Alliant Energy Corp (LNT) 2010 Q3 法說會逐字稿

Welcome to the Alliant Energy's 2010 third quarter earnings conference call. At this time, all lines are in a listen-only mode. As a reminder, today's call is being recorded. I would now like to turn your call over to your host, Ms. Susan Gille, Manager of Investor Relations for Alliant Energy.

Good morning. I would like to thank all of you on the call and 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 and Chief Financial Officer, 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 third quarter earnings. This release as well as supplemental slides that will be referenced during today's call are available on the investor page of our website at www.alliantenergy.com. Before we begin, I need to remind you the remarks we make on this call and our answers to 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 website at www.alliantenergy.com. At this point I will turn the call over to Bill.

Thank you, Sue, and good morning, everyone. My comments today will review our third quarter results and provide updates to our 2010 earnings guidance and our utility generation plan. Later in the call Pat will discuss our liquidity position, pending rate case filings, and environmental matters. Third quarter ongoing earnings were up $0.55 per share compared to the same period last year after excluding the non-GAAP adjustments from the third quarter of both years. Third quarter results were higher than our expectations, primarily due to favorable weather. Other contributing drivers in our quarter-over-quarter earnings growth were positive rate relief, offset by higher transmission service expenses, higher depreciation and operating expenses, primarily due to placing the Whispering Willow - East Wind Farm project into service in late 2009, and lower wind construction work in progress balances.

The third quarter is always a significant quarter for our Company. We are projected to generate approximately 48% of our annual earnings in the third quarter of 2010. Summer rates, warm temperatures, and interim rates at IP&L all contributed to this earning pattern, making the 2010 third quarter even more significant than in prior years. The 2010 non-GAAP adjustment includes a total of $0.06 per share of income from the completion of federal income tax audits for the period 2005 through 2008. The third quarter 2009 non-GAAP adjustment includes a $1.16 per share charge from the tender offer for exchangeable senior notes. Third quarter overall retail electric sales were up 11% with residential sales increasing 18% versus the same period last year.

Supplemental slide five provides the current projected annual sales growth from 2009 to 2010 for each of our utilities customer classes. The 2010 forecasted information includes nine months of actual sales and three months of weather normalized sales projections. 2009 and projected 2010 weather normalized retail sales comparisons are provided in supplemental slide six. Normalizing sales shows that 2010 residential sales are projected to be down versus last year. Industrial sales at each utility continued to rebound, albeit slowly. Both utilities experienced a 5% increase in industrial sales year-over-year for the third quarter after weather impact were removed.

Year to date IPL and WPL weather normalized industrial sales are up approximately 2% and 1%, respectively. Supplemental slide seven provides analysis of weather normalized sales for the IPL and WPL industrial customer group from 2007 to 2010. This slide reveals that if you compare 2010 weather normalized sales, adjusted for sales lost to customers who began co-generation in 2009, IPL's sales are back to 2008 weather normalized levels. The same is not the case for WPL.

Now let me shift to the unregulated side. Transportation performed very well due to increased demand for CRANDIC services. But RMT broke even for the quarter. The midpoint of our guidance for non-regulated and parent remains at $0.13, but we are projecting that RMT will break even for the year, which is down from the $0.04 guidance we had issued earlier. We continue to see project time lines for 2010 slipping into 2011. That said, we are pleased with the growing pipeline of 2011 projects. Before moving on, let me summarize those results in the context of the earnings guidance we issued today. With the benefit of third quarter results, we have increased our guidance. The midpoint of the range is now $2.73.

For the remainder of 2010, we expect utility earnings to be solid with stabilized economies in Iowa, Wisconsin, and Minnesota, with normal weather, and with a fair and constructive rate case decision in Iowa. WPL is forecasted to earn approximately its authorized return on equity, whereas IPL is forecasted to earn slightly below its authorized return on equity primarily due to the regulatory lag in the first quarter. A summary of the changes to our 2010 earnings guidance is available on supplemental slide two.

As we turn to our utility generation plan, construction activity at WPL's Bent Tree Wind Farm in Minnesota is on schedule. As of October 27, 71 of 122 turbines have been erected and 30 turbines are producing test power. Part of this 2000 -- 200-megawatt project is expected to begin operating in the last quarter of 2010, and the entire site is planned to be in service in the first quarter of 2011. As of the end of the third quarter, the project has incurred $344 million of capital costs excluding AFUDC. The total cost to Bent Tree is expected to be approximately $460 million excluding AFUDC. As approved by the Public Service Commission of Wisconsin in December of 2009, 50% of the construction work in progress earns a current return, while WPL is recording AFUDC on the other 50%.

