Alliant Energy Corp (LNT) 2012 Q3 法說會逐字稿

Thank you for holding, ladies and gentlemen. Welcome to the Alliant Energy's third-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 the call over to your host, Susan Gille, Manager of Investor Relations at Alliant Energy.

Good morning. I would like to thank all of you on the call and on the webcast for joining us today. We appreciate your participation. With me here today are Pat Kampling, Chairman, President, and Chief Executive Officer; Tom Hanson, Vice President and CFO; and Robert Durian, Controller and Chief Accounting Officer; 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 announcing Alliant Energy's third-quarter 2012 earnings, updated 2012 earnings guidance, updated 2012 through 2016 capital expenditure guidance and 2013 earnings guidance and dividend target. 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 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 will turn the call over to Pat.

Good morning and thank you for joining us today. First, on behalf of all the employees at Alliant Energy, I would like to offer our encouragement and support for those of you impacted by Hurricane Sandy. We hope that you, your families, and your businesses are on a path to recovery and wish you all the very best. I must recognize the over 200 dedicated Alliant Energy employees who have been working in New York. I also want to thank them and their families for the personal sacrifices they have made to help those in need. And to many of you on the call, our employees certainly appreciate the gratitude and encouragement you have shown our crews as you have seen them in your neighborhood. However, a very special thanks go to our employees who are maintaining the excellent customer service and liability here at home while our crews are away. I couldn't be prouder of the compassion, work ethic and dedication of our entire organization. And speaking of dedication, with Veterans Day just a few days away, I would also like to take a moment and pay tribute to the 400 proud veterans that work here at Alliant Energy and to those veterans that are on the call with us today.

This morning we issued a press release that provided third-quarter results, revised 2012 earnings guidance, a slight revision to the capital expenditures for 2012 through 2016, and earnings guidance and a targeted dividend level for 2013. Tom will provide the detail on the quarterly financial results in year-end 2012 and 2013 projections, but in summary, I am pleased to let you know that for 2012, the midpoint on the guidance increased by $0.07, the targeted 2013 dividend level is 4.5% above current levels, and adjusting 2012 for weather impacts, the 2013 midpoint of guidance is 10% above expected 2012 results. This is consistent with our 5% to 7% weather-normalized long term earnings growth goal and targeted dividend payout ratio of 60% to 70% of earnings.

Supplemental slide 2 provides the comparisons to our current 2012 and 2013 guidance midpoints. The 2012 guidance on this page includes the $0.14 of weather benefits; therefore is not weather-normalized. Much of the focus over the last year has been on IPO's regulatory strategy for the orderly transition of our generating fleet, with the objective of managing total customer costs. Our regulatory strategy is impacted by a number of key initiatives, including the 2013 expiration of our Iowa retail electric base rate freeze, through post-extension of the DACPPA, several emission control investments, the proposed Marshalltown Generating Station, and the disposition of the remaining electric tax benefit rider funds. Our objective is to continue to pursue a solution with Iowa stakeholders to stabilize retail electric base rates until the Marshalltown Generating Station is in service in 2017. This objective is achievable, since we expect that the decline in revenue requirements related to the DAEC capacity payments will be offset by increases in cost of service and rate base through 2016.

Approximately three months ago, IPL filed an amendment to the DAEC sale docket to request approval from the IUB for an 11-year extension of the PPA and recovery of the new charges through the Energy Adjustment Clause. A hearing on this matter will be held in December and we are expecting a decision on this filing in February 2013. Currently, $135 million is reflected in Iowa retail electric base rates for the DAEC capacity payment. The current purchase power agreement ends in February 2014, and that year's capacity payment totals $28 million. In the event a base rate settlement is not reached for years 2014 to 2016, we are prepared to file a test year 2013 retail electric rate case in early 2014. We would expect the 2013 base -- rate base and that portion of the 2014 rate base additions that occurred prior to the filing date to be included in interim rates. A majority of the 2014 rate base would be included in final rates.

