Alliant Energy Corp (LNT) 2015 Q3 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's third-quarter 2015 earnings conference call.

At this time all lines are in a listen-only mode, and today's conference is 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 all on the call and 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 third quarter 2015 earnings, narrowing 2015 earnings guidance, and providing 2015 through 2024 capital expenditure guidance. We also issued earnings guidance and the common stock dividend target for 2016. 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 subliminal 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 today.

With Veterans Day just a few days away, I would like take a moment to pay tribute to the approximately 400 proud veterans that work for Alliant Energy and to those veterans that are on the call with us today. We thank you for your service to our country and for protecting our freedoms. Enjoy your special day.

Yesterday, we issued a press release, which included third quarter and year to date financial results, our revised 2015 earnings guidance range and for 2016, our earnings guidance and targeted common stock dividend. That release also provided updated details of annual capital expenditure plans through 2019 and our capital expense in total for 2020 through 2024.

Tom will later provide details of the quarter, but I am pleased to report that we delivered another solid quarter. And since temperatures were close to normal through the third quarter, it virtually had no impact on our year-to-date earnings. So with the summer behind us, we are narrowing our 2015 earnings guidance.

We are now including an adjustment to our ATC earnings to reflect the anticipated lower ROE. ATC's current authorized ROE is 12.2%. We are reserving $0.03 per share for the year, reflecting an anticipated all-in ROE of 11.5%. Therefore we are changing the midpoint of this year's earnings guidance range from $3.60 per share to $3.57 per share.

Now looking at next year, the midpoint of our guidance for 2016 is $3.75 per share, a 5% increase from our projected 2015 guidance, as detailed on slide 2. This increase reflects a forecast of customer sales increase of 1% and earning on capital additions. Our long-term earnings growth objective continues to be 5% to 7%, supported by a robust capital expenditure plan, modest sales growth and constructive regulatory outcomes.

The ability to earn on authorized returns on rate base additions at both utilities was incorporated in both retail electric base rate settlements. Both settlements have unique treatments that will allow the utilities to earn on its increasing rate base, while keeping customer base rates flat.

The IPL settlement utilized the historic DEAC capacity payment that are included in base rates to more than offset rate base growth and other changes in revenue requirements. This allows us to refund the difference to customers, including a $25 million refund in 2015 and a $10 million refund in 2016. The WPL settlement utilized previously recovered energy efficiency revenues to offset increases in revenue requirements, including return on rate base additions.

A balance of approximately $32 million will be amortized in 2016, and the amortization for this year is expected to be $18 million. To summarize, both creative retail rate case settlements allow us to earn on our increasing rate base, while keeping retail electric base rate stable through 2016, which is the last year of the settlement.

Yesterday, we also announced a 7% increase in the targeted 2016 common dividend level to $2.35 per share from our current annual dividend of $2.20 per share. Our 2016 dividend target payout ratio is 62.5%, which is consistent with our long-term targeted dividend payout ratio of 60% to 70% of consolidated earnings.

We issued an updated capital expenditure plan for 2015 to 2019, totaling $5.8 billion, as shown on slide 3. In addition, we provided a walk from the previous 2015 to 2018 expenditure plan to our current plan on slide 4. As you can see, the changes in our forecast for 2015 to 2018 capital expenditure plan are driven primarily by additional investments on our electric and gas distribution systems, and a $50 million reduction to the proposed Riverside Energy Center expansion in Wisconsin. The lower-cost estimate of $680 million to $700 million, excluding AFUDC to transmission, was filed in supplemental testimony with the PSCW yesterday.

On slide 5, we have provided a ten-year view of our forecasted capital expenditures. As you can see, our planning for additional new generation needs beyond 2019, which we anticipate will include gas, wind and other renewable resources. The additional renewables in our plan would economically fulfill customer energy needs, as we continue to retire older generating facilities.

When reviewing slide 5, it is also important to note that approximately 45% of the ten year capital plan will be spent to enhance our electric and gas distribution system to meet customers' changing and growing needs. Investments in our gas distribution system are becoming more significant, as evidenced by our recently completed $15 million Oakdale project in Wisconsin and the proposed approximately $65 million Clinton project in Iowa. Also for your convenience, we have already posted on our website the EEI investor presentation that details the separated WPL and IPL updated capital expenditures for 2019, as well as updated rate base estimates for 2014 through 2018.

Now let me brief you on our current construction activities. As year end approaches, this has certainly been one of our busiest construction years. I must thank the employees and approximately 800 contract workers on our properties for working safely and for their assistance on these important projects.

