Alliant Energy Corp (LNT) 2012 Q1 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's first=quarter 2012 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 conference 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 webcast for joining us today. We appreciate your participation.

With me here today are Pat Kampling, Chairman, President and Chief Executive Officer, and Tom Hanson, Vice President and CFO, as well as other members of the senior management team. Following prepared remarks by Pat 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 2012 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 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 the 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 supplemental slides which are available on our website at www.AlliantEnergy.com.

At this point, I will turn the call over to Pat.

Good morning. Thank you all for joining us this morning as we review our first-quarter 2012 results.

It is no surprise that our first-quarter financial performance was negatively impacted by the warm weather. However, we plan to manage our spending during the rest of this year to lessen the impact.

With the exception of the weather, our first quarter non-GAAP financial performance was in line with our expectations. Just like last year, the tax benefit rider cost adjustment (technical difficulty) quarter but is not expected to have an impact on full-year results.

Yesterday, we filed a proposal in Wisconsin to freeze electrical retail base rates for 2013 and 2014 and to reduce gas retail base rates for 2013 carrying through 2014. This proposal is a result of our collaboration with Commission staff and major intervener groups. The proposal is consistent with our plans to minimize rate increases while allowing us to earn our authorized return. Tom will provide more detail on these matters in a few minutes.

An important item to share with you today is that we have decided to continue with PTCs for Whispering Willow and Bent Tree utility windfarms instead of the cash grant option. We believe that, with our strong cash flow, we can maintain adequate liquidity, capitalization ratios, and credit metrics. Therefore, we do not plan on issuing any material new common equity through 2013. We will assess our future equity needs after we receive regulatory approvals on the large projects we will propose later this year.

Let me now brief you on some of our current activities. It has been and will continue to be a very active and productive year as we continue to focus on transforming and balancing our generating fleets. Our plans include retrofitting our tier 1 coal plants, investigating less expensive emission controls for our tier 2 units, and increasing the amount of gas-fired generation in our portfolio.

We are proud that our $4 billion capital expenditure plan for 2012 to 2015 is not only reducing emissions in our communities but is also bringing welcome jobs to Wisconsin and Iowa.

At WP&L, we are in a construction phase at Edgewater 5 for an SCR and at Columbia Units 1 and 2 baghouses and scrubbers. We are pleased to report that the Edgewater 5 project is proceeding within budget and is a bit ahead of schedule. This project's capital expenditures, excluding AFUDC, are estimated to be $145 million and the controls are expected to be in service by the end of 2012.

Last month, we broke ground on a $627 million controls at Columbia. WPL's portion of this project is approximately $300 million and the controls are expected to be in service in the first half of 2014.

At IPL, MidAmerican is currently installing baghouses and scrubbers at Neil Units 3 and 4. IPL's portion of the total capital expenditures, excluding AFUDC, is estimated to be approximately $130 million.

We are also in the process of finalizing the engineering procurement and construction contract for the scrubber and baghouse at our Tama facility. IPL's portion of the capital expenditure for this project, excluding AFUDC, is estimated to be between $150 million and $170 million.

The environmental work underway at IPL's Tama and Neil facilities and WPL's Edgewater and Columbia facilities supports compliance with current environmental rules. This

year, we plan to request regulatory approval to install the remaining controls for our tier 1 facilities. They will be ready to comply with a cross-state rule or some new version of it.

In Iowa, through the emissions plan and budget filing made on April 2, we are proposing adding a scrubber to Lansing 4, which is already in our 2012 to 2015 capital plan.

In Wisconsin, we plan to file a construction authorization request for a scrubber and baghouse at Edgewater 5. This filing is planned for the third quarter of 2012 and, if approved, is expected to add to the capital expenditures post-2015.

We are still in the process of assessing if the cross-state rules stay or if the final utility mac rules would change the current tier 2 capital expenditure projections for 2012 through 2015 of $100 million. As previously stated, we are exploring lower-cost emission control options for these units. The future of our tier 2 units is heavily dependent on the evolving environmental rules and reliability requirements in the MISO region.

While we continue to rely on lower-emission Powder River Basin coal for the majority of our base load generation, our emissions from our coal plants will continue to decline as our retrofits become operational. In addition, our emissions profile also improves as we convert some of our older, less efficient units to run on natural gas as we have done with IPL Sutherland Unit 1 and 3 and the Dubuque generating facility.

