Alliant Energy Corp (LNT) 2016 Q2 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's second-quarter 2016 earnings conference call. At this time, all lines are in a listen-only mode. Today's conference is being recorded. I would now like to turn the call over to your host, Susan Gille, Manager of Investor Relations at Alliant Energy.

Point I would like to thank all the 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; and Robert Durian, Vice President, Chief Accounting Officer, and Treasurer, as well as other members of the Senior Management Team.

Following prepared remarks by Pat and Robert, we will have time to take questions from the investment community. Tom is not on the call today since he is on vacation with his family this week.

We issued a news release last night announcing Alliant Energy's second-quarter 2016 earnings and reaffirmed 2016 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 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.

At this point I will turn the call over to Pat.

Good morning and thank you for joining us for our second-quarter 2016 earnings call. As Susan mentioned, Tom Hanson is on vacation with his children and grandchildren so Robert and I will handle today's call.

I will begin with an overview of a second-quarter performance and review the progress made in advancing cleaner energy in creating a smarter energy of a structure for our customers. I will then turn the call over to Robert to provide detail on our second-quarter financial results as well as review the regulatory calendar.

Earnings from the second quarter 2016 when compared to 2015 increased by $0.03 per share, which includes a $0.02 positive margin impact from temperatures. The [main] difference was primarily a result of higher allowance provides used during construction related to the Marshalltown generating station. We shared some exciting news last week as Governor [Brandstead] and I announced our proposed $1 billion investment for additional wind generation in Iowa. As you recall, we had originally forecasted additional renewable investments in the second five years of our tenure capital plan.

This plan accelerates this investment in order to take advantage of the full benefits of the reduction tax credit extension. This means that the expected in service dates of the new wind projects will now be in 2019 and 2020. With this announcement, I feel [filed] the advance rate making principle application or ARPU with the highway utility board to request approval to add owned and operated wind resources of up to 500 megawatts.

A portion of the new wind will likely be located at our existing Whispering Willow site in Franklin County, Iowa. We are also pursuing additional land options. We have requested a return on equity's of 11.5%. Details of the filings may be found on slide 2. As part of the filing we have requested a temporary renewable energy [rider].

This rider would allow us to start recovering the return of and on the wind farm when they are placed in service without filing a traditional rate case. The rider also allows our customers to immediately receive the financial benefits of reduction tax credits along with energy benefits of the wind generation produced. If the rider is approved it is expected to remain in effect until the [IUBs] final decision in a future retail electric base rate case.

We are requesting that the IUB make the decision on its RPU application during the fourth quarter of this year to make a [determined] down payment to secure full production tax credit extension levels. A full production tax credits and estimated energy benefits would more than offset the recurrent up at on net investments and related to O&M expense resulting in savings to customers over the life of the assets.

The production tax credits will decrease by 20% if we are not able to initiate our investment until next year. We issued an RFP to several [wooden] suppliers in late June and expect those responses in a few weeks. After we evaluate the responses we will then have a better estimate of the total cost and timing of the capital expenditures for the proposed project.

If this project is approved we don't expect our 2016 to 2019 capital plans to change materially. We are finding that some of our planned capital projects are coming in below the original forecast and we expect to reprioritize and in some instances delay certain other capital expenditures have not yet begun.

We will update our capital expenditure plans as part of our 3Q earnings release. We do not anticipate that these changes to the capital expenditure plans will cause a change in our long-term earnings growth rate projections of 5% to 7%.

Renewable energy has been a meaningful part of our energy resources. We currently have [568] megawatts of owned wind generation and anticipate supplementing that with approximately 770 megawatts of renewable purchase power agreements. The proposed Iowa investment would almost triple our owned and operated wind generation and place Alliant Energy as one of the US electric utilities with owned wind energy for our customers.

