REGULA1lY INFORMATION DISTRIBUTIO&YSTEM (RIDS)

ACCESSION NBR:8712300183 DOC.DATE: 87/12/28 NOTARIZED: NO FACIL:50-305 Kewaunee Nuclear Power Plant, Wisconsin Public Servic AUTH.NAME AUTHOR AFFILIATION HARVEYW.D. Wisconsin Power & Light Co. RECIP.NAME RECIPIENT AFFILIATION

Document Control Branch (Document Control Desk)

SUBJECT: Requests review & approval of proposed corporate restructuringwhich will result in creation of holding companyWPL HoldingsInc.Notice of annual meeting of shareowners & other supporting documents encl.Fee paid.

DISTRIBUTION CODE: 8005D COPIES RECEIVED:LTR I ENCL SIZE: 4242 TITLE: Licensing Submittal: Application/General Info Amdt

NOTES:

DOCKET # 05000305

INTERNAL:

RECIPIENT ID CODE/NAME

PD3-3 LA GUAY,T

AEOD/DOA ARM/DAF/LFMB OGC/HDS1 SP

EXTERNAL: LPDR NSIC

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COPIES LTTR ENCL 1 1 1 1

1 1 1 1

1

1 0 1 1

I. I

RECIPIENT ID CODE/NAME

PD3-3 PD

AEOD/DSP/TPAB NRR/DLPG/QAB

P E 01

1 NRC PDR 4

02

COPIES LTTR ENCL

2 2

1 1 1

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TOTAL NUMBER OF COPIES REGUIRED: LTTR

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14 ENCL 13

Wisconsin Power 6j Light Company Investor-owned Energy

222 West Washington Avenue PO. Box 192 Madison WI 53701-0192 Phone 608/252-3311

EXECUTIVEOFFICES December 28, 1987

U.S. Nuclear Regulatory Commission Attention: Document Control Desk Washington, D.C. 20555

Re: Facility Operating License: DPR-43 Kewaunee Nuclear Plant Docket No. 50-305

Dear Sir:

Wisconsin Power and Light Company ("WPL" or the "Company") is a co-owner of the Kewaunee Nuclear Plant and is in the process of implementing a corporate restructuring which will result in the creation of a holding company, WPL Holdings, Inc., which will own all of the outstanding common stock of the Company. Under the restructuring, WPL will continue to be the co-owner of Kewaunee and no transfer of any licenses or interests concerning Kewaunee will be effected. Kewaunee is operated by Wisconsin Public Service Corporation (WPSC).

The Company has recently become aware that the NRC reviewed under 10 C.F.R. s. 50.80 earlier this year a similar restructuring by Atlantic City Electric Co., even though Atlantic City Electric Co. is, like WPL, only a possession licensee (i.e., is a utility licensed to own an interest in a nuclear plant but not to operate the plant). The NRC's review of Atlantic City Electric Co.'s restructuring is, we believe, the first instance when the NRC has applied 10 C.F.R. s. 50.80 to such a reorganization by a possession licensee. This new practice, adopted after WPL had examined whether NRC consent to the restructuring was necessary (which examination included conversing with the NRC), could, if now applied to WPL, cause a substantial hardship, since WPL has planned to effect its reorganization by the end of January, 1988.

WPL does not believe that the Atomic Energy Act or the Commission's regulations require NRC approval of the formation of a holding company for a possession licensee. The formation of a holding company for a possession licensee does not involve a transfer of an NRC license; nor should the restructuring be considered a transfer of control over a license, since the shareholders of the possession licensee simply become the share

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U.S. Nuclear Regulatory Commission December 28, 1987 Page 2

holders of the new holding company. Further, there are no organizational or financial issues worthy of NRC concern or review, because a possession licensee is not the organization that operates a licensed nuclear plant and because under such a reorganization a possession licensee that is an electric utility will continue to be an electric utility presumptively financially qualified under the NRC's regulations.

Accordingly, WPL asks that the NRC determine that its consent to WPL's restructuring is unnecessary. If, however, the NRC intends to continue to apply its new practice to possession licensees, WPL asks that the NRC provide consent to WPL's reorganization by January 29, 1988. A check for the $150 application fee prescribed by 10 C.F.R. s. 170.21 for a license related review is enclosed. The following information is provided to expedite the NRC's approval process if determined necessary.

Enclosed is a copy of the Form S-4, Registration Statement (S-4) effective March 27, 1987, and filed with the Securities and Exchange Commission (SEC). The S-4 includes the Notice of Special Meeting of Stockholders, Prospectus and Proxy Statement and describes the restructuring transactions in detail. The existing corporate structure of WPL and its subsidiaries, as well as the proposed corporate structure under WPL Holdings, Inc., is shown on pages 9-10 of the S-4. Under the restructuring, the existing common stock of WPL will, upon the effectiveness of the restructuring, be deemed to be converted on a share-for-share basis into common stock of WPL Holdings, Inc. WPL Holdings, Inc. will own all of the common stock of WPL. WPL's preferred equity and debt securities will not be affected by the restructuring. As part of the restructuring, WPL's existing nonutility subsidiaries will be transferred to WPL Holdings, Inc. through a dividend from WPL to WPL Holdings, Inc.

Following the restructuring, WPL will remain a public utility providing the same utility services as it did immediately prior to the restructuring. Control of all WPL interests in Kewaunee will remain with WPL and will not be affected by the restructuring.

Under recently enacted Wisconsin legislation (1985 Wisconsin Act 79, "the Wisconsin Holding Company Act"), a copy of which is attached, the approval of the Public Service Commission of Wisconsin (PSC) is required prior to the formation of a public utility holding company. PSC approval was obtained on April 30, 1987, and a copy of the order of the PSC is attached. An Application is pending with the SEC seeking approval of the restructuring under the Public Utility Holding Company Act of 1935. That approval is expected in January, 1988. Stockholder approval was obtained in April, 1987. FERC approval is expected in December, 1987. Illinois Commerce Commission approval was granted on October 17, 1987.

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U.S. Nuclear Regulatory Commission December 28, 1987 Page 3

In previous NRC reviews in the creation of holding companies, the NRC has posed three questions. While not particularly germane, WPL has attempted to recast the questions to apply to a possession licensee. The NRC questions, as recast, and WPL's responses are as follows:

1. State whether the proposed restructuring might reduce the funds available to WPL to carry out activities under its Operating Licenses. Please discuss the basis for your answer.

WPSC is the operator of Kewaunee and holds the operating license. The WPL restructuring will not affect WPSC's activities. WPL believes that there will be no impact on the funds available to WPL to carry out its activities with respect to Kewaunee.

Under the restructuring, WPL's debt and preferred equity securities will remain with WPL. WPL will retain the corporate capacity to issue future securities of these same classes by virtue of mortgagable assets and ith earning power. As explained in the S-4 (page 11):

The Board of Directors of the Company intends that the utility operations of the Company will continue to constitute the predominant activity of the holding company system for the foreseeable future and that there be no capital impairment of the Company and no adverse effect on the Company's levels of service as a result of the restructuring. This intention accords with the limitations and other provisions in the Wisconsin Holding Compact Act. See, "Regulation -Wisconsin Holding Company Act and -- Illinois Public

Utilities Act."

The Wisconsin Holding Company Act contains a number of provisions designed to ensure that utilities which become members of utility holding company systems are able to provide adequate utility service. Among the provisions contained in the Wisconsin Holding Company Act are the following:

Section 196.795(4), Wis. Stats. -- CAPITAL IMPAIRMENT

If the commission finds that the capital of any public utility affiliate will be impaired by the payment of a dividend, the commission may, after an investigation and opportunity for hearing, order the public utility affiliate to limit or cease the payment of dividends to the holding company until the potential for impairment is eliminated.

U.S. Nuclear Regulatory Commission December 28, 1987 Page 4

Section 196.795(5)(g), Wis. Stats.

No holding company system may be operated in any way which materially impairs the credit, ability to acquire capital on reasonable terms or ability to provide safe, reasonable, reliable and adequate utility service of any public utility affiliate in the holding company system.

Section 196.795(5)(j), Wis. Stats.

Every public utility affiliate is subject to every law, regulation and precedent applicable to the regulation of public utilities.

Section 196.795(11). Wis. Stats. -- CONSTRUCTION

(a) This section may not be deemed to diminish the commission's control and regulation over the operations and assets of any public utility.

In addition, the Wisconsin Holding Company Act limits the amount of nonutility assets in a holding company system to approximately 20 percent of the total system assets.

The PSC order approving the proposed corporate restructuring requires that WPL maintain a strong and balanced capital structure and that its dividend policy be based solely on the capital needs and financial health of the utility.

By order dated December 5, 1985, in Docket No. 05-EI-14, the PSC directed WPL to utilize an external sinking fund to accumulate money for decommissioning Kewaunee. The order provides at page 15 that:

The amount required to fund the decommissioning expense shall be deposited with a fiduciary trustee. The trustee shall not release any of the funds, including principal and earnings, except as provided by Internal Revenue Code s. 468A(e)(4), or to reimburse the utility for any income taxes the utility has paid on behalf of the fiduciary trustee. If the fund is not wholly depleted at the end of decommissioning, the

trustee may release the surplus funds to be returned to the ratepayers.

U.S. Nuclear Regulatory Commission December 28, 1987 Page 5

As of the date of this letter, WPL has segregated $20,313,517 for use in an external decommissioning trust fund. Transfer of the money to an external trustee has occurred subsequent to IRS confirmation of the tax status of trust contributions received on October 13, 1987.

2. State whether the proposed restructuring might affect management of Kewaunee either by WPL or Kewaunee's licensed operator, Wisconsin Public Service Corporation (WPSC). Include in your response a brief discussion of the reporting channels for senior management of the Kewaunee Nuclear Plant.

The proposed restructuring will have no effect on the management of WPL or WPL's utility operations. No WPSC officer or nuclear management positions will be changed by the restructuring. No responsibility for nuclear operations within WPL or WPSC will be changed by the restructuring. WPL officer responsibilities at the holding company level will be admini'strative and financial in nature and will have no direct effect on the management of WPL or the Kewaunee plant.

No reporting channels within WPSC for management of Kewaunee will be affected by WPL's corporate restructuring.

3. State whether WPL, by virtue of the proposed restructuring, has, or will, become owned, controlled, or dominated by an alien, a foreign corporation, or a foreign government.

As explained above, on the effective date of the restructuring, WPL Holdings, Inc., a Wisconsin corporation, will become the sole holder of WPL's common stock and the current holders of WPL's common stock will become holders of the common stock of WPL Holdings, Inc. on a share-forshare basis. Thus, immediately following the restructuring, the common stock of WPL Holdings, Inc. will be owned by the previous holders of WPL's common stock in the same proportions in which they held WPL's common stock. Based upon available information, foreign held shares of WPL represent less than one-tenth of one percent of the total outstanding shares of WPL. In addition, the Wisconsin Holding Company Act contains a provision requiring PSC approval before any person can acquire more than ten percent of the outstanding voting securities of a holding company.

Based on the above, the proposed restructuring will not result in WPL's becoming owned, controlled or dominated by foreign interests.

WPL trusts that the information contained in this letter and its attachments will be sufficient for the Commission to grant its consent, if required, to the proposed corporate restructuring. In view of our

U.S. Nuclear Regulatory Commission December 28, 1987 Page 6

untimely discovery of our need to seek NRC approval and our impending restructuring deadlines, we request expeditied consideration and consent. If you have any questions or desire additional information, please contact us.

tilliam D. Harvey Vice President and Associate General Couns 1

WDH: st

Attachments

cc: NRC Project Manager Regional Administrator, Region III NRC Resident Inspector David Lewis, Esq.

Wisconsin Power D Light Company NOTICE OF ANNUAL MEETING OF SHAREOWNERS

10:00 A.M., April 22, 1987

The Annual Meeting of Shareowners of Wisconsin Power and Light Company (the "Company") will be held at the Dane County Coliseum, 1881 Expo Mall, Madison, Wisconsin, on April 22, 1987 at 10:00 A.M., local time, for the following purposes:

(1) To approve a proposed corporate restructuring of the Company pursuant to an Agreement and Plan of Merger and Reorganization (a copy of which is attached as Exhibit A to the accompanying Prospectus/Proxy Statement). Under such Agreement, WPL Holdings, Inc., at present an inactive subsidiary of the Company, will become the parent holding company of the Company and all outstanding shares of common stock of the Company will be converted on a share-for-share basis into shares of common stock of WPL Holdings, Inc., with the result that the owners of the common stock of the Company will become the owners of the common stock of WPL Holdings, Inc.

(2) To elect five directors.

(3) To appoint Arthur Andersen & Co. as independent auditors for the calendar year 1987.

(4) To consider and act upon any other business as may properly come before the meeting. The Board of Directors of the Company presently knows of no other business to come before the meeting.

Only preferred and common shareowners of record on the books of the Company at the close of business on March 3, 1987 are entitled to vote at the meeting. All such shareowners are requested to be present at the meeting in person or by proxy, so that the presence of a quorum may be assured.

Please sign and return your proxy immediately. If you attend the meeting you may, if you so desire, withdraw your proxy at the registration desk and vote in person. Each shareowner, whether owning few or many shares, is urged to return the proxy promptly. Your attention is directed to the accompanying Prospectus/Proxy Statement, the provisions of which are incorporated in this notice by reference.

Your proxy covers all of your shares of common stock and of the various series of preferred stock of the Company, including any shares held for your account under the Company's Dividend Reinvestment and Stock Purchase Plan or credited to your account under the Company's Employee Stock Ownership Plan. For shares credited to your account under the Company's Employees' Long Range Savings and Investment Plans, you will receive a form of proxy from the trustee of those plans.

As described under "Proposed Merger and Reorganization-Appraisal Rights of Holders of Preferred Stock" in the accompanying Prospectus/Proxy Statement, any holder of shares of the Company's preferred stock desiring to be paid the fair value of his or her shares of preferred stock if the proposed restructuring is consummated, must, pursuant to certain statutory appraisal rights provisions set forth in Exhibit B to the Prospectus/Proxy Statement, file a written objection to the Agreement and Plan of Merger and Reorganization at least 48 hours prior to the Annual Meeting and otherwise comply with such statutory provisions.

A copy of the 1986 Annual Report of the Company has previously been mailed to you.

By order of the Board of Directors

THOMAS A. LANDGRAF, Secretary Wisconsin Power and Light Company

March 27, 1987

Wisconsin Power D Libht Company NOTICE OF ANNUAL MEETING OF SHAREOWNERS

10:00 A.M., April 22, 1987

The Annual Meeting of Shareowners of Wisconsin Power and Light Company (the "Company") will be held at the Dane County Coliseum, 1881 Expo Mall, Madison, Wisconsin, on April 22, 1987 at 10:00 A.M., local time, for the following purposes:

(1) To approve a proposed corporate restructuring of the Company pursuant to an Agreement and Plan of Merger and Reorganization (a copy of which is attached as Exhibit A to the accompanying Prospectus/Proxy Statement). Under such Agreement, WPL Holdings, Inc., at present an inactive subsidiary of the Company, will become the parent holding company of the Company and all outstanding shares of common stock of the Company will be converted on a share-for-share basis into shares of common stock of WPL Holdings, Inc., with the result that the owners of the common stock of the Company will become the owners of the common stock of WPL Holdings, Inc.

(2) To elect five directors.

(3) To appoint Arthur Andersen & Co. as independent auditors for the calendar year 1987.

(4) To consider and act upon any other business as may properly come before the meeting. The Board of Directors of the Company presently knows of no other business to come before the meeting.

Only preferred and common shareowners of record on the books of the Company at the close of business on March 3, 1987 are entitled to vote at the meeting. All such shareowners are requested to be present at the meeting in person or by proxy, so that the presence of a quorum may be assured.

Please sign and return your proxy immediately. If you attend the meeting you may, if you so desire, withdraw your proxy at the registration desk and vote in person. Each shareowner, whether owning few or many shares, is urged to return the proxy promptly. Your attention is directed to the accompanying Prospectus/Proxy Statement, the provisions of which are incorporated in this notice by reference.

Your proxy covers all of your shares of common stock and of the various series of preferred stock of the Company, including any shares held for your account under the Company's Dividend Reinvestment and Stock Purchase Plan or credited to your account under the Company's Employee Stock Ownership Plan. For shares credited to your account under the Company's Employees' Long Range Savings and Investment Plans, you will receive a form of proxy from the trustee of those plans.

As described under "Proposed Merger and Reorganization-Appraisal Rights of Holders of Preferred Stock" in the accompanying Prospectus/Proxy Statement, any holder of shares of the Company's preferred stock desiring to be paid the fair value of his or her shares of preferred stock if the proposed restructuring is consummated, must, pursuant to certain statutory appraisal rights provisions set forth in Exhibit B to the Prospectus/Proxy Statement, file a written objection to the Agreement and Plan of Merger and Reorganization at least 48 hours prior to the Annual Meeting and otherwise comply with such statutory provisions.

A copy of the 1986 Annual Report of the Company has previously been mailed to you.

By order of the Board of Directors

THOMAs A. LANDGRAF, Secretary Wisconsin Power and Light Company

March 27, 1987

This Document is a Proxy Statement for the Annual Meeting of Shareowners of Wisconsin Power and Light Company

and a Prospectus of WPL Holdings, Inc.

Wisconsin Power D Light Company WPL Holdings, Inc.

Shares of Common Stock of

WPL Holdings, Inc.

This Prospectus/Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Wisconsin Power and Light Company (the "Company") to be used at the Annual Meeting of Shareowners to be held at 10 a.m. on April 22, 1987, at the Dane County Coliseum, 1881 Expo Mall, Madison, Wisconsin, and at all adjournments thereof, for the purposes listed in the preceding Notice of Annual Meeting of Shareowners.

At the Annual Meeting, the shareowners will be asked to approve the Agreement and Plan of Merger and Reorganization attached as Exhibit A hereto (the "Plan of Merger"), to elect five directors and to appoint independent auditors. The solicitation of proxies for the Annual Meeting will begin on or about March 27, 1987. The approval of the Plan of Merger is being requested by the Board of Directors of the Company in connection with a proposed corporate restructuring. In the restructuring, WPL Holdings, Inc. ("WPL Holdings"), at present an inactive, wholly-owned subsidiary of the Company, will become the parent holding company of the Company and all outstanding shares of common stock of the Company will be converted on a share-for-share basis into shares of common stock of WPL Holdings, with the result that the owners of common stock of the Company will become the owners of common stock of WPL Holdings. As part of the restructuring, a new corporation to be called Heartland Development Corporation ("Heartland") will be formed as a subsidiary of the Company. Heartland will own all of the outstanding capital stock of the

Company's present non-utility, wholly-owned subsidiaries. Immediately following the effectiveness of the merger, the Company will, by non-cash dividend, transfer all of the outstanding stock of Heartland to WPL Holdings, with the result that Heartland and the non-utility subsidiaries will become subsidiaries of WPL

Holdings. Subsequent to the restructuring, the Company will continue to carry on its present utility business

as a subsidiary of WPL Holdings.

The Board of Directors of the Company believes the restructuring will provide substantial benefits by facilitating initiatives into new areas of business and permitting greater financial and organizational flexibility. The Board urges approval of the Plan of Merger by the shareowners.

Reference is made to "Proposed Merger and Reorganization-Articles of Incorporation and By-laws of WPL Holdings, and Description of WPL Holdings Common Stock" for further information concerning the securities offered hereby.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION

PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus/Proxy Statement is March 27, 1987

AVAILABLE INFORMATION

WPL Holdings has filed with the Securities and Exchange Commission (the "SEC") a Registration Statement under the Securities Act of 1933, as amended, covering the shares of WPL Holdings common stock to be issued in connection with the merger and reorganization provided for by the Plan of Merger. This Prospectus/Proxy Statement does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. Such Registration Statement and the exhibits thereto may be inspected and copied, at prescribed rates, at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC at the following locations: Jacob K. Javits Federal Building, 26 Federal Plaza, New York, New York 10007 and Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago, Illinois 60604.

The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports and other information with the SEC. Such reports, proxy statements and other information filed by the Company with the SEC may be inspected and copied, at prescribed rates, at the public reference facilities maintained by the SEC at the addresses set forth above and may be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Copies of such materials and the Registration Statement referred to above can also be obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.

INFORMATION INCORPORATED BY REFERENCE

The Company's Annual Report on Form 10-K for the year ended December 31, 1985, Quarterly Reports on Form 10-Q for the quarters ended March 31, 1986, June 30, 1986 and September 30, 1986, Current Report on Form 8-K dated September 4, 1986, and Current Report on Form 8-K dated March 5, 1987, as filed with the SEC, are incorporated herein by reference. All documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 prior to the date of the Annual Meeting shall also be deemed to be incorporated herein by reference.

The Company will provide without charge to each person, including any beneficial owner of shares of common or preferred stock of the Company, to whom this document is delivered, upon written or oral request, a copy of any and all of the information that has been incorporated by reference in this document (not including exhibits to the information that is incorporated by reference unless such exhibits are specifically incorporated by reference into the information that this document incorporated). Written or telephone requests for copies of such material should be directed to Thomas A. Landgraf, Corporate Secretary, Wisconsin Power and Light Company, 222 West Washington Avenue, Madison, Wisconsin 53703, 608/2523972.

As described above, this Prospectus/Proxy Statement incorporates documents by reference which are not included herein or delivered herewith. These documents are available upon written or telephone request directed to the Company at the address or telephone number listed in the preceding paragraph. In order to ensure timely delivery of the documents, any request should be made by April 17, 1987.

No person has been authorized to give any information or to make any representation not contained in this Prospectus/Proxy Statement. If given or made, such information or representation must not be relied upon as having been authorized by either WPL Holdings or the Company. This Prospectus/Proxy Statement does not constitute an offer to sell or a solicitation of an offer to buy shares of WPL Holdings common stock by any person in any jurisdiction or in any circumstance in which such offer would be unlawful.

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TABLE OF CONTENTS

F.O M A TIO N ........................................................ 2

RMATION INCORPORATED BY REFERENCE................................... 2

SUMMARY INFORMATION W isconsin Power and Light Company ........................................ ........ 5 W PL H oldings, Inc................................................................ 5 Description of Proposed Restructuring ................................................ 5 Reasons for Restructuring .......................................................... 5 Federal Income Tax Consequences ................................................... 5 R egulatory A pprovals ............................................................. 6 Stock Exchange Listing ............................................................ 6 D ividends ....................................................................... 6 N o Exchange of Stock Certificates ................................................... 6 V ote R equired ..................................................................... 6 E ffectiveness ..................................................................... 6 A ppraisal R ights.................................................................. 6 Selected Consolidated Financial Information........................................... 7 O ther M atters.................................................................... 7

INTRODUCTION General ..................................................................... 8 Voting ..................................................................... 8 Voting Securities Beneficially Owned by Directors, Nominees and Officers .................... 8

PROPOSED MERGER AND REORGANIZATION General ......................................................................... 8 Reasons for Merger and Reorganization ............................................. 10 Terms of Merger and Reorganization................................................. 12

Preferred Stock and Debt Securities.................................................. 12

D ividends ....................................................................... 13 Federal Income Tax Consequences ................................................... 13 N ew York Stock Exchange Listing ................................................... 14 Dividend Reinvestment Plan and Employee Benefit Plans ................................. 14 V ote R equired .................................................................... 15 Appraisal Rights of Holders of Preferred Stock......................................... 15 Conditions to Consummation of Merger and Reorganization .............................. 16 A m endm ent or Term ination ........................................................ 16 E ffective T im e ................................................................... 17 Exchange of Stock Certificates Not Required .......................................... 17 Directors and Executive Officers ..................................................... 17 Business of the Com pany ........................................................... 18 R egulation ....................................................................... 18 Market Prices of Wisconsin Power and Light Company Common Stock ..................... 21 Market Information Relating to Wisconsin Power and Light Company Preferred Stock ........ 21 Financial Statem ents .. . .......................................................... 22 Articles of Incorporation and By-Laws of WPL Holdings ................................. 23 Description of WPL Holdings Common Stock.......................................... 24 Transfer Agents and Registrars...................................................... 25 Legal O pinions ................................................................... 25

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ELECTION OF DIRECTORS Nominees and Continuing Directors............................. Meetings of the Board and Committees of the Board........................... Arrangements for Compensation of Directors ........................... Compensation of Executive Officers

APPOINTMENT OF INDEPENDENT AUDITORS.....................................35

GENERAL Proposals of Shareowners.......................................................35 Other Business ............................................................... 35

Exhibits:

A-Agreement and Plan of Merger and Reorganization (Including Form of Articles of Merger) . ... A-i B-Applicable Portions of Section 180.72 of the Wisconsin Statutes .......................... B-i C-Articles of Incorporation of WPL Holdings, Inc...................................... C-1

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SUMMARY INFORMATION

The following summary information is qualified in its entirety by reference to the more detailed information set forth elsewhere herein, including the exhibits hereto and the documents incorporated herein by reference.

Wisconsin Power and Light Company

The Company is a public utility engaged principally in generating, purchasing, distributing and selling electric energy in portions of southern and central Wisconsin. It also purchases, distributes and sells natural gas in parts of such areas and supplies water in two communities.

The Company's principal executive offices are located at 222 West Washington Avenue, Madison, Wisconsin 53703 (telephone: (608)252-3311).

WPL Holdings, Inc.

WPL Holdings, at present an inactive, wholly-owned subsidiary of the Company, was organized for the purpose of becoming the new parent holding company in the restructuring. Its executive offices are located at the Company's principal executive offices referred to above.

