Alliant Energy Corp (LNT) 2005 Q2 法說會逐字稿

Welcome to Alliant Energy's second quarter 2005 earnings conference call. At this time all participants are in a listen-only mode. I would now like to turn the call over to your host, Becky Johnson, Manager of Investor Relations at Alliant Energy.

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

With me today are Bill Harvey, President and Chief Executive Officer, and Elliot Protsch,our Chief Financial Officer, as well as other senior executives of the organization. As most of you are aware, earlier this morning we issue a news release announcing Alliant Energy's second quarter 2005 earnings.

If you haven't seen the release it is available on our Web site at www.Alliant Energy.com in the investor section. I would also note that unless otherwise noted, all of our per share references oath call refer to diluted earnings per share we have allotted for this morning call which will include time to take questions from the investment community; following some prepared remarks by Bill and Elliot.

Before we begin I would like to remind you that the remarks we make on this call 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 over the call to Bill Harvey.

Thank you, Becky. Good morning and thanks for your continued interest in our company.

We are not going to spend a lot of time this morning restating what has already been communicated in our earnings release. However, we would like to discuss some insights regarding our earnings from continuing operations and net income, to assist you in sorting through our reported results. I hope that we will make the task easier for you.

Second quarter 2005 earnings from continuing operations included a $96 million pre-tax non-cash asset valuation charge related to our Brazil investment. We report the results from these investments in continuing operations as required by the accounting rules. The charge resulted from the impact of several items. First, 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. Second, consideration of updated market and other information we received from our financial advisor and our Brazilian partners during the second quarter of 2005, and third, from an assessment of potential outcomes of various strategic alternatives we are evaluating and discussing with our Board of Directors.

As we announced last month we are in the process of diverting our generating assets in China. The accounting for the China business has been reclassified to discontinued operations in the second quarter and all prior periods presented. The second quarter 2005, results included a pretax non-cash asset valuation charge of $90 million.

Earnings from our domestic utility operations were $34.7 million, or $0.30 per share, compared to earnings of $38.9 million, or $0.35 per share, in the second quarter of 2004. Our domestic utility business continued to post solid operational and financial performance in spite of some challenges we faced in this quarter. As noted in our earnings release, because of the impact of the electric weather swaps we entered into earlier this year, the unusually warm weather in June did not have a material impact on electric margins in the second quarter.

I would note, however, that the hedge is a three-month aggregate cooling degree day hedge, covering June through August. Given that June cooling degree days were significantly greater than normal we have fully accounted in the second quarter for the maximum possible pay out under the hedge. That means, of course, that continued warmer than normal weather in July and August would have a positive impact on our margins, and it has been hot in both Iowa and Wisconsin in July and so far in August. However, I wish to point out that our investors -- to our investor that is our hedging strategy should be viewed in the long-term context and are designed to limit utility earnings volatility.

Another significant driver for our lower utility earnings was higher fuel and purchase power costs at Wisconsin Power&Light Company in the second quarter versus the second quarter of 2004. First, our second quarter 2005 results included three months of purchase power capacity payments for the Riverside plant, while the second quarter 2004 results only included one month of payments, given that the plant was not placed in service until June of 2004.

Second, we were not able to begin deferring the incremental fuel and purchase power costs resulting from the unplanned extended outage at Kewanee until mid-April. Finally, as we announced last week, our utilities have been impacted by the coal supply disruptions resulting from the train derailments in the Powder River Basin of Wyoming. As a result of these coal supply disruptions we had implemented coal conservation measures at several of our generating facilities, which leads to some -- an economic dispatch of facilities.

Any financial impacts from these actions at Interstate Power and Light will be collected through the energy adjustment clause. However, we do not have a similar mechanism in Wisconsin. We have assessed both the current and future estimated impacts of coal conservation efforts and the resulting incremental and purchase power and fuel costs they will cause. As a result,WP&L filed for deferral treatment of the retail portion of those costs with the Public Service Commission of Wisconsin earlier this week. We are hopeful the commission will recognize that this meets the requirements of a deferral request and approve our request quickly.