Supplemental slide 3 shows projected IPL rate base for 2013 through 2015. As you can see from the slide, rate base is expected to grow from the time of the rate freeze until 2014 by over 20%, or $600 million. The projected 2014 rate base does include the Neil 3 and 4 and Ottumwa emission controls projects. Later this month, we plan to file an application with the Iowa Utilities Board for advanced rate-making principles and site approval for the Marshalltown Generating Station. A proposed advanced rate-making principles included fixed cost cap of $700 million, excluding AFUDC and transmission upgrades, return on common equity of 11.25%, and no double leverage penalty.

Highlights of the filing and the expected regulatory approval schedule are included in supplemental slide 4. We expect a decision from the IUB in approximately 12 months after filing. We anticipate the Marshalltown Generating Station by itself would increase customer rates approximately 7% in 2017 and another 3% in 2018. This assumes that an April 2017 end service date. The electric tax benefit rider will continue to be used to mitigate overall customer costs at IPL. There is still approximately $250 million remaining to be refunded back to customers starting in 2013. We will work with stakeholders to develop an appropriate refund plan to best stabilize rates.

Next, let me quickly brief you on all of our construction activities. We currently have over 500 contract workers on the property assisting with all our projects. The construction of the scrubber and baghouse at our Ottumwa facility is transitioning from foundation work to steel erection, and this project is expected to be in service in 2014. In addition, MidAmerica is currently installing baghouses and scrubbers at Neil Units 3 and 4. A portion of these projects will be going into service in 2013, and the remainder in 2014. In Wisconsin construction of the Edgewater 5 SCR and Columbia Units 1 and 2 baghouse and scrubber is well underway. We are pleased to report that the Edge 5 SCR tie and outage is complete within budget and performance testing has begun. The controls are expected to be in service by the end of this year.

Steel work is underway at Columbia, and a project is expected to be in service in the first half of 2014. Both of these projects were factored into the WPO retail electric rate settlement for 2013 and 2014. In July, we filed the construction authorization request with the PSCW for a scrubber and baghouse at Edgewater 5. We expect approval in mid-2013, and construction will be approximately $410 million project is expected to begin in 2014 and be completed in 2016. By the end of this year, we will be adding two generating facilities to our fleet, which are the Riverside Energy Center and our unregulated Franklin County wind farm.

All regulatory approvals are now on hand for WPL's $395 million purchase of the Riverside Energy Center. With the addition of the 95 megawatts of capacity at Edgewater Unit 5 and the incremental 100 megawatts of capacity upon the purchase of Riverside, WPL has almost fully replaced the capacity that will be lost with the 2013 expiration of the Kewaunee PPA. Dominion's plan to shut down Kewaunee by the middle of 2013 is not expected to have a material impact on WP&L. The contract terms will remain in effect through the end of 2013.

At the Franklin County wind farm, I am pleased to report that construction is substantially complete, and over one-third of the 100 megawatts have been commissioned and are in test mode. 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 state] contract for the facility, but in the meantime, we will be selling this power into the [my sell] market.

Our 2012 through 2016 capital expenditure plan has been updated slightly to reflect current timelines for all of our construction projects. Our new detailed capital expenditure plan is provided in the earnings release we issued this morning and the WPL/IPL split of the expenditures will be provided in a third-quarter 10-Q filing, which will be submitted to the SEC today. Before handing off to Tom, I am pleased to inform you that we have planned a letter of intent on the sale of RMT. We are currently working on the final details of the sale and expect to close in December.

Let me summarize the key messages for today. We continue to meet our 5% to 7% earnings growth and 60% to 70% dividend payout target. We have increased the midpoint and narrowed the range of 2012 earnings guidance, provided earnings and dividend guidance for 2013. We are making great progress on transforming our generating portfolio to one that is balanced with lower emissions, and has the flexibility to comply with all existing and currently proposed environmental regulations. We are focused on working safely, providing excellent customer service, and improving reliability. And finally, we will manage our company, focusing on operational and financial discipline, with a goal of earning our authorized returns while minimizing customer rate increases.

