Alliant Energy Corporation 2014 Q1 Form 10-Q Summary
Business context and reporting period
Combined quarterly report for Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL), covering the three months ended March 31, 2014. The businesses are primarily regulated electric and natural-gas utilities serving Iowa, Wisconsin, and selected Minnesota markets, with an approximately 16% interest in American Transmission Company.
Key financial metrics
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Operating revenues | $952.8 million | $859.6 million | 11% |
| Operating income | $154.2 million | $120.7 million | 28% |
| Income from continuing operations | $110.6 million | $83.1 million | 33% |
| Net income attributable to common shareowners | $108.0 million | $69.9 million | 54% |
| Diluted EPS | $0.97 | $0.63 | 54% |
| Operating margin | 16.2% | 14.0% | Up approximately 2.2 points |
| Net margin attributable to common shareowners | 11.3% | 8.1% | Up approximately 3.2 points |
| Operating cash flow | $293.6 million | $198.6 million | Up $95.0 million |
| Capital expenditures | $173.0 million | $167.3 million | Up $5.7 million |
Electric margins increased 10% to $437.1 million, while gas margins increased 14% to $78.8 million. Retail electric sales volumes rose 7% and retail gas volumes rose 20%, primarily because first-quarter temperatures were 20% to 25% colder than normal. The common dividend declared increased to $0.51 per share from $0.47.
At March 31, 2014, Alliant Energy reported $14.5 million of cash, $3.34 billion of long-term debt including current maturities, $221.3 million of commercial paper, and $779 million of available revolving credit capacity. IPL also had $105 million of available capacity under its receivables program. Consolidated capitalization consisted of approximately 47% common equity, 3% preferred stock, 47% long-term debt, and 3% short-term debt.
Material changes versus the prior comparable period
- Revenue and earnings benefited from unusually cold weather, higher electric and gas demand, and increased weather-normalized retail sales.
- Purchased electric capacity expense declined $32 million, reflecting expiration of the prior Duane Arnold Energy Center power purchase agreement in February 2014 and the Kewaunee agreement in December 2013.
- IPL’s earnings available for common stock increased to $43.4 million from $22.9 million; WPL’s increased to $54.8 million from $42.0 million.
- Preferred-stock redemption charges recorded in Q1 2013 did not recur in Q1 2014, reducing preferred dividend requirements by $8 million at the Alliant Energy level.
- Operating cash flow increased substantially, partly because of higher receivables-sale activity, lower purchased-capacity payments, reduced fuel inventories, and a $26 million final payment related to the Whiting Petroleum tax-sharing agreement.
- Investing cash flow was comparatively weaker than Q1 2013 because the prior-year period included a $62.4 million cash grant for the Franklin County wind project.
- Alliant Energy’s regulatory assets totaled approximately $1.42 billion at March 31, 2014. WPL recorded $10 million of deferred fuel-related costs expected to fall outside its approved recovery bandwidth.
Guidance, outlook, commentary, and risks
- IPL filed a settlement proposing to extend its Iowa electric base-rate freeze through 2016 and provide customer billing credits of $70 million in 2014, $25 million in 2015, and $10 million in 2016. IUB approval was expected in Q2 2014.
- WPL filed a rate request proposing a $5 million annual gas-rate decrease beginning January 1, 2015, followed by a gas-rate freeze through 2016, and maintenance of current electric base rates through 2016. PSCW approval was expected in Q2 2014.
- WPL’s environmental compliance program requires major emission-control investments and certain generating-unit fuel switches or retirements. Recovery of material Consent Decree costs remains subject to future regulatory proceedings.
- The Supreme Court’s April 2014 CSAPR decision creates potential future compliance obligations; the timing, final requirements, and capital costs remain uncertain.
- WPL expected approximately $10 million of annual costs from a MISO system-support-resource allocation, although a PSCW complaint could reduce the amount.
- IPL’s Minnesota electric and gas distribution asset sales were expected to close in the second half of 2014, pending regulatory approvals.
- Key risks include regulatory rate recovery and rate freezes, weather variability, fuel and purchased-power costs, environmental compliance, generation outages, transmission charges, capital-market access, interest rates, tax-credit utilization, litigation, and recovery of regulatory assets.
- Alliant Energy had $347 million of outstanding RMT performance guarantees, primarily expiring in 2014 through 2016. Management had not recorded material liabilities for related warranty claims.
- Alliant Energy disclosed $2.52 billion of minimum future operating purchase commitments, including purchased power, natural gas, coal, and emission allowances.
Most important facts for an investor to verify
- Whether the IUB approved the IPL settlement and the proposed customer billing credits and rate freeze.
- Whether the PSCW approved WPL’s 2015–2016 rate filing and how fuel-related cost recovery was ultimately determined.
- The actual financial impact and timing of environmental-control projects, generating-unit retirements, and future CSAPR requirements.
- Whether unusually cold weather inflated Q1 demand and earnings relative to normalized annual performance.
- The sustainability of cash flow after capital expenditures, dividends, debt maturities, and commercial-paper requirements.
- The outcome and timing of IPL’s Minnesota asset sales and the effect on earnings, rate base, and liquidity.
- Potential exposure from RMT guarantees, manufactured-gas-plant remediation, environmental claims, transmission-cost proceedings, and other contingencies.