Adjustment clause balances                                      0            3,148
    Environmental liabilities                                   5,679            5,634
    Other                                                      22,087           21,800
                                                              356,883          328,803


Long-term liabilities:
    Pension and other benefit obligations                      39,643           52,677
    Capital lease obligations                                  19,600           21,218
    Environmental liabilities                                  47,502           43,087
    Other                                                      18,488           13,039
                                                              125,233          130,021


Deferred credits:
    Accumulated deferred income taxes                         262,675          257,278
    Accumulated deferred investment tax credits                34,470           37,115
                                                              297,145          294,393


Commitments and contingencies (Note 13)


                                                          $ 2,125,562      $ 1,985,591

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

<TABLE>
              IES INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
                                                                               December 31
                                                                          1996            1995
                                                                             (in thousands)
<S>                                                                 <C>             <C>
Common equity:
    Common stock - no par value - authorized 48,000,000 shares;       
    outstanding 30,077,212 and 29,508,415 shares, respectively        $   407,635     $   391,269
    Retained earnings                                                     219,246         221,077
                                                                          626,881         612,346


Cumulative preferred stock of IES Utilities Inc.                           18,320          18,320


Long-term debt:
    IES Utilities Inc. -
        Collateral Trust Bonds -
           7.65% series, due 2000                                          50,000          50,000
           7.25% series, due 2006                                          60,000               0
           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
                                                                          229,400         169,400

        First Mortgage Bonds -
           Series J, 6-1/4%, retired in 1996                                    0          15,000
           Series L, 7-7/8%, due 2000                                      15,000          15,000
           Series M, 7-5/8%, due 2002                                      30,000          30,000
           Series Y, 8-5/8%, due 2001                                      60,000          60,000
           Series Z, 7.60%, due 1999                                       50,000          50,000
           6-1/8% series, due 1997                                          8,000           8,000
           9-1/8% series, due 2001                                         21,000          21,000
           7-3/8% series, due 2003                                         10,000          10,000
           7-1/4% series, due 2007                                         30,000          30,000
                                                                          224,000         239,000

        Pollution control obligations -
            5.75%, due serially 1997 to 2003                                3,416           3,556
            5.95%, due serially 2000 to 2007, secured by First 
              Mortgage Bonds                                               10,000          10,000
            Variable rate (4.25% - 4.35% at December 31, 1996), 
              due 2000 to 2010                                             11,100          11,100
                                                                           24,516          24,656

        Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025      50,000          50,000

        Total IES Utilities Inc.                                          527,916         483,056

    IES Diversified Inc. -
        Credit facility                                                   172,105         124,245
        Other subsidiaries' debt maturing through 2013                     11,994          12,307
                                                                          712,015         619,608
    Unamortized debt premium and (discount), net                           -2,442          -2,453
                                                                          709,573         617,155
            Less - Amount due within one year                               8,473          15,447
                                                                          701,100         601,708
                                                                      $ 1,346,301     $ 1,232,374


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


<TABLE>
          IES INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                              Year Ended December 31
                                                                          1996          1995          1994
                                                                                   (in thousands)
<S>                                                                           <C>           <C>           <C>
Cash flows from operating activities:
    Net income                                                         $   60,907    $   64,176    $   66,818
    Adjustments to reconcile net income to net cash flows
        from operating activities -
           Depreciation and amortization                                  107,393        97,958        86,378
           Amortization of principal under capital lease obligations       16,491        15,714        16,246
           Deferred taxes and investment tax credits                        9,189         7,757         4,050
           Refueling outage provision                                      -6,374        -7,506        12,536
           Amortization of other assets                                     9,828         7,391         2,228
           Other                                                              856           712           387
    Other changes in assets and liabilities -
           Accounts receivable                                            -22,154       -15,221         6,777
           Sale of utility accounts receivable                              7,000         4,000           800
           Production fuel, materials and supplies                            650         4,050        -1,184
           Accounts payable                                                20,934         2,902        21,871
           Accrued taxes                                                  -17,965         9,434         4,575
           Provision for rate refunds                                        -106           106        -8,670
           Adjustment clause balances                                     -13,900         4,581        -6,582
           Gas in storage                                                  -1,154         3,245         1,135
           Other                                                           11,764           532         9,340
              Net cash flows from operating activities                    183,359       199,831       216,705


Cash flows from financing activities:
    Dividends declared on common stock                                    -62,738       -61,392       -60,065
    Proceeds from issuance of common stock                                 14,164        15,616        16,426
    Purchase of treasury stock                                               -269             0        -6,233
    Net change in IES Diversified Inc. credit facility                     47,860        43,745        48,500
    Proceeds from issuance of other long-term debt                         60,000       100,007        11,640
    Reductions in other long-term debt                                    -15,454      -100,424        -9,790
    Net change in short-term borrowings                                    34,000        64,000        13,000
    Principal payments under capital lease obligations                    -19,108       -14,463       -16,304
    Other                                                                    -458        -1,438           -46
        Net cash flows from financing activities                           57,997        45,651        -2,872


Cash flows from investing activities:
    Construction and acquisition expenditures -
        Utility                                                          -142,259      -125,558      -138,829
        Other                                                             -96,119       -92,541       -67,719
    Oil and gas properties held for resale                                  9,843        -9,843             0
    Deferred energy efficiency expenditures                               -16,857       -18,029       -16,157
    Nuclear decommissioning trust funds                                    -6,008        -6,100        -5,532
    Proceeds from disposition of assets                                     8,295        14,271         8,803
    Other                                                                   3,482        -5,733         3,129
        Net cash flows from investing activities                         -239,623      -243,533      -216,305


Net increase (decrease) in cash and temporary cash investments              1,733         1,949        -2,472


Cash and temporary cash investments at beginning of year                    6,942         4,993         7,465


Cash and temporary cash investments at end of year                     $    8,675    $    6,942    $    4,993


Supplemental cash flow information:
    Cash paid during the year for -
        Interest                                                       $   53,046    $   50,877    $   44,421
        Income taxes                                                   $   54,881    $   26,478    $   36,097

    Noncash investing and financing activities -
        Capital lease obligations incurred                             $   14,281    $    2,918    $   14,297


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

     IES INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          (a)  Basis of Consolidation -

      The Consolidated Financial Statements include the accounts of  IES
Industries   Inc.   (Industries)  and  its   consolidated   subsidiaries
(collectively  the  Company).  Industries is an  investor-owned  holding
company whose primary operating company, IES Utilities Inc. (Utilities),
is engaged principally in the generation, transmission, distribution and
sale  of  electric energy and the purchase, distribution, transportation
and sale of natural gas.  The Company's principal markets are located in
the   state   of  Iowa.   The  Company  also  has  various   non-utility
subsidiaries   which  are  primarily  engaged  in  the   energy-related,
transportation and real estate development businesses.

      All  subsidiaries for which Industries owns directly or indirectly
more  than  50%  of  the  voting  stock  are  included  as  consolidated
subsidiaries.   Industries' wholly-owned subsidiaries are Utilities  and
IES   Diversified  Inc.  (Diversified).   All  significant  intercompany
balances   and  transactions,  other  than  energy-related  transactions
affecting   Utilities,  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 Utilities' customers through the rate making process.

      Investments  for  which the Company 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 the Company's equity in undistributed net  income  or
loss,  which  is  included in "Miscellaneous, net" in  the  Consolidated
Statements of Income.  Investments that do not meet the criteria for the
consolidating  or equity methods of accounting are accounted  for  under
the cost method.

       The  preparation  of  financial  statements  in  conformity  with
generally  accepted  accounting principles 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 1996 presentation.

     (b)  Regulation -

      Because  of  its ownership of Utilities, Industries is  a  holding
company under the Public Utility Holding Company Act of 1935, but claims
an  exemption from all provisions thereof except Section 9(a)(2),  which
applies  to the purchase of stock of other utility companies.  Utilities
is  subject  to  regulation by the Iowa Utilities Board  (IUB)  and  the
Federal Energy Regulatory Commission (FERC).

      Refer  to  Note 2 for a discussion of the proposed merger  of  the
Company.

     (c)  Regulatory Assets -

      Utilities  is subject to the provisions of Statement of  Financial
Accounting  Standards  No. 71, "Accounting for the  Effects  of  Certain
Types  of  Regulation"  (SFAS  71).   The  regulatory  assets  represent
probable  future  revenue to Utilities associated with certain  incurred
costs as these costs are recovered through the rate making process.   At
December 31, regulatory assets as reflected in the Consolidated  Balance
Sheets were comprised of the following items:

                                                        1996           1995
                                                           (in millions)
                                                            
Deferred income taxes (Note 1(d))                     $ 84.7         $ 91.1
Energy efficiency program costs (Note 3(b))             61.1           49.7
Environmental liabilities (Note 13(f))                  46.3           46.9
Employee pension and benefit costs (Note 8)             22.9           27.5
Other                                                   12.7           14.8
                                                       227.7          230.0
Classified as "Current assets - regulatory assets"      26.6           22.8
Classified as "Other assets - regulatory assets"     $ 201.1        $ 207.2


      Refer  to  the  individual notes referenced above  for  a  further
discussion of certain items reflected in regulatory assets.

      If a portion of Utilities' operations become no longer subject  to
the  provisions  of  SFAS 71, a write-off of related  regulatory  assets
would  be  required,  unless some form of transition  cost  recovery  is
established  by  the  appropriate regulatory  body.   In  addition,  the
Company  would be required to determine any impairment to  other  assets
and  write-down such assets to their fair value.  Effective  January  1,
1996,   the  Company  adopted  SFAS  121  which  established  accounting
standards  for the impairment of long-lived assets.  This standard  also
requires  that regulatory assets that are no longer probable of recovery
through future revenues be charged to earnings.  There was no impact  on
the  Company's financial position or results of operations upon adoption
of SFAS 121.

     (d)  Income Taxes -

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

      Except as noted below, income tax expense includes provisions  for
deferred  taxes  to  reflect the tax effects  of  temporary  differences
between  the  time when certain costs are recorded in the  accounts  and
when   they   are  deducted  for  tax  return  purposes.   As  temporary
differences reverse, the related accumulated deferred income  taxes  are
reversed  to  income.   Investment tax credits for Utilities  have  been
deferred and are subsequently credited to income over the average  lives
of the related property.

      Consistent with rate making practices for Utilities, 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,  Utilities  has  recorded  deferred  tax  liabilities   and
regulatory assets, as identified in Note 1(c).

     (e)  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.

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

      Utilities uses the remaining life method of depreciation  for  its
nuclear generating facility, the Duane Arnold Energy Center (DAEC),  and
the  straight-line method for all other utility property.  The remaining
life  of  the  DAEC is based on the Nuclear Regulatory Commission  (NRC)
license life of 2014. The average rates of depreciation for electric and
gas  properties  of  Utilities,  consistent  with  current  rate  making
practices, were as follows:

                        1996        1995        1994
                                                      
        Electric        3.5%        3.4%        3.6%
        Gas             3.5%        3.5%        3.8%

      The electric and gas depreciation rates declined in 1995 from 1994
because  of  revised depreciation rates approved in rate proceedings  of
Utilities.

     (g)  Decommissioning of the DAEC -

      Pursuant  to  the most recent electric rate case  order,  the  IUB
allows  Utilities  to  recover $6.0 million annually  for  the  cost  to
decommission   the  DAEC.   Decommissioning  expense  is   included   in
"Depreciation and amortization" in the Consolidated Statements of Income
and  the cumulative amount is included in "Accumulated depreciation"  in
the  Consolidated Balance Sheets to the extent recovered through  rates.
The current recovery figures are based on the following assumptions:  1)
cost to decommission the DAEC of $252.8 million, which is Utilities'  70%
portion in 1993 dollars, based on the NRC minimum formula (which exceeds
the  amount  in the current site-specific study completed in  1994);  2)
inflation of 4.91% annually through 1997; 3) the prompt dismantling  and
removal method of decommissioning, which is assumed to begin in the year
2014;  4) monthly funding of all future collections into external  trust
funds and funded on a tax-qualified basis to the extent possible; and 5)
an  average after-tax return of 6.82% for all external investments.  All
of  these  assumptions  are  subject  to  change  in  future  regulatory
proceedings.  At December 31, 1996, Utilities had $59.3 million invested
in external decommissioning trust funds as indicated in the Consolidated
Balance  Sheets,  and  also had an internal decommissioning  reserve  of
$21.7  million  recorded as accumulated depreciation.  Earnings  on  the
external  trust funds, which were $2.2 million in 1996, are recorded  as
interest  income  and a corresponding interest expense  payable  to  the
funds  is recorded.  The earnings accumulate in the external trust  fund
balances and in accumulated depreciation on utility plant.

      See  "Management's  Discussion and  Analysis  of  the  Results  of
Operations  and  Financial Condition" for a discussion of  the  Exposure
Draft  on  Accounting for Liabilities Related to Closure and Removal  of
Long-Lived  Assets, issued by the Financial Accounting  Standards  Board
(FASB)  in  the  first quarter of 1996, which deals  with,  among  other
issues, the accounting for decommissioning costs.

     (h)  Property, Plant and Equipment -

     Utility plant (other than acquisition adjustments of $29.4 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 (AFC).   The  AFC,  which
represents  the  cost during the construction period of funds  used  for
construction purposes, is capitalized by Utilities as a component of the
cost  of utility plant.  The amount of AFC applicable to debt funds  and
to other (equity) funds, a non-cash item, is computed in accordance with
the  prescribed  FERC  formula.   The  aggregate  gross  rates  used  by
Utilities  for 1996-1994 were 5.5%, 6.5% and 9.3%, respectively.   These
capitalized costs are recovered by Utilities in rates as the cost of the
utility plant is depreciated.

      Other  property, plant and equipment is recorded  at  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)  Oil and Gas Properties -

      Whiting Petroleum Corporation (Whiting), a wholly-owned subsidiary
under  Diversified, uses the full cost method of accounting for its  oil
and  gas properties.  Accordingly, all costs of acquisition, exploration
and  development of properties are capitalized.  Amortization of  proved
oil  and  gas  properties is calculated using the  units  of  production
method.    At   December  31,  1996,  capitalized  costs  less   related
accumulated amortization did not exceed the sum of 1) the present  value
of  future net revenue from estimated production of proved oil  and  gas
reserves  (calculated  using  current  prices);  plus  2)  the  cost  of
properties  not being amortized, if any; plus 3) the lower  of  cost  or
estimated fair value of unproved properties included in the costs  being
amortized, if any; less 4) income tax effects related to differences  in
the  book and tax basis of oil and gas properties.  The Company had $9.8
million on its Consolidated Balance Sheet at December 31, 1995, relating
to  specific oil and gas properties purchased by Whiting in  the  fourth
quarter  of  1995  that it intended to sell during  1996.   The  Company
subsequently decided not to sell these properties and, accordingly,  the
balance  at December 31, 1996 is included in "Other property, plant  and
equipment" on the Consolidated Balance Sheet.

     (j)  Operating Revenues -

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

     (k)  Adjustment Clauses -

      Utilities'  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
"Fuel for production" and "Gas purchased for resale" in the Consolidated
Statements  of  Income.  The cumulative effects  are  reflected  in  the
Consolidated  Balance  Sheets as a current asset or  current  liability,
pending automatic reflection in future billings to customers.

     (l)  Accumulated Refueling Outage Provision -

      The IUB allows Utilities to collect, as part of its base revenues,
funds  to  offset other operating and maintenance expenditures  incurred
during  refueling outages at the 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.


(2)   PROPOSED MERGER OF THE COMPANY:

      On  November 10, 1995, Industries, WPL Holdings, Inc.  (WPLH)  and
Interstate  Power Company (IPC) entered into an Agreement  and  Plan  of
Merger, as amended (Merger Agreement), providing for: a) IPC becoming  a
wholly-owned  subsidiary of WPLH, and b) the merger of  Industries  with
and into WPLH, which merger will result in the combination of Industries
and  WPLH  as  a  single  holding company  (collectively,  the  Proposed
Merger).   The  new  holding  company will be  named  Interstate  Energy
Corporation (Interstate Energy) and Industries will cease to exist.  The
Proposed  Merger, which will be accounted for as a pooling of  interests
and is intended to be tax-free for federal income tax purposes, has been
approved by the respective Boards of Directors and shareholders.  It  is
still  subject  to  approval  by several federal  and  state  regulatory
agencies.  The companies expect to receive such regulatory approvals  by
the end of the third quarter of 1997.

