Alliant Energy Corp (LNT) 2006 Q3 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy’s Third Quarter 2006 Earnings Conference Call. At this time all lines 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. I would like to thank all of you for joining us today. Those of you who are on the phone and also those who are listening to our webcast. We appreciate your participation.

With me here today are Bill Harvey, Chairman, President and Chief Executive Officer and Eliot Protsch, our Chief Financial Officer, as well as other members of the senior management team. We have allotted an hour for the call this morning. Following some prepared remarks from Bill and Eliot, we will have time to take questions from the investment community.

Before we begin, I need to remind you that the remarks we make on the 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 our filings with the Securities and Exchange Commission.

We disclaim any obligation to update these forward-looking statements. In addition, our presentation today contains non-GAAP financial measures. The comparable GAAP measures and the reconciliation between non-GAAP and GAAP measures are provided in our earnings release which is available on our website at www.alliantenergy.com.

At this point I will turn the call over to Bill.

Thank you, Becky. Good morning and thanks for your continued interest in our company. I understand this is another hectic day in the earnings season. So out of respect for your time, we will not restate what has already been covered in our earnings release, but rather we’ll offer insights into our reported results and will provide an update on our various strategic initiatives.

Due to the seasonal nature of our business, the third quarter is historically a big contributor to the annual earnings of our utility business. For a variety of reasons that we’ll touch on in our prepared remarks this morning, our third quarter 2006 results were lower than the same period in 2005. However, due to strong performance in the first half of this year, our utility earnings through the third quarter of $1.64 per share are actually a penny per share ahead of where we were at the same time last year.

Our third quarter 2006 earnings compared to the same period in 2005 were negatively impacted by $0.10 per share due to weather and our weather hedging activities and $0.09 per share due to foreign currency impacts associated with our New Zealand investments. Eliot will cover the weather and weather hedging impacts in great detail in a moment.

On the FX front, the strengthening of the New Zealand dollar caused us to record foreign currency transaction losses in the third quarter. As you may recall, this is essentially the opposite of the situation we were in, in the first half of this year. Because of this offset, there is no impact on our year-to-date results from foreign currency associated with our New Zealand investments. Given the pending sale, this volatility will be neither recurring nor relevant to our business going forward into 2007.

Our fundamental operations remained strong and we are making good progress on the execution of our generation expansion plan. Let me provide you with both an update on our strategic initiatives as well as some operating highlights of our business.

Beginning with our utility generation plan, last month we filed the regulatory applications for the Cedar Ridge Wind Farm near Fond du Lac, Wisconsin. The anticipated net capacity factors at this site range from 31 to 37% making it one of the better locations for wind investments in the upper Midwest. We anticipate receiving regulatory approval for this project in early 2007. Given the tight turbine market, we currently expect the project to be fully operational in 2008, with total capacity ranging from 80 to 100-megawatts. This will by the way, be the first wind generation that we own.

This was the first application made under the auspices of Wisconsin Act 7. You may recall that Act 7 allows for substantially increased financial certainty prior to the commencement of construction. We currently estimate the Cedar Ridge development will cost $140 million to $175 million. In our regulatory applications with the Wisconsin Public Service Commission, we requested a return on equity of 12.9% along with a regulatory capital structure which includes a 53% common equity ratio and a return on construction work in progress.

In addition to Cedar Ridge, WP&L plans to place an additional 200-megawatts of wind generation in service by 2009. This incremental wind will be sufficient to allow us to meet the 2010 and 2015 renewable portfolio standard requirements in Wisconsin.

In Iowa, our build out plan includes 100-megawatts of wind generation in 2008. We are currently evaluating potential sites that are in various stages of development. The Quality Wind regime at Iowa has attracted developers to that region of the country. IP&L already exceeds the RPS requirements in effect in Iowa with over 200-megawatts of wind generation already in its portfolio.

WP&L continues to make good on the preliminary engineering and the Certificate of Public Convenience and Necessity Application for its base load expansion at our Nelson Dewey site in Cassville, Wisconsin, which is in the southwest corner of the state. This 300-megawatt unit will utilize circulating fluidized bed technology. In addition to meeting the power needs of our customers, we also expect the state to realize benefits from enhanced import capability into Wisconsin of approximately 400-megawatts as a consequence of this facility.

