ALLIANT ENERGY CORP quarterly report, Q3 FY2018

Business Context and Reporting Period

Alliant Energy Corporation, together with its wholly owned utilities 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, 2018. The businesses are primarily regulated electric and gas utilities serving Iowa and Wisconsin, with additional transmission, non-utility and investment activities.

Financial Results and Key Metrics

Alliant Energy consolidated	Q3 2018	Q3 2017	9M 2018	9M 2017
Revenue	$928.6 million	$906.9 million	$2,661.0 million	$2,526.1 million
Operating income	$256.1 million	$236.3 million	$573.0 million	$537.2 million
Net income attributable to common shareholders	$205.5 million	$168.8 million	$426.8 million	$363.5 million
Diluted EPS	$0.87	$0.73	$1.83	$1.59
Operating margin	27.6%	26.1%	21.5%	21.3%

Third-quarter revenue increased 2.4%, operating income increased 8.4%, and common-shareholder net income increased 21.8% year over year.
Nine-month revenue increased 5.3%, operating income increased 6.7%, and common-shareholder net income increased 17.4% year over year.
Q3 income from continuing operations benefited from higher retail electric sales, rate-base growth at IPL and WPL, higher allowance for funds used during construction, and lower income taxes. These benefits were partly offset by higher depreciation and interest expense.
IPL nine-month earnings available for common stock were $224.9 million versus $200.4 million; WPL earnings were $170.1 million versus $133.4 million.
For the nine months, operating cash flow was $442.2 million versus $451.3 million. Capital and acquisition expenditures were $1,128.0 million, including $1,080.2 million for the utility business, compared with $1,049.4 million in 2017.
Financing cash flow was $587.4 million, including $1.5 billion of long-term debt issuance, $603.1 million of debt retirement payments, $191.3 million of common-stock issuance proceeds, and $233.3 million of common dividends.
Cash, cash equivalents and restricted cash were $247.8 million at September 30, 2018, compared with $33.9 million at December 31, 2017. Cash and cash equivalents alone were $239.7 million.
Long-term debt, including current maturities, totaled approximately $5.75 billion at September 30, 2018, versus $4.87 billion at December 31, 2017. Commercial paper outstanding was $136.8 million, and available revolving-credit capacity was $863.2 million. IPL also had $109.0 million of receivables-sale capacity available.
Alliant Energy common equity was $4.57 billion, and total equity was $4.77 billion at September 30, 2018. The filing does not provide a separately stated consolidated debt-to-capital ratio in the supplied text.

Material Changes Versus the Prior Comparable Period

Retail electric sales volumes increased 3% in both the quarter and nine-month period, primarily because warmer third-quarter temperatures increased cooling demand. Nine-month electric utility margins increased $60 million, while gas utility margins increased $22 million.
IPL benefited from electric and gas rate increases, including final electric rates effective May 1, 2018 and an interim gas increase effective May 14, 2018. IPL filed a proposed settlement for an approximately $14 million annual gas base-rate increase.
WPL’s nine-month operating income declined to $251.6 million from $258.3 million, primarily reflecting lower electric margins, including the expiration of wholesale power supply agreements and earnings-sharing effects, partly offset by lower transmission-cost recovery amortization.
Federal Tax Reform reduced the statutory federal tax rate and generated customer refunds or credits. Alliant Energy, IPL and WPL refunded $47 million, $16 million and $31 million, respectively, during the first nine months. Additional third-quarter tax clarifications produced tax benefits of $5.6 million, $1.1 million and $5.5 million, respectively.
Alliant Energy adopted new revenue-recognition and cash-flow presentation standards in 2018. Management reported no material revenue-recognition impact and no cumulative retained-earnings adjustment. The filing states that the new lease standard, to be adopted January 1, 2019, is not currently expected to materially affect financial condition or results of operations.
IPL retired the gas-fired M.L. Kapp Unit 2 and WPL retired coal-fired Edgewater Unit 4. Remaining net book values of $29 million and $24 million, respectively, were classified as regulatory assets and were not impaired because recovery through rates was expected.

Guidance, Outlook, Risks and Unusual Items

WPL’s approved 2019/2020 rate settlement keeps retail electric and gas base rates at current levels through 2020, maintains a 10.0% authorized return on common equity, and retains an earnings-sharing mechanism.
Alliant Energy expects 2019 electric and gas margins to increase from earnings on higher rate base and IPL interim rates. It also expects higher depreciation and interest expense as new property enters service and additional financings are completed.
Planned 2018-2022 construction and acquisition expenditures total approximately $6.99 billion for Alliant Energy, including major renewable-generation, distribution and West Riverside projects. West Riverside is an approximately 730 MW gas-fired facility expected to be completed by the end of 2019. IPL plans up to 1,000 MW of new wind generation targeted for 2019-2020.
Alliant Energy expected to issue up to $400 million of common stock in 2019; IPL and WPL expected to issue up to $600 million and $400 million of long-term debt, respectively. WPL has $250 million of debt maturing in July 2019. The targeted 2019 annual common dividend was increased 6% to $1.42 per share, subject to Board approval and business conditions.
IPL proposed shortening the Duane Arnold Energy Center power-purchase agreement by five years in exchange for a $110 million payment in September 2020. The proposal and related replacement wind PPAs were contingent on Iowa regulatory approval of cost recovery; the filing states that a settlement was reached in October 2018 and a decision was expected in 2018.
Material risks include regulatory approval and recovery of rate-base investments and environmental costs, construction execution and cost caps, access to capital markets, interest rates, weather, fuel and purchased-power prices, plant reliability, cyber and physical security, environmental compliance, tax-credit utilization, pension obligations, litigation and credit-counterparty exposure.
Minimum future purchase commitments at September 30, 2018 were $2.22 billion for Alliant Energy, including $1.09 billion of purchased power, $921 million of natural gas and $169 million of coal. The filing also describes environmental obligations, consent-decree requirements and guarantees that could require future payments.
Moody’s changed the outlook for Alliant Energy, IPL and WPL from stable to negative in May 2018, although management did not expect a material liquidity or collateral impact. The filing reports effective disclosure controls and no material change in internal control over financial reporting.

Investor Verification Priorities

Verify the sustainability of earnings growth after the effects of warmer weather, Federal Tax Reform adjustments, customer refunds and nonrecurring tax benefits.
Reconcile the substantial capital program with operating cash flow, planned equity and debt issuance, leverage targets and the 2019 debt maturities.
Track regulatory outcomes for IPL’s gas and future electric rate cases, the DAEC buyout and related wind PPAs, and WPL’s fuel-cost and earnings-sharing mechanisms.
Assess execution, permitting, cost and tax-credit risks for IPL’s wind expansion and WPL’s West Riverside project.
Review environmental compliance obligations, including IPL’s Ottumwa SCR requirement and planned coal-plant fuel switching or retirements.
Confirm the effect of the January 1, 2019 lease-accounting adoption and monitor regulatory-asset recovery, pension obligations, guarantees and other contingencies.