UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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|  
For the fiscal year ended **December 31, 2004**

 
or

[  

]  

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

 
For the transition period from ______ to _______

 
 

Commission

File Number

Name of Registrant, State of Incorporation,

Address of Principal Executive Offices and Telephone Number

IRS Employer

Identification Number

1-9894

ALLIANT ENERGY CORPORATION

(a Wisconsin corporation)

4902 N. Biltmore Lane

Madison, Wisconsin 53718

Telephone (608)458-3311

39-1380265

 

 

 

0-4117-1

INTERSTATE POWER AND LIGHT COMPANY

(an Iowa corporation)

Alliant Energy Tower

Cedar Rapids, Iowa 52401

Telephone (319)786-4411

42-0331370

 

 

 

0-337

WISCONSIN POWER AND LIGHT COMPANY

(a Wisconsin corporation)

4902 N. Biltmore Lane

Madison, Wisconsin 53718

Telephone (608)458-3311

39-0714890

 

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

 

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

 

 

Title of Class

Name of Each Exchange

on Which Registered

Alliant Energy Corporation

Common Stock, $0.01 Par Value

New York Stock Exchange

Alliant Energy Corporation

Common Stock Purchase Rights

New York Stock Exchange

Interstate Power and Light Company

8.375% Series B Cumulative Preferred Stock, 

New York Stock Exchange

 

$0.01 Par Value

 

Interstate Power and Light Company

7.10% Series C Cumulative Preferred Stock, 

New York Stock Exchange

 

$0.01 Par Value

 

Wisconsin Power and Light Company

4.50% Preferred Stock, No Par Value 

American Stock Exchange

 

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

 
(Accumulation without Par Value)

 
 

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

 

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

 

Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act). 

Alliant Energy Corporation

Yes x

No [

]

Interstate Power and Light Company

Yes [  

]

No x

 
Wisconsin Power and Light Company

Yes [  

]

No x

 
 

The aggregate market value of the voting and non-voting common equity held by nonaffiliates as of June 30, 2004: 

Alliant Energy Corporation

$2.9 billion

Interstate Power and Light Company

$--

Wisconsin Power and Light Company

$--

 

Number of shares outstanding of each class of common stock as of Feb. 28, 2005:

 

Alliant Energy Corporation

Common stock, $0.01 par value, 116,183,026 shares outstanding

 

Interstate Power and Light Company

Common stock, $2.50 par value, 13,370,788 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation)

 

Wisconsin Power and Light Company

Common stock, $5 par value, 13,236,601 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation)

 

**DOCUMENTS INCORPORATED BY REFERENCE**

Portions of the Proxy Statements relating to Alliant Energy Corporation’s and Wisconsin Power and Light Company’s 2005 Annual Meetings of Shareowners are, or will be upon filing with the Securities and Exchange Commission, incorporated by reference into Part III hereof.  

 

**TABLE OF CONTENTS**

 

 

 

Page Number

Part I

Item 1.

Business

1

 

Item 2.

Properties

17

 

Item 3.

Legal Proceedings

19

 

Item 4.

Submission of Matters to a Vote of Security Holders

19

 

 

Executive Officers of the Registrants

20

Part II

Item 5.

Market for Registrants’ Common Equity, Related Stockholder Matters and

Issuer Purchases of Equity Securities

 

21

 

Item 6.

Selected Financial Data

22

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

 

24

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

52

 

Item 8.

Financial Statements and Supplementary Data

52

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and

Financial Disclosure

 

128

 

Item 9A.

Controls and Procedures

128

 

Item 9B.

Other Information

128

Part III

Item 10.

Directors and Executive Officers of the Registrants

128

 

Item 11.

Executive Compensation

129

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management

129

 

Item 13.

Certain Relationships and Related Transactions

130

 

Item 14.

Principal Accounting Fees and Services

130

Part IV

Item 15.

Exhibits, Financial Statement Schedules

131

 

**FORWARD-LOOKING STATEMENTS**

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

 

**PART I**

 

This Annual Report on Form 10-K includes information relating to Alliant Energy Corporation (Alliant Energy), Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL) (as well as Alliant Energy Resources, Inc. (Resources) and Alliant Energy Corporate Services, Inc. (Corporate Services)).  Where appropriate, information relating to a specific entity has been segregated and labeled as such.  Refer to Note 16 of Alliant Energy’s “Notes to Consolidated Financial Statements” for information related to Alliant Energy’s assets held for sale and discontinued operations.

 

**ITEM 1.      BUSINESS**

 

**A.**

**GENERAL**

The primary first tier subsidiaries of Alliant Energy are: IPL, WPL, Resources and Corporate Services.  Among various other regulatory constraints, Alliant Energy is operating as a registered public utility holding company subject to the limitations imposed by the Public Utility Holding Company Act of 1935 (PUHCA).  Alliant Energy was incorporated in Wisconsin in 1981.  A brief description of the primary first-tier subsidiaries of Alliant Energy is as follows:

 

**1)  IPL -**incorporated in 1925 in Iowa as Iowa Railway and Light Corporation.  IPL is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy; and the purchase, distribution, transportation and sale of natural gas in selective markets in Iowa, Minnesota and Illinois.****In Iowa, non-exclusive franchises, which cover the use of streets and alleys for public utility facilities in incorporated communities, are granted for a maximum of 25 years by a majority vote of local qualified residents.  At Dec. 31, 2004, IPL supplied electric and gas service to 531,927 and 236,808 (excluding transportation and other) customers, respectively.  IPL also provides steam services to certain customers in one community in Iowa and various other energy-related products and services, including constructionmanagement services for wind farms.  In 2004, 2003 and 2002, IPL had no single customer for which electric, gas, steam and/or other sales accounted for 10% or more of IPL’s consolidated revenues.     

 

**2)  WPL -**incorporated in 1917 in Wisconsin as Eastern Wisconsin Electric Company.  WPL is a public utility engaged principally in the generation, distribution and sale of electric energy; and the purchase, distribution, transportation and sale of natural gas in selective markets.  Nearly all of WPL’s customers are located in south and central Wisconsin.  WPL operates in municipalities pursuant to permits of indefinite duration, which are regulated by Wisconsin law.  At Dec. 31, 2004, WPL supplied electric and gas service to 445,198 and 176,045 (excluding transportation and other) customers, respectively.  WPL also provides various other energy-related products and services, including construction management services for wind farms.   In 2004, 2003 and 2002, WPL had no single customer for which electric, gas and/or other sales accounted for 10% or more of WPL’s consolidatedrevenues.  WPL Transco LLC is a wholly-owned subsidiary of WPL and holds WPL’s investment in American Transmission Company LLC (ATC).  WPL also owns all of the outstanding capital stock of South Beloit Water, Gas and Electric Company (South Beloit), a public utility supplying electric, gas and water service, principally in Winnebago County, Illinois, which was incorporated in 1908.    

 

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

 

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

 

Refer to Note 13 of the “Notes to Consolidated Financial Statements” for further discussion of business segments, which information is incorporated herein by reference. 

1

**B.**

**INFORMATION RELATING TO ALLIANT ENERGY ON A CONSOLIDATED BASIS**

 

**1)  EMPLOYEES**

As of Dec. 31, 2004, Alliant Energy’s consolidated subsidiaries had the following employees (full-time and part-time):

 

 

 

 

 

 

 

 

Percentage

 

 

 

Number of

 

Contract

 

of Workforce

 

Number of

 

Bargaining Unit

 

Expiration

 

Covered by

 

Employees

 

Employees

 

Date

 

Agreements

IPL:

1,676

 

 

 

 

 

 

IBEW Local 1439

 

 

22

 

6/30/05

 

 

IBEW Local 1455

 

 

9

 

6/30/05

 

 

IBEW Local 204 (Cedar Rapids)

 

 

815

 

8/31/05

 

 

IUOE Local 275

 

 

49

 

11/30/05

 

 

IBEW Local 949

 

 

285

 

9/30/08

 

 

IBEW Local 204 (Dubuque)

 

 

132

 

9/30/08

 

 

IBEW Local 204 (Mason City)

 

 

61

 

9/30/08

 

 

 

1,676

 

1,373

 

 

 

82%

 

 

 

 

 

 

 

 

WPL:

1,502

 

 

 

 

 

 

IBEW Local 965

 

 

1,403

 

5/31/07

 

93%

 

 

 

 

 

 

 

 

Resources: 

 

 

 

 

 

 

 

International (primarily China)

3,236

 

--

 

 

 

 

Non-Regulated Generation

28

 

--

 

 

 

 

Other Non-regulated Investments

663

 

71

 

Various

 

 

 

3,927

 

71

 

 

 

2%

 

 

 

 

 

 

 

 

Corporate Services 

1,674

 

--

 

 

 

--

 

8,779

 

2,847

 

 

 

32%

(IBEW=International Brotherhood of Electrical Workers; IUOE=International Union of Operating Engineers)

 

**2)  CAPITAL EXPENDITURE AND INVESTMENT PLANS**

Refer to “Liquidity and Capital Resources” in MDA for discussion of anticipated construction and acquisition expenditures for 2005 and 2006.  

 

**3)  REGULATION**

**PUHCA -** Alliant Energy operates as a registered public utility holding company subject to regulation by the Securities and Exchange Commission (SEC) under PUHCA.  Regulation under PUHCA includes provisions relating to the issuance and sales of securities, acquisitions and sales of certain utility properties, acquisitions and retention of interests in non-utility businesses, including exempt wholesale generators (EWGs) and foreign utility companies (FUCOs), and the services provided by Corporate Services to Alliant Energy and its subsidiaries.  Under an SEC order issued in December 2004, Alliant Energy has aggregate investment authority through Dec. 31, 2007 for EWGs and FUCOs equivalent to 100% of consolidated retained earnings as defined in the regulations.  At Dec. 31, 2004, Alliant Energy’s remaining investment authority under this order was approximately $283 million.  

 

**Iowa Utilities Board (IUB) -** IPL is subject to regulation by the IUB for service territories in Iowa for retail utility rates and standards of service, accounting requirements, approval of the location and construction of electric generating facilities having a capacity in excess of 25,000 kilowatts (KW), and in other respects.  Requests for rate relief are based on historical test periods, adjusted for certain known and measurable changes occurring up to nine months from the end of the historical test year.  The IUB must decide on requests for rate relief within 10 months of the date of the application for which relief is filed, or the interim rates granted become permanent.  Interim rates can be placed in effect after 10 days of the rate application filing, subject to refund, and must be based on past precedent.  

 

**Public Service Commission of Wisconsin (PSCW) -** Alliant Energy is subject to regulation by the PSCW.  The PSCW regulates, among other things, the type and amount of Alliant Energy’s investments in non-utility businesses and other affiliated interest activities.  WPL is also subject to regulation by the PSCW for service territories in Wisconsin for retail utility rates and standards of service, accounting requirements, issuance and use of proceeds of securities, approval of the location and construction of electric generating facilities, certain other additions and extensions to facilities, and in other respects.  WPL is required to file rate cases with the PSCW using a forward-looking test year period.  

2

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

 

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

 

**Federal Energy Regulatory Commission (FERC) -** FERC has jurisdiction under the Federal Power Act over certain electric utility facilities and operations, wholesale rates and accounting practices of IPL and WPL, and in certain other respects.  In addition, certain natural gas facilities and operations of IPL and WPL are subject to the jurisdiction of FERC under the Natural Gas Act. 

 

**Environmental -** The United States of America (U.S.) Environmental Protection Agency (EPA) administers certain federal regulatory programs and has delegated the administration of other environmental regulatory programs to the applicable state environmental agencies.  In general, the state agencies have jurisdiction over safety, air and water quality, and waste handling standards associated with electric power generation, including the level and flow of water pertaining to hydroelectric generation.  In certain cases, the state environmental agencies have delegated the administration of environmental programs to local agencies.  In addition, International has investments that are subject to environmental regulations in the countries in which they operate.

 

**Nuclear -** IPL and WPL are directly and indirectly subject to the jurisdiction of the Nuclear Regulatory Commission (NRC), with respect to the Duane Arnold Energy Center (DAEC) and the Kewaunee Nuclear Power Plant (Kewaunee), respectively.  Among other things, the NRC regulates the disposal of nuclear fuel and other radioactive wastes.    

 

**Brazil -** Alliant Energy owns unconsolidated investments in five Brazilian electric utility companies, which are regulated by the Brazilian federal government, acting through the Ministry of Mines and Energy, which has exclusive authority over the electric sector through its regulatory powers.  Regulatory policy for the sector is implemented by an autonomous national electric energy agency (Agencia Nacional de Energia Eletrica (ANEEL)), which delegates certain functions to agencies based in various states of Brazil.  However, ANEEL cannot delegate any authority regarding tariffs to state agencies. 

 

**China -** Alliant Energy owns interests in various generating facilities located in China that are regulated at various local and national levels by the Chinese government.  The Chinese government continues to reform its regulatory and legal framework.  Enforcement of the regulations is largely dependent upon local and provincial authorities.  Because Alliant Energy’s facilities are small- to medium-sized co-generation plants, tariff adjustments are generally decided by the provincial-level Planning Commission, Pricing Bureau, and Economic Trade Commission, with input from their local counterparts and major customers.  Most agreements governing the operations of Alliant Energy’s facilities include provisions for recovery of expenses resulting from changes in law.

 

**New Zealand -** Alliant Energy owns an unconsolidated investment in a generation utility company, which is regulated by the Electricity Commission (Commission).  The Commission, while not a governmental department, is appointed by, and reports to, the Minister of Energy.  The Commission has the authority to recommend new regulations directly to the Minister and has the responsibility for monitoring compliance, investigating alleged breaches, and taking necessary enforcement action with respect to rules and regulations.  The Commission has established rules governing wholesale, retail, security, transmission and distribution in the form of a multilateral contract among electricity generators, retailers, distribution companies, transmission companies and end-consumers and has contracted for reserve energy to be used in periods of extreme energy shortages.  

 

Refer to Note 2 of Alliant Energy’s “Notes to Consolidated Financial Statements” and “Rates and Regulatory Matters” in MDA for additional information regarding regulation and utility rate matters.

 

**4)  STRATEGIC OVERVIEW**

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

3

**C.**

**INFORMATION RELATING TO DOMESTIC UTILITY OPERATIONS**

Alliant Energy realized 49%, 46%, 3% and 2% of its 2004electric utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively.  Approximately 91% was regulated by the respective state commissions while the other 9% was regulated by FERC.  Alliant Energy realized 51%, 43%, 3% and 3% of its 2004 gas utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively. 

 

IPL realized 92%, 6% and 2% of its 2004 electric utility revenues in Iowa, Minnesota and Illinois, respectively.  Approximately 96% was regulated by the respective state commissions while the other 4% was regulated by FERC.  IPL realized 93%, 5% and 2% of its 2004 gas utility revenues in Iowa, Minnesota and Illinois, respectively.  WPL realized 99% of its 2004 electric utility revenues in Wisconsin and 1% in Illinois.  Approximately 85% was regulated by the PSCW or the ICC while the other 15% was regulated by FERC.  WPL realized 97% of its 2004 gas utility revenues in Wisconsin and 3% in Illinois. 

