Alliant Energy Corp (LNT) 2008 Q2 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to the Alliant Energy's Second Quarter 2008 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, Jamie -- Mr. Jamie Freeman, Manager of Investor Relations at Alliant Energy. Please go ahead.

Good morning. I would like to thank all of you on the call and on the webcast for joining us today. 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.

Following prepared remarks by Bill and Eliot, we will have time to take questions from the investment community.

We issued a news release this morning announcing Alliant Energy's 2008 Second Quarter Earnings. This release is available on the Investor's page of our website at www.AlliantEnergy.com. We have also posted supplemental material and a PowerPoint presentation to this location that contains information on a recent flooding in our service territory, regulatory procedural schedules, and other selected items that will be addressed during today's call.

Before we begin, I need 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 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 Security and Exchange Commission. We disclaim any obligation to update these forward-looking statements.

At this point, I'll turn the call over to Bill.

Good morning, and thanks for your continued interest in our Company.

Suffice it to say, I'm both relieved and pleased at our second quarter results. Eliot will go over the details in a moment, but as I see it our utility results were down slightly, and our non-regulated results were strong.

At our utilities, earnings were negatively impacted by the floods, but these impacts were offset by pick-ups owing to the favorable resolution of our 2002 through 2004 IRS audit. I think it's fair to see the 500-year flood and a multi-year tax settlement as one-time events, so the slightly lower utility earnings can be explained by milder weather and the foreseen consequences of the sale of our IP&L transmission assets.

On the non-regulated side, we also enjoyed a slight one-time pick-up due to the IRS settlement but, more important, saw very strong performance at RMT WindConnect, performance we expect to continue and improve going forward.

For the full year, I'm pleased that despite the impact of the historic flooding, we can raise our consolidated continuing operations earning guidance range by $0.05 a share. We're currently estimating the 2008 negative impact of the flood at the utilities at $0.15 versus the $0.20 estimated earlier, but this item is largely offset by an $0.11 tax settlement benefit.

Our utilities also continue to see benefits from our lean six sigma activities and our ongoing effort to control utility operating costs. Our employees are dedicated to meeting the expectations of our shareowners just like they are dedicated to meeting the needs of our customers.

Other factors increasing our earnings estimate include RMT's continued growth in the wind EPC market and modest performance improvements across all of our non-regulated businesses.

Recapping the flood, at its crest, the Cedar River in downtown Cedar Rapids reached over 31 feet, nearly double the 16-foot mark that constitutes a major flood stage. This caused nine square miles of the city, including over 4,000 homes and 800 businesses, to be evacuated.

While many businesses are still waiting for clean-up and refurbishment efforts to progress before returning to downtown Cedar Rapids, the load numbers in the entire city, which is Alliant Energy's largest single load center, continue to improve. Initially, about 230 megawatts of load in the entire city, which is about 35% of normal levels for the entire city, was unable to receive service due to the flooding. As of last week, load in the entire city was only 10% lower than normal. Five of our top 10 industrial customers at IP&L were impacted by the flooding, but all five have resumed operations.

While the impacts of the flood on many lives and small businesses in downtown Cedar Rapids have been dramatic, the consequential impact to our load over time will not be. Our Prairie Creek and Sixth Street Generating Stations in Cedar Rapids both remain out of service due to significant damage. We expect Prairie Creek to be back on line by the end of the year.

Sixth Street is a relatively small facility and the oldest in our fleet. It plays an important role in providing cost-effective steam service to many industrial customers, hotels, and hospitals in downtown Cedar Rapids. Some of our larger steam customers are currently evaluating their alternatives for future steam service from this plant. While we continue to assess damages and repair costs, their decision as to whether or not to remain on our steam system will be one of several factors that determine the approach we ultimately take at the Sixth Street site.

While the high-pressure steam customers make up the bulk of our Cedar Rapids area steam load, more than 100 low-pressure steam customers, generally small downtown business customers, were also affected. We're working closely with these customers to ensure that they have heat for the upcoming cold-weather season and viable options for their long-term operation.

