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 a combined unaudited Form 10-Q for the three months ended March 31, 2015. The companies operate regulated electric and natural gas utilities in Iowa and Wisconsin, with an approximately 16% interest in American Transmission Company and smaller non-regulated businesses.
Key Financial Metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Operating revenues | $897.4 million | $952.8 million | Down $55.4 million |
| Operating income | $152.9 million | $154.2 million | Down $1.3 million |
| Net income | $99.2 million | $110.6 million | Down $11.4 million |
| Net income attributable to common shareowners | $96.6 million | $108.0 million | Down $11.4 million |
| Diluted EPS | $0.87 | $0.97 | Down $0.10 |
| Operating cash flow | $314.7 million | $293.6 million | Up $21.1 million |
| Capital expenditures | $250.9 million | $176.8 million | Up $74.1 million |
Electric margins increased 4% to $455.4 million, primarily because IPL had no comparable purchased electric capacity expense from the prior Duane Arnold Energy Center power purchase agreement. Gas margins declined 14% to $67.6 million. Retail electric sales declined 3% and retail gas volumes declined 10%, largely reflecting less extreme winter weather than in the prior-year quarter.
At March 31, 2015, cash and cash equivalents were $97.6 million. Consolidated long-term debt, including current maturities, was $3.79 billion, and commercial paper outstanding was $41.5 million. Available revolving credit capacity was $958.5 million, with an additional $106 million available under IPL’s receivables program. Consolidated capitalization consisted of approximately 50% long-term debt, 47% common equity, 3% preferred stock and less than 1% noncontrolling interest.
Alliant declared quarterly dividends of $0.55 per common share, compared with $0.51 in the prior-year quarter. The company issued approximately 2.0 million shares through its at-the-market program and received $121 million of net proceeds.
Material Changes Versus the Prior Comparable Period
- Revenue decreased 6%, mainly because gas revenue fell 18% and electric revenue fell 1% as weather-related demand normalized from the unusually cold first quarter of 2014.
- Net income attributable to common shareowners declined 11%; EPS declined from $0.97 to $0.87.
- IPL earnings available for common stock increased to $47.8 million from $43.4 million, primarily because the prior-year quarter included $24.8 million of purchased electric capacity expense.
- WPL earnings available for common stock decreased to $44.6 million from $54.8 million, primarily due to lower sales, higher transmission expense and lower equity income from ATC.
- Operating cash flow improved, but investing cash use increased substantially because of higher construction spending on IPL’s Marshalltown generating station and emission-control projects at IPL and WPL.
- Operating and maintenance expense declined $14 million, while depreciation and amortization increased $5 million because of additions placed in service, including environmental projects.
- Equity income from unconsolidated investments declined by approximately $5 million, primarily because ATC recorded reserves for potential rate refunds.
Guidance, Outlook, Risks and Unusual Items
- Management stated that current liquidity and capital structures are expected to provide the capital needed to implement the strategic plan and meet long-term obligations. The filing does not provide a specific full-year earnings or revenue guidance figure.
- IPL and WPL retail electric and gas base rates were subject to rate freezes in Iowa and Wisconsin during 2015 and 2016. IPL also recorded approximately $6 million of first-quarter Iowa retail electric billing credits under its rate settlement.
- WPL is seeking recovery in 2016 of $28 million of deferred 2014 fuel-related costs, plus interest. A PSCW decision was expected in the third quarter of 2015.
- IPL was constructing the approximately 650 MW Marshalltown natural-gas generating station, expected to be completed in 2017. Capitalized costs were $248 million, including $7 million of AFUDC, at March 31, 2015.
- WPL was constructing Edgewater Unit 5 emission controls, expected to be completed in 2016. Capitalized costs were $110 million, including $4 million of AFUDC.
- Following quarter-end, IPL completed the sale of its Minnesota natural gas distribution assets for $11 million of net proceeds and a $2 million promissory note. The proposed sale of IPL’s Minnesota electric distribution assets received MPUC approval subject to conditions, with closing then expected in the third quarter of 2015.
- The EPA’s final Coal Combustion Residuals Rule is expected to result in additional second-quarter 2015 asset retirement obligations of up to $85 million for Alliant Energy, including up to $75 million for IPL and $10 million for WPL. The companies expect related compliance expenditures to be recovered through rates.
- Alliant Energy had $2.28 billion of minimum future operating expense purchase commitments, including purchased power, natural gas, coal and emission allowances.
- Alliant Energy had $251 million of outstanding performance guarantees related to the prior sale of RMT. The filing states that material losses were not considered probable and reasonably estimable.
- The company identified continuing risks from regulatory decisions, rate recovery, environmental compliance, weather, commodity prices, generation availability, transmission costs, capital-market access, cyber and physical security, and implementation of a new customer billing system.
- A pending FERC complaint concerning MISO transmission owners’ return on equity could reduce future transmission costs but also reduce ATC equity income and dividends. Alliant had recorded $6 million of reductions in ATC equity income through March 31, 2015.
Investor Verification Points
- Verify the timing and recoverability of WPL’s $28 million deferred fuel-related balance and any related regulatory decision.
- Monitor the final financial impact of the Coal Combustion Residuals Rule and the expected second-quarter asset retirement obligation increase.
- Assess construction costs, completion timing and regulatory recovery for Marshalltown, Edgewater Unit 5 and other environmental projects.
- Track approvals, closing conditions and proceeds for the sale of IPL’s Minnesota electric distribution assets.
- Review the effect of the MISO return-on-equity proceeding on transmission expense, ATC earnings and dividends.
- Evaluate leverage, refinancing requirements and liquidity after capital spending, dividends and the at-the-market equity issuance.
- Consider the extent to which first-quarter earnings were affected by weather comparisons, rate credits, tax benefits and other nonrecurring or timing-related items.