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Executives

Becky Johnson - Manager of Investor Relations

Bill Harvey - Chairman, President and Chief Executive Officer

Eliot Protsch - Chief Financial Officer

Analysts

Steven Rountos - Talon Capital

Steve Fleishman - Catapult Partners

Alliant Energy Corp. (LNT) Q3 2007 Earnings Call November 2, 2007 2:00 PM ET

Operator

Please standby, we’re about to begin. Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's Third Quarter 2007 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.

Becky Johnson

Good afternoon. 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 third quarter 2007 earnings. The release is available on the investors page of our website at www.alliantenergy.com.

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 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 the forward-looking statements.

At this point, I would like to turn the call over to Bill.

Bill Harvey

Thank you, Becky. Good afternoon and thanks for your continued interest in our company. My comments this afternoon are primarily focused on updating you on our progress with our generation buildout and other strategic initiatives.

Later in the call, I will turn it over to Eliot to provide a regulatory update and a more detailed discussion of our quarterly earnings and financial guidance.

Due to the seasonal nature of our business, the third quarter is historically a big contributor to the annual earnings of our utility business. This year was no exception. Our third quarter results from continuing operations were $1.05, compared to $0.75 for the third quarter of 2006.

Later in the call, Eliot will discuss some of the quarter-over-quarter variance drivers. Suffice it to say, however, we are pleased with the solid financial performance produced this quarter. More importantly, as a result of this strong third quarter results, we have narrowed our consolidated earnings guidance for 2007 to what had previously been the top half of our range.

As for our utility operations, two of our coal plants were recently named 2007 best performers by the electric utility cost group. The Edgewater generating station in Sheboygan, Wisconsin, received the award in the large plant category; those stations greater than 250 megawatts and the Lansing generating station in Iowa received the award in the small plant category.

We are pleased by this recognition of our commitment to operational excellence and reliability. Moving on to our generation buildout. Last week in Wisconsin we celebrated the official groundbreaking of the Cedar Ridge wind farm, Alliant Energy's first of many planned rate-based wind farms.

We began construction of turbine access roads, foundations and the substation. This infrastructure work is ongoing and will be completed by year-end. Turbine deliveries are scheduled for the second quarter of next year, with turbine erection occurring in the summer of 2008.

This 68-megawatt wind farm is expected to be operational by the end of 2008, at an estimated cost of approximately $165 million.

In addition to Cedar Ridge, WP&L continues to evaluate sites for an additional 200 megawatts of owned wind generation. Our focus has been on sites in our southern Minnesota service territory, where the wind regimes are superior to those found in Wisconsin.

We are in the final stages of preparing thee certificate of public convenience and necessity application, requesting regulatory approval for this project. Similar to Cedar Ridge, we plan to use traditional rate making procedures for the recovery of and return on this incremental 200 megawatts of wind generation.

Pending regulatory approval and the availability of turbines, we currently project 100 megawatts of this capacity to be online in 2009 and the balance in 2010, both for a total cost of approximately $360 million to $440 million. Checking in on baseload generation, we continue to make progress in Wisconsin on the development of a 300-megawatt coal plant located at WP&L's existing Nelson Dewey site in Cassville, Wisconsin.

The proposed unit will utilize circulating fluidized bed technology and is being designed to burn biomass. We intend to rely on renewable resource fields for 10% of the BTU input for the facility.

Last February, WP&L filed a request with the Public Service Commission of Wisconsin for the approval to build Nelson Dewey 3 and also for fixed financial parameters and ratemaking principles for the recovery of this investment under the auspices of Wisconsin Act 7.

We are moving through the regulatory process and anticipate approval of the certificate of public convenience and necessity in the second half of 2008. Our current expectations of the timeline for securing the necessary permits and procuring hardware allows for an in-service date of 2013.

We are in the final stages of negotiating the EPC contract for the Nelson Dewey expansion, and expect an agreement to be executed in the near future. In addition, our major equipment specifications are nearing completion, and we have issued an RFP for the boiler.