Analysis continues as we work to determine the placement of the last 100-megawatts under our 500-megawatt Vestas wind turbine purchase agreement. Many variables factor into this decision which we expect to finalize by the end of this year. On June 29, the FERC approved WPL's proposed purchase of Wisconsin Energy Corporation's 25% ownership interest in Edgewater Generating Station Unit 5. WPL's purchase of WEC's interest in the Plant will add about 95 megawatts of nameplate capacity to WPL's generating portfolio and will provide further flexibility with our generating fleet which is especially important given the uncertainty that currently exists in our industry. We expect the Public Service Commission of Wisconsin will issue its final decision on this matter in November and that the Michigan Public Service Commission will issue its decision by December 6.

The projected capital expenditures are $40 to 45 million. In closing, let me recap my take-aways from the third quarter. First, due to our solid financial performance for the first three quarters of the year, we have increased our 2010 guidance range by $0.10, and the new midpoint of our consolidated earnings guidance is $2.73. Secondly, we are continuing to execute on our plan to add wind and coal generation capacity to WPL's generation fleet. We very much appreciate your continued support of our Company, and at this time I will turn the call over to Pat.

Thanks, Bill, and good morning, everyone. I will begin by updating you on the Company's liquidity position. At the end of the third quarter, our liquidity remains strong totaling $760 million, $137 million of cash and marketable securities and $623 million of available capacity under our credit facilities. As a reminder, Alliant Energy's $623 million credit facilities do not expire until November 2012. Cash flow from operations for first nine months of 2010 were $696 million, a $105 million increase when compared to the first nine months of 2009. This difference was primarily due to increased collections brought on by higher rates and above-normal weather related sales, partially offset by higher IPL transmission costs.

We also anticipate strong cash flow in the fourth quarter since we expect to receive a $113 million refund from the IRS because we were able to file an additional carry-back claim on our 2009 tax losses. Also, the recent one-year extension of 50% bonus depreciation will increase even further our large taxable losses, and we now expect not to pay any material federal tax payments until at least 2013. Due to our anticipated ongoing strong cash flow, we affirm that we do not anticipate a need to issue new common equity through 2011.

Turning to regulatory matters, September's hearing for IPL's rate case in Iowa raised no new evidence or issues that would change our position. Discussion focused on transmission expense recovery, IPL's proposed transmission tracker, weather adjustment of testier sales, as well as recovery on the Whispering Willow East Wind Farm and the remaining book value of Sixth Street Generating station. As a reminder, IUB staff does not file testimony in the rate case. Initial briefs will be filed by parties on October 25 and replied briefs are due November 8. We are expecting an oral decision in December. The interim rates implemented in March 2010 are subject to refund with interest. We understand that rate increases are difficult for our customers especially during these difficult economic times. To that end we proposed a cost management plan to help reduce our customers' bills.

Currently we have in excess of $300 million available to be utilized in such a manner. IPL has proposed using $154 million of that amount to help mitigate the impact of the proposed rate increase over the next three years. Ultimately the IUB will make the final decision on the cost management plan on how to best allocate the available funds to customers. IPL also requested a rate increase with the Minnesota Public Utilities Commission and on July 6 was granted interim rates that increased annual electric revenues by approximately $14 million or 20%. Interim rates will remain in effect until the MPUC issues a final decision expected in third quarter 2011. IPL's final request to increase revenues by approximately $15 million. These interim rates are also subject to refund with interest. With regard to WPL's rate case, in April we filed a limited reopening request to increase 2011 electric retail rates by $35 million or 3.6%.

The case addresses three main issues. Impacts of bringing the remaining Bent Tree Wind Farm into service and rate base, lower expected variable fuel costs and expiring deferred customer credits. As is typical during the rate case process several updates have been made it to original request which when netted lowers WPL's request to approximately $19 million. PSCW staff recommended increase of approximately $15 million. A decision is expected by the end of 2010 with rates effective in January 2011. We certainly can't predict the final outcome of our rate cases. However, we are optimistic that those outcomes will be fair and constructive. We will continue to aggressively support our filings in the coming months as the cases head quickly toward decisions.

On the legislative front, in May of this year the Wisconsin legislator approved a bill requiring the PSCW to adopt administrative rules to govern how fuel costs are accounted for and collected from retail customers in Wisconsin. Since that time Wisconsin utilities customer groups and the PSCW have been working on exact language for the rules. In August the commission sent proposed language to the legislature and early this month the state Senate voted to send the language back to the commission for further revision. Although we supported most of the proposed rules, we agree that certain language relating to the calculation of utility earnings needs to be revised. In order for the new rules to be effective on January 1, 2011, the language would need to be proved by the legislature by November 15. On a side note, the state Senate also asked the PSCW to consider modifications to the new wind citing rules that would set limits to the restrictions municipalities can pose on wind energy projects throughout the state. Those rules would also need to be approved by November 15 to be effective on the first of the year.