I should also mention that we began this year with 80% of our coal leads under contract for 2012. Because we had an open position, our customers have benefited from the low spot market prices of coal, while our coal inventories are currently within a normal range. We do not anticipate any issues with coal or transportation contracts' take-or-pay provisions. Alliant is projecting to burn just under 11 million tons of coal in 2012 versus 13 million tons in 2011.

As I noted earlier, natural gas generation is becoming increasingly important in balancing our energy portfolio. In April, the Public Service Commission of Wisconsin approved WPL's purchase of the Riverside Energy Center, a 600 megawatt combined cycle facility, for $392 million. This purchase will increase WPL's gas-fired generating capacity by approximate 100 megawatts. We expect the purchase to occur at the end of 2012.

The revenue requirement associated with adding Riverside to retail rate base will be largely offset by the elimination of the capacity payment currently being made to Calpine under the Riverside PPA, therefore making the purchase essentially neutral to customers.

At IPL, we continue to analyze the need for additional long-term capacity and energy which is being driven by the retirement of generating units and the exploration of the Duane Arnold PPA. We received numerous proposals in response to the RFP issued in January seeking firm supplies of non-intermittent capacity and energy delivered to the IPL control area. We are currently evaluating those proposals as part of our due diligence to see if there is a better option to the construction of a new 600 megawatt natural gas-fired combined-cycle generating facility. We expect to make a decision regarding our plans this summer.

The estimated cost of the proposed gas facility is approximately $700 million, excluding AFUDC. Our capital expenditure plan currently includes costs related to that facility to begin in 2014 with the anticipated in-service date of 2016 or later.

Turning to wind, the performance from our windfarms has been good with capacity factors averaging approximately 30% in 2011. Production is expected to increase as the additional transmission work is completed.

The transmission upgrades at Bent Tree were recently completed and the rebuild of the transmission line at Whispering Willow was scheduled to be completed later this year. The upgrade of the transmission line from Whispering Willow and Franklin County wind sites is scheduled to be completed by June of 2013, at which time we forecast the capacity factor for our wind facilities to average 35%.

Moving to the unregulated side of our business, construction of the 100 megawatt Franklin County wind farm in Iowa is proceeding well. The total estimated cost of the project is approximately $235 million, excluding capitalized interest costs. Since this project is scheduled to be in service by year-end, it will allow us to elect the cash grant option. We continue to seek an off-take contract for this facility.

Before handing the call over to Tom, I would like to provide an update on the RMT sale process. In February, the Alliant Energy Board of Directors approved a plan to sell the RMT business doe to volatility caused by lack of a consistent federal renewable energy policy coupled with down pressure on project margins. We are in the midst of working with parties interested in acquiring RMT and we still expect the sales to recur by year-end.

As mentioned in our previous analysts call this year, RMT was moved to discontinued operations in our first-quarter 2012 financials. During the same call, we mentioned that the decision to sell RMT would result in a one-time $0.14 per share charge in the first quarter utility earnings due to a change in our state tax apportionment caused by the removal of RMT revenue. We excluded this one-time charge from our 2012 guidance.

Let me recap the priorities as we execute our plans. First, our employees will continue to provide safe and reliable electric and gas service to our customers. Second, a key objective of our plan is to manage the costs borne by our customers. The rate freeze in Iowa and the proposed rate freeze in Wisconsin allow us to stabilize rates for our customers while earning on our additional rate base. Third, we are transforming our generating portfolio to one that is balanced and has the flexibility to comply with current and future environmental regulations. Finally, we will manage our companies focusing on operational and financial discipline with the goal of earning our authorized returns.

Thank you for your interest in Alliant Energy. I will now turn the call over to Tom.

Good morning everyone. We released our first-quarter earnings this morning with our GAAP earnings from continuing operations of $0.36 per share. Adjusting for items we typically exclude from guidance, first-quarter 2012 adjusted earnings were $0.50 per share. The 2012 non-GAAP adjustment is related to a $0.12 per share state tax apportionment charge that Pat referred to in her comments. Comparisons between 2012 and 2011 earnings per share are detailed on Slides two, 3 and 4.

We had a record-breaking warm weather during the first quarter of this year. We had an adverse impact on our results. Year-over-year first-quarter variance for weather resulted in a negative earnings per share impact of $0.16. We are in the process of taking steps to reduce costs to offset a portion of negative weather. Assuming normal weather for the remainder of 2012, we expect 2012 earnings to be at the lower end of our consolidated earnings guidance range of $2.75 to $3.05 per share.

Moving to the economy in our service territory, forecasted 2012 weather normalized retail electric sales are projected to increase very modestly over 2011. As a reminder, our 2012 guidance was based on no sales growth between 2011 and 2012. These trends are illustrated on supplemental Slide 5.

