Alliant Energy Corp (LNT) 2014 Q2 法說會逐字稿

Good day, and welcome ladies and gentlemen to the Alliant Energy second quarter 2014 earnings conference call. At this time all lines are in a listen-only mode. Today's conference being recorded. I would now like to turn the conference over to your host, Susan Gille, Manager of Investor Relations at Alliant Energy.

Good morning. I would like to thank you on the call and the webcast for joining us today. We appreciate your participation. With me here today are Pat Kampling, Chairman, President, and Chief Executive Officer, 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 second 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 that the remarks 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. At this point, I'll turn the call over to Pat.

Good morning, and thank you for joining us today. I am pleased to report that we had another solid quarter. Consolidated earnings were $0.56 per share, bringing our year-to-date earnings in at $1.53 per share, which is $0.28 higher than year-to-date earnings last year. Included in our year-to-date earnings is a positive weather benefit of $0.14 per share, however, we expect that the mild July weather will negatively impact earnings by approximately $0.09 per share. Therefore our year-end earnings are now trending back towards the midpoint for our earnings guidance issued in November 2013, which was based on normal weather. The economy continues to improve in our service territories. Unemployment rates in both Iowa and Wisconsin are below the national average, and we continue to see higher electric usage from our industrial customers, with increases of 2.5% in the second quarter, and 3.6% year-to-date, compared to the same periods last year.

It is great to see our communities experiencing economic expansion across many industrial sectors throughout our service territory. Tom will provide more detail on these sales trend later. 2014 is a critical year as we transform our generation fleet, and I'm happy to report that all of the projects are progressing very well. We recently celebrated the completion of Columbia's baghouses and scrubbers, the project was placed in service on time, and we estimate that the total cost will be approximately 5% below the $630 million original budget. The installation of the baghouse and scrubbers at Ottumwa is on time and on budget, and expected to be placed in service in December. In addition, Mid-American has completed construction of baghouses and scrubbers in yield units 3 and 4. Also the construction of Lansing's scrubber will begin this month, and the construction of Edgewater unit 5's baghouse and scrubber recently started. In addition to our progress in transforming our Tier 1 units, we are also making progress preparing our Tier 2 units to be compliant with the utility, mercury, and air toxic standards by the April 2015 deadline. The work we are performing in these units will position them to operate for the near future, as we continue the orderly transition of our generation fleet. We are currently installing low cost emission controls at our Prairie Creek and Burlington generating stations. These continue to burn coal, and we are converting ML Cap generating station from coal to natural gas.

Through year-end 2013 we have spent approximately $20 million on these facilities, and our 2014 to 2017 capital expenditure plan includes additional investments of approximately $30 million. We recently had our groundbreaking ceremony in Marshalltown, Iowa, to officially celebrate the beginning of construction of our Marshalltown generating station. The outpouring of support from the community has been tremendous. We selected KBR as our engineering procurement and construction contractor, and Siemens Turbines for the major equipment for the 650-megawatt combined cycle natural gas facility. This contract locks in approximately 80% of the plant and natural gas pipeline construction expenditures. As a reminder, the IUB approved our return on common equity of 11% for the 35 year depreciable life of the Marshalltown facility, and the use of 10.3% return on common equity for the calculation of AFUDC. The order also established a $920 million cost cap, including AFUDC and the transmission upgrade costs. We believe that the cost cap is sufficient to complete the project, including the transmission upgrade costs. We anticipate IPC will self-fund this transmission upgrade, and bill IPL for the associated revenue requirement. We expect these costs to flow through the transmission rider.

We are truly seeing a transformation of our fleet, to one that has lower emissions, while staying focused on reliable and affordable power generation for our customers. The next generation resource we are planning is a capacity and energy addition at WPL for 2019. WPL is conducting a feasibility study of resource options, and we have recently received responses to the request for proposal we issued, to determine what available options exist. The RFP was for up to 600 megawatts to recognize the need for approximately 300 megawatts relating to the retirement of 3 coal units, as well as the need for capacity to replace the anticipated retirement of several older gas peaking units.

Our current capital expenditure plan includes a new 300-megawatt natural gas fired combined cycle generating facility as a place holder, until we determine the desired resource. We anticipate making the regulatory filing with the PSCW in early 2015, Now let me update you on our recent regulatory activities. We have received a written order from the Public Service Commission of Wisconsin authorizing WPL to freeze retail electric base rates which were set in 2011 at their current levels through then end of 2016. Also retail, natural gas customers base rates will be reduced by $5 million in 2015, followed by a freeze of those rates through 2016. The order includes the return of and on the significant investments made in our mission controls projects at Columbia and Edgewater, as well as our investments in the electric and natural gas distribution systems.