      The  summary below contains selected unaudited pro forma financial
data for the year ended December 31, 1996.  The financial data should be
read   in   conjunction  with  the  historical  consolidated   financial
statements  and  related notes of the Company,  WPLH,  and  IPC  and  in
conjunction  with the unaudited pro forma combined financial  statements
and  related  notes of Interstate Energy included in Item 14.   The  pro
forma  combined  earnings  per  share reflect  the  issuance  of  shares
associated with the exchange ratios discussed below.

                                                                    PRO FORMA
                                 IES                                 COMBINED
                             INDUSTRIES      WPLH         IPC      (Unaudited)
                                 (in thousands, except per share amounts)
                                                                              
Operating revenues           $  973,912  $  932,844   $  326,084  $ 2,232,840
Net income from                                                    
    continuing operations        60,907      73,205       25,860      159,972
Earnings per share from                                            
    continuing operations          2.04        2.38         2.69         2.12
Assets at December 31, 1996   2,125,562   1,900,531      639,200    4,665,293
Long-term obligations at                                           
    December 31, 1996           744,298     430,190      188,731    1,363,219

      Under the terms of the Merger Agreement, the outstanding shares of
WPLH's  common stock will remain unchanged and outstanding as shares  of
Interstate Energy.  Each outstanding share of the Company's common stock
will  be  converted to 1.14 shares of Interstate Energy's common  stock.
Each  share  of IPC's common stock will be converted to 1.11  shares  of
Interstate  Energy's  common stock.  It is anticipated  that  Interstate
Energy will retain WPLH's common share dividend payment level as of  the
effective  time  of  the  merger.  On January 22,  1997,  the  Board  of
Directors  of  WPLH declared a quarterly dividend of  $0.50  per  share.
This represents an equivalent annual rate of $2.00 per share.

      WPLH is a holding company headquartered in Madison, Wisconsin, and
is  the  parent company of Wisconsin Power and Light Company (WP&L)  and
Heartland Development Corporation (HDC). WP&L supplies electric and  gas
service to approximately 385,000 and 150,000 customers, respectively, in
south  and  central Wisconsin.  HDC and its principal  subsidiaries  are
engaged  in  businesses in three major areas: environmental  engineering
and  consulting,  affordable  housing  and  energy  services.   IPC,  an
operating  public  utility  headquartered  in  Dubuque,  Iowa,  supplies
electric  and gas service to approximately 165,000 and 49,000 customers,
respectively,  in  northeast  Iowa,  northwest  Illinois  and   southern
Minnesota.

     Interstate Energy will be the parent company of Utilities, WP&L and
IPC  and will be registered under the Public Utility Holding Company Act
of  1935,  as  amended (1935 Act).  The Merger Agreement  provides  that
these  operating utility companies will continue to operate as  separate
entities for a minimum of three years beyond the effective date  of  the
merger.  In addition, the non-utility operations of the Company and WPLH
will  be  combined shortly after the effective date of the merger  under
one  entity  to manage the diversified operations of Interstate  Energy.
The corporate headquarters of Interstate Energy will be in Madison.

      The  SEC  historically has interpreted the 1935  Act  to  preclude
registered holding companies, with limited exceptions, from owning  both
electric and gas utility systems.  Although the SEC has recommended that
registered  holding companies be allowed to hold both gas  and  electric
utility  operations  if the affected states agree, it  remains  possible
that  the SEC may require as a condition to its approval of the Proposed
Merger  that  the  Company,  WPLH  and  IPC  divest  their  gas  utility
properties, and possibly certain non-utility ventures of the Company and
WPLH,  within a reasonable time after the effective date of the Proposed
Merger.


(3)  RATE MATTERS:

     (a)  Electric Price Announcements -

       Utilities  and  its  Iowa-based  proposed  merger  partner,  IPC,
announced  in  1996 their intentions to hold retail electric  prices  to
their current levels until at least January 1, 2000.  The companies made
the   proposal   as  part  of  their  testimony  in  the  merger-related
application filed with the IUB; the application was later withdrawn  and
was  resubmitted  in January 1997 and the companies  included  the  same
proposal  in the resubmittal of the filing. The proposal excludes  price
changes  due to government-mandated programs, such as energy  efficiency
cost recovery, or unforeseen dramatic changes in operations.

      Utilities,  WP&L and IPC also proposed to freeze  their  wholesale
electric prices for four years from the effective date of the merger  as
part  of their merger filing with the FERC.  The Company does not expect
the  merger-related electric price proposals to have a material  adverse
effect on its financial position or results of operations.

     (b)  Energy Efficiency Cost Recovery -

      Current  IUB  rules mandate Utilities to spend 2% of electric  and
1.5%  of  gas  gross  retail operating revenues  for  energy  efficiency
programs.   Under  provisions of the IUB rules, Utilities  is  currently
recovering  the energy efficiency costs incurred through 1993  for  such
programs, including its direct expenditures, carrying costs, a return on
its  expenditures and a reward.  These costs are being recovered over  a
four-year period and the recovery began on June 1, 1995.

      In  December 1996, under provisions of the IUB rules, the  Company
filed  for recovery of the costs relating to its 1994 and 1995 programs.
Utilities'  proposed  recovery was for approximately  $53  million  ($42
million  electric and $11 million gas) and was composed of  $34  million
for direct expenditures and carrying costs, $10 million for a return  on
the  expenditures over the recovery period and $9 million for  a  reward
based  on  a  sharing  of  the benefits of such programs.   The  Company
expects  to receive the final order in the proceeding in June 1997  with
recovery of the allowed costs to commence in the third quarter of 1997.

      Iowa  statutory changes enacted in 1996, and applicable to  future
programs   once  the  legislation  is  implemented  by  the  IUB,   have
eliminated:  1) the 2% and 1.5% spending requirements described above in
favor  of  IUB-determined  energy savings  targets,   2)  the  delay  in
recovery  of  energy  efficiency costs by  allowing  recovery  which  is
concurrent  with spending and 3) the recovery of a sharing  reward.  The
IUB  commenced  a rulemaking in January 1997 to implement the  statutory
change  and  a final order in this proceeding is expected in the  second
quarter  of  1997.   The proposed rules provide that the  Company  would
begin  to  recover  its  1996 expenditures, and  the  1997  expenditures
incurred at such time, during the summer of 1997 over a likely four-year
recovery  period.  The Company would also begin concurrent  recovery  of
its  prospective expenditures at such time.  The implementation of these
changes will gradually eliminate the regulatory asset which exists under
the current rate making mechanism as these costs are recovered.

      The  Company has the following amounts of energy efficiency  costs
included  in  regulatory assets on its Consolidated  Balance  Sheets  at
December 31 (in thousands):

                                    1996           1995
                                               
Costs incurred through 1993      $ 12,834       $ 18,287
Costs incurred in 1994-1995        33,161         31,393
Costs incurred in 1996             15,087           -
                                 $ 61,082       $ 49,680

      The  above  amounts include the direct expenditures  and  carrying
costs  incurred  by  the Company but do not include any  amounts  for  a
return on its expenditures over the recovery period or for a reward.


(4)  LEASES:

      Utilities has a capital lease covering its 70% undivided  interest
in  nuclear fuel purchased for the DAEC.  Future purchases of  fuel  may
also  be  added  to  the  fuel lease.  This lease  provides  for  annual
one-year  extensions and Utilities intends to continue  exercising  such
extensions.   Interest  costs under the lease are  based  on  commercial
paper  costs incurred by the lessor.  Utilities 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 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.   These  expenses  (included  in   "Fuel   for
production" in the Consolidated Statements of Income) for 1996-1994 were
$18.2 million, $18.0 million and $17.8 million, respectively.

      The  Company's operating lease rental expenses for 1996-1994  were
$8.3 million, $10.4 million and $11.1 million, respectively.

     The Company's future minimum lease payments by year are as follows:

                                              Capital         Operating
        Year                                   Lease           Leases
                                                   (in thousands)
                                                         
        1997                                   $ 16,808       $  6,891
        1998                                      9,889          6,565
        1999                                      6,969          4,741
        2000                                      3,004          2,510
        2001                                        861          1,370
        Thereafter                                  307            197
                                                 37,838       $ 22,274
        Less:  Amount representing interest       3,113          
        Present value of net minimum                     
            capital lease payments             $ 34,725         


(5)  UTILITY ACCOUNTS RECEIVABLE:

      Customer  accounts receivable, including unbilled revenues,  arise
primarily from the sale of electricity and natural gas.  At December 31,
1996,   Utilities  was  serving  a  diversified  base  of   residential,
commercial and industrial customers consisting of approximately  336,000
electric  and  176,000  gas customers and did not have  any  significant
concentrations of credit risk.

      Utilities  has entered into an agreement, which expires  in  1999,
with  a  financial  institution  to  sell,  with  limited  recourse,  an
undivided  fractional  interest of up to $65  million  in  its  pool  of
utility   accounts  receivable.   Expenses  related  to  the   sale   of
receivables  are paid to the financial organization under this  contract
and approximated a 5.86% annual rate during 1996.  During 1996 and 1995,
the  monthly  proceeds  from the sale of accounts  receivable   averaged
$62.9  million  and $61.9 million, respectively. At December  31,  1996,
$65 million was sold under the agreement.

      SFAS  125,  issued  by the FASB in 1996 and  effective  for  1997,
provides  accounting and reporting standards for transfers and servicing
of  financial assets and extinguishment of liabilities.  The  accounting
for Utilities' sale of accounts receivable agreement is impacted by this
standard.   As a result, the agreement is being modified to comply  with
the  SFAS 125 requirements and thus the accounting and reporting for the
sale of Utilities' receivables will remain unchanged.


(6)  INVESTMENTS:

     (a)  Foreign Entities -

      At December 31, 1996, the Company had $44.9 million of investments
in  foreign entities on its Consolidated Balance Sheet that included  1)
investments in two New Zealand electric distribution entities, 2) a loan
to a New Zealand company, 3) an investment in a cogeneration facility in
China,  and  4) an investment in an international venture capital  fund.
The  Company  accounts for the China investment under the equity  method
and  the  other  investments  under the  cost  method.   The  geographic
concentration  of  the  Company's investments  in  foreign  entities  at
December  31, 1996, included investments of approximately $30.9  million
in New Zealand, $13.6 in China and $0.4 million in other countries.

     (b)  McLeod, Inc. (McLeod) -

     At December 31, 1996, the Company had a $20.0 million investment in
Class  A  common stock of McLeod, a $9.2 million investment in  Class  B
common  stock and vested options that, if exercised, would represent  an
additional  investment of approximately $2.3 million.   McLeod  provides
local, long-distance and other telecommunications services.

      McLeod  completed an Initial Public Offering (IPO) of its Class  A
common stock in June 1996 and a secondary offering in November 1996.  As
of   December  31,  1996,  the  Company  is  the  beneficial  owner   of
approximately 10.6 million total shares on a fully diluted basis.  Class
B  shares  are  convertible at the option of the Company  into  Class  A
shares at any time on a one-for-one basis.  The rights of McLeod Class A
common stock and Class B common stock are substantially identical except
that  Class A common stock has 1 vote per share and Class B common stock
has  0.40  vote  per  share.  The Company currently  accounts  for  this
investment under the cost method.

      The  Company  has  entered  into an agreement  with  McLeod  which
provides  that  for two years commencing on June 10, 1996,  the  Company
cannot  sell  or  otherwise dispose of any of its securities  of  McLeod
without  the consent of the McLeod Board of Directors.  This contractual
sale  restriction  results in restricted stock under the  provisions  of
Statement  of  Financial Accounting Standards No. 115  (SFAS  No.  115),
Accounting for Certain Investments in Debt and Equity Securities,  until
such time as the restrictions lapse and such shares became qualified for
sale  within  a  one  year period.  As a result, the  Company  currently
carries this investment at cost.

      The  closing price of the McLeod Class A common stock on  December
31,  1996,  on  the Nasdaq National Market, was $25.50 per  share.   The
current  market  value  of  the  shares the  Company  beneficially  owns
(approximately  10.6  million shares) is currently  impacted  by,  among
other  things, the fact that the shares cannot be sold for a  period  of
time  and  it is not possible to estimate what the market value  of  the
shares  will be at the point in time such sale restrictions are  lifted.
In  addition,  any  gain upon an eventual sale of this investment  would
likely be subject to a tax.

      Under  the provisions of SFAS No. 115, the carrying value  of  the
McLeod  investment will be adjusted to estimated fair value at the  time
such  shares  become qualified for sale within a one year  period;  this
will  occur  on June 10, 1997, which is one year before the  contractual
restrictions  on  sale  are lifted.  At that  time,  the  adjustment  to
reflect the estimated fair value of this investment will be reflected as
an  increase  in the investment carrying value with the unrealized  gain
reported  as  a  net  of tax amount in other common shareholders  equity
until realized (i.e., sold by the Company).


(7)  INCOME TAXES:

      The  components of federal and state income taxes  for  the  years
ended December 31, were as follows:

                                           1996          1995        1994
                                                    (in millions)
                                                         
Current tax expense                     $  38.2       $  34.7     $  37.5
Deferred tax expense                       11.8          10.5         6.7
Amortization and adjustment                             
    of investment tax credits              (2.6)         (2.7)       (2.6)
                                        $  47.4       $  42.5     $  41.6


      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.


                                                1996      1995      1994
                                                                  
Statutory federal income tax rate               35.0%     35.0%     35.0%
  State income taxes, net of federal benefits    6.6       5.5       5.9
  Effect of rate making on property                             
    related differences                          2.8       2.6       1.6
  Amortization of investment tax credits        (2.4)     (2.5)     (2.5)
  Adjustment of prior period taxes               1.4      (0.4)     (1.6)
  Other items, net                               0.4      (0.4)       -
Overall effective income tax rate               43.8%      39.8%    38.4%


      The  accumulated deferred income taxes as set forth below  in  the
Consolidated  Balance Sheets at December 31, arise  from  the  following
temporary differences:


                                      1996         1995
                                        (in millions)
                                        
Property related                     $ 293       $  296
Investment tax credit related          (24)         (26)
Decommissioning related                (15)         (14)
Other                                    9            1
                                     $ 263       $  257


(8)  BENEFIT PLANS:

     (a)  Pension Plans -

       The   Company  has  two  non-contributory  pension  plans   that,
collectively,  cover substantially all of its employees.  Plan  benefits
are  generally  based  on years of service and compensation  during  the
employees'  latter years of employment.  Payments made from the  pension
funds  to  retired  employees  and  beneficiaries  during  1996  totaled
$10.7 million.

      The Company's policy is to fund the pension cost at an amount that
is  at  least equal to the minimum funding requirements mandated by  the
Employee Retirement Income Security Act (ERISA) and that does not exceed
the  maximum  tax deductible amount for the year.  The  Company  has  an
investment policy governing asset allocation guidelines for its  pension
plans.   The target ranges are as follows: 1) 37%-43% in large and  mid-
sized  domestic  company equity securities, 2) 7%-13% in foreign  equity
securities, 3) 7%-13% in small domestic company equity securities, 4) 0-
5%  in real estate, and 5) the remainder in fixed income securities.  As
of  December 31, 1996, the plan's investment mix was consistent with the
policy guidelines.

      Pursuant  to  the  provisions of SFAS 71, certain  adjustments  to
Utilities' pension provision are necessary to reflect the accounting for
pension costs allowed in its most recent rate cases.

      The  components  of  the pension provision  for  the  years  ended
December 31, were as follows:


                                              1996         1995         1994
                                                     (in thousands)
                                                              
Service cost                              $   5,997    $   5,215    $   5,863
Interest cost on projected benefit 
  obligation                                 12,711       11,811       11,431
Assumed return on plans' assets             (14,976)     (12,567)     (12,593)
Early retirement benefits                     4,713         -            -
Net amortization                                906          268          841
Pension cost                                  9,351        4,727        5,542
Adjustment to funding level                  (9,351)      (4,727)      (5,431)
Total pension costs paid to the Trustee   $    -      $     -       $     111
                                                              
Actual return on plans' assets            $  26,297   $   36,614    $     (97)


     During 1996, the Company incurred a one-time charge of $4.7 million
related to an early retirement program.  Of such costs, $0.2 million was
charged  to  expense  and the remaining amount was deferred  for  future
recovery through the regulatory process.

