Alliant Energy Corp (LNT) 2004 Q4 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's year-end 2004 earnings conference call. At this time all lines are in a listen-only mode. I would like to turn the call over to your host, Becky Johnson, manager of Investor Relations at Alliant Energy.

Thank you for joining us today for Alliant Energy Corp.'s conference call. We welcome those of you who are joining us on the phone and also those who are joining us via the Web. We appreciate your participation.

With me today are Erroll Davis, Alliant Energy's Chairman and Chief Executive Officer; Bill Harvey, President and Chief Operating Officer; and Eliot Protsch, our Senior Executive Vice President and Chief Financial Officer, as well as various other senior executives of the organization.

As most of you are aware, earlier this morning we issued a news release announcing Alliant Energy's year-end and fourth-quarter 2004 earnings, our 2005 earnings guidance and our 2005 and 2006 capital expenditure guidance. If you haven't seen the release a copy of it is available on our website at www.AlliantEnergy.com in the investor section.

Our 2004 GAAP results consist of two components, earnings from continuing operations and earnings from discontinued operations. As we've previously stated, Alliant Energy's management believes earnings from continuing operations provides the most meaningful representation of the Company's fundamental earnings capacity.

We have allotted an hour for this morning's call which will include time to take questions from the investment community following some prepared remarks from Erroll, Bill and Eliot.

Before we begin I would like to remind you that the remarks that we made on the call this morning and our answers to your questions include forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include among others matters discussed in Alliant Energy's press release issued this morning and in Alliant Energy's filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements. With that said I will now turn the call over to Erroll Davis.

Thank you very much, Becky. Good morning and happy new year to you all. It is a pleasure to be here this morning to report on our earnings for the year, to provide an update on the continuing progress that we've made in 2004 executing our strategic plan, and also to provide you some insights into our 2005 plan.

Today Alliant Energy reported earnings from continuing operations for 2004 of 210.8 million or $1.85 per share compared to income and earnings per share from continuing operations in 2003 of $156 million and $1.54 actively. This represents a 20 percent increase in earnings per share year-over-year. Alliant Energy's net income and earnings per share for 2004 were 145.5 million and $1.28 respectively. This compares to net income of 183.5 million and EPS of $1.81 in 2003. Please note that these figures contain the results, however, from businesses that we have now classified as discontinued operations many of which have already been sold.

Earnings from our domestic utility operations were 221.4 million or $2.18 per share in 2004 compared to 197 million or $1.94 per share in 2003, and that's on the same per share basis. Our non-regulated businesses posted a loss from continuing operations in 2004 of 4 cents per share compared to a loss of 29 cents per share in 2003. While this certainly is a continuation of a positive trend, as I have said before, we are not going to be satisfied until all of our businesses are profitable and earning an appropriate return on the capital that we have invested in them.

I would also mention that our 2004 EPS amounts from continuing operations, as I noted above, are computed based on the average shares outstanding during 2003 as it has been our practice to report the dilutive impact of additional shares outstanding as a separate earnings variance if the item is material. The dilutive effect of the additional shares outstanding in 2004 was 22 cents per share.

Bill and Eliot are going to explain the details associated with our 2004 earnings, but I would point out that even with the extremely mild weather conditions we experienced in 2004 our domestic utility net income increased approximately 12 percent over 2003 results. I would also point out that we continue to strengthen our financial profile including most notably, as Eliot will explain later in the call, our balance sheet.

In recognition of this improved financial profile and as part of our firm commitment to creating shareowner value, our Board of Directors approved an increase of 5 percent in our quarterly common dividend last October. This brings our annualized dividend rate to $1.05 per share. Additionally, increasing our dividend also brings us closer to our longer-term goal of having a dividend payout in the range of 60 to 70 percent of utility earnings.

Even with this modest dividend increase, as you will obviously point out or compute, we believe that we still have some head room to grow our dividend payout and our Board is going to continue to assess this situation every quarter as we go through 2005. Our total shareowner return in 2004 was 19.4 percent. This outperforms the S&P MidCap utility index and certainly outperforms the broader S&P 500 index.

Last year at this time we stated our strategic focus in 2004 would remain on improving financial performance, strengthening our balance sheet and maintaining operational excellence while at the same time providing our customers with safe, reliable and environmentally sound utility service. I'm very pleased to report that the Alliant Energy team delivered on each of these objectives.

We expect to continue to meet our customer expectations while creating increased shareowner value yet again in 2005. Our focus will continue to be on increasing the returns on invested capital in all of our businesses and continuing to streamline our portfolio of businesses as well.

