Alliant Energy Corporation 2013 Q1 Form 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) for the three months ended March 31, 2013. Alliant Energy is an investor-owned utility holding company focused on regulated electric and natural gas service in Iowa, Wisconsin, and Minnesota, with additional non-regulated generation and corporate services businesses.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Operating revenues | $859.6 million | $765.7 million | 12.3% increase |
| Operating income | $120.7 million | $95.6 million | 26.3% increase |
| Income from continuing operations | $83.1 million | $43.3 million | 92.0% increase |
| Net income attributable to common shareowners | $69.9 million | $34.9 million | 100.3% increase |
| Diluted EPS | $0.63 | $0.32 | Increase of $0.31 |
| Operating margin | 14.0% | 12.5% | Improved |
| Net margin attributable to common shareowners | 8.1% | 4.6% | Improved |
| Operating cash flow | $198.6 million | $215.0 million | $16.4 million decrease |
| Capital expenditures | $167.3 million | $135.6 million | Increase of $31.7 million |
Utility electric margins increased 13% to $397.1 million, while gas margins increased 11% to $69.3 million. Colder weather materially increased electric and gas sales compared with the unusually warm first quarter of 2012. Electric sales increased 4% overall and gas volumes increased 27%.
At March 31, 2013, total assets were $10.7 billion, cash and cash equivalents were $53.4 million, long-term debt including current maturities was $3.1 billion, commercial paper was $243.4 million, and total equity was $3.3 billion. Available revolving credit capacity was $721.6 million, and IPL had $80 million of remaining capacity under its receivables sales program.
Alliant Energy generated $198.6 million of operating cash flow and used $119.7 million for investing activities. Financing activities used $46.7 million, including common dividends of $52.2 million and net preferred-stock redemption payments. The quarterly common dividend increased to $0.47 per share from $0.45.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by colder weather, higher electric and gas sales, transmission cost recovery, and IPL’s rate-related revenue adjustment.
- Operating income benefited from higher utility margins and the absence of the $6 million Riverside purchased-capacity expense incurred by WPL in Q1 2012 following WPL’s acquisition of Riverside in December 2012.
- Q1 2012 included $15 million of Alliant Energy deferred income tax expense related to state apportionment changes associated with the planned RMT sale; no comparable charge was recorded in Q1 2013.
- IPL’s earnings available for common stock increased to $22.9 million from a $4.7 million loss. WPL’s earnings available for common stock increased to $42.0 million from $31.1 million.
- Preferred-stock transactions were completed in March 2013. IPL issued $200 million of 5.1% cumulative preferred stock, redeemed $150 million of 8.375% preferred stock, and WPL redeemed $61 million of preferred stock. Related redemption charges reduced Q1 2013 earnings by approximately $6 million.
- Alliant Energy sold RMT in January 2013. RMT produced a $3.0 million after-tax discontinued-operations loss in Q1 2013 versus a $4.4 million loss in Q1 2012.
- Alliant Energy received a $62.4 million cash grant related to the Franklin County wind project, which was used to reduce short-term borrowings.
- Capital spending increased, principally because of emission-control projects at WPL’s Columbia units and IPL’s Ottumwa and George Neal units.
Guidance, outlook, risks, contingencies, and unusual items
The filing does not provide a specific full-year earnings or revenue guidance figure. Management states that current liquidity and capital structures are expected to support the strategic plan and long-term contractual obligations.
- IPL’s retail electric base rates remain frozen through 2013, and WPL’s retail electric and gas base rates remain frozen through 2014. These freezes increase sensitivity to operating costs, fuel, transmission costs, weather, and regulatory recovery.
- IPL completed a new purchased-power agreement for 431 MW of Duane Arnold Nuclear Energy Center capacity for 2014 through 2025. IPL may need to file an Iowa electric base-rate case in the first quarter of 2014, subject to the conditions described in the filing.
- IPL is pursuing regulatory approval for an approximately 600 MW Marshalltown natural-gas-fired facility. The proposed settlement included an $11% return on equity, a $700 million fixed-cost cap excluding AFUDC and transmission upgrades, and an expected regulatory decision by year-end 2013.
- WPL entered into a proposed Consent Decree with the EPA and Sierra Club concerning alleged air-permitting violations. The decree requires emission-control projects, potential fuel switching or retirements of certain units, approximately $2 million of civil penalties, and approximately $7 million of environmental mitigation. Court approval was pending, and recovery of material costs remains subject to future regulatory proceedings.
- Planned environmental capital expenditures for 2013 through 2016 total approximately $930 million across IPL and WPL based on the filing’s annual estimates. Actual costs may change with regulatory requirements, technology, and project execution.
- The Cash Balance Pension Plan litigation includes an $18.7 million judgment and a separate $6.4 million award of attorney fees and costs, although the fees were ordered to be paid from the judgment. The company has appealed and has not recorded a material loss contingency; an adverse outcome could materially affect pension funding and expense.
- Remaining manufactured-gas-plant remediation costs were estimated at $20 million to $35 million, with $26 million recorded as environmental liabilities at March 31, 2013.
- Alliant Energy had $617 million of outstanding RMT performance guarantees, principally expiring in 2013 through 2015, and an estimated $30 million present value of obligations under a separate Whiting abandonment guarantee. Management did not expect material cash payments under these guarantees.
- Primary ongoing risks include regulatory rate recovery, environmental compliance, fuel and purchased-power costs, weather, generation availability, interest rates, access to capital markets, commodity prices, credit ratings, litigation, pension obligations, and tax-credit utilization.
Most important facts for investors to verify
- Whether Q1 earnings growth is sustainable after normalizing for colder weather, tax benefits, rate riders, and the unusual Q1 2012 tax charge.
- The timing, cost, regulatory recovery, and construction risk associated with Marshalltown and the substantial emission-control program.
- The final court disposition and potential financial effect of the Cash Balance Pension Plan litigation.
- Progress and required spending under the WPL Consent Decree and other environmental regulations.
- IPL’s 2014 rate-case requirements and the cost recovery and customer impact of the new Duane Arnold purchased-power agreement.
- Liquidity headroom, commercial-paper balances, debt refinancing needs, and the ability to fund capital expenditures while maintaining dividends.
- The effect of rate freezes, weather normalization, customer-owned generation, energy efficiency, and distributed solar on future utility sales and margins.