To reflect current market conditions, we are updating the estimated cost of this unit to be in the range of 570 to $670 million. In addition, this project will include investment in items that are shared with Nelson Dewey units 1 and 2 which will benefit fuel related costs and the efficiency of these units, going forward. We estimate the cost of these items, the largest of which relate to materials handling and fuel off loading facilities to be in the $130 million to $170 million range.

Finally, we are planning environmental retrofits of units 1 and 2 near the end of this decade. We currently estimate the cost of those environmental improvements to be approximately $80 million to $100 million. Following those environmental retrofits total emissions from all three units at the site will be less than the emissions currently generated from the existing two units. In summary, we estimate a total investment at this site to be approximately $780 million to $940 million.

This estimate is in 2006 dollars and does not include allowance for funds used during construction. A majority of this capital investment is expected to take place between 2008 and 2012. We plan to rely on Act 7 legislation for the base load proposal and traditional regulatory treatment for the environmental upgrades.

IP&L’s generation plan includes the addition of a base load plant in the 2013 - 2014 timeframe. Iowa base load studies are underway and we have hired the architect engineer for phase I of the project, which includes preliminary engineering and permitting. We expect to announce a site and technology for the IP&L base load unit by the time we report our 2006 year-end earnings next year.

Let me also briefly discuss several other initiatives associated with our utility business. First, we completed the sale of our small water utility in Illinois in the third quarter. Second, the divestiture of our Illinois Electric and Gas utility assets is moving through the regulatory process and we currently expect this transaction to be completed in 2006. And last but not least, we are continuing to evaluate alternatives for our IP&L transmission assets.

Let's turn to our non-regulated business and discuss the progress we’ve made with our divestiture efforts. We continue to experience significant savings and interest expense at our non-regulated business made possible by the successful divestitures and our associated debt reduction activities.

On the international front, we have entered into agreements for the sale of our interest in the remaining generating facilities in China. For all intents and purposes, our exit from China is now complete. As previously discussed, our marketing efforts at our Laguna del Mar property in Mexico have resulted in the receipt of several bids. Progress with the preferred bidder has stalled pending confirmation of the purchaser’s financial capability to close. We are currently evaluating the other in hand bids and we anticipate receiving additional bids in early November. We currently expect to complete this sale by the first quarter of 2007. I would remind you of course that the results from our Laguna del Mar investment are recorded in discontinued operations.

Finally, let me touch briefly on New Zealand. Last night we announced that we have entered into a sale and purchase agreement for our New Zealand investments for a purchase price of approximately $290 million U.S. After repayment of an inter-company loan we expect to realize net proceeds from the sale of approximately $175 million U.S. and to generate a gain in earnings from continuing operations of approximately $1.10 to $1.20 per share in 2006. The sale is expected to close in late December, subject to approvals from the shareholders of both TrustPower and Infratil as well as the receipt of a bank consent. We are optimistic that these approvals and consent will be obtained and that this closing will occur as scheduled. We are satisfied with this result.

In closing, let me summarize the key takeaways for this quarter. Our earnings this quarter were disappointing, but understandable. Our fundamentals remained strong both financially and operationally. In light of the results for the quarter, we have made a modest adjustment to our 2006 earnings guidance. We also completed over half the share repurchase program in the third quarter. And finally to meet our increasing customer demand in both Iowa and Wisconsin, we have made substantial progress in our efforts to expand our generating fleet.

Now let me turn the call over to Eliot who will provide you with a financial overview of the quarter.

Thanks, Bill. I would like to thank all of you for joining us today and for your continued support of our company.

As is our practice, I will provide some granularity to the quarter over quarter earnings comparison. The objective here is to provide visibility to the results of our ongoing businesses. If you have our earnings release close by, please see the table on page two. As we look at the numbers, we would adjust our 2005 third quarter results from continuing operations of $0.85 per share for the following items. First, a $0.20 per share asset valuation charge related to our Brazil investments. Second, a $0.15 per share charge related to debt repayment premiums.

