ALLIANT ENERGY CORP annual report, FY2015

Alliant Energy Corporation 2015 Form 10-K Summary

Business Context and Reporting Period

This combined Form 10-K covers Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL) for the fiscal year ended December 31, 2015. Alliant Energy is a regulated utility holding company serving approximately 950,000 electric and 410,000 natural gas customers in Iowa and Wisconsin. Its principal businesses are regulated electric and gas utilities, an approximately 16% interest in American Transmission Company, Corporate Services, and modest non-regulated transportation and generation operations.

The filing reports a full fiscal year, not a standalone fourth quarter. The financial statements received unqualified audit opinions; Alliant Energy also received an unqualified opinion on internal control over financial reporting.

Key Financial Metrics

Metric	2015	2014	Change
Operating revenues	$3,253.6 million	$3,350.3 million	Down $96.7 million
Operating income	$577.0 million	$543.6 million	Up $33.4 million
Income from continuing operations	$390.9 million	$395.7 million	Down $4.8 million
Net income attributable to common shareowners	$378.2 million	$383.1 million	Down $4.9 million
Diluted EPS	$3.36	$3.46	Down $0.10
Cash flow from operating activities	$871.2 million	$891.6 million	Down $20.4 million
Construction and acquisition expenditures	$1,034.3 million	$902.8 million	Up $131.5 million
Total assets	$12,495.2 million	$12,063.5 million	Up $431.7 million
Long-term obligations, net	$3,837.0 million	$3,768.7 million	Up $68.3 million

Operating margin was approximately 17.7% in 2015, compared with approximately 16.2% in 2014. The improvement in operating income despite lower revenue primarily reflected lower fuel, purchased-power, gas, and operating and maintenance costs, partially offset by higher transmission, depreciation, interest, tax, and benefit costs.

Electric utility revenue increased 2% to $2,770.5 million. Electric margin increased 5% to $1,932.8 million.
Gas utility revenue decreased 26% to $381.2 million, primarily because of milder weather, lower volumes, lower gas prices, and the Minnesota asset sale. Gas margin decreased 15% to $162.1 million.
Electric sales volumes increased 1% overall, but retail sales decreased 2%; residential sales decreased 6% and total customers declined largely because of the Minnesota distribution asset sale.
Cash and cash equivalents declined to $5.8 million from $56.9 million. Cash flow from operations funded most capital spending, but investing cash outflows were $919.2 million.
Alliant Energy’s consolidated capitalization was 47% common equity, 3% subsidiary preferred stock, and 50% long- and short-term debt at year-end. Debt-to-capital ratios were 50% for Alliant Energy, 46% for IPL, and 48% for WPL, below applicable covenant limits.
Available liquidity at year-end included $840 million of revolving-credit capacity and $145 million of availability under IPL’s receivables program, in addition to cash.

Material Changes Versus the Prior Comparable Period

Alliant Energy’s common-share earnings declined modestly because of higher WPL transmission expense, milder weather, higher taxes, depreciation, interest and employee-benefit costs, losses on Minnesota asset sales, and lower Transportation earnings.
IPL’s earnings available for common stock increased to $186.0 million from $181.6 million. Benefits from lower customer billing credits and the end of prior DAEC capacity charges were partly offset by lower sales, Minnesota sale losses, higher depreciation, and lower tax benefits.
WPL’s earnings available for common stock decreased to $176.3 million from $180.4 million, primarily because of higher transmission expense and lower gas and electric sales, partly offset by lower energy-efficiency amortization and fuel-related effects.
IPL completed the sale of its Minnesota natural gas assets for $11 million plus a $2 million promissory note and its Minnesota electric assets for $129 million. The transactions generated aggregate pre-tax charges of approximately $14 million, but the electric business retained a long-term wholesale supply agreement with the buyer.
Alliant Energy issued 2.19 million common shares through an at-the-market program and received $133 million of net proceeds.
IPL issued $250 million of 3.4% senior debentures due 2025 and retired $150 million of senior debentures. Alliant Energy’s long-term debt, including current maturities, was $3,835.6 million at year-end.
WPL retired Nelson Dewey Units 1 and 2 and Edgewater Unit 3. Their remaining net book value was transferred to a regulatory asset and is expected to be recovered over time from retail and wholesale customers.
Alliant Energy recognized $87 million of additional asset-retirement obligations related to the federal Coal Combustion Residuals Rule, including $67 million at IPL and $20 million at WPL.
The registrants early adopted new debt-issuance-cost and deferred-tax presentation standards. IPL and WPL also retrospectively changed their income-tax allocation method; management stated that the change was not material to 2015 income or cash flows.