Description of Proposed Restructuring

The Board of Directors of the Company has authorized, subject to shareowner approval, a proposed corporate restructuring. In the restructuring, WPL Holdings will become the parent holding company of the Company, and the outstanding common stock of the Company will be converted into an equal number of shares of WPL Holdings common stock. Heartland will be formed as a wholly-owned subsidiary of the Company and will own all of the outstanding capital stock of each of the Company's present non-utility subsidiaries. As described below, Heartland will become a direct subsidiary of WPL Holdings.

The restructuring is to be accomplished in two steps. First, through a merger of an inactive subsidiary of WPL Holdings into the Company pursuant to the Plan of Merger, WPL Holdings will become the new parent holding company of the Company and the outstanding shares of the Company's common stock will be converted share-for-share into shares of common stock of WPL Holdings. Then, immediately following the merger, a planned dividend by the Company to WPL Holdings of all the outstanding stock of Heartland is to result in Heartland becoming a direct subsidiary of WPL Holdings.

The preferred stock and debt securities of the Company will not be changed in the restructuring. It will not be necessary in the restructuring for holders of Company common stock to exchange their stock certificates for those of WPL Holdings.

Reasons for Restructuring

The principal reasons for the proposed restructuring are (1) to provide flexibility for the Company to deal with increased competition within the industry, (2) to create a structure which can facilitate selective diversification into certain non-utility businesses and (3) to provide additional flexibility for financing. See "Proposed Merger and Reorganization-Reasons for Merger and Reorganization."

Federal Income Tax Consequences

The Company and WPL Holdings have applied to the Internal Revenue Service for rulings with respect to the restructuring, including a ruling to the effect that no gain or loss will be recognized for federal income tax purposes by holders of common stock of the Company on the receipt of WPL Holdings common stock in the restructuring. The restructuring will not be consummated unless certain favorable rulings are received. See "Proposed Merger and Reorganization-Federal Income Tax Consequences."

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Regulatory Approvals

The Public Service Commission of Wisconsin must approve formation of the holding company. Because the Company owns South Beloit Water, Gas and Electric Company, an Illinois public utility, the restructuring must also be approved by the Illinois Commerce Commission. An application seeking approval of the Wisconsin Commission has been filed. Hearings on the application are presently in progress. Approval from the Wisconsin Commission is expected prior to the Annual Meeting. The Company plans to apply in the near future to the Illinois Commission under the Illinois Public Utilities Act and to the SEC under the Public Utility Holding Company Act of 1935 for approval of the restructuring.

Stock Exchange Listing

It is expected that common stock of WPL Holdings will be listed on the New York Stock Exchange as of the date the Plan of Merger becomes effective.

Dividends

Following the restructuring, quarterly dividends on the common stock of WPL Holdings are expected to commence at a rate equal to that currently being paid on the Company's common stock and are expected to be paid on approximately the same dates as dividends on the Company's common stock have been paid.

No Exchange of Stock Certificates

Owners of Company common stock will not be required to, but may, exchange their stock certificates as a result of the restructuring.

Vote Required

Approval of the Plan of Merger by vote of (a) at least two-thirds of the outstanding shares of the Company's common stock, voting separately as a class, and (b) at least two-thirds of the outstanding shares of the Company's common stock and preferred stock, voting together without regard to class or series, is required. At January 31, 1987, the directors and executive officers of the Company owned beneficially an aggregate of 32,613 shares of common stock and 10 shares of preferred stock of the Company, representing less than 1% of the total number of shares of each such class of stock outstanding.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS APPROVAL OF THE PLAN OF MERGER.

Effectiveness

If the Plan of Merger is approved by the requisite vote of shareowners and not terminated by the Board of Directors of the Company, the restructuring will become effective at the close of business on the date that appropriate articles of merger are filed with the Secretary of State of Wisconsin as required by Wisconsin law or on such date, not more than 31 days thereafter, as shall be determined by the Company and set forth in such articles of merger. Assuming all necessary approvals are received as scheduled, the Company anticipates that the restructuring will become effective in August, 1987.

Appraisal Rights

Holders of shares of preferred stock of the Company will, if the merger is consummated, be entitled to be paid the fair value of such shares pursuant to certain Wisconsin statutory appraisal rights provisions. Any such holder desiring to exercise such rights must file a written objection to the Plan of Merger at least 48 hours prior to the Annual Meeting and otherwise comply with such statutory provisions. Under Wisconsin law, no other class of the Company's stock is accorded appraisal rights. See "Proposed Merger and ReorganizationAppraisal Rights of Holders of Preferred Stock."

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Selected Consolidated Financial Information

The following tables set forth consolidated financial information with respect to the Company and its subsidiaries. Such financial information is derived from, and qualified by reference to, the consolidated financial statements contained in certain documents incorporated herein by reference.

Results of Operations

Operating revenues ...................... Net operating income .................... Net income............................ Earnings on common stock ................ Earnings per share of common stock ......... Cash dividends paid per share of common stock .

Other Financial Information

Total assets ............................

First mortgage bonds, and other, net .......... Preferred stock without mandatory redemption.. Preferred stock with mandatory redemption . ...

Common shareowners' investment ............

Total capitalization ......................

Book value per share of common stock ........

For Year Ended December 31

1986 1985 1984 1983 1982

(Thousands of dollars, except per share amounts)

$569,246 $588,931 $575,476 $555,502 $512,477 88,806 80,408 75,967 74,813 74,671 60,484 60,728 58,332 54,587 47,355 56,670 56,368 53,552 49,624 42,256

$4.28 $4.26 $4.12 $3.97 $3.51 $2.90 $2.70 $2.52 $2.36 $2.20

As of December 31

1986 1985 1984 1983 1982

(Thousands of dollars, except per share amounts) $987,919 $976,720 $925,102 $881,167 $833,946

$333,182 $332,877 $299,451 $286,537 $294,276 60,000 60,000 60,000 60,000 60,000

- - 6,672 8,206 9,706 383,926 365,650 345,316 311,869 279,697

$777,108 $758,527 $711,439 $666,612 $643,679

$29.00 $27.62 $26.09 $24.45 $22.77

Other Matters

Other business to be transacted at the Annual Meeting includes the election of five directors of the Company (who, along with the continuing directors, will be directors of WPL Holdings, if the restructuring takes place) and the appointment of Arthur Andersen & Co. as independent auditors of the Company (and WPL Holdings, if the restructuring takes place) for 1987.

7

9

*s,*

** @* INTRODUCTION

General

The purposes of the meeting are set forth in the accompanying Notice. The enclosed proxy relating to the meeting is solicited on behalf of the Board of Directors of the Company and the cost of such solicitation will be borne by the Company. Following the original solicitation of proxies by mail, beginning on or about March 27, 1987, certain of the officers and regular employees of the Company may solicit proxies by correspondence, telephone, telegraph or in person, but without extra compensation. The Company may.also hire temporary employees to perform such solicitation at an estimated cost of $10,000. The Company will pay to banks, brokers, nominees and other fiduciaries their reasonable charges and expenses incurred in forwarding the proxy material to their principals. In addition, the Company has retained Morrow & Co., Inc., New York, New York, to assist in the solicitation of proxies. Such solicitation may be made by mail, telephone or in person. The estimated cost of the services of Morrow & Co., Inc. is $27,500 plus reasonable out of pocket expenses.

Voting

The outstanding voting securities of the Company on the record date stated below consisted of 13,236,601 shares of common stock and 600,000 shares of preferred stock (issued in various series).

Only shareowners of the Company (both common and preferred) of record on its books at the close of business on March 3, 1987 are entitled to vote at the meeting. Each such shareowner is entitled to one vote for each share of stock of the Company (whether common or preferred) registered in his or her name on the record date, on each matter submitted to a vote at the meeting. A quorum for the meeting consists of a majority of the total number of shares of voting securities outstanding on the record date without regard to class or series. The affirmative vote of a majority of the shares of stock (common and preferred) represented at the meeting is required for the election of each director and the ratification of the appointment of the independent auditors. Approval of the merger and reorganization described herein requires an affirmative vote of at least two-thirds of the common stock, voting separately as a class, and at least two-thirds of the common stock and preferred stock, voting together without regard to class or series. Shareowners may vote either in person or by duly authorized proxy. The giving of proxies by shareowners will not affect their rights to vote their shares if they attend the meeting and desire to vote in person. A proxy may be revoked by the person giving it at any time prior to the time it is voted by advising the Secretary of the Company prior to such voting. All shares represented by effective proxies on the enclosed form, received by the Company, will be voted at the meeting or any adjourned session of the meeting, all in accordance with the terms of such proxies.

No shareowner is known by management of the Company to own beneficially more than 5% of any class of the Company's voting securities.

Voting Securities Beneficially Owned by Directors, Nominees and Officers

The directors, nominees and executive officers of the Company owned beneficially at January 31, 1987 an aggregate of 32,613 shares of common stock and 10 shares of preferred stock of the Company. The directors, nominees and executive officers, in the aggregate, owned beneficially at that date less than 1% of each such class of stock.

PROPOSED MERGER AND REORGANIZATION General

The Board of Directors of the Company has authorized, subject to shareowner and regulatory approval, a proposed corporate restructuring. The restructuring will create a parent holding company, convert the Company's outstanding common stock into common stock of the new holding company, on a share-for-share basis, and transfer the Company's non-utility subsidiaries to the new parent holding company.

The management and the Board of Directors of the Company believe that the creation of a parent holding company having the Company as its principal subsidiary would result in substantial benefits to the Company and its shareowners. See "Reasons for Merger and Reorganization."

8

I** 0To carry out the restructuring, the Company has formed a wholly-owned subsidiary, WPL Holdings, Inc. ("WPL

Holdings") which, in turn, has formed a wholly-owned subsidiary, WPL Acquisitions, Inc. ("WPL Acquisitions"). Both of these corporations are capitalized at nominal amounts. Neither has any significant assets nor engages in any business. In order to accomplish the restructuring, the shareowners of the Company must approve an Agreement and Plan of Merger and Reorganization (the "Plan of Merger") which provides for the merger of WPL Acquisitions into the Company, with the Company being the surviving corporation, and for the conversion of the outstanding common stock of the Company into common stock of WPL Holdings, on a share-for-share basis. Thereafter, the Company will, by noncash dividend, transfer to WPL Holdings all of the outstanding stock of Heartland Development Corporation ("Heartland"), a corporation to be formed by the Company as a wholly-owned subsidiary.. Heartland will own all of the outstanding capital stock of each of the Company's present non-utility subsidiaries, Residuals Management Technology, Inc., and its subsidiaries, WP&L Communications, Inc., and Enserv, Inc. (the "Non-utility Subsidiaries"). The form of the Plan of Merger is attached hereto as Exhibit A and is incorporated herein by reference. It is intended that the merger and reorganization will not affect the position of the present shareowners of the Company for federal income tax purposes. See "Federal Income Tax Consequences."

None of the other securities of the Company, including its preferred stock and first mortgage bonds, will be changed by the merger. Following the merger, the preferred stock will continue as outstanding preferred stock of the Company. See "Preferred Stock and Debt Securities."

At present, the corporate structure is as follows:

*WP&L Communications, Inc. is one of five partners (owners) in the Norlight Fiber Optics Partnership **South Beloit Water, Gas and Electric Company

9

Upon completion of the restructuring, the corporate structure will be as follows:

WPL HOLDINGS, INC.

HEARTLAND DEVELOPMENT CORPORATION WISCONSIN POWER & LIGHT COMPANY

RESIDUALS WP&L ENSERVWP&L NUFUS REACWP&L MANAGEMENT COMMUNICATIONS. ENC FOUNDATION, RESOURCES, INC COMPAN NUCLEAR

TECHNOLOGY, INC.* INC.** INC. INC. INC. INC.FUEL, INC.

*Creative Resource Ventures, Ltd. and Emerald Park, Inc. will continue to be subsidiaries of Residuals Management Technology, Inc. **WP&L Communications, Inc. is one of five partners (owners) in the Norlight Fiber Optics Partnership

***South Beloit Water, Gas and Electric Company

Reasons for Merger and Reorganization

The principal reasons for the proposed restructuring are to create a structure which can more effectively address the

growing national competition in the energy industry, refocus various utility activities, facilitate selective diversification

into non-utility businesses, afford separation between the utility and non-utility businesses, and provide additional flexibility for financing and for maintaining appropriate utility capital ratios.

The two primary reasons for restructuring are to better position the Company to deal effectively with the competitive

environment developing within the energy industry and to best deploy shareowners' capital both inside and outside of the

industry. The Company's Board of Directors believes these objectives can most effectively be accomplished through the

proposed restructuring, as it provides the necessary flexibility required to meet competitive challenges and to diversify while insulating the utility business from the risks of the non-utility business.

The Company faces increased competition in both its electric and gas business. In the electric business, the Company

faces increased competition to serve the electric needs of large industrial customers, wholesale customers and

municipalities. The Company will seek to supply these classes of customers outside its traditional service territory and must respond to activities of other suppliers who are increasing their efforts to serve the same customers as well as such

customers within the Company's traditional service territory. The Company is facing competition to become the retail

electric supplier in those municipalities which decide to cease electric distribution operations. In the gas business, deregulation in the supply of natural gas has allowed large industrial customers to seek alternate natural gas supplies. The ability to seek alternate sources and thus increased competition may also result from proposed additional gas pipeline

interconnections within the Company's traditional service territory and elsewhere.

The Company anticipates that, based upon its projections of load growth and absent any major change in technology, a portion of the Company's earnings may not be required to be reinvested in the utility business over the next 15 years. The Board is of the view that a holding company structure will facilitate the deployment of any portion of the Company's earnings which are not so needed for reinvestment in the utility business.

In the Board's view, restructuring will increase opportunities to broaden the Company's financial base and thereby

broaden investment appeal through a reduction of dependence on the utility businesses and an increase in exposure to

other businesses. Financing alternatives may also be enhanced as a result of engaging in a greater number of businesses. Diversification that succeeds in promoting employment and commerce in the areas served by the Company may benefit

the Company and its customers, as well as the shareowners, in other ways. Diversification does, however, involve risks, and

there can be no assurance that any new businesses will be successful or, if unsuccessful, that they will not have an adverse

effect on the holding company system as a whole despite the separations afforded by the holding company structure.

The holding company structure is designed to insulate the customers of the Company and the public holders of the Company's securities from the risks of the non-utility businesses by segregating the non-utility businesses into separate corporations that will be direct or indirect subsidiaries of the holding company and not of the Company. Because non

utility businesses of the holding company will be conducted through separate subsidiaries, any liabilities incurred by those

10

subsidiaries will not constitute liabilities of the utility subsidiaries. The corporate separation also insures that all costs of a particular Non-utility Subsidiary will be charged to that subsidiary and not allocated to any

utility subsidiary. This type of cost allocation is in keeping with requirements of the Wisconsin Holding

Company Act as described under "Regulation-Wisconsin Holding Company Act." Thus, the corporate structure and the regulatory requirements provide for the insulation of customers of the Company from risks of the non-utility businesses. Likewise, the preferred shareowners and debt security holders of the Company after the restructuring will be insulated from the risks of the non-utility businesses. Any benefits or detriments which result from the restructuring and consequent segregation of the utility and non-utility businesses will

flow to the security holders of WPL Holdings and not to security holders of the Company (i.e., the owners of

the Company's preferred stock and debt securities). After the restructuring, the separate financial statements

prepared for the Company will not reflect the non-utility businesses to be owned by Heartland. The

consolidated financial statements of WPL Holdings will not reflect the financial condition of any group of subsidiaries taken separately but will reflect the overall operations of all subsidiaries, including the Company

and its subsidiaries and Heartland and the Non-utility Subsidiaries.

The holding company structure is intended to afford additional flexibility for maintaining the capital

ratios of the Company at levels determined to be appropriate by regulatory authorities. This ability to adjust

the components of the capital structure of the Company will help the Company maintain stable utility rates.

One component of utility rates is cost of capital. Equity capital is the most expensive type of capital and

if the equity component of a utility's capital structure is too high it may result in increasing pressure to raise

rates. If the equity component is too low it may result in increases in the cost of debt because of increased

leverage and risk which will also tend to increase rates. Under the holding company structure, capital ratios of

the utility would be subject to adjustment from time to time through dividends to, or equity investments from, the holding company.

Financing alternatives are expected to be improved by the holding company structure in that the

planning of financings best suited to the particular needs and circumstances of the separate businesses should

be facilitated. It is contemplated that in the normal course WPL Holdings, in addition to receiving dividends from its subsidiaries, will obtain funds through debt or equity financings, that the Company will obtain funds

through its own financings (which may include the issuance of first mortgage bonds or preferred stock, as well

as the issuance of additional shares of its common stock to the holding company), and that the non-utility

businesses owned by Heartland will obtain funds from WPL Holdings, from other non-utility affiliates, or

from their own outside financings. Any financings will depend on the financial and other conditions of the

entities involved and on market conditions.

The Wisconsin Holding Company Act (Section 196.795, Wisconsin Statutes), under which the Public

Service Commission of Wisconsin ("PSCW") must approve the proposed restructuring, declares that the

maintenance of a financially healthy utility is contingent upon the maintenance of an economically healthy

service area and that the public interest and the interest of investors and consumers can be benefitted if public

utility holding companies, in the service territories of their public utility affiliates or in Wisconsin, conduct

substantial business activities, attract new businesses, expand existing businesses, provide investment capital

for new business ventures, and otherwise directly or indirectly promote employment and commerce. The

restructuring is proposed by the Board of Directors with a view toward implementation of those goals and the

other purposes indicated above. At the present time, however, no specific diversification plans have been formulated.

The Board of Directors of the Company intends that the utility operations of the Company will continue to constitute the predominant activity of the holding company system for the foreseeable future and that there

be no capital impairment of the Company and no adverse effect on the Company's levels of service as a result

of the restructuring. This intention accords with the limitations and other provisions in the Wisconsin Holding

Company Act. See "Regulation-Wisconsin Holding Company Act and-Illinois Public Utilities Act."

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS APPROVAL OF THE

PROPOSED MERGER AND REORGANIZATION AND URGES EACH SHAREOWNER TO VOTE

"FOR" APPROVAL OF THE PLAN OF MERGER.

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Terms of Merger and Reorganization

The Plan of Merger has been unanimously approved by the Boards of Directors of the Company, WPL Holdings and WPL Acquisitions. Pursuant to the Plan of Merger:

(1) WPL Acquisitions will be merged into the Company, with the Company being the surviving corporation.

(2) Each outstanding share of common stock, $5 par value, of the Company will be changed and converted into one share of common stock, $.01 par value, of WPL Holdings.

(3) The outstanding shares of common stock of WPL Acquisitions will be changed and converted into the shares of Company common stock issued and outstanding immediately prior to the time the merger and reorganization is made effective.

(4) The outstanding shares of WPL Holdings common stock held by the Company prior to the time the merger and reorganization is made effective will be cancelled.

As a result of the foregoing, the Company, as the surviving corporation in the merger, will become a subsidiary of WPL Holdings, and all of the common stock of WPL Holdings outstanding immediately after the merger will be owned by the former common shareowners of the Company. The Company will continue to own all outstanding stock of WPL Foundation, Inc., NUFUS, Inc., REAC, Inc., South Beloit Water, Gas and Electric Company and WP&L Nuclear Fuel, Inc. (the "Utility Subsidiaries"). Following the effectiveness of the merger, the Company will, by non-cash dividend, transfer all of the outstanding stock of Heartland to WPL Holdings. Heartland will own all the outstanding capital stock of the Non-utility Subsidiaries.

Preferred Stock and Debt Securities

The outstanding preferred stock, first mortgage bonds and other debt securities of the Company will not be altered in the merger and reorganization. Such securities will remain outstanding and will continue to be securities of the Company as the survivor of the merger. The first mortgage bonds will continue to be secured by a first mortgage lien on substantially all of the fixed properties of the Company.

Management's decision that the preferred stock should continue as securities of the Company is based upon, among other factors, a desire to avoid changing the nature of the investment represented by such stock. The utility operations of the Company presently constitute, and are expected to constitute for the foreseeable future, substantially all of WPL Holdings' consolidated assets and earning power. Accordingly, it is believed that the preferred stock will retain its investment rating, as well as its qualification for legal investment, by remaining a security of the Company.

Preferred stock of the Company will continue to rank senior to the common stock of the Company as to dividends and as to assets of the Company in the event of any liquidation of the Company. The preferred stock of the Company is and will be unrelated in rank to the common stock of WPL Holdings and Heartland. Payment of dividends on common stock of WPL Holdings will in large part depend on earnings of the Company and payment of dividends on the Company's common stock. The Company's Restated Articles of Organization will continue to provide that no dividends may be paid on the common stock of the Company unless dividends are current on the preferred stock of the Company. Payment of any dividends on Heartland common stock will be unaffected by any dividend payment or non-payment on either preferred or common stock of the Company.

The dividend by the Company to WPL Holdings of all the outstanding stock of Heartland, which will own all of the outstanding stock of the Non-utility Subsidiaries, will result in the Company's investment in these subsidiaries and any earnings from such subsidiaries being no longer of potential benefit to holders of the Company's preferred stock or debt securities (that is, any such earnings will be unavailable to pay dividends on preferred stock or interest or principal on debt securities of the Company). The Board of Directors of the Company, however, believes that such holders will not be materially affected by such dividend. The

12

Company's net investment in these subsidiaries was $7,868,000 as of December 31, 1986, representing approximately 2% of the consolidated common shareowners' investment of the Company and its subsidiaries as of that date. For the year ended December 31, 1986, consolidated net income (before preferred stock dividend requirements) was $60,484,000. If the non-cash dividend to be made by the Company to WPL Holdings had been made on January 1, 1986, consolidated net income (before preferred stock dividend requirements) of the Company for the year ended December 31, 1986, would have increased by approximately $625,000. The annual preferred stock dividend requirement for such year was approximately $3,814,000, representing approximately 6.3% of income available for preferred and common dividends. The Board of Directors also believes that the transfer of the Non-utility Subsidiaries to Heartland will have no material adverse affect on'the Company's utility operations or on its financial position or results of operations.

Following the restructuring, the Company will continue to be a reporting company under the Securities Exchange Act of 1934. While annual meetings of the Company's shareowners are expected to continue to be held after the restructuring, the Company may decide not to solicit proxies from holders of preferred stock in connection with the election of directors and in connection with other matters requiring the approval of shareowners but not requiring a class vote of holders of preferred stock, since the shares of Company common stock owned by WPL Holdings will have sufficient voting power to take action without the vote of the preferred stock. See "Articles of Incorporation and By-Laws of WPL Holdings-Voting Rights."

Dividends

Future dividends on WPL Holdings common stock and on equity securities of its subsidiaries will depend upon the respective earnings, financial conditions and other factors of such companies. Quarterly dividends on WPL Holdings common stock are expected to commence at a rate equal to that currently being paid on Company common stock and are expected to be paid on approximately the same dates in each year as dividends on Company common stock have been paid. The payment of dividends on the Company's preferred stock is expected to continue at the specified rates without interruption or change.

Subject to the availability of earnings and the needs of its utility business, the Company intends to make regular cash payments to WPL Holdings in the form of dividends on then outstanding shares of Company common stock in amounts which, to the extent not otherwise provided by other subsidiaries of WPL Holdings, will provide WPL Holdings with moneys sufficient to enable it to pay cash dividends on its common stock and to meet operating and other expenses. Except for such cash dividend payments and except for the proposed non-cash dividend of the common stock of Heartland as part of the restructuring, it is not anticipated that the Company will make transfers of assets without consideration to WPL Holdings, or to the other subsidiaries of WPL Holdings, following completion of the restructuring. Initially, it is expected that substantially all of the funds required by WPL Holdings to pay dividends on its common stock will be derived from dividends paid by the Company on its common stock. The quarterly dividend most recently declared by the Board of Directors of the Company was $.76 per common share payable May 15, 1987 to holders of record of the Company's common stock on April 30, 1987.

The Company's charter and first mortgage indenture contain covenants which could, in the future, affect the Company's ability to pay cash dividends on, or to acquire, its common stock. Such covenants will not be altered by the proposed merger and reorganization. As of December 31, 1986, none of such covenants operated to restrict the Company's reinvested earnings for purposes of dividends, distributions, purchases or other acquisitions in respect of its common stock. See "Regulation-Wisconsin Holding Company Act" regarding statutory limitations on payment of dividends by Wisconsin utility companies to their holding company parents.

Federal Income Tax Consequences

The Company and WPL Holdings have been advised by their counsel Isham, Lincoln & Beale, Chicago, Illinois that, in their opinion, for federal income tax purposes:

(i) No gain or loss will be recognized by the owners of Company common stock upon the conversion or exchange of such stock for WPL Holdings common stock pursuant to the Plan of Merger;

13

(ii) The basis of WPL Holdings common stock to be received by the owners of Company common stock pursuant to the Plan of Merger will be the same as their basis in the Company common stock converted or exchanged;

(iii) The holding period of WPL Holdings common stock to be received by the owners of Company common stock in connection with the Plan of Merger will include the period during which the Company common stock being converted or exchanged was held, provided that the Company common stock is held as a capital asset in the hands of the shareowner at the Effective Time;

(iv) No gain or loss will be recognized by WPL Holdings or the Company in connection with the merger and reorganization; and

(v) The affiliated group of corporations of which the Company is the common parent immediately before the merger and reorganization will continue in existence for consolidated tax return purposes, and WPL Holdings will be the common parent of such affiliated group after the merger and reorganization.

The Company and WPL Holdings have applied for, but have not yet received, rulings from the Internal Revenue Service to the foregoing effect. The proposed merger and reorganization will not be consummated unless rulings substantially to the foregoing effect are received.

