Business Context and Reporting Period
Alliant Energy Corporation, together with subsidiaries Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL), filed this unaudited combined Form 10-Q for the quarter and six months ended June 30, 2017. The company is a Midwest energy holding company providing regulated electric and natural gas services in Iowa and Wisconsin, with additional transmission, non-regulated renewable, transportation and corporate-services activities.
Financial Performance and Position
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total operating revenues | $765.3 million, versus $754.6 million | $1,619.2 million, versus $1,598.4 million |
| Operating income | $149.3 million, versus $128.6 million | $292.2 million, versus $274.5 million |
| Income from continuing operations | $96.8 million, versus $86.9 million | $198.4 million, versus $187.1 million |
| Net income attributable to common shareowners | $94.3 million, or $0.41 per diluted share | $194.7 million, or $0.85 per diluted share |
| Dividends declared per common share | $0.315, versus $0.29375 | $0.63, versus $0.5875 |
| Net cash from operating activities | Not separately presented | $502.0 million, versus $510.0 million |
| Capital and acquisition expenditures | Not separately presented | $626.4 million, versus $500.8 million |
Second-quarter operating margin was approximately 19.5%, compared with approximately 17.0% in the prior-year quarter. Six-month operating margin was approximately 18.0%, compared with approximately 17.2% in 2016. Management’s utility margin measures are non-GAAP measures and exclude generally pass-through fuel, purchased-power, transmission and gas costs.
- Second-quarter electric margin increased 10% to $379.0 million; six-month electric margin increased 6% to $724.1 million.
- Second-quarter gas margin increased 6% to $34.3 million; six-month gas margin increased 8% to $96.4 million.
- Retail electric sales volumes declined 1% in both the quarter and six-month period, primarily because of weather and the extra leap-year day in 2016. Six-month total electric sales volumes were essentially unchanged.
- At June 30, 2017, total assets were $13.74 billion, compared with $13.37 billion at December 31, 2016. Property, plant and equipment, net, was $10.61 billion.
- Cash and cash equivalents were $7.3 million. Commercial paper outstanding was $368.6 million at Alliant Energy and $212.5 million at WPL; IPL had no commercial paper outstanding at the parent-subsidiary level shown.
- Long-term debt, including current maturities, was approximately $4.36 billion at Alliant Energy. Available revolving credit capacity was $591 million, and IPL had $37 million of remaining receivables-sale capacity.
- Operating cash flow funded most, but not all, capital spending. The resulting investing cash outflow was funded through commercial paper, equity issuance and other financing activities.
Material Changes Versus the Prior Comparable Period
- Alliant Energy’s second-quarter common earnings increased $10.4 million, or $0.04 per share. The improvement primarily reflected higher utility earnings, while non-regulated and parent earnings declined.
- IPL earnings available for common stock increased $11 million in the quarter and $2.5 million for the six months, principally from its interim retail electric rate increase effective April 13, 2017, partly offset by higher depreciation.
- WPL earnings available for common stock decreased $5 million in the quarter and $6.1 million for the six months. Lower equity income following the transfer of WPL’s ATC investment to Alliant’s affiliate, higher energy-efficiency cost amortization and higher depreciation more than offset new electric and gas rate increases.
- Interest expense increased, mainly because IPL issued $300 million of 3.7% senior debentures in September 2016.
- Depreciation and amortization increased $12.9 million in the quarter and $17.4 million for the six months, driven by Marshalltown entering service, updated WPL depreciation rates and other projects.
- Operating cash flow declined $8 million year over year despite higher earnings, primarily because 2016 included greater proceeds from IPL’s accounts-receivable sales program and because of timing of WPL fuel-cost recoveries.
- Capital expenditures increased $125.6 million year over year. WPL’s West Riverside project and electric and gas distribution investments were significant contributors.
- Alliant issued 3.1 million common shares through its at-the-market program for $124 million net proceeds. Management stated that it had no plans to issue additional shares under the program as of June 30.
Guidance, Outlook, Risks and Unusual Items
- No specific consolidated earnings or revenue guidance is provided in the filing. Results for the six months are not necessarily indicative of full-year results.
- IPL completed the approximately 660 MW Marshalltown natural-gas combined-cycle facility in April 2017. Final construction costs are estimated at approximately $645 million, excluding transmission upgrades and AFUDC.
- IPL requested a $176 million, approximately 12%, annual retail electric base-rate increase. A $102 million annualized interim increase was implemented subject to refund; final rates were expected in the first quarter of 2018.
- WPL’s January 2017 rate order provided annual electric and gas increases of approximately $9 million each. WPL also filed for a proposed $6 million electric rate increase for 2018.
- WPL was constructing the approximately 730 MW West Riverside facility, expected to be completed in early 2020. Capitalized construction expenditures and AFUDC totaled $190 million at June 30, 2017.
- IPL retired Sutherland Units 1 and 3 in June 2017 and reclassified their remaining net book value to a regulatory asset. Recovery over a 10-year period was pending IUB and FERC decisions.
- Alliant received $50 million of MISO transmission-owner return-on-equity refunds, including $39 million for IPL and $11 million for WPL. Portions were recorded as regulatory liabilities and are subject to customer refunds or future regulatory approval.
- Regulatory assets totaled $2.02 billion, including $1.10 billion of tax-related assets and $558 million related to pension and other postretirement costs. Recovery of these balances depends on continued regulatory treatment and customer rate recovery.
- Key risks include regulatory decisions and rate recovery, weather and sales volumes, fuel and purchased-power prices, generation availability, environmental compliance, construction execution, access to capital markets, interest rates, creditworthiness of counterparties, litigation and cybersecurity.
- Environmental obligations include SCR installation and potential fuel switching or retirements under consent decrees. Estimated future MGP-site remediation costs were $12 million to $31 million for Alliant Energy and $10 million to $27 million for IPL.
- In July 2017, after the reporting date, AEF acquired a 50% interest in a 225 MW Oklahoma wind farm for an expected approximately $98 million investment and entered into a $95 million, 364-day variable-rate term loan credit agreement guaranteed by Alliant Energy.
Important Facts for Investors to Verify
- Final outcome, timing and refund exposure of IPL’s retail electric rate case.
- Regulatory recovery and authorized return on the retired Sutherland units and other major capital projects.
- Construction cost, schedule and ownership changes for West Riverside and planned wind-generation additions.
- Ability of operating cash flow and financing capacity to support elevated capital expenditures and dividends.
- Changes in commercial-paper balances, interest rates and access to revolving credit facilities.
- Recovery of substantial regulatory assets, including tax, pension, environmental and retired-generation balances.
- Impact of weather, lower sales volumes, fuel costs and generation outages on future margins.
- Environmental compliance costs, including the WPL and IPL consent-decree requirements and potential future greenhouse-gas regulation.
- Effects of the July 2017 Oklahoma wind investment and related debt, which occurred after the quarter-end balance sheet date.