Alliant Energy Corp (LNT) 2012 Q4 法說會逐字稿

Welcome to Alliant Energy's fourth quarter 2012 earnings conference call. At this time all lines are in 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. Please go ahead.

Good morning. I would like to thank you on the call and the 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, Senior 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 this morning announcing Alliant Energy's year-end 2012 earnings and affirmed 2013 earnings guidance. 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 those forward-looking statements. In addition, this presentation contains non-GAAP financial measures. The reconciliation between 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 now turn the call over to Pat.

Good morning and thank you for joining us today to review the year-end 2012 results. I am pleased to report that 2012 was a year that all Alliant Energy employees should be proud of and investors should be pleased with. Not only did we deliver solid financial results, we also made noteworthy improvements in reliability, customer service, generation availability and safety. Nothing is more important than the safety of our employees. 2012 was our safest year on record. Recordable injuries decreased 39% and lost time accidents decreased 36%. I am very proud of our collective focus and commitment to make sure our employees go home safely each and every day.

Let's start with our financial results. As we have previously discussed, the hot summer weather certainly contributed to higher earnings in 2012. However, excluding the impacts of weather, our non-GAAP 2012 earnings were 5% higher than the same measure for 2011. And the midpoint of our 2013 earnings guidance is forecasted to result in a weather normalized growth of 6% over calendar year 2012. This is consistent with our five year 5% to 7% weather normalized long-term earnings growth objective. We are updating our base year for our long-term growth to the 2012 non-GAAP weather normalized earnings of $2.93 per share. We also increased our common dividend to $1.88 per share annually, which is a 4% increase over the 2012 dividend rate. Our long-term objective is to maintain the targeted dividend in the range of 60% to 70% of consolidated earnings.

2012 was also one of the largest capital deployment years in Company history, totaling $1.2 billion. Included in this capital was the acquisition of the Riverside Energy Center, completion of the Franklin County Wind Farm, the installation of the SCR Edgewater Unit 5, and the beginning of construction of baghouses and scrubbers at our Ottumwa and Columbia facilities. Construction is proceeding well at these facilities and also at MidAms Neal 3 and 4 units. The expected end-service dates for most of these environmental controls is 2014, but the Neal 4 project will be in service later this year.

In 2012 we also deployed approximately $200 million in our electric and gas distribution system and continue to see the reliability improvements from our investments. On the regulatory front, we recently received the IUBs order of the new 11 year DAEC PPA which is effective with the expiration of the current contract in February 2014. All costs of the new DAEC PPA will flow through the energy adjustment clause.

Issues were raised in the docket about the potential double recovery of the capacity costs if IPL does not file a new base rate case in 2014. Since $135 million of DAEC capacity payments were included in the 2009 base rates, which was the last rate case, and starting in February 2014, all of the DAEC payments will flow through the energy adjustment clause. Though IUB acknowledges IPLs commitment to work with the consumer advocate and large customer groups to resolve this issue before the EAC tariff changes.

However, if the parties cannot resolve this issue, IPL will file a general rate case proceeding in the first quarter of 2014 along with a refund obligation with an effective date of the new DAEC agreement of February 22, 2014. Any required refund is based upon the IUBs final rate order in late 2014 and applied retroactively to February 22, 2014. We would like to extend the current three year base rate freeze that expires at the end of this year until the proposed Marshalltown generating station is placed in service, which is currently expected in the second quarter of 2017.

We are developing a rate stabilization plan that will avoid the need for multi-year rate cases and eliminate base-rate volatility for our customers. To stabilize rates for our electric customers during the 2014 through March 2017 time period, we will propose using the remaining funds available from the tax benefit rider. At the end of 2013 there will be an additional $230 million available to refund to electric customers. We remain committed and look forward to working with the Office of Consumer Advocate, industrial groups and other interested parties to reach agreement on a rate stabilization plan by February 2014.

If a rate stabilization agreement cannot be reached, the base rate case filed in early 2014 would include recovery of and return on rate base additions of approximately $500 million and other changes in revenue requirements since our 2009 test year case. We also anticipate that we would likely need additional rate cases before 2017, since electric rate base is expected to increase in late 2014 and 2015. As we discussed in the past, the DAEC capacity payment and base rates would offset the increase in revenue requirements.

In November 2012, IPL filed applications with the IOEs utilities board for advanced rate-making principles and site approval proposed Marshalltown generation station. Our proposed advanced making principles included fixed cost cap of $700 million, excluding AFUDC and transmission upgrades, and return on common equity of 11.25% with no application of double leverage. We expect a decision from the IUB by the end of this year and we have included the regulatory milestones related to these filings and supplemental slide 9 for reference. One of the milestones is going to be a testimony which is scheduled to be filed today.