In addition to the ARPU request a 500 megawatts of new wind investments, we anticipate filing a restructuring request with the [IUB] later this quarter to transfer the Franklin County wind farm from Alliant Energy Resources to IPL. The transfer must be made at the lower of cost or market. Therefore, if our application is approved by both the IUD and FERC we would expect to take a nonrecurring pretax charge of approximately half of Franklin County's net book value.

We are also evaluating additional wind energy purchases and future investments for our Wisconsin customers. This will add economic stable energies to our fuel costs and allow us to offset market purchases of energy. Solar generation is also an extension -- a [standing] part of our renewable portfolio. We continue gathering valuable experience on how best to integrate solar in a cost-effective manner into our electric system.

At our Madison headquarters over 1300 solar panels are now generating power for the building. Wisconsin's largest solar farm on our Rock River landfill, which is adjacent to Riverside, is also now generating power. And in Iowa, construction is quickly progressing at the Indian Creek Nature Center in Cedar Rapids; we will own and operate the solar panels. In addition to these, as well is our recent announcements of the (inaudible) collaboration with the city of Dubuque are important to bring an renewable sources close to our customers and we are working with them to create sustainable energy for the future.

Next week we will issue our first corporate sustainability report which is an expansion of our past environmental reports. The report does highlight that we have made significant reductions in [knock, stock] and mercury emissions. The report also highlights that carbon emissions continue to decrease to additional renewable energy, increased [efficient] natural gas [prior] generation in the transition of our cold generation fleet. Therefore we expect our carbon emissions to be reduced by 40% by 2030 from 2005 levels.

Now let me brief you on 2016 construction activities with forecast investments of over $1.1 billion with almost half of that focused on our distribution systems. Approximately $300 million is being invested in our electric distribution system to make them more robust, reliable, and resilient. This year's plan also includes approximately $200 million for improvements of expansion our natural gas distribution business almost double prior-year spending.

As you are aware, the Public service commission of Wisconsin approved the certificate of public convenience and necessity for the Riverside expansion earlier this year. We expect the [applet] from the Riverside units to be approximately 700 megawatts and a total anticipated capital expenditure remains at roughly $700 million, excluding AFUDC and transmissions. Riverside is expected to be supplying energy to our customers by early 2020.

[A COM] has been selected to perform the enginering, procurement, and construction and the combustion turbine selected are GE frame seven, some of the most efficient units in production. In Iowa, the Marshalltown natural gas-fired generating facility is progressing well as approximately 85% complete. Total capital expenditures for this project are anticipated to be approximately $[700] million, excluding AFUDC transmission. Marshalltown is on time and on budget and is expected to go in service in the spring of 2017.

Riverside and [Emery] are two primary existing gas generating facilities. The key to experience increased dispatch when appear to prior years during the first half of 2016, Riverside and Emery's capacity factors were approximately double their five-year average. The ability to lean on our gas-fired generation during periods of low gas prices and also as a flexible resource during areas of low-end or cloudy days, demonstrate the importance of this resource and our balanced energy mix.

Moving on to our existing coal fleet -- when you are in the end of our successful construction program, reduced emissions are our largest facilities. The Edgewater unified scrubber and [bag house] project was completed on time and low-budget. Construction on the Columbia unit to SDR was approximately 18% complete. WPL total capital expenditure plan for this project is anticipated to be approximately $50 million and is expected to go in service in 2018.

There are several new regulations on the horizon dealing with ash ponds, on ash and water usage at our coal-fired generating stations. We have developed a plan and have begun to initiate that work which needs to comply with these rules and regulations. [Ash pond] closures and bottom ash conversion projects are underway in Iowa as outlined in IPL's filed missions plan and budget.

In Wisconsin [PSEW] recently approved our application for bottom ash conversion at Edgewater 5. The total expenditures for our ash and water programs are anticipated to be over $200 million during the next seven years. The rate-based estimates provided in our investor relations presentations include the near-term expenditures of this program.

During the past few years, we have been executing on a plan for the orderly transition of our generating fleet to serve our customers in an economic manner. We made progress and building a generation portfolio that has lower emissions, greater fuel diversity, and more cost-efficient.

