Business Context and Reporting Period
Alliant Energy Corporation, together with its wholly owned utility subsidiaries Interstate Power & Light Company (IPL) and Wisconsin Power & Light Company (WPL), filed this unaudited combined Form 10-Q for the quarter and nine months ended September 30, 2019. The businesses primarily provide regulated electric and gas utility services in Iowa and Wisconsin, with additional non-utility transportation activities and an equity investment in American Transmission Company Holdings.
Key Financial Metrics
| Alliant Energy consolidated | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | $990.2 million | $928.6 million | $2,767.6 million | $2,661.0 million |
| Operating income | $290.2 million | $256.1 million | $616.8 million | $573.0 million |
| Net income attributable to common shareholders | $226.0 million | $205.5 million | $445.7 million | $426.8 million |
| Diluted EPS | $0.94 | $0.87 | $1.87 | $1.83 |
| Operating margin | 29.3% | 27.6% | 22.3% | 21.5% |
| Net cash from operating activities | N/A | N/A | $509.2 million | $442.2 million |
Revenue increased 6.6% in the quarter and 4.0% for the nine months. Operating income increased 13.3% and 7.6%, respectively, while diluted EPS increased 8.0% and 2.2%. The nine-month effective income tax rate was 9.8%, compared with 8.8% in 2018.
- Q3 utility electric margin, a non-GAAP measure, was $569.9 million, up from $504.3 million; nine-month margin was $1,385.9 million versus $1,281.5 million.
- Q3 utility gas margin was $32.4 million, compared with $33.5 million; nine-month margin was $171.4 million versus $149.0 million.
- Cash and cash equivalents were $193.7 million at September 30, 2019; cash, cash equivalents and restricted cash totaled $199.7 million.
- Long-term debt, including current maturities, totaled approximately $6.19 billion, and commercial paper outstanding was $349.6 million. Total equity was $5.17 billion.
- Available revolving-credit capacity was $650 million, and IPL had $109 million of additional receivables-sale capacity.
- Nine-month capital and acquisition expenditures were $1.08 billion, consisting of $1.00 billion for utility projects and $71.4 million for other activities.
Material Changes Versus the Prior Comparable Period
- Utility electric margin rose $66 million in Q3 and $104 million for nine months, primarily from IPL rate increases, WPL’s higher rate base, and related rider recoveries.
- Higher operation and maintenance expense, depreciation and amortization, and interest expense partially offset margin gains. Nine-month depreciation and amortization increased to $423.6 million from $376.4 million.
- Non-utility revenue increased by $31.8 million for nine months, primarily from the 2019 acquisitions of two freight management companies; the acquisitions cost approximately $21 million, including $8 million of contingent consideration.
- Retail electric sales volumes were unchanged in Q3 and decreased 2% for the nine months. Cooler second-quarter temperatures reduced residential and commercial demand.
- Operating cash flow improved by $67 million to $509.2 million, principally due to higher collections following rate increases and changes in tax-related refunds, partly offset by working-capital and interest-payment effects.
- Alliant issued $167 million of common stock under forward-sale agreements during 2019 and had 240.3 million shares outstanding at September 30, 2019.
- IPL issued $600 million of green senior debentures, consisting of $300 million due 2029 at 3.60% and $300 million due 2049 at 3.50%. WPL issued $350 million of 3.00% debentures due 2029 and used proceeds to repay commercial paper and $250 million of 5% debt maturing in July 2019.
Guidance, Outlook, Risks and Unusual Items
- IPL reached proposed October 2019 settlements for annual Iowa rate increases of $127 million for electric service and $12 million for gas service. Final IUB decisions were expected in the fourth quarter of 2019, with rates effective in the first quarter of 2020. The electric settlement included a 9.5% return on equity for specified assets, a 5% return on certain production-tax-credit carryforwards, and a 51% common-equity capital structure.
- Management expected higher 2020 earnings from increasing rate bases and the IPL rate reviews, partially offset by customer refunds of excess deferred tax credits. Management also expected higher 2020 depreciation and interest expense.
- Alliant expected to issue up to $250 million of common stock in 2020. IPL, WPL and AEF expected to issue up to $300 million, $350 million and $300 million, respectively, of long-term debt. The company announced a targeted 7% increase in the 2020 annual dividend to $1.52 per share, subject to board approval and business conditions.
- Planned capital expenditures for 2019–2023 totaled approximately $6.70 billion for Alliant Energy, including renewable generation, distribution infrastructure, gas systems and the West Riverside Energy Center. The estimates exclude IPL’s $110 million September 2020 DAEC power-purchase-agreement buyout.
- IPL recorded a $4 million third-quarter write-down of regulatory assets related to retired analog electric meters because the proposed rate settlement did not provide a return on the remaining book value.
- IPL incurred an obligation for the $110 million DAEC PPA buyout due in September 2020; recovery is expected over five years after payment through customer rates.
- Material risks include regulatory approval and recovery of costs, environmental compliance and litigation, construction and production-tax-credit qualification for renewable projects, fuel and purchased-power prices, weather and demand, access to capital markets, cybersecurity, equipment reliability, pension obligations and pending environmental requirements.
- Alliant reported minimum future commodity and other purchase commitments of $1.23 billion, including $892 million for natural gas. IPL and WPL also face environmental remediation estimates and obligations associated with the EPA consent decree and future coal-unit fuel switching or retirement.
Investor Verification Points
- Verify final IUB decisions and the effective revenue requirements from IPL’s electric and gas rate cases, including treatment of interim-rate refunds and excess deferred tax credits.
- Reconcile the company’s projected 2020 capital program, debt maturities, planned debt and equity issuance, and resulting leverage and interest expense.
- Assess whether renewable projects, including IPL’s wind expansion and WPL’s planned solar development, remain within estimated costs and qualify for expected production tax credits.
- Monitor cash conversion and receivables exposure, including IPL’s $109 million of remaining receivables-sale capacity and $237 million of deferred proceeds at September 30, 2019.
- Review environmental, regulatory and litigation developments affecting IPL coal facilities, MGP remediation, the Affordable Clean Energy rule and the EPA consent decree.
- Confirm the sustainability of the targeted dividend increase in light of capital requirements, rate recovery and financing needs.