Alliant Energy Corp (LNT) 2015 Q2 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's second quarter 2015 earnings conference call. (Operator instructions). Today's conference is being recorded.

I would now turn the call 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, Vice President, Chief Accounting Officer and Controller; 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 second 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 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 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.

Thanks, Sue.

Good morning and thank you for joining us today. I am pleased to report that we had another solid quarter with second quarter 2015 earnings in line with our expectations. Tom will discuss the financial details of the quarter, but I am pleased to let you know, for the first time in years, temperatures did not have a significant impact on earnings per share for the first seven months of 2015. Therefore, our year-end guidance, earnings guidance, is trending toward the midpoint of our guidance issued in November 2014.

Environmental regulations are in the news again and it is very important to step back for a moment and review the orderly transition of our generating fleet during the past six years. We have been planning for sweeping environmental rules that would impact our industry and developed a strategic plan that would position us and our customers well for that future. We completed many components of that plan, including installing over 500 megawatts of wind, spending over $1 billion to [aid] emission controls for our largest and most efficient generating stations, and have decided to either close or convert to natural gas several older, but sufficient coal-generating stations.

To further diversify our generating fleet, we added natural gas-fired generation with the purpose of the 675 megawatt Riverside Energy Center and have another 650 megawatts under construction in Marshalltown, Iowa. In Wisconsin we are proposing to build another 650-megawatt natural gas-fired generating station. We have had a very deliberate plan that transforms our generating fleet to one that is diversified, flexible, has lower emissions, but ensuring that we continue to deliver reliable, affordable energy to our customers.

2015 is a significant year for our industry and how we utilize and dispatch our generating fleet. We experienced some remarkable performance at our Riverside and Emery combined cycle natural gas generating stations. During the first half of the year we achieved capacity factors averaging approximately 45%, which is about double the experience in the first half of 2014. Also, our wind generation has remained consistent with capacity factors for the first half of 2015 averaging over 35%. Lastly, our coal units have operated well with the recently-installed environmental controls.

We have a robust capital expenditure plan for 2015 which totals over $1 billion. Approximately 35% of this year's capital budget is for improvements and expansion of our electric and gas distribution systems, including bringing natural gas to underserved communities. Approximately 30% of this year's capital budget is improve the efficiency and environmental profile of our generating units. Also, approximately 30% of this year's capital budget was for the construction of the Marshalltown generating station.

Now, let me update you on our large construction projects. In Wisconsin the installation of a scrubber and baghouse at Edgewater Unified is approximately 65% complete. It is expected to be in service in the second quarter of 2016. Capital expenditures forecasted for this project are approximately $300 million.

At Columbia the Comprehensive Asset Management to improve the efficiency of the units 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. WPL's share of the total estimated capital expenditures for these projects is approximately $60 million. We also expect to start construction of the PSCW-approved Columbia Unit 2 SCR during the first quarter of 2016. Our estimated capital expenditure for the SCR is approximately $70 million.

In Iowa the Lansing Generating Station dry scrubber has been placed in service at a capital expenditure of approximately $55 million.

As we previously announced, in order to replace retiring facilities and further increase the amount of natural gas fire generation, we are constructing the Marshalltown generating station and have proposed the Riverside Energy Center expansion.

In Iowa site construction is well underway at IPL's 650-megawatt combined cycle natural gas-fired Marshalltown Generating Station, as you can see on slide 2. Siemens delivered the first combustion turbine in June and we expected delivery of the second CT this month. We plan to complete the construction of the gas pipeline to the facility this month and the transmission upgrades are underway.

The transmission upgrades for Marshalltown are now projected be cost less than $25 million, so we now expect the total project to come in over $100 million below the $920 million cost cap. The reduced cost for the transition upgrades will not have an impact on our capital expenditure or rate base forecast because ITC will be funding the transmission. Marshalltown is expected to be in service by the second quarter of 2017.