On the rate case side, we received a final order in the WP&L rebate case on July 19, authorizing a $21 million increase in the annual revenue requirement and an 11.5% return on equity. In addition we had been granted an annual interim increase of $26 million in April of 2005 related to increases in WP&Ls fuel and purchase power expenses. That interim increase was made final in a separate July order.

In Iowa, IP&L recently filed a non-unanimous settlement agreement proposal with the Iowa Utilities Board regarding its pending gas rate case. The settlement if approved by the IUB, would increase IP&Ls annual revenue requirement by $14 million; and allow a return on equity of 10.4%. Interim rates have been in place at roughly that level since April of this year.

In a press release issued earlier this week, we shared our updated generation plan which calls for the addition of 600 megawatts of owned generation for the period 2006 through 2013. We expect to see continued growth in electricity demand in our service territories of almost 3% per year and have developed a revised generation plan that we believe is financially viable yet which will allow to us keep rates competitive.

As we previously discussed we are we were in the early planning stages for the addition of 250 megawatts of clean coal technology in Wisconsin which is currently slated to begin operation in 2012. Transmission studies are being completed and we plan to have a site selected by the ends of this year. In Iowa, we are planning to add another 100 megawatts of wind in 2008; which will be the first wind farm owned by Alliant Energy. Looking further ahead to the 2012, 2013 time frame, we plan to add a 250 megawatt clean coal base load plant in Iowa as well.

Both of our proposed coal plants may end up being joint facilities with other partners. If so, the megawatts noted previously would represent our share of the output of such plants. Alliant Energy is fortunate because in both Iowa and Wisconsin, progressive legislation is in place that increases the regulatory certainty related to the rate making principals for our new power plants. New generation investments can serve our customers' energy future well while at the same time providing our investors with enhanced certainty of future returns.

We are also very proud of the fact that we were able to get our Sheboygan Falls energy facility placed in service in the second quarter of 2005, ahead of schedule and under budget. Like most of you, we also continue to monitor develops in the transmission industry, including the recent initial public offering of ITC holdings.

As of June 30, Wisconsin Power&Light Companies investment in the American Transmission Company was approximately $144 million. Interstate Power & Light continues to own its transmission assets, the book value of which was approximately $371 million as of December, 2004. As an early Translink sponsor we continue to evaluate options for participation for our Iowa assets in an independent transmission entity; be it the American transmission company or some other entity.

I'll note that for the most part, the new MISO market has performed in line with our expectations. We have experienced higher levels of dispatch of our peaking units but that is currently being addressed both with MISO and our state regulators, where is we continue to seek regulatory recovery of the costs we are incurring to operate in this new market.

Let me shift gears for a moment and review the status of our various asset sales. Let me start with our utility business. On July 1, we entered into definitive agreements to sell our utility distribution properties in Illinois for approximately $47 million. Regulatory approval may take up to 11 months but we are hopeful that it will proceed faster. In July we closed on the sale of our water business in Ripon, Wisconsin, for approximately $5 million. We have also entered into sales agreements related to the sale of our last water business in South Beloit, Illinois.

In addition, the sale of the Kewanee nuclear power plant to a subsidiary of Dominion Resources, took place on July 5. WP&L received approximately $79 million for its 41% interest in that facility, subject to potential post closing adjustments. Our sale of IP&L's interest in the Duane Arnold Energy Center is progressing. In July we reached an agreement with FP&L energy to sell our 70% interest in the facility, nuclear fuel, inventory and other assets for approximately $387 million, subject to post closing adjustments. Last week we filed an application with the Iowa Utilities Board and with the Minnesota Commission this week, seeking approval of our sale agreement which we expect should be completed in the first quarter of 2006.

Now let me turn to an update of the developments with our non-regulated businesses. In the second quarter we completed the sales of our energy services business and our Cedar Rapids biomass facility, generated combined proceeds of approximately $35 million. We are completing the sale of our oil and gas pipeline gathering systems and expect those sales to close before the end of this year.

With the assistance of our financial advisor, we are completing arrangements to start the bidding process for our investments in China. Confidentiality agreements were sent out just a few days ago. We will complete the divestitures no later than June of 2006 and expect to conclude earlier given the early indications of interest we have seen. The carrying value of our China investments was approximately $100 million as of June 30, 2005.