Before I go on too much longer I wanted to formally welcome Bill Harvey. Bill, of course, has been on the call before, but he is now the newest member of our Board of Directors. This is another step in our leadership transition and succession planning efforts and we look forward to him making an even larger contribution to our Company as he assumes this expanded Board role.

I will now turn the call over to Bill to give you some operational highlights of 2004 as well as a look at some of the opportunities and challenges facing us in 2005. Bill?

Thank you, Erroll. As I have done in the past, I'll begin with a discussion of our domestic utilities since they are and have always been the foundation of our business. Our two domestic regulated utilities, Interstate Power & Light Company and Wisconsin Power & Light Company, continue to perform well earning $2.18 a share in 2004 compared to $1.94 in 2003 before the effect of the previously noted dilution.

We're very pleased that we were able to generate strong utility earnings even under the stresses of an extremely mild weather condition in 2004. In fact, we estimate that weather had a negative impact of 22 to 25 cents per share for the year compared to normal weather. Eliot will provide some additional insights on the factors that impacted our earnings this past year.

However, I want to emphasize how proud I am of all of our employees who worked extremely hard and effectively in 2004 to reduce cost and continue to implement operational efficiencies. Our employees' commitment and dedication helped enable us to offset the negative weather affects for the year and meet our full year earnings expectations that were set in January of 2004. In short, we were able to achieve cost reductions but not at the expense of customer service, reliability or safety.

I'd now like to update you on the status of our utility generation plan which was announced in December of 2003. In Iowa our 565 MW combined cycle natural gas Emery Generating Station went commercial in May of 2004. The Iowa Utilities Board's approval of the rate-making principles for this plant was significant because we knew upfront that the common equity component of the $400 million investment would earn a 12.23 percent rate of return over a 28 year depreciable life.

In addition, construction of our $155 million 300 MW simple cycle natural gas fired Sheboygan Falls energy facility is on schedule to be operational by the summer of 2005. We expect the Public Service Commission of Wisconsin to act on the remaining regulatory approvals for this plant later this quarter. When completed Wisconsin Power & Light Company is expected to operate and maintain the facility and have the exclusive rights to the generation output.

An excellent complement your natural gas plants is our recent announcement of WP&L's plans to purchase up to 100 MW of wind energy from the Forward Wind Energy Center near Brownsville, Wisconsin. And just last week we announced plans to add up to 100 additional MW of wind generation to our renewable resource portfolio at IP&L.

Finally, our plan to increase base load generating capacity in Wisconsin was jump started last spring with an announcement of a joint project with Wisconsin Public Service Corporation. Progress continues forward determining the appropriate site and technology for this planned 500 MW plant.

These projects combined represent the majority of our commitment to add 1600 MW to our generation portfolio through 2010 and we believe our generation plan continues to be flexible, balanced and, importantly, financially viable. It allows us to continue to provide our customers with the needed reliability they deserve yet do so prudently by minimizing the impact of our decisions on their prices.

And finally, relating to our utilities, in an effort to reduce our risk profile associated with our utility businesses we've been working to sell our ownership interest in both the Kewaunee Nuclear Power Plant and the Duane Arnold Energy Center. Earlier this month the public service commission of Wisconsin accepted the petition for rehearing, submitted jointly by Dominion Resources, Wisconsin Public Service Corporation and Wisconsin Power & Light Company.

We expect the commission to issue a final decision in late February or early March. We are hopeful that they will approve the sale and the accompanying purchase power agreements. Last month Interstate Power & Light Company announced its intent to sell the Company's 70 percent ownership interest in the 583 MW Duane Arnold Energy Center, a nuclear generating facility located near Palo, Iowa. That effort is progressing as planned.

In pursuing the sale of both these units, we expect to reduce the financial and operational uncertainty associated with ownership of nuclear generating assets yet still have the benefit of the output of such plants through purchased power agreements.

Now shifting the focus, let me discuss a few topics related to our non-regulated businesses. I'll start with Brazil.

Although the results from Brazil operations improved during the year, we continue to examine the operations and structure of our investments in order to better operational and financial performance and better position our investment. We continue discussions with our partners regarding various options to accomplish both of these goals. And we see the inertia of these discussions changing for the better.

As we have been reporting, we've taken measured legal actions in Brazil to protect our minority shareowner rights. To that end, earlier this month we won an arbitration award against our partners for approximately $22 million U.S. That was associated with alleged violations of our shareowner rights relating to our investment in the Juiz de Fora generating facility. We would give up our current direct ownership in this facility when the arbitration award is executed. Our partners are currently seeking reconsideration of this ruling. We are unable to predict what the outcome of that appeal may be, but we are hopeful that the award will be upheld.