In 2013 WPL announced that it would retire several older coal facilities and natural gas peakers. The forecasted accredited capacity loss from these retirements is approximately 640 megawatts. As a consequent, WPL evaluated a wide range of alternatives to meet the long-term energy and capacity needs for its customers. In June 2014 WPL issued an RFP for market-based options.

After evaluating all of our options, we concluded that expanding the Riverside Energy Center was in the best interest of our customers. The proposed Riverside Energy Center expansion, located at our existing Riverside site near Beloit, Wisconsin, is an approximate 650 megawatt high-efficient natural gas-generating facility at an estimated cost of $750 million, excluding AFUDC and transmission.

This past April WPL applied for a Certificate of Public Convenience and Necessity, or the CPCN, with the Public Service Commission of Wisconsin for the proposed expansion. During a recent prehearing conference questions arose over Wisconsin Electric Power Company's intervention and whether WEPCo will be allowed to propose for the first time a short-term PPA an alternative to Riverside. Later this morning the Commission will decide WEPCo's intervention request. Our competitive RFP and alternatives analysis were diligent and we believe Riverside is and will be found to be in the best long-term interest of our customers. The current procedural schedule for the CPCN is provided on slide 3.

The proposed Riverside expansion includes an approximate 2 megawatts solar on the property. We also have several other solar projects under developed. We're doing them for us to gain valuable experience on how best to integrate solar on a cost-effective manner into our electric systems. We will own and operate the solar panels at the Indian Creek Nature Center in Iowa, as well as our Madison Corporate Headquarters, which are our two projects currently under development. These solar projects were part of the capital expenditure guidance we provided in November, 2014.

In July IPL announced a settlement with the EPA, The Sierra Club and the state of Iowa and Linn County in Iowa to resolve potential Clean Air Act claims and to avoid unnecessary delays and ongoing uncertainty associated with litigation. The terms negotiated in the settlement were consistent with our long-term plan for cleaner energy and most of the projects included in the settlement have already been completed or are planned.

The EPA made news earlier this week when it issues its final rule to reduce carbon emissions from electric utilities. This rule is widely referred to as the Clean Power Plan. We understand this is just one more step on what will be a long process that includes legal challenges and the development of compliance plans. As we look at our state regulars to develop strategies to comply, we will continue to take the approach of doing is best for our customers. We are fortunate that we operate in states that have a long history of energy efficiency programs, environmental stewardship and support for renewable energy.

How we spend our capital dollars and the pace of our capital spend is focused on ensuring we manage costs, use our resources responsibly, while providing energy services and solutions to our customers. As we plan for our future rate cases and work with the stakeholders in developing the state's clean power plans, these goals will be top of mind.

Let me summarize the key messages for today. We had a solid first half of the year 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. And we continue to successfully execute on our capital plan, completing projects on time and at or below budget.

We will continue to work with our regulators, consumer advocates, environmental groups and customers, in a collaborative 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.

And finally, I must acknowledge and gives thanks again to our dedicated work force which not only provides reliable energy to our customers, but also delivers the financial results we are discussing today.

At this time I will turn the call over to Tom.

Good morning, everyone. We released second-quarter earnings last evening with our adjusted earnings from continuing operations of $0.67 per share. Second quarter 2015 adjusted earnings are $0.10 higher than second quarter 2014. Comparisons between second quarter 2015 and 2014 earnings per share are detailed on slides 4, 5 and 6.

The adjusted or non-GAAP second quarter earnings from continuing operations exclude a charge of $0.06 per share from the sales of IPL's Minnesota electric and gas distribution assets. The premium over the operating plant and equipment book value was more than offset by the elimination of the applicable tax-related regulatory assets, resulting in the charge recorded in the second quarter.