I'd like to pause for a moment here to recognize the extraordinary efforts of our employees, suppliers, and other organizations who supported us throughout this historic event. In spite of the fact that five of our facilities in the Cedar Rapids area were evacuated as a result of the flooding, including our corporate offices downtown, our planning and execution insured that our operations continued. I'm incredibly proud of our employees and their professional and safe handling of this extreme event and am most grateful for the organizations that supported us.

Of course, even as clean-up and recovery efforts continue in downtown Cedar Rapids, we have made additional progress in the execution of our strategic plan to invest in wind generation, environmental controls, and two hybrid baseload coal plants.

I'll start with our wind generation plans. Construction at WP&L's 68-megawatt Cedar Ridge Wind Farm is well underway. Thirteen of 41 turbines have been erected, and the electrical interconnection and substation work for the entire farm is substantially complete. The project is on schedule to be in service by the end of the year, and costs are forecasted to come in within the budget of $165 million.

In June, we signed the largest contract in our Company's history, securing 500 megawatts of turbines from Vestas at a cost of approximately $810 million. At the signing, we made an initial payment of $138 million. The turbines will be delivered in three groups over the next 32 months.

Delivery of the first 200 megawatts of Vestas turbines to our Whispering Willow Wind Farm site in Franklin County, Iowa is scheduled to begin early in the second quarter of next year. Site preparation and infrastructure work will begin later this year, and we expect the project will begin commercial operation in early 2010 at a cost of approximately 400 to $450 million. Under the fixed financial parameters approved by the Iowa Utilities Board earlier this year, the project will earn a return on equity of 11.7%.

Also last quarter, we completed a series of regulatory filings in Wisconsin and Minnesota to install 200 megawatts of the Vestas turbines at the WP&L-owned Bent Tree Wind Farm site located in Freeborn County, Minnesota. We expect to have all necessary approvals to move forward with the project by the end of this year. The wind farm will be included in WP&L rate base using traditional rate making, and is scheduled to be in service by the end of 2010 at a cost of 425 to $475 million.

The final item to discuss related to our wind program is the announcement of a potential additional wind project at WP&L. We plan to install 200 megawatts by 2013 as part of a carbon-reduction plan contingent on approval of our proposed Nelson Dewey Unit Number 3. I'll discuss more detail on that plan a little later. While we have not decided the location of the project, you may recall that we have about 500 megawatts of extra capacity in sites that are under our control.

With respect to our environmental controls program, like others in the industry, we are carefully monitoring the developments arising out of the recent decision by the District of Columbia Court of Appeals vacating the EPA's Clean Air Interstate Rule. While our company does not have any scrubbers or SCRs currently in operation, in May we began construction of the first of many planned large-scale environmental control projects.

That first project is an SCR at our Lansing Generating Station Unit Number 4 in Iowa, which is designed to remove more than 90% of NOX emissions when it begins commercial operation in late 2009. The estimated cost of the project is $85 million. Despite the recent CAIR ruling, we are moving forward with this project.

In addition to the Lansing SCR, planning efforts continue on many other environmental control projects across our fleet. While we may have to refine these plans as the scope of the new regulations that replace CAIR become known, we believe it is important to continue implementing our plans due to the lengthy and complex sequence of activities needed to install air emission controls.

By early next year, we plan to file the required regulatory applications for the following projects --

SCRs at Edgewater Units 4 and 5 that are expected to be in service by 2012, with our share of the investment estimated at $230 million.

For sulfur dioxide, we are planning for the installation of scrubbers across our Wisconsin coal fleet. A Certificate of Authority application has already been filed for the two existing units at the Nelson Dewey site, and we are working with joint partners to make similar filings for Columbia Units 1 and 2, as well as Edgewater 4. These five scrubbers, all of which we plan to have completed by 2013, are designed to reduce sulfur dioxide emissions at the respective units by over 90% and will require WP&L to incur capital costs in excess of $600 million.

