Alliant Energy Corporation 2021 Q2 Form 10-Q Summary
Business context and reporting period
This combined unaudited Form 10-Q covers Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL) for the three and six months ended June 30, 2021. Alliant Energy operates regulated electric and gas utilities, with additional non-utility activities and an investment in American Transmission Company Holdings.
Financial performance and key metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $817 million, up from $763 million | $1.718 billion, up from $1.679 billion |
| Operating income | $176 million, up from $168 million | $374 million, up from $356 million |
| Net income attributable to common shareholders | $144 million, or $0.57 diluted EPS | $315 million, or $1.26 diluted EPS |
| Net income attributable to common shareholders, prior year | $134 million, or $0.54 diluted EPS | $304 million, or $1.23 diluted EPS |
| Operating margin | 21.5%, compared with 22.0% | 21.8%, compared with 21.2% |
| Operating cash flow | Not separately provided | $207 million, compared with $319 million |
| Capital and acquisition expenditures | Not separately provided | $458 million, including $426 million for utility activities |
Electric utility revenue increased to $717 million in the second quarter and $1.418 billion for the six months, while gas utility revenue increased to $69 million and $239 million, respectively. Six-month utility electric margin, a non-GAAP measure, increased to $892 million from $863 million; utility gas margin increased to $108 million from $105 million.
Second-quarter results benefited from higher retail electric and gas sales, warmer temperatures, increasing rate base, and improved IPL operating and bad-debt expenses. These benefits were partly offset by higher depreciation, lower allowance for funds used during construction, and higher WPL electric fuel-related costs. The six-month effective income tax rate was negative 16%, compared with negative 10% in 2020, primarily reflecting increased amortization of excess deferred taxes and production tax credits.
Liquidity, debt, and cash flow
- At June 30, 2021, cash and cash equivalents were $15 million at Alliant Energy, $11 million at IPL, and $3 million at WPL.
- Alliant Energy had $465 million of available revolving-credit capacity and IPL had $65 million of available capacity under its receivables-sale program.
- Alliant Energy reported $308 million of current maturities of long-term debt, $535 million of commercial paper, and $6.468 billion of long-term debt excluding current maturities. The carrying amount of long-term debt including current maturities was $6.776 billion.
- Six-month operating cash flow declined by $112 million, primarily because of working-capital changes, lower receivables-sale activity, February natural-gas cost payments, and customer credits.
- Cash used in investing activities was $190 million, while financing activities used $57 million. Alliant Energy paid $203 million in common dividends and increased commercial paper by $146 million.
- Construction expenditures are expected to rise because of higher costs and expanded solar projects. WPL stated that estimated costs and rate-base additions for 675 MW of approved solar generation could exceed amounts approved by the PSCW by approximately 7% to 10%.
Material changes versus the prior comparable period
- Second-quarter net income attributable to common shareholders increased 7.5%, and diluted EPS increased from $0.54 to $0.57. Six-month net income increased 3.6%, and diluted EPS increased from $1.23 to $1.26.
- Revenue increased 7.1% in the second quarter and 2.3% for the six months. Operating income increased 4.8% and 5.1%, respectively.
- Electric transmission service expense increased by $49 million in the second quarter and $61 million for the six months, while electric production fuel and purchased-power expense decreased by $26 million and $77 million, respectively.
- WPL operating income declined to $55 million from $72 million in the second quarter and to $145 million from $166 million for the six months, primarily due to higher generation costs, operating expenses, depreciation, and lower allowance for funds used during construction.
- IPL operating income increased to $111 million from $88 million in the second quarter and to $214 million from $185 million for the six months.
- Alliant Energy's total assets increased to $17.939 billion from $17.710 billion at year-end 2020, while total equity increased to $6.019 billion from $5.888 billion.
Guidance, outlook, risks, and unusual items
- WPL received authorization to acquire, own, and operate up to 1,089 MW of new solar generation. The projects are intended to replace capacity from the planned retirements of Edgewater and Columbia generating units.
- WPL proposed annual retail base-rate increases of $70 million for electric customers and $15 million for gas customers for 2022 and 2023. The proposal contemplated a 10% authorized return on common equity and potential effectiveness beginning January 1, 2022; approval was not assured.
- WPL received MISO approval to retire Columbia Units 1 and 2, with retirements currently anticipated by the end of 2023 and 2024, respectively. The units had an aggregate net book value of approximately $475 million, and management concluded that no impairment or disallowance was required because recovery and return were expected through rates.
- IPL recorded a $14 million regulatory asset at June 30, 2021 for under-recovered natural-gas costs arising from extreme February weather. Recovery from retail customers was authorized through December 2021.
- IPL continues to face environmental compliance requirements, including fuel switching or retirement of Burlington by December 31, 2021 and Prairie Creek Units 1 and 3 by December 31, 2025. Management expects material compliance costs to be recoverable from customers.
- Known future commodity and other purchase commitments totaled $1.122 billion for Alliant Energy, including $909 million for natural gas and $89 million for coal.
- Alliant Energy estimated current known abandonment obligations associated with guarantees for a former Whiting Petroleum affiliate at $68 million and recorded a $5 million liability for expected credit losses. It also reported guarantee obligations related to a non-utility Oklahoma wind farm, including $74 million of operating-agreement obligations and a $17 million PPA maximum.
- Principal risks include regulatory recovery and rate decisions, construction cost escalation, environmental rules and coal retirements, weather, fuel and power prices, COVID-19 effects, access to capital markets, interest rates, tax-credit utilization, pension funding, cyber and operational risks, and customer payment levels.
Important facts for investors to verify
- Whether WPL's proposed 2022/2023 rate settlement is approved and whether the proposed solar projects remain within authorized cost and schedule parameters.
- The timing, regulatory recovery, and financial effects of Edgewater and Columbia retirements and IPL's environmental compliance obligations.
- Whether higher solar construction costs and potential 7% to 10% WPL cost overruns affect future rate base, financing needs, or returns.
- The sustainability of cash generation and dividends given lower operating cash flow, limited cash balances, increased commercial paper, and substantial capital spending.
- The extent to which extreme weather, fuel-price volatility, regulatory deferrals, and customer credits affect future margins and working capital.
- Potential exposure from environmental contingencies, guarantees, pension and OPEB obligations, tax-credit carryforwards, and future regulatory proceedings.