      A  reconciliation of the funded status of the plans to the amounts
recognized  in  the  Consolidated Balance  Sheets  at  December  31,  is
presented below:

                                                            1996         1995
                                                             (in thousands)
                                                                    
Fair market value of plans' assets                      $ 212,394   $ 195,329
Actuarial present value of benefits rendered to date -                
  Accumulated benefits based on compensation to date,
    including vested benefits of $130,334,000 and               
    $119,996,000, respectively                            142,515     131,274
      Additional benefits based on estimated future
        salary levels                                      42,940      41,581
Projected benefit obligation                              185,455     172,855
Plans' assets in excess of projected 
  benefit obligation                                       26,939      22,474
Remaining unrecognized net asset existing at                        
  January 1, 1987, being amortized over 20 years           (3,179)     (3,511)
Unrecognized prior service cost                            15,523      16,905
Unrecognized net gain                                     (54,442)    (41,795)
Accrued pension cost recognized in the                              
  Consolidated Balance Sheets                           $ (15,159)  $  (5,927)
                                                                    
Assumed rate of return, all plans                            9.00%       8.00%
Weighted average discount rate of projected benefit                 
  obligation, all plans                                      7.50%       7.50%
Assumed rate of increase in future compensation                     
  levels for the plans                                       4.75%       4.75%


      The assumed rate of return was increased to 9.00% in 1996 based on
actual historical performance of the previously stated investment mix.

      The  Company  also  sponsors  defined contribution  pension  plans
(401(k)  plans)  covering  substantially all employees.   The  Company's
contributions  to the plans, which are based on the participants'  level
of  contribution and cannot exceed 2.8% of the participants' salaries or
wages,  were $1.7 million, $1.5 million and $1.8 million in  1996,  1995
and 1994, respectively.

     (b)  Other Postemployment Benefit Plans -

     The Company provides certain benefits to retirees (primarily health
care  benefits).   The  IUB  adopted rules stating  that  postretirement
benefits  other  than  pensions  will be included  in  Utilities'  rates
pursuant  to the provisions of SFAS 106.  The rules permit Utilities  to
amortize the transition obligation as of January 1, 1993, over 20  years
and require that all amounts collected are to be funded into an external
trust to pay benefits as they become due.  The gas and electric portions
of  these costs are being recovered through rates beginning in 1993  and
1995, respectively, including amounts that were deferred by the Company,
pursuant  to  IUB  rules, between when SFAS 106  was  adopted  and  when
recovery  through rates began.  The amounts deferred are being amortized
as   they   are  collected  through  rates  over  a  three-year  period.
Utilities' unamortized balance of these deferred costs was $1.5  million
at December 31, 1996.

      Pursuant  to  the  provisions of SFAS 71, certain  adjustments  to
Utilities'  other  postretirement benefit provisions  are  necessary  to
reflect the accounting for other postretirement benefit costs allowed in
its most recent rate cases.

      The components of postretirement benefit costs for the years ended
December 31, were as follows:

                                                1996        1995        1994
                                                       (in thousands)
                                                                  
Service cost                                 $  1,888    $  1,387    $  1,838
Interest cost on accumulated 
  postretirement benefit obligation             3,726       3,175       3,275
Assumed return on plans' assets                  (388)        (56)        (60)
Net amortization of transition 
  obligation and other                          1,970       1,813       2,037
Amortized/(deferred) postretirement
  benefit costs                                 1,863       2,220      (2,732)
Regulatory recognition of incurred cost            49       1,162        -
Net postretirement benefit costs              $ 9,108    $  9,701    $  4,358
                                                                  
Actual return on plans' assets                $   945    $    273    $     47

      A  reconciliation of the funded status of the plans to the amounts
recognized  in  the  Consolidated Balance  Sheets  at  December  31,  is
presented below:

                                                               1996      1995
                                                             (in thousands)
                                                           
Fair market value of plans' assets                      $  12,312   $   6,515
Accumulated postretirement benefit obligation -
  Active employees not yet eligible                        19,056      22,254
  Active employees eligible                                 4,866       6,282
  Retirees                                                 25,992      22,575
Total accumulated postretirement benefit                   
  obligation                                               49,914      51,111
Accumulated postretirement benefit obligation
  in excess of plans' assets                              (37,602)    (44,596)
Unrecognized transition obligation                         31,020      34,415
Unrecognized net (gain)/loss                               (2,505)        349
Unrecognized prior service cost                              (427)        151
Accrued postretirement benefit cost in the
  Consolidated Balance Sheets                           $  (9,514)  $  (9,681)
                                                           
Assumed rate of return                                       9.00%       8.00%
Weighted average discount rate of accumulated
  postretirement benefit obligation                          7.50%       7.50%
Medical trend on paid charges:                             
  Initial trend rate                                         9.00%      10.00%
  Ultimate trend rate                                        6.50%       6.50%


      The assumed rate of return was increased to 9.00% in 1996 based on
actual  historical performance of investments of a similar nature.   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 1% change  in  the
medical trend rates, holding all other assumptions constant, would  have
changed the 1996 service and interest cost by $1.2 million (21%) and the
accumulated postretirement benefit obligation at December 31,  1996,  by
$8.5 million (17%).


(9)  COMMON, PREFERRED AND PREFERENCE STOCK:

     (a)  Common Stock -

     The following table presents information relating to the changes in
common stock.

                                                         Common Stock
                                               Number of Shares       
                                                 Outstanding        Amount  
                                                                (in thousands)
Balance, December 31, 1993                        28,304,188      $ 360,301
  Shares issued in connection with 
    acquisition of oil and gas companies             139,102          4,027
  Purchases of treasury stock                       (213,300)        (6,233)
  Stock plan issuances*                              547,056         15,395
Balance, December 31, 1994                        28,777,046        373,490
  Shares issued in connection with                            
    acquisition of oil and gas companies              75,638          1,925
  Stock plan issuances*                              655,731         15,854
Balance, December 31, 1995                        29,508,415        391,269
  Purchases of treasury stock                         (9,448)          (269)
  Stock plan issuances*                              578,245         16,635
Balance, December 31, 1996                        30,077,212      $ 407,635
                                                                
Shares reserved for issuance pursuant to the                    
  Company's stock plans at December 31, 1996*      1,632,869       


       *  Dividend Reinvestment and Stock Purchase Plan,
          Employee Stock Purchase Plan, Employee Savings Plan,
          Long-Term  Incentive Plan, IES Bonus Stock Ownership
          Plan and Whiting Stock Option Plans


     During 1996, Industries reacquired 9,448 shares of its common stock
on  the open market, at an average price of $28.44 per share, which were
subsequently issued to various Company Directors and employees.   During
1994,  Industries reacquired 213,300 shares of its common stock  on  the
open  market,  at  an  average price of $29.22  per  share,  which  were
subsequently issued to the Dividend Reinvestment Plan and certain of its
benefit  plans.   At  December  31, 1996, no  shares  remained  held  as
treasury stock.

     (b)  Preferred and Preference Stock:

     Utilities has 466,406 shares of Cumulative Preferred Stock, $50 par
value, authorized for issuance at December 31, 1996, of which the 6.10%,
4.80%  and  4.30%  Series  had  100,000,  146,406  and  120,000  shares,
respectively,  outstanding at both December 31, 1996  and  1995.   These
shares are redeemable at the option of Utilities upon 30 days notice  at
$51.00,   $50.25  and  $51.00  per  share,  respectively,  plus  accrued
dividends.

     There are 5,000,000 shares of Industries Cumulative Preferred Stock
(no  par  value)  and 700,000 shares of Utilities Cumulative  Preference
Stock  ($100  par  value) authorized for issuance, of  which  none  were
outstanding at December 31, 1996.


(10) DEBT:

     (a)  Long-Term Debt -

      In  September  1996, Utilities repaid at maturity $15  million  of
Series  J,  6.25%  First Mortgage Bonds and, in a separate  transaction,
issued $60 million of Collateral Trust Bonds, 7.25%, due 2006.

      Utilities'  Indentures  and  Deeds of  Trust  securing  its  First
Mortgage Bonds constitute direct first mortgage liens upon substantially
all tangible public utility property.  Utilities' 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.

      Diversified  has  a  variable rate credit  facility  that  extends
through  November  20,  1999, with two one-year  extensions  potentially
available  to  Diversified.  The unborrowed portion of the agreement  is
also used to support Diversified's commercial paper program.  A combined
maximum of $300 million of borrowings under the agreement and commercial
paper  program  may be outstanding at any one time. Interest  rates  and
maturities are set at the time of borrowing for direct borrowings  under
the  agreement and for issuances of commercial paper.  The interest rate
options  are based upon quoted market rates and the maturities are  less
than  one  year.   At December 31, 1996, $23 million was borrowed  under
this  facility, bearing an interest rate of 5.75%, maturing in the first
quarter  of  1997.  Diversified had $149.1 million of  commercial  paper
outstanding at December 31, 1996, with interest rates ranging from 5.50%
to  7.10%  and maturity dates in the first quarter of 1997.  Diversified
intends  to continue borrowing under the renewal options of the facility
and  no  conditions exist at December 31, 1996, that would prevent  such
borrowings.   Accordingly, this debt is classified as long-term  in  the
Consolidated Balance Sheets. Refer to Note 12(a) for a discussion of  an
interest rate swap agreement Diversified entered into relating  to  this
facility.

     Total sinking fund requirements, which Utilities intends to meet by
pledging additional property under the terms of its Indentures and Deeds
of  Trust, and debt maturities for 1997-2001 are $9 million, $1 million,
$61  million, $67 million and $255 million, respectively.   The  Company
intends  to refinance the majority of the debt maturities with long-term
securities.

     (b)  Short-Term Debt -

      At  December  31,  1996,  the Company had  bank  lines  of  credit
aggregating $136.1 million. Utilities was using $110 million to  support
commercial paper and $11.1 million to support certain pollution  control
obligations.  Commitment fees are paid to maintain these lines and there
are  no  conditions  which  restrict the unused  lines  of  credit.   In
addition to the above, Utilities has an uncommitted credit facility with
a  financial institution whereby it can borrow up to $40 million.  Rates
are  set at the time of borrowing and no fees are paid to maintain  this
facility.    Information  regarding  short-term  debt  (all  issued   by
Utilities) is as follows (dollars in thousands):

                                               1996        1995        1994
                                                                          
As of end of year -                                                       
  Commercial paper outstanding             $ 110,000   $ 101,000   $  37,000
  Notes payable outstanding                   25,000        -           -
  Weighted average interest rate                                
    on commercial paper                         5.70%       5.81%       6.13%
  Weighted average interest rate                                
    on notes payable                            6.28%       -           -
                                                                  
For the year ended -                                                     
  Maximum month-end amount                                      
    of short-term debt                     $ 145,000   $ 132,000   $  37,000
  Average daily amount outstanding           120,112      79,159       5,269
  Weighted average interest rate                5.52%       5.97%       5.31%


(11) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

      Current  Assets  and  Current Liabilities -  The  carrying  amount
approximates fair value because of the short maturity of such  financial
instruments.
       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  in  the  Consolidated Balance Sheets  included  $9.4  million  of
unrealized  gains at December 31, 1996, and $5.3 million  of  unrealized
gains  at December 31, 1995, on the investments held in the trust funds.
The  accumulated  reserve for decommissioning costs was  adjusted  by  a
corresponding amount.
      Cumulative  Preferred Stock of Utilities - Based upon  the  market
yield of similar securities and quoted market prices.
      Long-Term Debt - Based upon the market yield of similar securities
and quoted market prices.
      Investments carried at cost - Fair value of the McLeod  investment
is  based  on  quoted market prices at December 31, 1996  (including  an
assumed  exercise  of  the Company's options at the  December  31,  1996
market  price less the exercise price); the 1995 fair value is based  on
the carrying value as there was no quoted market price prior to the 1996
IPO.   Fair  value  of the New Zealand investments is  based  on  quoted
market prices; while the market is not of a breadth and scope comparable
to  a  U.S.  market  as required for SFAS 115 accounting  purposes,  the
Company does believe it produces a reasonable representation of the fair
market value of the investment.  Fair value of the other investments  is
based  on  quoted  market  prices where available,  and  cost  when  not
available  as the Company believes the carrying value approximates  fair
value for such investments.

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

                                                1996                 1995
                                          Carrying  Fair      Carrying   Fair
                                           Value   Value       Value    Value
                                                                       
Cumulative preferred stock                                             
  of Utilities                             $  18   $  12       $  18    $  11
Long-term debt, including                                              
  current portion                            712     722         620      644
Investments carried at cost -                                          
  Investment in McLeod, Inc. (Note 6(b))      29     267           9        9
  Investments in New Zealand (Note 6(a))      31      45          25       22
  Other                                        3       4           3        5

      Since  Utilities  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  the  Company's
shareholders.


(12) DERIVATIVE FINANCIAL INSTRUMENTS:

      The Company has a policy that financial derivatives are to be used
only  to  mitigate  business  risks and not  for  speculative  purposes.
Derivatives have been used by the Company on a very limited basis.

     (a)  Interest Rate Swap Agreement -

      In  February 1996, Diversified entered into an interest rate  swap
agreement  on a variable rate borrowing of $100 million converting  this
debt  into  a fixed-rate borrowing at a rate of 4.7 percent.   The  swap
period is for two years with an additional one-year option available  to
the  counterparty and the agreement includes quarterly settlement dates.
Diversified  realized  approximately $0.7 million  in  interest  expense
savings  in 1996 under the agreement.  The fair value of this  financial
instrument is based on the amounts estimated to terminate or settle  the
agreement.   At  December 31, 1996, the agreement, if  settled  on  that
date,   would  have  required  the  counterparty  to  pay  the   Company
approximately  $1.2 million.  Such value is based on the  difference  in
the  interest  rates  as  well as the amount of time  remaining  in  the
agreement.  The Company has no intention of terminating the agreement at
this time.

     (b)  Gas Futures Contracts -

       Industrial   Energy  Applications,  Inc.  (IEA),  a  wholly-owned
subsidiary under Diversified, has entered into natural gas contracts  on
the  New York Mercantile Exchange (NYMEX) in the notional amount of $6.4
million  at  December 31, 1996.  The original contract terms range  from
one  to  seventeen months. The contracts are intended to  mitigate  risk
from  fluctuations in the price of natural gas that will be required  to
satisfy  sales  commitments for future deliveries to customers  and  for
sales  from  storage.  Gains and losses on these hedging  contracts  are
deferred and recognized in income when the transactions being hedged are
finalized.

(13) COMMITMENTS AND CONTINGENCIES:

     (a)  Construction Program -

      The  Company's  construction and acquisition  program  anticipates
expenditures of approximately $225 million for 1997, which includes $147
million  at  Utilities  and  $78 million  at  Diversified.   Substantial
commitments have been made in connection with these expenditures.

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

      Utilities  has  entered  into purchased power  capacity  and  coal
contracts and its minimum commitments are as follows (dollars  and  tons
in thousands):

                      Purchased Power                     Coal
                    Dollars        Mw's            Dollars       Tons
                                             
1997               $ 11,175      69 - 144         $ 68,323      4,472
1998                  3,415       9 - 109           17,250        886
1999                  3,283       1 - 101           17,509        874
2000                    283             1           15,696        762
2001                    283             1           15,913        751

      The  Company has several purchased power contracts for the  annual
six-month  summer season and thus the minimum and maximum of  the  noted
range  represent  the  power  purchased during  the  winter  and  summer
seasons,  respectively.   The Company expects  to  supplement  its  coal
contracts  with spot market purchases to fulfill its future fossil  fuel
needs.

      Utilities also has various natural gas supply, transportation  and
storage contracts outstanding. The gas supply commitments are all  index
based and the minimum dekatherm commitments, in thousands, for 1997-2001
are  10,699,  5,074, 5,074, 3,574 and 3,574, respectively.  The  minimum
transportation and storage commitments for 1997-2001, in thousands,  are
$32,080,  $31,842,  $29,220,  $27,050 and  $24,008,  respectively.   The
Company  expects to supplement its natural gas supply with  spot  market
purchases as needed.

     (c)  Information Technology Services -

      The  Company  entered into an agreement, expiring  in  2004,  with
Electronic  Data  Systems Corporation (EDS) for  information  technology
services.   The contract is subject to declining termination fees.   The
Company's  anticipated  operating and  capital  expenditures  under  the
agreement  for 1997 are estimated to total approximately $12.5  million.
Future costs under the agreement are variable and are dependent upon the
Company's level of usage of technological services from EDS.

     (d)  Financial Guarantees -

      The  Company  has financial guarantees amounting to $22.9  million
outstanding  at  December  31, 1996, which  are  not  reflected  in  the
consolidated financial statements.  Such guarantees are generally issued
to  support third-party borrowing arrangements and similar transactions.
The  Company  believes that the likelihood of material cash payments  by
the Company under these agreements is remote.