Additionally, plans to install baghouses to control mercury at our Burlington, Lansing, and Ottumwa generation stations in Iowa have been filed with the Iowa Utilities Board as part of our 2009 to 2010 Emissions Plan and Budget filing. We plan to start construction pending the IUB's order approving the filing. Our share of the cost of these baghouse projects is estimated at approximately $250 million.

It is important to note that we believe compliance obligations for all of the projects in Wisconsin just referenced, which account for approximately $830 million of investment, are driven by existing and anticipated regulations other than CAIR.

Finally, over the past several years, we have been purchasing emissions allowances to bridge the period between when the CAIR standards would have taken effect and when our controls were scheduled to be in service. At the end of the second quarter, we had $64 million of emission allowances recorded as intangible assets and $45 million of forward contracts. Regulators have reviewed our allowance purchase plans as part of our overall environmental compliance efforts.

Turning to our baseload generation plans, we expect to receive the written order approving the siting application for the Sutherland Generating Station Unit Number 4 imminently. It has taken a little longer to get the written order than we originally expected, but we have do not expect any meaningful deviations from the oral decision we received at the end of April. As a reminder, there were two significant conditions in that decision -- first, the facility must utilize biomass for 5% of its fuel source by 2015, with that number increasing to 10% by 2018; second, 10% of IP&L's energy must be derived from renewables by 2013, and that amount must increase by 1% per year for 15 years after the Sutherland Generating Station Unit Number 4 becomes operational.

The ratemaking principles proceeding for the Sutherland project is well underway. Three interveners -- the Office of Consumer Advocate, the Industrial Consumer Coalition, and an association, including the environmental group Plains Justice -- filed their direct testimony last month. Technical hearings are scheduled for September 15, and a decision on the docket is anticipated later this year.

The Iowa Department of Natural Resources continues to work on the air permit for the new Sutherland unit. We anticipate that the IDNR will complete drafting the air permit later this month. We expect a public comment period to begin sometime in September and a final air permit for the facility to be issued in the fourth quarter.

In Wisconsin, the final Environmental Impact Statement for WP&L's proposed Nelson Dewey Unit Number 3 was recently issued jointly by the Wisconsin Commission and the Wisconsin Department of Natural Resources.

From our perspective, there are two very positive conclusions in the report. First, there was a recognition that WP&L needs to add baseload capacity to reduce its reliance on purchased power in order to keep rates affordable. Second, the report concluded that the Nelson Dewey site is one of the best biomass resource areas in the United States.

We are disappointed, however, with the staff's conclusion that Nelson Dewey is not the most cost-effective option. Their analysis showed that either a 300-megawatt share of a larger coal unit or a 300-megawatt combined cycle unit would be lower-cost alternative for customers. Our perspective is that joint ownership of a larger coal unit does not represent a viable option given the absence of joint partners, and that coal offers greater price stability for customers compared to increasing our reliance on natural gas. Staff also did not consider the transmission import capability benefits of the Nelson Dewey expansion.

While we acknowledge that quantifying this type of benefit is not an exact science, including a reasonable estimate based on the ranges provided by the American Transmission Company largely erases any cost deficit perceived by the Commission staff.

Finally, the report did not consider a proposal we offered in our direct testimony in June to reduce WP&L's carbon emissions by implementing the following four actions -- first, retiring WP&L's oldest coal plant, the 75-megawatt Edgewater Generating Station Unit Number 3; second, committing to increase energy efficiency savings from our voluntary Shared Savings program by 50%; third, increasing the use of biofuels at the proposed Nelson Dewey unit from 10 to 20%; and, finally, as I mentioned earlier, increasing WP&L's investment in wind by 200 megawatts.

When combined with our previously announced wind projects and conservation efforts, these actions are designed to more than offset the carbon emissions from the new unit. In fact, as shown on slide number two, our proposed WP&L and IP&L carbon plans offset CO2 emissions from our two proposed hybrid coal plants by more than 20%. WPL's CO2 proposal also supports the recent report in Wisconsin by the Governor's Task Force on Global Warming, which calls for an aggressive agenda to reduce greenhouse gas emissions in the state.