Turning to environmental matters, we continue to execute on our commitment to make emission control investments at our newer larger and most efficient generating units to not only benefit the environment but to ensure that these units are capable of producing low-cost energy for our customers for years to come. In April of this year, as is required every two years, IPL filed its Emissions Plan and Budget, or EPB with the Iowa Utilities Board. The filing highlights IPL's current understanding of current and emerging air, water, and solid waste environmental compliance requirements and details how the Company plans to meet those requirements. IPL and the OCA reached a settlement regarding this filing in August which was approved by the IUB on October 1. The approved EPB includes installation of a scrubber and baghouse at the Ottumwa generating station as well as scrubbers at Lansing 4.

IPL also co-owns Neal 3 and Neal 4 generating units with MidAm. Their EPB proposes installing a baghouse scrubber, an SNCR at the Neal units. Another required filing comes due next week as IPL will file its 2010 to 2025 integrated resource plan, or IRP on November 1 with the MPUC. Minnesota statute requires utilities an IRP every 24 months. And IPL's plan will provide a blueprint for the Company's strategy to meet the electric needs of customers at a reasonable cost. The IRP will also flexibility for potential changes to environmental regulations while ensuring IPL can meet its current environmental requirements.

In Wisconsin construction to install selective catalytic reduction equipment is underway at Edgewater Unit 5. We currently estimate that 100% of the capital expenditures for this project which we expect to be in service during the second quarter 2013 will be approximately $154 million. Finally, we have requested a certificate of authority from the PSCW to install scrubbers and baghouses at both units of the Columbia Generating station, which is co-owned by WPL, Wisconsin Public Service and Madison Gas and Electric. WPL's estimated share of capital expenditures for this project is approximately $290 million. Recently the PSCW discussed our request and ordered the record to be reopened to allow for the investigation of a mercury-only control project instead of our proposal to simultaneously install scrubbers and baghouses. We will provide the requested information next week.

The Commission also asks that [MISO] provide information regarding any potential liability implications should the Columbia Units be de-commissioned. During the discussion, the commissioners noted they were not looking to retire the units but thought the opinion from MISO regarding facility's importance and reliability would benefit the record. The capital expenditure outlook issued in February 2010 will be adjusted based on recent changes to the timing of environmental expenditures. The February outlook had anticipated approval of the Columbia CA by mid-2010. Given recent developments the projected $20 million for the capital expenditures in 2010 will be shifting to 2011.

The environmental compliance section of the 10-Q scheduled to be filed later today provides updated environmental capital expenditures for 2010 through 2012 based on the plans outlined in the IPL EPB filing mentioned earlier and anticipated approval of the Columbia CA. We will fully refresh our outlook after decisions are issued on the IPL and WPL rate case filings in conjunction with the 2011 earnings guidance. At this time, I will turn the call back over to the operator to facilitate the Q&A session. Thank you.

Thank you, Ms. Kampling. At this time the Company will open up the call to questions from members of the investment community. Alliant energy's management will take as many questions as they can within the one-hour time frame for this morning's call. (Operator Instructions) And we'll take our first from Brian Russo with Ladenburg Thalmann.

Hi, good morning.

Good morning Brian

Just, I was wondering if you might be able to elaborate on the sales profile you're seeing at Wisconsin -- in Wisconsin or at WPL? I get the sense that you're not yet seeing a recovery there and maybe weakness we might expect in 2011.

Yes, Brian, we're certainly not seeing as much of a recovery at WP&L as we are seeing at IP&L. We're looking for sales growth at WP&L of approximately 1% a year. Yet, the industrial sales are beginning to rebound but as I said in my prepared remarks it's just not rebounding as quickly as has been the case at IP&L. I think that's explainable pretty simply by the different mix of industrial customers that we see in the two jurisdictions. IP&L is very predominantly food, food services, agri business, oriented in its manufacturing processes and Wisconsin is somewhat more traditional industrial, and I don't think it's really any more complicated than that. And the Wisconsin economy is certainly firmed. We are seeing pick-ups in sales to our larger industrial customers, but the gap between today and a far more healthy 2007 to 2008 is just farther away in Wisconsin than it is in Iowa.

Okay, so I guess even with the limited reopener case you have pending at WPL, even with -- I guess it's -- is it based on an updated sales forecast, or is it based on the previous sales forecast?

Based on the previous sales forecast. The sales forecast was out of bounds in the reopener.

Okay, got you. And also Pat mentioned bonus depreciation earlier. Could you maybe quantify the impact or what projects you believe will qualify and how that may be -- might help mitigate your external capital needs post-2011?

