Alliant Energy Corp (LNT) 2011 Q4 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's year-end 2011 earnings conference call. At this time all lines are in a listen-only mode. Today's conference is being recorded.

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 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 Robert Durian, Controller and Chief Accounting Officer, as well as other members of the senior management team. Unfortunately, Tom Hanson, our CFO, will not be joining us today due to a back injury.

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 year-end 2011 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 began, 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 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 the non-GAAP and GAAP measures are provided in the supplemental slides, which are available on our website at www.alliantenergy.com.

At this point, I'll turn the call over to Bill.

Thank you, Sue, and good morning, everyone. 2011 marked a successful year for us. We met our financial objectives and maintained excellent reliability during a hot and stormy summer season, and we kept our safety initiatives moving forward. I'd like to commend our employees who continue to provide our customers reliable electric and gas service, while at the same time delivering value to our share owners.

My comments today will detail our priorities for 2012. Later in the call, Pat will discuss various financial and regulatory matters.

As Sue mentioned, our CFO, Tom Hanson, would normally present a major portion of our scripted remarks this morning, but Tom has suffered a back injury and is unable to join us this morning. Tom, if you're listening, get well soon. Robert Durian, our Controller and Chief Accounting Officer, and John Kratchmer, our Treasurer, are here to help us with your questions if need be.

In 2012 we will continue to focus on transforming our generating fleet. Our plans include retrofitting our Tier 1 coal facilities, fuel switching or investigating less expensive emission controls for our smaller coal plants, and increasing the amount of gas-fired generation in our portfolio. Our emission control equipment plans are intended to assure compliance with environmental rules. These expenditures are outlined on slide two.

Even though the Cross-State Rule was stayed, the current environmental work underway at IPL's Ottumwa and WPL's Edgewater and Colombia facilities support complying with the Clean Air Interstate Rule, which remains effective in the wake of the Cross-State Rule stay, the Utility MACT Rule, or the Wisconsin State Mercury Rule. We planned to request regulatory approval for installing the remaining controls for our Tier 1 facilities, so they will be ready to comply with the Cross-State Air Rule or some new version of it.

In Iowa, that regulatory discussion will occur through our emissions plan and budget filing, which will be made on April 2. In Wisconsin, we expect to file the required construction authorization for the Edgewater 5 scrubber and baghouse later this year.

The total capital investment of this broad emission control program is approximately $765 million, occurring between 2012 and 2015. We are still in the process of assessing whether all the dynamics surrounding federal environmental regulation will change our Tier 2 capital expenditure projections for 2012 through 2015, which are currently estimated to be about $100 million. We previously stated that we will not be fully retrofitting these units, but we are exploring lower-cost emission alternatives.

As I mentioned earlier, natural gas generation is becoming an increasingly important part of our balanced energy portfolio. WPL's application to the Public Service Commission of Wisconsin to purchase Riverside, a 600-megawatt combined cycle facility, is proceeding well. This purchase would increase WPL's gas-fired generating capacity by about 100 megawatts.

The Commission has indicated that it intends to review this application without a hearing, and we anticipate a decision in April.

Our expectation is that closing will occur at the end of 2012. We expect the revenue requirements associated with adding Riverside to rate base will be offset by the elimination of the capacity payments currently being made to Calpine, therefore making the purchase essentially neutral to customers.

At IP&L, we continue the due diligence and planning related to the potential construction of a new 600-megawatt natural gas combined cycle generating facility. Last week we issued an RFP to assess if there are any better alternatives to construction of the gas plant. If the new natural gas facility is the preferred option, we anticipate making the required regulatory filings in the third quarter of this year.

At this time, we are estimating that the proposed facility would cost approximately $700 million, excluding AFUDC.

Our capital expenditure plan anticipates expenditures related to that facility to begin in 2014 with an anticipated in-service date in 2016.

I also want to provide you an update on our nuclear purchase power agreements. At this point, it is unlikely that we will renew either of our current agreements. WPL's Kewaunee agreement with Dominion Resources expires at the end of 2013, and IP&L's Duane Arnold agreement with NextEra Energy expires in February of 2014.

Slide three reflects the various capacity payments expected to be made over the next several years. The considerable decrease in capacity payments in 2014 plays an important role in how we plan to manage customer rates.

While we continue to rely on lower emission coal for the majority of our base load generation, we expect the emissions from our coal plants will continue to decline as our retrofits become operational and as we transition some of our older, less efficient units to run on natural gas.

In addition, our windfarms operate in very strong wind regimes, and our customers in Iowa are benefiting from the transmission upgrades, which support our expanding wind production.

