Alliant Energy Corporation 2012 Form 10-K Summary
Business Context and Reporting Period
This combined Form 10-K covers Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL) for the fiscal year ended December 31, 2012. Alliant Energy is a regulated utility holding company serving approximately 1.0 million electric and 415,000 natural gas customers in Iowa, Wisconsin, Minnesota, and adjoining markets. IPL operates primarily in Iowa and southern Minnesota; WPL operates primarily in southern and central Wisconsin.
The principal business is regulated electric and natural gas service, supplemented by steam operations, a 16% investment in American Transmission Company, transportation activities, and non-regulated generation. The filing was audited by Deloitte & Touche LLP, which issued unqualified opinions on the financial statements and Alliant Energy’s internal control over financial reporting.
Key Financial Metrics
| Alliant Energy consolidated | 2012 | 2011 | Change |
|---|---|---|---|
| Operating revenues | $3,094.5 million | $3,221.4 million | Down 3.9% |
| Operating income | $519.7 million | $513.3 million | Up 1.2% |
| Income from continuing operations | $340.8 million | $341.4 million | Down slightly |
| Net income attributable to common shareowners | $319.8 million | $303.6 million | Up 5.3% |
| Diluted EPS | $2.89 | $2.74 | Up $0.15 |
| Operating margin | 16.8% | 15.9% | Improved |
| Cash flow from operating activities | $841.1 million | $702.7 million | Up $138.4 million |
| Construction and acquisition expenditures | $1,158.1 million | $673.4 million | Up $484.7 million |
| Total assets | $10,785.5 million | $9,687.9 million | Up $1,097.6 million |
| Long-term debt, net | $3,141.5 million | $2,708.0 million | Up $433.5 million |
Electric operating revenue was $2,589.3 million and electric margin was $1,605.5 million, a 1% decrease in margin. Gas operating revenue was $396.3 million and gas margin was $179.1 million, a 1% decrease. Revenue declines largely reflected lower natural gas prices and warmer-than-normal winter conditions, while utility cost-recovery mechanisms generally limited the margin impact.
Alliant Energy ended the year with $21.2 million of cash, $733 million of unused revolving credit capacity, and $20 million of available capacity under IPL’s accounts-receivable program. Consolidated capitalization was approximately 47% common equity, 3% preferred stock, 47% long-term debt, and 3% short-term debt. Debt-to-capital ratios were 50% for Alliant Energy, 45% for IPL, and 48% for WPL, versus credit-facility covenant limits of 65%, 58%, and 58%, respectively.
Material Changes Versus the Prior Comparable Period
- Common-shareowner net income increased to $319.8 million from $303.6 million, although continuing-operations income was essentially unchanged. The improvement reflected lower operating and maintenance costs, tax benefits at IPL, higher WPL fuel-cost recoveries, and lower 2011 impairment and regulatory charges.
- Operating revenues declined primarily because gas revenue fell $80.4 million as commodity prices and gas sales volumes decreased. Electric revenue declined $46.5 million, including $22 million of additional Iowa electric tax-benefit credits.
- Operating expenses declined $133.3 million, led by lower electric fuel and energy-purchase costs, lower gas costs, and a $40 million decrease in utility operation and maintenance expenses. Depreciation and amortization increased $11.4 million.
- Operating cash flow increased despite higher capital spending. The 2012 increase benefited from working-capital changes at RMT and the absence of $117 million of pension contributions made in 2011.
- WPL purchased the 600 MW Riverside natural-gas generating facility for $403.5 million in December 2012, replacing a 490 MW purchased-power arrangement. WPL issued $250 million of 2.25% debentures to fund part of the acquisition.
- Alliant Energy completed the 100 MW Franklin County non-regulated wind project. The company recorded a $62 million receivable for an expected federal cash grant and a $148 million carrying value for the project before the grant and related tax-basis adjustment.
- Alliant Energy’s annual dividend increased from $1.70 to $1.80 per share in 2012. Management targeted a 2013 dividend of $1.88 per share, or $0.47 quarterly.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected relatively flat weather-normalized retail electric sales in 2013, reflecting low customer growth and modest economic growth. The company expected lower Iowa electric tax-benefit credits in 2013.
