Alliant Energy Corporation 2011 Q3 Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly filing for Alliant Energy Corporation and wholly owned utility subsidiaries Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL), covering the three and nine months ended September 30, 2011, compared with the corresponding 2010 periods. Alliant Energy operates regulated electric and natural gas utilities in Iowa, Wisconsin and Minnesota, owns a 16% interest in American Transmission Company, and conducts non-regulated activities primarily through RMT and non-regulated generation.
Key financial metrics
| Alliant Energy consolidated | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Operating revenues | $1,021.6 million | $951.7 million | $2,786.1 million | $2,583.5 million |
| Operating income | $185.1 million | $246.6 million | $384.9 million | $456.3 million |
| Income from continuing operations | $125.9 million | $155.5 million | $259.6 million | $256.3 million |
| Net income attributable to common shareowners | $122.0 million | $149.1 million | $246.6 million | $240.3 million |
| Diluted EPS | $1.10 | $1.37 | $2.23 | $2.17 |
| Operating margin | 18.1% | 25.9% | 13.8% | 17.7% |
Revenue growth was driven primarily by substantially higher RMT project activity and non-regulated revenue, which increased to $162.5 million in the third quarter and $360.1 million for nine months. RMT incurred significant related costs, including a $20 million third-quarter charge for subcontractor problems on solar projects.
- Electric margins were $501.4 million in Q3, down 3%, and $1,242.5 million for nine months, up 3%.
- Gas margins were $26.6 million in Q3, essentially flat, and $131.5 million for nine months, up 4%.
- Net cash from operating activities was $612.7 million for nine months, down from $695.6 million.
- Capital expenditures and acquisitions used $526.3 million of cash, including $480.2 million for utility projects and $46.1 million for non-regulated and corporate activities.
- Cash used in financing was $219.9 million, including $141.1 million of common dividends and $40.0 million to redeem IPL preferred stock.
- Cash and cash equivalents declined to $45.7 million from $159.3 million at December 31, 2010.
- At September 30, consolidated long-term debt, including current maturities, was $2,705.0 million; commercial paper outstanding was $22.1 million. Debt represented approximately 45.5% of consolidated capitalization.
- Available revolving credit capacity was $600.9 million, and IPL had $45 million of remaining receivables-sale capacity.
Material changes versus the prior comparable period
- Third-quarter common earnings fell 18% and diluted EPS declined to $1.10 from $1.37, despite higher consolidated revenue. The decline primarily reflected RMT losses, lower utility operating income, and the absence of favorable 2010 IRS audit benefits.
- Nine-month common earnings increased 3% and diluted EPS increased to $2.23 from $2.17, helped by lower income taxes and higher utility earnings, partly offset by non-regulated losses.
- Utility earnings improved in Q3 by $0.03 per share, principally due to IPL’s tax benefit rider, WPL rate increases, favorable weather and lower WPL purchased-capacity costs.
- IPL’s Q3 earnings available for common stock increased to $98.3 million from $96.8 million, while nine-month earnings declined to $117.7 million from $120.0 million. IPL’s effective tax rate was negative 3.3% for Q3 and negative 1.7% for nine months, largely due to the tax benefit rider.
- WPL’s Q3 earnings available for common stock increased to $50.6 million from $49.2 million, and nine-month earnings increased to $118.3 million from $114.7 million. Bent Tree wind-project depreciation and operating costs partially offset rate-related benefits.
- Regulatory assets increased to approximately $1.30 billion from $1.14 billion at year-end, while regulatory liabilities increased to approximately $904 million from $800 million, primarily due to tax-method changes, rate-case actions, environmental items and cost-recovery mechanisms.
Guidance, outlook, risks and unusual items
- Management expected 2012 utility operating and maintenance expense to decline through cost controls and restructuring, but expected depreciation and AFUDC to increase because of recent and planned capital additions.
- WPL requested an annual $20 million retail rate increase effective January 1, 2012 for higher fuel and environmental-compliance costs. The filing reflected the expected impact of EPA’s Cross-State Air Pollution Rule (CSAPR).
- Alliant Energy planned approximately $690 million of 2011 capital expenditures and $1.19 billion in 2012, including environmental compliance, generation projects and other utility investment. Planned 2011–2015 environmental expenditures totaled approximately $975 million.
- The company expected significant future costs from CSAPR, the proposed Utility MACT rule, cooling-water regulations and other environmental requirements. Such costs could lead to facility modifications or early retirements.
- IPL was evaluating a 600 MW natural-gas facility expected to cost $650 million to $750 million and enter service in 2016 or later. WPL was evaluating acquisition of Riverside or a similar gas facility in late 2012.
- IPL recorded an $8 million impairment for probable non-recovery of Minnesota retail costs associated with the Whispering Willow-East wind project. WPL recorded a $5 million impairment for an undeveloped wind site.
- CSAPR caused a $22.7 million impairment of IPL emission allowances and $34 million of charges related to SO2 allowance forward contracts. Approximately $30 million of the latter was recorded as a regulatory asset; $4 million affected earnings.
- RMT recorded $20 million of additional operating costs related to a subcontractor dispute and project delays. RMT sued the subcontractor and posted $7 million of bonds related to subcontractor liens.
- WPL faced Sierra Club and EPA claims regarding alleged Clean Air Act permitting violations at Edgewater, Nelson Dewey and Columbia. Potential penalties, pollution-control requirements, operating restrictions or retirements could be significant, but no loss was accrued because the outcome was not probable and reasonably estimable.
- The Cash Balance Pension Plan class action could result in approximately $6 million of damages after offsets, excluding attorneys’ fees and costs. No liability was recognized; the final outcome remains uncertain.
- Moody’s changed the credit outlooks of Alliant Energy, IPL and WPL from stable to negative. Management stated that liquidity was sufficient to meet current obligations and strategic plans, but access to capital markets and credit ratings remained important.
- Alliant Energy estimated 2011 production tax credits of $22 million to $25 million and 2012 credits of $25 million to $28 million from specified wind projects.
Most important facts for investors to verify
- Whether RMT’s project execution, subcontractor dispute and working-capital requirements produce additional losses or cash needs.
- Final resolution and recoverability of IPL’s Whispering Willow-East costs and the related Minnesota rate case.
- Regulatory treatment and customer recovery of the IPL tax benefit rider, including the pending IRS audit of repairs and mixed-service-cost deductions.
- Final environmental rules, capital requirements and potential generation retirements associated with CSAPR, Utility MACT, Section 316(b) and Clean Air Act litigation.
- WPL’s 2012 fuel-rate proceeding and the recovery of 2011 fuel under-collections.
- Liquidity, refinancing requirements and credit-rating impacts given the low cash balance, negative Moody’s outlook and planned capital expenditures.
- Potential liability from the Cash Balance Pension Plan litigation, environmental claims, guarantees and the Riverside power purchase agreement, for which maximum exposure was described as undeterminable.