ALLIANT ENERGY CORP quarterly report, Q2 FY2012

Alliant Energy Corporation 2012 Q2 Form 10-Q Summary

Business context and reporting period

Combined unaudited quarterly filing for Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL), covering the three and six months ended June 30, 2012. Alliant Energy is a regulated electric and natural-gas utility holding company serving Iowa, Wisconsin, and Minnesota, with non-regulated generation and other businesses. RMT was classified as held for sale and reported in discontinued operations.

Key financial metrics

Alliant Energy consolidated	Q2 2012	Q2 2011	Six months 2012	Six months 2011
Operating revenues	$690.3 million	$712.5 million	$1,456.0 million	$1,589.7 million
Operating income	$108.8 million	$70.6 million	$204.4 million	$197.9 million
Income from continuing operations	$69.4 million	$54.5 million	$112.7 million	$132.7 million
Net income attributable to common shareholders	$65.9 million	$51.1 million	$100.8 million	$124.6 million
Diluted EPS	$0.60	$0.46	$0.91	$1.13
Operating cash flow	Not separately presented	Not separately presented	$339.2 million	$466.8 million
Capital expenditures and acquisitions	Not separately presented	Not separately presented	$322.4 million	$358.7 million

Q2 operating margin was approximately 15.8% versus 9.9% in the prior-year quarter; the six-month operating margin was approximately 14.0% versus 12.4%. The improvement in quarterly operating income was partly offset by higher income taxes and lower non-regulated and parent earnings. The six-month effective tax rate increased to 28.3% from 7.8%, primarily because of state apportionment changes related to the planned RMT sale and the absence of the 2011 Wisconsin tax benefit.

Electric revenues were $612.6 million in Q2 and $1,185.0 million for the first half, down 1% and 4%, respectively. Electric margins were $373.0 million in Q2, essentially flat year over year, and $724.0 million for the first half, down 2%.
Gas revenues were $50.0 million in Q2 and $217.1 million for the first half, down 25% and 27%, respectively. Gas margins were $31.4 million in Q2 and $93.7 million for the first half, down 3% and 11%, reflecting unusually warm weather and lower gas demand.
Cash and cash equivalents were $30.8 million at June 30, 2012, compared with $11.4 million at December 31, 2011.
Consolidated long-term debt, including current maturities, was approximately $2.754 billion, and commercial paper outstanding was $162.8 million. Total capitalization was approximately $6.138 billion.
Available revolving credit capacity was $787 million, and IPL had $37 million of additional availability under its receivables-sale program.
The quarterly common dividend increased to $0.45 per share from $0.425; first-half dividends were $0.90 per share versus $0.85 in 2011.

Subsidiary results

IPL: Q2 operating revenues were $360.7 million and earnings available for common stock were $16.6 million, versus a $2.3 million loss in Q2 2011. First-half earnings available for common stock were $11.9 million versus $19.4 million. Six-month results were pressured by weather-related gas weakness, higher customer credits under the tax benefit rider, and lower electric margins.
WPL: Q2 operating revenues were $315.7 million and earnings available for common stock were $35.2 million, versus $24.1 million in Q2 2011. First-half earnings were $66.3 million versus $67.7 million. Quarterly improvement reflected warmer weather, $5 million of rate-case-related credits, and the absence of 2011 impairments and benefit-plan charges.

Material changes versus the prior comparable period

Q2 net income attributable to common shareholders increased 29% and diluted EPS increased to $0.60 from $0.46, primarily due to higher utility earnings, warmer weather, lower operating and maintenance costs, and the absence of 2011 regulatory and pension charges.
First-half net income attributable to common shareholders declined 19% and EPS declined to $0.91 from $1.13. Lower gas and electric margins, higher taxes, and reduced operating cash flow outweighed operating-income growth.
Utility operation and maintenance expense decreased $31 million in Q2 and $42 million in the first half, largely due to 2011 regulatory charges, 2011 Cash Balance Plan costs, 2011 regulatory-asset impairments, and a 2011 wind-site impairment.
Operating cash flow fell $127.6 million year over year, driven by lower receivables-sale proceeds, timing of fuel-cost recoveries, higher fuel inventories, lower gas collections, and larger Iowa customer credits.
RMT generated $4.0 million of first-half net loss from discontinued operations versus $2.3 million of income in 2011. RMT assets held for sale were $53.6 million and liabilities held for sale were $70.9 million at June 30, 2012.

Guidance, outlook, risks, contingencies, and unusual items

Management expected to complete the approximately $393 million WPL acquisition of the Riverside Energy Center in December 2012, subject to remaining HSR approval. WPL’s 2013/2014 rate order authorized the requested electric base-rate freeze and a $13 million annual gas-rate decrease beginning January 1, 2013.
IPL implemented a $9 million annualized interim Iowa gas-rate increase effective June 4, 2012, subject to refund, while seeking a final $15 million increase. WPL sought a $25 million annual reduction in 2013 fuel-related electric rates.
IPL planned to seek approval for an approximately 600 MW Marshalltown, Iowa natural-gas facility with estimated costs of $650 million to $750 million, excluding AFUDC and transmission upgrades. Planned in-service timing was the second quarter of 2017, subject to approvals.
Alliant expected to complete the 100 MW Franklin County wind project by year-end 2012 at an estimated cost of $235 million, excluding capitalized interest.
Planned environmental and generation investments remain substantial. Alliant estimated 2012-2016 construction and acquisition expenditures of approximately $4.665 billion, including Riverside, environmental controls, generation improvements, and new generation.
Key risks include regulatory rate freezes, recovery of fuel, transmission, environmental, and capital costs, changing EPA rules, plant retirements, weather and drought, wholesale customer disputes, commodity prices, access to capital, and counterparty credit risk.
WPL was negotiating a potential EPA/Sierra Club consent decree concerning alleged air-permitting violations. Potential requirements could include emission controls, operating restrictions, unit retirements, mitigation projects, and civil penalties. No material loss contingency was recognized because a loss was not considered both probable and reasonably estimable.
The Cash Balance Plan class-action litigation had proposed damages of approximately $17.9 million to $18.7 million, excluding possible attorneys’ fees and costs. The company expected to appeal and had not recognized a material loss contingency.
RMT had $595 million of performance guarantees and $88 million of surety bonds and related guarantees outstanding. Management did not expect material cash payments under these obligations.
Environmental remediation liabilities for manufactured-gas-plant sites were estimated at $31 million, with remaining potential costs ranging from $20 million to $44 million.
Severe Midwest drought conditions could reduce demand from food-processing and ethanol customers, but the filing stated that the potential impact could not be predicted and could be material.
Alliant reported $65.3 million of derivative liabilities with credit-related contingent features; a downgrade or contractual trigger could require equivalent credit support.

Investor verification items

Verify the final outcome and recoverability of the Riverside acquisition, related financing, and regulatory rate treatment.
Monitor IPL’s Iowa gas-rate proceeding, tax benefit rider balances, customer refunds, and related IRS uncertainty.
Assess whether environmental rules, consent decrees, and plant retirements could materially increase capital expenditures or reduce generation availability.
Track the Cash Balance Plan litigation, potential attorneys’ fees, and any required plan funding.
Reconcile the decline in first-half operating cash flow with receivables sales, fuel inventories, regulatory liabilities, and customer-credit timing.
Evaluate RMT’s sale process, held-for-sale liabilities, performance guarantees, and related tax effects.
Review the effect of weather, drought, wholesale customer disputes, and transmission-cost changes on future utility margins.