ALLIANT ENERGY CORP annual report, FY2014

Business Context and Reporting Period

Alliant Energy Corporation filed a combined Form 10-K for the fiscal year ended December 31, 2014, covering Alliant Energy, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL). Alliant Energy is a regulated utility holding company serving approximately 1.0 million electric and 420,000 natural-gas customers in Iowa, Wisconsin, and Minnesota. The principal businesses are regulated electric and gas utilities, steam operations, a minority interest in American Transmission Company, and modest non-regulated generation and transportation activities.

The filing reports annual results; the request metadata identifies 2014 Q4, but the filing itself is a full-year 2014 Form 10-K.

Financial Results and Key Metrics

Alliant Energy consolidated	2014	2013	Change
Operating revenues	$3,350.3 million	$3,276.8 million	+2%
Operating income	$543.6 million	$533.9 million	+2%
Income from continuing operations	$395.7 million	$382.1 million	+4%
Net income attributable to common shareowners	$383.1 million	$358.3 million	+7%
Diluted EPS	$3.46	$3.23	+7%
Cash flow from operating activities	$891.6 million	$731.0 million	+$160.6 million
Construction and acquisition expenditures	$902.8 million	$798.3 million	+13%

Electric operating revenues were $2,713.6 million, up 1%; electric margins increased 5% to $1,836.4 million.
Gas operating revenues were $517.5 million, up 11%; gas margins increased 1% to $189.7 million.
Electric sales totaled 30.0 million MWh, down 1% overall, while retail electric sales increased 1%. Gas sales increased 7% to 123.4 million Dths.
IPL reported $1,848.1 million of operating revenues, $194.6 million of net income, and $406.1 million of operating cash flow. WPL reported $1,449.1 million of operating revenues, $180.8 million of net income, and $424.4 million of operating cash flow.
Alliant Energy's operating margin was approximately 16.2% based on operating income divided by operating revenues; the filing does not present a company-defined consolidated EBITDA margin.

Liquidity, Capitalization and Debt

At December 31, 2014, cash and cash equivalents were $56.9 million, available revolving-credit capacity was $858.7 million, and available capacity under IPL's receivables program was $128 million.
Long-term debt, including current maturities, was $3,789.7 million; commercial paper outstanding was $141.3 million. Consolidated capitalization consisted of approximately 50% long- and short-term debt, 45% common equity, and 3% preferred stock.
Alliant Energy's debt-to-capital ratio was 52%, compared with a 65% covenant limit. IPL and WPL were at 47% and 49%, respectively, against 58% covenant limits. The companies were in compliance with material covenants.
2014 financing included $250 million of Alliant Energy variable-rate term debt, $250 million of IPL 3.25% senior debentures due 2024, and $250 million of WPL 4.1% debentures due 2044. Alliant Energy also retired $250 million of 4% senior notes.
Contractual obligations totaled $9.1 billion for Alliant Energy, including $3.8 billion of long-term debt maturities, $2.9 billion of long-term-debt interest, and $2.3 billion of purchased-power and fuel commitments.

Material Changes Versus the Prior Comparable Period

Common-shareowner earnings increased primarily because purchased electric capacity expense declined by $191.7 million, following expiration of the prior DAEC arrangement and WPL's Kewaunee PPA. The new DAEC PPA began in February 2014 without minimum capacity payments.
These benefits were partly offset by $72 million of IPL Iowa retail electric customer billing credits under a 2014 rate settlement, higher energy-purchase costs, increased transmission expense, higher depreciation, and higher operation and maintenance costs.
Electric production fuel and energy-purchase expense increased to $852.1 million from $725.0 million, while purchased electric capacity expense fell to $25.1 million from $216.8 million.
Operating cash flow rose substantially, mainly because of lower purchased-capacity payments, changes in IPL receivables financing, and a $26 million final tax-sharing payment from Whiting Petroleum.
Assets increased to $12.1 billion from $11.1 billion, principally from utility plant additions and higher regulatory assets. Long-term obligations increased to $3.8 billion from $3.3 billion.
WPL's earnings available for common stock increased $4 million to $180.1 million; IPL's increased $10.8 million to $184.4 million.

Guidance, Outlook, Commentary and Unusual Items

Management expected a modest increase in weather-normalized retail electric sales in 2015 and anticipated adequate capacity to meet the MISO planning reserve margin for the June 2015-May 2016 planning year.
Alliant Energy forecast approximately $4.2 billion of capital expenditures over 2015-2018, including Marshalltown, environmental compliance, generation improvements, and electric and gas distribution investments.
IPL was constructing the approximately 650 MW Marshalltown combined-cycle gas plant, targeted for service in the second quarter of 2017, with an approved cost cap of $920 million including related pipeline, transmission upgrades, and AFUDC.
WPL planned to seek approval for an approximately 650 MW Riverside expansion in Beloit, Wisconsin. Estimated project cost was $725 million to $775 million, excluding transmission upgrades and AFUDC; construction was expected to begin in 2016 and finish in early 2019, subject to approvals.
IPL and WPL had retail electric base-rate freezes through 2016. WPL also had a gas-rate freeze through 2016 after a $5 million annual decrease effective January 1, 2015. WPL received a $39 million annual retail electric rate increase effective January 1, 2015, primarily for fuel-related costs and approved sales volumes.
IPL's Minnesota natural-gas distribution asset sale was approved by the MPUC in December 2014 and was expected to close in 2015 for approximately $10 million, subject to contingencies. The anticipated Minnesota electric asset sale was expected to generate approximately $130 million. The filing states that these sales were not expected to materially affect 2015 earnings.
Environmental compliance remained a major investment and regulatory issue. Completed 2014 projects included scrubbers and baghouses at IPL's George Neal and Ottumwa units and WPL's Columbia units. Future requirements include CSAPR, MATS, CCR, cooling-water, wastewater, and greenhouse-gas rules, many of which remained subject to legal or regulatory uncertainty.
The WPL Consent Decree requires emission controls, retirements or fuel switching, emission limits, and approximately $7 million of environmental mitigation projects. Recovery of related costs will depend on future regulatory proceedings.
Alliant Energy recorded a $2.4 million after-tax loss from discontinued operations, primarily related to post-sale matters concerning RMT. RMT-related performance guarantees totaled $251 million at year-end, with no material liability recorded because material losses were not considered probable and reasonably estimable.
Pension and OPEB expense was expected to increase by approximately $21 million in 2015 because of lower discount rates and updated life-expectancy assumptions. Management did not expect significant pension contributions during 2015-2018 based on year-end funded status.
Alliant Energy increased its targeted 2015 annual dividend to $2.20 per share, or $0.55 quarterly, beginning with the February 2015 payment.

Principal Risks and Contingencies

Timely recovery of capital, fuel, transmission, environmental, pension, and operating costs through regulated rates is not assured, particularly during the IPL and WPL rate freezes.
Construction, permitting, cost-overrun, transmission, and operational risks affect Marshalltown, the proposed Riverside expansion, distribution-system projects, and environmental-control projects.
Coal, natural-gas, purchased-power, transmission, and weather exposure can affect margins; WPL's retail electric fuel-recovery mechanism leaves it more exposed to commodity-cost differences.
Environmental rules and litigation could require substantial capital expenditures, facility retirements, fuel switching, operating restrictions, remediation, or penalties. Potential impacts from the final CCR rule and proposed greenhouse-gas standards were not clearly quantifiable.
Alliant Energy had $1.8 billion of regulatory assets at year-end, including tax-related and pension/OPEB balances. Failure to obtain future rate recovery could materially affect earnings and equity.
The company faced cyber, physical-security, storm, reliability, employee, counterparty, tax-asset utilization, pension, and capital-market risks. A new customer billing and information system was scheduled for deployment in 2015.
Wholesale customers representing approximately 3% of IPL's 2014 electric sales and approximately 10% of WPL's 2014 electric sales provided termination notices for agreements expiring from 2017 through 2018.

Investor Verification Checklist

Verify the audited consolidated income, balance-sheet, and cash-flow statements and reconcile continuing operations, discontinued operations, and common-shareowner earnings.
Review the composition, recoverability, and amortization periods of the $1.8 billion of regulatory assets and the $821.2 million of regulatory liabilities.
Confirm 2015-2018 capital-spending commitments, Marshalltown's cost and schedule, and the status and economics of the Riverside expansion.
Assess the effect of IPL and WPL rate freezes, IPL billing credits and tax-benefit riders, and WPL's fuel-cost under-collection and transmission escrow treatment.
Review debt maturities, planned 2015 financing, covenant headroom, receivables financing, and the ability of subsidiaries to upstream dividends.
Evaluate environmental compliance costs, the WPL Consent Decree, CCR obligations, greenhouse-gas rules, and potential early plant retirements.
Confirm closing conditions and proceeds for the planned Minnesota asset sales and the treatment of the assets held for sale.
Monitor pension and OPEB funded status, 2015 cost increases, tax carryforwards, and potential impairment of the merchant Franklin County wind project.