A second arbitration against our partners for shareowner rights violations relating to our investment in the Cataguazes distribution company is also proceeding as expected. Under this second arbitration we are seeking damages of approximately $340 million U.S. The ultimate outcome of this arbitration will not be known until later this year.

Moving on to Laguna Delmar where we have an $82 million secured loan receivable from a Mexican development company we have previously found the developer's pace and level of performance in all phases of the project to be unacceptable. We concluded early in 2004 that a transfer of the ownership in control was our best option to maximize the recovery of our loan and related interest income. We have executed a purchase and sale agreement and we are working to resolve its conditions proceeding. We expect this transfer to occur in the first quarter of this year. And once that transfer is completed, we will be in a position to control our choice of alternatives concerning the development and distribution of this investment.

With a successful 2004 behind us I'll now begin to answer the question of what's next by discussing our plans for 2005. Our priorities for 2005 and beyond are straightforward. They're centered on three key themes -- strategic focus, financial discipline, and successful execution. In short, we will build on our strengths. As we've said before and will surely say again, our domestic utilities are not only the foundation of what we do and what we do well, but they are also our future.

And while we expect annual sales growth within our domestic utility service territories to be a modest 1 to 3 percent, we do expect to increase our earnings and cash flows by prudently investing in needed utility infrastructure and new generation.

Let me reiterate our goals to our investors. We will continue to reduce the risk profile of our Company and seek predictable yet modest growth. That our risk profile is more conservative will be demonstrated by both our business focus and our capital structure. With that I'll now turn the call over to Eliot for a financial overview of 2004 and a preview of 2005.

Thanks, Bill. Following the overview from Erroll and Bill, I would now like to take a few minutes to discuss both our domestic utility and international results in a bit more detail. As noted in our news release, the higher electric utility margins resulted from the impact of various rate increases implemented in 2003 and 2004 and an approximate 2 percent increase in weather normalized sales. The sales growth included an increase of 2 percent in industrial sales reflecting improved economic conditions in our domestic utility service territories.

These items were partially offset by the impact of extremely mild weather in 2004, WP&L's lower energy conservation revenues and the effect of implementing seasonal rates for the first time in April 2003 in this jurisdiction. The higher operating expenses were driven by increases in depreciation expense, employee and retiree benefit costs, taxes other than income taxes and other administrative and general expenses.

We also continue to be pleased with the progress we are making in our various rate proceedings. We recently received the final order in our Iowa electric rate case granting an increase of $107 million compared to our previously granted and already in effect interim increase of $98 million. We expect final rates in this proceeding to be in place by the end of the first quarter. WP&L requested a base rate increase of approximately $63 million in September 2004 and we expect final rates to be in effect on or about July 1st.

With that utility overview allow me to move to our non-regulated results, more specifically our international results. Our international financial performance was basically flat in 2004 as compared to 2003. We incurred losses of 3 cents per share in both years after allocated debt capital and overhead charges as improved results from the Company's Brazil and New Zealand investments were offset by lower results from our china investments. We realized a loss of 11 cents per share in 2004 from our Brazilian investments compared to a loss of 14 cents per share in 2003. These results include our allocated debt capital and overhead charges.

The improved results were primarily due to the impact of rate increases implemented at the Brazilian operating companies in 2003 and 2004 and a gain of 5 cents per share realized in 2004 from the sale of two hydroelectric plants. These items were partially offset by the impact of higher litigation related and interested expenses. I would note that our Brazilian investments generated positive in-country earnings in 2004 of $17 million compared to $9 million in 2003.

Our international results were significantly impacted by our China investments in 2004 which produced income of 1 cent per share compared to income of 6 cents per share in 2003. These results also include our allocated debt capital and overhead charges. 2004 results were negatively impacted by significant increases in coal prices and lags in procuring recovery for fuel price increases in our electricity and steam tariffs in China's evolving regulatory environment. All prices remain high in China, but we have had some success in procuring tariff increases to help offset these rising costs.

We have implemented tariff increases in approximately half of our plans and are actively working on achieving tariff increases at the remaining facilities. The Chinese government has recognized this problem which is national in scope, and has made announcements that it plans to take actions to link the price of coal with electricity and steam tariffs. This action is expected later in 2005.

Also our financial performance in China for 2004 was negatively impacted by 4 cents per share due to the recording of U.S. income tax provisions relating to recording U.S. federal tax is unremitted 2004 and prior year earnings at the rate of 5.25 percent. This resulted from our intent to repatriate these earnings to the United States in 2005 under the provisions of the recently enacted American Jobs Creation Act. While we are still assessing and developing our repatriation plans, our current estimate is that we will repatriate at least $65 to $70 million in 2005.

