ML20117D734
| ML20117D734 | |
| Person / Time | |
|---|---|
| Site: | Duane Arnold  |
| Issue date: | 12/31/1995 |
| From: | Leslie Liu IES UTILITIES INC., (FORMERLY IOWA ELECTRIC LIGHT |
| To: | |
| Shared Package | |
| ML20117D721 | List: |
| References | |
| NUDOCS 9605140209 | |
| Download: ML20117D734 (50) | |
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F1N A N C1 A L HIOHL10 HTS (EXCEPT P R SH AR DATA 1995 1994 (DECREASE ( D E'C EASE Operating revenues $ 851,010 $ 785,864 $ 65.146 8 Operating income . $ 151,712 $ 147,933 $ 3,779 3 Net income $ 64,176 $ 66,818 $ (2,642) (4)
Earnings per average common share. $ 2.20 $ 2.34 $ (0.14) (6)
Dividends declared per common share $ 2.10 $ 2.10 - -
Construction and acquisition expenditures . $ 218,099 $ 206,548 $ 11,551 6 Cash flows from operating activities. $ 195,831 $ 215,905 $(20,074) (9)
Sales of electricity to customers (Kwh)((XX)s). 9,783,514 9,291,575 491,939 5 Utility gas sales (dekatherms)((XX)s). 39,805 37,975 1,830 5 Number of common shareholders. 29,731 32,567 (2,836) (9)
Number of full-time employees 2,635 2,763 (128) (5)
W UtHHy 5 Non-UtHity B UtlHty B Non-UtlHty ELECTRIC SALES BROWTN ou own: AWERASE ELECTRIC PRICES <cewis prR aws:
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IES AT A GLANCE I
I B U SIN E S S 1995 ACTIONS IES Utilities Inc.
IES Utilities prosides electric, natural gas and steam The company's Process Redesign effort to enhance oper i energy to customers in more than 550 communities ations and customer senice entered its second phase.
across lowa. The company senes approximately The hotter-than-normal summer pushed electricity 333.(u) electric customers and 174.(u) natural gas demand to record lesels. Following an Iowa Utilities customers. Board ruling to reduce annual retail electric prices by l
$14.4 million. IES Utilities took action and successful-ly reduced O&M costs by about $8 million from bud- i geted lesels and reduced or deferred to later years cap- !
ital expenditures of more than $40 million. In October, 4 the company implemented interim natural gas prices, increasing annual resenue by about $7 million. A final settlement agreement will be reviewed by the Iowa Utilities Board in early 1996.
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- .g gg IES Transportation The cornerstone of IES Transportation is The Cedar CRANDIC recorded excellent earnings in 1995, i Rapids and Iowa City Railway Company (CRANDIC), exceeding the record-setting earnings of the year before, a short-line railroad with approximately 55 miles of CRANDIC has added 150 new rail cars in the past two
. track. IEl Barge Services Inc. operates a barge terminal years, including a $2.5 million investment in 1995. The !
on the Mississippi River in East Dubuque, Illinois. IES railroad was honored as one of the top two short-line l Tranr.fer Senices is a distribution center with ware- railroads in the nation by Railway Age maFarine.
_ ~, house and transfer capabilities in Cedar Rapids.
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Whiting Petroleum Corporation is a natural gas and oil Whiting continued its aggressive acquisition of pro- !
" "% acquisition and deselopmen: company based in Denser. ducing oil and natural gas propertin. .itti an emphasis l
._ fg i' Industria! Energy Applications (!EA) um.., so nn. oui- on natur;. ge nuppi;u IEA cyanded its crimis t;cs-ba,cd and faciliticsh,cd energy resources for nationally. opening regional offices in St. l.ouis. Atlanta.
customers. IES Energy companies do bus;uess in Denver and Phoenix.
27 states. In 1995, IES Industries acquired minority interests in two New Zealand electric distribution com-panies, Powerco Limited and Central Power Limited.
BES Investments IES Investments has interests in opportunities outside IES Investments' most significant opportunity is its the regulated sector including telecommunications. investment in McLeod. Inc.. which continues to take !
financial investments and community development advantage of a deregulating telecommunications indus- i projects in support of IES Industries' other operations. try. McLeod provides bundled telecommunications i services to businesses and is building the statewide I fiber optic network in conjunction with the State of j lowa. IES Investments' passive investment in DlJ j Merchant Banking Partners, an investment fund, real-ized an attractise return during the year.
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C O M P E TITIV E ADVANTAGES OUTLOOK Quality senice and low prices characterire IES As IES Utihties implements many of the Process Utilities. The company's industrial electric prices, in Redesign changes in 19%, costs will continue to be particular, are among the lowest in the nation. A grow- reduced and customer senice enhanced. Economic ing service territory, combined with the employee- deselopment efforts will continue to enhance the mar-driven Procew Redesign effort position IES Utilities ket and power plant insestments made to date portend for the future. continued low-cost generation. Benefits anticipated from the proposed merger of IES Industries with WPL llaldings. Inc. and Interstate Power Co. should further enhance IES Utilities' customer senice and competitise position when the merger is completed sometime in 1997.
The IES Transportation companies are stra:egically Continued industrial growth in the Cedar Rapids-lowa -
hicated to serve customers and develop markets. City corridor bodes well for CRANDIC and the trans-CRANDIC customers enjoy access to major U.S. rail fer and storage services of IES Transfer. IES Trans-centers through CRANDIC's affiliation with lines portation is positioned to serve growing markets.
including the Iowa Interstate Railroad and the Burlington Northern Railroad. IES Transfer serves j
industries needing rail and truck transfer capabili-ties and short-term warehouse access.
E CRANDIC's lines conneet to east. west toma tssscsNask Ee[sNed Whiting's focus on acquiring prosen and producing oil Generally low prices and outkx A. for expansion of nat-and natural gas properties asoids the higher risk actis- ural Fas as an energy source have boosted opportuni-ity of captoring undruloped reghe. ! ens portfe!ie tin for natural gar, ; ales. e hich bcds wcll for both of energy services, including standby generation. Whiting and IEA. Whiting's prosen oil and natural gas steam supply and natural Fas purchasing and trane resenes proside reliable energy sources for the future.
portation, allow s it to offer sescral alternatises to meet IEA also receised its electric power marketing certifi-customers' energy needs. The relationship with the cate from the Federal Energy Regulatory Commission New Zealand companies will proside 5aluable experi- and is positioned to market and transport electricity.
ence in utility deregulation and global disersification 5 States in which ILS f nerF) lor IES. does buenew The insestment in McLemi provides not only a po:en- The State of Iowa is pursuing expansion of its fiber tial significant economic benefit but an opportunity optic network and McLeod is pursuing expansion of to explore opportunities to combine energy and tele- its business customer base. Technological adsances, communications servicet Pursuing opportumties in combined with deregulation of both the utility and the 6at technology partnersh.p is one of IES Industries' telecommunications industries, should create opportu- -
growth strategies. nities for IES to launch new customer products and services through its McLeod investment. ,
E Mst. cod. Inc. sersen the niajority of Iowa and flhnoit O
IES AT A QLANCE l
BUSINESS 1995 ACTIONS IES Utilities Inc.
IES Utilities provides electric, natural gas and steam The company's Process Redesign effon to enhance oper-energy to customers in more than 550 communities ations and customer senice entered its second phue, across towa. The company senes approximately The hotter-than-normal summer push:d electricity 33MXX) electric customers anJ 174,tXX) natural gas demand to record lesels. Following an Iowa Utilities customers. Board ruling to reduce annual retail electric prices by
$14.4 million, IES Utilities took action and successful-ly reduced O&M costs by about $8 million from bud-geted levels and reduced or deferred to later years cap-ital expenditures of more than $40 million. In October, the company implemented interim natural gas pnces increasing annual resenue by about $7 million. A final seulement agreement will be resiewed by the Iowa Utilities Board in early 1996.
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IES Transportation The cornerstone of IES Transportation is The Cedar CRANDIC recorded excellent earnings in 1995, Rapids and towa City Railway Company (CRANDIC), exceeding the record-setting earnings of the year before.
a short-line railroad with approximately 55 miles of CRANDIC has added 150 new rail cars in the past two track. IEl Barge Services Inc. operates a barge terminal years, including a $2.5 million investment in 1995.The on the Mississippi River in East Dubuque, Illinois. IES railroad was honored as one of the top two short-line l
Transfer Services is a distribution center with ware- railroads in the nation by Railway Age magazine.
house and transfer capabilities in Cedar Rapids.
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%_M hES Energy Whiting Petroleum Corporation is a natural gas and oil acquisition and deselopment company based in Denser.
indusuial Energy Applications tiEA) offers commotti-ties-based and facilities-based energy resources for Whiting continued its aggressise acquisition of pro-ducing oil and natural gas properties, w ith an emphasis on natural gas supphes. IEA expanded its efforts nationally, opening regional offices in St. Louis, Atlanta.
customers. IES Energy companies do business in Denser and Phoenis.
27 states, in 1995, IES Industries acquired minonty interests in tw o New Zealand electric distribution com-panies. Powereo Limited and Central Power Limited.
IES Investments IES Insestments has interests in opportunities outside IES Investments' most significant opportunity is its the regulated sector. including telecommunications, investment in McLeod, Inc. which continues to take ;
6nancial investments and community deselopment advantage of a deregulating telecommunications indus- i projects in support of IES Industries' other operations. try. McLeod provides bundled telecommunications i services to businesses and is building the statewide fiber optic network in conjunction with the State of; lowa. IES Investments' passive investment in DLJ !
Merchant Banking Partners, an investment fund, real i ized an attractise return during the year.
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1996 and in the years ahead. -
In the non. utility area, CR ANDIC, our rail transporta-tion business, continues to achieve good results. In 1995, sales increased 9'4 from 1994, and the operating income rose ; .
moderately. CRANDIC also receised national recognition as -
one of the best shortline railroads in the country. Whiting l Petroleum, the wholly owned subsidiary in the oil and natural .
gas business, continued to expand its acquisition program in '
reserves. It posted a gain of approximately 45% in operating i income in 1495.
(
r Industrial Energy Applications, Inc., our wholly ,
owned energy sersice business unit, has vastly expanded its I
operation to include co-generation and commodity based ,
electric energy and natural gas sales, in addition to the core l business in stand-by generation. We now hase branch offices in '_.
St. Louis, Atlanta, Phoenix, and Denver. It is our expectation this business unit will continue to expand in order to meet the 1
i increasing demand in a more deregulated energy market.
h in 1995, we were also successful in penetrating the i
j prisatized electric energy business in New Zealand, a country -
{ with stable economy and steady growth. IES Industries is now -
l the part owner of Powereo and Central Power, two energy sersice companies in New Zealand with a combined resenue -
l of oser $1(X) million. Although our New Zealand insestment 4
m w.dat, our experience has been sery positive: and we .
foresee significant opportunities ahead as their privatization program advances.
Mr. Larry D. Root and Mr. Rene Mal s, two of our
- senior executises, retired in 1995. Mr. Root completed 25 years l of distinguished service with our company. Mr. Malbs, who jomed us in 1991, also provided significant contribution to our "The winning strategy to ensure j organization. I would like to express our gratitude to both of continuing growth in shareholder value is to them and wish them the best in the years ahead. create a partnership which will be strong In closing. I would like to encourage you to and resourceful to weather the current read the proxy statement and this annual report for more changes in our industry. IES decided to I
detailed information on your company. Your interest and merge with WPL Holdings and interstate continuous support of our actions will ensure the long Power to meet this strategic goal. l term success of our enterprise and the enhanced value of The combined company will be a low cotst
, your investment. competitor regionally and nationally, and j will have more resources to develop new
{ products and services for customers.
In addition, we will achieve over $700 million Lee I.iu in savings over the next 10 years."
k Chairman of the Board, h President & Chief Decutive Of]h er j
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OPERATIONS REVIEW ineteen ninety-lhe was a year of transition for lES Industries its average price per kilowatt hour. In the industrial sector, Inc. Net income for the year was $64.2 million, or $2.20 per w here competition is likely to be first and fiercest,IES Utilities' share as compared to $66.8 million or $2.34 per share in 1994. as erage electric prices for industrial customers are in the lowest Operating revenues increased to $851 million from $786 million 20 percent of electrie industrial prices nationally.
in 1994. Contributing to the decline in earnings was an order Gas sales, including transported volumes, were up from the Iowa Utilities Hoard in the IES 4.8 percent for the year. doe partly to colder g.
Utilities' electric price case that reduced y weather. In August, the company fded a i ~
j retail electric prices annually by $14.4 mil- ; price increase request with the Iowa Utilities e
lion. This order had a negative effect on 1995 Hoard and interim prices wcre implemented I earnings of approximately 50.33 per share. .
in October, increasing annual natural gas An aggressise cost containment program at resenues by about $7 million. Company rep-IES Utilities, as well as the effects of warmer resentatives worked with inter enors and
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4 l than normal weather during the summer of " Customers go where customers and negotiated a settlement in 4
j 1995, helped offset some of the negative their business is early 1996. The Iowa Utihties Board is 1
- impact of the rate order- appreciated. Competitive expected to evaluate the settlement and businesses intuitive.ly render its final decision no later than the iES UTILITIES iNC* understand this and second quarter of 1996, i
j IES Utihties enjoyed significant sales strive to add value for IES Utilities' sersice territory grow th in 1995. w ith an increme in kilowatt- consumers. iES achieves tuniinues to pros ide a healthy busmess ensi-1 hour sales, excluding off system sales, of this by helping ronment. Our economic development efforts l
5.3 percent. Electric sales benefited from the customers use energy contributed to more than two dozen suc-i exceptionally hot summer, as well as from more efficiently." cessful projects in 1995, including seseral
- continued growth in sales to the company's major expansions. I j Dan Rogers J
! large industrial customers. For the year, IES Utilities will build a 20
} Executive Director, Customer electric sales solumes to our largest cus. Service, MS Utilities megawatt cogeneration facility in Cedar tomers were 5.9 percent above the presious Rapids that will serve all of the steam needs y ear. On a w eather-normalized basis, total electric of Penford Products Company and provide addi-sales solumes, excluding off-system sales, were 3.6 percent tional baseload electricity to IES Utilities. Cargill Inc. is higher between the two periods. expanding its operations in Eddys ille by building a $218 million We continued to improse our competitive pricing vitamin E processing plant, making the Eddysille complex position. For the fifth year in a row, IES Utilities reduced Cargill's largest capital investment in the world.
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The first mill at Cedar Riser Paper Co. in southwest implemented a program as all-encompassing as the IES Utilities Cedar Rapids went on-line in 1995 and construction continued program. We have analyzed our major processes during the past i l
on the second mill at the recycled corrugated cardboard manu- 12 months, we%e tapped into the best possible resources to help I facturing plant. Rubbermaid in Centenille, llormel Foods in us to do so and we%e broadened our horizon far beyond the Osceola and Murray Turbomachinery in Burlington all utility industry. IES Utilities teams have examined best prae-announced business expansions. tices for comparable business processes in Oserall, new industries or expan- other industries: Federal Express for real-1 sions in IES Utilities'ser ice territory resulted lg time tracking, Eastman Chemical for plant in the creation or retention of more than -
operation and maintenance, Dallas 911 for 3,000 jobs and a total capital insestment of )( dispatching and countless others. We've also ;
l over $450 million. .
hired executives and managers from indus-In preparing for the more competi- tries such as telecommunications that have tive environment. lES Utilities filed its "open "Our objective is already successfully made the transition to a access" electric transmission tariff with the dramatic and sustainable free-market environment. l Federal Energy Regulatory Commiwion improvement in cost IES Utilities believes that the (FERC) and receised approval of the rate it structure, custome, generation side of the utility business uill be will charge wholesale electricity customers service and corporate the first to feel the impact of deregulation, who access the company's transmission sys- culture. IES employees so we have paid particular attention to posi-tem. In 1996. FERC will activate regulations =rg ffyfag grangforma, rioning our genenaing mets to he competi-requiring umform rates for carrying energy tion and making tive, successful producers that can earn an across a utility's transmission lines, thereby decisions consistent attractive return on investment. The 1995 giving utilities and other energy re-sellers a with the future." average fowil steam generation cost of greater choice of energy providers. 1.54 cents per kilowatt-hour was the lowest Dundeana Langer IES Utilities is well aware that com- .
in the company's history. We are proud that T & D Team Leader, l'rocess petition is fast approaching, and has been Redesign, /ES Utilities the Ottumwa Generating Station generated a preparing by redesigning its major business record 4.4 million megawatt hours in 1995 processes for maximum efnciency, flexibility and customer sen ice. and that Sutherland Generating Station had its best generation The process began in 1995, with 1996 being the first year during output in 20 years.These are examples of our dedication to con-w hich we expect to begin realizing significant tangible benefits. tinuous improvement. Perhaps the best reflection of that ethic is While many companies in our industry have under- the performance of Duane Arnold Energy Center (DAEC) taken a redesign of processes and operations, very few have employees in the past 18 months. Employees not only earned O
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l the plant's highest-ever ratings from the Nuclear Regula- important to different groups of customers so that we can I
tory Commission in 1995, but also uorked more than 3 million desetop innovatise products, which may include items such as consecutive employee hours without a lost-time accident. variable discounts for a range of interruptible services for our Our goal is to rank in the top 10 percent of low-cost industrial customers, or pricing structures that are tailored energy suppliers nationwide and in the region. Although IES specifically to changing lifestyles.
- Utilities already ranks in the top quartile for Today, customer service means, l
Mf lowest-cost industrial prices nationally, the tar. g among other things, making and keeping yet is becoming increasingly difficult to reach commitments on new senice installation.
- d e w ith the consolidations in the industry and the providing accurate estimates and shortening growth of independent power producers. repair time. Our goal is to get to the point We know that our front-line offense -
where we will be able to estimate how to achiese our goal is IES Utilities' power quickly we can repair an outage before the plant employees. They are the best judges as " Generating efficiency is customer picks up the phone to call us. That's to how to streamline operations and get the a priority, because a lofty goal, but it is the type of ser ice that work done, and they are being empowcred this will be the most will differentiate the winners in a f ree market.
to take responsibility for achieving maxi- completely deregulated We are also developing value-mum production and maintenance efficiency part of our business. added services for IES Utilities business and at every plant. Through teamwork and con- Our generating assets residential customers. For example, IES tinuous improvement. IES Utilities and i" mat sam an attmtiv, Uti!ities can monitor an industrial casamcr's employees will implement changes to ensure rate of return on electricity costs at each stage of the produc-greater plant availability, more efficient plant our Investment." tion process. This allow s a customer to deter-operation, increased production and lower mine the economic value added at each step costs to customers. of the process and make sound operational Energy Supply-Fossil Team IES Utilities is also redesigning Leader, Process Redesign decisions that were presiously impossible.
pnwesses to improve customer service and IES Utilities With the rapid growth of home satisfaction. We base always compared offices and home-based businesses that rely favorably within our industry, but the competitive environment heavily on computers, faxes and interactis ity, IES Utilities is com-establishes a new paradigm for excellence. Customers willjudge mitted to providing power that protects this new generation of our service not in comparison to other utilities, but in com- electronic equipment from eten the most fleeting blip in senice.
parison to prosiders of a wide range of other services. At IES in its natural gas service, IES Utilities also is focusinF Utilities, we are developing a better understanding of what is efforts to redesign pnwesses to best deliver the service in the O
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, most economic way possible. At the same time, the company We believe our ownership of Whiting is strategically has continued its insestments in the expansion of its natural important as natural gas increasingly becomes a source of elec-gas system. tric power generation. The fact that IES Industries has its own l IES Utilities dedicated substantial resources in 1995 to supply source provides a competitive edge in attracting and l gaming a thorough understanding of what the company needed retaining industrial customers, who are concerned with the to do to get in fighting shape for the future. reliability and security of their fuel source.
I Customers are already seeing results, but Industrial Energy Applications, these w ill be more noticeable and dramatie as .; inc. (IEA) expanded its scope nationally in
', b we fully implement improved processes in 1 1995, by opening offices in four regions 1996 and begin to achiese our goal of signif- throughout the nation. it also receised icant improvement in all we do. approsal from FERC to purchase and resell
^
It's important to note that while wholesale electric power, w hich will allow ]
the Process Redesign initiative will be sub- "Our capabilities in IEA to market and transport electricity across stantially completed in 1996, IES Utilities providing customiaod much of the United States. IEA is currently f
- is comnutted to a culture of continuous energy solutions to working to esecute bulk power sales and i
improsement. This is not a one-time fit- Industrial and transmission sen ice agreements with 60 util-but a cultural change and a passion to ensure commercial customers ities across the country.
1 that eserything we do contributes value to nationwide provide a In addition to purchasing energ) -
l the customer as well as our shareholders. .pg,ggerm gergg ,gugure including coal nanimi gm and electricity--
1 l of energy services." LEA constructs and maintains energy facil-i j iES ENERGY ities to provide companies with cost-William Douglas Whiting Petroleum. w hich is the largest ef fective energy solutions. IEA provides
- Vice President and company in our disersified portfolio, had General Manager, Industrial industrial customers with a total energy another year of significant growth. Although Energy 4@a@n3 package that optimi/es sen ice and cost, w ith oil and gas prices were weaker than expected options that include standby generation, 1
i through much of 1995, Whiting used this as cogeneration, steam production. propane 1
j an opportunity to expand its resene base with the acquisition air systems and pipeline bypass. ,
1 of almost $50 million in additional reserves, primarily natural On the international front in 1995, IES Industries 1
l l gas. These acquisitions substantially increased the size of the acquired minority interests in two electric distribution compa-e l
j company and demonstrated its strength in acquiring and desel- nies (Powerco Limited and Central Power Limited) hicated in l 1
j oping prosen and producing oil and gas properties. New Zealand. New Zealand is w ell ahead of the W
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United States in deregulating electric distribution utilities and company handled a record 90JWX) railcars in 1995. CRANDIC's )
l we beliese this partnership will gise us greater experience and assumption of the IES Railcar Service Center assets, following i;
insight into how deregulation may evolve in the United States. the closing of that facility as a separate operating company, will Powerco Limited senes 72JXK) electric and 15JMX) natural gas allow CRANDIC to expand the scope of its services.
1 customers and Central Power Limited has 33JXX) electric cus- '
I tomers. Their rural. Iow density senice area is acsaNVESTMENTS sery similar to the service area of IES Utilities. 4 McLeod. Inc. is a dynamic and growing ,
A i The international market offers business that has the potential to provide I lv great potential as there is a tremendous need significant value to shareholders. McLeod l
. for energy in many parts of the world, partie- .
prosides local, long distance and other tele- !
i
- 1 a
ularly in the Far East and South America. 'g communications senices to more than 7JNX)
, We beliese IES Utilities' expertise and business customers in Illinois and towa. j 1
experience in operating small-and medium- "We have been in a It is an increasingly strategic part of IES sized generating units will allow us to competitive business all Industries' future as the interests of telecom-l expand our presence globally, along, and we are munications and utility companies converge 1 i recognized for the in providing new and better services to cus-1ES TRANSPORTATION Innovation, flexibility and tomers. IES Utilities will benefit from i
The Cedar Rapids and lowa City Railway high level of customer hasing a strong telecommunications partner 1
J Company (CRANDIC) was honored in satisfaction necessary as it pursues automated meter reading.
l 1995 by Railway Age magazine with its in that type of energy management sen ice s and other
( 1 Short-line Rail Carner of the Year Award of environment." customer services.
1
! Merit, which recognizes excellence in the Paul Treengen industry. The 90-year-old company is well- LOOKINO AHEAD Vice President and known in its industry and is noted for inno- (leneral Manager We at IES Industries are genuinely looking vation and high lesels of service to both The Cedar Rapids and forward to the future because the major steps lowa City Railway Company customers and other railroads. It con- we hase taken in 1995 will position us to be tributes to IES Industries' presence in eastern low a by sening a high performance company with greater financial strength.
shippers and customers and helping foster economic deselop- The proposed merger between IES Industries, WPL lloidings ment in the area. and Interstate Power Company will proside us with the CRANDIC recorded excellent earmngs in 1995, resources, geographie scope and market presence to be a winner exceeding the record-setting earnings of the year before. The in these challenging times.
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, jA T H R E E.W A Y STRATEGIC ALLIANCE I l
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e n November 11, 1995, IES Industries Inc., WPL lloidings, Corporate Profiles IES IPC WPLH l 3 Inc., and Interstate Power Company announced the signing of Operating Resenues $ 851' $ 319' $ 807' a merger agreement providing for the combination of the three Net income $ 64' $ 28' 5 58 '
Earnings Per Share $ 2.20 $ 2.63 $ l.90' companies. If approved by shareholders, state and federal Dis idends Per Share $ 2.10 $ 2.08 $ l.94 regulatory authorities, the merger will produce a new holding Total Assets $1,986' $ 634' $ 1,872' Long-term ikbt 5 602' $ 189' $ 430' company - Interstate Energy Corporation.
Percent of Utihty Operating Revenues:
With headquarters to be located in Madison, Electrie 79.04 86.3 9 79.29 Natural Gas 19.3 4 13.7G 20.29 Wisconsin, Interstate Energy Corporation will consist of IES Water / Steam 1.74 0.0% 0.6%
Utilities of Cedar Rapids, Wisconsin Power and Light Co. Electric Sales (kwh) 9.783,514' 5,428,226: 11,747,178' Electrie Customers 333,489 163.394 376,510 of Madison, interstate Power Company of Dubuque aad a non-Natural Gas Sales tdth) 28.934 8,919' 29,3812 regulated component comprised of IES Disersified and Dth Transported for Others 10.871' 26,40l' 10.568' Natural Ga.s Customers 174,470 48,823 146.093 lleartland Deselopment Corporation. Sources of Energy Production:
Fossil 50.6% 61,7 % 67.1%
Together, the three utilities will sene more than Nuclear 22.9% 0.09 12.54 ilydroelectric/Other 0.1 % 0.0% 1.89 873JXX) electric and 369JN)0 natural gas customers in Iowa, Purchased 26.4% 38.3% 18.6 %
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System Capacity 1,925 Mw I,311uw 2,233Mw Minnesota, Illinois and Wisconsin. With over $2 billion in j Peak Demand 1,824uw I,0ll uw 2,l97stw market capitalization and approximately $4 billion in assets, Stock Information Interstate Energy Corporation will rank 34th out of 178 U.S.
IES IPC WPLH Number of Shareholders 29,731 15.127 38,437 utilities and utility holding companies, based on 1994 revenues.
Number of Common Shares l Outstanding 29.508,415 9.564,287 30.773.588 '
NYSE Trading Sy mbol thS IPW WPil Service Territories .
mmpsoyees IES IPC WPLH l 9rg j-} Number of 1 mployees 2,635 936 3,556
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?' J 'lhillar amount.s m nullions 3
Amounts m thouwmds l'
- , . 'The w PLil IW1 net income of il W per share reneth the 43-cent impact of F dnconimued operanom resultmg from the male of in A&C Encicom subsidiary.
which the company amiounced January 17.19#t Consolidated mwme per share from contmumg operanom increawd 16 cenb to 2.0 in lWS. compared i -. . with $217 in lW4.after renectmg a festatement of the prior years for i . dncontmued operatiom e
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.' 5' E IES B IPC E WPLH l
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C A N A C E D E N T'S DIS C U D SIO N AND A N ALY SIS OF THE RESULT 0 OF OP E R ATION S A N D FIN A NCI A L CONDITION The Consolidated Financial State,nents include the accounts of cannot exceed $2.10 per share, the current annual payment level, IE.S Industries Inc. (industries) and its consolidated subsidiaries pending the Proposed Merger.
fcollectively the Company). Industries' wholly-owned subsidiaries Interstate Energy will be the parent company of Utilities, are IES Utilities Inc. (Urilitiesl andIES Diverssped inc. fDiverstfed? Wisconsin Power and Light Company and IPC and will be reg-istered under the Public Utility Holding Company Act of 1935,
,PROPO5ED MEROER OF THE COMPANY as amended (1935 Act). The Merger Agreement provides that
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The Company, WPL Holdings, Inc. (WPLH) and Interstate these operating utility companies will continue to operate as J Power Company (IPC) have entered into an Agreement and Plan separate entities for a minimum of three years beyond the effec- l of Merger (Merger Agreement), dated November 10,1995 (the ~ tive date of the merger. In addition, the non-utility operations of Proposed Merger). The new holding company will be named the Company and WPLH will be combined shortly after the Interstate Energy Corporation (Interstate Energy) and Industries effective date of the merger under one entity to manage the will cease to exist. The Proposed Merger, which will be diversified operations ofInterstate Energy, f
- accounted for as a pooling ofinterests, has been approved by the The SEC historically has interpreted the 1935 Act to pre-
- respective Boards of Directors. It is still subject to approval by clude registered holding companies, with limited exceptions, j- the shareholders of each company as well as several federal and from owning both electric and gas utility systems. Although the
- j. state regulatory agencies. The companies expect to receive the SEC has recently recommended that registered holding compa-j shareholder approvals in the second quarter of 1996 and the reg. nies be allowed to hold both gas and electric utility operations if i- ulatory approvals by the second quarter of 1997, the affected states agree, it remains possible that the SEC may The business of Interstate Energy will consist of utility oper- require as a condition to its approval of the Proposed Merger that l
i ations and various non-utility enterprises, and it ir expected that the Company, WPLH and IPC divest their gas utility properties, ,
its utility subsidiaries will serve more than 870,000 electric and possibly certain non-utility ventures of the Company f' and WPLH, within a reasonable time after the effective date of j customers and 360,000 natural gas customers in Iowa, Illinois, j Minnesota and Wisconsin. the Proposed Merger.
The operating revenues, net income from continuing oper. Legislation to repeal the 1935 Act was introduced in Congress
- ations and total assets of the companies were as follows
- in 1995 and is pending. No assurance can be given as to when or if PRO FORMA such legislation will be considered or enacted. The Staff of the SEC IES COMDINED w, mau.=om mousmES ' WPU4 IPC (upaucup) has also recommended that the SEC " permit combination systems
! 1995 operating by registered holding companies if the affected states concur," and revenues , $ 851,010 $ 807,255 $318,542 $1,976,807 the SEC has proposed rules that would relax current restrictions on
! 1995 net income investment by registered holding companies in certain " energy j from continuing related," non-u'ility t businesses. No prediction can be made as to t operations. , 64,176 71.618 25,198 160,992 the outcome of these legislative and regulatory proposals.
Anets at Dec,31, 1995 1,985,591 1,872.414 634,316 4,492,321 See Note 2 of the Notes to Consolidated Financial State-ments for a further discussion of the Proposed Merger.
Under the terms of the Merger Agreement, the outstanding shares of WPLH's common stock will remain unchanged and RESUMrS OF 0PERATIONS outstanding as shares of Interstate Energy. Each outstanding The following discussion analyzes significant changes in the l share of the Company's common stock will be converted to components of net income and financial condition from the prior I
.98 shares of Interstate EnerFy's common stock Each share of periods for the Company:
IPC's common stock will be converted to 1.11 shares of The Company's net income decteased ($2.6) million and Interstate Energy's common stock. It is anticipated that ($1.1)'million during 1995 and 1994, respectively. Earnings per Interstate Energy will retain WPLH's common share divi' average common share declined to $2.20 in 1995 from $2.34 in dend payment level as of the effective time of the merger On 1994. The 1995 results reflect the impact of the towa Utilities January 24,1996, the Board of Directors of WPLH declared a Board (IUB) price reduction order in Utilities' recent electric rate quarterly dividend of 49.25 cents per share. This represents an case. The effect of the lower electric prices, including the equivalent annual rate of $1.97 per share. Under provisions of required refund, reduced the 1995 net income by approximately the Merger Agreement, Industries' annual dividend payment $9.7 million ($0.33 per share). (See Note 3(b) of the Notes to O
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Consolidated Financial Statements for a further discussion of The increase in the 1995 electric resenues was primarily the electric rate case). Warmer than normal weather conditions due to the increased sales (excluding off-system sales), higher during the summer months, which added $0.18 to earnings. and fuel costs collected through the EAC, the unbilled revenue an aggressive cost containment program partially offset the neg- adjustment and the recovery of expenditures for energy efti-ative effects of the IUB order. The 1994 results were atYected by ciency programs pursuant to an IUB order. The effect of the j milder than normal wcather, particularly during the summer warmer than normal weather increased 1995 electric revenues by months.The 1993 results reflect the recording of cenain property approximately $9 million. These items were partially offset by a write-downs at Diversified and a $2.5 million contribution to the reduction in revenues of approximately $17 million during 1995 IES Industries Charitable Foundation. as the result of the IUB price reduction order. Approximately l The Company's operating income increased or (decreased) $3.5 million,50.07 per share, of the price reduction decrease
$3.8 million and ($3.3) million during 1995 and 1994, respec- related to revenues collected in the fourth quarter of 1994. See
- tisely. Reasons for the changes in the results of operations are Notes 3(b) and 3(c) of the Notes to Consolidated Financial I
explained in the following discussion. Statements for a further discussion of the electric rate case and Electric Revenues
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The decrease in the 1994 electric revenues was attributable Electric revenues and Kwh sales for Utilities increased or to lower fuel costs collected through the EAC, lower off-system (decreased) as compared with the prior year as follows:
sales to other utilities and the effect of the mix of sales between coows m mo~.: 1995 i994 lower margin industrial customers and higher margin residential Total electric revenues. $23.1 $(13.2) and rural customers. Increased total 1994 sales (excluding off-Change in off-system sales revenues (0.3) (11.3) system sales) partir.lly offset the effects of the above items.
Electric revenues (excluding off-system sales) $23.4 $ (1.9) Gas Resenues Gas revenues increased or (decreased) as compared with the Electric sales (excluding off-system sales):
prior year as follows:
Residential and Rural. 7.9 % (1.4%) ,__ ,,,3 i,94 General Senice. . 6.1 0.4 Gas revenues:
Large General Senice 5,9 8.9 Utilities . $ (1.7) $(15.3)
Total . 5.3 4.3 Industrial Energy Applications.
Wanner than nonnal weather during the summer of 1995 sig-Inc. (IEA) 26.5 (1.1) nificandy increased sales. Utilities set new usage records several $ 24.8 $U E 4) times, culminated by a new energy peak demand record of 1,824 Utilities' gas sales and transponed volumes in thenns increased megawatts on July 12,1995. The 1994 Kw h sales were adversely or (decreased) as compared with the prior period as follows:
affected by milder than normal weather, particularly during the 1995 1994 summer months. The largest effect of weather each year war on
. Residential. 3.4% (7.1%)
sales to residential and rural customers. Under historically normal Commercial 2.5 (8.2) w eather conditions, total sales (excluding off system sales) during industrial (22.7) (13.2) 1995 and 1994 would have increased 3.6% and 4.8%, respec-Sales to consumers (0.5) (8.3) l tively. Sales during 1995 also benefited from the effects of I Transported volumes 22.1 22.2 l Utihties' annual true-up udjustment to unbilled sales. The growth l . . Total . 4.8 (2.7) l in general service and large general service sales contmues '
I to reflect the underlying strength of the economy as industrial Under historically normal weather conditions, Utilities' gas expansions in Utilities' service territory continued during 1995. sales and transported volumes would have increased 3.5% and Utilities
- electric tariffs include energy adjustment claces 0.7% in 1995 and 1994, respectively.
(EAC) that are designed to currently recover the costs of fuel and Utilities' gas tariffs include purchased gas adjustment l
the energy portion of purchased power billings to customers. clauses (PGA) that are designed to currently recoser the cost of l See Note 1(k)of the Notes to Consolidated Financial Statements pas sold. See Note 1(k) of the Notes to Consolidated Financial for discussion of the EAC. Statements for discussion of the PGA.
On August 4,1995, Utilities applied to the IUB for an annual 1994 largely because of lower average fuel prices and the etTect increase in gas rates of $8.8 million, or 6.2%. An interim increase of kmer fuel cost recoveries through the EAC. Generation at of $7,1 million became effective October 11,1995, subject to Utilities' generating stations increased during 1994 primarily refund. Utilities, the Office of Consumer Admeate and all three because of increased sales and the increased availability of industrial intervenor groups have entered into a settlement agree- DAEC as there was a scheduled refueling outage in 1993 also.
ment, subject to IUB approval, which allows Utilities a $6.3 mil- Purchased power decreased ($i.9) million and ($24.7) mil-lion arnual increase. Utilities expects that the IUB w ill rule on the lion in 1995 and 1994, respecthely. The 1995 decrease was settlement agreement no later than the second quarter of 1996. primarily due to lower capacity costs of($6.6) million, partially Utilities' gas revenues decreased in 1995 primarily because offset by higher energy purchases of $4.7 million due to the of lower gas costs recovered through the PGA, and was substan- increased sales to customers and flat generation, as discussed tially offset by the effects of the interim rate increase, recovery of above. He 1994 decrease was caused by lower off-system sales expenditures for the energy efficiency programs and increased to other utilities, increased generation at Utilities' generating sta-resenues from transported gas volumes. The 1994 revenue tions and the expiration, in April 1993, of a purchase power decrease was primarily due to lower gas costs recosered through agreement with the City of Muscatine.
the PGA and, to a lesser extent, the effect of the lower sales. Gas purchased for resale increased $20.9 million in 1995 due IEA's gas revenues increased in 1995 primarily due to an to the increased gas sales at IEA and the timing of the recovery of increase of 121% in gas volumes, partially offset by lower unit pas costs through the PGA at Utilities, partially offset by lower nat-gas costs. The significant increase in gas volumes was due to ural gas prices. Gas purchased for resale decreased ($15.0) million heightened marketing efforts as u ell as expanding into additional in 1994 because of lower gas costs and kiwer gas sales at Utilities.
regional markets. IEA, which is based in Cedar Rapids, IA, Other operating expenses increased $24.5 million and $14.2 opened branch offices in Phoenix, Demer, St. Louis and Atlanta million in 1995 and 19u4. respectively, increased labor and benetits in 1995. 'the decrease in IEA's 1994 gas revenues was due to costs and increased operating activities at Whiting cont-ibuted to lower gas costs, partially offset by a 16% increase in Fas volumes, both increases. De 1995 increase was also due to costs associated with a project to review and redesign Utilities' major business Other Revenues processes, the amonization of presiously deferred energy efliciency Other revenues increased $17.2 million and $14.1 million during expenditures at Utilities (which are currently being reco cred 1995 and 1994, respectively, primarily because of increased .
through rates), mereased operating activities at IEA and costs relat-revenues at Whiting Petroleum Company (Whiting). Whiting's ing to the Proposed Merger. These increases w ere partially otTset by operations have expanded significantly the last several years as a decreased nuclear operating costs, lower insurance costs at Utilities result of continued acquisitions of oil and gas propenies. These .. , ,. , , , . , _ , , , , ,
s ana oecreaseu costs resmung mim me saie vi me unco.meu .uo-increases were partially offset as the result of the sale of several of ,
sidiaries. In addition, following the receipt of the IUB price reduc-Disersified's subsidiaries during 1994 and 1995. The operations tion order Utilities took action and successfully reduced 1995 of the subsidiaries that were sold w ere not significant to the results operating and maintenance costs by about $8 million from budgeted of operations or financial position of the Company. An increase levels. The 1994 increase was also attributable to higher nuclear in Utilities' steam revenues also contributed to the 1995 increase. .
operatmg costs, former manufacturedF as plant (FMGP) clean-up Operating Expenses costs and increased information technology costs at Utilities.
Fuel for production inemased $10.3 milhon during 1995 due to Maintenance expenses increased or (decreased) ($6.7) mil-higher fuel cost recoveries through the EAC, which are included in lion and $3.9 million during 1995 and 1994, respectively. The fuel for production, and a higher average fuel cost. Total 1995 Kw h 1995 decrease was due to less required maintenance actisities at generation at Unlities' generating stations was flat compared to the DAEC and at Utilities' fossil fueled generating stations and 1994. The Duane Arnold Energy Center (DAEC), Utilities' nuclear the cost containment actions discussed above. The 1994 increase generating facility, generated less Kwh in 1995 because it was was primarily because of increased labor costs and maintenance down from late February 1995 to late April 1995 for a scheduled at the DAEC, partially offset by lower maintenance at Utilities
- refueling outage. There was no refueling outage in 1994. Increased fossil-fueled generating stations.
generation at Utilities' fossil-fueled generating stations, due to the Depreciation and amortization increased during both years increased sales and the DAEC outage, virtually offset the decreased because of increases in utility plant in service and the acquisition DAEC generation. Fuel for production decreased ($1.8) million in of oil and gas operating pmperties. The 1995 increase was par-
I tially offset by lower depreciation rates implemented at Utilities making principles, that are now becoming payable. Adjustments as a result of the IUB electric price reduction order. Depreciation to tax reserves also contributed to the increased taxes in 1995.
and amortization expenses for all periods include a provision for decommissioning the DAEC, which is collected through rates. LiG UIDIT V ANO C A P17 A L RESOURCES The annual recovery level was increased to $6.0 million in 1995 The Company's capital requirements are primarily attributable to from $5.5 million, as a result of Utilities
- recent electric rate case. Utilities' construction programs, its debt maturities and the level During the first quarter of 1996, the Financial Accounting of Disersified's business opportunities. The Company's pretar Standards Board (FASB) issued an Exposure Draft on Accounting ratio of times interest earned was 3.12,3.38 and 3.38 in 1995-for Liabilities Related to Closure and Removal of Long-Lived Assets 1993, respectively. In 1995, cash flows from operating activities which deals with, among other issues, the accounting for decom- were $1% million sersus $216 million in 1994. The decrease missioning costs. If current electric utility industry accounting prac- was primarily due to expenditures related to the effect of the 1995 tices for such decommissioning are changed: (1) annual provisions DAEC refueling outage and other changes in working capital.
Ior decommissioning could increase relative to 1995 and,(2) the esti-The Company anticipates that future capital requirements mated cost for decommissioning could be recorded as a liability, will be met by cash generated from operations and external rather than as accumulated depreciation, with recognition of an financing. The level of cash generated from operations is partially increas: in the recorded amount of the related DAEC plant. If such dependent upon economic conditions, legislative activities, envi-changes are required Utilitius believes that there would not be an ronmental matters and timely rate relief for Utilities. See Notes 3 adverse etTect on its financial position or results of operations based and 12 of the Notes to Consolidated Financial Statements.
on cunent rate making practices. (See Note 1(g) of the Notes to Access to the long term and short-term capital and credit Consolidated Financial Statements for a discussion of the recovery markets is necessary for obtaining funds externally. The Com-of decommissioning cests alkmed in Utilities' most recent rate case). pany's debt ratings are as follows:
Taxes other than income taxes increased $2.7 million and sim oAno
$1.9 million during 1995 and 1994, respectively,largely because M Y'S & POOR's of increased property taxes at Utilities caused by increases in Utilities -Long-term debt A2 A assessed property values. -Short-term debt Pl Al Diversified -Short-term debt P2 A2 Interest Expense and Other Interest expanse increased $4.7 million during 1995 primarily The Company's liquidity and capital resources will be affected because c4 an increase in the average amount of short-term debt n nmental aM kgh h, indudng h uMnM-outshnding and laterest related to Utilities' electric rate refund. positi n f remediation issues surrounding the Company's emi-ronmental liabilities and the Clean A ir Act as amended, as discussed Lower average interest rates, attributable to retinancing $ 100 mil-lion of long-term debt at low er rates and the mix of long-term and in Note 12 of the Notes to Consolidated Financial Statements, and short term debt, partially offset the increase. " ""' "IY CI ^ "* ""# '" ##
Miscellaneous, net reflected a decrease in income of (50.3) ist tiers section. Consistent with rate making principles of the IUB, million during 1995 and an increase in income of $6.4 million man gement believes that the costs incurred for the abose matters during 1994.The 1995 decrease was primarily due to an increaw will n t have a material adverse effect on the financial position or in fees related to the sale of utility accounts receivable as the aser- results f perati ns f the Company. It is not certain if, and how, age amount of receivables sold during the year increased. Gains the Proposed Merger may affect the Company's debt ratings.
on the sale of several investments by Diversified's subsidiaries The IUB has current rules which require Utihties to spend 2%
partially offs 4 these fees. 'Ihe 1994 increase was primarily due to f electric and 1.5% of gas gross retail operating revenues annually the etTect of tra.s. actions recorded in 1993 for certain property f r energy etl ciency pr grams. Energy etliciency costs in excess of write-downs at Diversified. a contribution to the IES Charitable the amount in the most recent electric and gas rate cases are being rec rded as regulatory assets by Utilities. At December 31,1995 Foundation and a loss on the defeasance ofIndustries' debentures.
Utilities had approximately $50 million of such costs recorded as Federal and state income taxes increased 50.9 million and
$4.5 million in 1995 and 1994, respectively. The increases for both regulamry assets, On June I,1995, Utilities began recovery of those costs incurred through 1993. See Note 3(c) of the Notes to Con-years are due to the effect of prwerty related temporary ditTerences for which deferred taxes had not been provided, pursuant to rate s idated Financial Statements for a discussion of the timing of the filings for the recovery of these costs under IUB mies.
Under provisions of the Merger Agreement, there are restric. LONOTERM FiNANCINO tions on the amount of common stock and long-term debt the Other than Utilities' periodic sinking fund requirements, which Company can issue pending the merger. The Company does not Utilities intends to meet by pledging additional property, the fol-expect the restrictions to ha~e a material effect on its ability to 'owing long-term debt will mature prior to December 31,2000:
meet its future capital requirements. % -,wmo Utilities . $140.3 CON $TROCTION AND ACQUiSI7 ION PROGRAM Diversified's variable rate credit facility 124.2 The Company's construction and acquisition program anticipates Other subsidiaries' debt. 11.4 expenditures of approximate!y $245 million for 1996, of which $ 273.9 approximately $1M million represents expenditures at Utilities and approximately $81 million represents expenditures at The Company inter.ds to refinance the majority of the debt Diversified. Of the $1M million of Utilities' expenditures,55% maturities with long-term securities.
represents expenditures for electric, gas and steam transmission In December 1995, Utilities issued $50 million of Subordinated and distribution facilities,199 represents fossil-fueled genera. Deferrable Interest Debentures,7 %%, due 2025. The proceeds from tion expendaures,13% represents information technology expen- the issuance of the debentures were used to retire short-term ditures and 5% represents nuclear generation expenditures. The hmwings, which were incurred in October 1995, to repay at remaining 89 represenis miscellaneous electric and general maturity, $50 million of Series X,9.424 First Mortgage Bonds.
expenditures. In addition to the $164 million Utilities anticipates In March 1995, Utilities repaid at maturity $50 million of expenditures of $13 million in connection with mandated energy Series K 9.75% First Martgage Bonds and, in a separate transac-efficiency programs. Diversified's anticipated expenditures ti n, issued $50 million of Collateral Trust Bonds,7.659, due 2000.
include approximately $75 million for domestic and intema- Utilities has entered into an Indenture of Mongage and tional energy-related construction and acquisition expenditurn. Deed of Trust dated September I,1993 (New Mortgage). The The Company's levels of construction and acquisition New Mortgage prosides for, among other things, the issuance of expenditures are projected to be $283 million in 1997, $255 Collateral Trust Bonds upon the basis of First Mortgage Bonds million in 1998,$247 million in 1999 and $215 million in 2000, being issued by Utilities. The lien of the New Mongage is subor-It is estimated that approximately 809' of Utilities' construction dinate to the lien of Utilities' first mongages until such time as all and acquisition expenditures will be provided by cash from oper, bonds issued under the first mortgages base been retired and such ating actisities (after payment of disidends) for the five-year m rtgages satisfied. Accordingly, to the extent that Utilities period 1996-2000. Financing plans for Diversified's construction issues Collateral Trust Bonds on the basis of First Mortgage and acquisition program will vary, depending primarily on the B nds, it must comply with the requirements for the issuance of level of energy-related acquisitions. First Mortgage Bonds under Utilities' first mortgages. Under the Capital expenditure and investment and financing plans are terms f the New Mongage, Utilities has covenanted not to issue subject to continual review and change. The capital expenditure any additional First Mongage Bonds under its first mortgages and imestment programs may be revised significantly as a result eAcept to proside the basis for issuance of Collateral Trust Bonds, I
of many considerations including changes in economic cond _ The indentures pursuant to which Utilities issues First tions, variations in actual sales and load grow th compared to fore- 1,I ngage Bonds constitute direct first mortgage liens upon casts, requirements of environmental, nuclear and other substantially all tangible public utility property and contain regulatory authorities, acquisition opportunities, the availability c venants which restrict the amount of additional bonds which of alternate energy and purchased power sources, the ability to m y be issued. At December 31,1995, such restrictions would obtain adequate and timely rate relief, escalations in construction have allowed Utilities to issue at least $258 million of addi-costs and conservation and energy efficiency programs. ti nal First M rtg ge Bonds.
Under provisions of the Merger Agreement, there are in rder to provide an instmraent for the issuance of unse-restrictions on the arnount of construction and acquisition cured subordinated debt securities, Utilities entered into an expenditures the Company can make pending the merger. The indenture dated December 1,1995 (Subordinated Indenture). The Company does not expect the restrictions to have a material effect Subordinated Indenture provides for, among other things, the on its ability to implement its anticipated construction and acqui, issuance f unsecured subordinated debt securities. Any debt sition program. securities issued under the Subordinated Indenture are subordi-l
nate to all senior indebtedness of Utilities, including First Mort- The 1995 and 1994 ratios include $15 million and $100 mib gage Bonds and Collateral Trust Bonds. lion, respectively, of long-term debt due in less than one year Utilities has received authority from the Federal Energy because it was the Company's intention to refinance the debt with Regulation Commission (FERC) and the SEC to issue up to long-tenn securities.
$250 million of long-term debt, and has $150 million of remain- Under provisions of the Merger Agreement, there are restnic-ing authority under the current FERC docket and $200 million tions on the amount of common stock and long-term debt the of remaining authority under the current SEC shelf registration. Company can issue pending the merger. The Company does not Utilities expects to replace one series of First Mortgage Bonds expect the restrictions to have a material effect on its ability to that mature in 1996 with other long-term securities. meet its future capital requirerrants.
Disersified has a variable rate credit facility that extends through November 9,1998, with a one-year extemion available $NORTTERM FINANCING to Diversified. The facility also serves as a stand-by agreement for For interim financing, Utilities is authorized by the FERC to Disersitied's commercial paper program. The agreement pro- issue, through 1996, up to $200 million of short-term notes. In sides for a combined maximum of $150 million of borrowings addition to providing for ongoing working capital needs, this under the agreement and commercial paper to be outstanding at avlilability of short-term financing provides Utilities flexibility in any one time. Interest rates and maturities are set at the time of the issuance of long-tenn securities. At December 31, 1995, borrowing for direct borrowings under the agreement and for Utilities had outstanding short-tenn borrowings of S109.9 milhon, issuances of commercial paper. The interest rate options are based including $8.9 million of notes payable to associated companies.
upon quated market rates and the maturities are less than one Utilities has an agreement, which expires in 1999, with a year. At Decembei 31,1995, there were no borrowings outstand- financial institution to sell, with limited recourse, an undivided ing under this facility. Disersified had $124.2 million of com- fractional interest of up to $65 million in its pool of utility accounts t mercial paper outstanding at December 31, 1995, with interest receivable. At December 31, 1995, Utilities had sold $58 mil-rates ranging from 5.859 to 6.50% and maturity dates in the first lion under the agreement.
quarter of 1996. Diversified intends to continue borrowing under At December 31, 1995, the Company had bank lines of the renew ' options of the facility and no conditions exist at credit aggregating $131.1 million (Industries-$1.5 million, December 31,1995, that would prevent such borrowings. Utilities-$121.1 million, Diversified-$7.5 million and Accordingly, this debt is classified as long-term in the Consoli- Whiting-$1.0 million). Utilities was using $101 million to dated Balance Sheets. The facility contains co enants that could support commerci? paper (weighted average interest rate of restrict the amount of borrowings available under the facility. 5.819) and $11.1 million to support certain podution control Refer to Note 6(b) of the Notes to Consolidated Financial obligations. Commitment fees are paid to maintain these lines and Statements for a discussion of a guarantee associated with debt there are no conditions which restrict the unused lines of credit.
issued by McLeod, Inc. In addition to the abose, Utilities has an uncommitte.h redit facil-The Articles of Incorporation of Utilities authorize and limit ity with a financial institution whereby it can borrow up to $40 the aggregate amount of additional shares of Cumulative Prefer- million. Rates are set at the time of borrowing sad no fees are ence Stock and Cumulative Preferred Stock that may be issued. paid to maintain this facility. At December 31,1995, there were At December 31,1995, Utilities could have issued an additional no borrowings under this facility.
700,000 shares of CumtJative Preference Stock and 100,000 additional shares of Cumulative Preferred Stock. In addition, E N vim O N M E N Y A L MATTERS Industries had 5,000,000 shares of Cumulative Preferred Stock, Utilities has been named as a Potennally Responsible Party (PRP) no par value, authorized for issuance, none of which were out- by various federal and state environmental agencies for 28 FMGP standing at December 31, 1995. sites, but belieses it is not responsible for two of these sites.There Tim Company's capitalization ratios at year-end were as follows: are also six other sites for which it may be designated as a PRP in 1995 1094 the future. Utilitiesis working pursuant to the requirements of the Long-term debt 49 % 48 % various agencies to investigate, mitigate, present and remediate, Preferred stock. 2 2 where necessary, damage to property, including damage to nat-Common equity , 49 50 ural resources, at and around the sites in order to protect public 100 % 100 % health and the en ironn at. Utilities believes it has completed the
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l remediation of five sites although it is in the process of obtaining buming equipment and boiler modifications and the possible pur-Onal approval from the applicable environmental agencies on this chase of sulfur dioxide allowances. Utilities estimates capital issue for each site. Utilities is in various stages of the investiga- expenditures at approximately $20 million, includmg $4 million l tion and/or remediation processes for 19 sites and expects to in 1996, in order to meet the acid rain requirements of the Act.
begin the investigation process in 1996 for the other two sites. De acid rain program under the Act also creates sulfur Utilities estimates the range of costs to be incurred for investiga- dioxide alk>wances. An allowance is defined as an authorkation tion and/or remediation of the sites to be appmximately $22 mil- for an owner to emit one ton of sulfur dioxide into the atmosphere.
lion to $55 million. Currently, Utilities receives a sufficient number of allowances Utilities has recorded environmental liabilities related to the annually to offset its emissions of sulfur dioxide from its Phase I FMGP sites of approximately $35 million (including $4.6 mil- units. It is anticipated that in the year 2(XX), when the Phase 11 lion as current liabihties) at December 31.1995. These amounts units participate in the allowance program, Utilities may have an are based upon Utilities' best current estimate of the amount to be insufficient number of allowances annually to offset its estimated incurred for investigation and remediation costs for those sites emissions and may have to purchase additional allowances, or where the investigation process has been or is substantially com- make modifications to the plants or limit operations to reduce pleted, and the minimum of the estimated cost range for those emissions. Utilities is reviewing its options to ensure that it will sites where the investigation is in its earlier stages or has not hase suflicient allowances to offset its emissions in the year 2(XX) started. It is possible that future cost estimates will be greater and thereafter. Utilities believes that the potential cost of ensur-than the current estimates as the investigation process proceeds ing sufficient allowances will not have a material adverse effect and as additional facts become known. Utilities may be required on its financial position or results of operations.
to monitor these sites for a number of years upon completion of The Act also requires the United States Environmental remediation, as is the case with seseral of the sites for which Protection Agency (EPA) to study and regulate, if necessary, remediation has been completed. additional issues that potentially afTect the electric utility indus-Utilities has begun pursuing claims under its prior coverage try, including emissions relating to nitrogen oxides (NOx), ozone for investigation, mitigation, prevention, remediation and moni- transport and mercury. Currently, the impacts of these potential toring costs from its insurance carriers and is investigating the reFulations are too speculative to quantify.
potential for third party cott sharing for FMGP investigation and in 1995, the EPA published the Sulfur Dioxide Network clean-up costs. The amount of shared costs, if any, can not be Design Review for Cedar Rapids, Iowa, w hich, based on the EPA's reasonably determined and, accordingly, no potential sharing assumptions and worst-case modeling methods, suggests that the has been recorded at December 31, 1995. Regulatory assets of Cedar Rapids area could be classified as "nonattainment" for the l approximately $35 million, which reflect the future recosery National Ambient Air Quality Standard (NAAQS) established for l that is being provided through Utilities' rates, have been recorded sulfur dioxide. The worst-case modeling study suggests that two in the Consolidated Balance Sheets. Considering the current rate of Utilities' generating facilities contribute to the modeled excee-l treatment allowed by the IUB management believes that the dences and recommeads that additional monitors be located near j l
clean-up costs incurred by Utilities for these FMGP sites will Utilities' sources to assess actual ambient air quality. In the event not have a material adverse effect on its financial position or that Utilities' facilities contribute excessive emissions, Utilities i results of operations, would be required to reduce emissions, which would primarily l l The Clean Air Act Amenduents Act of 1990 (Act) requires entail capital expenditures for modifications to the facilities. l l
( emission reductions of sulfur dioxide and nitrogen oxides (NOx) Utilities is currently reviewing EPA's assumptions and modeling
( to achieve reductions of atmospheric chemicals believed to cause results and is proposing a strategy to voluntarily reduce the exces-acid rain. The provisions of the Act are being implemented in two sive emissions through modification of its facilities at a potential phases with Phase I affecting two of Utilities
- units beginning in capital cost of up to $10 million over the next four years.
1995 and Phase 11 affecting all units beginning in the year 2000. The National Energy Policy Act of 1992 requires owners of Utilities has completed the modifications necessary to meet the nuclear power plants to pay a special assessment into a " Uranium Phase I requirements and has installed continuous emission Enrichment Decontamination and Decommissioning Fund." The monitors on all atTected units as required by the Act. Utilities assessment is based upon prior nuclear fuel purchases and, for the expects to meet the requirements of Phase 11 by switching to DAEC, averages $1.4 million annually through 2007, of which lower sulfur fuels, capital expenditures primarily related to fuel Utilities' 70% share is $1.0 million. Utilities is recovering the O
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l costs associated with this assessment through its electric fuel been the subject of increased public, governmental, industry and adjustment clauses over the period the costs are assessed. media attention. A considerable amount of scientific research has l l Utilities' 70% share of the future assessment, $10.9 million been conducted on this topic without definitive results. Research !
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- payable through 2007, has been recorded as a liability in the is continuing in order to resolve scientific uncertainties.
Consolidated Balance Sheets, including $0.8 million included Wding is responsible for certain dismantlement and aban-in " Current liabilities-Environmental liabilities," with a related donment costs related to vanous off-shore oil and gas properties, ,
1 regulatory asset for the unrecovered amount. the most significant of which is located off the coast of The Nuclear Waste Policy Act of 1982 assigned responsibil- California. Whiting ace ues these costs as reserves are extracted ity to the U.S. Department of Energy (DOE) to establish a facility and such costs are included in " Depreciation and amortization" for the ultimate disposition of high level waste and spent nuclear in the Consolidated Statements of income. A coriesponding l
fuel and authorized the DOE to enter into contracts with parties environmental liability, $1.7 million at December 31,1995, has for the disposal of such material beginning in January 1998. been recognized in the Consolidated Balance Sheets for the j Utilities entered into such a contract and has made the agreed cumulative amount expensed. l l payments to DOE. The DOE, however, has experienced signifi- j cant delays in its effons and material acceptance is now expected OTHER MATTERS j to occur no earlier than 2010 with the possibility of further delay Competition i being likely. Utilities has been storing spent nuclear fuel on-site As legislative, regulatory, economic and technological changes since plant operations began in 1974 and has current on-site capa- occur, electric utilities are faced with increasing pressure to bility to store spent fuel until 2002. Utilities is aggressively become more competitive. Such competitive pressures could l reviewing options for additional spent nuclear fuel storage result in loss of customers and an incurrence of stranded costs I capability, including expanding on-site storage and supporting (i.e. the cost of assets which could be rendered otherwise unre-legislation currently before the U.S. Congress, to resolve the lack coverable as the result of competitive pricing). To the extent j of progress by the DOE. stranded costs cannot be recovered from customers, they would The Low-Level Radioactive Waste Policy Amendments Act be borne by security holders.
of 1985 mandated that each state mtist take responsibility for The National Energy Policy Act of 1992 addresses several the storage of low-level radioactive waste produced within its matters designed to promote competition in the elecuic w holesale borders. The State of Iowa has joined the Midwest Interstate power generation market, including mandated open access to the Low-Level Radioactive Waste npact Commission (Compact), electric transmission system. In March 1995, the FERC issued a which is planning a storage facility to be located in Ohio to store Notice of Proposed Rutenaking pursuant to which FERC proposes waste generated by the Compact's six member states. At to promote competition in the electric utility industry by requiring December 31,1995, Utilities has prepaid costs of approximately that each transmission owning utility must 1) implement non-dis-
$1.1 million to the Compact for the building of such a facility. A criminatory tariffs allowing open access to that utility's transmis-Compact disposal facility is anticipated to be in operation in sion facilities by wholesale buyers and sellers of electricity and 2) l approximately ten years after approval of new enabling legisla- charge itself the same price for transmission and ancillary services tion by the member states. Such legislation is expected to be con- as it charges third parties under the tariffs. Utilities filed conform-sidered by the member states in 1996. On-site storage capability ing pro-forma open access transmission tariffs with the FERC on currently exists for low-level radioactive waste expected to be July 24,1995. The tariffs were accepted by the FERC and became i generated until the Compact facility is able to accept waste mate- effective October 1,1995. De geographic position of Utilities' rials. In addition, the Barnwell, South Carolina disposal facility transmission system could provice revenue opportunities in the has reopened for an indefinite time period and Utilities is in the open access environment. FERC's proposal would allow for recov-process of shipping to Bamwell the majority of the low-level ery of certain wholesale stranded wsts in connection with whole-radioactive waste it has accumulated on-site, and intends to ship the sale transmission. IEA received approval in the same FERC
! waste it produces in the future as long as the Barnwell site remains proceeding to market electric power at market based rates. The open, thereby minimizing the amount of waste stored on-site. Company cannot predict the final regulations that may be adopted.
He possibility that exposure to electric and magnetic fields De IUB initiated a Notice of Inquiry (Docket No. NOl 95-1)
(EMF) emanating from power lines, household appliances and in early 1995 on the subject of " Emerging Competition in the other electric sources may result in adverse health effects has Electric Utility Industry." A one-day roundtable discussion was i
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held to address all forms of competition in the electric utility probable of recovery through fu'ture revenues be charged to earn-
. industry and to assist the IUB in gathering information and ings. SFAS 121 is not expected to have an impact on the financial perspectives on electric competition from all persons or entities position or results of operations of the Company upon adoption.
with an interest or stake in the issues. Additional discussions Financial Derivatives were held in December 1995. 'Ihe IUB is expected to release a
. . . The Company has a policy that financial derivatives are to be status report on the inquiry m the first quarter of 1996.
Utilities is subject to the provisions of Statement of Finan- used only to mitigate business risks and not for speculative cial Accounting Standards No. 71," Accounting for the Effects of purposes. Derivatives have been used by the Company on a very limited basis. At December 31,1995, the Company had no finan-Certam Types of Regulation"(SFAS 71). If a portion of Utilities' .
cial den.vatives outstanding.
operations become no longer subject to the provis. ions of SFAS 71, a write-down of related regulatory assets would be required. Inf1stion unless some form of transition cost recovery is established by the Under the rate making principles prescribed by the regulatory appropriate regulatory body. Utilities believes that it still meets commissions to which Utilities is subject, only the historical the requirements of SEAS 71. Refer to Note 1(c) of the Notes to cost of plant is recoverable in revenues as depreciation. As a Consolidated Financial Statements for a further discussion. result, Utilities has experienced economic losses equivalent to the The Company cannot predict the long-term consequences of current year's impact of inflation on utility plant. In addition, these competitive issues on its results of operations or financia' con- the regulatory process imposes a substantial time lag between dition. The Company's strategy for deahng with these emerging the time when operating and capital costs are incurred and when issues inchides seeking growth opportunities, continuin:; to offer they are recovered. Utilities does not expect the effects of infla-quality customer service, ongoing cost reductions and productiv- tion at current levels to have a significant effect on its financial ity enhancements. In 1995, the Company initiated a program position or results of operations.
called Process Redesign to examine all of the major business processes of Utilities. The goals of Process Redesign include SELECTED C O N $ 0 LID AT E D QUARTERLY improving customer service and commitment and significantly F1NANCIAL DATA { U N A U DI7 E D) reducing Utilities' cost structure, in 1995, Process Redesign iden- . The following unaudited consolidated quarterly data, in the opin-l tified many of the changes that Utilities should pursue and ion of the Company, includes adjustments, which are normal and Utilities has begun implementing many of those actions. recurring in nature, necessary for the fair presentation of the Implementation will be substantially completed in 1996. results of operations and financial position. Utilities' results of operations are a significant portion of the consolidated results.
Accounting Pronouncements
. . . The quarteriy amounts were affected by Utilities' rate activities SFAS 121, issued m. March 1995 by the h.nancial Accounting Standards Board (FASB) and effective for 1996, establishes
. and seasonal weather conditions. Utilities' rate activities are discussed in Note 3 of the Notes to Consolidated Financial State-accounting standards for the impairment of king-lived assets.
ments. Refer to Management's Discussion and Analysis for a
- SFAS 121 also requires that regulatory assets that are no longer discussion of the impacts of weather.
QUARTER ENDED DN TMOUSANDE. EXCEFF PER SHARE AMOUNTS) MARCH 31 JUNE 30 BEPTEMBER 30 DECEMBER 31 1995-Operating revenues. . . . . . $ 206,392 $ 189,447 $ 238,467 $ 216,704 f . . . , , , .
l- Operating income , , .. . ... . 22,115 33,456 63,710 32,431 l
Net income . . .. , . 6,740 12,508 31,120 13,808 Earttings per average common share. ., ... ... 0.23 0.43 1.06 0.48 i
1994 i
- i l Operating revenues. .. . .... . .. ., . $211,621 $ 171,117 $207,345 $195,781 1
- ' . Operating income 35,694 28,436 56,700 27,103
. . . . . . .. .. . I Net income, . . ,,, ,. . . . . 15,144 10,858 - 28.009 12,807 !
f Earnings per average common share. , , . . , , . . . 0.53 0.38 0.98 0.45 l O
C3 E P O G Y OF INDEPENDENT REPORT OF MANAGEMENT PUOLIC ACCOUNTANTS To the lloard of Directors of IES Industries Inc : The Company's management has prepared and is responsible We have audited the accompanying consolidated balance sheets for the presentation, integrity and objectivity of the consoli-and statements of capitalization of IES Industries Inc. (an Iowa dated financial statements and related infonnation included corporation) and subsidiary companies as of December 31,1995 in this report, The consolidated financial statements have been and 1994, and the related consolidated statements of income, prepared in conformity with generally accepted accounting retained earnings and cash flows for each of the three years in principles applied on a consistent basis and, in some cases, the period ended December 31,1995. These financial statements include estimates that are based upon management's judgment are the responsibility of the Company's management. Our and the best available information, gising due consideration responsibility is to express an opinion on these financial state- to materiality. Financial information contained elsewhere in ments based on our audits. this report is consistent with that in the consolidated finan-We conducted our audits in accordance with generally cial statements.
accepted auditing standards. Those standards require that The Company maintains a system of internal accounting we plan and perfonn the audit to obtain reasonable assurance controls which it believes is adequate to provide reasonable about whether the financial statements are free of material assurance that assets are safeguarded, transactions are executed misstatement. An audit includes examining, on a test basis, in accordance with management authorization and the financial evidence supporting the amounts and disclosures in the financial records are reliable for preparing the consolidated financial statements. An audit also includes assessing the accounting statements. The system of internal accounting controls is sup-principles used and significant estimates made by management, ported by written policies and procedures, by a staff of internal as well as evaluating the overall financial statement presen- auditors and by the selection and training of qualified personnel.
tation. We believe that our audits provide a reasonable basis The internal audit staff conducts comprehensive audits of the for our opinion. Company's system of internal accounting controls. Management in our opinion, the financial statements referred to strives to maintain an adequate system of internal controls, above present fairly, in all material respects, the financial recognizing that the cost of such a system should not exceed the position of IES Industries inc, and subsidiary companies as of benefits derived. In accordance with generally accepted auditing December 31,1995 and 1994, and the results of their operations standards, the independent public accountants ( Arthur Andersen and their cash liows for each of the three years in the period LLP) obtained a sufficient understanding of the Company's ended December 31,1995, in confonnity with generally accepted internal controls to plan their audit and determine the nature, accounting principles. timing and extent of other tests to be performed Management As discussed in Note 8 to the consolidated f'mancial is not aware of any material internal control weaknesses, statements, effective January 1,1993, IES Industries Inc. and The 130ard of Directors, through its Audit Committee subsidiary companies changed their method of accounting comprised entirely of outside directors, mects periodically with for postretirement benefits other than pensions. management, the internal auditor and Arthur Andersen LLP to discuss financial reporting matters, internal control and auditing. To ensure their independence, both the internal g M/ auditor and Arthur Andersen LLP have full and free access to the Audit Committee.
ARTilUR ANDERSEN LLP Chicago, Illinois, February 2,1996 l
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CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31 (IN THOUSANDE. EXCEPT PER BHARE AMOUNTS) 1995 1994 1993 Operating revenues:
Electric . . . . . . $560,471 $537,327 $550,521 Gas . . . . 190,339 165,569 181,923 Other . . . . . 100,200 82,968 68,822 851,010 785,864 801,266 Operating expenses:
Fuel for production . . . . 96,256 85,952 87,702 Purchased power. . 66,874 68,794 93,449 Gas purchased for resale. . . 141,716 120,795 135,830 Other operating expenses 201,390 176,863 162,642 Maintenance . . 46,093 52,841 48,913 Depreciation and amortization . 97,958 86,378 77,012 Taxes other than income taxes 49,011 46,308 44,449 699,298 637,931 649,997 Operating income. . . 151,712 147,933 151,269 Interest expense and other:
Interest expense . 50,727 46,010 44,440 Allowance for funds used during construction (3,424) (3,910) (1,972)
Preferred dividend requiremnts of IES Utilities Inc. 914 914 914 Miscellaneous, net . (3,170) (3,472) 2,908 l 45,047 39,542 46,290 Income before income taxes. 106,665 108,391 104,979 l Federal and state income taxes . 42,489 41,573 37,041 Net income. . . . . . . $ 64,176 $ 66,818 $ 67.938 Average number of common shares outstanding . 29,202 28,560 27,764 Earnings per aserage common share . . . $ 2.20 $ 2.34 $ 2.45 The acwmpanying Notes to C<mwisJared hnancial Statements are an integralpart of thes e statements.
C O N S O LID AT E D STATEMENTS OF RETAINED EARNINGS Year Ended December 31 (IN THOUBANDs) 1995 1994 1993 Italance at beginning of year . . . $218,293 $211,750 $202,919 Add:
Net income. . . 64,176 66,818 67.938 l Deduct:
Cash dividends declared on common stock, at a per share rate of $2.10 for all years . . . . 61,392 60,065 59,107 Other .
210 -
Halance at end of year . . . $ 221,077 $218,'293 $211,750 The acwmpanung Notes to Conwlidated haancial Statements are an integralpart of the se statemener O
CO N SO Li@ AT ED DALANCE SNEETS Assets December 31 (IN THOUSANDS) 1995 1994 Property, plant and equipment:
Utility-Plant in service-Electric . . . . . . . . $1,900,157 $ 1,798,059 Gas . ... . .. 165,825 158,115 Other ..... . . . 106,396 86,005 2,172,378 2,042,179 Ixss- Accumulated depreciation . . . . . 950,324 880,888 1,222,054 1,161,291 Leased nuclear fuel, net of amortization . . . .. 36,935 49,731 Construction work in progress . ... . 52,772 73,339 1,311,761 1,284,361 Other, net of accumulated depreciation and amortization of $53,026.000 and $35,767,000. respectively . . . 193,215 154,657 f 1,504,976 1,439,018 Current assets:
Cash and temporary cash investments . . . . 6,942 4,993 Accounts receivable-Customer, less reserve . . . . 37,214 26.098 l Other . . . . . . . 10,493 10,388' !