As members of the task force, we support the ambitious goals, but we also understand the challenges that lie ahead in achieving the proposed levels in a way that maintains affordable electric rates to our customers. We also prefer to see carbon regulation ultimately addressed at the federal level.

The CPCN process for Nelson Dewey will continue to play out this quarter, with intervener testimony due next Monday. We will provide rebuttal testimony at the beginning of September, and the technical hearings will get underway on September 19. I should note that the Nelson Dewey expansion enjoys a broad base of support from diverse interests that represent the biomass industry, conservation groups, labor unions, and businesses.

Under Wisconsin law, the Commission has until the middle of this December to issue a written ruling on the Certificate of Public Convenience and Necessity application, so we should expect an oral decision sometime in November.

Before summarizing my key takeaways for the quarter, there is another important development that I want to update you on. The Public Service Commission of Wisconsin continues to advance changes to the fuel rules through the administrative rule-making process. All public comments on the proposal are due today, and the Commission's announced intent is to provide proposed revisions to the legislature by the end of this month. The new rules are expected to become effective the later of January 1 of next year or when the changes are approved by the legislature.

Under the proposed rules, the Commission would review each utility's forecasted fuel cost plan, and, after a hearing, establish rates. During the course of the year to which the plan applies, the rule would allow a utility to defer cost changes outside a 2% band between the fuel cost reflected in the rates and the actual cost incurred.

While we and the other utilities in the state are advocating for a lower fuel band of 1%, overall, we are very pleased with the proposed changes and believe they add greater transparency and reduced volatility for both our customers and our investors.

In summary then, Downtown Cedar Rapids and our Company were hit hard by historic flooding. As always, our employees have risen to the challenge, and both we and the city look forward to moving on from the disaster. Our employees performed magnificently in this crisis.

Excluding non-recurring impacts of the flood and the tax settlement, we continue to produce strong and predictable earnings.

RMT WindConnect has a strong foothold in the fast-growing wind construction market, and as Eliot will review, their results are beginning to become a meaningful contributor to earnings.

We continue to make progress on investments in wind, environmental controls, and our proposed Sutherland baseload facility. Permitting coal plants has certainly become an extremely complex undertaking, especially in Wisconsin, but this fuel source remains an important part of our balanced plan to meet our customers' energy needs.

And, finally, I am pleased that our positive RMT WindConnect results and our utility operating efficiency gains allow us to raise our 2008 guidance.

At this point, I'll turn the call over to Eliot for comments on our second quarter results and other financial matters.

Thanks, Bill, and thanks to all of you for joining us today.

Our second quarter continuing operations results came in $0.07 higher than the same period in 2007. While our earnings release contains an overview of the various earnings drivers, I would like to provide additional insight into some of the more noteworthy items.

First, as we disclosed in our 10-K, the IRS has been auditing our federal returns for the period 2002 through 2004 calendar years. We are very pleased to report that a settlement was reached at the end of June that resulted in a significant earnings benefit of $0.11. $0.07 was recorded at the utilities, primarily related to additional qualifying research and development tax deductions associated with the construction of the Emery Generation Station, and other smaller R&D projects. $0.04 was recorded at AER as a result of numerous miscellaneous adjustments.

As Bill indicated, investors should view the results of this settlement as a non-recurring item. As a consequence of this settlement, we are now estimating a consolidated effective income tax rate for 2008 of 32%.

Second, WP&L experienced a lower fuel cost in the quarter compared to what was included in interim fuel rates that were established at the end of April. For the first six months of this year, actual fuel costs compared to the amount collected in rates increased earnings $0.03 per share. Because the WP&L fuel rate is an average for the year, under-recovery is expected during certain periods of the year and is typically greatest in the third quarter when electricity prices are at their highest. We expect under-recovery of fuel costs in the second half of the year to reduce earnings by approximately $0.05 per share, and that assumption is incorporated into our revised guidance.

As Bill also mentioned earlier, we are hopeful that the new fuel rules will be in place in Wisconsin at the beginning of 2009.