As a part of our application process, we updated the estimated cost of this facility to a range of $850 million to $950 million, excluding AFUDC if applicable. This increase is reflective of changes in scope, since our original application, primarily increased biomass capability and reduced wetlands impacts.

In April, WP&L filed an application with the Public Service Commission of Wisconsin to purchase the Neenah generating facility, an existing 300-megawatt simple cycle gas-fired facility, located in Neenah, Wisconsin. This purchase by WP&L is intended to replace the output currently available under our purchase power agreement with Calpine's RockGen facility. Pending regulatory approvals, the purchase is expected to occur in 2009.

Let me now discuss the status of our IP&L generation projects. IP&L is making progress on the development of a baseload coal facility at our existing Sutherland generating station site in Marshalltown, Iowa. We plan to utilize supercritical pulverized coal technology for the new unit. The boiler will be designed to burn biomass, such as switch grass, corn stover and wood chips. And similar to Nelson Dewey, the plant is being designed to burn renewable resource fuels for up to 10% of the BTU input for the facility.

Provisions are also being made to allow for cogeneration at the plant. In July, we filed our siting application with the Iowa Utilities Board, seeking approval to create Sutherland Unit 4. The facility will produce 649 megawatts and IP&L plans to utilize up to 350 megawatts of the plant's output. IP&L anticipates the IUB decision on this application in the second half of 2008.

In the first quarter of 2008, we plan to file for advanced rate making principles under House File 577, similar to the process we used for our Emery plant. We have begun the equipment procurement process for the Sutherland expansion by issuing RFPs for the boiler, turbine, and air quality control systems. Pending regulatory approvals, we currently expect this facility to begin commercial operation in 2013. We estimate that our 350 megawatts share will cost between $840 million and $910 million excluding AFUDC.

Earlier this year, Corn Belt Power Cooperative and Central Iowa Power Cooperative signed letters of intent to be joint partners in this facility. We are putting the finishing touches on the joint operating agreement among us, which we expect to execute later this month. In addition, IP&L continues to negotiate with other potential partners in the plan.

Concerning our wind generation in Iowa, in September we filed our application with the Iowa Utilities Board for determination of ratemaking principles for up to 200 megawatts of wind generation.

As part of the filing, IP&L requested a 12.3% return on the equity component of the investment. We have entered into negotiations with the developer for the purchase of a 200 megawatts site in northern Iowa and expect to execute an agreement for the purchase later this month.

We anticipate the IUB's decision by the end of 2008. Pending regulatory approval and the ability of turbines, we expect the 200-megawatt wind farm to be completed in the 2009…

Operator

Please stay online. We are experiencing a short interruption in our program. We will return in just one moment.

Bill Harvey

Hello everyone. This is Bill Harvey. Wisconsin is still here and so is Alliant Energy. We did have a breakdown in telecommunications. But let me back up in my prepared remarks just a little and begin with a discussion of an update on proposed sale of our IP&L transmission assets to IPC Holdings.

We continue to move forward through the various regulatory processes. In September the Iowa Utilities Board formally allowed the sale to move forward, which was a major milestone in the process.

Recently, the Office of Consumer Advocate has sought judicial review of the IUB's decision. We do not expect the judicial review to be successful or delay the anticipated closing of transaction. But, as you would expect, we cannot provide any assurances that the judicial review will be resolved in a timely or satisfactory manner.

In addition to Iowa we have received approval from the Missouri Commission. We have also made applications jointly with IPC in Minnesota, Illinois, and at the FERC. We expect to receive the Minnesota administrative law judge's recommendation this month. The FERC does not have a defined period of time within which to act, however, we are also expecting their decision this month.

In addition, both IP&L and IPC have made their Hart-Scott-Rodino filings. The FTC acted on behalf of both organizations, and the investigation was completed in May. The sale of IP&L's transmission assets is expected to be positive for our customers and our shareowners. Assuming all regulatory approvals are received on a timely basis, we expect to complete this transaction by year-end.

