Alliant Energy Corporation 2013 Q3 Form 10-Q Summary
Business context and reporting period
This combined Form 10-Q covers Alliant Energy Corporation and its wholly owned utility subsidiaries, Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL), for the quarter and nine months ended September 30, 2013. Alliant Energy’s principal businesses are regulated electric and natural gas operations in Iowa and Wisconsin, with IPL also serving Minnesota and WPL holding an approximately 16% interest in American Transmission Company.
The interim financial statements are unaudited and results for the nine months are not necessarily indicative of the full year. RMT was sold in January 2013 and is presented as discontinued operations.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Operating revenues | $866.6 million, versus $887.6 million | $2,444.2 million, versus $2,343.6 million |
| Operating income | $201.4 million, versus $213.7 million | $425.3 million, versus $418.1 million |
| Income from continuing operations | $161.5 million, versus $153.0 million | $313.0 million, versus $265.7 million |
| Net income attributable to common shareowners | $157.6 million, versus $150.7 million | $292.8 million, versus $251.5 million |
| Diluted EPS | $1.42, versus $1.36 | $2.64, versus $2.27 |
| Dividends declared per common share | $0.47, versus $0.45 | $1.41, versus $1.35 |
Third-quarter revenue declined 2%, while net income attributable to common shareowners increased 5%. Nine-month revenue increased 4%, net income increased 16%, and diluted EPS increased 16%. Operating income was lower in the third quarter but higher for the nine-month period.
- Electric margins increased 5% to $534.1 million in the quarter and 8% to $1,333.3 million for nine months.
- Gas margins decreased 12% to $25.5 million in the quarter but increased 5% to $129.3 million for nine months.
- Alliant Energy’s effective income tax rate was 9.8% for the quarter and 11.4% for nine months, compared with 20.4% and 24.0%, respectively, in 2012. Benefits reflected Iowa tax benefit riders, rate-making treatment of property-related differences, and production tax credits.
- At September 30, total assets were $11.0 billion, including $8.1 billion of property, plant and equipment. Cash and cash equivalents were $17.7 million.
- Capitalization included $3.153 billion of long-term debt, including current maturities, $237.3 million of commercial paper, $3.267 billion of common equity, and $200 million of preferred stock.
Cash flow, capital spending, debt and liquidity
| Cash flow metric | Nine months 2013 | Nine months 2012 |
|---|---|---|
| Operating cash flow | $643.1 million | $600.3 million |
| Investing cash flow | $(513.2) million | $(517.7) million |
| Financing cash flow | $(133.4) million | $(52.9) million |
| Utility construction and acquisition expenditures | $524.4 million | $412.7 million |
| Ending cash balance | $17.7 million | $41.1 million |
Operating cash flow benefited from changes in IPL’s receivables program, the timing of cost recoveries, and the absence of WPL’s 2012 Riverside power-purchase payments. Investing activity remained heavily focused on utility construction, particularly environmental controls.
- At September 30, Alliant Energy reported $698 million of available revolving credit capacity and $40 million of remaining availability under IPL’s receivables program.
- Commercial paper outstanding was $237.3 million, with a weighted-average interest rate of approximately 0.2% and one-day weighted-average remaining maturity.
- Debt-to-capital ratios were 49% for Alliant Energy, 42% for IPL, and 49% for WPL, below credit-facility requirements of 65%, 58%, and 58%, respectively.
- IPL issued $200 million of 5.1% cumulative preferred stock in March 2013 and redeemed $150 million of 8.375% preferred stock. WPL redeemed $61 million of preferred stock.
- After the reporting date, IPL issued $250 million of 4.7% senior debentures due 2043. Proceeds were used to reduce receivables-program borrowings, long-term commercial paper, and for working capital.
Material changes versus the prior comparable period
- Quarterly earnings improved primarily because WPL no longer incurred $27 million of Riverside PPA capacity expense, IPL recorded tax-related revenue and tax benefits, and production tax credits increased. These benefits were partly offset by lower weather-related electric sales, higher depreciation, and higher performance-based compensation.
- Nine-month electric margins benefited from the absence of $53 million of Riverside PPA capacity expense recorded in 2012, higher IPL transmission cost recovery revenue, and an $18 million IPL tax-related revenue requirement adjustment.
