ALLIANT ENERGY CORP quarterly report, Q1 FY2017

Business Context and Reporting Period

Alliant Energy Corporation, together with its regulated subsidiaries Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL), filed a combined unaudited Form 10-Q for the three months ended March 31, 2017. The businesses provide regulated electric and natural gas services in Iowa and Wisconsin, wholesale electric services, transmission-related investments, and limited non-regulated activities.

Financial Performance and Position

Alliant Energy consolidated metric	Q1 2017	Q1 2016	Change
Operating revenues	$853.9 million	$843.8 million	+1%
Operating income	$142.9 million	$145.9 million	-2%
Income from continuing operations	$101.6 million	$100.2 million	+1%
Net income attributable to common shareowners	$100.4 million	$96.5 million	+4%
Diluted EPS	$0.44	$0.43	+$0.01
Operating margin	Approximately 16.7%	Approximately 17.3%	Down approximately 0.6 points
Dividends declared per common share	$0.315	$0.29375	+7%

Continuing-operations income tax expense was $17.6 million, producing an overall effective tax rate of 14.8%, compared with 17.7% in the prior-year quarter.
Discontinued operations contributed $1.4 million, compared with a $1.1 million loss in Q1 2016, primarily reflecting residual RMT-related activity.
Net cash provided by operating activities was $333.7 million, compared with $228.3 million. Operating cash flow benefited from transmission refunds, improved collections, and working-capital changes.
Capital expenditures and other investing uses were $303.6 million, including $276.4 million for utility construction and acquisitions, compared with $220.0 million in Q1 2016.
Financing activities used $29.9 million, including $71.5 million of common dividends and a $58.7 million increase in commercial paper.
Cash and cash equivalents were $8.4 million at March 31, 2017, compared with $8.2 million at December 31, 2016.
Debt consisted of $4.32 billion of long-term debt, including current maturities, and $302.8 million of commercial paper. Available revolving credit capacity was $697.2 million, and IPL had $42 million of remaining receivables-sale capacity.
Total assets were $13.46 billion and total equity was $4.10 billion at March 31, 2017. Regulatory assets totaled $1.96 billion, reflecting significant tax-related, pension, asset-retirement, derivative, and other deferred costs.

Subsidiary Results

IPL: Operating revenues were $450.5 million versus $458.7 million. Earnings available for common stock declined to $37.2 million from $45.6 million, primarily because electric margins fell $10.7 million to $165.0 million. Net income was $39.8 million versus $48.2 million.
WPL: Operating revenues increased to $393.1 million from $375.6 million. Earnings available for common stock declined modestly to $45.5 million from $46.5 million, as higher rate revenues were offset by the loss of prior ATC equity income, fuel-related effects, and higher depreciation. Net income was $45.5 million versus $47.0 million.

Material Changes Versus the Prior Comparable Period

WPL’s electric and gas base-rate increases became effective January 1, 2017 and contributed approximately $22 million of electric revenue and $2 million of gas revenue in the quarter.
Alliant Energy’s electric margins increased $5 million to $345.1 million. WPL’s margins increased $16 million, but IPL’s declined $11 million.
Unusually mild weather reduced estimated electric margins by approximately $9 million and gas margins by approximately $5 million versus the quarter’s weather-normalized potential; sales volumes were also affected by the 2016 leap year.
Higher purchased-power costs, lower dispatch of natural-gas-fired generation, and an unplanned Riverside outage affected fuel-related results. WPL estimated a $6 million reduction in first-quarter electric margins from fuel costs outside its approved recovery bandwidth.
Other operation and maintenance expense increased $8 million, including higher energy-efficiency cost-recovery amortization and bad-debt expense. Depreciation and amortization increased $4.5 million, primarily at WPL.
Interest expense increased $4.3 million, principally because of IPL’s $300 million issuance of 3.7% senior debentures in September 2016.
WPL no longer records equity income from its former ATC investment after transferring that investment to Alliant’s affiliate ATI on December 31, 2016; the change reduced WPL’s first-quarter results by approximately $11 million.
Alliant received $51 million of MISO transmission-owner return-on-equity refunds, including $40 million for IPL and $11 million for WPL. Retail portions were recorded as regulatory liabilities and are subject to customer treatment or regulatory approval.

Guidance, Outlook, Risks, Contingencies, and Unusual Items

IPL completed its approximately 660 MW Marshalltown natural-gas combined-cycle facility in April 2017. Total construction cost is estimated at approximately $645 million, excluding transmission upgrades and AFUDC.
IPL filed for a $176 million, approximately 12%, annual Iowa retail electric rate increase. An interim $102 million, approximately 7%, increase became effective April 13, 2017 and is subject to refund pending final rates, which were requested for the first quarter of 2018.
WPL expects approximately $8 million of 2017 fuel-cost under-collection, primarily due to the extended Riverside outage, and requested a fuel-related rate adjustment with no proposed 2017 customer-rate change.
WPL is constructing the approximately 730 MW Riverside expansion, expected to be completed by early 2020. Capitalized construction work in progress and AFUDC totaled $132 million at March 31, 2017.
IPL and WPL are pursuing or evaluating additional wind generation, including up to 500 MW approved for IPL and potential additional projects of up to 400 MW for IPL and 200 MW for WPL. The filing notes risks related to siting, production tax credits, project economics, and regulatory approval.
Environmental compliance obligations include SCR systems, potential unit fuel switching or retirements, consent-decree requirements, coal-combustion-residual rules, and evolving greenhouse-gas regulations. Future compliance costs could be significant, although management expects material consent-decree costs to be recoverable through customer rates.
Capital purchase commitments were $36 million for Alliant Energy, including $5 million for IPL and $31 million for WPL. Operating purchase commitments totaled $2.39 billion, primarily for purchased power, natural gas, and coal.
Other risks include regulatory recovery and rate proceedings, weather, fuel and power prices, generation outages, transmission costs, environmental litigation, access to capital markets, interest rates, credit exposure, cybersecurity, and potential labor negotiations. IPL’s Cedar Rapids collective bargaining agreement expires in August 2017.
Alliant disclosed a Whiting Petroleum abandonment guarantee with an estimated present value of $31 million but no probable material liability recorded. Environmental liabilities for manufactured-gas-plant sites were $17 million for Alliant and $14 million for IPL, against estimated future cost ranges of $12 million to $31 million and $10 million to $28 million, respectively.
Management stated that disclosure controls and procedures were effective as of March 31, 2017 and that risk factors had not changed materially from the 2016 Form 10-K.

Most Important Facts for Investors to Verify

Outcome and final rates from IPL’s Iowa retail electric rate case, including treatment of the interim increase and potential refunds.
Final true-up and customer disposition of the $51 million MISO transmission refunds.
Operational performance and cost recovery associated with the Riverside outage and WPL’s 2017 fuel-cost deferral.
Final Marshalltown costs, operating performance, and rate-base treatment following its April 2017 commercial operation date.
Capital spending, financing needs, and leverage as Marshalltown, Riverside, environmental projects, and potential wind projects progress.
Regulatory treatment and production-tax-credit eligibility for planned and potential wind investments.
Exposure to environmental compliance, generation retirements, consent-decree deadlines, commodity prices, weather, and future rate recovery.
Impact of the loss of WPL’s direct ATC equity income and whether replacement earnings or cash flows offset that change.