     (e)  Nuclear Insurance Programs -

      Public  liability for nuclear accidents is governed by  the  Price
Anderson  Act of 1988 which sets a statutory limit of $8.9  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,  Utilities  provides  this  financial
protection  for a nuclear incident at the DAEC through a combination  of
liability  insurance  ($200  million)  and  industry-wide  retrospective
payment  plans  ($8.7  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.  Based on its ownership of the DAEC, Utilities could
be  assessed  a  maximum of $79.3 million per nuclear incident,  with  a
maximum  of  $10 million per incident per year (of which Utilities'  70%
ownership  portion would be approximately $55 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.

      Utilities is a member of Nuclear Mutual Limited (NML) and  Nuclear
Electric Insurance Limited (NEIL). These companies provide $1.9  billion
of  insurance  coverage on certain property losses at DAEC 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  the  cost  of replacement power during  certain  outages.
Owners  of nuclear generating stations insured through NML and NEIL  are
subject  to retroactive premium adjustments if losses exceed accumulated
reserve  funds.  NML and 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  replacement
power  coverages.   However,  Utilities could  be  assessed  annually  a
maximum  of  $3.0 million under NML, $6.4 million for NEIL property  and
$0.7 million for NEIL replacement power if losses exceed the accumulated
reserve  funds.  Utilities is not aware of any losses that  it  believes
are likely to result in an assessment.

     In the unlikely event of a catastrophic loss at 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  Utilities  and
could  have  a material adverse effect on Utilities' financial  position
and results of operations.

     (f)  Environmental Liabilities -

     The Company has recorded environmental liabilities of approximately
$53 million in its Consolidated Balance Sheets at December 31, 1996. The
Company's significant environmental liabilities are discussed below.

          Former Manufactured Gas Plant (FMGP) Sites

      Utilities has been named as a Potentially Responsible Party  (PRP)
by  various federal and state environmental agencies for 28 FMGP  sites,
but  believes  it  is not responsible for two of these  sites  based  on
extensive  reviews  of the ownership records and historical  information
available  for  the two sites.  Utilities has notified  the  appropriate
regulatory  agency that it believes it does not have any  responsibility
as  relates  to these two sites, but no response has been received  from
the  agency  on this issue.  Utilities is also aware of six other  sites
that  it  may  have owned or operated in the past and for  which,  as  a
result,  it  may be designated as a PRP in the future in the event  that
environmental  concerns  arise at these  sites.   Utilities  is  working
pursuant  to  the  requirements of the various agencies to  investigate,
mitigate,  prevent and remediate, where necessary, damage  to  property,
including damage to natural resources, at and around the sites in  order
to protect public health and the environment.  Utilities believes it has
completed the remediation of ten sites although it is in the process  of
obtaining  final approval from the applicable environmental agencies  on
this  issue  for  each  site.  Utilities is in  various  stages  of  the
investigation  and/or remediation processes for the remaining  16  sites
and  estimates  the  range  of  additional  costs  to  be  incurred  for
investigation,   remediation  and  monitoring  of  the   sites   to   be
approximately $24 million to $54 million.

      Utilities  has recorded environmental liabilities related  to  the
FMGP  sites  of  approximately $36 million (including  $4.7  million  as
current liabilities) at December 31, 1996.  These amounts are based upon
Utilities'  best  current  estimate of the 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  the  current  estimates   as   the
investigation  process proceeds and as additional  facts  become  known.
Regulatory assets of approximately $36 million, which reflect the future
recovery  that  is  being provided through Utilities' rates,  have  been
recorded  in  the Consolidated Balance Sheets.  Considering the  current
rate treatment allowed by the IUB, management believes that the clean-up
costs  incurred  by  Utilities for these FMGP  sites  will  not  have  a
material  adverse  effect  on  its  financial  position  or  results  of
operations.

      In  April 1996, Utilities filed a lawsuit against certain  of  its
insurance  carriers seeking reimbursement for investigation, mitigation,
prevention,  remediation and monitoring costs associated with  the  FMGP
sites.  Settlement discussions are proceeding between Utilities and  its
insurance  carriers regarding the recovery of these FMGP-related  costs.
Settlement  has  been  reached with two carriers  and  an  agreement  in
principle  has  been reached with three other carriers  thus  far.   Any
amounts  received  from insurance carriers will be  deferred  pending  a
determination of the regulatory treatment of such recoveries.

          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 and, for the DAEC, averages  $1.4  million
annually  through 2007, of which Utilities' 70% share is  $1.0  million.
Utilities  is  recovering  the  costs associated  with  this  assessment
through  its electric fuel adjustment clauses over the period the  costs
are  assessed.   Utilities'  70% share of the  future  assessment,  $9.9
million  payable through 2007, has been recorded as a liability  in  the
Consolidated Balance Sheets, including $0.9 million included in "Current
liabilities  -  Environmental liabilities," with  a  related  regulatory
asset for the unrecovered amount.

          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 properties,  the  most
significant  of  which  is  located off the coast  of  California.   The
Company   estimates  the  total  costs  for  these  properties   to   be
approximately  $16 million and the expenditures are not expected  to  be
incurred  for approximately five years.  Whiting accrues these costs  as
reserves are extracted and such costs are included in "Depreciation  and
amortization" in the Consolidated Statements of Income, resulting  in  a
liability  of  $7.0  million at December 31, 1996, in  the  Consolidated
Balance Sheets.

      The  Company adopted the provisions of Statement of Position  96-1
(SOP-96-1),  Environmental  Remediation  Liabilities,  in  1996.    This
statement  provides authoritative guidance for recognition,  measurement
and  disclosure  of environmental remediation liabilities  in  financial
statements.    Upon  adoption  of  SOP-96-1,  the  Company's   estimated
liability  increased by approximately $2.2 million, primarily  resulting
from  the  recording  of  Utilities'  anticipated  FMGP  postremediation
monitoring costs, and a related increase to regulatory assets  was  also
recorded.

     (g)  Air Quality Issues -

      The  Clean  Air  Act  Amendments of 1990 (Act)  requires  emission
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to  achieve
reductions  of atmospheric chemicals believed to cause acid  rain.   The
provisions of the Act are being implemented in two phases; the  Phase  I
requirements  have been met and the Phase II requirements affect  eleven
other  fossil  units beginning in the year 2000.  Utilities  expects  to
meet  the  requirements of Phase II by switching to lower sulfur  fuels,
capital  expenditures  primarily related to fuel burning  equipment  and
boiler  modifications,  and  the possible purchase  of  SO2  allowances.
Utilities estimates capital expenditures at approximately $12.9 million,
including  $0.6  million  in  1997, in  order  to  meet  the  acid  rain
requirements of the Act.

      The  acid  rain program under the Act also governs SO2 allowances.
An allowance is defined as an authorization for an owner to emit one ton
of  SO2 into the atmosphere.  Currently, Utilities receives a sufficient
number  of allowances annually to offset its emissions of SO2  from  its
Phase  I units.  It is anticipated that in the year 2000, Utilities  may
have  an  insufficient  number  of allowances  annually  to  offset  its
estimated  emissions and may have to purchase additional allowances,  or
make   modifications  to  the  plants  or  limit  operations  to  reduce
emissions.   Utilities is reviewing its options to ensure that  it  will
have  sufficient  allowances  to offset its  emissions  in  the  future.
Utilities  believes  that  the  potential cost  of  ensuring  sufficient
allowances  will  not have a material adverse effect  on  its  financial
position or results of operations.

      The  Act  and  other federal laws also require the  United  States
Environmental  Protection  Agency  (EPA)  to  study  and  regulate,   if
necessary,  additional  issues  that  potentially  affect  the  electric
utility  industry, including emissions relating to NOx, ozone transport,
mercury   and   particulate  control;  toxic  release  inventories   and
modifications  to  the  PCB rules.  In December  1996,  the  EPA  issued
proposed  rules  that  would tighten the National  Ambient  Air  Quality
Standards (NAAQS) for ozone and particulate matter emissions.   Also  in
the  fourth  quarter of 1996, the EPA announced that it  would  issue  a
notice  in  March  1997 requiring the 37 states in the  Ozone  Transport
Assessment  Group  (OTAG),  which includes Iowa,  to  implement  further
controls on NOx.  These proposals could result in the Company having  to
incur additional capital expenditures to further reduce its emissions of
NOx,  ozone  and  particulate matter.  Currently, the impacts  of  these
potential regulations are too speculative to quantify.

     In 1995, the EPA published the Sulfur Dioxide Network Design Review
for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst-
case  modeling  method  suggests that the Cedar  Rapids  area  could  be
classified  as "nonattainment" for the NAAQS established for  SO2.   The
worst-case  modeling  study suggested that two of Utilities'  generating
facilities  contribute to the modeled exceedences and  recommended  that
additional monitors be located near Utilities' sources to assess  actual
ambient  air  quality.  As a result of these exceedences,  Utilities  is
entering  into a Consent Agreement with the Iowa Department  of  Natural
Resources.  The intent of this agreement, as currently proposed,  is  to
develop a three-year plan for a process to explore and implement options
to  modify  one of Utilities fossil generating facilities to reduce  SO2
emissions.  In addition, Utilities is proposing to resolve the remainder
of EPA's nonattainment concerns by either modifying the current stack or
installing a new stack at the other generating facility contributing  to
the  modeled exceedences at a potential aggregate capital cost of up  to
$4.5 million over the next two years.

      Pursuant  to  a  routine internal review of operations,  Utilities
determined  that  certain changes undertaken during the  previous  three
years  at one of its power plants may have required a federal Prevention
of   Significant   Deterioration  (PSD)  permit.   Utilities   initiated
discussions with its regulators on the matter and is preparing  the  PSD
permit  application for filing in the first quarter of 1997.   Utilities
may  be  required to accept operational limits or to install  additional
controls  and  may be subject to liability for not having  obtained  the
permit  previously; however, Utilities believes that any likely  actions
resulting  from this matter will not have a material adverse  effect  on
its financial position or results of operations.

    (h)  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.  Utilities  entered  into  such  a
contract  and  has  made the agreed payments to the Nuclear  Waste  Fund
(NWF)  held  by  the U.S. Treasury.  The DOE, however,  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.  Utilities has been storing spent nuclear fuel  on-
site  since  plant  operations began in 1974  and  has  current  on-site
capability  to  store spent fuel until 2001.  Utilities is  aggressively
reviewing  options  for expanding on-site storage.  Utilities  has  been
formally notified by the DOE that they anticipate being unable to  begin
acceptance  of  spent nuclear fuel by January 31,  1998.   Utilities  is
evaluating  courses of action to protect the interests of its  customers
and  its  rights  under the DOE contract.  Utilities is also  evaluating
legislation proposed to the Congress addressing this issue.

     (i)  Legal Proceedings -

      The  Company  is  involved  in  other  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, the Company believes  that  appropriate
liabilities have been established and final disposition of these actions
will  not  have a material adverse effect on its financial  position  or
results of operations.


(14) JOINTLY-OWNED ELECTRIC UTILITY PLANT:

      Under  joint  ownership  agreements  with  other  Iowa  utilities,
Utilities  has  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 Statements of Income.  Information relative  to
Utilities' ownership interest in these facilities at December  31,  1996
is as follows:

                                                 Ottumwa         Neal
                                    DAEC         Unit 1         Unit 3
                                 (Nuclear)       (Coal)         (Coal)
                                             ($ in millions)   
                                                        
Utility plant in service          $ 501.0        $ 190.2        $  60.7
Accumulated depreciation          $ 217.2        $  91.0        $  28.8
Construction work in progress     $   1.2        $   0.1        $   0.1
Plant capacity - Mw                   520            716            515
Percent ownership                      70%            48%            28%
In-service date                      1974           1981           1975


(15) SEGMENTS OF BUSINESS:

      The  principal business segments of Industries are the generation,
transmission, distribution and sale of electric energy by Utilities  and
the  purchase, distribution, transportation and sale of natural  gas  by
Utilities   and   IEA.   Certain  financial  information   relating   to
Industries' significant segments of business is presented below:

                                                 Year Ended December 31
                                             1996         1995         1994
                                                     (in thousands)     
Operating results:                                                         
  Revenues -                                                               
    Electric                            $   574,273  $   560,471  $   537,327
    Gas                                     273,979      190,339      165,569
                                                                   
  Operating income -                                               
    Electric                                132,278      130,390      125,487
    Gas                                      14,978       11,056        8,762
                                                                   
Other information:                                                 
  Depreciation and amortization -                                  
    Electric                                 77,578       72,487       68,640
    Gas                                       6,200        6,176        6,214
                                                                   
  Construction and acquisition expenditures - *
    Electric                                115,810      108,356      112,773
    Gas                                      20,980        9,368       10,066
                                                                   
  Assets -                                                         
    Identifiable assets -                                          
      Electric                            1,438,370    1,395,666    1,347,024
      Gas                                   228,780      199,050      192,397
                                          1,667,150    1,594,716    1,539,421
    Other corporate assets                  458,412      390,875      309,672
        Total consolidated assets      $  2,125,562  $ 1,985,591  $ 1,849,093

 * Excludes intercompany acquisitions which are eliminated for consolidated
   financial statement purposes.


            REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
IES Utilities Inc.:

We  have  audited  the  accompanying  consolidated  balance  sheets  and
statements of capitalization of IES Utilities Inc. (an Iowa corporation)
and  subsidiary  companies as of December 31, 1996  and  1995,  and  the
related  consolidated statements of income, retained earnings  and  cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements and the financial statement schedule referred
to  below  are  the  responsibility of the  Company's  management.   Our
responsibility  is  to express an opinion on these financial  statements
and 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 subsidiary companies as of December  31,  1996  and
1995, and the results of their operations and their cash flows for  each
of  the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.

Our  audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The financial statement 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 audits 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

Chicago, Illinois
January 31, 1997



<TABLE>
                 IES UTILITIES INC. CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
                                                             Year Ended December 31
                                                     1996             1995             1994
                                                                 (in thousands)
<S>                                           <C>              <C>              <C>
Operating revenues:
    Electric                                    $  574,273       $  560,471       $  537,327
    Gas                                            160,864          137,292          139,033
    Other                                           19,842           12,063            9,006
                                                   754,979          709,826          685,366


Operating expenses:
    Fuel for production                             84,579           96,256           85,952
    Purchased power                                 88,350           66,874           68,794
    Gas purchased for resale                       103,877           91,198           95,340
    Other operating expenses                       150,001          145,250          132,281
    Maintenance                                     45,869           43,586           49,542
    Depreciation and amortization                   84,975           79,384           75,316
    Taxes other than income taxes                   43,603           45,013           42,550
                                                   601,254          567,561          549,775


Operating income                                   153,725          142,265          135,591


Interest expense and other:
   Interest expense                                 43,714           44,460           41,572
   Allowance for funds used during construction     -2,103           -3,424           -3,910
   Miscellaneous, net                                5,293              856           -1,247
                                                    46,904           41,892           36,415


Income before income taxes                         106,821          100,373           99,176


Federal and state income taxes                      43,092           41,095           37,966


Net income                                          63,729           59,278           61,210
Preferred dividend requirements                        914              914              914
Net income available for common stock           $   62,815       $   58,364       $   60,296

                                                         
</TABLE>
                                                         
<TABLE>
            IES UTILITIES INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>                                                
                                                             Year Ended December 31
                                                     1996             1995            1994
                                                                 (in thousands)
<S>                                          <C>               <C>             <C>
                                                         
Balance at beginning of year                   $   212,522       $  197,158       $  188,862
Net income                                          63,729           59,278           61,210
Cash dividends declared -
    Common stock                                   -44,000          -43,000          -52,000
    Preferred stock, at stated rates                  -914             -914             -914

Balance at end of year                         $   231,337       $  212,522       $  197,158


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

<TABLE>
                          IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                                    December 31
ASSETS  (in thousands)                                          1996           1995
<S>                                                       <C>            <C>
Property, plant and equipment: 
  Utility -
    Plant in service -
        Electric                                            $ 2,007,839    $ 1,900,157
        Gas                                                     175,472        165,825
        Other                                                   126,850        106,396
                                                              2,310,161      2,172,378
    Less - Accumulated depreciation                           1,030,390        950,324
                                                              1,279,771      1,222,054
    Leased nuclear fuel, net of amortization                     34,725         36,935
    Construction work in progress                                43,719         52,772
                                                              1,358,215      1,311,761
  Other, net of accumulated depreciation and amortization
    of $1,438 and $1,166, respectively                            5,872          5,477
                                                              1,364,087      1,317,238


