Alliant Energy Corporation 2014 Q2 Form 10-Q Summary
Business context and reporting period
Alliant Energy Corporation, together with its regulated subsidiaries Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL), filed a combined unaudited Form 10-Q for the quarter and six months ended June 30, 2014. The businesses primarily provide regulated electric and natural gas service in Iowa, Wisconsin and portions of Minnesota, with additional interests in transmission and non-regulated operations.
Key financial metrics
| Alliant Energy consolidated | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Operating revenues | $750.3 million | $718.0 million | $1,703.1 million | $1,577.6 million |
| Operating income | $103.3 million | $103.2 million | $257.5 million | $223.9 million |
| Income from continuing operations | $64.6 million | $68.4 million | $175.2 million | $151.5 million |
| Net income attributable to common shareholders | $61.8 million | $65.3 million | $169.8 million | $135.2 million |
| Diluted EPS | $0.56 | $0.59 | $1.53 | $1.22 |
| Operating margin | 13.8% | 14.4% | 15.1% | 14.2% |
- Second-quarter revenue increased 4.5%, while six-month revenue increased 8.0%. Electric revenue increased 5.2% in the quarter and 6.0% year to date; gas revenue increased 4.8% and 17.3%, respectively.
- Six-month electric margins increased 8% to $866.9 million and gas margins increased 7% to $110.7 million. Retail electric sales volumes increased 1% in the quarter and 4% year to date, supported partly by weather and higher commercial and industrial demand.
- Quarterly common earnings declined 5.4%, primarily because of $20 million of IPL customer billing credits, higher operating and interest expenses, and WPL earnings deferrals. The comparison benefited from the absence of $52 million of purchased-capacity expense related to prior DAEC and Kewaunee agreements.
- Cash flow from operating activities was $448.2 million for the first six months, compared with $423.3 million in 2013. Capital and acquisition expenditures were $364.5 million, producing negative free cash flow before financing of approximately $280.8 million.
- Cash and cash equivalents totaled $16.2 million at June 30, 2014, compared with $9.8 million at December 31, 2013. Available revolving-credit capacity was $692 million, and IPL had an additional $140 million of receivables-program capacity.
- Consolidated capitalization included $3.34 billion of common equity, $200 million of preferred stock, $3.34 billion of long-term debt including current maturities, and $307.9 million of commercial paper. Long-term debt fair value was $3.91 billion versus a carrying amount of $3.34 billion.
- The quarterly common dividend was $0.51 per share, compared with $0.47 in the prior-year quarter.
Material changes versus the prior comparable period
- IPL and WPL no longer incurred the prior DAEC and Kewaunee purchased-capacity charges, respectively. This improved electric margins but was substantially offset in reported earnings by IPL billing credits and higher costs.
- IPL’s earnings available for common stock decreased to $18.4 million from $22.2 million in the second quarter, but increased to $61.8 million from $45.1 million for the first six months.
- WPL’s second-quarter earnings available for common stock were essentially unchanged at $34.6 million versus $34.4 million; six-month earnings increased to $89.4 million from $76.4 million.
- Interest expense increased $3 million in the quarter and $5 million year to date, primarily because of IPL’s $250 million of 4.7% senior debentures issued in October 2013.
- Alliant Energy’s six-month effective tax rate increased to 16.2% from 13.0%, while IPL continued to report a tax benefit and WPL’s effective rate increased modestly to 33.0% from 32.5%.
- Cash flow benefited from lower purchased-capacity payments and a $26 million final payment under the Whiting Petroleum tax-sharing agreement, but investing cash use increased because the prior-year period included a $62 million wind-project cash grant.
Guidance, outlook, risks and unusual items
- Management expects to issue approximately $500 million of additional long-term debt in 2014: approximately $250 million for IPL and $250 million for WPL. The filing does not provide a consolidated earnings guidance range.
- IPL began construction of the approximately 650 MW Marshalltown natural-gas combined-cycle facility after receiving required approvals and expects commercial operation in the second quarter of 2017.
- WPL issued a request for proposals for up to 600 MW of capacity and energy beginning in 2019 and planned to file the selected resource proposal in early 2015. Potential capital spending assumptions were based on a possible 300 MW natural-gas facility and remained subject to change.
- IPL proposed extending its Iowa retail electric base-rate freeze through 2016, with customer billing credits of $70 million in 2014, $25 million in 2015 and $10 million in 2016. The IUB decision was expected in the third quarter of 2014.
- WPL requested a $55 million, or approximately 5%, 2015 retail electric rate increase for fuel-related costs and recovery of a portion of projected 2014 under-collections. In July 2014, WPL received authorization to maintain electric base rates through 2016 and reduce annual gas base rates by $5 million beginning in 2015.
- Environmental obligations remain significant. WPL’s Consent Decree requires emission controls and certain unit retirements or fuel switching. The companies also face uncertainty regarding CSAPR, the EPA’s proposed Clean Power Plan, cooling-water rules and other environmental requirements; future compliance expenditures could be significant.
- At June 30, WPL had recorded $17 million of deferred fuel-related costs expected to fall outside the approved 2014 recovery bandwidth. Regulatory assets totaled $1.45 billion for Alliant Energy, including $870.7 million of tax-related assets and $348.4 million for pension and other postretirement costs.
- Alliant Energy had $313 million of outstanding RMT performance guarantees, with expirations generally scheduled through 2016. The company had not recorded material liabilities for related warranty claims because material losses were not considered both probable and reasonably estimable.
- Minimum future operating expense commitments totaled $2.42 billion, including $1.59 billion of IPL DAEC purchased-power commitments. A flood-damage lawsuit and environmental remediation at former manufactured-gas-plant sites remain contingencies; the filing does not provide a reliable loss estimate for the flood claims.
- July 2014 weather was significantly cooler than normal and was expected to reduce third-quarter electric margins by approximately $14 million to $18 million versus normal weather. Jo-Carroll also provided notice that it would terminate its IPL wholesale power agreement effective April 1, 2018.
- The filing states that disclosure controls and procedures were effective as of June 30, 2014, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the IPL Iowa rate-case settlement and related customer credits were approved as expected, and the effect of the rate freeze on future returns.
- WPL’s final 2015 fuel-related rate decision and the treatment of deferred fuel costs and potential SSR transmission costs.
- Actual cost, regulatory recovery and construction progress for Marshalltown and the emission-control projects.
- Required 2014 debt issuance, refinancing needs and the effect of higher market interest rates on debt fair value and future interest expense.
- Exposure to environmental rules, unit retirements, compliance capital spending and recovery through customer rates.
- Performance of the Franklin County wind project, including power prices, tax credits and potential impairment indicators.
- Potential losses from RMT guarantees, environmental remediation, litigation and other commitments, noting that several exposures were not yet estimable.