The recovery of these investments is offset by changes in the amortization of the energy efficiency regulatory liability. This regulatory liability comes from over collections we received from customers during the past few years. We expect to have $64 million in this regulatory liability at the end of 2014, and expect to use $17 million in 2015, and $32 million in 2016. The order provides for the continuation of the 10.4% ROE, the common equity ratio of slightly above 50%, and the ROE sharing mechanism starting at 10.65% that was established in the last base rate settlement. The fuel monitoring level will continue to be set annually. We submitted the fuel only filing for 2015, and it is currently under review by the PSCW. We expect to receive an order by year end. In March, we announced a unanimous retail electric base rate settlement between IPL, the office of consumers advocate, the Iowa Consumer Coalition and a large energy group, to freeze retail electric base rates for Iowa customers through 2016. This settlement includes a customer billing credit of $70 million for 2014, $25 million for 2015, and a final credit of $10 million for 2016. We had agreements from all of the parties, and the IUB to begin crediting customers bills in May. The credits are subject to a true-up based on the IUB's final decision. To date we have responded to two data requests from the IUB, and will be responding to a third set of data requests very shortly. We anticipate a decision from the IUB on this reported settlement this quarter. Approval of this settlement will extend the retail electric base rates set in 2011 through 2016. This multi party settlement allows for the continuation of the energy adjustment clause, the transmission rider, and the electric tax benefit rider credits through 2016. The settlement terms are based on maintaining the current authorized return on equity, common equity ratio, and earning a return of and on the 2014 year-end Iowa electric retail base of approximately $3.1 billion. The rate base additions included the investments of Ottumwa, Neal, Burlington, and Prairie Creek, as well as investments in our electric distribution system. Pending IUB approval of this settlement, we anticipate that the next retail electric base rate case will be filed in the first half of 2017 to coincide with the in-service of the Marshalltown generating station. On the Federal level, the recent FERC decision on ISO New England's authored return on equity may impact ATC's ROE, the range of ROEs in FERC's decision was from 10.57% to 11.74%. If those same bookends were applied to ATC's current 12.2% allowed ROE, we would expect Alliant Energy's annual earnings exposure would be a negative $0.03 and $0.01 per share respectively.

And finally, I would like to take a brief moment to discuss EPA's proposed carbon policy. EPA's Clean Power plan would require states to develop plans to reduce greenhouse gas emissions from existing power plants by 2030, the proposed reduction for Wisconsin is 34%, and for Iowa 16% from 2012 levels. We will advocate for our customers in three main areas. First, that the EPA plan allows us to continue to provide safe and reliable power to our customers. Second, that the EPA recognize the investments we have already made, and thus receive full credit for those investments towards future compliance goals. And third, for obtainable goals in a reasonable time frame. Let me summarize the key messages for today. We had a successful first half of 2014, and we believe we are on track to deliver another solid year of earnings. 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 to continue to meet our 5% to 7% long-term earnings growth objective, and 60% to 70% common dividend payout targets. 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.

At the same time, we have focused on economically meeting the energy capacity needs of our customers. We continue to work closely with our regulators and stakeholders to obtain fair and timely outcomes. And finally, I must acknowledge and give thanks to our dedicated work force, which not only provides the outstanding service to our customers, but also delivers the financial results we are talking about today. Thank you for your interest in Alliant Energy, and I'll now turn the call over to Tom.