I am extremely proud of the achievements we have made and continue to make in transitioning the environmental profile of our fossil generation fleet. We plan to reduce NOx emissions by approximately 80%, and SOx and mercury emissions by approximately 90% by 2020, and we'll continue to plan for a reduced carbon future.

In Wisconsin, the installation of a scrubber and baghouse at Edgewater Unit 5 is approximately 75% complete. It is expected to be in service in the second quarter of 2016. We are anticipating this project will come in approximately 10% below budget.

We have recently signed a contract for the joint venture between Graycor Industrial Contractors and Sargent and Lundy to perform the engineering, procurement and construction of the Columbia unit to SCR. Construction is scheduled to start in the second quarter of 2016, and WPL's share of the expenditure for this project is approximately $50 million.

We do have an excellent track record of executing well on these large construction projects, so we're very pleased when POWER Magazine named two of our coal generating stations as their top plants for 2015. The recognition of IPL's Ottumwa Generating Station and WPL's Columbia Energy Center was for their excellent execution of these major investments and a dedication to cleaner and more efficient operations.

Construction of IPL's 650 MW combined cycle, natural gas fired Marshalltown Generating Station is progressing well. The project is approximately 65% complete and is expected to be in service in the second quarter of 2017. KBR is the engineering, procurement and construction contractor for this project, which include Siemens' combustion turbine technology. In 2013, the WPL announced it would retire several older coal facilities and natural gas peakers. These retirements begin next month at Nelson Dewey and at Edgewater Unit 3.

When WPL's planned retirements are completed, the forecasted accredited capacity loss will be nearly 700 megawatts. As a consequence, WPL evaluated a wide range of alternatives to meet long-term energy and capacity needs for its customers.

In 2014, WPL issued an RFC for market-based options. After evaluating all of our options, we concluded that a Riverside Energy Center expansion with a new approximately 650 MW highly efficient natural gas generating facility was in the best long-term interest of our customers. This past April, WPL filed for a certificate of public convenience and necessity, or CPCN, with the Public Service Commission of Wisconsin. The CPCN is progressing, in accordance with the procedural schedule.

On September 22, we filed our direct testimony, and yesterday, filed supplemental testimony to reflect the updated cost projections. [Intervening that] testimony will be filed by November 13, a public hearing will be conducted on November 17 in Beloit, and technical hearings are scheduled for December 21. We anticipate the commission will issue the decision on the Riverside expansion by May 2016.

The proposed Riverside expansion includes an approximate 2 MW solar installation on the property. Adjacent to Riverside, on our Rock River landfill, Hanwha Q Cells is currently constructing the largest solar farm in Wisconsin at 2.25 MW, and we will purchase the power from them over the next ten years.

At our Madison general office, installation of over 1,000 solar panels from multiple manufacturers, with 11 different types of solar modules, is well underway. For this project, we have partnered with the Electric Power Research Institute, or EPRI to collect data and make it available to others. We also have several other solar projects under development, in which we anticipate gaining valuable experience in how to best integrate solar in a cost-effective manner in our electric system.

Solar projects in the development stage including owning and operating the solar panels at the Indian Creek Nature Center in Cedar Rapids, Iowa, and our recently issued RFP requesting bidders to build solar projects between 1 MW and 10 MW within our Iowa service territory. The projects resulting from the RFP will increase our system-wide solar generation by 50%.

Last month, the EPA published its final rules to reduce carbon emissions from electric generating stations. We understand this is just one more step in what will be a long process that includes legal challenges and the development of compliance plans. As we develop strategies, we will continue to take the approach of doing what's best for customers in the environment. We are fortunate that we operate in states that have a long history of energy efficiency programs, environmental stewardship, and support for renewable energy.

There's a sense of excitement as we work to transform into the company our customers need us to be, not only now but well into the future. A major improvement to our customer experience is happening as we went live with a new customer care and billing system for Wisconsin customers several weeks ago and plan to go live with Iowa customers in early 2016. A $110 million investment replaces vintage mainframe systems from the 1980s. It will make communications with our customers more convenient and timely.

We've already accomplished a great deal as a Company as we transition to a cleaner and more modern energy system. I want to thank all of our employees for their creativity in finding cost-effective solutions and serving our customers well.

Let me summarize the key message for today. We had a solid first three quarters of the year and are well-positioned to deliver on this year's financial and operating objectives. Our plan continues to provide a 5% to 7% earnings growth on a 60% to 70% common dividend payout target. Our targeted 2016 dividend increased by 7% over the 2015 dividend target (inaudible). Successful execution on our major construction projects, includes completing projects on time, and at or below budget in a safe manner. Work with our regulators, consumer advocates, environmental groups and customers in a collaborative manner. Reshape our organization to be lean and faster, while keeping our focus on serving our customers and being good partners in the community.

