Alliant Energy Corp (LNT) 2010 Q1 法說會逐字稿

Thank you for holding, ladies and gentlemen. Welcome to the Alliant Energy's 2010 first quarter earnings conference call. As a reminder, today's call is being recorded. (Operator Instructions.) I would now like to turn the call over to your host, Susan Gille, Manager of Investor Relations at Alliant Energy.

Good morning. I would like to thank all of you on the call and on the webcast for joining us today. We appreciate your participation. With me here today are Bill Harvey, Chairman, President and Chief Executive Officer and Pat Kampling, Executive Vice President, Chief Financial Officer and Treasurer, as well as other members of the senior management team. Following prepared remarks by Bill and Pat we will have time to take questions from the investment community. We issued a news release this morning announcing Alliant Energy's 2010 first quarter earnings. This release as well as supplemental slides that will be referenced during today's call are available on the investors' page of our website at www.alliantenergy.com.

Before we begin I need to remind you that the remarks we make on this call and our answers to your questions include forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include among others matters discussed in Alliant Energy's press release issued this morning and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements. In addition, this presentation contains non-GAAP financial measures. The reconciliation between non-GAAP and GAAP measures are provided in our earnings release which is available on our web site at www.alliantenergy.com. At this point I'll turn the call over to Bill.

Thanks, Sue. Good morning. My comments today will review our first quarter results and provide an update to our capital expenditure projects. Later in the call Pat will discuss our recent rate case filings and other financial matters.

Our 2010 first quarter utility earnings were up $0.15 per share compared to the same period last year, once you exclude the nonrecurring tax items from the first quarters of both years. These first quarter results were in line with our expectations and were primarily driven by positive rate relief, offset somewhat by higher WP&L fuel costs and the anticipated regulatory lag at IPL. Most of the major drivers, which are summarized on the third supplemental slide, were anticipated when we issued guidance in February. As expected IPL experienced $0.07 per share of regulatory lag in the recovery of costs associated with ITC transmission charges and increased depreciation and interest expense primarily driven by the Whispering Willow East wind farm. The $119 million interim rate increase put into effect on March 20th will recover these costs for the remainder of this year as well as earning a return on the investments.

During the first quarter of 2010, WPL under-recovered approximately $9 million of fuel costs resulting in a negative impact of $0.05 per share. Forecasted 2010 MISO and delivered fuel expenses are higher than originally forecasted when the fuel portion of the 2010 rates were set. Thus, WPL broke through the yearly 2% band resulting in a request to increase retail fuel costs by an annualized $9 million or less than a 1% increase to customer bills. We anticipate this interim rate increase will become effective around June 1st and with that assumption we are forecasting that fuel cost recovery will result in a full year negative earnings impact of only $0.01 per share. Supplemental slide 7 details the projected quarterly earnings impact of the Wisconsin fuel clause.

Since the beginning of this year three investor-owned utilities in Wisconsin have filed requests for fuel rate increases. We are very pleased that on April 20th the Wisconsin legislature passed a bill revising utility fuel rules to reduce the regulatory lag experienced when actual annualized fuel costs are projected to be higher or lower than the 2% band around the fuel component of base rates. Although it appears that new rules will not be implemented in time to address this year's operations, we are pleased that the passage of this legislation will set the stage for the Public Service Commission of Wisconsin to promulgate a final fuel rule that is fair to both customers and share owners.

Lets me now discuss sales and the economy. As shown on the last page of the earnings release issued this morning, first quarter retail electric sales were down 3% versus the same period last year. Customer growth was flat for both WP&L and IP&L quarter over quarter. Residential sales were down 5% for both utilities and commercial sales were down 2% for IPL and 1% for WP&L. Industrial sales at each utility were impacted by two significant factors. As shown on supplemental slides 4 and 5, IPL's industrial sales experienced an approximately 4% decline year over year for the first quarter. However, if you remove first quarter 2009 sales to two large customers who placed cogeneration facilities in service in late 2009, from the comparison remaining industrial sales at IPL were up by approximately 6% quarter over quarter.

This increase in adjusted IPL sales was due to one of IPL's largest industrial cogeneration customers experiencing a generator outage as well as increased customer orders, plant expansions and increased ethanol plant production. WPL's first quarter industrial sales declined by approximately 1% when compared to 2009, but when you remove first quarter 2009 sales to customers whose facilities were later closed in 2009, WPL experienced an approximately 1% increase in industrial sales quarter over quarter. I offer these adjusted perspectives on sales to enable you to understand how we assess the health of our remaining customer base.

