Alliant Energy Corp (LNT) 2013 Q4 法說會逐字稿

Welcome to the Alliant Energy's calendar year 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 Hansen, 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 fourth quarter and calendar year 2013 earnings, affirming 2014 earnings guidance, and updating 2014 through 2017 capital expenditure 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 that 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 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.

Thanks, Sue. Good morning and thank you for joining us today. I am pleased to report that for 2013, we were successful in managing our Company in accordance with our operating plan. Our large construction projects continue to be on time and at or below budget.

We remain focused on our mission to deliver energy safely and reliably while maintaining constructive regulatory framework at competitive rates for customers. We are extremely grateful to the men and women that made sure our operations met customers' need during the hot summer and unusually cold winter, and most importantly, they worked safely and looked out for one another.

From 2010 to 2013, we delivered approximately 6% annualized earnings growth based on our non-GAAP weather-normalized earnings. Our 2014 earnings guidance continues to meet our five-year annualized growth objective of 5% to 7%, starting from 2013's non-GAAP weather-normalized earnings of $3.14 per share.

Please keep in mind that the projected increase in this year's guidance included no change in customers' based rate since the expiring fixed capacity payments at both utilities will offset rate impacts from rate base additions.

Slide 2 provides the comparison of our historic non-GAAP weather-normalized earnings from the 2014 earnings guidance midpoint. This year, WPL is in the last year of its-based rate freeze. As we review our forecast, we expect minimal impact to customer base rates for the 2015/2016 test year case, as we believe we may be able to offset the modest revenue requirement increase by utilizing the remaining balance in the energy conservation regulatory liability.

We have already begun conversations with the commission staff and will engage other parties, just as we did in the 2013/2014 test year. If an agreement can be reached, WPL will expect to file an abbreviated request for commission approval in the spring, and then file a 2015 fuel-only case in the third quarter. If agreement cannot be reached, WPL will file a full rate case in late March for the [past] years 2015 and 2016.

Our 2014 focus in Iowa will be driven by the expiration of our three-year Iowa retail electric base rate freeze, implementation of the 2013 DAEC PPA order, as well as continuation of our generating fleet transition.

As ordered a last year's DAEC's nuclear PPA approval, all of the cost of the new PPA agreement began flowing through the energy adjustment clause this month. We agreed to work with interveners to reach a settlement or file a rate case with that request in the interim rates in the first quarter of 2014. This was intended to alleviate concern that the interveners' rate is about to receive several recoveries of the $135 million of capacity payments that were included in the 2009 test year base rates, as well as reflecting IPL's other [revenue or] climate changes since the last rate case.

We continue to work with various stakeholders on a possible settlement which would provide multi-year electric base rate certainty for our customer. But, if a unanimous settlement is not reached by all the parties by the end of the first quarter, we will file a 2013 test year retail electric base rate case at the end of March.

The 2013 test year retail electric base rate case would eliminate the revenue requirement for the DAEC capacity cost and include known and measurable adjustments through 2014, including the revenue requirement for the recovery of and the return on the net increase in rate base of approximately $750 million at year-end 2014.

Other revenue requirement adjustments would include changes in depreciable lives of assets, capital structure, operating expenses, and the requested return on equity, including no application of double leverage. We also expect to request continuation of a transition rider and energy adjustment clause, as well as requesting inclusion of production tax credits and chemical costs in the Energy Adjustment Clause.

If the revenue requirement approved by the IUB in the 2013 test year case is lower than the current base rate, then a refund would be required and would be calculated during February 2014, which is when the original DAEC contract expired. And, of course, we will continue to work with intervening parties to attempt to reach a settlement on all or parts of the case throughout the rate case process. Depending on the outcome of the rate case, there would also be a need for additional rate cases before 2017 when the Marshalltown generating station is expected to be placed in service.

Now let me provide a quick update on the Marshalltown generating station. The ratemaking principles order approved a return on common equity of 11% for the 35-year depreciable life of the facility, and the use of 10.3% on common equity for the calculation of AFUDC. The order also established a $920 million cost cap, including AFUDC and transmission upgrade costs. Although we anticipate ITC will be self-funding the transmission upgrade, the transmission costs are included in the overall cost cap of the project, and we will continue to work with ITC in managing the project.

We expect ITC to bill IPL directly for the revenue requirement related to the Marshalltown transmission line once the line is in service and expect these costs to flow through the transmission rider. Construction of the Marshalltown generating station is expected to begin in the second quarter of this year when we believe the cost cap is sufficient to complete the project.