Third, our sales are holding up well despite the current economic climate. The notable exception is continued softness with our manufacturing-oriented industrial customers in Wisconsin. Sales in this class were 3% lower for the quarter when compared to the same period in 2007. A large paper mill in our service territory closed in June, as they had previously announced, and a General Motors assembly plant has permanently reduced a shift from operations and is scheduled to close by 2010.

Together, these two customers represent approximately 1% of WP&L's retail sales, and because the industrial class has a lower relative margin contribution, the earnings impact is limited.

In Iowa, excluding the impacts of flooding, our agricultural-based industrial customers continue to post solid growth.

Fourth, the quarter saw a negative $0.07 impact at [WPL](sic) due to the flooding. As previously mentioned, we are reducing the total estimated impact of flooding on this year's earnings from our previously announced $0.20 to $0.15 per share as customers are returning to service faster than previously anticipated. Details on the estimated total cost from the flooding in Iowa and what is expected to flow through the income statement are shown on slide 3.

We are in ongoing discussions with the Iowa Utility Board concerning recovery of those flood-related costs which are not covered by either insurance, the fuel adjustment clause, or export steam contract adjustments. The information on the slide is fully incorporated in our revised guidance.

And, finally, we are very pleased to report that our non-regulated RMT subsidiary continues to gain traction as a contractor and service provider to the renewable energy market. RMT WindConnect is involved in the construction of approximately 1,000 megawatts of wind energy projects that are expected to come on line in 2008, including the Fowler project in Indiana, which will be the largest wind farm in North America when completed. We estimate that RMT has approximately 17% of the wind EPC market based on the number of wind megawatts under construction, as reported by the American Wind Energy Association. This performance has led to second quarter revenue for RMT of $98 million, which is an increase of about 75% over the same period last year.

For 2008 fiscal year, we are expecting RMT to earn $0.16 per share, which represents a doubling of their 2007 contribution to consolidated earnings.

In addition to the increase to our earnings guidance, we are also increasing our capital expenditure projections for the period covering 2008 through 2010. Expenditure estimates by major project are included in the earnings release, and slide four details the changes from our previous disclosures.

Our liquidity remained strong at the end of the second quarter, with about $575 million of cash and cash equivalents and over $400 million available under our revolving credit facilities.

Earlier today, we received SEC approval for shelf registrations for IPL and WPL in the amounts of $500 million and $450 million, respectively.

We anticipate long-term debt offerings later this year, in part to reduce short-term debt levels at the utilities.

While our recently updated capital expenditure forecast for 2009 has increased by about $500 million, primarily due to the acceleration of spending at our wind farms, we continue to believe that our strong fiscal position will allow us to avoid common equity issuance until 2010.

Moving to regulatory activity, slides five through eight include schedules for several of our major proceedings.

WPL's general electric and gas retail rate case for 2009 and 2010 test years continues at a pace that should enable new rates to be in place at the beginning of 2009.

Commission staff and the interveners to the case will file their direct testimony on Monday. There have been several developments since we filed the case in February that we expect will result in a staff recommendation lower than the $93 million increase that was initially requested.

For example, our $16 million fuel order that was received in April will result in a lower fuel adjustment in the general rate case since we are already collecting at higher rates.

Also, $20 million of our proposed increase relates to infrastructure projects, including Nelson Dewey 3 and the Bent Tree wind project. We do not expect the PSCW staff to include these projects in their recommended rate level for cash returns on construction work in progress since the projects have not yet been approved.

Finally, we are hopeful that the final order in this case will support our desire to maintain equity ratios and ROE authorizations going into our construction program. Technical hearings on the docket begin on September 10.

In closing, we are very pleased with the financial health of our Company and our performance in the last quarter. Excluding the previously referenced flood and tax settlement impacts, our operations continue to post solid results, and we believe our balance sheet is well positioned to finance our significant forward capital expenditure program.

We look forward to meeting with many of you in the coming months in conjunction with our ongoing Investor Relations activities.

I will now turn the call back over to the operator, Tony, to facilitate the question-and-answer session.

