Alliant Energy Corp (LNT) 2011 Q1 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's first quarter 2011 earnings conference call. At this time all lines are in a listen only mode. I would now like to turn the call over to your host, Susan Gille Manager of Investor Relations at Alliant Energy. Please go ahead.

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 and Chief Executive Officer, Pat Kampling, President and Chief Operating Officer, and Tom Hanson, Chief Financial Officer and Treasurer, as well as other members of the senior manager team. Following prepared remarks by Bill and Tom, we will have time to take questions from the investment community. We issued a news release this morning announcing Alliant Energy's first quarter 2011 earnings.

This release also affirms our 2011 earnings guidance. The release and supplement slides for 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 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 earnings release 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 and supplement filing which are available on our website at www.alliantenergy.com. At this point, I'll turn the call over to Bill.

Good morning. My comments today will review first quarter results and detail our priorities for the remainder of this year. Later in the call, Tom will discuss various financial and regulatory matters. Let's start with a recap of first quarter results. We released earnings this morning with our GAAP earnings from continuing operations of $0.65 per share. However, adjusting for an item we typically exclude from guidance, first quarter 2011 adjusted earnings were $0.68 per share versus 2010's adjusted earnings of $0.45 per share. These comparisons are detailed on supplemental slides 2 through 4.

The first quarter of 2011 exclusion is an impairment charge related to one of WPL's wind sites. Events arising in the first quarter of 2011 lead us to conclude it would be difficult to effectively use the site for wind development. The biggest drivers of the first quarter 2011 adjusted utility results compared to those of 2010 were; higher revenues due to implementation of new retail base rates, additional recovery of WP&L retail fuel expense, lower capacity payments, higher production tax credits, and increased electric and gas sales due to cooler weather.

These positive drivers were partially offset by higher transmission service expense, higher depreciation and operating expenses for the Bent Tree Wind Project, and a formula rate settlement with WP&L wholesale customers in the first quarter of 2010. Non-utility operations contributed $0.05 to the earnings increase between the first quarter 2010 and 2011 earnings. Higher earnings of transportation and RMT along with lower taxes at the parent contributed most of the increase. The lower taxes at the parent Company are expected to reverse later this year.

During the first quarter of 2011, IP&L and WP&L experienced industrial electric sales growth of 2% and 4% respectively. Most of this growth was experienced in January. We affirm our full-year 2011 forecasted weather normalized retail electric sales growth of approximately 1.4% for IP&L and 1% for WP&L. Please note that retail gas sales increased by 5% quarter-over-quarter primarily due to colder weather, which also contributed to our earnings growth. Looking forward to the rest of 2011, we're working hard to ensure that both of our utilities earn their authorized returns. We've instituted steps to ensure resource needs are set at an appropriate level to efficiently and effectively run our business.

We expect our current capital expenditure plan, moderate sales growth, and effective cost controls to contribute to a forecasted long-term earnings growth rate of 5% to 7%. Weighed more heavily in the later years of the five-year horizon. Now, let me update you on our capital projects starting with wind. In 2008, we entered into a master supply agreement with Vestas to purchase 500 megawatts of wind turbine generator sets and related equipment. We've installed 400 megawatts of those sets at IPL's Whispering Willow East and WPL's Bent Tree Wind Projects. We are evaluating different options to utilize the remaining 100 megawatts of turbines.

These include building a 100 megawatt wind project in Iowa, exchanging the wind turbine generators for an interest in a partnership with a wind project developer, or selling the wind turbine generators to a third party. The probability of rate basing the turbines at IPL or WPL is remote. We have currently capitalized $109 million for the 100 megawatts of turbines. The turbines and related equipment are expected to cost $147 million after completion of the remaining progress payments to Vestas.

Turning to generation projects. In March, 2011, WPL purchased Wisconsin Energy Corporation's 25% ownership interest in Edgewater unit number five for $38 million. Also in March, WPL issued an RFP for the purchase of a facility with specifications similar to the Riverside facility. Riverside is a combined cycle gas fired generating facility owned by Calpine Corporation located in Beloit, Wisconsin. We have a purchase power agreement with Calpine for 490 megawatts of the 600 megawatts of capacity available from the facility. This PPA extends through May of 2013 and includes an option to purchase at the end of the term.

The results of the RFP issued in March will support a construction authorization filing with the Public Service Commission of Wisconsin for the purchase of either Riverside or an alternative natural gas fired generating facility with similar specifications and attributes. We currently expect to file the CA in the third quarter of this year. Environmental compliance is driving much of our strategic spending. Engineering and design work for the planned SCR equipment at WPL's Edgewater unit number five is nearly complete with approximately 85% of the engineering activities completed.

