Alliant Energy Corp (LNT) 2014 Q4 法說會逐字稿

Welcome to Alliant Energy's fourth quarter 2014 earnings conference call. At this time all lines are in a listen only mode. Today's conference call 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 CEO; Tom Hanson, Senior Vice President, and CFO; 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 last night announcing Alliant Energy's year-end and fourth quarter 2014 earnings and affirmed 2015 earnings guidance. This release as well as supplemental slides that will be referenced today 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 last night 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 on our year end earnings call. I will begin with an overview of 2014 performance and show our progress on our capital expenditures including the generation transformation to clean air and more efficient energy sources. I will then turn the call over to Tom to walk through our 2014 results and our 2015 guidance.

I am pleased to report we have had another solid year. I want to thank our dedicated and talented employees for achieving our goals in safety, reliability, customer satisfaction and financial performance.

Our 2014 weather normalized earnings are in line with the midpoint of our original earnings guidance issued in November 2013 and reflected an 8% increase from 2013 as you can see on slide 2. With creative and constructive rate making in Iowa and Wisconsin our earnings growth was achieved with minimal impact on customer rates.

Now let me brief you on our construction activities. 2014 was certainly one of the most active construction years in our company history with almost $1 billion deployed into the business. We invested over $335 million in our electric and gas energy delivery system in 2014 to continue to make our systems more resilient, meet customer growth and to bring natural gas service to communities which did not have access before.

We also made significant progress transitioning the environmental profile of our coal generation fleet. Installing mission controls at our Tier 1 coal fired facilities, increasing levels of natural gas fired generation and increasing levels of renewable energy results in significant environmental benefits. As a result of these efforts, SO2 and Nox are expected to be reduced by at least 90% and 80% respectively from 2005 levels to 2025.

Mercury emissions are expected to decline over 90% from 2009 levels to levels in 2025. In fact, a majority of these environmental improvements are currently in place.

In Wisconsin we completed construction of the baghouses and scrubbers at Columbia Units 1 and 2. The emission reductions have exceeded contractual guarantees and the overall project came in on time and approximately 6% below budget. WP&L share of the capital expenditures for this project was approximately $275 million.

We expect to start construction on the recently approved Columbia Unit 2 SCR later this year. The installation of our scrubber and baghouse at Edgewater Unit 5 is in progress and we expect to place that project in service in the second quarter of 2016. Capital expenditures forecasted for this project are approximately $300 million.

In Iowa the scrubber and baghouse at our Ottumawu facility is complete. Again the project was completed on time and slightly below budget. IPL share of the capital expenditure was approximately $160 million.

At our Lansing Generating Station the scrubber project is progressing on schedule and the tie in outage is planned for the spring. The estimated capital expenditure for this project is approximately $55 million.

In addition to the progress we are making on transforming our Tier 1 units we prepared our Tier 2 units to be compliant with the Utility Mercury and Air Toxic Standards or UMATS by this April. We installed low cost emission control equipment at Burlington, Edgewater Unit 4, and Prairie Creek and are well positioned to be in UMATS compliance at these units.

At Nelson Dewey and Edgewater 3 we already received a one-year extension to keep them on coal. We are planning to convert CAP to run on natural gas but have requested an extension to allow burning coal until MISO has approved the conversion. New procedures have been implemented and our facilities are prepared to meet the UMATS compliance reporting requirements.

Site construction is well underway at IPLs combined-cycle natural gas-fired Marshalltown Generating Station. KBR is the engineering procurement and construction contractor for this project and Sumas is providing the combustion turbine technology.

The gas pipeline to the facility is planned to be built later this year and we are working with ITC on the transmission upgrades necessary to support the project. Marshalltown is expected to be in service in the second quarter of 2017.

Late last year WP&L unveiled a proposal to expand the Riverside Energy Center in Beloit, Wisconsin. This expansion advances our strategy for implementing environmentally responsible resources and provides for continuing investment in a region where our company has served customers for almost 100 years. We have already started a series of public informational meetings and are pleased with the level of interest in the proposal.

Earlier this month we filed an engineering plan with the Wisconsin Department of Natural Resources to determine the environmental permits and approvals required for this project. Within the next couple of months we expect to submit the Certificate of Public Convenience and Necessity or the CPCN to the Public Service Commission of Wisconsin.

In analyzing the need for the WP&L resource we followed the same process we used prior to filing our applications for the construction of Marshalltown and for the purchase of the existing Riverside Units. The process included issuing an RFP to determine what alternatives are available which were are all evaluated by a third-party.

We also included as options the conversion simple-cycle facilities and construction of a new facility. Our analysis concluded that the construction of a new combined-cycle gas facility would be in the best interest of our customers and the evaluation will be fully described in our PSCW application.

