Business Context and Reporting Period
Alliant Energy Corporation filed a combined Form 10-K for the fiscal year ended December 31, 2014, covering Alliant Energy, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL). Alliant Energy is a regulated utility holding company serving approximately 1.0 million electric and 420,000 natural-gas customers in Iowa, Wisconsin, and Minnesota. The principal businesses are regulated electric and gas utilities, steam operations, a minority interest in American Transmission Company, and modest non-regulated generation and transportation activities.
The filing reports annual results; the request metadata identifies 2014 Q4, but the filing itself is a full-year 2014 Form 10-K.
Financial Results and Key Metrics
| Alliant Energy consolidated | 2014 | 2013 | Change |
|---|---|---|---|
| Operating revenues | $3,350.3 million | $3,276.8 million | +2% |
| Operating income | $543.6 million | $533.9 million | +2% |
| Income from continuing operations | $395.7 million | $382.1 million | +4% |
| Net income attributable to common shareowners | $383.1 million | $358.3 million | +7% |
| Diluted EPS | $3.46 | $3.23 | +7% |
| Cash flow from operating activities | $891.6 million | $731.0 million | +$160.6 million |
| Construction and acquisition expenditures | $902.8 million | $798.3 million | +13% |
- Electric operating revenues were $2,713.6 million, up 1%; electric margins increased 5% to $1,836.4 million.
- Gas operating revenues were $517.5 million, up 11%; gas margins increased 1% to $189.7 million.
- Electric sales totaled 30.0 million MWh, down 1% overall, while retail electric sales increased 1%. Gas sales increased 7% to 123.4 million Dths.
- IPL reported $1,848.1 million of operating revenues, $194.6 million of net income, and $406.1 million of operating cash flow. WPL reported $1,449.1 million of operating revenues, $180.8 million of net income, and $424.4 million of operating cash flow.
- Alliant Energy's operating margin was approximately 16.2% based on operating income divided by operating revenues; the filing does not present a company-defined consolidated EBITDA margin.
Liquidity, Capitalization and Debt
- At December 31, 2014, cash and cash equivalents were $56.9 million, available revolving-credit capacity was $858.7 million, and available capacity under IPL's receivables program was $128 million.
- Long-term debt, including current maturities, was $3,789.7 million; commercial paper outstanding was $141.3 million. Consolidated capitalization consisted of approximately 50% long- and short-term debt, 45% common equity, and 3% preferred stock.
- Alliant Energy's debt-to-capital ratio was 52%, compared with a 65% covenant limit. IPL and WPL were at 47% and 49%, respectively, against 58% covenant limits. The companies were in compliance with material covenants.
- 2014 financing included $250 million of Alliant Energy variable-rate term debt, $250 million of IPL 3.25% senior debentures due 2024, and $250 million of WPL 4.1% debentures due 2044. Alliant Energy also retired $250 million of 4% senior notes.
- Contractual obligations totaled $9.1 billion for Alliant Energy, including $3.8 billion of long-term debt maturities, $2.9 billion of long-term-debt interest, and $2.3 billion of purchased-power and fuel commitments.
Material Changes Versus the Prior Comparable Period
- Common-shareowner earnings increased primarily because purchased electric capacity expense declined by $191.7 million, following expiration of the prior DAEC arrangement and WPL's Kewaunee PPA. The new DAEC PPA began in February 2014 without minimum capacity payments.
- These benefits were partly offset by $72 million of IPL Iowa retail electric customer billing credits under a 2014 rate settlement, higher energy-purchase costs, increased transmission expense, higher depreciation, and higher operation and maintenance costs.
- Electric production fuel and energy-purchase expense increased to $852.1 million from $725.0 million, while purchased electric capacity expense fell to $25.1 million from $216.8 million.
- Operating cash flow rose substantially, mainly because of lower purchased-capacity payments, changes in IPL receivables financing, and a $26 million final tax-sharing payment from Whiting Petroleum.
- Assets increased to $12.1 billion from $11.1 billion, principally from utility plant additions and higher regulatory assets. Long-term obligations increased to $3.8 billion from $3.3 billion.
- WPL's earnings available for common stock increased $4 million to $180.1 million; IPL's increased $10.8 million to $184.4 million.
Guidance, Outlook, Commentary and Unusual Items
- Management expected a modest increase in weather-normalized retail electric sales in 2015 and anticipated adequate capacity to meet the MISO planning reserve margin for the June 2015-May 2016 planning year.
- Alliant Energy forecast approximately $4.2 billion of capital expenditures over 2015-2018, including Marshalltown, environmental compliance, generation improvements, and electric and gas distribution investments.