Holders of Company preferred stock who contemplate dissenting from the merger and reorganization should consult with their tax advisors concerning the tax consequences of that action.

The foregoing discussion does not cover the tax consequences of the merger and reorganization under state income or other tax laws. Each shareowner of the Company is urged to consult with his own tax advisor with respect to the effects of such laws.

New York Stock Exchange Listing

At the Effective Time of the merger, the common stock of the Company will no longer meet the requirements for listing on the New York Stock Exchange because all of the Company's common stock will be held by one shareowner, WPL Holdings. WPL Holdings will apply to list its common stock on the New York Stock Exchange. It is expected that the listing will be effective as of the Effective Time. As a practical matter, current owners of Company common stock will continue to be able to sell their shares of Company common stock (or, after the Effective Time, WPL Holdings common stock) on the New York Stock Exchange without interruption.

Dividend Reinvestment and Employee Benefit Plans

If the merger is consummated, no shares of Company common stock will thereafter be available for issuance under the Company's Dividend Reinvestment and Stock Purchase Plan, under the Company's Employee Stock Ownership Plan or under the Company's Employees' Long Range Savings and Investment Plans A and B ("ESIP Plans").

Accordingly, WPL Holdings will adopt a plan (the "Reinvestment Plan") which will provide for purchases of WPL Holdings common stock with reinvested dividends on WPL Holdings common stock and Company preferred stock and with optional cash payments. The Reinvestment Plan will be similar to the Company's existing Dividend Reinvestment and Stock Purchase Plan, except that the WPL Reinvestment Plan will provide for both original issue shares and open market purchases. The existing Plan provides only for open market purchases. All participants in the Company's Dividend Reinvestment and Stock Purchase Plan will be provided with appropriate information relating to the Reinvestment Plan prior to consummation of the merger and reorganization.

The Company's existing Employee Stock Ownership Plan and ESIP Plans will be amended to cover any eligible employees of WPL Holdings and its subsidiaries and to provide for the acquisition of WPL Holdings common stock. The retirement and other employee benefit plans of the Company will be revised or amended as appropriate to include any eligible employees of WPL Holdings and its subsidiaries.

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Vote Required

In order for the Plan of Merger to be approved under Wisconsin law, it must receive the favorable vote of (i) the owners of at least two-thirds of the shares of common stock of the Company, voting separately as a class, and (ii) the owners of at least two-thirds of the shares of common and preferred stock of the Company, voting together without regard to class.

Appraisal Rights of Holders of Preferred Stock

The following discussion is qualified in its entirety by reference to Section 180.72 of the Wisconsin Statutes, a copy of which is attached hereto as Exhibit B.

Under Wisconsin law, holders of shares of any class or series of the Company's stock dissenting from the merger will not be entitled to appraisal rights if the shares of such class or series are registered on a national securities exchange or quoted on the National Association of Securities Dealers Automated Quotation System on the record date for the shareowners' meeting at which the merger will be acted upon. On the record date, all outstanding common stock of the Company was listed (registered) on the New York Stock Exchange. Accordingly, common shareowners will have no appraisal rights.

. Preferred stock of the Company is not so registered or quoted. Accordingly, a holder of the Company's preferred stock who follows the procedures set forth in Section 180.72 of the Wisconsin Statutes will be entitled, if the merger is consummated, to payment, in cash, of the fair value of his or her shares. The fair value of such shares will be determined as of the day prior to the date on which the shareowner vote is taken approving the Plan of Merger, excluding any appreciation or depreciation in anticipation of such corporate action. As described below, the fair value of such shares will be arrived at by agreement between the Company and the holder or, failing agreement, by a court in a special proceeding. Generally, in determining fair value, the Company intends to look at the open market price, if any, of the applicable series of preferred stock and to market prices of comparable securities which, ordinarily, are determined on the basis of yield.

To be entitled to such appraisal rights, a holder of preferred stock must (a) at least 48 hours prior to the Annual Meeting of Shareowners file a written objection to the Plan of Merger, (b) not vote the shares of preferred stock as to which he or she is objecting in favor of the Plan of Merger, and (c) within 10 days after the date on which the shareowners' vote on the Plan of Merger is taken, make a written demand on the Company for payment of the fair value of the number of his or her shares of preferred stock as to which he or she has objected. Any holder who satisfies the foregoing statutory requirements may also vote against the Plan of Merger, but a vote against the Plan of Merger will not by itself satisfy the foregoing statutory requirements. A holder of preferred stock may object as to less than all of the shares of preferred stock registered in his or her name and, in that event, his or her rights are to be determined as if the shares as to which he or she has objected and his or her other shares are registered in the names of different shareowners. Any holder of preferred stock making such demand shall thereafter be entitled only to payment as provided in Section 180.72 and shall not be entitled to vote, or to any other rights of a shareowner in respect of, the shares as to which he or she is objecting. Under Section 180.72, no such demand may be withdrawn unless the Company shall consent thereto.

Pursuant to Section 180.72, within 20 days after demanding payment for his or her shares, each holder of preferred stock demanding payment is required to submit the certificate or certificates representing his or her shares to the Company for notation thereon that such demand has been made. Failure to do so will, at the option of the Company, terminate a holder's rights under Section 180.72 unless a court of competent jurisdiction, for good and sufficient cause shown, otherwise directs.

Under Section 180.72, within 10 days after the effective date of the merger, the Company is to give written notice thereof to each objecting holder of preferred stock who has made demand as provided in Section 180.72 and is to make a written offer to each such holder to pay for such shares at a specified price deemed by the Company to be the fair value thereof. If, within 30 days after the effective date of the merger, the fair

15

value of such shares is agreed upon between any such objecting holder and the Company, payment therefor is to be made within 90 days after such effective date upon surrender of the certificate or certificates representing such shares. Upon payment of the agreed value, such holder shall cease to have any interest in such shares.

If within such 30-day period an objecting holder of preferred stock and the Company do not so agree, then the Company, within 30 days of receipt of written demand from any such holder given within 60 days after the effective date of the merger, must commence a special proceeding by serving and filing a petition in any court of competent jurisdiction in Dane County, Wisconsin, requesting that the fair value of such shares be found and determined. If no such written demand from any such holder is given within such period of 60 days, the Company may, but is not required to, commence such a special proceeding. The Company has not determined whether it will commence such a proceeding in the absence of such a written demand. If the Company should fail to institute such proceedings, any objecting holder of preferred stock may do so in the name of the Company. All objecting holders, wherever residing, who have made demands as provided in Section 180.72 and whose rights to payment have not otherwise terminated, are to be made parties to the special proceeding. All holders who are parties to the special proceeding are entitled to judgment against the Company for the amount of the fair value of their shares. The judgment will be payable only upon and concurrently with the surrender to the Company of the certificate or certificates representing such shares. Upon payment of the judgment, an objecting holder shall cease to have any interest in such shares.

Certain of the costs and expenses of any such special proceeding are to be determined by the court and may be assessed against the Company, but all or any part of such costs and expenses may be apportioned and assessed as the court may deem equitable against any or all of the objecting holders who are parties to the proceeding to whom the Company shall have made an offer to pay for the shares if the court shall find that the action of such holders in failing to accept such offer was arbitrary or vexatious or not in good faith.

Written objections and written demands for payment from holders of preferred stock should be sent by mail or delivered in person to Thomas A. Landgraf, Corporate Secretary, Wisconsin Power and Light Company, 222 West Washington Avenue, P.O. Box 192, Madison, Wisconsin 53703.

See "Federal Income Tax Consequences."

Conditions to Consummation of Merger and Reorganization The merger and reorganization will not be consummated unless the following conditions, among others,

are satisfied: (i) approval of the Plan of Merger by the requisite vote of shareowners of the Company; (ii) approval by the PSCW, in a form satisfactory to the Company, of the formation by the Company of a holding company pursuant to the Wisconsin Holding Company Act; (iii) approval by the Illinois Commerce Commission, in a form satisfactory to the Company, of the restructuring pursuant to Section 7-204 of the Illinois Public Utilities Act; (iv) receipt and continued effectiveness of a favorable ruling or rulings from the Internal Revenue Service with respect to the federal income tax consequences of the merger and reorganization; (v) receipt of an order from the SEC, in a form satisfactory to the Company, approving the acquisition by WPL Holdings of the common stock of the Company, South Beloit Water, Gas and Electric Company and Wisconsin River Power Company under the Public Utility Holding Company Act of 1935 (the "Holding Company Act"); and (vi) approval for listing, upon official notice of issuance, of the common stock of WPL Holdings by the New York Stock Exchange.

Amendment or Termination The Company, WPL Holdings and WPL Acquisitions, by action of their respective Boards of Directors,

may amend, modify or supplement the Plan of Merger at any time before or after its approval by the shareowners of the Company. After such approval, no such amendment, modification or supplement may be made or effected which, in the judgment of the Board of Directors of the Company, materially and adversely affects the rights of the shareowners of the Company.

The Plan of Merger provides that it may be terminated, and the merger and other transactions abandoned, at any time, whether before or after shareowner approval of the Plan of Merger, by action of the Board of Directors of the Company, if the Board determines that the consummation of the restructuring would be inadvisable or not in the best interests of the Company or its shareowners.

16

Effective Time

The merger and reorganization will become effective at the time to be specified in the Articles of Merger (the "Effective Time"). The form of the Articles of Merger is attached as Schedule I to the Plan of Merger. The Effective Time will be the close of business on the date that the Articles of Merger are duly filed in the office of the Secretary of State of the State of Wisconsin or such later time within 31 days after such filing as may be designated in the Articles of Merger. The Effective Time is expected to be on or about August 15, 1987 but shall not in any case be later than April 30, 1988. The filing of the Articles of Merger will be made only upon satisfaction of all the terms and conditions in the Plan of Merger. See "Conditions to Consummation of Merger and Reorganization."

Exchange of Stock Certificates Not Required

If the merger becomes effective, the common shareowners of the Company prior to the Effective Time will automatically become owners of WPL Holdings common stock and, as of the Effective Time, will cease to be owners of Company common stock. Stock certificates representing shares of Company common stock will, at the Effective Time, represent shares of WPL Holdings common stock. Shareowners of Company common stock will not be required to exchange their stock certificates as a result of the merger and reorganization. Should a shareowner desire to sell WPL Holdings common stock after the Effective Time, delivery of the stock certificate or certificates which previously represented shares of Company common stock will be sufficient.

Following the merger, certificates bearing the name of WPL Holdings will be issued in the normal course upon surrender of outstanding Company common stock certificates for transfer or exchange. If any shareowner surrenders a certificate representing shares of Company common stock for exchange or transfer and the new certificate to be issued is to be issued in a name other than that appearing on the surrendered certificate theretofore representing Company common stock, it will be a condition to such exchange or transfer that the surrendered certificate be properly endorsed and otherwise be in proper form for transfer and that the person requesting such exchange or transfer either (i) pay WPL Holdings or its agents any taxes or other governmental charges required by reason of the issuance of a certificate registered in a name other than that appearing on the surrendered certificate or (ii) establish to the satisfaction of WPL Holdings or its agents that such taxes or other governmental charges have been paid.

Directors and Executive Officers

The WPL Holdings Board of Directors, upon the effectiveness of the restructuring, is to consist of those persons who, at the Effective Time of the merger, are serving as directors of the Company, each to have the term of office for which he or she was elected or appointed. The Board of WPL Holdings will consist of thirteen directors divided into three classes, with one class (or approximately one-third of the Board) to be elected each year for a three-year term. See "Election of Directors."

WPL Holdings executive officers are now, and upon the effectiveness of the restructuring are expected to be:

Chairman of the Board, President and Chief Executive Officer James R. Underkofler Age: 63

Vice President Eugene 0. Gehl Age: 63

Treasurer and Secretary Thomas A. Landgraf Age: 38

See "Election of Directors" for information with respect to Messrs. Underkofler and Gehl. Mr. Landgraf has been Corporate Secretary and Director of Risk Management and Shareowner Services of the Company since October 1985. Prior to that time he served as Assistant Corporate Secretary beginning April 1983. From May 1979 to April 1983 he served as Assistant Controller. Prior to May 1979 he was an executive budget and management officer with the state government of Wisconsin.

17

WPL Holdings presently has no employees. Upon completion of the merger and restructuring, WPL Holdings may hire its own employees or utilize employees of the Company, in which case the Company will be reimbursed by WPL Holdings for any time expended by the Company's officers and employees on the affairs of WPL Holdings and its other subsidiaries. The offices of WPL Holdings will be located at the principal office of the Company and WPL Holdings will reimburse the Company for such use. Transactions between the Company and WPL Holdings will be pursuant to an affiliated interest agreement which must be approved by the PSCW.

Business of the Company

The Company is engaged principally in generating, purchasing, distributing and selling electric energy in portions of southern and central Wisconsin, and the purchase, distribution and sale of natural gas in parts of such areas. It also supplies water in two communities.

Regulation

General. The Company and WPL Holdings have been advised by William D. Harvey, Vice President and Associate General Counsel to the Company, that, so long as WPL Holdings is not a public utility, it will not be subject, under present law, to regulation by the Federal Energy Regulatory Commission, the Illinois Commerce Commission or the PSCW, except to the extent described below under "Wisconsin Holding Company Act" and "Illinois Public Utilities Act." Following the merger and reorganization certain changes in control of WPL Holdings or the Company could be subject to the jurisdiction of the PSCW or the Illinois Commerce Commission. See "Wisconsin Holding Company Act" and "Illinois Public Utilities Act."

The Company will continue to be subject to the jurisdiction of the PSCW as to electric, gas and water rates, standards of service, issuance of securities, construction of new facilities, levels of short-term debt obligations, accounting, billing practices, certain transactions with non-utility affiliates, and various other matters. South Beloit Water, Gas and Electric Company will also continue to be subject to the jurisdiction of the Illinois Commerce Commission as to certain of the matters noted above. In addition, the Company will continue, in respect of accounting and wholesale rates, to be subject to Federal Energy Regulatory Commission jurisdiction. With respect to construction and operation of nuclear facilities, the Company will continue to be subject to regulation by the Nuclear Regulatory Commission. Also, in respect of environmental and related matters, the Company will continue to be subject to regulation by the United States Environmental Protection Agency and the Wisconsin Department of Natural Resources. As a result of filing annual exemption statements with the SEC, the Company is presently exempt from all provisions of the Public Utility Holding Company Act of 1935, except provisions thereof relating to the acquisition of securities of other public utility companies. See "Federal Public Utility Holding Company Act."

Wisconsin Holding Company Act. In 1985, Section 196.795 of the Wisconsin Statutes (the "Wisconsin Holding Company Act") was enacted to provide for the regulation by the PSCW of the formation of holding companies, and of various matters with respect to resulting holding company systems. "Holding company" is defined as including, in general, any company, directly or indirectly, as beneficial owner, owning, controlling or holding 5% or more of the outstanding voting securities of a public utility, with the unconditional power to vote such securities. "Form a holding company" is defined to include "as a beneficial owner, to take, hold or acquire 5% or more of the outstanding voting securities of a public utility with the unconditional power to vote those securities."

Among the provisions of the Wisconsin Holding Company Act are provisions briefly summarized as follows: (a) prohibition on any person forming a holding company or acquiring or holding more than 10% of the outstanding voting securities of a holding company, without PSCW approval; (b) authorization for the PSCW, if it finds the capital of any public utility affiliate will be impaired by payment of a dividend, to order the affiliate to limit or cease payment of dividends to the holding company; (c) provision that, while a holding company or a non-utility affiliate is not subject to the general regulatory jurisdiction of the PSCW, the PSCW has full access to any document or other information to the extent relevant to the PSCW's performance of its

18

duties in respect of public utility affiliates; (d) prohibition on various transactions by a public utility affiliate with others in the holding company system, including lending money, guaranteeing obligations, combined advertising, providing utility service on terms different from those for other consumers in the same class, and without PSCW approval after establishment that the utility affiliate will be paid at fair market value, certain sales or leases of real property and use of services of utility employees; (e) prohibitions against (i) any public utility affiliate providing any non-utility product or service in a manner or at a price that unfairly discriminates against any competing provider, (ii) any non-utility activity being subsidized materially by the customers of any public utility in the system, (iii) the operation of the system in any way which materially impairs the credit, ability to acquire capital on reasonable terms or ability to provide safe, reasonable, reliable and adequate utility service of any public utility affiliate in the system, (iv) any transfer by a public utility affiliate to any other system company of any confidential public utility information, including customer lists, for use for any non-utility purpose, unless the PSCW has approved the transfer, and (v) any termination of the system's interest in any public utility affiliate without PSCW approval; and (f) limitations on the sale, lease, installation or maintenance by non-utility and utility affiliates of certain appliances without PSCW approval. Other statutory provisions which existed prior to the Wisconsin Holding Company Act include requirements for submission to the PSCW for approval of certain contracts or other arrangements for furnishing property or services between a public utility and an affiliate.

The Wisconsin Holding Company Act limits diversification, in that (in summary) the net book value of the assets (other than investments in system affiliates) of all non-utility affiliates may not exceed the sum of 25% of the net book value of all electric utility affiliates and a percentage, to be determine by the PSCW (but not less than 25%), of the net book value of all other public utility affiliates, provided that for the first 36 months after the holding company formation non-utility assets are limited to 40% of the maximum amount allowed under the foregoing provisions.

Further, the Wisconsin Holding Company Act requires the PSCW, no sooner than 36 months after holding company formation, and at least once every three years thereafter, to investigate the impact of the operation of every holding company system formed after November 28, 1985 on every public utility affiliate in the system and to determine whether each non-utility affiliate does, or can reasonably be expected to do, at least one of the following: (a) substantially retain, attract or promote business activity or employment or provide capital to businesses within the service territory of any public utility affiliate or certain others, (b) increase or promote energy conservation or develop, produce or sell renewable energy products or equipment, (c) conduct a business that is functionally related to the provision of utility service or to the development or acquisition of energy resources, or (d) develop or operate commercial or industrial parks in the service territory of any public utility affiliate.

Following approval of a holding company, the PSCW is authorized under the Wisconsin Holding Company Act to modify any terms of, or add terms to, the approval. Furthermore, the PSCW is authorized to order a holding company to terminate its interest in a public utility affiliate if the PSCW finds that, based upon clear and convincing evidence, termination of the interest is necessary to protect the interest of utility investors in a financially healthy utility and the interest of consumers in reasonably adequate utility service at a just and reasonable price.

The Company filed an application with the PSCW to form the holding company provided for in the Plan of Merger on November 17, 1986. On January 6, 1987, the PSCW concluded that the application was complete thereby providing that a final PSCW decision on the application will be rendered within 120 days of such conclusion. The Company anticipates approval from the PSCW in a form satisfactory to the Company's Board of Directors.

In May 1986, the PSCW, acting under the Wisconsin Holding Company Act, approved the formation of a holding company by another electric and gas public utility system operating in Wisconsin. Such approval was granted subject to various conditions, including the following: that no affiliated interest transaction (including the sharing of officers, directors or employees or the transfer of any item of value) could occur prior to approval by the PSCW of an affiliated interest agreement; that each of the public utilities involved maintain

19

@0 ** a balanced capital structure within a reasonable range to be established by the PSCW in appropriate proceedings; that the directors of each public utility involved set a dividend policy based upon the financial health of such utility as if it were not part of a holding company system; that the public utilities involved submit specified forecasts in rate cases and other appropriate proceedings; that the holding company provide full access to the records of the holding company and non-utility affiliates for any document which the PSCW staff determines is relevant to fulfill its statutory duties, with the burden to be on the holding company to prove that a document is not relevant or is protected by confidentiality; that the holding company submit for PSCW staff review specific procedures for accounting for affiliated transactions; that the electric utility company and holding company submit management plans for maximum possible separation of officers and employees between utility and non-utility affiliates; that certain reports be submitted; and that jurisdiction be retained by the PSCW. The Company is unable to determine whether similar or other conditions will be imposed by the PSCW in connection with the Company's application.

Illinois Public Utilities Act. In 1985, the Illinois Public Utilities Act (the "Illinois Act") was completely revised. Among the features of the Illinois Act are provisions relating to "reorganizations" of utilities subject to the jurisdiction of the Illinois Commerce Commission (the "Illinois Commission"). Section 7-204 of the Illinois Act defines a "reorganization" as any transaction which, regardless of the means by which it is accomplished, results in a change in the ownership of a majority of the voting capital stock of an Illinois public utility or of "the ownership or control of any entity which owns or controls a majority of the voting capital stock of (an Illinois) public utility." South Beloit Water, Gas and Electric Company ("South Beloit"), a wholly-owned subsidiary of the Company, is a public utility subject to the jurisdiction of the Illinois Commission. The restructuring will require the approval of the Illinois Commission pursuant to Section 7-204 because it constitutes a transaction which results in a change in the ownership or control of the Company and the Company owns all of the capital stock of South Beloit. The Illinois Act provides that the Illinois Commission shall not approve any reorganization if it finds, after a hearing, that the reorganization will adversely affect the utility's ability to perform its duties under the Illinois Act. In reviewing the proposed merger, the Illinois Commission must find, if it is to approve the Company's restructuring, that: (a) the restructuring will not diminish South Beloit's ability to provide adequate, reliable, efficient, safe and least-cost public utility service; (b) the restructuring will not result in unjustified subsidization of non-utility activities by South Beloit or its customers; (c) costs and facilities are fairly and reasonably allocated between utility and non-utility activities in such a manner that the Illinois Commission may identify those costs and facilities which are properly included by South Beloit for ratemaking purposes; (d) the restructuring will not impair South Beloit's ability to raise necessary capital on reasonable terms or to maintain a reasonable capital structure; and (e) South Beloit will remain subject to Illinois law and regulation by the Illinois Commission. In approving a reorganization under the Illinois Act, the Illinois Commission may attach such further conditions as are in accordance with the Illinois Act. The Company and South Beloit will file an application for approval under Section 7-204 in March 1987. It is not possible to predict what action the Illinois Commission will take with respect to the Company's application. The Company anticipates approval of the restructuring from the Illinois Commission in a form satisfactory to the Company's Board of Directors.

Federal Public Utility Holding Company Act. In March 1987, the Company will apply to the SEC under the Holding Company Act for an approval necessary for the restructuring. The Company's application will also request an exemption under Section 3(a)(1) of the Holding Company Act. That exemption would exempt WPL Holdings and its subsidiaries, upon completion of the restructuring, from all the provisions of the Holding Company Act except Section 9(a)(2) thereof, which relates to the acquisition of securities of other public utility companies. The granting of an exemption is not a condition precedent to consummation of the restructuring. The basis for the exemption would be that WPL Holdings and every public utility subsidiary from which WPL Holdings derives a material amount of its income are predominantly intrastate in character and carry on their businesses substantially in a single state (Wisconsin) in which they are organized and that WPL Holdings receives no material part of its income from operations outside Wisconsin. Such exemption, if granted, may be revoked on a finding by the SEC that the circumstances which gave rise to the exemption no longer exist or if such exemption "may be detrimental to the public interest or the interest of investors or consumers." There may be limits on the extent to which WPL Holdings and its subsidiaries could

20

diversify without raising a possibility that the SEC might find that such diversification may be detrimental to the public interest or the interest of investors or consumers. WPL Holdings has no present intention, however, of becoming a registered holding company subject to the regulation of the SEC under the Holding Company Act.

Market Prices of Wisconsin Power and Light Company Common Stock

The Company's common stock is traded on the New York Stock Exchange. As of January 30, 1987, there were 36,842 holders of record of the Company's common stock. The following table sets forth the high and low sales prices (reported in The Wall Street Journal as New York Stock Exchange-Composite Transactions) for the Company's common stock for the periods indicated and shows the quarterly dividends per share for such periods. The closing price of the common stock on November 14, 1986 (the trading day next preceding the filing by the Company of its application with the PSCW seeking approval of the proposed restructuring and the public announcement by the Company of its intention to proceed with the restructuring) was $53 and the closing price of the common stock on March 25, 1987 was $50/8.

Cash Dividends

High Low Declared

1985 First Quarter ........................................... $32/8 $29/s $.66 Second Quarter ......................................... 36/2 322 .66 Third Quarter........................................... 403/ 34/8 .69 Fourth Quarter.......................................... 402 34 .69

1986 First Quarter ........................................... $467/ $39 $.71 Second Quarter ......................................... 497/ 44 .71 Third Quarter........................................... 60 482 .74 Fourth Q uarter.......................................... 55 50 .74

1987 First Quarter (through March 25) .......................... $54 $49 $.76

Market Information Relating to Wisconsin Power and Light Company Preferred Stock

As of January 30, 1987, there were 7,847 holders of record of the Company's preferred stock. There is no established trading market for any series of the Company's preferred stock, other than the 42% series which is admitted to trading privileges on the American Stock Exchange. The market for the 42% preferred stock is extremely limited and sporadic. The following table sets forth the high and low sales prices for the Company's 42% preferred stock for the periods indicated, as reported to the Company by the American Stock Exchange. The closing price of the 42% preferred stock on November 14, 1986 (the trading day next preceding the filing by the Company of its application with the PSCW seeking approval of the proposed restructuring and the public announcement by the Company of its intention to proceed with the restructuring) was $602 and the closing price of the 42% preferred stock on March 24, 1987 (the last date for which sales prices have been reported) was $58 .