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

Good morning, everyone. We released third-quarter earnings this morning, with our GAAP earnings from continuing operations of $1.34 per share. There are no adjustments to GAAP earnings this quarter. 2012 third-quarter earnings are up over the third quarter 2011, primarily due to the impacts of warmer weather and the timing of the electric tax benefit rider. These positive EPS drivers were partially offset by expected increases in depreciation and new purchase power capacity expenses. Comparisons between third-quarter 2012 and 2011 earnings per share are detailed on supplemental slides 5, 6, and 7.

The third quarter 2012 weather resulted in positive earnings on electric sales of $0.20 per share, $0.04 higher than third-quarter 2011 weather impact of $0.16 per share. Year to date, weather increased earnings $0.14 in 2012. With the higher earnings from summer weather, we are planning to incur some additional expenses in the fourth quarter to get a head start on some key operational initiatives. These initiatives include tree trimming, providing our field and plant employees with flame retardant pants, and enhancing our business continuity planning. As a result of the earnings impacts of the weather and these initiatives, we narrowed the 2012 earnings guidance range to $2.90 to $3.05 per share. As a reminder, our 2012 guidance was based on no material growth in weather normalized sales between 2011 and 2012, and that is still our forecast for this year as well as next year. Sales trends are illustrated on supplemental slides 8 and 9.

The electric tax benefit rider resulted in quarter over quarter variation at IPL in the parent of $0.04 per share of higher earnings in the third quarter of 2012 when compared to the third quarter of 2011. The actual and projected quarterly earnings impact on the 2012, as well as the actual quarterly earnings impact on the 2011, electric tax benefit rider was provided in the earnings release issued this morning. As demonstrated in the earnings release, the electric tax benefit rider quarterly issue -- timing issue is not anticipated to impact full-year 2012 results. The walk from the 2011 to 2012 projected effective tax rates for IPL, WP&L, and AEC is provided on supplemental slide 10.

Turning to our financing plan, we believe that with our strong cash flow and financing plan, we can maintain our target liquidity, capitalization ratios, and credit metrics. Our current financing plan anticipates issuing long-term debt up to $375 million in the third -- excuse me, in the fourth quarter of 2012, including up to $300 million for the acquisition of Riverside. During the third quarter of this year, our service company issued $75 million in debt to finance the acquisition of our corporate headquarters building in general working capital. We do not plan on issuing any new common equity through 2013. We will continue to assess our future equity needs based on the regulatory approvals received for the various large capital spending projects that we are proposing and also based on our ongoing assessment of evolving market conditions. Cash flows from operations are expected to stay strong, since we do not expect to make any material federal income tax payments until 2015. These cash flows will be partially offset with credits to customer bills in accordance with IPL's tax benefit rider.

Now, let's review our 2013 guidance. This morning we issued our consolidated 2013 guidance range of $2.95 to $3.25 per share. A walk from the midpoint of the 2012 to the 2013 estimated guidance ranges is shown on supplemental slide 11. Starting with utilities, the 2013 guidance assumes normal weather and is based upon the impacts of WP&L's previously announced electric retail rate freeze and gas rate decrease, and IPL's proposed settlement of its gas rate case. The WP&L rate case reflected electric rate base growth as a result of the Riverside acquisition and placing the Edgewater 5 SCR in service at the end of 2012.

The increase in electric revenue requirement for 2013 from these rate-base editions was completely offset by the impact of lower purchase power capacity cost from the Riverside PPA and the lower conservation expense, resulting in no change to WP&L's retail electric customers' base rates in 2013. Despite no change in WP&L's electric customers' base rates, WP&L expects to increase earnings from the reduction in purchase power capacity and conservation costs. The 2013 guidance also reflects a decrease in earnings from the $13 million annual reduction in WP&L's gas base rates effective January 1, 2013. Our 2013 guidance range forecast that WP&L is expected to earn close to its authorized return of equity of 10.4%, and we expect to infuse $100 million's equity from the parent into IPL later this year for the Riverside acquisition.

Now, turning to IPL. IPL is forecasted to benefit from an increase in electric revenues from a revenue requirement adjustment proposed with the finalization of the amounts for its electric tax benefit rider, higher AFUDC from its environmental control projects currently under construction, and lower income tax expense from certain tax projects. These benefits are expected to be partially offset by higher DACPPA capacity costs, as well as higher depreciation expense in 2013 when compared to 2012. Our 2013 guidance range forecast that IPL is expected to earn slightly below its authorized average return on equity of approximately 10%.