- IPL was constructing the approximately 650 MW Marshalltown combined-cycle gas plant, targeted for service in the second quarter of 2017, with an approved cost cap of $920 million including related pipeline, transmission upgrades, and AFUDC.
- WPL planned to seek approval for an approximately 650 MW Riverside expansion in Beloit, Wisconsin. Estimated project cost was $725 million to $775 million, excluding transmission upgrades and AFUDC; construction was expected to begin in 2016 and finish in early 2019, subject to approvals.
- IPL and WPL had retail electric base-rate freezes through 2016. WPL also had a gas-rate freeze through 2016 after a $5 million annual decrease effective January 1, 2015. WPL received a $39 million annual retail electric rate increase effective January 1, 2015, primarily for fuel-related costs and approved sales volumes.
- IPL's Minnesota natural-gas distribution asset sale was approved by the MPUC in December 2014 and was expected to close in 2015 for approximately $10 million, subject to contingencies. The anticipated Minnesota electric asset sale was expected to generate approximately $130 million. The filing states that these sales were not expected to materially affect 2015 earnings.
- Environmental compliance remained a major investment and regulatory issue. Completed 2014 projects included scrubbers and baghouses at IPL's George Neal and Ottumwa units and WPL's Columbia units. Future requirements include CSAPR, MATS, CCR, cooling-water, wastewater, and greenhouse-gas rules, many of which remained subject to legal or regulatory uncertainty.
- The WPL Consent Decree requires emission controls, retirements or fuel switching, emission limits, and approximately $7 million of environmental mitigation projects. Recovery of related costs will depend on future regulatory proceedings.
- Alliant Energy recorded a $2.4 million after-tax loss from discontinued operations, primarily related to post-sale matters concerning RMT. RMT-related performance guarantees totaled $251 million at year-end, with no material liability recorded because material losses were not considered probable and reasonably estimable.
- Pension and OPEB expense was expected to increase by approximately $21 million in 2015 because of lower discount rates and updated life-expectancy assumptions. Management did not expect significant pension contributions during 2015-2018 based on year-end funded status.
- Alliant Energy increased its targeted 2015 annual dividend to $2.20 per share, or $0.55 quarterly, beginning with the February 2015 payment.
Principal Risks and Contingencies
- Timely recovery of capital, fuel, transmission, environmental, pension, and operating costs through regulated rates is not assured, particularly during the IPL and WPL rate freezes.
- Construction, permitting, cost-overrun, transmission, and operational risks affect Marshalltown, the proposed Riverside expansion, distribution-system projects, and environmental-control projects.
- Coal, natural-gas, purchased-power, transmission, and weather exposure can affect margins; WPL's retail electric fuel-recovery mechanism leaves it more exposed to commodity-cost differences.
- Environmental rules and litigation could require substantial capital expenditures, facility retirements, fuel switching, operating restrictions, remediation, or penalties. Potential impacts from the final CCR rule and proposed greenhouse-gas standards were not clearly quantifiable.
- Alliant Energy had $1.8 billion of regulatory assets at year-end, including tax-related and pension/OPEB balances. Failure to obtain future rate recovery could materially affect earnings and equity.
- The company faced cyber, physical-security, storm, reliability, employee, counterparty, tax-asset utilization, pension, and capital-market risks. A new customer billing and information system was scheduled for deployment in 2015.
- Wholesale customers representing approximately 3% of IPL's 2014 electric sales and approximately 10% of WPL's 2014 electric sales provided termination notices for agreements expiring from 2017 through 2018.
Investor Verification Checklist
- Verify the audited consolidated income, balance-sheet, and cash-flow statements and reconcile continuing operations, discontinued operations, and common-shareowner earnings.
- Review the composition, recoverability, and amortization periods of the $1.8 billion of regulatory assets and the $821.2 million of regulatory liabilities.
- Confirm 2015-2018 capital-spending commitments, Marshalltown's cost and schedule, and the status and economics of the Riverside expansion.
- Assess the effect of IPL and WPL rate freezes, IPL billing credits and tax-benefit riders, and WPL's fuel-cost under-collection and transmission escrow treatment.
- Review debt maturities, planned 2015 financing, covenant headroom, receivables financing, and the ability of subsidiaries to upstream dividends.
- Evaluate environmental compliance costs, the WPL Consent Decree, CCR obligations, greenhouse-gas rules, and potential early plant retirements.
- Confirm closing conditions and proceeds for the planned Minnesota asset sales and the treatment of the assets held for sale.
- Monitor pension and OPEB funded status, 2015 cost increases, tax carryforwards, and potential impairment of the merchant Franklin County wind project.