Alliant Energy Corporation 2015 Second-Quarter Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly report for Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL) for the quarter and six months ended June 30, 2015. Alliant Energy is an investor-owned utility holding company focused on regulated electric and natural gas service in Iowa and Wisconsin, with an approximately 16% interest in American Transmission Company and additional parent and non-regulated activities.
Key financial metrics
| Alliant Energy consolidated | Three months ended June 30, 2015 | Three months ended June 30, 2014 | Six months ended June 30, 2015 | Six months ended June 30, 2014 |
|---|---|---|---|---|
| Operating revenues | $717.2 million | $750.3 million | $1,614.6 million | $1,703.1 million |
| Operating income | $109.0 million | $103.3 million | $261.9 million | $257.5 million |
| Income from continuing operations | $71.4 million | $64.6 million | $170.6 million | $175.2 million |
| Net income attributable to common shareowners | $67.6 million | $61.8 million | $164.2 million | $169.8 million |
| Diluted EPS | $0.60 | $0.56 | $1.46 | $1.53 |
| Operating cash flow | Not separately provided | Not separately provided | $517.3 million | $448.2 million |
Second-quarter operating margin was approximately 15.2%, compared with 13.8% in the prior-year quarter. Six-month operating margin was approximately 16.2%, compared with 15.1% in 2014. Net income included a $1.3 million after-tax loss from discontinued operations, compared with a $0.3 million loss in the prior-year periods.
- Electric revenue declined 1% for the quarter and 1% for the six months, but electric margins increased 6% and 5%, respectively, to $455.2 million and $910.6 million.
- Gas revenue declined 33% for the quarter and 21% for the six months. Gas margins declined 7% and 12%, respectively, to $29.8 million and $97.4 million.
- Capital expenditures were $470.3 million for the six months, including $436.2 million for utility construction and acquisitions, up from $369.0 million total in the prior-year period.
- Cash and cash equivalents were $54.8 million at June 30, 2015, compared with $56.9 million at December 31, 2014.
- Alliant Energy had $3.75 billion of long-term debt, including current maturities, $120.9 million of commercial paper, and $3.62 billion of common equity at June 30, 2015. The reported capital structure was approximately 49% long-term debt, 47% common equity, 3% preferred stock, and 1% short-term debt.
- Available revolving credit capacity was $767.9 million, and IPL had $50 million of remaining capacity under its receivables program.
- Common dividends declared increased to $0.55 per share in the second quarter and $1.10 per share for the six months, compared with $0.51 and $1.02, respectively, in 2014.
Material changes versus the prior comparable period
- Second-quarter common EPS increased $0.04, primarily from lower IPL retail electric billing credits, lower WPL energy-efficiency amortization, and improved estimated temperature-normalized electric sales. These benefits were partly offset by charges related to Minnesota asset sales, higher WPL transmission costs, and milder weather.
- Six-month common EPS decreased $0.07 despite higher operating income, principally because of higher interest expense and other items, lower equity income from transmission investments, and the absence of favorable prior-year items.
- IPL earnings available for common stock decreased to $16.7 million in the quarter from $18.4 million, primarily because of Minnesota asset-sale losses and higher depreciation, partly offset by lower customer billing credits.
- WPL earnings available for common stock increased to $39.0 million from $34.6 million, primarily because of lower energy-efficiency cost-recovery amortization, partly offset by higher transmission service expense.
- 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 current plans for additional issuance under the program.
- IPL retired $150 million of 3.3% senior debentures in June 2015. At quarter-end, $111.2 million of commercial paper was classified as long-term debt because of long-term credit support and refinancing intent.
- Operating cash flow increased $69.1 million year over year, substantially reflecting higher proceeds from IPL receivables sales. Investing cash use increased $101.3 million, largely because of higher utility construction spending.
Guidance, outlook, risks, contingencies, and unusual items
- WPL received approval for a $28 million, approximately 3%, annual electric rate increase effective January 1, 2016 to recover deferred 2014 fuel-related costs. WPL also filed for an additional $15 million, approximately 1%, 2016 fuel-related rate increase, with a decision expected by year-end 2015.
- IPL and WPL remain subject to retail electric and gas base-rate freezes during 2015 and 2016, increasing sensitivity to cost recovery, weather, sales volumes, and operating performance.
- Construction continued on IPL’s approximately 650 MW Marshalltown natural-gas combined-cycle plant, expected to be completed in 2017. Capitalized construction expenditures and AFUDC totaled $355 million at June 30, 2015.
- WPL was pursuing approval for an approximately 650 MW Riverside natural-gas combined-cycle expansion; a PSCW decision was expected by mid-2016. The project required additional approvals and could face challenges regarding need or alternatives.
- The final coal-combustion-residuals rule resulted in additional asset-retirement obligations of $74 million for Alliant Energy, $57 million for IPL, and $17 million for WPL in the second quarter. Actual compliance costs may differ, although the companies expected material customer recovery through rates.
- IPL entered into a July 2015 Clean Air Act consent decree, subject to court approval, requiring emission-control projects, fuel switching or retirement of certain coal units, emissions limits, approximately $1 million of civil penalties, and approximately $6 million of mitigation projects. Recovery of compliance costs was expected to be addressed in future rate proceedings; civil penalties were not expected to be recoverable from customers.
- IPL completed sales of its Minnesota natural gas assets in April and electric distribution assets in July 2015. The transactions generated approximately $140 million of expected aggregate proceeds and resulted in approximately $12 million of pre-tax charges recorded in the second quarter.
- Alliant Energy faced potential reductions in future ATC equity income from pending FERC proceedings concerning MISO transmission-owner returns on equity. The company had recorded $7 million of cumulative reductions through June 30, 2015 and estimated that each 25-basis-point reduction in ATC’s authorized return could reduce annual pre-tax equity income by approximately $1 million.
- Contractual commitments included approximately $2.28 billion of minimum future operating expense obligations, primarily purchased power, natural gas, coal, and emissions allowances. Alliant Energy also had $198 million of outstanding RMT-related performance guarantees.
- The filing identified ongoing risks involving regulatory rate relief, environmental compliance, coal and gas generation reliability, weather, energy prices, transmission costs, customer demand and collections, capital-market access, interest rates, cybersecurity, the new customer billing system, litigation, and tax-credit utilization.
Most important facts for investors to verify
- Whether IPL’s consent decree receives court approval and the timing, scope, and rate recovery of required environmental expenditures.
- Actual costs and recovery treatment under the coal-ash rule and other changing greenhouse-gas and environmental regulations.
- Progress, final cost, permitting, and expected rate recovery for Marshalltown and the proposed Riverside expansion.
- WPL’s approved 2016 fuel-related rate increase and the outcome of its additional $15 million rate request.
- The effect of pending FERC proceedings on ATC and ITC returns, transmission expense, and Alliant Energy’s equity income.
- Liquidity after elevated construction spending, IPL receivables financing, debt refinancing, and common-stock issuance.
- Weather-normalized demand trends, particularly declining residential and gas sales and the sustainability of reported electric-margin improvement.
- Potential exposure from the CRANDIC flood litigation, MGP remediation, RMT guarantees and warranty claims, and other environmental contingencies; the filing does not provide a clear estimated loss range for the flood litigation.