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Morningstar | Alliant Energy Ends Duane Arnold PPA Early, Reports 2Q Earnings

We are reaffirming our $38 value estimate after Alliant Energy reported second-quarter operating earnings per share of $0.43, up from $0.41 in the same year-ago period. Management reaffirmed 2018 EPS guidance of $2.04-$2.18, consistent with our expectations.

During the quarter, Alliant entered into an agreement to amend its power purchase agreement with the nuclear Duane Arnold Energy Center. The agreement ends the PPA five years early, in December 2020, with a one-time $110 million payment. Alliant expects customer savings of approximately $300 million; the energy needs will be replaced by over 300 megawatts of wind PPAs beginning in 2020 and 2021.

We expect full recovery of the one-time payment and thus no fair value estimate impact. This supports Alliant Energy's march toward renewable investments and bodes well for further renewable development in Iowa. Interstate Power and Light has regulatory approval for all of its planned 1,000 MW of wind generation. Iowa continues to offer some of the best regulatory treatment for wind investments, which is important as the company aims to reduce carbon emissions 80% by 2050 and have one third of its generation from renewables by 2030.

Management also reached a constructive settlement for Wisconsin Power and Light electric and gas base rates through 2020, reaffirming our view that Wisconsin is one of the best regulatory environments for utilities. Revenue increases were offset by fuel and tax reform savings, limiting customer impact. The agreement allows for recovery of the West Riverside Generating Facility and calls for a 10% allowed return on equity, which is above its utility peers. The agreement was in line with our expectations.

In the quarter, earnings were boosted by warmer-than-normal weather, partially offset by higher depreciation from capital investments and operating expense.