The estimated capital expenditures for this project are $155 million. The SCR is expected to be in service in 2013. The Wisconsin Public Service Commission has approved a certificate of authority to install scrubbers and baghouses at both units of the Columbia generating station, which is co-owned by WP&L, Wisconsin Public Service and Madison Gas and Electric. WPL's estimated share of capital expenditures for this project is approximately $290 million and the controls are expected to be placed in service in 2014.

The emission plan and budget filed by IP&L in Iowa in 2010 included the installation of a baghouse and scrubber at the Ottumwa generating facility and a scrubber at Lansing four. The estimated capital expenditures for these projects are approximately $175 million and $50 million respectively. These controls are expected to be placed in service in 2014. We have selected the engineer for the Ottumwa and Columbia baghouse and scrubber projects, and are in the final process of selecting the engineer for the Lansing unit number four scrubber project.

We are evaluating our current environmental compliance and generation plans in light of the EPA proposed mercury and air toxic standards, the proposed 316(b) cooling water intake structure rules, and the care replacement rules, as well as other operating characteristics of our generating fleet. The many rules are requiring owners of co-generation plants like us to carefully analyze the costs versus benefits of installing emission controls. In the integrated resource plan filed in Minnesota in 2010, we provided our preliminary thoughts concerning the IP&L plants which will be retired as a consequence of these rules. We've classified these units as tier three, and we will work with MISO and our regulators to develop a retirement strategy.

The book value of IP&L and WP&L units currently classified as tier three was approximately $30 million at the end of 2010. As part of our continuing analysis, we plan to provide more clarity on the future of the units currently classified as tier two units by the end of this year. Tier two units are defined by us as units for which we are exploring low-cost emission control options and their future is dependent on the evolving environmental compliance rules and other operational factors. We are moving forward with our emission reduction plans premised on the assumption that we must comply with the time lines currently proposed by the EPA, which will require us to make significant emission reductions as early as 2014. We plan on updating our environmental compliance plans as our ongoing analysis is completed.

In closing, let me recap the priorities for 2011. First, we will continue to focus on cost control measures. Second, we will execute our environmental control programs as part of our ongoing commitment to a greener future. And finally, we will work closely with our regulators and stakeholders to receive the remaining approvals of our strategic plan proposals in a timely manner. We appreciate your continued support of our Company and at this time, I'll turn the call over to Tom.

Thanks, Bill. And good morning to everyone. My remarks this morning will provide details on our 2011 earnings guidance, financing, and regulatory matters. Today we revised Alliant Energy's 2011 adjusted earnings guidance by increasing the bottom end of the range by $0.05 to reflect the better than anticipated electric and gas sales in the first quarter as a result of the colder weather. The new midpoint of the guidance estimate is $2.88 per share compromised of the utilities midpoint of $2.73 per share and non-regulated and parent at $0.15 per share. We are also revising our effective tax rate assumption at AEC due to IPL Iowa tax rider approved by the IUB in the first quarter of this year.

Tax benefit rider is currently expected to decrease the effective tax rate assumption at AEC for 2011 by approximately 32% from 22%, as highlighted in supplemental slide 7. The tax benefit rider also results in a credit to IPL customers billed, which will decrease the revenues. The decrease in revenues will offset the decrease in tax expense resulting in no impact to our 2011 earnings. Turning to our non-regulated business, we affirm RMT's 2011 earnings guidance of $0.04 per share. RMT increased their earnings by $0.02 when comparing their results of the first quarter 2011 versus 2010. We are encouraged with the pipeline of wind and solar projects at RMT for the balance of this year.

Our current liquidity is strong, totaling $750 million compromised of over $100 million in cash and marketable securities and over $640 million of available capacity under our credit facilities and sale of receivables program. We currently have no commercial paper outstanding at IPL or WPL. Financing the utilities CapEx plan will include a combination of internally generated funds, equity infusions from cash at the parent and debt. Our current 2011 financing plans do not include the issuance of long-term debt. However, that could change based on market conditions.

Last week we redeemed $40 million of preferred stock at IPL. In the future, it is anticipated that this redemption will save us approximately $3 million of preferred dividends annually. Cash flow from operations during the first quarter increased over $70 million from 2010 to 2011. The increase was largely due to increased collections from impacts of rate increases and higher electric and gas sales. We are forecasting strong cash flows in 2011 due to continued benefits of rate relief and tax strategies resulting in minimal federal tax payments.

Bonus depreciation deductions on our federal income tax returns have contributed to taxable losses for the past couple of years. Based on the projects placed in service in 2010, we estimate our total 2010 bonus depreciation deduction to be approximately $425 million. Federal legislation passed in 2010 allows for bonus depreciation deductions to continue into 2011 and 2012. These addition bonus depreciation deductions are expected to add to our current net operating loss position through 2012. In addition, we have received consent from the IRS to reflect a change in our tax method of accounting for mixed service costs in our 2010 federal income tax return.

