Business Context and Reporting Period
Alliant Energy Corporation, together with its wholly owned utility 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, 2020. The businesses are primarily regulated electric and natural gas utilities, with additional investments including ATC Holdings and non-utility renewable assets.
Key Financial Metrics
| Alliant Energy consolidated | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue | $920 million | $990 million | $2.599 billion | $2.768 billion |
| Operating income | $272 million | $290 million | $628 million | $617 million |
| Net income attributable to common shareowners | $246 million | $226 million | $550 million | $446 million |
| Diluted EPS | $0.98 | $0.94 | $2.22 | $1.87 |
| Operating margin | 29.6% | 29.3% | 24.2% | 22.3% |
| Net cash from operating activities | — | — | $436 million | $509 million |
Q3 net income increased 9% and diluted EPS increased 4%. Nine-month net income increased 23% and diluted EPS increased 19%, despite lower revenue. The nine-month effective income tax rate was negative 9%, compared with positive 10% in 2019, primarily reflecting higher production tax credits and amortization of excess deferred taxes.
- Q3 utility electric margin was $541 million, down from $570 million; nine-month utility electric margin was $1.404 billion, up from $1.385 billion. These are non-GAAP measures defined as electric revenue less fuel, purchased power and transmission expenses.
- Q3 utility gas margin was $31 million versus $33 million; nine-month utility gas margin was $136 million versus $172 million.
- At September 30, 2020, cash and cash equivalents were $189 million; cash, cash equivalents and restricted cash totaled $194 million.
- Alliant Energy had $422 million of commercial paper outstanding and $6.581 billion of long-term debt, including current maturities. Available revolving credit capacity was $578 million, and IPL had $109 million of remaining receivables-sale capacity.
- Total assets were $17.540 billion and total equity was $5.909 billion at September 30, 2020.
- Capital expenditures and acquisitions were $974 million for the first nine months, consisting of $935 million for the utility business and $39 million for other activities.
- Common stock dividends paid were $281 million for the first nine months, or $1.14 per share.
Material Changes Versus the Prior Comparable Period
- Revenue declined 7% in Q3 and 6% for the first nine months, primarily because of lower electric sales, reduced gas revenue, COVID-19 effects, the derecho windstorm and lower gas commodity costs.
- Retail electric residential sales increased 3% on a temperature-normalized basis for the first nine months, while commercial and industrial sales decreased 4% in aggregate. Total retail electric sales volumes declined 3% and gas sales volumes declined 11%.
- Operating income increased 2% for the first nine months, but declined 6% in Q3. Lower fuel and purchased-power costs, lower operating and maintenance expense, rate increases and tax-related items offset weaker sales, higher depreciation and higher transmission costs.
- Depreciation and amortization increased to $454 million from $424 million for the first nine months, reflecting new wind generation, West Riverside Energy Center and other plant additions.
- Operating cash flow declined to $436 million from $509 million. The comparison included a $110 million cash payment for IPL’s Duane Arnold Energy Center power purchase agreement amendment, which shortened the agreement term by five years.
- Alliant Energy issued $241 million of common stock proceeds in the first nine months, including settlement of $222 million of equity forward agreements. WPL issued $350 million of 3.65% debentures due 2050, and IPL issued $400 million of 2.3% senior debentures due 2030.
- Long-term debt increased from $5.533 billion at December 31, 2019 to $6.574 billion at September 30, 2020, while current maturities declined from $657 million to $7 million.
Guidance, Outlook, Risks and Unusual Items
- Management reported no significant COVID-19 impact on overall operations, financial condition, results or cash flows through September 30, but expects a slight reduction in 2020 temperature-normalized retail sales. Future effects on customer payment behavior, bad debts, sales, construction, supply chains and capital-market access remain uncertain.
- The August 2020 derecho affected more than 250,000 IPL customers. IPL estimated total costs of approximately $140 million, of which approximately $130 million had been recorded by September 30, primarily in property, plant and equipment. IPL sought regulatory treatment for certain incremental costs and benefits.
- The $110 million DAEC PPA buyout payment is expected to be recovered from IPL customers from the fourth quarter of 2020 through 2025.
- Management expects higher 2021 earnings from increasing utility rate base, wind investments, WPL’s gas-system expansion and recovery of the DAEC PPA amendment. It also expects higher 2021 depreciation and lower allowance for funds used during construction.
- Alliant Energy announced a targeted 6% increase in its 2021 annual dividend to $1.61 per share, or $0.4025 quarterly, subject to Board approval and financial conditions.
- WPL and AEF each expect to issue up to $300 million of long-term debt by the end of 2021. The filing does not provide a consolidated full-year EPS guidance figure.
- Alliant Energy plans significant renewable investment, including IPL solar development of up to 400 MW and WPL solar projects of up to 675 MW, with additional WPL solar plans expected. Estimated 2020-2024 construction and acquisition expenditures total $7.275 billion for Alliant Energy.
- Key contingencies include environmental compliance and remediation, planned coal-unit retirements or fuel switching, regulatory recovery of storm and other costs, customer arrears, pension and OPEB funding, commodity and counterparty exposure, and access to capital markets.
- Alliant Energy’s estimated exposure under guarantees related to an affiliate of Whiting Petroleum was approximately $68 million of known partnership abandonment obligations. Following Whiting Petroleum’s emergence from bankruptcy, the related credit-loss liability was reduced to $5 million at September 30, 2020.
- The registrants adopted the current expected credit loss standard on January 1, 2020. Alliant Energy recorded a $12 million pretax, $9 million after-tax reduction to opening retained earnings related to guarantees; IPL and WPL recorded no cumulative-effect adjustment.
Most Important Facts for Investors to Verify
- Whether regulators approve recovery of IPL’s derecho-related costs and how much of the estimated $140 million total cost is ultimately recovered.
- The timing and amount of customer recovery for the $110 million DAEC PPA buyout and the effect on future utility earnings and cash flow.
- Actual COVID-19 effects on commercial and industrial demand, customer arrears, expected credit losses and regulatory deferrals.
- Progress, cost, tax-credit qualification and regulatory approval for the planned wind and solar projects and coal-unit transitions.
- Future financing needs, projected debt issuance, credit-facility covenant compliance and the sustainability of the stated dividend target.
- Additional FERC refunds, customer treatment of transmission refunds, and any changes to ATC-related earnings or regulatory returns.
- The ultimate liability, if any, under Whiting Petroleum-related guarantees and other environmental, legal and contractual contingencies.