In addition, we are proceeding with the divestiture of our Laguna Del Mar investment in Mexico. The carrying value of this investment was approximately $85 million as of June 30. We expect to reclassify the accounting for the investment to discontinued operations in the second half of 2005 and to sell the investment by the ends of 2006. The majority of the proceeds from our non-regulated asset sales will be used to require additional debt at Alliant Energy resources.

On to Brazil. We recognize that our message on Brazil may not have changed dramatically over the last year but we are making progress on our decision regarding how or when to exit this market. We continue to work with our partners to better structure our investments, to improve the options available to us to extract value from these investments.

We have participated in two major arbitrations to protect our shareholder rights and the value of our investment. We won the first in April, and we were able to successfully negotiate settlement of this award with our Brazilian partners rather than pursue its enforcement in the Brazilian courts. We expect a decision on the second no later than September 30. We had expected it by June 30 but the arbitrator extended the deadline.

We are being aggressive in every form practical in Brazil to protect our rights and to realize value from our investments. The carrying value of our investment in Brazil was $285 million at the end of the second quarter, after foreign currency translation adjustments and our announced $96 million impairment.

Lastly I also wanted to briefly touch on New Zealand. Our New Zealand investments continue to perform well. Based on the exchange rates and trading prices at June 30, 2005, our investment in thrust power had a market value of approximately $312 million compared to our carrying value of $92 million. In addition, we have recorded after tax unrealized gains of $12 million on our [Infertil] investment as of June 30, 2005. We continue to evaluate our alternatives to monetize our New Zealand investments and our relationship with our partners in New Zealand remains positive and constructive.

In closing, let me summarize what I believe to be the major points of our communication with you this morning. Our domestic utility operations are very strong. We will grow our utility assets to meet the needs of our customers, which will enhance the future earnings and cash flow from our utility business. We will execute our divestiture plans in China, Mexico and various other investments as announced. We remain focused on capturing attainable but reasonable value from all of our international investments. Our actions will streamline and simplify our business portfolio, enhancing our ability to provide more predictable earnings and cash flows in the future.

Let me now turn the call over to Elliot to provide you with a financial overview of our company.

Thanks, Bill. I would also like to thank all of you for joining us today on this call as well as for your continued support for Alliant Energy. As Bill indicated earlier, we will not be repeating the information contained in our earnings release.

I would like to begin my remarks by reviewing our various financing completed in the quarter and those contemplated for the remainder of 2005. As all of these actions are focused on our objective to continue to improve our already strong financial profile. In June, Sheboygan Power LLC, a subsidiary of Alliant Energy Resources, issued $70 million of 5.06% non-recourse Senior Notes due 2025, which are secured by the Sheboygan Falls energy facility.

On August 1, the proceeds realized from this financing were used to assist in retiring the remaining $104 million of the 7 and three-eighths series AER Senior Notes, reflecting our ongoing debt reduction efforts at Alliant Energy Resources. We expect to incur a charge of $0.07 per share in the third quarter related to the early retirement of this debt. This debt reduction contributes to the continued delevering of our balance sheet. When added to the debt retired in February, AER has retired a total of $204 million of long-term debt thus far in 2005, with total debt premium charges incurred of approximately $0.15 per share.

In addition, we continue to have a strong cash position and are contemplating retirement additional AER debt yet this year. We have updated our 2005 guidance based on this assumption, specifically the additional premiums that we expect to incur in 2005 as a result of early retirement of AER debt.

Given our current cash position, the proceeds we are generating from asset divestitures, and the related debt rationalization initiatives that I just described I am pleased to note that in our 2005 financing plans no longer include the incremental $60 million of equity that we previously contemplated issuing. However, we do expect to issue a total of approximately $30 million in new issue equity through our dividend reinvestment and 401 K. plans in 2005. Through the end of the second quarter we have issued approximately $12 million of common equity via these plans.

Turning to our domestic utility business we also completed the refinancing of $38 million of Interstate Power&Light pollution control bonds in the second quarter to take advantage of the current interest rate environment and capture administrative efficiencies. In addition, we recently completed the refinancing of $50 million of IP&L. collateral trust bonds at a lower interest rate of 150 basis points. Finally WP&L replayed at maturity $72 million of 7.6% first mortgage bonds in July , with the proceeds from the sale of our interest in Kewanee Our core utility business remains strong and generates healthy cash flows.

