Alliant Energy Corporation 2016 Form 10-K Summary
Business context and reporting period
Combined Form 10-K for Alliant Energy Corporation, Interstate Power and Light Company (IPL), and Wisconsin Power and Light Company (WPL), covering the fiscal year ended December 31, 2016. Alliant Energy is a regulated utility holding company serving approximately 960,000 electric and 410,000 natural gas customers in Iowa, Wisconsin and selected wholesale markets. The filing excludes discontinued operations unless otherwise noted.
Key financial metrics
| Alliant Energy consolidated | 2016 | 2015 | Change |
|---|---|---|---|
| Operating revenues | $3,320.0 million | $3,253.6 million | Up 2.0% |
| Operating income | $537.0 million | $577.0 million | Down 6.9% |
| Income from continuing operations attributable to common shareowners | $373.8 million | $380.7 million | Down 1.8% |
| Net income attributable to common shareowners | $371.5 million | $378.2 million | Down 1.8% |
| Diluted EPS | $1.64 | $1.68 | Down $0.04 |
| Operating margin | Approximately 16.2% | Approximately 17.7% | Compressed |
| Cash flow from operating activities | $859.6 million | $871.2 million | Down 1.3% |
| Construction and acquisition expenditures | $1,196.8 million | $1,034.3 million | Up 15.7% |
| Total assets | $13,373.8 million | $12,495.2 million | Up 7.0% |
| Long-term debt, net | $4,315.6 million | $3,522.2 million | Up 22.5% |
Electric utility revenues increased to $2,875.5 million from $2,770.5 million. Electric margins increased 3% to $1,493.6 million, supported by higher revenues, weather-related sales effects and lower IPL customer billing credits, partly offset by higher transmission costs. Gas revenues declined 7% to $355.4 million, while gas margins declined approximately 1% to $161.1 million, primarily reflecting milder heating conditions and lower volumes.
Alliant Energy generated $859.6 million of operating cash flow against $1,186.5 million of investing cash outflows. Year-end cash and cash equivalents were $8.2 million. Available revolving-credit capacity was approximately $756 million, supplemented by $129 million of available capacity under IPL's receivables program.
At December 31, 2016, total revolving credit facilities were $1.0 billion and commercial paper outstanding was $244.1 million at Alliant Energy and $52.3 million at WPL. Debt-to-capital ratios were 53% for Alliant Energy, 47% for IPL and 49% for WPL, below the applicable 65% covenant ceiling. Investment-grade ratings had stable outlooks.
Material changes versus the prior comparable period
- Net income declined modestly despite higher utility earnings, primarily because of an $86.4 million pre-tax, non-cash asset valuation charge related to the Franklin County wind farm. The charge reduced after-tax earnings by approximately $51 million, or $0.23 per share.
- Utilities, ATC and Corporate Services earnings increased to $420.4 million from $374.5 million, while non-regulated and parent activities shifted to a $46.6 million loss from $6.2 million of income.
- Electric margins increased $46.1 million, or approximately 3%, while electric transmission service expense increased $42.6 million, or approximately 9%.
- Operating cash flow decreased slightly as collections from IPL retail customers weakened, past-due accounts increased and cash collateral balances changed.
- Capital spending increased materially, reflecting IPL's Marshalltown project, WPL's Riverside expansion, wind development and electric and gas distribution infrastructure.
- Long-term obligations, net increased to $4.325 billion from $3.837 billion. IPL issued $300 million of 3.7% senior debentures due 2046, and AEF entered into a $500 million variable-rate term loan.
- WPL's investment in American Transmission Company was transferred to Alliant Energy subsidiary ATI on December 31, 2016, reducing WPL equity by $163.6 million but producing no consolidated Alliant Energy income-statement impact.
- Alliant Energy completed a two-for-one common stock split in May 2016. Historical per-share amounts were restated for the split.
Guidance, outlook, commentary and unusual items
- Management expected 2017 electric margins to increase because of WPL's approved rate increases and IPL's planned retail electric rate case, which was expected to be filed in the second quarter of 2017.