We estimate the second quarter 2015 temperature impact on sales, when compared to normal temperatures, resulted in lower earnings of $0.03 per share. This was $0.05 lower than second quarter 2014 temperature impact of a positive $0.02 per share. On a temperature normalized basis, Alliant Energy's residential electric sales were flat, whereas commercial and industrial sales increased approximately 1% quarter over quarter. Taking into consideration the first half results, we are currently forecasting a modest increase in temperature normalized sales of approximately 1% for IPL and WP&L when compared to 2014.

The 2015 EPS guidance range factors in retail rate base settlements at IPL and WP&L. These settlements reflected rate-based increases at both utilities, offset by a reduction of energy efficiency cost recovery amortizations at WPL and the elimination of the Duane Arnold Purchase Power capacity payments and IPL. 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.

Also included in WP&L's rate settlement was an increase in transmission costs related primarily to the anticipated allocation of SSR costs. As a result of a FERC order issued after the settlement, the amount of the transmission costs billed to WP&L in 2015 will be lower than what was reflected in the settlement. Since the PFC approved escrow accounting treatment for transmission costs, the difference between the actual transmission costs billed to WP&L and those reflected in settlement will accumulate in a regulatory liability. We estimate that this regulatory liability will have a balance of approximately $40 million at the end of 2016. We view this regulatory liability as another mechanism we can use to minimize future rate increases for our Wisconsin retail electric 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. As in prior years, the tax benefit riders have a quarterly timing impact but are not anticipated to impact full-year 2015 results.

The IUB has approved a second tax benefit rider. Like the first tax benefit rider, we will accumulate benefits from two accounting method changes in a regulatory liability which will then be passed through to customers as billing credits. The total expected billing credits are approximately $75 million. These accounting method changes are still subject to final RS approval. We've proposed to credit customer bills with the 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 our next electric rate case in Iowa.

(Inaudible) the difference between the statutory tax rates for IPL, WP&L and AEC and the 2014 actual and 2015 forecast effective tax rates are provided on slide 7. The consolidated AEC effective tax rate for 2015 is forecasted to be 16%.

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 income tax payments in 2015 and 2016. These strong cash flows will be partially reduced by IPL's tax benefit riders and customer billing credits.

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 with 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. In June IPL retired $150 million of long-term debt. The 2015 financing plan assumes we are issuing up to $300 million of long-term debt at IPL. 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 ratios and credit metrics. The 2015 financing plan assumes the sale of our Minnesota electric and gas distribution assets, which were completed last month, with proceeds of approximately $145 million, including working capital adjustments and a $2 million promissory note.

Turning now 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. A final decision from FERC on the complaint is currently expected in 2016. The year-to-date impact of the anticipated reduction to ATC's authorized ROE has lowered earnings by $0.02 per share.

We have summarized our planned regulatory dockets of note on slide 8. In Wisconsin we anticipate receiving a decision on the 2016 fuel monitoring level in the fourth quarter of this year, and we anticipate receiving a decision on the Riverside expansion, CPCN, in the second quarter of next year.

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. At this time the Company will open up the call to questions from members of the investment community. Alliant Energy's management will take as many questions as they can within the one-hour timeframe for this morning's call. (Operator instructions). Andrew Weisel, Macquarie Research

Thanks. Good morning, guys. A couple questions on the generation fleet. First, I know you're -- that the Governor of Wisconsin is generally making a claim against the EPA as part of his presidential bid. Any thoughts on how the CPP might impact your specific portfolio and CapEx plans?

Good morning, Andrew, this is Pat. The CPP rule is very different than the one that was originally proposed so we're still analyzing this. And I can't speak on behalf of our governor, of course, but we come from a state that has had always very good environmental rules, renewable and efficiency standards. So, we'll work with our state to make sure that we get implementation plans that work for us, but right now we really need to spend the time understanding this new rule because it's very different than the proposed rule.

Okay. Then the second question is on coal-to-gas switching and -- I mean in the short term and not the long term. I understand your gas plants have been running very efficiently at very high capacity factors year to date. What kind of impact does that have in terms of the near term and longer term dispatch plans and the financials?