Based on these results we confirm our guidance assumption that Alliant retail sales will remain relatively flat for 2010 when compared to sales after the second quarter of 2009. Most importantly, I must remind you that current customer rates reflect the appropriate sales volumes when compared to the 2010 forecast.

Now let me shift to the unregulated side. RMT posted a $0.01 loss for the quarter as the slower pace of construction activity in the quarter drove labor utilization rates to low levels. RMT has signed several contracts that are expected to enhance revenue for the rest of the year and is actively bidding on projects that would begin construction in 2011. We expect RMT to deliver on its $0.04 per share commitment for the year and believe it is well positioned to grow earnings in 2011.

Before moving on let me summarize results in the context of the earnings guidance we issued in February. The utility nonregulated and parent guidance ranges remain unchanged. We expect the remainder of 2010 for our utilities to be strong with the implementation of interim-based rates in Iowa and Minnesota and the implementation of interim fuel rates in Wisconsin. I should point out that our earnings guidance for 2010 excludes the $0.06 per share nonrecurring income tax charges that we recorded in the first quarter. Any future nonrecurring income tax charges or operating expense impacts related to recently passed healthcare legislation will also be excluded from non-GAAP results and earnings guidance.

Now, an update on our utility generation plants. Construction activity is progressing at WPL's Bent Tree wind project in Minnesota. This 200-megawatt project is expected to begin commissioning in the last quarter of 2010 and is planned to be fully in service in the first quarter of 2011. As of the end of the first quarter the project has incurred $257 million of capital costs excluding AFUDC. The total cost of Bent Tree is expected to be approximately $460 million dollars excluding AFUDC.

As approved by the Wisconsin Public Service Commission in December of 2009, one half of the construction costs earn a current return on the investment during 2010. WPL will record AFUDC on the other half. Our current and planned wind resources are expected to result in over 10% of WPL's retail sales requirements being sourced from renewable energy by the end of 2011, which will enable us to meet Wisconsin's current RPS standard.

There has been one noteworthy change to our generation plan. In early April WPL announced plans to move forward with an agreement with Wisconsin Electric Power Company to purchase WEC's 25% ownership interest in Edgewater Generating Station Unit No. 5 located in Sheboygan, Wisconsin. Edgewater Unit No. 5 is a 380-megawatt pulverized coal unit which was placed in service in 1985, making this the newest base load unit in WPL's fleet. WPL's purchase of WEC's interest in the plant will add about 95-megawatts of nameplate capacity to WPL's generating portfolio at an estimated cost of $40 million to $45 million.

This -- the transaction is subject to customary closing conditions including regulatory approvals from Wisconsin, Michigan and the FERC as well as the approval from the Public Service Commission of Wisconsin of the proposed installation of an SCR at that facility. It is expected the sale will be finalized and the assets will be transferred by the end of 2010. We have not yet reflected this additional expenditure in our existing capital guidance.

Turning to environmental matters we continue to build on our commitment to reduce SO2, NOx, and mercury emissions. In June 2010 we plan to complete our first large scale environmental control project with a commissioning of selective catalytic reduction equipment and a baghouse at IPL's 270-megawatt Lansing Unit No. 4. This project is estimated to cost approximately $190 million.

In Wisconsin we expect the Public Service Commission of Wisconsin to issue an order in the next couple of weeks on our proposal to install SCR equipment at Edgewater Unit 5. We currently estimate 100% of the capital expenditure for this project to be $153 million and the SCR is expected to be in service in 2012.

Sometime in the second quarter we expect a decision by the Public Service Commission of Wisconsin on the proposed installation of scrubbers at both units of the Columbia Generating Station which we operate but which is co-owned by WPL, Integrys, and MG&E. WPL's estimated share of capital expenditures for this project are approximately $290 million and the scrubbers are expected to be placed in service in 2013.

We continue to explore ways to reduce our carbon footprint and in November 2009 we began biomass test burns at WPL's Nelson Dewey Generating Station in Cassville, Wisconsin. During the test burn process we are examining capabilities to burn various biomass fuels given the current plant configuration. A research and testing exemption permit issued by the Wisconsin Department of Natural Resources allows for burning up to 20% biomass. We're pleased to report that we have satisfactorily conducted biomass test burns to the maximum percentage allowed by the permit. Longer test burns will be required to determine if this level of biomass co-firing is sustainable.

In closing let me recap the takeaways for the first quarter. First, we reaffirm the earnings guidance range provided in February. Second, the generation fleet is expanding with construction under way at the Bent Tree wind farm and the purchase of Wisconsin Electric's 25% interest in the Edgewater 5 Generating Unit and third, we are satisfied with the progress we're making concerning the installation of emission control equipment on our largest most efficient coal-fired generating facilities and with the biomass co-firing testing. We appreciate your continued support of our company and at this time I'm going to turn the call over to Pat.