The proposed Riverside Energy Center expansion is an approximate 650 megawatt high efficiency natural gas generation resource at an estimated cost between $725 million and $735 million excluding AFUDC and transmission. This facility is similar to our Marshalltown Generating Station and it will replace approximately 700 megawatt of capacity which we expect to retire in the coming years including Nelson Dewey, Edgewater Units 3 and 4 and various peaking units.

With plant closures we are striving to creatively reuse sites in ways that have a positive impact on the community and our customers. For example, we are working with the Beloit College with planning to repurpose the Blackhawk Generating Station into a student recreation center.

We are also soliciting interest and repurposing our Nelson Dewey Station which has great rail and barge access and is located on the Mississippi River. And we started demolishing our Sixth Street Generating Station located in Cedar Rapids, Iowa and are working with the city and community groups to determine the best use of that site.

And this year we plan to expand our energy sources to include both purchase and company-owned solar generation. We plan to own or operate the solar panels at the Indian Creek Nature Center in Iowa and plan to explore a solar installation at the Riverside Energy Center expansion in Wisconsin.

These as well as a few opportunities we are reviewing will help us understand the most efficient way to incorporate solar into our portfolio. The projects that I mentioned were part of the capital expenditure guidance we provided in November. As you can tell from all these activities, we are focused on building a bright future for our customers and our company.

In addition to our generation transformation, we are transforming customer service operations with new systems that will allow us to better communicate and be more flexible in how we serve customers. And we are very engaged in supporting our communities through economic development, employee volunteerism and charitable giving not only from our generous employees but also through our foundation donations and grants all this has and will be accomplished by our talented employees. And we continue to work closely with the IBEW to provide safe, reliable energy to our customers and to help our communities thrive.

Let me summarize the key messages for today. We had a solid 2014 and are well positioned to deliver on our financial and operating objectives again in 2015. Our plan continues to provide for 5% to 7% earnings growth objective and 60% to 70% common dividend payout target increasing our targeted 2015 dividends by 8% over the 2014 dividend.

We will continue to work with our regulators, consumer advocates, environmental groups and customers in a transparent manner. We will continue to manage the company to strike a balance between capital investment, operational and financial discipline and cost impact to customers.

Thank you for your interest and I will turn the call over to Tom.

Good morning everyone. We released year end earnings last evening. Earnings from continuing operations at $3.48 per share.

2014 earnings are higher than 2013 primarily due to lower capacity, charges related to IPLs Duane Arnold and WP&Ls Kewaunee Purchase Power Agreements. These positive earnings drivers were partially offset by retail electric customer billing credits at IPL, higher energy efficiency cost amortization to WP&L, lower electric and gas sales attributed to weather and higher depreciation expense.

Also as we communicated last year, we accelerated some generation, distribution and customer service operations and maintenance expense into 2014 which was also an offset to earnings. Comparisons between 2014 and 2013 earnings per share are detailed on slides 3, 4 and 5.

We estimate that 2014 weather impact when compared to normal temperatures resulted in higher earnings of $0.09 per share. This was $0.08 lower than 2013 impact of positive $0.17 per share. We saw modest weather normalized retail sales growth in 2014.

Sales trends between 2014 and 2013 are illustrated on slide 6. The extreme weather volatility over the last several years has increased the difficulty in estimating weather impacts.

Now Let's review our 2015 earnings guidance. Last quarter we issued our consolidated 2015 earnings per share guidance range of $3.45 to $3.75. Our IPL and WP&L retail rate settlements provide increased certainty for customers and allows us an opportunity to earn on an increasing rate base without the inherent uncertainty of traditional rate cases through 2016. The walk from 2014 earnings per share to the midpoint of 2015 estimated earnings guidance range is shown on slide 7.

The pension expense impacts change from the walk presented in November based on the 2014 year-end discount rate and new mortality tables. Also the tax impacts have changed due to additional 2014 flow through benefits at IPL than originally forecasted.

The 2015 guidance range assumes normal weather and modest retail sales increases of approximately 1% for IPL and 2% for WP&L when compared to 2014. We are forecasting residential sales increases of less than 1% between 2014 and 2015 for both IPL and WP&L.

The IPL electric rate settlement reflected rate base growth primarily from placing the Ottumawu projects in service at the end of 2014. The increase in revenue requirements related to these rate based additions is offset by the elimination of Duane Arnold purchase power capacity payments.

In 2015 IPL will credit customer bills by approximately $25 million. For modeling purposes, assume that $25 million will occur ratably over 2015. By comparison, the billing credits in 2014 were approximately $70 million and occurred from May through December.

