Alliant Energy Corporation 2015 Q3 Form 10-Q Summary
Business context and reporting period
This combined, unaudited Form 10-Q covers Alliant Energy Corporation, Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL) for the quarter and nine months ended September 30, 2015. Alliant Energy is an investor-owned utility holding company primarily serving electric and natural gas customers in Iowa and Wisconsin, with an approximately 16% interest in American Transmission Company.
Key financial metrics
| Alliant Energy consolidated | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Operating revenues | $898.9 million | $843.1 million | $2,513.5 million | $2,546.2 million |
| Operating income | $235.9 million | $194.8 million | $497.8 million | $452.3 million |
| Net income attributable to common shareowners | $179.9 million | $153.3 million | $344.1 million | $323.1 million |
| Diluted EPS | $1.59 | $1.38 | $3.06 | $2.92 |
| Operating margin | 26.2% | 23.1% | 19.8% | 17.8% |
| Common dividend declared per share | $0.55 | $0.51 | $1.65 | $1.53 |
Operating margin is calculated as operating income divided by operating revenues. Revenue declined for the nine-month period primarily because of lower gas revenue, while electric revenue increased.
- Q3 electric revenue increased 8% to $835.8 million; nine-month electric revenue increased 3% to $2.15 billion.
- Q3 gas revenue decreased 19% to $38.0 million; nine-month gas revenue decreased 21% to $288.1 million. Gas margins declined 4% in Q3 and 11% for the nine-month period.
- Q3 electric margin increased 9% to $590.0 million; nine-month electric margin increased 7% to $1.50 billion.
- Cash flow from operating activities was $695.3 million for the first nine months, down from $763.9 million in 2014.
- Capital and acquisition expenditures were $726.4 million, comprising $678.9 million for the utility business and $47.5 million for Corporate Services and non-regulated businesses.
- Cash and equivalents were $139.2 million at September 30, 2015, compared with $56.9 million at December 31, 2014.
- Consolidated long-term debt, including current maturities, was $3.86 billion; commercial paper was $109.1 million. Available revolving credit capacity was $890.9 million, and IPL had $179 million of additional receivables-program capacity.
- Consolidated capital structure consisted of approximately 49% long-term debt, 47% common equity, 3% preferred stock and 1% short-term debt.
Material changes versus the prior comparable period
- Q3 net income attributable to common shareowners increased $26.6 million, or 17%, and diluted EPS increased $0.21. The improvement primarily reflected higher electric sales, lower IPL customer billing credits, lower WPL energy-efficiency amortization and lower other operating costs.
- Nine-month net income attributable to common shareowners increased $21.0 million, or 7%, while revenue decreased $32.7 million. Higher electric margins and lower gas costs more than offset lower gas revenue and gas margins.
- Alliant Energy issued 2.19 million common shares through its at-the-market program and received $133 million of net proceeds. Management stated that it had no plans for additional issuance under that program as of September 30.
- IPL retired $150 million of 3.3% senior debentures and issued $250 million of 3.4% senior debentures due 2025. WPL retired $30.6 million of pollution-control revenue bonds.
- IPL completed the sale of its Minnesota natural gas and electric distribution assets for aggregate proceeds of approximately $138 million. The transactions produced $12 million of pre-tax charges and were not classified as discontinued operations.
- Additional asset-retirement obligations of $74 million were recorded at Alliant Energy for the Coal Combustion Residuals Rule, including $57 million at IPL and $17 million at WPL.
- Approximately 2% of employees accepted a voluntary separation package, resulting in Q3 charges of $8 million for Alliant Energy, $5 million for IPL and $3 million for WPL.
- Moody’s changed the outlooks for Alliant Energy, IPL and WPL from stable to negative in August 2015.
Guidance, outlook, risks and unusual items
- Management expected a modest increase in temperature-normalized retail electric sales in 2016. Weather remains a significant driver of electric and gas demand.
- IPL expected lower Iowa retail electric billing credits in 2016. WPL received approval for a $28 million annual rate increase effective January 1, 2016 to recover deferred 2014 fuel-related costs and requested an additional $15 million, approximately 1%, of 2016 fuel-related rate relief.
- Alliant Energy estimated 2016 electric transmission expense would be approximately $35 million higher than 2015, including increases of approximately $25 million at IPL and $10 million at WPL. A significant portion of IPL’s increase is expected to be recovered through rates.
- Planned capital expenditures for 2015 through 2019 total approximately $5.78 billion for Alliant Energy, including Marshalltown, environmental controls, distribution-system investment and the proposed Riverside expansion.
- IPL’s approximately 650 MW Marshalltown natural-gas facility had $414 million of construction work in progress and $17 million of AFUDC capitalized at September 30, 2015; completion was expected in 2017.
- WPL’s proposed approximately 650 MW Riverside expansion had an estimated cost of $680 million to $720 million, excluding AFUDC, subject to regulatory approval. A PSCW decision was expected by May 2016.
- IPL’s Clean Air Act consent decree, approved in September 2015, requires emission-control projects, unit fuel switching or retirements and approximately $6 million of environmental mitigation projects. IPL paid a $1 million civil penalty, which it did not expect to recover from customers.
- Environmental rules, including the CCR Rule, greenhouse-gas standards, revised ozone standards and wastewater requirements, could require significant future capital expenditures. Recovery of many compliance costs depends on future regulatory proceedings.
- The company had $2.315 billion of minimum future operating purchase commitments, principally for purchased power, natural gas and coal. It also had $123 million of RMT performance guarantees outstanding.
- A flood-damage lawsuit involving CRANDIC and other defendants was remanded to Iowa state court. The company considered the case without merit, had not recorded a material loss contingency and could not estimate a potential loss range.
- Alliant Energy expected to issue approximately $25 million of common stock in 2016, while IPL expected to issue up to $300 million of long-term debt. The targeted 2016 common dividend was increased to $2.35 per share, subject to board approval and financial conditions.
Important facts for investors to verify
- Whether regulatory authorities approve sufficient rate recovery for fuel, transmission, environmental, pension and major construction costs.
- The final cost, schedule, regulatory approval and financing requirements for Marshalltown, Riverside and environmental-control projects.
- The effect of Moody’s negative outlooks, higher transmission costs and planned 2016 debt refinancing on interest expense and liquidity.
- The eventual impact of FERC proceedings on ITC and ATC return-on-equity rates, transmission expense and Alliant Energy’s equity income from ATC.
- The ultimate compliance costs and recoverability of expenditures under the CCR Rule, Clean Air Act consent decrees and other environmental regulations.
- Changes in weather, customer demand, industrial sales, fuel prices and wholesale-market conditions, which materially affect margins.
- The status and potential exposure from the CRANDIC flood litigation, RMT guarantees, receivables-sale program and other contingencies.
- The filing states that disclosure controls were effective as of September 30, 2015 and that results for the nine months are not necessarily indicative of full-year results.