Alliant Energy Corp. 10-Q Summary: Quarter Ended September 30, 2008
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2008, for Alliant Energy Corporation (Alliant Energy) and its primary subsidiaries, Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL). Alliant Energy is an investor-owned public utility holding company operating in Iowa, Minnesota, and Wisconsin. The filing includes unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2008, compared to the same periods in 2007.
Key Financial Metrics
| Metric (in millions) | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Operating Revenues | $980.3 | $2,799.7 |
| Operating Income | $190.5 | $397.6 |
| Net Income | $108.5 | $237.4 |
| Earnings Per Share (Diluted) | $0.98 | $2.15 |
| Cash and Cash Equivalents | $379.4 | $379.4 (Balance Sheet) |
| Net Cash from Operating Activities | N/A | $401.3 |
| Long-Term Debt (excl. current) | $1,255.1 | $1,255.1 (Balance Sheet) |
| Capitalization (Debt/Equity Mix) | 33.0% Debt / 60.3% Equity | 33.0% Debt / 60.3% Equity |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 8.1% for the nine months ended September 30, 2008, compared to 2007, driven by higher gas revenues and non-regulated business growth.
- Net Income: Net income for the nine months increased 2.3% to $237.4 million, despite significant headwinds from severe weather.
- Operating Expenses: Electric transmission service expenses increased significantly ($71 million for the nine months) due to charges from ITC following the sale of IPL's transmission assets in late 2007. However, depreciation and amortization expenses decreased due to the asset sale and updated depreciation rates at WPL.
- Weather Impact: Severe flooding in June 2008 in Cedar Rapids, Iowa, caused significant damage to IPL facilities (Prairie Creek and Sixth Street Generating Stations). This resulted in estimated utility plant retirements of $80 million and incremental operating expenses of approximately $40 million, partially offset by insurance recoveries.
- Discontinued Operations: The company recorded a net income of $8.4 million from discontinued operations for the nine months ended September 30, 2008, primarily due to tax benefits related to the sale of the Mexico business and other divestitures.
Guidance, Outlook, and Risks
Management Commentary and Outlook: Management estimates the total cost of the June 2008 severe weather to be between $200 million and $250 million for 2008. They anticipate a decrease in 2008 utility earnings of approximately $0.20 per share due to the flooding. Capital expenditures for 2008 are expected to increase by approximately $90 million for restoration activities. The company expects to recover a portion of these costs through insurance (up to $100 million coverage) and regulatory mechanisms.
Key Risks and Contingencies:
- Legal Proceedings (Resources Default): Alliant Energy and its subsidiary Resources received a notice of default regarding $402.5 million in Exchangeable Senior Notes due 2030. The trustee alleges a default occurred due to an asset transfer. Alliant Energy disputes this and is defending the claim. If an "Event of Default" occurs, the notes could be declared immediately due and payable, potentially triggering cross-defaults in credit facilities.
- Regulatory and Environmental: The vacatur of the Clean Air Interstate Rule (CAIR) by the D.C. Circuit Court in July 2008 created uncertainty regarding future emission allowance values and compliance costs. The company is monitoring potential impacts on forward contracts for NOx allowances.
- Transmission Rates: IPL faces a potential 62.3% increase in electric transmission service charges from ITC in 2009, which could materially impact future earnings if not recovered through rates.
- Pension Assets: Decreases in the fair value of pension and other postretirement benefits plan assets may lead to materially higher benefit costs in 2009.
Investor Verification Checklist
- Flood Recovery Status: Verify the timeline for the return to service of the Prairie Creek and Sixth Street Generating Stations and the finality of insurance claim settlements.
- Resources Litigation: Monitor the status of the lawsuit regarding the alleged default on the $402.5 million Exchangeable Senior Notes and any potential cross-default triggers.
- Transmission Rate Approval: Track regulatory proceedings regarding IPL's ability to recover the proposed 2009 transmission rate increase from ITC.
- Environmental Compliance Costs: Review updates on the finalization of multi-emissions compliance plans (Mercury, NOx, SO2) in light of the CAIR vacatur and new state/federal rules.
- Capital Expenditure Execution: Confirm progress on major generation projects, specifically the Whispering Willow-East wind farm (IPL) and Cedar Ridge wind farm (WPL), and their associated cost caps.