In closing, I will summarize the key takeaways from the quarter. First, strong sales and improved electric margins drove better than expected third quarter results. Second, we are narrowing our earnings guidance and have increased the midpoint of our consolidated guidance by $0.05. Third, we successfully completed our $400 million share repurchase program.

Fourth, substantial progress has been made on the construction of the Cedar Ridge wind farm in Wisconsin, which is slated to begin commercial operation next year. And finally, the regulatory proceedings required to build our coal and wind facilities and to sell our IP&L transmission assets are progressing. We appreciate your continued support for our company and now I would like to turn the call over to Eliot.

Eliot Protsch

Thanks, Bill and thanks to all of you for joining us today. My primary focus will be to provide additional analysis on the quarter as well as update you on our rate cases and discuss our revised financial guidance. My remarks pertain exclusively to results from continuing operations.

First, as noted in our press release, we have posted supplemental slides on our website to assist you in your earnings analysis. You may want to have these slides available for reference during my remarks. As we walk from third quarter 2006 to 2007. There are three items that negatively impacted third quarter of 2006 earnings, which improved this year.

First, $0.07 related to net impacts of weather and weather hedging, second, $0.07 related to WP&L fuel recovery-related items. And finally, Q3 2006 earnings included a $0.05 loss for our New Zealand operations, which have since been sold.

Positive EPS drivers for 2007 are as follows: the accretive impact of the share buyback was $0.05 per our utility in Q3 2007. In addition, third quarter earnings reflect improved electric margins and a forset benefit from the settlement of a federal income tax audit for the period 1999 to 2001. Drilling further into third quarter 2007 utility results compared to 2006. I would like to highlight the following.

Primarily as a result of increased retail electric sales volumes, electric margins were approximately $0.07 higher than last year. We continue to experience increased customer usage in general, as well as positive effects from the growth in the agricultural processing industry in our service territory.

The net impacts of weather and weather hedges were slightly positive this year as our summer weather hedge functioned as intended. We also had a slight pickup from a warmer than normal September which is outside the summer hedging period. Incentive compensation related expenses were $0.05 higher than the same period last year.

However, focusing on the right column on the post slide, please note that on a year-to-date basis, incentive compensation expenses are flat. The variance this quarter is related to the timing of the accruals and improved annual earnings projections. WP&L's fuel recovery was neutral in Q3 '07.

WP&L reached a settlement agreement in August to refund any over collection of retail fuel-related costs for the period of June through December 2007. Therefore, we would expect that the fourth quarter will be earnings neutral as well.

Now, I will update you on our various rate matters. With regard to Wisconsin retail rates in June, the Public Service Commission agreed with our request to reopen WP&L's retail rate case. In September, the PSC staff issued its briefing memorandum, which was supportive of a $26 million electric rate increase in addition to our request for AFUDC clarification.

At its open meeting last week, the Commission directed staff to draft an order, which we expect to be approved sometime in the fourth quarter proposing new rates effective January 1st, 2008. We pursued this re-opener because both the Public Service Commission of Wisconsin and WP&L have a desire to evolve to a biannual rate case cycle. WP&L currently plans to file its next base rate case in early 2008, with a 2009-2010 forecasted test year.

As for WP&L's wholesale business which represents approximately 15 to 20% of WP&L's electric revenues, formula rates became effective June 1st, subject to refund and continue to make progress in our discussions with customers with respect to settlement of this case.

We look forward to having formula rates become an ongoing component of our wholesale business as we embark upon our generation build-out program. I would also like to provide an update on WP&L's gas performance-based rates or what we refer to as PBR.

In our last base rate case order, the Public Service Commission of Wisconsin changed the sharing mechanism for PBR to 65% customers and 35% shareholders. In addition, the commission directed staff to work with the company on exploring various alternatives to the design of the program.