Income tax refunds receivable . . . . . 982 6,434 Production fuel, at average cost . 12,155 13,988 Materials and supplies, at average cost. .. 28,354 30,216 Adjustment clause balances . . .
- 1,433 Regulatory assets . . . 22,791 20,145 Oil and gas properties held for resale . . . . 9,843 -
Prepayments and other . . 23,099 24,692 151.873 138,387 investments. <
l Nuclear decommissioning trust funds . . 47,028 33,179 ,
l Investment in foreign entities . . . . .. .. 24,770 473 Cash surrender value of life insurance policies . . . . ... . 9,838 8,867 l 1
Investment in McLecd, Inc. . . . . . 9,200 7.500 Other . . .. . . . 3,897 4,274 94,733 54,893 Other assets:
Regulatory assets . . . . 207,202 192,955 Deferred charges and other . . 26,807 73,840 234,009 216,795
$ 1,985,591 $1,849,093 1
The accompanying Notes to ConsoMned financial Ssawme ms are an inwgralpart of these stawments. \
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i Capilnllzation and Liabilities necember 31 tlN THOUBANDs) 1995 1994 Capitalization (See Consolidated Statements of Capitalization):
Common stock .. , . . . . . . $ 391,269 $ 373,490 Retained earnings . . . .. .221,077 218.293 l Total common equity. . . . .. . 612,346 591,783 l Cumulative preferred stock ofIES Utilities Inc. ... . 18,320- 18,320 Long-term debt (excluding current portion) . . . .. . . 601,708' 473,206 1,232,374 1,083,309 Current liabilities:
Short-term bonowings . . . . . . .. 101,000 37,000 Capitallease obligations .. . . . . 15,717 14,385 Maturities and sinking funds. . . . . . 15,447 100,422 i Accounts payable . . . . .. ... 80,089 78,582 Dividends payable. . . . . 16,244 15,839 Accrued interest . . .. . .. 8,051 9,494 Accrued taxes . . . . 53,983 50,001 Accumulated refueling outage provision . . .. . 7,690 15,196 Adjustment clause balances . . . . 3,148 -
Environmentalliabilities . . . 5,634 5,428 Other . . . . . .. 21,800 21,680 328,803 348,027 Long-term liabilities:
Pension and other benefit obligations , , 44,619 38,643 Capitallease obligations . . .. .. .. . . . 21,218 35,346 Environmentalliabilities . . . .. . .. 43,087 38,288 Other. . ..... . . 21,097 20.314 )
130,021 132.591 )
Deferred credits: I Accumulated deferred income taxes. . .. ... 257,278 245,365 Accumulated deferred investment tax credits . . .. 37,115 39,801 294,393 285,166 Commitments and contingencies (Note 12)
$ 1,985,591 $ 1,849,093 l
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CON SCLID AT ED STATEMENTS OF C A P I T A L I Z tA T I O N December 31 (IN THOUBANDS) 1995 1994 Common equity:
Common stock-no par value-authorized 48,(XX),000 shares; outstanding 29,508,415 and 28,777,046 shares, respectively . $ 391,269 $ 373,490 Retained earnings . . . .. 221,077 218,293
~ 612,346 591,783 Cumulative preferred stock of IES Utilities Inc. . 18,320 18,520 Long. term debt:
IES Utilities Inc.-
Collateral Trust Bonds-7.65% series, due 2000 . . . . 50,000 -
6% series, due 2008 . . 50,000 50,000 7% series, due 2023 . . . . 50,000 50,000 5.5% series, due 2023 . .. 19,400 19,400 169,400 119,400 First Mortgage Bonds-Series J,6 W%, due 1996 . . 15,000 15,000 Series t 7%%.due 2000. . . . . . 15,000 15,000 Series M,7 %%, due 2002. . . , , 30,000 30,000 Series W,9 %%, retired in 1995 .
- 50,000 I Series X,9.42%, retired in 1995 ., ,
- 50,000 Series Y,8 %%, due 2001. . . . ... 60,000 60,000 Series Z,7.60%, due 1999. . . . . . . . 50,000 50,000 ,
l 6 W% series, due 1997 . . . .. 8,000 8,000 9 W% series, due 2001 . . . . . . . . 21,000 21,000 7 %% series, due 2003 . . . . . . . . . 10,000 10,000 7 W% series, due 2007 . . . . . . .. 30,000 30,000 239,000 339,000 Pollution control obligations-5.75%, due serially 1996 to 2003 . . . .. 3,556 3,696 5.95%, due 2007, secured by First Mortgage Bonds. ... 10,000 10,000 Variable rate (5.10%-5.95% at December 31,1995), due 2000 to 2010 . .. I1,100 11,100 24,656 24,796 Subordinated Deferrable Interest Debentures,7%% due,2025 .. 50,000 --
Total IES Utilities Inc. . . . .. 483,056 483,196 IES Diversified Inc.-
Variable rate credit facility . 124,245 80,500 Other subsidiaries' debt maturing through 2013 . .
12,307 12,584 619,608 576,280 Unamortized debt premium and (discount), net .
(2,453) (2,652) 617,155 573,628 Less-Amount due within one year . .
15,447 100,422 601,708 473,206
$ 1,232,374 $ 1,083,309 The accompanving Notes to unsolklared Furri.d %enwnn are an inwgral wt t of these statements.
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l CON SOLl@ AT ED STATEMENTS OF CASH FLOWO Year Ended December 31 UN THOUSANDB) 1995 1994 1993 Cash flows from operating actisities:
Net income .. . . . . . . . . . $ 64,176 $ 66,818 $ 67,938 Adjustments to reconcile net income to net cash flows from operating activities-Depreciation and amortization. . . . 97,958 86,378 77,012 Amortization of principal under capital lease obligations 15,714 16,246 11,429 I Deferred taxes and investment tax credits . . 7,757 4,050 9,254 l Refueling outage provision . . (7,506) 12,536 (4,889) l Amortization of other assets . . . 7,391 2,228 2,083 Other . . . . . 712 387 5,857 Other changes in assets and liabilities-Accounts receivable. . . (15,221) 6,777 (8,861)
Production fuel, materials and supplies . . 4,050 (1,184) 5,836 Accounts payable. . . . . 2,902 21,871 7,984 Accrued taxes . 9,434 4,575 7,549 1 Provision for rate refunds. . . . 106 (8,670) (350)
Adjustment clause balances. . 4,581 (6,582) 6,366 l
- Gas in storage . . . 3,245 1,135 (2,300) l Other . . , . . 532 9.340 (5.781) l Net cash flows from operating activities 195,831 215,905 179.127 Cash flows from financing activities
Dividends declared on common stock. . (61,392) (60,065) (59,107) ,
Proceeds from issuance of common stock , . . 15,616 16,426 79,746 l Purchase of treasury stock .
(6,233) -
l Proceeds from issuance of long-term debt 143,752 60,140 146,734 Reductions in long-term debt . . . (100,424) (9,'790) (126,803)
Net change in short-term borrowings . . . 64,000 13,000 (68,000)
Principal payments under capital lease obligations. . . (14,463) (16,304) (11,276) l Sale of utility accounts receivable . 4,000 800 10,490 Other . .. . . , , (1,438) (46) 1,086 ,
- Net cash flows from financing activities . . .. ___49,651 (2,072) (27,130) )
(. Cash flows from investing activities: I l Construction and acquisition expenditures-l Utility . . .. . . . . (125,558) (138,829) (113,212) i Other .. . . . . (92,541) (67,719) (55,805) l Oil and gas properties 'teld for resale . . . (9,843) - -
Deferred energy effciwey expenditures. . . . . (18,029) (16,157) (9,747)
Nuclear decommissioning trust funds . . . . (6,100) (5,532) (5,532)
! Proceeds from disposition of assets. . . 14,271 8,803 28,790 Other . .. . . . . (5,733) 3,129 3,$_33 Net cash flows from investing activities (243,533) (216.305)
(151.tt])
Net increase (decrease) in cash und temporary cash insestments 1,949 (2,472) 124 Cash and temporary cash investments at beginning of year. . 4,993 7,465 7,341 l Cash and temporary cash insestments at end of year . $ 6,942 $ 4.993 5 7,465 i
Supplemental cash flow information:
Cash paid during the year for-t Interest .. . . . . . . . $ 50,877 $ 44,421 $ 42.890 Income taxes . . $ 26,478 $ 36.097 $ 22.179 Noncash investing and financing activities-Capitallease obligations incurred. . . . .
$ 2,918 $ 14.297 $ 14.605 ne aam,panyms Nores to Cerud6edTmanaat wrements are an margralpart of these statemenn.
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! NOTES TC CONSOLIDATED FINANOBAL STATEMENTS l
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SUMMARY
OF SIGNIFiCANT process. At December 31, regulatory assets as reflected in the i ACCOUNT 4NG POLICIES Consolidated Balance Sheets were comprised of the following items:
l (a) liasis of Consolidation The Consolidated Financial Statements o -.wo~. ieen 1994 l include the accounts of IES Industries Inc. (Industries) and its consoli- Deferred income taxes (Note 1(d)) . $ 91.1 $ 90.1 dated subsidiaries (collectively the Company L Industries is an investor- Energy efficiency program costs (Note 3(c)):
owned holding company whose primary operating company, IES Currently being recovered through rates. 18.3 20.3 l
Utilities Inc. (Utihties), is engaged principally in the generation, trans- Recovery has not yet been requested. 31.4 14.4 mission, distnbution and sale of electric energy and the purchase, distri- Environmental liabilities (Note 12(f)). 46.9 43.8 bution, transportation and sale of natural gas. The Company's principal Employee pension and benefit costs (Note fu. 27.5 25.0 markets are located in the state ofIowa. The Company also has vanous Unamortized loss on reacquired debt . 5.7 6.1 non utility subsidiaries which are primarily engaged in the energy- FERC Order No. 636 transition costs l related, transportation and real estate development businesses. (Note 12(h)) 5.0 8.0 l
All subsidiaries for which Industries owns directly or indirectly Other 4.1 5.4 230,0 213.1 more than 50% of the voting stock are included as consolidated sub-sidiaries. Industries' wholly-owned subsidiaries are Utilities and IES Classified as " Current assets - regulatory assets" 22.8 20.1 i Diversified inc. (Disersified). All significant intercompany balances and Classified as "Other assets - regulatory assets" 5207.2 5193.0 transactions, other than energy-related transactions affecting Utilities, Refer to the individual footnotes referenced above for a further have been climinated from the Consolidated Financial Statements. Such discussion of certain items reflected in regulatory assets.
energy-related transactions are made at prices that approximate market if a portion of Utilities' operations become no longer subject to )
value and the associated costs are recoveraHe from Utihties' customers the provisions of SFAS 71, a write-off of related regulatory assets through the rate making process. g g ,
investments for which the Company has at least a 20% interest are established by the appropriate regulatory body.
generally accounted for under the equity method of accounting. Rese SFAS 121, issued in March 1995 by the Financial Accounting 4 investments are stated at acquisition cost, increased or decreased for the l Standards Board (FASB) and effective for 1996, establishes accounting Company's equity in undistributed net income or loss, w hich is included standards for the impairment of long-lived assets. SFAS 121 also in " Miscellaneous, net" in the Consolidated Statements of locome.
requires that regulatory assets that are no longer probable of recovery investments that do not meet the criteria for the consolidating or equity through future revenues be charged to earmngs. SFAS 121 is not l methods of accounting are accounted for under the cost method. gg g g gg l De preparation of financial statements in conformity with gener-tions of the Company upon adoption.
ally accepted accounting principles requires management to make esti-mates and assumptions that affect: 1) the reported amounts of assets (d) Income Tases - The Company follows the liability method of and liabihties and the disclosure of contingent assets and liabihties at accounting for deferred income taxes, which requires the establishment the date of the financial statements, and 2) the reported amounts of rev. of deferred tax liabilities and assets, as appropriate, for all temporary enues and expenses during the reporting period Actual results could differences between the tax basis of assets and liabilities and the differ from those estimates. amounts reported in the financial statements. Deferred taxes are Certain prior period amounts have been reclassified on a basis recorded using currently enacted tax rates.
consistent with the 1995 presentation. Except as noted below, incane tax expense includes provisions for deferred taxes to reflect the tax effects of temporary ddYerences between (b) Regulation - Because of its ownership of Utihties, industries is a the time when certain costs are recorded in the accounts and when they holding company under tie Public Utility Holding Company Act of are deducted for tax return purposes. As temporary ditierences reverse, 1935, but claims an exemption from all prosisions thereof except the related accumulated deferred income taxes are reversed to income.
Section 9(aX2), which applies to the purchase of stock of other utihty Investment tax credits for Utilities have been deferred and are subse-companies Utilities is subject to regulation by the Iowa Utihties Board quently credited to income over the average lives of the related property.
(IUB) and the Federal Energy Regulatory Commission (FERC).
Consistent with rate making practices for Utihties, deferred tax Refer to Note 2 for a discussion of the proposed merger of expense is not recorded for certain temporary differences (primarily Company related to utihty property, plant and equipment). As the deferred taxes
! (c) Regulatory Assets . Utilities is subject to the provisions of become payable, oser periods exceeding 30 years for some generating l Statement of Financial Accounting Standards No. 71," Accounting for plant differences, they are recovered through rates. Accordingly, l the Effects of Certain Types of Regulation"(SFAS 71). The regulatory Utihties ha3 recorded deferred tax liabilities and regulatory assets, as i
assets represent probable future resenue to Utihties associated with cer- identified in Note l(c).
( tain incurred costs as these costs are recovered through the rate making
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l (e) Temporary Cash Insestments Temporary cash investments are (h) Property, Plant and Equipment Utihty plant (excluding acquisi-stated at cost, which approximates market value, and are considered tion adjustments of $30 6 million, net of accumulated amortization, cash equivalents for the Consohdated Statements of Cash Flows. These recorded at cost) is recorded at origmal cost. The allowance for funds investrnents consist of short-term liquid investments that have maturi- used during construction (AFC), which represents the cost during the l ties of less than 90 days from the date of acquisition. construction period of funds used for construction purposes, is capital-iled by Utilities as a component of the cost of utibty plant. The amount (f) Depreelation of Utility Property, Plant and Equipment The of MC applicable to debt funds and to other (equity) funds, a non-cash depreciation hfe of Utilities' nuclear generating station, the Duane i n M duce with the prescribed FERC formula.
Arnold finergy Center (DAEC), was increased from 36 years to 40 The aggregate gross rates used by Utilities for 1995-1993 werr 6.5%,
years based on an extension of the Nuclear Regulatory Commission 9.39r and 5.7%, respectively. These capitalized costs &re recovered by (NRC) license life to 2014, using the remaining hfe method, as part of .
Utihties in rates as the cost of the utdity plant is depreciated.
Utilities' most recent rate case as discussed in note 3(b). The average Other property, plant and equipment is recorded at cost. Upon rates of depreciation for electric and gas properties of Utihties, consis- .
retirement or sale of other property and equipment, the cost and tent with current rate making practices, were as follows:
related accumulated depreciation are removed from the accounts and any gain or loss is included in " Miscellaneous, net" in the Consolidated Electrie. 3.4% 3.6% 3.5%
Statements of income.
Gas. 3.5% 3.8% 3.5%
Normal repairs, maintenance and minor items of utility plant and The electric and gas depreciation rates declined in 1995 from other property, plant and equipment are expensed. Ordinary retirements 1994 because of revised depreciation rates approved in Utilities' most of utility plant, including removal costs less salvage value, are charged recent electric and gas rate proceedings. to accumulated depreciation upon removal from utility plant accounts, (g) Deccmmissioning of the DAEC - Pursuant to the recent electric rate case order, the IUB allowed Utilities to increase the recovery of (1) Oil and Gas Propertles - Whiting Petroleum Corporation anticipated costs to decommission the DAFC from $5.5 million to (Whiting), a wholly-owned subsidiary under Diversified, uses the full
$6.0 million annually. Decommissioning expense is included in cost method of accounting for its oil and gas properties. Accordingly,
" Depreciation and amortization" in the Consolidated Statements of all costs of acquisition, exploration and development of properties are Income and the cumulative amount is included in " Accumulated depre. capitalized. Amortization of proved oil and gas properties is calculated ciation" in the Consolidated Balance Sheets to the extent recovered using the umts of pnxiuction method. At December 31,1995, capital-through rates. The current recovery figures are based on the following ized costs less relsed accumulated amortization did not exceed the sum auumptions: 1) cost to decommission the DAEC of $252.8 million in of(1) the present value of future net revenue from estimated production 1993 dollars, based on the NRC minimum formula (which exceeds the of proved oil and gas reserves (calculated using current prices): plus (2) amount in the current site. specific study completed in 1994); 2) infla. the cost of properties not being amortized, if any; plus (3) the lower of tion of 4.91% annually through 1997; 3) the prompt dismantling and cost or estimated fair value of unproved properties included in the costs removal method of decommissioning, which is assumed to begin in the being amortized, if any; less (4) income tax effects related to differ-year 2014; 4) monthly fund ng of all future collections into external ences in the book and tax be.is of oil and gas propenies. The Company trust funds and funded on a tax-qualified basis to the extent possible; has $9.8 million on its Consolidated Balance Sheet at December 31, and 5) an average after-tax return of 6.82% for all external investments. 1995, relating to specific oil and gas properties purchased by Whiting in All of these anumptLns me subject to shange in future regulatory pro- the four th quarter of 1995 that it intends to sell during 1996.
ceedings. At December 31.1995, Utihties had $47.0 mi!! ion invested in (j) Operating Resenues De Company accrues revenues for services external decommissioning trust funds as indicated in the Consolidated .
rendered but unbilled at month-end in order to more properly match Balance Sheets, and also had an internal decommissioning reserve of .
revenues with expenses.
$21.7 million recorded as accumulated depreciation. Earnings on the external trust funds, which were $1.0 million in 1995, are recorded as (k) Adjustment Clauses - Utilities' tariffs provide for subsequent interest income and a corresponding interest expense payable to the adjustments to its electric and natural gas rates for changes in the cost funds is recorded. The earnings accumulate in the external trust fund of fuel and purchased energy and in the cost of natural gas purchased balances and in accumulated depreciation on utihty plant. for resale. Changes in the under/over collection of these costs are l' See " Management's Discussion and Analysis of the Results of reflected in " Fuel for production" and " Gas purchased for resale" in the Operations and Financial Condition" for a discussion of dr Exposure Consolidated Statements of income. The cumulative effects are reflected r
Draft on Accounting for Liabihties ReLted to Closure and Removal of in the Consohdated Balance Sheets as a current asset or current liabihty, long-Lived Assets, issued by the FASB in the first quarter of 1996, w hich pending automatic reflection in future bilhngs to customers. l deals u ith, among other issues, the accounting for decommissioning costs. l l
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I (1) Accumulated Refueling Outage Provision - The IUB allows and energy senices. IPC, an operating pubhc utility headquartered in Utilities to collect, as part of its base resenues, funds to offset other Dubuque, Iowa. supplies electric and gas senice to approximately operating and maintenance expenditures incurred during refueling out- 163,(xx) and 49fXX) customers, respectively, in northeast towa, north-ages at the DALC, As these revenues are collected, an equisalent west lilinois and southern Minnesota.
amount is charged to other operating and maintenance expenses with a Interstate tinergy will be the parent company of Utahties, WP&L t
correspimding credit to a reserve. During a refuehng outage, the reserve and IPC and will be registered under the Publie Utility lloidmg Company is resersed to offset the tefueling outage expenditures. Act of 1935, as amended (1935 Actt The Merger Agreement provides that these operating uulity companies will continue to operate as separate h PROPO$ED MERGER OF THE COMPANY entities for a minimum of three years beyond the effective date of the The Company, WPL Holdings, Inc. (WPLll) and Interstate Power merger, in addition, the non-utility operations of the Company and Company (IPC) have entered into an Agreement and Plan of Merger WPLH will be combined shortly after the effective date of the merger (Merger Agreement), dated November 10.1995, providmg for: a) IPC under one entity to manage the diversified operations of Interstate Energy. !
becoming a wholly-owned subsidiary of WPLil, and b) the merger of The corporate headquarters of Interstate Energy will be in Madison.
the Company with and into WPLfl, which merger will result in the The SLC historica)ly has interpreted the 1935 Act to preclude combination of the Company and WPLil as a single holding company registered holding companies, with limited exceptions, from owning (collectisely, the Propo,ed Merger). The new holding company will be both electne and gas utility systems. Although the SEC has recently named Interstate Energy Corporation (Interstate Energy) and Industries recommended that registered holding companies be allowed to hold I will cease to exist. The Proposed Merger, which will be accounted for both gas and electric utility operations if the affected states agree, it as a pooling of interests, has been approved by the respective Boards of remains possible that the SEC may require as a condition to its approval Directois it is still subject to approval by the shareholders of each com- of the Proposed Merger that the Company, WPLil and IPC divest their pany as well as several federal and state regulatory agencies. The com- gas utility properties, and possibly certain non-utility ventures of the panies expect to receive the shareholder approvah in the sceand quarter Company and % PLil, within a reasonable time after the effective date of 1996 and the regulatory approvals by the second quarter of 1997. of the Proposed Merger.
The operating revenues, net income from continu;ng operations and total assets of the companies were as follows; h RATE MATTERS PHO FORMA (a) 1995 Gas Rate Case - On August 4,1995, Utilities applied to the iES COMBINED wou.we isousraiEs WPLH IPC heuvosuol Ibb bOI 00 300ddl OCICd\C iO g35 I3IC5 U b8bNil! ION Ofb2 bU 1995 operating interim increase of $8.6 million was requested and the IUB, subse-resenues $ 851,010 $ 807,255 $318,542 $1.976.807 quently, approved an interim increase of $7.1 million annually, effecthe 1995 net income October 11,1995, subject to refund. Utilities, the Othee of Consumer from continuing 64,176 25,!98 I60,992 Advocate and all three industnal intervenor groups have entered into a operattons. 71.618 Assets at Dec. 31, settlement agreement, subject to IUB approval, which allows Utilities a 1995 1,985,591 1,872.414 634,316 4,492,321 $6.3 million annual increase. Utihties expects that the IUB will rule on Under the terms of the Merger Agreement, the outstanding shares of WPLHN common stock will remain unchanged and outstanding as (b) 1994 Electric Rate Case - In 1994, Utilities applied to the IUB for shares of Interstate Energy. Each outstanding share of the Company's an increase in retail electric rates of approximately $26 million annu.
common stuck will be converted to .98 shares of interstate Energy's dII), or 5.2% ne IUB issued its final order on June 30, IW5, which common stock. Each share of IPC's common stock will be comerted to resuhed in an annual retail rate reduction of approximately $14.4 mil-1.1I shares of Interstate Energy's common stock. It is anticipated that lion. The Board ruled against Utihties on issues of increased recosery Interstate Energy will retain WPLil's common share disidend payment levels of nuclear depreciation expem e and nuclear decommissioning level as of the effecthe time of the merger. On January 24,1996, the expense, and recovery of the full purchase price of Union Electric Board of Directors of WPLil declared a quarterly dividend of 49.25 cems Company's (UE) lowa service territory.
per share. This represents an equivalent annual rate of $1.97 per share, On August 16,1995, Utihties recched apprmal from the IUB to WPLil is a holding company headquartered in Madison, implement final prices. Northern and Southeastern zone price changes Wisconsin, and is the parent company of Wisconsin Power and Light became effective on that date. A price design change was implemented l in the Southern zone effecthe January 1.1996. As a result of the IUB Company (WP&L) and lleartland Development Corporation (llDC).
WP&L supplies electric and gas service to approximately 377.(u) and order, Utilities refunded approximately $12.8 million, including inter-146,000 customers, respectively, m south and central Wisconsin. IIDC est, in the fourth quarter of 1995.
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and its principal subsidianes are engaged in businesses in three major areas: environmental engineering and consulting, affordable housing O
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(c) Energy Efuciency Cost Recosery The IUB has current rules that h U T I L 17 Y ACCOUNTS II E C E I V A B L E mandate Utihties to spend 2% of electrie and 1.5% of gas gross retail Customer accounts receisable, includ ng unbilled revenues, arise pri operating revenues for energy efhciency programs. Under provisions of marily from the sale of electricity and natural gas. At December 31, the IUB rules, Utilities apphed in 1994 to the IUB for recovery of costs 1995, Utihties was serving a disersified base of residential, commercial incurred through 1993 for such programs. In April 1995, the IUB issued and industiial customers consisting of approumately 333JM) electric j its Final Decision and Order concerning Utilities' energy efficiency and 174.000 gas customers.
expenditures, which allows Utilities to recoser its direct expenditures, Utihties has entered into an agreement, which expires in 1999, with carrying costs, and a return on its expenditures, as well as a reward of a financial institution to sell, with limited recourse, an undisided frac-approximately $4 million for a total allowed recovery of approximately tional interest of up to $65 milhon in its pool of utihty accounts receiv.
$32 million. Recoscry of energy efficiency costs will be over a four. able. At December 31,1995, $58 milbon was sold under the agreement.
l year period and began on June I,1995. In 1996, under provisions of the IUB rules, the Company will ble for recovery of the costs incurred after h INVE5TMENTS l December 31,1993 ($31.4 million as of December 31,1995). (a) Foreign Entitles - At December 31,1995, the Company had l
$24.8 million of investments in foreign entities on its Consolidated h LEA 5ES Balance Sheet that included l) imestments in two New Zealand electric Utilities has a capital lease cover ng its 70% undivided interest in distribution entitic ,2) a loan to a New Zealand ecmpany, and 3) an nuclear fuel purchased for the DAEC. Future purchases of fuel may insestment in an international venture capital fund. The Company also be added to the fuel lease. This lease prosides for annual one-year accounts for these investments under the cost method.
extensions and Utikties intends to exercise such extensions through the (b) McLeod,Inc. At December 31,1995. Diveru. tied had a $9.2 mil-DAEC's operating hfe. Interest costs under the lease are based on com-lion imestment in Class B Common Stock of Mdmi, Inc. (McLeod),
mercial paper costs incurred by the lessor. Utilities is responsible for the .
which is accounted for under the cost method. Mel cal prosides local pay ment of taxes, maintenance, operating cost, risk of loss and insurance and long-distance telecommunication senices to business customers relating to the leased fuel.
and other services related to fiber optics. In 1994, Diversified entered The lessor has a $65 million credit agreement with a bank support-into an agreement whereby it will guarantee $6 million under a credit ing the nuclear fuel lease. The agreement continues on a year-to-year basis, unless either party prosides at least a three-year notice of termina- E b Di W M b # a M comnutment fee and receives options to purchase additional shares of tion; no such notice of termination has been prosided by either party.
Class B Common Stock for as long as the guarantee remains outstand-Annual nuclear fuel lease expenses include the cost of fuel, based ing. At December 31,1995, McLeod had $3.6 million of borrowings on the quantity of heat produced for the generation of electric energy, outstand ng under its facility.
plus the lessor's interest costs related to fuel in the tractor and adminis-trative expenses. These expenses (included in " Fuel for production" in the Consolidated Statements of income) for 1995-1993 were $18.0 mil- h1NCOME TAXES The components of federal and state income taxes for the years ended lion, $17.8 milhon and $12.4 million. respectnely.
December 31, were as fa!Iows:
The Company's operating lease rental expenses for 1995-1993 hw nowo+,s > 1995 1994 1993 were $10.4 million, $11.1 milhon and $9.1 million, respectisely.
Current tax expense $ 34.7 $37.5 $ 27.8 The Company's future minimum lease payments by year are 1)eferred tax expense , 10,5 6.7 14.1 as fouows:
Ann itization and adjustment o~ mo*~eo of investment tax credits.
CA*WAL OPE R AflNG (2.7) (2.6) (4.9) nan trase ocases $ 42,5 $41.6 $ 37.0
!996. $ 15,515 $ 8,083 1997, 13,787 7,241 The meraU effecthe income tax rates shown as follows for the 1998. 6,389 6,932 years ended Dece ber 31, were computed by dividmg total income tax 1999. 3.865 5.220 *
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201n 824 2,403 2001 149 178 40,529 $ 30,057 Less: Amount representing interest. 3,594 Present value of net minimum l capital lease pay ments . $ 36,935 l
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199s 1994 1993 The components of the pension provision for the years ended Statutory federalincome tax rate 35.0% 35.0 % 35.0 % December 31, were as follows:
' Add (deduct): n=ruou .=o iees ie94 i993 State income taxes, net of Service cost . , , $5,215 $ 5,863 $ 4,342 federal benefits . .. 5.5 5.9 5.5 Interest cost on projected !
Etiect of rate making on property benefit obligation. I1,811 11,431 11,314 related differences 2.6 1.6 (0.2) Assumed return on plans' assets (12,567) (12,593) (12,363)
Amortization ofinvestment Amortization of unrecognized gain . (754) (180) (767) tax credits. ,, , (2.5) (2.5) (2.6)
Anwrtization of prior service cost 1,355 1,354 1,213 Adjustment of prior period taxes (0,4) (I.6) (2.3)
Amortization of unrecognized plans,
. Other items, net . (0.4) -
(0.1) assets as of January 1,1987 . (333)- (333) (389)
Oserall effectise inconie tax rate. 39.8 % 38.4 % 35.3 % Pension cost. . 4,727 5,542 3,350 Adjustment to funding level , (4,727) (5.431) (2,940)
The accumulated deferred income taxes as set forth below in the Total pension costs paid to Consolidated Balance Sheets at December 31, arise from the following the Trustee , $ - $ 111 $ 410 temporary ditTerences:-
no .wo . - ises ive4 Actuai return on plans
- assets. $36.614 $ (97) $ 12,880 Property related , , , , $296 $288 Investment tax credit related , , , (26) (28) The reduction in the service cost for 1995 was primarily due to an Decommissioning related , , , . , , (14) (13) increase in the discount rate at ikcember 31,1994.
Other , ,, 1 .(2) A reconciliation of the funded status'of the plans to the amounts
$257 $245 recognized in the Consolidated Balance Sheets at December 31. is pre-sented below:
g B E N E F 1 'T PLANS n= ,=au.*=o. sees 1994 (a) Pension Plans The Company has two non-contributory pension Fair market value of plans' assets . , , , $ 195,329 $ 167,535 l plans that, collectively, cover substantially all of its employees. Plan Actuarial present value of benefits I benefits are generally based on years of service and compensation dur, rendered to date -
Accumulated benefits based on ing the employees' latter years of employment. Payments made from compensation to date, including ,
the pension funds to retired employees and beneficiaries during 1995 vested benefits of $119,996,000 '
and $98.384,000, respectively . 131,274 108,585 r atated $9.2 million. ,
The Company's policy is to fund the pension cost at an amount Additional benefits based on estimated future salary levels , , 41,581 40,146 that .is at least equal to the minimum funding requirements mandated by Projected benefit obligation , , , , 172,855 148,731 the E.mployee Retinement income Security Act (ERISA) and that does Plans' assets in excess of projected not exceed the maximum tax deductible amount for the year. The benefit obligation . . . 22,474 18,804 Comruny has an investment policy governing asset allocation guide- Remaining unrecognized net asset ;
lines for its pension plans. The target ranges are as follows: 1) 370 existing at January 1,1987, being amortized over 20 years (3.51I) (3,844) l
. 43% in large and mid-sized domestic company equity securities,2) 7413% in foicign equity mecusities,3) 7%-13% in small domestic Unrecognired prior service cost . 16,905 18,260 company equity securities,4) 0-5% in real estate, and 5) the remainder Unrecognized net gain. (41,795)- (34.420) in fixed income securities. As of December 31,1995, the plan's invest. Accrued pension cost recogniicd in the Conwlidated Balance Sheets . $ (5,927) $ (1,200) ment mix was consistent with the pobey guidelines.
Pursuant to the provisions of SFAS 71, certain adjustments to Utilities' pension provision are necessary to reflect the accounting for Assumed rate of return, all plans 8.00 % 8.00 %
pension costs allowed in its most recent rate cases. Weighted average discount rate of projected _
benefit obligation, all plans . 7,50 % 8.25 %
Range of assumed rates of increase in future compensation levels for the plans 4.75 % 4.00-5.75 % ,
l The increase in the projected benefit obligation was primarily due to changes in the mortality rate assumptions and a reduction in the discount rate at December 31,1995.
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(b) Other Postemployment Benefit Plans The Company prosides A reconcihation of the funded status of the plans to the amounts certain benefits to retirees (primanly health care benefits). Effectise recognized in the Consolidated Balance Sheets at Decer 31, is pre-January 1,1991. the Company adopted SFAS 1%, which requires the sented below:
accrual of the expected cost of postretirement benefits other than pen- n,. u ouem., ie.> i994 uons dunng the employees' years of service. The IUB adopted rules Fair market value of plans
- assets. $ 6,515 $ 1,127 stating that postretirement benefits other than pensions will be included Accumulated postretirerient beneht obbgation:
in Utilities' rates pursuant to the provisions of SFAS 106. The rules per. Active employees not yet eligible . 22,254 18,896 mit Utilities to amortize the transition obligation as of January 1,1993, Active employees eligible . 6,282 5,306 over 20 years and require that all amounts collected are to be funded Retirees. 22,575 18.602 into an esternal trust to pay benefits as they become due. The gas ami Total accumulated postretirement electric portions of these costs are being recosered through rates begin- benefit obligation. 51.111 42.804 nmg in 1993 and 1995, respectisely, including amounts that were Accumulated postretirement benefit deterred by the Company between when SFAS 106 was adopted and obliganon in cxcess of plans' assets . (44,596) (41.677)
Unrecognized transition obligation . 34.415 36,439 when recusery through rates began. The amounts deferred are being Unrecognized net (gain)/ loss . 349 (5,703) amortiied as they are collected through rates oser a three-year period.
l Unrecognized prior service cost. 151 170 Utilitief unamortized ba ance of these deferred costs was $3.4 million Accrued postictirement benefit cost in at December 31.1995.
the Consolidated Balance Sheets. $ (9,681) $(10.771)
The transition obligation for the non-regulated operations was expensed in 1993 and is reflected in other operatmg expenses.
Assumed rate of return 8.00% 8.00 %
Pursuant to the provisions of SFAS 71, certain adjustments to Weighted average discount rate of accumulated Utilitief other postretirement benefit provisions are necessary to reflect postretirement benefit obligation. 7.50 % 8.25 %
the accounting for other postretirement benefit costs allowed in its most recent rate cases, Medical trend on paid charges:
initial trend rate 10.00 % 11.00 %
The components of postretirement benefit costs for the years ended December 31, were as follows: Ultim te trend rate . 6,50 % 6.50 %
i,,, v, a u.u.c . i ises i994 i993 The increase in the accumulated postretirement benefit obligation Service cost . $ 1,387 $ 1,838 $ 1,744 was primanly due to a reduction m the discount rate at December 31, I"I# " ""d gation . 3,175 3.275 3.363 1995, as well as changes made for mortality, turnover and age Assumed return on plans
- assets 8"umptions. The assumed medical trend rates are entical assumptions (56) (60) -
Amortization of transition obligation # #"" " "E # # "" ###' "" "' " "'# I" #
existing at January 1,1993, ment benefit obligation related to postretirement benefit costs A for regulated operations 2,024 2,024 2,024 1% change in the medical trend rates, holding all other assumptions Amortization of unrecognized gain . (230) (6) -
constant, would have changed the 1995 service and interest cost by Amortization of prior ser ice cost. 19 19 -
$0.9 million (21%) and the accumulated postretirement benefit obliga-Write-off of transition obliganon tion at December 31,1995, by $8.7 million (17%).
esisting at January 1,1993, for non-regulated operations . - - 1,434 Postretirement benefit costs . 6,319 7.090 8.565 Amortized /(deferred) postretirement benefit costs. 2,220 (2.732) (2,858)
Adjustment to funding level. 1,162 Net postretirement benefit costs . 59,701 $ 4.358 $ 5.707 Actual return on plans' assets . $ 273 $ 47 $ -
The reduction in the service cost for 1995 was primarily due to an increaw in the discount rate at December 31.1994.
l
h COMMON. PREFERRED AND in March 1995, Utihties repaid at maturity $50 milhon of Series PREFERENCE 5TOCK W,9.75% First Mortgage Bonds and, in a separate transaction, issued (a) Common Stock . The following table presents information relating $50 million of Collateral Trust Bonds,7.659, due 2000.
to the changes in common stock. Utilities' indentures and Deeds of Trust securing its First Mort-su[eUn o5 a auNr gage Bonds constitute direct first mortgage liens upim substantially all a"Aase m tangible pubhc utility property. Utihties' Indenture and Deed of Trust DUTW T4NOsNG THOUSANDS se ng b Weral Duu Bod emeutes a second Hen on suWan-Balance, December 31,1992 25,556,963 $ 279,810 tially all tangible public utihty property while First Mortgage Bonds Pubhc offering . 2,300,000 66,555
"" " #"" "E Stock plan issuances
- 447,228t 13.936 Balance, December 31,1993 28,304,188 360,301
- " ' " * # '**# #* I "I ###" "Y Shares issued in connection u ith
- " ' " ""#i #"' " " " " " " #'
acquisition of oil and gas compani-3. 139,102 4,027 The facility also serses as a stand-by agreement for Diversified's Purchases of treasury stock. (213,300) (6.233) commercial paper program. The agreement prosides for a combined Stock plan issuances
- 547,056 15,395 maximum of $150 million of borrowings under the agreement and Balance, December 31,1994 28,777,046 373,490 commercial paper to be outstandmg at any one time. Interest rates and Shares issued in connection with maturities are set at the time of borrowing for direct borrowings under acquisition of oil and gas companies , 75,638 1,925 the agreement and for issuances of commercial paper. The interest rate Stock plan issuanced 655,731 15,H54 options are based upon quoted market rates ar.d the matunties are less Balance, December 31,1995 29,508,415 $ 391,269 than one year. At December 31,1995, there were no bor.owings y Shares resersed for issuance pursuant outstanding under this facility. Dnersified had $124.2 milhon of com-to the Company's stock plans at mercial paper outstanding at December 31,1995, with interest rates December 31,1995* . 2,201,666 .
rangmg from 525% to 6.50% and maturity dates in the first quarter of
.vms,ns acmt,ument ami s= a r rAu, ran. emen,, sia, e ran na,, i",a impu,, 1996. Dnersified intends to continue borrowing under the renewal snmo ram. Lmer,rm s ,e ram, its a,- sa 4 can,,,sp run uns num, s,44 Opn,m rians opt ons of the facility and no conditions exist at December 31,1995.
that would present such borrowings. Accordingly, this debt is classified In March 1995, Industries issued 75,638 shares of its common as long-term in the Consolidated Balance Sheets.
stock for the purchase of oil and gas companies, u hich are now w holly- Refer to Note 6(b) for a dneussion of a guarantee awociated with ow ned subsidiaries of Whiting- debt issued by McLeod.
During 19% Industries reacquired 213,300 shares of its common stock Total sinking fund requirements, which Utilities intends to meet on the open market, at an average price of $29.22 per share, which were sub- by pledging additional property under the terms of Utihties' indentures setprntly issued to the Disidend Reimestment Plan and certain of its benefit and Deeds of Trust, and debt maturities for 1996-2000 are as followv plans. At December 31,1995, no shares remamed held as treasury stock %__ o , ,, , ,, y , m , ,
DEeTISSUE 1996 1997 1998 1999 2000 (b) Preferred and Preference Stock . Utilities has 466.406 shares of Utilities:
Cumulatise Preferred Stock, $50 par value, authorized for issuance at S pking fund Decemtier 31,1995, of which the 6.109,4 80% and 4.30% Series had requirementt $ 630 $ 550 $ 550 $ 550 $ 550 100,000,146,406 and 120,000 shares, respectisely, outstanding at both Pollution December 31,1995 and 1994. These shares are redeemahle as the control . 140 140 140 140 1,696 option of Utihties upon 30 days notice at $51.00, $50.25 and $51.00 per Series J . 15,000 - - - -
share, respectnely, plus accrued dividene. 6W4 Series . - 8,000 - - -
There are 5,000,000 shares of Industries Curnulatise Preferred Series Z. - - - 50,000 -
Stock (no par salue) and 700.000 shares of Utilities Cumulatise Series L. - - - - 15,000 Preference Stock ($100 par salue) authorized for issuance, of which 7.65% Series . - - - - 50,000 none were outstandmg at December 31,1995. Disersified:
Variable rate credit facility. - 124.245 9, Other (a) Long Term Debt . In December 1995, Utihties issued $50 million subsidiaries' of Subordmated Deferrable Interest Debentures,7 M. due 2025. The debt 307 333 360 10.366 35 pmeeeds from the iwuance of the debentures were used to retire short- Total , $16,077 $9,023 31.050 $185,301 $67,281 term borrowings which were incurred to repay at maturity, $50 million of Senes X,9.42% First Mortgage Bonds. ne Company intends to refinance the majority of the debt maturi-ties with long-term securities.
tb) Short Term Debt At December 31,1995, the Company had bank hnes Ib) Purchase Power Contracts Utihties is purchasing pmer from of credit aggregating $131.8 million (Industries-$1.5 million. UE under a firm capacity contract with 1996 and 1997 requirements of Utihties-$121.1 millum, Dnenified-$7.5 nullam and Whiting-$1,0 mib 80 Mw and 60 Mw of delivered capacity, respectisely. Utilities will aho lion). Utiktin was u,ing $101 milh(m to suppnt commercial paper Iweighted purchase an additional annual maximum interruptible capacity of up to average interest rate of 5 814 ) and $11.1 millum to supput certain pollution 54 Alw of 25111 power, which ettends through 1998. The cmts of control obhgations. Commitment fees ure paid to maintam these hnes and capacity purchases for these contracts are reflected in " Purchased there are no cond tium w hich restnct the unused lines of credit. In addition to power" m the Consolidated Statements of Income.
,he abuse, Utihties has an uncommitted credit facihty with a hnancial insutu- Utdities has aho entered into an agreement with Basin Electrie tion whereby it can borrow up to $40 milhon Rates are set at the Ume of Power Cooperatne to purchase capacity of 50 Mw,75 Mw,100 Mw borrowing and no fees are paid to maintain this facility. At December 31, and 100 Mw durmg the annual siemonth summer season for the years 1995, there were no borrowings outstan.hng under this facility. 1996 through 1999, respecthely.
Total capacity charges expected to be incurred under all eusting h E S TIM AT E D FA1R VALUE OF contracts will approximate $14.1 million, $11.1 million, $33 million.
F i N A si C I A L 4NSTRUMENTS $14 million and $R4 million for the years 1996-2000, respectnely.
The estimated fair values of financial instruments at Ikcember 31,1995, (c) Coul Contract Commitments - Utihties has entered into coal supply and December 31,1994, and the basis upon uhich they were estimated are as follows: contracts which expire between 1996 and 2001 for its fossil fueled genenting stations. At December 31,1995, the contracts coser approximately $158 mil-(a) Current Assets and Current I, labilities - The carrying amount hon of coal over the life of the contracts, which includes $55 milhon appronmates fair value because of the short matunty of such hnancial expected to be incurred in 1996. Unhties expects to supplement these coal instrumentt contracts with spot market purchases to fulhil its future fossil fuel needs.
(b) Nuclear Decommissioning Trust Funds - The carrying amount rep- (d) Information Technology Senices - The Company entered into an resents the fair value of these trust funds. as repirted by the trustee. The agreement expiring in 20% with Electronic Data Systems Corporation balance of the " Nuclear decommissioning trust fund," as shown in the WDS) for information technology senices The contract is subject to Consolidated Balance Sheets included $53 milhon of unrealized gams at dechning termination fees The Company's anticipated operating and December 31,1995, and $0.8 milhon of unrealized kwses at December 31, capital expenditures under the agreement for 1996 are estimated to total 19% on the imestments held in the trust funds The accumulated resene approximately $13 million. Future costs under the agreement are variable for decommissioning costs was adjusted by a correspondmy amount. and are dependent upon the Company's lesel of usage of technological (c) Cumulathe Preferred Stock of Utilities - The estimated fair salue of this stock of $113 million and $10.2 million at December 31,1995, te) Nuclear Insurance Programs Pubhe liability for nuclear accidents is and December 31,1994, respectisely,is based upim the market yield of goserned by the Price Anderson Act of 1988 which sets a statutory limit similar securities and quoted market prices. of $8.9 bilhon for liabihty to the public for a single nuclear power plant (di Long-Term Debt - At December 31,1995, and December 31,1994, incident and requires nuclear power plant operators to proside financial protection for this amount. As required. Utilities provides this financial the carrying amount of long-term debt was $620 mdhon and $576 million.
respectisely, compared to estimated fair values of $644 million and protection for a nuclear incident at the DAEC through a combination of liability insurance ($200 million) and industry-wide retrospective payment
$551 million, respectnely. The estimated fair salue of long-term debt is piam ($8.7 billiont Under the industry-wide plan, each operating beensed based upon the market yield of similar securities and quoted market prices.
nuclear reactor in the Umted States is subject to an assessment in the esent Since Utilities is subject to regulation, any gains or losses related of a nuclear incident at any nuclear plant in the Umted States. Based on to the difference between the carrying amount and the fair salue of fman-its owner hip of the DAEC, Utihties could be assessed a mcximum of cial instruments may not be realized by the Company's shareholders
$79.3 million per nuclear incident, with a maximum of $10 milhon per h C OMMITM E NTS AND CONTINGENCIES approximately $55 milhon and $7 milhon. respectively)if kwses relating to (a) Construction Program 'the Company's constmetion and acquisi-the incident exceeded $200 milliort These hmits are subject to adjustments tion program anticipates expenditures of approximately $245 million for 1996, which includes $164 million at Utilities and $81 million at for changes in the number of participants and inflation in future years.
Utihties is a member of Nuclear Mutual Limited (NML) and Nuclear Dnenitied. In addition to the $164 million, Utilities anticipates expen-Electnc insurante Limited (NEIL). These companies pmvide $1.9 bdlion ditures of approximately $13 million for mandated energy efficiency of insurance coserage on certain property losses at DAEC for property programs, w hich expenditures will be deferred pursuant to IUB rules as
- d;unage, decontamination and premature decommissioning. The proceeds discussed .m Note 3(c). Substantial commitments have been made in from such insurance, howeser, must first be used for reactor stabihzation connection uith these expenditures.
and site decontairunation before they can be used for plant repur and pre- investigation, mitigation, presention, remediation, and monitoring costs mature decommissioning. NELL also provides separate coverage for the from its insurance carriers and is in estigating the potential for third cost of replacement power during certain outages. Ownen of nuclear gener- party cost sharing for FNIGP imestigation and clean-up costs. The ating stations insured through NML and NEIL are subject to retroactive pre- amount of shared costs, if any, cannot be reasonably determined and, mium adjustments if losses exceed accumulated reserse funds. NML and accordingly, no potential sharing has been recorded at December NEllls accumulated reserse funds are currently sufficient to more than 31,1995. Regulatory assets of approximately $35 million, which reflect cover its exposure in the esent of a single incident under the primary and the future reemery that is being provided through Utilities' rates, have excess property damage or replacement power coverages. However, been recorded in the Consolidated Balance Sheets. Considering the cur-Utilities could be assessed annually a maximum of $3.1 million under rent rate treatment allowed by the IUB, management believes that the NML, $9.8 milhon for NEIL property and $0.7 milhon for NEIL replace- clean-up costs incurred by Utilities for these FMGP sites will not have a n ent pmer if losses exceed the accumulated resenes funds. Utibties is not material adverse effect on its financial position or results of operations.
aware of any losses that it believes are hkely to result in an assessment.
National Energy Policy Act of 1992 In the unkkely event of a catastrophic hiss at DAEC, the amount The National Energy Policy Act of 1992 requires osners of miclear pnver of insurance a$ailable may not be adequate to coser property damage, plants to pay a special assessment into a " Uranium Enrichment Decontand decontamination and premature decommissioning. Uninsured losses, to ination and Decommissiorung Fund." The assessment is based upon pnor the extent not recusered through rates, would be borne by Utdities and nuclear fuel purchases and, for the DAEC, averages $1.4 nullion annually could hase a material adverse effect on Utilities' financial position and through 2007, of which Utilities' 704 share is $1.0 million. Utilities is results of cperations.
recovering the costs associated with this assessment through its electrie (f) Emironmental Liabilities - The Company has recorded environmen- fuel adjustment clauses oser the period the costs are assessed. Utilities
- tal liabilities of approximately $48.7 million m its Consolidated Balance 704 share of the future assessment, $10.9 million payable through 2007, Sheets at December 31,1995. He significant items are discussed below. has been recorded as a liability in the Consolidated Balance Sheets, includmg 1,0.8 million included in " Current liabilities-Environmental Former Manufactured Gas Plant (FhlGP) Sites liabilities," with a related regulatory asset for the unrecovered amount.
Utihties has been named as a Potentially Responsible Party (PRP) by various federal and state environmental agencies for 28 FMGP sites, but Oil and Gas Properties Dismantlement and Abandonment Costs belieses it is not responsible for two of these sites. There are also six Whiting is responsible for certain dismantlement and abandonment other sites for which it may be designated as a PRP in the future. Utilities costs related to various off-shore oil and gas properties, the most signif-is working pursuant to the requirements of the various agencies to inves- icant of which is located off the coast of Cahfornia. Whiting accrues tigate, mitigate, present and remediate, where necessary, damage to these costs as reserses are extracted and such costs are included in property, includmg damage to natural resources, at and around the sites " Depreciation and amortization" in the Consolidated Statements of in order to protect public heahh and the environment. Utilities believes it income. A corresponding environmental liability, $1.7 million at has completed the remediation of five sites although it is in the process of December 31,1995, has been recognized in the Conschdated Balance obtaining final approval from the applicable emironmental agencies on Sheets for the cumulative amount expensed.
this issue for each site. Utilities is in vanous stages of the imestigation (g) Air Quality Issues The Clean Air Act Amendments Act of 1990 and/or remediation processes for 19 sites and expects to begin the inves-( Act) requires emiss. ion rrJuctions of sulfur diou.de and nitrogen oxides tigation process in 19% for the two other sites. Utihties estimates the (NOx) to achieve reductions of atmospheric chemicals beliesed to range of costs to be incurred for investigation and/or remediation of the cause acid rain. The provisions of the Act are bem.g implemented in two sites to be approximately $22 million to $55 million.
phases with Phase I affecting two of Utilities' units beginning in 1995 Utihties has recorded environmental Ibbilities related to the FMGP and Phase 11 affecting all units beginning m. the year 2000. Utilities has sites of approximatelv $35 milhon (including $4.6 million as current lia-completed the modifications necessary to meet the Phase i requirements bihties) at December 31,1995. Rese amounts are based upm Utihties* .
and has installed continuous emission mom. tors on all affected units as best current estimate of the amount to be incurred for investigation and .
requuuf by the Act. Utahties expects to meet the requirements of Phase remediation costs for those sites where the imestigation process has been 11 by switching to lower sulfur fuels, capital expenditures primarily or is substantially completed, and the minimum of the estimated cost related to fuel burning equipment and boiler modifications and the pos-range for those sites where the .imestigation is in its earlier stages or has sible purchase of sulfur dioxide allowances. Utilities estimates capital tmt started. It is pxssible that future cost estimates will be greater than the expenditures at approximately $20 million, including $4 million in current estimates as the investigation process proceeds and as additional 1996, m. order to meet the acid rain requirements of the Act.
facts become known. Utilities may be required to monitor these sites for The acid rain program under the Act also creates sulfur dioxide a number of years upm completion of remediation, as is the case with allowances. An allowance is defined as an authorization for an owner to emit seseral of the sites for w hich remediation has been completed.
one ton of sulfur dioxide into the atmosphere. Currently Utihties receives a Utilities has begun pursuing claims under its prior coverage for I
receives a sufficient number of allowances annually to otTset its emissions of h J 01 N T L Y. O W N E D ELECTF4iC sulfur dioxide from it3 Plw I uruts. It is anucipated that in the year 20f o, UTILITY PLANT when the Phase 11 units parucipate u the alkmance program. Utilities may Under joint ownership agreements with other lowa utilities Utilities has have an insufficient number of allowances annually to oliset its estimated undnided ownership interests in jointly-owned electric generating sta-emissiom and may have to purchase adthtional allowances. or make modifi- tions and related transmission facihties. Each of the respective ou ners is cations to the plants or limit operatims to reduce emissions. Utilities is responsible for the financing of its portion of the construction costs.
reviewmg its options to ensure that it will have sufficient allowances to offset Kilowatt-hour generation and operating expenses are divided on the in emissions in the year 2(XU and thereafter. Uuhties belioes that the poten- same basis as ownership with each osner reflecting its respective costs tial cost of ensuring sutlitient allowances wdi not have a material adverse in its Statements of Income. Information relative to Utihtics' ownership effect on its financial position or results of operations. interest in these facilities at December 31,1995 is as follows:
The Act also requires the Umted States Environmental Protection arruwwa scac Agency (EPA) to study and regulate, if necewary, additional issues that
~ ~ * * ' ~ ""' ""'
Utility plant in sertice . $ 498.0 $ 189.3 $ 56.2 potentially affect the electrie utihty mdustry, includmg emissions relat-ing to nitrogen oxides (NOx), ozone transport and mercury. Currently. Accumulated depreciation . $ 201.2 $ 86.0 $27.1 the impacts of these potential regulations are too speculative to quantify. Construction work in progress . $ 2.7 $ 1.7 $ 0.7 In 1995, the EPA pubbshed the Sulfur DioxiJe Network Design Review Plant capacity-Mw . 520 716 515 for Cedar Rapids, lowa, w hich, based on the EPA's assumptims and worst-Percent ownership . 70 % 48 % 28 %
case modeling methods, suggests that the Cedar Rapids area could be clas.
In-sen ice date 1974 1981 1975 sitied as "nonattainment" for the National Ambient Air Quahty Standard (NAAQS) established for sulfur dioxide. 'The worst case nmdeling study suggests that two of Utdities, generating facilities contribute to the modeled . SEGMENTS OF DUSINESS exceedences and recommends that additional monitors be kicated near I" "#" '#E*#"" '" ** E#"#'"
Utilities, sources to assess actual aubieni air quahty. In the event that transmission, distribution and sale of electric energy by Utdities and the Utihties, facihties contribute excessise emissions. Utilities would be purchase, distribution, transportation and sale of natural gas by Unlities required to reduce emissions, w hich would primarily entad capital expendi-and Industrial Energy Applications, Inc., a wholly-owned subsidiary tures for modifications to the facihties. Utihties ts currently resiewing under Disersified. Certain financial information relating to Industries' significant segments of business is presented below:
EPA's assumptions and nodeh,g results and is proposing a strateFy to vol.
untanly reduce the excessise emiwions through modification of its facilities ,,,, m.m . , , ,**, [" * * , , [' * * " i ',', ,
at a potential capital cost of up to $ 10 milhon user the next four yeart Operating results:
th) FERC Order No. 636 Pursuant to FERC Order No. 636 (Order 636), w hich transi%ns the natural gas supply business to a less Electric $ 560,471 $ 537,327 5 550,521 regulated emironment, Utahties has enhanced access to competitively Gas . 190,339 165,569 181,923 priced gas supply and mou tiexible transportation senices. liowever, @ rang income under Order 636. Utihties is required to pay certain transition costs # * '
incurred and billed by its pipeline supphert Gas. 11.056 8,762 13,673 Unhties began paying the transition costs in 1993 and at December 31. Other information:
1995. has reconhl a hability of $5 0 million fer those transition costs that Depreciati r6 and amortization:
hase been incurred. but not yet billed. by the pipelines to date, including Electric 72,487 68.640 63,832
$1.9 mdlion expected to be bdled through 1996. Utdities is currently recov. Gas . 6.176 6,214 5,186 ering the transition costs from its customers through its Purchased Gas on n and aquson expenditures:
Adjustment Clauses as such costs are billed by the pipelines. Transition Dectric*. 108,356 112.773 96,736 costs, in addition to the recorded liahihty, that may ultimately be charged t Gas . 9,368 10.066 15,428 Unhties could apprmimate $7.0 nullion. The ultimate lesel of costs to be bdled to Utdities depends on the pipehnes' future tihngs with the FERC and gg other future esents, including the market pnee of natural gas. Iloweser, Unh-Electric 1,395,666 1.347,024 1,288,505 ucs belie es any transition cmts that the iTRC would allow the pipelines to Gas . 199,050 192,397 168,800 collect from Utihties would N recovered from its customers based upon 1,594.716 1,539,421 1,457,305 regulatory treatment of the e cmts currently and similar past costs by the Other corporate awets . 390,875 309.672 242,514 IUB. Accordingly, regulatory assets, in amounts corresponding to the Total consolidated assets . $1,985,591 $ 1.849.093 $1.699.819 recmled habihties, have been recorded to reflect the ardicipated retmery.
%w -w, w=, m %.e-wuaw w,,, m.,n
u , .
S E LECT E3 CON SOLID AT ED FIN A NCI A L DATA 1995 1994 1993 1992 1991 1990 income statement data (000's):
Operating revenue . $ 851,010 $ 785,864 $ 801,266 $ 678,296 $ 661,538 $ 624,214 Operating income . . 151,712 147,933 151,269 109,024 103,357 98,043 Nct income. 64,176 66.818 67.938 48,711 44,657 80,330(t)
Common stock data (per share except percentages):
Earnings . . , $ 2.20 $ 2.34 $ 2.45 $ 1.92 $ 1.85 $ 3.37 t ti Dividends declared , , 2.10 2.10 2.10 2.10 2.03 1.82 Return on average common equity 10.7 % 11.5% 12.4 % 10.3 % 9.7 % 18.4 %
Market price at year-end. . . $ 26,50 $ 25.25 $ 31.25 $ 29.50 $ 27.25 $ 27.75 Book value at year-end 20.75 20.56 20.21 18.89 19.07 19.15 Ratio of market price to tmok value at year-end 128 % 123 % 155 % 156 % 143 % 145 %
Capitalization:
Common equity 49 % 50 % 51 % 48 % 50 % 53 %
Preferred and preference stock , 2 2 2 2 3 3 Long-term debt . .. 49 48 47- 50 47 44 100 % 100 % 100 % 100 % 100 % 100 %
Other selected financial data:
Total essets UX)0's) , , $ 1,985,591 $ 1,849,093 $ 1,699,819 $ 1,594,382 $ 1,448,492 $ 1,400,802 )
Non-utility wets OXXrs) tan . 282,433 206,411 153,853 153,491 144,382 144,591 Long-term obligations (0(xrs). 656,543 626,011 577,611 553,257 507,921 462,798 Construction and acquisition expenditures (00(Ts). 218,099 206,548 169,017 192,520 0i 120,218 104,194 Times interest earned before income cases 3.12 3.38 3.38 2.63 2.69 4.45 Selected financial data for IES Utilities Inc.:
Utility plant in service (000's). , $ 2,172,378 $2,042,179 $ 1,932,558 $1,852,733 $ 1,680,108 $ 1,587.886 Accumulated depreciation of utility plant in service tuXYs). 950,324 880,888 813.312 759,754 691,015 639,211 Construction and acquisition expenditures (0(XTs) oj . . 129,444 148,103 113,212 171,013 0 105,009 95.075 Times interest earned before income taxes , , , 3.26 3.39 3.64 2.67 2.93 3.04 Electric Kwh sales (excluding off-system)((XXTs) 9,783,514 9,291,575 8,905,522 7,132,671 7.244,209 6,880,136 Gas Dth sales (including transported volumes)(000's) . 39,805 37,975 39,006 37,035 37,129 36,486 II6 inciales the efects ofa $M nullum pre-t u gam on sale of Telecom
- USA stock.
- 42) Includes non-utdsty aswts ofIES Unlitws Inc.
t.f} Incimles $6I millionfor the acquisitum of the lona service temtoryfn>m Union Electric Compmv.
(4) Includes acquisitions from aphawd commmws and Unhtws ' n,m.utikrv espenduures.
1 I
l.
ELECTRIC O P E R ATIN G COMPARISON nv.4 4.
1995 1994 1993 1992 1991 "Z"0" 19 9 0 m.owtwo Operating retenue (000's):
Residential and rural. $216,270 $ 199,587 $ 203,870 $ 176,811 $ 188,504 $ 184,662 General service 97,496 97,454 99,221 87,202 86,744 83,634 Large general service 199,840 191,601 184,657 140,496 138,213 134,000 Street lighting 8,810 8,521 8,404 7,241 7,118 7,180 Total from ultimate consumers , 522,416 497,163 496,152 411,750 420,579 409,476 Sales for resale. 17,554 19,195 20,254 18,602 19,745 19,582 Off-system . , 17,802 18,077 29,400 28,304 36,596 31,144 Other . 2,699 2,892 4,715 4.343 5,658 3,047
$560,471 $ 537,327 $550,521 $462,999 $482,578 $ 463,249 Energy sales (000's Kuh):
Residential and rural. . 2,680,340 2,484,089 2,518,580 2,146,079 2,362,847 2,248,126 3.6%
General service 1,242,373 1,170,923 1,166,072 1,061,444 1,069,956 1.031,167 3.8%
Large general service 5,283,694 4,990,890 4.581,590 3,320,439 3,174,972 2.981,890 12.1 %
Street lighting 77,388 77.952 78,004 75,957 79,254 80.276 -0.7 %
Total to ultimate consumers, 9,283,795 8,723,854 8,344,246 6,603,919 6,687,029 6,341,459 7.9 %
Sales for resale. 499,719 567,721 561,276 528,752 557,180 538,677 -1.5 %
Sales of electricity to customers 9,783,514 9,291,575 8,905,522 7,132,671 7,244,209 6,880,136 7.3 %
off-system , 1,086,121 1,137,219 2,068,015 2,275,616 2,738,159 2,282,204 -13.8%
10,869,635 10,428,794 10,973,537 9,408,287 9,982,368 9,162,340 3.5 %
Sources of electric energy (000's Kwh):
Generation:
Fossil, primarily coal 5,775,002 5.522,966 5,356,930 4,317,154 4,758,720 4,354,697 Nuclear m. 2,610,979 2,875,867 2,264,507 2,402,501 2,902,768 2,108.100 Hydro , 7,690 8,205 7,201 7,579 6.547 4,195 8,393.671 8,407,038 7,628,638 6,727,234 7,668,035 6,466.992 Purchases 3,012,934 2,646,673 3.949,296 3,322,182 2.994.216 3,282,886 11,406,605 11,053,711 11,577,934 10.049,416 10.662,251 9,749,878 Net capability at time of peak load (Kw):
Generating capability 1,873,300 1,741,100 1,733,700 1,718,600 1,719,150 1,684,700 Purchase capability 207,100 280,000 248,000 207,000 227,000 179,000 Capacity credits OL - - - - - 18,960 2,080,400 2,021.100 1,981,700 1,925,600 1,946,150 1,882,660 2.0%
Net peak load (Kw)m. 1,824,100 1.779,627 1,716,380 1.425,441 1,607,606 1,547,826 3.3 %
Number of customers at year-end . 333,489 330,405 327.265 325,172 305.663 304.265 1.7 %
Resenue per Kw h (escluding off-sy stem) in cents . 5.55 5.59 5.85 6.09 6.16 6.28 -2.4 %
(151hepresear compound gnm th rates include the effec t of the acqunnum of the lus,a sen ace ternton fro.n Union Electnc ('ompuns on Des ember 31. Iw:
th Reprewnts IES Utihnes
- 70% undn uled mierest in the Duane Arnold Enery Center n hich is operatedl>y llS Uniaws Inc.
(3I Reprewnts calw its cwdas jnom municipals sengd bv IES Urdaws Inc (46 60 mmutes miegr<urd
QAS OPED ATING COMP AQlSON cNNllo 1995 1994 1993 1992 1991 1990 eUowv
~
Operating revenue (000's):
IES Utilities Inc.:
Residential . , , , $ 84,562 $ 82,795 $ 90,462 $ 78,685 $ 74,114 $ 66,513 Commercial 40,390 40,912 45,528 39,780 37,613 35,378 Industrial . . . 8,790 12.515 15,593 18.649 17.383 21,500 133,742 136,222 151,583 137,114 129,110 123,391 Other . .. . 3.550 2.811 2,735 2,341 1,908 1,884 Total revenues , , 137,292 139,033 154,318 139,455 131,018 125,275 Industrial Energy Applications,Inc. 53,047 26,536 27,605 27,627 15,219 6,808
$ 190,339 $ 165,569 $181,923 $ 167,082 $ 146,237 $ 132,083 Energy sales (000's dekatherms):
IES Utilities Inc.:
Residential . , 16,302 15,766 16,971 15,098 15,571 14,315 2.6%
Commercial . , 9,534 9,298 10,133 8,479 9,389 8,798 1.6%
Industrial . 3,098 4,010 4,618 6.175 5,980 6,640 -14.1 %
28,934 29,074 31,722 29,752 30,940 29,753 -0.6%
Industrial-transported volumes * , . 10,871 8,901 7.284 7,283 6.189 6,733 10.1%
Total volumes delivered , 39,805 37,975 39,006 37,035 37,129 36,486 1.8%
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Industrial Energy Applications,Inc.*. 31.916 14,443 12,493 14,830 7.666 4,465 48.2 %
71,721 52,418 51,499 51,865 44,795 40,951 11.9 %
- IEA energy sales that are also transported volumes of IES Utilities Inc.. 4,232 3,134 2,883 2,955 1,824 1,336 Operating statistics for IES Utilities Inc.:
Cost per dekatherm of gas purchased for resale . $ 3.13 $ 3.31 $ 3.49 $ 3.36 $ 3.10 $ 3.23 Peak daily sendout in dekatherms . 269,545 288.352 268,419 254,989 266,344 272,089 -0.2 %
Number of customers at year-end. 174,470 172,829 170,719 167,813 164,078 161,794 1.5 %
Resenue per dekatherm sold
' for IFS Utilities Inc.
(excluding transported volumes) . $ 4.62 $ 4.69 $ 4.78 $ 4.61 $ 4.17 $ 4.15 2.2%
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SHAQEHOLDER IN FORM ATION STOCK EXCHANGE LISTING WHERE TO DUY AND SELL STOCK IES Industries Inc. common stock is listed on the New Common stock may be purchased and sold privately or on York Stock Exchange under the symbol IES. Newspaper the open market through a brokerage finn. A shareholder listings often use the symbol IES IND. enrolled in the Dividend Reinvestment and Stock Purchase Plan can purchase additional common stock 0ENERAL iN Q UlRlE s with no brokerage fees through the optional cash feature Shareholder inquires, including the replacement of divi. of the Plan.
dend checks, address changes, transfer or reissuance of Shares held in the Dividend Reinvestment and Stock stock certificates, and requests from the general public for Purchase Plan can be sold through the Plan Administrator any financial publications may be directed to: upon written request of the shareholder, who will receive
' IES Industries Inc., Attn: Shareholder Services, all proceeds of the sales less any brokerage commission.
P.O. Box 351, Cedar Rapids, Iowa 52406 If you are an IES Utilities Inc. customer you may 1-800-247-9785 or 319-398-7755 purchase stock directly from the Company and be enrolled in the Dividend Reinvestment and Stock D1V1DEND REINVESTMENT AND Purchase Plan. Contact Shareholder Services to receive STOCK PURCHASE PLAN a Direct Purchase fornt The Company bas a Dividend Reinvestment and Stock Purchase Plan w hich allows shareholders to automatically D U P L1C AT E ACCOUNTS AND M A1LIN O S reinvest their cash dividends in additional shares of Shareholders sometimes receive more than one Annual common stock. IES Industries Inc., Shareholder Services, Report because shares owned by one shareholder may P.O. Box 351, Cedar Rapids, Iowa 52406 acts as the be registered with slight variations in names. The Plan Administrator. A prospectus describing the Dividend Company is required to mail an Annual Report to each .
Reinvestment and Stock Purchase Plan can be obtained name on the shareholders list unless the shareholder l by writing to Shareholder Services, requests that duplicates can be eliminated. To eliminate duplicate mailings, please send a written request to Safekeeping Shareholder Services.
Safekeeping is a convenient feature of the Dividend Reinvestment and Stock Purchase Plan designed for 1995 F0RM 10,K AV A1L ABLE ON REQUEST shareholders who prefer to have their shares held on The Company files annually with the Securities and account rather than receive a stock certificate. You do not Exchange Commission an Annual Report Form 10-K. ]
have to reinvest your dividends to take advantage of This required report contains certain other information not Safekeeping. When you sign up for Safekeeping, you will made a part of this report. The Company will be happy to receive a Safekeeping receipt in place of your certificate. send you a copy of our 1995 Form 10-K without charge.
Contact Shareholder Ser ices for a Safekeeping form and Requests should be made to Shareholder Services, additional information. P.O. Box 351, Cedar Rapids, Iowa 52406. j O
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DIVIDEND PAYMENT DATES TRUSTEE Scheduled Disidend Payment and Record I ates for The First National Bank of Chicago, Chicago, Illinois 1996 are: Record Dates March 8,1996; June 14,1996; IES Utilities Inc.
September 13, 1996; and December 13, 1996. Pay ment lowa Electric Light and Power Company-Dates April 1,1996; July 1,1996; and October 1,1996. Mortgage and Deed of Trust -dated August 1,1940 January 1,1997,is the first payment date in 1997. Mortgage and Deed of Trust - dated September I,1993 Dividends paid on common stock in 1995 were fully towa Southern Utilities Company - Deed of Trust taxable for federal income tax purposes.
SPECIAL NOTICE DsvlDEND Dl RECT DEPOSlT in June 1995, the period alknved fiir the settlement of We can send your disidend electronically to your finan- most stocA transactions sras reduced to three days from l cial institution for deposit. Contact Shareholder Sersiees the previous five days. As a result, many brokers are to receise a Disidend Deposit Yorm. urging customers to more their securitiesfrom registered usenership to strret name osenership.
TnANsvEn AaENT s nEossTnAn There is no requirement that securities be held in IES Industries Inc., Stock 1ransfer Dept., stiret name osyner3 hip by a broAer As an investor; you 200 Virst Street SE, Cedar Rapids, Iowa $240l retain the p<nver to choose the fi>rm of osenership best I-800 247-9785 or 319-398-7755 suited to your needs. The choice is still yours l\k encour-lES Industries Inc.-Common Stock age you to keep your IES Industries Inc. Common Stock IES Utilities Inc.-Preferred Stock registered svith the Company. If you have questions or concerns call IES Industries Inc. Shareholder Services 5YOCK HELD 1N BHOMERAGE at I-800-247-9785 or 3/9-398-7755. ,
l ACCOUNTS - " STREET NAME" When you purchase y our stock and it is held for you by your beoker, it is listed w ith the Company in the broker's name, or
" street name." IES Industries Inc. does not know the identity of indisidual shareholders who hold their shares in this manner-we simply know that a broker holds a certain num-ber of shares w hieh may be for any number of customers.
Accounts held in street name are not eligible to participate in IES Industries Inc. Disidend Reinsestment and Stock Purchase Plan. Also, you receise all dividend payments, annual reports and proxy materials through your broker. Other financial reports may be obtained directly from the Company by contacting Shareholder Sersices, P.O. Bot 351, Cedar Rapids, Iowa 52406.
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INDUSTRIES IES Industries Inc.
200 l'irst Street Sli Cedar Rapids,lowa 52401
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