High Low

1985 First Q uarter.................................................... $40% $37/ Second Q uarter.................................................. 45 392 ThirdQuarter.................................................. 46V2 43% Fourth Q uarter .. ................................................ 49 42V2

1986 First Q uarter.................................................... $53 $463 Second Q uarter.................................................. 542 50 Third Q uarter ................................................... 59/ 50V2 Fourth Q uarter .................................................. 612 552

1987 First Quarter (through M arch 24) .................................. $592 $552

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0The other series of the Company's preferred stock (4.40%, 4.76%, 4.80%, 4.96%, 7.56% and 8.48% series)

are traded in the open market, but prices are not quoted in any automated quotation system. The market for each such series of preferred stock is extremely limited and sporadic. The following tables set forth the high and low bid prices of each such series of the Company's preferred stock for the periods indicated. The information set forth in the table is based upon information provided to the Company by a broker-dealer.

1985 First

Quarter.. Second

Quarter.. Third

Quarter.. Fourth

Quarter..

1986 First

Quarter.. Second

Quarter.. Third

Quarter.. Fourth

Quarter..

4.40% 4.76% 4.80% 4.96% 7.56% 8.48% High Low High Low High Low High Low High Low High Low

$361/2 $33/8 $382 $37/2 $402 $38 $45 $392 $ 642 $61 $ 71 $66

391/8 35 42/4 372 42/8 38 44/ 39 67/ 61

40/2 391/8 4378 42 44 42/8 46 441/8

45/8 39/ 49/8 422 49 42/8 51% 44%/

69 67/4

75% 68

78 75/8

78/8 672 87/8 75/8

$51/2 $452 $55/8 $488 $56V/ $492 $58 $50% $ 93/8 $742 $ 95 $74

54 51 58/8 56

563/8 51 61

59% 55 64

58/ 562 60/8 58/8 97

56 612 562 635 583 97

% 592 65/ 60

86 98 90

80 100 912

672 62 1002 84 102 96

The foregoing bid prices do not reflect retail mark-ups, mark-downs or commissions and do not necessarily reflect actual transactions. The Company has been unable to obtain high and low bid prices for the preferred stock (other than the 42% series) for periods subsequent to the fourth quarter of 1986.

The following table sets forth the bid prices of each such series of preferred stock as of November 986 and as of March 19, 1987.

4.40%................... 4.76% ..................... 4.80% ..................... 4.96% ..................... 7.56% ..................... 8.48% .....................

November 14, 1986 Bid Price

$ 59%/ 64 / 65 / 672 952

100

March 19, 1987 Bid Price

$54 582 59 61 92 96

Financial Statements

The Company's Form 8-K Current Report dated March 5, 1987, incorporated by reference in this Prospectus/Proxy Statement, contains the following: consolidated balance sheets and statements of capitalization of the Company and subsidiaries as of December 31, 1986 and 1985, and the related consolidated statements of income, common shareowners' investment and changes in cash for each of the five years in the period ended December 31, 1986, the related report of Arthur Andersen & Co., independent public accountants, and Management's Discussion and Analysis of Financial Condition and Results of Operations. Such financial information is also included in the Company's 1986 Annual Report to Shareowners. Copies of such Annual Report were mailed to shareowners of record as of the close of business on March 3, 1987. Additional copies of the Annual Report may be obtained without charge upon request as provided under "Information Incorporated by Reference."

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89

00 ** Financial statements of WPL Holdings are not presented in this Prospectus/Proxy Statement because

WPL Holdings is an inactive company without material assets or liabilities or operating history. Proforma financial information reflecting the effects of the proposed merger and reorganization, including the proposed non-cash dividend of Heartland, is not included in this Prospectus/Proxy Statement since the Company's and its Utilities Subsidiaries' investments in and advances to, and proportionate share of the assets of, the Nonutility Subsidiaries and the Company's and its Utility Subsidiaries' equity in the income (loss) from continuing operations of the Non-utility Subsidiaries are not material.

Articles of Incorporation and By-Laws of WPL Holdings

The Restated Articles of Incorporation, as amended, of WPL Holdings (the "WPL Holdings' Articles") have been prepared in accordance with the Wisconsin Business Corporation Law and give WPL Holdings broad corporate powers to engage in any lawful activity for which a corporation may be formed under the laws of the State of Wisconsin. A copy of WPL Holdings' Articles is attached hereto as Exhibit C. Set forth below is a summary of certain differences and similarities between the WPL Holdings' Articles and the Company's Restated Articles of Organization (the "Company's Articles"), including differences arising under the Wisconsin Business Corporation Law. The Company's Articles and By-Laws and WPL Holdings' By-Laws are included in the materials incorporated by reference in this Prospectus/Proxy Statement. The following discussion is qualified by reference to the information included in the exhibits hereto or such materials incorporated by reference.

Common Stock. The WPL Holdings' Articles authorize the issuance of 50,000,000 shares of common stock, $.01 par value. The Company's Articles authorize the issuance of 18,000,000 shares of common stock, $5 par value. Assuming no change in the number of shares of Company common stock outstanding prior to the Effective Time, an aggregate of 13,236,601 shares of WPL Holdings common stock will be outstanding immediately following completion of the restructuring. Accordingly, upon consummation of the restructuring, WPL Holdings will have approximately 36,760,000 authorized and unissued shares (32,000,000 shares more than the Company). Under Wisconsin law, shares of WPL Holdings common stock or Company common stock may be issued from time to time upon such terms and for such consideration as may be determined by its Board of Directors. Any such issuance of common stock by the Company will be subject to the jurisdiction of the PSCW; but any such issuance of common stock by WPL Holdings will not. Although there are no plans for WPL Holdings to issue additional common stock subsequent to the completion of the restructuring (other than shares of common stock which may be issued pursuant to the Reinvestment Plan), the Board of Directors of WPL Holdings believes that it is in the best interest of WPL Holdings and the Company to have additional shares of WPL Holdings common stock available to be issued without further shareowner action, if, at some time in the future, it is deemed to be desirable to issue additional shares for financing, acquisitions, stock splits and other purposes.

Preferred Stock. The WPL Holdings' Articles make no provision for preferred stock. The Company's Articles authorize the issuance of 3,750,000 shares of preferred stock without par value, which may be issued in series from time to time as authorized by the Board of Directors of the Company. A total of 600,000 shares of preferred stock are outstanding.

Preemptive Rights. Holders of capital stock of WPL Holdings and holders of capital stock of the Company have no preemptive rights of subscription or purchase in respect of shares of any class of stock or other securities.

Amendments and Certain Other Transactions. Under Wisconsin law, WPL Holdings' Articles may be amended upon the affirmative vote of the holders of a majority of its outstanding voting securities. The Company's Articles specifically provide for amendments upon a majority vote, with a two-thirds class (or series) vote of the preferred stock in certain limited circumstances.

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Se 0. Under Wisconsin law, certain corporate transactions involving WPL Holdings, such as mergers,

consolidations, sales, leases, exchanges or other dispositions of all or substantially all assets, and dissolutions, require the approval of a majority of the outstanding voting securities. In the case of similar transactions involving the Company, a two-thirds vote is presently required.

Election of Directors. The Company's Articles and WPL Holdings' Articles require the classification of directors, with directors elected for staggered, three-year terms. The initial directors of WPL Holdings will be those persons who, at the Effective Time, are serving as directors of the Company, each to hold office for the term for which such officer was elected a director of the Company.

The Plan of Merger provides for an amendment to the Company's Articles to eliminate provisions requiring that directors of the Company be shareowners of the Company. Approval of the Plan of Merger will constitute approval of that amendment. WPL Holdings' Articles require that its directors be shareowners of WPL Holdings.

Voting Rights. Each share of WPL Holdings common stock and of Company common stock has one vote on all matters submitted to shareowners.

Under the Company's Articles, each share of Company preferred stock is entitled, on all matters submitted to shareowners of the Company, to a number of votes determined by dividing the stated value of such share by 100. In addition, the Company's Articles give to holders of preferred stock certain special voting rights designed to protect their interests with respect to specified corporate actions by the Company, including certain amendments to the Company's Articles, the issuance of preferred stock or parity stock, the issuance or assumption of certain unsecured indebtedness, and certain mergers, consolidations, sales or leases of all or substantially all of the Company's assets. Holders of preferred stock of the Company will not, as such, be holders of securities of WPL Holdings. Accordingly, preferred stockowners will not have any voting rights with respect to matters submitted to a vote of WPL Holdings shareowners or with respect to corporate transactions effected by WPL Holdings.

Dividends. WPL Holdings' Articles do not contain any limitations on the declaration or payment of dividends or other distributions on its common stock. The Company's Articles contain certain capitalization and net income tests which limit the declaration, payment and amount of dividends or other distributions on its common stock in addition to requiring that dividends on all outstanding shares of its preferred stock for current and past dividend periods be declared and paid or set apart for payment, and sinking fund requirements for prior periods be met, before any dividend or other distribution may be declared or paid on its common stock.

By-Laws. The By-laws of WPL Holdings have been prepared in accordance with the Wisconsin Business Corporation Law and are substantially similar to the By-laws of the Company.

Description of WPL Holdings Common Stock After the Effective Time, the number of shares of WPL Holdings common stock outstanding will equal

the number of shares of Company common stock outstanding immediately prior to the Effective Time.

All shares of WPL Holdings common stock will participate equally with respect to dividends and rank equally upon liquidation subject to the rights of holders of any prior ranking stock which may be subsequently authorized and issued. In the event of liquidation, dissolution or winding up of WPL Holdings, the owners of its common stock are entitled to receive pro rata the assets and funds of WPL Holdings remaining after satisfaction of all creditors of WPL Holdings and payment of all amounts to which owners of prior ranking stock, if any, then outstanding may be entitled.

Wisconsin statutes impose on shareowners a liability equal to the par value of their stock for all debts which may be due to employees of WPL Holdings for services performed for WPL Holdings but not to exceed six months' service in any one case.

Certain other terms and characteristics of WPL Holdings common stock are described under "Articles of Incorporation and By-Laws of WPL Holdings."

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Transfer Agents and Registrars

The Transfer Agents and Registrars for WPL Holdings common stock will be the same as those presently serving in such capacities for the Company's common stock. The Transfer Agents are Illinois Stock Transfer Company, 223 West Jackson Boulevard, Chicago, Illinois 60606, and Morgan Shareholder Services Trust Company, 30 West Broadway, New York, New York 10015, and the Registrars are Continental Illinois National Bank and Trust Company of Chicago, 231 South LaSalle Street, Chicago, Illinois 60693 and Morgan Shareholder Services Trust Company, 30 West Broadway, New York, New York 10015.

Legal Opinions

The legality of the shares of common stock of WPL Holdings being issued will be passed upon by William D. Harvey, Vice President and Associate General Counsel to the Company, 222 West Washington Avenue, Madison, Wisconsin, and Isham, Lincoln & Beale, Three First National Plaza, Chicago, Illinois, who will rely on Mr. Harvey as to matters of Wisconsin law.

ELECTION OF DIRECTORS

Nominees and Continuing Directors

Five directors are to be elected at the meeting. Rockne G. Flowers, Katharine C. Lyall, Henry C. Prange, Henry F. Scheig and James R. Underkofler are nominees for election to office as directors of the Company, each to hold office for a term expiring at the 1990 Annual Meeting of Shareowners of the Company (and, if the restructuring is consummated, until the 1990 Annual Meeting of Shareowners of WPL Holdings) and until a successor has been duly elected and qualified. The proxies solicited by this Prospectus/Proxy Statement may also be voted for a substitute nominee or nominees in the event any of the nominees shall be unable to serve for any reason or be withdrawn from nomination, a contingency not now anticipated. Except as otherwise indicated, each nominee or director has been engaged in his or her present principal occupation for at least the past five years.

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WO 40 The following information is given with respect to the nominees for election as directors:

Rockne G. Flowers

Principal occupation: President of Nelson Industries, Inc. (a muffler, filter and industrial silencer manufacturing firm), Stoughton, Wisconsin

Age: 55

Served as director since: April 1979

Annual Meeting at which term of office will expire: 1990

Shares beneficially owned at January 31, 1987: 1,281 shares of Common Stock

Other information: Mr. Flowers is Chairperson of the Audit Committee and a member of the Corporate Planning and Performance and Personnel Committees of the Board. Mr. Flowers is a director of Nelson Industries, Inc., M&I Bank of Madison, Meriter Health Services, Inc., and Janesville Sand and Gravel Company. He is Chairperson of the Board of Visitors of the School of Business of the University of Wisconsin- Madison and a past Chairperson of the Wisconsin Association of Manufacturers and Commerce.

Katharine C. Lyall

Principal occupation: Executive Vice President, University of Wisconsin System

Age: 45

Served as director since: October 1986

Annual Meeting at which term of office will expire: 1990

Shares beneficially owned at January 31, 1987: 100 shares of Common Stock

Other information: Ms. Lyall is a member of the Corporate Planning and Performance, Personnel and Audit Committees of the Board. She is active in a variety of professional and community organizations, including the American Economic Association, the American Statistical Association and the editorial boards of a number of publications. She served as co-chair of the Governor's Task Force on Faculty Compensation; was a member of the Wisconsin Strategic Development Commission; and presently is a member of the Wisconsin Academy of Sciences, Arts and Letters, and serves as a director of Public/Private Ventures, Inc.

Henry C. Prange

Principal occupation: Chairman of the Board, President and Chief Executive Officer, H.C. Prange Company (retail department stores), Sheboygan, Wisconsin

Age: 59

Served as director since: December 1965

Annual Meeting at which term of office will expire: 1990

Shares beneficially owned at January 31, 1987: 1,430 shares of Common Stock

Other information: Mr. Prange is Chairperson of the Corporate Planning and Performance Committee and a member of the Personnel and Audit Committees of the Board. Mr. Prange is a director of H.C. Prange Company, Wigwam Mills, Inc., Frederick Atkins, Inc., the Wisconsin Taxpayers Alliance and the Sheboygan Memorial Health Foundation, Inc.

26

Henry F. Scheig

Principal occupation: Chairman of the Board, Aid Association for Lutherans (a fraternal benefit society), Appleton, Wisconsin

Age: 62

Served as director since: July 1980

Annual Meeting at which term of office will expire: 1990

Shares beneficially owned at January 31, 1987: 640 shares of Common Stock

Other information: Mr. Scheig is a member of the Corporate Planning and Performance, Personnel and Audit Committees of the Board. He is a director of Aid Association for Lutherans and the Wisconsin Association of Manufacturers and Commerce. Mr. Scheig is a Trustee of the Wisconsin Chapter of the Nature Conservancy and past President of the Bay Lakes Council, Boy Scouts of America.

James R. Underkofler

Principal occupation: Chairman of the Board, President and Chief Executive Officer, Wisconsin Power and Light Company

Age: 63

Served as director since: December 1965

Annual Meeting at which term of office will expire: 1990

Shares beneficially owned at January 31, 1987: 6,897 shares of Common Stock and 10 shares of Preferred Stock

Other information: Mr. Underkofler is a member of the Corporate Planning and Performance Committee, an ex-officio member and the Secretary of the Personnel Committee and Chairperson of the Nominating Committee of the Board. He is a director of First Wisconsin National Bank of Madison, First Wisconsin Corporation, American Family Mutual Insurance Company, H.C. Prange Company, Meriter Health Services, Inc., Forward Wisconsin, Inc., Competitive Wisconsin, Inc., Wisconsin Utilities Association and Wisconsin Electric Utilities Research Foundation. Mr. Underkofler is also a member of the Edison Electric Institute Board of Directors.

The following information is given with respect to directors of the Company whose terms of office will continue after the Annual Meeting:

L. David Carley

Principal occupation: Partner, Carley Capital Group (a venture capital

group), Washington, D.C.

Age: 58

Served as director from 1975 to 1977 and from October 1983 to present

Annual Meeting at which term of office will expire: 1989

Shares beneficially owned at January 31, 1987: 300 shares of Common Stock

Other information: Mr. Carley is a member of the Corporate Planning and Performance, Personnel and Audit

Committees of the Board. He is a director of the Shawano Evening Leader. Mr. Carley is the Advisory Board Chairman for the Robert M. LaFollette Institute of Public Affairs of the University of Wisconsin and a trustee of The Folger Shakespeare Library and the Kennedy Presidential Library. He served as President of the National Association of Public Television Stations from 1980 to 1982.

27

00 00 Erroll B. Davis, Jr.

Principal occupation: Executive Vice President, Wisconsin Power and Light Company

Age: 42

Served as director since: April 1984

Annual Meeting at which term of office will expire: 1988

Shares beneficially owned at January 31, 1987: 1,533 shares of Common Stock

Other information: Mr. Davis is a member of the Corporate Planning and Performance Committee of the Board. He joined the Company in August 1978 and was elected to his current position in April 1984. Mr. Davis is a director of Residuals Management Technology, Inc. (a subsidiary of Wisconsin Power and Light Company), the University of Wisconsin Public Utility Institute, the Dane County Private Industry Council, a member of the Madison Police and Fire Commission and a Director and Treasurer of the Wisconsin Association of Manufacturers and Commerce. He is also Chairman of the Board of Directors of the Dane County United Way.

Eugene 0. Gehl

Principal occupation: Executive Vice President and General Counsel, Wisconsin Power and Light Company

Age: 63

Served as director since: January 1977

Annual Meeting at which term of office will expire: 1988

Shares beneficially owned at January 31, 1987: 2,791 shares of Common Stock

Other information: Mr. Gehl is a member of the Corporate Planning and Performance Committee of the Board. He is a director of Residuals Management Technology, Inc. (a subsidiary of Wisconsin Power and Light Company). Mr. Gehl joined the Company in September 1985, at which time he was elected to his current position. Prior to that time, he was a partner in the law firm of Brynelson, Herrick, Gehl & Bucaida, Madison, Wisconsin, which has been general counsel to the Company for many years. Mr. Gehl is a member of the Defense Research Institute, the International Association of Insurance Attorneys, the Legal Committee of the Edison Electric Institute, the Council of Trustees of the University of Wisconsin Hospital and Clinics, the American Bar Association, the State Bar of Wisconsin, the Dane County Bar Association, the Seventh Federal Circuit Bar Association, and the Federal Power Bar Association. He is also a fellow of the American College of Trial Lawyers and the American Bar Foundation. Mr. Gehl also serves as a Commissioner of the Madison Metropolitan Sewerage District.

28

Donald R. Haldeman

Principal occupation: President, Wisconsin Farm Bureau Federation (Wisconsin's largest general farm organization), Madison, Wisconsin

Age: 50

Served as director since: July 1985

Annual Meeting at which term of office will expire: 1989

Shares beneficially owned at January 31, 1987: 161 shares of Common Stock

Other information: Mr. Haldeman is a member of the Corporate Planning and Performance, Personnel and Audit Committees of the Board. He is President of the Boards of Directors of Rural Mutual Insurance Company, Rural Security and Life Insurance Company and Midwest Livestock Producers Cooperative. Mr. Haldeman is a director and a member of the Executive Committee of Competitive Wisconsin, Inc. and a director of the National Dairy Promotion and Research Board.

William L. Keepers

Principal occupation: Executive Vice President, Wisconsin Power and Light 0114?1Company

Age: 48

Served as director since: April 1984

Annual Meeting at which term of office will expire: 1989

Shares beneficially owned at January 31, 1987: 2,268 shares of Common Stock

Other information: Mr. Keepers is a member of the Corporate Planning and Performance Committee of the Board. He joined the Company in 1962 and was elected to his current position in April 1984. He is a Registered Professional Engineer (Wisconsin). Mr. Keepers has served on a number of utility industry advisory committees including Edison Electric Institute's Environment Executive Advisory Committee, Environmental Committee, Construction Committee, and Land Use Subcommittee. He has also served on the Electric Power Research Institute's Coal Combusion Systems Division Committee, and Power System Planning and Operations Task Force. Mr. Keepers recently served as the Governor's designee to the Wisconsin Acid Deposition Review Committee. He is a member of the United Way of Dane County.

Milton E. Neshek

Principal occupation: President and Chief Executive Officer of the law firm of Godfrey, Pfeil and Neshek, S.C., Elkhorn, Wisconsin and General Counsel and Assistant Secretary, Kikkoman Foods, Inc. (a food products manufacturer), Walworth, Wisconsin

Age: 56

Served as director since: November 1984

Annual Meeting at which term of office will expire: 1988

Shares beneficially owned at January 31, 1987: 595 shares of Common Stock

Other information: Mr. Neshek is a member of the Corporate Planning and Performance, Personnel and Audit Committees of the Board. He is a director of the law firm of Godfrey, Pfeil and Neshek, S.C. and the Wisconsin Association of Manufacturers and Commerce. He is a member of the University of Wisconsin-

29

*0 0* Milwaukee Board of Visitors and a fellow in the American College of Probate Counsel. Mr. Neshek is active in the Walworth County Bar Association, the State Bar of Wisconsin, and the American Judicature Society. He was a member of the Board of Regents for the Wisconsin State University from 1965 to 1971 and of the Board of Regents of the University of Wisconsin System from 1971 to 1978. He served as Vice President of both Boards.

Carol T. Toussaint

Principal occupation: Consultant to the Wisconsin Academy of Sciences, Arts and Letters

Age: 57

Served as director since: August 1976

Annual Meeting at which term of office will expire: 1988

Shares beneficially owned at January 31, 1987: 1,333 shares of Common Stock

Other Information: Mrs. Toussaint is Chairperson of the Personnel Committee and a member of the Corporate Planning and Performance, Audit and Nominating Committees of the Board. Mrs. Toussaint is directing a Study of the Arts for the Wisconsin Academy of Sciences, Arts & Letters which includes the impact of the arts on the state's economy. She previously served as Assistant Director of the Strategic Development Commission which recommended that this study be undertaken. Mrs. Toussaint has been associated with numerous civic and charitable organizations and recently concluded four years of service as Chairperson of the Governors' Advisory Council on Judicial Selection. Present responsibilities include: Ripon College Board of Trustees; Wisconsin Higher Education Aids Board; Wisconsin Taxpayers Alliance Board; United Madison Community Foundation Endowment Council; Sunburst Youth Homes Foundation; Madison Civic Center Foundation; First Congregational Church of Madison Foundation; and at the University of Wisconsin-Madison, the Advisory Board for the Robert M. LaFollette Institute of Public Affairs, School of Business Board of Visitors, and the Union Theatre Endowment Fund Committee.

Gerard E. Veneman

Principal occupation: Retired; formerly, Executive Vice President, Great Northern Nekoosa Corporation (a paper and pulp manufacturer and distributor), Stamford, Connecticut and President and Chief Executive Officer, Nekoosa Papers, Inc. (a subsidiary of Great Northern Nekoosa Corporation), Port Edwards, Wisconsin

Age: 66

Served as director since: April 1980

Annual Meeting at which term of office will expire: 1989

Shares beneficially owned at January 31, 1987: 1,563 shares of Common Stock

Other information: Mr. Veneman is a member of the Corporate Planning and Performance, Personnel, Audit and Nominating Committees of the Board. He is a director of Great Northern Nekoosa Corporation, Universal Foods Corporation, Franklin Electric Company, Inc., Sentry Insurance (a mutual company), and Wood County National Bank. Mr. Veneman is Vice President and a director of the South Wood County YMCA, President of the Alexander Charitable Foundation, and Vice President and Director of the South Wood County Community Center Foundation.

30

Meetings of the Board and of Committees of the Board

Normally, 10 days before a Board meeting, a mailing is made to each director setting forth an agenda of the meeting and containing the minutes of the previous meeting. Where possible, significant nonroutine matters to be acted upon by the directors are discussed at Board meetings prior to the meeting at which action is to be taken. In addition, special meetings are held or presentations or mailings made to directors where appropriate in order to provide them with necessary information in advance of Board meetings at which action with respect to significant matters is proposed to be taken.

During 1986, the Board of Directors held nine meetings. Fifteen additional meetings were held by four committees of the Board: the Corporate Planning and Performance Committee, the Personnel Committee, the Audit Committee and the Nominating Committee. During 1986, each director attended not fewer than 75% of the aggregate of the total number of Board meetings plus the total number of meetings of all committees of the Board of which he or she was a member.

The Corporate Planning and Performance Committee is comprised of all members of the Board and is chaired by Henry C. Prange. This committee examines corporate planning and performance, including a review of such matters as sales and load forecasts, operating and construction plans and budgets, financing programs and rate case matters. The Corporate Planning and Performance Committee held four meetings in 1986.

The members of the Personnel Committee and the Audit Committee are L. David Carley, Rockne G. Flowers (Chairperson of the Audit Committee), Donald R. Haldeman, Milton E. Neshek, Henry C. Prange, Henry F. Scheig, Katharine C. Lyall, Carol T. Toussaint (Chairperson of the Personnel Committee) and Gerard E. Veneman. Mr. Underkofler is an ex-officio member and the Secretary of the Personnel Committee.

The Personnel Committee held five meetings in 1986. The Personnel Committee reviews the performance of and approves salaries for officers and certain other management personnel; reviews personnel budgets; reviews and recommends to the Board new or changed employee benefits plans; reviews major provisions of negotiated employment contracts; and reviews human resource development programs.

The Audit Committee held two meetings in 1986. The Audit Committee recommends to the shareowners the independent auditors to be selected; reviews with the independent auditors the scope and results of their audit and matters regarding the Company's financial reporting and internal accounting controls; reviews with management and the independent auditors the Company's accounting principles, policies and practices; and discusses with the Company's Director of Internal Audits the scope and results of internal audits.

The members of the Nominating Committee are Mr. Underkofler, who serves as Chairperson, and Carol T. Toussaint and Gerard E. Veneman, neither of whom is an officer of the Company. This committee recommends to the Board of Directors nominees for election to the Board. The Nominating Committee held one meeting in 1986. In making recommendations of nominees for election to the Board, the Nominating Committee will consider nominees recommended by shareowners. Any shareowner wishing to make a recommendation should write the Chief Executive Officer of the Company, who will forward all recommendations to the Nominating Committee.