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 in Alliant Energy. And I will now turn the call over to Tom.

Good morning, everyone.

We released third-quarter earnings last evening, with our non-GAAP earnings from continuing operations of $1.63 per share, and our GAAP earnings from continuing operations of $1.59 per share. The non-GAAP to GAAP difference is due to a $0.04 per share charge, resulting from approximately 2% of employees accepting voluntary separation packages, as we continue focusing on effectively managing costs for our customers.

2015 third quarter non-GAAP earnings are $0.23 higher than the third quarter 2014, primarily due to lower retail electric customer billing credits at IPL, higher electric sales, and lower energy efficiency cost recovering amortization to WPL. Higher quarter-over-quarter EPS was partially offset by higher electric transmission service expense at WPL and the dilution impact of shares issued in 2015. Comparisons between third quarter 2015 and 2014 earnings per share are detailed on slides 6, 7 and 8.

For the first six months of this year, we experienced virtually no temperature-normalized retail sales growth. We are pleased that the third quarter brought an estimated $0.06 per share increase in earnings, resulting from higher temperature normalized sales. Some of the growth experienced in the third quarter of 2015 for residential and commercial is due to an earlier fall grain harvest in 2015, when compared to 2014.

Of the retail sectors, Industrial continues to be the largest sales growth driver, year over year. Quarter over quarter, we recognized an earnings increase of $0.05 per share from higher sales due to temperatures, since the third quarter of 2014 had approximately 20% fewer cooling degree days compared to normal. However, the first three quarters of 2015, temperatures were close to normal.

Year to date non-GAAP earnings are tracking in line with the 2015 earnings guidance range. Comparing non-GAAP earnings from continuing operations for the first nine months of 2015 versus 2014, earnings were up 8% year over year. Drivers of the differences between the statutory tax rates for IPL, WPL, and AEC in the actual forecast effective tax rates for 2015 and 2014 is profiled on slide 9.

Now let's review our 2016 guidance. Last evening, we issued our consolidated 2016 guidance range of $3.60 to $3.90 earnings per share. A walk from midpoints of the 2015 to 2016 estimated guidance range is shown on slide 10. The key drivers for the 5% growth in earnings relate to infrastructure investments, including higher APDUC related to the construction of the Marshalltown Generating Station. The 2016 guidance range assumes normal weather and modest retail sales increases of approximately 1% for IPL and WPL when compared to 2015. Also the earnings guidance is based upon the impacts of IPL's and WPL's previously announced retail electric base rate settlements.

The IPL settlement reflected rate-based growth, primarily from placing the Lansing scrubber in service in 2015 and the Ottumwa baghouse scrubber and performance improvements in service in 2014. The increase in revenue requirements related to rate based additions is offset by the elimination of the DAEC purchased power capacity payments.

In 2016, IPL expects to credit customer bills by approximate $10 million. By comparison, the billing credits in 2015 are expected to be approximately $25 million. During 2016, IPL expects to provide tax benefit billing credits to electric and gas customers for approximately $62 million, when compared to $72 million in 2015. As in prior years, the tax benefit riders have a poorly timing impact, but are not anticipated to impact full year 2015 and 2016 results.

The WPL settlement reflected electric rate-based growth for the Edgewater Unit 5 baghouse, projected to be placed in service in 2016. The increase in revenue requirements in 2016 for these and other rate base additions was completely offset by lower energy efficiency cost recovery amortizations. Also included in WPL's rate settlement was an increase in transmission costs, primarily related 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 WPL in 2016 will be lower than what was reflected in the settlement. Since the PSCW approved escrow accounting treatment for the transmission costs, the difference between the actual cost billed to WPL and those reflected in settlement will accumulate in a regulatory liability.

We estimate that this regulatory liability will have a balance of approximate $35 million by the end of 2016. We view this regulatory liability as another mechanism we can use to minimize future rate increases for Wisconsin retail electric customers. Retirement plan expense is currently expected to be approximately $0.03 per share higher in 2016, largely due to lower than expected asset returns forecasted for 2015. These amounts will be updated at year end 2015 when determining the actual 2016 plan expense. Given the changes expected in income tax expense in 2016, [511] has been provided to provide -- to assist you in modeling the forecasted 2016 effective tax rates for IPL, WPL and AEC.