Third, $0.05 per share of income related to an adjustment of a previously accrued income tax valuation allowance. This is part of the $0.08 of income referred to in non-regulated other. Fourth, our 2005 results included total earnings of $0.05 per share from our Brazil and SynFuel businesses which we have subsequently sold. Fifth, $0.01 per share of foreign currency income associated with our New Zealand investments. Adjusting for the items I have just outlined, third quarter 2005 earnings from continuing operations increased from $0.85 per share to $1.09 per share. From the perspective of the earnings power of our ongoing businesses and for your analysis, we believe this is the more appropriate reference point for the third quarter of 2005.

Doing this same analysis for our third quarter 2006 results from continuing operations of $0.75 per share, we would add back $0.08 cents per share for the foreign currency losses associated with our New Zealand investments as well as the negative impact of our weather hedge. That portion related to the lack of correlation of $0.03 per share. I will have more to say about that later. This gets us to adjusted earnings for the quarter of $0.86 per share. Thus, as we see it, earnings from continuing operations declined $0.23 quarter over quarter. That $0.23 per share difference is largely due to the following items. Remaining difference in the impact of weather and our weather hedging activities of $0.07; the impact of a higher utility effective tax rate in 2006 of $0.04; the differences in the nuclear related cost before consideration of the application of the sales proceeds, $0.07; the impact of the WPL fuel settlement of $0.03; the combined impact of other various small items totaling $0.02.

Because of the magnitude of the negative impact of weather and weather hedging on our third quarter earnings comparison, I would like to expand on our earnings release. As we had done for the summer of 2005, we hedged a portion of our 2006 electric margin subject to weather risk for the period of June through August. Chicago cooling degree days were used for the hedge, both for liquidity reasons and because of Chicago’s high historical correlation to temperatures in Madison and Cedar Rapids. June through August historical temperature correlations between Chicago and Madison and Cedar Rapids are 92% and 84%, respectively.

As noted in our earnings release, the correlation between Chicago and Madison continued as Chicago was 16% warmer than the historical average and Madison was 15% warmer than normal. However the statistical correlation broke down between Cedar Rapids and Chicago as Cedar Rapids was actually 12% milder than normal. Because of the weather results in Cedar Rapids, a relatively low probability of occurrence, our hedge did not function as planned. As mentioned earlier, we believe the effect of this correlation mismatch was $0.03 per share for the quarter.

Alliant Energy has just entered into two winter weather hedges covering November 2006 through March 2007. As you know, the gas market is much more mature and liquid. Unlike the 2006 cooling degree day hedge, we were able to use Cedar Rapids and Madison as the reference point for the winter hedge thereby eliminating location risk without paying a premium.

Turning now to our electric sales volumes for the quarter. Our residential volumes, the highest margin customer class, were down 5.6% in the third quarter of 2006 compared to the same period in 2005 due largely to weather and priced elasticity impacts from higher fuel prices and we believe the visibility of high gasoline prices. Despite the negative impacts of weather, our commercial sales volumes were up 2% due largely to customer growth. In addition, our industrial volumes were up 2.8% due largely to several customers being down for maintenance outages in 2005 and individual customer sales growth. Given the demand in energy components of commercial and industrial electric rates, these sales increases were not sufficient to offset the effect of lower sales to our higher margin residential electric customers.

Next, I would like to discuss WPL's 2005 fuel case settlement reached in the third quarter of 2006. And WPL has accrued for the expected refund to customers as a result of the actual fuel cost experienced in 2006 being lower than originally forecasted due to the dramatic changes in the market. The terms of the settlement also resulted in a charge of approximately $0.03 per share in the third quarter, and a portion of that $0.03 is largely a third versus fourth quarter timing issue. A deferral related to the costs we incurred earlier related to call delivery disruptions was also recovered through this settlement rather than being a part of the pending WPL 2007 base case.

In addition, the terms of the settlement also stipulated that WPL would not file for a fuel only rate increase for the remainder of 2006 except under extraordinary circumstances, and that WP&L would refund any further collection of fuel costs in the second half of 2006. Through September, we estimate WPL has under-recovered fuel related expenses equivalent to approximately $0.05 per share. Our forecast for the remainder of the year includes no further under-recovery and likewise no additional refund obligation relating to fuel.