For the quarter, weather normalized retail electric sales, excluding the benefit of the extra day due to leap year, were up 1% at both IPL and WPL, driven primarily by the industrial class. Most of the industrial sales increase at IPL was the result of energy sales to cogeneration owners during their first-quarter outages. These outages ended in March. Thus, we do not expect increased industrial sales to continue for the rest of 2012. The tax benefit rider resulted in considerable quarter-over-quarter variation at IPL and the parent.

During first quarter 2011, the tax benefit rider was in place for about one month, whereas the tax benefit rider has been in place for the entire first quarter of 2012. The tax benefit rider resulted in a $0.07 per share lower earnings in first quarter of 2012 when compared to the first quarter of 2011. The projected quarterly earnings impact of the 2012 tax benefit rider as well as the actual quarter-over-quarter impact of the 2011 tax benefit rider is provided in supplemental Slide 6. As demonstrated in the slide, the tax benefit rider quarterly earnings timing is not anticipated to impact full-year 2012 results.

Turning to our financing plans, two of the primary factors influencing the financing plans are cash flow impacts from our current tax initiatives and our capital expenditure plan. We plan to finance our 2012 capital expenditure plan with cash flows from operations, the sale of IPL receivables, and the issuance of short and long-term debt.

Cash flow 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 2015 and assume modest pension contributions during the next few years. These cash benefits will be partially offset by credits to customers' builds in accordance with IPL tax benefit rider.

In March of this year, we extended IPL's receivable sales program to provide additional liquidity through March 2014. Our current financing plan anticipates issuing long-term debt of approximately $500 million in the second half of 2012.

We have several current and planned regulatory dockets of note for 2012. They are summarized in Slide 7.

I would like to provide a bit more detail on the base rate cases. Yesterday, we filed a proposal to freeze rates for 2013 and 2014 for our Wisconsin retail electric customers. We are also proposing to decrease Wisconsin retail gas rates by about $13 million for 2013 and then keep gas rates constant through 2014. This proposal includes the recovery of the Riverside acquisition, the Edgewater 5 SCR admission controls, and the baghouse and scrubber project at the Columbia Units 1 and 2. The proposed recovery of the capital costs is offset by increased deferred tax liabilities, reduction of capacity payments, and changes in the amortization of regulatory assets and liabilities, which include the conservation escrow. This proposal increases electrical rate base by approximately $400 million in 2013 and an incremental $150 million in 2014. The proposal includes no change to the authorized ROE of 10.4% and assumes that we continue taking the production tax credits for the Bent Tree wind farm.

The financial common equity is unchanged at 51%, but there was a change to the regulatory capital structure due to the decreased OBS adjustments. We believe this proposal is in the best interest of our customers and investors and we remain committed to earn our authorized return during the proposed rate freeze period. More details of this proposal are provided in Slide 8.

We expect the Commission will solicit comments from the public on WPL's proposal very quickly, and we do not anticipate the Commission will hold a hearing on this proposal. In accordance with the PSE rules, WPL will be filing its 2013 and 2014 fuel cost plans in the second or third quarters of 2012 and '13 respectively.

We plan to file an IPL gas retail gas rate case within the next 60 days with a 2011 test year. Interim rates will go into effect 10 days after the filing date and as anticipated, we will receive a final order on this case in the second quarter of 2013.

It has been seven years since base rates have changed for Iowa retail gas customers. During that period, plant additions have outpaced depreciation expense and the weather normalized residential use per customer has declined approximately 20%. We will be proposing the use of a temporary tax benefit rider to partially offset the requested gas rate increase to minimize the impact of customer rates. Over the course of this year, we will continue to work closely with our regulators and stakeholders who receive timely approvals to execute our strategic plan.

We very much appreciate your continued support of the Company and look forward to meeting many of you at the AGA conference this coming Sunday and Monday. The materials used for this conference as with all conferences will be available on our website prior to the event.

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

(Operator Instructions). Andrew Weisel, Macquarie Capital.

Good morning. I was hoping for just a little bit more detail on the WPL rate base. You gave some numbers there that were very helpful, just want to reconciled that versus the latest forecast. I believe, at EEI, you showed rate base pretty specific numbers for the next several years at WPL, but when I look at the numbers in the slide on 8 here, it looks a little bit lower. So if you can bridge the gap between those two?

