Alliant Energy Corp (LNT) 2018 Q2 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's Second Quarter 2018 Earnings Conference Call.

(Operator Instructions) Today's conference call is being recorded.

I would now like to turn the call over to your host, Susan Gille, Manager of Investor Relations at Alliant Energy.

Good morning. I would like to thank all of you on the call and the webcast for joining us today. We appreciate your participation.

With me here today are Pat Kampling, Chairman and Chief Executive Officer; John Larsen, President; and Robert Durian, Senior Vice President, CFO and Treasurer; as well as other members of the senior management team. Following prepared remarks by Pat, John and Robert, we will have time to take questions from the investment community.

We issued a news release last night announcing Alliant Energy's second quarter financial results and reaffirmed the consolidated 2018 earnings guidance issued in November 2017. 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 references to non-GAAP financial measures. A reconciliation between non-GAAP and GAAP measures are provided in our quarterly report on Form 10-Q, which is available on our website at www.alliantenergy.com.

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

Thanks, Sue. And good morning, and thank you for joining us.

I'm first going to give you the headlines of the quarter and then discuss a few recent events. After my remarks, John will provide updates on several of our key strategic priorities, and then Robert will provide details on our financial results and highlights of our regulatory schedule.

So for the headlines. First, we achieved another solid quarter of performance, including benefits from weather. Second, we are reaffirming our earnings guidance range, and based on our year-to-date results, we are turning towards the top half of the range. Third, we announced our financing plans for 2019, which includes issuing up to $400 million of new common equity. And fourth, things are really busy here, but everything is going well.

Let me now speak to some recent events. On Thursday, July 19, an EF-3 tornado tore through Marshalltown, Iowa, causing catastrophic damage to the downtown business district and many homes and businesses around it. Needless to say is that most of this town's 27,000 residents -- with damaged homes and businesses and without electric and gas service, it was a true miracle that no one was killed or seriously injured. We were so thankful that our Marshalltown Generating Station operations center and training center were not damaged, so our employees were able to immediately begin the restoration efforts. With the sheer dedication and determination of our talented teams, they replaced 200 poles, strung many miles of wires and restored power to over 10,000 electric customers and nearly 5,000 homes in under a week.

The local support of our crews has been tremendous. We greatly appreciate the patience of our customers, especially as they are dealing with their own damage. We are working closely with our customers and the various agencies in Marshalltown to help the area recover as soon as possible. The total cost of our restoration efforts will not have a material impact on our third quarter results.

And last week, we announced our agreement with NextEra Energy to shorten the term for the purchase power agreement for the Duane Arnold Energy Center by 5 years, with the new expiration date at the end of 2020. Details of this agreement can be found on Slide 2. The savings will flow back to customers, and they are significant. Starting in 2021, customers will save approximately $40 million annually, which translates to a $42 per-year reduction in a typical residential customer's bill.

This agreement not only allows us to pass these things onto our Iowa customers, but it also includes 4 new PPAs from NextEra, increasing our wind energy in Iowa. It was important to us that we replace one emissions-free resource with another. Including this additional wind, we estimate renewables will make up over 40% of our Iowa energy mix in 2021.

Alliant Energy did initiate a docket with the Iowa Utilities Board requesting recovery of the onetime $110 million buyout payment to NextEra. The request includes earning a return on the payment at our weighted average cost of capital. We expect approval before year-end. And based on our resource planning forecast, this agreement does not increase our generation resource needs.

And the last item I want to mention is that yesterday, we launched our 2018 corporate sustainability report on our website. This report reaffirms our commitment to provide economical energy in a sustainable manner and also shows our alignment with the United Nations' Sustainable Development Goals. The 2 key items to note include: Our plan includes retiring our remaining coal facilities by 2050, a reduction in our carbon emissions from our 2005 levels of 40% by 2030 and 80% by 2050. And renewables will be nearly 1/3 of our total energy mix by 2030. I encourage you to review the report and see the progress we've already made towards creating a better tomorrow for our customers, community and investors.

I'm excited about our achievements so far this year. Our team will continue to focus on the following goals for our company in 2018: complete our large construction projects on time and at or below budget and in a very sustainable and safe manner; advancing cleaner energy through additional wind -- additional fossil plant retirements, completion of the West Riverside Energy Center and substantial investments in wind energy; deliver on our 5% to 7% earnings growth guidance and a 60% to 70% common dividend payout target. And we will continue to manage the company to strike a balance between capital investment, operational and financial discipline and cost impact to customers.

With that, I will turn the call over to John to provide updates on several of our key strategic priorities.

Thanks, Pat. Well, good morning, everyone.

Our results this quarter reflect increased earnings due to warmer-than-normal temperatures. I'm pleased to report that our generating fleet operated very well, responding to the increased demand for energy.

In the month of June, our Riverside and Marshalltown natural gas plants experienced capacity factors above 70%. And for the quarter, our generated energy was 45% higher than second quarter 2017. Higher margins due to increased generation lowers customer fuel costs. Controlling customer costs is always top of mind.