In October, the commission issued an oral decision on the future of WP&L's PBR mechanism. In its oral decision, the commission gave WP&L the option to accept a new PBR sharing formula, or to implement a traditional pass through approach. Unfortunately in our judgment, the new mechanism did not include an appropriate risk return tradeoff for customers and shareholders.

For that reason, we have selected the traditional pass through approach. In each of the last two years, the previous PBR formula has resulted in savings of approximately $13 million for our customers, and an EPS contribution of approximately $0.06 to $0.07 for shareholders.

We currently fully expect the full year EPS contribution for PBR to be $0.02 in 2007. We may choose to revisit PBR alternatives as a part of future base rate case applications. Now to summarize our capital plans.

Our projected capital expenditures for 2008 remain unchanged at $580 million. Future capital expenditures beyond our maintenance capital needs are, of course, a function of the timing of the capital spending for our various infrastructure projects, and the availability of wind turbines.

In addition to new generation, we plan to make significant capital investments in environmental compliance over the next decade. This includes the installation of emissions controls, utilizing both pre and post combustion technologies, while using the allowance market as a balancing mechanism.

Our 10-Q disclosure includes our current estimated ranges of capital spending to achieve compliance. In addition, for those of you who are interested in more detail on our environmental strategy, emissions profile and compliance plans, we recently published our annual environmental report, which is available on our website.

Of special note, with respect to NOx reductions, we have already achieved strong results due to the installation of combustion control technology at several WP&L and IP&L units.

In October, WP&L filed a certificate of authority with the Public Service Commission, seeking approval for the gas portion of the advanced metering infrastructure project in Wisconsin. The electric portion of the AMI project does not require a similar type of regulatory approval process. WP&L plans to install both gas and electric meters.

We estimate the total expenditures on AMI in Wisconsin to be approximately $95 million. We also plan to install AMI in our IP&L service territory. The estimated cost for full deployment at IP&L is $105 million. Deployment at both WP&L and IP&L will be phased in through 2011.

The timing and the amount of this investment is conditional upon appropriate regulatory treatment in the various jurisdictions. Before I leave CapEx, I would like to briefly comment on the slide posted on the website detailing our generation plan.

This table, which is also included in our 10-Q, now includes the amount of capitalized cost incurred to date for the major generation projects listed. This totals $63 million as of September 30th, 2007. We expect these expenditures to grow over time and thought it would be useful for investors to know what has been expended to date, and what amounts may be reflected in rates and thus in our earnings.

Now, an update on our various financing activities. In August, WP&L completed a $300 million long-term debt issue. The proceeds were used to reduce short-term debt balances to re-capitalize WP&L in concert with the rate order received earlier this year and to fund capital expenditures.

Looking ahead to the remainder of this year, as in past years, we have now hedged our heating system season margins and as previously mentioned. We expect to be neutral on WP&L fuel recovery. Thus, when we combine our fourth quarter outlook with our strong year-to-date performance, we are narrowing our earnings guidance range to $2.52 to $2.62 per share.

Finally, with respect to 2007, we are reaffirming our 2007 cash flow guidance of $525 million to $575 million. 2008 earnings and cash flow guidance as well as 2008 through 2010 capital expenditure guidance will be issued in mid-December after our budget is approved by our Board of Directors.

In closing, we look forward to the opportunity to meet with many of you at next week's EEI conference. And at this time, I would like to turn the call back over to Katie to guide us through the question-and-answer session.

Question-and-Answer Session

Operator

Thank you, Mr. Protsch (Operator Instructions). We'll go first to Steven Rountos with Talon Capital.

Steven Rountos - Talon Capital

Good afternoon, everyone.

Eliot Protsch

Hi, Steven.

Bill Harvey

Steven.

Steven Rountos - Talon Capital

I was wondering if you comment on the OCA's request for judicial review. What is the timing of that? And what are the next steps for that?