At this point I'd like to update you on our various financing transactions in 2004 and discuss our progress with several key financial measures. Our ongoing debt reduction efforts continue. In 2004 we retired $42 million of long-term debt at our non-regulated businesses and incurred 5 cents per share of debt repayment premiums related to this retirement. This combined with earlier debt reductions and other actions contributed significantly to our non-regulated interest expense being $21 million lower in 2004 compared to 2003.

In addition, earlier this week we gave an irrevocable notice to redeem an additional $100 million of 7 3/8 percent senior notes issued by Alliant Energy Resources, the parent company of our non-regulated businesses. In November 2004 we announced the completion of the sale of all of our remaining shares of the common stock of Whiting Petroleum Corporation. The offering raised net proceeds of approximately $30 million for Alliant Energy representing an after-tax gain of 8 cents per share.

Once again we are reporting a strong liquidity position. As of December 31st we had $83 million of commercial paper outstanding. Combined with cash and short-term investments our consolidated liquidity position was in excess of $800 million at the end of 2004. Our target capitalization ratio is in the upper 40 percent to lower 50 percent range for total debt to capital. As of the end of 2004 our debt to total capital ratio was 48 percent which represents a dramatic improvement from the first quarter of 2003 when it stood at 61 percent.

Our preliminary figures show our cash flows from operations for 2004 were approximately $500 million compared to $461 million for 2003. Our guidance for 2005 cash flow is a range of $575 million to $625 million. Our 2004 capital expenditures were approximately $650 million and our anticipated 2005 capital expenditures are approximately $625 to $655 million. Approximately 80 percent of these capital expenditures are related to our domestic utility operations and our cash flows adequately cover our utility maintenance capital expenditures and our common stock dividend payments.

Finally the last topic I will cover is our 2005 earnings guidance. Our guidance for earnings from continuing operations in 2005 is a range of $1.80 to $2.05 per share which excludes an estimate of 10 to 15 cents per share of debt repayment premiums that the Company currently anticipates paying in 2005 as a part of its ongoing debt reduction program.

We expect to incur 9 to 10 cents per share in debt repayment charges related to the $100 million debt redemption that I spoke of earlier. Clearly the opportunity to repurchase debt is helpful to our balance sheet and our long-term financial strength, but it will impact our 2005 earnings from continuing operations. Net of these debt premiums, our earnings guidance for continuing operations is $1.70 to $1.95 per share.

While we will continue to expect that our domestic utilities will be the primary driver in our future growth, we also expect our non-regulated businesses will continue to improve and successfully contribute to the bottom line. I would now like to turn the call back to Becky for the beginning of the question-and-answer session.

Thanks, Eliot. At this time we would like to open up the call to questions from members of the investment community including institutional investors and investment analysts. We will take as many questions as we can within the 1 hour timeframe for this morning's call. I would now like to turn the call over to the conference call operator who will guide us through the question-and-answer session.

(OPERATOR INSTRUCTIONS) Dave Parker, Robert W. Baird.

Congratulations on another constructive year. If I could -- I have a few questions. Maybe first start off with your 2005 guidance. With the utility posting 218 I guess when you adjust that for shares in '04 I guess it gets closer to $2.00 a share. But we're looking at (indiscernible) declining earnings at domestic utility operations for next year. Given rate relief and I assume an improving economic picture in the states you cover, I was just curious on why your estimate was in that flat to slightly declining level.

I'm going to turn this over to the Eliot to explain all of the moving parts there, but I think the one thing we want to make sure of is the base which is actually $1.95 on a fully diluted basis. We are looking at growth, but there are also some other issues in there that you have to look at. Let me turn it over to Eliot and he can talk about the other issues.

Basically one of the largest drivers of that comparison would be the fact that the IP&L rate case was in effect for most of '04, as you know, on an interim basis and the delta between the interim rates and the final rates is not all that significant and the final rates will be going into effect sometime in the first quarter.

As you know, Iowa is also a flowthrough state when it comes to federal income tax issues and very late in the third quarter the state passed a law which provided for some bonus depreciation opportunities which flowed through to the bottom line in 2004. So that obviously impacts the comparison. And then we have Kewaunee that -- that did not close that transaction and may well be moved into 2005 which has some effect on the comparison as well. So those would be the single largest factors in addition to the dilution that Errol referenced earlier.

So Kewaunee is in your expectations or your guidance for '05?

No, Kewaunee is not, but it has not been sold as of yet. If it is not sold in 2005 then we would expect the earnings to increase because of that. We have removed the earnings for all of 2005 and obviously it starts off the year slightly incorrect because the sale is not closed yet.