As we work through the portfolio rationalization that Bill described earlier we incurred significant non-cash asset valuation charges in the quarter. Despite these charges our balance sheet remains strong. Our targeted debt to total capitalization ratio is in the upper 40% to lower 50% range and our actual ratio at the end of the second quarter was 48%. This compares favorably to early 2003, when our debt to capital ratio was over 60%. The majority of the incremental debt and equity issued during this period of time was used to finance our domestic utility growth initiatives.

In previous conference calls we discussed our plans to repatriate the majority of the cash from our China business in 2005. In the second quarter we repatriated $19 million from China, and last week we repatriated another $14 million. While somewhat function of the performance of our China assets as well as the outcome of the sales of these assets, we currently plan to repatriate at least an additional $20 million during the remainder of 2005.

Also from the balance sheet perspective we were reporting a strong liquidity position. As of June 30 we had $91 million in commercial paper outstanding, combining our unused borrowing capacity with cash and short term investments, our consolidated liquidity position was in excess of $800 million at the end of the second quarter. Just this week we completed the recent vacation of our credit facilities for Alliant Energy Corporation, Interstate Power & Light and Wisconsin Power & Light to take advantage of the competitive bank market. The size of each facility remains unchanged and all three again are five-year facilities with an on that shown he can tends each for two additional years.

Our preliminary figures indicated our cash flows from continuing operations for the first half of 2005 were approximately $363 million. Compared to $219 million for the same period in 2004. I would note that $125 million of this increase relates solely to the changes in the level of utility accounts receivables that we have sold. We continue to forecast that our 2005 cash flows will be in the range of 575 to $625 million.

It is our long-term goal to have a dividend payout ratio of approximately 60 to 70% of our utility earnings. With our strong utility cash flows and liquidity profile combined with the improving balance sheet we continue to have a fair amount head room in our dividend policy as our current pay out ratio is approximately 54% based on a $1.05 per share annual dividend and the midpoint of our current utility earnings guidance.

Finally, the last topic that I will cover is our 2005 earnings guidance. Reflecting our outlook for the remainder of the year, we have increased our guidance for our core domestic utility business to $1.85 to $2.05 per share. While these, while there are numerous puts and takes that impact these estimates, we currently believe that the positive impacts of the July weather, our continued cost controls and lower anticipated incentive compensation expenses will exceed the downward pressure on earnings we are experiencing from the increased fuel and purchase power expenses at WPL.

Given the seasonal nature of our domestic utilities business we consider ourselves a second half company as we have historically generated approximately two-thirds of our domestic utility earnings in the second half of the year. We would expect this trend hold true again for 2005. Providing guidance for our non-regulated businesses has been somewhat of a challenge for us given the number of material items that are or will be reflected in our earnings from continuing operations.

Such charges may not be representative of the ability of the company to generate earnings in the future. The most significant items herein include the non-cash asset valuation charge we recorded related to our Brazil investment, debt retirement premiums and various non-recurring tax items we expect do realize this year. To assist you in your analysis we have tried to break out these items in our revised guidance that is noted in our earnings release.

In closing I would note that additional details on many of the topics we have discussed today will be included in our second quarter Form 10(Q) which we will file by early next week. We very much appreciate your continued interest in and support of our company and I would now like to turn the call back to the operator to assist us with the Q&A portion of our call.

[OPERATOR INSTRUCTIONS]. First question comes from David Parker.

Good morning, congratulations on a good quarter.

Thanks, Dave.

A couple of questions of first off if you wouldn't mind if we could try to frame the increasing purchase expense and how it may impact the Wisconsin operations? Have you given the coal optimization scenario because of the Powder River Basin delivery problems and overall increase in natural gas prices? Have you busted through the, your bottom ceiling to be able to file or is this, where are, where do you stands, I guess?

David, what we have elected to do and what we are hopeful the Public Service Commission in Wisconsin will view as the appropriate thing to do is we have filed for a deferred request for increased fuel expenses associated with that circumstance. The request seeks a deferral of between 14 and $22 million of incremental fuel and purchase power costs associated with our implemented fuel conservation activities. So no, we have not yet broken through the ceiling of our fuel adjustment clause range in Wisconsin but we have elected to seek a deferral treatment for those costs which we think is appropriate given their very unique one time nature.