Current assets:
  Cash and temporary cash investments                            11,608          2,734
  Accounts receivable -
    Customer, less allowance for doubtful accounts
      of $546 and $676, respectively                             22,461         18,619
    Other                                                        11,270          8,912
  Income tax refunds receivable                                   2,664            846
  Production fuel, at average cost                               13,323         12,155
  Materials and supplies, at average cost                        21,716         27,229
  Adjustment clause balances                                     10,752              0
  Regulatory assets                                              26,539         22,791
  Prepayments and other                                          18,705         18,556
                                                                139,038        111,842


Investments:
  Nuclear decommissioning trust funds                            59,325         47,028
  Cash surrender value of life insurance policies                 4,281          3,582
  Other                                                             313            475
                                                                 63,919         51,085


Other assets:
  Regulatory assets                                             201,129        207,202
  Deferred charges and other                                     10,437         21,268
                                                                211,566        228,470
                                                            $ 1,778,610    $ 1,708,635
                                                                      
                                                                    December 31
CAPITALIZATION AND LIABILITIES  (in thousands)                  1996           1995
                                                                      
Capitalization (See Consolidated Statements of Capitalization):       
  Common stock                                              $    33,427    $    33,427
  Paid-in surplus                                               279,042        279,042
  Retained earnings                                             231,337        212,522
      Total common equity                                       543,806        524,991
  Cumulative preferred stock                                     18,320         18,320
  Long-term debt (excluding current portion)                    517,334        465,463
                                                              1,079,460      1,008,774


Current liabilities:
  Notes payable to associated companies                               0          8,888
  Other short-term borrowings                                   135,000        101,000
  Capital lease obligations                                      15,125         15,717
  Maturities and sinking funds                                    8,140         15,140
  Accounts payable                                               76,287         64,564
  Accrued interest                                                8,839          8,038
  Accrued taxes                                                  40,953         50,369
  Accumulated refueling outage provision                          1,316          7,690
  Adjustment clause balances                                          0          3,148
  Environmental liabilities                                       5,517          5,521
  Other                                                          17,114         17,300
                                                                308,291        297,375


Long-term liabilities:
  Pension and other benefit obligations                          25,826         41,866
  Capital lease obligations                                      19,600         21,218
  Environmental liabilities                                      40,299         40,905
  Other                                                          14,030          8,719
                                                                 99,755        112,708


Deferred credits:
  Accumulated deferred income taxes                             256,634        252,663
  Accumulated deferred investment tax credits                    34,470         37,115
                                                                291,104        289,778


Commitments and contingencies (Note 13)


                                                            $ 1,778,610    $ 1,708,635

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


<TABLE>
                IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
                                                                       December 31
                                                                   1996           1995
                                                                     (in thousands)
<S>                                                              <C>          <C>
Common equity:
    Common stock - par value $2.50 per share - authorized
        24,000,000 shares; outstanding 13,370,788 shares           $    33,427  $    33,427
    Paid-in surplus                                                    279,042      279,042
    Retained earnings                                                  231,337      212,522
                                                                       543,806      524,991



Cumulative preferred stock                                              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            0
        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
                                                                       229,400      169,400

     First Mortgage Bonds -
       Series J, 6-1/4%, retired in 1996                                     0       15,000
       Series L, 7-7/8%, due 2000                                       15,000       15,000
       Series M, 7-5/8%, due 2002                                       30,000       30,000
       Series Y, 8-5/8%, due 2001                                       60,000       60,000
       Series Z, 7.60%, due 1999                                        50,000       50,000
       6-1/8% series, due 1997                                           8,000        8,000
       9-1/8% series, due 2001                                          21,000       21,000
       7-3/8% series, due 2003                                          10,000       10,000
       7-1/4% series, due 2007                                          30,000       30,000
                                                                       224,000      239,000

     Pollution control obligations -
        5.75%, due serially 1997 to 2003                                 3,416        3,556
        5.95%, due serially 2000 to 2007, secured by 
          First Mortgage Bonds                                          10,000       10,000
        Variable rate (4.25%-4.35% at December 31, 1996), 
          due 2000 to 2010                                              11,100       11,100
                                                                        24,516       24,656

     Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025      50,000       50,000

     Unamortized debt premium and (discount), net                       -2,442       -2,453
                                                                       525,474      480,603
         Less - Amount due within one year                               8,140       15,140
                                                                       517,334      465,463
                                                                   $ 1,079,460  $ 1,008,774


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

<TABLE>
                     IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                     Year Ended December 31
                                                                         1996          1995          1994
                                                                      (in thousands)
<S>                                                          <C>           <C>           <C>
Cash flows from operating activities:
 Net income                                                    $    63,729   $    59,278   $    61,210
  Adjustments to reconcile net income to net cash
   flows from operating activities -
     Depreciation and amortization                                  84,975        79,384        75,316
     Amortization of principal under capital
       lease obligations                                            16,491        15,714        16,246
     Deferred taxes and investment tax credits                       7,763         7,628          -410
     Refueling outage provision                                     -6,374        -7,506        12,536
     Amortization of other assets                                    9,776         7,391         2,228
     Other                                                             279           184        -1,232
  Other changes in assets and liabilities -
     Accounts receivable                                           -13,200        -9,717        10,395
     Sale of utility accounts receivable                             7,000         4,000           800
     Production fuel, materials and supplies                           651         1,658           404
     Accounts payable                                               12,885        -4,395        20,444
     Accrued taxes                                                 -11,234         5,785         7,057
     Provision for rate refunds                                       -106           106        -8,670
     Adjustment clause balances                                    -13,900         4,581        -6,582
     Gas in storage                                                   -551         2,429         1,919
     Other                                                           7,322        -1,085         4,171
       Net cash flows from operating activities                    165,506       165,435       195,832


Cash flows from financing activities:
  Dividends declared on common stock                               -44,000       -43,000       -52,000
  Dividends declared on preferred stock                               -914          -914          -914
  Proceeds from issuance of long-term debt                          60,000       100,000             0
  Reductions in long-term debt                                     -15,140      -100,140          -224
  Net change in short-term borrowings                               25,112        54,393        31,495
  Principal payments under capital lease obligations               -19,108       -14,463       -16,304
  Other                                                               -420        -1,831        -5,144
    Net cash flows from financing activities                         5,530        -5,955       -43,091


Cash flows from investing activities:
  Construction and acquisition expenditures -
        Utility                                                   -142,381      -126,104      -146,240
        Other                                                       -1,267        -3,340        -1,863
  Deferred energy efficiency expenditures                          -16,857       -18,029       -16,157
  Nuclear decommissioning trust funds                               -6,008        -6,100        -5,532
  Other                                                              4,351        -5,308           873
    Net cash flows from investing activities                      -162,162      -158,881      -168,919


Net increase (decrease) in cash and
  temporary cash investments                                         8,874           599       -16,178


Cash and temporary cash investments at
  beginning of year                                                  2,734         2,135        18,313


Cash and temporary cash investments at
  end of year                                                  $    11,608   $     2,734   $     2,135


Supplemental cash flow information:
  Cash paid during the year for -
    Interest                                                   $    42,072   $    44,569   $    40,005
    Income taxes                                               $    45,383   $    29,083   $    34,479

  Noncash investing and financing activities -
    Capital lease obligations incurred                         $    14,281   $     2,918   $    14,297


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

      IES UTILITIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     Except  as modified below, the IES Industries Inc. (Industries) 
Notes to Consolidated Financial  Statements  are  incorporated 
by reference  insofar  as  they relate to IES Utilities Inc. 
(Utilities).  Industries' Notes 1(i), 6, 9(a) and 12  do
not  relate  to  Utilities  and,  therefore,  are  not  incorporated  by
reference.


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          (a)  Basis of Consolidation -

      Utilities is a wholly-owned subsidiary of 
Industries.  The Consolidated  Financial  Statements
include  the  accounts  of Utilities and its consolidated  subsidiaries.
Utilities  is  engaged  principally  in  the  generation,  transmission,
distribution  and  sale of electric energy, the purchase,  distribution,
transportation  and  sale  of  natural gas  and  to  provide  steam  for
industrial and heating purposes.  Utilities' markets are located in  the
state of Iowa.

      All  subsidiaries for which Utilities owns directly or  indirectly
more  than  50%  of  the  voting  stock  are  included  as  consolidated
subsidiaries.  Utilities' only wholly-owned subsidiary at  December  31,
1996   was   IES   Ventures  Inc.  (Ventures).   Ventures'  wholly-owned
subsidiary  at December 31, 1996 was IES Midland Development  Inc.   All
significant intercompany balances and transactions have been  eliminated
from the Consolidated Financial Statements.


(4)  LEASES:

      Utilities' operating lease rental expenses for 1996-1994 were $7.1
million, $9.0 million and $9.8 million, respectively.

     Utilities' future minimum lease payments by year are as follows:

                                               Capital       Operating
        Year                                    Lease         Leases  
                                                 (in thousands)      
                                                                    
        1997                                  $ 16,808        $ 5,601
        1998                                     9,889          5,374
        1999                                     6,969          3,658
        2000                                     3,004          1,654
        2001                                       861          1,329
        Thereafter                                 307             19
                                                37,838       $ 17,635
        Less:  Amount representing interest      3,113          
        Present value of net minimum                        
            capital lease payments            $ 34,725         

 (7) INCOME TAXES:

      The  components of federal and state income taxes  for  the  years
ended December 31, were as follows:

                                      1996       1995       1994
                                            (in millions) 
                                                                 
Current tax expense                  $ 35.3     $ 33.5     $ 38.4
Deferred tax expense                   10.4       10.3        2.2
Amortization and adjustment                                    
  of investment tax credits            (2.6)      (2.7)      (2.6)
                                     $ 43.1     $ 41.1     $ 38.0


      Utilities' 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.

                                                     1996      1995      1994
                                                                   
Statutory federal income tax rate                    35.0%     35.0%     35.0%
  State income taxes, net of federal benefits         6.9       5.9       6.1
  Effect of rate making on property                              
    related differences                               2.9       2.8       1.7
  Amortization of investment tax credits             (2.5)     (2.7)     (2.7)
  Adjustment of prior period taxes                   (3.3)     (0.1)     (1.9)
  Other items, net                                    1.3        -        0.1
Overall effective income tax rate                    40.3%     40.9%     38.3%


      Utilities' accumulated deferred income taxes as set forth below in
the Consolidated Balance Sheets at December 31, arise from the following
temporary differences:

                                      1996           1995
                                         (in millions)
                                              
Property related                     $ 275          $ 282
Investment tax credit related          (24)           (26)
Decommissioning related                (15)           (14)
Other                                   21             11
                                     $ 257          $ 253


(8)  BENEFIT PLANS:

     (a)  Pension Plans -

      Payments  made  from  the pension funds to retired  employees  and
beneficiaries during 1996 totaled $10.4 million for Utilities.

      The  components  of  the pension provision  for  the  years  ended
December 31, were as follows:

                                                 1996       1995        1994
                                                       (in thousands)           
                                                                            
Service cost                                 $   5,439  $   4,721   $   5,786
Interest cost on projected benefit                                  
  obligation                                    12,435      11,577     11,265
Assumed return on plans' assets                (14,653)    (12,340)   (12,426)
Early retirement benefits                        4,498         -          -
Net amortization                                   885         260        826
Pension cost                                     8,604       4,218      5,451
Adjustment to funding level                     (8,604)     (4,218)    (5,340)
Total pension costs paid to the Trustee      $     -    $      -     $    111
                                                                 
Actual return on plans' assets               $  25,727  $   35,947   $   (101)


      During  1996, Utilities incurred a one-time charge of $4.5 million
related  to an early retirement program.  These costs were deferred  for
future recovery through the regulatory process.

      A  reconciliation of the funded status of the plans to the amounts
recognized in Utilities' Consolidated Balance Sheets at December 31,  is
presented below:

                                                          1996       1995
                                                           (in thousands)
                                                                   
Fair market value of plans' assets                    $  205,699    $ 191,782
Actuarial present value of benefits                                   
  rendered to date -                                                  
    Accumulated benefits based on compensation                      
      to date, including vested benefits of                               
      $125,983,000 and $117,624,000, respectively        137,772      128,674
    Additional benefits based on estimated future                    
      salary levels                                       41,589       40,790
Projected benefit obligation                             179,361      169,464
Plans' assets in excess of projected benefit                         
  obligation                                              26,338       22,318
Remaining unrecognized net asset existing at                        
  January 1, 1987, being amortized over 20 years          (3,124)      (3,451)
Unrecognized prior service cost                           15,195       16,564
Unrecognized net gain                                    (50,818)     (40,707)
Accrued pension cost recognized in the                              
  Consolidated Balance Sheets                         $  (12,409)   $  (5,276)

                                                                   
Assumed rate of return, all plans                           9.00%        8.00%
Weighted average discount rate of projected 
  benefit obligation, all plans                             7.50%        7.50%
Assumed rate of increase in future compensation                    
  levels for the plans                                      4.75%        4.75%


      Utilities'  employees  also participate  in  defined  contribution
pension  plans  (401(k)  plans)  covering substantially  all  employees.
Utilities'  contributions  to  the  plans,  which  are  based   on   the
participants'  level  of  contribution and cannot  exceed  2.8%  of  the
participants'  salaries or wages, were $1.5 million,  $1.4  million  and
$1.6 million in 1996, 1995 and 1994, respectively.

     (b)  Other Postemployment Benefit Plans -

      The components of postretirement benefit costs for the years ended
December 31, were as follows:

                                                  1996       1995       1994
                                                        (in thousands)        
                                                                               
Service cost                                   $  1,714   $  1,227   $  1,785
Interest cost on accumulated postretirement                          
  benefit obligation                              3,577      3,049      3,175
Assumed return on plans' assets                    (388)       (56)       (60)
Net amortization of transition obligation                            
  and other                                       1,987      1,822      2,039
Amortized/(deferred) postretirement                                  
  benefit costs                                   1,863      2,220     (2,732)
Costs billed to affiliate                           -         (265)       -
Regulatory recognition of incurred cost              49      1,162        -
Net postretirement benefit costs               $  8,802   $  9,159   $  4,207
                                                                       
Actual return on plans' assets                 $    945   $    273   $     47


      A  reconciliation of the funded status of the plans to the amounts
recognized in Utilities' Consolidated Balance Sheets at December 31,  is
presented below:

                                                            1996        1995
                                                             (in thousands)     
                                                                           
Fair market value of plans' assets                      $  12,312   $   6,515
Accumulated postretirement benefit obligation -
  Active employees not yet eligible                        17,990      20,936
  Active employees eligible                                 4,675       6,148
  Retirees                                                 25,300      21,846
Total accumulated postretirement benefit                         
  obligation                                               47,965      48,930
Accumulated postretirement benefit obligation
  in excess of plans' assets                              (35,653)    (42,415)
Unrecognized transition obligation                         31,020      34,415
Unrecognized net (gain)/loss                               (2,571)        268
Unrecognized prior service cost                               -           151
Accrued postretirement benefit cost in the                       
  Consolidated Balance Sheets                           $  (7,204)  $  (7,581)
                                                                 
Assumed rate of return                                       9.00%       8.00%
Weighted average discount rate of accumulated
  postretirement benefit obligation                          7.50%       7.50%
Medical trend on paid charges:                                   
  Initial trend rate                                         9.00%      10.00%
  Ultimate trend rate                                        6.50%       6.50%


      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 1%  change
in  the  medical  trend  rates, holding all other assumptions  constant,
would  have changed the 1996 service and interest cost for Utilities  by
$1.1 million (21%) and the accumulated postretirement benefit obligation
for Utilities at December 31, 1996, by $8.1 million (17%).


(11) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

      Long-Term Debt - The estimated fair value is based upon the market
yield  of similar securities and quoted market prices.  At December  31,
1996, and December 31, 1995, the carrying amount of Utilities' long-term
debt  was  $528  million and $483 million, compared  to  estimated  fair
values of $538 million and $507 million, respectively.


(13) COMMITMENTS AND CONTINGENCIES:

     (c)  Information Technology Services -

      Industries  entered  into an agreement,  expiring  in  2004,  with
Electronic  Data  Systems Corporation (EDS) for  information  technology
services.   The  contract  is  subject to  declining  termination  fees.
Utilities'  anticipated  operating and capital  expenditures  under  the
agreement  for 1997 are estimated to total approximately $12.1  million.
Future  costs  under the agreement are variable and are  dependent  upon
Utilities' level of usage of technological services from EDS.


