Alliant Energy Corporation 10-Q Summary
Business Context and Reporting Period
This combined Form 10-Q covers Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL) for the three months ended March 31, 2016. Alliant Energy is an investor-owned utility holding company serving electric and natural gas customers primarily in Iowa and Wisconsin, with an approximate 16% ownership interest in American Transmission Company LLC and limited non-regulated operations.
Key Financial Metrics
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Operating revenues | $843.8 million | $897.4 million | Down $53.6 million |
| Operating income | $145.9 million | $152.9 million | Down $7.0 million |
| Operating margin | 17.3% | 17.0% | Improved |
| Income from continuing operations | $100.2 million | $99.2 million | Up $1.0 million |
| Net income attributable to common shareowners | $96.5 million | $96.6 million | Approximately flat |
| EPS, reported basis | $0.85 | $0.87 | Down $0.02 |
| Operating cash flow | $228.3 million | $314.7 million | Down $86.4 million |
| Capital expenditures | $239.2 million | $245.8 million | Down $6.6 million |
Revenue declined primarily because of lower gas sales and lower gas prices, as well as lower retail electric volumes. Electric revenues were broadly stable at $668.9 million versus $671.3 million, while gas utility revenues fell to $152.2 million from $198.4 million. Electric margins increased 2% to $340.1 million; gas margins declined 16% to $57.0 million.
Net income included a $1.1 million after-tax loss from discontinued operations related to warranty claims and other costs associated with the previously sold RMT business. Continuing-operations EPS was $0.86 versus $0.87 in the prior-year quarter. The reported EPS figures are before the subsequent two-for-one stock split.
At March 31, 2016, Alliant Energy had total assets of $12.5 billion, long-term debt including current maturities of $3.84 billion, commercial paper outstanding of $213.4 million, and total equity of $3.96 billion. Cash and cash equivalents were $4.8 million. Available revolving credit capacity was $786.6 million, and IPL had an additional $118 million of available capacity under its receivables sales program.
Operating cash flow funded most capital investment and dividends, but cash declined by $1.0 million during the quarter. Utility construction expenditures were $220.4 million, including continued investment in IPL's Marshalltown generating station and WPL's Edgewater environmental controls.
Material Changes Versus the Prior Comparable Period
- Warmer weather reduced heating demand. Alliant Energy's retail electric sales volumes declined 5%, gas volumes declined 10%, and estimated temperature effects reduced electric margins by approximately $11 million and gas margins by approximately $6 million versus the prior-year quarter.
- Lower coal and natural gas prices and reduced dispatch of coal-fired generation decreased electric production fuel expense by $38 million, but energy purchases increased by $23 million.
- ATC equity income increased by approximately $4 million, and AFUDC increased by $6 million, primarily due to Marshalltown construction.
- IPL earnings available for common stock decreased to $45.6 million from $47.5 million. WPL earnings available for common stock increased to $46.5 million from $44.9 million.
- Operating cash flow declined materially, reflecting weaker customer collections caused by warmer weather, changes in gas storage and fuel inventories, and lower other working-capital contributions.
- IPL extended its accounts receivable purchase commitment through March 2018. At March 31, IPL had sold $220.5 million of receivables and recorded $154.2 million of deferred proceeds.
- IPL implemented a new customer billing and information system during the quarter. Management concluded that disclosure controls were effective, but the system represented a material change in internal control over financial reporting.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- The filing does not provide a new quantitative earnings or revenue guidance range. Management states that first-quarter results are not necessarily indicative of full-year performance.
- IPL's Iowa retail electric base rates and WPL's Wisconsin retail electric and gas base rates were subject to base-rate freezes during 2016, increasing sensitivity to sales volumes, cost control, and regulatory recovery.
- WPL received PSCW authorization to construct the Riverside natural gas combined-cycle expansion in Beloit, subject to additional approvals and permits. Construction was expected to begin in 2016 and be completed by early 2020.
- Marshalltown, an approximately 650 MW natural gas-fired combined-cycle facility, remained under construction and was expected to be completed in 2017. Capitalized construction expenditures and AFUDC totaled $492 million and $33 million, respectively, at March 31, 2016.
- WPL's Edgewater Unit 5 scrubber and baghouse project was expected to be completed in 2016. Capitalized construction expenditures and AFUDC totaled $207 million and $10 million, respectively.
- WPL filed for approval to refund approximately $10 million of fuel-related over-collections to retail electric customers; a PSCW decision was expected in the third quarter of 2016.
- Environmental consent decrees require substantial future emissions-control investments, fuel switching, or retirement of certain generating units. Recovery of material compliance costs depends on future regulatory proceedings.
- Alliant Energy had $2.21 billion of minimum future operating expense purchase commitments, primarily for purchased power, natural gas, and coal. Capital purchase commitments for specified projects were $30 million.
- Alliant Energy had $123 million of outstanding RMT performance guarantees, with $48 million expected to expire in 2016 and $75 million in 2017. Management did not believe material losses were probable or reasonably estimable.
- Potential changes to gas pipeline safety rules, environmental regulations, transmission rates, commodity prices, weather, regulatory recovery, plant performance, and access to capital markets could materially affect future results.
- FERC concluded that ITC had acted imprudently by not taking bonus depreciation benefits into account in its Attachment “O” transmission rate. The ultimate impact was not determinable, although Alliant Energy and IPL expected future transmission charges to be lower and largely offset by electric revenue changes.
- On April 20, 2016, the board approved a two-for-one common stock split, effective in May 2016. Historical shares and EPS were to be recast in the second quarter.
Most Important Facts for Investors to Verify
- Confirm the effect of warmer weather, the 2015 Minnesota asset sale, and customer-volume trends on normalized electric and gas margins.
- Review the sustainability of operating cash flow relative to capital expenditures, dividends, and debt maturities.
- Track construction costs, timing, permitting, and regulatory recovery for Marshalltown, Riverside, Edgewater, and other environmental projects.
- Monitor the 2016 rate freezes, WPL's proposed $10 million fuel-cost refund, IPL tax-benefit riders, and future rate-case outcomes.
- Assess exposure to environmental consent decrees, generating-unit retirements, emissions rules, and potential remediation costs.
- Review liquidity and refinancing needs, including commercial paper, revolving credit availability, receivables-sale capacity, and access to capital markets.
- Verify the accounting and control implications of IPL's new billing system and the recasting of EPS following the two-for-one stock split.