I will now turn to our base rate case in Wisconsin which was filed in March of this year. We filed for a retail electric and gas increase of $96 million utilizing a 2007 test year. Those of you that have been following the developments at the Public Service Commission in Wisconsin, you might have noted that the Commission's staff adjustments reflect lower fuel related costs based on the fuel case settlement I just described, as well as a similar decrease in our updated 2007 fuel forecast.

These decreases are not expected to have a meaningful impact on our earnings as revenues and cost would both be declined. WPL anticipates that the criteria in 2007 to qualify for a fuel filing will be based on a band of plus 2% and minus 0.5% of annual fuel cost compared to the prior band of plus and minus 3%. This lower threshold for under-recovery of fuel related cost should allow WPL to file for adjustments more quickly in 2007 than in the past if fuel costs get out of line with amounts included in the base rate case order.

In addition, WP&L is working with other investor owned utilities, the Public Service Commission and other interested parties to advance a proposal to change the current fuel rules under which investor owned utilities operate in the State of Wisconsin. These changes would provide more assurance of WP&L’s ability to recover all prudently incurred fuel costs required to meet our obligation to serve our customers. We are hopeful that these changes will be approved and will become effective in the first half of 2007.

I would also like to quickly address three of the contested issues in the 2007 base case. First WP&L's filing requested that 100% of construction work in progress be included in that investment rate base. Commission staff rejected this request for expenditures on our new generation projects because separate approvals for those projects have not been secured prior to the completion of the rate case audit. WPL has now filed for the required approvals for the Cedar Ridge Wind Farm and is optimistic that construction work in progress for this project will be included in the final order of the base case.

Second, the Commission staff has recommended that the common equity level anticipated by WPL in 2007 be reduced through estimated special dividends to the parent company and an elimination of an infusion of equity into the capital structure. WPL requested 53% common equity in the financial cap structure which is consistent with the range in the prevailing radar. PSC staff is proposing a 51.2% equity ratio.

Finally, we requested a return on common equity of 11.2% in this case and the Commission staff is at 10.9%. Company has filed testimony refuting these adjustments. We cannot predict the outcome of this final order. Remaining procedural schedule for this case is that all parties to the case will file briefs and reply briefs in November. WPL anticipates that the Commission will decide the issues in this case at an open Commission meeting in early December and issue a final order in late December to be effective January 1st, 2007 which is the beginning of the test year.

My remaining remarks will focus on our financing plans and financial guidance. As Bill noted, we have now provided cost estimates for the WPL wind and base load accounts. We plan to use a combination of asset sale proceeds, external financing and equity infusions from the parent to fund our generation expansion and capital expenditure needs. We have reloaded our shelf registration statements with the Securities and Exchange Commission for both IPL and WPL to provide flexibility with our financing plans. In addition WPL has filed a long-term debt application with the Public Service Commission of Wisconsin.

As we noted in our earnings release, we are over halfway to achieving our objective to repurchase $200 million of our common stock. The 2.9 million shares repurchased to date more than offset the 2 million shares issued this year through our 401(k) dividend reinvestment and equity incentive plans. In addition we are now fulfilling the equity needs of our 401(k) and dividend reinvestment plans with open market purchases. As of September 30th, there are 1.8 million unexercised options that remain outstanding and as previously reported, we no longer grant options as part of our equity incentive plans.

Turning to our financial guidance. We are updating our 2006 earnings guidance from continuing operations. This is largely a reflection of our third quarter results including the net impact of weather and our weather hedging activities and the foreign currency charges we incurred related to our New Zealand investments. We have also added a line in our guidance for the expected gain on the sale of our New Zealand investments. We are reducing our 2006 capital expenditure plan to approximately $425 million, which is a $25 million reduction from our previous guidance. In addition we are increasing our guidance for 2006 cash flow from operations to a range of 450 to $500 million from our previously estimated guidance of 400 to $450 million.

In closing, we appreciate your continued support of our company and look forward to seeing a number of you in a few days at the upcoming EEI Finance conference. I will now turn the call back over to the operator to assist with the question and answer portion of our call.