In Bill's comment -- for my second windy question I guess -- he talked about some further rationalization on the non-regulated side which I assume would have some positive earnings benefit, i.e. like Laguna -- it changes in Brazil and sounds interesting here with the arbitration and what happened. Could you give some kind of color, potentially what that could do for earnings performance in '05 and is that included in your earnings guidance likewise for next year?

It is not included in the earnings guidance. As the release indicated, there are a number of relatively modest businesses remaining on the ISCO side of our portfolio that will be reclassified as discontinuing operations. Our small pipeline businesses, some garbage burning generating equipment that this year I think we lost about 4 cents a share on those businesses and those businesses are going to be liquidated we hope relatively early in this year, but we've not factored that into our guidance.

With respect to the larger issues on the international side of the business, the performance in Brazil, I would characterize the trend lines as positive not simply because we're realizing some good traction on the legal front, but because the fact that we are realizing that traction puts us in a better position to negotiate and ultimately obtain resolution of our ongoing disputes with our partners that we believe will better position us to generate stronger earnings from that portfolio and better position us to evaluate and ultimately make decisions concerning the future of that investment in its entirety in Brazil.

The 22 million -- just to interrupt for a second, Bill -- the 22 million on the arbitration, assuming that that does get reversed, does that represent a return of your ownership position in that generating facility or is there a difference between your book value and that number?

No, that is what it represents and we hope you're wrong. We shouldn't assume that it's going to get reversed. We should assume that it's going to get affirmed which we think it will.

Right. Now as far as EPS benefit or drag from that facility, can you characterize, was that generating facility a positive or a negative to Brazil's results?

It was really inconsequential other than the fact that we incurred a good deal of litigation expense in order to protect our interest.

Right, lawyers, that's great.

Well, I'm an old lawyer myself.

I understand. That's why I said it, Bill.

We would, as a part of the award obviously, the legal fees that we have incurred would be reimbursed which is a relatively inconsequential upside, but an upside nonetheless.

Was it legal fees this last year -- could you refresh my recollection? Has that been about $8 to $10 million or so or is that too high?

No, we would say it's about 3 cents.

Okay. And then the 340 million which you alluded to, Bill, as far as the distribution property; likewise that would represent your ownership interest in that entity?

I don't know that I can equate it to the ownership interest as such, David. It is a claim for damages. I suppose if you wanted to equate that $340 million to something relating to our ownership interest, which is not an appropriate comparison, it's approximately the net value of our investment in Brazil today, but there's not a correlation between the two. That is coincidental.

Laguna -- I can understand that the ownership transfer will give you a little bit more leeway there, but my recollection is it's not been a big driver on the income statement. Is that true?

That's definitely true. What we will have, importantly, as a consequence of that transaction is control over our destiny as it relates to that investment and I ascribe a high-value to that.

We have stopped booking any interest income from that investment so it has not appeared in the investment.

Thanks very much. And my last question -- I promise -- is an interesting -- I'm sorry, so many here -- but last was an announcement, Mr. Harvey's appointment to the Board. I found an interesting statement was that logical transition kind of thing. And maybe, Erroll, if you wouldn't mind talking about what the logical management transition thing is here that you were referring to in that statement?

Well, you can obviously have traced the transition from the amount of time they are allowing me to talk on these calls, David, which has diminished over time. But Bill has been elected -- appointed to the Board, which reflects again their confidence in him. And as you are aware, it has been about a year now that he has been President and Chief Operating Officer. And again, I expect that both he and Eliot and a number of others around here will play very significant roles in the future, and that is as close as I am coming to announcing my retirement at this point.

Okay, very good. Thank you very much and congratulations again.

Carrie Stevens, Morgan Stanley.

Hi, good morning. I just wanted to quickly follow-up on that one item about the utility guidance. One impact that you didn't mention was there is roughly 20 cents or so of weather add-back, and I am really struggling with how your utility earnings, even with some of these offsets you mentioned, specifically the tax, how you couldn't produce some higher earnings with a 20-cent weather add-back.

Again, as we suggested we offset a majority of that weather add-back with some cost reduction activities here, where some of those were in the form -- but certainly not the lion's share of them -- were in the form of deferrals, costs that are going to have to take place this year, as well as continuing cost pressures. To the extent that we have normal or above normal weather, again that will be reflected in the utility earnings, but I would not just take the 20 cents and add it back to the earnings. Again, we're going to have additional dilutive effects this year as well. So that will have to be taken into account.

Can you expand on how much the bonus depreciation was?

