Alliant Energy Corp (LNT) 2013 Q3 法說會逐字稿

Welcome to the Alliant Energy's Third 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, Chairman, President, 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 third quarter 2013 earnings, updating 2013 earnings guidance, and providing 2013 through 2017 capital expenditure guidance. We also issued 2014 earnings guidance and common stock dividend targets. 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 in the morning and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements.

In addition, this presentation contains non-GAAP financial measures. The reconciliation between the non-GAAP and GAAP measures are provided in the supplemental slides, which are available on our website at www.alliantenergy.com. At this point, I'll turn the call over to Pat.

Good morning and thank you for joining us today. With Veteran's Day just a few days away, I would like to take a moment and pay tribute to the approximately 400 proud veterans that work here at Alliant Energy and to those veterans that are on the call with us. We thank you for your service to our country and for protecting our freedom.

This morning, we issued a press release that provided third quarter results and increased our 2013 earnings guidance. We also provided earnings guidance and our targeted common stock dividend levels for 2014. Finally, we updated our capital expenditure plans through 2017. Tom will provide more detail on all the financial updates, but in summary, I am pleased to let you know that, for 2013, we've been successful in managing our Company in accordance with our operating plan.

The $0.13 increase in the midpoint of our annual guidance was primarily driven by $0.11 of positive weather impacts through the third quarter. Looking at next year, the midpoint of our guidance for 2014 is $3.40 per share, 9% higher than a projected weather normalized 2013 guidance of $3.12 per share. This earnings increase comes from increased margins created by our ability to use the expiring fixed capacity payments at both utilities to offset rate impacts from rate base additions.

Our long-term earnings growth objective continues to be 5% to 7% based on 2012 weather normalized earnings and 2014's guidance is slightly above that range at 7.7%. Supplemental slide 2 provides the comparison to our 2012 weather normalized earnings base year, the current midpoint of our 2013 estimated weather normalized earnings, and the 2014 earnings guidance midpoint.

We also announced this morning a targeted 2014 common dividend level of $2.04 per share, which represents an 8.5% increase from our current annual dividend of $1.88 per share. The dividend target is consistent with our long-term targeted dividend payout ratio of 60% to 70% of consolidated earnings. As we look at 2014, WPL will be in the last year of the approved rate freeze. We are currently analyzing our options for 2015/2016 test year and expect to work with other parties as we did with 2013/2014 test years.

Several key regulatory initiatives will be addressed at IPL in 2014, including the treatment of the capacity payments related to the current DAEC PPA; the expiration of our three-year Iowa electric base rate freeze; earning a return on a significant amount of capital we have deployed since 2009; extension of the transmission rider; and the determination of the timing of the electric tax benefit rider funds to be credited to customers in future years.

Also critical, is the approval and start of construction of the proposed Marshalltown Generating Station. As part of the DAEC PPA approval, all the casts of the new agreement will flow through the energy adjustment clause when it is effective in February 2014.

In addition, we agreed to file a rate case without interim rates or reach a settlement with interveners in early 2014. This agreement was meant to alleviate concerns that the interveners raised about the perceived double recovery of the $135 million of capacity payments that were included in the 2009 test year base rates.

As we plan for 2014, we are prepared to file an Iowa electric base rate case in early March, based on a 2013 test year, and will include known and measurable adjustments through 2014. This case would eliminate the revenue requirement for DAEC capacity costs, but would include the revenue requirements for the recovery of a return on the rate base additions or approximately $500 million, as well as other changes in revenue requirements since our last base rate case test year of 2009.

If the revenue requirement approved in the 2013 test year case is lower than current rates, then a refund would be required and would be calculated starting on February 22, 2014, which is when the existing DAEC contract expires. Depending on the outcome of this case, there could also be a need for an additional rate cases before 2017, when the Marshalltown Generating Station is placed in service. Although we are preparing to file a rate case, we will continue to work with various stakeholders on a settlement which will provide multi-year electric base rate certainty for our customers.