This change allows us to currently deduct a portion of mixed service costs which have historically been capitalized for tax purposes. This change will be applied retroactively to mixed service costs incurred since 1987 and we expect to include approximately $390 million of mixed service cost deductions in our 2010 federal income tax return. This change increased our regulatory reliability at IPL by approximately $150 million. We are preparing to have another important and active year in the regulatory area. In Wisconsin, we are planning to file a retail fuel only rate case later this month.

The rate filing will include a fuel plan for 2012 under Wisconsin's new fuel rules which became effective on January 1 of this year. The new rules will allow for recovery of emission control chemical and allowances within the fuel recovery mechanism in 2012. The lack of a 2012 test year case for WPL is not expected to have an adverse impact on 2012 earnings since we are recording AFUDC on emission control expenditures rather than requesting partial recovery in base rates. We are currently evaluating the need to file a Wisconsin retail base case in 2012 with a 2013 test year. The primary drivers of a 2013 test year case would be the partial recovery of the construction work in progress, balance from emission control projects at Edgewater five, and Columbia units, and recovery of and return on the anticipated gas facility acquisition at 2013.

The gas facility acquisition is expected to have minimal customer rate impact since we will eliminate the current recovery of capacity payments under the existing PPA and replace the cost of service with an addition to rate base and associated depreciation and O&M expense. In 2010, IPL requested a rate increase of approximately $50 million in Minnesota and on July 6, 2010, was granted interim rates that increased annual electric revenues by approximately $14 million. Interim rates will remain in effect until the Minnesota Public Service Commission issues a final decision. Last week the Administrative Law Judge issued his recommendation on this caseBased on our analysis, the rate increase would be approximately $11 million with an ROE of 10.5%. We expect staff briefing papers to be filed in early June and the hearings in mid-June. The final order is expected to be issued by mid-July. We look forward to the opportunity to meet with many of you throughout the course of the year.

At this time, I'll turn the call back to the operator to facilitate the question-and-answer session.

Thank you, Mr. Hanson. At this time, the Company will open up 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 call. (Operator Instructions). And we'll take our first question from Steve Gambuzza at Longbow Capital. Please go ahead.

Good morning.

Hi, Steve, how are you?

Good, thank you. I wonder if I could ask you to repeat your comments regarding some of the tax issues and just summarize what the impact on cash flow in 2011 and 2012, and 2013 for that matter, would be from the different items that you mentioned, like service costs as well as bonus depreciation? What the total add back each year you would expect from deferred taxes to operating cash flow?

There will really be minimal impact from a cash flowperspective.

Okay. In all three years?

Yes, yes.

Okay. So you're just building an NOL?

Yes.

Okay. When would you expect to be able to start using the NOL?

We expect based on the NOLs that we have which are approximately $850 million that we probably would not be paying any federal taxes until about 2015.

Okay. And the comments regarding the mixed service costs consent you received from the IRS and the $150 million regulatory liability at IP&L?

Yes.

That took place in the first quarter, is that incremental to what was disclosed in the 10-K?

Yes, that is correct, that is correct. That will then add to the amount that the commission has approved in terms of the tax rider that we've begun crediting to customers in the first quarter of 2011.

Okay, so that just will roll. That $150 million will just go back to customers over the course of the rate mitigation plan?

Yes. It's part of the cost management plan approved by the IUB as part of our rate order in Q1 of this year.

Great. And then just a separate question on WP&L. You mentioned that you're not intending on filing a rate case for next year, but that you may do one for the following year. And that you don't expect, I guess you don't expect an earnings impact next year because most of your growth capital will all be earning AFUDC. What level of load growth would you expect at WP&L next year? Consistent with the level you're experiencing this year?

Yes, approximately 1%.

Thanks very much.

Thanks, Steve.

(Operator Instructions). We'll go next to Brian Russo at Ladenburg Thalmann.

Good morning.

Good morning,Brian.

The 5% to 7% CAGR that you reaffirmed over the next five years, would potential environmental spend excluding what's already in the pipeline, at the state level, would that be incremental growth or is that kind of included in that 5% to 7% CAGR?

No, if there are incremental environmental control projects to those which we have discussed specifically and publicly with you, that would be incremental to the growth profile.

Okay, and with all of the tax studies and tax benefits that you're receiving, is the multi-year rate base outlook, both for IPL and WPL as disclosed in your most current presentation, is that still intact?

Yes.

Okay And the Riverside option to purchase, could you just talk a little bit more about this RFP process? I'm less familiar with that process. I'm not sure if this is all procedural. But is the RFP process meant to place a market value on a gas plant and compare that to the price you can pay for Riverside?

