ALLIANT ENERGY CORP quarterly report, Q3 FY2017

Alliant Energy Corporation 2017 Q3 Form 10-Q Summary

Business context and reporting period

Alliant Energy Corporation, together with its wholly owned utility 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 nine months ended September 30, 2017. The businesses primarily provide regulated electric and natural gas services in Iowa and Wisconsin, with additional wholesale, transmission, corporate-services and non-regulated renewable activities.

Key financial metrics

Alliant Energy consolidated	Three months ended Sept. 30, 2017	Three months ended Sept. 30, 2016	Nine months ended Sept. 30, 2017	Nine months ended Sept. 30, 2016
Operating revenue	$906.9 million	$924.6 million	$2,526.1 million	$2,523.0 million
Operating income	$231.5 million	$162.6 million	$523.7 million	$437.1 million
Net income attributable to common shareowners	$168.8 million	$128.4 million	$363.5 million	$308.8 million
Diluted EPS	$0.73	$0.57	$1.59	$1.36
Operating margin	25.5%	17.6%	20.7%	17.3%

Third-quarter revenue decreased 1.9%, while nine-month revenue was broadly unchanged year over year. Third-quarter operating income increased 42.4%, and nine-month operating income increased 19.8%.
Third-quarter and nine-month earnings benefited from the absence of the $86.4 million pre-tax Franklin County wind farm valuation charge recorded in 2016. The 2017 third-quarter results also benefited from IPL and WPL rate increases, lower fuel and purchased-power costs, and lower transmission expense.
Income taxes were $26.1 million in the third quarter and $64.9 million for the nine months, compared with $7.5 million and $47.2 million, respectively, in 2016. The nine-month effective tax rate was 14.9%, compared with 12.9% in 2016.
Dividends declared per common share were $0.315 in the third quarter and $0.945 for the first nine months, versus $0.29375 and $0.88125, respectively, in 2016.

Cash flow, debt and liquidity

For the nine months, operating cash flow was $883.4 million, up from $654.0 million, principally reflecting higher collections, proceeds from sales of receivables, rate increases and working-capital changes.
Investing cash flow used $1,072.3 million, including $909.7 million of utility construction and acquisition expenditures and $139.7 million for Corporate Services and non-regulated businesses.
Financing cash flow provided $189.9 million, including $143.2 million of net common-stock issuance proceeds and a $281.2 million increase in commercial paper and other short-term borrowings, partly offset by $215.7 million of common dividends.
Cash and cash equivalents were $9.2 million at September 30, 2017, compared with $8.2 million at December 31, 2016. Available revolving-credit capacity was approximately $570 million, and IPL had approximately $2 million of remaining receivables-sale capacity.
At September 30, consolidated current maturities of long-term debt were $105.2 million, commercial paper was $390.3 million, other short-term borrowings were $95.0 million, and long-term debt excluding current maturities was $4.255 billion. Consolidated long-term debt including current maturities had a carrying amount of $4.360 billion and estimated fair value of $4.896 billion.
Alliant Energy, IPL and WPL entered into a new $1.0 billion revolving credit facility expiring in August 2022. In October 2017, WPL issued $300 million of 3.05% debentures due 2027, using proceeds to reduce commercial paper and for general corporate purposes.