Let me provide a quick update on our proposed Marshalltown Generating Station. Prior to the IUB hearing, IPL and the OCA reached a settlement agreement on the dockets that included a $700 million cost cap, excluding AFUDC and transmission costs, a return on common equity of 11% for the depreciable life of the facility and the use of a 10.3% return on common equity for the calculation of AFUDC.

At the May IUB hearing, only Chair Libby Jacobs was in attendance. Two new Board members, Nick Wagner and Sheila Tipton, have now been appointed, but they were not in their roles at the time of the hearing. Because of this unusual circumstance, Chair Jacobs will issue a proposed decision and order, which would become the final order unless a full Board or another party appeals this decision within 15 days after issuance.

If there is an appeal, IPL and other parties would then have 14 days to respond. Following these steps, the IUB can set up a procedural schedule to address the appeals or it can enter an order. In addition to the IUB's decision to grant a certificate for the construction, an air permit must be received from the Iowa Department of Natural Resources and the IUB must approve the construction of a natural gas pipeline for the facility. These filings have been made and are proceeding on schedule.

I am pleased to report that, last month, we received the oral decision for the IUB approving our energy efficiency plan for 2014 through 2018, which is consistent with both our initial filing and the partial settlement released with the parties. The plan calls for approximately $400 million to be spent over the next five years and such expenditures will continue to flow through IPL's energy efficiency cost recovery rider.

We expect a written order from this proceeding by the end of this year. Both IPL and WPL have a long history of promoting and supporting energy efficiency and our customers benefited from these programs for decades.

I'm extremely proud of the achievements we have made and continue to make in transitioning the environmental profile of our fossil generating fleet. Recently, the Edgewater 5 SCR project was named the Platt's Global Energy Award finalist in the Premier Project Engineering category. Edgewater 5 SCR, which was completed at the end of 2012, was designed to exceed the required nitrogen oxide emission reductions while sustaining its operational flexibility.

The 380-megawatt nameplate Edgewater unit 5 has one of the widest operating ranges of any generating unit in the industry, with the capability to operate from 13% to 100% of capacity. This is a well-deserved recognition and I applaud and thank the Alliant Energy employees and contractors that contributed to success of this project.

Now, let me quickly brief you on our current emission control construction activities. We currently have over 1,000 contract workers on our properties assisting with these important projects. The construction of the scrubber and baghouse at our Ottumwa facility is approximately 70% complete and on budget and is expected to be in service in 2014.

In addition, MidAmerican is currently installing baghouses and scrubbers at Neal Units 3 and 4. The Neal 4 project is 95% complete and will be placed in service yet this year. The Neal 3 project is approximately 80% complete and will be placed in service in the second quarter of 2014.

In Wisconsin, construction of baghouses and scrubbers at Columbia Units 1 and 2 is progressing well and is approximately 90% complete. This project is expected to be in service in the first half of 2014 and was factored into WPL electric rate case settlement for 2014.

Since the projects at Ottumwa, Columbia, and Neal began construction prior to 2014 and will be placed in service in 2014, they all will qualify for 50% bonus depreciation that was extended by the American Taxpayer Relief Act earlier this year. The additional tax deductions from these projects, of approximately $250 million, will assist us in reducing rate base and thereby, lowering costs for our customers.

The construction authorization from the PSCW for a scrubber and baghouse at Edgewater Unified included a cost estimate of $410 million. We now expect this project to cost approximately $300 million, as a result of the successful execution of our competitive bidding process, contract negotiations, and favorable market conditions. The construction is still expected to begin in 2014 and be completed in 2016. We have reflected these lower capital expenditures in our updated capital expenditure guidance.

In addition to the progress we are making on transforming our Tier 1 units, we are also making progress in preparing our Tier 2 plants to be complaint with the Utility Mercury and Air Toxic Standard, or UMATS, by the April 2015 deadline. We are currently installing low cost controls at our Prairie Creek and Burlington Generating Stations and we continue to evaluate our other tier unit options to comply with the rules.