Is that, would that be retroactive then, Bill, or is that just going forward?

We have asked that it be retroactive to the time frame in which we deployed the coal conservation practices which was sometime during the month of May.

Okay. And any guess what that did for results in the second quarter? I assumed you booked those.

Yeah, the impact on earnings in the second quarter was $0.01 to $0.02, somewhere in that range.

Great. We look at Brazil, I guess backing out, maybe what I would classify as unusual items like the tax adjustment and the sale to hydro, it looks like Brazil approved roughly four, 5 cents year over year. Rate relief and usage, is that essentially where we saw the improved margin, sir?

Yes, substantially rate relief. I think if we look at kilowatt hour sales they are relatively in line with expectations. They are not up meaningfully but we have experienced some pretty handsome rate relief at all of the companies in Brazil ranging on the low ends to 10% to the high-end of 20% with most of them being up towards that 20% range.

Your improvement in guidance, which we always like to see, despite the fact that on the domestic side you may have little challenges on the purchase powering fuel expense near term. I assume, I guess your outlook for weather obvious when will we match up, if I understand the way the hedge works, is that the hedge will not hinder positives from weather for July and August, is that the way it works?

That's correct.

Okay. So your current guidance reflects potentially improved sales that could be partially offset by increased fuel expense?

Yes. We factored what we regard as the reasonable risks of fuel and purchase power exposure into our revised guidance.

All right. Great. Thanks very much and good quarter. Thank you.

Your next question comes from [Steven Santos].

Good morning. What was your ATC ownership at the ends of the second quarter percentage wise?

It was approximately 25%.

25%. Okay. And how much do you exhibit to contribute in '05 in total to ATC?

I recollect the incremental contributions this year will be roughly $6 million through the balance of this fiscal year, and we are looking at 15 to $20 million in fiscal '06.

How much have you contributed year-to-date then?

I don't believe we've made any other capital contributions in fiscal '05.

On China, it looks like the total impact for the quarter was $0.46 in which $0.46 of that was the valuation charge. So can we imply that China was break even for the quarter on an EPS basis?

Roughly.

And the cash that you are repatriating as well as the cash that you expect to repatriate, is that cash flow being generated by the operations or is that financing, project financings that you are able upstream?

Roughly, this is Elliot here, Steven, mostly cash generated from operations that was, it was on the balance sheet.

Great. On the weather side the impact of the swaps was what in the second quarter?

The impact of the hedge was about $0.05, normal weather we would have gained about $0.03. The hedge cost us a nickel. So the net impact I would say of good weather and the cost to the hedge was about 2 cents negative.

The impact of the weather stand alone was.

The packet of the weather stand alone our best estimate is that it would have increased earnings by approximately $0.03 and had the hedge not been in place.

And I guess the reason why WPS is on my mind is they had good weather in the same part of the country and their earning showed an amazing leap forward and that could have been due to the fuel, I guess fuel recoveries. Is that weather number net of fuel recoveries or no?

No, I can only guess but I would guess that the reason for the differential is they have a much smaller number of shares outstanding than do we. So the impact per share is greater.

Got it. Okay. And then lastly what, you are recovering $14 million on an interim basis for fuel today. What level of fuel recovery do you need to be fully recovering your fuel from where you stand today?

Gosh. I don't know if I can answer the question the way you've asked it. Elliot, can you?

14 million in what jurisdiction are you referring to? As we -- I'm not sure we are following you, Steve.

I guess in total how much are you under recovering in total in your utility operations given that you've got $14 million of internal recovery on your board?

You are talking about our request for deferral on the Powder River Basin coal issues? Was that the 14 million?

Yeah, that's part of it.

I am going to back you up a little bit then.

We have a base rate case in the Wisconsin that was recent, an order that was recently, we recently received the order from the Public Service Commission and have implemented, that is for a test year beginning July 1 through June 30 of next year. That case gave us a fuel purchase power band if you will and we have not yet broken through that band but absent deferring these costs we could forecast that that might occur in some future months. So the purpose of the deferral is to extract those costs from that calculation so that we do not breakthrough the band and then that deferral will be processed in some subsequent rate case.

