Alliant Energy Corp (LNT) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Alliant Energy's first quarter 2013 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 Pat Kampling, President, Chairman and Chief Executive Officer, 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 first quarter 2013 earnings and reaffirmed 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 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. We had a solid first quarter. Our non-GAAP earnings per share from continuing operations increased $0.22 per share over the first quarter of 2012. $0.14 per share is due to a return to near-normal temperatures in the first quarter of 2013 after experiencing a record warm winter a year ago. Tom will go over further details regarding our year-over-year earnings drivers a bit later on the call.

We have experienced very interesting weather so far this year, and yesterday was no exception. Some areas of our service territories received over a foot of snow, while other areas experienced nice summer weather only a few days ago. This spring, we went from dredging the river near one of our generating stations to ensuring adequate water supply to preparing to implement flood plans at our river stations. Today, we've managed the wet spring very well and using insights from our 2008 floods to guide our actions. We are pleased to report that the ice, snow, and the spring flooding have had little impact on our facilities or on our financial results.

Even more impressive is the fact that our employees worked through these challenging conditions while improving our safety record when compared to the first quarter of 2012. Hats off to our crews. Another first-quarter positive was in wind generation. Our first-quarter utility owned wind capacity factors increased from approximately 32% in 2012 to 40% in 2013.

Now, I would like to take a few moments to discuss a number of positive outcomes from our regulatory efforts. Last week, WPL announced a settlement with the EPA and the Sierra Club. The terms are consistent with the WPL's energy resource plan announced in 2012 and many of the commitments in the settlement are already underway. For our Edgewater unit 5, the settlement requires the addition of an SCR, which was completed late last year, and adding a baghouse and scrubber to the unit which was just approved by the PFCW yesterday. The estimated cost approved by PFCW is approximately $410 million, excluding AFUDC, and construction is expected to begin in 2014 and be completed in 2016.

For our Colombian units, the settlement requires the installation of a scrubber and baghouse of both units, which construction is currently underway and is expected to be completed in 2014. The settlement also requires the installation of an SCR at Columbia unit 2, which requires PFCW approval. We plan to file a Certificate of Authority in the second quarter of 2014 and estimate that our share of the construction expenditures to be between $100 million to $125 million. A great majority of this spend for this project will occur in 2017 and 2018, and we expect to place the SCR in service in 2018.

All capital expenditures associated with this settlement for the 2013 through 2016 has been in the capital expenditure guidance we have previously provided and is shown in slide 2. Construction is also progressing well on the installation of baghouses and scrubbers at Ottumwa and at mid- America's Neal 3 and 4 units in Iowa. The Neal 4 project will be in service later this year and the Ottumwa and Neal 3 projects are expected to be in service in 2014. A summary of the expected the construction expenditures for our tier 1 units over the next four years, the total project cost and the in service dates for the controls is provided on slide 3.

We have now included $20 million in 2016 for the Columbia unit 2 SCR on slide 3. We have also added into the midpoint of the estimated total project cost and in-service date for the SCR to this slide. However, we approved -- we had this $20 million in our 2016 overall environmental capital expenditure guidance shown on slide 2, the 2016 totals have not changed.

Now, I will update you on the proposed Marshalltown generating station in Iowa. On Monday, we filed with the Iowa Utilities Board a settlement agreement with the Office of Consumer Advocate regarding rate making principals. IPL's initial filing was for approval of eight rate-making principles prior to the beginning of construction. Of these principles, the OCA and IPL are an agreement on five of the eight principals, including the $700 million price cap for the project. The OCA and IPL originally had difference is on three of the principles, which were resolved in the proposed settlement. The proposed settlement includes our acceptance of the OCA's recommended return on common equity of 11% for the depreciable life of the facility, the use of 10.3% return on equity for the calculation of AFUDC, and both parties have withdrawn their respective positions on doubled leverage and have agreed that these issues can be addressed in the context of future rate cases or other proceedings.

On May 21, the IUB will hold a hearing for all intervening parties in the proceedings. We expect to received an IUB decision later this year. The IUB's decision to grant a certificate for contraction would be contingent upon IPL receiving all necessary permits and other regulatory approvals, including an air permit from the Iowa Department of Natural Resources and approval for construction of a natural gas pipeline, which was filed this week with the IUB.

An important piece of the IPL's resource plan is the Duane Arnold Energy Center PPA. We are pleased to receive the IUB's order for a new 11-year DAEC PPA, effective in February 2014. All costs of the new DAEC PPA will flow through the energy adjustment clause. Interveners raise concerns on the DAEC docket about the potential double recovery of capacity costs if IPL does not file a new base rate case in 2014 since $135 million of DAEC capacity payments were included in 2009 base rates, which was the last base rate case.

We are continuing to work with various stakeholders to extend the current three-year electric base rate freeze that expires at the end of this year. We are proposing to stabilize electric retail base rates at the current levels until the proposed Marshalltown generating station is placed in service, which is currently expected in April of 2017. Our proposal would avoid the need for multiple rate cases over the next few years and eliminate electric base rate volatility for our customers. We will continue to work with the parties and have the ability to utilize the remaining funds available from a tax benefit rider to facilitate base rate stabilization. At the end of 2013, there will be approximately $230 million available to refund to electric retail customers.

