Alliant Energy Corp (LNT) 2014 Q1 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's first-quarter 2014 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 yesterday announcing Alliant Energy's first-quarter 2014 earnings and reaffirming 2014 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 yesterday 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 time I will turn the call over to Pat.

Good morning and thank you for joining us today. The first quarter certainly goes down as one of the most memorable for those of us living in the middle of the Polar Vortex. I must thank our men and women who toughed it out and got to work each and every day and never lost focus on providing exceptional customer service.

I am pleased to report that our first-quarter earnings that we are discussing today are the highest in Company history, driven mostly by the reduction in nuclear capacity payments and realizing increased electric and gas sales from both economic growth in our service territory and the weather. Tom will provide more details on the financials but in summary, those three items alone increased earnings by $0.31 per share over the first quarter of last year.

However, we do recognize that this winter was difficult for some of our customers especially in dealing with higher utility bills. Earlier this year we contributed $3 million to the Hometown Care Energy Fund to help our income eligible customers with their utility bills. We have also expanded our customer at reach efforts and are working with customers to help them with other forms of assistance and payment plan options.

On a positive note, the economy continues to improve in our service territories. Unemployment rates are below the national average with Iowa's rate now at 4.5% and Wisconsin up 5.9%, a five-year low for the state. Some of the trends we are experiencing include a modest increase in the number of retail electric and gas customers, continued expansion by our industrial customers and a slight increase in the use per customer. This is certainly encouraging news and we will continue to monitor sales to determine if the weather normalized sales growth experienced in the last quarter of 2013 and the first quarter of this year represent a sustainable growth trend.

We have incorporated our first-quarter weather normalized sales growth into our revised 2014 sales forecast and we are now forecasting a 1.7% increase in retail weather normalize electric sales for calendar year 2014 over 2013.

Now let me update you on our regulatory activities. We have made the regulatory filings for Co.'s in retail electric base rate freezes through the end of 2016 in both Wisconsin and Iowa and have proposed lowering gas base rates in Wisconsin for 2015. For WPL electric customers, we proposed that retail electric base rates which were set in 2011 remain at their current levels through the end of 2016.

We also requested that retail natural gas customer base rates be reduced by $5 million in 2015 followed by a freeze on those rates through 2016. We are pleased that we were able to offer such proposals with the input from these Citizens Utility Board, Wisconsin Industrial Energy Group and PSCW staff.

The WPL proposal includes the return of and on the significant investments needed in our emission control projects at Columbia and Edgewater as well as investments in the electric and natural gas systems. The recovery of these investments is to be offset with changes in the amortization of the energy efficiency regulatory liability. We expect to have $64 million in the electric and gas energy efficiency liability at the end of 2014 and are proposing using $17 million of it for 2015 and $32 million of it for 2016.

We have also proposed the continuation of a 10.4% ROE, a common equity ratio of slightly above [50%], and the ROE sharing mechanism established in the last rate case.

The Commission has requested comments on the proposal by no later than Tuesday, May 20. We anticipate the PSCW will make a decision regarding our request in the second quarter of this year.

The fuel monitoring level will be addressed outside of this proposal and will continue to be set annually. We expect to make a fuel only filing for 2015 in the next 90 days.

In March we announced a unanimous retail electric base rate settlement between IPL, The Office of Consumer Advocates, The Iowa Consumer Coalition, and the large industrial group to freeze retail electric base rates for Iowa customers through 2016. This settlement includes customer billing credits of $70 million for 2014, then $25 million for 2015, and a final credit of $10 million for 2016. We have agreements from all of the parties on the IUB and began to credit customer bills as of yesterday. The credits are subject to a true-up based on the IUB's final decision.

We anticipate a decision on this proposed settlement in the second quarter of this year. If this settlement is approved it will extend the retail electric base rate set in 2011 through the first quarter of 2017. The settlement allows for continuation of the Energy Adjustment Clause, the Transition Rider, and the Electric Tax Benefit Rider credits through 2016.

The settlement terms are based on maintaining the current authorized return on equity, a common equity ratio and earning a return of and on the 2014 year end Iowa electric retail base rates of approximately $3.1 billion. Rate base additions include investments in the emission controls, performance improvements at Ottumwa, George Neil, Burlington and Prairie Creek, as well as investments made in our distribution systems.

Pending the IUB's approval of this settlement, (inaudible) of the next retail electric base rate case will be filed in the first half of 2017. The 2017 case will be a request to recover the costs associated with the Marshalltown generating station which we anticipate which will be placed in service in the second quarter of 2017.

Let me provide a quick update on our Marshalltown generating station. We recently received the air permit and have filed all the permits with the IUB and are requesting the issuance of a generating certificate which we anticipate by the end of May. The community is very excited about this project and we currently expect to begin construction in July.