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)

We'll take our first question from Dave Parker with Robert W. Baird. Mr. Parker, please go ahead. Your line is open, sir.

I'm sorry. Good morning and kudos on a good quarter given some of the unusual items.

Maybe first thing if we could talk about the flooding, since some of the recovery, I guess, in the regulatory frameworks sometimes are keyed upon public kind of feedback or view on how you responded to the challenges [paced] by the flood, is there anything you need to do -- have you received any kind of public feedback on how IP&L did during -- or at least the public perceived how IP&L did during the flood?

David, this is Bill.

Obviously, we've had a variety of both expressive public opinion, as well as in-private public opinion expressed. As I indicated in my prepared remarks, we're extraordinarily proud of the way our organization performed, and we're extraordinarily proud of our people, and I think it is fair to say that, overall, the reaction in Cedar Rapids to our performance during this event has been very, very positive. That's both from the public, in general, and certainly from all of the local public officials with whom we've had intense dealings over this timeframe. So I think we get good marks for how we performed.

Good. And from what we've seen in some of the pictures that you've had on your website, boy, what a huge challenge there.

Anything public from the Iowa PUC? And I believe, also, you were applying for some kind of deferral accounting from them for some of these costs?

David, we've had some ongoing conversations with the Iowa Utilities Board about their giving consideration to various forms of rate treatment for non-insured cost recovery that will arise here. Deferral accounting is not a common practice in Iowa. Whether or not that is a mechanism the Board will consider, giving -- given that we're talking about something that apparently happens every 500 years, I really can't predict whether or not they'll entertain something like deferral accounting.

The fact of the matter is that we are engaged in ongoing conversations with the Board concerning accommodations to deal with non-insured cost recovery associated with the flood, and the door hasn't been shut on those conversations. So I view that as a good sign, but what kind of mechanism, if any, the Board might ultimately consider to deal with the situation is very much a work in progress at this point in time.

So everything's been expensed so far?

We're dealing with the allocation of insurance proceeds to the costs associated with the flood. Some of it's O&M, some of it's capital, and that's -- all I can tell you, David, is that that is all reflected in our revised guidance, and in one of the pages of PowerPoints included on our website, there's sort of a breakdown of the way we have calculated the $0.15 impact at the utilities of the flood.

Okay, perfect. Thank you.

Moving on to -- thanks for a lot of color around Nelson Dewey, in particular, and where you stand versus the staff's opinion, and hopefully, where the commissioners may decide.

But recently, the Wisconsin Energy Task Force released sort of its opinion on a lot of different items. And how would your opinion or view -- and some of it's been tweaked here throughout the whole Nelson Dewey approval process -- sort of line up with some of the findings of the Wisconsin Energy Task Force?

Well, I think it does very much. I think our proposal for that facility and the other activities that I outlined that are associated with our balanced generation plan, I think, square very well with the recommendations from the governor's taskforce. Biofuels is a big part of the Nelson Dewey proposal. 20% biofuel BTU input into a facility is a big deal, and it's something that we are committed to doing. It's something that we are designing the plant to be able to accommodate. And when you add that to our very robust renewables program, both the one that is currently underway, as well as the one that we've announced as being contingent upon the approval of Nelson Dewey #3, I think puts our planned four-square aligned with the recommendations from the governor's task force. Nothing in the governor's task force says that we should not continue our reliance upon coal as a fuel source for the production of electricity in Wisconsin.

Excellent. Thank you.

There was a lot of discussion last week and I think revolved around uncertainty as far as the Wisconsin fuel rules and revision. I think everyone looks at the band, and the band hasn't changed much. And wonder how is that much better. But my perception is what's been missed is that the change in the fuel rules are that it's not this prospective-only kind of change, which means that you could not only under-earn 2%; it could actually be 4 or 5, 6 or whatever. Is that essentially the biggest change here with the way that the rules -- the new fuel rules could be if implemented next year?