It really doesn't impact anything whatsoever. As you're aware, the transition on our smaller coal fleet to natural gas -- and keep in mind, we actually have natural gas already located at those sites, is really a transition for us to get us through the next few years, as we've talked about. That's not a long-term solution. The long-term solution is to add new combined cycle generating (inaudible) to our fleet.

Okay, great. Then one other question on the load growth. I appreciate the high level of detail, but maybe just an update on the trends in your local economies, especially on the Wisconsin industrial side.

Andrew, this is Tom. If we kind of look at it more broad based, we continue to see a modest number of additional residential customers being added to our system, but recognizing we are seeing residential usage go down. But we are seeing at least some expansion in the industrial sector of our business. So that gives you kind of a sense of kind of where we're at. So as I stated, we are anticipating about a 1% increase in sales year over year.

Great. Thank you very much.

Thank you, Andrew.

Thank you. (Operator instructions). Paul Patterson, Glenrock Associates.

Good morning.

Good morning, Paul.

Just to sort of circle back on Riverside, I guess the question I sort of have is, first of all -- and obviously this is more a question for Wisconsin Electric. But with the merger it seems that they're saying that they're now coming up with a lot of extra capacity and that they can obviously, as you indicated previously in the call, that they can replace Riverside. But I guess what my question is, is what is it in Wisconsin that prevents utilities who are not merged from engaging in this kind of what would seem to be a savings methodology? Do you follow what I'm saying? I mean--.

Sure.

Would you agree that this could have been without a merger? And I'm wondering just in general how we should think about that.

Paul, we've been very deliberate in our process to make sure we have the lowest-cost, long-term solution for our customers. And I cannot speak on what Wisconsin Energy is thinking right now and all we really know is what they filed at the Wisconsin Commission, believing that they have a short-term solution to offer to us, which we have not seen; they provided no details. So this is just very new news and we've got to work through the process here. And the Wisconsin Commission is going to rule later this morning on if they're allowed to be involved in the case with another proposal.

I guess what -- and it would seem - I mean I guess what I'm -- I mean they're basically asking for intervener status and I wouldn't be -- I mean is that that rare to give a utility in the neighborhood? I mean isn't -- I mean how much of a gating factor should we look at that being in terms of what their proposal is?

No--.

I don't get it. I mean -- that means that their proposal's unlikely to--.

Yes.

But I mean -- but in general, though, I mean assuming that they are given it, how should we think about that?

Yes. And Paul, it's common that other utilities get intervener status in the cases. That's just very common as we follow the cases, so that's not unusual. The unusual thing here is at the 11th hour they want to provide another proposal. And they were not part of the RFP process. They did not reply to any -- or they did not provide any offers when we did the RFP. So, this is a little unique.

Okay. Now you said that you've -- just to clarify this. You did say that basically you had looked at all these things and this was the cheapest cost. What about this idea of combining with the utilities I guess is what I'm sort of wondering here, in that like it seems kind of that Wisconsin, with the merger with WPL was able to come up with some savings. I'm just wondering is there something that doesn't allow utilities to cooperate in that manner without a merger?

And Paul, just to be clear, they've merged with WPS.

I'm sorry, WPS. I apologize.

They're going through the -- yes, that's okay. That's okay. Don't -- we don't need (inaudible) here right now. No, but they were -- and again, I prefer that you address these with Wi Energy, but we are not part of the IRP planning process.

Okay. But I'm just wondering -- I'm just speaking generically. I'm sorry to harp on this. I'm just speaking generically. Is that something that you guys look at when these plans are put forward, the idea of partnering with (inaudible)? It is not.

No, our IRP relates to our Wisconsin customers, Paul.

Okay. Okay. Thanks so much.

Sure. We'll talk to you later on this if you want to follow up.

Okay, thanks. I appreciate it.

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

There's no more questions. This concludes our call. A replay will be available through August 13, 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. Thanks.