Alliant Energy Corporation 2018 Q2 Form 10-Q Summary
Business context and reporting period
This combined, unaudited Form 10-Q covers Alliant Energy Corporation and its wholly owned regulated utilities, Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL), for the quarter and six months ended June 30, 2018. The businesses are primarily regulated electric and gas utilities serving Iowa and Wisconsin, supplemented by transmission investments and non-utility activities.
Key financial metrics
| Alliant Energy consolidated | Three months ended June 30, 2018 | Three months ended June 30, 2017 | Six months ended June 30, 2018 | Six months ended June 30, 2017 |
|---|---|---|---|---|
| Revenue | $816.1 million | $765.3 million | $1,732.4 million | $1,619.2 million |
| Operating income | $151.2 million | $153.7 million | $316.9 million | $300.9 million |
| Net income attributable to common shareholders | $100.4 million | $94.3 million | $221.3 million | $194.7 million |
| Diluted EPS | $0.43 | $0.41 | $0.96 | $0.85 |
| Dividends declared per common share | $0.335 | $0.315 | $0.67 | $0.63 |
Second-quarter revenue increased approximately 6.6%, while net income attributable to common shareholders increased approximately 6.5% and diluted EPS increased approximately 4.9%. Six-month revenue increased approximately 7.0%, net income increased approximately 13.7%, and diluted EPS increased approximately 12.9%.
- Approximate operating margin was 18.5% in the second quarter versus 20.1% in the prior-year quarter, and 18.3% for the six months versus 18.6% in the prior-year period.
- Second-quarter utility electric margin was $398.1 million, up from $379.0 million; utility gas margin was $41.1 million, up from $34.3 million. For six months, electric margin was $777.2 million versus $724.1 million, and gas margin was $115.5 million versus $96.4 million. These are non-GAAP measures.
- Six-month operating cash flow was an outflow of $65.0 million versus inflow of $127.5 million in 2017. The change primarily reflected working-capital movements, including a $507.8 million increase in accounts receivable and lower cash proceeds associated with the receivables program when classified under the revised cash-flow presentation.
- Six-month capital expenditures and acquisitions were $733.3 million, including $699.6 million for utility projects, compared with $607.5 million in the prior-year period.
- At June 30, 2018, cash and cash equivalents were $5.0 million; cash, cash equivalents and restricted cash totaled $12.0 million. Available revolving-credit capacity was $792.5 million, and IPL had $61.0 million of available capacity under its accounts-receivable sales program.
- Long-term debt, including current maturities, was approximately $5.48 billion at June 30, 2018, compared with $4.87 billion at December 31, 2017. Commercial paper outstanding was $82.5 million. Alliant Energy also had $125.0 million of commercial paper classified as long-term debt.
- Alliant Energy issued $1.0 billion of AEF debt in June 2018: $400 million of 3.75% senior notes due 2023 and $300 million of 4.25% senior notes due 2028, together with a $300 million variable-rate term loan. Proceeds were used principally to refinance debt, reduce commercial paper and fund general corporate purposes.
Material changes versus the prior comparable period
- Results benefited from warmer second-quarter temperatures and colder first-quarter temperatures, which increased electric and gas demand. Retail electric sales increased 4% in the quarter and 3% for the six months.
- IPL benefited from electric base-rate increases, including the final 2016 test-year increase effective May 1, 2018, and an interim gas-rate increase effective May 14, 2018. IPL filed for a permanent annual gas-rate increase of $20 million, or approximately 8%.
- WPL electric revenue and operating income declined year over year, primarily reflecting lower wholesale margins and the expiration of wholesale power-supply agreements, although gas margin improved.
- Higher operation and maintenance costs, performance compensation, depreciation and interest expense partially offset margin growth. Depreciation increased to $127.0 million in the second quarter from $115.0 million.
- The effective consolidated income-tax rate for the six months was 11.8%, compared with 16.4% in 2017, reflecting the federal tax-rate reduction, production tax credits and other regulatory tax effects.
- Alliant Energy issued 2.14 million common shares through its at-the-market program for $88 million net proceeds through June 30, 2018. It subsequently issued shares for an additional $23 million of net proceeds related to late-June transactions.
- Alliant Energy adopted new revenue-recognition and cash-flow presentation standards in 2018. Management reported no material cumulative revenue-recognition adjustment or material change in the timing of revenue recognition.
Guidance, outlook, risks and unusual items
- WPL’s West Riverside Energy Center, an approximately 730 MW natural-gas combined-cycle facility, was under construction and expected to be completed by the end of 2019. Capitalized construction costs and AFUDC totaled $426 million at June 30, 2018.
- IPL planned up to 1,000 MW of new wind generation targeted for 2019 and 2020; capitalized costs and AFUDC totaled $492 million at June 30, 2018. WPL also acquired 55 MW of the 129 MW Forward Wind Energy Center for approximately $74 million.
- In June 2018, IPL retired the M.L. Kapp Generating Station and reclassified its remaining $30 million net book value to a regulatory asset. IPL expected recovery through a future rate review and continued to earn a return on the balance.
- Federal Tax Reform benefits were being refunded to customers through approved regulatory mechanisms. Alliant Energy, IPL and WPL had deferred $10 million, $7 million and $3 million, respectively, at June 30, 2018, and recognized customer refunds during the quarter.
- Subsequent to quarter-end, IPL agreed to shorten the Duane Arnold Energy Center purchased-power agreement by five years in exchange for a $110 million buyout payment in September 2020. Recovery from customers and certain replacement wind PPAs remained subject to Iowa Utilities Board approval.
- Subsequent to quarter-end, the PSCW approved a WPL settlement under which retail electric and gas base rates would not change through 2020, with an earnings-sharing mechanism continuing through 2020.
- Material risks include the ability to obtain timely rate relief and recover capital, fuel, transmission and environmental costs; regulatory and tax changes; weather and customer demand; construction and wind-project execution; environmental compliance and consent decrees; access to capital markets and credit ratings; commodity prices; cyber and physical security; litigation; benefit-plan funding; and counterparty credit risk.
- Moody’s changed the outlook for Alliant Energy, IPL and WPL from stable to negative in May 2018. Management stated that the change was not expected to materially affect liquidity or collateral obligations.
- Environmental obligations remain significant, including SCR installation, fuel switching or retirement requirements under the IPL and WPL consent decrees. The filing states that future compliance investments could be significant, but the complete financial impact cannot be determined.
Most important facts for investors to verify
- Whether regulatory commissions approve recovery of the $110 million DAEC buyout and associated replacement wind-power arrangements.
- Progress, final costs, rate recovery and in-service timing for West Riverside and IPL’s wind-generation expansion.
- The sustainability of earnings growth after unusually favorable weather, rate increases and tax-related benefits.
- Operating cash-flow conversion, accounts-receivable sales, customer collections and the effect of continued capital spending on financing needs.
- Debt refinancing requirements, planned 2019 debt and equity issuance, interest-rate exposure and credit-rating developments.
- Potential costs and recoverability associated with environmental consent decrees, coal-plant retirements, manufactured-gas-plant remediation and other contingencies.
- The final impact of federal and Iowa tax reform, including customer refunds, deferred taxes, regulatory assets and regulatory liabilities.