From an environmental perspective, we are fortunate that all of our coal facilities burn Powder River Basin coal, which is not only economical, but also makes environment compliance less costly. We are well-positioned to ensure a balanced, flexible, and environmentally compliant generating fleet that will serve our customers well.

We provided an updated capital expenditure plan this morning, which is provided on supplemental slide 3. The walk from the previous to current capital expenditure guidance is provided on supplemental slide 4. Tom will provide additional details regarding these changes in a few minutes.

The primary drivers for the capital expenditure changes are updated cost estimates for the environmental projects and the timing of the spend at Marshalltown Generating Station and the transmission network upgrades that will now be our responsibility based on FERC's July 2013 decision on Attachment FF, as opposed to collection through future billings from ITC Midwest.

We are providing guidance based on these current rules and regulations, although FERC's decision on Attachment FF matter has been appealed. The transmission network upgrades show on our capital expenditure guidance relate to IPL's proposed Marshalltown Generating Station and WPL's Bent Tree Wind Project, which together are currently estimated at $195 million, excluding AFUDC.

Another addition to our five-year capital expenditure plan is a potential new resource for WP&L. As part of our long term resource planning efforts, WPL is conducting a feasibility study of resource options to address future customer needs. We believe that a new resource will be needed in 2019 with the previously disclosed retirement of at least three units in Wisconsin over the next few years. Several options under consideration range from conversion of an existing simple cycle facility to a newly built combined cycle facility.

We anticipate the analysis to be completed next year and a filing with the PSCW will be made at the end of 2014. Our capital estimates are based on a new 300-megawatt natural gas-fired generating facility until we determine the desired resource. The WPL and IPL split of our capital expenditures, as well at the updated rate base estimates for 2013 through 2016 will be provided in the EEI investor presentation slide deck, which will be posted to our website yet this week.

I would now like to update you on some positive economic developments in our service territory. The economy remains stable for both Iowa and Wisconsin and unemployment rates are below the national average, with Iowa's rate of 4.9% and Wisconsin's rate of 6.2%.

We are seeing improvement in the number of customers and a slight improvement in use per customer. During the past year, the number of electric customers are up by 0.4% and for gas customers, 6.6%. It's good to see positive economic trends in our service territory that are modestly affecting our sales volume.

Let me summarize my key messages for today. We will continue to manage the Company, striking a balance between capital investment, operational and financial discipline, and cost impact to customers. We have a plan that will continue to meet our 5% to 7% earnings growth objective of 60% to 70% common dividend payout target. We're having a solid 2013 and increased the midpoint of our 2013 consolidated earnings guidance to reflect the benefits of weather and have provided earnings and dividend guidance for 2014.

We are making progress transforming our generation portfolio to one that is balanced, with lower emissions and has the flexibility to comply with all existing and currently proposed environmental regulations, while economically meeting our energy capacity needs of our customers. We continue to work closely with our regulators and stakeholders to receive fair and timely outcomes.

Finally, I must acknowledge and give thanks to our dedicated work force, which not only provides outstanding service to our customers, but also delivers the financial results that we are discussing today. We are also experiencing our safest year as a Company and will continue to look out for one another and for our customers. Thank you for your interest in Alliant Energy and I will now turn the call over to Tom.

Thank you, Pat. Good morning, everyone. We released third quarter earnings this morning with our GAAP earnings from continuing operations of $1.43 per share. There are no earnings adjustments this quarter.

2013 third quarter earnings are higher than third quarter 2012, primarily due to purchase power capacity costs related to the Riverside Energy Center and lower income tax expense. The higher earnings were partially offset by lower quarter-over-quarter earnings attributed to weather and higher depreciation expense, primarily resulting from the purchase of Riverside. Comparisons between the third quarter 2013 and 2012 earnings per share are detailed on supplemental slides 5 and 6.