So at this point we are just communicating to our investors, Steven, that we have made such a filing, the Commission has not yet ruled upon it. As Bill indicated, we are hopeful that they will and should they do so we would be much less like to the break through the fuel band.

So it's, if you were just to get the $14 million deferral in Wisconsin for the coal costs at that point would you, on a quarterly basis, would you be fully recovering and or deferring the costs you are incurring on a monthly basis for fuel or would you need to defer more than that.

What I might suggest, Steven, is that you give Becky a call sometime and kind of go through the mechanics of that complex calculation because the fuel band changes every month as we go through the quarter. So, or go through the year. So it's very difficult to map that out in a way that perhaps would make sense to the callers on the phone right now because of the numbers involved. But I think the short answer is the deferral is important to us. We expect to get it and in doing so we do not at this point in time project us pushing through the band on the fuel cost.

Okay, I'll follow up. Thanks a lot.

Your next question comes from [David Ramoth].

Congratulations on great progress this quarter. A couple questions for you. What's the balance on the resources debt right now after the recent pay off?

It's about $1.15 billion gross.

In your release you talk about some severance costs at the utility and I think you said two cents per share but I counsel tell from the way it was written whether that was I couldn't tell from the way it was written weather that was the amount book in the quarter or deferred.

The amount book in the quarter.

Is it your hope to get some deferral on that?

No. What we have done in Wisconsin is that we have filed for deferred and received, I should add, deferred treatment associated with both the costs and the benefits of the RIFF as it Wisconsin Power & Light Company. Have we not done so the charge in the second quarter would have been slightly greater.

Got you.. So the$0.02 is non-Wisconsin related then?

That's right.

Okay. That clears it up. You talked about the tax benefit I think of the $0.07 cents in the other non-regulated results. Is the $0.10 cents that you talk about in the guidance, is that on top of the $0.07 or is the $0.07 cents a part of that?

Part of it is included in that guidance number, David.

And the $0.10 cents that you expect to realize in '05, that's not, that's, some of that's already in the -- $0.07 is already a part of that?

Yes.

Great. Last question on the weather swap and it's always easy in hindsight to look back these things. Is it something you typically have done and or was it something you decided to do this year.

Picked a bad year to do it, didn't we? We have hedged weather with respect to our winter natural gas business for six, seven years now, have been frankly very satisfied with the outcome of that hedging practice. This is the first year in which we deployed a summer weather hedge for our utility business. Obviously we will, we've looked, would have looked a heck of a lot smarter have we started it last summer.

Right.

Than this summer but so be it. It is a practice that subject of course to the pricing of products in the marketplace, we would intends to continue on an ongoing basis with the objective of taking these wild summer swings out of our utility earnings. We are hopeful at least that our investors will value that course of action on our part on a going forward basis. Again we will do that subject to the price of swap products in the marketplace but it's something that we would like to continue on an ongoing basis and frankly hope to do.

Great. Thanks for all the time.

You're welcome.

Your next question comes from [Jeff Coviello]. Mr. Coviello, your line is open. That question has been withdrawn. Next question comes from John Hanson.

Good morning, -- transmission you mentioned at the beginning with regard to Iowa Transmission with ATC. and your views towards that. What do you think your options are for Iowa and then also how you view just overall strategy the transmission business in light of Energy Bill and the ITC IPO and all that?

Well, first of all I think we should all stands up and give the Congress a big who are a for the transmission related portion of the billion they have removed barriers and created incentives to get more transmission structure, infrastructure built in this country, which is overall a good things our interest in the American Transmission Company is approximately 25% that will move over time as other equity investments in that business are made, most notably by Wisconsin public service corporation.

But the interest in the American Transmission Company is something that we've been very satisfied with both as a customer and an investor. The returns available in that business are certainly satisfying. The structure and operations of the business are good. We are but one member of a voting Board of Directors that has ten members on it. Our Iowa transmission assets -- if you haven't followed us for a long period of time you wouldn't know that we were very active participants in the discussions relating to the formation of translanguage frankly crashed and burned a couple of years ago but we have over time been actively interested in deploying our Iowa transmission assets to an independent transmission company. We think it is the right thing to do.