Carrie, this is Eliot. The bonus depreciation was around 5 to 6 cents a share. And if I put on my former operating hat and think about the weather we had this last summer, I think one thing that folks should appreciate is that when you have the coolest summer in, what, 27 years or so without really any appreciable storms to speak of, you know. All of the overtime that one occurs and the tree-trimming expense and broken poles and transformers and the maintenance that goes with that, and the effect on generating plants from running 6, 7 days straight all-out to serve peak demands, in addition to cost control and cost-effectiveness and permanent cost reductions, there is definitely less costs associated with not working the equipment as hard as it normally would when we have the kind of weather that we build into our budgets. (technical difficulty) would, in fact, have those storms and serious heat waves that would generate that kind of effect on our annual statement.

When you mentioned that Kewaunee is out of your guidance, does that mean that you assume -- what do you assume about the proceeds that you're expecting? Have you assumed that in your guidance like the redeployment of the proceeds from Kewaunee?

Basically, the effect of selling Kewaunee, Carrie, would translate into capital that we would not have to raise somewhere else. And if you look at our equity capital ratios, debt to capital ratios, you can sort of model the effect on that. So, obviously, if there is less equity required because we have cash, then it should have some modest effect on earnings.

Right, but you're still mentioning about 90 million of potential common equity issuance this year.

Yes, up to and built into our guidance, I might add.

Okay. Did you put these new win projects that you discussed, is that in your CapEx forecast? It doesn't appear to be.

Both of those projects will likely be PPAs versus us owning the actual facilities.

So no capital requirements there. I noticed the non-regulated CapEx was running a bit higher than our expectations. Is there any trend that you could talk about for why the numbers continue to rise?

The single greatest source of capital expenditure on the unregulated side foreseen is in China. That would relate to incremental investments in newer and more efficient generating assets. However, we have total control over whether or not we make those investments. We have portrayed our capital expenditure profile in China aggressively in the sense that it certainly represents the maximum levels of capital expenditure we might experience in that marketplace. There is a reasonable probability that it will be less, but we wanted to be conservative in our forecasted expenditure levels.

The other capital expenditure areas that are really quite modest -- synfuels is about $25 million, Laguna Delmar we envision a potential range of capital expenditures related to that investment. It could be as much as $30 million in both '05 and '06. But by the same token depending upon the disposition opportunities for that investment it could be as low as 0 in both years.

So again, we've tried to be conservative in terms of our forecasted levels of capital expenditure on the unregulated side of the business, but other than, with respect to synfuels, there is a general bias that we will exhibit in our decision-making which is to spend less rather than more on the capital side in AER.

And I should also point out that in China that we'll be using in company -- in-country cash generation as well as nonrecourse debt there in that marketplace.

Okay. And then lastly, the guidance you gave for international is somewhat lacking. Is there any way that you can maybe step through just generally some drivers? Brazil, unless some of these negotiations work out -- I mean it's flat kind of the assumption. And then I guess China is the big delta between '04 and '05 whether or not you can recover the higher coal cost.

Again, on our guidance we have tended not to go any further than what we've said in the past. We expect Brazil to be somewhat flat but with some positive upside. If you look at what has happened there in-country -- we have said seven positive quarters in a row in-country on a total loading basis. Two of the four quarters this year were positive as well. So again, we're optimistic.

In China we talked about the coal problems and the margin compression there and we are addressing those issues and we expect that market to improve. But again, we have learned not only there but certainly here in the United States that we do not ever predict the amount or pace of regulatory activity with respect to granting rate changes. Again, those are the primary drivers of that.

Okay. And then I have a last question for Erroll. Obviously a lot of discussion regarding succession planning. Could you maybe outline in terms of what you're thinking what may be some items on your agenda that you would like to get done before you would consider retirement?

I will certainly, as you look back the last several years, one of the things is certainly to rationalize our portfolio of non-regulated businesses and make sure that what we have in the portfolio is earning its cost of capital or on its way to earning its cost of capital and, in fact, that trend has started to materialize. And so I feel pretty good about where we are. If we look back at our total shareowner return both last year and the last couple of years we've outperformed most of the market indices.

I'm pretty comfortable that the ship itself is headed in the right direction. I think we have an excellent team, not only those that you know directly, Bill and Elliot, but also a group of people underneath them. And so again, it's just I think I've achieved most of my shorter term objectives and that now is just a matter of when the Board feels comfortable in making the appropriate transitions and I, of course, cannot speak for the Board members.

Okay, thank you.

Jeff Cobello (ph), Duquesne Capital.

I just had a few questions around Kewaunee. I guess including the assumption that Kewaunee is sold in the guidance, does that -- and it kind of goes to Carrie's point, I wasn't clear -- does that go to the size of the equity offering? So assuming that Kewaunee is sold, the equity offering is 90, is that potentially larger or smaller depending on what --?

