Alliant Energy Corporation 2013 Q2 Form 10-Q Summary
Business context and reporting period
This combined unaudited 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 three and six months ended June 30, 2013. The businesses primarily provide regulated electric and natural gas service in Iowa, Wisconsin and Minnesota. WPL also owns approximately 16% of American Transmission Company LLC.
Key financial metrics
| Alliant Energy consolidated | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Operating revenues | $718.0 million | $690.3 million | $1,577.6 million | $1,456.0 million |
| Operating income | $103.2 million | $108.8 million | $223.9 million | $204.4 million |
| Income from continuing operations | $68.4 million | $69.4 million | $151.5 million | $112.7 million |
| Net income attributable to common shareowners | $65.3 million | $65.9 million | $135.2 million | $100.8 million |
| Diluted EPS | $0.59 | $0.60 | $1.22 | $0.91 |
| Dividends declared per common share | $0.47 | $0.45 | $0.94 | $0.90 |
- Margins: Electric margin increased 8% to $402.1 million in Q2 and 10% to $799.2 million for the first six months. Gas margin increased 10% to $34.5 million in Q2 and 11% to $103.8 million year to date.
- Cash flow: Six-month operating cash flow was $423.3 million, compared with $339.2 million in 2012. Investing cash outflow was $322.2 million, including $341.5 million of utility construction and acquisition expenditures. Financing cash outflow was $110.8 million.
- Liquidity: At June 30, 2013, cash and cash equivalents were $11.5 million. Available revolving credit capacity was $721.9 million, and IPL had $15 million of remaining capacity under its receivables program.
- Capitalization and debt: Consolidated long-term debt, including current maturities, was approximately $3.14 billion, commercial paper was $223.1 million, and total capitalization was $6.50 billion. Debt-to-capital ratios were 50% for Alliant Energy, 44% for IPL and 50% for WPL, below applicable covenant limits.
- Regulatory balances: Regulatory assets totaled $1.61 billion and regulatory liabilities totaled $898.1 million at June 30, 2013.
Material changes versus the prior comparable period
- Six-month revenue increased $121.6 million, primarily from higher gas revenues, electric transmission cost recovery and weather-related sales effects. Q2 revenue increased $27.7 million.
- Six-month net income attributable to common shareowners rose $34.4 million, while Q2 net income declined modestly by $0.6 million. The year-to-date improvement benefited from lower income taxes and the absence of the 2012 state apportionment tax charge related to the planned RMT sale.
- Utility performance improved from higher electric and gas margins, the IPL tax-benefit revenue requirement adjustment, IPL’s January 2013 gas rate increase and the elimination of WPL’s Riverside power purchase agreement expense after WPL acquired Riverside in December 2012.
- Benefits were partly offset by higher depreciation, higher transmission expense, higher WPL generation and coal-sale costs, less favorable Q2 weather and the absence of $5 million of WPL regulatory-related credits recorded in Q2 2012.
- Alliant Energy sold RMT in January 2013. RMT is reported as discontinued operations, producing a $3.6 million loss for the first six months of 2013 versus a $4.0 million loss in the prior period.
- IPL issued $200 million of 5.1% cumulative preferred stock and redeemed $150 million of higher-cost 8.375% preferred stock. WPL redeemed $61 million of cumulative preferred stock. These transactions contributed to $211 million of preferred-stock redemption payments.
- Alliant Energy received a $62.4 million cash grant related to the Franklin County wind project, used to reduce short-term borrowings.
Guidance, outlook, management commentary and risks
- Management believes current liquidity and capital structures are sufficient to fund the strategic plan and long-term contractual obligations; however, cash balances were low and the company remains dependent on credit-market access and revolving facilities.
- WPL’s Wisconsin electric and gas base rates are generally frozen through 2014. WPL filed for a proposed $31 million, approximately 3%, electric fuel-related rate increase for 2014 and expected to refund approximately $12 million to customers in Q3 2013 for prior fuel over-collections.
- IPL completed a 2014–2025 purchase power agreement for capacity and energy from the Duane Arnold Energy Center. IPL may need to file an Iowa electric base-rate case in early 2014, and recovery of related costs could be subject to refund or limitation.
- Major environmental capital programs remain underway. Planned 2013–2016 environmental compliance expenditures total approximately $930 million across IPL and WPL, based on the annual estimates presented in the filing. Actual costs may change with regulatory requirements and project execution.
- A June 2013 Consent Decree resolved WPL air-permitting litigation and requires emission controls, fuel switching or retirement of certain generating units. WPL paid an approximately $2 million civil penalty and expects approximately $7 million of environmental mitigation spending. Recovery of material compliance costs remains subject to future regulatory proceedings.
- Potential future EPA rules concerning wastewater discharges and greenhouse-gas emissions could require significant additional expenditures; the filing states that the financial impact cannot yet be determined.
- Alliant Energy guarantees $546 million of RMT performance obligations, with $199 million, $294 million and $53 million expiring in 2013, 2014 and 2015, respectively. Management does not currently expect material cash payments.
- The Cash Balance Plan class-action judgment totaled $18.7 million, with $6.4 million of attorney fees and costs payable from that judgment. The company has appealed and has not recognized a material loss contingency; an adverse outcome could materially affect pension funding and expense.
- Environmental remediation liabilities for manufactured-gas-plant sites were estimated at $16 million to $30 million; $26 million had been recorded at June 30, 2013.
- Transmission tariff proceedings, potential reimbursement of WPL’s Bent Tree transmission upgrades, third-party solar development in IPL’s service territory, weather, fuel costs, regulatory recovery, interest rates and environmental compliance remain material risks.
Most important facts for an investor to verify
- Whether IPL’s and WPL’s environmental projects remain within estimated budgets and receive timely regulatory cost recovery.
- The final outcome and financial effect of the Cash Balance Plan appeal and related ERISA claims.
- The effect of WPL’s rate freeze, proposed 2014 fuel-related rate increase and planned customer refund.
- Whether IPL files the expected Iowa electric rate case and achieves full recovery of the Duane Arnold purchase power agreement and transmission costs.
- The final treatment of ITC Attachment “FF” and “O” tariff changes, including potential reimbursement of WPL’s Bent Tree transmission costs.
- Future liquidity needs, commercial-paper balances, preferred dividends and access to capital markets given the company’s capital-intensive environmental and generation program.
- The effect of weather, customer demand, energy-efficiency programs and distributed generation on utility sales and margins.