Business Context and Reporting Period
Alliant Energy Corporation, together with its regulated subsidiaries Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL), filed a combined unaudited Form 10-Q for the quarter and nine months ended September 30, 2016. The businesses primarily provide regulated electric and natural gas service in Iowa and Wisconsin, with an investment in American Transmission Company (ATC) and smaller non-regulated operations.
Key Financial Metrics
| Alliant Energy consolidated | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Operating revenue | $924.6 million | $898.9 million | $2,523.0 million | $2,513.5 million |
| Operating income | $162.6 million | $235.9 million | $437.1 million | $497.8 million |
| Operating margin | 17.6% | 26.2% | 17.3% | 19.8% |
| Net income attributable to common shareholders | $128.4 million | $179.9 million | $308.8 million | $344.1 million |
| Diluted EPS | $0.57 | $0.79 | $1.36 | $1.53 |
| Net margin | 13.9% | 20.0% | 12.2% | 13.7% |
| Operating cash flow | Not separately disclosed for the quarter | Not separately disclosed for the quarter | $654.0 million | $695.3 million |
| Capital expenditures | Not separately disclosed for the quarter | Not separately disclosed for the quarter | $786.9 million | $726.4 million |
Electric margins increased 4% to $479.8 million in the third quarter and 3% to $1.166 billion for the nine-month period. Retail electric sales increased 2% in the quarter but declined 1% year to date. Warmer third-quarter temperatures benefited electric demand. Gas margins declined 4% year to date to $116.4 million, despite a 9% increase in third-quarter gas sales volumes.
Liquidity, Debt and Capital Structure
- Cash and cash equivalents were $84.7 million at September 30, 2016, compared with $5.8 million at December 31, 2015.
- Available revolving credit capacity was $761.7 million, consisting of $73.5 million at the parent, $300.0 million at IPL and $388.2 million at WPL. IPL also had $179 million of available receivables-program capacity.
- Long-term debt, including current maturities, was $4.131 billion, compared with $3.836 billion at year-end 2015. Consolidated commercial paper outstanding was $238.3 million.
- Net cash flow was negative $117.8 million before financing for the first nine months, as $654.0 million of operating cash flow was more than offset by $771.8 million of investing outflows.
- IPL issued $300 million of 3.7% senior debentures due 2046 in September 2016. Alliant Energy subsequently entered into a $500 million variable-rate term loan in October 2016.
- Alliant Energy declared $0.29375 per common share in quarterly dividends during 2016. Management announced a targeted 2017 annual dividend of $1.26 per share, subject to board approval and business conditions.
Material Changes Versus the Prior Comparable Period
- Revenue increased modestly, but operating income and common-shareholder earnings declined substantially because of an $86 million pre-tax, non-cash valuation charge related to the Franklin County wind farm. The after-tax impact was $51 million, or $0.23 per share.
- The Franklin County charge, higher income tax expense timing, higher reserves associated with ATC return-on-equity complaints and increased stock-based compensation more than offset stronger electric margins, favorable weather and higher allowance for funds used during construction.
- Electric transmission expense increased $11 million in the quarter and $29 million year to date, primarily because of higher rates from ITC, ATC and MISO. Fuel expense declined, while purchased-power expense increased as coal generation dispatch decreased.
- Operating cash flow fell $41 million year to date, while investing outflows increased $159 million, mainly because 2015 included $138 million of proceeds from IPL’s Minnesota asset sales and 2016 utility construction spending was higher.
- IPL earnings available for common stock declined to $114.1 million in the quarter from $116.5 million; WPL earnings increased to $69.0 million from $68.0 million.
- The company completed a two-for-one common-stock split in May 2016; all per-share information in the filing is presented on a post-split basis.
Guidance, Outlook, Risks and Unusual Items
- IPL expects to complete the approximately 650 MW Marshalltown natural-gas combined-cycle facility in the second quarter of 2017. Capital expenditures are currently estimated at approximately $700 million, excluding transmission upgrades and AFUDC.
- WPL began construction of the Riverside expansion and expects it to enter service by early 2020. WPL’s estimated share of project capital expenditures is approximately $640 million after anticipated cooperative participation.
- IPL plans up to 500 MW of additional wind generation, with expected in-service dates in 2019 and 2020, and is evaluating additional wind projects with WPL. The IUB approved related rate-making principles in October 2016.
- WPL’s pending 2017/2018 rate case requested approximately $13 million of annual electric rate increases, later updated to an estimated $17 million, plus a $9 million gas rate increase. A PSCW decision was expected in the fourth quarter of 2016.
- IPL anticipates requesting FERC approval to transfer the 99 MW Franklin County wind farm to IPL and expects the transfer in the first quarter of 2017. The final recoverable amount remains subject to IUB determination and the valuation charge may change.
- FERC proceedings concerning MISO transmission-owner returns could result in refunds and reduced future transmission costs. Alliant Energy had recorded a cumulative $24 million reduction in ATC equity income through September 30, 2016. The timing of customer refunds could affect cash flows.
- Environmental obligations include SCR installations, plant fuel-switching or retirements, coal-ash compliance and consent-decree mitigation projects. Recovery of material compliance costs depends on future regulatory proceedings.
- Alliant Energy had $2.238 billion of minimum future operating-expense purchase commitments, including purchased power, natural gas and coal, plus $27 million of specified capital purchase commitments.
- The filing identifies risks from regulatory decisions, rate freezes, weather, customer demand, fuel and purchased-power prices, generation performance, environmental compliance, capital-market access, credit ratings, litigation and recovery of deferred costs. Moody’s downgraded several ratings in July 2016 but changed the outlooks to stable and management did not expect a material liquidity impact.
Important Facts for Investors to Verify
- Final regulatory treatment and recoverability of the Franklin County wind farm valuation charge.
- PSCW’s final decision on WPL’s 2017/2018 electric and gas rate case.
- FERC’s final determination on the second MISO transmission-owner return-on-equity complaint and the timing of refunds.
- Actual costs, schedule and potential contractor claims for the Marshalltown and Riverside projects.
- Funding requirements for planned wind generation, distribution investment and expected 2017 debt and equity issuance.
- Potential customer refunds, including WPL’s approximately $10 million fuel over-collection refund and IPL’s proposed approximately $75 million tax-benefit rider refunds.
- Exposure under IPL’s receivables program, including $239.7 million of deferred proceeds and $64.5 million of past-due receivables sold at September 30, 2016.
- Environmental compliance costs and the extent to which future regulators permit recovery through customer rates.