Arrangements for Compensation of Directors

No directors' fees are paid to directors who are officers of the Company (presently, Messrs. Underkofler, Keepers, Davis and Gehl). All other directors receive an annual fee of $5,100 for serving on the Board and a fee of $475 per Board meeting attended. Members of committees of the Board receive a fee of $475 per meeting attended, with chairpersons of committees receiving an additional $25 per meeting attended. Travel expenses are also paid for meetings attended. The annual fee for serving on the Board, the fee per Board meeting attended and the fee per committee meeting attended were increased from $4,800, $450 and $450, respectively, to their present amounts in October 1986.

31

.0 0* Compensation of Executive Officers

The following table sets forth the cash compensation paid by the Company for all services rendered during 1986 to each of its five most highly compensated executive officers and to all of the executive officers as a group:

CASH COMPENSATION TABLE Name of Individual Capacities in or Number in Group Which Served Compensation*

James R. Underkofler Chairman of the Board, $ 265,006 President and Chief Executive Officer

Eugene 0. Gehl Executive Vice President 141,013 and General Counsel

William L. Keepers Executive Vice President 136,122

Erroll B. Davis, Jr. Executive Vice President 135,981

Robert A. Carlsen Vice President 100,485

All 16 executive 1,518,080 officers of the Company as a group

*Includes credits in 1986 to accounts under the Company's deferred compensation plans.

Under an unfunded deferred compensation plan maintained by the Company, executive officers may elect to have a portion of their annual compensation deferred and credited to a deferred compensation account. Amounts so credited earn interest at a rate, determined semiannually, which is 90% of the average prime interest rate for the previous six months, but in no event less than 6%. Upon termination of a participant's employment, the Company will pay to the participant or his or her beneficiary, in five or ten annual payments at the option of the participant, the amount credited to the participant's deferred compensation account; except that, if a participant's employment is terminated prior to age 65 for any reason other than approved retirement or death or disability, payments will not be made until the participant has reached age 65. Deferred compensation under this plan does not constitute compensation as defined under the Company's retirement plan (described below). The Company has a plan similar to the unfunded deferred compensation plan which permits the deferral of directors' fees.

Effective January 1, 1987, the Company adopted a successor plan to the unfunded deferred compensation plan described above. Under the new plan, executive payroll employees ("participants"), excluding assistant officers, may elect to have a portion of their annual compensation deferred to participant accounts. All deferred amounts credited to a participant's account are credited interest on the last day of each calendar year at a rate equivalent to the A-Utility Bond Yield using the average of the yields in effect on the last Friday of each month of the then ending calendar year. Plan participants may chose to receive payments of deferred amounts by one of the following three alternative methods: (a) equal annual installments (not to exceed ten), the first such installment to be paid immediately upon the first anniversary of the last day of the performance year for which deferral of annual incentive compensation has been elected; (b) lump sum payment in any year between the current year and the anticipated year of retirement as specified by the participant; or (c) upon the anticipated retirement date (or one tax year thereafter) in either: (i) one lump sum payment in the year so specified by the participant or (ii) equal annual installments (not to exceed 10), the first of which shall be paid commencing in the year so specified by the participant. Deferred compensation under this plan does not constitute compensation as defined under the Company's retirement plan (described below).

32

The Company maintains a deferred compensation plan under Section 401(k) of the Internal Revenue Code, in which all employees (including officers) are eligible to participate. Under the plan, an employee may elect to have up to 10% (subject to certain limitations) of his or her annual compensation deferred and credited to a deferred cash contribution account. Amounts credited to the account are invested, as directed by the employee, in one or more of several investment funds by a trustee who is not affiliated with the Company. A participant may elect to receive a cash distribution (in a lump sum or annual installments) equal to the value of his or her account following retirement, disability or termination of employment, provided that such a distribution will be made automatically upon the attainment of age 65 by any retired or disabled participant. A participant may also receive a special distribution under certain limited circumstances relating to financial hardship. That portion of an employees' compensation which is deferred under the plan constitutes compensation for purposes of computing benefits under the Company's retirement plan (described below). No additional contributions are made to the plan by the Company.

Salaried employees of the Company (including officers) are eligible to participate in the Company's retirement plan. All eligible persons whose compensation is reported in the foregoing table participated in the plan during 1986. Contributions to the plan are determined actuarially, computed on a straight-life annuity basis, and cannot be readily calculated as applied to any individual participant or small group of participants. For purposes of the plan, compensation means payment for services rendered, including vacation and sick pay, and is substantially equivalent to cash compensation reported in the foregoing table. Retirement plan benefits depend upon length of plan service (up to a maximum of 30 years), age at retirement and amount of compensation (determined in accordance with the plan) and are reduced by up to 50% of Social Security benefits. Credited years of service under the plan for the persons named in the foregoing cash compensation table are as follows: James R. Underkofler, 30 years; Eugene 0. Gehl, one-quarter year; William L. Keepers, 23 years; Erroll B. Davis, Jr., 7 years; and Robert A. Carlsen, 30 years. Assuming retirement at age 65, a retirement plan participant would be eligible at retirement for a maximum annual retirement benefit as follows:

Average Annual Benefit After Annual Specified Years in Plan*

Compensation 10 15 20 25 30

$100,000 .............................. $16,755 $25,133 $33,511 $41,888 $50,266 125,000.............................. 21,339 32,008 42,677 53,347 64,016 150,000.............................. 25,922 38,883 51,844 64,805 77,766 175,000.............................. 30,505 45,758 61,011 76,263 91,516 200,000.............................. 35,089 52,633 70,177 87,722 105,266 225,000.............................. 39,672 59,508 79,344 99,180 119,016 250,000.............................. 44,255 66,383 88,511 110,638 132,766 275,000.............................. 48,839 73,258 97,677 122,097 146,516 300,000.............................. 53,422 80,133 106,844 133,555 160,266 325,000.............................. 58,005 87,008 116,011 145,013 174,016

*(i) Average annual compensation is based upon the average of the highest 36 consecutive months of compensation; (ii) the retirement plan benefits shown above are net of estimated Social Security benefits and do not reflect any deduction for other amounts; (iii) the annual retirement benefits payable are subject to certain maximum limitations (in general $90,000) under the Internal Revenue Code; (iv) the Company maintains an unfunded supplemental plan which provides for additional annual payments to the extent that annual retirement benefits would exceed the maximum limitation and to the extent that annual retirement benefits would be reduced as a result of participation in the Company's unfunded deferred compensation plan (described above); (v) under the retirement plan and a supplemental survivors income plan, if a retirement plan participant dies prior to retirement, the designated survivor of the participant is entitled to a monthly income benefit equal to approximately 50% (100% in the case of certain executive officers and key management employees) of the monthly retirement benefit which would have been payable to the participant under the retirement plan if the participant had remained employed by the Company until eligible for normal retirement; and (vi) the Company maintains for

33

0 *0 Eugene 0. Gehl, Executive Vice President and General Counsel and a director of the Company, an unfunded and unqualified deferred compensation plan which will provide him with deferred income equal to what he would have received under the Company's retirement plan in effect as of September 1, 1985, with 35 years of credited service (as then provided under the plan) and $135,000 average annual compensation reduced by any income received under any other Company retirement plan.

The Company maintains an unfunded executive tenure compensation plan to provide incentive for key executives to remain in the service of the Company by providing additional compensation which is payable only if the executive remains with the Company until retirement (or other termination if approved by the Board of Directors). Participants in the plan must be designated by the Chief Executive Officer and approved by the Board. The participants in the plan as of December 31, 1986 were Messrs. Underkofler, Keepers and Davis. The plan provides for monthly payments to a participant after retirement (at age 65 or, with Board approval, prior to age 65) for 120 months. The payments will be equal to 25% of the participant's highest average monthly salary for any consecutive 60-month period. If a participant dies prior to retirement or before 120 payments have been made, the participant's beneficiary will receive monthly payments equal to 50% of such amount for 120 months in the case of death before retirement or if the participant dies after retirement 50% of such amount for the balance of the 120 months. Annual benefits of $63,147, $34,752 and $34,752 would be payable respectively to Mr. Underkofler, Mr. Davis and Mr. Keepers upon retirement assuming that they continue in the Company's service until normal retirement at the same salary as was in effect on December 31, 1986.

The Company maintains an Employee Stock Ownership Plan ("ESOP") in which substantially all employees of the Company are eligible to participate. The Company makes cash contributions to the ESOP to the extent that such contributions entitle it to credits in equal amounts against its federal income tax liability. The maximum available credit is .5% of the Company's aggregate employee payroll for each of the plan years 1983 through 1986. No credits are currently available for years after 1986. Contributions for plan years are made in the following calendar year. The Company's contributions are used to purchase common stock of the Company which is held by a trustee and allocated to employees' accounts under the ESOP based on their compensation, subject to certain limitations. In general, employees may not withdraw Company contributions from their accounts until termination of employment. During 1986, Company contributions to the ESOP were allocated to the accounts of Messrs. Underkofler, Keepers, Davis and Carlsen in the amounts of $500, $500, $500 and $372, respectively, and to the accounts of all executive officers as a group in the amount of $4,557.

The Company maintained a Management Incentive Plan which provided for the payment of additional compensation to certain executive officers and members of the management payroll if specified performance objectives of the Company were attained. Under the Plan, incentive awards were payable to participants depending on the Company's performance during three-year, non-overlapping cycles. The Plan has been terminated and payments will be made only for the three year period January 1, 1984 to December 31, 1986. The incentive awards are determined on the basis of a formula which takes into account the participant's salary for the final year of the cycle and the Company's performance measured against the specified performance objectives. The performance objectives and the Company's level of performance for the three year period ended December 31, 1986 were determined by the Chief Executive Officer and approved by the Personnel Committee of the Board of Directors. The participants in the Plan were the Chief Executive Officer, the Vice Presidents (including Executive Vice Presidents) of the Company and, in general, members of the management payroll holding department head status. Under the Plan, the amounts payable to the Chief Executive Officer, the Vice Presidents and members of management holding department head status will equal 35.1%, 23.4% and 4.68%, respectively, of the aggregate compensation for 1986 for such classes of persons holding the applicable executive or management position. The awards will be pro rated based on the number of months during the three year period during which a person held an applicable position. The incentive awards will be paid during 1987. Although paid in a single year, the awards are designed to provide compensation for services rendered during the full three year cycle. Incentive awards do not constitute compensation for purposes of the Company's other employee benefit plans.

34

APPOINTMENT OF INDEPENDENT AUDITORS

The Audit Committee of the Board of Directors of the Company has recommended the reappointment of Arthur Andersen & Co., independent public accountants, as auditors to examine the consolidated financial statements of the Company for 1987. Arthur Andersen & Co. has served as auditors of the Company for many years, including 1986. The Company is advised that neither Arthur Andersen & Co. nor any of its partners have any material direct or indirect relationship with the Company or any of its subsidiaries and that Arthur Andersen & Co. qualify as independent public accountants as to the Company and its subsidiaries under the applicable rules of the SEC.

The Board of Directors of the Company recommends a vote in favor of the appointment of Arthur Andersen & Co. as the Company's independent auditors for 1987.

A representative of Arthur Andersen & Co. will be present at the meeting to make a statement, if such representative so desires, and to respond to questions.

GENERAL

Proposals of Shareowners

Under the rules of the SEC, any shareowner proposal intended to be presented at the 1988 Annual Meeting of Shareowners must be received at the principal executive offices of the Company no later than November 29, 1987 in order to be eligible to be considered for inclusion in the Company's proxy materials relating to that meeting.

Other Business

The meeting is being held for the purposes set forth in the Notice accompanying this Prospectus/Proxy Statement. The Board of Directors of the Company knows of no business to be transacted at the meeting other than approval of the proposed merger and reorganization, the election of directors and the appointment of independent auditors. However, if any other business should properly be presented to the meeting, the proxies will be voted in respect thereof in accordance with the judgment of the person or persons voting the proxies.

WISCONSIN POWER AND LIGHT COMPANY

JAMES R. UNDERKOFLER

Chairman of the Board, President and Chief Executive Officer

35

EXHIBIT A

AGREEMENT AND

PLAN OF MERGER AND REORGANIZATION

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (hereinafter called "this Agreement"), dated as of the day of , 1987, between and among Wisconsin Power and Light Company, a corporation organized and existing under the laws of the State of Wisconsin (hereinafter called "Power Company"), WPL Acquisitions, Inc., a corporation organized and existing under the laws of the State of Wisconsin (hereinafter called "Subsidiary"), and WPL Holdings, Inc., a corporation organized and existing under the laws of the State of Wisconsin (hereinafter called "Holding Company"). Power Company and Subsidiary are hereinafter sometimes referred to collectively as the "Constituent Corporations."

WITNESSETH:

WHEREAS, Power Company has an authorized capitalization consisting of (i) 18,000,000 shares of Common Stock, $5 par value ("Power Company Common Stock"), of which 13,236,601 shares are issued and outstanding, and (ii) 3,750,000 shares of Preferred Stock without par value ("Power Company Preferred Stock"), of which 600,000 shares are issued and outstanding; and

WHEREAS, Holding Company has an authorized capitalization consisting of 50,000,000 shares of Common Stock, $.01 par value ("Holding Company Common Stock"), of which 1,000 shares are issued and outstanding and owned beneficially and of record by Power Company; and

WHEREAS, Subsidiary has an authorized capitalization consisting of 56,000 shares of Common Stock, $1 par value ("Subsidiary Common Stock"), of which 1,000 shares are issued and outstanding and owned beneficially and of record by Holding Company; and

WHEREAS, the Boards of Directors of the respective parties hereto deem it advisable to effect a merger (the "Merger") of Subsidiary into Power Company in accordance with the Wisconsin Business Corporation Law, this Agreement and the form of Articles of Merger attached hereto as Schedule I (the "Articles"), whereby each holder of shares of Power Company Common Stock immediately prior to the Effective Time (as defined herein) will receive the same number of shares of Holding Company Common Stock as those held of Power Company immediately prior to the Effective Time.

Now THEREFORE, the parties hereto have agreed, and do hereby agree, each with the other in consideration of the premises and mutual agreements, provisions, covenants and grants herein contained and in accordance with the laws of the State of Wisconsin, that Subsidiary shall be merged with and into Power Company and that Power Company shall be the continuing and surviving corporation, and do hereby agree upon and prescribe that the terms and conditions of the Merger and the mode of carrying the same into effect and the manner of converting the outstanding shares of Power Company into shares of Holding Company and of converting the outstanding shares of Subsidiary into shares of Power Company are and shall be as hereinafter set forth.

ARTICLE I

CORPORATE EXISTENCE OF THE SURVIVING CORPORATION

At the Effective Time, the separate corporate existence of Subsidiary, except insofar as otherwise expressly provided by law, shall cease and Subsidiary shall be merged with and into Power Company, and Power Company shall be the surviving corporation (the "Surviving Corporation"). The corporate identity, existence, purposes, powers, franchises, rights and immunities of the Surviving Corporation shall continue unaffected and unimpaired by the Merger.

A-1

ARTICLE II

TERMS OF CONVERSION OF SHARES

At the Effective Time:

(a) Each share of Power Company Common Stock issued and outstanding immediately prior to the Effective Time shall be changed and converted, by reason of the Merger and without any further action on the part of the holder thereof, into one outstanding share of Holding Company Common Stock, which shall thereupon be fully paid and nonassessable, except as provided in Section 180.40(6) of the Wisconsin Business Corporation Law relating to unpaid wage claims;

(b) The shares of Subsidiary Common Stock issued and outstanding immediately prior to the Effective Time shall be changed and converted into the shares of Power Company Common Stock issued and outstanding immediately prior to the Effective Time, which shares of Power Company Common Stock shall thereupon be fully paid and nonassessable, except as provided in Section 180.40(6) of the Wisconsin Business Corporation Law relating to unpaid wage claims;

(c) Each share of Holding Company Common Stock issued and outstanding immediately prior to the Effective Time shall be cancelled and retired; and

(d) Each share of Power Company Preferred Stock issued and outstanding immediately prior to the Effective Time shall remain outstanding.

No shares of Power Company, Subsidiary or Holding Company shall be converted into cash, other property, or other obligations, except as provided in this Article II.

ARTICLE III

ARTICLES OF ORGANIZATION AND BY-LAWS

3.01 Articles of Organization. Except as provided in Section 3.02, from and after the Effective Time, the Restated Articles of Organization of Power Company as in effect immediately prior to the Effective Time shall remain as the Restated Articles of Organization of the Surviving Corporation and shall remain in full force and effect until amended as provided by law.

3.02 Amendment of Restated Articles of Organization. In connection with the Merger, the Restated Articles of Organization of Power Company shall be amended by deleting, in its entirety, the second sentence of the first paragraph of Article IV thereof.

3.03 By-Laws. From and after the Effective Time, the By-Laws of Power Company as in effect prior to the Effective Time shall continue and remain in full force and effect as the By-Laws of the Surviving Corporation until they shall be altered, amended or repealed as provided by law.

ARTICLE IV

DIRECTORS AND OFFICERS

The persons who are Directors and Officers of Power Company immediately prior to the Effective Time shall be the Directors and Officers, respectively, of the Surviving Corporation and shall hold office for the term for which he or she was elected and until his or her successor shall have been elected and qualified.

ARTICLE V

STOCK CERTIFICATES

Following the Effective Time, each holder of an outstanding certificate or certificates theretofore representing shares of Power Company Common Stock (other than Power Company Common Stock into

A-2

which Subsidiary Common Stock is changed and converted pursuant to Article 11(b) of this Agreement) may, but shall not be required to, surrender the same to Holding Company for cancellation or transfer, and each such holder or transferee will be entitled to receive certificates representing the same number of shares of Holding Company Common Stock as the shares of Power Company Common Stock previously represented by the stock certificates surrendered. If any certificate representing shares of Holding Company Common Stock is to be issued in a name other than that in which the certificate theretofore representing Power Company Common Stock surrendered is registered, it shall be a condition to such issuance that the certificate surrendered shall be properly endorsed and otherwise in proper form for transfer and that the person requesting such issuance shall either (i) pay Holding Company or its agents any taxes or other governmental charges required by reason of the issuance of certificates representing shares of Holding Company Common Stock in a name other than that of the registered holder of the certificate so surrendered or (ii) establish to the satisfaction of Holding Company or its agents that such taxes or governmental charges have been paid. Until so surrendered or presented for transfer each outstanding certificate which, prior to the Effective Time, represented Power Company Common Stock shall be deemed and treated for all corporate purposes to represent the ownership of the same number of shares of Holding Company Common Stock as though such surrender or transfer and exchange had taken place. The stock transfer books for Power Company Common Stock shall be deemed to be closed at the Effective Time and no transfer of shares of Power Company Common Stock outstanding prior to and at the Effective Time shall thereafter be made on such books, provided, however, shares of Power Company Common Stock into which Subsidiary Common Stock is changed and converted pursuant to Article 11(b) hereof, or issued after the Effective Time to any holder, shall be fully transferable unless otherwise directed by the Board of Directors of Power Company.

ARTICLE VI

CONDITIONS PRECEDENT TO THE MERGER

Consummation of the Merger is subject to the satisfaction of the following conditions:

6.01 Shareholder Approval. The Merger shall have received the approval of the holders of capital stock of each of the Constituent Corporations to the extent required by the Wisconsin Business Corporation Law and the respective articles of incorporation and bylaws of the Constituent Corporations.

6.02 Internal Revenue Service Rulings. There shall have been obtained a ruling or rulings of the Internal Revenue Service satisfactory to the Boards of Directors of the Constituent Corporations and Holding Company, and their counsel, with respect to the federal income tax consequences of the Merger and other transactions incident thereto.

6.03 Resolutions of Board of Directors. Resolutions shall have been adopted by the Boards of Directors of the Constituent Corporations and Holding Company, authorizing and approving this Agreement and directing appropriate filing with the Secretary of State of Wisconsin and appropriate recording with the Register of Deeds of Dane County, Wisconsin, as required under Section 180.65 of the Wisconsin Business Corporation Law.

6.04 Securities and Exchange Commission Approval. There shall have been obtained an order from the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, satisfactory to the Boards of Directors of the Constituent Corporations and Holding Company, and their counsel, approving the acquisition, either directly or indirectly, by Holding Company of securities of Power Company, South Beloit Water, Gas and Electric Company and Wisconsin River Power Company, in connection with the Merger.

6.05 Listing. The Holding Company Common Stock to be issued in connection with the Merger

shall have been approved for listing, upon official notice of issuance, by the New York Stock Exchange.

6.06 Other Approvals. There shall have been obtained such orders, authorizations or approvals from

all regulatory bodies, boards or agencies (including, without limitation, the Wisconsin Public Service

A-3

** 0* Commission, the Illinois Commerce Commission and the Securities and Exchange Commission) which, in the opinion of counsel for Holding Company and Power Company, are required in connection with the Merger and the transactions contemplated thereby and which are in a form satisfactory to the Company and Holding Company.

ARTICLE VII

AMENDMENT AND TERMINATION

7.01 Amendment. The parties hereto by mutual consent of their respective Boards of Directors may amend, modify or supplement this Agreement in such manner as may be agreed upon by them in writing at any time before or after approval of this Agreement by the shareholders of Power Company; provided, however, that no such amendment, modification or supplement shall be made or effected which shall, in the judgment of the Board of Directors of Power Company, materially and adversely affect the shareholders of Power Company.

7.02 Termination. Anything to the contrary notwithstanding, this Agreement may be terminated and the Merger and other transactions herein provided for abandoned at any time before the Effective Time, if the Board of Directors of Power Company determines for any reason that the consummation of the Merger and the transactions contemplated herein would be inadvisable or not in the best interests of Power Company or its shareholders. Such action may be taken whether or not the shareholders of Power Company shall have previously given their approval of the Merger.

ARTICLE VIII

EFFECTIVE TIME OF THE MERGER

Subject to and in accordance with the provisions of this Agreement and Wisconsin law, the Articles set forth in Schedule I hereto shall be executed by Subsidiary and Power Company and thereafter delivered to the Secretary of State of Wisconsin for filing and the Register of Deeds of Dane County for recording, as provided in Section 180.65 of the Wisconsin Business Corporation Law. The Effective Time of the Merger shall be the close of business on the date that the Articles are duly filed in the office of the Secretary of State of Wisconsin or such later time within 31 days after such filing as may be designated in the Articles; provided that the Effective Time shall not in any case be later than April 30, 1988.

ARTICLE IX

MISCELLANEOUS

9.01 Counterparts. This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument.

9.02 Headings. The headings for the Articles and Sections of this Agreement are inserted for convenience only and shall not constitute a part hereof.

IN WITNESS WHEREOF, each of Power Company, Subsidiary and Holding Company, pursuant to approval and authorization duly given by resolutions adopted by its Board of Directors and in accordance with the requirements of Section 180.65 of the Wisconsin Business Corporation Law, has caused this Agreement

A-4

and Plan of Merger and Reorganization to be executed by its President and attested by its Secretary and its corporate seal, if any, to be affixed hereto, all as of the date first written above.

WISCONSIN POWER AND LIGHT COMPANY

(Corporate Seal)

By:.Chairman, President and Chief

Executive Officer

Attest: Secretary

WPL ACQUISITIONS, INC.

(No Corporate Seal)

By:

Attest:

Chairman, President and Chief Executive Officer

Secretary

WPL HOLDINGS, INC.

(No Corporate Seal)

Chairman, President and Chief Executive Officer

By:

Attest:-Secretary

A-5

SCHEDULE I (to EXHIBIT A)

ARTICLES OF MERGER MERGING

WPL ACQUISITIONS, INC. INTO

WISCONSIN POWER AND LIGHT COMPANY

Articles of Merger executed as of this day of , 1987, by and between Wisconsin Power and Light Company and WPL Acquisitions, Inc., both of which are Wisconsin corporations with registered offices located in Dane County, Wisconsin.

ARTICLE I

The Boards of Directors of Wisconsin Power and Light Company and WPL Acquisitions, Inc., in accordance with their respective charters, by-laws and the Wisconsin Business Corporation Law, have approved the Agreement and Plan of Merger and Reorganization attached hereto as Exhibit A (the "Plan of Merger").

1. Parties to Merger. The names of the corporations proposing to merge are Wisconsin Power and Light Company ("Power Company") and WPL Acquisitions, Inc. ("Subsidiary"). The Surviving Corporation will be Power Company.

2. Effective Time. The Effective Time of the merger ("Effective Time") will be

ARTICLE II

1. WPL Holdings, Inc., the sole owner of all of the outstanding capital stock of Subsidiary, consisting of 1,000 shares of common stock, $1 par value, in accordance with its charter and by-laws and Section 180.91 of the Wisconsin Business Corporation Law, adopted by written consent as of , 1987, a resolution approving the Plan of Merger. Such written consent of Subsidiary's sole shareholder constitutes the approval of the Plan of Merger by the affirmative vote of the holder of all of the shares of Subsidiary entitled to vote on the Plan of Merger, which is a vote greater than that required under Section 180.25 of the Wisconsin Business Corporation Law.