In July 2012, we filed a construction authorization request with the PFCW for a scrubber and baghouse at Edgewater 5. We are expecting a decision from the PFCW on this matter soon after the hearing on March 5. Construction of this approximately $410 million project is expected to begin in 2014 and be completed in 2016.

In Wisconsin, we participate in transmission ownership through our 16% interest in ATC. MISOs transmission owner agreement requires that a project running between the facilities of two transmission owning members must be shared equally unless the parties agree otherwise. In recent rulings, FERC has directed ATC to negotiate conditions for the shared ownership for two projects; one with ITC and the other with Xcel. [2015] will be the first year we would see any impact to earnings generated from our ATC ownership if appeals are unsuccessful and if other projects do not fill a part or all of the void left in the capital expenditure plan as a result of these FERC decisions.

Let me summarize the key messages for today. We will continue to meet our 5% to 7% earnings growth and 60% to 70% common-dividend payout target. We are making great progress transforming our generation portfolio to one that is balanced with lower admissions 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 the goal of earning our authorize returns, while minimizing customer-rate volatility and increases. Thank you for your interest in Alliant Energy, and I will now turn the call over to Tom

Good morning everyone. Today we released our 2012 non-GAAP earnings from continuing operations of $3.05 per share which is at $0.10 per share increase over 2011 non-GAAP results. The growth in non-GAAP earnings is primarily a result of income taxes at IPL due to tax planning strategies, lower operations and maintenance expenses, higher WPL retail fuel recoveries, and higher AFUDC related to emission control projects. These positive EPS drivers were partially offset by higher depreciation expense, higher capacity charges for nuclear purchase power agreements, and record warm weather in the first quarter, negatively impacting electric and gas sales.

2012 weather resulted in positive earnings of $0.12 per share, $0.04 lower than 2011, weather impact of $0.16 per share. Comparisons between 2012 and 2011 earnings-per-share are detailed on supplemental slides 2, 3 and 4. The 2012 results reflect no material changes in weather normalized sales over 2011. And in 2013, we are forecasting no material changes in weather normalized sales over 2012. Sales trends between 2011 and 2012 weather normalized actuals and 2013 estimates are illustrated on supplemental slide 5. The electric tax benefit rider resulted in no earnings impact for 2012, just like it had no earnings impact in 2011. The actual quarterly earnings impact of the 2012 electric tax benefit rider, as well as the projected quarterly earnings impact to the 2013 electric and gas tax benefit riders, are provided in supplemental slide 6.

Turning to our financing plans; cash flows from operations are expected to stay strong, since we do not expect to make any material federal income tax payments until 2015. And, the 2013 cash flows will be impacted partially due to the credits to customer bills in accordance with IPLs tax benefit riders. Due to our current net operating loss position, the extension of bonus depreciation is not expected to impact our financing plans prior to 2015. With the extension of the bonus depreciation, we project approximately $150 million of cash in 2015. Also, if you look at bonus depreciation in isolation, we are forecasting a reduction of our previously released rate-base estimates by approximately $20 million and $60 million in 2014 and 2015 respectively. These forecasted rate-base amounts are projected to be evenly split between IPL and WPL.

Last week we announced the redemption of IPLs $150 million 8.375% preferred stock. Our current 2013 financing plan anticipates issuing long-term debt and/or preferred stock up to $500 million at IPL. Yesterday we announced the redemption of the WPLs $60 million of preferred stock. We currently have no plans to replace the preferred stock at WPL. The impacts of these financings is included in the 2013 guidance.

However, the one-time charges related to the redemptions are excluded from our 2013 guidance. We believe that with our strong cash flows and financing plan, we can maintain our targeted liquidity, capitalization ratios and credit metrics. Therefore, we do not plan to issue any material new common equity in 2013. We'll continue to assess our future common equity needs based on their pending regulatory approvals for the Edgewater 5 scrubber and baghouse and Marshalltown generating plant which we expect later this year.

Now let's review our 2013 guidance range of $2.95 to $2.25 (sic-see press release "$3.25") per share. A walk from the 2012 non-GAAP weather normalized actuals to the 2013 estimated guidance midpoint is shown on supplemental slide 7. The 2013 guidance assumes normal weather, continued cost controls, and approval from the IUB for the proposed $0.13 per share revenue requirement adjustment associated with the electric tax benefit rider. The 2013 guidance also reflects the impacts of WP&Ls previously announced retail rate freeze and gas rate decrease. And IPLs base rate freeze and settlement of its gas rate case.

The WPL rate freeze reflected electric rate base growth as result of the Riverside acquisition and placing 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 costs from the Riverside PPA and lower conservation expense resulting in no change to WP&Ls electric customers base rates in 2013. However, WP&L expects increased earnings from the reduction in purchase power capacity and conservation costs. The 2013 guidance also reflects a decrease in rates from the reduction in WP&Ls base rates effective January 1 of this year. Our 2013 guidance range forecast WP&L earnings is authorized return of 10.4%.