The IUB acknowledges IBL's commitment to work with the consumer advocate and large customer groups to resolve this issue before the DAEC charges start flowing through the energy adjustment clause. However, if the parties cannot resolve this issue, IPL will file a general rate case proceeding in the first quarter of 2014 along with the refund obligation with an effective date of the new DAEC agreement of February 22, 2014. Any required refund will be based upon the IUB's final rate order in late 2014 and applied retroactively to February 22, 2014. We remain committed and look forward to working with the 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 base rate additions of approximately $500 million and other changes in revenue requirements since our base 2009 test year case.

As we discussed in the past, the DAEC capacity payment and base rates would offset the increase in revenue requirements related to higher rate base, depreciation, interest, and associated operation and maintenance expenses. We also anticipate that we would likely need additional rate cases before 2017, but select rate base is expected to increase during that period.

Let me summarize the key messages for today. We expect to meet our 5% to 7% earnings growth of 60% to 70% common dividend payout target. We are making great progress 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 relations. We are focused on working safely, providing excellent customer service and improving reliability. We will manage our Company focusing on operation and financial discipline with the goal of earning our authorized returns while minimizing customer rate volatility and increases. And finally, we'll work closely with our regulators and stakeholders to receive our remaining approvals in a timely manner. Thank you for your interest in Alliant Energy. I will now turn the call over to Tom.

Good morning, everyone. Today we released our first quarter 2013 earnings. Non- GAAP earnings from continuing operations were $0.72 per share, which is a $0.22 per share increase over first quarter 2012. First quarter 2013 weather resulted in a positive earnings of $0.02 per share compared to a loss of $0.12 per share in the first quarter 2012. This resulted in a $0.14 share positive variance. Other positive drivers were a quarter over quarter tiny impact of IPLs electric and gas tax benefit riders, elimination of capacity charge related to WPL's Riverside PPA, a 2013 revenue requirement adjustment related to IPL's tax initiatives, and lower energy conservation costs recovery amortizations at the WPL. These positive EPS drivers were partially offset by higher WPL depreciation expense, reduced retail gas base rates for WPL starting in January 2013 and losses with ADR's Franklin County wind farm.

First quarter comparisons between 2013 and 2012 earnings per share are detailed on slides 4, 5, and 6. We are reaffirming our 2013 guidance of $2.95 to $3.25 a share. While we are pleased with first quarter results, we are a third quarter Company due to our summer load -- summer peak load, thus, we are not making changes to our guidance at this time. In our consolidated earnings guidance walk between 2012 and 2013, which has been provided in our investor relations presentations, we highlighted several drivers for the forecasted year over year earnings results. One of the largest drivers is the forecasted $0.29 per share increase in earnings due to a lower purchase power capacity cost, primarily related to the Riverside Energy Center, which WPL purchased on December 31, 2012. To assist with modeling quarterly earnings projections, please note that of the $60 million annual Riverside capacity payments, approximately $6 million was paid in the first quarter, $28 million -- excuse me, $20 million was paid in the second quarter, $28 million was paid in the third quarter, and $6 million was paid in the fourth quarter.

The economy in our service territories continued to slowly improve. The forecasted 2013 retail electric sales reflect relatively flat weather normal sales when compared to 2012. Sales trends between forecasted 2013 and weather normalized 2012 by customer class are illustrated in supplemental slide 7. The forecasted decrease in IPL's industrial sales in Q1 over 2012 weather normalized sales is due to cogeneration customer outages, which increased IPL's industrial sales in the first quarter of 2012. The decreased sales to cogeneration facilities resulted in less than $0.01 per share impact to first quarter 2013 earnings.

Excluding the IPL cogeneration variances from industrials would have resulted in a forecasted slight increase of industrial sales growth resulting from plant expansions and general industrial forecasted increased use. IPL's electric and gas tax benefit riders are expected to have no earnings impact for 2013, just like they had no earnings impact in 2011 or 2012. The forecasted quarterly earnings impact of the 2013 electric and gas tax benefit riders, as well as the actual quarterly earnings impact of the 2012 electric tax benefit rider are provided in slide 8.

Turning to our financing plans, cash flows from operations are expected to remain strong since we do not expect to make any material federal income tax payments until 2015. Please note the 2013 class flows are impacted by reduced customer bills in accordance with IPL's tax benefit riders. During the first quarter, we redeemed IPL's $150 million 8.375 preferred stock and issued $200 million of 5.1 preferred stock. During the first quarter, we also redeemed WPL's $60 million of preferred stock in have no current plans to replace the preferred stock at WPL. Our current 2013 financing plan anticipates issuing long-term debt up to $300 million at IPL. The impact of these financings are 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, financing plan, we can maintain our targeted liquidity, capitalization ratios, and credit metrics. Therefore, we do not plan to issue any material new equity in 2013 and we expect to announce our 2014 financing plans later this year. Our future financing plans will be significantly influenced by the timing of the construction expenditures for the approved Edgewater 5 scrubber and baghouse project and the proposed Marshalltown facility. We expect a regulatory to decision on the Marshalltown generating station in or before the fourth quarter. Slide 9 has been provided to assist you with modeling on our forecasted 2013 effective tax rates for IPL, WPL and AEC.

