Alliant Energy Corp (LNT) 2015 Q1 法說會逐字稿

Welcome to Alliant Energy's first quarter 2015 earnings conference call.

(Operator Instructions)

Today's conference is being recorded. I would now turn the call over to host, Susan Gille, Manager of Investor Relations at Alliant Energy.

Good morning. I 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 last night, announcing Alliant Energy's first quarter 2015 earnings, and reaffirmed 2015 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 we make on this call, and our answers to your questions, include forward-looking statements. These forward-looking statements are subject to risks that can 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.

At this point, I'll turn the call over to Pat.

Thanks, Sue. Good morning and thank you for joining us today. I'll begin with an overview of first quarter 2015 results and share our progress on our various large capital projects. I'll then turn the call over to Tom, who will provide a detailed walk of our first quarter 2015 results and discuss our current financing plans, and this year's regulatory calendar.

We had another solid quarter for the first quarter of 2015 earnings, in line with our expectations. However, this quarter's results were lower than first quarter of 2014, due to several items. First, the weather benefit was much lower than realized last year, since this winter was much closer to normal, compared to the extreme cold temperatures and propane disruptions experienced last winter.

Second, this quarter reflected expected higher electric transmission expense at WP&L, and higher retail electric customer billing credits at IPL. The billing credits to IPL customers began in May 2014, therefore none occurred in the first quarter of 2014.

And third, timing of the tax expense of the parent is influenced by the tax benefit riders. However, earnings did benefit from the elimination of capacity charges, related to the original Duane Arnold purchase power agreements that expired in the first quarter of 2014.

During the first quarter we experienced a remarkable performance at our Generating Station's. Of note is that a Riverside and Emery combined cycle natural gas Generating Stations had capacity factors that averaged approximately 50%. And the capacity factors from our wind farms averaged approximately 40%. Also, the environmental control equipment installed at our coal plants met all performance requirements.

During 2015, we plan to invest over $1 billion of capital in our utilities. Almost 35% of that will be for improvements and expansion of our electric and gas distribution systems, including bringing natural gas service to underserved communities. Almost 30% of this year's investment is planned for the construction of a 650 MW Marshalltown Generating Station. And approximately 30% will go towards environmental and performance improvements at our generating facilities.

We have received regulatory approval for the larger capital investments, including Marshalltown. And we continue to enter into engineering procurement and construction agreements for all large construction projects, to mitigate typical construction risks. We continue to make significant progress transforming the environmental profile of electric generation, by installing emission controls at our Tier 1 coal-fired facilities, increasing levels of natural gas-fired generation and increasing levels of renewable energy.

As a result of these efforts, SO2 and NOx emissions are expected to be reduced by at least 90% and 80% respectively, from 2005 levels, by 2025. Mercury emissions are expected to decline over 90% from 2009 levels, by 2025.

In Wisconsin, the installation of a scrubber and baghouse at Edgewater Unified is in progress, and is approximately 50% complete. We expect to place the project in service in the second quarter of 2016. Capital expenditures forecasted for this project are approximately $300 million.

At Columbia, performance improvement work is in progress. The Comprehensive Asset Management program initiated at Columbia started with the installation of two new cooling towers, completed in 2014. And the remaining projects are expected to be completed by the end of 2017. The WPLs share of the total estimated capital expenditures for these projects is approximately $70 million. We expect to start construction of the PSCW approved, Columbia, Unit 2 SCR later this year.

In Iowa, the tie in outage for the Lansing Generating Station's scrubber project has started. The estimated capital expenditure for this project is approximately $55 million. And we expect to place this project in service in the third quarter of 2015.

April 16, 2015 was our first day of compliance under the Utility Mercury and Air Toxic Standards, or UMATS. We have been preparing for the implementation of this rule for years, and have been very satisfied with our performance. To meet the UMATS compliance requirements at our non-Tier 1 Units, we installed low-cost emission control equipment at Burlington, Edgewater Unit 4 and Prairie Creek.

At Nelson Dewey and Edgewater 3, we received a one-year extension from the Wisconsin DNR to keep them on coal, until they retire later this year. Also, we plan to convert cap to run on natural gas, and we have filed an ISO attachment Y related to the decreased capacity of the facility, as the result of the conversion. We believe our fleet is well positioned to meet compliance requirements of UMATS.

To increase the amount of natural gas-fired generation, we're constructing the Marshalltown Generating Station, and have proposed the Riverside Energy Center expansion. In Iowa, site construction is well underway at IPLs 650 MW combined cycle natural gas-fired Marshalltown Generating Station. Siemens has completed the manufacturing of one of that CT's, and the manufacturing of the second CT is approximately 75% complete.

We plan to build a gas pipeline to the facility later this year, and are working with ITC on the transmission upgrades necessary, to support the project. Marshalltown is expected to be in service by the second quarter of 2017.