2. Power Company, in accordance with its charter and by-laws and Section 180.64 of the Wisconsin Business Corporation Law, submitted the Plan of Merger to holders of Power Company preferred and common stock for approval on , 1987. Power Company preferred stock and common stock are the only classes of capital stock of Power Company outstanding and entitled to vote with respect to the Plan of Merger. Power Company common stock is the only class of capital stock entitled to vote as a class with respect to the Plan of Merger. Information with respect to Power Company common stock outstanding, the requisite affirmative number of votes of such stock, and the number of shares of such stock voted for and against the Plan of Merger is as follows:

Total No. of Shares of Power Company

Common Stock Requisite No. of Outstanding and Affirmative Votes No. Voted Entitled to Vote for Approval For Against

Information with respect to the aggregate number of shares of Power Company preferred stock and common stock outstanding and entitled to vote, the requisite affirmative number of votes of such stocks, and the aggregate number of shares of such stocks voted for and against the Plan of Merger is as follows:

A-6

Total No. of Shares of Power Company

Preferred Stock and Common Stock

Outstanding and Entitled to Vote

Requisite No. of Affirmative Votes

for ApprovalNo. Voted

For Against

ARTICLE III

The laws which are to govern the Surviving Corporation are the laws of the State of Wisconsin.

IN WITNESS WHEREOF, each of the undersigned corporations has caused these Articles of Merger to be executed by its duly authorized officers as of the day and year first written above.

WIScONsIN POWER AND LIGHT COMPANY

(Corporate Seal)

By:

By:

Chairman, President and Chief Executive Officer

Secretary

WPL AcQUISITIONS, INC.

(No Corporate Seal)

By:

By:

Chairman, President and Chief Executive Officer

Secretary

A-7

**

EXHIBIT B

APPLICABLE PORTIONS OF SECTION 180.72 OF THE WISCONSIN STATUTES

180.72 RIGHTS OF OBJECTING SHAREHOLDERS.-(1) Any shareholder of a corporation shall have the right to file with the corporation a written objection, at least 48 hours prior to the meeting of shareholders at which any of the following corporate actions are proposed to be voted upon: (a) Any plan of merger or consolidation to which the corporation is a party; or (b) Any sale or exchange of all or substantially all of the property and assets of the corporation not made in the usual and regular course of its business, including a sale in dissolution, but not including a sale pursuant to an order of a court having jurisdiction in the premises or a sale for cash, with or without an assumption of liabilities of the seller, on terms requiring that all or substantially all of the net proceeds of sale be distributed to the shareholders in accordance with their respective interests within one year after the date of sale. A shareholder may object as to less than all of the shares registered in his name; and in that event, his rights shall be determined as if the shares as to which he has objected and his other shares were registered in the names of different shareholders. . . . This subsection shall not apply to the shareholders of the surviving corporation in a merger if a vote of the shareholders of such corporation is not necessary to authorize such merger. . . . [T]his subsection shall not apply to the holders of shares of any class or series if the shares of such class or series were registered on a national securities exchange or quoted on the national association of securities dealers, inc., automated quotations system on the date fixed to determine the shareholders entitled to vote at the meeting of shareholders at which a plan of merger or consolidation or a proposed sale or exchange of property and assets is to be acted upon unless the articles of incorporation of the corporation shall otherwise provide.

(2) If such written objection by a shareholder to such proposed corporate action has been filed, and if such proposed corporate action be approved by the required vote and such shareholder shall not have voted in favor thereof, such shareholder may, within 10 days after the date on which the vote was taken, or if a corporation is to be merged without a vote of its shareholders into another corporation any of its shareholders may, within 20 days after the plan of such merger shall have been mailed to such shareholders, make written demand on the corporation, or, in the case of a merger or consolidation, on the surviving or new corporation, domestic or foreign, for payment of the fair value of such shareholder's shares, and, if such proposed corporate action is effected, such corporation shall pay to such shareholder, upon surrender of the certificate or certificates representing such shares, the fair value thereof as of the day prior to the date on which the vote was taken approving the proposed corporate action, excluding any appreciation or depreciation in anticipation of such corporate action. . . . Any shareholder failing to make demand within the applicable 10-day or 20-day period shall be bound by the terms of the proposed corporate action. Any shareholder making such demand shall thereafter be entitled only to payment as in this section provided and shall not be entitled to vote or to any other rights of a shareholder.

(3) No such demand may be withdrawn unless the corporation shall consent thereto. If, however, such demand shall be withdrawn upon consent, or if the proposed corporate action shall be abandoned or rescinded or the shareholders shall revoke the authority to effect such action, or if, in the case of a merger, at the effective time of the merger the surviving corporation is the owner of all the outstanding shares of the other corporation, domestic and foreign, that are parties to the merger, or if no demand or petition for the determination of fair value by a court shall have been made or filed within the time provided in this section, or if a court of competent jurisdiction shall determine that such shareholder is not entitled to the relief provided by this section, then the right of such shareholder to be paid the fair value of his shares shall cease and his status as a shareholder shall be restored, without prejudice to any corporate proceedings which may have been taken during the interim.

(4) Within 10 days after such corporate action is effected, the corporation or, in the case of a merger or consolidation, the surviving or new corporation, domestic or foreign, shall give written notice thereof to each objecting shareholder who has made demand as herein provided, and shall make a written offer to each such shareholder to pay for such shares at a specified price deemed by such corporation to be the fair value thereof. Such notice and offer shall be accompanied by a balance sheet of the corporation the shares of which the objecting shareholder holds, as of the latest available date and not more than 12 months prior to the making of

B-I

** 0 such offer, and a profit and loss statement of such corporation for the 12-month period ended on the date of such balance sheet.

(5) If within 30 days after the date on which such corporate action was effected the fair value of such shares is agreed upon between any such objecting shareholder and the corporation, payment therefor shall be made within 90 days after the date on which such corporate action was effected, upon surrender of the certificate or certificates representing such shares. Upon payment of the agreed value the objecting shareholder shall cease to have any interest in such shares.

(6) If within such period of 30 days an objecting shareholder and the corporation do not so agree, then the corporation, within 30 days after receipt of written demand from any objecting shareholder given within 60 days after the date on which such corporate action was effected, shall, or at its election at any time within such period of 60 days may, commence a special proceeding by serving and filing a petition in any court of competent jurisdiction in the county in this state where the registered office of the corporation is located requesting that the fair value of such shares be found and determined. If, in the case of a merger or consolidation, the surviving or new corporation is a foreign corporation without a registered office in this state, such petition shall be filed in the county where the registered office of the domestic corporation was last located. If the corporation shall fail to institute the proceeding as herein provided, any objecting shareholder may do so in the name of the corporation. All objecting shareholders, wherever residing, who have made demands as herein provided and whose rights to payment have not otherwise terminated, shall be made parties to the special proceeding. A copy of the petition and any process or notice shall be served on each such objecting shareholder, whether a resident or nonresident of this state, as provided in ch. 262. The jurisdiction of the court shall be plenary and exclusive. All shareholders who are parties to the proceeding shall be entitled to judgment against the corporation for the amount of the fair value of their shares. The court may, if it so elects, appoint one or more persons as appraisers to receive evidence and recommend a finding of fair value. The appraisers shall have such power and authority as shall be specified in the order of their appointment or an amendment thereof. The judgment shall be payable only upon and concurrently with the surrender to the corporation of the certificate or certificates representing such shares. Upon payment of the judgment, the objecting shareholder shall cease to have any interest in such shares.

(7) The judgment may include an allowance for interest at such rate as the court may find to be fair and equitable in all the circumstances, from the date on which the vote was taken on the proposed corporate action to the date of payment.

(8) The costs and expenses of any such proceeding shall be determined by the court and may be assessed against the corporation, but all or any part of such costs and expenses may be apportioned and assessed as the court may deem equitable against any or all of the objecting shareholders who are parties to the proceeding to whom the corporation shall have made an offer to pay for the shares if the court shall find that the action of such shareholders in failing to accept such offer was arbitrary or vexatious or not in good faith. Such expenses shall include reasonable compensation for and reasonable expenses of the appraisers, but shall exclude the fees and expenses of counsel for and experts employed by any party; but if the fair value of the shares as determined materially exceeds the amount which the corporation offered to pay therefor, or if no offer was made, the court in its discretion may award to any shareholder who is a party to the proceeding such sum as the court may determine to be reasonable compensation to any expert or experts employed by the shareholder in the proceeding.

(9) Within 20 days after demanding payment for his shares, each shareholder demanding payment shall submit the certificate or certificates representing his shares to the corporation for notation thereon that such demand has been made. His failure to do so shall, at the option of the corporation, terminate his rights under this section unless a court of competent jurisdiction, for good and sufficient cause shown, shall otherwise direct. If shares represented by a certificate on which notation has been so made shall be transferred, each new certificate issued therefor shall bear similar notation together with the name of the original objecting holder of

B-2

such shares, and a transferee of such shares shall acquire by such transfer no rights in the corporation other than those which the original objecting shareholder had after making demand for payment of the fair value thereof.

(10) Shares acquired by a corporation pursuant to payment of the agreed value therefor or to payment of the judgment entered therefor, as in this section provided, may be held and disposed of by such corporation as in the case of other treasury shares, except that, in the case of a merger or consolidation, they may be held and disposed of as the plan of merger or consolidation may otherwise provide.

B-3

**. EXHIBIT C

RESTATED ARTICLES OF INCORPORATION

OF WPL HOLDINGS, INC.

These Restated Articles of Incorporation supersede and take the place of the existing Articles of Incorporation and all prior amendments thereto.

ARTICLE I

The name of the Corporation is WPL Holdings, Inc.

ARTICLE II

The period of existence of the Corporation shall be perpetual.

ARTICLE III

The Corporation is organized for the purpose of engaging in any lawful activities within the purposes for which corporations may be organized under Chapter 180 of the Wisconsin Statutes, as amended from time to time.

ARTICLE IV

The Corporation shall have authority to issue fifty million (50,000,000) shares of common stock, $.01 par value.

ARTICLE V

No holder of any capital stock of the Corporation shall have any preemptive right to purchase, acquire or subscribe to any capital stock or other securities issued or sold by the Corporation, including any such capital stock or securities now or hereafter authorized.

ARTICLE VI

The address of the initial registered office of the Corporation is 222 West Washington Avenue, Post Office Box 192, Madison, Wisconsin 53701, and the name of the registered agent of the Corporation at such address is Thomas A. Landgraf.

ARTICLE VII

The Corporation reserves the right to increase or decrease its authorized capital stock or any class or series thereof, or to reclassify the same.

ARTICLE VIII

The number of directors constituting the Board of Directors shall be as fixed from time to time by the Bylaws of the Corporation, but shall not be less than seven (7). Each director shall be a stockholder of the Corporation. The directors of the Corporation shall be divided into three classes as nearly equal in number as possible, to serve for staggered three-year terms or until their respective successors are duly elected and qualified. The initial directors of the Corporation shall be those persons who, at the time of the effectiveness of the merger of the Corporation's subsidiary, WPL Acquisitions, Inc., into the Corporation's subsidiary, Wisconsin Power and Light Company, are serving as directors of Wisconsin Power and Light Company, each

C-1

0 0 to hold office for the term for which such person was elected a director of Wisconsin Power and Light Company. Beginning with the Corporation's annual meeting of stockholders in 1988, the successors of the class of directors whose terms shall then expire shall be elected to hold office for a term expiring at the third annual meeting of stockholders after their election or until their respective successors are duly elected and qualified. If, at any annual meeting of stockholders, directors of more than one class are to be elected, each class of directors to be elected at such meeting shall be nominated and voted for in a separate election. Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, shall be filled until the next succeeding annual meeting of stockholders by the majority vote of the directors then in office, even if less than a quorum.

C-2

WISCONSIN POWER AND LIGHT COMPANY

ANNUAL MEETING OF SHAREOWNERS DATE: April 22, 1987 TIME: 10:00 a.m. LOCATION: Dane County Coliseum

1881 Expo Mall Madison, Wisconsin (See map printed on the last page of this Prospectus/Proxy Statement)

TOLL FREE SHAREOWNER INFORMATION NUMBERS

LOCAL CALLS (MADISON AREA)... 252-3110 IN WISCONSIN .......... 1-800-362-5490 OUTSIDE WISCONSIN . ... 1-800-356-5343

**

CITY OF

MADISON

**

196.745 REGULATION OF PUB#C UTILITIES

proceed under s. 196.26 or 196.28 (1). After holding a hearin the commission shall order any alteration in constructio ,

aintenance or operation required in the interest of pu ic s fety.

2) (a) Any person violating sub. (1), or any order or rule iss d under sub. (1), shall forfeit an amount not exc ding

1,0 0. Each day of violation is a separate violation f sub. (1). o person may forfeit an amount exceeding $200 00 for

a sing persisting violation of sub. (1) or any ord or any rule iss ed under sub. (1).

(b) e commission may compromise any for eiture assessed u er par. (a).

(c) The commission shall consider-the follow g in determining the mount of a forfeiture or whether a mpromise is appropriate under this section:

1. The ap ropriateness of the forfeiture t the size of the business viol ing sub. (1).

2. The grav y of the violation. 3. Any goo faith attempt to achieve compliance after

notification oft e violation. (3) The commi sion may seek injunct e relief for a viola

tion of sub. (1) or y order or rule issu under sub. (1). The commission shall n tify any person a ainst whom the commission contemplate taking an actio . The commission shall allow the person to p sent his or he views and shall give the

person a reasonable o portunity t achieve compliance unless the person knowin and wilf ly violates sub. (1) or any order or rule issued u der sub (1). The failure of the commission to give noti and portunity to comply shall not preclude the granting f a ropriate relief. The circuit court for Dane county has *u J diction under s. 196.44 (3) to enforce sub. (1) and to g t injunctive relief under this

section. (4) Any person may dem a jury trial when charged with

contempt of court becaus e r she has violated an injunction issued under sub. . apter 785 is applicable to contempt proceedings f the vi lation, unless ch. 785 conflicts with the right to jury trial.

History: 1977 c. 29 s. 16 6(43); 1977 c. 73; 1979 c. 32; 1983 a. 53.

196.76 Other right of action; pe Ities cumulative. This chapter and ch. 197 hall not have t effect of releasing or waiving any right o action by the stat or by any person for any right, penalty r forfeiture which a *ses under any law of this state. All p alties and forfeitures ccruing under this chapter and ch. 97 shall be cumulative. suit for recovery of one penalty r forfeiture may not bar t e recovery of any other penalty.

History: 198 c. 390; 1983 a. 53.

196.77 Pr otional rates. Nothing in ss. 96.03, 196.19, 196.20, 19 .21, 196.22, 196.37, 196.60, 196.60 and 196.625 prohibits telecommunications utility from ma ing a limited offering f promotional rates for services provi ed under a tariff co taining such a promotional rate appr ed by the commi ion. A promotional rate under this sectio shall take effect t the time specified in the tariff but not earli than 10 days fter the date the tariff is filed with the commiss n. The com ission shall give notice to any person, upon quest, tha a proposed tariff containing a promotional rate uthoi d under this section has been received by the commi sion.

OTE: A comma after the words "date the tariff" is not shown. History: 1985 a. 297.

196.78 Voluntary dissolution. No corporation owning r operating a public utility may be dissolved unless the commi sion consents. The commission may consent only afte

85-86 Wis. Stats. 2746

iity to be heard to each municipality and in the corporation.

196.79 Reorganizaitbsubject to mission approval. The reorganization of any p -' lity shall be subject to the

supervision and control o e co ssion. No reorganiza

ion may take effec thout the w approval of the commission. commi~ssion may not app) e any pla n of

reorgani unless the applicant for approva ablishes hat plan of reorganization is consistent with the lic

rest.t

196.795 Public utility holding companies. (1) DEFINITIONS.

In this section: (a) "Affiliated interest" has the meaning given under s.

196.52 (1). (b) "Appliance" means any equipment used directly for

cooking, drying, water tempering, space heating, space coolng or space ventilation. "Appliance" does not include equipment or devices which monitor or control the primary energy supply or source for any equipment used directly for

cooking, drying, water tempering, space heating, space coolng or space ventilation.

(c) "Beneficial owner" means, with respect to a security, any person who in any way has the unconditional power to

vote or receive the economic gains or losses of the security. "Beneficial owner" does not mean, with respect to a security, any person, including but not limited to any of the following,

holding the security for another person: 1. The trustee of a qualified employe plan. 2. The trustee of a stock purchase plan or a dividend

reinvestment plan. 3. A pledgee. 4. A nominee. 5. A broker or an agent. 6. An underwriter for the first 40 days following acquisi

tion of securities from an issuer if the securities are held in the

underwriter's own account. (e) "Commercial building" means any building which is

used primarily for carrying out any business, including but not limited to a nonprofit business, and any building which is used primarily for the manufacture or production of products, raw materials or agricultural commodities.

(f) "Company" means any partnership, corporation, jointstock company, business trust or organized group of persons, whether incorporated or not, and any receiver, trustee or other liquidator of a partnership, association, joint-stock company, business trust or organized group of persons. "Company" does not include a municipality or other political

subdivision. (g) "Form a holding company" means any of the

following: 1. As a beneficial owner, to take, hold or acquire 5% or

more of the outstanding voting securities of a public utility with the unconditional power to vote those securities.

2. To exchange or convert 50% or more of the outstanding voting securities of a public utility, other than a municipality or other political subdivision, for or into the voting securities

of a company organized, created, appointed or formed by or

at the direction of the public utility or of a subsidiary of such company.

(h) 1. "Holding company" means any of the following: a. Any company which, in any chain of successive owner

ship, directly or indirectly as a beneficial owner, owns, controls or holds 5% or more of the outstanding voting

I

02747 85-86 Wis. Stats.

securities of a public utility, with the unconditional power to vote such securities.

b. Any person which the commission determines, after

investigation and hearing, directly or indirectly, exercises, alone or under an arrangement or understanding with one or

more persons, such a controlling interest over the management or policies of a public utility as to make it necessary or appropriate in the public interest or for the protection of the

utility's consumers or investors that such person be subject to

this section. 2. "Holding company", except for purposes of s. 196.795

(11) (b), does not mean any company which owns, operates, manages or controls a telecommunications utility, unless

such company also owns, operates, manages or controls a public utility which is not a telecommunications utility.

(i) "Holding company system" means a holding company and any public utility with which the holding company is an

affiliated interest and any company which is an affiliated interest with such public utility and any other company more than 5% of whose ownership interest is owned directly or indirectly in any chain of successive ownership by such public utility or by such company which is an affiliated interest with such public utility.

(j) "Nonutility affiliate" means a company in a holding company system which is not a public utility.

(k) "Person" means an individual or company. (L) "Public utility affiliate" means a company which is in a

holding company system and which is a public utility. (Lm) "Public utility affiliate employe" means any individ

ual who is in the regular employ of a public utility affiliate, except any officer or director and any officer's or director's incidental supporting staff and except such personnel as is required by the public utility affiliate's organizational structure to perform such functions as accounting consolidation.

(m) "Sell at retail" means to sell an appliance to a person who is the consumer or user of the appliance.

(o) "Subsidiary" has the meaning given under s. 180.725 S(1) (in).

(2) HOLDING COMPANY FORMATION. (a) No person may

form a holding company unless the person has received a certificate of approval from the commission under this subsection.

(b) An application for a certificate of approval to form a holding company is complete if it contains all of the following information:

1. The names and corporate relationships of all companies which will be in the holding company system with the applicant when the applicant forms the holding company and the name of the applicant and any parent or subsidiary corporation of the applicant.

2. A description of how the applicant plans to form the holding company including, if available at the time of application:

a. Copies of the organizational documents associated with the holding company formation, including articles of incorporation or amendments to the articles of incorporation of all companies which will be in the holding company system with the applicant when the applicant forms the holding company.

b. Copies of any filings, including securities filings, related to the formation of the holding company made with any -agency of this state or the federal government.

3. The costs and fees attributable to the formation of the holding company.

4. The method by which management, personnel, property, income, losses, costs and expenses will be allocated within the holding company system between public utility affiliates and nonutility affiliates.

REGULATION OF PUBLIC UTILITIES 196.795

5. A copy of any proposed agreement between a public utility affiliate and any person with which it will be an affiliated interest at the time the holding company is formed.

6. An identification of all public utility assets or information in existence at the time of formation of the holding company, such as customer lists, which the applicant plans to transfer to or permit a nonutility affiliate, with which it is in the holding company system, to use. The identification shall include a description of the proposed terms and conditions under which the assets or information will be transferred or used.

7. A copy of a financial forecast showing the capital requirements of every public utility affiliate which at the time of the formation of the holding company will be within the holding company system. The financial forecast shall include for each public utility affiliate on an annual basis for 10 years following the year of application:

a. Projected capital requirements. b. Sources of capital. c. An itemization of major capital expenditures. d. Projected capital structure. e. An estimated amount of retained earnings available for

nonutility purposes. f. The assumptions underlying the information included in

the financial forecast under subd. 7. a to e. (c) No later than 30 days after the commission receives an

application for a certificate of approval to form a holding company under this subsection, the commission shall determine whether such application is complete as specified under par. (b). If the commission determines that the application is complete, the commission shall docket the application for a determination under this paragraph. If the commission determines the application to be incomplete, the commission shall notify the applicant in writing of its determination, identify any part of the application which the commission has determined to be incomplete and state the reasons for such determination. An applicant may supplement and refile an application which the commission has determined to be incomplete under this paragraph. There is no limit on the number of times an applicant may refile an application under this paragraph prior to a determination under par. (e). If the commission fails to make a determination regarding the completeness of an application within 30 days after the application has been filed, the application shall be deemed to be complete.

(d) The commission shall hold a hearing concerning an application for a certificate of approval to form a holding company under this subsection. The hearing may not be a hearing under s. 227.064 or 227.07 [227.42 or 227.44].

(e) No later than 120 days after an application has been docketed under par. (c), the commission shall issue its findings of fact, conclusions of law and special order approving or rejecting the application. The commission shall issue a certificate of approval to form a holding company unless it finds that the. formation of the holding company would materially harm the interests of utility consumers or investors. The commission, in issuing a certificate of approval under this subsection, maylonly impose terms, limitations or conditions on such approval which are consistent with and necessary to satisfy the requirements of sub. (5) (b) to (s).

(f) At any time subsequent to the time the commission approves the formation of a holding company under par. (e), the commission may, after notice and opportunity for hearing, modify any term, limitation or condition imposed under par. (e) or add any limitation, term or condition under par. (e). Any term, limitation or condition modified or added

85-86 Wis. Stats. 2748196.795 REGULATION OF IC UTILITIES

under this paragraph shall be consistent with and necessary c

to satisfy the requirements of sub. (5) (b) to (s).

(3) TAKE oVhS. No person may take, hold or acquire,

directly or indirectly, more than 1 ,0 of the outstanding

voting securities of a holding company, with the uncondi

tional power to vote those securities, unless the commission

has determined, after investigation and an opportunity for

hearing, that the taking, holding or acquiring is in the best

interests of utility consumers, investors and the public. This

subsection does not apply to the taking, holding or acquiring

of the voting securities of any holding company existing

before November 28, 1985, if such holding company is a

company which provides public utility service.

(4) CAPITAL IMPAIRMENT. If the commission finds that the

capital of any public utility affiliate will be impaired by the

payment of a dividend, the commission may, after an investi

gation and opportunity for hearing, order the public utility

affiliate to limit or cease the payment of dividends to the

holding company until the potential for impairment is

eliminated. (5) REGULATION OF HOLDING COMPANY SYSTEMS. (a) No

holding company which is not a public utility and no nonutil

ity affiliate is subject to any regulatory power of the commis

sion except under this section, ss. 196.52, 196.525 and 196.84

and except under ch. 184 if the commission has made a

determination under sub: (7) (a) which makes such holding

company a public service corporation, as defined under s.

184.01 (2). (b) The commission has full access to any book, record,

document or other information relating to a holding com

pany system to the extent that such information is relevant to

the performance of the commission's duties under ch. 184,

this chapter or any other statute applicable to the public

utility affiliate. The commission may require a holding

company to keep any record or document which is necessary

for the commission to perform its duties under this section

and which is consistent with generally accepted accounting

and recordkeeping practices of the particular type of business

involved. Any information obtained under this paragraph is

subject to sub. (9), when applicable. (c) No public utility affiliate may lend money to any

holding company which is not a public utility or to any

nonutility affiliate with which it is in the holding company

system. (d) No public utility affiliate may guarantee the obligations

of any nonutility affiliate with which it is in a holding

company system. (dm) No public utility affiliate may provide utility service

to any consumer of such public utility service or to any

nonutility affiliate with which the public utility affiliate is in a

holding company system except on the same terms or condi

tions that it provides such utility service to consumers in the

same class. (dr) No public utility affiliate may provide any nonutility

product or service in a manner or at a price that unfairly

discriminates against any competing provider of the product

or service. (f) No nonutility activity of any holding company or

nonutility affiliate may be subsidized maternally by the con

sumers of any public utility affiliate with which the holding

company or nonutility affiliate is in the holding company

system. No public utility activity of any holding company or

public utility affiliate may be subsidized materially by the

nonutility activities of the holding company or any of its

nonutility affiliates. (g) No holding company system may be operated in any

way which materially impairs the credit, ability to acquire

:apital on reasonable terms or ability to provide safe, reason

ible, reliable and adequate utility service of any public utility

affiliate in the holding company system.

(h) No public utility affiliate may transfer to any company

tith which it is in a holding company any confidential public uitility information, including but not limited to customer

ists, which will be transferred or used for any nonutility

purpose by any holding company or nonutility affiliate unless

the public utility affiliate has applied for and received the

written approval of the commission for the transfer. The

commission shall condition approval of such a transfer upon

the applicant's providing adequate notice of the availability

of such information to the public and making the information

available to any person at a cost not to exceed the cost of

reproduction. The commission may not approve any transfer which would foster unfair or discriminatory business prac

tices, or which would destroy or hamper competition through conduct which violates ch. 133 or any other applicable state

or federal antitrust law.