One of the key objectives of our plan is to manage the costs borne by our customers. This year our customers are seeing lower total electric and gas bills as we pass through the benefit of lower energy costs to them. These lower overall costs result from a combination of the lower market costs, our generating fleet transition, and our increased wind generation.

Moving to the unregulated side of the business, the Franklin County wind farm in Iowa is preparing to begin construction. This site located near IPL's Whispering Willow site is known for its high wind regime. Also, the transmission upgrades involving this site are already in progress. The total estimated cost of the project is approximately $235 million, excluding capitalized interest costs. We expect this project will be in service by year end, and we will likely elect the cash grant. We are currently assessing the results of the reverse RFP we issued to look for an offtake contract for the facility.

Before handing off to Pat, let me address RMT. In our last call, I indicated that we would assess the alternatives for this business. Yesterday the Alliant Energy Board of Directors approved a plan to sell the RMT business. We have always maintained that while RMT does not fit our core strategy as a utility, it was attractive to us because of its important position in the renewable energy space. However, a lack of consistent federal renewable energy policy, coupled with downward pressure on project margins, has caused us to reconsider this investment.

RMT's employees and clients will be best served by an owner whose operations are more aligned with RMT's engineering and construction business. As a result of this decision, we plan to start recording RMT financials as discontinued operations in 2012. We expect the sale to occur by year-end.

Since RMT's revenues have a significant impact on how state taxable income is apportioned among the states, selling RMT will change Alliant's future state tax apportionment. Although this change will have a minimal financial impact on future utility earnings, it is expected to lead to a one-time charge of approximately $0.12 per share at the utilities. We will exclude this potential one-time charge from our 2012 guidance.

So let me recap the priorities as we execute our plan.

First, we continue to provide safe and reliable electric and gas service to our customers. Second, we are working to obtain a generation portfolio that is balanced with flexibility to comply with current and future environmental regulations. Third, we continue to focus on managing costs on behalf of our customers. And finally, we will work closely with our regulators and stakeholders to receive the remaining approvals required for the execution of our strategic plan.

In closing, I'd like to recognize and congratulate Pat Kampling on her election as Chair, President, and Chief Executive Officer of Alliant Energy effective April 1 of this year. Many of you have gotten to know Pat during her career. Her experience in and knowledge of the industry will enable her to continue to execute on Alliant Energy's strategy, which will be of great benefit to our employees, our customers, and our share owners.

On a personal note, it's been a pleasure getting to know many of you over these many years. I wish you all well and thank you for your support of our Company. I will now turn it over to Pat.

Thank you, Bill, for the kind remarks. I would also like to thank you for your tremendous contributions and dedicated service to the employees, customers, and share owners of Alliant Energy. We are all going to miss you, and we wish you all the very best in retirement.

Good morning, everyone. Let's start with 2011 results. We released earnings this morning with our GAAP earnings from continuing operations of $2.73 per share. Adjusting for items we typically exclude from guidance, 2011 adjusted earnings were $2.76 per share. The 2011 adjustments relate to charges for the IPL electric rate case decisions, the cash balance pension plan amendment, emission allowance contracts, and impairments. These charges were substantially offset by nonrecurring state income tax impacts. Comparisons between 2011 and 2010 earnings per share are detailed on slides four, five, and six.

Moving to the economy in our service territory, 2011 weather-normalized electric sales to our commercial and industrial customers increased modestly. However, like the other utilities in our region, residential electric sales decreased by approximately 1% when comparing 2011 to 2010.

As we noted in November, we are forecasting 2012 sales in all customer classes to be flat to 2011. These trends are illustrated on slide seven.

Our current liquidity position is strong, totaling approximately $960 million comprised of $925 million of available capacity under our credit facilities and $35 million of available capacity under the sale of receivables program. We recently increased the size of our credit facilities to $1 billion to help ensure adequate liquidity to finance our capital plans.

Two of the primary factors influencing the financing plans are the cash flow impact from our current tax initiatives on our capital expenditure plan, which is summarized on slide eight. We will finance our 2012 capital plan with cash flows from operations, sale of IPL receivables, and the issuance of short-term and long-term debt.

Cash flows from operations are expected to be strong the next few years as we do not expect to make any material federal income tax payments through 2014. These cash flow benefits will be partially offset with approximately $80 million in credits to customer builds in accordance with the IPL tax benefit writer.

Our current plan anticipates issuing long-term debt of approximately $100 million for IPL, which should occur in the first half of 2012 and approximately $400 million in total for WPL and the Franklin County wind farm project, which are expected to occur in the second half of 2012.

In addition, we have requested regulatory approval for a $300 million one year bridge facility to finance the Riverside purchase, which if utilized will lower the need for long-term debt financing at WPL.

In December we did make a $100 million contribution to the qualified pension plan to mitigate increases in 2012 pension costs and increase the funding levels to approximately 85%. We do not currently anticipate making any contributions to our qualified pension plans in 2012.

One last note regarding financing plans. A recent development that could influence our plans is the ability to now consider receiving the cash grant instead of production tax credits for the Whispering Willow and Bent Tree wind farms. Recent legislation has waived the text normalization requirement, thus the cash grant may be now be more beneficial to our utility customers than the PTC's. The election to claim the cash grant in lieu of PTC's could provide our Company with additional cash in excess of $250 million as soon as this year. We plan on discussing the possible cash grant election with our regulators in the coming months to determine such regulatory treatment.

Our current financing plans calls for a need to issue modest new common equity in late 2013. The ability to receive the cash grant on both wind farms would definitely push the need for equity past that point.

We have several current and planned regulatory dockets of note for 2012, which are summarized on slide nine. I would like to provide a bit more detail on two potential base rate cases.

We are currently evaluating the need to file a Wisconsin retail electric and gas-based case in 2012 with a 2013 and 2014 test year. Our preliminary analysis would support a retail electric rate increase of 3% or less. The primary drivers of the case would be the recovery of the emission control projects at Edgewater 5 and Colombia.

As Bill noted earlier, the anticipated Riverside gas facility acquisition is expected to have minimal customer rate impact. Also, since the fuel monitoring level is set as part of the base rate cases in Wisconsin, any increase we would request may be offset by changes in fuel costs.

We are also evaluating the need to file an IPL Iowa's retail gas case for 2012 with a 2011 test year. It has been seven years since base rates have changed for Iowa retail gas customers, and during that time, the plan additions have outpaced depreciation expense.

We have also experienced a 12% decline in weather-normalized residential use per customer since 2004. We will be proposing the use of a Tax Benefit Rider to offset the requested gas rate increase.

Finally, I would like to inform you on a few items that should assist you in modeling our future earnings. We have revised our 2012 midpoint of guidance, reflecting the RMT to discontinued operations. The revised 2012 earnings guidance midpoint is $2.90 per share, a $0.14 increase over the non-GAAP 2011 earnings.

Our 2012 utility guidance remains unchanged and reflects stable economies, normal weather conditions, and flat weather-normalized electric sales. The capital expenditure guidance for 2012 through 2015 provided in November remains unchanged. In addition, a summary of the guidance lock from 2011 to 2012 is available on slide 10.

Our targeted dividend payout ratio is 60% to 70% of utility earnings. Our Board approved an approximate 6% increase in the targeted dividend payout for 2012. Our annual dividend target is $1.80 per share, which results in a yield of over 4% to our sure owners based on our current stock price.

On slide 11 we have highlighted the 2011 quarter-over-quarter impacts of the Tax Benefit Rider. You will note that the quarter-over-quarter profile for 2012 is different than 2011. This difference is mainly due to the fact that the Tax Benefit Rider did not go into effect until February 2011, and the 2011 results were impacted by warmer than normal summer weather, whereas 2012 guidance assumes normal weather.

As a reminder, the Tax Benefit Rider causes earning swings from quarter to quarter, but does not impact earnings on an annual basis.

Also on slide 12, we have provided the drivers for the changes in the effective tax rate from 2011 to 2012.

We very much appreciate your continued support of our Company and look forward to meeting with many of you this year. At this time, I will turn the call back over to the operator to facilitate the question-and-answer session. Thank you.

(Operator Instructions). Brian Russo, Ladenburg Thalmann.

Just the decision to move RMT to discontinued operations, does that mean you have tested the market and feel that you could actually sell that by year-end? I mean have there been any discussions with other parties of their interest in that subsidiary?

Brian, we have done sufficient exploration to believe that we can sell the business by year-end next year, but to date there have been no serious discussions with any third party about the potential acquisition. We expect that that process will begin in earnest very shortly.

And how would you suggest we value that business? Should we look at it from a revenue perspective or a multiple to operating income, and maybe even you could talk about the backlog?

We are advised by people that know much more about these things than we that these businesses tend to get valued as a multiple of their EBITDAs, depending upon where the market sits at any point in time. Somewhere between 2 and 6 times in EBITDA is what we are advised.

And any comments on the backlog?

We've got about $235 million of project revenues booked for this fiscal year.

Great. And can you talk about, I know it is early in the year, but just the cost controls you're planning on implementing at each of the utility subsidiaries?

These cost controls have been a work-in-process now for a couple of years. And a lot of the work that's going on now with our generation fleet, we've converted some of our older coal facilities to gas. The second one will be converted in the second quarter of this year. This brings tremendous bottom-line savings to the organization. And, again, we're just an organization of spending the right amount of money at the right time -- very frugal, very disciplined, and we're seeing the cost savings and the bottom lines you will see in our results.

Thank you very much, and Bill, good luck on your future endeavors.

Thanks, Brian. Same to you.

Jay Dobson, Wunderlich Securities.

Good morning, Bill, and congratulations on your retirement. And I hope there isn't any indication in Tom's back injury of who really did the heavy lifting this quarter. (Laughter).

Jay, you've known me long enough to know that it sure isn't me.

More seriously, I wanted to return to the RMT. How do you envision this process? Is this going to be an auction-style process? Just how you envision it playing out as you pursue viable buyers over the next several quarters?

The honest answer at this point in time, Jay, is, I don't know. That's something that we will figure out in consultation with the advisers that we retained to help us with the transaction.

Fair enough. And how did that $235 million of backlog compare with where you were last year? Has that grown, or is that stagnant? How would that compare?

I would say it is relatively comparable to the book to business that we had in place at this time last year, plus or minus a little bit.

Fair enough. And then turning to the Kewaunee negotiations, it seems like that's a bit of a change from last quarter where you thought Duane Arnold wouldn't be renegotiated, but Kewaunee would be and now neither will be. Is that a factor of natural gas prices, or is something else changing there that you could help us understand?

I think what you should here in that remark is that while our efforts at that point in time were continuing with Dominion Resources, that we are of the view -- and I suspect that Dominion would share this perspective, that we are of the view that we are not going to get to a satisfactory deal. And consequently, we think those conversations are ended.

So really, they are at the same stages as Duane Arnold. You don't anticipate any other. It's not again a negotiating ploy or anything like that.

No, we are not doing a rope-a-dope here. We think both parties made a very, very earnest, intense good-faith effort to reach a mutually acceptable agreement, and we just failed to do that. There's no hard feelings either way, but I think we're finished.

Got it. And then last question, I know some of this is in process, but maybe you can talk us through at least how you're thinking about it and since Pat will take the baton April 1, how she's thinking about it, and I am referring to the capacity charge roll-off for Duane Arnold and Kewaunee as you roll out into 2014 and then obviously have environmental spends coming on at variable times, and obviously then the gas plant that you'd be adding in the 2016 timeframe. How should we think about balancing that since earnings needs will vary over that timeframe?

Really, the story hasn't changed. The timing of this just works out that we will have the large capital additions going into service at the time that capacity payments roll off. So it's part of our rate case strategy. We're hoping to have cases going forward with no customer impact, even with this large capital expenditure plan. So that has not changed.

Okay. I'll follow-up more off-line. Thanks so much.

Ashar Khan, Visium Asset Management.

Could you mention, you mentioned you might get this $250 million of cash, if I heard it correct. To me, it's a big amount. Could you just tell us the utilization of it? How should we look at it, and when would we know specifically whether we have this or not?

We will probably know we're hoping in the second quarter once we have our conversations with our regulators on how the cash grants would be utilized in the rate-making process. It really is cash. It's the grant money from both the Whispering Willow and the Bent Tree Wind Farm. Combined, the capital on those are almost $900 million, so the cash grant money is substantial.

In the short run, we will be using it to displace some long-term financing that we might need, but over the multiple years, it is really going to be pushing out the need for common equity.

Pat, can I ask you how much -- I guess it's a big amount -- if you utilize it, how many years of common equity does it forestall? Can you help us based on the budgets you have given us for the next three years?

We see it pushing out equity at least a year.

By like what, to end of 2014 or like 2015?

Yes, about that.

Thanks. And then can you just reiterate, I guess, with RMT the growth rate still remains -- your anticipated growth rate long term?

I'm sorry, could you repeat that?

Asking about RMT, would the utility growth rate remain the same? Yes, it would be.

And can you remind us what that is?

We're still saying 4% to 6%.

5% to 7%.

5% to 7%, I was using the wrong number. 5% to 7% per year.

5% to 7% per year. And what would be the base here?

2010 with weather normalized.

2010 weather-normalized. Okay. Thank you.

[Jim Carfield], Morningstar.

You had mentioned on the call that you could get somewhere in the range of 2 to 6 times EBITDA for RMT or at least that's what you're hearing. What was EBITDA for the business, say, for the last three years?

It was around $6 million, $7 million.

$8 million?

Yes, I think $6 million to $8 million.

And then 2011 presumably was on the lower end given the challenges --?

It definitely was on the lower end, yes. With the New Jersey projects, it was seriously negative, yes.

That's all I had. Thank you.

Ms. Gille, there are no further questions at this time.

With no more questions, this concludes our call. A replay will be available through February 17, 2012 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 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 that does conclude today's conference. Thank you for your participation.