As we shared with you last quarter, the Iowa Utilities Board approved our request to construct 1,000 megawatts of wind generation for our Iowa customers. Not only are we partnering with customers and communities [to site] this wind, but we are sourcing materials locally as well. We are progressing towards our plan to have 470 megawatts of wind generation placed in service in 2019. At our first site, Upland Prairie Wind Farm in Clay and Dickinson counties, powers have been delivered and construction is underway. The turbine blades are fabricated in Newton, Iowa. At our second site, English Farms in Poweshiek County, we anticipate tower deliveries and start of construction in the fourth quarter of this year. The towers for these 2 sites will be constructed in Newton, Iowa and Clinton, Illinois. Also, we have finalized and announced the site selected for the remaining 530 megawatts of the approved wind, which are expected to be placed into service in 2020.

We intend to provide additional renewable energy for our Wisconsin customers as well. In May, we filed a plan with the Public Service Commission of Wisconsin to build a 150-megawatt wind farm in Kossuth County, Iowa, an area with consistently strong wind resources. We anticipate a decision from the Wisconsin commission in the first quarter of 2019. This will allow us to put the wind farm in service by 2020, qualifying for 100% production tax credits which will provide cost benefits for our Wisconsin customers.

We are making solid progress on the construction of our West Riverside Energy Center in Beloit, Wisconsin. This 730-megawatt combined-cycle natural gas facility is over 40% complete. It's on time, on budget and expected to be placed into service by the end of 2019. All major pieces of equipment are on site, and we have over 500 skilled workers safely constructing this highly efficient generating facility. The West Riverside facility is the main rate base addition to the WPL retail rate review settlement for 2019 and 2020, which was approved by the PSCW yesterday.

Settlement details are provided on Slide 3. The settlement holds electric and gas customer rates flat through 2020. Our ability to hold customer base rates flat while bringing the West Riverside facility into service is a result of our success at controlling operational and fuel costs, along with returning benefits from federal tax reform to our customers.

Thank you for your interest in Alliant Energy. I will now turn the call over to Robert.

Thanks, John. Good morning, everyone.

Yesterday, we announced second quarter 2018 earnings of $0.43 per share compared to $0.41 per share in the second quarter of 2017. The key driver for the $0.02 increase was higher electric sales to residential and commercial customers caused by warmer-than-normal temperatures in May and June in the upper Midwest. Additionally, we are pleased by the strength of the industrial sales in the second quarter, which grew 2% year-over-year. These sales increases were partially offset by the timing of income tax expenses and timing of costs incurred at our generating facilities in the second quarter.

We provided additional details on our earnings variance drivers for the quarter on Slides 4 and 5. Through the first half of 2018, temperatures in our service territory have increased Alliant Energy's retail electric and gas margins by approximately $0.07 per share. Due to WPL's earnings sharing mechanism, we currently expect a majority of the higher margins resulting from temperature impacts at WPL will be given back to our Wisconsin customers. As a result, the year-to-date temperature impacts, net of our reserve for WPL's earnings sharing mechanism, are estimated to be a $0.05 per share increase in margins.

With another quarter of solid earnings, we have reaffirmed our full year 2018 earnings guidance range of $2.04 per share to $2.18 per share. Due to the increased margins from temperatures in the first half of the year and assuming normal temperatures in our service territory for the remainder of the year, our full year earnings forecast is trending towards the top half of our earnings guidance range.

Slide 6 has been provided to assist you in modeling this year's effective tax rates for Alliant Energy and our 2 utilities, including the impacts of federal and Iowa state tax reform and the tax benefit riders, we estimate a consolidated effective tax rate of 12% for 2018.

Moving to our financing plans, which we have summarized on Slide 7. Our 2018 financings are progressing according to plan. During the second quarter, we completed the issuance of $1 billion of debt at Alliant Energy Finance and used the proceeds to retire $595 million of term loans maturing in 2018 and to reduce commercial paper borrowing. Through July, we have completed approximately 2/3 of the $200 million of new common equity issuances planned for 2018. Lastly, we still plan to issue up to $600 million of long-term debt at IPL later this year, with $350 million being used to refinance maturing debt and the remainder to fund IPL's wind expansion program.

As we look to 2019, our plan includes issuing up to $400 million of new common equity, up to $500 million of long-term debt at IPL and up to $400 million of long-term debt at WPL. This 2019 financing plan is driven by the robust capital expenditure plans for the utilities, regulatory decisions on delivering tax reform benefits to our customers and the recently approved increase in WPL's common equity percentage by the PSCW. These 2018 and 2019 financing plans support our objective of maintaining capital structures at our 2 utilities, consistent with our most recent regulatory decisions. We will adjust the financing plans if market conditions warrant and as our external financing needs are reassessed.

Lastly, we have included our regulatory dockets of note for 2018 on Slide 8. Our regulators have issued several constructive decisions, so far, this year that support our wind expansion program and authorized us to provide our customers 2018 tax reform benefits with billing credits. These recent regulatory decisions and regulatory filings are important components of our near-term operational and financial results.

We very much appreciate your continued support of our company and look forward to meeting with many of you over the next several months.