Thank you, Mr. Protsch. At this time, the Company will open up the call to questions from members of the investment community. Alliant Energy’s management will take as many questions as they can within the one hour timeframe for this morning's call. [OPERATOR INSTRUCTIONS]. Your first question comes from David Groth [ph].

Good morning, guys. Couple of questions for you. You talked about some of the fuel lag, Eliot. Last year, the fuel lag I think was $0.13 in the third quarter. And you seem to say this year it was five?

That's correct.

So, there was about an $0.08 pick up there.

Yes, we have had a pick up as stated due to the declining fuel costs.

Okay. And your previous guidance had $0.10 for the year and now you are saying $0.05.

That is our current estimate, David.

Okay. And do you think -- when we look out to next year with the tighter fuel ban, does that eliminate or will you always assume there’s going to be a little bit of lag.

Well, the tighter fuel ban, when you think about it, one would trip to clause sooner than would otherwise would be the case. So we’d still be faced with the lag on filing. But with the new interim rules we can put those rates into effect, I believe it is within 10 days of filing. Subject to check on that.

Okay. On your guidance for the year, you have the remaining interest expense of negative $0.06 to negative $0.08. Does any of that include the New Zealand debt or is the New Zealand debt all in the New Zealand number. I guess I am trying to get a sense of what happens to that negative $0.06 to negative $0.08 as we move through this year and get through all the divestitures.

It is all in the New Zealand number, as you hypothesized, David.

So that negative $0.06 to negative $0.08 is other debt or is that the New Zealand debt? I’m sorry.

Well, we will still have what we call our phones [ph] issue outstanding.

Right.

So there will continue to be an interest drag, if you will, but it will be declining.

Okay. Okay. Obviously the weather, summer weather hedges didn't go your way. When you look forward to next summer is that a policy you are going to revisit or will you focus more on trying to get the locational pricing -- specific locational pricing or is that still to be determined?

David, this is Bill. We certainly have as an ongoing policy objective hedging our weather risk on both the gas and the electric side. What happened this year, as I hope you understood from Eliot's comments, was simply a bust in a strong historical correlation. Going forward, if the electric markets allow us to hedge locationally specific to Madison and to Cedar Rapids, we will certainly do that, as we have been able to do this year with respect to our gas weather hedging.

But we will have to see whether or not the markets will enable us to do that or not. If they don't, certainly there is nothing wrong with using the Chicago sub for weather hedging activities. The probability of what happened this year occurring is extraordinarily low on a statistical basis. But there you go. Sometimes you live on the end of the bell curve and that's what happened to us with respect to the summer weather hedge this year. But you should, as a matter of planning, if you will, expect that we will be looking to hedge weather margins on both the gas and the electric side so long as those marketplaces are efficiently priced and liquid.

Okay. Thanks for the time.

You next question comes from Alex Kania.

Good morning. Just to put into context the share repurchase, would you be able to give us a good idea of what a run rate would be for new equity issuances that Alliant does on an annual basis under its equity incentive plans? Just putting into context the 2 million shares that you issued this year.

Alex, this is Eliot. You know, the run rate for equity issuance associated with the dividend reinvestment and the 401(k) plans is unlikely to materially change. But of course we go to the open market now for those plans. So as far as equity dilution, there should be no effect there. And then with regard to options, that decision of course is in the hands of the people holding the options. We have 1.8 million options left. There was some pretty heavy exercising that occurred this year given the performance of our stock.

Okay. The last question would just be, could you give us just a little background on the rising tax rates at the utilities and whether you’d expect the kind of higher level to kind of going forward.

I think for your models building, you should stick with the 37% or so composite statutory rate; a number of the items that drove it south were due to out of period adjustments and various allocations and sort of special items in connection with all of our restructuring.

Great. Thank you very much.

[OPERATOR INSTRUCTIONS] Your next question comes from Jeff Covello.

Good morning.

Hi, Jeff.

Hi. I just had a question on the nuke expenses that you noted earlier. I think it was $0.07 higher year-over-year and that didn't include the benefit of the sale proceeds of the nuke units. What is the benefit of the sale proceeds of the nuke units? Could you quantify that?