As a reminder, the IUB 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 equities for the calculation of AFUDC. The order established a $920 million cost cap including AFUDC and transmission upgrade costs. We believe that the cost cap is sufficient to complete the project including the transition upgrade that we anticipate IPC will self fund.

We expect that IPC will bill IPL directly for the regulatory requirements related to the Marshalltown transmission upgrade once the line is in service and expect these costs to flow through the transmission rider.

Now let me quickly brief you on our current emission control construction activities. This is the year that the majority of our emission control projects will be completed. In Wisconsin, construction of a baghouse (inaudible) scrubber by Columbia Units 1 and 2 is 98% complete, on time and below the original budget. Unit 2' equipment was placed in service last month and preliminary test results indicate that performance guarantees are being achieved. We anticipate the new service date for Columbia Unit 1 is in July.

Also construction has already started on Edgewater 5's scrubber and baghouse with an expected completion in 2016. The installation of the baghouse and scrubber to our (inaudible) facility is on budget and anticipated to be placed in service in November 2014. In addition, mid-American is installing baghouses and scrubbers at Neil Units 3 and 4. The Neil 4 project was placed in service at the end of 2013 and the Neil 3 project is expected to be placed in service this month.

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 utilities mercury and air toxic standards for the April 2015 deadline. We are currently installing low cost controls at our Prairie Creek and Burlington generating stations and we are converting the M.L. Kapp generating station from coal to gas.

Through year-end 2013, we have spent $20 million on these facilities and our 2014 to 2017 capital expenditure plans include additional investments of approximately $35 million. We believe we are well-positioned to ensure a balanced flexible and environmentally compliant generating fleet that will serve our customers well into the future.

Late last year we noted planned capital expenditure starting in 2016 for additional generation at WP&L. Our current forecast indicates a need for capacity and energy in 2019 driven by the planned retirement of three coal units and by sales growth. As part of our long-term resource planning efforts, WPL is conducting a feasibility study of resource options. We plan to issue a request for proposal in the second quarter this year to determine what available options exist in the region.

Following analysis of the RFP results, we anticipate making the regulatory filings with the PSCW in late 2014. Our current capital expenditure plan includes a new 300 MW natural gas-fired combined cycle generating facility as a placeholder until we determine the desired resource.

Let me summarize the key messages for today. We had a successful first quarter. We believe we are on track to deliver another solid year of earnings in 2014. 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 that has the flexibility to comply with all existing and currently proposed environmental regulations. At the same time, we are focused on 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 provides outstanding service to our customers but also delivers the financial results that we are discussing today.

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

Good morning, everyone. We announced first-quarter 2014 earnings last evening with our GAAP earnings from continuing operations of $0.97 per share. These earnings are a $0.25 per share increase over non-GAAP earnings of $0.72 per share in the first quarter of 2013. Our non-GAAP earnings adjustments in the first quarter of 2013 related to the preferred stock redemptions at both utilities.

Comparisons between 2014 and 2013 first quarter earnings per share are detailed on slides two, three and four. First quarter 2014 earnings were higher than first quarter 2013 primarily due to the estimated weather impact on electric and gas sales and lower capacity payments related to the expiration of purchased power contracts associated with the Duane Arnold Energy Center and the Kewaunee Nuclear Power Plant resulting in a cost reduction of approximately $32 million. Those expiring capacity payments will allow us to earn a return on and of rate based increases at both utilities while keeping retail electric customer base rates stable.

We experienced weather normalized sales growth in the first quarter of 2014. Forecasted retail sales trends between weather normalize 2014 and 2013 are illustrated on slide five.

Weather normalized residential sales grew as a result of an increase in the number of customers, use per customer and we believe some customers utilized space heaters due to coping cost increases and shortages. In addition, several industrial customers expanded their operations which increased weather normalized sales at both utilities.

The industrial segment is experiencing electric sales growth due to plant or production expansions include chemicals, health services and manufacturing.

In November, we issued our consolidated 2014 earnings guidance of $3.25 to $3.55 earnings per share. The 2014 guidance assumes normal weather and modest sales growth. Due to the strong first-quarter earnings resulting from the higher than expected sales, we currently anticipate full-year 2014 earnings will be toward the top end of our range. Third-quarter results are a significant driver of our full-year earnings and in light of the first-quarter results, we now have flexibility to accelerate operations and maintenance projects that were scheduled for later periods. For these reasons we are not changing our guidance at this time.

IPL's tax benefit riders resulted in a $0.01 per share quarter-over-quarter variation in the first quarter of 2014 when compared to the first quarter of 2013. The actual and projected quarterly earnings impact of the 2014 tax benefit riders are provided on slide six. The tax benefit riders are not expected to impact full-year 2014 results.