At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session.

(Operator Instructions) Our first question comes from Nicholas Campanella with Bank of America Merrill Lynch.

So I was just curious. Can you give us an idea of where the $400 million of equity for '19 puts you in terms of your consolidated cap structure or the consolidated for the debt metrics?

Yes, sure. I appreciate the question. Maybe to give just a little bit of background as to the '19 equity and what drove that at the $400 million level as a little precursor. So first off, there's really 3 key drivers to the new equity in 2019. First is the robust capital expenditure plans over the next couple years, led by the wind expansion program in Iowa and the West Riverside natural gas facilities in Wisconsin. The recent IUB decision approving the second half of the 1,000-megawatt wind expansion program at IPL solidifies our need for that 2019 equity to finance the wind expenditures. Second, so our 2018 and 2019 financing plans have also been impacted by the regulatory decisions in the second quarter by our 2 state commissions authorizing billing credits for the customers for the federal tax reform benefits. We've decided not to adjust our 2018 equity plans to finance these lower cash flows but instead catch-up the equity components of these lower cash flows for 2018 and 2019 with the 2019 equity plan. And third, we've adjusted our 2019 equity plans based on the new capital structure at WPL that was approved by the PSCW yesterday. The new capital structure at WPL reflects a higher equity percentage. And we'll issue common equity in 2019 to achieve that higher equity percentage at WPL, beginning in '19. So with the new equity in '19, we're still going to be within that 40% to 45% common equity ratio that we target at the consolidated level. And for the FFO-to-debt, we're probably in the mid-teens, is how I would characterize it.

Got it, okay. And then with the capital program itself for the wind kind of scaling down to probably more of a normal run rate here post the in-service dates, is it safe to assume kind of minimal equity in 2020 onward? Or how would you kind of characterize your ongoing needs ex big capital projects?

Yes. So we're -- as we probably told you guys on the road, we're reevaluating our capital expenditure plans beyond 2019. And we'll give you a better look at that when we get to the November meeting. And so I would say it's to be determined yet because it's still in flux, but we are also pursuing higher equity layers in our Iowa regulatory capital structure. And that decision most likely won't be until probably sometime in the 2019 or 2020 timeframe, so that's still yet to be determined. And finally, we have still decisions regarding the tax reform benefits beyond 2018 that need to be decided by our regulators. And so all 3 of those factors will likely need to be determined or factored into what we're going to do for future equity issuances, so you need to give us a little more time to sort through that. And we'll give you some more information, if not later this year, sometime into 2019.

Awesome. Just one last question, on the Iowa rate proceedings that are going to be coming up here. How do you think about forward- versus backward-looking test year there given the new legislation for Iowa?

Yes. So the legislation has been passed in May, but we're still working through the procedures on how the filings will work for a future test period. That'll probably take through maybe the end of this year, into early next year. So we -- probably we'll have a better sense of that when we get closer to the next regulatory filing date, which we're targeting right now to be probably sometime in early second quarter of 2019, with the first round of wind expansions that we're targeting.

And we'll take our next question from Andrew Weisel with Scotia Howard Weil.

First, what's probably going to be a quick question here, the corporate sustainability report. Appreciate all the detail, and some pretty ambitious targets. At least through the next decade, is that consistent with the CapEx outlook that you've previously planned? Or might we see changes in the near term relative to plans through 2050?

No, that's a good question. No, it's consistent with our current capital plans and also our strategic plan that's been out there for the last couple of years. We've just really firmed up our statements.

Okay, great. That's what I figured. Next question is on wind. How do you think about the potential for up-rates of existing assets to get additional PTCs? I believe that was part of a new Iowa legislation to get advanced rate making, right?

Yes, the -- this is John. Certainly, that's another part of the law that was passed back in May that the details are still being sorted out, but we do see that perhaps opportunity down the road for some wind up-rates. But that's still really a work in progress for us.

Is there a scenario where you'd be able to get that in time to qualify for the 100%? Or might it be something more like one of the scale-down things for -- to follow in a few years?

I think the latter.

Okay, got it. And one last one, if I may, on solar. Obviously, you guys are much more focused on wind. Some of your neighbors have been looking to jointly develop solar. Any thoughts on why maybe that didn't work out for you and your customers and sort of how you view solar as part of the plan going forward?

Sure, Andrew. We just have such a great opportunity with wind we focus on that first. We're good at wind. We know how to do wind, so that was our top priority. There is definitely a role for solar. We do have several solar funds in our service territory already that were -- I'd consider they're more R&D for us. They're all slightly different. And there's a picture of them in our investor deck. But that's something we're still evaluating, as everybody needs to, especially as the cost of solar technology declines.

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 August 10, 2018, at (888) 203-1112 for U.S. and Canada or (719) 457-0820 for international. Callers should reference conference ID 4175543 and pin 9578. In addition, an archive of the conference call and a script to the prepared remarks made on the call will be available on the Investors section of the company's website later today.

Thank you for your continued support of Alliant Energy. And feel free to contact me with any follow-up questions.

And this does conclude today's conference. We thank you for your participation.