The WP&L electric rate settlement reflected base rate increases for major projects at Columbia and Edgewater Unit 5. The 2015 revenue requirements increase for these and other rate base additions was completely offset by a reduction in energy efficiency cost recovery amortizations.

Also included in the WP&L settlement was an increase in transmission costs primarily due to the anticipated allocation of SSR costs from the Presque Isle plant located in upper Michigan. Subsequent to the settlement FERC issued an order requiring MISO to change how it allocates those SSR expenses. As a result the amount of the transmission costs billed to WP&L in 2015 will be lower than what was reflected in the settlement.

Since the PSC also approved escrow accounting treatment of transmission costs WP&L's income statement will reflect transmission expenses based on what was reflected in the settlement. The difference between the actual transmission costs billed to WP&L and those reflected in the settlement will accumulate in a regulatory liability with no impact to earnings in 2015. The amount accumulated in this regulatory liability will be another mechanism to be used to minimize future rate increases for our Wisconsin customers.

During 2015 IPL will provide tax benefit rider billing credits to electric and gas customers of approximately $72 million. In comparison the 2014 tax benefit rider billing credits were $82 million. The actual earnings impact of the 2014 tax benefit riders as well as the projected quarterly earnings impact of the 2015 tax benefit rider is provided on slide 8. As in prior years the tax benefit riders have a quarterly timing impact but are not anticipated to impact full year 2015 results.

In our ongoing management of customer bills we have elected to pursue two additional tax accounting method changes for IPL. These accounting changes will accumulate benefits in a regulatory liability which will then be passed through to customers as billing credits. IPLs unique flow through tax accounting convention allows for this treatment.

The first accounting change relates to current deduction of certain repair expenditures of electric generation assets for tax purposes. The second accounting change is due to the tax treatment of the cost retrievable expenditures related to the partial disposition assets. The total expected billing credits to customers from these two tax accounting method changes is approximately $75 million and is subject to final IRS and IUB approval.

We have proposed to refund this second tax benefit rider after 2016 which is when the regulatory liability related to the first tax benefit rider is expected to be fully utilized. The difference between the statutory tax rates for IPL, WP&L and AEC and the actual and forecasted effective tax rates for 2014 and 2015 is provided on slide 9. As noted on the slide, the consolidated AEC effective tax is forecasted to increase to 17% from 10%.

The difference in the effective tax rates are primarily due to higher pretax income and lower tax benefits at IPL in 2015. The higher pretax book income is primarily due to lower IPL billing credits. The lower tax benefits are due to lower tax benefit rider credits and expected reductions in flow through tax benefits at IPL.

Turning to our 2015 financing plan, cash flows from operations are expected to be strong given earnings generated by the business. We will also benefit given we do not expect to make any material federal income tax payments or pension contributions the 2015. These strong cash flows will be partially reduced by credits to customer bills in accordance with IPLs tax benefit riders and IPLs customer billing credits resulting from the rate settlement.

In the 2015 financing plan we anticipate issuing approximately $150 million of new common equity through our shareowner direct plan and likely and at the market offering or a dribble out program. We switched the shareowner direct plan to original issue earlier this month.

The 2015 plan also anticipates issuing up to $300 million of long term debt at IPL with $150 million to proceeds used to refinance a debt maturity. The plan also assumes that the sale of our Minnesota electric and gas distribution assets will be completed by mid 2015 with proceeds of approximately $140 million before customary closing adjustments. We may adjust our financing plans as deemed prudent if market conditions warrant and as our debt and equity needs continue to be reassessed.

We believe that with our strong cash flows and financing plan, we will maintain the appropriate targeted liquidity, capitalization ratios and credit metrics. The bonus depreciation extension for certain operating expenditures incurred through December 31, 2014 is not expected to have an impact on our 2015 equity needs. We expect a positive cash impact of approximately $90 million which will not be realized until 2017 due to our NOL carry forward position.

The bonus depreciation does result in a combined IPL and WP&L rate based reduction of approximately $40 million in 2017. This rate base impact was not reflected in the rate based information provided in our investor relation presentation at the November EEI nor in the December Barclays conference presentation.

Now turning to our transmission ROE complaint at MISO. FERC has initiated a formal hearing procedure to address the complaint and is expected to issue its decision later this year. As we have stated previously, we believe the impact of the FERC decision could reduce our annual equity earnings from our AT coinvestment between $0.01 to $0.03 per share.

We have included an estimate of this potential reduction in our 2015 earnings guidance. In addition, the impact of any ROE reduction on transmission expenses will be passed on to our electric customers and IPL and WP&L.

We summarized our planned regulatory dockets of note in 2015 on slide 10. We anticipate a decision from the IUB on the IPL emission plan and budget and the Minnesota electric distribution sale by mid year.

