Business Context and Reporting Period
Alliant Energy Corporation filed a combined Form 10-K with Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL) for the fiscal year ended December 31, 2011. Alliant is a regulated utility holding company serving approximately 1 million electric customers and 414,000 natural-gas customers in Iowa, Wisconsin, Minnesota and surrounding Midwest markets. Utility operations are conducted primarily through IPL and WPL; non-regulated operations include RMT, transportation and non-regulated generation.
Key Financial Metrics
| Alliant Energy consolidated metric | 2011 | 2010 | Change |
|---|---|---|---|
| Operating revenues | $3,665.3 million | $3,416.1 million | +7% |
| Operating income | $478.4 million | $556.1 million | -14% |
| Income from continuing operations | $320.6 million | $308.0 million | +4% |
| Net income attributable to common shareowners | $303.6 million | $287.6 million | +6% |
| Diluted EPS | $2.74 | $2.60 | +5% |
| Cash flow from operating activities | $702.7 million | $984.9 million | -29% |
| Construction and acquisition expenditures | $673.4 million | $866.9 million | -22% |
| Total assets | $9,687.9 million | $9,282.9 million | +4% |
| Long-term obligations, net | $2,708.0 million | $2,710.3 million | Approximately flat |
Operating margin declined to approximately 13.1% from 16.3%, primarily because 2011 revenue growth included higher non-regulated RMT activity while operating expenses increased substantially. Net margin attributable to common shareowners was approximately 8.3% in 2011 versus 8.4% in 2010.
- Utility electric revenue was $2,635.8 million, down 1%; electric margin increased 2% to $1,614.1 million.
- Utility gas revenue was $476.7 million, down 1%; gas margin increased 3% to $181.5 million.
- RMT revenue rose to $443.9 million from $154.0 million, but RMT reported a $34.9 million operating loss, primarily from subcontractor and solar-project issues.
- Alliant's capital structure was 50.0% common equity, 3.4% preferred stock and 46.6% long- and short-term debt at year-end.
- Cash and cash equivalents were $11.4 million. Available revolving-credit capacity was $897 million, plus $20 million of available capacity under IPL's receivables program.
- Three revolving credit facilities totaled $1.0 billion and mature in December 2016. Commercial paper outstanding was $102.8 million at year-end.
Material Changes Versus the Prior Comparable Period
- Consolidated earnings improved despite lower operating income, aided by lower income-tax expense, higher utility margins and the absence of the $203.0 million 2009 debt-extinguishment loss.
- Utility electric margin increased $39 million. Key contributors were IPL and WPL base-rate increases, lower WPL Kewaunee capacity costs and higher wind production tax credits. These benefits were partly offset by higher transmission expense, the $61 million IPL Iowa tax-benefit rider credit to customers and higher depreciation and operating costs.
- IPL earnings available for common stock declined to $124.3 million from $128.0 million. IPL's electric margin fell 3% to $877.5 million, principally because of customer credits under the tax-benefit rider and higher transmission expense.
- WPL earnings available for common stock increased to $160.2 million from $149.0 million. WPL electric margin increased 9% to $736.6 million, driven by a rate increase, lower Kewaunee capacity expense and higher Bent Tree wind tax credits.
- Operating cash flow fell by $282.2 million, reflecting lower RMT operating cash flow, $117 million of pension contributions, lower tax refunds and Iowa customer credits. RMT working-capital requirements were a major source of variability.
- 2011 capital spending was lower than 2010, but 2012-2015 planned construction and acquisition expenditures totaled approximately $3.975 billion for Alliant, including significant environmental projects, Riverside acquisition plans, a potential IPL gas plant and distribution investment.
Guidance, Outlook, Risks and Unusual Items
- Management expected relatively flat weather-normalized retail electric sales in 2012, citing low customer growth and slow economic growth.
- Management expected utility operation and maintenance expense to decline in 2012 from cost-control initiatives, partly offset by higher retirement-plan costs and expected executive-retirement settlement losses.
- Alliant targeted a 2012 annual common dividend of $1.80 per share, or $0.45 quarterly, subject to Board approval. The stated utility earnings payout-ratio goal was approximately 60%-70%; the 2011 ratio was 66%.
- IPL's Iowa retail electric base rates were frozen through 2013 under the 2011 rate order. IPL expected to file an Iowa retail gas rate case in 2012. WPL expected a 2012 filing covering 2013-2014, with rate changes potentially effective in early 2013.
- Alliant planned to complete the 100 MW Franklin County wind project by late 2012. The project had $153 million of capitalized costs at year-end, an estimated total cost of up to $235 million and no committed buyer for its output at filing. Management expected a potential government grant of approximately $70 million.
- WPL anticipated seeking approval to purchase the 600 MW Riverside Energy Center in late 2012. IPL was evaluating a potential 600 MW natural-gas facility, with an estimated cost of $650 million-$750 million and projected capacity need of approximately 550 MW by June 2016.
- Environmental compliance remains a major capital requirement. Planned 2012-2015 environmental expenditures were approximately $745 million, including scrubbers, baghouses and NOx controls.
- The EPA's CSAPR was stayed in December 2011, leaving CAIR effective pending further review. The filing recorded $34 million of charges related to IPL's SO2 allowance contracts and a $22.7 million impairment of emission allowances, largely offset by regulatory accounting.
- Other unusual items included an $8 million impairment related to the Minnesota portion of IPL's Whispering Willow wind project, a $5 million WPL wind-site impairment and $10.2 million of additional Cash Balance Plan benefits costs.
- WPL faced Sierra Club and EPA claims alleging Clean Air Act permitting violations at Edgewater, Nelson Dewey and Columbia. Potential penalties, injunctive relief, additional controls or generation limitations could be material, although no material loss was recorded because the outcome and potential range of loss were not estimable.
- Other material risks include regulatory disallowance or delayed rate recovery, environmental compliance costs, weather and economic conditions, coal and natural-gas supply and pricing, transmission constraints, access to capital markets, pension funding, tax-audit outcomes, RMT sale execution and litigation.
- FERC commenced an audit in the fourth quarter of 2011, with a final report expected in late 2012 or early 2013. Management did not expect a material impact, but the audit remained unresolved.
Investor Verification Priorities
- Verify the sustainability of 2011 earnings growth after tax benefits, regulatory credits, wind production tax credits and other unusual items.
- Review the resolution and rate treatment of IPL's Minnesota wind-project costs, Iowa tax-benefit rider and transmission-cost recovery.
- Assess the scale, timing and recoverability of planned environmental, Riverside, Franklin County and potential IPL gas-generation expenditures.
- Monitor WPL's Clean Air Act litigation and related potential penalties, controls, operating restrictions and capital requirements.
- Confirm liquidity after planned debt issuance, capital expenditures, dividend payments and the expiration or extension of IPL's receivables purchase commitment in March 2012.
- Evaluate RMT's planned sale, continuing guarantees and performance obligations, including $554 million of performance guarantees and $119 million of surety bonds outstanding at year-end.
- Track pension underfunding, the Cash Balance Plan litigation and the impact of lower discount rates on future expense.
- Review the eventual outcome of CSAPR, Utility MACT, cooling-water, coal-ash and other environmental rules because management stated that required capital investments could be significant.