Bill Harvey

Well, the process is a relatively traditional judicial review process. The timing of its review is something that's controlled by the reviewing court, not by some other mechanism. I think the important thing to watch for is whether or not there is any quick action by the court.

And, secondly, whether or not there's any action by the court relating to any possible request for a stay of the sale. There has been no such request today and we think the probability of any such request being successful, if it were made, is very low.

Steven Rountos - Talon Capital

Okay. And then on Nelson Dewey, I think that you had mentioned that the CapEx has increased because of the need to be able to fire biomass in it as well. Can you give us an idea on what the increase is and how it plays out over the '08 to 2010 timeframe?

Bill Harvey

I think in my prepared remarks, I indicated what the total capital cost increase was for our share of the facility, but you can think of it as approximately a $50 million increase in costs. Some of that relates to site reconfiguration relating to wetlands on the site.

Some of it relates to reconfiguration associated with the ability to logistically handle the biofuels that will be burned at the plant. And some of it relates to alloy changes in the boiler that will accommodate the combustion of higher levels of biofuel and what we had originally anticipated.

Eliot Protsch

Steven, with regard to year-by-year estimates when we file our 2008 guidance, we will give you our best estimate at that point in time in terms of year-by-year expenditures for that plant.

Steven Rountos - Talon Capital

Okay. Thank you very much.

Operator

(Operator Instructions) We will go next to Steve Fleishman with Catapult Partners.

Steve Fleishman - Catapult Partners

Yes, hello.

Bill Harvey

Hi, Steve.

Steve Fleishman - Catapult Partners

Could you on the non-regulated businesses in the quarter, could you -- outside of the absence of the New Zealand loss last year, what were the drivers at the non-reg generation and the, transport RMT WindConnect?

Bill Harvey

Well, the drivers were really twofold. Number one, substantial increase in the earnings associated with the WindConnect business and the second is the increase in earnings in the non-regulated generation business due to the retirement of debt associated with that business and consequentially less interest carrying costs.

Steve Fleishman - Catapult Partners

Okay. Are these things that could be ongoing to the point where these businesses maybe start going at a higher run rate than before or is this kind of some just strong performance in the quarter, do you think?

Bill Harvey

Well, the wind connect businesses has been strong. It's difficult to predict whether or not that will sustain over the long term. The non-regulated generation business, obviously, that debt is gone.

Steve Fleishman - Catapult Partners

Okay.

Bill Harvey

So its performance ought to be enhanced over time, but importantly, the transportation business is benefiting substantially from the tremendous expansion in the ethanol marketplace in Iowa. So, we hope that business will perform more strongly over time as well. What we expect in that area will obviously be reflected in the guidance that we issue in December of this year. But I think that's a fair qualitative summary.

Steve Fleishman - Catapult Partners

Okay. And then one last question, what is your current expectation for use of proceeds from the transmission sale?

Bill Harvey

Right now, our expectation is that we will probably redeploy that to our utility business; reduce a little bit of debt at IP&L.

Steve Fleishman - Catapult Partners

Okay.

Bill Harvey

Everybody is still there?

Steve Fleishman - Catapult Partners

Oh, sorry. So you said redeploy the utilities?

Bill Harvey

Dividend it up to the parent for redeployment both in reducing debt at IP&L and redeploying the capital program of the utility and otherwise investing it in short-term interest bearing obligations.

Steve Fleishman - Catapult Partners

Okay. Thank you.

Operator

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

Becky Johnson

With no more questions, this concludes our call. Thanks for your continued support of Alliant Energy and feel free to contact me with any of your follow-up items. A replay of this call will be available through November 9th, 2007 at 888-203-1112 for U.S. and Canada, or 719-457-0820 for international callers should reference conference ID 4510812.

In addition, an archive of the call and the script of our prepared remarks will be available on the Investors section of the company's website later this afternoon. Thank you.

Operator

We thank you for today's participation. That does conclude today's conference call.

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