     (d)  Financial Guarantees -

      Utilities'  has  financial guarantees amounting to  $22.6  million
outstanding at December 31, 1996, which are not reflected in  Utilities'
consolidated financial statements.  Such guarantees are generally issued
to  support third-party borrowing arrangements and similar transactions.
Utilities  believes  that the likelihood of material  cash  payments  by
Utilities under these agreements is remote.


(15) SEGMENTS OF BUSINESS:

      The  principal business segments of Utilities are the  generation,
transmission, distribution and sale of electric energy and the purchase,
distribution, transportation and sale of natural gas.  Certain financial
information  relating to Utilities' significant segments of business  is
presented below:

                                                   Year Ended December 31
                                               1996         1995         1994
                                                       (in thousands)
Operating results:                                             
  Revenues -                                                   
    Electric                             $   574,273  $   560,471  $   537,327
    Gas                                      160,864      137,292      139,033
                                                       
  Operating income -                                   
    Electric                                 132,278      130,390      125,487
    Gas                                       17,088        9,208        8,135
                                                                
Other information:                                              
  Depreciation and amortization -                               
    Electric                                  77,578       72,487       68,640
    Gas                                        6,200        6,176        6,214
                                                                
  Construction and acquisition expenditures -                   
    Electric                                 115,929      108,902      120,180
    Gas                                       12,981        9,368       10,066
                                                                
  Assets -                                                      
    Identifiable assets -                                       
      Electric                             1,438,370    1,395,666    1,347,024
      Gas                                    205,680      192,045      186,911
                                           1,644,050    1,587,711    1,533,935
    Other corporate assets                   134,560      120,924      111,433
        Total consolidated assets        $ 1,778,610  $ 1,708,635  $ 1,645,368


Item 9.  Changes and Disagreements with Accountants on Accounting and
         Financial Disclosure

         None.

                                PART III


Item  10.  Directors, Executive Officers, Promoters and Control  Persons
           of the Registrant

      Information  regarding  the identification  of  directors  of  IES
Industries Inc. and IES Utilities Inc. and compliance with Section 16(a)
reporting  requirements  of the Securities and  Exchange  Commission  is
included  in  Industries' definitive proxy statement  (Proxy  Statement)
prepared  for  the 1997 annual meeting of stockholders,  which  will  be
filed  within 120 days of December 31, 1996, (Proxy Statement under  the
captions  "Proposal - Nomination and Election of Directors" and "Section
16(a)  Beneficial  Ownership Reporting Compliance" and  is  incorporated
herein  by reference.  The executive officers of the registrants as of 
December 31, 1996 are  as follows: (Figures following the names 
represent the officer's age as  of December 31, 1996).


Executive Officers of IES Industries Inc.

     Lee  Liu,  63,  Chairman  of the Board & Chief  Executive  Officer.
     First elected officer in 1975.

     Larry D. Root, 60, President & Chief Operating Officer.  Re-elected
     officer in 1996. (i)

     James  E.  Hoffman,  43, Executive Vice President.   First  elected
     officer in 1996. (ii)

     Thomas  M.  Walker, 49, Executive Vice President & Chief  Financial
     Officer.  First elected officer in 1996. (iii)

     Peter  W.  Dietrich,  57,  Vice President,  Corporate  Development.
     First elected officer in 1988.

     Dean E. Ekstrom, 49, Vice President, Administration.  First elected
     officer in 1991.

     Stephen  W.  Southwick,  50,  Vice  President,  General  Counsel  &
     Secretary.  First elected officer in 1982.

     John  E. Ebright, 53, Controller & Chief Accounting Officer.  First
     elected officer in 1996. (iv)

     Dennis B. Vass, 47, Treasurer.  First elected officer in 1995.


Executive Officers of IES Utilities Inc.

     Lee  Liu,  63,  Chairman  of the Board & Chief  Executive  Officer.
     First elected officer in 1975.

     Larry D. Root, 60, President & Chief Operating Officer.  Re-elected
     officer in 1996. (i)

     James E. Hoffman, 43, Executive Vice President, Customer Service  &
     Energy Delivery.  First elected officer in 1995. (ii)

     Thomas  M.  Walker, 49, Executive Vice President & Chief  Financial
     Officer.  First elected officer in 1996. (iii)
     
     John F.  Franz,  Jr., 57, Vice President, Nuclear.   First  elected
     officer in 1992.
     
     Harold  W.  Rehrauer, 59, Vice President, Field Operations.   First
     elected officer in 1987.

     Stephen  W.  Southwick,  50,  Vice  President,  General  Counsel  &
     Secretary.  First elected officer in 1982.

     Philip  D.  Ward,  56, Vice President, Generation.   First  elected
     officer in 1990.

     John  E. Ebright, 53, Controller & Chief Accounting Officer.  First
     elected officer in 1996. (iv)

     Dennis B. Vass, 47, Treasurer.  First elected officer in 1995.


     Officers are elected annually by the Board of Directors and each of
the officers named above, except Larry D. Root, James E. Hoffman, Thomas
M. Walker and John E. Ebright, has been employed by Industries or one of
its  significant  subsidiaries as an officer  or  in  other  responsible
positions  at  such  companies for at least five years.   There  are  no
family  relationships  among these officers or among  the  officers  and
directors.  There are no arrangements or understandings with respect  to
election of any person as an officer.

    (i)   Larry  D.  Root, who retired in 1995, was re-elected  as
          President  &  Chief Operating Officer of both  IES  Industries
          Inc.  and IES Utilities Inc. effective November 6, 1996.   Mr.
          Root was first elected as an officer in 1979.

    (ii)  James E. Hoffman was elected Executive Vice President  of
          IES  Industries Inc. effective November 6, 1996.  Prior to his
          appointment  as Executive Vice  President, Customer  Service
          & Energy Delivery of IES Utilities  Inc.  in 1995,  he
          was  employed  by  MCI  Communications  as  Chief  Information
          Officer from 1990 to 1995.

   (iii)  Thomas  M.  Walker  was  elected  Executive   Vice
          President  &  Chief Financial Officer of both  IES  Industries
          Inc.  and  IES  Utilities Inc. effective  December  16,  1996.
          Prior to joining the Company in December 1996, he was employed
          from  1990  - 1995 by Information Resources, Inc. as Executive
          Vice President, Chief Financial and Administrative Officer and
          Member of the Board of Directors.

    (iv)  John E. Ebright was elected Controller & Chief Accounting
          Officer  of  both IES Industries Inc. and IES  Utilities  Inc.
          effective July 8, 1996.  Prior to joining the Company in  July
          1996,  he was employed by MidCon Corp., a subsidiary  of
          Occidental  Petroleum  Corporation,   as  Vice  President  and
          Controller from 1987 to 1996.


Item 11.  Executive Compensation

      Information  regarding executive compensation and transactions  is
included  in  the  Proxy Statement under the captions  "Compensation  of
Directors", "Summary Compensation Table" and "IES Industries Plans"  and
is  incorporated  herein by reference, except for  the  "Report  of  the
Compensation  Committee on Executive Compensation" and the  "Performance
Graph",  which  are  not incorporated herein by  reference.   The  Proxy
Statement  will  be  filed with the Securities and  Exchange  Commission
within 120 days of December 31, 1996.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

      Information  regarding security ownership  of  certain  beneficial
owners  and  management  is included in the Proxy  Statement  under  the
captions   "Security  Ownership  of  Beneficial  Owners"  and  "Security
Ownership  of Management" and is incorporated herein by reference.   The
Proxy   Statement  will  be  filed  with  the  Securities  and  Exchange
Commission within 120 days of December 31, 1996.


Item 13.  Certain Relationships and Related Transactions

       Information   regarding   certain   relationships   and   related
transactions  is  included  in the Proxy Statement  under  the  captions
"Other Transactions" and "Compensation of Directors" and is incorporated
herein  by  reference.   The Proxy Statement  will  be  filed  with  the
Securities and Exchange Commission within 120 days of December 31, 1996.


                                 PART IV


Item  14.  Exhibits, Financial Statement Schedules and Reports on Form
           8-K


(a)  1.   Financial Statements   (Included in Part II of this report) -

                                                               Page No.
                                                          IES           IES
                Description                           Industries     Utilities
                                                          Inc.          Inc.
                                                                 
Report of Independent Public Accountants                   44            73
                                                                      
Consolidated Statements of Income                                     
for the years ended December 31, 1996, 1995 and 1994       45            74
                                                                      
Consolidated Statements of Retained Earnings                          
for the years ended December 31, 1996, 1995 and 1994       45            74
                                                                         
Consolidated Balance Sheets                                              
at December 31, 1996 and 1995                            46 - 47       75 - 76
                                                                         
Consolidated Statements of Capitalization                                
at December 31, 1996 and 1995                              48            77
                                                                      
Consolidated Statements of Cash Flows                                 
for the years ended December 31, 1996, 1995 and 1994       49            78
                                                                      
Notes to Consolidated Financial Statements             50 - 72         79 - 84


(a)   2.    Financial Statement Schedules  (Included in Part IV of
            this report) -

            Schedule II -  Valuation and Qualifying Accounts 
                           and Reserves for the years ended
                           December 31, 1996, 1995 and 1994              95

            Other schedules are omitted as not required under
            Rules of Regulation S-X


(a)   3.    Exhibits  Required  by Securities  and  Exchange  Commission
            Regulation S-K -

The  Exhibits designated by an asterisk are filed herewith and all other
Exhibits as stated to be filed are incorporated herein by reference.

Exhibit

 2(a)  Agreement and Plan of Merger, dated as of November
        10,  1995,  as  amended,  by and among WPL  Holdings,  Inc.,  IES
        Industries  Inc., Interstate Power Company, WPLH Acquisition  Co.
        and Interstate Power Company (Filed as Exhibit 2.1 to Industries'
        Joint Proxy Statement, dated July 11, 1996).

 2(b) Amendment No. 2 to Agreement and Plan of Merger,
        as  amended,  dated August 16, 1996, by and among IES  Industries
        Inc.,   WPL  Holdings,  Inc.,  Interstate  Power  Company,   WPLH
        Acquisition Co. and Interstate Power Company (Filed as Annex 1 to
        the  Supplement  to the Joint Proxy Statement  of  WPL  Holdings,
        Inc.,  IES  Industries Inc. and Interstate Power  Company,  dated
        August 21, 1996).

 2(c) Option Grantor/Option Holder Stock Option and Trigger Payment
       Agreement, dated as of November 10, 1995, by and among 
       WPL Holdings, Inc. and IES Industries Inc.  (Filed as Exhibit 
       2.2 to Industries' Current Report on Form 8-K, dated 
       November 10, 1995).

2(d) Option Grantor/Option Holder Stock Option and Trigger 
       Payment Agreement, dated as of November 10, 1995, 
       by and among WPL Holdings, Inc. and Interstate 
       Power Company.  (Filed as Exhibit 2.3 to Industries'
       Current Report on Form 8-K, dated November 10, 1995).

2(e) Option Grantor/Option Holder Stock Option and 
      Trigger Payment Agreement, dated as of November 
       10, 1995, by and among IES Industries Inc. and 
       WPL Holdings, Inc.  (Filed as Exhibit 2.4 to Industries' 
       Current Report on Form 8-K, dated November 10, 1995).

2(f) Option Grantor/Option Holder Stock Option and Trigger 
       Payment Agreement, dated as of November 10, 1995,
       by and among IES Industries Inc. and Interstate Power
       Company.  (Filed as Exhibit 2.5 to Industries' Current
       Report on Form 8-K, dated November 10, 1995).

2(g) Option Grantor/Option Holder Stock Option and Trigger 
       Payment Agreement, dated as of November 10, 1995,
       by and among Interstate Power Company and WPL
       Holdings, Inc.  (Filed as Exhibit 2.6 to Industries' 
       Current Report on Form 8-K, dated November 10, 1995).

2(h) Option Grantor/Option Holder Stock Option and Trigger 
       Payment Agreement, dated as of November 10, 1995, 
       by and among Interstate Power Company and IES 
       Industries Inc.  (Filed as Exhibit 2.7 to Industries' 
       Current Report on Form 8-K, dated November 10, 1995).

 3(a)  Articles  of  Incorporation of  IES  Industries  Inc.
       (Industries),  Amended and Restated as of May 4, 1993  (Filed  as
       Exhibit 3(a) to Industries' Form 10-K for the year 1993).

 3(b)  Articles  of  Incorporation  of  IES  Utilities  Inc.
       (Utilities), Amended and Restated as of January 6, 1994 (Filed as
       Exhibit  4(b)  to  Utilities' Current Report on Form  8-K,  dated
       January 7, 1994).

* 3(c) Bylaws of Industries, as amended February 4, 1997.

* 3(d) Bylaws of Utilities, as amended February 4, 1997.

  4(a) Indenture of Mortgage and Deed of Trust, dated as
       of  September 1, 1993, between Utilities (formerly Iowa  Electric
       Light  and  Power  Company (IE)) and The First National  Bank  of
       Chicago,  as  Trustee (Mortgage) (Filed as Exhibit 4(c)  to  IE's
       Form 10-Q for the quarter ended September 30, 1993).

  4(b) Supplemental Indentures to the Mortgage:

   Number            Dated as of         IE/Utilities 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)
                     
                                         
  4(c) Indenture of Mortgage and Deed of Trust, dated as
       of  August 1, 1940, between Utilities (formerly IE) and The First
       National  Bank  of  Chicago, Trustee (1940 Indenture)  (Filed  as
       Exhibit 2(a) to IE's Registration Statement, File No. 2-25347).
                                          
  4(d) Supplemental Indentures to the 1940 Indenture:
                                         
                                         
   Number            Dated as of         IE/Utiliites File Reference  Exhibit

   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)
   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)

  4(e) Indenture or Deed of Trust dated as of February 1,
       1923,  between  Utilities (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) (Filed as Exhibit B-1 to File No. 2-1719).

  4(f) 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)
   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(g)  Third Amended and Restated Credit Agreement dated
        as  of  November 20, 1996 among IES Diversified Inc. as Borrower,
        certain banks and Citibank, N.A., as Agent.

  4(h)  Indenture  (For  Unsecured  Subordinated   Debt
        Securities), dated as of December 1, 1995, between Utilities  and
        The  First  National  Bank of Chicago, as  Trustee  (Subordinated
        Indenture) (Filed as Exhibit 4(i) to Utilities' Amendment  No.  1
        to Registration Statement, File No. 33-62259).

10(a)  Operating  and  Transmission  Agreement  between
        Central Iowa Power Cooperative and IE (Filed as Exhibit 10(q)  to
        IE's Form 10-K for the year 1990).

 10(b)  Duane Arnold Energy Center Ownership Participation
        Agreement   dated  June  1,  1970  between  Central  Iowa   Power
        Cooperative,  Corn  Belt Power Cooperative  and  IE.   (Filed  as
        Exhibit 5(kk) to IE's Registration Statement, File No. 2-38674).

 10(c)  Duane  Arnold Energy Center Operating  Agreement
        dated  June 1, 1970 between Central Iowa Power Cooperative,  Corn
        Belt  Power Cooperative and IE.  (Filed as Exhibit 5(ll) to  IE's
        Registration Statement, File No. 2-38674).

 10(d)  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 IE.  (Filed as Exhibit 5(mm) to  IE's
        Registration Statement, File No. 2-38674).

 10(e)  Basic Generating Agreement dated April 16,  1975
        between  Iowa  Public  Service  Company,  Iowa  Power  and  Light
        Company,  Iowa-Illinois Gas and Electric Company and IS  for  the
        joint  ownership  of Ottumwa Generating Station-Unit  1  (OGS-1).
        (Filed as Exhibit 1 to IE's Form 10-K for the year 1977).

 10(f)  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, IS and IE for  the  purchase  of  15%
        ownership  in OGS-1.  (Filed as Exhibit 3 to IE's Form  10-K  for
        the year 1977).

 10(g)  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  IE.   (Filed  as
        Exhibit 10(j) to IE's Form 10-K for the year 1987).


Management Contracts and/or Compensatory Plans (Exhibits 10(h) through 10(s))

 10(h)  Supplemental Retirement Plan.  (Filed as Exhibit
        10(l) to Industries' Form 10-K for the year 1987).

 10(i)  Management Incentive Compensation Plan.  (Filed as
        Exhibit 10(m) to Industries' Form 10-K for the year 1987).

