Business Context and Reporting Period
Alliant Energy Corporation filed a combined unaudited Form 10-Q with its regulated utility subsidiaries, Interstate Power & Light Company (IPL) and Wisconsin Power & Light Company (WPL), for the quarter and six months ended June 30, 2019. Alliant operates primarily regulated electric and gas utilities, with additional non-utility transportation and investment activities.
Key Financial Metrics
| Alliant Energy consolidated | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 |
|---|---|---|---|---|
| Total revenues | $790.2 million | $816.1 million | $1,777.4 million | $1,732.4 million |
| Operating income | $149.8 million | $151.2 million | $326.6 million | $316.9 million |
| Net income attributable to common shareowners | $94.6 million | $100.4 million | $219.7 million | $221.3 million |
| Diluted EPS | $0.40 | $0.43 | $0.93 | $0.96 |
| Operating margin | 19.0% | 18.5% | 18.4% | 18.3% |
Second-quarter revenue decreased 3.2%, while six-month revenue increased 2.6%. Second-quarter net income and diluted EPS declined 5.8% and 7.0%, respectively. Six-month net income declined 0.7% and diluted EPS declined 3.1%, despite higher operating income.
- Utility margins: Second-quarter electric utility margin was $414.0 million, up from $398.1 million; gas utility margin was $44.8 million, up from $41.1 million. For six months, electric margin was $816.0 million versus $777.2 million, and gas margin was $139.0 million versus $115.5 million. These are non-GAAP measures.
- Cash flow: Six-month operating cash flow was $276.9 million, compared with $274.4 million in 2018. Investing cash outflow was $607.0 million, including $652.5 million of utility construction and acquisition expenditures. Financing cash inflow was $478.8 million.
- Liquidity: June 30 cash and cash equivalents were $170.2 million. Alliant reported $610 million of available revolving credit capacity and IPL had $83 million of remaining receivables-sale capacity.
- Debt: Long-term debt, including current maturities, was $6.145 billion, and Alliant had $390.5 million of commercial paper outstanding. The revolving credit facility provides $1 billion of total borrowing capacity and expires in August 2023.
- Capitalization: Total assets were $16.122 billion and total equity was $4.900 billion at June 30, 2019, compared with $15.426 billion and $4.786 billion, respectively, at December 31, 2018.
- Dividends: Alliant paid $167.8 million of common stock dividends during the first six months, or $0.71 per share.
Material Changes Versus the Prior Comparable Period
- Electric utility revenue declined in the second quarter primarily because retail electric sales volumes fell 6%, with cooler temperatures reducing residential and commercial demand. Six-month retail electric sales volumes declined 3%.
- Lower fuel, purchased-power and transmission costs supported higher electric margins, while regulated rate increases and expanding rate bases at IPL and WPL also improved margins.
- IPL placed approximately 470 megawatts of new wind generation into service in March 2019. IPL’s interim electric rate increase of $90 million annually became effective April 1, 2019, subject to refund pending the Iowa Utilities Board’s final decision.
- Operating expenses increased due principally to higher operation and maintenance costs and depreciation. Six-month depreciation and amortization rose to $279.8 million from $247.4 million.
- Alliant’s non-utility revenue increased to $39.8 million for the first six months from $19.3 million, primarily due to freight management acquisitions completed in the first quarter.
- IPL issued $300 million of 3.60% senior debentures due 2029 as green bonds. WPL issued $350 million of 3.00% debentures due 2029, using proceeds to reduce commercial paper and retire $250 million of 5% debentures maturing in July 2019.
- Alliant settled $48 million of equity forward agreements during the first six months by issuing 1.09 million common shares. In July 2019, it subsequently issued 1.5 million additional shares for $66 million.
Guidance, Outlook, Risks and Unusual Items
- No specific consolidated earnings guidance is provided in the filing text. Management states that interim results are not necessarily indicative of full-year results.
- IPL requested annual Iowa electric base-rate increases totaling $204 million and gas base-rate increases of $21 million. IPL expected an Iowa Utilities Board decision in the fourth quarter of 2019, with final rates expected to become effective in the first quarter of 2020. Interim electric rates are subject to refund.
- IPL incurred a $110 million obligation payable in September 2020 to shorten the Duane Arnold Energy Center power purchase agreement. The amount is recorded through regulatory accounting and is expected to be recovered from customers over five years after payment.
- Capital commitments at June 30, 2019 were $268 million for Alliant, including $237 million for IPL and $31 million for WPL. Additional minimum purchase commitments totaled $1.327 billion for Alliant, primarily for natural gas, purchased power and coal.
- Environmental matters include IPL’s Consent Decree obligations to fuel-switch or retire specified coal units, manufactured gas plant remediation, coal combustion residual requirements and evolving greenhouse-gas regulations. The ultimate costs and timing of certain requirements remain uncertain.
- WPL’s collective bargaining agreement with IBEW Local 965 expired May 31, 2019. Negotiations continued under an extension, and management could not predict the outcome.
- Key ongoing risks include rate recovery, regulatory decisions, weather, energy demand, fuel and purchased-power costs, environmental compliance, construction execution, access to capital markets, interest rates, cyber and physical security, credit exposure and pension obligations.
- Alliant adopted the new lease accounting standard on January 1, 2019 without a cumulative-effect adjustment. It expects to adopt the current expected credit loss and cloud-computing standards on January 1, 2020 and was evaluating their impacts.
Most Important Facts for Investors to Verify
- Final Iowa electric and gas rate decisions, including the treatment of IPL’s interim electric rates and production tax credits.
- Execution, cost recovery and regulatory treatment of IPL’s wind projects and WPL’s West Riverside Energy Center.
- Alliant’s ability to fund capital expenditures, dividends and debt maturities while maintaining liquidity and access to capital markets.
- The effect of weather-driven demand changes and future rate-base growth on utility margins.
- Potential environmental compliance, coal-plant retirement and remediation costs, including amounts recoverable from customers.
- The September 2020 $110 million Duane Arnold PPA buyout payment and related regulatory recovery.
- Outcomes of WPL labor negotiations and any material developments involving guarantees, litigation or other contingencies.