Jeff, this is Eliot; allow me to try to address that if I might. Built into our guidance this year is the assumption that we will issue up to $90 million of additional common equity. $30 million of that is likely to come from our ongoing dividend reinvestment plans and 401(k) elections, etc. And the rest of it is completely under our control in terms of amount and timing. Whether or not we issue that stock at some point throughout the year will be a function of how things are looking with respect to CapEx and weather and utility margins, the Kewaunee sale and what's going on with sales of our other businesses and stock price, etc. That's about as best I think as we can do other than it's just at the margin a pretty small amount and our guidance is conservative in that it reflects the assumption that all of that stock is issued at some point.

It's not written in stone that you're going to do it and assuming Kewaunee gets done there's a potential that you might not have to?

There is that potential, yes.

And also, there's a completely discretionary decision concerning the timing and amount of debt premiums that we're willing to do in the marketplace.

Other than the 9 to 10 cents that has recently been launched.

Got it. And then I just was going to the broader point on the utility growth. On an ongoing basis do you have a long-term growth target from the utilities as far as their EPS goes? How should we think about it?

Our long-term aspirational goal for our earnings is to earn -- to increase earnings over our 5-year plan period at 5 percent year compounded. Some years we expect it to be slightly below that, some we expect to be above, but for that plan period we expect to have 5 percent on our earnings growth and that's what our plans are based upon.

Okay. And this '05 guidance, it's appropriate to think of that as a new base earnings level (indiscernible) the utilities?

Yes.

Thank you very much, guys. I appreciate it.

David Grumhaus, Copia Capital.

A couple of questions for you here. In the guidance you really haven't broken out the parent. Is that because there isn't any? Is it buried in the others? What do we make of that?

Our parent accounting really relates to year end tax true up issues with the geography of how taxes are allocated to the various subsidiaries. So for purposes of your modeling and forecasting you should assume it just sort of has a zero effect.

Okay. Like others on the call, I'm still struggling with the utility guidance because I think you got the interim decision in Iowa in May or June; you should still have 5 or 6 months of that. You get the benefit of the final being higher than the interim. You have the Sheboygan plant which you'll get a couple cents on. You have the weather and I appreciate that the costs get offset by some of that, but I certainly wouldn't think the lion's share of that would be taken from cost. I guess like others I'm struggling what are the big cost numbers that we're missing that are going to show up next year that weren't in this year's?

Let me suggest we're not expecting any big costs to appear in our utility. We think that, again after you've made the appropriate adjustments on the base and as you take into account all of the factors that we've mentioned in the call, that we're still seeing appropriate and modest growth within the utility. We don't expect a lot of new capital additions to kick on and then returns on those next year. Those will come in subsequent years. We're in a 2 to 2.5 percent growth environment. We're hopeful that that growth offsets increases in cost.

But again, as you look at adjusting the 2004 base for dilution as well as potential dilution going forward as well as backing out such things as bonus depreciation, we think we're getting a reasonable growth in our utility. Now as we also mentioned that there certainly is upside to that if Kewaunee is not sold. That of course would not -- is providing about 4 to 5 cents worth of earnings, but then on the other hand we'd have some incremental interest expense as well if we don't have that capital from Kewaunee.

And so again, what we can say is we're not expecting nor hiding any unanticipated large cost increases and we're trying to be as transparent as possible with the guidance we're giving. In fact, we're giving guidance on five areas which is more than we've ever given in the past.

I would add that there's a misconception in the question as well and that is that the Sheboygan Falls facility will drive utility earnings. That plant is being constructed pursuant to the Wisconsin lease generation loss. So net income associated with that investment will be captured at Alliant Energy Generation which is an AER subsidiary.

Okay. That's helpful.

Also, David, picking up on that, the accounting for the Sheboygan Falls plant and the manner in which the revenues translate into earnings is different than if it were a rate base plant just simply because of how the regulatory process works versus the lease and a couple other minor factors that I think are relevant to your looking back and looking forward comparison with respect to the utility is keep in mind we do book some AFUDC while major plants are under construction in Iowa and the $400 million Emory facility did have some AFUDC accrued as it was being constructed.

And furthermore, in IPL we had an 11.05 percent rate of return authorized on the non Emory facility prior to this final order and that return is going to be 10.7, that's partially contributing to that delta. So, when you factor all of these items into account here, hopefully this is adding some clarity as to why that comparison is not what you perhaps think it should otherwise be.

That's helpful. A second unrelated question. China, given your CapEx budget here -- and I appreciate that this is the max that you might do, but it does seem that you all have made a strategic decision to stay committed to China and to continue to try and build that investment up as opposed to moving out of China and of the other international areas that you're in.