The third quarter 2013 weather resulted in positive earnings from higher electric sales of $0.07 per share. However, this is $0.13 lower than third quarter 2012 weather impact of $0.$0.20 per share. Year to date, weather has increased earnings $0.11 in 2013. As a result, we have increased the 2013 consolidated earnings guidance range to $3.15 to $3.30 per share.

We have seen modest weather normalized sales growth in 2013. Retail sales trends between 2012 and 2013 are illustrated in supplemental slide 7. IPL's tax benefit riders resulted in a $0.02 quarter-over-quarter variation in the third quarter 2013, when compared to the third quarter 2012.

The actual and projected quarterly earnings impact of the 2013 tax benefit riders, as well as the actual quarterly earnings impact of the 2012 tax benefit rider, is provided in supplemental slide 8. The tax benefit riders have a quarterly timing impact, but are not anticipated to impact full year 2013 results. The walk from the 2012 to the 2013 projected effective tax rate for IPL, WPL, and AEC is provided on supplemental slide 9.

Now, let's review our 2014 guidance. This morning, we issued our consolidated 2014 guidance range of $3.25 to $3.55 earnings per share. A walk from the midpoint of the 2013 to 2014 estimated guidance range is shown on supplemental slide 10.

Starting with our utilities, the 2014 guidance assumes normal weather, modest sale increases, as profiled in supplemental slide 11, and is based upon the impacts of WPL's previously announced electric and gas retail rate freezes and assumptions about IPL's expected electric base rate case outcome.

In 2012, WPL froze base rates for 2013 and 2014. The WPL rate freeze reflected electric rate base growth as a result of placing the Columbia scrubber and baghouse projects in service in 2014. The increase in electric revenue requirement for 2014 for this and other rate base additions, was offset by the net impact of lower purchase power capacity costs from the Kewaunee PPA, which expires at the end of 2013, and higher conservation expense resulting in no change to WP&L's retail electric customers base rates in 2014.

Our 2014 guidance range assumed that WPL earned it's authorized return on common equity of 10.4%. Now, turning to IPL, the increase in rate base during our three-year rate freeze has not allowed IPL to earn its authorized return on common equity. We have constructed our 2014 guidance based upon earnings our current authorized return on equity, which resulted in the inclusion of a regulatory reserve in our guidance. We have assumed the transmission and energy cost riders remain in effect.

Our rate case filing will consider a number of factors which could affect the final revenue requirement, including changes in depreciation expense, a change in amortization amounts for regulatory assets, and/or a lower total revenue requirement when compared to current rates resulting in a potential refund.

We plan to share additional details of our test year 2013 rate case when filing the case. We expect to reach a constructive outcome in 2014 through a rate case or settlement, which allows us to earn an appropriate rate of return on our investor rate base.

Pension expense is currently expected to be approximately $0.05 per share lower in 2014, due to increases in the discount rate and asset returns. These amounts will be updated at year-end when determining the actual 2014 pension expense. The current funded status of our pension plans is approximately 95%. Given the changes experienced in the income tax expense in 2014, supplemental slide 12 has been provided to assist you in modeling our forecasted 2014 effective tax rates at IPL, WPL, and AEC.

Finally, we turn to the 2014 earnings projections for the parent and non-regulated businesses. We expect the transportation business to maintain steady earnings between $0.11 and $0.13 per share. We also expect the Franklin County Wind Farm to sell power into the wholesale market with lower transmission constraints, resulting in a forecasted $0.02 per share pickup for 2014 when compared to 2013.

In addition to our updated earnings guidance, we updated our capital expenditure plans, as shown on supplemental slides 3 and 4. Our 2014 capital expenditure plan increased by approximately $200 million, primarily due to the changes in the timing of the Marshalltown Generating Station expenditures and the addition to the transmission upgrade expenditures, as a result of FERC's Attachment FF decision in July 2013.

