LNT

Alliant Energy Corp. 10-Q Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2006, for Alliant Energy Corporation and its subsidiaries, Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL). Alliant Energy is an investor-owned public utility holding company operating primarily in Iowa, Minnesota, and Wisconsin. The company is actively divesting non-regulated businesses (including New Zealand and Mexico interests) and utility assets (Illinois properties) to narrow its strategic focus.

Key Financial Metrics (Nine Months Ended Sep 30, 2006)

Material Changes vs. Prior Period

• Net Income Increase: Net income for the nine months ended Sep 30, 2006, rose significantly to $122.6 million from $56.2 million in 2005. This improvement is largely attributable to the absence of significant non-cash asset valuation charges recorded in 2005 related to Brazil investments ($136.1 million pre-tax charge in 2005) and improved results from non-regulated businesses.
• Utility Margins: Electric margins decreased by 9% ($92.9 million) for the nine-month period due to higher purchased power capacity costs, weather impacts, and weather hedging losses. Gas margins increased by 9% ($11.5 million) driven by rate increases and weather derivatives gains.
• Debt Reduction: Long-term debt decreased by approximately $432 million year-over-year, driven by proceeds from asset sales (including the sale of IPL's interest in the Duane Arnold Energy Center (DAEC) and Brazil investments) used to retire debt.
• Discontinued Operations: The company recorded a loss from discontinued operations of $24.4 million in 2006, compared to a loss of $61.4 million in 2005, reflecting ongoing divestitures of non-regulated assets.

Guidance, Outlook, and Risks

• Divestitures: Alliant Energy expects to complete the sale of its New Zealand subsidiary (AENZ) in December 2006, anticipating net proceeds of approximately $175 million and an after-tax gain of $1.10 to $1.20 per share. The sale of its Mexico investment is expected by March 2007.
• Construction Expenditures: The company revised its 2006 construction and acquisition expenditure estimate downward to $425 million.
• Regulatory Matters: WPL settled its fuel-related rate case in September 2006, resulting in a $36.6 million reserve for rate refunds to be paid in Q4 2006. New Wisconsin renewable energy laws require utilities to increase renewable retail sales by 2010 and 2015.
• Weather Hedging: The company incurred losses on weather derivatives in Q3 2006 due to a lack of correlation between Chicago cooling degree days (the hedge index) and actual weather in its service territories. New hedges were entered in Q4 2006 for the heating season.
• Risks: Key risks include regulatory actions, fuel price volatility, the ability to recover costs through rates, and the successful completion of pending divestitures.

Investor Verification Checklist

• Divestiture Closing: Verify the closing of the New Zealand (AENZ) sale and the realization of the projected $175 million net proceeds and per-share gain.
• Rate Refunds: Confirm the execution of the $36.6 million fuel cost refund to WPL customers in Q4 2006 and its impact on cash flow.
• Weather Derivative Performance: Monitor the performance of the new heating season weather derivatives entered in Q4 2006 against actual weather conditions.
• Debt Covenant Compliance: Verify continued compliance with debt-to-capital ratio covenants (Alliant Energy: 38%, IPL: 43%, WPL: 37% as of Sep 30, 2006).
• Construction Costs: Track actual construction expenditures against the revised $425 million 2006 estimate, particularly for new wind and clean coal projects.