Alliant Energy Corporation 2020 Q2 Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly filing for Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL), covering the three and six months ended June 30, 2020. The companies operate regulated electric and gas utilities, with additional non-utility activities and an equity investment in American Transmission Company Holdings.
Key financial metrics
| Alliant Energy consolidated | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $763.1 million | $790.2 million | $1,678.8 million | $1,777.4 million |
| Operating income | $168.1 million | $149.8 million | $356.4 million | $326.6 million |
| Net income attributable to common shareowners | $134.4 million | $94.6 million | $304.4 million | $219.7 million |
| Diluted EPS | $0.54 | $0.40 | $1.23 | $0.93 |
| Operating margin | 22.0% | 19.0% | 21.2% | 18.4% |
| Operating cash flow | Not separately disclosed | Not separately disclosed | $319.7 million | $276.9 million |
Six-month revenue decreased 5.6%, while operating income increased 9.1% and diluted EPS increased 32.3%. The filing attributes the earnings improvement principally to higher utility earnings from rate-base growth, favorable second-quarter temperatures, lower operating and maintenance costs, reduced transmission costs, and lower effective income taxes.
- Electric utility margin: $440.1 million in Q2 and $864.1 million for six months, compared with $414.0 million and $816.0 million, respectively, in 2019. This is a non-GAAP measure defined as electric revenue less fuel, purchased power, and transmission expenses.
- Gas utility margin: $38.0 million in Q2 and $105.2 million for six months, compared with $44.8 million and $139.0 million in 2019.
- Cash flow and capital spending: Six-month operating cash flow was $319.7 million; utility construction and acquisition expenditures were $584.0 million. Financing activities provided $264.3 million, including $1.05 billion of long-term debt issuance, partially offset by $653.7 million of debt retirements and $187.6 million of common dividends.
- Liquidity: June 30 cash and cash equivalents were $208.1 million. Available revolving-credit capacity was approximately $814.6 million, comprising $303 million at the parent, $250 million at IPL, and $262 million at WPL. IPL also had $89 million of available receivables-sale capacity.
- Debt: Long-term debt, excluding current maturities, was $6.57 billion at June 30, 2020, compared with $5.53 billion at December 31, 2019. Commercial paper was $185.4 million, versus $337.4 million at year-end.
- Dividend: Alliant paid $0.76 per common share during the first six months, including $0.38 per share in the second quarter.
Material changes versus the prior comparable period
- Q2 revenue fell 3.4%, but operating income rose 12.2% and net income attributable to common shareowners rose 42.1%.
- Six-month gas utility revenue declined $69.9 million, primarily reflecting lower gas sales and recovery amounts. Six-month electric utility revenue declined $29.1 million, while electric margin increased $48.1 million due primarily to IPL rate increases, transmission-cost effects, and favorable temperature impacts.
- Retail electric sales decreased 4% in Q2 and 4% for the six months. Residential sales increased, while commercial and industrial sales declined as COVID-19 reduced economic activity. Six-month retail gas sales decreased 13%.
- Operating expenses declined $45.4 million in Q2 and $128.4 million for the six months, despite higher depreciation from additional assets placed in service. Transmission expense declined substantially, including a $42 million IPL customer credit issued under a June 2020 Iowa Utilities Board order.
- The effective tax rate was negative 6.5% in Q2 and negative 9.6% for the six months, compared with 10.3% and 10.5% in the prior-year periods. The change primarily reflected higher production tax credits and amortization of excess deferred taxes.
- Alliant issued 4.28 million common shares in the first quarter under equity forward agreements and received net proceeds of approximately $222 million.
Guidance, outlook, risks, contingencies, and unusual items
- COVID-19: Management reported no significant effect on overall operations, financial condition, results, or cash flows through June 30, but the future impact remains uncertain. Service disconnects were temporarily suspended and late fees waived. Management expects a slight decline in 2020 temperature-normalized retail sales versus 2019 and continues to monitor customer arrears, bad debts, supply chains, labor, construction schedules, and capital-market access.
- Liquidity outlook: Management expects adequate liquidity, continued access to capital markets, compliance with credit-facility covenants, and continuation of planned quarterly dividends. The filing states there are no other material long-term debt maturities in 2020 and 2021.
- Financing activity: WPL issued $350 million of 3.65% debentures due 2050 and retired $150 million of 4.6% debentures. IPL issued $400 million of 2.3% senior debentures due 2030 and retired $200 million of 3.65% debt.
- Capital program: IPL completed the 200-MW Golden Plains wind farm, and WPL completed the 730-MW West Riverside Energy Center. WPL proposed up to 675 MW of solar projects, with estimated WPL capital expenditures of approximately $885 million through 2023, subject to regulatory approval and other conditions.
- Regulatory matters: WPL filed to maintain current retail electric and gas base rates through 2021. WPL also expected to refund $12 million of 2019 fuel-related over-collections in September 2020. IPL and WPL received $10 million and $3 million, respectively, of MISO transmission-owner return-on-equity complaint refunds, with further amounts and customer treatment subject to regulatory decisions.
- Whiting Petroleum guarantee: Alliant recorded an $8 million pre-tax credit-loss expense in the first quarter and had a $20 million credit-loss liability at June 30 related to guarantees of partnership obligations of an affiliate of Whiting Petroleum. The affiliate’s estimated share of known abandonment obligations was $63 million, while the guarantees have no stated maximum limit.
- Other commitments: Minimum future commitments included $1.27 billion of commodity and other purchase obligations, including $1.02 billion for natural gas. The filing excludes a $110 million September 2020 buyout payment related to the shortened Duane Arnold Energy Center power purchase agreement.
- Environmental and labor risks: IPL must fuel-switch or retire certain coal units under its EPA consent decree. Environmental remediation estimates for former manufactured-gas-plant sites were $12 million to $29 million, with $16 million of related liabilities recorded. IPL’s collective bargaining agreement with IBEW Local 204 expired August 31, 2020, with negotiations underway at the filing date.
Most important facts for investors to verify
- Whether COVID-19-related commercial and industrial sales declines, customer arrears, bad debts, and deferred costs become material in the second half of 2020.
- The sustainability of the unusually favorable negative effective tax rate and the expected reversal of part of the first-half tax benefit in the second half.
- The amount and timing of additional MISO transmission refunds and the extent to which IPL and WPL must return them to customers.
- Progress, regulatory approval, financing, and tax-credit qualification for WPL’s proposed 675 MW solar program and other renewable projects.
- Exposure under the Whiting Petroleum guarantees, including changes in the affiliate’s creditworthiness and abandonment-cost estimates.
- Whether utility rate recovery, regulatory deferrals, capital spending, and debt financing remain sufficient to support planned investment and dividends.