Alliant Energy Corporation 2011 Q2 Form 10-Q Summary
Business context and reporting period
This combined, unaudited Form 10-Q covers Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL) for the three and six months ended June 30, 2011, with comparisons to the same periods in 2010. Alliant Energy is an investor-owned utility holding company. IPL serves Iowa and southern Minnesota; WPL serves Wisconsin. The businesses include regulated electric and natural gas utilities, transmission investments, renewable generation, and non-regulated operations.
Key financial metrics
| Alliant Energy consolidated | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Operating revenues | $819.5 million | $741.6 million | $1,764.5 million | $1,631.8 million |
| Operating income | $72.0 million | $100.7 million | $199.8 million | $209.7 million |
| Net income attributable to common shareowners | $51.1 million | $47.8 million | $124.6 million | $91.2 million |
| Diluted EPS | $0.46 | $0.43 | $1.13 | $0.83 |
| Operating margin | 8.8% | 13.6% | 11.3% | 12.8% |
| Operating cash flow | Not separately disclosed for the quarter | Not separately disclosed for the quarter | $466.8 million | $479.2 million |
- Six-month revenues rose 8.1%, driven mainly by higher non-regulated revenues and increased utility gas revenues. Non-regulated revenues increased to $197.6 million from $82.2 million, largely reflecting higher RMT construction-management activity.
- Six-month net income attributable to common shareowners increased 36.2%, primarily because of favorable tax items, including a $19 million benefit from Wisconsin tax legislation and lower effective tax rates related to IPL’s customer cost management plan.
- Six-month operating income declined despite higher revenue because of increased non-regulated operating costs, higher depreciation, transmission expense, and utility-related charges.
- Electric margins increased 3% to $372.6 million in the second quarter and 7% to $741.1 million for the first half. Gas margins increased 5% to $32.3 million in the second quarter and 6% to $104.9 million for the first half.
- At June 30, 2011, Alliant Energy reported $77.1 million of cash, $2.705 billion of long-term debt excluding current maturities, $2.927 billion of common equity, and $5.839 billion of total capitalization.
- Available revolving-credit capacity was $623 million: $287 million at IPL, $240 million at WPL, and $96 million at the parent. No commercial paper was outstanding at quarter-end.
- Cash decreased by $82.2 million during the first half to $77.1 million. Operating cash flow of $466.8 million funded $341.1 million of investing outflows and $207.9 million of financing outflows, including dividends and IPL’s $40 million preferred-stock redemption.
- Alliant declared common dividends of $0.425 per share in the second quarter, compared with $0.395 in the prior-year quarter.
Material changes versus the prior comparable period
- Q2 net income attributable to common shareowners increased $3.3 million, but operating income fell $28.7 million. The earnings benefit came primarily from tax items and higher non-regulated earnings rather than improved utility operating income.
- IPL’s Q2 earnings available for common stock fell to a $2.3 million loss from $17.4 million of earnings. Drivers included $17 million of Iowa customer bill credits, Minnesota rate-case-related charges, higher pension costs, and regulatory asset impairments.
- WPL’s Q2 earnings available for common stock fell to $24.1 million from $29.3 million. Higher depreciation and operating costs associated with the Bent Tree wind project, regulatory asset impairments, and pension costs more than offset higher electric margins.
- WPL’s six-month operating cash flow increased to $270.5 million from $166.7 million, mainly because of higher income-tax refunds and customer collections. IPL’s operating cash flow declined to $244.9 million from $285.5 million.
- WPL placed the remaining portion of the 200 MW Bent Tree Phase I wind project into service. WPL also purchased the remaining 25% interest in Edgewater Unit 5 for $38 million.
- IPL sold $115 million of Franklin County wind-project assets to Alliant’s non-regulated subsidiary, Resources. Resources assumed the remaining turbine-related progress payments and plans to develop a 100 MW non-regulated wind project.
- IPL redeemed all 1.6 million outstanding shares of its 7.10% Series C cumulative preferred stock for $40 million plus accrued dividends.