We think it is the inevitable trends in the industry. The options available to us right now are relatively limited. The American Transmission Company is up and running and performing extremely well. But who knows? There could be a resurrection of other potential structures that would be alternatives to us as well. We intend to look at them all and are hopeful that we will be able to execute on our plan to move our transmission assets from Iowa into an independent transmission company.

Good. Thank you.

Long answer to a short question.

That's just in terms of the strategy then along those lines is the value to investors from that kind of a move are?

I'm sorry?

What would be the value to the investors of that kind of alternatives you might have there?

Well, I suppose it depends on where they go and how the investment performance either on an operating or an IPO basis. But the American Transmission Company today earned an authorized return on equity from the FERC at 12.2%.

I think our earlier remarks indicated the book value of our Iowa transmission assets. You can do the math yourself. If we were to, if we were for the sake of argument to transfer those assets to the American Transmission Company, assume roughly one half of their book value ends up being equity and 12.2% on equity do the math, what could happen, we do earn on those assets in Iowa today. So it's not all upside, it's simply incremental upside were that to happen.

Okay. Very good. Thank you.

Next question comes from Mike Weinstein.

Hi. Sorry if you already answered this question. I had to step out for a minute. But for ATC, you said the earning for this year are expected to be around $6 million of equity income and 15 to --

-- know, no. Mike, the question we answered was how much incremental capex do we, capital contribution do we expect to make.

Got it.

And that was 6 million.

And that increments up to 15 to 20 million next year?

That's right.

How much equity income did you receive last year and what do you think it will be this year?

It's about $19 million in '04. It should be slightly higher than that this year.

Okay. Is it, you are not expecting any kind of major growth in the near future any way at Alliant, right? Most of their, I think most of their Capex at Alliant is probably planned for a few years out.

That's right. They have a, I'm sure you are aware they have a very robust capital investment program for bulking up the transmission infrastructure in the state of Wisconsin . It is a roughly study stream of substantial capital expenditures, but, well, that's the answer. It's a pretty aggressive capital program.

Next question, Steven Santos.

I want to ask one follow-up question. On the assumption of AER debt, additional debt retirement, in the earnings guidance how much total debt do you assume will be retired by the ends of '05?

I don't see this is -- -- this is Eliot. I don't believe we zero in on that number in our guidance. The number we are zeroing in on is the debt premium that would expect to hit the income statement.

And the reason we have done it that way is there are of course many variables associated with calling or repurchasing these debt, this debt which is in turn highly a function of where interest rates go and economic conditions and when we pull the trigger. What we are trying to telegraph is that we are highly committed to getting that debt off the balance sheet and intend to make another stab at it yet in the remaining months of the year.

But on a year-to-date basis you've incurred $0.15 of debt reentertainment charges, 20 to 30.

Yeah, in connection with $204 million of debt removed and the guidance suggests that we are going to repurchase an additional amount such that we will incur additional premiums to get to what we communicated in our guidance.

Okay. I guess I'm just trying to understand how the proceeds from the asset sales work against the debt retirement in '05? I mean what you look like at the end of the year.

I can appreciate that and, of course, there's many variables that would go into how we would finance such debt repurchases, a source of which could indeed be asset sales, short term borrowings, strong cash position, additional financing within AER, et cetera. So I guess what I would like to communicate to you is our motivation is to reduce that debt as prudently as we can and the guidance suggests that we are going to reduce it further between now and year end.

Okay. Lastly the equity, this was on the, this was in the press release and I think you mentioned as well but the additional 18 million in equity that you expected to, that's all going to be through the 40-K.

Yes. We have basically cans some our $60 million contemplated original issue offering for the remainder of the year.

Okay. Good. Thank you.

Thank you, Steven.

Miss Johnson, there are no further questions at this time.

With no more questions this concludes our call today. Thank you for your participation this morning and for your continued support of Alliant Energy. A replay of the call will be available through August 12 at (800)642-1687 for domestic calls, or (706)645-9291 for international. Callers should reference conference I.D. 7074496.

In addition an archive of the call and a script of our prepared remarks made on the call will be available on the investor section of the company's Web site at www.alliantenergy.com, investors, later today. Thank you.