Thanks, Bill and good morning to everyone. As evidenced by Bill's remarks the focus of our capital expenditure plan for 2010 through 2012 reflects our commitment to renewables, environmental controls and reliability. Financing this year's capital plan will involve a combination of internally generated funds, equity infusions to the utilities from existing cash at the parent and a forecasted issuance of up to $400 million of long-term debt at the utilities. Liquidity at the end of the first quarter remains strong totaling over $400 million and was comprised of $140 million of cash and marketable securities, and $273 million of available capacity under our credit facilities. Alliant Energy's $623 million credit facilities do not expire until November 2012.

Cash flow from operations for the first quarter of 2010 was $189 million, a $78 million decrease when compared to the first quarter of 2009. The difference was primarily due to IPL's sale of accounts receivable program which sold $125 million of receivables in the first quarter of 2009 and none in the first quarter of 2010 positively offset by additional cash flows from rate relief.

We are forecasting strong cash flow this year due to rate relief, utilization of the sale of the receivables program at IPL, federal tax initiatives and the absence of any major pension funding. Due to our anticipated ongoing strong cash flow we confirm that our current forecast does not anticipate a need to issue new common equity through 2011. We continue to have an active regulatory calendar in 2010 beginning with our Iowa retail electric rate case filed in March.

Recall that since Iowa uses an historic test year the rate increase will be granted in two phases, with interim rates becoming effective ten days after the filing followed by final rates approximately 10 months later. IPL implemented the interim rate increase of $119 million or 10% on March 20th. These rates are subject to refund with interest if the final rates approved by the IUB are less than that amount. The primary drivers for this request are recovery of ITC transmission service costs, Whispering Willow East wind farm investment and other infrastructure investments.

The final rate request of $163 million also includes recovery of the environmental controls at Lansing that will be placed in service next month. Our request includes a 10.5% return on equity and a capital structure similar to the order received in January. As part of the rate case we have again proposed to implement an automatic adjustment clause for transmission costs from ITC. We are very cognizant that continued rate increases are difficult on our customers especially during these tough economic times.

Thus, we have proposed a cost management plan to ease the rate increase burden on our customers resulting in a total refund of $174 million to customers over a three year period. The source of these refunds are the remaining regulatory liabilities available from the Dwayne Arnold sale and the transmission asset sale and several federal tax initiatives.

Supplemental slide 6 depicts the proposed rate increases as well as how the cost management plan would impact customer rates over time. Since the Iowa Utilities Board needs to approve the plan prior to implementation we could not offer customers those benefits at the time interim rates went into effect. With the implementation of the cost management plan customer rates will go down 4% resulting in a final net increase of 6% over rates that went into effect in January. Rates will then gradually increase to the final rate level over a three year period.

As in the past we plan to work closely with all interested parties to explore a settlement of the case before it is litigated by the Iowa Utilities Board. We are hopeful that settlement discussions commencing during the month of May to reach a final rate increase amount and implement the cost management plan for customers.

Yesterday IPL announced it would be filing a request later this week with the Minnesota Public Utilities Commission to increase its Minnesota retail electric base rates which have not increased since 2005. IPL's request seeks to increase annual revenues by approximately $15 million or 22%. The MPUC has 60 days after IPL's filing to issue a decision on the Company's request to implement interim rates. If the Company's request is approved we expect interim rates to increase annual electric revenues by approximately $14 million or 21% starting in July. Interim rates will remain in effect until the MPUC issues a final decision which is expected in the second quarter of 2011. If the final electric revenues approved by the Minnesota Commission are lower than the interim rate levels, IPL will grant refunds to customers with interest.

Moving on to Wisconsin, last week we filed a limited reopener request to increase 2011 electric retail rates. We have worked closely with the commission staff and interveners to agree on the items that will be reviewed in conjunction with the limited reopener of the most recent rate decision.

The limited reopener addresses three main issues. Return on construction costs and of operating expenses for the Bent Tree wind project, lower expected variable fuel cost and expiring deferred credits. WPL is requesting an increase to annual retail revenues of $35 million, which is a 3.6% increase over current rates.

Again, both key issues in this case have been litigated by the Wisconsin Public Service Commission in the previous case and in fact the PSCW has already approved WPL to recover a return on one half of the average Bent Tree construction work in progress balance for 2010. A decision on this case is expected by the end of 2010 with rates effective in January 2011.

While we certainly can't predict the final outcome of our rate cases we are optimistic that we will be successful in working with the regulators and interveners to produce outcomes that allow our utilities to earn their authorized returns in 2011.