David, this is Eliot. You're on the money, so to speak. The incorporation of a deferral capability under these new rules is very significant to the economic health and recovery of these costs for our shareowners because when you look at the historical experience of the clause, it is primarily the regulatory lag that has been detrimental to our shareowners. So that would go away with deferral accounting.

Perfect.

So you have captured the essence of the change.

Eliot, do you have, off the top of your head, what the under-recovery of fuel did to earnings in 2007 and maybe even 2006? If not --

I don't have that in front of me, but as I recall, the -- Jamie's here in the room. Jamie, do you have that information?

Not with me, but I can follow up with you, Dave.

Yes, David, why do we get that to you offline rather than me run the risk of misquoting the number because we previously disclosed that. We tried to lay it out very explicitly this year in the prepared remarks, so let us know if you -- if we have any follow-up there, as well.

Okay. And before we leave the wonderful fuel rules in Wisconsin, it appears as if one of the reasons why the improved utility outlook is, in fact, because power costs have gone down, therefore, are you looking to have a lower fuel under-recovery potentially for this year?

Well, part of that has to do with degree days in the second quarter, when you -- all of the forecasts for the fuel rules are, of course, based on normal weather, and we hedge to a certain degree and try to minimize our open positions, and when you roll it all together, you know, extremely hot weather requiring us to burn more fuel is not necessarily always advantageous to our shareowners when you have market prices that differ from our basic assumptions when the fuel rate was established for the year. And, of course, that was done in 2007 and then adjusted with our interim filing. So lots of moving pieces in those complex rules that in Wisconsin can -- if they don't line up relative to the original assumptions, can be detrimental.

Good. I just have -- I'm sorry I've had so many questions here, but moving to the non-reg, and I wrote these questions down so I don't forget them, Bill, since you've told me I'm older than dirt.

At WindConnect, nice pick-up in the quarter and then also the longer -- or the outlook for 2008. What do you think the capacity is here for WindConnect?

And, clearly, the demand for wind power generation and the outlook for wind power have been widely written about lately. What do you think the longer-term look for RMT WindConnect is?

Well, Eliot covered the presence of the business in the marketplace today, and I think for our purposes here today, there are two obvious considerations. Number one, the wind energy market is on a dramatic upturn in the United States, and I don't think there's anyone that understands this industry that doesn't believe it's going to remain very robust for many years to come. And RMT has a very substantial position in that marketplace that, because the company is well managed, we should expect its position in the marketplace to increase over time. So being a well-positioned company with an objective to increase your presence in a rapidly growing marketplace, I think, spells a bright future for RMT WindConnect.

Great. Thank you very much.

(OPERATOR INSTRUCTIONS)

We'll go next to Steve Fleishman at Catapult.

Hi, guys. Can you hear me?

Yes, Steve.

Just on the RMT WindConnect, did you say that you're now expecting that business to earn $0.16 for the year?

Yes.

Is that right?

Yes.

Is it possible you could give us some sense on the other non-reg businesses?

This transportation business, which is our short-line railroad, as well as a variety of rail to barge and cold-storage operations, will earn something around $0.07 for the year. Our non-regulated generation business, which is the Sheboygan Falls facility, that is leased to Wisconsin Power and Light Company under the lease generation law, as well as our Neenah operations, are expected to earn $0.05 to $0.08 a share, and there are a variety of other smaller unregulated businesses that will make modest contributions, as well.

Okay. Then as we think going forward the business that should really grow from this year should be WindConnect. The others should be more stable?

Well, certainly, the upside potential with respect to WindConnect is greater than it is with respect to the other businesses. Our intention is to grow the earnings of the other businesses, as well, but certainly, the greater upside potential by a considerable margin is related to WindConnect.

Okay. And just -- I think Eliot had mentioned on the staff recommendation that's coming the fuel obviously would be adjusted, and then I guess this -- they probably aren't going to allow [Quip] on some of this build although I guess you could book AFDC anyway?

