Alliant Energy Corporation 2010 Q3 Form 10-Q Summary
Business context and reporting period
This combined, unaudited Form 10-Q covers Alliant Energy Corporation and its utility subsidiaries Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL) for the quarter and nine months ended September 30, 2010. Alliant Energy primarily provides regulated electric and natural gas service in Iowa, Minnesota and Wisconsin, with additional non-regulated businesses including renewable-energy consulting, transportation and generation.
Key financial metrics
| Metric | Three months ended Sep. 30 | Nine months ended Sep. 30 |
|---|---|---|
| Operating revenues | $951.7 million, up from $884.0 million | $2,583.5 million, up from $2,573.6 million |
| Operating income | $246.6 million, up from $159.4 million | $456.3 million, up from $295.5 million |
| Net income | $153.7 million, versus a $39.7 million loss | $254.3 million, up from $71.4 million |
| Net income attributable to common shareholders | $149.1 million, or $1.35 diluted EPS | $240.3 million, or $2.17 diluted EPS |
| Operating margin | Approximately 25.9% | Approximately 17.7% |
| Cash flow from operations | Not separately reported for the quarter | $695.6 million, up from $590.5 million |
| Capital expenditures and acquisitions | Not separately reported for the quarter | $610.0 million, including $587.6 million for utility projects |
Electric margins increased 33% to $517.2 million in the third quarter and 24% to $1.21 billion for the nine-month period. Growth was driven by rate increases, stronger electric sales and favorable weather, partly offset by higher transmission costs and operating expenses. Non-regulated revenue declined to $47.3 million in the quarter and $129.5 million year to date, primarily because RMT had fewer large wind-project assignments.
At September 30, 2010, cash and cash equivalents were $137.0 million, compared with $175.3 million at December 31, 2009. Consolidated long-term debt, including current maturities, was approximately $2.705 billion, compared with $2.506 billion at year-end. No commercial paper was outstanding, and available revolving-credit capacity was $623 million. Consolidated debt-to-capitalization was approximately 46%.
Alliant Energy declared common dividends of $0.395 per share for the quarter and $1.185 per share for the nine months, compared with $0.375 and $1.125, respectively, in the comparable 2009 periods.
Material changes versus the prior comparable period
- Third-quarter earnings improved substantially because 2009 included a $202.8 million pre-tax loss on early extinguishment of debt. The 2010 quarter also benefited from rate increases, favorable summer weather and approximately $7 million of federal tax-audit benefits.
- Nine-month earnings benefited from rate increases and operating improvements, while the 2009 period included substantial tax benefits from Wisconsin tax-law changes and the 2009 debt-extinguishment loss.
- Electric retail sales increased 11% in the quarter and 4% year to date; weather contributed approximately $22 million and $26 million, respectively, to electric margins.
- IPL’s transmission-service expense increased materially because of higher ITC Midwest rates and peak demand. Alliant Energy estimates IPL’s 2010 transmission charges will be $85 million to $95 million higher than in 2009.
- WPL’s 200 MW Bent Tree Phase I wind project was under construction, with $344 million of capitalized costs at September 30. IPL completed the Lansing Unit 4 SCR and baghouse projects in July 2010.
- Alliant Energy and its subsidiaries issued $500 million of long-term debt and retired $307.1 million during the nine months. IPL refinanced $200 million of 6.75% debt due 2011 with 3.65% debt due 2020.
Outlook, commentary, risks and unusual items
- No formal consolidated earnings-per-share guidance is provided in the filing. Management states that current liquidity and capital structures should support strategic plans and long-term contractual obligations.
- WPL expected a decision on its revised request for a 2011 electric rate increase of $19 million, or approximately 2%, with changes expected January 1, 2011. IPL had pending Iowa and Minnesota rate cases involving interim increases subject to refund; no IPL refund reserve was recorded because refunds were not considered probable and reasonably estimable at September 30.
- WPL reserved $3 million, including interest, for expected refunds of its interim 2010 fuel-related rate increase. WPL also refunded $4 million for prior-period fuel overcollections.
- Alliant Energy recorded a $4.9 million pre-tax, non-cash valuation charge on the IEA business, which was held for sale and expected to be disposed of by year-end 2010. Discontinued operations produced a $2.0 million after-tax loss for the nine months.
- The IRS completed audits of 2005–2008 returns. Related reversals of uncertain tax positions and audit settlements produced approximately $30 million of third-quarter tax benefits for Alliant Energy, IPL and WPL collectively. Alliant Energy is appealing the IRS denial of a $527 million repairs deduction.
- Major risks include regulatory disallowance or delayed recovery of capital and transmission costs, rate refunds, weather and commodity-price volatility, environmental compliance expenditures, fuel and purchased-power costs, access to capital markets, and the outcome of pending litigation.
- WPL faces Sierra Club and EPA allegations involving air-permitting violations at Nelson Dewey, Columbia and Edgewater. Potential penalties, pollution-control requirements, operating restrictions or generation retirements could be significant, although no loss contingency was recorded because the outcome was not probable and reasonably estimable.
- The Alliant Energy Cash Balance Pension Plan litigation had certified plaintiff subclasses and an unresolved damages phase. The filing cites alleged damages of $24 million to $54 million, disputes that range and records a $9 million aggregate contingency.
- Alliant Energy’s remaining commitments included $177 million for wind projects and $1.675 billion for operating purchase obligations. WPL also expected to purchase a 25% interest in Edgewater Unit 5 for approximately $40 million to $45 million, subject to regulatory approval.
Important facts for investors to verify
- Final outcomes and refund exposure in IPL’s Iowa and Minnesota rate cases and WPL’s fuel-related rate case.
- Whether IPL can retain its receivables-sale liquidity program after Minnesota regulatory review; receivables sold totaled $216.5 million and fair-value deferred proceeds were $114.6 million at September 30.
- Final costs, timing and regulatory recovery for Bent Tree, Lansing Unit 4, Edgewater Unit 5 and planned scrubber and baghouse projects.
- Potential financial impact of environmental litigation and evolving Transport Rule, MACT, greenhouse-gas and coal-ash requirements.
- Resolution of the Cash Balance Pension Plan lawsuit and IRS review, including any required plan amendments or additional funding.
- Whether the anticipated approximately $113 million federal tax refund and proposed mixed-service-cost tax deduction are received and sustained on audit.
- The filing’s statement that interim results are not necessarily indicative of full-year 2010 performance and that the financial statements are unaudited.