Material changes versus the prior comparable period

IPL completed and placed its approximately 660 MW Marshalltown natural-gas combined-cycle generating station into service in April 2017. Recorded project costs were $643 million, excluding certain transmission costs, with estimated final construction costs of approximately $645 million excluding transmission upgrades and AFUDC.
IPL received an interim annual electric base-rate increase of approximately $102 million, or 7%, effective April 13, 2017. A partial settlement proposed an annual increase of approximately $130 million, or 9%, subject to Iowa Utilities Board approval and expected implementation in the first quarter of 2018.
As a result of the proposed IPL settlement, the company recorded a $9 million write-down of regulatory assets in the third quarter, including $4 million in operation and maintenance expense and $5 million in depreciation and amortization.
WPL’s electric and gas base-rate increases became effective January 1, 2017. WPL recorded $42 million of electric and $6 million of gas base-rate increases for the first nine months.
Alliant Energy acquired a 50% cash-equity interest in a 225 MW non-regulated Oklahoma wind farm for approximately $98 million. The investment increased other investments and was financed partly with a $95 million, 364-day variable-rate term loan guaranteed by Alliant Energy.
Alliant Energy issued 3.1 million common shares through its at-the-market program and received $124 million of net proceeds. Common shares outstanding increased to 231.2 million at September 30, 2017, from 227.7 million at year-end 2016.
IPL retired Sutherland Units 1 and 3 and several other generating units, while WPL continued construction of the approximately 730 MW West Riverside generating facility. West Riverside capitalized construction expenditures were $278 million as of September 30, 2017.
Retail electric sales decreased approximately 3% in the third quarter and 2% for the nine months, primarily because cooler summer temperatures reduced residential and commercial demand. WPL’s results also reflected the transfer of its ATC investment to Alliant Energy’s affiliate, reducing WPL equity income.

Guidance, outlook, risks and unusual items

Management expects 2018 electric and gas margins to increase from 2017 levels, primarily from IPL rate increases and the planned IPL retail gas rate review. Depreciation and interest expense are expected to increase, while AFUDC is expected to rise with higher construction work in progress.
Alliant Energy expects to issue up to $200 million of common stock in 2018. IPL expects to issue up to $700 million of long-term debt, and AEF expects to issue up to $1.0 billion of long-term debt, including refinancing needs.
Management announced a targeted 6% increase in the 2018 annual common dividend to $1.34 per share, or $0.335 quarterly, beginning with the February 2018 payment. Future dividends remain subject to board approval and financial conditions.
Planned capital expenditures for 2017 through 2021 total approximately $6.88 billion for Alliant Energy, including renewable projects, West Riverside, generation, electric systems, gas systems and other infrastructure.
Key regulatory and execution risks include approval and final implementation of IPL’s rate settlement, recovery of regulatory assets and retired-unit costs, environmental compliance and consent-decree obligations, weather-driven sales volatility, fuel and purchased-power prices, transmission costs, construction execution, access to capital markets, interest rates, tax-law changes and credit-counterparty risks.
Minimum future commitments at September 30, 2017 included $105 million for specified capital projects and $2.303 billion for purchased power, natural gas, coal and other purchase obligations.
Environmental obligations include required controls and potential fuel switching or retirements at WPL and IPL facilities. Estimated future MGP-site remediation costs were $12 million to $31 million for Alliant Energy and $10 million to $27 million for IPL; recorded liabilities were $16 million and $14 million, respectively.
The filing states that no material loss contingency was recorded for the Cedar River flood litigation, Whiting Petroleum abandonment guarantees or the Oklahoma wind investment guarantees because a material payment was not considered probable. Actual obligations could differ from current estimates.
Alliant Energy expects to adopt the new revenue-recognition standard on January 1, 2018, with no significant change expected to retail revenue timing but additional disclosures anticipated. The lease standard is expected to increase recognized assets and liabilities upon adoption in 2019.

Most important facts for investors to verify

Final Iowa Utilities Board approval, timing and economics of IPL’s proposed $130 million annual rate increase and the related $9 million regulatory-asset write-down.
Execution, final cost and regulatory recovery of Marshalltown, West Riverside and planned wind projects.
Funding needs, debt issuance plans, commercial-paper balances, interest-rate exposure and compliance with credit-facility covenants.
Sustainability of earnings growth after excluding the favorable comparison from the 2016 Franklin County impairment charge and considering cooler-weather sales impacts.
Recovery of regulatory assets, including tax-related balances, pension and OPEB costs, retired generating units and asset-retirement obligations.
Environmental compliance costs, required plant modifications or retirements, and the ability to recover those costs through customer rates.
Progress on the proposed acquisition of 55 MW of the Forward Wind Energy Center and the associated PSCW and FERC approvals.