Now, let's turn our focus to IPL. IPL is in the last year of its current electric base rate freeze. We forecast IPL to benefit from the proposed increase in the electric revenues due to the proposed revenue requirement adjustment from the electric tax benefit rider, expected higher AFUDC from its environmental controls currently under construction, and continued cost controls. These benefits are expected to be partially offset by higher depreciation expense. Our 2013 guidance range forecast IPL earnings slightly less than its authorized return on common equity of approximately 10%.

As stated in our third quarter 2012 call, IPLs revenue requirement adjustment proposed for 2013 under the tax benefit rider is based upon tax planning strategies which led to the establishment of the electric tax benefit rider. If we had followed traditional rate-making practices in IPLs last electric rate case, these tax planning strategies would have reduced customer rates due to the tax benefits generated and increased customer rates due to the rate base impact from the changes of different taxes resulting in a net decrease in customer rates. Due to the materiality and uncertainty of these tax planning strategies, the IUB issued a 2010 accounting order to temporarily suspend the traditional Iowa rate-making practices until IRS certainty was reached. In 2012 we reached agreement with the IRS on the benefits of these strategies through 2011 tax year.

Thus, IPL submitted a proposal to the IUB in November 2012 to finalize the impact for these strategies in two ways. First, IPL proposed the final amount of the tax benefits from the IRS audit of these strategies to be reflected in the regulatory liability account available for tax benefit riders. At the end of 2013, IPL expects to have approximately $265 million remaining in the regulatory liability account. Second, the increase to electric rate base is proposed as a reduction to the regulatory liability account, resulting in a $0.13 of additional earnings in 2013, as illustrated on supplemental slide 7.

We anticipate a decision from the IUB in this matter before the end of the first quarter of this year. Given the changes expected in income taxes in 2013, supplemental slide 8 has been provided to assist you in modeling our forecasted effective 2013 tax rates for IPL, WP&L and AEC. As you can see from the walk, we are expecting lower effective tax rates in 2013 due to increased tax benefit rider billing, credits, and additional production tax credits.

Turning to our regulatory calendar, we have several regulatory dockets of note in 2013, in addition to our pursuit of a rate stabilization plan, which are summarized on slide 9. We expect three noteworthy decisions from the IUB in 2013. The first is a decision on the finalization of the electric tax benefit rider discussed earlier. The second relates to a decision regarding the settlements reached with the OCA related to the omissions plan and budget filings submitted by IPL and MidAm in April 2012.

And the third is the construction authorization and rate-making principles for the proposed Marshalltown generating plant. The hearing for the Marshalltown project is scheduled for May 21. In Wisconsin, we expect a decision from the public service commission of Wisconsin during the first half of 2013 regarding the Edgewater 5 scrubber and baghouse projects. The hearing for this project is scheduled for March 5. We very much appreciate your continued support of our Company. At this time I will 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 the call to questions from members of the investment community.

(Operator instructions)

John Alley, Decade Capital.

Good morning guys. I apologize, but I missed the first few minutes of the call.

I was wondering, your CAGR was 5% to 7%. What is the new base? And how many years does that extend to?

Sure. At the beginning of the call we mentioned that the new base would be 2012 non-GAAP with a normalized earnings. So that number is $2.93 per share. And we should go out five years.

Great. Thank you very much.

Brian Russo, Ladenburg Thalmann.

Good morning.

I apologize, but if you could just run through the impacts of bonus, depreciation again at the two utilities? That would be helpful.

Yes, Brian. We are going to see the cash benefit in 2015. And that is because of our NOL position. We, however, will see a slight rate-base reduction in 2014 and 2015 of $20 million and $60 million. So if we just look at that in isolation, that's what we would see in terms of the rate-base reduction compared to the information we've previously shared.

But the cash -- for the cash benefit is about $150 million.

We will be receiving that in 2015.

Okay so $150 million of cash benefit of the cash flow statement in 2015. And then the $20 million and $60 million in '14 and '15 rate-base adjustments are split evenly between the two utilities?

That is correct.

Okay. So when we look at your total rate base of $5.6 billion or so, this bonus depreciation seems to be fairly immaterial.

That is correct, Brian.

Okay. And then -- the Marshalltown review and approval process. Could you just comment on the RFP process that I think has concluded?

There are two RFP processes, so -- I apologize; I'll go back in history a little bit. We recently did an RFP process to see if there was a better alternative to the Marshalltown facility, and that was when the DAEC proposal was put on the table as well. There's another RFP process going on right now for the construction of the facility and that is still underway.

Okay. So do we have any details on the outcome of the first RFP on the other alternatives?

Yes and that will be part of the case.

Okay. So it is not public yet?