Sure. The biggest difference would be that Lansing, the environmental controls at Lansing now qualify for bonus depreciation. They went in service earlier this year. And some of Bent Tree that goes into service this year will also qualify?

And when do you need to make a decision, or when will we know exactly the financial impact of that?

We've been already telling folks that he we expect to have about $400 million of capital that would apply for bonus depreciation this year. So if you just want to do the math on 50% of that, times the tax rate, that should be the cash available to us to carry forward.

Okay, great. And then just on RMT real quickly, you mentioned earlier that you're -- you like how the pipeline is growing. And I'm just wondering is that pipeline more -- has more solar in it than wind? And then how does all of these projects and with the ITC expiration at year end, is that accelerating projects in late 2010?

Brian, first part of your question, you know R&P has historically done work almost exclusively in the wind sector. We are seeing a growth in the number of solar projects that it has in its pipeline. So that shift is very evident. I wouldn't say solar dominates their book of business, but it certainly is a meaningful portion of it, and frankly, we expect that part of their business to probably grow more quickly than wind. In terms of the -- I think everybody expected the third and fourth quarters of this year to be robust in the renewables marketplace, because of the ITC situation.

We've seen it pick up, but I think it's fair to say it's underperformed, probably not just our expectations, but everyone's expectations. But we certainly noticed a pick-up, in some measure, I'm sure, associated with that variable, but not nearly as dramatic as conventional wisdom or how our planning would have suggested. We continue to see projects sliding into next year, but the pipeline for next year frankly looks pretty good right now in comparison to what we -- outlook for year-end performance for RMT this year.

Okay, and the scrubber proposal at Columbia, the $290 million that would be your share, if it was a mercury-only project, how much would that be?

It would be $64 million, Brian.

Okay, thanks a lot.

I'm sorry, 60% of the total. I'm sorry 90.

(Operator Instructions) We will take our next question from Michael Bates at DA Davidson.

Hi guys, congratulations on the quarter. Just a clarifying question for you. When does your Edgewater 5 purchase close? Is that a fourth quarter event?

Yes, we expect to the close before the end of the year.

Okay, great. I was also going to ask you, you've given us some good commentary on your industrial loads, and I just wanted to check on one other thing. Wisconsin Energy mentioned on their call that about middle of September their industrial load started to really fall off, and that's persisted through October. Have you seen anything similar in your WPL system?

We have not.

All right. Good to know. And can you give us some color on ATC's growth outlook over the next couple of years?

Well released publicly their expected ten-year capital plan for the business, which is about $3.5 billion of capital spending. We're 16.4%, approximately, of that business, and that capital program reflects ATC's anticipated capital expenditure within the Wisconsin footprint. It is not reflective of any additional opportunities that ATC might capitalize on in terms of deploying capital outside of its footprint, which it is aspirational to do.

All right, thank you very much.

(Operator Instructions) And we'll take our next question from J Dobson at Wunderlich Securities.

Good morning Bill, Pat, how are you?

Good morning Jay, good.

Congrats on the quarter. I joined the call a little late, so apologies, but could you give me an idea of the RMT commentary and how that did in the quarter? There's not a lot of breakout in the press release.

RMT broke even for the quarter, and our expectation is that the Company will break even for the year. We had previously guided to about $0.04 for the business as projects continued to slide from 2010 into 2011. We expect the business now to break even for the year.

Oh, great, thanks, Bill. You mentioned the backlog. I'm just wondering, if the backlog is great, some of the customers I've been talking to seem to suggest that pricing sure is great, which would suggest continued pressure on your margins. Have you seen anything on the margin front that would give you any optimism?

I think what you've been hearing is accurate. Margin pressure in the space is strong. I'll go out on a limb here and say that margins in the space are approximately 50% to 60% of what they were three years ago for a similar piece of work, so it's very competitive.

That's great. I was wondering if you could break out for us within Parent how much CRANDIC was relative to a year ago and if there was any contribution from the Whiting Petroleum Tax Agreement.

Transportation business is going to earn about $0.10 Very good business, grows modestly year-over-year on a relatively consistent basis. It's an extraordinarily well managed Company that does business in a very, very healthy, albeit small marketplace.

That's great. And that $0.10 is relative to the $0.07 or so that it's done historically?

Yes, that's right.

Great. Thanks so much.

Jay, the Whiting contributed about a $0.01 year-to-date.

Great. Thank you, Pat.

Ms. Gille, it appears we have no further questions at this time.

With no more questions, this concludes our call. A replay will be available through November 5, 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 ascript of the prepared remarks made on the call will be available on the Investor section of the Company's website later today. Thank you for your continued support of Alliant Energy, and feel free to contact me with any questions.

That does conclude today's conference. Thank you for your participation.