Now let me quickly brief you on the current emission controls construction activities. 2014 is a big year for emission control projects at Alliant Energy. The installation of the back half (inaudible) at our [tunnel] facility is on budget, construction is approximately 80% complete, with an in-service plan for late 2014. In addition, MidAmerican is installing baghouses and scrubbers at Neal units 3 and 4. The Neal 4 project was placed in service at the end of 2013 and the Neal 3 project is expected to be placed in service of the second quarter of 2014.

In Wisconsin, construction of baghouses and scrubbers at Columbia units 1 and 2 is progressing well and is over 90% complete. This project is expected to be under budget and in-service in the first half of this year.

The 2014 in-service was factored into the WPL rate case settlement for 2014.

In addition to the progress we are making on transforming our tier 1 units, we are also making progress in preparing our tier 2 units to be compliant with the utility, mercury, and air toxics standards for the April 2015 deadline.

We are currently installing low cost controls at our Prairie Creek and Burlington generating stations, and are other converting the M.L. Kapp generating station from coal to gas. The 2014 to 2017 capital expenditure plan includes investments up to $40 million for this tier 2 unit. Through year-end 2013, we have spent $20 million on these facilities for coal to gas conversion or low-cost emission controls.

We believe we are well-positioned to ensure balance, flexible, and environmentally compliant generating fleet that will serve our customers well.

We also provided an updated capital expenditure plan this morning. The only change to the plan is the removal of $190 million of transmission network upgrades in the 2014 through 2016 years, because ITC has informed us they expect to self-fund the transmission work related to IPL's Marshalltown generating station and WPL's Bent Tree wind facility.

During our third quarter call, we noted a planned capital expenditure starting in 2016 for the additional generation at WP&L. Our current forecast indicates a [nature] resource in 2019 driven by growth in sales, the need for capacity and energy, and the planned retirement of three coal units in Wisconsin over the next few years.

As part of our long-term planning resource effort, WPL is conducting a feasibility study of resource options. We plan to issue a request for proposal in the second quarter of this year to determine what available options might be in the region, and anticipate the regulatory filing with the PSCW be made in late 2014 or early 2015.

Our current capital expenditure plans excludes a new 300 megawatt natural gas fired combined cycle generating facility as a placeholder until we determine the desired resource.

I would now like to update you on some positive economic developments in our service territories. The economy continues to improve for both Iowa and Wisconsin. Unemployment rates are below the national average, with Iowa's rate now at 4.2% and Wisconsin's rate now at 6.2%. And our customer accounts are increasing modestly, industrial customers are expanding, and we are seeing a slight increase in use per customer.

As a result, we experienced a nice increase in residential weather-normalized sales in 2013 and we look forward to further growth in 2014 based on these trends.

So now let me summarize the key messages for today. We performed well in 2013 and we are forecasting another solid year in 2014 as we reaffirm our guidance 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% long-term earnings growth objective and 60% to 70% common dividend payout target. We are making 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 regulations, while economically meeting the energy and capacity needs of our customers.

We continue to work closely with our regulators and stakeholders to receive fair and timely outcomes. And, finally, I must acknowledge and give thanks to our dedicated workforce, which not only provide outstanding service to our customers, but also delivers the financial results we are discussing today. And I must add, like many of you on the call, we are so looking forward to the arrival of warm weather.

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 announced 2013 year-end earnings this morning with our GAAP earnings from continuing operations of $3.29 per share. Our two non-GAAP earnings adjustments in 2013 lead to the preferred stock redemptions at IPL and WPL in early 2013, and the December 2013 Minnesota Public Utility Commission order along with further recovery of IPL's Whispering Willow East wind project, which was higher than initially estimated in 2011.

Comparisons between 2012 and 2013 earnings per share are detailed on slides three, four, and five.

2013 earnings were higher than 2012, primarily due to lower Riverside Energy Center purchase power capacity costs, higher tax benefits right at the IPL's revenue requirement adjustment, increased weather-normalized electric and gas sales, and lower energy conservation expenses. These positive EPS drivers were partially offset by higher depreciation and transmission expense and higher generation and distribution O&M expenses.

Higher than expected weather-normalized retail sales and the IPL tax benefit enabled us to increase generation and distribution O&M expenses in 2013 to further enhance the reliability of our system. We experienced weather-normalized sales growth in 2013. Retail sales trends between 2012 and 2013 are illustrated in slide 6.

