Alliant Energy Corporation 2013 Form 10-K Summary
Business context and reporting period
Combined annual report for Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL), covering the fiscal year ended December 31, 2013. Alliant Energy is a regulated utility holding company serving approximately 1.0 million electric customers and 418,000 natural gas customers in Iowa, Wisconsin, and Minnesota. The principal businesses are regulated electric and gas operations, steam operations, transmission investment, and modest non-regulated generation and transportation activities.
Key financial metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Operating revenues | $3,276.8 million | $3,094.5 million | Up 5.9% |
| Income from continuing operations | $382.1 million | $340.8 million | Up 12.1% |
| Net income attributable to common shareowners | $358.3 million | $319.8 million | Up 12.0% |
| Diluted EPS | $3.23 | $2.89 | Up $0.34 |
| Operating income | $533.9 million | $519.7 million | Up 2.7% |
| Cash flow from operating activities | $731.0 million | $841.1 million | Down $110.1 million |
| Construction and acquisition expenditures | $798.3 million | $1,158.1 million | Down $359.8 million |
| Total assets | $11,112.4 million | $10,785.5 million | Up $326.9 million |
| Long-term obligations, net | $3,338.1 million | $3,141.5 million | Up $196.6 million |
Alliant’s utility electric margin increased 9% to $1,747.2 million, while gas margin increased 5% to $188.1 million. Operating margin based on reported operating income was approximately 16.3% in 2013 versus 16.8% in 2012.
- Electric revenues were $2,689.0 million, up 4%; electric sales were 30.2 million MWh, essentially flat.
- Gas revenues were $464.8 million, up 17%, primarily due to colder weather and higher gas volumes; cost of gas sold increased 27% and was substantially recovered through customer rates.
- IPL net income increased to $189.9 million from $150.2 million; earnings available for common stock increased to $173.6 million from $137.6 million.
- WPL net income increased to $177.5 million from $165.7 million; earnings available for common stock increased to $175.9 million from $162.4 million.
- Year-end cash and cash equivalents were only $9.8 million. Available revolving credit capacity was $720.6 million, and IPL had $121 million of additional availability under its receivables program.
- Debt represented 51% of consolidated capitalization; common equity represented 46%, and preferred stock represented 3%. Alliant’s times interest earned before taxes was 3.52x.
- Alliant paid $208.3 million of common dividends and declared $1.88 per share for 2013. The targeted 2014 annual dividend was increased to $2.04 per share.
Material changes versus the prior comparable period
- Continuing-operations EPS increased from $2.93 to $3.29. The principal benefits were lower purchased electric capacity expense after WPL acquired Riverside, an IPL tax-related revenue requirement adjustment of $24 million, higher weather-normalized sales, lower WPL energy-conservation amortization, and lower taxes.
- These benefits were partly offset by higher depreciation, generation and distribution operating costs, increased transmission expense, higher performance-based compensation, and $6 million of preferred-stock redemption charges.
- WPL’s acquisition of Riverside in December 2012 shifted costs from purchased power to company-operated generation and increased depreciation.
- Operating cash flow declined because of lower proceeds from IPL’s accounts-receivable program, working-capital changes, customer refunds, and the absence of certain 2012 cash flows from RMT. Investing cash outflows declined substantially from the 2012 Riverside acquisition.
- IPL issued $200 million of 5.1% preferred stock, redeemed $150 million of 8.375% preferred stock, and issued $250 million of 4.7% senior debentures due 2043. WPL redeemed $61 million of preferred stock.
- Alliant received a $62.4 million cash grant related to the Franklin County wind project and sold the remaining RMT business in January 2013.
- WPL classified Edgewater Unit 3 and Nelson Dewey Units 1 and 2 as expected early retirements; the remaining net book value was being recovered over 10 years under a PSCW order.
Guidance, outlook, commentary, risks, and unusual items
- IPL expected 2014 weather-normalized retail electric sales to increase 1% to 2%; WPL expected relatively flat sales. Purchased electric capacity expense was expected to decline materially in 2014 as the existing DAEC PPA and Kewaunee PPA expired or were replaced.
- IPL planned an Iowa electric rate case in late March 2014, with potential refunds if rates were reduced. WPL planned a Wisconsin rate filing in late March 2014; its electric and gas base rates were frozen through 2014, subject to specified regulatory provisions.
- IPL’s new DAEC PPA covers 431 MW of capacity and energy from February 22, 2014 through December 31, 2025. IPL expected to recover the Iowa retail portion through its fuel-adjustment mechanism.
- IPL expected to begin construction of the approximately 600 MW Marshalltown combined-cycle gas plant in 2014, with estimated total costs capped at $920 million for rate-making purposes and expected commercial operation in 2017, subject to permits and approvals.
- Alliant forecast approximately $3.6 billion of capital expenditures over four years. Planned 2014–2017 expenditures totaled approximately $3.6 billion for the utility business, before certain corporate and non-utility expenditures.
- Planned environmental and generation investments include scrubbers, baghouses, SCR systems, reliability upgrades, gas conversions, and unit retirements. Environmental compliance costs are expected to be material, although management generally expects prudent utility costs to be recoverable through rates.
- IPL agreed to sell its Minnesota electric and natural gas distribution assets for approximately $128 million in aggregate, subject to regulatory approvals and customary adjustments. Closing was expected in the second half of 2014; proceeds were expected to reduce financing needs.
- Key risks include regulatory delays or disallowances, WPL’s rate freeze, environmental rules and litigation, coal and natural-gas availability and prices, transmission-cost increases, construction overruns, weather, customer demand, pension obligations, tax-credit utilization, capital-market access, cyberattacks, storms, and potential early retirements or impairments.
- WPL entered into a Consent Decree requiring emission-control projects, unit retirements or fuel switching, emission limits, approximately $7 million of environmental mitigation projects, and a $2 million civil penalty paid in 2013.
- Unusual items included the $9 million Cash Balance Plan settlement charge, largely offset by reversal of a previously recorded legal-fee reserve; a $7 million regulatory-related credit for IPL’s Minnesota wind project; and discontinued-operations losses of $5.9 million.
- Alliant, IPL, and WPL received unqualified audit opinions, and management concluded that internal control over financial reporting and disclosure controls were effective as of December 31, 2013.
Most important facts for investors to verify
- Reconcile the improvement in 2013 EPS to recurring utility earnings versus tax-related, weather-related, rate-recovery, and other non-recurring items.
- Review the timing, recoverability, and regulatory treatment of the Marshalltown project, environmental-control projects, planned retirements, and WPL’s potential generation investment.
- Assess liquidity against approximately $359 million of 2014 debt maturities, planned capital expenditures, environmental commitments, and the renewal of IPL’s receivables purchase commitment.
- Monitor IPL and WPL rate cases, WPL’s 2014 rate freeze, fuel and transmission cost recovery, and possible changes to authorized returns or customer refunds.
- Evaluate environmental contingencies and future requirements under MATS, CAIR/CSAPR, greenhouse-gas, wastewater, coal-combustion-residual, and cooling-water regulations.
- Verify completion and proceeds of the proposed Minnesota asset sales and any required customer refunds or closing adjustments.
- Review the sustainability of the dividend target given subsidiary dividend restrictions, leverage, capital needs, and dependence on cash distributions from IPL and WPL.
- Assess the merchant exposure and impairment risk of the 99 MW Franklin County wind project, which lacked a long-term power-offtake agreement at year-end.