Alliant Energy Corp. 10-Q Summary (Period Ended Sep 30, 2009)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2009, for Alliant Energy Corporation (Alliant Energy) and its primary utility 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, Minnesota, and Wisconsin. The report includes unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2009, compared to the same periods in 2008.
Key Financial Metrics
| Metric (Nine Months Ended Sep 30, 2009) | Amount ($ millions) | Prior Year (2008) |
|---|---|---|
| Operating Revenues | 2,577.9 | 2,799.7 |
| Operating Income | 296.4 | 397.6 |
| Net Income (Loss) Attributable to Common Shareowners | 57.4 | 237.4 |
| Diluted EPS (Continuing Operations) | $0.53 | $2.08 |
| Net Cash Flows from Operating Activities | 590.5 | 415.3 |
| Net Cash Flows Used for Investing Activities | (883.2) | (608.7) |
| Long-Term Debt (excluding current portion) | 2,155.9 | 1,748.3 |
| Cash and Cash Equivalents (Sep 30, 2009) | 176.7 | 346.9 (Dec 31, 2008) |
Third Quarter Specifics: For the three months ended September 30, 2009, Alliant Energy reported a net loss attributable to common shareowners of $44.3 million (EPS of $(0.40)), compared to net income of $108.5 million (EPS of $0.98) in the prior year quarter. This decline was primarily driven by a $202.8 million pre-tax loss on the early extinguishment of debt.
Material Changes vs. Prior Period
- Debt Extinguishment Charge: The most significant variance was a $202.8 million loss on the early extinguishment of Alliant Energy's Exchangeable Senior Notes due 2030. The company repurchased approximately $402.3 million of these notes in September 2009.
- Utility Sales and Margins: Electric sales volumes decreased due to cooler weather (reducing cooling demand) and unfavorable economic conditions impacting industrial customers. Gas revenues declined significantly due to lower natural gas prices and reduced sales volumes.
- Capital Expenditures: Investing cash outflows increased by $275 million year-over-year, driven by construction of wind projects (Whispering Willow-East and Bent Tree), restoration activities following the 2008 Midwest flooding, and emission control projects.
- Tax Benefits: The effective tax rate for the nine months ended September 30, 2009, was negative (-57.7%) due to significant income tax benefits recognized in the first quarter related to Wisconsin tax law changes (SB 62) and changes in state apportionment.
Guidance, Outlook, and Risks
Management Commentary: Management highlighted that utility earnings were impacted by weather and economic conditions but were partially offset by interim rate increases at IPL. Non-regulated earnings (RMT) declined due to reduced wind project construction activity. The company expects to continue investing in wind generation and emission controls to meet regulatory standards.
Regulatory and Strategic Developments:
- Rate Cases: IPL filed a 2009 Iowa retail rate case (revised to seek $146 million increase) and WPL filed a 2010 retail rate case (revised to seek $99 million electric increase). Final decisions are expected in 2010.
- Project Cancellations: IPL cancelled the Sutherland #4 coal-fired plant in March 2009 due to economic and regulatory uncertainty. WPL cancelled the Nelson Dewey #3 project in December 2008.
- Wind Projects: Construction continues on IPL's Whispering Willow-East (expected service late 2009) and WPL's Bent Tree (expected service 2011).
Risks and Contingencies:
- Transmission Costs: IPL faces potential significant increases in transmission service charges from ITC in 2010, estimated at $85-$95 million higher than 2009 levels.
- Environmental Regulations: Uncertainty regarding future greenhouse gas (GHG) regulations (e.g., cap-and-trade) and EPA rules on mercury and coal combustion by-products could require significant capital investments.
- Legal Proceedings: Ongoing litigation includes a shareholder derivative suit regarding the Exchangeable Senior Notes (motion to dismiss filed) and a class action lawsuit regarding the Cash Balance Pension Plan.
- Weather and Economic Conditions: Continued economic recession and weather variability pose risks to sales volumes and margins.
Key Facts for Investor Verification
- Debt Repurchase Impact: Verify the long-term impact of the $202.8 million debt extinguishment charge on 2009 full-year earnings and the resulting tax deferral provisions under the ARRA.
- Transmission Rate Exposure: Monitor the outcome of IPL's regulatory proceedings regarding the proposed 60% increase in 2010 transmission rates from ITC and the potential for cost recovery through rates.
- Wind Project Costs: Track construction costs for the Whispering Willow-East and Bent Tree projects against their regulatory cost caps to assess the risk of un-recoverable costs.
- Regulatory Asset Recovery: Assess the probability of recovering capitalized costs for cancelled projects (Sutherland #4, Nelson Dewey #3) through future rate cases in Iowa and Wisconsin.
- Industrial Sales Trends: Monitor the transition of major industrial customers (e.g., ADM, Roquette) to cogeneration facilities and the resulting permanent reduction in electric sales volumes.