There is going to be some modest reduction in interest expense that's experienced at the corporate level. It is probably $0.02 to $0.03 a share for the year.

Okay.

So if you look at it net-net, there is certainly an attrition in earnings associated with the sale of the nukes. But we knew that was going to be the case. $0.02 to $0.03 for the quarter, by the way, not for the year.

Right.

[I] misspoke. But there is certainly some modest earnings attrition associated with our having sold the nuclear plants. We knew that when we sold them.

So if I take the $0.07 and take out say, $0.03 for the interest reductions, there’s about a $0.04 earnings reduction in the third quarter. That's the third quarter attrition is going to be larger than every other quarter. Am I right about that?

You are correct. The capacity payments that we make under the contract are the highest in the third quarter. I can give you those quarter over quarter, if you would like them. For the first quarter, $41.9 million. For the second quarter, $47.8 million. For the third quarter, $53.6 million. For the fourth quarter, $46.9 million. So, the third quarter is certainly the most heavily impacted by those payments. And that affects our electric margins of course.

Sure. Sure. And what’s the -- the debt paid out of the parent isn't going to be fluctuating with the quarter. That's always going to be $0.02 to $0.03 every quarter. The capacity payments will be larger in the third quarter. So I’m just trying to figure out a run rate for the year.

You are correct.

Okay. That makes sense. And then, I guess my second quarter question, you mentioned on the reinvestment plan that it wasn't dilutive. I guess that means that you’re buying shares in the market.

Yes, that's correct, Jeff.

Okay. Got it. Great, thank you very much.

Thank you.

Your next question comes from Steven Rampler [ph].

A couple questions. The first was on New Zealand. It looks like with the $1.75 of net proceeds that you will be down in the low 40s, maybe 42%, that's a cap by the end of the year. What do you expect to do with those proceeds? Are you looking to return them to shareholders?

Steven, as we indicated earlier when we announced the $200 million share repurchase program, to some degree that program was going to be funded by cash flow generation at the parent, asset sales et cetera. So, when you think in terms of what has happened and what will happen in the remaining quarter as well as the upcoming build out associated with our core utility businesses and a portion of the financing needs for our utilities coming from equity infusions from the parent, you should look for that delta to be reinvested in our core businesses over time.

Okay. And the Duane Arnold differential between the revenue falloff in rate base and the expenses, that's $0.07 of earnings really came about because of the redeployment of the Duane Arnold proceeds in the share buyback form didn’t impact your third quarter of ‘06? Is that right?

When you look at the share count for 2006, I think I referenced it in my prepared remarks, the share count went down of course from the share repurchases, but we also issued another 2 million of new equity, through various equity incentive plans etcetera. So there is some modest pick up in ’06 for the share repurchase. But it is not all that meaningful for the 2006 quarter, third quarter.

Do you have the target debt to cap ratio that you are looking to get to, above which you would buy back stock or redeploy proceeds, because it looks like you are getting pretty low -- far down there.

Target ratio is about 50 to 50 -- 50% debt, 50% equity. But that includes the effect of about $800 million of off balance sheet financing which of course is imputed back to us in the form of debt.

You are talking about --

Primarily purchase power agreements.

PPAs, yes.

We really need to look at that ratio to include the full effect of the PPAs. Looking at it from the perspective of the S&P rating agency criteria would probably lead you to the right answer.

Okay. So, [inaudible] including PPAs. And just the last quick follow up. Where are you to date on the share buyback?

I think it was 105 million.

That was as of the third quarter. Where are you as in October?

We are not in a position to disclose anything other than what we had purchased through the end of the third quarter.

Are you still buying back stock today?

Our objective is to repurchase $200 million of common stock through the end of next year. And we will report back to you after it has occurred. Sorry, that's the best I can do, Steven.

That's great. Thanks.

Your next question comes from Lamont Richardson [ph].

Good morning. I would like to get an opinion from this fine company that we’ve owned for many years on the cost and benefits of these weather hedges. When did you start them? And how much are you laying out in terms of hard cold cash for summer and winter margin protection hedging. And you are dealing with -- in your area you’re dealing with LaSalle Street sharpies who are coming up to sell you anything. So I would like to hear a response. Thank you.