(i) In its determination of any rate change proposed by a

public utility affiliate under s. 196.20, the commission:

(. Shall consider the public utility affiliate as a wholly

independent corporation; 2. May not attribute to that public utility affiliate any tax

benefit or other benefit or tax liability or other liability

resulting from the operations of the holding company or of

any subsidiary of the holding company; and

3. May not attribute to the holding company or to any

subsidiary of the holding company any tax benefit or other

benefit or tax liability or other liability resulting from the

operations of that public utility affiliate.

a) Every public utility affiliate is subject to every law,

regulation and precedent applicable to the regulation of

public utilities. (k) i. Except as provided under subd. 2, no public utility

affiliate may transfer, sell or lease to any nonutility affiliate

with which it is in a holding company system any real

property which, on or after November 28, 1985, is held or

used for provision of utility service except by public sale or

offering to the highest qualified bidder.

2. A public utility affiliate may lease or rent office space to

a holding company or any nonutility affiliate with which it is

in a holding company system at not less than fair market

value. A public utility affiliate may transfer real property

which is contiguous to and used by the public utility affiliate for providing public access to a federally licensed hydro

electric project to a nonutility affiliate.

(L) Any holding company which is incorporated shall be

incorporated under ch. 180.

(in) . No holding company system may take any action to

terminate its interest in a public utility affiliate without notice to and approval of the commission. If the commission grants

approval, it may impose conditions with respect to the

division and allocation of plant, equipment, resources and

any other asset necessary to protect the interests of utility

consumers and investors And the public.

2. If a holding company system terminates its interest

under subd. I in all public utility affiliates with which it is in a

holding company system, no company remaining in the

holding company system is subject to any regulatory power of

the commission. (n) A public utility affiliate may not engage in any com

bined advertising, directly or indirectly, with any nonutility

affiliate with which it is in a holding company system within

this state except for purposes of corporate identification and

noncompetitive purposes.

4

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2749 85-86 Wis. Stats.

(o) The assets of every company in a holding company

system shall be as recorded on the books of accounting record

of the company, net of any applicable valuation accounts,

including but not limited to accumulated depreciation and

allowance for uncollectible accounts, as of the end of the

prior year. . (p) 1. The sum of the assets of all nonutility affiliates in a

holding company system of any holding company formed on

or after November 28, 1985, may not exceed the sum of the

-,following: a. Twenty-five percent of the assets of all public utility

affiliates in the holding company system engaged in the

keneration, transmission or distribution of electric power.

b A percentage of the assets, as determined by the commis

:sion, which may be more, but may not be less, than 25% of all

public utility affiliates in the holding company system en

gaged in providing utility service other than the generation,

transmission or distribution of electric power.

:c. For any public utility affiliate which is in the holding company system and which engages in the provision of more

than one type of utility service, a percentage of assets equal to

...the amount of the public utility affiliate's assets devoted to

public utility service, other than the generation, transmission

and distribution of electric power, multiplied by a percentage, ias determined by the commission, which may be more, but

lay not be less, than 25%, plus 25% of all remaining assets of

,such public utility affiliate. 2. For purposes of subd.1, the assets of each nonutility

Raffiliate shall be determined by doing all of the following:

a. Subtracting from the nonutility affiliate's total assets the

amount of the nonutility affiliate's investment in other utility

iind nonutility affiliates with which the nonutility affiliate is

in a holding company system. b. Multiplying the amount derived under subd. 2. a by the

quotient of the amount of the direct ownership interest in

bch nonutility affiliate owned by persons who are not with

e nonutility affiliate in the holding company system, if such ,ownership by such persons is greater than one-half of the

&total ownership interest in such nonutility affiliate, divided by P'the total ownership interest in such nonutility affiliate.

c Subtracting the amount derived under subd. 2. b from 'the amount derived under subd. 2. a.

3. Within 36 months after it is formed, a holding company 1Rformed on or after November 28, 1985, may not have

lionutility affiliate assets exceeding 40% of the maximum amount allowed under subd. 1.

4 If the commission establishes a percentage of assets snder subd. 1. b or c which is greater than 25%, any

gsubsequent reduction of such percentage by the commission mYiay not take effect until the last day of the 12th month

i!following issuance of the order establishing the reduction or .until a later date which the commission sets and which the

i commission determines to be reasonable after considering the size of the reduction and which is no later than 36 months

Wfollowing issuance of the order establishing the reduction.

(q) I. No nonutility affiliate or joint venture or partnership Zwith a nonutility affiliate as a member or partner may, in the

Vkrvice territory of a public utility affiliate with which it is in a .holding company system, sell at retail, lease, install, maintain or service any appliance that uses as its primary energy source energy supplied by that public utility affiliate under rates and tariffs approved by the commission, if the appliance is, or is intended to be, located in any building used primarily for residential occupancy or in any commercial building unless the building is owned or operated by the holding company or by its nonutility affiliates or unless the commission determines, after notice and hearing, that the selling at retail,

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REGULATIOF PUBLIC UTILITIES 196.795

leasing, installing, maintaining or servicing of the appliance will not do any of the following:

a. So as to violate ch. 133 or any other applicable state or federal antitrust law, lessen competition or tend to create a monopoly, restrain trade or constitute an unfair business practice.

b. Make use of any customer list, other confidential information, logo or trademark obtained from a public utility affiliate in a manner unfair to competitors.

2. Except as provided under subd. 3, no public utility affiliate or its subsidiary or joint venture or partnership having a utility affiliate or its subsidiary as a member or partner may, in the service territory of the public utility affiliate, sell at retail, lease, install, maintain or service any appliance that uses as its primary energy source energy supplied by that public utility affiliate under rates and tariffs approved by the commission, unless the appliance is located in facilities owned or operated by that public utility affiliate or its subsidiary or unless the appliance is sold, leased, installed, maintained or serviced:

a. In response to circumstances which reasonably appear to the public utility affiliate or its subsidiary to endanger human health or life or property;

b. Under any appliance sale or service plan or program in effect on March 1, 1985; or

c. Under any energy conservation or other program which a state law, state agency, federal law or federal agency requires the public utility or public utility affiliate to perform.

3. Notwithstanding subd. 2, a public utility affiliate or its subsidiary may sell, lease, install, maintain or service an appliance which is in its public utility service territory and which uses as its primary energy source energy supplied by the public utility affiliate under rates and tariffs approved by the commission if:

a. The installation, maintenance or service of the appliance is performed by an independent contractor which is not in the holding company system of the public utility affiliate and which is regularly engaged in, qualified and, if required by any state or -local governmental unit, licensed to perform

- heating, ventilation, air conditioning, electrical or plumbing work; or

b. The commission determines, after notice and hearing, . that the sale, lease, installation, maintenance or service of the appliance, if conducted by the public utility affiliate's employes or by the employes of the public utility affiliate's subsidiary, will not, so as to violate ch. 133 or any other applicable state or federal antitrust law, lessen competition, tend to create a monopoly, restrain trade or constitute an unfair business practice.

4. No nonutility affiliate may sell at wholesale to any person any appliance, except a swimming pool or spa heater, for delivery in this state unless the nonutility affiliate is engaged in the production, manufacture, fabrication or assembly of any component part of the appliance.

(r) No public utility affiliate may permit the use of any public utility affiliate employe's services by any nonutility affiliate with which it is in a holding company system except by contract or arrangement. Any such contract or arrangement made or entered into on or after November 28, 1985, for the use of any public utility affiliate employe's services by a nonutility affiliate shall have prior written approval of the

commission before it is effective. The commission shall approve such contract or arrangement if it is established upon investigation that the nonutility affiliate will compensate the

public utility affiliate for the use of the employe's services at the fair market value of the employe's service and that the nonutility affiliate's use of the employe's services will not

196.795 REGULATION OF AIC UTILITIES

result in unjust discrimination against, or have an anticompe

titive impact. on,.any competitor of the nonutility affiliate. pr

The commission may not approve any such contract or th

arrangement if it determines that the potential burden of a

administering such contract or arrangement is greater than n

the potential benefits to the public utility affiliate's customers i0

or if it determines that the public utility affiliate has not in

minimized the use of such employes by nonutility affiliates in si

the holding company system. Any contract or arrangement bH

in effect on November 28, 1985, for the continued or future

use of any public utility affiliate employe's services by a fi

nonutility affiliate approved under s. 196.52 shall be resub- c

mitted for approval by the commission under this paragraph c

within 90 days after November 28, 1985. Such contract or e

arrangement, if approved by the commission, shall take effect 2

within 60 days after the date of approval. c

(s) In this paragraph, "property" means any equipment, a

facilities, property or other nonmonetary item of value except

real property and utility service which is provided by the

public utility affiliate on the same terms or conditions to all

consumers in the same class. No public utility affiliate may c

sell, lease, transfer to or exchange with any nonutility affiliate

with which it is in a holding company system any property

except by contract or arrangement. Any such contract or

arrangement made or entered into on or after November 28,

*1985, for the sale, use, transfer or exchange of any public1

utility affiliate's property by a nonutility affiliate shall have

the prior written approval of the commission before it is

effective. The commission shall approve such contract or

*arrangement if it is established upon investigation that the

nonutility affiliate will compensate the public utility affiliate

for selling, leasing, transferring to or exchanging with the

nonutility affiliate any property at the fair market value of the

property and that the nonutility affiliate's acquisition or lease

of the property will not result in unjust discrimination

against, or have an anticompetitive impact on, any competi

tor of the nonutility affiliate. The commission may not

approve any such contract or arrangement if it determines

that the potential burden of administering such contract or

arrangement is greater than the potential benefits to the

public utility affiliate's customers or if it determines that the

public utility affiliate has not minimized selling, leasing,

transferring to or exchanging with nonutility affiliates in the

holding company system such property. Any contract or

arrangement which is in effect on November 28, 1985, for a

public utility affiliate to sell, lease, transfer to or exchange

with a nonutility affiliate, on a continuing basis or in the

future, the public utility affiliate's property and which is

approved under s. 196.52 shall be resubmitted for approval

by the commission under this paragraph within 90 days after

November 28, 1985. Such contract or arrangement, if

approved by the commission, shall take effect within 60 days

after approval..

(6) REPORTING REQUIREMENTS. No more than 10 business

days after a holding company forms, organizes or acquires a

nonutility affiliate, the holding company shall notify the

commission of the formation, organization or acquisition

and shall provide the commission with the following

information: (a) The name, identification of officers and corporate

relationship of the nonutility affiliate to the holding company

and utility affiliate.

(b) A copy of any proposed agreement or arrangement

between the nonutility affiliate and the public utility affiliate.

(c) A brief description of the nature of the business of the

nonutility affiliate, including its most recent public annual

financial statement.

85-86 Wis. Stats. 2750

(d) As of the last day of the calendar year immediately

eceding the date of the notification under this subsection,

e total amountof assets held by the nonutility affiliate, the

nount of such assets located within this state, the total

umber of employes and the total number of employes

cated in this state. The holding company shall report the

formation required under this paragraph to the commis

on annually no later than March 31. The information shall

e available to the public upon filing. (7) CommiSSiON INVESTIGATIONS. (a) No sooner than the

rst day of the 36th month after the formation of a holding ompany and at least once every 3 years thereafter, the

ommission shall investigate the impact of the operation of

very holding company system formed on or after November 8, 1985, on every public utility affiliate in the holding

ompany system and shall determine whether each nonutility

ffiliate does, or can reasonably be expected to do, at least me of the following:

1. Substantially retain, substantially attract or substan

ially promote business activity or employment or provide

apital to businesses being formed or operating within the

,vholesale or retail service territory, within or outside this

tate, of: a. Any public utility affiliate.

b. Any public utility or member of a cooperative associa

tion organized under ch. 185 which files or has filed a plan

under s. 196.491 (2). 2. Increase or promote energy conservation or develop,

produce or sell renewable energy products or equipment. 3. Conduct a business that is functionally related to the

provision of utility service or to the development or acquisi

tion of energy resources. 4. Develop or operate commercial or industrial parks in

the wholesale or retail service territory of any public utility affiliate.

(am) Funds utilized by a nonutility affiliate for any of the

following may not be considered by the commission in

making any determination under par. (a):

1. The purchase or sale of securities or other appropriate

cash management practices. 2. The establishment and maintenance of cash accounts in

banks or other financial institutions.

(ar) Three years after the formation of a holding company

under this section, the commission shall report its findings

under par. (a) to the legislature. Thereafter the commission

shall, based on its existing investigative findings, rate reviews

and other relevant information, submit to the legislature a

report on the impact of the holding company, including the

benefits and adverse effects on every public utility affiliate in

the holding company system and on the investors and con

sumers of such public utility affiliates, at least once every 2

years. The report shall include any recommendations for

legislation relating to the regulation of any part of a holding

company system. (b) The commission, on its own motion, or, at its discre

tion, upon the complaint of any person, may, after reasonable

notice and an opportunity for hearing, conduct an investiga

tion to determine if any practice of a holding company system

violates any provision of sub. (5) (b) to (s) or any limitation,

term or condition imposed under sub. (2) (e) or (n. If the

commission finds after investigation, notice and opportunity

for hearing that any practice of any company in a holding

company system violates any provision of sub. (5) (b) to (s) or

any term, limitation or condition impo sed under sub. (2) (e)

or (f), the commission, by order or otherwise, shall direct the company to modify or cease the practice. Such order is

reviewable under ch. 227. The circuit court of Dane county,

V

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2751 85-86 Wis. Stats. REGULATION OF PUBLIC UTILITIES 196.81

by appropriate process including the issuance of a prelimi- unless the holding company owns, operates, manages or

nary injunction by suit of the comnmission, may enforce an controls a telecommunications utility and does not also own,

order to cease or modif'y a practice under this paragraph. operate, manage or control a public utility which is not a

(c) The commission, after investigation and a hearing, may telecornmur~cations utility.

order a holding company to terminate its interest in a public History: 1985 a. 79; 1985 a. 297 ss. 67, 68, 76; 1985 a. 332.

NOTE: This section was created by 1985 Act 79. Section I of that Act is

utility affiliate on terms dqaet rtc h neet fette "Findings and purpose."

utility investors and consumers and the public, if the commis

Sion finds that, based upon clear and convincing evidene

termination of the interest is necessary to protect the interests onsent and approval of the commission but not otherwise a

of utility investors in a financially healthy utility and consum- pblic utility may:

ers in reasonably adequate utility service at a just and a) Merge or consolidate with one or more other public

reasonable price. The circuit court of Dane county a util iles

enforce by appropriate process an orde establishing a plan of (b .Acquire the stock of any other public utility or any part

reorganization to terminate a holding company system's there

interest in a public utility affiliate. Any such order of the (d) nsolidate or merge with any Wisconsin corporation

commission issued under this paragraph may be reved if substa tially all of the assets of the corporation consist of

underch. 27. he entire tock of the public utility. The total of the resulting

nover ,.wanoorut

ch. preced

(8) EXEMPTIONS. (a) This section does not apply to any seuiisusading of the possessor corporation which

holding company, which was organized or created before have not b n authorized previously under ch. 184 shal

12~~~~ 105adwih ognzd cetd rqire auhzation under c184 as a conditionpree

byo ttedrcin fapbi tltto the merger r consolidation.

(b) This section does not apply to any telecomrmunications (e1Sl, ac rlaeo etaypublic utility pla or

Utility, property con2tt ing an operating unit or system.

(9) PRtOTECTION Or BUSINESSINEOIRMATION. Notwithstand ()Ntigi i eto hl be construed to a ect or

Ing s. 19.35, if the commission obtains business information lmtheorainfs.170to9.0orof ss. 6.06 to

~~ from a holding company system which if disclosdt h 608

public, would put any nonutility affiliate in the holding ()Teitrsd bicultyshall make an plication

company system at a material competitive disadvantage, the frteapoa n sn ftecmisO udrti

commission shall protect such information from public di- section. The applicatio shall contain a concis statement of

closure as if it were a trade secret as dfndis1490)(c.the proposed action, the asonfothaciadayohe

(9m) PRIVATE CAUSE OF ACTION. Any comayi( odn information required by tcomsinIfnapctons

2 company system which does, causes or permits to be done any fietecommission shall~ vestigate the pplication. The

prohibited action under sub. (5) (c) to (dr), (O h,() ninvestigation may be witowihupuchern.Ite

,.. (q), (r) or (s), or fails to comply with any term, limitation or commission conducts a publi hearing, e hearing shall be

condition imposed under sub. ()(e) or ()cnittwth upon such notice as the co ison areue.fth

sub (5 (c to(drf), (h), (k), (n), (q), (r) or (s), is liable to any commission finds that the prop ed a ion is consistent with

peso ijuedtereby in treble the amount of damages tepbiinrsithalgvicnsent and approval in

31" sustained in consequence of the prohibited action or failure to writing. In reaching its determinaontecmisnshl

act.take into consideration the reaso le value of the property

(10) COMMISSION INTERVENOR AUTHORITY. The commission and assets of the corporation to e quired or merged.

may intervene on behalf of this state in any proceeding before (5) Any transaction requir un r this section to be

~ , any state or federal agency or court before which an applica- submitted to the commissio for its c nsent and approval

tio o isu reatd o his section is pending. The commis- salbvoduless the co mission gi es its consent and

i Sion may enter into any binding settlement related to any approval to the transactio in writing.

proceeding in which the commission has intervened and may (6) Nothing in this sec ion may be cons ued to limit any

exercise any power or right necessary to acopihte authority conferred by atute upon the co mission bfr

intervention. June 27, 1935.

(10Mn) SMALL BUSINESS PROTECTION. In this subsection, History: 1977 c. 29; 198 a. 53.

~small business" means a business which has had less than

$5,000,000 in gross annual sales in the most recent calendar 196.81 Abandon nt; commission approval quired. (1)

year or fiscal year and which has less than 150 employes. The No public utility ay abandon or discontinue y line or

commission shall provide assistance, monitoring and advo- extension or Se ce thereon without first .securin the ap

cay n roecing small business interests under s. 196.795 in proval of the mmission. In granting its appr val, the

any ain por pceeig eoeth omsin commission mn impose any term, condition or requ ement

(11) CONSTRUCTION. (a) This section may not be deemed to it deems nece sary to protect the public interest. If a ublic

diiihtecmiso' control and regulation over the utility aban ns or discontinues a line or extension or s ice

opertios an asets f ay pulicutiltythereon u n receiving commission approval, the pu lic

(b)rtios setn ashbe deemedtoblegautlize an ofr h tlt h be deemed to have waived any objection to a y

formation, prior to November 28, 1985, of any holding temcodinoreqrmntmpsdbthcmmsi

company, which is not itself a public utility, and shall be inn mra nng theov approvstbyl.

deeed o lgalze nd confirm the operations and issuances (2) he commissio a o prv eus ya

of securities of the holding company, except that nothing in elec c or telecommunications utilitytabnoariho

F this section shall be deemed to prevent the comnmission from wa ,unless the commission requires the public utility to

imposing reasonable terms, limitations or conditions on any r ove any pole at ground level from the right-of-way and

holingcomanywhch re onsstet ithandnecssry to nyother structure which extends more than 3 feet above

satisfy the requirements of sub. (5) (b) to (o) and (q) to (s) or gon ee n hc eog oteuiiya h ieo

A. which relate to future investments by the holding company

DATE M/ MAY 1 1987

BEFORE THE

PUBLIC SERVICE COMMISSION OF WISCONSII

Application of Wisconsin Power and

Light Company and WPL Holdings, Inc.

for a Certificate of Approval to Docket 9403-YO-100

Form a Holding Company

FINDINGS OF FACT, CERTIFICATE AND ORDER

Discussion

Wisconsin Power and Light Company and WPL Holdings, Inc.

filed an application to form a holding company under sec. 196.795,

Stats., with the commission on November 17, 1986. On December 22,

1986, the applicants filed supplemental information in response to

a commission staff memorandum dated December 11, 1986 regarding

the .completeness of the application. On January 6, 1987, the

commission accepted the supplemented application as complete under

sec. 196.795(2) (c) , Stats.

Wisconsin Power and Light Company is a Wisconsin corporation

engaged in rendering electric utility service to the public in a

service territory extending across the southern portion of the

state from Grant County on the west to Walworth County on the east

and generally northward through the central part of the state to

Wood and Menominee Counties. Wisconsin Power and Light Company is

a public utility as defined in sec. 196.01, Stats.

Docket 9403-YO-100 Page 2

Wisconsin Electric Power Company owns several subsidiary

corporations, including WPL Holdings, Inc. and South Beloit Water,

Gas and Electric Company. WPL Holdings, Inc. is a co-applicant

herein and, after the proposed restructuring, would become the

direct owner of all the outstanding shares of Wisconsin Power and

Light Company and Heartland Development Corporation, the latter a

holding company which would, in turn, own Residuals Management

Technologies, Inc., WP&L Communications, Inc. and Enserv, Inc.

WP&L Communications, Inc. is a partner in Norlight, Inc.

Wisconsin Power and Light Company, the utility, would, under

the proposed restructuring, continue to own WP&L -Foundation, Inc.,

Nufus Resources, Inc., Reac, Inc., the South Beloit Water, Gas and

Electric Company and WP&L Nuclear Fuel, Inc. Nufus Resources,

Inc. is a partner in "Delores Bench," a uranium mining and milling

venture.

This application was filed pursuant to sec. 196.795, Stats.,

as created by 1985 Wisconsin Act 79, the Utility Holding Company

Act. That statute provides 120 days for review of such an

application, provides that the commission shall issue a

certificate of approval unless it finds that the interests of

utility consumers or investors will be materially harmed by the

formation of the holding company and permits the commission to

impose terms, limitations or conditions on such approval which are

consistent with and necessary to satisfy the requirements of

subsections (5)(b) to (s).

Docket-9403-YO-100 Page 3

Pursuant to due notice, a hearing was held pursuant to sec.

196.795(2), Stats., at Madison on March 16, 17, 23, 24, 25 and 26,

1987 before Examiner Donna Paske.

A notice of appeal rights appears in the attached Appendix A.

The parties for purposes of review are listed in the attached

Appendix B.

Application Granted Subject to Conditions

Wisconsin Power and Light Company, under sec. 196.795,

Stats., proposes to reorganize so that its subsidiary, WPL

Holdings, Inc., will be.come the parent holding company, owning all

the stock of Wisconsin Power and Light Company as well as the

stock of Heartland Development Corporation, which, in turn, will

hold the stock of three nonutility subsidiary corporations. All

current holders of common stock of Wisconsin Power and Light

Company.will.become stockholders of WPL Holdings, Inc., which may

acquire or form other nonutility subsidiaries in the future. If

the proposal is approved by this commission, the federal

Securities and Exchange Commission and Wisconsin Power and Light

Company's shareholders, the reorganization will take place on or

about July 1, 1987.

The commission is guided by the following principles, which

were incorporated by the legislature in the holding company bill

and endorsed by all of the participants in the drafting of that

legislation:

Docket 9403-YO-100 Page 4

1. Utility ratepayers shall not be made worse off

in any way by the formation and operations of the

holding company;

2. Utility ratepayers should benefit from the

activities of the holding company, at least

indirectly, as taxpayers and community members;

3. Nonutility operations of the holding company or

its nonutility subsidiaries should not be

regulated; and

4. The formation and operation of the holding

company shall in no way diminish the Public

Service Commission's authority over the

utility.

These principles are directly related to the .purpose of the

holding company bill, but specifically are identified in Sec. 1 of

the bill as well as secs. 196.795(4), 196.795(5)(a),

196.795(5)(g), 196.795(5)(j) and 196.792(11)(a).

The legislature, in the holding company bill, specifically

provided that the commission could impose "terms, limitations or

conditions" which are consistent with and necessary to satisfy the

terms of sec. 196.795(5)(b) to (s) at the time of approval of the

formation of a holding company. The legislature has clearly given

the commission the discretion to ensure adequate protection of the

ratepayer where such protections are necessary and are not

specifically provided for in the statute. The commission has

Docket 9403-YO-100 Page 5

applied its discretion in this case, but only where it has been

necessary to assure the protection of the ratepayer and is

consistent with the intent and provisions of the act. (See sec.

196.795(2)(e) and (f)).

In this proceeding, concerns were expressed that further.

ratepayer protection was needed beyond the statutory framework in

three areas, financial, cost allocation and accounting, and system

maintenance and improvement. The commission has applied the

principles set forth above to each of these areas of concern.

FINDINGS OF FACT

THE COMMISSION THEREFORE FINDS:

Financial Aspects

The financial requirements of a public utility differ from

those of unregulated firms in that a utility has an ongoing

obligation to continue to supply adequate service at reasonable

rates. The fundamental requirement to meet this obligation is

continuing financial health. Wisconsin Power and Light Company is

at this time, by any standard, a financially healthy utility.

Regulators and utility management have traditionally used

three elements of utility finance to insure that utilities are

able to provide reliable, low cost service into the future. These

elements are:

Docket 9403-YO-100 Page 6

1. A reasonable and balanced capital structure;

2. A dividend policy based on the utility's needs; and

3. A commitment to fund capital construction

needed to provide reliable and safe service.

These elements are interactive and overlap.

A balanced capital structure refers to the percentages which

common stock, preferred stock and debt constitute of the total

capital invested in the utility. These percentages are balanced

if they are within a reasonable range for financial health and

flexibility. A balanced utility capital structure provides

protection to both the ratepayers and the investors of a public

utility.

The debt investor or bondholder is protected by a balanced

utility capital structure because it provides adequate interest

coverage and an acceptable level of financial risk. As the

portion of a company's capital structure represented by debt

increases, the financial risk increases. A balanced capital

structure allows for variation in the revenue stream without

jeopardizing the interest payments of the bondholders. The equity

investor is protected by a balanced capital structure because it

reduces the risk of default created by variations in the revenue

stream.