- Planned 2013–2016 construction and acquisition expenditures totaled approximately $3.53 billion, including environmental projects, generation improvements, distribution investment, and the proposed Marshalltown generating station.
- IPL proposed a roughly 600 MW natural-gas combined-cycle facility in Marshalltown, Iowa, with a requested cost cap of $700 million excluding AFUDC and transmission upgrades. Regulatory decisions were expected in the fourth quarter of 2013; construction was expected to begin in 2014 and the facility to enter service by the second quarter of 2017, subject to approvals.
- IPL and WPL planned significant coal-plant retirements or fuel switching through 2018. The filing identified approximately $282 million of aggregate net book value associated with generating units that could be retired or refueled.
- Environmental capital spending was material and uncertain. Planned environmental expenditures for 2013–2016 totaled approximately $930 million, excluding certain other projects. Regulatory requirements involving Utility MACT, CAVR, CSAPR/CAIR, cooling-water intake, coal-combustion residuals, greenhouse gases, ozone, fine particulates, and mercury could require additional investment or operating restrictions.
- WPL’s retail electric and gas base rates were frozen through 2014. IPL’s Iowa retail electric base rates were frozen through 2013. These freezes increase sensitivity to cost increases, weather, outages, transmission costs, and regulatory recovery decisions.
- Expected 2013 transmission-service expenses were approximately $70 million higher for Alliant Energy, $60 million higher for IPL, and $10 million higher for WPL. IPL expected substantial recovery through its transmission rider; WPL’s recovery was incorporated into recent rate orders.
- IPL’s formal FERC complaint against ITC alleged that the Attachment FF tariff caused $32 million of incremental customer costs during 2008–2011 and could cause $138 million during 2012–2016. The outcome and timing were uncertain.
- WPL faced EPA and Sierra Club air-permitting claims involving Edgewater, Nelson Dewey, and Columbia. The parties were negotiating a potential consent decree that could require controls, operating changes, unit retirements, mitigation projects, and penalties. No material loss contingency was recorded because a probable and reasonably estimable loss had not been established.
- The Alliant Energy Cash Balance Pension Plan faced an appealed $18.7 million judgment plus attorney fees and costs. The filing stated that no material loss contingency had been recognized and that an adverse outcome could materially affect retirement-plan funding and expense.
- Alliant Energy had $615 million of RMT performance guarantees outstanding after selling its remaining RMT interest in January 2013, plus $18 million of related surety bonds. Management considered material cash payments unlikely.
- The Franklin County wind project had no long-term off-take agreement and sold output into the MISO market. Management reported no impairment at year-end, but noted that sustained low power prices or lower output could trigger a future impairment.
- IPL and WPL expected to redeem subsidiary preferred stock in March 2013 for approximately $150 million and $61 million, respectively. The redemptions were expected to produce first-quarter 2013 charges of approximately $5 million for IPL and $1 million for WPL.
Most Important Facts for Investors to Verify
- Whether regulated rate recovery keeps pace with environmental, transmission, fuel, pension, and generation-retirement costs during the base-rate freezes.
- Final regulatory approval, cost, schedule, and rate treatment for IPL’s Marshalltown generating station and ongoing emission-control projects.
- The outcome of IPL’s FERC Attachment FF complaint and the extent to which transmission-cost changes are passed through to customers.
- Resolution and potential financial impact of WPL’s air-permitting proceedings and the Cash Balance Plan litigation.
- Actual 2013 performance of the merchant Franklin County wind project, including power prices, output, federal grant receipt, and impairment risk.
- Debt refinancing needs, preferred-stock redemptions, capital-spending funding, covenant compliance, and continued access to investment-grade capital markets.
- Progress on planned generating-unit retirements, replacement capacity, the DAEC purchased-power agreement beginning in 2014, and the end of the Kewaunee agreement in 2013.
- Changes in weather-normalized demand, MISO market prices, transmission congestion, fuel costs, and the recovery of WPL’s retail fuel-related over-collections.