Your question was phrased that we've made the decision to stay committed. We have, I believe, clearly put our China strategy on the table which says that we wanted to get a portfolio to a size to put it in a position to IPO in that market and we have not changed that or revisited that decision.

Now, I should point out that recent changes in the tax law are allowing us to bring back in excess of $70 million in cash from China this year. But again, you are correct that we will continue to high grade the portfolio to a point where we can get it into position for an IPO. We have never made, I believe, the statement that we are committed to that marketplace forever.

Okay. And when you talk about getting to a size that you need to -- that you can do an IPO, do you get there with the CapEx budget laid out for '05 or '06? Is this a 5 more years -- can you give us any sense of timing on that?

I would expect that within the next 2 years including 2005, so over 2005, 2006, we would have our portfolio in the position where we could have the flexibility to make some decisions on what to do with that portfolio.

That's helpful. Thanks for all the time.

I'd like to point out with respect to these international portfolios that part of our investment decision when we invested in them was not a current income stream decision but a terminal value decision as well. And those, to some extent -- that strategy to some extent is working. If you look at New Zealand for example, it has a value today in excess of $300 million. We have a basis price that's slightly over $100 million.

And so again, when and if we choose to monetize that asset we're expecting a significant gain in that marketplace. So again, I know that we tend to be focused on current income in these discussions, but part of the investment strategy in some of these marketplaces had to do with liquidation values and terminal values of these portfolios.

Steven Rountos (ph), Allen Capital.

Just want to, again, get a final clarification point on the weather. What dollar amount of costs are being deferred from '04 to '05?

The work with these numbers in general, if you will, somewhere between $25 and $35 million of operational cost savings were affected this year. I expect the vast preponderance of that savings to be permanent with a relatively small component of it being cost savings that were in the nature of deferrals that are not sustainable over the long-term. I don't know if that's helpful or not.

I think it's a little confusing actually. So you push some cost from '04 to '05 in the amount of $25 to $35 million so you'd see --?

No, no, no, not at all. A relatively small portion of that range of cost savings fall into what I would characterize as a deferral category.

I think what we all need to appreciate here is that there were costs that were budgeted based on normal weather that were not incurred because we did not have normal weather and then there were costs that were reduced, which is what Bill just described, and then there may be some small component that was, in fact, deferred. But Bill's comment was focused on costs that we expect to have disappear.

Disappear or -- I guess I'm a little confused because '04 had lower cost because of weather and because you deferred some small piece of that. So '05 cost should be $25 to $35 million higher?

To some degree you folks are working with costs that '04 compared to '03 and we, of course, are working with costs that were projected to occur and did not occur and some of that may well fall into the category of a cost savings because of initiatives that we undertook. In other words, we absorbed certain inflationary increases, etc., etc., that would not show up in the type of numbers that you're doing your comparisons upon.

Okay. Well, I can follow up I think afterwards on more detail. I guess the second piece of my question was on the -- you said cash flow from operations 5.75 to 6.25 was the range in '05 and the midpoint of your CapEx is 6.40, the dividend about $120 million. So can you connect the dots between those pieces and the debt repayment, the equity issuance and everything else just so we can understand how the cash flows work in '05?

The way we think of our cash flow concept here is obviously we've generated a certain amount of cash flow and we gave you projections on that. That's both operating cash flow and changes in working capital. We have maintenance capital expenditures which in our vernacular would be everything associated with the utility other than that which is spent to accommodate growth in that core business such as new generating plants, new substations, major transmission lines, etc. And that our cash flows cover those maintenance capital expenditures and cover our dividend payments so when we go out into the outside market to procure new capital it is being primarily procured, other than that which is associated with refinancing of course, to finance investments that will contribute to the core earning power of our core utilities going forward.

I guess that's the point I was really trying to make more conceptually than necessarily following -- or describing the numbers in detail. But we can give you those numbers. We often have those in our Investor Relations presentations.

The cash flows will cover maintenance capital and dividend.

I can follow up afterwards to get the amount that you're assuming for debt repayment plus debt issuance and all that kind of good stuff.

Yes. Generally we can give you the ranges behind what is in our guidance.

Okay.

I would now like to turn the call over to Becky Johnson for closing remarks.

With no more questions this concludes our call today. I would like to take this time to thank you for your participation this morning and for your continued support of Alliant Energy. A replay of the call will be available through Friday, February 4th at 800-642-1687 or 706-645-9291. Callers should reference caller ID 321-1342.

In addition, an archive of the conference call and a script of the prepared remarks made on the call will be available on the investor section of the Company's website at www.AlliantEnergy.com later today. Thank you.