Cash flows from operations are expected to be very strong, given the earnings generated by the business. We will also benefit given we do not expect to make any material federal income tax payments until 2016, primarily due to the additional bonus depreciation Pat noted earlier. These strong cash flows will be partially reduced by credits to customer bills in accordance with IPL's tax benefit riders.

Turning to our financing plans, we believe that with our strong cash flows and financing plan, we will maintain our targeted liquidity, capitalization ratios, and credit metrics. Our financing plan assumes we will receive IUB approval of the proposed Marshalltown Generating Station and that the sale of our Minnesota distribution assets closes in 2014.

The estimated sale provide proceeds of approximately $128 million from our Minnesota asset sale are expected to be used to offset IPL's future financing needs. The Minnesota distribution asset sale requires state and federal regulatory approvals. Our current financing plan anticipates issuing up to $300 million of long-term debt at both IPL and WPL in the latter half of 2014. We also anticipate issuing up to $250 million in aggregate of new common equity in 2015 and 2016. We do not currently plan to issue any material new common equity in 2014. We may adjust our plans as deemed prudent if market conditions warrant.

We have several current and planned regulatory dockets of note for the rest of 2013 and 2014, which we have summarized on slide 13. 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, as we do with all of our Investor Relations conference slides. At this time, I will turn the call back to the operator to facilitate the question and answer session.

(Operator Instructions)

Brian Russo, Ladenburg Thalmann.

If you could just reiterate, Pat, what you said earlier on the bonus depreciation? I think it was the $250 million deduction to rate base. Where did that fall, at IPL or WPL?

Both. It was the three projects at Neal and Ottumwa, which would be IPL, and Columbia, which would be WP&L.

Okay. That's a reduction to 2013 rate base?

Yes. When they go into service, which would be into 2014.

Okay.

Brian, the slides that we'll be posting here, either today or tomorrow, will reflect that in terms of the rate base from the schedules you've seen before.

Right.

The $250 million, Brian, is the deduction.

Right. It's a deduction in your rate base and I guess that's kind of offset by the incremental transmission spend?

Brian, it's a tax deduction.

A tax deduction. Got you.

Just wanted to be clear.

Tax deduction, not a rate base reduction.

That's correct.

Okay. Does it have an impact on rate base?

Yes, of course.

Okay. I think you mentioned earlier that you're going to provide the CapEx breakdown by the IPL and WPL, also in the EEI presentation?

That's correct, Brian.

Okay. The Franklin County pick up in 2014, do you mind sharing the year-over-year improvement in capacity factors?

Through September, the capacity factor was approximately 25% and that reflected an improvement in the transmission line that was completed in the second quarter. We're expecting further improvement due to additional transmission lines that will be done in 2014, so we would expect that cap factor is probably going to get certainly closer to 30%, if not slightly above the 30%.

Okay. The equity needs that you need in 2014, or 2015 and 2016, could that be handled under some sort of [dribble] program?

Certainly that's an option. Whether it's dribble, whether it's 401-k needs and whatnot. All of those are options that we'll need to be considering.

Okay. Pat, just lastly, you've been spending quite a bit on environmental retrofits, et cetera, and I was just curious as to your thoughts on the EPA's carbon standards on existing fleets that are due in June of 2014. Under what's proposed now, do your coal plants meet that standard?

Again, what's proposed right now has to do with a lot of the new construction, which, again, we're not proposing any new coal construction. What's being discussed, I wouldn't even say proposed at this point, we'll be working with EEI and the rest of the industry on what we think the rules for the existing plants need to be, Brian.

Okay. Thank you.

(Operator Instructions)

[Eli Kraser, Millennium.]

It's Steve Gambuzza. I just wanted to follow up on Brian's question on the deduction for deferred taxes at the environmental units, because I know there's differences in how you account for deferred taxes in Iowa and Wisconsin. Can you just repeat, is this a reduction to rate base and if so, I know you had previously provided rate base forecasts for 2015 in your last investor presentation. Were those forecasts including the impact of these deferred tax benefits or not?