Turning to our regulatory calendar, we have made significant progress to date on the 2013 regulatory dockets, which are summarized on slide 10. We are awaiting one major decision yet this year, which is on the construction authorization and the rate-making principles for the proposed Marshalltown generating station. The next major milestone in these proceedings is the May 21 hearings for all intervening parties. In addition to these proceedings, we continue discussions with the OCA and other stakeholders regarding our proposed rate stabilization plan, which would run from January 2014 until the anticipated in-service of Marshalltown generating station, which is scheduled for April 2017.

We very much appreciate your continued support for the Company. You are invited to join us at our annual meeting next week, which will be held on May 9 in Cedar Rapids. At this time, I will turn the call back over to the operator to facilitate questions and answers.

Thank you, Mr. Hanson. At this time, the Company will open up the call to questions from members of from the investment community. Alliant Energy management will take as many questions as a can within the hour timeframe for this morning's call.

(Operator Instructions)

We'll pause for just a moment to allow everyone an opportunity to signal for questions. Brian Russo, Ladenburg Thalmann.

Hi, good morning.

Good morning, Brian.

Just curious on slide 7, you have your normalized full year weather normalized sales outlook, and it just looks like the WPL sales forecast is just a little more positive, I would say, then IPL's, you mentioned the cogen, I think at IPL. But maybe you could just comment on the different trends you're seeing in each service territory.

Brian, to be honest with you, we are cautiously optimistic when we see these numbers as well. But we have had four years of extreme weather, so we are still predicting that sales are going to be flat because weather normalization is part art, part science. But we are still predicting flat, but we are encouraged with these numbers on the slide as well.

Okay, and what does the Marshalltown spending profile look like? Could you be more specific by year?

Brian, if you would go to supplemental slide 2, it's highlighted beginning in 2014 with the green bars, and then it continues and '15 and '16 as well.

Okay. Will your Q have the actual breakdown?

Yes, our 10 K has it by year.

Okay. And lastly, the Franklin wind farm, I think you mentioned what the loss on a per share basis was in first quarter of '13. What are you assuming in your annual guidance for that?

We are still assuming $0.05, Brian, and the $0.02 that's in the walk in the press release was over last year. We had some capitalized interest last year.

Okay. Thank you very much.

James Dobson, Wunderlich Securities.

Good morning, Pat. Continuing on the Franklin County wind, can you talk a little bit about your contracting efforts there, how those are advancing? And then just your latest thoughts on monetization possibilities for that asset?

Sure. As we mentioned in the past, the critical path we're on right now with Franklin County is to make sure that the transmission constraints get alleviated. We don't expect that to be complete probably until the third quarter. So, we are working on that as our first priority. I would like to say though, in the first quarter, even with the constraints, the capacity factor at the site was 34%. We are pleased with the production at the facility. But right now, we're not actively looking at any PPAs or selling facility.

Okay, fair enough. And then on the Iowa settlement, I know it's a fluid situation, but give us your latest thoughts on the potential for a settlement before you would be filing that rate case?

Sure. The discussions are definitely still ongoing. I'm encouraged by the discussions, but it's too early to predict any output at this point.

Got you, and timing would still be -- we should see some advancement on that throughout the year, but it would really come to a head as we get towards the fourth quarter, I would imagine, since you would be filing that rate case, if you were, certainly very early in first-quarter '14?

Yes. This is a top priority of ours, Jay, so we're working this very, very hard. But again, it's too hard to predict what the timing would be at this point.

Okay, great. We will look forward to watching for updates on that. Thanks.

Thank you.

(Operator Instructions)

Andrew Weisel, Macquarie Capital.

Good morning, guys. I'm glad you were able to shovel your way out to get to the office for the call today.

We are laughing, but we really don't mean it.

Just one more clarifier on the load growth forecasts, it looks like WPL was taken up and IPL came down little a little bit related to the 4Q slides. How much of that is the actual results from 1Q versus a change in the outlook?

It's first quarter.

Okay.

And as Pat said, again, --

Weather normalized first quarter.

Yes, weather normalized. And just to reiterate what Pat said, given the fact that we have had four years of restrained conditions in terms of our weather normalization calculation, and we recognize that we do go out one decimal point to the right here, it might imply a level of accuracy that may not exist. But we continue to look at that, and as Pat said, we are cautiously optimistic with the sales.

Okay. That makes sense. And then just one I wanted to clarify. I understand that the cogeneration outages last year may have sort of inflated the industrial volumes at IPL. But the forecast for the full-year came down even relative to the February slide there. Just wondering, is that all 1Q coming in lower than you expected, or is that the dust settling on some of the cogen numbers from last year?

No, it's the one quarter.

Okay, great. Thank you, and congratulations on the progress you have made in the past couple of weeks.

Thanks, Andrew.

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

With no more questions, this concludes our call. A replay will be available through May 10, 2013, at 888-203-1112 for the 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 again, that does conclude today's conference. We thank you for your participation.