The transition includes increasing levels of natural gas fires on renewable energy generation, lower levels of cold generation through retirements and fuel switching and installing mission controls and performance upgrades at our largest coal-fired facilities. We have also started watering ash flow programs at our facilities to meet current and expected future environmental requirements and I am proud of the fact that we have accomplished all of that while holding electric base rates flat for both IPL and WPL since 2011.

Let me summarize our key messages. We'll work to deliver 2016 financial and operating objectives. Our plan continues to provide for 5% to [10]% earnings growth and a 60% to 70%, common dividend payout target; our targeted 2015 dividend increased by 7% over 2015 dividends.

Successful execution of our major construction projects include: completing projects on time and at or below budget and in a safe manner; working with our customers, regulators, consumer advocates, environmental groups, neighboring utilities and communities in a collaborative manner; reshaping the organization to be leaner and faster while keeping our focus on serving our customers and being good partners in our communities.

We will continue to manage the Company to strike a balance between capital investment, operational and financial discipline, and cost impacts to the customers.

Thank you for your interest in online energy and I'll now turn the call over to Rob.

Good morning, everyone.

We released second-quarter 2016 earnings last evening with our earnings from continuing operations of $9.37 (sic - see press release "$0.37") which was $0.03 per share higher than the Non-GAPP earnings for the second quarter 2015. A summary of the quarter over quarter earnings drivers may be found on slides 3, 4, and 5.

Consistent with the growth assumed in our 2016 earnings guidance, retail, electric, temperature normalized sales for Iowa and Wisconsin increased approximately 1% between the first half of 2015 and the first half of 2016, excluding Minnesota. Commercial and industrial segments continue to be the largest sales growth drivers year over year.

The second quarter 2016 results include an adjustment to our ATC earnings to reflect an anticipated decision, related to the second complaint filed regarding the return on equity levels charged by transmission owners in [micro]. We reserved $0.01 per share in the second quarter of 2016, reflecting an anticipated all in ROE of 10.2% a reduction of [200] basis points from ATC's current authorized ROE of [12.2]%.

This reserve was triggered by the FERC administrative law judge's initial decision on the second complaint issued in June 2016. We are expecting a FERC decision by the end of this year for the first complaint and within the first quarter of 2017 for the second complaint.

Let's briefly review our 2016 guidance. In November, we issued our consolidated 2016 earnings guidance range of $1.80 and $1.95 per share on a post stock split basis. The key drivers for the 5% growth in earnings relates to infrastructure investments, such as the mission control equipment at Edgewater 5 in Lansing and higher AFUDC related to the Marshalltown generating station. The earnings guidance is based upon the impact of IPLs and WPLs previously announced retail base rate settlements.

In 2016, IPL expects to credit customer bills by approximately $10 million, by comparison the billing credits in 2015 were $24 million. IPL also expects to provide tax benefit rider billing credits to electric and gas customers of approximately $62 million in 2016, compared to $72 million in 2015. As in prior years, the tax benefit riders may have a quarterly timing impact but are not anticipated to impact full year results.

The [WTO] settlement for 2016 text period reflected electric rate-based growth for the Edgewater scrubber and bag house which is placed in service this year. The increase in revenue requirements in 2016 for this and other rate-based additions was completely offset by lower energy efficiency cost recovery amortization. In addition slide 6 has been provided to assist you in modeling 2016 effective tax rate for IPL, to WPL and AEC.

Turning to our financing plans, our current forecast incorporates the extension of bonus appreciation deductions through 2019. As a result of the five-year extension of bonus appreciation, Alliant Energy currently does not expect to make any significant federal income tax payments through 2021. With additional tax payment reductions expected after 2021 with the proposed wind investments at IPL.

This forecast is based on current Federal net operating losses and credit carry forward positions, as well as future amounts of bonus depreciation expected to be taken on the federal income tax returns over the next five years. Cash flows from operations are expected to be strong given the earnings generated by the business. 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 plans assumes we will issue approximately $[25,000] million of new common equity to our share [and direct] plan. The 2016 financial plan also anticipates issuing long-term debt above the $[300] million at IPL and up to $500 million at our non-regulated businesses.