The walk from the 2013 to the 2014 projected effective tax rates are provided on slide seven. Please note that the 2014 effective tax rates include electric and gas bill credits of $97 million through IPL's tax benefit riders.

Cash flows from operations are expected to be strong given the earnings generated by the business. We also expect the benefit given, we do not expect to make any material federal income tax payments until 2016 nor do we expect to make any contributions to our qualified pension plans 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 can maintain our targeted liquidity, capitalization ratios and credit metrics. Our financing plan assumes that the sale of our Minnesota distribution assets closes in 2014. The estimated growth sales proceeds of $130 million are expected to be used to reduce IPL's financing needs.

The sale requires state and federal regulatory approvals. We filed for approval of both the electric and gas sales with the MPUC earlier this year. These transactions will also require IUB and FERC approvals.

Our current financing plan anticipates issuing up to $300 million of long-term debt at both utilities in the latter half of 2014. We also plan on refinancing the $250 million 4% debt at the parent and the $60 million debt at the Franklin County Wind Farm. We currently anticipate issuing approximately $150 million in aggregate of new common equity in 2015 and 2016. We do not plan to issue any material new common equity this year. We may adjust our plans as deemed appropriate if market conditions warrant and as our equity needs continue to be reassessed.

We have several current and planned regulatory dockets for 2014 which are summarized on slide eight. We await decisions on both the IPL unanimous proposal settlement through 2016 and the WPL retail proposal for calendar years 2015 and 2016. We filed 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 filed is consistent with our current capital expenditure plan.

In Minnesota, we recently filed the biannual 15-year integrated resource plan for IPL. Included in the plan is the anticipated 10-year wholesale contract IPL will have with Southern Minnesota Electric Co-op as a result of the proposed electric distribution sale in Minnesota. Further it reveals a need for additional energy later this decade. We will continue to evaluate our options to meet these future energy needs.

In Wisconsin, we plan to request in the second quarter of this year a certificate of authority to install an SCR at Columbia Energy Center's Unit 2 as well as file for the proposed generation investment at WP&L in the fourth quarter this year.

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

(Operator Instructions). Andrew Weisel, Macquarie Capital.

Good morning, everyone. My first question is after the rate case -- I'm sorry after the rate settlement in both states, is there any impact to the rate base outlook? You haven't confirmed them in the slides but are there any big or small changes to the growth outlook?

No, Andrew, the slides we provided in the IR deck are still the latest.

Okay, and that is consistent with the settlements?

Yes, it is, absolutely, yes. Good question. Thank you for asking us.

Then next question is if I heard you right, Tom, I think you said that you are going to accelerate some O&M thanks to the strong winter. Is that stuff mostly from the next few quarters or is it more structural programs that might have a long-term impact?

First of all, we certainly have flexibility in terms of looking at the expenditures, some of those could be expenses that we were originally planning for next year could be pulled into this year.

Okay, great. Then my last question, I think your commentary on the equity need was unchanged. Is there any opportunity that if the rest of the year has normal weather and you are able to sort of keep the benefit from the strong first quarter, any chance to postpone that or is that independent of the near-term trends?

Certainly we will continue to evaluate that. The equity that we are forecasting is more driven because of the incremental CapEx but certainly with the weather we will have stronger cash flow so that will be certainly input as we continue to assess the equity needs.

Great. Thank you very much.

Brian Russo, Ladenburg Thalmann.

Good morning. I am sorry if I missed this earlier but could you just elaborate on the weather normalized sales growth forecast that we should be using for 2014 and beyond?

As Pat said, right now we are targeting approximately 1.7% in both jurisdictions recognizing that we did have a strong fourth quarter and strong first quarter but we want to be careful that there were events in both of those quarters that might suggest that sustainable level may not be at those two levels. So certainly we are very pleased with the growth recognizing that we are seeing this across all sectors in both states but until we really have more insights with second quarter, we will continue to certainly focus on the sales.

But as Pat and I highlighted in the script, we are seeing additional customers as well as additional usage and with the industrial sector expansions as well as just additional needs. We are certainly encouraged by that.

Okay, great. Can you comment maybe on the O&M expense trends that you are seeing to put in perspective your sales growth?

If you go back and look at our O&M, it has been fairly flat. We have been able to manage that with one exception. You will note that with the energy conservation in Wisconsin that does fluctuate a little bit, so you will see that moving. But in terms of as we look on a going forward basis, you should expect kind of a similar profile of O&M from what we have seen in the past. What we are looking at in terms of potential bringing into 2014 would be nothing that I would characterize as being unusual.

Okay, great. Lastly, could you just comment on the $0.03 positive impact on the optimization of gas capacity contracts at IPL?