Yes, Steve, what I was looking to communicate is that we would not expect staff to file testimony that would be inappropriately from their position presumptuous of what the commission is going to do with the CPC [end] dockets that are in front of them for Nelson Dewey. We would expect that if, in fact, we received favorable outcome in the Nelson Dewey proceeding, for example, before the final order is issued, that the commission would seek to adjust the final order to reflect whatever it is they might conclude as to an appropriate return on construction work in progress. But you are correct that we would accrue AFUDC in the event that the timing of those [inaudible] dockets does not line up.

Okay. One other question, just from a general standpoint. The -- if in the event you are not allowed to build either of the coal plants, which I guess we'll see what happens, but in that event, obviously, you're still building these wind projects. Would you still need to replace that power with some other type of plant, you know, like a gas plant of some sort or something else in that unlikely event?

Yes, clearly, the answer is yes, Steve.

Okay.

And, obviously, the alternatives that are available out there in the world today are nuclear or natural gas, and we're not [inaudible] to the door to build nuclear plants here at Alliant Energy. So the alternatives are going to be gas plants, and I think if you look at the Wisconsin Commission staff's perspectives in the final environmental impact statement, their perspective appears to be that if we aren't allowed to build Nelson Dewey, we ought to build a bigger coal plant somewhere else and share it with others, or we should build a natural gas plant. And that same conversation, obviously, has taken place at IP&L; however, at IP&L, we already have joint partners that are a part of the proposed Sutherland Unit #4.

Great.

They're [inaudible] --

You know, I have one other quick question. Just the operating cost savings at the utility that allowed you to increase your guidance, are those kind of across both of the utility companies?

Yes.

Okay. Okay, thank you very much.

(OPERATOR INSTRUCTIONS)

We'll take our next question from Peter Hark at Talon Capital.

Yes, good morning.

Hi, Peter.

A couple quick clarification questions. First, what do you anticipate your [quip] balances will be by year-end for both the Whispering Willow and the Cedar Ridge projects, and where do you think the cash balances will go to by year-end?

I believe we have a slide. If you look at slide four that we posted, that should give you a sense by project of where we believe our spending will end the year at with respect to all of the projects.

Okay. And then -- but then --

But in the case of Cedar Ridge, we're -- that project will be in service, so that should have zero [quip] as of year-end.

Okay. And you'll -- Eliot, you'll be funding that both with cash and debt. So where will the cash balance do you think go from the five -- 700 -- 574 million at the period end now?

Well, we've not given or provided an exact forecast of year-end cash, but if you look at our CapEx through the end of June and you look at the estimates of where we're going to -- what we're going to spend for the entire year, it's going to remain positive, plus we'll be terming out some of our short-term debt into long-term debt, which, to some degree, is capital structure management, as well as effective utilization of cash.

Okay, great. And then just maybe following up David's question a little bit, on the fuel under-recovery, what's your anticipated Wisconsin fuel under-recovery for this year, and how much of that would you recover if and when the new mechanism is approved?

It's around $0.02 under-recovery for the year; $0.02 to $0.03, I think, is what we've incorporated in our guidance, but you should assume that there will be no claw-back, if you will, to capture whatever our under-recovery might be for 2008.

Of course, the way the rules are structured, if something were to happen that's unanticipated and we had an over-recovery, that there is a refund rule that would come into effect if you're outside of the band.

Right. And that's -- to that point, that's the 1 million reserve --

Right.

-- that you made here in the second quarter?

Right. And subject to what -- Jamie could call you on this, but I think '08's going to be a very good year when judged against the last -- experience of the last five in terms of managing the WPL fuel clause in a way that is reasonably non-detrimental to shareholders.

I -- agreed. Well, thank you very much. Thank you.

Thank you, Peter.

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And it would appear that we have no further questions in the queue. Mr. Freeman, I'd like to turn it back over to you for any additional or closing remarks.

With no more questions, this concludes our call. A replay will be available through August 13, 2008 at 888-203-1112 for U.S. and Canada, or 719-457-0820 for international. Callers should reference Conference ID number 1629947.

In addition, an archive of the conference call and a script of the prepared remarks made on the call will be available on the Investors section of our Company's website later today.

Thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions.

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