 

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

 

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

 

**1) DOMESTIC ELECTRIC UTILITY OPERATIONS**

**General -** IPL and WPL provide electric service in Iowa, southern and central Wisconsin, southern Minnesota and northern and northwestern Illinois.  The number of electric customers and communities served at Dec. 31, 2004 was as follows:

 

 

Retail Customers

 

Wholesale Customers

 

Other Customers

 

Communities Served

IPL

530,647

 

8

 

1,272

 

760

WPL

443,166

 

31

 

2,001

 

610

 

973,813

 

39

 

3,273

 

1,370

 

2004 electric utility operations accounted for 73% and 78% of operating revenues and 94% and 90% of operating income for IPL and WPL, respectively.  

 

Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months.  In 2004, the maximum peak hour demands for IPL and WPL were 3,017 megawatts (MW) and 2,627 MW, respectively, both on July 20, 2004.  In 2004, the maximum peak hour demand for Alliant Energy was 5,644 MW on July 20, 2004, which was the coincident peak of the entire Alliant Energy system.

 

**Transmission Business -**WPL - In 2001, WPL transferred its transmission assets to ATC and had an ownership interest in ATC of approximately 24% at Dec. 31, 2004.  ATC is an independent for-profit, transmission-only company and is a transmission-owning member of the Midwest Independent System Operator (MISO) and Mid-America Interconnected Network, Inc. Regional Reliability Council (MAIN).  ATC realizes its revenues from the provision of transmission services to both participants in ATC as well as non-participants.  During 2004, ATC distributed in the form of dividends approximately 80% of its earnings to the equity holders and, although no assurance can be given, Alliant Energy anticipates ATC will continue this dividend payout ratio in the future.  ATC has announced plans to improve transmissionreliability and import capabilities into Wisconsin, including construction of a 345-kilovolt transmission line.  Pending various regulatory approvals, the 345-kilovolt transmission line is expected to be in service in 2008.  As these facilities are constructed, they will serve to enhance Alliant Energy’s operating flexibility and its access to lower-cost energy.  ATC also has various transmission interconnections with four other transmission owning utilities in the Midwest.  

4

IPL - IPL maintains and operates its own transmission and substation facilities.  Refer to “Properties” for additional information regarding IPL’s electric transmission properties.  IPL has a non-cancelable operation agreement with Central Iowa Power Cooperative (CIPCO), which will terminate on Dec. 31, 2035, that provides for the joint use of certain transmission facilities of IPL and CIPCO.  IPL has transmission interconnections at various locations with nine other transmission owning utilities in the Midwest.  These interconnections, along with the interconnections of ATC, enhance the overall reliability of the Alliant Energy transmission system and provide access to multiple sources of economic and emergency energy.

 

In 2002, IPL filed for IUB and MPUC approval to transfer its transmission assets to TRANSLink Transmission Company LLC (TRANSLink), a proposed independent for-profit, transmission-only company.  In 2003, TRANSLink announced that upon direction of the participant utilities, formation of TRANSLink had been suspended due to continued regulatory and market uncertainty.  IPL continues to support the idea of an independent transmission company model but is not currently actively pursuing this option for its transmission business.  IPL continues to monitor market and legislative developments but cannot currently predict the ultimate path it may pursue regarding its transmission business.

 

Regional Transmission Participation -****IPL and WPL are members of MAIN and the newly developed Midwest Reliability Organization (MRO), both of which are regional members of the North American Electric Reliability Council (NERC).  Each regional member of NERC is responsible for setting policies to ensure reliability in its area through coordination of planning and operations.  As a result of an agreement between members of MAIN, IPL and WPL will cease participation in MAIN at the end of 2005 and at that time IPL and WPL will only have membership in the MRO. 

 

In February 2004, as a result of the Northeast blackout in August 2003, the NERC Board of Trustees issued a plan of action to prevent and mitigate the impacts of future cascading blackouts, and implemented numerous recommendations of a NERC Technical Review Team.  Alliant Energy has complied with the requirements of NERC to date, and expects to implement future required changes as they become known.

 

IPL and WPL are also members of the MISO, a FERC approved Regional Transmission Organization (RTO), which is responsible for monitoring and ensuring equal access to the transmission system in its service territory.The MISO is currently in the process of restructuring the bulk power market in its domain.  This restructuring is expected to become effective April 1, 2005 and could have an impact on the costs associated with Alliant Energy serving its utility customers’ energy requirements.  The IUB has approved a temporary waiver, effective until May 31, 2006, allowing the costs and credits associated with the market restructuring to be included in IPL’s fuel cost recovery program.  WPL and other Wisconsin investor owned utility companies have jointly requested approval from the PSCW to defer any net incremental retail transmission-related costs resultingfrom the market restructuring. This treatment was approved for several Wisconsin utility companies in recent base rate cases and WPL anticipates that approval of this request will be provided in its next base rate case.

 

As part of the MISO market restructuring, physical transmission rights of IPL and WPL are being replaced with Financial Transmission Rights (FTR).  FTR provide a hedge for congestion costs that incur in the MISO day-ahead energy market.  Both IPL and WPL have been awarded FTR by MISO that will be in place during the period April 1, 2005 through August 31, 2005.  Prior to August 31, 2005, MISO will hold an FTR allocation for the period September 1, 2005 through May 31, 2006.  Based on the FTR awarded to IPL and WPL to date and future expected allocations, along with the regulatory recovery treatment of MISO costs, the financial impacts associated with FTR should not differ significantly from the financial impacts associated with physical transmission rights that exist prior to the MISO market.

 

MISO will operate day-ahead and real-time energy markets.  The day-ahead market will be a forward financial market in which clearing prices will becalculated for each hour of the next operating day.  The clearing prices will be based on generation offers and demand bids.  The real-time market will be abalancing market in which MISO will balance generation and demand in real-time.  Energy differentials between the day-ahead and real-time markets will besettled in the real-time market. 

 

**Power Supply -** Alliant Energy currently anticipates meeting its 2005 power supply requirements through internally generated power, purchased-power contracts utilizing existing firm transmission rights, and additional power purchases from existing generating units located within and outside of Alliant Energy’s service territory.  While Alliant Energy currently expects to meet utility customer demands in 2005, unanticipated regional or local reliability issues could still arise in the event of unexpected delays in the construction of new generating and/or transmission facilities, power plant outages, transmission system outages or extended periods of extremely hot weather.  Refer to “Strategic Overview” in MDA for discussion of Alliant Energy’s domestic utility generation plan.  

5

**Average Fuel Costs -**Refer to the Electric Operating Information tables for details on the sources of electric energy for Alliant Energy, IPL and WPL from 2002 to 2004.  The average cost of delivered fuel per million British Thermal Units used for electric generation was as follows:

 

IPL

 

WPL

 

**2004******

** **

2003

 

2002

 

**2004**

 

2003

 

2002

Gas

**$6.65******

** **

$5.88****

** **

$3.61****

 

**$6.65**

 

$6.82

 

$4.07

Coal

**1.08******

** **

1.07****

** **

1.07 ****

 

**1.26**

 

1.22

 

1.26

Nuclear

**0.55******

** **

0.55****

** **

0.57****

 

**0.46**

 

0.44

 

0.46

All Fuels  

**1.15******

** **

1.09****

** **

1.03****

 

**1.30**

 

1.37

 

1.23 

 

**Coal -**Alliant Energy, through Corporate Services, IPL and WPL, has entered into contracts with different suppliers to ensure that a specified supply of coal is available at known prices for IPL and WPL for 2005 through 2009.  As of Dec. 31, 2004, these contracts provide for a portfolio of coal supplies that cover approximately 94%, 74%, 41%, 20% and 5% of IPL’s and WPL’s estimated coal supply needs for 2005 through 2009, respectively.  Management believes this portfolio of coal supplies represents a reasonable balance between the risks of insufficient supplies and those associated with larger open positions subject to price volatility in the coal markets.  Alliant Energy expects to meet remaining coal requirements from either future contracts or purchases in the spot market.  

 

The majority of the coal utilized by IPL and WPL is from the Wyoming Powder River Basin.  A majority of this coal is transported by rail-car directly from Wyoming to IPL’s and WPL’s generating stations, with the remainder transported from Wyoming to the Mississippi River by rail-car and then via barges to the final destination.  As protection against interruptions in coal deliveries, IPL and WPL strive to maintain average coal inventory supply targets of 25 to 50 days for generating stations with year-round deliveries and 30 to 150 days (depending upon the time of year) for generating stations with seasonal deliveries.  Actual averages for 2004 were 36 days for generating stations with year-round deliveries and 89 days for generating stations with seasonal deliveries.

 

Average delivered fossil fuel costs are expected to increase in the future due to price structures in existing coal contracts, rate structures and adjustment provisions in existing transportation contracts and recent coal market trends.  Existing coal commodity contracts with terms of greater than one year have fixed future year prices that generally reflect recent upward market trends.****Rate adjustment provisions in transportation contracts are primarily based on changes in the Rail Cost Adjustment Factor as published by the U.S. Surface Transportation Board.****Other factors which may impact coal prices for future commitments are increasing costs for supplier mineral rights, increasing costs to mine the coal and changes in various associated laws and regulations.  For example, sulfur dioxide and nitrogen oxideemission restrictions and other environmental limitations on generating stations have increased significantly and proposed additional restrictions (including mercury emissions), if enacted, will likely limit the ability to obtain, and further increase the cost of, adequate coal supplies.****Alliant Energy believes that given its current coal procurement process, the specific coal market in its primary purchase region, and regulatory cost-recovery mechanisms, it is insulated against the present volatile coal price environment.  Alliant Energy’s coal procurement process stresses periodic purchases, staggering of contract terms, stair-stepped levels of coverage going forward for five to six years and supplier diversity.  Similarly, Alliant Energy believes it is adequately insulated against future higher base coal transportation rates from the major railroads.  As of Dec. 31, 2004, existing coal transportation agreements cover 100% ofIPL’s and WPL’s estimated needs through 2005, approximately 88% for both 2006 and 2007 and 46% for 2008 through 2014.  Refer to Note 1(i) for discussion of IPL’s and WPL’s rate recovery of fuel costs and Note 11(b) for details relating to coal purchase commitments in the “Notes to Consolidated Financial Statements.” 

 

**Purchased-Power -**Purchased-power represented 20%, 25% and 23% of IPL’s total megawatt-hour (MWh) requirements and 32%, 31% and 30% of WPL’s total MWh requirements during 2004, 2003 and 2002, respectively.  IPL’s and WPL’s level of purchased-power during these periods was impacted by scheduled refueling outages at DAEC in 2003 and at Kewaunee in 2004 and 2003.  IPL’s level of purchased-power was also lower during 2004 due to the 565 MW Emery Generating Station being placed into service in May 2004.  Refer to Notes 3 and 11(b) of the “Notes to Consolidated Financial Statements” for details relating to purchased-power commitments. 

6

**Nuclear -**Summary - IPL and WPL own partial interests in two nuclear generating facilities, DAEC and Kewaunee, respectively, which the Nuclear Management Company, LLC (NMC) operates under contract to the majority owners that remain in effect until notice of termination is provided one year prior to such termination would be effective.  Alliant Energy has a 20% ownership interest in the NMC.  The NMC operates all nuclear plants owned by the NMC members, which provides long-term safety, reliability and operational benefits for the plant owners.  The NMC currently operates eight nuclear generating units at six sites but has no ownership interest in the plants it operates and bears no financial risk associated with operation of the plants.  The plant owners retain all rights to the energy generated at the plants and all financial responsibility for their safeoperation, maintenance and decommissioning.  Certain details for DAEC and Kewaunee are as follows:

 

 

DAEC

 

Kewaunee

Rating, net electric capacity 

583 MW (100%)

 

574 MW (100%)

Alliant Energy ownership

IPL - 70%

 

WPL - 41%

Other ownership

CIPCO - 20%; Corn Belt

Power Cooperative - 10%

 

Wisconsin Public Service

Corporation (WPSC) - 59%

Reactor type

Boiling water

 

Pressurized water

NRC operating license expiration

2014

 

2013

 

Proposed Sales of Kewaunee and DAEC - Refer to Notes 17 and 18 of Alliant Energy’s “Notes to Consolidated Financial Statements” for information on Alliant Energy’s proposed sales of its interests in Kewaunee and DAEC.  In addition, the owners of Kewaunee and DAEC have given notice that they will terminate the operating agreement with the NMC effective with these proposed sales.  

 

Nuclear Operating Issues - The NRC has significant regulatory authority over the design and operation of nuclear generating facilities with regard to environmental considerations and public health and safety.  The treatment of costs associated with nuclear plant operation is regulated by various regulatory jurisdictions for companies owning the plants.  

 

IPL’s anticipated nuclear-related construction expenditures at DAEC for 2005 and 2006 are approximately $16 million and $4 million, respectively.  WPL anticipates the proposed sale of Kewaunee will close in 2005 and therefore, does not anticipate any significant construction expenditures related to Kewaunee in 2005 or 2006.  Depending on the outcome of the proposed sales of DAEC and Kewaunee, these anticipated nuclear-related construction expenditures may change.  

 

Refueling Outages and Procurement of Nuclear Fuel - NMC, acting on behalf of IPL and the other DAEC owners, purchases uranium and enrichment services for DAEC using a combination of spot market and medium term contracts.  This procurement is complete for a spring 2005 DAEC refueling outage and has begun for a 2007 refueling outage.  Arrangements for the fabrication of nuclear fuel are in place through the 2011 refueling of DAEC.  WPSC purchases uranium concentrates and conversion, enrichment and fabrication services for nuclear fuel assemblies at Kewaunee on behalf of WPL.  Sufficient fuel is in inventory for a spring 2006 refueling outage and additional fuel will be purchased in 2005 for a fall 2007 refueling outage.  WPSC’s uranium inventory policy is to maintain sufficient inventory for up to two reloads of fuel.  Refer to Notes 1(g), 1(i), 1(j) and 3 of AlliantEnergy’s “Notes to Consolidated Financial Statements” for additional information related to DAEC and Kewaunee refueling outages and fuel expenses.  

 

Nuclear Liability/Insurance - Liability for nuclear accidents is governed by the Price-Anderson Act of 1988 as amended (Act), which sets a statutory limit of $10.8 billion for liability to the public for a single nuclear power plant incident and requires nuclear power plant operators to provide financial protection for this amount.  Financial protection for a nuclear incident is provided through a combination of liability insurance ($300 million) and industry-wide retrospective payment plans ($10.5 billion).  Under the industry-wide plan, the owners of each operating licensed nuclear reactor in the U.S. are subject to an assessment in the event of a nuclear incident at any nuclear plant in the U.S.  The applicability of the Act to IPL and WPL, as existing nuclear power plant owners, continues for the remainder of the operating lives of the plants they own.  

7

IPL and WPL are members of Nuclear Electric Insurance Limited (NEIL), which provides $2.1 billion and $1.8 billion of insurance coverage for DAEC and Kewaunee, respectively, for certain losses for property damage, decontamination and premature decommissioning.  The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair and premature decommissioning.  NEIL also provides separate coverage for additional expenses incurred during certain outages.  Owners of nuclear generating stations insured through NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds.  NEIL’s accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the primary and excess property damage or additional expense coverages.  However, IPL and WPLcould be assessed if losses exceed the accumulated reserve funds.  A summary of IPL’s and WPL’s share of maximum possible retrospective liability, property and additional expense assessments is as follows (in millions): |