Guidance, Outlook, Commentary, and Unusual Items

Management expects modest growth in temperature-normalized retail electric sales in 2016. IPL expects lower customer billing credits in 2016, with approximately $9 million of settlement-related credits remaining.
Management expects 2016 electric transmission expense to increase by approximately $45 million for Alliant Energy, $35 million for IPL, and $10 million for WPL. IPL expects much of its increase to be recovered through its transmission rider; WPL expects regulatory-asset or liability treatment under its escrow mechanism.
Expected 2016 capital financing includes approximately $25 million of Alliant Energy common-stock issuance, $165 million of capital contributions to IPL, $25 million to WPL, up to $300 million of IPL long-term debt, and up to approximately $400 million of parent and Resources long-term debt primarily to refinance maturing term loans.
Alliant Energy increased its targeted 2016 annual dividend to $2.35 per share, or $0.5875 quarterly, subject to Board approval and financial conditions. The 2015 payout ratio was 65% of consolidated continuing-operations earnings.
Planned capital expenditures for 2016–2019 total approximately $4,985 million: $2,210 million for Alliant Energy, $2,310 million for IPL, and $2,250 million for WPL as presented in the filing’s entity-specific plans. Major projects include Marshalltown, the proposed Riverside expansion, environmental compliance, and electric and gas distribution upgrades.
IPL’s approximately 650 MW Marshalltown combined-cycle project was under construction, with expected in-service timing in the second quarter of 2017 and an approved cost cap of $920 million including related pipeline and transmission upgrades.
WPL’s proposed approximately 700 MW Riverside expansion was estimated at approximately $700 million excluding transmission upgrades and AFUDC. A PSCW decision was expected in the second quarter of 2016; construction was expected to begin by early 2017 and finish by early 2020, subject to approvals.
Management expects 2016 depreciation, interest expense, retirement-plan costs, and AFUDC to increase. Pension and OPEB costs were expected to rise by approximately $17 million for Alliant Energy, $10 million for IPL, and $7 million for WPL.
The PATH Act extended bonus depreciation. Management estimated 2016 federal bonus depreciation deductions of approximately $450 million for Alliant Energy, including $200 million for IPL and $200 million for WPL. The company expected substantial federal net operating losses and tax credits to limit significant federal cash-tax payments through 2021.
Key risks include regulatory recovery and rate freezes through 2016, environmental compliance and Consent Decree obligations, Clean Power Plan and other emissions-rule uncertainty, project cost overruns or delays, transmission-cost increases, wholesale customer departures, weather and demand volatility, fuel and commodity prices, credit-market access, pension funding, cyber and operational risks, and potential impairment of the $130 million Franklin County wind farm if forward power prices decline by approximately $2 to $3 per MWh.
The filing identifies $8,994 million of consolidated contractual obligations, including $3,871 million of debt maturities, $2,766 million of long-term debt interest, and $2,249 million of purchased-power and fuel commitments.
Alliant Energy had $123 million of RMT performance guarantees outstanding at year-end. It also disclosed an uncapped guarantee related to former Whiting Petroleum partnership obligations, with estimated present-value abandonment obligations of $28 million, although no material probable liability was recorded.

Most Important Facts for Investors to Verify

Whether IPL and WPL obtain timely rate relief after their 2016 base-rate freezes and whether regulatory assets and liabilities remain probable of recovery.
Final regulatory decisions and cost recovery for the Marshalltown project, proposed Riverside expansion, environmental controls, retired generating units, and the Clinton natural-gas pipeline.
FERC outcomes on MISO transmission-owner return-on-equity complaints and the resulting effects on transmission expense and ATC equity income.
Actual 2016 transmission costs, WPL fuel-cost variance, weather-normalized sales, and the effect of declining customer billing credits.
Progress against the approximately $5 billion multi-year capital program and the associated need for debt and equity financing.
Liquidity after refinancing the $250 million Alliant Energy term loan and $60 million Franklin County Holdings term loan, and the extension of IPL’s receivables purchase commitment expiring in March 2016.
Environmental compliance costs, CCR-related obligations, Consent Decree milestones, and the ultimate requirements under contested greenhouse-gas and wastewater rules.
Franklin County wind-farm power prices, transmission upgrades, output, and impairment sensitivity.
Dividend capacity, including IPL and WPL distribution restrictions and the sustainability of the targeted 60%–70% parent-company payout ratio.