No.

Got you. And lastly -- on the IPL rate stabilization plan that you are working on -- any idea on the timing of when we might see a filing?

No. Brian, I wish I could give you a timing at this point but we really can't. We will be working with all of the interested parties and make sure that we get a good conclusion on this. But I don't want to commit to some time frame at this point.

Okay, so maybe the second half of '13 type of filing?

It could. But we cannot speculate at this point.

Thank you. Understood. Thank you very much.

(Operator instructions)

Andy Bischof, Morningstar.

Good morning. Actually just kind of a clarifying question.

Could you walk through again your plans for redeeming the preferreds and debt plans?

In IPL?

As I mentioned, we did release a press release last week indicating that we were going to redeem all of the 150 million of outstanding preferreds. And our financing plan at IPL includes an anticipated issuance up to $500 million of long-term debt and/or preferred stock in 2013. And at WPL we issued a press release stating that we are redeeming the 60 million of preferred stock; and is not our plan to replace the preferred stock at WPL.

Thank you. I appreciate you walking me through the finance plan again.

Andrew Weisel, Macquarie Capital.

Hello; good morning everyone.

My first question is -- I just want to make sure I understood the comments around potential rate cases. I understand you would like to extend the rate freeze until Marshalltown comes into service, but that you may need to file a rate case about a year from now if things don't work the way you are hoping. Did I hear you say that you also might need additional rate cases between those two? Or would it be one or the other?

Good morning, Andrew. We would need to file a case a year from now and then likely file another case before 2017.

Is it possible to have a multi-year plan instead of possibly three rate cases over four years?

That's what we consider the rate stabilization plan. Yes, that is definitely our preference, because we do not like the volatility on our customers base rates.

Okay, remind me the timing of when you would have an idea about that?

Yes, we'll be working on that this year. And again, Brian had the same question -- I really cannot commit to any time frame. But we would need to get this done before February of 2014.

But our goal would be to get something done this year. I just cannot commit to a time frame at this point.

Okay. Fair enough.

And then my only other question is, you mentioned no equity needs in 2013 in light of the $150 million of cash that you're expecting two years later. Any thoughts on the longer-term outlook for equity? And I know it will depend on approvals for Edgeside and Marshalltown, but maybe some best-case and worst-case scenarios?

Certainly the bonus depreciation will help in that respect. But, as we stated, until we get the order from the Public Service Commission here in Wisconsin relating to Edge 5 and the Marshalltown approval, it is premature at this time to be stating any specifics in terms of those future equity needs. But the point is, the bonus depreciation certainly will help in that regard; and as we get those two orders, which are expected this year, we will be able to add more clarity in terms of those potential future needs.

Understood, thank you.

Eli Kraicer, Millennium.

Good morning, it is Steve.

I have a question regarding the regulatory approval process for the CCGT. Are there hearings coming up in May regarding that? Is that correct?

Yes, there are. The testimony will be filed today in the hearings; if you look at scheduled 9 in the attached slides, the hearings are May 21.

Okay. And how should we think? Is there any interrelation between the regulatory process regarding the approval for the rate-making parameters for the plan and how you will ultimately deal or discuss the post-2013 rates for IPL? Are the two issues at all related? Or how should we think about that?

You know, Steve, we actually consider this our strategy, so we are relating the issues. However, we stated that the rate stabilization plan, we would like to go through the date where the new Marshalltown plant would be in service. So it would not be including the rate stabilization due to this facility itself. But up to that point.

Okay. Maybe I will follow up off-line on that.

Okay, but we would expect to have to file a rate case in 2017 for the Marshalltown gas plant.

Great, thank you.

(Operator instructions)

Andy Levi, Avon Capital.

Hello, good morning.

Good morning, Andy.

Just back on the rate stabilization plan -- I think you had discussed your desire to possibly work out a settlement on this, first going through a full proceeding. Can you give us any update on whether talks have begun? And what the status of that is at this point? I know that it is early, but any information would be great.

Yes, the information that I can provide is that the interested parties are well aware of our intentions here; and the goal, to stabilize rates for our customers. I really cannot say much more than that at this point.

Okay, I won't push you. Thank you.

Okay, thank you Andy.

Brian Russo, Ladenburg Thalmann.

Yes, can you remind us of the amount and the timing of when that parent debt matures in 2014? Is that the phones related?

Yes, it is October 2014.

Okay, and what is the interest -- what is the rate on that?

4%.

And how much is it?

$250 million.

Okay. And where does that flow through the income statement? Is it in the other non-reg and parent classification?

Yes.

Okay, thank you.

Thank you.

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 February 21, 2013, at 888-203-1112 for US and Canada; or 719-457-0820 for international. Callers should reference conference ID 824-4179.

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.

Again that does conclude today's presentation we thank you for your participation.