In Wisconsin, WP&L submitted a Certificate of Public Convenience and Necessity, or the CPCN, to the Public Service Commission for the Riverside Energy Center expansion. The Riverside Energy Center expansion will be located at our existing Riverside site, near Beloit Wisconsin, as approximately a 650 MW highly-efficient natural gas generation facility, at estimated cost of $750 million, excluding AFUDC and transmission.

This facility is similar to our Marshalltown Generating Station, and it would replace approximately 700 MW of capacity that we expect retire, including Nelson Dewey Units 1 and 2, Edgewater Units 3 and 4 and various peaking units. The submittal of our proposal is a significant milestone for resource planning efforts, and represents a long-term plan for satisfying the generation needs of our Wisconsin customers.

Our evaluation did consider market proposals, in response to an RFP process, as well as other options with existing WPL facilities. Ultimately, we believe it was clear, the Riverside Expansion proposal would be in the best interest of our customers.

The Riverside expansion proposal also includes installing 2 MW of solar power. We have several solar projects under developed, and these initial projects will provide valuable experience to us, on how best to integrate solar in a cost-effective manner, into our electric systems.

The other solar installations include owning and operating the solar panels at the Indian Creek Nature Center in Iowa, as well as a planned installation at our Madison Corporate Headquarters. 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're focused on building a great future for our customers and our Company. In addition to our generation transformation, we are implementing a new customer billing system this year, that will allow us to better interact and be more flexible on how we serve customers.

One thing that will not change is our commitment to the committees that we serve. Earlier this year, we contributed $2 million to the Hometown Care Energy Fund, to help our customers in need with their utility bills. Our Alliant Energy foundation continues to be very active in supporting our committees in the areas of helping families, education and the environment.

But I'm especially proud of our generous employees, who donate money and their valuable time, to help others in the community. And speaking of our generous, talented and dedicated employees, I want to thank them for their continued efforts on achieving our financial, operational and safety goals this quarter. It's a true team effort.

Let me summarize our key messages for today. We had a solid first quarter, and are well-positioned to deliver on this year's financial and operating objectives. Our plan continues to provide for a 5% to 7% annual earnings growth objective, and a 60% to 70% common dividend payout target. Our targeted 2015 dividend increased 8% over the 2014 dividends paid.

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

You're invited to join us at our annual meeting next week, which will be held on May 7 in Cedar Rapids, Iowa. Thank you for your interest in Alliant Energy. And at this time, I'll turn the call over to Tom.

Good morning, everyone. We released first quarter earnings last evening, with our earnings from continuing operations at $0.87 per share. First quarter 2015 earnings are $0.10 lower than first quarter 2014. Comparisons between the first quarter 2015 and 2014 earnings per share, are detailed on slides 2 and 3.

We estimate the first quarter 2015 weather impact, when compared to normal temperatures, resulted in higher earnings of $0.04 per share. This was $0.08 lower than the first quarter of 2014, weather impact of a positive $0.12 per share. Temperatures in light energy service territories were approximately 10% colder than normal during the first quarter of 2015, compared to approximately 20% colder than normal, during the first quarter of 2014.

The extreme weather volatility over the last several years has increased the difficulty in estimating weather impacts. Retail electric sales volumes decreased approximately 3%,quarter over quarter, primarily due to the impact of the extreme cold temperatures during the first quarter 2014.

The abnormally cold weather, combined with the higher propane costs and supply constraints in the first quarter of 2014, contributed to customers relying more on electric heating sources, which contributed to increased usage per customer, during such period.

The quarter-over-quarter decrease in residential and commercial sales volumes was partially offset by increased industrial sales volumes, related to recent customer expansions. On a weather-normalized basis, retail electric sales volumes decreased approximately 1%, quarter over quarter.

Despite the first quarter results, we continue to forecast normal weather and modest retail electric sale's increases of 1% for IPL, and 2% WP&L, when compared to 2014. We forecasted residential electric sale's increases of less than 1%, for both IPL and WP&L, when compared to 2014.

The 2015 full-year guidance range also factors in retail base-rate settlements, at IPL and WPL. The IPL electric rate settlement reflected rate-based growth, primarily from placing Ottumwa projects in service, at the end of 2014. The increase in revenue requirements related to these rate base additions, is offset by the elimination of the Duane Arnold Purchase Power capacity payments, after February 2014. IPL will credit customer bills by approximately $25 million 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 rate base increases for major projects at Columbia and Edgewater 5. The 2015 revenue requirement 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 related to the anticipated allocation of the SSR costs from the Presque Isle island 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 those reflected in the settlement. Since the PSC also approved escrow accounting treatment of transmission costs, WP&Ls 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. The amount accumulated in this regulatory liability, is another mechanism we plan to use, 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, compared to $82 million in 2014. The actual earnings impact of the 2014 tax benefit riders, as well as the projected quarterly earnings impacts of the 2015 tax benefit riders, is provided on slide 4. As in prior years, the tax benefit riders have a quarterly timing impact, but are not anticipated to impact full year 2015 results.

As mentioned in our year end call, we have elected to pursue two tax accounting method changes for IPL, as part of our ongoing management of customer bills. Like the first tax benefit rider, we proposed accumulation of these benefits in a regulatory liability, which will then be passed through to our customers as billing credits. The unique flow through tax accounting convention in Iowa allows for this treatment.

The expected billing credits to customers, from these two tax accounting method changes, is approximately $75 million. The IUB recently approved this proposal, and is still subject to final IRS approval. We propose to refund the majority of 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, and when we expect to file the next retail electric rate case in Iowa.

Drivers, the difference between the statutory tax rates for IPL, WP&L and AEC. And, the actual forecasted effective tax rates for 2014 and 2015 are provided on slide 5. As noted during our year end call, the consolidated AEC effective tax rate for 2015 is forecasted to be 17%.

Turning to our 2015 financing plan, cash flows from operations are expected to be strong, given the earnings generated by the Business. We also expect to benefit from not making any material federal income tax payments, or pension contributions, in 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 base rate settlement.

In our 2015 financing plan, we anticipated issuing approximately $150 million of new common equity. In March and April of this year, we issued approximately 2.2 million shares of new common equity, for gross proceeds of $135 million, through the at-the-market offering.

We plan to issue the remaining, approximately $15 million of new common equity, through our Shareowner Direct Plan, throughout the remainder of this year. The 2015 financing plan also anticipates issuing up to $300 million of long-term debt at IPL, with $150 million of proceeds used to refinance a debt maturity. We may adjust our financing plan 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 ratio and credit metrics. The 2015 financing plan assumes that sale of our Minnesota electric distribution assets is completed in the third quarter, with proceeds of approximately $130 million, before customary closing adjustments. We're pleased to report that we received and oil decision from the MPUC yesterday, approving the Minnesota electric distribution sale.

We are still awaiting approval from the IUB and FERC, to close on the Minnesota electric distribution sale. Yesterday, we closed on the sale of our Minnesota gas distribution assets, with proceeds of $11 million in cash and a promissory note of $2 million.

Now, turning to the ROE complaint against MISO transmission owners. In December 2014, FERC ordered formal proceedings to begin. To date, various parties have filed testimony with FERC, identifying base ROE ranges with stated midpoints between 8.58% and 11.39%, excluding any incentive riders that have been granted by FERC.

FERC trial staff is expected to file it's testimony later this month. A final decision from FERC on the complaint is currently expected in 2016. Based on other recent FERC ROE decisions, we believe FERC's decision on the MISO ROE complaint will reduce transmission ROEs, thus reducing customer cost and our annual earnings from our ATC investment.

We've included an estimate of this potential reduction in our 2015 earnings guidance, and reduced our earnings from ATC this quarter. The modest amount recorded assumes the final base ROE awarded to MISO transmission owners, will be toward the top end of the midpoints, filed by the various parties, to the MISO complaint.

We've summarized our planned regulatory dockets of note in 2015 on slide 6. We anticipate decisions from the IUB and FERC, related to the proposed Minnesota electric distribution sale, by the end of the second quarter. We anticipate closing the electric distribution sale in the third quarter.

In Wisconsin, we will file the proposed 2016 fuel monitoring level, and anticipate receiving a decision on the recovery of the under collected 2014 fuel expenses, in the third quarter.

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

Thank you, Mr. Hanson.

(Operator Instructions)

Brian Russo, Ladenburg Thalmann

Good morning. I know you've got a couple hundred megawatts of wind renewable PPA contracts that roll off over the next several years. Could you talk about the strategy there? I may have read somewhere that you issued an RFP, but I'm not exactly sure.

Yes, sure. Brian, I would say that those two decisions are independent. We issued an RFP right now because of some attractive pricing in wind, in Iowa. But, we're just filling the portfolio for our Iowa energy needs.

We still are evaluating the long-term REITs when these PPAs expire. So, that is still an analysis that we're providing. But, we're taking the opportunity of a low cost run right now, in Iowa.

And, would that be upside to our CapEx, or is there a placeholder in the current budget?

We do have placeholders in the current budget for additional wind facilities, but it is years out.

Okay, great. It seems like you guys are testing the market on solar opportunities. Is there any sort of formulated, long-term strategy there?

Right now, we're just experimenting. We're putting solar across the property to really find out how to integrate it, in a cost-effective manner, with our electric distribution system. So, this will be the first year that we're going to learn, experiment. And then we will see what lessons learned, and what other opportunities we have going forward.

Okay. And lastly, you mentioned a 40% capacity factor in your wins. Does that include Franklin County?

Yes, it did. We had a very good first quarter, both gas generation and wind.

Okay great. Thank you.

(Operator Instructions)

There are no further questions at this time.

With no more questions this concludes our call. A replay will be available through May 8, 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 free to contact me with any follow-up questions.

That concludes today's conference, we appreciate your participation.