- WPL acquired Riverside in December 2012, increasing depreciation and operating expenses but eliminating the associated Riverside PPA capacity expense.
- Utility transmission expense increased by $58 million for nine months, primarily due to higher ITC, MISO, and ATC rates and changes in IPL’s transmission cost recovery.
- Utility depreciation and amortization increased $30 million for nine months, primarily from Riverside, environmental projects, revised WPL depreciation rates, and the Franklin County wind project.
- Alliant Energy received a $62.4 million cash grant for the Franklin County wind project in March 2013.
- Electric retail sales declined 3% in the quarter and 1% for nine months, largely reflecting different weather conditions versus 2012. Management expects a modest increase in weather-normalized retail electric sales in 2014.
Guidance, outlook, management commentary and unusual items
- WPL’s Wisconsin retail electric and gas base rates remain frozen through 2014; WPL filed for a $31 million, or approximately 3%, 2014 electric fuel-related rate increase.
- IPL expected to file an Iowa electric rate case in early 2014 in connection with its new Duane Arnold Energy Center power purchase agreement and substantial rate-base additions. IPL expected a 2014 tax-related revenue requirement adjustment of approximately $15 million, subject to IUB approval.
- IPL and WPL expected 2014 transmission service expenses to increase approximately $50 million and $10 million, respectively; Alliant Energy estimated a consolidated increase of approximately $60 million. Recovery mechanisms are expected to offset a significant portion of the IPL increase.
- IPL signed agreements to sell its Minnesota electric and natural gas distribution assets for approximately $128 million in aggregate, subject to customary adjustments and regulatory approvals. Closing was expected in the second half of 2014, and the assets were not yet classified as held for sale at September 30.
- IPL’s proposed approximately 600 MW Marshalltown natural gas facility remained subject to regulatory approvals. The proposed fixed cost cap was $700 million, excluding AFUDC and transmission upgrades; estimated IPL transmission upgrade costs were approximately $155 million.
- WPL was evaluating a potential generation investment for 2019 and beyond, with preliminary capital expenditures of $45 million in 2016 and $245 million in 2017 if a 300 MW combined-cycle option were selected.
- WPL’s EPA and Sierra Club Consent Decree requires substantial emission-control investments, including scrubbers, baghouses, and SCR systems, and the retirement or fuel switching of certain units. WPL paid approximately $2 million in civil penalties and expects approximately $7 million of environmental mitigation spending.
- Environmental rules concerning greenhouse gases, wastewater, mercury, emissions, and coal combustion residuals could require significant future capital expenditures, but the filing states that the ultimate financial impact cannot yet be determined.
- The Cash Balance Plan class action remained unresolved. The Seventh Circuit affirmed portions of the case and remanded damages; no material loss contingency was recognized. An adverse outcome could materially affect retirement-plan funding and expense.
- Alliant Energy had $493 million of outstanding performance guarantees related to previously sold RMT projects, although management did not expect material cash payments. Environmental remediation liabilities for manufactured-gas-plant sites were estimated at $15 million to $32 million.
- Management stated that disclosure controls were effective as of September 30, 2013, with no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether IPL’s Minnesota asset sales receive all required regulatory approvals and close on expected terms.
- Final outcomes of IPL’s Iowa rate case, WPL’s fuel-related filing, tax benefit riders, and future transmission cost recovery.
- Actual spending, rate recovery, and construction risk for Marshalltown, environmental controls, transmission upgrades, and WPL’s potential generation investment.
- FERC’s final treatment of ITC’s Attachment “FF” tariff and the resulting reimbursement or cost exposure for Marshalltown and Bent Tree transmission upgrades.
- Final damages and potential funding impact from the Cash Balance Plan litigation.
- Changes in fuel, transmission, interest rates, weather, customer demand, environmental compliance costs, and access to capital markets.
- Whether IPL can extend its receivables purchase commitment, which was scheduled to expire in March 2014.
- The sustainability of dividends given projected capital expenditures, financing needs, regulatory restrictions on subsidiary distributions, and Alliant Energy’s announced 2014 target dividend of $2.04 per share.