Good morning everyone. We announced second quarter 2014 earnings last evening with our GAAP earnings from continuing operations at $0.56 per share. These earnings are a $0.03 share decrease when compared to 2013 second quarter earnings of $0.59 per share. Comparisons between 2014 to 2013 second quarter earnings per share are detailed on slides two and three. Second quarter 2014 earnings were lower than second quarter 2013, primarily due to retail electric customer billing credits at IPL, higher energy efficiency cost amortization to WPL, higher generation O&M and interest expenses at IPL, and higher depreciation expense at both IPL and WPL, resulting from placing environmental projects in service. These negative drivers were partially offset by lower capacity payments related to the renegotiation of the Duane Arnold Energy Center's power contract, and the expiration of the Kewaunee Nuclear Power Plant PPA. The reduction of the capacity payments allows us to earn a return on and of rate base increases at both utilities, while keeping retail customer base rates stable. Our current forecast for weather normalized sales and a comparison to 2013 weather normalized sales is illustrated in slide four. Based on our slot sales to date, and our forecasted sales for the rest of the year, we have increased our projected industrial and commercial sales at WPL, and have left the projected IPL increase unchanged, when compared to our 2014 sales forecast for the first quarter call. Several industrial customers have expanded their operations or have increased their production to meet demand. Industrial segments experiencing electric sales growth due to plant or production expansions, include chemicals, health services, and manufacturing. For our residential sales at both IPL and WPL, we are now forecasting weather normalized sales growth of approximately 1% to 1.5% when compared to last year. IPL's tax benefit riders resulted in a $0.01 per share quarter-over-quarter variation in the second quarter of 2014, when compared to the second quarter of 2013. The actual projected quarterly earnings impact of the 2014 tax benefit riders are provided on slide five. 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 is provided in slide six. Please note that the 2014 effective tax rates include electric and gas bill credits of $97 million through IPL's tax benefit riders. We expect cash flows from operations to be strong, given the earnings generated by the business. We also 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 through at least 2016, 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 the sale of our Minnesota distribution assets closes in 2014. The estimated gross sales proceeds of $130 million is expected to be used to reduce IPL's financing needs. The sale requires state and Federal regulatory approvals. We filed for both the electric and gas sales with the MPUC earlier this year, and are in dialogue with the various stakeholders. These transactions also require IUB and FERC approvals. We plan to submit our plan to request IUB approval of the electric sale later this quarter. Our current financing plans anticipate issuing approximately $250 million of long-term debt at each utility in the latter half of 2014. We also plan to refinance the $250 million, 4% debt at the parent, and the $60 million debt at the Franklin County Wind Farm later this year. 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 debt and equity needs continue to be reassessed.

We have several current and planned regulatory dockets for 2014 which are summarized on slide seven. 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 plan. In Minnesota, we 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 the Minnesota, Southern Minnesota Energy Cooperative, as a result of the proposed energy distribution sale in Minnesota. Further, it reveals the need for additional energy later this decade. We will continue to evaluate our options to meet our customers future energy needs. In Wisconsin, we filed a certificate of authority to install an SCR at Columbia Energy Centers unit 2. WPL's portion of the capital expenditure for this project is estimated to be approximately $70 million. Also we plan to file for the approval of the proposed generation investment at WPL early next year. On the third quarter call, we plan on providing 2015 earnings guidance, and updating our capital expenditure guidance and forecasted rate base.

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

Thank you, Mr. Hansen. At this time the Company will open the calls for questions from members of the investment community. Alliant Energy's management will take as many questions as they can within the one-hour time frame of this morning's call. (Operator Instructions). We'll pause for just a moment to assemble our queue. We'll have our first question from Andrew Weisel, Macquarie.

Good morning, Andrew.

Please check your mute function, sir.

Can you hear me now?

Yes. Good morning.

Sorry about that, good morning. My first question is on the usage trend. You sound incrementally more positive. Can you talk about the weather adjusted load growth in the quarter? Typically you include that in the EPS bridge, but I didn't see anything about either weather or the weather normalized trends?

If you take a look at our earnings release on the last page we show some of the operating statistics for the quarter, really, weather was basically comparable to the second quarter of 2013, so quarter-over-quarter there is really no difference. The benefit that Pat referred to really was predominantly in the first quarter, and in terms of our sales forecast, as I did say, we are seeing some improvement in our industrial and commercial, and for all intents and purposes, residential is kind of still hovering at that 1% to 1.5% level.

Okay. Great. Next question is on O&Ms. Last call we talked about potentially accelerating some of that, given how strong the winter was, and that you had some flexibility both for the planned expense in 2014 and 2015. How should we think about that now, given that it sounds like July was not particularly good for you guys, should we think of O&M as going back toward what the original budget wall before the year started, or have you already pulled forward some of the spending that would help 2015 earnings?

Sure. We did pull some of the O&M forward however we still have flexibility as the year unfolds. We still have August and September to get through, which again we are a third quarter company, but we still have flexibility to move the O&M around as warranted.

Okay. So again, should I think about the full year budget as of now looking similar to how it was when we entered the year and similar for next year's budget?