Guidance, outlook, management commentary, risks and unusual items
- Management stated that liquidity and capital structures should support strategic plans and long-term contractual obligations. No explicit consolidated EPS guidance was provided in the filing text.
- Resources expects the Franklin County wind project to cost up to $235 million, excluding capitalized interest, and to enter service by the end of 2012. Project economics remain sensitive to construction costs, power prices, tax incentives, and the ability to secure an output contract.
- IPL is evaluating a potential 600 MW natural-gas generating facility in Iowa, expected to cost $650 million to $750 million and enter service in 2016 or later, subject to regulatory approval.
- WPL expects to pursue either the purchase of the Riverside facility or a similar natural-gas facility. The Riverside power-purchase agreement extends through May 2013 and includes a purchase option.
- WPL filed for a $13 million annual fuel-related rate increase for 2012 and expected to update the filing after evaluating the EPA’s Cross-State Air Pollution Rule (CSAPR). Rate changes were expected to be effective January 1, 2012.
- CSAPR, Utility MACT, cooling-water, greenhouse-gas, and other environmental requirements could require significant future capital and operating expenditures. Existing emission allowances and forward contracts may be impaired or lose utility under CSAPR; the filing indicated possible third-quarter 2011 impacts, generally expected to be offset by regulatory-liability reductions.
- IPL reserved $3 million for anticipated Minnesota rate refunds and $4 million for remaining Iowa rate refunds. The final Minnesota rate order and the prudence and recovery of approximately $30 million of Minnesota-allocated Whispering Willow-East costs remained unresolved; IPL recorded an $8 million impairment for probable disallowance.
- Second-quarter unusual items included a $19 million Wisconsin tax benefit, $9 million of additional Cash Balance Pension Plan benefit costs, $6 million of regulatory-asset impairments, an $8 million Whispering Willow-East impairment, and rate-case-related charges and credits.
- A class-action lawsuit concerning the Alliant Energy Cash Balance Pension Plan remained contested. The company estimated potential damages of approximately $6 million, excluding plaintiffs’ attorneys’ fees and costs, and had not recognized that potential liability. Separately, $9 million of additional benefits were paid to former participants in August 2011.
- WPL faced Sierra Club and EPA air-permitting claims involving Edgewater, Nelson Dewey, and Columbia. Potential penalties, injunctive relief, generation limitations, or environmental-control expenditures could be significant, but no loss was accrued because the outcome was not both probable and reasonably estimable.
- Environmental remediation liabilities for manufactured-gas-plant sites were $35 million at Alliant Energy, with estimated remaining costs ranging from $20 million to $46 million.
- Derivative agreements had $38.8 million of net liabilities at Alliant Energy. A downgrade or other contractual trigger could require up to $37.5 million of additional credit support at Alliant Energy; IPL had already posted $1.3 million of collateral.
- The filing identifies material exposure to regulatory decisions, fuel and power prices, weather, generation availability, environmental compliance, rate recovery, tax audits, pension obligations, litigation, capital-market access, and counterparty credit.
Most important facts for investors to verify
- Whether the MPUC’s final Minnesota rate order changes the expected refunds, the $8 million wind-project impairment, and recovery of remaining Whispering Willow-East costs.
- The effect of CSAPR and subsequent environmental rules on emission allowances, forward contracts, generation economics, capital spending, and rate recovery.
- Whether the IRS audit of mixed-service-cost and repairs deductions changes the company’s tax benefits, regulatory liabilities, uncertain tax positions, or net operating loss utilization.
- The final exposure from the Cash Balance Pension Plan litigation and related funding requirements.
- The economics, financing, power-sales arrangements, and impairment sensitivity of the Franklin County wind project.
- The final MPUC disposition of IPL’s accounts-receivable sales program and the company’s reliance on receivables monetization for operating liquidity.
- Future environmental-remediation, air-permitting, and generation-retirement obligations, which the filing states may be significant but are not clearly quantifiable.