Sure. First of all, we have had this program in place for many, many years. As I say, we and the other utilities in Iowa as well. It allows us to optimize our gas utility assets and just given the significance in terms of market volatility and the opportunities presented to us, we were able to capture additional benefits in the first quarter of 2014 and in fact that represents about almost twice of what we captured calendar last year. So it was $0.03.

The other thing that is important, this is also an opportunity to continue to help our gas customers in that they get the benefit of this program as well.

Okay. One more question. Just at the high end of your guidance, do you break through any of your sharing bands or no?

Well, we will be close but recognizing as you know, Brian, third quarter is the big quarter for us so until we get to that level, it is probably premature but certainly our forecast assuming weather normal would suggest that we are close to the top end.

Okay, great. Thank you.

Thank you, Brian.

Steve Fleishman, Wolfe Research.

Hi, good morning. So first, just generally on your rate proposals or settlements, do you expect that you will be able to on the allowed returns under each of these?

Yes, absolutely, Steve. Again that is assuming the rate base assumptions that we have given you within the IR deck.

Okay, is there something that would indicate that those rate base assumptions are going to change?

No, not materially in the two-year capital expenditure profile that we have already provided. These are well-known projects with preapprovals so that should remain basically within those ranges.

Okay. And then I believe in Wisconsin, the equity ratio is higher than it had been in this current proposal. Is that correct?

Just slightly though.

Okay. So that doesn't really change your overall plan in terms of putting more equity into there in terms of your financing plan?

No, it doesn't, Steve.

Okay. Great. Thank you.

Andy Levi, Avon Capital Advisors.

Good morning. Just a couple of questions. First, can we just go a little bit more in detail over the Iowa settlement relative to Duane Arnold and kind of how the numbers kind of work as far as the capacity savings?

Sure. Susan can go into more detail with you on this if you would like but the real take away for the settlement is that we are giving customer credits back over the next several years when the customer credits decline and that is what is helping us achieve the increase and returning on our rate base when the rate base is going up. Keep in mind for 2014 the customer billing credit is $70 million going down to $25 million in 2015, going down to $10 million in 2016.

So they are basically -- they are replacing what would be rate increases without obviously affecting the customer but benefiting the bottom line? Is that kind of a way to look at it?

Yes, Andy, so the base rates remain frozen and the credits are going through the fuel clause.

Okay, great. Then I guess as I kind of work through the numbers -- or actually let me just step back. So as you look at 2014, you are saying that you are at the top end of the range. Obviously there was weather included in that. But at the same time you are accelerating O&M from 2015. So I guess absent even the weather, there was a good chance you were going to be at the top end of the range based on what you are seeing thus far again assuming normal weather. Is that a fair statement?

Andy, just to be clear, with the weather that we saw in the first quarter, it is definitely pushing us toward the top end of the range. And Tom's statement is that we actually have flexibility to move some O&M projects from future years if necessary depending on how the rest of the year plays out.

Okay, but I guess what I am saying is if you assume normal weather and you are going to move the O&M already and there was $0.12 of weather I think if I am not mistaken versus normal, you probably would have been at the top end of your range regardless.

Yes, yes. It was a very large impact in the first quarter on weather.

Again, I know you haven't given guidance for 2015 or 2016 and that is going to come toward the end of this year as you always do. But it seems to me looking at kind of consensus estimates for 2015 and 2016, they are probably about $0.10 too low.

So the question I have is if you end up coming in at the top end of your range and it is kind of normal earnings, not caused by weather of course, would that be kind of the base that we would grow off of?

Andy, I think we will have to wait until the end of the year to make that decision. Right now we are looking at weather normalized earnings from last year as our base. This year has started out to be a little unusual and we will just have to evaluate that as we go throughout the year.

Okay. And then another question I have is if bonus depreciation were extended at the end of the year, how would that affect your need to issue equity?

As I said, currently we are not forecasting to be a federal tax payer until the first quarter of 2016 so obviously it would have some impact and as I stated, the equity needs are for calendar years 2015 and 2016.

Right, but if bonus depreciation was extended, I would assume that your construction program would benefit from that and I guess the question is would it possibly lessen the amount of equity that would need to be issued in 2015 and 2016?

Certainly it will be a key consideration as we continue to analyze the need so rest assured that if the extenders get approved, that we will be analyzing the impact of the equity needs.

Okay. I mean I guess you guys are going to be at these conferences I can go over some of the longer-term numbers with you. But it seems to be that the earnings power of the Company -- and again I know you have got to get these settlements kind of done and sealed -- but it seems that the earnings power of the Company is probably a lot greater than what people are forecasting right now. But I guess we will be patient and wait for the year to kind of finish out first.

Appreciate that. Thank you, Andy.

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 9, 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 a script of the prepared remarks made on the call will be available on the investor 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.