Turning to our financing plan, cash flows from operations are expected to be strong, given the earnings generated by the business. We also will benefit, given we do not expect to make any material federal income tax payments in 2016. These strong cash flows will be partially reduced by credits to customer bills, in accordance with IPL's tax benefit riders and IPL's customer billing credits, resulting from the settlement. We believe that with our strong cash flows and financing plan, we will maintain our targeted liquidity and capitalization ratios, as well as high-quality credit ratings.

Our 2016 financing plan assumes we will be issuing approximately $25 million of new common equity through our Shareowner Direct Plan. The 2016 financing plan also anticipates issuing long-term debt, including up to $300 million at IPL, and up to $310 million at the parent and Alliant Energy resources. The $310 million of proceeds at the parent and Alliant Energy resources are expected to be used to refinance maturity of term loans. We may adjust our plans as deemed prudent, if market conditions warrant and as our debt and equity needs continue to be reassessed.

As we look beyond 2016, our equity needs will be driven by the proposed Riverside expansion project. Our forecast assumes that the capital expenditures for the Riverside expansion in 2017 and 2018 will be financed primarily by a combination of debts and equity. Our current financing forecast assumes no extension of bonus depreciation deductions. Under this assumption, Alliant Energy will be making modest federal tax payments, starting in 2017. It will continue to use net operating losses for the next two years as offsets to federal taxable income.

We have several current and planned regulatory dockets of note for the rest of 2015, 2016 and 2017, which we have summarized on slide 12. Later this year, we anticipate a decision from the PSCW on the 2016 fuel monitoring level. Next year, we anticipate a decision on the Wisconsin Riverside expansion proposal and on the Iowa Clinton natural gas pipeline. Also in 2016, we plan to file an emissions plan and budget in Iowa and the Wisconsin retail electric and gas base case rates in years 2017 and 2018. The next Iowa retail electric and gas base rate cases are expected to be filed in the second quarter of 2017.

We very much appreciate your continued support of our Company and look forward to meeting with you at EEI. The slides to be discussed at EEI are posted on our website, as we do with all of our investor relations conference slides.

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 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 Capital.

First question is on the $0.04 charge for voluntary employee separation. What is that impact? How is that going to impact O&Ms, going forward?

That will be a reduction to O&M going forward, and that is reflected in our forecast, in terms of our 2016 guidance.

What is the forecast for O&M next year?

We are assuming that it will be about a 2% increase, now recognizing that this excludes the normal energy efficiency cost as well as any of the regulatory amortizations that flow through O&M as well.

Got it. Okay. Next a couple of questions on Riverside. First in terms of the CapEx you laid out, I see you that you lowered it for next year spending by about $95 million. Can you give a little more detail on that? Is that assuming a little bit of a delay in when the construction begins?

No, not at all. Now that we're getting bids from the contractors, it is the timing of the bids. The cash flow that they are laying out is why we changed the -- not only did we change the total number, but we changed the timing of the payments.

Okay. The total number, if I heard you correctly, was only down about $20 million. Is that right?

It is down -- if you go midpoint to midpoint, it's down $50 million.

Okay. The next question I have is with the potential for a PPA instead of Riverside. If Riverside were to be either delayed or canceled, can you talk about how you might be able to back fill some of that spending in terms of what might go in and how soon you would be able to fill those holes?

Andrew, it is a little preliminary for us to give a backup for capital for Riverside right now. It would be honest to tell you, though, for 2016, it would be tough to fill the capital that we have laid out in 2016, but we will discuss this as we get further down the year in 2016, what the backfill could possibly be.

Okay. Thank you very much. I will let some other people ask questions.

Brian Russo, Ladenburg Thalmann.

In terms of the 2016 guidance, what kind of earned ROE are you assuming at IPL and WPL, maybe at the midpoint?

We're assuming that we would earn our authorized returns in both jurisdictions.

Okay. So what gets you to the high end of the range?

To be able to get us to the high end if sales are higher than we expect. Currently we expect a 1% increase in sales, but if they come in higher, it would definitely bring us to the higher end of the range.

Okay. Then as we look into 2017, Marshalltown will be added to base rates. I believe -- correct me if I'm wrong -- but that's that the allowed ROE is 11.4%. So I would imagine that your earned ROE in 2017 will be enhanced relative to the earned ROE assumption in 2016. Is that the way to look at it?

Yes. Brian, so the allowed ROE for Marshalltown is 11%. But as we go through interim final rates, you will see our earned returns increase in Iowa.

Okay. Great. Thank you very much.

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

With no more questions, this concludes our call. A replay will be available through November 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.

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation.