Alliant Energy 10-Q 2005
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
This combined Form 10-Q is separately filed by Alliant Energy Corporation, Interstate Power and Light Company and Wisconsin Power and Light Company. Information contained in the Form 10-Q relating to Interstate Power and Light Company and Wisconsin Power and Light Company is filed by such registrant on its own behalf. Each of Interstate Power and Light Company and Wisconsin Power and Light Company makes no representation as to information relating to registrants other than itself.
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act).
Number of shares outstanding of each class of common stock as of July 29, 2005:
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ALLIANT ENERGY CORPORATION
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
ALLIANT ENERGY CORPORATION
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
ALLIANT ENERGY CORPORATION
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
ALLIANT ENERGY CORPORATION
ALLIANT ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(a) General - The interim condensed consolidated financial statements included herein have been prepared by Alliant Energy Corporation (Alliant Energy), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S.) of America (GAAP) have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements include Alliant Energy and its consolidated subsidiaries (including Interstate Power and Light Company (IPL), Wisconsin Power and Light Company (WPL), Alliant Energy Resources, Inc. (Resources) and Alliant Energy Corporate Services, Inc. (Corporate Services)). These financial statements should be read in conjunction with the financial statements and the notes thereto included in Alliant Energys, IPLs and WPLs latest combined Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the condensed consolidated results of operations for the three and six months ended June 30, 2005 and 2004, the condensed consolidated financial position at June 30, 2005 and Dec. 31, 2004, and the condensed consolidated statements of cash flows for the six months ended June 30, 2005 and 2004 have been made. Because of the seasonal nature of Alliant Energys utility operations, results for the three and six months ended June 30, 2005 are not necessarily indicative of results that may be expected for the year ending Dec. 31, 2005. A change in managements estimates or assumptions could have a material impact on Alliant Energys financial condition and results of operations during the period in which such change occurred. Certain prior period amounts have been reclassified on a basis consistent with the current period presentation. Such reclassifications relate to the reporting of assets held for sale and discontinued operations pursuant to Statement of Financial Accounting Standards (SFAS) 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). Unless otherwise noted, the notes herein have been revised to reflect information related only to continuing operations for all periods presented.
(b) Regulatory Assets - In April 2005, WPL received approval from the Public Service Commission of Wisconsin (PSCW) to defer incremental fuel-related costs associated with the extension of an unplanned outage at the Kewaunee Nuclear Power Plant (Kewaunee) beginning April 15, 2005. Deferral of incremental operation and maintenance costs related to the unplanned outage has also been approved by the PSCW. Kewaunees unplanned outage extended from February 2005 until early July 2005. At June 30, 2005, Alliant Energy and WPL had $18 million recorded in Other assets - regulatory assets on their respective Condensed Consolidated Balance Sheets related to these incremental costs. Refer to Note 12 for additional information on Kewaunee. The amount of the incremental costs calculated by Alliant Energy to be recovered from customers is subject to review by the PSCW in a future rate proceeding.
(c) Common Shares Outstanding - A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per average common share (EPS) calculation for the three and six months ended June 30 was as follows (in thousands):
As a result of Alliant Energy incurring a loss from continuing operations for the three months ended June 30, 2005, 347,225 of potential incremental common shares were excluded from the calculation of diluted EPS for that period because the effect would have been anti-dilutive. In addition, the following options to purchase shares of common stock were excluded from the calculation of diluted EPS as the exercise prices were greater than the average market price for the three and six months ended June 30:
(d) Accounting for Stock-Based Compensation - The effect on net income and EPS for the three and six months ended June 30 if Alliant Energy had applied the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation (SFAS 123), to awards issued under its stock-based incentive compensation plans was as follows (dollars in millions):
(e) Restricted Cash - At June 30, 2005, short-term restricted cash on Alliant Energys and IPLs Condensed Consolidated Balance Sheets included $13 million related to the July 2005 retirement of certain IPL pollution control revenue bonds.
(f) Interest Income and Other - The other (income) and deductions included in Interest income and other in Alliant Energys Condensed Consolidated Statements of Income for the three and six months ended June 30 were as follows (in millions):
(g) Property, Plant and Equipment - In the second quarter of 2005, Alliant Energy completed the construction and began commercial operations of its 300 megawatt (MW), simple-cycle, natural gas-fired Sheboygan Falls Energy Facility (SFEF) near Sheboygan Falls, Wisconsin, which is leased to WPL. The facility is being depreciated using the straight-line method over its estimated useful life of 35 years. Alliant Energy capitalized interest of $1.3 million and $3.4 million for the three and six months ended June 30, 2005, and $1.2 million and $2.4 million for the three and six months ended June 30, 2004, respectively, related to SFEF. Alliant Energy and WPL record SFEF in Property, plant and equipment - Non-regulated and other - Non-regulated Generation and Property, plant and equipment - Leased SFEF, respectively, on their respective Condensed Consolidated Balance Sheets. Refer to WPLs Note 17 for additional information on WPLs capital lease related to SFEF.
Alliant Energys comprehensive income (loss), and the components of other comprehensive income (loss), net of taxes, for the three and six months ended June 30 were as follows (in millions):
In the second quarter of 2005, IPL sold an additional $50 million of accounts receivables, resulting in a corresponding decrease in accounts receivable on Alliant Energys and IPLs Condensed Consolidated Balance Sheets at June 30, 2005 compared to the amounts at Dec. 31, 2004.
The provision for income taxes for earnings from continuing operations is based on an estimated annual effective tax rate that excludes the impact of significant unusual or infrequently occurring items, discontinued operations or extraordinary items. The effective tax rate typically differs from the federal statutory rate of 35% principally due to state income taxes, the impact of foreign income and associated tax, tax credits, effects of utility ratemaking and certain non-deductible expenses. In addition, the provision for income taxes for earnings from continuing operations recorded in the second quarter of 2005 included the reversal of approximately $8 million of deferred tax asset valuation allowances originally recorded in 2004 related to Alliant Energys anticipated ability to utilize certain capital losses. Based on additional information that became available in the second quarter of 2005, Alliant Energy now believes it will generate sufficient capital gains in the future to utilize the tax benefits of these capital losses resulting in the reversal of the deferred tax asset valuation allowance.
In the second quarter of 2005, Alliant Energy recorded $41 million and $40 million of deferred tax assets on non-cash asset valuation charges incurred in 2005 related to its China and Brazil investments, respectively. Because Alliant Energy currently believes it will generate sufficient capital gains in the future to utilize tax capital losses that may be generated related to these non-cash asset valuation charges, no valuation allowance was provided against the deferred tax assets. Income tax benefits related to the non-cash asset valuation charges for its China ($41 million) and Brazil ($40 million) investments were included in Loss from discontinued operations, net of tax and Income taxes, respectively, in Alliant Energys Condensed Consolidated Statements of Income. Refer to Notes 7 and 11 for further discussion of the non-cash asset valuation charges related to Alliant Energys Brazil and China investments, respectively.
The components of Alliant Energys qualified and non-qualified pension benefits and other postretirement benefits costs for the three and six months ended June 30 were as follows (in millions):
In addition, in the second quarter of 2005, Alliant Energy eliminated certain corporate and operations support positions. As a result, Alliant Energy recognized special termination benefits costs related to its pension and other postretirement benefits plans of $0.6 million and $1.8 million, respectively, in the second quarter of 2005. Alliant Energy has requested approval from the PSCW to defer $1.7 million of these costs until WPLs next rate case and therefore has recorded these costs in Other assets - regulatory assets on its Condensed Consolidated Balance Sheet.
Alliant Energy estimates that funding for the pension and other postretirement benefits plans for 2005 will be approximately $3 million and $17 million, of which $0 and $9 million, respectively, has been contributed through June 30, 2005.
(a) Short-term Debt - In August 2005, Alliant Energy and its subsidiaries completed the re-syndication of three revolving credit facilities totaling $650 million ($100 million for Alliant Energy at the parent company level, $300 million for IPL and $250 million for WPL), which support commercial paper and are available for direct borrowings. The re-syndication extended the terms of the facilities to August 2010. In June 2005, IPL obtained state authority for borrowing under its five-year facility from the Minnesota Public Utilities Commission (MPUC). In June 2005, WPL obtained authority from the PSCW for borrowing under its former five-year facility and expects to extend that authority to its new facility later in 2005. Information regarding commercial paper at June 30, 2005 was as follows (dollars in millions):
(b) Long-term Debt - In February 2005, Resources retired $100 million of its 7.375% senior notes due 2009, incurring $16 million of pre-tax debt repayment premiums and charges for the unamortized debt expenses related to this debt retirement. These debt retirement costs, and $5 million of debt retirement costs incurred in February 2004 related to the retirement of $20 million of senior notes at Resources, are recorded in Loss on early extinguishment of debt in Alliant Energys Condensed Consolidated Statements of Income.
In June 2005, Resources wholly-owned subsidiary, Sheboygan Power, LLC, issued $70 million of 5.06% non-recourse senior notes due 2025, which are secured by SFEF. The proceeds were used in August 2005 to assist with the retirement of Resources remaining $104 million of 7.375% senior notes maturing in 2009. In August 2005, Alliant Energy incurred $14 million of pre-tax debt repayment premiums and charges for the unamortized debt expenses related to this debt retirement.
In July 2005, IPL issued $50 million of 5.50% senior debentures due 2025 and plans to use the proceeds in August 2005 to retire its $50 million, 7% collateral trust bonds due 2023. In July 2005, WPL redeemed its $72 million, 7.6% first mortgage bonds with the issuance of short-term debt which was later reduced with the proceeds from the sale of its interest in Kewaunee.
(a) Investments in Foreign Entities - The geographic concentration of Alliant Energys unconsolidated foreign investments was as follows (in millions):
Brazil - Resources holds a non-controlling interest in five Brazilian electric utility companies and a natural gas-fired generating facility through several direct investments accounted for under the equity method of accounting. In accordance with Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, Alliant Energy recorded a pre-tax non-cash asset valuation charge related to its Brazilian investments of $96 million (after-tax charge of $56 million, or $0.48 per share) in the second quarter of 2005 in Alliant Energys Condensed Consolidated Statements of Income as a result of a decline in the fair value of these Brazil investments. The charge reduced the local currency carrying amount of Alliant Energys investments in Brazil to their estimated local currency fair value and does not reflect the impact of pre-tax foreign currency translation losses of $92 million at June 30, 2005 recorded in Accumulated other comprehensive loss on Alliant Energys Condensed Consolidated Balance Sheet. If Alliant Energy commits to a plan in the future to dispose its Brazil investments, it would evaluate the investments for impairment at that time by including the cumulative translation losses in the carrying amount. Alliant Energy estimated the fair value of its Brazil investments by using a combination of market value indicators and the expected discounted future U.S. dollar cash flows converted to local currencies at the June 30, 2005 foreign currency exchange rate. The decline in fair value resulted primarily from the impact of significant changes in the spread between the foreign currency exchange rate at the end of the second quarter and both past and projected future rates; consideration of updated market and other information Alliant Energy received from its financial advisor and its Brazilian partners in the second quarter of 2005; and an assessment of potential outcomes of the various strategic alternatives being evaluated by Alliant Energy. The decrease in Alliant Energys investments in Brazil from Dec. 31, 2004 to June 30, 2005 was due to the $96 million pre-tax non-cash valuation charge, partially offset by the impact of changes in currency exchange rates and undistributed earnings.
In April 2005, as a result of an arbitration dispute and the subsequent signing of a settlement agreement, Alliant Energy received a non-refundable deposit for the potential sale of its 50% direct interest in Usina Termelétrica de Juiz de Fora S.A. (Juiz de Fora), a natural-gas fired generating facility, to Cat-Leo Construcoes, Industria e Servicos de Energia S.A (Cat-Leo Servicos). As of June 30, 2005, the sale was still pending therefore Alliant Energy recorded the $12.4 million non-refundable deposit in Current liabilities - other on its Condensed Consolidated Balance Sheet.
New Zealand - Resources investments include a 23.8% ownership interest in TrustPower Ltd. (TrustPower), a hydro and wind generation utility company, and a 5.0% ownership interest in Infratil Ltd., an infrastructure development company. Based on the exchange rates and trading prices at June 30, 2005 and Dec. 31, 2004, the TrustPower investment fair value was $312 million and $306 million, and the carrying value was $92 million and $89 million, respectively. The Infratil Ltd. investment is marked-to-market at each balance sheet date in accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. At June 30, 2005, Alliant Energy had recorded an after-tax unrealized gain of $12 million in Accumulated other comprehensive loss on Alliant Energys Condensed Consolidated Balance Sheet related to its investment in Infratil Ltd.
Mexico - Resources investment in Mexico at Dec. 31, 2004 consisted of a secured loan receivable (including accrued interest income) of $82.5 million from a Mexican development company, LDM Utility Co., S.A. de C.V. (LDMU), to build the utility infrastructure of a master planned resort community. In February 2005, Resources completed the transfer of ownership and control of the project by acquiring a 97% interest in LDMU for an immaterial cash expenditure. Effective with the transfer of ownership, the loan remains outstanding as an intercompany loan, thus Alliant Energy removed the loan receivable from Investments in unconsolidated foreign entities on its Condensed Consolidated Balance Sheet and recorded $83 million of property, plant and equipment in Non-regulated and other - Other Non-regulated Investments related to the real estate, golf course and utility assets owned by LDMU. Various other assets and liabilities of LDMU have also been recorded on Alliant Energys Condensed Consolidated Balance Sheet. Alliant Energy has not finalized the allocation to the various assets and liabilities acquired. LDMU is in the development stage, therefore its results of operations are not currently material to Alliant Energy. In July 2005, Alliant Energy announced its intent to divest its interest in LDMU, which it currently anticipates completing by the end of 2006.
(b) Unconsolidated Equity Investments - Equity (income) loss from Alliant Energys unconsolidated investments accounted for under the equity method of accounting for the three and six months ended June 30 was as follows (in millions):
Weather Derivatives - In the second quarter of 2005, IPL and WPL each entered into separate electric weather derivative agreements to reduce the impact of weather volatility on their domestic utility electric margins. The term of both agreements is June 1, 2005 through Aug. 31, 2005. IPL and WPL combined will receive/pay up to $9 million ($5.5 million for IPL and $3.5 million for WPL) from/to the counterparty at the end of the contract term if actual cooling degree days are less/greater than the cooling degree days specified in the contracts. Alliant Energy uses the intrinsic value method to account for weather derivatives and records all gains and losses from these weather derivatives as adjustments to domestic utility revenues. The actual cooling degree days in June 2005 were higher than those specified in the contract, resulting in IPL and WPL accruing the maximum amount of liabilities to the counterparty under the agreements of $5.5 million and $3.5 million, respectively, in the second quarter of 2005. Alliant Energys ratepayers do not share in the gains/losses realized from the weather hedges. IPL and WPL did not enter into electric weather derivatives in 2004.
(a) Purchase Obligations - Alliant Energy, through its subsidiaries Corporate Services, IPL and WPL, has entered into purchased power, coal, and natural gas supply, transportation and storage contracts for its domestic utility business. As of June 30, 2005, minimum future commitments related to its domestic utility business for July 1, 2005 and beyond for purchased power (excluding operating leases), coal and natural gas were $117 million, $330 million and $319 million, respectively.