 10(j)  Key Employee Deferred Compensation Plan.  (Filed
        as Exhibit 10(n) to Industries' Form 10-K for the year 1987).

 10(k)  Long-Term Incentive Plan.  (Filed as Exhibit A to
        Industries' Proxy Statement dated March 20, 1995).

 10(l)  Executive Guaranty Plan.  (Filed as Exhibit 10(p)
        to Industries' Form 10-K for the year 1987).

 10(m)  Executive Change of Control Severance Agreement -
        CEO  (Filed  as Exhibit 10(a) to Industries' Form  10-Q  for  the
        quarter ended September 30, 1996 (File No. 1-9187)).

 10(n)  Executive Change of Control Severance Agreement -
        Vice  Presidents (Filed as Exhibit 10(b) to Industries' Form 10-Q
        for the quarter ended September 30, 1996 (File No. 1-9187)).

 10(o)  Executive Change of Control Severance Agreement -
        Other  Officers (Filed as Exhibit 10(c) to Industries' Form  10-Q
        for the quarter ended September 30, 1996 (File No. 1-9187)).

 10(p)  Amendments to Key Employee Deferred Compensation
        Agreement  for Directors.  (Filed as Exhibit 10(u) to Industries'
        Form 10-Q for the quarter ended March 31, 1990).

 10(q)  Amendments to Key Employee Deferred Compensation
        Agreement  for  Key  Employees.   (Filed  as  Exhibit  10(v)   to
        Industries' Form 10-Q for the quarter ended March 31, 1990).

 10(r)  Amendments to Management Incentive  Compensation
        Plan.   (Filed as Exhibit 10(y) to Industries' Form 10-Q for  the
        quarter ended March 31, 1990).

*10(s)  Director Retirement Plan.

 10(t)  Agreement and Plan of Merger, dated as of February
        27,  1991,  by  and between IE Industries Inc. and Iowa  Southern
        Inc.    (Filed  as  Exhibit  2  to  Industries'  Form  8-K  dated
        February 27, 1991).

 10(u)  IES  Industries Inc. Shareholders' Rights  Plan.
        (Filed  as  Exhibit I-2 to Industries' Registration Statement  on
        Form 8-A filed November 13, 1991).

10(v)  Lease   and   Security   Agreement,    dated
        October  1,  1993, between IES Diversified Inc., as  lessee,  and
        Sumitomo  Bank Leasing and Finance, Inc., as lessor.   (Filed  as
        Exhibit 10(z) to Industries' Form 10-K for the year 1993).

 10(w)  Receivables Purchase and Sale Agreement dated as of June 30,
        1989,  as  Amended and Restated as of April 15, 1994,  among  IES
        Utilities Inc. (as Seller) and CIESCO L.P. (as the Investor)  and
        Citicorp North America, Inc. (as Agent).  (Filed as Exhibit 10(a)
        to  Utilities'  Form 10-Q for the quarter ended  March  31,  1994
        (File No. 0-4117-1)).
  
 10(x)  Guaranty (IES Utilities Trust No. 1994-A) from IES Utilities
        Inc.,  dated  as  of June 29, 1994. (Filed as  Exhibit  10(b)  to
        Utilities'  Form 10-Q for the quarter ended June 30,  1994  (File
        No. 0-4117-1)).

 10(y) Copy  of Coal Supply Agreement, dated  July  27,
        1977, between IS and Sunoco Energy Development Co. (former parent
        of  Cordero  Mining  Co.), and letter memorandum  thereto,  dated
        October  29, 1984, relating to the purchase of coal supplies  for
        the  fuel requirements at the Ottumwa Generating Station.  (Filed
        as Exhibit 10-A-4 to File No. 33-3995).

*12     Ratio of Earnings to Fixed Charges (IES Utilities Inc.)

*21     Subsidiaries of the Registrant (IES Industries Inc.)

*23(a)  Consent  of Independent Public Accountants (IES Industries Inc.)

*23(b)  Consent  of Independent Public Accountants (IES Utilities Inc.)

*27(a)  Financial Data Schedule (IES Industries Inc.)

*27(b)  Financial Data Schedule (IES Utilities Inc.)


Note:   Pursuant to (b)(4)(iii)(A) of Item 601  of  Regulation
        S-K,  the  Company has not filed as an exhibit to this Form  10-K
        certain  instruments with respect to long-term debt that has  not
        been  registered  if  the total amount of  securities  authorized
        thereunder does not exceed 10% of total assets of the Company but
        hereby  agrees to furnish to the Commission on request  any  such
        instruments.

(a)     4.  Unaudited  Pro Forma Combined Financial  Information  of
            Interstate Energy Corporation:

            Unaudited  Pro Forma Combined Balance Sheet at
            December  31, 1996                                        97 - 98

            Unaudited Pro Forma Combined Statements of Income 
            for the years ended December 31, 1996, 1995 and 1994      99 - 101

            Notes  to  Unaudited Pro Forma Combined 
            Financial  Statements                                    102 - 104


(b)         Reports on Form 8-K -

            Industries - None.

            Utilities - None.

               IES INDUSTRIES INC. AND IES UTILITIES INC.

       SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

          FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994



      Column A                                         Column B      Column E

                                                       Balance       Balance
     Description                                      January 1    December 31
                                                           (in thousands)

VALUATION AND QUALIFYING ACCOUNTS WHICH ARE DEDUCTED IN THE BALANCE SHEET
FROM THE ASSETS TO WHICH THEY APPLY:

IES Utilities Inc.:
   Accumulated Provision for Uncollectible Accounts:
     Year ended December 31, 1996                        $    676     $    757
     Year ended December 31, 1995                        $    650     $    676
     Year ended December 31, 1994                        $    409     $    650
                                                                      
Non-utility Subsidiaries:                                             
   Accumulated Provision for Uncollectible Accounts:                  
     Year ended December 31, 1996                        $    685     $    774
     Year ended December 31, 1995                        $    372     $    685
     Year ended December 31, 1994                        $    506     $    372
                                                                       
Note:   The above provisions relate to various customer, notes and other
receivable  balances  included in several line items  on  the  Company's
Consolidated Balance Sheets.                                          
                                                                      
                                                                      
OTHER RESERVES:                                                       
                                                                      
IES Utilities Inc.:                                                   
   Accumulated Provision for Rate Refunds                             
     Year ended December 31, 1996                        $    106     $     -
     Year ended December 31, 1995                        $     -      $    106
     Year ended December 31, 1994                        $  8,670     $     -

IES Utilities Inc.:                                                   
   Accumulated Provision for Merchandise Warranty, Property           
   Insurance, Injuries and Damages, Workmen's Compensation            
   and Other Miscellaneous Claims                                     
     Year ended December 31, 1996                        $  2,876     $  2,694
     Year ended December 31, 1995                        $  2,516     $  2,876
     Year ended December 31, 1994                        $  1,611     $  2,516


           UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
                    OF INTERSTATE ENERGY CORPORATION


IES  Industries Inc. (IES), WPL Holdings, Inc. (WPLH), Interstate  Power
Company  (IPC),  and  certain  related  parties  have  entered  into  an
Agreement and Plan of Merger, dated as of November 10, 1995, as  amended
(the  Merger  Agreement), providing for (a) the merger of IES  with  and
into  WPLH and (b) the merger of IPC with a subsidiary of WPLH  pursuant
to  which  IPC  will become a subsidiary of WPLH (the  above  referenced
mergers  are  collectively  referred herein  to  as  the  Mergers).   In
connection  with the consummation of the Mergers, WPLH will  change  its
name  to  Interstate  Energy  Corporation.   Detailed  information  with
respect to the Merger Agreement and the proposed Mergers is contained in
the   Joint  Proxy  Statement/Prospectus,  dated  July  11,   1996,   as
supplemented  by  the  Supplement to Joint  Proxy  Statement/Prospectus,
dated  August  21, 1996, contained in WPLH's Registration Statements  on
Form  S-4,  Registration Nos. 333-07931 and 333-10401  relating  to  the
meetings  of  shareowners of WPLH, IES and IPC to  vote  on  the  Merger
Agreement and related matters.

The  following  unaudited pro forma financial information  combines  the
historical consolidated balance sheets and statements of income of WPLH,
IES  and  IPC,  including  their respective subsidiaries,  after  giving
effect  to the Mergers. The historical data for WPLH have been  adjusted
to  reflect  the  restatement  of  such  data  to  account  for  certain
discontinued  operations discussed in the notes hereto.   The  unaudited
pro  forma combined  balance sheet at December 31, 1996 gives effect  to
the Mergers as if they had occurred at December 31, 1996.  The unaudited
pro  forma combined statements of income for each of the three years  in
the period ended December 31, 1996 give effect to the Mergers as if they
had  occurred at January 1, 1994.  These statements are prepared on  the
basis  of accounting for the Mergers as a pooling of interests  and  are
based  on  the assumptions set forth in the notes thereto.  In addition,
the pro forma financial information does not give effect to the expected
synergies or the cost to be incurred to achieve such synergies.  The pro
forma financial information, however, does reflect the transaction costs
to effect the Mergers.

The  following  pro forma financial information has been prepared  from,
and  should  be  read  in conjunction with, the historical  consolidated
financial  statements and related notes thereto of WPLH,  IES  and  IPC.
The following information is not necessarily indicative of the financial
position  or operating results that would have occurred had the  Mergers
been  consummated on the date, or at the beginning of the  periods,  for
which  the  Mergers  are  being  given  effect  nor  is  it  necessarily
indicative of future operating results or financial position.

<TABLE>
                             INTERSTATE ENERGY CORPORATION

                      UNAUDITED PRO FORMA COMBINED BALANCE SHEET
                                 December 31, 1996
                                    (In thousands)
<CAPTION>

ASSETS                                            WPLH          IES           IPC       Pro Forma     Pro Forma
                                             (As Reported) (As Reported) (As Reported)  Adjustments   Combined
<S>                                          <C>           <C>           <C>           <C>           <C>
UTILITY PLANT
   Electric                                    $ 1,729,311   $ 2,007,839   $   853,007   $  ----       $ 4,590,157
   Gas                                             227,809       175,472        68,047      ----           471,328
   Other                                           175,998       126,850           ---      ----           302,848
       Total                                     2,133,118     2,310,161       921,054      ----         5,364,333
   Less: Accumulated provision for depreciation   967,436     1,030,390       426,471      ----         2,424,297
   Construction work in progress                    55,519        43,719         3,129      ----           102,367
   Nuclear fuel--net                                19,368        34,725           ---      ----            54,093
       Net utility plant                         1,240,569     1,358,215       497,712      ----         3,096,496
OTHER PROPERTY, PLANT AND EQUIPMENT
     ---NET AND INVESTMENTS (NOTE 8)               144,671       314,071           453      ----           459,195
CURRENT ASSETS
    Cash and cash equivalents                       11,070         8,675         3,072      ----            22,817
    Accounts receivable ---net                      88,798        62,861        28,227      ----           179,886
    Fossil fuel inventories, at average cost        15,841        13,323        16,623      ----            45,787
    Materials and supplies, at average cost         29,907        22,842         6,214      ----            58,963
    Prepayments and other                           26,786        70,350        13,497      ----           110,633
        Total current assets                       172,402       178,051        67,633      ----           418,086
EXTERNAL DECOMMISSIONING FUND                       90,671        59,325           ---      ----           149,996
DEFERRED CHARGES AND OTHER                         252,218       215,900        73,402      ----           541,520
        TOTAL ASSETS                           $ 1,900,531   $ 2,125,562   $   639,200   $  ----       $ 4,665,293


See accompanying Notes to Unaudited Pro Forma Combined Financial Statements

</TABLE>

<TABLE>
                          INTERSTATE ENERGY CORPORATION

             UNAUDITED PRO FORMA COMBINED BALANCE SHEET (Continued)
                               December 31, 1996
                                (In thousands)
<CAPTION>

LIABILITIES AND EQUITY                           WPLH          IES           IPC        Pro Forma     Pro Forma
                                            (As Reported) (As Reported) (As Reported)  Adjustments    Combined
<S>                                         <C>           <C>           <C>           <C>           <C>
CAPITALIZATION
  Common Stock Equity:
     Common Stock (Note 1)                    $       308   $   407,635   $    33,848   $  -441,033   $       758
     Other stockholders' equity (Note 1)          607,047       219,246       172,210       430,033     1,428,536
           Total common stock equity              607,355       626,881       206,058       -11,000     1,429,294
   Preferred stock not mandatorily redeemable      59,963        18,320        10,819          ----        89,102
   Preferred stock mandatory sinking fund            ----          ----        24,147          ----        24,147
   Long-term debt ---net                          362,564       701,100       171,731          ----     1,235,395
           Total capitalization                 1,029,882     1,346,301       412,755       -11,000     2,777,938
CURRENT LIABILITIES
   Current maturities, sinking funds, and
     capital lease obligations                     67,626        23,598        17,000          ----       108,224
   Commercial paper, notes payable and other      102,779       135,000        28,700          ----       266,479
   Variable rate demand bonds                      56,975          ----          ----          ----        56,975
   Accounts payable and accruals                  120,986        99,861        14,013          ----       234,860
   Taxes accrued                                    4,669        43,926        16,953          ----        65,548
   Other accrued liabilities                       54,303        54,498        11,785        11,000       131,586
            Total current liabilities             407,338       356,883        88,451        11,000       863,672
OTHER LIABILITIES
   Deferred income taxes                          245,686       262,675        99,303          ----       607,664
   Deferred investment tax credits                 36,931        34,470        17,013          ----        88,414
   Accrued environmental remediation costs         74,075        47,502         7,234          ----       128,811
   Capital lease obligations                         ----        19,600          ----          ----        19,600
   Other liabilities and deferred credits         106,619        58,131        14,444          ----       179,194
            Total other liabilities               463,311       422,378       137,994          ----     1,023,683
      TOTAL CAPITALIZATION AND LIABILITIES    $ 1,900,531   $ 2,125,562   $   639,200   $      ----   $ 4,665,293


See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
</TABLE>


<TABLE>
                            INTERSTATE ENERGY CORPORATION

                  UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
                            YEAR ENDED DECEMBER 31, 1996
                      (In thousands, except per share amounts)
<CAPTION>
                                      WPLH         IES           IPC       Pro Forma   Pro Forma
                                (As Reported) (As Reported) (As Reported) Adjustments  Combined
<S>                             <C>          <C>          <C>          <C>          <C>
Operating Revenues
   Electric                       $   589,482  $   574,273  $   276,620  $ -----      $ 1,440,375
   Gas                                165,627      273,979       49,464    -----          489,070
   Other                              177,735      125,660        -----    -----          303,395
     Total operating revenues         932,844      973,912      326,084    -----        2,232,840
Operating Expenses
   Electric production fuels          114,470       84,579       57,560    -----          256,609
   Purchased power                     81,108       88,350       61,556    -----          231,014
   Cost of gas sold                   104,830      217,351       31,617    -----          353,798
   Other operation                    319,154      214,759       53,134    -----          587,047
   Maintenance                         46,492       49,001       16,164    -----          111,657
   Depreciation and amortization       90,683      107,393       31,087    -----          229,163
   Taxes other than income
       taxes                           34,603       48,171       16,064    -----           98,838
        Total operating expenses      791,340      809,604      267,182    -----        1,868,126
Operating Income                      141,504      164,308       58,902    -----          364,714
Other Income (Expense)
   Allowance for equity funds
       used during construction         2,270         -100           13    -----            2,183
   Other income and
       deductions ---net               15,644       -2,333        3,763    -----           17,074
   Total other income (expense)        17,914       -2,433        3,776    -----           19,257
Interest Charges                       41,089       52,619       16,222    -----          109,930
Income from continuing
   operations before income taxes
   and preferred dividends            118,329      109,256       46,456    -----          274,041
Income Taxes                           41,814       47,435       18,133    -----          107,382
Preferred dividends of
   subsidiaries (Note 2)                3,310          914        2,463    -----            6,687
Income from continuing
   Operations (Notes 3 and 6)     $    73,205  $    60,907  $    25,860  $ -----      $   159,972
Average Common Shares
   Outstanding (Note 1)                30,790       29,861        9,594    5,236           75,481
Earnings per share of Common
    Stock from continuing
   operations                     $      2.38  $      2.04  $      2.69  $ ----       $      2.12