Appreciate the question, Lamont. Let me give you just a summary of our overall weather hedging activity at the company. We began hedging weather in the winter season back in 1999 and have done so consistently through 2005 and have recently put in place weather hedges for the winter season this year as well. We have hedged summer weather for 2005 and 2006.

If you were to look at the totality of our experience associated with all of that weather hedging activity over the course of what is now seven years of weather hedging, we are ahead $2 million, given the totality of that weather hedging activity. So we would look at that hedging activity and say that it has accomplished its essential purpose. Its objective is not to make money. Its objective is certainly not to lose money. Its objective is to keep the earnings of the company relatively neutral given the volatility of weather and its impact on our business. And as we look back on the totality of our hedging practices, we would say it has accomplished that objective almost perfectly.

Your next question comes from John Hanson.

Good morning. Good morning.

Good morning, John.

You mentioned several generation projects upfront and what about transmission projects, is some of that going to require some opportunities to invest in transmission. Or how do you see that outlook shaping up?

Certainly is, John. As you look at our company, you have to look at really two separate transmission businesses. The first being the American Transmission Company in which we hold an equity interest and I think the anticipated capital expenditures for the American Transmission Company are a matter of public record. They do have a rather robust capital expenditure program associated with the growth of their transmission system in Wisconsin.

The real beefy capital expenditures begin in 2008 or 2009. With respect to our IP&L transmission business, we do have rather significant capital expenditures planned over the course of the next number of years with respect to that system. They are part and parcel of what we characterize publicly as our maintenance capital expenditures for the business. We would estimate them to be approximately $150 million at IP&L in the '06, '07 season and that would continue on a relatively consistent basis over time. So you have to look at our two separate transmission positions when you look at our capital expenditures.

Thank you. In your opening discussion, you mentioned the Iowa transmission in terms of relationship to an ATC issue, kind of [ph] treatment. Is there any kind of a timetable on that in terms of maybe some possible alternatives or you think you are getting a pretty good view from the way you have the investments set up now.

Well, there is certainly nothing wrong with our transmission investments at IP&L. Today they earn reasonable returns under the retail rate regulation of the Iowa Utilities Board. But we continue to evaluate different alternatives for our Iowa transmission assets. Because as our participation in the American Transmission Company would suggest, we do believe in standalone regional independent transmission companies. But whether or not there is such an opportunity that we find acceptable and the Iowa Utilities Board finds acceptable with respect to our Iowa transmission assets is just a work in progress.

Okay, thank you.

[OPERATOR INSTRUCTIONS] Your next question comes from Jonathan Robinski [ph].

Good morning, everyone.

Good morning, Jonathan.

I was just wondering, I know that historically you guys have really talked about sort of, ‘07 at the year-end call. But, given the number of revisions that we have seen for '06, during the course of this year and the number of the businesses that are falling away, I was hoping that you might enlighten us and then provide a little, some of the building blocks, let’s say, of what we can look at, going from, sort of a, where you guys would expect a normalized ongoing ’06 number to be and then sort of, maybe we can add on top of that.

Jonathan, I appreciate it. I think if you go back and look at the changes that we’ve made in our guidance over the course of this fiscal year, while we have adjusted it today for the second time, really the deltas have been very, very modest. We have tried to be very transparent and informative to the market in the guidance. Our utility guidance went up a nickel in the second quarter, if you will, if you care to focus on the midpoint. And then the third quarter, they have gone down a nickel.

So we sort of see ourselves back where we began the year, in terms of guidance. We haven't provided guidance yet with respect to fiscal '07. We will be doing that. But other than that, there is really nothing I can say at this juncture about 2007, other than that we expect to continue strong earnings performance across the company including our utility businesses.

Okay. Well, thanks a lot.

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

With now more questions, this concludes our call this morning. Thank you for your continued support of Alliant Energy and feel free to contact me with any of your follow up questions. A replay of this call will be available through November 7 at 800-642-1687. Callers should reference conference ID 8415344. In addition, an archive of the conference call and the script of the prepared remarks made today on the call will be available on the investor's section of the company's website later today. Thank you.