Utility ratepayers are protected by a balanced capital

structure because it will enable a utility to attract capital at

reasonable rates to provide necessary utility service. Since the

Docket 9403-YO-100 Page 7

cost of capital is part of the utility revenue requirement, the

ratepayers will benefit by paying only reasonable returns on

capital. The ratepayer will also benefit from a balanced capital.

structure because it allows the utility to take advantage of cost

saving investment when it arises.

While a high proportion of common equity in a utility capital

structure decreases finanical risk and provides for higher

interest coverage, it also generates an increased cost of capital

to the ratepayer. Thus, a balanced capital structure is one which

contains the proper ranges of debt and equity so as to minimize

financial risk without increasing the cost of capital to

unreasonable levels.

A balanced capital structure, in addition to affecting risk

and cost, also helps provide critical financial flexibility. The

flexibility associated with a balanced capital structure enables

the utility to-issue various types of securities under any

conditions. This allows the utility to take advantage of

cost-saving opportunities when they arise. The potential for cost

reduction by proper investment on the part of the utility is much

greater than the cost savings that could accrue by changing the

mix of debt and equity in the utility capital structure.

Therefore, maintaining flexibility with a balanced capital

structure is very important.

For a regulated public utility, this financial flexibility

can be viewed as "regulatory flexibility." Since ithis commission

Docket 9403-YO-100 Page 8

often determines the type of investment that is to be pursued by

the utility, it is important that the commission not be

constrained in its ability to order the utility to undertake the

investment which provides the best public policy option. If a

capital structure is not balanced with an appropriate amount of

debt and equity, the commission may feel compelled to forego

ordering an appropriate public policy option because the utility's

capital structure will not allow the project to be undertaken

without significantly affecting the utility's financial health.

In order to maintain a balanced capital structure which

addresses the utility's needs for capital in a responsible way, it

is necessary to establish utility dividend policy based on the

utility's interests rather than on the interests of any other

entity, such as the holding company. A dividend policy which

addresses the utility's needs must be based on current investment

.needstand on a..projection:of the future investment which is

necessary for full provision of adequate utility service.

The underlying principle for a dividend policy adopted by a

utility which is a subsidiary of a holding company should be no

different than a policy adopted by a utility which is not part of

a holding company. The dividend policy for the utility should be

formulated by the board of directors of the utility, not the

holding.company. A reasonable dividend policy for Wisconsin Power

and Light Company should be geared to attracting and maintaining

investors, to maintaining a reasonable utility capital structure

Docket 9403-YO-100 Page 9

and to credit quality,insuring the availability of funds for

utility capital requirements.

This order will require the dividend policy for the utility

to be set by the directors of the utility based on their

responsibilities, pursuant to sec. 182.0135, Stats., as to what

dividend policy would be most beneficial to the utility in

achieving the goals mentioned above.

In setting this dividend policy, and in the maintenance of a

balanced capital structure, the overriding concern must be to

continue to provide adequate, safe and reliable utility.service,

including a consideration of the increasing costs of replacing

existing plant as it depreciates.

Financial health is based, among other things, on adequate

return on equity, which is a cost borne by the ratepayers. In

order for Wisconsin Power and Light Company to obtain and maintain

its current .high financial ratings, the commission has required

ratepayers to support attractive returns on utility common stock

equity and has allowed this utility to maintain common equity

ratios higher than the industry average. Inasmuch as the

ratepayers have paid for this ongoing financial strength, it is

imperative that the financial flexibility and low borrowing costs

that are associated with it continue to be used for the

ratepayers'.benefit.

The primary and proper use of funds generated by this utility

is to fund utility capital and operating requirements. Internally

Docket 9403-YO-100 Page 10

generated funds, after normal dividend payments, should ordinarily

be used for utility capital requirements, as long as a balanced

capital structure is maintained. There may be periods where the

funds generated internally would have to be removed from the

utility to balance the capital structure. However, the essential

principle is that these determinations will be made from the

utility's standpoint, rather than from the holding company's, and

should be aimed at insuring the utility's financial health and its

ability to provide safe and reliable service at reasonable cost.

It is necessary for Wisconsin Power and Light Company, as for

any utility, to maintain its investment in utility operations in

order to remain a strong ongoing utility. This is a requirement

of its franchise as a regulated monopoly. These utility

investments include, but need not be limited to, new construction

of utility plant, utility system maintenance and upgrading,

.electric line loss.reduction, conservation, and environmental

considerations such as SO2/NOx reduction. The commission will

monitor, review and approve this utility's investments in the

course of construction cases, rate cases, and other appropriate

proceedings to insure that the needed work is being performed and

that such work is being considered as a part of the future capital

needs of the utility, including the development of an adequate

capital structure.

In order to effectively monitor financial conditions of a

balanced capital structure, appropriate dividend policy and the

Docket 9403-YO-100 Page 11

priority given to utility capital requirements, the commission

needs the capability to analyze both short-term and long-term

financial issues in a regulatory strategic planning context.

Therefore, in rate cases, security issuance cases and in the

Advance Plan proceeding, Wisconsin Power and Light Company will be

required to submit 10-year forecasts of key financial variables.

Capital Structure Conditions

The appropriate balanced capital structure.for Wisconsin

Power and Light Company has been determined in a previous case.

In docket 6680-SB-101, the commission decided that the appropriate

target common equity ratio for Wisconsin Power and Light is 50%.

Until the time the utility achieves this common equity ratio, no

utility funds should be used for investment in nonutility

business.

The-order in the instant docket (9403-YO-100) affirms the

requirement set forth in the order in docket 6680-SB-101.

Moreover, the 50% common equity ratio target continues to be

reasonable based on a review of current financial market

conditions, changes in the federal tax law and the need for

regulatory flexibility.

In order to insure that utility equity is not used to finance

.,nonutility investment before the utility has reached the 50%

common equity ratio, the commission will order that any dividends

paid by Wisconsin Power and Light to its parent must be "passed

Docket 9403-YO-100 Page 12

through" immediately to the stockholders of WPL Holdings, Inc.

This condition removes the incentive for the utility to pay out

more than normal utility dividends to finance its nonutility.

operations when the utility common equity ratio is below the

target 50% level.

The only exception to the passthrough condition is that WPL

Holdings, Inc. may retain a reasonable amount of the dividends

from Wisconsin Power and Light Company to cover the reasonable

expenses of operating WPL Holdings, Inc. and Heartland Development

Corporation. The initial amount to be retained is subject to

approval by the commission prior to the formation of the holding

company. Applicants will be required to submit a detailed list of

such estimated expenses of operating the holding companies,

together with an explanation as to why each expense is reasonable

and why it is an expense of operation. Subsequent amounts

allowable forexpenses of operating WPL Holdings, Inc. and

Heartland Development Corporation will be reviewed in each rate

case of the utility for the period during which the passthrough of

dividends requirement is in place.

Once the utility has reached the 50% utility common equity

ratio, the passthrough of dividends requirement will no longer be

in effect. The appropriateness of future conditions on capital

structure and/or dividend policy will continue to be examined and

reviewed in rate cases and in other cases and investigations

before this commission.

Docket 9403-YO-100 Page 13

The condition on the use of utility funds for nonutility

purposes contained in the order in docket 6680-SB-101 will remain

in effect for nonutility subsidiaries of the utility both before

and after the formation of the holding company and shall be

subject to sec. 196.52(8).

Inorder for the commission to determine if the applicant is

complying with this order, reporting requirements are necessary.

The most reasonable reporting requirement is that Wisconsin Power

and Light Company should notify the commission whenever a dividend

is paid from Wisconsin Power and Light Company to WPL Holdings,

Inc. The report should list the amount of dividends paid to the

parent, WPL Holdings, Inc., the amount of dividends paid to the

shareholders of WPL Holdings, Inc. and the amount of money

retained to cover the expenses of operating WPL Holdings, Inc.

and Heartland Development Corporation.

Asset Limitation

During the initial post-formation period, a cautious approach

is reasonable. Therefore, after the formation of the holding

company, the percentage of the assets of Wisconsin Power and Light

Company to be used for the asset limitation purpose of sec.

196.795(5)(p), Stats., shall be 25%. This percentage may be

reviewed in subsequent proceedings.

Docket 9403-YO-100 Page 14

Access to Records

Effective regulation of public utilities is dependent upon

this commission's ability to obtain and evaluate information.

Sec. 196.795(5)(b), Stats., provides that the commission has full

access to any book, record, document or other information relating

to a holding company system to the extent that such information is

relevant to the performance of the commission's statutory duties.

Because the commission performs these statutory duties through the

work of its staff, appropriate staff members must have access to

all applicable records of the holding company and nonutility

affiliates.

.Full access to the records of the holding company and

nonutility affiliates is required for any book, record, document

or other information which staff believes is relevant to fulfill

the commission's statutory duties. These duties include the

.monitoringoof:rnonutility affiliates in .the holding company system

to insure against unfair competitive practices based on the

utility affiliation. If the applicants object to staff

information requests on grounds of relevance or confidentiality,

the applicants have the burden of making the objection to the

commission and of persuading the commission that such information

is not relevant to the commission's statutory duties or that it

should be protected.

Access to the records-of the holding company and nonutility

affiliates applies to issuance of securities of utility

Docket 9403-YO-100 Page 15

affiliates, proceedings concerning changes in rates, affiliate

transactions and the commission's duties under sec. 196.795,

Stats.

Any costs charged to a utility affiliate by the holding

company or nonutility affiliate, for which the commission has

insufficient information to make a decision as to their propriety,

will not be reflected in rates.

Form of Records

Sec. 196.795(5)(b) of the Wisconsin statutes provides that

the commission may require a holding company to keep any record or

document which is necessary for the commission to perform its

duties under this section and which is consistent with generally

accepted accounting and recordkeeping practices of the particular

type of business involved, subject to the "Protection of Business

Information" section, sec. 196.795(9). Due to the differences in

the types of diversification activities currently engaged in by

the applicant, it would be unreasonable to require a single form

of accounting records which would meet the needs of each activity,

as well as accounting and reporting requirements for consolidated

companies for the purposes of the Securities and Exchange

Commission and the New York Stock Exchange. Current industry

practices and generally accepted accounting principles can differ

for different activities.

Docket 9403-YO-100 Page 16

The concern regarding the form of records is that there be a

clear and concise audit trail for those costs associated with

affiliated transactions. Without a clear audit trail, the

commission will be unable to perform an adequate review of

affiliated transactions in order to determine the reasonableness

of costs charged to the utility affiliate by the holding company

or its nonutility affiliates.

The accounting records of the Wisconsin Power and Light

Company's current system provide an adequate audit trail in regard

to affiliated transactions.

In order to ensure that there is a clear and concise audit

trail for costs associated with affiliated transactions which

meets the needs of staff, any new nonutility affiliates should

submit for staff's review the specific procedures to be followed

to account for affiliated transactions. Failure to provide a

-clear and concise.audit trail will prevent staff from properly

reviewing the reasonableness of affiliated transactions and will

result in the commission's denying compensation for these

transactions.

Shared Officers and Employees

Three concerns have been expressed about shared officers and

employees in a holding company system. One is a concern that the

success of nonutility affiliates will be placed ahead of utility

service in management's attention. There is the potential for

Docket 9403-YO-100 Page 17

utility officers and employees to pay more attention to new

ventures and for managerial and technical talent to be diverted to

new ventures.

A second concern is that the greater the number of

overlapping employees and officers, the greater the administrative

burden of allocating time and costs among the various companies in

the holding company system.

The third concern is that there might be a lack of

technological, managerial or competitive experience in the

nonutility ventures, as well as a lack of experience in analyzing

new markets and market behavior, and in implementing new programs.

Most officers of Wisconsin Power and Light Company are shared

with nonutility.affiliates and with the holding company. In

addition, many employees other than officers have significant time

charged to nonutility accounts. Finally, the different boards of

directors share.members, or in the case of WP&L and WP&L Holdings,

have identical members. Because these.board members will have a

fiduciary duty to both the utility and the holding company, the

potential conflict of interest is cause for concern. The

applicants indicated that, while initially the board members and

certain officers will be shared, the applicants will work toward

separation. The applicants also indicated that they had no

specific current plans to minimize the sharing of board members,

officers or employees.

Docket 9403-YO-100 Page 18

Sec. 196.795(5)(f) of the Wisconsin statutes prohibits

material subsidization between utilities and nonutility

affiliates. Sec. 196.795(5)(r) requires the public utility

affiliate to minimize the use of utility employees. Therefore,

the sharing of officers and employees by and between the utility

affiliates,.nonutility affiliates and the holding company should

be minimized or eliminated where possible.

The applicant will be required to submit a plan prior to the

formation of the holding company describing the ways in which the

applicant intends to achieve maximum possible separation of

officers and employees as well as plans for the staffing of WP&L

Holdings and Heartland Development Corporation upon formation.

These plans should indicate any past or intended future transfers

of utility employees to the holding company or nonutility

affiliates and any areas where there will be joint use and sharing

of officers and employees. The plans should also include a

complete description of what the shared duties will be, why

sharing is a benefit to the utility and the estimated percentage

of time devoted to each function.

Further, WPL Holdings, Inc. should submit staffing plans for

new ventures when formed or purchased.

Reporting Requirements

Sec. 196.795 contains a number of conditions or restrictions

to be placed on holding companies. For commission staff to be

Docket 9403-YO-100 Page 19

able to review and monitor the holding company system for

compliancelwith such conditions, the commission has determined

that the following reporting requirements for holding companies

are reasonable and necessary:

1. Upon completion of the formation of the holding company:

a. the accounting and recording of that formation

in journal entry form with adequate

explanation and supporting documentation; and

b. the accounting for the transfer of any assets

from the utility to the holding company or to

nonutility affiliates.

2. The holding company should submit an annual report

to the PSCW including the following items:

a. a copy of the annual report to stockholders;

b. an explanation and description of all affiliates, the relationships to each other

and to Wisconsin Power and Light Company, and

the type of business in which each is involved;

c. the assets of the utility, holding company and nonutility affiliates and the percent which

diversified activities constitute of the total;

d. an identification of all assets or

.confidential information which has a monetary value or potential monetary value, and which

has been transferred from the utility affiliate to the holding company or nonutility affiliates.

e. the names of officers and directors of

Wisconsin Power and Light Company, WPL

Holdings and nonutility affiliates and any

..shared officers and employees, with the

percent of time allocated to nonutility

activities;

f. the audited financial statements of all

nonutility affiliates which are required by

Docket 9403-YO-100 Page 20

other agencies and any other financial or

operating reports required by other agencies, such as the Securities and Exchange Commission. For any nonutility affiliates who are not required to file financial statements with other agencies, such statements or information should be made available for review by the commission's staff.

Affiliated Interest Requirements

As part of the holding company proceedings, certain issues related

to affiliated transactions were discussed. These issues are

appropriate to address in the review of affiliated interest

agreements. No affiliated interest transactions may occur between

the utility and nonutility affiliates prior to approval of an

affiliated interest-agreement. All .such affiliated interest

arrangements should be be covered by one "generic" or "master"

affiliated interest agreement. All of the conditions of this

agreement should apply to all nonutility subsidiaries unless those

conditions are specifically amended in a separate agreement.

Therefore, in light of the above discussion and findings:

With regard to any book, record, document, or other

information relating to this holding company system, it is

reasonable that the commission determine the relevance of such

information to the performance of the commission's statutory

duties in order that reasonable regulation is not impeded, that

nonutility affiliates are not materially subsidized by Wisconsin

Power and Light Company consumers, and that nonutility affiliates

are not engaging in unfair competitive practices as described in

sec. 196.795(5)(q), Stats.

Docket 9403-YO-100 Page 21

It is reasonable at this time to set the level of investment

at 25% of Wisconsin Power and Light Company's assets for purposes

of sec. 196.795(5)(p). This level can be reviewed in future

proceedings.

It is reasonable for the commission to review the specific

procedures followed by each nonutility affiliate to account for

affiliated transactions in order to ensure that reasonable

regulation of the utility is not impeded and that nonutility

affiliates are not materially subsidized by Wisconsin Power and

Light Company consumers.

It is reasonable that Wisconsin Power and Light Company and

WPL, Holdings, Inc. be required to prepare and file with the

commission for review staffing plans prior to the formation of the

holding company and after a three-year interval in order to ensure

minimal overlap of management and employees between the utility

and thenonutility affiliates, and to ensure that nonutility

affiliates are not materially subsidized by Wisconsin Power and

Light consumers.

Reports as described above are reasonable and necessary to

ensure that reasonable regulation is not impeded and that

nonutility affiliates are not materially subsidized by Wisconsin

Power and Light consumers.

The commission does not find that the formation of the

applicants' holding company as conditioned herein will materially

harm the interests of utility consumers or investors.

Docket 9403-YO-100 Page 22

Environmental Review

This action is classified as a Type IV action according to

PSC 2.90(4), Wis. Adm. Code. No special circumstances have been

brought to the commission's attention which would disturb this

presumption. It consequently requires neither an environmental

impact statement under sec. 1.11, Stats., nor an environmental

assessment.

CONCLUSION .OF LAW

THE COMMISSION CONCLUDES:

That it has the authority under secs. 196.795, 196.395, and

196.52(8), Stats., to issue the following certificate and order,

and that the following certificate and order should issue:

CERTIFICATE

THE COMMISSION CERTIFIES:

That it approves the formation of a holding company by

applicants Wisconsin Power and Light Company and WPL Holdings,

Inc., subject to the following stated conditions, which are

consistent with and necessary to satisfy the requirements of

subsections 196.795(5)(b) through (s), Stats.

0 0 Docket 9403-YO-100 Page 23

ORDER

THE COMMISSION THEREFORE ORDERS:

1. That the members of the board of directors of Wisconsin

Power and Light Company shall set the dividend policy based solely

on the capital needs and financial health of that utility without

regard to the need for capital on the part of WPL Holdings, Inc.,

Heartland Development Corporation or the nonutility affiliates in

the holding company system.

2. That Wisconsin Power and Light Company shall continue to

submit 10-year financial forecasts in rate cases and other

appropriate proceedings.

3. That WPL Holdings, Inc. shall not use any funds from

Wisconsin Power and -Light Company for investment in nonutility

business until Wisconsin Power and Light Company reaches and can

maintain a 50% common equity level in its utility capital

structure. Thus, until-the utility common equity ratio reaches

50%, all dividends paid from Wisconsin Power and Light Company to

WPL Holdings, Inc. shall immediately be passed through to the

shareholders of WPL Holdings, Inc.

4. That the only exception to this passthrough requirement

is that WPL Holdings, Inc. may retain a reasonable amount of the

dividends from Wisconsin Power and Liqht Company to cover the

Docket 9403-YO-100 Page 24

reasonable expenses of operating WPL Holdings, Inc. and Heartland

Development Corporation. The initial amount retained shall be

approved by the commission prior to the formation of the.holding

company. Applicants shall submit a detailed list of such

estimated expenses of operating the holding companies, together

with an explanation as to why each expense is reasonable and why

it is an expense of operation. Subsequent amounts allowable for

expenses of operating WPL Holdings, Inc. and Heartland Development

Corporation will be reviewed in each rate case of the utility for

the period of time during which the passthrough of dividends

requirement is in place.

5. That the passthrough requirement in this order will no

longer apply once the utility has reached the 50% common equity

level.

6. That when a dividend is paid to WPL Holdings, Inc.,

Wisconsin Power and Light Company shall submit a report to the

commission within ten days of the payment of the dividend. The

report shall contain the following information:

a. The total dollar amount of dividends paid

to WPL Holdings, Inc;

b. The total amount of dividends paid out to

shareholders of WPL Holdings, Inc; and

c. The amount of funds retained by WPL

Holdings, Inc. to cover the expenses of

operating WPL Holdings, Inc. and Heartland Development Corporation.

Docket 9403-YO-100 Page 25

7. That, no affiliated interest transactions shall occur

between the utility'and nonutility affiliates prior to'the

approval of an affiliated interest agreement. All such affiliated

interest arrangements shall be be covered by one "generic" or

"master" affiliated interest agreement. All of the conditions of

this agreement shall apply to all nonutility subsidiaries unless

those conditions are specifically amended in a separate agreement.

8. That the sum of the assets of all nonutility affiliates

in the WPL Holdings, Inc./Wisconsin Power and Light Company

holding company system may not exceed the sum of 25 percent of the

assets of Wisconsin Power and Light Company.

9. That WPL Holdings and Wisconsin Power and Light Company

shall.provide full access to.any book, record, document or other

information of the holding company and nonutility affiliates which

the commission staff believes is relevant to fulfill the

commission's statutory duties. The burden shall be on WP&L

Holdings and Wisconsin Power and Light Company to make objections

to the commission and to persuade the commission that such

information is not relevant to the commission's statutory duties

or that it should be protected under sec. 196.795(9).

Docket 9403-YO-100 Page 26

10. That WPL Holdings and Wisconsin Power and Light Company

shall submit for staff's review the specific procedures followed

by or proposed to be followed by each nonutility affiliate to

account for affiliated transactions.

11. That Wisconsin Power and Light Company and WPL Holdings

shall, prior to the formation of the holding company and after a

three-year period, submit a plan describing the ways in which they

intend to achieve maximum possible separation of officers and

employees, as well as plans for the staffing of WPL Holdings and

Heartland Development Corporation upon formation. Further, WPL

Holdings shall submit staffing plans for new ventures when formed

or purchased.

12. That WP&L Holdings shall submit, upon completion of the

formation of the holding company:

a. the accounting and recording of that :formation

in journal entry form with an adequate

explanationand -supporting documentation, and;

b. the accounting for the transfer of any assets

from the utility to the holding company or

nonutility affiliates.

13. That WPL Holdings shall submit an annual report to the

commission including the following items:

a. a copy of the annual report to stockholders;

b. an explanation and description of all

affiliates, the relationships to each

other and to Wisconsin Power and Light

Company, and the type of business in

which each is involved;

c. the assets of utility, holding company and nonutility affiliates and the percent

which diversified activities constitute

of the total;

Docket 9403-YO-100 Page 27

d. an identification of all assets or confidential information which has a

monetary value or potential monetary value, and which has been transferred from the utility affiliate to the holding

company or nonutility affiliates.

e. the names of officers and directors of Wisconsin Power and Light Company, WPL

Holdings and nonutility affiliates, and any shared officers and employees, with

the percent of time allocated to nonutility activities;

f. the audited financial statements of all nonutility affiliates and any other financial or operating reports which are

required by other agencies, such as the Securities and Exchange Commission. For

any nonutility affilates who are not required to file financial statements with other other agencies, such statements or information should be made

available for review by the commission staff.

Dated at Madison, Wisconsin, CdZ L /97

By the Commission.

JaelineK. Reynb1s Secrc;* ,ry to the Commission

JKR:JFE:macO4278703

See attached: Notice of Appeal Rights.

* 0

Docket 9403-YO-100 APPENDIX A

Notice of Appeal Rights

To comply with the requirements of s. 227.48(2), Wis. Stats., notice is hereby given that a party aggrieved by the foregoing decision has the right and option to file a petition for rehearing as provided in s. 227.49, Wis. Stats., within 20 days of the date of mailing of this decision as shown on the first page. If there is no date on the first page, the date of mailing is the date indicated immediately above the signature line.

Notice is further given that a person aggrieved by the foregoing decision also has the right and option to file a petition for judicial review as provided in s. 227.53, Wis. Stats., within 30 days after the mailing of this decision. The Public Service Commission of Wisconsin shall be named as respondent in the petition for judicial review.

This general notification is for the purpose of ensuring compliance with s. 227.48(2), Wis. Stats., and does not constitute a conclusion or admission that any particular party is necessarily adversely affected or that any particular decision is final or appealable.

If this decision is an order after rehearing or reopening, a person aggrieved must seek judicial review rather than rehearing, if the person so desires. A second petition for rehearing is not an option.

Docket 9403-YO-100

APPENDIX B

In order to comply with s. 227.47, Stats., the

following parties who appeared before the agency are considered

parties for purposes of review under s. 227.53, Stats.

Wisconsin Public Service Commission (Not a party

4802 Sheboygan Avenue but must be served)

P.O. Box 7854 Madison, WI 53707

WISCONSIN POWER AND LIGHT COMPANY and

WPL HOLDINGS, INC., by

Eugene 0. Gehl, General Counsel

William D. Harvey, Associate Counsel

222 West Washington Avenue

P.O. Box 192 Madison, WI 53701-0192

CITIZENS' UTILITY BOARD, INC. . by

Kathleen F. O'Reilly, Executive Director

David B. Iliff, Program Director

16 North Carroll Street, Suite 300

:Madison, WI 53703

W. T. ROGERS COMPANY by

Margaret L. O'Donnell, Associate

Cullen, Weston, Pines & Bach

20 North Carroll Street Madison, WI 53703

WISCONSIN INDUSTRIAL ENERGY CONSUMERS GROUP

by Michael G. Stuart, Attorney

Boardman, Suhr, Curry & Field

P.O. Box 927 Madison, WI 53701-0927

WISCONSIN PUBLIC POWER INC. SYSTEM

by LeRoy Thilly, Attorney Boardman, Suhr, Curry & Field

P.O. Box 927 Madison, WI 53701-0927

Docket 9403-Yo-loo Appendix B Page 2

WISCONSIN'S ENVIRONMENTAL DECADE, INC.

by Peter Anderson, President

14 West Mifflin Street

Madison, WI 53703

CITY OF BELOIT by

Neal R. Herst Director of Community Development 100 State Street Beloit, WI 53511