See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
</TABLE>



<TABLE>
                           INTERSTATE ENERGY CORPORATION

                 UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
                           YEAR ENDED DECEMBER 31, 1995
                     (In thousands, except per share amounts)
<CAPTION>
                                    WPLH          IES           IPC      Pro Forma    Pro Forma
                               (As Reported) (As Reported) (As Reported) Adjustments  Combined
<S>                            <C>          <C>          <C>          <C>          <C>

Operating Revenues
   Electric                      $   546,324  $   560,471  $   274,873  $  ----      $ 1,381,668
   Gas                               139,165      190,339       43,669     ----          373,173
   Other                             121,766      100,200         ----     ----          221,966
     Total operating revenues        807,255      851,010      318,542     ----        1,976,807
Operating Expenses
   Electric production fuels         116,488       96,256       62,164     ----          274,908
   Purchased power                    44,940       66,874       57,566     ----          169,380
   Cost of gas sold                   84,002      141,716       25,888     ----          251,606
   Other operation                   253,277      201,390       45,717     ----          500,384
   Maintenance                        42,043       46,093       14,881     ----          103,017
   Depreciation and amortization      86,319       97,958       29,560     ----          213,837
   Taxes other than income
       taxes                          34,188       49,011       15,990     ----           99,189
        Total operating expenses     661,257      699,298      251,766     ----        1,612,321
Operating Income                     145,998      151,712       66,776     ----          364,486
Other Income (Expense)
   Allowance for equity funds
       used during construction        1,425          386         ----     ----            1,811
   Other income and
       deductions ---net               6,509        3,170       -2,872     ----            6,807
   Total other income (expense)        7,934        3,556       -2,872     ----            8,618
Interest Charges                      42,896       47,689       16,795     ----          107,380
Income from continuing
   operations before income taxes
   and preferred dividends           111,036      107,579       47,109     ----          265,724
Income Taxes                          36,108       42,489       19,453     ----           98,050
Preferred dividends of
   subsidiaries (Note 2)               3,310          914        2,458     ----            6,682
Income from continuing
   Operations (Notes 3 and 6)    $    71,618  $    64,176  $    25,198   $ ----      $   160,992
Average Common Shares
   Outstanding (Note 1)               30,774       29,202        9,564    5,140           74,680
Earnings per share of Common
   Stock from continuing
   operations                    $      2.33  $      2.20  $      2.63   $ ----      $      2.16

See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
</TABLE>

<TABLE>
                           INTERSTATE ENERGY CORPORATION

                 UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
                           YEAR ENDED DECEMBER 31, 1994
                     (In thousands, except per share amounts)
<CAPTION>
                                     WPLH         IES          IPC       Pro Forma     Pro Forma
                                (As Reported) (As Reported) (As Reported) Adjustments  Combined
<S>                             <C>          <C>          <C>          <C>          <C>
Operating Revenues
   Electric                       $  531,747   $  537,327   $  261,730   $ -----      $ 1,330,804
   Gas                               151,931      165,569       45,920     -----          363,420
   Other                             112,039       82,968         ----     -----          195,007
     Total operating revenues        795,717      785,864      307,650     -----        1,889,231
Operating Expenses
   Electric production fuels         123,469       85,952       61,384     -----          270,805
   Purchased power                    37,913       68,794       58,339     -----          165,046
   Cost of gas sold                  100,942      120,795       30,905     -----          252,642
   Other operation                   248,847      176,863       51,917     -----          477,627
   Maintenance                        41,227       52,841       17,160     -----          111,228
   Depreciation and amortization      80,351       86,378       28,212     -----          194,941
   Taxes other than income
       taxes                          33,788       46,308       16,298     -----           96,394
        Total operating expenses     666,537      637,931      264,215     -----        1,568,683
Operating Income                     129,180      147,933       43,435     -----          320,548
Other Income (Expense)
   Allowance for equity funds
       used during construction        3,009        2,299          166     -----            5,474
   Other income and
       deductions ---net              10,245        3,472        3,100     -----           16,817
   Total other income (expense)       13,254        5,771        3,266     -----           22,291
Interest Charges                      36,657       44,399       16,845     -----           97,901
Income from continuing
   operations before income taxes
   and preferred dividends           105,777      109,305       29,856     -----          244,938
Income Taxes                          36,043       41,573        9,189     -----           86,805
Preferred dividends of
   subsidiaries (Note 2)               3,310          914        2,454     ----             6,678
Income from continuing
   Operations (Notes 3 and 6)    $    66,424  $    66,818  $    18,213   $ ----       $   151,455
Average Common Shares
   Outstanding (Note 1)               30,671       28,560        9,479    5,041            73,751
Earnings per share of Common
   Stock from continuing
   operations                    $      2.17  $      2.34  $      1.92   $ ----       $      2.05

See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
</TABLE>

                      INTERSTATE ENERGY CORPORATION
                      NOTES TO UNAUDITED PRO FORMA
                      COMBINED FINANCIAL STATEMENTS
                                    

1.         The  pro  forma  combined financial  statements  reflect  the
 conversion of each share of IES Common Stock (no par value) outstanding
 into  1.14  shares  of  WPLH  Common Stock ($.01  par  value)  and  the
 conversion  of  each share of IPC Common Stock ($3.50 par  value)  into
 1.11 shares of WPLH Common Stock ($.01 par value), and the continuation
 of  each share of WPLH Common Stock ($.01 par value) outstanding as one
 share  of  Interstate Energy Common Stock, as provided  in  the  Merger
 Agreement.   The  pro forma adjustment to common stock equity  restates
 the common stock account to equal par value for all shares to be issued
 ($.01  par  value  per  share of Interstate Energy  Common  Stock)  and
 reclassifies the excess to other stockholders' equity.  The  pro  forma
 combined  statements of income are presented as if the  companies  were
 combined  on  January  1, 1994.  The pro forma combined  balance  sheet
 gives effect to the Mergers as if they occurred at December 31, 1996.

 The number of shares of common stock used for calculating per share
 amounts is based on the exchange ratio shown below.

<TABLE>
<CAPTION>
           Exchange   As reported   Pro forma   As reported   Pro forma   As reported   Pro forma
             Ratio      12/31/96     12/31/96     12/31/95     12/31/95     12/31/94     12/31/94
<S>      <C>        <C>           <C>         <C>           <C>         <C>           <C> 

IES___         1.14        29,861      34,042        29,202      33,290        28,560      32,558
IPC___         1.11         9,594      10,649         9,564      10,616         9,479      10,522 
WPLH__          N/A        30,790      30,790        30,774      30,774        30,671      30,671
</TABLE>
 
 
2.  The  Preferred Stock of IPC has been reclassified in the  pro  forma
 statements  as preferred stock of subsidiary companies and deducted  in
 the  determination of income from continuing operations which  reflects
 the  holding  company  structure  of  the  entity  formed  through  the
 Mergers.

3.  IES's  income from continuing operations for the year ended December
 31, 1996 included costs incurred relating to its successful defense  of
 a  hostile takeover attempt mounted by MidAmerican Energy Company.  The
 after-tax  impact on income from continuing operations was  a  decrease
 of $4.6 million.

 Nonrecurring  items  affecting WPLH's performance for  the  year  ended
 December  31,  1996  included the impact of the sale  of  a  combustion
 turbine   and   the   sale  of  WPLH's  assisted-living   real   estate
 investments.   The  after-tax  impact  of  these  items  on  continuing
 operations  was  an  increase  of  $5.9  million.   Nonrecurring  items
 affecting  WPLH's  1994  performance  included  the  impact  of   early
 retirement  and severance programs and the reversal of a coal  contract
 penalty  assessed by the Public Service Commission of Wisconsin which  was
 charged  to income in 1989. The net after-tax impact of these items  on
 income from continuing operations for the year ended December 31,  1994
 was  a  decrease  of $8.3 million related to the early  retirement  and
 severance  programs  offset by an increase of $4.9 million  related  to
 the coal contract penalty reversal.

4.   The allocation between WPLH, IES and IPC and their customers of the
 estimated  cost  savings of approximately $749 million over  ten  years
 resulting  from the Mergers, net of the costs incurred to achieve  such
 savings,  will  be  subject to regulatory review and  approval.   Costs
 arising  from  the  proposed  Mergers are  currently  estimated  to  be
 approximately $78 million (including transaction costs of  $11  million
 related  to  fees  for financial advisors, attorneys,  accountants  and
 consultants).  The  estimate of potential cost  savings  constitutes  a
 forward-looking statement and actual results may differ materially from
 this   estimate.   The  estimate  is  necessarily  based  upon  various
 assumptions that involve judgments with respect to, among other things,
 future  national  and  regional economic  and  competitive  conditions,
 technological  developments,  inflation rates,  regulatory  treatments,
 weather   conditions,  financial  market  conditions,  future  business
 decisions and other uncertainties.  No assurance can be given that  the
 estimated costs savings will actually be realized.

 In  addition  to the $11 million of remaining transaction costs,  since
 the  announcement of the Merger Agreement on November  11,  1995,  IES,
 IPC  and  WPLH  have collectively incurred $6 million of merger-related
 transaction  costs through December 31, 1996, which have been  expensed
 and  are reflected in the combined income statements as presented.  The
 remaining $11 million of transaction costs have been reflected  in  the
 pro  forma  balance  sheet at December 31, 1996 such that  shareowners'
 equity  has  been  reduced by $11 million and accrued liabilities  have
 been  increased  by $11 million.  None of the estimated  cost  savings,
 or costs to achieve such savings, have been reflected in the pro forma
 combined financial statements.

5.     Intercompany transactions (including purchased and exchange  power
 transactions)  between  WPLH, IES and IPC during the  periods  presented
 were  included  in  the determination of regulated rates  and  were  not
 material.   Accordingly, no pro forma adjustments were made to eliminate
 such transactions.

6.     The  financial statements of  WPLH  reflect the discontinuance  of
 operations  of its utility energy and marketing consulting  business  in
 1995.   The  discontinuance of this business resulted in a pre-tax  loss
 in  the  fourth quarter of 1995 of $7.7 million.  The after-tax loss  on
 disposition was $11.0 million reflecting the associated tax  expense  on
 disposition  due  to  the non-deductibility of  the  carrying  value  of
 goodwill  at sale.  During 1996, WPLH recognized an additional  loss  of
 $1.3 million, net of applicable income tax benefit, associated with  the
 final  disposition  of  the  business.   Operating  revenues,  operating
 expenses,   other  income  and  expense  and  income   taxes   for   the
 discontinued  operations  for  the  time  periods  presented  have  been
 excluded  from income from continuing operations.  Interest expense  has
 been adjusted for the amounts associated with direct obligations of  the
 discontinued operations.

 Operating  revenues, related losses, and income tax benefits  associated
 with  the discontinued operations for the years ending December 31  were
 as follows:

                                                           1995        1994
  Operating revenues                                    $ 24,979    $ 34,798
                                                            
  Loss from discontinued operations before income tax   $  3,663    $  1,806
  Income tax benefit                                       1,451         632
  Loss from discontinued operations                     $  2,212    $  1,174


7.    Accounting  principles  have  been  consistently  applied  in  the
 financial  statement  presentations for  WPLH,  IES  and  IPC  with  one
 exception.   IPC does not include unbilled electric and gas revenues  in
 its calculation of total revenues.  The utility subsidiaries of WPLH and
 IES  accrue  unbilled  revenues.   The  impact  of  this  difference  in
 accounting  principles  among the companies does  not  have  a  material
 impact  on  the  unaudited  pro forma combined financial  statements  as
 presented  and,  accordingly, no adjustments have been made  to  conform
 accounting principles.

8.   At  December 31, 1996, IES had a $20.0 million investment in Class A
 common  stock  of  McLeod, Inc. (McLeod), a $9.2 million  investment  in
 Class  B  common  stock  and vested options that,  if  exercised,  would
 represent  an  additional  investment  of  approximately  $2.3  million.
 McLeod   provides  local,  long-distance  and  other  telecommunications
 services.

 McLeod completed  an Initial Public Offering (IPO) of its Class A common
 stock  in  June 1996 and a secondary offering in November 1996.   As  of
 December  31,  1996,  IES is the beneficial owner of approximately  10.6
 million  total  shares on a fully diluted basis.   Class  B  shares  are
 convertible at the option of IES into Class A shares at any  time  on  a
 one-for-one basis.  The rights of McLeod Class A common stock and  Class
 B  common  stock are substantially identical except that Class A  common
 stock  has 1 vote per share and Class B common stock has 0.40  vote  per
 share. IES currently accounts for this investment under the cost method.

 IES  has  entered  into an agreement with McLeod which provides that for
 two  years  commencing on June 10, 1996, IES cannot  sell  or  otherwise
 dispose  of any of its securities of McLeod without the consent  of  the
 McLeod Board of Directors.  This contractual sale restriction results in
 restricted  stock  under  the  provisions  of  Statement  of   Financial
 Accounting  Standards  No. 115 (SFAS No. 115),  Accounting  for  Certain
 Investments  in  Debt  and Equity Securities, until  such  time  as  the
 restrictions  lapse and such shares became qualified for sale  within  a
 one year period.  As a result, IES currently carries this investment  at
 cost.

 The  closing  price of the  McLeod Class A common stock on December  31,
 1996,  on the Nasdaq National Market, was $25.50 per share.  The current
 market  value  of  the shares IES beneficially owns (approximately  10.6
 million  shares) is currently impacted by, among other things, the  fact
 that  the  shares  cannot be sold for a period of time  and  it  is  not
 possible to estimate what the market value of the shares will be at  the
 point in time such sale restrictions are lifted.  In addition, any  gain
 upon  an eventual  sale of this investment would likely be subject to  a
 tax.

 Under  the  provisions of SFAS No. 115, the carrying value of the McLeod
 investment  will be adjusted to estimated fair value at  the  time  such
 shares  become  qualified for sale within a one year period;  this  will
 occur  on  June  10,  1997,  which is one year  before  the  contractual
 restrictions  on  sale  are lifted.  At that  time,  the  adjustment  to
 reflect  the estimated fair value of  this investment will be  reflected
 as an increase in the investment carrying value with the unrealized gain
 reported  as  a  net of tax amount in other common shareholders'  equity
 until realized (i.e. until the shares are sold by IES).

                               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 14th day of March 1997.


                                   IES INDUSTRIES INC.
                                      (Registrant)



                                   By /s/       Lee Liu
                                                Lee Liu
                                        Chairman of the Board &
                                        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 March  14,
1997:



/s/  Lee Liu                            Chairman of the Board &
     Lee Liu                            Chief Executive Officer
                                        (Principal Executive Officer)



/s/  Thomas M. Walker                   Executive Vice President &
     Thomas M. Walker                   Chief Financial Officer
                                        (Principal Financial Officer)

                                        
                                        
/s/   John E. Ebright                   Controller & Chief Accounting Officer
      John E. Ebright                   (Principal Accounting Officer)
                                        
                                        
                                        
/s/  C.R.S. Anderson                    Director
     C.R.S. Anderson



     J. Wayne Bevis                     Director
     J. Wayne Bevis



/s/  Jack R. Newman                     Director
     Jack R. Newman



/s/  Robert D. Ray                      Director
     Robert D. Ray



/s/  David Q. Reed                      Director
     David Q. Reed



/s/  Henry Royer                        Director
     Henry Royer



/s/  Robert W. Schlutz                  Director
     Robert W. Schlutz



/s/  Anthony R. Weiler                  Director
     Anthony R. Weiler



                           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 14th day of March 1997.


                                   IES UTILITIES INC.
                                      (Registrant)



                                   By /s/       Lee Liu
                                                Lee Liu
                                        Chairman of the Board &
                                        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
March 14, 1997:



/s/  Lee Liu                            Chairman of the Board &
     Lee Liu                            Chief Executive Officer
                                        (Principal Executive Officer)



/s/  Thomas M. Walker                   Executive Vice President &
     Thomas M. Walker                   Chief Financial Officer
                                        (Principal Financial Officer)

                                        

/s/   John E. Ebright                   Controller & Chief Accounting Officer
      John E. Ebright                   (Principal Accounting Officer)



/s/  C.R.S. Anderson                    Director
     C.R.S. Anderson



     J. Wayne Bevis                     Director
     J. Wayne Bevis



/s/  Jack R. Newman                     Director
     Jack R. Newman



/s/  Robert D. Ray                      Director
     Robert D. Ray



/s/  David Q. Reed                      Director
     David Q. Reed



/s/  Henry Royer                        Director
     Henry Royer



/s/  Robert W. Schlutz                  Director
     Robert W. Schlutz



/s/  Anthony R. Weiler                  Director
     Anthony R. Weiler