$310 million of such proceeds are expected to be used to refinance the maturity of term loans at our parent and non-regulated businesses. As we look beyond 2016, our equity needs will be driven by the Riverside expansion project, and the requested 500 megawatt wind investment at IPL.

Our forecast assumes that the capital expenditures for 2017 will be financed primarily by a combination of debt and new common equity. Our 2017 financing plan currently assumes issuing of the $150 million of new common equity. We may adjust our financing plans as being prudent, if market conditions warrant, and as our debt to equity needs continue to be reassessed.

We have several current and planned regulatory dockets of note for 2016 and 2017, which we have summarized on slide 7. For IPL our permit application for the Clinton natural gas pipeline has been approved. During the rest of this year we will be supporting the filing to add up to 500 megawatts of wind in Iowa, and later this quarter we plan to file a restructuring request to transfer the Franklin County wind farm from Alliant [AG] resources to IPL.

We anticipate receiving decisions on both of these filings prior to our Iowa retail electric filing anticipated in April 2017. We expect to file the next Iowa retail gas rate base case in the second quarter of 2017. For WPL we filed our 2017 and 2018 retail electric and gas base rate case which resulted from the collaboration with the citizens utility board, the Wisconsin Industrial energy group, and [PSW] staff.

On slide 8 we have provided the procedural schedule and the key financial elements of this retail electric and gas increase proposal. This filing includes new pricing options as well as an increase in the fixed charge component of tariffs. We anticipate a decision from the [PSCW] by the end of this year with new rates effective January 1, 2017.

Finally, I like to update you on the information we plan to share during our next two quarterly earnings calls. Typically during the third quarter we have provided our following years earning guidance and dividend targets as well as updated capital expenditures and rate-based forecast.

Due to our planned filing of the IPL electric base rate case in 2017, we anticipate issuing 2017 earnings guidance during the year end call next February. During our third call in November of this year, we expect to provide 2017 dividend targets, updated capital expenditure forecasts, and updated rate base forecast.

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

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 Capital.

I did not know Tom takes vacation, I actually thought he lives in the office. (laughter)

We're not sure if this is a real vacation for him with all the little kids he is with right now. (laughter)

Fair enough. First question, a quick one, on Franklin I believe you said it's the lower of cost or market, so that would likely result in a charge in the next quarter.

Are you able to give what the book value is or your expectation of the sale price? And is there any precedent of a transfer like that in Iowa going from an unregulated subsidiary to a regulated one within the same parent company?

You asked a lot of questions. Let me take them in order, and Robert chime in here where need be. We actually have on the investor deck on slide 29 where we have the renewable energy wind slide, and we put on there the book value of Franklin County, and this was at year end. Approximately $130 million, Andrew.

At the time of the transfer would be completed is when we would probably take the impairment. So we are looking into not receiving full approval into early next year. So that's something we will be evaluating over the next several months.

You asked about precedent. Again you're familiar that we've done this on the Wisconsin side of the house already, so we have been working with the parties in Iowa to make sure they understand exactly what we will be asking for at that point, so I don't expect to have any large issues with this. And again the rules that we transferred at the lower of cost or market, so we will be following those rules absolutely as well.

On the new wind project, your neighbors at Berkshire obviously also announced a pretty major investment in wind in the state. Have the two of you talked about working together, or do you know are regulators considering the proposals similarly, competitively, independently? How should we think about those two projects going in tandem?

Sure. The two separate dockets as you are well aware, MidAm is a little bit ahead of us, so I would consider them two separate dockets. As you are well aware, though, we're partners at MidAm and several other joint [coal] units, so we have a great relationship with them. But working with the state, as you can tell from our announcement, the state is very excited about both our investment and Berkshire's investment.

We're working with the state jointly to make sure that all these wind projects are delivered on time for our customers. It is a very cooperative spirit between the two of us, but they are two different dockets, though.

Got it. Is there any concern about lack of enough resources whether it is equipment or labor or lands?

No. Not at all. Again, before we made filing we issued the RFP to the vendors just to make sure there was still a supply out there. We haven't received a bid spec yet, but the discussions with the vendors are going very, very well.

As you are aware we actually have the land around Franklin County already, so we are actually talking to the townspeople and they are very excited for us to be putting more wind around their county. So we don't anticipate with either utility having any issues with land in Iowa, or resources getting these large projects completed

Very good. Then my last one, you mentioned that you are not expecting any change to the long-term earnings power. I am a little surprised by that just because if this is going to be lowering your O&Ms and avoiding some purchase power, I would think that would create some head room.

I know customer bill affordability is your -- it's not top concern, one of your top concerns. Shouldn't that create some head room for at least some incremental CapEx relative to your prior guidance?

You know, it's really too early for us to answer that. We really need to step back and look at our multi-year plan, Andrew, and our rate case planning. But right now we're targeting our capital plan over the next two years to really target that 5% to 7%.

Okay. Great. Thank you for all of the details.

Brian Russo, Ladenburg Thalmann.

Good morning. Could you just tell us what the Franklin County wind farm EPS contribution is in your 2016 guidance?

I'll turn that over to Robert.

Right now we're expecting about a $0.02 to $0.03 loss for 2016, which is pretty consistent with what we've seen over the past few years for Franklin County.

Okay great. I realize you guys are looking to maintain the five year capital budget, but could there potentially be changes in the annual spend, albeit coming up with the same total, five year budgeted amount?

The thing we have to -- once we get the bids back from the wind vendors we would expect the CapEx in the years 2018 and 2019 to be increased from what we currently have. So that is what we're really working to right now, Brian.

It's too early to give you an indication of what those annual numbers are going to be. And we will share that with you on the third quarter call and when we see you at EEI. But that's what we're going through right now to make sure we understand the capital -- and the financing plan that goes behind the capital plan.

Got it. Would you expect similar intervenors in your Iowa wind filing, similar to the intervenors in MidAm's filing and those that were part of the settlement agreement?

Yes, that's a good question. We have been very transparent on this filing in Iowa as you can tell from all the attention we've gotten on it.

We just filed last week. It's really too early to tell exactly what other parties want to be a part of this. But we'll monitor that, and like we've done in other cases, we will make sure we are very transparent and collaborative with anybody that wants more information on the case.

Let me ask you maybe a different way. Do you have large industrial customers that are supportive of kind of a greener overall footprint in their operations?

Yes, absolutely. Most of our large customers want to work with us on their sustainability goals as well. We have done a lot of outreach, Brian, before we actually made this filing, with our large industrial customers. I would expect that this case would not have a lot of controversy, but it's too early to say since we just filed it last week.

Got it. Thank you.

Scott Senchak, Cannon.

On Franklin, have you -- is there a potential opportunity down the line for repowering there? Or is this just more just to bring in a rate [base in] and take it out from where it is now?

It's really just a transfer over to the utility, but I think all of us that have owned wind farms are looking down the road at repowering opportunities, but that's way down the road, not initially. This wind farm is only a couple years old and is performing very well.

Then do you guys have any other PPAs for wind currently where you would potentially look at repowering given the IRS guidelines and maybe bring them in-house?

I would tell you that first we're focusing on our own new build and ones that we currently own. But we are supplementing as we have done historically -- we're going to have another existing 770 megawatts of additional PPAs. We actually like the balance of owned wind and PPA wind because it actually helps stabilize cost for our customers. So we are not looking at any of that at this point, but there's definitely an opportunity down the road to look at that.

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 August 9, 2016, 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. Thank you for your continued support of Alliant Energy, and feel free to contact us [with any questions].

Thank you, and that does conclude today's conference. We thank you for your participation.