The revenue requirement adjustment proposed for 2013 is based upon three tax projects which were initiated prior to IPL's 2009 test year retail electric rate case, which led to the establishment of the electric tax benefit rider. These projects were the allocation of flood insurance proceeds, the allocation of mixed service cost, and the deduction of additional repair expenditures. If we had followed traditional Iowa rate-making practices in IPL's last electric rate case, these projects would have changed customer rates by reducing tax expenses and increasing rate base. Due to the materiality and uncertainty of these projects the IUB issued an accounting order in 2010 to temporarily suspend the traditional Iowa rate-making practices and not reflect these projects in rates until IRS certainty was reached. We have now reached agreement with the IRS on the benefits of these three projects through the 2011 tax year.

With certainly achieved, IPL is proposing to finalize the reconciliation of the rate impacts for these three projects to reflect traditional Iowa rat- making practices in two ways. First, the reduction of tax expense will be updated to reflect the final amount of billing credits available to electric customers based on IRS act -- audit results. Second, the increase to electric rate base will be proposed as an adjustment to the billing credits, which is expected to result in $0.13 of additional revenues in 2013, as illustrated on supplemental slide 12. This proposal has been reflected in the 2013 tax benefit rider filing, which is expected to be made with the IUB in November 2012. Given that changes expected in the income tax for 2013, supplemental slide 13 has been provided to assist you with modeling our forecasted 2013 effective tax rates at IPL, WPL, and AEC.

Finally, with respect to our guidance, we turn to the projections for the parent and non-regulated businesses. We forecast that the transportation business remains steady. Earnings per share between $0.11 to $0.13. The parent will continue paying interest on $250 million in debt at an interest rate of 4%.

The Franklin County wind farm will be fully operational by the end of 2012. We are still investigating off-take options for this facility. Our 2013 guidance assumes this facility will operate as a merchant generator in 2013 at an estimated $0.04 loss. The loss, primarily due to lower expected short-term electricity prices, as well as interest and depreciation expenses that begin with the start of operations. The forecasted weather normalized EPS growth from the midpoint of 2012 earnings guidance to the midpoint of 2013 earnings guidance is 10%. This growth contributes to our forecasted long-term earnings growth rate of 5% to 7% based upon weather-normalized 2010 earnings of $2.62 per share.

Turning to our regulatory calendar, we have several current and planned regulatory dockets of note for the rest of 2012 and for the first quarter of 2013, which are summarized on slide 14. In December, the IUB has two scheduled hearings relating to IPL filings. The first is for the Iowa gas case. In August of this year, a settlement agreement was filed with the IUB, which contains an annual $11 million gas increase. As part of this settlement, we propose to use a temporary gas tax benefit rider of approximately $36 million to minimize the impacted customer rates. This amount is expected to be spread over a three-year period. The second hearing in December will address our request for approval of the new DACPPA, which would start in February 2014.

We are expecting four decisions from the IUB during the first quarter 2013. The first relates to decisions concerning the emission plan and budget filings submitted by IPL and MidAmerican in April 2012. IPL and MidAmerican recently filed settlements reached with the OCA for the emission control projects at George Neil, Ottumwa, and Lansing generating facilities. The second decision is regarding our proposal to change the Iowa energy adjustment rules to include costs or credits resulting from future EPA rule changes, emission control chemicals, and renewable energy credit revenues, as well as an option to include production tax credits. The third is a decision of the November filing for the 2013 retail electric tax benefit rider credits and related revenue requirement adjustment for 2013 being proposed. And the fourth is the transmission cost factor for 2013.

We very much appreciate your continued support of our Company and look forward to meeting with you at EEI. The slides to be discussed at EEI will be posted on our website later today. At this time, I will turn the call over to the operator to facilitate the question and answer session.

Thank you, Mr. Hanson. 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)

We will pause for a moment to allow everyone an opportunity to signal for questions. Jay Dobson, Wunderlich Securities.