In Minnesota we anticipate closing the electric and gas distribution sales by mid year. In Wisconsin we plan to file an application for a CPCN to construct the proposed approximately 650 Megawatt Riverside expansion. We anticipate the PSCW issuing an order by mid 2016 for this project.

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 question-and-answer session.

(Operator Instructions) Brian Russo with Ladenburg.

Good morning, Brian.

Just curious, the outlook for weather normalized sales in both jurisdictions, is that kind of tracking what's embedded in the settlements?

Yes.

Okay. And can you quantify the SSR amount that's going to be refunded to customers?

We don't have a specific amount yet, Brian. I would not expect it to be a significant amount, but as I said it is going to be hung up with the balance sheet and it will be available then for refund with the next rate case.

Yes, Brian, this is Pat. We will give you more transparency in that number now that the SSR costs are being a little more finalized. So the next time we meet we have a little more transparency on that.

Okay great. And then you have guys have done a good job of finding customer benefits and refunds. I am just curious as you look towards the next rate case filing at IPL, do you anticipate additional offsets to the rate increase?

Yes, the $75 million of the additional tax benefit rider that we are proposing at this point, Brian, will be really used for that purpose.

Okay great. And then just lastly just remind us of the allowed ROE in both jurisdictions and then how the sharing bans work?

Yes, in Iowa it's about a 10% allowed ROE when you consider the fact that we have got 5/77 treatment in some of the items. In Wisconsin it's 10/4 and then the sharing mechanism is that when earnings get 10/6 5 there's a sharing mechanism and it's 50% from 10/65 to 11/4 and then after 11/4 it's 100% dedicated to rate pairs.

Okay. Great. Thank you very much.

Thank you, Brian.

Andrew Weisel, Macquarie Capital.

Hey, everyone. Good morning.

Good morning, Andrew.

First just a quick one on the cash flows. It sounds like there was no change to the debtor equity plans for 2015, yet when I look at the bridge for the EPS guidance walk, it looks like there were a couple of pennies of smaller drags, what's causing that?

Well, from the cash flow there is no substantive changes and in terms of the earnings we just -- with the November guidance we had an estimate for fourth-quarter. Now that we have got the benefit of actual we've gone back and adjusted a couple of those line items. Nothing of significance but it hopefully will just allow you to monitor our progress over 2015 with actuals now that we have got those completed.

Got it. That makes sense. Okay. Then a couple follow up questions on your comments on the solar opportunity that you talked about. Can you maybe just elaborate a bit on -- you mentioned that it's included in the CapEx forecast you gave in November but would that be in the first five years or the second five-year bucket, would that be instead of some of the wind you have been looking into or in addition? And lastly would these depend on the EPA's carbon rule or is this more of an economic opportunity?

Okay. That's a lot of questions. I'll take them one at a time. The projects we are looking at right now are not huge. You know, so they are millions of dollars, not tens of millions of dollars. So they are just in the general capital guidance even for 2015 and 2016. We haven't really looked at solar beyond the next couple of years right now. We want to make sure we understand how it integrates well into the grid and that's why we are taking these steps right now to learn on these projects. And it's really independent of what happens on the EPA plan at this point.

Alright. Very good. Thank you.

And it doesn't change any of our capital guidance that we provided.

Got it.

Stephen Fleischman with Wolfe Research.

Yes, hi, good morning.

Good morning, Steve.

Hi, Pat. So the -- it sounds like you are taking a reserve in your guidance for the ATC ROE outcome in the MISO review?

Yes.

But then you also -- could you just -- is this something like the towns like say you have to do or you're just kind of choosing to do that to be cautious and how are you setting this reserve?

What I will say is that you know since it is probable that ROEs will probably be changing the transmission rules, we did take a reserve. However, for us it's really immaterial. We are not been very specific about the targeted ROEs at this point but we did take a slight reserve.

Okay. And then -- just when would you need to be going back to working on the next rate deals? I guess both go through 2016? So is this something you have to start working on, basically, beginning of next year?

We are actually working on them right now. You know, we do multi-year capital planning so as we develop our plans we want to make sure that these rate cases are very solid and we can smooth in any rate increases as necessary and as we talked about in Iowa we got the TBR dollars to be used. And in Wisconsin we are going to have some additional dollars that are in escrow that we can use. So we are working on that right now putting the plans together. We don't need to file them though until -- in Wisconsin in 2016 and Iowa early 2017 but the planning has already started.

Okay, great, thank you very much.

Thanks, Steve.

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 3, 2015, 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. We thank you for your continued support of Alliant Energy and feel free to contact me with any follow up questions.

And that concludes today's conference. You may now disconnect.