Alliant Energy Corporation 2014 Q3 Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly report for Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL), covering the three and nine months ended September 30, 2014. Alliant Energy is a regulated utility holding company serving Iowa, Wisconsin, and portions of Minnesota through electric and natural gas operations, with additional interests in transmission and non-regulated businesses.
Key financial metrics
| Alliant Energy consolidated | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Operating revenues | $843.1 million | $866.6 million | $2,546.2 million | $2,444.2 million |
| Operating income | $194.8 million | $201.4 million | $452.3 million | $425.3 million |
| Income from continuing operations | $157.8 million | $161.5 million | $333.0 million | $313.0 million |
| Net income attributable to common shareowners | $153.3 million | $157.6 million | $323.1 million | $292.8 million |
| EPS | $1.38 | $1.42 | $2.92 | $2.64 |
| Dividends declared per share | $0.51 | $0.47 | $1.53 | $1.41 |
Consolidated operating margin was approximately 23.1% in the third quarter and 17.8% for the first nine months. Net margin was approximately 18.5% and 13.0%, respectively. The filing does not present adjusted or normalized earnings measures beyond management’s segment EPS discussion.
- Electric margins increased 1% to $540.4 million in Q3 and 6% to $1.407 billion for nine months. Nine-month improvement primarily reflected the expiration of the previous DAEC and Kewaunee purchased-capacity arrangements.
- Gas margins were essentially unchanged at $25.4 million in Q3 and increased 5% to $136.1 million for nine months, supported by colder first-quarter weather and higher gas sales.
- Cash flow from operating activities was $763.9 million for nine months, versus $643.1 million in 2013.
- Capital expenditures were $632.5 million for nine months, including $587.4 million for utility construction and acquisitions, compared with $560.3 million and $524.4 million, respectively, in 2013.
- September 30 cash and cash equivalents were $11.0 million. Available revolving credit capacity was $646 million, and IPL had $142 million of additional availability under its receivables program.
- Consolidated long-term debt, including current maturities, was $3.292 billion; commercial paper was $353.8 million. Common equity was $3.436 billion, representing 47% of the reported capitalization structure.
Material changes versus the prior comparable period
- Third-quarter revenue declined 3%, while net income attributable to common shareowners declined 3% and EPS declined from $1.42 to $1.38. Cooler-than-normal summer weather reduced electric sales, and IPL recorded $26 million of Iowa retail electric billing credits.
- Nine-month revenue increased 4%, net income attributable to common shareowners increased 10%, and EPS increased 11%. The improvement included lower purchased-capacity costs, higher gas margins, tax benefits, and lower preferred-dividend charges following 2013 preferred-stock redemptions.
- Retail electric sales decreased 2% in Q3 but increased 2% for nine months. Third-quarter cooling degree days were approximately 20% below normal.
- Operating cash flow increased $121 million, primarily from lower purchased-capacity payments, changes in fuel inventories, and a $26 million final tax-sharing payment from Whiting Petroleum.
- Investing cash outflows increased $127 million, reflecting higher construction spending and the absence of a $62 million Franklin County wind-project cash grant received in 2013.
- Regulatory assets increased to $1.524 billion from $1.413 billion at year-end 2013, including tax-related items, pension and OPEB costs, asset-retirement obligations, and deferred fuel-related costs.
Guidance, outlook, risks, contingencies, and unusual items
- IPL’s Iowa retail electric base-rate freeze was extended through 2016, with $105 million of aggregate customer billing credits targeted through 2016. WPL’s Wisconsin electric and gas base rates were generally frozen through 2016; WPL’s gas rates were scheduled to decline by $5 million annually beginning January 1, 2015.
- WPL requested a $55 million, or approximately 5%, 2015 electric fuel-related rate increase, including recovery of projected 2014 under-collections. A decision was expected by year-end 2014.
- Management expected modest growth in weather-normalized retail electric sales in 2015. Purchased electric-capacity expense was expected to decline in 2015, while depreciation, interest expense, and AFUDC were expected to increase because of new capital projects and financings.
- IPL was constructing the approximately 650 MW Marshalltown natural-gas combined-cycle facility, expected to enter service in the second quarter of 2017. WPL planned to seek approval for the approximately 650 MW Riverside expansion, with estimated construction costs of approximately $725 million to $775 million, excluding transmission upgrades and AFUDC.
- Major environmental projects included completed scrubbers and baghouses at WPL’s Columbia units, ongoing controls at IPL’s Ottumwa Unit 1 and WPL’s Edgewater Unit 5, and planned SCR controls at Columbia Unit 2. Future environmental compliance costs could be significant, particularly from CSAPR, greenhouse-gas rules, and other air and water regulations.
- IPL expected to complete the sale of its Minnesota natural-gas distribution assets by March 31, 2015, subject to final regulatory approval and other contingencies. Expected proceeds were approximately $10 million, subject to closing adjustments.
- Alliant Energy had $313 million of outstanding RMT performance guarantees, with expirations generally scheduled through 2016. The company had not recorded material liabilities for related warranty claims because material losses were not considered probable and reasonably estimable.
- Alliant Energy reported $2.438 billion of minimum future operating expense purchase commitments, principally for purchased power, natural gas, coal, and emission allowances.
- Pending matters included flood-damage litigation, environmental remediation at manufactured-gas-plant sites, WPL’s Consent Decree obligations, FERC proceedings affecting transmission-owner returns and rates, and potential impacts from distributed generation and wholesale contract terminations.
- Subsequent to quarter-end, WPL issued $250 million of 4.10% debentures due 2044, and Alliant Energy entered into a $250 million variable-rate term loan used to retire $250 million of senior notes. Management later announced an intended 2015 common dividend target of $2.20 per share.
Most important facts for investors to verify
- Whether IPL’s extended rate freeze and customer billing credits, and WPL’s rate freezes, affect 2015–2016 earnings and cash generation.
- The timing, final cost, regulatory recovery, and construction risk associated with Marshalltown, Riverside, and environmental-control projects.
- The company’s ability to fund substantial capital requirements while maintaining liquidity, credit metrics, and the stated dividend objectives.
- The ultimate financial effects of CSAPR, greenhouse-gas regulation, the WPL Consent Decree, and other environmental requirements.
- The outcome and potential refunds associated with FERC proceedings on MISO transmission-owner returns and Attachment “O” rates.
- The collectability and exposure associated with IPL’s receivables-sale program, guarantees, warranty claims, environmental liabilities, and other contingencies.
- Whether weather-normalized sales, fuel costs, transmission expenses, and tax benefits support management’s 2015 outlook.