Alliant Energy Corporation 2016 Q2 10-Q Summary
Business context and reporting period
Combined unaudited quarterly filing for Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL), covering the quarter and six months ended June 30, 2016. Alliant Energy is a regulated utility holding company serving Iowa and Wisconsin, with electric and gas operations, an approximately 16% interest in American Transmission Company, and non-regulated and corporate businesses.
Financial performance and key metrics
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Operating revenue | $754.6 million | $717.2 million | $1,598.4 million | $1,614.6 million |
| Operating income | $128.6 million | $109.0 million | $274.5 million | $261.9 million |
| Income from continuing operations | $86.9 million | $71.4 million | $187.1 million | $170.6 million |
| Net income attributable to common shareowners | $83.9 million | $67.6 million | $180.4 million | $164.2 million |
| EPS attributable to common shareowners | $0.37 | $0.30 | $0.80 | $0.73 |
| Operating margin | 17.0% | 15.2% | 17.2% | 16.2% |
| Operating cash flow | Not separately disclosed | Not separately disclosed | $510.0 million | $517.3 million |
Q2 electric margins increased 2% to $346.1 million, while gas margins increased 9% to $32.4 million. Six-month electric margins increased 2% to $686.2 million, while gas margins decreased 8% to $89.4 million. Retail electric sales volumes declined 1% in Q2 and 3% for the six-month period, while wholesale volumes increased 20% and 17%, respectively.
Six-month capital expenditures were $519.9 million, including $491.0 million for utility construction and acquisitions. Cash flow used in investing activities was $500.8 million, resulting in negative free cash flow before financing of approximately $9.2 million.
At June 30, 2016, cash and cash equivalents were $6.5 million. Consolidated debt consisted of $3,902.4 million of long-term debt, including current maturities, and $220.6 million of commercial paper. Available revolving credit capacity was $712 million, and IPL had $12 million of additional availability under its receivables program. Consolidated common equity represented 47% of capital structure, preferred stock 2%, long-term debt 48%, and short-term debt 3%.
Material changes versus the prior comparable period
- Q2 earnings improved primarily because 2015 included losses on the sale of IPL’s Minnesota electric and natural gas distribution assets; 2016 also benefited from weather-related electric sales, higher allowance for funds used during construction, lower IPL customer billing credits, and lower WPL energy-efficiency cost recovery amortization.
- Six-month revenue declined 1.0%, primarily because gas utility revenue fell 16% to $209.2 million, partly offset by a 3% increase in electric utility revenue to $1,344.8 million.
- Operating income increased 5% for the six-month period despite lower revenue, reflecting lower fuel and gas costs, lower operation and maintenance expense, and improved electric margins.
- Operating cash flow decreased $7.3 million year over year, while utility construction spending increased $54.8 million.
- Interest expense increased, but total interest expense and other declined to $47.7 million from $59.6 million because of higher AFUDC and lower other items.
- Alliant Energy completed a two-for-one common stock split in May 2016; all shares and per-share amounts in the filing are presented on a post-split basis.
Guidance, outlook, commentary, risks and unusual items
- WPL filed a 2017/2018 rate case requesting annual electric rate increases of approximately $13 million and gas base-rate increases of approximately $9 million, with requested effectiveness beginning January 1, 2017. A PSCW decision was expected in the fourth quarter of 2016.
- WPL received authorization to construct the Riverside natural-gas combined-cycle expansion, with construction expected to begin in 2016 and completion targeted for early 2020.
- IPL filed for approval to construct up to 500 MW of additional wind generation at an estimated cost of approximately $1 billion, with anticipated in-service dates in 2019 and 2020. A regulatory decision was expected by year-end 2016.
- Marshalltown, an approximately 650 MW IPL natural-gas combined-cycle project, had $558 million of construction work in progress and $44 million of AFUDC recorded at June 30, 2016; completion was expected in 2017.
- WPL’s Edgewater Unit 5 scrubber and baghouse project was completed in July 2016. WPL and IPL remain subject to environmental consent-decree requirements, including additional emissions controls, fuel switching, or unit retirements.
- WPL expected to refund approximately $10 million to retail electric customers in the fourth quarter of 2016 for prior fuel-cost over-collections.
- Alliant Energy expected a non-regulated subsidiary to issue up to $500 million of long-term debt in 2016, primarily to refinance expiring term loans and for general corporate purposes.
- Moody’s downgraded Alliant Energy and IPL long-term ratings to Baa1 and WPL to A2 in July 2016, while changing outlooks to stable. Management did not expect a material effect on liquidity or collateral obligations.
- Potential exposures include regulatory rate recovery, environmental compliance and remediation, fuel and purchased-power costs, weather and demand, transmission costs and ATC return-on-equity proceedings, credit ratings, capital-market access, and execution of major generation projects.
- Alliant Energy disclosed a possible material accounting charge if the Franklin County wind farm is transferred to IPL at fair value below its $128 million carrying value. The filing states the charge could exceed half of the carrying value, subject to regulatory approval and accounting treatment.
- Outstanding performance guarantees related to previously sold RMT projects totaled $123 million, with $48 million expected to expire in 2016 and $75 million in 2017. No material loss was considered probable and estimable.
Most important facts for an investor to verify
- Whether WPL’s requested 2017/2018 rate increases are approved and the effect on earnings and cash flow.
- The regulatory outcome, cost recovery, timing, and financing of IPL’s proposed $1 billion wind expansion and WPL’s Riverside expansion.
- The potential magnitude and timing of any Franklin County wind farm impairment or regulatory disallowance.
- Final FERC decisions on MISO transmission-owner return-on-equity complaints and the resulting impact on ATC equity income.
- Progress and final costs of Marshalltown, Edgewater, Columbia, and other environmental compliance projects, including recoverability through rates.
- Liquidity after planned debt issuance, refinancing needs, higher capital expenditures, commercial paper usage, and the effect of credit-rating changes.
- Trends in retail demand, weather-normalized sales, gas margins, and the ability to recover fuel, transmission, and environmental costs through customer rates.
- Changes in regulatory assets and liabilities, including approximately $1.9 billion of consolidated regulatory assets and $711 million of regulatory liabilities at June 30, 2016.