Yes. What it's intended to do, Brian, is to provide both us and the Wisconsin commission with a level of comfort that, were we to exercise the option to purchase Riverside at the strike price provided for in the contract, that that was a prudent and reasonable thing for us to do given the other options apparently available in the marketplace to acquire similar facilities. It really is a, you use the word procedural. It is procedural, but is it substantive in the sense that it will provide both us and the commission with comfort that the proposed course of action, which I frankly believe will be to purchase the Riverside facility, is prudent.

Okay, and just remind us what the strike price is on Riverside and do you view that as competitive to prevailing market prices for comparable gas fired generation?

It's $363 million, that could go up or down a little bit depending upon ancillary equipment, spare parts, oil and storage, and et cetera, that would exist at the site, but we view it as very competitive.

Okay, great. Lastly, the 100 megawatts at Vestas turbines, is there any timeline in which you guys would look to monetize that or optimize the inventory of that? And in the event of a sale, what would the proceeds be used for?

We intend to make a decision concerning which course of action we will take with those turbines in the second quarter of this year.

So I guess you're far along in discussions on various options for that?

We have been working all three of the alternatives that I alluded to in my remarks over the course of the last several months.

Okay, great, thanks a lot.

Thanks,Brian.

(Operator Instructions). We'll go next to James Dobson at one Wunderlich Securities.

Good morning, Bill.

Good morning Jay. How are you?

Very well, thanks. How are you?

Good.

I was wondering if you would evaluate, or elaborate a little bit on the cost control comments? Obviously, it's going to be critical to earning your allowed return. Sort of what opportunities there are as you look across that? I'm sort of thinking 2011, 2012, and maybe 2013, obviously the further you get out in the forecast it's a little less relevant, but always important from a managerial prospective. Tell us what you're seeing and what the opportunity is there. Is it holding cost flat? Is it actually a downward trajectory in those? Just what the opportunity is.

I wish I could characterize what we're doing as something unique and sexy, but it's not. We're looking at the efficiency of our organization from top to bottom. We've deployed head count controls in the business. I think the head count in the business is down roughly 2% today from where it sat at the end of 2010. We're obviously looking at capital spending, but not with a machete by any means, but if we can reduce capital spending modestly in certain areas, we're doing that. It is sort of the normal blocking and tackling ongoing process that occurs in every business to try to reassure yourself that you're operating as efficiently and as effectively as you possibly can as a business. It's nothing more unique than that.

But is it, just characterizing it generally, is it ability to hold costs flat or down, or is it you're controlling at a modest increase?

Our objective, if I can characterize it generically, would be to hold our O&M spending flat over the course of the next two and three years.

Gotcha. That's great. Then, Tom, I think you might have answered this but I'm not sure. On the mixed services tax liability, regulatory liability at IP&L, the $150 million, is that reflected in the rate base numbers that were in the March presentation or should we actually be taking that further out?

No. In Iowa we have flow through so it would not be impacting rate base. Unlike the bonus depreciation, there is an impact to rate base. The mixed service cost does not have that attribute in Iowa.

Perfect. That's great. Thanks for the clarity. Just two detail questions. In the quarter, I heard you on RMT, but what was the transport segment in the quarter, and then what was the Whiting tax sharing agreement in the quarter?

RMT was on the order of $0.02 for the quarter. Transportation was about $0.02 or $0.03 for the quarter. Whiting is a nada nada.

Gotcha. Excellent. Thanks so much, I really appreciate the help.

Thank you.

Take care.

And we'll go next to James Bellessa at D.A. Davidson.

Hey, good morning guys. This is actually Mike Bates here with Jim. I wanted to ask you about these wind curtailments at MISO. Why were they reduced in the first quarter? Is that something you expect to continue going forward?

Well we hope so. We built those machines with the intention of running them if God permits, and not having as many curtailments as might have initially been envisioned is certainly a positive for us and for our customers. On a going forward basis, it's very difficult for us to predict what the curtailment practices of MISO are going to be, but in the for what it's worth category I would make the observation that, and as MISO originally envisions and prescribes the constraints that might be experienced by a wind site, they do it as you would expect conservatively, envisioning the worse cases that might materialize on a transmission system at any point in time.

I think our experience to date with the Minnesota and Iowa wind farms has certainly been that the wind has been better than we expected and the curtailments have been fewer than we might have imagined. And we certainly hope that continues because it's good for our customers, it produces more renewable energy which is a good thing, and also bumps up the PTCs that impact the earnings of the Company. So we certainly hope it continues. I wish we could be empirically precise in what we expect it to be, but the reality is we can't.

Sure. All right, thank you very much.

And 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 12, 2011 at 888-203-1112 for US and Canada. Or 719-457-0820 for international. Callers should reference passcode 8244179. In addition, an archive of the conference call and a script of the prepared remarks on the call will be available on the investors section of the Company's website later today. We thank you for your continued support of Alliant Energy and feel free to contact me with any follow-up questions.

And this does conclude today's presentation. We thank everyone for their participation.