- WPL's approved 2017/2018 rate order provided annual retail electric and gas increases of approximately $9 million each, effective January 1, 2017, with a 10.0% authorized return on common equity and earnings-sharing provisions above specified thresholds.
- Alliant Energy expected to issue up to $150 million of common stock in 2017. IPL and WPL expected to receive approximately $150 million of parent capital contributions in aggregate and expected to issue up to $250 million and $300 million, respectively, of long-term debt.
- The targeted 2017 annual common dividend was increased to $1.26 per share, or $0.315 quarterly. Management's long-term payout-ratio goal was approximately 60% to 70% of continuing-operations earnings.
- IPL expected to place the approximately 650 MW Marshalltown natural-gas combined-cycle facility in service in April 2017, with estimated project costs of approximately $670 million excluding transmission upgrades and AFUDC.
- WPL expected to place the approximately 730 MW Riverside expansion in service in early 2020. WPL's estimated share of project costs was approximately $640 million, excluding transmission upgrades and AFUDC.
- IPL received approval for up to 500 MW of additional wind generation, expected to enter service in 2019 and 2020. IPL and WPL were also evaluating up to 200 MW each of additional wind generation.
- Management expected no significant federal income tax payments through 2021 based on net operating loss and tax-credit carryforwards and anticipated bonus depreciation, although state taxes, tax audits, tax reform and changes in taxable income could alter this outlook.
- FERC had ordered refunds related to MISO transmission-owner return-on-equity complaints. Alliant Energy expected to receive approximately $51 million in the first quarter of 2017, subject to final true-up, with related customer refunds or regulatory treatment.
Principal risks and contingencies
- Regulatory risk is significant: the utilities depend on timely rate relief and recovery of fuel, transmission, environmental, pension, tax and capital costs.
- Large construction programs face permitting, cost-overrun, contractor, schedule, reliability and transmission-upgrade risks. Recovery of costs above regulatory caps is not assured.
- Environmental compliance remains material, including CSAPR, coal-combustion residuals, wastewater requirements, consent decrees and uncertain greenhouse-gas regulations. Planned retirements and fuel switching may change depending on MISO and regulatory approvals.
- Demand and margins are sensitive to weather, economic conditions, energy efficiency, customer-owned generation, municipalization and the loss or termination of wholesale power contracts.
- Transmission costs and ATC earnings remain exposed to FERC return-on-equity proceedings and formula-rate changes.
- Commodity prices, fuel availability, purchased power costs and transmission congestion may affect margins, particularly WPL retail electric margins, which have less immediate fuel-cost recovery.
- IPL's receivables program and customer collections warrant monitoring. Past-due receivables increased, and the filing noted that implementation of the new billing system postponed some write-offs during 2016.
- Alliant Energy had $75 million of RMT performance guarantees outstanding, generally expected to expire in 2017, and an uncapped guarantee related to certain former Whiting Petroleum partnership obligations. The estimated present value of related abandonment obligations was $31 million.
- Environmental liabilities for former manufactured-gas-plant sites were estimated at $16 million for Alliant Energy, with IPL's estimated future costs ranging from $12 million to $24 million. Management expected recovery through rates, but future estimates may increase.
- Cybersecurity, infrastructure failures, storms, workforce negotiations, pension funding, tax-law changes and access to capital markets could materially affect results.
Most important facts for investors to verify
- Reconcile the $86.4 million Franklin County wind-farm charge with the expected 2017 transfer to IPL and the eventual amount allowed in IPL's rate case.
- Track completion, final cost and rate recovery for Marshalltown, Riverside, the approved wind program and major environmental-control projects.
- Review IPL's expected 2017 rate filing, approved interim rates and treatment of Sutherland's remaining book value.
- Monitor FERC decisions and refunds on the MISO transmission-owner return-on-equity complaints, including customer-refund obligations.
- Assess leverage, refinancing needs and liquidity before the $856 million of consolidated debt maturities expected in 2018.
- Evaluate the sustainability of cash flow after capital expenditures, dividends and planned debt and equity financing.
- Monitor customer arrears, receivables-sale capacity and the performance of the new billing and information system.
- Review environmental compliance costs, consent-decree milestones, coal-plant retirements and the eventual status of greenhouse-gas regulation.