For the first time in three years, weather-normalized residential retail sales grew. In addition, several industrial customers expanded their operations, which increased weather-normalized sales at both IPL and WPL.

The agriculture and feed processing related segment provided the most growth in Wisconsin due to the excellent condition for crops and the wet, but high-yielding, harvest last fall. Other industrial segments experiencing electric sales growth in our territory included health services end chemicals.

The loss from the 2012 to the 2013 effective tax rate for IPL, WP&L and AEC is provided on slide 7. More renewable energy was produced and, as a result, we earned higher PTCs in 2013 when compared to 2012, due to the completion of the transmission upgrades at both our Whispering Willow and Bent Tree wind facilities, which allowed for greater output.

In November, we issued our consolidated 2014 EPS guidance range of $3.25 to $3.55. A walk from the 2013 actuals to the 2014 estimated guidance range midpoint is shown on slide 8.

The 2014 guidance assumes normal weather and modest electric sales changes as profiled on slide 9. Due to our assumption of normal weather, we do not expect the same level of ag-related sales in 2014 for Wisconsin as we experienced in 2013.

In Iowa, a couple of industrial customers expanded their operations late in 2013. Thus we anticipate experience a full year's impact of those expansions in 2014. The 2014 guidance is based upon the impacts of WP&L's previously announced electric and gas retail rate freezes and the assumptions about IPL's expected Iowa retail electric base rate case outcome.

In 2012, WPL reached settlement with the parties and froze base rate for 2013 and 2014. The WPL rate freeze reflected electric rate base growth as a result of the Columbia scrubber and baghouse projects coming online this year as well as other rate base additions.

The increase in electric revenue requirement for 2014 was offset by the net impact of the lower purchase power capacity costs from the Q1 ECPA, which expired at the end of 2013, and higher conservation expense resulting in no change to WP&L's electric base rate for this year.

For IPL, retail electric base rates are not expected to change in 2014. We will share the additional details of our test year 2013 test year at the end of March, when we expect to file.

Slide N provides guidance regarding effective tax rate, given the changes expecting expected in 2014. Please note that 2014 effective tax rate includes the approved 2014 electric and gas bill credit of $97 million through IPL's tax benefit riders.

Cash flows from operations are expected to be strong, given the earnings generated by business. We will also benefit, given we do not expect to make any material federal income tax payments until 2016, nor do we expect make any contributions to our qualified pension plan over the next two years, since they were approximately 95% funded at the end of 2013.

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 the sale of our Minnesota distribution asset closes in 2014. The estimated sales proceeds of approximately $128 million are expected to be used to reduce IPL's financing needs.

The sale requires state and federal regulatory approval. We filed for the approval of the gas sale with the MPUC early this year, and expect to file with the MPUC for the approval of the electric sale in the next 60 days. This transaction also requires IUB and FERC approvals.

Our current financing plan anticipates issuing up to $300 million of long-term debt at both IPL and WP&L in the latter half of 2014. We currently anticipate issuing approximately $150 million in aggregate of new common equities in 2015 and 2016. We do not currently plan to issue any material new common equity in 2014.

We may adjust plans as being prudent if market conditions warrant and our equity needs continue to be reassessed.

We have several current and planned regulatory dockets for 2014 which are summarized on slide 11. In addition to the anticipated rate case filings for both WP&L and IPL, we plan to file IPL's emission plan and budget in April. As you may recall, the emission plan and budget is the regulatory evaluation process for major environmental projects in Iowa.

The plan we are filing is consistent with our current capital expenditure plan provided in our earnings release issued this morning. In Wisconsin, we plan to request a certificate of authority to install an SCR at Columbia Energy Center's unit 2, as well as a filing for the proposed generation investment at WP&L.

We very much appreciate your continued support of our Company and look forward to meeting with you throughout the year. At this time, I will turn the call back over to the operator to facilitate the question and answer session.

Thank you, Mr. Hanson. (Operator Instructions) Mike Bates, Wunderlich Securities.

Can you talk us through some of the puts and takes in your rate base assumptions down at IP&L, given the removal of transmission from Marshalltown?

The rate base that we have issued out there, Mike, really remains in basically the same estimates, with one assumption. The Marshalltown transmission project we assumed would go in service in 2016, so assume that approximately $100 million would come out of that rate base forecast in 2016. Again, that is assuming that ITC is going to fund the Marshalltown transmission project.

So that's the only adjustment we would expect because of that.