Sure. First of all, thanks for your question. The single largest driver would be the deferred taxes due to the bonus depreciation. The last time those were updated in terms of rate base was the previous rate case which was our UR-117 which was the 2010 base year. So since then, we've been monitoring those but I think, as we do the reconciliation, you'll see that's probably the single largest adjustment is dealing with the deferred taxes.

If you go to supplemental Slide 8, we've tried to highlight some of the details, including the rate base, also the information that we filed with PCS yesterday and should be available hopefully today, it does take each of the electric and gas rate base components, does compare to the previous rate case to give you kind of highlight of the increased rate base that we have and how we propose to increase the offset.

Okay, so just to make sure I understand, the changes between EEI and today's numbers were based on bonus appreciation and not the actual filing versus what we have been talking about the past few months? Is that a fair way to put it?

That's correct.

Very good. Then lastly on the Iowa rate case, I believe you said sometime within the next 60 days, your previous presentation sounded like it would be more like this month. Is that being pushed back, and if so, why?

No. We would expect it would be other earlier end of the 60-day period.

Great, thank you very much.

Brian Russo, Ladenburg Thalmann.

Good morning. Could you quantify what the weather impact was versus normal?

It was about $0.12. That's both on the electric and gas side.

Okay, good. So we take your midpoint of $2.90 and subtract $0.12, that's where you alluded to being at the lower end of the guidance range, right?

That's correct.

Okay. Also in the WPL rate case filing, I reviewed it real quickly and it looks like you've got some sharing mechanisms if ROEs break of 10.65%. I'm just curious. Is that the other interveners protecting themselves from you-over earning, or are there any levers you might be able to pull that can put you north of 10.4%?

I think your observation is correct. Given the fact it is proposed a rate freeze, we wanted to make sure that it was appropriate for all parties. So as we've highlighted in Slide 8, there really is an ability for, first of all, WP&L to earn above it authorized 10.4% and it can retain that up to 10.65%. If we are able to successfully manage the business over 10.65% to 11.4%, there is a sharing of 50% of that. And anything above 11.4% then is deferred. Similarly, there's kind of a net on the bottom to the extent that our ROE falls below 8.5%, then WP&L can't file for case. So we think it's appropriate for all parties that there is a balance here.

Okay. Correct me if I'm wrong, but your 2013 WPL rate base is now $2.3 billion and the 2014 rate base is $2.4 billion?

The electric?

The total.

Yes.

Okay. You mentioned some offsets or O&M management to help offset some of the mild weather. I know, going into the year, you had a fairly aggressive cost management program. I was just wondering if you can maybe talk about some of those initiatives.

Sure Brian. The major initiative is really just delaying hiring and keeping positions open for longer.

Okay. The Iowa CCGT that's being planned, you mentioned better options. What are those better options?

When we issued the RFP, we asked actually for whole broad variety of options for, again, to fill long-term capacity and energy, but it's really owning a plant, PPAs, etc., there's a wide variety of options that we are going through right now, the analysis on.

Okay. Just back to the WPL rate base that you filed for (technical difficulty) less the deferred taxes I guess as a function of bonus depreciation, can you quantify what kind of cash flow is coming in the door that's offsetting the decline in rate base from prior disclosures?

I may be confused on your question. We're still in this position we are not paying federal taxes.

We do get the benefit, though, of bonus appreciation --

so it's (multiple speakers)

Okay.

As we talked about before, we had about $1 billion of NOLs at the end of '11, but we will get the benefit of that bonus depreciation going forward. But recognizing that until we completely eliminate our NOLs, which we expect in 2015, there will be some erosion of that NOLs but recognizing bonus depreciation will be used here in '12.

Great, thank you very much.

Jay Dobson, Wunderlich Securities.

Good morning. Tom, in the Wisconsin not settlement, but the filing you made, is there anything other than the conservation escrow that's moving around just from a modeling perspective, and understand the previous questions regarding rate base are going to impact that? But relative to the $16 million increase and then what seems to be entirely offset by a reversal of that conservation escrow, is there any other sort of key elements moving around in that filing?

There are also some adjustments that we have proposed to what I'm going to characterize as normal regulatory amortizations. If you recall, we have some reg assets, reg liabilities that are being amortized. Some of the amortization periods were actually adjusted, so that, coupled with and the usage of the conservation escrow, allows us then to offset the proposed increase. The schedule that we filed with PSC that should be available, it does provide a little bit more clarity in terms of the individual items, so I think you'll be able to model that once that information is available.

Got you. What would be the aggregate amount of that amortization? I assume it's being extended in life, so reduced on an annual basis, but what's the rough ZIP code of those?

It's nothing significant.

Okay. Got you. Then last quick question. Your transmission rates, I'm not sure you saw yesterday for (inaudible) hearing the New England transmission 206, and lots of folks are taking an opportunity to sort of look out to other places this might have an impact. Can you just talk about sort of your relationship between yourselves and ITC and sort of what's been happening locally in Iowa and whether this is a likely outcome for them?

Sure, Jay. It really hasn't been an issue in any of our jurisdictions right now. We are definitely carefully monitoring the situation, but it has not really been an issue at all. But, again, as it relates to ITC, anytime their rates will be up for review, we would definitely weigh in and have an opinion on that.

Got you. Great, thanks so much.

[John Ali], Decade Capital.

Great work with the settlement. I just have a few questions, and I apologize if this is repeating stuff. But it's -- the EEI slides for '13 and '14, EEI was higher by $200 million in '13, $300 million in '14. Why does that differential grow over the two years, or is that rounding?

No, we got the additional bonus that we would have also in 2013. That's certainly contributing to that as well as 2012. Now, keep in mind also we made reference to three specific in-service additions with Riverside and the Edgewater 5 SCR occurring at the end of '12, and then we've got the baghouse and scrubber at Columbia. That's occurring about midyear in 2014. So when you look at the 13-month average for (inaudible) '14, you don't see the full benefit of that in-service addition, so then going into the following year, you will see then the full effect of the baghouse and scrubber at Columbia. As Pat said, that is about $300 million.

Okay. What's the total cash flow of the bonus D&A that you took in '11?

The total bonus depreciation that we took? For WPL or -- (multiple speakers)

WPL.

It was about $300 million.

And was there any in '12?

Yes. We expect that to be about $200 million in 2012, at WPL.

Got you. On the equity layer, was that just a negotiating point that it went to 49% from 50%? Or is there something because of the -- I guess you went from PPAs to rate base, lower?

It is the [LBS] that's declining that's causing that slight reduction. But as we said, the financial capital structure is unchanged at 51%.

When we do your -- I guess when we calculate or try to calculate earnings power for the rate base, is it rate base times 50% or 49%?

Use the 49%

Use the 49%? Okay.

Yes. That's what the revenue requirements are based on.

Okay. Then you guys said you had the ability to over-earn. How much do you think you will in the next two years with the rate freeze?

Certainly, our objective is to earn our authorized return. We clearly have aspirations to earn above that, but right now we want to make sure that we are meeting our commitment to shareowners to earn that authorized return. But what's important is the proposal allows for, to the extent that we can earn more than that, there's a sharing mechanism in place.

Excellent, thank you very much.

Andy Bishop, Morningstar Financial Services.

Good morning. I was wondering if you could provide a little bit of clarity on your industrial demand strength and where in particular you're seeing that strength. I see you do have some customary declines there.

We've seen some increase in the industrial sales, as I mentioned in my prepared remarks. At IPL, we saw about a 4% increase compared to Q1 of 2012 back to Q1 of 2011. However, much of that was dealing with the co-gen facilities that we serve, some of those co-gen facilities were off to do planned outages. Those planned outages are done. So we think, at least for the remainder of 2012, that we will not see any significant increase from our prior forecast.

Great. One clarifying question on the RMT sale, you're expecting that still to close within 2012?

Yes we are.

Great, thank you.

Brian Russo, Ladenburg Thalmann.

Just to clarify on the $2.2 billion of the WPL rate base in '13 and $2.3 billion in '14. Was that Wisconsin jurisdictional only, so do we add [Virchow] sale of $229 million and then a $100-plus million for the Minnesota piece?

Yes. We should maybe clarify. There's no Minnesota piece, Brian, but the amount that we stated are all on a retail basis, so only electric. We made reference to the $2.1 billion. Gas is another $200 million on top of that. But clearly for the electric side, that's only the electric piece. So as you said, there will be wholesale component that you need to factor into your analysis.

Right. Okay. So we should add $229 million of wholesale on top of that to get the entirety of WPL's rate base?

Yes. That's a good proxy.

And then add another $126 million for Minnesota to kind of correlate to some of the slides you've been putting in your recent presentations?

You mean IPL versus Minnesota?

Okay, Minnesota's IPL, got you. Very good, thank you.

Ashar Khan, Visium.

(technical difficulty)

I'm sorry. We can't hear you.

(technical difficulty)

We cannot hear you.

There are no further questions at this time.

With no more questions, this concludes our call. A replay will be available through May 11, 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 contract me with any follow-up questions.

Ladies and gentlemen, thank you for your participation. This will conclude today's conference call.