LNT

Alliant Energy Corp. Q1 2010 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2010, for Alliant Energy Corporation 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 providing electric and natural gas services in Iowa, Wisconsin, and Minnesota. The filing includes unaudited condensed consolidated financial statements for the parent company and its utility subsidiaries.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Operating revenues decreased $58.6 million (6.2%) primarily due to lower gas revenues driven by warmer weather and lower natural gas prices, and lower non-regulated revenues.
• Operating Income Increase: Despite lower revenues, operating income increased $35.5 million (48.2%). This was driven by lower fuel and energy purchase costs, higher electric margins due to rate increases, and lower steam operation costs at IPL.
• Net Income Decline: Net income attributable to common shareowners decreased $29.2 million (40.2%). The primary drivers were:
  • A one-time $40.4 million state income tax benefit in Q1 2009 related to Wisconsin combined reporting legislation (SB 62).
  • A $7.1 million deferred income tax expense in Q1 2010 resulting from the Federal Health Care Legislation enacted in March 2010.
  • Higher depreciation and interest expenses due to capital additions in 2009.
• Cash Flow Variance: Operating cash flows decreased $78.4 million, largely due to $125 million in proceeds from the sale of accounts receivable in Q1 2009 (which did not occur in Q1 2010) and higher payments for electric transmission services.

Guidance, Outlook, and Risks

• Rate Matters:
  • IPL: Implemented an interim retail electric rate increase of $119 million (approx. 10%) in March 2010, subject to refund. Filed a request for a final increase of $163 million (approx. 14%).
  • WPL: Implemented retail rate increases effective Jan 1, 2010. Filed a request in April 2010 to increase rates by $35 million (approx. 4%) effective Jan 1, 2011, and a separate request to recover $9 million in fuel costs.
• Strategic Projects:
  • Bent Tree Wind Project (WPL): Construction began in April 2010. Capitalized expenditures reached $257 million as of March 31, 2010.
  • Lansing Unit 4 (IPL): Emission control projects (SCR and baghouse) are underway, expected to be completed in Q2 2010.
  • Edgewater Unit 5: WPL is in the process of purchasing WEPCO's 25% interest, subject to regulatory approval.
• Legislative and Regulatory Risks:
  • Health Care Legislation: Enacted in March 2010, reducing tax deductions for retiree health care costs starting in 2013, resulting in immediate deferred tax expense.
  • Environmental Compliance: Significant future capital expenditures are anticipated for emission controls (NOx, SO2, Mercury) and potential GHG regulations. WPL faces potential penalties and injunctive relief regarding air permitting violations at Nelson Dewey, Columbia, and Edgewater facilities.
  • Transmission Costs: IPL faces increased transmission service costs from ITC, estimated to be $80-$90 million higher in 2010 than 2009.
• Liquidity: As of March 31, 2010, the company held $140.2 million in cash and cash equivalents with $273 million in available credit facility capacity.

Investor Verification Checklist

• Rate Case Outcomes: Monitor the final approval of IPL's $163 million rate increase request and WPL's $35 million request, as these are critical for future margin recovery.
• Health Care Legislation Impact: Verify the long-term impact of the Federal Health Care Legislation on tax deductions and future benefit costs beyond the initial Q1 2010 charge.
• Environmental Litigation: Track the status of the EPA and Sierra Club claims regarding air permitting violations at WPL's generating stations, as adverse outcomes could result in significant penalties and capital expenditures.
• Transmission Cost Recovery: Confirm the regulatory approval of IPL's proposed automatic adjustment clause for electric transmission service costs to ensure full recovery of the estimated $80-$90 million increase in 2010.
• Capital Project Execution: Monitor the progress and cost overruns of the Bent Tree wind project and Lansing Unit 4 emission controls, which represent significant construction work in progress.