And why is it that the CapEx assumption is $190 million lower, but the rate base assumption is only $100 million lower? What is the delta there?

Well, what we are showing in 2013 is the 13-month average.

Okay. All right.

And then, also, keep in mind a portion of the $190 million that we are taking out is related to Bent Tree as well. The largest portion is related to Marshalltown, but a portion of that relates to Wisconsin here with the Bent Tree project.

All right. And, also, if you could offer us some additional color around your demand expectations for 2014. You mentioned a couple of significant industrial customers that expanded in 2013. Are you able to disclose who those customers are and where you see the greatest likelihood of potential upside from your current demand forecast?

Yes. First, with respect to identification of the customers, I think in fairness, it is inappropriate that we would mention specific names. But, as we have stated, we are seeing an increase in actual customer count. We are also seeing additional residential usage unlike the historical pattern.

And, as we mentioned, we do have a number of industrial customers in both the IPL and WP&L service territory that either have completed their expansions or provided us indications those expansions are occurring. And that is what is really giving them rise to the sales increases that we portrayed on slide 9.

Great. And my last question is, can you walk us through some of your assumptions in terms of O&M as we look into 2014? Do you have some significant plant outages or anything like that, that is assumed in your guidance at this point?

The biggest change would be with respect to the energy conservation expense here in Wisconsin. And keep in mind that tends to be one of the items that we have seen some adjustments occurring in light of the rate freeze that we have in 2013, 2014. So that is the single largest item.

But also, we are seeing lower pension expense as we had talked about on our third quarter call, because of the change in discount rate that we experienced at year-end. Other than that, I would say there is nothing extraordinary in terms of the change from 2013 to 2014.

Thank you very much.

Brian Russo, Ladenburg Thalmann.

Just a clarification. The proceeds of $128 million from the Minnesota asset sale, is that net or is that gross proceeds minus some sort of tax [direction]?

That is a gross (technical difficulty) Brian.

Yes. It is a gross number?

Yes.

Do you have any idea what the net number would be?

Well, given the fact we are not going to be a federal taxpayer for several years, you could -- for planning purposes, I guess you could use a statutory rate of 40%.

Okay. Got you. And if I heard you correctly, your equity needs have been revised to $150 million from $250 million?

That is correct. And that reflects the removal of the transmission CapEx of $190 million.

Right. Okay. And then, I apologize, Pat, but I missed your commentary earlier on the Wisconsin regulatory strategy. Could you just reiterate real quickly what you said earlier -- what the plan is there?

Sure. No problem, Brian. Yes, the plan is -- this is our year to file the two-year rate case, so that would be years 2015 and 2016. We still have additional funds left in the escrow account that we have been utilizing over the last couple of years.

So we are hoping we can reach a settlement because the rate base -- the customer rate impacts won't be large if we use the account. So we are hoping to reach a settlement. And we will know that over the next couple of months.

And if we don't reach a settlement, it would be like the settlement like we had last time; very simplified settlement that we will ask the commission to approve, and then file a fuel case later in the year. If we don't reach a settlement, we will be filing the full two-year rate case at the end of March.

Okay. Got you. Thank you very much.

(Operator Instructions) Steven Fleishman, Wolfe Research.

My question has been answered. Thank you very much.

Ashar Khan, Visium.

Congrats. If I heard correctly, you said by the end of March we will know whether we have to -- either we will be filing a case, or there will be a settlement. Is there a date specific or by which this outcome has to be known?

Are you talking about in Iowa?

Yes. That's correct.

No. There is no date specific. That is just the plan that we have been talking about.

Okay. And (multiple speakers)

And we are continuing discussions ongoing with all the parties to see if we can still reach a settlement, but if we can't reach a settlement, we will have to file a case.

Okay. Okay. And any kind of color you can provide on those talks to present?

Sure. You know, what I can honestly tell you is that the discussions have been very good and very constructive. Right now, there is just not full alignment on what the settlement would look like. So we will still have continuous discussions with all the parties, but if there is not full alignment on what a settlement should look like, then we will be filing the case.

Okay. Thank you so much.

Andy Bischof, Morningstar Equity Research.

For the WPL generation investment, I know it's just a [placeholder], but is that [$300 million] for the 2016, 2017 the full expectation for the 300 megawatt plant? Or are there expected costs in 2018 as well?

Yes. There will be some costs that spill over into 2018 as well.

Okay. Perfect. 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 March 4, 2014 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 the 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.

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