Yes, if you recall back in our January call, that we made some reference that because of the enactment of the Taxpayer Relief Act, that there would be continuing depreciation. This is reflecting those projects that were started in 2013 that would be placed in service in 2014. As Pat mentioned in her script, the $250 million is the deduction that we'll take on the tax return. You multiply that times your tax rate, so it's about a $100 million reduction in rate base. Some of that will be split at IPL and WPL and as I said, the rate base slides that we will be sharing reflect that reduction because of the incremental bonus depreciation.

It's not in the old presentation rate base forecast, but it will be in the new one?

It was footnoted in the old. It will be in the bar graphs with the new.

Okay. Thank you. I just wanted to just clarify the comment on the -- you said you did not earn your allowed ROE in Iowa in 2013 and the mid point of your guidance would reflect earning your allowed ROE in 2014, is that correct?

That's correct.

The parameters are 10% return on equity on the 48% equity layer, is that right?

That's reasonable, yes.

The tax rate, 2014 versus 2013, is there any change in the, I think you said, 20% in 2014? What was it in 2013?

Yes, if we go to slide 9, the effective tax rate was 12% and then on slide 12 for 2014, the estimate is 20%.

Okay. The change in that tax rate, is some of that reflected in some of the regulatory riders you have or how does that --

Yes, certainly, the biggest rider would be at IPL with the tax benefit rider. Also, we do have some flow-throughs, whether that relates to repairs or mixed service costs, that also influence that. Given the fact we have flow-through in Iowa, that's what tends to move your IPL effective tax rate around more than you would see, certainly in Wisconsin because of the tax treatment here.

Great. Thanks for taking my questions.

Andrew Weisel, Macquarie Capital.

Just wanted to ask, the 2014 guidance, like you said, is a 9% increase; obviously, above your 5% to 7% long-term range. Should we think, I know you can't get too specific beyond 2014, but should we think of that 5% to 7% as being sort of a CAGR? I believe you previously said from 2012 to 2017, or should we think of years beyond 2014 as being in that 5% to 7% range?

This is Pat. We're still using 2012 weather normalized as our base for that. If you still use that and use the 5% over set, that's the range we're talking about long term.

As a CAGR, meaning there may be -- okay, so there may be some lumpiness between here and there, but that's the endpoint, right?

Yes, absolutely.

Maybe I just need a reminder of the rate case process in Iowa, but if you do go ahead with a rate case rather than a settlement, when would the new rates take effect and how big of an impact is that in your 2014 guidance?

We have it pretty well factored in. What would happen in Iowa is we'd file a case. We will not be requesting interim rates. We'll request final rates would be at the end of the year, most likely, again, there's not a set schedule, we would expect it to be the end of the year. Any refund at all would be retroactive back to the February date where the DAEC payment changes from the old agreement to the new payment. But all of that is reflected in our 2014 guidance.

Meaning retroactive refund is embedded in your guidance, a potential?

A potential, whatever the options are at the end of the case, we have reflected in the guidance.

Okay. Maybe what I'm a little confused about, then, is what would make your earned ROE increase in 2014 if the new rates wouldn't take effect until January of 2015?

It has to do with the math, Andy, about the capacity payments going away and the additional rate base getting added. Earning on additional rate base and having lower capacity payments.

Okay. Maybe I'll follow up a bit more offline. The equity, was it $250 million over the two-year period of 2015 and 2016 or in each of those years?

No, it's in aggregate, so it's for both of those two years.

Great. Thank you very much.

(Operator Instructions)

There are no other questions in the queue at this time.

With no more questions, this concludes our call. A replay will be available through November 14, 2013, 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 investor section of the Company's website later today. Thank you for your continued support of Alliant Energy and feel free to contact me with any follow-up questions.

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