Assume that the incremental O&M is in that probably about $7 million range of additional spending that was not originally intended in our forecast when we issued this last year.

Great. That's very helpful. And then lastly, there's the comment about the WPL earnings deferral. What was the earned ROE at WPL that you needed to take the deferral, and can you just remind us how the process works, is that a one-time charge, or could that reverse if the ROE falls in future quarters?

It certainly is symmetrical, so as certainly sales and weather would move up and down, certainly that would go commensurate with that. We were above the 10.65 for the second quarter and that's why we needed to take then the reserve for the fact that we're now in the first tier, where there's a sharing mechanism with customers of 50% for each of the two parties.

Great. Thank you very much.

Thanks, Andrew.

We'll go next Brian Russo, Ladenburg Thalmann.

Hi good morning. Sorry if I missed this earlier but I got on the call just before the Q&A started. I'm just curious, the $0.11 negative driver for the retail electric customer billing credits at IPL, is that just a second quarter, or is that something we're going to see throughout the year?

Brian, that has to do with the $70 million credit going back to customers this year at IPL as part of the settlement, so you'll be seeing that each quarter this year.

So roughly $0.11 each quarter, or just relative to the seasonality of sales?

Seasonality because it's based on kilowatt hours.

We did start this in May, Brian, and assume its $70 million then for calendar year 2014.

Okay. And I assume you reaffirmed your 5% to 7% EPS CAGR?

Yes, we did.

Okay. Great. And then just can you remind me what the weather normalized sales growth assumption is?

We did talk about that, Brian. In terms of the commercial and industrial, we continue to see an improvement in the economies, so we're looking at about a 2% increase at IPL in terms of industrial and commercial, and at WPL, a little bit higher at 4%. And if you look at slide four, we typically share the comparison to last year so hopefully that's a slide that you're familiar with, Brian?

Yes, that's helpful. And what about the residential?

Residential, we're seeing about a 1 to 1.5% increase.

Okay, great, thank you very much.

You're welcome. Thanks, Brian.

We'll go next to Andy Levi, Avon Capital.

Good morning.

Good morning, Andy.

Sorry if I go over stuff that maybe was said we've got a lot of different calls going on today. Why you guys do all your calls at the same time, I haven't figured it out?

Because we want to make your life terrible Andy.

Haven't figured that out, every quarter. Actually, it seems to get worse every quarter. So, anyway, just weather-wise, I don't know if you covered this already, I know you talked about there was $0.09 anticipated, at least for the third quarter versus normal, right? That's what you said?

Yes, the impact from the mild weather in July we're estimating to be approximately a $0.09 drag. That is just for July.

Just for July.

The first half the year we had a positive $0.14.

So right now we're at probably about positive $0.05 versus normal. Absent August?

Yes.

Got it, okay. Thank you very much for that. And then just on the comment on the $150 million of equity, which has obviously been in your forecast, how do you categorize that now? Because maybe there was some thinking that maybe that you weren't going to need all of it, and obviously you're still not in that phase of exactly whether you do or don't. I would still guess, or are you definitely going to do the $150 million?

Our plan does assume that we're moving forward with the $150 million, Andy.

Okay. So that's definite, there's no kind of flexibility there?

Well, our plan assumes that.

Okay. Could that plan change, or should we just assume that that's kind of locked in?

We always reassess our needs, but what we're trying to do is at least as a planning assumption, provide an indication that right now we would anticipate issuing up to $150 million of equity.

Let me ask the question another way. I'm good at that. What would cause you not to need to issue that much equity, if there is anything?

Changing cash flows would be a significant contributor, recognizing the reason we're issuing the equity is to maintain our target equity ratios at the two utilities, so again that's the primary driver, so to the extent that we would see incremental earnings at the two utilities, additional cash flows, certainly that would suggest that $150 million could be potentially reduced.

Okay. Does bonus depreciation or the extension of that have any bearing on it?

Very little, because our NOL positions now would take us through 2016.

Got it. Okay. So it sounds like it's pretty locked in?

It's a planning assumption, Andy.

Planning assumption, okay. Okay. I think that's all I actually had, so thank you very much and hope to see you guys soon.

I hope your day gets better, Andy.

The day is alright, it's just I have a high quality problem.

Okay. Good.

Thanks, Andy.

Have a good day.

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

With no more questions, this concludes our call. A replay will be available through August 14th 2014 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 Investors section of the Company website later today. We thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions.