Alliant Energy Corp (LNT) 2016 Q3 法說會逐字稿

Thank you for holding, ladies and gentlemen. Welcome to the Alliant Energy third-quarter 2016 earnings conference call.

(Operator Instructions)

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. Please go ahead.

Good morning. I would like to thank all of you on the call and on 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 Chief Financial 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, Tom and Robert, we will take time for questions from the investment community. We issued a news release last night announcing Alliant Energy's third-quarter 2016 earnings, and narrowed 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.

In addition, this presentation contains non-GAAP financial measures. The reconciliation between non-GAAP and GAAP measures are provided in the earnings release, which is 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 Veteran's Day just a week away, I'd like to take a moment and pay tribute to the approximately 400 proud veterans that work here at Alliant Energy and for those veterans that are on the call with us today. We thank you for your service to our country, and for protecting the freedom of people around the world. I also want to extend my thanks and appreciation to all of the military families that support those on active duty, as well as our veterans.

Yesterday, we issued a press release which included third-quarter and year-to-date financial results, narrowed our 2016 earnings guidance range, and announced the 2017 common stock dividend target. That release also provided an updated annual capital expenditure plan through 2020, and our forecasted total CapEx for 2021 through 2025.

I am pleased to report that we delivered another solid quarter. Warmer-than-normal winter temperatures lowered first-quarter earnings, but the warmer summer increased third-quarter earnings, resulting in a year-to-date temperature impact sale being close to normal. Therefore, temperature variances had virtually no impact on our year-to-date earnings.

So with summer behind us, we are narrowing our 2016 earnings guidance, with the midpoint remaining at $1.88 per share, which is consistent with the earnings guidance provided for the November 15 on a post stock split basis. Tom will provide details for the quarter later in the call.

As we have previously indicated, 2017 earnings guidance will be issued in conjunction with our year-end call in February. However, I am reaffirming that our long term earnings growth objective remains at 5% to 7%.

Yesterday, we also announced a 7% increase to our targeted 2017 common dividend to $1.26 per share. The 2017 dividend target pay-out ratio is consistent with our long material targeted dividend pay-out ratio of 67% of consolidated earnings. We also issued our 2016 through 2020 updated capital expenditure plan, totaling $6.6 billion as shown on slide 2.

In addition, on slide 3 we have provided a walk from the previous 2016 to 2019 plan to our current plans. As you can see, the changes are driven primarily by additional renewable generation investments, offset partially with lower capital projects at other parts of the Company.

As you can see on slide 4, we have provided a 10-year view of our forecasted capital expenditures. These investments in the first five years of the 10-year plan are higher than previously disclosed, since we are accelerating our previously-forecasted renewable investments of both IPL and WPL, to take advantage of federal production tax credits.

We are fortunate that we have the ability to serve our customers with economic renewable generation, which has the added benefit of providing stable fuel costs. As energy technologies evolve, we will continue to evaluate our investment opportunities, to better serve our customers. Our current plan does include additional generation needs beyond 2020, which we anticipate will be renewable and natural gas generation investments.

When reviewing slide 4, it is also important to note that over 50% of the 10-year capital plan is projected to enhance electric and gas distribution systems. Customers and communities expect us to maintain reliability, while creating a system that is increasingly interactive and dynamic.

This includes making investments that accelerate the integration of new technologies, including distributor resources. Also for your convenience, we have already posted on our website the EEI investor presentation, that details the separate IPL and WPL updated capital expenditures through 2020, as well as updated rate base and construction work in progress estimates.

Now let me brief you on our current regulatory activities. Last month we shared with you the settlement reached with the customer groups in Iowa, relating to our Advanced Rate Making Principles filing, associated with the proposed 500-megawatt new wind project in Iowa.

I am pleased to report that last week the IUB issued its order on the proposal in an expedited fashion. Key terms of the order include a cost cap of $1,830 per kilowatt, including allowance for funds used during construction and transmission costs, and return equity of 11% for the life of the asset, and a depreciable life of 40 years.

The new wind project is included in our capital expenditures, and construction work in progress forecasts, and the rate base estimates assume that 250 megawatts are to be in service in 2019, and the remaining 250 megawatts in service in 2020. We are currently evaluating the bids from the wind suppliers and should have that selection by year-end to qualify for the 100% of the federal production tax credits.

Renewable energy is currently a meaningful part of our energy sources, including 568 megawatts of owned wind generation, and approximately 730 megawatts of renewable purchase power agreements. The new Iowa wind project will add up to 500 megawatts, which will place Alliant Energy as one of the leading US Electric utilities with owned wind energy for its customers.

We also plan to transfer the 100-megawatt Franklin County wind farm to IPL from Alliant Energy Resources, and will file that request with FERC later this month. If our application is approved by FERC, we would expect to transfer Franklin County to IPL during the first quarter of 2017. We expect the investment to be evaluated as part of our revenue requirement for the IPL rate case filing in the spring of 2017. The Franklin County wind farm would then be combined with its neighbor, IPL's Whispering Willow wind farm.

In addition to IPL's additional 500-megawatt wind expansion and the planned transfer of the 100-megawatt Franklin County to IPL, we are exploring options for IPL and WPL, to own and operate additional new wind generation. Our current estimated capital expenditures assume 400 megawatts of additional new wind generation, split evenly between IPL and WPL. But the final size and allocation between IPL and WPL is subject to change, pending further evaluation.

Solar generation is also an expanding part of our balanced generation portfolio, as we continue to gain experience on how to best integrate it into the electric system. We now have several solar projects within our service territory, including Wisconsin's largest solar farm on our Rock River Landfill in Beloit, at our Madison headquarters, and at the Indian Creek Nature Center in Cedar Rapids, Iowa. We believe initiatives such as these, as well as our announced solar collaboration with the City of Dubuque, are important to bring a renewable source that's closer to our customers, and working with them to create a sustainable energy future.

Now let me brief you on our 2016 construction activities, with forecasted investments of over $1.2 billion. Included in that is approximately $300 million for our electric distribution system to continue to make it more robust, reliable and resilient. This year's plan also includes approximately $170 million from improvements and expansion of our natural gas distribution business, almost double prior-year spending.

We've broke ground at the Riverside expansion in September. We expect the output from the new Riverside expansion to be approximately 700 megawatts, and its total anticipated project cost remains at approximately $700 million, excluding AFUDC and transmission.

Riverside is expected to be supplying energy to our customers by had early 2020. AECOM has been selected for the engineering procurement and construction, and the combustion turbines are GE frame 7s, some of the most efficient units in production.

The co-ops have recently signed a letter of intent to acquire approximately 50 megawatts of Riverside, which is subject to PSEW approval. Once approved, the co-ops will start acquiring their share of the project during the construction phase. Also, PSEW approved the revised operating plan to allow for WPL to increase its ownership share of Columbia, whereas WPS and NG&E will decrease their ownership share.

In Iowa, the Marshalltown natural gas fired generating facility is progressing well, and is approximately 94% complete. Total capital expenditure for this project are anticipated to be approximately $700 million, excluding AFUDC and transmission. Marshalltown is expected to go in service in the spring of 2017.

Riverside and Emery are two primary existing gas generation facilities, continuing to experience increased dispatch, when compared to last year. During the first nine months of 2016, Emery is averaging 40% capacity factor, and Riverside's average capacity factor exceeds 55%. The ability to lean on our gas-fired generation during periods of low gas prices, and also as a flexible resource during periods of low wind or cloudy days demonstrates the value of gas resources on our balanced energy mix.

Moving to our existing coal float. We're nearing the end of our successful construction program to reduce emissions at our largest facilities. WPL's Edgewater unified scrubber and baghouse project was completed on time and below budget earlier this year. Construction of the Columbia Unit 2 SCR is approximately 35% complete, and the total CapEx is anticipated to be $50 million, and it's expected to be in service in 2018.

There are several new regulations on the horizon, dealing with ash ponds, bottom ash, and water usage at our coal-fired generating stations. We have developed a plan, and have begun to initiate the work needed to comply with these rules and regulations, and ash pond closures and bottom ash conversion projects are already underway in Iowa.

In Wisconsin, the PSEW approved our application for bottom edge conversion of Edgewater 5. The total capital expenditures for our water and ash program are anticipated to be over $155 million during the next 10 years, and are included in our capital expenditure forecast and rate base projections.

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've made progress building a generation portfolio that has lower emissions, greater fuel diversity, and is more cost-effective. The transition includes increasing levels of natural gas fires and renewable energy generation, installing emission controls and performance upgrades at our largest coal-fired facilities, and lower levels of coal generation through reduce economic dispatch, retirements and fuel switching.

We've also started water and ash 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 elective base rates flat for both IPL and WPL since 2011.

Let me summarize my key messages for today. We will continue to deliver 2016 financial and operating objectives. Our plan continues to provide the 5% to 7% earnings growth and a 60% 70% common dividend pay-out target. Our targeted 2017 dividend increased by 7% over 2016 dividend.

Successful execution of our major construction projects includes 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 impact to customers.

Now, before I turn the call over to Tom, I would like to thank him for his thoughtful leadership, and being by my side during the past five years. The strong relationships he developed across our Company, industry, and investor community have made a difference for our customers, employees, and shareowners.

I wish Tom and his family the best as he transitions to a new phase of life. I'll now turn the call over to Tom.

Thank you, Pat. Good morning, everyone. We released third-quarter 2016 earnings last evening, with our non-GAAP earnings from continuing operations of $0.80 per share, which was $0.01 per share lower then the non-GAAP earnings in the third quarter of 2015.

A summary of the quarter-over-quarter earnings drivers may be found on slides 5, 6, and 7. The non-recurring $0.23 per share charges for the third quarter of this year relate to the asset valuation charges for the Franklin County wind farm. As Pat indicated, we plan to seek FERC approval to transfer this asset to IPL, and per Iowa administrative code, the transfer must be made at the lower of cost to market. The current value of the Franklin County wind farm as of September 30, 2016 was determined to be approximately $33 million, subject to working capital adjustments.

When 2016 earnings guidance was issued in November 2015, we forecasted temperature-normalized retail electric sales would increase 1% for the two utilities. Through the first three quarters of this year, temperature-normalized sales increased almost 1%.

IPL sales are relatively flat year-over-year, whereas WP&L sales have exceeded 1% sales growth forecast. The commercial and industrial segments continued to be the largest sales growth customer classes year-over-year in both utilities.

The third-quarter 2016 results include an adjustment to our ATC earnings, to reflect the recent FERC decision related to the first complaint, and the anticipated decision related to the second complaint, filed regarding the ROE levels charged by transmission owners in MISO. The reserve for the first complaint reflects an all-in ROE of 10.82%, and the reserve for the second complaint reflects an anticipated all-in ROE of 10.2%.

This reserve was triggered by the FERC ALJ's initial decision on the second complaint issued in June of this year. We are expecting a FERC decision by the second quarter of 2017 for the second complaint.

Now, let's briefly review our 2016 guidance. Since we are through three quarters of this year, we have narrowed the 2016 earnings guidance range to $1.84 to $1.92 per share, which leaves the middle point still at $1.88 per share, consistent with the guidance we issued in November 2015.

As you look forward to the fourth quarter, I would like to remind you of a couple unusual negative drivers for the fourth-quarter 2015 earnings. First, fourth-quarter 2015 temperatures negatively impacted earnings by $0.04 per share, on a post stock split basis.

Also, we recorded additional reserves related to ATC in the fourth quarter in 2015, since the ALJ issued the opinion on the first MISO ROE complaint. And finally, timing of income taxes was a negative driver on the fourth quarter of 2015. These reminders should assist you with your estimation of the fourth-quarter 2016 earnings.

Slide 8 has been provided to assist you in modeling the effective tax rates for IPL, WP&L and AEC. On this slide, we estimate an Alliant Energy consolidated effective tax rate of 14%, which is 4% lower than our effective tax rate guidance, provided as part of the second-quarter call. The revision in the estimated effective tax rate as a consolidated entity is primarily the result of the Franklin County asset valuation charges recorded this quarter.

As I conclude my last earnings call remarks, I would like to extend my best wishes and thanks to all of the analysts, investors and employees. It has been a pleasure working with and getting to know all of you. I'm very proud of how this Company has evolved over the last 36 years, and all of you have been instrumental in making this journey memorable and successful.

Thank you. I will now turn the call over to Robert to review the financing plans and regulatory calendar.

Starting with our financing plans, our current forecast reflects strong cash flows, given the earnings generated by the business, and impacts of the extension of bonus depreciation deductions through 2019. As a result of the five-year extension of bonus depreciation, Alliant Energy currently does not expect to make any significant federal income tax payments through 2021.

With additional tax payment reductions expected after 2021, due to the additional wind investments included in our plans, 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 federal income tax returns over the next few years. 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 issue approximately $25 million of new common equity through our share owner direct plan. We have completed the long-term debt issuances for 2016, which included issuing long-term debt of $300 million at IPL and $500 million at our non-regulated businesses. $310 million of such proceeds were used to refinance the maturity of term loans at our parent and non-regulated businesses.

Our 2017 financing plan assumes we will issue up to $150 million of new common equity, as well as long term debt of up to $250 million at IPL, and up to $300 million at WPL. We may adjust these plans as being prudent, if market conditions warrant, and as our debt and equity needs continue to be reassessed. As we look beyond 2017 our equity needs will be driven boy the Riverside expansion project, and renewable investments in our capital expenditure plan.

Our forecast assumes that the capital expenditures beyond 2017 will be financed by operating cash flows, and a combination of debt and new common equity. Our intent is to maintain the capital structures at IPL and WPL, consistent with the most recent retail base rate case decision.

We have several current and planned regulatory dockets of note for 2016 and 2017, which we have summarized on slide 9. For IPL, our permit applications for the Clinton natural gas pipeline and the up to 500-megawatt Iowa wind investment, have been approved. Later this quarter, we plan to file a request with FERC to transfer the Franklin County wind farm from Alliant Energy Resources to IPL.

We anticipate receiving a decision on this request prior to our Iowa Retail Electric filing anticipated in the spring of 2017. We expect to file the next Iowa Retail Gas base rate case in the second quarter of 2017.

For WPL, we filed our 2017 and 2018 Retail Electric and gas base case, which resulted from collaboration with the Citizen's Utility Board, the Wisconsin Industrial Energy Group, and PSEW staff. This filing includes new pricing options, and an increase in the fixed charge component of tariffs. We anticipate a decision from the PSEW by the end of this year, with new rates effective January 1, 2017.

Finally, I would like to update you on the information we plan to share during the year-end call. Typically during the third-quarter call, we provided our following year's earnings guidance. 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.

We very much appreciate your continued support of our Company, and we look forward to meeting with many of you at the EEI Finance Conference next week. As Pat mentioned, the presentation for this event has been posted on our website this morning. At this time, I'll turn the call back over to the Operator to facilitate the question-and-answer session.

(Operator Instructions)

We have a question from Brian Russo with Ladenburg Thalmann.

Sorry if I missed this earlier, but the 7% dividend growth target in 2017, how does that translate into your targeted pay-out ratio?

Sure Brian, we're still at our targeted range of 60% to 70%, and you'll get more clarity on the answer when I release the earnings guidance at the year-end call in February.

Understood. So I know you aren't giving 2017 guidance. But could you put that in context, is that at the higher or the lower end of the range? Or just comfortable within?

Brian, I'll have to leave it where I answered it, I'm sorry.

Understood. And then in terms of the post 2017 capital needs, should we think about the timing of equity, more with the timing that some of the large-scale projects are commercially operational, or is it just more so your target capital ratios at the utilities?

I'll ask Robert to respond to that.

Good morning, Brian. What we're doing, is we're targeting capitalization ratios that are consistent with our rate case decisions for both IPL had and WPL. And so the equity needs beyond 2017 are largely going to be driven by the capital that we need for the Riverside expansion, as well as the wind investments that we're proposing. During construction, so won't actually be towards the end of the cycle, which is in the 2019 2020 time frame. We will need some, most likely equity, before that.

Got it okay and you mentioned the C&I customer sales and growth. Can you just maybe elaborate on which industries you're seeing strengthen?

We're seeing some across the board. What's important here is it's more a reflection of maybe adding a second or third shift. We're seeing some expansions relaxing any new companies coming into the service territory, but we do have the benefit of seeing some benefit across various SIC codes. But as I stated, it's more in Wisconsin than in Iowa, at least for 2016.

Got it. And could you tell us what the weather impact to earnings were, versus normal in the third quarter?

What we saw, this is Robert. What we saw in the third quarter is actually a $0.02 increase of our earnings as a result of weather in the third quarter. Actually for the year to date, we're about $0.01 ahead of forecast through the first nine months.

Okay great. Thank you very much, and Tom, best of luck in the future.

Thank you, Brian.

Brian, see you next week.

And 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 11, 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. We all thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions.

Thank you, and that does conclude today's conference. Thank you for your participation. You may now disconnect.