In addition to the purchased power contracts noted previously, Alliant Energy has agreements related to the Riverside and RockGen plants that meet the criteria as operating leases given that over their contract terms, Alliant Energy has exclusive rights to all or a substantial portion of the output from these facilities. At June 30, 2005, Alliant Energys future minimum operating lease payments were $432 million and $61 million related to the Riverside and RockGen plant agreements, respectively.
(b) Environmental Liabilities - IPL and WPL have current or previous ownership interests in manufactured gas plant (MGP) sites previously associated with the production of gas for which they may be liable for investigation, remediation and monitoring costs relating to the sites. Additional contamination was discovered late in the first quarter of 2005 at one of IPLs MGP sites, resulting in the recording of $14 million of additional environmental liabilities in the first quarter of 2005. In the second quarter of 2005, extensive soil sampling was completed at this site, and it was determined that there was less contamination than initially estimated. The current estimate for the remaining environmental liability associated with this site has been revised to $6 million. Based on current ratemaking treatment, IPL believes these estimated costs will be recovered from ratepayers in the future and therefore has recorded them as regulatory assets. Management currently estimates the range of remaining costs to be incurred for these MGP sites to be $34 million ($29 million for IPL and $5 million for WPL) to $60 million ($53 million for IPL and $7 million for WPL) and has recorded a liability of $44 million ($39 million for IPL and $5 million for WPL) at June 30, 2005.
(c) Guarantees - Alliant Energy agreed to indemnify the buyer of its energy services business in the second quarter of 2005 for losses resulting from breaches of Alliant Energys representations and warranties and obligations under the sale agreement. The indemnification is limited to approximately $18 million and expires in October 2006. Alliant Energy believes the likelihood of having to make any material cash payments under the sale agreement is remote. Refer to Note 11 for information on a $4.1 million payment made by Alliant Energy in June 2005 under its guarantee outstanding to support a third-party financing arrangement related to its biomass facility.
Certain financial information relating to Alliant Energys business segments is as follows. Gas revenues included $20 million and $5 million for the three months ended June 30, 2005 and 2004, and $25 million and $16 million for the six months ended June 30, 2005 and 2004, respectively, for sales to the electric segment. All other intersegment revenues were not material to Alliant Energys operations.
Alliant Energy has completed the disposal, or is currently pursuing the disposal, of numerous non-regulated and domestic utility businesses and other assets in order to strengthen its financial profile and narrow its strategic focus. At June 30, 2005 (or at previous dates for those businesses already disposed), the following businesses qualified as assets held for sale as defined by SFAS 144:
(a) Qualified as assets held for
sale beginning in the first of quarter of 2005.
Certain assets and liabilities of the businesses/properties listed previously have been classified as held for sale on Alliant Energys Condensed Consolidated Balance Sheets at June 30, 2005 and Dec. 31, 2004. The operating results of the non-regulated businesses listed previously have been separately classified and reported as discontinued operations in Alliant Energys Condensed Consolidated Statements of Income. The operating results of the domestic utility businesses/properties listed previously have not been reported as discontinued operations.
A summary of the components of discontinued operations in Alliant Energys Condensed Consolidated Statements of Income for the three and six months ended June 30 was as follows (in millions):
A summary of the components of assets and liabilities held for sale on Alliant Energys Condensed Consolidated Balance Sheets was as follows (in millions):
A summary of the components of cash flows for discontinued operations for the six months ended June 30 was as follows (in millions):
Cash and temporary cash investments at the end of the period were included in Current assets - assets held for sale on Alliant Energys Condensed Consolidated Balance Sheets.
Alliant Energy has also announced its intention to sell, or has completed the sale of, the following additional domestic utility assets and non-regulated business in order to further narrow its strategic focus. However, these assets did not qualify as assets held for sale or discontinued operations at June 30, 2005:
In July 2005, WPL completed the sale of its interest in Kewaunee to a subsidiary of Dominion Resources, Inc. (Dominion). WPL received approximately $79 million at closing which was used for debt reduction at WPL. The sales proceeds are subject to various post-closing adjustments and an indemnity by WPL to cover certain potential costs Dominion may incur related to the recent unplanned outage at Kewaunee.
WPL previously established two decommissioning funds to cover the eventual decommissioning of Kewaunee. Upon the sale closing, Dominion received WPLs qualified decommissioning trust assets which had a value of $172 million as of June 30, 2005 and assumed responsibility for the eventual decommissioning of Kewaunee. WPL retained ownership of the non-qualified decommissioning trust assets, which had a pre-tax value of $81 million (after-tax value of $72 million) as of June 30, 2005. In July 2005, WPL liquidated its non-qualified decommissioning trust assets and used a majority of the proceeds to repay short-term debt. In June 2005, the PSCW authorized the retail portion (approximately $56 million on a pre-tax basis) of the non-qualified decommissioning trust assets to be returned to customers over a two-year period through reduced rates. Determination of the amount of the refund to customers of the wholesale portion of the non-qualified decommissioning trust assets is being addressed in WPLs current wholesale rate case.
WPL expects the sale of Kewaunees net assets will result in a loss, however the PSCW has approved the deferral of any gain or loss and related costs of the sale. Because any loss realized is expected to be recovered from customers and the retained decommissioning fund will be returned to customers through a reduction in rates, WPL does not expect this transaction will have a significant impact on its operating results. As of June 30, 2005, WPLs share of the carrying value of the assets and liabilities included within the sale agreement was as follows (in millions):
* Includes nuclear fuel, net of amortization
As of June 30, 2005, WPLs assets and liabilities disclosed above did not meet the criteria to be classified as held for sale because Kewaunee was not available for immediate sale due to the unplanned outage.
Upon closing of the sale, WPL entered into a long-term purchased power agreement with Dominion to purchase energy and capacity virtually equivalent to the amounts received had current ownership continued. The purchased power agreement extends through 2013, at which time Kewaunees current operating license will expire. WPLs future minimum payments related to this agreement are $31 million from July through December 2005, $68 million for 2006, $70 million for 2007, $62 million for 2008, $74 million for 2009 and $247 million for 2010 and thereafter. In April 2004, WPL entered into an exclusivity agreement with Dominion. Under this agreement, if Dominion decides to extend the operating license of Kewaunee, Dominion must negotiate only with WPL and Wisconsin Public Service Corporation for new purchased power agreements for the parties respective share of the plant output that would extend beyond Kewaunees current operating license termination date. The exclusivity period extends until December 2011. Under the purchased power agreement, if Kewaunee is off-line for a forced outage during the term of the agreement, Dominion has the obligation to provide replacement power to WPL or pay performance damages to WPL which are based on the amount of energy not delivered and the price of energy in the market at the Kewaunee pricing location during the forced outage.
In July 2005, IPL signed a definitive agreement to sell its 70% ownership interest in DAEC to FPL Energy, LLC (FPL Energy), a subsidiary of FPL Group, Inc. As part of the agreement, FPL Energy agreed to purchase IPLs interest in the nuclear generating facility and related inventories (nuclear fuel and material and supplies) for approximately $380 million. In addition, the agreement contemplates that IPLs affiliates will sell other related assets to FPL Energy for an additional $7 million. The purchase price is subject to various adjustments at closing. The agreement also contemplates that IPL will transfer the equivalent of $203 million of nuclear decommissioning trust assets and cash to FPL Energy at closing in connection with FPL Energy assuming responsibility for the eventual decommissioning of the facility. IPL will also make cash payments to FPL Energy at closing in connection with FPL Energys assumption of certain other liabilities related to DAEC. In addition, the purchase price will be reduced by $128,000 for each day that the closing occurs after Jan. 31, 2006. Pending various regulatory approvals, including those from the Iowa Utilities Board (IUB), PSCW, MPUC, Illinois Commerce Commission (ICC), Federal Energy Regulatory Commission (FERC) and Nuclear Regulatory Commission, and the satisfaction of other closing conditions, the transaction is expected to be completed by the first quarter of 2006. IPL currently anticipates the net proceeds from the asset sale will be available for general corporate purposes including the payment of its nuclear fuel capital lease obligation at closing and debt retirement at IPL.
The cash proceeds, after certain transaction costs, from the sale are currently expected to exceed IPLs carrying value of the net assets being sold. The regulatory treatment of such gain will be addressed as part of the regulatory approval process for the proposed sale, thus IPL is unable to determine if the sale will have a significant impact on its operating results. As of June 30, 2005, IPLs share of the carrying value of the assets and liabilities included within the sale agreement was as follows (in millions):
As of June 30, 2005, IPLs assets and liabilities in the previous table did not meet the criteria to be classified as held for sale due to uncertainties inherent in the regulatory approval process.
At the closing of the sale, IPL will enter into a long-term purchased power agreement with FPL Energy to buy energy and capacity from DAEC. The purchased power agreement will extend through February 2014, concurrent with expiration of DAECs current operating license. The structure of the purchased power agreement is anticipated to result in costs for IPLs electric customers similar to the anticipated costs under IPLs continued ownership. The fixed monthly capacity payment in the agreement corresponds to IPLs projected revenue requirement, which would continue to be reflected in its base rates. The monthly variable payment to FPL Energy varies directly with the amount of energy delivered to IPL, which is based on a target capacity factor of 90%. If in a given month, FPL Energy delivers less than the energy amount corresponding to the 90% capacity factor, there will be a reduction in the energy payment to reflect the lower fuel consumption as well as a corresponding adjustment in the capacity payment to FPL Energy to proportionally compensate IPL for the under-delivery. This will ultimately result in a reduction in the DAEC component of the energy adjustment clause recovered from customers. The converse is also true if the delivered energy exceeds the target amount. Under the purchased power agreement, if DAEC is off-line for a planned or forced outage during the term of the agreement, FPL Energy has the option, but not the obligation, to provide replacement power to IPL. However, at any time that FPL Energy is not delivering energy to IPL, IPL has no obligation to make any payments to FPL Energy.
Alliant Energys AROs primarily relate to the decommissioning costs for Kewaunee and DAEC. Refer to Notes 12 and 13 for information regarding the sale of WPLs interest in Kewaunee in July 2005 and the proposed sale of IPLs interest in DAEC, respectively. Pursuant to SFAS 143, Accounting for Asset Retirement Obligations (SFAS 143), a reconciliation of the changes in AROs associated with long-lived assets is as follows (in millions):
After making an ongoing exhaustive effort, Alliant Energy concluded it was unable to obtain the information necessary from the counterparties for the Riverside and RockGen plant agreements to determine whether the counterparties are variable interest entities per Financial Accounting Standards Board (FASB) Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46R), and if Alliant Energy is the primary beneficiary. These agreements are currently accounted for as operating leases. The counterparties sell some or all of their generating capacity to WPL, and can sell their energy output to both WPL and IPL. Alliant Energys maximum exposure to loss from these agreements is undeterminable due to the inability to obtain the necessary information to complete such evaluation. The costs related to these agreements were as follows (in millions):
*The Riverside plant was placed in service in June 2004.
Alliant Energy has fully and unconditionally guaranteed the payment of principal and interest on various debt securities issued by Resources parent company and, as a result, is required to present condensed consolidating financial statements. No Alliant Energy subsidiaries are guarantors of Resources debt securities. The Other Alliant Energy Subsidiaries column includes amounts for IPL, WPL and Corporate Services. Alliant Energys condensed consolidating financial statements are as follows:
Alliant Energy Corporation Condensed Consolidating Statements of Income (Unaudited)
Alliant Energy Corporation Condensed Consolidating Statements of Income (Unaudited) (Continued)
Alliant Energy Corporation Condensed Consolidating Balance Sheet as of June 30, 2005 (Unaudited)
Alliant Energy Corporation Condensed Consolidating Balance Sheet as of December 31, 2004 (Unaudited)