In closing I would like to bring your attention to three items that you should understand in reviewing our 2010 forecasted results. These are pension costs, the impact of summer rates and the effective tax rate. First, as background for pension costs, IPL and WPL capitalize approximately 30% to 40% of their annual pension costs. In 2009 WPL also deferred $12 million of pension costs in accordance with the previous PSCW order. The current PSCW order allows the $12 million to be amortized over a four year period beginning in 2010.

So in 2009 pension costs were $53 million, of which $19 million were capitalized, $12 million were deferred and $22 million were charged to expense. In 2010 pension costs are forecasted to be $32 million of which $11 million are expected to be capitalized and the remaining $20 million to expense including $3 million from the amortization of the deferral. Therefore, the amount of pension costs charged to expense will be consistent between the two years. Supplemental slide 8 provides details regarding the 2009 actual and 2010 projected pension costs.

Secondly, we did benefit slightly in the first quarter from marginally cooler weather but the earnings impacts from weather are greatest during the June to September period due to summer rates that are in place for both utilities. Though rate differences occur by class and usage within classes generally WPL has an approximately 10% premium and IPL has an approximately 20% premium for summer rates. The timing of IPL's interim rates makes this difference even more pronounced this year given that interim rate increase did not occur until late in the first quarter. Therefore, we expect third quarter electric retail revenues to be approximately one third of the total annual electric revenues.

And finally our non-GAAP guidance assumes an effective tax rate of 30%, 24% and 35% for AEC, IPL and WPL respectively. Our first quarter 10-Q will disclose the computed income tax rates based on GAAP financials. The GAAP income tax rates are very different from the non-GAAP assumed effective tax rate since the GAAP results include impacts from the federal healthcare legislation for the first quarter of 2010 and Wisconsin state filing changes in the first quarter of 2009. Supplemental slide 9 provides a walk from GAAP to non-GAAP income tax rates for the first quarter of 2010 and 2009.

We look forward to the opportunity to meet with many of you at the AGA financial forum in two weeks and in other events throughout the course of the year. At this time I will turn the call back over to the operator, Lena, to facilitate the question-and-answer session.

Thank you, Ms. Kampling. At this time the company will open up the call to questions from members of the investment community. (Operator Instructions). And we will go first to Brian Russo with Ladenburg Thalmann.

Hi. Good morning.

Good morning, Brian.

Could you give us a sense of what the industrial sales might have looked like at IPL without that cogeneration outage that you mentioned earlier in the first quarter?

Yes, Brian. I would direct your attention to posted Supplemental slide No. 5.

Yes.

Which in very visual terms shows you the answer to the question that you've asked.

But the additional co-gen for this year, Brian, represented a little less than half of that 6% increase.

Oh, so maybe I misunderstood you. I thought the cogeneration outage led to incremental sales for you in the first quarter.

It did.

Yes, it did.

Okay. And that was about half of the 6.2%?

Correct.

Yes.

Okay. Got you. And then just on RMT could you just talk about maybe the dispersion of the $0.04 annual earnings you expect and maybe talk about the wind development market and the current pipeline.

Yes. The dispersion of the earnings for the Company will certainly be back end loaded. That is, it'll begin to materialize in the second quarter but will be substantially realized in the third and fourth quarters. In terms of what we're seeing in the wind marketplace today certainly there is some project closure activity that has taken place both in terms of number of projects that have actually been inked as well as number of projects that appear to be in the active development stage but it is not robust. It bears no relationship to what we saw in the marketplace in 2009. So if I were to characterize it qualitatively, Brian, I would say it is somewhat more robust than what we saw in the second half of 2009, but not meaningfully more robust, ergo we are sticking with the $0.04 guidance for RMT.

Okay. Thank you.

(Operator Instructions). And we'll go next to James Bellessa with D.A Davidson & Company.

Hey. Good morning, guys. This is actually Michael Bates.

Good morning, Michael.

Your transmission expense was lower than we had expected. Would you be able to give any idea as to what your expectations are for the full year on that line item?

We're thinking.

The transition expense in Wisconsin is relatively flat. In Iowa it is volume based. So it does change quarterly in Iowa, but, again the full cost for the rest of the year will be reflected in interim rates.

Okay. Thank you.

(Operator Instructions). Ms. Gille, there are no further questions at this time.

With no more questions this concludes our call. A replay will be available through May 11th, 2010 at 888-203-1112 for US and Canada or 719-457-0820 for international. Callers should reference conference ID 8244179. In addition, an archive of the conference call and a script of the prepared remarks made on the call will be available on the investor section of the company's web site later today. We thank you for your continued support of Alliant Energy and feel free to contact me with any follow-up questions.