Hey, Tom, Pat. How are you? Quick question. The contract cancellation that you have in the quarter-over-quarter walk, I assume that's Riverside? But can you confirm what that is?

No. That is a long-term service agreement at Emery that we're stepping out of.

Okay. Got you. So, that's almost like a nonrecur. That's something that we won't see again.

That is correct.

Okay. Fair enough. And then, Pat, on the Franklin County plant, I noted there -- we're now looking for a loss. And certainly, a contract could potentially mitigate that. But, how do you think about sale opportunities of that asset? Obviously, an unregulated wind is probably not core to what you are trying to accomplish.

Sure. Jay, we went down this path. We knew that this was the least risky option for us was just to complete the site before the tax credits expire, but we're still open to many different ideas on what to do with the facility. Right now we are just willing to ride the MISO market, even though the costs are lower, just because of the long-term pricing of PPAs right now. We are definitely open for all types of options on that as we go forward.

Okay. Got you. And that $0.04 reflects current market environments, so --?

Yes, yes.

Okay. Fair enough. Then, on the Iowa rate base that you included in the supplemental slides, does that include CWIP or not include CWIP?

It does not include CWIP.

Does not include CWIP. Given the changes in the CapEx -- I know it was only about $50 million net across 2012 to 2016 -- would the CWIP balances change a lot from what you had previously disclosed, appreciating that they're likely be included in the slides you publish this afternoon?

No, no.

Okay. Great. Thanks very much.

Thanks Jay.

See you Jay.

(Operator instructions)

Brian Russo, Ladenburg Thalmann.

I apologize because I got on the call a little bit late. The Iowa rate proposal -- has that been filed yet or should we expect that shortly?

That will be filed here in November.

Okay. In November.

Well, I should say probably at the end of November.

Are you talking about Marshalltown Generating Station, Brian?

No, I'm referring to a proposed rate structure in 2014.

Right. No, that has not been filed. We'll -- we are still working with the stakeholders to find an appropriate method to come up with a rate stabilization plan. We can talk to you when we see you at EEI over the weekend, but you'll see in the slides that we posted, the rate base additions will be really offsetting the reduction in the capacity payment.

Okay. Just to clarify the rate base numbers for IPL in the current slides, that's after any deferred tax adjustment, correct?

That's true, yes.

Then, just on the rate stabilization plan, I think you said earlier the goal is to keep rates where they are and backfill it with CapEx. Would you be in a position of over earning in 2014, and therefore you might look to implement some ROE sharing band?

That's definitely open. The over earning, though, is not going to be very meaningful, though, Brian, as you look at the additional rate base that's been -- will be added to IPL.

Okay. If I heard you correctly, if you don't reach a rate stabilization planned settlement, you will file in '13 an IPL for rates in '14, and also include 2014 rate base?

Sure. What we'll do, Brian, is file at the end of the first quarter in '14, which is really a '13 rate base, but you can also file for first-quarter additions to rate base. It will be hybrid of '13 plus the first quarter additions of '14 that we would file, if we have to go down that path.

Okay. Great. Then, on the 2013 guidance, I noticed this $0.11 year-over-year positive for higher PTCs and change in tax accounting, that's in related to property. Could you just add some background on that?

Yes. With respect to the higher PTCs, we would expect that will be additional generation from the Bent Tree project, and to a lesser degree, at Whispering Willow-East. And then the tax method change that we're proposing is that this would allow us to take an immediate deduction for cost removal items in IPL service territory, which would then allow us to capture the benefit that we have highlighted on slide 11.

Okay. Is that ongoing?

Yes. That would be a change in method.

Okay.

On a going-forward basis, but we would continue to see some continuation of that benefit in future years.

Okay. And then, what's the load growth assumption in '13 verses '12?

In the supplemental slides we have identified that, but the reality is it's virtually flat. We have a slide that shows '11 to '12, and then '12 to '13, but for all intensive purposes it's flat.

Okay. Thank you very much.

Thanks, Brian.

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

If no more questions, this concludes our call. A replay will be available through November 16, 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 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.

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